Experience, Riverstone Partnership Drive Push for GrowthBy Cas Biekmann | Wed, 09/15/2021 - 10:00
Q: How has the company’s 10MW portfolio evolved over the past year?
A: Energía Real had a different focus in the past year, so its portfolio did not grow by much. Instead, we stabilized our portfolio and made sure everything was operating. Toward the end of 2020 and in early 2021, we started growing again, closing 10MW of new deals. These included a large industrial off-taker and other large Requests for Proposal (RFP). The portfolio did not grow past 20MW, including the new 10MW under engineering and construction, because we focused on stabilization and fundraising. Both have been a success.
In regard to which business segments have experienced the most demand, many large offtakers are now focusing on distributed generation (DG) and beginning to run their own competitive business processes. Industrial players involved in manufacturing and warehousing, as well as some real estate platforms like hotels, are driving these processes. One of our added values is that the majority of Energía Real’s partners have experience in real estate. One of our priorities has been to tailor products to their needs directly. We know how to operate real estate assets and that is important to those who own large-scale real estate.
Q: How will Energía Real’s new partnership with Riverstone Holdings help to consolidate the company’s position in the market?
A: This partnership helps to consolidate our energy expertise. Riverstone has developed all types of energy platforms around the world, so this gives us a close partner to rely on. It ensures we are innovating in Mexico’s energy sector. All the equity and capital that we are raising with them should solidify our position as the main financing option for DG in Mexico. We want to be the go-to power purchase agreement (PPA), leasing and financing option in the market and I believe there is a huge market out there, full of C&I clients that need a partner to provide them with financing. Companies favor liquidity more than anything else, especially in these times. What is more, Riverstone is an agile and pragmatic partner, meaning we can grow responsibly to our target of 500MW. Our goal is to achieve this within three to four years. This will require around 4 million square meters of rooftops.
Q: How is the company planning to manage installations and O&M?
A: To continue growing, we will always rely on strategic installation partners. We want all the EPC and installation companies in Mexico to know that we are a source of capital for them. We partner closely with these companies and try to add value by providing feedback on how to improve installations and how to bring further best practices to the table. We are asset owners, so we involve ourselves in the quality of how assets are installed. We do not like to skip any steps in the process.
In regard to our day-to-day operations, maintenance and management, we are building an in-house team and creating a software plan so that we can tailor our PPAs to the demand of the customer. We already created a special PPA billing software a while back and are strengthening this further in our effort to spearhead innovation in PPA portfolios.
Q: How do you approach the need for flexibility in PPAs?
A: Energía Real provides flexible PPA terms. We try to understand the needs of our customers to determine if they require a longer-term contract with a lower rate or if they are interested in the asset itself. If this is the case, we offer a shorter-term PPA and at the end of the term, they can keep the asset. Tailoring the solution based on these needs is a core focus. Our PPAs and terms are overall rather cut and dried but we do have flexibility once we understand what our client truly needs. Today, offtakers are much more aware of energy and PPAs than they were four years ago, which is great. This makes the educational part of a sale much easier and faster because it allows us to speak plainly and avoid any confusion.
Q: How does Energía Real interpret the potential effects on the growth of DG in Mexico now that prices for solar panels have increased?
A: The company is used to volatile prices and exchange rates; this is part of the business. We try to help our installers and EPCs to lock down prices but the reality is that we are not worried at all. It is merely the sector’s dynamics and we see it as short-term flux. The PPAs that the company is signing at this moment will not be affected by the situation. Customers are very pro-DG now and understand that the utility-scale model has been successfully challenged in the past few years. They are eager to get deals done as a part of their broader focus on sustainability and are reasonable when a short-term price increase occurs. They know it is not unusual.
I think DG will hit its predicted 5 percent of installed energy capacity sooner than expected by the government. Mexico’s conditions are perfectly aligned with this and investors like Riverstone entering the market will help this kind of energy take off even faster. Our own projected growth speaks volumes about where C&I-based DG is going. Additionally, the government’s policy appears to favor DG, even though items on the wish list, such as increasing DG’s unregulated cap size or community solar regulation, are still pending. Even if we do not see any of these items realized, DG will still be successful.
Energía Real focuses on solar development in the C&I sector. The company generates its own energy via distributed generation and markets it directly to offtakers.