Wise Hands at Securing Infrastructure FinancingWed, 02/19/2014 - 12:19
Developers of renewable energy projects are not created equal. Some are international heavyweights that have installed hundreds of megawatts of capacity around the world and confidently swagger into the Mexican arena. Others take more tentative first steps into an unpolished sector, full of determination but slightly uncertain as to how best to operate. One factor that levels the playing field is the access to financing. The hoops to jump through to satisfy potential backers are numerous, from environmental assessments to government permits and certification processes. This is where Astris Finance comes in. The American investment advisory firm may not have the fame of a PwC or a KPMG but its Managing Partner Eduardo Ramos is willing to stake its track record against that of its competitors. “We may be a smaller firm but we have spent 15 years in infrastructure financing, and our core business is energy, oil and gas. We also thrive on having a lean structure, so our clients will see the most relevant person in the company and the head of each project will get involved,” says Ramos.
This boutique’s approach to business has translated to Astris getting involved on behemoth contracts, such as playing a lead role in arranging a US$900 million loan in 2007 for Mexican engineering firm ICA. This loan went toward the building of the 750MW La Yesca hydroelectric power plant. Such a coup alludes to a commitment to Mexico, given the reputation needed to work on this scale of project. As Ramos explains, despite also having offices in Washington and Paris, Astris Finance sees Latin America as its geographic homeland. Far from the critics of the Mexican business environment, Astris revels in the advantages it finds here. One of the main opportunities it has tapped into is the availability of long-term financing, especially when compared to regional competitors. Chile might offer longer-term loans than Mexico, but in Brazil banks normally limit their financing to between five and seven years. Ramos points to the clear advantage Mexico has in this regard, saying “the local capital market is able to finance 30 years for infrastructure projects, even on wind and solar.” Such an option has made Mexico competitive worldwide in financing renewable energy projects, given how important long-term financing is to developers.
For Ramos, the financing needs of the renewable energy sector cannot be detached from those of broader infrastructure, even if different energy sources present difficult particularities. Should the government’s infrastructure plans go ahead, long-term financing will not be a need for renewable energy alone. In such a scenario, large-scale infrastructure projects such as ports and airports will appeal to banks for help. This would trigger a Darwinian process of natural selection, in which the banks would pick the best-structured projects from among these different sectors.
“With these bottlenecks looming, a large part of Astris Finance’s work in Mexico is to give developers a mild reality check.” Ramos describes developers as being very optimistic about their projects’ viability. To prepare them for the road ahead, Astris acts as their counselors, giving them an objective idea of what is achievable in terms of debt and equity. “Our top priority when we engage with clients is to pitch them on the best scenario. We tackle
their capabilities, what Astris Finance can do for them and we make sure that our clients understand what the best option for them and their project is. We provide a roadmap to success,” explains Ramos. This overarching vision led Astris Finance to focus largely on one source of renewable energy: solar. Through involvement in solar projects in France, Portugal and Peru, the company’s commitment to the sun comes down to evolutions in technology. Where wind has traditionally dominated the Mexican renewable energy mix, Astris is betting on technological advances to make solar more cost-competitive than wind. With Mexico enjoying high levels of solar irradiation in the Sonora Desert of Baja California, Astris is seeking to replicate the success it had in Peru, where a careful financial structure, involving multilaterals and banks, saw two solar plants successfully built for its clients.
“It has taken a little longer to develop projects, but the states are pushing for changes to the law to allow PPAs. There is a lot of pent up demand. You need incentives from the government for more of these projects to come to fruition, to attract the right kind of investors to the energy sector.”