Florian Goutte
Latin American Development Manager
Valeco Energía México
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Insight

Short-Term Steps for Long-Term Revenues

Tue, 03/10/2020 - 16:48

With large-scale utility projects derived from the long-term electricity auctions off the table, end-users see on-site generation as a cost-efficient alternative to solve their energy needs. “The biggest generation companies in Mexico that sign corporate PPAs under the new regulation generally sell their electricity at the interconnection point, hence the off-taker receives associated risks like transmission and distribution losses, as well as price fluctuations over the long term,” says Florian Goutte, Latin American Development Manager of Valeco Energía México. “If you are generating on-site, these costs are not reflected in the off-taker electricity bill and the energy price you are competing in the market with is higher.”

After the third long-term electricity auction reached prices of US$20 per MWh, the company decided to rethink its strategy in Mexico. “We asked ourselves if we wanted to develop more MWs or generate profits. As a result, we started to participate in the corporate PPA segment outside the auctions.”

The main driver pushing energy-intensive consuming companies are the rising electricity tariffs. Therefore, the industry is looking for other solutions, providing an opportunity for companies like Valeco. “Renewable offsite and even more on-site generation plants have become very attractive. In fact, these players are starting to reach out to us to establish collaborations,” Goutte says.

Even consumers that own self-generation facilities powered by natural gas are looking for renewables, because of the supply issue of natural gas in Mexico. “Around eighty-five percent of the country’s natural gas supply is imported and mainly depends on Texas, US. At a global level, maybe no country is more dependent on another country for its natural gas supply than Mexico, and consequently its electricity generation, as more than 50 percent generation is based on natural gas. With the recent limitation in supply, on-site renewable generation has become a strong alternative for this kind of consumers”, Goutte says.

Given these market conditions, Valeco Energía México is ready to grab the opportunities that are emerging. After being acquired by EnBW, one of the largest energy supply companies in Germany and Europe, Valeco Energía also has greater clout to realize its goals. “With EnBW, we have a new potential level of financial capacity. We are undergoing an assessment process to reframe how capital injections could take place. In the meantime, we are working with financial partners interested in investing with us, each of us bringing its strengths. Capital funds can allocate money in different industries for the financial yield while Valeco Energía México takes over the development, construction and operation of the projects”, Goutte says.

The company’s project pipeline is poised to grow. Even though Valeco Energía México entered the local market through solar energy developments, its origins are rooted in wind technologies. “At a global level, Valeco’s portfolio was 20 years ago focused on wind energy generation. The last years showed an increase of solar projects. Today, close to 60 percent of our capacity belongs to wind and the rest goes to solar. In this sense, we can develop both technologies,” says Goutte.

In Mexico, Valeco is working on projects from distributed generation to huge on-site generation, as well as solar and wind off-site generation. “We could also be interesting in developing hybrid assets in the Yucatán peninsula, between corporate PPAs and merchant, maybe a 70/30 ratio”, Goutte adds.

In addition, while regulatory restraints are managed during the federal administration’s transition, the company will continue to expand its foothold in the country. “At the moment, we are focusing on the distributed generation segment as small-scale projects. These are the first stages of larger projects but under this scheme, development is faster,” says Goutte.

Given that EnBW backs up the company’s operations, 2020 is expected to be a decisive year for the company. “In 2020, we will reframe the company’s strategy for the long term. Mexico is a very attractive country, but first we need to explain different topics such as Mexico long term potential, regulation, corruption or security.” According to Goutte, its pipeline this year will be focused on consolidating their projects under a PPA scheme. “Our team is working in the short term to develop on-site PPAs under a distributed generation scheme. In the long term, we want to consolidate larger projects in collaboration with financial partners”, he concludes.