Renewable Financing Grows in NAFINSA’s PortfolioWed, 02/19/2014 - 11:56
Nacional Financiera (NAFINSA) financed 50% of the required capital for Aura Solar I, the first large scale photovoltaic plant in Mexico. The financing of this project is a sign of the Mexican development bank’s mandate to promote renewable energy projects in the country but more specifically, is an endorsement for the Mexican solar energy industry. For over two decades, NAFINSA has been focused in providing financial resources and warranties to small and medium-sized companies. It was just six years ago that the bank started funding renewable energy projects. “NAFINSA’s role is to be a pioneer in the development of financing for projects involving new technologies or technologies that have not been used in Mexico,” explains Enrique Nieto Ituarte, NAFINSA’s Director of Sustainable Projects. “Clear examples of these are our financing of two major solar energy projects – Aura Solar I with 30MW and another project of 18MW – with market risk present in the tariff price.” In other words, the tariff is based on what CFE is paying in the short term, which is a merchant risk.
NAFINSA is seeking to contribute to Mexico’s shift towards renewable energy by financing more projects, taking on more risk with the capital it has available to invest, and forming strategic alliances with multilateral organisms. “We have combined diverse sources of funding such as funds destined to the mitigation of climate change, and canalized them toward Mexico. Furthermore, we are focused on creating feasible structures and spreading knowledge about new financial instruments that might allow more access to this type of energy,” he says.
The fact that the Mexican renewable energy market is not booming yet is actually a healthy sign for Nieto Ituarte. He mentions examples in Europe, where renewable energy was subsidized in an effort to promote it, but making it unmanageable in the mid-term. The organic growth of renewable energy in Mexico is allowing all players – from financial institutions to CFE – to provide the required demand that will build a stronger market for the future. “The current legal framework is adequate for the country’s need. Nevertheless, the lack of infrastructure is an issue that has to be acknowledged by CFE through its Open Season scheme,” Nieto Ituarte says. However, he believes that in the future, other types of infrastructure financing will have to be created. Meanwhile, NAFINSA is working in coordination with public and private financial institutions for the increasing financing demand for renewable projects.
“Competition is being created and we are involving commercial banks in the process,” Nieto Ituarte states. He found that getting involved in renewable projects came very naturally as soon as the market heard NAFINSA was financing these types of projects. Demand has increased and the development bank is expecting it to grow even more in the near future. “There are many players that have the technology, the land or the resources but do not have the financing. We enable those projects to become a reality,” he adds, recalling the early days of wind energy in Mexico when it did not enjoy the trust it does today. “Now financial institutions are very comfortable with this type of energy and the same is going to happen with solar and hydropower.”
What makes NAFINSA more attractive than other financial institutions? Nieto Ituarte does not hesitate to mention the reasons why NAFINSA is a competitive option. “First of all, we have long-term resources that commercial banks do not have. However, we design mechanisms so commercial banks can participate in case there is some kind of restriction.” He emphasizes that NAFINSA does not give money away, there are no lost funds or nonexistent rates. “These projects are profitable under market rates and without subsidies, therefore they have market prices.” To acquire financing from NAFINSA, project developers must first comply with many regulatory requirements. Nieto Ituarte underlines that one of the most important issues is land management. When the land is privately owned there are usually less complications, but when the project is being developed on ejido land, NAFINSA does not provide any funds until an independent entity certifies that all requirements are being complied with. “The social risk for us, in particular, is very important because communities can be adversely affected instead of benefiting from a project.” NAFINSA also provides consulting services to its clients. The bank begins a negotiation that ends with the structuring of the debt’s size, term and rate, depending on the risks. All those factors go toward creating a financial model that gives the project feasibility.
NAFINSA is trying to double its renewable energy projects compared to 2012. “I believe renewables will take up about 15-20% of NAFINSA’s portfolio. The bank is making its way into the sector and has a commitment to support the government’s renewable energy ambitions. If a good project comes to NAFINSA, we will support it,” Nieto Ituarte underlines.