Portfolio Growth Illustrates Sector StrengthWed, 02/22/2017 - 09:44
Q: To what extent is renewable energy more attractive now and what are the factors driving this trend?
A: Bancomext decided to open its energy division in 2009, launching a financial scheme for a wind energy project as a trial. The bank has steadily increased its energy investments since then. Now, our energy portfolio is worth MX$24 billion (US$1.2 billion), which is an indicator of the strong growth the energy sector has experienced lately. In comparison with traditional technologies, renewable energy projects have had a challenging path. The enactment of the Energy Reform was a temporary setback for the sector because it stopped the development of new projects during the time needed to make the regulations public. Additionally, the regulatory transition discouraged off-takers from establishing long-term power purchase agreements (PPAs) as most companies were waiting for a clearer picture. But in 2015 we started to see an increasing number of large corporations and major off- takers signing new PPAs, which impacted positively on the sector’s growth, even though it was not as strong as we expected. In early 2016, the results of the first electricity tender surprised many, including us, contributing to the increased interest in the sector. The major surprise was the amount of megawatt-hours awarded to solar energy projects, which raised expectations about Mexico’s solar potential. Compared with last year, our energy investment portfolio has grown 64 percent, which is an indicator of the momentum the energy sector is experiencing.
Q: What is the profile of the companies in Bancomext’s renewables financing program and what schemes apply?
A: Due to the commitment of developing energy infrastructure in Mexico, the federal government has instructed all development banks in the country, including Banobras and Bancomext, to open special energy financing lines. We have a large number of international companies willing to invest in Mexico due to the country’s attractiveness. Foreign entities tend to approach
Bancomext as a way of obtaining access to Mexican pesos, which is a requirement for projects including some of CFE’s tenders. In these cases, international companies need to establish a financing or co-financing agreement with a local bank working with Mexican currency, such as Bancomext. Considering its role as a foreign trade bank, Bancomext can also invest in energy projects abroad, as long as they have a certain percentage of local content. In this context, local content can be understood as having Mexican capital, investors, EPCs, technology, or suppliers. In this segment, we have already financed a 60MW solar park in Honduras with 50 percent Mexican capital, as well as projects in Chile and other Latin American countries. We have identified a growing presence for Mexican companies in the sector, a positive sign for the industry’s diversification. In the past, the energy sector was completely dominated by foreign enterprises, particularly from Spain and the US, but now we have a diversified matrix of participant companies, including players from Mexico, Germany, China, Japan and the Netherlands. Due to a lack of human resources, SMEs are the only type of company that we are not targeting individually but we can work with them through a group portfolio scheme. So far, project finance continues to be the most used strategy in the energy sector. It consists of isolating the project, building a financial structure around the project’s revenues and physical assets. Generally, project finance is complemented by a corporate loan or public works scheme.
Q: How will Bancomext adapt its services to fit the future needs of the sector amid continued growth?
A:Inthecomingyears,weexpecttocontinueourspecial financing lines for sustainable projects and incorporate the group portfolio schemes that we are developing for SMEs. In this way, we could promote distributed generation (DG) in addition to the utility-scale projects that we already are supporting, further contributing to the deployment of clean energy in Mexico. Each group portfolio will have 150-200 companies with a group value defined using an actuarial method. In the close future, we expect group portfolios to gain more importance in the industry.