Optimizing an Already Prime Renewable Asset PortfolioBy Cas Biekmann | Tue, 10/12/2021 - 14:45
Q: How did Macquarie’s move to Mexico lead to the creation of a new renewable portfolio under the Centauro Energía banner?
A: Centauro began its operations approximately two and a half years ago. It acquired several assets that make up the company’s current asset base, consisting of both a wind and a solar portfolio. Our wind farms are selling their energy under power purchase agreements (PPAs). Furthermore, Centauro has solar projects in the north of Mexico operatinge within the Wholesale Electricity Market (WEM) and also with an important poart of their capacity contracted through bilateral PPAs
Centauro diversifies its portfolio by not betting on just one technology. We have more solar projects mainly because in recent years, solar has been growing much more aggressively in Mexico and this means that there was simply more opportunity in this area.
Q: How does Centauro Energía assess potential acquisitions?
A: We are working to optimize the results of both our wind and solar portfolios rather than looking for new acquisitions at the moment. Centauro Energía is building a strong team in terms of experience and resources, focusing on operating assets. Currently, we think it is probably not the best time to begin new ventures, such as developments and greenfield projects. Nevertheless, we are keeping this door open as we understand both Mexico’s fundamentals and the electricity sector itself in a long-term view
Q: How does the company see its chances in the spot market?
A: The solar projects that Centauro operates in have a spot market sales component but we are now adding an increasing amount of MWs under PPAs. This provides a mixed basis for income, which is part stable through long-term contracts and part variable through the spot market. For the past four years, the market has behaved somewhat strangely, with a great deal of capacity coming in over time. In the last few months, this situation appears to have stabilized, with prices increasing, which is part of a trend that power producers like us have anticipated. The spot market is always a bit of a risk. Trying to get a clear view of a market as young as Mexico´s by examining the spot market prices is difficult, especially when trying to calculate for the longer term. Fueling this market is equally difficult. After all, the current regulatory framework was formed in 2014, so we have just a little over five years of operational time under these rules.
Q: Could a lack of greenfield development move the trend toward higher prices forward in the future?
A: It is difficult to say but that could be the case. If the penetration of new power plants, both renewable and efficient CCGT, continues to be cut, then prices will probably go up. If this does not occur and energy consumption does not pick up as we expect it to, we could experience peaks and lows in terms of energy prices for a time. It would mean that the market would not be maturing. As market participants, we need to be ready to deal with unconsidered market conditions.
Q: How can Centauro accommodate clients with the flexible PPA terms they might require in today’s environment?
A: There is undoubtedly a trend of clients seeking more flexible arrangements. Auction and other long-term PPA arrangements encountered years ago are, practically, no longer existent in Mexico’s energy environment. Companies must be creative because there is a great deal of competition in the market. Players that can be flexible toward customers and the qualified suppliers (QS) that serve energy to clients are favored. I would say that not just Centauro but the entire market has relaxed somehow its conditions when selling energy. Of course, bankability is still of the essence. Various rules still require compliance and objectives need to be met. Nevertheless, agreements have become much more flexible, not only in terms of currency but in pricing, smoother ramp-ups and by doing away with strict take-or-pay conditions as well.
Q: How are banks responding to this flexibility?
A: I believe both national development and private banks are keeping an open mind somewhat because they are aware of these trends. They might not be aware of what the market needs but power producers demand they make conditions more flexible. Furthermore, banks are willing to get deals on the table, which would not have happened 10 years ago.
Q: How does the company use resources to achieve optimal efficiency in its O&M?
A: We have a team of people focusing on the day-to-day operation of our assets. In addition, Centauro has monitoring tools to oversee the operations and behavior of the projects, as well as the pricing in the markets. We are also working to run forecasts for our wind farms so that we can budget them more accurately for the long term, combining generation, income and potential O&M costs. The combination of team, technology and other tools is crucial for Centauro’s efficiency.
We see storage as an interesting possibility that could make our projects more optimal. However, in the absence of a consistent and defined legal framework and with the direct technical and financial benefits out of reach, we do not see much added value in it for the projects we already operate for now. From a strictly technical point of view, new projects could have a better impact if they were to install storage solutions. Mexico’s main issue is not a lack of new projects but the lack of development in its transmission and distribution grid. This is the real bottleneck: We should turn the conversation to how we can strengthen the grid and from this, optimize the generation matrix.
Centauro Energía owns and operates a Mexican renewable asset portfolio of eight photovoltaic solar and two wind power plants totaling 262MW. It adds to this portfolio through development and acquisitions.