Innovative Financing for Smallet Off-TakersWed, 02/24/2016 - 14:59
Q: How did Ilioss become a leader in rooftop installations with a project pipeline of over 500MW?
A: Ilioss has been successful with rooftop installation projects, with our most prominent deal being the one with Grupo Soriana. For that particular project, we installed solar panels on the roofs of ten stores in Baja California Sur, from which we are now generating and selling energy to Soriana. After this initial project, we have been entrusted to install solar panels in another 120 stores spread across the center of Mexico. The total installed capacity will then reach 32MW. When we carried out this project, we realized how difficult it can be to replicate it, but since Grupo Soriana is an AAA off-taker, it was easy to finance alongside Hanwha Q CELLS. We swiftly realized that financing does not exist for smaller companies, so we see a great area of opportunity there. To exploit this potential, we endeavored to find a financial associate and forged an exclusive alliance with Greenwood, which is part of the Libra Group. We now envision an investment of US$500 million over the next three years that will be allocated through different companies around the country. Over this time, we expect to reach an installed capacity of 300MW.
Q: What aspects make you confident about succeeding in this large-scale endeavor?
A: Until the Energy Reform, the Constitution did not allow for the sale of energy. Part of the strategy behind the Energy Reform is to reduce electricity prices through private initiatives. Our alliance with Libra Group is a step in this direction. When we began this business, the main barrier was that none of our customers wanted to invest US$2 million to save 10% on their energy costs, given the long-term ROI involved.
We therefore had to adapt our business model so that our clients would not have to make any upfront investment. We install our own equipment, which avoids any investment coming from the client. The only thing the client has to do is pay for the energy we supply at the agreed price as we take care of the maintenance of the equipment.
Q: How did Ilioss establish ties with Grupo Soriana, and what obstacles did it encounter in the development of the project?
A: This was the first PPA rooftop project of its kind to be seen in Mexico, so we had to collaborate very closely with Grupo Soriana and the authorities, over two years. However, this success story has now given us the expertise and knowledge to carry out other projects in Mexico. Another major advantage is that the final user receives tangible benefits. For example, when electricity is bought from CFE, it arrives to the commercial client at high or medium voltage, so it must pass through a transformer to reduce the voltage. During this process, 3% of the electricity is lost, which represents a loss for the company. If generated onsite, a company will benefit from 100% of the electricity.
The contracts we provide are focused on three main principles: clients need not invest, clients save money, and clients obtain certainty on their future energy costs while becoming greener. The third point is crucial, since when a long-term contract is signed, the cost of electricity is pre-established. Since companies in Mexico cannot predict their electricity costs, they are still hesitant to sign a 20- year contract, which is understandable when we see the fluctuation in CFE’s tariffs over time. In 1995, electricity costs rose by 40%, in 2008, they rose by 34%, and by 28% in 2011. If a company had signed with Ilioss in 1995, its electricity costs would only have risen by a pre-established figure of around 6%.
Q: How will Ilioss adapt its business model to smaller companies that may also want to become off-takers?
A: With smaller companies, it is difficult to obtain the financing, but we can overcome this hurdle through our alliance with Libra Group. Nevertheless, we have to apply some criteria when selecting potential customers. This is carried out in a similar way to a bank, as we analyze the client’s financial health in order to ascertain whether we can sell them energy. We can cater to clients that pay over MX$30,000 (US$2,000) on their energy bills and we can install from 150kW upward. At the moment, we are working with 200 companies in Mexico and we have established a large network of alliances in the main regions of the country. Since solar resources are not evenly spread across Mexico, we will focus on the areas with the best solar irradiation in order to offer better energy savings to our customers.