Adrián Katzew
CEO
Zuma Energía
/
View from the Top

Setting the Cornerstone in Tamaulipas

Sun, 01/05/2020 - 07:00

Q: What role is the Reynosa power plant playing in the development of the wind industry in Mexico?

A: Reynosa is the first auction project to finalize its financing phase. Our team raised more than US$600 million, which is the largest amount of money directed to the electricity sector in Latin America in 2018. The project comes with an element of merchant risk for its 15 years of operation and the contractual scheme had to provide an adequate solution to deliver an annual energy package. Reynosa set the precedent for future projects in northern Mexico. In my experience as a banker, I preferred to start working with projects that were new in terms of technology or contractual schemes because this allows the determination of certain rules that can later act as a reference. Reynosa had the virtue of establishing those agreements and answering these questions.

 

Q: How did Zuma Energía select its financial partners for the Reynosa project?

A: For this project we needed committed financial partners, especially the decision-makers. For international or national commercial banks, it is relatively easy for their commercial department to look at previous references and present them to a credit committee. But to create these references, decision-makers must become an active part of the exercise. You cannot work with a Japanese or French bank and expect the same reliability and disposition that a development bank team might have in tailoring the first purchase agreement contract in Mexico. Mexican development banks provide these conditions. NAFIN, Bancomext and Banobras came on board for this project and really achieved the objective they were created for, which is to provide financing to first-time projects with specific characteristics, creating a precedent. We also were supported by the Danish development bank, which always accompanies Vestas in projects like this. Denmark’s Export Credit Agency (EKF) seeks to promote exports and participated in the discussion by providing its global expertise.

 

Q: How do you foresee the creation of a wind energy hub in Tamaulipas state?

A: In contrast to solar energy where there are many competitive regions, wind energy resources are limited. The most competitive zones are located at the Isthmus of Tehuantepec and Tamaulipas, where wind currents travel from the Gulf of Mexico to Texas. In addition, the topographical conditions in Reynosa are optimal for these projects, as a growing number of projects show. Tamaulipas is a privileged zone and we must foster its development responsibly. This opens another conversation: addressing the country’s transmission infrastructure. This is a very important pending challenge from the last administration and would have tremendous benefits for the sector. In terms of capacity, renewable energy projects have achieved competitive prices that could benefit other regions of the country if the transmission lines were available. This is a very efficient investment because every dollar invested in transmission has a financial yield for the system’s cost. I am convinced that in the coming years we will see more MW in Tamaulipas. In addition, as technology improves, we could see other regions of the country enjoying growth as well.

 

Q: As Zuma Energía’s main business strategy was auction-based, what are the company’s plans to remain competitive in 2019?

A: In the short term, we are focusing on big energy users as we see a clear path in this segment. Mexico has strong potential and it should find an agile mechanism for incentivizing PPA contract inflows. These contracts with final parties present many opportunities. This market scheme allows a reduction of generation costs and fosters the transition to a cleaner energy system with generation on site. In this sense, the private sector must promote collaboration and strategic approaches that are in line with these objectives. A new contractual scheme must emerge; that will take place as soon as these discussions between the involved stakeholders mature. The auction scheme mobilized US$16 billion per year. In terms of foreign direct investment, the energy sector’s inflow is very important. I am confident that we will see an active renewable energy sector that will recover its role as the engine for investment attraction.

Zuma Energía is a Mexican company born from the possibilities triggered by the Energy Reform. It develops, acquires, finances, builds and operates renewable energy generation projects across the country.