A Focus on Solar Development to Help Prevent Climate ChaosBy Cas Biekmann | Thu, 11/19/2020 - 10:30
Q: What is Solarcentury’s history and its relation to Mexico?
A: The company started about 22 years ago in the UK focusing on distributed generation (DG). Eventually, the company transitioned into the development of larger-scale projects. Soon after, Solarcentury began to diversity to reduce its risk, spreading out to different countries in the process. This included parts of the EU, as well as Africa and Latin America. During our expansion, we evolved our business model and adapted to the situation of the country we arrived in. Every market has its own particularities, after all.
Mexico is important because it has many energy needs, which attracted us to the market. The 2014 Energy Reform opened the door for the company. We arrived in Mexico in that year and started developing our first projects in 2015. These projects were large compared to those we were developing elsewhere. In many European countries, projects mostly tend to be under 50MW due to the scarcity of land. In Mexico, the situation is different because there is a great deal of space available.
Solarcentury has a pipeline of almost 500MW of projects that we are developing in Mexico. The company’s total global portfolio makes up close to 6GW. We developed two projects a few years ago: Viborillas in Jalisco and Cuncunul in Yucatan. These solar farms were awarded during the first long-term auction. We did a great job and were awarded the PPA contracts. The other projects are still under development and have not yet reached the ready-to-build stage. Developing projects is a complicated process anywhere in the world. In Mexico, it is even more complicated than in other areas so it takes several years to bring projects to more mature stages.
Q: How do you assess the government’s policy that favors CFE?
A: It is a complex situation. One common argument rings true in this regard: we need certainty to develop, build and operate projects that will last up to 30 years. You cannot develop a project with such a lifespan if the regulatory situation is uncertain and vulnerable to political changes. I would prefer the government make the proper changes in regulation, instead of keeping the framework the way it is and blocking the handing out of permits and approvals. This only makes the sector more complicated. We need clear rules to know which projects can move ahead. Nonetheless, I am positive about the Mexican market. I think eventually the government will realize that it is impossible to keep up with the energy demand by only using its own investments. It needs the private sector. This is being acknowledged by the likes of Morena’s Alfonso Romo, who said Mexico needs its private sector during the announcement of the private infrastructure investment plan.
Q: How will Statkraft’s acquisition of Solarcentury influence the future direction of the company?
A: Statkraft is Europe’s largest producer of renewable energy, focusing on wind, solar and hydropower. They have signed an agreement in early November 2020 to purchase Solarcentury. Together, I think both companies will be well-positioned to become one of the world’s leading clean energy companies. For Solarcentury, it is beneficial to have a larger balance sheet. Therefore, this new ownership made a lot of sense for our business development. In practice, Statkraft has purchased 100 percent of our company’s shares, with a total cost of US$154.42 million. We believe Statkraft is in the unique position to add value to our existing project pipeline of 6GW, as they aim to develop 8GW of wind and solar by 2025.
Q: Solarcentury reported positive financial results over the past year. How is the company faring in a potentially more challenging 2020?
A: Despite COVID, the company has continued to progress with development of new projects and we have continued with construction of more than 600 MWp in Europe, all with rigorous H&S standards. What we haveve achieved despite the pandemic has been extraordinary. Even though we are slowing down a bit in Mexico, Solarcentury was awarded the land for more thatn 1GW of potential solar projects and we expect to develop them in a couple of years. We plan to continue with our portfolio in Colombia as well. In all, we expect to deliver more positive results in the years to come.
Q: What sets Solarcentury apart when it comes to its social approach?
A: The company founded an NGO, SolarAid, which is part of commitment to having a positive social impact. SolarAid provides solar lamps to the most remote areas in Africa to eradicate kerosen and cooperates with hospitals and schools. Furthermore, by just doing our job, we generate a positive impact on the communities that surround our projects. We follow international best practices and we have applied them to our social and environmental impact evaluations. We try to stick to our values at all times and even changed the concept of climate change within the company. We now call it “climate chaos,” because we think it is a matter so urgent that it is no longer an issue, we need to prevent by changing our behavior. Rather, it is a form of chaos that needs to be avoided at all costs.
Q: How do you think the battery storage market will develop in Mexico?
A: I think batteries are the future. But just like any other technology, it needs to be financially viable before it can be adopted. The world is moving toward this stage: a study from BloombergNEF predicted this development in 2024. Batteries are evolving rapidly, so it might happen sooner. It is a trend to which every market will eventually need to adapt. In Mexico, a landmark project that incorporates battery storage already exists in Baja California.
An important issue to keep in mind is the price of energy. You would want to charge batteries when electricity costs are low and discharge them when the price is higher. With the prices that we have seen in Mexico’s market over the last couple of months, it might take a bit longer before these schemes become profitable. Nonetheless, batteries can be used for other purposes as well, such as stabilizing the system. If regulation moves along, it will only take a couple of years before we start seeing widespread deployment of batteries.
Q: What approach will the company take toward financing its projects?
A: In my opinion, projects are more likely to be financed if PPAs are signed beforehand. In the past, we saw some merchant projects but with energy prices falling, I do not think banks are willing to continue financing merchant projects. Therefore, PPAs are going to be necessary in order to successfully establish a project finance scheme. However, any player that does not need a bank and can arrange its own corporate financing is welcome to do so.
Q: What are the company’s goals toward 2020 and early 2021?
A: We want to continue developing the pipeline of almost 6GW that we have developed worldwide and take the projects to the ready-to-build stage, including those in Mexico. Considering the recent governmental policy changes, the situation is becoming a bit more complicated in Mexico. Regardless, we are confident that we will make it even if it takes more time. There are some potential projects the company analyzed before the pandemic started that have been put on hold to focus on our direct pipeline. We will see how business develops and when the dust settles, our goal is to continue with the development of these greenfield projects as well. It will take some years of work but we are confident that it will yield success.
Solarcentury is a leading private solar developer in the UK, with a worldwide presence. It has developed two projects in Mexico and several noteworthy solar farms around the world, with around 6GW in its development pipeline.