Investor Education Crucial to Renewable FinancingBy Pedro Alcalá | Wed, 03/11/2020 - 15:49
The second panel discussion at Mexico Energy Forum 2020 on Wednesday at Mexico City’s Sheraton María Isabel hotel explored a subject that involved the interests of everybody in the room: how best to finance renewable energy projects, and how that process should change in the coming years.
This discussion was contextualized and anchored by the current oil price war and collapse in addition to corresponding global reevaluations of investing strategies by banks and companies in the energy sector. Panel moderator José Urteaga, Senior Energy Specialist at the Inter-American Development Bank, explicitly mentioned this context in his opening remarks, during which he cited the Mexican maya oil mix hitting an abysmal US$27 per barrel. At the same time, he tempered these implications with statistics that left clear the continuing dominance of oil and gas: of the US$1.8 billion invested worldwide in energy projects during 2018, close to 44 percent was invested in hydrocarbon projects. This illustrates the dire need for massive change in the way renewable energy projects are financed, Urteaga said. It is crucial for environmental reasons that these investments be triggered and facilitated as quickly as possible if the global economy is to remain “under the UN’s worst predictions in terms of rising temperatures.”
Green Finance Advisory Council Executive Coordinator Cecilia Latapi clearly voiced the need for legal certainty for investors in Mexico’s renewable projects. At the same time, she also made it clear that investors, financiers and financial institutions needed to educate themselves, adopt new mindsets and be more open and adaptable when it comes to structuring their support for and involvement in renewable energy projects. She heeded the call for “hybrid schemes that respond to the new needs of innovative projects.” Latapi also said that she has seen positive movement toward this broader perspective from investors as she described what she called the “links and networks of feedback and mutual understanding between project developers and investors.”
BANCOMEXT Director of Energy Sector Financing Mariana Aguirre elaborated on Latapi’s remarks by explaining that the technical variety of energy project financing schemes and the high degree of PPA pliability meant that developers and investors should have access to the tools they need, provided they understand that these projects represent long-term investments “from 10 to 21 years on average.” Aguirre also made it clear that firms, funds and banks needed to further study the variables that could affect the conditions of their contracts with developers. Here, she also referenced recent developments by describing the way in which COVID-19’s shutting down of Chinese ports was affecting the supply of solar panels and reshaping the market for the production of these components.
Citibanamex Director Head of Power and Energy Salomón Amkie underlined the fact that macro factors for renewable energy project investment in Mexico were actually quite flattering and beneficial. It is the regulatory and contracting nuances and uncertainties that needed to be defined to trigger larger volumes of interest from banks and sponsors, he said. Until these uncertainties are eliminated, he admitted that “it makes sense for banks to be cautious.” Acclaim Energy Country Manager María José Treviño agreed, highlighting the fact that “concrete decisions need to be taken by public institutions to address these uncertainties,” which include transmission infrastructure, data sharing and social engagement.
To this list, Zuma Energía CFO Hélene Dimitracopoulos added the question of local content. While she acknowledged that Mexico had tremendous potential in its human resources and national supply capacity, she also noted the gap that remains between that potential and the fundamentals necessary in any renewable energy national workforce. Dimitracopoulos said that closing this gap and the role that public institutions play in its closing were important elements to consider for investors, who at the same time needed to educate themselves regarding what their role was in this process.