Alejandra Domínguez
Managing Director
View from the Top

Renewable Energy Projects Require Adaptability

By Cas Biekmann | Mon, 05/11/2020 - 14:09

Q: What is one of your main achievements in Mexico?
A: One of our most challenging projects was Amistad, a wind park located in a remote location in Coahuila state. Because of its location, we had to design 80km of transmission line and conducted studies to minimize the environmental impact. Sixty turbines are installed at the park, generating 198MW. Enel bought the project in 2016, and they then expanded the park.

Q: How would you describe the current energy landscape in Mexico?
A: In the central part of the country, there is a great deal of competition. Companies like Iberdrola and others already have a high number of signed contracts. But the area is known for its agricultural activity and landowners often prefer to continue farming, which they see a profitable and safe, rather than allow an energy project to be developed, which could take a long time to build. People also are better informed about these projects, so they ask for higher amounts of money, which is reflected in the lease rates for the land. These factors have helped drive up overall land prices.

Another issue in the central area of the country is the number of land plots with very divided ownership. We have seen projects with 480 different plots of land for a project capacity of 100MW. You can market that amount of energy, but you would have to negotiate with a high number of landowners. In contrast, in the north area, we have arranged a project of 200MW with one single landowner.

The existing infrastructure is deficient; also, the system is oversaturated or missing adequate cabling, for instance. It needs to be reinforced, which should be the state’s responsibility and not those using the infrastructure. The average interconnection currently requires a CAPEX of US$180,000 per MW.

As a result of these factors, we have not seen that much movement ourselves, although we continue to look for opportunities to develop new projects. The company previously had solar projects in Durango and in Chihuahua that were sold at auction. Now, we have projects but no buyers, so we are losing money. Just for the right to produce energy, we are talking about amounts around MX$600,000 and this is only to get the paperwork ready.

Q: As a company, what is your relationship with the government?
A: We belong to various associations, including ASOLMEX and AMDEE. We frequent the committees and meetings, working with them regularly and communicating with the government. There is strength in unity, as they say. We have a person in charge of regulatory affairs, research how a change might affect our business and helping us look for new opportunities. We are thinking about getting involved in hybrid projects, although the regulations here are not very transparent and the company would need to go through the approval process twice. The government is adopting new legislation soon, in which it will define how private investment will be allowed to contribute to government projects.

For President López Obrador, renewable energy is focused only on hydroelectricity. The administration is forgetting solar parks. We continue to be a company that develops projects, but we have no business in the construction chain or O&M. These have limited us in terms of taking on somewhat quicker projects. As a result, we tweaked our strategy to focus on business development, which has led to a bigger diversification of the companies that we work with it. New players are watching our projects closely and following up on those that might interest them. Our strategy is to diversify and find new clients.

Q: What improvements would you like to see from the government’s side?
A: Electricity infrastructure. PRODESEN, for instance, provides data related to the government’s projects. With that information, it becomes possible to predict how to arrange interconnection best. However, sometimes the project is not carried out despite the analysis. This year, there have been no updates to the information system whatsoever.

Furthermore, government processes at SENER, CRE and SEMARNAT could be more efficient. Information should always be up to date. COFEMER is meant to make regulations easier but it is not active in every single area. If a waiting period that was meant to last 60 days takes over 400 days, this causes significant delays.

Q: Vestas acquired 25.1 percent of Sowitec. How has this impacted the company?
A: We have experienced support and improvement in some processes. Also, this relationship helped us when the authorities were determining whether we had sufficient economic and technical capacity to initiate projects. Having a partner like Vestas allows for more recognition. Vestas has been involved in all the projects in which Sowitec has a presence. At the moment, Vestas is mostly focused on three markets: Brazil, Colombia and Mexico. Here, we are focusing on finding projects with private players with our combined business development teams.

Q: What hurdles has Sowitec faced in dealing with the local population?
A: We have a team of historians and anthropologists that focuses on social issues. These have helped us a great deal because they are great at working with people. When we first visit a site, we seek to establish contact with members of the community. We have never had any interactions with indigenous communities, but we research how people might react to us before we start a project. This strategy needs to be done before any contract is signed. We assess the local community and we identify the leaders. For instance, you would think local leaders or treasurers have the most influence over people, but in reality, it is often the doctor, priest, or even shop owners whom people look up to and respect their opinions. It is essential to find out who leads the community.

We had a project where there were 150 plots of land. Our objective was to minimize the number of plots we had to deal with it. In this particular case, the local president did not have much decision-making power. Instead, there was a woman in the village who sold food and also coordinated all of the local women. She was the one we have to deal with. We develop workshops with local communities and schools to educate them about renewable energy and its technology. These courses are designed to help them understand what we are planning to install there.

Q: What are your goals for 2020 and what strategy will you use?
A: Our goal is to be as intelligent as possible when scouting out potential projects because the resources available to find business have been limited in this past year. There are databases that in, reality, are not as accurate as they could be. So, we have to do our research. We are looking for sites that have few lease issues, interconnection or otherwise. We are doing our analysis, in which we zoom in on specific details and look for potential projects to develop.

Sowitec is one of the world’s largest developers of renewable projects. It entered Mexico in 2008, where it has developed and sold several projects focused on wind and solar. The company has developed and sold 630MW in renewable energy projects in Mexico.

Cas Biekmann Cas Biekmann Journalist and Industry Analyst