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Analysis

Focusing on Niche Markets in Mexico's Solar Industry

Wed, 02/19/2014 - 12:27

Until last year, Grupotec’s earnings in Spain were considerably higher than its profits from international markets. Nevertheless, as the economic crisis in Spain has deepened, this situation has shifted. Having identified the need to diversify, Grupotec started venturing into France, Italy, the UK and the US, among others, seven years ago. No less than 60% of the company’s income in 2013 came from international markets, with the main source being the UK. Capitalizing on its experience in Europe, Grupotec went on to open an office in the US, and later began projects in Ecuador, Chile and Mexico, which have led to significant growth for the company’s portfolio.

When Grupotec started in Spain, it would only participate in the engineering, procurement and construction of the project. It was not until it began operating outside of Europe that the company decided to venture into development. “We have experience in construction after building over 400MW in other countries and we are trying to take advantage of the opportunities that arise for us as developers. We have been working in Mexico for more than a year and we already have one project in our portfolio,” says Miguel Ángel Játiva, Managing Partner USA West and Mexico of Grupotec. Besides its excellent solar resources, the political stability of the country, the legal certainty and the fact that international funds invest their money in Mexico were some of the reasons Grupotec decided to venture into the Mexican market. “It is not only a matter of having a solar resource, legal certainty is also essential since these are long term projects,” explains Játiva.

Grupotec’s efforts are very much focused on its Baja California project, but Chihuahua and Sonora have also captured the company’s attention. “The strength of Mexico’s resources is reflected in the fact that the area in the UK that has the best solar resources has 40% less potential than the areas in Mexico with the least irradiation. Grupotec developed a project of 50MW in the UK where the irradiation reaches only 1,100kWh/m2 annually, compared to the 2,000kWh/m2 resource that exists in Chihuahua. There is a lot of potential in Mexico, but it is not unlimited. The technology is not competing with green 

energies, it is competing with subsidized electricity. There are not that many opportunities and it is wrongly believed that, due to the large quantity of resources in Mexico, over 20GW can be generated this way,” Játiva stresses. “Our main focus is on the commercial and industrial markets, even though we have detected an important opportunity with the DAC tariff. However, the market is getting flooded with companies seeking the residential opportunity.”

When financing a project, Grupotec considers the position of the off-taker and its credit rating. CFE’s advantage is that its off-taker is the Mexican government. Játiva believes that the company’s project in Baja California works because power generation in the area is limited, isolated and subject to high tariffs. In the rest of the country this scheme does not apply because, he argues, “energy is still too cheap. CFE pays 98% of what power generation costs for the company and that reduces the profitability of a project.” The company is using the same model that it uses in the US; if the off-taker is credit-worthy, Grupotec funds the project and the off-taker does not invest. On the other hand, if the off-taker does not have the necessary credit rating, Grupotec develops a turnkey project for the company but does not offer the resources to make it a reality.

In Játiva’s experience, utility companies resist renewable energy technologies because they view them as intermittent energy source that cannot be managed freely. “CFE is one of the biggest utility companies in the world and it has not completely understood this new market, not because it is not capable of doing so but because it is a completely new sector,” says Játiva. In his experience this has hampered the process of getting projects off the ground. When Grupotec approached CFE, the company had difficulty finding out who was in charge of the processes that it needed to follow. Despite these teething problems, he is confident that it is just a matter of time before CFE gets used to these projects and the sector starts to develop more quickly.

Grupotec is ready for Mexico’s coming solar energy boom. Játiva underlines that the company’s experience is what sets it apart from other companies operating here, although Grupotec says its real competitive advantage is the volume of solar panels it moves. “Economies of scale are a very important aspect that makes us more competitive, and we have established long term relationships with our providers. We guarantee security to investors, since we are beside our clients in the operation and maintenance of their equipment. We share our knowhow with them and verify that the plant is working correctly,” he explains.