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 company continues reinforcing its international strategy by opening an office in Sydney as a new regional hub for its activities in the Pacific. This office joins the delegations that the group has at present outside of Spain, namely in Italy, France, Bulgaria, the United Kingdom, Japan, Mexico, Chile, United Arab Emirates and USA.
From the new office located in the financial district of Sydney, the local team will render asset management services, engineering and commissioning services, technical advisory and owner´s engineering, among others. Before entering the Australian market, Vector Cuatro was already present in the Asia Pacific, providing services from its office in Tokyo. The region has been one of the key markets for the company where it has carried out more than 8 GW in technical services and currently manages renewable assetss with 192 MW of installed capacity.
The company arrives in the continent at the best moment for the development of renewable energy projects. Reaching 8.4 GW of solar and 5.1 GW of wind installed capacity by mid-2018, Australia’s renewable energy market is attracting massive interest from developers, contractors, manufacturers and both local and international investors.
As 2017 was marked as a record-breaking year for renewables in the country, with 700 MW of renewable projects being completed, a recent report of Australia National University shows that during 2018 and 2019, Australia will install around 10,400 MW of renewable energy, of which 7,200 MW will be generated from large-scale solar and wind power projects and 3,200 MW from rooftop PV systems.
In the absence of national energy and climate policy, states and territories have clear renewable energy targets and have introduced a variety of policies to drive the energy transition. If industry continues deploying new renewable capacity at current rates, Australia will comfortably exceed the 2020 Renewable Energy Target and supply 100% renewable electricity by 2030.
Currently Vector Cuatro has carried out more than 1000 projects in 43 countries worldwide and is internationally ranked as one of the most important companies in the renewable energy industry. It has over 2.4 GW of power under management, 53 GW in technical services, 4.6 GW in financial advice and counts with a track record of more than 60 GW throughout the entire value chain of the projects.
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VC provides technical advice to more than 50% of the renewable power awarded in the third long-term auction in Mexico
The company worked as « Perito Independiente » in 50% of the MW allocated in the third long-term auction for the sale of large-scale clean energy in Mexico.
On November 22th, CENACE (National Center for Energy Control) and SENER (Secretariat of Energy) published the names of the winners in the third electricity tender for the contracting of energy from renewable sources in Mexico.
The objective is to allocate ‘Power Coverage Contracts’ for a 15 years period for Power and Electric Power, and 20 years period for Clean Energy Certificates.
A total of 2.73 GW of PPAs, 2.18 GW from solar and wind energy, have been awarded to an average price of 20.57 dollars per MWh, one of the lowest internationally reached. Thus, 16 projects from 9 different companies have been selected in a very crowded auction where 46 bidders initially submitted economic offers.
The clean energy acquired in this auction is equivalent to approximately 1.78% of the annual generation of electricity in Mexico; a significant contribution to achieve the goal of generating 35% of electric power in Mexico from clean sources by 2024.
Vector Cuatro has actively participated in the three renewable energy auctions held to date in Mexico, accumulating 2.8 GW of power awarded to its clients, providing both technical and financial services. In addition to technical advice, Vector Cuatro has 36 MW of solar photovoltaic technology under management in Mexico (Asset Management).
Vector Cuatro opened its Mexico office in 2013. From there, provides Engineering / Consulting, Financial and Asset Management services and controls its projects in Guatemala, Dominican Republic, Ecuador, Peru, Honduras, El Salvador and the rest of the region.Read More
VC Transaction Services team has worked as the sell-side transaction advisor on the selling process, since the initial structuring (June 2017) until the final closing (October 2017), of a 5 MW operational PV project located in Albacete (Spain).
Vector Cuatro has provided advisory services during the selling process of the project (5MW, Albacete) leading the transaction from the investors scouting, preparation of all transaction documents, coordination of the DD process with potential buyers, communication with the bank and negotiation and closing of the terms and conditions under the Sale and Purchase Agreement.
At the end of June, the Transaction Services department received the mandate to launch and lead the selling process that finally took place last October 11th for a final amount over 30 million Euros (Enterprise Value).
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 facilities.
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
The Spanish President Mariano Rajoy has just announced that a new 3,000 MW renewable energy auction will take place before the summer. The draft of the Royal Decree has been already submitted to the CNMC for its review. On May 17th, the government already awarded another 3,000 MW of green power, of which 2,979 MW went to wind, 1 MW to photovoltaic and 20MW to other technologies.
The government has justified the launch of this new auction given the great interest attracted by the latest auction. The applications submitted exceeded by more than three times the power awarded and the winners offered the maximum discount allowed. This means that the awarded projects will be carried out without the need for additional premiums to the income they obtain from the market.
According to the announcement, the auction will be technologically neutral, as the one held this month, and it is expected that the selection criteria and pricing rules will also remain mostly unchanged.
Given the complexity of the auction mechanisms and the particularities of the Spanish remuneration regulation, great knowledge of the Spanish market is required when preparing the financial model and calculating the percentage of discount to be offered. The legislation defines the retributive parameters for reference installations of each renewable energy technology (Wind, PV and others). Based on these values, the bidders have to offer a discount over the retribution to the initial investment of their applicable reference installation that will translate to a certain return on a concrete project.
Vector Cuatro advised some of the awarded bidders in the auction held in May by providing different financial advisory services that included the review or preparation of the financial model, the assessment on the auction rules and revenues scheme and the support in the preparation and submission of the bid offers. Vector Cuatro also provided technical and legal advisory services including feasibility study and review of the administrative and land property documentation.
Besides the power awarded in the auction, the Spanish market is increasingly attracting the interest for unsubsidized development. After the slowdown in recent years, the Spanish renewable energy seems to be finally awakening from its lethargy.Read More