Expect Greater International Financing SchemesWed, 02/22/2017 - 15:42
Buenavista Renewables is a renewable energy developer founded just three years ago but it has already scored a first for Mexico’s solar energy industry: Chihuahua-based Los Santos Solar I is a utility-scale solar park that will supply energy to private off-takers via a long-term PPA. To develop the project, the company used an international financing scheme it believes will become more common in Mexico. “The financial model we selected for Los Santos Solar consisted of a contract with a number of US banks that included a 20- year dollar-denominated PPA, an 18-year financing scheme and a long-term equity stake to a Korean entitiy,” says José Ruiz, CEO of Buenavista Renewables. “The financing method we used in Los Santos I is the most common method for financing renewable projects internationally and we expect to see similar cases emerging in Mexico soon.”
The 13.5MW Los Santos Solar I, the first phase of a project that will supply energy to industries, commerce and public off-takers, received US$40 million in financing from the North America Development Bank (NADB) and the Overseas Private Investment Corporation (OPIC). It will provide energy to 12 schools of the La Salle group and one manufacturing plant belonging to German cable and cable systems company Leoni Cable. OCI Solar Power was Buenavista Renewables’ partner and contributed with capital and technical support.
Buenavista Renewables, a company providing financial and technical expertise to develop renewable and conventional energy projects with a particular emphasis on Mexico, was created with the purpose of closing the gap in renewable project financing, particularly in emerging markets and selected island economies. “We define ourselves as a finance-oriented company with expertise in the development of renewable energy projects. Our objective is to develop projects that get to the finish line and are financially sound to investors and banking institutions,” Ruiz says.
Even with its broad experience in project financing, Buenavista Renewables faced several challenges in closing the Los Santos Solar I deal. “We experienced challenging situations with the interconnection agreements, the environmental impact assessment and the financing scheme, particularly as banks had never financed a private solar project in Mexico before,” he says. “In the end, we got a club deal in which the capital and support of our partner, OCI Solar Power, was a critical component,” says Ruiz.
Another crucial factor for obtaining private financing was the selection of the project’s major service providers. “When you are dealing with banks, all of these details can make the difference between getting funded or not,” he says. “In Los Santos Solar I we used a leveraged scheme, meaning the debt component was highly significant in comparison with the equity. In this case, we evaluated the bankability reports of our main component suppliers, which were supported by a third-party engineering firm that analyzed their manufacturing plants and products independently,” Ruiz says. “Additionally, we assessed their balance sheet, the degree of diversification, quality certifications and experience in the industry because all these aspects have considerable impact on the risks associated with external suppliers.”
Off-takers’ awareness of the importance of establishing financially sound long-term PPAs was also crucial for the project’s success. “For instance, Leoni Cable has a 20-year plan for its Mexican subsidiary, highlighting the importance of guaranteeing a stable LCOE for its future operations. Unfortunately, this strategy is uncommon in Mexico, where most companies tend to focus on the initial rates,” he says.
To address this, Buenavista Renewables has designed services for off-takers. “We can help companies decrease the volatility risks associated with electricity prices by tailoring projects suitable to their energy needs, considering the seasonality of the industry and the client’s resources,” Ruiz says. Mexico is Buenavista Renewables’ main market, representing 60 percent of the company’s ongoing business. It is also looking at opportunities in South America and South Asia. “As a medium-sized company, we want to focus on projects with the potential to increase our market reach, prioritizing challenging regions usually ignored by bigger firms."