The Making of Potrero Solar’s SuccessBy Cas Biekmann | Tue, 01/05/2021 - 12:55
Q: What were the driving factors behind FRV’s move to Mexico?
A: Mexico is an attractive market for energy because of its growing demand, its energy needs and its renewable energy target. These three points influenced our decision to come to Mexico and invest in renewable energy projects after the 2014 Energy Reform.
We see Mexico as an attractive long-term market, despite the problems we faced last year. FRV has around 642MW dc of operational solar projects divided in two farms. One is a 342MW dc project called Potosi Solar and the second project is a 296MW dc project, called Potrero Solar. Potosi has a long term PPA with CFE that was awarded under the second tender launched with CENACE, Potrero was on a full merchant basis meaning that we did not have an off-taker to finance it. Instead, we financed Potrero Solar outside of the long-term energy auctions. We have finished all construction work and both plants are operational. Potosi Solar started operations in May 2019 and Potrero Solar in October 2020. The latter is already selling its electricity on the spot market. The project is based on a mixed strategy, where we are looking to hedge some part of the project’s energy generation. Another part will be operational for the spot market. We could refinance Potrero Solar after we have signed a PPA.
Q: What are the main differences between Potosi and Potrero Solar?
A: Even though they are both large-scale generating assets and one of the biggest in the Country, they are quite different. At Potosi, we used central inverters. At Potrero, we are using technology from Huawei, made up of many small inverters that you can plug in and out, making it easier to manage. At Potrero, we also use bifacial panels. These panels were not as big when we started working on Potosi, where we used dual-glass solar panels, which were considered high-end technology back then. One year later, we financed Potrero to use bifacial panels and we expect to yield a higher gain and performance.
Q: What were the factors that led to FRV’s decision to finance Potrero Solar as a full merchant project?
A: Prior to coming to Mexico, I was part of FRV Australia where the company financed its first full merchant project so it is something that we were familiar with and that we are able to do under certain conditions. In the Australian project that we financed on a merchant basis (with no offtake) the situation was different because we received a non-refundable grant and had a facility with the Clean Energy Finance Corporation. In Mexico, the advantage for us is that we are located around a very good node for interconnection: the occidental region. We hope there will not be as many curtailments as we see occurring in the northern regions. The region has a great deal of demand that is increasing every year. It is a net importer of energy and one of the nodes with the highest demand growth, making it a good node to be located in. Considering this and the fact that Mexico’s demand grows by about 2.9 percent each year, we believe this energy will be absorbed by the market. This is why we decided to go full merchant in Mexico. It was not a simple decision, but I believe it will pay off.
Q: How has the company adapted its strategy?
A: We have seen all the changes that have come about since the adoption of Clean Energy Certificates (CELs), moving to the reliability policy and increased wheeling charges, among others. Our strategy is to persevere and protect our investments. Although the overall situation in Mexico is far from ideal for us, we really believe in Mexico in the long term given its fundamentals, what we need to do in the future is build bridges and try to understand what the government really plans to do. If it wants to talk about the future, the sector, and FRV in particular, is open to discussions because it helps with outlining regulation. FRV has invested a great deal of money in Mexico. We need to make sure that the rules under which this investment was made are respected, so that we can obtain the profitability that we planned for with our projects. We are also open to talk about the future so that we can help Mexico comply with its renewable energy target. We need to convince the government of the target’s importance so that it can create policies that will enable new investments. I think Mexico’s renewables target is ambitious and it can be achieved if the right policies are implemented.
Overall, the government poses several challenges, such as restrictions to interconnection. Finding bankable off-takers to sign PPAs is another challenge. Apart from CFE, there are not many possibilities in the market. As a sector, we should hold discussions with CFE about its energy needs and future project developments. The government should try to comply with the climate goals it has set. These objectives will be good for Mexico, both economically, through low energy prices, and environmentally. If the government really wants to make progress in renewables, then this can be a win-win situation for the public and private sectors.
Q: How does FRV design its social approach?
A: In general, we have been pretty active with our social approach. We have gone beyond the requirements of our social impact studies that were approved by SENER. In the communities where we are present, we have had a real impact. When we started the Potrero Solar construction a year and a half ago, we opened a modest facility to attend the medical needs of the people. We also purchased all the necessary medicine and had a doctor on site. In the Potosi community, we have a different program because we adapt our approach and budget to local needs. In this case, the people wanted a baseball field and we decided to build them one. We also established programs to teach local women about doing business. Having diverse social programs is important for any business investing in Mexico, which is why we take it so seriously.
Q: How is FRV deploying its services regarding asset management?
A: Our capabilities in asset management are exclusively applied to our two solar assets. However, we are looking to extend these services to third parties in the near future as we are already doing in some other markets. Our asset management team is well-prepared and has all the necessary capabilities related to technical operations of the plant, managing the O&M provider and overseeing the sale of energy on the market.
Q: What is the company planning for 2021?
A: We really believe in the Mexican market. Although the actual regulatory situation is challenging for new investments, we believe that Mexico has a great potential. Our first goal is to offer good asset management on the assets we have and to try to make our plants produce at the level we expected or better. Our second goal is to be very active in the market and establish a dialogue with the government in order to produce a good framework. Within this framework, we can plan future investments. Once we believe the regulatory framework is stable, we will then consider new investments. Our initial plan considered 300MW of new Mexican investments per year. This is now on old and, hopefully, the situation will change. But I am positive renewable energy will eventually develop in the country and we want to be part of that growth.
Fotowatio Renewable Ventures is a global renewable energy solutions provider founded in 2006. It has developed and built over 1500MW of PV installed capacity and has invested over US$3.5 billion in renewable energy projects.