Óscar Bernal
General Manager Mexico
Eosol Energy
View from the Top

Lack of Certainty Complicates Investment Decisions

By María José Goytia | Tue, 07/05/2022 - 12:08

Q: What were the biggest challenges faced by Eosol during 2021?

A: Not having the legal stability that allows us to plan beyond the short term is a challenge that remains today. Regulatory certainty is fundamental to developing long-term investments and projects because the rate of return for power production developments is slow. The fastest energy projects to develop are generally solar but even the development of these projects takes at least three years. In the case of wind projects, the minimum period is five years without any setbacks. The lack of stability and security for the years to come prevents us from making serious business plans.

Eosol is a medium-sized company and has been operating in Mexico since 2009. Due to this destabilizing uncertainty, we have to be constantly making decisions about continuing in Mexico or opening new markets. Since 2020, we have opened offices in Morocco and Egypt, the latter through a project with Cemex. However, the uncertainty limits our financial decision-making in the overall business strategy.


Q: How has Eosol’s outlook on the development of new projects changed in recent years?

A: In 2019, Bancomex and Banco Sabadell approved project financing for six projects, totaling 195MW. We were one of the few companies that, despite the pandemic and regulatory uncertainty, was able to inaugurate projects between 2020 and 2021. CRE even gave us a deadline extension for the last of the six projects, which should have finished by January 2021 but was not inaugurated until April of the same year. Our project development branch has done well despite the challenges, compared to other companies that have not obtained a commercial operation date (COD) or interconnection permit, or have stalled development projects entirely. However, we have not started any new development projects and have none under construction. The challenge we face is deciding how much to invest in Mexico compared to developing other markets.

In Mexico, we have decided to develop countercyclically. Eosol’s third development portfolio has 14 projects in the pipeline. Our first portfolio consisted of seven projects, while our second portfolio had nine. We currently have 1,500ha committed and are contracting companies to develop this portfolio. So far, Eosol's board of directors has allowed us to spend a similar budget to what we had during the previous administration. Nevertheless, the questions regarding the market are constant and we are not assured that the flow of resources to Mexico will continue, given that we must deliver returns on the investments we make. We worry if all of the third portfolio’s 14 projects will come to fruition, a concern we did not face during previous development cycles.


Q: What has been the impact of the government’s discourse regarding foreign companies in the energy sector?

A: The discourse against foreign companies, especially those of Spanish origin like Eosol, has had a psychological impact rather than an operational one. The beliefs spread by this debate are far from the reality. Despite holding foreign capital, companies like Eosol mainly employ Mexicans. Eosol employs 200 people, of which only five are Spanish. It is sad to see this rivalry in the discourse when Mexico and Spain enjoyed a close, fraternal relationship for many years.


Q: How has the company’s operations and maintenance (O&M) department performed?

A: Compared to the development of new projects, our O&M service has not suffered serious setbacks. Regardless, it has not grown at the pace we had projected because if there are no new projects in the pipeline, we cannot obtain new clients. We operate assets from Engie, Fotowatio Renewable Ventures (FRV) and McGuireWoods, among others. Despite the stagnation in growth, the O&M department is maintaining its services for existing clients, maintaining a stable performance. The same goes for Eosol’s asset management department.


Q: What other business ventures is the company exploring?

A: When analyzing strategies to continue consolidating the development of our business lines, we became aware that we were missing a link in the chain to market our energy and manage the power purchase agreements (PPAs) and projects in the Wholesale Electricity Market (WEM). A year ago, we bought US-based Avant Energy's subsidiary in Mexico, which had lost its commercialization permit from CRE. By the end of 2021, we were able to get CRE to reactivate Avant Energy's marketing permit. Upon regaining it, the valuation of the Avant Energy Mexico brand was valued at US$6 million, thereby recovering Eosol’s investment and closing the circle of its value chain. This was one of our biggest successes in 2021.


Q: How has Eosol managed its financial portfolio with public banks?

A: We have had a magnificent relationship with the public banks in Mexico. The company has worked with them since its first development projects. Our first portfolio, costing US$145 million, was financed with development bank Nacional Financiera (NAFIN). Our second portfolio was financed with Bancomex and Sabadell. Since the inauguration of the power plants, we have sold 38 percent of the energy through PPAs but all the financing happened on a merchant basis as our PPAs were signed after construction was already underway.

Mexican banks are beginning to understand that the renewable energy business is like the oil and gas business: you must look at it in the long term. The price of energy may fluctuate in the short term but the long-term trend always moves upward. Renewable technologies have decreased the price of energy. However, we still need to build hundreds of megawatts to bolster this trend.


Eosol Energy is a Spanish energy company founded in 2008 that provides management services, administration and project development of renewable assets, mainly in the wind and solar segments.

Photo by:   Eosol Mexico
María José Goytia María José Goytia Journalist and Industry Analyst