Envision's Mexico move can support EU plans

It is 18 months since Mexico’s president, Enrique Pena Nieto, fired the starting pistol in the race for overseas wind companies to get involved in this Central American nation.

Back then, Nieto said there would be no limits on inbound investors
in renewable energy in the nation, which had just opened energy to private investment after 76 years in state control.

It has taken a little while for major deals to materialise but this week one did. Now, it is no surprise to use that a big deal has been done in Mexico. The surprising bit is who did it.

On Wednesday, Chinese manufacturer Envision Energy announced that it has bought a controlling stake in a 600MW portfolio of wind development projects from Mexican firm ViveEnergia. Envision is aiming to commission the first of these projects in 2016. The pair have also signed a deal to build projects totalling 1.5GW by 2020.

The reason this deal took the market by surprise is that Envision had previously made no indication of ambitions in South or Central America. It has been focusing on Europe.

For instance, in July, it bought a 25MW wind farm in in Sweden that it said would enable the company to establish itself as one of the top five turbine makers in Europe. It was a small deal but important.

However, it would not be easy for any new entrant to establish itself as a top five manufacturer in Europe even if, like Envision, it claims that it has technology ’smarter’ than its rivals. In fact, you can make a strong case that achieving this ambition will be even more difficult if the Envision introduces more challenges, like growth in Mexico.

But, in our view, this Mexico deal looks like a good pragmatic move.

Chinese manufacturers like Goldwind have struggled to establish themselves in Europe when going head-to-head with the likes of Siemens, Vestas, Enercon, Gamesa, Nordex and others. It makes sense, therefore, for Envision to look for quick wins in markets such as the Americas — where Goldwind has also been successful.

By establishing a presence in the fast-growing Mexican market, Envision has other options for its business if its European venture falters. It does not have all its eggs in one basket.

Meanwhile, if the foray in Mexico is a success, that can only bolster the firm’s financial firepower for what would surely be a protracted fight to gain market share in Europe. Gaining a strong position among turbine manufacturers in Europe takes deep pockets as well as innovative technology — and, even if Envision were to break into the top five, it would then face the challenge of staying there. Success in Mexico would help with that core mission.

But why Mexico?

Felix Zhang, executive director at Envision, said the nation was one of the most promising wind markets in the Americas over the next ten years. This is partly due to the recent energy reforms, but also its untapped sites and availability of finance and energy buyers.

Mexico’s wind energy association Amdee said installed capacity in the country is set to grow by around 30% this year to over 3.2GW with the commissioning of six wind farms totalling 730MW.

One of these is the 155MW Sierra Juarez by InterGen and IEnova that was commissioned in June, though this is now facing a legal challenge due to its impacts on wildlife. By 2022, Mexico is aiming to have total wind capacity of 15GW, which is set to require total investment of $30bn — of which $5bn has already been invested.

And how much of that $30bn will come from Envision? That all depends on the success of this 600MW tie-up with ViveEnergia.