Mexico Energy Review 2019

Page 295

INSIGHT |

PAVING THE WAY FOR FULL‑MERCHANT PROJECTS AND BILATERAL PPAs MARIAN AGUIRRE Energy Finance Vice President of Bancomext

The Triple-A status of the country’s biggest off-taker, CFE,

“We published a series of manuals and safeguards that

has aided the success of the auctions because the thin

outline step-by-step measures to comply with the Equator

margins for projects match the equally thin development

Principles,” she says, adding that across all projects,

risk. In contrast, Mexico’s renewable merchant projects and

Bancomext undertakes full monitoring activities, from

bilateral PPAs continue to showcase high risk levels with

environmental impact assessments to the Ministry of

equally high returns, says Marian Aguirre, Energy Finance

Energy’s evaluations. “We remain deeply involved in

Vice President of Bancomext. “Warranties are normally

processes and focus on continuous follow-up throughout

included in a trust as part of the financial structure of a

the project’s phases and useful life,” she continues. “Limiting

bilateral PPA,” she says. “We must analyze how we can

monitoring activities exclusively to public indigenous

access those warranties for structure to be strengthened

consultations and environmental management is a short-

and ensure project bankability. We are working closely on

sighted approach we discourage and avoid.”

this specific issue with qualified suppliers.” Such follow-up processes are deeply embedded in Development banking institutions like Bancomext need to

Bancomext’s safeguards as they provide a solid level of

understand the inherent mechanisms of qualified suppliers

certainty from a project execution standpoint. “This represents

in the WEM and their link to project finance, Aguirre adds.

a considerable amount of additional work for us and added

“The conception of Mexico’s new energy model places

complexity that relies on specialized social and environmental

the qualified supplier figure as a commercializing entity,

advisers to comply with our manuals and safeguards as early

the middleman between power producers and bilateral

as the request for proposal. But it provides a way to align with

PPAs with private off-takers. We are in talks with qualified

international standards,” says Aguirre.

suppliers with consolidated long-term PPA schemes to guarantee increased security by absorbing part of the

Bancomext is also taking a leadership role in the

merchant risk on the qualified suppliers’ end.”

improvement and success of the Clearing House, a private energy and power purchase mechanism introduced during

Bancomext has entered the fray on the merchant project

the third long-term electricity auction. “It is a critical

front and it is planning to keep including them in its

issue considering it works as a payment source for the

renewable energy investment portfolio. “Based on our

development of utility-scale renewable energy projects and

analysis, we are designing more conservative financing

heavily influences project risk,” Aguirre says.

criteria, including lower leverage levels and more conservative debt service coverage indexes,” Aguirre says.

Lending money to CFE, a productive enterprise of the state with specific credit-risk characteristics, is not the same as

The development bank also is determined to retain its

lending to a private company with an unclear track record.

leadership role in the long-term electricity auctions,

As a result, the Clearing House is piquing the interest of

both in projects under construction and future auctions.

private energy and power purchasers.

“Our participation in auction projects is predominant. Bancomext’s project finance foothold represents close to

To inject certainty over the Clearing House’s future

80 percent of the aggregate projects from the auctions,”

performance, Bancomext fosters interactions with

says Aguirre.

CENACE to incorporate improvements. “The key issue lies in understanding the implications of the private operator

To secure the viability of long-term electricity auction

figure and the inherent mechanisms between suppliers

projects, Bancomext has been working for several years

and purchasers to know which part represents our risk,”

on its environmental and social management unit (UGAS).

Aguirre says.

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