Naturgy Faces Devaluation Amid Rising Renewables Competition

Naturgy reported a devaluation of €$168 million (US$184.2 million) in July, due to an anticipated decrease in production at its combined cycle thermal power plants in Mexico, resulting from increased competition from companies producing renewable energy.

Naturgy’s plants are similar to the ones that the government of President Andrés Manuel López Obrador purchased from Iberdrola in June for about US$6 billion, a decision he described as "very good." According to sources cited by El Confidencial newspaper, this devaluation of Naturgy's combined cycle thermal power plants is attributed to the increase in permits for renewable energy installations in Mexico, as they will affect the company's contracts with CFE.

Additionally, a recent report from Spain's National Commission on Markets and Competition predicts that next year, combined-cycle gas plants will generate 33% fewer hours of electricity compared to this year. In 2018, Naturgy underwent a massive devaluation of its coal-fired power plants in Spain after foreseeing their closure and dismantling.

Currently, Naturgy has three gas plants in Mexico: the Durango plant, which produces 480MW; the Tuxpan III & IV plants in Veracruz, producing 1,180MW, and the Hermosillo plant in Sonora, producing 250MW.

On April 4, López Obrador announced the purchase of 13 power plants from the Spanish company Iberdrola, 12 of which have the same characteristics as Naturgy's plants, and these will be operated by the CFE. Rogelio Ramírez de la O, Minister of Finance detailed that the purchase of these power plants was executed through an investment mechanism with majority participation from the National Infrastructure Fund (FONADIN), managed by Mexico Infrastructure Partners and financed through banking institutions.

He noted that with the acquisition of these plants, CFE's total electricity generation capacity will increase from 39% to 55%. In the northeastern region, it will increase from 7% to 45%. Subsequently, on April 19, Ramírez de la O stated that the debt associated with FONADIN for purchasing the 13 power plants from the Spanish company Iberdrola will be covered by the revenues generated by these plants.

"The equity portion, which Fonadin strictly takes, is available money; the other portion is financing and debt, but that debt is already incurred by the vehicle that Fonadin creates to take charge of the project. It's a vehicle that is not part of the budget," Ramírez de la O said. Regardless, this financing has assured payment flow because it is energy that is already being sold today and it will be paid with the revenues from the plants," he asserted.

The Minister of Finance also mentioned that even in this scenario, President López Obrador's current administration has "a lot of room" to remain below the indebtedness of the previous two six-year terms.