Right Place, Right TimeWed, 02/22/2017 - 16:08
Q: What challenges did Enerray face on entering Mexico and how are these conditions changing?
A: As a foreign company, we had to work hard to build a reputation and establish trust with our customers. Enerray built a complete local structure for its commercialization, distribution and technical operations here in 2014. To help build our market presence, our headquarters in Italy decided to invest US$500,000 in a solar rooftop installation for our offices in Queretaro, which was our first step as an EPC company in Mexico. This allowed us to learn in-house about all the factors influencing rooftop project development in the region. It became a showcase of our ability to deal with local regulations and permits in addition to our technical capabilities, reassuring our customers about Enerray’s value proposition.
Since that first project, local conditions have changed considerably. One of the factors affecting the market has been the depreciation of the Mexican peso against the US dollar, which has reduced national investment inflows. The implementation of the Energy Reform also has brought uncertainty to the regulatory environment, slowing market growth. Electricity tariffs, meanwhile, represent a barrier for solar market deployment, particularly in the DG sector. Despite the market challenges, Enerray has successfully positioned itself in the country.
On the positive side, we finally are observing a change of mindset in the Mexican industrial sector, which now recognizes solar as a suitable option for powering its facilities. Regarding solar irradiation, Mexico is in a privileged position, with some of the greatest solar resources in the world. The fact that Germany continues to invest in solar even after the government cut back on subsidies is an indicator of the technology’s potential, which can be even greater in countries such as Mexico.
We are confident the Mexican solar industry will take off eventually but the pace of adoption will depend on how the market evolves.
Q: How has Enerray confronted difficulties such as project financing?
A: Obtaining financing for rooftop solar projects is complicated because few banks consider these as project finance but rather as CAPEX investments. In other words, banks continue to perceive a rooftop solar installation as a company’s asset and not as an investment with the potential to generate revenues. There still is little awareness about the advantages and performance of these installations so we spend a lot of resources spreading information and educating customers about solar energy solutions.
One particular aspect we want to highlight is the extended life span that solar systems offer in comparison to other energy investments. For instance, LED lighting has a shorter recovery of investment time of almost one or two years but its useful life is limited to five years, which means the company will have to make a capital investment every five years to replace old items. A solar installation, on the other hand, can last 25 years if suitable O&M is provided. In other words, the recovery of investment for a solar installation is not as short as other energy investments but its benefits will last longer. In Mexico, project contracting tends to take longer than in other countries but industry success stories are likely to change this. If the right technology and EPC partner are chosen, solar installations can offer competitive energy prices, in some cases even more cheaply than traditional technologies.
Q: In which areas do you foresee growth opportunities?
A: The Mexican market offers a wide range of business opportunities for Enerray. In fact, we are short of human resources to cover them all. We plan to continue developing rooftop installations and incorporating equity funds from abroad to provide financing along with our EPC services.
Enerray in Mexico is supported by a large Italian corporation, the Maccaferri Industrial Group. Its history dates back to 1879 and it has 58 factories worldwide. The group has been active in Latin America since the ‘70s and in Mexico since 2003. Having the financial backing of an international group increases Enerray’s bankability, giving us access to different financing plans.
The business models we plan to use in upcoming years are bilateral contracts and leasing plans. We consider those models to be the most attractive options for our final customers. The company is working with a number of shopping malls, which involves the use of different electricity supply and their respective tariffs. In these cases, we can install a large solar park to supply communal areas and sell the surplus energy to the independent stores located in the commercial area.
For utility scale, we need to have a bilateral contract or PPA signed prior to the start of construction. We can support companies in electricity tenders with the technical aspects of their proposals, partnering in their project development. In other markets, we already have acquired renown in the utility sector, for instance in Brazil where we have begun the construction of 100MW.
This expertise has made Enerray an interesting player in the EPC sector and we plan to use these skills to boost our business in the country. In Mexico, we believe we are in the right place at the right time.
Our goal is to find the best technology according to our clients’ needs. In rooftop installations, collaboration between our technical, financial and purchasing departments is crucial. In the DG sector, projects are tailor-made so no system is equal to another. We cannot suggest a preferred technology because it depends completely on the client’s requirements and the project's location, particularly as weather conditions influence panels’ performance. For utility scale, developers and investors have an important say in the final product selection. In Latin America, system components such as inverters have been well-received because they have dramatically decreased costs.
In addition, we are using a cost-engineering strategy, avoiding the use of unnecessary components without compromising the installation performance. Regarding technological advances, we are favoring the use of remote monitoring devices as well as electric components allowing for a 1,500V connection. Energy storage for industrial applications has become an affordable technology in the last couple of years, anf is required by some projects to stabilize the distribution lines. In other cases, energy storage devices are being incorporated into systems to save electricity in high-production periods to sell it back in high-demand peaks, where megawatt-hours are more expensive.