Structuring Projects for Specific AppealWed, 02/21/2018 - 11:49
Q: How has NAFIN benefited from working with multilateral development banks (MDB)?
A: NAFIN is a development bank that does not receive public funds. It goes to the market daily with the objective of raising funds to allocate in short, mid and long-term time frames. MDBs offer funding primarily with a long-term scope. These financial entities are manifesting a strong interest in renewable energy projects for Mexico, to the point of sometimes offering financing under preferential conditions. One of our departments is focused on channeling this awarded capital, outlining the conditions under which it is given, while we take care of structuring projects in a way that the benefits inherent to these financing sources are allocated in the largest proportion possible. We structure the project to appeal to a particular financial entity on a case by case basis.
Q: How has project finance changed since NAFIN's first financed wind farm in 2010?
A: The depth of the change is considerable. In 2010, the innovative aspects of a renewable energy project in Mexico scared away potential investors and NAFIN stepped up to echo the country’s public policy. The idea was to find the best financing option for the project, make it bankable and foster the participation of commercial banking. In 2014, as the Energy Reform was enacted, the trend in which the public sector absorbed the entirety of a project’s risk and financing requirements, especially in the oil and gas sector, was disrupted. Now, the private sector has a preponderant role, both in project development and financing. Unlocking the value chain to private initiative also disrupted the financial system under which it previously operated. The amount of resources required to bring utilityscale projects to their successful conclusion and meet the country’s energy needs are estimated to be near US$250 billion. This cannot be provided by either commercial or developmental banking or the private sphere on their own. NAFIN is acting as a catalyst for outside funding to cover this necessity. Many foreign banks from around the world have answered the call and want to participate directly in this transformation. By far, the most significant disruption for the electricity sector comes from transitioning from a long-term market to a merchant, short-term market, posing an additional financing challenge for Mexico’s electricity system in financing short-term sales with long-term financing conditions.
Q: How does NAFIN integrate its renewable projects portfolio and financing decisions?
A: It is a matter of costs, yields and the project's financial solidity. Electricity generation costs using solar power technologies have decreased fivefold since 2010. Wind power and natural gas are also witnessing downward trends. Since December 2012, NAFIN has multiplied its financing portfolio fivefold and grew consistently 100 percent per year. NAFIN will continue working toward further consolidating the Energy Reform’s positive momentum. So far, NAFIN has financed 13 wind farms, two solar parks, two small-scale hydroelectric plants and one cogeneration plant.
Q: What are NAFIN’s objectives for 2018?
A: NAFIN's electricity portfolio has over 70GW nationwide. Two precise objectives are on the table. First, duplicating this portfolio by 2030, meaning billion-dollar investments to ensure Mexico’s energy availability under the best possible conditions to compete globally. Second, 35 percent of the energy produced must come from clean energy by 2024. We are on track as a country and NAFIN will continue assisting all efforts to support the Energy Reform, particularly in its renewable energy component. The good news is that renewables are here to stay and we are leaving behind a better world as we detach our electricity system from fossil fuels. The challenge will be dealing with PV and wind power’s intermittency. To date, the fundamental solution is relying on natural gas for grid stability and we are expecting the technological disruption of battery-based storage systems