Helping Clients Produce On-Site Power with No Financing Burden

Q: Why should potential clients in the C&I segment choose Capwatt based on its value proposal?

A: One of the main benefits Capwatt brings to the table is experience, especially in cogeneration and solar technologies, which are our strategically strongest cards in Mexico. We have over 30 years of experience in operating power plants in Portugal and we brought this know-how to Mexico. The cogeneration technology has not taken off in the country, despite it being a higher efficiency producing technology, and there are several reasons for this. While large cogeneration projects have been executed by big companies, medium or smaller power plants have been at a disadvantage because financing such projects has been almost impossible due to the lack of interest from financial entities. Nevertheless, Mexico has great potential for such cogeneration projects because it has a great deal of industry and experiences optimal conditions when it comes natural gas supply, as well as high regular electricity rates.

One of Capwatt’s other strong suits is that we take on projects from start to finish going from design, development, finance and construction, to operations and maintenance. We design projects to be optimally efficient for our clients, rather than a one-size-fits-all solution. We manage to raise all the necessary funds to develop the projects, while being flexible to adjust ourselves to the needs of our clients, allowing us to get projects done. It has been a successful approach, although developing energy projects naturally takes quite some time. Capwatt signed its first contract earlier in 2020 and expects to sign a few more this year. COVID-19 has made it harder to sign contracts but we were still able to obtain results because of our value proposition.

Q: How does Capwatt finance cogeneration solutions for its clients?

A: We generally offer our solution through a long-term power purchase agreement (PPA) of about 15 years. The contract offers stellar protection but it is still simple enough for any company to truly understand it. Capwatt takes care of the financing, whether it goes through development or commercial banks or using our own funds. We do not want the client to worry about any financing issues, which has the added advantage that we do not lose any time with the project’s development. Financing can take many months but because the process only depends on ourselves, it gets fast-tracked. We design projects to be bankable, with the goal to increase our portfolio and make these projects interesting for financial entities as well.

Q: How can Capwatt help clients feel secure in addressing their energy supply through a cogeneration project?

A: It is always challenging to convince clients to sign a 15-year contract, no matter what you sell. It is simply a huge commitment. In our case, we demonstrate the statistical reality of our country. Recently, electricity rates have increased substantially. It appears that no matter how the sector develops, rates will continue to increase. In a long-term contract, you can illustrate what happened in the past decade and a half and how much money they would have saved by taking care of their energy supply.

We also discuss the current situation in Mexico. The regulatory reforms that are on the table will have a major impact if they move forward, likely increasing energy rates. Therefore, the best strategy for any industry is to be well informed about what could happen and take matters into their own hands. For instance, we can offer fixed rates for solar projects. This provides certainty on costs. For cogeneration, we link our offer to gas prices. However, gas prices are not what they were 10 years ago because they have dropped quite a bit. We can offer hedging to provide further certainty in this regard. Showing clients how the electricity market unfolds is challenging but when predictions come true, you can show clients what their real benefits could have been.

Q: What are the main advantages of Capwatt’s digital asset management solution?

A: This is a developing solution within the company. We had started with the usual control rooms monitoring power plants 24/7, as well as local teams that can address further issues. The platform, however, is accessible to everyone. Using a cellphone, users can see how much energy is produced on-site and what the conditions are. Our different profiles can select various amounts of information. It is an easy solution for clients to use and does away with the need to call control rooms for information. It is a perfect fit for the digitalized world.  

Q: Where do you see possibilities emerging in bioenergy across the Mexican market?

A: Capwatt recently purchased a company called ENC Power, which is active in Spain, Portugal and Mexico. It is now our bioenergy arm. This arm has a few projects running in Portugal and Spain. Furthermore, it has signed a couple of projects in Mexico. Developing bioenergy plants will allow Capwatt to play an important role in the circularity economy. We see a great deal of potential in the Mexican market with garbage disposal, which usually has several operational issues, releasing methane gas into the atmosphere as a result. Garbage pollutes merely by existing, which makes you question if something better can be done. Implementing solutions to turn this garbage into biogas would be very beneficial for the Mexican market. Most disposals are operated by municipal governments, which lack funding and knowledge regarding other solutions. Working through local governments and private companies, we want to implement bioenergy solutions.

Q: What are Capwatt’s main opportunities for the short term in the Mexican market?

A: Capwatt is looking at solar and storage projects in Mexico. Storage is interesting but it is not yet the best moment for it economically. However, this will change soon enough. Capwatt will mainly focus on cogeneration and solar at first, since these are the two technologies with the most potential. In fact, if all industries that could use cogeneration would decide to begin implementing the solution, Mexico’s cogeneration providers could simply not meet the demand. Our company is also analyzing some inorganic growth opportunities through M&As, acquiring useful assets for our balance sheet.

Capwatt develops and operates energy solutions. It is active in the Spanish, Portuguese and Mexican markets. The company’s focus for Mexico is on cogeneration and solar for the C&I area but it offers a wide variety of solutions, including bioenergy and energy storage.