Interview: Zuma's Adrian Katzew on investing in Mexico

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Ilaria Valtimora
August 21, 2017
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Interview: Zuma's Adrian Katzew on investing in Mexico

Three months ago, we analysed Mexico’s wind market and argued that President Pena Nieto needed a serious plan to attract investment. This is vital if Mexico is to achieve its target to grow its wind capacity to 12GW by 2020 from the 454MW at the end of 2016.

And Mexico caught our attention again this month as two wind projects with total capacity of 674MW reached financial close. Specifically, Actis and Mesoamerica’s Mexican venture Zuma Energia secured $600m to build its 424MW Reynosa scheme, and UK-headquartered Cubico secured $220m backing for its 250MW El Mezquite development.

So, to get an insight into the prospects for the Mexican wind sector, we spoke to Adrian Katzew (below), chief executive at Zuma Energia. He
told us about the firm’s strategy in Mexico, how Zuma financed its Reynosa scheme, and some of the challenges for market growth.



Katzew worked on the formation of Zuma in 2014, when Mexico was opening its energy sector to private investment, and is now responsible of the company’s portfolio of 800MW of renewables projects in the country. Zuma is owned 80% by UK-based emerging market investor Actis and 20% by Latin American-focused firm Mesoamerica Investment.

Zuma was the biggest winner of the Mexican government’s second renewables auction in 2016, where it won support for 725MW of projects including the 424MW Reynosa, which is set to be located in northeast Mexico, as well as two solar projects, totalling 301MW.

It has now raised the $600m in project financing for Reynosa from Mexican development banks Bancomext and Banobras, with a contribution from Santander and Danish export credit agency EKF.
Actis and Mesoamerica also participated to the financing with $125m.

Katzew said Zuma considered working with lenders from the US and Europe, but chose Bancomext and Banobras as they are “much more familiar and committed to the market”. He added that working with overseas lenders could have delayed the financial close.

Even so, Katzew said Mexican renewables is ready for foreign investors: “The structure per se of the market has been widely accepted by investors and the success of the two auctions held last year is a demonstration of that. That is not a constraint to the market.”

He also identifies two weaknesses of the Mexican wind sector.

The first is related to the competitiveness of solar in multiple-technology auctions. For example, in the government’s first auction, the amount of solar capacity awarded was a lot larger than wind. Out of the 2.6GW of renewable energy capacity awarded, solar projects won backing for 2.2GW, with wind securing the remainder.

Katzew argues that multiple-technology auctions have made the renewables market a lot more competitive, but it is a risk for wind: “This is the new game”, he said. However, he added that these auctions are one reason why wind developers in Mexico have become more competitive and has opened up to the opportunity of building large-scale projects.

The second issue Katzew identified is there is a mismatch between the growth of the wind sector and the growth of the supporting infrastructure, both transmission and the ability to get turbines to the areas with the strongest winds: “Wind is suffering from its own success”, he said.

The areas with the best wind resources have seen the quickest growth, but their potential can only be further exploited if the government commits to improve the infrastructure system. He used the example of the Yucatan region, the new hub for renewable energy in Mexico: “We saw a number of projects in Yucatan winning the auction, but we won’t see more, until the grid gets expanded.”

The two recent project finance deals have confirmed that Mexico is an attractive market for investors and the government’s supportive wind policies are starting to bear fruit. But there is much more to do if firms like Zuma are to fully exploit the country’s wind potential.

Three months ago, we analysed Mexico’s wind market and argued that President Pena Nieto needed a serious plan to attract investment. This is vital if Mexico is to achieve its target to grow its wind capacity to 12GW by 2020 from the 454MW at the end of 2016.

And Mexico caught our attention again this month as two wind projects with total capacity of 674MW reached financial close. Specifically, Actis and Mesoamerica’s Mexican venture Zuma Energia secured $600m to build its 424MW Reynosa scheme, and UK-headquartered Cubico secured $220m backing for its 250MW El Mezquite development.

So, to get an insight into the prospects for the Mexican wind sector, we spoke to Adrian Katzew (below), chief executive at Zuma Energia. He
told us about the firm’s strategy in Mexico, how Zuma financed its Reynosa scheme, and some of the challenges for market growth.



Katzew worked on the formation of Zuma in 2014, when Mexico was opening its energy sector to private investment, and is now responsible of the company’s portfolio of 800MW of renewables projects in the country. Zuma is owned 80% by UK-based emerging market investor Actis and 20% by Latin American-focused firm Mesoamerica Investment.

Zuma was the biggest winner of the Mexican government’s second renewables auction in 2016, where it won support for 725MW of projects including the 424MW Reynosa, which is set to be located in northeast Mexico, as well as two solar projects, totalling 301MW.

It has now raised the $600m in project financing for Reynosa from Mexican development banks Bancomext and Banobras, with a contribution from Santander and Danish export credit agency EKF.
Actis and Mesoamerica also participated to the financing with $125m.

Katzew said Zuma considered working with lenders from the US and Europe, but chose Bancomext and Banobras as they are “much more familiar and committed to the market”. He added that working with overseas lenders could have delayed the financial close.

Even so, Katzew said Mexican renewables is ready for foreign investors: “The structure per se of the market has been widely accepted by investors and the success of the two auctions held last year is a demonstration of that. That is not a constraint to the market.”

He also identifies two weaknesses of the Mexican wind sector.

The first is related to the competitiveness of solar in multiple-technology auctions. For example, in the government’s first auction, the amount of solar capacity awarded was a lot larger than wind. Out of the 2.6GW of renewable energy capacity awarded, solar projects won backing for 2.2GW, with wind securing the remainder.

Katzew argues that multiple-technology auctions have made the renewables market a lot more competitive, but it is a risk for wind: “This is the new game”, he said. However, he added that these auctions are one reason why wind developers in Mexico have become more competitive and has opened up to the opportunity of building large-scale projects.

The second issue Katzew identified is there is a mismatch between the growth of the wind sector and the growth of the supporting infrastructure, both transmission and the ability to get turbines to the areas with the strongest winds: “Wind is suffering from its own success”, he said.

The areas with the best wind resources have seen the quickest growth, but their potential can only be further exploited if the government commits to improve the infrastructure system. He used the example of the Yucatan region, the new hub for renewable energy in Mexico: “We saw a number of projects in Yucatan winning the auction, but we won’t see more, until the grid gets expanded.”

The two recent project finance deals have confirmed that Mexico is an attractive market for investors and the government’s supportive wind policies are starting to bear fruit. But there is much more to do if firms like Zuma are to fully exploit the country’s wind potential.

Three months ago, we analysed Mexico’s wind market and argued that President Pena Nieto needed a serious plan to attract investment. This is vital if Mexico is to achieve its target to grow its wind capacity to 12GW by 2020 from the 454MW at the end of 2016.

And Mexico caught our attention again this month as two wind projects with total capacity of 674MW reached financial close. Specifically, Actis and Mesoamerica’s Mexican venture Zuma Energia secured $600m to build its 424MW Reynosa scheme, and UK-headquartered Cubico secured $220m backing for its 250MW El Mezquite development.

So, to get an insight into the prospects for the Mexican wind sector, we spoke to Adrian Katzew (below), chief executive at Zuma Energia. He
told us about the firm’s strategy in Mexico, how Zuma financed its Reynosa scheme, and some of the challenges for market growth.



Katzew worked on the formation of Zuma in 2014, when Mexico was opening its energy sector to private investment, and is now responsible of the company’s portfolio of 800MW of renewables projects in the country. Zuma is owned 80% by UK-based emerging market investor Actis and 20% by Latin American-focused firm Mesoamerica Investment.

Zuma was the biggest winner of the Mexican government’s second renewables auction in 2016, where it won support for 725MW of projects including the 424MW Reynosa, which is set to be located in northeast Mexico, as well as two solar projects, totalling 301MW.

It has now raised the $600m in project financing for Reynosa from Mexican development banks Bancomext and Banobras, with a contribution from Santander and Danish export credit agency EKF.
Actis and Mesoamerica also participated to the financing with $125m.

Katzew said Zuma considered working with lenders from the US and Europe, but chose Bancomext and Banobras as they are “much more familiar and committed to the market”. He added that working with overseas lenders could have delayed the financial close.

Even so, Katzew said Mexican renewables is ready for foreign investors: “The structure per se of the market has been widely accepted by investors and the success of the two auctions held last year is a demonstration of that. That is not a constraint to the market.”

He also identifies two weaknesses of the Mexican wind sector.

The first is related to the competitiveness of solar in multiple-technology auctions. For example, in the government’s first auction, the amount of solar capacity awarded was a lot larger than wind. Out of the 2.6GW of renewable energy capacity awarded, solar projects won backing for 2.2GW, with wind securing the remainder.

Katzew argues that multiple-technology auctions have made the renewables market a lot more competitive, but it is a risk for wind: “This is the new game”, he said. However, he added that these auctions are one reason why wind developers in Mexico have become more competitive and has opened up to the opportunity of building large-scale projects.

The second issue Katzew identified is there is a mismatch between the growth of the wind sector and the growth of the supporting infrastructure, both transmission and the ability to get turbines to the areas with the strongest winds: “Wind is suffering from its own success”, he said.

The areas with the best wind resources have seen the quickest growth, but their potential can only be further exploited if the government commits to improve the infrastructure system. He used the example of the Yucatan region, the new hub for renewable energy in Mexico: “We saw a number of projects in Yucatan winning the auction, but we won’t see more, until the grid gets expanded.”

The two recent project finance deals have confirmed that Mexico is an attractive market for investors and the government’s supportive wind policies are starting to bear fruit. But there is much more to do if firms like Zuma are to fully exploit the country’s wind potential.

Three months ago, we analysed Mexico’s wind market and argued that President Pena Nieto needed a serious plan to attract investment. This is vital if Mexico is to achieve its target to grow its wind capacity to 12GW by 2020 from the 454MW at the end of 2016.

And Mexico caught our attention again this month as two wind projects with total capacity of 674MW reached financial close. Specifically, Actis and Mesoamerica’s Mexican venture Zuma Energia secured $600m to build its 424MW Reynosa scheme, and UK-headquartered Cubico secured $220m backing for its 250MW El Mezquite development.

So, to get an insight into the prospects for the Mexican wind sector, we spoke to Adrian Katzew (below), chief executive at Zuma Energia. He
told us about the firm’s strategy in Mexico, how Zuma financed its Reynosa scheme, and some of the challenges for market growth.



Katzew worked on the formation of Zuma in 2014, when Mexico was opening its energy sector to private investment, and is now responsible of the company’s portfolio of 800MW of renewables projects in the country. Zuma is owned 80% by UK-based emerging market investor Actis and 20% by Latin American-focused firm Mesoamerica Investment.

Zuma was the biggest winner of the Mexican government’s second renewables auction in 2016, where it won support for 725MW of projects including the 424MW Reynosa, which is set to be located in northeast Mexico, as well as two solar projects, totalling 301MW.

It has now raised the $600m in project financing for Reynosa from Mexican development banks Bancomext and Banobras, with a contribution from Santander and Danish export credit agency EKF.
Actis and Mesoamerica also participated to the financing with $125m.

Katzew said Zuma considered working with lenders from the US and Europe, but chose Bancomext and Banobras as they are “much more familiar and committed to the market”. He added that working with overseas lenders could have delayed the financial close.

Even so, Katzew said Mexican renewables is ready for foreign investors: “The structure per se of the market has been widely accepted by investors and the success of the two auctions held last year is a demonstration of that. That is not a constraint to the market.”

He also identifies two weaknesses of the Mexican wind sector.

The first is related to the competitiveness of solar in multiple-technology auctions. For example, in the government’s first auction, the amount of solar capacity awarded was a lot larger than wind. Out of the 2.6GW of renewable energy capacity awarded, solar projects won backing for 2.2GW, with wind securing the remainder.

Katzew argues that multiple-technology auctions have made the renewables market a lot more competitive, but it is a risk for wind: “This is the new game”, he said. However, he added that these auctions are one reason why wind developers in Mexico have become more competitive and has opened up to the opportunity of building large-scale projects.

The second issue Katzew identified is there is a mismatch between the growth of the wind sector and the growth of the supporting infrastructure, both transmission and the ability to get turbines to the areas with the strongest winds: “Wind is suffering from its own success”, he said.

The areas with the best wind resources have seen the quickest growth, but their potential can only be further exploited if the government commits to improve the infrastructure system. He used the example of the Yucatan region, the new hub for renewable energy in Mexico: “We saw a number of projects in Yucatan winning the auction, but we won’t see more, until the grid gets expanded.”

The two recent project finance deals have confirmed that Mexico is an attractive market for investors and the government’s supportive wind policies are starting to bear fruit. But there is much more to do if firms like Zuma are to fully exploit the country’s wind potential.

Three months ago, we analysed Mexico’s wind market and argued that President Pena Nieto needed a serious plan to attract investment. This is vital if Mexico is to achieve its target to grow its wind capacity to 12GW by 2020 from the 454MW at the end of 2016.

And Mexico caught our attention again this month as two wind projects with total capacity of 674MW reached financial close. Specifically, Actis and Mesoamerica’s Mexican venture Zuma Energia secured $600m to build its 424MW Reynosa scheme, and UK-headquartered Cubico secured $220m backing for its 250MW El Mezquite development.

So, to get an insight into the prospects for the Mexican wind sector, we spoke to Adrian Katzew (below), chief executive at Zuma Energia. He
told us about the firm’s strategy in Mexico, how Zuma financed its Reynosa scheme, and some of the challenges for market growth.



Katzew worked on the formation of Zuma in 2014, when Mexico was opening its energy sector to private investment, and is now responsible of the company’s portfolio of 800MW of renewables projects in the country. Zuma is owned 80% by UK-based emerging market investor Actis and 20% by Latin American-focused firm Mesoamerica Investment.

Zuma was the biggest winner of the Mexican government’s second renewables auction in 2016, where it won support for 725MW of projects including the 424MW Reynosa, which is set to be located in northeast Mexico, as well as two solar projects, totalling 301MW.

It has now raised the $600m in project financing for Reynosa from Mexican development banks Bancomext and Banobras, with a contribution from Santander and Danish export credit agency EKF.
Actis and Mesoamerica also participated to the financing with $125m.

Katzew said Zuma considered working with lenders from the US and Europe, but chose Bancomext and Banobras as they are “much more familiar and committed to the market”. He added that working with overseas lenders could have delayed the financial close.

Even so, Katzew said Mexican renewables is ready for foreign investors: “The structure per se of the market has been widely accepted by investors and the success of the two auctions held last year is a demonstration of that. That is not a constraint to the market.”

He also identifies two weaknesses of the Mexican wind sector.

The first is related to the competitiveness of solar in multiple-technology auctions. For example, in the government’s first auction, the amount of solar capacity awarded was a lot larger than wind. Out of the 2.6GW of renewable energy capacity awarded, solar projects won backing for 2.2GW, with wind securing the remainder.

Katzew argues that multiple-technology auctions have made the renewables market a lot more competitive, but it is a risk for wind: “This is the new game”, he said. However, he added that these auctions are one reason why wind developers in Mexico have become more competitive and has opened up to the opportunity of building large-scale projects.

The second issue Katzew identified is there is a mismatch between the growth of the wind sector and the growth of the supporting infrastructure, both transmission and the ability to get turbines to the areas with the strongest winds: “Wind is suffering from its own success”, he said.

The areas with the best wind resources have seen the quickest growth, but their potential can only be further exploited if the government commits to improve the infrastructure system. He used the example of the Yucatan region, the new hub for renewable energy in Mexico: “We saw a number of projects in Yucatan winning the auction, but we won’t see more, until the grid gets expanded.”

The two recent project finance deals have confirmed that Mexico is an attractive market for investors and the government’s supportive wind policies are starting to bear fruit. But there is much more to do if firms like Zuma are to fully exploit the country’s wind potential.

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Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.