Opening the Off-Taker Window of OpportunityMon, 02/25/2019 - 16:37
Q: What makes Energía CB Consultores the ideal partner for project developers?
A: Project development in Mexico requires not only legal and technical expertise but also comprehensive knowledge of the country’s idiosyncrasies, particularly in the case of foreign developers because they are not used to socio-political aspects of Mexico, or, the uses and native costumes of communities located in the project areas. Energía CB has more than 20 years of experience in the project development segment nationwide. We can tackle any activity regarding management and obtaining real estate rights, environmental and social authorizations, federal, state and municipal permits, insurance, financial and commercial models, as well as all types of contracts for the projects, whether in an early planning stage, during construction, or during commercial operation of the projects; the above, pursuant to the requirements and needs of our clients. We have the capacity to perform onsite work to ensure all phases of the project unfold according to plan. Our understanding of Mexico’s regulatory framework and its permitting particularities at both the federal and local levels allow us to treat each project with its very own, specific personality. To ensure their success, Energía CB Consultores can also structure optimal financing conditions for these projects and secure the commercial requirements that ensure a project’s bankability once it is online. One of the added values of Energia CB, is that, through our broad experience in project development before, during and after the Energy Reforms, we can design adequate work strategies for the above described activities, adjusted to the applicable regulations of each project and, at the same time, pursuant to the times and needs of our clients.
Q: What is Energía CB Consultores’ most important contribution to Mexico’s energy industry?
A: Provide support and certainty in decision making to project developers and off-takers, detection of main risks and challenges, proposing implementation of possible solutions and attention mechanisms. Energía CB has three primary business branches: electricity, natural gas pipelines and energy consumers support. We have been involved in several combined cycle, wind farm, PV and small-scale hydroelectric projects on the off-taker end of electricity projects. Our differentiating factor on the electricity market side is our work with off-takers. It is the natural, organic next step after accumulating a successful track record overseeing projects developed to their operational phase. Mexico’s new energy model unlocked a bevy of new options to choose from, aiming at an efficient and cost-effective power supply. The number of variables that need to be considered in the decision-making processes of off-takers has grown exponentially and we are empowering them to make informed decisions. As industry experts, we work to shed light on the remaining grey areas they might have. We want off-takers to fully capitalize on the opportunities of the new market, be aware of their options and choose the best fit for them, based on their consumption profile. Regarding hydrocarbons, the implementation of the Energy Reform has represented a series of legal and factual challenges, particularly in social matters and rights of way. In this regard, our main contribution has been to provide transport for the projects through land pipelines, certainty in investment and development, through legal and management support in rights of way, permits and Environmental and Social authorizations, in order to achieve a successful execution, from the early stages of construction. On the natural gas pipelines side, our main contribution was the supervision of the Los Ramones pipeline project. We oversaw the process of major permit obtainment and rights of way, parallel to the revision of more than 2,000 contracts. We are also supervising the pipelines tendered by CFE and won by TransCanada.
Q: Which financial players have the best profile to accompany development banking’s financing efforts?
A: Private equity funds have shown interest but their participation remains conditioned by the off-taker tier interested in purchasing a particular project’s energy. They are also searching for long-term certainty over merchant price levels, which cannot be provided by such a nascent market. International and national development banking institutions have expressed interest and they are already granting financing for merchant projects. This lack of commercial clarity is precisely the reason why Energía CB became fully invested in the off-taker side, both to showcase the benefits of purchasing clean energy for consumption and to secure project bankability. The CKDs issued by the country’s stock market, integrating several energy projects at the development stage, provide a good alternative for projects that still lack off-takers to fill the commercial aspects of the project. Not having off-takers complicates the obtainment of financing flows for energy projects and CKDs can bridge the gap between final users’ short-term expectations and the mid to long-term timeframe of project development. These instruments will also help break the complex cycle of determining a project’s priorities between sufficient equity, signed off-takers and financing.
Q: What financing schemes are best suited to Mexico’s energy projects?
A: Mexico’s utility-scale projects resulting from the country’s long-term electricity auctions are showing increasingly aggressive prices with progressively thin profit margins. Large, multinational utilities are virtually the only players that can design competitive offers under such conditions, given the observed ROIs. The few remaining self-supply and legacy contract projects remain the preferred option for conservative investors, given the security of price stability and the locked-in consumers. Merchant schemes are an attractive option given the differential between nodal and auction prices but banks are still working to adhere to this particular scheme given the long-term uncertainty. Development banking will continue leading the financing push and based on its determination, commercial banking will closely follow suit. The interesting aspect of the long-term electricity auctions is the decreasing trend in price packages showcased throughout each edition. This decreasing trend has a direct impact on power producers when they are the key puzzle piece for the rest of the WEM. Qualified users and suppliers depend directly on thriving and numerous power producers. We are anticipating that the market will mature by 2025, depending on the pace at which regulators are able to reflect total transparency over the inherent generation, transmission and distribution costs of the regulated electricity rates.
Q: Which service offered by Energía CB Consultores is driving your growth?
A: Energía CB Consultores is supporting the energy market throughout the entire value chain. We are advising project development and assisting in the permitting process, accompanying power producers operating in the market and providing business for qualified suppliers. Our recent focus on strengthening off-takers closed the value chain’s loop. We are working on basic-supply permitting and structuring for a client and are anticipating this particular business line will grow in the short term. No link in the value chain is left unattended. We are also working in transmission bids, such as the two major ones linking Oaxaca to Morelos and Baja California to the rest of the National Interconnected System.
Q: What are Energía CB Consultores’ objectives for the near term?
A: We will continue consolidating our off-taker portfolio, assisting them in their transition to the new electricity market and capitalizing on new opportunities, such as distributed generation. We are developing integral services to deliver critical data to assist their decision-making process, including new load points and other key electricity infrastructure developments and continue supporting renewable and gas pipelines projects.