Generating the Most Competitive MwMon, 02/25/2019 - 14:15
Q: What is FRV’s primary contribution to Mexico’s PV sector?
A: FRV is a solar and wind power project developer, active since 2006 and present in Mexico since 2012. We are devoted to the country’s reformed energy industry. The company adjusted well to the Mexican market and new regulation, as well as the long-term electricity auction process, as showcased by the utility-scale project we won at competitive prices during the second auction. Our success is rooted in anticipating both market needs and market prices, adjusted to Mexico’s specificities. Parallel to that, we are looking to develop our asset management business line for operational projects, including financial and PPA management.
Q: How does FRV undertake successful project finance schemes?
A: A large share of FRV’s executive team has a strong background in project finance. Our team in Mexico includes two people dedicated full-time to financially structuring the projects FRV is involved in. Project finance is four-pronged: development, construction, financing and operation. Competitive projects call for comprehensive understanding of all four stages. Sound knowledge over EPC prices and future construction prices, strong asset management notions and effective risk mitigation are just a few elements required to make an energy project competitive.
Q: What financial entities are making their presence known in utility-scale projects?
A: In the particular case of our San Luis Potosi Solar PV park, we invited close to 28 financial entities to participate in the financial operations of the project through an RFP. The resulting banking pool was unexpected as both commercial and development banking institutions expressed interest in participating. It is worth underlining the vote of confidence from the two foreign commercial banks interested, KfW and ING. The latter was not involved in project finance prior to approaching us. This shows the attractiveness of Mexico’s utility-scale PV projects. On the development banking side, it was rewarding to have the support of Bancomext. In more general terms, commercial banking and equity funds work well within the merchant components of the electricity market. It has an inherently higher long-term risk but it can be mitigated by aligning offers to natural gas prices, considering Mexico’s electricity market leans heavily toward natural gas.
Q: Why did FRV outsource the construction phase of its 342MW San Luis Potosi PV project to TSK?
A: FRV designed a competitive RFP where more than 10 companies participated. We selected the one that complied with three critical conditions. First, local experience. A company that showcases an extensive portfolio of building and operating MW in Mexico is a primary component of what we were looking for. Second, extensive experience in large-scale PV plants. And third, competitive pricing. Each RFP is tailor-made based on the project’s specific requirements and its best EPC option available.
Q: What are FRV’s expectations for the future of the electricity auctions?
A: CRE is set to substitute the Ministry of Energy’s role in conducting the auction process, while CENACE will remain the auction’s operator. We expect few changes compared to the previous editions, considering CENACE’s team behind the long-term electricity auctions will remain the same and the exemplary work of the first three long-term electricity auctions will be reflected in any that take place in the future. FRV examined the fourth auction’s guideline draft prior to it being put on hold,. It had some operational changes that facilitate the process but in general terms, the essence of the auction remains so I predict no major changes in the future.
Q: Why is FRV diversifying toward wind power projects?
A: Wind and solar power share certain similarities. While the development aspects of the former are more complex, especially in terms of construction and asset management, the financing aspects remain closely related. It was a rather organic next step.