Solar Investment Toward a Clean FutureBy Cas Biekmann | Thu, 10/22/2020 - 11:43
Q: What is Banverde’s purpose and how does it operate in Mexico’s energy sector?
A: A member of Banverde’s advisory board is Jigar Shah, who was instrumental in the creation of the PPA. He authored the book “Creating Climate Wealth,” which is at the heart of Banverde’s philosophy. This philosophy is “business beyond profit,” where all our investments in solar rooftops for clients should benefit every party involved. Firstly, the client will achieve savings in energy costs compared to paying CFE. It creates economic activity for the party installing and constructing the solar panels. Banverde itself achieves a good ROI. Most importantly, the world will benefit due to the generation of cleaner energy.
Mexico benefits from spectacular solar radiation, especially outside of the big cities, which suffer from pollution. The market represents an opportunity of US$60 billion in terms of solar investment for the commercial and industrial sectors. Our goal is to be an important part of this in order to boost the clean energy transition.
Banverde did not come out of nowhere: it is part of WRB Enterprises. This group oversees the Bank of Tampa and Central Bank Florida. It also has constructed projects on the Caribbean Islands totaling 28MW and it owns a utility company called Grenlec, located on the Island of Grenada. Given these successes, Banverde was created to attract US and Mexican investment to help develop Mexico’s energy transition. The goal is to help Mexico decrease its carbon emissions and to help companies achieve energy savings.
Q: How does Banverde’s financing scheme create benefits for clients?
A: Our financing is simple. Imagine going to a car dealer and wanting to finance a purchase there. You will get hundreds of offers from entities willing to do this. They will offer to cover insurance or provide other perks. But what happens if the car is damaged or stolen? Your insurance will cover this, but you will have to wait until the process is completed. The financial entity will not care about this and will continue to charge its monthly fees. Banverde, however, offers a contract based on kilometers traveled. If something bad happens, Banverde loses the kilometers it can charge. Therefore, it is our responsibility to fix the issue immediately. We align ourselves completely with our client’s well-being.
Q: What is the difference between the US and Mexico in terms of energy financing?
A: Mexico is in a process of development regarding photovoltaic systems for commercial and industrial use. CIBanco and UNIFIN are some banks that finance solar systems, but lack specific engineering knowledge where energy is considered. In the US, it is quite the opposite: a product for energy purchasing is normally used by companies that require this type of financing. Americans are very much used to long-term contracts and feel comfortable with their counterparts. A partner like Banverde could cover their energy needs, generate savings, as well as include operation, maintenance and monitoring. In Mexico, people are less keen on these contracts. Many times, companies compare the purchasing of energy with credit and leases. They mistakenly calculate the sum of the capital flows and therefore they believe that a PPA will cost them more.
Compared to the US, Mexico is a long way from the market maturity needed to implement energy projects at an accelerated pace. Our US partners can close a distributed generation project in between one and six months. In Mexico, this same decision-making process takes between six months and one year on average. This is due to unfamiliarity with the product, which slows down the deployment of money.
We are organizing many webinars with counterparts such as TOP Energy and Baywa to educate the market. Most of all, we focus on installers because they are the first link in the contact network to approach companies and can pass on the benefits of our product. This has resulted in a faster closing process. Installers are starting to recognize that our product is an excellent tool for additional business development, which is O&M in the long term. It is a complete product, but people in the Mexican market still need to fully understand its benefits. We are seeing other financial entities coming out with products that are similar to ours, which delights us because it shows the clear potential of PPAs in Mexico. We hope to see even stronger development in the next five years.
Q: What impact is Banverde seeing from the pandemic in terms of this development?
A: That is tricky to say because it depends on the profile of the client. Unfortunately, for many companies, having a solar system installed on their roof is merely a “nice to have.” It is not a priority for them, which is unfortunate because for many, energy is a main cost factor in their production process.
Regarding the pandemic, Banverde is playing an important role. We are healthy financially, so we are not simply looking to survive the situation. We want to be part of the solution. To that end, we partnered with the government of Jalisco to launch a pilot to help battle the pandemic’s negative effects. Banverde saw that companies were struggling with production stoppages, reduced sales and crippling fixed costs. We saw an opportunity to mitigate the latter factor by financing the installation of solar panels. We then suspend the payments for the energy generated once interconnected, meaning the client is not required to pay anything for six months. We start charging only from the seventh month and onward. This saves companies from spending cash flow, which for some could total up to MX$1 million in savings. It is reducing the impact of the health crisis significantly. Some companies signed up fully aware of the benefits, while others jumped on it out of panic. That project has now been launched nationwide. Our call ended on June 30, at which point we had around 100 companies pre-authorized to receive this stimulus. Banverde’s goal is to be a creative force behind Mexico’s exit from the pandemic. For the first session, the pilot, we will invest US$15 million. Eventually, it is our goal to invest this amount into every single Mexican state.
Q: What can the Mexican government do to further boost the benefits of distributed generation?
A: The energy demand of industrial and commercial players in Mexico’s markets are not met by the current installation cap of 0.499 MW. We have a good relationship with CFE’s distribution arm, and it is from them we that understand that the 0.5MW-regulation refers to everything that is connected to the grid, meaning 499KW in AC. We can, however, construct projects slightly over 0.5MW as long as it does not cross the AC limit, which helps somewhat.
There are two key elements required to make distributed generation an enormous force in the Mexican market. No. 1 would be to raise the limit to 1MW, which would make this form of energy generation much more interesting for companies because we could cover more demand and generate vastly bigger savings. The environmental benefits would surge as well.
The second point would be to boost community solar. Once this enters into action, it would change the playing field drastically because we could then cover shopping malls and residential centers, which would turn other sectors on to the benefits of solar energy.
Q: How is the government’s shift in energy priorities affecting Banverde’s financing portfolio?
A: Banverde respects the government’s decision-making processes. However, we will always keep an eye on what technology allows us to do while fruitfully co-existing with government. In regard to our portfolio, we are not seeing any notable impact. Our operations are continuing successfully and no obstacles have arisen. Nonetheless, the first thing clients see in the government’s actions is a slap in the face. We provide counterarguments to assuage their fears. Clients need to know that distributed generation will not run into issues. All the negative news in the media does make clients hesitant to make the decision toward solar energy. However, we are taking a positive view. ASOLMEX, for instance, is making a great effort to further the development of solar in Mexico. Many installers are doing their part to further development as well. I believe firmly that distributed generation is the future, not just in Mexico but everywhere. Nobody can stop this advance.
Q: What are Banverde’s goals for 2020-2021?
A: Our metrics are simple. In 2017, Banverde came to Mexico with a fund totaling US$5 million. We used this small fund to obtain a portfolio of projects, after which we realized there was not much space left to invest. As a result, Banverde launched its commercial area. Now, the goal is to achieve a deployment of at least US$70 million on photovoltaic systems in Mexico within the next year.
Banverde is a private equity fund specialized in providing financial solutions to Mexico’s distributed generation developers at the industrial and commercial levels.