Investing in Mexico

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 4^th 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.

Vector Cuatro, advisor on the selling of a 5 MW operational PV plant in Spain

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 11^th 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.

Investing in Spain

Spanish Feed-in-Tariff (FiT) scheme was abolished for new renewable energy projects back in 2014 (retroactive effect from July 2013); whilst for existing installations FiT scheme was replaced with a retribution regime aimed at granting to all operating assets a Reasonable Return (“Rentabilidad Razonable”) through a double incentive: (i) Return on Investment (to recover the initial investment) and; (ii) Return on Operation (to cover operating expenses). However, Government is entitled to call for auctions that may result in the granting of specific subsidies under the same scheme of operating assets for new developments, as done in 2016 and 2017.

Spain intends to go beyond EU objectives, so that post-auction period will represent an important challenge for the sector. The main difference between nowadays and years ago is that grid parity has now been reached, which means that by selling energy at market prices it is possible to cover costs and achieve profitability.

From route-to-market standpoint, as a result of having reached grid parity, there are three types of renewables energies (RE) projects now being delivered into the market: (I) auction projects, (II) PPA projects and (III) full-merchant projects.

Onshore wind and Solar PV grid parity have taken renewable energy industry to new paradigm, where investment structures had become more complex, but investment opportunities have grown considerably. Additionally, Spain offers very good resource and low renewable energy penetration, compared to real deployment capabilities. All these combined makes Spain one of the most attractive OECD markets.

Spain is the second European country with the largest installed wind capacity and the fifth in the world, only behind China, the United States, Germany and India. The country is widely committed to comply with the 2020 target, for that purpose, a boost on the share of renewables is taking place and will continue increasing over the following years, since Spain will need to double its renewable capacity by 2030 to comply with European renewable energy targets.

Spanish Government, led by Teresa Ribera, Minister for Transición Ecológica proposed through “Anteproyecto de ley de cambio climático y transición energética” an increased target of 35% of Spanish energy consumption coming from renewable energy. To that end, the following roadmap is proposed:

-Period 2020 – 2030 auctions shall be carried out to develop a minimum of 3GW of annual capacity.

-Every 5 years, specific measures will be carried out to define the share amount needed to achieve the targets (the period may be modified to 2.5 years).

-A new legal framework for renewables simplifying administrative procedures and burdens will be stablished.

-Renewable energy generation plants shall be given priority to access distribution and transport network.

Key drivers and risks on an investment in a RE project in Spain:

–Connection points vs. Land: capacity of current substations has become a problem when entering the market. Bonds (40.000€/MW) to be granted without visibility of the available capacity and the risks of finding lands in the nearby considering the bubble in the market as a consequence of so many developers requesting capacity, have resulted on speculation and difficulties to have a project.

–PPA: Since Spanish renewable energy market was reactivated mainly driven by auctions launched in 2016-2017, PPA structures had become a reality when assessing renewable energy investments in Spain. Reasons why PPA are growing in popularity are simple: (i) limited subsidy-scheme projects; (ii) aversion to regulatory risk and; (iii) non-recourse financing requirements. Variety of PPA structures is wide: financial or physical contracts, fixed-price, floor, collar, upside sharing, market indexed, etc. PPA improves visibility on energy prices and therefore predictable cash flows which is instrumental to access non-recourse financing.

–Auctions: tight deadline to meet the deadlines of 31/12/2019 COD.

–Increasing prices: as a consequence of the lack of real opportunities and the liquidity of the market, which tend to reduce returns and therefore a misallocation with the assumed risks.

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.

Vector Cuatro Japan surpasses the 450 MW mark of assets under management

The company has recently closed two agreements for the management of 17 more solar PV projects totaling 35 MW. With these contracts, Vector Cuatro increases its portfolio of assets under management in Japan to a total of 470 MW.

In November 2015, Vector Cuatro announced the beginning of its activity as an asset manager in Japan for a 3.5 MW solar PV plant, owned by one of the most important companies in the Pacific energy sector. Three years later, the Spanish consultancy surpasses the 450 MW mark, already taking care of the asset management for 28 projects in Japan.

Since 2007, when the company began to operate in the Renewable Energy Industry, Vector Cuatro has been able to increase its portfolio of assets under management to 2,5 GW for operational projects and plants under construction.

Currently, the company manages solar PV and wind power plants in America, Europe and Asia, with Japan being one of its core markets. Vector Cuatro entered the renewable energy markets in Asia first in 2012 as a Technical Advisor and providing support in transaction services for solar PV plants. Since then, the Nippon delegation has grown up positioning itself as a key reference in the local renewable industry with an international client portfolio to which belong the most active banks and companies in Japan.

Besides providing asset management services and support in transactions, the company has also rendered feasibility studies, technical due diligences and consulting services in Japan for projects that total more than 10 GW.

Vector Cuatro Japan　アセットマネージメント450MWを超える

最近、Vector Cuatro Japanは、17の太陽光発電プロジェクト、合計35 MWのアセットマネージメントに関する2つの契約を締結した。これらの契約により、日本の運用資産ポートフォリオを合計470MWに拡大した。

2015年11月、Vector Cuatro Japanは、太平洋エネルギー分野で最も重要な企業の1社が所有する3.5 MWの太陽光発電所の資産運用会社としての活動開始を発表した。 3年後、このスペインのコンサルタント会社は450MWを超え、すでに日本国内の28のプロジェクトの資産管理を担当している。

Vector Cuatroは、再生可能エネルギー業界で事業を開始した2007年以来、運用プロジェクトおよび建設中のプラントのアセットマネージメントのグローバルポートフォリオを2.5 GWに増やすことができた。

現在、同社はアメリカ、ヨーロッパ、アジアの太陽光発電所と風力発電所を管理しており、日本は中核市場の1つである。 Vector Cuatroは、2012年にテクニカルアドバイザーとしてアジアの再生可能エネルギー市場に参入し、太陽光発電所の取引サービスを支援した。 それ以来、日本現地法人は、国内の最も活発な銀行や企業に属する国際的な顧客ポートフォリオを持つ地元の再生可能エネルギー業界における重要なコンサルタントとしての地位を確立してきた。

アセットマネージメントサービスを提供するだけでなく、日本国内で合計10GWを超えるプロジェクトのフィジビリティースタディー、テクニカルデュ－デリジェンス、およびコンサルティングサービスも提供している。

Vector Cuatro, Technical Advisor of Noboribetsu PV project

The spanish multinational, Vector Cuatro, has acted as Technical Advisor in the 30 MW solar PV project Noboribetsu, developed by Renewable Japan. It is the first time that a green rating is given to a project bond. 

Vector Cuatro has acted as Technical Advisor for the Noboribetsu project, a 30 MW project developed by Renewable Japan. Renewable Japan holds one of the 3 publicly listed solar funds in Japan. The project has received a preliminary rating by the Japanese rating agency Rating and Investment Information (R&I), in order to be incorporated into the fund. R&I evaluated the project and confirmed the bond issuance with GA1 level (preliminary).

In addition, this is the first project with unlimited curtailment to be successfully rated in Japan. As technical advisor Vector Cuatro performed the feasibility study and the technical due diligence, including the curtailment analysis of the project.

Vector Cuatro entered the renewable energy markets in Asia first in 2012 and has positioned itself as a key reference in the local renewable industry with an international client portfolio to which belong the most active banks and companies in Japan. Currently the company provides support in transactions and rends feasibility studies, technical due diligences and consulting services total more than 4 GW. Vector Cuatro also provides Asset management services and has topped the 400 MW mark, taking already care of the asset management of 28 projects in Japan.

Vector Cuatro opens a new office in Sydney

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.

Vector Cuatro to acquire Windfor S.r.l. and grow in technical advisory for wind farms

Falck Renewables S.p.A. signed today an agreement through its wholly-owned subsidiary Vector Cuatro S.r.l. to acquire a 100% share of Windfor S.r.l, a well-known leader in Italy in technical advisory services for wind energy. This reinforces Falck Renewables’ upward trend and strategic interest in the services sector for renewable assets.

The acquisition is expected to be finalised by September 2018 and is worth 0.625 million euros.

Through this acquisition, Vector Cuatro strengthens its offer in technical advisory services for onshore wind plants, a technology expected to continue to grow 7.2% from 2015 to 2030 globally according to the IEA.1

With over 15 years’ experience, Windfor is a leader in Italy in the resource assessment, planning, decommissioning and repowering of wind farms. Windfor has analysed over 17 GW of wind plants, performed due diligence for 9 GW and delivered advisory services in projects for 18 GW in Italy and abroad. Through hands-on experience in a wide range of projects, Windfor also developed advanced proprietary software for anemology analysis.

‘We’re excited about this agreement’, said Vector Cuatro’s CEO Javier Asensio. ‘Windfor will bring significant know-how in the wind power industry, at a time when new plants are expected to be built for over 50 GW every year until 2040, according to the International Energy Agency. On top of new plants, great opportunities will result from repowering old plants or lengthening the lifetime of existing ones’. 

Falck Renewables S.p.A., listed on the Italian stock exchange in the STAR segment (“FKR.MI”) and included in the FTSE Italia Mid Cap Index, develops, designs, builds and manages power production plants from renewable sources, with an installed capacity of 970 MW in 2018 (933 MW according to the IFRS 11 reclassification) in the United Kingdom, Italy, United States, Spain and France, using wind power, solar power and biomass technologies. The Group is a global player in the renewable energy technical advisory and asset management services business, through its wholly owned subsidiary Vector Cuatro, providing asset management services to clients accounting for approximately 2.4 GW of installed capacity and with experience in more than 25 countries.

Vector Cuatro, quality control supervisor of Intipampa PV solar plant in Peru

Vector Cuatro has been working closely with Engie Solar to ensure the quality of Intipampa PV solar plant, located in the Peruvian district of Moquegua and with a power capacity of 40MW.

The firm has supervised the engineering design, the factory acceptant test and has carried out the quality control during the Construction phase and the Commissioning of the plant, with a mixed work team of on-site and back office staff in Spain and Peru.

Intipampa PV solar plant, owned by the French energy company Engie, through its subsidiary Engie Peru, is one of the two projects selected in the national electricity tender held in 2016. Being the second largest plant in Peru, Intipampa PV solar plant covers an area of 322 hectares. It’s expected to provide electricity to 90,000 households in southern Peru.

At the moment, Vector Cuatro has carried out more than 1000 projects in 25 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, 4 GW in financial advice and owns a track record of 22 GW throughout the entire value chain of the projects.

Our Future Is Brighter Than Ever

Last week, a group of 10-year-old kids came to Vector Cuatro, seeking enlightement and inspiration for their final project  of renewable energy for school. It was a very fun and illuminating session, where several members of Vector Cuatro Spain explained the basics of Renewable Energy to 4 children from an international primary school in Spain.

In this VC Kids Talk, They learnt how a PV plant works, what thermographic camaras are used for, and they also built a handmade anemometer with recycled materials by themselves. At the end of the journey with Vector Cuatro Spain, all the employees introduced the company and explained the main functions of each department.

On June 18, our four Vector Cuatro kids presented their final project of renewable energy, demonstrating great talent and determination for building up an eco-friendly society.

Children are the world´s most valuable resource and the best hope for the future. Nothing could be more delighful than seeing the light in their eyes when explained what we can do to keep the earth energetic. We hope in the future we can organize more similar activities so we can spread out the great energy we have in Vector Cuatro!

Present and Future of Renewable Energy in Spain

EVENT ORGANIZED BY VECTOR CUATRO

On June 7, Vector Cuatro hosted the event ¨Present and Future of Renewable Energy in Spain”, a seminar that took place in Madrid, in which the leading exponents in the renewable energy industry gathered to talk about the development, financing and project management in the country.

During this seminar, with several specialized presentations and round table discussions, the most current topics were discussed, such as the new regulatory and financial framework for project development, legal security, the impact of renewable energy on the electricity system, and trends in asset management.

José Donoso (President of the Spanish Photovoltaic Union, UNEF) and Juan Virgilio Márquez (President of the Spanish Wind Association, AEE) opened the event as representatives, talking about the current situation and perspectives of the wind and photovoltaic sectors in Spain. Both highlighted the need for a stable regulatory framework, in order to give investors confidence and allow progress towards the energy transition.

Joaquín Monfort (X-Elio), Luis Martínez (Hive Energy), Juan López (Circle Energy) and Carlos Relancio (Cox Energy) participated in the first panel of the seminar, under the title “The New Scenario for the Development of Renewable Projects”, hosted by Hugo Álvarez (Head of Engineering Department at Vector Cuatro). The speakers pointed out that obtaining the connection point and the administrative process are the main difficulties in project development. Additionally, they discussed how the  lack of “ready-to-build” projects has produced a certain price bubble andthe concern that the obligation of connecting projects awarded in auctions before 2020 may cause a shortage of supplies and increases in construction costs.

The second panel  “Trends in Project Management”, had. José Benito García (T-Solar), Jordi Francesch (Glennmont Partners), Juan Manuel Fernández (Sonnedix) and Domingo Vegas (Gransolar) as speakers. In this panel, hosted by Miguel Pérez (Head of Asset Management at Vector Cuatro), the importance of seeking a flexible management model that makes sense from an economic point of view was highlighted, stressing the added value of having long-term collaborations with companies specialized in asset management.

Manuel de Vicente-Tutor (Equipo Económico) gave a presentation on the challenge of environmental taxation and renewable energy. Following, Juan Manuel Rodríguez (Red Eléctrica de España) emphasized on the challenges for the safe integration of renewable energy into the Spanish electricity system.

To conclude the seminar, Raúl Rodríguez (Engie), Josep Montañés (Banc Sabadell), David Díez (Watson Farley Williams), Carlos Rey (Foresight),) and Álvaro Pérez de Lema (Saeta Yield) discussed the investment and financing of renewable projects from different perspectives. In this panel hosted by Beatriz Llorente (Global Head of Transaction Services in Vector Cuatro) and Rafael Echegoyen (Head of Legal Services in Vector Cuatro), different models of development in the market and the possibilities of financing were discussed in first place. Subsequently, the speech focused on commercial and legal aspects of power purchase agreements (PPA). At the end of the seminar, the investments approach and expectations of profitability according to the project type were also discussed.

Throughout the day, it became clear that even though the auctions in Spain were not especially attractive regarding its profitability for investors, they served as a catalyst for the reactivation of the renewable energy sector, and for the emergence of alternative development models that were so far nonexistent in the country. Moreover, the high number of attendees, both national and international, showed the great interest companies in different fields all have in the Spanish market.

Spain is undoubtedly one of the key markets for renewable energy in the coming years. Besides the 8.5 GW awarded in the auctions, in the past months, we can see a great activity of projects development without subsidies. In addition to the new developments, Spain, with 23 GW wind energy and 5 GW solar energy, is one of the countries with the highest installed capacity in Europe.