Paolo Romanacci, Area Manager for Mexico and Central America, explains how the BSO model has been applied in Mexico and what results are expected for the future.
Buy, sell and operate. This is the meaning of the acronym BSO, a business model that Enel has announced it plans to follow for the Group’s industrial growth. Launched during the presentation of the 2017-2019 Strategic Plan, “BSO” is considered a less capital-intensive tool that will make the plan’s objectives possible, using less money. A recent example of its application is in Mexico, where EGP ceded 80% of its share capital in a series of renewable energy plants for a counter value of 1.35 billion US dollars. To understand how the model works and its future implications better, we interviewed Paolo Romanacci, the Area Manager for Mexico and Central America.
Enel is proceeding with the implementation of the BSO model, as announced in the 2017-2019 Strategic Plan. What is it and what implications will it have on the business?
The BSO model ("Build, Sell and Operate") in the renewable energy sector consists of the sale of assets to generate revenue. EGP sells shares of the plants it owns but remains responsible for their functioning and operational management. This model allows for an increase in the enormous potential for business development in the renewable energy sector. Although its share is reduced, at least initially, EGP remains responsible for the construction, operation and administration of these plants. This leads to a constant cash flow for the duration of the related power purchase agreements (PPA).
How has the model been applied in Mexico and what are the goals of this operation?
In Mexico, a new company called Holdco was created, a holder of the entire capital of eight businesses: Amistad, Villanueva (I and III), Don José, Salitrillos, Altiplano, Dominica and Palo Alto. This new company, Holdco, is 20% owned by Enel Green Power.
Through this operation, though the installed capacity in our property is reduced, our managed capacity is increased, powering our growth plan in Mexico.
Mexico is a key country for the entire Group, which is why we want to keep growing in this area in the future as well. The agreement states that, starting from 1 January 2020, EGP will be able to include other projects within Holdco and recover its majority shareholder position.
Who are the buyers?
Two investment funds, one Canadian and one Mexican. Specifically, Caisse de Dépôt et Placement du Québec, one of the largest retirement fund managers in North America and CKD Infrastructure Mexico, the investment vehicle of the main Mexican retirement funds. This move allows us to integrate EGP’s industrial development, together with planning, construction, maintenance and commercial management, with CPDQ and CKD’s long-term investment ability.
What is Enel Green Power’s future in Mexico?
EGP will continue to be the principle operator of renewable energy in the country and will manage the plants that are now the property of Holdco, even in the long run. We are also responsible for finishing construction on incomplete projects.
Furthermore, EGP will keep direct control over the plants not included in this operation: the Stipa Nayaá, Zopiloapan and Sud-Est wind plants; the El Gallo, Chilatan and Trojes hydropower plants, and the COP16 solar plant.
This model will allow EGP to keep taking advantage of growth opportunities in the Mexican market, both by participating in tenders for new solar or photovoltaic plants and with new projects for the spread of renewable energy.