Sergio González
Director General
Renovalia Mexico
/
View from the Top

How to Become a PPA Expert?

Mon, 02/25/2019 - 17:06

Q: What is Renovalia’s greatest contribution to its regional clients in Mexico?
A: Renovalia’s contribution is the generation and commercialization of energy in the country. Our two operational wind farms, Piedra Larga I and Piedra Larga II, provide energy to companies like Bimbo and Walmart that, thanks to Renovalia, have considerably reduced their energy consumption. Renovalia’s greatest contribution to its customers is the offer of energy at competitive prices compared to other suppliers. The company’s success in Mexico is because we are a small business and we develop our PPA transactions very quickly compared to other companies that tend to be bureaucratic. Another added value is that the company’s team in Mexico, from technicians to constructors, is comprised of people with a great deal of experience in their fields. Finally, Renovalia’s social approach allows us to recognize the needs of the communities where our wind farms operate and to support them. This was the case with the Piedra Larga II project in Hidalgo. Renovalia is the first and only company to build a wind farm in the Isthmus of Tehuantepec without having to face a single blockade during a year and a half of construction.
Q: What was Renovalia’s motivation to start business in Mexico after the Energy Reform?
A: In 2008, Spain changed the guidelines for renewable energy’s production and sale. This increased the complexity of building wind farms and pushed associated tax rates higher, while reducing revenues for developers. As a result, it no longer made sense to continue growing there. We looked at the possibility of operating in countries like Italy, Hungary and Mexico. We chose Mexico when the Piedra Larga opportunity arose due to the amount of wind resources in the region and because Renovalia knew that it could offer a cost-efficient solution to the private sector. Mexico represents an attractive business opportunity for the renewable energy sector. Renovalia’s different financing schemes has allowed us to adapt to the lower price packages derived from Mexico’s long-term electricity auctions.
PPAs or financial transmission rights are other products of the Energy Reform that have performed well. However, contrary to common opinion, the low energy prices resulting from the auctions have not made the sale of energy more affordable. There is almost no difference between the sale prices of energy in 2014 compared to today. Therefore, Renovalia’s strategy will focus on signing PPAs and other more flexible financial products, rather than on participating in the auctions.
Q: What are the main projects that Renovalia wants to develop in Mexico?
A: Prior to 2014, Renovalia researched the Mexican market to analyze the possibility of developing mini-hydro projects below 20MW and found that their implied performance made them impractical. Renovalia has been operating these types of projects in Spain for several years. However, while it is well-known that certain factors in Mexico, such as social sentiment, hinder the development of wind and solar projects, in the case of hydroelectric power the complications are even greater. Renovalia understands that building mini-hydroelectric plants could affect indigenous communities because it involves moving or stopping the flow of rivers in certain areas. Therefore, we only want to get involved in projects that are both beneficial for the company and for the communities where they are developed.
Q: What message would Renovalia give to developers that are seeking to sign successful PPAs?
A: Every PPA from 2008 to 2014 has had a positive performance. In the case of the new PPAs, our recommendation would be that companies understand the current conditions and the clients with whom they plan to work. It is vital to adjust the economic model for each client. In general, developers should be surrounded by people with a great deal of expertise when it comes to signing PPAs. Our message to the new government is to have greater involvement in states like Oaxaca to generate successful projects.