Setting the Stage for Energy StorageMon, 02/25/2019 - 16:37
Q: What is Neoen’s primary contribution to Mexico’s energy transition?
A: Neoen is an IPP exclusively focused on renewable energy generation, including solar, wind and energy storage. With a track record spanning over 10 years, it was able to join the leagues of French IPP heavyweights ENGIE and EDF Énergies Nouvelles, with the difference that Neoen is a private venture. Neoen decided to expand to Latin America in 2013, with Mexico at the helm of our expansion plans. The decision was well-timed considering the opportunities the Energy Reform unlocked. Prior to that, renewable energy projects could be developed under self-supply or small producer schemes but did not represent the range of opportunities and scale available now. Mexico’s macroeconomic solidity and seriousness was also a big part of our decision. Our confidence in Mexico’s potential was cemented when we found the tremendous level of competition in the country.
Neoen’s goal is to deliver high-quality, bankable projects. The company develops greenfield projects that it retains as operational assets, contrasting with some developers and funds that develop projects only to sell them once they reach financial close or operational phase. We also established our Mexico office for it to become Neoen’s regional hub. Our strategy enabled us to develop an operational 100MW PV park and a 140 MW PV in construction in El Salvador, a 50MW PV park in construction in Jamaica, 200MW of PV capacity in financing in Argentina and a 380 MW PV plant in Mexico in financing. We also have projects in development in Guatemala and Colombia.
Q: How is Neoen preparing for future long-term electricity auctions?
A: We consider the long-term electricity auctions as a resounding success for Mexico, particularly in terms of their execution, design and results. Despite the aggressive levels of package prices offered, most of the first and second long-term electricity auction projects are close to reaching operational phase. Neoen is working towards financial closing for the 380MW Aguascalientes PV park it won in the third long-term electricity auction. We will continue participating, with bankable and serious offers rooted in mature projects. Neoen carries out thorough analysis prior to every auction in order to mitigate project risks as much as possible. We are not closed to other possibilities to expand our footprint. Neoen is in talks with qualified suppliers to sign bilateral PPAs and we are analyzing the attractiveness of fully merchant projects.
Q: How do bilateral PPAs stand out from long-term electricity auction coverage contracts?
A: Bilateral PPAs can be challenging niche for now in Mexico. Competition include heavyweights such as ACCIONA Enel, ENGIE, Iberdrola, or Sempra. The structure of bilateral PPAs is also more complex for off-takers compared to the previous self-supply scheme but we are confident that as the market matures, off-takers will grow accustomed to PPAs. However, in the midterm, private PPAs will become standard practice in Mexico as in other countries. Neoen has a great track record in that field, having for example just signed a PPA with Google in Finland.
Q: How does Neoen design project finance structured to ease financial closing?
A: We always contract long-term debt and stay away from short-term financing, such as mini-perms. Our shareholders are adamant that we must not take refinancing risks. While we can place a certain amount of equity in a project’s early work, we do not launch the construction phase until we reach financial closing. Bankability is deeply ingrained in Neoen’s DNA. Development banking’s due diligence processes, whether national or international, have raised the bar for renewable energy projects. These include anti-corruption practices, social and environmental impact and project design using Tier 1 components. We strive to comply with all these different aspects to obtain financing.