Focus on the Project, not the Numbers

Q: What is the main financial added value that Balam Fund offers the energy industry?

A: Balam Fund is an infrastructure fund that also invests in renewable energy projects. It is one of the few market players that has implemented a differential strategy in terms of investment. By developing projects on a full equity basis, the company adapts much better to the needs of off-takers. The result is that contracts are closed and construction started more rapidly compared with many players that close a PPA and then spend subsequently 4-6 months arranging the details of the financial structure. Regarding the long-term electricity auctions, we decided to take a different approach, employing merchant financing. In 2016, Balam Fund became one of the first funds to invest in the construction and operation of a merchant project. Under this scheme, the project first sold energy to CFE at marginal prices and now it is directly selling energy in the market. At the time, this was the largest solar project in Mexico, with a 40MW capacity on a full equity basis. Many investors and developers are now trying to implement projects under these conditions but our company pioneered this approach.

Q: How is Balam Fund positioned in Mexico’s renewable energy segment?

A: Balam Fund was created in 2013 by BK Partners alongside The Rohatyn Group after winning a public bidding process structured by Banobras through the National Infrastructure Fund. This resulted in the issuing of the first green fund in Mexico. Prior to this, the management of Balam Fund worked over 10 years on the financing and operation of renewable energy projects for third parties in 10 countries. We have a very good track record in M&A processes and project finance but our main expertise is in operations. The company has operated close to 2GW in the solar and wind segments. Regarding investment, Balam Fund currently have four projects in Mexico that total 500MW of installed capacity. Three of these employ solar PV technology and were developed on a full equity basis. Two projects are in the operational phase and the third started construction in 4Q18. It will start operations in July 2019. The last project in our portfolio is the Eólica del Sur wind farm, located in Oaxaca. Balam Fund holds 50 percent of the facility while the remaining 50 percent is controlled by Mitsubishi Corporation. It has an installed capacity of 400MW and entered the operational stage in 4Q18.

Q: What key points should companies willing to finance a project focus on?

A: We are in a very good position to offer different investment vehicles. This gives us the ability to match the investment vehicle to the investment in a way that best suits the project. Companies should not think of project finance as the goal. Efforts should be directed to finding a good project, analyzing potential revenues and the project’s resilience in order to implement the best structure. Each project is different, each revenue stream is different and I think companies should try to think outside the box when structuring a project. The money is there and if it is a good project it could be financed from a private equity fund or through banks with the objective of reaching COD.

Q: What main goals does Balam Fund want to achieve by the end of 2019?

A: Regarding the company’s business development, Balam Fund is working with alternative strategies for merchant and self-supply projects. Participating in future editions of the long-term electricity auctions is also on the table. We want to consolidate our portfolio by acquiring additional capacity to create a bigger platform.