A financing model for Spanish retail electricity providers
- Isabel Vela Cantalapiedra
- José Luis Calvo González
ISSN: 2173-0164
Year of publication: 2018
Issue: 16
Pages: 44-65
Type: Article
More publications in: Aestimatio: The IEB International Journal of Finance
Abstract
This paper presents an alternative way of funding for retail electricity providers in the Spanish electricity sector, through securitization of future revenue streams generated by power supply. To that end, the paper provides a contextualized overview of the following aspects: the Spanish electricity market after its liberalization, with the emergence of new electricity providers; and the definition and structure of the future-flow securitization process. Due to the lack of liquidity and the difficulty of obtaining funds in the financial sector, new electricity providers have to search for alternative financing. We analyse the possibility of creating a securitization fund of future rights to supply power to their customers, who will be required to commit to a minimum contract period. Providers could implement credit enhancements by setting up a reserve fund to cover their assets, thus achieving better balance-sheet management and maybe even more affordable financing than by turning to the capital market. Finally, an example of the model of securitization is developed for a new retail provider that wants to diversify its activities in a 20mn-investment project oriented to customers for power supply of less or equal than 50kW. The economic results of the model for a new company show a net present value of 1mn with a nine-year payback and an internal rate of return of 13%. If the company’s focus is only on financial cost, it would currently be more profitable to seek financing from the capital market through a syndicated bank loan than by issuing a securitization. The securitization would only make sense for high-level investments, suggesting that other companies in a similar situation should join together to launch the securitization project. If the company’s focus is on transferring the risk of the payment debtors to the market, securitization offers an alternative to factoring. In any case, the best option for obtaining liquidity to invest in renewable energy will depend on the company strategy.
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