{"id":4315,"date":"2021-08-24T16:32:05","date_gmt":"2021-08-24T22:32:05","guid":{"rendered":"http:\/\/accesstomexico.mx\/blog\/?p=4315"},"modified":"2021-08-25T16:35:50","modified_gmt":"2021-08-25T22:35:50","slug":"new-possibilities-pique-investors-interest-in-financing-shift","status":"publish","type":"post","link":"https:\/\/accesstomexico.mx\/blog\/new-possibilities-pique-investors-interest-in-financing-shift\/","title":{"rendered":"New Possibilities Pique Investors\u2019 Interest in Financing Shift."},"content":{"rendered":"\n
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MEXICO BUSINESS NEWS<\/strong><\/a><\/p>\n\n\n\n

Rattled by the government\u2019s push away from the Energy Reform\u2019s paradigm, a continuously changing Mexican energy sector has also been faced with a transformation in project financing. MBN experts see utility-scale project financing taking the backseat but highlight that Mexico\u2019s massive potential, the global energy transition and emerging niches draw the attention of investors instead. \u201cThe counter-reform moves ahead. We will experience changes in trends and businesses but the sector will continue onward, regardless,\u201d said Alan Sakar, Senior Associate at Clifford Chance at Mexico Energy Forum earlier this year.<\/p>\n\n\n\n

An investment in an energy project is one for the long term. Even smaller installations often require millions of dollars of financing, but the benefits are clear once a project is finalized. More importantly, investors continue to reap the rewards for periods of fifteen years or more. To minimize risks over such long period in time, having absolute legal certainty is essential no matter Mexico\u2019s potential, however.<\/p>\n\n\n\n

After the country\u2019s largest mid-term election in history, President L\u00f3pez Obrador\u2019s party, MORENA, managed to grab several important governor positions but saw its power in Congress drop. Consequently, the ruling coalition does not have the two-thirds majority it needs to push constitutional reforms, meaning it is not likely to amend the 2014 Energy Reform, the next step in L\u00f3pez Obrador\u2019s series of measures and congressional bills. Perhaps more importantly, the Supreme Court has not yet issued a final ruling on the government\u2019s changes to the electrical industry law.<\/p>\n\n\n\n

Constitutional change or not, many industry insiders argue that much of the damage has already been done regarding investor confidence. In an environment where permits for energy projects have come to a complete standstill, few appear willing to invest in long-term perspectives. \u201cIn any case, the most relevant question is not whether a constitutional reform to strengthen CFE will be approved or not. The most important question is whether the president is willing to tone down his narrative and bridge the gaps between his government and the private sector to get past the standstill that the sector currently faces,\u201d wrote Energy Adviser and Consultant Arturo Carranza on MBN.<\/p>\n\n\n\n

If, and how, this bridge building process would happen is mere speculation. Recent headlines are somewhat contradictive. On the one hand, L\u00f3pez Obrador said that he would not mind private participation in the energy sector at all, as long as CFE would keep its majority stake in the industry with a 56 percent share. On the other hand, CFE asked regular CRE to suspend any power plants that harm the national electrical system.<\/p>\n\n\n\n

Within an uncertain environment, investors have perhaps been more concerned about protecting their previous assets rather than looking toward greenfield projects. Edmond Grieger, Partner at Von Wobeser y Sierra, sees that Mexico\u2019s rule of law is a reliable cornerstone for concerned investors. \u201cThe judicial branch has shown no bias in favor of the executive branch\u2019s energy policies and has acted stoically to preserve the rule of law,\u201d he wrote to MBN. Particularly for projects already in further stages, this knowledge might be sufficient to trigger a positive investment decision, such as in the case of X-Elio\u2019s 119MW power plant.<\/p>\n\n\n\n

A Growing Need for Different Shades of Green<\/strong><\/p>\n\n\n\n

Mexico does not exist in a vacuum in outer space. As part of a heavily globalized world, the country is strongly influenced by the wider green energy transition. For Grieger, this influence translates into new investment opportunities, too. \u201cThere is a steady, growing demand for clean and renewable energy in Mexico and worldwide. Many important industrial and commercial offtakers in Mexico have engaged in admirable and ambitious Environmental, Social and Governance (ESG) and Net Zero Emission goals. There will be no turning back this global effort aimed at mitigating the adverse effects of climate change and engaging in sustainable and inclusive business strategies that strive for a better future for generations to come,\u201d he said.<\/p>\n\n\n\n

\u201cThis push has become stronger in the last few years in Mexico as an ESG-ecosystem was constructed,\u201d affirmed Mariuz Calvet<\/a>, Director of Sustainability and Responsible Investment at Grupo Financiero Banorte. A growing awareness of the importance of sustainability, driven by investors and end users, is already transforming the market according to Calvet. \u201cMore green and sustainable bonds are released every day, even from the Ministry of Finance. An emissions trading system is being piloted. Companies that emit 70 percent of the country\u2019s CO2 are already a part of this program. It is a good time for sustainability efforts to become more robust.\u201d<\/p>\n\n\n\n

All of this logically has a strong effect on the energy industry, which needs to provide offtakers with clean energy so that they can effectively lower their emission levels. \u201cIf there is an increasing demand for renewable and clean energy being generated by private companies in the country, then the lenders, sponsors, developers, generators, suppliers and consultants should come up with creative business and legal strategies to address that demand and offer the most adequate energy supply solutions,\u201d explained Grieger.<\/p>\n\n\n\n

Many of these new investment avenues are thus focused on tailoring energy solutions to offtakers. On-site energy projects, including distributed generation or isolated supply are promising options, as are stable, long-term power purchase agreements (PPAs) and other options in Mexico\u2019s wholesale electricity market (WEM). Which option fits best depends on the offtaker but for investors looking to diversify their Mexican portfolios, the breadth of options available is a major benefit. \u201cWe have been seeing an upswing in these built-to-suit energy and sustainable solutions and we are sure we will continue experiencing a wave of opportunities for both investors and offtakers in the Mexican energy market,\u201d concludes Grieger. Even if companies do not plan to only operate in the Mexican market, the country can serve as an ideal headquarter for markets further south, evidenced by COX Energy\u2019s strategy to raise capital in Mexico by listing on BIVA.<\/p>\n\n\n\n

Nascnet technologies such as battery storage and green hydrogen offer a new hope for investors, as well. A report by McKinsey, for instance, shows that Mexico\u2019s hydrogen costs would be 64 percent lower than in most other countries: reaching US$1.40\/kg in 2030 compared to US$2.30\/kg elsewhere.<\/p>\n\n\n\n

One of the safest routes would be an investment that aligns directly with the current government\u2019s vision. Through various financial instruments, it becomes possible to invest in state-owned companies such as CFE. This could be a stable option: in July 2021, Fitch rated CFE at BBB-, a positive rating steeped in the state utility\u2019s strong strategic position in the electricity sector and the government\u2019s incentives to support the company where possible. With important work ahead to strengthen the stumbling grid and a massive solar power plant in the pipeline, CFE\u2019s future potential is already taking a concrete shape.<\/p>\n\n\n\n

Many companies remain positive about Mexico\u2019s expanding natural gas network, too. Even though the interconnected pipeline network keeps growing, the government aims to gasify more areas in the country. Record-level natural gas imports only push the potential for more investment further.<\/p>\n\n\n\n

Cas Biekmann. (2021). New Possibilities Pique Investors\u2019 Interest in Financing Shift. M\u00e9xico. Mexico Business News<\/em>. Recuperado de <\/strong><\/p>\n\n\n\n

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MEXICO BUSINESS NEWS Rattled by the government\u2019s push away from the Energy Reform\u2019s paradigm, a continuously changing Mexican energy sector has also been faced with a transformation in project financing. MBN experts see utility-scale project financing taking the backseat but […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-4315","post","type-post","status-publish","format-standard","hentry","category-uncategorized","clearfix"],"_links":{"self":[{"href":"https:\/\/accesstomexico.mx\/blog\/wp-json\/wp\/v2\/posts\/4315","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/accesstomexico.mx\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/accesstomexico.mx\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/accesstomexico.mx\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/accesstomexico.mx\/blog\/wp-json\/wp\/v2\/comments?post=4315"}],"version-history":[{"count":1,"href":"https:\/\/accesstomexico.mx\/blog\/wp-json\/wp\/v2\/posts\/4315\/revisions"}],"predecessor-version":[{"id":4317,"href":"https:\/\/accesstomexico.mx\/blog\/wp-json\/wp\/v2\/posts\/4315\/revisions\/4317"}],"wp:attachment":[{"href":"https:\/\/accesstomexico.mx\/blog\/wp-json\/wp\/v2\/media?parent=4315"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/accesstomexico.mx\/blog\/wp-json\/wp\/v2\/categories?post=4315"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/accesstomexico.mx\/blog\/wp-json\/wp\/v2\/tags?post=4315"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}