Mexico Can Go Fully Merchant

Q: How would you asses the transition the industry is undergoing?

A: Many governments around the world consider the energy industry a public property, and it is not. Even in Spain, where there are 17 utility companies generating electricity, politicians see this commodity as a public asset. A private approach could lead to reduced prices and we are already experimenting this in Mexico. Fuel station operators like BP are forcing PEMEX to step up its game and now end users have various options to choose from. The majority of renewables investment in the country comes from foreign companies. The uncertainty resulting from some governmental declarations has made these investors uneasy, but the Mexican energy industry has more room for growth. For now, it is wait and see.

Q: What has been the company’s experience in structuring fully-merchant projects in Mexico?

A: The Versalles and Las Ánimas II projects were supported by Bancomext and Banco Sabadell, adding up to 145MW. Both projects will enter the market under a full-merchant scheme on January 2020. With these projects, EOSOL is positioned as the only company developing fully-merchant projects in the country. Some investors might believe this is a risky business but I believe that if the wholesale market fails, private PPAs will fail too. No corporate off-taker will pay electricity prices that are higher than those in the market and Mexico provides the legal certainty to execute these investments.

In general, our main allies have been the national development banks. Our Trinidad project was completely supported by NAFIN, while Bancomext preferred to partner with a private institution like Sabadell for our most recent projects. Nevertheless, structuring financing for these kinds of projects takes a lot of time in Mexico, compared to other countries. While this process should take no more than six months, in Mexico it can last from 10 to 12 months. At the moment, development banking is undergoing a restructuring process and we are not certain if these entities are going to merge. Valuable assets from the previous administration are moving to the private banking segment and this could represent a major mistake. If the president believes in the public sector, experienced professionals should be running it.

Q: What have been the major hurdles in participating in the WEM?

A: From our perspective, the wholesale market is working perfectly. The development of these markets is complicated and took many years to be fully deployed in European economies. In Mexico, many users complain about the real-time market, when the day-ahead market is working correctly.

The first project to participate under this scheme entered in February 2018, meaning this market has been in operation for no more than two years. So far, EOSOL Energy has seven projects and we have received every single payment from CENACE since we started working in the WEM, unlike in Spain where during the first six months payments were incorrectly paid or did not even arrive. The Mexican framework was designed based on previous international experiences, and when you start a project of such magnitude, some complications are to be expected.

Q: Which of your services is in highest demand among your clients?

A: Our consulting division, EOS Ingeniería, is experiencing the largest growth. At first, this division provided its services from Spain and due to demand, the division established commercial offices here. With over 200 consultants, the team is working on several projects across Mexico. We are supporting Neoen at its Pachamama I project. We helped to execute the engineering work, provided development assistance and now we are involved in the supervising construction. We are also in discussions to work at Pachamama II. With Fotowatio Renewables, we assisted with the development of Potosí Solar that is delivering 340MW to the grid. For this specific project, we were subcontracted by Spanish company EPC TSK. In addition, we supported the development, engineering and construction of Acciona’s first solar development, located at Puerto Libertad. In fact, 90 percent of the Versalles and Las Ánimas II projects is under an investment agreement with Macquarie Group. With a 10 percent share of these projects, we can continue with other developments, but what really keeps us in the game is our services division. While project development offers a four-year cash inflow, the market has stagnated as a result of the new government’s actions, but projects from the previous administration still require these services.

EOSOL Energy provides management services, administration and project development of renewable assets, mainly in the wind and solar segments. With 107 projects over 43 countries, the company aims to position itself as one of the leading developers globally.