The Right Bet on Mexico Solar

Looking for attractive and competitive projects overseas for the first time, Jinko Solar arrived in Mexico just a few months before CFE’s first power auction took place in March 2016. The company put its proposals together in record time and won three ventures, totaling 188MW.

“Jinko Solar has several years of experience working as an Independent Power Producer (IPP) in China, where we manage around 1.2GW,” says Asier Aya, Managing Director of Latin America at the International Power Division of Jinko Solar. “Last year, the company’s headquarters decided to internationalize its IPP business, creating an international power division. We started to look at opportunities in different regions, mainly through power auctions, and Mexico was the first in which we succeeded.”

Aya considers the Mexican auctions to be “the most complex in which we have participated so far.” He attributes the company’s success to its flexibility as well as having a highly professional and experienced team that has strong capabilities in tenders and developing and selecting the right projects.

To fulfill the contract conditions, Jinko Solar will build three new solar parks that should start commercial operations by mid-2018. The 100MW Viborillas park in Jalisco and the 70MW Cuncunul project in Yucatan will be developed by Jinko Solar’s partner, Solarcentury. An additional solar park in Yucatan that Jinko Solar acquired from another company will generate the remaining 18MW. In all cases, Jinko Solar’s International Power Division participates as investor and owner.

“The Jalisco project was already advanced in its permit processes. In Yucatan, we decided to take the risk and develop new projects from scratch motivated by the positive US$22 per MW/h regional factor in place there. Judging by the auction’s results, we made the right bet,” Aya says. With little time left before the auctions, Jinko Solar’s team rushed to find the right locations in Yucatan for building large-scale projects. “The main constraint was to find a site close to a substation with enough capacity to handle the project. We finally found a suitable substation with more than 250MW of available capacity, more than enough to support our project,” Aya adds.

Jinko Solar’s projects in Mexico represent a total investment of around US$300 million. The company will provide equity and fund the rest from commercial banks. Aya says the 15-year tenure established in the PPA “impacts on project financing processes because when structuring the debt, banks only take into account the contracted period. The rest represents a market risk that banks prefer to avoid.”

The novelty of the Mexican spot market also elevates the risk for the period after the PPA term because there are no historical records for reference. But Aya says that has not been an impediment to financing. “Some banks were not showing much interest to finance the projects before the results of the power auctions were published but now we have more banks interested in financing our projects than we actually need,” he says.

Mexico’s first power auction saw record low prices for solar energy, raising doubts about the projects’ profitability. Aya, however, is not concerned. “We offer electricity prices according to the projects’ real costs, including EPC and O&M. Our detailed financial model defines our tariffs so we can make tangible and successful projects,” he says.

Around 95 percent of the projects’ power production will be sold to CFE in line with the PPA’s established conditions. The rest will be traded on the spot market. “We are analyzing the best strategy for selling energy. We have received a number of proposals from qualified suppliers and are evaluating different options,” Aya says. The company is now focusing on having the projects ready to roll out in 2018 and foresees a good future for the solar industry in the country. “Mexico will continue to be one of the world’s most attractive markets in the next five years. The next power auctions will provide certainty about growth. Mexico has demonstrated it has a bankable energy market,” Aya says.