No Pause in Renewable Investments but Higher Selectivity

Stormy rhetoric and a growing sense of inertia dominate Mexico’s renewable energy industry, stemming from recent government measures looking to enhance the competitiveness of state production companies such as CFE. Regardless, interest in Mexico’s clean energy sector persists, according to Patricia Tatto, Vice President America of ATA Renewables and President of the Network of Women in Renewable Energies (MERM) as reported by Energía Hoy.

Tatto is convinced that the end result of the current rift between public and private sector will eventually result in an even floor on which both CFE and private players have enough space to compete and co-exist. Nonetheless, she suggests that the situation will not be exactly as it was before. Therefore, she advices new investors to keep putting their money and trust in Mexico, but be more selective about the projects they bet on.

Tatto warns that Mexico is lagging behind in terms of vision and innovation but that there are many companies in Mexico with great capabilities to improve its clean energy record. She furthermore keeps a positive outlook as demand for energy will exceed CFE’s possibilities, meaning that renewable energy companies will have to fill the gap eventually. Víctor Luque, Partner of ATIK Capital, agrees with this assessment: “In the future, Mexico’s energy demand will rise by 3 percent, which means Mexico needs at least 100GW of capacity by 2024. CFE’s business plan states the company will add between 3 and 5GW of clean energy generation by 2024. As a result, 15GW is still needed to accommodate Mexico’s future energy demand. This is where the private sector has a key role, which should be coordinated closely with CFE,” he told MBN.

Another way in which renewable energy companies can work without complicating the relationship with CFE is with projects under 500KW, which do not require permission to interconnect. Tatto says the private sector is waiting to take a seat at the negotiating table with the government. Following this open conversation, she hopes an agreement can be reached.

If companies do want to invest, Luque offers advice on which indicators to look out for from a development bank perspective: “There are three elements they will demand. First, they want to see sufficient equity. Usually, a greater amount of equity is needed in Mexico than in other parts of the world. Through my experience at development banks, I know that having a perceived commitment from private companies is crucial. Second, the developer needs to have a very good project. This does not mean it only needs to have excellent technology or location; what matters here is the off-taker. The capacity to generate cash flow will convince banks to lend the money. Third, developers must understand that they need to assume costs that perhaps in the past were not required. An example of this is part of the transmission line to the generator. Once energy arrives to the grid, the responsibility lies on CFE. Projects become attractive if they have the certainty that they will be connected to the grid barring any issues. The relationship between private companies and the government will help attract project financing if developers know how to navigate regulations.”

Around 7 percent of Mexico’s energy is generated through renewable resources. Investments in this part of the sector are estimated to amount to US$20 billion, an amount industry experts fear will not be increased as it should due to current regulatory disagreements between public and private energy sectors.