Unfair Competition, Stalled Projects: Challenges for Solar Plants

Q: What have been the main challenges for Sowitec in the changing environment of the Mexican energy market and how has the company dealt with them?

A: Between the pandemic and political changes, we have adapted well. We had the opportunity to improve our internal processes thoroughly. We have also worked on training and strengthening our team. Even working from home has helped improve the work environment.

Some specific challenges regarding Mexican regulation have been slowing down of projects and competing with state companies. When the National Energy Control Center (CENACE) suspended its activities, the interconnection processes for some of our projects under development slowed down. CENACE then stopped updating its interconnection queues, which is public information, and as developers, we are constantly analyzing to understand the market and trying to find suitable sites for projects while verifying the availability of interconnections. Even though we have a very advanced geographic information system internally, the lack of these updates prevents us from seeing the complete picture.

Another challenge is that as a developer, we are the first link in the value chain of an entire project, and today there is much more competition. Large companies have their development teams, too, which is an area that was often outsourced in the past.

Q: What other regulatory hurdles are Sowitec working to overcome?

A: We still have several projects for commercial interest under review by the Ministry of Environment and Natural Resources (SEMARNAT). This authority has gone silent, and all its processes suspended. Although the procedures related to the Environmental Impact Assessment are even registered with the National Commission for Regulatory Improvement (CONAMER), which regulates that federal procedures are resolved in a timely manner, this is not happening.. Regardless, some projects have remained suspended for years. There is no certainty as to whether they will be authorized. Furthermore, with the Ministry of Energy (SENER), it is difficult to process Social Impact Assessments because of the obstacles they created.

All these challenges make it difficult to keep a client or investor interested in any given project. In addition, these government agencies prioritize state companies, approving any request they submit.

Q: How does Sowitec establish a relationship with communities to deploy its projects?

A: Land tenure can be divided into two large areas: private and communal land, so concerning the communities, I can comment Mexico’s ejido system functions much like private property as long they are plots, otherwise if the result in common use for the community, the procedures should be carried out through assemblies. First, we commonly conducted a field visit to determine whether the location is feasible for the project’s development. We identify important actors, in this case, the board of directors of the ejido, to whom we present the project. If necessary, we bring translators. Finally, if we manage to convince them, we will follow the process according to agrarian law to form the quorum of ejidatarios, following the law to the letter.

We must know how to convey what the project entails. Broadcasting the project can be difficult because we need to explain it in an accessible manner. We have even done workshops to explain the infrastructure. The center of Mexico is full of ejidos, yet most clients want to develop projects there because of the high energy demand.

Q: What will your new business strategy focus on?

A: Our business development area is looking for clients for projects and we work to explore their interests. We have received requests from steel and cement companies that want to contribute to decarbonization. At the moment, we have a fixed portfolio tailored to the requirements of clients or potential investors, but we plan to create a new portfolio for 1Q23, especially with wind projects.

We want to remain ahead in the market by developing projects focused on new technologies. Sowitec aims to innovate. To get truly ahead, Mexico’s regulation would need to evolve. For example, floating solar is a wonderful technology but there is still no clear legislation or permitting to develop it. Unfortunately, the situation in Mexico regarding regulation is lagging. As developers, we must assure a project without social or financing problems for the client. Sowitec is incredibly careful about legal compliance. We also enforce a zero-tolerance policy regarding corruption, which can be difficult in highly bureaucratic markets known for such issues.

SOWITEC is among the world’s largest developers of renewables projects. In 2008, it started operations in Mexico, where it has developed and sold projects focused on wind and solar. The company has developed and sold 630MW in renewable energy projects in Mexico.