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14 Jul 17 22:26

Mexico is inarguably one of the fastest growing clean energy markets in Latin America. The country's nearly 2 GW of capacity addition every year is primarily driven by mushrooming growth in its solar and wind space, and supported by rapid development in the grid and transmission infrastructure. As such, when an opportunity to participate in one of the leading clean energy congress of Mexico – MIREC WEEK 2017 - presented itself, we couldn't let it pass. Every year, MIREC brings together the entire value chain to network and learn about the latest challenges, developments and cutting edge solutions that the industry is working on.

For us the learning was multi-faceted. While on the one hand we could understand why Mexico was suddenly a hot market for all investors – on the other, we couldn't help but notice the growing risk dimensions that they were considering as they compete for their share of this pie. The key driving force is the Government's ambitious goal of 35% clean energy in next seven years. For this, Mexico's authorities have recently implemented broad reforms in the electricity sector by unbundling the state owned utility and replacing it with an auction-based supply model so as to promote competition in the sector, reduce energy prices, and attract investment for projects. This has literally resulted in an explosive growth in the solar and wind project developments to meet the clean energy supply across the country.

Market players are getting increasingly aware of the various uncertain factors and ways to mitigate the risk in a volatile market place with their growing exposure. A large number of sessions during the five-day event focused on questions such as: how to navigate the evolving policy regime, to secure financing and PPAs and successfully participate in the energy auctions to maximize ones' ROI. There were government policy-makers, experts in regulatory affairs and developers who had participated in the energy auctions in 2016 to share clarity on the new Wholesale Electricity Market.

Swiss Re sponsored one such panel discussion on the “Risk Factors in Renewable Energy Projects" moderated by Luis Arizaga, Founding Partner of EIRA Capital, and the fellow panellists were George Osorio, Founder and Managing Partner of Conduit Capital and, Diana Ruan, Investment Officer by IFC. Both Luis & George have decades of experience investing in the Mexican markets and shared their experience with the different approaches in capital investment, debt structures, and the like. They highlighted the risks at each stage in the life-cycle of the project and how these impact the project's financial viability. Diana emphasized how a thorough due diligence at the planning stage can make a huge difference in the risk rating of a project, risk avoidance being the best risk mitigation tool. However, even the most diligently done projects can run into risks, and that is where insurance comes into the picture. We discussed the various products that the industry currently offers, to bridge each of the risks highlighted by the other panellists, with special focus on our parametric products for weather resource risk for solar, wind and hydro projects. Overall, the discussion was extremely productive, with the panel appreciating Swiss Re's role in developing innovative solutions that are being offered by the insurers for this market.

In summary, the learning for us was that every market structure is different and therefore the risks and possible solutions are also different and need to be tailored to that particular market. What remains constant is the criticality of the role that Swiss Re as a re-insurer can play in closing the protection gap in this ever-evolving industry.


Category: Sustainable energy: Solar, Wind

Location: Mexico City, Mexico


1 Comment

Urs Leimbacher - 17 Jul 2017, 5:01 p.m.

Thanks for sharing your thoughts, Seba. Reinsurers are important enablers and drivers of the transition to renewable energy infrastructures. By offering risk-transfer services in the project phase they can help make renewable energy projects a reality. And as institutional investors with long-term horizons, they can support renewable energy projects, too. However, in order for these investments to expand, better regulatory incentives are needed.
Check out Swiss Re's publications: "Strengthening the role of long-term investors" at http://www.swissre.com/library/203599391.html
and also "Infrastructure investing: it matters" at http://www.swissre.com/library/archive/246315951.html


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