Mexico is among the top 10 most attractive countries in the world with the highest investment in renewable energy.
Currently, Mexico is in a situation of uncertainty and risk because the new Government of López Obrador has positioned itself against renewable energy auctions. In turn, the president of CFE (Federal Commission of Electricity) has requested the three previous auctions project contracts to be renegotiated.
So far, in Mexico, three auctions have been carried out in the years 2015, 2016 and 2017, and a fourth was planned for 2018, however, last January, the last clean energy auction was cancelled.
Despite this, the situation also represents an opportunity to obtain high returns for those willing to assume this risk. The abundance of solar resources, the high prices of energy, the decrease in technology costs and the growing need for diversification of resources combine to place Mexico among the world leaders for photovoltaic development.
The Mexican economy is growing at a good pace. The Secretaría de Energía (SENER) expects energy demand to grow at 3% during the period 2018-2032, as well as retirement of nearly 12 GW of existing capacity in the same period.
SENER is implementing a Clean Energy Certificates market, based on the obligation of large consumers to have a minimum level of consumption from clean energy, from 5% in 2018 to 13.9% in 2022.
Also, price of electric power in Mexico is very high: in nominal terms, it is 73% higher than in the United States. Citizens do not realize this because 95% of households obtain an electric subsidy that covers up to 90% of their receipt. Even after the subsidy and adjusting for purchasing power, electric power in Mexico is still 25% more expensive than in the United States. Mexico spends 0.75% of its GDP subsidizing electricity tariffs.
Despite the negative impact of the cancellation of the 4th auction, the current uncertainty, and the multiple challenges that await it, solar energy in Mexico is still in very good shape. Bilateral PPAs viability is already a fact in Mexico and the expansion of this segment could lead to a more sustainable market. It is worth mentioning as recent success stories of long-term PPAs the one of the French Engie with the steel producer Gerdau Corsa for a photovoltaic installation of 130 MW and a Balam Fund’s 35 MW photovoltaic plant that supplies Farmacias del Ahorro.
According to a report published by Bloomberg New Energy Finance, worldwide, the volume of energy consumed by companies that have decided to be supplied by clean energy and specifically through the bilateral market reached a record of 13.4 GW in 2018. Mexico is part of this global trend and between 2008 and 2017 PPAs were signed for a total of 3.4 GW, mostly from wind projects. Main sectors that have led this trend are: cement, malls, financial, mining, steel, consumer and automotive godos.
Vector Cuatro M&A and Financial Advisory business line provides its clients with tailor-made market reports covering, inter alia, country and sector analysis, development and connection process description, market price hedging (PPA and auction) description, tax memo, asset valuation analysis including expected returns and comparable transactions in the market, financing structures definition.
In addition, Vector Cuatro M&A and Financial Advisory business line is well experienced on the valuation of PV and wind projects through the preparation of financial models covering development, construction and operations.
Finally, Vector Cuatro provides potential investors with local investment opportunities according to the specific investor requirements and intermediates between large consumers and project owners in order to negotiate bilateral PPA agreements.Read More
The development and consolidation of new remuneration schemes has become essential due to low public support and constant regulatory changes within the renewable energy sector. These remuneration systems ensure projects’ long-term profitability at a fixed price, in order to allow financing/bankability of projects. In this context, Power Purchase Agreements (PPAs) between private parties are growing in importance. Despite they are barely known in Spain, this kind of product is quite consolidated in other worldwide markets.
In this context, Vector Cuatro launches a new specially designed service intended to provide assistance in structuring, negotiating and closing PPAs, thanks to a competitive advantage, deep knowledge of this type of product and the preferential access to relevant counterparties interested in such agreements all over Europe.
Vector Cuatro relies on a technical and financial high specialized team and has signed a cooperation agreement with Our New Energy, a company with a long track record in closing PPAs worldwide. Thus, Vector Cuatro reinforces its expertise and knowledge “in house” for the provision of these services. The company participates actively in the structuring and negotiating of conditions between counterparties and in the final closure of contracts.
This new Vector Cuatro’s service complements the existing ones within the Transactions business line: Design and Closing of financing structures, advice on Acquisitions and Divestment of assets and Financial Modelling. As far as the rest of service lines concerned, Vector Cuatro exceeds 16 GW of track record in technical advisory services and has more than 1.7GW of operational farms under management with offices across 9 countries.Read More
Camargo is a 30 MW solar PV project located in the Mexican state of Chihuahua in which Vector Cuatro has provided services through its three business lines: Asset Management, Transactions and Engineering.
The project, connected on April 6th, has been developed by the ‘Pequeño Productor de Energía’ scheme and has become one of the biggest PV operational projects in Mexico.
During the 8 months that the construction phase has lasted, Vector Cuatro has carried out the supervision, verifying that the highest quality standards in PV market were followed. The project has been funded entirely by Balam Fund I, L.P. and BalamCK16; private equity funds specialized in the investment of renewable projects in Mexico and managed by Balam.
Thus, Vector Cuatro has supported Balam through its three business lines including, among others, the origination of the opportunity, the Technical Due Diligence and the support in the selection of the main contractor. Camargo is the first project under management that joins VC portfolio in Mexico.
Vector Cuatro entered the Mexican renewable energy market first in 2012 as Technical Advisor for solar PV plants in Latin America, providing since then services throught its other business lines. The range of services has been adapted to the great variety of clients which comprise investment funds, financial institutions, international sponsors and developers, amongst others. Currently, Mexico has become one of the key markets for the company that has increased its activity in the country due to the two renewable auctions that were held in 2016.Read More
Vector Cuatro has closed a 48,5 mm€ financing for a 40,8 MW PV Portfolio in Spain. The company has worked on the transaction as advisor for the whole financing process, since the initial structuring until the final closing.
Thus, the Spanish multinational has provided advice during the whole financing including financial modelling, negotiation with the Lenders, coordination of the DD process and negotiation and closing of all the financing documents, among others services.
Since its foundation in 2007, Vector Cuatro has been a leading advisor in the renewable energy transactions (selling and acquisitions) as well as in the financing and refinancing of renewable energy projects worldwide, taking as a competitive advantage its knowledge of the main players in the sector and its experience in the management of renewable energy installations.
Through its three service lines (Asset Management, Engineering and Transactions), Vector Cuatro has carried out more than 600 projects in Europe, America, Asia and Middle East. It has over 1.7 GW of power under management, 4 GW in financial advice and counts with a track record of 22 GW throughout the entire value chain of the projects. In September 2014, the company was incorporated into the Italian Falck Renewables Group (FKR.MI), a leading player in the European renewable energy industry and listed at the Milan Stock Exchange.Read More