Large Projects Hibernate While Small PPA Projects Gain TractionBy Cas Biekmann | Tue, 01/19/2021 - 14:50
Q: What sets SOWITEC apart from other renewable energy developers?
A: SOWITEC has excellent technicians who can analyze everything related to field development, including geographical studies that use advanced drone technology, electrical engineering, environmental studies and anthropological research. What sets SOWITEC apart from the competition is its team’s passion for the work it delivers. We are a developer company highly recognized for the collaboration that we have had with multinationals such as Santander, ENGIE or Enel. Since we started working in Mexico in 2008, we have always demonstrated our enthusiasm for renewable energy. We are committed and will continue our work in this sector, despite the challenging times it is going through.
Q: How did the company adapt to the challenging times of 2020?
A: Three months into 2020, we all had to adapt by working remotely. SOWITEC has projects in ejidos, where you need to hold assemblies to keep in touch and comply with contractual arrangements. It was difficult to extend payments on time, which was usually done in personal meetings. Interestingly, ejido owners were quite understanding of the situation; nevertheless, SOWITEC makes every effort to fully comply with its agreements and contracts.
As a project developer, we also have a specialized team that works in the field. It explores potential development sites, which you cannot do if travel is not possible and there are no places to stay overnight. For this reason, we were not able to achieve our objectives for 2020. Also, the Mexican government also shut its doors due to the pandemic. Entities such as CRE, CENACE, SENER and SEMARNAT did not issue permits during this time. This caused a delay in all of our objectives, since working remotely with them was challenging. This continued even after they re-opened.
Furthermore, the government has taken on the mission to strengthen PEMEX and CFE, and has initiated various measures toward that goal. These have affected our operations in a major way. For example, generation permits are not easy to obtain at the moment. Even applying for a permit is a challenge, meaning that planning and financing projects is somewhat out of the question.
SEMARNAT took a long time in reopening its offices. Furthermore, it has federal mandates dictating that it should focus on non-renewable energy projects. As a result, obstacles have piled up for the renewables sector. I consider the pandemic to be an important impediment but we have also seen that the government has taken advantage of the situation to create new regulations that slow down renewable energy development in Mexico. Even after certain government entities opened up, the slowdown continued. Despite the pandemic’s far-reaching effects, we believe the government has had a stronger influence in this crisis.
Q: What is the main issue the company faces when its employees are not able to travel?
A: A company like SOWITEC often works with boots on the ground and prefers to have direct contact with land owners. Using wind and radiation maps, we can identify potential sites for good renewable energy projects. Soon after, we travel to the site to identify who the landowners are. Personal, face to face conversations with land owners are crucial because this offers access to the land. Using Zoom or phone calls is not an option because it does not convey trust in the relationship. This is still a problem because the COVID-19 infection rates remain high in early 2021, which means that people do not want to receive anyone in their home. Until this situation changes radically, we cannot fully establish our operations.
Q: In light of these changes, where does SOWITEC identify the best opportunities for business development?
A: Vestas is a large company with global representation and it has been a part of the SOWITEC Group for a while. This has helped us to organize ourselves differently in regard to looking at the situation and analyzing projects from a sustainability and financing point of view. We have implemented internal tools to be able to shift toward projects that can be invested in the short term and that quickly yield returns as well. When we started working with Vestas, our main focus was on long-term auctions and utility-scale projects. Afterward, we started eyeing smaller private projects with PPAs under 100MW. These projects are tailored directly to the needs and demands of our potential clients, mostly located in central Mexico. After the auctions ended, our clients approached us to do projects there, as this is where they needed energy. We got involved in this area, but soon after the government started to place limitations. Now, we are looking to work ore with Vestas in the shorter term. We make sure that the projects we develop meet criteria that allow us to gain returns in the short to medium term, while still focusing on client needs. We are also hopeful that the long-term energy auctions will return in 2021, which Minister of Energy Rocio Nahle alluded to in 2019. This is where our portfolio is the broadest.
One example of a utility-scale project is our La Araña solar project, which was planned for the third energy auction. However, the zones were changed during the process, making the project unviable. We decided to keep the project for the fourth auction, which was eventually canceled. Together with Vestas, SOWITEC has decided to put our large-scale projects in hibernation. It is important to keep projects there because once the auctions are reactivated, they could be very attractive. For this reason, we continue to maintain the project and its land. We also have other projects in hibernation that we hope to develop in the future. The company, however, is not looking to invest in projects that do not yield returns in the short term at the moment.
SOWITEC has also been examining new technologies. Mexico is rich when it comes to solar and wind resources. We continue to scout opportunities to diversify our pipeline, despite an uncertain environment in Mexico for renewables. This situation could still change, however.
Q: How does SOWITEC view hybrid technologies?
A: We are focusing on the combination of solar and wind. We look for sites where the two resources can be combined. Knowing that the sun shines during the day and wind blows at night, we are looking for these opportunities, which is challenging. We are also promoting new technologies, such as floating solar and Power-to-X. However, our main objective is conventional renewable energy and this is where Mexico has strong potential. New technologies are interesting and SOWITEC group is monitoring them closely.
Q: What are SOWITEC´s main goals for 2021?
A: The main goal is to remain an active player in the value chain. As for specific objectives, we aim to diversify our pipeline with good wind and solar projects in Mexico. We want to be ready to act if the situation regarding renewables changes in Mexico. It is unlikely that the auctions will simply be reactivated but we do have hopes that the situation might change. Furthermore, we are looking to include small projects for private PPAs and explore new technologies when the opportunity arises. We also hope to keep the team together for the time being, until the sector’s opportunities open up once again.
SOWITEC is among the world’s largest developers of renewables projects. In 2008, it started operations in Mexico, where it has developed and sold projects focused on wind and solar. The company has developed and sold 630MW in renewable energy projects in Mexico.