Financial opportunities for ‘abasto aislado’ and Distributed Generation projects in Mexico

February 21, 2018
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EWT

EWT organized a breakfast event in January about the opportunities for companies to achieve their environmental goals in Mexico and one of the topics discussed was the availability of finance in abasto aislado and distributed generation projects.

With the energy auctions that have taken place in Mexico and their record breaking prices there have been several schemes for financing of utility scale projects. Banks have been focusing on these bigger projects, but finance availability for medium and small projects are more difficult to achieve while there are many opportunities in the medium and small sized industry as well.

EWT is active in Mexico for a couple of years now, and with the Mexican team experienced in the renewable sector for many years, developing renewable projects on utility and medium scale and working with several financial institutions, we have noticed that there are two options to finance your renewable energy project in Mexico:  

     1. Traditional finance

The most common way companies can finance their energy projects is through traditional finance with a commercial Mexican bank. They will be subject to the interest rate and loan term the bank will give them, but the project can be even more attractive if companies increase the equity in the project and lower the debt side.  What we have seen is that you can achieve a rate around 11% on a 10 year loan.

Blue chip companies and companies that are in the stock market have the option to get better interest rates since they can approach US banks and get some finance around 3-5%, financing their debt in dollars can make the project more attractive and will give them a better IIR rate.

With this type of financing you will invest heavily and you will get earlier returns on investment, since most of the risk will be taken by the company. The benefit is that you will be the owner of the asset as of day 1. To give you an example, if you finance a project with our Direct Drive wind turbine via the traditional way, the ROI in 6 years is approximately with a 14-16% IIR.

     2. PPA or Third-Party investment

The option of PPA is a good alternative if you don’t want to do a big investment yourself. Power Purchase Agreements enables companies to buy power directly from the generator. It usually is a long-term contract with an agreement on renewable energy volume and price that meets the need of the consumer.  These long-term contracts might withhold companies to go for it, as a 20-year contract is a big commitment. However, by having a wind turbine onsite of your factory producing the energy you need for your business, without investing in it but paying via a PPA might be a big benefit. If you are looking to reduce your environmental footprint and reduce your energy costs a PPA can offset your consumption and lock future increases of energy prices.

     Financing options for you

It is clear that there is a need for more financial schemes for medium sized companies with better debt schemes so energy projects could be easier to achieve. During the breakfast event, Becquerel Capital already expressed their commitment in working on new investment schemes to support these. Furthermore, at EWT we have created three investment schemes to support your energy project with a 1MW EWT wind turbine.

     Option 1 – traditional financing

The first scheme is with some equity of the company and debt through a traditional bank. Mexican banks like Santander, Banorte and Banamex will mostly finance this type of investment. In some cases you can depreciate your debt in year one and have even more attractive return of capital. In this option one of the main achievements of the project will be the Clean Energy Certificate.

     Option 2 – leasing

The second option is through a lease in which companies can pay our turbine within 4 to 8 years depending the finances of your company. In this case companies might find this type of finance attractive since you can deduct 100% of the VAT and have fiscal savings.  Through leasing, companies must pay 20% of equipment in the first year.

     Option 3 – PPA

With the interest of Becquerel Capital to find new solutions for investment schemes in Mexico, EWT partnered up with Becquerel Capital to offer our clients the option of a PPA in which they won’t have to pay for the development and turbine. This option enables our customers to go for renewable energy generation and enjoy the benefits of it without the need for a big investment.

Mexican companies paying high energy prices should not only depend on the energy supply of the CFE, instead companies can and should start analysing if a renewable energy system onsite is viable. Most of the companies that we have talked with, energy represents a 30 to 50% of the expenditure and with just last year that prices increased by 4%. Companies are now making even more investments to secure their operations.

In a survey made by PwC with Mexican companies, the companies that currently have a PPA highlight the importance of this type of scheme to increase visibility in the market and diminish volatility on the energy prices. In this study, 38% of the companies that took the survey mention that they are analysing the option of investing in an energy system considering the political panorama, Although the Mexican election and the NAFTA negotiations might question your decision on either buying a wind turbine or agreeing on a PPA, EWT believes that the best way to secure your assets and not depending in the CFE and the rise of energy prices is by investing in a renewable energy generation system.

EWT is currently partnering up with investors, financial institutions and developers in Mexico to provide our customers with affordable alternatives for onsite renewable energy generation.  

  

Elie Villeda

Business Development Mexico

+52 (1)55 3399 19 61

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