Whilst the Covid-19 pandemic had an impact on the PAPA One business plan, the greatest obstacle to its progress has been Mexican President, Andres Manuel Lopez Obrador’s, regressive and stymying approach towards the energy sector.
The experienced team at PAPA One has operated in many challenging environments with government interventions both positive and negative, mainly focused on subsidies or initiatives, but has never been confronted by a government so determined to halt all private and international business activity in such a key sector. And PAPA One is not alone. Some of the largest international power companies and solar developers have had no other option but to follow a similar strategy to PAPA One by waiting for a change of government and policy approach.
Following the last shareholder report that the “Campeche” project had progressed as far as considered reasonable at that time, with key permits obtained (excluding interconnection permits). Along with project’s Spanish partner/co-developer and key consultants, it was agreed the best strategy was to pause development and look forward to the 2024 Mexican Elections.
Mexican Election Results
The recently elected Mexican president, Claudia Sheinbaun, was inaugurated in October 2024. She is Mexico City’s former mayor and a trained PhD physicist who specialised in energy and served on a UN intergovernmental panel on climate change which went on to win a 2007 Noble Peace Prize. It was predicted, based on her background, that she would deviate from the previous president’s anti private investment participation and obstruction to renewable energy development. In her campaign, she has announced ambitious plans to invest $13.6 billion in wind and solar projects. In one of her first speeches, she said she was committed to increasing renewable electricity production by 45% by 2030.
Mexican Power Market Update
The team at PAPA One continues to monitor the new Mexican government policy agenda and the wider ecosystem of stakeholders in the power sector including banks, developers, and power companies, awaiting actionable information. Although the new Mexican president was making promising statements about her commitment to renewable energy, clearer and more detailed information on her policy and approach are awaited. The first indication of a shift in policy came in the form of the new energy plan submitted in November 2024, although unlikely to be enacted immediately.
Claudia Sheinbaun’s approach delivers continuity in support for CFE but recognises the need for wider participation in the energy sector, including new rules for private participation for medium to large producers. The proposal also calls for a National Energy Commission to be created. She has been clear in her discussions on energy that she is fully committed to solar as she believes that it will be the key driver for the Mexican energy sector in the future.
With decreasing costs per watt of installed capacity together with more than 85% of the country being one of the best irradiation areas in the world, she is keen to maximise this competitive advantage. Her proposals are pragmatic and will clearly define market participation accept the necessity for private producers and suppliers in the energy sector. Clearly, she is also aware that CFE is already approaching its debt ceiling and is unable to 100% fund the development, construction, and operation of solar plants. She is therefore developing a more flexible framework to allow for private participation alongside CFE. This shift in approach is significant and has already re-invigorated the sector. Further aiding opportunities in the sector will be driven by her new “Taxonomy of Mexico”: A green financing strategy that will further enhance funding opportunities for green infrastructure projects, including solar.
One of the key barometers PAPA One has been monitoring in the Mexican energy sector has been the activity of large venture capital funds. The early trend has been positive, and it is evident in the early shoots of growth in transactional volumes and investment placements that have successfully closed. Activity in this space is key to PAPA One’s ability to market the Campeche project (100MWac utility-scale). From a micro perspective, this is a strong indicator that there is growing trust and certainty in the sector.
At the macro level there is noise around the new President of the United States and potential US tariffs. Advisers feel this is already priced into the Mexican market and unlikely to derail growth opportunities within the country. The Mexican economy GDP growth forecast by US banks is positive and growing during the next two years, Citigroup upgraded its Mexican forecast up from 1 to 1.2% two weeks ago for 2025 and 1.8% for 2026.
The Mexican economy is stable, its financial and banking sectors are well capitalised and more than willing to finance infrastructure projects. Also, international reserves are reaching a maximum point allowing for greater stability to the wider local economy.
Overall things are looking positive, although the current environment is still challenging due to new government administrations both in Mexico and the United States of America. The large key stakeholders both in the public and private sectors have been quick to be reactive to benefit from a change in government and approach, looking at capitalising on the opportunities that lie ahead.
Exit Strategy
Based on PAPA One’s recent discussions with its co-development partner and positive engagement with a global M&A specialist in the Mexican solar space, alongside the current encouraging micro and macro market analysis, it has agreed that during the next quarter, it will resume conversations and activity around the Campeche project with the aim of moving the project into a marketable position. Based on current M&A benchmarking of recent activity in the sector for selling 80-100MWac utility-scale solar projects, the mean price would be profitable and most importantly there is an active appetite of buyers returning to the Mexican market.
Campeche Project Status Update
PAPA One continues to work closely with its Spanish partner and is in the early stage of implementing the re-activation of the Campeche project. As a result, it is looking to re-assigned project personnel in-line with the exit strategy. In the weeks ahead, PAPA One will look at reviewing project details and formulating a new critical path.
CAMPECHE PROJECT STATUS REPORT (134 MW SOLAR GENERATOR): ACTIVITY STATUS FEEDBACK
Land: obtained. The lease of the land on which the project is to be implemented was ratified before a notary public on 22nd February 2021. Full registration of lease on the land has been finalised and completed.
Conagua: obtained. The lease of the land on which the project is to be implemented was ratified before a notary public on 22nd February 2021. Full registration of lease on the land has been finalised and completed.
INAH 004: obtained on 13th July 2021, the prospecting application was entered into the offices of the INAH Campeche centre, to which file number 09/21 was assigned. The Department of Legal Procedures and Services responded on 13th October 2021 to the aforementioned request.
INAH 005: in process. Engagement with the head of the department to be re-activated.
CENACE: actioned. The preparation of the M&E engineering work, including the indicative study has been concluded.
Environmental & Social Impact Studies: obtained. The environmental consultants working on the Campeche site have completed the required site surveys and associated work. After liaising with SEMARNAT in Aug 2022, consultants made revisions and amendments to the proposed design layouts. These where resubmitted in Q4 (2022) and later accepted.
License Budget Municipal (change of land use and construction): obtained. Following 14th December 2021 submissions to Municipality of Escárcega, successful negotiations were completed. Both construction and change of land use permits have been obtained They will be in force for a period of three years.
EVIS: obtained. On 23rd August 2021, the social impact assessment of the project was successfully submitted to the Ministry of Energy.
DGAC: obtained. By means of letter number 4.1.2.3.2524/SIAC/2021 dated 12th November 2021, the project and its construction plans were authorised, reserving the authority the right to carry out inspections to verify compliance with the technical characteristics and the corresponding legislation.
SCT: actioned. The engineering work was carried out and the access file was entered into the Ministry of Communications and Transport on 3rd December 2021.
CENAGAS: actioned. The request for confirmation that the pipelines and infrastructure of CENAGAS are not affected by the development was made and entered on 14th July 2021.
CFE: in process. At the right time, we will engage CFE and engineering consultants to process this last step before the project is RTB (ready to build).
Resources
PAPA One has met its contractual obligations by contributing its share of the cost and general operating expenses to permit the Campeche project SPV to date. The team is currently working with its Spanish partner to formulate a final stage critical path based on the new paradigm and will continue to review the financial position. PAPA One will provide notice if further final stage funding is required for the company to exit successfully.
Management of the Company
Luis Novella and Adam Smith continue to manage PAPA One as directors to pursue the key objective of selling the Campeche solar PV project in Mexico at late or ready to build stage.
Governance
The articles of association are publicly available on the Companies House website. PAPA One is often joined by its accountants and company solicitors in order to ensure it has the most accurate information and also to ensure compliance with statutory requirements and adherence to best practices.
PAPA One will continue to monitor the situation in Mexico with the aim of progressing the Campeche project, with the support of its partner, to a marketable stage. It will continue to engage with M&A advisors and will be looking to update you by the second quarter on any progress made. Any material change to the current situation will be communicated to you.
Should shareholders have any questions regarding PAPA One, it is always recommended that you reach out the PAPA One team directly.
Luis Novella
Chairman, PAPA One
www.papa-one.com
Solar 350 (part of the 350 PPM group of companies) has a circa 70% share in PAPA One.