2017
“This is not a reform, this is a revolution on an unprecedented scale... this transformation touches every sector of the Mexican energy industry and goes well beyond.� Fatih Birol, Executive Director, International Energy Agency
2017
Mexico has left behind an energy monopoly that lasted over 70 years. It did so in less than three. From the proclamation of the much-hailed Energy Reform in 2013 to the first two long-term electricity auctions in 2016, the country has achieved something that many market participants did not believe possible on such short notice. While the energy regulators did their part, the government piled on the pressure by agreeing to energy efficiency and climate change targets with the UN’s COP21 that look to implement a much greener energy mix by the middle of the century.
In this new and dynamic environment, solar and wind power technologies are storming the industry as the main winners of the power auctions, while both the CFE and private players are starting to revamp old and inefficient hydrocarbon-fueled plants to run the nation’s baseload capacity on much cleaner and cheaper natural gas. Among other developments, 2017 will see the entry of private sector players as partners with CFE in transmission, starting with the highly awaited tender for a HVDC line connecting Oaxaca and the Valley of Mexico.
The launch of the wholesale electricity market in January 2016 was a breakthrough in the transformation of Mexico’s electricity industry, bringing it closer to modern standards of power generation and trading. Novelty and uncertainty are keeping some companies from entering the new model but growing interest from generators, qualified suppliers, off-takers and traders has started to lift the barriers, supported by the performance of public entities. Other obstacles, however, remain. With over 180 interviews, Mexico Energy Review 2017 paints the picture of the country’s radically transformed power market, bringing relevant players, old and new, together in one book.
ALL RIGHTS RESERVED Š Toguna, S. de R.L. de C.V., 2016. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from Toguna S.A. de C.V. Mexico Energy Review is a registered trademark. The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.
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TABLE OF CONTENTS
1
STATE OF THE INDUSTRY
8
PROJECT DEVELOPMENT
2
OPERATING FRAMEWORK
9
WIND
3
POWER AUCTIONS
10
SOLAR
4
ELECTRICITY MARKET
11
NATURAL GAS & COGENERATION
5
OFF-TAKERS
12
POWER GENERATION & EFFICIENCY
6
TRANSMISSION & DISTRIBUTION
13
SUPPLY CHAIN
7
PROJECT FINANCING
14
INDUSTRY OUTLOOK
La Caridad power plant, Sonora, Grupo MĂŠxico
STATE OF THE INDUSTRY
1
After getting most of the regulations and guidelines out of the way, 2016 was the year when everything actually started to happen in the new Mexican energy market. The authorities launched the power auctions that saw private generators offer some of the world’s lowest electricity prices in long-term contracts with the CFE, initiating a process that could produce a wildly different energy environment for the heavily industry-dependent country in just a few years.
This chapter provides a glance at what happened during the last year from the perspective of some of the most important players in the sector, from the regulators who built the framework to the industry leaders that provided insight and worked side by side with lawyers and international institutions to achieve the best possible outcome for the country’s energy liberalization. It also explores some of the pending matters and yet-to-be developed opportunities on the horizon as public and private participants alike find a firmer footing in this new terrain.
5
7
CHAPTER 1: STATE OF THE INDUSTRY 8
THE YEAR IN REVIEW: Welcome to the Free Market
12
VIEW FROM THE TOP: Pedro Joaquín Coldwell, Ministry of Energy
13
VIEW FROM THE TOP: César Hernández Ochoa, Ministry of Energy
14
INSIGHT: Leonardo Beltrán, Ministry of Energy
16
VIEW FROM THE TOP: Jaime Hernández, CFE
20
VIEW FROM THE TOP: Guillermo García Alcocer, CRE
21
VIEW FROM THE TOP: Jesús Serrano, CRE
22
VIEW FROM THE TOP: Marcelino Madrigal, CRE
24
VIEW FROM THE TOP: David Madero, CENAGAS
25
VIEW FROM THE TOP: Roberto Ramírez de la Parra, CONAGUA
27
INSIGHT: Jaime de la Rosa, AME
28
INSIGHT: Roberto Martínez, OECD Mexico Centre
29
INSIGHT: Francisco Barnés, Mario Molina Center
30
VIEW FROM THE TOP: Víctor Ramírez, ANES
32
VIEW FROM THE TOP: Joana Torrents, CAMESCOM
34
RESEARCH: Renewable Resources in the Paso del Norte region
THE YEAR IN REVIEW
WELCOME TO THE FREE MARKET
8
Approval of the Energy Reform in late 2013 created
of the market’s dynamism. Price fluctuation will now
great expectations in the local and international markets.
be present as in any other market, but it will not be
But the truth is that little happened in the following two
related to the government in office; it will be a response
years as most efforts focused on getting the regulations,
to market conditions. Companies need to be aware of
secondary laws and manuals ready for kick-starting the
this and adapt their strategies to the new environment
next phase of Mexico’s energy industry.
to remain competitive,” says Guillermo García Alcocer, President of CRE.
2016 was different.
A NEW ERA This was the year when the wholesale electricity
The first megawatts in the new-look wholesale electricity
market started trading, with the first private companies
market (MEM) began trading for first time on Jan. 26, 2016,
participating as generators, qualified users and qualified
ushering in a new era for the sector. CENACE launched
suppliers. CENACE held the market’s first long-term power
the short-term market pilot in the Baja California system,
auctions, attracting investments of over US$6.6 billion in
isolated from the national grid, with CFE participating as
new clean energy capacity, while outside the spotlight,
the only generator and supplier. Three days later CENACE
the first-ever private contracts without CFE’s involvement
introduced the MEM to the national electricity system where
were also signed. The state-owned company itself started
it registered sales offers for around 32.36GW from CFE
a restructuring process to become a productive enterprise
and Generadora Fénix. Although some private qualified
with independent subsidiaries and affiliates.
suppliers were registered in the market, only CFE presented purchase offers.
“We need to erase the image of CFE as one huge company, which is no longer the case. CFE is now a corporation
The opening of the MEM unleashed the potential for
formed by different companies independent from each
new business models in the electricity industry. Private
other. We have already observed competition among CFE’s
companies have already taken note of these opportunities
subsidiaries to keep the best employees on their side.
and by the end of 2016 CRE had awarded market
For us, that is a good sign that the unbundling process is
participation permits to 269 generators, eight qualified
moving forward for real,” says Derek Woodhouse, Partner
suppliers, nine qualified users and one basic supplier. The
at Woodhouse Lorente Ludlow, a firm that participated in
numbers might not look impressive but considering Mexico
the preparation of CFE’s separation guidelines.
has never had a market of this kind before, having been under an iron-fisted monopoly for 78 years, it is a big step
These historic advances, however, do not mean the work
toward creating a robust MEM, a milestone the government
is over. The novelty of the market and the surrounding
plans to reach during 2017.
regulations as well as the still missing manuals and guidelines have wrapped the industry in uncertainty. Many project
Few people will argue that the long-term power auctions
developers, investors and off-takers are waiting to see
were the major events for the MEM in 2016, with the first of
how pioneering companies perform before diving into the
these held in March. News of the prices per megawatt-hour
new environment. Now, the greatest challenge for Mexican
and the scale of the projects tendered in the Mexican power
regulators is to complete the regulatory framework, with
auctions sent shockwaves across the world, thrusting
the manuals for Social Impact Assessments and Distributed
Mexico’s energy market under a global industry spotlight.
Generation at the top of the industry’s Most Wanted list.
“If you want to know the true price of renewable energy
Also on that list: enhancing market trust and understanding
in America —free from subsidies and mandates— look to
of existent rules while gaining a firmer grasp of the new
Mexico,” says Steven Chu, former US Energy Secretary and
dynamics. In the case of the private sector, companies must
Nobel Prize winner, in an interview with Forbes. Other big
learn to cope with a wider variety of options and price
names also took a favorable view of Mexico’s new market.
fluctuations in the newly free market.
Enel Green Power, Jinko Solar, ACCIONA Energía, Engie and SunPower were some of the well-known project developers
“Mexican companies are not used to the price volatility
that placed big bets on the market.
that comes with liberalized markets. They were used to having the same price per unit of natural gas and
As a result of the auctions 41 new clean power plants will
electricity in all the regions they operated in for long
be built in Mexico in the next three years, accounting for
periods. However, this situation was not a reflection
around 5GW of additional installed capacity, almost fivefold
the clean energy capacity built from 2014 to 2015, which
MAIN EVENTS IN THE ENERGY INDUSTRY
went from 18.1 to 19.3GW. The majority of these projects will be solar parks. This technology won 54 percent of the
Year
Event
energy tendered in the first auction and 45 percent of the second. The prices bid per megawatt-hour of solar energy broke global records in the first edition with average prices
2015 September
Publication of the Electricity Market Rules
of US$40.5/MWh, drawing the attention of solar companies worldwide. Prices were even lower in the second auction.
November
Ministry of Energy awards the first geothermal resources concession to a private company
“The results of the first bidding round were extremely NAFINSA issues the first Mexican green bond in the international market
surprising for solar energy companies, including Jinko Solar, which expected wind energy to get most of the megawatts tendered. In the past, the LCOE of wind
Publication of the first long-term power auction guidelines
farms used to be lower than solar parks, making the first tender’s results a turning point for the industry. The use of
December
Congress passes Energy Transition Law
2016
The Wholesale Electricity Market starts operations in Baja California
innovative business models was crucial for lowering the costs of solar energy and we feel proud to have helped our clients with the development of competitive proposals for the tender by providing high-quality technology at
Publication of CFE's Strict Legal Separation Guidelines
accessible prices,” says Alberto Cuter, General Manager Latin America of Jinko Solar.
January
Beginning of operations of the Wholesale Electricity Market in the National Interconnected System
The high number of rooftops available in Mexico has attracted major solar companies, including California
March
pioneer Solar City. Their focus is on the residential and commercial markets while national players have also been incentivized to step up their game to capitalize on the
May
segment. Distributed generation is expected to eventually the uncertainty over the rules for these systems stalled growth in 2016. Clarity is on the way, however, after CRE June
to be reviewed by industry stakeholders in the first half of 2016 and the final regulations were published in early
Publication of the second long-term power auction guidelines Publication of the National Electric System Development Program (PRODESEN 20162030)
enjoy big gains according to many industry players but
published the first draft for the interconnection manuals
CENACE awards the contracts of the first long-term power auction
July
CFE awards the first submarine natural gas pipeline to connect Southern Texas with Tuxpan, Veracruz Enrique Ochoa resigns as CFE's head
December. Now the hope is that many more business models will be possible under the new scheme, including
August
the possibility to sell energy and CELs to the MEM through an accredited supplier. In addition to the new schemes available in the MEM, the Electricity Industry Law allows legacy projects to
NAFINSA issues Mexico's first green bond in the national market
September
continue operating and offering services, creating a business line for companies looking for an anchor to the
Jaime Hernández appointed as new head of CFE
October
CENACE awards the contracts of the second long-term power auction CENAGAS launches the open season to reserve firm capacity in SISTRANGAS
past framework’s benefits. The deadline to receive legacy interconnection contracts was December 2016. All legacy
November
projects not complying with the requirements of the law, which included having the financing process completed,
Publication of auction guidelines for HVDC line connecting Oaxaca-Valley of Mexico
2017
lost their right to remain under the previous regulations. The door is now closed for new legacy projects to be
January
The Capacity Balancing Market starts operations
introduced to the market but those companies that received permits can maintain their projects’ status for up to 20 years. Contrary to the oil and gas industry, the old
April
Scheduled awarding of the Oaxaca-Valley of Mexico HVDC transmission line project
and the new will coexist in the electricity sector, at least in the medium term.
Source: DOF, CENACE, CRE, Ministry of Energy
9
RENEWABLE QUESTIONS The unprecedented growth in renewable energy capacity
GENERACIÓN DE ENERGÍA ELÉCTRICA POR POWER GENERATION PER TYPE OF TIPO DE TECNOLOGÍA 2015 (PORCENTAJE) TECHNOLOGY 2015
that will be added in the next three years has raised questions about the stability of the power network due to the intermittent nature of these sources. Some companies are betting on energy storage technologies as the right path for the future but although cost-effective solutions are available for large-scale applications, traditional, fossil-fueled power plants will continue supplying the system’s baseload. 10
Total Power Generated
21.9 TWh
“In Mexico, investing in combined-cycle made sense as the country is expected to have a reliable and cheap inflow of natural gas for a long period. Moreover, combined-cycle provides the advantage of being a baseload technology, with the flexibility to dispatch energy whenever needed,
52% Combined Cycle 4% Nuclear Power Plants Bioenergía y Cogeneración 14% Traditional 2%eficiente Geothermal Geotérmica, Solar, FIRCO. GD y FR2 Thermoelectrics 2% fluidizado Turbo Gas Combustión interna y lecho
share of renewables being connected to the grid,” says
Eólica 13% Coal-fired Power 1% Internal Combustion PlantsTurbogás 1% Wind Power Nucleoeléctrica 11% Hydropower 0% PV Solar Hidroeléctrica Carboeléctrica Source: Ministry of Energy Termoeléctrica convencional ciclo combinado experienced in 2012 and early 2013. PEMEX emitted the last
Ramón Moreno, Chief Technical Officer of Mitsui & Co. Power
critical alert to warn the industry to ration its natural gas
Americas, the second largest private operator in Mexico.
usage in mid-2013. Even with rising demand, companies have
acting as a complement for intermittent technologies, such as solar and wind. In the near future, we expect to see a growing number of efficient combined-cycle power plants providing the country’s baseload, as well as an increasing
little to worry about now as US$16 billion are being invested Mexico and particularly CFE have undergone an ambitious
in Mexico to add 10,000km to the National Pipelines System,
campaign to substitute old and inefficient power plants
an 85 percent increase compared to 2012 levels.
with natural gas-based combined-cycle facilities. The transitioning state enterprise had plans to revamp seven
The Energy Reform was also received with open arms
power plants accounting for 4.5GW capacity altogether. By
by the private sector as it freed the way to participate in
January 2016, it had already completed the conversion of La
commercialization activities and provided open access
Central de Manzanillo in Colima, Puerto Libertad in Sonora,
to the National Pipelines System and the possibility to
Emilio Portes Gil in Tamaulipas and Francisco Pérez Ríos in
reserve firm capacity through open seasons. CENAGAS
Hidalgo. The company has also promoted the construction
finally took ownership of the system and is in charge of
of new combined-cycle power plants, tendering five of
administrating and awarding the capacity reserve contracts.
these projects in 2015, which will be built by five different
To promote competitiveness in the market, PEMEX will give
companies, and one more in April 2016: Topolobambo II,
up 70 percent of the natural gas volume associated with its
awarded to Spain’s Iberdrola. The tenders for Topolobambo
commercialization activities over a four-year period. Entering
III and San Luis Potosi combined-cycle plants are pending.
the commercialization business seemed to appeal to private companies. By July 2016, CRE had already awarded 60
CFE has also invested in natural gas pipelines to accompany
natural gas trader licenses. The Mexican government hopes
its strategy to substitute coal and fuel oil with natural gas
that by increasing competitiveness, prices will fall and critical
in its facilities, having at the start of 2015 four pipelines in
alerts will remain in the past.
operation with a total length of 1,300km. In 2016, CFE tendered four more pipelines included in the country’s five-
SETTING GOALS
year expansion plan: South of Texas-Tuxpan, La Laguna-
Having more power production makes no sense without
Aguascalientes, Tula-Villa de Reyes and Villa de Reyes–
sufficient infrastructure to deliver it to the final user. Similar
Aguascalientes-Guadalajara.
connecting
to CFE’s gas pipeline tenders, the company’s call for building
Veracruz with Texas is a highly anticipated project because it
transmission and distribution assets attracted the industry’s
will be the first underwater pipeline transporting natural gas
attention. Working for CFE used to be the only way to
in Mexico and is expected to increase the system’s capacity
participate in electricity transmission projects. But that has
by 2,600 million cfd, supplying gas mainly to CFE’s power
changed, at least partially. Although the new law states that
plants in Tamaulipas and Veracruz.
electricity transmission and distribution are strategical areas
The
pipeline
and therefore remain under the government’s control, it The efforts of CFE together with PEMEX and the private
also allows for the private sector to invest and participate in
sector have solved the natural gas shortages that Mexico
transmission projects.
For transmission lines the new scheme works similarly to a
with private companies with expertise in smart metering and
highway concession where electrons are vehicles, roads are
power control. The arrival of cutting-edge technologies to
transmission cables and the toll rates, financial transmission
the Mexican power network has already proven useful as
rights. Under this system, CFE will award projects to private
CFE has decreased power losses from 16 percent in 2012 to
companies through a tendering process although the system
13.1 percent in 2015, reducing associated economic losses
planning will be CENACE’s purview. The winning company
by MX$9.75 billion. CFE is now looking to reduce the losses
will be in charge of building, operating and maintaining these
to 10 percent by 2018, bringing the country closer to the
assets during an established period of time, after which
Organization for Economic Cooperation and Development
ownership will pass to the government. The first of these
(OECD) standard, currently set at 6 percent.
tenders will be held in the first quarter of 2017. The new line will connect Oaxaca with the Valley of Mexico using High
Private companies across different sectors are also looking
Direct Current Voltage (HVDC) technology, a first for Mexico,
at new solutions to optimize energy production and usage.
and will have a capacity of 3GW.
The Internet of Things (IoT) and smart metering technologies are slowly digitalizing the Mexican manufacturing and power
Major electrical companies have already expressed interest
industries, making it easier to identify critical areas and
in participating in this tender. If successful, the next two big
act on them. Most of the new market participants already
transmission lines in CENACE’s plans —from Sonora to Baja
see efficiency solutions as an added value for their clients,
California and from Tamaulipas to Baja California— will be
in addition to competitive electricity supply. In the latest
among the most anticipated events in the Mexican electricity
Energy Transition Strategy to Promote the Use of Cleaner
industry.
Technologies and Fuels, Mexico made official its goals to reduce energy intensity by 1.9 percent between 2016 and
“The existing power grid already has the capacity to absorb
2030 and 3.7 percent between 2031 and 2050. This is the
a significant number of renewables but it is necessary
first time Mexico has defined targets in this area.
to strengthen the grid to prepare for the future so there are many infrastructure projects being developed and
Accessible financing is expected to be among the main
contemplated in PRODESEN 2016-2030. These three lines
challenges to improving efficiency but international and
will incorporate technology that has not been previously
national development banks are already implementing
used in Mexico, the HVDC lines, bringing both a leap in
initiatives to give Mexican companies easier access to
technology and in regulations for contracts for financial
efficient equipment. Given that transportation is the sector
regulation for renewable energy,” says César Hernández,
with the poorest efficiency levels, the government has plans
Deputy Minister of Electricity.
to electrify its entire vehicle fleet by 2050, which will bring new dynamics to power production and supply.
To ensure end users get all the electricity they need at the most competitive costs, CFE has also invested heavily
In the same document the government established a target
in reducing power losses in the grid, both technical and
of 50 percent clean energy production by 2050. Judging by
nontechnical. CFE has made use of public tenders to partner
2016’s results, that might be achieved even earlier.
ELECTRICITYPRICES PRICESBY 2014-2016 (MX$/kWh) ELECTRICITY CONSUMER 2014-2016 (MX$/kWh) 3.5 3 2.5 2 1.5 1 0.5
Industrial commercial Source: INEGIAgrícola
Comercial Servicios
services
industrial
residential
10/2016
07/2016
04/2016
01/2016
10/2015
07/2015
04/2015
01/2015
10/2014
07/2014
04/2014
-0.5
01/2014
0
agricultural
11
VIEW FROM THE TOP
SOUND POLICIES AT LOCAL AND GLOBAL LEVELS PEDRO JOAQUÍN COLDWELL 12
Minister of Energy
Q: What strategies has Mexico incorporated into its
We have 15 connection points on the US-Mexico border
energy policy to better face the global market?
through which natural gas is imported and distributed to
A: Despite the complex global landscape and price
the country’s manufacturing centers. When it comes to
volatility in the international market, the Reform is
pipelines, there are four US companies that are building
maintaining a favorable position and legal certainty, which
them, either on national territory or the border. The
in turn creates a trustworthy environment for investors.
opening of diesel and gas imports to Mexico has driven
When it comes to the electricity sector, the Reform
some US companies to create projects for importing oil
created innovative mechanisms to further open the
through the development of transportation infrastructure.
market and incentivize the entrance of new participants.
In electricity we are expanding and modernizing the points
The objective is to generate a higher supply of electricity,
of interconnection to increase our electricity commerce
giving priority to clean energies. In less than a year, we
and support infrastructure in the event of contingencies.
successfully executed two long-term power auctions that
There are 11 points of electricity interconnection with the
are promoting the construction of higher capacity and
US and we are working on creating three more.
sustainable infrastructure. In a few months, we will launch a third one. We have also introduced the CELs mechanism
Q: What are the ministry’s main goals for the next two
that establishes minimum percentages for renewable
years regarding the energy sector's development?
electricity consumption for large electricity consumers. In
A: The Ministry of Energy has defined four goals for the
2018, the requirement will be at least 5 percent and by
initial phase of the Energy Reform. The first involves igniting
2019 it will increase to 5.8 percent. We are also expanding
major public and private investment through the oil rounds.
the transmission grid to better deliver the energy
Our second goal is consolidating the energy market and
produced in areas of the country with high potential for
promoting new supply options to end users. The ministry
clean generation. We are working on making the Mexican
will continue liberalizing the natural gas market to make
energy sector more competitive, strengthening the
sure the pipelines administered by CENAGAS operate under
national industry and making sure it stays at the forefront
a capacity reserve scheme starting in 2017, along with a
of policies oriented toward the energies of the future.
further liberalization of prices in most parts of the country. The third objective is to continue expanding the National
Q: How are energy policies in Mexico affected by the
Pipeline Network as part of our Comprehensive Strategy
agreements at the North American Leader’s Summit?
for Natural Gas Supply. The government is committed to a
A: Mexico and the US have built a robust agenda of
considerable expansion of the national network of pipelines.
cooperation on topics such as energy exchange and
In the last four years we have obtained firm commitments
strategic integration. With the Energy Reform Mexico took
for 7,762km of pipelines up to 2019. The electricity sector
an important step toward the integration of the North
agenda is equally ambitious. The ministry plans to advance
American markets which will help transform the region
clean energy generation – our fourth objective – and we are
into one of the most competitive in the world. Of the
working on the design of the third power auction with the
48 new companies that are participating in the national
idea of launching it in April 2017. This auction will differ from
energy sector, eight are from the US. The numbers show
the previous ones because the private sector will be allowed
the interest and mutual benefits that can be achieved
to acquire energy, capacity and CELs. We are also working
through an interconnected economy.
on the tender for the first HVDC line in Mexico that will connect the Tehuantepec Isthmus with the central region,
Pedro Joaquín Coldwell has been Mexico’s Minister of Energy since the
the first ever opened to private players in this segment. We
start of President Enrique Peña Nieto’s government in 2012 and has
will also announce the tender guidelines for a transmission
overseen deep changes in the country as a result of the Energy Reform.
line to connect Baja California with the national grid.
VIEW FROM THE TOP
ENERGY REFORM PAST POINT OF NO RETURN CÉSAR HERNÁNDEZ OCHOA Deputy Minister of Electricity
Q: To what extent has the first year of the spot market
have already established the requirements that will be
fulfilled the Ministry’s expectations?
imposed on industry participants that are obligated to
A: The electricity market was expected to grow gradually
obtain CELs in the first and second year of this market.
since its inception and it will become increasingly open
We defined 5 percent as the mandatory percentage of
as it matures. Other countries took up to five years to
clean energy that these players must comply with in the
develop a short-term electricity market. We did it in two.
first year and 5.8 percent for the second. In March 2017
The market began operations with only three participants
we will determine the requirements for 2020. We need
and finished 2016 with more than 10, including some
to have all the regulatory mechanisms ready for 2018
private qualified suppliers. We expect the market to
when the law will be implemented but we are on the
gain more participants throughout 2017 and have all the
right path. In the end, CELs are not new in the world.
characteristics it was designed to have incorporated by
This certification mechanism is the Mexican version of an
the end of that year.
international system called Renewable Portfolio Standard (RPS), which has already proven to be effective in other
Q: What will be the main drivers of electricity tariffs
parts of the world.
under the new market landscape? A: The market is designed to stimulate competition so
Q: How is the Ministry of Energy preparing the field to
it operates under a model where cheaper energy is sold
ensure continuity in the Reform’s implementation?
first, favoring models and technologies that generate
A: The changes made in the electricity sector are
energy at lower costs. In the long term we believe these
irreversible at this point. We have already passed the point
models will bring electricity costs down through the
of no return. The process is so advanced that it would be
incorporation of new technologies and the displacement
more difficult to stop it than to continue going forward.
of older plants. Competition will generate incentives
The Ministry of Energy’s goal is to leave all the market
to improve services or lower costs but this is a market
rules ready for the market to continue its development
process and thus price determination is not under the
naturally. CRE will eventually take full responsibility for this
control of any regulatory entity.
but up to now it has been a joint effort and the Ministry has taken this process seriously. We expect to have all the
This new scheme will also cause electricity prices to
crucial financial and regulatory instruments in place by the
fluctuate depending on demand during the year. In
end of 2017.
periods when there is significant demand, prices will rise and vice versa. However, final users are often protected
The major challenge for 2017 is to continue operating
from these fluctuations so they do not perceive them.
under these new regulations as they imply a paradigm
In other countries, we have seen that energy markets
change. The Mexican electricity industry operated under
begin to show up to 25 percent lower tariffs after three
a monopolistic model for more than 70 years and it
to five years.
now has to get used to a brand-new model focused on competitiveness and structural separation. We must not
Q: What advances have been made toward the launching
forget that many of the market mechanisms did not exist
of the CELs market in 2018?
in Mexico before. It is a new field for all of us. The results
A: The creation of a regulatory system to allow the
have been positive so far but it is not an easy process.
efficient use of this instrument has been the greatest advance. CELs were foreseen since the constitutional
César Hernández was named Deputy Minister of Electricity at the
reform of 2013. Our role is to issue the regulations that
Ministry of Energy in Feb. 2014. His position oversees the development
will ensure these certificates work as expected. We
of the new Mexican electricity industry.
13
INSIGHT
DG, EFFICIENCY: THE NEXT FRONTIERS LEONARDO BELTRÁN Deputy Minister of Planning and Energy Transition
14
Mexico stood out in the clean energy arena in 2016 as
energy, CELs and capacity will be bought with little risk
it worked toward its ambitious targets for clean power
involved.”
generation: 25 percent by 2018, 35 percent by 2024 and 50 percent by 2050. Two successful power auctions that
That CFE was the first buyer in the market’s long-term
reached record low prices for solar energy also helped.
power auctions was also a positive signal for the country’s
The next steps are to clear the way for Distributed
transition strategy. “CFE is the largest power producer
Generation (DG) and to set energy-efficiency goals for
in Mexico so it was imperative for it to join Mexico’s low
the first time in its history, including plans for electrifying
carbon strategy to reach the national targets. Luckily, CFE
its vehicle fleet by 2050.
has made it clear that investing in renewables is part of its business strategy because it was willing to pay much
These initiatives are included in the country’s bold
more for clean energy in the first auction, although in the
strategy for transitioning toward cleaner technologies
end it was much cheaper than expected,” says Beltrán.
and fuels, designed with the Energy Transition Advisory Council, and made public in late 2016. “The Energy
Now that the government has made great advances in
Transition Advisory Council has representatives from all
boosting the development of large-scale renewable
relevant segments, including private sector, academia
projects, it is time to look at smaller but attractive
and the government. This has allowed the Ministry to
alternatives. DG is said to have high potential in Mexico
have a better understanding of the industry’s needs and
as 3.5 million consumers (including high consumption
to address them in a better way,” says Leonardo Beltrán,
domestic – DAC tariff – and commercial users) might find
Deputy Minister of Planning and Energy Transition at the
DG solar attractive due to their current electricity-related
Ministry of Energy.
expenses. According to some industry sources, the only issue keeping DG from exploiting its entire potential is
Having multisector groups involved in the drafting of
regulatory uncertainty as the guidelines for this system
policies, manuals and secondary regulations seems to
were not available for most of 2016.
be the right strategy. The power auctions, for which the guidelines were drafted with consideration of the private
“The government has been working on the regulation for
sector’s views, were a worldwide success, attracting
DG and CRE has finally made the guidelines available for
investments in new clean power plants totaling around
public revision and comments at COFEMER’s website.
US$6.6 billion and placing Mexico closer to its clean
We expect them to be ready soon so this market can
energy targets.
take off. We are pushing for a flexible scheme that allows different business models to flourish in the market. We do
But it was not just sound regulations that brought private
not want to decide for the customer, we want people to
companies on board. Providing certainty was a crucial
select the best option for them. We are therefore opening
factor, says Beltrán. “The energy industry’s rules have
the door for new models through net-billing schemes but
strong foundations in the constitution and other Mexican
we are also maintaining the net-metering possibility. The
legal tools that provide investors with certainty over the
Energy Reform brings flexibility and we want to have it in
projects, motivating them to participate in the market
all market segments,” he says.
even though it is brand new. Private companies know that the possibility for the rules of the game to change is very
With all these initiatives in place, Beltrán says that “by the
small and that is a strong incentive for them to come to
end of this administration in 2018 we expect to produce
Mexico. Moreover, having CFE as the purchaser also adds
at least 25 percent of Mexico’s electricity from clean
certainty to sponsors because it ensures their projects’
energy sources, bringing the country closer to its targets
for 2024. We expect most of this new power generation
Ministry of Finance is using the Mexican Petroleum Fund
to come from solar, wind and efficient cogeneration
for Stabilization and Development to promote efficiency
technologies. We also aim to have a more mature
and renewable energies. We have already reached the
wholesale electricity market as well as policies regarding
point in which sustainability is a common objective for
energy storage, which will be a key factor to increase
different governmental entities.”
clean energy generation and reach the established targets. As this is still an emerging area, however, the
Mexico’s
government will be working to develop specific policies
technologies and fuels is not the country’s first attempt
and regulations to boost its development.”
to go greener. The country has long been at the forefront
strategy
for
transitioning
toward
cleaner
of climate change mitigation. It was one of the first He
says
the
ministry’s
transition
strategy
is
well
countries in the world to have a comprehensive Climate
developed regarding clean energy generation. “We
Change Law – approved in 2010 – that evolved five
now want to push energy efficiency forward as the next
years later into the Energy Transition Law, which sets
step toward a low-carbon economy. We have identified
the pathway to transitioning to a low-carbon economy.
transportation as one of the main areas of opportunity
Mexico was the second country to have a law of this
to push efficiency levels higher in Mexico. With this in
magnitude, after France.
mind we have set the goal of electrifying Mexico’s fleet of vehicles by 2050, displacing hydrocarbon usage in this sector, which will also help lower our total greenhouse gas emissions. Reducing fossil fuel-based transportation in Mexico will not only lower carbon emissions but will reduce the emission of harmful pollutants that affect human health in cities. The government is currently working on a roadmap to guide efforts toward the goal of an electric fleet in Mexican cities.” In the presentation of the new energy transition strategy, Beltrán together with other members of the council announced that Mexico plans to reduce the intensity of
“We have understood that going sustainable is in fact an opportunity and not an obligation so we are moving fast in transitioning to a cleaner economy” Leonardo Beltrán, Deputy Minister of Planning and Energy
Transition
its final energy consumption 1.9 percent by 2030 and 3.7 percent by 2050. “It is the first time that Mexico has
“Mexico’s main motivation to promote these regulations
set national objectives in this area. Reaching the targets
was not only to become a global leader in this matter. Of
will be challenging because we need to include all kinds
course, we want to contribute to the solution for a problem
of industries and not only the energy sector, but we are
that affects the whole world but could also have strong
already working on a strategy of engagement to bring
repercussions domestically. Signing global agreements
companies on board,” says Beltrán.
helps but it means nothing without a domestic agenda. We have understood that going sustainable is in fact an
“In addition to proper regulations, access to financing is
opportunity and not an obligation so we are moving fast
critical to boosting the adoption of clean and efficient
in transitioning to a cleaner economy,” says Beltrán.
technologies in Mexico. We are in talks with the Ministry of Finance to see the possibility of channeling part of
He adds: “Other developing countries are pushing for
the resources used for energy subsidies into a financial
historical responsibilities in terms of carbon budgets,
scheme for easing the acquisition of these types of
asking
technologies, covering part of the initial investment.
between developed and emerging economies and
Phasing out subsidies, even a small part, is not an easy
claiming that it is fair for them to continue emitting
task but we are on the right track,” he says.
until they reach the same level of wellness as more
for
different
emissions
reductions
targets
developed economies. Mexico does not think this way. Even with the challenges ahead, Beltrán is positive that
Responsibility according to past emissions should be
Mexico can reach its sustainability targets because most
accountable but not an excuse to avoid cutting down
of the governmental entities are working as a united front.
emissions. In the end, not taking climate action will
“Energy and sustainability are no longer concerns solely of
impact negatively not only at the global but at the local
the Ministry of Energy. The Ministry of Social Development
level, affecting our businesses and people. We want to
is already promoting clean energy technologies to
grow but in a sustainable fashion. It just makes sense
provide electricity to underserved communities while the
from all different perspectives.”
15
VIEW FROM THE TOP
NEW ROBUST SYSTEM TO BOOST COMPETITIVENESS JAIME HERNÁNDEZ Director General of CFE
16
Q: Which of the major events of 2016 will shape the future
will contribute to the government’s goal of expanding the
of CFE?
National Pipeline System by 75 percent in 2018. Having a
A: The Energy Reform’s approval in 2013 ignited one of the
more robust system will not only benefit CFE as a large
biggest transformations the Mexican energy industry has
natural gas consumer but also other Mexican industries.
experienced in decades, particularly in the electricity sector because it created open markets for electricity generation
Q: What are the main challenges faced by CFE’s new
and commercialization. The Wholesale Electricity Market
companies?
(MEM) was created with the fundamental principle of
A: Transmission and distribution will become core
dispatching the cheapest energy first, which will benefit
businesses for CFE in the short term and both will remain
the pockets of Mexican families. This market mechanism
under regulated tariffs. Among the major challenges in
also works as an incentive for power producers to optimize
these areas is to continue pushing the modernization and
their production costs, an area CFE has been focusing on.
expansion of the grid, using the tools introduced by the Reform to boost revenue. Another challenge we are facing
CFE’s restructuring process was another highlight of the
in the transmission and distribution sectors is the need to
year. From January 2017 our subsidiaries and affiliates
reduce our technical and nontechnical losses. CFE lost 16
started working independently, adding another milestone
percent of the energy it produced due to these causes
to the company’s new phase. We now have 13 companies
in 2012 but we managed to reduce that to 12 percent in
under one roof, which we need to continue consolidating
the last period measured. Our goal is to further lower our
financially in the coming months while respecting the
losses to 10-11 percent by 2018, a reachable objective given
strict legal separation principles. CFE’s new organization
our past achievements. In the case of CFE Calificados,
includes six generation companies competing against each
which mainly serves industrial users, we face the challenge
other as well as other private producers, one transmission
of upcoming competition, which is driving us to reshape
subsidiary working at the national level to ensure the
our approach to the sector. Regarding our generation
system’s security and one distribution subsidiary with 16
subsidiaries, the main challenge is to attract private capital
independent business units. We also have a subsidiary
to push for the development of new power plants.
to serve the basic segment, CFE Básico, and an affiliated company for qualified users, CFE Calificados. The company
Q: What actions is CFE taking to change its employees’
has two new units to commercialize hydrocarbon fuels
mindset to meet the needs of a productive enterprise?
in Mexico and the US, an interesting opportunity also
A: Creating this new operational structure has been a long
made possible by the Reform. By entering the natural
and complex process but CFE’s employees and their union
gas commercialization business, we expect to reduce our
(SUTERM) have risen to the occasion. We could not have
generation costs considerably as 80 percent of these are
accomplished the successful separation of CFE without the
fuel-related. To increase our competitiveness, we have
active participation of our employees. I have paid over 20
committed to the development of 85 strategic projects,
visits to our facilities in the past couple of months where I
totaling over US$25 billion in investments. These projects
have witnessed firsthand the enthusiasm and commitment
include new power generation facilities, transmission and
of our team members. CFE’s employees are its main asset.
distribution assets as well as natural gas pipelines. We
We serve a portfolio of over 40 million clients, generating
have 26 projects related to natural gas transportation that
annual sales of MX$300 billion (US$14.5 billion). This is only possible thanks to our 100,000 employees, who
Jaime Hernández is an economist and PhD in Political Economy from
are highly experienced professionals committed to the
Essex University. Before being appointed to the helm of the CFE in
development of the Mexican energy industry. Different
August of 2016, he served as the state-owned company’s CFO.
generations of CFE’s employees made it possible for
98.5 percent of the Mexican population to have access to
CFE CORPORATE ORGANIZATION STRUCTURE
electricity. I have no doubts about my team’s capabilities and commitment to implement the changes brought by
Subsidiaries
the Reform and to safely bring CFE to the next stage of
CFE Generación I: Production and commercialization of electricity through different technologies, excepting supplying activities.
its existence. But it is true that we need to change the company’s culture. CFE used to act as an authority to a
CFE Generación II: Production and commercialization of through different technologies, excepting supplying activities.
certain degree and we need to understand that now, in some segments, we are just another competitor. We need to reshape our strategy to better serve the needs of our
CFE Generación III: Production and commercialization of electricity through different technologies excepting supplying activities.
clients, understanding their concerns and offering more attractive services and tariffs.
CFE Generación IV: Production and commercialization of electricity through different technologies, excepting supplying activities.
Q: How has CFE’s relationship with the private sector changed since the Energy Reform? A: CFE was the main promoter of large energy infrastructure
CFE Generación V: Represents existent and upcoming power plants with legacy IPP contracts.
projects in the past, many of which were developed in collaboration with private companies. The Energy Reform has changed the context for CFE’s collaboration with the
CFE Generación VI: Production and commercialization of electricity through different technologies, excepting supplying activities.
private sector, allowing us to establish alliances and share each of the projects’ risks and benefits. The guidelines for CFE’s legal restructuring were among the fundamental
CFE Transmisión: Performs all the activities needed to provide electricity transmission services, included financing, O&M and infrastructure operation.
elements of the Reform. We expect the industry to remain vigilant about compliance with these, ensuring CFE passes through this transformation without losing its competitiveness but allowing the establishment of a level
CFE Distribución: Performs all the activities needed to provide electricity distribution services, included financing, O&M and infrastructure operation. (Divided in 16 business units)
playing field for other participants. In this context CFE is fully prepared and willing to continue collaborating with the private sector in the development of a robust and
CFE Suministrador de Servicios Básicos: Supplies electricity services to basic users according to the terms of the Electricity Industry Law.
competitive electricity market. It is important to highlight that Mexico’s Energy Reform is taking place amid a rising demand scenario as the country’s electricity demand is growing at around 3 percent annually. This feature makes
Business Unit
Mexico a distinctive case and ensures there is enough
Business Unit Nuclear Generation: Manages Laguna Verde, Mexico's only nuclear power plant, located in Veracruz.
room for CFE but also for new participants to capitalize on this market. Q: What is the future of CFE’s energy mix? A: Mexico has established the goal of producing 35 percent of its electricity from clean energy sources by 2024 and CFE is moving at the right pace to reach this target on time. The system’s stability is another key factor for us so we are also investing heavily in baseload technologies. In this area, CFE is pursuing an ambitious strategy to substitute expensive and polluting fuels for more sustainable alternatives. Between 2012 and 2015 we reduced our fuel oil and coal usage significantly, decreasing our GHG emissions by 50 percent. Using natural gas for power generation represents around 25 percent of the cost of using fuel oil, so we have also reduced our generation costs considerably. Our end goal is to have a diversified portfolio of technologies and fuels so we can react quickly to sudden changes in the international market or technological changes with the potential of disrupting the industry.
Affiliates CFE Calificados: Supplies electricity services to qualified users according to the terms of the Electricity Industry Law. It also represents Exempted Generators in the MEM and commercializes electricity and ancillary services in Mexico and abroad. CFE Intermediación de Contratos Legados: Administrates legacy interconnection contracts and represents legacy power plants and load centers in the MEM under the Intermediary Generator figure. CFEnergía (under Mexican law): Imports, exports, contracts transport and storage, and buys and sells fuels in Mexico and abroad. It also administrates assets and fuels and participates in the electricity market of Mexico and other countries. CFE International (under US law): Imports, exports, contracts transport and storage, and buys and sells fuels and electricity. Source: MBP with information from CFE
17
19
VIEW FROM THE TOP
CLEARING THE PATH FOR CLEANER TECHNOLOGIES GUILLERMO GARCÍA ALCOCER Chairman of the Energy Regulatory Commission (CRE)
20
Q: What does the universe of power-generation permits
Q: Why did CFE decide to bid a conservative amount of
handled by CRE look like at the moment?
capacity in the first power auction?
A: We are managing 1,072 permits under the legacy
A: The first power auction acted as a pilot, in a similar
scheme against 284 permits issued under the new
manner as phase one of Round One in the hydrocarbons
regulations. Not all of these belong to plants already in
industry. CFE was playing it safe to see how the market
operation. Some are from companies looking to establish
reacted before making any major bids. It was the
bilateral contracts or to participate in power auctions. Also
first time the Ministry of Energy, CENACE and CFE
interesting is the fact that half the permits we manage
conducted such a process, so they wanted to learn from
belong to clean-energy projects. Regarding authorized
it. The outcome of that first auction was qualified as a
capacity, however, traditional technologies continue to
success by several international media, including The
have the largest share as clean-energy technologies only
Economist, Forbes and Bloomberg, and this successful
account for 33 percent of the total megawatts awarded in
experience has given Mexican authorities the confidence
permits. The number is even lower when considering the
to strengthen and enhance upcoming editions. Even
capacity already installed in the country, in which only 25
though renewable energies are not as sensitive to
percent corresponds to clean energies. But we see a rising
resource limitations as traditional technologies, they
trend in the share of clean-energy capacity installed in the
are still based on natural resources that are a constraint
country and expect at least a 10 percent increase in the
to a certain extent. We want to avoid having critical
short to medium term given the number of new permits
situations, as happened in Spain where more solar
awarded as well as Mexico’s clean-energy goals.
energy capacity was installed than the country could handle, unbalancing the system and leading to a crisis in
Q: How is CRE improving the power auction processes to
their solar energy industry. Mexico wants to be cautious
resolve private sector concerns?
but is moving at a rapid pace in developing a clean-
A: The power auctions will be run by the Ministry of
energy industry, especially compared with other Latin
Energy in collaboration with CENACE up to the third
American countries.
edition. Afterward, CRE will take control of them. We have identified concerns from the private sector regarding
Q: How is CRE preparing for the CELs market that will
compensation, guarantees and timelines, but the Ministry
start operating in 2018?
is already working toward improving these. For instance,
A: We have less than two years to develop a robust system
the first power auction did not allocate any of the capacity
to keep track of all the CELs awarded to energy projects
required as the maximum price was set at MX$10,000
and traded in the market. We want to avoid double
per MW/year, too low to attract serious investment. The
accounting and balance sheet inaccuracies, so our main
second power auction corrected that, offering a price of
focus is to develop a comprehensive and reliable tracking
MX$1,688,706 per MW/year. The same happened with the
system. Our goal is to have a CELs platform that works
volume offered, which almost tripled from 500MW/year
similarly to a stock exchange market, having a value
to 1,483MW/year. In this way, companies can build more
administrator to keep track of the certificates’ ownership.
complex proposals, including technologies that are more
The same administrator will be in charge of following all
suitable for baseload power such as combined cycles and
the purchase-sales transactions performed in the CELs
hydropower plants.
platform. We are working with different financial entities to develop a stock-based instrument, which is expected
The Energy Regulatory Commission (CRE) is the entity in charge of
to be ready by 2018. In the meantime, we are working
regulating the industries of gas, refined oil products, hydrocarbons and
on the accompanying regulations needed to encourage
electricity in a transparent, impartial and efficient way.
participants to join the market by 2018.
VIEW FROM THE TOP
BETTER TO REMAIN VIGILANT THAN MAINTAIN CONTROL JESÚS SERRANO Commissioner of the Energy Regulatory Commission (CRE)
Q: How did CRE contribute to the energy industry’s main
Law, market liberalization should not begin until 2018 but
milestones in 2016?
Congress decided to bring the date forward one year,
A: We had many important events in the energy industry
allowing for the fuels market to begin flexibilization in
in 2016. It is worth highlighting CRE’s collaboration on
2017. By the end of 2017, we expect to have a completely
the opening of the wholesale electricity market, two
flexible market in the entire country.
basic service long-term auctions as well as the first steps toward horizontal and vertical separation of CFE. Also,
Q: What are CRE’s main challenges with these objectives?
CRE issued the regulations for CELs, including the rules
A: The challenge is technical. We have to be very
for the functioning of the registry and its penalties. As
careful in the technical aspects as an error in one of the
for natural gas and automotive fuels, 2016 was a year
regulations could have consequences such as creating a
to delineate the rules and conditions for the Mexican
distorted market or generating private local monopolies
market to open to private competitors. At the beginning
or noncompetitive markets. We are starting a market from
of the year CRE issued a resolution aimed at establishing
zero and it is hard to know what value companies give to
a Gas Release Program, which basically establishes a
openness. It is a lot easier to find the balance once the
natural gas commercialization market. To accelerate the
market is already working because consumers, with their
implementation of this market, CRE’s resolution forces
decisions, reveal the real value they give to it.
PEMEX to cede 70 percent of its portfolio to other marketers.
Q: What is CRE doing to involve all private players in the market liberalization process?
Also in 2016, CRE together with the Ministry of Energy and
A: We are making an effort on various fronts to bring
CENAGAS presented a strategy for the natural gas market.
all private players on board. CRE is offering courses
In addition to the Gas Release Program, this strategy also
for companies to understand the new regulations.
includes the start of a permanent regime for natural gas
Our website also has tutorials on how to make certain
transport, for which we established the rules needed
processes or how to get a permit from us. In the case of
for the transport system’s open access. This program
more specialized matters or to provide certainty regarding
includes three main elements: the migration to the new
specific processes, we have a hearings mechanism.
and permanent regime, which follows best international
If investors or private players have specific questions
practices. The second element is the openness and free
they can always ask for a hearing, a meeting with CRE’s
access to national and gas-import transport systems,
commissioners to express their doubts. We can also agree
especially those for imports because half of the gas used
to direct consultations with CRE’s team.
in the country is imported. The third element is generating user information. Our goal is to perform a gradual
Q: What are CRE’s main priorities for 2017?
liberalization for the natural gas market. We expect to
A: CRE will take over monitoring the electricity market
begin in the northern part of the country since we believe
in 2017. We will be defining tariffs before subsidies. The
that is the region with the most competitive potential.
second challenge will be to encourage participation of
Afterward we will continue with the rest of the country.
qualified users. We also need to attract more qualified
Initially, there will be price regulation but as we go along
suppliers and optimize the CELs market because we will
and the infrastructure is developed we will experience
start the registration process for generators and suppliers .
price liberalization. The drivers of the Energy Reform are market openness, competition and the empowerment
The Energy Regulatory Commission (CRE) is Mexico’s main regulatory
of users. We will also publish the conditions for the fuel
entity for the electricity sector. Jesús Serrano is one of the seven
market liberalization. According to the Hydrocarbons
members on CRE’s board.
21
VIEW FROM THE TOP
THE LEGACY OF A COMPETITIVE MARKET MARCELINO MADRIGAL Commissioner of the Energy Regulatory Commission (CRE)
22
Q: Where does CRE draw the line to ensure that
risks but there are more opportunities. The new market
regulations control the market but do not stifle growth?
also presents much more competition and forces suppliers
A: Decisions at CRE are taken by the seven commissioners
to offer better products. The transition may be hard for
after reviewing the projects prepared by staff under
some, as the old regulatory framework may have been
the commissioners’ direction, which allows for the
too easy and offered few challenges and extra comfort
introduction of many points of view to address the
in some cases. On the other hand, there may also be a
sector’s needs. To define regulations we often take
generational barrier to break. Those who have worked
into consideration international practices and adapt
in the sector for many decades may find it difficult or be
them to local needs. In the case of electricity, we have
reluctant to change. I would say that those who adapt
developed models that are simple yet effective and easy
fastest to the new model and can innovate will be the ones
to understand so that we facilitate the entry of new
taking advantage of the new opportunities.
agents into the market. I think this is already rendering some benefits as we can see for example with the large
Q: How is CRE preparing for new markets including CELs,
number of new suppliers for qualified services entering
capacity balancing, medium-term market and financial
the market and with the companies already operating in
transmission rights?
the short-term generation market.
A: CRE has already submitted the criteria for the clean energy market. During 2017 we will be developing an
Q: January 2017 is the MEM‘s one-year anniversary. What
online platform to register the production of clean energy,
are the main lessons learned?
provide a certification and verify every month the account
A: Close monitoring was of the utmost importance this first
status of every participant. This platform will be launched
year and we have learned a lot from it. We observed that
in 2018. The regulations for the other markets are being
some adjustments were necessary, which was expected,
developed by the Ministry of Energy, which is focusing
and certain procedures may require simplification as
mostly on those for the midterm market, transference of
some players are still getting to know the new rules.
financial rights and the short-term capacity market. While
Monitoring will have to continue over the coming years.
all are important, the auction for financial transmission
I feel that we have to work even more closely with the
rights needs to be developed quickly because it will
industry to help them understand the model and the
be the key instrument that suppliers will use to protect
advantages it can bring to them. We also learned that
themselves from short-term price fluctuations throughout
stable and predictable regulation is crucial to helping new
the energy market locations. This will allow them to offer
agents make their decisions.
clients competitive prices. During the first few months of 2017 these manuals will be finished and handed to us.
Now there are two different legal schemes: the legacy system and the new legal system. This makes regulating
Q: How successful have tenders for basic and qualified
the sector a bit more complex than normal. But to simplify
supply been?
this it is necessary to encourage companies to move
A: Long-term auctions for basic supply were largely
toward the new model and to help them fully understand
successful due to a combination of factors, the certainty
it. This new market may seem more complex but offers
of the contracts awarded, especially their length, the
companies many more opportunities. There may be more
fact that CFE Suministro Básico is the off-taker, which will continue to serve a large part of all energy sales, the
The Energy Regulatory Commission (CRE) is Mexico’s main regulatory
continuing cost reductions in clean technologies, as well
entity for the electricity sector. Marcelino Madrigal is one of the seven
as other favorable conditions in the capital markets such
members on CRE’s board.
as low interest rates available to the private sector. The
Mexican market is different to others worldwide because
lower. What this says is that the cost of complying with
of the long-term tenders, which have been extremely
the clean energy targets will be less than expected and
helpful to attract investment, proving the importance of
electricity tariffs will not be pushed up as it was forecast.
long-term instruments. For qualified supply, meaning large electricity-consuming companies, they will handle
Tariffs include generation, transmission, distribution and
their own energy purchases if they see better conditions
other service costs. Generation represents about 60
than the current tariffs in basic supply. As prices become
percent of the final cost but these costs are not easy to
more competitive I would expect private companies in
predict or reduce as they are heavily dependent on the
this qualified segment to reach out to renewable suppliers
price of the energy source, such as oil and natural gas,
on their own. Qualified users are different from basic
which are both expected to rise slightly in the coming
users, as the first can switch to better suppliers at will. As
years. The market is still fairly young for competition
competition rises, qualified users will increasingly choose
forces to reduce the cost of current generation for basic
alternatives, if may be not only for cost but for the added
supply. It will take some time. The good news is that the
benefits such as services and certifications that renewable
cost of clean energy targets will be lower than expected.
energy suppliers bring. So far basic service represents about 65 percent of energy consumption, while qualified
Q: What are your main projects for 2017 and what will be
users make up the rest.
your legacy? A: 2017 will be a transition year as we will be handed
Q: How will the tender prices impact electricity tariffs?
many of SENER’s functions. We will monitor the energy
A: There will be an impact on tariffs but that will only
market, finish some instruments and be responsible for
be in the mid-to-long term. When the clean energy
maintaining and modifying regulations when needed. We
requirements were established in the Energy Transition
are preparing for the new tenders and developing the
Law, the question was if the cost to comply with these
new regulations for distributed generation, which will be
clean energy targets was going to be too high because
launched early in 2017. We also expect that smaller users
some clean energy technologies were not yet seen
like home owners or small companies will also begin
as cost-competitive. However, we are seeing that the
using the options offered by the Reform. As options
cost of renewable energy is increasingly approaching
increase, users big and small will find their energy supply
traditional energy sources and sometimes it is even
options diversified.
23
VIEW FROM THE TOP
WELCOMING PRIVATE RETAILERS TO SISTRANGAS DAVID MADERO Director General of the National Center for Natural Gas Control (CENAGAS)
24
Q: How has CENAGAS evolved in the wake of the Energy
Q: What are the key hurdles for processing and assigning
Reform?
the upcoming requests?
A: In January 2016 we received PEMEX’s natural gas
A: Companies are required to disclose the injection and
storage and transportation infrastructure as a result of
extraction sites to determine the cost overrun parameter
the Energy Reform’s mandate. The transfer radically
(β) they are willing to pay to ensure capacity. We are
changed CENAGAS’ daily operations. The transportation
considering indivisible routes. The β parameter will allow
fees of the National Natural Gas Transportation and
us to determine the interest in each route, order the
Storage System (SISTRANGAS) began to flow as well
applications and fix the capacity we can allocate to each
as the associated payment responsibilities. As these
route according to our SISTRANGAS simulation system,
responsibilities evolved we developed and improved our
as well as the optimal price to assign each tranche. We
operational skills, strengthening our coordination with
designed a second-price system assignation where
PEMEX and CFE and closely following CRE’s regulatory
interested participants are required to provide a positive
updates. Early termination of contracts such as financing,
β. If a particular route is not saturated the price will be
legal and compliance services have allowed us to grow
zero. If the route is saturated all participants will pay the
while we continue collaborating with PEMEX on the
same β equivalent to the first cfd we are unable to allocate
operation of pipelines. In October 2016 we launched the
to the route. We will allow an extra week in the process to
first open season for reserving capacity in SISTRANGAS,
address any difficulty customers may have in submitting
which illustrates our evolution as the system’s technical
their applications.
operator, moving a step forward toward a stronger transportation model.
Q: Which companies will benefit the most from this process?
Q: What were the main challenges to successfully launch
A: CENAGAS’ main customers have traditionally been
the open-season process?
CFE and PEMEX. But now some additional retailers are
A: The first step was for CRE to assign PEMEX and
expected to participate as well as companies that do
CFE their corresponding capacity in the national
not wish to depend on a retailing company. Natural gas
pipeline system, a task on which we collaborated. The
commercialization is being liberalized in Mexico and now
productive enterprises of the state were assigned 40
we have over 20 CRE permits to do so. Some of these
percent of the total capacity for their exclusive use.
permit-holders should be willing to reserve capacity in the
For PEMEX this mainly means to use it for refining and
natural gas pipeline system. The interest of companies to
industrial transformation processes, while CFE will use
sell gas and acquire capacity in the system from CENAGAS
it for power generation. Neither company can use that
should become very clear.
capacity for commercial purposes. Private companies will get the remaining 60 percent of the pipelines’
Q: What are CENAGAS’ goals for the upcoming years?
capacity, either for commercialization or direct usage.
A: CENAGAS’ goal is to be among the Top 25 transporters
We have to comply with assigning the capacity agreed
in terms of efficiency, efficacy and safety, hopefully by
in previous contracts, which in the end leaves us with
2025. It will be a challenge. We will be competing against
around 2 billion cfd to assign in the open season to the
the highest international standards. The next three years
remaining interested parties.
will be a phase of constant evolution. By 2018 we expect to have a consolidated company and by 2020 we are
CENAGAS is a decentralized organism that acts as an independent
expecting to reduce operating costs and consolidate our
operator of the National Natural Gas Transportation and Storage
role as a technical operator with clear responsibilities
System (SISTRANGAS).
and functions.
VIEW FROM THE TOP
BALANCING THE RELATIONSHIP BETWEEN ENERGY AND WATER ROBERTO RAMÍREZ DE LA PARRA Director General of the National Water Commission (CONAGUA)
25
Q: What is CONAGUA’s role in ensuring water demand for
of pollution or damage to the environment or to
energy projects without compromising the supply?
third parties. CONAGUA and the Ministry of Energy
A: CONAGUA is responsible for issuing water concessions
work together to achieve compatibility between the
for hydrothermal wells, at depths of several thousand
Geothermal Energy Law and the National Water Law
meters where water is over 80° C and not suitable for
and to avoid the overlapping and contradictions of
any other use. Article 81 of the National Water Law states
excessive regulations. The Geothermal Energy Law
that if the well has no direct connection to the aquifers
includes measures to modify Article 81 of the National
above it the concession is not subject to considerations
Water Law, so as to apply to private developers the
of availability or to the rules for usage of the latter so the
concessions for water steam previously limited to CFE’s
use of those wells is not in contention with other uses for
geothermal fields. We are also working on the guidelines
subterranean water.
for geothermal matters in national waters to prevent damage to the environment, public works or third
There are also regulations and policies for the operation of
parties as a result of geothermal well exploitation.
dams for electric generation matching other regulations for agricultural and human water supply. These policies
The guidelines' focus is on the separation of aquifers
are revised weekly during the meetings of the Technical
from hydrothermal resources, determining the water’s
Committee for Water Works, which includes the entities
“base
involved as well as universities and other institutions.
potential negative effects on water quantity and
condition”
and
identifying
and
monitoring
quality, the environment, public infrastructure and Q: What measures ensure the integral management
the population from hydrothermal activity. There are
of water basins in Mexico and how do they impact the
also provisions on the order of generation permits,
energy sector?
environmental impact, concessions and construction
A: There are management plans that include more
permits leading to the interconnection with the national
efficient uses of water via modernizing and refurbishing
grid that have reduced procedural lengths from three
of
years to one and a half years.
irrigation
infrastructure,
sustainable
sources
for
supplying urban centers, the use of treated residual water for applications not requiring clean water but which can
Q: How did CONAGUA contribute to the transition of
be used for human supply, artificial refilling of aquifers,
geothermal permits belonging to CFE and Grupo Dragón?
rainwater collection and desalinization of both inland and
A: The concessions for water steam to CFE remained
seawater. New regulations regarding the management
current on the same terms but the volumes in the
of subterranean water, specifically of 333 aquifers
concession were discounted according to the provisions
not previously regulated, will take into consideration
regarding aquifers in article 81 of the National Water Law.
the demand of water for energy generation so the
Following that law, in August 2015 CONAGUA granted
development of the energy sector can coexist with the
the first water steam concession to Geotérmica para el
other uses of water.
Desarrollo, part of Grupo Dragón, for 43.8 million m3 a year for the San Pedro Dome hydrothermal field in Nayarit.
Q: What has changed in the procedures involving
In December of that year another permit was granted to
CONAGUA for the construction of hydrothermal and
Mexxus Drilling for the El Ceboruco field in that same state.
hydroelectric plants? A: CONAGUA’s authority applies to permits regarding
The National Water Commission (CONAGUA) is Mexico’s main
water concessions, permits to the discharge of residual
regulatory entity for water usage for human and industrial purposes as
water and to measures regarding the prevention
well as water bodies.
Manzanillo thermoelectric power plant, Colima, CFE
26
INSIGHT
ONUS ON KEY PLAYERS TO SEE PROJECTS THROUGH JAIME DE LA ROSA President of the Mexican Energy Association (AME)
After a successful first year for Mexico’s newly minted
the most interesting areas of the new energy paradigm,
electricity market, the challenge now is to get all the
such as the spot market, will take a little more time to
projects in the pipeline moving forward to benefit the
develop as new players come to understand the rules
country’s economy, lower energy prices and improve the
and slowly start to dip their toes into the waters. The
industry’s overall competitiveness.
spot market, where companies will go to meet shortterm energy requirements not covered by PPAs or
The heavy infrastructure investments associated with the
basic supply, will gradually see more participants such
projects tendered during 2016’s two long-term power
as qualified suppliers, the energy middlemen who are
auctions will add value in the form of jobs and technology
starting to pop up in the country. “The new mechanisms
development but it is up to developers, communities,
will contribute to increasing Mexico’s competitiveness
investors and authorities to see them through to
on the global scene and enhance the internal energy
completion, says Jaime de la Rosa, President of the
security of the country while bringing new players to the
Mexican Energy Association (AME), which groups dozens
market. There is still a long road ahead to arrive at this
of national and international players in the power sector.
ideal scenario but the regulations are clearly marking the route we need to follow to reach this target.”
Looking back at 2016, the MEM’s first year of operation, de la Rosa says the two power auctions were successes
Among the elements that need to be clarified are the
that put Mexico firmly on the global energy map.
relationship between participants in the spot market,
“The response to the first long-term electricity tender
subject for example to variable prices, and those taking
in March was quite successful, with over 103 private
part in the long-term fixed-price electricity tenders, de la
companies
of
Rosa says. Fortunately the authorities, from the Ministry
which 69 presented economic proposals. This level of
of Energy to Congress, have been willing to listen to the
participation was a historical milestone, not only for
needs of private players. AME “continues to collaborate
Mexico but for the global energy industry,” he says. “The
with CENACE, CRE and the Ministry of Energy to shape
process’ transparency and the record renewable energy
the future of the energy market, sharing our members’
prices received by CFE were also great achievements.
experiences in international markets and acting as the
Achieving an average of US$49 per megawatt-hour of
voice of private energy companies in Mexico.” AME is
wind and solar energy has been a major breakthrough
looking forward to future electricity tenders despite the
for the country and the renewable energy industry,
uncertainty that continues to swirl around the sector. “Our
especially as there were no subsidies involved.”
main expectation is to see a series of successful electricity
accessing
the
tender’s
guidelines,
tenders over the next years,” de la Rosa says. CENACE followed in September with another successful auction performance that “managed to surpass the high
“The challenge will be to eliminate the uncertainty
bar set during the first round, allocating a large share
regarding the functioning and potential scope of the
of the capacity required by CFE and achieving lower
other market components, such as bilateral contracts,
prices per megawatt-hour and CELs,” says de la Rosa.
which share strong similarities with the self-supply
“We were especially satisfied to see that the portfolio
scheme, a legacy from the old regulatory framework.
of technologies earning contracts was much more
So far, private companies are analyzing the possibility
diversified than in the first auction in which solar and
of partaking as qualified suppliers or marketers as
wind technologies got all the CELs and energy auctioned.
a strategy to diversify their participation in the new
Now, we also have combined cycles, geothermal and
market. However, we will have to wait to see how
hydropower technologies.” De la Rosa says that some of
successful these new elements become.”
27
INSIGHT
ENERGY SUBSIDIES HOLD BACK EFFICIENCY ROBERTO MARTÍNEZ Director of the OECD Mexico Centre
28
The “Getting It Right” report published in 2013 by the
One barrier to reducing energy subsidies is the general
Organization for Economic Cooperation and Development
fear that it will drive up inflation and affect lower-income
(OECD) found that energy subsidies represented around
Mexicans. But the OECD’s report showed that the main
1.7 percent of Mexico’s GDP during 2005-2009, including
beneficiaries of electricity subsidies are higher-income
electricity subsidies for the residential and agricultural
residential customers. The poorer 20 percent of the
sectors. In addition to being costly, the existence of energy
population only gets 11 percent of the total amount spent
subsidies can discourage investment in clean energy and
on electricity subsidies while the richest 10 percent of
efficient technologies, which goes against Mexico’s future
Mexicans gets around 20 percent of the full subsidies.
ambitions.
Similarly, 90 percent of the electricity subsidies given to water pumping systems in the agricultural sector benefits
Roberto Martínez, Director of the OECD Mexico office,
10 percent of the richest farmers.
believes the electricity market’s liberalization is the best opportunity for the country to start phasing out energy
The OECD believes that eliminating these subsidies and
subsidies and place them in areas with higher potential
replacing them with specific programs would be more
to benefit its population and move Mexico’s clean energy
effective for addressing poverty. The country has already
ambitions forward. “In the power sector, we consider
made some advances in this regard by substituting
it essential to follow an energy efficiency agenda, for
electricity
which reshaping the country’s strategy regarding energy
incentives in watersheds where they are needed the most.
subsidies and taxes is necessary. Before the Energy
The organization encourages the adoption of effective
Reform, we conducted an in-depth study to evaluate the
communication strategies to promote the acceptance of
impact of phasing out energy subsidies and to identify the
programs that reduce subsidies but Martínez also says the
optimal areas in which to invest these financial resources,”
Energy Reform might provide the right framework to ease
says Martínez.
the transition process.
DISTRIBUTION RESIDENTIAL ELECTRICITY DISTRIBUTION OFOF RESIDENTIAL ELECTRICITY SUBSIDIE BY DECILES (%) FROM THE TOTAL SUBSIDIES BY INCOME DECILES (percent) 25
subsidies
for
water
pumping
with
cash
“Mexico has already reduced its industrial electricity tariffs, making the gap smaller in comparison with American standards. A similar drop in residential tariffs would set the ideal timing to start phasing electricity subsidies out, which is more relevant than ever as they can distort the market by
20
artificially changing prices,” he says. The current subsidies also affect the development of clean energy technologies in
15
Mexico because they favor mostly fossil fuel technologies. According to the OECD, Mexico’s fossil fuel subsidies
10
accounted for US$8.95 billion in 2011, representing around 88 percent of the country’s total energy subsidies. Martínez
5
says that reshaping the fiscal strategy would have a positive 0
I
II
III
IV
V
VI
VII
VIII
Lower income 2008 Source: OECD, 2012
IX
X
Higher income 2010 2008
impact on the country’s clean energy industry and would be more in line with global energy trends. “The maturing of renewable technologies worldwide has driven us to design a policy framework favoring the rapid adoption and
2010 Source: OECD, 2012
implementation of clean energies, including tools to make them more economically attractive,” he says.
INSIGHT
GREEN GROWTH FRANCISCO BARNÉS Executive Director of the Mario Molina Center for Strategic Studies on Energy and the Environment
29
One knock against going green, some companies insist, is that
direction. “Mexico is building new pipelines to transport
implementing the available solutions can hamper economic
larger amounts of natural gas while developing its own
development. Advocates on the environmental side of the
production, which ensures energy security.”
ledger, say it is quite possible to have both. They even have a term for it: “green growth.” That phrase has been adopted
To complement the increased usage of renewable energies,
by the OECD and other institutions in reference to achieving
the Mario Molina Center is focusing on energy efficiency, an
economic advancement while reducing GHG emissions,
area it feels still requires a bigger effort. “Even though we
a target that is at the heart of the Mario Molina Center’s
have been working on electricity and transport efficiency
strategy to contribute to the environment’s well-being.
regulations, we still lack a national energy efficiency goal.” Barnés points out that the country’s Intended National
The Mario Molina Center for Strategic Studies on Energy
Determined Contribution (INDC), submitted at COP21 in
and the Environment is a not-for-profit organization that
Paris, does not have a specific section on energy efficiency
provides technical analysis to support decision-making
beyond the regulations that have already been mandated.
processes across all sectors. Its main task is to create consensus and engage decision-makers to ensure the
This is where green growth can play a role. The Center has
Center’s proposals and research turn into real-world
published over 10 strategies in the last four years targeting
solutions. Within the energy sector, one of the Center’s
energy efficiency in several industries including tourism,
top missions is to boost the adoption of renewable and
construction and automotive. “For example, we are
clean energy technologies in Mexico, keeping in mind the
working with the tequila industry to help them implement
philosophy of green growth. “We worked closely with the
sustainable
government during the approval of the Energy Transition
economic performance.” The future of the power industry,
Law. We studied the feasibility and the potential ways
and specifically renewable energy production, must
of achieving the country’s clean energy targets while
include the government’s involvement across the board.
taking into account our heavily oil-reliant economy,” says
“It should provide a comprehensive regulatory framework
Francisco Barnés, the Center’s Executive Director.
that allows the development of such technologies by the
practices
without
interfering
with
their
private sector,” says Barnés. “However, the government According to Barnés, the country has only scratched the
should also be directly involved in renewable energy
surface of its renewable energy potential. Even though
generation
significant progress was made with the power auctions,
following CFE’s legal division.”
through
several
state-owned
enterprises
Mexico’s promise in this area is much greater. Still, it would be impossible to rely solely on renewable resources due
The remaining challenges are plentiful, Barnés says, but
to the country’s growing electricity demand, which is why
the experience of other countries transitioning to a low-
a combination of fossil fuels such as oil and natural gas
carbon economy must be an example of what can be
will still prevail in the national energy matrix. “We need to
accomplished through collaboration and hard work.
diversify the energy mix, including both natural gas and
Policies must be integrated with the right amount of
renewable energies,” he says.
regulation and financing, research must identify market gaps and develop ways of brigding them, technology
With the low cost of natural gas from the US, attributed
developers must continue researching to make green
to a surplus of the fuel there, the hydrocarbon is a viable
tools cost-efficient and power companies must seek to
alternative to more polluting fossil fuels. This presents
integrate sustainability into their whole business strategy.
an opportunity for Mexico, says Barnés. The expansion
If everyone contributes, the Mexican economy itself can
of the national pipeline network is a step in the right
soon be an iconic example of green growth.
VIEW FROM THE TOP
PROSPECTS ABOUND FOR DISTRIBUTED ENERGY VÍCTOR RAMÍREZ Executive Director of the National Solar Energy Association (ANES)
30
Q: What were the highlights of 2016 for the Mexican solar
the national economy. The cost of energy in centralized
energy industry?
systems is also affected by the technical and nontechnical
A: The long-term power auctions were among the year’s
losses happening during transmission and distribution,
major milestones as most of the awarded megawatt-hours
which is not the case for distributed systems, which
and CELs were given to solar energy companies. Indeed,
decreases the need to invest in transmission infrastructure.
60 percent of the new energy that will be injected into the grid from 2018 as a result of the auctions will be from solar.
Around 2 percent of Mexicans still lack electricity
Mexican solar energy saw exponential growth in 2016 that
access and serving their needs will be cheaper through
exceeded all expectations. But even with the great advances,
distributed generation as most of these Mexicans live in
the amount of solar capacity that will be installed is still low
isolated rural communities. Rural electrification is also
considering the potential. We are therefore looking at new
an interesting option for SMEs that can obtain financing
niches beyond the power auctions to boost solar energy
through the Ministry of Energy’s fund for universal
production, for instance, distributed generation.
access to energy.
Around US$4.1 billion will be invested in solar as a result of
Q: What more is needed to encourage commercial and
the power auctions while the potential of distributed energy
high-consumption residential users to invest in solar?
just considering users under tariff two, the commercial tariff,
A: We need a more aggressive marketing campaign
and the domestic users under the high consumption scheme
that promotes the benefits of solar technologies. But
(DAC) could reach US$20 billion. Moreover, distributed
we also need to ensure there are regulations in place
generation is much more widespread than utility-scale,
guaranteeing the system’s quality. Using low-quality
allowing the entry of a higher number of SMEs into the solar
products or poor installation services might lead to the
energy business.
system malfunctioning, which impacts negatively on solar energy’s image in the market. I recently saw a solar heater
Q: What advantages does distributed generation provide to
on a building’s rooftop facing north, with an adjacent
the economy over traditional, centralized energy?
building projecting a shadow over it. Of course that solar
A: Distributed generation is a large market in which SMEs and
heater would never work properly and the owner might
big companies can step in. We are already seeing investment
think it is because solar energy is not reliable.
interest from big names in the sector. For instance, Solar City has come to Mexico’s retail market, even acquiring the
We need to ensure there are protocols and norms
Mexican company ILIOSS to gain a stronger position in the
guaranteeing that the technology and the installation have
country. There are also plenty of opportunities for lower-
the proper quality standards so consumers can enjoy solar
scale players, particularly as the Reform has promoted new
energy’s benefits. ANES has been working hard on the
initiatives to support SMEs with the training and technical
creation of official national norms (NOMs) for solar panels
skills needed to capitalize on this market.
and heaters, which we expect to become a reality soon as it is a priority for us and the government to promote
The solar industry also is known as the energy source that
further solar capacity.
creates more jobs per megawatt installed, mostly thanks to solar rooftop applications, which also positively impacts
Q: Some solar companies say financing is a barrier to exploiting solar’s potential. What can be done to bring
The National Solar Energy Association (ANES) is a nonprofit
banks on board?
organization designed to promote the development of solar energy in
A: The solar market can be divided into two parts. The
Mexico. It is comprised of dozens of companies in the Mexican market.
first is the MEM where the scale and longer terms of the
contracts awarded in the power auctions ease access to
A: Solar energy will represent at least 3 percent of
credit for solar projects. The major problem is in the retail
the total electricity consumed in Mexico by 2018, just
market, which is more relevant for distributed generators,
considering that the power auctions’ winning projects
because we have not yet seen special credits available from
will cover 5 percent of Mexico’s electricity demand
commercial banks for electricity users willing to invest in
and 60 percent of this power will be produced in solar
solar technologies. Part of the issue is that banks do not
parks. Solar energy has demonstrated it is the cheapest
yet understand that solar technologies are not only an
technology available in the market, not only in the
asset but also enable users to reduce expenses, recovering
Mexican power auctions but worldwide, offering prices
investments in a maximum of 10 years while increasing
around US$40 per MW/h, under natural gas-based
repayment capabilities. Financing solar technologies is a
technologies. Moreover, the construction of solar parks
good business for banks but they need to be aware of it.
is simpler in terms of logistics than other technologies,
We have already seen a greater availability of financing
which make it even more attractive. The generation costs
schemes for energy-efficiency projects and we expect
of solar energy drop even lower every month so I expect
solar to follow this trend soon.
solar to be the most attractive energy source in the near future, even reaching higher capacity than that projected
Q: What is your perspective about CFE Solar, given CFE’s
by the Ministry of Energy.
advantages in the market’s basic segment? A: One of the Energy Reform’s main objectives was
Q: What topics will be on ANES’ agenda for 2017 to
to eliminate monopolies. We are worried about CFE
continue driving solar energy forward in Mexico?
Solar affecting the sector’s growth due to its former
A: Our top priority is to enhance the market’s trust in
monopolistic nature and advantages of the basic users’
solar technologies, promoting norms and regulations that
segment such as historic consumption patterns, which
ensure solar products and services are always delivered
might be considered disloyal competition. We, as an
correctly. We want to raise awareness about solar energy’s
association, are helping SMEs and larger companies enter
viability and the fact that it is the cheapest energy source
the Mexican solar market and we expect to help them
at the moment. Solar panels require a considerable initial
create a level playing field so they can compete with CFE
investment but will create savings for the next 30 years
Solar under fair conditions. We consider that developing
and we want people to be aware of this. Thermal solar also
innovative business models and adding value in terms of
offers savings to both residential and industrial users in
customer services will be key for companies to increase
process heat. Distributed generation has grown about 85
competitiveness in this market.
per cent each year and can grow faster. We just need to have clear rules and financing available to make solar the
Q: What are ANES’ projections regarding the growth of
energy source of the future and we are working on both as
solar installed capacity in the next 10 years?
part of ANES’ agenda.
PV panels installation, Morelos, INEEL
31
VIEW FROM THE TOP
MEXICO-SPAIN ENERGY LINK BROADENS JOANA TORRENTS 32
Director General of the Spanish Chamber of Commerce (CAMESCOM)
Q: What elements of the Mexican market have made it so
new regulations to boost energy production and has
attractive for Spanish energy companies?
ambitious goals regarding clean energy production.
A: Spanish companies are interested in Mexico because it
These two factors have created the perfect landscape for
is an emerging and large-scale market that is strategically
Spanish companies to start operations in Mexico, using
located next to the US and offers significant legal stability.
their skills and expertise to develop successful projects
Mexico also is a widely open market, with a large number
and help Mexico reach its clean energy targets.
of international agreements in place. The advantages of the market here have become even more attractive to Spanish
Q: How has the Energy Reform impacted the commercial
companies after the economic crisis, which hindered the
relationship between the two countries?
conditions for new business development in Spain. The
A: Since the early stages of the Reform, Mexico has
business relationship between Mexico and Spain is not new.
worked to communicate to the world the objectives
A great number of modern Spanish enterprises have been
of the new legislation as well as the country’s interest
present in Mexico for over 30 years. Currently, there are
in attracting international investment. The Spanish
around 6,000 Spanish companies across different sectors
Chamber
operating in the country and that presence has increased
entities, has taken advantage of Mexico’s openness to
considerably in the last five years due to the conditions of
disseminate the message and highlight the business
the European market, which have pressured companies
opportunities this represents to Spanish companies.
to expand their operations globally. In the case of Latin
Particularly in the energy industry, the Reform has
America, the cultural proximity and the shared language
created great expectations, promoting a stronger
are two other important factors that attract Spanish
exchange of information and enhancing the commercial
companies thinking of expanding beyond Europe. Among
ties between the countries. The boom from the Energy
Latin American economies, Mexico particularly stands out
Reform has impacted businesses of all sizes and from
because it has shown positive growth for the past few
different subsectors, such as consulting, engineering
years and has put in place a range of structural reforms
or manufacturing, and has boosted the inflow of new
that have attracted the interest of international investors.
Spanish companies into the Mexican market.
Large Spanish companies such as Gas Natural Fenosa, ACCIONA and Iberdrola are playing an important role in Mexico’s new energy market development
of
Commerce,
like
other
international
Q: What are the main challenges faced by Spanish companies here and how can the Spanish Chamber of Commerce help? A: A generalized issue is the legal uncertainty resulting from the newness of the Reform, which has forced companies to wait before moving big investments forward. However, in the past few months we have seen the Mexican authorities take great strides in defining gray areas of the regulations, including sensitive topics like
Regarding the energy sector, Spain plays an important
social impact studies. The main challenge for companies
role thanks to its strong expertise in developing
already operating in Mexico is to keep their businesses
energy projects, particularly in renewables. Besides the
active during this transition period. For those planning
economic crisis, legislative changes in Spain that were
to enter the country, the main challenge is to design
unfavorable for renewable energy projects have also
a strategy to face the fierce competition before the
pushed companies working in the sector to expand to
regulatory framework is completely developed. This
other markets. Mexico, on the contrary, has just enacted
is a major challenge as companies do not want to miss
the Mexican momentum but cannot heavily invest until
some subsectors do have higher potential for investment
the regulations are completely clarified. Moreover, most
or are growing faster than others. The energy sector is
of these companies have little or no experience in the
strongly represented in the Chamber and we give them a
country.
special focus.
In the energy sector one of the key functions of the
Q: How can Mexican companies looking to collaborate
CAMESCOM is to keep Spanish companies informed about
with Spanish enterprises benefit from the Chamber’s
the latest trends and the potential of the Mexican energy
services?
market. During the internationalization stage, when
A: The CAMESCOM has the core objectives of promoting
companies start to move their operations to Mexico, we get
Spanish investment and business in Mexico, as well as
even more involved in helping them shorten their learning
the other way around. Therefore, we focus our efforts
periods. We continue to provide companies with updated
on Spanish companies operating in Mexico but also on
information and networking opportunities to connect with
Mexican companies looking to establish commercial
key entities and players in Mexico, as well as other Spanish
relations with Spanish enterprises. We have a large number
players that could be interesting. For companies based in
of Mexican service providers that have become members
Mexico, we work to keep them informed about legislative
of the Chamber as a strategy for establishing commercial
changes and function as a bridge between them and the
relations with Spanish members. We also regularly
Mexican authorities, institutions and decision-makers. The
organize activities addressed to Mexican companies
three main objectives of the Chamber are to represent,
planning to start operations in Spain.
provide exposure and link the different companies working in this market.
Q: Which energy subsectors do you expect to grow the most after the establishment of the Energy Reform?
Q: What are the specific objectives of the Energy
A: The theme of the electricity tariffs is generating
Commission created by the Chamber?
great interest, mainly due to its key role in the booming
A: All commissions in the CAMESCOM work in a
investment
similar way. A commission is formed by a core group
considerably high compared to international standards
of members that are relevant to the sector. This group
but this is expected to change as the new market evolves.
decides the particular lines of action and objectives of
Even though Mexico has always been an attractive
the commission. At the same time, there are different
market for Spanish companies, the high electricity tariffs
working groups within the commission in which all the
have also represented a barrier to establishing certain
members of the Chamber can participate according to
productive enterprises in the country. We are working
the guidelines established by the core group. Within
on communicating this situation to Spanish companies,
the energy commission there are four working groups
highlighting the opportunity that dropping electricity
focused on the electricity, oil and gas, sustainability and
tariffs could bring for productive investment in Mexico.
renewable energy subsectors.
Renewable energies are another subject attracting the
in
Mexico.
Local
electricity
tariffs
are
attention of Spanish companies. In general all commissions have the same objectives: collaborate with the Mexican authorities to exchange
Q: How does the Chamber plan to continue providing
knowledge and best practices, coordinate events with
support to companies working in the energy sector?
Mexican entities involved in the sector, network with
A: In the near future we plan to continue with the same
relevant players in the industry and participate as a key
line that we have been following in the past few years,
agent in the improvement of the business structure of the
keeping companies updated about the latest trends in the
sector, represent the different voices and viewpoints of
market and providing training services for our members.
Spanish companies before the Mexican government and
In this regard, the energy commission is already working
create analysis and communication tools to enhance the
on special programs to train human resources in various
knowledge and skills in the sector.
areas of interest, including renewables. The commission is mobilizing the resources needed to create an Energy
Q: What role does energy play in the portfolio of industries
Club in Mexico, based on the Spanish counterpart that is
within the Chamber’s scope?
dedicated to providing training and knowledge exchange
A: As an entity focusing on strengthening commercial
for companies working in the energy industry.
and investment relations between the two countries, all industries hold the same importance in our agenda.
CAMESCOM is an association of Mexican and Spanish businesspeople
Similarly, we give equal weight to the four working groups
working for over 100 years to promote and improve economic activity
involved in the energy commission. But we are aware that
and trade between Spain and Mexico.
33
RESEARCH
RENEWABLE RESOURCES IN THE PASO DEL NORTE REGION
The Paso del Norte border region, including Ciudad Juarez in Mexico and the US cities of El Paso and Las Cruces, enjoys a wealth of energy sources and provides support to the broader Mexican and US energy markets. Solar, wind and geothermal resources are in abundance. While renewable sources constitute a relatively small portion of the region’s energy, the incorporation of these resources, particularly solar energy, is growing. Following is an excerpt from the Hunt Institute for Global Competitiveness’ “Paso del Norte Energy Sector Review” from fall 2016:
34
The renewable energy resources located in the Paso del
accelerated pace and electricity generated by this
Norte region, particularly solar, wind, and geothermal,
renewable energy resource is increasingly competitive.
hold significant potential. The US currently generates
Since 2008, for example, solar energy output has grown
11.1 percent of its total energy from renewable energy
seventeen-fold in the US, from 1.2GW to an estimated
resources, and Mexico 7.6 percent, noticeably lower
20GW in 2015, enough energy to power almost 4 million
than the use of hydrocarbons in both countries. While
homes. With this expansion of scale, the costs associated
renewable sources are not presently a large share of the
with such infrastructure, and the price of the energy it
energy sources that the region utilizes, much like the US
generates, continue to decrease. In addition to the utility-
and Mexico at the national levels, growth in the inclusion
scale solar infrastructure, the cost of distributed rooftop
of these energy resources in generating electricity has
solar photovoltaic panels in 2014 was approximately 50
grown substantially in recent years, and that trend is set to
percent of what it was in 2011. But, physical and market
accelerate both regionally and binationally. Two principal
barriers and grid integration, specifically given the remote
reasons for this acceleration are the requirements to
location of the massive solar energy resources, continue
integrate more renewable energy sources into the grid,
to keep solar energy relatively expensive, especially when
commonly known as Renewable Portfolio Standards (RPS),
compared to energy produced by hydrocarbons.
and financial and tax incentives to stimulate investment in renewable energy infrastructure. Much like the extraction
Mexico
currently
possesses
little
solar
energy
and transmission of hydrocarbons, the harnessing and
infrastructure with 64MW of total installed capacity.
delivery of these renewable energy resources to the end
Nevertheless, the Mexican government has ambitious
user also must contend with the significantly divergent
plans to expand and expects to increase the use of solar
physical and regulatory infrastructure that converge in the
power from 64MW in 2014 to 627.5MW by the end of 2018.
Paso del Norte region.
Nevertheless, Mexico recently placed a 15 percent tariff on imported solar panels that could frustrate attempts
SOLAR
to reach solar energy production targets. The State of
The US and Mexico, and the Paso del Norte region in
Chihuahua is among several states in the initial phase of
particular, have some of the most abundant solar
installing solar energy capacity. In 2014, the majority of
resources in the world. Across the US, the annual average
Chihuahua’s installed capacity for energy was dominated
irradiation is 4.6 kWh/m . Texas and New Mexico, though,
by fossil fuels (98.6 percent). The remaining (1.4 percent)
have a comparative advantage with respect to the levels
included hydroelectric power and biogas. But, by the year
of solar irradiation, with average levels of 5.4 kWh/
2020, solar energy projects in the State of Chihuahua are
m2 and 6.4 kWh/m2, respectively. For El Paso and Las
expected to increase solar energy production by more
Cruces, the annual average irradiation is 6.6 kWh/m . In
than 9 percent. One of those projects is the recently
Mexico, the highest levels of solar irradiation are in the
operational solar farm, Los Santos Solar I, a 15.82MW solar
northwestern part of the country, with an annual average
facility in the municipality of Villa Ahumada, Chihuahua.
irradiation of 6 kWh/m2.
This project obtained its certification in April 2015 and
2
2
will provide electricity to an estimated 5,838 households. The State of Chihuahua leads Mexico with an average
And, while Ciudad Juarez hosts a major SunEdison solar
solar irradiation of 6.27 kWh/m . Similar to El Paso and
panel factory that annually exports 1.3 million solar panels
Las Cruces, Ciudad Juarez possesses high levels of
to the US, the city generates very little solar energy. A
2
solar irradiation with an average of 6.7 kWh/m (with a
new solar energy infrastructure plan, managed by the
minimum of 5.9 kWh/m2 and a maximum of 7.4 kWh/
CRE, to generate 188MW for the city has recently been
m ). Mexico Solar energy markets are growing at an
approved.
2
2
WIND
recent demonstration of a technically viable geothermal
In the US, Texas and New Mexico, like other plains states —
system on the Fort Bliss Military Base in El Paso County.
such as North Dakota, Kansas, Montana, Nebraska, Wyoming,
Currently, though, only one active facility is present in
Oklahoma, Iowa, and South Dakota— all have excellent
the region. Texas has a strong advantage in geothermal
wind energy potential. Texas ranks first in the nation in
energy. One such area is the tectonically active area of
wind energy production (and sixth globally), while New
the Rio Grande Rift that begins in Colorado and continues
Mexico ranks 12th nationally. As of 2015, Mexico ranks 18th
southward through New Mexico and Texas along the Rio
in the world in installed wind energy generating capacity.
Grande and then terminating in the Big Bend region. Areas
The highest amounts of wind energy sources in Mexico are
with geothermal resources potential can therefore be
present in the State of Oaxaca, located in the south of the
found in the Presidio Bolson, Hueco Bolson, and the Big
country. In the Paso del Norte region, El Paso and Las Cruces
Bend area. The Counties of El Paso, Culberson, Hudspeth,
have an annual average wind speed of approximately 4.8
Jeff Davis, Presidio, and Brewster could potentially make
m/s to 5.4 m/s. The State of Chihuahua and Ciudad Juarez
use of geothermal resources. Although geothermal energy
also possess significant wind potential. The US is among the
only produced 0.1 percent of the state’s total output of
leading countries in the generation of wind energy, with an
electricity, New Mexico contains, compared to other states,
installed wind energy generating capacity of 74,472MW. In
important geothermal resources.
the US, Texas leads wind energy generation with 17,713MW of installed capacity from 116 wind projects. New Mexico
Mexico is among the top five countries in the world utilizing
exhibits considerable potential for wind energy generation
or poised to employ geothermal energy generation with an
as well, and wind power currently contributes more than 6
installed capacity of approximately 823MW. The CFE has
percent of New Mexico’s electricity generation. New Mexico,
identified geothermal reservoirs in Mexicali, Baja California,
like Texas, is among twelve states located in the middle of
to the south of Imperial Valley, which has Mexico’s largest
the country that collectively have 90 percent of the total
geothermal energy plant, Cerro Prieto. It is also the second
commercial wind electricity potential in the US. New Mexico,
largest geothermal plant in the world and maintains an
though, is just beginning to utilize wind energy with a total
installed capacity of 720MW. Mexico also has geothermal
installed capacity of only 750MW.
resources in the State of Chihuahua, particularly in the Maguarichi zone, located in the southwestern part of
Mexico utilizes considerably less wind energy facilities.
the state along the Sierra Tarahumara, and eight other
Globally, Mexico ranks 24th worldwide, with an installed
states that could potentially generate more than 5,691MW.
capacity of only 1,900MW. Nationally, the CRE has
Another area with geothermal resources in the state is San
established an ambitious goal of creating 12GW of installed
Antonio El Bravo, near Ojinaga, Chihuahua, with an average
capacity by 2020. In an effort to reach this goal, the CRE
potential of 36MW. The CFE is set to increase its installed
has approved various projects with an authorized capacity
generation capacity by 17,092MW between 2014 and 2020.
of 3,339MW. To date, though, and in spite of the wind
New construction and upgrades associated with these
energy potential in the State of Chihuahua, no major wind
generating capacity upgrades will account for 71 percent of
projects exist there.
the budget with wind power making up 14 percent, and the rest allocated to hydroelectric geothermal and gas turbine
GEOTHERMAL
plants. Projects associated with this increase will require an
Geothermal energy has been a small, yet consistent, source
estimated total investment of approximately US$45.8 billion.
of electricity in both the US and Mexico, mostly located
In 2015, the Ministry of Energy granted 13 permits to explore
near tectonic plates. Indeed, most of the geothermal energy
geothermal resources and five concessions to continue
produced in the US and Mexico originates in Imperial
generating energy from certain fields in the States of Baja
Valley border region in southern California and northern
California, Baja California Sur, Puebla and Michoacan. And, in
Baja California. But recent advances in technology have
2016, it granted three new exploration permits for sites in the
broadened the potential of geothermal resources in other
States of Baja California, Guanajuato and Jalisco.
areas. While the US is already the world’s leader in terms of total installed capacity for utilizing geothermal energy with
The Hunt Institute for Global Competitiveness is a multidisciplinary
3.5GW, the US Geological Survey (USGS) has identified
research platform working to foster a broad and open discussion on
potential for geothermal energy production in 13 western
the Paso del Norte region’s development, focusing on two principal
states of up to 16,457MW from known geothermal systems.
objectives: data generation and economic analysis. The Institute
Since 2001, geothermal deposits have increasingly been
maintains a publicly accessible database of official sources from the
confirmed in other western states, including New Mexico
various jurisdictions in the Paso del Norte region, serving as a centralized
and Texas. The Paso del Norte region also has a strong
resource for knowledge regarding the region’s economy, infrastructure
base from which to produce geothermal energy, such as
and institutions. Website: http://huntinstitute.utep.edu
35
Bii Hioxo wind farm, Oaxaca, Gas Natural Fenosa
OPERATING FRAMEWORK
2
The opportunities are there for the taking. Mexican and international players can now enter the energy market as generators, suppliers, off-takers and merchants. Legacy holdings can still use the pre-Reform framework but the updated contracts offer many options and much flexibility. There is also a previously uncommon ripple effect: the financial uncertainty of an open market ruled by supply and demand. Developers, heavy manufacturing energy users and industry associations are also waiting for the final pieces of the puzzle to fall in place, such as the guidelines for the Social Impact Assessments (SIAs) that relate energy developments to the communities they will interact with and which can make or break a project.
In this chapter, legal consultants and attorneys who took part in drafting the new rules discuss the Reform’s initial outcome, alongside the consultants who are advising clients spanning from China, Europe and the US on how to better position themselves to succeed in the changing Mexican power industry. They also discuss potential areas of improvement on the horizon. Knowledge, they would say, is definitely power.
37
CHAPTER 2: OPERATING FRAMEWORK 39
40
ANALYSIS: Escaping Limitations, Facing Uncertainties
41
INSIGHT: Israel Hurtado, AMDE
42
VIEW FROM THE TOP: Jorge Sandoval, Goodrich, Riquelme y Asociados
44
VIEW FROM THE TOP: Derek Woodhouse, Woodhouse Lorente Ludlow
Luis Fernández, Woodhouse Lorente Ludlow
46
INSIGHT: Edmond Grieger, Von Wobeser & Sierra
47
VIEW FROM THE TOP: José Prado, Holland & Knight
48
VIEW FROM THE TOP: Claudio Rodríguez, Thompson & Knight
50
VIEW FROM THE TOP: Jimena Elizondo, Rodríguez Dávalos Abogados
51
INSIGHT: Andreas Voss, Rödl & Partner
Rafael Torres, Rödl & Partner 53
INSIGHT: Pedro Reséndez, Greenberg Traurig
54
VIEW FROM THE TOP: Loïc Le Gall, EY
56
VIEW FROM THE TOP: Nicolas Melissas, Athena Consulting
57
VIEW FROM THE TOP: Ruth Guevara, Zumma rg+c
Jonathan Pinzón, Zumma rg+c
58
VIEW FROM THE TOP: Eduardo Reyes, PwC | Strategy&
60
VIEW FROM THE TOP: Rubén Cruz, KPMG
62
VIEW FROM THE TOP: Jim Heidell, PA Consulting
64
VIEW FROM THE TOP: Severo López, Galo Energy
65
INSIGHT: Soffia Alarcon-Diaz, The Carbon Trust
ANALYSIS
ESCAPING LIMITATIONS, FACING UNCERTAINTIES Laws, regulations and government agencies are not usually
and they are very efficient. In Mexico, since it is something
associated with speed. But 2016 was the year the Mexican
new, there is still a lack of information, which generates
energy sector achieved escape velocity from over 70 years
uncertainty regarding the process,” says Rubén Cruz, Energy
of a state monopoly in electricity. The segment landed in a
& Natural Resources/Industries Lead Partner at KPMG.
newly liberalized and dynamic market where options have 40
multiplied for power generators and users, and where the
Even as no one disputes the importance of SIAs and of
forces of supply and demand are expected to lead the
providing benefits to communities potentially affected by
development of a new economic paradigm for the industrial
energy projects, that regulation in particular casts a long
economy in Mexico.
shadow over both developers, lawyers and consultants as Mexico’s byzantine land-ownership legal framework
The new rules originating from 2013’s Energy Reform
makes taking control of the land needed for typically
survived a trial by fire with the first two long-term electricity
expansive solar parks and wind farms, not to mention gas
tenders held by CENACE and showed that Mexico is
pipelines, something close to a nightmare, according to
motivated to quickly develop the field of renewable energy
several market players.
generation. The ejido regime where communities control state-owned “The past 12 months have been the most dynamic in the
land is a particular source of commentary. And the short,
power sector this decade. Driven by the Energy Reform
90-day time frame allotted to this particular process
and resulting regulations, the market has changed,” says
has also been mentioned as a possible stumbling block
Eduardo Reyes, Partner Power & Utilities at Strategy&,
to a project’s completion. Those rules were still under a
PwC. That sounds like an understatement, as many new
consultation process in Mexico by 2016’s end. “The level
market roles where created, such as the qualified supplier
of uncertainty surrounding land acquisition processes is
expected to take on an increasingly important role as the
definitely a top concern in the industry as having right of
spot market gathers steam. The bases also were set for
way or land rights secured is crucial in the project financing
further developments such as the handing over of the
stages, particularly in Mexico where several land regimes
auctions from the market control entity CENACE to the CRE
exist and it is a complex task,” José Prado, Partner at legal
regulator, which is expected to happen in 2017.
firm Holland & Knight, says.
“Many tasks lie ahead to mobilize
Additionally, announcements made by US President Donald Trump about the renegotiation of trade deals with Mexico
new investment, develop regulations
and future US investments in Aztec lands could also cause
and institutions but the initial signs
sector because the country’s dependence on exports
are positive”
downturn. “If the new US government renegotiates NAFTA,
Mexico Energy Outlook, IEA
hesitation about pouring heavy investments into the energy to its northern neighbor could bring about an economic it could push Mexico into a recession,” says Nicolas Melissas, Director General of Athena Consulting.
But concerns remain. The testing phase is not nearly over
Financing is also a nagging worry as companies say banks
and there are many in the market still worried about how
are still unsure about the risk of lending money to long-
dominant a role the now-separated CFE’s units will continue
term projects such as utilities. The new PPAs signed with
to play in the market. They are also awaiting the rules for
CFE in 2016’s auctions last 15 years, much shorter than the
the mandatory Social Impact Assessments (SIAs) that have
life expectancy of most projects, which causes uncertainty
the power to make or break a billion-dollar investment and
regarding payment for the remainder of the project’s life.
are looking to see how the market will play in the long run.
But with over US$6 billion in projects to finance just from the auctions and development banks and international lenders
“The danger of participating in these schemes today is
like the IADB supporting Mexico’s energy development,
related to a lack of information rather than actual market
most players remain confident that Mexico’s banking system
risk. These markets are in place in several parts of the world
and capital markets will soon follow suit.
INSIGHT
MOVE TOWARD COMPETITION A COMPLEX PROCESS ISRAEL HURTADO President of the Mexican Association for Energy Law (AMDE) 41
The enactment of the Energy Reform has shifted the
The Energy Transition Law was approved in 2015, fixing the
country’s focus since 2013, following changes to the
roadmap in place to meet the international goal of clean
constitutional, legal and regulatory structure relating to the
energy use and generation. It also dictates a program
energy sector. The focus of the sector is sound strategic
to combat climate change up to 2025, which is when
investments in deepwater and onshore exploration of
Mexico must sustainably produce 35 percent of its energy.
oil fields, as well as the expansive growth of the national
Undoubtedly, that ambitious target will put pressure on
network of gas pipelines and the increasing competition
some industrial sectors that depend on natural gas or fossil
among gas stations on service and product quality.
fuels for their operations but the global trend is toward
Developments in natural gas and fossil fuels must benefit
green industry and renewable energy sources. The Energy
the population as much as clean energy generation, which is
Transition Law puts Mexico in line with this commitment.
also emerging as a prominent opportunity area for Mexico. Electricity generation is increasingly shifting toward solar, wind and geothermal energy, which will eventually have a knock-on effect on prices and offset the damaging impact of fossil fuels on climate change. Private and publicly owned companies have reacted to the Energy Reform with investments in technology and expertise-building and the industry has attracted further capital from abroad. National and international entities have responded favorably to bring Mexico up to date and out of the monopoly that PEMEX and CFE held in their respective
“The global tendency is toward green industry and renewable energy sources. The Law of Energy Transition puts Mexico in line with this commitment�
sectors. Moving toward greater competition has been the
Israel Hurtado, President of the Mexican Association
most complex part of the Reform. But now that PEMEX and
for Energy Law (AMDE)
CFE will compete fairly among all oil and gas-extraction and electricity providers, with subsidies and isolation that
Social responsibility was included in the creation of the
favored them as state-owned companies removed, interest
Reform. The Energy Industry Law covers sustainable
in participating in the new markets has taken off.
development and protection of human rights. Respect and guaranteed protection of indigenous communities within the
An increase in foreign direct investment in the country is
regions that undergo energy developments is stipulated in
visible in the industrial sector and construction of industrial
the law, which dictates they be consulted before beginning
parks. This is a result of access to more competitive
any project that might affect their interests and rights. This is
energy prices in the wholesale electricity market and
an important topic as most of these communities are located
associations that have united companies based in the
in strategic spaces for energy projects.
same industrial parks to access electricity together. These same associations can now also install solar panel farms
The evaluation of energy projects must be approached as
within their industrial parks or close by. Transactions in the
a management process, not as a product to manufacture.
wholesale electricity market have great substance since
Opportunities and advantages can emerge from energy
they permit energy to be commercialized. These benefits
developments for the population but they can also impair
must reach industrial parks and those companies within
local quality of life. It is fundamental that we carry out clear
them, who can choose different energy providers instead
and fair project management to promote the resulting
of CFE to supply their operations.
benefits and prevent consequential damage.
VIEW FROM THE TOP
SOLID REGULATION: THE ROAD TO COMPETITIVENESS JORGE SANDOVAL Associate at Goodrich, Riquelme y Asociados 42
Q: How does Mexico’s energy regulatory framework stack
includes another mechanism to incentivize participation
up against international standards?
of renewable energy projects in the market: auctions that
A: The government has done admirable work in preparing and
allow companies to sign long-term PPAs for selling CELs,
applying the Energy Reform, developing a legal framework
capacity and clean energy.
to transit from a monopoly to a liberalized market. However, the Wholesale Electricity Market (MEM) created as a result
Q: What are the potential benefits and disadvantages that
of this reform is extremely complex and the government also
long-term contracts offer to renewable energy developers?
has established tight deadlines that are difficult for private
A: The government established special auctions to sign long-
participants to comply with. The basis of the legal framework
term PPAs for energy, capacity and CELs to provide more
is adequate but the rules are constantly shifting, which brings
financial certainty to renewable energy project developers.
uncertainty to the market. This, combined with the vast
The government first established a 10-year period for the
amount of information that new players must process, has
PPAs that was insufficient for this purpose and it was later
delayed the inclusion of private participants in the electricity
decided that the contract length would be extended to
sector. The MEM began operations in January but only CFE
15 years, an improvement despite the fact that a 20-year
participated as a generator and qualified supplier.
time frame would have been more appropriate for energy projects. Long-term auctions also provide a solid opportunity
Q: How has the reform made renewable energy projects
for renewables to enter the market and participate in energy
attractive to international investors?
generation and supply. To understand the exact benefits this
A: The Energy Reform is promoting major changes in the
scheme will bring to renewable projects we would have to
country to eradicate monopolies in the oil and gas and
evaluate the periodicity of the auctions and the evolution
electricity sectors. Particularly in the electricity industry,
of prices, which are not favorable for some renewable
generation, transmission, distribution and supply used to
technologies. CFE has reported its highest financial losses
be carried out exclusively by CFE. In the case of electricity
in years and we expect that at some point electricity prices
generation private entities could participate under certain
will be readjusted to avoid bankruptcy at the state-owned
regimes such as self-supply, cogeneration or the small-
company and boost private participation in the market.
producer scheme but these were the only ways in which
Otherwise, Mexico will continue to have a monopoly within
private companies could generate and consume their own
a liberalized market.
energy and it did not allow them to trade electricity. Now the country has a liberalized market in which CFE remains
Q: What encouraged the prevalence of M&As in the
the main player, which makes the market’s structure even
country’s electricity sector?
more complex.
A: The guarantees required to take part in the wholesale electricity market are significant. It is also difficult to have
Although CFE has already split its business units, in practice
the financial and technical capabilities to participate.
it might take years to end its monopoly over the market. It is
Companies are now more willing to merge to complement
also important to highlight that the purpose of the electricity
financial capacities with technological assets and vice
reform is not to promote clean energies but to reduce prices.
versa as a strategy to participate in the auctions organized
The Mexican market is based on the Pennsylvania, Jersey,
by CENACE. In the past few months, we have seen
Maryland (PJM) model, which corresponds to a pricing
an increase in M&A cases in our practice and we have
market. At the moment, the only available incentives for
represented a significant number of companies in this
renewables are Clean Energy Certificates (CELs) and the
process, especially for the latest long-term power auctions.
distributed generation plan, which includes net metering
We represented solar company ILIOSS, which has been
but is only applicable for projects under 0.5 MW. The MEM
acquired by SolarCity, the largest solar company in the US.
After the acquisition went through we kept in contact with
Q: What are the main challenges facing the Mexican energy
SolarCity/Ilioss and we know the company plans to invest
industry in the coming years?
about US$1 million in Mexico. We also are helping them to
A: The country is not accustomed to a liberalized market
develop their business in the country.
and the old energy trading schemes have deep roots in the national mindset. The main challenges are to develop
Q: How are PPPs helping boost renewables and what
the market and incentivize private entities to participate.
challenges did you face establishing one in Sinaloa?
Otherwise Mexico will not achieve its climate change
A: This project is related to a 25-year PPP contract between
and clean energy targets, as CFE alone is not capable of
a solar energy producer and the government of Sinaloa. The
this. Without competition the country will face enormous
main challenge was to obtain the majority approval of the
challenges in offering low-cost and efficient energy, which is
state congress, a requirement of Sinaloa’s legal framework for
the key objective of the Energy Reform.
PPPs. The project won approval and was carried out under the old self-supply scheme, with all its benefits included.
Another challenge is to transform Mexico into a competitive
We believe that PPP is one of the key elements to boost the
country for the private sector and eliminate the current
use of renewables in Mexico, particularly considering the
monopoly. The complete transformation of the market is
high energy consumption of municipalities. Unfortunately,
expected to take up to 20 years because it is not possible
the new energy framework does not allow municipalities to
to eliminate a monopoly in a short period. But we are
participate as qualified users, which excludes a considerable
confident that the country has the foundations to grow in
number of projects.
the right direction and that the government is working hard to understand the needs of the private sector and include
Q: How have the processes changed for obtaining permits,
its concerns in the new electricity market. To help with this
licenses or authorizations for renewable energy projects?
transition, we are creating a dialogue between the private
A: Companies are only required to obtain a generation
sector and the authorities to ease the negotiations and we
permit when their power facilities have a capacity
are making our voice heard to ensure that Mexico becomes
equal to or higher than 0.5MW. In such cases renewable
more competitive in the coming years.
energy developers do not need to pay the generation permit fees introduced as an incentive for these types of
The country has great potential to develop renewable
technologies. We have lobbied CENACE to lower the costs
energy, not only natural gas-based projects. The MEM lacks
of interconnection feasibility studies as it charges small-
certain instruments that would be desirable but it is a fairly
scale companies about MXN$800,000 for these. This is
competitive market. In general, the work performed by the
excessively high and represents a considerable barrier for
authorities in the last 18 months is admirable and they are
small and medium-sized energy projects in the country.
open to listening to the industry to continue improving the
CENACE has been open to listening to our comments and
framework.
it is analyzing the possibility of decreasing its fees. From a tax perspective there also are incentives for renewables,
Goodrich Riquelme y Asociados is a Mexican law firm with over 75
such as tax-free purchasing or accelerated depreciation of
years of experience and a strong presence in the oil & gas and energy
renewable energy equipment.
sectors.
43
VIEW FROM THE TOP
THE JOB OF UNBUNDLING CFE
44
Derek Woodhouse Partner at Woodhouse Lorente Ludlow
Luis Fernández Senior Associate at Woodhouse Lorente Ludlow
Q: What role have Mexican law firms played in the
from using the name “CFE” but that was one of the battles
enactment of the Energy Reform in the last three years?
we lost. We are satisfied, however, that the separation
A: It was a small role at the beginning of the process
is happening in practice even if they use similar names.
but 18 months ago the government realized it needed
We have already observed some competition among
lawyers to draft the regulatory framework so it launched
CFE’s units to keep the best employees on their side.
a call for bids. CMS Cameron McKenna, our partner firm,
For us, that is a good sign that the unbundling process
and Woodhouse Lorente Ludlow competed against two
is moving forward.
other firms and won the bid, later helping the Ministry of Energy draft the electricity market rules and the
Q: Can private companies really compete against CFE’s
guidelines for CFE’s restructuring. We had contact with
subsidiaries and affiliates under this scenario?
several industry players during this process, including
A: Private companies were greatly concerned about CFE
other law firms and consultancies, and we observed a
being too strong to compete against but the state-owned
worrying lack of expertise in energy regulation matters,
utility has the disadvantage of being slow by nature. CFE
particularly regarding the electricity market. An open
had no competition before so it was used to doing things
power market is new to all in the industry and new
in line with its own rhythm and not the market’s. It now
guidelines and regulations are being drafted, so it
faces the challenge of changing its mindset to become
is difficult for Mexican law firms to catch up with this
competitive. Private companies are more likely to win
process. We think the situation will get better as the
contracts than the public entity so it is necessary for CFE
market evolves but the learning curve is still high for
to speed up the unbundling process and ensure its new
most of our competitors.
management has a commercial mindset.
Q: As part of the team that drafted the guidelines, what
Q: Which of the market regulators will be in charge of
is your perspective of CFE’s restructuring process?
ensuring the market is actually competitive?
A: We were not completely satisfied with the outcome
A: It is a shared responsibility among different public
because we only reached half of what we wanted. We do
entities. There are two levels of competition that need to
acknowledge, however, that breaking up a huge player
be created in the market. The first is to avoid monopolistic
while maintaining its competitiveness and creating a level
practices,
playing field for everyone else was a titanic enterprise. It
Mexico’s competition authority, while the second level
will take time to complete the unbundling process but
of competition is more related to the daily market
we feel Mexico is moving in the right direction. Where
operations and will be the responsibility of CENACE and
we are now is enough to allow for competition and that
the surveillance mechanisms operating in the market.
makes the industry happy.
We call this second competition level “market efficiency”
which
will
be
overseen
by
COFECE,
to avoid confusion with COFECE’s jurisdiction but it The restructuring guidelines also have provided enough
actually refers to maintaining a competitive environment
incentives for CFE’s subsidiaries to act as independent
in the market.
entities, which was another factor to consider. Each subsidiary now has its own budget and must provide
CRE has already created a special division focusing
independent results so they have to plan and work
on the market’s efficiency and a privately owned
separately or they will risk their business. We now need
independent unit will also be present to act as a market
to erase the image of CFE as one huge company because
monitor. Both figures will have a more rapid response
that is no longer the case. To help the energy sector and
than COFECE and will be crucial for identifying and
the company itself we wanted to prevent the subsidiaries
fixing market distortions caused by artificially driven
price behavior. In the case of identifying monopolistic
is one of the most interesting cases. CFE Transmisión
practices, the market monitors could notify COFECE,
no longer cares about generation costs as it bases its
whose job is to keep large players from dominating the
revenues on the transmission tariffs defined by CRE. To
market and restraining competition.
be profitable, CFE Transmisión has to focus completely on running the grid properly, which will also incentivize
Q: Will it be positive or negative for Mexico if some of
investments in technologies to diminish technical and
CFE’s subsidiaries or affiliates disappear as a result of
nontechnical losses.
fiercer competition? A: CFE has several labor commitments to honor from
Q: CFE has experienced significant economic losses in
its past as a state-owned utility and many people rely
the past. What happens if the company cannot cope
on it. There is a social element here that cannot be
with this new phase?
ignored. Mexico created the legal separation guidelines
A: We do not think this will happen because CFE now
so CFE could remain competitive and survive in this new
has the opportunity to stop its economic losses. Many
environment but it might happen that some subsidiaries
of the bad results in the past came from irresponsible
disappear in the process, even if the ideal is that all
decisions that went unnoticed due to the company’s
remain. The market is not dependent on CFE’s survival
previous structure. CFE used to be this big black box
but we needed to give the former monopoly the tools to
where the money came in and out without anyone
be competitive so it can meet its obligations. Otherwise
knowing exactly what happened in between. Now it is
we would create a highly competitive electricity market
more difficult to hide bad decisions because the utility
but ignite a social revolution. A similar situation occured
has a more transparent organization. Having specific
in other countries that liberalized energy markets before
activities divided into several subsidiaries and affiliates
Mexico. Governments cannot just ignore their former
also makes it more accountable than before.
utilities’ commitments. We needed to find the optimal way to do it and we saw legacy agreements as the right
We think that CFE’s management board will now be
path to follow. CFE can keep its legacy power plants and
able to easily identify the causes of the losses, which
supply agreements and will have the time to revamp its
will help to control and reduce them. Moreover, the
facilities and increase its competitiveness before those
entrance of new players is an incentive for the company
legacy agreements expire.
to reduce its economic losses. Improving transparency and accountability was one of the major reasons why also
CFE’s unbundling was so urgent. We expect CFE’s
incentivizes competition because it frees the market from
transformation to be challenging in the beginning but it
paying the system’s debts in a different way – by taxing
is a unstoppable trend.
That
CFE
is
meeting
its
former
obligations
electricity tariffs, for instance, which would also lead to social rejection. Our solution is a delicate balancing
Q: To what extent is the market sending the right
act between free competition and CFE’s survival but we
investment signals to the industry?
are happy with it because it seems to be working. We
A: We think the facts speak for themselves. When Mexico
carefully analyzed this model before going for it and we
launched the power auction’s guidelines a large share
still think it was the best option given Mexico’s social and
of the industry said that we were crazy and no one
economic conditions.
would present a bid. In fact, CENACE received over 200 economic proposals from different companies willing
Q: How would the bankruptcy of one of CFE’s
to participate in the auction. A similar situation can be
subsidiaries or affiliates be handled?
observed in other areas of the market. We heard a lot of
A: It depends if it is a subsidiary or an affiliate. A
complaints but we see the market moving and a lot of
subsidiary is still part of CFE’s administrative structure
interest from the private sector. We think the market is
so its bankruptcy would be more difficult to handle.
sending the right signals not because we worked on the
Because of this, subsidiaries are protected by CFE’s
elaboration of the market’s foundations but because we
existing assets, which also give financial institutions
see the results. Every week we read about new companies
that have legacy contracts with the utility certainty
entering the Mexican market, establishing partnerships
about their former investments. An affiliate, on the
or going into long-term agreements. It is just amazing
other hand, has to be sustainable on its own and act as
how much is happening in the energy sector.
a completely independent unit so its bankruptcy would be managed like any other company in the industry.
Woodhouse Lorente Ludlow is a Mexican law firm with expertise in
The incentives given to CFE’s different subsidiaries
energy and project finance, among other practices. It has had an
have created a new market reality and transmission
alliance since 2013 with CMS Cameron McKenna.
45
INSIGHT
MANDATORY ASSESSMENTS HERE TO STAY EDMOND GRIEGER Partner at Von Wobeser & Sierra 46
for
financial and administrative requirements set by CENACE.
energy projects were “a sound decision” by the Mexican
The financing part is particularly complicated given the
government to make sure that the electricity boom
required guarantees and financial capacity, so companies
brought about by the Energy Reform and CENACE’s
need to analyze what are the best strategies for them to
power auctions benefits not only companies but also the
meet these requirements.”
Mandatory
Social
Impact
Assessments
(SIAs)
local communities that host them," says Edmond Grieger, Partner at Mexico City-based law firm Von Wobeser &
The law firm is proud of the work it did during the drafting
Sierra. They are also helping to promote good company-
of the market regulation in areas that have had a dramatic
community relationships. But the framework could still use
impact on the feasibility and bankability of generation
some adjustments to adjust to the reality of the country.
projects under the new PPA structure with CFE. It says the original 10-year terms seemed steep to developers. “The
“Defining mitigation strategies for the projects’ negative
industry fought hard to establish these time frames during
impacts is no longer optional as companies are now
the evaluation period for the auctions’ guidelines,” Grieger
required to show their SIA to CRE to obtain their generation
says. “We are happy about this change as we think it has
permits. We know that the Ministry of Energy already has
been a crucial factor for the great interest that power
over 500 evaluations in the process, proof that SIAs are
auctions have raised globally.”
here to stay,” Grieger says. The SIA rules are not yet fully established but the framework is already helping projects
And the world does not start and end at CENACE’s
in the hydrocarbon sector, for example. But requirements
auctions but the opportunities for developing projects for
like presenting SIAs 90 days before starting negotiations
the private sector such as PPAs without the involvement
with landowners, he adds, could be considered unrealistic.
of CFE are still there and sometimes present a better
“SIAs require in-depth information that is not possible to
alternative to the aggressive price environment created
obtain without contacting the landowner.”
by the power auctions. The low prices of renewables are creating interest for off-takers and those sorts of deals are
But interest in the market is only increasing, as are the
increasing in popularity, Grieger says. The downside of low
business opportunities for law firms with expertise in the
prices is the difficulty in making projects viable. “Prices
area. From participating in the power auctions to signing
should stop falling. They are competitive already, so we are
PPAs between off-takers, developers and generators to
hoping to see higher offers that make projects more viable
playing a part in the upcoming bidding for a transmission
but we think prices will remain aggressive in comparison
line from Oaxaca in the south of the country to central
to international standards. On the bright side, we expect
Mexico, attorneys have no shortage of work. “The main
more foreign investors to enter the country although they
challenge for our clients is to select and develop projects
will be pressured to reduce their costs.”
that have the potential to be competitive in power auctions or tenders. The first contact we usually have with
The wholesale electricity market is also an interesting
clients that are looking to participate in the auctions is
place for companies to participate as suppliers, traders
helping them to identify developers with projects under
and qualified users. “Most of the foreign developers
construction that will be attractive for a commercial alliance
entering the market have plans to stay and engage in
or joint venture,” Grieger explains. Since the clients usually
more than one project in Mexico, so they look for support
have little time to finish their proposals, Von Wobeser &
in areas such as regulation, environmental compliance,
Sierra helps them look for interesting, innovative projects
financing and land rights acquisition. We know that all of
well advanced in the permits and authorization processes.
these areas are necessary for a successful project, so we
“Afterward the challenge is to comply with the technical,
have a diversified services portfolio."
VIEW FROM THE TOP
SECURITY, PROFITABILITY, BANKABILITY IN THE SPOTLIGHT JOSÉ PRADO Partner at Holland & Knight 47
Q: What has been the major contribution of Holland &
of projects that are subjected to the processes indicated
Knight to the future of the Mexican energy industry?
in Chapter VIII of the Electricity Industry Law. Power
A: The Reform’s transformation process has been rough
generation projects such as hydropower or geothermal
but is moving forward. Many events have taken place in
power plants can use these guidelines according to CRE’s
the last two to three years and most of the regulations
criteria but solar parks and wind farms are not included.
set by the governmental entities are finally coming into
The level of uncertainty surrounding land acquisition
effect. A new reality and structure has been created for
processes is definitely a top concern in the industry as
business in the energy industry, including areas where
having right of way or land rights secured is crucial in
private companies were not allowed before. Holland &
the project financing stages, particularly in Mexico where
Knight has been working closely with the authorities and
several land regimes exist and it is a complex task.
its clients, helping to close the gap between the industry’s expectations and the reality of the new market. We have
Q: To what extent has the Energy Reform contributed to
maintained close communication with CRE, CENACE,
making business in the energy sector easier?
ASEA and CENAGAS depending on our clients’ businesses,
A: The business landscape in the energy industry has
exchanging information with the regulatory entities about
changed dramatically since the enactment of the Energy
the expectations and experiences the private sector has
Reform and it has been a positive shift. In 2015, all PPAs
had with the current regulations. We consider this crucial
seemed to be stuck, given the drop in CFE’s electricity
for the market’s development as regulations are among
tariffs. In 2016, however, electricity tariffs followed an
the most important factors that determine if private
upward trajectory, which has opened a new window
investors enter a new market or not. We are pleased to say
of opportunity for private developers to sign PPAs
the regulators have been open to listening to us.
with private off-takers. The power auctions are a great investment opportunity but we must not forget that we
Q: What are the main concerns for your clients?
now have the elements of qualified user and supplier,
A: The Mexican electricity market is a new scenario
which can establish contracts without CFE’s involvement.
created from scratch in the past three years. Our client’s
The new law permits private companies to register as
typical concerns are always related to three basic points:
suppliers and be competitive under the new regime.
the operation’s security, profitability and the bankability of the projects. We have had some cases of companies with
Q: Companies are not required to have all their permits
experience in other countries’ power auctions approaching
in place to participate in the auctions. Should CFE be
us for help to participate in the Mexican version because
worried about project attrition?
its novelty has raised some regulatory concerns. We
A: Project developers are now rushing to secure land
help them understand the local regulation and the basic
rights and meet all the regulatory requirements needed
guidelines they need to follow to structure competitive
to have their projects ready to operate by 2019 or 2020,
proposals for the auctions.
depending if they won the first or the second auction. The real issue, however, is whether these projects will sustain
Q: What are the industry’s concerns regarding land
the low prices offered or not and still be profitable. But
acquisition and rights of way?
the fact that all the winning companies in the first auction
A: Some uncertainty still remains regarding the specific
signed a contract is a good signal.
regulatory status that will apply in the case of land acquisition for energy projects. The law considers different
Holland & Knight is a law firm providing legal services and advice on
regimes for oil and other hydrocarbons and electricity.
corporate and project finance, domestic and cross-border financial
CRE has just enacted specific criteria for certain types
deals, energy, oil and gas and biofuels, among others.
VIEW FROM THE TOP
LINGERING REGULATORY CONCERNS HINDER INVESTMENT CLAUDIO RODRĂ?GUEZ Partner Global Energy Practice at Thompson & Knight 48
Q: What are your clients’ main concerns as a result of the
Thompson & Knight offers our clients, not only reading
Energy Reform?
and trying to interpret complex technical documents and
A: The Energy Reform has imposed challenges not only
providing a legal perspective. Our longstanding experience
for private companies but for the authorities as well
with the former regime allows us to complement their
and we help them to understand this new scenario. The
perspective. When people hire us they do not just hire a
second main concern is regarding minor issues that have
lawyer, they hire a consultant as well. We are attorneys
prevented private companies from feeling completely
and counselors in the energy industry and we provide an
comfortable with the new legal framework. This will keep
insight regarding the technical and commercial aspects of
developing over time and will eventually succeed but
the reform as much as the legal ones.
numerous clients are uneasy about when this will finish evolving. Sometimes new officials also have the challenge
Q: Which areas of the framework are the most unclear
of fully understanding the new legal framework, which is
and how does that affect the perspective of investors?
new to them as well. We expect that in 2017 many of these
A: It is not a lack of clarity but rather the novelty which
issues will be resolved. Thompson & Knight is detecting
presents the main challenge in the Mexican market.
opportunities in the small print of the legislation and has
Numerous off-takers in the industry felt quite comfortable
been able to advise our clients about new opportunities
with the previous regime due to its transparency and they
based on our experience in mature power markets.
are hesitant as to whether to continue with that scheme through the legacy contracts or to participate in the market
Q: What main challenges are the regulatory institutions
either as a qualified user or as a market participant. With
facing?
the market liberalization, companies have to debate the
A: The expertise of all the workers in CRE and CENACE is
best way to cope with the power, capacity and CEL needs.
outstanding but naturally they are understaffed and they
CELs have been the most controversial aspects of the
are as new to the legal framework as any other company,
regulatory framework because many industries consider
institution or individual. Even though the institutions
them an imposition which will hinder their competitiveness.
enacted the Energy Reform, external advisers were employed to create the guidelines, so even for CENACE
Q: What percentage of companies do you expect will
and CRE’s employees the documents might present
comply with their projects on time and what reasons
challenges and complexities.
might hinder others? A: The prices offered at the power auctions were very
Q: What role have law firms played in the development
low and small companies might find it a burden both to
of the Energy Reform and what will be their continued
finance and build the projects. Large companies will not
involvement?
have problems complying because they have access either
A: Experience and understanding of the previous scheme
to their own funds or to cheap funding. Additionally, some
has been key in understanding the 180-degree change
companies might not be fully aware of the complexities
created by the Energy Reform. Other firms believe that
and challenges that the projects they proposed will
because of the novelty of the Reform, understanding past
present. The impression from the first auction was that
legislation is not necessary, as if it is starting from scratch.
the requirements were not set properly. They lacked
But it is impossible to have an adequate grasp of the new
stronger technical requirements for participants, which
framework without knowledge of the role of the authorities
was surprising because it meant ideas could be submitted
in the previous system. Even the legal interpretation of the
as projects and that will be a problem. To pay the costs
new guidelines depends on the technical understanding
of transition from an idea to a fully developed project is
of the previous regime. That is the technical legal role that
costly and complex.
Q: What is your perspective on the restructuring of CFE?
first focused on wind projects, winning a wind and a PV
A: The strictly legal separation of CFE is a decree but in the
project. We have clients that have developed different
market the idea prevails that CFE as a company will have
technologies because they all offer different advantages
access to information other companies will not, which
and disadvantages, so a combination of all of them creates
will give them an advantage in a supposedly competitive
a more competitive energy matrix. All energy companies
market. However, the competition rules in the Electricity
will have to consolidate as power companies instead of
Industry Law are well structured to protect the market
focusing on a single technology. Renewable energies are
players from anticompetitive practices. It will be the right
just starting but will be developed even more, not only
of the players to start an investigation through COFECE if
in Mexico but globally as well. Cogeneration still has a
any monopolistic situation arises in the future.
very important role due to dispatchability and capacity. Nuclear is not a feasible option in Mexico because it is still
CFE has already taken the right steps in appointing
an area reserved for the Mexican state. Geothermal will
very experienced general directors within CFE instead
have an important role soon but it will need incentives for
of politicians. Historically in Mexico important positions
funding and exploration, otherwise it will be too expensive
were awarded to politicians without experience in the
to consider.
sector. The legal separation should be a priority for CFE, with strict rules, sanctions and requirements to ensure
Q: How will Mexican companies participate in the sector
compliance. People need to start looking at CFE as a new
given the presence of international businesses?
player driven by the market, competitiveness, excellence
A: Mexican companies were very active in the first
and professionalism just as much as any other company.
auctions, both in PEMEX’s bidding rounds and CFE’s
This is a cultural change and it will be a complex process
power auctions. Opportunities in the generation market
but actions such as hiring capable and open-minded
had not been as clearly foreseen as those in the oil and
people as directors definitely accelerates the process.
gas industry but several Mexican companies are already positioned as qualified suppliers.
Q: What are the energy sources of the future? A: Companies are changing their energy matrix. For
Thomson & Knight has over a century of experience as a law firm in
instance, ACCIONA winning with PV projects in the
energy finance, taxation, business and litigation, with a deep knowledge
second auction, Électricité de France, which was at
of the energy and oil and gas sectors.
49
VIEW FROM THE TOP
LEGAL EXPERTISE BREAKS LOCAL, INTERNATIONAL BARRIERS JIMENA ELIZONDO Senior Consultant of Rodríguez Dávalos Abogados 50
Q: You were involved in the Energía del Caribe project.
are related to electricity. Our firm has three divisions:
What made it unique and how do you face the challenges?
regulatory, contracts and land acquisition and rights of way.
A: There are several reasons but the first is that it involves
We offer turnkey projects, which means we help our clients
three different jurisdictions. The natural gas supply
develop business plans, navigate regulatory constraints and
comes from the US, the power generation facility – a
support contract negotiations. If needed, we also deal with
combined cycle power plant – is located in Monterrey and
land acquisition for duct-laying projects and all litigation
the electricity is exported to Guatemala. Even though it
regarding the energy sector. We are 45 professionals,
might look odd to have a plant in Monterrey to export to
including lawyers, engineers and economists, which allows
Guatemala, the fact is that the location is for strategical
us to have the global vision and holistic understanding to
reasons: it is located near Monterrey’s main highways, is
carry out energy projects successfully.
close to the airport and has access to several transmission lines and a substation. More importantly, it is located
Q: What is the typical issue you deal with and how does
near one of the largest and most competitive natural gas
your expertise make a difference in these cases?
producers in the world. These characteristics forced a
A: We are mostly helping our clients with the procedures
series of technical adjustments to the project and the need
needed to become a participant in the Wholesale
to obtain several permits from the authorities to operate.
Electricity Market (MEM). Many companies believe that
In Mexico, it required an interconnection agreement that
registering and requesting the necessary permits from
did not exist at the time. But because the project was
CRE is all it takes. But it is not that simple. The entire
developed under the Independent Power Producer (IPP)
procedure is complex and requires the advice of legal
scheme, it had no legal constraints to generate and export
experts. To obtain the permits, companies need to work
electricity and we finally managed to obtain the required
hand in hand with CENACE and demonstrate compliance
permits and agreements. Our experience and in-depth
with requirements and infrastructure specifications.
knowledge about this sector were crucial in this case and are two of the reasons why Energía del Caribe chose us as
At Rodríguez Dávalos Abogados, we accompany our
their legal firm.
clients throughout the entire process, helping them with other aspects as well, such as business plan development.
We expect that the open market introduced by the Energy
We also provide consulting services as well as legal and
Reform will increase business opportunities for these kinds
technical assistance to carry out CENACE’s processes
of projects. The fact that authorities are now permitting
regarding contracts and permits. It is important for
the participation of national and international capital will
us that our clients understand what they are agreeing
likely allow more cross-border cooperation.
to when signing these contracts, what would be their responsibilities and obligations and the guarantees that
Q: How important is the electricity sector in your portfolio
might be required. It is all about helping them understand
of clients?
the role they are going to play in this new market.
A: Our firm focuses on the development of infrastructure projects for the energy sector, which means that we work
Mexico still needs to clarify more information about the
daily with projects related to the oil and gas and electricity
electricity market. But we expect the operational rules
industries. Around 50 percent of the projects we take
to be adjusted over time to better suit the needs of the country and market participants. The government is doing
Rodríguez Dávalos Abogados is one of the fastest growing law firms
its part to increase the industry’s knowledge by providing
in the energy segment, providing integral services for the energy and
seminars and courses, which will be beneficial to the
infrastructure sectors.
market’s improvement.
INSIGHT
SORTING THROUGH MEXICO’S LEGAL LANDSCAPE
Andreas Voss Attorney at Rödl & Partner
Rafael Torres Attorney at Rödl & Partner 51
Investing in a new country can be an exciting opportunity
tax rate from 17.5 to 30 percent for companies outside the
but also a daunting challenge for a company that is not
IMMEX program has decreased Mexico’s competitiveness.
familiar with how business is done in that specific region.
Meanwhile, Torres highlights the difficulties for applying to
Particularly in Mexico, even though there are established
VAT certification. “It is simple for manufacturing companies
regulations and laws, managing the bureaucracy and
to get an IMMEX authorization but they also need a VAT
small details in deal-making can be a complex task. An
certification. This usually takes around six months,” he says.
experienced local partner is vital for a smooth transition,
“The law states that the process should last only 40 days
offering legal and consulting firms an opportunity to
but that is the time it takes for the government to even
expand their presence in the market.
start reviewing a company’s documents and if it requires additional documents it starts the 40-day term again.”
“The energy sector is not that different from other industries and companies, it just needs someone who
Both Rödl & Partner and KPMG identify the need to
knows how to do business in Mexico,” says Rafael Torres,
improve the tax code to keep attracting investors. “Tax
Attorney at Rödl & Partner. Although oil and gas projects
reforms must consider that businesspeople want to invest
are in the spotlight, the Energy Reform has spurred new
in Mexico but they lack the proper incentives,” says Torres.
clients interested in electricity and renewables to diversify
“Most companies have import and export operations and
their portfolio. “Industry players are now looking for new
we have enough experience to support them,” Voss adds.
alternatives in terms of energy sourcing and generation,”
Other areas are more complex to understand. Certain
he adds. “However, there is still a lack of regulation and
regulations are strange concepts for foreign investors
experience, so we must take the first steps.”
such as the fact that companies need a legal address in Mexico to get a tax ID or the Statutory Profit Sharing
According to the World Bank Group, Mexico currently
scheme. According to Torres, Mexico is the only country
holds the 47th position in its 2017 Doing Business global
in the world where it is mandatory for companies to share
ranking, the first Latin American country on the list,
10 percent of their revenue with their employees, which
followed by Colombia. While Mexico shows considerable
companies generally compute as a tax.
advantages in areas like financing with a rank of five out of 190, the country still has significant opportunities in tax payment and international commerce with 114 and 61 out of 190 respectively. Rödl and Partner has developed the skills to help clients maneuver these challenges. Regarding financing solutions, the company has created a platform to help investors analyze their options. “In some
Mexico has over 40 doubletaxation agreements and has free-trade agreements with 45 countries
projects, it is much more viable to get financing through private equity arrangements than debt,” says Andreas
Bureaucracy and long procedures are not uncommon
Voss, Attorney at Rödl & Partner. “We created our NLX
in other markets either but Torres is confident that
platform to help companies know the projects and make
investors can make the most of it. “Mexico has good legal
informed decisions on their investments.” There are similar
foundations but sometimes not good people to enforce
opportunities in the manufacturing sector according to
them. Even so, the system works and most companies have
Torres, specifically for companies wanting to participate in
a good experience in Mexico and take advantage of the
the Ministry of Economy IMMEX program for manufacturing
long list of Free Trade and Double Taxation Agreements
and Maquiladora export services and apply for tax
signed by our country. They just need to be well advised
exemptions. According to KPMG Mexico, increasing the
to take advantage of the legal environment.”
8MW Trojes hydropower plant, Michoacan, Enel Green Power México
52
INSIGHT
REGULATORY INTEGRATION FOR CROSS-BORDER ENERGY TRADE PEDRO RESÉNDEZ Counsel of Greenberg Traurig 53
The Energy Reform can be considered the constitutional
the transition period, Reséndez believes another hurdle
development with the most impact on Mexico in recent
ahead will involve cross-border communications. “One of
years, creating a new economic paradigm by opening the
the Mexico’s objectives is to communicate effectively with
sector to private participation. Contracts are being drawn
receiving countries for energy to be transferred effectively.
up to allow new players to enter the industry. CFE has
Interstate markets in the US work under the Federal Energy
sparked more speculation with the announcement of the
Regulatory Commission (FERC), which is similar to CRE
first open transmission project, the Oaxaca line. This also
but it also divides regulation of energy by state, as large
will be the first CFE and private investor joint venture to
economies have complicated regulations,” he says.
develop grid projects, so many are eagerly awaiting the reaction of the industry and investors.
The motivation to encourage Mexico’s energy buyers to cooperate is price. While cost is the main reason why
Pedro Reséndez, Counsel of Greenberg Traurig, one
companies would import electricity instead of buying it
of “America’s Best Corporate Law Firms” according to
locally, according to Reséndez, cost is also what would
Annual Law and the Boardroom Study, has overseen
encourage Mexico-based companies to source locally.
several companies’ moves during the Reform and the
“Electricity is being treated as a commodity following the
transition period. From the point of view of a company
Reform,” says Reséndez. It is subject to fluctuations in
that has seen this process from both sides of the border,
price, influenced by external forces and while privatization
he says “the US saw this transition through over several
of an industry is generally met with wariness it lets
years, while in Mexico it was a swift process.” Reséndez
economic factors rule the market, which could result in
sees some potential stumbling blocks along the road
perfect competition.
because the way energy supply is managed has changed drastically. “Previously, energy commercialization was
Now that companies can sell to CFE as traders, without even
permitted under very specific circumstances. Today
owning a plant as in the past, companies can also import
companies can import energy and resell it,” he says. Now
energy and are no longer required to offer energy contracts
that most regulations are in place, with tender conditions
to public bidding. This facilitates fair competition and new
and rates being internationally competitive, Reséndez
entrants to the market. “Companies are freer to negotiate the
says the company has “a short list of retailers, qualified
terms of the contract,” says Reséndez. If private companies
users and new companies wanting to supply electricity, so
enter the industry, with government support and expertise,
the change has been positive.”
energy subsidies that totalled up to US$5 billion in 2013, according to a Senate report, would no longer be needed
The firm advises companies in energy generation, retail
going forward. Financing structures have remained largely
and off-takers by explaining the new regulations, preparing
unchanged but adjustments to land availability and permit
new contracts and creating subsidiaries and cross-border
requirements have been made, which Reséndez says makes
transactions for businesses that import electricity and gas.
securing project financing easier. CFE was required to have
Reséndez lists securing financing for private companies
the gas, permits and real estate ready when negotiating but
and the state’s challenge to achieve integration between
now that this is not the case, another obstacle could block
US and Mexican regulations, as well as integration and
the industry from advancing, as not all awarded projects
interconnectivity, as some of the potential challenges in
are being developed. Doubts surrounding the completion
the market. “We are no longer in a transition year and we
of certain projects hang on whether project developers
are starting to see some results, maybe not in the tariffs
can secure private financing or PPAs. Lenders may finance
but definitely in the projects and tender participation,”
projects that do not meet the old stipulations but they may
he says. While positive results have eased Mexico out of
charge more or only offer a portion of the funds requested.
VIEW FROM THE TOP
QUALIFIED USERS TO SET THE MARKET’S PACE LOÏC LE GALL Executive Director, Power & Utilities of EY 54
Q: What tendencies are shaping the energy market after
are not willing to pay US$80 per MW/h now that they know
the implementation of the Energy Reform?
companies can do better.
A: Before the Energy Reform, power generation was the only activity in the electricity sector open to private
We used to see around 10 and 14 percent return on
investment, up to a certain extent. Now we see new
investment (ROI) in power generation projects but with the
opportunities in the supply, commercialization and power
drop in prices we expect to see even lower figures. For this
generation sectors. We have identified a need to increase
reason, we believe energy supply and commercialization
the country’s installed capacity by 50 percent in the
will become more attractive investments. We are seeing
upcoming 15 years, which is expected to attract significant
a strong tendency toward sophistication among qualified
investment through short and long-term power auctions.
users so we expect these market players to set the pace
We see a particular demand for technologies offering firm
for energy purchasing, forcing suppliers and generators to
capacity such as combined-cycle and cogeneration power
adapt to the new requirements.
plants. We also expect more private developments to take place with a greater emphasis on bilateral contracts, which
Q: How does EY collaborate with market participants to
are similar to the PPAs used before in the sector.
make the most out of the energy market? A: We advise large corporations to better understand
The wholesale electricity market is becoming increasingly
the evolution of their energy consumption so they can
more complex, driving market participants to become
define their profile in the new market. We then perform
more sophisticated and adopt efficient IT tools that help
a market screening, comparing all the options available
them analyze and consider all important indicators for their
given the company’s profile, including a risk analysis for
strategies. It would be prudent, for instance, to forecast
each possibility. These processes allow us to understand
and consider the future of natural gas prices. We estimate
what the companies’ needs are and advise them about
that natural gas prices could increase 2.5 percent annually
the most attractive options, which include staying under
during the next 10 years, having a significant impact on
the old regulations or migrating to the new law, as well
Mexico’s electricity tariffs due to the large presence of
as purchasing energy from a generator or a supplier or
gas-based technologies in the system. Forecasting the
establishing a bilateral contract. It is also possible to create
behavior of the spot market and regulated and unregulated
a mixed portfolio, having only certain loads under the new
tariffs will be one of the greatest challenges for companies
regulations. It all depends on what the opportunity costs
operating in the sector.
and the company’s business plans. For generators we focus on M&A transactions, which have become popular under
Q: How have the market changes impacted EY’s TAS
the new conditions. These transactions involve conducting
Practice and what is your clients’ main concern?
due diligence on the financial, technical and legal aspects.
A: The power auctions were the major events impacting
We ensure that all projects under development will be
the industry in 2016. The low prices offered by CFE drove
viable for both parties. For companies in the electricity
companies to optimize their operations and reduce their
transmission and distribution sectors we provide advice on
projects’ CAPEX, sending low-price signals to the market.
how to optimize their financial models and be competitive
This had a profound impact on qualified users’ expectations
in CFE’s tenders, including the tender for the highly
about energy prices. We are now receiving numerous
anticipated US$1.2 billion transmission line that will join
calls from qualified users saying they want to get fixed-
Ixtepec, Oaxaca with Yautepec, Morelos.
price deals similar to that of the auctions, looking below US$60 per MW/h. Qualified users are aware that they do
Q: How attractive is Fibra E for energy companies and
not present the same economics of scale as CFE but they
what assets do you expect this vehicle to finance?
A: Fibra E is a financial vehicle designed to monetize assets
Being a supplier consists of purchasing energy from
in the stock market and can be considered the Mexican
generators, usually using long-term agreements, or directly
version of the Master Limited Partnerships (MLPs) used
from the spot market and offering it to qualified users at
in the US. MLPs are usually used for oil and gas assets
a higher price but shorter terms. In the past, generators
while power assets tend to be monetized through yield
needed to establish long-term agreements with off-takers,
cos, a financial vehicle designed to produce returning cash
which limited flexibility. Qualified suppliers do not need to
flows from operating assets. Under the Mexican scheme,
be technical experts in electricity but they need to know the
only assets with at least one year of operation can be
market’s products perfectly and be knowledgeable in risk
monetized using Fibra E, a requirement offering certainty
management strategies and brokering. Energy supply can
to investors that the project is profitable. Along the same
be compared to other retail businesses where the objective
line, companies need to prove their assets can provide
is to optimize the inventory and increase the client portfolio.
recurrent cash flows during a 10-year period at least. We
The novelty of the market limits the data available, which
therefore consider transmission lines, natural gas pipelines
can complicate supply activities. To overcome this we
and storage stations as well as power plants with long-
compare the Mexican market with the Pennsylvania-New
term PPAs as the most suitable assets in the power sector
Jersey-Maryland Interconnection (PJM) and the Electric
to participate in Fibra E. Mexico has two financial vehicles
Reliability Council of Texas (ERCOT) markets operating in
besides Fibra E that can be used to monetize assets, Fibra
the US, which have similar participants and rules to their
and CKDs, and all offer different conditions, particularly
Mexican counterpart. What we observed in both cases
regarding fiscal benefits. In the case of Fibra E, investors
is that the number of suppliers decreased over time as
can be exempted from certain taxes regarding yields. We
stronger companies bought smaller participants.
have developed an extensive report on this issue that can be consulted freely at our website.
Q: What are the expectations for products like financial transmission rights and ancillary services?
Q: What is delaying the launch of investments under the
A: We are still evaluating what the behavior of these
Fibra E vehicle?
products will be. We expect the auctions for financial
A: We need to consider that Fibra E is directed at large-
transmission rights to take place in the next months, so
scale companies with operating assets, so the preparation
we hope to have more clarity about this particular product
period is long. Participants need to consider the integration
soon. Ancillary services are still uncertain. We do not know
of this mechanism into their current financial models
how much volume will be traded yet and at what prices.
and analyze what the impact will be. They also need to
What we have observed in other markets is that specialized
forecast how investors will react to their offer in the stock
companies have been created for managing these services
market before making any big move. We are helping three
and, in fact, some are looking at Mexico with great interest.
companies prepare to enter Fibra E. We cannot share their
The challenge these companies face now is the same as
names due to confidentiality reasons but we expect them
other market participants: the lack of technical data from
to be ready soon. In all cases, we recommend starting with
the market.
a conservative model before moving into more aggressive strategies.
Q: What major events will take place in the Mexican energy industry in 2017?
Q: What are the risks of investing in Fibra E and how does
A: The evolution of CFE as a competitive enterprise of
EY help companies to mitigate them?
the state will be one of the major events. Competitors
A: We have advised companies preparing for Fibra E
are waiting for the state-owned utility to define its role in
mostly from a fiscal perspective. MLPs and yield cos have
the industry’s different segments so they can plan their
experienced challenging times in the US, with several
strategies better. Another major event will be the tender
factors impacting their performance that were not initially
of the 600km transmission line project joining Oaxaca
considered, such as a company’s corporate image. We
and Morelos, which will be the first big tender of 2017. The
are not offering advice about Fibra E risks and we do
auctions for financial transmission rights are also highly
not know of any company able to do it now. However, we
anticipated by the industry and we will see in the first
expect Mexican pension funds (AFORES) to be actively
quarter of the year how demand for this product behaves.
participating in Fibra E as has happened in other markets.
We also expect the capacity market to become more important in 2017.
Q: What is the largest investment opportunity now in the Mexican energy industry?
EY’s Transaction Advisory Services (TAS) provides strategic advice on
A: We have identified great interest from the private sector
the procurement, investment, optimization and preservation of capital
in entering the electricity market as qualified suppliers.
for companies such as those in the energy sector.
55
VIEW FROM THE TOP
ESTIMATING CONDITIONS, FINES TO CALCULATE RISK NICOLAS MELISSAS Director General of Athena Consulting 56
Q: What is the purpose of the risk measurement program
offer and take the risk to win, this might not convince the
developed by Athena Consulting?
bank to lend them money. Through the risk measurement
A:
With
the
Reform,
renewable-energy
generating
companies that participate in auctions must commit to
program the bank can have an idea if a company will be able to cover the loan or not.
producing a certain number of CELs each year. If they do not reach this number because the energy generation
Q: What benefits can banks get from applying this
conditions were not ideal, the wind was not strong enough
program?
or the sunlight was poor, they may end up paying high
A: We handle the fines from the missing CELs but when
fines. These fines depend, in a nonlinear way, on the
companies do not reach their required energy, they must
number of missing CELs and on how many times in the past
buy it from the spot market, which is the source of yet
the company has failed to reach its committed production
another loss that we included in the program. With this
target. Among other things, our program enables those
calculation we can give banks a very precise estimation
companies to estimate the distribution of those fines. The
of the profitability of the projects. We can also help banks
yearly production of electricity is estimated by specialized
establish the right amount for the security deposit they
consultants who measure the wind in the area and give
need from the company. Banks always ask for this to
an estimate to the company. They evaluate wind force
cover any potential losses but companies, understandably,
and consider the probabilities of a change in conditions
always want to leave less money in the bank. With our
in the area through scientific techniques. Those estimates,
program, we can also calculate the appropriate deposit
combined with the existing structure of fines, form the
the bank should ask for to have its required security and
basis of Athena Consulting’s risk model. We can calculate
make it affordable for the company.
the fines a company will have to pay according to the conditions of the area and its number of committed CELs.
Q: Who are your main clients? Do you prefer advising
We estimate the distribution of fines during the 20-year
banks, governments or auction participants?
life span of the project. In the first years, typically firms
A: Banks are one of our main targets but it is very difficult
will have to pay no fine at all, while the fine paid in the final
to reach them. We have contacted several banks interested
year can be quite considerable. This information is useful
in financing renewable energy projects and we hope to
both for banks as for the individual firms.
secure a contract with at least one of them. Also, we have worked with both sides in the auctions, the institutions that
Q: How can this program help upcoming participants
hold them and the companies that participate in them. It
establish a more precise bid?
is very interesting to work with the government but the
A: It could help them decide what is the most convenient
experience is not always positive. Ministries open a tender
bid to make. For example, if there is a company offering
for consultants to apply for the design of an auction but it
a wind park of 1GW per year and offering 700 CELs, they
is very difficult to win those contracts. That is why I prefer
are making a conservative offer and it is very possible
to work with private companies to help them optimize
they will not have to pay any fines. If the bid is reasonable
their offers.
the number of fines will be too, therefore there is no reason why a bank should reject the project. However, if a
Q: Where do you see Athena Consulting in five years?
company wants to go into the auction with an aggressive
A: In five years, we expect to have enough clients and ambitious contracts to make the business stable and a
Athena Consulting, based in Mexico City, is an econometrics and
bigger staff to reach more projects. We are very aware of
economic theory consulting firm that has developed a model to quantify
the downside risk: if the new US government renegotiates
the risk of investing in the wind and solar power industry in the country.
NAFTA, it could push Mexico into a recession.
VIEW FROM THE TOP
THE HIDDEN GEMS OF THE MARKET
Ruth Guevara Founding Partner of Zumma rg+c
Jonathan PinzĂłn Senior Energy Consultant of Zumma rg+c
Q: How does Mexico compare with other emerging energy
scheme. In this area, we are advising clients about the pros
markets and where are the greatest opportunities?
and cons of migrating to the new regime and entering the
JP: We believe that Mexico is the most attractive market in
wholesale market, helping them to select the most profitable
Latin America and one of the most interesting worldwide.
option while diminishing its related risks. We already know
Mexico expects to double its power capacity in the next
of some players that are seriously looking at this option. For
15 years, meaning that it will add 60GW to its energy
instance, Iberdrola, which sells most of its energy to CFE
infrastructure. This new capacity will also involve new
through the IPP scheme, has opened a new division focused
investments in electricity transmission lines and natural gas
on qualified users to participate in the market. In Mexico,
pipelines, creating a wide range of opportunities through
many of the large off-takers are also energy producers,
the entire value chain. A lot of investors are now focusing
which also confuses new market entrants. We help them to
on the power generation sector but we advise them not
identify when a player should be considered a competitor or
to overlook other areas of opportunity. In the same way,
potential client. In this area we also see electricity trading as
CFE’s electricity auctions have been in the spotlight lately
an interesting business opportunity. We can support clients
but we advise investors not to ignore the possibilities
in this endeavor by providing networking opportunities and
offered by the opening of the wholesale electricity market.
business matchmaking, connecting power producers with
Power generation and the electricity auctions are the tip
traders and off-takers.
of the iceberg. For us, the greatest opportunities are still in the shadows, whether it is participating as a qualified user
Q: What new challenges and opportunities has the reform
or investing in electricity transmission and distribution
brought for renewable energies?
infrastructure.
JP: Many project developers that are not manufacturers were terrified by the low prices resulting from the first power
RG: Mexico has the advantage of offering macroeconomic
auction, especially small and medium-sized developers.
and political stability, opening the door to great business
Therefore, we are now working to spread awareness about
opportunities beyond the energy sector. The fact that Mexico
the market opportunities that Mexico offers beyond the
is the last country in Latin America to liberalize its energy
electricity auctions. The distributed generation market
market puts the country in a privileged position, especially
is often overlooked by renewable energy companies,
considering its large scale and geographical location.
even though it also represents an attractive and dynamic market niche in Mexico, particularly for medium and small-
Q: What are the hidden gems of the Mexican electricity
scale solar energy companies.
market? JP: Most of the large generators in Mexico are focusing
Understanding the market trends behind the record low
their efforts on the power auctions but that represents
prices at the auctions and the parts of the regulatory
just a tiny share of the opportunities provided by a
framework that are relevant to their business are the
liberalized market. We expect qualified suppliers to
biggest challenges for most of our clients. Some of the
become important players, particularly as the bilateral
international companies entering Mexico are looking
contracts market became nearly saturated with the self-
to expand their business to the US or Central America,
supply scheme, which currently represents about 18.5GW
which also highlights the importance of understanding
of authorized capacity.
international interconnection agreements and regulations.
Legacy projects are also holding back generators from
Zumma rg+c is a consultancy founded in 2010 and specialized in
moving into the new framework because they do not want
government and corporate relations in strategic industries such as
to lose the benefits that their projects have under the old
energy, security and health.
57
VIEW FROM THE TOP
A COMPETITIVE ENERGY MARKET TAKES SHAPE EDUARDO REYES Partner Power & Utilities at PwC | Strategy& 58
Q: What would you say are the major advances in
new entrants. Outside of the newly established auctions,
electricity this year?
we will see a mix of ways in which companies sign
A: The past 12 months have been the most dynamic in the
contracts. Some could sign a power purchase agreement
power sector this decade. Driven by the Energy Reform
(PPA) with other generators beforehand. Auctions tend
and resulting regulations, the market has changed but
to result in more competitive prices but contracts are less
not in line with our expectations. Auction developments
negotiable. They may stipulate 15-year contracts or strict
resulted in 26 companies winning projects amounting
requirements. If buyers wish to only contract part of the
to 6GW. This is primarily wind and solar power but also
energy or for a shorter period, they would benefit from
includes geothermal and fossil fuels, representing more
negotiating directly with the generator.
than a US$10 billion investment. Q: What are your clients’ main concerns regarding the Prior to the Energy Reform only a couple of projects in
auctions?
this sector stood out. Too few projects existed to assess
A: Going forward we expect concerns to emerge
how competitive the market in Mexico was and many
regarding the sheer size of the auctions and whether
thought renewable energies were expensive. But resulting
continued growth will be sustainable in the long term. All
opportunities in renewables were surprising. The auctions
developments are driven by Mexico’s target to reach 35
communicated the real price to the market and now many
percent clean energy by 2024. To comply, the auctions are
are aware of Mexico’s competitive advantages in wind and
crucial. We expect clients to mostly ask us how big the
solar generation.
market will be long-term and how much their competitors will contribute to price drops. Prices are already low and
We work closely with the National Solar Energy Association
some may fear that they will fall even further, affecting
(ASOLMEX), through which we have managed projects,
their return on investment (ROI). The winners of the bids
moving them from Europe where solar potential is half
are mostly concerned with securing the financing to go
that of Mexico. Solar panels are also less expensive in
ahead with their projects. They are keen to comprehend
Mexico, making the industry more competitive thanks to
the certifications necessary and have them in place to
the Reform’s scheme. The new availability of attractive
comply with their side of the commercial operations, as
bankable contracts with CFE reduced the risk for investors.
decided at the auctions.
In the five years leading to the Reform many developers from Europe, the US and Mexico were trying to develop
Q: How does PwC support its clients in the energy
projects here but we lacked the schemes to support them.
industry?
Now, every project auction has plenty of interested parties
A: In the last year, we have focused on supporting our
bidding, which also drives prices down.
clients with their bidding strategies. We have advised more than half the auction winners, an illustration of
Q: What will motivate companies to participate in the
the tremendous success on our part. The auctions are
industry as purchasers and not as generators?
complex, well-defined and efficient for the buyer, so these
A: The nature of the business is distinct. Some companies
rules can be difficult to understand. We can advise them
build power plants and sell electricity and others trade it.
in terms of who they are bidding against, clean energy
This latter group of companies need not invest in the same
certifications and the price they set to maximize their
way, rather purchasing electricity as a commodity and
returns within the rules.
selling it. The Energy Reform allows other companies to enter as purchasers and sell it to final customers with a retail
Q: What other investment opportunities do you perceive
margin, as in any other business. This is the motivation for
in the Mexican power sector?
A: The industry can grow a lot in generation but we will
is requesting in the auctions precisely matches their
ultimately need transmission lines to connect the plants.
requirements so we predict these negotiations will go
The transmission grid in cities and industrial regions can
smoothly. The parties experiencing challenges in this
benefit from investment, the most recent example of
area will be the industrial companies that use electricity
which is in the high-voltage direct current transmission
from fossil fuel power plants. They will be required to
line from Oaxaca to Mexico City. That project also came
use CELs by 2018. These companies are evaluating the
to fruition within a new contracting scheme and once
most efficient way to purchase those CELs from auction
developed, CFE and the government can replicate the
surplus or other schemes, and have one year to reach
model in many other areas. This leads me to believe that
a solution.
the next big opportunities for investment in hard assets will be in transmission lines. CFE will be relieved of the
Q: To what extent are companies approaching PwC asking
obligation to put its own money into these lines, opening
to capitalize on the distributed generation market?
the possibility for the private sector to share in the
A: We are working with companies that are developing
investment. Not being restricted to the federal budget is
business cases for solar distributed generation (DG) in
the main advantage. Perhaps in the short-term companies
their factories, for example. I expect this to become a big
must try to understand the new dynamics of these
market but regulation developments are pending, such
schemes but I see more advantages than disadvantages
as clarifying who will pay for net metering. While this
to this process.
business case will crop up in many conversations because it is working elsewhere, it will not be clear how the process
Q: From PwC and its clients’ perspective, how is CFE’s
will work until the legal side is finalized.
separation process expected to affect the industry? A: This is a concern in the sense that, as in any market, the unpredictability of competitors’ actions makes us wary. But the sector has seen enough positive results recently to feel confident. The Ministry of Energy and the regulatory authorities call the shots, which is good for the private sector. CENACE is playing a major role now that CFE is being unbundled. Having well-defined regulations assures us of market transparency. The nature of CFE being so large may mean the process takes longer than we expect.
With the Energy Reform, DG is becoming a feasible alternative to dependence on the grid
But now that all subsidiaries are in place, they can start operations in January.
Q: What developments will stand out in the industry in 2017? A: The first auction with private companies purchasing
Q: How could lower participation in the spot market
electricity will be a major event in the industry, for which
be boosted to match private participation in long-term
we need a clearing house. Suppliers will soon start selling
auctions?
electricity to final consumers, not only CFE, so many
A: Few projects are intended for the spot market and
companies are preparing their business cases to present
banks will always ask for long-term contracts to finance
to the regulator and CENACE to request development
projects of this type. Long-term contracts simply are
permits. To date few companies are selling energy and
not a reality in the spot market. When the auction's
this will remain static until the regulations are finalized.
winners come into play in 2018, we will see these
They are due to be published in the first quarter of 2017
projects’ energy surplus being sold into the market in
and approximately 10 players will enter the competition
the short term. This will strengthen the market but I see
to sell energy to industrial clients. The electricity market
few projects going merchant because banks tend not to
is new so we must enhance our services every month. We
finance those types of structures. This could change in
now assess the capacity market for clients, branching out
time as price visibility increases and banks can draw on
from energy spot prices. The need for advice on financial
the historical data of price developments. Therefore, we
transmission rights will increase in the future and we are
predict a few large projects.
developing the tools to support our clients with ancillary services to help them move within this increasingly
Q: How do you expect the CELs market to behave in the
complicated market.
near future? A: The CELs sold in recent auctions will probably be
Strategy& is a PwC consulting group that is dedicated to practical
produced from 2018 onward but the biggest player
strategy advisory services to help its clients deliver on project
will be CFE. The volume of energy and CELs that CFE
execution.
59
VIEW FROM THE TOP
REFORM OPENS CONSULTANCY OPPORTUNITIES RUBÉN CRUZ Energy & Natural Resources | Industries Lead Partner of KPMG 60
Q: How have the changes in the electric industry impacted
technology prices, particularly regarding the generation
KPMG’s energy practice?
of solar energy.
A: The Energy Reform opens an opportunity in the electricity sector to provide new services to the market.
Q: What incentives exist for companies to move to a new
We are seeing more companies looking for consultancy
system that tries to optimize energy costs?
services. It is a historic event for the country’s consulting
A: Mainly, it is the fact that you can satisfy part of your
firms because it allows us to expand our service offering.
electric-energy consumption needs for the medium-
For example, private companies with projects in different
term and the rest with the spot market. The danger of
development stages, looking for resources to finance their
participating in these schemes today is related to a lack of
projects, ask for due diligence services during both the
information rather than actual market risk. These markets
commercial and the regulatory phases. This service helps
are in place in several parts of the world and they are very
investors determine the actual stage of their project and
efficient. In Mexico, since it is something new, there is still a
its needs. This way they can correctly assess investment
lack of information, which generates uncertainty regarding
opportunities. Also, with the wholesale electricity market
the process. We expect that early adopters of the wholesale
starting operations we can launch new services such as
electricity market will be Mexican subsidiaries of foreign
analyzing new financial models for presenting an offer on
companies that operate in countries where the electricity
the wholesale market.
market was opened several years ago. Companies aware of the benefits of this mechanism are expected to be the first
An additional service for which we have seen interest is
to adopt it.
the analysis of the tax base of an existing financial model. We have international tax experts who help companies
The challenge is to increase the number of market
determine how to reduce the cost of capital when financing
participants. With long-term bidding processes there
renewable projects by using the country’s international
is only one buyer, CFE, and several suppliers of green
treaties to avoid double-taxation for foreign direct
energy. We need to work on having important energy-
investment, so their return rates are optimized and that
consumption players participating in the market, such as
eventually translates into lower prices to compete in the
cement plants, automotive plants and mining companies.
bidding processes. Avoiding double taxation is a function
The market’s success depends mostly on large and
of how the capital enters the country and how over time
important energy-consumption players participating to
it is repatriated. This last condition also contributes to a
meet their energy needs through medium and long-term
project’s competitiveness.
contracts and through the spot market.
We also started providing an energy-efficiency service
Q: Is there a particular energy-generating technology
for companies that want to be qualified users. Our firm
that is being favored for energy investment projects?
offers a diagnosis that considers geographic location and
A: So far, authorities such as the Ministry of Energy and the
specific energy supply and demand to establish a strategy
guidelines of the National Electric System Development
for reducing costs in the energy supply. We customize the
Program (PRODESEN) have been trumpeting the use of
strategy so companies can reduce electric energy costs.
renewable energy. For example, the Energy Transition Law
We believe that efficiency in the electric energy supply
targets increased energy production from sustainable
will be an important differentiator in the future. Two key
resources with regulations that force companies to
elements responsible for the competitiveness and the
use renewable energy sources as a percentage of their
low prices that we have seen in the long-term bidding
energy consumption and through mechanisms such as
processes have been low capital costs and reduced
CELs, which transfer liquidity to the development of
61 Tamuin power plant, San Luis Potosi, AES México
sustainable projects. These two mechanisms will foster the
contribution of geothermal to the total amount of energy
development of the renewable energy market in the next
that is needed is very low and regardless of how much we
few years. However, the development will be limited. We
could develop, it would still yield a very low contribution.
cannot expect renewable sources to replace continuous
It contributes to the solution but does not solve the
energy-generation sources such as fossil fuels. The great
problem. Until we find a solution for the problem of
challenge for renewable energy will be intermittency,
renewable energy storage, we will have to continue using
particularly when it comes to solar and wind energy.
fossil fuels. Even though we can develop technology that
Hydroelectric energy is more constant but its growth
makes storage of renewable energy from intermittent
potential is limited because we are already using the
sources economically viable, the big problem ahead is
country’s largest water bodies.
sustainability. When you store green energy you remove the green part of it. If we do not want to be dependent
We can expect renewable energy to be a complement and
on natural gas from abroad, we need to develop our own
to help reduce the total cost of electric generation. But
natural gas industry, a task that is CNH’s responsibility.
energy for industrial purposes will have to be supplied by constant power generation sources, of which we will use
Q: Are all the efforts of the government and private
the least polluting one. We will substitute oil and coal with
companies enough to meet the natural gas demand?
natural gas. This creates the challenge of determining the
A: The development of a national natural gas industry will
price of natural gas in the long run. The changing political
take a considerable amount of time and we will continue
landscape in the US, our biggest natural gas supplier,
importing natural gas for at least another 10 years. We can
might lead to an increase in prices. PRODESEN also states
develop a national industry and be independent but it will
that the government intends to almost double its current
depend on the success we have developing the deepwater
power-generation capacity, going from 65GW installed
oil industry. This would allow us to have an interesting
capacity up to 100GW, while also reducing 15 carbo-
combination of natural gas and oil. For this to happen we
electric gigawatts. This leads to a high dependency on
need to have the necessary infrastructure.
natural gas. The risk of more expensive natural gas leads to the maximization of the existing gasification terminals, of
Q: What projects does KPMG have lined up for 2017?
which those in Altamira and Manzanillo are interconnected.
A: We will continue promoting services that help
The problem is that that is not enough to supply the entire
companies and developers complete their projects, using
country. We have an additional gasification terminal
an integral perspective that includes the commercial,
in the north, owned by a private individual, but is not
regulatory and financial aspects of the project. Also,
interconnected. Given the dependence we have and will
through our international network we can provide the
continue having on natural gas, it would be advisable to
needed experience for new projects that have not been
have more gasification terminals. It is almost a matter of
developed in Mexico. We can offer a multidisciplinary
national security.
team, with local knowledge and global reach, which allows us to provide an integral service.
Q: Is the use of geothermal energy viable for reducing Mexico’s dependence on natural gas?
KPMG is among the world’s largest advisory and auditing firms. In
A: The challenge of geothermal energy generation
Mexico, it helps companies sort through the complexities of the changing
is the amount of energy that can be generated. The
energy environment with legal, tax and technological expertise.
VIEW FROM THE TOP
FOREIGN COMPANIES SEE UNTAPPED POTENTIAL JIM HEIDELL Director Global Energy & Utilities of PA Consulting 62
Q: How has PA Consulting helped private and state-owned
A: Our focus is on identifying our clients’ main competitors
companies during the transition to an open market?
and forecasting what their next move will be, for instance,
A: PA Consulting has been working with CFE and
which region they are targeting for their project’s next
PEMEX to restructure several aspects of their former
location to participate in the power auctions. Price
business divisions. Our work with the government has
forecasting is the main concern for clients that are not
mostly focused on tariffs, product pricing systems and
interested in the tenders but prefer selling electricity to
the transition from a vertically integrated monopoly to
large industrial customers through PPAs. They want to know
an open system, developing strategies to thrive in this
what prices they can get in the wholesale market as well
competitive environment. In the private sector we have
as the potential transmission congestion costs so they can
collaborated mostly with international power companies,
design an optimal business strategy. We help these clients
most of which already have generation projects in Mexico
understand market issues, providing future pricing forecasts
through CFE contracts and want to understand the
as well as mapping potential customers. We also support
attractiveness of participating in the new competitive
companies developing financial models to determine if they
market. PA Consulting also works with industrial off-
can see an economic return on their investments.
takers, mainly manufacturers, to improve their processes and become more competitive. We have done some work
Q: What strategies should companies consider if they
for the government on domestic content issues, which is
want to succeed in the power auctions?
a new requirement established by the Energy Reform for
A: It is important to understand the tendering process
foreign companies.
if you want to build a successful proposal. The prices tendered in CFE’s power auction were low on average but
Q: What are the positive and negative aspects of the
US$45 per MW/h is not the final price that the company
Reform that international companies are looking at?
will get. If a tender’s winner produces power in peak
A: Energy companies experience highly competitive
hours it will receive higher prices per megawatt-hour. It
situations in the US and Europe and face difficulties
is important to keep in mind that the companies’ returns
putting capital to work for good economic returns,
will be influenced by different factors. Other elements
partly because of the low-interest rate environment
also have the power to tip the balance toward a specific
globally.
provided
proposal besides price. Location is a critical aspect that
untapped opportunities for these companies, which see
can make the difference between a winning and losing
in the country a large investment potential. The Reform’s
proposal. Companies might not get a higher price for
novelty has brought uncertainties but international
locating in a region with constraints but their proposal
companies are working hard to understand the market,
could be treated more favorably. Another component of
which is not always an easy task. The main priority for
a successful proposal is a diversified revenue stream. A
them is to determine whether or not it is worth it to make
company building a 100MW wind farm might only need
large capital investments in Mexico’s energy sector. In
to sell 80MW to CFE and the rest on the open market
the past five years, the competition to win long-term
or to private off-takers. We can help companies define
contracts with CFE had become fiercer but offered
these strategies and look for potential purchasers that fit
low returns on investment (ROI). Companies are now
their projects’ characteristics.
Mexico’s
market
liberalization
analyzing if the conditions have changed under the new legal framework.
Q: To what extent do your clients consider transmission and distribution investment attractive?
Q: How can you help private companies successfully
A: Many of our clients have expressed interest in
enter the electricity market here?
investing in transmission infrastructure because they
perceive fewer risks than in power generation but they
by selling electricity, so we expect companies in Mexico
have a hard time understanding CFE’s process for
to soon start including other types of services and
establishing investment partnerships in transmission
process improvements to complement their businesses’
and distribution. We support our clients to access CFE’s
competitive advantages.
investment opportunities, whether it is by participating in a competitive tender or by establishing business
Q: Which market schemes are most attractive to
relations with the state-owned company. We also help
international companies?
companies understand how transmission tariffs will work
A: Private companies willing to enter the Mexican
so they can determine if they will see an attractive ROI
market are mostly looking to sign PPAs with CFE. As
within a certain period. In the US there are two business
long as CFE is interested in establishing long-term
models, which can take up to 20 years to materialize, for
contracts for 15-20 years, there will be a lot of interest
companies investing in transmission infrastructure that
from foreign renewable energy companies, particularly
are not electric utilities. The big question for Mexico is
as these ease financing. Without long-term contracting
how long it will take private companies to participate in
conditions, investors and financial institutions would be
these projects and recover their initial investments.
hard-pressed to finance renewable energy projects.
Q: How do you deal with the uncertainties in Mexican
Q: What do you think will be your most popular service
markets when building your clients’ business models?
for clients in the energy sector?
A: We have a model of Mexico’s market based on the
A: Forecasting energy prices and defining the market
52 transmission regions defined by CENACE. This model
potential will be our primary services in the coming
dispatches generation on an hourly basis to meet the
years. We also have clients looking at opportunities in
hourly forecasted load. We analyze the power flows
natural gas pipeline investment but the big question
through Mexico’s different regions, identifying where the
is whether a market exists for projects outside CFE’s
demand is and the loads are, which allow us to forecast
power
in which nodes there will be congestion. The other side
make it difficult to forecast the potential of the retail
is the transmission costs, which we can also forecast to
electricity market. We know that CRE is working hard to
analyze their impact on estimated production rates.
clarify these processes. Once this barrier is overcome we
auctions.
Uncertainties
in
electricity
tariffs
expect to see increasing participation in the wholesale Q:
Should
companies
prepare
for
disruptive
electricity market. In the US the majority of qualified
technologies such as increased distributed generation
users shifted to the open market instead of buying
and energy storage?
directly from a utility and we expect to see a similar
A: We have already included disruptive technologies
pattern in Mexico.
in our forecasting models. We expect to see an increasing number of distributed generation projects
It is difficult to say when the market will consolidate
from commercial customers like Walmart, which has
but it will depend on CRE and the Ministry of Energy’s
plenty of capital and rooftop space for solar panels.
decisions regarding legacy CFE generation projects.
Having more distributed generation will definitely
CFE holds projects of around 50GW in the country,
impact the market’s functioning, bringing negative and
which makes it difficult for other companies to compete.
positive elements such as mitigating congestion. We
Once there is more transparency about CFE’s new
do not expect to see similar growth in energy storage
role, it will be easier to measure the market potential
technologies in the short term. As long as net metering
for others. We hope this process takes no more than
can be done and energy rates are relatively low, energy
another year or two. Some clients are frustrated by
storage for distributed projects is not economically
the market uncertainty and the perceived slow pace
viable. As a utility resource, however, it will become
of development but Mexico has done an incredible job
increasingly important in Mexico, especially considering
when compared with other countries, which took much
the country’s ambitious clean energy generation goals.
longer to set up a functioning market. We are amazed
Nonetheless, energy storage is still expensive even in
by Mexico’s achievements during the past two years,
the US and Europe, which makes it a questionable use
and we foresee it will take only a couple of years more
of resources for Mexico.
to have a mature market in place.
Energy efficiency will become more important in the
PA Consulting is a London-based consulting, technology and innovation
coming years. Energy companies will start to see the
company offering tech solutions and product development as well as
same kind of competition that now exists in the US,
helping clients navigate issues of regulation, asset management and
where it is hard to maintain healthy balance sheets just
performance.
63
VIEW FROM THE TOP
THE FUTURE OF ENERGY: EXCITING BUT UNCERTAIN SEVERO LÓPEZ Partner at Galo Energy 64
Q: What must Mexico do to provide more certainty to
participate in the market besides the national champions
international investors?
opened up but there are many factors to consider when
A: Certainty for international investors is directly related to
evaluating those. For example, Mexico’s deregulation
the pace at which Mexico can make its institutions and the
process came at a complicated worldwide historical
people inside those institutions work according to the vast
time, where firstly, the traditional power market utility
regulatory reforms. Most deregulation programs around
business model is being challenged and questioned by
the world have taken at least 10 years to take effect. Mexico
distributed generation technologies as we speak. Second,
is in the early stages and the new organizations need to be
the whole reform process is happening when Mexico does
staffed and people’s mindsets and thinking need to change
not have any policy or operational experience beyond
to understand a deregulated energy market. The spirit of
the Independent Power Producer (IPP) or the limited
the Energy Reform was mostly drafted and modeled after
self-supply model. Third, after almost all countries have
the market ideas of a renowned Harvard professor named
deregulated their power sectors there is a new surge of
William Hogan, along with the basic structural elements of
renewable energy and sustainable solutions in response to
other working markets like the PJM in the US. Therefore,
climate change. All these trends are taking place in Mexico
Mexico’s model contains novel economic regulatory
simultaneously and in a very short time span.
mechanisms and is characterized by a very aggressive and short time frame for implementation. This combination
Q: How has the zero-corruption policy affected Galo
has not been seen in other countries and that makes us a
Energy’s networking and business?
world laboratory for deregulation.
A: In addition to the ethical reasons that sustain the essence of the consulting model at Galo Energy, we believe that a
Q: What risks are prospective clients worried about?
zero-corruption policy and transparency help the system
A: There are risks such as corruption that are aggravated
work and make it more valuable. Strong ethical business
by the weak anticorruption control systems in Mexico.
performance has been a great business proposal for Galo
There can also be problems with the acquisition of land
because once our clients begin working with us in Mexico
for projects and rights of way for linear infrastructure
they create a long-term and reliable relationship. This
layouts. This situation puts a very high burden on investors
transparency is also important because we participate in
because they can see their profitable business scenarios
other forums with even stricter regulations, such as those
drift away very quickly.
in the US. Our strategic partners also abide by these codes of conduct.
Q: Are companies losing opportunities to invest in the energy sector in Mexico?
The energy industry is a high-stakes, high-returns industry
A: Go-getter companies are definitely obtaining the lead.
that cannot be examined without involving complex political
They are paying a “first-move price” but they will do very
issues. It is no surprise it has become part of the anticorruption
well in the long run. On the opposite side, those companies
agenda of citizen organizations that are pushing for a more
that work their business by remote-control, hesitate and
transparent and ethical business and political model in
are slow to get interested in Mexico will not advance as
Mexico. The new regulatory structure gives enough space for
quickly as others. Once the sector became deregulated,
any financial model but Mexico still needs to tap into a huge
opportunities
amount of resources from national and foreign investors that
for
other
utilities
and
companies
to
had not considered energy before because of the restrictive Galo Energy is a Mexico City-based energy consulting firm with
nature of the prior model. Important benefits of deregulating
experience in business development, regulation and government
the market are that the risk portfolios can now be tailored for
relations as well as policy analysis.
debt or equity and investors can come from wherever.
INSIGHT
FINANCING STILL DIFFICULT FOR GREEN DEVELOPMENTS SOFFIA ALARCON-DIAZ Director General of The Carbon Trust 65
Affordable financing remains one of the main obstacles
says. “We support companies, state governments such as
for the development of energy-efficiency and carbon-
Jalisco, Tabasco, Yucatan, Baja California and Morelos to
reduction projects in Mexico even as renewable electricity
create energy-efficient business models. We engage with
generation sees a boom in terms of both private and
the Ministry of Finance to explain the potential financial
awarded projects, with potential financiers still not fully
savings resulting from such a project. We understand that
aware of the benefits of these initiatives. That is something
low-carbon projects, in the end, make sense financially.”
the UK-based nonprofit Carbon Trust is looking to leave in the rear-view mirror by working with the Mexican
The Carbon Trust uses a methodology called Technology
government and local authorities to improve upon the
Innovation Needs Assessment (TINA), which explores
Energy Reform’s initial steps toward a cleaner future,
innovation for clean technologies to help governments
according to Soffia Alarcón-Díaz, Carbon Trust Mexico’s
establish their priorities. Technologies like wind, solar and
Director General.
thermal energy should be among the authorities’ priorities, she says. “We support the government in climate change
“We help both the government and the private sector
and clean energy-related policies. In climate change we
transition to a low-carbon economy. The main challenge
are supporting the roadmap to develop the carbon market
to achieve that is financing. Some projects are great ideas
in Colombia and we hope to do the same here in Mexico.
but remain as such due to a lack of understanding between
With the states, we are helping them develop a climate
the funders and the developers. Carbon Trust supports the
change program. We are also working on the TINAs and
translation of great ideas into investment opportunities,”
the low-carbon states project and soon we would like
Alarcón-Díaz says. Mexico’s new look electricity market
to start a TINA project to prioritize technology in the
has been partly designed around the country’s ambitious
public and private transportation sector. Smart grids,
target of obtaining 35 percent of its energy from clean
transmission cables and energy storage are also areas
sources by 2024, as well as the government’s commitment
that need a lot of development and we have the vision of
to the UN’s Conference of the Parties (COP) on climate
aiding them in any way we can.”
change to reduce carbon black emissions by 51 percent by 2030. The Carbon Trust, Alarcón-Díaz adds, fits into
The Trust also works with private companies by helping
this framework as a facilitator and mediator with Mexico’s
them with the process of carrying out their mandatory
Ministry of Finance for funding low-carbon programs in
carbon footprints, which have to be logged onto Mexico’s
states like Jalisco and Tabasco.
National Emissions Register (RENE). On the subject of finance, the Trust is a supporter of green bond initiatives.
“Our
process
management
begins plans.
with We
the lay
design out
of
carbon-
activities
Mexico, Alarcón-Díaz says, needs a “real” carbon market
and
that promotes and mandates companies to reduce
recommendations to achieve a desired goal, then we
emissions and invest in low-carbon solutions. “China, for
prioritize them for investment considering the timeline we
instance, is doing it and boosting its competitiveness
wish to follow, and finally we select five or six projects that
because they are including more efficient industrial
could be supported. We then encourage the Ministry of
processes that pollute less. Private companies everywhere
Finance to invest money earned through energy savings to
should follow that example to contribute to the global
develop the selected projects. We also help the states to
mitigation goal.” The Energy Reform is a good first step,
identify funding from international and commercial banks,
“but we need to create more opportunities, which come
donors or national funds,” Alarcón-Díaz says. Energy-
from the economic and financial sectors. Right now we are
efficiency projects should be designed to include both
developing a project to identify the amount of investment
GHG emission-reduction goals and financial savings, she
needed in Mexico to catalyze green investment."
Wind turbine testing under intense conditions, Oaxaca, INEEL
POWER AUCTIONS
3
The crowning achievements of the Energy Reform regarding the electricity market were, without a doubt, 2016’s power auctions. Those two processes not only achieved some of the world’s lowest energy prices for long-term energy contracts but proved that the authorities of a country with deep state-monopoly credentials in energy could leave all that baggage behind and launch a new and flexible market from scratch. And surprisingly for many a skeptic, succeed at it.
Those auctions, as well as the prospect of more to come in 2017 and beyond, attracted some of the most respected international names from Italy, China and Spain as well as hungry home-bred upstarts looking to notch victories. This chapter offers the point of view of some of those winners that now have the task of completing energy generation projects – most of them based on green technologies such as solar and wind power – under very competitive terms and short deadlines. It also showcases the position of regional authorities and technology suppliers involved in the process.
67
CHAPTER 3: POWER AUCTIONS 69
70
ANALYSIS: Power Auctions: Icons of Reform
71
VIEW FROM THE TOP: Eduardo Meraz, CENACE
72
EXPERT OPINION: Paolo Romanacci, Enel Green Power Mexico
74
VIEW FROM THE TOP: Miguel Alonso, ACCIONA Energía
75
INSIGHT: Asier Aya, Jinko Solar
77
VIEW FROM THE TOP: Eduardo Batllori, Government of Yucatan
78
VIEW FROM THE TOP: Philippe Delmotte, Engie Mexico
79
VIEW FROM THE TOP: Felipe Salazar, Alten Renewable Energy
80
VIEW FROM THE TOP: Alberto Haito, Clifford Chance
Martin Menski, Clifford Chance
82
ROUNDTABLE: What Was Your Reaction to the Power Auctions?
84
VIEW FROM THE TOP: David Fatzinger, InterGen
85
VIEW FROM THE TOP: Rafael Valdéz, Envision Energy
86
VIEW FROM THE TOP: Martín Esparza, SME
88
INSIGHT: Hugo Galindo, Grenergy Renovables
89
INSIGHT: Borja Guinea, Fotowatio Renewable Ventures
90
MAP: Power Auctions
ANALYSIS
POWER AUCTIONS: ICONS OF REFORM As a direct result of the Mexican Energy Reform, the
The second auction also surprised observers as the low-
world watched the country carry out its first two long-
price tendency marked since the first process continued.
term auctions to assign PPAs for the sale of power,
“The second power auction’s results can be qualified
capacity and CELs in 2016. The processes touched
as a major success for the country,” says Jaime de La
off a steep learning curve as authorities, developers
Rosa, President of the Mexican Energy Association
and companies are all still new to the scheme, but the
(AME). “The industry already expected competitive
outcomes were hailed by players and regulators alike.
prices based on the first auction’s results, which was internationally recognized as a successful exercise. But
70
“The outcome of the power auctions was qualified as
the second auction managed to surpass the high bar set
a success by several international media, including The
by CENACE during the first round.”
Economist, Forbes and Bloomberg, and this successful experience has given Mexican authorities the confidence
TECH IN THE MIX
to strengthen and enhance upcoming editions,” says
Bids got more complex and competitive as more
Guillermo García Alcocer, Chairman of CRE.
technologies entered the mix. This was also a result of the change in the capacity purchase offers, where
The first auction was a pilot, creating a starting point
the MW/year unitary price offered by CFE went from
from which the process could be improved. CENACE
MX$10,000 to MX$1.69 million from the first to the
received 226 sale offers and designed a mechanism to
second auction, attracting winning bids from combined-
adjust the selling price to reflect the real value for the
cycle, geothermal and hydroelectric energy projects.
buyer. This price adjustment mechanism considered the location, the price indexation depending on whether it
The two processes awarded 34 companies that are
was in US dollars or Mexican pesos and a tie-breaking
expected to invest US$6.6 billion and install 5GW of
criteria for identical offers in quantity and price. The
new clean energy capacity. Solar power surprised both
power plant’s distance from the interconnection point
national and international observers by sweeping the
was the most determinant variant in the algorithm.
floor and becoming the source of 54 percent of the
This variant resulted in Merida’s projects being highly
energy awarded in the first bidding round. It followed
competitive as the state’s price zone caused a drop in
with over 40 percent in the second.
the unit price by US$21.98 per MW/h, increasing the total economic surplus of the offers from that location.
The
third
and
fourth
long-term
power
auctions
are expected to be held in 2017. The third will be
“In a fast-changing energy world,
administered by the Ministry of Energy and CENACE, after which the fourth power auction will be the purview
Mexico is a leading proponent of
of CRE. One of the most anticipated characteristics
change”
companies as power purchasers, a role so far reserved
Mexico Energy Outlook, IEA.
of Electricity, the authorities are adjusting the process to
of the future auctions is the participation of private for CFE. According to César Hernández, Deputy Minister incentivize a larger participation from private companies
During the first auction, an error in the algorithm resulted
in the bids as buyers, although the final regulation is yet
in some projects being awarded when they should not
to be published.
have been. The Ministry of Energy repeated the process, raising some concerns and pushing the authorities to
“The major challenge for 2017 is to continue operating
prevent further skepticism by allowing open access
under these new regulations as they imply a paradigm
to the program used to determine the winners. This
change. The Mexican electricity industry operated
call for transparency extended to the second power
under a monopolistic model for more than 70 years and
auction, prompting several key players to praise the
it now has to get used to a brand-new model focused
process. “We are very satisfied with the transparency
on competitiveness and structural separation. We must
and coordination with which the government held both
not forget that many of the market mechanisms did not
auctions,” says Héctor Olea, CEO of Gauss Energía and
exist in Mexico before. It is a new field for all of us. The
Chairman of Asolmex, a Mexican association for PV
results have been positive so far but it is not an easy
energy.
process,” he says.
VIEW FROM THE TOP
AUCTIONS RETAIN THE SPOTLIGHT EDUARDO MERAZ Director General of the National Center For Energy Control (CENACE)
71
Q: What were CENACE’s major contributions to the
in the upcoming long-term power auctions. We look
electricity industry in 2016?
forward to leveraging our previous experiences to ensure
A: Two years after its creation in 2014, CENACE significantly
these auctions are successful. Regarding the medium-
contributed to the accomplishment of key milestones in the
term auctions, which will be held for the first time ever
implementation of the Energy Reform, such as the opening
in 2017, we expect their guidelines to be ready during the
of the short-term market for Baja California, the National
first months of the year. The participants’ interest in these
Interconnected System and Baja California Sur. The two
auctions will be mainly driven by the volumes required
long-term power auctions in 2016 were among the highlights
for capacity and energy, which will be established and
of the year. In the first event carried out in March 2016, the
published by CRE. We expect the first medium-term
unitary price per CEL and energy (MWh) reached US$41.8, 40
auction to take place in the last quarter of 2017.
percent below CFE’s forecasts of over US$70. The expected investment inflow from this auction was estimated at US$2.6
Q: What role do human resources play in the center’s
billion. The second auction held in September allocated 80
development and what challenges have you faced?
percent of CFE’s capacity demand, 84 percent of energy and
A: CENACE’s strategy leverages the talent, experience
87 percent of CELs, attracting investments of around US$4
and professionalism of its collaborators, which have been
billion. Other milestones included the preparation of the two
crucial to the accomplishments of the past two years.
last PRODESEN, a document whereby CENACE proposes
In addition, as many young Mexican professionals have
the infrastructure needed for the correct development of
joined CENACE in recent years, we have strengthened
the National Electricity System over the following 15 years. A
our workforce to successfully accomplish our tasks. We
project which stands out in PRODESEN 2016-2030 is the first
support the federal government’s initiatives to develop
HVDC line to be built in Mexico, connecting Oaxaca with the
young professionals with the capabilities demanded by
country’s central region, which will improve the transmission
the new energy industry.
of outstanding wind resources to high-demand zones. Q: How do you envision the development of the electricity Q: How would you describe the process of conducting
industry in the short and medium term?
Mexico’s first two long-term power auctions?
A: The long-term power auctions will stay in the spotlight in
A: The first power auction was a historic event in the
2017 because they provide certainty for new investments in
development of Mexico’s electricity industry and the lessons
the market. We will work on strengthening the power grid,
learned helped us raise the performance bar for the second
preventing bottlenecks that preclude the participation of
edition. We improved our IT systems and strengthened the
new market entities and promoting competitive clean-
review process for the offers received, which helped us
energy technologies in those regions with the best
achieve higher efficiency levels. We are also very proud of
development potential. We expect the short and medium-
CENACE’s involvement in both auctions as they showed the
term markets to optimize the use of energy infrastructure
ethics, experience and professionalism of our collaborators.
and to drive down electricity prices to competitive levels.
These events also revealed the growing competitiveness of
The expansion of the interconnection capacity with the US
the new market emerging in Mexico.
is likely to be an interesting alternative to trade energy in larger volumes while making the most of renewable
Q: What can be expected from the long and medium-
energy resources.
term power auctions that will take place in 2017? A: We are analyzing the possibility of including a bureau
The National Center for Energy Control (CENACE) is a decentralized
of contract administration so that other load-serving
public entity that was founded in 2014 to act as the country’s
entities besides CFE Suministro Básico can participate
independent grid operator.
EXPERT OPINION
SOWING SEEDS AND REAPING SUCCESS PAOLO ROMANACCI Director General of Enel Green Power Mexico
72
We have bet on Mexico for many years now. Currently,
Private off-takers are key to our local business strategy,
we operate 729MW of installed capacity through wind,
as we are leaders in energy self-supply. We had great
hydro and solar power plants. The Energy Reform
success in Mexico’s long-term power auctions in 2016 and
has been a complete success because it has brought
we are working to enter the short-term energy market in
stability and many benefits to the country’s renewables
the near future. All three business models are extremely
market. We are now the largest player in the sector by
exciting for us and we are already planning the feasibility
installed capacity and project portfolio and our business
of other projects for the coming years. The latest auctions
will continue to grow at the same speed as the Mexican
showed that the system works and we expect the other
energy market, as long as the rules continue to be clear
two models (self-supply and short-term market) will
and transparent as they have been and as long as the
share the same success to have an adequately liquid
level of competitiveness remains.
market. This is only going to be achievable as long as the country pushes for more renewables, clear rules and the
Given the price levels in the last two long-term power
lowest prices possible. We are a global operator with a
auctions and an upward trend in the cost of gas, our
well-balanced and diversified portfolio. As far as Mexico
expectation is that the government will create a higher
is concerned, the latest auctions demonstrated that
penetration of renewables, which makes Mexico an even
the most promising renewable technologies are mainly
more important market for our global business strategy.
solar and wind. Our goal is to continue developing our
The Enel Group entered the Mexican renewables market
business in those areas.
in 2007, when it acquired three hydropower plants with a total installed capacity of 53MW in the country’s
During the last 10 years, energy auctions with clear and
western states of Guerrero, Michoacan and Jalisco. In
transparent rules have been globally demonstrated to
addition to these plants, today we operate 675MW of
be the most efficient system with which to achieve a
wind power. Overall, we have invested around US$1.5
diversified energy mix and ensure competitive prices.
billion since our arrival in the country.
In Mexico, the implementation of the Energy Reform and the success of the latest long-term power auctions
During the first long-term power auction in March 2016,
are boosting the development of the country’s energy
the Group’s Mexican renewables subsidiary, Enel Green
sector and have quickly established Mexico’s energy
Power México, was awarded three PV solar power
regulatory system as a best practice worldwide. For
projects with an overall installed capacity of around 1GW,
auctions to work and contribute to the creation of a
more capacity than any other participant. Each project is
healthy and competitive energy industry, they have
supported by a contract providing for the sale to Mexico’s
to be backed by robust and strong planning to avoid
CFE of both specified volumes of energy for a period of
price distortions that could occur due to limitations
15 years as well as the related clean energy certificates
on the grid, reserve conditions and energy congestion.
over a 20-year period. We will invest approximately
Regulatory authorities have to take into account that
US$900 million in the construction of the three plants,
renewables are capital intensive and require long-term
located in Coahuila (Villanueva and Villanueva 3) and
policy and price stability.
Guanajuato (Don José), all of which are expected to enter into operation in 2018. Additionally, at the country’s
One of the major improvements that took place between
second long-term auction in September, Enel Green
Mexico’s first and second long-term auctions was the
Power México was awarded the 93MW Salitrillos wind
decrease in tariffs produced by the adjustment factors
project in Tamaulipas, whose construction will require an
of generation zones. The prequalification and bid
investment of nearly US$120 million.
process evaluation was faster and linear, which clearly
showed the experience acquired between the tenders.
all stakeholders, starting with Business Development,
Another positive aspect is that the general rules of
Engineering & Construction and Procurement right up to
participation remained, proving the overall scheme
Operation and Maintenance. As a major power producer,
is extremely successful. Some improvements can still
we have a unique responsibility to our employees, the
be made with regards to participation criteria, such
communities around our facilities and the environment.
as assessment of the development status of projects
This responsibility offers a great opportunity to improve
prior to their participation in the auction. We have been
the quality of life in communities, as well as giving
able to position ourselves as leaders in the country’s
our company the opportunity to be more competitive
auctions above all thanks to Enel Group’s lengthy and
in the current energy environment. Over one-third
global experience in the renewable sector. We know
of our electricity generation already comes from
how auction processes work. We participate with solid
renewable sources and we are constantly working with
and technically well-developed projects that are at an
our partners to develop new, environmentally friendly
advanced stage for acquiring permits, reducing risks
technologies with the aim of achieving decarbonization
in construction and creating an environment of trust
by 2050. In Mexico, we have encouraged a range of CSV
among suppliers.
local initiatives. Through a Research and Technology Transfer agreement between Enel Green Power México
Of course, there are challenges we expect during
and Fundación Produce San Luis Potosí, we add to the
construction of the awarded projects. First, Mexico
knowledge and experience gained in technical and
could experience a congestion of permit processing that
operational agribusiness and food chains, driving local
could cause delays or difficulties to the finalization of
social and economic growth. Recently, we signed two
the plants. To mitigate this risk, we entered the auctions
agreements with Autonomous University of Chapingo
with projects that are already in an advanced stage of
to collaborate in research and technology transfer to
permitting. Secondly, social factors have to be taken into
promote community development and sustainability
account given the quantity and geographical distribution
projects.
of the projects. We do not foresee problems in this area for us because one of the key pillars of our philosophy and business strategy is based on sustainability, which forms part of the creating shared value (CSV) approach. Enel’s 200MW Dominica wind farm in San Luis Potosi was awarded the Infrastructure 360º Award in the “Climate and Environment” category, due to its contribution to the diversification of Mexico’s energy mix, as well as its annual emissions reduction of around 300,000 tons of CO2. The Inter-American Development Bank (IADB) also praised Dominica’s activities in ensuring its harmonious integration with surrounding ecosystems, such as the construction of greenhouses to preserve
Enel Green Power Mexico signed a deal in October 2016 with HSBC Mexico to provide the bank with 50GWh a year from wind power sources
local cactus species, production of sustainable cattle forage from maguey and the donation of two 3KW solar
We will continue to work to keep growing in the
facilities to local schools to help them meet their energy
renewables generation sector. As a consequence of the
consumption needs.
Energy Reform, we expect the market to open up even more and present new opportunities which we will be
For some years now, as a group we have been developing
ready to take advantage of. As more participants appear
an environmental and social sustainability strategy that
in the energy sector with an increase in competition,
goes beyond the legal requirements of each country
we can expect a decrease in costs related to energy
and refers to the standards of the World Bank and other
management and growing liquidity in the market in
global best practices. Our philosophy builds upon the
terms of suppliers and users, not just generators. This
CSV model, which combines the business perspective of
is why we think that one of the key points for the future
the company with the needs of communities in
are services to end users, in particular commercial
the areas where it operates, by pursuing decisions
and industrial qualified users. Likewise, as a result of
that create value for both sides. This model makes
the Energy Reform the market trend will move toward
sustainability a key factor across the whole value chain,
energy-efficiency services, user digitization, distributed
implementing procedures and tools that add value for
generation, demand control and electric mobility.
73
VIEW FROM THE TOP
LOCATION, LOCATION, LOCATION MIGUEL ALONSO Country Manager of ACCIONA Energía
74
Q: How was ACCIONA Energía able to compete in the
first auction because it was considered a strategical
market given such low prices?
move for us.
A: This phenomenon did not start in Mexico but in other international markets, for example Peru, where some
In the second auction we decided to build a solar energy
companies implemented risky strategies to establish a
proposal because we wanted to enter the PV solar sector.
presence. including lowering their prices to record low
ACCIONA Energía has been involved in the construction of
levels. In this aggressive competition for positioning, there
all types of projects globally – wind, biomass, solar – but
were players, including ourselves, who could not reach
in Mexico we are mainly considered wind farm developers.
these prices. We then realized we needed to rethink our
We then wanted to broaden our presence in the Mexican
approach and look at what these companies were doing.
renewable energy sector by entering the solar market
We were one of the few large names in the industry to
with a profitable offer. Our solar project in Sonora will be
read the signals and adjust its generation prices to be
offering 478MWh and a 29MW capacity per year as part of
more competitive.
the agreement with CFE but we are also about to close a bilateral contract with a private off-taker to sell the surplus
Suppliers and manufacturers in the industry have also
energy produced at this facility.
stepped up their game to meet the demands of project developers. These prices were the result of efforts across
Q: What drove ACCIONA Energía to select Biofields as its
the entire industry. It is important to note that the reduction
partner for the solar project in Sonora?
in price also means less profitability, it has remained the
A: ACCIONA Energía has enjoyed having Mexican partners
same. We have fixed inefficiencies and optimized our
since it arrived in Mexico 32 years ago. We consider
costs without compromising quality. In 2010 the average
ourselves a Mexican company after that many years in the
price per megawatt of installed wind energy capacity was
market but few others see us that way. Having Mexican
US$2 million. Now the cost is much cheaper because the
partners adds a lot of value at the national level. We
installation and component costs are lower.
have had extensive experience in the past working with companies like CEMEX. It was like having a big brother
Q: What was the difference in strategy going into the first
in the schoolyard, helping us to be more accepted.
and second auctions?
Working with Biofields is also going great. They have
A: Our strategy was all about location. In the first auction
strong experience in agricultural management because
there were some advantages given to projects located in
they started as a biofuels company, making them the best
the Yucatan peninsula. We were then able to prepare a
partner for our PV solar project in Sonora.
highly attractive proposal for a wind energy project there, offering a great number of equivalent full-load hours. For
Q: What other opportunities do you see for ACCIONA
the auction process we used a differentiation strategy,
Energía besides the power auctions?
presenting two offers for the same project, one for CELs
A: The auctions were the first incentive the market
and one for energy (annual megawatt-hours). We won
needed to start moving forward. The projects and the
by a tight margin but with a project that is profitable and
needs were there but nothing happened until CENACE
able to provide CELs and energy at competitive prices.
organized the first auction in March. The Mexican
ACCIONA Energía really wanted to be a winner at this
government is making a strong push on this front that we as a renewable energy company are supporting by
ACCIONA Energía is a global operator of renewable energies and a
enhancing trust in the market. ACCIONA Energía is not
division of ACCIONA Group, a leader in the promotion and management
just some random name selling energy, it has 32 years of
of infrastructure projects with over 100 projects in Mexico.
experience in this market.
INSIGHT
THE RIGHT BET ON MEXICO SOLAR ASIER AYA Managing Director Latin America at the International Power Division of Jinko Solar
75
Looking for attractive and competitive projects overseas
handle the project. We finally found a suitable substation
for the first time, Jinko Solar arrived in Mexico just a few
with more than 250MW of available capacity, more than
months before CFE’s first power auction took place in
enough to support our project,” Aya adds.
March 2016. The company put its proposals together in record time and won three ventures, totaling 188MW.
Jinko Solar’s projects in Mexico represent a total investment of around US$300 million. The company
“Jinko Solar has several years of experience working as
will provide equity and fund the rest from commercial
an Independent Power Producer (IPP) in China, where we
banks. Aya says the 15-year tenure established in the PPA
manage around 1.2GW,” says Asier Aya, Managing Director
“impacts on project financing processes because when
of Latin America at the International Power Division
structuring the debt, banks only take into account the
of Jinko Solar. “Last year, the company’s headquarters
contracted period. The rest represents a market risk that
decided to internationalize its IPP business, creating
banks prefer to avoid.”
an international power division. We started to look at opportunities in different regions, mainly through power
The novelty of the Mexican spot market also elevates the
auctions, and Mexico was the first in which we succeeded.”
risk for the period after the PPA term because there are no historical records for reference. But Aya says that has not
Aya considers the Mexican auctions to be “the most
been an impediment to financing. “Some banks were not
complex in which we have participated so far.” He
showing much interest to finance the projects before the
attributes the company’s success to its flexibility as well
results of the power auctions were published but now we
as having a highly professional and experienced team
have more banks interested in financing our projects than
that has strong capabilities in tenders and developing and
we actually need,” he says.
selecting the right projects. Mexico’s first power auction saw record low prices for solar To fulfill the contract conditions, Jinko Solar will build three
energy, raising doubts about the projects’ profitability.
new solar parks that should start commercial operations
Aya, however, is not concerned. “We offer electricity
by mid-2018. The 100MW Viborillas park in Jalisco and
prices according to the projects’ real costs, including EPC
the 70MW Cuncunul project in Yucatan will be developed
and O&M. Our detailed financial model defines our tariffs
by Jinko Solar’s partner, Solarcentury. An additional solar
so we can make tangible and successful projects,” he says.
park in Yucatan that Jinko Solar acquired from another company will generate the remaining 18MW. In all cases,
Around 95 percent of the projects’ power production
Jinko Solar’s International Power Division participates as
will be sold to CFE in line with the PPA’s established
investor and owner.
conditions. The rest will be traded on the spot market. “We are analyzing the best strategy for selling energy.
“The Jalisco project was already advanced in its permit
We have received a number of proposals from qualified
processes. In Yucatan, we decided to take the risk and
suppliers and are evaluating different options,” Aya says.
develop new projects from scratch motivated by the
The company is now focusing on having the projects
positive US$22 per MW/h regional factor in place there.
ready to roll out in 2018 and foresees a good future for
Judging by the auction’s results, we made the right bet,”
the solar industry in the country. “Mexico will continue to
Aya says. With little time left before the auctions, Jinko
be one of the world’s most attractive markets in the next
Solar’s team rushed to find the right locations in Yucatan
five years. The next power auctions will provide certainty
for building large-scale projects. “The main constraint was
about growth. Mexico has demonstrated it has a bankable
to find a site close to a substation with enough capacity to
energy market,” Aya says.
76
La Venta wind farm, Oaxaca, CFE
VIEW FROM THE TOP
VISIONARY GOVERNMENTS BET ON RENEWABLES EDUARDO BATLLORI Minister of Environment and Urban Development of Yucatan
77
Q: What are the potential effects of climate change in
A: We expect socioeconomic and environmental effects
Yucatan given its geographical location?
from the different stages of the renewable energy
A: The Yucatan State Special Program of Climate Change
projects, including planning, manufacturing, installation,
recognizes the increased vulnerability of the state due
grid connection, operation and maintenance. We believe,
to its geographical location in a high-risk zone where
however, that there will be a positive impact on local
increasingly erratic and more extreme weather events are
communities, creating further opportunities in terms of
occurring. The peninsula’s historical record of hurricanes
employment, the distribution of benefits and the reduction
and tropical storms over the past 100 years reveals the
of energy poverty.
changes of frequency and intensity of these phenomena and the considerable economic losses and associated
Q: What are the recommendations for projects that must
impacts on the social and environmental sectors. Among
be constructed in areas with indigenous settlements?
the potential impacts identified in the local economy are a
A: We have been working with the Ministry of Energy,
reduction in investment from foreign and local companies
SEMARNAT and SEDATU to design an action plan that
related to the increased vulnerability of the region, the
should be considered according to the Energy Transition
devaluation of real estate properties, increased costs of
Law and the Electricity Industry Law. For example, the
production in sectors such as agriculture and livestock
evaluations of potential energy projects in the territory,
related to higher costs for basic services such as water
the strategic environmental evaluations and the contact
supply and a reduction in the volume of sales related to
models with the communities. Right now we are working
the scarcity of raw materials. Additionally, the impact
to elaborate the consultation model projects should
of extreme meteorological events would continuously
follow with communities. We have met with different
generate damage in diverse sectors such as transportation
federal, state and local authorities as well as with
and communication, energy, industry, commerce, tourism
consultants and entrepreneurs. We also will meet with
and services.
the social and academic sectors. This is a federal task but we are concerned because the tenders are already done
Q: What will be the role of renewables in Yucatan’s
and the process is moving forward.
energy offer? A: Although Yucatan is a regional energy producer,
Q: How do you ensure that all archeological and natural
production is based on natural gas and fossil fuels with
resources are protected during construction?
five energy plants and a total generation capacity of
A: To safeguard archeological and natural resources
1,532MW. Through the Strategy of Sustainable Energy,
all renewable energy projects need to meet the legal
the Yucatan government seeks to promote the transition
dispositions and requirements set out by the National
to clean energy production, supporting wind, solar and
Institute of Anthropology and History (INAH) and
biogas energy and setting specific lines of action to
SEMARNAT.
promote investment in renewable energy, build capacity and strengthen competition in the local economy through
Through SEDUMA, assistance is provided to minimize the
sustainable energy management, among others. The
risk of social and environmental problems derived from
government has ambitious targets for clean energy
the development of renewable energy projects.
generation of 52 percent by 2018, 79 percent by 2024 and 82 percent by 2030.
The Environment and Urban Development Ministry (SEDUMA) is part of the Government of Yucatan and promotes sustainable urban
Q: How will the nine projects that were awarded in
development and environmental care. Eduardo Batllori was appointed
Yucatan at the auctions impact the state?
Minister of this institution in 2007.
VIEW FROM THE TOP
A 3-D STRATEGY: DECARBONIZATION, DECENTRALIZATION, DIGITALIZATION PHILIPPE DELMOTTE CEO of Engie Mexico
78
Q: What factors drove ENGIE to transform its business
opportunities will come in the near future, for example
strategy at the global and local levels?
with the third auction in 2017. We also consider the
A: The energy landscape has changed profoundly in
implementation process followed so far by the Reform
recent years. The transition is a global phenomenon that is
as a success. We see great potential for us in the natural
revolutionizing the industry and ENGIE as a global energy
gas and the electricity market liberalization. Regarding
company wants to lead it, which implies placing the
natural gas, the Ministry of Energy and CRE have already
environment at the core of our business. We also consider
announced 2017 as the year when an open market will
it crucial to include the digital revolution and technological
become a reality. ENGIE, a leader in transportation and
breakthroughs into our corporate strategy. This led
distribution of natural gas, is in a privileged position
us to reshape our strategy and diversify our portfolio,
to take advantage of this by entering the natural gas
placing greater importance on alternative sources of
commercialization business and importing from the US.
energy. As such, the three axes of our new strategy are decarbonization, decentralization and digitalization.
Q: Given the recent dynamics, where do you see energy markets moving in the local and global contexts?
In Mexico we are implementing a strategy in line with
A: We expect future energy markets to develop mostly
the company’s global vision. Three key points drive our
through renewables as a consequence of the global
vision and operations. The first is an increase in our
energy transition. Renewable energy prices have evolved
renewable energy assets. In this respect we achieved
considerably in the past few years and solar and wind energy
an important feat by winning two renewable projects in
projects are now as competitive as traditional fuels, as was
CENACE’s second power auction, which followed our
witnessed in CENACE’s first and second power auctions. We
success with Sol de Insurgentes in the first power auction.
also expect a wave of new services to accompany the growth
The awarded projects were Trompezon Solar Park, with a
in renewable energies, particularly those that mitigate the
power production capacity of 157MW in Aguascalientes,
sector’s intermittent nature such as batteries, alternative
and Tres Mesas III, in Tamaulipas, with 51.8MW of capacity.
storage or demand management solutions.
Both assets will supply 209MW of clean energy to the national grid. The second goal is to offer integral services
Q: What are the main challenges to complying with the
to our current and potential clients. We are already
contracting conditions?
serving almost half a million customers in Mexico and we
A: The main challenge ahead is to implement the projects
are looking to expand our reach in both client numbers
that were awarded. The first milestone is to finish the
and services. Finally, we are looking to offer support to
permit phase, specifically the local ones that are needed
sustainable city development.
to start construction. We expect the support of the authorities in these processes because it is in the interest
Q: How has the Energy Reform opened new opportunities
of the country to supply energy with efficient projects.
for ENGIE’s operations in Mexico? A: ENGIE perceives the Energy Reform as a fantastic
Q: How does ENGIE match its ambitions in clean energy
opportunity to strengthen its business in Mexico. ENGIE
production to its natural gas business?
won three projects in the power auctions. We are sure new
A: We have three business lines in Mexico, one of which is power production. Cogeneration plants have been the core
ENGIE is one of the largest private gas pipeline operators and the
of our power generation business up to now because they
number two natural gas distributor in Mexico. The France-based
are already efficient processes. ENGIE has around 311MW of
company also has three steam-electricity plants in operation and is
cogeneration capacity installed. Besides electricity we offer
building 149MW of PV solar capacity.
steam to our clients and inject the surplus power to the grid.
VIEW FROM THE TOP
CHALLENGES AHEAD FOR AUCTION WINNERS FELIPE SALAZAR Country Manager at Alten Renewable Energy
79
Q: How has your perspective of the Mexican power market
Alten also presented a smaller-scale project of 150MW in
changed since the enactment of the Energy Reform?
the first power auction and was even chosen among the
A: It has been a painful yet rewarding process. It is painful
finalists but it did not win. For the second power auction
because of all the confusion that results from the changes
we boosted our processes’ efficiency. We increased the
in any reform. During 2015, after the publication of all the
volume to 340MW, got new supplier agreements and
guidelines and secondary laws, our initial perspective from
looked for better technical solutions, such as reducing
2013 started evolving. There is still secondary legislation
domestic transmission losses, which was challenging
pending that can create some uncertainty but Alten’s view
given the size of the project.
is positive and has grown more positive since the results of the power auctions. It is a growing market and not easy
Q: Why did Alten choose to develop the project in
to enter but the prospects have been so encouraging that
Aguascalientes?
from the first to the second power auction the number of
A: The main elements that influenced the decision on
awarded companies went from 11 to 26. There is a global
the project’s location were feed-in infrastructure, the
hunger for development. The process has been extremely
generation performance ratio and increasing demand.
transparent with plenty of opportunities that will allow
We are convinced of the competitiveness of the projects
Mexico to become power-competitive and very open. The
outside the power auctions and that is why we also
power market has always been dominated by the large
develop in regions like Sonora. In the power auctions the
companies, such as Gas Natural Fenosa, Iberdrola, Enel
competitiveness level is too high given the participants’
Green Power, AES and others, and in the power auctions
expertise, resources and capabilities.
the field has been much more diverse and supportive of medium-sized companies.
Q: What challenges do you foresee in completing auction projects?
Q: What elements boosted your success in the second
A: There are two main stages that will present challenges
power auction with the 340MW project?
for Alten. The first is the signing of the contract. To get
A: Unlike the first auction, in the second one the purchase bid
to that point we need to have everything in place, from
was divided into three products: power, CELs and capacity.
the permits to the legal requirements. Another challenge
Our Aguascalientes project was highly competitive because
for awarded projects will be for the banks to understand
of the time spent on its development prior to presenting
the schemes included in the power auctions. They need
it at the auction. Some projects presented at the power
to understand concepts such as CELs, capacity and
auction were incomplete, they lacked land ownership
so on. We have succeeded in developing competitive,
or building permits. One of the dangers of the Energy
bankable projects but creating the best conditions to
Reform are the low requisites it establishes. That can lead
present a final offer has been a journey. We had to meet
to highly competitive companies with a fully developed
with many banks to negotiate financing terms and it
plan competing against companies that just present an
was hard because banks sometimes lack the technical
idea but with no prior research on the land, permits, social
knowledge to analyze the implications of the project.
assessment and building costs. The preparation spent
We have everything in place to start building the park in
developing the project set us apart from other companies
May/June 2017 so by June/July 2018 the output will be
that did not take such careful consideration before
delivered, on time.
presenting their project. Since we understand the costs implied in the project we have a clearer idea of the offer we
Alten is a large, independent power producer (IPP) with expertise in
can present, contrary to other projects that calculated but
international development, financing and exploitation of PV power
did not properly define their costs.
plants.
VIEW FROM THE TOP
BENCHMARKING THE NEW PPA
Alberto Haito Senior Associate at Clifford Chance
80
Martin Menski Senior Associate at Clifford Chance
Q: How do Clifford Chance clients view the new
takers eases project financing because it makes lenders
contracting system?
more comfortable with the company’s revenue streams.
MM: Our clients inevitably compare the new PPA with the old PPA, which is still in operation. The new PPA
Another factor to consider is that most companies
is, broadly speaking, bankable but there are several
winning the first power auction are probably capable of
aspects that concern our clients, such as the risks
financing their projects on a balance-sheet basis. They are
private companies must now take on, some of which
big international market players. We are not aware of any
were previously managed by CFE. One of the most
winning company requiring external nonrecourse project
concerning issues is the uncertainty around the credit
financing to develop its project. That will not be the case
risk of off-takers. CFE is expected to be involved in
for all companies willing to enter the Mexican market.
most of the PPA transactions in the short-term, acting either as off-taker or as jointly liable with the off-taker.
Q: What will be the key challenges to financing energy
Doubts remain about how to manage the credit risk of
projects in Mexico besides off-taker credit risk?
other companies seeking to participate in the market
MM: Merchant risk will be one of the major issues for
as buyers and to what extent banks will consider the
financing energy projects in Mexico because the uncertainty
off-taker’s credit-worthiness, since the PPA does not
in this aspect hinders the development of a simple legal or
directly tackle this issue.
commercial solution. Energy assets last up to 25 years but the PPA establishes only 15 years of contracted revenues,
AH: As long as CFE acts as off-taker or assumes any
so banks have no certainty about the rest of the period.
payment obligations under the PPA, financiers will place
This situation will make it harder for energy companies to
special consideration on their overall credit risk. Let us
obtain long-term financing, especially as the current global
not forget that most of these banks are probably already
macroeconomic conditions also add to bank reluctance.
lending to CFE in some capacity, which increases their
We are nonetheless observing a proactive approach from
overall exposure vis-a-vis CFE and consequently the
multilateral lenders that are betting strongly on Mexico.
overall risk involved in the transaction.
We see a special commitment from those multilateral banks in which Mexico is a stakeholder. US export credit
Q: How did companies participating in CFE’s first power
agencies also are looking south of the border and already
auction overcome these risks?
have mentioned their interest in ramping up their ability to
MM: That CFE is still in the picture gives confidence
finance deals in Mexico.
to the market because it presents a similar structure to what was done previously. Once private companies start
AH: We also see a number of European credit agencies
participating in the auctions as purchasers, we expect
willing to invest in the country’s nascent energy industry.
to see a shift to portfolio financing structures similar to
The old self-supply PPA worked as a platform to attract
what happened in Chile, which has one of Latin America’s
foreign investment to Mexico’s power sector and to build
most developed spot markets. This approach mitigates
large financing deals. Because of that, non-American
the “single off-taker credit risk” because companies have
institutions now have the confidence to invest in new
diversified portfolios with several off-takers instead of just
energy projects in Mexico. The interest of multilateral banks
one. Grouping a number of projects with different off-
and export credit agencies in financing these types of projects will probably help to close the gap that merchant
Clifford Chance is an international law firm with expertise in capital
risk creates for other institutions. Commercial banks are
markets, corporate, finance, risk management, real estate and labor
working to structure solutions to deal with merchant
issues, with a particular expertise in the energy sector.
risk but there is no consensus on the best approach to
take. Larger debt service reserves, cash sweeps or other
financing offers coming soon from international bankers.
similar pre-payment mechanisms and even mini-perm
They still are cautious about the Mexican market,
financing structures are some of the options. In fact, we
particularly as the new contracting schemes have never
would not be surprised to see mini-perm financing with
been tested.
the option to refinance without penalty as the mostused structure in the first PPAs backed by international
Q:
project financing. Project bonds may also come into
comparison with similar Latin American countries?
How
would
you
benchmark
Mexican
PPAs
in
play as a viable option, depending on what the market’s
AH: The termination regime set forth under the Mexican
appetite is for this type of risk. In general terms, project
PPA differs from what we have seen in other parts of the
developers will have to get used to structuring more
region. For instance, the PPAs launched by Uruguay’s
complex financing deals, including different financing
government when it decided to implement its aggressive
schemes to fund one single project.
renewable energies program a few years ago provided for a termination payment even in the case of force majeure
Q: What are the main concerns for developers looking for
or a default. Peru’s PPAs, on the other hand, typically
the best financing plan for their projects?
provide for low termination payments because it has
MM: The main concern for project developers is deciding
a spot market already in place. In the case of Mexico,
the amount of equity they want to bring into the deal and
investors are curious to see how the termination payment
when. Companies need to be clear about their ambitions
under this new PPA will work. Under the financed public
regarding their desired internal rate of return (IRR). Project
works (PIDIREGAS) regime, CFE took responsibility
developers looking for short-term IRRs and to cash out
and agreed to pay a lump sum to the contracted party
soon may be shooting themselves in the foot because
in the event of a termination. The new regime provides
banks want to see equity supporting the risk as long as the
a different structure: in the case of termination due to
debt is outstanding. Developers looking for international
the off-taker’s default, the off-taker is required to pay on
financing need to use a conservative approach. Another
a monthly basis the difference between the spot market
solution might be to not use international financing
price and the estimated revenues that could have been
alone but to look for a combination of different financing
obtained during the contracting period. The new structure
sources. In any case, our key message to developers is to
could add uncertainty to potential financiers because it is
remain conservative. We do not expect to see exceptional
novel and untested.
81
ROUNDTABLE
WHAT WAS YOUR REACTION TO THE POWER AUCTIONS?
On March 31, 2016, the first long-term auction in Mexico for purchase of energy, CELs and capacity by CFE took place. Sixteen companies emerged winners in the final process with a major participation for PV power generation, an unforeseen and to most observers a surprising turn of events. Despite an early technical glitch, participants across the sector hailed the first process a success, even as the low prices obtained and the low requirements requested from the sponsors in terms of permits and land rights have raised concerns about the feasibility of some of the projects. Here, players from different segments react to the results.
82
The first power auction acted as a pilot, in a similar manner to phase one of Round One in the hydrocarbons industry. CFE was playing it safe to see how the market reacted before making any major bids. It was the first time that the Ministry of Energy, CENACE and CFE conducted such a process, so they wanted to learn. The outcome of the first power auction was qualified as a success by several international media, including The Economist, Forbes and Bloomberg, and this successful experience has given Mexican
GUILLERMO GARCÍA ALCOCER Chairman of CRE
authorities the confidence to strengthen upcoming editions. Even though renewable energies are not as sensitive to resource limitations as traditional technologies, they are still based on natural resources that are a constraint to a certain extent. We want to avoid having critical situations as happened in Spain where more solar energy capacity was installed than the country could handle.
When I first read about the auction’s results, I had the impression that the bidding prices were too aggressive. However, once I understood the breakdown of those surprising numbers, I discovered that they were in fact aggressive but realistic and achievable. From a manufacturer’s standpoint, we have understood that we need to offer developers product quality and costs to make their projects as profitable as possible. As a leading PV module company with one of the lowest manufacturing
LOU MARRERO Director Latin America & the Caribbean of Trina Solar
costs in the industry, Trina Solar can compete under the conditions required by the Mexican market. We are not afraid of the record low prices. In fact, we are enthusiastic to hear that some of our clients were awarded projects by CENACE and we will not be surprised to see a large share of the new solar parks being built using Trina Solar’s panels. Solar energy is a highly competitive industry.
We followed the power auctions closely because we were interested in Enel Green Power’s proposal. We knew that Enel Green Power wanted to build the largest wind farm in Latin America and provide record-low energy prices, so we expected an aggressive approach from them. To offer such low prices Enel Green Power established agreements with suppliers and contractors before the bidding process, ensuring the future costs of its energy production. The company’s strategy was
DAVID FLORES Managing Director of Ormazabal Mexico
proven successful as it obtained 41 percent of the total energy bid. Several doubts remain about the completion of the winning projects, given the low prices that were bid and the uncertainty over land rights and other important aspects. But we expect the majority of the projects to be finished on time considering they are supported by major global companies.
The auctions brought many positive aspects to the industry but they also reinforced the idea that CFE is the only relevant client. The true market liberalization will come when more qualified suppliers and marketers start participating. The purpose of the reform was to enable competition and provide options to electricity consumers, and this will not be achieved if all the electricity is sold through CFE. We, therefore, considered the auction’s results as a positive event for the renewable energy industry but prefer to explore other options to contribute to the market’s development. On the upside, the prices reached by solar energy in the auctions
OSCAR BERNAL Director General of Eosol
surprised the industry globally and were qualified as a great success for the Energy Reform. These prices set a new standard for the industry, forcing renewable energy companies to increase their competitiveness.
83
The results of the first bidding round were extremely surprising for solar energy companies, including Jinko Solar, which expected wind energy to get most of the megawatts tendered. In the past, the LCOE of wind farms used to be lower than solar parks, making the first tender’s results a turning point for the industry. The use of innovative business models was crucial for lowering the costs of solar energy and we feel proud to have helped our clients with the development of competitive proposals for the tender by providing high-quality technology at accessible prices. In the long-term electricity tender, Jinko Solar’s investment division presented three proposals to build two solar parks in Yucatan and one
ALBERTO CUTER General Manager Latin America & Italy of Jinko Solar
in Jalisco, which were selected by the algorithm used by CENACE.
We were pleasantly surprised by the results achieved in the first tender carried out under the new regulatory scheme. The immediate impact of solar energy and the low prices for tendered contracts are positive for the renewable energy industry and in line with the goals of the Energy Reform. We were not expecting solar to surpass wind energy in the number of megawatt-hours awarded so quickly, particularly at the tendered prices, although falling renewable energy prices are a trend that the industry has been observing in different regions, such as Peru or the southern US. This is a result of improvements in efficiency, a decrease in manufacturing costs and the use of innovative financing mechanisms. However, we remain somewhat
DAVID BARRIE Business Development Coordinator at SgurrEnergy
cautious about the potential reaction that record-low energy prices may cause among investors and project developers.
For the first power auction, the fact that CFE is still in the picture gave confidence to the market as it presented a similar structure to what was done previously. Once private companies start participating in the auctions as purchasers, we expect to see a shift to portfolio financing structures as happened in Chile, which has one of Latin America’s most developed spot markets. This approach mitigates the “single off-taker credit risk” as companies have diversified portfolios with several off-takers instead of just one. Grouping a number of projects with different off-takers eases project financing because it makes lenders more comfortable with the company’s revenue streams. Another factor to consider is that most companies winning the first power auction are probably capable of financing their projects on a balancesheet basis. They are big international market players.
MARTIN MENSKI Senior Associate at Clifford Chance
VIEW FROM THE TOP
ADAPTING TO AN EVOLVING MARKET DAVID FATZINGER Vice President and General Manager Latin America of InterGen
84
Q: How is InterGen adapting its business to the evolving
A: Yes. InterGen looks for partnerships where both
market?
parties bring additional value to the table. In the case of
A: We have experienced two major changes this year: the
electricity trading, we can develop solutions and market
implementation of the Energy Reform and the opening of
our own energy production. One of InterGen’s competitive
the Wholesale Electricity Market. We were prepared for
advantages is that we are comfortable operating in the
the market’s evolution so it did not take us by surprise. For
wholesale market, developing supply solutions and trading
instance, we included some of the wholesale electricity
energy products in the commercial and industrial sectors.
market products into our strategy. For many years, InterGen
Generally, we do not collaborate with external energy
has developed power solutions, mostly under the self-supply
brokers or retailers but we will consider it if a company
scheme, for industrial clients. Now we are moving into the
proposes a mutually beneficial alliance.
qualified supplier scheme, adapting our old strategy to the new energy sector.
Q: What potential do you see for developing cross-border energy projects between the US and Mexico?
Most of the projects we developed in the past were awarded
A: Energía Sierra Juárez, a wind farm developed by InterGen,
to us through CFE’s bidding processes. Those projects were
was the first cross-border renewable energy project
designed with overcapacity so we could sell the additional
developed between the US and Mexico. InterGen has
energy to private industrial clients. The new power plant we
experience in other cross-border energy projects, including
constructed in Guanajuato was our first project developed
La Rosita, a gas-fired power plant we built in Mexicali,
under the new regulatory framework and was built as a
Baja California, 17 years ago. La Rosita supplies energy to
dedicated solution to meet only industrial needs. In that case
customers in Mexico and Southern California. It was our first
we established a bilateral contract directly with the plant’s
project to be regulated under two jurisdictions and built on
main user but we also built it so we could sell energy to
Mexican land. Handling the regulatory framework of two
other industrial customers through the wholesale electricity
countries is not as challenging for us because of this prior
market. In the future, we expect to migrate most of our
experience. The complexity is similar to building projects
bilateral and self-supply contracts to the qualified supplier
across two states, something InterGen has done for more
scheme, using it as our main supply channel.
than 20 years. We expect to see more cross-border projects. At the moment US gas-based power plants exporting energy
In 2018, CELs will be a mandatory requirement, so we
to Mexico are the most common but we do not discount
have adapted our solutions to meet the new clean-energy
cross-border renewable plants in the future.
guidelines. We are employing clean-energy technologies so we can offer CELs to clients that need them. Energy solutions
Q: Which of the lessons learned from your experience in the
will become more sophisticated over time, driving project
US could be applied to Mexico’s liberalized market?
developers to use a mix of technologies instead of relying on
A: One of the biggest lessons we learned is the need for
only one. Renewable energies and distributed generation are
transparency on the brokerage side of the market. Industrial
two trends that we expect to grow in Mexico.
clients need to trust their energy suppliers to feel comfortable participating in the market. We fully understand the need to
Q: Will the company partner with suppliers or energy
create strong and trusting relationships with our customers
brokers for the wholesale electricity market?
so we are opening new communication channels and sharing our market knowledge with them. Another important lesson
InterGen is a Massachusetts-based global power-generation firm
we learned is the need to diversify. Industrial energy needs
with 11 power plants in operation, representing a total generation
change over time so we have to be ready to offer the proper
capacity of 7.7GW.
solution based on our clients’ requirements.
VIEW FROM THE TOP
MAKING WIND ENERGY ‘SMART’ RAFAEL VALDÉZ Managing Director Latin America & the Caribbean of Envision Energy
85
Q: What makes Envision’s products “smart” and how
be sold to CFE through a long-term bilateral agreement.
do they differ from other wind turbines in the market?
We will sell the rest on the spot market.
A: The world is at a crucial crossroad where the energy and digital revolutions are converging. Envision
Envision Energy sees great potential in the wholesale
understands the significance of this moment and offers
electricity market but we need to move cautiously.
comprehensive energy solutions that combine state of
There is some uncertainty because the price is not
the art technology with software. We are constantly
fixed so we are taking a gradual approach, learning by
adapting our products and services to the challenging
doing before making a significant investment or taking
environments and needs of different markets. We do not
on greater risk and exposure. As the market evolves it
see ourselves as a pure technology supplier. We have
will become increasingly difficult to establish attractive
developed special turbines for ultra-low wind speed
bilateral contracts or win projects through tenders, so
sites, high-altitude areas about 3,000m above sea
we are already preparing for the market’s next stages.
level, as well as extremely cold locations that can reach -50°C. We have also worked in high-humidity regions
Q: How are the company’s projects usually financed
with high incidences of hurricanes, as is the case for
and how do you gain investors’ trust?
some Mexican states. We have over 8GW of turbines in
A: We do not limit ourselves to traditional financing
operation or under construction, primarily in China, but
institutions such as Mexican banks or lenders. We are in
also in Chile, Sweden, Mexico and other countries. We
talks with multilateral agencies in Washington as well as
are also working on energy storage, smart distribution
development banks in America and China. The company
systems and smart cities, such as a pilot project we
is also dealing with commercial banks to diversify our
are developing in New Zealand. Our software solutions
financing portfolio. Envision provides certainty to financial
help us and our clients optimize the monitoring and
institutions because we have a proven technology, with DNV
performance assessment of a given turbine, wind farm or
GL certification in some of our turbine models that have been
portfolio of renewable energy assets. We are the world’s
subject to strict technical due diligence in diverse regions.
largest asset manager from a software/IT perspective,
We initially encountered some reluctance from Mexican
managing more than 50GW in wind and solar projects
financial institutions because they had little experience
globally, largely operated by third parties.
dealing with Chinese companies but now we are working with two of them.
Q: Why did the company locate its new projects in Yucatan?
Q: What does Envision want to achieve in Mexico in the
A: Yucatan is consistent with our business strategy. We
next two years?
avoid following the crowd and are always looking for
A: Mexico is committed to producing 35 percent of its
unexplored opportunities. The company always tries
electricity from renewable energy by 2024 and we plan to
to make the most of the given conditions and daring to
stay in Mexico for at least five to 10 years, allowing us to
explore new areas drives us to innovate. In Yucatan we
accompany the country in this transition. Envision has made
take advantage of the region’s attractive wind speeds,
a commitment to be the largest Chinese investor in Mexico’s
nascent development and increasing demand for energy.
renewable energy sector and we are doing that already.
We have two projects under construction in Yucatan and a few more under development. One is a 70MW wind farm.
Envision Energy is a global smart energy solutions provider offering
Its electricity will be sold only to private off-takers. The
smart wind turbines, smart energy management software and
second was one of the winners of CFE’s first long-term
technology services, with facilities worldwide, including a Global
electricity tender, a 90MW wind farm, 85MW of which will
Innovation Center in Denmark.
VIEW FROM THE TOP
A POWERFUL COMEBACK FOR LAID-OFF WORKERS MARTÍN ESPARZA Secretary General of the Mexican Electrical Workers’ Union (SME)
86
Q: Generadora Fénix has a different story from other
already obtained the permits from CRE to become a
companies. Can you share this experience?
generator in the new electricity market so we can sell
A: Generadora Fénix is the result of SME’s close to seven-
energy to the spot market as well as to suppliers and
year fight to avoid the forced dissolution of Mexico’s
qualified users. We are also in charge of the plant’s
oldest labor union after the liquidation of the state-owned
operation and maintenance. As part of its business
company Luz y Fuerza del Centro (LyFC). As part of the
strategy, Generadora Fénix plans to invest US$500
legal settlement over the government’s liabilities in the
million in revamping all our hydroelectric power plants.
wake of the liquidation, the government awarded in early 2016 a group of 14 abandoned hydropower plants to SME,
The company is also planning to invest US$1.2 billion
which represented the LyFC workers. We then created
in combined-cycle power plants that will be built on
Generadora Fénix as an investment promotion society
the land we received as part of the work termination
and looked for a partner with the financial capabilities
agreement. Even though the projects are not done
to help us renovate the assets and become competitive.
yet, we already have a 25-year PPA with the federal
Mota-Engil,
our
government, which will buy the energy produced by
capital partner in this venture, holding 51 percent of
a
Portuguese
company,
became
our plants at a fixed rate. All the employees required
the company’s shares, while SME contributed with
to operate these power plants will be SME members.
power assets and an experienced workforce. The resolutions made by Mexico’s labor board to end the
Q: What was the experience of Generadora Fénix as a
work relationship between SME and LyFC mandated
winning company in the second power auction?
the government to compensate SME individually and
A: Four of our proposals won a share of the CELs
collectively.
auctioned in the second round. We did not offer energy or capacity but only CELs because we already have requests
To offer job prospects to the union’s members, who
from private clients that are looking to purchase power
were highly skilled electrical workers, the company
and energy. Part of our commercial strategy is to establish
received the use and exploitation rights of the
long and short-term contracts with private customers,
hydropower plants for 30 years, along with the rights
so we chose not to offer those elements in the auction.
to build a 1.7GW combined cycle plant and a PPA
We observed in the power auctions a high number of
contract with the federal government for energy
speculative offers. Many companies offered energy
purchases during the next 25 years.
and capacity from projects that are not yet built, some in more advanced stages than others. We have even
Q: What investment plans does the company have for
received proposals from some companies to help
the near future?
them with their projects’ construction but we are still
A: The most important assets in our portfolio include
analyzing that possibility. We think that in some cases
the Necaxa plant in Puebla and Lerma, in Michoacan.
completion of projects will be challenging.
Both plants belonged to LyFC but were not performing at their maximum potential. We took control of the
Q: What do you say to those who suggest Generadora
assets in November 2015 and now all the employees
Fénix cannot be competitive due to SME’s history in
working at these plants belong to SME. We have
a public utility? A: A qualified workforce is our main competitive
The Mexican Electrical Workers’ Union (SME) represents the workforce
advantage. Generadora Fénix already has experienced
belonging to the extinct company Luz y Fuerza del Centro, including
engineers operating power plants and we have 14,000
retired workers and new employees.
more skilled workers ready to enter into action. We
CAPACITY AWARDED IN 2016 MEXICO POWER AUCTIONS PER TYPE OF TECHNOLOGY
WIND 1,522MW Capacity 11 Projects
PV 3,479MW Capacity 27 Projects
COMBINED CYCLE 899MW Capacity 2 Projects HYDROELECTRIC 68MW Capacity 2 Projects GEOTHERMAL 25MW Capacity 1 Project
0
87
0.5 First auction
1.0
1.5
2.0
Second auction
Source: CENACE
proved our skills during the revamping of the Alameda
(PIDIREGAS). Generadora FĂŠnix is making a new start
hydropower plant, which had flooding problems when
in the black, with working facilities, generation permits,
it was handed over to us. It took us less than 10 months
long-term PPAs and skilled and experienced engineers.
to renovate the plant completely and put it to work,
We have everything to be a competitive and profitable
becoming our flagship project.
company. In the next five years we expect to have a 2.7GW capacity coming from a diversified portfolio
We also have the advantage of not having any pending
of generation, including solar, hydroelectric, wind and
labor liabilities, which is not the case for CFE. The
natural gas. The country is expected to have a growing
state-owned utility has MX$3.2 billion in labor liabilities
demand in the next 25 years, so we know energy
and MX$7.6 billion in financed public works contracts
generation will be a profitable business.
INSIGHT
LOOKING FOR A NICHE IN POWER GENERATION HUGO GALINDO Director General of Grenergy Renovables
88
Finding a niche within the newly liberalized Mexican
The company focuses on three stages of development,
energy market will be Spain-based Grenergy Renovables’
from the initial development, which can take from 12
objective during 2017. The company, one of the winners
to 36 months, to what it calls the R2B (Ready to Build)
of CENACE’s second power auction in 2016, plans to look
stage, following the period of construction and financial
at the opportunities for development in areas like private
structuring to the last stage, operation. “Once the project
PPAs to cover the large energy necessities of Mexico’s
is in the operating phase we are also involved during its
industrial economy, says Hugo Galindo, the company’s
first part, which means we operate them from between
Director General.
one to four years. Then we can sell the project to a final investor who is looking for a more fixed profitability and
“We participated in the first and second tender and
to avoid development or construction risks. There are
in the last one the company was awarded a 30MW
investment funds devoted to infrastructure and renewables
project. Grenergy has more than 300MW in photovoltaic
that are our eligible investors for this type of projects,”
developments and more than 100MW in wind energy
Galindo says. Grenergy’s business model, which allows the
projects but we have to redefine our strategy to adapt
company to sell the project at any of those three stages,
the projects to the new conditions of the market,” the
has given it access to larger profitability margins, he adds.
executive for the solar and wind power project developer says. The company, which specializes in developing,
Galindo says that the advent of the Reform and the power
building and launching operations for power plants, with
auctions speeded the learning curve and increased quality
the objective of selling them to long-term operations, had
for energy generation projects in the country and that the
close to 60 projects in different stages of development
competitiveness achieved specifically in the solar PV sector
by mid-2016, of which around 18 were located in Mexico,
has given a strong impulse to that particular technology.
according to their website.
But size remains important in terms of cost, he adds. The project awarded to the company in the second auction
“We want to focus our development on other value offers, maybe private PPAs” Hugo Galindo, Director General of Grenergy Renovables
“was among the smallest awarded, and unfortunately we see that the bigger the project, the better because they have fixed costs and 100MW projects are more profitable than 30MW projects.” Financing is still difficult to obtain since the market is very new and both banks and investors are waiting for more information to become available. But Grenergy’s international experience helps. “In Chile we developed
Grenergy, Galindo says, “is currently working on 15 to 17
the first project to achieve financing from a local bank,
developments. We have 10 PV projects of 30MW each
which opened a door for us to look for opportunities
and a couple of smaller projects around 10MW each.
with multinational and local banks. International banks
With wind energy, we have some projects of 30MW.” The
like the ones from Germany and Spain are interested in
company, founded in Spain in 2007 at the height of the
these projects but they have to carefully go through each
energy boom there, entered Latin America via Chile in
proposal to see the type of financing they can provide and
2011 and decided to follow up in Mexico in 2012-13 under
settle the best conditions. Even though we have equity,
the small producer scheme prior to the Reform. But it was
if these projects do not have bank financing they are not
able to adapt its projects to the new conditions set by the
feasible. As for Grenergy, once we have the PPA with CFE
constitutional changes.
we will be able to negotiate with banks.”
INSIGHT
MARKET STABILITY ATTRACTS GLOBAL SOLAR CHAMPION BORJA GUINEA COO America of Fotowatio Renewable Ventures
89
December 2013 was a historic month for Mexico’s energy
bidding process. Spain-based FRV’s success at the auction,
industry. The sanctioning and publication of the constitutional
where it won the rights to sell to CFE 779MW/h from a
Energy Reform opened the door to national and foreign
300MW solar PV plant, can be partly attributed to its
investment in a sector that was in need of revitalization.
expertise. “We know the technology as well as the auction’s
While some doubted the success of the Reform, others like
typology. We like the Mexican market and we feel very
Fotowatio Renewable Ventures (FRV) decided to dive into
comfortable participating here.”
the opportunities offered by the nascent market. The auction had a total of 23 winners that are expected to “The regulatory particularities of the Mexican market have
generate 3.8GW while investing US$4 billion, representing
been defined in the past years. Regardless, Mexico is a
about 3 percent of the total clean energy generated in
market that offers two key things: macroeconomic and
Mexico annually. According to Guinea, competition in the
regulatory long-term stability,” says Borja Guinea, COO for
market spurred FRV to present an innovative proposal. But
the Americas of FRV.
he points out that it would not have been possible without a stable regulatory framework. “The more stable the regulation
If there is a characteristic that every energy-related project
and with the assurance of long-term sales, the more benefits
shares it is that all are long-term. That is why legal and
final users will perceive and at lower prices.”
regulatory certainty as well as enforcement of the rule of law play such an important role for companies when deciding
According to information from the US Energy Information
to invest in the country. Guinea believes that the Energy
Administration, during 2016’s first six months average
Reform and the subsequent rules for the electricity market
prices in most Mexican locations were between US$48/
provide enough certainty. “The Energy Reform ends the
MWh and US$60/MWh. CENACE’s auctions are expected
old market and lays the foundation for a new dynamic. It
to lower these prices. The first long-term auction projects
also gives us visibility regarding the long-term functioning
presented contract prices averaging US$45/MWh, while the
of the regulatory framework and stability in the expected
second auction resulted in prices that averaged US$33.47/
remuneration for the generation.”
MWh, which is among the lowest at an international level. FRV is expected to compete in the Mexican market with a
Part of the government’s long-term vision was embodied
US$26.99/MWh rate, one of the most competitive.
in the country’s goals for the use of renewable generated energy. By 2024, 35 percent of the total electricity
The ability to offer a competitive rate is the result of several
generated in the country is expected to come from clean
factors, including the decreasing costs of solar technology.
sources. According to information from the National
“Solar technology has experienced a vertiginous decrease in
Inventory on Renewable Energy (INER), Mexico has a
prices,” says Guinea. “In Mexico, constructing a photovoltaic
proven potential for generating up to 13.2TWh/year of
asset costs a seventh or eighth of what it would have cost for
electricity but that still needs to be developed. In 2015
the same asset eight or nine years ago in Europe.”
alone, CRE registered a total of 9.5MW in projects in the construction stage. While it is unclear if the country will
FRV will offer its rate from its production site in San Luis
reach the 35 percent mark, CENACE’s auction processes
Potosi, where the company will begin operations in the near
bring the country closer to that goal.
future. “Our site in San Luis Potosi complies with all the characteristics a solar project must have: good and constant
It is in this context that FRV becomes a key piece in the
solar irradiation, capacity to effectively evacuate the energy
development of Mexico’s solar energy industry. The
that will be generated and the capacity to interconnect the
company was one of the winners of CENACE’s second
energy with the overall electric system.”
POWER AUCTIONS
1
5
6
2 90 7
3
4
8 17
10
PV Wind Geothermal Hydroelectric Combined Cycle
18
19
20 21 22
Source: CENACE
23
24
25
9
11
42
13
14
91
15
12
16
28 26
27
35
34 36 30
40
31
29
32
33
37
38
39 41
POWER AUCTIONS
92
Auction
Winner Legal Name
Power Plant
Company
1
Second
Energía Sierra Juárez Holding
Rumorosa Solar
Ienova - Intergen
2
Second
AT Solar
AT Solar
ACCIONA Energía BioFields
3
Second
Kamet Energía México
Orejana
Fisterra Energy
4
Second
Bluemex Power 1
Bluemex Power
Bluemex Power
5
Second
CFE
Agua Prieta II
CFE
6
Second
X-Elio Energy
Parque Solar FV Conejo
X-Elio
7
Second
Quetzal Energía México
Santa María
Fisterra Energy
8
Second
HQ Mexico Holdings
Torreón-HQ 100
Hanwha Q-Cells
9
First
Enel Green Power México
Parque Solar Villanueva III
Enel Group
10
First
Enel Green Power México
Parque Solar Villanueva
Enel Group
11
Second
OPDE
Andalucía II
OPDE
12
Second
Parque Eólico el Mezquite
Parque Eólico el Mezquite
Cúbico
13
Second
Parque Eólico Reynosa III
Parque Eólico Reynosa
Intaván México
14
Second
Enel Green Power México
Salitrillos
Enel Group
15
First
Energía Renovable del Itsmo II
PE El Cortijo
ACCIONA Energía
16
Second
Tractebel Energía de Altamira
Tres Mesas III
Oak Creek Energy
17
First
Consorcio Sol de Insurgentes
Sol de Insurgentes
Engie
18
Second
Consorcio Fotowatio
Potosí Solar
Fotowatio Renewable Ventures
19
Second
Consorcio SMX
Tepezalá II
Ienova
20
First
Recurrent Energy Mexico Development
Aguascalientes Potencia I
Canadian Solar
21
Second
OPDE
PS Aguascalientes Sur I
OPDE
22
Second
Consrocio ENGIE Solar Trompezon
Trompezon
Engie
23
Second
Alten Energías Renovables
Proyecto Planta Fotovoltáica 140 MW AGS Alten
Alten
24
Second
Alten Energías Renovables
Alten Aguascalientes
Alten
25
First
Jinkosolar Investment
Las Viborillas
Jinko Solar
26
Second
Consorcio Guanajuato
Parque Solar FV Mexsolar
Grenergy
27
First
Enel Green Power México
Parque Solar Don José
Enel Group
28
First
SunPower Systems Mexico
Guajiro II
SunPower
29
Second
CFE
CG Azufres III
CFE
30
Second
Generadora Fénix
Necaxa
SME - Mota-Engil
31
Second
Generadora Fénix
Patla II
SME - Mota-Engil
32
Second
X-Elio Energy
Parque Solar FV Xoxocotla
X-Elio
33
Second
Eólica de Oaxaca
Gunaa Sicarú
EDF Energies Nouvelle
34
First
Energía Renovable de la Península
Energía Renovable de la Península
Envision - Vive Energía
35
Second
Energía Renovable de la Península
Energía Renovable de la Península
Envision - Vive Energía
36
First
Jinkosolar Investment
San Ignacio
Jinko Solar
37
First
Photoemeris Sustentable
Kambul
Alter Enersun Renovables
38
First
Aldesa Energías Renovables
Parque Eólico Chacabal
Aldesa
39
First
Consorcio Energía Limpia 2010
Parque Eólico Tizimín
Alarde
40
First
Vega Solar I
Ticul I
Vega Solar Energy
41
First
Jinkosolar Investment
Concunul
Jinko Solar
42
Second
Frontera México Generación
Planta Frontera 06 PFT-PTA
Fisterra Energy
Technology
State
PV
Baja California
PV
Plant Size (MW)
Capacity (MW/y)
Energy (GW/h per year)
CELS
41
0
114.116
117064
Sonora
180
29
478.261
478260
PV
Sonora
125
0
353.466
353466
PV
Sonora
90
0
249.982
249982
Combined Cycle
Sonora
394.1
374.98
0
0
PV
Chihuahua
80
16
193.771
193771
PV
Chihuahua
143
0
393.611
393611
PV
Coahuila
101.08
18.3
252.445
252444
PV
Coahuila
250
0
737.998
737998
PV
Coahuila
330
0
972.915
972915
PV
Coahuila
82.5
0
213.655
213655
Wind
Nuevo Leon
249
76.74
820.636
774938
Wind
Tamaulipas
387.5
0
1613.42
1613416
Wind
Tamaulipas
100.05
0
399.129
399129
Wind
Tamaulipas
168
0
585.731
585731
Wind
Tamaulipas
49.5
21.62
223.011
223010
PV
Baja California Sur
23
0
60.965
60518
PV
San Luis Potosi
300
0
779.162
779161
PV
Aguascalientes
100
10
278.358
283606
PV
Aguascalientes
63
0
140.97
140970
PV
Aguascalientes
29.67
0
75.854
75853
PV
Aguascalientes
126
0
342.63
338851
PV
Aguascalientes
140
36
348.466
392032
PV
Aguascalientes
150
38.59
373.577
420335
PV
Jalisco
100
0
277.49
277490
PV
Guanajuato
30
12
146.958
146957
PV
Guanajuato
207
0
539.034
539034
PV
Guanajuato
100
0
269.155
263815
Geothermal
Michoacan
25
25
198.764
198764
Hydroelectric
Puebla
53
0
0
250245
Hydroelectric
Puebla
15
0
0
64386
PV
Morelos
70
14
169.375
169365
Wind
Oaxaca
252
0
818.265
818264
Wind
Yucatan
90
0
275.502
275502
Wind
Yucatan
90
30
0
0
PV
Yucatan
18
0
48.748
48748
PV
Yucatan
30
0
54.975
53477
Wind
Yucatan
30
0
230.888
230888
Wind
Yucatan
76
0
291.9
291900
PV
Yucatan
500
0
740.135
725450
PV
Yucatan
70
0
176.475
176475
Combined Cycle
Texas
505
479.93
0
0
93
Control room of Mexico's independent grid operator, Mexico City, CENACE
ELECTRICITY MARKET
4
If someone wanted to turn on a dishwasher, a streetlight or even a car assembly line in Mexico as recently as 2015, there was precious little choice on the matter: arrange to build a power generation plant with the sole purpose of supplying all or part of the electricity needs, as many companies did, or call the stateowned CFE to connect them. Since last year, however, the number of choices has multiplied. Off-takers and even residential consumers are looking at several options for getting the electricity they need, from energy traders to the still untested spot market.
It does not end there. There are still parts of the Wholesale Electricity Market (MEM) waiting to unfold, such as the Clean Energy Certificates (CELs) that will help industrial users comply with sustainability and clean energy goals to the financial transmission rights to ensure electricity reaches its intended destination. This chapter takes a look at some of the developments to come, as well as some of the players already probing the financial depths of the industry.
95
CHAPTER 4: ELECTRICITY MARKET 98
ANALYSIS: The More Options, The Better
99
VIEW FROM THE TOP: Eduardo Meraz, CENACE
100
VIEW FROM THE TOP: Sebastián Leal, SUMEX
Joaquín Leal, SUMEX
Javier Garza, SUMEX
102
VIEW FROM THE TOP: Rodrigo Juárez, Ammper
103
INSIGHT: Hans Kohlsdorf, E2M
105
INSIGHT: Justin Bryon, Thermion Energy
106
VIEW FROM THE TOP: Jorge Angarita, B2E
107
VIEW FROM THE TOP: Toralf Hey, Biosolventus
109
VIEW FROM THE TOP: Salvador Alarcón, Trade On
110
INSIGHT: Jorge Gutiérrez, Energía Eléctrica Bal
111
INSIGHT: Juan Rubiolo, AES Mexico and EnerAB
113
INSIGHT: Adolfo Velasco, Grupo México
114
VIEW FROM THE TOP: Ramón Moreno, Mitsui & Co. Power Americas
115
VIEW FROM THE TOP: José Fernández, INEEL
116
ROUNDTABLE: How Much Has The New Market Lived Up To Expectations?
97
ANALYSIS
THE MORE OPTIONS, THE BETTER A few decades ago Mexicans wanting to call a friend had
legacy contracts under the previous legal regime to hold
only one option to do so: TELMEX, the former state-owned
their status for the project’s life span, maintaining the same
monopoly privatized in 1990. The appearance of cellphones
limitations but also the benefits available in the pre-Reform
and the arrival of new telecommunication companies
framework.
widened the portfolio of options for Mexican clients, driving prices down and customer services up. The Energy Reform
“In legacy projects, we only need to consider costs of power
now expects to do the same for the electricity sector, spicing
production, regulated ancillary services, wheeling (the same
up the market with new participants and business models.
cost for delivery anywhere in the country and for the entire life span of the project) and capacity, which we can deliver
98
The options that off-takers now have to purchase electricity
with more certainty than in the new market. These costs are
include long-term PPAs with generators holding projects
already defined. In the case of renewables, legacy projects
under the new or the previous law, qualified suppliers, both
also have the advantage of the Energy Bank so we do not
private and CFE Calificados, secondary market traders or
have to worry about balancing our power production as
even directly in the short-term spot market. Each of these
much as new generators must,” says Justin Bryon, Managing
options has its own risks and benefits but the choice falls
Director of Thermion Energy.
now on the client. In the case of companies willing to try their luck directly Advocates of intermediaries – qualified suppliers and traders
in the market, there are also new companies and software
– highlight diversification and quicker response to changing
ready to accompany them on this adventure, reducing the
market conditions as the major advantages, also giving end
risks and maximizing their opportunities. Everyone can also
users more power over their desired energy mix. “We want
enter CENACE’s website and check for weekly updates over
to avoid more horror stories about long-term contracts
the market behavior and average marginal prices in the
tying companies to one technology just before the prices of
different nodes of the country.
other technologies drop dramatically,” says Rodrigo Juárez, While the new regulations have forced PEMEX to give up
Commercial Director of Ammper.
70 percent of its contracts to private natural gas trading On the other hand, advocates of long-term contracts
companies, there is no such dictate in the case of electricity.
between generators and end-users defend certainty and
Private companies need to raise the bar regarding services
simplicity as the biggest values for clients. The market offer
and prices to gain ground on both CFE and other businesses
is further divided into two segments because the law allows
or be left behind by more competitive players.
MEXICO’S WHOLESALE ELECTRICITY MARKET OPERATIONS STARTED:
• Baja California System
• National Interconnected System
January 27, 2016
January 29, 2016
WHOLESALE ELECTRICITY MARKET STRUCTURE
Short-Term Market
Capacity Balancing Market
CELs Market
Financial Transmission Rights Market
Medium and LongTerm Auctions
Medium-Term
Long-Term
BY DECEMBER 2016, CRE HAD AWARDED:
1366
Generation Permits
1
Basic Supply Permit
15
Qualified Supply Permits
19
Qualified Users Registered
MARKET PRODUCTS
Energy
Capacity
Ancillary Services
CELs
Source: CRE
Financial Transmission Rights Markets Currently in Operation
1
Secondary Market Traders Registered
VIEW FROM THE TOP
PRIVATE PARTICIPATION SLOW BUT STEADILY GROWING EDUARDO MERAZ Director General of the National Center for Energy Control (CENACE)
Q: What major challenge did CENACE face during the
improving the Market Information System and responding
electricity market’s creation and how did it cope?
to all the industry’s queries, providing explanations to all
A: Time. The strong commitment of our staff and our close
the players who require them.
collaboration with the National Center of Electricity and Clean Energies (INEEL) were strategic actions taken to
Q: How will legacy projects impact the market’s development,
overcome our main challenges and underpin our success.
for instance with financial transmission rights?
Because the Mexican electricity market was designed
A: Financial transmission rights were applied by the end of
using the experience of other markets, we could start our
2016 for legacy projects. The payment behavior associated
operations with previous knowledge of what were the
with these rights will determine whether or not it is the
best possible choices available thus reducing the chance
right moment to launch the first financial transmission
of errors. We greatly benefited from the experience and
rights auction, as they must be attractive enough to
knowledge of other grid operators such as ERCOT from
ensure adequate levels of participation. All legacy
Texas, PJM from the US Eastern market and CAISO from
projects migrating to the new scheme can participate in
California, with whom we collaborate closely. I would also
these auctions, which could have an important impact
highlight the coordination efforts with key stakeholders
depending on the scale of this migration and the actual
in the implementation of the Energy Reform such as the
congestions in the grid. The first financial transmission
Ministry of Energy, CRE, CFE, industry associations and
rights auction is expected to take place in late 2017 or
private companies.
early 2018 but it will largely depend on the date in which the manual is published.
Q: How has private participation evolved in the electricity market and how did CENACE help to enhance trust?
Q: How does CENACE support private entities interested
A: We have witnessed a growing interest from the private
in entering the MEM?
sector in the electricity market as seen from the results
A: The structure of the MEM offers an exceptional opportunity
of the two long-term power auctions conducted by
for its participants to enter a competitive environment within
CENACE. This confidence in the market is largely based
the evolving Mexican electricity industry. CENACE’s role is
on the same principles and values we follow in our role
to ensure that potential participants have the requisite
as a public decentralized organism, which acknowledges
knowledge about the procedures needed to enter the
transparency and access to information as crucial to
market. We offered training courses in 2016 to all companies
enhancing competitiveness. Trust is particularly strategic
interested in becoming market participants. CENACE also
because the relevance and scale of the Energy Reform
held constant meetings with industry associations and public
generate
uncertainty
and private companies to dispel doubts and review specific
among potential and incumbent market participants.
cases. Every week we conduct an online meeting with market
The short-term market started operations with only
participants to analyze market behavior and results. Key
three participants: CFE in different roles and two private
among our activities is our official website in which we offer
generators. Now, four more private participants are
useful information for interested companies. To complement
operating in the spot market, including two qualified
our virtual tools we are also working on the development
suppliers and two generators. There are other participants
of new technological applications to help participants with
that have already signed the required contracts but have
their decision-making with real-time information.
expectations
accompanied
by
not started operations and some others have not obtained their permits. This evolution is natural and will continue as
The National Center for Energy Control (CENACE) is a decentralized
companies assess the benefits of entering the new market
public entity founded in 2014 to act as the country’s independent grid
model. This is the main reason for CENACE to continue
operator.
99
VIEW FROM THE TOP
100
Sebastián and Joaquín Leal and Javier Garza, founding partners of SUMEX
BREAKING GROUND IN THE ELECTRICITY MARKET Q: What was the motivation to launch SUMEX before
A: We have an ongoing collaboration with the National
market regulations were fully defined?
Institute of Electricity and Clean Energies (INEEL), which
A: Limitations in the previous regulatory framework had
was the entity in charge of developing the electricity
driven companies to establish long-term agreements with
market platform. INEEL has strong expertise in the energy
generators without considering technological evolution,
market and the modeling of physical networks and energy
which is a constraint for the industry’s development. We
flows, which is beneficial for our company’s ambitions.
believe that portfolio diversification is where the real
We are also collaborating with the former Mexican
business opportunities are as it allows us to satisfy the
Electrical Workers’ Union (SME), which was awarded
energy demand of our clients while offering short-term
several assets and land from the extinct Luz y Fuerza
hedging contracts. SUMEX was created to bring these
del Centro and formed a new energy company together
solutions to the Mexican energy market. The power industry
with a Portuguese firm. Our plan is to establish long-
is complex but we have found that qualified suppliers have
term contracts with them, selling the power from SME’s
the most attractive business opportunities in the recently
facilities that correspond to clean energy technologies.
created market. Qualified suppliers can put the most
We also have an agreement with SME to modernize their
advanced technologies into a customer’s hands contrary
electric meters, which will be performed in partnership
to generators, which tie off-takers to a single technology.
with different technological suppliers.
The Mexican power market has risks but it also offers great
We realized that we needed to form strategic alliances and
business opportunities. We first wanted to invest in power
partnerships to compete with a company the size of CFE,
generation projects but we decided to become a qualified
which has around 100,000 employees. Our main partners
supplier after analyzing the advantages and disadvantages
at the moment are SME and INEEL, which have knowledge
of the existent market figures. The main factor driving us
and long-time experience in the Mexican energy industry.
to create a private qualified supplier was the possibility to
We have also established strategic alliances with different
offer short-term contracts, which are best suited to the
commercial partners that have brought over 200 sales
needs of Mexican off-takers.
agents to the project, which we expect will rise to 500. Qualified users account for 70 percent of the electricity
Q: What kind of partnerships has SUMEX established to
sold in the market, so we need to have enough specialized
push its business in Mexico?
people to cover this large market. For this reason, we
place great importance on training our staff, offering five-
NAEAM brings its commercial experience to the table
day courses on the functioning of the electricity market.
while we bring our knowledge of the Mexican framework.
We are also working to educate our customers about new
We have established other strategic partnerships with
market features. Education is now the most important
international companies. Most were eager to enter the
aspect for moving the industry forward.
market but needed a partner that had all the permits and operational structure already in place.
Q: What strategies is SUMEX using to mitigate market risks?
Qualified users account for 70 percent of the electricity sold in the market
A: SUMEX’s strength comes from our analytical team that has a deep market understanding and sound mathematical models for forecasting the behavior of local marginal prices (PML). It is nearly impossible to predict how PMLs will behave in the long term but we can analyze several factors to do an accurate enough forecast, by looking at CFE’s decommissioning plans or expected demand growth, for instance. Our analytics team looks at these external variables and includes them our model to give us the information we need to prepare adequate offers to our clients. This team also benefits from the alliances we have with experts in energy markets and forecasting,
Q: How do you see the business expanding in the next
such as INEEL or Woodhouse Lorente Ludlow, the law
few years?
firm in charge of shaping the market regulations. Our
A: We have commercial offices in Jalisco, San Luis
expert partners provide a second opinion to all our
Potosi, the State of Mexico and Mexico City and we are
business decisions, ensuring they translate into benefits
in the process of opening offices in Yucatan, Michoacan,
for our clients.
Chihuahua and Baja California. We are expanding our business based on the number of contracts we have and
Q: Which other market participants can benefit from
adapting our services to local conditions. We see great
partnering with SUMEX?
interest from private companies to enter the market. The
A: Our status as a qualified supplier allows us to represent
power industry offers countless business opportunities
generators in the market, an added value we also bring
and the scale of Mexico’s market, valued at around US$1
to the industry. Generators can take up to one year to
billion, increases its attractiveness. But most companies
register to represent themselves in the market. Completing
need to learn about the market before they can capitalize
transactions through a qualified user can reduce this time
on these opportunities. We are the only private company
and increase the profitability of their projects. Generators
able to operate in the market, which is one of our major
also benefit from contracting our services because we
competitive advantages.
handle all the regulatory processes and provide customer services, which tend to be complex for non-specialized
Q: Which indicators will measure SUMEX’s success in the
companies. This is a separate business line we created to
short term?
simplify the participation of generators in the market.
A: The amount of megawatts/hour supplied and the cost per megawatt-hour. The first is an indicator of the
We have seen an inflow of US energy traders, many of
company’s market penetration while the cost reflects
which have over 15 years’ experience in the US market.
the success of our power purchasing strategies and the
Their core business is to attract clients for electrical
efficiency of our analytics team. Both aspects are enough
utilities. Some have approached us to join efforts in
to measure our company’s advances in the commercial
the Mexican market and we have selected the North
(MW/h) and operational sides (MX$/MWh). We expect
American Energy Associates Mexico (NAEAM) as our
to supply up to 2GW by the end of 2017, following our
strategic partner for Mexico City and the State of Mexico.
commercial strategy in which our partners play a strategic
NAEAM has around 7,000 clients in the US but we expect
role. We have grown at a faster pace than expected, going
to serve many more customers in the metropolitan
from 20 to 200 employees in three months, and we hope
Mexico City area, which is particularly important due to
to continue a similar trend in the future.
our agreement with SME and its high incidence of energy losses. NAEAM has great ambitions for Mexico and it
SUMEX is the first private qualified supplier in Mexico to obtain both
already has around 80 sales agents operating in this
CRE and CENACE permits to operate in the Wholesale Electricity
region. This partnership is mutually beneficial because
Market (MEM).
101
VIEW FROM THE TOP
MULTIDISCIPLINARY APPROACH TO QUALIFIED SUPPLYING RODRIGO JUÁREZ Commercial Director of Ammper
102
Q: What added value each of Ammper's partners bring
A: Ammper is entitled to sign bilateral contracts as a
to the table?
qualified supplier. We can establish long-term agreements
A: Invex is our local partner and has over 25 years
with generators but still offer short-term contracts to
of experience in Mexico. We finance structures and
our clients. The company also works as a representative
participate in risk capital and project management. One
for qualified users that have generation assets to supply
of the largest sectors served by Invex Infraestructura is
themselves and want to sell surplus production in the
energy. Invex Infraestructura brings business relationships
spot market, as the law requires a qualified supplier to
and knowledge of the Mexican market to the table, both
perform these activities. We act as middlemen in these
important for a new company like us. Bester Energy is our
cases, handling all the costs and transaction processes for
technical partner. It is a renewable energy developer with
a service fee.
international experience in over 20 different markets. As our partner, they evaluate all our proposals and clients,
Q: What qualified user profiles are beign targeted at this
verifying if the electrical infrastructure is in line with the
stage and what is your market offer?
project’s requirements. InfraRed Capital Partners is a US$12
A: Energy has not been a competitive industry in
billion fund with long experience in renewable projects.
Mexico for the last 80 years. Companies are just starting
Legal and financing knowledge are the added values
to
Infrared Capital Partners bring to the table in addition to
departments and that is precisely what Ammper wants to
power generation assets, which allow us to offer flexibility
do for its clients. We want to become our clients’ energy
to our clients.
departments. We can handle all energy-related matters,
acknowledge
the
need
for
specialized
energy
including energy-efficiency programs, so companies can Q: What kind of power generation assets are part of
focus on their core business and still receive cost-efficient
Ammper’s portfolio and why?
energy services. At this point, we are targeting large energy
A: We started building our power generation portfolio
consumers such as mining, steel, automotive or cement
four years ago and now have a diversified set of
manufacturers. One of the reasons is that they tend to
technologies, including hydroelectric power plants in
have energy departments already in place, or at least one
Chiapas, a wind farm in Puebla and several solar parks,
person in charge of the company’s energy management,
adding 700MW, in central and northern Mexico. We bet
which eases the negotiation process. The other reason
strongly on solar energy because we consider it the most
is the scale of their energy consumption. We now prefer
competitive technology. The fact that solar irradiation
to have a few big clients rather than several small-sized
is free and predictable allows setting a fixed price for
companies because it is more efficient in terms of time
solar generation, unlike gas-based technologies. But
and resources.
we also have traditional technologies in our portfolio to complement our renewable energy assets. We believe
Q: When do you expect Ammper to start operating fully
diversification is the key to a successful portfolio because
in the market?
it allows us to offer flexible solutions.
A: Ammper is in a similar position to most of the qualified suppliers entering the market. We are all investing time and
Q: To what extent are you collaborating with other
resources preparing our companies to start operations.
generators given your own power generation capacity?
We have just completed CRE’s permitting processes and are focused on CENACE’s registration process so we can
Ammper is a qualified supplier for the Mexican wholesale market. They
start doing transactions in the market. We already have
have a diverse portfolio in energy generation projects with a particular
some clients ready to go, most of them corresponding to
focus in renewables.
companies that are willing to learn the process with us.
INSIGHT
BROKERS BRIDGE GAP BETWEEN USERS, GENERATORS HANS KOHLSDORF CEO of Energy to Market (E2M)
The qualified supplier is one of the new market roles
But the new scheme also brings financial uncertainty
created by the Energy Reform, a merchant and broker
because it is not made of clear-cut, bilateral deals. The
bridging the gap between heavy users and generators,
PPA in particular is one piece of the system that Kohlsdorf
purchasing energy in the MEM to cover the demand of
believes could soon become a thing of the past, at least
qualified users with which it has a supply contract. The
in the private sector, to be replaced by hedging tools
system, says Energy to Market (E2M) CEO Hans Kohlsdorf,
common in commodities and financial markets. “Market
brings Mexico’s newly liberalized energy market closer to
participants face several risks, ranging from pricing to
the way other industries work, where traders and brokers
currency risks. Power producers are particularly vulnerable
serve as intermediaries, increasing efficiencies because
to commodity-related risks, such as rising natural gas
their role permits both generators and energy users to
prices, and climate-related factors such as lack of wind.
concentrate on their core activities.
Hedging products are what the market needs, not bilateral agreements.”
“Even the largest companies such as CFE need distribution channels,” Kohlsdorf says. “We do the job of working
For these reasons, E2M is creating hedging contracts
individually and building a relationship with the end user,
for small and large-sized generators and qualified users,
giving all the large established generators the opportunity
relating the electric market to their intrinsic business
to bring better services to their customers. We also offer
models. “We analyze the risk inherent to the business and
complementary services to electricity users, providing a
buy or structure the necessary hedge so that companies’
complete market experience.”
costs are aligned with their income. By creating these we take the financial risk out of the operation’s overall risk
While a generation company will likely specialize in one
structure,” Kohlsdorf says.
or two technologies such as gas-fired cogeneration and solar, each with its own advantages and drawbacks such
A difference that makes Mexico a potentially more
as price volatility in the case of gas and intermittency in
attractive market than those of more mature regions
the case of solar PV, a qualified supplier is not bound by
such as Europe and the rest of North America is that in
any particular restriction and can help an energy user
the Latin American nation everything, from demographic
locate the “perfect portfolio” of energy options, he adds.
indicators such as the growth of the middle class to a
“We are not limited to one source and we can also sell
younger population entering the workforce, as well as the
electricity from other power producers or co-generation
country’s industrial drive, points to a prolonged increase
plants with excess production. Through us, end customers
in demand. “Mexico still needs more energy and it expects
can buy excess energy in the market to complete their
to have an increasing electricity demand for the next 10
requirements and generators can use the market’s
to 15 years. Energy-efficiency programs will mitigate the
flexibility to trade excess energy.”
need for additional energy but the electricity market will continue growing,” the CEO says.
The added value of the qualified supplier might be in plain sight but the market still needs to continue developing and
E2M is looking to improve on the quality of services it
adding participants on both sides of the energy equation,
offers by investing heavily in IT platforms to provide
thus increasing its efficiency. The more participants, the
transparency and additional services. “We want to create
more competition and the more cost-effective it will
a system allowing independent power generators to reach
become, miles away from the “highly inefficient” system
thousands of potential customers without having to make
of PPAs and self-supply agreements under the previous
large commercial investments. Our intermediation services
legal framework.
create value on both sides of the market."
103
INSIGHT
LEGACY CONTRACTS KEEP THINGS SIMPLE JUSTIN BRYON Managing Director of Thermion Energy
The coexistence of legacy generation permits and those
to worry about balancing our power production as much
under the new regulations is a key differentiator in the
as new generators must,” he says.
Mexican electricity industry, which has resulted in a business line that is running parallel with the opening
The typical profile of a Thermion Energy client would be “a
of the wholesale electricity market. The government
medium intensive user of electricity whose consumption is
originally decided to maintain these “grandfather” rights
important financially but not strategically. Ideally it would
to protect former investments but some companies
be a creditworthy transnational company from a country
see them as a haven of certainty and simplicity in these
belonging to the Organization for Economic Cooperation
changing and complex times. Thermion Energy is a
and Development (OECD) that has set clear targets in
Mexican independent power producer that has decided to
terms of sustainability and usage of renewable energies.”
put legacy projects at the heart of its strategy, offering off-takers a simpler alternative to other market options.
To serve this market Thermion Energy has the goal of
“We know that customers will only accept changes that
rolling out at least 1GW over the next six to eight years
make their lives easier. Becoming a market participant is
in legacy projects, for which it has identified enough
not particularly easy at the moment,” says Justin Bryon, a
grandfathered permits to achieve its ambitions. “We are
Managing Director at Thermion Energy. “Thermion Energy
advanced in contracting enough legacy projects to meet
decided to acquire and offer legacy contracts as a more
our expansion plans. We have some projects that were
hassle-free and cheaper alternative to CFE’s supply. We
assigned transmission capacity as part of an open season
think our strongest advantages are that we do not ask
organized by CRE prior to the implementation of the
for extra guarantees, offer predictable electricity prices
Electricity Industry Law, which means they are eligible to
and structure our supply contracts in line with our clients’
receive a legacy interconnection contract with up to 20-
specific risk profiles and business cycles.”
year duration as per the law’s transitory provisions. The law states that all other projects must be operational by
Bryon explains that “the problem with any wholesale
December 2019 at the latest while open season projects
electricity market is inherent volatility. There are four
are not subject to this limitation, allowing us more
major products or components that are volatile in the
flexibility in rolling out our commercial operations. We are
Mexican market: financial transmission rights, capacity,
well covered in this sense,” Bryon says.
ancillary services and CELs. These components impact the cost of power delivered to the final user in addition to
The company has decided to focus mostly on wind
generation and other costs. The major issue that qualified
energy projects, which allow the offering of capacity in
suppliers are facing in the new market is the difficulty to
addition to energy under the previous rules. “All our wind
obtain hedges for these four components and this results
energy projects are already in a late stage of development
in uncertainty for the supplier and/or end user.”
but we are waiting to see the results of the Reform’s implementation before moving forward. It is a prudent
Providing certainty is a key factor for legacy projects. “We
investment strategy. We expect to start investing in the
only need to consider costs of power production, regulated
first quarter of 2017, once we have our investment fund
ancillary services, wheeling (the same cost for delivery
closed. We then have five years to commit our investments
anywhere in the country, and for the entire life span of
and another five years to complete them. We are looking
the project) and capacity, which we can deliver with more
at investing in eight to 10 legacy projects that will focus on
certainty than in the new market. These costs are already
supplying the corporate market,” he says. Grandfathered
defined. In the case of renewables, legacy projects also
projects will always have an advantage even as the market
have the advantage of the Energy Bank so we do not have
matures: they are much simpler and therefore cheaper.
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VIEW FROM THE TOP
INFORMATION, LIQUIDITY NEEDED AS MARKET EVOLVES JORGE ANGARITA CEO of B2E
106
Q: What has been the greatest challenge the company
can compare by themselves and decide what is best for
has encountered as a qualified supplier?
them. It is important to clarify that I do not sell projects.
A: We have encountered several challenges but they are
I have a group of 17 partners that generate energy and a
all part of the natural process of opening a new market.
large group of off-takers. What I offer my clients is the
The rules are not entirely defined, which is natural.
best possible option from this portfolio. We do not work
Particularly with off-takers, there seems to be a lack of
on point-to-point product placement. It is a solution
knowledge regarding risks and options, which hampers
tailored to each client.
operations. What we need is more information, to have the model completely explained so we can make decisions.
Q: Why do you include services such as natural gas supply
Even though it does not affect us directly, there is also a
and energy-efficiency solutions instead of just electricity?
problem regarding loan procurement. The Mexican market
A: Integration of electricity and natural gas forms part of
does not have the level of liquidity that it needs, which is
the well-known concept of an Energy Service Company or
also understandable because financial companies do not
ESCO. The service of energy efficiency is the result of our
have the level of understanding required for the market.
experience in other markets so we wanted to include it in
We are all participating with a lot of caution, trying to see
Mexico. Including energy efficiency is part of the business
how the market will evolve.
model of a modern energy company that offers integral solutions. Regarding the natural gas offering, many of our
Q: What actions is B2E taking to remain competitive amid
shareholders have experience in the natural gas market so
the changing regulations?
we also wanted to be a participant in this.
A: Sometimes not all the regulatory pieces are in place but that is part of the process. I think that one of the
Q: What constitutes good customer service for an energy
company’s strengths is that our team has experience in
company?
other markets such as Colombia, Chile, Argentina, the
A: There are two important elements to consider when
US and Spain. This experience puts us ahead of other
we talk about service quality. The first is related to the
players. It has also helped us in the development of our
quality of the power and the second to the quality of the
systems’ platforms. For example, we have a system that
commercial service. Power quality does not depend on the
allows us to predict congestion prices. That is something
supplier but on the distribution company, currently CFE.
we are very proud of since we know that few players have
Any failure in this part is not the supplier’s fault but the
developed such a system. Our goal is not to be a massive
fault of the distribution company. Commercial service is
company. We have focused our efforts on a few clients
the supplier’s responsibility but the off-takers are not fully
with large consumption, providing them with an added-
aware of this. This is the kind of information that needs to
value product offering.
be understood.
Q: How do you convince off-takers to use your new
Q: How do you expect the Mexican market to evolve in
product offering?
the next two years?
A: Our job is to explain to an off-taker everything that
A: The future will depend on what we do today. If we do
exists in the market. This means explaining tariffs, buying
things right they will get better eventually. It will take a lot
energy and so on. We deliver a portfolio of options so they
of work from the parties involved, including the regulator. So far, the regulator has done a good job but I believe that
B2E is a Mexico City-based qualified supplier of energy looking to
it needs to keep up that good work. It needs to send very
bridge the gap between consumers and generators of electricity in the
clear signals regarding what participants can expect in the
country’s new energy market.
long run. You cannot change the rules of the game.
VIEW FROM THE TOP
FORECASTING THE EVOLUTION OF THE ELECTRICITY MARKET TORALF HEY Commercial Director of Biosolventus
Q: What opportunities did the electricity market’s
Qualified suppliers would also benefit from having access
opening create and how does this translate into demand?
to their off-takers’ consumption data as it would permit
A: One of the advantages provided by the deregulation
them to plan their energy portfolios more efficiently. Our
of the market is that consumers may now take ownership
software also allows qualified suppliers to adapt their
of their consumption data. An open market also enables
forecasts and portfolios as energy consumption changes
companies to decide the amount and time at which they
over the contracting period. This can be done as often as
want to buy energy and who they prefer to be their supplier.
required. Most users prefer to update their forecast on a
Companies must now define different strategies, expanding
daily basis but this will change as the market grows more
their portfolio by purchasing electricity from different
complex and volatile.
sources, including PPAs, suppliers and the spot market. Q: What challenges will generators face in the new market Energy forecasting and analysis will become more relevant
and how can Biosolventus address them?
under this scenario. Companies need to analyze their past
A: Production forecasting in renewables tends to be more
consumption and forecast their future demand to design
complex than in traditional technologies because they
the most suitable strategies for acquiring electricity at
involve a higher number of external variables. In a spot
competitive prices. The advantage of buying electricity
market, renewable energy companies must deal with short-
directly from the wholesale market is that consumers can
term forecasts for the day-ahead and real-time markets,
avoid paying margins to qualified suppliers. This does not
seeking to minimize forecasting errors. Wind energy
mean that consumers should not buy from suppliers at
forecasting is a peculiar case because its margin of error
all but that it is not always the most affordable option to
increases at longer forecasting horizons. It is not possible
procure 100 percent of the energy needs from them.
to narrow the margin of error down to zero, but our tools can provide pretty accurate results. Our wind forecasting
Q: How does monitoring and forecasting software help
products are already useful for self-supply projects but
suppliers and off-takers make better decisions?
they will become crucial for wind farms participating in
A: Our energy management software and services help off-
the wholesale electricity market. Combined-cycle power
takers capture all their information and take control of it,
plants in Mexico are not yet experiencing a problem that is
which has not been the case up to now. By enabling clients
common to markets with higher penetration of renewables,
to control their information, we give them the power of
such as Texas or Germany. In these markets, prices and
negotiation. Without knowing their present consumption
volatility are determined by the generation of wind and
and trends, companies cannot forecast their future energy
solar that impacts strongly on traditional power plants.
usage, which is necessary to establish cost-competitive
Gas-fired plants do not have zero marginal production
deals with suppliers. Our software captures real-time
costs as renewables do, which might drive them out of the
data from client operations and presents it in a visual
market in times of high renewables production. Because
display according to the customers’ preferences. This
of this, we have seen cases in Germany in which traditional
way company decision-makers can identify their price-
technologies offer negative electricity prices so they do
driving factors, putting themselves in a better position to
not have to shut down their production, which would be
negotiate with qualified suppliers. It can help companies
costlier. We expect to see this situation in Mexico, first in
identify their consumption peaks, which tend to increase
those nodes with a high penetration of renewables.
electricity costs, so they can design strategies to reduce them. The software also has useful tools for off-takers
Biosolventus provides market training, data analysis and tailor-made
owning self-supply facilities because it can forecast their
optimization solutions for electricity consumers and generators, with
production and match it to their consumption profiles.
over 40 years of experience in the sector.
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VIEW FROM THE TOP
CLEAR GUIDELINES WILL SEE MARKET TAKE OFF SALVADOR ALARCÓN Founding Partner of Trade On
Q: What opportunities has Trade On identified in Mexico
Q: What kinds of companies are you targeting and how
and what are the company’s goals in this market?
can your services increase their competitiveness?
A: Like any new market, Mexico offers a wide range of
A: As an energy broker, we are targeting all market
possibilities for companies with experience in similar
players participating in the wholesale electricity market,
settings. Trade On spotted a window of opportunity to
particularly generators, suppliers, marketers and off-
become a key player by contributing to the development,
takers. Our role will be similar to that of the electricity
liquidity and transparency of the market. Our objectives
marketer, being a middleman in all energy transactions.
are in line with those of the Energy Reform, positioning the
So far, our strategy is to expose Trade On to the market
end user as the ultimate beneficiary of our services. As has
following a selective approach. Once the first contact is
happened in other countries, Mexico’s electricity market
established, we analyze the clients’ individual situation to
has been developing slowly but we expect it to take off as
define what services are most suitable for them. We can
soon as the legal guidelines are clarified. We are trading
offer legal and technical advice to prepare for CENACE’s
bilateral contracts and expect the number of transactions
electricity auctions, making use of internal tools that we
to increase significantly. Our tools and services are well
have developed specifically for the Mexican landscape.
designed for local conditions and our goal is to become a leading energy broker in the near future. Our setup borrows
Companies using our electronic trading tool will benefit
the best features from other international platforms but it
from having the market in a single platform, as well as a
is 100 percent Mexican designed.
summarized visual version showing the best electricity prices in the market. Trading platforms save users the
Q: What challenges have you faced to position Trade On
effort of having to recollect market data on their own,
in Mexico?
providing a user-friendly environment for performing
A: The novelty of the regulations is a challenge for many
transactions. Our job is to maintain constant contact with
market participants, including off-takers and generators
market participants to deliver top-quality services, getting
who have many doubts about how the market will operate.
first-hand information and adapting our focus to the
Particularly, the role of the energy trader is surrounded by
changing market conditions.
an aura of mystery, even though most companies have either an excess or lack of electricity they would like to
Q: What are the key features of Trade On’s platform and
trade in the market. For these reasons, we are working to
what operations do you expect to be carried out on it?
contact and educate market players, becoming their first
A: Our trading tool is based on the electronic platform
point of reference in the new playing field.
used in most European markets but it has been adapted to Mexican conditions, such as the country’s nodal
In the coming months, we expect the Mexican market to
scheme that makes the system more complex. To solve
follow a natural evolution, starting with bilateral transactions
this issue, we designed a method to divide the market into
to increment trust until the players feel confident enough
tradable zones, facilitating the visualization of energy
to trade energy in a semi-standardized market. For this
transactions. Our project has received strong support
stage, we have established a legal division and a trading
from Mexico’s regulatory entities because they consider
platform that will speed price discovery. Particularly, we
energy brokers as crucial to boosting transparency and
expect our online trade platform to become a decisive
liquidity.
tool as has happened in other markets. So far, we have identified a strong interest from private companies to take
Trade On is an energy broker with over 50 years of experience in
advantage of our services but a learning process will be
the global electricity market, covering trading, legal counseling and
needed to attract a larger number of participants.
consulting.
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INSIGHT
US-MEXICO PARTNERS TO CHASE GAS-BASED TECH JORGE GUTIÉRREZ Director General of Energía Eléctrica Bal
110
Mexico’s push for a cleaner, more renewable energy
Mexico plans to produce 35 percent of its energy from
matrix and the growing power needs of several industries
clean sources by 2024 and both solar and wind will
in the country has created opportunities where two
become increasingly important in the industry, particularly
heads are better than one. Mexican industrial and retail
after 2016’s long-term electricity auctions showed a
conglomerate Grupo Bal saw such an opportunity in the
competitive landscape where solar PV plants averaged
wake of the sweeping Energy Reform and partnered with
prices of US$31/MWh and wind reached US$48/MWh,
the local unit of US generation giant AES to create EnerAB.
rates competitive with the US$45/MWh offered by even
Jorge Gutiérrez, Director General of Energía Eléctrica
the most efficient combined-cycle plants, Gutiérrez adds.
Bal, AES’ partner in EnerAB, says the venture with the
“These prices brought down the arguments of those
Arlington-based company, sealed in early 2016, has been
who opposed the Energy Transition Law by claiming
exploring opportunities in gas-based technologies such
that increasing the share of renewables would increase
as cogeneration for various sectors, including the oil and
manufacturing prices.”
gas and paper industries, that have high energy and steam requirements.
EnerAB will invest up to US$2.5 billion in the country in the next five years. Most of the resources, Gutiérrez says, will
EnerAB, he says, will be an equal-investment venture
be allocated to combined-cycle and cogeneration plants,
between the two companies. “The Energy Reform was the
some of which the company is already proposing to
main driver behind Grupo Bal’s decision to open Energía
PEMEX’s cogeneration unit and to CFE’s generation unit.
Eléctrica Bal, a company focused on power generation
Around US$500 million would be devoted to renewable
activities,” Gutiérrez says. “We have been analyzing
energy, including storage solutions, while a smaller portion
the possibilities of establishing projects with CFE and
of the funds will go toward projects like liquefied natural
other private players, as well as participating in the next
gas stations to reduce diesel consumption from mining
electricity tenders, tendering a proposal involving wind
trucks, one of Grupo Bal’s main areas of expertise. The
and solar power in combination with energy-storage
company owns mining giants Peñoles and Fresnillo, as well
technologies, an area where AES Mexico holds great
as seawater desalination projects designed to alleviate
expertise.”
the frequent droughts and water demands in Mexico’s northern region.
Energy storage is seen as the solution to the main problem for both solar PV and wind power: intermittency. Since
The company is no stranger to the energy-generation
both technologies depend on variable input from the sun
business. Peñoles owns an 80MW wind farm in Oaxaca,
or wind, they do not produce a constant flow of energy,
Fuerza Eólica del Istmo, which provides power to several
which has been an argument for the development of
of Grupo Bal’s units. It also owns a 500MW petroleum
gas-based generation technologies, especially given the
coke-fired thermoelectric plant in San Luis Potosi,
low prices of imported gas from the US in the last few
Termoeléctrica del Golfo, which provides 50 percent of
years. AES, Gutiérrez says, is one of the leading companies
its energy production to Peñoles and Fresnillo. Another
working on storage technologies to solve the intermittency
potential avenue of business is to become CFE’s
problem. “All our renewable energy-generation projects
client for natural gas, taking advantage of the state-
will be backed by our energy-storage solutions, which
owned company’s push to increase the size and reach
are necessary to mitigate intermittency. Energy storage
of its distribution and storage infrastructure. “We are
is one of the strongest assets of AES, a world leader in
aware of CFE’s great interest in investing in natural gas
these solutions, which was one of the factors driving us to
transportation infrastructure, which was initially motivated
establish an alliance with them.”
by environmental concerns,” Gutiérrez says.
INSIGHT
STORAGE SEEN AS MISSING LINK FOR CLEAN COMPLIANCE JUAN RUBIOLO General Manager of AES Mexico and EnerAB
From India to Alaska to Europe, AES is one of the names
the interest in energy-storage solutions, particularly from
that comes to mind when discussing the global power
system operators like CENACE. Energy storage is seen as
generation industry, with operations in 18 countries
the missing link to help countries comply with their clean
and over 36GW in operation. Since 2014 it has been
energy targets,” Rubiolo says.
preparing for the huge challenges brought by Mexico's Energy Reform, closely working with the public sector to
Storage solutions, he adds, have been crucial to the
suggest ideas for a more attractive regulatory framework,
introduction of renewables in countries like India or Chile
according to its Mexico General Manager, Juan Rubiolo.
and helped promote assimilation. Storing energy can help add flexibility and help incorporate larger shares of
The company, which partnered in 2016 with local
renewables to the grid, an important point considering
industry, retail and financial conglomerate Grupo Bal,
Mexico has a legal objective to reach 35 percent of
operates three plants in Mexico. EnerAB, AES Mexico’s
clean energy generation by 2024. In Mexico, all new
joint Venture with Grupo Bal, is the platform from which
developments will take place through EnerAB. Beyond
both companies are looking to promote generation
traditional gas-powered generation and renewable energy
projects ranging from gas-based technologies such as
and storage, the company’s third focus will be innovative
combined-cycle and cogeneration plants to solar PV
solutions like seawater desalinization for drought-prone
and wind generation. These will take advantage of AES’
states in northern Mexico. EnerAB will keep an eye on
leadership in the field of energy storage to solve investors’
the private sector but Rubiolo believes that in the short
main gripe with those renewable technologies, namely
term, business opportunities will still come mainly from
intermittency as they depend on weather conditions
the state-owned industry giants PEMEX and CFE. “Usually,
and even the planet’s rotation. The company says it has
the private sector is the last to adapt to the regulatory
over 110MW of storage units already installed around the
changes because the regulatory and market aspects are
world. “The rise of renewable energy generation, whose
not quickly assimilated by all companies. CFE and PEMEX
intermittency is the cause of several technical problems
will continue offering the greatest opportunities in the
related to the grid’s instability, has contributed to boosting
immediate period.”
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La Caridad power plant, Sonora, Grupo MĂŠxico
INSIGHT
MINING FOR GOLD IN THE POWER MARKET ADOLFO VELASCO Power Division Director of Grupo México
Large energy consumers saw an opportunity to reduce
The power auction results have placed renewables in an
electricity costs when the 1992 reform of the Public
advantageous position in the company’s vision for the
Electricity Service Law finally allowed private parties to
future. “Renewable energies are becoming increasingly
invest in power generation projects under limited schemes.
important due to falling generation costs that have
Self-supply quickly became the favorite figure used by
increased their competitiveness in open markets,” he says.
large energy consumers, introducing companies from different backgrounds into the power generation world.
“We are evaluating the feasibility of installing efficient co-
The Energy Reform has opened up new opportunities to
generation projects powered by natural gas and large solar
capitalize on these assets.
parks in our facilities in Sonora, a state that offers high solar irradiation. We are also analyzing the possibility of acquiring
Grupo México, one of the world’s more profitable mining
additional wind facilities and investing in mini-hydro
groups, decided in 2010 to build two 250MW combined-
installations and geothermal energy, which have shown
cycle plants to power two of the company’s mines and
great potential in Mexico,” Velasco adds.In addition to cost
a metallurgical complex in Sonora. It also invested in a
competitiveness, renewables are attractive to Grupo México
74MW wind farm, which was developed by Spain-based
because they contribute to its sustainable development.
Gamesa in Oaxaca and has Cinemex and Ferromex also
According to the company’s 2015 Sustainable Development
as off-takers. These projects all were developed under the
Report, Grupo México’s power generation assets avoided the
self-supply scheme. The enactment and implementation
emission of 237,379 tons of CO2 because they are cleaner
of the Energy Reform happened as Grupo México was in
than the average power generation facilities in the country.
the middle of developing these projects, changing the
Velasco says that Grupo México’s main goal is to become
company’s perspective over its power generation assets.
self-sufficient regarding energy usage. As such, part of the
“While we were developing these projects, the Energy
company’s new power generation assets, renewables or not,
Reform was approved in the country, opening up new
will be dedicated to meeting the demand of the group’s
possibilities to profit from electricity production, including
divisions. Velasco adds that, “in the current environment,
selling the surplus to third parties,” says Adolfo Velasco,
however, the division has also looked for external clients to
Power Division Director of Grupo México.
sell its energy as a strategy to increase its competitiveness and keep the business growing.”
According to Velasco, the strategy of the company had been to establish bilateral contracts and sell energy
Grupo México has alliances to ensure the correct O&M of its
directly to off-takers. The opening of the wholesale
power plants and strategic partnerships will remain crucial
market, however, is reshaping Grupo México’s approach.
in the company’s new strategy. “Energy generation has
“In the short term, we will be entering the market as
never been the core business of Grupo México, which means
generators with the help of new power plants,” Velasco
that we have had to learn from scratch,” says Velasco. “We
says. “But we are also analyzing the possibility of getting
are now looking to capitalize on the opportunities brought
involved in the commercial side and entering the market
by the Energy Reform by keeping ourselves updated and
as electricity suppliers or traders, gradually expanding
establishing partnerships with key players with broad
our presence along the whole value chain.” Grupo México
experience in the sector.”
has not yet acquired new power generation assets, as it is working on the best strategy to grow in this market. “Our
Adolfo Velasco, Grupo México’s Power Division Director, passed
main objectives are to identify who are the key market
away in July 2016 shortly after giving this interview to MER. He was
players and find what added value we can bring to the
a chemical engineer with an MBA from IPADE and took over the
market, whether it is capacity or CELs,” says Velasco.
mining giant’s power generating unit in January 2013
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VIEW FROM THE TOP
JAPANESE GIANT TAKES LONG-TERM VIEW RAMÓN MORENO Chief Technical Officer at Mitsui & Co. Power Americas
114
Q: How has the Energy Reform and the wholesale
advantage of the new regulations. Selling surplus energy
electricity market changed Mitsui & Co. Power Americas’
in the market is one of the options. The spot market works
strategy?
as a balancing system and more importantly ensures the
A: Our overall business strategy has not been greatly
most efficient technologies are dispatched first, which
impacted by the country’s energy sector transformation.
is an incentive to invest in efficiency. For instance, if a
The
long-term
company has a 250MW contract with an off-taker but is
investment opportunities, optimizing our assets and
objective
continues
to
be
finding
producing an additional 100MW, it can sell the surplus
establishing new projects that offer profitable returns on
energy on the market, which will be dispatched if it is
investment (ROI).
offered at a competitive price.
Before the Energy Reform, we were focusing on
Q: Where are the greatest business opportunities, in
establishing self-supply plans with large industrial
long-term PPAs or the MEM?
energy consumers. CFE was our main client. Now almost
Even though the MEM has been in the limelight during
all the same actors are participating in the market but
the past months, the Energy Reform has set a framework
playing different roles. The new regulations have not
in which most business opportunities rely on long-term
changed our strategy dramatically but it has opened
contracts. This will be the area that presents the fiercest
a wider range of opportunities, particularly with the
competition because the nature of power generation
inclusion of the CELs and the mandatory percentage
is building infrastructure, which can only be price
of clean energies. Mexico’s goal to reach 35 percent
competitive with a long-term view. We are analyzing
of electricity generated from clean energy sources by
the results of the most recent auction while looking
2024 also is a great incentive to invest in clean power
to establish long-term agreements with potential off-
generation technologies.
takers. The company sees a great business opportunity in establishing partnerships with qualified suppliers,
Q: How will the company capitalize on the new market
one of the most important features introduced by the
opportunities given the legacy status of its assets?
reform. From our point of view the Mexican government
A: The new regulations give us the option to change our
has done an excellent job shaping the rules of the new
contract conditions to fit the new regulatory framework
electricity market, learning from international experience
or to remain under the old plan. We think the flexibility
and avoiding the mistakes made by other markets.
legacy projects have to maintain their old rights and obligations is one of the Energy Reform’s great successes
Q: To what extent is the company planning to expand
because it is not always easy to break previously
its renewable energy portfolio given growing demand?
stipulated agreements. By making this decision, the
A: All clients want to buy electricity from a reliable source
Mexican government is sending a signal of stability to
at a competitive cost, even though some businesses
stakeholders, fostering trust for investing in the country.
prefer a specific technology or energy source, such as
At Mitsui & Co. Power Americas we have decided to
companies interested in acquiring renewable energy
make use of this opportunity and maintain our legacy
as a strategy for projecting a cleaner image. So far, we
contracts under the old plans but we also will take
have not established objectives regarding the share of renewables we should have in our portfolio. Our strategy
Mitsui & Co. Power Americas is the second-largest private operator
is to invest in projects that are economically feasible and
of power generation assets in Mexico. It has an installed capacity of
low risk. We are definitely interested in solar and wind
2,23GW distributed in five combined-cycle power plants: Saltillo,
projects due to the attractive returns these technologies
Altamira, Rio Bravo II, III and IV.
offer but we are still analyzing the possibilities.
VIEW FROM THE TOP
NARROWER FOCUS WILL HELP ENERGY INDUSTRY JOSÉ FERNà NDEZ Director General of The National Institute of Electricity and Clean Energies (INEEL)
Q: On which research areas is the Institute most focused?
needs of generation are measured in electrical substations
A: We have narrowed our interests to three main areas,
where electricity is brought down in voltage from remote
which we believe are going to be the basis for future
generators and conditioned for distribution. That is where
negotiations with our customers. The first is electricity,
you see the need for electricity in specific moments of the
which must become greener and mindful of new
day and times of the year and where the markets reveal
technological developments. The second is related to
the requirements for more energy availability. Distributed
clean energy and the preservation of natural resources
generation is the technology that is changing the scene
such as water and agriculture. Agriculture consumes a lot
for transmission, distribution and generation.
of energy so energy consumption must be very efficient. The present emphasis is on distributed energy so the
Q: Is the Mexican electricity system ready to receive
proximity of where the energy is produced and where it
the large amount of renewable energies planned in the
is consumed enhances the possibilities for clean energy
Energy Transition Law?
use. The third is on enabling technologies, which refers to
A: The electrical grid system is not prepared at all to cope
the professional capacity to cope with technical problems
with the intermittency of clean energy producers such as
and social and technological impacts. It is a combination
solar and wind farms. These technologies are suffering
of artificial intelligence, mechatronics and numerical data
because transmission in Mexico is only accustomed to
analysis on one side and sociology, history and society on
deal with energy generation that is easy to dispatch,
the other. This will allow us in the near future to cope with
which renewables are not. We have to solve the issue of
the needs of the country.
where to store energy from clean energy producers when it is produced. There are different possible scenarios, for
Q: What role do clean energies have in the Institute’s new
instance the use of wind and solar energy to pump water
structure?
or re-pumping, which is a model studied by electricity
A: The electrical division of the Institute remains the
institutions in Mexico. We need to create a new culture
same, with the same clean-energy focus. The generation
of clean energy, which addresses a new way of supplying
of electricity may come from different sources, of which
customers.
some are cleaner than others, and what we should do in the future is pursue the cleaner technologies. If power
Q: What is the most important contribution from the
generation comes from burning fossil fuels we have to
Institute to the Mexican power industry?
make sure that is as clean as possible. We are also actively
A: The most important contribution has been the majority
working on carbon capture and storage so it is not
of the technology and innovation assets capitalized first and
released into the atmosphere. Another important issue is
foremost by CFE but also by the national and international
the economic side. It was difficult during the early years
network of suppliers that operate in Mexico. This includes
of the Institute to finance wind or solar projects, but now
the capability of the professionals that work in the electrical
we are capitalizing on our investment and have a more
industry. Forty years of capacity building are properly
diversified portfolio.
measured by the amount of money that our customers have spent and the work they have provided to our endeavor,
Q: How do you expect distributed generation to impact
which allows us to foresee an attractive future.
the electricity market in Mexico? A: It is already impacting the Mexican market. The electricity
The National Institute of Electricity and Clean Energies (INEEL) is a
market is keen on developing distributed generation and
research center whose mission is to support the power system through
not only solar and wind energy. This technology has been
innovation and technological developments. INEEL offers solutions of
anticipated for the last decade because the most pressing
modernization and energy-efficiency projects for companies.
115
ROUNDTABLE
HOW MUCH HAS THE NEW MARKET LIVED UP TO EXPECTATIONS?
As a direct result of the Energy Reform, the Mexican electricity market experienced a transformation that has caused uncertainty among market participants. The new market is expected to create competition in power production as the sector pulls away from being a monopolistic industry. The intention is to reduce costs and develop new capacity to benefit end users. Still, the unclear regulation has made participants hesitant. With the introduction of new processes, schemes and players, companies such as offtakers, generators and qualified suppliers are striving to understand and adapt to the market.
116
The electricity market was expected to grow gradually since its inception and it will become increasingly open as it matures. The market is designed to stimulate competition so it operates under a model where cheaper energy is sold first, favoring models and technologies that generate energy at lower costs. In the long term we believe that these models will bring electricity costs down through the incorporation of new technologies and the displacement of older plants.
CÉSAR HERNÁNDEZ OCHOA Deputy Minister of Electricity
Competitivity will generate incentives to improve services or to lower costs, but this is a market process and thus the determination of costs is not under control of any regulatory entity. It will also cause electricity prices to fluctuate depending on demand during the year. In periods when there is significant demand, prices will rise and vice versa.
The spot market is one of the new components that is developing slowly, which is normal. Most of the market participants are waiting to see how it develops before investing. We expect the level of participation to increase as the market matures. This dynamic will not only benefit generators and suppliers but also CENACE and the grid’s stability. Mexico’s new regulations offer important business opportunities in the spot market, the electricity tenders and bilateral contracts, all in the short, medium and
JAIME DE LA ROSA President of AME
long term, while maintaining some of the old schemes through legacy projects. The new mechanisms will contribute to increasing Mexico’s competitiveness on the global scene and enhance the internal energy security of the country while bringing new players to the market. There is still a long road ahead to arrive at this ideal scenario but the regulations are clearly marking the route we need to follow.
The wholesale electricity market is increasingly more complex, driving market participants to become more sophisticated and adopt efficient IT tools that help them analyze and consider all important indicators for their strategies. It would be prudent, for instance, to forecast and consider the future of natural gas prices. We estimate that natural gas prices could increase 2.5 percent annually during the next 10 years, having a significant impact on Mexico’s electricity tariffs due to the
LOÏC LE GALL Executive Director Power & Utilities of EY
large presence of gas-based technologies in the system. Forecasting the behavior of the spot market and regulated and unregulated tariffs will be one of the greatest challenges for companies operating in the sector.
We expect to see a linear correlation between spot market prices and gas prices. Every energy company has its own gas price forecast but we believe all these forecasts lean toward higher prices. We expect efficient renewable projects will begin to balance spot market prices in the medium and long run. In the short run, former tariffs did not reflect the real generation costs but we expect the spot market to do it better. We also expect a change in the price balance. There was a huge difference before between base and peak tariffs that we expect will diminish as the spot market grows. Industrial users will benefit greatly from this
RODRIGO JUĂ REZ Commercial Director of Ammper
change because they can then avoid the need to stop production at peak hours by having the ability to plan their production according to their logistics needs and not energy prices. 117
The novelty of the regulations is a challenge for many market participants, including off-takers and generators who have many doubts about how the market will operate. Particularly, the role of the energy trader is surrounded by an aura of mystery, even though most companies have either an excess or lack of electricity they would like to trade in the market. In the coming months, we expect the Mexican market to follow a natural evolution, starting with bilateral transactions to increment trust until the players feel confident enough to trade energy in a semistandardized market. Particularly, we expect our online trading platform to become
SALVADOR ALARCON Founding Partner of Trade On
a decisive tool as has happened in other markets. So far, we have identified strong interest from private companies to take advantage of our services but a learning process will be needed to attract a larger number of participants.
The law now permits users with aggregated demand over 1MW to enter the market as qualified users so we expect more industrial customers to join soon. Companies with experience in self-supply power production will be the typical offtakers participating in the market at first. As there is not yet a futures market, we expect more bilateral financial contracts to be used as a hedging tool and we also expect qualified suppliers to increase their market share, even though they will be constrained by the presence of CFE in the market. Negative prices will not be present in the market in the short to medium term but we do expect grid instability to become an issue as renewable energy capacity increases. It will not, however,
TORALF HEY Commercial Director of Biosolventus
directly impact customers. In the long term, speculative bidding will become increasingly important, adding interesting dynamics to the market.
We must keep in mind that Mexico is deregulating a growing market. Mexico has a distinctive structure that does not fit with North America or Europe, where energy consumption is shrinking. Mexico still needs more energy and it expects to have a growing electricity demand for the next 10 to 15 years. Energy-efficiency programs will mitigate the need for additional energy but the electricity market will continue growing due to the development of the middle class and the population pyramid, which has mostly young people that will soon become active members of society. Mexico’s panorama is a huge opportunity for attracting new investment to the energy industry and E2M has the potential to ease the process for new companies.
HANS KOHLSDORF CEO of Energy to Market (E2M)
McCormick production plant, State of Mexico, Grupo Herdez
OFF-TAKERS
5
Consumers are the end game of every market. In Mexico, a heavily industrialized country with dozens of trade deals and an export-oriented economy, that usually means car assembly lines churning out millions of gleaming new vehicles every year or energy-intensive mining operations producing ton after ton of minerals and cement that feed production lines or highways near and far. The new rules for energy commercialization are starting to offer those off-takers the opportunity to reduce costs and increase competitiveness while also reaching increasingly demanding sustainability objectives.
In this chapter, some of the largest energy consumers in the country present their views on the new rules and the opportunities they bring to improve energy consumption, as well as the strategies they have developed to gain cheaper and more efficient access to the power they require. It also showcases some of the agreements reached and the role local authorities are playing both as stakeholders and as deal-brokers.
119
CHAPTER 5: OFF-TAKERS 122
ANALYSIS: Paradigm Shift Introduces New Possibilities
123
INSIGHT: Luis Nava, Government of Queretaro
124
VIEW FROM THE TOP: Magdalena Ruiz, Government of Jalisco
125
INSIGHT: Luis Soliz, Government of Baja California Sur
127
INSIGHT: Alejandra Vázquez, Grupo Bimbo
128
VIEW FROM THE TOP: Marco Ribera, Nissan Mexicana
129
VIEW FROM THE TOP: Jorge Salas, Volkswagen de México
131
ROUNDTABLE: How has the Energy Reform impacted the Mexican mining industry?
132
VIEW FROM THE TOP: Francis Pérez, Nestlé México
134
VIEW FROM THE TOP: Víctor Treviño, FEMSA
135
PROFILE: Alfredo Román, Tetra Pak
137
INSIGHT: Julio Santos, Grupo Herdez
138
VIEW FROM THE TOP: Monte Mickle, Enerlogix Solutions
121
René Ochoa, Enerlogix Solutions
139
ROUNDTABLE: What Advice Would You Give to Other Off-takers?
140
PROJECT SPOTLIGHT: New Mexico City International Airport
142
VIEW FROM THE TOP: Estanislao de la Torre, HSBC Mexico
143
INSIGHT: Salomon Amkie, Citibanamex
ANALYSIS
PARADIGM SHIFT INTRODUCES NEW POSSIBILITIES
122
The Energy Reform gave qualified users (those with
the wholesale market and then transfer their offerings
a consumption greater than 1MW) the opportunity
to qualified users. But for off-takers that choose not to
to purchase electricity from a diverse portfolio of
engage in business with this figure, the next challenge
suppliers. Before, large energy consumers were limited
in the decision-making process is to select the power
to energy supplied through cogeneration or self-supply
supplier that best fits their characteristics, needs and
schemes or had to purchase it directly from CFE. Now,
daily operations. As companies pioneer in this area, the
the numerous possibilities require that they step up
most repeated advice for off-takers is to analyze every
their analysis game to acquire in-depth information on
aspect of their decision. As most companies are not
their energy consumption patterns and needs to select
used to this type of extensive analysis because of the
the most suitable option.
previous monopolistic regime, this task has proved a challenge for off-takers.
Government institutions are playing a pivotal role in helping companies understand the new framework, the
THE ART OF OPTIMIZATION
market’s operations and the various elements created
Some companies have already mastered the art of
as a result of the Reform. “The Ministry of Energy has
optimizing their energy supply. Nestlé Mexico for
shown a willingness to help private companies navigate
instance, gets 80 percent of their electricity through
the new energy landscape. We found it highly useful to
wind power thanks to a contract with Enel Green
be part of the National Program for Energy Management
Power established under the self-supply element of the
Systems (PRONASGEn) because it allowed us to greatly
previous regulatory framework.
improve our energy management, reducing our energy costs considerably at our pasta manufacturing plant,”
But with an explosion of opportunities resulting from
says Julio Santos, General Manager of Energía para
the Energy Reform, the process of analysis begins again
Conservas, whose parent company Grupo Herdez is a
and all new options are put under the magnifying glass.
leader in the processed food sector and a major producer
Francis Pérez, Shared Value Creation & Sustainability
of Mexican food for the US market. “By participating
Director at Nestlé México, comments that “with the
in PRONASGEn, companies can get free consultancy
Energy Reform, we have new and better options to
services and bring experts into their plants to help them
become more competitive, establishing contracts with
improve their energy management.”
different companies. Today we are analyzing all our options with the goal of achieving 100 percent from
The decision-making process for off-takers begins
renewable sources.”
with the choice to purchase electricity on their own or through a qualified supplier. Qualified suppliers are
The cleanness of an energy source also influences off-
electricity services providers that can buy electricity
takers when selecting their suppliers. As sustainability
in the MEM to provide electricity services to qualified
becomes a more pressing issue around the world,
users, with whom they have supply contracts and that
companies seek to supply their power consumption
they represent before CENACE.
through clean energy sources, preferably renewable resources.
Qualified suppliers require a CRE permit to operate, the first of which was awarded this year to Suministro
"We are looking at two options: investing in our own
Sustentable de Energía en México (SUMEX).
Joaquín
generation facilities or purchasing clean energy from
Leal, one of SUMEX’s founders, explains the difficult
a third party. We are exploring the possibility to install
process of innovating in an evolving market: “Breaking
solar PV panels in our manufacturing plant in Queretaro,
ground in the industry has been challenging. The process
a
of becoming qualified suppliers has taken longer than
locations, we are also looking at wind energy options.
expected mainly due to a lack of communication
We are not tied to any technology in particular,” says
between the different regulatory bodies involved.”
Alfredo Román, Environmental Manager at Tetra Pak.
state
with
significant
solar
potential.
In
other
As renewables sources become more important, the Qualified suppliers can facilitate the commercialization
element of sustainability will continue to play a lead role
of energy because they represent several generators in
in any analysis of optimal power alternatives.
INSIGHT
AUTO HUB DRIVES TOWARD SOLAR LUIS NAVA Chief of Staff for the Government of Queretaro
The automotive industry produced 3 percent of the
the government to look at other options to enhance the
national GDP and 18 percent of the manufacturing GDP
state’s energy security.
in 2015, making it one of the most important sectors in the economy. By 2020, 13 brands in more than 30
“We see a great opportunity in solar energy, especially as
manufacturing facilities are expected to produce around 5
Queretaro has high solar irradiation levels. We consider
million light vehicles, 1.6 million more than in 2015.
that having the secondary laws and regulations needed to promote the use of distributed generation in the country
Much of this success is centered in one region, the
will lead to an important number of small and medium-
Bajio. Queretaro is among the states that form part of
scale solar systems being built in Queretaro. At a state
this buoyant manufacturing area and the industry’s key
level, we need to work on aligning the local norms to the
players have top-billing here. “Queretaro’s manufacturing
new regulations so we can support the development of
industry produced around MX$190 billion from January
these types of projects in the near future,” Nava says.
to September 2016, with the automotive industry making the greatest contribution at around MX$48.72 billion, 26.4
The state would like to become an energy hub but there
percent of all manufacturing revenues,” says Luis Nava,
are several considerations that need to be addressed.
Chief of Staff for the Government of Queretaro.
“We need to balance the needs of the energy sector with that of our manufacturing industry, avoiding as much as
To explain Queretaro’s success as an epicenter of
possible the use of land for energy production that could
manufacturing, Nava says that “some of the main drivers
be developed for manufacturing. But there are certain
of this development have been our industrial strategy that
areas that have potential to host energy developments,
focuses on developing a local supply chain and sectorial
especially areas with near desert qualities. Solar energy
clusters. Queretaro also offers an attractive industrial
requires large areas of territory and strong irradiation and
and business environment as well as qualified employees
these areas offer both,” he adds.
for different industries. Queretaro’s economically active population is around 806,000 and more than 770,000
To spark Queretaro’s energy transition, the government
are employed. The manufacturing industry employs
is developing a Climate Change Law, which considers
179,845 people.”
the promotion of clean energy technologies and energy efficiency as the main strategies to mitigate local GHG
Often overlooked but also playing a key role in the state’s
emissions, and a Strategic Plan for the Energy Industry
manufacturing success is energy supply. “The energy
Development that is expected to be ready in 2017.
sector is a crucial element for the state’s development at all levels, particularly the manufacturing and mining
“This plan involves mapping the state’s potential to
sectors, which need large amounts of thermal and
deploy its renewable and nonrenewable resources, taking
electric energy to produce,” Nava says. The state is
into account its strategic position and local energy
equipped with six power plants that provide energy to its
consumption and production. We will implement some
population and different industries. “The most important
specific projects according to this plan with the purpose
facility in the state is El Sauz, a combined-cycle power
of transforming Queretaro into an energy self-sufficient
plant located in Pedro Escobedo municipality with an
state in the medium to long term. We expect the first
installed capacity of 617MW. The plant also supplies
of these projects to launch in 2017,” Nava says. With
energy to the states of Hidalgo and Guanajuato,” says
these new initiatives in place it will not surprise anyone if
Nava. But even with this energy infrastructure in place,
solar power helps produce some of those 5 million cars
Queretaro continues to be a net energy importer, driving
expected in 2020.
123
VIEW FROM THE TOP
NEW AGENCY SHOOTS FOR ENERGY INDEPENDENCE MAGDALENA RUIZ Minister of Environment and Territorial Development for the Government of Jalisco
124
Q: What drove Jalisco to create its own Energy Agency?
Q: What will be the main initiatives resulting from the
A: While planning the state’s energy strategy the
agency’s work?
government supported the proposal of the Environment
A: The main highlights will be the construction of a
Ministry, the Innovation, Science and Technology Ministry
technological
and the Economic Development Ministry to have a
investment portfolio, a metropolitan energy-efficiency
multidimensional Energy Agency to address Jalisco’s
program and the creation of an energy cluster in Jalisco.
energy consumption. The state is the fourth largest
We have emphasized the need to have baselines for
electricity consumer in the country but it does not produce
greenhouse gas emissions so we can track the changes.
all the energy it consumes. We decided to research and
We are working on a project for the rational and efficient
analyze international energy policies, especially from
use of energy, a carbon management plan and promotion
California, and eventually agreed to create the Energy
of clean energies within the public administration. We have
Agency as a decentralized public organization. This
already partnered with Grupo Dragón for a project that
agency will promote a transition to higher levels of power
is supplying clean energy to the government’s facilities,
production so we can generate between 35 and 50 percent
reducing our greenhouse gas emissions by 63 percent.
innovation
center,
our
clean
energy
of the energy we consume. We are also investing in energy efficiency through PPP agreements where the main focus
Q: How does Jalisco support private companies willing to
will be to develop and boost local business. The last
invest in clean energy projects in the state?
significant objective for the agency will be technological
A: Next month we will have a workshop with the German
innovation. Strategic alliances will be another main element
Cooperation Agency (GIZ), the Mexican Center for
of the agency’s brief, beyond the state’s business players
Environmental Law (CEMDA) and ETHOS, a public-policy
such as Jalisco’s Industrial Chambers Council (CCIJ)
thinktank, where the main focus will be how to promote
and business clusters. We are carefully crafting alliances
PPPs. We already have the research to help us make the
with international institutions, such as memorandums of
best decisions about which projects to support and which
understanding between California’s Energy Commission
are the most competitive. We see the highest potential
and some Canadian provinces, and agreements with the
in PV solar and cogeneration, followed by wind and
governments of Israel, Germany and Catalonia.
geothermal energy.
Q: How is the Energy Reform contributing to Jalisco’s
Q: What are the main goals for Jalisco’s Energy Agency
energy ambitions?
in 2017?
A: The Energy Reform represents an important opportunity
A: We will publish our goals once the Energy Agency starts
to boost clean and renewable energy production. Jalisco
operations next year. The three agencies involved in this
has been dependent on power from other states because
endeavor are working relentlessly to conclude the agenda
it has neither oil resources nor large water bodies to
with the support of specialized consulting firms. We seek
facilitate hydropower production. But the state has vast
to consolidate the opportunities resulting from the Energy
solar resources, offering 297 days per year of optimal sun
Reform, including strengthening communication at the
irradiation, as well as wind and geothermal potential in
state, local and federal levels, bringing the private sector
areas such as Jalisco’s highlands, the coast and the north
and society on board. The main challenge for Jalisco at
of the state.
this point is to start its energy transition process. We only produce around 8 percent of the energy we consume and
The Ministry of the Environment and Territorial Development of Jalisco
increasing that percentage will be complicated, particularly
promotes sustainable development in the state through programs
as we are working to ensure that local communities are
designed to reduce pollution and preserve and protect the environment.
respected during the development of all energy projects.
INSIGHT
A RAY OF SUNLIGHT AFTER THE STORM LUIS SOLIZ Energy Director at the Government of Baja California Sur
Baja California Sur’s interest in solar energy dates back
country as well as great solar irradiation, both attractive
to the 1970s, when the first solar-powered seawater
features when investing in solar power.
desalination plants were installed on the peninsula. The state is also the region where Aura Solar I, the first utility-
Besides preparing for potential natural disasters, the
scale solar park in Mexico and the largest in Latin America
department must think ahead in case solar production
at the time of its construction in 2014, is located. But solar
increases considerably in the state. “The peninsula’s grid
energy development in the region has not followed a
is not connected to the National Interconnected System,
straight path, something the state’s government expects
which complicates the incorporation of higher shares of
to tackle through its newly created Energy Department.
renewables into the power network because we do not have the ability to send surplus energy to other regions.
“We used to have a department for rural electrification
CENACE has imposed a 60MW limit on the amount of
before the reform but the new energy landscape
renewable generation capacity we can connect to the grid,
motivated the current administration to create an
which limits the expansion of renewable energy capacity,”
energy department in January 2016. We take care of
Soliz says.
all the processes and analyses needed to capitalize on the opportunities in renewables and energy efficiency,
To prove that Baja California Sur’s power network can,
enhancing Baja California Sur’s energy security,” says state
in fact, stand higher shares of renewables, Soliz says his
Energy Director Luis Soliz.
department is working on analyzing different scenarios with the support of the Latin American Regional Climate
The task assigned to his department is no piece of cake.
Initiative (LARCI), the Mario Molina Center and the
Baja California Sur must overcome several challenges to
Mexican Institute for Competitiveness (IMCO), among
take advantage of its great solar resources, including local
others. According to Soliz, the increase of renewable
conditions such as climate and the peculiarity of being
energy capacity should couple with a reliable baseload
isolated from the National Interconnected System and the
capacity, which is why his department is also focusing
National Pipeline System. “The climate conditions of the
on analyzing the best technologies to ensure Baja
state are challenging for renewable project developers,
California Sur’s baseload supply. Most of CFE’s plants
particularly as we are frequently in the path of hurricanes.
in the state run on fuel oil, an expensive and polluting
This was a huge problem for Aura Solar I, the 30MW solar
fuel that impacts negatively on the region’s air quality.
park in La Paz, when Hurricane Odile severely damaged
Shifting to natural gas, however, is complicated because
the plant in September 2014, just six months after it
the region does not have the necessary access to the
started operations. It has not been active since,” Soliz says.
National Pipeline System.
The experience put an exclamation point on the need
“Improving the air quality of our cities is the main driver for
to prepare for contingencies. The government wants to
CFE and the state’s government to support the transition
install PV solar systems on public rooftops, all covered
to cleaner energy. CFE has already defined a plan to
by an annual insurance policy protecting the investment
increase the availability of natural gas in the peninsula.
from climate-related events. The policy was selected on
The guideline for the first tender says that natural gas
the advice of the IADB and offers attractive terms that are
transportation services to power plants in Baja California
not at odds with the project’s profitability, according to
Sur must start in September 2019 at the latest,” he says.
Soliz. Even with the climate risks, the Director says solar
Soliz expects to raise the amount of renewable energy
energy continues to be profitable in Baja California Sur.
capacity in the state’s energy mix from two to 60MW in
The state has one of the highest electricity tariffs in the
the medium term.
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INSIGHT
THE ESSENCE OF FRESH-BAKED SUSTAINABILITY ALEJANDRA VÁZQUEZ Environmental Sustainability Manager at Grupo Bimbo
Grupo Bimbo started back in 1945 as a small bread-making
The Group’s sustainable initiatives reach beyond its plants to
factory in Mexico City with 34 employees. Seventy years later
the streets of Mexico City. “In 2012 we launched an ambitious
it has over 127,000 employees and 163 plants in 22 countries.
project to develop electric vehicles to suit the needs of a
Reducing GHG emissions for a company with such a massive
company like ours, which we are implementing through
scale is a challenge, to say the least, but the company is on
Moldex, a subsidiary of Grupo Bimbo. In the first phase of
track to do just that.
this project, we hired young Mexican talent to transform existent vehicles into electric models. They later analyzed the
At its 37 Mexican production plants, Grupo Bimbo has
possibility of opening a small electric-vehicles manufacturing
reduced its environmental impact by introducing energy-
line, which we started doing in 2013,” says Vásquez.
efficient solutions and renewables, among other initiatives. “Piedra Larga wind farm, located in the state of Oaxaca, was
“With this initiative in place we inaugurated our first
inaugurated in November 2012 and now supplies around 90
Ecological Distribution Center in 2013, located in the
percent of the total electricity used in our Mexican plants as
historic center of Mexico City, with 73 electric vehicles. This
well as some of our distribution centers and headquarters
distribution center incorporates all kinds of environmental
in Mexico City,” says Alejandra Vázquez, Environmental
initiatives, including the electric vehicles. Now we have
Sustainability Manager at Grupo Bimbo, which registered
four Ecological Distribution Centers and over 320 electric
sales of US$13.82 billion in 2015, making it the largest
vehicles on the streets,” she adds.
bakery company in the world. “As part of the evolution and maturing of the plan, another 180 installations will be
In 2015 Grupo Bimbo developed a new electric vehicle
supplied by wind energy, mainly our distribution centers
with a load capacity of one ton and the possibility to drive
and our El Globo bakeries.”
100km without recharging. “We launched this new vehicle, the model VDT2, in 2016, which was also made available for
According to Vásquez, the energy produced by Piedra Larga
purchasing to other companies that transport goods. In this
wind farm has helped the company reduce 139,000 tons of
way we have taken another step in becoming a sustainable
CO2 emissions from November 2014 to October 2015. “This
company, highly productive and fully human.”
initiative was also special in the sense that it permitted us to include our distribution centers and not only our production
Grupo Bimbo’s initiatives come at a time when the Mexican
plants.” Even with a larger share of renewable energies in its
government has announced national efficiency goals
mix, Grupo Bimbo continues to implement different actions
that include reducing the country’s energy intensity by 1.9
to reduce electricity consumption in its processes. This is in
percent from 2016 to 2030 and identifying transportation as
line with the idea that it is better to save a kilowatt than to
the sector with the most opportunities to upgrade its energy
use it, even if that kilowatt comes from renewable sources.
efficiency. The government has also announced plans to
“In 2015 we introduced several initiatives but I would like to
electrify the country’s vehicle fleet by 2050. On a global
highlight the use of Programmable Logic Controllers (PLCs)
scale, Grupo Bimbo is demonstrating strong leadership
in our heavy equipment, usage of electric condensers to
in sustainability. In the last Conferences of the Parties
improve the power factor, substitution of old motors for
(COP21), it raised its voice to urge international leaders to set
more efficient models and centrifugal compressors for screw
ambitious targets in terms of emissions reductions. To show
compressors with frequency variation control, introduction
its commitment, the Mexican company signed an Action
of LED lights and magnetic induction,” Vásquez says. “We
Commitment Plan to implement environmental actions
also put inverters into our belt conveyors, replaced the
before 2020. With the initiatives already implemented at its
electric panels of our compressed air system with airflow
Mexico operations, Grupo Bimbo is showing that it has the
mechanisms and implemented automatic lighting controls."
potential to put Mexico at the forefront of sustainability.
127
VIEW FROM THE TOP
SMART ENERGY USE BURNISHES BRAND MARCO RIBERA Senior Corporate Manager Environment & Safety of Nissan Mexicana
128
Q: What role does energy play in increasing the
US. Regarding renewable energies, we have a wind farm
competitiveness of Mexico’s automotive industry?
and a biogas plant producing energy from urban waste,
A: Nissan Mexicana has experienced significant growth
which also distinguishes us from our global peers.
in the past few years and energy and sustainability are among the main factors that have contributed to our
Q: What has been Nissan Mexicana’s experience using
success. Our energy and sustainability strategies have
renewable energies?
impacted positively on competitiveness, reducing our
A: Nissan Mexicana owns three manufacturing plants in
operational costs and adding value to our corporate
Mexico. Our Aguascalientes A1 plant sources 68 percent
image in the national and international markets. We also
of its energy from renewable sources but considering our
expect the Energy Reform to contribute positively to
total consumption, renewables represent between 30 and
our competitiveness and that of the Mexican automotive
32 percent. Since we started using renewable energies
industry in general but we believe we will see its effects
in 2013, we have manufactured more than 700,000
in the medium to long term. We are in a transition period,
vehicles using wind energy. That means that of all Nissan’s
with many regulations still to be defined so the market can
subsidiaries, we are the one that has manufactured
be fully operational, but we are already considering the
the most vehicles with lower CO2 emissions. Biogas
new market conditions to ensure we remain competitive
represents 4.1 percent of the energy consumption at our
in energy usage and operational costs, always with
Aguascalientes A1 plant, the largest biogas usage in any of
sustainability in mind. We are analyzing access to different
Nissan’s plants globally.
clean energy sources and new technologies in Mexico, both in line with the new regulatory framework.
Q: What is the main challenge large energy consumers such as Nissan Mexicana face in the new market?
Q: What is behind the company’s heavy investment in
A: The major challenge is to understand the new market
sustainability?
rules and the transition period. Companies also need
A: Sustainability is included in different aspects of Nissan’s
to align their strategies to the legal requirements and
global business plan called Nissan Power 88. The fourth
understand the new time frames and the contracting
pillar of our strategy is being a leader in emissions
schemes for energy projects. One concern is the impact
reduction. The sustainability part of our strategy is
that exchange rates and fossil fuel prices will have on
included in Nissan Green Program, which we are also
energy tariffs, especially given that the Mexican energy
implementing in Mexico. We have a global goal of reducing
system is strongly reliant on fossil fuel.
our CO2 emissions 21 percent by 2020 in comparison with our 2005 levels. Nissan Mexicana has already doubled
We are operating under the former regulatory framework
this goal, reducing its CO2 emissions by 54 percent from
but we are not inexperienced using alternative energy
2005. Our emissions reduction strategy was based on two
sources to CFE’s supply. In fact, we have over 10 years’
main pillars, reducing the amount of energy consumed per
experience using different energy supply schemes. We are
manufactured vehicle and integrating renewable energies
analyzing different supply options, including PV solar and
into our energy supply mix. We are the most efficient
cogeneration, but we have not made any decisions yet.
overseas manufacturing subsidiary of Nissan regarding
The fact that we have been pioneers in using alternative
energy usage, even compared with plants in Japan and the
energy sources to CFE’s supply make us less vulnerable to market changes. We have a multidisciplinary team with
Nissan is one of the largest car manufacturers worldwide with a 56-year
expertise in different areas such as financing, technology,
presence in Mexico. It has been the country’s leader in car sales for the
manufacturing, investment and supply chain, which comes
last six years.
in handy when coping with new industry challenges.
VIEW FROM THE TOP
THINKING BLUE TO ACT GREEN JORGE SALAS Energy Management Manager at Volkswagen de México
Q: How will lower electricity prices for industrial users
consumption
affect the competitiveness of Mexico’s auto industry?
weekends and public holidays.
during
nonproductive
days,
namely
A: Lower energy prices are a key factor in the industry’s long-term competitiveness. Investing in renewable energies
We have also incorporated energy diagnoses that identify
is part of Volkswagen’s environmental responsibility
our greediest processes and act to reduce their energy
strategy. This is also a market-driven decision now that
consumption. The company also ensures the equipment
renewable energies are much more cost competitive,
for new processes operates with the latest, most efficient
which is essential to our company’s sustainability strategy.
technology and retains the concept of optimization over
The importance of renewables continuously increases and
the course of a project. This has led to excellent results for
technology improvements boost the viability of including
the company. Reducing the plant’s natural gas consumption
them throughout the supply chain, without depending on
will be the hardest challenge, since processes that require
state subsidies.
natural gas consume energy even during nonproductive days. We are looking for alternative local solutions that
Q: How has Think Blue. Factory. impacted Volkswagen’s
could improve our installations and supply the required
manufacturing facilities in Mexico?
thermal energy, as well as revising painting processes to
A: Our Think Blue. Factory. strategy promotes positive
optimize the setting-point in heat treatments and lowering
actions for environmental protection, establishing an
factory temperatures.
objective to reduce energy consumption 25 percent by
the issue among our partners.
By September 2016 Volkswagen de México had reduced 37 percent of its energy consumption in comparison with 2010 levels
Think Blue. Factory. has definitive goals that must be
Q: Volkswagen pioneered a PPA with a wind farm in
finalized by 2018. In 2017, we will consolidate our efforts
Mexico. How has that helped its green initiatives?
to ensure we achieve the desired results, with some
A: One of the principle challenges presented by Think Blue.
2018, compared to energy indicators in 2010. By September 2016, we had reached a 37 percent reduction, reflecting the significance Volkswagen attaches to this goal. We achieved reductions in consumption of electricity, natural gas, water and both CO2 and Volatile Organic Compound emissions. This is visible in our processes and awareness of
planned measures that will optimize energy consumption.
Factory is reducing CO2 emissions. This prompted us to
The strategy will continue in the future with even more
search for alternatives to supply our plants with renewable
ambitious goals, which we will achieve through the
energy. Although aspects of the project’s PPA had to be
involvement of all our teams.
adapted, it is in the construction phase and we expect to start receiving energy by 2017. Given the new conditions
Q: What strategies are employed to reach the 25 percent
set by the Energy Reform, we have definite interest in
reduction by 2018?
developing renewable energies. But this does not mean
A: Our strategies involve every company division
that Volkswagen will necessarily invest directly in projects
having Think Blue. Factory. ambassadors. They are
because the company’s focus is automobile production.
trained specifically to implement organizational and technical energy-saving methods, such as modifying
Volkswagen is the world’s second-largest automobile manufacturer
critical operations that consume large amounts of
and its Puebla plant is its second largest outside Germany. It also has
energy, optimizing processes and minimizing energy
divisions in financing, electric vehicles and wind and solar parks.
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ROUNDTABLE Despite the fluctuation in metals prices, mining continues to be a top contributor to the Mexican economy. In 2014, the industry produced US$17.3 billion, 1.5 percent of the country’s GDP, representing a total consumption of 9.54TWh a year of electricity and 6.15 billion cubic feet of natural gas. The industry’s high energy intensity and electricity-related operational costs are the main reasons miners are interested in the Energy Reform, even pushing some into the power generation business.
HOW HAS THE ENERGY REFORM IMPACTED THE MEXICAN MINING INDUSTRY?
Mexico Energy Review asked relevant players from the mining industry to share their thoughts about the role of energy in the industry as well as the main opportunities the Energy Reform has created for this sector. To learn
131
more about the mining industry in Mexico get your copy of Mexico Mining Review 2017.
The vast majority of companies are well aware of the potential benefits the reform brings. Energy consumption can represent up to 30 percent of all operational costs for many mines. Since the Energy Reform there are a number of new opportunities available to mining companies, which can now generate their own energy through cogeneration plants and other renewable programs. Our role is to educate the community about these opportunities and to provide them with the tools to maximize their potential. Several of the larger market players, including Industrias Peñoles, Fresnillo, Grupo México, and Minera Autlán are beginning to invest in energy generation because it raises competition domestically and internationally.
SERGIO ALMAZÁN Director General of the Mexican Mining Chamber (CAMIMEX)
Indeed, there are a total of 35 mining projects in Mexico with valid permits for internal energy creation. It represents a total installed capacity of 1,799MW, and a projected investment of US$2.7 billion, a reflection of a growing consciousness directed toward energy-saving opportunities.
In terms of energy, we are not only examining the sourcing of the energy at competitive rates but also the power source itself and we are looking into clean energy sources. An important component for Fresnillo is diesel that is consumed in open-pit mines. At the moment, we are testing ways to replace this source with natural gas. The pilot program will involve running two of our trucks in Herradura with natural gas. Depending on our results we can subsequently change the fuel used by our entire fleet to natural gas. This would have an impact on costs, as we consume 150 million liters of diesel per year at the moment.
OCTAVIO ALVÍDREZ CEO of Fresnillo
We anticipated the Energy Reform and we began preparing for it 15 years ago. We are one of the major consumers of electricity in the country, using close to 330MW, and we generate 84 percent of that energy in-house. We have a 25-year contract with a thermal plant in San Luis Potosi, as well as two wind power generators in Oaxaca and a third generator currently in the development phase in Coahuila. These projects complement our belief in environmental protection and the use of renewable energy where possible. With the development of new technology, wind power is now more competitive than gas.
FERNANDO ALANÍS Director General of Industrias Peñoles
VIEW FROM THE TOP
INTEGRATE CLIMATE CHANGE INTO RISK MANAGEMENT FRANCIS PÉREZ Shared Value Creation & Sustainability Director of Nestlé México
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Q: What is behind Nestlé’s strong climate change
electricity markets well beyond our own needs. This
position and what is its strategy to reduce its emissions
ultimately helps lead the global transition to a low-
globally?
carbon, climate-resilient economy in line with COP21’s
A: With the highest carbon dioxide levels since the
Paris Agreement.
Industrial Revolution, the resulting changes in climate may threaten global food security in general, and our
Since 2013, Nestlé México has sourced 80 percent of its
business in particular. The long-term supply of safe,
electricity from wind power and expects that in 2017 we
high-quality ingredients may be affected as yields fall
will supply all electricity from renewable energy sources.
and production areas shift. Manufacturing or distribution
We agreed this under the previous law that considered
of food products may be hampered because of extreme
the existence of self-supply societies. We established a
weather events. That is why reducing air emissions and
contract with Enel Green Power and it has become our
adapting to climate change are integrated into our risk
supply partner.
management processes and why our response is a holistic one. Given our global footprint, we use many different
Q: To what extent has the Energy Reform contributed to
mixes of fuels and energies throughout the world, which
making Nestlé’s clean energy goals easier to achieve?
depend on local supply and market conditions. Our
A: With the Energy Reform, we have new and better
overall strategy focuses on improving energy efficiency
options for competition, establishing contracts with
and switching to cleaner fuels and energies. Procuring
different companies. We are analyzing all our options
renewable electricity is a key element of that strategy.
to achieve 100 percent supply from renewable sources. In the past we decided to go for wind energy because
Q: What route is Nestlé taking to become 100 percent
a study showed it was the best solution at the time in
renewable and how is Nestlé Mexico contributing?
terms of the cost/benefit ratio.
A: In August 2014, Nestlé endorsed the Carbon Disclosure Project (CDP) initiative to procure 100
Q: How big is the Mexican market for Nestlé’s operations
percent of electricity supply from renewable sources
globally?
within the shortest practical timescale, which is fully
A: Mexico is the sixth largest country for Nestlé
aligned with our own explicit commitments. Importantly,
worldwide. We participate in more than 10 categories,
the endorsement of this initiative by Nestlé and other
and our position in the market is different in each one.
large companies sends a strong signal to the market
For example, we lead the coffee segment with our
and contributes to accelerating the growth of renewable
Nescafé® brand, and the dairy culinary segment with Carnation® and La Lechera®, or baby food with Gerber®.
Nestlé reduced its energy usage by 37 percent and CO2 emissions 61 percent compared to 2005 levels
The company has 17 factories in Mexico. Q: Your Coffee-Mate® factory has invested US$250,000 to reduce carbon emissions. How was the money used and what were the results? A: Our Coffee-Mate® factory was the first in Mexico to use solar power to produce thermal energy, having the first LEED platinum building in a production facility. Since 2010, Nestlé México has invested over US$60 million to implement different technologies, including efficient and clean energies, to reduce its usage and
carbon footprint. For instance, we have a biomass
A: We use different types of energy due to the nature of
boiler in our coffee factory in Toluca that was converted
our operation and electricity is one of the most important
from fossil fuels to natural gas and also uses hot water
inputs for our processes. The commitment to use 100
from concentrated solar technologies. All these efforts
percent renewable energies refers only to electricity and
have helped us achieve our commitments in terms of
this will happen in 2017. We are evaluating different offers
energy and sustainability. We reduced our energy usage
from the market and we will accept the one we consider
37 percent and CO2 emissions 61 percent, compared
the best for our business and our clean energy targets.
to 2005 levels. Considering the carbon footprint per produced ton, the reduction of CO2 we achieved was
Q: What advice do you have for companies that would
147,000 tons in absolute numbers.
like to incorporate renewables but are wary of a negative impact on competitiveness?
Q: Can you tell us more about your renewable energy
A:
initiatives?
including society, governments, the private sector,
A: We have made an effort to reduce carbon emissions
NGOs and academia. It is necessary for all companies to
in all our facilities, not only in the one that produces
understand that we, as humanity and as a business, are
Coffee-Mate®. We use several sources of green energy in
vulnerable to climate change effects. Food production
our plants: wind and PV solar for electricity and biomass
depends on the health of the environment. If we do not
and solar concentrators for thermal energy. We have
start doing different things, we cannot have different
reduced CO2 emissions in more than 61 percent of our
outcomes. Renewable energy technologies are becoming
direct operations not only because of the large share of
more attractive every year and competitiveness is
renewables we have in our energy supply but also from
not compromised. We can take advantage of those
the energy-efficiency levels we have achieved through
technologies and realize savings in energy costs while
different initiatives. More than 2 percent of our total
supporting climate change mitigation. Certainly, this is a
energy consumption, not only electricity, comes from
business continuity decision for long-term success.
Climate
change
requires
everyone’s
attention,
renewable sources. Nestlé México, part of the global nutrition and wellness group Nestlé,
Q: What are Nestlé México’s plans regarding energy
sources 80 percent of its electricity from wind energy and expects that
and sustainability in 2017?
to rise to 100 percent in 2017.
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VIEW FROM THE TOP
SUSTAINABILITY PILLARS: PEOPLE, COMMUNITY, ENVIRONMENT VÍCTOR TREVIÑO Director, Energy & Environment at FEMSA
134
Q: What is FEMSA’s energy demand and what drove you
A: We will meet our goals with the PPAs we have already
to invest in four wind farms in Mexico?
signed, including those belonging to the four wind farms.
A: FEMSA operates in 12 countries where we have a clear
Some of the contracts we have signed recently correspond
understanding of the company’s total energy requirements.
to projects under construction, which is why they are still not
Electricity is our main energy source, followed by gasoline
reflected in our energy mix. But we expect them to be up
and diesel to power our logistics and distribution fleet.
and running by 2018. With the opportunities presented by
FEMSA’s global operations consume around 2.4TWh of
the Energy Reform, we are now evaluating the best company
electricity per year and Mexico is a major share of that
to supply the remaining 15 percent of electricity, around
demand, with a consumption of 2TWh per year. FEMSA’s
300MWh annually, whether it is CFE or another qualified
aggregate electricity consumption results from adding the
supplier. We are not certain that CFE will continue being our
demand of our different business units, including FEMSA
qualified supplier because we are open to different options
Comercio, which controls our OXXO convenience store
available in the market. Nonetheless, we expect the state-
chain, Coca Cola FEMSA, FEMSA Logistics and FEMSA
owned company to remain as a leading qualified supplier in
Strategic Businesses, which owns Imbera and PTM.
the coming years, so it still represents a strong future bet.
Our efforts to incorporate renewable energy in our
Q: How is FEMSA complying with the law requiring all
operations are connected to our Strategic Sustainability
emitters over 25,000 tons of CO2e be included in the
Framework, which focuses on three pillars: Our People,
National Emissions Registry?
Our Community and Our Environment. Regarding the
A: FEMSA has been voluntarily participating since 2006
environment, FEMSA works toward improving its water
in the Greenhouse Gases Program (Programa GEI),
and energy management practices as well as promoting
designed by SEMARNAT to encourage private companies
recycling and reusing of materials. We have worked
to monitor and reduce carbon emissions. All our business
strongly in the past few years to improve our operational
units have a long history in accounting and reporting
efficiency,
supporting
their GHG emissions annually, including FEMSA Comercio
the inclusion of larger shares of renewables into our
and Logistics. We are also accustomed to making our
company’s energy mix. We are now pursuing the goal of
emissions accounting public because we publish our
supplying 85 percent of our electricity from renewable
sustainability reports online. We are comfortable with the
energy sources by 2018. We established strategic alliances
idea of having an official GHG emissions registry because
with wind farm developers and operators because we
we have already implemented the mechanisms for this. We
found wind energy to be the most competitive electricity
established our first PPA with a renewable energy project
supply option at that time. We receive electricity from
in 2007. At that time renewable energies were not as
four wind farms: Bii Nee Stipa and Stipa Nayaa in Oaxaca,
popular. Most companies used to think that lowering their
Dominica in San Luis Potosi and Ventika in Nuevo Leon,
carbon emissions would be important in the future but
all under the self-supply framework of the previous
few were taking action at that time. FEMSA was a pioneer
Electricity Industry Law.
because it wanted to learn and gain experience in the
reducing
energy
usage
and
field to prepare for the future. Now, the Energy Transition Q: How will the company reach its 85 percent target and
Law requires that 5 percent of the electricity supplied to
where do you plan to source the remaining 15 percent?
qualified users must come from renewable energy sources by 2018. We will be ready to meet this target. The law also
FEMSA is a Mexican-based multinational beverage and retail company
establishes a gradual increment in the share of renewable
headquartered in Monterrey. It also operates the largest independent
energies up to 35 percent by 2024, a goal that we also will
Coca-Cola bottling group in the world.
be in a position to meet and exceed.
PROFILE
SUSTAINABLE ENERGY OUTSIDE THE BOX ALFREDO ROMÁN Environmental Manager at Tetra Pak
Mexico was Tetra Pak’s first overseas operation for the
Román believes the Energy Reform has eased the path
Swiss-based company. It opened its first manufacturing
for Tetra Pak in Mexico to accomplish these objectives,
facility outside Sweden here in 1960, supplying around
making it possible for the company to reach its clean
1 billion containers annually for the food and beverages
energy targets before the established deadline. “We
industry. The company has grown significantly since then,
expect to reach our renewable energy targets before the
now producing around 8 billion pieces per year and making
established deadline. We could feasibly reach 100 percent
Mexico one of Tetra Pak’s main markets globally. Two
renewables before 2025. Not all of Tetra Pak’s operations
secrets behind Tetra Pak’s successful expansion have been
might say this but Mexico’s conditions allow us to be
the company’s focus on resources optimization, including
optimistic,” he says.
energy savings, and sustainability, a vision it implements for its own products and manufacturing plants as well
“The main challenge for us is to change our energy
as at client facilities. Tetra Pak’s manufacturing plant in
matrix without compromising energy security. We simply
Queretaro is one of the group’s most efficient facilities but
cannot stop production due to energy-related failures.
there is still room for improvement, according to Alfredo
We are a product supplier and we have to meet our
Román, the company’s Environmental Manager. “Our
clients’ expectations regarding deadlines for deliveries.
main area of opportunity to reduce our carbon impact is
For that reason we look for suppliers that can guarantee
electricity consumption, an aspect we are addressing by
us nonstop supply for our manufacturing operations.
developing and using energy-efficient technologies for
Cost is another important factor but energy security
our own process and our clients.”
is our number one priority,” Román adds. Given that electricity is not Tetra Pak’s core activity, the company
In 2009, the plant began substituting its old light bulbs
gets support from a specialized firm to navigate Mexico’s
with efficient lamps, achieving 68 percent reduction in
new energy market. “We do not want to rush and make
electricity usage in that area. The main contribution to
long-lasting decisions before being sure about all the
energy efficiency, however, comes from Tetra Pak’s own
market options,” he says. Sustainability and resources
technological innovations, which are also shared with
optimization will continue to be at the core of the
the company’s clients. “Tetra Pak is involved in the entire
company’s future strategy in Mexico as both have been
packaging process, always looking to raise the bar in terms
present in the company’s vision since its foundation in
of energy and water efficiency. We are about to implement a
1951. According to the executive, the design of Tetra Pak’s
new department in our company to advise clients on how to
containers is the best tangible proof of the importance
optimize these two aspects in their processes,” Román says.
the company places on these aspects.
Besides reducing its electricity consumption, Tetra Pak is
“Tetra Pak is one of the most efficient containers in the
also looking to implement a higher share of renewables in
market regarding space optimization, which also impacts
its energy matrix, in line with the company’s global goal
positively on the energy consumption and the carbon
of supplying 100 percent of its electricity from renewable
footprint required to transport and store food and
sources by 2030. “We are looking at two options: investing
beverages products,” he says. “One truck can transport
in our own generation facilities or purchasing clean energy
946,000 liters using Tetra Pak containers while 29-39
from a third party. We are exploring the possibility of
trucks would be needed to transport the same amount
installing solar PV panels in our manufacturing plant in
using glass bottles. Moreover, Tetra Pak eliminates the
Queretaro, a state with significant solar potential. In other
need to refrigerate the products during transportation and
locations, we are also looking at wind energy options. We
shelf life, which is also an advantage in terms of energy
are not tied to any technology in particular,” he says.
savings,” he adds.
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PV system in San Martín dairy farm, Veracruz, Nestlé México
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INSIGHT
FEEDING ENERGY TO A FOOD GIANT JULIO SANTOS General Manager of Energía para Conservas at Grupo Herdez
Along with spicy food, the average Mexican cupboard is
To tackle its energy challenges the company created an
likely to hold pasta, mayonnaise or canned tuna made by
energy division in 2015, later deciding to open Energía
Grupo Herdez, a Mexican company founded in 1914 and
para Conservas, a new subsidiary managing all these
listed on the Mexican stock exchange (BMV) since 1991.
aspects. The subsidiary now focuses only on Grupo
The company has 13 production plants in the country plus
Herdez’s needs but Santos does not rule out selling
two abroad, as well as 500 Nutrisa stores that sell frozen
energy to third parties in the future. “Energía para
yoghurt products across the country.
Conservas is working on a co-generation power plant for one of Grupo Herdez’s factories in San Luis Potosi. The
For Grupo Herdez’s products to reach consumers
production process at this plant requires high amounts
the company employs large amounts of thermal and
of thermal energy, which makes it suitable for installing
electric energy to operate its plants. In an era of growing
co-generation
sustainable awareness, the group adds its name to those
registered as self-supply, was delayed because of the
seeking energy efficiency and looking to capitalize on the
Energy Reform but we expect it to start functioning in
Energy Reform opportunities.
early 2017,” he says.
Julio Santos, General Manager of Energía para Conservas, a
Energía para Conservas could also participate as a
Grupo Herdez subsidiary that focuses on providing energy
qualified supplier in the new market but the company is
solutions for the food industry, says that reducing costs is
still working to define an appropriate strategy. “Grupo
not the only motive for pursuing these objectives. “Grupo
Herdez is not an expert in energy trading so we are
Herdez is listed in the IPC Sustentable index of the BMV,
relying on specialized consultancies to define the best
which requires companies to establish and comply with
strategy for us to cover our energy needs and participate
certain sustainability goals. This, however, is not the main
in the wholesale electricity market,” Santos says.
equipment.
This
project,
currently
reason for Grupo Herdez to invest in sustainability. We are committed to being environmentally friendly because we
Through Energía para Conservas, Grupo Herdez is also
want to protect our planet and its future,” Santos says.
analyzing how best to raise the share of renewables in its energy mix, considering different options such as
The company already supplies 32 percent of its electricity
investing in its own power plants or purchasing energy
needs from a wind farm. Its goal is to increment its clean
from legacy projects or the wholesale market. Santos
energy consumption to 50 percent by 2018. Raising
says the complexity of the new market has brought new
renewable energy consumption, however, is not always an
challenges for the company but it has also opened the
easy task. “The drop in electricity tariffs taking place this
door for many new possibilities. In parallel to its clean
year represented a challenge for us as we paid 32 percent
energy targets, the company has been working constantly
more in electricity costs than if all our energy came
to improve its efficiency, achieving a 10 percent reduction
from CFE (due to previous agreements),” Santos says.
in its energy consumption since 2009. “We joined the
“Grupo Herdez maintains its commitment to renewable
National Program for Energy Management Systems
energies due to its sustainability value but we are still a
(PRONASGEn) as a strategy to reduce our facilities’
business. We therefore looked for a new agreement with
energy consumption,” says Santos. “Our main goal at the
our supplier, finally agreeing to be compensated for the
moment is to implement real-time monitoring and energy
money we did not save due to the drop in CFE’s tariffs.
audits in all our production facilities. We have already
Our final negotiation states that our supplier will provide
invested US$400,000 to implement these devices and
extra energy to us after a 15-year period according to the
we expect to have energy goals in all our production
percentage we did not save due to the tariffs.”
plants by 2018.”
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VIEW FROM THE TOP
TIME NEEDED TO ACHIEVE SOPHISTICATION
Monte Mickle President of Enerlogix Solutions
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RenĂŠ Ochoa Vice President of Operations at Enerlogix Solutions
Q: What drove Enerlogix Solutions to focus its business
Q: What are the main challenges the company identified
on qualified users?
when entering Mexico?
A: The Energy Reform provides the opportunity for more
A: Our main challenge is the lack of information and
transparency and better costs for large energy users but
understanding on how a deregulated market works and
to participate and secure the advantages of a deregulated
how it can benefit energy consumers. Most Mexican
market companies need to register with CRE as a qualified
companies lack experience operating in a deregulated
user. The value we bring as consultants is somewhat
energy market. Many of our clients are American
limited for those who want to stay under the current CFE
businesses with Mexican facilities that have experience in
tariff rate or basic service structure. These companies can
US deregulated markets but do not understand Mexico’s
only lower their costs by implementing energy-efficiency
new energy paradigm. Since our arrival in April 2014
measures, which many Mexican companies have already
we have focused on educating and helping companies
done admirably. As consultants we help companies take
understand how the wholesale energy market (MEM)
advantage of the financial benefits of the Energy Reform.
operates and doing financial analysis as to if and when
Our main objective is to help companies understand
an organization would benefit by transitioning from basic
how the newly deregulated market works, guide them
service to qualified user.
on assessing financial opportunities and risks, negotiate favorable contracts as well as determining how they can
Q: Why are companies apprehensive about becoming
benefit from alternative energy providers.
qualified users and how can you help them to feel comfortable?
Our job is to know the retailers, to analyze and evaluate
A: It has been two years since the approval of the Energy
each company and to determine if their business and
Reform but there is still a void of understanding about
operational plans match our clients’ needs. There are more
how the market works. Right now, the majority of large
than 20 retailers already registered with CRE or in the
industrial companies are in a holding pattern. Electricity
process of getting their certification. Most companies are
rates are going up again and the new basic service rates
already overwhelmed with their own business operations
soon to be published will be strongly linked to the US
and do not have the time to analyze the offers from
dollar exchange rate, Henry Hub natural gas prices and
the many different providers. We can filter and narrow
CFE operational costs. The market is designed to provide
the list of suitable suppliers down to a handful of viable
savings and reduce long-term price volatility risks for
options. Most of the retailers working in the market are
qualified users. We do not recommend large industrial
Mexican companies or Mexican entities that are owned
users to stay in basic service. Once companies understand
by international corporations from countries that already
the MEM fundamentals, they will see the benefits of
have a deregulated market. We have not yet seen American
proactively managing their energy portfolio as a MEM
suppliers coming to Mexico because they are waiting for
participant. We saw similarities in the US but in the end
the pending market regulations and business-practice
it is understanding how the MEM operates and how it
manuals to be published in 2017. After that we expect to
can benefit a qualified user that will motivate businesses
see a wave of American companies entering Mexico and
to make the change. Most companies are still waiting
bringing new options for Mexican off-takers.
for financial transmission rights and pending business practice manuals. CENACE also needs to publish real-time
Enerlogix Solutions is an energy-efficiency and administration
market data. We see a real interest from US companies to
consultancy for commercial and industrial users, focused on risk
enter the MEM but they want all the rules to be defined.
management for both commercial and industrial energy demand and
Large retailers need transparent data so that will be a key
supply.
factor them deciding whether to participate in the MEM.
ROUNDTABLE CFE had an energy monopoly for almost 80 years, meaning companies gave little thought to energy supply because there was effectively only one choice. The market’s liberalization has increased the number of options for off-takers, a development received with open arms by the industry but also with some confusion as the
WHAT ADVICE WOULD YOU GIVE TO OTHER OFF-TAKERS?
number of previously unheard-of options grows. Inexperienced SMEs and local companies tend to be the most cautious, waiting until other companies jump into the complex waters of energy purchasing before following with their own strategies. Here, three Mexican companies share their advice for other off-takers that are currently analyzing the best strategies to decrease their
139
energy costs.
We recommend other off-takers use a multidisciplinary team with the ability to analyze the energy market from different angles, including financial, legal and operational issues. We also recommend being open to all the possibilities offered by the market so they can analyze and find the most suitable option. Most companies are not used to comparing when they select alternative energy supplies because we had a monopolistic market before. But companies should not be afraid of seeking advice on energy matters from professionals in the area so they can expand their possibilities. Benchmarking other companies’ strategies is also a useful activity, even if they belong to a different sector. For us, the most useful strategy at the moment is to stay updated about the market’s evolution and the new options available.
MARCO RIBERA Senior Corporate Manager Environment & Safety of Nissan Mexicana
Consumers today are facing more supply options than ever. My advice to those entering the market would be to first reflect on the nature of their goods and services and how that translates to their electric costs. Secondly, identify the benchmarks against which they will compare their alternatives and finally, access the market and reach a decision. This is not an easy task because shortterm price signals rarely are meaningful for decisions with a longer-term impact. It is also essential to look for proven, competent counterparts that can deliver on their promises.
FRANCISCO CON Business Development Director of CEMEX Energía
The Ministry of Energy has shown willingness to help private companies navigate the new energy landscape. We found it highly useful to be part of PRONASGEn because it allowed us to improve our energy management greatly and reducing our energy costs considerably in our pasta manufacturing plant. This program is supported by German and Danish agencies and it also addresses SMEs, not only large companies like Grupo Herdez. By participating in PRONASGEn, companies can get free consultancy services and bring experts into their plants to help them improve their energy management. Mexico is currently receiving a lot of international attention and support regarding its energy sector so it is the perfect time for private companies to grab these opportunities and improve their energy usage.
JULIO SANTOS General Manager of Energía para Conservas at Grupo Herdez
PROJECT SPOTLIGHT
140
NEW MEXICO CITY INTERNATIONAL AIRPORT Mexico City’s International Airport is like a city unto itself. It provides jobs to over 35,000 people and receives more than 38 million passengers a year. The second largest airport in Latin America, it has been operating at overcapacity for the last few years and the exponential demand shows no sign of abating. The obvious solution is now well on its way to fruition: The New Mexico City International Airport (NAICM) is designed to meet the country’s aviation demand, including the capacity to receive over 120 million passengers a year. 141
But like a city, airports are one of the largest consumers of energy. According to CASCADE, about half the energy consumed at an airport is associated with the heating, ventilation and air conditioning systems. The architecture of the Terminal 1 building is designed to take advantage of its environment and to operate with 100 percent renewable energy. Fresh air will travel through the infrastructure, serving as a natural cooling system, lowering consumption levels, and natural daylight will keep lighting costs to a minimum. The airport, located just 5km from the existing facility, will be equipped with two electrical substations that will create enough power for the terminal building, control tower, support buildings, visual aids and navigational systems. These substations will contain two feeders of 20MVA to 23kV, each with a proposed receiving substation (230kV to 23kV). The 23kV receiving substations will each have a capacity of 20MVA and will operate through underground duct banks lined with concrete, which will lead to the main distribution cells within the central service plant. At a minimum, an electric pass-through box, made of precast concrete, will be constructed every 165m along the feed run and wherever the total deviation of the pipeline bank rises to 180 degrees. The Mexico City Airport Group (GACM) awarded the project in July 2016, to a consortium of Urisa, Isolux Corsán and Avanzia at a price of MX$1.1 billion. The group must finish it by December 2018. The consortium won due to its extensive experience constructing substations and transmission lines for CFE in the past. The project requires the construction and installation of high-voltage equipment, a fire-extinguishing system, three-phase transformers and a back-up power plant for the airport and control room. In addition to the outdoor and indoor lighting, it will power the air conditioning and power cable systems, energy metering, fiber-optic installation and grounding systems.
VIEW FROM THE TOP
CLIMATE CHANGE A FACT NOT A POSSIBILITY ESTANISLAO DE LA TORRE Chief Operating Officer of HSBC Mexico
142
Q: What role does sustainability play in the company’s
street retailers and oil and gas companies are among those
strategy?
studying the sector and assessing the opportunities. Some
A: Sustainability is a priority for us globally, with our
have made such substantial investments in renewables that
efforts in sustainable financing at the forefront, especially
they have more energy than they can use themselves and
over the last few years. Inside HSBC, we call our global
want to sell the surplus to consumers, subject to permission
sustainability strategy, REDUCE. It is part of our wider
from regulators.
operational strategy and it helps to streamline the business, as well as drive efficiencies that reduce our overall impact
Q: What made you decide on a 10-year PPA with Enel
on the environment. The energy HSBC consumes releases
Green Power and what are the terms of this agreement?
carbon emissions into the atmosphere, which are a major
A:
contributor to climate change, something the scientific
technologies considering reliability and risks, we concluded
community and the UN agree is measurable and happening
that wind power was the best option for HSBC in the
today. In 2013 the UN’s Intergovernmental Panel on
Mexican market. HSBC then signed a 10-year agreement
Climate Change (IPCC) stated that global warming was
to buy power generated by a new 200MW wind farm in
“unequivocal,” and caused by human activity.
the northeast state of San Luis Potosi, which will provide
After
performing
a
deep
analysis
of
different
50 percent of our energy needs in the country starting As a global company, becoming more efficient helps
mid-2017. By signing this long-term deal we are helping
reduce HSBC’s contribution to climate change and over
bring new clean energy onto the market, cutting carbon
the last three years we have cut our average CO2 emissions
emissions produced by our operations in Mexico by 22.9kt
per employee from 3.5 to less than 3 tons. HSBC has the
annually. That is the same amount of CO2 generated by
responsibility to manage its contribution to climate change
around 3,600 cars each year.
and find ways to operate more sustainably. Our goal is to have 75 percent of the electricity we Q: What global trends are driving companies to establish
consume in Mexico come from new renewable sources by
PPAs with renewable energy producers?
2018. In this first phase, we are going to use a wind source
A: The broad direction of future legislation is clear.
to supply the energy consumption of our branch network.
Governments
major
We are also planning to replace the energy supply of our
commitments to reduce carbon emissions over the long
corporate buildings for a clean energy source in a second
term. Technology has also improved, with some forms of
phase in 2018.
around
the
world
have
made
renewable energy competing on price with fossil fuels. Today, renewables are a growing part of the energy mix in dozens
Q: What advice would you give to other off-takers that
of countries. For example, Portugal met its electricity needs
might not have the same expertise as HSBC?
using renewables alone for four consecutive days in 2016.
A: It is important to keep in mind and analyze the size
While on a windy day, Germany can meet more than 100
and characteristics of their real estate portfolio and their
percent of its national electricity needs from renewables.
growth/reduction strategy to define the amount of energy to be introduced. On the other hand, clients often ask
Thinking about renewable energy has become “business as
about emerging technologies, new policies and changing
usual” for most major companies. Technology firms, high-
legal requirements. Given the pace of change over the past decade, it would be unwise to make categorical claims
HSBC, one of the largest banking and financial services institutions
about the future. Not all new technologies will succeed:
in the world, serves millions of customers through its four global
some investors will see the products they have backed
businesses. The bank has a particular expertise in trading operations.
become obsolete before they even reach the market.
INSIGHT
BANKING SECTOR EMBRACES CLEAN POWER SALOMON AMKIE Vice President Head of Power & Alternative Energy at Citibanamex
A few decades ago investing in renewable energies was
The main challenge for Citibanamex and other off-takers
seen as an extravagant decision more suited to so-called
is not likely to be related to technical issues but to the
tree-huggers or technology fans. But the global landscape
changing environment and the wide portfolio of options
has changed dramatically since then and investing in
to choose from in the wake of Mexico’s Energy Reform.
renewable energies is now viewed as sound business
Companies operating here and willing to purchase clean
sense. And with commercial banks participating as clean
energy now have the option of signing PPAs with legacy
energy purchasers, more businesses are expected to join
projects or private power producers, buying electricity
the movement.
from qualified suppliers, which include CFE Calificados, marketers or directly from the wholesale electricity
Citibanamex, the Mexican subsidiary of Citigroup, is among
market, which launched operations in January 2016.
the financial institutions that are entering the renewable energy world as a purchaser and not only as a sponsor.
“The wholesale electricity market is really just starting. We have these great PPAs at an incredibly competitive pricing
“Citibanamex has been increasing its participation as
that might not reflect the reality of the spot price. I think
an off-taker because we have targets we would like to
the biggest challenge is trying to determine what the
meet regarding sustainability,” says Salomon Amkie,
actual prices are to define whether or not it is beneficial
Vice President Head of Power & Alternative Energy at
for Citibanamex as an off-taker to close a PPA for the
Citibanamex. “We are following a strategy launched a
long term or purchase energy directly in the market. As a
couple of years ago. While we have lagged other banks in
suggestion for other off-takers, it is very important to see
terms of financing renewable energy projects, we are now
the sponsor and the asset that you are signing the PPA
aggressively seeking to finance the new PPAs that have
with and to think about the tenor of the PPA. I do not think
been awarded.”
it is the time to close anything beyond seven or eight years, due to the current dynamics of the industry,” says Amkie.
He adds that the bank's experience is a key advantage. “We are leveraging Citi’s expertise as a large and global
Besides its plans to buy clean energy and finance renewable
renewable energy project-financing player and trying to
energy projects, Citibanamex is helping off-takers improve
bring that to Mexico. Obviously, we already have a great
their efficiency as part of the group’s Citi Global Climate
footprint in the country with Banamex and we are trying
Change Initiative. Citigroup has made a strong commitment
to make the most of this as well.”
to climate financing, starting in 2007 when it announced a US$50 billion investment in activities that mitigate climate
In addition to its financial expertise, Amkie believes
change. Its latest initiative announced in early 2015 involves
Citibanamex is prepared to handle the technical challenges
US$100 billion to be released over the next 10 years.“We
that imply selecting the best energy technologies, whether
discuss with SMEs how they can best save energy to help
for financing or covering its own energy needs. “We
them find the optimum solution, be that energy efficiency,
are very well equipped to understand how technology
distributed generation or whatever it might be. We then offer
impacts a project. We deal with a lot of these technology
to finance it. So far, it has been a very successful program.
providers worldwide so we know them well. There is an
We intend this to be cost-efficient for the companies. I also
alternative energy financing team in New York that is
think the risks are really minimal. What we have done is filter
very well-versed on the subject of technology and how it
the suppliers that we recommend, so we know that these
impacts a project. We also rely on independent engineers
are great companies to work with and we seek to finance
who are experienced and knowledgeable and can advise
against those cost savings. It represents a net improvement
us when we are considering financing these projects.”
for companies with barely any risk,” he says.
143
Combined cycle power plant and substation, Morelos, INEEL
TRANSMISSION & DISTRIBUTION
6
The transmission and distribution businesses in Mexico represent the final frontier for CFE’s old monopoly as these areas remained under state control after the Reform. This does not mean, however, that those industries have stayed the same. New lines such as the upcoming HVDC project from Oaxaca to the center of the country can benefit from private investment while, at the same time, the increasing participation of clean, renewable power sources in the energy matrix creates new challenges for the country’s electric infrastructure. The high incidence of energy theft and other technical and nontechnical losses are also on the agenda for companies and authorities alike.
In this chapter, technology solution companies discuss the opportunities to help both CFE and private players optimize their electric networks. They also analyze the different approaches to the concept of the “smart grid” resulting from the need to improve measurement and efficiency from the source to the final consumer, taking into account emerging technologies such as energy storage to maximize the potential of renewables.
145
146
CHAPTER 6: TRANSMISSION & DISTRIBUTION 148
ANALYSIS: PPA Debuts, Creates Buzz 147
149
VIEW FROM THE TOP: Óscar Miranda, Smart Grid México
150
VIEW FROM THE TOP: José Fernández, Grupo Dragón
151
PROJECT SPOTLIGHT: Oaxaca-Valley of Mexico HVDC Transmission Line
152
TECHNOLOGY SPOTLIGHT: Smart Grid Mexico Eyes Collaborative Development
154
VIEW FROM THE TOP: Armando de la Torre, ho1a
155
VIEW FROM THE TOP: Dario Labattaglia, Itron
156
PROJECT SPOTLIGHT: OpenWay Riva: a Powerful IOT Solution
158
VIEW FROM THE TOP: Daniel Martínez, ABB México
159
INSIGHT: Kevin Gutiérrez, Ingeteam
160
MAP: Inter-regional Transmission Limits 2016-2021
162
INSIGHT: Vicente García, Isolux Corsán
163
INSIGHT: David Flores, Ormazabal Mexico
164
PROJECT SPOTLIGHT: SEL’s PowerCore Substation Control Enclosures
166
VIEW FROM THE TOP: Rigoberto Castañón, S&C Electric Mexicana
167
INSIGHT: Norberto Gómez, Conductores del Norte
ANALYSIS
PPA DEBUTS, CREATES BUZZ By the end of 2015, Mexico had over 100,000km of
CODE COMPLIANCE
transmission lines and almost 800,000km of distribution
Complying with the new grid code will be among the
lines, serving over 39 million users. All these kilometers
challenges the power auction’s winners will face as they
were constructed using public resources. That changed
develop their new projects, particularly considering that
with the government’s guidelines for the first Public
most are solar and wind power facilities. But challenges
Private Partnership (PPP) in the electricity transmission
also bring new opportunities and electrical equipment
sector, released in the last quarter of 2016.
suppliers with specialized technologies to control voltage fluctuations and reactive power will likely see
The US$1.2 billion project will connect Oaxaca’s outstanding
demand for their products broadening in the market.
wind energy resources with the Valley of Mexico, a region
148
having one of the highest levels of electricity demand in
CFE also continues investing in smart meters and other
the country. It will also use High Voltage Direct Current
equipment to optimize its collection methods and
(HVDC) technology, a first for Mexico. Pedro Joaquín
avoid technical and nontechnical losses during power
Coldwell, Minister of Energy, says this technology will
transmission and distribution. The productive enterprise
allow the movement of more power over long distances,
of the state has already reached significant results through
easing the transmission of power from renewable sources
the introduction of these technologies but it plans to
while decreasing transmission and capacity losses. The
continue working to reach international standards. “CFE
minister also says the project is expected to promote
expects nontechnical losses to drop to 10 or 11 percent
the installation of more power generation in Mexico’s
in 2017, from 16 percent in 2012, thanks to smart meters.
southeast region.
Nontechnical losses cost CFE nearly MX$27.5 billion in 2015,” says Armando de la Torre from ho1a.
Although the tendering process will take place in 2017, the relevance of the project created a buzz across the industry
According to Oscar Miranda, co-founder of Smart
at the end of the year. This was not only related to the line
Grid México, the next big opportunity in this area
in Oaxaca but also to two other similar projects that are
will be Advanced Metering Infrastructure (AMI), an
among the government’s plans to connect Baja California’s
integrated system of technologies that permit two-way
isolated network to the National Interconnected System.
communication between smart meters and the utility company. The real-time data provided by AMI allow
In 2017 Mexico will launch the first open bidding process to build a 630km High Voltage Direct Current line from Oaxaca to the Valley of Mexico, a project worth US$1.2 billion
utilities to better plan power production while giving users information to make decisions about energy usage, such as performing high energy-consumption activities in periods with low prices. Given that the market liberalization has introduced hourly prices and fluctuation, the timing is right for AMI technologies to spread through Mexico, especially for qualified users. With the projects already tendered and those in the pipeline for 2030 – defined in the last available
In addition to new transmission and distribution assets,
PRODESEN – Mexico has made clear it plans to continue
Mexico is also modernizing the existing infrastructure to
expanding and modernizing its grid. This need for
provide higher power quality and to optimize the network.
stronger and smarter infrastructure to support Mexico’s
This included the publication of a new and stricter grid
growing capacity has awakened the interest of private
code that will apply to all companies willing to connect
companies to get further involved in the development
their facilities to the Mexican grid. The revision and update
of the country’s power network. In the past two
of the grid code were included in the Electricity Industry
years, many companies have diversified their business
Law as a way to ensure all technical and operational
portfolio beyond CFE because the Energy Reform had
requirements were in place to lead the development of
reduced the number of available opportunities with the
the National Electricity System in the most efficient and
state company. It now appears, however, that prospects
economical way. Companies must now get used to the
for collaboration with the productive enterprise of the
new rules and adapt their electrical equipment to fit the
state are on the horizon, creating new opportunities for
new requirements.
the private sector.
VIEW FROM THE TOP
SMART GRIDS A GREAT MARKET OPPORTUNITY ÓSCAR MIRANDA Co-founder of Smart Grid México
Q: How can smart grids revolutionize the power industry
because energy supply is a matter of national security.
in Mexico?
CENACE is doing an admirable job as the grid operator
A: Smart grids have the potential to innovate the power
but it needs to adapt to the new market conditions and
industry’s processes at any level, bringing financial and
develop research labs and think tanks to address the
environmental benefits such as reducing the country’s
network’s issues.
carbon footprint. Smart grids are mostly used in Mexico at the distribution level, mainly on metering systems. CFE
Q: What challenges is CENACE facing and how can smart
started investing in this technology in 2014 by launching a
technologies help optimize grid operation?
call for bids to establish Advanced Metering Infrastructure
A: One of CENACE’s main challenges will be the
(AMI) contracts. Other efforts followed to implement smart
integration of larger portions of renewable energies into
meters with information and communications systems.
the grid. It must decide when and how this integration will
Between 2014 and 2015, a bid package totaling US$1.3
take place and develop new fast-track metering systems
billion was launched, with another in 2016 bringing a total
to accompany this transition. Other challenges will be
US$530 million investment in smart metering solutions
the grid’s modernization and improving decision-making
to decrease technical and nontechnical losses. Thanks to
processes. Building a smart grid is an evolving process that
these measures, CFE’s energy losses have decreased from
requires multiple technologies and innovations such as the
17 percent to 13 percent in a couple of years. Smart grids
recent developments made in wide-area measurement
are a specific solution to macro-level energy problems.
systems compiling real-time Phasor Measurement Unit
In addition to incorporating a larger share of renewables
(PMU) information, which can be used to operate the grid
into the grid, it has the potential to boost the residential
more efficiently. Integrating smart grids and modernizing
market for renewables and to optimize the national
the power network is a global challenge facing all grid
electricity system to avoid having more energy reserves
operators at different levels, not only in Mexico.
than it actually needs. Q: How are regulations promoting smart grid technologies Q: What are the main business opportunities the Mexican
in Mexico and what is needed to boost this sector?
market offers smart grid companies?
A: The secondary regulations arising from the Electricity
A: Companies bidding for AMI contracts will have the
Industry Law and the Energy Transition Law already define
greatest market opportunity in the short term, which
a particular framework for smart grid development in
will create a need for research institutes and specialized
Mexico. Both regulations assign responsibilities and have
companies to analyze how AMI should be integrated into
led to the creation of a smart grid consultative council
the grid. We also must increase the market’s knowledge
presided by the Ministry of Energy and comprised of
about how to integrate more renewables into the grid,
government representatives as well as members from
especially as DG will become the most interesting sector
CFE Distribución and private industry. Smart Grid México
in the coming years. But the most relevant business
collaborates in this with the Transformation Industry’s
opportunities will come in the longer run, when we
Chamber of Commerce (CANACINTRA) as the private
expect to see higher demand for data and grid stability
sector’s representatives. This council is important because
analysis software as well as simulation and integration
it promotes dialogue between the parties, contributing to
systems. There are no Mexican companies providing
the industry’s development.
these services yet and we need to start developing the market to avoid future dependency on imported
Smart Grid México is a nonprofit organization with the purpose of
talent and technologies. Operators need to ensure
promoting the development and implementation of technological
that the power grid is safe and functioning optimally
solutions for enhancing efficiency in the Mexican energy sector.
149
VIEW FROM THE TOP
DREAMING OF A SMARTER ENERGY INFRASTRUCTURE JOSÉ FERNÁNDEZ CEO of Grupo Dragón
150
Q: What new areas of opportunity has Grupo Dragón
Q: What investments has Grupo Dragón already made in
identified in Mexico’s power sector?
electricity transmission and distribution?
A: We see great potential in energy forecasting and the use
A: We have allocated US$216 million to a smart grid
of thermography for energy applications. The evaluation
project. This project focuses on advanced metering
of market dynamics and the identification of energy
devices and is one of the largest initiatives in Mexico in
usage in different industries will differentiate successful
this area. We are working with CFE as stated by Mexican
companies from the rest. All electric utilities sell the same
law, which says that private players must establish joint
product, a flow of moving electrons, so differentiating
ventures with the state-owned company for transmission
factors will be related to aspects such as quality customer
and distribution initiatives. We have identified a number
service. In this new landscape customer data regarding
of business opportunities to improve the Mexican
electricity usage will be crucial for companies wanting
electricity network and we consider advanced energy
to have a competitive advantage. We have the software
metering a suitable starting point. Efficient and accurate
and hardware needed to perform these tasks as our group
interpretation of energy data is one of Grupo Dragón’s
is among the companies in Mexico investing the most in
strengths. We are ahead of our competitors in this area
data storage devices. We also see a barrier in this sector
by six years.
because most Mexican companies do not have real-time metering devices. The Law of the Electricity Industry says
Q: What are the advantages and challenges of being
that private investment in electricity transmission and
a fully Mexican company in a sector dominated by
distribution infrastructure is only allowed under certain
international players?
conditions with CFE or their subsidiaries.
A: An increasing number of Mexican professionals gain experience
working
with
international
companies.
Q: What projects would you develop if the transmission
Mexicans are exceptionally creative, which is important
and distribution segments were fully liberalized?
for engineering-related activities and is something not
A: Distribution represents the largest business opportunities
all nationalities share. Mexico’s young professionals
from our standpoint because there is a need to educate
are hungry for success, an aspect that companies with
large electricity consumers about best energy practices.
ambitious initiatives such as Grupo Dragón appreciate.
Electric utilities could offer service packages, selling
Being a Mexican company allows us to understand the
electricity supply with a demand management approach.
country’s idiosyncrasies, which is needed to design
Utilities could advise customers on the most suitable times
the best solutions according to the national context. I
to carry out energy-intensive processes, rewarding them
have mostly found advantages in employing Mexican
for following the suggested guidelines. We would also like
professionals. Grupo Dragón was founded years ago and
to invest in the modernization of the power distribution
we are now a reference in the sector. We are pioneers in
network, a sector that could benefit enormously from
geothermal and smart grid development in Mexico and
private investment. Having more efficient grid lines would
this success has been mainly thanks to our committed
reduce technical losses, bringing economic savings to the
Mexican workforce.
country and avoiding power blackouts. Also, it would avoid the presence of voltage voids in the network, which can
Q: What is Grupo Dragón’s direction for the upcominhg
seriously damage sensitive equipment.
two years? A: The main challenge for us will be to adapt to the new
Grupo Dragón is a Mexico City-based electricity solutions company with
market conditions. Power generation from geothermal
operations in the generation, operation and maintenance of renewable
and wind energy sources will remain our focus but we
energy, as well as efficiency consulting services, among others.
are also exploring combined-cycle power plants.
PROJECT SPOTLIGHT
OAXACA-VALLEY OF MEXICO HVDC TRANSMISSION LINE Oaxaca’s majestic hills are adorned with hundreds of
and Transfer (BOT) contract, done through conditioned
windmills, producing more than 2,360 installed MW.
payments that will be given to the winner of the bid at a
This accounts for more than 81 percent of the country’s
minimum price for each of the works constructed.
installed wind capacity. But what good is it to have so much wind power if it cannot be transferred to cities that
The second is the construction of the alternating current
really need it?
lines, which will have an average voltage of less than 69kV because it will pass through different transformers,
A highly-anticipated project will address that dilemma
through a Build, Lease and Transfer (BLS) contract. These
after CFE sets the rules for the construction of its first
lines are expected to add an additional investment of
“electric highway,” the High Voltage DIrect Current
US$500 million. The details of the tender were released
(HVDC) transmission line to be tendered in early 2017.
in November 2016, with a deadline to submit proposals by
This direct high-voltage line will be 630km long, running
February 2017 to have the results by April 2017.
from Isthmus of Tehuantepec, Oaxaca to the Valley of Mexico. It will have a tension of 500kV, a capacity of
Siemens has expressed its interest in building the line. With
3GW, two converter stations of 3GW each and 332km of
experience developing various HVDC projects around the
alternative currents.
world, it has projected that it could significantly boost the number of industrial developments in that area by 25
With an estimated required investment of US$1.2 billion
percent. The project will also help CFE keep more money
and a deadline for 2020, the private sector was wary
in its pockets. HVDC transmission lines can decrease
about bidding for the project. Due to the high risk and
technical energy losses by up to 8 percent compared
level of necessary investment, the Ministry of Energy
with alternating current technology, drastically reducing
decided to allow the private sector to form a PPP with CFE
expenses and saving approximately 82MW. The stakes
to accomplish the task under the new schemes introduced
are high but so are the rewards and companies are ready
by the Energy Reform. This partnership will be split into
to take on the challenge. So far there are 24 businesses
two sections, the first being a 25-year-long Build, Operate
interested in constructing the line.
151
TECHNOLOGY SPOTLIGHT
152
Static VAR compensators installation, Viklandet (Norway), ABB
SMART GRID MÉXICO EYES COLLABORATIVE DEVELOPMENT Along with the Energy Reform came the guidelines for the development of the smart grid in Mexico. The Electricity Industry Law defines the smart grid as an “electric power grid that integrates advanced technologies of measuring, monitoring, communications and operation, among others, to improve efficiency, reliability, quality and security of the national electric system.” The Energy Transition Law, Electricity Market Rules, Network Code and National Electric System Development Program (PRODESEN) address the concept and provide definitions regarding its application in the national context. The best document resulting from the Energy Reform to explain this subject and the way it will transform the electric sector is the Smart Grid Program, published in May 2016. The importance of the smart grid lies in implementing “smart” operation of the electric grids through the use of new technologies, which will make it feasible to integrate renewable intermittent energies to the electric grid among diverse generation resources to the distribution grid, such as distributed generation from conventional and clean sources and energy storage systems. Additionally, it will allow the implementation of demand control mechanisms and automatic measurement. The concept of the smart grid is not new. The US and Europe have been developing and implementing the system since 2005. More recently countries such as Japan, China and South Korea have also come onboard. There are several success stories of implemented projects that prove the effectiveness of different smart grid technologies around the world. For instance, the implementation of “synchrophasor-phasor measurement systems” in the US transmission grid, the mass implementation of renewable energies into several European countries’ grids or the mass penetration of smart measurement devices to control the demand and reduce losses in several countries including Mexico. In Mexico, the foundations have already been established and the challenge now is to prove the country’s capacity for collaboration. We are certain of our ability to overcome any challenge through collaboration, which is why the civil organization Smart Grid México is working to integrate, link and strengthen the relationship between the business community, opinion leaders and academics interested in the harmonic development of the smart grid sector in Mexico, by coordinating and aligning our activities to the dispositions, projects and programs of the Ministry of Energy.
153
VIEW FROM THE TOP
SMART SOLUTIONS GO AFTER NONTECHNICAL LOSSES ARMANDO DE LA TORRE Director General of ho1a
154
Q: What opportunities do you see for integrating IT
Q: What has been the main challenge you have faced to
solutions into Mexico’s energy sector and what is your
promote smart devices in Mexico?
major contribution in this area?
A: The lack of consumer awareness in the energy sector
A: We have seen many opportunities to incorporate our
has been a tough hurdle. The Energy Reform has helped
technology into energy generation, distribution and
us overcome the challenge, especially increasing interest
commercialization, covering both electricity and the oil
in clean energy sectors such as solar and wind. More and
and gas industries. Our meter solutions can help control
more clients are seeing an opportunity to study their
energy fluctuations in a variety of industries and help
consumption patterns and find realistic solutions. But
understand consumption patterns. Smart Grid is a term
to do this, we need investment in projects that help the
frequently associated with the power grid but it can also
public sector as much as the private. Still, the main barrier
be used for gas and water networks.
is insufficient understanding. With CFE’s project, our goal is to recover 113GWh/year in total. We have achieved 40
All these systems use IT to monitor consumption and
percent of that objective, making this a perfectly viable
detect and prevent leaks with a platform that can
project financially for investors.
provide information for rapid decision-making. Private companies such as Vitro are innovating in Mexico. They are
Q: How is technology and innovation evolving in Mexico?
beginning to apply initiatives that capture and measure
A: Although governmental reforms intend to promote
this information holistically, rather than monitoring every
R&D in our country and the area has advanced in recent
machine or operation. Our company is helping them
years, there is still plenty to be done. The World Bank
improve their connectivity infrastructure and develop a
says that Mexico only invests 0.5 percent of GDP in
platform that can collect, display and analyze information
science and technology, while other countries channel
to improve decision-making.
between 1.5 percent and 3.8 percent into innovation. Mexico is at a decisive point for R&D wherein industries
Q: What technological advantages do ho1a’s smart meters
including the energy sector are choosing to invest more
offer over the competition?
in IT to strengthen operations, improve productivity and
A: CFE expects nontechnical losses to drop to 10 or 11
their service offering and to minimize overheads. Our
percent in 2017, from 16 percent in 2012, thanks to smart
responsibility as leaders and businessmen is to promote
meters. Nontechnical losses cost CFE nearly MX$27,500
innovation
million in 2015. We secured four contracts for US$127.6
company growth.
in
developing
industries
to
encourage
million to install 340,000 meters in different regions including Mexico City, the northeast, northwest and
Q: What new projects do you hope to develop in 2017?
the Gulf of Mexico between 2014 and 2015, which led
A: We will continue to work with CFE to keep adding
to CFE invoicing 10-16 percent more. We won these
value for its users, measuring its consumption patterns
tenders by presenting highly technical offers at a price
to help them control their own energy use. We also
that is below CFE’s maximum budget. Moreover, our
intend to continue working with natural gas and water
experience and relationship with committed and skilled
companies to improve their measurement systems and
suppliers positively influenced our participation in that
their customer service with accurate consumption
project.
records. Through these actions, we hope to reduce waste and maximize their operations. A priority is encouraging
ho1a is a Mexican company specializing in IT and telecommunications
any solution that helps Mexico become more competitive
and is a leader in the implementation of technological solutions for
in technology by using Big Data and data analysis
different business segments, including energy companies.
integrated into the IoT.
VIEW FROM THE TOP
POWER LOSSES IN TIMES OF PLC DARIO LABATTAGLIA Electricity Sales Manager Mexico & Central America of Itron
Q: What major challenges does CFE face as it modernizes
theft is a social problem and technology can help reduce
Mexico’s power grid?
its incidence. Our technologies have the potential to help
A: CFE is advancing quickly along the learning curve
CFE understand the nature of its losses and optimize the
for power grid technologies. The state-owned company
person-hours required to solve them.
did not previously have the need to understand how information technology could optimize and improve
Q: What makes Itron’s solutions better than the
its business but now it is starting to analyze how these
competition?
technologies can impact its different business areas. We
A: We have a product consisting of a sensor-based
had the opportunity to meet with some of CFE’s executives
device with characteristics that place intelligence at
and discussed how Itron’s solutions could help them
the cutting edge of the system’s physical frontiers. It
accelerate technology adoption coupled with attractive
offers the possibility to synchronize data in the field and
returns on investment (ROI). Itron promotes efficiency
has a computing capacity near to that of the iPhone 3,
in energy businesses so our objectives are aligned with
which is considerably high for a meter. It can process
CFE’s in its new role as a productive company of the state.
a significant amount of information, which companies require to become more efficient. By offering cutting-
Nontechnical losses are one of CFE’s major challenges.
edge intelligence, our solution optimizes field work using
Those represent a loss of about 15 percent of annual
additional applications. Besides this feature, our product
revenue, a huge problem for CFE. Another related problem
has the same back-office intelligence as the rest of our
is bad debt and delinquent customers, which result in the
competitors.
company losing another 15 percent of its revenue per year.
can become significantly smarter by adopting this
But CFE has already started to take action to address
tool as it can easily connect with other technological
these problems, an effort supported by the industry’s new
devices without overloading the network’s capabilities.
regulatory framework. CFE has been investing in this sector
The product uses two communication channels, radio
since 2014 through financed public works (PIDIREGAS)
frequency (RF) and Advanced Power Line Carrier (PLC),
schemes. The company has mostly focused its efforts on
which is another advantage. This characteristic avoids
illegal connections, which are the most common type of
physical interference with the communication between
electricity theft in the Valley of Mexico. Now it is looking
devices as PLC can send signals through electric cables if
for new technological solutions to identify the source of
something is blocking RF signals.
Communication
network
infrastructure
nontechnical losses. Q: What complicates the implementation of PLC devices? Q: How can Itron’s technological solutions help CFE in
A: Technology adoption and infrastructure are the main
this enterprise?
barriers. The use of PLC communication is common in
A: Our solutions offer CFE the possibility to identify where
Europe because the electric grid is high quality, which is
illegal connections are located, besides other technical and
not the case in most Latin American countries. Most of the
nontechnical losses. We do it by identifying abnormalities
electrical infrastructure in Latin America is old and must
in the electric current and the system’s behavior. Our
be modernized to implement PLC technologies, so they
smart devices have a communication board that can
use RF instead. However, RF technologies are not always
locate electricity losses and communicate with other
the most suitable solution.
technological devices distributed along the electric power network. We can monitor the correct operation of the
Itron is a US-based technology and services company dedicated to
system and quickly identify if something is distorting the
measurement, management and analysis of energy and water usage for
network while mapping its location accurately. Electricity
the industrial sector.
155
PROJECT SPOTLIGHT
156
OPENWAY RIVA: A POWERFUL IOT SOLUTION Itron Riva is the innovative developer of OpenWay Riva, a distributed intelligence platform designed to tackle the communications challenges in the energy industry. This solution integrates a cutting-edge computing platform, distributed applications and dynamic communication technologies to optimize infrastructure control, data analysis and decision-making processes. There are three pillars on which the technology rests. The first is unprecedented processing capabilities, equivalent to the computing power of a smartphone or desktop, inside metering or electricity-grid devices, expanding the possibilities for high-resolution data analysis and problem solving. The second pillar is locational awareness, since the technology allows measuring and grid devices to know where they are in relation to other assets on the grid, improving analytical accuracy. The third pillar refers to the interoperability of the system. This technology supports multiple
application
protocols
and
communication
between devices, not just with each other but also with other systems such as distribution automation, load control/demand response and home area networks. The applications for OpenWay Riva in the energy industry are vast, especially in a challenging environment such as Mexico. One of the most daunting problems for the Mexican electricity industry are non-technical power losses, commonly a result of electricity theft. Information provided by Itron’s technology can be used to identify, stop and deter theft in real time. The system can also be used for systematic and continued monitoring of metering and grid devices to optimize their usage and detect abnormalities. Another challenge for the energy industry worldwide is the overload of distribution transformers. The OpenWay Riva system can analyze the loads of individual distribution transformers and manage them in real time. Based on the total load and capacity of the transformer, the technology can detect overload before it occurs and manage energy flows automatically, thus preventing damage to the equipment and infrastructure and improving the performance of the devices. The implementation of the OpenWay Riva solution in energy projects and energy infrastructure not only helps comply with the smartmetering requirements of the current administration but it can optimize power production and usage to help companies become as cost-competitive as possible.
157
VIEW FROM THE TOP
NEW GRID CODE TIGHTENS INTERCONNECTION REQUIREMENTS DANIEL MARTÍNEZ FACTS & HVDC Manager of ABB México
158
Q: What are the main differences between the old and
and series capacitors (SCs). This means that around 80
new Grid Codes?
percent of the total FACTS base installed in the country
A: The main difference compared with the old version is that
belongs to ABB, with around 85 percent of this installed
the new one is more stringent regarding interconnection
for CFE. Most of our FACTS technologies are used for the
requirements. The new Grid Code’s objective is the
national transmission system and just a few for industrial
preservation of the electricity transmission network and
installations, mainly in the steel manufacturing industry
whoever connects to this network must comply with
where arc-furnaces are commonly used. Arc-furnaces are
certain criteria. This Grid Code is so restraining in many
electrical equipment used to melt scrap using short-circuit
technical aspects that some industry players are actually
electrodes that produce a lot of heat, which in turn melts
questioning whether it is needed for the Mexican grid.
the metal. In the transmission grid, most of our FACTS
Some companies think the network is too robust as CFE
systems in Mexico are found at the 400 and 230kV levels.
has done a lot of work in the past 35 years to place enough reactive power compensation along the entire network
Q: Which of your products might be used to ease the
to avoid problems. For every particular case or region, a
integration of renewables to the grid?
deeper and serious study is required to state if the code is
A: SVCs could be used for this purpose but we mainly
needed or not but we support the general thinking behind
suggest using our Statcom product instead, which is a
this new code. We did an analysis to compare the new
more sophisticated and powerful technology. Statcom
Mexican Grid Code against international examples, such
uses a different semiconductor and has higher capacities
as the code applicable in Europe by the Electrical Network
than SVCs. This is the product we are suggesting to our
of Transmission System Operators (ENTSO), which is
clients in the renewable energy industry introduce to
used in 35 European countries and by 43 utilities, and
comply with the new Grid Code. ABB can offer Statcoms
that applied in the UK. Our findings show that there are
for transmission network applications together with its
many similarities between them. All transmission system
MACH technology, as well as its PCS6000 technology for
operators around the globe seem to be going in the same
renewable interconnection applications with convenient
direction. If the Energy Transition Law expects a larger
features such as a containerized production. We consider
percentage of the power mix to be renewable by 2035,
our products to be among the most attractive solutions
we do need a robust network and ABB has the Flexible
to comply with the new Grid Code in terms of renewable
Alternating
energy integration.
Current
Transmission
Systems
(FACTS)
technologies to help its customers and business partners comply with this Grid Code.
Q: What are the benefits of using HVDC technologies such as that for the Oaxaca transmission line?
Q: What has been your experience regarding the adoption
A: HVDC offers the big advantage of enhancing grid
of ABB’s FACTS technology?
management and stability while increasing its capacity,
A: The negotiations to install the first FACTS system in
being able to transmit large amounts of energy. The
Mexico were done in the late 1970s and the first Static
capacity of Oaxaca’s HVDC line is 3GW. HVDC lines
VAr Compensators (SVCs) were finally shipped and
transmit electricity through a couple of conductors, which
installed in the Mexican grid in the early 1980s. We have
are known as a bipole, making it possible to handle more
38 ABB FACTS installed in Mexico, including both (SVCs)
energy than traditional lines and with less energy loss. The fact that HVDC permits the transmission of more energy
ABB is a pioneering technology firm that works closely with utility,
with shorter lengths also means there is less social and
industry, transportation and infrastructure customers to write the future
environmental impact. Moreover, HVDC can interconnect
of industrial digitalization and realize value.
power networks with different characteristics and sizes.
INSIGHT
SOLAR TO REACH HIGHER LIMITS KEVIN GUTIÉRREZ General Manager of Ingeteam
PV solar modules are cheaper than ever, which helped
Ingeteam has another two business areas in Mexico, O&M
drive solar energy prices in 2016 to record lows. Balance
services and smart grid systems. The growing amount of
of Plant (BoP) components could be the next major area
renewable energy capacity that is expected to be built in
of opportunity for solar companies to reduce production
the next couple of years is also expected to bring further
costs thanks to the introduction of 1,500V designs, a
opportunities, particularly for O&M services.
major breakthrough because higher voltages enable more power to pass through the same BoP components,
“We are expecting to see a boom in demand for
lowering CAPEX.
renewable products and services in the country. We even think it might start in 2017 as there are a lot of
Ingeteam, a leading company in power and control
potential projects in sight and the first two long-term
electronics, sees 1,500V architecture as the next frontier
auctions have already taken place. We are certain there
for Mexico’s solar power to become one of the most
will be a significant number of business opportunities
competitive available energy sources. “Regarding utility
for companies like us, not only in terms of product sales
scale, the next step will be to work on plant capacity,”
but also in O&M services,” says Gutiérrez.
says Kevin Gutiérrez, General Manager of Ingeteam. “Currently, most solar plants are designed for a 1,000V
High-quality products, he adds, should be accompanied
DC limit, meaning that the cables, panels, inverters and all
by high-quality aftersales services to guarantee success.
the plant’s components are designed for that threshold.
“We need to provide our clients with proper training
We therefore think the next big step in this sector will
to correctly operate our equipment. To this end, we
be to migrate from 1,000 to a 1,500V DC limit as it will
have a complete business unit that is dedicated to
make the installations more cost-competitive. At the
providing O&M services for the products that we sell in
moment, all the suppliers are making changes to adapt
photovoltaics, wind and several other sectors. Aftersales
their technology to this new limit.”
services are important because it is the means by which we support and help our clients. Any manufacturer will
The company delivered its first product to serve the new
provide assurances that its product will never fail but we
limit in Mexico in late 2016 but the speed of adoption for
need to be able to help our clients in case it does.”
these new products will depend entirely on the needs of the market and customer strategies. “However, this technological shift is underway and we estimate that 2017 will be the breakout point,” he says. Gutiérrez sees great potential in bringing added value to the solar energy industry because the sector is experiencing a great period
Ingeteam devotes 11 percent of its personnel and 7 percent of turnover globally to R&D
in Mexico. “We certainly believe there will be a boom in the Mexican solar sector. On a global scale, we can
To maintain its leadership position in the market,
already see an increase in the number of solar projects,
Gutiérrez considers R&D one of the ingredients for
especially in Central and South America. Mexico offers
success. “One of Ingeteam’s most important advantages
greater potential than many of these countries because
is that we have always emphasized the importance of
of the huge energy demand and strong solar resources.”
R&D in our strategy and we have invested heavily in
Ingeteam, he says, has observed the steady growth of the
this area. We dedicate 7 percent of our revenues to our
solar market over the past few years and in 2015 it sold
R&D department and as a result we have managed to
around 50MW of solar power projects, while expecting
become a more competitive company that offers better
a higher number for 2016. Besides its PV solar division,
quality equipment to clients.”
159
INTER-REGIONAL TRANSMISSION LIMITS 2016-2021
46
48 49
∆ 1,500 7
47
2 1
8
∆ 950 640
∆ 850 160 3
53
9
∆ 850 ∆ Growth MW Capacity by 2021 Capacity in 2016
4
∆ 1,750
50
Transmission Areas 1
Hermosillo
2
Cananea
3
Obregon
4
Los Mochis
5
Culiacan
6
Mazatlan
7
Juarez
8
Moctezuma
9
Chihuahua
10
Durango
11
Laguna
12
Rio Escondido
13
Nuevo Laredo
14
Reynosa
15
Matamoros
16
Monterrey
17
Saltillo
18
Valles
19
Huasteca
20
Tamazunchale
21
Guemez
22
Tepic
23
Guadalajara
24
Aguascalientes
25
San Luis Potosi
26
Salamanca
27
Manzanillo
Source: Ministry of Energy
11
620
5
17
51 10
∆ 1,900 1,200
52 6
24
∆ 1,800 1,350
22
23
27
Transmission Areas
12
13
∆ 2,500 1,600
16 14
21
15
∆ 1,800 1,500
19 25
18
28
Carapan
29
Lazaro Cardenas
30
Queretaro
31
Central
32
Poza Rica
33
Veracruz
34
Puebla
35
Acapulco
36
Temascal
37
Coatzacoalcos
38
Tabasco
39
Grijalva
40
Ixtepec
41
Lerma
42
Merida
43
Cancun
44
Chetumal
45
Cozumel
46
Tijuana
47
Ensenada
48
Mexicali
49
San Luis Rio Colorado
50
Villa Constitucion
51
La Paz
52
Los Cabos
53
Mulege
20 42 30
26
45
32
∆ 1,900
∆ 1,150 800
1,500
28
43
31
41
33
34
29
∆ 6,000
37
3,000
38
36 35 40
39
∆ 400 200
44
161
INSIGHT
EXPERIENCED EPC GOES FOR TRANSMISSION LINES VICENTE GARCÍA Director of Business Development at Isolux Corsán
162
Businesses that previously worked with CFE at the heart of
including Mexico, is eyeing power transmission projects
their strategies suddenly have a new target in the wake of
in particular. García says it is already in discussions
the Energy Reform. Private companies are the new fertile
with some companies but is waiting for the tender
ground for EPC firms such as Spain-based Isolux Corsán,
documents before making any decisions. “There are
which sees the private sector playing a bigger role in the
two big projects that are grabbing the attention of the
emerging energy landscape.
private sector, including a US$1.21 billion transmission line that will connect Sonora to Baja California,” he says.
“CFE will continue to be important in the power generation
“Private companies, however, are worried about the legal
sector but we believe private clients will become more
framework, tender requirements and payback schemes,
relevant in the future,” says Vicente García, Director of
among other details that are not yet clear.”
Business Development at Isolux Corsán, which specializes in energy, construction and large infrastructure concessions.
The tender for the HVDC transmission line connecting Oaxaca to the Valley of Mexico takes place in the first
Renewable power, he adds, also is becoming increasingly
quarter of 2017 and is expected to shed some light over
important. “We focused mostly on traditional power
private participation in transmission assets. The event
plants in the past but we are planning to include much
is highly anticipated by private industry and Isolux
more renewable energy projects in the future. We have
Corsán and its clients will be among those following the
strong experience in the renewable energy sector outside
development of this project.
of Mexico and we have already been involved in the construction of wind farms here. Solar energy is booming
Isolux Corsán sees an opportunity to support transmission
in the country so we plan to also work in the construction
projects built with private capital because those companies
of related facilities.”
can now invest in the construction and operation of transmission lines under certain schemes. “We are trying
García points out, however, that despite the changes raining
to put the spotlight on private participation in transmission
down on the sector, traditional power plants remain essential.
lines. We are highly familiar with these projects in Mexico so
Isolux Corsán, with an EPC portfolio worth EUR6.8 billion,
we can help companies willing to invest in this sector.”
will continue to be heavily involved in the construction of natural gas-based facilities, in line with the government’s
He points out the company has 5,000km of high-voltage
plans to increase the country’s natural gas infrastructure.
transmission lines in Brazil as well as concessions for transmission lines in Peru, the US and in India. “We
In all cases, the key difference will be the involvement of
have had conversations with CFE about our experience
private players in addition to CFE. García says one of the
in other markets and provided them with advice about
challenges for private investment to take off in the sector
how other similar countries have handled these same
is convincing companies to invest in projects still seen
projects,” he adds.
as a novelty in the country. “We are confident that it will happen, as many companies have shown interest in coming
García says the company has been very successful for the
here. We contribute by providing reliability to investors
past two years, especially in the power sector. “We were
as a firm that has been successful for many years in the
awarded part of the construction of the Toluca-Mexico
Mexican power industry.”
railway, meaning the catenary, traction substations and the energy system. We are also building three transmission lines
Isolux Corsán, which has been in business for over 80
for CFE and are doing a US$400 million revamping of an
years and has operations in more than 40 countries,
existing power plant in Tamaulipas.”
INSIGHT
THE PROMISED LAND FOR ENERGY COMPANIES DAVID FLORES Managing Director of Ormazabal Mexico
The strength of Spanish companies in Mexico’s power
investment reduction. The second and most attractive
sector is undeniable. Spanish expertise can be found along
area is power distribution, including equipment to detect
the entire power value chain, including power generation,
technical and nontechnical losses and improve supply
transmission,
specialized
continuity. We have proven experience in this area as we
consultancy services. For some of these companies,
have worked on major projects with large-scale utilities
launching operations in Mexico has been the start of a
such as Iberdrola, Vattenfall and EDF. CFE has suffered
fruitful business driven by growing demand and abundant
million-dollar losses related to technical and nontechnical
energy resources. This was at least the case for Ormazabal,
elements, so there is a real need to correct the problem.
a company that designs, manufactures and provides
The solution to this goes beyond installing new meters
solutions for electricity transmission and distribution.
and we have the skills and capabilities to help CFE in this
project
development
and
matter,” he says. “Ormazabal Mexico, which opened a local office in 2012, has been the group’s fastest-growing affiliate worldwide.
In the renewable energy arena, wind energy projects stand
We have increased our turnover five times since we arrived
out as an interesting segment for Ormazabal. “We hope
and we still expect to grow further. In 2015 we contributed
the next three to four years are highly promising as we
with around 15 percent of the group’s total revenue in
perceive strong stability in the wind market. The industry
Mexico. The Mexican market presents challenges as in
has become less dependent on Oaxaca in the past few
any other country but we are optimistic about our future
years and is in the process of developing wind farms
here,” says David Flores, Managing Director of Ormazabal
all over the country. The first power auction was not as
Mexico.
favorable as expected for wind energy developers but they achieved better results in the second event.”
“Mexico offers a great environment to develop new ideas, to establish synergies between different business units
The company also sees potential in the solar energy market
and to innovate. Mexico has given us the opportunity to
after the outstanding results for solar projects in the first
create projects in areas beyond our typical reach, such as
two auctions. In both segments Flores sees an attractive
a solar park in Acapulco when we had little experience in
market niche for its Gas-insulated Switchgear (GIS)
project construction. Mexico is an interesting field to try
technologies. “Together with ABB, Schneider Electric and
new things, allowing us to move outside the manufacturing
Siemens, we are the top manufacturers of GIS panels. This
bubble,” he adds.
product enjoys great demand in Mexico, being present in around 90 percent of the wind farms installed in the
Renewable energies, construction, infrastructure and
country and 80 percent of the solar parks. GIS panels are
transportation are the strongest market segments for
also present in around 65 percent of CFE’s new substations
Ormazabal Mexico. CFE used to be the company’s top
and this is expected to grow. In the industrial segment GIS
customer but the slowdown in the number of projects
panels enjoy a 55 percent market share, mostly in hotels
developed by the state-owned company as a result of the
and transportation,” he says. To maintain growth in Mexico,
Energy Reform drove the company to diversify its portfolio,
Ormazabal will focus mostly on enhancing its team’s
which was crucial for navigating the transition. Now,
leadership and capabilities. But Flores does not discard
however, there might be new opportunities for Ormazabal
the possibility of expanding its physical assets. “The final
to collaborate with CFE to improve the power network.
implementation of a manufacturing facility will depend on
“We have identified two major areas of opportunity to
the evolution of our business in Mexico. We have positive
collaborate with CFE. The first one is substations, an
expectations but we want to see how the market evolves
area in which CFE is investing heavily despite its general
before making any significant investment,” he says.
163
PROJECT SPOTLIGHT
164
SEL’S POWERCORE SUBSTATION CONTROL ENCLOSURES SEL’s PowerCore solution steps into the challenging environment of the Mexican transmission and distribution infrastructure as a leading technology for substation control enclosures. The turnkey technology has rapid processing that includes everything from design to installation. This in
solution
protection,
integrates
state-of-the-art
automation,
control,
technology
communications,
measurement and information management. PowerCore’s main competitive advantage lies in its innovative manufacturing method, based on standard designs for wall and ceiling panels through a repeatable process that allows for constant upgrades and maximum quality. The quality-controlled industrial environment in which SEL, the company behind this innovative solution, manufactures its control enclosures ensures waiting periods and engineering costs are kept to a minimum, as well as allowing flexibility for size, design and materials. The manufacturing and integration of the enclosures take place at the installation location, reducing logistics requirements and providing a testing period. The unique design of the steel columns and panel frames provide a resilient structure for the enclosure, giving clients flexibility to select wall and panel fillings. SEL is compliant with the international construction code (IBC) and the highest technical norms for the development of this product, such as the ASTM E331 certification for water penetration. The company also provides extensive testing according to the customer’s needs and the installation of the solution is performed by SEL’s highly trained engineers. With SEL’s expertise and the uniqueness of the PowerCore solution, it comes as no surprise the company was selected to revamp the infrastructure of CFE’s largest substations in Mexico: Remedios and Santa Cruz. The updating and upgrading of both substations required the installation of 10 PowerCore enclosures with over 150 protection and control panels and over 50 outdoor control cabinets equipped with 350 devices. The final product was a system fully designed by SEL that used Distributed Network Protocol, version 3, (DNP3) to collect Supervisory Control and Data Acquisition (SCADA) information, as well as utilizing Generic Object Oriented Substation Event (GOOSE) messages to offer processing information. The flexibility of the system will allow CFE to update the tension levels of the substations, use standard data implementation methods for the grid and upgrade the substations’ operations.
165
VIEW FROM THE TOP
OPPORTUNITY ON THE HORIZON AS CFE TRANSFORMS RIGOBERTO CASTAÑÓN General Manager of S&C Electric Mexicana
166
Q: How has the company’s relationship with CFE changed
a continuous supply. The process can take up to four hours
since the implementation of the Energy Reform?
but advanced, automated technologies can do this in
A: Our business relationship with CFE goes back to 1956,
minutes. Smart technologies also can pinpoint the failure’s
when we started working as a service provider for the
exact location, optimizing the time needed to repair the
state-owned utility. Our equipment and services enjoy a
problem. These systems collect an incredible amount of
good reputation within CFE, which views us as a reliable
data, which can be used to analyze the overall functioning
supplier because we would rather provide added value at
of the grid, allowing the operator to design strategies to
a reasonable price than low-cost products. Even though
mitigate and control potential failures. Once CFE starts
there are more affordable products in the market, CFE
upgrading its systems we expect business opportunities
has preferred our solutions due to the extended lifetime
to open up in this area. To increase our visibility and
and optimal functionality they offer, which create long-
show CFE the advantages of our products, we are now
term savings. The transformation of CFE into a productive
developing a number of pilot projects in different Mexican
enterprise of the state has halted our business activities
regions. These consist of small-scale distribution grids
with this client but that is true for many CFE suppliers. Some
with five or six connection points where we can test our
of these companies are facing the risk of bankruptcy but
products’ performance. The tests allow us to identify
S&C is financially equipped to overcome this challenging
potential failures in the grid and ensure our products
period and is prepared for the moment when business
can properly solve them. We have carried out two pilot
takes off again. In the meantime, we are analyzing how we
projects in Cozumel and Tijuana over the past two years
will adapt our offer to fit CFE’s new role. The company is
and we are now promoting a new one in Monterrey.
confident it will maintain a positive relationship with CFE as it strengthens its focus on productivity.
Q: Which of your smart grid technologies are most relevant for the Mexican market and why?
Q: How is S&C Electric Mexicana helping Mexico’s
A: Our protection and sectioning devices could be
implementation of smart grid technologies?
particularly
A: Our company supplies cutting-edge technologies for
technologies
smart grid development but due to the transformation
throughout the entire network, making them an important
that CFE is undergoing we have not realized any
component in preserving the grid’s infrastructure. These
important projects. So far CFE has only installed smart
devices are equipped with special sensors and controllers
meters to quantify the amount of energy consumed by
as well as mechanical systems consisting of a safe lock that
end users but it has not yet invested in smart management
can block the circuits in case of an emergency. Protection
of the electricity transmission and distribution networks,
technologies are not new but they have evolved to provide
which we expect it to do at some point because smart
the same service automatically and in a more efficient way.
useful
for
Mexican
avoid
the
spreading
grids. of
Protection
local
failures
technologies are needed to ensure the optimal functioning of the grid. In the case of Mexico City’s grid, which has
Q: What are S&C Electric Mexicana’s priority business
several inflow points, a failure of one of the energy supply
opportunities in the short term?
sources could affect the entire network. To avoid this, the
A: We expect to get involved in projects related to the
operator needs to isolate the area located close to the
design and construction of renewable energy facilities.
problem while using the remaining inflow points to ensure
The company also is working on identifying opportunities with private market segments, such as hospitals. This is
S&C Electric Mexicana is a Chicago-based global specialist in electric
expected to compensate for the slowdown of projects
power switching and protection products and services for transmission
resulting from CFE’s restructuring. We also expect CFE to
and distribution.
start investing again soon.
INSIGHT
EVOLVE WITH THE INDUSTRY TO SUCCEED NORBERTO GÓMEZ Commercial Director of Conductores del Norte
As the industry evolves and new players enter the power
out from its competitors, especially those with electrical
market, the needs of the sector change. Companies that
material distributors that offer integral services. “The
have the ability to adapt quickly to the new conditions
goal of our partnerships is to provide customers with a
will reap the biggest benefits, says Norberto Gómez,
complete service and not just cable products. Through
Commercial Director of Conductores del Norte.
our partners we can complement our offer with auxiliary equipment such as transformers or pipes, covering all the
“Conductores del Norte was founded to cover CFE's needs
requirements of a typical electricity project.”
in the north and now has 40 years of experience in the sector. As the market changed we adapted our offer to
Such strategies are crucial as new construction companies
attract new clients from the private sector, particularly
enter the electricity sector, especially with the growing
after companies were allowed to enter the electricity
interest in renewable energy projects. Conductores del
sector under different schemes.” Its rapid adaptation
Norte believes participation in associations can help build
to the new market conditions allowed the company to
the necessary ties, citing groups such as the Chamber of
diversify its client portfolio and stay one step ahead of the
Commerce, Services and Tourism (CANACO), the Chamber
competition, he says.
of the National Processing Industry (CANACINTRA) and the National Association of Electromechanical Contractors
The Energy Reform has reshaped the market’s dynamics,
(UNCE), which groups a large share of the contracting
with small and medium-sized contractors winning tenders
companies in Mexico. “As an active member of these
for large installations and opening windows of opportunity
organizations we get first-hand information about relevant
for fast-response companies such as Conductores del Norte
upcoming projects and can establish business relations with
while increasing the number of foreign manufacturers
important players from across the industry,” says Gómez.
in the country. The rise in competition in this sector is good for the industry. “We see fiercer competition as an
To continue adapting to the Mexican power industry the
incentive to increase our competitiveness and we are
company is planning to focus on improving its electricity
already investing in new equipment and developing new
distribution projects. “Electricity distribution is attracting
business models,” Gómez says.
most of the sector’s attention, representing a great opportunity for our company due to the leadership
PRODESEN
represents
another
opportunity.
The
government’s plan to expand the National Electricity
position we play in this area,” says Gómez. “We expect electricity distribution to remain our core business."
System allowed Conductores del Norte to develop pilot projects in the Bajio region. The Bajio projects faced
Given the increased competition in the distribution sector,
specific technical and economic challenges due to their
companies cannot stand still. Conductores del Norte is
development by small-sized contractors but they were all
looking to expand to other areas with high potential for
successfully completed thanks to the company’s strategic
power generation growth. “In the next two to three years
alliances and close collaboration between the parties
we will focus on strengthening our commercial operations,”
involved. “Our previous experience with these contractors
says Gómez. “We also have plans to continue optimizing
opened the door to participate in the Bajio projects. We
our production processes, improving our response time.
are proud to have our customers’ trust and we are now
We foresee several challenges in the coming months,
working on strengthening our electricity transmission
particularly as the number of projects in the sector
services and products and particularly distribution, where
has been lower than expected. For this reason, we see
we already have a strong offer of services.” Alliances are
great value in increasing our manufacturing efficiency,
at the heart of Conductores del Norte’s strategy to stand
diminishing our costs and improving our quality.”
167
Francisco PĂŠrez RĂos thermoelectric power plant, Hidalgo, CFE
PROJECT FINANCING
7
Financing can be difficult to access especially in new and untested environments such as the newly liberalized electricity market. But as more and more success stories emerge from both the electricity auction processes and business ventures in the country, the outlook is increasingly clear. Private financing is starting to take its place beside multilateral and state development institutions as the potential for revenues becomes evident. New instruments such as Clean Energy Certificates (CELs) are also in the spotlight for their potential financial interest.
This chapter brings together financing entities such as private banks and both national and international development banks and lending institutions to discuss their approach toward the energy sector, what their foreign experience brings to the table and the potential to offer increased access to resources for companies to take advantage of the openings provided by the Energy Reform. It also examines the emergent “green financing� strategies influencing the availability of funds for energy projects in the country.
169
CHAPTER 7: PROJECT FINANCING 172
ANALYSIS: Diversification Drives Green Bond Demand
173
VIEW FROM THE TOP: Enrique Lara, Banobras
174
VIEW FROM THE TOP: Marian Aguirre, Bancomext
175
VIEW FROM THE TOP: Jacques Rogozinski, NAFINSA
176
INSIGHT: Ariel Yépez, IADB
179
VIEW FROM THE TOP: Eduardo Piquero, MÉXICO2
180
VIEW FROM THE TOP: Alfredo Santillán, SMBC Mexico
183
INSIGHT: Takeshi Tada, JBIC
184
VIEW FROM THE TOP: Salomon Amkie, Citibanamex
185
INSIGHT: Estanislao de la Torre, HSBC Mexico
186
VIEW FROM THE TOP: Héctor Pérez, Scotiabank Mexico
187
PROJECT SPOTLIGHT: Los Santos I Solar PV Plant
188
VIEW FROM THE TOP: José Sifuentes, Nader, Hayaux & Goebel (NHG)
189
VIEW FROM THE TOP: Carlos Albarracín, Milbank
191
INSIGHT: Bernardita Díaz, Sustrend
171
ANALYSIS
DIVERSIFICATION DRIVES GREEN BOND DEMAND How do you convince investors and lenders to pour money
these auctions are awarded there is little consideration for
into costly, long-term projects involving a new kind of
permits. Companies can win the auction without much
technology in an also new and untested market? That
permitting in place so a good sponsor with a track record
particular question was on the mind of every renewable
and proven development skills is critical. The second is
energy generation developer and CENACE auction winner
the merchant risk the PPA carries beyond 15 years, as well
over 2016 and, despite lingering doubts about the contract
as the risk of underproduction for any given year before
lengths and the rules that govern the wholesale electricity
that,” says Salomon Amkie, Vice President of Power &
market, commercial banks and institutional investors are
Alternative Energy at CitiBanamex.
starting to notice a sector that until recently seemed the
172
almost exclusive domain of national development banks
Some instruments have already taken hold. In 2015, state-
and multilateral lenders.
owned Mexican development bank NAFINSA issued the first green bond in Latin America. The US$500 billion
A global push toward country-sponsored and corporate
bond was five times oversubscribed, leaving national and
sustainability strategies, which is also reaching Mexican
international investors anticipating further prospects for
industrial players, is stimulating interest in financing
diversifying their business portfolios. The opportunity
instruments like green bonds. “World leaders have made
finally arrived in September 2016, when NAFINSA placed
clear that they expect the society of the future to be low-
the first green bond in the Mexican Stock Exchange
carbon. This means changing the way we do business,
(BMV) issued in Mexican pesos. This green bond was
manage natural resources and use energy,” says Estanislao
almost three times oversubscribed, showing investor
de la Torre, HSBC Mexico’s Chief Operations Officer. The
commitment and trust in this new sustainable financing
bank’s Mexican unit signed a 10-year off-taker agreement
mechanism. The future of these new financing tools looks
in 2016 with Enel Green Power Mexico to supply half its
promising as demand continues to rise. Eduardo Piquero,
local energy needs from wind power.
director of MÉXICO2 says, “the main factor driving green bond’s demand is diversification. There is a greater risk
“We offer direct investment for projects awarded at the first power auction and we are developing a payment guarantee procedure. This is expected to address risks
associated with having oil and gas-based portfolios, so diversification through green assets has become a priority for global investors.”
NEW OPPORTUNITIES Despite the several challenges arising in the energy industry, financing institutions are stepping up their game and developing new solutions to support the sector. Several banks, both commercial and development, have
identified by the banking sector”
created new schemes to ensure companies can comply
Enrique Lara, Director of Energy at Banobras
projects. New guarantee procedures that address risks
with the financial requirements needed for successful identified in the market have been developed to provide
What are the worries? In Mexico, the liberalization of
income security for developers and banks, as a result
the electricity market following the Energy Reform
of
launched a slew of energy-generation developments,
to participate in the new power market. Several key
mostly promoted by CENACE’s power auctions. But
players have pointed to transmission, distribution and
the companies that won those auctions signed 15-year
power generation as the sectors with the most growth
contracts to supply electricity to CFE, at very low prices,
potential in the coming years. When choosing projects
while the length of financing deals for large infrastructure
to finance, banks are no longer staying in the dark
projects is usually longer than that. Also, the 2016 auctions
regarding the functioning of the technologies they
set a low bar for project requirements in terms of permits
intend to fund. Instead, lenders are arming themselves
and rights of way, a complex subject in the country. “At
with teams of experts in different areas to get specific
Citibanamex, we are being cautious of two things, with the
technical assessments that will allow them to optimize
first being the quality of the sponsor. Because of the way
their processes.
opportunities
identified
by
financial
institutions
VIEW FROM THE TOP
FINANCING THE FUTURE ENRIQUE LARA Director of Energy at Banobras
Q: How has the new regulatory framework impacted the
individual analysis where we research the project’s income
bank’s plans for financing renewable energy projects?
flows, the rate awarded in the auction and the type of
A: Most of the winning companies from the first two power
technology it employs to mitigate other risks so the banks
auctions have specific concerns regarding the regulatory
can offer higher leverage rates and give a longer financial
framework. The contracts from the first power auction, in
timeframe. There are plenty of regulatory advantages to
which CFE is the off-taker, provide certainty regarding the
using this plan since having development bank guarantees
selling price in energy and the capacity for 15 years and 20
allows banks to have lower capital requirements.
years for CELs. The first concern for these companies has been the criteria the banking sector will use to evaluate
Q: What are the most promising sectors for investing in
generation when those contractual prices end after 15
the Mexican energy market?
or 20 years, especially since most financing schemes go
A: Commercial banks and developers have expressed
beyond that time frame. The second concern is the value
difficulties finding a financing period because some
of the energy sold under merchant risk, which is a financial
commercial banks are not willing to provide financing for
imbalance that happens when the offered price is not the
the length of the contracts. Banobras, as a development
same as the market price during the first 15 years. The
bank, can go a little beyond that and provide financing
third concern is regarding general financing conditions,
for longer periods. We have focused on wind, hydraulic
such as gearing ratio and financial terms.
and pipeline projects but the Energy Reform has opened the market to new opportunities, such as upstream,
Q: How will Banobras adapt to a new risk scheme where
platform construction and refineries that we had not
CFE is no longer the only off-taker?
considered before.
A: There are two types of companies: large companies with a corporate plan that do not need financing because
Previously, Banobras’ largest investments were made in
they have resources of their own and smaller companies
road and highway infrastructure projects. Now it will be
that are looking for project finance. Large companies are
the energy sector, which speaks to the changes in the
not focused on a specific project but rather are focused
market's trend that will continue in the future. Banobras
on the power segment to compete with CFE in the next
has changed its internal structure, creating an energy
10 or 15 years. Small companies do focus on a specific
department to respond to the needs of the new market.
project such as wind or solar energy. Banobras focuses on small companies that need project financing because
The main business opportunity for Banobras in the energy
we can take on riskier projects as a complement to
sector is investing in natural gas pipelines because they
commercial banks. We develop plans to make companies
are large projects that require plenty of investment. Due
feel comfortable while complementing the project’s
to the magnitude of these projects it has become more
financing requirements. We offer direct investment for
common to use syndicated financing where development
awarded projects from the first power auction and we
and commercial banks work together. Banobras is the
are developing a payment guarantee procedure. This new
largest development bank and the number five in the
procedure is expected to address risks identified by the
Mexican banking system by assets, which allows us
banking sector. The guarantee scheme we are promoting
to have the highest spending and provide the longest
provides income security amid merchant risk. It secures
financing plans.
maximum and minimum values within an income range to give commercial banks certainty. Merchant risk will still
Banobras is Mexico's state-owned public works development bank,
be present for commercial banks but our plan alleviates
helping finance infrastructure works in the country through outright
it to a certain extent because it implies a specific and
financing and guarantee schemes.
173
VIEW FROM THE TOP
PORTFOLIO GROWTH ILLUSTRATES SECTOR STRENGTH MARIAN AGUIRRE Energy Financing Deputy Director of Bancomext
174
Q: To what extent is renewable energy more attractive
Bancomext as a way of obtaining access to Mexican pesos,
now and what are the factors driving this trend?
which is a requirement for projects including some of CFE’s
A: Bancomext decided to open its energy division in 2009,
tenders. In these cases, international companies need to
launching a financial scheme for a wind energy project
establish a financing or co-financing agreement with a local
as a trial. The bank has steadily increased its energy
bank working with Mexican currency, such as Bancomext.
investments since then. Now, our energy portfolio is worth
Considering its role as a foreign trade bank, Bancomext
MX$24 billion (US$1.2 billion), which is an indicator of the
can also invest in energy projects abroad, as long as they
strong growth the energy sector has experienced lately.
have a certain percentage of local content. In this context,
In comparison with traditional technologies, renewable
local content can be understood as having Mexican capital,
energy projects have had a challenging path. The
investors, EPCs, technology, or suppliers. In this segment,
enactment of the Energy Reform was a temporary setback
we have already financed a 60MW solar park in Honduras
for the sector because it stopped the development of new
with 50 percent Mexican capital, as well as projects in Chile
projects during the time needed to make the regulations
and other Latin American countries. We have identified a
public. Additionally, the regulatory transition discouraged
growing presence for Mexican companies in the sector, a
off-takers from establishing long-term power purchase
positive sign for the industry’s diversification. In the past,
agreements (PPAs) as most companies were waiting
the energy sector was completely dominated by foreign
for a clearer picture. But in 2015 we started to see an
enterprises, particularly from Spain and the US, but now
increasing number of large corporations and major off-
we have a diversified matrix of participant companies,
takers signing new PPAs, which impacted positively on the
including players from Mexico, Germany, China, Japan and
sector’s growth, even though it was not as strong as we
the Netherlands. Due to a lack of human resources, SMEs
expected. In early 2016, the results of the first electricity
are the only type of company that we are not targeting
tender surprised many, including us, contributing to the
individually but we can work with them through a group
increased interest in the sector. The major surprise was
portfolio scheme. So far, project finance continues to be
the amount of megawatt-hours awarded to solar energy
the most used strategy in the energy sector. It consists of
projects, which raised expectations about Mexico’s solar
isolating the project, building a financial structure around
potential. Compared with last year, our energy investment
the project’s revenues and physical assets. Generally,
portfolio has grown 64 percent, which is an indicator of
project finance is complemented by a corporate loan or
the momentum the energy sector is experiencing.
public works scheme.
Q: What is the profile of the companies in Bancomext’s
Q: How will Bancomext adapt its services to fit the future
renewables financing program and what schemes apply?
needs of the sector amid continued growth?
A: Due to the commitment of developing energy
A: In the coming years, we expect to continue our special
infrastructure in Mexico, the federal government has
financing lines for sustainable projects and incorporate
instructed all development banks in the country, including
the group portfolio schemes that we are developing
Banobras and Bancomext, to open special energy
for SMEs. In this way, we could promote distributed
financing lines. We have a large number of international
generation (DG) in addition to the utility-scale projects
companies willing to invest in Mexico due to the country’s
that we already are supporting, further contributing
attractiveness.
to the deployment of clean energy in Mexico. Each
Foreign
entities
tend
to
approach
group portfolio will have 150-200 companies with a Bancomext is a Mexican state-owned development bank that operates
group value defined using an actuarial method. In the
through granting credits and guarantees, either directly or through
close future, we expect group portfolios to gain more
commercial banks.
importance in the industry.
VIEW FROM THE TOP
MULTIPRONGED APPROACH ADVANCES GREEN FINANCING JACQUES ROGOZINSKI Director General of NAFINSA
Q: How does the bank decide where to allocate resources
the construction and operation of 11 wind farms, one mini-
and what is NAFINSA’s strategy in the energy area?
hydro plant, one co-generation plant and one solar farm.
A: The objective of our sustainable projects unit is
Since 2009, our funding of renewable energy projects
to finance national and international companies and
has totaled about US$550 million of the US$5 billion
financial intermediaries from both the private and public
invested overall and a total installed capacity of 1.6GW.
sectors that promote projects in Mexico, oriented toward
These projects are calculated to reduce CO2 emissions
ecological, economic and social development. The unit
by almost 2.9 million tons per year. This portfolio has
focuses on either wind, cogeneration, solar or mini-hydro
been funded with resources from various multilateral and
projects and within each area of focus either on financial
bilateral agencies such as IADB, World Bank and KfW
structuring or credit management and monitoring. It also
Development Bank. Additionally, in October 2015, we
looks at long-term debt for project development, partial
raised US$500 million in an international debt offering
credit guarantees, tailor-made financial structures, credit
of our 3.375 percent green notes due in 2020, which we
offers to cover construction tax payments on projects and
used to refinance eight wind farm projects. Finally, on
potential local currency funding for foreign banks to fund
Aug. 31, 2016, we issued a MX$2 billion seven-year green
their participation in Mexican projects. We have advanced
bond yielding a 6.05 percent coupon as part of NAFINSA’s
our green strategy through four principal initiatives: being
mandate to develop domestic capital markets.
the trustee of the Mexican government’s Climate Change Trust Fund (CCTF), participating in international forums,
Q: Why did NAFINSA launch the first international
providing financing for green projects’ renewable energy,
Mexican green bond?
cogeneration and energy efficiency and promoting
A: NAFINSA wanted to achieve two objectives. The
technical assistance and training to financial institutions
first and most important was to raise enough resources
and micro, small and medium enterprises (MSMEs) on the
to fund our increasing renewable energy portfolio, and
importance of efficient technology and the efficient use of
second, return to the international debt markets after 18
energy for economic and environmental benefits.
years of absence. These objectives are aligned with the commitment of Mexico to being active in the development
Q: What role does NAFINSA play in the development of
of climate change-related financial instruments and
utility-scale energy projects?
the transition to a low-carbon economy. Mexico plays
A: In 2009, our sustainable projects unit was created to
an important role on different environmental issues,
participate in the financing of environmentally friendly
including climate change and the use of renewable
ventures, with a focus on the strategic development of
energies. Since 2009 with the Climate Change Law,
renewable energy generation and related infrastructure.
Mexico has supported and shown leadership. In March
In 2010, we became the first Mexican bank to provide
2015, we became the first developing country to formally
financing for a wind farm project in Mexico. In recent
submit its 2020 Climate Change Plans to the UN,
years, we have intensified the implementation of our
following the EU, Switzerland and Norway in laying out
green financing strategy, in line with the objectives of the
their commitments to reduce greenhouse gas emissions.
National Development Plan. We developed a program
Also, the Energy Reform promotes investment in clean
for the financing of sustainable projects that promotes
energy technology. Green bonds are one of the most
economic
important vehicles for achieving these goals.
growth,
allowing
companies
to
preserve
Mexico’s natural resources while generating wealth. NAFINSA is a development bank that financially supports small and
As of Sept. 30, 2016, our portfolio of sustainable project
medium companies with the federal government, mostly through
loans reached MX$10.7 billion and included financing for
guarantee programs with commercial banks.
175
INSIGHT
IADB IN STEP WITH MEXICO’S ENERGY AGENDA ARIEL YÉPEZ Energy Division Chief of the Inter-American Development Bank (IADB)
176
Mexico’s national energy plans have helped shape the
Caribbean, we have placed investments ranging from
IADB’s priorities in the country, turning its focus to clean
US$5 million to almost US$1 billion for the rehabilitation of
and energy-efficient technologies with the potential to
hydro generators we are currently financing in Venezuela.”
reduce GHG emissions. “The IADB follows the country’s agenda to decide on which sectors it should focus. We
Yépez says the core of the bank’s energy division in
aim to have an integral portfolio supporting the country’s
Latin America is the support given for renewable energy
development goals. We are highly respectful of the
development, with a strong focus on PV solar, wind and
national agenda,” says Ariel Yépez, Energy Division Chief
geothermal power plants. “There is great potential to
at the bank. “The implementation of the Energy Reform
develop these technologies in Mexico and we are already
has shifted the bank’s focus to the energy sector, not
seeing important advances in the diversification of the
because it is more attractive to us but because it is key for
country’s energy matrix through the adoption of new
the Mexican government.”
energy sources.”
The IADB has set the ambitious goal of doubling climate
“The liberalization of the energy market has opened new
finance to 30 percent of approvals by 2020, an average
windows of opportunity to invest in energy projects in the
of US$4 billion annually destined for mitigation and
private sector and it has also boosted the bank’s interest
adaptation initiatives in Latin America and the Caribbean,
in investing in renewable technologies. The Energy
according to a joint 2016 report published by the bank and
Transition Law is one of the Reform’s policy tools that is
six other multilateral institutions. IADB has granted around
driving renewable energy growth in Mexico, also providing
US$94.9 million in loans directly to the Mexican energy
incentives to multilateral banks such as the IADB to
sector and over US$311 million indirectly through financial
invest,” he adds.
markets. This complements the 50 energy operations the bank has in over 20 countries of Latin America and
IADB is no stranger to financing renewable energies in
the Caribbean, altogether valued at over US$4 billion,
Mexico. In 2011, the bank approved a US$70 million loan to
according to its website.
local development bank NAFINSA, coming from the Clean Technology Fund it administers. The financial resources were
The bank’s sectorial framework for the Mexican energy
intended to be used over a 20-year period to co-finance
industry is currently based on three pillars: universal
the construction of renewable energy projects, support
access to electricity and clean cooking fuels, renewable
the projects’ life financing and fund contingency lines in
energies and energy efficiency. “In all cases, the bank
these kinds of projects. The multilateral institution was also
supports Mexico’s energy development by providing direct
involved in the creation of a program to mitigate the risks
loans to the government to implement energy projects or
associated with the exploration phase of geothermal energy
initiatives through public institutions or third parties, or by
sources, one of the main barriers to developing the country’s
financing local development banks that are supporting the
high geothermal potential. The bank provided US$54.3
country’s energy agenda,” says Yépez.
million of the US$120.1 million required for the program in 2014, expected to support the construction of 300MW in
“Mexico’s scale calls for large investments. In our
geothermal energy capacity during a six-year period. The
electricity access and clean cooking fuels agenda the
Washington, DC-based institution has also provided direct
investment required to implement a social policy program
financing to project developers willing to build renewable
is not lower than US$300 million. In the case of renewable
and cogeneration power plants in Mexico. Its support was
energy projects, the investment required is dependent
particularly crucial in the early stages of wind development in
on the project’s characteristics. In Latin America and the
the southern state of Oaxaca by making long-term financing
IADB has 640 projects completed in Mexico
schemes available in the country. The bank continues to be key in mobilizing resources for the construction of clean power plants in Mexico. IADB has also collaborated closely with NAFINSA regarding energy-efficiency programs. “Supporting the adoption of clean-energy technologies in the industry is one of our flagship projects in Mexico. We provide financing to NAFINSA, which in turn provides loans to SMEs willing to implement modern and efficient technologies in their facilities,” Yépez says. Another important contribution in the energy-efficiency arena was the US$125 million mobilized by the bank in 2015 for financing projects using green bonds issued in the local capital markets. The program looks to eliminate
US$406.4 million
Invested in Mexico in the past five years RENEWABLE ENERGY EMPLOYMENT BY TECHNOLOGY LOANS BY SECTOR (US$ MILLION) (MILES)
Private Firms & SME Development Urban Development & Housing
companies (ESCOs) to develop energy-efficient projects up to 5MW, mostly used to optimize energy consumption in Mexican industrial plants. Financial viability and the
Energy Agriculture & Rural Development Environmental & Natural Disasters Health
potential impact on the country’s development agenda
Education
are two of the crucial factors the bank considers before
Reform/Modernization of the State
investing in a particular project. In addition, the project’s
Water & Sanitation
sustainability and its positive impact on local communities
Social Investment
have also become decisive factors closely monitored by
Financial Markets
the bank’s officials.
0
“We have implemented tools to ensure that all the projects financed by the bank are sustainable from an integral perspective, including environmental, social
177
Transport
the financial barrier faced by Mexican energy-services
0.5
1.0
1.5
ENERGY PROJECTS DIRECTLY FINANCED BY IADB IN MEXICO
and economic aspects. The added value of having a development bank involved in the project financing process is precisely the attention given to its positive impact at local and national levels. We are careful to support only projects that have more positive than negative impacts on the selected location, ensuring that
companies
fairly
compensate
affected
local
communities,” he says.
Eurus Wind Farm
Private Portfolio of 2,000
(250.5 MW)
Small-Scale PV Projects
25,000 LED Street Lights in
Energy Efficiency Green
Ensenada Baja California
Bond Facility
La Ventosa Wind Farm
Risk Mitigation Program for
The bank also recognizes the private sector’s interest in investing in Mexico’s energy sector. “We see great interest from international companies to invest in power generation, not only for selling energy to CFE but to grab opportunities with private off-takers,” Yépez says. For 2017, Yépez says the bank will continue to support the Mexican government’s energy agenda. “We want to have a comprehensive strategy of initiatives and programs that could be implemented to reduce Mexico’s energy intensity. We are also in talks with private companies in the electricity and natural gas sectors to see what the best ways are to support private-driven projects with the highest potential to contribute to Mexico’s development agenda.”
(67.5MW) Source: IADB
Geothermal Energy
2.0
VIEW FROM THE TOP
GREEN BONDS AN UNSTOPPABLE TREND EDUARDO PIQUERO Director of MÉXICO2
Q: What is driving the demand for green bonds in the
That study does not consider the resources needed for clean
private sector at the global and local levels?
transportation or climate change adaptation policies so, in
A: Green bonds provide a distinct approach to investment.
reality, it is a modest sum as well. We believe the market
Climate change has forced institutional investors to consider
potential is larger, considering the different needs and the
the associated risks when making an investment. These
investors present in Mexico.
bonds have become a tool to guarantee that proceeds issued by corporate investors or governments are directed
Q: What advantages do green bonds offer in comparison
into the climate economy, meaning mitigation or adaptation
with regular bonds?
projects.
A: Renewable energy assets tend to incur higher interest rates than regular assets due to the banks’ lack of
The main factor driving demand for green bonds is
understanding of these technologies. Therefore, green
diversification. There is greater risk associated with having
bonds will likely be used first for project refinancing. When
oil and gas-based portfolios, so diversification through green
companies refinance their assets through green bonds, they
assets has become a priority for global investors. According
can get lower interest rates, which is a major advantage
to the Climate Bonds Initiative (CBI), green bonds will be
for issuers. Green bonds are usually oversubscribed
selected first between two bonds with similar yield and risk
because investors are highly interested in going green and
evaluation because they can provide the same profit with
diversifying their portfolios, which effectively translates to
the advantage of helping the environment. We witnessed
a bigger pool of investors. This was the case for NAFINSA.
that trend when Mexican development bank NAFINSA
The successful results achieved by NAFINSA’s green bonds
issued the country’s first green bond in the US market in
made us positive about the launching of Mexico’s green
2015. The bond was five times oversubscribed and garnered
bond market as over 40 percent of the bonds were acquired
a lot of attention from foreign investors, mainly European,
by Mexican investors even though they were issued in the
which had not considered NAFINSA for investment before.
US. The rest were taken by foreign investors, including a large percentage of European companies. Through these
Q: What requirements make bonds “green”?
bonds, NAFINSA managed to expand its investor base,
A: Every asset related to a green project can be financed
which is a desirable outcome for any issuer.
through green bonds. The “green” label has been misused in the past as a marketing strategy, diminishing the public’s trust
Q: What types of investors do you expect will participate in
in the actual sustainability of green assets. The main factor
the country’s green bonds market?
to consider is a third-party assessment or a certification
A: The main drivers will be development banks at first,
ensuring the bond will be directed to green projects such as
followed by the government. Later, we expect to see
renewable energy, energy efficiency, clean transportation or
mostly institutional investors, like pension funds (AFOREs),
sustainable infrastructure. We are working on a certification
insurance
process backed by a third party for all green bonds issued
funds. Insurance companies in particular will represent an
by companies or banks in the stock market.
important pool of investment as they are willing to diversify
companies
and
some
private
investment
their portfolios out of brown assets. Corporate green bonds Q: CBI’s goal is to issue over US$2 billion in green bonds.
would be the final stage of the green bond market and will
How ambitious is this compared with other economies?
take longer to develop but it is an unstoppable trend.
A: US$2 billion is not ambitious. It is actually the minimum requirement Mexico should be considering. An independent
MÉXICO2 is a platform designed specifically to promote environmentally-
study by PwC calculated that Mexico needs a US$5 billion
concious financial instruments in the country, such as Green Bonds, and
annual investment to comply with its clean energy targets.
also to help companies structure financial options.
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VIEW FROM THE TOP
FULL REFORM BENEFITS TO MATERIALIZE IN COMING YEARS ALFREDO SANTILLÁN Chief Representative of SMBC Mexico
180
Q: How will the Energy Reform impact Mexico’s growth
A: We see a big opportunity in infrastructure and energy.
and that of the energy sector?
Specifically in energy, during the first electricity auction
A: The reform will be very important for Mexico’s
the government invited international companies to
development and growth. It had been necessary for
present bids and we saw a great deal of interest. Over 100
over 20 years. It is also important to understand the
companies entered into the prequalification process and
complexity of its implementation. The Energy Reform
69 were approved, submitting some 227 offers. Finally, 18
required constitutional changes and the creation of
offers were assigned to 11 companies. For the first auction
many secondary laws and regulatory institutions. We
SMBC submitted around 20 indicative term sheets to
will see the full benefits in the years to come.
interested companies, indicating how the bank would be willing to finance projects. The awarded projects
To date, one-third of the power produced in Mexico
represent 2.1GW of additional capacity and an investment
comes from private IPPs that sell energy to CFE under
of US$2.6 billion, although around 50 percent of the
long-term PPAs. Mexico has around 68GW capacity and
energy auctioned was awarded to Enel Green Power and
the long-term plan is to have around 110GW by 2030.
ACCIONA Energía, which normally do not require project
This increase considers the full implementation of the
financing. There is still a large amount that will require
Energy Reform.
financing from development and commercial banks.
Q: What are the key areas of participation for SMBC in
In the second auction, 23 companies presented 56
the energy industry?
proposals and 18 companies got their projects awarded.
A: Over the last few years SMBC has been actively
The investment expected in the second auction is about
financing projects in different sectors in Mexico. Our
US$4 billion and the majority of the projects will require
participation in the energy industry involves mainly
project financing. We submitted indicative term sheets
advisory, structuring and financing of projects through
to most of the bidders for the second electricity auction.
various plans. We are the second-largest bank in Japan by market capitalization and our presence spans
Q: What are the most common financing structures
approximately 45 countries. The bank has extensive
used in Mexico and how does the bank mitigate risk?
experience in project finance all over the world and we
A: There are several structures that can be used for
leverage this expertise when we participate in energy
these projects but the most common so far are long-
projects here.
term project financing, dual tranche structures with long-term
lending
from
development
banks
and
SMBC has been named global bank of the year for project
medium-term lending from commercial banks along
finance in recent years, not only for the number of deals
with maxi-perm/mini-perm structures that incorporate
closed but also for their complexity and innovation. In
a refinancing risk.
Mexico we have been one of the most active banks in this area, working closely with development lenders
Risks are mitigated with proper due diligence and
such as Banobras, NAFINSA and Bancomext, as well as
sound financing structures. We also retain independent
commercial banks that are active here. SMBC recognizes
engineers to assess and verify independently the
the opportunity the Energy Reform presents and will
technical specifications of a project and its feasibility to
continue to support energy projects resulting from it.
achieve the desired power-generation output. Extensive studies on the potential locations are also required to
Q: Where do you see the greatest opportunities for
minimize any social risk. Also, reputable and well-known
financing in Mexico?
law firms are needed to structure the projects and the
financing mechanisms required. For a project to succeed
In the past, transmission projects were tendered to private
there has to be a high level of confidence in the sponsors
companies through public works contracts (turn-key
because project finance involves a high construction
projects), where the companies were responsible for the
risk, which can be reduced by the experience of the
financing and construction and then the projects were paid
company developing similar projects.
by CFE at completion (in a lump-sum payment). With the Energy Reform CFE is looking to tender large transmission-
Q: How does the bank’s international experience come
line projects for over US$1 billion under a new Build-
into play when dealing with risk?
Operate-Transfer (BOT) scheme, with a 25-year contract.
A: The risks involved in financing these projects resulting
Mexico is offering great opportunities for investment.
from the Energy Reform are similar to other projects we have financed in other latitudes where electricity markets have opened. In Chile we were one of the first banks to finance projects when the electricity market opened, financing US$366 million for a wind farm project called San Juan, with a capacity of 185MW. We are bringing this expertise to our projects in Mexico.
181
We always have to conduct a proper analysis and due diligence to develop financial structures that adequately mitigate identified risks. In Mexico, SMBC has been quite active in the power sector, financing several projects under the IPP scheme and we have a mandate to finance renewable projects that were awarded during the electricity auctions. The opening of the electricity market has followed best practices from other markets that have experienced similar processes over the last few years such as Chile.
Sumitomo Mitsui Banking Corporation reopened its representative office in Mexico in March 2009 to foster client relationships and offer comprehensive financial solutions
SMBC is also part of the infrastructure committee of the Mexican Banking Association (ABM), which
Q: What are SMBC’s ambitions in the power sector?
has allowed us to discuss and analyze in great detail
A: We are looking to maintain an active participation
financing alternatives to participate in the opening of
in Mexico, trying to enter projects in their early stages
the electricity market. With Mexico’s need to increase
of development and acting as financial advisers where
its megawatt capacity around 61 percent over the next
appropriate. We also seek to collaborate with other
few years, there will be significant demand for project
financial institutions, since energy projects require large
finance, not only for power projects but also to develop
investments and different funding sources. SMBC has
and strengthen the natural gas pipeline system to supply
the advantage of being recognized worldwide as one
fuel for some of the plants expected to be built. SMBC
of the top project finance banks and we can really bring
has successfully participated in most of the pipeline
value to all participants in the market in Mexico. We
projects in Mexico and the US (with CFE off-taker risk)
need to be vigilant over the market’s evolution but we
during the last few years.
trust SMBC’s role will remain highly significant.
Q: What investment opportunities do you see in
In Mexico there are few banks as active as SMBC in financing
transmission and distribution?
projects because not everyone understands the market or is
A: The average growth of Mexico’s GDP for the last 10
comfortable with the risks. In the future, however, we expect
years has been around 2.5 percent but the growth rate
to see a combination of commercial and development
of the electricity market as a percentage of GDP over
banks and export trading agencies supporting energy
the same period is around 5 percent. The power industry
projects here. We also believe the capital market will play a
represents 1.8 percent of GDP, which makes it extremely
financing role under the Energy Reform.
important for the country’s economic development. All the northern and central parts of Mexico will continue
Sumitomo Mitsui Banking Corporation (SMBC) was established in April
to see this industry growth but to succeed there has to
2001 through the merger of two leading banks: The Sakura Bank, Limited,
be a coordinated effort from all segments of the sector.
and The Sumitomo Bank, Limited. SMBC and its group companies offer
Everything has to go hand in hand.
a broad range of financial services centered on banking.
INSIGHT
TIES THAT BIND: REFORM REIGNITES JAPAN INTEREST TAKESHI TADA Chief Representative of the Mexico City’s Office of Japan Bank for International Cooperation (JBIC)
The friendly ties between Japan and Mexico date back
Co. Power Americas, now the second largest operator of
to 1888 when the countries signed the Treaty of Amity,
power generation assets in the country.
Commerce and Navigation, the first equal treaty Japan signed with a non-Asian country. The economic and cultural
“We provide overseas investment loans in these cases,
relations between the two have become stronger over the
supporting the overseas operations of Japanese firms as well
years leading to positive collaborations in different sectors,
as the establishment of merger & acquisition (M&A) deals
including energy. Takeshi Tada, Chief Representative of
with foreign companies. This type of loan is very common
the Mexico City’s Office of Japan Bank for International
in the automotive sector but is also used in the energy
Cooperation (JBIC), says Japan continues to play a role in
industry. Moreover, we offer special conditions in the case
the construction of Mexico’s energy infrastructure through
of energy-related projects, such as lower interest rates and
its development bank, financially supporting Japanese
longer repayment periods with the purpose of increasing the
companies to export power technologies to Mexico and
competitiveness of Japanese companies in this sector.”
investing in the construction of landmark projects in the national power system. “We have been supporting
He goes on to describe an overseas investment loan used
Japanese investment across different economic sectors
to build the Electricidad Sol de Tuxpan project, a joint
in Mexico, with energy being one of our strategic
venture between Japan’s Mitsubishi Corporation and
segments,” he says. “In the past, we mostly supported
Kyushu Electric Power. The loan was co-financed with
Japanese electric equipment manufacturers willing to
Mizuho Corporate Bank with political risk guarantees also
export their products to Mexico, such as Mitsubishi Heavy
provided by JBIC. “In general, the financial conditions of
Industries, Hitachi and Toshiba. As a result, most of the
an overseas investment loan are better that an export
power generation sector in Mexico was using Japanese
loan, making them the preferred option for Japanese
technology in the 1980s. Now, competition is fiercer but
companies in the energy industry,” Tada says. “We also
Japanese companies continue to hold an important share
provided finance for the Cerro Prieto geothermal power
in this market.”
plant through a build-own-lease transfer scheme, which was also the case of Chihuahua’s gas combined cycle
JBIC also supports Japanese technologies for Mexican
power plant and Cozumel’s subsea transmission line, all of
customers by providing loans to companies willing to
them operated by Mitsubishi Corporation.”
acquire the country’s equipment. “Export loans are one of the most popular services used to support Japanese
Tada says the implementation of the Energy Reform has
companies that want to export their products overseas.
reignited the interest of Japanese energy companies and
Import loans also support Japanese companies indirectly
investors in the Mexican power and oil and gas industries.
by providing funds to borrowers willing to acquire
“The previous regulation limited private participation in the
strategic products from Japan, such as CFE in Mexico. We
energy sector, which was a barrier for Japanese businesses.
issued our first credit line to CFE 50 years ago, consisting
For this reason, Japanese companies were mostly focusing
of a power loan that tightened our relations with the only
on establishing IPP projects in the case of the power sector,
Mexican utility at the time. Since then, JBIC has been
while JBIC’s role in the oil and gas industry consisted
involved in the financing process of several CFE projects,
mostly of providing untied loans to PEMEX. However, these
including the gas combined cycle power plants of Saltillo,
initiatives also served as an entry point for Japan into the
Rio Bravo, Merida, Valladolid, Tuxpan and Chihuahua,”
Mexican energy sector, being the start of a good business
Tada says. Japanese companies have also shown interest
relationship between both countries on energy-related
in investing here since the IPP scheme was introduced
matters. The Energy Reform has opened a new set of
in Mexico in the mid-90s. This was the case for Mitsui &
business opportunities for Japanese investment in Mexico.”
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VIEW FROM THE TOP
POWER GENERATION BOOSTS INVESTOR INTEREST SALOMON AMKIE Vice President of Power & Alternative Energy at Citibanamex
184
Q: Where do you see the most opportunities to finance
before that. If a sponsor bids aggressively on production
projects in the energy market?
then the risk of underproduction might be higher, making
A: Power generation in Mexico will continue as the subsector
financial institutions rely heavily on the contracted revenues.
with the most opportunities in the coming years. There is
But if the contract has a merchant component then banks
still a need for new, efficient power generation and not only
have to see how large of an impact it might have on the
in renewables, as we have seen in 2016, but also efficient
project’s cash flow. What we are seeing is that this risk is
gas-powered assets and maybe refurbishing of some older
contained and not as relevant as we may have thought,
assets. That will continue to be the greatest opportunity of
which is good for sponsors and means we can increase the
the sector. To a lesser extent, there will be opportunities
debt component in the overall capital structure.
in transmission starting 2017 but power generation will require the majority of financing.
Q: Are you also interested in working with other green financing tools?
Transmission is critical for the country's infrastructure with
A: Absolutely. We have great capabilities in issuing Green
almost half the existing grid being over 20 years old, so
Bonds as we did this year with NAFINSA and the New
while generation is critical in terms of efficiency, a renewed
Mexico City International Airport (NAICM). We are also
power grid is required to actually see its benefits. It is a
looking at supporting distributed generation players, who
massive market. At Citibanamex we have good expertise in
can not only help our commercial and industrial SME clients
financing projects of this sort and it is absolutely something
but also residential users from the private banking sector
that we will focus on.
who could benefit from having distributed generation solutions in their homes.
Natural gas, wind and solar-based power generation are all areas of interest for us. But in general, to decide our
Q: How do you expect Mexico’s energy industry to evolve
participation, we look at the project, the sponsor and the
and what will be Citibanamex’s contribution?
technology needed to make sure it all makes sense.
A: We are very optimistic about the sector in Mexico, we think that it is going to be one of the larger areas of growth
Q: How can a financial institution like Citibanamex help
for the country and as such we want to play aggressively in
create a flexible scheme for energy projects?
the sector. In particular, I think there are two sets of clients
A: CENACE’s PPAs are new and all financial institutions are
that we will look at and where we can add the most value.
still wrapping their heads around the best way to structure
The first are the players who have been in Mexico for some
this financing. At Citibanamex, we are being cautious of
time and know the sector very well, having a strong business
two things, with the first being the quality of the sponsor.
model already ongoing in the country. For this type of client,
Because of the way these auctions are awarded there is little
it is all about thinking strategically about their business
consideration for permits. Companies can win the auction
model. There are going to be huge opportunities in capital
without much permitting in place so a good sponsor with
markets, as well as some refinancing of existing projects.
a track record and proven development skills is critical. The
That is one area where we can definitely participate. The
second is the merchant risk the PPA carries beyond 15 years
other set of players are those that are just entering the
as well as the risk of underproduction for any given year
country. These could be multinational or local players that are developing their businesses here. They need to think
Citibanamex, previously known as Banamex, is a subsidiary of Citigroup
about how to ramp up their business quickly in an evolving
(Citi), an American multinational investment banking and financial
sector, which means project financing or equity structures
services corporation. Citi has about 200 million customer accounts and
that make sense. That is also an area where we can support
is in more than 160 countries.
and contribute.
INSIGHT
UNTAPPED POTENTIAL FOR GREEN BONDS ESTANISLAO DE LA TORRE Chief Operations Officer of HSBC Mexico
Mexico seems to transform every green opportunity into
also are sponsors and supporters of the Climate Bonds
gold. Its first global green bond, valued at US$500 million
Initiative, an organization aimed at mobilizing the global
and issued in late 2015, was five times oversubscribed. The
bond market for climate change solutions,” he adds.
first green bond issued in Mexican pesos also attracted a
185
lot of attention, with the total offering of seven-year notes
Regarding its regional operations de la Torre says that
for MX$2 billion sold in the local market. Both were issued
“our strategy in the Americas focuses on four key
by NAFINSA, Mexico’s development bank, to finance clean
themes: renewable energy, sustainable buildings, smart
energy projects here.
cities and sustainable supply chains. The opportunities that are presented when we approach bonds, loans,
The country’s latest venture into the green bond market
securitizations and other corporate financing solutions
was its US$2 billion issuance to finance part of Mexico
from a low-carbon climate-friendly perspective are vast.
City’s new airport. The green bond was issued by Grupo
It helps to grow our business sustainably, in a way that
Aeroportuario de la Ciudad de México (GACM), a state-
serves both our clients and our communities.”
owned company, while the sale was coordinated by Citigroup, JP Morgan and HSBC, a bank with strong
Investors also want in. “Two thirds of institutional investors
expertise in the global green bonds market.
want to put more capital into low-carbon and climaterelated investments. HSBC advises large organizations
“As one of the top three global underwriters of green bonds
such
in 2015, we are really pushing for the overall development
renewables and clean technology. Here, we share their
as
multinational
companies
on
investing
in
of the market,” says Estanislao de la Torre, Chief Operations
views on the rising profile of green investment and on
Officer of HSBC Mexico. “Last year, for example, HSBC
some of the trends reshaping the low-carbon sector,” he
helped the International Finance Corporation (IFC) issue
adds. To facilitate the connection between green investors
the world’s first renminbi green bond. To date, we have
and projects, de la Torre mentions two main areas of
committed to investing US$1 billion in green bonds and
opportunity. “Firstly, green investment opportunities,
to contribute to various multi-stakeholder initiatives
such as investments in energy efficiency, are often
including the ICMA Green Bond Principles, FSB Taskforce
small scale and can be very fragmented. A mechanism
on Climate Related Financial Disclosures and the Carbon
to aggregate green projects would make it easier to do
Pricing Leadership Coalition.”
more business efficiently. Another challenge is making the business case for green bonds clearer. Policy incentives
According to de la Torre, HSBC has been taking steps
that create even a relatively small change in the price of
with other financial institutions to push the development
green investments can drive investors and CFOs to pay
of green bond markets, which could be replicated and
more attention to green finance, rather than conventional
built upon, to grow and support a market for sustainable
bonds,” he says. “By building understanding and expertise
financing. These initiatives include the launching of
on low carbon technologies, and by arranging the finance
HSBC’s Climate Change Center of Excellence in 2007 and
that will help bring these technologies to market at scale,
its participation in a consortium with other banks and
HSBC, and the businesses and investors who are our
institutions that introduced the Green Bond Principles,
clients and customers or stakeholders, are supporting a
a framework for the issuance of bonds whose proceeds
low carbon future.”
support environmentally sustainable activities. “In 2015 we also issued our own EUR$500 million green bond,
Renewable energy has come a long way in a relatively
which has been used to finance wind, solar, smart grid
short time and de la Torre says it is here to stay, even if the
and sustainable waste projects in Europe and Africa. We
exact details remain unclear.
VIEW FROM THE TOP
RATE HIKE PROSPECTS KEEP INVESTORS CAUTIOUS HÉCTOR PÉREZ Managing Director & Head Corporate Banking & Capital Markets of Scotiabank Mexico
186
Q: How have the interest rates in Mexico impacted the
trajectory of other global economies that have already
infrastructure markets?
experienced this transition, Mexico is in a strong position.
A: We are seeing a lot of activity in electricity and
The electricity system is not subject to international
electricity-derived subsectors like pipelines importing
prices so more activity has been seen here. All the large
gas from the US to supply CFE’s electricity production.
infrastructure players are trying to win pipeline tenders
Interest rates are still relatively attractive and to some
and electricity plant contracts so CFE has done well in
extent the global volatility and the potential rate
attracting investment in its infrastructure.
increase in the US have caused local investors to be more prudent in buying debt locally. When examining
Q: What challenges have you found in Mexico’s financial
the debt capital markets, local issuance of debt this year
sector?
has seen a 50 percent drop compared to the first half
A: More than challenges we have found a tremendous
of last year. This is not caused by liquidity issues but
opportunity, especially given the lack of growth among
because investors are cautious in the face of possible
global economies. Mexico stands out as a destination
rate hikes. Issuance in emerging markets is starting to
where growth can be found. Every industry has its
regain its pace because of negative yields around the
challenges so the key is to focus on the areas with the
world due to low interest rates. Global investors are
greatest opportunities to offset this. There is a great deal
looking at emerging markets again.
of foreign investment entering Mexico and major global multinationals are investing here, especially in areas like
When examining the debt capital markets, local issuance of debt saw a 50 percent drop in 2016 compared to the first half of 2015
infrastructure, oil and gas and electricity, manufacturing and
automotive,
which
present
considerable
opportunities. We not only work locally with clients in Mexico but we work on a global scale with these major companies. We are also consistently bringing in foreign investors to meet with the Mexican central bank, the Ministry of Finance and other relevant authorities to showcase the attractiveness of investing in Mexico. Q: What is Scotiabank’s strategy to boost its presence in the Mexican market?
Q: How do you evaluate the effectiveness of the current
A: The franchise has been growing in Mexico in the last
regulatory framework?
two years as a result of the importance placed by the
A: I think in general, the implementation of the
group and the CEO on the Latin American strategy.
electricity reforms should be separated from the oil
This focuses on the Pacific Alliance countries of Mexico,
and gas reforms because the contexts in each market
Colombia, Peru and Chile and these countries are where
have changed drastically since the implementation.
our growth strategy is centered at the moment. Under
We should also remember that the reforms were only
that strategy, Mexico is the most important country and
implemented two years ago and, when compared to the
we are investing resources in all our business lines as well as in technology where we are changing completely
Scotiabank Mexico, part of the Canadian group The Bank of Nova
our core technological and operational platform. Our
Scotia, is one of the country’s 10 largest banks with over 4.5 percent
market share has already gone from 4.5 percent to
of the total assets in the system and close to 6 percent of the credit
around 5.5 percent in the last two years, which is a
portfolio.
considerable organic gain.
PROJECT SPOTLIGHT
LOS SANTOS I SOLAR PV PLANT Los Santos I is the first utility-scale solar park in Mexico
with the land owners in June 2014, including the permits
to secure a long-term PPA with private off-takers. The
to interconnect to the project’s transmission line. Prior
13.5MW project, located in the northern state of Chihuahua,
to signing the loan agreement, the project also had its
is expected to generate enough power to supply the
Environmental Impact Assessment (MIA) approved by
equivalent of almost 6,000 homes while also offsetting
SEMARNAT, received generation permits from CRE and the
carbon emissions.
land’s release from the National Institute of Anthropology and History (INAH). This legal headway also contributed
Texas-based
Buenavista
Renewables
developed
the
to the attractiveness of the investment.
project. The installation of the 52,000 polycrystalline PV modules from AstroEnergy was handled by IMASA
After evaluating Buenavista Renewables’ proposal, the
Ingeniería y Proyectos México, using single-axis tracking
banks concluded that the estimated revenues were
systems from NEXTracker and electrical equipment from
enough to cover the project’s O&M costs, pay senior debt
Chint and Schneider Electric. The project also required a
and interest on debt reserves while complying with the
switchyard to connect Los Santos I to CFE’s Moctezuma
debt coverage ratio. NADB rated the investment a low risk
substation.
thanks to the experience of the companies involved and
187
the strong project proposal in terms of technical feasibility, Buenavista Renewables designed the project’s financial
repayment vehicle and advanced bureaucratic processes.
model and secured agreements with La Salle and Leoni Cable, the off-takers. Also involved in the financing was the North American Development Bank (NADB) and the
LOS SANTOS I FINANCIAL STRUCTURE
Overseas Private Investment Corporation (OPIC), direct lenders to the project. Buenavista signed a US$18.5 million loan agreement with NADB in August 2015. OPIC contributed US$15.5 million in the form of senior debt while Buenavista Renewables’ US$6 million equity stake made up the remaining funding. The cost of the project totaled US$40 million. The correct estimation of power production was crucial
Buenavista
North American
Renewables
Development Bank
Overseas Private Investments
(Equity
(Market-rate loan
Corporation (Senior
US$6 million)
US$18.5 million)
debt US$15.5 million)
for securing financing because electricity sales were established as the company’s vehicle for repaying its debts. According to NADB’s documents, an independent evaluation performed by a third party estimated the project would produce 40.1GWh during its first year of operation, which was consistent with revenue estimations. That output can power 5,838 houses and has the potential for offsetting 16,509 tons of CO2 per year.
13.5MW
Having trustworthy off-takers and a sound PPA was also crucial for closing the deal. Buenavista Renewables signed
20-Year PPA
a 20-year PPA that was in line with the 18-year repayment
Debt Repayment
period established by the banks and the project’s 25-year estimated life span. The PPA was based in dollars to avoid currency risks. Leoni Cable, which will purchase most of the project’s power production, is a leading manufacturer of cables for the automotive industry, a sector expected to grow substantially in Mexico. La Salle Educational Network
Leoni Cable
Los Santos I started operations in April 2016 and was built on private property, easing the land rights acquisition process. The company established a leasing contract
Company Investor
Financial Backers
Source: MBP with information from Buenavista Renewables
Off-takers
VIEW FROM THE TOP
NEW DYNAMICS IMPACT PROJECT FINANCE JOSÉ SIFUENTES Partner at Nader, Hayaux & Goebel (NHG)
188
Q: What are the main changes in your client portfolio
institution, power suppliers often offer collateral that a
since the Energy Reform?
bank can collect in case of default. In a PPA it is necessary
A: We worked on many energy projects before the Energy
to make clear what each individual party is getting. It is
Reform but after this structural reform was approved we
also necessary to determine a taker-pay, which is what
decided to open an entire area fully dedicated to oil and
happens in case of certain events such as blackouts
gas and power generation. We have invested significant
where off-takers have to take the power under certain
time and money in this area and it is now one of the firm’s
conditions. Furthermore, all PPAs have an exit provision.
main divisions. Before the reform we used to work mostly
Banks prefer these conditions to be strict for off-takers.
with banks interested in financing energy projects but
These conditions cannot be flexible because it would be
now we have more energy companies coming for financial
undesirable for a power generator to find itself without a
support to launch their projects. Project developers used
buyer while it receives financing, forcing it to find another
to work by themselves in the past, looking for a buyer
under pressure and thus at a lower sale price. This would
after their projects were completed. This has changed.
place the bank in an unfavorable position.
Our clients now are increasingly interested in closing financing deals with off-takers before moving on with their
Q: What would you say is the biggest change the Reform
projects. In projects where our clients already have an off-
needs to facilitate operations?
taker, we support them in the structuring of their PPAs.
A: The current requirements are too cumbersome
The situation is highly different when the contracts are
and often redundant. Energy regulations need to be
done with a private or public off-taker. When the off-taker
greatly simplified. There are also other areas that need
is a government institution, companies are sometimes
to be addressed, for instance, fostering investment in
concerned with the payment scheme because there are
infrastructure for the transport of natural gas to supply
often complex requirements for companies to supply
existent and new combined cycle power plants. Once this
the public sector. For instance, some require approval
infrastructure is in place it will be necessary to get more
from the local congress. More often, energy companies
gas to flow through it.
require certain assurances before entering a long-term agreement with any local government, such as collateral.
Q: Do you expect to see a larger number of M&As in the
It is, however, not an industry standard for the government
sector?
to agree to collateral under these circumstances. Energy
A: We have seen a large number of M&As in the oil and
producers also need to have clear expectations of what
gas sector and we recently participated in PEMEX’s sale
they are going to get from such a contract.
of Gasoductos de Chihuahua to IEnova. But we do not expect many M&A for the energy sector with the exception
Q: What are the main concerns that financial institutions
of those involving large participants. I do not believe the
have when sponsoring PPAs?
industry is interested in that. What we expect are more
A: The duration for the financing has to be consistent
sales of public infrastructure to the private sector.
with the PPA’s life span. It is not possible to have a PPA that is shorter than the financing period because no bank
Q: What will be at the core of your agenda for 2017?
would accept that deal. To obtain support from a financial
A: We want to help power producers to participate in tenders. When participants bid in government tenders
Nader, Hayaux & Goebel (NHG) is a market leader in M&A, banking
they often do not have the infrastructure ready to operate.
and finance, securities and capital markets, It works in insurance and
We want to support them through the entire process of
reinsurance, real estate, energy, infrastructure and telecommunications,
bidding, winning the tender and building the necessary
among others.
infrastructure to comply with their obligations.
VIEW FROM THE TOP
LONG-TERM FINANCING NEEDED TO INCREASE CAPACITY CARLOS ALBARRACĂ?N Partner at Milbank
Q: How has Milbank adapted its offering due to the
cannot be stored, so companies need longer financing
market changes taking place in Mexico?
plans. To reduce financing costs, the main challenge is for
A: Our knowledge of and expertise in the energy industry
companies to negotiate a bankable off-take contract that
and the new regulations have created new opportunities
allows them to properly address their financing needs. The
for us in Mexico. The first change we saw after the Energy
other challenge is storage capacity for renewable energy
Reform was an increase in the number of new oil and gas
projects, but that is an issue across the industry.
projects and investment opportunities. Before the Energy Reform, there were one or two pipeline projects every year
Q: What opportunities and risks does Milbank see in
whereas now there are five or six tenders per new project
investing in transmission and distribution infrastructure?
in a single year. CFE’s restructuring is also positively
A: When CFE became a private utility company, it
welcomed by the market because it is likely to create
opened a new opportunity for equity and debt investors.
more opportunities to invest in and finance a whole host of
Transmission and distribution projects are particularly
power projects ranging from traditional power generation
attractive for fixed-income investors as they usually
projects to distribution and transmission projects.
have stable and predictable cash flows linked to the US dollar exchange rate or changes in the US producer price
Capital markets have also seen increased activity related
indices. In addition, the regulation of power distribution
to the financing of energy projects. As new projects require
and transmission projects is often more transparent and
more significant investments and a longer repayment
predictable than power generation. If Mexico creates
period, the size of financing has to be larger and the tenure
attractive conditions for new investment in its power
longer to more closely match the cash flow generation of
market through reform and by opening up to competition
the project with the repayment of the debt. Banks have to
from the private sector, it could become as competitive
comply with regulatory requirements that make larger and
as Chile, Colombia and other open markets. Previously,
longer-term financing more expensive and challenging.
investors were not interested in CFE because it would
Meanwhile, the advantage capital markets offer is that
mean investing directly in the state, so as an asset class
investors are much more comfortable with longer tenures
CFE was not very different from Pemex or the Estados
and the larger the size of the offering the more liquidity it
Unidos Mexicanos.
potentially offers. Q: What investment trends does Milbank expect for the Q: How can Mexico reduce the added costs for financing
Mexican market in the next two years?
in renewable projects?
A: We believe that in addition to continued investing in and
A: Mexico’s goal is for large energy consumers to source
financing of oil and gas midstream assets, transmission
about 5 percent of their energy needs from renewable
and distribution are the two main areas that will attract
sources by 2018. The challenge for the new regulations
more investment. CFE has focused mostly on generation,
is to raise the minimum consumption quota for large off-
so there is a much greater business opportunity in these
takers. That way, the market creates a captive demand
other two segments. Resources will come provided that the
that forces the country to invest in the necessary
regulations create adequate conditions to facilitate financing
infrastructure. This eventually creates more financing
alternatives, such as transparency in the tariff regime.
alternatives and increases the likelihood of banks and other financial players participating in the financing of
Milbank is a leading international law firm that has helped shape
these projects. Right now, the initial investment costs for
the legal landscape since its founding in New York City in 1866. The
renewable projects are extremely high, particularly for
company has one of the largest and most experienced Renewable
wind power. The resources are not continuous and they
Energy Practices.
189
San Pedro Dome geothermal power plant, Nayarit, Grupo Dragรณn
190
INSIGHT
METHODOLOGY HELPS MONETIZE ENVIRONMENTAL ASSETS BERNARDITA DÍAZ Chief Project Officer of Sustrend
The environmental benefits of investing in clean and
the disposal of useful materials in urban landfills and
efficient energy technologies are known to industry
uses 50 percent less energy than producing a new tire,
players but the economic benefits are not always crystal
therefore reducing carbon emissions and waste. “We
clear. The potential reduction in energy costs from these
adapted the CDM methodology of plastic recycling to
technologies is often seen as the only economic benefit
the retreading process with the objective of recording its
but there are other ways in which companies can capitalize.
environmental impact reduction, allowing us to translate
They only need to follow the correct protocols, according
it into financial assets. Now, we are in the process of
to Sustrend, a Chilean environmental consultancy.
certifying our guidelines in Japan since it is impossible to monetize environmental assets and participate in
The firm saw a business opportunity in helping companies
voluntary carbon markets without a certification by a
capitalize on their environmental assets, which are all those
recognized international entity,” explains Díaz.
investments and properties with the potential to decrease a company’s environmental impact while contributing to the
To determine the number of assets that can participate in
further adoption of sustainable processes and technologies.
these programs, Sustrend makes use of the International Financing Reporting Standards (IFRS), which are a
“Our company can evaluate these environmental assets and
standardized way to describe the financial performance of
monetize them through already established guidelines, or
an entity and which enjoys broad international acceptance.
design a specific methodology according to international
“IFRS is a useful tool for Latin American countries willing
standards,” says Bernardita Díaz, Chief Project Officer
to optimize their processes and make them transparent.
of Sustrend. “The UN has developed a wide range of
IFRS requires players to declare their environmental
technical methodologies to account for environmental
assets and allows companies to obtain preferential interest
emissions
rates from international banks that are in line with OECD
reductions. For those processes that are not on the UN
standards, such as KfW or HSBC. These usually provide
list, a new methodology must be designed, adapting the
rates to sustainable projects that are 2 percent lower than
guidelines already established for a similar activity. Other
for projects with a negative environmental impact. The
methodologies can be found in international voluntary
final rates, however, depend on the sector and the policies
carbon markets, such as the Carbon Trade Exchange (CTX),
of the bank,” she says.
assets in different sectors, including CO2
and most are based on the Clean Development Mechanism (CDM), which is a mandatory requirement for becoming a
All industrial processes involving recycling or revaluation
recognized market. We also use these methodologies to
of materials are candidates to participate in programs
monetize our clients’ environmental assets.”
for the monetization of environmental assets. Sustrend also looks to point companies implementing energy-
Díaz see an important opportunity for Mexican companies
efficiency
to monetize environmental assets through the carbon
creating a methodology, allowing them to monetize their
tax, a mechanism that was introduced to Mexico in 2014
environmental impact reductions. Renewable energy
with an initial price of US$5 per ton of CO2e. But to get
projects, for instance, produce environmental assets,
access to these resources, companies need to record their
a fact that is usually ignored by project developers
emissions reductions through a certified methodology,
and investors. “Our goal is to show renewable energy
such as those developed by the CDM.
companies that including environmental assets in their
programs
or
new
technologies
toward
financial status can represent different economic benefits, Sustrend’s first successful project was for the Chilean tire
such as a reduction in the interest rates offered by
industry, specifically retreading, a process that prevents
international banks,” Díaz says.
191
Building the foundations of Parque Eรณlico de Coahuila, Coahuila, CODISA CORP Energy
PROJECT DEVELOPMENT
8
Is it a new natural gas pipeline, a utility-scale solar development in Sonora or new wind power opportunities in windy Tehuantepec Isthmus? Does it need rightof-way permits across state lines? As the growing need for energy becomes a reality in Mexico’s heavily industrially oriented economy, the companies that build, design and operate energy solutions are collaborating with large equipment suppliers, engineering experts and consumers to better harness the possibilities offered by the liberalized industry and put shovels to the ground all over the country.
Lingering concerns about regulations regarding environmental and social impact assessments are discussed in this chapter, as well as the complex issue of the ejido communal land legal regime that brings unique challenges to developers and their advisers in Mexico. Also featured are the companies that offer infrastructure solutions, from temporary housing to vital project insurance, and those which offer consultancy services to navigate the still new legal environment of the country.
193
CHAPTER 8: PROJECT DEVELOPMENT 196
ANALYSIS: Infrastructure Opportunities Finally Unfold
197
INSIGHT: Vicente Tamés, Duro Felguera
198
VIEW FROM THE TOP: Alicia Barnetche, Kepler Constructora
199
VIEW FROM THE TOP: André Bosman, Wärtsilä
200
PROJECT SPOTLIGHT: Huinala FlexycicleTM Power Plant
202
VIEW FROM THE TOP: Giacomo Bonfanti, GDI
203
PROFILE: Amos Guillén, Global Energy Services Mexico
204
VIEW FROM THE TOP: Ana Horta, CISA Energía
205
PROJECT SPOTLIGHT: Alameda Hydroelectric Power Plant
206
VIEW FROM THE TOP: Sergio Martínez, MASE Energy
207
VIEW FROM THE TOP: Gerardo Hiriart, Grupo ENAL
208
PROJECT SPOTLIGHT: Nayarit’s San Pedro Dome
210
INSIGHT: Patricia Tatto, ATA Renewables
211
VIEW FROM THE TOP: Andrew Auns, Williams Scotsman
212
VIEW FROM THE TOP: David Atherton, Aon Risk Solutions
Peter Jakszentis, Munich RE
214
ROUNDTABLE: How Important are Social Impact Assessments And Community Consultations?
216
VIEW FROM THE TOP: Alfonso Caso, ANAF Energy
218
PROJECT SPOTLIGHT: Tamazunchale - El Sauz Pipeline
220
INSIGHT: Jaime Martínez, ERM
221
INSIGHT: Fabián Casaubón, Overflod Social
195
ANALYSIS
INFRASTRUCTURE OPPORTUNITIES FINALLY UNFOLD As in most emerging countries, Mexico’s economic
next three years, with variable dates depending if they
landscape is in constant transformation. In the energy
won the first or the second edition. Other projects were
sector, new projects are changing the country both below
constructed for self-supply purposes, mainly sponsored
and above the surface. More kilometers of natural gas
by large energy consumers in the manufacturing and
pipelines are running through the country, supporting
mining sectors. Construction companies, equipment
the growing demand from the manufacturing sector and
suppliers, consultancies, legal firms, project developers
power producers. Above the ground, new transmission
and all others involved in the infrastructure sector are
lines cross Mexico’s blue skies while more and more
thrilled about these new opportunities. But previous
renewable facilities are popping up, driven by the
experience shows that there are other stakeholders
availability of local natural resources.
– often overlooked in the past – that must be brought on board to ensure projects are successful: local
196
The approval of the Energy Reform slowed down
communities.
infrastructure development in its initial stage as the incomplete regulatory framework sparked uncertainty
“The strategic location of power generation projects
among private companies and investors. But now that the
is a crucial element for reducing costs and enhancing
implementation process is much more advanced it has
competitiveness,” says Alfonso Caso, Director General
brought the opposite effect, accelerating investments in
of ANAF Energy. “A lot of regions with attractive energy
energy infrastructure projects.
resources are located close to indigenous or rural communities, highlighting the importance of establishing
“The first change we saw after the Energy Reform was
communication channels between local communities
an increase in the number of new oil and gas projects
and project developers to agree the compensation the
and investment opportunities,” says Carlos Albarracín,
community will receive. Complying with the construction
Partner at Milbank. “Before the Energy Reform, there
schedule of the winning projects and having the support
were one or two pipeline projects every year whereas
of the different stakeholders involved will be key elements
now there are five or six tenders per new project in a
for the Reform’s success.”
single year. CFE’s restructuring is also welcomed by the market because it is likely to create more opportunities
Project attrition due to social rejection put Mexico under
to invest in and finance a whole host of power projects,
international scrutiny, but cases such as the Tamazunchale-
ranging from traditional power generation to distribution
El Sauz pipeline demonstrate that it is in fact possible to
and transmission,” says Albarracín.
complete profitable energy infrastructure projects on time with the proper environmental and social strategies
In the case of natural gas pipelines, the publication of
in place. Dealing with ejidos, numerous world visions
the National Expansion Plan 2015-2019 in October 2015
and languages in a country with some of the broadest
reignited companies’ interest in participating in the
biodiversity in the world is complex but companies
construction of Mexico’s natural gas transportation and
operating in Mexico are rising to the occasion, with the
distribution system, reassured by the publication of
help of specialized consultancies in anthropological
the Public Policy for the Implementation for a Natural
and environmental matters. They are demonstrating
Gas Market in mid-2016. By the end of this year, the
to international investors that Mexico’s cultural and
government had already committed 78 percent of the
environmental diversity is not something to fear.
10,000km planned for 2019, of which 2,386km are already in operation. Together, the pipelines operating and under
Companies in the infrastructure sector are used to
construction represent an investment of US$12 billion in
preparing ahead due to the large-scale nature of the
new energy infrastructure.
projects and the capital investments required. 2015 and 2016 were the tip of the iceberg in terms of infrastructure
MAIN DRIVERS
development opportunities. For those companies that
CFE’s public tenders for combined-cycle plants and
diversified their services into the energy sector, especially
CENACE’s long-term power auctions were the main
clean power plants, transmission assets and natural
drivers in the case of power generation projects. The
gas pipelines, the next three years will be particularly
auction winners committed to starting operations in the
interesting.
INSIGHT
RENEWABLE MOMENTUM SPARKS INTEREST VICENTE TAMÉS Regional Sales Manager at Duro Felguera
Greater prospects in the energy segment are not only
plans to focus purely on the construction stages, which
attracting new companies but also awakening leading
is the company’s core business. Natural gas-powered
firms already here. Top tier Spanish company Duro
projects will remain an important element in its strategy,
Felguera is among those that, after a period of slow
especially combined-cycle plants and cogeneration
growth, is hungry to grab its piece of the burgeoning
projects developed under different schemes.
197
potential. “After taking a low-profile approach we are working on growing our business in the country by
One area Duro Felguera has not been deeply involved
bringing more resources and taking a more aggressive
in is the electricity transmission and distribution sector.
stance,” says the company’s Regional Sales Manager,
In Tamés’ view, the construction of substations is not
Vicente Tamés. “We expect to be involved in more
as specialized as that of combined-cycle plants, which
projects in the power sector, as well as in the oil and
tends to discourage the EPC company from participating
gas industry.”
in tenders. “The low level of technical sophistication required makes costs the defining factor when choosing
Duro Felguera began operating in Mexico in the 1970s. It
a proposal, further complicating the situation for
got involved in infrastructure projects in the 1990s and
companies participating in open tenders. For these
enjoyed its most successful period in Mexico’s energy
reasons, the idea of developing electricity transmission
industry during the following decade. “We developed 13
and distribution infrastructure is attractive to us when it
combined and simple cycle power generation projects
is included in a power generation project. For instance,
for CFE, our main client, and private companies between
when a client asks us to complement a combined cycle
1998-2004,” says Tamés.
power plant with a substation and transmission lines.”
The company slowed its Mexican activities around 2005
The
to capitalize on the popularity that combined-cycle power
alternating current substations. “In Mexico there is talk
plants were experiencing in Spain. “Although we have
about the potential construction of a direct current
experienced periods of sluggish activity in Mexico, we
transmission line, also known as an electric bipole, an
have never stopped working in this country and we strive
area in which few companies have sufficient expertise. If
to maintain our relationship with the companies operating
this materializes, we would be interested in participating
in this market by developing smaller projects,” Tamés says.
in partnership with the technology provider,” Tamés
company
also
has
experience
in
developing
says. Previously, the company has won several contracts Now that renewable energies are gaining momentum in
with private clients for the development of cogeneration
Mexico, Duro Felguera is assessing different strategies
projects including a 39MW power plant for Biopappel
to capitalize on new opportunities. “At some point
powered with General Electric turbines and a 36MW
we were considering participating in the wind power
cogeneration plant for Kaltex Fibers in Altamira, which
industry by summiting proposals under the old Open
uses cutting-edge SGT-750 turbines from Siemens. In
Season scheme and we even analyzed the possibility of
2015, CFE tendered seven combined cycle plants. Duro
investing in our own wind farm,” Tamés says. Although
Felguera participated in several including the Empalme
he sees great potential in the mini-hydro segment, the
I, Escobedo and Topolobambo projects, finally winning
required paperwork has discouraged the company from
the contract for Empalme II, a 792MW combined
participating in the sector. Likewise, it stays away from
cycle power plant in Sonora that will be developed
large-scale hydroelectrics due to the civil works those
in partnership with Elecnor. The company also is
entail. But it is eager to participate in geothermal and
developing an 18MW cogeneration plant for Scribe, a
solar energy projects and Tamés says Duro Felguera
Bio-PAPPEL Group company.
VIEW FROM THE TOP
PIPELINES TO FEED PROJECT DEVELOPMENT ALICIA BARNETCHE President of Kepler Constructora
198
Q: Where do you see the greatest potential for investing
A: We did not have letters of credit in the past because
in energy infrastructure?
we mainly work with our own financial resources. This
A: The government’s plan to expand the national pipeline
situation was challenging for some projects in which we
network will create many opportunities for industrial growth.
required additional credit. This was the case for instance
Having more pipelines will also allow the construction of
with a project we developed in the Dominican Republic
small-scale power generation plants across the country,
in 2010. We finally managed to get our first credit line in
supplying electricity to remote or small towns. This will
the history of Kepler Constructora for this project but it
enhance development given the cost-effectiveness of
was challenging because we had no credit history. Banks
these technologies. Fostering renewable energy is also
have increased their requirements for providing lines of
indispensable, providing great opportunities for the Mexican
credit to construction companies, which is understandable
energy industry. Given Mexico’s great natural resources such as
because it is a risky sector but it makes it difficult to
wind and solar, the potential for sustainable power generation
achieve growth. We have overcome this challenge thanks
is enormous. Biomass power generation is also interesting as
to our strong reputation that has permitted us to earn the
it would serve a double purpose: the large amount of residue
trust of insurance and financial companies.
generated in the country would be used and it would cover power demand in a cheaper and cleaner way.
Q:
How
do
you
prevent
corruption
and
ensure
transparency in the development of projects? Q: How much of Kepler Constructora’s business is devoted
A: Our main and only strategy is corporate ethics. The
to energy infrastructure projects?
industry knows that Kepler does not offer, give or take any
A: We cover almost all construction disciplines, from civil
resource or asset beyond the strictly legal. The company
engineering to commissioning and startup and we have
relies on its reputation and works every day to maintain it.
built over 30 power generation plants in Mexico and other
Having a solid reputation does not only give peace of mind
regions. Kepler’s structure is horizontal, which allows for
to the company itself but also to vendors, sub-contractors,
quick response to clients. We comply with international
clients, developers and every other player we deal with.
certifications including the “S” and “U” of the American Society of Mechanical Engineers (ASME) certifications
Q: What is Kepler’s strategy for 2017 to seize the
for the on-site design and construction of high-pressure
opportunities the energy industry is offering?
containers. Our supervisors are Occupation Hazard and
A: Kepler Constructora has 41 years with a solid reputation
Health Administration (OSHA) certified and we have
and positive feedback from its clients. Engineering
held the ISO 9000:2008 for quality for the last 14 years.
companies seeking to develop turnkey projects are our
Kepler has 31 national and international construction and
main clients, since we provide all services in construction
quality awards, which indicate our international prestige.
including project procurement. Preparing for opportunities
We have developed specific techniques and know-how
in the electric sector requires two or three years planning
over time that have allowed us to become one of the best
for construction companies so we have been working on
construction companies in the country.
it for a while already. We have a number of combinedcycle power generation plants in the pipeline for 2017, but
Q: What is the major challenge you have faced to become
many of our clients as well as other players are waiting
one of the leading construction companies in the sector?
for the regulation to be fully developed before making any major investment. We have identified a large number
Kepler Constructora is a 100-percent Mexican owned construction
of companies approaching Mexico's energy sector, such
company founded in 1975. In the energy sector it has participated in the
as pipeline builders and mining and power generation
construction of 10.8GW power plants for public and private customers.
companies. The world’s eyes are set on Mexico.
VIEW FROM THE TOP
FLEXIBILITY KEY FOR COMPETITIVENESS ANDRÉ BOSMAN Director of Service Unit Caribbean, Central America & Mexico at Wärtsilä
Q: How have the oil and gas and electricity markets changed
and resources. As for the technology, we can attain very
since you entered the country in 2004?
high efficiency and availability, which makes it cheaper
A: We are witnessing a deep transformation in both sectors.
and more competitive than other products in the market.
They are now more accessible so it is easier for us to do
The flexibility of the response time is another key factor.
business here. Our main focus traditionally has been the oil
Many companies underestimate a technology’s capability
and gas industry, being a supplier for PEMEX, but we have
to adapt to local circumstances but this is also crucial.
also worked with independent power producers (IPPs) in the
Operations do not always happen at 24°C at sea level
electricity sector. We are seeing a diversification of producers
conditions and the equipment needs to be adaptable to
of base load energy as well as a more secure market where
these situations.
energy prices are increasingly more competitive. Q: What opportunities have you seen with the liberalization Our company now has several interesting projects in the
of the market and new players coming in?
pipeline but I would like to highlight Huinala in Monterrey,
A: We can now work together with our clients to develop
a 140MW flexicycle power plant running on gas that has
technological solutions. The challenge in the oil and gas
delivered outstanding efficiency and availability numbers.
sector is that all companies are trying to reinvent themselves
The Huinala plant started operations in the second quarter
while looking ahead to prepare for the industry’s future
of 2016 and we are enthusiastic about the efficiency and
needs. We are working with our clients to develop optimal
availability levels we are getting there. It is definitely one of
solutions to overcome this difficult period and increase
our flagship projects in terms of technology and successful
operational
collaboration with local staff.
solutions for times when production needs to be cut due to
efficiency.
This
also
includes
developing
low market demand. Q: In which segments do you expect further growth given market conditions?
Q: What potential have you identified for distributed
A: Power producers. There is enough demand in the
generation development in Mexico?
market for new technologies such as the dual and tri-fuel
A: Distributed generation has huge potential in Mexico.
technologies we offer. Our engines can quickly shift from
We see a strong appetite for flexible and reliable power
one fuel to another, from heavy fuel to gas. That capability
generation but at competitive prices in both CAPEX and
allows companies to adapt their operations to current fuel
OPEX. We offer several solutions that take the best aspects
prices and to choose the cheapest option. Fuel flexibility
from solar and wind energy technologies to comply with
is particularly important in this time of insecurity because
these requirements. Mexico’s regional characteristics are
the future price of fuel is uncertain in Mexico. That is one
helpful because factors like temperature and altitude have an
of the key added values that our technology offers, maybe
enormous impact on an installation’s efficiency. The flexibility
our biggest advantage. Single-fuel power plants have no
of our solutions allows companies to respond more quickly
other option than to pay the market price, even if it is too
to demand changes in the system. We use integral solutions
expensive. This is the main reason why most of our clients
for this purpose, integrating many fast-response engines that
choose the dual-fuel option.
can respond to a system’s changes in milliseconds. Flexibility is one of the key characteristics that power generators look
Q: What are the main advantages of multi-fuel engines
for in new technologies.
compared to traditional engines? A: Besides engines, we also have multi-fuel turbines. The
Wärtsilä is a Finnish corporation that manufactures and provides
biggest advantage is having EPC capabilities to build
services to power sources and other equipment in the marine and
any power plant at any location with reasonable terms
energy markets.
199
PROJECT SPOTLIGHT
200
HUINALA FLEXYCICLETM POWER PLANT Wärtsilä has delivered over 4,700 power plants ranging from 10-60MW in 170 countries. The most cost-effective of these plants is located in Huinala, a municipality near Monterrey, using the world’s most efficient reciprocatingengine power plant. The Huinala plant was completed in 2016 and demonstrates many of the requirements expected of future power generation. Highly flexible, reliable and modular, the asset uses advanced technology to maintain efficiency even through variable operational modes and environmental conditions. It generates about 140MW with seven gas engines and one steam turbine. A 10-year O&M agreement is in place that helps optimize performance, maximize life span and lifecycle costs, all in a safe, reliable and environmentally sustainable way. What makes the plant truly unique, however, is the solution behind its success: FlexicycleTM, a technology developed by Wärtsilä that combines two key characteristics: flexibility and combined cycle. Flexibility is a significant characteristic that is missing in nearly all the existing power-generation facilities in the world. Most existing power plants take hours from startup to full load and even simple cycle gas turbines, while relatively fast, cannot be started immediately after being turned down. Wärtsilä’s FlexicycleTM plants by contrast can start and stop as many times as required, similar to a modern car that has a start-stop function to turn off the engine when stopped at a traffic light. This is made possible because these plants are powered by reciprocating engines. Almost every country is adding more wind and solar power into their systems to lower emissions and improve costs and Mexico is not an exception. But neither of these targets is possible if a coal plant or a large traditional combined cycle has to be kept running at low load just to be ready to pick up when the wind does not blow or the sun does not shine. FlexicycleTM is the ideal solution to keep emissions and costs down. It efficiently generates electricity from natural gas when needed, thanks to its fast startup combined cycle technology, and it can operate on low load or stop completely whenever needed, making it an ideal match for renewable energy. This flexibility enables important cost savings while generating additional revenues for power producers.
201
VIEW FROM THE TOP
PIPELINES EXPERTISE AT THE SERVICE OF RENEWABLES GIACOMO BONFANTI Commercial Director of GDI
202
Q: How did the company branch into renewable energy
Q: How have the energy market changes influenced GDI’s
from the mining and oil and gas sectors?
evolution?
A: We have experience in diverse sectors and throughout
A: During the past six years, we have seen greater
this time it has always been necessary to adapt to the
investment in infrastructure projects, which has reduced
country’s context. For the past two years, we have studied
the need to finance them through government debt. We
the intricacies of renewable energy projects, capitalizing
have decided to transform into a contractor capable of
on our experience in other sectors. For instance, our
offering turnkey projects, which can guarantee owners the
work in the mining sector involved the mobilization of
protection of their investment costs and infrastructure. This
large volumes of soil in a short period and wind farms
strategy has some risks but we have positioned ourselves
require similar processes. Mining companies also require
as constructors capable of handling complex projects from
the construction of dams to manage water and mineral
engineering to construction, giving us an advantage over
residues. These dams require a complex construction
other developers. We have built over 2,500km of pipelines
process because they must be adapted to existing
and we are capitalizing on this experience. The key to our
environmental regulations. Our objective is to capitalize
growth was a comprehensive knowledge of our capabilities
on this knowledge and begin building hydroelectric dams.
and a clear identification of our weaknesses, looking for
We have also been using construction techniques that
strategic alliances with companies that can complement our
allow miners to work without damaging the environment
services. The future of renewable energies will require a clear
or bothering the local community. This technique is being
identification of the best players in every area and to establish
used in Switzerland and it can also be used in hydroelectric
partnerships to achieve the best results. GDI now handles
plants, mainly small hydropower facilities. Many of our
engineering, earthworks, civil works, mechanical works,
technologies can be repurposed for the renewable energy
logistics and supply services. We also offer community,
sector and we are prepared to enter the wind, solar and
permitting and environmental management services and we
hydraulic markets.
work to ensure the best possible results for our projects.
Q: How do you identify the technologies in which you
Q: What are the main risks that project developers face
need to invest?
in Mexico?
A:
Developing
requires
a
infrastructure
significant
for
investment
renewable in
energy
equipment.
A: The acquisition of sites can be problematic. The situation
In
is different for developers of wind or solar parks than for
comparison, the construction of a building requires less
developers of pipelines, the latter being more complex. It
specialized equipment and most of the investment goes
is necessary to fully align the interests of the federal and
to management. For that reason, many companies with
state governments with those of owners and contractors.
a focus on renewables prefer to use their equipment for
The Energy Reform is fairly new so many are unaware of its
similar projects all over the world. In our case, we decided
importance and necessity. It is common for these projects
to focus on Mexico and to do so it was necessary to
to be halted mid-project for one reason or another. It is
research different uses for the same equipment. For that
necessary to create awareness of their importance to gain
reason, whenever we have to invest in equipment we must
the support of local communities. We are developing several
think of what we will be doing for the next five years.
projects in 2017, including a pipeline in Bajio and another near the US border. We are waiting for new tenders in March
GDI is a 100 percent Mexican company providing specialized
and August for which we will offer our support for solar,
construction and infrastructure services. It has over 13 years’ experience
electric and small hydro projects. This sector moves at great
in pipelines, mining, drilling and blasting, site preparation and optical
speed so some players may bid for a tender and only look for
fibers, among others.
a developer if they win.
PROFILE
WIND LESSONS EASE TRANSITION TO SOLAR AMOS GUILLÉN Country Manager and Commercial Director of Global Energy Services Mexico
The global transition to sustainable energy production has
challenges in terms of social-related issues, which enabled
passed the point of no-return as companies increasingly
GES to expand its operations.
turn to renewables for their electricity supply. Knowing which way the wind was blowing, project developer Global
“Other important wind energy projects that we have
Energy Services (GES) dismantled its fossil fuels division
developed are Piedra Larga, Pedrera I and Pedrera II, all in
to concentrate on new opportunities to deploy clean
Oaxaca. Also, we participated in the development of the
energies in emerging markets like Mexico. GES is a leading
Eurus wind project in Oaxaca, which was highly relevant
international construction and services provider for the
for GES in 2009 due to its size. We have been involved
renewables segment. It has already established a solid
in all the projects that Enel Green Power, Gamesa and
presence in Mexico, having pioneered the development
Iberdrola have in the regions of La Ventosa and El Espinal
of wind farms in Oaxaca. It has also participated in
in Oaxaca. All our projects serve as a showcase for GES’
emblematic projects such as the construction of the
capabilities to negotiate commercially, discuss contractual
74MW wind farm Stypa Nayaá, one of developer Gamesa’s
details and successfully execute the project,” says Guillén.
first projects in the country. The experience acquired developing wind farms in Entering a new market can be a daunting task. GES
Oaxaca has also given GES the confidence to dive
says having the ability to adapt is the most important
into an unknown territory for the company in Mexico:
characteristic a company can have in this situation. “A
utility-scale solar projects. According to Guillén, the
company cannot change the way business is done in a
company was already planning to boost its presence
country so it has to adapt to the local culture to move
in the local solar sector before CENACE held the first
forward and GES understands that,” says Amos Guillén,
power auctions, so the remarkable results achieved by
Country Manager and Commercial Director of GES Mexico.
solar in the auctions were just an additional incentive
GES, with over 1,700 employees in 20 countries, has an
for GES to look at the sun. “The results of the long-term
extensive track record. In wind, it has provided BoP for
electricity auctions were extremely surprising, even for
over 12GW of capacity globally, 23.6GW assembly and
the winning companies,” Guillén says. “So far Mexico
11GW O&M. In Solar, it includes 430MW BoP/EPC and
holds a negligible number of utility-scale solar projects,
380MW O&M. In Mexico, the company has installed over
with just a pair of solar parks already constructed in
2GW in power plants, with 400MW under O&M contracts.
the north, making large-scale solar power a fairly new industry in the country. Wind energy, on the other hand,
The initial projects developed in a new region are usually
has 1GW of projects already installed and we have been
the most challenging, Guillén adds. “Our first renewable
actively participating and building a reputation among
energy projects were carried out in Oaxaca, which is a
the players in this industry. In solar energy we have to
highly complex region due to social conditions. At GES,
start from zero, like all other companies, but we will
we work with local talent, which helps us to adapt faster. In
benefit from the reputation that we have already built in
Oaxaca, we followed the same strategy, eventually learning
the wind industry,” he says.
how to deal with the region’s inherent challenges. In 2009, the wind industry was still in its infancy in Mexico, which
The aggressive prices bid by renewable energy companies
meant that all other players were going through similar
will be another challenge, Guillén says, because all players
challenges, including project developers such as ACCIONA
must now optimize their costs. “We want companies to
and Gamesa.” That experience, he says, gave the company
know the added value that GES can bring to their projects
the foundation it needed to develop successful renewable
by avoiding the risk of financial penalties associated with
energy projects, especially as other states presented fewer
contract defaults."
203
VIEW FROM THE TOP
CONCERNS EMERGE OVER NEW FRAMEWORK ANA HORTA Director of Project Development at CISA Energía
204
Q: How does CISA Energía see the energy market
peninsula network gets connected to the national grid, we
maturing in Mexico?
could offer energy supply to a wider number of customers,
A: There is a lot of uncertainty here. The private sector will
which would make projects more attractive to us. As a
have a more active role in the energy generation system
construction company we have collaborated with other
due to the newly implemented auction process. However,
wind project developers to offer electrical infrastructure
energy generation projects have to adhere to the prices
engineering and construction. The most recent contract
agreed in those long-term auctions, which might affect
consisted of installing 47 wind turbines in La Rumorosa,
project development under other schemes. But we have
the first wind power project installed on Mexico’s border
identified advantages in the sector as we create synergies
that exports energy to the US.
with other project developers that are interested in improving the country’s energy infrastructure. We are also
We are also developing commercial solar projects in
witnessing an increase in expertise and qualified services
Baja California. Unfortunately, CFE is entering this same
in the Mexican energy sector, which will help developers
market with an unfair advantage because it has a national
improve the quality of their projects and to optimize their
database of all electricity consumers. The state-owned
time frames.
company also enjoys a subsidized installed infrastructure and the fact that all participants in this market will depend
Q: How advanced is the company’s initiative to supply
on its net-metering system.
renewable energy to private consumers? A: We have seen a growing interest from different sectors
Q: What innovative technologies has the company
in investing in renewable energy in the past few months
adopted recently?
but we have also identified several concerns regarding
A: We designed a technology for hot weather locations,
the new regulatory framework. Our customers are
which is similar to what is used in Europe for indoor
particularly skeptical about the functioning of long-term
heating in cold weather regions. The process consists
PPAs, especially after the announcements of the natural
of perforating the soil to install an underground pipeline
gas infrastructure plan and the fixed price per megawatt-
system and a radiator in the space that needs to be
hour. In this landscape, renewable energy investors believe
heated. To warm the room, water is used as a heat
that it is a challenging market. Green investors are still
transfer fluid that absorbs the underground heat and
interested in promoting these technologies but they are
transfers it to the room’s air. Using this same principle,
concerned about future prices.
we designed a system that absorbs the air’s heat to release it underground, making it suitable for hot weather
Q: What are your perspectives on project development in
locations. The end user can save significant amounts of
Baja California?
energy on air conditioning and refrigeration using this
A: We are already developing a new wind farm in Baja
technology. In Mexicali, we ran a test using our system
California and we keep looking for strategic partners to
and achieved energy savings of 39 percent in comparison
expand our business in the region. We are also taking
to a house with simple air conditioning. We are trying
into account the current plans to connect Baja California
to promote this technology but the cost of perforating
to the national grid, particularly as there is great need
the soil remains a challenge, particularly in places with
for developing energy infrastructure in the region. If the
bedrock foundations. Therefore, this technology is only cost-effective now in places with high-energy costs
CISA Energía is a Tijuana-based EPC company with experience in wind
and soil that is easily perforated. We are researching an
energy projects on Mexico’s Pacific Coast. It also operates energy-
efficient and low-cost way to perforate the soil but we
efficiency projects.
have not yet succeeded.
PROJECT SPOTLIGHT
ALAMEDA HYDROELECTRIC POWER PLANT Located in Malinalco, State of Mexico, the Alameda
panel for each unit as well as corresponding relays,
Hydroelectric Power Plant originally started operations
metering
in February 1923, becoming the fourth hydroelectric
generation unit at the Alameda plant has a 2,800kW
facility to produce electricity in the country. The plant,
capacity with 600V tension, operating at 600 RPM
built by Siemens in 1912, had an initial capacity of 8.9MW
and 60-cycle frequency. The company is also installing
and its three units were originally operated by Canada-
communications systems to send voice, data and images
based Mexican Light and Power Company. In 1937, after
to CENACE’s facilities to keep statistical productivity
a decree made power generation and distribution public
records.
arrays,
switches
and
test
blocks.
Each
interest activities, CFE acquired control of the plant. The plant was recommissioned with the idea of eventually Years later it was mothballed because of flooding. The
reaching a generation capacity of 9MW. The SME union
rehabilitation of the facility began in May 2015 when
has promised between 12 and 14 percent lower energy
Generadora Fénix, a partnership between Portugal-based
costs than CFE with the operation of the 14 plants it
Mota-Engil and the SME electrical workers’ union, took
controls with Mota-Engil through Generadora Fénix under
over the plant from CFE. Extensive repairs to the three
a 30-year agreement with the government that put an
generating units, implementation of safety and control
end to a labor dispute. Alameda is the first of the facilities
systems, components maintenance and replacement, civil
to be refurbished. It required an initial investment of over
maintenance, intercommunication systems installation,
US$6 million.
water outlet and canal and substation maintenance were carried out and the historic facility roared back to life in
Mota-Engil, which controls 51 percent of Generadora
September 2016.
Fénix, has said the plants have a total potential installed capacity of 2GW. In 2015, the company said it was
The extensive refurbishing of the facility also included
developing an investment plan to duplicate the current
the installation of a Protection, Control and Measurement
installed capacity.
205
VIEW FROM THE TOP
CFE SPLIT TO HAVE ENORMOUS IMPACT SERGIO MARTÍNEZ CEO of MASE Energy
206
Q: How has MASE energy grown in the last few years
putting together a group of experts to create the regulations
considering the changes in regulations?
and is now in the process of taking the opinion of private
A: In Mexico the sustainability trend is rising, allowing us to
investors into account to make the Mexican electricity
grow in wind as well as in solar energy. The Energy Reform
market more appealing for investment.
benefited us wind park developers, where we have been participating as members of AMDEE, but we are still waiting
As expected for the early stages of any project this big,
for several advances. The authorities have not been very
CENACE and CRE have a larger workload than they
punctual with deadlines but that has allowed us to focus on
projected, resulting in longer wait times than expected, which
other markets.
complicates the process. I hope they help us developers better understand the processes and organization that must
Two years ago, we decided to enter the residential solar
be followed to move ahead with medium-sized projects of
market and we have installed over 500kW to date. It has been
around 30MW.
a slow process but at the same time it has been insightful and productive. We now manufacture our own panels and
The biggest challenge in Mexico’s is the grid because the
have achieved CFE’s Laboratory of Testing Equipment and
infrastructure is deficient. There are many bottlenecks that
Materials (LAPEM) certification, something very few have.
hinder the efficiency of sustainable generation and put us
We have opened offices in five different cities throughout
far below the objective Mexico wants to reach. The Ministry
Mexico and we have expansion plans for the US.
The
of Energy has done an outstanding job promoting a DC
company has two solar projects, at 30MW and 10MW, and
transmission line through southeast Mexico. That being said,
our wind energy division has a 50MW project in Zacatecas
at the locations where we have more renewable resources,
and a 30MW project in San Luis Potosi.
the transmission is insufficient and the capacity of the substations is very bad. We need to have more distribution
Q: What impact will the split of CFE have on business?
potential in Oaxaca and get to Chiapas.
A: We think it could benefit the country enormously. It will improve distribution, generation, regulation and power
Q: What is your strategy to stand out as a national company?
variations. As an electricity-generating entity, CFE will be in
A: We are providing innovative schemes for our customers
position to compete with private companies in many ways,
such as leasing, which enjoys high demand in the residential
one of them being CFE’s solar unit, where MASE could play
sector and we hope to sell this energy for a good price. We
an important role due to our geographical position and the
will also continue doing wind parks and our objective is to
size and experience of our company. Such competition will
develop around two parks per year. Right now we have four
most likely bring down the cost of producing and distributing
wind parks in development and we want to maintain this
energy and help us as integrators obtain better knowledge
growth rate in the near future.
of the market, which is key for our business line. We do not try to copy or steal from other companies. For Q: What conditions do you require from the regulatory
us success is a matter of looking for something new. It is not
framework to ensure projects succeed?
about replicating but knowing what to do and using our local
A: I believe the next steps would be to fine tune the
insight and knowledge of the country to do it differently. We
regulations and reduce the time frames. CFE did a great job
always have to look for added value for our clients instead of just focusing on how to save more money and increase
MASE Energy is a 100-percent Mexican company specialized in the
profits. The fact that we always try to improve the quality of
development of sustainable energy projects such as wind farms and
our services is the most significant and valuable trademark
solar parks.
that distinguishes us as a company.
VIEW FROM THE TOP
RISKS AND OPPORTUNITIES IN GEOTHERMAL ENERGY GERARDO HIRIART Director General of Grupo ENAL
Q: What role will geothermal energy play in the new
Q: How does ENAL’s in-house technology improve the
landscape and the country’s clean energy goals?
company’s capabilities for developing geothermal power
A: Geothermal energy will play an important role because
plants?
it is the only renewable source that is totally independent
A: We have learned a lot throughout the years about
of weather and oil prices. Geothermal is the most constant
geothermal energy, which is something not all companies
among all renewable sources and it is easy to dispatch,
understand. The knowledge and experience we have
which increases its competitiveness. The intermittency of
acquired drove us to develop our own software. During
other renewables such as solar or wind increases the need
the drilling process, we need to evaluate the well’s
for storage capacity, raising project costs and therefore
condition, so we developed technology to enhance
energy prices. Geothermal can also offer steady capacity,
productivity by means of high-velocity water jets. We have
adding value to a project’s competitiveness. The problem
made contributions to improve drilling and exploration
now is the lack of fields ready to develop as there are no
technology, lowering exploration costs and increasing the
advanced geothermal exploration projects besides those
success rate, which is part of Grupo ENAL’s added value
from CFE. Geothermal projects take longer than solar or
to the industry.
wind energy to analyze and select a location and it also takes longer to build the plant. Financing geothermal
Q: What makes geothermal projects attractive for Mexico?
projects is also a big challenge, particularly when
A: There are many places in the country offering high
compared with other renewables.
geothermal potential under different conditions, some more accessible and attractive than others. Mexico is
Q: How can the Fund for Risk Insurance of Geothermal
a pioneer in geothermal development, always placing
Exploration ease financing for geothermal projects?
among the top five countries with the highest geothermal
A: The fund, which is managed by the development bank
capacity, but a lot of potential remains unexploited. To
NAFINSA, is the only solution at the moment. But it is
boost geothermal development in Mexico, we need to
not that easy to obtain. Geothermal project developers
acknowledge that it is different from other technologies,
usually have to pay for all the preliminary studies, which
not only regarding costs but in several aspects. We would
can add up to US$1 million and are not financed by banks.
like to have a special auction for geothermal projects
We can use the fund for the construction of wells but we
where project proposals could compete on a level playing
need to cover 30 percent of the total costs upfront. This
field. Mexico has around 2,000 geothermal experts and a
mechanism represents a huge risk for a small company like
developed local value chain, which must be considered
us because that 30 percent can be lost if the exploration
in the selection of technologies for the country’s future
stage is unsuccessful.
energy mix. Local content is one of geothermal’s strongest points but it is often overlooked because the
For the same reason it is hard to find private investors
government favors cheaper technology even if all the
willing to share the risk. Geothermal projects always run
components are imported. Geothermal energy is also at
the risk of finding different conditions at the bottom
a disadvantage against other technologies participating
of an exploratory well from what was projected in the
in the auctions because CFE gives under three years to
preliminary analysis. This situation differs from solar or
start operations while a geothermal development usually
wind energy projects where the failure margin is small.
takes four or five years.
We do get loans and insurance for the construction of large wells in which we pay a premium and are protected
Grupo ENAL is a partnership formed by specialists from diverse
against project failure. This mechanism partially helps
engineering backgrounds focused on the development of geothermal
project developers.
energy projects.
207
PROJECT SPOTLIGHT
208
NAYARIT’S SAN PEDRO DOME Sometimes, it is the harder road that brings the best results. Grupo Dragón embarked on its ambitious plans to build a geothermal power plant in Mexico before the new regulatory landscape reshaped the market. There were no clear processes in place for its development but the group went ahead and its San Pedro Dome power plant now contributes both to the power grid and the community. The San Pedro Dome is a 25MW geothermal power plant in San Pedro Lagunillas, Nayarit. The company started exploring the field in November 2010. By 2014, it had drilled and evaluated five exploratory wells and began building transmission lines, substations and generating units. It started commercial operations in 2015. But the road was not always easy. By 2011, when Grupo Dragón started drilling for the Dome’s first well, there was no regulatory framework to capitalize on the vast potential of geothermal energy in the country. As a private entity, the processes needed to develop the project were unclear. Grupo Dragón forged the path with this project. The San Pedro Dome was developed under the Public Electricity Service Law with a self-supply arrangement and a 52MW power-generation concession. The plant’s estimated power generation is equivalent to the average annual usage of over 133,000 Mexican households. Among the off-takers are national and international industrial users, commercial users and schools. These partners not only reduce their electricity costs significantly but also actively contribute to the reduction of GHG emissions. From the outset, Grupo Dragón reached out to the surrounding community and built a close relationship, which has been a key element in its success. The cooperation has resulted in significant economic and social benefits for the area. The continuous influx of exploration,
construction
and
maintenance
work
is
an important source of employment for the adjacent population. Many of the components used in the project, such as pipelines, pumps, motors, electric equipment and sensors, are also built in Mexico, boosting job creation and economic development not only locally but across the country. Beyond the economic and environmental benefits of geothermal energy, there is the added value of having it in the country’s power matrix. As a result of not being dependent on hydrocarbon imports and the uncertainty of prices associated with that, geothermal increases a country’s energy security.
209
INSIGHT
INDEPENDENT ADVICE KEY TO BANKABILITY PATRICIA TATTO Country Manager of ATA Renewables
210
Every energy project is expected to meet goals and
Banks tend to hire us because they need our expertise as
requirements but there is one aspect that all, no matter
engineers either during the process of buying an asset or
the technology, must have: bankability. Developers,
in regards to a project they already own. We help them to
investors and energy companies need to pay attention to
reduce risks in their investments,” Tatto adds.
detail to ensure projects are worth the time and money they are investing. Considering the significant resources
ATA Renewables also has wide experience doing due-
needed for energy infrastructure projects, expert advisers
diligence for mergers and acquisitions, but Tatto says
can be a difference-maker.
these kinds of deals have been slow to materialize as a result of the changing market environment. “Banks
“Independent engineering services are crucial to the initial
are not comfortable doing these sorts of transactions
development of a project,” says Patricia Tatto, Country
because the regulation is taking a while to resolve and it
Manager of ATA Renewables, a Spanish leader in technical
is not clear how the market will pan out. They are taking
due diligence for M&A and non-recourse project finance.
slow steps toward financing. Some of them are waiting for good projects to hit the market before becoming involved
Tatto sees Mexico, together with the Middle East and North
in these deals. “
African regions, as one of the fastest growing markets for companies like ATA Renewables, which started 12 years
Banks are also changing their yardsticks in line with the
ago, helping energy project developers in Spain gain
new landscape, which is also causing uncertainty. “We
bankability. “In Mexico we do development, construction
have noticed bank criteria changing and at this stage we
and operation. We have participated successfully in the
are uncertain how this is going to unfold,” says Tatto. “I
auction processes as an independent expert — perito
can say that without a PPA structure, it will be difficult to
independiente — and adviser for companies that have
receive any financing. It is a good window of opportunity
won and will build solar and wind projects,” she says.
to create new models. Companies just need to be
“We estimated plant production and predicted how
creative.”
many megawatt-hours a certain project can provide. This estimation was then used in the bidding offer. As
There is also a greater number of vertically-integrated
technical adviser, we also help with the entire process,
companies entering Mexico, such as EPCs that bring their
which includes filling out documentation that needs to be
own funds to support their company and their projects.
presented to CENACE.”
This is an emerging strategy in the market because EPCs are seeing new opportunities and are trying to support
ATA Renewables is a lean, independent renewable
their own business, Tatto says.
energy group with more than 17GW of expertise in projects worldwide. It provides engineering, advisory and
ATA Renewables remains optimistic about the future of the
certification services for renewable energy, especially
Mexican energy sector and the role the company will play
solar and wind.
in this new market. “We were very surprised and satisfied with the results of the auctions,” says Tatto. “As a main
The company believes there is much more to come in
player in the renewable energy industry, ATA Renewables
Mexico. “We believe that Mexico is capable of building
is certain that Mexico has many opportunities for business
many plants and will be the connection to Central
diversification. We now have 11 projects to support and
America,” Tatto says. “We mostly serve as advisers for
eventually our business will be on the rise thanks to new
banks, developers and sponsors. We have been working
industrial applications. We also look forward to advising
with Santander as technical advisers for nearly three years.
governments or governmental institutions such as CFE.”
VIEW FROM THE TOP
REMOTE LOCATIONS REQUIRE UNIQUE SOLUTIONS ANDREW AUNS Vice-President and General Manager of Williams Scotsman
Q: What makes modular solutions more attractive than
A: What we have seen typically in Mexico is that the
traditional options for Mexican developers?
project’s employees stay in hotels, rental houses in nearby
A: Modular solutions are still relatively new in Mexico but
towns or even outside the project’s geographical scope.
more companies are embracing them because construction
This is why our purpose is to create safe, comfortable
timelines are short and penalties for infringing them are
and quality space solutions that give companies the
stiff. We also are always developing newer products such
opportunity to improve the efficiency and productivity
as our ASFlex line, which was developed in Europe and
of their workforce. We keep in mind the needs of our
consists of 20 steel panelized boxes. These can be used
customers so we work together to get the best solution
for buildings up to three levels high.
on time and on budget. We absolutely believe that having workers in one place where they are safe, feel well-rested
Q: What challenges have you identified in the power
and avoid long commutes, improves their usual activities
sector that could be addressed with modular systems?
considerably, resulting in the successful completion of
A: The remoteness of the locations is the biggest challenge
the project.
in the power industry. Some of the energy projects we have been working on still need infrastructure built off
Q: How do you adapt your products to the different
the main highways to get to the construction site. We
conditions found in the country?
have had some wind farms where part of the scope of
A: Our solutions come 100 percent pre-manufactured, a bit
the project was to build a road to get to the site. Williams
of installation work is required onsite but that is the extent
Scotsman’s advantage is that we have different types of
of the labor needed. Everything comes pre-wired, pre-
products, some of our lines are highly versatile and can
installed and air-conditioned. We can handle hot and cold
get to hard places.
weather. We have used the product across the country and tested it against the variety of weather conditions that
Q: What added value does Williams Scotsman offer to
exist in Mexico, from the south where it is typically wet and
the energy industry?
humid, to the north where it is typically dry and hot. We
A: Our solutions are 100 percent temporary. We build
are experienced enough to handle any climate in Mexico.
them to comply with the highest US building codes so they last a long time. We can bring in a new work camp
Q: How do you ensure your products comply with local
in a third of the time it would take a regular site to be
regulations regarding construction standards?
built and when we leave there is no proof of the work
A: Typically, the requirements for modular solutions are
camp’s existence. This is because we do not need to create
much less severe than for regular buildings worldwide.
cement foundations. All we need is compact earth and a
The industry is not as heavily regulated in Mexico as it
clear space to put it in place, so it is environmentally non-
is in other parts of the world such as the US but we use
intrusive. The semi-permanent solutions typically used
American building codes to ensure our products are top
in Mexico require a concrete path and the installation of
quality, which separates us from the competition. Safety
panels. When a project is completed the company either
and quality of the product matter to Williams Scotsman.
has to uninstall the solution, which increases the budget, or
With us, customers know exactly what they are getting
leave it onsite, which hurts the environment. Our solutions
regarding electrical and installation standards. We use
are not only quicker to install and uninstall but also are less
codes that we know work, are safe and last for a long time.
intrusive on the environment. Williams Scotsman, a Baltimore-based company, offers modular space
Q: How can these products impact a workforce’s
solutions for temporary infrastructure such as housing and offices for
productivity?
building sites.
211
VIEW FROM THE TOP
JOINT EFFORT BOOSTS SOLAR DEVELOPERS
David Atherton Director Energy & Infrastructure Practice at Aon Risk Solutions
212
Peter Jakszentis Technical Services Director of Munich RE
Q: What drove Aon and Munich RE to launch a joint
Q: What are the biggest risks for solar project developers
coverage product for developing solar parks in Mexico?
and how do your products address them?
DA: Aon and Munich RE have been working with the
DA: The biggest risk for an energy investor is failure to
operation and construction of solar parks since they started
complete the project. This might be caused by internal or
becoming popular across the world. We now have broad
external factors such as unexpected weather conditions,
expertise in the area. Solar parks offer low risks in terms of
inadequate
technology and installation procedures, which make them
estimations, wiring theft, earthquakes or social issues. Our
attractive to insurance and risk management companies like
goal is to identify all project risks from its early stages and
us. Local insurers lack the capacity and expertise to work with
provide strategies to mitigate them in an optimal way,
medium to large-scale projects, especially as those were until
including those that take place elsewhere. For instance,
very recently uncommon in Mexico. Premium companies
our products cover solar panels from their manufacturing
behind large-scale projects can justify the resources needed
origins to the project location. By using the products that
to analyze their financial and risk-mitigation strategies from
we have with Munich RE, an international company with
abroad, which is why foreign companies in Munich, Houston
top financial ratings, project developers can ensure their
or London are managing most of these projects even when
investors and financing providers that all uncertainties are
they are developed in emerging countries. We saw an
taken care of.
financial
planning,
innacurate
production
attractive business opportunity in the medium-scale market, which we also expect to represent the largest number of
PJ: We have shifted from the pure compensation of physical
solar projects in Mexico. In the upcoming years, we expect
damage to a comprehensive scheme that ensures all the
to see an increasing number of 25-30MW projects being
projected cash flow is returned to investors. The insurance
installed, which is our product’s target segment. The Energy
sector has specialized markets for each of the different
Reform provided the perfect timing to release this product,
areas of a project, meaning that a wide range of coverage
which is flexible and in line with the needs of the medium-
is available. However, these do not always match, leaving
scale market.
gray areas that result in uncertainty. We avoid the inherent conflicts of managing different policies by providing
PJ: We see great potential in solar projects due to their low
project developers an integrated coverage service that
complexity and different environmental benefits, including
excludes transition periods, for instance, from shipping
low visual impact and ease of integration in the case of
to construction coverage. In project finance, insurance
rooftop installations. The results of the electricity tenders
accounts for around 1.5-2.5 percent of the total project cost
in Peru, Mexico and Saudi Arabia have also demonstrated
even though it is the bank’s collateral for repaying debt.
the technology’s competitiveness, which is now reaching grid parity with traditional technologies without the need
Q: In which ways do your products and services improve a
for special subsidies. We see in Mexico a particularly
project’s overall financing costs?
attractive hub for solar energy development due to the
PJ: Our products offer the advantage of avoiding delayed
high availability of land with no agricultural value and
payments. We have optimized our process to ensure the
strong solar irradiation levels. Sonora and Chihuahua’s
down payment is provided within the first 30 days after
deserts offer the same solar conditions as the Sahara, which
submitting a request, accounting for at least 30 percent of
is estimated to have the potential for covering the entire
the total coverage. Munich RE can support this guarantee
world’s electricity demand. With our innovative product
because it works with its own capital, a factor that
addressed to this market, we are enabling higher inflows of
differentiates us from other insurance companies that might
investment to the sector, promoting further development of
take years before they start paying their clients. When a
the Mexican solar industry.
company is paying back its debts, a delay in the insurance
might also delay the repayment process, forcing the
and social studies. The information contained in these
company to apply for more investment capital or a higher
documents is all we need to perform a quick and effective
credit line. This situation could put the company in a difficult
risk assessment.
negotiating position, which could have been avoided if it had used Aon and Munich RE’s services. Our offering shuns
Q: What new products are you working on to serve the
the use of interim financing with relatively high interest
needs of the new niches arising in Mexico?
rates, therefore minimizing the total cost of the project.
DA: We always keep track of the new trends in the market to adapt our offer to its evolving needs. We are prepared
Q: How do you ensure that your clients’ projects are
to provide products and services in all the niches gaining
correctly assessed given that you offer a 48-hour response?
importance in Mexico due to the experience that we have
DA: Once we get all the information needed from the
acquired in other emerging and developed markets.
project developer, providing a response in less than 48 hours becomes a straightforward process thanks to our
Q: What new trends will shape the future of the energy
companies’ expertise in the sector. Our experience and
industry in Mexico according to your experience?
knowledge allow us to give a quick response, which is the
DA: We expect to see greater investment in smart grid
added value that we offer. To optimize the assessment
development. CENACE is controlling a spot-based market,
process, we have defined a risk baseline to benchmark our
dispatching energy according to their production costs and
clients’ projects.
always prioritizing the cheapest energy source. However, Mexico does not only need to have cheap electricity but
PJ: Our insurance products can cover a wide range of
also a diversified and reliable energy matrix. We would
scales in record time due to our companies’ human capital
not be surprised to see plans to construct one or two
and innovative risk-assessment tools. Our analytical
new nuclear reactors. Nuclear energy has the potential
system allows us to provide a quick service by considering
to become the country’s main source of baseload power.
a range of risks that have been previously rated and
Geothermal might also become popular because it can
classified in specific clusters, defined by factors such as
also provide baseload power using the country’s enormous
the project’s location. Munich RE can provide this service
geothermal potential.
in a short time due to its long experience in the sector and simplified approach. For instance, we can avoid
PJ: Solar energy will play an important role in the future
wiring theft by advising developers to use aluminum
because Mexico offers higher solar irradiation than
cables, a simple but effective solution that can bring huge
Germany, a reference in solar energy production, as well as
economic savings as the substitution of missing wiring
an unsubsidized market where solar power already enjoys
is highly expensive once the project is up and running.
grid parity. Solar power is becoming increasingly important
This tool is the first of its kind in Mexico that provides a
in emerging markets worldwide.
transparent and rapid-risk assessment for energy projects in their early stages. Banks and financial institutions
Aon Risk Solutions is a reinsurance broker and risk consultancy.
require technical and economic viability analyses as part of
Munich RE is an insurance group that supports Aon in this task with its
their process, as well as the correspondent environmental
expertise in engineering and renewable energy insurance.
213
ROUNDTABLE
HOW IMPORTANT ARE SOCIAL IMPACT ASSESSMENTS AND COMMUNITY CONSULTATIONS?
The
archeological
sites
often
found
during
the
construction stages of infrastructure projects are a silent reminder of Mexico’s cultural richness. Having different world views and languages is part of the country’s charm but they also add complexity to the strategies project developers must use to communicate and connect with local communities. The existence of the ejido figure also complicates the process of obtaining land access or rights of way for large energy projects.Some of our interviewees
shared
their
experiences,
highlighting
the importance that local communities play in the development of Mexico’s energy infrastructure.
Social aspects are extremely important for large-scale projects such as wind farms. 214
There are regions in Mexico that are more sensitive than others, like indigenousowned lands. Wind energy companies are bound by law to perform a social impact assessment, which is challenging now because not all the regulations and guidelines have been defined. A right approach to the communities implies close interaction and well-designed communication strategies that get the message clearly to the
LEOPOLDO RODRÍGUEZ President of AMDEE
communities. Many communities in Mexico tend to think that infrastructure projects are equal to money but they must keep in mind that private companies are not the government. Project developers should have social plans to make a positive impact on the project’s surrounding communities but these plans do not substitute government actions.
We are investing in social projects in Yucatan together with our partner ViveEnergía. For the past three years we have had a local office with a team fully dedicated to working with the communities on social initiatives related to our wind farms and additional projects. We also are working with other project developers in Yucatan, including solar and wind energy producers, to further expand communication and development initiatives with local communities. We are convinced that energy
RAFAEL VALDÉZ Managing Director Latin America & the Caribbean of Envision Energy
projects are positive for society, not only as electricity providers but as drivers of wealth, economic growth, job creation and businesses development. Having a diversified commercial activity will be beneficial for Yucatan’s economy and population because the state relies heavily on tourism and other limited industries. We are also working to maintain open communication channels.
Social-related risks are a common concern among different energy sectors, including electricity transmission and distribution companies. As is the case with generators, companies in this sector must obtain right of way permits to move their projects forward, which involve liaising with local authorities and communities. The situation is particularly critical in indigenous communities that are not regulated by federal laws but by customs and traditions that endure from the past century or before. The
MARCO ANAYA Sub-Director of Power and Infrastructure at Marsh
other relevant risk for distribution and transmission companies the transmission fees set by the government, which have a strong impact on the financial viability of a project. In both cases, Marsh can make use of its extensive local expertise to help companies understand the risks associated with these activities and to establish particular strategies to address them.
We always visit landowners to understand what they expect as remuneration for their land, making the proper negotiations before advancing the project. For many of these people, that land is everything they have. Energy infrastructure projects are designed so the economy evolves in the area and we always try to communicate that. Following the right processes is extremely important as the construction cannot proceed if we do not have the required permits. Moreover, companies that do not comply with the established processes might be subjected to expensive fines. We agree with the authorities that having these kind of controls is necessary
FERNANDO CALVILLO Chairman of the Board of Fermaca
because it prevents abuses. In addition, following the right social management strategies is crucial to secure financing for the project because many financial institutions ask that projects comply with the Equator Principles.
Rights of way permits for natural gas projects are especially complex in Mexico, 215
particularly due to the novelty of the industry, which has been present in the country for less than 20 years. During our business activities, we have observed a recurrent lack of awareness about natural gas risks and benefits in the communities located near transportation infrastructure. Natural gas is usually perceived as a dangerous element, with high risks of exploding and polluting the environment. Our strategy is to contact communities involved in the development of new infrastructure and communicate to them the positive effects that natural gas has, such as attracting industries and boosting the local economy, as well as the objective risks by using
LUIS MONTGOMERY Director General and CEO of ACCESGAS
open and clear information. At ACCESGAS we believe that honesty and education are the most important aspects to ensure the success of a project.
The social dimension of energy projects must be managed as a win-win situation. We are making use of this approach for a 12km electricity transmission line that is being constructed in the state and it has proven successful. We have not yet experienced any problems with obtaining the rights needed. Another important aspect has been the close collaboration with the municipal and federal governments. Baja California Sur’s energy department contributes to easing this process by providing legal and technical support for all the documents and permits required.
LUIS SOLIZ Energy Director at the Government of Baja California Sur
Social challenges are not just particular to Mexico. Project developers in the US also need to consider many aspects to ensure their projects will be accepted by local communities, particularly if they cross a Native American territory. We believe that bringing communities on board is more of an opportunity than a challenge. It leads to a win-win situation. Communities can have better services and economic development and companies can have a local labor force and easier access to land, even in regions outside the project’s scope because locals are likely to spread the good news. Being clear about the added value that a project can bring to a community is the best way to avoid hurdles along the way. To ease this process, the Mexican government can set up working groups to support companies in this process and act as a mediator between them, local governments and communities.
LEONARDO BELTRĂ N Deputy Minister of Planning and Energy Transition
VIEW FROM THE TOP
FOCUS ON THE SOCIAL PLAN MORE THAN ASSESSMENT ALFONSO CASO Director General of ANAF Energy
216
Q: What motivated ANAF Energy to include social
actual benefits to the community. By approaching the
impact assessments and indigenous consultation in its
communities correctly and explaining the benefits, the
portfolio?
project will have the required social license to operate.
A: The Electricity Industry Law and the Hydrocarbons
But companies must ensure there are actual benefits if
Law now require Social Impact Assessments (SIAs)
they are to build a successful relationship. The idea is to
as a mandatory requirement for energy projects. The
generate a win-win situation.
important part is not the assessment per se but the successful implementation of the social management
Q: What common mistakes do companies make and how
plan. The goal of the new law is to return part of a
can these be avoided?
project’s profits to the community as compensation for
A: One of the main challenges faced by power companies
any negative impact it might cause. We want companies
is the lack of social knowledge. Engineers, technicians
to
for
and other decision-makers do not have the required
communities is far more important than just complying
be
aware
that
producing
positive
results
social and anthropological knowledge to manage social
with the paperwork. To write the social regulations
impact projects. It is not part of their core competencies.
accompanying the new laws, the Mexican government
Therefore, companies should hire specialized parties to
considered the principles and the methodology of the
perform adequate SIAs. Failing to build agreements with
International Association of Impact Assessment (IAIA)
communities is one of the reasons an energy project may
and the International Petroleum Industry Environmental
not materialize. Dialogue and understanding are the only
Conservation Association (IPIECA).
way to permanently and efficiently resolve social issues. Many companies tend to solve these issues through
Complying with corporate social responsibility implies
economic compensation instead of looking for joint
matching a project’s profitability to the community’s
solutions.
needs to create a sustainable model in harmony with human rights, while guaranteeing the long-term
Another common mistake is to allow inexperienced
viability of investments. I had the opportunity to gain
people to deal with local authorities and establish
experience in this matter during my time as a director
agreements that do not always reach all the involved
of an investment fund for agribusiness. I worked closely
stakeholders. Following the anti-corruption guidelines
with ejidatarios and rural communities during this period
of the Organization for Economic Development (OECD)
to develop productive projects, some of which are still
and the World Bank’s standards for SIAs helps to ensure
in operation 20 years later and are seen as successes.
the successful implementation of a project so we include
This experience comes in handy for ANAF Energy’s
them in all our processes.
social department because it gives us perspective on how to develop successful community projects using a
In the case of indigenous territories and communities,
productive approach and taking into account the limited
the
resources companies have to support these initiatives.
established in the International Labor Organization (ILO)
regulatory
framework
follows
the
principles
Convention 169, related to indigenous and tribal people’s Q: What main opportunity areas have you identified in
rights. These principles state the mandatory nature of
the social impact legislation?
performing previous, free and informed consultation
A: The enforcement of the social management plan is the
to comply with international regulations. This process
most important element of the new legislation. The focus
can only be performed under the Ministry of Energy’s
should go beyond the authorization of the assessment
supervision but consultancies can help with the process
for the sake of compliance and instead look to bring
by addressing the companies’ needs and possibilities.
Project developers also need to be aware that all
from sources such as CONEVAL, INEGI, the Ministry of
completed agreements must be based on the legal
Urban and Territorial Development (SEDATU) and the
framework, for instance in the case of municipal permits
Ministry of Agriculture, Farming, Rural Development,
or communal assemblies.
Fisheries and Food (SAGARPA). The fact that our database is built at municipal and community levels sets
Q:
How
can
companies
balance
economic
us apart from other consultancies and gives us a deeper
competitiveness against community benefits?
local perspective. The initial analysis allows us to identify
A: There is no exact formula to achieve such a balance.
the needs of the community that must be worked out
The current regulatory framework does not establish a
with the company and the stakeholders in the social
mechanism to define the social retribution percentage
management plan. The challenge is to ensure social
that must be considered in each type of project. The
management plans do not get politicized.
compensation that will be allocated to the different identified
activities
will
be
defined
in
the
social
There should always be an open dialogue to establish
management plans. We have indicators that take into
where
account the investment needs, the affected population
government’s responsibilities begin. We all strive for
the
and the infrastructure required by the project that also
social and economic progress. Mexico has the huge task
will be beneficial to the community. The combination
of validating in practice the energy sector transformation
of such factors will give a coefficient to calculate the
it has envisioned in the reform, particularly in the
equilibrium between economic competitiveness and
electricity segment. It has already achieved some of
community benefits.
the most competitive prices for renewables globally, promoted
company’s
clean
commitments
energy
investment
end
and
and
the
identified
Q: What is the added value that ANAF Energy brings to
potential benefits for the local communities in which the
a project’s social dimension?
projects will be built.
A: The first step in our process is to develop the SIA, which includes a baseline study to understand the community
ANAF Energy is a multidisciplinary consultancy offering integral
through a set of variables. We have developed a social
services for the Mexican energy industry, including social engineering,
database that includes 32 states, 2,400 municipalities
indigenous consultations, land tenure, financing, integration and
and over 120,000 communities, incorporating information
processing of permits.
217
PROJECT SPOTLIGHT
218
TAMAZUNCHALE - EL SAUZ PIPELINE Few people in Mexico — even those with long experience in the construction of natural gas pipelines — know that xanthi-ncuni is the Otomi word for pipeline. That, however, is the level of detail that Mexican developers need to adopt to ensure their projects’ success. The construction of the Tamazunchale-El Sauz pipeline was not free of technical hurdles but it was the innovative strategy that Grupo Desarrollo Infraestructura (GDI) implemented to ensure the local communities’ approval that made this case so special. The success of the project is even more remarkable considering its scale: the 229km natural gas pipeline passes through 125 communities in the states of San Luis Potosi, Hidalgo and Queretaro, including indigenous territories and ejidos. This means that GDI had to negotiate with hundreds of landowners as the average length of the properties was a mere 200m. Energy infrastructure projects are likely to improve the economy of a region but they also cause disruptions in daily lives of communities, especially during construction. Being clear about the project’s impact becomes crucial to avoid false expectations and bring communities on board. Understanding this, GDI launched a thorough communication campaign during the 18 months of the project’s construction that included material in the local indigenous languages. The company also made use of protocols to perform indigenous consultations in line with the uses and practices of the region. Given the number of indigenous groups living around Tamazunchale-El Sauz, it is not surprising that several archeological pieces were found during construction. But the relevance and quantity of these pieces was in fact a pleasant surprise for GDI’s engineers and the group of archeologists from the National Institute of Anthropology and History (INAH) that accompanied them to explore the area and safeguard pieces and land of historical value. Among the most relevant discoveries was a pyramid on top of a mountain in a remote location of Hidalgo’s cloud forest. The company’s interest in protecting and documenting the region’s historical heritage was also crucial in the establishment of strong relationships with the communities. Dealing with rural communities is often seen as the most challenging part of developing large infrastructure projects in Mexico. But cases such as the Tamazunchale-El Sauz show that it is possible to carry out profitable projects in areas with high cultural diversity.
219
INSIGHT
SOCIAL ISSUES CLARITY NEEDED FOR PROGRESS JAIME MARTÍNEZ Business Development Director of ERM
220
More than 5GW of new, clean power plants will be built
Martínez agrees that the lack of clarity in the regulatory
in Mexico in the next three years as a result of CENACE’s
framework regarding social management is a challenge
two long-term power auctions. Much of the new power
for companies in the sector. But he does not consider that
will come from wind farms and solar parks, using Mexico’s
a valid excuse for poor social strategies. “There are several
abundant natural resources to satisfy the growing
international guidelines that make reference to this topic
electricity demand. The acquisition of land rights and right
and could be used as a model until the Mexican guidelines
of way permits is crucial to these projects as many are
are completed. In fact, some of the Mexican regulations
technologies that require great tracts of land. To ease these
or requirements are based on international treaties such
processes the new law makes Social Impact Assessments
as the International Labour Organization (ILO) Convention
(SIAs) and indigenous consultations mandatory for energy
169 that states the procedures that must be followed when
projects both in the oil and gas and electricity sectors. But
dealing with indigenous communities and territories.
the lack of specific guidelines is stopping companies from
Even though there would be local considerations, it is
taking full advantage of these mechanisms.
recommended to follow international standards, in which ERM has strong expertise. So, why wait?”
“There is a general concern in these industries about the lack of certainty and clarity in the law,” says Jaime Martínez,
Timing, he says, is one of the most important factors.
Business Development Director of ERM, a global provider
“We always recommend our customers get involved
of environmental and social consulting services. “Many
with the community as soon as possible. Despite the
projects are not moving as fast as they could due to social
lack of certainty in local guidelines, waiting too long to
issues so we would like the government to clarify these
approach the community is the worst move a company
aspects soon. In Mexico, complying with social-related
can make. For instance, communities might find out
regulations is often harder than with their environmental
about the project through the media and adopt a
counterparts, so having certainty and clarity over this
reluctant attitude due to the lack of clear information
issue is a concern for energy companies.”
and the feeling of being left out of important decisions. When it comes to establishing friendly relationships with
Public opinion often perceives communities as the most
communities, we always say the sooner the better.” Even
vulnerable partner in the negotiating process but Martínez
if companies follow Martínez’s advice, other challenges
suggests companies are also exposed to many risks as a
are on the way. The Energy Reform has spurred a greater
result of failed social management strategies.
number of energy infrastructure projects in Mexico, leading to a larger backlog of SIAs than the Ministry of
He says there have been cases where a community’s
Energy can handle.
expectations have skyrocketed due to inappropriate communication strategies, making it impossible for
“Companies know there are many projects in the
companies to handle the situation. “Transparency is
pipeline that require permits and that public authorities
usually the best approach to avoid social issues because it
have a limited capacity to manage all these processes,”
allows communities to weigh the project’s positive impacts
Martínez says. “The Ministry of Energy has recognized its
and make informed decisions. Opening communication
limitations and has been flexible with project developers,
channels allows the discussion of a projects’ positive
showing a proactive approach and presenting a proposal
aspects that include not only economic incentives but
based on international regulations while the Mexican
employment and development opportunities, which must
guidelines are unavailable. The Ministry’s flexibility has
also be considered by local communities in the decision-
been crucial to keeping the projects moving amid the
making process.”
uncertainty."
INSIGHT
NEW RULES BRING INDIGENOUS COMMUNITIES ON BOARD FABIÁN CASAUBÓN Partner at Overflod Social
All energy companies that want to operate in Mexico
states of Oaxaca, Yucatan and Chiapas holding the largest
should get familiar with the Social Impact Assessment
indigenous populations. The most common spoken
(SIAs) and the Free, Previous and Informed Consent
languages are Nahuatl, Maya and Tsetsal but more than 72
process for indigenous communities because both are
languages are found across the country. 221
here to stay as part of the new regulatory framework. Mexican regulation stipulates the compulsory nature of The social dimension of energy projects has not enjoyed
the two requisites but it still lacks in-depth specifications
the same level of attention as the environmental side,
about the proper way to implement them, according
even though failure to address social considerations could
to Casaubón. “The government’s biggest challenge is
lead to a project’s cancellation. The Mexican government
to clarify the guidelines that companies should follow
aimed to change that by implementing SIAs and
to respect the indigenous communities’ rights without
making indigenous consultations mandatory in project
compromising
development. Both measures are expected to promote the
projects.”
the
viability
of
renewable
energy
use of adequate social strategies, avoiding project attrition due to social rejection. “Social license to operate has been
In Casaubón’s view, “acknowledging the social dimension
understood as getting the local communities’ approval
of the project is not the same as being a socially
by investing in them,” says Fabián Casaubón, Partner at
responsible company. A proper social strategy goes
Overflod Social. “The Mexican regulation wants to expand
beyond providing physical or financial assets to the
this vision further. It looks to acknowledge that companies
community. It is about creating strong bonds among all
can generate profits due to the resources provided
the stakeholders involved.” Implementing participatory
by local communities.” Overflod Social is a Mexican
processes and involving the community in decisions
consulting company with over 15 years' experience in the
are key to effective social management strategies. “We
design, implementation and assessment of strategies to
managed the successful case of a hydroelectric company,
establish healthy relationships between companies and
establishing a social strategy in its project’s early stages
communities impacted by infrastructure projects such as
and adopting a benefit-sharing approach by improving
pipelines or power plants.
the water infrastructure of the surrounding communities,” says Casaubón.
According to Article 120 of the Electricity Industry Law, all companies interested in obtaining the required permits
GENERAL PHASES OF INDIGENOUS CONSULTATION
to develop an energy project must present a SIA to the Ministry of Energy. This assessment, as defined by law, consists of a document identifying, characterizing, predicting and assessing the project’s social impact, as
1.
Consultation Plan
2.
P rev i o u s Agreements
well as the corresponding mitigation strategies and social management plans. The law also states that a previous consultation must be carried out in the case of projects having indigenous communities in their area of influence.
4.
3.
5.
6.
Consultative Stage
Information Stage
“The indigenous consultation is another critical part of the new framework because failing in this aspect might lead to the project’s cancellation,” says Casaubón. According to INEGI, more than 7 million people belong to an indigenous group and speak a native language in Mexico, with the
Deliberative Stage
Source: Rules of the Electricity Industry Law
Monitoring of Agreements
Bii Hioxo wind farm, Oaxaca, Gas Natural Fenosa.
WIND
9
Wind power is no newcomer to the Mexican energy matrix but 2016 saw strong consolidation of wind farms as a reliable source of power in the country, taking advantage of known locations such as Oaxaca but also moving past them to less established regions such as Tamaulipas and Baja California. The creation of the MEM has brought about increased demand for renewable energy from both heavy industrial and commercial companies looking to comply with clean energy targets and to reduce their dependence on CFE’s supply.
This chapter showcases the progress made by local and foreign wind power companies to establish wind as a main, dependable source of energy in the country and the increased competition it faces from relatively new sources like solar, one of the main winners of the country’s 2016 long-term power auctions. It also shows what developers, operators and technology companies are doing to increase the competitiveness of wind power in the country and deal with regulatory challenges.
223
CHAPTER 9: WIND 226
ANALYSIS: Wind Power Blowing Past Tehuantepec
227
VIEW FROM THE TOP: Leopoldo Rodríguez, AMDEE
228
VIEW FROM THE TOP: Angélica Ruiz, Vestas
231
INSIGHT: Jorge Lobatón, Gamesa
233
INSIGHT: Armando Negrete, ABB México
234
VIEW FROM THE TOP: Michael Brower, AWS Truepower
225
Jorge Ochoa, AWS Truepower
235
INSIGHT: Jorge Melero, UL-DEWI
236
MAP: Wind Projects in Operation & Construction
243
VIEW FROM THE TOP: Manuel Iglesias, Kintech Engineering
244
INSIGHT: Sinaí Casillas, Government of Oaxaca
245
VIEW FROM THE TOP: Savir Ruiz, CODISA CORP Energy
246
VIEW FROM THE TOP: Francisco Con, CEMEX Energía
247
INSIGHT: Glen Hodges, Pattern Development
248
INSIGHT: Alejandro Robles, SOWITEC
249
INSIGHT: Fernando Villarreal, Oak Creek Energy
250
VIEW FROM THE TOP: David Barrie, SgurrEnergy
251
VIEW FROM THE TOP: Marco Anaya, Marsh
252
Rosa Morán, Marsh
ROUNDTABLE: What is the Outlook for Wind Energy?
ANALYSIS
WIND POWER BLOWING PAST TEHUANTEPEC In 2016 wind consolidated as a reliable source of
construction across the country. “Wind farms tend to be
renewable energy in Mexico's electricity sector. The
more solid than other renewable energy projects because
country's wind power potential is estimated at over
they have longer maturing periods, being supported
50GW and the regions with the most promise such as
by extensive wind forecasting studies and permitting
the Isthmus of Tehuantepec and La Rumorosa in Baja
processes,” says Jorge Lobatón, Director General of
California are developing several projects to harness that
Gamesa for Mexico & LATAM.
power. In Baja California, there are three wind parks under construction and two operating, while Oaxaca, a pioneer
THE CHALLENGES
in this technology with 21 parks already operating, has
To keep developing this technology, new and prospective
three under construction.
projects must be met by an equal development in
226
transmission.
Because
of
the
delay
in
several
The new market rules have given private companies a
infrastructure projects, many of the projects planned
wider scope for power generating schemes, launching
for the Oaxaca government’s first energy open season
a rapid expansion of new wind developments way past
have not been able to begin construction. The planned
Oaxaca and Baja California, with places like Tamaulipas
Oaxaca-Valley of Mexico HDVC line, to be auctioned in
also sailing the high winds of energy generation. But
2017, is expected to benefit this industry the most, as it
where wind turbines once ruled supreme — and almost
will open new markets to the energy developments of
alone — in the Mexican renewable energy matrix, the new
the windy Tehuantepec corridor.
rules and power auctions have also brought increased competition from other renewable sources like solar.
The coming years will be crucial as the government strives to accomplish its goal of producing 35 percent
With solar PV being so successful in the first power
of its power from clean energy sources by 2024, for
auction, wind had to step up and increase its cost-
which wind power will hold a key position. In its 2016
competitiveness to ensure its position in the second
Mexico
power auction. This increase in competition also resulted
Agency (IEA) projects a 5-20 percent cost reduction
in several wind developers considering diversification
in the long term for wind power in Mexico, resulting
into other renewable sources. “We realized we needed to
from technology development. The Internet of Things
diversify our services and after doing some benchmarking
and other technological advances have already started
we decided to go for something that was already
penetrating the industry, with the potential of increasing
established. We went for solar, which is a product people
competitiveness and efficiency. Monitoring solutions
are asking for and which has an important opportunity in
are beginning to shape the industry and boost the
the country,” says Sergio Martínez, CEO of MASE Energy,
performance of wind parks.
Energy
Outlook,
the
International
Energy
which previously had been mainly a wind farm developer. “Control is critical,” says Armando Negrete, Energy
THE AUCTIONS
Leader Wind Power of ABB México. “Imagine wind farms
The results of the long-term power auctions made
as large fields with several subsystems, which include
clear investor confidence in the feasibility and cost-
subtransmission and transmission power systems. All
competitiveness of this renewable resource. Private
elements have to be coordinated in such a way as to
companies showed readiness to invest in wind projects,
deliver efficiency despite all possible variations. It is
which resulted in wind being the second most awarded
necessary to balance the system to optimize it.”
technology in both auctions, at 11 projects with a total capacity of 1,522MW. The largest project awarded was
Financial schemes and the regulatory framework will also
Parque Eólico Reynosa, a 387MW plant to be developed
determine the evolution of the wind industry in Mexico,
by Intaván México. With those results, wind consolidated
as initial investments for renewable projects, especially
as a promising renewable resource for the Mexican power
for wind parks, is still extremely high. Innovation and
industry. Even though PV energy was awarded a larger
adaptation will be the main elements for achieving
share of capacity, it remains a novel technology in the
success for wind project developers and the banks and
national context. Wind, on the other hand, already has
institutions that are willing to bet on the future of this
34 parks installed and operating and 26 more parks in
promising technology.
VIEW FROM THE TOP
CONTRACT FLEXIBILITY A BOON FOR WIND POWER LEOPOLDO RODRÍGUEZ President of the Mexican Wind Energy Association (AMDEE)
Q: What are some of the advantages and challenges for
Q: What added value does wind energy provide large off-
wind project developers as the market evolves?
takers over other technologies?
A: It is now easier to incorporate new off-takers without
A: Long-term certainty and larger productivity. Solar PV
having to include them as shareholders of the project.
parks, for instance, offer capacity factors in the range
Although off-takers will not have the same level of price
of 20–30 percent, while competitive wind farms in
certainty as before, they will benefit from the possibility
Mexico have capacity factors above 40 percent, some
of more easily incorporating or removing loads in different
getting close to 50 percent or even above. In certain
nodes. In that way they can also secure stable prices
windy regions of the country, wind profiles also offer the
but under more complex bilateral contracts. We expect
advantage of a closer match to the typical daily demand
these new possibilities to result in a mix of short, medium
profile than solar because it is common in windy regions
and long-term contracts for the same project. Once the
for the wind to blow very well during peak demand hours,
industry matures we also foresee more activity in the short
including late afternoon through midnight. This is the case
term and in spot markets. In the past, legacy projects
in the northeastern region where wind farms are more
could offer a fixed block of energy on an annual basis,
productive in the late evening or at night.
given the old energy bank mechanism to balance loads. It is now possible to have a similar portfolio but companies
Q: What are the major technological advances that have
must take on greater risks for the amount of energy they
allowed the deployment of wind energy in Mexico?
commit to producing, having to purchase energy at higher
A: It was not possible to develop renewable energy
rates from other generators or suppliers if their forecasts
projects in Mexico six or seven years ago without the help
fall short. If well played, however, suppliers can secure the
of subsidies and special financing plans. Back then, wind
lowest tariffs in the market. The market’s logic has changed
energy development was only feasible in the Isthmus of
so energy companies need to refine their strategies to
Tehuantepec in Oaxaca, a region with remarkable wind
remain competitive. Mexicans got used to fixed tariffs but
energy resources. Technological developments in the past
now they need to adapt to having more volatility.
few years have allowed companies to capitalize in other Mexican regions such as Tamaulipas, Coahuila, Nuevo
Q: How do you expect the new market to impact project
Leon, Jalisco, Chiapas, Yucatan and Baja California, among
development and ownership?
others. These advancements have raised wind farm
A: We used to see a good number of top wind turbine
capacity factors to close to 40 percent from 30, making
manufacturers developing and operating projects for
projects more economically attractive. Developments
developers and off-takers, many of which have been
include the introduction of digitalization and automation
transferred to third parties that will keep them in the long
technologies such as monitoring sensors that analyze a
term. But major international developers and operators are
turbine’s performance to maximize its availability. We now
well established and planning for significant expansions
see wind farms with 90-98 percent availability factors,
and we also have seen large Mexican off-takers involved
meaning they are ready to operate as soon as the wind
in self-supply projects, thus evolving and creating their
starts blowing. Another technological advance is the use
own project development divisions to become relevant
of larger rotors and higher towers, which allow companies
players in this new, competitive market. We are also seeing
to take advantage of lower wind speeds.
an influx of international project developers interested in entering Mexico. In addition, the market will require the
AMDEE, founded in 2005, brings together project developers,
involvement of new players providing complex financial
manufacturers and service providers to present a united front on
and technical services, some of them very specialized. We
common issues to the authorities, society and economic players.
are not used to this.
227
VIEW FROM THE TOP
WINDOW OF OPPORTUNITY TO TRANSFORM LANDSCAPE ANGÉLICA RUIZ Vice President & Director General Mexico & LATAM of Vestas
228
Q: What is Vestas’ role in promoting the expansion of
Denmark in April 2016 is a clear indicator of the
wind projects in Mexico?
government’s interest in learning about this subject.
A: The results of the COP21 climate conference
Mexico could learn from Denmark about the challenges
made it clear the world is entering a historic window
and solutions related to managing an electricity network
of opportunity to transform its energy landscape,
heavily reliant on wind energy. About 42 percent of the
particularly in countries like Mexico that have been
Danish energy matrix is based on wind power, which
active in the negotiations. The Mexican government
is an outstanding percentage and makes the Nordic
has been supporting international initiatives to tackle
country a leading example of efficient natural resource
climate change not only by participating in the events
management.
but by taking action through the country’s energy policy. Mexico’s clean energy goals are clear, concise
The official visit to Denmark led to the signing of two
and ambitious, which talks to the government’s interest
bilateral deals regarding technology transfer and the
in pushing the incorporation of a higher share of
opening of new financing lines. These agreements
renewables into the country’s energy mix. These new
included the recognition of Vestas as a guaranteed
circumstances are favorable for companies like Vestas
technology by Danish banks, which means that our
that have expertise in the sector, a unique track record
products have the potential to reduce a project’s CAPEX
of projects and a mature technology with the potential
and to optimize costs. To a certain extent Vestas can
to optimize the performance of wind turbines. Vestas is
be seen as a symbol of Denmark, representing the
driving the wind industry forward by lowering production
country's innovation and technological development.
costs and pushing for the creation of an energy system
The three crucial points in the bilateral relationship
similar to that of Denmark where renewable energy
between Denmark and Mexico will be for Mexico to
takes a central role.
understand how a wind-based energy matrix like that in Denmark works, technology transfer and the inflow of Danish investment into Mexico’s wind power sector.
Mexico currently produces around 3 percent of its electricity from wind power while Denmark has the world record at 43 percent
Q: What is the current role of the country in your Latin American portfolio? A: The implementation of the Energy Reform is helping Mexico take a leadership position across different sectors in Latin America, with particular emphasis on the electricity industry. Besides the liberalization of the market, Mexico’s proximity to the US has placed the country in a privileged position in the eyes of international investors, increasing its attractiveness over other Latin American markets. Nonetheless, there are many interesting situations in the region. For instance, Argentina is already on the way to implementing its
Q: How can Mexico take advantage of Denmark’s
own energy reform and both Peru and Chile have just
expertise in the wind energy sector?
conducted a successful series of electricity tenders in
A: The fact that President Enrique Peña Nieto, Minister
the utility-scale field. The lessons learned from different
of Energy, the Ministrer of Economy and the Deputy
countries have been crucial for achieving the record
Minister of Electricity attended the official visit to
low electricity prices that we have witnessed this year.
In this scenario, Mexico is playing a relevant role, being
Q:
What
business
models
and
technological
clear about its clean energy objectives and moving from
breakthroughs are needed to reduce wind energy
words to action as was demonstrated in the country’s
production costs?
first long-term electricity tender.
A: The wind energy industry has optimized costs over the last 10 years while solar has just started to improve
Q: Which Mexican regions are best-suited for developing
its performance. Technological advances will continue to
wind farms?
be crucial for optimizing wind energy’s costs and Vestas
A: Regarding natural resources, Mexico is one of the most
expects to play an important role in this transformation.
privileged countries in the world, making it a suitable
We are an innovative engineering company that is
location for the development of diverse renewable
constantly looking to optimize the functioning of wind
energy projects. In the case of wind energy potential,
turbines, maximizing energy production on site to reduce
Mexico offers wind Classes I, II and III, Oaxaca state
costs. One strategy to enhance a wind farm’s performance
being the most attractive region because it has Class I
is to work on the generator design, testing different
wind speeds. The center and north of the country offer
diameters, heights, control and monitoring systems.
Class II and III wind speeds, suitable enough to develop profitable wind farms. All of these characteristics make
There also are opportunities to lower wind energy costs
Mexico a unique hub for wind energy development,
by optimizing the industry’s supply chain. CENACE’s
including regions that remain largely unexploited. To
electricity tenders and the highly competitive PPAs will
promote the deployment of wind energy in Mexico,
be an incentive to improve the whole ecosystem. We see
Vestas has collaborated with the Ministry of Energy
great potential to optimize civil engineering, electrical
to create a wind resource map, identifying the regions
installations and material transportation activities.
with higher potential to allow a numerical visualization. This
information
has
been
made
public
to
help
Q: How popular are Vestas’ EPC and O&M services in
companies select the most suitable technologies and
Mexico and what is currently driving demand?
the optimal sites to capitalize on the country’s potential.
A: With the new regulatory framework, the Mexican
Fortunately, Vestas has a wide range of products to suit
market offers ideal conditions to sustain the entire
the conditions of different Mexican regions, from north
wind energy chain. The country already has a wide
to south, which is another competitive advantage.
range of qualified suppliers along different segments and locations, contributing to the deployment of wind
Q: What is Vesta’s strategy to hold its leading position
projects in the region. However, there are still occasions
in the face of fiercer competition after the Siemens-
in which our clients prefer to receive a turnkey project,
Gamesa merger?
which is part of Vestas’ value proposition. In these cases,
A: We consider competition a favorable force to move
Vestas is prepared to offer our customers the services
the industry forward. In the wind energy market, as
required to provide a turnkey project, benefitting from
in all others, M&A have upsides and downsides but it
our internal expertise in Balance of Plant (BoP), turbine
is too soon to tell what will be the impact of Siemens
design, data analysis and technical solutions.
and Gamesa’s merger. The industry adjustment will bring new challenges for Vestas but it will not change
In Mexico, Vestas has broken ground for the development
our goal to remain a worldwide leader in the sector.
of wind energy projects in different regions, including
To maintain our position, we consider R&D investment
challenging locations like Tamaulipas or Oaxaca. This
a crucial part of our strategy because innovation has
expertise has differentiated us from other companies in
been the key feature separating Vestas from other wind
the market and might act as an incentive to increase the
companies. We are confident that Vestas will grow with
demand for this kind of service in the future. We have
the competition. We are not afraid of new challenges.
already developed some turnkey projects in Mexico, mainly for new companies entering the market as
Q: What is Vestas’ relationship with CFE?
mature ones prefer to complete the project themselves.
A: CFE, with whom Vestas has established a fruitful
As long as our clients require them, we plan to continue
collaboration, will continue playing an essential role
offering EPC and O&M services as part of our portfolio
in the new electricity market. In 2015, Vestas signed a
in Mexico, especially as we already have the internal
memorandum of understanding with CFE to become its
capabilities needed.
technological partner and promote the deployment of wind fields in Mexico. Vestas wants to continue moving
Vestas, founded in 1898, is now a global company and a wind energy
this project forward, strengthening our partnership and
leader. It has over 75GW of wind capacity installed, representing around
looking for new opportunities to collaborate.
20 percent of the global installed base.
229
La Venta wind farm, Oaxaca, Gamesa
230
INSIGHT
TOP OEM THIRD YEAR IN A ROW JORGE LOBATÓN Director General for Mexico & Latam of Gamesa
Gamesa’s predominance in the Mexican wind power
plant in 2017 from WINDAR Renovables, a company
market goes without question. The Biscay, Spain-based
in which Gamesa holds a stake. We are evaluating the
company holds over 50 percent of the local industry’s
possibility of manufacturing more in Mexico to reduce
market share and was named the top-ranked wind OEM in
logistics costs, a significant part of our business.”
the country for the third year in a row, according to MAKE To strengthen its position, Gamesa is turning to local
Consulting’s “Global Wind Turbine O&M 2016” report.
companies,
establishing
long-term
agreements
with
Since its arrival here in 1999, Gamesa has installed around
local providers and partners such as manufacturers in
2GW of wind farms. When asked about the company’s
Coahuila and Ciudad Juarez. “What we generally look for
recipe for success, Jorge Lobatón, Director General of
in our partners can be summarized in three points: quality,
Gamesa for Mexico & LATAM, is clear: “Our technology
commitment and cost-competitiveness. We consider it
focuses on reducing energy costs. Three or four years ago
important to support the development of a local value
there were many areas in Mexico where it was impossible
chain. We have been supporting the industry through
to develop profitable wind farms but our innovative
agreements with our partners but we have not made any
products, tailor-made for the Mexican market, made it
direct investment yet,” Lobatón says.
possible. Companies that do not innovate are condemned to disappear. We are always looking to innovate to
The company’s commitment to the Mexican market is
increase the competitiveness of Gamesa and wind energy
also reflected in its plans to open an O&M hub in Oaxaca,
in different market settings and we are proud to say that
which will not only serve Gamesa’s clients in Mexico
we have achieved it in Mexico.”
but throughout Latin America. “The O&M services unit, managed by a highly qualified international and
team, constitutes a fundamental tool for the creation
adaptability as necessary ingredients in making it a
of value from the development, servicing and profitable
global leader. “Particular locations present their own
operation of wind projects. Gamesa has a large O&M
challenges and characteristics so we adapt to the needs
team operating almost 3GW of O&M contracts in Latin
of each client,” Lobatón says. “Our ultimate goal is to
America. In 2017, the company will inaugurate its new
provide solutions that allow customers to produce energy
installations in Oaxaca, equipped with offices, storage
efficiently and at competitive costs. We have four different
and training, operation and repair centers. This new
product platforms, including 2MW, 2.5MW, 3.3MW and
installation will be the O&M hub for Latin America,
5MW and each platform includes technologies that are
including Brazil,” he says.
Gamesa
also
counts
product
diversification
common to all of them. For instance, in the 2MW platform, we handle rotors with diameters from 80m (G80), like
Lobatón sees great potential for wind energy in Mexico
the ones already used in Oaxaca’s wind farms, up to 114m
even though solar projects held the spotlight in 2016 due
(G114). In between we have rotors such as G90 and G97.
to CENACE’s power auction results, particularly in the first
Similarly, we handle different tower heights, going from
event. “Although solar energy was the main technology of
44m to above 120m. This versatility allows us to play with
the first power auction, the results were highly influenced
different components to find the right solution for each
by the economic benefits given to certain geographical
customer under a wide range of conditions.”
areas. But in the second power auction, in which all regions competed on a level playing field, wind energy accounted
Even though the company has not yet built manufacturing
for 43 percent percent of the capacity. This is up from 20
facilities in Mexico, Lobatón considers that a possibility. “We
percent obtained in the first auction. Solar energy reached
are awaiting the opening of a wind tower manufacturing
54 percent versus 80 percent in the first auction.”
231
INSIGHT
CONTROL IS CRITICAL FACTOR FOR EFFICIENCY ARMANDO NEGRETE Energy Leader Wind Power of ABB México
Behind every megawatt-hour of wind power injected into
generated there are certain similarities too,” Negrete says.
the grid there is a ton of planning, generating, connecting,
“In solar, the curve between day and night is predictable
transmitting, monitoring and controlling. To facilitate
and within a range, whereas in wind the curve is not that
these processes, wind operators make use of advanced
predictable and has a narrower range. Each control system
technological equipment that must be designed with all
is therefore designed to those types of considerations. In
possible operational variations in mind. For that reason,
both cases ABB provides the level of safety, reliability and
leading suppliers of electric equipment for the wind
sustainability to deliver excellent results.”
industry are companies with strong R&D cultures. One of the added values that ABB brings to wind energy automation
projects is its expertise in electricity transmission and
technologies, invests around $1.5 billion annually to fund
distribution systems, which has allowed it to develop
the R&D activities of its 8,500 technologists in seven
products to cope with wind’s intermittency and comply
corporate research centers. The amount of resources
with increasingly stricter grid codes. “We have a
invested in technological development seems to be
product known as STATCOM (Static Compensator). The
paying off as ABB’s products are used by top companies
implementation of the new grid code is recent in Mexico
in different sectors, including wind energy. “As a global
and people are just becoming interested in our solutions. In
player, ABB has the portfolio to help customers from
the UK, where they have had a stricter grid code for longer,
the inception of the projects, through specific software
ABB has a large installed base. The technology is not new
packages, to services offered during the wind park’s life
but the application is. We have growing expectations for
span,” says Armando Negrete, Energy Leader Wind Power
this technology in Mexico. We are determined to remain
of ABB México. “This means ABB works with all different
the leader of Flexible Alternating Current Transmission
systems, subsystems and elements of a wind farm to get
Systems (FACTS) technologies in Mexico, now also in the
the best balance on technical performance and return on
renewable energies sector,” says Negrete.
ABB,
a
global
leader
in
power
and
investment. From equipment in the turbine’s nacelle to the connection to the grid, covering all new requirements on
CRE released the new Mexican grid code in early 2016
grid code and power quality, ABB helps to capture wind
as mandated by the Electricity Industry Law, introducing
energy with the highest efficiency.”
stricter interconnection requirements as a strategy to move Mexico’s power network closer to international
The critical factor for all wind projects is control. Without
standards. The code includes new requirements for
it, efficiency is reduced and an imbalance becomes
reactive power compensation to ensure the stability
probable. “Control is critical across the project. Imagine
of the transmission network, which is more complex
wind farms as large fields with several subsystems, which
with intermittent sources like wind. ABB’s STATCOM
include subtransmission and transmission power systems.
helps renewable power producers to meet these new
All elements have to be coordinated in such a way as
requirements by increasing power transfer capability
to deliver efficiency despite all possible variations. It is
through enhanced voltage stability, maintaining smooth
necessary to balance the system to optimize it and get the
voltage profiles under different grid conditions. Negrete
energy in the most efficient way to the network,” Negrete
expects the demand for its grid code compliance products
says. In both wind and solar applications, there are
to increase as the industry digests the implications of
technologies that require specific, tailored products and
these new rules. But power production optimization
companies are looking for reliability to produce quality
needs to be considered from the early stages of the
results. “There are some considerations that need to be
project. “The earlier we can intervene the greater value
taken into account in both cases but once the power is
we can add.”
233
VIEW FROM THE TOP
SHARING EXPANSION COSTS MAKES SENSE
Michael Brower President & Chief Technical Officer of AWS Truepower
234
Jorge Ochoa Mexico Country Manager of AWS Truepower
Q: Which segments offer the most opportunity to
Q: What role will PPPs have in developing the country’s
strengthen AWS Truepower’s position in Mexico?
new energy infrastructure?
MB: We provide services across the whole project lifecycle
MB: The private sector should be engaged in the
but as the Mexican market is still in its early stages, our
development
services for assessing resources and preconstruction
particularly in the wind energy sector. Sharing expansion
energy production estimates are the most requested. We
costs with the private sector makes sense for the
also offer independent engineering services for transaction
authorities. The development of energy infrastructure
and investment analysis, which we have already provided
must not be defined only by a central public authority
to some of the operational wind energy projects in
because that might hinder optimal investments. Mexico
Mexico. We hope to get more involved in forecasting and
must develop an adequate market for grid services and
other studies concerning the grid’s operation, as well as
establish a mechanism for planning the grid expansion
performance assessment.
to reach critical locations. Other countries have in-depth
of
new
transmission
infrastructure,
planning studies to decide where the investments will Q: What hurdles does Mexico face regarding energy
be allocated, which tend to have several stakeholders
infrastructure for the integration of renewables?
involved due to the need for economic and technical
JO: One of the main issues is the interconnection
assessments during the planning process. It is more
infrastructure. Its future development is established
efficient to have a clear plan for the project’s early stages
by PRODESEN and is highly dependent on whether
because transmission infrastructure requires resources
CFE decides to build transmission lines by itself or
and time to develop.
to establish partnerships with private parties. The Electricity Industry Law allows private companies to
Q: What are the shortcomings of the Mexican grid
suggest new transmission lines and substations but
compared to global standards?
there are restrictions on their full participation in the
MB: Every region in the world has its particular issues.
development of new infrastructure.
Texas, for instance, was famous for building more wind energy than its transmission infrastructure could
We see a huge need for forecasting services to estimate
handle, which resulted in the curtailment of much of its
the amount of energy that will be entering the grid at
wind facilities. The state responded by expanding its
certain times. This information is particularly important for
transmission capacity and that has made the situation
new generators and for CENACE, the grid’s operator, since
much more manageable. Hopefully, Mexico will not make
it needs to plan operations and investments in advance.
the same mistakes.
Forecasting energy flows becomes especially important when including renewables because of their intermittency
Q: What advantages does AWS Truepower have over its
and technical complexity. At the beginning of 2016 when
competitors?
the electricity spot market was launched, it became more
MB: AWS Truepower is known for being technically
important to predict and measure the amount of energy
advanced and it is well respected for setting technical
to be injected into each node. We have the experience and
standards. We also are transparent about the methods
the skills to address this task.
we use for our analyses and we have a lot of experience. Finally, we strongly emphasize customer service. I think
AWS Truepower is a leader and innovator in renewable energy
these elements explain why, in every market where we
consulting, providing engineering services and operations as well as
have established a presence, we have participated in
software solutions to support clients while developing their projects to
30 to 50 percent of the assessment or financing of new
turn them into durable assets.
wind projects.
INSIGHT
HISTORY, BIOLOGY FACTOR INTO SUCCESS JORGE MELERO Renewable Energy Unit Manager Mexico of UL-DEWI
UL-DEWI, a global wind energy services provider, came
Those assessments have to pass through the National
to Mexico to tap into the country’s renewable energy
Institute of Anthropology and History (INAH), the entity
potential. Until its arrival, the company had served its
charged with safeguarding the country’s historical legacy
clients here from abroad but decided to open a local office
and evaluating a particular location’s historical value. The
to more efficiently meet the needs of the growing market.
Law of Historic Monuments and Zones with Archeological, Artistic or Historical Value allows the relocation of
Then the Energy Reform threw a temporary wrench into
movable assets with INAH’s approval and supervision
the works. “The planning and development stages of the
prior to releasing an area for development. Permits can
new regulations paralyzed the sector to a certain extent
be denied because of fixed assets such as pyramids or
due to the uncertainty they created,” says Jorge Melero,
ceremonial centers.
Renewable Energy Unit Manager Mexico of UL-DEWI. “But we already are seeing a growing interest from renewable
An example of the process carried out by INAH is the
energy companies in investing here as well as the start of
Hipolito ejido in Coahuila, where a 200MW wind farm is
new projects from the government.”
under construction. A number of fossils have been found in Coahuila’s desert, including remains of dinosaurs. These
UL-DEWI is the result of the acquisition of DEWI by UL,
have scientific value and have made the state a source
a safety science company that certifies and validates
of paleontological information. With this in mind, INAH
products to comply with the requirements of different
assessed the ejido prior to the start of construction, later
markets. DEWI is a global wind energy service provider,
providing the required permission because no relics were
serving 1,500 clients in more than 50 countries, including
found. Another important aspect of MIAs is to identify
wind turbine and components manufacturers, project
endemic and migratory species that could be affected by
developers, utilities and other wind industry players.
a project. For wind farms it also is important to map out
Melero believes Mexico’s new regulatory framework is not
the migration patterns of flying species, which can impact
an impediment to successful projects. “From a technical
expected power output and hence have implications for
standpoint,
particular
the project’s estimated revenues. “We have analyzed
challenges for wind energy projects but they are not more
wind farm proposals located in the monarch butterflies’
complicated than their international counterparts. Each
migratory route, which may imply technical complications
market has its own specific challenges.”
because of stoppages that must happen during the
Mexican
regulations
present
migration period,” says Melero. Many factors impact the development of an energy project. Two that could lead to difficulties if not
Even though Mexico’s biodiversity can increase a
considered early in the process are a location’s historical
project’s complexity, it is viable to successfully integrate
relevance and its natural diversity. “In Mexico, these
energy
mainly relate to archeological sites and endemic species
demonstrated by the Dominica wind farm, developed
protection, regardless interconnection requirements,”
by Enel Green Power in San Luis Potosi. That project
Melero says. SEMARNAT requires all new electricity
received the 2016 Infrastructure 360° Award, issued
projects to deliver a mandatory Environmental Impact
by the Inter-American Development Bank (IDB), in
Assessment (MIA) prior to development. According to
the “Climate and Environment” category. UL-DEWI’s
SEMARNAT’s guidelines, MIAs for power generation
capabilities and local knowledge have placed the
projects must include an inventory of the location’s
company at the forefront of wind service providers.
cultural resources, including existent and potential
“We are among the four main players in the technical
archeological vestiges.
advisory sector in Mexico,” says Melero.
projects
with
surrounding
ecosystems,
as
235
Source: CRE
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WIND PROJECTS IN OPERATION AND CONSTRUCTION
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Airport
Ixtepec
Zaragoza
Juchitan de
El Espinal
Ixtaltepec
Asuncion
61
53
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44
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56
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La Venta
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Hidalgo
Union
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Santo Domingo
60
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WIND PROJECTS IN OPERATION AND CONSTRUCTION
238
No.
Company
Project
Arrangement
1
IEnova and InterGen
Energía Sierra Juárez
Export
2
Wind Power de México
La Rumorosa
Export
3
MPG
Rumorosa
Self-supply
4
Municipio de Mexicali
La Rumorosa I
Self-supply
5
Fuerza Eólica
Fuerza Eólica de San Matías
Self-supply
6
Energía Sonora PPE
Generator
7
Energía Sonora PPE
Small-scale producer
8
Comisión Federal de Electricidad
Guerrero Negro
Generator
9
SOWITEC
La Amistad
Self-supply
10
Minera Autlán
Parras
Self-supply
11
Grupo Comexhidro
Santa Catarina
Self-supply
12
SOWITEC
El Mezquite
Self-supply
13
Energía y Proyectos Eólicos
14
ACCIONA Energía
Ventika I
Self-supply
15
ACCIONA Energía
Ventika II
Self-supply
16
Intaván México Energías Renovables
Parque Eólico Reynosa I
Self-supply
17
Intaván México Energías Renovables
Parque Eólico Reynosa II
Self-supply
18
Soriana, Grupo ECOS and GEMEX
El Porvenir
Self-supply
19
Abengoa
Tres Mesas
Self-supply
20
Energías Renovables de Durango
21
MPG
La Bufa
Self-supply
22
Enel Green Power México
Dominica
Self-supply
23
Eoliatec de México
Chinampa
Self-supply
24
Grupo Dragón
Ojuelos
Self-supply
25
Grupo Dragón
El Vigil
Self-supply
26
Eólica Cerritos
27
Parque Eólica Huimilpan
San Pedro
Self-supply
28
Grupo Dragón
Coyoles
Self-supply
29
Eoliatec
Fuerza Viento Papaloapan
Self-supply
30
Central Eólica de México
Central Eólica México 2 (CEM-2)
Generator
31
Iberdrola Renovables
Pier II
Self-supply
32
Vive Energía de México and Envision Energy
Energía Renovable de la Península
Self-supply
33
Eólica del Golfo
Dzilam de Bravo
Self-supply
34
Comisión Federal de Electricidad
Yuumil’iik
Generator
35
Generadores Eólicos de México
Arriaga
Self-supply
36
Grupo Dragón
Arriaga
Self-supply
37
Secretaría de la Defensa Nacional
SEDENA
Self-supply
38
ACCIONA Energía
Oaxaca IV
Independent Power Producer
39
Industrias Peñoles
Fuerza Eólica del Istmo (I, II)
Self-supply
40
Zuma Energía
PE Ingenio
Self-supply
Self-supply
Self-supply
Self-supply
Plant Size (MW)
Authorized Energy Production (GWh/ year)
Investment (US$ millions)
Status
State
156.00
457.00
312.00
Operational
Baja California
300.80
998.00
601.60
Construction
Baja California
72.00
220.75
144.00
Construction
Baja California
10.00
27.00
20.00
Operational
Baja California
30.00
89.87
60.00
Construction
Baja California
2.00
7.08
4.38
Construction
Sonora
2.00
7.08
4.00
Operational
Sonora
0.60
0.20
1.20
Operational
Baja California Sur
200.00
640.00
400.00
Construction
Coahuila
300.00
920.00
600.00
Construction
Coahuila
22.00
45.00
44.00
Operational
Nuevo Leon
250.00
832.20
500.00
Construction
Nuevo Leon
50.00
153.00
100.00
Construction
Nuevo Leon
126.00
330.00
252.00
Operational
Nuevo Leon
126.00
330.00
252.00
Operational
Nuevo Leon
60.00
187.00
120.00
Construction
Tamaulipas
60.00
187.00
120.00
Construction
Tamaulipas
54.00
213.00
108.00
Operational
Tamaulipas
49.50
187.00
99.00
Construction
Tamaulipas
120.70
387.00
241.40
Construction
Durango
180.00
476.00
360.00
Construction
Zacatecas
200.00
620.00
400.00
Operational
San Luis Potosi
64.00
196.00
128.00
Construction
Jalisco
64.60
198.00
129.20
Operational
Jalisco
40.00
122.00
80.00
Construction
Guanajuato
76.00
220.40
152.00
Construction
Jalisco
30.00
90.00
60.00
Construction
Queretaro
50.00
153.00
100.00
Construction
Veracruz
40.00
126.00
80.00
Construction
Veracruz
50.40
169.30
93.75
Construction
Puebla
66.00
243.69
132.00
Operational
Puebla
92.40
315.67
184.80
Construction
Yucatan
70.00
270.00
140.00
Construction
Yucatan
Operational
Quintana Roo
1.50
2.18
3.00
19.97
61.82
39.93
Construction
Chiapas
32.00
98.00
64.00
Operational
Chiapas
15.00
42.05
30.00
Construction
Oaxaca
102.00
326.40
204.00
Operational
Oaxaca
80.00
350.00
160.00
Operational
Oaxaca
49.50
179.68
99.00
Operational
Oaxaca
239
WIND PROJECTS IN OPERATION AND CONSTRUCTION (cont.)
240
No.
Company
Project
Arrangement
41
Comisión Federal de Electricidad
Central La Venta
Generator
42
EDF-EN
La Mata-La Ventosa
Self-supply
43
ACCIONA Energía
Eurus (I, II)
Self-supply
44
Enel Green Power México
Sureste I Fase II
Independent Power Producer
45
ACCIONA Energía
Oaxaca III
Independent Power Producer
46
ACCIONA Energía
Oaxaca II
Independent Power Producer
47
DEMEX
Piedra Larga II
Self-supply
48
Instituto de Investigaciones Eléctricas (IIE)
Parque Eólico Municipal
Small-scale Producer
49
Mitsui and EDF-EN
Santo Domingo
Self-supply
50
Iberdrola Renovables
La Ventosa I, II, III
Self-supply
51
Enel Green Power México
Bii Nee Stipa II (Stipa Nayaa)
Self-supply
52
Enel Green Power México
Bii Nee Stipa III (Zopiloapan)
Self-supply
53
Energía Eólica del Sur (EES)
Eólica del Sur (I, II)
Self-supply
54
Iberdrola Renovables
Bii Nee Stipa II Fase IV (Dos Arbolitos)
Self-supply
55
Gas Natural Fenosa
Bií Hioxo
Self-supply
56
Grupo México
Bii Nee Stipa II Fase III (El Retiro)
Self-supply
57
Iberdola Renovables
La Venta III
Independent Power Producer
58
Mitsui and EDF-EN
Bii Stinú
Self-supply
59
DEMEX
Piedra Larga I
Self-supply
60
Energías Ambientales de Oaxaca
Oaxaca I
Independent Power Producer
61
Iberdrola Renovables
Bii Nee Stipa I
Self-supply
Wind farm under construction, Oaxaca, AMDEE
Plant Size (MW)
Authorized Energy Production (GWh/ year)
Investment (US$ millions)
Status
State
84.20
198.60
168.40
Operational
Oaxaca
67.50
365.16
135.00
Operational
Oaxaca
250.50
883.73
501.00
Operational
Oaxaca
102.00
388.00
204.00
Construction
Oaxaca
102.00
326.40
204.00
Operational
Oaxaca
102.00
326.40
204.00
Operational
Oaxaca
137.50
508.75
275.00
Operational
Oaxaca
5.00
21.90
10.00
Operational
Oaxaca
160.00
600.00
320.00
Operational
Oaxaca
101.90
312.00
203.80
Operational
Oaxaca
74.00
292.00
148.00
Operational
Oaxaca
70.00
254.45
140.00
Operational
Oaxaca
396.00
1310.00
792.00
Construction
Oaxaca
70.00
218.89
140.00
Operational
Oaxaca
234.00
700.68
468.00
Operational
Oaxaca
74.00
231.39
148.00
Operational
Oaxaca
102.85
288.00
205.70
Operational
Oaxaca
164.00
642.00
328.00
Operational
Oaxaca
90.00
333.02
180.00
Operational
Oaxaca
102.00
410.00
204.00
Operational
Oaxaca
26.35
100.13
52.70
Operational
Oaxaca
241
VIEW FROM THE TOP
ACCURACY A KEY MEASURE OF SUCCESS MANUEL IGLESIAS Country Manager of Kintech Engineering
Q: What role does Mexico play in your global portfolio
intervals. The new algorithm was awarded a prize by the
given the local wind industry development?
Spanish Association of Wind Energy, recognizing our
A: Kintech Engineering opened an office in Mexico in
contribution to the sector. Kintech Engineering’s devices
2014 but it has been present in the country for a longer
are the only ones in the market using this algorithm but
period. We are a Spanish company founded in 1999 with
we are pushing wind power associations to include it in
the development of the EOL 2020 data logger, which
the regulations for wind energy equipment, such as the
was an extremely successful and innovative product due
IEC 61400.
to its integrated telemetry system. In 2007, the company launched the EOL Zenith data logger, which presented
Q: Which of your products are most popular among
considerable improvements in comparison with the
companies operating in Mexico and why?
previous version. That same year, Kintech Engineering
A: The EOL Zenith data logger has been extremely
started to increase its presence in international markets,
successful in Mexico and it is the company’s flagship
including Mexico. So far, Mexico does not represent as
product. Its cutting-edge characteristics, such as the high-
large a share in Kintech Engineering’s portfolio as other
reach telemetry system that works perfectly in remote
emerging markets, such as Brazil, but it is expected to
areas with weak or absent GSM wireless coverage, make
grow in the coming years. What differentiates Kintech
it very attractive. Furthermore, the data logger uses a
Engineering from its competitors is that we are also
special encoder system to compress data packages,
manufacturers, which in combination with our wide
making it easier and cheaper to transmit data via satellite
network of regional offices allows us to provide better
in places without a GSM network. We have also seen great
aftersales services. In Mexico, as in other international
demand for the KT-470 wind tower, which was designed
markets, we distribute our products and offer technical
by Kintech Engineering and provides shorter installation
support to renewable energy developers.
times as a result of its user-friendly structure.
Q: How important is R&D for your business and what is
Q: How do you ensure your products provide accurate
your latest groundbreaking innovation?
measurements to avoid overestimating generation rates?
A: Kintech Engineering was founded as an electronic
A: Our data logger equipment is designed according to
engineering
electronic
the specifications of the IEC 61400 norm and is based on
equipment. R&D has been a core part of our business since
our vast knowledge and experience in the sector. It uses a
the early stages, as Kintech Engineering is always looking
special operating system designed by Kintech Engineering,
to innovate and improve the performance of its equipment.
which has been specially tailored for wind and solar energy
We are not the only company providing real-time
applications. This particular characteristic makes our
telemetry, for example, but we offer the best performance.
systems more accurate than other data loggers that use
One of our key innovations has been the integration
generic operating systems. The accuracy of anemometers
of an additional wiring panel to our devices’ sensors to
is especially critical as a variation of 0.1m/s in the average
protect the system from natural electric discharges, which
wind speed is equivalent to around 100 equivalent hours
some internal protection systems might not withstand.
of nominal power per year. We have considered that
This
sensitivity while designing our equipment, giving our
solution
firm
to
avoids
develop
the
innovative
incorporation
of
external
protection devices that might affect a measurement’s
systems the ability to perform real-time measurements.
quality. Another important innovation is the algorithm the company developed for measuring wind turbulence,
Kintech Engineering is a Spanish manufacturer of wind-data loggers for
which improves the accuracy of the most-used method,
wind resource assessment like data acquisition systems, anemometers,
incorporating standard deviation methods at 10-minute
wind vanes and remote communication.
243
INSIGHT
WIND POTENTIAL STILL UNDERDEVELOPED IN OAXACA SINAÍ CASILLAS Renewable Energies Coordinator of the State of Oaxaca
Already known for its beautiful beaches, exquisite food,
significant opportunities for new projects to be built in our
ancient traditions and wide biodiversity, Oaxaca is also
wind corridor. In fact, there is a second open season coming
a big name in sustainable energy. In the last six years, the
for approximately 2.3GW.”
state went from having seven wind farms to 22. But there 244
is one hurdle keeping Oaxaca from capitalizing on its wind
To take advantage of the state’s abundant natural resources,
resources: the lack of appropriate infrastructure.
Casillas also highlights the importance of involving local communities in the development process and ensuring new
“The Energy Reform generated big expectations in the state
projects bring added value to the local inhabitants. Some
that were not fulfilled,” says Sinaí Casillas, Renewable Energy
wind projects in the state became infamous when they
Director at the Government of Oaxaca. “The problem is not
were cancelled due to social issues but the industry has
the Reform itself but the lack of accompanying infrastructure
learned its lesson, acknowledging the relevance of bringing
to support it. While on paper there are many infrastructure
communities on board from the early development stages.
projects to be built, most have been delayed. For instance, the Xipe substation with 400,000V transmission lines
Casillas says the ‘Luz en Casa Oaxaca’ program, a joint
was expected to be ready in 2013 but it was delayed to
initiative between Oaxaca’s government, ACCIONA Energía,
2017. This caused a delay in the projects of our first open
a Spanish project developer with strong expertise in wind
season, an initiative to kick start wind energy projects in the
farm construction, and the Spanish Agency of International
Tehuantepec Isthmus. The state expected this open season
Cooperation for Development (AECID), is a flagship case.
to deploy 3.3GW of wind projects but to this date only
The program installed solar panels in isolated communities
2.3GW have been built.”
that were not connected to the national grid. The cost of the PV solar systems is shared equally by the government and
Oaxaca has a little over 1,600 wind turbines generating
the end user, while the operational costs and maintenance is
approximately 2.3GW. These are spread over 22 wind farms
provided by ACCIONA Energía and AECID. During the past
in six regions: Isthmus of Tehuantepec, Juchitan, El Espinal,
three years, the program has provided electricity to around
Ixtepec, Santo Domingo Ingenio and Unión Hidalgo.
7,500 households.
“Oaxaca is a leader in wind energy,” Casillas adds. “The state
That initiative's success prompted the state to support a
has the largest potential for wind development in Mexico. The
second project with Ilumexico Foundation, which covered a
Isthmus of Tehuantepec, for instance, has 10GW potential, of
further 3,000 households. The two programs jointly helped
which only 23 percent is being used.” The new HVDC line
it to increase its electrification rate by 1.3 percentage points,
that will connect Oaxaca with the Valley of Mexico – the first
a significant improvement considering that Oaxaca is almost
in the country to use this technology – will provide more
4 percentage points below Mexico’s average electrification
space for the state’s wind resources to be harnessed and
rate, currently set at 98 percent. One reason for Oaxaca’s
transmitted to high-demand regions. The project will also be
lag is the dispersion of its population. There are 1,000
the first to be developed under the new private participation
communities constituted by only three or four households,
schemes opened by the Reform, which adds certainty to its
for instance. Distributed renewable energy generation might
due date. It will have a capacity of 3GW.
be the key to bringing light to off-grid communities.
Casillas believes that further projects will fall in line once
The state government is clear: With the proper infrastructure
the initial challenges have been addressed. “We believe
in place Oaxaca can supply end users in the country’s high-
the reform will open the market to several projects that will
demand regions with the electricity they need but only if its
strengthen the value chain of the sector,” he says. “We see
inhabitants can enjoy the same benefits.
VIEW FROM THE TOP
CHEAPEST OFFER NOT ALWAYS THE BEST LONG TERM SAVIR RUIZ CEO of CODISA CORP Energy
Q: What challenges do wind energy companies face in
the foundations are properly secured, we use specialized
Mexico and how does CODISA help?
grouting applicators imported from Europe and we work
A: A common challenge international companies face when
with grout materials that have been certified by leading
entering the Mexican market is finding reliable suppliers and
turbine manufacturers such as Gamesa or ACCIONA.
service providers. We have heard of companies suffering time delays on their projects due to faulty services, a
Q: What are CODISA’s flagship projects in energy and
situation we want to avoid at all costs. When we decided to
what developments are in the pipeline?
enter the energy industry, we invested time and resources
A: One of the first projects we developed for wind
identifying the problems developers usually face, so that we
energy companies was the Wigton III wind farm in
could design a strategy to mitigate or avoid these incidences
Jamaica, which was commissioned by the Portuguese
during the development of our projects. We invested heavily
company CJR Wind. We were in charge of installing
to equip our company with enough specialized machinery to
the foundations and ensuring the mechanical forces
serve the needs of our clients, for whom we have imported
were transmitted from the top structure to the concrete
cutting-edge technology from top manufacturers in Europe.
foundation.
We complemented that leading-edge equipment with a
to work in international settings. In Mexico, the first
group of certified technicians and quality construction
project we developed was the Tres Mesas wind farm in
materials specially designed for wind turbine applications.
Tamaulipas, with Abengoa acting as our first customer
This
project
demonstrated
our
ability
in this industry. Afterward we collaborated with Global The market is pressuring suppliers and service providers to
Energy Services on the construction of Primero de
lower prices but we want developers to know the cheapest
Mayo, a 100MW wind farm in Jalisco operated by Enel
offer is not always the one with the lowest long-term costs.
Green Power.
We have clients that have contacted us after having had a bad experience with cheaper contractors that turned out to be more expensive in the end. This can be avoided by selecting the right options in the project’s early stages. Our objective is to offer services at a reasonable price without compromising quality and efficiency. Q: How can a faulty foundation impact a project’s costs
The base of a wind turbine represents only 2.5 percent of its total cost but a design failure can add relevant costs during the project’s lifetime
over its lifetime? A: Foundations represent only 2.5 percent of the total cost
As for our current developments, we have a signed
of a wind turbine but a fault in the design can add relevant
contract to help Peñoles with the development of a wind
costs during the project’s lifetime. Due to their large size,
farm to supply energy to its zinc treatment facilities in
wind turbines must be installed on site using steel bolts
Coahuila, the first wind energy project developed in that
to join the different parts, including the tower sections, to
state. Peñoles’ wind farm will consist of 95 wind turbines
the foundation. If the foundation is not set correctly, the
that will rest on our foundations and it will be developed as
vibration caused by the blades and the engine’s movement
a joint venture between Energía Eléctrica Bal and Energías
can destabilize the structure and damage the motor. The
de Portugal.
only way to repair a turbine’s motor is to dismantle the structure and bring the engine down, which is costly. The
CODISA Corp Energy has been operating since 1995 as a provider of
cranes required to dismantle the tallest sections of a turbine
high-quality construction materials, working both in Mexico and abroad
alone can cost thousands of dollars per day. To ensure
to help wind power projects get off the ground.
245
VIEW FROM THE TOP
CONCRETE EXPERIENCE SOLIDIFIES ENERGY DEVELOPMENT FRANCISCO CON Business Development Director of CEMEX Energía
246
Q: What drove you to bet on power production and what
specific areas and once the projects are shovel-ready we have
are the main pillars of CEMEX’s strategy in this sector?
a natural investor in PEGI, a Pattern affiliate. Our partners
A: Our production process is energy-intensive. For more
have to have specific qualities, like proven experience,
than 20 years we have made strides toward improving
access to long-term capital, a set of technical skills that
our efficiency and lowering our power and fuel costs by
complements ours, appetite and resources to grow in Mexico
using alternative sources. This pushed us to develop power
and a positive attitude to make the relationship fruitful. We
plants for our own needs in the late 1990s, shortly after
found all of this in Pattern and together we have taken ideas
private power generation was originally allowed in Mexico.
from paper to very competitive advanced-stage projects.
In fact, CEMEX is a pioneer in large-scale self-supply and in introducing renewables to Mexico by developing the 250MW
Q: How can CEMEX’s energy division benefit from the
Eurus wind farm in Oaxaca almost 10 years ago.
company’s experience in the production of cement and concrete?
Even though CEMEX Energía began with the goal of obtaining
A: Land rights and community relationship management
lower and predictable costs for our own manufacturing
are two clear examples where we work together and learn
processes, its scope was expanded to develop power
from each other. We also receive valuable support from
plants for third parties. Our strategy is based on developing
other corporate areas: finance, risk management, social
projects that combine first-rate resources, responsible risk
responsibility, IT and logistics, to name a few. Another
management and strong sponsors, without dipping into
advantage as a producer is the management of self-supply
CEMEX’s balance sheet.
projects as a critical part of our business model. Through this experience, we have learned the challenges of negotiating
Q: What are the challenges for companies like CEMEX
bankable PPAs, the benefits of a long-term strategy that
Energía versus 100-percent energy companies?
reduces the impact of volatile markets and also how to
A: Our group has a different origin than most of the other
adapt our commercial offerings to an evolving competitive
players in the energy sector so that presents both challenges
landscape. We’ve also learned how to manage thousands of
and advantages. Being large consumers ourselves, we can
customer load points, which is a unique experience in Mexico.
better understand the point of view and the concerns of final users. We have acquired experience from operating
Q: What makes wind power such an attractive investment
in markets whose electric sectors have undergone similar
for the company?
reform processes, such as in Europe, Central and South
A: We have a history of developing wind assets in Mexico
America and the US. In Mexico specifically we can leverage
which we will continue but we are also developing solar
our proven track record in project development, a well-
projects. We see these two technologies as equally
recognized name and a wealth of support from different
competitive and complementary, both for a single consumer
areas across our entire organization.
and for the grid. Although wind has a higher inter-annual variability, it also has advantages such as producing power
We plan to work with selected partners that complement
across all periods, especially during late afternoon hours in
our skills and can facilitate obtaining long-term capital. An
the northeast, which improves the prospects of capacity
example of this is our joint-venture with Pattern Development
recognition over the long term. Any balanced supply portfolio
to develop renewables in Mexico, whereby each of us leads
should include both. Our model is to contract the output of the projects we develop. We will focus on bilateral contracts
CEMEX Energía is a division of CEMEX, one of the world’s largest
and power auctions, leaving a small exposure to the spot
cement producers, focused on the development of projects in the
market, although we see a lot of potential in optimizing the
Mexican power industry.
positions between the day-ahead and real-time markets.
INSIGHT
CEMENTING ALLIANCES FOR EMERGING MARKETS GLEN HODGES Mexico Country Manager of Pattern Development
After savoring success in the Chilean market, Pattern
1GW of generation projects in Mexico, being a pioneer in
Development, a renewable energy developer based in San
the development of energy projects under the self-supply
Francisco and Houston, looked at Mexico as the next logical
scheme. The company has experience both as an off-taker
step to continue its Latin American expansion. The company
and a supplier, which drove it to establish its energy division
expects electricity demand here to keep growing and sees
at the beginning of 2015. According to Hodges, “the joint
more opportunities arising in line with the government’s bold
venture between CEMEX and Pattern Development was a
energy targets. “Mexico fits very well in our goal of entering
mutually beneficial decision. We were looking for a strong
strong and attractive markets,” says Glen Hodges, Country
Mexican partner to start our business here while CEMEX
Manager of Pattern Development. “Both the economy
Energía was looking for an alliance with an experienced
and electricity demand are growing and we expect this
and well-capitalized renewables development company to
trend to continue in the future. Additionally, Mexico needs
help its ambitions in the energy sector.”
to substitute old and inefficient power plants with cleaner facilities and the government has set ambitious goals regarding clean energy usage. All these factors are crucial
“Mexico needs to substitute old and
drivers behind our commitment to Mexico.”
inefficient power plants with cleaner
The company has already developed 19 projects globally,
facilities”
accounting for almost 3GW of wind capacity and is looking to add 1GW in Mexico through greenfield developments of
Glen Hodges, Mexico Country Manager of Pattern Development
solar and wind projects as well as strategic acquisitions. “We have a primary focus on greenfield development
CEMEX Energía leads the way in real estate, permitting and
but we also intend to acquire some projects already in
interconnection aspects while Pattern Development takes
advanced development stages. We are particularly looking
the lead on issues such as meteorological prospecting,
for clean energy projects that are located in interesting
wind measuring, engineering and design and equipment
nodes and have solid land rights and good interconnection
procurement. Marketing and project financing are handled
facilities,” he adds.
jointly, he adds. Pattern Development also brings to the table its credentials regarding project financing. It has a
The main challenge for ambitious companies in Mexico is
proven record of providing access to long-term equity
to cope with specific aspects of the local energy industry
and financing through its affiliate Pattern Energy Group,
while dealing with a different business culture. “The
publicly listed on the NASDAQ and Toronto exchanges.
basics of wind farm development do not vary much from
Pattern
country to country but there are certain aspects that differ
Riverstone, an energy-focused private investment firm.
Development
is
financially
supported
by
considerably, particularly those related to bureaucratic and legal processes such as land rights acquisition, permit
“Riverstone is Pattern Development’s primary investor,”
issuance or interconnection,” says Hodges. For Pattern
says Hodges. “The capital and business expertise it has
Development,
helped
brought to our company have been essential to our
accelerate the process. “We looked for a partner with
success. Project development is risky so it is important
the skills and experience needed to help us move up the
to have financial backing from experienced investors.”
learning curve faster and we found it in CEMEX Energía.”
He believes CENACE’s power auctions will represent the
finding
a
compatible
partner
largest business opportunity for project developers in the CEMEX Energía is the energy division of CEMEX, one of the
near term, but bilateral transactions with private off-takers
world’s largest cement producers that has developed over
will become more important as the market evolves.
247
INSIGHT
WINDS OF CHANGE BRING FRESH OPPORTUNITIES ALEJANDRO ROBLES Country Manager of SOWITEC
248
The events taking place in the Mexican energy industry
megawatt-hour even in a scenario with record-low natural
during the past two years have been so dramatic that
gas prices. Intermittency is a concern, especially when it
numerous energy companies are entering segments they
comes to offering capacity. “Considering these issues, we
had never thought of before. The opening of the wholesale
are planning to build a diverse portfolio to offer products
electricity market has some project developers analyzing
to most of the market,” he adds.
the possibility of expanding their portfolio of services to include activities that were unavailable before, such as
SOWITEC has already sold all the projects it had under
commercializing energy.
the previous scheme, keeping only those with permits under the Electricity Industry Law, which are eligible to sell
But anyone who thinks it will be a simple process, should
energy. Wind energy is expected to continue playing a key
think again. SOWITEC, a German project developer, is
role in the company’s portfolio, mainly in the medium to
among those branching out into fresh niches. It says a new
long term, but Robles also sees a great opportunity in the
market brings new challenges to overcome. The industry’s
solar sector that he expects will become more relevant to
various players need to be aware of this, especially as
his business in the near future. “The same permits that are
the rules are not particularly clear. “The industry needs
required for wind are needed for solar. What really varies is
to fully understand all the mechanisms available in the
the engineering and we are receiving great support in this
new market,” says Alejandro Robles, Country Manager of
area by SOWITEC’s team in Brazil, which has a good deal
SOWITEC. “There are many elements that did not exist
of expertise in solar development. The greatest challenge
before and are unclear to potential market participants.
for solar development in Mexico in comparison with wind
For instance, some off-takers are taking the results of
will be social impact. Solar parks use more land than wind
the auctions as a benchmark for PPA prices. But they are
farms, which calls for a more complex social management
not considering that there are also obligations to acquire
strategy,” he says.
capacity, CELs, ancillary services, financial transmission rights and other related costs. Most companies still have
Robles is confident that SOWITEC can handle the social
the mentality to ask for contracts that offer discounts over
management of solar projects because it has done it for
CFE’s prices, considering it as the decisive factor. In reality
wind farms in the past, including some developments
there are many more factors that need to be considered
in Nuevo Leon and San Luis Potosi. The company also
in today's market.”
has experience in securing land rights for transmission lines, which can imply negotiating with a high number
SOWITEC is among the leading wind power developers
of landowners depending on a project’s length. “In
worldwide. It has installed over 100 wind turbines
less than a year, we have secured the land rights for a
in 30 different wind farms globally. In Mexico, it has
40km transmission line with 300 landowners. It was a
participated in the development of wind farms mainly in
challenging process as many of these landowners were
the north. Now, the company is looking at the possibility of
out of the country and hard to reach. But we managed to
commercializing energy through qualified suppliers, which
do it properly and close all the negotiations on time.”
are among the most sophisticated elements introduced by the new rules. “The auctions are interesting for us
SOWITEC plans to complete at least 500MW of projects,
but they are also highly competitive. We are therefore
including both solar and wind, in the next two years. “Our
looking at other alternatives, opening the spectrum of
plan is to sell projects to utility investors and investment
possibilities as much as we can,” Robles says. Renewable
funds although we will have to see how the political
energies are interesting options, he says, because they
changes in the US impact this sector. We remain positive
have demonstrated they can offer competitive costs per
nonetheless.”
INSIGHT
BET ON MEXICO WIND PAYS OFF FERNANDO VILLARREAL Director of Project Development at Oak Creek Energy
The US economy’s slower pace of growth in the last
most of the megawatts tendered in the first two auctions.
decade drove American energy companies to look south
Wind did, however, win a higher percentage in the
of the border for new business opportunities. Oak Creek
second round than the first, at about 43 percent. “In the
Energy was among those that placed a strong bet on
present market environment, power auctions offer great
Mexico’s nascent energy industry, a wager that is now
opportunities and add certainty to project development
paying dividends. To establish a foothold the company
in Mexico, particularly as they involve long-term PPAs with
acquired Frontera Renovable in 2012, a Mexican developer
CFE, ensuring the energy produced has a stable off-taker,”
with a number of wind projects in the pipeline in northern
says Villarreal. “Wind energy is quite competitive at the
Mexico. “Since that date, our company has dedicated a
moment. Mexico is craving a diversified electricity matrix
great share of its resources to Mexico, particularly after
and we believe that wind energy will be an important
the implementation of the Energy Reform,” says Fernando
component of the future energy system.”
Villarreal, Director of Project Development at Oak Creek Energy, a wind project developer with over 30 years of experience. Oaxaca was the crown jewel of wind energy in Mexico when Oak Creek Energy decided to invest in the country’s renewables sector but the company went against the prevailing winds and instead targeted the north. “The region showed great wind potential but remained largely
“We believe that wind energy will be an important component of the future energy system” Fernando Villarreal, Director of Project Development at Oak
Creek Energy
unexploited, making us one of the first companies to develop wind farms in Tamaulipas,” says Villarreal.
CELs are another aspect introduced by the reform and have added value to renewable energy projects,
Three factors drive the company’s interest in other
contributing to the auction success of solar and wind. “We
locations: availability of attractive wind resources, trends
believe CELs are a good incentive to promote renewable
in energy demand and electricity grid interconnection
energy projects in Mexico, but it is too soon to determine
capacity. The Energy Reform added nodal prices into
the extent to which they can boost the country’s renewable
the mix and those are now crucial to the attractiveness
industry,” Villarreal says.
of a project’s location. Nodal prices were identified as the main factor behind Yucatan’s transformation into Mexico’s
Oak Creek Energy also is waiting to see the Ministry of
next renewable energy hub during CENACE’s first power
Energy’s final regulations for Social Impact Assessments
auction. The state also benefited from the auction’s
(SIAs) on energy projects. “SIAs’ guidelines are not yet
economic structure. To promote investment in regions
completely defined, making the whole process more
with the highest energy needs, states like Yucatan were
challenging for us. We will continue working with the
assigned an adjustment factor to reflect the real value of
communities, slowly incorporating the new guidelines
energy in that area. For instance, if a company offered
until the definitive regulations are published,” Villarreal
energy at US$100/MWh in Yucatan, it was perceived by
adds. The company has already worked with ejidos and
the system as US$78.02/MWh ( a factor of US$21.98/
rural communities for its projects in Mexico, which allows
MWh), giving it an advantage as the cheapest offers were
them to look at the new regulations with an experienced
selected first. Oak Creek Energy believes the auctions, the
eye. “In the current regulations, we have identified certain
second of which was held in September, are beneficial to
areas related to land rights that we expect will be modified
the wind business, even though solar energy projects won
as the guidelines are improved.”
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VIEW FROM THE TOP
AUCTIONS DRIVE NEWCOMERS TO SOLAR DAVID BARRIE Business Development Coordinator at SgurrEnergy
250
Q: What was behind SgurrEnergy’s decision to open a
The expansion of the grid and growth in energy demand
local office in Mexico?
will be crucial for defining the feasibility and economic
A: Over the last two years we identified an increasing
potential of energy projects in Mexico. Yucatan is
number of clients that have been involved or have a
becoming a renewables hub after being awarded
presence in Mexico, a trend encouraged by the enactment
a large portion of the tendered projects. However,
and implementation of the Energy Reform. The country’s
uncertainty remains as to whether or not the Peninsula’s
ambitious clean energy targets and abundant natural
power network can support more renewable projects.
resources, combined with the market potential, have made
SgurrEnergy is working to identify areas of the country
it an attractive location for renewable energy investment.
that have potential resources and which could benefit
So our decision to move here was a reaction to market
from the development of renewable energy projects.
trends and an ability to identify a burgeoning market with
Like in other regions, our strategy to capitalize on the
real potential for development. Mexico is one of the most
country’s resources is primarily dictated by the needs
attractive emerging markets in the world and we wanted
and expectations of our clients, helping them with
an on-the-ground presence to truly understand the
technological aspects or the optimization of certain
country’s local market and the challenges it faces.
stages of the project, all according to local constraints.
Q: How did the results of the first power auction affect
Q: How has R&D impacted the development of
the company’s perspective of the market?
renewables and prices?
A: We were pleasantly surprised by the results in the first
A: R&D has been crucial for the development and
tender carried out under the new regulatory scheme. The
expansion of renewable energy in recent years. For
immediate impact of solar energy and the low prices for
instance, the advances made in wind measurement
tendered contracts are positive for the renewable energy
technologies have allowed developers to gather more
industry and in line with the goals of the Energy Reform.
accurate data, which is used to design more efficient
We were not expecting solar to surpass wind energy in
wind farms that yield higher power outputs. One of
the number of megawatt-hours awarded so quickly,
the industry’s goals is to develop a product capable
particularly at the tendered prices, although dropping
of measuring wind speeds across an entire region
renewable energy prices is a trend the industry has been
in an efficient and cost-effective way, which would
observing in different regions, such as Peru or the southern
help reduce uncertainty, time to market and improve
US. This is a result of improvements in efficiency, a decrease
overall project development processes. Innovations in
in manufacturing costs and the use of innovative financing
measuring technologies allow developers to optimize
mechanisms. But we remain somewhat cautious about the
the performance of the individual wind turbines as well
potential reaction of investors and project developers to
as the work of the wind farm as a whole.
record-low energy prices, because the ability of a diverse range of developers to compete at the rates tendered in
Q: What are SgurrEnergy’s expectations for its first
the first auctions will be somewhat limited. If Mexico wants
years in Mexico?
to build a diversified market it will have to push prices up
A: We expect a greater number of projects to be
so a wider range of developers and suppliers can also be
developed in Mexico in the coming years and we expect
involved in the process.
to become a trusted partner to these developers. There is a considerable difference between winning a tender or a
SgurrEnergy is part of Wood Group. It entered Mexico in 2016
PPA contract and successfully developing a wind farm or
but has assessed over 160GW of renewable energy developments
a solar park, so we want to focus on helping companies
internationally, including wind, solar, biomass and hydro.
close the gap and make their projects a reality.
VIEW FROM THE TOP
LOCAL EXPERTISE HELPS NAVIGATE MURKY REGULATIONS Marco Anaya Sub-Director of Power and Infrastructure at Marsh
Rosa Morán Sub-Director of Energy at Marsh
RM: At Marsh we have an engineering team specialized Q: What market risks, particularly for solar and wind
in power generation that can help companies identify
energy companies, exist in Mexico and how can Marsh
different risk scenarios and design mitigating strategies.
help mitigate those?
There are other specialized companies that can collect
MA: Wind and solar power generation in Mexico has
or generate relevant information to evaluate the risk
encountered difficulties due to changes brought by the
effectively. So far, we have not experienced any problem
Energy Reform, which transformed the previous regulatory
with information availability, which is a good indicator.
framework completely. In this regard, Marsh can help companies navigate the new regulations by using its local
Q: How does Marsh expect electricity-sector M&As to
expertise and knowledge of the market, taking part of the
develop and how is the company positioned to assist
load off their shoulders and allowing companies to focus
clients?
on their core activities. We want to play an advisory role
MA: Marsh has a special department dedicated to M&A
for new and existing companies willing to understand the
services, known as the Private Equity and Mergers and
new market rules and the risks inherent in it.
Acquisition (PEMA) practice. This practice has already handled several M&A projects for Marsh. Presently
RM: In terms of risks, one of the main concerns for power
a number of firms are analyzing the possibility of
generators is the vulnerability of their facilities in certain
establishing joint ventures with other companies to enter
regions, particularly in isolated locations. For renewables,
the Mexican electricity market. In these cases, we can
this concern is especially relevant because their location
provide risk assessment services from the early stages
must be selected according to where the renewable
to the actual operation of the project. During all the
resource is available. It happens that the optimal resources
M&A operations we work hand in hand with our clients,
might be in remote or difficult to access locations, which
using our expertise to help them successfully navigate
raises risk exposure and security concerns. These types
this process. We have seen an increasing interest from
of projects may also be exposed to natural hazards,
companies to generate electricity as a side operation
including the effects of climate change, which may affect
and are therefore looking to establish partnerships, such
their profitability. Social issues, including right of way
as through joint ventures or acquisitions, with supplier
permits, are another recurring matter. If a company fails to
companies that have expertise in power generation. As
handle these issues correctly it can face delays or even the
the Energy Reform advances, we expect to see an ever-
cancelation of the project, heavily impacting its finances.
growing number of M&As in the sector.
Marsh can help companies with all these issues by developing special insurance programs to better address
Q: What is Marsh’s view of the renewables sector and what
these challenges.
will be the company’s position in this new landscape? RM: The whole energy industry remains cautious about the
Q: Globally, one obstacle to effective risk management
transformation of the sector due to the uncertainty that
is the lack of information. What has been the firm’s
still reigns regarding regulations, particularly in respect to
experience in Mexico?
the operation of the wholesale market, which involves new
MA: Fortunately, there are many firms operating in Mexico
players and new trading products, as well as CENACE as
that are performing analytical studies, such as mapping
operator of the grid and administrator of the wholesale
the potential of wind and solar resources. This has created
electricity market.
a pool of information that can be used for our operations. We have not come across any restrictions for accessing the
Marsh is a leading US-based consultancy, insurance brokerage and risk
information required for our risk and strategic assessments
management company, looking to help customers in over 130 countries
because there is plenty of information available.
discover new growth opportunities in markets such as energy.
251
ROUNDTABLE
WHAT IS THE OUTLOOK FOR WIND ENERGY?
Together with hydropower, wind has been the king of renewable energies in Mexico since private companies began tapping into Oaxaca’s outstanding potential, with average wind speeds over 10m/s while most wind farms in the world are located in regions averaging 6.5m/s. The results of the 2016 power auctions, however, shifted the spotlight to solar energy, which won most of the bids for energy and CELs, achieving record low prices. But that does not mean the impetus for developing wind farms in Mexico is slowing and many developers are still very much in the run to develop the wind potential of the country, which is not restricted to the south.
The future looks promising for wind energy. Some players in the industry were concerned after the first power auction’s results because the largest share of megawatt252
hours and CELs were awarded to solar energy projects, but we expected wind to play a more important role in the second power auction and that happened. The Mexican government has made a strong commitment regarding clean energy in the Energy Transition Law, stating that 35 percent of the country’s power must be produced from
LEOPOLDO RODRÍGUEZ President of AMDEE
clean energies by 2024, and we expect wind to represent between 40-50 percent of that goal. With the competitive prices we are seeing per megawatt-hour of wind energy, we hope to reach 12GW of capacity installed by 2020. There are already 4GW installed and several large projects in the pipeline and the strong technical attributes of wind energy will be increasingly acknowledged.
With the new regulatory framework, the Mexican market offers the ideal conditions to sustain the entire wind energy chain. Mexico’s energy policy offers a positive panorama for the wind energy industry, particularly as it has set aggressive targets regarding renewable energy, not only in the generation sector but in demand-side management, too. We believe the main industry trend in the years ahead will be to optimize the wind energy chain with the
ANGÉLICA RUIZ Vice President & Director General Mexico & LATAM of Vestas
objective of lowering costs. We are analyzing the possibility of incorporating a new product into our portfolio designed to optimize site selection. Mexico is a fundamental market in Latin America and Vestas is prepared to make the most of it. We expect the country’s wind energy capacity to grow year on year, representing an attractive market for us.
So far, our experience in Mexico has been satisfactory and we expect to continue growing at a similar pace. We foresee additional interesting opportunities for renewable energy developments in Mexico, especially given the country’s clean energy targets, and we are suited to take advantage of the favorable circumstances brought about by the opening of the market. Our goal is to be a long-term player in the Mexican market, which is why we are making strong efforts to build a great reputation among
FERNANDO VILLARREAL Director of Project Development at Oak Creek Energy
our clients in the country, successfully finalizing our projects while promoting positive relations with the local communities. We are looking for new opportunities, including the establishment of partnerships with other renewable energy companies that can complement our resources while they benefit from Oak Creek Energy’s added value. The idea is to form alliances to create even stronger projects from a diversified portfolio.
Undoubtedly, Mexico is one of the wind markets with greater potential in the region. Once the buzz of the power auctions is over, we expect to see a larger number of wind farms being constructed for private off-takers through the bilateral contract scheme. Wind is a proven and mature technology that nowadays is competitive with other energy sources and contributes to reducing the cost of energy. Wind farms tend to be more solid than other renewable energy projects as they have longer maturing periods, being supported by extensive wind forecasting studies and permit processes. All these factors positively contribute to the proposals’ seriousness. Mexico plays an important role in Gamesa’s business strategy. Since Gamesa started operating in
JORGE LOBATÓN Director General of Gamesa for Mexico & LATAM
Mexico back in 1999, the company has been very active in its capacity as an OEM, having installed close to 2GW, making us the number one OEM in this market.
Currently, Mexico presents great niche opportunities for us and we expect it to grow considerably in the upcoming years. Nonetheless, we are also aware of the 253
number of new companies that are being attracted by the favorable conditions, making the competition fiercer for us. Furthermore, we have identified a pipeline of a few large-scale projects rather than a great number of small-size wind farms, diminishing the number of potential clients. However, we remain positive as we expect the market to keep growing in the near future, bringing new opportunities for Kintech Engineering and other companies entering the Mexican market. We have experienced a successful introduction period, reaching an important number
MANUEL IGLESIAS Country Manager of Kintech Engineering
of potential customers. We are now starting to focus on increasing the regional office’s capabilities to better serve this growing market.
Wind development is focused in windy areas like Oaxaca, Tamaulipas, Baja California, Jalisco and other central regions. A factor that will become more decisive in the future for wind power development will be the location of transmission infrastructure. CFE will hold in 2017 a tender for a HVDC transmission line that will be developed through a PPP. According to PRODESEN, the country needs to develop around 15,000km of transmission lines and their associated infrastructure in the next 10-15 years. This first auction will be interesting as it will shed some light on the operation and construction of these kinds of lines, which are new to
ALEJANDRO ROBLES Country Manager of SOWITEC
Mexico, and the model to expand the network. There is also another transmission line expected to be built between Sonora and Baja California, which is also creating high expectations in the sector.
The main lesson we learned from our wind projects is the importance of linking them to social development to support local communities. Renewable projects must benefit communities with infrastructure or development of human capital. These efforts have to run parallel to the construction of renewable projects. Without them, existing energy projects might be placed at risk and future projects might be hindered because Oaxaca has a strong capacity for social mobilization. To improve this we are analyzing social development projects that will effectively and transparently include information, participation and communication plans. With the support of the Special Economic Zones (ZEE) project, we hope to begin these developments, which will play a significant role in the creation of jobs and the socioeconomic growth of these areas.
SINAÍ CASILLAS Renewable Energies Coordinator of the State of Oaxaca
Hyder II solar park, Arizona (US), Trina Solar
SOLAR
10
The sun is starting to power Mexico. With some of the best solar irradiation indicators in the world, the country saw significant presence of solar projects in its first two long-term power auctions in 2016. Solar PV projects won the lion’s share of the power generation awarded, displaying globally competitive prices and dispelling worries about the reliability of the technology. Global companies from the US to China and beyond are embracing the power of the sun and applying themselves to the task of harnessing it.
The country, which has set demanding clean energy targets for the medium term, has become a lab for new technologies and several utility-scale projects are starting to prove the potential of solar power. In this chapter, technology companies, developers, plant operators, engineering firms and customers discuss the implications of solar power’s entry into the Mexican energy mix and what the future might hold, hand in hand with emerging storage solutions that reduce concerns about the intermittent nature of this power source.
255
CHAPTER 10: SOLAR 258
INSIGHT: Lou Marrero, Trina Solar
259
VIEW FROM THE TOP: Diego Molina, ET Solar Energy for Latin America and the Caribbean
261
ANALYSIS: Mexico Heating Up
262
INSIGHT: Alberto Cuter, Jinko Solar
263
PROJECT SPOTLIGHT: Alion Energy ARC Tracker
264
MAP: PV plants in Operation in Mexico by Aug. 2016
266
VIEW FROM THE TOP: Óscar Bernal, Eosol Energy 257
267
INSIGHT: José Ruiz, Buenavista Renewables
268
VIEW FROM THE TOP: Mark Kingsley, Alion Energy
Jesse Atkinson, Alion Energy
270
INSIGHT: John Huffaker, OCI Solar Power
271
INSIGHT: Bernardo Fernández, Hive Energy
272
MAP: PV in Construction by Aug. 2016
278
VIEW FROM THE TOP: Andrea Bernardi, Enerray
280
INSIGHT: Francisco Bonilla, SYNERGY
281
TECHNOLOGY SPOTLIGHT: Power Electronics’ UL Outdoor Set
282
INSIGHT: David Arelle, ILIOSS/SolarCity Mexico
283
INSIGHT: Vladimir Ruiz, Fronius México
284
ANALYSIS: Distributed Solar Energy Sees Growth Uncertainty
285
VIEW FROM THE TOP: Arturo Almanza, Industronic
Miguel Barrientos, Industronic
286
VIEW FROM THE TOP: José Zambrano, Galt Energy
287
INSIGHT: Juan Ávila, Top Energy
288
MAP: Residential PV usage as of 2015
291
VIEW FROM THE TOP: Sergio Beristain, Beristain + Asociados
INSIGHT
QUALITY AND REPUTATION TRUMP COSTS LOU MARRERO Director Latin America & the Caribbean of Trina Solar
Power auctions across the world in the past year have left
a solar panel, we improve the efficiency of the product at
little doubt which way prices are heading. The record lows
a component level. In addition, we work continuously on
at auctions in Mexico, Peru and Saudi Arabia surprised the
optimizing our manufacturing processes, which is another
global industry as the development of higher-efficiency
factor impacting our products’ quality and costs.”
PV panels and improvements in BoP components have 258
helped to bring costs down. But while price is one thing,
Trina Solar’s flagship product is its double-glass module,
quality is another.
an innovative system developed at the company’s research center. Trina Solar’s R&D team spent years investigating
“We will never give up quality for the price,” says Lou
before finding an adequate solution to diminish the
Marrero, Director Latin America & Caribbean of Trina Solar.
negative impact that UV degradation, high temperatures
“It has taken us 20 years to build our reputation and we
and moisture have on a PV panel’s performance. “Their
are not willing to put it at risk just for the sake of reducing
idea was to replace the back sheet used in regular solar
costs.” Mexico’s first long-term power auction produced
panels with an extra layer of glass. The final design consists
a record price per megawatt-hour of solar energy with
of a 60-cell module that yields a higher power output rate,
average prices of US$45.15/MWh. The country beat its
in excess of 260W, with above 16 percent efficiency. The
own record later by reaching 30 percent lower prices in
product’s characteristics make it particularly attractive
the second auction, with energy costs of US$33.47/MWh
for hot and humid regions, which are common in Mexico,”
on average. The fact that the costs related to solar PV
Marrero says.
modules have fallen by around 80 percent from 2009 to 2015, according to IRENA, has helped to make solar energy
Trina Solar also has developed a smart system for its
more economically attractive. But it has also put pressure
PV panels that positively impacts a project’s costs. “The
on manufacturers to continue optimizing production
system, called Trina Smart, improves a plant’s power
systems and to keep costs down.
output and reduces the cost of the balance of the system, reducing installation and O&M costs. It allows project
Trina Solar is a Chinese manufacturer of crystalline PV
operators to monitor the performance of the individual
modules founded in 1997 and listed on the NYSE since
panels and the solar park as a whole,” he says.
2006. It supplied a total volume of 3.66GW PV modules in 2014, placing it as a leading supplier in the global solar
The company complements its technical capabilities with
market. Quality control is a core part of the company’s
strategic partnerships. “Part of our strategy consists of
strategy, with 30 internal quality tests currently running,
working with local talent, particularly those who have the
according to its website. “Our great attention to detail
ability to offer aftersales services according to our clients’
and vertically integrated structure have been our secret to
regional needs,” Marrero says. “We also work to establish
success because that enables us to control every aspect
strong and long-term relationships with our suppliers, such
of our processes,” Marrero says. “This strategy has allowed
as inverter or rack providers, which helps us establish a
Trina Solar to provide an efficient, high-quality and cost-
symbiotic bond that improves our product’s performance
competitive product that works perfectly under a wide
by linking it to the appropriate components.”
range of conditions,” Marrero says. Innovation is one of the strongest points that differentiate the company from
Trina Solar sees itself as a bankable business with a proven
other Tier 1 manufacturers, complemented by the strict
track record, which plays in its favor. “We are certain that
control Trina Solar exercises over its manufacturing chain,
Trina Solar’s name will be in the conversation repeatedly,
from the silicon to the assembly of the key components.
particularly because we lower a project’s risks and increase
“By ensuring the quality of all critical materials needed for
its bankability,” Marrero says.
VIEW FROM THE TOP
ENERGY TRANSFORMATION LEADS TO REVAMPED STRATEGY DIEGO MOLINA Regional Director of ET Solar Energy for Latin America and the Caribbean
Q: What led to ET Solar Energy’s successful entry into
that the DG market had recently opened in Mexico. Before
the Mexican market?
that year, solar-energy companies had to do a lot of
A: Since 2015, we have positioned the brand successfully
multitasking due to the market’s immaturity. In 2015 the
in Mexico, starting with medium and small-sized DG
DG market was finally established so we looked around
projects and then focusing on utility-scale PV projects.
for suitable partnerships. Unfortunately, in Mexico there
We
developers,
were only a few companies with the required financial
supporting their efforts to reduce the LCOE in their
are
working
closely
with
project
capabilities, infrastructure and experience to become our
projects. The company decided to follow this strategy
local partners. Nonetheless, companies like Exel Solar, a
because of the transformation taking place in the
Mexican wholesale supplier of solar-energy products,
Mexican energy industry. We expect the market to
emerged as an excellent option to become our partner.
take off completely in two to three years once financial
We worked closely with them to design and launch the ET
certainty has been established, and we built our strategy
Smart Flex product in Mexico, which is assembled locally
around this assumption. Luckily, we seem to have made
to reduce costs, providing an added value for customers.
the right decision as ET Solar’s panels were among the
Exel Solar not only had the proper financial and physical
three most sold solar panels in the Mexican DG sector in
resources to become our partner, it also had a great team
2015 and 2016.
that contributed enormously to our entry into Mexico.
We are now redesigning our strategy to fit the industry
Q: How can ET Solar help utility-scale developers be
changes we witnessed in 2016, putting a stronger focus
competitive in the current price environment?
on utility-scale customers. Mexico is a highly attractive
A: Our strategy is to help utilities with plants between
market for a wide range of industries and it is a gateway
5-500MW achieve competitive power-generation costs
for other interesting markets not only in the energy
and reduce their LCOE. We are part of the efforts by the
sector, which has motivated us to consider opening a
solar-energy chain to increase competitiveness against
manufacturing facility here. We have plans to build a
other technologies, which is crucial for companies
top-notch solar cell factory in Mexico. ET Solar Energy
participating in CFE’s power auctions. As happened
places great importance on innovation, so we would like
in the first electricity tender, solar-energy prices have
to have high-level production lines with digital platforms
become highly competitive, forcing companies to take
so clients can customize their products.
an aggressive approach.
We are now expanding our local workforce and we are
We are working with some of the tender’s participants,
confident will close the year as the best-selling solar-
establishing macro-agreements across different Latin
panel brand in the market. We have already signed
American markets to ensure they have competitive prices.
contracts in the utility-scale segment, accounting for
We guarantee aggressive prices through contracts based
200MW to be delivered in the next two years. This has
on market estimates, in which we consider everything
taken our company to the next step, allowing us to invest
needed to produce a solar panel for the next four years,
further in local business development and drawing closer
so we can now guarantee a competitive fixed-price for
to materializing the idea of manufacturing in Mexico.
panels that will be produced and sold in 2018-2020.
Q: What do you look for in a local partner and what kinds
ET Solar provides solar energy solutions including components
of partnerships have been crucial for your operations?
manufacturing and package services throughout the life cycle of solar
A: When we were planning our strategy for entering the
power plants, from project design, financing, engineering, procurement
medium and even small-scale market in 2015, we realized
and construction management operations and maintenance services.
259
Hyder II solar park, Arizona (US), Trina Solar
260
ANALYSIS
MEXICO HEATING UP If ever there was an underdog story in the Mexican
both long-term power auctions in 2016, surprising all
energy matrix it is solar PV energy. Despite Mexican solar
players involved in the process. “The biggest growth
resources being among the most abundant in the world,
opportunities in the Mexican power market are in
it has remained a mostly untapped source of potential
solar PV,” says Héctor Olea, President & CEO of Gauss
renewable energy in the country.
Energía. “It has been a surprise for everybody.
Mexico has daily solar irradiation levels between 4.4KWh/
A year ago authorities would say solar was too
m2 and 6.3KWh/m2, with the country’s latitude between
expensive and that it needed subsidies. However, at
15 and 35 degrees, often considered as the optimal band
the first auction, solar was awarded a large percentage
for sunlight access. The country has 129MW authorized
of the total energy committed and at the lowest price
capacity operating in eight states (Aguascalientes, Baja
worldwide. This success was ratified in the second
California, Baja California Sur, Durango, State of Mexico,
auction, where most of the energy was awarded again
Guanajuato, Sinaloa and Chihuahua), which stands in sharp
to solar PV and at an even lower price, an average of
contrast to the 3GW of wind generation capacity in place.
US$31/MWh, which is below any other technology.” This sentiment is shared by the authorities, project
But the narrative changed quickly after 2016’s power
261
developers and consumers.
auctions and with advances in technology availability and lower costs. Mexico now has 2.4GW of solar power coming
DISTRIBUTED GENERATION
from projects being built and another 6.2GW in plants
Among the most promising applications for solar PV in
about to begin construction.
Mexico is distributed generation (DG). Several of the key players in the industry, including analysts, company
TECH TO THE RESCUE
directors and officials, point to this as one of the defining
Technological development is one of the key elements
trends that will shape the market for the coming years.
that has boosted the competitiveness of renewable
According to Loïc Le Gall, Executive Director-Power &
energy. “In the past, renewable energy was heavily
Utilities of EY, the potential for developing DG relies
dependent on subsidies, which is no longer the case
on the several benefits companies, developers and
thanks to technological improvements that made prices
customers would get from it. “We consider DG to be
of renewable energy competitive, allowing technologies
in line with the needs of the recently created market
like solar to reach grid parity,” says Bernardo Fernández,
because it allows placing the generation point close to
Mexico CA&C Country Manager of Hive Energy, the UK’s
the consumption,” he says. It also presents a convenient
leading developer of solar energy on commercial rooftops
complement
and solar parks that recently entered the Mexican market.
resulting from a lack of transmission and distribution
The LCOE for utility-scale solar PV saw a dramatic
infrastructure in some parts of the country.
for
solving
congestion
problems
decrease of 82 percent between 2009 and 2015, according to Lazard’s Levelized Cost of Energy Analysis Version 9.0, benefiting PV project developers all around the world. But the drop in LCOE has not been the only factor behind the cost-effectiveness of PV parks. The Internet of Things has introduced monitoring and control solutions that can optimize production and improve the OPEX rate of PV parks during their life span. New technologies such
Mexico has daily solar radiation levels between 4.4KWh/m2 and 6.3KWh/m2
as smart metering are now available to collect data and adjust operations of a utility in real time. These solutions
The main challenge for the development of DG will be to
allow companies to save large sums of resources by
conclude the regulatory framework that will determine
avoiding unscheduled maintenance and prolonging the
its operation. Anticipating this situation, the CRE
operability of the infrastructure.
submitted all dispositions and contract models for DG systems for consultation in September 2016. The arrival
THE CROWN JEWEL OF THE CROWN JEWEL
of pertinent rules and dispositions for DG will move
The promise of PV energy is undeniable as this
the story forward and boost this system in the Mexican
technology was crowned the undisputable winner for
energy industry.
INSIGHT
TRAIL BLAZER RAMPS UP AS SECTOR GROWS ALBERTO CUTER General Manager Latin America of Jinko Solar
262
In the past 15 years, China has spawned a wave of
of project development was awarded three projects
solar energy companies that are now blazing a trail in
totaling 188MWAC of new solar capacity. Moreover, Jinko
international markets. Jinko Solar, the third largest PV
Solar’s panels will be used on projects by the auction’s
modules supplier in the world by capacity, is the name
other winners, with the company signing contracts equal
with the strongest presence in the Mexican market and
to 1GW. “We are covering 75 percent of the total solar
the company says the sector has the potential to become
capacity that was allocated in the bidding round. In the
the biggest in Latin America. “In the upcoming years, we
next tenders, we expect to achieve similar results because
expect Mexico to become the largest solar market in Latin
we have built trust with our customers and we have a
America, so we have plans to continue investing heavily
great local team,” says Cuter.
in the country, expanding our resources while promoting our products and services,” says Alberto Cuter, General
Like many others in the industry, Cuter was surprised by the
Manager Latin America of Jinko Solar.
results achieved by solar energy in the auction, qualifying them as a turning point for the industry. “The use of innovative make
business models was crucial for lowering the costs of solar
advancement difficult. “In Mexico, there is a 15 percent
energy and we feel proud to have helped our clients develop
tax on imported solar panels that represents a barrier
competitive proposals for the tender by providing high-
to the expansion of solar energy, particularly in the case
quality technology at affordable prices,” says Cuter.
Cuter
has
also
identified
challenges
that
of distributed generation projects. We are designing a strategy to overcome this challenge without affecting our
Jinko Solar was one of the first companies to manufacture
final customers,” he says.
1,500V PV panels, which helped to lower BoP costs of utility-scale solar parks. As Cuter explains, “raising the
“We expect Mexico to become
peak voltage of the modules by 10V decreases about 1.5
the largest solar market in Latin
amount considering the record-low prices reached in
America”
CAPEX, we have contributed to making financial models
Alberto Cuter, General Manager Latin America of Jinko Solar
percent of the total utility-scale project cost, a significant recent international tenders. By reducing the project’s more affordable for solar energy projects.” Additionally, Jinko Solar’s modules offer efficiencies of over 17 percent, one of the best power generation rates in the market.
“It is still unclear if the winners of the tender will be exempt from the imported panel tax, as they might still be
Besides utility projects, Jinko Solar sees great potential
considered in the Mexican Sectorial Promotion Program
in Mexico’s DG sector and the local team is working to
(PROSEC),” he adds. “Before making any important
capitalize on that. “We are investing in promoting the
investment, companies must understand the stability and
products and services we have in this sector, carrying out
functioning of the local regulation."
an important marketing campaign addressing potential customers willing to develop small and medium-scale
The company installed around 50MW of capacity in 2015,
solar energy projects,” he says. The company’s 2015 and
which represents around 50 percent of the country’s
2016 results in addition to its strong market value allow
market share, according to Cuter, which he says is an
Cuter to dream big. “At the moment, our main goal is to
indicator of the Mexican market’s business potential. The
maintain the 50 percent share that we currently have in
results of CFE’s first power auction should also increase
the Mexican market. This target is highly ambitious but we
Jinko Solar’s after the company’s division in charge
are confident we can do it.”
PROJECT SPOTLIGHT
ALION ARC TRACKER In an industry as competitive as PV power production, the
tracker in the market and ensuring its longevity. Alion
need for efficiency and cost-effectiveness has become
is so confident in the durability of this solution that the
more relevant than ever. Alion’s ARC Tracker is a powerful
company offers a 30-year warranty, a considerable length
tool for ensuring the maximum availability of a solar
of time especially considering the changing conditions of
resource for power production.
Mexico’s geography. The ARC Tracker is an ideal solution for rocky, hard, dusty and other challenging environments.
The ARC Tracker is a ballasted single-axis tracker with undulating slope capability, ensuring resistance and
In addition to the ARC Tracker’s unique design, another
making it ideal for high-wind zones, which are a frequent
main advantage is its capability for fully automated
feature of Mexico’s geography. The ARC Tracker also
cleaning using the company’s SPOT maintenance robots.
allows wind analysis by CPP, guaranteeing wind resources
This solution has a track fitted for a SPOT cleaning device.
are not a problem for this PV solution. The system allows
SPOT is the first cost-effective robotic cleaning solution
for a 50 percent panel increase per drive, compared to that
for PV panels that improves performance. This cleaning
allowed by typical torque tube systems, thus increasing the
solution is programmable and can be operated from a
power production capacity of each PV farm and ensuring
computer, tablet or smart phone, making it completely
maximum efficiency from the installation and operation
accessible.
of the project where it is employed. The system’s unique design encompassing Arc Drive load reduction eliminates
The primary components of the ARC Tracker are a
the need to employ large torque tubes, making it a more
continuous, jointed concrete track that supports the
flexible option than others available in the market. The
unique A-Frame structure and Arc Drive, purlins, drive
design of the ARC Tracker also allows a more distributed
shaft and flexible coupling joining tables. Most of the parts
profile and low bearing pressure, decreasing long-term
are pre-assembled, thus reducing field labor to the point
ground settlement risk, making it the most trustworthy
where they can be installed by a two-person team.
263
PV PLANTS IN OPERATION IN MEXICO BY AUGUST 2016
1
2
6
264
3
5 4
7
8
Source: CRE
Company
Plant
Arrangement
Plant Size (MW)
Authorized Energy Production (GWh/year)
Investment (US$ millions)
State
Self-supply
1.04
1.91
2.08
Baja California
4009.91
693.70
Baja California
1
Plamex
2
Comisión Federal de Electricidad
Central Cerro Prieto*
Generator
574.85
3
Comisión Federal de Electricidad
Central Santa Rosalía
Generator
0.97
2.04
1.94
Baja California Sur
4
Servicios Comerciales de Energía
Small-scale producer
30.00
86.00
60.00
Baja California Sur
5
Coppel
Self-supply
0.99
2.30
1.97
6
Buenavista Renewables
Los Santos Solar I
Self-supply
13.70
7
Eosol
TAI Durango I
Small-scale producer
Sinaloa
40.10
40.00
Chihuahua
30.00
57.90
60.00
Durango
TAI Durango II
15.62
32.42
31.25
Durango
TAI Durango III
6.25
12.06
12.50
Durango
TAI Durango IV
6.25
12.06
12.50
Durango
TAI Durango V
3.50
6.75
7.00
Durango
265
8
Autoabastecimiento Renovable
Self-supply
0.79
1.80
1.57
Aguascalientes
9
Generadora Solar Apaseo
Self-supply
0.98
2.14
1.95
Guanajuato
10
Iusasol
Self-supply
18.30
37.19
36.60
State of Mexico
1.84
State of Mexico
Iusasol 1 Iusasol Base
0.92
1.86
*Note: Only 5MW of the Cerro Prieto Plant come from PV Solar, while the remaining power is produced from geothermal sources.
9
10
VIEW FROM THE TOP
AGGRESSIVE STRATEGY CHASES O&M PROSPECTS ÓSCAR BERNAL Director General of Eosol Energy
Q: What motivated Eosol to bet on Mexico and what new
energy. In this way, we have contributed to a positive
opportunities have you identified?
image for renewable energy in Mexico, showing it can
A: We are betting on Mexico because we are convinced
operate without having a negative impact on the system.
of the country’s potential. Eosol is used to taking on risk
266
and we have been following an aggressive strategy here.
Q: Why is Eosol migrating projects to the new regulatory
We have invested US$140 million in Mexican projects,
plan, given the option to keep them as legacies?
US$26 million of which came directly from Eosol. The
A: We are migrating six of our legacy projects to the new
company also is working on consolidating its recurring
Electricity Industry Law. Government officials expect most
revenue streams, such as the O&M contracts we have
of the legacy projects to migrate to the new plan soon,
with third parties.
which is logical. We are trying to adapt our company to the new regulation because it is beneficial for all involved.
We see 2017 as a year of great opportunity because the
The Electricity Industry Law offers more attractive features
contracts awarded in the first power auction will start
than some of the former plans. Self-supply projects are still
construction. According to the auction’s contracting
interesting but the small-producers’ plan in the previous
terms, the winning projects need to start operations by
regulation is handicapped because it uses a PPA that was
January 2018 and will be penalized if they have not done
specifically designed for these kinds of projects and is
so by July of that same year. We have identified three
not as favorable as the new pricing rules. The cost of the
large corporations with the highest potential to become
electricity sold through small-producer PPAs is calculated
our clients. They will need O&M services from smaller
using the power plant’s average production, which is a
companies such as Eosol that have experience in Mexico.
disadvantage. Some of our small-producer projects are
We are small in size but we are the largest renewable
now selling electricity at January 2016 prices, the month
energy operator here, having over 60MW of capacity
with the lowest production rate in two decades. Because
under operation and 240MW in the pipeline.
of that we are now receiving US$31 per megawatt-hour, which is below the market price. CRE has not updated the
Q: What has been your experience operating TAI Durango,
standard prices for small-producer projects as it has not
the country’s largest solar park?
yet defined how they will be calculated without affecting
A: We expected to face bigger challenges operating in
the new market participants. The situation is having a
CENACE’s northern control area and managing our new
negative impact on our financial balance.
relationship with CFE but both processes have been running smoothly. We have had zero unplanned operational
Q: What is your strategy for continued growth and to gain
stoppages since April 2014 when the first project stage
a larger market share?
was inaugurated. We have been free of accidents and
A: Our main focus is to promote energy consultancy
grid distortion incidents, only stopping operations during
services, particularly those related to O&M, public
routine maintenance services. The 50MW we added in
works supervision and engineering. The construction of
January 2016 have been operating smoothly, following the
a wind farm or a solar park is an anecdotal event that
success of TAI Durango’s first phases. Eosol has avoided
takes between six to 16 months, depending on the size
operational problems at our facilities, which also benefits
of the project. O&M lasts the project’s entire life span.
grid operator CENACE and CFE, which purchases our
We are about to start building a 23MW solar park in Coahuila, developed by the Australian Macquarie fund,
Eosol Energy is a renewable energy development company, working
and we will provide O&M services afterward. Eosol has
in different technologies and mainly focused on wind, photovoltaic,
around 217MW in its pipeline for Mexico, developed and
thermosolar and biomass power.
operated by us.
INSIGHT
EXPECT GREATER INTERNATIONAL FINANCING SCHEMES JOSÉ RUIZ CEO of Buenavista Renewables
Buenavista Renewables is a renewable energy developer
environmental
impact
assessment
and
the
financing
founded just three years ago but it has already scored a
scheme, particularly as banks had never financed a private
first for Mexico’s solar energy industry: Chihuahua-based
solar project in Mexico before,” he says. “In the end, we got a
Los Santos Solar I is a utility-scale solar park that will supply
club deal in which the capital and support of our partner, OCI
energy to private off-takers via a long-term PPA. To develop
Solar Power, was a critical component,” says Ruiz.
the project, the company used an international financing scheme it believes will become more common in Mexico. “The
Another crucial factor for obtaining private financing was
financial model we selected for Los Santos Solar consisted of
the selection of the project’s major service providers.
a contract with a number of US banks that included a 20-
“When you are dealing with banks, all of these details can
year dollar-denominated PPA, an 18-year financing scheme
make the difference between getting funded or not,” he
and a long-term equity stake to a Korean entitiy,” says José
says. “In Los Santos Solar I we used a leveraged scheme,
Ruiz, CEO of Buenavista Renewables. “The financing method
meaning the debt component was highly significant in
we used in Los Santos I is the most common method for
comparison with the equity. In this case, we evaluated
financing renewable projects internationally and we expect
the bankability reports of our main component suppliers,
to see similar cases emerging in Mexico soon.”
which were supported by a third-party engineering firm that analyzed their manufacturing plants and products
The 13.5MW Los Santos Solar I, the first phase of a project
independently,” Ruiz says. “Additionally, we assessed
that will supply energy to industries, commerce and public
their balance sheet, the degree of diversification, quality
off-takers, received US$40 million in financing from the
certifications and experience in the industry because
North America Development Bank (NADB) and the Overseas
all these aspects have considerable impact on the risks
Private Investment Corporation (OPIC). It will provide energy
associated with external suppliers.”
to 12 schools of the La Salle group and one manufacturing plant belonging to German cable and cable systems company
Off-takers’ awareness of the importance of establishing
Leoni Cable. OCI Solar Power was Buenavista Renewables’
financially sound long-term PPAs was also crucial for the
partner and contributed with capital and technical support.
project’s success. “For instance, Leoni Cable has a 20-year plan for its Mexican subsidiary, highlighting the importance
Buenavista Renewables, a company providing financial and
of guaranteeing a stable LCOE for its future operations.
technical expertise to develop renewable and conventional
Unfortunately, this strategy is uncommon in Mexico, where
energy projects with a particular emphasis on Mexico, was
most companies tend to focus on the initial rates,” he says.
created with the purpose of closing the gap in renewable markets
To address this, Buenavista Renewables has designed
and selected island economies. “We define ourselves
services for off-takers. “We can help companies decrease
as a finance-oriented company with expertise in the
the volatility risks associated with electricity prices by
development of renewable energy projects. Our objective
tailoring projects suitable to their energy needs, considering
is to develop projects that get to the finish line and are
the seasonality of the industry and the client’s resources,”
financially sound to investors and banking institutions,”
Ruiz says. Mexico is Buenavista Renewables’ main market,
Ruiz says.
representing 60 percent of the company’s ongoing
project
financing,
particularly
in
emerging
business. It is also looking at opportunities in South America Even with its broad experience in project financing,
and South Asia. “As a medium-sized company, we want to
Buenavista Renewables faced several challenges in closing
focus on projects with the potential to increase our market
the Los Santos Solar I deal. “We experienced challenging
reach, prioritizing challenging regions usually ignored by
situations
bigger firms."
with
the
interconnection
agreements,
the
267
VIEW FROM THE TOP
OPPORTUNITY BETWEEN A ROCK AND HARD PLACE
Mark Kingsley President & CEO of Alion Energy
268
Jesse Atkinson VP Marketing and Business Development of Alion Energy
Q: Given the slow growth of solar in Mexico, which
Q: How will the company adjust its strategy to Mexico,
opportunities have you identified for expansion?
compared to operations in the US and Japan?
MK: Mexico is unique because it contains the ideal
MK: Partnerships are a key component to success in every
conditions for the implementation of our technology, such
country we enter. Alion looks for local companies with a
as rocky soil, corrosive soil, dust and high winds, especially
deep history that may have experience and expertise in
in coastal areas. Our system is designed with these terrains
another industry. We contribute the technology to improve
in mind so we have located opportunities in the northern
the economics of the work these companies carry out. With
parts of the country along the border with the US and in
solar energy, the central element is partnerships because
Guadalajara, among others. Contrary to other solutions, we
hard costs can be controlled, whereas without a strong
operate well in harsh environments such as those prevalent
local alliance, soft costs can spiral quickly. We already have
in Mexico. The real value proposition lies in two aspects:
identified several potential partnerships for expansion into
extended life for the solar installations and cleaning
Mexico. This is something we have been considering for
services to generate more energy. A company can spend
three years while waiting for the market to really reach its
20 percent more on a tracker to add capacity to its system
potential. The company is looking for larger projects that
but if the tracker accumulates dust this value is limited,
can take a little longer to develop but we believe Mexico
potentially reducing a 320-watt panel to the equivalent of
is a strong fit for our business strategy. Based on energy
280 watts. Our SPOT cleaning robot addresses this. With
economics, we know that as the pricing evolves in the
solar there is no outlay for fuel and the technology requires
country the market could become lucrative. We make
almost 100 percent upfront infrastructure investment,
solar energy profitable and affordable for those installing
meaning that extending the lifetime of a product can
the equipment and we have always worked with a model
improve returns significantly. Harsh environments can
wherein the technology does not require any subsidy.
corrode metal components and strong winds can damage the systems so Alion uses strong, corrosion-resistant
JA: Many have commented that Mexico seems like a
concrete to cost-effectively extend the life of the system to
slow-moving market but when comparing its pace and
40 or 50 years, which could be an invaluable advancement
development with that of similar markets globally, it is clear
for the industry.
the industry here is advancing rapidly and in a way that does not use artificially high Feed-in-Tariffs, which is better
JA: As solar develops, a considerable number of benefits are
for the market in the long term.
generated for the community but there also are concerns about the use of high-quality land, such as farmland, for
Q: What is the expected demand for Alion’s three lines,
solar. Examples of this can be seen in countries like the
AMS and ROVER technology complemented by SPOT
US and the UK wherein automatically the most easily
automated maintenance services?
developed land was used for solar installations, despite
MK: Alion’s goal is to obtain long-term service contracts of
the fact this land could have been allocated to farms or
40 years or more because this is how our systems maximize
commercial development. We believe that as a matter of
value. Our core O&M business lies in service contracts and
public policy we should use otherwise unproductive land,
we work through EPC partners. In terms of migration to
such as brownfields and rocky sites, for solar farms. In turn,
Mexico, ROVER assimilates more easily into countries like
this will encourage the consolidation of the solar market.
Japan with limited labor and high costs whereas in Mexico there is an abundance of affordable, quality talent. As a
Alion Energy is an innovative company that provides solar solutions for
result, we can see more demand for manual installation
installation and cleaning, which can reduce costs of solar energy by up
of the AMS concrete track and supports and for SPOT
to 75 percent.
cleaning technology in areas where harsh conditions make
Rooftop solar installation, Aguascalientes, Top Energy
269
it unconducive to using manpower. Our O&M robots not
storm the operator simply needs to push a button on his
only clean, they maintain the equipment, spraying the
or her smartphone without worrying about the logistics
panels with protective coatings to maximize energy and
of scheduling a cleaning crew. The human capital in
extend the life of the system. ROVER also is suited to toxic
our operations will be focused on interpreting data. We
areas such as decommissioned mining sites and industrial
see this as part of the natural evolution of the industry,
locations and to places where there is a need to minimize
much like the use of remote maintenance tools in the
human contamination. It is easy to remove our system at
oil and gas sector, wherein we will generate continuous
the end of its lifespan due to the use of shallow concrete,
data to pinpoint problem locations within the system.
which can then be grinded and recycled.
Essentially, human capital will be used to interpret data, optimize efficiency and generate more energy. It is not
JA: ROVER also is an affordable service for large-scale
an issue at the moment but if the industry sees more
Mexican projects, especially remote ones. Even though
success in Mexico there could be labor shortage issues
some manual labor will be used, ROVER will reduce the
for installation and cleaning, similar to what happened
required workforce and improve quality. Logistics is greatly
in Southern California and Chile. Alion’s technology can
simplified by the use of robots because rather than having
eliminate these issues.
to coordinate a workforce of perhaps 400 people, this process can be automated through the use of the ROVER
JA: Several large projects were under construction in the
system. Even if there is no great cost benefit in terms of
Atacama Desert in Chile and the labor situation became
cost per panel, the simplification of the logistics in itself will
desperate as large staff numbers were required. Ultimately,
create a significant cost and quality advantage because
the EPCs were forced to import staff from Bulgaria and
risk is much easier to manage and speed is improved.
other distant countries, which was clearly not costefficient or effective in the long term. Manual cleaning is
Q: What role does human capital play in the deployment
labor-intensive. It can become prohibitively expensive
of these technologies?
even with low-cost labor and it is generally inconsistent.
MK: We already have carried out accelerated life-testing on
Another benefit of SPOT is that it uses less than one-third
these robots and we can confirm they are durable. Unlike
the amount of water normally required. This is significant
more complex robots that require spatial awareness,
especially for projects in the desert region where the
SPOT uses the concrete track as a predetermined path,
resource is scarce, too expensive or allocated for domestic
meaning the technology is simple and robust and requires
purposes. In many areas of the world water is becoming a
very little ongoing maintenance. In the event of a dust
more expensive commodity than gasoline.
INSIGHT
SOLAR SHINES LIGHT ON LOCAL JOBS JOHN HUFFAKER Vice President of Commercial Operations at OCI Solar Power
270
The solar industry is more than just a source of energy. It
NEE’s consortium, including Mission Solar Energy, Sun Action
is an employment generator. While the sector in Mexico is
Trackers, KACO inverters and Mortenson Construction,
developing, countries that are further along, like the US,
also collaborates with other project developers, financial
offer a good example of what is possible. From state to
agencies and service providers, all from Texas. “The
state, the adoption of solar and other renewable energies
consortium employs over 800 people in the San Antonio
in the US is creating jobs. California heads the list of Top
area and 800 more in other regions of Texas, meaning
10 solar states, with 75,598 jobs at the end of December
that 1,600 jobs were created as a result of the CPS and
2015, according to the Solar Energy Industries Association
OCISP agreement,” Huffaker says. Texas has the 10th largest
(SEIA). It also leads on the amount of cumulative solar
installed solar capacity in the US. The state installed 181MW
electric capacity installed. Coming in at number six is Texas,
of new solar capacity in 2015 to surpass 534MW, enough to
with 7,030 industry-related jobs.
power around 57,000 homes, according to SEIA. OCI Solar Power already has had a taste of success in Mexico with the
Companies behind the numbers in the Lone Star state,
Los Santos I. The project was developed in collaboration
such as OCI Solar Power (OCISP), say the economic
with Buenavista Renewables, which designed the financial
factor is a key to success that can be emulated in Mexico.
model. It includes a 20-year PPA with La Salle University
“OCISP views solar projects from a regional perspective
and Leoni Cable, making it the first utility-scale solar park to
and considers economic development and local job
secure a long-term PPA with private off-takers.
creation as an integral part of our projects,” says John Huffaker, Vice President of Commercial Operations at
According to the North American Development Bank, which
the San Antonio-based company, which was involved in
helped finance the park, Los Santos I generated around
Los Santos I, a 13.5MW solar park located in Moctezuma,
50 and 60 local direct jobs during its construction phase
Chihuahua.
and between five and 10 permanent jobs during the O&M stages, most of which went to people from the surrounding
“In San Antonio, Texas, we have a PPA with CPS Energy,
communities, an important element for OCISP. “Our goal is
the city’s municipal electric utility, to develop and
to build a long-term relationship with the community, which
construct 450MW of solar capacity as part of an economic
differentiates us from other solar power companies,” says
development and job creation program known as the New
Huffaker. “We are looking forward to replicating our San
Energy Economy (NEE),” Huffaker says.
Antonio model in Mexico.”
RENEWABLE ENERGY EMPLOYMENT BY TECHNOLOGY (MILES) RENEWABLE ENERGY EMPLOYMENT BY TECHNOLOGY (thousands) Solar Photovoltaic Liquid Biofuels Wind Energy Solar Heating / Cooling Solid Biomass Biogas Hydropower (small) Geothermal Energy CSP 0 Source: IRENA Source: IRENA
0.5
1.0
1.5
2.0
2.5
3.0
INSIGHT
PARTNERSHIPS A WIN-WIN IN EMERGING MARKET BERNARDO FERNÁNDEZ Mexico CA&C Country Manager of Hive Energy
As the dust from the Energy Reform settles, some companies
which will give private off-takers enough confidence to
are waiting to see how the playing field pans out. Bernardo
enter the market.”
Fernández, Mexico CA&C Country Manager of Hive Energy, believes now is the time for a more proactive approach.
PPAs are in Hive Energy’s spotlight because the company
Companies should be looking for potential partners to
is still uncertain about the potential of other market
strengthen their business offering and start capitalizing on
mechanisms. “All other schemes are a continuous collection
the market’s opportunities. “In Mexico, a fairly new market,
of permits, which is costly and inefficient for us. Therefore,
local companies can benefit from the extensive expertise we
we have decided to wait until the wholesale electricity
have acquired in other locations and we can benefit from
market is completely established before introducing other
our partner’s knowledge about the local administrative
schemes into our strategy,” he says.
processes and the Mexican business culture,” he says. In the last five years in the UK, Hive Energy has developed over
The company is especially curious about the possibility
30 solar parks that generate 300MW of power, enough to
of working with energy traders, a market participant that
power 90,000 homes according to the company’s website.
Fernández expects will fast become increasingly important.
The scale of Mexico’s energy market and its strategic
“So far, we have not seen many energy traders entering
location drove Hive Energy to select the country as its base
Mexico but we believe this will change as the market evolves.
for the Americas, from which it hopes to also capitalize on
Considering the Mexican wholesale electricity market was
the potential of Central American markets.
based on the American nodal scheme, we expect to see an increasing number of US firms moving to Mexico and
The company’s focus on finding local strategic partners to
opening virtual trading offices in the country,” he says.
boost its capabilities in Mexico is a strategy Hive Energy is using in other developing markets. “We have a business
Fernández is not as enthusiastic about the CEL market. “For
model that is strongly dependent on finding adequate
us, the CEL market is one of the gray areas of the Energy
partners and that is extremely beneficial for both sides,”
Reform. Most players understand the concept of CELs but
Fernández says.
few know how these will actually work in the open market. Because of this we have decided not to include CELs in
Fernández arrived in Mexico with the idea of establishing
our business models until the workings of that market are
PPAs with large private off-takers. Market uncertainty,
clarified,” he says. “A general concern for the CEL market is
however, drove him to rethink the company’s strategy.
that a 50 percent over-demand is needed for the market to
“We decided to restructure our strategy and target
work and, at the time, there is no certainty regarding this
mostly municipalities, which have huge energy demands
percentage. If the market manages to work properly there
associated with public lighting or water-pumping services,
will definitely be an incentive for international investors to
instead of private companies,” he says. “Local authorities
enter the Mexican market.”
are willing to sign PPAs with any company offering a lower tariff than CFE and they are not as cautious about the
Another uncertainty is CFE’s role in the new market, which
Energy Reform.”
is as much a question mark for Hive Energy as it is for many other companies. But Fernández is confident CFE's
Hive Energy, however, has not forgotten the private
part will be clearer as liberalization evolves. “We expect
sector. “Mexico offers a great customer base because it
CFE to eventually specialize in one area, particularly
is a highly industrialized economy with a good number
after the Mexican government decides to cut electricity
of potential off-takers,” Fernández says. “We are sure
subsidies, which will pressure the company to increase its
the industry will boom once the regulations are clarified,
competitiveness,” he says.
271
PV PLANTS UNDER CONSTRUCTION BY AUGUST 2016
1
15 16 2 3 14
4 5
6 7
8 9 10 17 11
272
18
12 13
19
21 20
40 39
64
33 34 32
35 36 37
38 29 30 31
Source: CRE
65
41
42
43 44
28
45 46 47 48 49 50
54 55 57
51
56
52
58
53
61 273
23
59 60
22
62 25
24
26 27
70
69 63 68 66
67
PV PLANTS UNDER CONSTRUCTION BY AUGUST 2016 Company
274
Plant
Plant Size (MW)
1
Parque Solar Galápago I
30
2
Cuatro Solar
Central Caborca
30
3
Bocas Planta
Central Sonora
30
4
Aleph Solar I
50
5
SEGH Sonora Energy Group de Hermosillo
30
6
Solar Carbo I México
30
7
Cuatro Solar
Central Hermosillo
30
8
Nueve Solar
Central Sonora
30
9
Solar Wind Baja
Central Hermosillo
30
10
Sol de Sonora
30
11
Garambullo Solar
30
12
Cuatro Solar
13
Solar Wind Baja
14
Central Ciudad Obregón
30
Central Navojoa
30
Cuatro Solar
Central Casas Grandes
30
15
Solar Wind Baja
Central Ciudad Juárez
30
16
Solar Wind Baja
Central Samalayuca
30
17
Solar Wind Baja
Central Chihuahua
30
18
Solar Wind Baja
Central Camargo
30
19
Cuatro Solar
Central Parral
30
20
XIII Colima
Central Torreón
30
21
Solar Wind Baja
Central Torreón
30
22
Solar Wind Baja
Central Monclova
30
23
Solar Wind Baja
Central Sabinas
30
24
Solar Wind Baja
Central Saltillo
30
25
Solar Wind Baja
Central Reynosa
30
26
Tamaulipas Solar
27
Solar Wind Baja
Central Güémez
30
28
Solar Wind Baja
Central Mante
30
29
Saferay Solar
Planta La Pasión
30
30
SEG Sonora Energy Group Caborca - Mexicali
60
31
EPC Gea System
30
32
AEE Energía Renovable de México
30
33
Solar Wind Baja
34
Cuatro Solar
35
30
Central Mochis
30
Central Los Mochis
30
Solar Wind Baja
Central Guasave
30
36
Solar Wind Baja
Central Guamúchil
37
Eneready
38
Solar Wind Baja
Central Costa Rica
30
39
Solar Wind Baja
Central Mazatlán
30
40
Bocas Planta - Chihuahua Solar - Solar Wind Baja
Central Durango
90
41
Cuatro Solar
Central Fresnillo
30
42
Nueve Solar
Central Zacatecas
30
43
Solar Wind Baja
Central Zacatecas
30
44
Zacsol 1
30
45
Solax Energía Altiplano
30
46
Cuatro Solar
30 30
Central Peñasco
30
Authorized Energy Production (GWh/year)
Estimated Investment (US$ millions)
Arrangement
State
61.07
60
Small-scale Producer
Sonora
60.00
60
Small-scale Producer
Sonora
60.00
60
Small-scale Producer
Sonora
96.25
100
Self-supply
Sonora
100.00
60
Small-scale Producer
Sonora
58.84
60
Small-scale Producer
Sonora
60.00
60
Small-scale Producer
Sonora
60.00
60
Small-scale Producer
Sonora
60.00
60
Small-scale Producer
Sonora
58.00
60
Small-scale Producer
Sonora
64.49
60
Small-scale Producer
Sonora
60.00
60
Small-scale Producer
Sonora
60.00
60
Small-scale Producer
Sonora
60.00
60
Small-scale Producer
Chihuahua
60.00
60
Small-scale Producer
Chihuahua
60.00
60
Small-scale Producer
Chihuahua
60.00
60
Small-scale Producer
Chihuahua
60.00
60
Small-scale Producer
Chihuahua
60.00
60
Small-scale Producer
Chihuahua
60.00
60
Small-scale Producer
Coahuila
60.00
60
Small-scale Producer
Coahuila
60.00
60
Small-scale Producer
Coahuila
60.00
60
Small-scale Producer
Coahuila
60.00
60
Small-scale Producer
Coahuila
60.00
60
Small-scale Producer
Tamaulipas
60.00
60
Small-scale Producer
Tamaulipas
60.00
60
Small-scale Producer
Tamaulipas
60.00
60
Small-scale Producer
Tamaulipas
58.18
60
Small-scale Producer
Baja California Sur
182.00
120
Small-scale Producer
Baja California Sur
58.18
60
Small-scale Producer
Baja California Sur
79.30
60
Self-supply
Sinaloa
60.00
60
Small-scale Producer
Sinaloa
60.00
60
Small-scale Producer
Sinaloa
60.00
60
Small-scale Producer
Sinaloa
60.00
60
Small-scale Producer
Sinaloa
56.343
60
Small-scale Producer
Sinaloa
60.00
60
Small-scale Producer
Sinaloa
60.00
60
Small-scale Producer
Sinaloa
180.00
180
Small-scale Producer
Durango
60.00
60
Small-scale Producer
Zacatecas
60.00
60
Small-scale Producer
Zacatecas
60.00
60
Small-scale Producer
Zacatecas
66.60
60
Small-scale Producer
Zacatecas
65.01
60
Small-scale Producer
San Luis Potosi
60.00
60
Small-scale Producer
San Luis Potosi
275
PV PLANTS UNDER CONSTRUCTION BY AUGUST 2016 (cont.) Company
276
Plant
Plant Size (MW)
Central San Luis Potosí
120
47
Bocas Planta - Cuatro Solar - Querétaro Solar - Solar Wind Baja
48
Alten Energías Renovables México Cinco
120
49
Comercializadora Capo
30
50
Eolia San Julián
Central San Juan
30
51
Solar Wind Baja
Central Altamira
30
52
Solar Wind Baja
Central Tonalá
30
53
Solar Wind Baja
Central Acatlán
30
54
Sonne de Kiko
30
55
FV Mexsolar I y II
60
56
Querétaro Solar
Central Querétaro
30
57
Cuatro Solar
Central Ezequiel Montes
30
58
Cuatro Solar
Central San Juan del Río
30
59
Solar Wind Baja
Central Calpulalpan
30
60
Nueve Solar
Central Estado de México
30
61
Cuatro Solar
Central Tepeji del Río
30
62
Controladora de Renovables
63
Solar Wind Baja
Central Amozoc
30
64
Solar Wind Baja
Central Manzanillo
30
65
Solar Wind Baja
Central Tecomán
30
66
Solar Wind Baja
Central Chilpancingo
30
67
Solar Wind Baja
Central Arriaga
30
68
Solar Wind Baja
Central Macultepec
30
69
Solar Wind Baja
Central Campeche
30
70
K’iin
30
30
Authorized Energy Production (GWh/year)
Estimated Investment (US$ millions)
Arrangement
State
240.00
240
Small-scale Producer
San Luis Potosi
303.28
240
Small-scale Producer
Aguascalientes
60.00
60
Small-scale Producer
Jalisco
61.50
60
Small-scale Producer
Jalisco
60.00
60
Small-scale Producer
Jalisco
60.00
60
Small-scale Producer
Jalisco
60.00
60
Small-scale Producer
Jalisco
60.00
60
Self-supply
Guanajuato
143.20
120
Small-scale Producer
Guanajuato
60.00
60
Small-scale Producer
Queretaro
60.00
60
Small-scale Producer
Queretaro
60.00
60
Small-scale Producer
Queretaro
60.00
60
Small-scale Producer
State of Mexico
60.00
60
Small-scale Producer
State of Mexico
60.00
60
Small-scale Producer
Hidalgo
53.17
54
Generator
Mexico City
60.00
60
Small-scale Producer
Puebla
60.00
60
Small-scale Producer
Colima
60.00
60
Small-scale Producer
Colima
60.00
60
Small-scale Producer
Guerrero
60.00
60
Small-scale Producer
Chiapas
60.00
60
Small-scale Producer
Tabasco
60.00
60
Small-scale Producer
Campeche
74.50
60
Self-supply
Yucatan
Tai Durango PV solar park, Durango, Eosol Energy
277
VIEW FROM THE TOP
RIGHT PLACE, RIGHT TIME ANDREA BERNARDI Mexico Country Manager of Enerray
Q: What challenges did Enerray face on entering Mexico
We are confident the Mexican solar industry will take off
and how are these conditions changing?
eventually but the pace of adoption will depend on how
A: As a foreign company, we had to work hard to build
the market evolves.
a reputation and establish trust with our customers. Enerray 278
built
a
complete
local
structure
for
its
Q: How has Enerray confronted difficulties such as
commercialization, distribution and technical operations
project financing?
here in 2014. To help build our market presence, our
A: Obtaining financing for rooftop solar projects is
headquarters in Italy decided to invest US$500,000 in
complicated because few banks consider these as project
a solar rooftop installation for our offices in Queretaro,
finance but rather as CAPEX investments. In other words,
which was our first step as an EPC company in Mexico.
banks continue to perceive a rooftop solar installation
This allowed us to learn in-house about all the factors
as a company’s asset and not as an investment with
influencing rooftop project development in the region.
the potential to generate revenues. There still is little
It became a showcase of our ability to deal with local
awareness about the advantages and performance
regulations and permits in addition to our technical
of these installations so we spend a lot of resources
capabilities, reassuring our customers about Enerray’s
spreading information and educating customers about
value proposition.
solar energy solutions.
Since that first project, local conditions have changed
One particular aspect we want to highlight is the
considerably. One of the factors affecting the market has
extended life span that solar systems offer in comparison
been the depreciation of the Mexican peso against the US
to other energy investments. For instance, LED lighting
dollar, which has reduced national investment inflows. The
has a shorter recovery of investment time of almost one
implementation of the Energy Reform also has brought
or two years but its useful life is limited to five years,
uncertainty to the regulatory environment, slowing
which means the company will have to make a capital
market growth. Electricity tariffs, meanwhile, represent a
investment every five years to replace old items. A
barrier for solar market deployment, particularly in the
solar installation, on the other hand, can last 25 years if
DG sector. Despite the market challenges, Enerray has
suitable O&M is provided. In other words, the recovery of
successfully positioned itself in the country.
investment for a solar installation is not as short as other energy investments but its benefits will last longer. In
On the positive side, we finally are observing a change
Mexico, project contracting tends to take longer than in
of mindset in the Mexican industrial sector, which now
other countries but industry success stories are likely to
recognizes solar as a suitable option for powering its
change this. If the right technology and EPC partner are
facilities. Regarding solar irradiation, Mexico is in a
chosen, solar installations can offer competitive energy
privileged position, with some of the greatest solar
prices, in some cases even more cheaply than traditional
resources in the world. The fact that Germany continues
technologies.
to invest in solar even after the government cut back on subsidies is an indicator of the technology’s potential,
Q: In which areas do you foresee growth opportunities?
which can be even greater in countries such as Mexico.
A: The Mexican market offers a wide range of business opportunities for Enerray. In fact, we are short of
Enerray is a leader in the design, installation and maintenance of
human resources to cover them all. We plan to continue
medium and large photovoltaic systems. It offers turnkey solutions for
developing
photovoltaic systems located on roofs, canopies, greenhouses and on
equity funds from abroad to provide financing along
the ground.
with our EPC services.
rooftop
installations
and
incorporating
Enerray in Mexico is supported by a large Italian
our business in the country. In Mexico, we believe we are
corporation, the Maccaferri Industrial Group. Its history
in the right place at the right time.
dates back to 1879 and it has 58 factories worldwide. The group has been active in Latin America since the
Our goal is to find the best technology according to our
‘70s and in Mexico since 2003. Having the financial
clients’ needs. In rooftop installations, collaboration between
backing of an international group increases Enerray’s
our technical, financial and purchasing departments is
bankability, giving us access to different financing plans.
crucial. In the DG sector, projects are tailor-made so no system is equal to another. We cannot suggest a preferred
The business models we plan to use in upcoming years
technology because it depends completely on the client’s
are bilateral contracts and leasing plans. We consider
requirements and the project's location, particularly as
those models to be the most attractive options for
weather conditions influence panels’ performance. For utility
our final customers. The company is working with a
scale, developers and investors have an important say in the
number of shopping malls, which involves the use of
final product selection. In Latin America, system components
different electricity supply and their respective tariffs.
such as inverters have been well-received because they have
In these cases, we can install a large solar park to supply
dramatically decreased costs.
communal areas and sell the surplus energy to the independent stores located in the commercial area.
In addition, we are using a cost-engineering strategy, avoiding the use of unnecessary components without
For utility scale, we need to have a bilateral contract
compromising the installation performance. Regarding
or PPA signed prior to the start of construction. We
technological advances, we are favoring the use of remote
can support companies in electricity tenders with the
monitoring devices as well as electric components allowing
technical aspects of their proposals, partnering in their
for a 1,500V connection. Energy storage for industrial
project development. In other markets, we already have
applications has become an affordable technology in the last
acquired renown in the utility sector, for instance in Brazil
couple of years, anf is required by some projects to stabilize
where we have begun the construction of 100MW.
the distribution lines. In other cases, energy storage devices are being incorporated into systems to save electricity in
This expertise has made Enerray an interesting player in
high-production periods to sell it back in high-demand
the EPC sector and we plan to use these skills to boost
peaks, where megawatt-hours are more expensive.
279
INSIGHT
ADDING FLEXIBILITY TO PV SOLAR ENERGY FRANCISCO BONILLA Director General of SYNERGY
280
The residential market in Mexico has never looked as
The latest challenge for the use of solar energy in small
attractive as it does now for solar energy companies, with
and medium applications is the murky landscape in the
dropping generation costs boosting purchasing interest
sector. The Mexican government has not yet defined the
under different schemes, although new barriers have
energy trading rules for DG systems, defined by law as
also emerged. With bigger companies looking to tap the
those below 0.5MW. The DG industry also was shaken
sector’s potential, Mexican enterprises are also ready to
in 2016 by strong rumors about the introduction of net-
reap the trickle-down benefits. A good example of this
billing in Mexico, a possibility that has been denied by
symbiotic possibility is the partnership between SolarCity
CRE. The industry, however, is waiting to see the final rules
and Mexican EPC business SYNERGY, says SYNERGY’s
before putting those fears to rest.
Director General Francisco Bonilla. Under net-billing, users with DG systems connected to “We still consider that regulated tariffs do not reflect
the grid would be charged for their consumption while
the real market conditions and make it difficult to have a
being paid for the energy they give back to the grid
level playing field for technologies such as solar rooftop
according to the hourly prices in which energy is used
systems,” Bonilla says. SYNERGY, experienced in working
and produced. This plan could be a drawback for PV
with solar rooftop installations for commercial users,
solar systems because they produce energy in low-priced
partnered with SolarCity’s Mexico unit to facilitate the
hours while users consume it at peak times, when it is
US company’s effort to bring affordable and renewable
more expensive. “Net-billing could impact negatively on
energy to small and medium-sized consumers, adding
small and medium-sized solar installations, particularly
energy storage solutions to residential PV systems. The
for residential customers. SolarCity experienced a similar
relationship will help reduce uncertainty about pricing and
situation in Nevada at the beginning of 2016, affecting the
regulatory hurdles, Bonilla says.
profitability of its residential solar business in the state,” Bonilla says.
“We were the first company to develop large-scale rooftop solar in Mexico in 2009, starting with two 250kW rooftop
Nevada’s Public Utility Commission threw a bucket of cold
installations for Walmart in La Paz and Aguascalientes.
water over the solar industry there when it announced in
Both projects were also the first solar rooftop installations
December 2015 its decision to phase out net-metering and
to be privately financed in Mexico,” recalls Bonilla. “We met
increase fixed monthly fees for solar users from US$12 to
ILIOSS, now SolarCity Mexico, in 2013 and established a
US$40 over a five-year period. The commission decided
new contracting model in the country consisting of PPAs
to grandfather existent solar users but new consumers
for solar rooftop systems. We were the pioneers in this area
were subjected to the new rules, forcing solar companies
as all renewable PPAs before were used for utility-scale
to rethink their presence in Nevada. SolarCity even said in
projects,” Bonilla says.
January 2016 that it would cut 550 jobs in the state due to the changes in regulations.
“It took great effort to structure this scheme as it was new in the country but we decided to invest in it believing it
SYNERGY is working on a new product to help users deal
was the way to move solar energy forward in Mexico.”
with this new market challenge. According to Bonilla, “the
SYNERGY and ILIOSS experienced early success with this
idea is to couple renewable energies with batteries so
new business model but the situation changed two years
customers can produce energy at low-price periods and
later. “We experienced a setback when electricity tariffs
use it in peak hours. This product would also allow our
decreased considerably in Mexico at the beginning of 2015,”
customers to offer controllable demand to the market,
Bonilla says.
which is now possible under the new rules.”
TECHNOLOGY SPOTLIGHT
POWER ELECTRONICS’ UL OUTDOOR SET PV project developers in Mexico also need to look north
Importantly, the UL Set complies with the basic requirements
when determining which solution is best for them.
of the country’s northern neighbor – an important advantage
The Mexican industry tends to work toward regional
for cross-border consistency. The UL Set meets US
homogenization and the country’s proximity to the US
requirements for medium or low-voltage power connections,
means developers prefer a solution that is adaptable to
making it a perfect fit for the Mexican market.
both countries. The HEC Plus AC, included in the UL Set, enables the AC side Just as important is a more integrated solution, where
connection and reduces installation costs to a minimum. HEC
companies no longer need to seek out every element of
Plus AC is the most potent and reliable inverter in the market,
the required infrastructure. These solutions not only make
maximizing efficiency in output voltages from 400Vac to
processes easier but they help keep costs down.
460Vac for medium and utility-scale PV installations. This set is the most cost-effective solution for utility-scale PV plants
Power Electronics provides a wide range of complete
because of its capacities, unique design and the flexibility it
solutions for PV project developers that address key
provides the customer.
industry needs. Its outdoor sets include a transformer alongside a solar inverter, making it a complete and
With the market evolution following the Energy Reform
integrated solution that complies with the requirements of
and constant technology development, solar energy has
utility-scale PV plants.
experienced an upsurge in the country. Mexico expects to produce 35 percent of its energy from clean sources by
Of its several offerings, Power Electronics’ UL Set is
2024, which has increased the development of renewable
among the best-suited to the Mexican market due to its
energy projects. The results of the first two power auctions
physical assets and connection characteristics. The UL Set
made clear that solar energy is here to stay. Given the
comprises a pad-mount type transformer of up to 2.5MW
large number of projects that will be developed in the
and the HEC Plus AC solar inverter. The design of the
years to come and the low costs seen at the auctions,
transformer allows a quicker and less risky connection than
cost-effectiveness will be more important than ever. The
conventional transformers. It transforms a 400Vac-690Vac
UL Set is an attractive innovation that will allow utility-
input voltage to 7.2kV, 14.4kV and 34.5kV output voltage.
scale projects to be competitive.
281
INSIGHT
HERE COMES THE SUN DAVID ARELLE Director General of ILIOSS/SolarCity Mexico
The merger between the No. 1 solar provider in the US
or the installation and the company retains ownership
and a domestic leader of distributed solar energy is
of the system.
expected to boost the adoption of PV solar systems in the residential market in Mexico, making use of long-term
The model, however, is not without controversy. SolarCity’s
leasing schemes that SolarCity pioneered in the US.
business strategy was questioned in the US as the company faced troubles in 1Q2016 when Nevada’s government
282
SolarCity, founded in 2006 with the ambitious idea of
announced
changes
in
the
net-metering
scheme,
delivering clean and more affordable energy, already
negatively impacting homeowners’ interest in investing in
has climbed to the top of the US residential market,
solar across the US and affecting the company’s revenue
serving over 260,000 customers across 27 US states. The
projections for 2016. Mexico has been using a net-metering
company looked to Mexico as the next logical step to
scheme since 2007 and it is likely to continue in place. But
expand its business and bought into the country with the
energy trading rules for systems under 500kW capacity are
2015 acquisition of ILIOSS, which has the nation’s largest
not clearly defined yet and adverse regulatory decisions
installed capacity on commercial and industrial roofs and
might be a drawback for SolarCity’s plans in Mexico. The
carports with over 10MW, according to its website.
company has not yet made the leasing model available for residential users in Mexico. That step will likely come when
“SolarCity chose us because we were the only company
the necessary regulations are defined by CRE.
in the Mexican arena dedicated to selling energy. Engineering, maintenance, due diligence and financing
One silver lining during this uncertain period, is the
are all crucial to complete a quality installation,” says
increment in electricity tariffs for commercial and
David Arelle, Director General of ILIOSS/SolarCity Mexico.
residential users under the DAC scheme. The DAC tariff
Arelle sees the acquisition as the boost the company
rose 7 percent from the first to the third quarter of the year
needed here. “Although ILIOSS was already a large solar
while commercial tariffs rose almost 6 percent in the same
company in Mexico, its capacity to grow was limited due
period. The increment in natural gas prices is expected
to the company’s financial status. The acquisition gave
to continue driving electricity tariffs up, which is likely to
the combined business the ability to become what we
be an incentive for commercial and residential users to
hope will be the most important player in the solar power
invest in PV solar systems. The Mexican solar residential
industry in Mexico.”
market remains a diamond in the rough. Durango and Baja California have the largest penetration of PV solar usage in
ILIOSS
had
focused
mostly
on
commercial
and
industrial applications but it now expects to conquer
the residential sector and only 2.1 percent of houses have a system installed in both cases.
the residential market with the support and experience of SolarCity. Arelle says the company wants to follow
In the US, SolarCity also offers residential users the option
the parent company's business model and offer long-
to buy energy through a PPA. A residential PPA differs
term contracts to residential customers. “CFE’s current
from a leasing model because customers pay per kilowatt-
energy market is extremely volatile. Establishing this
hours consumed. In Mexico, however, the law states that
long-term solar contract will give our customers peace
basic users can only purchase electricity from basic
of mind when it comes to their energy,” he says. The
services suppliers at a regulated tariff and CFE is currently
solar leasing model that SolarCity offers in the US
the only basic service supplier registered in the market.
consists of a 20-year contract where the user commits
The law does not restrain other companies from becoming
to pay a fixed monthly rate with a 0 to 2.9 percent annual
registered to serve this niche but price regulations make
escalator. The user is not required to pay for the system
this option unattractive at the moment.
INSIGHT
TESLA, FRONIUS GO AFTER ENERGY STORAGE VLADIMIR RUIZ Sales Director at Fronius México
Renewable energies are clean and cheap but they are
product for Fronius to introduce into the Mexican market
intermittent. To fully exploit their potential the industry
given the country’s great solar potential and recent growth
must first cope with this irregular nature. The introduction
in distributed generation systems.
of affordable and efficient storage solutions might be particularly attractive for solar users in the distributed
“We have identified significant growth in the distributed
generation market, allowing them to work off-grid while
generation market in 2016, much larger than the previous
protecting their investments from dramatic regulatory
year. For us, one of the factors driving this change has
and technical changes. The race to find an economically
been the opening of the electricity market that took place
competitive storage solution has pushed technological
this year,” says Ruiz. “The new regulatory framework might
manufacturers to invest heavily in R&D and to create alliances
have a negative impact on current business models used
that target this area. Austria’s Fronius, a maker of battery-
in distributed generation but it can be avoided through
charging systems, and US-based Tesla, the first company to
energy storage,” he says. The potential phasing out of the
produce a battery for electric cars able to compete against
net-metering scheme would be particularly challenging
gasoline-driven units, are among those joining forces to
for distributed solar systems but using storage solutions
solve the storage dilemma. “The alliance between Fronius
can help users mitigate the negative implications of
and Tesla has created great expectations in the market.
using another system. As Ruiz explains: “PV solar panels
Fronius has collaborated with Tesla before in the automotive
produce energy in low-demand periods. Solar producers
sector and we are now looking for opportunities in energy,”
might therefore receive less compensation at these hours
says Vladimir Ruiz, Sales Director at Fronius Mexico.
than the cost they would pay to purchase energy at peak hours. So, it will be more profitable to store energy during
Fronius has over 30 years’ experience in Mexico. In the
low demand periods and use it at peak hours.”
solar sector, it is mostly known as a leading supplier of inverters for PV solar systems, having developed innovative
Fronius International GmbH is an Austrian manufacturer of battery-
products for the Mexican market such as the IG Plus
charging systems, welding technology and solar electronics (inverters).
inverter. The partners are working on a battery solution.
The Mexican office opened in 2007 but the company has been present
When it is ready, Ruiz believes it will be an attractive
in Mexico since the 1970s.
MEXICO'S EVOLUTION OF INSTALLED ANDGENERATION POWER GENERATION DG SYSTEMS EVOLUTION OF INSTALLED CAPACITYCAPACITY AND POWER FROM DGFROM SYSTEMS (THOUSAND OF UNITS) (thousands of units) KW 70
61,562
60 50
60 50
40
40
36,480
30
30
20
20
14,138
10 0
MWh 70
1
8
88
569
2007
2008
2009
2010
Capacity Installed (kW) Capacity Installed (kW)
2011
Generation (MWh) Generation (MWh)
Source: Ministry of Energy with Information from CFE and CRE Source: Ministry of Energy with Information from CFE and CRE
10
2,926 2012
2013
2014
0
283
ANALYSIS
DISTRIBUTED SOLAR ENERGY SEES GROWTH, UNCERTAINTY Mexico has enjoyed a promising DG market since the
guaranteed open and non-discriminatory access to the
country introduced the net-metering scheme back in
Mexican grid according to the terms of the law.
2007. The country’s new energy landscape has delivered more opportunities but regulatory uncertainty, as in other
Broadening the spectrum of energy trading options
segments, is keeping solar players on edge.
has opened the door for new business models to commercialize solar energy from DG systems. For
284
According to the Wilson Center, PV solar energy
instance,
technology has enjoyed the biggest growth under the net-
residential users, selling them energy from a PV system
companies
can
now
arrange
PPAs
with
metering plan, with CFE reporting it had 26.5MW of small
installed on the users’ rooftop. Companies could also
and medium-scale solar systems under those contracts by
aggregate several DG systems and sell energy, CELs or
December 2013.
ancillary services through a registered supplier.
The dramatic drop in PV solar energy costs — solar’s LCOE
On the downside, the new landscape has also required
fell by 58 percent between 2010 and 2015, according to the
solar energy producers to increase their levels of
International Renewable Energy Agency (IRENA) — has
specialization because the market’s rules are now more
also contributed to the dissemination of DG because it has
complex. DG also faces uncertainty because of the lack
made PV systems economically attractive, particularly for
of guidelines for this segment.
residential users under the DAC scheme and commercial and small-scale industrial users under Tariff 2.
The draft for the “Interconnection Manual for Generation Plants
Under
0.5MW
Capacity”
was
published
in
The introduction of the Energy Reform brought new
September 2016 and raised concerns in the industry
advantages for this sector by allowing DG system
about a potential elimination of the net-metering scheme.
operators to sell surplus energy in the MEM through a
That possibility, however, was later dismissed by CRE.
basic (CFE) or qualified supplier. In the past, distributed producers could only receive energy back from the grid
While the allure of the Mexican DG market continues
as compensation for the surplus energy injected into the
unabated, solar companies will be on edge until the rules
network, working as a “virtual storage” system.
are clearly defined. The rooftop solar market alone is estimated to have a MX$30 billion value during the next
There are now a wide range of possibilities on the horizon.
five years, according to ANES. This represents around
The Electricity Industry Law considers DG, or “exempt
100,000 residential and 300,000 commercial users, or 20
generators,” as those systems under 500kW. DG systems
percent of the country’s electricity consumers, which is
do not require generation permits from CRE and are
too big a cake to leave alone.
VIEW FROM THE TOP
BIG POTENTIAL IN SMALL-SCALE SOLAR
Arturo Almanza Sales Director at Industronic
Miguel Barrientos Sales Director at Industronic
Q: Where are the market’s best opportunities and what
percent of the project in these cases including 10 percent
does Industronic bring to the table?
of sunk costs. For larger projects FIDE does not cover any
MB: Industronic stands apart from other Mexican companies
of the sunk costs but it finances the project at low-interest
in the sector because of its strong focus on innovation. Our
rates. We also collaborate with INFONAVIT, enabling our
founder was the inventor of the first voltage regulator made
clients to use their housing credit to finance solar energy
in Mexico and his innovative vision remains at the heart of the
projects. The company is in talks with INFONAVIT to
company’s culture. Being in Monterrey we have first-hand
integrate solar panels directly into the housing facilities it
knowledge about the industrial sector’s needs, which has
offers its beneficiaries.
helped us develop attractive solutions for this segment. We are working to adapt our products and services to the future when we expect to see a larger share of renewables on the grid. We foresee substantial growth in solar energy capacity, which is why we decided to open our solar energy division. The company has four business units: energy storage, voltage
High-consumption (DAC) users represent 85 percent of the company’s solar division’s sales
regulation, power conditioning and power generation, which mostly focuses on solar energy production.
Q: To what extent is Industronic interested in entering the commercial and utility-scale market niches?
Q: What is the company’s share of the solar market and how
AA: We see great potential in those sectors, which is where
is it distributed?
we see the market heading. But we are not interested in
AA: We provide turnkey solutions for solar energy projects,
entering these niches until new attractive financing schemes
with over 15,000 clients in our portfolio. Since the opening
are available. The financing plans our clients can access now
of our solar division in 2015, we have grown 800 percent,
are too expensive, discouraging them from investing in solar
which speaks of the great business opportunities available
energy projects. We have witnessed this in the restaurant
in this segment. Our solar division benefits from the
industry where a project’s ROI is not interesting enough to
company’s 43 years of experience, large client portfolio and
favor installing a solar system over opening a new restaurant.
a strong network of local offices, which has allowed us to serve different market segments including residential and
Q: What strategies are in place to maintain the company’s
industrial projects. The residential sector is our main market
solar energy business growth rate?
niche, especially high-consumption (DAC) users, which
AA: We will continue focusing on building long-term
represents 85 percent of our solar division’s total volume
relationships rather than just closing a sale and installing
sales. Our projects with PEMEX also play an important role in
a project. Solar projects for residential customers should
our solar business. We have finished two projects to provide
be advertised by word-of-mouth because that is the best
self-sustaining energy to oil platforms, both consisting of
strategy to overcome the mistrust of potential customers.
an off-grid solar system with inverters and storage, and we
This is particularly important for us as we sell the promise of
have six more already signed with the state-owned firm.
cheaper and more reliable energy. We have faced challenges
Our projects with PEMEX represent 50 percent of the total
but we are prepared to solve them. No one can ensure zero
revenues generated by our solar energy division.
failures but we can ensure a prompt and efficient response in any eventuality.
Q: What financing plans are available to residential customers?
Industronic is a Mexican company that designs, produces and
AA: We work together with FIDE to provide special
commercializes systems to save, regulate, backup and generate
financing plans for projects up to 6kW. FIDE finances 100
electricity. It offers integral solutions for electrical problems.
285
VIEW FROM THE TOP
PLATFORM PRODUCES RESIDENTIAL SUCCESS JOSÉ ZAMBRANO Director General of Galt Energy
286
Q: What is the added value that differentiates Galt Energy
Q: Which financing plans are most popular?
from its competitors?
A: Product-leasing schemes are becoming more popular,
A: Galt Energy was founded three years ago to create a
particularly with the low-income segment. By offering these
platform that would allow customers in the residential,
plans we are moving away from the high-consumption
commercial and industrial segments to switch from
residential sector, which most solar companies are targeting
purchasing to generating power. The idea is not to rely
but only represents 2 percent of residential electricity
on PPAs, because we are not looking to be an electricity
consumers in Mexico. Our model does not require a large
provider, but to liberate users from the obligation of
initial investment so we can target a wider market. Low-
purchasing power from a utility. Our strategy is to listen
income customers do not pay the high tariffs that wealthier
to customers, understand their needs and offer them
users do but they represent a higher share of their income.
tailored solutions. We identified a lack of financing
So it might be a greater incentive to invest in a solar system
options in the market so we created our first fund for
that could eliminate up to 25 percent of electricity costs.
residential solar projects. Instead of replicating a foreign
Our short-term contracts also offer our customers the
model, we created a new, attractive one adapted to
possibility of achieving energy independence.
the Mexican context. In 2014, as a result of the drop in electricity tariffs, we decided to reshape our commercial
Q: What aspects of the Energy Reform will benefit the
strategy and focus mostly on residential customers. Our
development of solar projects?
main objective is to reach a large enough scale to lower
A: The Energy Reform offers several opportunities for
our capital costs and increase our experience, which
utility-scale solar projects because it allows companies to
will be useful when the commercial sector regains its
sell electricity directly to consumers but several of those
attractiveness.
will be hard to put into practice. There is uncertainty about the profitability of solar projects here because the prices
Galt Energy is a Monterrey-based company that specializes on the
for CELs and transmission rights remain unknown. If CFE’s
installation of custom-made solar PV panel systems for Mexico's
electricity tariffs continue decreasing, it will be even more
residential market.
difficult for solar to compete.
INSIGHT
SOLAR AT HOME ON THE RANGE JUAN ÁVILA CEO & Associate at Top Energy
Identifying a niche market to cultivate can result in big
in local banks. “In Europe and the US it is easy to get
business. Mexican EPC Top Energy uncovered a unique
financing for these projects because banks understand
segment for its product when it entered the solar market:
the mechanism behind it, including the savings that users
poultry farms. But the company warns potential entrants
obtain in their energy bills that should be considered in
not to count their chickens before they hatch.
the refinancing assessment. Most Mexican banks do not see the business case in financing small and medium-
“It is a difficult market segment,” says Juan Ávila, the
scale renewables, even if they would also benefit from
company’s CEO and Associate. “We have seen many solar
having more borrowers. European and American banks
energy companies enter this sector only to go bankrupt
know that financing renewable energies is one of the
after one year.” Top Energy, which focuses on distributed
safest investments because they become a productive
generation, got its solar foot in the door with agricultural
asset. Mexican banks need to be aware of this so we can
businesses in Aguascalientes, mainly medium to large-
all benefit from the deployment of renewable energies in
sized chicken farms. One of the company’s flagship
small and medium applications,” he says.
projects was a 700 PV panels installation at one of the state’s largest chicken producers, which sparked the
To overcome this challenge, Top Energy has made use
interest of other farmers in solar solutions. “Opening the
of favorable credits and incentives provided by Mexican
door to other chicken producers was a great hit for us.
development banks NAFINSA and Financiera Nacional de
Each chicken coop consumes 35-60kW. There are plenty
Desarrollo (FND), as well as the energy-efficiency private
of opportunities for solar energy in rural applications
trust FIDE. “We work a lot with NAFINSA, which has a
because it is a competitive option even where other
program for buying fixed assets that SMEs can use to
renewables can also be considered,” Ávila says.
borrow money at a low preferential rate. NAFINSA offers credit up to MX$2.5 million over a five-year period and
The rural sector, however, is not an easy niche to
without any collateral,” says Hernández. “We also work
capitalize on so diversity can provide a buffer, he adds.
with FIDE, which provides four-year loans and gives a 10
“We are redesigning our strategy so we can bring more
percent subsidy for residential high-consumption (DAC)
SMEs aboard, factoring the new regulations into our
projects. We also have the support of FND in the case of
business model. This special market niche is also known
projects located in rural areas, whether they are farms or
as distributed generation and according to some analysts
other customers located in rural municipalities. FND offers
this is one of the fastest growing markets for renewables,
attractive loan schemes for rural habitants, which can go
especially solar PV.”
up to MX$240,000 at a 7 percent fixed rate for men and 6.5 percent for women.”
Even though the electricity consumption in SMEs is not as impressive as in large corporations, the scale of the market
Top Energy is looking to adopt a more proactive approach
makes it an attractive segment. According to INEGI 99.8
for breaking the financing barrier by introducing a new
percent of the over 4 million businesses in Mexico are
business model. “We launched a new company focusing on
SMEs, responsible for 52 percent of the country’s GDP.
distributed generation and commercialization of energy,”
Investing in solar technologies might be an attractive
Hernández says. “We saw that financing continues to be a
option for companies in this segment using automated
constraint for many potential customers so we take care
processes or with important electricity-related costs.
of all the investment, giving customers the option to repay the project at lower payments than CFE’s rates. We have
Financing is the major hurdle for SMEs to access solar
specific customers from other sectors we want to start
solutions, a problem exacerbated by the lack of knowledge
working with, so we will focus on them as our next step.”
287
RESIDENTIAL PV USAGE AS OF 2015
288
State Baja California Sur
Percentage 2.1
Durango
2.1
Chihuahua
1.4
Campeche
1.1
Nayarit
1.0
Jalisco
0.7
Queretaro
0.7
San Luis Potosi
0.7
Coahuila
0.6
Guanajuato
0.6
Sinaloa
0.6
Sonora
0.6
Aguascalientes
0.5
Baja California
0.5
Mexico City
0.5
Hidalgo
0.5
Michoacan
0.5
Nuevo Leon
0.5
Quintana Roo
0.5
Tamaulipas
0.5
Colima
0.4
Chiapas
0.4
Guerrero
0.4
State of Mexico
0.4
Oaxaca
0.4
Tabasco
0.4
Veracruz
0.4
Zacatecas
0.4
Morelos
0.3
Tlaxcala
0.3
Yucatan
0.3
Puebla
0.2
Source: INEGI 2015
2.1
PERCENTAGE OF HOUSEHOLDS USING PV SOLAR POWER
0
289
290
VIEW FROM THE TOP
CHINESE GIANT TO LAUNCH OPERATIONS IN MEXICO SERGIO BERISTAIN Founding Partner of Beristain + Asociados
Tsinghua Solar Systems (THS), a Chinese high-tech
University and embracing the challenge of creating five
solar company, will open a new manufacturing facility
more patents of our own,” says Beristain.
in Mexico to support its entry strategy in the country, which also includes building three new solar parks, each
“Technological investment is necessary for the country’s
of 200MW capacity.
development as patents create a technological advantage. The ideal scenario would be to develop these patents
“The company will finish building the solar panel
with Mexican universities – an idea supported by THS –
manufacturing plant by the middle of 2017, so all the panels
following the model the company has used in China with
used in our projects will be manufactured in Mexico. We
Tsinghua University,” he says.
will use German top-quality manufacturing equipment in our facilities and we will also benefit from the expertise
THS is busy in Mexico as it is also working on three large-
and experience of Tsinghua University,” says Sergio
scale solar projects in parallel to its local manufacturing
Beristain, Founding Partner of Beristain + Asociados and
project. “The solar parks will be developed over the next
legal representative of THS in Mexico.
five months; two will be located in the central part of Mexico and one in the west. We are still managing the
“Our partners are trying to create a new era in PV solar in
required diligences to obtain the necessary permits and
Mexico with the best technology, quality and price. Right
contracts to keep developing these projects but we are
now, THS’ products are among the best panels in the market
positive they will be solved in due time.”
and they are manufactured in China. The company is now ready to increase its production by 10 percent,” he adds.
The role of Beristain's firm in these projects is to facilitate all legal matters and promote the support and confidence
The main motivation behind THS’ new overseas operation
between the Chinese partners and Mexican investors.
is the area of opportunity the company spotted to develop
He especially highlights the importance that social
a robust solar supply chain in Mexico, which is supported
management aspects – an area with heightened relevance
by the market growth expected from the solar sector in the
in the industry after the Mexican government established
coming years. According to the Ministry of Energy, solar
Social Impact Assessments (SIAs) as mandatory for
capacity is expected to increase its capacity by a factor of
energy projects – have for the Chinese firm.
20 by the end of 2019, adding over 5,400MW of new solar developments. Distributed generation is also expected to
“We are careful of our projects’ social management
boost solar capacity in the country, particularly now that
aspects because our goal is to bring added value not only
the government released the new interconnection manual
to the industry but to surrounding communities. We will be
for generation facilities below 0.5MW capacity. Under this
involved in several sustainable and clean energy projects,
landscape, building a local facility seems like a good bet.
such as wind, solar and combined-cycle power plants, to boost the development of local communities. We strive
“The solar energy supply chain is not as well developed
to contribute to new employment and industry advances
in Mexico as we wished. Most SMEs that sell solar panels
for communities in need because we believe social impact
and operate in the country distribute products from local
from energy projects is direct and immediate,“ he says.
and foreign manufacturers from China or the US, for instance, without a robust distribution chain. We have
Beristain + Asociados is a Mexican law firm specialized in litigation,
decided not to buy solar panels from foreign companies.
enterprises, energy, food, insurance and intellectual property. It also
We instead want to provide an added technological value
offers consultancy services regarding the creation and structuring of
to our product using over 200 patents from Tsinghua
companies’ legal departments.
291
NATURAL GAS & COGENERATION
11
Hydrocarbon-powered energy plants might not be the center of many visions of the world’s energy future but the increasing availability of cleaner-burning natural gas in Mexico and the US is definitely creating an opportunity to generate cheap and dependable power, while at the same time helping comply with more stringent environmental goals by using gas instead of more polluting alternatives such as coal and fuel oil. Alternative technologies such as cogeneration and combined-cycle plants are also creating opportunities for savings and efficiency for industrial users.
The gradual liberalization of the gas commercialization and distribution markets is also creating business opportunities for companies planning to crisscross Mexico’s map with new and more modern pipelines to supply the ever-increasing demand for industrial and domestic energy in Latin America’s second largest economy. This chapter takes a look at the growth of the natural gas-powered energy industry and the billions already invested in its development.
293
CHAPTER 11: NATURAL GAS & COGENERATION 296
ANALYSIS: Natural Gas a Competitive Alternative in Energy Mix
297
INSIGHT: Guillermo García Alcocer, CRE
298
INSIGHT: Eduardo Erhard, Government of Nuevo Leon
299
INSIGHT: Ricardo Ortíz, Grupo Diavaz
300
INSIGHT: David Madero, CENAGAS
302
INSIGHT: Fernando Calvillo, Fermaca
304
VIEW FROM THE TOP: Vernon Murray, Emerson
306
MAP: Natural Gas Pipelines
310
INSIGHT: Alberto Escofet, Enagás México
311
PROJECT SPOTLIGHT: Expertise for Pipeline Development
312
VIEW FROM THE TOP: Philippe Delmotte, ENGIE México
313
INSIGHT: Luis Montgomery, ACCESGAS
315
INSIGHT: Dessire Colina, Promotora Energética E3
316
VIEW FROM THE TOP: Juan Hernández, Industrias Energéticas
317
INSIGHT: Enzo Losito, AB Energy México
Dick Kramp, AB-Greenhouse Power Netherlands
318
INSIGHT: James Delano, ATCO
319
VIEW FROM THE TOP: Carlos Prieto, Caterpillar
320
VIEW FROM THE TOP: Oscar Scolari, Rengen Energy Solutions
322
VIEW FROM THE TOP: Kevin Piccolo, IGSA
323
VIEW FROM THE TOP: Lorenzo Arena, INCO
295
ANALYSIS
NATURAL GAS A COMPETITIVE ALTERNATIVE IN ENERGY MIX electricity
the national integrated system capacity in which private
demand, the government unveiled a five-year plan in
companies could request pipeline capacity for their
late 2015 to expand the country’s natural gas pipeline
operations at market-regulated prices.
In
response
to
the
country’s
increasing
network that key industry players welcomed for the
296
opportunities presented. These include transportation,
The landscape will change further in early 2017 as the
commercialization and storage of the molecule as well
sector embarks on a liberalization process. “Our goal is
as opportunities to develop the infrastructure required to
to perform a gradual liberalization for the natural gas
comply with the plan.
market,” says Jesús Serrano, Commissioner of CRE.
In 2016, the market saw concrete action on the plan as
“We expect to begin in the northern part of the country
money was invested, commercialization permits were
since we believe that is the region with the most
awarded and CENAGAS made its presence known. Around
competitive potential. Afterward we will expand to the
US$1.6 billion is being invested in Mexico to double the
rest of the country. Initially, there will be price regulation
size of the pipeline network, creating new prospects all
but as we go along and infrastructure develops, we
along the project development chain. Beyond the pipeline
will experience price liberalization. The driver of the
expansion, existing infrastructure needs to be modernized
energy reform is market openness, competition and
to ensure homogeneity between the previous and
empowering users.”
developing pipelines.
A COMPETITIVE ALTERNATIVE “The legacy infrastructure will have to be upgraded,
The success of natural gas will be largely dependent
revamped and improved,” says Vernon Murray, Vice
on Mexico’s northern neighbor. Mexico has benefited
President
and
greatly from US natural gas reserves. It is connected to
technology solutions provider. “Thanks to the Energy
the world’s most cost-competitive molecule production
Reform,
private-public
in Waha, Texas. But the current political context in the
partnerships that will benefit both parties because their
US, where energy policies under President Donald
existing infrastructure has the competitive advantage of
Trump are yet to be defined, has raised concerns and
location.”
allowed uncertainty to penetrate the market. On the one
of CFE
Emerson, and
a
PEMEX
leading can
engineering
form
hand, Trump seems to be favoring the development of CRE has been instrumental in the evolution of the natural
hydrocarbons, including natural gas. On the other, his
gas sector. The regulatory body issued the Gas Release
harsh perspective on bilateral trade and joint operations
Program at the beginning of 2016, establishing a natural
between companies from both countries have raised
gas commercialization market. Additionally, along with
some questions regarding the feasibility of Mexico’s
the newly created CENAGAS, the commission presented
collaboration with the US.
a strategy for the natural gas market that included the start of a permanent open-access system for natural gas
Even though prices are expected to fluctuate, the
transport. Alongside the natural gas market, CRE has
general industry expectation is for this commodity to
now awarded over 20 permits to commercialize the fuel
remain a competitive alternative for the Mexican energy
in Mexico, incentivizing competition and ensuring the
mix. Some companies already have mechanisms in
correct operation of the market.
place to protect themselves from future price volatility. “We control uncertainty through hedges, futures and
CENAGAS RAMPS UP
other control mechanisms addressed to settle costs
CENAGAS was created in 2014 to oversee the country’s
and define a sales price,” says Kevin Piccolo, Energy
natural gas pipeline system but 2016 saw the center
and Cogeneration Director of IGSA, a leading company
ramp up to full speed. In January, PEMEX’s natural gas
in the construction of power generation plants. The
storage and transportation infrastructure was transferred
introduction of the Internet of Things (IoT) to this sector
to CENAGAS. It also took on new responsibilities and
will also help optimize production, enhance safety and
capacities as it adapted to its role as SISTRANGAS’
reduce operational costs, thus making natural gas an
manager, technical manager and transportation company.
exciting investment opportunity for companies in the
In October, CENAGAS launched the first open-season for
mid to long term.
INSIGHT
CUTTING THE MARKET’S CHAINS GUILLERMO GARCÍA ALCOCER Chairman of CRE
One of the major components of the Energy Reform is the
which is not included in the percentage of contracts it
opening of Mexico’s natural gas market, a milestone that will
has to give up. We want to promote competitiveness in
be partially reached in the first quarter of 2017 as prices in
the natural gas market involving private companies, so it
the north are finally liberalized. Promoting a competitive
will only affect PEMEX’s contracts with third parties,” says
market in the segment will attract the combined-cycle and
García. “The 70 percent threshold will be calculated over
cogeneration developments that are crucial for the country’s
PEMEX’s historical records and will only be applied in the
power supply, says Guillermo García, Chairman of CRE.
market’s ‘year zero.’ PEMEX might recover the transferred contracts afterward but it will depend on its capacity to
“Once the market is robust enough, we will eradicate
compete with the new market players.” The asymmetric
the first-hand sales condition on PEMEX, by which the
regulation came into force in 2016 and is expected to be
regulator sets a maximum price for the state-owned
completed over a four-year period.
company’s services,” says García. “We used a point of arbitrage to define natural gas prices, located at the point where international gas meets with PEMEX’s supply from the southeastern region. The price will be liberalized in 2017 in the region located north of the arbitrage point while it will continue being regulated in the south because PEMEX has no direct competition there.” First-hand sales were defined as the first sale of natural gas produced in Mexico and sold by PEMEX to a third party for delivery in the national territory, according to PEMEX’s website. Two reference points were used: Reynosa in the north and Ciudad Pemex in the south. The tariff imposed on
“Price fluctuations will be present as in any other market but it will not be related to the government, it will be a response to the market’s conditions” Guillermo García Alcocer, Chairman of CRE
first-hand sales impacted directly on the natural gas price to the public because it represented the first component
Having a free market is expected to lower natural gas prices
of the formula used to calculate the end-user price. Now
in the medium to long term by increasing competition and
the maximum price of the molecule will no longer be set
the possibility to import gas from the US, the world’s largest
by CRE but will respond to open market dynamics with
producer of the molecule, without being tied to a fixed
different players being able to introduce natural gas to the
price once it enters the national territory. But free markets
Mexican market, at least in northern states. To eliminate
also come with some risks and after 78 years of having
first-hand sales in the north, CRE has been working on
a regulated marketplace some Mexican companies might
five pillars to define its natural gas strategy: improving the
have trouble adapting to the new dynamics. “Mexican
national transportation infrastructure, issuing open access
companies are not used to the price volatility that comes
and capacity reserve regulations, unbundling PEMEX’s
with liberalized markets. They were used to having the
services, implementing asymmetric regulation to force
same price per unit of natural gas and electricity in all the
PEMEX to give up 70 percent of its contracts to other gas
regions they operated for long periods. But this was not
marketers and maintaining transparency.
a reflection of the market’s dynamism,” García says. “We need to make a great effort in our communication strategy
“The asymmetric regulation takes into account PEMEX’s
to teach private consumers the reality of the new market.
need to maintain its own supply. The company uses a
Price fluctuations will be present as in any other market
significant amount of gas in its different subsidiaries,
but it will not be related to the government."
297
INSIGHT
CONSTRUCTING MEXICO’S NATURAL GAS HUB EDUARDO ERHARD Energy Division Director for the Government of Nuevo Leon
As Nuevo Leon’s natural gas resources receive fresh private
L02
hydrocarbons
bidding
process,
which
includes
investment with the awarding of seven new fields in the
nine additional fields in Nuevo Leon. “We have been
Burgos Basin area, the state’s government looks forward
working closely with the R1-L03 winning companies and
to consolidating and promoting the industry by improving
supporting them in administrative aspects. We have great
the energy security of its burgeoning industrial sector,
expectations about the R2-L02 in which the Burgos Basin
according to Energy Division Director Eduardo Erhard.
will play an important role again and we are willing to collaborate with the winners,” Erhard says.
298
Nuevo Leon’s proximity to the US, the world’s largest natural gas supplier, adds another layer to the northern
It is not surprising that the first private supplier operating
state’s ambition to become Mexico’s natural gas market
in the wholesale electricity market is based in Monterrey.
reference, Erhard says. “Nuevo Leon has the infrastructure,
The state is the country’s third-largest power producer and
local production, access to the world’s largest natural gas
the leader in internal electricity sales. An important part of
market and growing energy demand. In other words, it has
Nuevo Leon’s power production comes from combined-
everything to become Mexico’s prime natural gas hub.”
cycle power plants fueled with natural gas and there are more to come, according to Erhard.
In July 2016, around 250 million cubic feet was produced daily in Nuevo Leon’s natural gas fields, the third largest
“We have several combined-cycle projects already
producer of non-associated natural gas in Mexico. The state’s
under construction and more to be developed soon.
production is expected to increase as the Burgos Basin holds
Increasing local power generation would be beneficial
the largest non-associated natural gas production in the
for the state’s industrial sector because it would make
country and has been opened to private investment.
electricity prices more competitive,” he says. There are also opportunities in storage to complement the already
In July 2016, around 250 million cubic feet of natural gas was produced daily in Nuevo Leon’s natural gas fields
important distribution infrastructure in place, such as the Mier-Monterrey and Los Ramones pipelines. “Improving the state’s storage infrastructure is one of our greatest challenges,” Erhard says. The government’s efforts to strengthen the local energy industry have echoed across the private sector, replicating
Seven of the fields awarded in the third phase of the
a collaborative model that has long been a feature of
Round One bidding process (R1-L03) launched by Mexico
Nuevo Leon. “The energy cluster was an initiative pushed
to welcome private investment into its hydrocarbon’s
by the private sector to build synergies and develop the
industry are located in Nuevo Leon — Peña Blanca,
human resources needed to face the Energy Reform’s
Benavides Primavera, Mareografo, Carretas, Duna, San
challenges. It also works as a platform to promote the
Bernardo and Calibrador — and all correspond to onshore
state’s electrical manufacturing industry, strengthening
developments in the Burgos Basin area. Operations in this
the local energy value chain,” says Erhard.
region are expected to increase Nuevo Leon’s natural gas production considerably, as the fields have aggregated 3P
The end goal for the government is to transform Nuevo
reserves of 735 billion cubic feet of gas.
Leon into an energy self-sufficient state. “We want Nuevo Leon to be the most competitive state in Mexico
In the first quarter of 2017, the National Hidrocarbons
and a global reference for industrial development,”
Commission (CNH) will announce the results of the R2-
Erhard says.
INSIGHT
LIBERALIZATION LEADS TO OPPORTUNITIES RICARDO ORTÍZ Director of the Energy & Natural Gas Division at Grupo Diavaz
The liberalization of Mexico’s natural gas market is creating
On the distribution side, Grupo Diavaz unit Compañía
ample business opportunities for energy enterprises while
Mexicana de Gas has put in place a five-year business plan,
providing an array of benefits for clients, says Ricardo
authorized by CRE, that estimates 195,000 connected
Ortíz, Director of the Energy and Natural Gas Division at
clients in the company’s home base of Monterrey by
Grupo Diavaz. “The liberalization of the market will enable
2019. “Most of the investments are focused on extending
our clients to access natural gas under better conditions,
the distribution network and increasing the scope of the
in a competitive environment with clear rules.”
service,” Ortíz says. Safe processes in the facilities and continuity of service are pillars of the model. “The reading,
The country’s second largest oil producer and the
billing and payment processes are recognized by the
winner of the Barcodón and Catedral gas fields, Diavaz
ISO-9000-2015 system, which assures the quality and
is now expanding its natural gas business through a new
continuous improvement in the delivery of the service.”
trading subsidiary, complementing its participation as distributor and operator. “The liberalization of the market
Despite the planned expansion of the country’s pipeline
implies that PEMEX will no longer be the only natural gas
system, Ortíz says it will not be enough to meet the nation’s
supplier in Mexico, which is bringing new players to the
needs. Another subsidiary, Neomexicana, is dedicated to
game,” adds Ortíz. “Diavaz has taken advantage of this
virtual pipelines to various locations and Ortíz expects
opportunity, opening a subsidiary for natural gas trading
that to continue. “We still foresee demand for natural gas
called Diavaz Gas Com.
on wheels in the medium term,” he says.
“Through aggregation of volume from our clients, Diavaz Gas Com will achieve better buying conditions for the
GRUPO DIAVAZ NATURAL GAS OPERATIONS
imported and national gas molecule. Additional benefits include the transportation capacities of pipelines, which
NEOMEXICANA (Virtual Pipeline)
H
are either privately owned or from CENAGAS,” he says. Diavaz Gas Com is looking to offer firm services but is waiting for CENAGAS to finalize regulatory processes
H
C
COMPAÑÍA MEXICANA DE GAS (Distribution Company)
H H
before defining its permanent strategy. “CENAGAS will
Imports
first assign capacity reserves to CFE and PEMEX. Secondly,
DIAVAZ GAS COM (Transportation Capacity Management)
it will formalize the capacity reserves of end users and distributors already connected to the national pipeline system, which have acquired rights. Finally, CENAGAS will
H
have an open market in which companies can buy and sell capacity reserves according to their marketing needs,” Ortíz says. Ortíz expects the new natural gas sales regime to be
H
C
H H
National Production
working by early 2017, including the removal of firsthand prices in the north. The market’s liberalization is likely to
End Users Grupo Diavaz is also an operator of oil and gas fields, having won contracts to exploit the Borcodón and Catedral fields in the Cuenca de Burgos region during R1-L03.
attract new trading companies and drive prices down. “We know that other trading companies are also preparing for
Natural Gas
the market’s opening, visiting prospective clients, asking for the necessary permits and defining trading strategies.”
Source: Grupo Diavaz
Grupo Diavaz Subsidiaries
299
INSIGHT
INTERNATIONAL COMPANIES TAKING NOTE OF PIPELINE PLANS DAVID MADERO Director General of CENAGAS
To achieve a really competitive natural gas market, Mexico
Jaltipan-Salina Cruz, Los Ramones-Cempoala and Lazaro
needs to build an infrastructure to transport the fuel in an
Cardenas-Acapulco
efficient and cost-effective way. The government believes
according to the recommendations of the plan’s annual
the time to construct is now and it is counting on the
revision performed in mid-2016 by the Ministry of Energy,
private sector as never before to come through — and
CRE and CENAGAS. But the possibility for private
international companies are taking note.
companies to invest in pipelines unrelated to PEMEX or
pipelines
have
been
postponed,
CFE is also an attractive option for the industry to expand 300
“The natural gas market has been in a liberalization
the transportation system, particularly as the liberalization
process for 20 years,” says David Madero, Director General
of the natural gas price in the north is expected to increase
of CENAGAS, the country’s agency in charge of managing
demand for capacity.
the natural gas transportation system. “We have had large companies participating in the sector for a long time such
As the independent operator of the National Natural Gas
as Fermaca, IEnova and TransCanada. But now we are
Transportation System (SISTRANGAS), CENAGAS also
seeing some new faces. The factor that has contributed
foresees new investments to maintain the existing system
to the increase in the number of international companies
in optimal condition. “We need to invest in revamping
entering the market is the unprecedented massive build-
natural gas compression stations because their numerous
out of the national natural gas transportation system.”
mobile parts increase their vulnerability. We will also be investing in the integrity of the pipelines and repairing all
Mexico’s five-year plan to expand its natural gas pipeline
the vulnerable spots we can identify through an intense
system includes the construction of 10 new strategic
analysis of the existing infrastructure. Finally we need to
pipelines,
new
invest in natural gas measurement and safety technology.
interconnection points with the US and one with Central
The process of itemizing the infrastructure we received
America. All these projects represent a total estimated
from PEMEX is still ongoing and our main challenge will
investment of US$16 billion. “The federal government
be to provide maintenance for the existing pipelines
expects to have private companies fund the expansion
inherited from PEMEX. We plan to invest in 2017 over
of the pipeline network through bidding processes. In
the required level to improve the operationality of the
Mexico around US$16 billion are being invested to double
pipelines,” says Madero.
two
social
interest
pipelines,
seven
the pipeline network and we are sure this investment will continue to grow. Therefore, there are opportunities
“The first steps that we need to work on for the next three
to build, own and operate new pipelines and to provide
years to achieve those goals are to consolidate CENAGAS,
services to CENAGAS and other existing and newly built
gain operational control of all our administrative and
pipelines,” Madero says.
field activities, acquire all the operational technology and knowledge remaining and invest in Supervisory Control
“The tenders for new projects have already created a
and
center of attraction for national and foreign investment.
systems and other technological tools,” he adds.
Data
Acquisition
(SCADA)
systems,
simulation
Additionally, the liberalization of the market has created a highly competitive environment. For instance, in pipeline
CENAGAS’ already complex responsibilities get even more
bidding processes we have identified very tight rates of
challenging due to the novelty of the center and other
return and increased standards in transportation,” he adds.
governmental entities with direct responsibilities over the
Most of the projects contemplated in Mexico’s expansion
pipeline system. “There is still pending regulation for us as
plans had been already awarded by the end of 2016 and
a technical manager. CENAGAS’ role is new and a direct
are expected to start commercial operations by 2017. The
result of the Energy Reform," Madero says.
Project
Beneficiary States
Longitude (Km)
Expected Investment (US$ Millions)
Expected Start of Operations
Status
Strategic Projects I
Tuxpan-Tula
Hidalgo Puebla Veracruz
263
458
2017
Awarded to TransCanada
II
La LagunaAguascalientes
Aguascalientes Zacatecas Durango
600
473
2017
Awarded to FERMACA
III
Tula-Villa de Reyes
Hidalgo San Luis Potosi
295
554
2017
Awarded to TransCanada
IV
Villa de ReyesAguacalientesGuadalajara
Aguascalientes Jalisco San Luis Potosi
355
294
2017
Awarded to FERMACA
V
San IsidroSamalayuca
Chihuahua
23
109
2017
Awarded to IEnova
VI
Samalayuca - Sasabe
Chihuahua Sonora
650
571
2017
Awarded to Grupo Carso
VII
Jaltipan- Salina Cruz
Oaxaca Veracruz
247
643
2018-2019
Postponed
VIII
Sur de Texas-Tuxpan
Tamaulipas Veracruz
800
2,111
2018
Awarded to IEnova & TransCanada
IX
Colombia-Escobedo
Nuevo Leon
Public bidding cancelled. CFE decided to participate in an open season instead, awarding US-based Howard Midstream Energy Partners a US$1.6 billion contract to supply natural gas to Escobedo and Monterrey, representing savings of around US$998 for the state-owned utility.
X
Los RamonesCempoala
Nuevo Leon Tamaulipas Veracruz
855
1,980
2020-2024
Postponed
2018-2019
Postponed
2018
Awarded to TAGPipelines. The project is now developed at the risk and expense of the private sector. It is no longer considered as a project of social interest.
Projects of Social Interest XI
XII
Lazaro CardenasAcapulco
Salina CruzTapachula
Michoacan Guerrero
Chiapas Oaxaca
331
440
456
442
301
INSIGHT
ENERGY CORRIDOR PUMPS CHEAP GAS TO MEXICO FERNANDO CALVILLO Chairman of the Board at Fermaca
The expansion of the Mexican natural gas transportation
integral. This makes us stand out from the National Gas
system has been moving at a quick clip as Mexican industries
Pipelines System. To bring gas to Guadalajara, we do not
demand more of the cheap fuel. The revamping of the
need transportation services from anyone else because we
country’s power system, substituting old coal or fuel oil-
own all the pipelines along this path. Few systems globally
burning plants for natural gas-powered plants has also driven
go from point A to B, but we go to point A to B to C. If we
the construction of more and larger pipelines in the country.
meet our projections, by early 2018 Fermaca should be operating 2,200 km of gas pipelines, something unique.
302
National and international EPC companies have been
This energy corridor will ensure long-term capacity to any
involved in this process and can now capitalize further as
user. For instance, if a power plant wants to settle near our
the Energy Reform opens the door to supply the molecule
corridor we can provide capacity for the next 20 years and
openly to private natural gas marketers or large energy users.
offer them the molecule from the cheapest gas source in the world, which is the Waha hub,” Calvillo says.
Fermaca, a Mexican EPC and energy services provider, has been preparing for this moment since it started
Calvillo adds that Fermaca is well-prepared to serve
working on the construction of the Tarahumara pipeline
companies located along its energy corridor as they have
in Chihuahua, looking to integrate a system capable of
a clear knowledge about these industries and their energy
bringing cheap US natural gas to Mexico’s high-demand
needs, adapting its offer to each particular client. “Every
regions such as El Bajio, which is brimming with large
user is different and the gas volumes and the commitment
automotive manufacturers.
we make are the means we use to establish a tariff profile. We are a regulated company. We cannot charge more than
“Our competitors may be bigger but our success is based
the maximum rate set by CRE but it does not mean we
on the integration of a system of several gas pipelines.
cannot give discounts. We usually give these advantages
We are connected from the cheapest production source
to larger users. If they consume a lot of gas they should
in Waha, Texas with the pipeline we just put into action
get a special price. Also, the law mandates our pipelines
with ONEOK, the Roadrunner Project, representing an
to offer open access. We cannot discriminate against
investment of about US$500 million and which can initially
anyone who wants to connect as long as their conditions
move 500 million cubic feet per day,” says Fernando
are economically and technically viable. The company is
Calvillo, Chairman of the Board of Fermaca.
happy to receive the highest number of consumers as possible," he says.
“We have also integrated the Tarahumara gas pipeline that has been in operation for three years. We are in the
To be ready to provide services when the timing was right,
final phase of construction of El Encino-La Laguna, which
Fermaca built bigger pipelines than those required to meet
is the continuation from Chihuahua to the Laguna region.
its commitments with CFE resulting from the projects it
The first phase was put to work two months ago and soon
was awarded through the state-owned utility’s tenders. “We
we will start phase two. Now we are processing rights of
looked to the future with all the projects we won. We became
way and environmental permits for the region from La
more competitive by taking market risks and thinking that
Laguna to Aguascalientes. We also have the project Villa
the returns would come with more clients. We have a long-
de Reyes-Aguascalientes-Guadalajara that we internally
term vision with this type of infrastructure because pipelines
call 'the VAG,'” he adds.
will remain underground for the next 30 to 40 years. Once you bury the tubes, they are not coming out. Even though
“Other companies looked to build all the pipelines they
competing with larger companies is not easy, our philosophy
could through the tenders. We tried to do something
consists of betting on the future,” says Calvillo.
Even though Fermaca already has an attractive set of
very careful with maintenance and we spare no expenses.
assets in Mexico, it wants to go further by continuing
We are also installing the most modern system in pipeline
to invest in different infrastructure projects for both the
operation, consisting of a unique SCADA (Supervisory
Mexican and US hydrocarbons markets. The company’s
Control and Data Acquisition) that opens and closes the
vision is to become the largest natural gas transporter in
valves via satellite communications. It is difficult to know
the world. By early 2018 Fermaca expects to have US$1.2
what happens underground where pipelines are buried
billion already invested in this sector as a first step to reach
so we have various methods of control. For instance, we
the goal of having US$20 billion in assets by 2020, stated
have people in the field to verify that no one is building
in the company’s expansion program known as FERMACA
on top of our rights of way. The most common accidents
20/20. Calvillo acknowledges that the company’s goals
worldwide involve a tractor operating above a pipeline,
are ambitious considering the short period and large
plowing and accidentally hitting a tube. The pipelines also
investments required but Fermaca believes it is ready to
have cathodic protection — an energy flow that prevents
take on this challenge.
the tubes from rusting —v as well as fusion bonds, also known as anti-corrosion coatings. Every year we randomly
“Now that CFE has finished granting the tenders and we
open a part of the pipeline for integrity checks and in 14
know we will not see gas pipelines with big diameters for
years we have never been close to an accident. Our new
the next five to seven years, we are betting on connecting
program also includes drones that monitor the area and
big gas corridors between the US and Mexico and
notify us of any possible incident,” he says.
expanding to other cities. We are very focused on liquids and terminals. The company is developing a regional
Calvillo is satisfied with the advances brought about by
project that includes hundreds of new pipelines in the
the Energy Reform and the opportunities it has created
country. We will start developing next year but we will
in the natural gas sector and he expects to contribute to
remain active in midstream where there are still a lot of
moving this process forward. “We are in the golden age for
opportunities,” he says.
natural gas and we have to take advantage of the fact we have access to the cheapest gas molecule in the world,”
To ensure their current projects remain in perfect shape
he says. “Mexico has a lot of potential. We should work
to provide continuous service along its energy corridor,
together and continue supporting the reform because in
Fermaca is also paying attention to O&M services. “We are
the end we all want to see a better Mexico.”
FERMACA'S ENERGY CORRIDOR
Roadrunner Pipeline Tarahumara Pipeline El Encino - La Laguna Pipeline La Laguna Aguascalientes Pipeline Villa de Reyes Aguascalientes Guadalajara (VAG) Pipeline Source: MBP with information from Fermaca
303
VIEW FROM THE TOP
PUSHING FOR THE TOP QUARTILE VERNON MURRAY Vice President of Emerson
Q: What opportunities do you foresee in the expansion of
communication piece to properly regulate and control the
Mexico’s pipelines system?
production. In regulation and control an important element
A: There are around 30 million people in Mexico that do not
is gas quality, which we can monitor through the analytical
have access to electricity, which in a country as advanced
package we provide. Our data acquisition and management
as this one implies underdevelopment. Even though new
portfolio is critical for natural gas producers and addresses
private companies are entering the market the number
the challenges the natural gas industry is facing today.
is still low. For instance, Texas’ 58,000 miles of pipelines 304
have been developed by over 30 companies, while on
Q: How is the presence of private companies influencing
the Mexican side the task fell mainly to state-owned
the solutions and investment in preventive maintenance
companies. The market is underserved if we compare it
solutions?
with the world. Even with what has been bid and under
A: New pipelines are being set with a long-term vision so
construction it still is insufficient for the needs of the
operators can be comfortable with them for the next 20 or 25
Mexican industry. Guadalajara, which has an important
years. Emerson bought ISA Energy Solutions International,
industrial market, is being served by a single pipeline.
which is a pipeline manager designer-software package. The second largest market for this software is Mexico. This
Companies are looking at Mexico as an investment
illustrates how private players are getting involved in the
opportunity because of industry necessities that are not
design and placement of pipelines from the very beginning
being addressed. This represents an opportunity not just
with the right measurement and control points, diameters
for pipeline-building companies but for the automation
and compression stations. Emerson is urging customers
and electricity markets and of course for the users, either
to start thinking beyond a maintenance mode for their
commercial, residential or industrial. Companies setting up
facilities, which is what we have done for CFE and PEMEX
shop in Mexico make the decision to come because they
for numerous years, and to look at operating projects
realize energy, production and labor costs will become
over their lifetime in the top quartile of performance, with
highly efficient.
minimal losses, maximum optimization, critical safety and proper measurement of custody-transfer.
Q: What are Emerson’s top products for automating natural gas logistics?
Q: How can your products help fossil-fueled power plants
A: Investors interested in the automation of natural gas
become more flexible and achieve better plant cycling?
logistics are private players and some private customers we
A: Emerson offers a leading distributed-control platform
know from other markets. We already have an established
under our brand name Ovation, which is specifically
relationship with them and understand their needs from
designed for the power-generation industry. It is strongly
an automation standpoint. The most vital solution we
positioned in the market. Ovation is essentially the central
have in our portfolio is a custody-transfer piece for the
nervous system of a power plant. It allows operators
flow, measurement and instrumentation packages that
flexibility in using either fossil fuel or natural gas. The quality
are critical in gas pipelines. The second are the valves
of the fuel or gas that enters power-generating facilities is
associated with these pipelines, in which Emerson has
absolutely crucial from an operational standpoint. As the
a longstanding history in Mexico through our brand-
quality of natural gas varies, if not properly measured, it
name Fisher, established over 50 years ago. The third is a
will hinder the productivity of the plant and will not allow the required flexibility. The same principle applies to our
Emerson offers a line of process-automation products, services and
control portfolio. Index qualities of gas, fossil fuels and
solutions. Its products include valves, regulators, measurement and
emissions will continue to be important, so our portfolio is
analytical instruments.
geared to handle all these applications.
Q: What are the main arguments for investing in
Q: What is the adoption rate for automation and
automation?
digitalization solutions?
A: Many of the facilities in operation today could be
A: Around 80 percent of Mexican companies are
safer with an automation investment. It is a lot less
considering
expensive than what people expect and its benefits have
because of the amount of competition and the need to
been previously measured with proven improvement
be more efficient, reduce costs and increase business
in cycle times and uptime. Ongoing operational costs
opportunities. Industries that traditionally did not place
are going to be reduced with preventive maintenance
a high priority on automation and energy management
and automation by 30 to 60 percent. Automation also
and efficiency are now targeting them as their major
implies operating with fewer people and fewer human
operational improvements. Given the ROI, private players
decisions, allowing for control of the facility through a
are likely to make an investment regardless of size.
digitalization
and
automation
solutions
control screen with pre-existing diagnosis, thus reducing the total of potential accidents. Significant savings
Q: Which segments offer the greatest potential for growth
can be seen with little investment in strategic areas of
and which Emerson products would best fit this market?
automation and preventive maintenance.
A: Traditionally automation was used for control but where we see growth in the next 15 years is in the areas associated
Even though the advantages seem obvious sometimes
with energy efficiency and energy management as well as
people do not invest in this. Sometimes power companies
safety and reliability. Energy efficiency is the most exciting
are state-owned and given budget cuts the financial
because of the amount of energy wasted in the industries
situation can prevent them from advancing upfront
we serve. It goes from a hardware standpoint with our
investments. The return on investment is under six months
measurement equipment to also connecting it with an
in these facilities but it is difficult to find funding for
energy-management software tool.
revamps. Hopefully the Energy Reform PPPs will allow these types of projects. The market will realize the benefits
Emerson develops a diagnostic of energy to determine the
of this investment very soon in this sector.
amount of energy being used and what could be saved if automation technology is properly applied. Using less
Q: What will be the most important element in
energy will drive improvements no matter the industry.
digitalization trends in the coming years?
For instance, the reduction of 2 or 3 percent of energy
A: The process of connecting all control points in
used by large consumers represents large amounts of
a power plant and elevating them to make smart
savings for them. That is a side of the portfolio where we
decisions in day-to-day operations is what will sway the
see a lot of potential and we are driving several trials in
market for the next five to 10 years. Emerson’s solution
Mexico to push it in that direction.
for this is called the Plantweb™ digital ecosystem. It offers the capability many companies will look for in the near future to connect instrumentation, automation and control systems to key enterprise management resources. This is what the industrial Internet of Things promises, the ability to harness technology to work in measurable and meaningful ways. Emerson will
Ongoing operational cost can be reduced with preventive maintenance and automation by 30 to 60 percent
be investing a lot of its research and development funds to connect individual points into intelligent
Q: What are you doing to make sure you exploit all the
business solutions for our customers. By doing this, our
upcoming opportunities in the country?
estimates show that key industries like the oil and gas
A: Emerson has been in Mexico for 60 years, we have
sector in Mexico can improve earnings by as much as
15,000 employees, 20 manufacturing facilities and nine
15 percent and achieve Top Quartile performance. Top
regional offices. We have the ability to react to new
Quartile is defined as achieving operations and capital
market opportunities quickly. We can deliver projects on
performance in the top 25 percent of peer companies. To
time and on schedule because we have a strong project
help customers achieve Top Quartile, Emerson launched
management office. The concept of main automation
a technology and engineering-based program called
contractor has been well accepted in the industry both by
Operational Certainty in October 2016. This program
natural gas pipelines and electricity sectors. Our network
offers methodologies and best practices to industrial
of over 100 service engineers all over the country is ready
companies to improve operational performance in
to provide service 24 hours a day. We are well positioned
four main categories: safety, reliability, production and
to take advantage of the opportunities upcoming in the
energy management.
electricity sector.
305
NATURAL GAS PIPELINES
1
38
2
a
4
3
5
39
40 XX
II
I
7 III
6 8 42
9
43
41 306
46 IV
Natural gas pipelines in operation Diameter (inches) 48 36
49
12
47 44
11
10
45
48
24 16 12 4 and under or unknown Natural gas pipelines planned, proposed
52
or under construction
17
Diameter (inches)
X
48 36
16
c
24 16 12 4 and under or unknown Natural gas processing plant LNG terminals in operation LNG terminals proposed Border crossing Natural gas power plants Natural gas power plants planned, proposed or under construction
28
Compression Stations I. Naco
XII. Valtierilla
II. Gloria a Dios
XIII. El Sauz
III. El Sueco
XIV. E. Zapata
IV. Cháves
XV. Cempoala
LNG Terminals in Operation
Natural Gas Processing Plant
LNG Terminals Proposed
a. Energía Costa
d. Burgos
m. Salina Cruz
Azul b. Terminal LNG de
f. Poza Rica I
Altamira
V. Santa Catarina
XVI. Lerdo
VI. Los Ramones
XVII. Jáltipan
VII. Estación 19
XVIII. Chinameca
VIII. El Caracol
XIX. Cárdenas
IX. Los Indios
XX. San Isidro
X. Soto la Marina
XXI. Dr. Arroyo
XI. Altamira
XXII. Villagrán
Región
e. Arenque & Poza Rica II
c. Manzanillo LNG
g. Matapionche h. Pajaritos i. La Venta j. Cactus k. Nuevo PEMEX l. Ciudad PEMEX
307
50
14
13
51
15
VII d
V
VIII
VI
IX
XXI
X
XXII XI b
22 e
54
XII
21
19
53 18
XIII
23 20
36
f
24 55 25 57
56 26
27
XIV XV
34
g XVI
h
i
30
8
XVII XVIII XIX
29 m
31
j
58
33
32 k
l
59 35
60 37
NATURAL GAS PIPELINES (CONT.) NATURAL GAS POWER PLANTS
1
2
Name
Plant Size (MW)
La Rosita I
700
Presidente Juárez
Name
Plant Size (MW)
19
Bajio
500
550
20
El Sauz Plant
800
Rosarito III
500
21
Tamazunchale
1100
147 CCC Baja California
250
Petroquímica Escolin
50
Presidente Juárez GT
200
Altamira Cogen
25
Termoeléctrica de Mexicali
500
Altamira II
500
La Rosita II
300
Altamira III & IV
1000
22
San Luis Río Colorado
500
Altamira V
1000
3
Aise México
20
Enertek
100
4
Naco-Nogales
300
Tuxpan II
500
5
Samalayuca
300
Tuxpan III & IV
1000
Samalayuca II
600
Tuxpan V
500
6
Puerto Libertad
600
24
Refinería Miguel Hidalgo
100
7
La Caridad I & II
500
25
LFC Distributed Generation GT
400
8
Hermosillo
300
PEMEX-Exploración y Producción
20
Huinala
500
La Costeña Jumex
5
Chihuahua
500
Minsa Tlanepantla
10
Norte II
500
Empaques Modernos
15
Chihuahua III
350
Durango EcoMethane LFG to Energy
20
El Encino Chihuahua II
200
Baja California Sur III
20
Modelo Anahuac
10
29 CCC Norte
500
Lomas de Chapultepec
10
Durango Kraft
10
Gresaise SA de CV
10
La Laguna II
500
Papel Bidasoa Power Plant (Teotihuacan)
10
Gómez Palacios
200
26
PEMEX-Petroquímica Complejo
50
Saltillo
250
27
Celfimex Apizaco
10
Ramos Arizpe Fersina
5
Planta Apizaco
50
Monterrey III
700
28
Ispat Mexicana
30
Pegi
550
29
500
Complejo Procesador de Gas La Venta
30
Monterrey II Monterrey
500
30
Petroquímica Morelos
150
Petroquímica Cangrejera
150
Procesador de Gas Área Coatzacoalcos
75
Petroquímica Pajaritos SA de CV
60
CPQ Cogeneration
10
Petroquímica Cosoleacaque
100
Refinería Gral Lázaro Cárdenas
75
31
Refinería Ing Antonio Dovali Jai
100
32
Nuevo PEMEX
350
Complejo Procesador de Gas Nuevo PEMEX
100
PEMEX Planta Eléctrica Cárdenas
50
33
Campeche
350
308 9
10 11
12
13
14
23
Vitro Cogen
250
Ing Hector R Lara Sosa
50
Planta Monterrey
50
Famsa-Titan
40
Propasa Monterrey (1103880)
25
Monterrey Waste
25
Monterrey Biogas
25
Promex Energía Nuevo León
25
Planta Nuevo León
5
Presidente Emilio Portes Gil (Río Bravo)
350
Río Bravo II
500
Río Bravo III
500
Río Bravo IV
500
34
Cantarell
500
16
Manzanillo I & II
1600
35
PEMEX Terminar Marítima Dos Bocas
150
17
Arancia Cpc Ingredion San Juan
20
36
Mérida III
500
18
LNG Antonio M Amor
80
37
Valladolid III
500
15
NATURAL GAS POWER PLANTS PLANNED, PROPOSED OR UNDER CONSTRUCTION
38 39
Name
Plant Size (MW)
Baja California VI
500
Baja California II
300
Baja California III
300
Baja California IV
500
Baja California V
500
San Isidro-Samalayuca: July 2017
1000
Empalme I
800
Empalme II
800
Guaymas CC I
800
42
Noreste V
1000
43
Norte III & IV
1300
Norte IV Lerdo
1000
Norte VI
1000
La Paz CC
100
Baja California V
50
45
Todos Santos CC
46
40 41
44
47
Name
Plant Size (MW)
48
CC Mazatlán
900
49
Norte V
1000
Noroeste II
1000
AHMSA Monclova
150
Techint Pesquería CC
800
Noroeste (Escobedo - 1077659)
800
Dulces Nombres CC
500
50 51
Monterrey Pwr
100
52
Guadalajara I
500
53
Salamanca
600
54
Occidental I & II
1000
55
Bordo Poniente Biogas Plant
50
56
Grupak Igsapak Hidalgo
70
57
CC Centro
600
58
Complejo Procesador de Gas Cactus Cogen
500
100
59
Ramos Arizpe Cogen
50
Topolobampo II
850
60
Mérida Enerkin CHP Powe Plant
10
Topolobampo III
700
Mérida IV
350
CC Noroeste
600
Mérida V
500
309
Stringing the pipe at Samalayuca for the Tarahumara project, Chihuahua, Fermaca
INSIGHT
NATURAL GAS RIPE FOR DEVELOPMENT ALBERTO ESCOFET Regional Manager of Enagás México
The Mexican natural gas system is ripe for development,
Although the feasibility for this type of infrastructure
bringing opportunities that were unavailable before,
will depend on the natural gas demand, the company
according to the local unit of Spain’s Enagás, a leading
is already prepared to tackle the opportunity. “Besides
transporter of natural gas.
the many CS that Enagás owns, operates and maintains in Spain, we have a main role in Mexico with the 45MW
“The Energy Reform provides more flexibility and a
Soto la Marina Compression Station.”
range of possibilities that were previously out of reach,” 310
says Alberto Escofet, Enagás Regional Manager for
While the company thinks CFE will continue to be
Mexico. “It has allowed more innovation and proactivity
the most important off-taker in the market and the
for companies like Enagás to seek more solutions to
responsible party for most natural gas projects, it
build a natural gas network in the country and seize the
is still considering several other private companies
advantages the fuel offers.”
as
opportunities
for
development.
“The
greatest
potential comes from serving the industrial market and The Spanish company acknowledges there are few
distribution companies that work in the commercial and
regasification projects, although the opportunities that
residential segment,” Escofet says. “There is a window
exist are good. Instead, it believes there are a multitude
to develop gas infrastructure to allow industrial growth
of prospects in transportation and storage. “There are
and fossil fuel substitution with natural gas.”
many areas of opportunity in transportation because there is much work left to do and numerous kilometers
Enagás believes the Energy Reform has been successful
of pipelines to attend. Storage is a very important area
and hopes to extend its relationship with the regulatory
that has not been fully developed,” Escofet says. “There
institutions to further develop the Mexican energy
has been some progress on storage policy and an analysis
industry. “There is an open communication channel
of real needs to be addressed in the market and the
and we are more than willing to collaborate with CRE,
optimal volumes of natural gas storage to secure supply.”
CENAGAS and the Mexican Natural Gas Association
He points out the company has 50 years of experience,
(AMGN). We are very active in all discussion forums
expertise and infrastructure around the world.
where we provide feedback for regulatory institutions.”
Enagás, which is also the technical manager of Spain’s
The natural gas industry in Mexico is experiencing an
natural gas system, is planning to focus on projects that
expansion and the role of companies like Enagás will be
complement the natural gas transportation network
determinant of the market’s future and its international
and CFE’s auctions. It is also studying the possibilities
competitiveness. Enagás hopes to contribute to this
for optimizing the existing network and developing
evolution and help consolidate this integral part of
potential projects to bring gas to diverse regions of the
the reform. “We want to collaborate to assure the
country.
consolidation of the Energy Reform process so it works efficiently,” says Escofet.
Another potential area of opportunity is compression has
“We seek to develop projects for new infrastructure.
and
Enagás will continue to be one of the main players in
the
transportation, storage and technical management to
transportation of larger volumes of natural gas so the
ensure its efficiency. We can contribute to the efficiency
existing infrastructure can be better employed when
of the Mexican gas system so it can benefit all natural
demand grows.”
gas users,” he says.
station
(CS)
infrastructure,
experience,
including
operations.
“Compression
in
design,
which
Enagás
construction
stations
allow
PROJECT SPOTLIGHT
EXPERTISE FOR PIPELINE DEVELOPMENT Grupo MD is a cluster of five companies specialized in the
operation of two 800KW engines in each of the stations.
development of power generation projects. Their activities
This was a scheme already proven and developed by
include hybrid and PV power generation, cogeneration
Grupo MD in critical-mission operations in the oil and
and electricity commercialization, encompassing a wide
gas industry, so the reliability of these processes did not
range of solutions for diverse companies. The company
present a problem for the company.
has worked with top international companies such as Mitsubishi and Generac.
One of the main highlights of the development of this project has been the high satisfaction levels, resulting
Its flagship project is the development of the most
from the zero failures recorded during its two years of
important pipeline in the country for the next years.
operations thanks to the team’s coordinated efforts. The
In 2014 the group started construction of the largest
strong involvement of Grupo MD on every project and the
transportation complex between the US and Mexico. This
professional strategy used by the company to identify the
1,000km pipeline starts on the border and connects it with
actual energy needs of a client were the decisive factors
Mexico’s central region.
that led the projects’ stakeholders to hire it for the job.
Grupo MD was invited to participate by the developers
For this project, the group devoted its full attention,
of the first phase of the project. These companies chose
having professionals working on site, performing all the
Grupo MD because of its innovation, human talent and
operation and maintenance services required. Grupo MD
continuous process improvement.
did not spare any effort to provide its clients products and services up to their expectations, including logistics,
The group presented several propositions for the pipeline’s
technology and security aspects.
construction where several criteria for equipment supply were agreed upon. According to the companies’ needs
The success of the project has allowed Grupo MD
and operational logic, Grupo MD offered diesel-based
to expand by increasing its appeal and acting as a
800KW generators. The generators incorporate a cutting-
guarantee of the quality of the group’s processes,
edge motor that took into consideration the continuous
technology and services.
311
VIEW FROM THE TOP
POTENTIAL OPEN SEASON IN CANCUN PHILIPPE DELMOTTE CEO of ENGIE México
312
Q: How does ENGIE match its natural gas business in
largest natural gas distributor but we want to double our
Mexico with its production ambitions for clean energy?
local client base by 2020. We now have six natural gas
A: We have three business lines in Mexico, one of which
distribution companies in different states, including the
is power production. Cogeneration plants have been the
State of Mexico, Puebla, Tlaxcala, Queretaro, Jalisco and
core of our power generation business up to now. ENGIE
two in Tamaulipas. The availability of cheap natural gas
has around 311MW of cogeneration capacity installed. In
from the US and Mexico’s goal to expand the national
addition to electricity we offer steam to our clients and
natural gas network are the main drivers behind our plan.
inject the surplus power to the grid. Now we are looking
Besides expanding our reach we want to offer our clients’
to expand our power production capacity with more
integral services beyond natural gas supply like mini-
cogeneration projects, particularly for clients with high
cogeneration for industrial applications. We are looking to
thermal demand, including mini-scale and large-scale
integrate energy-efficiency strategies to help our clients
facilities and new solar and wind-energy projects. Our
optimize consumption. We are also looking at alternative
goal is to produce at least 25 percent of our energy from
uses of natural gas to complement our distribution and
renewable sources by 2020, which is in line with ENGIE’s
transportation activities in Mexico. Compressed Natural
vision and the goals set by the Mexican government
Gas (CNG) is one of the means to reach areas located
regarding clean-energy generation.
200-300km from a natural gas pipeline. We manage this business in a joint venture with Virtual Pipelines Mexico,
ENGIE’s City of Tomorrow concept encompasses solutions to digitize energy and land-use decisions in cities
which has great expertise in the natural gas compression segment. Another business we are analyzing is Vehicular Natural Gas (NGV). Q: Where do you expect demand for natural gas services to flourish? A: We expect to see demand increase for our natural gas
Q: How does the company plan to expand its natural gas
distribution services in the regions where we are already
transportation and distribution capabilities?
operating because natural gas demand usually grows
A: Natural gas transportation is the second axis of our
around existing pipelines. We already operate 10,500km
operations in Mexico with 1,300km of pipelines already
of pipelines in our distribution business but we need to
under operation, including the Mayakan pipeline in
add 5,250km to double our clients, which is among our
Yucatan, the Bajio pipeline in Mexico’s central region and
ambitions for 2020. We also see great potential in the
a new pipeline located south of the second phase of Los
Cancun area, which lacks a steady natural gas supply.
Ramones, near Guanajuato. ENGIE is the second-largest
There is one pipeline already in the region but it only gets
natural gas pipeline operator and the first distributor
to Valladolid in Yucatan, leaving customers in Cancun
in Europe and we have used that experience to expand
without direct access. We are planning to deliver CNG
our business in Mexico and provide the services our
at first but we see expanding our natural gas network
customers require. Natural gas distribution is the third
as a potential solution for the future. We are analyzing
pillar of our Mexican business. We are already the second
the possibility of organizing an open season in Cancun aligned with the new regulatory framework, which allows
France-based ENGIE is one of the largest private gas pipeline operators
us to ask about client interest in reserving capacity in
and the number two natural gas distributor in Mexico. The company also
the system. If enough interest is perceived at the open
has three steam-electricity plants in operation and is building 149MW
season, we can expand our Mayakan pipeline all the way
of PV solar capacity as a result of CENACE’s long-term power auctions.
to Cancun.
INSIGHT
THE GROWING BUSINESS OF GAS DELIVERY LUIS MONTGOMERY Director General and CEO of ACCESGAS
The expansion of the National Natural Gas Pipeline
vehicles used for transporting CNG have high safety
System is the most evident change the natural gas
standards and are specially designed to withstand the
industry is experiencing in the post-reform landscape
high pressures required to transport this fuel. “All the
but companies in this sector can now capture other
vehicles we use have undergone several safety tests
opportunities as well.
for leakage, heat or destruction. Our fleet is made of vehicles with steel fiber tanks whose resistance has been
“All the existing pipelines in the country will have open
tested under several extreme conditions.” ACCESGAS
access, allowing us to expand our presence to other
routinely examines its vehicles to guarantee they are in
locations where the natural gas infrastructure is already
optimal condition.
present,” says Luis Montgomery, President and CEO of ACCESGAS.
The company’s business model consists of delivering turnkey projects in which ACCESGAS provides all the
Montgomery says that in Mexico ducts were classified in
financing and technical skills required except for internal
two categories, consisting of the distribution network,
connection pipelines, which have to be constructed by
which is used by gas distributors like Fenosa to deliver
the client. This model allows ACCESGAS to maintain
natural gas to urban locations, and the open-access
ownership of the pipeline, charging the company for the
pipelines, which were PEMEX’s assets that have been
amount of natural gas used and a capacity usage fee.
transferred to CENAGAS. The company plans to take
The company’s CNG area follows a similar model in which
advantage of the natural gas infrastructure that will be
ACCESGAS finances the infrastructure required to deliver
developed as a result of the new regulatory framework.
natural gas by vehicle, including the compression stations.
ACCESGAS is dedicated to the construction of pipelines
Montgomery highlights that clients also experience
but it also distributes natural gas by compressing the
economic savings from fuel cost reductions by replacing
fuel, shipping it by truck and decompressing it once
LPG or propane with natural gas, which is cheaper and
it reaches clients’ facilities. “Our company gears its
has a smaller environmental impact.
services toward industrial users, which are usually located in places where natural gas infrastructure is
ACCESGAS has a nationwide presence. The company
available. In these industrial settings we offer companies
recently inaugurated its first compression station in the
turnkey projects for natural gas transportation and
Bajio region and it has three more compression stations
delivery,” says Montgomery.
in the works to be located in the southern, western and Bajio regions.
Using pipelines is an efficient and cost-effective solution when a company is located near an open-access pipeline
As for pipelines, Montgomery says his company already
and has high consumption rates. But virtual pipelines
has projects for Veracruz, Jalisco, Sonora, Sinaloa and
are an attractive alternative when building physical
the Mexico City outskirts. “All our projects consist of
transportation infrastructure does not make sense from
medium to small-sized ducts that connect different
a financial perspective. In fact, Montgomery believes
industries with the National Natural Gas Pipeline System,
delivering gas by vehicle is a better option for facilities
amounting to 65km. In addition, we are compressing
located over 300km away from the main system.
100,000m3 per day in our virtual pipelines and CNG transportation division, although we expect this figure
Clients have safety concerns regarding natural gas
to reach 600,000m3 over the next six months, which will
transportation but Montgomery points out that the
require a US$45 million investment.”
313
314
Custody transfer of natural gas to burners, Morelos, Emerson
INSIGHT
REIN IN POLLUTION WITH NATURAL GAS DESSIRE COLINA Director General of Promotora Energética E3
The Energy Reform brought with it the need for companies
industrial applications. The company offers integral
to revisit their business strategies and in an ever-changing
solutions, including O&M, business development and
industry, the necessity for diversification and adaptability
project management. It is the exclusive distributor in
have become crucial factors for success, says Dessire
the country for Clean Energy Compression, a leading
Colina, Director General of Promotora Energética E3.
manufacturer
of
compressed
natural
gas
(CNG)
solutions. The alliance has opened several doors for the In the case of Promotora Energética E3, a company
company. “We have gone from having zero equipment
specialized in the development of power projects,
installed in 2011 to holding 70 percent of the market
including vehicular natural gas, industrial natural gas
share, particularly in industrial applications where
power generation and assessment for energy projects, the
we have installed 80 percent of the total compressed
five-year plan for the national pipeline system reduced the
natural
demand for virtual pipelines, which had been an important
Regarding vehicular use, we are working in 60 percent
division of the company. The attractiveness of fuel oil
of the country’s natural gas stations.”
gas
equipment
currently
under
operation.
resulting from low oil prices also impacted the demand for natural gas on wheels.
Colina says the environmental benefits from natural gas versus other fossil fuels should be supported by stricter
Colina says companies should consider these changes a
environmental regulations and a larger effort between
challenge to renew their strategy, diversify their business
governments and the private sector to promote the use
portfolio and tackle more promising applications for
of gas-fueled vehicles along with a large investment in
natural gas. “To cope with these changing conditions, we
multimodal stations to create the infrastructure necessary
are diversifying our portfolio by strengthening our share
for this technology. The feasibility of natural gas for
in vehicular applications, a sector that will benefit from
vehicular use can already be observed in Mexico. The first
the new Hydrocarbons Law that allows multimodal gas
natural gas station in Queretaro, an initiative by Natgas
stations,” she says. “Increasing the availability of vehicular
with the support of Promotora Energética E3, illustrates
natural gas in the country will not only improve the sector’s
the potential for successful collaboration between the
competitiveness but also have a positive impact on the air
private and public sectors.
quality of cities.” The initiative was born as a joint effort to improve This application for natural gas comes at the perfect
Queretaro’s air quality while offering citizens an affordable,
time as pollution is a major problem for Mexico.
safe and more sustainable mobility option. “Natgas’ first
According to the Mexican Competitiveness Institute
compression station uses Clean Energy Compression
(IMCO) between 2010 and 2013, pollution cost Mexico
equipment sold and installed by us, which also includes
over US$7 billion in health expenditures and productivity
aftersales services,” Colina says. “The capacity of the first
losses. Early in 2016 pollution-related disturbances
station was surpassed by demand in six months, leading to
peaked when Mexico City’s government was forced
the opening of a second service station.”
to extend the implementation of the “No Driving Day” Program (Hoy No Circula) for three months, forcing
Currently, only 4,800 vehicles are running on natural gas in
people to seek alternative transportation means and
the country, a drop in the sea when compared with the 2.3
pushing city officials to face the need for cleaner energy
million in Argentina, which has the largest natural-gas fleet
sources, such as green public transportation fueled by
in Latin America. But Mexico’s fleet of almost 40 million
natural gas. Promotora Energética E3 specializes in the
vehicles creates an outstanding business opportunity for
development of natural gas projects for vehicular and
vehicular natural gas.
315
VIEW FROM THE TOP
UNPRECEDENTED TRANSFORMATION RIFE WITH OPPORTUNITIES JUAN HERNÁNDEZ Director General of Industrias Energéticas
Q: What impact is the Energy Reform having on the
natural compression stations. We want to offer complete
industry and companies like Industrias Energéticas?
solutions that benefit both the public and private sectors.
A: Mexico is in the middle of an unprecedented
316
transformation resulting from the reforms implemented
Q: How is Industrias Energéticas facing the challenge of
by this administration. The Energy Reform was created
new competitors in clean power generation?
because of the transformational needs of the industry. If a
A: Thanks to Industrias Energéticas’ trajectory we are
country lacks power, its growth is hindered and prospects
being sought by oil and gas companies that distribute
for employment growth and infrastructure development
and operate equipment on a larger scale in Mexico. Our
will be missed. We now have several options implemented
best networking and marketing opportunities come
by the federal government such as natural gas pipelines,
from conferences and conventions. We have a dynamic
LNG projects, private power generation plants, new
marketing system and we are investing resources to
refineries and the ability to exploit alternative energy
promote our activities and develop strategic alliances.
sources, such as wind and solar, and dynamic energy sources such as tidal energy, which in Norway accounts
Q: How must the landscape change to boost the usage of
for 15 percent of its produced energy.
biogas technology? A: The main challenge for biogas is that the reform is still
Q: How is the company positioned to take advantage of
developing. There is also a lack of fiscal stimuli and financial
the new regulations?
support to incentivize the implementation of this type of
A: We represent Capstone Turbine Corporation as a
technology in the agriculture and hotel industries, which
distributor, but Industrias Energéticas can also participate
are the largest generators of biogas. As for municipal
in other projects to add value in the manufacturing of
services, there is still a lack of awareness about these types
alternative solutions for the industry, such as natural gas
of plants and their success in countries like Argentina,
compressors, commercialization and installation of mass
Uruguay or Spain. Massive diffusion of this technology as
and ultrasonic metering systems, oil valves, specialized
an alternative among government, banks and investment
instrumentation and automation with strategic partners
funds is still needed, as well as academic linkage through
in the US and Latin America. Industrias Energéticas is
training, conferences, forums and elaboration of projects
in a constant state of evolution. We were awarded a re-
to explain its benefits. The market potential in Mexico for
certification of our Quality Management System ISO
biogas is large, especially for the hotel industry and state
9001:2008 and we are halfway through the OHSAS 18001
and municipal governments. Biogas could be used for self-
certification for safety and health management and the ISO
supplying systems that would allow small industries such
14001. This latter certification is the international standard
as farms or ranches to be independent from CFE’s power
for environmental management and will help us to identify,
generation. The target would be to incentivize a self-
prioritize and manage environmental risks within our
supplying business scheme at the government and private
regular operational framework. We analyze each project
level to boost its usage.
individually to select our workload with care. Industrias Energéticas is addressing several areas such as industrial
Q: What is Industrias Energéticas doing to benefit from
construction for the oil and gas sector, support for power
the government’s five-year pipeline plan?
generation and pipeline systems and implementation of
A: Industrias Energéticas is developing strategic alliances with E&P companies, providers, constructors and pipeline
Industrias Energéticas is a service solutions provider with state of the
operators. If we collaborate with each other, offering our
art technology for comprehensive power generation based on Capstone
unique expertise, knowledge and experiences, we can
microturbines for offshore and onshore facilities.
reach any target set.
INSIGHT
ENERGY REFORM PROSPECTS BECKON FOREIGN FIRMS Dick Kramp CEO of AB-Greenhouse Power Netherlands
Enzo Losito CEO of AB Energy México
When Italian-based energy and cogeneration group AB
A key strength of AB Energy México lies in the flexibility
started looking for new growth opportunities, the opening
of their cogeneration solutions, which range from
created by Mexico’s Energy Reform made coming to
industrial to commercial applications that employ
the Latin American country a no-brainer, says Enzo
natural gas, biogas and special gases (produced by the
Losito, CEO of AB Energy Mexico. The nation’s high level
mining and oil and gas industries) in their processes. The
of industrialization, growth expectations, geographic
most competitive for the Mexican market are natural
location and free trade agreements with the US and
gas solutions for industrial and commercial applications,
Canada were some of the main features that also caught
while
the interest of the firm’s agricultural solutions unit AB-
incentives and attractive plans to be cost-competitive,
Greenhouse Power Netherlands. Mexico’s stated goal of
Losito says.
biogas
solutions
would
need
government
doubling electricity production by 2029 was the final push the company needed to enter the market.
Another
area
worth
pursuing
is
greenhouse
applications, says Dick Kramp, CEO of AB-Greenhouse AB Energy’s main area of interest —and a fresh industry
Power. “Cogeneration applications have proved to
opportunity— is natural gas distributed generation.
be efficient technologies for greenhouses, an area in
“Distributed generation is flexible and can be located
which AB Energy holds great expertise, making it an
close to the consumption points, making it a convenient
attractive niche to develop in Mexico,” says Kramp. “In
option for various industries. The new regulations brought
the Netherlands, where Greenhouse Power Netherlands
by the Energy Reform have fostered the development of
started, we have 3.5MW of cogeneration projects
distributed generation projects,” Losito says.
installed across 100ha of greenhouses. Mexico has over 15,000ha of greenhouses, representing a great
The company has already targeted large industries in
opportunity to expand our business in this segment.”
Mexico, such as automotive, that might be interested in its solutions due to similar projects in other parts of the
Financial challenges, which continue to exist in the
world. For instance, Losito says, an 8MW cogeneration
new-look energy market, will likely be less of a factor
project for plastic parts manufacturing in Canada for
for AB’s projects here because the Italian company
Polycon Industries, a subsidiary of Magna, one of the
operates its own financing unit. “We have a company
largest auto parts manufacturers in the world, could be
inside the group called AB Fin Solutions, which provides
replicated, resulting in benefits to the many players in the
financial solutions and leasing options to creditworthy
booming Mexican auto sector.
prospective clients,” Losito says. The company is also pursuing an alliance with an unnamed company that has
But the path toward developing a presence in Mexico is
raised US$340 million to develop cogeneration systems
not without its challenges, particularly when looking at the
under PPA agreements.
country’s aging and still unreliable gas pipeline network. “We have observed situations in which companies needed
The company’s commitment to Mexico is also reflected
to invest heavily in constructing pipelines to carry out gas-
in its strategy of creating jobs locally to increase its
based projects. This situation creates a barrier for Mexican
understanding of the Mexican business culture and
companies wanting to become more efficient,” Losito
mentality. “In Mexico, we already have a group of five local
says. It is hoped that Mexico’s five-year plan for expanding
technicians and we will create new jobs as the projects
its natural gas integrated national transport and storage
move forward,” Losito says. “We want Mexicans to run our
system will prove fruitful, as the natural gas infrastructure
operations in the country because we see this as crucial
expands and the logistics become more competitive.
to ensuring the successful expansion of AB Energy.”
317
INSIGHT
CHALLENGES QUICKLY APPARENT TO CANADIAN GROUP JAMES DELANO Director General of ATCO
When ATCO entered Mexico in 2014, the Canadian
due to the presence of Mexican local ejidatarios, dwellers
conglomerate expected its broad energy experience at
on state-owned land. “We thought we could do this in a
home to play well here. It quickly learned that a nation in the
simple manner as we have in Canada where we dealt and
middle of reinventing its energy industry from the bottom
negotiated with people,” he says.
up poses unique challenges, especially when dealing with
318
the complexities of cultural and regional differences. “You
But the Mexican scenario was very different. Even though
cannot enter a country, state or even location and expect
ATCO paid handsomely for land according to a property
everything to be the same. People are different, have
evaluation, local people were not happy. Of the 108 ejidos
different ways of doing things. We knew it was a different
it has had to negotiate with, ATCO has failed to reach
language, a different culture and a new experience for
consensus with two and also with six publicly owned
the company,” says ATCO Director General James Délano.
access roads. “Even though we have made a generous
He believes the difficulties are worth the effort to keep
proposal for a 25-year lease and have offered to build
developing the company’s expertise in natural gas,
infrastructure to benefit the community, the local leaders
infrastructure and power generation plants.
have not yielded.”
Délano adds that despite its goal to expand and develop
Starting in July 2016 local leaders filed four injunctions that
the Alberta-based company’s three areas of expertise in
have caused the suspension of the company’s activities in
the Mexican energy industry, which also include power
the construction of the Tula pipeline. “We have not been
generation and modular construction, its current focus is
able to get a hearing with the appropriate authorities
on natural gas pipeline construction. “We came to Mexico
to resolve the situation since the injunction procedure
with the expectation of helping to build the infrastructure
keeps extending,” Délano says. “Even though the initial
for the natural gas system. Our Ramal Tula project is rather
negotiations with the representative of the ejidatarios
small but highly important and iconic,” he says, referring
were successful and an agreement of dismissal of the
to the US$50 million 16km pipeline awarded by CFE to
injunctions was signed and notarized, it ended up falling
carry natural gas from near the town of Tula, Hidalgo
apart.” Although the lands in dispute are not valuable for
to the Francisco Pérez Ríos power plant. But what the
farming the community representatives are still unwilling
company initially thought would be a walk in the park
to settle, he adds. But ATCO has refused to give up. The
due to their expertise in the Canadian energy industry
successful construction of the pipeline is in the country’s
and the development of a similar project there, quickly
best interest, Délano adds. “We are going to solve it,
proved to be a more challenging experience. Besides the
because the alternative is not acceptable for anybody.”
cultural differences, entering a newly born industry quickly presented hurdles for the company, founded in 1947. The
The positive attitude of the company is also reflected in
number of new institutions, processes and regulations,
their expansion plans for the Mexican energy industry.
most of which are still under consideration, slowed the
“We have expertise in transmission lines that we can
development of ATCO’s projects, forcing the company to
bring to the Mexican market. We also have 15 diverse
take it step by step. “Several times we were the first to
energy plants around the world and generate electricity
inaugurate new processes while everybody was learning
efficiently.” Both areas would benefit the Mexican industry
to play a new game," he said.
and help to consolidate the Energy Reform. In terms of pipelines the company is confident it will continue its
Another main area of concern for the company became
work on the pipeline project with support from CFE, the
evident during the development process. ATCO found
Hidalgo state government and the Ministries of Energy
social management and land rights to be highly challenging
and of the Interior.”
VIEW FROM THE TOP
CAPITALIZING ON TRADITIONAL AND ALTERNATIVE FUELS CARLOS PRIETO Territory Manager Gas Projects Mexico & LATAM of Caterpillar
Q: How is Mexico’s role in Caterpillar’s LATAM strategy
construction, O&M and dismantling. This way we have
evolving?
stronger control over parameters that could negatively
A: Latin America, and particularly Mexico, is playing
affect the project, diminishing the risks associated with
an important role in our business strategy. We foresee
them. In Mexico, we have used our company’s financial
increasing demand in emerging countries so enhancing
services to develop power plant projects running on
our presence in places like Mexico is one of our top
natural gas, landfill gas and biogas, which have turned out
priorities. Our Electric Power Division has experienced
successfully. 319
great success in Mexico, installing a number of projects and becoming a leading player in new energy applications,
Q: What were the results of Caterpillar’s flagship project
particularly biogas. We also have a number of projects
with Altos Hornos de Mexico (AHMSA)?
running on landfill gases in Aguascalientes, Durango
A: We have developed two plant projects with AHMSA,
and Chihuahua, as well as some that use cattle manure.
the largest steel manufacturer in Mexico. Both consisted of
One of our flagship projects in this area is the system
10 4MW gensets running on natural gas. In both cases we
we installed for PROAN, which is the second largest
worked with our local partner Madisa, which is in charge of
egg producer in the world, delivering around 25 million
the region where AHMSA is located, to provide designing,
eggs per day. The majority of PROAN’s electricity needs
construction and O&M services. The whole project is
in Mexico are covered by 40 Caterpillar gas gensets
supported by our manufacturing plant in Germany. The
installed at its farming facilities located in San Juan de
installation phase of the first plant took 12 months and our
los Lagos, Jalisco.
customer has been successfully running the project for the past two years. We also provided a second power plant.
We are optimistic about the future of our natural gas-based
Those projects were fully financed by Caterpillar Financial
equipment, which is the most common fuel at the moment,
Services, including the purchasing of the gensets, electric
due to the government’s plans to expand Mexico’s pipeline
equipment and the natural gas connection to the plant. The
system. We already have 200MW running in Mexico, which
first plant’s ROI was reached in less than one year, which
are powered by Caterpillar’s gas gensets imported from
is not surprising considering that steel manufacturing is a
the US and Germany.
highly energy intensive process. AHMSA was completely satisfied with the results of the project, opening the door
Q: Why did Caterpillar start offering financing solutions
for new business opportunities.
and what distinguishes those from other financial entities? A: Caterpillar decided to open a special project financing
Q: How is the Energy Reform impacting the opportunities
division to support its customers in different industries.
for Caterpillar’s Electric Power Division in Mexico?
Caterpillar Financial Services is based in Nashville,
A: The Energy Reform and the publication of the secondary
Tennessee and has special departments for different
laws offer great potential to new business opportunities
industry applications. As for Mexico, the main offices
but they have also resulted in a lot of confusion in the
are located in Monterrey. As part of Caterpillar’s Electric
market. Natural gas is the market niche where we see the
Power Division, we work with the financing department
greatest potential in Mexico through small and medium
to support the development of projects using Caterpillar
cogeneration plants. CFE is already building a number of
engines. That Caterpillar is fully or partially financing the
power plants to supply peak demand.
venture gives our clients a higher degree of certainty that the project will be completed and run successfully.
Caterpillar, with 2015 sales of US$47 billion, is the world’s leading
By incorporating financing into our offer, we can support
manufacturer of construction and mining equipment, diesel and natural
our customers during all stages, including design,
gas engines, industrial gas turbines and diesel-electric locomotives.
VIEW FROM THE TOP
OIL, GAS PLAYERS SEE BIG PROSPECTS IN OPEN MARKET OSCAR SCOLARI President and CEO of Rengen Energy Solutions
Q: How has your portfolio evolved since the beginning of
anyone else’s. Niche markets with smaller, more efficient
the Energy Reform?
plants is where Rengen sees the most potential for the next
A: The market has opened up in an incredible way and it
five to six years.
has been a great opportunity for players in the oil and gas
320
industry as well as in the energy sector. I did not believe I
Another area is the distribution of power. Once it has
would see such a wide range of opportunities in my lifetime.
been generated, it must be transmitted to the end user.
We are happily surprised with all the options out there,
Unfortunately, Mexico’s infrastructure is very old and in
even though they are accompanied by many challenges.
need of a serious facelift. Efforts and economic resources
Companies must invest in maintenance and upgrades but
must be directed at improvements in this area. CFE and
that is not appealing in the current political climate. There
other industry players are well aware of the opportunities in
are so many pressing issues in Mexico that the private sector
power distribution and transmission. Rengen is active in two
must step in and come up with more economically feasible
projects in transmission and distribution lines. We hope to
ways to make these refineries profitable again.
see these opportunities and our participation increase in the near future.
Q: What solutions could Rengen offer to revamp PEMEX’s refineries as it partners with private firms?
Q: Does Rengen see itself working with the recent winners
A: Many major players like Exxon and Shell may be interested
of the power auctions?
in getting involved in the operations at PEMEX’s refineries
A: Rengen is already working with winners in the sector.
but there are many smaller players like Rengen that can
Some want to start generating power, and others are already
offer power generation and steam solutions. The provision
doing so and want to increase their production. We can
of these services is something we are actively pursuing,
offer them solutions that will add power to their existing
particularly at the Minatitlan and Salamanca refineries.
equipment and make the existing plants more efficient.
A large sum of money has been invested to revamp the
Another group has asked us to complete two new plants for
refinery in Minatitlan but it is still short of electricity and
them. The companies we are working with are operating at
steam. Rengen is predominantly focused on providing steam
around 150 to 200MW and that is what Rengen sees as the
and electricity to the refining industry.
expansion market.
Q: What is Rengen’s area of expertise in energy?
We are also working to convert existing fuel-oil machines
A: Rengen has been involved in the energy sector for many
in plants so they can use Liquefied Petroleum Gas (LPG)
years, from supplying products and services to providing
instead. LPG is a much more efficient and clean energy
complete plants built from scratch. Today we are working
source. CFE is aware of the need to increase efforts to
on three plants for CFE and we are happy to report the
reduce emissions and in this respect LPG presents a great
success of these projects. We do not envisage working on
opportunity. Additionally, it avoids the need for a large
big power plants in the near future but on smaller, more
investment in a completely new plant. Higher levels of
efficient plants. In Mexico some nodes have more needs
efficiency can be reached simply by replacing the type of
that others so the possibility of constructing plants on a
fuel used. Rengen also represents a large US company that
smaller but more efficient scale is appealing. To survive
deals with technology and equipment for coal-fired plants.
today, a company’s KW/h must be more competitive than
We work on solutions to reduce emissions to basically nothing more than hot air. These solutions make up around
Rengen Energy Solutions is a Mexican engineering, procurement and
30 to 40 percent of the total cost of a coal-fired plant but
construction (EPC) firm specialized in building and operating gas-fueled
alternative fuels are a strategic decision and must be used,
cogeneration plants for the oil and gas and petrochemical industry.
so coal, LPG and natural gas are all options.
Q: What are Rengen’s flagship projects in the areas you
Q: With which new players does Rengen see opportunities
work in?
for more business?
A: We are proud of our work with PEMEX and how we have
A: We see possibilities in offering power, compression and
adhered to the objectives set out by its new leadership under
turbines, as well as steam and electricity packages for
Jose González. Right now, we are in the process of providing
pipelines and gas distribution. As a result, the winners of the
PEMEX with boilers on lease, with Rengen overseeing the
various onshore licensing rounds could pose an opportunity
installation, operation and maintenance. PEMEX is obtaining
for Rengen. With over 38 years’ experience in the Mexican
steam without having to outlay any cash.
market, we know what we are doing and can offer incoming companies local expertise based on a proven track record.
Rengen is also proud to be working on a waste to energy
Rengen offers high-quality services at competitive prices
project. The question of what to do with municipal waste
and we are proud to say we are a 100 percent Mexican
is becoming more and more critical every day. Cities are at
company.
risk of polluting the water supply and increasing greenhouse gas emissions by disposing of refuse in landfills. This is
Q: How do you expect the Mexican energy matrix to look
simply not viable anymore. Waste to energy technologies
in 10 years?
are not the cheapest or most efficient way to generate
A: We believe the price of oil will definitely rise again because
power but they are the best alternative for disposing of
it is a cyclical market. It is not stable at the moment but it
waste and generating power as a byproduct. The solution
is not going down either. Since 70 percent of the cost of a
is the education of municipalities so they see the value and
kilowatt is fuel, it is inextricably tied to oil prices. When the
benefits of employing waste to energy solutions, which is
price of oil is high, the tendency to invest in electrical energy
the only economically feasible way to dispose of municipal
plants goes down as a result. Green energy is going to play
waste. Rengen is working on this in Mexico.
a very important role in the future of the energy sector. Wind and solar both become more attractive as investment
Q: What would be Rengen’s advice to its allies to be a
options when the price of oil rises. If Mexico is going to
productive partner?
produce 30 percent of its energy needs through renewables
A: Rengen’s strategy has been to establish long-term
in 15 years, we need to start building now.
relationships with state-of-the-art suppliers who stick with us, work with us and help us solve problems. This has been
Q: By the end of 2017, how will Rengen look?
key in our market development because we enter with firm
A: CFE’s six power generation units will be competing against
and strong associations. We offer the best solutions at the
each other in the new energy market in terms of price and
best price and our clients are aware of this quality. Rengen
reliability. They will be Rengen’s main clients in the coming
is loyal to the companies it represents and likewise they are
years because they will seek new and more efficient ways to
loyal to us. Like PEMEX’s director said, strategic alliances are
supply electricity to the market. With over 120 million people
key to development. You cannot go it alone in this industry;
living in the country, consumption is not going down, so the
it is too expensive and too dynamic.
energy sector definitely has the potential to grow.
Thermoelectric power plant, San Luis Potosi, INEEL
321
VIEW FROM THE TOP
EXPANDING AN ENERGY GENERATION PORTFOLIO KEVIN PICCOLO Energy and Cogeneration Director at IGSA
Q: How does IGSA deal with uncertainty in both electricity
division will provide everything from the installation of solar
and natural gas prices?
parks to operation. We plan to establish partnerships with
A: Uncertainty has made clients wary of long-term
solar panel providers and to take charge of the project’s
commitments with a single energy supplier, which has made
installation and operation.
PPAs more difficult to negotiate. Before, it was possible to
322
close contracts by offering electricity costs below CFE’s
IGSA has a special division dedicated to backup power
tariffs but now it is difficult to compete on electricity prices.
to guarantee 100 percent available energy supply to our
Natural gas is the highest cost for cogeneration power
clients. Our critical support division seeks to safeguard
plants, which is a particular issue because natural gas
servers that cannot tolerate electricity shortages at any
prices are out of the company’s control. Fortunately, we can
time. We have a diversified portfolio of projects and
manage this uncertainty through hedges, futures and other
services, supporting the development of our renewables
mechanisms for settling costs and defining a sales price.
and cogeneration power plants but we still lack an energyefficiency area to complement our offer.
To start a new project we usually look for anchor clients and offer them a reduction in its energy-related costs
Q: How will IGSA participate in the MEM?
based on volumetric consumption. Our process can reduce
A: We are participating in the spot market as generators.
a company’s consumption, for example, from 10 to 8 trillion
Our goal is to become qualified suppliers and to sell
BTU. An anchor client is the main company for which we
energy in the power market, either from our power plants
build a cogeneration plant. Anchor clients consume all the
or as representatives of other generators. We are in an
plant’s thermal energy and most of its electricity while non-
advantageous position because we are seen as clean
anchor clients consume the remaining power. Since thermal
energy producers and this is the first type of energy to get
energy needs to be immediately consumed, we design
dispatched in the market. In this way we can guarantee a
our cogeneration plants right next to the anchor client.
steady power supply to our clients. There are other types of
Non-anchor clients have to pay for the transportation and
producing technologies that may be forced to shut down at
logistics costs related to the amount of power consumed.
certain times to make room for clean energies, which have marginal variable costs.
The process to sell surplus electricity will change with the new legislation so our upcoming projects will be
We are already selling energy in the market through
developed accordingly. We will sell our surplus production
bilateral contracts and we have a number of companies
through the Wholesale Electricity Market (MEM) where all
willing to buy our surplus electricity. However, we cannot
bilateral contracts will be regulated by CENACE and all the
cover the demand with our current capacity so being a
transmission rights will be covered by us.
qualified supplier could help us meet this demand while we develop more power plants.
Q: How does IGSA’s energy division collaborate with other companies to ensure a project’s success?
Q: Which areas do you expect will grow the fastest within
A: IGSA’s energy division focuses on gas-based generation
IGSA’s energy division and why?
projects but is now starting to develop solar energy projects,
A: Our focus will be on cogeneration and renewable energy.
already with prospective clients in the pipeline. Our energy
At the moment, we are betting strongly on solar energy because it requires less investment and has fewer concerns
IGSA Power is a leading company in the construction of power
regarding social responsibility than other technologies,
generation plants. They develop turnkey projects and provide everything
such as wind farms. For 2017 we expect to acquire three
from conceptualization and design to operation and maintenance.
contract to build cogeneration plants in 2017.
VIEW FROM THE TOP
REDUCE CARBON FOOTPRINT THROUGH COGENERATION LORENZO ARENA President of INCO
Q: What distinguishes INCO from other cogeneration
hour generated, a 30 percent reduction from the original
companies in the Mexican market?
emission levels associated with the plant’s electricity
A: The main characteristic distinguishing INCO from the
requirements. Cogeneration also will reduce the emissions
competition is that we are a service provider. We do not
from the boiler by 100 percent, amounting to a total
sell projects or equipment so we do not have any ties to a
reduction of 0.55 tons of CO2, a significantly higher
particular equipment manufacturer or provider. What we
percentage than reductions achieved with renewable
do is analyze our customers’ energy requirements to offer
energy. When considering these numbers, the market
an adequate solution in terms of technical and economic
logic states that the most efficient technology to reduce
feasibility. The selected solution can consist of any given
greenhouse gas emissions in an intensive thermal process
technology including renewable energy and cogeneration
is cogeneration. For cases where the amount of thermal
projects. The chosen technology completely depends on
energy used is negligible or not required at all, renewables
a client’s particular characteristics. We also provide all the
would probably be the smartest choice.
investment needed for the project and we keep ownership once it is completed, so the client does not have to worry about its operation and maintenance. What we sell to the client is not the project itself but the energy it produces, at lower rates than utility-produced power. Q:
Why
are
cogeneration
projects
included
with
Cogeneration technologies powered by diesel or natural gas emit an average of 0.35 tons of CO2 per megawatt-hour
renewable sources under clean energy technologies? A: Global warming is caused by excess CO2 levels in
Q: What are the main challenges for cogeneration
the atmosphere and the objective of clean energy
developers?
technologies is to mitigate the amount of greenhouse
A: The biggest challenge is the lack of knowledge on
gas emissions. Technologies that mitigate emissions are
energy alternatives. Having a monopolistic market for so
not necessarily zero-emission technologies, a common
long fostered this situation because companies did not
misunderstanding. A conventional industrial process that
have options and this discouraged them from learning
uses electricity from the grid and uses an additional boiler
about the topic. If companies become interested in energy
to produce thermal energy has two sources of emissions.
alternatives they will make better decisions to improve
The electricity taken from the grid amounts to 0.5 tons/
their processes, costs and their environmental impact.
MWh and the boiler generates 0.4 tons/MWh. In such cases producing the electricity needed for the process
Q: How does INCO plan to participate in the wholesale
from renewable sources will only diminish a percentage
electricity market?
of the emissions associated with the grid’s electricity.
A: Energy is treated as a commodity in a wholesale market,
For instance, a solar project with a capacity factor of
so INCO’s objective is to offer electricity at the lowest price
21 percent would only diminish a fraction of the original
using the most suitable technology for a specific company.
emissions. The rest of the time electricity would continue
INCO covers 100 percent of the investment required in a
to be consumed from the grid. A similar situation would
project even if it is located inside a company’s facilities,
be experienced with wind farms, which offer a 50 percent
which is usually the case with cogeneration projects.
capacity factor. INCO is a Mexican service provider specialized in developing tailor-
Cogeneration technologies powered by diesel or natural
made cogeneration and trigeneration projects with an eye on improving
gas emit an average of 0.35 tons of CO2 per megawatt-
customer energy effciency and lowering their GHG footprint.
323
Inspection of a 2.2MW cogeneration power plant, Queretaro, Veolus
12
POWER GENERATION & EFFICIENCY
Efficiency is increasingly the name of the game. A liberalized energy market implies the possibility of prices going down but also of sharp fluctuations that can potentially throw a company’s finances out the window. As Mexico’s industry demands more and more energy for its export-based economy in the middle of a complex international scenario of political upsets and hydrocarbons uncertainty, there has never been a better time to take a hard look at how energy is consumed and where savings can be found.
This chapter outlines the steps that large energy consumers, from manufacturers to municipalities to housing developers, are taking to save energy and reduce their environmental impact. The technological solutions being offered along the value chain are also discussed, from the turbine makers to the applications helping users monitor and control their energy usage, as well as technologies developed to transform waste such as exhaust heat into even more resources.
325
CHAPTER 12: POWER GENERATION & EFFICIENCY 328
ANALYSIS: Energy Efficiency is Always a Good Bet
329
VIEW FROM THE TOP: Víctor Fuentes, Mitsubishi Electric Automation
330
INSIGHT: Jorge Machuca, Cummins
Salvador Diliz, Cummins 331
PROFILE: Juan Velasco, Rolls-Royce Power Systems
333
VIEW FROM THE TOP: Adrián Morales, Grupo MD
334
VIEW FROM THE TOP: Gabriel Hajj, Selmec & Cleaver Brooks Mexico
335
INSIGHT: Alejandro Nava, Genertronics
336
VIEW FROM THE TOP: Odón de Buen, CONUEE
338
VIEW FROM THE TOP: Francisco Torres, Veolus
339
VIEW FROM THE TOP: Luis Ramón, Diram
340
INSIGHT: Michel Yehuda, Fluke Dominion Mexico
342
INSIGHT: María Martínez, Sinérgica
343
INSIGHT: Gustavo Rodríguez, Vansertec
344
VIEW FROM THE TOP: Rodrigo Calderón, Energetika
Alejandro Chico, Energetika
346
INSIGHT: Armando Landa, Enerwise
347
VIEW FROM THE TOP: Gleb Kouznetsov, Intec Ecotecnologías
348
VIEW FROM THE TOP: Enrique Gómez-Junco, Optima Energía
349
INSIGHT: José Gutiérrez, SUMe
350
ROUNDTABLE: How are you Introducing Cleaner Tech or Energy Efficiency in your Industry?
353
INSIGHT: Mariene Gutiérrez, Tlalli Energía
354
MAP: Geothermal Resources in Mexico
327
ANALYSIS
ENERGY EFFICIENCY IS ALWAYS A GOOD BET The presentation of the government's Energy Transition
three to five years and now is up to eight to 10 years,
Strategy to Promote the Use of Cleaner Technologies
depending on the size of the investment. The hardest
and Fuels added a new milestone to those reached by
part is to get clients on board for the first time. Once
the Mexican energy industry in 2016. The document not
they have tested the benefits of energy efficiency, they
only had updates on the country’s clean energy goals,
tend to be eager to develop other projects with us.
setting 50 percent as the target for 2050, but it also
Changing the initial mindset is particularly difficult now
included energy-efficiency targets for the first time in
due to the price per kilowatt-hour and the exchange
Mexico’s history. From 2016 to 2030, the country aims
rate,” says Francisco Torres, Director General of Veolus.
to reduce its energy intensity by 1.9 percent and from 2031 to 2050, 3.7 percent. Energy efficiency is now
From 2014 to 2015 the price per kilowatt-hour dropped
officially part of Mexico’s energy strategy.
almost 25 percent for industrial customers and 8 percent in the case of commercial customers. In 2016, however,
328
The arrival of digital and automation technologies to
electricity rates began to rise again, climbing close to
the manufacturing and power industries is boosting
24 percent from May to October in the case of industrial
capabilities for monitoring and control of energy
users. The change in the US political landscape is also
usage and the identification of critical areas to reduce
likely to put some pressure on prices for natural gas –
consumption.
performance
the most used fuel in Mexico’s power system – which is
contracting schemes, that eliminate the burden on end
The
introduction
of
likely to raise electricity rates. Higher electricity prices
users to provide large upfront investments, has also
might not make the industry happy but they might be a
helped to spread the usage of efficient equipment, not
wakeup call: no matter what the price per kilowatt-hour
only in the industrial but also the public and commercial
is now, reducing energy consumption is always a good
segments. These preliminary investments are instead
practice.
covered by the supplier, for whom the outlay is recovered through cost reductions due to energy savings.
SPECIAL BOOST FOR COGENERATION Of
From 2014 to 2015 the price per kilowatt-hour dropped almost 25 percent for industrial customers and 8 percent in the case of commercial customers
all
the
efficient
technologies,
cogeneration
is
expected to receive a special boost from the Energy Reform. The fact that companies can now commercialize electricity and not only use it for self-supply purposes has added a new incentive on top of the energy savings that high thermal-energy consumers can achieve with this technology. Moreover, efficient cogeneration is considered a clean energy technology in the Energy Transition Law, which means it can receive CELs, an extra revenue stream that adds to its attractiveness. The uncertainty over the rules for distributed generation systems was holding companies back but now that they are available the expectation is that that trend will turn around.
Companies and municipalities that have already tasted efficiency usually come back for more. But getting clients
“With the implementation of the Energy Reform and
to invest for the first time continues to be a challenge
growing international concerns about climate change,
due to the lack of awareness, particularly among SMEs,
we expect cogeneration and energy-efficient projects
and the drop in the electricity tariffs experienced in 2015
to grow strongly in Mexico, covering a large share of
and early 2016.
the national energy demand in the near future. The speed of this change will depend on the government’s
“Some Mexican clients tend to be suspicious about the
willingness and efficiency to implement the measures
periods needed to recover the investments required for
that are clearly defined by the laws but not yet put into
energy-efficiency projects, which a few years ago was
practice,” says Lorenzo Arena, President of INCO.
VIEW FROM THE TOP
WHAT YOU DO NOT MEASURE, YOU CANNOT CONTROL VÍCTOR FUENTES Sales and Marketing Manager of Mitsubishi Electric Automation
Q: How does Mitsubishi Electric Automation approach
smallest SME, such as a tortilla shop. Through our simple
the development of its solutions?
solution concept, which consists of offering the same
A: We focus on providing technology that combined with
state-of-the-art products at more affordable prices, we
other engineering resources can produce solutions. In
can put our products in the hands of all industries.
engineering what you do not measure you cannot control, so we start every project by measuring, visualizing and
Our slogan is “Global partner, local friend.” We do not
managing. That allows us to make decisions and introduce
provide a complete solution, but the commercial and
changes within the production platform. In other divisions
technical support team we have in Mexico focuses on
we
air
understanding our clients´ needs. Our contribution is in
conditioners and distribution and transmission systems for
technology and global experience through our business
electricity, all with high-energy efficiency.
partners, who we call our system integrators. They develop
have
solar
panels,
environmentally
friendly
the application the client needs and we support them and Our business is selling products but we need our clients
suggest changes.
to think about the quality of our hardware and on the return of their investment. When clients acquire a product
Q: Is having to pay upfront for this equipment a hurdle for
from Mitsubishi Electric Automation, they are acquiring
companies seeking efficient solutions?
technology focused on environmental sustainability.
A: If there is a reduction of 25-35 percent in energy usage
Also, they have security in knowing they have bought
and an investment return in two years, then clients will
an efficient electric consumption product that will last
pay. But when the return takes more than two years,
for the long term. I always refer to a simple example of
the questions begin. A client’s facilities will determine
success: a lady that had a tortillería and bought a product
if efficiency can be reached. That is why we have to do
from us. Six months after the installation, her electricity
measurements. Our concept always is to first measure
bill was 50 percent lower. In a big company this will have
what you have.
a large impact. We do not often update product models because their life span is around 17 years. This is possible
In Mexico, people do not know how efficient their electric
because we invest about US$2 billion yearly in R&D.
supply is. This is not just measured in production but also
Instead of changing our products every three years or
through other factors like number of shutdowns. Users
every year, we develop technologies that will be useful
do not know how much they spend. We offer them high-
for the next 10 years.
precision measurement devices for which they would not spend more than US$1,000. With these mechanisms our
Q: Mitsubishi sells to large companies and SMEs. What
clients can start getting the facts and detect which lines
are the challenges for each regarding energy efficiency?
are consuming more and why. The result may show there
A: It is the same issue in all of Latin America: we have to
are electro-mechanical problems and from there you have
produce more and spend less. In Mexico, energy is not the
an initial point to correct. There are industries that want
cheapest but it is one of the most stable. Countries like Peru
to take it to the next level and they use this data to create
and Colombia have an electric dependence on hydraulic
periodic reports. The most difficult part is breaking the
generation. Here, 66 percent is based on fossil fuels,
cultural barrier, helping Mexican go past the “this is how I
which provides security in the generation of the electric
have always done it” mindset.
network. Our core business is the manufacturing industry but the advantage of Mistsubishi Electric Automation is
Mitsubishi Electric Automation is a subsidiary of Japan-based industrial
that we can serve the highest production levels, which can
giant Mitsubishi, which operates across several industrial markets with
range from an industrial-sized automobile company to the
an automation product line.
329
INSIGHT
GLOBAL EXPERTISE TACKLES LOCAL INDUSTRY
Jorge Machuca Commercial Director Power Generation Hispanic America of Cummins
Salvador Diliz Commercial Director Mexico and Central America of Cummins
A common theme across the many segments of the Mexican
industry, including the experience it brings from a presence
energy industry is the continued lack of clarity regarding the
in over 190 countries. The company entered the Mexican
sector’s regulatory framework. That is hampering investment
market through a joint venture with the government called
as potential players hold back, waiting for the air to clear, say
Dina Cummins. It started working independently in 1987.
Jorge Machuca and Salvador Diliz, commercial directors at Cummins’ global reach brings with it another advantage:
Cummins Power Generation.
compliance with international standards. The company’s 330
“In the energy sector the biggest challenge we all face is
solutions comply with several international certifications
regulation,” says Machuca, Commercial Director of Power
like the US Environmental Protection Agency (EPA), the
Generation Hispanic America. “It was an advance for the
California Air Resources Board (CARB), American UL and
market that companies can produce their own energy and
European EUR. “Only a global manufacturer can invest in
commercialize it. The disadvantage is that the regulatory
these types of certifications,” says Machuca. “There is an
framework is not clear yet. There are many gaps and the
attempt by some local manufacturers to try and stop the
secondary laws that should come from institutions like
environmental changes and reforms in Mexico because it
CENACE and CRE are not yet ready.”
is not in their best interest but we do not worry about it because we already comply with the highest standards
“If gas prices rise, the energy price
and regulations.”
should too and it does not happen
Regardless of the challenges ahead, the executives
this way”
players in the Mexican energy market. “In the future, if
Jorge Machuca, Commercial Director Power Generation Hispanic
approach 95 percent of them and from those we hope to
America of Cummins
take over a large percentage,” Machuca says. “Our wish is
remain confident in Cummins’ position as one of the main there are 100 opportunities in the market we expect to
to have a market share above 50 percent as we do in the For Cummins Power, these processes are taking too long and
automotive market.”
the uncertainty in the regulation has resulted in low energy prices that might not reflect the reality of the production and
The company’s decades of experience in power generation
commercialization costs for some companies. Says Machuca:
come in handy as it enters a new sector, Machuca says. “We
“Energy should have a real cost. If gas prices rise, the energy
have a lot of experience in the natural gas and renewable
price should too and it does not happen this way. While
energy market. In Europe, we have more than 50 years
the laws remain unclear, investment will not flow in. Many
working in co-generation and in the US, 25 years working
investors want to enter the market but they are wary about
with natural gas and renewable energies." In Mexico, Machuca
how the rules are changing.”
adds, Cummins is new since only after the Energy Reform were private companies allowed to generate energy for self-
Cummins Power Generation, a unit of global engine maker
consumption. "Cummins Power has always been interested
Cummins Inc., has a history that spans over 75 years in
in both markets. First diesel because it has always been
Mexico. The company, currently in the business of designing,
there and it is trustworthy. Then gas because it has a smaller
manufacturing and selling diesel and alternative fuel power
carbon footprint and offers better balance between benefits
units, says that even if power generation is not always an
and prices. Natural gas is a new trend in Mexico. Some years
easy task, it has all the ingredients necessary to ensure
ago, the country did not have pipeline infrastructure to reach
success in the changed landscape of the Mexican energy
the industrial areas,” he says.
PROFILE
INTO THE HEART OF POWER JUAN VELASCO Regional Sales Manager Latin America of Rolls-Royce Power Systems
Among the most important elements for successful power
but we have many proposals for different configurations,
generation are the engines that allow power plants to
voltages and power already in an advanced stage.”
work. They are the core around which these facilities are built. “A motor’s electrical performance is one of the critical
The technology for Rolls-Royce’s solutions has increased
parameters for the optimal functioning of cogeneration
equipment efficiency and allowed the company to reduce
plants and our products have one of the best performance
CO2 emissions. “In this sense, the industry’s goal to become
levels in the industry,” says Juan Velasco, Regional Sales
more competitive has also had a positive impact on
Manager in Latin America of Rolls-Royce Power Systems.
reducing the environmental impact by driving important advances in improving engine performance,” Velasco says.
The solutions provided by Rolls-Royce Power Systems vary according to the needs of the industry. The
The company says it is deeply committed to the Mexican
company entered the power sector by commercializing
energy industry, a strategic market where it seeks to
aero-derivative turbines and in 1999 it acquired Bergen
continue its successful positioning. “We still have high
Engines to commercialize reciprocating engines. Rolls-
expectations about our future in Mexico,” Velasco says.
Royce entered the Mexican market after 2008, when the
“We see great potential for developing energy projects
economic crisis made evident the need to diversify its
under different schemes. At the moment, we are focusing
business and look for new clients. The company turned
our efforts on the projects that we have already signed,
to Latin America because it was considered a promising
strengthening our O&M network in the country to provide
market for expansion and quickly identified Mexico as the
the best aftersales services.”
most attractive market in the region. “Our first projects in the country were Agua Prieta, a 20MW power plant located in the north, and a 9MW cogeneration facility installed on an industrial pig farm in Veracruz. Since then, we have had a growing project pipeline,” Velasco says. To address the growing needs of its new markets RollsRoyce decided to acquire MTU, a manufacturer of highspeed engines from 100kW to 2MW, to complement
“We are pleased with the results we have achieved so far, making a successful entry and positioning our brand in Mexico, especially because five years ago we were completely
their previous Bergen Engines product portfolio of 5MW
unknown in the industry”
to 9MW equipment. Velasco says that MTU’s business
Juan Velasco, Regional Sales Manager Latin America of Rolls-Royce
model differs from that of Bergen Engines because it
Power Systems
involves local partners and distributors. MTU works with W.W. Williams in the north and Olympia in the central and
Velasco adds that the company trusts the Energy Reform
southern regions of Mexico.
will create strong business opportunities in a liberalized market
through
free
competition
and
competitive
Velasco adds that R&D is an integral part of the company’s
power-producing companies, allowing end users to
strategy to remain a leader in the sector. “Both MTU
enjoy optimal electricity costs. “In this scenario, we have
and Bergen Engines have been working individually in
no doubts that cogeneration will play an important role
the development of new products. In the energy sector,
thanks to its high efficiency and competitive costs and
designing an innovative product might take several years
we want to be part of it.”
331
332
Acquiring data from remote devices for vibration analysis, Mexico, INEEL
VIEW FROM THE TOP
FROM TECH PROVIDER TO ENERGY TRADER ADRIÁN MORALES Director General of Grupo MD
Q: What challenges do Grupo MD’s clients face in terms
Q: How will energy trading fit into Grupo MD’s current
of energy quality and how does the company help them?
strategy?
A: In many aspects, the main challenge faced by our
A: We established an alliance with a qualified supplier
clients is the lack of knowledge regarding energy solutions
to become a proper energy trader because we want to
applicability. Even though there is information available,
provide companies looking to reduce their energy-related
most of our customers are not aware of the technologies
costs a better alternative to CFE’s services. We will
and products that can improve their energy usage. A
continue providing our regular services but we want to
“one-size-fits-all” solution does not exist because energy
have the additional option for projects where distributed
requirements vary from company to company. A minimal
generation is not a possibility or when companies want to
variation can have a great impact on a company’s energy
remain connected to the grid.
usage, thus enhancing the importance of tailor-made solutions.
This year we expect to see this idea come to fruition. We are already in the process of obtaining the relevant
The main challenge for us is finding what our clients’ real
permits from CRE. Considering we have access to a wide
energy needs are, which we solve by performing an in-
network of potential clients and we have an alliance with
depth analysis of all the different aspects that could have
a recognized supplier, we expect this segment to become
an impact on energy. The wide range of options we offer
relevant for our company in the coming years. The
to our clients gives us an advantage over companies that
electricity market today is not particularly buoyant since it
focus on one energy source. For instance, PV solar can
just started under the new terms but it is ready to bloom.
be suitable for certain industries but it might not be the optimal choice for others. With our portfolio and in-depth
Q: What are the company’s next steps in the short term?
analysis, we can provide the best solution.
A: We are aligning our operations in other regions of the country, putting the administration of all offices under
Q: In which sectors will there be an increasing demand for
one matrix. We opened a new facility that includes an
the company’s products and services and why?
engineering area, a sales office, a spare parts warehouse
A: Distributed generation definitely is one of the
and a workshop. Moreover, the company re-equipped
applications for which we expect to see a greater demand.
its maintenance department to provide repair services
With our solar partner companies we expect an increasing
for the equipment we distribute and to maintain ours
number of solar hybrid projects because this technology is
in optimal condition to be used for rentals. We are also
likely to improve a project’s ROI to three years from seven,
working on strengthening our engineering team to
which will boost its attractiveness.
enhance our participation in the new areas into which we are entering. The company is not looking to become
Another important area in which we see great relevance
a specialist in every aspect of a project. We have worked
for our business is the commercialization of energy given
hard to build up a network of top-level partners to
our status as an energy trader. We established an alliance
perform those activities in which we are not experts
with a qualified supplier to work as a bridge between
so we can focus on those to which we can bring more
our clients and them, offering an additional option to our
added value.
customers. We are always looking for options to add to our portfolio. Having a wide portfolio allows us to suit the
Grupo MD is a Mexico City-based energy-efficiency supplier looking to
needs of a variety of industries, giving our company a
broaden its horizons on electricity commercialization, taking advantage
great competitive advantage.
of the trading opportunities brought about by the market’s liberalization.
333
VIEW FROM THE TOP
OFF-GRID INNOVATION POWERS REMOTE LOCALES GABRIEL HAJJ CEO | Director General of Selmec & Cleaver Brooks Mexico
334
Q: What are Selmec & Cleaver-Brooks Mexico’s flagship
Q: How is the company optimizing aftersales services to
products for the electric sector?
meet the needs of a new client base?
A: Our electric division includes electric systems such
A: S&CBM has one of the quickest response times in the
as compact substations, Uninterruptible Power Supply
industry thanks to a highly prepared group of professionals
(UPS), transformers and other electric components
trained to offer proper O&M services. One feature that
that complement the industry’s value chain, but our
allows us to optimize our after-sales services is an online
emergency generator is the flagship product of this
management platform from which we can follow up the
division. It can run on diesel or gas and is optimized to
client’s history and the product’s performance. It has a
provide backup and off-grid services in remote locations.
database to track all events that might have impacted the
Our main clients are industries for which power outages
equipment’s performance. That way we can identify the
represent large economic losses or logistical problems
root causes of a malfunction. In the Dominican Republic
like airports, hospitals, carmakers or mines. Our products
where the grid’s low reliability was forcing our equipment
provide up to 2,750kW of power in a parallel arrangement.
to operate longer than expected, our platform allowed us
When Hurricane Odile hit Baja California in 2014, we
to identify the problem quickly and we reconfigured the
were the only equipment provider with the required
equipment to serve as the main power supply.
capabilities and logistics to help CFE restore the region’s power supply. In less than 24 hours we sent around 60
Q: What new areas of opportunity has S&CBM identified
emergency generators to the area. This particular case
in the market?
was remarkable because it showcased Selmec’s ability to
A: We foresee demand for remote-monitoring services for
respond quickly to natural disasters.
thermal and electrical applications. Selmec is on track to position itself as a leading service provider. Our next step
Selmec is a Mexican company with over 75 years’ experience in the
will be to incorporate the IoT into our processes. Online
distributed generation market, designing and manufacturing thermal
platforms with remote monitoring applications will be
and electrical energy solutions. Selmec is also a manufacturer and
crucial for optimizing the performance of products and
distributor of steam and water heaters for Cleaver-Brooks in Mexico.
processes, identifying and avoiding unnecessary risks.
INSIGHT
ENERGY-EFFICIENT TECH SHOULD BENEFIT FROM CELS ALEJANDRO NAVA Director General of Genertronics
The Mexican government has done a great job with the
consumption. With Genertronics’ chillers, the cold water
creation of CELs to benefit companies that contribute
was “free.”
to clean energy generation, but authorities should also recognize the work of technology players whose job is not
Worldwide, governments and companies are racing to reduce
to generate power but to lower consumption, according to
the amount of wasted heat thrown into the atmosphere in
Genertronics Director General, Alejandro Nava.
an effort to slow global warming. Genertronics’ solutions support this by putting that wasted heat to use and helping
These companies can help boost savings and energy
companies reduce their thermal footprint. The technology,
efficiency and should also be awarded these certificates,
offered in capacities from 60 to 3,500RT (tons of
Nava says. "We have been talking to different authorities
refrigeration), can bring about a faster return on investment
about this because they need to consider this as well. We
the longer it stays on. “We have done projects for office
do not produce energy but we avoid the generation of
buildings, where they turn on the air conditioning at 0700
energy that is going to produce CO2, so we should also
hrs. and maybe they turn it off at 2000 hrs. The return on
be awarded CELs,” he says. “That is our main challenge
investment in those cases is seven, maybe eight years, and
so far, because everyone is looking at how to generate
nobody is willing to do that in Mexico. In the case of hotels
clean energy, not at the possibility of not needing it and
and hospitals, which run 24 hours a day, it is perfect.”
becoming more efficient,” he adds. Hospitals like those belonging to the country’s Social The CELs, part of Mexico’s new wholesale energy
Security Institute (IMSS) would make perfect customers
market, will come online for trading in 2018. Monterrey-
for this technology which would help them generate
based Genertronics devotes itself mostly to this task, via
great financial savings, Nava says. The giant New Mexico
absorption chillers that play a pivotal role in industries
City International Airport (NAICM) under construction in
ranging from airports, hospitals, hotels and petrochemicals
the northeast of the country’s capital could also benefit
to plastics and pharmaceuticals, employing waste heat
from the system, in line with a similar implementation
from heavy-engine exhaust or steam, or also hot water from
at Madrid's Barajas airport. One project that particularly
co-generation plants, to provide a dependable supply of
showcases the company’s progress is a large Mexican
chilled water for applications like air conditioning.
producer of gases like oxygen, nitrogen and acetylene in the southern industrial port of Coatzacoalcos, Veracruz.
“We partner with power generators like Caterpillar,
“The idea was for them to produce their own energy and
Cummins and Rolls-Royce to name a few, and all of them
they selected a 40MW steam turbine. They produce steam
produce power and heat. We take their wasted heat and
to make their turbine move and with the residue from that
produce chilled water as they produce power,” Nava says.
we make 7,000RTs with two of BROAD’s largest chillers.
The technology Genertronics represents, mostly that of
We are very proud of that because they are not using
Chinese chiller manufacturer BROAD, can simultaneously
electric power but available heat,” says Nave.
produce hot water for other industrial applications. The savings in both costs and energy consumption “Many industries need heat and chilled water. Plastic
generated by this technology, Nava says, should qualify
injection is an example. We have a customer in Saltillo
for the kind of benefits awarded by the CELs, certificates
that makes soda-bottle caps. They inject plastic 24/7
equivalent to 1MWh generated from clean sources like solar
at 160º C and then need to cool it down so the plastic
or wind and which can be used to cover fines related to the
solidifies,” Nava says. Initially the client produced chilled
ambitious government objective of reaching 35 percent of
water with electric chillers, which created heavy power
its energy production from clean sources by 2024.
335
VIEW FROM THE TOP
INTERNATIONAL COLLABORATION STRENGTHENS STANDARDS ODÓN DE BUEN Director General of the National Commission for the Efficient Use of Energy (CONUEE)
Q: How has CONUEE’s strategy changed as a result of the
integration of technology to monitor temperature flows,
new energy landscape?
energy usage and atypical events. They can analyze
A: The impact has been collateral. The Energy Transition Law
these in
was the most significant because it added new requirements
figure out what they are doing wrong or how to make
to include more planning. Our relationship with PEMEX and
their systems more efficient.
seconds instead of spending years trying to
CFE has been one of the most impacted areas. Before the
336
Reform, both state-owned companies had an obligation
Q: Which binding mechanisms can CONUEE use to ensure
regarding energy-efficiency programs due to their status
compliance with its recommendations?
as parastatals but with their transformation into productive
A: The Internal Control Organ can sanction institutions that
enterprises of the state they are no longer obliged to have
are part of the federal administration if they fail to comply
these types of programs. We continue to work together,
with CONUEE’s programs. The scheme that applies to large
especially with CFE, to exchange information and implement
energy users is established in the Law of Administrative
a program for street lighting in municipalities. The relationship
Processes, which defines the penalties applicable for users
keeps changing and we continue to adapt to it.
who do not comply with providing the information we request. The program itself implies more challenges for
Q: What windows of opportunity has the regulatory
CONUEE because we only have two lawyers against 3,000
framework opened for boosting energy efficiency?
users that have many more lawyers. We compile the results
A: The regulatory framework forces large users to provide
of the gathered information in annual reports. The challenge
information about their energy consumption. We help
for us is to make this information useful. We have been
such users by assessing their plans to implement energy
working with the Economic Commission for Latin America
management systems with the help of foreign institutions
and the Caribbean (ECLAC) to produce indicators of energy
and governments. These systems strengthen the capacity
intensity in the industrial sector.
of energy end users to take advantage of the Mexican power market. The market now has qualified users that can
Q: How important are strategic alliances for CONUEE?
buy electric power and clean energy certificates. Energy
A: We basically operate with alliances on numerous issues.
management systems help them find the best opportunities
We have a large program for mandatory energy efficiency
in the new market. We are also involved in the promotion
standards in which we have to negotiate with the industry
of cogeneration, which for large-scale companies means
to gain their compliance. For this, the National Chamber of
they can compete in the supply side of the power market.
Electrical Manufacturers (CANAME) is an important ally. We
CONUEE also is in close collaboration with COGENERA, an
collaborated with them on projects such as street lighting.
association offering cogeneration-related technology and
With energy management systems we are collaborating with
consulting, to promote this energy-efficiency alternative.
the German government, through Germany Industry and Commerce (GIC) and the Institute of Metrology of Germany
Q: Where do you see the most opportunities regarding
(PTB), and with the Danish government, the Commission
energy-efficiency policies?
for Environmental Cooperation of North America, the US
A: Everywhere. On one side, there are cogeneration
Department of Energy and engineering associations. In the
opportunities where companies that waste heat can put
process of creating standards, it is important to involve as
it to better use. The bigger challenge has to do with the
many participants as possible.
The National Commission for the Efficient Usage of Energy (CONUEE)
Q: What are CONUEE’s plans for green buildings?
is a public entity created in 2008 to promote energy efficiency and as a
A: Buildings are a very important area for us. In Mexico,
technical body for the sustainable use of energy.
energy use in commercial buildings has been reported
to the Energy Ministry by CFE as medium industries so the electricity balance in Mexico indicates that industrial users are the largest consumers of electricity, which does not reflect reality as buildings, both residential and commercial, consume more electricity than the industry and their consumption is growing faster. The yearly peak load of Mexico’s power system is driven by air conditioning in commercial and residential buildings. To reduce this growth, we have two standards in place, NOM-008 and NOM-020, but we depend on local governments to make
Mexico wants to reduce 1.9 percent of its energy intensity by 2030 and 3.7 percent by 2050 in comparison with 2016 levels
compliance mandatory.
ENERGY COMPSUPTION PER SECTOR ANNUAL ENERGY INTENSITY 2009-2015 (KJ/MX$ produced) Q: What are the main challenges for industrial users implementing energy-efficiency strategies?
800
A: Our National Energy Management Systems Program (PRONASGEn) promotes energy management systems 712
in 50 installations under ISO-50001 standards. Our goal is to have as many installations with energy management
674
700
676
systems in place as possible. Companies like Bimbo and
663
667
Alpura are involved in this program with support from
337
629
the Danish Energy Agency. This has helped them identify opportunities they had not considered before. Bimbo found that it could use heat they presently waste to operate
604
600
a cogeneration system applied to cooling systems in the
2009
2010
company’s plants. Alpura previously had fluids circulating at high temperatures through valves that had no thermal
2011
2012
2013
2014
2015
Energy efficiency is one of the pillars of the Energy Transition Law
Source: http://sume.org.mx/admin/wp-content/uploads/2016/03/world_green_building_trends_2016f_mexico.pdf
insulation. They invested in insulation and recovered the investment in three months. The reduction of heat loss was so impressive their gas supplier called them to verify whether they had stopped operations. Q: How are new technological trends impacting energy
Energy Consumption per Sector
efficiency? A: The drop in electricity prices that took place before the Energy Reform might be good for the economy but it made energy-efficiency investment less cost-effective. But technology is also evolving rapidly and boosting energy-
Source Electricity Natural Gas
Residential
Commercial
Public
56.6TWh
22.0 TWh
9.0 TWh
34, 211.9 mcf
12,196.4 mcf
N.D
efficiency solutions. For instance, in street lighting we have contributed to the development of 28 systems that are
TOP 5 INDUSTRIAL ENERGY CONSUMERS
now operating and saving around 38 percent electricity consumption on average. Internet of Things (IoT) solutions can reach up to 80 percent power savings because they not only make a lamp more effective but allow for remotecontrolled usage patterns. The savings come not only from energy but from operational efficiency.
1.
Steel 222.34 PJ
3.
2.
Chemicals 96.75 PJ
Cement 176.77 PJ
Q: How do you see energy efficiency in Mexico evolving? A: We are dealing with accelerated technological change which will require new standards and more flexible systems to design them and ensure compliance. The growth of the IoT will play an important role. Also, financing of projects and programs is important. We need to find mechanisms that deal with the fact that most energy efficiency actions are not big investments and that savings can only be estimated.
4.
PEMEX Petrochemicals 74.41 PJ
5.
Mining 62.81 PJ
Source: Energy Information System and Ministry of Energy
VIEW FROM THE TOP
O&M EXPERTISE BOLSTERS ENERGY OFFERING FRANCISCO TORRES General Director of Veolus
338
Q: What major changes did Veolus undergo when it became
Development Bank (IADB) to participate in their energy-
a Mexican-owned company?
efficiency program. This allows us to offer attractive
A: The main change was our shift toward energy efficiency.
financial structures to our customers. In this program, IADB
We used to have a bigger focus on the operation and
covers up to 80 percent of the project’s total costs while
maintenance of highly technical equipment, which even led
the rest is covered by Veolus, a private investor or the
our employees to describe Veolus as a pure maintenance
client itself. CHP projects of up to 5MW, our target market,
company. But that did not reflect the company’s true vision.
need an average investment of US$6-7 million but we can
Now we are working on strengthening our corporate image
also finance energy-efficiency projects of up to 5MW, so
as an energy-efficiency expert. The focus of all our projects
having attractive financing is crucial. Last year we closed
is to provide benefits to our customers in terms of energy
six energy-efficiency deals under this scheme and we
savings and reducing consumption. We have three main
expect more to come in the months ahead. So far, all our
business lines: O&M, energy efficiency and production and
customers are entitled to participate in this program except
installations. Energy efficiency is our main focus.
for municipalities and government companies.
Part of our technical strength comes from our O&M
The IADB analyzed more than 40 Mexican ESCOs before
expertise and the knowledge we have in different types
deciding to collaborate with us. We were selected due to
of technical equipment like HVAC, heating boilers, electric
our expertise and capabilities in energy efficiency and
plants and substations, electrical stairs, elevators and
CHP projects. All projects financed through this IADB line
Combined Heat and Power (CHP) production technology,
will be handled by Veolus and the other selected ESCO,
among others. These technical capabilities allow us to offer
representing an important stream of projects for us in the
more comprehensive projects than the competition because
coming years.
several energy-efficiency companies in Mexico focus mostly on efficient lighting. We do work on lighting projects but
Q: In addition to financing, what other challenges are
we are capable of working with thermal energy applications
Mexican ESCOs facing?
such as HVAC systems.
A: The lack of an energy-efficiency culture. Some Mexican clients tend to be suspicious about the periods needed to
We have installed steam and compressed air systems for
recover the investments required for energy-efficiency
industrial applications which have included results-based
projects, which a few years ago was three to five years
guarantees. We stay with our clients during the project’s life
and now is up to eight to 10 depending on the size of the
span, providing O&M to the installed equipment and thus
investment. The hardest part is to get clients on board for
ensuring the system’s optimal functioning and providing
the first time. Once they have tested the benefits of energy
guarantees on the agreed savings.
efficiency, they tend to be eager to develop other projects with us. Changing the clients’ mindset is particularly difficult
Q: Which competitive advantages have been key to
now due to the price per kilowatt-hour and exchange rate,
succeeding in the Mexican market?
which have extended the return on investment for projects.
A: Our financing schemes are based on performance contracting. We are one of the two Mexican Energy Services
Another important challenge is finding professionals
Companies
with expertise in both renewables and energy efficiency.
(ESCOs)
selected
by
the
Inter-American
Veolus is tackling this barrier by emphasizing training Veolus is the former unit of a French multinational, now fully Mexican-
and knowledge-transfer programs. We are one of the few
owned. It provides O&M for technical infrastructure and energy-
companies in the market that has eight engineers certified
efficiency services, with a nationwide presence and over 650 employees.
by the EUREM (European Energy Manager) for Mexico.
VIEW FROM THE TOP
NEW OPPORTUNITIES, NEW BUSINESSES LUIS RAMÓN Director General of Diram
Q: What business opportunities has the Energy Reform
need to have an action plan to comply with the law, a
created for Diram?
process in which we can also provide technical guidance.
A: The CRE has released a stricter network code for obtaining the necessary permits for interconnecting new
Q: What is the company’s strategy for selecting suppliers
or additional electrical charges to the grid, opening new
without compromising cost effectiveness?
opportunities for us. We have worked closely with steel
A: Performance contracts have put stronger pressure on
manufacturers and other industrial clients to help them
us to select the optimal equipment, giving our customers
understand the impact the new regulations will have on
confidence that their projects will run smoothly. After
their processes. Most were surprised by the amount of
years of experience and trial and error we have a base
investment required to ensure their facilities were up to
of trusted suppliers and distributors that offer the
the new code. In particular, industrial players will have to
guarantees we require for our projects. We avoid working
invest heavily in energy-quality solutions to match their
with inexperienced suppliers or companies that have no
electrical performance to the standards set by CRE,
credentials to support the quality of their work. We work
an area in which we have expertise. Considering the
with brands from the US, Europe and Asia, all of which have
interconnection requirements will be mandatory for all
quality certifications and high-performance standards.
industries connected to medium and high-tension lines,
For each type of equipment, we have up to three brands
the market opportunity for us is remarkable.
that comply with our company’s requirements and we make the final selection based on the contract conditions
In the same way, wind farms and other power generators
or the clients’ preferences. We do not have exclusivity
are required to comply with certain specifications to be
agreements with any brand so we are flexible to select the
interconnected to the National Electric System, including
best option according to the project’s needs.
the network code released in April 2016. We can support our clients in this area by analyzing their equipment to
Q: What is Diram’s strategy to continue expanding now
define whether or not they comply with the standards and
that it is a leader in the sector?
by offering them solutions for projects under development
A: Diram has a special division dedicated to analyzing
or for existing facilities. Some of the most important
new market potential and projections. Mexico’s situation
changes from the old to the new network code are the
has been challenging, with economic growth slower
mandatory response times and reactive power controllers,
than expected and impacting on industrial development
two aspects that cannot be met using only capacitor banks
including the energy sector, which has seen a drop in
and turbine power controllers. Most cases will require the
government investment. For these reasons, we are now
use of power electronics to control the power outage in
analyzing new markets, mainly in Central and South
accordance with mandatory requirements.
America where we are already in talks to establish commercial alliances. In the US, we have already
Legacy projects are not forced to comply with these new
identified a potential partner to distribute our products
electrical requirements but all other projects developed
and services. In Mexico, we are exploring the potential of
after the publication of CRE’s guidelines must. Therefore,
developing cogeneration projects made more attractive
we are now specializing in offering optimal solutions for
by the new regulatory framework and the low price of
companies looking to comply with the new network code
natural gas.
because we consider it a market niche in which we can offer an added value. The new code requires a minimum
Diram focuses on industrial energy efficiency and network compliance
power factor of 95 percent, which must be reached in
products and services such as capacitor banks, peak suppressors and
three years. Power generators and large electricity users
energy contract auditing.
339
INSIGHT
POWER INDUSTRY TUNES IN THE DIGITAL ERA MICHEL YEHUDA Industrial Unit Business Director of Fluke Dominion Mexico
340
Digitalization is changing the way energy-efficiency
Fluke Connect Assets is an online platform that
measures are implemented but coping with new
connects the company’s IoT solutions and works as a
technological trends is not always easy for companies.
management and data analysis dashboard for clients.
Many fail to see the potential in adapting to the changing
Within the platform, customers can predict their
landscape, and if they see the potential, they often fear
equipment’s behavior and make adequate maintenance
the cost, says Michel Yehuda, Industrial Unit Business
and operational decisions. “We think this is a promising
Director at Fluke Dominion.
technology that could be used in different industries, not only in the energy sector,” says Yehuda. “With the
The test and measurement company is shifting gears,
introduction of Fluke Connect Assets to the market, we
lowering its expectations for the oil and gas industry
have started to adapt our product portfolio, connecting
and instead putting a greater focus on the power,
it with the new platform.”
automotive and food and beverages segments, all vibrant in Mexico’s current economy. Among other
The company’s education program for the technology
technological trends, Fluke Dominion’s goal is to take
includes demonstrations and a loan scheme for its
these industries into the internet era.
customers to test the equipment in their facilities.
“The Internet of Things (IoT) is a relevant technology
Among the hurdles for the widespread acceptance of
but very few companies actually see it as a ‘must have’
such tech advances is the high cost of adapting old
for improving their business,” says Yehuda. “Most
plants to fit IoT solutions. Fluke Dominion’s solution is to
companies will usually buy just one or two items to
work with portable equipment, eliminating the need to
follow the trend, instead of the actual number needed to
greatly modify existing equipment. “Portable equipment
create an IoT system. However, this is starting to change.
has the ability to connect to almost all existing systems,
We are helping to drive this change by providing our
so companies can implement IoT without having to
customers with education and training about the
make large financial investments,” Yehuda adds.
potential benefits of installing our IoT technology, Fluke Connect Assets,” says Yehuda.
The company is looking to introduce a new brand in Mexico that will allow companies to connect their
To move its vision forward, the company will launch
existing equipment to the latest available equipment. “It
new IoT adaptors, low-pressure sensors and battery-
consists of small adaptors and transmitters that allow
management solutions, as well as a tailored maintenance
existing equipment to connect to IoT devices without
and efficiency program that will be run by a new division
having to make major changes."
called Dominion Industry. He adds that "other companies promoting IoT ask their “We are approaching energy companies willing to enter
customers to invest large amounts of resources into
the Mexican market and we help them understand the
their projects. On the contrary, we are trying to diminish
new landscape. We make use of our wide expertise
installation costs, making it as affordable as possible
in the country, acting as an adviser and not only as a
to accelerate the adoption of this technology in the
product provider,” says Yehuda. “We mostly focus on
country.”
power utilities such as CFE and the large generators entering the market, as well as big manufacturers. We
Yehuda expects the digital revolution will reach the
also place great importance on energy storage, which is
country’s state-owned productive enterprises, although
a critical technology that is often overlooked.”
the adoption rate might be slower than in privately
owned companies. “CFE is aware of the existence and
companies, conducting demonstrations and organizing
potential benefits that IoT technologies might bring.
training seminars. Education is an important part of our
The private sector is more open to adopting cutting-
business and we collaborate with international experts
edge technologies but CFE has been more interested
to provide the best possible training experience for our
than expected in installing IoT tech in its facilities,
clients, which can include sending an expert to a client’s
whereas this has not been the case of PEMEX. CFE
facility. In this way, we are bringing the expertise where
has been more actively looking into new technologies
it is most needed, and not relying only on books or
and processes to increase its competitiveness in the
manuals to train our customers,” he says.
new market, especially since it knows that it will be competing against private companies,” he says.
“The communication of the benefits of energy efficiency is critical, as many of our potential customers are
Fluke Dominion has expertise in helping the state-
not aware of the negative consequences caused by
owned utility with the introduction of leading-edge
inefficient equipment or do not know how to detect and
technologies, such as the Fluke 435 Power Analyzer to
tackle this issue,” Yehuda says.
improve CFE’s production. “One of our solutions is our power quality analyzers, which provide the customer
The company, he adds, looks to make a difference in
with an estimation of the costs that each electrical
the area of client and aftersales services. “We are the
problem represents for the company, allowing the user
only test and measurement company with a laboratory
to make more informed investment decisions. Last
in Mexico City that has seven engineers servicing our
year, we sold a number of power analyzers to CFE
products, sometimes years after the equipment was
because it wants to measure and monitor the economic
purchased. Additionally, we take great care of our
value of each electrical problem they find, which no
software platform to maintain an exhaustive track of our
other product in the market can do. Besides CFE, the
sales records and our customer base. Once a company
product has also been successful in companies in the
becomes our client, we continue inviting them to our
automotive, mining and food and beverages sectors. In
seminars and training sessions, offering visits from
general, most of the large manufacturers in Mexico have
our experts and communicating constantly, regardless
already acquired one of these devices,” Yehuda says.
of whether they buy new products or not. This is the system that we have followed with CFE or the National
To keep bringing new companies aboard the energy-
Meteorology Center, for example. With this strategy, our
efficiency and digital bandwagons, Fluke Dominion
goal is to maintain a positive, productive relationship
will continue using the same strategy: being where the
with our customers, helping them get the best out of
customer is. “The most important strategy for us is to
our products and ensuring they will return when they
be present. We are investing resources in visiting new
need a new solution.”
KEYBARRIERS BARRIERSTO INADOPTING ADOPTINGINDUSTRIAL THE INDUSTRALINTERNET KEY INTERNET (percent) Lack of interoperability / Standards Security concerns Uncertain ROI Legacy equipment Technology immaturity Privacy concerns Lack of skilled workers Societal concerns 0
10
20
30
40
50
overallhttp://sume.org.mx/admin/wp-content/uploads/2016/03/world_green_building_trends_2016f_mexico.pdf North America Europe Source: Source: World Economic Forum Industrial Internet Survey, 2014
Overall
North America
Europe
60
70
80
341
INSIGHT
MARKET’S OPENING IS BEST TIME FOR EFFICIENCY MARÍA MARTÍNEZ CEO of Sinérgica
The Energy Transition Law is the beat companies must
like those offered at Sinérgica to optimize their usage and
follow for energy efficiency but even the strongest
select the best electricity supply option. “We can also help
regulatory framework cannot achieve great things if
suppliers create long-lasting relationships with potential
the main stakeholders are unfamiliar with its key points.
off-takers by offering a joint solution to decrease their
Middlemen working to decipher the regulations for
energy expenses.”
customers are becoming more important than ever now
342
that energy is no longer the exclusive domain of one state-
Performing energy-efficiency studies before establishing
owned company.
an electricity purchasing agreement diminishes the contractual risks for both sides, the supplier and the off-
“The energy industry is opaque to the end user,” says María
taker, because it avoids unexpected decreases in demand
Martínez, CEO of Sinérgica, a specialized engineering
resulting from the revamping of older facilities or installing
house with a focus on energy efficiency. “Few customers
efficient devices. “This is a great moment for companies to
can really understand how their monthly bill is composed,
invest in energy efficiency,” Martínez adds.
which at the end of the day is what matters most to them. Sinérgica helps its clients identify the real behavior behind
Sinérgica is prepared to serve energy consumers of
their bill and how to target key variables to reduce the
different kinds due to its specialized engineering team
payment.”
that helps the company offer its clients savings of up to 45 percent of their annual energy expenses. “We have
Even if customers understand the nature of the billing
an international team of engineers with more than 20
process, usually they do not have a true sense of exactly
years of experience in the sector, which sets us apart
how their own energy consumption is allocated. Sinérgica
from other companies in this relatively new industry in
implements
properly
the country. Sinérgica’s technical team comprises a group
monitor energy consumption across all uses and to
of professionals with experience in different European
optimize performance. A client can then identify how
countries that have already been through the initial
much it is overspending on energy and how to reduce this
learning curve of energy efficiency,” she says.
a
trademarked
technology
to
payment. “An international protocol — administered by a third independent party — certifies the effective reduction
In a nascent market, there are always pitfalls to avoid and
in energy consumption, thereby increasing transparency
Martínez warns that companies need to be aware of the
to the end user and helping them obtain carbon footprint
goods being sold. “In this sector, there are several non-
certifications,” Martínez adds.
specialized electricians and plumbers who call themselves experts in energy efficiency. This is seldom the case.
Besides the traditional advantages of implementing
Customers should focus on firms that have specialized
energy-efficiency
in
engineers with a proven track record and appropriate
electricity costs, Martínez sees a great opportunity
certifications. We believe our core competitive advantage
for companies like hers to establish relationships with
to be our proprietary technology and highly specialized
businesses willing to move to the new regulatory
human capital.”
measures,
mainly
a
reduction
framework. “Potential off-takers are analyzing the new possibilities cautiously and are being patient to see how
Martínez adds that energy interest is high in the wake of
the market evolves before making any rushed decisions.
the country's Reform. “The Energy Reform has opened a
In this environment we consider ourselves to be a great
window of opportunity for us because it has raised the
partner for both suppliers and consumers.” Martínez says
interest of companies in energy topics including efficiency
companies with high energy consumption can use services
and we want to take advantage of this boom.”
INSIGHT
PLUGGING IT EXPERIENCE INTO THE POWER SECTOR GUSTAVO RODRÍGUEZ Director General of Vansertec
As Mexican companies navigate the foggy legal terrain
an Hidalgo's housing project's street-lighting electricity,
introduced by the new energy framework, those that
which allows it to be nearly independent from CFE and
already have a handle on the regulations will gain an
helped build Vansertec’s reputation. “The state of Hidalgo,
advantage, says Gustavo Rodríguez, Director General of
where the project is located, legally requires that such
Vansertec. “The company’s experience and expertise in
projects be partly independent from the national grid.
other key industries of the Mexican economy has allowed it
Now we want to replicate this success with more builders
to take advantage of regulations and the benefits such as
and industrial customers in the surrounding areas of
‘green’ tax deductions, commonly missed by other project
Mexico City,” says Rodríguez.
343
developers,” Rodríguez says. “Federal law mandates all sustainable infrastructure bought in Mexico, including
For companies transitioning from one sector to another, a
renewable energy technologies, must be 100-percent
key element is the ability to attract and deliver financing.
income tax deductible. Vansertec quickly took advantage
Vansertec is in a strong position because it acts as a broker
of this, which had a strong impact on our activities and
with several banking institution such as CI Banco and FIDE,
incentivized our use of green operations.”
while also using the company’s own capital for deals. The appeal of its financing solutions is the flexibility it can offer renewable
and the cost efficiency it gets from its innovative schemes.
technologies under the new regulations is the exemption
“We are trying to promote the idea that infrastructure
from reporting interconnection projects below the 500kW
does not necessarily have to be bought,” says Rodríguez.
threshold, avoiding the fees attached to the development
“Through a third party we can offer a two to 20-year
of these projects. According to Rodríguez, in these cases
contract for electricity sales just like CFE but 30 percent
CFE and CENACE only need to be informed of the extra
cheaper. We will deliver the energy and a third party can
production. “Looking to take advantage of this opportunity
provide the infrastructure, which is part of the concept
we are dividing our 1.2MW solar park into smaller projects.”
behind a PPA. In the end, our mission is to help our clients
Vansertec was originally conceived as an engineering firm
save money while protecting the environment.”
Another
incentive
for
incorporating
and entered the telecommunications industry 10 years ago. The company’s focus back then was on Wi-Fi services for
The
SMEs, after which it entered the IT security segment with
technologies for its Mexican customers. The first,
company
is
also
working
with
two
unique
Closed Circuit TV cameras. That key decision allowed it to
MicroLed, is a German-patented technology fabricated
start working with Mexico City’s government, which later
in Spain and mainly used for public lighting. “MicroLed
resulted in opportunities for further government deals and
offers 45 percent more savings than a regular LED or
participation in public tenders. The success of these new
80 percent more than traditional light bulbs,” Rodríguez
business deals strengthened the company’s reputation,
says. “The shipping costs make it slightly more expensive
especially in the public sector.
than a LED so we have direct agreements with the factory to reduce our overhead costs as much as possible,
The company entered the energy market about two years
making it competitive and affordable.” The second is an
ago when it began working with a Spanish solar business,
innovative off-grid power generator consisting of a self-
from which it gained valuable technical expertise. “As a
sufficient hybrid generator with a single PV panel used
result, we have been moving our client portfolio to the
to start the equipment. “This solution can be especially
renewable energy industry, also driven by all the emerging
attractive for the tourism sector, for instance hotels,
climate norms and agreements,” says Rodríguez. Its first
because it provides uninterrupted service in a self-
renewable project was with Constructora del Estado de
sustainable manner without compromising large areas
Hidalgo, a solar park designed to supply 90 percent of
of the hotel.”
VIEW FROM THE TOP
MEXICAN INNOVATORS HELP CONTROL ENERGY USAGE Rodrigo Calderón Director General of Energetika
Alejandro Chico Chief Technology Officer of Energetika
Q: What is behind Energetika’s success and how does the
Once a company has minimized its energy consumption, it
company differ from its competitors?
can start thinking about producing or buying energy. We
RC: The main factors that set Energetika apart from other
favor this strategy because it helps companies pay only for
energy efficiency consultants are innovation and creativity.
what they need, avoiding long-term contracts for energy
We are always looking for cutting-edge technologies and
that may not be used.
ideas to integrate into our activities. The company stays
344
updated on the technological trends that are shaping the
Q: How has the industry responded to the mandatory
sector internationally, such as the IoT, smart cities or smart
CO2 emissions inventory that was included in the Climate
sensors. We analyze if a technology or process makes
Change Law?
sense for Mexico and adapt it to the local market.
RC: We started a consultancy division for CO2 emissions accounting in 2015 but we have not seen much interest
AC: We are always looking for specific products and
from industrial customers in this area, despite it being
technologies to provide particular solutions. This strategy
mandatory. The regulations state that all companies must
allows us to provide a completely tailor-made service that
declare their CO2 emissions to SEMARNAT to create
is specifically adapted to our clients and the industries they
the National Emissions Registry. Even though we have
work in. Our flagship product is the “Energy Intelligence”
promoted the service among our clients the low penalties
tool, which helps us improve our customer’s energy usage
discourage companies from investing in it.
while gathering additional, useful information. We believe this approach has contributed enormously to Energetika’s
AC: We use the carbon emissions accounting service as a
success. We integrate IoT into our offer to provide better
complement to our energy efficiency studies, promoting
energy solutions for our customers. The best service you
it as a marketing tool to position a company’s sustainable
can give to clients is an integrated system that can meet
agenda. We followed this strategy due to the lack of
their present and future energy requirements.
interest among companies to calculate their emissions if it comes with a cost.
Q: Why did you make energy efficiency your core business and what areas of opportunity have you identified?
Q: What are the main challenges faced by your industrial
RC: In the early stages we also were focusing on
clients?
renewable energy development, including solar and
RC: One of the main challenges is the clients’ lack of
wind technologies. But we quickly realized the biggest
awareness about the ways in which energy is consumed
opportunity for our company was to improve energy
in their facilities. Most customers are aware of their total
usage for large-scale users, which tend to be highly
energy usage but they do not know where the highest
inefficient in Mexico. Energy efficiency has proven to be
consumption points are. Our Energy Intelligence solution
more economically attractive than renewables because it
is focused on measuring and analyzing a company’s usage
can diminish energy-related costs and emissions with a
to identify those highest points, facilitating the decision-
lower initial investment. We chose to keep our renewables
making process.
division for specific cases, such as projects from the public sector or residential customers under the DAC scheme.
AC: Generally, large-scale companies face bigger energy challenges. For instance, FEMSA has 138 distribution centers,
AC: We believe that energy efficiency must be the first step
which makes it more complicated to control the energy
for every company looking to make its energy usage more
usage of each location. The only way to ensure a correct
sustainable. Saving 1MW will always be more effective than
energy management system is by using an integrated
producing it, even if it comes from renewable sources.
solution such as Energy Intelligence, which allows users
to identify and monitor the consumption of each point
Q: How is the project that Energetika is developing
regardless of geographical location. This characteristic is one
to improve the lighting of Mexico City’s subway
of the biggest advantages the IoT provides and not many
advancing?
companies integrate this type of technology in the solutions
AC: Mexico City’s subway serves 8.5 million users per
they offer. Our company also has a wide range of aftersales
day, making it one of the world’s busiest systems. Our
services at an affordable price, including maintenance, which
solution will allow the government to improve the
contributes to the energy savings achieved by our clients.
Metro’s energy usage while providing additional tools to make decisions over its operation, optimizing the
Q: What are the main features of Energy Intelligence
service. We have already implemented the project in
and why is the IoT important for energy-related
one Metro station and we have plans to do four more.
services?
If the project is successful and the government sees the
AC: Energy Intelligence represents a new and smarter
value in it, we expect to install our system across the
way of approaching energy efficiency. It consists of
entire subway network.
taking operational technology such as LEDs or sensors, and combining it with information technology, which
Q: How do you foresee an energy-efficiency culture
corresponds to a software platform. We use different
evolving in Mexico?
platforms from several clients but we also are building
RC: When we started the company six years ago, we
our own technology that will have the ability to read a
made a great effort to raise awareness about energy
client’s platforms and make smart decisions. We are using
efficiency in the industry. However, the enactment of
analog devices in this system to get a more in-depth view
new regulations and the opening of the electricity
of other factors involved in energy management, such as
market have contributed enormously to increasing
usage or market behavior. All this information enables our
knowledge among Mexican industries. The fact that
clients to use energy exactly when and how they need it,
industrial and commercial electricity tariffs are higher in
bringing energy savings of up to 95 percent, which is way
Mexico than in other markets has served as an incentive
more than what our competitors can achieve.
to invest in energy efficiency. Now, most companies understand the importance of energy monitoring and
RC: The Energy Intelligence concept can be applied in
controlling and are aware of the efficient technologies
all sectors where energy is utilized. We have three core
available in the market. But more work is needed
business areas: retail, buildings and smart cities. We
to promote this among other population segments,
are using the power of the internet and data science to
particularly low-income markets which are usually not
improve energy efficiency, while gathering information
interested in saving energy. These users receive higher
that might be useful for other decision-making processes.
subsidies because their energy consumption is below
For instance, in the building sector data from Energy
the established threshold.
Intelligence provides customers with the tools needed to make decisions related to the building’s occupancy
Q: What is Energetika’s strategy to continue expanding
density or to track assets. In the retail sector, we can help
its business?
our customers optimize their energy consumption levels
RC: We signed a project with FEMSA to install Energy
while gathering useful marketing information such as
Intelligence in its facilities in Argentina, Brazil and the
people’s itinerary and time spent at the store.
Philippines and we are about to close a project with a large steel manufacturer, as well as new projects with other
Q: What were the main achievements of the project
municipalities, such as Tuxpan, Veracruz and Tonala, Jalisco.
Energetika developed with the Chalco municipality in the State of Mexico?
AC: We want to position ourselves as the best energy
RC: In this project we replaced 13,000 regular lamps with
efficiency
LED lamps making it the largest project of this kind in
energy-saving solutions. The company is trying to
Mexico that has been done by the book. Following the
reformulate the way energy is used in different sectors,
guidelines provided by the government was important
drawing inspiration from international practices that we
because it allowed the municipality to obtain financing
then adapt to the national landscape. By incorporating
from BANOBRAS and the CONUEE, which provided over
creativity and innovation into our daily activities, we are
US$ 444.000 for the project.
adding extra value to the market.
AC: Public projects are especially complicated because
Energetika provides energy savings and control solutions. Its Energy
they require extensive follow-up, which is the main
Intelligence solution uses different technologies to achieve operational
reason discouraging other companies from participating.
connectivity that generates unique and specialized information.
solutions
provider
through
cost-effective
345
INSIGHT
SMALLER ENTERPRISES, AN OPPORTUNITY FOR ENERGY MANAGEMENT ARMANDO LANDA CEO of Enerwise
346
It is not a secret that investing in energy efficiency is
education, spreading the word about the importance of
the best way to reduce greenhouse gas emissions by
accurate measurements in energy-efficiency practices
lowering electricity and fuel consumption, particularly in
and the savings those can bring to a business. “We urge
countries like Mexico, with an electric grid heavily reliant
company leaders to foster their employees’ knowledge
on fossil fuels. Improving the country’s efficiency levels
about the importance of being efficient and the factors
becomes even more pressing when considering that
that affect energy and water usage in their processes,”
electricity demand is projected to increase by an average
Landa says.
of 3.7 percent yearly at least until 2030, as per the latest PRODESEN 2016-2030 figures.
Most Mexican companies are aware of the amount of gas, electricity and water they are using because these are
Although most of the electricity demand will come from
shown in their monthly bills. But most SMEs are unaware
the industrial and transportation sectors, SMEs represent
of the exact kilowatt-hours of electricity, liters of water or
an interesting opportunity to improve electricity usage.
cubic feet of gas needed per unit of product or production
The Ministry of Energy has pegged growth in electricity
line. The lack of accurate measurements makes it harder
consumption in this segment at an annual 2.8 percent rate
to introduce efficiency solutions because measuring is the
for the past decade.
first step for reducing consumption. “Around 20 percent of the information gathered by the industries is inaccurate,
Armando Landa, CEO of Enerwise, which provides certified
which results in misleading information regarding the
monitoring products for reducing energy and water
energy-related costs of a process. Accurate metrics are
consumption, says its solutions focus mostly on SMEs. He
extremely relevant for energy efficiency,” Landa says.
believes these companies can benefit the most from them. “Large companies are often aware of the importance of
The key to solving this challenge is not to have more
incorporating energy efficiency into their processes and
regulations but to make sure all relevant players are
some even have special divisions dedicated to this. SMEs,
familiar with those that are in place, he says. “There is a
on the other hand, tend to lack engineering departments
wide range of norms and regulations looking to improve
dedicated to energy management,” he says.
energy usage in the country. However, not all companies are aware of their existence or of the importance of
Three of the main barriers to implementing energy efficient
following the guidelines. Even in the public sector there
solutions in SMEs are the lack of awareness about efficient
is a knowledge gap regarding the factors that affect
technologies, the gap in knowledge about monitoring and
energy efficiency and the critical role that accurate
energy prices. “In Mexico, the culture of energy efficiency
data plays. These are the reasons why we see a limited
is not widely spread mainly because energy prices are
number of programs to promote energy efficiency with
not high enough to incentivize companies to invest in
a focus on adequate measuring.”
this area,” Landa says. Low natural gas prices and the power subsidies that remain in certain segments are only
Communication campaigns and monitoring technologies
exacerbating the situation.
are essential to achieve real results in improving SMEs’ efficiency levels, which is why Enerwise has placed both at
“There is a lack of awareness about the benefits that
the core of its business in Mexico. “Companies do not want
energy efficiency investments can bring for companies
to change the way they produce or do business because
and all these factors are contributing to the business-
they do not know a better alternative. Enerwise can help
as-usual tendency that we have identified,” he adds.
them improve by providing training and equipment for
For that reason, Enerwise places a strong focus on
accurate measurement,” Landa says.
VIEW FROM THE TOP
LIGHTING THE WAY TO ENERGY EFFICIENCY GLEB KOUZNETSOV Director of Intec Ecotecnologías
Q: What challenges has the company encountered as it
manufacturers even if they are more expensive. It takes a
entered the energy sector?
long time to take a successful product to the market from
A: In this market we focus mainly on two areas: renewable
the R&D stage, which is why we prefer to work with mature
energy generation and energy efficiency, mostly efficient-
and well-established companies. We have received offers
lighting devices. We work with commercial and industrial
from companies claiming better performance than our
clients, with a focus largely on big infrastructure projects.
current suppliers. Many of the competitors in the market,
The company has been involved in several public
however, do not take important aspects into account such
infrastructure
highways,
as the Balance of Plant (BoP) components, which are
tunnels and hospitals, promoting energy savings beyond
projects
including
bridges,
crucial to ensure performance. We have broad experience
the expected standards. The company has overcome
so we know what is best for our clients.
different barriers in the energy sector. Entering the public infrastructure
segment
was
particularly
challenging
Q: What are some of the company’s flagship projects and
because the playing field is not always fair, sometimes
how were they implemented?
favoring personal relationships over the quality of a
A: We have a project in Cozumel that consists of an off-
proposal and its competitiveness. This has been our
grid hybrid system, which has achieved 100 percent cost
major challenge during our 13 years in this industry.
savings regarding power purchases from the grid. The
Ensuring a level playing field is not only a challenge
project was installed on a commercial deck that needed
for the government but also for private industry. Intec
to have reliable and efficient lighting 24 hours a day. The
Ecotecnologías follows a strict policy of avoiding bad
site used to experience problems with power supply from
practices such as bribery or favoritism.
the grid, prompting the deck’s management to invest in an off-grid system. We offered a centralized solar panel
Our second challenge is financing. Project financing in
system with a central battery pack, with enough capacity
Mexico is expensive, short-term and faces low levels of
to feed the entire deck’s electrical system independently.
trust from financial entities. Particularly in the case of
Using a centralized system makes it easier to dismantle in
renewable energies, having accessible and long-term
case of hurricanes, something we included in the project
financing is crucial no matter the type of financing scheme
design due to the location.
used.
International
development
banks,
multilateral
organizations and national development banks such
The system offers high reliability thanks to an additional
as NAFIN or Bancomext tend to focus on large-scale
generator
projects, ignoring the potential of middle and small-sized
automatically if the weather is unfavorable for a long
initiatives. We work with the latter, which represents 50
period. The system is located by the sea facing extreme
percent of the total solar panels installed in the world.
weather conditions but it works perfectly thanks to detailed
Middle and small-sized renewable energy projects create
engineering and the high-quality products used. Regarding
local jobs, promote local businesses and benefit SMEs
infrastructure projects, we are proud of the work we did
directly. Offering green-financing schemes addressed to
on the Urbana Sur highway on the second level of Mexico
the needs of medium and small-scale projects will be key
City’s Periferico, from San Jeronimo to Viaducto Tlalpan.
to the industry’s development in Mexico.
The project has the largest on-grid solar PV system installed
coupled
to
the
solar
panels
that
starts
in Mexico City with a capacity of 174kW. The last barrier we face is unfair competition from newly arrived manufacturers that lack the required quality
Intec Ecotecnologías is a 100-percent Mexican energy and sustainability
certifications but offer their products at unusually low
company, focusing on energy efficiency in projects such as public
prices. We prefer to acquire our products from certified
lighting and clean-energy generation via solar PV panels.
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VIEW FROM THE TOP
DEVELOPING BANKABLE PUBLIC SOLUTIONS A CHALLENGE ENRIQUE GÓMEZ-JUNCO CEO of Optima Energía
Q: How has the company dealt with financing, especially
by private companies through performance contracting
regarding the performance contracting model?
thus local governments can adapt this technology broadly.
A: When Optima Energía was created, we learned
348
from international experience about the advantages of
Q: How feasible are CELs, green bonds or carbon credits
developing this model, so we adapted it to the Mexican
in the company’s business model?
market and specifically to our clients’ needs. We quickly
A: Energy-efficiency initiatives have great potential in
realized the complexity of getting funding as an ESCO
Mexico and we expect to develop numerous projects in
due to the financial risk. Small companies are perceived
this field in the short term. We would consider using new
as risky investments and the uncertainty about our
financing tools such as green bonds or carbon credits
process complicated the financing. We developed six
only if we have a large number of projects in place. We
projects with a Japanese financial institution. Even though
now have one credit line with a development bank for
it was expensive, we proved the model’s feasibility and
US$50 million and two with commercial banks valued
provided a bankable solution for financial institutions to
in US$150 million and US$400 million, respectively,
fund similar models. We developed 30 additional projects
so we are financially solvent enough to address new
using commercial funding. Now we have moved into the
business opportunities. The next stage for Optima
public sector and work with municipal governments,
Energía will be developing renewable-energy solutions
where developing bankable solutions has proven to be
for municipalities. The financial model for these projects
more challenging than in the private sector. Mexican
can also use public-lighting rights (DAPs) taxes as a
municipalities are not considered financially trusted
payment source, implementing solar or wind-energy
entities so we had to create a solution that financial
projects to cover municipal demand. Developing smart
institutions would find comfortable.
cities will come after. We have not yet developed any project in these areas but we have presented
Q: What was the solution and what opportunities has
some possible solutions to municipalities. We expect
Optima Energía found in the public sector?
these projects in the future to be financed mostly by
A: The greatest opportunity regarding energy efficiency
development banks.
lies in street-lighting systems. Municipalities can reduce at least 60 percent of their energy consumption by
Q: What lessons has the company learned and how have
increasing street-lighting luminosity by 50 percent, which
those shaped its strategy in Mexico?
not only addresses energy efficiency but also enhances
A: The greatest challenge has been the transition from
public security. We have developed energy-efficiency
the private to the public sector. One of the main lessons
projects for the public lighting system of six cities with
we learned was to expand our indicators of success
international development banks such as the Inter-
beyond energy savings and cost effectiveness. At first
American Development Bank (IADB), the Overseas Private
we used to replace existing lighting infrastructure with
Investment Corporation (OPIC), the International Finance
its energy-efficient equivalent, which delivers the same
Corporation (IFC) as well as commercial local banks such
luminosity but uses less power. Then we realized it was not
as HSBC, Santander and BBVA. Development banks are
enough. We now use energy-efficient devices with higher
now realizing the need to balance energy efficiency with
luminosity levels, which provide less energy savings than
renewable energy projects. Technical risks can be assumed
before but increase satisfaction. People’s quality of life has drastically improved from this perspective because better
Optima Energía is an ESCO specialized in the development of
lighting enhances security and boosts nocturnal activities.
comprehensive energy efficiency projects, combining diverse elements
Nonetheless, we still care about balancing energy savings
such as state-of-the-art technology and innovative financing schemes.
and luminosity levels to ensure the project is profitable.
INSIGHT
CERTIFICATIONS RISE WITH BOOM IN GREEN BUILDINGS JOSÉ GUTIÉRREZ President of SUMe
Mexicans have made it known they want a greener
Challenge, which is less known but more challenging than
environment and developers are listening. The interest in
LEED,” says Gutiérrez.
sustainability is fueling a green construction boom that also has more companies looking at certifications to meet
Increasing usage of the Living Building Challenge in Mexico
expectations. Sustentabilidad para México A.C. (SUMe) is
would be particularly interesting because it sets some of
a civil association that has been working for several years
the strictest standards in the industry and encourages
toward the adoption and creation of sustainable building
building owners to become active producers instead of
standards. In Mexico, sustainable construction activity is
just optimizing consumption. According to Gutiérrez,
driven by market demand rather than the building owner’s
“LEED prioritizes energy savings while the Living Building
recognition of the advantages of going green, the main
Challenge asks for net-positive energy buildings, giving
industry driver in other markets. “The educational level of
at least 5 percent of their energy consumption back to
the Mexican end user continues to rise, which is leading to
the grid.” Gutiérrez highlights the importance of including
a higher demand for sustainable products and services,”
regional characteristics even when using international
says José Gutiérrez, SUMe’s President.
standards. “Generalization is needed to get the big picture but we always need to dig into the problem’s particularities
Having a green certification from an independent and
to find an adequate solution. This approach also is used
reliable third party is a proven strategy to attract customers
by the Living Building Challenge, which allows flexibility in
interested in sustainable products. In markets like Mexico
the strategy used,” he adds.
where end-user demand is crucial, certifications become an important tool to develop a profitable project. LEED
SUMe ensured that these aspects also were considered
has been the most-used green certification up to now
during the creation of SEMARNAT’s sustainable building
but the boom in green building construction is expected
standard (NMX-AA-164-SCFI-2013), which new buildings
to boost the popularity of other international and
began using in 2016. “The norm takes into account the
national standards. “We are mostly identified with the
climate and other particular characteristics of Mexico’s
LEED certification but we actually work with all types
different regions. Diversity is an important part of
of guidelines, including BREAM and the Living Building
sustainability," Gutiérrez says.
TOPTRIGGER TRIGGERDRIVING DRIVINGFUTURE FUTUREGREEN GREENBUILDING BUILDINGACTIVITY ACTIVITYININMEXICO MEXICO(percent) TOP
Market Demands Client Demands Right Thing to Do Lower Operating Costs Higher ROI 0 Mexico
5
10
15
20
25
30
Global Respondents
Source: http://sume.org.mx/admin/wp-content/uploads/2016/03/world_green_building_trends_2016f_mexico.pdf Source: World Green Building Trends 2016 Mexico
35
40
349
ROUNDTABLE
HOW ARE YOU INTRODUCING CLEANER TECH OR ENERGY EFFICIENCY IN YOUR INDUSTRY?
Mexico’s
manufacturers
are
known
for
quality
and
competitive costs. But a rise in global competition is pushing Mexican plants to become even more efficient. Reducing energy costs is one way for companies to achieve greater efficiency, particularly considering that industrial electricity tariffs are more expensive than in the US. Investing in energyefficient technologies and distributed power generation are two of the strategies used. Here, industry leaders detail their efforts to address the clean needs of their respective sectors.
We develop solutions that help optimize our client’s paint usage, reduce volatile emissions and lower energy consumption. When a new automotive assembly plant is built the area that requires the largest investment is the paint shop. This section uses more water and energy than the rest of the assembly plant so any contribution we can offer makes a huge difference. Normally, cars need at least four
350
coats: electrophoretic protection, a surface primer, color and finally the clear coat.
ADRIANA MACOUZET President and Director General of PPG Mexico and North Latin America
Between these layers there needs to be a baking process, resulting in at least three bakes for each car. Our goal is to reduce the baking processes to lower gas and energy consumption, as well as paint and water usage. Our B1:B2 compact process eliminates the surface primer and one of the bakes.
In simple terms, our products provide more compressed air using less energy. Sometimes compressors have the largest electrical motors in the production plant and can represent about 40 percent or more of its total electricity consumption. Therefore, electricity savings in compressors are crucial to the competitiveness of manufacturing plants. While our equipment is more expensive than that of the competition, the cost of any equipment over 10 years can be divided into 15
ANGEL DE LOPE General Manager of Kaeser Compresores de México
percent initial investment, 15 percent spent on maintenance over that time period and 70 percent on power consumption. Our products provide much higher energy efficiency than our competitors’ units so clients can recover their initial investment quickly. Sometimes it may be more cost effective to replace an older compressor for a newer version as maintenance costs increase and functionality decreases.
With Think Blue. Factory., Volkswagen launched the first holistic environmental program in automobile production. Since its introduction, resources have been used more efficiently and emissions reduced in all Volkswagen factories around the world. From 2010 to 2015, our environmental impact has been reduced worldwide by 25.3 percent per vehicle or component produced. Volkswagen de México has contributed to this goal by lowering its main environmental indicators. Those
ANDREAS HINRICHS CEO of Volkswagen de México
limited were energy consumption and solvent emissions. We generated 6.29kg of waste per unit manufactured in 2010. In 2015, the waste generated was almost zero.
Our global strategies focus on megatrends such as scarcity of fossil fuels resources, urbanization and the onset of climate change. We help our customers design and develop innovative products that reflect these issues and promote sustainable applications. We believe sustainability should be considered at the early stages of every production process. For example, substituting glass for polycarbonate reduces the weight of automotive components by almost half. About 15 percent of a car was made with plastics in 2015. Studies show that by 2020 this percentage will grow to 25. Our intention is to produce more environmentally friendly plastics
BJOERN ELLER CFO of Covestro
by reducing waste during manufacturing processes. We are using more efficient technologies that consume significantly less energy than traditional processes.
Our huge client base demands high electricity volumes. One of our main objectives is finding a supply source at a stable and competitive price. There are various infrastructure groups developing projects involving solar and co-generation. However, FINSA is still evaluating how it can best offer these solutions while ensuring added benefits to its clients. We have evaluated the possibility of owning
351
power generation infrastructure but have not yet solved the question of distribution. The federal government has adapted Mexico’s structural reforms and we now have a good base for future planning. The country is a sound investment hub and the
SERGIO ARGÜELLES President and CEO of FINSA
market has become less dependent on oil and gas.
One thing that happened because of the Energy Reform is the drop in electricity prices, which is good for the economy but makes energy-efficiency investments less cost-effective. Technology is also evolving rapidly to boost energy-efficiency solutions. For instance, in street lighting we have contributed to the development of 28 systems that are now operating and saving around 38 percent electricity consumption on average. With the Internet of ThingsO you can reach up to 80 percent power because it is not just making a lamp more effective but you can remotely control its usage patterns. The savings come not only from energy but
ODÓN DE BUEN Director General of CONUEE
from operational efficiency and environmental impact as well.
The industrial real estate segment needs energy availability. Mexico is still lacking investment to supply industrial zones with enough energy at a higher rate. We may be able to find plots of land but if the infrastructure is not present to accompany the operations, they become unfeasible for us. Sometimes constructing the right energy infrastructure can be more expensive than buying the land. As CFE is a publicly owned company, it is the sole responsible authority for this. There is no question that the government needs to improve its offering and push for advanced investment capabilities from public agencies.
ROBERTO CANTÚ Director General of Roca Desarrollos
352
Domuyo geothermal project, Argentina, Grupo ENAL
INSIGHT
GEOTHERMAL HEAT’S UNTAPPED POTENTIAL MARIENE GUTIÉRREZ Director of Tlalli Energía
Mexico has abundant geothermal resources. For the past
heating and cooking, accounting for almost two thirds of
few decades the country has successfully generated
demand (SENER, 2011). Space heating accounts for roughly
electricity mainly from its high-temperature (over 200°
1 percent. Geothermal heat could potentially satisfy some
C) geothermal resources. On the other hand, direct uses
or all of the hot water demand and heating requirements
or non-electric uses of geothermal energy have remained
(IRENA, 2015).
largely overlooked in Mexico (Gutierrez-Negrin and Quijano Leon, 2005). Direct use refers to the immediate use of the
Deploying geothermal heat in the building and industry
energy for applications such as heating swimming pools,
sector implies that conventional fuels such as oil derivatives
balneology (baths or spas), agriculture (greenhouse
used for heat generation have to be substituted. Recent
heating, crop drying, animal husbandry), space heating
analyses by IRENA show that from all the renewable
and cooling (including district heating), aquaculture
energy options, geothermal sources are among the least
(heating of fish ponds and raceways), and providing heat
expensive. Substitution remains cost-competitive for
for industrial processes and heat pumps (for both heating
geothermal heating when the deployable resources are
and cooling). Iglesias et al (2011) reported the existence
in the proximity of manufacturing facilities. A potential of
of at least 2,300 geothermal manifestations with surface
around 800MW of geothermal heat for the industry sector
temperatures over 30° C.
is considered to be feasible by 2030 (IRENA, 2015). Space cooling also represents an important energy consumption,
About 90 percent of the geothermal resources studied
particularly in extreme climates (de Buen, 2011). So far, the
in 26 of Mexico’s 32 states fall in the temperature range
use of geothermal-based systems for space heating and
between 50° and 150° C. The estimated energy content of
cooling has received little attention in Mexico.
just 30 percent of these resources is about 1,200 exajoules (EJ) (Iglesias et al, 2011). In contrast, by 2010 only about
Geothermal Heat Pump (GHP) systems combined with
164MW had been used in Mexico, mainly for recreational
underground thermal energy storage (UTES) have proven
purposes in spas and baths (IEA-GIA, 2013). The potential
an efficient way for heating and cooling spaces. Systems
for direct geothermal heat use is, thus, far greater and
can either use aquifers thermal energy storage (ATES) or
remains essentially untapped.
borehole thermal energy storage (BTES). Furthermore, these systems rely on seasonality: heat available during
The vast availability of geothermal resources of medium
the summer is stored for use during the cold season.
and low temperatures across the country and the energy
Similarly, the cold from the winter would be stored for
potential they contain is evident, and it could be harvested
summertime use. GHPs in combination with UTES for
in direct use applications. In 2015, the industry and building
heating and cooling purposes are popular in countries
sectors such as residential, commercial and public,
with moderate climates like the Netherlands, Sweden
accounted for 50 percent of the total energy consumption
and increasingly in the US, as they lead to considerable
in Mexico. Industry sectors related to production of food,
primary energy savings and to carbon emissions reduction
beverages, glass, paper and other small industries require a
(Godschalk and Bakema, 2010). However, these systems
great deal of low to medium-grade heat for their processes
and applications are practically unknown in Mexico. The
(IRENA, 2015), which could be partially or totally delivered
overall suitability of ATES/BTES systems for heating and
by geothermal sources while reducing reliance on oil
cooling applications is assessed with of climate, type of
products and other fossil fuels. So far, biomass is the only
aquifers present and groundwater temperature in mind.
renewable employed (excluding renewable power) in the
Climates more favorable for UTES have a distinctive warm
industry sector’s energy mix. In the building sector, energy
and cold season. A higher aquifer permeability is more
demand is dominated by thermal uses such as water
favorable, as well as colder groundwater temperatures.
353
GEOTHERMAL RESOURCES IN MEXICO
354
High temperature (>200o C) Medium temperature (150-200o C) Low temperature (50-150o C) Very low temperature (<40o C) Geothermal manifestation High potential zones Geothermal fields (producing)
Western Sierra Madre Transmexican Volcanic Belt
Source: Tlalli EnergĂa, CRE-IDB, 2011; Gonzalez-Ruiz et al, 2015; Prol and Juarez, 1985:1986
355
Installation works for CFE project, Mexico, ho1a
SUPPLY CHAIN
13
The energy industry depends not only on large manufacturers of solar panels and wind turbines or entrepreneurial engineering companies scouting for new locations to place them. A large part of the job of developing a newly created sector such as the electricity industry after 2013â&#x20AC;&#x2122;s Reform involves the work of those companies in the background ensuring safety standards are complied with, systems interact correctly and devices operate within the proper limits to prevent damage or even injury to operators.
The sector also depends on suppliers of technology as diverse as anti-theft solutions to high-voltage transformers designed to work for longer under harsh conditions, as well as certification companies laboring to adjust Mexicoâ&#x20AC;&#x2122;s longisolated and monopolistic energy grid to international standards demanded by insurance companies. This chapter discusses the advances made by the supply chain in Mexico to cope with a more competitive and demanding market.
357
CHAPTER 13: SUPPLY CHAIN 360
ANALYSIS: It Takes an Industry
361
VIEW FROM THE TOP: Enrique González, Schneider Electric
362
INSIGHT: Juan Kuri, Siemens PLM Software
363
VIEW FROM THE TOP: Pedro Berriel, Power Electronics Mexico
364
VIEW FROM THE TOP: Santiago Quintal, Provoltaje (Chint Mexico)
366
VIEW FROM THE TOP: Mauricio Toache, SEL Mexico
367
INSIGHT: Abel Hernández, ANCE
368
INSIGHT: Roger Viera, Pounce
369
VIEW FROM THE TOP: Gabriel Hernández, Sigma Solutions
370
VIEW FROM THE TOP: David Sánchez, Huawei
372
VIEW FROM THE TOP: Alejo López, NEXTracker
Leslie Tan, Huawei
Kristan Kirsh, NEXTracker
373
INSIGHT: Justin Facey, TIBA
374
TECHNOLOGY SPOTLIGHT: Co-processing Could Help Reduce Waste-Related Risks
376
VIEW FROM THE TOP: Miguel Ladrón de Guevara, Geocycle Mexico
377
INSIGHT: Juan Herrera, Hydrocon
359
ANALYSIS
IT TAKES AN INDUSTRY Producing one megawatt of renewable energy takes
doubling as an industrial fuel while avoiding soil
a whole industry. Wind turbines and solar panels do
contamination.
not miraculously spring from the ground and connect themselves to the grid. The proper development of
“Developing smart energy solutions consists of designing
the newly liberalized electricity market, including the
products that can optimize an entire project’s performance in
heavy involvement of new technologies such as efficient
terms of cost and production. A smart solution does not only
combined-cycle plants, requires experts in fields ranging
consist of one product but includes a range of components
from software to frequency regulators to power inverters,
and accessories arranged to improve the plant’s operations,”
as well as the consultants working in the background to
says David Sánchez, Sales Director at the Smart PV Business
make sure every single piece of equipment adheres to the
Division of Chinese electronics giant Huawei.
strictest certifications.
GREASING THE WHEELS
360
The applications provided by a growing energy supply
A big part of what keeps the wheels —or better, the
chain do not end in power generation but extend to
turbines— turning is compatibility and reliability, seen mostly
systems that help companies become more efficient in
through the eyes of international and national certifications.
their consumption, saving money and resources, and
These certifications are the “grease” that allow a Danish-
include “smart” street-lighting and innovative ways to turn
made generator in Oaxaca to work seamlessly with a US-
waste into cheap energy.
designed control panel through connectors assembled in Mexico City that send energy to a Japanese-based
“Energy demand will almost double in the next 40 years,
automotive manufacturer in San Luis Potosi. “Our role is
stemming from the twin challenges of access to energy
to standardize products and subsystems designed to work
and the megatrends of urbanization, digitalization and
among greater systems for optimal energy performance,”
industrialization. At the same time, we have to reduce
says Abel Hernández, the CEO of certification specialist
CO2 emissions by half to avoid irreversible damage to our
ANCE. “There is very intense activity coming Mexico’s way
planet. The only way to do that is to become three times
in terms of the Internet of Things, smart grids, smart houses
more efficient,” says Enrique González, CEO of Schneider
and other such technologies and it all depends on standards
Electric Mexico and Central America, a company dedicated
and regulations.” As more international companies set up
to energy management solutions.
shop in the country, being up to code with the latest, more stringent standards will no longer be a plus, it will be a
“Technology in Mexico was
requirement, many in the sector say.
quite underdeveloped but with
Another segment where new opportunities are arising is
the liberalization of the market,
but now with a mandate to become productive and
companies are driven to optimize
players. For a company that large and with an older
generation processes and become
in working with the new CFE, still a state-owned company competitive to participate on equal terms with private infrastructure, the job is both to modernize its grid and to stop the widespread electricity theft that results
more cost-efficient through
in millions of dollars of losses every year. “We have
technological developments”
owned company’s needs, including an electrical connector
Juan Kuri, VP and Country Manager Mesoamerica
in areas with high levels of corrosion and pollution,” says
at Siemens PLM Software
Sigma Solutions Executive Director, Gabriel Hernández.
developed products specially designed to meet the statethat can work up to two years instead of just six months
“This product was relevant for CFE because it allowed the But as demand grows, Mexico has established power
company to save money in locations with these kinds of
goals that will drive the industry further down the path of
problems, such as Coatzacoalcos in Veracruz.”
efficiency, such as the objective of obtaining 35 percent of the country’s energy from clean sources by 2024.
There are a multitude of challenges ahead as the new-look
The old way of doing things will not cut it anymore.
market grows into its potential. Every link in the chain will
Even garbage has become a resource for consideration,
play a key role in meeting those challenges.
VIEW FROM THE TOP
LOOK TO TECH TO PROVIDE POWER EFFICIENCY ENRIQUE GONZÁLEZ President & CEO of Schneider Electric Mexico and Central America
Q: How do business opportunities in emerging economies
there. When people talk about efficiency in our energy
compare with those in developed countries?
world today, 80 percent of the time they are only talking
A: Even though the way countries embrace technology is
about the upstream: nuclear vs non-nuclear, shale gas vs
different there is no single country in the world that does
non-shale gas, fossil vs renewable. But there is one growing
not need to be efficient in energy management. Some
school of thought that transcends the various groups: the
countries prioritize manufacturing while others focus on
belief that the real priority is energy efficiency because
services, so it depends on the specialization. For Schneider
the easiest, cheapest, fastest and most profitable way to
Electric, 43 percent of revenues for the full year 2015 came
embrace green energy is to consume it in a smarter way.
from new economies. The possibility of working in different countries allows us to be responsible and autonomous as
Q: What added value do technologies like Advanced
well as to seize all growth opportunities. North America
Metering Infrastructure devices bring to the grid?
is the second largest region in the world for Schneider
A: One of the biggest problems facing us today is a
Electric. Mexico is in the top 10 for the region and after 70
disconnected grid. As a result, less than 50 percent of the
years in the this market the best way to keep growing is to
power generation capacity of the world’s utilities is used
invest in the expansion of existing facilities, as well as new
and about a quarter of the time, less than 50 percent of
ones. In some cases the goal is to improve and facilitate
the transmission and distribution capacity is used. We
a tailored supply chain and make more space available
need a digitally connected energy grid, from generation
for engineering on demand. Today, Schneider Electric’s
to transmission to distribution to consumption, driving
operations in the country export about 80 percent of its
increased efficiency. We believe that digitalization can
production to Canada and the US, while 20 percent stays
make our lives and value chains simpler. There has been
in the local market.
a sharp uptake in the adoption of smart power meters around the world. Applications like Advanced Distribution
Q: What technological trends are shaping the future of
Management Systems (ADMS) and Demand Response are
the energy industry and why?
digitalizing grids all over the world.
A: Energy demand will almost double in the next 40 years, stemming from the twin challenges of access to
Q: What are the major business opportunities Schneider
energy and the megatrends of urbanization, digitization
Electric sees in Mexico?
and industrialization. At the same time, we have to reduce
A: The oil market is a little slower because of fuel prices but
CO2 emissions by half to avoid irreversible damage to our
there are still interesting things to do, such as providing
planet. The only way to do that is to become three times
innovation and modernization of facilities. On the other
more efficient. From that point of view we see a future
hand, we have also identified the following strategic
that will be very different from today. This future will be
segments in which we are focused: commercial and critical
more electrical, more digitalized, more decarbonized
buildings, residential, industry and infrastructure and data
and more decentralized. No single entity in Mexico can
centers. Buildings, IT, industry and infrastructure represent
cure the country of its ills. We need to co-create our
70 percent of the world’s energy consumption. Almost all
future. That requires that the government, citizens and
our innovation is focused on bringing new business and
corporations work together so we can receive the benefits
operational value to these markets.
of technological transformation. The potential for efficiency in our world today is absolutely immense. Buildings offer
Schneider Electric is a technological solutions provider focused on
up to 82 percent unrealized potential for efficiency,
energy management. The company has a strong focus on innovation for
infrastructure offers 79 percent and industry has another 58
their products and strives to offer the safest, most efficient, reliable and
percent to offer. So there are big, achievable opportunities
sustainable technologies for their clients.
361
INSIGHT
POWER USHERS IN NEW TECH ERA JUAN KURI VP and Country Manager Mesoamerica at Siemens PLM Software
362
By many accounts, it is the best of technological times for
The division also is working to create engineering
power companies in Mexico. Liberalization is bringing in
development solutions for power generation processes. Its
the latest advancements from abroad, helping develop the
Computer Aided Design-Computer Aided Manufacturing
local market and ushering in an era of technology-driven
(CAD-CAM) software gives developers the ability to simulate
innovations, according to Juan Kuri, VP and country manager
the power generation process and all its engineering
of Mesoamerica at Siemens PLM Software. Kuri believes the
components to realize the optimal construction method.
transformation the Mexican power market is undergoing also
The data acquired from this software also allows companies
will present new opportunities to introduce best international
to optimize their methods and processes, making it a
practices to companies, boosting competitiveness in the
perfect fit for the evolving market, where cost-efficiency in
national industry and forcing local players to match their
production is not only desired, but expected.
competitors’ technologies and capabilities. “Technology in Mexico was quite underdeveloped but with the liberalization
As a global company, Siemens has several advantages over
of the market, companies are driven to optimize generation
its competitors but what makes their software solutions
processes
stand out is their portfolio integration. “One of the main
and
become
more
cost-efficient
through
technological developments,” he says.
challenges regarding software is the homogenization of solutions. Typically, software companies create specific
Siemens PLM Software, a business unit of Siemens
solutions that are different from each other so the next
Digital Factory Division, is a global leader in providing
challenge for them will be to create data management
Product Lifecycle Management (PLM) and Manufacturing
platforms to add value,” Kuri says. “Siemens, on the other
Operations Management (MOM) software. It has 140,000
hand, does not need these platforms because of the
customers worldwide and has sold over 15 million licenses.
diversity of our portfolio and the homogenization of our
These technologies have already had an important impact
data.” Despite the company’s size, its “best practices”
on transnational companies with different facilities all over
system ensures a close relationship with customers and
the world. Before, companies spent time and resources,
tailored solutions for companies that are unsure which
both staff and financial, to hire personnel to assess the
solution would best fit their needs according to the size
state of their facilities and measure or collect data. New
and nature of the business. “Assessment, technology
technologies allow companies to monitor their facilities
implementation and technical support are carried out
in real time, delivering immediate cost reductions and
either by us or our distribution networks depending on size
avoiding unexpected maintenance by detecting possible
and location.”
failures before they happen. “When a company has the ability to digitally monitor or simulate power generation
The company also strives to aid companies seeking to
processes, they can make better and more efficient
improve their energy management, which is considered
decisions thus helping their innovation processes,” says
one of the main areas of opportunity for growth in the
Kuri. Siemens' technological solutions portfolio addresses
power industry. “Siemens’ systems can interconnect with
the changes and challenges the power industry will face
companies’ systems and for us the right model is to adapt
as it continues to evolve. According to Kuri, the focus of
our software to financing systems like Enterprise Resource
Siemens’ PLM software division is power generation, but
Planning (ERP), allowing companies to have a dashboard
also the traceability needs in efficiency, energy control
that controls not only technical but also financial aspects.”
without power loss, specification and maintenance control
Siemens sees the Mexican market moving into a more
and techniques. “Traceability, a key added value from
enhanced technological era, with international companies
Siemens, allows companies to accurately monitor and
fueling the advancement by sponsoring various types of
acquire data to make their processes more efficient.”
technology and incentivizing their adoption.
VIEW FROM THE TOP
TROUBLESHOOTING THE INDUSTRY 24/7 PEDRO BERRIEL Director General of Power Electronics Mexico
Q: What added value sets Power Electronics apart from
Q: What innovative projects has Power Electronics
other suppliers?
developed for the Mexican energy sector?
A: Worldwide, Power Electronics is used to competing
A: We are analyzing the possibility of developing a
with large-scale companies such as General Electric,
seawater desalination plant powered by solar energy,
Siemens or ABB, which have long been present in the
making saline water drinkable through a reverse osmosis
market. Our company was founded 28 years ago as a
process. The project is being planned for Baja California
family business, establishing excellent customer service
because this region has particular challenges regarding
as Power Electronics’ differentiating factor. Providing
water and electricity resources. In terms of connectivity,
excellent aftersales service remains the core added value
the Baja California peninsula is considered an island since
of our business and all our employees are trained under
it is not connected to the National Electric System, but
this philosophy. Power Electronics offers uninterrupted
at the same time it has one of the largest solar parks in
customer service, available 24 hours every day of the year.
Mexico, located near to where the desalination facility
From the Director General to the field technicians we are
would be. In the same region, we are developing a solar
always ready to attend our customers’ inquiries, no matter
PV project in collaboration with GRUPOTEC, which is in
the time, which is something that no other company can
the final stage. So far, the desalination project remains on
offer. We are not the cheapest option in the market but we
hold because we still need to figure out certain bankability
offer the best service. That is why companies like CEMEX,
aspects. We are certain this project will be executed
Baker Hughes, PEMEX and AHMSA have selected Power
because the distribution of drinking water across the
Electronics as their preferred supplier.
peninsula is extremely complicated and water demand is projected to increase.
Q: Power Electronics is a leading supplier of frequency drives. What are their most popular applications?
Q: What position does Power Electronics want to hold in
A: Low and medium-voltage drives, also known as variable
the future Mexican energy sector?
frequency drives, are used to regulate a motor’s speed to
A: In Mexico’s energy industry, our focus has historically
optimize its energy consumption. In Mexico we have used
been on the oil and gas sector but we expect energy
this product in different industries, including the mining and
generation, with particular focus on photovoltaics, to
oil and gas sectors. For instance, we have installed a number
become increasingly important for us. Our goal is to
of variable frequency drives in PEMEX’s facilities where
provide 25 percent of the inverters that will be installed
electrical centrifugal pumping is used to extract oil from
in solar projects in Mexico and we are now working to
wells, an increasingly important application as the artificial-
adapt all our equipment to suit CRE’s interconnection
lift technique is now used in most Mexican oil fields.
requirements. After the results of the first long-term power auction we expect the photovoltaic market to grow
Our solution controls the pump’s speed according to
strongly in Mexico, surpassing other renewable energy
the underground conditions, using only the amount of
sources, which will be beneficial for the country’s energy
power required at a particular point. In the renewable
system and the companies that are working in this sector.
energy industry our drives are used in thermal solar
On the industrial side, we expect to continue working with
power plants where a fluid is pumped through a pipeline
current and potential clients, providing the best solutions
network to absorb the sun’s heat, which is concentrated
in the market.
by a structure of mirrors. In this application, our solutions control the pumping of the fluid according to the plant’s
Power Electronics is a Valencia, Spain-based service provider and
requirements. However, we have not yet introduced this
manufacturer of power equipment. Their portfolio includes ignitors,
application in Mexico.
high and low-tension speed shifters, inverters and solar stations.
363
VIEW FROM THE TOP
CHINESE ENTRANT HELPING TO BREAK QUALITY MYTH SANTIAGO QUINTAL General Manager of Provoltaje (Chint Mexico)
364
Q: Why did Chint open a subsidiary here and what is the
We are mostly targeting the electricity distribution segment
strategy to position the brand in the market?
in the low and medium-voltage ranges but we also cover
A: The company is focusing on emerging markets to
high-voltage applications. We see great potential in this
expand its business, with Brazil as its top market in Latin
market due to the number of power producers planning
America. Mexico’s structural reforms attracted Chint’s
to enter Mexico. We also have a wide range of products
attention because they opened new business opportunities
addressed to the renewable energy sector, with solar energy
for companies looking to enter the country, particularly
our main focus in this area. Mexico’s solar market holds
in the electricity sector. The Mexican government’s plans
great potential as it is growing due to the government’s
to expand the National Electricity System was another
clean energy policies and the competitive prices reached in
incentive for Chint to open a subsidiary.
the first electricity tender.
We divided our entry strategy into three stages. The first
We will use a different distribution strategy for each
step is brand recognition, in which we look to homologate
business unit because we will be dealing with different
our products with all the quality certifications required by
target customers. For instance, in the low-voltage market,
national institutions. We also evaluate all specific norms
we will work with a network of partner distributors as well
established by private market players to identify additional
as system integrators, which will take our products and
conditions we need to comply with. Our objective at this
install them according to the end user’s requirements. In
stage is to consolidate our brand and comply 100 percent
the case of high-voltage applications, we are planning to
with Mexican quality regulations. The second step focuses on
work with EPC companies, which are in direct contact and
expanding our business and earning market share according
offer integral solutions to end users. We can help EPCs
to Chint’s scale. Opening local manufacturing units will be
to increase their competitiveness, offering high-quality
the last step in a long-term plan for the company.
products and services with short response times.
Our entry strategy is based on high-quality products and
Q: How are you dealing with the changing market
services both in sales and aftersales processes, offered
conditions promoted by the Energy Reform?
at competitive prices. Chint is among those companies
A: The Energy Reform has provided the right guidelines for
breaking the myth that products made in China cannot offer
developing a strong energy sector in Mexico, but the market
high quality. We are a world-class company able to comply
is moving slowly as it is still in a consolidation stage. Mexico
with international quality standards, two characteristics
has set ambitious goals regarding the liberalization of a
that have allowed us to become a top equipment supplier
new energy market and to succeed it needs all participants
in different markets, something we expect to replicate in
to get involved. We are positive however, that the market
Mexico.
will take off shortly, which was one of the reasons behind Chint’s decision to make a strong bet on Mexico this year.
Q: What are the main opportunities here and what is your strategy to reach new clients?
Historically CFE has been the main client of electric
A: We compete in different segments of the Mexican
equipment suppliers in Mexico, particularly of those
electricity sector thanks to the high quality of our products,
working in the medium and high-voltage segment. In
which are certified under different international standards.
spite of the market liberalization and the legal separation of the company, we expect CFE to continue as the most
Provoltaje is a Mexico City-based electric material distributor and a
important customer in the industry, at least for the next
direct partner of Chint, the largest electric equipment manufacturer
four to five years. We are also seeing an increasing range of
and service provider in Asia
opportunities in the private industry.
Q: What makes Chint different from the wave of Chinese
senior staff is a great complement to our strong base of
companies that are entering the solar market?
young employees, easing the transfer of knowledge and
A: We are entering the solar energy market through different
expertise building in the company.
project developers, constructing solar parks in the north of the country. We can provide project developers with all the
China and Mexico have several cultural differences but
equipment needed to complete solar plants successfully,
share the common objective of contributing to sustainable
including panels, inverters, wiring and switchgear. We also
development. Having a common goal helps to move
can provide aftersales engineering services.
forward joint ventures in spite of cultural differences. Chint has developed energy programs in low-income regions of
One of the companyâ&#x20AC;&#x2122;s competitive advantages is that it
China to achieve a positive impact in those regions. Once
produces all types of devices, being a one-stop shop for solar
we are consolidated in Mexico we expect to launch a similar
project developers. Most of the Chinese solar companies
social-energy program, further contributing to Mexicoâ&#x20AC;&#x2122;s
working in Mexico only provide certain components for the
economic and social development.
project and usually lack the equipment and wiring required for electricity distribution. Chint can supply it all.
Q: What would you evaluate as a positive outcome for your company in the next five years?
Q: How does the Chinese economic vision integrate with
A: Asian investment in Mexico has evolved differently from
that of Mexico and how do you deal with the cultural
that of North America or Europe. Japan and Korea were
differences?
some of the first Asian countries to enter the Mexican
A: We have highly specialized staff covering different areas
market and they still hold an important presence here. China
of expertise, some with over 30 years of experience. We
is now gaining importance in different sectors, particularly
even hired some employees that had recently retired from
in the electricity industry. Soon we expect to hold a market
CFE and other major companies in the sector. Chinese
share similar to what we have in other countries. In the low-
culture values experience and human resources, two
voltage segment, we forecast a small participation of around
aspects that we have integrated into our corporate culture.
3-5 percent, as it is a tightly closed niche with two major
We know some companies avoid hiring senior employees
companies dominating the market. In medium and high
but we prefer to acknowledge their potential and take
voltage, we expect to reach a higher percentage in the next
advantage of their wide experience in the industry. Our
four to five years, accounting for 10 percent of the market.
365
VIEW FROM THE TOP
SMART SOLUTIONS ALLOW FAST ACTION MAURICIO TOACHE Director General of SEL Mexico
366
Q: What are the weaknesses and strengths of the
developed 10 years ago. We integrated the complete
National Electricity System and how can it evolve into a
system under the IEC-61850 standard to become one of
smart network?
the first companies in the world to integrate multivendor
A: CFE has been investing heavily in the modernization of
solutions for wind energy projects. Since that time,
the electricity network for the past few years, especially by
we
installing technologically advanced protection and control
energy companies by providing control and protection
devices, but there is still room for improvement. SEL has
equipment for solar parks and wind farms. In the future,
been developing smart grids since before the “smart”
the integration of a larger share of renewables into the
concept was adopted by the industry. We have long used
country’s energy mix is expected to add complexity to
digital devices in our projects, including communications
the electricity network because most renewable sources
features. We have enough elements to interconnect
are intermittent. In this way, the main challenge will be
devices in a substation or across regions, with the purpose
developing solutions to match supply with electricity
of controlling different situations according to certain
demand. There is still doubt about the effects that
conditions. In a network, different elements need to be
renewable energies can have on the quality of electricity,
interconnected to create a smart system, including devices
particularly if distributed generation rises in the country.
at the generation, transmission and distribution stages.
Nonetheless, better filtering and conversion devices have
have
continued
to
collaborate
with
renewable
been developed to help renewable power generators Most of the solutions we are developing for smart grid
reduce disturbances in the system and this is an area in
applications, such as synchrophasor or monitoring devices,
which we can provide added value. We want to play a role
identify and control the state of the system on a real-time
in the energy sector’s transition by defining solutions that
basis. Nowadays, most control systems make decisions on
take potential disturbances into consideration to facilitate
estimated data, which is time-consuming and inaccurate.
the fast adaptation of renewables into the grid.
We want our solutions to improve this process, allowing developers to solve problems as quickly as possible. The
Q: In which areas does SEL expect to see greater demand?
company is introducing relevant innovations to smart
A: We expect to see an increase in demand from industry
network development like our Software-Defined Network
players producing electricity as a byproduct of their
Switch, used for monitoring, communication and to control
processes, such as a mining company with no expertise in
the performance of the electrical system’s components.
power generation that produces electricity from its excess
This allows faster recovery of communications used in
heat. In addition, we expect EPC companies to continue
integrated electrical systems, improving response times
being an important part of our business. Even though
to changing conditions. The faster companies can take
construction companies are strongly oriented toward the
action, the faster the system can be stabilized, allowing
lifespan of a project while we focus mainly on the system’s
more load to be served.
lifetime, we can contribute to the successful development of a project by avoiding cost overruns and delays related to
Q: How can SEL’s technologies help ease the transition of
performance. We also forecast an increase in demand for
renewables into the energy mix?
automation solutions that address the distribution network.
A: We have a long history of working with renewables.
The purpose of these solutions is to enhance the security
The La Venta wind farm was one of the first projects we
of utility operations and the response time for service continuity and maintenance. In this area, online monitoring
SEL invents, designs and builds digital products that protect power
of assets and network elements also will gain importance,
grids around the world, preventing blackouts and improving the
allowing operators to control their systems to prevent or
reliability of electric systems.
solve any potential failure.
INSIGHT
STANDARDIZING THE INDUSTRY WILL PROMOTE INNOVATION ABEL HERNÁNDEZ CEO of ANCE
Monitoring and setting standards sounds far removed
ANCE sees Mexican authorities like the CRE putting in
from the innovative work happening in dynamic sectors
a remarkable effort to resolve complex issues. “Mexico
like energy, but for industries to thrive and make the
is responding, in regulatory terms, to the best practices
most of their talent and resources, certification and
recommended
standardization are critical. Companies like Mexico’s
Cooperation and Development (OECD) in terms of
ANCE work in the background to help set the parameters
governance, with autonomous regulatory entities not
and reduce wasted effort, according to the firm’s CEO
beholden to the incumbent administration and a well-
Abel Hernández. ANCE, a company with over 20 years of
defined, long-term outlook,” Hernández says.
by
the
Organization
for
Economic
experience in the certification business in Mexico, helps incoming companies adapt to the rules and regulations
The firm, which is qualified to help with certifications
of the new energy market. The firm acts as a facilitator
such as ISO 50001 for energy management systems, sees
with deep knowledge of the business and also networks
the changes happening in the country’s power market
with regulators to help them modernize the regulatory
creating openings for third-party authorized units to
framework.
help both industry players and regulators increase their efficiency. “In this changing environment, the role of
Innovation, Hernández says, moves the world by
third-party authorized units is to support regulators as
working
mostly
they inspect new players and to certify their performance
international ones that allow for more efficient use of
parameters, especially since regulators cannot cope with
resources. International standards “help reduce the
the demand for these services on their own, particularly
innovation curve by setting the requirements for use
not after the budget cuts. This is why entities like ours
of each product,” he says. “From there, after validating
exist: to guarantee trust,” Hernández says.
within
predetermined
standards,
a product’s usefulness, you can see the margin for improvement.” Companies like ANCE are very much in
Inspection and standardization are best practices to be
the thick of this modernization process and paradigm
followed. “We see a great opportunity as a facilitator.
shift. “Our role,” he says, “is to standardize products and
Our main component is standardization and support with
subsystems designed to work among greater systems
technical regulations. In the case of energy we work with
for optimal energy performance. There is very intense
the Ministry of Economy on general goods and we work
activity coming Mexico’s way in terms of the Internet
with CRE’s consultative committee on normalization,
of Things (IoT), smart grids, smart houses and other
where we are working on the grid’s technical standards for
such technologies and it all depends on standards and
safety, efficiency and sustainability.” In five years, ANCE
regulations.”
would like to boast about the regulatory work it did to help accomplish the government’s goals through CRE’s
Updating Mexico’s aging and previously monopolistic
consultative committee and also to become a leader in the
electric
inspection business in energy interconnection for the main
infrastructure
to
fit
a
more
dynamic
and
interactive market is complex. “It is not enough to graft
load sites, Hernández adds.
microprocessors and software. The infrastructure itself, the towers, cables and nodes need updating to reach
Projects like the inspection of a high-voltage transmission
the objective of efficiency, safety and sustainability,”
line in the Tehuantepec Isthmus, launched in late 2016, and
Hernández
toward
even the load site for the New Mexico City International
innovation, with smart meters and substations, as well as
Airport (NAICM) could be right down ANCE’s alley. “These
transmission lines that not only carry electricity but also
large projects interact with the electricity grid so they also
telecommunications services, he adds.
have to be inspected periodically.”
says.
Mexico
is
also
working
367
INSIGHT
MADE IN MEXICO INNOVATION ROGER VIERA CEO of Pounce
Mexico has long held a reputation as a high-quality
listed on the NASDAQ stock exchange. “We are particularly
manufacturing
Mexican
keen on Quadlogic’s smart metering products because they
companies is working to help the country make a name
have proven successful in previous projects in the US,” says
as a center of innovation.
Viera. “We have won two important contracts for replacing
hub
but
a
new
wave
of
CFE’s traditional meters with smart devices and we also Pounce is part of the groundswell. The company holds
have two large contracts in Jamaica and Colombia.”
more than 150 patents, a large share of which has been
368
developed from scratch in the country. Pounce also has
All Quadlogic’s smart meters include patented frequency-
the manufacturing capabilities to transform ideas into
agile Power Line Communications (PLC) technology, which
actual products, which has allowed it to develop successful
Viera intends to mass market here. “Mexico continues
goods for different sectors, including energy.
using radio frequency technologies while the rest of the world is moving to PLC. That is concerning,” he says.
“Energy is one of our main market segments at the moment, so we are working strongly on developing
The company has also had success designing and
innovative products for this sector, such as smart meters
manufacturing a variety of solutions for the energy
or tailor-made solutions for companies in the power
sector. One flagship design is a turbine control-panel
sector,” says Roger Viera, CEO of Pounce.
integrated solution that Pounce designed for Californiabased Capstone. It involved creating new firmware,
Solar-powered street lights and smart meters are two
hardware and mechanical parts in harmony with previous
products Pounce highlights for the energy sector. The first
and current Capstone turbine models. Pounce’s new
is an in-house design, created with the goal of helping
control panel was successfully integrated while reducing
municipalities decrease their street-lighting costs while
Capstone’s production costs by 50 percent. “Our goal is to
reducing the environmental impact.
reduce production costs while maintaining the products’ high quality. We want to be competitive at a national and
“We are proud of our street-lamp design. In addition to
international level,” Viera says.
light, it can provide between 200-240kW of energy at low marginal costs, which can also be used by municipalities
The solar-tracking electronic system Pounce developed
to reduce their energy expenses. We think our product
for Inventive Power, a Mexican company producing
will revolutionize the way municipalities look at street
Concentrated Solar Power (CSP) solutions, is another
lighting,” Viera says.
innovative product. Pounce’s electronic card integrates solar-radiation sensors and motor controllers to move the
The lamp design includes a solar panel manufactured
thermal collectors and maximize their production output.
in Mexico, LED lights from Munich-based OSRAM and a
Pounce’s solution simplified the mechanical control
patented battery that Pounce developed in a joint venture
system while integrating a new family of sensors that can
with electric car and battery-maker Tesla. “We have just
calculate the Sun’s trajectory regardless of location or
created a solar street lamp that can work continuously
time of the year.
without being connected to the grid. It uses a patented long-term battery that we developed with Tesla so the
Pounce’s record has allowed it to grow substantially
lamp can provide uninterrupted lighting.”
during the past year. “We sold MX$3 billion in 2016. That represents 10 times more revenue than in 2015 and is an
Pounce’s smart meters were acquired when the company
indicator of the company’s great potential. This year we
bought 51 percent of Quadlogic, a US-based company
expect to grow at least 10 percent more,” he says.
VIEW FROM THE TOP
YOUNG BRAND PURSUES MARKET TRUST GABRIEL HERNÁNDEZ Director General of Sigma Solutions
Q: As a Mexican company, what strategy are you following
payment culture. We are following a similar strategy to
to succeed in the market?
the telecommunications industry in which the service is
A: Our main challenge is to earn the market’s trust because
interrupted immediately when payment goes overdue.
many customers do not believe Mexican companies have
CFE waits up to 40 days before cutting unpaid services,
the same level of technology, service and cost-competitive
which does not help to promote an efficient payment
prices as foreign businesses. Sigma Solutions was founded
culture. Some states in Mexico do not fulfill their financial
in 2009, so another challenge is to establish our brand
responsibilities with the state-owned utility, such as
in the market as a young company. It is hard for us to
Tabasco and Mexico City. But there are several ways CFE
compete with large players but we have proven that we
can address this problem and we are excited to be part
can develop innovative products with the same quality
of the solution.
as larger companies. We provide field support every time we make a deal because we want to ensure our products
Q: Why is it important to invest in R&D and what is the
are installed properly. Sigma Solutions always provides
company doing to foster innovation?
training to customers. We explain the advantages of our
A: A company’s success lies in the development of new
products and how to use them correctly to make sure they
products. If a company does not innovate, it will not
are comfortable with our work. It is especially important
meet the future market’s demands, which change every
for us to ensure that customers are fully satisfied with the
day. Our goal is to get at least 20 percent of annual
quality of our products and services because we are a new
revenue from newly developed products, which can be
company competing with renowned brands.
challenging because it takes hard work to develop and launch new solutions every year. We started collaborating
Q: What solutions has the company developed for CFE
last year with CONACYT to install a laboratory in Puebla
and how does the commission contribute to Sigma’s
to design and develop new products. The total investment
competitiveness?
required for this R&D facility was over US$350,000,
A: CFE has been one of our main customers. The
which was covered by CONACYT and ourselves. It will
Commission’s strategy is to support Mexican companies
give us the ability to test our products and compare
and they believed in us. We have specially designed
them with those of the competition. The facility also will
products to meet the state-owned company’s needs,
allow us to demonstrate the quality of our products to
including an electrical connector that can work up to
customers. All our R&D budget comes from reinvestment
two years instead of just six months in areas with high
of past profits into new product development, allowing
levels of corrosion and pollution. This product was
us to innovate constantly. Sigma usually expects a two-
relevant for CFE because it allowed the company to save
year period to recover our investment after we launch a
money in locations with these kinds of problems, such as
new product. We consider this period enough to test a
Coatzacoalcos in Veracruz. Anti-theft boxes existed prior
product’s viability. Companies need to be patient when
to us entering the market but we innovated the design,
testing a product’s market potential. The outcome of our
aligning the case with the electricity distribution system,
investment depends on business and market conditions
unlike previous designs where the case was a completely
but we always make sure all our projects make financial
different element. We started selling these cases to CFE
sense, at least on paper.
in 2010 and now have 90 percent market share. Electricity theft is a colossal problem for CFE and it has targeted a
Sigma Solutions is a Mexican technology solutions provider with a wide
3 percent annual reduction. CFE invested a considerable
portfolio of innovative and cost-competitive products for the energy,
amount of resources in this technology. We are also
oil and gas, water management, infrastructure, lighting and health-care
developing a product to help CFE change the country’s
industries.
369
VIEW FROM THE TOP
TRANSFORMING THE INDUSTRY ONE INVERTER AT A TIME
Leslie Tan General Manager of the Smart PV Business Division (Latin America) at Huawei
David Sánchez Sales Director
370
Q: Why did Huawei leap from telecoms to energy and what
LT: Mexico is a large market with strong potential because
competitive advantages are gained from being in both?
of its population and energy requirements. It is a tough
LT: Even though we are starting to enter the PV sector in
market for solar businesses but given the implementation
Latin America, our experience in the energy industry is not
of the Energy Reform we see it as an important segment
a recent development. For many years we have provided
in the next three to four years. One of the main challenges
energy infrastructure for the telecommunications sector,
for Huawei is user habits. In Latin America the market
especially in remote locations that have no power supply.
for PV inverters has not blossomed as much as in other
In Mexico we work with Claro Americas providing end-
countries and investors lack experience or knowledge
to-end solutions for that type of technology. We are also
of new technological trends. So it might be difficult to
close to PV technology; last year Huawei topped the global
explain its benefits. The first step for Huawei entering
solar PV inverter shipment rankings. The main value from
Mexico will be to apprise the players of the benefits of
Huawei telecommunication and IT technology is Big Data
Huawei’s technologies and solutions.
management, which will eventually be the most important element for power generation. Huawei’s new and innovative
DS: We are confident about our product’s quality and
technology will help our customers optimize and control
competitive prices and we have a well-prepared local team
their energy production processes, which will be key for the
that knows the market and its needs. But we are still a fairly
development of solar energy in Latin American countries,
unknown brand in this country and we have a product that
given the lack of government subsidies in the region.
is not common in the national industry, so we are working
The record-low prices seen in Mexico in the past power
on promotion and product awareness. Solar developers in
auctions mean companies require a high-tech complement
Mexico are used to installing large and inefficient central
to survive in such a competitive environment.
inverters, which we want to replace with Huawei’s string inverters. It will be challenging to transform the industry’s
DS: Huawei entered the telecommunications sector early in
habits but we are confident of success once developers
the 21st century, transforming itself from a small company
realize the monetary savings offered by our product.
to a tech giant with annual revenues of US$50 billion. The company’s growth drove Huawei’s directors to diversify
Q: How will your unique technological expertise and
their business, which coincided with the solar energy boom
innovation impact the development of the power market?
in Europe and Asia in 2010. During this period, a number of
LT: The auctions’ winners are facing the challenge of
solar energy companies appeared on the market, prompting
producing energy at the bidding cost they were awarded,
Huawei to incorporate this sector into its business portfolio.
which means they will have to optimize their processes to
The technological expertise Huawei had accumulated from
lower their levelized cost of electricity (LCOE). Many people
the IT industry allowed us to grow rapidly in solar and we
mistake CAPEX for the LCOE alone but it is important to
now are one of the top manufacturers and distributors of
calculate the LCOE formula correctly, especially now that
solar energy components.
technology costs are dropping every day and looking at CAPEX alone will not be enough anymore. Through our
Q: What is Mexico’s role in Huawei’s global portfolio
innovative solutions Huawei can help customers optimize
and what challenges have you encountered entering the
production and improve their OPEX along the projects’
market?
25-year period of operation.
and
Q: What does “smart” mean in the case of energy
communications technology (ICT) solutions provider and an emerging
solutions and how does Huawei integrate this vision into
player in the field of electricity solutions.
its products?
Huawei
is
a
Chinese-owned
leading
global
information
LT: The solar inverter is merely the hardware we provide
Q: How do industry trends influence your R&D strategies?
for our PV solutions. The real key to making power plants
DS: Huawei invests between 15-25 percent of its revenues
smart is Huawei’s software. Traditionally the inverter’s
in R&D, depending on the department. This is a strategy
function was to convert DC to AC, but after we combined
that has set us apart from the competition. Investing in
it with information and communication technology (ICT) it
technological innovations allows us to have the best
transformed into a controller with the capacity to collect
products on the market, which pushes the company to
Big Data. The data allows easy and accurate visualization
adapt to new trends. In 2014, Huawei decided to stop
for better control. The data will be transferred through
manufacturing central inverters as a result of the industry’s
power
demand for more efficient components.
line
communication
technology
(PLC)
for
processing. The software, called NetEco, and its function of Smart IV Curve Diagnosis will identify the causes of
LT: Year by year the whole industry is shifting from central
failures and suggest methods and techniques to further
to string inverters. Since 2008 the percentage of string
optimize production.
solutions has been higher than central solutions, a trend which will continue. Huawei is the most important player
DS: For Huawei, developing smart energy solutions
in this area. We are the only company that offers string
consists of designing products addressed to optimize an
solutions at the utility scale.
entire project’s performance in terms of both costs and production. A smart solution does not only consist of one
Q: What are the company’s expectations for the solar
product but in a range of components and accessories
industry in Mexico?
arranged to improve the plant’s operations. In this area,
LT: In the next two to four years, Mexico will become the
Huawei’s IT expertise comes into play as many of the
largest market in the solar business. Huawei will keep
technologies
innovating and bringing more value-added products to
developed
for
the
telecommunications
sector can be applied to solar energy solutions.
promote the development of the market. In the first phase our main targets are utility-scale projects. We hope to release
Q: How has Huawei addressed the communication speeds
our new series for residential scale by the middle of 2017.
of string inverters? DS: It could be said the weakest technological point
DS: It is difficult to predict the future behavior of the
of a string inverter is communication speed. Central
solar industry at this moment. We see an interesting but
inverters use Ethernet connections while string inverters
aggressive market with fierce competition. We expect
use RS-485 connectivity, which is not conducive to fast
significant growth in the Mexican solar energy industry,
communications. To overcome this challenge Huawei
mainly driven by the liberalization of the sector. As a
designed a system based on PLC, which avoids the need for
components supplier we feel deeply positive about our
RS-485. Our product offers 10 times faster communication
future here, particularly considering the high quality
than regular string inverters, which is attractive to
and innovative features of our products. Apart from
technicians and developers working in the solar industry.
supplying high-tech components, Huawei also can help
In Mexico, where PPAs are offered at considerably low
our customers with presales and aftersales services, a part
costs, using efficient technologies becomes relevant for
of our business we expect will become important in this
maintaining the project’s profitability.
country, too.
Largest tracking system in 700MW PV plant, Ningxia (China), Huawei
371
VIEW FROM THE TOP
INNOVATIVE TECH DRIVES REVENUES HIGHER
Alejo López Sales Director Mexico and Central America of NEXTracker
372
Kristan Kirsh Director of Marketing Communications of NEXTracker
Q: What drove the successful installation of 3.8GW of the
which mean higher revenues through the life span of a
company’s single-axis trackers in under a year?
project. Also, over the past four to five years the cost of
AL: There were three main drivers, namely the impressive
solar trackers has dropped significantly so the use of fixed
growth of the solar industry in the past couple of years,
arrays no longer makes much economic sense in most
NEXTracker’s aggressive approach to emerging markets
cases. If you analyze the solar projects that won in the
such as Chile, India and Mexico, which positively impacted
first auction, over 95 percent were designed with a single-
our business, and the recognition by project developers
axis tracker to meet those competitive Power Purchase
and EPCs that trackers are no longer a risk factor but a
Agreements (PPAs) while delivering acceptable returns. In
tool to boost returns. NX Horizon, our single-axis tracker, is
Mexico, we consider most regions to be suitable for the NX
designed to reduce the life-cycle costs of a PV plant while
Horizon. So far we have worked on the Los Santos project
delivering more power than our competitors’ product. This
in Chihuahua, which was successful, and we have more
added value is the major driver of NEXTracker’s growth.
in the pipeline for 2016, including most of the winning
Our company’s focus is to improve our products and to
projects from the first auction.
provide the best services to help our clients increase their project’s ROI and bottom line. In 2016, a report from IHS
KK: NX Horizon is particularly advantageous when the
listed NEXTracker as the market leader in North America,
project has land constraint issues. Our product has been
surpassing Array Technologies, our main competitor,
designed to maximize the capacity of restricted locations
by 22 percent. This is one of the company’s biggest
such as farmlands. By avoiding the use of central drivelines,
achievements of the year.
NX Horizon allows for different row configurations, optimizing land use and power production, which results in better ground coverage ratios. Most of our competitors use a square block that needs to be installed on flat land, requiring a ground grading process that is costly and has negative environmental impacts. NX Horizon has significantly higher terrain tolerance that impacts costs and the project’s viability.
Over 95 percent of solar projects that won in the first auction were designed with a single-axis tracker
Q: How has Flextronics’ acquisition of NEXTracker impacted the company? AL: NEXTracker was acquired in October 2015 by Flextronics, a global manufacturing company present in over 30 countries, including Mexico. Flextronics was attracted to NEXTracker and our solutions platform, which the company saw as complementary to its
Q: To what extent is NX Horizon attractive to project
existing products. We expect Flextronics’ expertise in
developers in Mexico, given its solar resources?
manufacturing and economies of scale to drive part of
AL: In general terms, solar trackers provide 20 to 25
NEXTracker’s growth in the near future, allowing us to
percent higher production rates than fixed-rack systems,
continue improving our products while lowering our production costs. In Mexico, we are taking advantage
NEXTracker builds and services advanced single-axis solar trackers for
of Flextronics’ facilities to produce our controllers in
power plants, which help harvest the Sun's energy more efficiently and
Guadalajara as part of our strategy to reduce delivery
at a lower cost.
times by increasing regional manufacturing.
INSIGHT
TIME-CRITICAL LOGISTICS FOR ENERGY PROJECTS JUSTIN FACEY CEO in North America, Central America and the Caribbean of TIBA
Like many other companies, TIBA expects 2017 to be
dealing with these materials becomes very valuable for
the year when renewable energy projects in Mexico take
our customers in Mexico.” The company relies on its team
off. Even after an increase in the demand for PV panels
of experts to comply with the strict timetables these
logistics management and shipping, they are confident the
projects face. “We have the human resources, experience,
trend will not only continue, it will also spread into other
specific divisions and most importantly, we handle the
types of energy technologies. “Right now we are being
whole logistics chain so we do not depend on third
contacted by PV and wind power companies seeking to
parties to guarantee our services,” he says.
develop projects and looking for advice on storage and management,” says Justin Facey, TIBA’s CEO for North
A major challenge for these technologies involves
and Central America and the Caribbean.
geographic location. Besides often being located in remote locations with difficult access, some of these
The logistics, customs and transportation company has
projects’ locations are unsafe. “Security is an issue in
great expectations forabout the upcoming years in the
some parts of the country where these projects are
Mexican market. “As Mexico evolves, TIBA evolves. We
developed such as Sinaloa, Baja California and the north
can handle any type of logistics management in energy,
of Mexico,” Facey comments. Through TIBA’s current
automotive, liquids and other specific divisions that
presence and ambitious expansion plans for the country,
require a high degree of specialization,” Facey adds. TIBA
the executive says the company has acquired enough
expects to open an additional eight to 10 offices in the
local expertise regarding local conditions and terrain
coming 12 to 24 months, which will be added to the 11
to help with any road transportation issues companies
offices they already have in Mexico, so as to be closer to
might face. Customs bureaucracy is another area where
their customers.
companies can find obstacles for renewable energy projects’ development, as restrictive procedures can slow
As the country opens up to new opportunities in the
the flow and increase expenses.
power market and renewables rise in the Mexican energy matrix, these technologies face diverse challenges. Facey
As for upcoming projects being developed following
explains that the lack of options in experienced logistics
the power auctions, Facey says they could also run into
operators in Mexico is one of the biggest problems for
problems related to insufficient infrastructure. “Mexico has
project developers. “Mexico has not traditionally been
a problem with its ports and roads infrastructure. There
a country with a large amount of solar panels or wind
is a general saturation in ports such as Manzanillo and
turbines, so subsequently the experience of logistics
Veracruz.” Facey believes this is one of the reasons why
operators in these fields is limited,” he says. TIBA is a
logistics and transportation are so important in a time-
logistics operator specialized in sea, air and land freight
sensitive context. “When you have 300 containers coming
with almost 20 years of experience in Mexico and
in, you have to be sure how your logistics are going to
previous successes in similar projects in countries such
work out, how fast you can get them through customs and
as Spain and Chile, making them one of the few logistics
how many trucks you are going to need to move them.”
operators with the expertise to address new energy projects. TIBA’s expertise allows them to choose any
TIBA has proven experience with energy projects with
project in the energy market, but Facey notes that their
companies such as Gas Natural Fenosa. Their most recent
focus is on wind and solar projects. “Those are the two
accomplishment was the logistics management of a 126-
areas we have the most experience within our renewable
ton gas turbine from Tuxpan to Atlanta as part of a very
projects division. In wind power generation, for example,
time-sensitive maintenance project, which they managed
there are oversized blades, so the experience we have in
to keep ahead of schedule, to their client’s satisfaction.
373
TECHNOLOGY SPOTLIGHT
374
CO-PROCESSING COULD HELP REDUCE WASTE-RELATED RISKS Every year from 3.4 to 4 billion tons of waste are produced around the world. Less than half is not processed, just confined. Every year, Mexico is estimated to produce 86 million tons of waste, including hazardous, urban solid waste, special management and hazardous waste. Co-processing is the best alternative for waste management and could help reduce the risk of badly handled waste and the emission of millions of tons of CO2 annually. Geocyle México, as part of the Lafarge Holcim Group, a world leader in the building materials industry, is determined to contribute to CO2 reduction efforts, targeting a decrease amounting to 30 million tons of the pollutant globally by 2020. Geocycle México started as Ecoltec in Mexico in 1994 and launched as a new brand in July 2016 with its co-processing solutions for companies and governments to manage industrial and urban waste. The company has 188 co-processing installations/facilities, over 2,000 employees in more than 60 countries on all five continents and 10,000 customers. Geocyle México strives to connect the private and public sectors to help companies improve their
environmental
sustainability
development
objectives.
It
and
offers
reach
their
state-of-the-art
sustainable solutions for waste management, such as co-processing. Through high-temperature industrial kilns, which are commonly used to manufacture cement, co-processing guarantees the complete elimination of residues. The process itself is environmentally friendly because it reduces greenhouse gas emissions while recovering energy and material. The company has a strict policy against special management waste such as hospital, infectious biological, radioactive, explosive or asbestos refuse. Geocyle México’s process ensures the disposal of waste in all industries such as automotive, pharmaceutical, chemical, oil, mining and cosmetic, as well as the urban waste of state and municipal governments. Not only does this process allow companies and governments to improve their environmental performance and reduce their carbon footprint, it also enhances any process by making waste disposal more efficient. Employing this process is also an opportunity to improve a company’s image by strengthening its reputation as devoted to bettering the future and leaving behind a cleaner world.
375
VIEW FROM THE TOP
CO-PROCESSING AS A WASTE MANAGEMENT ALTERNATIVE MIGUEL LADRÓN DE GUEVARA Director General of Geocycle Mexico
376
Q: What advantages does co-processing have over other
energy companies in the same way we do with other
waste-management processes?
industries, helping them to decrease their business’
A: In recycling, just one type of residue can be used per
environmental impact. The Energy Reform is expected
process and it must be thoroughly cleaned in advance.
to bring new and more players to the field, including
When the separation of residues is extremely complicated
international companies with good practices of waste
or impossible to perform, co-processing stands out as a
management. In Mexico, there are processes that are
suitable alternative. For instance, in the case of an oily rag, the
still carried out manually and in an inefficient way, which
energy and effort needed to separate the oil from the fabric
generates more residues, and the arrival of companies
complicates the recycling process, making it economically
with the right industrial practices could have a positive
unfeasible. By using co-processing, the waste would just
influence. Moreover, with the Reform we expect to see
need to be analyzed to ensure its suitability and made into
stricter environmental controls in the processes used in
fuel to fire the cement kiln. Co-processing decreases the
the oil and gas industry, which generates materials that
industries’ environmental impact by avoiding the disposal of
cannot be easily recycled and can be better disposed of
residue on sites where it can have negative effects, such as
by using co-processing. For example, we can take care of
water bodies. Co-processing offers a solution for handling
the zeolites used in the exhaust gas cleaning systems that
industrial waste, preserving scarce resources with a low
are generally installed in a refinery’s chimneys as well as
environmental impact while reducing pollutant emissions
handling drilling cuts.
and residue. It thus achieves a demonstrably superior environmental performance compared to landfilling or
Q: How do you expect the demand for co-processing
incineration. To conduct this process, we retain an exclusive
services to increase in the future?
partnership with the Lafarge Holcim Group.
A: Globally, co-processing is an increasingly used method for handling waste, which enjoys great popularity in Europe.
Q: What barriers does co-processing face in Mexico to
Currently Mexico has a 14 percent thermal substitution
become a widespread industrial practice?
rate, meaning that only 14 percent of the total incinerated
A: Mexico already has strong and thorough environmental
fuel corresponds to alternative materials. This amount is
laws. But it lacks stricter controls to ensure compliance of
negligible if compared with Sweden, for example, which
environmental regulations. For instance, several Mexican
has an 80 percent substitution rate. For us, the ultimate
states have already enacted waste separation laws but few
goal would be to reach these numbers because that is a
have control over the ways the residues are taken. Another
feasible scenario. On a daily basis, Mexico generates an
important barrier is the low level of awareness that waste
incredible amount of residues, enough to fill the Azteca
generators have at all levels. We are working to raise
Stadium in Mexico City (87,000 seats) several times. The
awareness about the inherent liabilities of inefficient waste
country needs to take waste management seriously or it
management and its potential impact on future generations.
will find itself facing serious space and health problems. So far, the industrial and commercial sectors have been
Q: To what extent are energy companies relevant to
improving their practices, partly due to pressure from
Geocycle's business?
their stakeholders, clients and the community. This trend
A: All industrial processes generate residues and the
highlights the relevance of enhancing environmental
energy sector is not an exception. We collaborate with
education. Mexican authorities need to evaluate and strengthen their current control systems, particularly
Geocycle is a global network of over 60 companies dedicated to waste
those related to landfills, to ensure that environmental
management and coprocessing, serving companies and municipalities
regulations are met. It is important for companies to
to better dispose of refuse.
include sustainability in their corporate visions.
INSIGHT
HELPING COMPANIES GO WITH THE FLOW JUAN HERRERA Director General of Hydrocon
When planning a project such as a power plant, a
managers or directors to properly oversee the numerous
main concern for developers should always be water
aspects involved in water management. Hydrocon’s
management. Because the industry requires large amounts
complete solution is valuable because it allows developers
of water, a plant’s location and assessment of water
to focus on their core business while Hydrocon supervises
quality and availability levels nearby become crucial to
the aspects related to water. “We take care of all processes
having a sustainable water management cycle, says Juan
and equipment in which water usage is involved, providing
Herrera, Director General of Hydrocon. “Having the proper
peace of mind to our customers. Earning our clients’ trust
chemical conditions is important in power production due
is one of our greatest achievements.”
to the high level of interaction between water and critical To offer a better service Hydrocon has also entered into
equipment,” he says.
alliances that could benefit its customers in the power Hydrocon has over 25 years of experience in Smart
industry, such as its partnership with GE Power & Water. GE
Water Cycle Treatment for diverse industries. In 2012, it
provides the strong technological approach reflected in its
underwent a rebranding as it implemented new strategies
Power & Water division. Its focus and high investment in
to approach the industry. “We realized that offering
R&D means all the equipment used in water management
integral services was necessary to generate an added
processes are based on cutting-edge technological
value for our customers, so we integrated this to solve the
advances, giving Hydrocon a comparative advantage
industry’s water-related challenges more efficiently.”
against its competitors.
The company created the concept of total water
The alliance is mutually beneficial. “Hydrocon supports
management as a new way of doing businesses. This
GE Power & Water by distributing its products in Mexico,
innovative scheme was designed to help companies
taking advantage of our presence in different states, with
improve their complex industrial water cycles. The process
local offices in 10 cities.” GE also benefits from Hydrocon’s
starts at the water source, where Hydrocon prepares the
specialized units, which attend the country’s most
water intake to suit industrial requirements. The next stage
important industries such as oil and gas, petrochemicals,
includes controlling water usage across the production
power and mining. “GE Power & Water saw the potential
process, this involves heat exchange equipment, cooling
of Hydrocon as a commercial network, identifying us as a
towers and heaters. Lastly is wastewater treatment, where
great partner to expand its presence in Mexico thanks to
the company discharges industrial water in compliance
our in-depth knowledge of the local industry and culture.”
with environmental norms or, when possible, reuses it. Hydrocon’s expectations for the Mexican market include Another key element in its strategy is the productive
the consolidation of its business model. It continues
unit model, where each business division contains
to enhance business procedures and quality systems.
a
section,
Hydrocon’s services and sales practices are already
allowing every unit to be self-sufficient, independent
certified under ISO 9001: 2008, and it is in the process of
and replicable. “We have two kinds of business units
implementing ISO 14000 and OSHA’s guidelines, to fulfill
divided by geographical location and industry served.
the company’s expansion ambitions. At the same time, it
Our geographical units serve unspecialized segments in
is bolstering its internal capacity, building a training and
strategic locations, while our industry-based divisions
learning center for its employees. “Our goal is to keep
focus on specific sectors of the Mexican economy.” As
strengthening our employees’ skills and knowledge to
power project developers are usually deeply concerned
offer even better services to our clients. Hydrocon is ready
with several aspects of production, it becomes hard for
for accelerated, sustainable growth,” Herrera says.
commercial,
services
and
administrative
377
Dominica II wind farm, San Luis Potosi, Femsa
INDUSTRY OUTLOOK
14
2016 was Ground Zero for Mexicoâ&#x20AC;&#x2122;s energy industry future, when many things happened for the first time. The future holds as many promises as it does risks. The emergence of a solid pipeline of clean energy projects is putting a lot of work in the hands of developers and authorities tasked with supervising and authorizing the construction of plants, while entities like CRE are still in the process of creating regulations to clear some of the remaining hurdles to complete the Mexican power sectorâ&#x20AC;&#x2122;s transformation.
In this chapter, expert analysts and market players ponder the future of the new power market from a financial, fiscal and technological perspective and offer their insights on what is needed to implement the next steps in talent development and sustainability. It also looks at what remains to be done for CFE and CRE to achieve a complete liberalization of the market.
379
CHAPTER 14: INDUSTRY OUTLOOK 382
ANALYSIS: New Power Mix Develops
384
INSIGHT: Juan Vargas, Deloitte
385
INSIGHT: Luis Aguirre-Torres, GreenMomentum
387
PROFILE: Alberto Mendoza, Tecnológico de Monterrey (ITESM) 381
388
ROUNDTABLE: What is the Best Way to Address Human Talent Issues?
390
INSIGHT: Héctor Olea, Gauss Energía
391
INSIGHT: Richard Wells, The Lexington Group
392
ROUNDTABLE: What will be the Highlights of 2017?
394
INSIGHT: Eduardo Piquero, MÉXICO2
Anna Asikainen, MÉXICO2
395
VIEW FROM THE TOP: Roberto Blanco, Hatzo Sustainable Cities
397
VIEW FROM THE TOP: Daniel Camarena, G2E
ANALYSIS
NEW POWER MIX DEVELOPS The Energy Reform has profoundly transformed the
support geothermal projects is likely to increase the number
Mexican electricity industry, reshaping the way power
of these power plants in the country. But the high capital
will be generated, transmitted, distributed and sold in the
costs and risks involved in the first stages of development
coming decades. There is no turning back. “The changes
continue to be a constraint for the further growth of this
made in the electricity sector are irreversible at this point,”
resource. With this in mind, the Mexican government expects
says César Hernández, Deputy Minister of Electricity. “The
geothermal to keep contributing around 2 percent of the
process is so advanced that it would be more difficult to
total electricity generated in the country.
stop it than to go forward.” The sleeping giant of 2016 was hydropower, with little The new mechanisms introduced by the reform along with
movement observed in this segment. Hydropower plants,
the technological changes that have lowered solar and
nonetheless, hold the crown as the largest renewable
wind energy prices to record lows are likely to boost clean
energy source in Mexico, accounting for 18 percent of the
energy production in Mexico beyond pre-reform forecasts.
total capacity installed in 2015. Although some growth is
The first two long-term power auctions held by CENACE
expected in the next 15 years, the sector will continue to
were qualified as a success by major international and
move more slowly than its solar and wind counterparts,
local players and the Ministry of Energy has announced
closing the gap to 2 percent between the amount of wind
a third auction to take place most probably in the first
and hydropower capacity installed in 2030.
half of 2017. The third auction has not only triggered 382
great expectations among power producers but also from
Together with rising renewable energy capacity, natural
qualified suppliers as the Ministry of Energy revealed that
gas-based facilities are also projected to bloom within
private companies can participate as purchasers.
the national energy system. Mexico’s reliance on natural gas has its foundations on a cheap cost environment and
In the PRODESEN 2016-2030, the government forecasts
the fact that natural gas is far less a pollutant than fuel
that solar technologies – PV and thermal – will account for
oil and coal, both formerly widespread power generation
4 percent of the country’s total installed capacity in 2021
fuels. But some industry players wonder how long natural
and 6 percent in 2030. The estimations, however, might
gas costs will remain low. The US Energy Information
be considered conservative as the industry expects solar
Administration has projected an increase in the Henry Hub
costs to continue decreasing toward 2030, mainly driven
natural gas spot price, which is expected to rise from an
by falling BoP costs and economies of scale in addition
average of US$2.49/MMBtu in 2016 to US$3.27/MMBtu,
to Mexico’s solar irradiation, which is among the most
underpinned by growing demand in the US and higher
attractive in the world. By 2014 solar energy accounted
exports to Mexico.
for only 0.07 percent of the total capacity installed. Around 70 percent of Mexico’s natural gas imports comes Wind energy stayed out of the spotlight throughout 2016
from its northern neighbor. It is not surprising then that
but it continues to be the second largest renewable energy
Mexico became the top destination for US natural gas
source in the country, just after hydropower and, judging
in 2015 as it imported 1,054,271mcf, surpassing Canada’s
by PRODESEN 2016-2030, the government expects it to
numbers. Due to the close relationship between the
hold its position, accounting for 14 percent of the total
markets, the political changes taking place in the US will
installed capacity in the country in 2030. Even though
have strong repercussions in natural gas-based industries,
falling wind energy costs will not be as impressive as in
which include manufacturers, PEMEX, CFE and other
solar technologies, it will still be favorable for furthering
power producers. The support of US President Donald
wind power development in the future. According to a
Trump for the domestic hydrocarbons industry will likely
report from Bloomberg New Energy Finance, installation
result in increased production, dragging prices down. But
costs for wind farms are expected to drop to MX$22.4
the president’s protectionist strategy also raises fears
million/MW from MX$30.5 million/MW in the next 15 years.
about new trading barriers on exports to Mexico.
Mexico also is ranked among the six largest producers of
“Both countries have deeply interconnected markets and
geothermal energy in the world, accounting for 7.1 percent
decisions on one side of the Rio Bravo might have a huge
of the total capacity installed globally. The awarding of the
impact on the other,” says José Prado, Partner at Holland
first exploration permits to private companies in 2015 and
& Knight. “The new US administration has, for instance,
2016 together with the creation of a risk mitigation fund to
demonstrated low support in terms of renewable energies,
preferring to empower the local oil and gas industries. This
are finding fewer young engineers with the capabilities
might lead US renewable energy companies to look south
and skills needed to tackle the industry’s challenges.
and to try to enter Mexico's market more aggressively.
According to Juan Vargas, Senior Manager at Deloitte,
Another big question is how much this new political
part of the problem is that “the educational offerings
scenario will impact on oil and natural gas prices, a fuel the
of Mexico’s most important universities are generic
Mexican government has promoted in the energy sector.”
and have not considered programs on new trends and specific abilities needed in the energy industry.” Mexican
Under this uncertain scenario, some in the industry worry
institutions are urged to reshape their programs so
about losing US natural gas supply – the cheapest fuel in the
students are better prepared to meet the needs of a
world – while others worry about losing some of their best
dynamic industry that will require 16,230 new employees
clients. Time, however, will show which way the wind blows.
just in the power generation sector.
TALENT SHORTAGE ON THE HORIZON
The government’s efforts to ensure the gap is filled quickly
With all the changes expected to take place in the
include an ambitious scholarship program for energy-
country’s energy industry, one of the major questions
related studies offered by CONACYT and the Ministry of
is whether or not the national market has enough
Energy as well as an initiative to widen the reach of the
prepared professionals to implement them. Mexico has a
Energy Reform to professionals in other sectors, including
population of over 120 million people, half of whom are
a set of Massive Online Open Courses (MOOCs) developed
27 years old or less. Moreover, around 100,000 engineers
by the Tecnológico de Monterrey, a flagship Mexican
and technicians graduate every year from Mexican
university for technological studies.
institutions. So, why worry? Other important areas where Mexico needs to double The electricity industry has not faced a real talent gap
its efforts are R&D and entrepreneurship. The country
problem yet, but that is expected to change as more
ranks low in both indicators compared with other OECD
companies enter the Mexican market and new projects
countries. It has already mastered the maquiladora
take place as a result of the shifting dynamics. In 2015,
business and several sources agree that becoming an
demand for hiring specialized engineers grew 30 percent
innovation hub might be the next step in Mexico’s growth
in the industrial sector according to Michael Page, a
from an emerging to a developed economy. Renewable
specialized consultancy in human resources, and the
energies are considered innovative by nature and Mexico
power segment is not the only industry driving this
has already taken great steps toward boosting local
trend. Electricity companies have to strengthening their
technological development in this area by creating five
strategies to attract and retain talent because they have
Mexican Centers of Innovation (CEMIEs) focusing on solar,
to compete against the country’s other buoyant industries
wind, biomass, geothermal and maritime energy, plus one
such as the automotive and the oil and gas sectors.
in smart grid development. The six CEMIEs received a total of MX$3.726 billion from public and private funds and are
A share of the experienced workforce in the electricity
expected to serve as a bridge between academia, the
industry is also reaching retirement age and companies
industry and the government.
ELECTRICITY GENERATION BY SOURCE THE NEW POLICIES SCENARIO 2000-2040 MEXICO'S ELECTRICITY GENERATION BY IN SOURCE IN THE NEW POLICIES SCENARIO 2000-2040 TWh 600 Historical
500
Projected
400 300 200 100 2000 Coal Coal
2010 Oil Oil
Gas Gas
Source: Energy Agency Source:International XXX
2020 Nuclear Nuclear
Hydro Hydro
Wind Wind
2030
2040
Geothermal Solar PV other Geothermal Solar PV other
383
INSIGHT
TALENT GAP TO WIDEN IN 2017 JUAN VARGAS Senior Manager at Deloitte
384
Mexico is building an energy market from scratch,
or by bringing talent from their base countries but that
accompanied by unprecedented growth in renewable
is not the optimal solution,” adds Vargas. The opening of
energy capacity driven by the country’s energy transition
the wholesale electricity market and the liberalization of
strategy. In addition to all the technical, financial and
industry has also created a need for new positions and
regulatory challenges that need to be sorted to make its
capabilities. As it emerges from decades under a power
ambitions a reality, the industry also needs to work on an
monopoly, the Mexican energy industry is not used to
often-overlooked aspect: finding and retaining the human
having competition but energy employees will now have
talent needed to build and operate Mexico’s future energy
to adapt to a highly competitive environment in which
infrastructure.
improving the company's service offering and earning the market’s trust is crucial.
According to the report on Perspectives of Talent in the Energy Sector from the Ministry of Energy, there are
Besides nurturing the required human talent, Mexico
36,681 employees working in the power generation and
also needs to retain it. “In an interconnected world, the
distribution sectors, with 7,520 employed in the renewable
efforts of some companies to appeal to employees’
energy industry. The clean energy sector has a surplus
nationalist spirit have not been successful. The optimal
of 4,576 specialized technicians and administrative
solution will be to create agile and efficient markets to
human resources but a talent gap is expected to appear
give professionals the opportunity to develop and build
in the short term, according to a Deloitte 2015 survey,
a career in the national energy industry. There should be
particularly in the case of employees with engineering and
incentives for companies to create attractive positions for
science backgrounds and certain technical specialties.
ideal candidates through analysis and research of human
Considering that 16,230 employees will be required for
resources and global markets,” he says.
key positions in the power generation sector in 2017, the demand for specialized human talent will increase in the
Another important challenge for human capital in the
near future.
energy industry is the age factor as companies are experiencing a crunch for specialized and experienced
“New and existing players exploring the opportunities that
workers between 35 and 55 years old. In the next few
the new energy market has created in Mexico are lacking
years, around 4,900 workers from key positions in the
EPC experts to develop infrastructure projects in the
energy industry will retire, according to a Deloitte survey,
power generation industry. This scarcity of qualified labor
leaving a knowledge vacuum that companies need to start
is due to the former lack of development of these types
preparing for. CFE in particular is facing challenges in
of projects before the Energy Reform,” says Juan Vargas,
preparing the next generation of engineers and leaders to
Senior Manager at Deloitte. “Moreover, the educational
take over the company’s duties when current employees
offerings of Mexico’s most important universities are
in key positions retire. To help its clients address this gap,
generic and have not considered programs on new trends
Deloitte has a specific portfolio of human capital solutions.
and specific abilities needed in the energy industry.”
“We carry out a diagnosis to determine the prevailing culture of a company and develop the desired behaviors
The best course of action for the country, he adds, is
for our customer, providing a completely tailored solution.
planning for the long term on talent development and
Another service we provide is the analysis of the required
keeping a clear view of the requirements of the industry.
labor force of a company to optimize their human resource
“Mexico should focus on developing a larger technical
assets. Deloitte also offers talent management services,
education offering. Companies have strived to bridge
designed to identify and retain talent and to develop the
this gap through technical training programs of their own
desired abilities required by the company,” he says.
INSIGHT
OPENING THE DOOR TO MEXICAN INNOVATION LUIS AGUIRRE-TORRES CEO of GreenMomentum
Mexico registered only 284 international patents in 2014,
“We have accepted 340 projects this year from a pool
according to data from the World Intellectual Property
of 1,380 applications. We expect less than 50 to result
Organization (WIPO) and ranked 75th of 130 countries
in final products. The proposal’s innovation level is one
evaluated in WIPO’s Global Innovation Index in 2015.
of the decisive factors to decide whether an idea is
Locally, the number of patents registered with the
accepted or not at Cleantech Labs. We want to support
Mexican Institute of Intellectual Property (IMPI) reached
ideas that solve current problems using local products,”
a record 18,071 in 2015 but only 7.5 percent were filed by
says Aguirre-Torres.
Mexican citizens. GreenMomentum has also identified a barrier for GreenMomentum, a private company focused on clean
innovative startups in Mexico in the lack of financing
technology (cleantech), entered the Mexican market in
options for early stage technologies. The company
2009 looking to transform the local entrepreneurship
wants to change the local investment environment not
mindset. The company reached its first milestone in 2010
only by enabling contact between entrepreneurs and
by launching Cleantech Challenge Mexico, a recognized
investors but by investing themselves. “GM Capital is
annual
cleantech
a high-risk investment fund aimed at early stage clean
entrepreneurs that has delivered remarkable results.
technologies. We know it is not easy to invest early in
Now, GreenMomentum is taking its mission further by
promising technologies but we want to demonstrate it
inaugurating Cleantech Lab in Azcapotzalco, one of
is worth it.”
business
plan
competition
for
Mexico City’s districts.
Luis Aguirre-Torres, CEO of GreenMomentum.
GreenMomentum calls itself a “pragmatic environmentalist” company and says “the future depends on how we develop, implement and use technology”
“Most clean energy startups focus on the installation
Aguirre-Torres also sees an area of opportunity in the
of PV solar panels or the commercialization of foreign
approach taken by the Mexican government to support
technologies. We want to shift the spotlight to hard
clean technologies in Mexico. “Strategic allocation of
technology development, for instance, producing a 100
resources and lack of financing is the main challenge that
percent Mexican inverter. In this way, we are not only
needs to be addressed to promote clean technologies,”
promoting innovation but also job creation and a strong
he says. “Mexico is one of the countries investing the
local supply chain,” he adds.
most in clean energy but just a small share is destined
“We define Cleantech Labs as a productive innovation center focused on energy and water technologies. Our lab, designed according to the needs of Mexican entrepreneurs, aims to provide the resources and tools needed to prototype and test technological ideas,” says
for innovation.” Its seven-year experience organizing Cleantech Challenge Mexico has given GreenMomentum a broad perspective to
GreenMomentum is trying to leave its mark through
distinguish promising ideas from a pool of proposals. Several
its consulting work with the Ministry of Energy and
enterprises have made their market entry through Cleantech
CONACYT. The company is supporting both entities on
Challenge Mexico, including Inventive Power, a Jalisco-
the administration of the Energy Sustainability Fund, a
based company producing Concentrated Solar Power (CSP)
sectorial fund created to promote the development of
equipment for commercial and industrial applications.
clean energy solutions, worth around MX$2 billion.
385
Supervision of a combined cycle power plant, State of Mexico, INEEL
386
PROFILE
TRAINING A NEW GENERATION OF PROFESSIONALS ALBERTO MENDOZA Leader of the Research Group on Energy & Climate Change at ITESM
Effectively enacting its ambitious Energy Reform is one
way to reach large audiences. The university incorporated
of the major challenges Mexico has faced in recent history
innovative features as it wanted to go beyond traditional
and preparing human resources is crucial to reach the
online courses. “We are also working to include disruptive
country’s objectives. Tecnológico de Monterrey (ITESM)
ideas into our MOOCs, such as giving virtual access to our
has joined forces with CONACYT, the Ministry of Energy
physical energy laboratories. Tecnológico de Monterrey is
and other relevant players to develop a learning platform
an innovative institution and we wanted to reflect this in
suited to the industry’s needs.
our courses,” Mendoza says.
The Binational Laboratory for the Smart Management
The online platform, MéxicoX, was selected as the host
of Sustainable Energy and Technological Formation
website for the energy MOOCs, which consist of 10
(Binational Lab) was the winning idea proposed by ITESM
courses in this first stage, covering basic energy topics as
in response to the Ministry of Energy and CONACYT’s call
well as more specialized areas such as power production,
for proposals. The project is financed by the Sustainable
electricity transmission and distribution, smart grids,
Energy Fund, managed by both public entities.
energy efficiency, climate change, CELs and carbon markets. “We prepared our courses thinking about
“ITESM’s proposal stood out from the competition
recently graduated students looking for a career path in
because it included national and international partners
the energy sector as well as experienced professionals
that had the potential to complement our capabilities and
and entrepreneurs willing to give their business an energy
benefit from our initiatives,” says Alberto Mendoza, Leader
approach,” he explains.
of the Research Group on Energy & Climate Change at ITESM and part of the university’s team in charge of the
“As part of the Binational Lab, we are also developing a
Binational Lab.
model of the Mexican energy sector that will work as a decision-making simulator, known as ‘decision theaters,’”
At a national level, ITESM is collaborating with the National
Mendoza says. “Industry stakeholders can test their
Network of Technological Institutes, the National Institute
decisions with this tool, analyzing how it would affect the
of Electricity and Clean Energies (INEEL) and CFE. The
national electricity system.”
University of Arizona and the University of California are two of ITESM’s international partners.
ITESM has also designed a set of Masters and PhD programs to contribute to the formation of specialized
According to Mendoza, “the purpose of the Binational Lab
energy professionals and the promotion of R&D in
is to spread awareness about the opportunities created
energy-related matters. “We have just launched a call for
by the Energy Reform and give Mexican students and
applications to our specialized Masters programs, which
professionals the tools to venture into this sector.”
were created as part of this initiative and have a number of scholarships available. Our objective is to find the
“The energy industry needs professionals from different
best applicants, who show a strong commitment to the
areas of specialization but with an understanding of the
country’s energy industry development,” says Mendoza.
new regulatory framework and the needs of the energy industry, including financing, engineering and regulatory
“The Binational Lab looks to push the triple helix approach
aspects,” he adds.
in the energy sector. We want to bring academia together with the public and private sectors so we can tackle the
As part of the Binational Lab, ITESM decided to use
industry’s barriers and transform Mexico into a competitive
Massive Online Open Courses (MOOCs) as an efficient
energy hub,” he says.
387
ROUNDTABLE
WHAT IS THE BEST WAY TO ADDRESS HUMAN TALENT ISSUES?
Human talent has been singled out as one of the most controversial subjects resulting from the Energy Reform. As the industry evolves and the market continues to grow, more international companies are setting up shop and facing the decision between hiring local staff or importing employees from their home base. When considering hiring local employees, companies, both national and international, have observed a lack of competitiveness from the Mexican workforce resulting from a weaker technical education. Another concern is the age gap, where employees set to retire soon have no ready successors. Here, key players discuss their efforts to address these issues.
CRE offers young professionals the possibility to leave their mark on the country and contribute to its future growth. Mexico’s reforms have laid the groundwork to increase the country’s competitiveness. It is a critical moment in our history. The Energy Reform allows new ways of developing the country’s most vulnerable regions.
We
can
transform
Mexico’s
southeastern
states
into
economic
powerhouses just by supplying natural gas to them. The electricity sector’s reform 388
GUILLERMO GARCÍA ALCOCER Chairman of CRE
has not attracted as much attention as that for hydrocarbons but it is probably the most powerful for boosting the country’s economic development. Energy has the potential to change Mexicans’ way of living for the better. It can create new jobs and give young Mexicans a wider range of options for the future. CRE is an important part of creating a strong energy industry to transform the country’s social structure.
In Mexico, five in every 10 companies face difficulties filling job vacancies, which diminishes productivity by 29 percent and their capacity to provide quality customer service by 27 percent, according to ManPower estimates. To develop young talent and reduce the skilled worker deficit in our country, ho1a created a certification program in 2012, called Ingeniero 01, through which we dedicate MX$1 million every year to generate the knowledge and technical abilities the market
ARMANDO DE LA TORRE Director General of ho1a
demands. We are working with the 11th year of this program, which will allow us not only to develop the required manpower for our projects but also to provide for our clients as well. CFE receives technology with every project it develops, and although it trains its employees, this can be made easier when a project comes with the qualified personnel ready to start.
To adapt to an increasing demand for qualified human resources, with the participation of the Innovation, Science and Technology Ministry we are creating the Technology Innovation Center, in which we are collaborating with California’s College, Canadian innovation centers and the German Cooperation Agency. This center will mostly focus on the renewable energy sector and we are also involving local colleges in this endeavor. The Autonomous University of Guadalajara (UAG) designed a Master’s
MAGDALENA RUÍZ Minister of the Environment and Territorial Development for the Government of Jalisco
degree specialized in renewable energy and is developing a project focused on energy transition to make its facilities sustainable. Finally the state is creating the Mario Molina Institute, which will focus on technological innovation for renewable energy, research, training and technological transference. The Institute will also serve to strengthen our communications strategy, to promote our efforts to all interested players.
GreenMomentum has been selected as an adviser and administrator of the Sustainable Energy Fund, a sector-specific fund managed by the Ministry of Energy and CONACYT, holding around MX$2 billion. A portion of the fund is used to build human capital in the energy sector, including the provision of a number of scholarships. We support the government with the publication of the reference terms, the publicity campaign and the analysis of proposals. However, the Ministry of Energy and CONACYT always have the final say. The energy industry needs more specialized human capital than ever and we see a great opportunity in acting at the
LUIS AGUIRRE-TORRES CEO of GreenMomentum
state level in this area. We think that tailormade strategies designed according to the needs and characteristics of each state would be more effective than a federal initiative.
The most important hurdle for innovation in the long term in Mexico will be the lack of human talent because we do not have enough professional technicians. Electrical engineers are scarce, as well as people with knowledge of geophysics or knowledge of oil exploitation or geothermal energy. Our most important contribution has been the majority of the technology and innovation assets capitalized first and foremost by CFE but also by the national and international network of suppliers that operate in Mexico. This includes the capability of the professionals that work in the electrical industry. Forty years of capacity building
JOSÉ FERNÁNDEZ Director General of INEEL
are properly measured by the amount of money that our customers have spent and the work they have provided to our endeavor, which allows us to foresee an attractive future.
The Energy Reform unleashed a wide range of opportunities for Mexican professionals with diverse backgrounds, not only those with energy-related studies such as electrical engineering. The energy industry needs professionals from different areas of specialization but with an understanding of the new regulatory framework and the needs of the energy industry, including financing, engineering and regulatory aspects. Our task is to relay to students and professionals the opportunities they can find in the energy industry. The Ministry of Energy together with CONACYT called for proposals in 2014 to fund an educational initiative addressed to the energy sector, looking to integrate four axes: improving Mexico’s human resources capacity and
ALBERTO MENDOZA Leader of the Research Group on Energy & Climate Change at ITESM
R&D infrastructure, promoting further research on energy-related issues and bringing different stakeholders into a collaborative model.
We have highly specialized staff covering different areas of expertise, some with over 30 years of experience. We even hired some employees that had recently retired from CFE and other major companies in the sector. Chinese culture places great value on experience and human resources, two aspects that we have integrated into our corporate culture. We know some companies avoid hiring senior employees but we prefer to acknowledge their potential and take advantage of their wide experience in the industry. Our senior staff are a great complement to our strong base of young employees, easing the transfer of knowledge and capacity building in the company. China and Mexico have several cultural differences but share the common objective of contributing to sustainable development. Having a common objective helps to move joint ventures forward in spite of cultural differences.
SANTIAGO QUINTAL General Manager of Provoltaje (Chint Mexico)
389
INSIGHT
NEW MARKET, NEW RULES HÉCTOR OLEA President & CEO of Gauss Energía
390
As the Mexican energy industry opens up and the market
solar PV. “It has been a surprise for everybody. A year ago
faces new rules, new opportunities and challenges arise
authorities would say solar was too expensive and that it
for power companies. For Héctor Olea, President & CEO of
needed subsidies.” However, the results of the auctions
Gauss Energía, the main challenge for the electricity market
showed the power of the sun, as around 70 percent of
is to consolidate the Energy Reform. “The government
the energy awarded in the first auction came from PV
did a great job putting the rules together, creating new
projects, at record prices. The success was ratified in
regulatory and institutional frameworks around the
the second auction since the price offered was even
Reform. But it is important to smoothly integrate this new
lower than that of the first auction, with an average of
setting into the future.”
US$31/MWh. “This helped people understand that solar is at the forefront of energy development in Mexico and
To accomplish this, the level of cooperation between all
at a very competitive price, more than natural gas-fueled
involved parties should be optimal, starting with the
projects.”
improvement of the Reform’s structure. Olea says that the power auctions are a first step to producing the business
But the Reform brings its own set of difficulties, such as
opportunities needed to achieve a better and fully
the new competencies needed. “A new set of companies
operative system. But to ensure the continuous evolution
is required. Before, partnering with a local company was
of the Mexican power industry further developments need
enough. Now, it is necessary to make joint ventures with
to take place, like the success of the wholesale market,
other companies to complement local knowledge with a
bilateral contracts and sales schemes.
global perspective.” The local partner will help shorten the learning curve for international companies willing to make
“A year ago authorities would
heavy initial investments, he says.
say solar was too expensive
The partnering trend will continue, Olea says, as more
and that it needed subsidies”
the auctions but also in bilateral contracts and the new
Héctor Olea, President & CEO of Gauss Energía
companies get together to face new realities, not only in markets such as the wholesale or the spot market. That at least is the strategy to follow for Gauss Energía, a project developer involved in several of the largest energy plants in
So far the industry's progress is satisfactory, especially
the country, such as the massive Aura Solar development
regarding transparency and coordination on the part of
in Baja California.
the government. One of the main benefits of the work so far is the expectation it creates for future auctions that
The company, Olea says, will look for international partners
will take place on a yearly basis because of the certainty
to complement its local expertise and succeed in the new
for participants in the market, which gives an added value
industry. It already had solid relationships with companies
to the renewable energy transition process. “Developers,
such as Martifer Solar, with which it developed Aura Solar.
service providers, investors and manufacturers can foresee
Because of that success the company will not shy away
that their projects could gradually penetrate the Mexican
from pursuing the same strategy in the future. “Things
market. This is a direct effect of the Energy Reform and
are happening that are very disruptive in the market and
the only way to build up a new industry.”
we have to understand what the implications for the whole business sector are.” Further analysis and careful
The growth opportunities detected by Olea in the
observation will be key to understanding and adapting as
Mexican power market for clean energy are definitely in
the Mexican power industry continues to take shape.
INSIGHT
DEVELOP INNOVATION CULTURE TO HIT ENERGY TARGETS RICHARD WELLS President of The Lexington Group
As Mexican industry evolves, the changes required to
The consultancy does, however, consider the Energy
successfully transition to a sustainable economy will
Reform a positive and defining element that will contribute
present a challenge. In particular, the lack of an innovation
to the country’s sustainable development, especially the
culture will impede national efforts to hit the country’s
Energy Transition Law.
sustainability goals, says Richard Wells, President of The Lexington Group, a consultancy that advises private and
To continue on a positive path, policies must consider the
public organizations on sustainability and competitiveness.
transportation, consumption, production and distribution of electricity, as well as smart cities. “Most of the
Wells says that only a few Mexican enterprises are ahead
regulations resulting from the Energy Reform are currently
of the industry in terms of innovation and sustainability.
aimed at the energy supply side, ignoring the great impact
“In general, most of the leading players on the subject
that demand management could have in transforming its
continue
because
whole system into a 21st century economy. So far, there
Mexico’s national enterprises have mostly adopted a
are not enough incentives to transform Mexico into a truly
passive attitude.”
sustainable and competitive economy.”
He advises companies here to look abroad for direction.
For companies to prepare for the energy and sustainable
“Mexico should look at the trends that are revolutionizing
challenges ahead, decision-makers must take into account
how other countries do business, such as the green or
the world’s megatrends in terms of demographics,
the circular economy, and find an adequate solution for
urbanization,
its reality. It urgently needs to work on developing and
advances, as well as disruptive technologies that could
innovating its own technology, rather than importing it.”
transform the current way of doing business. “In this
to
be
international
companies
climate
change
and
technological
sense, companies need to start moving to the next level The country has the resources but it needs better
and focus on the development of disruptive technologies
implementation. “Mexico has the advantage of being
such as virtual reality, synthetic biology, robotics and 3-D
populated by incredibly creative people. It just needs
printing. In general, corporations tend to think the future
to direct that creativity into business and technology
is an extension of the present but in reality, it will be an
development and eradicate the vision of leveraging
entirely different thing.”
political advantage to further position companies.” According to Wells, Mexico is betting heavily on clean The push needed to encourage the adaptation of
energy generation but without other critical factors that
sustainable business strategies received a boost from
will be necessary in shaping the future of energy, such
the electricity tenders which Wells says included a
as storage technologies and local distributed energy.
creative and complex mechanism to increase the share
“In the case of private companies, we would like to see
of renewables in the country. He would like to see the
energy and sustainability incorporated into their business
adoption of more difficult measures. “Personally, I
competitive strategies, rather than being seen exclusively
think that the inclusion of a stricter carbon tax would
as a cost factor. A sustainability department can be
be more effective in pushing renewables growth in the
helpful as an internal consultant but it cannot transform
country but I am aware that it is politically complicated
the company’s vision and increase its future resilience.
to implement the measure because of the industry
Sustainability must be a board-level issue. Companies
opposition. On the energy supply side, I consider
need to stop thinking about the future as a continuation
Mexico’s strategy to be highly creative but it still lacks a
of the present and start seeing it as a fundamental
demand-side approach to complement its reach.”
competitive issue that will drive their fate.”
391
ROUNDTABLE
WHAT WILL BE THE HIGHLIGHTS OF 2017?
The Energy Reform has triggered historic changes across the industry in a short period of time, forcing power companies to react and adapt quickly to remain competitive. Companies have learned to stay current with the changes in the regulatory framework, power auction bidding terms, market operations and several other new elements previously unexplored in the Mexican power industry. The main events for next year include short-term auctions, the transmission line auctions and the evolution of the regulatory framework, including the completion of secondary legislation. Our interviewees present their views on the most anticipated events in the coming years.
The short-term auctions are among the big puzzles for next year. The Ministry of Energy already published the capacity market manual, a milestone for the industry, and the next one on our list is the manual for establishing three-year contracts for capacity and electricity, known as short-term auctions. CFE’s subsidiaries are still in the process of putting their structures together but next year they will play an important role in the market. For us, 2016 was a transition year but 2017 will be 392
DEREK WOODHOUSE Partner at Woodhouse Lorente Ludlow
the actual period where the market is up and running, boosting real competition. We can say without a doubt that next year will be the most interesting period for the Energy Reform. We also expect consultancies and law firms to step up their game, which would make the reform’s implementation more dynamic and faster and would spice up competition.
The 2018 elections will have a great impact on the development of the Mexican energy industry and is one of the reasons why companies need to have a deep understanding of the country’s political panorama, something for which we can provide relevant insights. The outcome of the US elections will also have a strong impact on Mexico’s different industries and energy will not be an exception. We also expect to see more ambitious targets in terms of clean energy generation,
JONATHAN PINZÓN Senior Energy Consultant of Zumma rg+c
particularly
considering
Mexico’s
strong
commitment
to
climate
change
negotiations and GHG emissions reductions. So far, the country’s climate change vision is not in line with its current strategies for energy and economic growth, so there is a high probability that this will change shortly.
The evolution of CFE as a competitive enterprise of the state will be one of the major events. Competitors are waiting for the state-owned utility to define its role in the different industry segments so they can better plan their strategies. Another major event will be the tender for the 600km transmission line joining Oaxaca and Morelos, which will be the first big tender of 2017. The auctions for financial transmission rights are also highly awaited by the industry and we will see in the
LOÏC LE GALL Executive Director, Power & Utilities at the TAS Practice of EY
first quarter of the year how demand for this product behaves. We also expect the capacity market to become more important in 2017, with the availability of more traditional technologies offering firm capacity in the market, a tendency we already saw in the second power auction’s results. In the last quarter of 2017, we also expect to see a greater interest in CELs as that market is scheduled to launch in 2018.
More power auctions are coming in 2017 and the most interesting part is that we might see private companies as purchasers instead of CFE, mainly driven by the low energy prices the state-owned company received in the first two auctions. Reaching this point will be a clear indication that Mexico has constructed an open market where companies other than CFE can capitalize on opportunities. We also consider it important to see how the new political scenario in the US impacts Mexico’s energy industry. Both countries have deeply interconnected markets and decisions on one side of the Rio Bravo might have a huge impact on the other.
JOSÉ PRADO Partner at Holland & Knight
The new US administration has, for instance, demonstrated low support in terms of renewable energies. This might lead US renewable energy companies to look to its neighbor and try to enter this market more aggressively."
We have five main topics in mind: the adjudication of the HVDC line between the Isthmus of Tehuantepec and the Valley of Mexico, the adjudication of the third longterm power auction, the first tender for financial transmission rights, the launching of the first medium-term auctions and the realization of the first projects under the Universal Electricity Services Fund. Other important topics include the publication of the clean energy requirements for 2020, which have to be ready by the end of March, as well as the elaboration of the new PRODESEN in May, which will include plans for the next 15 years. The new CFE subsidiaries will start operating under a more efficient model in 2017, marking another important milestone for the industry.
CÉSAR HERNÁNDEZ OCHOA Deputy Minister of Electricity
We saw a lot of interest from renewable energy companies to enter the market in 2016, so we expect 2017 to be the year when these companies start operating."
2017 will be a transition year as we are handed many of Ministry of Energy's functions. We will monitor the energy market, finish some instruments and will be responsible for maintaining and modifying, when justified, the regulations for the market. We are preparing for the new tenders and developing the new regulations for distributed generation, which will be launched early in 2017. We also expect that smaller users, homeowners or small companies, will begin using the options that the Reform provides. As these increase, users will find their energy supply options diversified. There is still a lot of work to be done and every single one of our regulations has
MARCELINO MADRIGAL Commissioner at CRE
a deep impact. The goal is to continue developing and improving regulations to ensure they are understandable, predictable and effective and that there are no barriers to entry into the different market segments benefiting consumers.
Next year, we expect to see greater investments in smart grid development. CENACE is controlling a spot-based market, dispatching energy according to their production costs, always prioritizing the cheapest energy source. However, Mexico does not only need cheap electricity but also a diversified and reliable energy matrix. Therefore, we would not be surprised to see plans for constructing one or two new nuclear reactors. Geothermal might become popular because it can also provide baseload power. We expect more combined cycle plants to be built to replace old carbon and fuel oil-based facilities, a trend that will be accompanied by the expansion of the country’s natural gas pipelines system. The possibility of producing electricity on the border and exporting it to the US will also gain importance in the future, particularly across Texas.
DAVID ATHERTON Director Energy & Infrastructure Practice at Aon Risk Solutions
393
INSIGHT
TOWARD LATIN AMERICA’S FIRST CARBON MARKET
Eduardo Piquero Director of MÉXICO2
394
Anna Asikainen Commercial Director of MÉXICO2
Strengthening its role as a regional leader in the climate
“The next phase will be focused on GHG reduction,”
change arena, Mexico launched a pilot program for
Asikainen adds. “Companies are then expected to
emissions trading in November 2016. The pilot will run
implement projects and policies to lower their GHG
for 12 months, with a full system expected to be ready
emissions. If a company is not able to lower their emissions
for operations by 2018. The ultimate goal is to have a
to the permitted level it will have to purchase emissions
program in line with those of Canada and the US, opening
permits to fill the gap. These permits have to be purchased
the door for Latin America’s first Emissions Trading
from other companies or industries that have reduced
System (ETS) and a potential North American carbon
their emissions to a lower level than the established
market. “We have invited over 200 companies and the
threshold. In summary, the steps are to measure, reduce or
expected uptake is at least 100 companies. The invited
buy allowances to reach the established limit.”
corporations are the biggest GHG emitters in Mexico and include both national and international firms,” says
Some companies argue that putting a carbon market in
Anna Asikainen, Commercial Director of MÉXICO2, the
place will harm their international competitiveness but
independent platform in charge of overseeing the ETS at
Piquero says this idea is driven by misinformation. “We
the Mexican stock exchange, BMV.
have not heard of any company leaving a country or limiting their production due to ETSs. On the contrary, they
“The platform itself is digital. The pilot will be implemented
have motivated companies to enhance their processes,
directly in the BMV and we will build on it to launch the
make green decisions and plan ahead.”
national ETS. Its advancement will rely on the existence of market rules,” says Eduardo Piquero, Director of MÉXICO2.
According to the World Bank, 35 countries across four
“The Energy Transition Law appointed the Ministry of the
continents already have ETSs in place and more are
Environment to regulate GHG emissions in the electricity
expected to join as climate change awareness increases
sector so the development of the ETS’ regulatory framework
worldwide. “ETSs have proven to be the most cost-
would be its responsibility. Once the rules are defined, we
effective tool to reduce GHG emissions. Countries that
will implement them in the stock market,” he says.
have implemented this system before have experienced many benefits, so there is no excuse for Latin America not
Mexico has demonstrated its environmental commitment
to follow this trend,“ Piquero says.
before this initiative. It was one of the first countries to pass climate change legislation and the first developing
“Mexico can learn a lot from California’s experience,
country to submit its Intended Nationally Determined
particularly as the country is looking to match its ETS
Contributions to the last Conference of the Parties
with that of the US state to open the possibility of a
(COP21) held in Paris in 2015. Mexico and Chile are the
future bilateral market. Mexico’s carbon market will be the
only Latin American countries with a carbon tax in place.
first of its kind in Latin America, positioning the country
The approval of the 2012 Climate Change Law, which
as a regional leader in the fight against climate change.
mandated the creation of a National Emissions Trading
Mexico’s government expects to have a fully functioning
Register (RENE), set the basis for the ETS that Mexico
market by 2018, an ambitious but doable goal,” he says.
plans to open in 2018. “The RENE launched in 2014 is playing a key role at this initial stage as it has allowed us to
The role of Mexico in the Paris negotiations was crucial to
start the pilot with an accurate emissions track,” Asikainen
reaching the historic agreement, particularly considering it
says. “According to the Climate Change Law, companies
is the 13th largest GHG emitter globally. Now, the country is
emitting over 25,000 tons of CO2e are obliged to register,
taking a step forward in moving to a low carbon economy
according to SEMARNAT’s guidelines.”
by launching its first cap-and-trade market pilot.
VIEW FROM THE TOP
MILLENNIALS MORE INTERESTED IN ENERGY EFFICIENCY ROBERTO BLANCO Director General of Hatzo Sustainable Cities
Q: How does Hatzo Sustainable Cities enable sustainability
of recommendations and charge a small fee for every
in urban centers?
transaction done through our platform, just like on
A: Hatzo Sustainable Cities provides resources for mapping
websites like Amazon. This represents a revenue stream
major urban hubs in the US and Mexico, enabling people
for Hatzo Sustainable Cities.
to take control of their consumption and benchmark it against their neighbors. We have already mapped more
Q: What other parameters do you monitor besides
than 30 urban regions in Mexico. With our system, users
electricity consumption?
can consult the average consumption in their postal code,
A: We saw an interesting opportunity in providing
comparing their performance with that of people in similar
information about water and natural gas consumption, in
socio-economic conditions. Our business model is based
addition to electricity, because they are critical to a city’s
on social networks so it depends highly on increasing
sustainability. Water is a crucial example of how urban
the number of users. The goal of our digital platform is
hubs can impact another region’s resources, motivating
to connect users willing to use technology to help them
us to include it in our platform’s layout. Considering
reduce their energy and water usage. We want to provide
climate change mitigation and adaptation, we decided
business opportunities for distributors and installers of
to incorporate a GHG emissions tracker, providing users
solar panels and water heaters, enabling them to expand
with a general overview of their carbon footprint. We are
their business reach. We also see a great opportunity for
analyzing the possibility of adding an option for tracking
providers of energy and water efficiency solutions to grow
gasoline and other fuel consumption but in the short term
their clients’ portfolio through our platform. Increasing
we will stick to our four key parameters: electricity, natural
public awareness will definitely be a challenge in the
gas, water and CO2 emissions.
coming years. We are in the middle of a generational change. Millennials are more interested in digital platforms
Q: How do you deal with privacy issues and information
and sustainability issues, so we target this segment and
veracity, both typical concerns for digital platforms?
use our network as a tool to encourage ownership of their
A: We use three main strategies to ensure data privacy
local environment. We are also working to have more
and veracity. Firstly, we compare all received data with the
governmental support, particularly from municipal entities.
baseline set for our targeted regions, which is based on
Mexico has taken an aggressive approach regarding its
previous estimates and analyze out-of-trend responses,
climate change strategy, setting ambitious GHG emissions
allowing us to detect misleading information. Secondly,
reduction and clean energy goals, but we still need
we benchmark the new profiles with already accepted
institutional involvement.
data, giving us the tools to decide whether or not it should be published on the website. Finally, we compare
Q: How can Mexican sustainable companies benefit from
questionable data with CFE’s records, following a similar
joining Hatzo Sustainable Cities?
process to solar PV leasing companies. Regarding privacy,
A: Gaining access to a wide network of potential clients is
we do not require customers to publish their personal
one of the main advantages that sustainable companies
data if they prefer not to. They can use a nickname to
can get from our platform. Increasing our number of
participate actively on the website. Privacy is also the
users is then fundamental to provide attractive business
reason we provide comparative data for postal codes
opportunities for our commercial partners. In addition
instead of city blocks.
to scale, we offer a selected audience that is already interested in sustainability issues, increasing the potential
Hatzo, named after an indigenous word for the rare Mexican otter, is
to have them as new clients. We will enable contact
an information platform designed to help companies, governments and
between users and companies through a customized list
the public find information on energy and water savings.
395
396
Ventika II wind project, Nuevo Leon, CEMEX EnergĂa
VIEW FROM THE TOP
BIOMASS POTENTIAL REMAINS UNTAPPED DANIEL CAMARENA Director General of G2E
Q: What is the state of biomass gasification in Mexico and
from investing until the rules are clearly set. Without clear
how will competition in the sector develop?
regulations, companies cannot estimate the potential ROI,
A: So far, biomass gasification is in its infancy in Mexico.
which increases uncertainty and limits investment, but we
In 2011, biomass usage represented only 3 percent of
are confident this situation is temporary and that once the
the primary energy sources in the country but it has the
regulatory and financial limbo is resolved, renewables will
potential to produce 96 percent of the total electricity
take off in the country.
needed. We are aware of existing academic initiatives in the country but none on a commercial scale. In the near
Q: To what extent is the low price of natural gas a threat
future, we expect to see new biomass gasification projects,
to G2Eâ&#x20AC;&#x2122;s business?
particularly considering the significant benefits that this
A: Having exceptionally low natural gas prices is definitely
technology can bring to different sectors. A biomass
a challenge we need to overcome but this situation will not
ton can generate 960kW of electricity and 1,400kW of
last forever. The price will eventually stabilize at an expected
thermal energy through biomass gasification, producing
US$3.5 per MBTUs. We are also targeting companies that
synthesis gas (syngas) or smaller amounts if the company
produce biowaste as a byproduct of their current activities,
prefers to produce biochar. Compared to solar or wind,
which results in extra costs for disposal. In these cases,
biomass gasification can be slightly more expensive per
the economic balance of biomass gasification makes
megawatt-hour but it offers a higher net capacity factor,
even more sense because companies can save money on
which makes it cost effective in the long term. In addition,
waste-handling services while producing energy. This is
the environmental impact of biomass gasification is far
the case of greenhouses, which use natural gas as their
lower than for other technologies, particularly if biochar
main input and spend considerable amounts of money
is produced as part of the process. We also do not see
on biowaste disposal to avoid contaminating production.
newcomers as competitors in a traditional way but rather
By using a biomass gasifier they could save money by
as partners and when the time comes we look forward to
eliminating waste-handling expenses and reducing natural
meeting and collaborating with them.
gas consumption. We also expect renewable-based fuels to gain more ground in comparison with fossil fuels as the
Q: How must the landscape change to boost biomass
worldâ&#x20AC;&#x2122;s environmental consciousness grows stronger.
usage and what impact will the Energy Reform have? A: One of the main challenges that biomass gasification
Q: For companies that own natural gas turbines, how
faces in Mexico is the lack of awareness. We are focusing
difficult will it be to incorporate syngas?
heavily on educating the general public about the
A: It is quite easy to adapt existing equipment to syngas.
functionality and benefits of this technology because
We are not targeting large-scale companies with huge gas
we want to ensure the market knows it is feasible and, in
turbines but rather medium and small-scale businesses
some cases, cost effective. In the current environment, we
that only have burners or internal combustion engines. But
see stronger market potential for biomass gasification in
in all cases it is relatively easy to convert the equipment
thermal rather than in electricity applications, due to the
from natural gas to syngas. We usually recommend
low electricity tariffs that make competing in the market
companies install a hybrid system instead of completely
difficult. The only case in which we identify strong potential
converting the equipment. This increases the systemâ&#x20AC;&#x2122;s
to use biomass gasification for electricity purposes is
reliability, reducing the risk of production stoppages.
in grid-isolated regions. In the medium term we expect the Energy Reform to be beneficial but at the moment,
G2E specializes in the design, development and implementation of
it is actually slowing projects down because the market
gasification projects for thermal, electric and mechanical energies
is not completely defined, which discourages companies
through the sustainable usage of biomass.
397
ACRONYMS 3P Reserves
Sum of proved, probable and possible reserves
ADMS
AME AMGN
CONACYT
Mexican Wind Energy Association
CONAGUA CONUEE
National Council of Science and
National Water Commission National Commission for Efficient Energy Use
Mexican Energy Association Mexican Natural Gas Association
Mexican Cogeneration Association
Technology
Advanced Distribution Management System
AMDEE
COGENERA
COP21
21st Conference of the Parties
AMI
Advanced Metering Infrastructure
COPARMEX
Mexican Employers’ Association
ANES
National Solar Energy Association
CRE
Energy Regulatory Commission
ASEA
Agency for Safety, Energy and
CSP
Concentrated Solar Power
CTX
Carbon Trade Exchange
DAC
High-consumption Residential Tariff
Environment ATES
Aquifer Thermal Energy Storage
BMV
Mexican Stock Exchange
BOE
Barrels of Oil Equivalent
BoP
Balance of Plant
BTES BTU CAISO
CAMIMEX CANACINTRA
DG DNP3
British Thermal Units California Independent System
Transformation Industry’s Chamber
Capital Expenses
CCTV
Closed Circuit TV
CDM CEL CEMIES CENACE CENAGAS
Clean Development Mechanism Clean Energy Certificate Mexican Energy Innovation Centers National Center of Energy Control
Ejido
Area of communal land
EPC
CFE
Federal Energy Commission
CHP
Combined Heat and Power
CNG
Compressed Natural Gas
CNH
National Hydrocarbons Commission
COFECE
Equator Principles
COFEMER
Federal Commission on Regulatory Improvement
Risk management framework adopted by financial institutions for determining, assessing and managing environmental and social risks in projects
ERCOT
Energy Reliability Council of Texas
ESCO
Energy Savings Company
ETS
Emissions Trading System
FACTS
Flexible Alternating Current Transmission Systems
FERC
Federal Energy Regulatory Commission (US)
FIBRA E
Mexican Real Estate Investment Trust for the Energy and Infrastructure Sectors
FIDE FTR Genset
Trust for Electric Energy Savings Financial Transmissions Rights Engine Generator or Portable Generator
Federal Economic Competition Commission
Engineering, Procurement and Construction
National Center of Natural Gas Control
Distributed Network Protocol,
Official Federal Gazette
of Commerce CAPEX
Distributed Generation
DOF
Spanish Chamber of Commerce Mexican Mining Chamber
Public-lighting Rights
version 3
Borehole Thermal Energy Storage
Operator CAMESCOM
DAPs
GHG
Greenhouse Gases
GHP
Geothermal Heat Pump
GOOSE
Generic Object Oriented Substation Event
HVDC ILO IMPI
High Voltage Direct Current
PPA
Power Purchase Agreement
PPP
Private Public Partnership
PRODESEN
Mexican Institute of Intellectual
PROFEPA
Mexican Institute of Social Security
INAH
National Institute of Anthropology
National Institute of Statistics and Geography
INFONAVIT
PRONASGEn
Institute for the National Housing
PV R&D RENE
Fund for Workers
ROI
IoT
Internet of Things
RS-485
IPP
Independent Power Producer
IT LAPEM
LCOE
Information Technologies
Levelized Cost of Energy
MEM
Wholesale Electricity Market
MLP
Master Limited Partnership Massive Online Open Courses Memorandum of Understanding New Mexico City International Airport
NMX
Mexican Voluntary Norm
NOM
Mexican Official Norm
NOx
Nitrous Oxide
O&M
Operation and Maintenance Operational Expenses
Deferred-Impact Public Spending
Pennsylvania, Jersey, Maryland Power Pool
PLC
SAGARPA
SCADA
SEDATU
Tons of Refrigeration Ministry of Agriculture, Farming,
Supervisory Control and Data
Power Line Communications/Power Line Carrier
Ministry of Agricultural, Urban and Territorial Development
SEMARNAT
Ministry of the Environment and Natural Resources
SIA
Social Impact Assessment
SIE
Energy Information Center
SISTRANGAS
National Natural Gas Transportation and Storage System
SMEs
Small and Medium Enterprises
SVCs
Static Var Compensators
UPS
Uninterruptable Power Supply
UTES
Underground Thermal Energy Storage
UV WIPO
Ultraviolet World Intellectual Property Organization
Mexican Petroleum Company
Projects PJM
RT
Acquisition
Million Cubic Feet
PIDIREGAS
Communication standard from the
Food
mcf
PEMEX
Return on Investment
Rural Development, Fisheries and
Liquefied Petroleum Gas
OPEX
National Emissions Trading Register
and Materials
LPG
NAICM
Research and Development
Laboratory of Testing Equipment
Liquefied Natural Gas
MoU
Photovoltaics
Electronics Industry Association
LNG
MOOCs
National Program for Energy Management Systems
and History INEGI
Federal Attorneyâ&#x20AC;&#x2122;s Office for Environmental Protection
Property IMSS
National Electric System Development Program
International Labor Organization
Yield Co
Publicly traded corporation with operating assets that generate predictable streams of cash flows for investors
INDEX A-D ABB México 152, 158, 163, 226, 233, 363, 400
206, 210, 213, 220, 229, 231, 234, 247, 249, 251, 266, 312,
AB Energy México 317
322, 330, 343, 382, 393, 398
Abengoa 238, 245
CENAGAS 9, 10, 12, 21, 24, 47, 296, 299, 300-301, 310,
ACCESGAS 215, 313
313, 398
ACCIONA Energía 8, 32, 49, 74, 92, 180, 203, 238, 240,
CFE 5, 8, 9, 10, 11, 14, 16-17, 20, 21, 22, 24, 25, 26, 27, 29, 31,
244, 245
35, 40, 41, 42, 43, 44, 45, 46, 47, 49, 53, 54, 55, 57, 58, 59,
AECID 244
60, 62, 63, 70, 71, 72, 74, 75, 76, 80, 81, 82, 83, 84, 85, 87,
AES Mexico 61, 79, 110, 111
88, 89, 92, 95, 98, 99, 100, 101, 103, 105, 106, 110, 111, 114, 115,
AHMSA 309, 319, 363
117, 122, 125, 128, 134, 137, 138, 139, 141, 143, 145, 148, 149, 150,
Alion Energy 263, 268-269
151, 154, 155, 158, 162, 163, 165, 166, 167, 168, 172, 173, 174, 177,
Alten Renewable Energy 79
180, 181, 183, 186, 187, 189, 196, 197, 204, 205, 206, 207, 210,
Amazon 395
223, 229, 234, 248, 249, 253, 259, 262, 266, 271, 282, 283,
AMDE 41
284, 286, 287, 296, 299, 300, 301, 302, 303, 304, 310, 316,
AMDEE 206, 214, 227, 240, 252, 398
318, 319, 320, 321, 322, 333, 334, 336, 340, 341, 343, 351,
AME 27, 70, 116, 398
356, 360, 364, 365, 366, 368, 369, 379, 382, 384, 387, 388,
AMGN 310, 398
389, 392, 393, 395, 398
Ammper 98, 102, 117
CFE Calificados 16, 17, 98, 143
ANAF Energy 196, 216-217
CFE Solar 31
ANCE 360, 367
CFE Suministro Básico 22, 71
ANES 30-31, 284, 398
CI Banco 343
Aon Risk Solutions 212-213, 393
Cinemex 113
Array Technologies 372
CISA Energía 204
ASEA 47, 398
Citibanamex 143, 172, 184
ASME 198
Citigroup 143, 184, 185
Asolmex 70
CJR Wind 245
ATA Renewables 210
Clifford Chance 80-81, 83
ATCO 318
Climate Bonds Initiative 179, 185
Athena Consulting 40, 56
Coca Cola 134
Avanzia 141
CODISA CORP Energy 192, 245
AWS Truepower 234
COFECE 44, 45, 49, 398
B2E 106
COFEMER 14, 398
Baker Hughes 363
Compañía Mexicana de Gas 299
Bancomext 174, 180, 347
CONACYT 369, 383, 385, 387, 389, 398
Banobras 172, 173, 174, 180
CONAGUA 25, 398
BBVA 348
Conductores del Norte 167
Bergen Engines 331
Constructora del Estado de Hidalgo 343
Beristain + Asociados 291
CONUEE 336-337, 345, 351, 398
Bester Energy 102
Covestro 351
Biofields 74
CPS Energy 270
Biosolventus 107, 117
CRE 8, 9, 10, 13, 14, 20, 21, 22-23, 24, 27, 34, 35, 40, 44,
BMV 137, 172, 394, 398
45, 46, 47, 48, 50, 53, 63, 70, 71, 78, 82, 86, 89, 98, 99, 101,
BROAD 335
102, 105, 122, 138, 187, 206, 233, 236, 261, 264, 266, 272,
Buenavista Renewables 187, 265, 267, 270
280, 282, 283, 284, 296, 297, 299, 300, 302, 310, 330, 333,
CAISO 99, 398
339, 354, 363, 367, 379, 388, 393, 398
CAMESCOM 32-33, 398
Cummins 330, 335
CAMIMEX 131, 398
Deloitte 383, 384
CANACINTRA 149, 167, 398
Deputy Minister of Electricity 11, 13, 70, 116, 228, 382, 393
Capstone Turbine Corporation 316
Deputy Minister of Planning and Energy Transition 14, 15,
Caterpillar 319, 335
215
CEMEX 74, 139, 246, 247, 363, 396
Diavaz Gas Com 299
CENACE 8, 9, 11, 20, 27, 40, 42, 43, 44, 45, 46, 47, 48, 50,
Diram 339
59, 63, 70, 71, 74, 78, 82, 83, 87, 88, 89, 90, 94, 98, 99, 101,
DNV GL 85
102, 109, 111, 116, 122, 125, 138, 149, 172, 184, 196, 203, 205,
Duro Felguera 197
INDEX E-I Elecnor 197
Government of Yucatan 77
Emerson 296, 304-305, 314
Greenberg Traurig 53
Enagás México 310
GreenMomentum 385, 389
Enel Green Power Mexico 8, 52, 72-73, 79, 82, 92, 122, 132,
Grenergy Renovables 88
142, 172, 180, 203, 235, 238, 240, 245
Grupo Aeroportuario de la Ciudad de México 185
EnerAB 110, 111
Grupo Bal 110, 111
Energetika 344-345
Grupo Bimbo 127
Energía Eléctrica Bal 110
Grupo Carso 301
Energías de Portugal 245
Grupo Desarrollo Infraestructura (GDI) 202, 219
Energy to Market (E2M) 103, 117
Grupo Diavaz 299
Enerlogix Solutions 138
Grupo Dragón 25, 124, 150, 190, 209, 238
Enerray 278-279
Grupo ENAL 207, 352
Enerwise 346
Grupo Herdez 122, 137, 139
ENGIE 78, 92, 312
Grupo MD 311, 333
Envision Energy 85, 214, 238
Grupo México 4, 112, 113, 131, 240
Eosol Energy 83, 265, 266, 277
GRUPOTEC 363
ERCOT 55, 99, 398
Hatzo Sustainable Cities 395
ERM 220
Hitachi 183
ET Solar Energy 259
Hive Energy 261, 271
Exel Solar 259
ho1a 148, 154, 356, 388
EY 54-55, 116, 261, 392
Holland & Knight 40, 47, 382, 393
FEMSA 134, 344, 345
Howard Midstream Energy Partners 301
FERC 53, 398
HSBC 73, 142, 172, 185, 191, 348
Fermaca 215, 300, 302, 303, 309
Huawei 360, 370-371
Ferromex 113
Hunt Institute for Global Competitiveness 34, 35
FIDE 285, 287, 343, 398
Hydrocon 377
FINSA 351
IADB 40, 73, 125, 175, 176-177, 338, 348
Flextronics 372
Iberdrola 10, 32, 57, 79, 163, 203, 238, 240
Fluke Dominion Mexico 340-341
IEnova 188, 238, 300, 301
FND 287
IFC 185, 348
Fotowatio Renewable Ventures 89, 92
IGSA 296, 322
Fresnillo 110, 131, 274
ILIOSS/SolarCity Mexico 282
Fronius 283
IMASA Ingeniería y Proyectos México 187
G2E 397
IMCO 125, 315
Galo Energy 64
IMPI 385, 399
Galt Energy 286
IMSS 335, 399
Gamesa 113, 203, 226, 229, 230, 231, 240, 245, 253
INAH 77, 187, 219, 235, 399
Gas Natural Fenosa 32, 36, 79, 222, 240, 373
INCO 323, 328
Gasoductos de Chihuahua 188
Industrias Energéticas 316
Gauss Energía 70, 261, 390
Industrias Peñoles 131, 238
Generac 311
Industronic 285
Generadora Fénix 8, 86, 87, 92, 205
INEEL 31, 66, 99, 100, 101, 115, 144, 321, 332, 386, 387, 389
General Electric 197, 363
INEGI 217, 221, 287, 288, 399
Genertronics 335
INFONAVIT 285, 399
Geocycle México 375, 376
InfraRed Capital Partners 102
GE Power & Water 377
Ingeteam 159
Global Energy Services Mexico 203, 245
Intec Ecotecnologías 347
Goodrich, Riquelme y Asociados 42-43
InterGen 84, 238
Government of Baja California Sur 125, 215
Inventive Power 368, 385
Government of Jalisco 124, 388
IRENA 258, 270, 284, 353
Government of Nuevo Leon 298
ISA Energy Solutions International 304
Government of Oaxaca 244
Isolux Corsán 141, 162
Government of Queretaro 123
Itron 155, 157
INDEX J-R JBIC 183
NAEAM 101
Jinko Solar 8, 9, 75, 83, 92, 262
NAFINSA 9, 172, 175, 176, 177, 179, 180, 184, 185, 207, 287
JP Morgan 185
NAICM 141, 184, 335, 367, 399
KACO 270
Neomexicana 299
Kaeser Compresores 350
Nestlé México 122, 132-133
Kepler Constructora 198
NEXTracker 187, 372
KfW 175, 191
Nissan Mexicana 128, 139
Kintech Engineering 243, 253
Oak Creek Energy 92, 249, 252
KPMG 40, 51, 60-61
OCI Solar Power 267, 270
Lafarge Holcim Group 375, 376
OECD 11, 28, 29, 105, 191, 216, 367, 383
La Salle 187, 267, 270
ONEOK 302
Leoni Cable 187, 267, 270
OPIC 187, 267, 348
Luz y Fuerza del Centro 86, 100
Optima Energía 348
Maccaferri Industrial Group 279
Ormazabal Mexico 82, 163
Madisa 319
OSHA 198, 377
Magna 317
OSRAM 368
Mario Molina Center 29, 125
Overflod Social 221
Marsh 214, 251
PA Consulting 62-63
Martifer Solar 390
Pattern Development 246, 247
MASE Energy 206, 226
Pattern Energy Group 247
MÉXICO2 172, 179, 394
PEMEX 10, 21, 24, 41, 49, 62, 98, 110, 111, 183, 188, 199, 285,
Milbank 189, 196
296, 297, 299, 300, 304, 307, 308, 313, 320, 321, 336, 337,
Ministry of Energy 9, 10, 12, 13, 14-15, 20, 21, 22, 25, 27, 30,
341, 363, 382, 399
31, 35, 44, 46, 59, 60, 63, 70, 77, 78, 82, 99, 122, 139, 149,
PJM 42, 55, 64, 99, 399
151, 153, 160, 206, 216, 220, 221, 229, 249, 283, 291, 300, 337,
Polycon 317
346, 382, 383, 384, 385, 387, 389, 392, 393
Pounce 368
Mission Solar Energy 270
Power Electronics Mexico 281, 363
Mitsubishi 183, 311, 329
PPG 350
Mitsui & Co. Power Americas 10, 114, 183
Promotora Energética E3 315
Mortenson Construction 270
Provoltaje (Chint Mexico) 364, 389
Mota-Engil 86, 92, 205
PwC 40, 58-59, 179
Munich RE 212-213
Rengen Energy Solutions 320-321
NADB 187, 267
Riverstone 247
Nader, Hayaux & Goebel (NHG) 188
Roca Desarrollos 351
INDEX R-Z Rödl & Partner 51
The Lexington Group 391
Rodríguez Dávalos Abogados 50
Thermion Energy 98, 105
Rolls-Royce Power Systems 331
Thompson & Knight 48-49
SAGARPA 217, 399
TIBA 373
Santander 210, 348
Tlalli Energía 353, 354
S&C Electric Mexicana 166
Top Energy 269, 287
Schneider Electric 163, 187, 360, 361
Toshiba 183
Scotiabank Mexico 186
Trade On 109, 117
SEDATU 77, 217, 399
TransCanada 300, 301
SEL 165, 366
Trina Solar 82, 254, 258, 260
Selmec & Cleaver Brooks Mexico 334
Tsinghua Solar Systems 291
SEL Mexico 366
Tsinghua University 291
SEMARNAT 77, 134, 187, 235, 344, 349, 394, 399
University of Arizona 387
SgurrEnergy 83, 250
University of California 387
Siemens 151, 163, 197, 205, 229, 360, 362, 363
UL-DEWI 235
Siemens PLM Software 360, 362
Urisa 141
Sigma Solutions 360, 369
Vansertec 343
Sinérgica 342
Vattenfall 163
Smart Grid México 149, 153
Veolus 324, 328, 338
SMBC Mexico 180-181
Vestas 228-229, 252
SME 86-87, 92, 100, 101, 184, 205, 329
Virtual Pipelines Mexico 312
SolarCity 42, 43, 280, 282
Vitro 154, 308
SOWITEC 238, 248, 253
ViveEnergía 214
SUMe 349
Volkswagen de México 129, 350
SUMEX 100-101, 122
Von Wobeser & Sierra 46
Sun Action Trackers 270
Wärtsilä 199, 201
SunEdison 34
Williams Scotsman 211
Sustrend 191
WINDAR Renovables 231
SYNERGY 280
WIPO 385, 399
TAG-Pipelines 301
Woodhouse Lorente Ludlow 8, 44-45, 101, 392
Tecnológico de Monterrey (ITESM) 387
World Bank 51, 73, 154, 175, 216, 394
Tesla 283, 368
Zumma rg+c 57, 392
Tetra Pak 122, 135 The Carbon Trust 65
ADVERTISING INDEX 6
Ministry of Energy
178
Fondo de Fondos
18-19
Junquera y Forcada, S.C.
182
Nader, Hayaux & Goebel (NHG)
23
Trina Solar
194 Emerson
38
Kelly Services
213 GDI
43 Kepler
217
49
Thompson & Knight
224 SEL
68
Asociación Mexicana de Energía
232
Mexico Business Events (MBE)
81
Williams Scotsman
Anaf Energy
242
Grupo Tecno
87 SME
256
Alion Energy
96 SUMEX
279
Power Electronics
104
Maillard, Cerbón, Canudas, Argumedo y
284
Mase Energy
Asociados
286
Top Energy
108
Crecimiento Programado
290
Beristain + Asociados
111
Athena Consulting
294
Rengen Energy Solutions
120
Mexico Business Publishing (MBP)
301
Santa Fe Gas
126 NetBrains
326 Veolus
130
Grupo IPS de México
334 Genertronics
133
Grupo MD
358
Industrias Energéticas
146 ABB
365
Provoltaje (Chint Mexico)
170
380 Rosen
BNP Paribas
PROJECT SPOTLIGHTS 136
New Mexico City International Airport
151
Oaxaca-Valley of Mexico HVDC Transmission Line
156
Openway Riva: A Powerful IoT Solution
187
Los Santos I Solar PV Plant
201
Huinala Felxicycle™ Power Plant
205
Alameda Hydroelectric Power Plant
209
Nayarit's San Pedro Dome
218
Tamazunchale - El Sauz Pipeline
263
Alion Energy ARC Tracker
TECHNOLOGY SPOTLIGHTS 152
Smart Grid Mexico's Collaborative Grid System
164
SEL's Powercore Substation Control Enclosures
374
Co-processing Could Help Reduce Waste-related Risks
90
Power Auctions
160
Interregional Transmission Limits 2016-2021
237
Wind Projects in Operation & Construction
264
PV Plants in Operation in Mexico by August 2016
272
PV in Construction by August 2016
288
Residential PV Usage as of 2015
303
Fermaca's Energy Corridor
306
Natural Gas Pipelines
354
Geothermal Resources in Mexico
MAPS
PHOTO CREDITS Inner front cover
Enel Green Power Mexico
88
Greenergy Renovables Fotowatio Renewable Ventures
4
Grupo México
89
12
Ministry of Energy
94 CENACE
13
Ministry of Energy
99 CENACE
14 MBP
100 SUMEX
16 CFE
102 MBP
20 MBP
103 MBP
21 CRE
105 MBP
22 CRE
106 MBP
24 MBP
107 Biosolventus
25 CONAGUA
109 MBP
26 CFE
110 MBP
27 AME
111 MBP
28 OECD
112
Grupo México
29 MBP
113
Grupo México
30 MBP
114 MBP
31 INEEL
115 INEEL
32 MBP
116
Ministry of Energy, AME, EY
33 MBP
117
MBP, MBP, Biosolventus, MBP
36
Gas Natural Fenosa
118
Grupo Hérdez
41 AMDE
123
Government of Queretaro
42
Goodrich, Riquelme y Asociados
124
Government of Jalisco
44 MBP
125
Government of Baja California Sur
46
Von Wobesser & Sierra
127
Grupo Bimbo
47
Holland & Knight
128
Nissan Mexicana
48
Thompson & Knight
129
Volkswagen México
50 MBP
131
MBP, Fresnillo, Industrias Peñoles
51 MBP
132
Nestlé México
52
134 MBP
Enel Green Power Mexico
53 MBP
135
54 EY
136 Nestlé
56 MBP
137 MBP
57 MBP
138 MBP
58 MBP
139
60 MBP
140 GACM
61
142
AES México
Tetra Pak
Nissan Mexicana, CEMEX, MBP HSBC México
62 MBP
143 Citibanamex
64 MBP
144 INEEL
65
149 MBP
The Carbon Trust
66 INEEL
150 MBP
71 CENACE
151 CFE
72
152 ABB
Enel Green Power Mexico
74 MBP
154 ho1a
75 MBP
155 MBP
76 CFE
156 Itron
77
158 MBP
Government of Yucatan
78 MBP
159 MBP
79 MBP
162 MBP
80
Clifford Chance
163 MBP
82
MBP, MBP, Ormazabal
164 SEL
83
MBP, MBP, MBP, Clifford Chance
166 MBP
84 MBP
167 MBP
85 MBP
168 CFE
86 MBP
173 MBP
PHOTO CREDITS 174 MBP
254
175 NAFINSA
258 MBP
176 IADB
259 MBP
179 MÉXICO2
260
Trina Solar
180 SMBC
262
Jinko Solar
183 MBP
263
Alion Energy
184 Citibanamex
266 MBP
185
267 MBP
HSBC México
Trina Solar
186 MBP
268
Alion Energy
188 MBP
269
Top Energy
189 Milbank
270 MBP
190
271 MBP
Grupo Dragón
191 MBP
276
192 Codisa
278 MBP
197 MBP
280 MBP
198
Kepler Constructora
Eosol Energy
281
Power Electronics
199 Wärtstilä
282
ILIOSS/SolarCity Mexico
200 Wärtstilä
283 MBP
202 MBP
285 MBP
203 MBP
286 MBP
204
287 MBP
CISA Energía
205 SME
292 Fermaca
206 MBP
297 MBP
207 MBP
298 MBP
208
299 MBP
Grupo Dragón
210 MBP
300 MBP
211 MBP
304 Emerson
212 MBP
309 Fermaca
214
MBP, MBP, Marsh
310 Enagás
215
Fermaca, MBP, Government of Baja California Sur,
311
MBP
312 MBP
216 MBP
313 MBP
218 GDI
314 Emerson
220 MBP
315
221 MBP
316 MBP
222
317 MBP
Gas Natural Fenosa
Grupo MD
Promotora Energética E3
227 MBP
318 MBP
228 Vestas
319 MBP
230 Gamesa
320 MBP
231 MBP
321 INEEL
233 MBP
322 MBP
234 MBP
323 MBP
235 MBP
324 Veolus
243 MBP
329 MBP
244
330 Cummins
Government of Oaxaca
245 MBP
331
246 CEMEX
332 INEEL
247 MBP
333 MBP
248 SOWITEC
334 MBP
249 MBP
335 MBP
250 MBP
336 MBP
251 Marsh
338 MBP
252
MBP, Vestas, MBP
339 Diram
253
MBP, MBP, SOWITEC, Government of Oaxaca
340 MBP
Rolls-Royce Power Systems
PHOTO CREDITS 342 MBP
373 TIBA
343 MBP
374 Geocycle
344 MBP
376 MBP
346 MBP
377 MBP
347 MBP
378 Femsa
348 MBP
384 Deloitte
349 MBP
385 GreenMomentum
350
MBP, MBP, Volkswagen de México
386 INEEL
351
MBP, FINSA, MBP, MBP
387 MBP
352
Grupo ENAL
388
MBP, ho1a, Government of Jalisco
353
Tlalli Energía
389
GreenMomentum, INEEL, MBP, MBP
356 ho1a
390 MBP
361
391
The Lexington Group
362 MBP
392
MBP, MBP, EY
363 MBP
393
Holland & Knight, Ministry of Energy, CRE, MBP
364 MBP
394 MBP
366 MBP
395 MBP
367 MBP
396
368 Pounce
397 MBP
369 MBP
402 Sgurr
370 MBP
407 Sgurr
371 Huawei
Back Inner Cover CFE
Schneider Electric
372 MBP
CEMEX Energía
CREDITS JOURNALIST & INDUSTRY ANALYST: Mariana Jiménez JUNIOR JOURNALIST & INDUSTRY ANALYST: Diana Quezada PUBLICATION COORDINATOR: Eloisa Villegas JUNIOR PUBLICATION COORDINATOR: Rebeca Garduño EDITORIAL MANAGER: Tomás Sarmiento ASSOCIATE EDITOR: Mario Di Simine EDITORIAL DIRECTOR: Vanessa Buendía COMMERCIAL DIRECTOR: Jack Miller GRAPHIC DESIGNER: Ailette Córdova DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Arturo Madrazo WEB DEVELOPMENT: Omar Sánchez SOCIAL MEDIA COORDINATOR: Karen Sujo COLLABORATOR: Sara Warden COLLABORATOR: Nadine Heir COLLABORATOR: Camila del Villar COLLABORATOR: Alicia Arizpe COLLABORATOR: Brenda Salas COLLABORATOR: Alejandro Salas COLLABORATOR: Gabriela Mastache COLLABORATOR: Alejandra Gómez DIRECTOR GENERAL: Jeroen Posma PUBLICATION ADMINISTRATOR: Alena Lipková ADMINISTRATIVE ASSISTANT: Gabriela Román CIRCULATION MANAGER: Elizabeth Solís
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