Financing, the biggest obstacle for Mexico's solar growth

Wednesday, July 2, 2014

As a land of abundant sunshine, Mexico is the perfect solar market that global players are looking to enter and where the necessary infrastructure is in place, at least for the short term. But with no pricing floor for power purchase agreements and murky areas still to be cleared up as the energy reform takes hold, financing will remain the biggest obstacle to solar power growth, says Charles Pimentel, chief operating officer of Solar Frontier Americas.

BNamericas: How important a market is Mexico for Solar Frontier?

Pimentel: We look to Mexico as a growth market, and we're trying to figure out exactly where the market will go and, most importantly, when it will go, and how we can fit into that growth. We have a lot of resources to bring to bear. We have one of the largest factories in the world, and so when the projects begin to be of a size when you need a large manufacturer to supply them, we're standing and ready to go. We bring a lot of expertise to the table. We wouldn't physically build a solar plant but we can shepherd the whole process. There are a lot of global players coming to Mexico looking to build solar plants, so there is expertise, but that expertise doesn't reside here yet. But the solar resource is there for the taking.

BNamericas: What kind of PV technology is best suited to Mexico?

Pimentel: Thin-film is best suited to this environment, it thrives in a higher temperature and radiation environment. In real world conditions, thin-film outperforms crystalline every time.

BNamericas: Are the cold temperatures in the winter that occur in Mexico's highland areas a challenge?

Pimentel: That's just about engineered out of it. I don't envision it being any more challenging than the Mojave desert, for example. We have a 10MW project in Saudi Arabia, and where we have the largest car port in the world, and there are PV hybrid projects there. We do work in Thailand and high humidity is not an issue.

BNamericas: What challenges await solar operators in Mexico?

Pimentel: The challenges we're seeing right now are simply the unknowns, the pending legislative and power purchase agreement reforms. It was a similar proposition last year, we knew we would have to sit and wait for the market to respond and kind of settle out. This year we're seeing some settling out but there are still some unknowns. I think within 10 years the solar landscape in Mexico is going to be drastically different to what it is now. It has huge potential.

BNamericas: Is the infrastructure in place in Mexico for the solar industry?

Pimentel: I think the infrastructure that is in place now will probably suffice for the not too distant future, but at some point the lessons learned in other markets need to be rolled into the reforms in Mexico. Investors can do things now that you couldn't do five years ago, for example. And that's what we really like about Mexico, it's on the precipice of doing it right, they can roll out a solar program that leverages all the decades of learning and all the starts and stops that have taken place in Europe, Asia and the US can be avoided. It's just a matter of whether the projects are able to procure financing.  

BNamericas: Will financing be a problem?

Pimentel: Last year what we saw was that there was no pricing floor on PPAs. That's not such a big deal for an energy professional, but for a banker that's a major issue. All a banker has to say is 'no'. They don't need a reason, just a little doubt. I think there will be financing even without a price floor. The risks are fairly low and I think there will be some financial engineering to mitigate those risks. It may be shortsighted to say they're not able to be financed until the price of gas goes down, but the price of gas is just one element in what determines the end price of electricity to the consumer, and gas prices going down doesn't necessarily mean that electricity prices will come down. For short-term return it appears to be a perfect solar market, but the long-term risks need to be dealt with by the financial engineers.

About Charles Pimentel

Charles Pimentel is chief operating officer and senior vice president for the Americas business of Solar Frontier. He is a technology sales and strategy leader with a classical engineering background.

About the company

Solar Frontier Americas is a subsidiary of Solar Frontier, whose parent company is Tokyo-based Showa Shell Sekiyu, and develops and manufactures thin-film solar modules.