Going into detail, what model is proving most productive, between PPAs (Power Purchase Agreement), feed-in tariffs and other forms of incentive?
Globally, there are very few cases in which feed-in tariffs are used. Competitive mechanisms are now prevalent and this has enabled a reduction of costs that could never have happened with the Feed in Tariff model. PPAs have generated competitive pressure in many countries to speed up technological improvements, cost reduction and the development of the sector: without this step, we probably wouldn’t have seen the boom in renewables, which in some countries are actually a more competitive solution than conventional sources.
How are we moving through PPAs?
EGP tries to adopt a very low merchant exposure in the development of new projects. Many PPAs already include the risk of exposure of this kind, and in this sense the work of our team of specialists, who study the contracts in detail in order to mitigate risks, is fundamental.
How has the work of the BD department of EGP changed over time?
Our work is now made up of two different cores: a traditional one, which consists in actual development of projects, and another, more recent, that is commercial. BD performs both these activities with the goal of creating new projects and selling the energy produced. The markets that attract our attention are especially, but not exclusively, in countries that are opening up to the liberalisation of large customers, the so-called Commercial & Industrial customers (C&I).
In Mexico, where the energy produced by one of the biggest wind projects we’ve ever made will be sold to Femsa, the largest bottling company for Coca-Cola. So, the world of PPAs is varied: there are state and private counterparts, complex realities, to fully liberalised markets like the USA. We no longer sell energy only to other utilities, but also to large industrial and commercial entities that allow us to create global synergies.
Following the successes of last year, let’s talk about 2017: what should we expect?
Geographically, we’re looking especially to Ethiopia, Australia and North Europe, and special mention must be made of India, a country we have already entered but where we must consolidate our presence and demonstrate our competitiveness. But the goals set by EGP are not only geographical. We must first of all become a supplier of choice for large C&Is: unfortunately, the level of our brand awareness in large populations of C&Is is low, so we need a strong effort of industrial marketing. I think it’s also necessary to aim to become equity partner of choice. In 2017, this role should add a third aspect to Business Development: equity placement in addition to engineering and commercial placement. Even markets where we do not want to sacrifice our returns but where the level of competitiveness is high, we aim to find entities that are willing to believe in us and invest in us. In this way, we can increase our value. Finally, let’s remember that we provide capacity of development, construction and operation of plants not only for us, but also for third parties: talking about the well known BSO model (Build, Sell and Operate) or about the equity partnerships that allow us to be more competitive.