Matching Financial Institutions with Investment Opportunities

Moderator: Francisco Acuña, CEO of InTrust Global
Speaker: Enrique Nieto, Sustainable Projects Director at NAFIN
Speaker: Stefan Blum, Director of KfW-DEG Mexico
Speaker: Alejandro de la Vega, Executive Director, Head of Energy, Oil & Gas at Banco Santander
Speaker: Andrés García-Novel, Principal Investment Officer of IFC

Francisco Acuña, President of InTrust Global Investments, began by talking about a project that involves rural communities and renewable energy projects. In this, communities are considered as equity partners. In order to make communities partners, capacity building has to be implemented. Acuña said that renewable energy project developers known the importance of both capacity building in communities and ensuring a return of investments. The initiative deeply involves the academic sector, particularly Harvard University faculty members. He explained that the academic sector also plays an important role in this initiative, in which SENER aims to ensure that communities participate in energy projects and gain benefits from it. “The social and financial impact of the academic sector in the energy industry will be significant, particularly because it will facilitate the creation of clusters.”

Acuña proceeded to ask how the Energy Reform has affected the allocation of investments. Alejandro de la Vega responded highlighting that that the Energy Reform tends to be spoken of in terms of hydrocarbons, but the electricity industry also suffered substantial changes. “If the wholesale market detonates the renewables sector, which was already bankable even without subsidies, then investments will flood.” He mentioned that Santander is keen on financing renewable energy projects and has several equity schemes for this purpose.

Enrique Nieto from NAFIN began his intervention saying, “Please do not change the legislation regarding financing, because the regulation has worked out greatly.” He explained that the price of energy generated under the self-supply scheme is set by SENER. Nowadays this price is no longer viable due to market conditions. “The Energy Reform will allow the implementation of long-term financing due to the alignment of legal certainty and the market.”

Stefan Blum said the reforms will have a positive effect in the medium and long term, but uncertainty will prevail in the next months. He said KfW-DEG can help developers and other companies in terms of equity and debt. “Well-planned projects will eventually materialize because they will get financing. Nonetheless, few people are willing to sign a PPA due to uncertainty, which relates directly to debt.”

Along this line, García-Novel expressed that it is too early to focus on future debts resulting from the new market schemes. “The bankability of PPAs should be assessed in terms of elements like technology.”

Acuña continued by posing the question of how risks affect financing. Nieto said investments will affect Mexico's energy matrix. However, he sees a potential problem with the preference that has been given to natural gas. “People assume that the price of gas will not go up for the next ten years, but people also said that the price of oil was not going to change ten years ago.”

García-Novel questioned if there is enough demand to justify large-scale projects. “Eventually, it will come to developers deciding on critical mass projects, for which they will bet on merchant and partial merchant risk. There has to be an appropriate mix of financial tools from the commercial and development banks.”

As for Blum, he believes there should be a generous off-takers portfolio with companies that meet certain conditions even if they are not AAA companies. He also pointed out the great potential provided by municipalities and states. “Many of these schemes have not been financial in the past. As the market runs out of AAA companies, we will begin to see more dynamic and diverse PPA schemes.” To conclude, Blum said that renewables are already competitive enough, so their development should not have to rely on mechanisms like clean energy certificates.