José Ruiz, president and CEO at Buenavista Renewables, speaks to Chris Cooper about his company’s role in Mexico as it develops its greenfield renewable energy resources
Why does Buenavista Renewables focus particularly on renewable energy development in Mexico?
We believe that solar and wind resources in certain areas in Mexico are world-class, thanks partly to the geographical location of the country. There are certain areas in Mexico that have wind plant capacities above 40%, which is an extremely good ratio. There are regions where solar energy can produce more than 6.5 kWh/m2/day, one of the highest levels of productivity in the world. Also, there is grid parityin most of the rate classes, and, finally, banks and equity providers feel reasonably comfortable with Mexico’s country risk. Nonetheless, there is an infinity of challenges. Mexico is by no means an easy market.
Let’s discuss a few of those challenges.
What I consider to be the biggest challenge facing new projects in Mexico is regulation, the permitting process, and banking execution risk. Improvements can certainly be made with respect to permitting. There are several agencies that need to be approached at the same time and those agencies, such as Centro Nacional de Control de Energía, the Ministry of Energy and the Comisión Reguladora de Energía, seem to work independently. Some more centralised process for these types of projects might make more sense and speed up the implementation of infrastructure. The new electrical reform needs tangible incentives for wind and solar, otherwise, it will be challenging to have a steady market which provides the critical mass needed to be attractive to companies such as ours.
Besides the widely known benefits of clean energy, are there any advantages that you believe renewable energy projects will bring to communities, landowners, off-takers, and other stakeholders in Mexico?
There are plenty of benefits that I believe renewables will bring to the market. For local communities, there is access to technology, jobs, a contribution to the environment, and lower electricity rates. Landowners have the opportunity to partner in some way with good sophisticated projects and the potential to generate a long-term income. Stakeholders can participate in OPEX savings and lock long-term prices that are non-dependent from fuel volatile costs. I also believe that Mexico will be able to secure long-term 100% renewable energy sources and cultivate a more diverse energy mix.
Do you believe Mexico’s renewable energy market has a proper incentives regime to maintain investor interest over the long term?
Before the energy reform, Mexico’s renewable energy market had a proper incentives regime that included energy banking and postal stamp wheeling, which were an extremely useful operating incentive to boost renewables. With the reform, we need to wait and see what is finally decided. Many things are in the air and energy banking might disappear. Incentives are needed for renewables, the operating ones were very smart. One hopes that journalists can help to make a case for renewables; it is certainly a good sensitive thing to do to take minimum care of our environment.
If you could change one local law or regulation related to renewable energy, what would it be and why?
Wind and solar energies make up less than 3% of Mexico’s electricity grid and I don’t think solar energy even gets to 1%. It is my hope that Mexico sets a goal that mandatorily sees wind and solar energies make up 15% of the grid in the next seven to ten years. I also think it would be extremely beneficial if Mexico maintains the energy bank and postage-stamp wheeling incentives for wind and solar energies.
Let’s talk about the legal market in Mexico, does it meet your expectations in terms of depth, specialisation, projects expertise, and delivery?
The market is somewhat new, so expertise is in development as well. The number of projects is limited so far. So experience needs to be built. At the same time, the renewable energy business is global. I think expertise and experience could be acquired to some extent by the partnering of local firms with international ones that participate in these kinds of projects.
What is the breakdown of internal and external counsel that you use and what criteria do you use to choose your counsel?
We choose counsel based on experience in project finance, experience in renewables and expertise in Mexican industry government institutions. Our deal law firm is Holland & Knight and our corporate law firm is Greenberg Traurig. We chose these firms because they are recognised by lenders and have a very strong local presence and knowledge. We also like working with other firms, such as Haynes & Boone and Chadbourne & Parke, because they are professional, resourceful, have a great depth of expertise and are recognised by banks. However, the downside is that they are not cheap to retain, so developers like us need to have a lot of control, to ensure that estimates keep within budget. So with legal fee structures, we usually opt for billable hours with 50,000 checking points and caps. In general, I believe that firms in the market could be more deal-oriented and look at worldwide cases so they have a more educated criteria to look at similar project finance challenges.
Do you rely on global or local counsel, or a combination?
The local component is paramount, especially in markets where regulation and legal framework are recent, as in the Mexican case with the new electricity reform. We rely on global counsel because the financing for our project is raised in dollars. Nonetheless, the local arms of our legal firms are very strong. For the projects we currently develop, we are structuring the financing with US banks, so New York law applies for the credit agreements.
What do you hope to accomplish in the next few years?
We are mostly a group of ex-bankers with experience in project finance. Our approach is that by key alliances and specific projects we can reach a steady growth and positioning in Spanish-speaking markets. Latin America has very good renewable resources. The markets are at an early stage, and renewables can compete with existing electricity rates. Therefore, those markets might have a reasonable growth expectation and they could reach, on average, 15% of renewables in their respective electricity portfolios. This could mean 10 to 15 years of market opportunities. Buenavista seeks to obtain a small share of that. A reasonable percentage of renewables in Mexico and in other countries is a desirable thing to do. It would be nice if the media and society demanded concrete results regarding this. The electricity industry worldwide is the one that can most contribute to the control and reduction of global warming.
José Ruiz serves as CEO for Buenavista Renewables Mexico (BVR) in Houston, Texas. BVR develops renewable energy projects, focusing on unique opportunities in the Mexican and broader Latin American markets. The group is formed by solar and wind professionals from China, Mexico, and the United States. Together, BVR’s principals have closed more than a gigawatt of installed capacity worldwide. Prior to BVR, Mr Ruiz was the Director of Project Finance at the North American Development Bank. Mr Ruiz, has more than 20 years of experience in the development, structuring, and financing of infrastructure projects that in their aggregate represent more than $6.3 billion in investment in the US, Mexico and the UK. He has participated in more than 150 infrastructure projects across various sectors, including renewable energy, energy efficiency, natural gas, water and wastewater, solid waste, urban infrastructure, housing, public transportation, and border crossings. José holds an MBA from the University of Lancaster, UK and BS in Civil Engineering from UNAM, MX.