Newcomer Insight on Successful BidsWed, 02/21/2018 - 16:08
The Energy Reform is still a new playing field for many, and with regulatory goalposts constantly being shifted, it can be difficult for developers to keep track of all the moving parts. Hugo Galindo, Director General of Spanish IPP Grenergy Renovables, says this comes with the territory of a new, dynamic energy market. “The Energy Reform is a live, dynamic and constantly moving process. There are certain instances for which procedures are being defined as the challenges that lead to them are being encountered, which can cause delays in the construction permits and financing,” he says.
Grenergy has faced challenges with the 30MW nominal and 35MW peak solar project it was awarded in the second longterm auction. “It was originally a small-producer project that is now being migrated to the new Electric Industry Law (LIE) to comply with the auction requirements,” says Galindo. “The project has faced some challenges but it is still on course and will be connected on May 2019.” Grenergy’s objective is to have the administrative work completed so it can be ready to build by the end of 2017 and start construction by 2Q18. Galindo expects this project to be the first of many.
The long-term electricity auctions are sparking the interest of local and foreign players alike, with the first edition attracting 227 offers. Of those, 11 companies from seven countries were awarded, while the second auction attracted 368 offers and 57 of those, presented by 23 companies from 11 different countries, were retained.
Galindo believes the auctions have been a major tool for fostering competition in Mexico, and subsequently allowing for a major decrease in prices, but this does not necessarily foster competition. “We see this as a doubleedged sword. Many major utilities will arrive and offer their best-solutions portfolio, which will impede smaller companies from entering the market,” he explains. But for these SMEs, he says, there are other options. “For these smaller companies an alternative to the utilities market could be to work in PPAs where medium to large consumers use their services.”
Grenergy itself underwent a reverse-engineering process in which it defined the CAPEX for 2019 and from there calculated a competitive auction price that was also economically viable for it, based on its experience in and knowledge of other markets. Grenergy’s presence in Latin America includes Chile, Mexico, Peru and Colombia, and Argentina is in the pipeline. “We have found that every market is its own world,” says Galindo.
As a PV-specialized company, Grenergy witnessed how peak prices went from US$3.5/W in 2007 in Spain to under US$0.4/W in 2017 for solar modules, a price the company had not expected to be achieved until 2020. In a market like Mexico, where there is extensive land and high solar irradiation levels, PV quickly saw the greatest cost decrease compared to all other renewable technologies. “This decrease in costs has yet to be passed onto the residential sector. It will happen, just as it did in Europe,” Galindo predicts.
Change is not easy and Mexico’s 2025 objective of reaching 35 percent of renewables in its energy mix is sizable. With these commitments, Galindo believes Mexico’s energy infrastructure is a point of focus. “The effort to incorporate renewables must be accompanied by upgrades to transmission lines that are already saturated, as well as building new infrastructure for the Mexican grid to absorb all the renewables production.” He also says that upgrading and expanding the grid must be a joint task between both the private and public sectors.
Galindo adds that various private financial institutions have shown a lot of interest in the financing of renewable energy projects, mostly under the PPA format. “The setback is that this is a new concept for them, which they must study from scratch, resulting in longer administrative processing times,” he explains. But as more projects in Mexico are financed, banks will become accustomed to and more comfortable with them. “Our project is the right size for a commercial bank to provide standalone financing and avoid the need for a banking alliance, which is a clear advantage,” he says. Grenergy is in advanced talks with three banks that are analyzing the project and all are offering highly attractive conditions.