Mexico Energy Review 2019 by Mexico Business Publishing

2019

“I am sure that we will achieve the goal of fortifiying this great enterprise (CFE), for the good of our people, for the sake of workers and for the sake of Mexico” Andrés Manuel López Obrador, President of Mexico

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2019

Mexico underwent a presidential transition in 2018 that rippled across the energy industry, with uncertainty facing the sector. President Andrés Manuel López Obrador’s administration was loud and clear from the beginning about its mandate to boost Mexico’s electricity generation and cope with the country’s increasing energy demand. His ambitious National Electricity Program, executed by Manuel Bartlett, the newly instated Director General of CFE, set a course to revamp the country’s coal-fueled power plants, geothermal plants and hydroelectric installed capacity. One key aspect of López Obrador’s plan that remains unclear is whether or not the new energy model, led by Rocío Nahle, Minister of Energy, will continue using the tools employed by the previous administration to achieve not only the goal of supplying the country’s energy demand but also aligning its energy production to its international commitment of increasing the participation of renewable energy to 35 percent of the total mix by 2024. The first actions taken by the administration suggested it would not be business as usual. Alfonso Morcos, the new Director General of CENACE, announced the suspension of the fourth edition of the long-term electricity auctions in December. These auctions were the prime tool of former President Enrique Peña Nieto’s Energy Reform to award and incentivize the development of large-scale clean energy projects. CRE also saw a massive reduction in its budget for 2019.

Whether López Obrador keeps the door open for future editions of the long-term electricity auctions, 2018 showed that Mexico is already experiencing an open market where new and better technologies are being deployed throughout the country. Mexico Energy Review 2019 looks back at the milestones achieved in 2018, while exploring the role of conventional and renewable power generation technologies as the country copes with the needs of a more sophisticated and informed electricity market.

TABLE OF CONTENTS

STATE OF THE INDUSTRY

ENERGY MIX & ELECTRICITY ECONOMICS

POWER AUCTIONS

POWER PRODUCERS

WHOLESALE ELECTRICITY MARKET & TRADING

6 7

Supplement

WIND

SOLAR

ENVIRONMENTAL & SOCIAL RESPONSIBILITY

FINANCE, OPERATIONS & MAINTENANCE

TRANSMISSION & DISTRIBUTION

OFF-TAKERS

NEW MARKET ENTRANTS & TECHNOLOGIES

NATURAL GAS

ENERGY MANAGEMENT

THE NEXT SIX YEARS

Grupo Mexico's El Retiro wind farm, Juchitan, Oaxaca

STATE OF THEÂ INDUSTRY

Three long-term electricity auctions and one midterm auction later, Mexico demonstrated in 2018 that renewables are here to stay. As the energy mix gets greener, the country is further developing its renewable energy value chain and final users will see the impact in their electricity bill if this growth is enhanced in the coming years. In the meantime, Mexicoâ&#x20AC;&#x2122;s industrial segment will be gas-fueled, and a strategy regarding production, transportation and distribution needs to be established for guaranteeing grid reliability, coping with rising demand and transitioning toward a low-carbon future.

By the end of 2018 and with a new federal administration in place, uncertainty reigned and calls for Energy Reform continuity bellowed from all corners of the industry. Important auction processes for developing generation and transmission infrastructure have been put on hold and the new administration will have the final vote in this matter. State of the Industry presents the voices of the key policymakers, regulators and industry leaders who are collaborating on the development of the new energy model to provide a clear picture of the current landscape.

CHAPTER 1: STATE OF THE INDUSTRY 8

ANALYSIS: The Year in Review

VIEW FROM THE TOP: Leonardo Beltrán, Ministry of Energy

VIEW FROM THE TOP: Fernando Zendejas, Ministry of Energy

ANALYSIS: A New Era for Productive State Enterprise

VIEW FROM THE TOP: Guillermo García, CRE

VIEW FROM THE TOP: Eduardo Meraz, CENACE

VIEW FROM THE TOP: José María Cu Cañetas, Energy Agency of the State of Campeche

VIEW FROM THE TOP: José Luis Calvo, SEMAEDESO

VIEW FROM THE TOP: Christoph Frei, World Energy Council

VIEW FROM THE TOP: Odón De Buen, CONUEE

VIEW FROM THE TOP: Angélica Quiñones, ANES

VIEW FROM THE TOP: Javier Romero, AMFEF

VIEW FROM THE TOP: Montserrat Ramiro, CRE

VIEW FROM THE TOP: Guillermo Zúñiga, CRE

VIEW FROM THE TOP: Alfredo Álvarez, EY

VIEW FROM THE TOP: Noé Pascacio, BGBG Abogados

VIEW FROM THE TOP: Juan Vargas, Deloitte Consulting

| ANALYSIS

THE YEAR IN REVIEW 2018 was a decisive year for the consolidation of Mexico’s energy model. Added renewable energy capacity and a burgeoning number of market players are some of the results of this model but a new administration is promising to shake things up as the industry calls for continuity

The state of Mexico’s energy industry is strong, even if

mix is injected with additional renewable energy capacity,

uncertainty remains the flavor of the day. With regulations

natural gas is expected to play a critical role as a transition

shaping up to address nascent needs, the pieces are in place

fuel, either through continued imports or increased domestic

to continue consolidating the Energy Reform. But the election

production, which López Obrador is championing. Cheaper

of President Andrés Manuel López Obrador, who has promised

and more environmentally-friendly compared to other

to focus on conventional energy sources, has spurred calls

conventional fuels, access to natural gas can detonate the

from the sector for continuity. The new administration,

regional development of Mexico’s economically vulnerable

inaugurated in December 2018, quickly moved to show its

southern region.

hand with the suspension of the fourth long-term electricity auction and the Baja California – National Interconnected

The country also took steps in 2018 to prepare its transmission

System Transmission Line while pushing back the scheduled

and distribution infrastructure to absorb the intake of the to-

tender for the key Yautepec – Ixtepec Transmission Line. How

be installed 8GW of renewable energy capacity. According

AMLO’s plans play out will determine the landscape for the

to CRE’s database, the state of Oaxaca alone cumulates

next six years. For now, the president and his government

2,346MW of operational wind power capacity, as of October

take over an industry that has been internationally acclaimed

2018, and will welcome an additional 411MW before 2021.

for the speedy implementation and successes of its reform.

While this renewable energy landmark is good news for the country’s clean energy ambitions related to the 2024 horizon,

One sure sign of consolidation is the imminent conclusion

the renewable power generation potential of Oaxaca’s

of the regulatory process that provides all the tools for

Tehuantepec Isthmus risks facing a transmission bottleneck.

an operational energy market to be fully functional and

To that end, the tender of the Yautepec – Ixtepec Transmission

increasingly renewable. Looking to find further efficiencies

Line project is meant to interconnect the state of Oaxaca with

for the transition, the industry’s regulators CRE, CNH and

the state of Morelos to transport the state’s power generation

ASEA, materialized their coordination efforts with the creation

to the energy-intensive center region. The project is estimated

of ODAC, the Coordinated Assistance Office of the Energy

to require an investment of US$1.2 billion and after several

Industry, to facilitate the permitting procedures of market

rescheduling announcements, CFE announced it will receive

players looking to capitalize on the unlocked opportunities

project proposals in February 2019 and the tender winner is

in the energy value chain. Nevertheless, these efforts might

set to be announced by March 2019. The other transmission

be limited by the reduction of budget that regulatory entities

flagship project is Baja California’s interconnection tender

have suffered with AMLO’s entrance to office, translating

to connect both states to the rest of the country’s National

in bottlenecks within their operations. As Mexico’s energy

Interconnected System. The transmission line is estimated

MAIN EVENTS IN THE ENERGY INDUSTRY 2018 January

February

March

April

May

June

The Ministry of Energy publishes the Contracting Manuals for Transmission and Distribution Services’ Coverage as well as the Manual for the Development of the Market Rules in the Official Federal Journal

CRE presents its 2018-2022 Strategic Plan and also publishes its 2018-2022 Business Plan

CENACE publishes the official results of the first midterm electricity auction

Pedro Joaquín Coldwell, Minister of Energy, states that Mexico is among the 10 most attractive countries for investment in renewable energy

The energy sector has raised MX$202 billion in the BMV, an amount that represents 14 percent of all CKDs

Public tenders for HDVC lines to connect Baja California with the rest of the country and to dispatch energy from the Isthmus of Tehuantepec to the center of the country attract 22 and 28 participants respectively

Mexico officially joins the International Energy Agency

CRE and CENACE publish the call for proposals for the fourth long-term electricity auction Enel Group inaugurates its 754MW Villanueva PV plant in Coahuila

to be 1,400km long and will be the first HVDC current

structuring. Mezzanine finance can provide a risk-mitigating

transmission line in the country. Conducted by the Ministry

bridge between attractive short-term yields and long-term

of Energy, the tender attracted the interest of 109 companies

uncertainty, characteristic of merchant projects. The ideal

and counts seven pre-qualified offers. The tender winner is

scenario is to gradually migrate from project finance to

scheduled to be announced by February 2019.

corporate finance based on a sufficiently large critical mass of projects for a strengthened refinancing capacity that provides

MERCHANT PROJECTS, BILATERAL PPAs

a capital structure much more adequate for merchant

With a cumulated pipeline of 58 clean energy projects

projects,” says Andrés Millán, Chief Investment Officer and

amounting to 8GW of installed capacity and US$8 billion

Co-Head of the IFC’s China-Mexico Fund. As Mexico’s project

in investments, Mexico’s long-term electricity auctions

finance practice gains sophistication and more financial

have consolidated their status as the success story of the

entities are enticed by this alternative, the country is poised

country’s energy transition and its 2024 landmark objective

to witness an increased number of merchant projects and

of 35 percent of clean energy generation. Although the

bilateral PPAs, fostered both by auction results and the

fourth-auction has been suspended, the aggressive package

increasing electricity demand from the country’s industrial

prices showcased in previous editions have limited auction

tissue. “A significant contingent of multinational sponsors that

participation to a specific player profile. This profile includes

have certain constraints on capital structure were not thrilled

utility-comparable companies with the business model and

or not even able to participate in the long-term auctions

financial capacity to enable an efficient and standardized

because of the low pricing obtained in the coverage contracts.

project development model suitable for utility-scale projects. “I

These low levels made certain assumptions about merchant

expect a market segmentation in which lower-volume projects

revenues that not everyone was willing to accept, including

can be pursued, opening the door to better offer prices and

financial institutions. We believe the emergence of bilateral

higher investment returns. But we cannot expect the case of

PPAs to be incredibly positive. For one, it means that more

a large market buyer to become a generalized rule for the

developers are pushing the commercial side of their business

industry. It would be a mistake to believe that the wholesale

and not just relying on CFE. Second, a pool of industrial players

electricity market will provide the same conditions to all when

willing to sign these PPAs is steadily growing, meaning they

not all have the same purchasing power,” says Rubén Cruz,

are getting more involved so they can enter into commercial

Energy and Natural Resources Lead Partner of KPMG.

conversations with project sponsors. It is a growing trend that will consolidate as we move forward under the new

The design of Mexico’s energy market avoids cornering

administration,” says Salomón Amkie, Vice President, Head

project developers to rely on a single scheme. On the contrary,

of Power and Utilities for Citibanamex.

it incentivizes companies with different risk preferences and commercial objectives to look for alternatives in the

FINANCIAL RIGHTS OF TRANSMISSION

market. Mexico is consolidating a pool of project sponsors

According to CENACE’s latest figures, Mexico’s wholesale

and IPPs that are more comfortable relying on nodal prices

electricity market counted 140 operational participants and

and private off-takers rather than auction prices and CFE

68 in the process of asset registration. Out of these 72 active

as the final off-taker. “Merchant projects obtain financing

participants, 46 are power producers, 17 are qualified suppliers,

under much shorter terms compared to long-term electricity

seven are non-supplying traders, with one intermediation

auction projects, calling for a primarily equity-based financial

power producer and a basic supply provider. CENACE also

July

August

September

October

November

December

Andrés Manuel López Obrador wins presidential election

The results of the public auction for the construction and operation of the HVDC transmission lines connecting Oaxaca to Morelos is postponed for the fourth time

CENACE announces plans to inject 12.429GW of new power generation into the grid during 1H19

MORENA’s parliamentary group in the Deputies Chamber presents an Organic Law Proposal for regulatory bodies CNH and CRE to become part of the Ministry of Energy

Mexico’s fourth long-term electricity auction is suspended

AMLO inaugurated as president

CFE ends its efforts to obtain an amparo against CRE’s administrative provisions for distributed generation

The biggest wind farm in Mexico, located in Tamaulipas, starts operations with 424MW

AMLO unveils his National Electricity Plan and CRE suffers a budgetary cut of 26 percent Rocío Nahle enters office as the new Minister of Energy CENACE announces Alfonso Morcos as new Director General

Primary Energy Production in 2017

TOTAL GENERATION (GWh)

registered energy transactions in the spot, day-ahead and hour-ahead markets, signaling the first steps toward market liquidity and generalized transactions. The road toward market maturity remains lengthy, as observed by Alejandro Blanco, Co-Founder of Tradeon Energy. “The fundamental problem is

329,163

that qualified suppliers require hedging contracts to operate but have limited capacity to sell their retail products. It helps little that they often overlook the need to get involved in the wholesale hedging market, which provides access to Capacity Bilateral Transactions (TBPot), Energy Bilateral Transactions

(TBFin), CELs and financial derivatives, such as swaps. This

78.9% Conventional 21.1% Clean Primary Energy Production in 2017

TOTAL CONVENTIONAL ENERGY GENERATION (GWh)

means the conditions required for new qualified suppliers to be competitive are absent. Without a strong retail segment requiring hedging and bilateral contracts, wholesale cannot prosper,” he says. The infant market has yet to adjust to the detected imbalance between power energy and CEL prices showcased in the auctions and those reflected in the spot market, determined

259,766

by node marginal prices. “Qualified users are constantly on the lookout for the best price levels. In our experience, they are aware that their trading price tags will not reach longterm electricity auction levels. I believe the imbalance comes rather from trading terms rather than price levels,” argues Juan Guichard, CEO of Ammper Energía. He also highlights

63.6% Combined Cycle 16.5% Conventional Thermoelectric 11.8% Coal 4.9% Turbogas 1.7% Internal Combustion 1.5% Fluidized Bed Primary Energy Production in 2017

TOTAL CLEAN ENERGY GENERATION (GWh)

the need for broader financing. “Another pending issue that is needed to boost energy trading is the increased involvement of financial entities. By crafting bankable long-term PPAs with solid warranties, financial entities can contribute to mitigating the inherent long-term risks in energy trading transactions.” The remaining ingredient for a fully operational wholesale electricity market eagerly awaited by market participants are financial rights of transmission. “It is the only puzzle piece left of fundamental importance for the qualified supply market,” says Marcelino Madrigal, Commissioner at CRE. “In essence, these mechanisms provide the possibility to purchase rights

69,398

over congestion pricing. This means acquiring the rights, through an auction, obtaining the rights over node price differentials between energy injection and extraction. They essentially act as a shield for power producers and qualified users over electricity price variability over time.”

FUELING ECONOMIC GROWTH

45.9% Hydroelectic 15.7% Nuclear 15.3% Wind 10% Efficient Cogeneration 8.7% Geothermal 2.8% Bioenergy and FIRCO 1% Distributed Generation 0.5% Solar 0.1% Regenerative Breaks

Despite Mexico’s commendable efforts to transition toward

Source: Ministry of Energy

decision to adapt its thermoelectric plants to dual combustion

renewable energy, natural gas still accounts for 70 percent of fossil fuel demand for power generation purposes. According to PRODESEN 2018-2032, combined cycle generation alone accounts for half of the country’s power generation. Highly cost-effective and environmentally friendly, Mexico’s access to natural gas’ cheapest market, the US, has placed this fuel at the center of the country’s power generation plans to transition toward renewable energy. In 2014, CFE made the

processes to gradually transition from fuel oil to natural gas.

time based on electricity rate variability. For final users, it

This process is ongoing.

unlocks the possibility to shave the maximum peak demand and significantly reduce electricity bills at a time when they

Given natural gas’ contribution to the country’s power

are expected to steadily increase. It also provides long-term

supply, it comes as no surprise that CENAGAS is looking

certainty over electricity costs,” says Alejandro Preinfalk, Vice

to use natural gas as a lever for national development and

President of Energy Management at Siemens Mexico.

reach greater economic growth rates. The national pipeline administrator, announced a MX$1.75 billion investment on the

For Oscar Miranda, Co-Founder and President of Smart Grid

Yucatan Peninsula. “Part of this investment will be allocated to

Mexico, smart grids in the country have left the theoretical

the reconfiguration of the Zempoala compression station and

realm to materialize in the country’s day to day electricity

the interconnection of the Tuxpan pipeline. Another project

supply. “All the necessary measurements for correct billing in

to be financed by this investment is Engie’s interconnection

the WEM are fully automated and every operation related to

between the Mayacan system with SISTRANGAS pipelines

the security and protection of the electricity grid in Mexico is

in the southeastern region of the country to freely transit

done with telecommunication protocols that are automated.

toward the Yucatan Peninsula. Engie is additionally investing

As a matter of fact, for the WEM to work properly every

in the Mayacan pipeline to increase compression capacity and

process has to be fully automated. As for DG projects, they

possible flow. Its capacity is close to 0.25Bcf/d while flows

also need smart grids for participants to measure bidirectional

have yet to surpass the 0.08Bcf/d mark,” says David Madero,

energy fluxes and to bill clients correctly,” he says.

Director General of CENAGAS. CRE is redoubling efforts to make sure Mexico’s regulatory To guarantee reliability and safety to natural gas supply

framework is entry-barrier free for new technological

for power generation purposes, CENAGAS and CENACE,

developments designed to assist the country’s electricity

the electricity system administrator, modified a critical

transmission and distribution. “The electricity rates CRE

coordination agreement signed in 2015 two years after its

approves for CFE recover the grid’s operation, maintenance

initial signature, in September 2017. “Our core objective as

and growth costs. CRE has a regulatory mechanism in place

control centers is to offer the safest, most reliable and efficient

where, provided the right rates, CFE, in its role as electricity

transport system aligned perfectly with CENACE’s mission

transmitter and distributor, has the required incentives

to offer an electricity system that is equally safe, reliable and

to improve the grid. On the innovation side, the Ministry

efficient. In this sense, part of our work requires us to provide

of Energy drafted a smart grid plan in 2016, approved by

feedback related to project demand growth projections for

CRE, with information provided from CENACE. CFE’s grid

electricity and natural gas, coupled with ensuring the safety

expansion plan therefore includes investments in innovative

and reliability of natural gas supply to enable a solid electricity

technologies, such as smart metering,” says Madrigal.

industry. When operating with a vision of natural gas as a transition fuel, it is particularly critical to enable the support

THE AMLO ADMINISTRATION

it can provide to tackle renewable energy intermittency.

The wrench in the machinery for the energy industry is the new

This is why constant coordination between CENAGAS and

government presided by López Obrador. His calls to revisit,

CENACE is equally critical. The first fruits of this collaboration

and potentially revise, the Energy Reform rattled investors

have resulted in planning improvements, emergency reaction

throughout 2018 as the presidential campaign unfolded and

and management between both control centers as well as

with AMLO’s victory and subsequent inauguration. Industry

administrative efficiencies,” Madero added.

insiders have been unified in their calls for continuity in the reform, which they view as mostly successful. The signs

PREPARING MEXICO’S SMART GRID

so far have been mixed. López Obrador took office with a

Distributed generation, decentralized microgrids and energy

blistering attack on the Energy Reform, which he said “had

storage technology are but a few of the technological

only meant a drop in oil production and rise in gasoline

disruptions called to profoundly transform how Mexico has

prices.” He has vowed to strengthen both PEMEX and CFE

traditionally produced, transmitted, distributed and consumed

as productive enterprises of the state with a mandate to thrive

its electricity. Extending Mexico’s electricity transmission

under market conditions, bolstering both their budgets for

and distribution infrastructure is but one aspect of how the

2019. The suspension of the fourth long-term auction also

exponential growth of the country’s electricity consumption

helped crack the egg of certainty that had settled over the

can be addressed. “In the case of energy storage, ROIs are

industry. The new administration has also expressed interest

averaging five years. For the grid operator, that translates into

in revamping the country’s hydroelectric assets and has been

a reliable power supply, meaning stable frequency and voltage.

adamant about securing the continuity of renewable energy’s

For power producers, it provides the possibility of storing

penetration in the energy mix. For now, the stage is set. The

energy and trading it in the market at a more convenient

market is only waiting to see how it unfolds.

| VIEW FROM THE TOP

ENERGY EFFICIENCY AS ENERGY POLICY 2.0 LEONARDO BELTRÁN Former Deputy Minister of Planning and Energy Transition

Q: How does Mexico’s 2012 energy mix contrast with 2018

A: It is a matter of pending regulation, which CRE is in the

and is the country on track to meet its 2024 objectives?

process of concluding, to make sure it answers to market

A: Since 2012, we have expanded our installed wind power

requirements and can establish a seamless cohabitation

capacity sevenfold and PV generation’s installed capacity

between the traditional, centralized power generation model

grew 48 times, from 34MW in 2012 to 1,677 MW by 2018. The

and the growing decentralized system. Going forward, we

Ministry of Energy laid the groundwork for the legal framework

need to think about preparing the regulatory framework for

to ensure it was conducive to reaching our 2024 goals. The

new, flexible models that can enable the use of disruptive

data is there to assess our progress. The World Bank ranks the

technologies, such as EV, energy storage and blockchain. In

sustainability of the energy policies of 111 countries, including

terms of electricity transmission and distribution infrastructure,

renewables, energy efficiency and electricity access. Overall,

Mexico needs to both extend it and rely on distributed

Mexico ranked 14th in 2017. Bloomberg New Energy Finance

generation systems, as witnessed by the exponential growth

placed Mexico in the Top 10 renewable energy investment

in the number of distributed generation interconnection

destinations in 2017. Mexico alone represented over one-

contracts. Mexico’s energy security is based on relying on a

third of clean energy investments in Latin America that same

mix of optimal options and this administration excluded no

year. Mexico went from being among 2012’s Top 30 to 2018’s

possibility as long as it contributed to the energy security goal.

Top 13 most-attractive countries in EY’s Renewable Energy Attractiveness Index. It is quite encouraging to see Mexico in

Q: What flagship project showcases the success of Mexico’s

such good standing on the international stage.

energy transition? A: Coahuila is now home to the second-largest PV park

Q: What would you have done differently during your term?

worldwide, located in Villanueva. It is the direct result of

A: In retrospect, energy efficiency should have been

the country’s Energy Reform. The next largest Mexican PV

considered an essential component of the WEM, comparable

park is being built in Tlaxcala, with an installed capacity of

to CELs. Energy efficiency should be the Energy Transition

500 MW. Geothermal is also enjoying a second wind with

Policy 2.0 for the new administration. We also should have

private players developing projectsas a result of the reform.

paved the way to unlock CFE’s access to capital markets

Mexico’s southern region would not have seen wind and solar

and to list on the Mexican stock exchange. CFE is difficult

projects if not for the regulatory framework that fostered their

to compare to a similar fully private and stock market-

seamless development, including social and environmental

listed corporation as it does not operate under the same

impact assessments.

conditions nor does it have the same corporate mandate. Listing CFE on the Mexican stock exchange has the potential

Q: What changes do you expect from the new administration?

of doing wonders for its corporate governance, financial

A: The new administration has a specific vision and set of

health and overall competitiveness, both at the national and

actions for what needs to be done to foster the growth of the

international levels.

energy industry. This vision obeys to a moment in Mexico’s history when the country did not have as many trade and

Q: How is Mexico preparing to integrate disruptive

investment connections with the international economy as

technologies such as EV, energy storage and blockchain?

we have today. Now, Mexico has one of the most extensive lists of trade agreements worldwide. As per the World Bank’s latest figures, international trade amounts to 77.56 percent of

Leonardo Beltrán has 13 years of experience serving in the Ministry

Mexico’s GDP. As Mexico is a market-driven economy, it makes

of Energy, first as International Negotiations Director from 2005

sense to inject market forces into the country’s electricity

to 2010. He then served as Director General of Information and

industry, such as the design and launch of the wholesale

Energy Studies until his former appointment in 2012

electricity market.

VIEW FROM THE TOP |

MEXICO WILL KEEP THE SWITCH ON FERNANDO ZENDEJAS Former Deputy Minister of Electricity at the Ministry of Energy

Q: How does the Deputy Ministry of Electricity expect the

any company that aims to generate electricity and complies

energy mix to evolve in the coming years?

with the requirements stated by CRE and CENACE can

A: Regarding installed capacity, this administration will

do so. Finally, the third contribution is the creation of the

conclude with 31 percent of clean energy generation. Taking

qualified supplier figure, which is considered a milestone

into account intermittency in effective generation, the total

because it provides certainty for long-term investments and

is around 21 percent. Nevertheless, with the installation of

a more dynamic and competitive market.

new plants, the country evolved from 62,000MW in 2012 to 78,000MW in 2018. Half of the additional 16,000MW

Q: What three main topics should the next administration

comes from clean energy sources. If this growth continues,

prioritize in the electricity industry agenda?

in the next 15 years conventional thermoelectric plants will

A: First, it should prioritize preventing possible congestions

decrease their participation in the energy mix. Regarding

that might take place in the transmission lines, mainly in

natural gas, this fuel represents half the country’s electricity

nodes that are seeing increasing demand, such as the

generation and as long as it remains abundant, has a small

Yucatan Peninsula or Monterrey’s metropolitan zone.

carbon footprint and is governed by competitive prices, it

Second, it should follow the market rules as established,

makes sense to keep it in the mix. Additionally, there are

executing a long-term electricity auction per year. Third,

other technologies that are reliable and consistent, such as

rural electrification is a pressing issue.

nuclear energy. Laguna Verde’s two reactors supply close to 5 percent of the national electricity demand and the

Q: Looking at the electricity system as a whole, what

PRODESEN aims to duplicate this capacity in the coming

energy policies are required to meet the country’s needs?

years. This will represent a huge investment for CFE as

A: The best thing any future administration can do is to

particulars cannot participate in this segment due to

respect the symbiosis between state planning, executed by

national security and constitutional restrictions.

the Ministry of Energy, administrated by CENACE, regulated by CRE and developed by CFE as the country’s productive

Q: What were the three main contributions of your office to

enterprise. Complementing this with private investment,

the national electricity industry during this administration?

long-term planning and the best technology available is

A: Primarily, we opened an opportunity for the industry

mandatory. Despite the political landscape, the country

to participate directly in transmission and distribution

will keep flipping the switch on, and current and future

infrastructure projects. At the moment, there are two

electricity demand will need transmission and distribution

important tenders on the agenda regarding the construction

infrastructure to supply energy at the required pace.

of transmission line projects. The first will be in association with CFE for the Ixtepec-Yautepec Transmission Line project

Regarding CFE, if the government decides it will have

that will interconnect Oaxaca and Morelos. The second is a

fewer than six subsidiaries, that will not pose a problem.

private project involving the interconnection between the

The Constitution provides the guidelines for a competitive

National Interconnected System and Baja California. The

industry. Having a CFE that is efficient and more competitive

latter will be the first project in the country’s history to

every day does not close the doors to other participants. I

install DC lines for electricity transport.

hope the next administration agrees with this as well.

The second contribution was the introduction of the new plant construction model that stands out from the four

Fernando Zendejas was appointed Deputy Minister of

modalities established in the 1992 Electricity Legislation.

Electricity at the Ministry of Energy in November 2017.

These were self-supply, independent power producers,

Zendejas’ experience in the energy sector includes roles with

small producers and cogeneration. With the current model,

PEMEX, CFE, CENACE, CENAGAS, the IEA and INEEL

| ANALYSIS

A NEW ERA FOR PRODUCTIVE STATE ENTERPRISE CFE looks to the future, armed with a bigger budget and a mandate to again take the leading role in supplying Mexico’s energy needs, following the priorities outlined by President López Obrador in his National Electricity Program

A new era dawned for CFE on Dec. 1, 2018, when Director

potentially deteriorates the sovereign credit profile in

General Jaime Hernández officially passed the torch to

the medium term.”

Manuel Bartlett, who wasted little time in outlining the productive state company’s priorities for the next six

Fernando Zendejas, former Deputy Minister of Electricity

years of President López Obrador’s term. In line with the

at the Ministry of Energy, says, however, that a stronger

government’s priorities and armed with a bigger budget,

CFE is not a problem. “The Constitution provides the

CFE will pursue coal, geothermal and hydropower as it

guidelines for a competitive industry. CFE is the national

moves to supply a rising demand for energy.

electricity company and we are proud of it. Having a CFE that is efficient and more competitive every day does not

AMLO intends for CFE to use its muscle, along with fellow

close the doors to other participants."

state company PEMEX, to put the country on the path to energy self-sufficiency. CFE’s budget for 2019 has been

for his part, Bartlett maintains that the company’s energy

pumped up to MX$434.7 billion, giving it an extra MX$20

capacity and its human organization had suffered during

billion. Bartlett, a Mexican lawyer who has held various

the last few administrations. “Financial limitations,

political positions, has announced investments in coal,

tariff insufficiency and the nontransfer of subsidies for

with MX$10.4 billion pledged to rehabilitate coal plants,

residential and agriculture segments” are some of the

and MX$980 million and MX$340 million committed to

reasons he gave. Others include a lack of maintenance

geothermal and hydroelectric plants, respectively.

and modernization, arbitrary retirements, inconsistent structural reforms and a change in CFE’s mission. “(These

CFE’s budget for 2019 has been pumped up to MX$434.7 billion, giving it an extra MX$20 billion

factors) have provoked a critical financial situation.”

AUCTION RESULTS FELT Of concern to the market is the suspension of the longterm electricity auctions after three editions. Although there were no electricity auctions in 2018, benefits of previous editions began to be felt by many – none more

Hydropower, in particular, is a mainstay of AMLO’s

so than CFE, according to Héctor Olea, President of

National Electricity Program, announced in December.

the Mexican Association of Solar Energy (ASOLMEX).

At the same time, Bartlett outlined CFE’s strategy to

“Renewable energy sources have dominated every edition.

modernize the country’s hydroelectric plants. “In close

The participant that has most benefited from this scheme

collaboration with CFE and CONAGUA, we have studied

is CFE,” he says. “This company has never purchased

the possibility of increasing hydro-energy capacity in

electricity as cheap as the prices obtained during the

the mix with an additional 3,300MW,” he said. “We have

auctions. Under this mechanism, the productive enterprise

significant feasibility projects to install 2,000MW by

of the state does not invest any money, nor does the state.”

taking advantage of 363 hydroelectric structures used for irrigation.”

In June 2018, Fitch Ratings gave CFE a AAA rating. Marian Aguirre, Energy Finance Vice President of Bancomext,

The beefy budget for CFE was a concern for ratings

believes the triple-A status of the country’s biggest off-

agency Moody’s, which had improved its outlook for the

taker aided the success of the auctions because the thin

company in April to stable from negative. Writing in a

margins for projects match the equally thin development

report following the budget announcement, sovereign

risk. “As long as CFE maintains a position of leadership

analyst Jaime Reusche said the importance placed on

as an off-taker, development banking institutions will be

CFE and PEMEX in the 2019 budget “generates concern

able to contribute from a more comfortable position,”

around the possibility that the parastatals become

she says. However, in November, Fitch downgraded

a recurrent burden for the federal government that

CFE’s Outlook from stable to negative and downgraded

its rating to BBB+ after López Obrador announced the

Revenues from Oct. 1, 2017 to Sept. 30, 2018 totaled

cancellation of the Mexico City airport project (NAIM).

MX$361.4 billion, a 0.4 percent increase on the MX$359.8 billion registered in the same period of 2016-17. Sale of

TARIFFS

energy accounted for the greatest revenue, contributing

Also bolstering CFE in 2018 was the tariff regime that

MX$261.7 billion.

allows the company to recover its costs. Prior to the Energy Reform, CFE was mandated with supplying energy to the country, establishing its own tariffs and overseeing its own infrastructure development. However, with the passing of the reform came an independent body, CRE, that would

INSTALLED CAPACITY BY MODALITY (MW) Modality

Capacity

take over the establishment of tariffs. This was done with the

Modalities in accordance with Public Service Law of Energy Efficiency

expectation that private companies could compete with the

CFE

366

Total Participation (%) 15 0.5

state-owned enterprise, effectively increasing competition

Independent Production

13,247

17.5

in the country and reducing electricity costs for final users

Self-Storage

9,994

13.2

without the need to provide government subsidies.

Small-Scale Production

0.1

Cogeneration

4,042

5.3

Leonardo Beltrán, former Deputy Minister of Planning and

Exportation

1,358

1.8

Energy Transition at the Ministry of Energy, says 2018 was

Continuous Own Use

477

0.6

an interesting year in terms of electricity tariffs. “The tariff we had before 2018 was a closed fee that obeyed to an

Modalities in accordance with Law of the Electricity Industry

income objective and that did not recover CFE’s costs,

CFE – Generator

42,934

56.7

Generator

2,700

3.6

Shared Risk and Distributed Generation

474

0.6

Total

75,685

so every year CFE saw its assets reduced,” he explains.

Others

As a result of the LIE, CRE is now responsible for setting tariffs for CFE, and according to Marcelino Madrigal, this was done in a way that allows CFE to recover the grid’s operation, maintenance and growth costs, meaning it can continue to

Source: PRODESEN

compete with private companies entering the country. “CRE has a regulatory mechanism in place where, provided the right

However, CFE made net losses of MX$37.8 billion during

rates, CFE, in its role as electricity transmitter and distributor,

this period, compared to net income of MX$34.5 billion

has the required incentives to improve the grid,” he says.

for the same period in 2016-17.

THE NATIONAL GRID

As of Sept. 30, debt had increased by MX$24.5 billion

The Ministry of Energy drafted a smart grid plan in 2016,

to MX$356.9 billion compared to MX$332.5 billion

approved by CRE. “CFE’s grid expansion plan includes

registered at year-end 2017. In its financial report, CFE

investments in innovative technologies, such as smart

indicated that an unfavorable exchange rate, amortization

metering,” says Madrigal. “CFE even launched a portal

payments and debt repayment amounted to MX$127.1

within its website for users to determine if the grid has

billion. EBITDA dropped in the third quarter of the year

the capacity to absorb a distributed generation system

to MX$15.3 billion compared to MX$31.9 billion during the

in a specific location, residential or other.”

same period in 2017.

Mexico’s total installed grid capacity as of September

Looking to the future, Beltrán believes that, just like

2018 was 75,685MW. CENACE says that 12,429MW

PEMEX, the state-owned electricity company would be

of extra capacity would enter into operation in the

more profitable and transparent if all or part of it were to

National Interconnected System by June 1, 2019. This

launch an Initial Public Offering. “We should have paved

total capacity will be generated by 84 new power plants

the way to unlock CFE’s access to capital markets and

that will be installed in 22 entities in Mexico, of which

to list on the Mexican stock exchange,” he says. “CFE is

6,380MW, or 51.3 percent of the new capacity, are

difficult to compare to a similar fully private and stock

renewable technologies and the remaining 6,049MW, or

market-listed corporation as it does not operate under

48.6 percent, are conventional sources.

the same conditions nor does it have the same corporate mandate. Listing CFE on the Mexican stock exchange

BALANCING THE BOOKS

has the potential of doing wonders for its corporate

As it embarks on a new era, CFE finances remain stable

governance, financial health and overall competitiveness,

despite losses in the in the year to September 2018.

both at the national and international levels.”

| VIEW FROM THE TOP

TRANSITIONING TO THE NEW ENERGY POLICY GUILLERMO GARCÍA President Commissioner of CRE

Q: What were the most relevant developments in

to the AMLO administration and how do you expect these

the Mexican energy market in 2018 and which CRE

to affect the development of the energy sector?

achievements during last year make you most proud?

A: I think the main change, which will be good, is that

A: In electricity, there was a great advancement in

state-owned companies will be given more strength. It

distributed generation, which is the democratization of

is important to note that the Mexican industry has space

energy, the possibility that any consumer, regardless of

for very large and important state-owned companies and

size, can take control of his or her electricity bill. This

also for the private sector; there is no doubt that a strong

is something that a few years ago was unthinkable and

effort from both sectors is required. The coming focus on

CRE provided the legal framework for this development,

strengthening and fixing the finances of the state-owned

which has many benefits. The first is that consumers can

companies will help to complement the joint effort we have

determine how much they will pay for energy use.

to make as a country.

Having multiple injections to the distribution network

Q: What opportunities does CRE see for its activities as a

creates a more stable system with frequency regulation

result of this policy change?

and high-power services throughout the day. Moreover,

A: What we see as a great opportunity, but also a challenge,

this development is creating employment opportunities

is being able to leverage the energy sector benefits on the

and strengthening the Mexican industry, which is a priority

social base that the new government enjoys. We believe

for the new presidential administration. Distributed

this will help us to unlock many projects that unfortunately

generation has the enormous advantage of requiring a

have been halted because of inadequate community

great deal of human capital. For instance, in the US, there

engagement. I think the president’s high esteem in many of

are over 100,000 employees in California alone focused

these communities can help to unlock many problems and

on distributed generation. This means that distributed

construct new projects such as pipelines, energy generation

generation has the capability of creating well-paid jobs

terminals or access wells, which in turn will result in better

throughout the country.

energy conditions for the country.

It is important to highlight that we finished 2018 with

If we can capitalize on this prospect for dialogue with

approximately 82,000 solar roofs, which represent

society, it will be a great opportunity and at the same time

around a 70 percent increase from 2017. This increase is

a challenge going forward. For instance, we could have

the result of the simplified regulation we created for the

a great deal of gas available for the Yucatan Peninsula,

interconnection, which is a non-permitted activity that

unlock the pipeline from Tuxpan to Tula, provide gas to the

requires an interconnection contract with the distribution

region of Sonora with the connection of the pipeline from

system. The contract we designed for this purpose, in only

the south of Sonora to Sinaloa, or install a renewable plant

two pages, outlines all conditions and users can choose

in Yucatan. I think that the possibility for communication

the interconnection modality, which can be net metering,

with communities that this new administration has is very

net billing or direct sale. To achieve this, we had a very

different from what we saw in previous administrations.

intense dialogue with CFE, since the company filed for legal protection against distributed generation conditions.

Q: What will be the 2019 priorities for CRE in order to

Ultimately, we managed to convince CFE that this would

ensure a competitive market while adjusting to the new

be beneficial.

policy regime? A: 2018 was an interesting year in terms of electricity

Q: What do you consider to be the main changes in energy

tariffs. The tariff we had before 2018 was a closed fee that

policy as Mexico shifted from the Peña Nieto administration

obeyed to an income objective and that did not recover

CFE’s costs, so every year CFE saw its assets reduced.

that the industry has requested, so we are working on

The change in the LIE, took this responsibility from CFE

its regulation.

and sent it to us. The law states that we need to recognize the costs of providing light and energy to different points

The second priority will be to promote the use of EV

across the country. We had to analyze their efficiency

charging stations. At the end of 2018, we published the

and then translate these costs to the tariff being paid by

regulation that permits the installation of EV charging

users in different regions. In the regions where energy

stations and to charge for the use of electricity. In previous

generation is expensive because diesel is used, there

years, EV charging stations in malls were cost-free and

was a higher rebounding of tariffs than in other areas

although this might sound like a good thing, for investors it

that did not have this characteristic. It was important to

was not an incentive to set up these types of installations.

send this signal because this is what invites investment to locate in certain regions where energy can be offered

Today, there are around 2,000 EV charging stations in the

at a lower cost.

country and almost all have been installed by automotive OEMs. The idea of this regulation is to tell them that they

Obviously, the possibility of having these tariffs that

can resell electricity and by establishing a regulatory

recognize the generation cost means that people now

framework that provides certainty to investors, they can

think about their electricity bill. When the electricity bill

now set up EV charging stations throughout the country.

is subsidized, people do not worry about looking for other

This will prove to be important for the country’s energy

options, installing solar panels, hiring a supplier, entering

security. Inasmuch as a country diversifies its use of

a bilateral contract or any other possibility. We are now

energy for transportation, we will not depend that much

seeing more businesses worry about having an electricity

on gasoline and diesel and we will be able to have electric

strategy for their companies. When you realize that 60

cars as part of the public transportation system.

percent of manufacturing costs comes from electricity, it makes a lot of sense to put someone in charge of the

The third topic that is important to mention for 2019 is

energy strategy for the company. This gains greater

related to storage capacities. In this sense we are working

relevance with these alternatives, which is an opportunity

on several regulatory pieces and we are in the process of

that arises from being able to take control of your own

identifying the services that provide storage. We have

energy. The strengthening of CFE is a result of having an

identified over 18 storage services, such as frequency

adequate cost recovery and investment complementarity

regulation, transmission in peak periods, generation in

in the use of technology from private players.

peak periods, storage in hours of negative costs and sale in hours of high costs. The first private storage terminals

Also, in 2019, we will see the entrance of a significant

have been installed in Baja California Sur, complementing

number of renewable energy plants. CENACE estimates

a solar power plant. Given this experience, I think we will

that by the summer of 2019, there will be 84 new

see more energy storage in our country.

electric centrals that will add 12,429MW to the National Interconnected System; this will allow less dependence

Q: What would be CRE’s message for the rest of

on expensive fuels. What is important for the new

the industry?

administration is to continue with the exercises we have

A: The most important thing we need to do is prove why

been doing, such as long-term and medium-term auctions,

it is necessary to have autonomous regulators. We provide

and to continue with gas production in the country, so

certainty and decisions backed by technical facts. Often,

we can have low-cost natural gas. I understand that the

we are seen as a group of bureaucrats that only cost

new administration wants to make a revision of all the

money but the added value is not immediately tangible.

programs, but it would be a really good element going

We provide an intangible value that banks and investors

forward to continue with these actions.

require and that provides certainty. So, I would extend an invite to the general public to familiarize themselves with

Q: What will be CRE’s priorities for the electricity

the work of the regulators, not only CRE but also CNH,

sector in 2019?

ASEA, COFECE, and IFT. We are all on the same channel

A: In the electricity sector, we want to finish the regulation

and we all provide the value of certainty.

intended for distributed generation. We are missing some pieces, the most important being collective distributed generation. This means that a group of people can set

Guillermo García has served as President Commissioner

up a renewable electricity installation and share among

of CRE since April 2016. García took part in the technical

them all the benefits. This model has already been

and drafting group for the 2013-2014 Energy Reform and

implemented elsewhere in the world and it is something

conducted support studies for the 2008 Energy Reform

| VIEW FROM THE TOP

MEXICOâ&#x20AC;&#x2122;S GRID STABILIZER EDUARDO MERAZ Former Director General at CENACE

Q: What type of technologies play a dominant role

must operate compensating the intermittency of this

for CENACE in modernizing the National Electricity

generation to maintain the generation-demand balance.

System (SEN)? A: Renewable generation technologies with the

Q: What have been the measures taken to ensure this

capacity to regulate voltage and generation through the

intermittency does not act as an obstacle for delivering

application of smart grids contribute in the security of

a continuous electricity supply?

the network. In addition, these technologies support the

A: CENACE evaluates operating conditions in terms of

reduction of congestion and restrictions that could affect

the participation of these intermittent energy sources and

efficiency within operations. The transmission of energy

determines the amount of generation that is possible to

based on direct current, energy storage systems and the

produce at that moment. It also considers the conditions of

massive and open use of information for better decision

the rest of the system in order that these renewable sources

making are all factors that play an important role in the

do not put at risk the secure and continuous operation of

modernization of the SEN.

the electricity system. We analyze how to acquire more flexibility and capacity from other energy sources to

Q: What challenges does the integration of more clean

substitute the variation of intermittent injections. CENACE

energy sources to the grid pose to the SEN?

establishes the availability of flexible sources that can

A: It is important to specify that an energy matrix with

increase and decrease generation rapidly. We contemplate

a greater share of clean energies will make a great

remunerations for the generators that offer these

contribute to the reduction of polluting emissions

capabilities. For instance, these would include hydro power

compared to other fuels. In addition, it would be ideal

plants, modern units that have these characteristics and

if part of this clean energy can come from intermittent

energy storage systems comply with these requirements.

sources such as solar and wind energy, which will depend on having enough wind and solar irradiation for adequate

Q: What does CENACE propose to motivate the

production levels. Energy production would very much

installation of small-scale clean generation units?

obey to the weather conditions. However, the fact that

A: Although industry participants have protested that high

these production levels experience constant fluctuations

costs in the interconnection studies for small scale clean

cannot be disregarded. This for the SEN implies that it

generation plants place its development at a disadvantage,

Clean Energy Certificates Market

Power Balance Market

Annual Yearly auction for up to three-year term (Second Stage) Monthly auction for one-month term (Second Stage)

Auction for Financial Rights of Transmission

Wholesale Electricity Market

At least once a year since 2018

Midterm Electricity Midterm and Long-Term Electricity Auctions

Auction Energy Power Long-Term

Ancillary Services

Short-Term Market

Energy Day-Ahead Market Spot Market Hour-Ahead Market

ElectricityÂ Auction Energy Power CELs

MARKET PARTICIPANTS

Coordination

Ministry of Energy Energy Policy

Generators

CENACE Market Operation

Qualified Suppliers

Energy Regulatory Commission Energy Regulation

Operation of the SEN

REGULATORY FRAMEWORK

Independent Operator of the Market

Non-Supplier Traders

Qualified Users 19 Generation

Transmission

Distribution

Final Users

NATIONAL ELECTRICITY SYSTEM Dispatchers

Distributors

in the Interconnection and Connection Manual published

A: There are several variables that can be measured to gauge

in 2018, there are significant reductions in these costs for

the success of the WEM in the coming years. One of the most

smaller projects. These costs reflect an approved value by

important indicators will be the rate of new participants

CRE, which bases its determination on the resources that are

entering the market and taking part in electricity-related

needed to execute this process. It is important to highlight

activities. Another factor is the entrance of new and more

that these studies will always be necessary so that it is

competitive generation infrastructure, which will boost the

possible to gauge the impact that the interconnection of a

national industry. Finally, the development of infrastructure

new generating plant or load on the development of the SEN.

for the electricity network that will allow us to send the most economic energy to all regions of the country.

Q: How is CENACE preparing itself for the introduction of distributed generation systems into the grid? A: Distributed generation has to be introduced based with a more preventive regulation as its foundations so it does not cause future problems in the electricity system. It is important that its entrance complies with the standards and norms that have been applied in other countries where

Wind and solar sources injected 4,413MW to the grid in 2017 while distributed generation added 434MW

this generation scheme has increased in importance. The grid code outlines the current requisites that are needed for

Q: What is CENACE’s contribution to the maturation

this transition, but future updates have to be contemplated.

process of the WEM? A: CENACE greatly promotes the widespread diffusion

Q: What are the main challenges that CENACE has to

of the market mechanisms, which grant many more

address in the coming years?

options to those who buy and sell energy. Knowledge of

A: Our primary targets are threefold. Firstly, we aim to

the options available to them is always beneficial for the

successfully continue operating the electricity system

consumer. In addition, the responsibility this entity has

while promoting the incorporation of much more

a responsibility to serve the network with honesty and

renewable energy generation. Secondly, we want to

transparency through an attitude of service that takes

ensure a more competitive and sufficient energy market,

into account every market participant. Finally, supply

and we want this efficiency to in turn be reflected in more

reliability will be obtained by having a market with

competitive costs for all kinds of consumers. And finally,

sufficient competitive offer of supply and demand that

we aim to provide adequate information to facilitate smart

can respond to the system management based on prices

decision-making for every player involved. Investors,

and demand control incentives.

market participants and the energy industry authorities will need this information to determine and evaluate the development of the market mechanisms.

CENACE is a decentralized public entity that was founded in 2014 to act as Mexico’s independent grid operator. It sprouted

Q: What key elements will represent a step-forward for

from CFE’s former intelligence unit and now acts as manager

the WEM looking toward 2019-20?

of Mexico’s National Electricity System.

| VIEW FROM THE TOP

PREPARING CAMPECHE FOR GREATER SUCCESS JOSÉ MARÍA CU CAÑETAS Director General of the Energy Agency of the State of Campeche

Q: What is the story behind the creation of Campeche’s

have four hydrological regions, seven basins and 2,200km2

Energy Agency and what are its attributions and long-term

of coastal lagoons.

objectives? A: The agency was created by executive agreement

Q : H ow i s t h e a g e n c y a l i g n i n g to t h e n ew

published on July 28, 2017. Our mission is to manage and

administration’s agenda?

promote the development of energy projects in a safe,

A: We know that the new administration plans to increase

reliable, profitable and sustainable manner and to generate

Mexico’s oil and gas production through PEMEX’s top-tier

employment and welfare opportunities for the people of

assets and this policy will give national and local service

the State of Campeche. Our priority is to detonate and

companies the opportunity to participate in the NOC’s

take advantage of the opportunities brought by the Energy

plans. With respect to local content, Campeche has more

Reform. In this regard, Campeche has prepared to become

than 30 years of experience providing offshore services

the most important oil and gas hub in Mexico. We were the

to the oil fields of PEMEX. The government of the State of

first state to evaluate its energy balance, considering the

Campeche is working on programs to promote, develop and

strength of the state in terms of energy. It is important to

train local companies to receive and offer new services to

note that we have hydrocarbon reserves and large areas

new operators. The government of the State of Campeche

suitable for renewable energy generation, positioning

is working on the modernization of state ports, considering

our entity as a producer and natural generator of energy.

Ciudad del Carmen’s role as the base of operations and

Campeche has conducted an unprecedented in-depth study

logistics of PEMEX for more than 30 years.

in which it identified a broad portfolio of projects in the field of energy. The agency also has a business model designed

In terms of renewable energy, Campeche is prepared

to foster national and international alliances between the

to incorporate the development of wind farms, solar

public, social and private sectors, for the development of

parks and even offshore wind farms with state-of-the-art

strategic energy projects.

technology and skilled labor. We are also assessing the opportunity to develop onshore and maritime pipelines

Q: What clean energy technologies is Campeche best

along with storage facilities to become a focal point for

suited to develop?

hydrocarbons and fuels logistics.

A: After analyzing the results of our energy balance evaluation, we concluded that Campeche has a series of

Q: What are the key ingredients to attract investment in

business opportunities in the field of energy. Although the

clean energy projects for the state?

first place is occupied by the hydrocarbons sector, it should

A: The state has a potential for proven reserves of

be noted that, in turn, Campeche has optimal areas for the

hydrocarbons and large areas of renewable energy

development of clean energy projects, including a wind

generation. Having the natural resource for the generation

farm, a solar park and two biodigesters. The geographical

of clean energies is the main asset and ingredient for the

location of the state and its potential in natural resources

development of these projects. Aside from the energy

allow us to continue evaluating other probable sources of

wealth of the state, Campeche is in a strategic location

renewable energy such as hydroelectric turbines since we

as the gateway to the south-east of the country and the bridge between the center and the peninsular region. That is why the new energy development strategy of the

The Energy Agency of the State of Campeche was created

state identifies specific cases of business initiatives that

in June 2017 to focus on the state’s strategy for energy

consolidate a portfolio of investments in the order of about

development, coupled with the promotion, research and

US$1.25 billion, consisting of 16 specific projects that will

development of energy projects

allow the comprehensive development of our state.

VIEW FROM THE TOP |

OAXACA LEADING RENEWABLE POWER GENERATION CHARGE JOSÉ LUIS CALVO Minister of Environment, Energy and Sustainable Development of the State of Oaxaca (SEMAEDESO)

Q: How does SEMAEDESO contribute to the development

But since 2016, when the new administration entered, the

of Oaxaca’s energy industry?

state has attracted investment of more than US$2 billion.

A: Oaxaca is the country's most biologically diverse state and SEMAEDESO manages its environmental affairs. Regarding

Q: Which projects best illustrate SEMAEDESO’s interest in

the energy sector, Oaxaca is Mexico’s leader in renewable

and efforts to develop Oaxaca’s renewable energy industry?

power generation, with the highest installed capacity from

A: EDF Renewables is developing a project with a total

wind energy power in the country. It hosts 28 wind farms that

investment of US$600 million that will supply 300MW

supply more than 62 percent of the wind energy in Mexico.

and mitigate 360,797t/y of CO2 equivalent. This project

This represents 1,583 turbines with a total of 2,750MW. In

will be located in the municipality of Union Hidalgo.

2018 alone, we increased this capacity by 17 percent.

Additionally, Siemens GAMESA will invest US$400 million in the construction of another wind farm. For this project,

An example of this successful management is the

six assemblies were held to achieve community consent for

culmination of the Eólica del Sur wind farm. This project

the construction works.

was developed by FONADIN, Mitsubishi Corporation and Balam Fund. It has an installed capacity of 396MW and is

The Ixtepec-Yautepec transmission line that will interconnect

composed of two substations and 132 wind turbines. This

the states of Oaxaca and Morelos is a priority as well. Along

project represents the mitigation of 566,967t/y of CO2

with the governor, SEMAEDESO is intensively lobbying for

equivalent, which is the same as removing 300,000 vehicles

its development. This project will open the door for more

from the roads. Additionally, it represents social benefits

investment and will incentivize the development of not only

for the region. For instance, more than 6,142 lightning

more wind energy projects but also the introduction of new

systems were installed and the electricity tariff experienced

industries, such as automotive manufacturing plants or even

a reduction of 30 percent.

wind infrastructure components facilities.

Oaxaca hosts the largest wind farm in Latin America. This is

Regarding the solar segment, the state is developing

a product of generating legal certainty for investment. We

a project in collaboration with the Energy Ministry to

want to demonstrate our commitment to the development

introduce thermo solar technology to hotels located in the

of the state, which is why the Oaxaca Energy Council

city of Oaxaca. One of Oaxaca’s main economic activities

was created. This initiative groups the three levels of

is tourism and if we install solar heaters in the city's 6,000

government, companies and owners to discuss proposed

hotel rooms, we will boost the city’s economic development

projects and the associated social benefits for each

while decreasing CO2 emissions. These projects could

community involved.

not be developed without skilled local human capital. Now, international companies bring their own personnel

In the solar arena, the state also offers significant levels of

with them. Oaxaca’s Universities System (SUNEO) has 10

solar irradiation and related projects are becoming tangible.

universities and 18 campuses across the state. We want to

An example of this is the construction of a solar plant at

promote training of technical professionals in the renewable

the Universidad Tecnológica de la Mixteca. This project will

energy arena by investing in this system as well.

support the education of 2,200 students and academics. The hydroelectric segment will become a reality too, mostly in Oaxaca’s coastal region.

SEMAEDESO is Oaxaca’s Ministry of Environment, Energy and Sustainable Development. Created on Dec. 1, 2016, it oversees

During Cué Monteagudo’s administration there was no

the protection, conservation and sustainable use of the state’s

investment in renewable technologies from the government.

natural resources, preserving its ecological balance

| VIEW FROM THE TOP

SCORING THE REFORM: TRIPLE-B WITH ROOM FOR IMPROVEMENT CHRISTOPH FREI 22

Secretary General and CEO of the World Energy Council

Q: What tools has the World Energy Council developed to

development of energy technologies and therefore misses

understand the present and future world energy scenarios?

important opportunities. From the World Energy Council’s

A: At the World Energy Council, we have developed several

perspective, the Energy Reform has jazzy elements that

tools to understand the global energy landscape. One is the

introduce technology competition while, at the same time,

World Energy Trilemma Index, a report that evaluates 125

it has symphonic elements promoting energy efficiency,

countries on a yearly basis in the three most relevant aspects

renewable energy and carbon-mitigation technologies. This

related to energy: energy security, energy equity and energy

means that the Energy Reform lays in a symphonic-jazz

environment. The ranking measures the performance of a

area. Looking at the trilemma, Mexico earns a BBB score,

country’s policies in achieving a sustainable energy mix and

which is very balanced. The first thing we strive for at the

the balance score highlights how well the country manages

World Energy Council is balance, as its absence generates

the trade-offs. AAA is the best balance score and DDD is the

policy risk. This drives investors away and without them

worst. Another significant tool developed by the World Energy

we cannot manage any transition. The balance reflected

Council is a policy-based approach on future world energy

in Mexico’s BBB score is good overall but there is certainly

scenarios that can be classified into three genres: modern

room for improvement and the Energy Reform aims to keep

jazz, unfinished symphony and hard rock. Modern jazz depicts

improving, which should increase the country’s score.

a market-driven approach to achieve energy accessibility and affordability through economic growth. Unfinished

Q: What role do innovations like digitalization, storage, IoT

symphony is based on a government-driven approach to

and blockchain play in Mexico’s energy transition?

achieve sustainability through internationally coordinated

A: Digitalization offers many opportunities and its capacity

policies and best practices. Lastly, hard rock implies a

to create a future uberization in the energy industry is one

fragmented approach driven by a desire for energy security

of the most exciting. Providing hotel-like services without

and independence in a world with low global cooperation. For

having a hotel or driving people from one place to another

all these scenarios, policy is a key driving element.

without owning a taxi is what Airbnb and Uber have achieved. Uberization therefore means the capacity of taking a capital-

Q: How would you score the latest transformations of

intensive sector and coming up with business models that

Mexico’s energy environment according to these tools?

bring additional value to existent assets via digital processes.

A: Modern jazz is a liberalized, competitivity-enabling

What this means for the energy industry is that companies

and technology-based approach. This means that the

can become energy storage providers without owning an

market framework favors trade agreements that allow for

energy storage facility, for example.

investment as well as greater imports and exports that result in better technologies. Symphony, on the other hand,

In Mexico, a clear example of what digitalization can do is

achieves progress on climate change by selecting specific

depicted in a shift of the baseline of energy consumption.

technologies and promoting them even if they are not the

There are 40 million households in Mexico. Considering that

cheapest. Modern jazz has mastered trade agreements

every household has a fridge that consumes 100W then

while symphony has mastered carbon agreements. Lastly,

there are 4GW of power being consumed just from fridges.

hard rock is very focused on national content for the

On an average day, Mexico has an energy demand peak of 45GW, which means that fridges represent 8 percent of the peak load. If you could digitally enable all the fridges

The World Energy Council is the main network of energy leaders

to be turned off during peak demand and then turn them

and practitioners worldwide. The organization has a coordinated

on after the peak ends, 8 percent of the total peak load

Secretariat based in London and under the direction of the

from the system could be shifted, therefore relieving the

Secretary General, who reports to the Council’s board

energy network.

VIEW FROM THE TOP |

MUCH STILL TO BE DONE TOWARD ENERGY EFFICIENCY ODÓN DE BUEN Former Director General of CONUEE

Q: What were CONUEE’s priorities during your

A: We found that electric energy intensity in the industrial

administration?

sector has decreased by 15 percent over the past 20 years.

A: CONUEE’s program with the greatest scope and impact

This is mostly a result of high energy and gas tariffs rather

is the one related to energy efficiency standards (NOM)

than government policies. In the residential sector, on the

and we worked to increase its reach and to strengthen the

other hand, public policies have had a significant impact with

compliance system.

an estimated 45 percent reduction in electric energy intensity and a decrease of 20 percent in energy use per capita. The

We have supported the development of energy-efficient

analysis covers the entire value chain of the energy sector,

lighting projects in more than 40 municipalities and we

highlighting opportunities in supply as well. PEMEX’s drop in

have contributed to the implementation of best practices

efficiency has also impacted national indicators, which shows

following our NOM, giving more formality to a market

a need to improve processes for fossil fuels.

where there is much improvisation. In terms of final use of energy, we have generated discussion among several

Q : W h a t p e n d i n g p r i o r i t i e s s h o u l d t h e n ew

players in the transportation, construction and industrial

administration focus on?

sectors in best practices and technology to improve energy

A: We are still missing an energy efficiency standard for

performance. We also completed our National Energy

heavy vehicles. We already have one for light vehicles

Efficiency Monitoring Report in collaboration with the

but CONUEE must still work together with SEMARNAT to

Economic Commission for Latin America and the Caribbean

draft its heavy-vehicle counterpart. There is also a gap in

and the French Development Agency. This report helps the

the implementation of norms NOM-008 for nonresidential

general public and policymakers understand the evolution

buildings and NOM-020 for residential buildings in the

and present levels of efficiency by sector in great detail.

construction sector, which should be a requirement in the

This is now the most complete report in all of Latin America

permit process at a municipal level.

addressing this topic. The SME sector also represents an area of opportunity. Q: How have regulations advanced to promote energy

Promotion and financing among these players are not

efficiency in buildings?

simple and our strategies should be rethought to make

A: There has not been much progress. As electricity in the

them more effective. There is also a change needed in the

housing sector is heavily subsidized, the greatest benefits of

mindset of public officers at a municipal level, so they are

NOM-020 go to the Ministry of Finance. We have a proposal

more knowledgeable regarding energy projects and the

to economically support compliance with certain standards

best way to implement these.

but this is a conversation that must be established with the new federal government. We also face challenging

Going forward, support for CONUEE should continue and

conditions due to the lack of interest from mayors and

there should be ongoing innovation in support toward

municipal leaders since energy-efficiency projects do not

SMEs and municipal projects. There should also be stronger

usually yield largely visible results. We have approached

collaboration with the environmental sector to ensure

administrations in Mexico City, Villahermosa, Merida,

healthy progress toward national goals.

Mexicali and Hermosillo, among others, but we have not succeeded in making energy efficiency a key element in local construction rulebooks.

The National Commission for the Efficient Use of Energy (CONUEE) is a public entity that promotes efficiency and the

Q: What were the main conclusions reached through the

sustainable use of energy resources through the adoption of

National Energy Efficiency Monitoring Report?

best practices

| VIEW FROM THE TOP

WHERE INDUSTRY MEETS ACADEMIA ANGÉLICA QUIÑONES President of ANES

Q: What is the main contribution that ANES offers to the

and data that justify heat demand in the country. In Mexico,

solar energy market in Mexico?

70 percent of the energy used in industrial processes comes

A: The National Association of Solar Energy (ANES) has

from heat and the remainder comes from electricity. The

participated for more than 40 years in the Mexican energy

study also determined the niche industry segments where

arena. It brings together the interests of more than 800

this technology could be applied. During this administration,

members from academia and industry. I believe having this

one of ANES’ main goals is to improve our communication

academic and institutional support is one of our biggest

strategy to empower the final user. Successful case studies

strengths. Some of our strategic allies are the Renewable

are what is missing for the industry to take over thermo-

Energy Institute (IER-UNAM), the Mexican Center of Solar

solar technology. At the same time, this generates major

Innovation (CeMIE-Sol) and the German-Mexican Energy

consciousness. With supporting data, we can motivate the

Partnership. ANES’ work is focused on the democratization

construction of a better policy strategy for the industry.

of energy. This means that not only big consumers benefit from its generation but small users in remote areas as well.

Q: What is missing from a regulatory standpoint to

Another important value that ANES brings to the table is

motivate the solar industry’s growth?

the technical certainty and normalization of the industry’s

A: The financial sector needs to be prepared to invest in

guidelines. For instance, I represent the Solar Committee

new renewable technologies. If a company goes to the bank

of the Mexican Society of Normalization and Certification

asking for a loan to install solar panels, the interest rate

(NORMEX). ANES has worked for several years on

would be around 15 percent. This is the same interest rate

regulatory topics. We acknowledge that the market would

that banks ask when lending money to purchase a car. At

not evolve without having strong ground rules.

the end of the day, these are completely different assets as risk is managed separately. A car’s value depreciates on

Q: What will be the priority topic on ANES’ agenda during

a yearly basis and PV technology offers fiscal incentives

the new administration’s term?

and represents a self-supply source of energy. That is why

A: Solar heat for industrial processes is a very important

these financial products cannot be evaluated with the same

topic for the association. This was addressed by the

scheme. Training the financial sector goes hand in hand

previous administration and resulted in the creation of

with public policy. ANES, in partnership with FAMERAC,

two programs. The first is the Solar Heat Initiative, an

AMIF and CeMIE-Sol, recently integrated the Renewable

interinstitutional platform in collaboration with CONUEE

Energy Front. This initiative seeks to deliver strategies to

and GIZ. The program aims to unite parties interested in

demonstrate the areas of opportunity that will derive from

generating solar heat temperatures between 150-400°C

the energy transition. We are more than open to share our

for its application in various sectors.

ideas with the next administration and work together to achieve the same objective.

The second program is Solar Payback, an initiative developed with CAMEXA where its main focus relies on solar heat

Q: What are the main objectives that the association wants

generation for industrial processes. With both programs, we

to achieve by the end of 2019?

conducted market research and now we have strong facts

A: There are various flagship projects in the PV segment but this needs to be replicated in the thermo-solar arena. For instance, the Solar Payback program will install a pilot

The National Solar Energy Association (ANES) is a nonprofit

plant in 2019. This facility will serve as a prototype where

organization designed to promote the development of solar

potential users can observe its function. In the long term,

energy in Mexico. It is comprised of dozens of companies in

I foresee ANES as the association that drives innovation in

the Mexican market

the solar segment.

VIEW FROM THE TOP |

STRENGTHENING LINKS IN SOLAR VALUE CHAIN JAVIER ROMERO Executive Director of AMFEF

Q: What were AMFEF’s major milestones in the PV sector

and an entire panel can be imported at a price lower than

in the last year?

Mexico’s local manufacture costs, 15 to 20 percent lower

A: Primary PV manufacturing companies Solartec and

than what they sell them in China. In this context, US

IUSASOL continue to lead AMFEF’s business but our

President Donald Trump’s 30 percent import tariff is no

association has welcomed new, smaller members that

surprise, although it applies on a global scale for all the

also manufacture PV equipment in Mexico. As a result, our

US’ commercial partners, hindering Mexico’s national PV

membership now totals seven companies. Our members’

manufacturing market. AMFEF is pushing for Mexico’s own

primary business target is distributed generation, given

tariff on Chinese solar panels, which is set at 15 percent, to

companies participating in the WEM need to comply with a

mirror the US tariff.

certain degree of bankability. In recent years, the emphasis on bankability has hampered the creation of competitive

Q: What is needed for Mexico to develop a PV

advantages by pioneering companies in the renewables

installation standard?

energy sector.

A: In February 2017, together with the National Association of Solar Power (ANES) and the Mexican Association

Financial data and media company Bloomberg established

of the PV Industry (AMIF), AMFEF presented to CRE’s

a set of prerequisites to be considered a Tier 1 PV company.

Standardization Directorate a petition to draft an Official

The bankability chapter of these prerequisites now require

Mexican Norm (NOM) dedicated specifically to PV

a larger PV project portfolio, international presence and a

system installations. The idea is to prevent low-quality,

certain seniority as an operational player in the PV market.

uncertified products penetrating Mexico’s PV market,

New Mexican companies are finding it difficult to meet

both for distributed generation and Mexico’s WEM. By

these prerequisites, fostering unfair trade as only a handful

our estimates, 15-20 percent of Mexico’s PV installations

of companies are awarded the Tier 1 status. Still, Mexican

in Mexico’s distributed generation sector is not backed by

companies increased their sales in the distributed generation

required certifications or warranties, negatively impacting

sector in 2017, representing a cumulated participation of

the market. PV installation needs to make the regulatory

40-50 percent of market share. Expectations remained

shift from NMX, which are recommendations, to NOM,

high after the publication of the General Administrative

which are compulsory requirements. We are also in talks

Provisions and the new net billing and total sale schemes,

with CONUEE to include renewables within its energy

but no contract has been signed so far under either of these

efficiency scope and promoting an ombudsmen figure

schemes. Mexican PV manufacturers continue to acquire

for final users.

new technologies and machinery to remain up-to-date in PV manufacturing processes, regardless of the challenges.

Q: What are AMFEF’s immediate objectives? A: Our priority is the creation of the PV installation NOM.

Q: How is AMFEF working to strengthening Mexico’s PV

It is a lengthy process that requires the participation and

value chain?

collaboration of various players, including manufacturers,

A: AMFEF is focusing its efforts and interactions with the

importers, industrial companies, regulatory authorities

Ministry of Economy’s Value Chain Directorate on broadening

and academia.

the PV value chain. This is especially important since the majority of the materials required for manufacturing are imported, including glass, aluminum, EVA, string materials

The

and solar cells. One of AMFEF’s member-companies,

Manufacturers (AMFEF) was founded in 2014 by the three

Solarcell, developed its own solar cell manufacturing facility

main PV manufacturers in Mexico to promote solar energy

in Mexico when China’s manufacturing boom is at its highest

projects

Mexican

Association

Photovoltaic

Equipment

| VIEW FROM THE TOP

FOSTERING TECHNICALLY ROBUST FAIR PLAY MONTSERRAT RAMIRO 26

Commissioner at CRE

Q: What insights has CRE gained as a member of the

systems that predominantly dictated how the industry

OECD’s Network of Economic Regulators?

operated until now.

A: The network's goal is to find ways for regulation to promote best practices in the regulated industry, promote

To apply every lesson learned, we are looking to increasingly

innovation and provide benefits to users and consumers.

adopt the sandbox approach, especially for new technologies,

One of the most important results of CRE’s membership

where through a collaborative strategy, regulators consider

in the network is the OECD’s study of the performance

data and metrics provided by each specific technology. If the

of Mexico´s energy regulators, published in Oct. 17, 2017,

impact on final consumers is not as anticipated, regulators

which included an evaluation of ASEA, CNH and CRE. The

can go back to standard regulation. It is a tool often used for

study concluded, among other findings, that these three

financial markets that could work well for the power industry.

regulators should be functionally connected since these agencies regulate the entire value chain of the oil and

Q: How does CRE achieve a balance between its twofold role

gas industry and CRE covers the entire electricity value

as regulator and enabler?

chain. Another key insight has been the importance to the

A: Regulation does not imply total control over the industry

economic development of countries of having independent

it regulates. Making sure rules are followed implies promoting

and autonomous regulatory bodies; beyond having it only

fair play and providing a level playing field. While CRE works

mandated by law. Regulators must have a long-term non-

to ensure the industry develops, grows and matures, the

political approach. Autonomy is crucial to dissociate the

most critical premise is to provide clear and transparent

needs and drivers of policymakers and those of regulators

rules, including seamless exchanges between industry and the

that provide long-term certainty to markets.

regulator. It is equally important to have consequences when fair play is breached. Economic development is impossible

Belonging to such an international network gives Mexico an

if there are no consequences when rules and laws are not

opportunity to learn from how regulatory synergies work

observed. This is especially true for former energy monopolies

in other countries. For instance, in Mexico COFECE is the

in Mexico. CRE must reject outside pressure to make sure the

anti-trust regulator and works closely with CRE, while other

rules are followed.

countries merge these two roles into a single regulator. The NER provides us with valuable insight on best practices

Q: What is CRE’s focus as a supervisor of the long-term

in data management and how to use it as a driver for

electricity auctions?

change through behavioral insights. Anticipating disruptive

A: Long-term electricity auctions have been tremendously

technology trends is also a major component in these

successful. While certain adjustments are in order, they are

exchanges to prepare the country’s regulatory framework

minor in scale. The challenge really lies in raising awareness

for the evolution of the regulated sectors in general, and

and communicating the benefits of the auctions to the general

for CRE specifically since technology will change the power

public. The general perception is that despite the aggressively

sector. The magnitude of this evolution is such that new

low prices in the auctions, electricity bills have not decreased.

concepts, including distributed generation, microgrids and

The general public must be made aware that changes and

energy storage drastically change centralized, large-scale

benefits in their consumption will be evident as renewable energy projects come online. The country urgently needs more clean, cost-effective generation as well as transmission

Montserrat Ramiro has served as CRE Commissioner since

and distribution infrastructure required to transport it to

2014. Previously, she worked at the Mexican Institute for

the consumption points. This will be possible through long-

Competitiveness, PMI International Trade, PEMEX, SEMARNAT

term electricity auctions, with transparent processes and by

and as a consultant both in Mexico and the US

fostering better prices and better quality through competition.

VIEW FROM THE TOP |

LAYING THE GROUNDWORK FOR SOPHISTICATED USERS GUILLERMO ZÚÑIGA Commissioner at CRE

Q: How is CRE capitalizing on the new energy chapter of

profile, risk and profitability appetites and corporate drive.

the USMCA from a regulatory standpoint?

Some companies are interested in and betting on auctioning

A: Mexico’s new energy model attracted a cumulative

their projects in the long-term electricity auctions. These

committed investment of US$180 billion from crude oil to

companies are risk-averse and prefer having CFE as both an

renewables and everything in between. This commitment

off-taker and a long-term auctions participant. While auction

was possible thanks to a legal and regulatory certainty

prices have experienced a pronounced downturn from the

that fosters trust. The new version of Mexico’s trilateral

first to the last auction, this trend is not exclusive to Mexico.

agreement with Canada and the US contributes to this

Other countries using the same mechanism have witnessed

certainty. Critical chapters, such as dispute settlement

the same downward trend. Renewable energy technologies

mechanisms and tariff-free zones, were retained for major

have reached a highly cost-effective maturity point, added

imports such as natural gas and oil products. This was

to their autonomy of commodity price variations, allowing

important not least because of the recent dynamism in

the aggressive pricing of the long-term electricity auctions.

Texas’ production of these commodities and Mexico’s rising

Complementary markets include short-term markets such as

demand for them. But there is still much work to be done to

the spot market, bilateral PPAs and merchant projects. The

create a North American energy bloc. Looking specifically

latter represents higher long-term risks rooted in electricity

at electricity interconnections between Mexico and the US,

price volatility that can be managed with increased demand.

they obey largely to local logic. In the US, electricity is a

Our role is to provide legal certainty on this wide array of

local government issue, with the exception of interstate

options to mitigate risks accordingly.

grids. Electricity and energy policies are primarily driven by state governments. California, for instance, is among the

Q: How does ODAC contribute to the objectives of the

US states with the most advanced penetration of renewable

Strategic Plan of Energy Regulators 2018-22?

energy in its energy mix. In addition to the USMCA, Mexico

A: ODAC answers primarily to the need of strengthening

has developed a framework to allow electricity trading

interinstitutional relations between the energy industry’s

between both countries via CRE-awarded authorizations.

regulators: CRE, CNH and ASEA. Although each agency

While the USMCA calls for a deeper commercial integration

should operate under its specific logic and responsibilities

between its three parties, we must explore ways in which

pertaining to equally specific activities, some of these

our respective regulations enable full capitalization on the

regulatory activities were repeated across the agencies’

agreement’s objective.

functions. Detecting this issue and window of opportunity for coordinated improvement led to the creation of ODAC,

The USMCA also includes a regulatory improvement

which is meant to be a one-stop shop for energy regulatory

chapter for all industries included in the agreement. It will

matters. It implemented critical data sharing practices

contribute to strengthening CRE’s regulatory tasks in terms

between all three regulators that enables projects to be fast-

of transparency, collaboration mechanisms and shared

tracked for permitting purposes. ODAC’s activities include

knowledge. It also lays the groundwork for regulatory policy

exploration plan approvals, production plan approvals, drilling

compatibility between Mexico, Canada and the US, as well

approvals, LPG retail, retail petroleum products and natural

as best practices and shared mechanisms.

gas distribution.

Q: How is CRE laying the groundwork to increase the number of bilateral PPAs and full-merchant projects?

Guillermo Zúñiga has over 14 years of experience in the public

A: Mexico’s wholesale electricity market encompasses

sector, occupying positions of leadership in areas of regulation,

different complementary market types. Each business

competitiveness and energy at the Ministry of Energy, PEMEX,

opportunity answers to a specific circumstance, stakeholder

CFE and COFECE

| VIEW FROM THE TOP

DO WHAT IS BEST FOR MEXICO ALFREDO ÁLVAREZ 28

Energy Segment Leader at EY

Q: What lessons has EY taken from the Energy Reform

transmitted and the global trend is to go back to the

and what is the firm’s most significant contribution to

distributed generation model. The cost, without subsidies,

Mexico’s energy transition?

of generating electricity through solar technologies

A: Mexico is updating its understanding and approach to

and even having a battery next to the plant to store

building a stronger energy industry based on international

energy surpluses is becoming increasingly cheaper and

best practices. The world is facing significant challenges.

sustainable than having plants with an enormous installed

In Mexico, these include a political transition that has

capacity. This trend is growing bigger and stronger in

created uncertainty regarding the country’s vision for a

Europe and the US and we are assessing the Mexican

cutting-edge energy industry. EY would like to see Mexico

case. We also believe that transmission and distribution

continue its current integration into global trends and

costs will eventually climb higher than those related to

consolidate its leadership in renewable energy generation.

distributed generation projects with a battery installed.

Regarding EY’s contribution to the country’s energy

But there are other factors to consider such as renewable

transition, we want to become the preferred and holistic

energy intermittency, smart grids’ integration and reliability

service provider for energy companies doing business

and power generation through natural gas. To date,

in Mexico, with the exception of geology or engineering

every electricity system still needs a centralized source

elements that are not our area of expertise. Our goal is

of power to supply peak demand but this is changing.

to integrate multidisciplinary teams to cover our clients’

Mexico needs to thoroughly assess its capacity to cover its

needs and provide the best solution possible.

energy needs through different sources and determine the best mix. For example, the country has world-class solar

Mexico has world-class solar irradiation, which reduces the average cost of producing 1MWh compared to other countries

irradiation, which reduces the average cost of producing 1MWh compared to other countries, while at the same time it has access to cheap natural gas prices, which is the most reliable and relatively clean source for producing electricity. Q: What impact do you think the removal of the 15 percent solar panel tariff will have on Mexico’s solar industry? A: Every market needs to learn from its mistakes and

Q: Considering international megatrends such as smart

grow as much as possible. Mexico needs to incorporate

grids, electric vehicles and blockchain, what are the main

Tier 1 panels with 25-year guarantees to secure long-term

topics that will shape Mexico’s energy market?

investments and reliable electricity generation through

A: The world has experienced two paradigms since the

top-of-the-line products. Financing institutions such as

start of electricity consumption. First, the world used a

private banks will not lend money to project developers if

distributed generation model that is basically electricity

the latter cannot ensure the best products will be used in

produced and used in situ. Second, after Nicola Tesla

their projects, which at the same time could disincentivize

successfully proved his Alternating Current theory, the

future investment efforts. For Mexican PV solar panels to

world experienced a centralized electricity generation

be manufactured, companies or interested parties should

that was distributed through transmission lines from one

be aware that these panels should follow best international

city to another, providing for profitability and large-scale

practices to be able to compete against international

power generation from bigger plants. Today, technology

products that could eventually flood the Mexican market.

is changing the way electricity is being generated and

I applaud the effort of having quality local content but

it will take time for Mexican companies to compete against seasoned international solar panel manufacturers. Applying tariffs to artificially raise the price of international panels so that Mexican panels become competitive is not the best option for Mexico or for any other country. Q: What progress have you seen in Mexico’s project finance for utility-scale renewable energy projects?

During the third long-term electricity auction, Enel Green Power México broke a world record by offering US$17/ MWh to produce electricity through wind technologies

A: Having a contract from Mexico’s long-term electricity auctions is a good thing for every developer. These 15-20-

situation and that is why it has a zero-royalty policy to

year contracts are not commonly used in other countries

incentivize local natural gas production, but even such an

and they can create favorable economic and financial

incentive does not secure the development of this market

conditions for interested investors, whether from private

given current conditions.

or public equity, commercial banks or development banks owned by governments. Given the low-risk nature

Producing natural gas locally can certainly bring significant

of these contracts, developers can offer extremely low

benefits to the country, like being less dependent on other

prices in their bids while securing the project financing

countries and becoming self-sustainable in terms of energy

beforehand. During the third long-term electricity

consumption, which translates into national security.

auction, Enel Green Power México broke a world record

Unfortunately, the current conditions and Mexico’s short-

by offering US$17/MWh to produce electricity through

term vision to supply its natural gas demand as quickly and

wind technologies. Regarding solar technologies, some

cheaply as possible are not making this market attractive

regions in Mexico come in second place in terms of prices,

enough, which is a shame given Mexico’s potential to find

right after Dubai.

and produce natural gas.

In terms of access to financing, commercial banks are still

Q: How can Mexico supply its increasing electricity

very cautious when financing utility-scale projects. Given

consumption with cleaner and renewable energy sources

their lack of experience and risk aversion, commercial

given current market conditions?

banks tend to be extremely conservative and only finance

A: As the question states, it depends on the market’s

small percentages of these types of projects.

conditions. We do not see carbon-based projects worldwide because they are not economically sustainable

To increase the financial leverage of utility-scale projects

anymore. It is not a matter of suddenly becoming

in Mexico and access funds, project developers tend to

greener but rather a matter of economics. Natural gas

use Afores, which is a proven financial practice in other

and renewable projects are becoming increasingly cost-

countries, or they access financing through development

efficient and this trend will continue as each market

banks, such as NAFIN or Bancomext.

matures where it is performed. This is why we do not see nuclear plants being built worldwide. Nuclear plants in

Development banks tend to have stronger financial

the UK, for instance, showcase prices well over £80/MWh,

leverage than commercial banks, given the former can

between US$110-115/MWh. That is extremely expensive and

cushion the financial risk of long-term projects where

does not include the cost of transporting the electricity

nobody knows exactly how energy prices will behave

to where it is needed, which increases the total price of

in the future, no matter how predictable a company’s

the commodity.

economic or mathematical model is. Nobody can predict what will happen in 15 years.

In Mexico, we will start seeing more independent power generation projects come online given the fact that the

Q: What is the best approach for Mexico to produce its

market is no longer controlled by CFE or the government.

own natural gas rather than importing it from the US?

If a company wants to produce electricity for basic supply

A: Again, Mexico needs to understand its reality and do

or residential usage through CENACE bids, it can do so

what is best for its economy. Today, importing natural gas

without the government or CFE’s approval.

from the south of the US is cheaper than producing the hydrocarbon in the country. That is a reality and that is how Mexico needs to approach it. If an operator thinks it

EY is a London-based multinational professional services firm

has the potential to produce natural gas at competitive

and one of the largest worldwide. It is also one of the “Big

prices and incentivize the growth of a local market, then

Four” accounting firms. It has 231,000 employees in over 700

it should do it. The Mexican government is aware of this

offices in 150 countries

| VIEW FROM THE TOP

LAW ADVICE BASED ON FIRST-HAND EXPERIENCE NOÉ PASCACIO Partner and Head of Energy and Infrastructure at BGBG Abogados

Q: Why should companies in the Mexican electricity

in charge of that process. With this background, we were

industry choose BGBG for legal advice?

in the position to offer the multinational electricity utility

A: BGBG has a practice area that is highly specialized in

training regarding formats and information generation at

energy and infrastructure. Regarding electricity, we have

an engineer level with the objective of gathering purchase

not had as much activity as in the oil and gas sector but we

information from the suppliers and been able to deliver it

still have expertise and knowledge in the matter. Our main

as requested by the National Content regulations applicable

focus is in generation and consumption projects. Recently,

to the client contract. As lawyers, it is essential to learn

we started advising energy-producing companies that are

to speak the client’s language and make it as simple

in the process of negotiating energy-supply contracts and

as possible.

PPAs. We are also advising companies across the value chain so they can be more prepared when offering their

Q: What main questions are being raised by your customers

services to energy producers. The main added value

in the electricity industry?

that differentiates us from others in the legal area is our

A: The main concern customers have involving energy

experience. We know the sector from the inside and

projects is land ownership and transfer of rights. In Mexico,

understand how it operates.

land legislation is quite old and available information is often outdated or incomplete. Another common situation

Q: In which project has BGBG’s services made a significant

is royalty payment, as many land occupants are not the

difference?

original or legal owners of the property. This is one of

A: We participated on a project with a multinational

the biggest hurdles that players face while negotiating

electricity utility where the contact was made by the

rights for pipelines, oil fields, transmission lines, wind and

operational and technical area. The issue related to a topic

solar park projects. When we were advising on the rights

of national content and this company had already reviewed

of way for a PV plant transmission line, in the quotation

the problem internally with its lawyers and other firms

I recommended my client involve specialists in this kind

without success. We had experienced similar situations

of permitting process. These may include topographers,

previously in our oil and gas division so we knew how to

appraisers, evaluators and project managers.

handle the situation. Our law firm does not have these professional services Through our previous experience, we knew that PEMEX

directly but as we understand the business and counterparts

obtains resources from various Exim banks in exporting

involved, we can provide references and recommendations

countries. These Exim banks promote foreign trade by

of companies that provide these kinds of solutions and

funding projects where supplies are to be imported from

we have the ability to work with them in multidisciplinary

the country where the bank is incorporated. For every credit

teams which is a very important skill in the Energy and

given by the bank it is necessary to legally demonstrate that

Infrastructure sectors.

the capital is being used for importation from the bank’s country of origin. Every month, PEMEX asked us for a list

Q: What is your long-term vision for BGBG in the Mexican

with every purchase and import made, so we created an area

electricity industry? A: The main focus will be to attract bigger and more sophisticated clients. Also, we want to start establishing

BGBG Abogados is a boutique law firm with a team of

specialized working teams by practice area, as energy

specialists in the area of energy. With over 14 years of

projects are diverse in terms of infrastructure. Of course,

experience, the firm has worked with international and national

we want to expand our services to cover other projects,

companies as internal lawyers or as external consultants

such as highways, hospitals and airports.

VIEW FROM THE TOP |

VISUALIZING A MEXICAN ZERO-CARBON ECONOMY JUAN VARGAS Manager of Energy, Resources and Industrials at Deloitte Consulting

Q: What is Deloitte’s most important contribution to

A: The industry’s regulators and policymakers are

Mexico’s energy transition?

developing certainty-generating capacities. This enables

A: Deloitte’s first significant contribution is related to the

further consolidation of an open energy market with clear

industry’s human talent. In 2015, we developed a human

rules, systems and methods for the private sector to actively

capital development strategy for the Ministry of Energy to

participate. There is a solid coordination mechanism

best prepare the industry’s transformation. Our research

between the Ministry of Energy, CENACE and CRE. As

reached three fundamental conclusions. First, an open

the energy industry’s regulator, CRE can complement and

market by definition calls for new and highly specialized

strengthen market confidence, the foundations of which

occupations. Second, by gauging the demand side for these

were laid by the Independent System Operator, CENACE.

critical specialized professions, we were able to calculate the available offer and the talent projection for the following

Q: What clean energy technologies are set to share the

years. Third, by pinpointing the supply and demand

limelight with solar and wind?

equilibrium, we detected the technical and qualitative

A: While solar and wind technologies provide tremendous

gaps that needed to be filled. We were able to describe

clean generation potential, some power-producing

the technical capabilities required as well as highlighting

technologies suffer from a development backlog in Mexico,

the soft characteristics or skills the industry’s professionals

chief among them, geothermal energy. Mexico is among

must display. With this information, the Ministry of Energy

the Top 5 countries worldwide for geothermal resources.

created a Talent Observatory to monitor the industry’s

They are assigned to CFE’s generation portfolio, and for a

development of human talent. In 2017, through joint efforts

number of reasons the parastatal decided not to prioritize

with other associates, we designed the operational guide

the development of this power-producing technology.

for the long-term electricity auction’s Clearing House for

It should be noted that the development timeframe for

CENACE, featured in the third auction. We are aiming to

a geothermal project is longer than other clean energy

participate in the bidding process to be selected to craft

technologies, shortened only by a clear knowledge of a

the operating guide to build CENACE’s Clearing House for

particular location’s prospective geothermal resources.

midterm electricity contracts.

CFE preferred to invest in its power plant gasification strategy to move away from fuel oil, focusing on developing

The process of unlocking an entire industry is comparable to a

the necessary gas transportation infrastructure. CFE’s

corporation’s life cycle. In its initial stage, the priority is to fully

emphasis on natural gas does not prevent the market

absorb the regulatory framework. Deloitte provides regulatory

from demonstrating the competitiveness of other clean

compliance and legal advisory services to enhance companies’

energy generation technologies, as shown by recent

regulatory grasp and facilitate decision-making processes.

resource allocations in geothermal plants by the private

Once the investment decision is made, we can assist them

sphere. Properly harnessing the country’s clean power

in the execution of their capital projects and provide project

generation resources calls for a coordinated effort between

feasibility services. In parallel, we provide value-added services

government agencies and the private sector in producing

when these companies want to participate in tenders, such as

an exhaustive information system with reliable data for

the oil and gas licensing rounds or the long-term electricity

proven, probable and possible resources.

auctions. Should a project proposal be successful, we can help our clients optimize the management capacity of each stage of the project.

Deloitte is

among

the

“Big

Four”

global

accounting

organizations. It provides audit, tax, consulting, business

Q: What are Deloitte’s expectations for the fourth long-

risk and financial advisory services with more than 263,900

term electricity auction?

professionals worldwide

Iberdrola's Combine Cycle Generator Tamazunchale, San Luis Potosi

ENERGY MIX & ELECTRICITY ECONOMICS

Mexico is on track to achieve its commitment of producing 35 percent of its energy from clean sources by 2024 and the countryâ&#x20AC;&#x2122;s new energy model allows all types of clean energy power generation technologies to enter the energy mix. Mexicoâ&#x20AC;&#x2122;s long-term electricity auctions garnered worldwide attention from the moment they were implemented, even more so as they unleashed record-low prices and propelled solar and wind power to new heights. Natural gas-powered

generation, hydroelectric and geothermal energy are also looking to claim a solid foothold as bilateral PPAs and full-merchant projects open the door for these technologies to strengthen their footprint.

Issues such as the price difference between the auctions and how the Ministry of Energy will handle these differences in the future, the role that the public sector will play in the creation of a value chain that helps companies reduce their production costs, the role that development banks and financial institutions will have in financing new projects and the medium-term future of the Mexican energy market will be addressed in this chapter.

CHAPTER 2: ENERGY MIX & ELECTRICITY ECONOMICS 36

ANALYSIS: The Road to Diversification

VIEW FROM THE TOP: Noé Sáenz, Burns & McDonnell

INFOGRAPHIC: PRODESEN 2018-2032

VIEW FROM THE TOP: Jorge Ochoa, UL Renewables

VIEW FROM THE TOP: David Barrie, Wood

VIEW FROM THE TOP: Hernán González, Norton Rose Fulbright Mexico

VIEW FROM THE TOP: Osvaldo Rance, Cubico Sustainable Investments

VIEW FROM THE TOP: David Jacoby, Boston Strategies International

VIEW FROM THE TOP: Silvio Ventura, OCA Global

VIEW FROM THE TOP: Paul Abitante, Invenergy

Albeiro Guayara, OCA Global

Jonathan Pinzón, Invenergy

INSIGHT: Ruth Guevara, Zumma Energy Consulting

César Reyes, Zumma Energy Consulting

INSIGHT: Gerardo Hiriart, Grupo ENAL

VIEW FROM THE TOP: Jürgen Segelbacher, Munich Re

VIEW FROM THE TOP: Willi Vaassen, TÜV Rheinland

Nelsy Santiago, TÜV Rheinland

INSIGHT: Florian Goutte, Valeco Energía México

INSIGHT: Alessandro Orpelli, Fimer

VIEW FROM THE TOP: Francisco Martínez, METKA EGN

VIEW FROM THE TOP: Álvaro Figaredo, TSK México

INSIGHT: Jacobo Mekler, AMEXHIDRO

VIEW FROM THE TOP: Gilbert Salvi, PowerChina Construction Company

VIEW FROM THE TOP: Daniel Gómez, SOLBEN

VIEW FROM THE TOP: Luis Barrado, Grupo Ortiz

INSIGHT: Edgar Vázquez, Enertis

VIEW FROM THE TOP: Angélica Nava, CLG Abogados

VIEW FROM THE TOP: Austin Collins, Red Energía

Rodrigo Guerra, Red Energía

ROUNDTABLE: How Can Mexico Align Demand With Intermittent Technologies?

| ANALYSIS

THE ROAD TO DIVERSIFICATION Mexico’s energy matrix is diversifying. As a result of the auctions, the country has seen wind and solar installations grow. Hydropower, geothermal and nuclear – and their untapped potential – will be reinforced, while natural gas remains the transitional source for powering the country’s energy needs

In addition to opening the door to new entrants, the

strongly reinforced. AMLO has also stated that zero

Energy Reform has had another significant impact on the

shutdowns are expected during his administration,

country’s energy mix: diversification. In line with Mexico’s

putting in doubt the Ministry of Energy’s Indicative

energy goals, the mix has seen an increase in clean and

Program for the Installation and Retirement of Electricity

renewables sources, since the Peña Nieto government

Centrals (PIIRCE).

initiated the reform. “This administration will conclude with 31 percent of clean energy generation. Taking into

ELECTRICITY PROVIDERS

account intermittency in effective generation, the total is

CFE’s electricity plants generated 52 percent of the

around 21 percent. Nevertheless, with the installation of

country’s power supply in 2017. Independent power

new plants, the country evolved from 62,000MW in 2012

producers provided 26.7 percent and the remaining 21.3

to 78,000MW in 2018. Half of the additional 16,000MW

percent was provided through self-supply, cogeneration,

comes from clean energy sources,” says Fernando

small production, exports, FIRCO and distributed

Zendejas, former Deputy Minister of Electricity at the

generation schemes. The energy policy in the coming

Ministry of Energy.

years will be directed toward self-sufficiency, led by CFE. Nevertheless, the industry is convinced public and

In 2017, 79 percent of the energy produced came from conventional energy sources

private partnership is what it takes to cope with the country’s energy needs while diversifying its matrix. “Injecting competitive forces into Mexico’s energy market contributes to minimizing energy trading and power generation costs with little to no governmental investment,” says Leonardo Beltrán, former Deputy

According to the PRODESEN 2018-32, solar topped the

Minister of Planning and Energy Transition. “The long haul

list of renewable technologies in terms of annual growth

should also focus on strengthening the market and going

in 2017, increasing 144.8 percent from 2016. The most

beyond political cycles because six years in the energy

important leap belonged to distributed generation, which

industry is a rather short-term time frame.”

grew a whopping 1,246.7 percent in the same period. This was buttressed by a reinforced regulatory framework and

THE GOAL: CHEAP ELECTRICITY

mostly led by solar, although the figure encompasses all

The end goal of these efforts is simple: lower electricity

renewable sources.

prices for end-consumers. From large-scale off-takers to residential users, the Energy Reform’s promise becomes

In 2017, the latest period when full data is available,

tangible through lower electricity bills but, as with any

combined cycle powered 50 percent of the country’s

other radical transformation, this will happen at a gradual

electricity generation. The second-ranked participant

pace. The fundamental guidelines are established and now

source was conventional thermoelectric with a 13 percent

it is up to the market to continue this growth.

share. Hydropower provided 10 percent of the mix. Coal plants accounted for 9 percent of electricity generation,

An important milestone to this end was the change in

turbogas represented 4 percent of the provided energy

methodology for calculating electricity tariffs, which

and finally internal combustion and fluidized bed

means that now the real generation price is reflected.

provided 3 percent, while clean sources other than hydro

“The possibility of having these tariffs that recognize

accounted for the remaining 11 percent. This means that

the generation cost means that people now think about

in 2017, about 79 percent of the energy produced came

their electricity bill,” says Guillermo García, President

from conventional energy sources. President López

Commissioner at CRE. “When the electricity bill is

Obrador’s National Electricity Plan foresees a 26 percent

subsidized, people do not worry about looking for other

increase in installed hydropower capacity by modernizing

options, installing solar panels, hiring a supplier, entering

existing infrastructure and according to CFE’s budgetary

a bilateral contract or any other option. We are now

plan, combined cycle thermoelectrics, carbon plants,

seeing more businesses worry about having an electricity

conventional vapor centrals and diesel plants will be

strategy for their companies.”

VIEW FROM THE TOP |

ADDING VALUE FROM BLUEPRINT TO OPERATION NOÉ SÁENZ Country Manager Mexico of Burns & McDonnell 37

Q: How does Burns & McDonnell provide the best solutions

of renewable energy technologists and can choose the best

to the most common problems power producers face?

option in terms of cost, time frames and efficiency.

A: Mexico’s energy market has developed at an impressive pace, which speaks volumes about the market’s advance

Q: How does Burns & McDonnell navigate the industry’s

but also reveals grey areas with pending regulatory issues.

latest technological developments?

Navigating these sources of uncertainty is where Burns &

A: In Mexico, Burns & McDonnell is primarily focused on

McDonnell adds value as both a consulting firm and an EPC

power generation, both from conventional and renewable

company. We provide a clear vision regarding regulatory

energy, as well as transmission projects. Globally, however,

complexities and are able to anticipate the market’s evolution

we have a workforce of close to 6,000 employees and 10

due to our extensive track record developed in the US and

business divisions. All divisions revolve around our two

Canada. The success of Mexico’s new electricity model

core businesses: technical engineering consulting and

depends on utility-scale renewable energy projects reaching

EPC services. We attend conferences and symposiums to

operational phase. Burns & McDonnell specializes in turning

maintain close contact with technologists from around the

project blueprints into built, operational assets.

world. We provide a holistic view of technology and we have a successful and proven track record regarding equipment

Q: How far into a development is Burns & McDonnell

performance, contractual issues and how to negotiate,

involved in managing project control variables?

commercialize and use this 360-degree vision to define

A: Critical stakeholders within a project, such as EPC

specifications that inject added value into a project’s design.

companies, should be present throughout each stage of development, from blueprint to operation. Project

Q: What are the differences when developing a transmission

developers in the US expect companies to assist them in

project versus a power generation project?

the early design of the project from a consulting capacity.

A: A linear project entails an increased number of interactions

This outreach has yet to find a footing in Mexico. Burns &

with landowners, local governments and ejidos. The number

McDonnell is registered with CENACE as a Trusted External

of stakeholders is exponentially higher, requiring an equally

User. We have a team of transmission planning specialists

larger number of permitting procedures. Also, looking at the

for interconnection issues and specialize in technical due

ongoing transmission tenders for Baja California and Oaxaca,

diligence procedures. For the sake of speed, continuity and

in Oaxaca’s case, CFE already defined the engineering

operational efficiency, Burns & McDonnell can tackle each

specifics so the foundation has been laid out. The Ministry

development phase of the project.

of Energy developed an attractive model where it requires the transmission line to go from point A to point B and left

Q: What project in Mexico best showcases this added value?

the efficiencies and specifics of the route criteria to the

A: Burns & McDonnell completed Sempra International’s

bidders. This approach requires the most efficient route and

Energía Sierra Juárez wind farm in 2015, with an installed

commercial and execution strategies, using the least amount

capacity of 155MW. Burns & McDonnel is Sempra

of capital. This is where innovation comes in through tower

International’s go-to engineer. Prior to the project switching

and line types, transmission line components and optimal

hands to IEnova, Sempra International asked us to assist it in

geographical information system design.

defining the technical specifications of the project, including the equipment required and the EPC design package and to supervise the engineering development of the EPC company

Burns & McDonnell is a US-based engineering, architecture,

contracted by IEnova. The project benefited from Burns

construction, environmental and consulting firm. Its staff of

& McDonnell’s integrated best practices in its consulting

6,000 includes engineers, architects, construction professionals,

capacity. As impartial consultants, we include a wide array

planners, estimators, economists, technicians and scientists

| INFOGRAPHIC

ENERGY MIX 2032 OUTLOOK PREDOMINANT TECHNOLOGY PER STATE

According to PRODESEN 2018-2032, 66,912MW of additional installed capacity is required to satisfy energy demand during this period. This represents a total investment of MX$1.7 billion in the next 15 years. This additional capacity will be comprised of 45 percent conventional technologies, where combined cycle projects

will have a major participation with an installed capacity

of 28,105MW. The remaining 55 percent will be generated

by clean technologies, with wind, solar, cogeneration and

CAPACIDAD nuclear leading generation.

42% Combined cycle 22.1% Wind 17% Solar 6% Nuclear 3.6% Efficient cogeneration 3.3% Hydroelectric 2% Turbogas 19.9% Bioenergy 6.1% Geothermal 0.9% Internal combustion 0.5% Coal and fluidized bed

66,912MW

total installed capacity needed from 2018-2032

% OF PARTICIPATION ON AUTOMOTIVE INDUSTRY IN 2015

projects will be developed between 2018 and 2032

60 40 terminal production

Efficient cogeneration

Bioenergy

Hydroelectric

Geothermal

Turbogas

Internal combustion

Combined cycle

107

Wind

80 Auto parts

Solar

427

Nuclear

100

Coal and fluidized bed

120

INSTALLED CAPACITY (MW) AND PROJECTS PER STATE 2018-2032 6,500 5,500 29

2,661

3,451

1,886

731

Morelos

218

Michoacan

Mexico City

Jalisco

4 5

Hidalgo

Guerrero

Guanajuato

240

1,097

Durango

Colima

Coahuila

1,270

599

Campeche

Baja California Sur 324

Baja California

500

1,101

1,500

Chiapas

2,500

3,357

3,543

3,500

4,004

Chihuahua

4,500

Aguascalientes

Electricity consumption is projected to grow an average 3.1 percent annually between 2018 and 2032

TOP 10 POWER PRODUCER STATES Ranking

State

Installed Capacity (MW)

Veracruz

6,039

Tamaulipas

5,565

Nuevo Leon

5,136

Sonora

4,852

Oaxaca

4,237

Sinaloa

4,215

Coahuila

4,004

Baja California

3,543

Jalisco

3,451

Chihuahua

3,357

38.6%

of energy mix from clean energy generation expected by 2032 8

Wind Bioenergy Solar Combined cycle Hydroelectric Geothermal Efficient cogeneration Nuclear

Quintana Roo is the only state that does not produce energy

4,852

1,141

Yucatan

Veracruz

Tlaxcala

Tamaulipas

Tabasco

State of Mexico

Sonora

Sinaloa

9 1,271

6 1,009

1,858

2,353 179

San Luis Potosi

Queretaro

Quintana Roo

Source: PROSEDEN 2018-2032

Puebla

Oaxaca

343

Nuevo Leon

Nayarit

979

16 6

Zacatecas

30 3,220

4,215

5,565

26 22 4,237

5,136

6,039

| VIEW FROM THE TOP

TECHNICAL EXPERTISE FOR OPTIMAL RENEWABLES PROJECTS JORGE OCHOA Country Manager Mexico of UL Renewables 40

Q: What is UL Renewables’ primary contribution to Mexico’s

initial production calculations. While there are several critical

energy transition?

variables that intervene in the successful execution of a project

A: UL Renewables is among the top renewable energy

throughout its different phases, specific attention should be

consulting firms in Mexico and is recognized globally. Our

paid to the energy resource analysis and the most adequate

primary role is to provide greater precision in the technical

technology to use. The pressure on manufacturers to increase

estimations of the country’s renewable energy projects,

margins depending on the technology means they prioritize

which is now of the utmost importance considering the

increased power output at lower costs. On the wind power

aggressiveness and competitiveness showcased in Mexico’s

side, the observed trend is longer wind turbine rotor diameters,

price packages in the long-term electricity auctions. The

measuring above 150m long, to absorb greater energy. This,

Yucatan Peninsula projects even showcase an extra layer

in turn, implies new layers of risk as these new developments

of complexity due to the social and environmental impact

have yet to undergo certification processes, added to the

requirements the region mandates to develop utility-scale

logistical complications of transporting larger and more

renewable energy projects. Our objective is to become

specialized components with expensive transportation all

the primary support for the country’s utility-scale project

the way to the construction site. On the PV side, bifacial

developers and the financial institutions behind them. As

panels are making an entry. Their scalability to utility-scale

an independent engineering company, UL Renewables

projects, coupled with guaranteeing the calculated additional

makes sure the technical aspects of the project’s blueprint

power output, has yet to be demonstrated by an operational

materialize. We are also active on the governmental side. For

large-scale bifacial PV plant. UL Renewables has detected a

instance, we ran multiple models for the Ministry of Energy

trend of resorting to these laboratory-stage prototypes so

to determine the most attractive locations for wind power

project developers can find additional efficiencies in utility-

projects in the National Electricity System Development

scale projects under pressure to offer the most aggressive

Program (PRODESEN). UL Renewables can go beyond

price packages and become a winner in the long-term

development and construction. We also assess the optimal

electricity auctions.

levels of operation for a renewable energy generation asset throughout its entire life-cycle to make sure the asset is

In the construction stage, the number of components required

delivering the expected generation levels and if it is failing to

for a PV park, especially considering utility-scale projects

do so, pinpoint this production decrease and its root causes.

like the ones we’re seeing in Mexico, makes it a complex management task where the devil is always in the details. UL

Q: How does UL Renewables solve the problems developers

Renewables can prevent those details from compromising

continue to face throughout the stages of a project?

the PV park’s viability. The level of involvement of developers

A: UL Renewables specializes in making sure the different

throughout a project is also key. If a developer only goes as far

stakeholders involved in a project will obtain the expected

as construction then sells the project to another party for its

results. Developers secure financing if the robust technical

operation, there is a chance certain risks inherent to operation

aspects of the project provide the ROI financial entities expect

might have been overlooked, including commercial closing as

along with optimal EPC design for a seamless operation

well as knowledge and technology transfer to the local human

throughout the life cycle of the project that matches the

capital tasked with operating the project. Q: Which players have the profile to support development

UL Renewables is a leader and innovator in renewable energy

banking’s efforts with utility renewable energy projects?

consulting, providing engineering and operations services as

A: While Mexico’s development banking institutions, including

well as software solutions to support clients as they develop

Bancomext, Banobras and NAFIN, are leading the financial

their projects and turn them into durable assets

charge pertaining to utility-scale renewable energy projects,

they are not alone. There is a significant contingent of

Q: What are UL Renewables’ recent landmarks in Mexico’s

multilateral and foreign banking institutions, such as the

renewable energy industry?

IFC, looking to pour capital into Mexico’s renewable energy

A: Prior to becoming UL Renewables, we were active in

projects. Commercial banking institutions remain on the

Mexico as AWS Truepower and DEWI as early as 2008. We

sidelines depending on the results obtained by other financial

reached the local office landmark in 2015 to shorten distances

institutions already at work. In our role as advisers to various

for our client portfolio in Mexico and to solidify our status

financial entities, we have received an increasing number of

as technical advisers. For 2018, we are focusing our efforts

due diligence inquiries from commercial banking institutions,

on strengthening our local response team throughout the

which is encouraging and showcases the growing appetite for

six divisions we operate in the market: energy services, due

these projects. Several first and second long-term electricity

diligence services, software and database solutions, grid

auction projects are either operating or under construction,

integration studies and forecasting, asset management

meaning despite the thin margins, they can be done.

services and wind power curve testing services. From 2015 to 2018, our growth was driven primarily by our power curve

Q: What is UL Renewables’ assessment of regulations

testing, energy and due diligence services, gaining recognition

guaranteeing product and installation quality?

as PV and wind power experts. Our objective is to grow in

A: UL Renewables welcomes the industry’s new developments

equal measure our asset management and forecasting

on the technological front. We could not be talking about

services. The latter was initially only provided to CENACE

major technological advances such as those we are witnessing

but it will be particularly valuable considering regulatory

now without bold decisions. As these trends continue, the

modifications make forecasting compulsory for utility-scale

focus must be on securing controllable risk levels that will

projects. Our general goal is to be perceived as the top

allow the industry to grow and prosper. Mexico is taking

technical consulting agency for renewable energy projects.

center stage for renewable energy technologists to showcase

We are looking to develop and strengthen our wind power

their new developments, placing it as a reference for other

curve-testing services and asset management divisions. The

renewable energy markets. UL Renewables is prepared to

latter is ripe for growth as an increasing number of utility-

take on the needed certification tasks to ensure these new

scale projects from the long-term electricity auctions come

developments can overcome their laboratory stage and

online. It represents a sizable area of opportunity considering

become a technological mainstream development on the

these projects are expected to operate at optimal efficiency

country’s renewable energy scene.

for periods of 20-25 years.

| VIEW FROM THE TOP

BEDROCK OF TECHNICAL PROVISIONS FOR SOLID PROJECTS DAVID BARRIE Clean Energy Business Development Manager at Wood 42

Q: What factors does Wood bring to the table to establish

configuration of Mexico’s long-term electricity projects

it as an ideal partner for Mexico’s renewable energy project

is reasonable, from our standpoint, as long as it is

developers?

undertaken by reputable developers and a solid supply

A: Wood’s core differentiator is its full capacity. It gained

chain. While not necessarily a risk, it is preferable to

the trust of financial entities and developers through its

rely on suppliers that have developed a local or regional

work, which is considered bankable. Our partners listen to

value chain.

us when we advise them on project configurations, layouts and yields and how best to mitigate project risks. Our local

Q: What is Wood’s primary advice to Mexico’s developers

colleagues from Amec Foster Wheeler increase our value

for the success of their projects?

proposition with their EPC and EPCM experience in Mexico.

A: Any renewable energy project has both a commercial

The merger with Amec Foster Wheeler transitioned us

and a technical side. On the technical side, our philosophy

from a relatively small renewables team with SCADA and

is rooted in following industry norms that lay out the

automation services to a fully-integrated, specialized and

playing field in terms of the usual against the unusual.

technical team that understands the full life cycle of energy-

Banks and investors are more at ease when facing the

related facilities.

former. If the technical and commercial terms align with the industry practice there will be no issues from

Q: How does Wood guarantee developers an optimal

a bankability standpoint. However, when projects play

performance throughout the life cycle of their projects?

outside the usual commercial or technical playing field,

A: It comes down to effective due diligence processes in

we step in and point out where risks are increased

the design and construction aspects of a project to ensure

and what that may mean for design, construction, or

they last longer. For instance, PV projects are rather

operation of the project. In Mexico, various banking

simple from an engineering standpoint, so longevity is not

consortiums are eyeing renewable energy projects and

really a concern for their 15-20-year life cycle. The same

developers could benefit by establishing transparent and

could be said for wind power, as turbines are designed

efficient communication and informational exchange

to be durable, although performance can be impacted by

processes with the bank’s consultants in order to avoid

certain external factors. Oaxaca, for example, has very

delays in financing their projects. The very size of the

high and rough winds. We are actively involved in life-

utility-scale projects being developed in Mexico call for

extension and root-cause failure analyses for projects in

the involvement of international financial consortiums

that state. Where issues have arisen and both the banks

with international project financing expectations.

and developers need to know exactly what happened they come to us.

Q: What key factors explain the continuous decrease of long-term electricity auction package prices?

While life-extension problems can stem from a variety

A: The package price trend observed in Mexico is

of causes, Wood has identified two specific issues

a reflection of a global trend. Renewable energy

from its onsite work in Mexico. First, the preliminary

development prices are going down worldwide. Every

characterization of the resource was awry and design

location where a new auction is organized is consistent

margins were not as substantial as expected. Second,

with this behavior. The new and unique aspects of

there was the absence of an after-market service for a

Mexico’s specific trend is the leadership the country is

particular turbine. Strict due diligence prevents these

showing, dictating trends in other markets. Part of that

kinds of issues early on in the project. This includes

stems from the scale of Mexico’s projects, enabling strong

correct wind characterization evaluations with adequate

equipment-purchase contracts. A major part of project-

components and capable technicians. The general

development costs is tied to hard materials. If suppliers

are providing a large enough volume, developers can

Q: What power generation technologies is Wood

capitalize on economies of scale. The same applies to

focusing on amid Mexico’s energy agnostic transition?

construction costs. Another key factor is financial entities

A: Our clean energy division is focusing primarily on solar

becoming more comfortable within Mexico’s developing

and wind projects given their success and dominance during

energy industry. A wide range of lenders are looking

Mexico’s long-term electricity auctions. Both technologies

specifically at Mexico and competing against each other

play well to Wood’s strengths and we recognize that is

to offer competitive financing rates, providing several

the direction the world is going in. Solar and wind are

financing options for developers. Paired to these new

the two technologies driving electricity prices as they are

financial players, new financial instruments, such as green

rather simple to develop compared to other technologies

bonds, are coming in, offering financing capital at lower

and looking at CELs’ secondary market, solar and wind

costs that benefit developers.

also provide a cost-effective option for CELs trading. Discussions about batteries and grid stability have started

Q: How has the merger with Amec Foster Wheeler

and they will become more prevalent as both technologies

translated into added value for your clients?

deepen their penetration in Mexico’s energy mix.

A: Wood Group and Amec Foster Wheeler each had their own unique service offering but together we are stronger.

Q: How does Wood remain at the forefront of the energy

Low oil prices called for a diversification and consolidation

industry’s megatrends?

push from Wood Group pertaining to the regional

A: Wood capitalizes on its footprint across several

footprint and the services it can offer. The end result is a

industries and countries, building a sense of how new

company with 55,000 employees, a stock market value

developments from other industries, such as oil & gas,

of around US$10 billion and a larger international reach.

can impact the renewable energy industry. We compile

We provide performance-driven solutions throughout

and share information on new trends and their potential

the asset life-cycle, from concept to decommissioning,

implication within our group. For instance, energy

across a broad range of industrial markets including

storage is going to play a big part in Mexico’s energy

the upstream, midstream and downstream oil and gas,

industry at some point, but the degree to which storage

power and process, environment and infrastructure, clean

is successful will come down to what services can be

energy, mining, nuclear and general industrial sectors.

offered through their implementation and how those

Talking specifically about renewable energy services

are valued. While the idea of storage is popular, the

in Mexico and Latin America, the merger opened up

practicality in implementing storage as an integral part

interesting opportunities. In terms of experienced

of a renewable energy project’s development is only truly

engineers, we now have a deeper and wider pool of talent

beneficial under certain particular conditions, such as in

available in Mexico and also from different countries. In

sites located within a weak point of the electricity grid.

terms of services, we now have different inhouse lines we can capitalize on, such as green finance, environmental

Q: What are Wood’s objectives in Mexico for the

and social assessments and reviews encapsulating the

near future?

EIB an IFC works, substation construction and civil works,

A: Wood’s objective is to help guide the industry to

covering design and construction.

ensure that the projects installed in Mexico are well planned, designed, constructed and operated. Mexico has

Q: Which services is Wood looking to showcase in Mexico?

done a good job from a regulatory perspective. Now, the

A: The core of our business in Mexico at the moment is

implementation of strong technical considerations must

lender’s due diligence work, which includes a pipeline

be built on top of that. Standardization and risk-reduction

of over 1.5GW of auction projects for over ten banks.

is called upon on several fronts. Mexico needs to see more

Evaluating operating projects is also part of our business

projects from the auctions passing through the financing

portfolio, through project lifetime optimization services.

process and being successfully built in order to create the

Our next step is to support our clients in laying the

bedrock for a strong, local, renewable energy industry.

groundwork for optimal, predictable and long-lasting

There will always be work for us and others as long as

performance during the operational phase of their projects.

the technical and commercial foundations for energy

One example is via our Digital Solutions business which

projects are sound.

enables us to provide cutting edge optimization software algorithms and machine learning capabilities applicable to operational renewable energy projects. We anticipate

Wood is a global leader in the delivery of project, engineering

this particular niche will become increasingly important

and technical services to energy and industrial markets. The

in our business as Mexico’s operating renewable energy

organization operates in more than 60 countries, employs

projects age.

around 55,000 people and has revenues of around US$10 billion

| VIEW FROM THE TOP

MERGING STRENGTHS TO PIONEER FINANCIAL SOLUTIONS HERNÁN GONZÁLEZ Managing Partner at Norton Rose Fulbright Mexico 44

Q: What are Norton Rose Fulbright’s strongest traits that

private participation, spanning at least three decades.

make it a vital ally for developers in Mexico?

However, Mexico’s wholesale electricity market did not exist.

A: Few law firms can take advantage of the global footprint

The intention of establishing it has deeply changed the rules

that Norton Rose Fulbright has built over the years,

of the game and the learning curve’s slope remains steep,

particularly in business law services for the electricity and

from the policymakers and regulators to the private players.

renewables sectors. The extent of our presence was made

Several positive trends are reasserting themselves, particularly

possible by the association of Norton Rose and Texas-based

with the insertion of renewables into the country’s energy

Fulbright & Jaworski, both of which were actively involved

mix through the successful and price-competitive long-term

in the energy industry to begin with. Added to this initial

electricity auctions that have been conducted by CENACE.

association, the incorporation of Chadbourne & Parke, its

Each edition has been more innovative than the last, with

local offices in Mexico and equally active participation in the

the inclusion for instance of the Clearing House in the third

energy industry sharpened our ability to cater to Mexico’s

auction. We pay special attention to how the sector evolves

needs in terms of project finance and business law related to

and how it reacts in the face of these new figures.

renewable energy. Our combined presence in New York, Texas and Canada places us at an unparalleled position vis a vis our

Q: What underused technology could steal the spotlight from

competitors in the energy industry.

solar and wind? A: Wind and solar secured a preponderant role in Mexico’s

Q: What tangible results has the incorporation of Chadbourne

energy transition that is hard to surpass, particularly

& Parke yielded?

considering the dramatic drops in both technologies’ cost

A: Chadbourne & Parke was a natural choice for us

per MW. First, the market will take advantage of these prices

considering our practices worked well together. The merger

that make wind and solar more accessible. There will be some

was announced as Norton Rose was preparing its entry

exceptions for certain locations where, given the resource

into Mexico and modified its original business, budget and

availability and infrastructure present, other technologies

recruitment plan. As of the combination closing in June 2017,

such as geothermal, biomass, turbogas or hydroelectric will

our Mexico team has almost tripled its size and extended our

take precedence. However, there is still a sizeable gap to be

global business network, with a team of more than 4,000

bridged by these alternatives and solar and wind will retain a

specialized lawyers, 53 offices and a privileged position in

significant lead for the foreseeable future.

Latin America. This merger allowed for our insertion objectives to be met at a faster pace than originally planned.

Q: What has been Norton Rose Fulbright’s most important contribution to the energy industry?

Q: How does Norton Rose Fulbright best cater to clients that

A: Norton Rose Fulbright has provided solid project finance

want to enter Mexico’s energy industry?

advice and representation in utility-scale renewable energy

A: The key lies in adapting to a new legal framework and

projects. Our highly qualified partners in New York, DC and

unlocking the opportunities of the industry for all parties

Texas thoroughly scrutinized Mexico’s projects, and designed

involved. In contrast with the oil and gas industry, the

and carried out multiple cross-border financing operations

country’s power sector already had a certain amount of

to build up the bedrock of our firm’s solid foothold in Mexico. Parallel to that, we are actively participating in the secondary market of project commercialization. Our growth

Norton Rose Fulbright is a law firm that provides corporations

is determined by the quality of our work, and the quality of

and financial institutions a full business law service. It has more

our associates and collaborators, both local and abroad, who

than 4,000 specialized professionals based in Europe, North

planted the seeds of the intensive pipeline of projects Norton

and South America, Asia, Australia, the Middle East and Africa

is working on.

VIEW FROM THE TOP |

DOUBLING CAPACITY, ONE PROJECT AT A TIME OSVALDO RANCE Head of Mexico at Cubico Sustainable Investments 45

Q: How is Cubico’s goal of doubling its size in the next

processes, such as the validation of the property title,

three to five years reflected in its Mexico operations?

registration with the National Agrarian Registry and dealing

A: Cubico’s global strategy is to double the size of its

with social and indigenous community consultations,

portfolio in the next three to five years and we are adjusting

among many other elements that complicate and delay the

our business plan accordingly. Today, our global portfolio

development of a project. Maintaining a good relationship

has a total installed capacity of 2.3GW, of which 1.4GW are

with local communities is an absolute priority for Cubico,

operational. In Mexico, we have 600MW in an advanced

and therefore, it retains the best advisers and third-party

stage of construction: our 350MW Solemsolar PV plant in

services that have the deep local knowledge necessary to

Aguascalientes that will become operational in Q1 2019, and

ensure these factors progress smoothly throughout the

our El Mezquite 250MW wind farm in Nuevo Leon that is

development process of our projects.

expected to be operational in Q2 2019. To ensure a smooth transition from construction to operation, the company has

Q: How does Cubico manage merchant risk?

expanded its working team considerably and is hiring more

A: Contracts awarded in the long-term electricity auctions

talent to manage both projects.

entail significant merchant risk given that the volume of energy, capacity and CELs contractually committed is

Q: What main challenges have hindered the development

below the total expected production according to a P50

of Cubico’s projects?

analysis, in order to mitigate delivery risk. The difference

A: The main challenges and risks regarding the development

between the P50 and the contracted volume must be sold

of energy projects in this country relate to grid access in

in the Wholesale Electricity Market from Day One. At our

terms of interconnection availability between wind or solar

solar park, only 83 percent is contracted with CFE via a

production sites and the main grid. I believe significant

PPA and the rest goes to the WEM. The merchant risk

steps have been taken to strengthen the national electricity

implies revenue volatility, distribution to shareholders and

network to provide room for more interconnection projects,

creditor income.

but there still is plenty of catching up to do. In the case of our wind project, 93 percent is under contract The second challenge I can identify is related to land.

and the rest goes to the WEM. The contract from the

Securing rights of way varies greatly depending on the

auction is only for 15 years for energy and capacity, while

region. The northern and southern regions of the country

the expected life of the project can be up to 30 years.

have different realities. In the north, there are large

All the power generated after the PPA finishes is also

extensions of private property that significantly simplify

exposed to market volatility risk and we must therefore

the negotiation of rights of way. In the south, however, land

forecast long-term market prices. In Mexico, the scenario

ownership is extremely fragmented and in many cases land

is complex because it is a nascent market that is still illiquid

owners are organized and ruled by ejidos, which in turn are

and immature. The balance between contracted and

scattered across many small municipalities with different

merchant cash flows from the underlying PPAs awarded

governing rules.

in the auctions should improve in order to offer investors a more attractive risk-return profile.

At our 250MW project in Nuevo Leon, we signed leases with two private owners, whereas in Oaxaca, for a project of almost the same size, we had to negotiate more than

Cubico Sustainable Investments is an investment firm

450 land lease agreements. These complications can delay

specialized in renewable energy projects. Ontario Teachers’

and even stop the development of projects because when

Pension Plan and PSP Investments are 50-50 shareholders of

a company arrives to a location it must undertake several

the company

| VIEW FROM THE TOP

LOW-COST SUPPLY CHAIN EXECUTION CAPABILITY KEY TO PROJECT SUCCESS DAVID JACOBY President of Boston Strategies International 46

Q: What are BSI’s greatest strengths according to its

dramatically in the recent past. We anticipate it will further

renewable power-generation clients?

drop but at a slower rate. Industry heavyweights will survive

A: BSI offers strong solutions in supply-chain sustainability

because they can soften overhead, design and engineering

for renewable energy projects. We have the ability to

costs across multiple projects globally. Local players, as

measure, analyze and reconfigure the supply chain of

much as we might like to see them win, cannot necessarily

renewable projects to ensure a lasting positive impact on

build to the scale sufficient enough to bring costs down to

the environment through low carbon footprints, including

a level that will win an auction.

the EPC portion of the projects. Our project development capability enables us to help finance project management

Q: Where is the fine line between cost reduction and

companies through a bundle solution involving financing,

optimal long-term performance in renewable energy?

project management and EPC work, as an end-to-

A: Effective project management requires low-cost supply

end integrated service. BSI’s analytical frameworks to

chain execution capability, which is why several BSI-

evaluate different regulatory models, decades worth of

managed projects in a PMC capacity are a blend of local

consulting for the supply and demand chain, contracting

and international content that optimizes the cost position

methods, including other supply and demand coordinating

of the project’s construction, with quality as the primary

mechanisms within the electricity and natural gas value

benchmark. The end result is upfront analyzed and modeled

chains are also part of the company’s major assets. This is

costs, environmental impact and operating performance of

particularly true in the context of Mexico’s Energy Reform

the entire process, including capital, engineering, construction

and the requirements of the country’s infant energy market.

and operation throughout a project’s life cycle to ensure that fine line of quality in every stage and still win the bid.

Q: How can developers craft profitable projects with decreasing package prices in the long-term

Q: What are the prevalent regulatory hurdles your clients

electricity auctions?

face when setting up shop in Mexico?

A: This is not just a Mexican problem, it is a global

A: The common denominator is energy storage and its

conundrum. While European prices tend to be more on

absence from the country’s regulatory framework. Another

the higher safety margin, Latin America and the Middle East

significant issue revolves around how to configure the

are definitely hitting low bids, driving costs to new, unseen

regulatory framework of natural gas power generation and

lows. Caution must reign supreme when analyzing these

distribution when the sources of demand are evolving so

costs. Price offers cannot be assessed without thoroughly

dramatically. Natural gas is experiencing changes in volume

dissecting the contracts in their entirety and understanding

and trade profiles that are shaping the market, such as Mexico-

what was done to get the price to that level, from using

US trade volumes that are at levels that were not foreseen and

their reliability targets or local content commitments to

are raising several complex challenges for regulation. In the

tweaking cost reductions and margins or cost-cutting in

case of electricity, the emergence of electric vehicles, which

some potentially dangerous way, risking either performance

require charging stations, distributed generation and smart

or safety. We are seeing a slight leveling-off in PV and

homes and cities offer new opportunities to feed into the grid

wind power costs on a kWh basis, after these came down

through bidirectional schemes. But these also raise equally challenging power demand profiles that need regulating and that require new standards that are still at the drawing board

Boston Strategies International (BSI) is a professional services

stage. Power demand and supply coordination practices

firm for the oil and gas and renewable energy supply chains,

are set to shift dramatically, which raise not only technical,

specialized in strategy formulation, capital investment and

data mining and IT questions but legal, privacy, ethical and

budgeting, project management and regulatory expert services

regulatory issues as well.

VIEW FROM THE TOP |

LAYING THE FOUNDATION FOR QUALITY CONTROLS

SILVIO VENTURA Executive Director of the Consulting and Technical Advisory Division at OCA Global

ALBEIRO GUAYARA Country Manager Mexico of OCA Global

Q: Why should energy project developers turn to OCA

Q: How is OCA Global working to extend quality controls

Global to solve matters regarding technical safety,

beyond components to also cover EPC works?

inspection and quality controls?

SV: As independent technical advisers, we always ask that

AG: OCA Global can guarantee the quality required for

quality plans and manuals should form an integral part of

their projects to fulfill national and international norms

the EPC contract, meaning all project stakeholders must

and standards and to operate optimally over the long

abide by these quality provisions. It can vary significantly

term. We can contribute as early as project feasibility

as each company, promoter and EPC company has its own

and formulation, followed by construction, operation and

concerns regarding quality control. Given the absence

efficiency assessment, based on what was outlined in

of a standard norm for quality control, we adapt to the

the blueprint stage. OCA Global brings to the table the

requirements set by project sponsors and those requested

cumulated experience and best practices from diverse

by local authorities.

markets, including Spain, South Africa, Morocco and Chile, to our local teams involved in significant projects in Oaxaca,

AG: Some progress has been made in this regard, particularly

Sonora and the Bajio region. Our corporate structure can

with grid interconnection requirements. Other aspects that

provide quality and safety services for these projects.

are more related to solar PV systems are being developed based on other countries’ best practices, as Mexico develops

SV: We are poised to service Mexico’s energy market when

more local experience and adjusts to its requirements

quality-control services become the norm in the near future.

accordingly. We always propose training services to our

These controls provide the required guarantees to investors

clients to adhere to these international standards.

and public entities regarding flawless and quality normcompliant project execution. Renewable energy project life

Q: What is missing in Mexico to promote a diversified clean

cycles are gaining increased importance in the country’s

energy matrix beyond wind and solar?

regulatory framework, extending as far as component and

SV: One model used in other markets is the feed-in tariff

finishing quality.

(FiT). Relying on auctions and free-market mechanisms boils down to LCOE and margins, in which solar and wind

Q: What projects in Mexico best illustrate the company's

power projects have the most to gain. The future influencing

added value?

factor will be energy storage technology. Once it becomes

AG: OCA Global is working on four solar PV parks under

sufficiently scalable, we will find projects that already

construction. We are undertaking PV module inspection

include energy storage and will consider including them in

work, delivering daily reports. We reported a number of

existing renewable power generation assets. For 2018-23,

deviations from the stipulated parameters for the projects

Mexico’s renewable energy industry will be gauging the

and corrective adjustments were made accordingly. For

impact of energy storage and its prices in the energy mix.

operational renewable energy plants, we are providing

Meanwhile, based on our participation in industry-specific

compliance advisory services relating to HSE regulation

events and forums, our understanding is that in the near-

with periodic onsite visits.

term solar and wind technologies will take up the lion’s share of the country’s renewable energy sources.

SV: OCA Global’s presence in Mexico since 2008 has been primarily focused on project bankability, first with the country’s wind farm projects between 2008 and 2012,

OCA Global is the rebranding of former OCA Group, a Spanish

totaling 1GW of installed capacity, followed by solar PV

corporate group specialized in testing, inspection, certification

projects in the northern region of the country coupled with

and training services in quality, environmental, safety, health

several mini-hydraulic power plant projects.

and corporate social responsibility issues

| VIEW FROM THE TOP

PAUL ABITANTE Vice President of International Development and Mexico Country Manager at Invenergy

JONATHAN PINZÓN Senior Manager Government and Regulatory Affairs of Invenergy

PORTFOLIO DIVERSIFICATION: BIDDING IN AUCTIONS, SUPPORTING OFF-TAKERS

Q: What is Invenergy’s primary contribution to Mexico’s

value for storage not only at renewables facilities but also

energy transition?

at natural gas facilities and beyond. Right now, we cannot

PA: If you look at the last long-term auction, there has

benefit from the multiple value streams of the technology,

been an abundance of renewable energy projects, starting

so its applications are limited. Once those opportunities are

from the first energy auction. Many of these are already

unlocked, we will see more storage deployment.

in construction and some are already in operation. In that auction, Invenergy bid on a large-scale natural gas peaker

PA: Some years ago, not even the US energy market was

power plant project. Mexico will have a new 605MW simple-

ready for storage. Yet, in Invenergy’s case, the company was

cycle plant entirely as a result of the auction. The auctions

one of the first movers. We started by building a relatively

have been attractive for participants, including ourselves.

small pilot plant and grew from that. Mexico is probably not

Our project will help make Mexico’s energy grid more

ready from a regulatory perspective but the country can get

dynamic by complementing the variable energy production

there relatively soon. Invenergy is working for it to happen

of renewable projects with a flexible natural gas resource

because the benefits of storage are enormous. Five years

that will provide firm shaping and peaking capacity.

ago, storage was measured in a few megawatts that could be discharged over a span of just minutes. Today, storage

JP: Having the most efficient natural gas peaker plant in

installations measure in hundreds of megawatts and hours-

the country is no easy feat. It is not the typical baseload

long durations, and this trend will continue.

generation. This project really provides the flexibility that the system needs to incorporate increasing amounts

Q: What does Invenergy’s deal with Bimbo say about the

of variable renewable sources. Invenergy does this in

company’s plans in Mexico in terms of diversification?

conjunction with its renewable energy projects around the

PA: From the beginning, Invenergy always wanted to take

world. We look at where other technologies can provide the

a diversified approach to our business in Mexico. In terms

flexibility and reliability that a system needs. In this case,

of technology, we participate in renewables, including wind

it was natural gas, but we also look at battery storage and

and solar, in thermal, including simple and combined cycle

other developments that offer valuable services that the

natural gas plants as well as cogeneration, and in battery

market needs.

storage. Commercially speaking, we are also diversified. Invenergy takes part in the auctions and is active with

Q: Is the Mexican energy industry ready for energy storage?

private off-takers like Bimbo in the US.

JP: Not yet but we will get there. Invenergy sees battery storage as a flexible technology that offers more than just

JP: We are looking to add value for different off-takers.

energy. Storage opens a toolbox of opportunities, including

For instance, Invenergy has announced the financial close

transmission and distribution deferral, peak shaving, energy

of its first cogeneration facility in Mexico that will be for

shifting, frequency regulation, black-start and voltage

an industrial host. We want to understand the needs of

support. A storage facility can serve a variety of system

the end user to provide the best technological solution.

needs at any particular node, point or interconnection.

It is all about trying to mitigate their risks. The point is to

Mexico’s storage regulation is a minimum viable regulation

create a mechanism where the off-taker gets value out of

since it allows companies to have a storage facility

the projects that we develop.

represented by a generator and registered as a power plant with CENACE. This is a narrow view of what energy

Auctions have been a predictable process in Mexico. There is

storage as a separate activity in the value chain can provide.

a volume that is being contracted and there is an increasing

Consequently, we will see storage initially deployed only

number of off-takers coming to auctions. The third auction

as an addition to renewable power plants. Invenergy sees

already allowed other participants, so we have three buyers

for our capacity power plant. That is also providing interesting

with needs relating to electricity, heat and demand response.

opportunities for businesses to come online to provide

Mexico will continue to see its economy diversify, which will

services in the Mexican WEM. We see increasing opportunities

provide opportunities for energy market participants.

for private and bilateral power purchase agreements (PPAs) that are maturing. There is still some resistance from private

JP: Especially in our cogeneration business, we look to

off-takers in new contractual mechanisms. Transitioning from

energy-intensive sectors like petrochemicals or pulp and

that to the WEM is still a challenge.

paper that involve large amounts of electricity and heat. These sectors will be more the case than automotive. This

Q: What is Invenergy’s strategy to establish itself as a long-

industry is electricity-intensive but not heat-intensive.

term player among off-takers? PA: In terms of market rules, Mexico has no dependency

Q: What is the status of Invenergy’s energy portfolio?

on Renewable Electricity Production Tax Credits (PTCs).

JP: Invenergy’s portfolio in Mexico stands at roughly

The long-term nature of the country’s energy auctions is

4,000MW and is diversified across all technologies,

important and must continue. One of the uncertainties is

including wind, solar, natural gas and battery storage. We

whether there will be an auction in 2019. Off-takers should

are not pursuing a specific balance between technologies,

give us the certainty because otherwise there will be a

and instead pursue each project according to the best

lack of investment in developing that pipeline into future

opportunity and the particular site.

projects. Auctions are not something that can go away next year and then come back again in 2020. It is important to

PA: Some of the best projects take time to incubate. It is all

maintain the consistency that we have seen between 2016

about finding the opportunities that make sense, which is

and 2018 in order to maintain predictability. Otherwise,

what Invenergy is really good at. We look ahead, work on

market efficiency may be harmed.

what makes sense to develop, do all the internal analysis necessary and then execute the projects.

Q: How is Invenergy re-centering the discussion toward ROIs?

Q: What are the objectives that Invenergy has set up for

PA: We may not do as many deals as other companies but

itself in Mexico toward 2020?

every deal that we do includes certain economic metrics

PA: By 2020, the first projects that Invenergy was awarded

and thresholds that Invenergy and its investors are satisfied

in 2017 will enter commercial operations. For instance,

with. In that sense, we are not going to chase market share.

we have a cogeneration project for an industrial host in

Over the long run, companies like Invenergy ultimately are

the Altamira area that should start operations in 4Q19.

rewarded while some players we competed against last

Additionally, the Los Ramones peaker project will enter

year are already leaving the market. We know there are

operation in 2Q20, and our Las Fenicias wind project will

portfolios being either partially or entirely divested, which

start commercial operations in 3Q20.

speaks to our approach in the market. Q: Which of Mexico’s energy-intensive industries can

Invenergy is the world’s leading privately held developer and

benefit the most from Invenergy’s solutions?

operator of sustainable energy solutions. Headquartered in the

PA: We are able to serve a very wide range of energy end

US, the company’s portfolio includes wind, solar and natural

users. We can tailor energy solutions for any industrial operator

gas power generation and advanced energy storage projects

| INSIGHT

BUILDING BRIDGES BETWEEN PAST, FUTURE REGULATORY FRAMEWORKS 50

RUTH GUEVARA Founding Partner of Zumma Energy Consulting

CÉSAR REYES Partner at Zumma Energy Consulting

In just a few years Mexico has created the foundation for

Record low prices achieved in the last three long-term

a strong regulatory framework and an attractive energy

electricity auctions are, according to Reyes, proof that

market for investors. Ruth Guevara, Founding Partner of

Mexico’s energy market is filled with opportunities but also

Zumma Energy Consulting, says the new buzzword for the

that they are not suitable for everyone. For that reason,

Energy Reform is consolidation. “The regulatory framework

he is now waiting to see an evolution in the financing

of the Energy Reform is strong in terms of allowing foreign

schemes used in the utility projects that resulted from

investors to enter and feel secure. Clear market rules have

the auctions. “As projects start to be developed and due

been established,” she says. “But regulation evolves on

to the extremely low generation prices at the auctions, we

a daily basis and we work every day to keep our clients

foresee an evolution of traditional financing to schemes

updated in real time on the regulatory and market aspects

in which companies and financial actors accept more

that will influence their businesses.”

risks,” he says.

As international companies enter the country and

Guevara adds that the record-low prices achieved in the

encounter new prospects, César Reyes, Partner at Zumma

long-term electricity auctions have become prohibitive for

Energy Consulting, warns of the challenges they will face as

many companies. “Some companies are shying away from

newcomers. “For companies to fully dive into Mexico’s pool

the long-term electricity auctions and therefore looking to

of opportunities they need to truly understand not only the

sign PPAs or other distributed generation mechanisms,”

regulation but also the market dynamic and trends,” he says.

she says. But she adds that this is a positive signal as the auctions have proven to be highly competitive, and

Companies like Zumma Energy Consulting, which provides

PPAs and distributed generation are markets where more

tailor-made stakeholder mapping services, specialized

participants are needed to increase competition and

reports and market-positioning strategies, can help these

fashion better results.

newcomers traverse the Mexican landscape. “We tailor relevant data-driven analyses so these companies can

Guevara also sees a great deal of opportunity in

better forecast their operations in the country,” Reyes

transmission lines, like those connecting Oaxaca and

says. “Mexico’s energy market is still an ever-changing

Morelos, since many areas in the south and in the rest of

environment, meaning that it is necessary to fully

the country suffer due to lack of infrastructure. “Major

understand who is responsible for what, so companies

transmission line projects, like that connecting Oaxaca and

know exactly where to go to air their concerns.”

Morelos with HVDC lines will be important due to their great impact on electricity infrastructure,” she says.

Guevara says the consultancy’s long experience in the country and its knowledge of the Mexican market are

The fact that some projects cross almost six states also

additional advantages. “Zumma Energy Consulting has

creates an opportunity to establish best practices on

been in the Mexican market for about nine years now.

how to handle social issues. “The themes of land use

Our work has focused on helping foreign companies

and rights of way are extremely relevant for the projects

to understand the regulatory framework, as well as the

to reach completion,” says Reyes. To avoid friction with

challenges and opportunities present in the country,” she

communities, it is necessary to include them in early stages

says. Zumma’s services can be divided mainly into business

of the planning process of the project, and maybe even

intelligence, strategic information and regulatory advice.

go one step further. “Countries with a more developed

It works across the entire energy value chain, having

energy market have managed social issues in a way that

advised generators, qualified suppliers and end users,

they now even include communities as partners in the

among others.

projects,” he says.

INSIGHT |

GROUND-BREAKING ACTIVITIES FOR ENERGY PRODUCTION GERARDO HIRIART Director General of Grupo ENAL 51

Mexico’s long-term electricity auctions were designed to be

plant allows companies to start producing right after the

technology agnostic. Nonetheless, they have been dominated

well has been drilled, also providing important chemical

by wind and solar technologies. Cost has been a contributing

and thermodynamic information related to the well, such

factor and other segments should understand this if they want

as chlorides concentration and enthalpy gas content

to compete, according to Gerardo Hiriart, Director General

variations.” Hiriart adds that the government has been

of Grupo ENAL. In particular, he points to the geothermal

open to recommendations to include more reliable sources

industry. “Geothermal requires higher investments compared

of energy in the energy mix. “The geothermal law in Mexico

to solar and wind technologies,” he says. “It is critical for the

gave us and other players in the industry certainty in our

development of the geothermal industry to bring down costs

activities as it stated the need for developing exploration

and become more competitive, which is why we are strongly

activities in certain regions, creating positive relationships

investing in that area.”

with educational institutions and CeMIEGeO and investing more in geothermal activities in Mexico,” he says. “The

The group is focusing heavily on bolstering the presence of

Ministry of Energy is now also targeting exploration of low-

geothermal in the energy mix. “Grupo ENAL has partnered

enthalpy areas, which have lower risks related to earthquakes

with a major financing company to further develop its

and volcanoes.”

activities,” Hiriart says. “While we already were active in R&D and exploration of geothermal fields, this partnership provides

Although efforts are concentrated on opening opportunities

us with further capabilities to increase our presence in project

for geothermal, Hiriart says the full potential of this resource

development and with the commercialization of our services.”

is yet to be unleashed, limiting Grupo ENAL’s presence in

Hiriart believes this is easily achievable considering Mexico’s

the bilateral contracts scheme. “Due to the extremely low

geothermal potential. “Mexico has two regions that are rich in

prices offered during the long-term electricity auctions,

geothermal resources: the volcanic strip that stretches from

the lack of certainty in the execution of those projects and

Nayarit to Veracruz, and the Baja California peninsula.”

even the continuity of the auctions, we have decided to work mainly out of the wholesale electricity market by

While those two regions have the highest potential for

entering into bilateral contracts,” he explains. While the

geothermal development, Hiriart acknowledges that risks

development of a specific auction for geothermal energy

related to developing projects in those areas must be

is possible, Hiriart is not hopeful a geothermal auction will

considered. “The main inherent risk is due to thin-crust

materialize anytime soon. “Right now, the biggest market

soils usually present in seismic and volcanic zones,” he says.

opportunity for geothermal technologies is with high-

“Developing geothermal projects close to volcanoes is a clear

energy consumers that consider this technology’s costs

risk, and developers must be aware of the implications.” He

less important compared to the reliability and security of

gives the example of a geothermal plant in Iceland that was

the supplied energy,” he says.

close to a volcano and was in danger of being destroyed by lava flows after an eruption. The company was able to build

As regulation now requires market participants to consume

dikes to protect the plant.

at least 5 percent of their energy requirements through CELs and geothermal is a fully clean technology, Hiriart says Grupo

With a clear mandate as a market leader in the geothermal

ENAL wants to enter into more bilateral contracts to help

arena, Hiriart says Grupo ENAL’s patent-pending

companies meet their CELs requirements. Another advantage

portable geothermal plant will be a game-changer for

of geothermal is that it does not rely on fuel. “The fact that

the development of geothermal fields. “This product has

companies stop being vulnerable to variable and rising fuel

already been awarded the PRODETES prize, as it can begin

costs make their cost structures much more stable in the long

production at as low as 1MW,” he explains. “This means the

term,” he says.

| VIEW FROM THE TOP

RISK EXPERTISE IN AN OPEN MARKET JÜRGEN SEGELBACHER Technical Services Director of Munich Re 52

Q: What added value does Munich Re provide to the

the gap between economic and insured losses to protect

Mexican energy industry that no other competitor can?

more projects through the insurance industry against

A: Mexico is subject to many natural risks such as

unforeseen events.

hurricanes or earthquakes. The fact that Munich Re can get involved in a local project’s risk assessment by undertaking

Q: What makes Munich Re the perfect local partner in a

risk consultancy activities offers confidence to investors,

globalized world?

especially to those coming from abroad that do not know

A: The question already gives the right answer. With our

about the potential risks their projects will be subject to in

service on site representing the whole group we can be

Mexico. We have developed relationships with most of the

a reliable partner to our clients and address their needs

main players involved in risk assessment in Mexico. Every

accordingly within our group. Needless to mention the

time we get involved in a project, we make sure our clients

scaling of experiences from other regions of the world.

assess every risk related to their projects and also ensure a quick response when needed. When projects awarded

Q: Is there an event in which Munich Re showcased its

during the first and second long-term electricity auctions

strengths and capabilities in the country?

enter into the design and construction phases, Mexico

A: When an earthquake hit Mexico City on Sept. 19,

will become more attractive for Munich Re to showcase

2017, we established close and constant communication

its capabilities for properly assessing the frequency of

immediately with our clients. The first payouts were

incidents, their severity and overall impact.

provided within just a few days to ensure prompt recovery work.

Q: How important is asset reinsurance in the global and Mexican markets?

The communication channel was also open for client

A: 2017 was a record-breaking year. Insured assets

feedback about the situation, the way our activities were

worldwide suffered a total economic loss of US$340

being undertaken, and whether they found them valuable.

billion due to natural catastrophes. Insured losses

We even formed a task force in our Mexico City offices,

came to US$138 billion. It will be interesting to see how

with people coming from Munich and Bogota to support

economic losses behave in the coming years, even more

and supervise the activities. The short response time

so considering the effect climate change is having on the

and high quality in all of the activities we performed has

frequency and severity of natural disasters.

further strengthened the reputation of Munich Re and has attracted more clients that are happy to do business

One thing is for sure: only companies that are well-

with us due to the capabilities we showcased.

prepared to face risks, both in terms of understanding potential losses and the capital required to face those

Q: What did Munich Re learn from this natural disaster?

losses, will triumph in the market if an incident takes place.

A: Companies tend to have a very optimistic view, even

This is why the presence of an expert in risk assessment,

when considering the effects of a natural disaster. One

like Munich Re, is needed from the very beginning of

important lesson that arose from this catastrophe was

every project. The main challenge is definitely to close

the high number of infrastructure installations that is not properly insured in the country, both in the public and private sectors. Both types of players have work to do

Munich Re is a global reinsurance group that mitigates risk

in terms of insurance to get all of their assets properly

factors. It has over 40 years of experience with climate change

covered. With our advice, companies can better structure

related risks and opportunities. The company’s expertise is in

action plans that take into account every aspect that may

risk assessment, insurance solutions and asset management

cause difficulties if an incident jeopardizes their activities.

VIEW FROM THE TOP |

SAFETY, RELIABILITY FOR PV SECTOR

WILLI VAASSEN Business Field Manager Solar of TÜV Rheinland

NELSY SANTIAGO Business Development Manager Mexico of TÜV Rheinland

Q: How is TÜV Rheinland making its mark in Mexico’s

on that track record, Mexico’s regulators can craft adapted

renewable energy market?

frameworks for market access on one end and position

WV: TÜV Rheinland has a deeply rooted footprint in the PV

themselves under Mexico’s specific conditions on the other.

sector around the world, coupled with its involvement in the field of wind energy. We are No. 1 when it comes to PV

Q: Which services are driving TÜV Rheinland’s growth

modules, inverters and components testing and certification.

in Mexico?

TÜV Rheinland is also deeply engaged in PV power plant

NS: Mexico’s PV market includes more than 10 PV

assessments, qualifications, inspections and certification

manufacturing companies. For those among them looking to

services. We know the weaknesses of the products and the

provide Tier 1 products and quality manufacturing processes,

production processes, which we can transfer into quality

TÜV Rheinland can provide certifications 61215, 61730 and

assurance for PV parks, fostering investor confidence. Mexico’s

UL1703 for optimal quality, performance and security. Our

PV market is characterized by pressure to produce cost-

testing platform is also in high demand. We send product

efficiency, impacting both PV components and PV systems.

samples to our Arizona laboratory for six to seven weeks of

It entails a latent risk of relying on low-quality components.

300 quality tests, after which we submit a trial report. The

We want to cement a sustainable clean energy production in

next step involves corroborating a PV factory’s production

Mexico, enhancing quality assurance and risk mitigation for

line, where we perform periodic factory visits and release

renewable energy project investors.

factory verdicts.

NS: Based on our market analysis prior to establishing a

Q: What is TÜV Rheinland’s long-term vision in Mexico?

business line in a new market, our assessment of Mexico’s

WV: We want to replicate our top-ranked third-party services

Energy Reform detected PV projects as the technology that

in Mexico, supporting our clients in ensuring the safety and

required the most support for its long-term success, be it

reliability of their renewable energy production and securing

distributed generation or utility scale. TÜV Rheinland has

investment flows in PV projects. Our local team in Mexico is

35 years of experience in PV module certification services

growing. We are looking to strengthen it to support Mexico’s

and 27 years of experience in evaluation, inspection and

energy industry and guarantee investment safety with the

testing services for PV plants. We can assess quality levels

support of our international colleagues. We want to implement

throughout any project development phase, across all involved

high-quality and highly-sustainable products and systems in

stakeholders and ensure their inherent interests are preserved.

Mexico’s PV market, as well as supporting knowledge-transfer activities for PV installers.

Q: What is your assessment of Mexico’s PV value chain? WV: Looking at the global market and the development of

NS: Our expertise in IEC, ISO and other international standards,

Mexico’s PV market in particular, there is a sizable opportunity

coupled with our local market knowledge in both technical

for Mexican employment based on the industry’s local

and regulatory perspectives places us in an ideal position to

content provisions across the value chain, such as planning,

provide market-entry services to our clients. They can count

installations, rack mounting and cabling. Module production

on a specialized third-party to cover all the specificities of

can follow and we have seen a pool of startups looking into

Mexico’s renewable energy industry.

this sector, which can be bolstered upward toward highquality production lines. Concerning the inflow of foreign companies looking to set up shop in Mexico, the country

TÜV Rheinland is a world leader in testing and supply chain

enjoys a favorable position, both from a governmental and

management services for the solar industry. With over 35 years

private initiative standpoint. They can look at the lessons

of experience, it specializes in testing and certification of PV

learned from past experiences of other countries. Based

modules and components, as well as independent engineering

| INSIGHT

RENEWABLES PROJECT SAVOIR FAIRE FOR MEXICO’S DG AND PPAs FLORIAN GOUTTE Latin America Development Manager of Valeco Energía México 54

While the long-term electricity auctions have attracted

Bolstered by its support from the pension fund, Valeco is

a great number of participants from around the world,

positioning itself to capitalize on the sizeable market that

one challenge for midsized developers, such as Valeco

involves private PPAs among the country’s industrial players,

Energía Mexico, remains financing. “Whereas large

which Goutte estimates to include 20GW of potential PV

developers can rely on their own financial arm, using

projects for this niche alone. But this does not mean the

shareholder capital and investors as creditors, each of

company is limiting its scope. “Mexico’s opportunities are

our projects create a singular entity fully dedicated to its

three-pronged: distributed generation projects of 500kW

respective project, with a mandate to provide a positive

and upward of installed capacity, private PPAs and the

end result,” says Florian Goutte, the company’s Latin

long-term electricity auctions,” he says. Valeco is focused

America Development Manager. “We rely exclusively

primarily on the first two.

on project finance while auction winners primarily use corporate finance.”

The company’s Mexico subsidiary is well-positioned to service the PPA and DG niche, considering its more than

The French developer has an ace up its sleeve, however,

300MW global portfolio of operational projects, parallel

as the Caisse des Dépôts et des Consignations, a French

to 1GW in development and more than 20 years of

public financial institution, owns 35 percent of the group.

experience in project development. “Valeco’s expertise is

“This institution has been generating green income since

spread throughout each link of the value chain, meaning

2008, with attractive security-versus-yield ratios,” Goutte

we can develop projects throughout each of its phases,”

says. “The Caisse des Dépôts et Consignations started

Goutte says. “This includes securing land, administrative

with a 10-15 percent share in Valeco and steadily increased

procedures, permitting, measuring resource potential, be

that to today’s 35 percent.”

it solar, wind or biomass, engineering, work oversight and O&M services.”

Valeco’s entry into Mexico in 2015 was the result of business dealings north of the border. “From our core of France-

Goutte applauds the implementation of the Energy Reform

based projects, we detected a biogas plant opportunity in

in Mexico that have placed a spotlight on the country’s

Montreal, Canada,” Goutte says. This project also served

renewables potential. “The process has worked well and

as a platform for entry into a wind farm project, also in

names such as Enel Green Power entering Mexico’s energy

Canada. “Thanks to our different contacts and projects,

sector have a pull effect, causing other players in the

after opening our Canadian offices we realized there was

industry to seek a foothold in a market where industry

potential to be tapped in Mexico,” he says. While the French

heavyweights are doing business,” Goutte says.

multinational has worked on solar and wind projects in the past, it is focusing its effort on commercial and industrial

As proof that the company is in Mexico for the long

scale PV systems.

term, Valeco Energía México is polishing the details of its development plan and business prospects for 2018-2024 in

There is no doubt that Mexico’s long-term electricity

Mexico. “We are gauging the aggressiveness and ambition

auctions have taken pride of place in the country’s energy

with which we will lay our foundations in renewables in

transition. Parallel to each edition comes the opportunity

Mexico,” says Goutte. “We are intent on developing a

for industrial and commercial players to reap the benefits

share of the PV potential the country holds for industrial

of cleaner and cost-effective power production, injecting

and commercial applications.” The company also plans

additional competitiveness through reduced energy

to use the country as a base to new markets. “Mexico is

consumption costs. Goutte says this highlights the necessity

set to serve as our central office to cover the rest of Latin

for flawless project finance.

America,” Goutte says.

INSIGHT |

POWERING UP PV PROJECTS WITH HIGHERVOLTAGE INVERTERS ALESSANDRO ORPELLI Head of Solar Sales at Fimer 55

As Mexico’s energy auctions unfold, the focus is on the

technical support in design, competitive pricing, quality

rapidly decreasing package prices for developers between

services and top-class installation,” he says.

the first and third auctions. But according to Alessandro Orpelli, Head of Solar Sales at inverter specialist Fimer,

Orpelli highlights that Fimer is the leader in Mexico in terms

these tight margins are also inevitably passed along to the

of market share, and it is growing. “We are about to install

supply chain. “From our side, we see a real fight to obtain

230MW with an undisclosed company, we are in the midst

projects,” he says. “Margins are tighter but now we have to

of installation of 190MW for ACCIONA, we have another

adapt, be more efficient and find margin where there was

30MW in the pipeline and we expect another 100MW soon,”

none before.”

he says. “None of those projects will pertain to our historic customer Enel so this demonstrates that the rest of the

Fimer is not only providing standard solutions in such a cut-

market sees the value in our products and services.”

throat environment but also adding value for clients, even if that means sacrificing profits in the short term. “Many of

He characterizes this value as Fimer’s ability to use

the biggest inverter suppliers install skid solutions, which is

innovation to generate as much power as possible, by

a technology that is completely exposed to the elements,”

increasing voltage to increase current, which in turn leads to

he explains. This means that in environments with dust,

increasing power. “We are pushing ahead with investigating

heavy wind or rain, it is difficult to perform maintenance

some changes that now seem impossible but, in the future,

since opening the inverter means exposing it. Fimer

will be possible,” he says. “A few years ago, the industry

delivers only containerized solutions. “We provide value

believed it would be impossible to develop inverters over

to the client because maintenance can be performed even

1,000V, but now we are the pioneers in 1,500V, certifying

in bad weather, reducing downtimes,” he says. To remain

the PSSA model with CENACE.” Fimer was responsible for

competitive, Fimer ensures the extra cost of the more

installation of the largest 1,500V plant in Latin America –- a

sophisticated equipment is not passed on to clients.

100MW plant located in Brazil that was completed at the beginning of 2017.

One way this is feasible is through Fimer’s centralized production in Italy, meaning there are no subcontractors

Even now as players are adopting 1,500V inverters, Fimer is

to squeeze margins. The company is also adapting to

starting to look at future possibilities of increasing voltages

Mexico’s increasingly price-competitive environment

for greater efficiency and lower costs. Another angle the

by increasing the power its solution provides. “The

company is looking into is bifacial panels, which he says can

Villanueva solar PV plant was delivered with 4MW power

generate up to 30 percent more power due to the light’s

conversion units, ACCIONA is talking about 6MW units for

reflection on surfaces. Not content to stick to PV solar

its upcoming project and another in the pipeline will use

parks, Fimer is also looking to facilitate EVs in the Mexican

units that provide even more power,” he explains. “We are

market. “We have opened a new division to deliver a few

concentrating more power in the same space while many

thousand inverters for EV charging stations for a major

of the components cost exactly the same, whether they

global player,” says Orpelli.

are 4MW or 7MW.” Fimer’s success can be demonstrated by two factors, Orpelli Orpelli believes Fimer’s strengths are illustrated by the fact

says: the number of megawatts delivered and the way in

the company was chosen by international solar giant Enel for

which those megawatts are delivered. “We have not only

Villanueva, not only to oversee the installation but also for

delivered and installed inverters to the biggest projects in

generation. “As Enel is the final client as well as the buyer, we

the country but we are also among the leaders in modular

have had to display skill at different project phases, included

power conversion technology,” he says.

| VIEW FROM THE TOP

FILLING THE GAPS IN PROJECT EXECUTION NEEDS FRANCISCO MARTÍNEZ Latin America Director of METKA EGN 56

Q: Why should renewable energy project developers rely

A: Our Latin American footprint is focused on solar PV

on METKA EGN’s EPC services?

projects, ranging from 15-300MW. Our holding grants

A: METKA EGN has 12 years of experience in the renewable

us the capacity to develop other clean generation

energy sector, with a highly-international profile.

technologies but the ongoing strategy remains focused

Headquartered in the UK and of Greek origin, our company

on solar PV projects. We did not establish a critical MW

has several subsidiaries in Europe and initiated its Latin

limit per se as our financial health enables us to tackle

America expansion in 2016, so far we have built over 800MW

utility-scale projects, including cogeneration plants that

of renewable PV energy installed capacity. Our primary

can go up to 900MW in installed capacity.

offering is our capacity to develop and/or construct projects across markets with very different idiosyncrasies and our

Q: Is Mexico ready to deploy energy storage systems

ability to work with different IPPs and large-scale developers.

nationwide?

For instance, we developed and constructed a 50MW solar

A: We believe so. Mexico’s energy policy aims to scale this

PV plant in Kazakhstan, even though the country lacks the

kind of solution up to a point where it becomes standard

sturdy industrial tissue to simplify this process.

in the country’s renewable energy project development. METKA EGN follows up the meetings organized by

Q: How has METKA Group’s merger with Egnatia Group

ASOLMEX that cover energy market trends, and energy

affected the development of METKA EGN’s renewables

storage is a big part of these discussions. Energy

footprint?

storage is a mature, proven and reliable technology in

A: Egnatia Group was founded as a metallurgy company.

other markets, and METKA EGN can provide its wide

Across its 30-year history it diversified to other business

experience in storage systems from other markets such

niches, such as telecommunications and solar PV parks. It

as Puerto Rico, where it installed a 24MW storage system

was a beneficial arrangement for both parties. In terms of

and the UK, where it has 100MW storage systems.

the benefits for Egnatia Group, it got access to Mytilineos Holding’s US$1.5 billion of yearly invoicing, boosting its

Q: How is METKA EGN adapting to the downward trend

financing capacity to transition from midsize to large-

of the long-term electricity auction package prices?

scale solar PV generation projects.

A: METKA EGN is flexible enough to adapt to this trend. EPC companies are obligated to respond swiftly and

Traditionally, METKA was focused on other power-

effectively to market conditions to thrive in the industry.

generation technologies, such as cogeneration,

Solar PV EPC companies competing against those

combined-cycle and thermal plants. Four months after

developing other power generation technologies share

the merger was finalized, METKA EGN was awarded

a particular trait. We can work as a coordinated unit to

a 57MW solar PV project in Puerto Rico, making the

adapt to price variations to maintain our market foothold.

benefits of this merger almost immediate. Solar PV is a rather simple technology to develop Q: What power generation technologies is METKA EGN

and manufacturing processes have been significantly

looking to focus on in Mexico?

optimized in recent years, together with the efficiency of solar panels and the decreasing cost of the components required for installation. This optimization can be seen

METKA EGN is a UK-based EPC and O&M contractor, and part of

throughout the value chain and reflects positively on EPC

Mytilineos Holding. It provides a complete range of applications

companies in cost-effective pricing. That does not include

dedicated to solar energy and energy storage, including hybrid

the synergies that can be obtained from economies of

projects. It has over 800MW of PV installed capacity worldwide

scale as a greater amount of solar MW is installed.

VIEW FROM THE TOP |

SOLAR, GEOTHERMAL ... WHAT IS NEXT? ÁLVARO FIGAREDO General Manager of TSK México 57

Q: What are TSK’s main activities in the Mexican

Q: What has been your role in the development of renewable

energy market?

energy projects in the region?

A: TSK is an EPC that is headquartered in Spain, although

A: We are constructing the second phase of the Azufres

98 percent of its total operations are outside Spain. Our

III geothermal plant which was awarded in a public tender

portfolio encompasses various energy industry segments,

published by CFE at the end of 2015. Due to its novelty

such as oil and gas infrastructure, water and waste-

and complexity, not many developers participated in the

management plants and material handling amongst

bidding process. As we developed a similar project in the

others, but our main activity lies in power generation

Philippines, TSK was greatly interested in the plant, although

plants, which represent more than 50 percent of our total

mostly in working hand in hand with CFE. The productive

annual billing. Globally, we have operated in more than 50

enterprise of the state has high-quality standards and really

countries. About 10 years ago, we identified Mexico as a

good human capital resources. It was a complicated project

priority market as part of our internationalization strategy

in many aspects but the most challenging part was the

and decided to enter the market. In other countries, our

geotechnical studies, as a mistake in this area can lead to

established business model is to develop a project and then

a huge operational failure. We dedicated all the company’s

leave once it is completed. In Mexico, we have a permanent

resources to the completion of this project, which was

structure, with sales and logistics departments that support

connected at the beginning of 2019. Regarding solar PV,

our constant business development.

we have various developments in the state of Durango. We began the construction of TAI I in 2013, TAI II, III IV and V in

Q: What added value does TSK offer to the national

2015 and in 1Q18, we started the development of Tai Durango

energy industry?

VI, Trinidad Solar I and Trinidad Solar II. Together, these will

A: This is a family-owned company. The family also

provide 176MW of installed capacity in the region.

participates on the management side, which shows that our human capital is really committed to TSK’s mission.

Q: What are the two main goals the company aims to achieve

Additionally, a percentage of the company’s utilities has

by the end of 2019?

been reinvested to maintain a healthy equity balance,

A: In terms of revenues in Mexico, we closed 2018 with

which is why we manage to secure the necessary financing

US$350 million and, ideally, by the end of 2019 we will get

of our projects. In the power generation segment, we are

this figure to US$500 million. We have been active in the

known for working with various technologies, such as

solar PV sector and we believe there are more opportunities

solar PV, thermo solar, biomass, wind, geothermal and

coming regarding utility-scale projects. At the moment, we

simple and combined cycles. We also have integrated

are building a 340MW plant in San Luis Potosi for one of

companies that can provide additional know-how to our

the winners of the second long-term electricity auction. TSK

technologies and complement our offer. For instance,

has collaborated in the development of wind energy projects

we acquired the German company Flagsol that develops

globally but not in Mexico yet. Part of our strategy for 2019 is

cylinder parabolic thermo solar collectors. This let us

to start executing wind energy projects here. We also expect

grow in that area and today we are one of the major

to gain more participation in the construction of cogeneration

references for this technology. Similar acquisitions that

and combined cycle plants, which are very much in demand.

provide substantial benefits include PHB Weserhütte, Ingeteam and former Intecsa Oil & Gas, which today is TSK Oil & Gas. Finally, we have been working in the

TSK is focused on building a leading business group in

Mexican market since 2012, when we connected our first

engineering development and supply of high-quality facilities.

plant. As a result, we have good relationships with local

The company has a turnover of around US$1.15 billion, with over

contractors and providers.

1,000 professionals and experience in more than 50 countries

| INSIGHT

PREPARING A HYDROELECTRIC COMEBACK JACOBO MEKLER President of AMEXHIDRO 58

Just a few years ago, hydroelectric power was a front-runner

technology is especially important considering many of

for clean energy generation. The first long-term electricity

Mexico’s primary hydric reserves are located in southern

auctions changed that and hydro now trails technologies

states, such as Oacaxa, Veracruz and Chiapas. He believes

such as PV and wind. Jacobo Mekler, President of the

emphasis on hydroelectric power can be the catalyst for

Mexican Association of Hydroelectric Power (AMEXHIDRO),

the development of the recently-created Special Economic

says that initial costs are behind hydroelectric’s swoon.

Zones (ZEE).

“Compared to PV and wind power generation projects, a hydroelectric project costs US$2.4 million/MW on average,

The country’s new President López Obrador’s energy

while wind power requires US$1.2 million/MW and PV takes

agenda and his desire to make Mexico self-sufficient in

US$800,000/MW on average.”

energy, could also pave the way for hydroelectric power. “A baseload renewable energy source such as hydroelectric

Yet, when the long-term benefits are weighed, hydroelectric

can reduce natural gas imports, making it a champion

power provides the greater impact, Mekler says. “In terms

of energy security and sovereignty,” he says. “We have

of a local economic spillover effect, 75 percent of the

emphasized this position before the Ministry of Energy, CRE

investment in a hydroelectric project ends up back in the

and the Senate under President Peña Nieto.”

community. Wind and PV only generate 25 and 10 percent in local economic spillovers, respectively,” he explains.

At the beginning of the previous administration, the outlook was much brighter for hydroelectric power. In 2012, former

Mekler adds that energy storage is more cost-effective

CFE employee Leonardo Ramos and academic Manuel

when using hydroelectric power, a clear benefit considering

Montenegro-Fragoso, published a book on the past,

Mexico’s efforts to increase its energy reserve capacity. “In

present and future of hydroelectric plants in Mexico (Las

addition to having much larger energy storage capacity,

centrales hidroeléctricas en México: pasado, presente y

dams are the cheapest form of energy storage,” he

future). In it, they estimated the country’s hydroelectric

explains. “This technology is not subject to a battery’s short

potential at 41,882MW of installed capacity. Today, the

useful life.”

Ministry of Energy’s PRODESEN 2018-2031 estimates that hydroelectric will install an additional capacity of 2,213MW

AMEXHIDRO was founded in October 2009 to promote

by 2031. Somewhere along the way, hydroelectric lost steam

clean energy generation through hydropower projects

as the favored technology.

across Mexico. “The association was created due to a felt lack of representation in energy policy,” says Mekler.

The previous government prioritized natural gas as a

“Few developers saw what the changes in the Energy

transition fuel to renewable energies but, according to

Transition Law implied for hydroelectric power. The law

Mekler, hydroelectric power was overlooked long before

defines hydroelectric power as renewable to a capacity of

this. “From 1930 to 1990, the country consistently kept

just 30MW.”

track of its nationwide inventory in hydroelectric potential by measuring its streambeds,” he says. “But throughout

Mekler believes one way to promote the adoption of

the 1990s, CONAGUA dismantled 70 percent of its hydric

hydroelectric projects is to provide independent auctions for

resource-metering capacity, to the point that we are unclear

technologies that provide initial low costs as they essentially

about the country’s power generation potential of its hydric

compete on different playing fields. “AMEXHIDRO wants

resources.” As a result, figures in PRODESEN now differ

technology-specific long-term electricity auctions where

dramatically from what CFE calculated in 2012. “Nationwide

hydroelectric can participate and further contribute

streambed metering activities should resume to truly gauge

to the country’s energy mix,” he says. He adds that this

and capitalize on this resource’s potential,” he says.

VIEW FROM THE TOP |

FOREIGN-MARKET EXPERIENCE BOOSTS LOCAL SUCCESS GILBERT SALVI Executive Vice President Americas of PowerChina International, part of PowerChina Construction Company 59

Q: What specific elements position PowerChina as a

policies that aim to make them feasible, optimizing their

reference in developing hydroelectric projects in Mexico?

performance, operation and benefits. The company nurtures

A: Sinohydro entered Mexico as a subsidiary of PowerChina

a close relationship with CFE to ensure its services provide an

in 2014. In 2016, the group restructured as PowerChina

added value to the commission and the energy industry. The

Construction Group, integrating Sinohydro, Hydrochina,

array of services we can provide to the productive enterprise

SEPCO1, Hypec International and SEPCO3 as subsidiary

of the state includes the design and engineering required to

brands. Today, the group posts more than US$55 billion

develop the project jointly, supporting and seeking for the

in yearly turnover with more than 40 percent overseas

potential financing structure required to implement until its

and more than 230,000 employees worldwide, present in

construction and commissioning.

116 countries. PowerChina is today among the world’s top construction leaders in the energy and infrastructure sectors.

Although PowerChina is a construction company at its core,

In Mexico, PowerChina has consolidated its position in the

we are exploring the opportunity to enter the niche of private

energy arena, particularly though its deep collaboration with

equity in Mexico and to collaborate with international banks

the company’s main client, CFE.

to obtain commercial funds that would be used to finance viable projects with CFE. We are looking for Mexican partners

Since 2014, PowerChina has signed four projects in Mexico.

to provide us with engineering and construction services to

First was CFE’s 240MW Chicoasén II hydroelectric plant,

keep PowerChina’s competitive prices attractive to the sector.

which we won in consortium with Omega Construcciones Industriales, Desarrollo y Construcciones Urbanas S.A de C.V.

Q: Where is Sinohydro’s room for growth in Mexico in the

(DYCUSA) Desarrollo y Construcciones Urbanas S.A de C.V.

near term?

and Caabsa in January 2015. Second came the transmission

A: At the PowerChina America level, five years ago we were

line construction contract with CFE, worth US$35.83 million

billing US$500 million and today we are over the US$2 billion

and set to be operational by 2020. Third, a private industrial

mark. At the level of Sinohydro in Mexico, in 2014, our portfolio

development project and fourth, the 375MWp Pachamama

of projects was valued at approximately US$200 million and

PV park from the third long-term electricity auction.

the goal for our Mexican portfolio is to grow three times what we have now in less than five years. So, the vision and the

Q: What is your assessment of Mexico’s potential for

objectives that Sinohydro has in Mexico is very clear. Two key

hybrid power plants mixing hydroelectric with PV and

factors will help the company to achieve this goal: the first

wind power?

one, being the management and organizational structure

A: Mexico is an attractive country for companies involved

of the group that allow PowerChina to work efficiently and

in the energy sector because it has diverse and potential

to become a competitive actor in the construction sector at

opportunities to use hybrid processes for power generation

Mexico, and on the other hand, the possibility of supporting

purposes. This is one reason why Mexico is a high priority for

any financing structure, from equity to long-term senior debt,

PowerChina. Despite the opportunities, Mexico is a complex

allowing the implementation of projects on a basis of public-

market that requires more openness and willingness from

private partnership that the Mexican market is looking for

the government and the industry to boost the development

such significant infrastructure projects.

of the sector. If the players involved find new schemes on which to collaborate, the energy industry could develop exponentially.

PowerChina is a Chinese-based company working in the power and infrastructure industries. It provides tailored services from

PowerChina has sought to create protocols in coordination

consultancy, financing, survey, design and engineering to

with CFE to develop future energy projects under improved

construction, fabrication, installation and operation

| VIEW FROM THE TOP

BIOFUELS MADE IN MEXICO DANIEL GÓMEZ Director General of SOLBEN 60

Q: What is the added value that SOLBEN provides to the

a biodiesel producer as well. Today, we gather the raw

Mexican market?

materials, produce biodiesel and commercialize it with certain

A: SOLBEN is a 100 percent Mexican company that has

clients. In effect, we turned into an integrator of the entire value

been involved in the biofuels market for 11 years. Our

chain of biofuels. We distribute a mix of biodiesel and diesel

added value is in not having to import foreign technology

because this is what our customers want. Also, technology

for biofuel production; we have developed a competitive

is one of our strongest areas. For instance, we identified an

national option. Our proposal not only reduces production

interest in castor oil in Mexico. The plant to produce this type

costs but all the necessary processes are managed to high

of oil can be found in desert regions and after purifying its oil

standards. The bioenergy industry is mainly focused on the

to a certain level you can obtain a subproduct for a market

centralization of raw materials for biomass production. We

that pays more money than it pays for biofuels. Additionally,

produce biomass on a smaller scale through a distributed

we started working with the production of jet biofuel, which

energy model that decreases production costs and maximizes

in recent years has gained attention due to the high pollutant

output. Our plants are modular but they comply with the

factor of its oil-based counterpart.

same quality requirements and are as competitive in price Q: In terms of expansion, what are the company’s main goals

as industrial plants.

by the end of 2019? Q: How has SOLBEN diversified its offer over the years?

A: We believe the biggest potential lies in the development of

A: Eleven years ago, we competed against a diesel price

national technology. Our company’s goal is to be a provider

of MX$10/L. Despite biodiesel being historically more

of local equipment that complies with international quality

expensive than diesel, this has been changing over the years,

standards. At the moment, the Ministries of Energy and

independently from the Energy Reform’s results, because raw

Agriculture are our main customers as most of their projects

material prices to produce biodiesel have not increased at

end up in our hands. When working with these government

the same rate as oil prices. Eleven years ago, we were more

entities, we validate if projects are legitimate or could discredit

idealistic and less informed. Our belief was that biodiesel

the industry. Our objective is that our clients’ projects are

was going to substitute diesel but now we understand that

profitable and provide a good reference for the bioenergy

a balance between both fuels is the right answer. Instead of

industry. On the other hand, the most important objective

fueling a bus with 100L of biodiesel, we can fuel 100 buses with

is to consolidate SOLBEN as a leading company in the solar

1L of biodiesel and 99L of standard diesel. In 2015, the Special

market with ENERLUZ, our recent division.

Tax on Products and Services (IEPS) not only affected diesel but every other fuel as well, causing uncertainty and motivating

Q: How is SOLBEN helping to incentivize the development

us to innovate and look for new ways of doing business.

of biofuels in Mexico? A: The best way to incentivize the industry’s growth is

Q: In which sectors does SOLBEN develop its main activities?

through information. Many of our potential clients demand

A: SOLBEN started as a technology provider, as we worked

bioenergy projects based on erroneous assumptions.

with a B2B scheme with companies that wanted to produce

There is a great deal of misinformation in the market so

biofuels with our technology. Over the years, we have become

it is necessary to have the right approach. SOLBEN has made a big effort to raise awareness in both the national and international markets. In the last four years, we have

offers

participated in more than 450 events with the objective of

consulting services and in-house technology to strengthen

informing people about the benefits of our technology. This

the value chain for various bioenergy sources such as biogas,

has resulted in many potential clients, relevant alliances and

biodiesel and ethanol

collaboration with the Mexican government.

SOLBEN is

technology-based

company

that

VIEW FROM THE TOP |

KEY FACTORS FOR FLAWLESS, FULL EPC SERVICES LUIS BARRADO Head of Energy Department at Grupo Ortiz 61

Q: Why should project developers turn to Grupo Ortiz for

projects in 2018, representing an additional capacity of

EPC services?

nearly 400MW.

A: Grupo Ortiz is a reliable company, among a select pool, that can provide the technical and financial experience and

Q: How does Grupo Ortiz optimize CAPEX and OPEX for

capacity in turnkey EPC services to utility-scale renewable

its projects?

energy projects. The group’s energy division has three

A: Grupo Ortiz’s experience, track record and contracted

subsidiary companies commercially active in Mexico. We

volume enabled it to cement its favorable negotiating and

entered the energy market through Juan Galindo, our

contracting position, providing reasonable and reliable

transmission and distribution company. Our first project

economic conditions, including a network of cost-effective

was a PIDIREGAS contract with CFE worth US$34 million

equipment suppliers that represent 75 percent of the

for the Subestaciones y Compensación del Noroeste project

contracting volume for a utility-scale renewable energy

involving a voltage of 400kV, and essentially the big leagues

power generation project. Grupo Ortiz enjoys a lengthy

of transmission and distribution infrastructure. This first

presence in the Mexican market and has mapped out the

project validated our work and was the stepping stone for

key players, suppliers and contractors, which is critical for a

our Mexican portfolio and our energy division. It helped us

project’s success.

get familiarized with the processes, stakeholders and local players and for what was coming next: the Energy Reform

Q: What is your assessment of the Mexican solar PV

and its Electricity Industry Law and Energy Transition Law.

industry’s value chain?

Our track record with CFE granted us the ability to not

A: In the early stages of Mexico’s first large-scale renewable

only offer solid proposals for EPC services to the long-

energy projects developed post-reform, there were great

term electricity auction PV parks but also to oversee the

expectations and little to no experience on the development

interconnection process. Over the course of its history, there

side. In the end, professionalism, experience and capability

has not been a single stain on Grupo Ortiz’s reputation. We

across a project’s different stakeholders were the deciding

pride ourselves on being a fully transparent company in all

factors between wishful thinking and successful projects.

processes and client relationships.

The renewed emphasis on the social and environmental aspects showcased by the regulatory framework of Mexico’s

Q: What new milestones has Grupo Ortiz achieved with

new energy model is a positive step forward in that regard.

its project portfolio?

The EPC link of the value chain has adapted swiftly to the

A: The Solem I and II PV parks with an installed capacity

requirements of Mexico’s renewable energy market thanks

of 350MW and developed jointly by Alten and Cubico

to the arrival of international companies that transfer their

Sustainable Investments in Aguascalientes have been in

knowledge and expertise to the country’s EPC professionals.

operation since October 2018. These projects represent an

It strengthened the concept of effective project management

investment of close to US$300 million that Grupo Ortiz

practices to efficiently manage project construction phases

supported with financial guarantees. Both solar parks use

and time frames. We are expecting the same process to

the same connection to the grid. We undertook the full

detonate in the O&M segment of the value chain as more

EPC process for these projects. In parallel, our company

renewable energy projects become operational.

was awarded an EPC contract from Recurrent Energy and Canadian Solar for their 67MW Potencia I PV park in Aguascalientes. Grupo Ortiz locked down the EPC services

Grupo Ortiz is a Spanish construction group that provides

for another two PV parks: Tepezalá II with IEnova and

comprehensive solutions in engineering, energy, construction

Trina for an installed capacity of 133MW and the Conejos

and environment. The group uses EPC schemes for PV,

Medanos 93MW PV park. Grupo Ortiz signed another two

geothermal, wind, cogeneration, hydroelectric and biomass

| INSIGHT

360-DEGREE TECHNICAL EXPERTISE FOR UTILITYSCALE PROJECTS EDGAR VÁZQUEZ Country Manager Mexico of Enertis 62

Developing utility-scale renewable energy projects is a

in the industry of mobile laboratories to enhance its on-site

behemoth task, and any failure at the initial stages can

testing capabilities and fulfilling international standards.

have a resounding impact throughout their 20-30 years

One of Enertis’ vehicles is based in Europe, another in

of useful life. Edgar Vázquez, Country Manager Mexico of

Chile to cover the South American markets and a third in

Enertis, says specialized engineering bodies are needed

San Francisco to cover North America. “Given the upsurge

to ensure everything is done correctly from inception.

of renewable energy projects in Mexico, we are thinking

“With the publication of the new Interconnection Manual

of relocating the San Francisco mobile laboratory here,”

on Feb. 9, 2018 and its technical requirements to obtain

says Vázquez.

interconnection contracts with CFE, including the indicative, system impact and facilities studies, an engineering body

Present in Mexico since 2012, Enertis developed its

must be behind it to support project developers with these

consulting and development support services and its

procedures,” he says.

business grew parallel to the reform’s advance. Now, the company can cater to the needs of project developers,

For large-scale renewable energy projects, the indicative

IPPs, equity funds and financial institutions. Constantly

study gathers minimal information, such as project location,

evolving, Enertis does not want to box itself into a particular

interconnection point, detailed single-line diagram and its

niche. “For example, although Enertis has a long-standing

seasonal meteorological database. The system impact

trajectory in PV projects, it diversified to provide its services

study comprises information on all primary equipment

to wind farm projects in 2017, given the growing demand

and components, dynamic models for simulation, layouts

in Mexico,” Vázquez says.

and specifications, delving more into technical content. It provides CENACE the necessary tools to simulate the

The developed expertise allows Enertis to be strategically

plant’s stability and assess production impact on the grid.

positioned in every link of the value chain, from greenfield

The facilities study certifies the required installations are

projects to asset management, with the exception of EPC

adequate for the power plant’s interconnection and its cost.

and O&M. “We are able to play different roles, including

The final outcome of all three studies determines if the

owner’s engineer, independent engineering or technical

project sponsor or developer decides whether to continue

adviser, depending on the niche we are involved in,”

with warranties, sign the interconnection contract and start

Vázquez explains. “Our value lies in our panoramic vision,

construction work.

with the possibility to provide different points of view for one single project.”

Enertis acts as an outsourced technical department, actively participating in this process with its clients,

There is a certain seasonality over project development-

preparing all the required information and even examining

related services in Mexico as a result of the electricity

CENACE’s interconnection resolution. As an engineering

auctions, says Vázquez. “Two months prior to the

and consulting firm, it specializes exclusively in renewable

prequalification phase of a long-term electricity auction,

energy projects. “Enertis’ first steps in Spain in 2006 were

Enertis has a high workload in due diligence, third-party

as a module-testing laboratory,” says Vázquez. “We soon

expert opinions, site appraisals, power-output studies

branched out to other markets throughout Europe but

and red-flag identification,” he explains. “Throughout

also abroad, undertaking basic and sophisticated testing

the rest of the year, we cover financing due diligences,

procedures, and finally opened in 2012 local offices in the

render development support, engineering services and

US, Mexico and Chile to render support to the different

construction supervision with people on-site contributing

players involved in renewable energy projects throughout

with their expert engineering knowledge and quality control

their entire value chain.” Enertis also developed as a pioneer

services to the projects’ success.”

VIEW FROM THE TOP |

SMALLER FIRMS DELIVER ON DETAILS TO ENSURE SUCCESS ANGĂ&#x2030;LICA NAVA Associate at CLG Abogados 63

Q: Why should companies choose CLG Abogados over any

happen with CLG Abogados. Nevertheless, while we are very

other legal consultancy?

successful in solving emergency situations, we always prefer

A: Our specialists have strong expertise in the areas of

to use our abilities to accompany clients from the beginning

acquisitions, customs, litigation and administrative law. Thanks

of a project to avoid these situations emerging in the first

to this range of expertise we can help almost any company

place. We can make sure that the opportunities in the market

involved in the energy industry. We have advised companies

become a reality.

operating in the electricity arena, with qualified suppliers, and with natural gas projects. In terms of litigation, we have

Q: What aspects pertaining to customs do companies need

not yet worked with energy companies but we expect to do

to know before importing to or exporting from Mexico?

so soon as companies will require this service. The lack of

A: The Energy Reform resulted in changes in this area. When

litigation in the energy industry is mostly due to the newness

that happened, we found ourselves in a privileged position

of the market.

when consulting for any company that had to deal with imports or exports. We are strongly specialized in this area

Q: What is the advantage of being a small law firm compared

and have seen the variety of problems resulting from the

with major or international law firms?

import of PV panels. This is critical because depending on the

A: There may be bigger law firms but we have found that

scheme under which the panels are imported, different tariffs

due to their size and the variety of projects they cover,

are implemented, which can greatly affect balance sheets.

which pertain to many areas of specialization, these firms

Negative situations could have been avoided if companies had

stop paying attention to critical details that can make a big

selected the appropriate import scheme from the beginning.

difference when developing a project. Our size allows us to

We could have helped companies that are now struggling with

closely interact with the client and to accelerate timelines to

paperwork if they had consulted us from the very beginning,

ensure a successful project.

but it is common for companies to act according to how they believe things should be done, rather than the way that things

Q: In what project was CLG Abogados the differentiating

must be done.

factor between a successful and a failed project? A: We cannot reveal details about specific projects but in

Q: What other aspect of the regulation is becoming a

one instance where we worked with a large company, it was

headache for companies involved in the energy industry?

interesting to see how the biggest problem it faced was

A: When the Telecommunications Reform took place, a clear

communication. One of the companyâ&#x20AC;&#x2122;s divisions needed an

problem arose because the law did not properly state which

energy generation permit to continue working and it thought

institution, IFT or COFECE, should oversee problems related

that another division was responsible for that permit. The

to competition. It took a long time to decide which institution

second division did not know this. Both parties, including the

should be in charge of solving problems of that kind. We are

law firm that was working with them, noticed this problem

now suffering the same issue in the energy industry because

only when the project was at an advanced development

it is not clear if problems related to competition should be

stage. The company then came to us and we had to solve

solved by CRE or by COFECE. This is a problem we are

this critical problem in a short time to avoid delaying or

constantly facing with our clients.

stopping operations. Small problems like these tend to happen when a big law firm

CLG Abogados offers consultancy services, representation

oversees the operations of a client that has many divisions.

before the government as well as analysis, evaluation and

Both are so big and have such a broad vision of the market

advice on business opportunities and project development in

that they can easily get lost in the small details. This does not

the judicial spectrum

| VIEW FROM THE TOP

KNOWLEDGE, CUSTOMIZATION AMONG KEY DIFFERENTIATORS AUSTIN COLLINS Founder and CEO of Red Energía 64

RODRIGO GUERRA Business Development Director of Red Energía

Q: What was the primary motivation behind the creation

RG: Red Energía charges no upfront fees to assess a client’s

of Red Energía?

energy needs. As an energy supplier, Red Energía only bills the

AC: My primary motivation was to address the demand from

customers when they have decided on a supply product that

commercial and industrial customers in Mexico, who require

works for them. Most clients finance their projects through

more predictable electricity products. Today, companies

CAPEX because it is hard to find other financing sources in

cannot be certain that their budget for electricity products

Mexico. We could sell to a client for a higher rate than they

will remain stable. The Energy Reform set the table for

are paying now if they are paying for certainty over anything

competition among private players but it is one thing to

else. However, clients want to see savings so we generally do

envision the reform and picture what competition might

not bill them until they see their first electricity bill. We are

look like, and another to have actually experienced a

providing a less expensive product at a stable price.

competitive market. Other companies might have made the commitment to move into this market but that does

Q: What strategies is Red Energía using to attract clients,

not mean they have developed the right products for it.

both generators and off-takers? RG: Our strategy consists of networking and visiting events.

Q: What three competitive advantages does Red Energía

We recently visited a CFE event put together by a small

offer its clients?

group of companies in Monterrey with the aim of bringing

AC: The first is our knowledge. The second is the customization

together different lines of the energy efficiency business. At

of our products to clients’ needs and preferences. The third

that event, we were the only party providing energy. We can

would be the ease of doing business as a result of working with

partner with companies that improve energy efficiency, for

trusted advisers. Mexico has a rich ecosystem of professional

instance, in the use of air conditioning, windows or motors,

service companies, such as energy management companies

and companies are thrilled because we can save them

and efficiency experts. We have had very good luck working

money by reviewing their electricity use to determine if they

with these channels to serve our customers.

are doing it efficiently. Word of mouth also attracts clients.

RG: One of our advantages is that unlike some of our

Q: What two main goals does the company want to achieve

competitors, we are open to working with third-party advisors

by the end of 2019?

and brokers, which means that we can bring together people

AC: We are growing the company aggressively. Our main

who are structuring a product. Brokers spend significant time

goal is to increase our investment in technology. However,

doing the business development part of the job and we can

it is hard to find experienced talent for this business in

invest our time in developing new products. This also gives

Mexico. We need a staff that can handle all the functional

our products a special degree of flexibility and specialization

roles surrounding risk management, sales and trading. I

that allow us to tailor them for clients.

am optimistic, however, because Mexico has a wealth of highly educated young people, so we only need to create

Q: How has the market responded to Red Energía's

a training program that will help employees succeed.

motto of not charging any money unless real savings are demonstrated?

RG: Another goal includes turning our customized solutions into a turnkey project to deliver a built and ready-to-use solution to certain clients. Due to the reality of the Mexican

Red Energía helps Mexican companies to better understand

market, everything is tailored to the client; in the future, our

their energy supply options. The team is passionate about

goal will be to standardize our products. We also want to

every area involved in this process, from technology behind

see how fast renewables can make up a decent percentage

generation and operations to energy trading

of the generation portfolio.

ROUNDTABLE | The benefits of renewable energies are multiple, including lower environmental impact, greater sustainability and lower cost. But in an incipient market like that in Mexico, lack of infrastructure for storage and transmission poses a challenge in terms of intermittency of these energies. Mexico Energy Review asked industry experts about what Mexico needs to do to get the most of out its renewable resources.

HOW CAN MEXICO ALIGN DEMAND WITH INTERMITTENT TECHNOLOGIES? 65

As more people consume more electricity, we want to make sure the quality of energy they are consuming is improving. Renewable energy is not only cleaner than conventional generation but also cheaper. The issue is the concentration or distribution of power generation in certain regions which requires new grid interconnections and improved grid stability. It will be critical to ensure electricity can move from one region to another. Solar energy’s ability to scale up or scale down is a huge benefit, given that basically every region in Mexico can install solar panels in a cost-effective way. We hope for a trickle-down effect in distributed generation, enabling easy access to this technology across socioeconomic spectrums.

DAVID BARRIE Clean Energy Business Development Manager at Wood

Battery use for energy storage solutions is generating sizable expectations. This would allow renewable technologies to inject energy during night or in those time slots in which sun and/or wind is not present. It has become a standard requirement in Baja California. Additionally, new and more efficient components are being developed, both for solar panels and turbines, parallel to storage systems using other technologies.

EDGAR VÁZQUEZ Country Manager of Enertis

It is a complex issue. There is yet to be an international benchmark either at city or country level with 100 percent renewable energy. It is all about finding the right balance between the available power generation technologies. Mexico has the right vision in that regard. The wait to learn from other markets’ experiences worked to the country’s benefit. The gradual increase of clean energy percentages in the energy mix is the correct approach and trends indicate it is a doable incremental objective. Operable, safe and reliable renewable energy generation assets will be the measuring stick of the country’s clean energy goals.

NOÉ SAENZ Country Manager Mexico of Burns & McDonnell

A lot has been achieved in little time in Mexico in terms of the regulatory framework. This is something the new administration needs to understand. A great deal of value has already been created. There are talented individuals working at the Ministry of Energy, at CENACE and CRE, so there is a sense of ownership of that market-building effort. This is true not only within companies that have invested to find the right opportunities to help Mexico reach its energy transition goals but also within the public administration. There are areas of opportunities in places such as the way we recognize capacity, the auction process itself and some minor details on how market rules operate.

JONATHAN PINZÓN Senior Manager Government and Regulatory Affairs of Invenergy

Zuma EnergĂa's Reynosa wind farm, Tamaulipas

POWER AUCTIONS

With the three long-term electricity auctions on the books, one auction delayed and a middling result for the first midterm auction, the country continues on its way to having a competitive market with the capacity to compensate energy consumption variations. Both the public and private sectors will need to assimilate the results to make the country more attractive as an investment destination and continue to watch the development of awarded projects, some of which came online in 2018, with others either under construction or awaiting financing.

This chapter will analyze the opportunities that have arisen after the public auctions and the lessons learned from their implementation, the future plans of the Ministry of Energy after the arrival of Lรณpez Obrador to the presidency, the capacity of the new government to continue to maintain the country as an attractive market for foreign investment and the role of financial institutions when it comes to funding new projects in the country.

CHAPTER 3: POWER AUCTIONS 70

ANALYSIS: Consolidating Clean Energy Security

MAP: Status of Long-Term Electricity Auctions

VIEW FROM THE TOP: Jorge Sandoval, Goodrich, Riquelme y Asociados

VIEW FROM THE TOP: Claudio Rodríguez, Thompson & Knight

VIEW FROM THE TOP: Rubén Cruz, KPMG

VIEW FROM THE TOP: Eduardo Reyes, PwC

INSIGHT: Felipe Salazar, Alten Energías Renovables

VIEW FROM THE TOP: Carlos Egido, X-ELIO

VIEW FROM THE TOP: Fernando Salinas, FRV

VIEW FROM THE TOP: Patricia Tatto, ATA Renewables

INSIGHT: Benjamín Torres, Baker McKenzie

VIEW FROM THE TOP: Jerzy Sasiada, WillScot

VIEW FROM THE TOP: Francisco García, GRS Mexico

ROUNDTABLE: What is the Main Contribution of the Midterm Auction

to Mexico's Energy Transition?

| ANALYSIS

CONSOLIDATING CLEAN ENERGY SECURITY Mexico’s electricity consumption is forecast to increase 3 percent per year from 2018 to 2032, according to PRODESEN. In this context, clean energy generators will have a critical part to play in securing a continuous, reliable and clean energy supply to the country’s end users

In February 2018, CENACE reported Mexico’s National

for battery-based storage.” CENACE is still undergoing

Electricity System consumption reached 22,248GWh

internal discussions to adapt ancillary services to storage

compared to 21,687GW in February 2017, a 3 percent

characteristics. Moreno adds that combined-cycle plants

increase consistent with PRODESEN’s projections. In 2017,

fit renewable power generation well as they complement

Mexico’s National Electricity System consumption totaled

renewable energy intermittency, especially considering the

309,727GWh. Should the growth estimations prove correct

capacity mechanism available that could prove sufficient to

as stipulated in PRODESEN 2018-32, Mexico could reach a

cover combined-cycle’s fixed costs. Variable costs can be

yearly electricity consumption of 482,545GWh by 2032,

covered by energy market prices. “Mexico’s energy model

a 56 percent increase compared to 2017. Needless to say,

structure is made to inject renewable power complemented

CFE and Mexico’s IPPs will have their hands full catering to

by combined cycles rather than incentivizing energy storage

the country’s electricity demand in the foreseeable future.

per se. From a regulatory and electricity system design standpoint, it remains unclear whether energy storage will

On the power generation side, PRODESEN 2018-32

serve generation or transmission purposes,” he says.

estimates that Mexico’s existing installed capacity of 75GW will remove 11GW of either contaminating or obsolete

Despite renewable energy’s reliance on natural gas to

power generation assets and install an additional 66GW

maintain a baseload stable enough for a continuous,

of installed capacity by 2032, bringing the country’s total

reliable and quality energy supply, it does not prevent IPPs,

generation capacity to 130GW. In this scenario, combined

traditionally versed in conventional power generation, from

cycles, conventional thermoelectric, internal combustion

turning to renewable energy. “AES’ goal is to invest a total

and turbogas will retain the lion’s share of Mexico’s energy

of $2.5 billion in clean energy projects by 2023. Renewable

mix, with a combined 51 percent and renewable energy an

energy’s cost structure makes it extremely attractive for

aggregate 38 percent including wind, solar, hydroelectrics,

meeting energy consumption needs. The primary advantage

PV, geothermal and bioenergy.

lies in renewable energy’s total autonomy from commodity price variations. Variation in renewable energy generation

A NATURAL GAS-POWERED FUTURE

can be minimized by mixing with other technologies,

As showcased during the country’s long-term electricity

even though resource studies are among the most critical

auctions, renewable energy can compete head to head and

parts of renewable energy development,” says José Arosa,

win against conventional generation technologies due to

President and CEO of AES Mexico.

reduced costs in PV and wind component manufacturing. Despite these positive advances, renewable energy’s

GOING HYBRID

prevailing Achilles’ heel remains intermittency. While

The first pages of Mexico’s renewable energy history were

battery-based energy storage is now a proven technology in

led by large-scale hydroelectric projects. The Necaxa

more developed markets, it has yet to reach the scalability

hydroelectric dam was inaugurated in 1905 and remains

levels required to become competitive enough and be

operational today. Some industry insiders argue that

inserted as an integral component of a renewable energy

water power should not be ignored in the mix; in fact, it

project’s design. “Natural gas imported to Mexico from

could be an integral contributor. “Mexico is a megadiverse

the US is the cheapest available on a global scale. There is

country, with large deserts in the north and excellent

no way for energy storage to compete in a market where

irradiation levels. Tamaulipas and Oaxaca have rich wind

natural gas is on hand at such a cost-effective price,” says

resources, added to rich geothermal and hydroelectric

Ramón Moreno, CEO of Mitsui Power Americas. “Battery-

locations. There is no one winning solution. A successful

based storage does provide a set of characteristics absent

strategy would be truly diversifying and capitalizing on

in natural gas-fueled combined cycle plants. These are

the range of natural resources at our disposal instead of

mainly short response times and frequency control for

limiting ourselves to certain regions or a couple of power

certain responses requiring an electricity grid. Mexico’s

generation technologies,” says Jacobo Mekler, President

ancillary services structure does not provide a place

of AMEXHIDRO. While hybrid renewable energy plants

PRIMARY PRODUCTION IN 2017 PrimaryENERGY Energy Production in 2017

Mexico’s authorities to reassess the objectives sought with the long-term electricity auctions. “The country’s longterm electricity auctions do not differentiate the type of technology used. While the mechanism has worked since the first edition in 2015, where Mexico proved to be the

7,027.23

most competitive country with the lowest auction prices registered in any other market, this is not necessarily

petajoules in total

sustainable. The percentage of PV power awarded in the long-term electricity auctions is revealing. Although solar power has proven more cost-competitive compared to wind

Crude Oil 61.97% Biogas 21.61% Natural Gas 5.23% Biomass Solar Coal 4.39% 1.81% Geothermal Hydroelectric 1.63%Wind

1.61% Nuclear Nuclear Biomass 0.96% Condensates 0.54% Wind Hydroelectric 0.22% Solar Natural Gas 0.04% Biogas Geothermal

Crude Oil

Source: PRODESEN

Condensates

power, a large share of PV generation carries a specific set of risks. If PV takes the lion’s share of the energy mix, its intermittency can compromise not only Mexico’s energy mix balance but also the electricity grid’s stability,” he argues. Technology-specific auctions can bolster other prominent technologies, such as geothermal. Mexico is estimated to have the fifth most important geothermal reserve but it

Coal

remains unused due to its capital-intensive development.

typically refer to PV and wind farms equipped with energy

“Given the extremely low prices offered during the long-term

storage systems, water can also be considered for these

electricity auctions, the lack of certainty in the execution of

innovative combinations, he says. “In addition to having

those projects and even the continuity of the auctions, we

much larger energy storage capacity, dams are the cheapest

have decided to work mainly out of the wholesale electricity

form of energy storage. This technology is not subject to a

market by entering into bilateral contracts,” explains Gerardo

battery’s short useful life,” Mekler adds.

Hiriart, Director of Grupo Enal. “While the development of a specific auction for geothermal energy can be an option

Battery-based storage, however, has started to gain

but remains unlikely, the biggest market opportunity for

relevance in the conversation as specialized companies take

geothermal technologies is with high-energy consumers that

an increased interest in the technology’s potential in Mexico.

consider this technology’s costs less important compared to

“The key issue behind energy storage solutions in Mexico

the reliability and security of the supplied energy,” he added.

lies in finding an attractive business model for batterybased energy storage systems,” says Lionel Bony, Regional

Looking beyond the US$/MW benchmark is critical when

Director Mexico, Central America and the Caribbean of

gaging renewable energy projects, Mekler believes.

Neoen. “There are three ways of looking at it, based on

“Gaging utility-scale projects according to development

how other markets started integrating them. First, imposing

costs is insufficient," he says, adding that factors such

regulation such as that implemented in Baja California.

as Mexico’s international standing and energy security

Second, developing a business case around trading and

should also be considered. "Hydroelectric projects are

ancillary services. Third, including the technology in the

not playing on a level field with the other technologies

rules of the long-term electricity auctions in locations where

under the long-term electricity auction scheme," he

the electricity infrastructure available makes energy storage

continues. "For instance, a hydroelectric project takes

attractive. Mexico has yet to develop an energy mix where

between three to four years to be built. Long-term

the share of intermittent power generation technologies

electricity auctions call for two to two-and-a-half years

makes energy storage a necessity, except in highly

of construction. Failing to differentiate hydroelectric’s

congested nodes where we should soon see them appear.”

virtues in a long-term electricity auction environment makes competition virtually impossible against cheaper

TECHNOLOGY-SPECIFIC AUCTIONS?

technologies watt per watt." Moreover, he points out that

To guarantee the country’s energy security, industry players

the design of the long-term electricity auction overlooks

are raising their voice and arguing in favor of technology-

the possibility of additional income from ancillary services

specific auctions to go beyond the argument of cost-

to inject competitiveness into hydroelectric power. "As

effectiveness, allowing that the new federal government

per the auction bases, when projecting nodal marginal

restarts the auction process in time. Echoing Mekler’s

prices, no differentiation is made between base, peak and

call to use all of the country’s abundant renewable

average rates," he says. "Peak rates in the market are 250

energy resources, Rafael Valdez, Managing Director

percent higher than base rates. In the long-term electricity

Latin America and the Caribbean of Envision, called on

auctions this difference falls to 18 percent.”

| STATUS OF LONG-TERM ELECTRICITY AUCTIONS INSTALLED CAPACITY AND TECHNOLOGY (MW) 0

150

250

350

450

*AUCTION:

First Second Third

550

*Fourth Auction suspended

AVERAGE PACKAGE PRICE [US$/(MWh+CEL)]

47.7

33.7

20.57

EXPECTED INVESTMENT (US$ BILLION)

2.6

2.4

TECHNOLOGY: PV Wind Combined cycle Hydroelectric Geothermal

AGUASCALIENTES: A BIG WINNER Despite being Mexico’s fourth-smallest state with a surface area of 5,618km2, Aguascalientes is becoming a renewable energy gold mine. As a result of the three long-term electricity auctions, the state will have 1,004MW of PV installed capacity.

TOTAL CAPACITY PER AUCTION

2.1GW 81% PV 19% Wind

4GW

46% PV 28% Wind 23% Combined Cycle

2% Hydroelectric 1% Geothermal

2.7GW 49% PV 31% Wind 20% Turbogas

FIRST AUCTION

SECOND AUCTION

THIRD AUCTION

March 30, 2016

Sept. 28 2016

Nov. 15, 2017

Percentages are rounded

TOP FIVE STATES IN MAIN CLEAN ENERGY CAPACITY TO BE INSTALLED (MW)

TOTAL CAPACITY TO BE INSTALLED PER STATE (MW)

1,200 1,000 800

Tamaulipas 970

Sonora

400

493

350

1,114

Tamaulipas

970

Yucatan

934

763.5

PV Nuevo Leon Wind 1,103.6 Turbogas Aguascalientes Combined Cycle

Coahuila

Aguascalientes 1,004

394

555

1,287

Nuevo Leon 1,043

893

600

Sonora

Coahuila

Chihuahua

373

Guanajuato

337

San Luis Potosi Oaxaca

300 252

Tlaxcala 200 Jalisco 100 Zacatecas 80 Morelos 70 Puebla 68 Baja California 41 Michoacan 25 Baja California Sur 23 1,500

1,200

900

600

TOTAL CAPACITY TO BE INSTALLED PER TECHNOLOGY (MW)

8,221 MW Total

Source: CENACE

4,803 PV 2,381 Wind 550 Turbogas 394 Combined cycle 68 Hydroelectric 25 Geothermal

300

| VIEW FROM THE TOP

FINANCIAL MARKET STABILITY AMID UNCERTAINTY JORGE SANDOVAL Associate at Goodrich, Riquelme y Asociados

Q: What makes Goodrich, Riquelme y Asociados (GRA) the

a regulatory body can successfully undertake a process of

best partner to capitalize on Mexico's energy prospects?

this magnitude.

A: GRA's expertise spans 84 years in Mexico. All our practice areas are focused on legal advisory and support for

Q: How does GRA navigate the industry’s recent

foreign investors doing business in Mexico, either directly or

technological changes to improve its legal services?

through local partners. We are a full-service firm, meaning

A: Parallel to being legal advisers, our proximity to

we can provide integral legal support in all aspects to

the energy market developed and strengthened our

increase our clients’ business activities. This includes fiscal

commercial analytical capacity, not as business developers

planning, corporate structures, government relations,

or commercial brokers, but in searching for dialogue

administrative law, litigations and controversies. Our long-

with different industry players. Along the way, we found

standing presence in the energy industry has allowed us to

companies offering specific products or new technologies

witness the country’s major shifts, assisting our clients to

and players interested in acquiring or implementing them to

adapt to its deep structural changes, challenges and new

solidify their business strategies. Technological dynamism

commercial reality, especially from a permitting standpoint.

provides openness in the energy industry. The close link between technology and large-scale renewable energy

Q: Can Mexico’s energy infrastructure absorb the soon-to-

players fosters different types of companies coming

be-installed clean energy capacity?

together in a way not initially thought possible. Technology

A: Mexico’s energy infrastructure capacity is close to

suppliers with a core business different from renewables,

saturation. Its extension and optimization are critical. In terms

such as telecommunications or mechanics, are now looking

of structural transformation, investment and management

toward renewable energy projects, turning Mexico into a

are essential. Based on market optics, there are doubts

potential investment opportunity.

about PRODESEN’s continuity as the new presidential administration takes over. However, expert market analysts

Q: What is your assessment of CELs’ first steps in the

are forecasting stability in Mexico’s financial markets despite

energy market?

the handover process. Investors are echoing this positive

A: CELs’ objectives and implementation are on course.

scenario, outlining which strategic plans of the Mexican

What remains to be gauged is how the market responds to

government must remain active and move forward.

the progressive increase of the required CELs percentages demanded by Mexico’s authorities. CELs regulations

Q: What is your assessment of CRE taking over the process

stipulate a 5 percent requirement over total energy

of any upcoming electricity auctions?

consumption must be covered by CELs, increasing to

A: Decentralizing the responsibility of the long-term

10.9 percent by 2021. While this objective seems rather

electricity auctions is a positive step forward, comparable to

aggressive, the inner mechanisms of this instrument are

oil and gas’ licensing rounds being carried out by CNH rather

properly designed and not unique to Mexico’s market.

than by the Ministry of Energy, even when their unfolding is part of the country’s energy policy. This precedent paved

Q: Where is GRA's room for growth in Mexico’s

the way for CRE to follow in CNH’s footsteps, demonstrating

energy sector? A: To remain active in any sector, there is a need for transformation and adaptation. This includes continuous

Goodrich, Riquelme y Asociados is a Mexican law firm with

training, inner restructuring, rejuvenating the workforce

more than 84 years of experience, specialized in representing

and balancing the generational gap to make the most of

companies doing business in Mexico in all legal aspects of the

the experience of one spectrum and the new ideas and

oil and gas, electricity and clean energy industries

academic formation of the other.

VIEW FROM THE TOP |

COMBINING BUSINESS INTELLIGENCE WITH REGULATORY CLARITY CLAUDIO RODRÍGUEZ Head of Mexico City Office at Thompson & Knight

Q: What is Thompson & Knight’s most significant

electricity market is influenced by a wide array of complex

contribution to Mexico’s energy transition?

variables that need to be made visible. CFE’s amparo against

A: Our core added value is our market resilience. I come

interconnection requests from distributed generation

from 16 years of experience in Mexico’s electricity sector,

projects achieved little for the productive enterprise of

starting in transnational private companies and with more

the state and hampered the growth of Mexico’s distributed

than 10 years of experience in advising companies looking

generation sector. Economic competition in the basic

to do business in Mexico’s renewable and conventional

supply niche must be closely monitored, as well as ensuring

energy sectors. This long-standing experience gives us

the strict separation of CFE’s generation, basic supply and

a better understanding of the industry’s new regulatory

transmission businesses by COFECE.

framework as we navigated the previous framework and got to know the roots and implications of this shift. This

Q: How is the market developing outside of the auctions?

perspective can serve as a benchmark for those with

A: The end game for industry players is to find ways to

legacy contracts now looking to operate under Mexico’s

commercialize energy by using the channels provided by

Electricity Industry Law. Dispute settlement mechanisms

the contractual schemes in the regulatory framework. The

and technical-legal resolution issues during a project’s

enabled supplementarity of the civil and merchant codes

construction phase, for instance, are perfectly transferrable

in Mexico’s Electricity Industry Law opens up a range of

from one framework to another. Confusion remains among

energy trading options that the previous framework lacked.

industry players in supply operations between generators

We have advised and drafted several coverage contracts

and private off-takers, highlighting the importance of

outside of the auctions. These bilateral PPAs are showcasing

providing a clear vision over the possible legal relationships

the same level of solidity as the auction coverage contracts,

between industry players. The same can be said about the

as evidenced by the financing sources willing to cover said

economic rationale behind the Electricity Industry Law’s

contracts outside of an auction scheme.

bilateral PPAs. Q: Which service in your portfolio is most in demand at Q: How much room for improvement is there within the

the moment?

execution of Mexico’s long-term electricity auctions?

A: Thompson & Knight is renowned in energy’s two facets:

A: The country should consider technology-specific

oil and gas on one side and electricity and renewables on the

auctions to find additional efficiencies and foster true

other. Our firm is among the select few that specializes in

competitiveness. The configuration of CELs should also

both spectrums. For instance, a tangible vote of confidence

be reconsidered to omit technologies that are by law

is found in our client portfolio in Mexico, comprised of

considered clean but are not strictly renewable, such as

licensing round winners and relevant electricity and

nuclear and thermoelectric. The essence of the CELs should

renewable energy companies, some with a long-standing

be to reward and incentivize the use of renewable energy

presence in the market and an equally lengthy business

and not clean energy. Finally, some problems have been

relationship with our firm. Our clients rely heavily on our

detected in the legal design of the first three long-term

capacity to provide effective business intelligence with

auctions, which causes a price difference between the day-

regulatory clarity.

ahead market and real-time market, this is not acceptable. Q: What is missing from a regulatory standpoint to push

Thompson & Knight is a US-based law firm that is expert in

Mexico’s electricity market further into maturation?

energy finance, taxation, business transactions and litigation,

A: It boils down to providing visibility over the methodology

with a century-old knowledge of the energy and oil and gas

involved in electricity-rate calculations. Today’s Mexican

sectors and a team of more than 300 attorneys

| VIEW FROM THE TOP

SEGMENTED MARKET FOR MERCHANT AND AUCTION PROJECTS RUBÉN CRUZ Energy and Natural Resources Lead Partner at KPMG

Q: How is the market correcting the imbalance between

A: The first auctions were designed to maximize buyers’

producers wanting to sell at market prices and qualified

savings. These aimed to foster clean energy generation while

users and suppliers wanting to purchase at auction prices?

maximizing purchasers’ economy but do not necessarily

A: Auction price levels are influenced by the contracted

correspond to a strategic management of the generation

volume, the time frame of the contract and CFE’s prevailing

matrix nor weigh in the development stage of a project. The

status as the single off-taker. It is hard for a trader to access

first long-term electricity auction was reduced to proposing

the same prices of a high-volume and long-term buyer. So,

the price yielding the largest savings, regardless if the

anyone seeking to buy at auction price levels should have

bidder has the required permits. I also think that segmenting

the financial capacity to purchase the corresponding high

auctions by technologies would give price development more

volumes and long settlement periods. But this can only be

transparency, while also being aligned with the evolution of

done with a critical mass of residential users, as CFE has.

an ideal energy matrix. We must aim to make the auctions

It mimics the behavior of other commodities or currency

process more efficient and responsive to the market.

exchanges; nobody will trade below the spot price. Q: What financial entities are best suited to accompany The decreasing trend of long-term electricity auction prices

efforts for utility-scale projects?

is forcing the rest of the value chain to maximize savings.

A: We anticipate greater participation of CERPIs and CKDs,

It resembles an inverse auction in which the winning

especially for the long term. Private equity is also interested

bidder is the one offering the lowest tariff and generates

in the market but not at the prices offered in the long-term

the greatest savings compared to a reference price.

electricity auctions. It is important to note that the sector is

This reduces the margins for all the project participants,

recovering from a downward cycle that began in 2008. In

lowering their capacity to face any unexpected market

the last two years, we have seen a recovery of interest rates

changes. This also reflects a market imbalance as there

as the US economy bounced back. But the US government

is a preponderant player and a probable failure to follow

does not want its economy to overheat so it is slowing it

the perfect competition model that enables the market to

down by increasing interest rates. This is translated to Mexico

offer the best prices and lowest costs. I expect a market

with interbank and CETES savings account rates sitting at

segmentation in which lower-volume projects can be

7-8 percent, to mention one example. As long as we keep

pursued, opening the door to better offer prices and higher

going down this path, projects will have greater discount

investment returns. But we cannot expect the case of a

rates and could become more appealing to private equity

large market buyer to become a generalized rule for the

at the appropriate rates. But if the goal is to yield greater

industry. It would be a mistake to believe that the WEM will

savings to the buyer, even at the expense of the investors’

provide the same conditions to all when not all have the

returns, it is unlikely to motivate private investors to enter the

same purchasing power.

market, especially for wholesale electricity projects.

Q: Given that CRE will have the lead on any upcoming

Development and commercial banking have backed up

auctions and the disclosed guidelines, how will sector

project development. In this case, commercial banking has

needs materialize in the evolving auction guidelines?

further incentive to take part but is not yet comfortable with the merchant risk. As long as electricity wholesale operations do not mature, commercial banking will not be

KPMG is a global network of professional services firms

fully comfortable, which in the end is translated to interest

providing audit, tax and advisory services. It operates in 154

rates and project costs. So, projects with high uncertainty will

countries and territories and has 200,000 people working in

hardly meet competitive market prices. The cost of money

member firms around the world

is on the rise, so tariffs are also following the same direction.

VIEW FROM THE TOP |

SOPHISTICATED STRATEGIES FOR AUCTION-WINNING PROJECTS EDUARDO REYES Partner Power and Utilities of Strategy& at PwC

Q: What is PwC’s primary contribution to Mexico’s energy

obligated by law to purchase them. The law includes certain

transition?

mechanisms that enable qualified users to mitigate non-

A: PwC has been working closely and constantly with

compliance risks. One of them is the possibility to roll out

both the public and private sectors on assessing the

a portion of the 2018 obligation to 2019. Also, CELs do

competitiveness of renewable energy in Mexico since 2011.

not have an expiration date, so those that are not used

Prior to the Energy Reform, we were deeply involved in

throughout the year can be saved in the Energy Bank for

analyzing the promise of wind power in terms of capacity,

future use. By 2019, several utility-scale projects from the

prime locations and how to develop a regulatory framework

long-term electricity auctions are expected to come online,

to capitalize on its potential. Further down the road, we

which will soften this CEL supply shortage.

integrated PV and other renewable energy technologies into our assessments. Our inputs provided the basis under

Q: What clean energy technologies are best suited to

which the robustness of Mexico’s infant renewable energy

compensate renewables’ difficulty to offer capacity?

sector is being built.

A: Geothermal is among the ideal candidates, with an 8090 percent load factor, meaning a geothermal plant can

Q: What are your expectations from CRE executing the any

virtually operate continuously all year long. Cogeneration

upcoming electricity auctions?

is a close second. While the upcoming fourth long-term

A: The new handbook published by CRE containing the

electricity auction is not including them, we believe energy

participation bases and specifics does not show any major

storage technologies will make an entry in the midterm to

shift as to how any future auctions are to be structured.

enable renewable energy to offer capacity.

The energy industry regulator will save important changes on an improvement basis for future auctions, considering

Q: How does PwC keep up with a technologically-

it will have some more time at its disposal to analyze the

dynamic industry?

auction architecture in detail given the cancellation of the

A: In terms of market development, we work closely with

fourth edition.

our clients, thinking about the next big thing. When we published our report covering the third long-term electricity

Q: What are the prevalent risks of developing a utility-scale

auction results, we outlined the necessity to shift toward

renewable energy project?

more complex strategies to be successful in the following

A: There are two sets of risks that need to be outlined.

auctions: looking for PPAs, placing power production at

First, on the operational and construction side, rights of

merchant price and balancing risks. We always make a

way, interconnection costs, environmental and social

point on staying one step ahead in both market trends and

impact studies remain the focal points of potential risks

upcoming regulation. From a technological standpoint, we

in the project’s development. If the project is known to be

work closely with our US offices, capitalizing on the network

dealing with social or environmental issues, or is missing

of technology companies available there and our Chicago

key permits, it will hamper its financing attractiveness. The

lab, where continuous screening processes take place on

second is the risk of placing too large a share of the power

short, mid and long-term technologies. By far, battery-based

production at merchant price while assuming that the price

energy storage systems are set to take the industry by storm.

tag of that market will remain high in the long term. Q: What is your assessment of the first operational

Strategy& is a PwC consulting group dedicated to practical

year of CELs?

strategy advisory services to help its clients deliver on project

A: An imbalance exists in terms of the amount of CELs

execution. The group has a proven track record of delivery,

available as opposed to the amount required by users

with global scale and experience

| INSIGHT

DEVELOPING COMPETITIVE PROJECTS FROM THE GROUND UP FELIPE SALAZAR Country Manager Mexico of Alten Energías Renovables

Although MWh+CEL package prices play a significant role

The company arrived in Mexico in June 2013, prior to the

in the investment decisions for the long-term electricity

Energy Reform, and Salazar says that made a big difference

auctions, important peripheral factors should be considered to

in its fortunes. “We recognized early on the potential of the

boost the chances of a project’s success, says Felipe Salazar,

opportunities Mexico offered without ever imagining they

Country Manager Mexico of Alten Energías Renovables, a large

would be as good as they are now,” says Salazar. “We would

independent PV power producer (IPP) with over 467MW of

have missed this sizable window of opportunity if we had

capacity commitments across Mexico and Sub-Saharan Africa.

decided to enter later in the game.”

“The first long-term electricity auction projects in the Yucatan

As a result of its early entry, Alten was part of the transition

Peninsula dealt with mangroves, pre-Columbian ruins, social

process, riding the learning curve along with CRE, CFE

impact issues, environmental compensation for land-use

and CENACE. The company oversaw the transition of its

changes in forested land and rights of way to reach distant

projects from legacy contracts to the new generation and

interconnection points, among other issues,” Salazar says,

interconnection scheme, pioneering the first interconnected

adding that these issues can complicate processes, increase

project with CFE Transmisión Occidente under the new

time and costs and jeopardize financing.

Electricity Industry Law. “We ironed out the regulatory gaps present at that time, especially when drafting contract terms,”

Salazar believes Alten Energías Renovables’ focus on crucial

Salazar says. “It has become a much more seamless process

aspects of the project from the very outset helped determine

since then.” He especially applauds the efforts of CENACE and

its success in the second long-term electricity auction. The

CRE for their continuous transparency and ongoing work to

company was awarded the Solem I and II projects in El Llano,

establish streamlined processes, particularly in the long-term

Aguascalientes, with a total installed capacity of 348MW.

electricity auctions.

“Locations with reliable energy evacuation infrastructure, on-hand energy consumption data that illustrates a steady

Solem I is set to come online by September 2018 and Solem

increase, possible PPAs, proactive municipalities and local

II will be operational by June 2019 per Alten’s commitments

governments and locations close to power substations and

to CFE Suministro Básico. The surplus production of both

interconnection points are a few of the aspects we specifically

PV parks will be placed on the spot market to capitalize on

look for,” he says. That kind of detailed planning helped deliver

the short-term opportunities it offers. Based on the results

the favorable outcome of Solem I and II, Salazar says. “The

obtained during the third long-term electricity auction, Salazar

first long-term electricity auction awarded projects that in

anticipates new utility-scale projects will search for profitability

some cases did not even secure the terrain meant for the

through a mix of auction placement, market placement and

project, whereas our proposals had already concluded all

PPAs, in a proportion suitable to the developers’ business

permitting procedures and presented ironclad planning and

plan. “The auction’s tight margins can be compensated with

cost structures free of additional expenditures,” he says.

short-term sales in the spot market and PPAs for both mid and long-term transactions,” he says.

Alten Energías Renovables also capitalized on its advantage as a flexible and vertically-structured company exclusively

Mexico’s renewable energy industry push shows no sign of

dedicated to PV projects, along with its first-mover status.

slowing but as sizable amounts of renewable GW come online,

“Alten always develops its projects from the ground up while

grid saturation is at the industry’s doorstep. “Interconnection

other large companies purchase semi-developed projects,”

points with evacuation capacity are becoming scarce,”

he says. “Alten is involved in the project from terrain search

says Salazar. “Investment in transmission infrastructure

and permitting procedures all the way to operation and

will increasingly play an important role so we can continue

maintenance.”

injecting renewable energy into the mix.”

VIEW FROM THE TOP |

BREAKING THE UTILITY‑SCALE GLASS CEILING CARLOS EGIDO Country Manager Mexico of X-ELIO

Q: How has X-ELIO’s Mexican project portfolio

project was the most expensive with an all-in price offer

strengthened its go-to developer status?

close to US$24/MWh. While we polished certain inputs and

A: X-ELIO arrived in Mexico in 2013, starting with small

integrated additional variables, our business model remains

producer projects of up to 30MW and then making an

largely unchanged. Multiple factors can shed some light on

incursion into bigger projects which are the focus of the

this trend. EPC prices have progressively optimized. It is to

company nowadays. X-Elio gained a significant push with

be expected from an industry that, no more than five years

three projects won during the second long-term electricity

ago, had only a few renewable MW under construction

auction in 2016. Our successful participation was based

compared to the amount of GW under construction to

on the know-how of developing large-scale PV projects

date. Under a macroeconomic lens, Mexico’s long-term

in Mexico and the understanding of long-term electricity

auction contracts under a US dollar-indexed price, coupled

auction algorithm. This learning curve allowed us to win

with the country’s sociopolitical stability, makes it highly

another project in the third long-term electricity auction

attractive, provoking several renowned power producers

with an installed capacity of 250MW in Bacabachi, Sonora.

to participate.

The project’s capacity is as large as the three PV projects we won in the second long-term electricity auction all

Q: Can green bonds provide a suitable source of financing

combined. We were also able to close a fifth 100MW

for X-ELIO?

nameplate capacity project, signing a bilateral PPA with

A: For the short term, we are focused on traditional project

one of the biggest qualified supplier in the country.

finance. Going forward, the downward trend in long-term electricity auction price packages directly impacts financing

Q: How have the lessons learned from X-ELIO’s auction

conditions, ratios and leverage so a project sponsor’s equity

participation improved its project development?

capacity will become increasingly crucial. Entering into new

A: It is worth mentioning that the design and execution

sources of financing is part of our future plans as soon as we

of the auctions has markedly improved from the first

consolidate a large portfolio of operational assets.

edition to the third, on all fronts, including preselection procedures, an increasingly user-friendly auction system

Q: How does X-ELIO ensure its Mexican project portfolio

platform and CENACE’s communication channels. The

follows the highest standards?

inclusion of a Clearing House was another step in the right

A: X-ELIO has a lengthy trajectory in the sector, exclusively

direction. These steps forward were also taken in parallel by

dedicated to developing PV systems. In Mexico, we replicate

X-ELIO, optimizing our auction knowledge, algorithm and

the strict quality standards we practice in other markets,

processes. An important optimization opportunity remains

such as Japan, Chile or Spain. We secured the relevant

in the last-minute changes on electricity export limits. In

ISOs and place singular importance on every social and

past editions, those unplanned modifications overlapped

environmental aspect of our projects, following i.e. the

delivered auction guarantees and prequalified offers,

Equator Principles and undertaking public consultancies

causing some projects to be ultimately rejected.

with local communities. Parallel to the conditions that must be met for financing, we also comply with the best HQSE

Q: How is X-ELIO adapting to the downward trend of long-

standards.

term electricity auction package prices? A: Prices reached during the third long-term electricity auction were unexpectedly aggressive. To put it in

X-ELIO develops and operates utility-scale PV plants. The

perspective, the three projects we won during the second

company has participated in the development, construction,

auction achieved the second most competitive price offer at

maintenance and operation of plants with a total capacity of

around US$29/MWh (blended price), while our third auction

over 700MW in 18 countries

| VIEW FROM THE TOP

GENERATING THE MOST COMPETITIVE MW FERNANDO SALINAS Managing Director Mexico and Central America of FRV

Q: What is FRV’s primary contribution to Mexico’s

ING. The latter was not involved in project finance prior to

PV sector?

approaching us. This shows the attractiveness of Mexico’s

A: FRV is a solar and wind power project developer, active

utility-scale PV projects. On the development banking side,

since 2006 and present in Mexico since 2012. We are devoted

it was rewarding to have the support of Bancomext. In more

to the country’s reformed energy industry. The company

general terms, commercial banking and equity funds work well

adjusted well to the Mexican market and new regulation,

within the merchant components of the electricity market. It

as well as the long-term electricity auction process, as

has an inherently higher long-term risk but it can be mitigated

showcased by the utility-scale project we won at competitive

by aligning offers to natural gas prices, considering Mexico’s

prices during the second auction. Our success is rooted in

electricity market leans heavily toward natural gas.

anticipating both market needs and market prices, adjusted to Mexico’s specificities. Parallel to that, we are looking to

Q: Why did FRV outsource the construction phase of its

develop our asset management business line for operational

342MW San Luis Potosi PV project to TSK?

projects, including financial and PPA management.

A: FRV designed a competitive RFP where more than 10 companies participated. We selected the one that complied

Q: How does FRV undertake successful project

with three critical conditions. First, local experience. A

finance schemes?

company that showcases an extensive portfolio of building

A: A large share of FRV’s executive team has a strong

and operating MW in Mexico is a primary component of

background in project finance. Our team in Mexico includes

what we were looking for. Second, extensive experience

two people dedicated full-time to financially structuring the

in large-scale PV plants. And third, competitive pricing.

projects FRV is involved in. Project finance is four-pronged:

Each RFP is tailor-made based on the project’s specific

development, construction, financing and operation.

requirements and its best EPC option available.

Competitive projects call for comprehensive understanding of all four stages. Sound knowledge over EPC prices and

Q: What are FRV’s expectations for the future of the

future construction prices, strong asset management

electricity auctions?

notions and effective risk mitigation are just a few elements

A: CRE is set to substitute the Ministry of Energy’s role in

required to make an energy project competitive.

conducting the auction process, while CENACE will remain the auction’s operator. We expect few changes compared

Q: What financial entities are making their presence known

to the previous editions, considering CENACE’s team behind

in utility-scale projects?

the long-term electricity auctions will remain the same and

A: In the particular case of our San Luis Potosi Solar PV

the exemplary work of the first three long-term electricity

park, we invited close to 28 financial entities to participate in

auctions will be reflected in any that take place in the future.

the financial operations of the project through an RFP. The

FRV examined the fourth auction’s guideline draft prior to

resulting banking pool was unexpected as both commercial

it being put on hold,. It had some operational changes that

and development banking institutions expressed interest in

facilitate the process but in general terms, the essence of the

participating. It is worth underlining the vote of confidence

auction remains so I predict no major changes in the future.

from the two foreign commercial banks interested, KfW and Q: Why is FRV diversifying toward wind power projects? A: Wind and solar power share certain similarities. While Fotowatio Renewable Ventures (FRV) is a Spain-based

the development aspects of the former are more complex,

renewable energy project developer founded in 2006. It has

especially in terms of construction and asset management,

developed and built over 900MWac of PV installed capacity

the financing aspects remain closely related. It was a rather

and has invested over US$3billion in renewable energy projects

organic next step.

VIEW FROM THE TOP |

UNTAPPED OPPORTUNITIES AWAIT PATRICIA TATTO Partner and Country Head of Mexico and Central America at ATA Renewables

Q: Which of ATA’s divisions are most active in Mexico?

project, providing them with perspectives from different

A: ATA has four business units: ATA Advisory, ATA

markets and offering advice regarding certain layouts or

Engineering, ATA Certification and ATA Insights, all of them

technologies we have seen in other places. We work closely

operating actively in Mexico. Our advisory and engineering

with every single client. Since we manage very sensitive

areas are a single unit offering services such as natural

information, we prioritize confidentiality.

resource assessment, technical due diligence, construction management, asset management services, and other types

Q: What are your clients’ main concerns regarding the

of special projects. Our expert engineers provide support to

long-term electricity auctions?

financial institutions, developers, government and utilities.

A: I think that everyone involved in the renewable energy

We are independent engineers with expertise in the field.

industry understands there are a variety of options for

ATA Insights and ATA Certification are the newest additions

participating and even if many say that they would never

to the group, having been incorporated two years ago.

participate in an auction, they have a very clear strategy

ATA Insights involves business intelligence and marketing

for participating in other projects through PPAs or in the

for other companies. How our divisions operate depends

Mexican Electricity Market. As a new player, it can get really

heavily on how the market is being developed. In Mexico, we

tricky to participate in a long-term electricity auction at

work with projects under development, under construction

this stage but that does not mean that companies cannot

and those that are already in operation.

participate in one scheme or another. ATA helps also in this process.

Q: Why should companies consider moving into Mexico’s energy sector and how does ATA support these businesses?

Q: How prepared is local human capital to excel in the

A: We provide technical and financial advice that helps

energy industry and what role can women play?

our clients understand the Mexican renewable energy

A: As a country, we are still inexperienced in many aspects

landscape and what their opportunities are within that

related to the renewable energy industry. However, we are

landscape. Many foreign investors are concerned about

moving in the right direction, professionalizing, helping and

the incoming government’s policies and we advise them

teaching new generations the necessary technical skills to

that renewable energy projects will continue to make sense

generate good results in the renewables arena.

because of their economic, social and environmental value to the country. Globally, Mexico has the cheapest prices

One area that still needs improvement is the gender

for electricity per kWh coming from its renewable energy

imbalance that exists in the industry. We still do not have

resources. This is the best sign an investor could get.

enough women working in the sector. We are developing

Mexico’s renewable energy sources are economically viable

a study that will measure how many women participate

and offer environmental benefits. For ATA, these are two

in the market, how many get into STEM-related positions

key factors for moving forward with a project.

and the level of education required for women who want to enter the market. It is not about how many women get

Q: What differentiates ATA from other consultancies in

into university. We want to gauge their expectations and

the energy industry?

analyze what career opportunities are available to them.

A: We like to offer our clients a personalized service. We fully understand our clients’ needs and most of the time we work hand in hand with them. For instance, we help our

ATA Renewables is an independent renewable energy group

clients select the technology they require, provide advice

comprised of four units offering engineering, advisory, certification

on building their project and help in the tender to hire the

and market intelligence. The group operates internationally from

right contractor. We also help our clients optimize the

its offices in Spain, Mexico, Argentina and Australia

| INSIGHT

CAPITALIZING ON AN INTEGRATED NORTH AMERICAN ENERGY MARKET BENJAMÍN TORRES Partner at Baker McKenzie

After showcasing a record implementation pace, Mexico’s new

business. “There is a heightened interest for cross-border

energy model has yet to demonstrate its capacity to solve

power generation, transmission and distribution projects, but

what Benjamín Torres, Partner at Baker McKenzie, considers a

the required business model companies should implement

ticking time bomb. “Energy consumption continues to grow at

remains a gray area from a regulatory standpoint,” Torres

a faster pace than the consolidation of Mexico’s energy model,

says. “First, Mexico needs to expand its transmission and

with natural gas imports representing close to 70 percent of

distribution infrastructure to absorb electricity flows on a

that consumption.”

bilateral scale. Then, transmission and distribution channels need to respond to the market needs rather than a public

While matching power generation with consumption growth

policy logic, as transmission and distribution projects still fall

is sizable and complex, so are the areas of opportunity

exclusively to the federal government.”

available to address it. International law firm Baker Mckenzie, for example, plays an active role in numerous energy

The advances of power generation projects over transmission

infrastructure investments arising from the Energy Reform

and distribution go well beyond a more developed regulatory

by helping to provide certainty to the companies operating

framework and greater private participation. “Not only is a

in the sector. “As early as the project’s blueprint, we advise

power generation project’s regulation clear-cut, PRODESEN

our clients on the best course of action for projects that are

2017-2032’s figures stipulate investments of a total MX$2

key to the country’s economic development by contributing

trillion between 2018 and 2032 in generation, transmission and

to satisfy and better understand the increasing demand for

distribution projects. The last two represent 9 and 7 percent

power generation in a cost-effective manner. Our advisory

of that total, respectively. Meanwhile, the two transmission

services have led to long-term electricity auction winners,”

megaprojects of Baja California and Oaxaca-Centro still lack

Torres says, adding that the firm is also involved in refining

tender winners,” Torres says.

the market’s legal framework. Legal certainty is another key variable of the equation. “We are working hand in hand

As Vice President of the Energy Committee of the American

with regulatory authorities and other key industry players to

Chamber of Commerce, Torres is focusing on securing the

identify alternatives to improve and strengthen the industry’s

continuity of the country’s energy model in the midst of a

regulatory framework and provide greater certainty and

political transition. “We are looking to communicate to the

healthy competition among parties.”

general public the beneficial fruits of the Energy Reform, highlighting its critical necessities to reach consolidation.

Torres underlines that there is broad investment appetite

As the political transition is absorbed at a macro level,

among the industry’s stakeholders, with diverse sources of

we will be increasingly in a position to build up a forecast

interest. “Many off-takers are undergoing a gradual transition

capacity and inform the chamber’s partners in an opportune

away from the traditional basic supply consumption scheme

manner,” he says.

to other options, including CFE Suministro Calificado, other qualified suppliers, isolated supply projects and distributed

Baker McKenzie remains confident about the future, Torres

generation,” he says.

adds. “As an industry-diversified firm, we oversee all types of energy projects compared to boutique firms. There is no

The trilateral USMCA deal has stoked investors’ appetite, since

project or technology we have not been exposed to. We

it includes a revamped energy chapter, setting the stage for

have advised long-term electricity auction participants in a

the country to consolidate a thriving North American energy

strategic way, and turned them into winners by accompanying

market. In 1994, Mexico’s oil and gas and electricity industries

them in the execution of their bids. Companies whose core

were solely in the hands of the state, handled by PEMEX and

business is not renewable energy, such as Fortius, have also

CFE, respectively. Now, cross-border schemes are open for

come to us for advisory services," Torres says.

VIEW FROM THE TOP |

TAILOR-MADE MODULAR SOLUTIONS FOR SUSTAINABLE DEVELOPMENT PRACTICES JERZY SASIADA Mexico Area General Manager and Managing Director of WillScot

Q: Why should utility-scale project developers choose

having an available stock of finished products to meet our

WillScot’s modular space services?

clients’ requirements in near real-time.

A: We are providers of scarce-space solutions for project developers at all levels. In the energy industry, power

Q: How does WillScot achieve a 50 percent assembly time

generation plants are often developed in remote locations

reduction?

where the construction phase extends over a long period

A: The advantage of our product compared to traditional

of time before they become operational. The common

construction is that a large part of the preparation process for

denominator with these locations is the difficulty of access

each project is a standardized procedure and can be executed

and the lack of appropriate infrastructure to remain on-

for the most part in-house at our branches. When a project

site. All our solutions are mobile and sustainable, creating

opportunity arises, we already have a largely premanufactured

valuable synergies because they leave behind no ecological

portion of the modular spaces that the project will require,

footprint. WillScot can cover all spatial necessities inherent

reducing to a minimum the specific adjustments inherent to

to a project, including dormitories, technical offices and

the projects’ characteristics. Another comparative advantage

safe, containerized material storage.

is that modular spaces do not require concrete slabs, so, while the blueprint of the project is still being drafted, we can be

Q: How does WillScot provide the best solution to its

ready to deploy the required modular structures.

clients’ most common problems? A: Modular spaces provide a significant productivity boost

Q: How does WillScot ensure its solutions leave no

throughout the project’s development phase as workers can

ecological footprint?

remain on-site, eliminating displacement times. Safety and

A: Looking at our flagship product, the portable, wheeled

security are other key issues that are guaranteed because

trailer, all materials are 100 percent removable once the project

all personnel and materials stay in the same location, within

is fully operational. Our flex line allows us to create facilities

a controlled perimeter. WillScot is certified as a socially

and buildings of virtually unlimited dimensions but the

responsible company, which allows us to work with local

structures do not interfere with the surrounding vegetation.

suppliers that can provide the same quality standards that we do, in order to deliver the best value proposition to our

Q: What are WillScot’s growth plans for 2019-20?

customers and at the same time, support local economies

A: In 2018, we did a major benchmark of our business. In

and small businesses. We aim to find in every location that

mid-2018, we acquired Modspace, which positioned the

we have presence in, trustworthy commercial partners

company as the No. 1 modular solutions provider. Taking

in order to grow together in business opportunities for

into account how the country has been changing over the

both parties.

past months, we expect our business actions will boost our efforts to focus on providing the best solution to

Q: How does WillScot use Mexico’s logistics infrastructure

our customers. We anticipate that the development of

to its advantage?

renewable energy projects will take on an increasingly

A: It is a critical factor for generating client satisfaction and

preponderant role in the business of the different types of

in ensuring the quality of our products and services. To

clients that use our modular solutions.

ensure timely deliveries of our products, we have studied the territory to provide our service in every location needed. This is why we have created a network of branches

WillScot , a Baltimore-based leader with more than 50 years

throughout the country. These branches provide the

of experience, offers modular space services; a convenient and

preparation, maintenance, cleaning, repairs and verification

cost-effective solution for temporary infrastructure needs such

works for our modular units so we always make a point of

as housing and offices for building sites

| VIEW FROM THE TOP

CONSOLIDATING 300MW OF PV PROJECTS FRANCISCO GARCÍA Country Manager of GRS Mexico

Q: Why should large-scale PV developers turn to GRS as a

PV plant located in Chihuahua, finalized in 2017, we are

partner to guarantee the success of their projects?

already offering O&M services. O&M is essential because

A: Due to its strong international foothold in 17 countries,

it directly impacts whether or not the PV plant will deliver

GRS has acquired valuable expertise in each stage of a

the output estimated during the development phase.

PV project’s life cycle. While bilateral PPAs have yet to

Any slight variation can have serious repercussions for

increase in number due to an immature market, Mexico’s

the project sponsor and the project’s value chain. Skilled

highly-competitive long-term electricity auction coverage

technicians, specialized in using SCADA systems, are

contracts demand exact knowledge related to the different

essential. GRS deployed higly-qualified on-site O&M

stakeholders’ needs. We assist them in developing auction-

technicians at its Camargo plant and is successfully

winning projects.

carrying out performance forecasts and optimizing powerproduction levels.

Q: How is GRS adapting to the downward trend of the long-term electricity auction package prices?

Q: How has the Camargo project worked as a business

A: To thrive in the long-term electricity auctions requires

case for GRS in Mexico?

a comprehensive grasp of Mexico’s market. Judging from

A: A B&O PV project in Mexico entails a number of things.

the first three long-term electricity auctions, we expect

First, GRS showcased its capacity to join the select few

the downward trend for package prices to continue.

that build turnkey PV projects in a highly-competitive

Players that participate as project sponsors rely on

solar market. Second, reaching operational phase confers

two primary variables: CAPEX and OPEX, added to the

tangible proof of our cost-control abilities and proven

project’s location. In that sense, zones where there is an

experience in the import processes for PV components,

abundance of the resource are critical. GRS specializes

with all the implied customs and logistics challenges. GRS

in optimizing CAPEX variables. Our engineering work

also developed experience in everything pertaining to

enhances the blueprints for PV plants by incorporating

subcontracting, with a particular emphasis on local talent.

top-tier technology, such as bifacial solar modules that

For Camargo, we were also able to successfully conclude

provide increased efficiency. The secret to a successful

the interconnection projects, which remains a complex task.

long-term auction project is to design a robust project in

These different factors instill confidence since control over

the development phase and incorporate a cost-effective

the entire value chain is guaranteed, with the added value

PPA price.

of our social commitment.

Q: How is GRS taking advantage of the opportunities from

Q: How will the market share between long-term electricity

operational utility-scale renewable energy projects?

auction coverage contracts and bilateral PPAs evolve?

A: GRS boasts a solid and diverse portfolio of clients

A: Coverage contracts can be drafted either with long-

consolidated throughout the development of Mexico’s

term electricity auction projects, signed with CFE or

long-term electricity auctions. We are capitalizing on

private qualified suppliers wanting to purchase power and

our competitive offer of EPC turnkey services. For our

CELs or with off-takers. Mexico’s electricity consumption

initial projects in Mexico, such as the 35MW Camargo

has been growing reasonably per year over the last few years. This sustained increase is set to foster growth in the country’s industrial fabric so it can achieve its goal of

GRS is an internationally recognized brand with over 10 years

35 percent clean energy generation by 2024. Renewable

of experience and over 1GW of plant and ongoing project

energy still has a long way to go and the long-term

capacity, covering all development phases to obtain sustainable

electricity auctions will remain the primary instrument

PV projects with integrated energy-generation solutions

to confer Mexico the clean generation GW it requires.

ROUNDTABLE | On March 5, 2018, CENACE published the official results of first midterm electricity auction in Mexico. This process was designed for suppliers of basic services to acquire both power and electricity to be consumed by basic users. But as the long-term auctions have taken the spotlight, Mexico Energy Review asked industry experts to disseminate the benefits brought about by the midterm auction.

WHAT IS THE MAIN CONTRIBUTION OF THE MIDTERM AUCTION TO MEXICO'S ENERGY TRANSITION?

The first midterm auction is generating considerable expectations at a time when the third long-term electricity auction confirmed an aggressive downward trend in the prices offered. Financing appetite is impaired when renewable energy projects reach such low prices. The midterm electricity auction presents an opportunity where, by modifying the structural and commercial conditions on the supply side, it could pique the interest of private banking and investment funds in a system so far led by development and multilateral banking. This first edition will be decisive to determine the parameters under which private banks can consider the risk acceptable.

JORGE SANDOVAL Associate at Goodrich, Riquelme y Asociados

Midterm auctions are a fundamental element. Power producers do not always have the financial muscle to sign long-term contract for sizable amounts of capacity. The midterm auction allows them to contract only for one to three-year terms. As soon as there is a more interesting price in terms of electricity and qualified users increasingly seek out power producers, midterm auctions will gain dynamism and relevance in the electricity market.

EDUARDO REYES Partner Power Utilities of Strategy& at PwC

Midterm electricity auction contracts are at a disadvantage from a bankability standpoint. Unless an innovative, aggressive financial entity with syndicated backto-back schemes steps forward, midterm contracts will either revolve around surplus capacity from existing projects or be financed from a companyâ&#x20AC;&#x2122;s own balance sheet. In essence, this would be done through self-financed capacity, surplus capacity or innovative, short-term financial schemes.

CLAUDIO RODRĂ?GUEZ Head of Mexico City Office at Thompson & Knight

CFE power plant

POWER PRODUCERS

The unlocking of Mexico’s energy market has not only meant an increase in the number of participants but also in the technologies needed to place the country’s energy model on the same level as that of more mature markets. Power producers are poised to introduce the industry’s latest developments that will allow Mexico to reach its clean energy goals, together with a clean, reliable and continuous energy supply. In this context, solar and wind are taking an increased share of the energy mix while baseload technologies are striving for cost-efficiency to maintain a strong foothold in the country’s power producing market.

Through in-depth interviews and extensive analyses, this chapter will analyze the energy-producing technologies used by the main players in the industry, the impact of the PPA model on the development of the Mexican model and the search for talent necessary to maintain sustained growth, among other key issues.

CHAPTER 4: POWER PRODUCERS 90

ANALYSIS: New Technologies, PPAs Allow Producers to Get Cleaner

VIEW FROM THE TOP: Ramón Moreno, Mitsui Power Americas

MAP: New Power Plants by June 2019

VIEW FROM THE TOP: Oscar Scolari, Rengen Energy Solutions

VIEW FROM THE TOP: Gerardo Pérez, EDF Renewables

VIEW FROM THE TOP: Miguel Ángel Alonso, ACCIONA Energía

VIEW FROM THE TOP: Enrique Alba, Iberdrola México and Mexican Energy Association

100

VIEW FROM THE TOP: Paolo Romanacci, Enel Green Power Mexico

101

VIEW FROM THE TOP: Albert Guillén, ADM

102

VIEW FROM THE TOP: Marcial Frigolet, Toshiba de México

Akira Matsuzawa, Toshiba de México

103

VIEW FROM THE TOP: José Arosa, AES Mexico

105

VIEW FROM THE TOP: Adrián Katzew, Zuma Energía

106

VIEW FROM THE TOP: Lionel Bony, Neoen

107

VIEW FROM THE TOP: Saúl Muñoz, TIBA Mexico

Luis Aguilar, TIBA Mexico

108

VIEW FROM THE TOP: Federico Guerrero, HellermannTyton

109

VIEW FROM THE TOP: Pablo Fernández, ISOTRON Energías México

110

INSIGHT: Jacobo Mekler, COMEXHIDRO

111

VIEW FROM THE TOP: Sergio González, Renovalia Mexico

| ANALYSIS

NEW TECHNOLOGIES, PPAs ALLOW PRODUCERS TO GET CLEANER The world’s energy heavyweights have settled into the Mexican market thanks to models such as PPAs and a regulatory framework beneficial to their interests. Now it is the public sector’s turn. Foreign investors want reform continuity to keep investing in a market that is still maturing

The market opening resulting from the implementation of

that renewable energy intermittency fails to provide. This

the Energy Reform and the agnosticism with which the

is not an issue with natural gas’ stable baseload,” Oscar

country has faced its energy transition has opened the

Scolari, CEO of Rengen Energy Solutions, says.

door not only to a high number of participants but also to the arrival of new technologies. These have allowed

Solar and wind energy, as well as hydroelectric power, remain

the development of an important industry of clean and

viable alternatives to fossil fuels, in addition to sharing some

renewable energies in the country, in some cases sustained

significant challenges. According to the Mexican Association

under the PPA model, which is set to gain an even wider

of Solar Energy (ASOLMEX), Mexico closed 2018 with 38

foothold in the sector.

solar parks in operation, compared to the two that operated in the country in 2014, while wind energy grew in the country

The development of the PPA model is essential, although

at a much higher rate than in the rest of the world during

with nuances, says Lionel Bony, Regional Director Mexico,

2016-2017. Both energies, wind and solar, also meet the

Central America and the Caribbean of Neoen. “Competition

objectives of job creation, revitalization of the economy

includes heavyweights such as ACCIONA, Enel, ENGIE,

and benefits for the environment.

Iberdrola and Sempra. The structure of bilateral PPAs is also more complex for off-takers compared to the previous self-

Their challenge is intermittency, hence the importance

supply scheme but we are confident that as the market

for the country of hydroelectric power. “Hydroelectric

matures off-takers will grow accustomed to PPAs.”

is the only renewable energy technology that provides a firm baseload. Mexico has more than 12,000MW of

Risk control, directly related to the profitability of a

hydroelectric installed capacity, the majority of which is

project, is also a major concern for all members of the

installed at large-scale dams that double as water storage,”

private sector that maintain energy interests in Mexico.

says Jacobo Mekler, New Business and Commercial Director

“Fewer risks translate into lower profitability margins and

of COMEXHIDRO.

higher profitability implies assuming greater risks. Longterm electricity auction projects belong to the first case,”

Hydroelectric energy, then, has resurfaced as an

Ramón Moreno, CEO of Mitsui Power Americas, explains,

alternative, an objective supported by President López

despite the uncertainty and variability suffered by the prices

Obrador, as shown by the cooperation program with

of electricity throughout the world. “The Mexican market

Canada announced in December 2018. The agreement

has still to develop and mature to advance risk mitigation

seeks to optimize existing hydroelectric power plants to

processes for merchant projects to multiply,” he continues.

achieve a price reduction for the final consumer. “We are looking for a cooperation agreement to modernize the

But this is not the only area where Mexico must show

60 hydroelectric plants we have in the country. The plan

progress. The storage of energy, directly related to

is to empower them, use that infrastructure and generate

efficiency and energy saving, is another of the milestones

electricity with water. It is related to the environment

on which the Mexican government must set its sights

because it is clean energy and it is cheap,” López Obrador

on its path toward diversification and optimization of

said at the time.

resources, especially in times of energy transition in which natural gas seems to occupy the leading role.

Despite sustained growth, the influence of this type of

“Natural gas remains one of the most efficient and less

energy on the international stage and on foreign investment,

polluting fuels available. It cannot be so easily discarded.

Mexico must face a series of challenges that affect all

We still see a long way to go before battery-based

producers, be they clean or renewable energy. The most

solutions are proven to be environmentally friendly. The

important is the infrastructure needed to distribute the

future is headed that way for sure, unlocking energy

energy generated from the points where the wind and solar

self-sufficiency possibilities, but the country’s electricity

farms and the hydroelectric plants are located to the places

system still depends on the established spinning reserve

where this energy is consumed.

VIEW FROM THE TOP |

A STABLE BASELOAD TO FUEL MEXICO’S ENERGY TRANSITION RAMÓN MORENO CEO of Mitsui Power Americas

Q: How does cogeneration compare to battery-based energy

is at the core of our success. Carefully-designed projects are

storage in Mexico?

vital, considering the auction’s thin margins and ensuring the

A: If we look at energy storage as an energy source, it is

capacity to absorb certain levels of technical, construction

not yet competitive compared to natural gas. Natural gas

and long-term risks.

imported to Mexico from the US is the cheapest available on a global scale. There is no way today for energy storage to

Q: What needs to be done to see more bilateral PPAs and

compete in a market where natural gas is on hand at such a

full merchant projects?

cost-effective price. Prior to being neck and neck with natural

A: In any business, energy included, fewer risks translate into

gas, energy storage has yet to reach a scalability level that

lower profitability margins and higher profitability implies

places it on par with diesel. Some renewable energy power

assuming greater risks. Long-term electricity auction projects

plants in Baja California have already integrated storage

belong to the first case. Full merchant projects need the

systems precisely because the region lacks the infrastructure

long-term purchase offers to become bankable. They remain

to import natural gas. From a regulatory and electricity system

attractive in the short term but electricity price variability

design standpoint, it remains unclear whether energy storage

and unpredictability pose long-term risks. Bilateral PPAs also

will serve generation or transmission purposes.

remain limited but offer an in-between option with power purchasers, sellers and the need to assess who absorbs the

However, battery-based storage does provide a set of

larger risk share. If purchasers are able to absorb auction level

characteristics absent in natural gas-fueled combined cycle

risks, price levels can be attained. For the pool of purchasers

plants. These are mainly short response times and frequency

unwilling to assume long-term risks, prices will be closer

control for certain responses requiring an electricity grid.

to merchant levels. Mitsui Power Americas considers all

Mexico’s ancillary services structure does not provide a

possibilities and looks for a balance between long-term risks

place for battery-based storage. CENACE is still undergoing

and profitability. The difficulty lies in developing bankable

internal discussions to adapt ancillary services to storage

merchant projects. The Mexican market has still to develop

characteristics. Combined-cycle plants fit renewable power

and mature to advance risk mitigation processes for merchant

generation well as they complement renewable energy

projects to multiply.

intermittency, especially considering the capacity mechanism available that could provide sufficient to cover combined-

Q: How is Mitsui Power Americas navigating the industry’s

cycle’s fixed costs. Variable costs can be covered by energy

technological dynamic?

market prices. Mexico’s energy model structure is made to

A: As a company with a vested interest in power

inject renewable power complemented by combined cycles

generation, being at the forefront of digital innovation

rather than incentivizing energy storage per se.

unlocks an undeniable competitiveness factor. By consulting with innovative companies, we are evaluating

Q: What key factors helped Mitsui Power Americas win a third

the integral solutions available and testing concepts and

long-term electricity auction project?

alliances with these companies. Digitalization also involves

A: Mitsui Power Americas was already familiar with the auction

the possibility of branching out to industrial solutions and

process given its participation in past editions. Auctions boil

O&M services.

down to doing business. They are an attractive mechanism due to payment warranties and the long-term characteristic of coverage contracts, which explains the large number of

Mitsui Power Americas is a 100 percent Mexican subsidiary of

participants. At a global level, it was important for Mitsui to

Mitsui & Co. Its purpose is managing and developing power

participate and build an auction project to prepare for future

generation assets in the Americas. Mitsui & Co. is a global

auctions, either in Mexico or another country. Competitiveness

service and investment company with six business areas

| NEW POWER PLANTS BY JUNE 2019

992MW projected installed capacity of Ciclo Combinado Noreste, in Carmen, Nuevo Leon, the biggest power plant that will start commercial operations in 2019

Between August 2018 and June 2019, 84 projects targeted to start commercial operations

2,249

total MW installed capacity in Sonora

2,500

71.89% Combined cycle 28.01% PV 0.08% Wind

2,000 1,500 1,000 500

Zacatecas

Yucatan

Veracruz

Tlaxcala

Tamaulipas

Tabasco

State of Mexico

Sonora

Sinaloa

San Luis Potosi

Puebla

Oaxaca

Nuevo Leon

Morelos

Mexico City

Jalisco

Hidalgo

Guanajuato

Durango

Coahuila

Chihuahua

Aguascalientes

51.6 percent of total additional capacity will come from renewable energy generation

12,431MW total installed capacity by June 2019

45.9% Combined cycle 34.8% PV 16% Wind 1.8% Internal combustion 0.7% Turbogas 0.6% Hydroelectric 0.2% Biogas

*Power plants to become operational August 2018-June 2019

Source: CENACE, CRE

VIEW FROM THE TOP |

SHIFTING FROM CRITICAL TO MAINSTREAM MAINTENANCE PRACTICES OSCAR SCOLARI CEO of Rengen Energy Solutions

Q: What makes Rengen Energy Solutions different as an

Q: How is Rengen Energy Solutions tackling the financing

EPC company?

conundrum in large-scale power generation projects?

A: Rengen Energy Solutions is Mexico’s go-to one-stop energy

A: The company has developed in-house financial talent

shop. We did not begin as a construction company, a common

and sturdy business relationships with Mexico’s financial

feature of Mexico’s energy EPC companies. Rengen Energy

markets to be able to structure financial proposals based

Solutions was created as an engineering firm for the oil and

on our clients’ requirements, which are highly variable. We

gas and energy industries. As our business portfolio grew,

have explored everything from payment in kind to joint-

we developed a representation business line for international

ventures. Payments in kind have shown the greatest window

companies that manufactured products and components

of opportunity, whether for PEMEX’s liquid products or

like turbines, pumps, compressors or heat exchangers.

CFE’s power.

Further down the line, we acquired the necessary expertise to manufacture our own equipment to cater to our clients’

Q: What new technologies or products are in the process

specific needs. There was an increasing demand for integrated

of being added to Rengen Energy Solutions’ portfolio?

services, including equipment purchasing, installation, training

A: The oil and gas and energy industries are highly

and O&M. This is how we reached our full EPC status.

dynamic. To maintain their market foothold, big players in both industries have relied heavily on innovation regarding

Q: What power generation project best showcases this

their products and services.

added value? A: We are in the process of concluding a major generation

As representatives of major brands from both worlds,

project with 280MW of installed capacity in Mexico City.

we are always on the lookout for the next step, the next

It was highly challenging as the power plant was quite

product, the next option. We are engaged in constant

old, inefficient and polluting, both in terms of noise and

feedback processes with the brands we represent, based

emissions. We undertook the delivery of a plant that not only

on market needs, including less water usage, fewer

surpasses all environmental requirements, whether national

maintenance requirements and prolonged useful life.

or international, but will also operate at optimal efficiency levels. Another flagship project consists of a series of Pratt &

Q: What new alliances is Rengen Energy Solutions

Whitney’s PWPS plants, installed in CFE’s system as peaking

looking to close?

power plants to regulate loads during high-demand intervals.

A: For the downstream sector, we are looking to close

They can reach their maximum load levels in four seconds,

alliances with companies we have identified through our

once turned on, are mobile and can operate 24/7.

AMIPE membership. With 3,200 member companies, the majority of which are Mexican, AMIPE includes value

Q: How are natural gas-based power generation

adding capacity companies that focus on a wide range of

technologies combating battery-based storage solutions?

products, equipment and services for the Energy and Oil &

A: Natural gas remains one of the most efficient and less

Gas industry. For us, it all comes down to anticipating and

polluting fuels available. It cannot be so easily discarded.

catering to market needs and closing strategic alliances

We still see a long way to go before battery-based solutions

accordingly.

are proven to be environmentally friendly. The future is headed that way for sure, unlocking energy self-sufficiency possibilities, but the country’s electricity system still

Rengen

depends on the established spinning reserve that renewable

procurement and construction company specialized in building

energy intermittency fails to provide. This is not an issue

and operating gas-fueled cogeneration plants and projects for

with natural gas’ stable baseload.

the oil and gas and petrochemical industries

Energy

Solutions is

Mexican

engineering,

| VIEW FROM THE TOP

FRENCH GIANT EYES DG, QUALIFIED SUPPLY GERARDO PÉREZ Director General of EDF Renewables

Q: Considering EDF Renewables’ experience, what

signed three important contracts for maintenance and

possibilities do you see in it becoming a qualified supplier?

operation of third-party solar and wind-power projects.

A: EDF Renewables has a sister company called EDF Trading, located in Houston, which is a qualified supplier.

In December we hope to complete the Sonora solar project

Though in the past EDF Trading has not been interested in

and start operations in January 2019. The wind project in

participating in Mexico, we are in discussions to see if the

Oaxaca, which had certain social issues to be solved, is

Mexican market has become more appealing. However, we

moving forward and we believe that around February or

are also looking for new business model alternatives with

March 2019 we will be able to start construction.

other types of generation such as distributed generation, and we are in the process of designing a strategy for

Q: What is EDF Renewables’ method to approach smaller

these alternatives. Preparing for this, we acquired two

companies and supply them with electricity?

companies in the US that will strengthen our capabilities

A: For these companies, we are fortifying the sales structure

in this regard.

with special personnel that will take our clients by the hand when they do not have the relevant energy expertise.

Q: In addition to the distributed generation opportunity,

The idea is to have a team with a strong commercial and

which other niches is EDF exploring to generate presence

advisory profile that can provide the technical expertise,

and add value to the market?

which will be the key to doing business with these clients.

A: We are working on two different options. The first is transmission, where we are actively participating in one of

When we present ourselves to big companies that have an

the consortiums bidding on a direct-current transmission

energy department, we are all speaking the same language.

line in Oaxaca, through our affiliate company, RTE, the

However, with smaller clients we advise them and show

French transmission system operator. RTE has also signed

them the benefits of the new structure. These are clients

a memorandum of understanding with CENACE for

that want to see a quick return on their investment. So, we

technology and information transfer, since it is the world’s

have to be creative in the way we offer the product, where

most qualified company in the area of electricity grids.

clients see benefits as soon as possible.

The second is a French company that we are just starting

Q: What can we expect from EDF in terms of participation

to work with that provides engineering services for various

in the generation niche?

fields, including nuclear, hydraulic, thermic, transmission,

A: This will be determined by whether any future auctions

direct-current and renewables. It will also work for third

take place given that the fourth long-term electricity

parties and as advisors to the government on topics

auction was put on hold by the new administration. Our

regarding nuclear plants, an area where there is not a lot

participation in auctions depends a lot on their continuity.

of expertise in Mexico.

We also just signed an important bilateral PPA.

We are also opening a business line for operation and

We expect to continue with PPAs. We have a disadvantage

maintenance for third parties. In fact, we have already

as we are not a qualified supplier, which would allow us to sell directly to the final user. We are making associations with several qualified suppliers, so we will be able to participate

EDF Renewables is a market leading independent power

in the market with them. Our trading affiliate must first show

producer and service provider with over 30 years of expertise

interest in participating in trading in Mexico before we can

in renewable energy. It works across the value chain, in grid-

become a qualified supplier, but it is already operating on a

scale power, distributed solutions and asset optimization

global level. This is something we will discuss in 2019.

VIEW FROM THE TOP |

AUCTION WINNER STRIKES AGAIN MIGUEL ÁNGEL ALONSO Mexico Country Manager of ACCIONA Energía

Q: How did 2018 unfold for ACCIONA and how do you

Mexico could also lead any initiative to fight climate change,

evaluate the last administration’s performance?

reduce carbon emissions and promote renewable energy.

A: Last year was one of the most challenging and successful

Mexico can be self-sufficient in green energy. While I

years in the history of ACCIONA Energy as we worked

advocate for a diversification of the energy matrix and the

to complete the construction of the projects that were

inclusion of innovative technologies, I also believe in Mexico

awarded to us during the first and second long-term

as a leader in the energy sector worldwide. ACCIONA will

electricity auctions. The goal was almost 600MW in total

be there to help the country attain this leadership and the

and we accomplished it with the Puerto Libertad plant

change the energy system needs. The new administration

in Sonora and the Cortijo project in Reynosa. I believe

has announced its pursuit of this change. We have been in

these projects were a milestone not only for us but for

contact with several government officials and are confident

the Mexican energy sector as they provided certainty to

that we must keep betting on Mexico and collaborating

the auctions. It was also a successful year for us because

with the government.

we sent the message to the country and its past and present administrations that things were done properly,

Q: What are the company’s expectations for the

proving the success of the Energy Reform. We were able

near future?

to get important projects running at very favorable costs.

A: ACCIONA wants to almost double its capacity by 2020

Cheaper energy is coming into the market. We thank the

in Mexico, which means starting 2021 with 2,000MW of

past administration for implementing such a well-structured

installed capacity in renewable energy. While we used to

world-class Energy Reform in such a short time. As for the

work mainly with wind farms, the Puerto Libertad project

new administration and the future, I hope our work will give

got us to 35 percent of photovoltaic installed capacity,

it the confidence that the reform is working for the market.

so we will continue to seek a balance between wind and solar energy. We have three more plants in the pipeline for

Q: What is your assessment of the renewable energy

construction in 2019. This implies an additional investment

industry’s future and what role will ACCIONA play?

in the country of US$1-1.2 billion over the next two years.

A: The energy that we got under the first two long-term

Our partner company Nordex will open a new wind blades

electricity auctions is directly delivered to CFE as the

plant in Matamoros in March, which will create 900 new

Clearing House had not been established by then. As for the

jobs. This plant speaks to our solid bet on Mexico and our

third auction, there are no ongoing projects yet. We have

commitment to bringing development to those states that

accumulated 1,200MW of installed capacity, which is equal

need it and have the natural resources, such as Tamaulipas.

to providing energy to 1 million families of four people.

We also want to be integrated with the communities in

Mexico achieved record-breaking energy prices in 2017,

which we work and to deliver shared value to them. This

with the lowest historic price in the world of US$17.9/MW.

is our company’s mission so we will continue to pursue

Mexico is a privileged country as it has high solar irradiation

it in every project in which we work. Our investment in

across its 3,400km at the northern border. The country

social development in Mexico is significant and tangible.

has almost 12 hours of daylight, plus another four hours

For example, we have been doing social work in Reynosa,

of light between dawn and dusk. Having about 16 hours of

especially with local schools.

sunlight a day allows the country to structure a photovoltaic scheme to cover the country’s energy needs. A solar park of 145,000ha could meet Mexico’s energy demand, according

ACCIONA Energía , a subsidiary of ACCIONA, is a global

to my calculations. I am convinced that the country could

operator of renewable energies with more than 9,000MW under

rely 100 percent on green energy and further bet on electric

ownership. It has 222 wind farms, 76 hydro plants, several large

mobility for its future sustainable transportation initiatives.

PV plants, biomass installations and a CSP plant

| VIEW FROM THE TOP

MANY ‘FIRSTS’ AS ENERGY REFORM UNFOLDS ENRIQUE ALBA CEO of Iberdrola México and President of the Mexican Energy Association

Q: What is Iberdrola’s main contribution to Mexico’s energy

A: Mexico has approximately 75,000MW installed capacity,

transition and what are the main challenges ahead?

as of 2017 data. These continue to incorporate generation

A: Iberdrola has been working in Mexico for 20 years and

from diesel, coal and fuel oil. If we look 15 years ahead,

we have a long-term view of our bet in the country, which

it is clear that the energy matrix will need to include

translates to constant operational growth. We are going

other outputs to meet demand growth, which is around 3

through a key turning point in the energy and electricity

percent annually. This requires building new plants and the

sectors. We understand that our best contribution in this

rehabilitation and substitution of old ones to ensure eco-

scenario is to participate in all the initiatives promoted by

friendly and sustainable generation. The goal is to shift to

the Energy Reform. For example, before we could sell to

a more economic and environmentally-competitive energy.

industrial clients under a self-sufficiency scheme but the new

Also, I think that Mexico is the most competitive region in

market opened-up the wholesale electricity market and we

the world for natural gas, given gas availability in the south

were the first private electricity company to sell to a private

of the US and Mexico’s own production. While the latter is

customer in Baja California with Soriana supermarkets. We

not being exploited to its fullest yet, the country has great

also were the first to announce a combined cycle specially

reserves and potential. These conditions lead Iberdrola to

built to operate in a wholesale market, the first facility of

believe that natural gas prices will perform steadily for the

its kind to be built in Mexico. Also, we participated from the

next 15 to 10 years. Gas should gradually substitute other

beginning in the long-term auctions as sellers and when the

sources such as diesel, coal and fuel oil.

possibility to join as a buyer was opened in 2017, we jumped in as the first private company.

Q: What is Iberdrola’s growth strategy in Mexico? A: The previous model of selling to industrial clients under

Mexico has a significant electricity market which is growing.

a self-sufficiency scheme was oriented to big consumers

The sector will require a great investment in transmission,

with a sophisticated structure, including an electrical

generation and distribution infrastructure of approximately

department, and demanding a tailor-made solution.

US$100 billion over a 15-year period. When you combine

The implementation of the reform in 2014 liberalized

a big market with high industrial demand and increasing

procurement to clients of even 1MW of installed capacity.

industrial investment, you need to create a tool to allow

This changed the paradigm under which we operated and

the joint public-private collaboration to face market

hence we needed to adapt and change our strategy to

challenges and meet demand. We must keep working to

cater to smaller clients. For example, within our commercial

fulfill the ambitions of the Energy Reform. For example,

team, we created a special division called MeDem to

some aspects will require process re-engineering to adapt

oversee SMEs. Any energy strategy must be aligned with

to the results from the first four years. Another challenge

the country’s energy policy in the long term. Our strategy

is having more market participants, such as qualified users.

visualizes commercial activity and client portfolio growth

Transmission is another objective to overcome in obtaining

as foundations. Commercial growth must be backed up by

more even prices across the country. While the reform has

generation growth. As the Ministry of Energy’s discourse

been very successful for renewable generation, investment

is that Mexico needs more gas and renewable generation

for baseload energy must be further fostered. In short, there

over the next 15 years, Iberdrola has been focusing on these

is a clear need to cope with the sector’s future demand and

during its 20 years in the country. We have operational

meeting it will only be achieved through close collation of

wind parks and gas generation with combined cycles. This

all the actors involved.

strategy fits the country’s forecasted demand.

Q: What midterm role will natural gas have in energy

Our 2018-2022 Strategic Plan will focus on finishing the

generation in Mexico?

eight projects we currently have under construction, that

is, four combined gas cycles, two wind parks and two

Q: Iberdrola's goal is to be the energy company of the

PV facilities. We plan a US$2.8 billion investment in

future. How are you working to achieve this?

the country to conclude said projects and to develop

A: The company’s vision is that the world increasingly

other 2,000MW output. We will keep betting on gas and

requires energy to meet a higher quality of life for the

renewable energies. Our aim is to foster and transfer a

people. Energy must provide intelligent solutions. This is

competitive energy price in Mexico so the country can,

translated into our Mexican business through a cleaner

in turn, be more competitive in international markets.

generation; we will continue to build wind and solar farms,

Nowadays we have over 2,000 supply spots and our

with a customer-service approach. We design a tailor-made

guidance been to reach 8,000 by 2022. This implies a

solution to meet all our clients’ needs and aim to be close

different commercial plan, starting from our resources.

to our customer to bring the right solutions. In the end,

In 2014 our sales team numbered fewer than 10 people to

when you combine a customer approach such as ours with

manage 40 big clients. By the end of 2018 our commercial

digitalization, you get the smartness that we promise to

team had grown to 100 people and by 2022 it should

deliver. For example, we are working with BMW in San Luis

increase to 200 people.

Potosi to supply electric energy to its new plant. We will develop a Smart solar solution specifically for its needs,

Q: What is Iberdrola’s assessment of the Mexican Energy

seeking to yield a different added value for it. Our strategy

Association's performance and goals?

as a company is clear: we will keep betting on renewable

A: The Mexican Energy Association (AME) has been in place

energies but also on gas generation as long as the country

for over 20 years and convenes the main gas generation

needs it. As the world is changing, we understand the need

companies in the country, totaling an accumulated energy

for a customer approach so we offer industrial plans to fit

worth of US$25 billion. AME was not created with the goal of

each client.

representing gas generation, but as the years passed, other agencies were created for wind, hydraulic and solar energy,

The differential added value that our company has is also

among others. About three years ago, AME members saw

characterized by a long-term vision. This means that when

the need to refocus the association’s activities to represent

we carry out any business, we undertake it envisioning that

the interest of gas generators. Since AME was reoriented, it

it has to work in the long term by yielding benefits to the

has continued growing and engaging new members. In the

country. We also focus on building strong relationships to

two years that I will be acting as President, the goal is to

last. Over 95 percent of our clients renew their contracts

focus on the aspects that are particular to gas generation,

with Iberdrola as they witness the added value we can give.

such IPP contracts improvement. As Iberdrola, our role is

We also keep close and collaborative relationships with the

to keep working for the strengthening of the association,

country’s administration and with our own staff. I am proud

always aligned with its goals. The idea is not to promote

to say that we even have second generations of Mexican

any disruptive actions but to further travel the path that was

employees, which make up 99 percent of our workforce in

defined two years ago. The association will keep gaining

Mexico. We also bet on CSR and invest over US$1 billion

relevance in defending the interests of gas generation

in social projects in the country, mainly in education and

and playing a key role in the Mexican energy sector as 50

infrastructure programs in the areas in which we operate.

percent of the power demand in the country is covered by gas generation.

Q: What would be your recommendations for the new administration to enhance the energy model in Mexico?

Q: What is your assessment of the design of the

A: Any energy strategy must consider the conditions in

Clearing House?

Mexico, which has a growing energy market and I think

A: The Clearing House represents a milestone for the sector

that can continue to expand at a faster pace. There is a big

as it enables private companies to act as buyers in long-

demand and I am convinced that the aim is to meet it in a

term auctions. The success of the first auction is proof of the

more sustainable, efficient and eco-friendly way. This goal

good work that the chamber has undertaken as two private

drives the industry to develop more competitive generation,

companies, Iberdrola one of them, joined to buy significant

to build more transmission lines to avoid traffic jams and

volumes. Also, another five companies pre-qualified in the

to foster renewables. If the new administration pursues

auction, demonstrating how it has succeeded in appealing

initiatives aligned with this goal, it will be a hit.

to private companies. As for the Chamber’s efficiency, I think we have yet to wait until 2020, once the energy from 2017’s auction starts to be commercialized. While there are

Iberdrola is a Spanish public multinational electricity utility

some areas of improvement, I think that in general terms it

based in Bilbao. It has a presence in dozens of countries on four

has been a hit and opened a channel for private companies

continents serving around 100 million customers. Its subsidiaries

to participate with less risk.

include Scottish Power, Avangrid and Elektro Holding

| VIEW FROM THE TOP

ITALIAN GIANT WANTS MORE PAOLO ROMANACCI Director General of Enel Green Power Mexico

100

Q: What role does Enel Green Power Mexico play in the

that we want to focus our business. Mexico, for instance, is

regional operations of Enel Group?

among the wealthiest countries in terms of resources for

A: In Latin America, Enel Green Power (EGP) manages

producing energy from the wind and sun. According to data

renewable energy plants in Mexico, Costa Rica, Guatemala,

from the Ministry of Energy, the country will build 40 solar

Panama, Chile, Brazil, Colombia, Uruguay, Peru and Argentina.

and 25 wind power plants in the next three years and, of

In Mexico, EGP is the largest renewable energy player in the

course, we will play an important role in this.

country in terms of managed capacity with 2,014MW, of which 873MW are derived from wind, around 1,089MW from solar

Q: What role does the company play in the hydro power

and approximately 53MW from hydro. Mexico represents one

generation segment?

of the fastest growing markets in the region and the world.

A: Enel Green Power manages hydro plants in Mexico,

Our projects here include Villanueva, the largest solar park

Costa Rica, Guatemala, Panama, Chile, Brazil, Colombia and

in the Americas, and Amistad, which will be the country’s

Argentina. Thanks to its hundred years of experience in the

biggest wind farm when construction is completed.

field of geothermal energy, Enel Green Power is exploring and developing new opportunities in this sector. In Mexico,

Q: What features of the Mexican market are attractive to

however, EGP is primarily focused on solar and wind power

EGP Mexico and what is behind the company’s results?

generation. We manage 52MW of hydro power in the

A: Mexico has become one of the most attractive countries

country, through three plants located in Jalisco, Michoacán

in the world to invest in renewable energy projects. One

and Guerrero.

feature that has marked the country is the operation of the Wholesale Electricity Market, which has allowed

Q: What is EGP doing differently to achieve successful

industrial players to choose the energy supplier that suits

financing for its projects in the country?

its energy consumption needs under a legal framework that

A: Enel employs the BSO model, which allows us to

enables regulators to develop this market in an efficient

capitalize the portfolio of renewable energy projects more

and competitive way. In terms of PPAs, Mexico and the

quickly, reducing overall risk and accelerating the creation

US are the worldwide pioneers, and EGP’s results in this

of value. In September 2018, we announced the sale of an

area are remarkable. Our client contracts are uniquely

80 percent share in eight wind and solar plants in Mexico

structured, offering a commercial sophistication and a level

with a total capacity of 1.8GW. This strategy allows us to

of personalization that is a great differentiator. We offer

sell participation in our projects, while continuing their

access to the best financial conditions and we have the

operation and management to generate cash and invest in

ability to manage complex contracts that involve servicing

PPAs, as well as to continue developing new projects with

hundreds of freight centers spread across the country.

the resources obtained from this operation.

Q: What is your strategy to diversify Enel's project portfolio

Q: How do Enel Energía and EGP Mexico work together to

into technologies like geothermal energy and biomass?

achieve common goals?

A: We believe that wind and solar energy will allow us to

A: Renewable power generation and the sale of energy

move toward a sustainable world and it is in these sources

coexist and nourish each other within our two business units. With our qualified supplier, Enel Energía, we are closing different agreements with different commercial

Enel Green Power is the renewable energy division of Enel Group,

and industrial users under the regulatory framework of

present in 30 countries. Enel Group is a global leader in the

the Wholesale Electricity Market. For example, our plant

green energy sector with a managed capacity of around 40GW,

Magdalena II, which we just started constructing, is the

including wind, solar, geothermal, biomass and hydropower

result of different contracts with these types of customers.

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EXPERIENCE, BANKABILITY, SATISFACTION ALBERT GUILLÉN General Manager of Engineering and Services at ADM

Q: What are the main market segments in which ADM is

to complete a project’s total financial business model. At this

looking to develop operations in Mexico?

stage, risk perception is high so if you meet deadlines the

A: Mexico is going through an exemplary transformation

result is beneficial for the developer.

caused by the market’s opening. This represents a huge opportunity for medium-sized companies with easy access

Q: How would you rate the energy market in Mexico?

to financing, like ADM. We see ourselves participating in two

A: As one of the winners at the first long-term electricity

different value chain segments: project developing and EPC

auction, we consider ourselves pioneers of the market

construction. As an investor, we participated in the first long-

opening process. I have personally experienced these kinds of

term electricity auction with the adjudication of a 60MW wind

transformations with ADM in Spain, Poland, countries that also

farm in Yucatán. We are developing new projects in other

faced regulatory modifications. When the financing model of

regions of the country and our goal is to either place them

infrastructure projects changes, the inertia of the market and

in the market through bilateral PPAs or to propose them for

its systems force a resistance. Stakeholders and participants

upcoming long-term electricity auction bids. Even though our

must come to understand their new role, as well as investors,

core EPC business is construction services, we have finance

public administrators and social agents. From our point of

and concession divisions as well. Investing in electricity and

view, the Mexican government and CFE are doing an excellent

renewable energy generation is very attractive to us. But it

job. The Energy Reform shaped an environment of clarity

is also important to maintain our core business, as we have

applied in a record short period. The resistance caused by

contracted 1GW through construction, design and purchase

market inertia is now at normal levels due to the job achieved

of several projects. We have already concluded some projects

by all these entities.

while others are in development or getting started. As an EPC company, we are the second step in the value chain after

Q: What is ADM’s experience with renewable energy

financing is put in place.

generation? A: We have ventured into solar and wind technologies. At the

Q: What are the three main capabilities that differentiate

moment, we are developing and financing our own renewable

ADM from other companies in the sector?

projects. We have settled the requirements regarding land

A: Our three main capabilities are: experience, bankability

ownership, environmental and social permits and our plan is

and client satisfaction. ADM is a Mexican company since

to start construction at the beginning of 2019. Additionally,

2007. Before our arrival, we developed several projects of

Mexico’s solar sector is becoming attractive as a result of

considerable installed capacity in other countries. We started

the rentability and high level of competitiveness in terms of

in Spain when it liberalized its electricity market and years

technologies. ADM is seeking an opportunity to participate

after we pioneered wind installations in Poland and Norway.

as a developer in this sector. As an EPC, we already have

Regarding bankability, ADM follows a conservative financial

developed some solar parks in Mexico. By adding our installed

policy. We attained financial health by taking special care of

capacity as a constructor and developer, ADM has developed

our debt capacity and margins.

1,100MW in the solar sector. Mexico is rich in solar and wind resources throughout the country that may lead to an

Regarding bankability, banks apply due diligence to market

interesting energy mix.

participants to assure that they comply with all requirements and are bankable. We pass all these processes, which represents an important advantage for our clients. Finally, our

ADM is a Mexican company with over 11 years of experience in

client service vocation commits us to finishing construction

Mexico. It has participated in major infrastructure and green

according to the determined time frames. The construction

projects in the country. Its renewable energy branch provides

process represents a short percentage of the time that takes

EPC and O&M services

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GUINNESS-RECORD EFFICIENCY IN COMBINED CYCLE

MARCIAL FRIGOLET President and CEO of Toshiba de México

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AKIRA MATSUZAWA Vice President of Toshiba de México

Q: What is Toshiba de México’s most important contribution

phase. The window of opportunity is there, and Toshiba will

to bolstering Mexico’s energy transition?

be the first to capitalize once it opens.

MF: Continuing to place confidence in Mexico is among Toshiba’s primary strategies, as it has been since 1957.

Q: How is Toshiba positioning its O&M services for clean

We have worked with CFE for more than 60 years and

energy projects?

will continue to do so. Our core business in the country

MF: Toshiba has a service department in Mexico through

revolves around steam turbines and combined-cycle

which our turbine fleet installed for CFE is overseen, as well

plants. The country’s PRODESEN 2018-2032 estimates

as Mitsui’s Valladolid turbine. Through this department, we

that 35-38 percent of power generation by 2032 will

provide a full range of services, including after-sale, spare

correspond to combined cycle, which makes technical

parts and valve rehabilitation. In the past, long-term service

sense given the baseload properties of this technology.

agreements for natural gas turbines were the norm. Now,

PV and wind are spearheading the country’s renewable

the market requires the same type of agreement for steam

energy industry but they remain intermittent. Wind

turbines. We are working together with natural gas turbine

power’s average load factor is 40 percent of yearly plant

manufacturers to achieve joint ventures to provide the

capacity and storage options remain costly. Geothermal is

client a single point of contract.

another technology we are seeking to promote. Toshiba is a world leader in the supply of geothermal steam turbines.

Q: What new technological developments are you

In Mexico, our Cerro Prieto installed capacity surpasses

working on?

400MW. The country has a sizable geothermal resource

MF: Toshiba’s DNA is composed of innovation and

potential but financing issues dampen its progress.

development. Our flagship project is a 20MW hydrogen

We are looking into other clean electricity generation

power generation plant pilot development. We are also

alternatives, such as PV technology via a joint venture

focusing our research efforts toward battery-powered

with Mitsubishi.

energy storage solutions. On March 27, 2018, Toshiba was awarded the Guinness World Record in efficiency for its

Q: What hurdles is geothermal energy facing in Mexico?

combined-cycle power plant, with a thermal efficiency of

MF: Mexico’s available nodes, close enough to geothermal

63.08 percent. Toshiba did the EPC works for this plant

fields, are too costly to install power generation plants and

for Chubu Electric Power, a Japanese utility, including two

generate profitable rates of return. The country’s long-term

phases of 1,200MW each with two GE gas turbines and

electricity auctions are largely inclined toward PV and wind

Toshiba steam turbines.

technologies, to the detriment of geothermal energy. As it stands, CFE is the only player able to provide competitive

Q: What is Toshiba’s growth vision in Mexico for 2019-20?

geothermal projects with its geothermal portfolio. Added

AM: A country’s energy demand is directly linked to the

to that, the select few private companies that could afford

performance of its economy. While Mexico’s economy can

geothermal concessions are undertaking resource studies

either shrink or grow on a yearly basis, investment flows

and drilling activities, but given the nature of the projects

for projects working under a long-term scope should

it will take four to five years for them to reach production

be maintained. Combined cycle’s baseload capacity should be fully taken advantage of. But a combined cycle pipeline cannot be set up in a day. It needs to be provided

Toshiba is a Japanese provider of energy infrastructure

the favorable conditions it requires to grow to its full

equipment and services. Its energy solutions division includes

potential. To achieve this, it is vital to create a long-term

steam and hydro turbines, as well as electricity transmission,

vision, with clear objectives toward the future and a solid

distribution and management equipment

action plan.

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HYBRID SOLUTIONS PROVIDE DIFFERENT TECHNOLOGY GENERATION PROFILES JOSÉ AROSA President and CEO of AES Mexico

Q: What is AES’ primary contribution to Mexico’s energy

under a long-term PPA signed with a mining company.

transition?

It is the first project in Mexico to be financed by private

A: AES has a long-standing relationship with Mexico. In 1997,

US-based institutional investors with a green bond facility

AES participated in the recently created CFE IPP program

that closed on May 21, 2018. It is under construction and

and was awarded the 505MW Merida III combined cycle

we expect it to be operational in October 2019. AES is

plant. The energy generated by Merida III is sold exclusively

consistent in its expansion strategy, rooted in a clear focus

to CFE through a 25-year PPA. The plant became operational

on long-term bilateral PPAs. It has become an increasingly

in 2000. In 2007, AES acquired Termoeléctrica del Golfo

complex task given the increased competition and interest

and Termoeléctrica Peñoles. It launched a restructuring

in bilateral PPAs from private off-takers, which request

process as both assets had technical issues. In 2015, AES

greater sophistication levels in contract design.

closed a JV agreement with Grupo BAL called EnerAB. EnerAB will drive AES’ growth and we have recently closed

Q: What are the comparative advantages of AES’

our 306MW Mesa La Paz wind project in Tamaulipas. As

PPA approach?

AES has pledged not to develop coal-based plants, EnerAB

A: AES’ goal is to invest a total of $2.5 billion in clean energy

will exclusively focus on clean energy projects.

projects by 2023. Renewable energy’s cost structure makes it extremely attractive for meeting energy consumption

Q: What other initiatives comparable to EnerAB and

needs. The primary advantage lies in renewable energy’s

Fluence do you have in the pipeline?

total autonomy from commodity price variations. Variation

A: As an early bet, AES created an energy storage division

in renewable energy generation can be minimize by mixing

in 2007, which turned into Fluence in 2018, a JV between

with other technologies, even though resource studies

AES and Siemens to provide energy storage solutions.

is one of the most critical parts of renewable energy

Fluence had already developed energy storage projects

development. To cater directly to private off-takers, EnerAB

in Chile, the Dominican Republic, Philippines, the US and

is registered with CENACE as a qualified supplier. We are

the UK. Energy storage has vast potential in Mexico but

able to provide different technology generation profiles to

the regulatory framework to include it in power generation

our clients using hybrid solutions.

projects has to be more defined. Q: How are you cementing the foothold of your energy AES also created a technological incubator called AES Next.

storage venture?

We are an IPP at our core but we are also interested in other

A: Mexico still has to provide the regulatory framework for

sectors. For instance, we closed a deal with a Washington

energy storage assets to become part of the country’s power

DC-based drone company called Measure, which generates

generation landscape. We are working closely with CRE and

value for AES in terms of O&M services. It was able to

the Secretary of Energy to explore the possibilities for creating

substantially reduce AES’ maintenance times at our power

this solution and capitalizing on the vast potential of energy

generation assets by using drones for inspection work. We

storage in Mexico. Baja California has taken significant steps

also have acquired a Denver-based company called Simple

forward and energy storage could provide viable solutions to

Energy, which is specialized in data analytics, and we are

the Yucatan peninsula’s regular power struggles.

also active in desalinization projects. Q: What recent project best showcases AES’ added value

AES is a Fortune 500 global power company. It provides

in Mexico?

affordable and sustainable energy to 15 countries through a

A: The Mesa La Paz 306MW wind farm located in

diverse portfolio of distribution businesses as well as thermal

Tamaulipas demonstrates our abilities well. It operates

and renewable generation facilities

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Zuma Energía's Santa María solar park, Galeana, Chihuahua

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RENEWABLE SOURCES TAKING CENTER STAGE IN ENERGY MIX ADRIÁN KATZEW CEO of Zuma Energía

Q: In your view, what will be Zuma Energía’s most important

A: With the growth of the renewables sector in Mexico, local

contribution to Mexico’s energy transition?

value chains have started to develop naturally. We will receive

A: In 2018, Zuma was dedicated to building the largest

blades manufactured in Mexico for our projects. Although

wind project in Mexico and two large-scale solar projects

renewable energy ventures have positive economic effects

simultaneously. These projects were winners of the 2016

in several localities, the social and economic impact has been

auction and achieved financial close in 2017. The Reynosa

enhanced by the implementation of a long-term strategy

wind farm is the largest in Mexico with a total capacity

to maximize the potential of local participation, to adapt

of 424MW and will mitigate 739,000t/y of CO2. The solar

local supply chains of products and services needed by the

projects, Orejana and Santa María, built in Sonora and

industry. The first pillar is the visibility of long-term demand

Chihuahua, have over 1 million solar panels and will supply

for such products, by providing stability to the regulatory

over 500,000 homes with clean energy, mitigating over

environment. In order to contribute to the implementation,

280,000t/y of CO2 emissions. Zuma is making a significant

we should identify and analyze the current gaps between

contribution to a sustainable and competitive energy

the demand and supply of products and services, and then

system and, as a result, contributing to the mitigation

collaborate in a public-private strategy to develop the local

of energy poverty. In 2019, Zuma Energía will operate a

capabilities to meet the needs of the clean energy sector.

portfolio of 818MW of renewable energy assets that will

The talent and work are already available in many of the

contribute to Mexico’s energy transition.

states across the country and those can be bolstered by training and capacity building. Zuma Energía has worked

Q: What is wind power’s role in Mexico’s energy mix?

with local companies in the three sites (Tamaulipas, Sonora

A: According to the Ministry of Energy, 59 percent of

and Chihuahua) where our recent projects were built. Zuma

the increase in installed capacity of clean technologies

contracted local consultants, technicians and engineers,

between 2016 and 2017 was due to the installation of

legal, environmental and administrative advisers and had

new wind power plants, equating to 464MW. In 2017, 15.3

an impact on local economies through the consumption of

percent of clean power was generated by 45 wind farms in

products and services.

Mexico, which contributed to 3 percent of the total national electricity generation. As results from the three long-term

Q: What should the new administration prioritize to

electricity auctions continue to materialize, the role of wind

develop and secure the future of Mexico’s renewable

power generation will increase significantly. The installed

energy projects?

capacity of renewable energy is estimated to grow 235

A: We hope the administration fully embraces the benefits

percent compared with the existing capacity before the

that renewable energy represents for the country and

auctions, incorporating 7,000MW of clean energy to the

implements public policies that maximize the adoption of

system. Wind technology has had a significant deployment

renewables. Renewable energy has proven to be the most

because of technological advancements and important

affordable source of energy to meet increasing demand.

cost reductions, which makes it attractive for investment.

It can also strengthen Mexico’s energy sovereignty by

Also, Mexico has an estimated untapped wind potential

boosting national electricity production and reducing

of 15,000MW, particularly in the states of Oaxaca and

gas imports.

Tamaulipas. If public policies and regulation continue to be strengthened in Mexico, there is no question that renewable generation, mainly solar and wind, will continue to thrive.

Zuma Energía is a Mexican company born from the possibilities triggered by the Energy Reform. It develops, acquires, finances,

Q: What is needed to create a local value chain that supports

builds and operates renewable energy generation projects

the development of the awarded auction projects?

across the country

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SETTING THE STAGE FOR ENERGY STORAGE LIONEL BONY Regional Director Mexico, Central America and the Caribbean of Neoen

106

Q: What is Neoen’s primary contribution to Mexico’s

execution, design and results. Despite the aggressive levels

energy transition?

of package prices offered, most of the first and second

A: Neoen is an IPP exclusively focused on renewable energy

long-term electricity auction projects are close to reaching

generation, including solar, wind and energy storage. With

operational phase. Neoen is working towards financial

a track record spanning over 10 years, it was able to join

closing for the 380MW Aguascalientes PV park it won in

the leagues of French IPP heavyweights ENGIE and EDF

the third long-term electricity auction. We will continue

Énergies Nouvelles, with the difference that Neoen is a

participating, with bankable and serious offers rooted

private venture. Neoen decided to expand to Latin America

in mature projects. Neoen carries out thorough analysis

in 2013, with Mexico at the helm of our expansion plans.

prior to every auction in order to mitigate project risks as

The decision was well-timed considering the opportunities

much as possible. We are not closed to other possibilities

the Energy Reform unlocked. Prior to that, renewable

to expand our footprint. Neoen is in talks with qualified

energy projects could be developed under self-supply

suppliers to sign bilateral PPAs and we are analyzing the

or small producer schemes but did not represent the

attractiveness of fully merchant projects.

range of opportunities and scale available now. Mexico’s macroeconomic solidity and seriousness was also a big

Q: How do bilateral PPAs stand out from long-term

part of our decision. Our confidence in Mexico’s potential

electricity auction coverage contracts?

was cemented when we found the tremendous level of

A: Bilateral PPAs can be challenging niche for now in Mexico.

competition in the country.

Competition include heavyweights such as ACCIONA Enel, ENGIE, Iberdrola, or Sempra. The structure of bilateral

Neoen’s goal is to deliver high-quality, bankable projects.

PPAs is also more complex for off-takers compared to the

The company develops greenfield projects that it retains as

previous self-supply scheme but we are confident that as

operational assets, contrasting with some developers and

the market matures, off-takers will grow accustomed to

funds that develop projects only to sell them once they reach

PPAs. However, in the midterm, private PPAs will become

financial close or operational phase. We also established our

standard practice in Mexico as in other countries. Neoen

Mexico office for it to become Neoen’s regional hub. Our

has a great track record in that field, having for example

strategy enabled us to develop an operational 100MW PV

just signed a PPA with Google in Finland.

park and a 140 MW PV in construction in El Salvador, a 50MW PV park in construction in Jamaica, 200MW of PV

Q: How does Neoen design project finance structured to

capacity in financing in Argentina and a 380 MW PV plant in

ease financial closing?

Mexico in financing. We also have projects in development

A: We always contract long-term debt and stay

in Guatemala and Colombia.

away from short-term financing, such as mini-perms. Our shareholders are adamant that we must not

Q: How is Neoen preparing for future long-term

take refinancing risks. While we can place a certain

electricity auctions?

amount of equity in a project’s early work, we do not

A: We consider the long-term electricity auctions as a

launch the construction phase until we reach financial

resounding success for Mexico, particularly in terms of their

closing. Bankability is deeply ingrained in Neoen’s DNA. Development banking’s due diligence processes, whether national or international, have raised the bar for

Neoen is a Paris-based independent power producer specialized

renewable energy projects. These include anti-corruption

in renewable energy. Present in 12 countries, it has consolidated

practices, social and environmental impact and project

2GW of capacity in operation or under construction and a further

design using Tier 1 components. We strive to comply with

3GW of projects to be developed by 2021

all these different aspects to obtain financing.

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OPTIMIZED LOGISTICS FOR UTILITY-SCALE PROJECTS SAÚL MUÑOZ Project Cargo and Energy Manager of TIBA Mexico

LUIS AGUILAR Renewable Energy Product Manager of TIBA Mexico

Q: What is TIBA’s main contribution to the development of

SM: Before tendering for a project we must know where it will

Mexico’s renewable energy projects?

be located. Regarding solar farms, the challenge is minimal

SM: I think that our added value lies in the competitive

as the panels are small and the only requirement for the area

advantage that our engineering and risk management

of installation is that it must be flat. With wind power the key

services give to our clients. Our coverages provide the

factor is to have strong wind. We have an engineering division

reliability that our clients need. We have a deep understanding

dedicated to designing the route logistics for components,

of the renewable energy market and its operations, so our

from the port arrival all the way to the project’s location. I think

clients know they can trust us. For example, we carried out

that Mexico has a solid road infrastructure, which facilitates

door-to-port delivery for a wind farm in Guatemala and we

transport. But transport logistics require planning to prevent

are currently working on similar projects in Tamaulipas and

unforeseen circumstances occurring that could compromise

Reynosa. TIBA Mexico also completed door-to-door delivery

our ability to deliver the component to the project site. We

services for wind farm components from Spain to Costa Rica.

have alliances with multiple transport providers so we can prevent this from happening.

Q: How did TIBA provide door-to-door service from Spain to Mexico for the 580MW solar farm in Coahuila?

Q: How does TIBA tackle moving oversized cargo from one

LA: We often cater to partial sections of the PV parks as

point to another in an efficient way?

it is very hard for one single logistics operator to carry

LA: Regarding the challenge to adapt to new freight volumes,

out a whole project given their size. We also contribute

we usually work on a strategic forecast to map out projects

with several inputs through Spanish providers. Regarding

at a regional scope. Once the forecast is done, we identify

the solar farm in Coahuila, the biggest challenge was

the nearest port infrastructure and approach APIs and port

to coordinate consumables logistics with inventories,

terminals to come to an agreement that maintains profitability

as our components were only a percentage of a large-

for our clients, through the negotiation of terminal spaces and

scale development. Each park has its own demands and

transport options at competitive costs. The Mexican market

methodologies, so we want to be as close as possible to

is growing and leading as one of the most important in Latin

our clients to speak their language.

America, with a significant inflow of new players coming in to increase competitivity and project profitability. We have a

Q: How do you mitigate customs risks so you can continue

close relationship with logistic-related authorities to ensure

to meet client needs quickly and efficiently?

cargo delivery in a cost-efficient way.

LA: There is a contention at a customs level that solar panels do not generate energy but works through a diode that turns it

Q: How has the routing study of the Isthmus of Tehuantepec

into a generator. We are reviewing this issue with our customs

helped you strengthen your presence in this region?

brokers and awaiting the resolution. Not only can this affect

SM: When developing a route plan for projects in Yucatan, we

long-term electricity auctions, but also PPAs, as distributed

found a lot of protected areas that prevented roads or access

generation is expected to grow around 900 percent over the

points from being modified. So, projects were developed with

next five years. So, TIBA must be ready to validate customs

longer routes. It is very rewarding to see the faith that clients

guidelines and understand the market targets of all the actors.

put in TIBA, trusting us with their wind farm components.

Our strategy in preparing for this future is to know the plans of all producers and distributors and also to identify who is financing these new markets.

TIBA is a global logistics company specialized in freight forwarding, custom brokerage and logistic operations, with 47

Q: What is your assessment of Mexico’s logistics infrastructure

offices worldwide and more than 850 professionals working

for renewable energy projects?

over four continents

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ONE-STOP SHOP FOR CABLE MANAGEMENT FEDERICO GUERRERO Marketing Director of HellermannTyton

108

Q: How does HellermannTyton provide value to the

Q: Why should renewable energy developers choose

energy business in Mexico?

HellermannTyton when seeking electric solutions?

A: HellermannTyton is a global cable management

A: HellermannTyton guarantees the dependability of its

company operating in 38 countries and we have been

products, which is the essence of our portfolio. When any of

working in the Mexican market for over 20 years. The

our products are installed, the client can be confident about

flourishing of renewable energies is among the niche areas

its reliability. Our products also include UV protection,

in which the company adds value through our restraint,

which means we guarantee long-term durability and

routing and identification systems for cables. But we work

hence contribute to the profitability of the whole project.

across many industries besides energy; we are leaders

To make sure our clients have all the options they need,

in the automotive sector and collaborate closely with

HellermannTyton’s product portfolio offers versatility,

OEMs. Our value proposition includes a broad portfolio of

from simple UV-protected plastics to metallic clips and

products and services tailored to each sector’s particular

many other parallel lines that allow our clients to better

needs. To that end, HellermannTyton continuously invests

manage an operation’s wiring. Our identification systems

in R&D to bring new products and technologies to the

comply with the highest international standards. Finally,

market. Our experience in the automotive and aerospace

our products are easy to install and do not require the use

industries enriches our innovation processes and allows

of any complicated tools.

us to deliver more resistant and durable materials used in a variety of sectors. We are also part of the electricity

When developing projects, we help our clients by

manufacturing supply chain so an OEM can use our pieces

developing materials that can endure high and low

to build its own equipment. We have a holistic package of

temperatures. All our solutions are designed to adapt

solutions that can easily click with other brands.

to non-perforated products, which is one of our global differentiators. For example, the aluminum structure of

In terms of development, we want to become even more

a photovoltaic panel has no perforations. Our products

proactive in the drafting of national regulations and to be

can be attached through edge clips, avoiding the need to

closer to manufacturers and installers. Our strategy is to

perforate the structure.

be more present with the people managing the day-today elements of projects. This includes offering webinars

We have worked at solar parks in Villa Ahumada, Coahuila

through the HellermannTyton Academy, participating in

and Puerto Libertad, Sonora, just to name a few, where we

industry events, such as Solar Home, the Green Expo and

displayed another key differentiator: our labeling systems.

the Wind Expo. The goal is to deliver a more personalized

We offer labels in Spanish while most systems are limited to

service that helps solidify relationship with installers.

English. Labels can be printed at our clients’ offices.

We want to become a one-stop shop for our customers, a

Q: What is your assessment of the Mexican electricity

partner in which they can find the technical and practical

system’s performance and how could it be enhanced?

knowledge they require to be fully specialized in the

A: I think the electricity system in Mexico has significantly

adequate installation and functioning of their projects.

improved. But I do perceive a gap with international standards related to materials’ resistance. This is a good area of opportunity for the sector, especially for photovoltaic

HellermannTyton is a UK-based global leader in cable

and wind projects that demand high-quality products with

management and protection products, identification systems

decades-long life spans. We strive to be more present in

and network connectivity solutions across industries, including

the process of drafting Mexican regulations in order to

renewable energy and related sectors

homologate them to international standards.

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A TRANSMISSION LINE IN EVERY CORNER OF THE COUNTRY PABLO FERNÁNDEZ Country Manager of ISOTRON Energías México

Q: What spurred ISOTRON to enter Mexico’s energy market

A: Besides working with Enel Green Power Mexico, ISOTRON

while developing different projects in Latin America?

is collaborating with Iberdrola. We did the electrical and

A: ISOTRON, which is the electricity unit of Spain’s Grupo

mechanical assembly of its project in San Luis Potosi. We are

Isastur, started its Latin American operations in Argentina,

also working with Engie Solar to install all the components

Venezuela and Chile in the early 2000s and expanded to

of its electrical Balance of Solar (BOS). Some of our key

other countries to serve the Latin American market. The

partners have been our collaborators in other countries like

expansion of the renewables market in Chile between

Chile, Spain and Brazil. ISOTRON is a medium-sized company

2013 and 2016 encouraged the rest of the region to make

and we focus on projects that can benefit from our range of

the same transition. Today, we are developing projects

solutions. The company participates in large developments

in different countries and our track record helped us to

as a subcontractor and for medium-sized projects as a key

expand our services in renewable energy and transmission

player. In 2018, there have been very few tenders related to

to Mexico in 2015.

renewable energy within the range of our solutions. However, in the medium term, we expect ISOTRON to enter large-scale

Q: What main added value does ISOTRON provide its client

tenders and become a strong competitor, as we already are

companies?

in countries such as Chile and Peru.

A: ISOTRON’s added values are technology, expertise and its ability to meet the needs of its clients under demanding deadlines and with a cost-efficient performance. We make sure our personnel have the requisite knowledge and experience to operate our technology portfolio, which means ISOTRON not only has the material resources but also the intangible resources to achieve its goals. Q: What project illustrates ISOTRON’s contribution to the

ISOTRON is in the process of completing a project for Enel Green Power Mexico in Tamaulipas, which is expected to be operational in 1Q19

electricity market in Mexico? A: Compared to other countries, Mexico has a more

Q: How does ISOTRON foresee the company’s growth in the

complicated structure for laying transmission lines and

coming years?

building electrical substations, which is why the country has

A: We are rethinking our strategic approach, given the

a strong demand for the complementary services we offer. In

changes in the Mexican market. However, ISOTRON believes

terms of specifics, ISOTRON is in the process of completing a

renewable energy will remain a hot topic for the energy sector

project for Enel Green Power Mexico in Tamaulipas, which is

in Mexico in the coming years. The company’s efforts will be

expected to be operational in 1Q19. For this project, ISOTRON

directed to developing transmission and energy distribution

is responsible for everything related to the interconnection,

solutions. The coming year will be a time for developing and

while also overseeing 50 percent of the assembly of the

building all the large-scale projects that were awarded on

turbines. This project was complex because we had never

2018, so we expect 2019 will be a good year to showcase our

experienced the security complications and the union issues

strengths and commitment.

that exist in Mexico. However, the conditions of the area and the market indicate that the project will be successfully completed.

ISOTRON, a division of Grupo Isastur, was founded with a view to preparing engineering projects and undertaking the

Q: Which companies is ISOTRON partnering with to develop

manufacture, assembly, commissioning and maintenance of

business opportunities?

electrical, instrumentation, regulation and control installations

109

| INSIGHT

FUNDAMENTAL ROLE FOR HYDROELECTRICITY IN THE ENERGY MIX JACOBO MEKLER New Business and Commercial Director of COMEXHIDRO

110

Wind and PV have been the stars of the long-term

uniquely-long life cycle. “Hydroelectric plants can last 40

electricity auctions. The main drawback of these

years on average. The Necaxa hydroelectric dam was

technologies is intermittency. Hydroelectric energy is

inaugurated in 1905 and is still operational,” he says.

a clean alternative that can fill the gap while offering a host of other benefits, according to Jacobo Mekler, New

Looking beyond the US$/MW benchmark is critical

Business and Commercial Director of COMEXHIDRO.

when gauging renewable energy projects, Mekler

“Hydroelectric is the only renewable energy technology

continues. “Considering utility-scale projects according

that provides a firm baseload,” he says. “Mexico has more

to development costs is insufficient. Factors such as

than 12,000MW of hydroelectric installed capacity, the

Mexico’s international standing and energy security

majority of which is installed at large-scale dams that

should also be considered,” he says. Mekler believes

double as water storage.”

hydroelectric projects are not playing on a level field with the other technologies under the long-term electricity

Mekler says that although it is often overlooked,

auction scheme. “For instance, a hydroelectric project

hydroelectric infrastructure is underpinning today’s

takes between three to four years to be built. Long-term

energy transition. “Without today’s hydroelectric plants,

electricity auctions call for two to two-and-a-half years

it would be impossible to imagine how the country could

of construction,” he says.

expect to install close to 9GW of renewable energy capacity.”

Failing to differentiate hydroelectric’s virtues in a longterm electricity auction environment makes competition

COMEXHIDRO is a Mexican company founded in 1997 and

virtually impossible against cheaper technologies watt

specialized in the development of small-scale hydropower

per watt, says Mekler. “The design of the long-term

plants. Its portfolio includes seven operational projects,

electricity auction lacks the possibility of additional

250MW in PPA contracts and more than 1GW of project

income from ancillary services to inject competitiveness

pipeline. Between 2018 and 2032, Mexico’s PRODESEN

into hydroelectric power,” he says. As per the auction

expects the installed capacity growth rate of PV, wind

bases, when projecting nodal marginal prices, no

and hydroelectric to be 489 percent, 290 percent and 17.5

differentiation is made between base, peak and average

percent, respectively.

rates. Peak rates in the market are 250 percent higher than base rates. In the long-term electricity auctions

Despite this outlook, Mekler believes that as long as

this difference falls to 18 percent. “These auctions do

dam-based hydroelectric projects continue operating,

not value controllable energy provided by hydroelectric

intermittent energies’ installed capacity can increase,

power as the development price of this technology is no

reducing the country’s dependency on fossil fuels. “While

longer justified,” Mekler adds.

Mexico’s energy mix can also depend on combined cycle to inject baseload to the grid, hydroelectric power negates

To a d a p t to t h e s e c h a l l e n g i n g c i rc u m st a n ce s ,

the need to import natural gas,” he says. “Reducing imports

COMEXHIDRO wants to diversify and conquer. “We

of this critical fuel improves the country’s geopolitical

diversified from hydroelectric projects to develop utility-

standpoint in the context of NAFTA renegotiations, natural

scale combined cycle, wind power and PV projects,” says

gas imports and US-imposed tariffs.”

Mekler. Through a consortium scheme with Invenergy, the company won a combined-cycle plant project with

Mekler says companies are often discouraged by the

an installed capacity of 500MW in the third long-term

expensive price tag associated with hydroelectric plants

electricity auction. He expects construction to start

but he says they fail to take into account the technology’s

before the end of 2018.

VIEW FROM THE TOP |

HOW TO BECOME A PPA EXPERT SERGIO GONZÁLEZ Director General of Renovalia Mexico

Q: What is Renovalia’s greatest contribution to its regional

to common opinion, the low energy prices resulting from the

clients in Mexico?

auctions have not made the sale of energy more affordable.

A: Renovalia’s contribution is the generation and

There is almost no difference between the sale prices of

commercialization of energy in the country. Our two

energy in 2014 compared to today. Therefore, Renovalia’s

operational wind farms, Piedra Larga I and Piedra Larga

strategy will focus on signing PPAs and other more flexible

II, provide energy to companies like Bimbo and Walmart

financial products, rather than on participating in the auctions.

that, thanks to Renovalia, have considerably reduced their energy consumption. Renovalia’s greatest contribution to

Q: What are the main projects that Renovalia wants to

its customers is the offer of energy at competitive prices

develop in Mexico?

compared to other suppliers. The company’s success in

A: Prior to 2014, Renovalia researched the Mexican market

Mexico is because we are a small business and we develop

to analyze the possibility of developing mini-hydro projects

our PPA transactions very quickly compared to other

below 20MW and found that their implied performance

companies that tend to be bureaucratic. Another added

made them impractical. Renovalia has been operating

value is that the company’s team in Mexico, from technicians

these types of projects in Spain for several years. However,

to constructors, is comprised of people with a great deal of

while it is well-known that certain factors in Mexico, such

experience in their fields. Finally, Renovalia’s social approach

as social sentiment, hinder the development of wind and

allows us to recognize the needs of the communities where

solar projects, in the case of hydroelectric power the

our wind farms operate and to support them. This was the

complications are even greater. Renovalia understands that

case with the Piedra Larga II project in Hidalgo. Renovalia

building mini-hydroelectric plants could affect indigenous

is the first and only company to build a wind farm in the

communities because it involves moving or stopping the

Isthmus of Tehuantepec without having to face a single

flow of rivers in certain areas. Therefore, we only want to get

blockade during a year and a half of construction.

involved in projects that are both beneficial for the company and for the communities where they are developed.

Q: What was Renovalia’s motivation to start business in Mexico after the Energy Reform?

Q: What message would Renovalia give to developers that

A: In 2008, Spain changed the guidelines for renewable

are seeking to sign successful PPAs?

energy’s production and sale. This increased the complexity

A: Every PPA from 2008 to 2014 has had a positive

of building wind farms and pushed associated tax rates

performance. In the case of the new PPAs, our

higher, while reducing revenues for developers. As a

recommendation would be that companies understand

result, it no longer made sense to continue growing there.

the current conditions and the clients with whom they

We looked at the possibility of operating in countries like

plan to work. It is vital to adjust the economic model for

Italy, Hungary and Mexico. We chose Mexico when the

each client. In general, developers should be surrounded

Piedra Larga opportunity arose due to the amount of wind

by people with a great deal of expertise when it comes to

resources in the region and because Renovalia knew that

signing PPAs. Our message to the new government is to

it could offer a cost-efficient solution to the private sector.

have greater involvement in states like Oaxaca to generate

Mexico represents an attractive business opportunity for

successful projects.

the renewable energy sector. Renovalia’s different financing schemes has allowed us to adapt to the lower price packages derived from Mexico’s long-term electricity auctions.

Renovalia specializes

the

promotion,

engineering,

construction, production and sale of electricity generated

PPAs or financial transmission rights are other products of the

through

Energy Reform that have performed well. However, contrary

photovoltaic, CSP, thermal solar and mini-hydro

renewable

energy

sources,

including

wind,

111

Also Energy operation center

WHOLESALE ELECTRICITY MARKET & TRADING

As of December 2018, there were 72 active participants operating in the WEM and 68 in the process of being registered. This represents a significant increase from 2017, when only 22 were present, and shows the attractiveness of the Mexican

wholesale electricity market to companies from all over the world. The design of the new market includes qualified service suppliers, basic service suppliers, nonsupplier traders and generators interacting in one place, bridging supply and demand. Coming from a monopolized environment where only long-term and short-term generation and demand were present, the task is challenging.

The ability of the Mexican market to meet international standards, the necessary relationship between price and demand, the influence of institutions like CENACE on the day-to-day operations of the industry, the evolution of a regulatory framework that meets international standards, the search for solutions to legal obstacles arising after the liberalization of the market and the development of an infrastructure that allows sustained growth are some of the topics that will be addressed in the following pages.

113

CHAPTER 5: WHOLESALE ELECTRICITY MARKET & TRADING 116

ANALYSIS: Harvesting the Fruits of the Energy Reform

117

VIEW FROM THE TOP: Luis Pineda, CRE

118

INFOGRAPHIC: CFE Electricity Sales Countrywide

120

VIEW FROM THE TOP: Francisco Salazar, Enix

122

VIEW FROM THE TOP: Ramón Basanta, ATCO Energía

123

INSIGHT: Rubén López, Orca Energy

124

VIEW FROM THE TOP: Hans Kohlsdorf, E2M

125

INSIGHT: Alejandro Blanco-Moreno, Tradeon Energy

126

VIEW FROM THE TOP: Juan Guichard, Ammper Energía

127

VIEW FROM THE TOP: Alberto Pani, E3

128

VIEW FROM THE TOP: Alden Kitson, Cuestamoras Energía

129

INSIGHT: Víctor Sotomayor, 32Energía

130

VIEW FROM THE TOP: Andrés Lankenau, Enicon Energy & Infrastructure

131

INSIGHT: Paolo Salerno, S&J Law Firm

132

VIEW FROM THE TOP: Alfonso Gutiérrez, Antuko Mexico

133

INSIGHT: Myriam Delgado, Celergy

134

INSIGHT: Andrea Lozano, BID Energy

135

ROUNDTABLE: How Can Qualified Suppliers Help to Consolidate the WEM?

115

| ANALYSIS

HARVESTING THE FRUITS OF THE ENERGY REFORM Two years after its establishment, the Wholesale Electricity Market (WEM) continues to mature as stakeholders learn its ways. The long-term electricity auction prices have motivated an environment of competition and all players will have to cope with the market’s emerging needs As of December 2018, there were 72 active participants in

distortion in the market will remain because private players

the WEM and an additional 68 with an active registration,

do not have the same absorption capacity using CFE’s

according to the CENACE. Of the operational participants,

tariff levels.”

46 are generators, 17 are qualified suppliers, seven are non116

supplier commercializers, one is an intermediary generator

According to Fernando Zendejas, former Deputy Minister

and one as a basic service supplier. The infant energy market

of Electricity at the Ministry of Energy, one of the major

is gradually evolving but as its consolidation takes place

contributions to the energy industry during the former

several challenges are present.

administration was the creation of the qualified supplier figure. “It is considered a milestone because now consumers

“At this early stage, Mexico’s WEM requires a constant

can decide if they buy their electricity from CFE Suministro

investment flow and legal certainty for investors. It is a natural

Calificado, sign a long-term contract with another qualified

stage that other mature markets have also experienced.

supplier or purchase energy directly in the market. This

A positive step forward would be resolving the pending

option provides certainty for long-term investments and a

implementation of financial transmission rights to cover

more dynamic and competitive market.”

congestion risks,” says Andrés Lankenau, Chairman and CEO of Enicon Energy and Infrastructure. Financial rights

Trading energy between generators and qualified users is

of transmission act as price coverage in several nodes of

a complicated task, as off-takers need to have a specific

the system and offer the right to holders to pay or charge

team monitoring the company’s energy supply and demand

price differentials that arise between the origin node and

and few companies are able to do that. The importance of

the destination node. Given the state of the transmission

introducing a qualified supplier figure is that it bridges this

and distribution infrastructure, these are called to play an

gap. Qualified users constantly search for the best price levels

important role in shielding qualified suppliers from long-term

as their price tags do not reach long-term electricity auction

electricity price variations.

levels. “Power producers need to sign 15-year contracts for their renewable energy generation projects to be bankable,

The early stage of the WEM poses a supply and demand

while qualified users are looking for shorter terms to guard

imbalance risk reflected in qualified supply prices in energy

themselves against unpredictable price variability,” says Juan

trading operations as power producers want to sell their

Guichard, CEO of Ammper Energía. To date, there are 36

generation referencing nodal price levels, whereas qualified

registered qualified suppliers in the country. The Mexican

users on the other end want to purchase energy at long-term

Association of Qualified Suppliers was created to ensure the

electricity auction prices, which are much lower given the

correct participation of this new figure.

aggressive offers registered throughout each auction. On the basic supply side, CRE undertook a series of revisions in

Taking advantage of another opportunity untapped by

the calculation methodology throughout 2018 to determine

the WEM, power producers are starting to diversify their

a market-based, cost-reflective Basic Supply Tariff.

operations. To be strategically positioned across the industry’s value chain, power producers are choosing to

The process has been long and arduous but as the regulator

add the qualified supply link to their operations to make

gathers an increasing amount of critical data pertaining to

the most of what the market has to offer and to secure

generation, transmission and distribution costs, CRE’s Basic

the commercialization of their energy produced. “No plant

Supply Tariff methodology is rather a continuous revision

has a perfect match of generation and demand, leading to

process than a concluded task. As Rubén López, CEO of Orca

energy deficits and surpluses, which is why the need for

Energy, states: “There needs to be an adjustment period when

commercialization was clear,” says Ramón Basanta, CEO

definitive tariffs are finally published to mitigate uncertainty.”

of ATCO Energía. The company is the trading arm of ATCO

In addition, Hans Kohlsdorf, Managing Partner of Energy to

Servicios y Energía. This strategy is becoming increasingly

Market (E2M), says that “as long as basic supply functions

popular among generators, where companies such as CFE,

under tariffs that generate sustainable losses to CFE, the

Iberdrola, Ammper and Enel Green Power figure on this list.

VIEW FROM THE TOP |

EMPOWERED STATES STRENGTHEN NEW ENERGY MODEL LUIS PINEDA Commissioner at CRE

Q: How is CRE supporting state-level initiatives that target

an experience-sharing platform, where discussion centers

Mexico’s energy transition?

on best industrial and commercial practices, the issues they

A: While CRE does not have the faculty to regulate the

are facing and areas of opportunity to capitalize on.

operational aspects of state and municipal-level policies and initiatives, it is highly active in sweeping across the country’s

Q: How is CRE working to transfer the benefits of the

states and key municipalities to foster exchanges with local

wholesale electricity market to basic supply?

authorities, corporations and academia. These interactions

A: Basic supply operates under a specific scheme that is

foster the inclusion of energy as an integral and critical part

different from the wholesale electricity market. It works

of economic development and investment attraction within

under a regulated electricity tariff. Our vision for basic

local government projects. The Energy Reform unlocked

supply is to alleviate its heavy load not only in terms of

the oil, natural gas, LPG and electricity markets, creating a

federal budget but also in terms of hampering the growth

range of investment opportunities. These can fail to detonate

of basic supply and the entry of new players to this specific

when they lack the support of local and state authorities.

niche. So far, CRE has awarded three additional permits

When we went to Morelos and Sonora, we emphasized the

parallel to the sole basic supplier, CFE. These three players

pressing necessity of unifying local regulation with federal

are poised to enter the basic supply fray as soon as they

legislation and these states complied. Several major power

comply with a series of prerequisites, among which is

generation projects can be halted due to lengthy local

long-term electricity auction participation to purchase

permitting procedures or because they are inconsistent with

energy, power and CELs. Although we are not expecting

federal regulations. When state governments fully grasp the

to develop a basic supply market, we are anticipating a

relevance of Mexico’s new energy model and its potential

service-based competition.

benefits for the state, they often request CRE’s support to showcase these benefits, together with C-level executives

Q: What is your assessment of CFE’s obtention of an

and representatives from FIDE, INEEL or ASEA. Through

electricity commercialization permit from the US FERC?

dialogue, we incentivize the breaking down of entry barriers

A: The implications of the obtention of this permit are twofold.

due to dissonant local regulations. Other states such as

First, the recognition of a productive enterprise of the state

Hidalgo, Jalisco, Puebla, Veracruz, Baja California, Quintana

such as CFE from a foreign regulator and being on par with

Roo, Sinaloa, Tabasco and Tamaulipas have created local

international requirements to compete in a market where

institutions that address energy topics as well.

supply and demand set the tone. Mexico has signed bilateral contracts in the US international market for electricity supply

Q: What valuable insights has CRE gained from interacting

toward Mexico and it makes sense to do the same to trade our

with state energy clusters?

electricity surpluses. Second, CFE’s fundamental mandate is

A: During CRE’s state visits, we dissect how the local

to add value in the development of its activities, which opens a

government and the cluster are working together to attract

new chapter with this permit: acting competitively in a foreign

investment and strengthen the different links of the industrial

market. To capitalize on this permit, CFE will have to comply

transformation value chain, the commercial support each

with international standards, strengthening the productive

receives and how it detonates state development. As these

enterprise of the state in the long term.

initiatives grow, they expand beyond the states’ border limits. Oaxaca, for example, created its own cluster based on Coahuila’s blueprint. The cluster model is working so

Luis Pineda ’s career includes working as President of the Federal

well toward its objectives that we witnessed the creation

Labor Board of Ciudad Victoria, Tamaulipas, Head of the Internal

of the association of state energy agencies in Colima. It

Control Organ and the Responsibilities and Complaints area of

gathers government offices as well as clusters and provides

PEMEX Petroquímica and the Ministry of Finance

117

| INFOGRAPHIC

CFE ELECTRICITY SALES COUNTRYWIDE Electricity purchased from CFE registered an 8.2 percent decrease in 2017 compared to 2016. One factor that caused this downturn was the launch of the Wholesale Electricity Market as these purchases only reflected electricity supplied by CFE. The new tariff scheme provided by CFE was another factor. In terms of purchase,

48,801.9

the western region registered 49,135.2GWh followed by the northeastern region at 48,801.9GWh. The industrial sector, which is the most attractive segment to become a qualified user, represented 56.5 percent of the total 118

energy purchased.

33.2%

Total internal energy purchase per region (GWh) Total internal energy purchase per state (GWh)

Nuevo Leon | 16,202.23

24.1%

33,674.6

Chihuahua | 11,761.26

% 19.8

30 .7 %

Coahuila | 9,662.78

Veracruz | 10,338.10

% 16.9

15 .2 %

Tamaulipas | 8,247.52

Quintana Roo | 5,118.54

% 6.0

11. 7%

10 .6%

Yuacatan | 3,939.93

Durango | 2,928.11

9.8 %

Tabasco | 3,569.51

9.3 %

8.5 %

Chiapas | 3,300.11

4.2%

West Northeast Central Northwest Southeast

Guerrero | 3,131.74 Oaxaca | 2,862.34 Campeche | 1,414.33

The State of Mexico registered the highest energy purchase in 2017 at 16,506.71GWh Source: SENER

100

204,197.7GWh total energy purchased from CFE in 2017

49,135.2

22.8 %

25.3%

119

Jalisco | 12,431.21

24.06% West 23.90% Northeast 21.61% Central 16.49% Southeast 13.93% Northwest

Guanajuato | 11,202.83

14.7 %

Michoacan | 7,222.87

San Luis Potosi | 5,404.87

11.0 %

44,135.6

9.9 %

Queretaro | 4,864.38

.4% 37

5. 3.7 4.3% 4% %

Aguascalientes | 2,653.30

State of Mexico | 16,506.71

Zacatecas | 2,112.81

.5% 28

2. 9%

Colima | 1,818

Nayarit | 1,424.92

Mexico City | 12,578.65

% 16.1 8.2%

Puebla | 7,105.83

5.8% 4.0%

Hidalgo | 3,619.12

Tlaxcala | 1,765.42 Morelos | 2,559.86

7.8%

34.9%

34.3%

23.0%

Baja California Sur | 2,219.13

Baja California | 9,929.19

Sonora | 9,758.49 Sinaloa | 6,543.59

28,450.4

100

| VIEW FROM THE TOP

TRADING ON THE WHOLESALE ELECTRICITY MARKET FRANCISCO SALAZAR Founding Partner of Enix

120

Q: What is the most frequently-asked question Enix

to be addressed. As a result, there have been several cases

receives from clients?

where there was no regulation or the existing one was unclear

A: Project developers ask many questions when requesting

or contradictory. Based on our experience in designing

our services, but the prevalent ones are related to project

regulation we were able to help our customers to present

profitability and the best strategy to accomplish objectives

proposals to CRE that eventually became new regulation.

while effectively complying with the regulation in place. We are participating in many projects that are the first of

Q: How would you rate the evolution of the clean

their kind in terms of technology, applicable regulation and

energy industry in Mexico and the diversification of its

business modeling. These projects are very interesting since

energy matrix?

they require a clear understanding of the regulation and

A: The clean energy industry in Mexico is thriving,

a proper ability to interpret it, even though there may be

particularly with wind and solar projects. Nevertheless,

some legal gaps and an understanding of the implications

there are other renewable resources, such as biomass,

of these interpretations and gaps. The Energy Reform

geothermal and hydroelectric, that even if they are mature

certainly brought with it a liberalized business spirit and

in terms of technology will still need some kind of support

creativity in Mexico for companies to venture into new areas

to make their introduction feasible against the aggressive

and we are prepared to help them become successful.

cost structures of wind and solar generation projects.

Q: Why should a company depend on Enix to solve the

So far, these renewable resources can only compete in

regulatory issues they may face?

some market niches. Energy policy and regulation could

A: Every company must always keep in mind all the aspects

become a tool to spread them beyond these market niches.

of the regulation that relates to its activities. But this is

In this regard, some people are calling for specific auctions

not always easy because regulation in the energy industry

for these energies, instead of being completely agnostic

is abundant and complex, and some companies do not

in the technology area. This is open to debate, but in the

have the knowledge or the experience to understand

meantime, since the Ministry of Energy decided to follow

such complexity. At Enix, the long professional career of

a technology-neutral approach for the auctions, we should

the partners and our associates gives us that knowledge:

explore schemes by which these technologies can widen

Enix is capable of fully understanding the regulation and

their presence and have a competitive advantage. These

all its implications, which gives us the ability to offer both

would include fiscal incentives or a certain degree of

conventional and outside-the-box regulatory solutions.

regulatory flexibility.

Q: What success story demonstrates the added value

Q: How does the postponement of the fourth long-term

Enix can offer to the Mexican energy industry and its

electricity auction affect your clients and how do you

participants?

expect the situation to play out in the future?

A: At Enix, we pride ourselves on our proactivity when

A: The postponement of this auction certainly introduces

helping clients. For instance, in a new energy market, the

uncertainty. However, I have hope that the new administration

regulation is still unfolding and there are many questions left

will soon find out that these auctions, although perhaps in need of a little fine tuning, are very beneficial for CFE and for the Mexican electricity market. This ultimately impacts

Enix is a specialized consulting company with a focus on

positively on the end users, who are the Mexican people.

project development and regulatory advisory for the energy sector. Its dynamism and complexity have multiplied with the

Q: What role will CFE play in the future of the Mexican

enactment of the Energy Reform

electricity industry?

A: Even after its unbundling, CFE is still the main player in the Mexican electricity industry. Its transmission and distribution subsidiaries remain as the only ones providing this service. Its GENCOs accrue most of the generation capacity and its two suppliers (for large and small users) are the largest load serving entities. As time passes by, CFE will remain an important player but one of the objectives of the reform was to bring new players that could invest and compete. As a consequence, in the electricity generation area we are seeing ever more companies entering into the business. In any case, and unlike PEMEX, which needs to focus on activities that provide very large returns, CFE can still find profitable businesses along the entire value chain: generation, transmission, distribution and supply of electricity. Nevertheless, CFE needs more capital investment and greater administrative flexibility in the way it does business and enters into partnerships. Q: What are your expectations for the CELs market? A: The market has just started operations so it is too early to judge its development. Nevertheless, I expect to see a positive evolution in the coming years, just like with the wholesale electricity market, which started operations slowly and is now fully on track. Of course, it is possible that certain elements do not work correctly at the beginning, but it is up to the market and regulators to learn and adapt accordingly, with the constant feedback of the industry players and specialists. Q: How will new trends in the energy industry change the Mexican energy landscape? A: Mexico remains a technology follower, so the international market will dictate the impact of specific new trends. In the area of electric vehicles, for example, prices are still very high. Until global prices are reduced, their penetration in Mexico will not be significant. Regarding other trends like storage, smart grids or blockchain applications, again we lag behind many other countries. In any case, we need to prepare ourselves, both in the public and private sectors. Q: In the developing energy market, what have regulators done well that should be continued and what improvements can be made? A: The regulators have been proactive in listening to feedback from the energy industry and associations and adjusting regulation when needed, and this should be applauded. My only concern has been the time that it sometimes takes to do this, which could potentially be exacerbated by the extreme budget restrictions imposed on regulators by the new administration. However, I am confident the new government will soon see the benefits brought about by the Energy Reform for the future of Mexicoâ&#x20AC;&#x2122;s energy industry.

| VIEW FROM THE TOP

WORKING WITH GENERATION AND SUPPLY RAMÓN BASANTA CEO of ATCO Energía

122

Q: What sparked ATCO’s interest in becoming a Qualified

The point is to create a strong generation portfolio to

Services Supplier (QSS) in the Mexican Wholesale

offer much more diversity to our clients. At the moment,

Electricity Market (WEM)?

we have identified a number of clients that satisfy these

A: ATCO entered Mexico purely as a developer, since

characteristics.

its DNA is utility-oriented. We came to develop monolithic projects such as cogeneration and natural

Q: What key differentiators make ATCO Energía’s services

gas infrastructure. As a result of the Energy Reform,

as a recent QSS unique?

the electricity market changed radically. No plant has

A: ATCO’s great advantage is that as a QSS, we are

a perfect match of generation and demand, leading to

supported by our own generation arm, ATCO Servicios y

energy deficits and surpluses, which is why the need for

Energía. We can approach a client as ATCO Energía and

commercialization was clear. It was evident that ATCO’s

offer electricity services but if we notice that the client has

generation could not be optimized without a trading arm,

strong thermal capabilities then we can tell ATCO Servicios

so we started with a QSS arm. In the new market, trading

y Energía to propose a cogeneration installment that will

entities do not yet exist. The synergy between a generator

provide electricity and steam to the client and possibly an

and a QSS maximizes profit margins, which is what

energy surplus that can be sold in the market.

companies like CFE, Iberdrola or Enel Green Power are doing. The vision was then to create two companies: one

Clients in the new electricity market not only require

called ATCO Servicios y Energía focused on generation

energy as a commodity. They need reliability factors,

and another, ATCO Energía, as a QSS.

transparency and strong customer support. We not only look forward to signing contracts but also to establishing

Q: How does ATCO Energía’s portfolio look now, and what

long-term relationships. Clients need to know with which

would the perfect portfolio for the company look like?

company they are entering the market, as a QSS is a figure

A: We have more than 40 years of experience operating

that reduces risk for both the generator and the consumer.

power generation plants. Initially, ATCO Energía was

We are responsible for managing our client’s and the

created to give ATCO Servicios y Energía’s projects

generator’s risks. Our division works under that principle.

a way to sell energy with more certainty. However, we want to start trading processes with third parties as

Q: What lessons has ATCO Energía learned from its

well. The strategy is to develop activities to the extent

activities in terms of CELs trading?

that the law allows. This means not being tied to ATCO

A: At the end of the day, trading is not something that

Servicios y Energía’s generation and instead looking for

can be learned from books. It involves expertise and

PPA schemes. Trading is all about having diverse and

market knowledge that can only be learned by doing. In

strong energy generation portfolios. We need portfolios

this particular case, CELs had a strong presence during

with technological, geographical and price diversity, as

the long-term auctions but many projects have not yet

well as in contract terms and conditions. We can own

started. Also, projects resulting from the long-term

our generation assets, work with third parties to sell their

electricity auctions will enter into a regulated market

generation or even establish import/export arrangements.

and QSS are not related to those, meaning that we cannot trade those CELs. As of now, CELs serve as an instrument that show CFE’s generation of clean energy

ATCO Energía is the supplier of qualified services division of

and the market response to it. But as the market is still

ATCO México. The permit to be a qualified service supplier was

dominated by CFE’s generation, we are facing a lack of

awarded by CRE on June 28, 2018, and the company is already

liquidity. At the moment, we consider the development

setting a strong foothold with its activities

of these mechanisms quite immature.

INSIGHT |

BRIDGING GAPS BETWEEN POWER PRODUCERS, QUALIFIED SUPPLIERS RUBÉN LÓPEZ CEO of Orca Energy

With the need to establish agreements between power

selective about the types and number of loads we want to

producers and qualified suppliers ever more evident, their

manage,” he says. “Our competitive advantage is our ability

often-conflicting interests have been highlighted by the lack of

to compare our clients’ core businesses with their inherent

clarity over the long-term price evolution of electricity tariffs

consumption pattern so they can spend less time worrying

and CELs, according to Rubén López, CEO of Orca Energy.

about their electricity bill and more time focused on growing

“Qualified suppliers, such as Orca Energy, want to purchase

their companies.”

power in a volume that is diverse and robust enough to consolidate an attractive portfolio with validity dates ranging

One factor that may be causing concern, and that Orca Energy

from six to 36 months. Power producers seek longer-term

cannot control, is the delay in the publication of tariffs. “Basic

contracts,” he says.

supply’s transitory tariffs published by CRE in November 2017 are much lower than those being used in the wholesale

López finds the action of wholesale electricity market

electricity market, generating distortion for those players

participants encouraging, and he acknowledges they often

that want to switch to qualified supply and complicating this

work with CENACE, CRE and the Ministry of Energy to stay

decision for qualified users,” López says. “There needs to be an

up-to-date with available offers and products. But he adds

adjustment period when definitive tariffs are finally published

that the continuation of these collaborative efforts between

to mitigate uncertainty.”

the industry and the regulator is the key to creating a truly competitive and transparent market. “To allow qualified

He suggests that another sticking point for the evolution

users to present a competitive offer so they can obtain the

of the industry may be the difficulty encountered by clean

required coverage, greater understanding of the complexities

energy producers in pricing their CELs. “Today, there are

inherent to Mexico’s energy trading market is required.” He

many different CELs prices in the market, with considerable

adds that power producers have also raised doubts about

variations,” he says. “There is also uncertainty over future

the state-owned utility. “CFE’s segmentation into six different

prices and point of stability, especially on a long-term

generation companies creates uncertainty as its most efficient

purchase basis as CELs largely depend on the pace at which

generation portfolio is reserved for basic supply,” he says. “The

Mexico’s operational clean generation share in the energy

rest is to be distributed between direct market placement and

mix grows.”

through qualified suppliers.” For the wholesale electricity market to stay on course toward Orca Energy became a full-fledged qualified supplier in July

maturity and competitiveness, López considers effective

2017, one of the first with an active portfolio of clients, coverage

communication between power producers and qualified

contracts and ongoing operations in the wholesale electricity

suppliers to be of the utmost importance. “We must capitalize

market. Its expertise in Mexico’s regulatory framework,

on the lessons learned in each edition of the country’s long-

implementation, metering and physical communication

term electricity auctions, taking into account that qualified

mechanisms enables the company to provide solutions with

suppliers’ expected participation so far is lacking,” he says.

different types of tariffs, whether variable, fixed or metering. It performs thorough analyses and projections to map out

Without an optimal match between power producers and

the generation plants closest to the available nodes and their

qualified suppliers, López argues that the opportunity is

congestion points.

missed to tailor their respective portfolios to best benefit qualified users’ consumption requirements. Communication

But López stresses that, even though the company’s expertise

between all stakeholders then becomes key. “Fostering

means it can work across a range of projects, it chooses to

communication platforms among market participants would

focus on those where it can truly add value. “We are highly

build up a truly competitive market,” he says.

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| VIEW FROM THE TOP

CLARITY OVER MARKET LIQUIDITY AND OPERATIONS HANS KOHLSDORF Managing Partner of E2M

124

Q: What is E2M’s most significant contribution to Mexico’s

and end users with self-supply capacity. By law, our business

wholesale electricity market (WEM)?

is separated into two units. E2M Generación covers market

A: E2M made significant contributions on two fronts.

representation services for power producer’s Electricity

First, assisting power producers and final users in better

Plant Units (UCE), while E2M Suministro Calificado provides

grasping and operating the market. Second, facilitating

representation services for qualified users. Power producers,

the financial sector’s transition from pre-reform financing

for instance, are interested in both selling their generation

models to today’s WEM. Before, financial entities were

surpluses and purchasing their shortfalls in the market.

subject to extremely rigid PPAs. Now, they need to absorb the inner workings of the new market and its merchant

Q: How does E2M build up a reliable and diversified energy

risks, the differences of CENACE and CFE as purchasers,

portfolio for its clients?

increase understanding and improve their risk analysis

A: The primary focus of our energy portfolio is our clients’

procedures. E2M helps its clients to capitalize on the new

energy consumption requirements. First and foremost,

market’s bounties, parallel to an optimized operation and

the operation of the qualified user needs to be optimized.

reduction in kWh requirements or capacity payments under

E2M enjoys independence in building up its portfolio

the WEM’s framework. Controllable demand works better

as it is not vertically integrated with power generation

today than under the old tariff I-15 and its inherent benefits,

assets, compared to other qualified suppliers in the

for instance, are not well-known among qualified users.

market. Bypassing a potential conflict of interest provides our energy portfolio with flexibility and ensures we can

Q: How does E2M provide the best solution to its clients

provide an optimal, tailor-made solution based on our

wanting to transition to the new market?

clients’ specific operational and consumption profile. We

A: The primary issue lies in understanding the intricacies

always make a point of attaining a balance between energy

of the new market. E2M is among the most successful

purchased and energy sold, staying away from speculative

companies in offering courses that provide not only

practices and adhering to CENACE’s required warranties.

theoretical but also empirical notions to best handle the market. Some institutions, universities or companies provide

Q: What is your assessment of CELs’ first year of operation?

training courses but remain rather rigid. They do not carry

A: Supply and demand are not yet balanced as they lack

the business spirit of the market or truly understand the

a market price. Instead, price ranges depend on the time

hands-on operation. Our company has provided two 80-

frame. Over the long term, CELs tend to be relatively cheap,

hour courses even to CFE executives. We can provide clarity

whereas short-term CELs that span three or four years can

on the market’s impact over our clients’ operation, core-

be more expensive. This is because there is confidence that

business and the available opportunities. E2M makes life in

the country will meet its clean energy production goal

the new market simple for its customers.

ahead of time.

Q: Which of your business lines is driving E2M’s growth?

Q: What is your take on the published Basic Supply Tariff

A: Our growth is evenly distributed among our three main

and its subsequent modifications?

types of clients,: electricity generators, qualified end users

A: As long as basic supply functions under tariffs that generate sustainable losses to CFE, the distortion in the market will remain because private players do not have

E2M is an energy broker and service provider operating in the

the same absorption capacity using CFE’s tariff levels. This

Mexican electricity market. The company primarily targets

scenario is unsustainable in the long run, meaning the tariff’s

power producers, qualified final users and self-supplied final

structure needs to be adapted to provide nondiscriminatory

users as its client base

conditions.

INSIGHT |

KEY INGREDIENTS STILL MISSING IN ELECTRICITY MARKET ALEJANDRO BLANCO-MORENO Co-Founder of Tradeon Energy

With a soaring number of players, diversified product and

The electricity sector has yet to adopt equivalent standards

service options and competitive prices, the ingredients are in

and local players are accustomed to PPAs drafted under

place for a successful energy trading market in Mexico. But

pre-reform Mexican regulation, significantly different from

Alejandro Blanco, Co-Founder of Tradeon Energy, says some

ISDA-based contracts as an example. Blanco says Tradeon is

key ingredients are still missing for the market to grow to

working with a wide range of entities, especially the members

maturity. “The fundamental problem is that players require

of the Association of Energy Traders (ACE) to provide an

hedging contracts to operate but have limited capacity to

equivalent or adapted agreement, following the completion

sell their retail products,” Blanco says. “It helps little that they

of the first transactions based on ISDA, but it requires

often overlook the need to get involved in the wholesale

critical and complex coordination efforts among local and

hedging market, which provides access to Capacity Bilateral

international players.

Transactions (TBPot), Energy Bilateral Transactions (TBFin), CELs and financial derivatives, such as swaps.” He says this

Based on its interactions with market participants, Blanco

means the conditions required for new qualified suppliers

estimates that financial transmission rights as projected by

to be competitive are absent. “Without a strong retail

CENACE will remain unavailable in the near term and will

segment requiring hedging and bilateral contracts, wholesale

need a great deal of assistance from private entities in order

cannot prosper.”

to function appropriately. “As an alternative while things get implemented, we integrated node differentials into our

After Ektria, a subsidiary of Fisterra Energy, released the

platform to reflect electricity regions used as reference

first swap prices at the end of 2016, Tradeon, which offers

for the first midterm electricity auction, against specific

brokerage and consultancy services to every stakeholder

distributed nodes,” he explains. “We now provide a user-

throughout the value chain, followed in its footsteps in

friendly local marginal price differential index accounting

facilitating these transactions. In March 2018, it launched a

for energy, congestion and losses, covering 13 nodes.” He

platform specialized in comprehensive brokerage services

anticipates this will change as enough players enter the

that offers the possibility of making 100 percent financial

market to pinpoint nodes and hubs where the lion’s share

transactions instantaneously, flexibly and effectively with

of coverage transactions will take place. The platform also

various market participants. “Most players lack any type of

accounts for CELs, incorporating the anchoring effect

credit history,” says Blanco. “The idea behind our platform is to

over CEL value as the long-term electricity auctions were

provide a single-point access for bilateral transactions. This can

the only reference in the past. However, Blanco says the

help lighten the load of additional operational requirements

company’s platform includes a five-year CEL curve to help

that market participants face in order to compete with CFE:

provide liquidity and delivery certainty, providing quarterly

substituting registry procedures, warranties, collaterals, new

CEL prices, and the independent market monitor is now

systems, new meters and transformers. At the same time, it

using the company’s curve as a reference. Tradeon Energy

smooths the purchase of generation from power producers

was able to provide an additional reference from the

and secures financial coverage and daily trading operations

results of the second edition of its online trade simulation

with competitive financial swaps.”

platform called Tradeon Games. “Added to the usual swaps, we included spreads, georeferenced nodes and the

Hedging requires contracts and Tradeon is working to

5 percent CEL requirement,” Blanco says. “This exercise

implement a universal contract framework for energy and

showcased the difficulty of placing a fixed price over the

derivatives transactions. “Mexico has made significant

value of a single CEL in a scenario where power producers

advances in that particular regard when looking at its

want to sell at spot market prices and qualified suppliers

natural gas sector,” he says. “It already uses international

want to purchase at auction price levels, hampering CEL

reference contracts such as the US NAESB Base Contract.”

transaction liquidity.”

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| VIEW FROM THE TOP

TRANSPARENCY, FLEXIBILITY AND COMPETITIVENESS FOR ENERGY TRADING JUAN GUICHARD CEO of Ammper Energía

126

Q: What are Ammper Energía’s recent milestones in the

contract terms longer than five years. Qualified suppliers

wholesale electricity market (WEM)?

are critical as middlemen in that regard as they bridge

A: 2018 was an important year for Ammper Energía. We are

the term gap, providing bankability to power producers’

among the qualified suppliers that are actually operating in

projects and competitive electricity rates to qualified

the WEM. To date, we have three fully functional divisions:

users. For qualified users, to trade directly with power

supply, trading and market representation services. All three

producers implies a 24/7 monitoring of energy supply and

have already signed operational contracts. Our market

demand, and integrating a specialized energy team with

representation service is close to accumulating 1GW of

strong trading notions, which not all are able to develop.

capacity represented by Ammper Generacion either directly

It represents sizable amounts of extra investment, time

or indirectly in the energy transactions of Mexico’s WEM.

and effort. Another pending issue that is needed to boost energy trading is the increased involvement of financial

Q: What is your assessment of the first year of CELs?

entities. By crafting bankable long-term PPAs with solid

A: Our trading division is primarily focused on these

warranties, financial entities can contribute to mitigating

trades. While we are seeing low liquidity, the market is

inherent long-term risks.

progressively evolving and growing, rooted in a gradually established consensus over CEL price, with levels becoming

Q: How does Ammper Energía provide a bridge between

clearer for the next two to three years. CRE recently

unbalanced terms?

launched the S-CEL system, a platform to monitor CEL

A: Long-term electricity auction prices require power

trading transactions where most of the power producers are

producers to rely on bankable long-term PPAs. If that

already registered. CEL supply has yet to reach expected

possibility is on the table, they are willing to apply

levels because it is conditioned by the successful conclusion

significant discounts compared to spot prices as it covers

of verification units’ processes to corroborate the number

the bankability of the utility-scale project. Long-term PPAs

of CELs power producers can provide from their power

are more the exception than the norm at the moment.

generation.

One of the biggest challenges for qualified suppliers is to manage risks and mitigate term mismatches inherent to

Q: What is your view on energy trading price imbalances

the industry. Qualified users are reluctant to sign contract

between power producers and qualified users?

terms longer than five years and banks remain averse to

A: Qualified users are constantly on the lookout for the

financing projects that lack long-term PPAs.

best price levels. In our experience, they are aware that their trading price tags will not reach long-term electricity

Q: What are Ammper Energía’s next steps after closing a

auction levels. I believe the imbalance comes rather from

business relationship with its first clients?

trading terms rather than price levels. Power producers

A: Ammper Energía’s philosophy is based on three

need to sign 15-year contracts for their renewable energy

commercial values. Our first priority is transparency. In the

generation projects to be bankable, while qualified

last two years, we have invested heavily in our operational

users are looking for shorter terms to guard themselves

and data systems to provide as much information as

against unpredictable price variability. They rarely sign for

possible to our clients. We are able to measure the WEM’s range of variables in hourly or daily time frames. Second, we focus on flexibility. We adapt our services and expertise

Ammper Energía is a qualified supplier operating under the

to the specific needs of our clients on a case-by-case

Mexican energy market scheme for SMEs. With headquarters in

basis. Our third value is competitiveness. Electricity, as a

Mexico City, Ammper has a wide portfolio of energy generation

commodity, is a highly competitive business niche where

technologies, most of them renewables

the primary differentiator stems from an efficient operation.

VIEW FROM THE TOP |

FIGHTING VOLATILITY WITH CERTAINTY, EXPERIENCE ALBERTO PANI CEO of E3

Q: Why should qualified users partner with E3?

and trading FX and rate derivatives at institutions like HSBC

A: We try to approach as many qualified users as possible

and Santander but unlike most traders in the market, our

but we also believe that not all players should move into this

head of markets also has experience working with CRE and

scheme; for some, it is better to stay on the basic supply side.

Marsh in crafting the energy regulation and strategy. However,

The first step we take with new companies is a comprehensive

most of our knowledge of energy markets comes from our

and transparent analysis that considers, among other factors,

founding partners. They come from different backgrounds but

their energy consumption patterns. Based on this analysis,

they all have previous expertise in the energy market, having

we offer recommendations on how to proceed. As a result

worked in hedge funds, government offices and regulatory

of this process, we have come to the realization that about

entities. They were also key participants in Mexicoâ&#x20AC;&#x2122;s Energy

70 percent of clients are better off remaining in basic service

Reform proposals and in shaping the current energy market

instead of becoming qualified users. E3 has a great deal of

in Mexico. Moreover, we are about to close negotiations with

experience in financial structuring, derivative trading and risk

an investment fund to build a working relationship that will

management, which allows us to design the structures that

give us access to people with experience in private equity

enable our clients to access the benefits of the Energy Reform,

infrastructure.

even when they may not be qualified users. Above all, we strive to establish trustworthy relationships with our clients:

Q: How are you shielding E3 against the volatility in energy

If we do not have a business proposition that will benefit

prices in the short and medium terms?

them, we do not want any part of it. Tariffs for basic service

A: There are several simple mechanisms to hedge capacity

users are far below market prices, which poses a challenge

and energy prices in the injection node. The issue is hedging

when trying to convince companies to change from basic

congestion risk, particularly for periods longer than a year.

services and become a qualified user. The number of final

If clients are willing, once financial transmission rights

users that have become qualified users to date is minimal,

tenders start, we can start analyzing new options to hedge

practically nonexistent. We have even suggested to several

congestion but for shorter term contracts. Thus, we transfer

potential clients that it would be better for them to ally with a

the risks we cannot hedge to the end users, although we

different provider, especially when they have access to legacy

make sure we educate them and that they understand how

contracts. Our core value as a company is transparency.

congestion and regulated costs work.

Q: What gives E3 the experience needed to participate in

Q: What criteria does E3 follow to consolidate its

the Mexican energy market?

generation portfolio?

A: We are confident that we can support our clients, no matter

A: We are open to working with all companies; we analyze

their role in the energy market. We now have 20 employees,

each project independently and we determine what each

our operations team is experienced in power dispatch

generator can bring to the table. In the end, all we want is

and energy markets and also has relevant experience with

an offering that we can market successfully. We have had

CENACE and the Electric Research Institute. We made sure

most success with generators with a balanced and strong

that we had the technology and technical expertise in place

portfolio in Mexico or abroad, because this allows us to get

before launching our commercial efforts. A far as our market

a head start in any new project.

and trading abilities, we have tried to build a team that has experience in consulting and trading, with knowledge in structuring, sales and management of derivative portfolios.

Estrategia EnergĂa ElĂŠctrica (E3) is a qualified supplier of

Although the bulk of derivatives trading is in exchange rate

electric energy with over 100 years of experience in the

markets, the derivatives in power trading are similar. Our head

electricity industry and financing markets. The company

of markets has over 15 years of experience structuring, selling

supports both energy generators and consumers

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PROVIDING A 360-DEGREE VIEW OF THE MARKET ALDEN KITSON Director General of Cuestamoras Energía

128

Q: Why should qualified users rely on Cuestamoras Energía

Mexico’s interconnection with Guatemala offers us

to meet their energy consumption needs?

an easy way to work our way into the country. We are

A: Cuestamoras Energía is a company with over a 100-year

in the process of establishing bilateral relationships

history, primarily in retail. It is a Costa Rica-based company,

with players in the Mexican market to export power to

with regional operations throughout Central America.

Mexico, as well as establishing our own regulated entity

Our retail orientation drove us to focus on qualified users

before CRE and registering as a market participant with

and their value chain. Today, the company is a diversified

CENACE. Cuestamoras Energía is focused on building local

conglomerate conceptualized after Walmart purchased the

partnerships to propose better value to our clients parallel

retail operations when it set its sights in Central America

to our own operation. Our focus is to establish one-on-

in the early 2000s. From this operation, in 2010, the

one relationships with industrial and commercial players

company decided to reinvest in industries in which it feels

that do not get the service they look for with CFE and do

comfortable with the basis to be competitive. Our purpose

not have access to large IPPs. We can also be involved

is to continuously innovate to create opportunities for all.

with large-scale renewable energy projects hesitant to

Innovation is central to the way we make our decisions. We

participate in the long-term electricity auctions and are

have investments in power generation but due to market

rather looking for private off-takers.

dynamics in Central America, we decided it made more sense to focus on the links of the energy value chain where

Q: What is the added value of Cuestamoras Energía’s

we can add more value, such as energy commercialization

Private Market Information?

for the commercial and industrial sectors. Our center of

A: Our experience in Central America has shown us that

operations for our energy business is in Guatemala, a country

market information tends to be very segmented. Different

with 20 years of experience in competitive energy markets.

formats can exist for the same information source, requiring

We are taking that experience and its full-service, customer-

it to be adequately processed to be understood. It boils

oriented commercialization model and introducing it to

down to a matter of transparency to build trust with the

Mexico. We also want to break the paradigm where industry

client via a user-friendly, educational presentation, with

players are accustomed to thinking on a yearly basis. This

business intelligence undertones. Our platform is dedicated

mindset creates incompatible market dynamics where

to both ends of the wholesale electricity market: power

power generators calculate their project returns in 15 to

producers and qualified users. It can provide a 360-degree

25-year periods and consumers focus on yearly P&Ls.

view of the market and valuable insights on how a qualified user’s production process is affecting its energy

Q: How is Cuestamoras Energía approaching its business

consumption. With this intelligence, qualified users can

expansion into Mexico?

adjust their consumption based on energy prices’ seasonal

A: While the size of Mexico’s market is definitely

variability.

attractive, the downside lies in electricity transmission restrictions. For that reason, Mexico is poised to develop

Q: Which Cuestamoras Energía products and services are

different regional dynamics considering it cannot move

best suited for Mexico’s energy market?

kW efficiently from one point of the country to another.

A: We are in the process of consolidating our three service models. First, trading, commercialization and supply to commercial/industrial clients. Second, our ESCO service

Cuestamoras Energía is the energy commercialization and

offering. Third, energy efficiency consulting. Once we

energy services branch of Cuestamoras, a multi-business,

merge them into a single business model, we will be

innovation-centered corporation specialized in health, urbanism,

able to provide an energy toolbox to Mexico’s wholesale

energy and natural regeneration through forest mining

electricity market.

INSIGHT |

EMPOWERING QUALIFIED USERS VÍCTOR SOTOMAYOR CEO of 32Energía

In the first days of Mexico’s wholesale electricity market

diligence undertaken by our team of legal, technical and

(WEM), qualified users faced an undefined and volatile

financial experts, we hand-pick only the right qualified

regulatory framework, which caused a lack of adequate

suppliers eligible to participate in our clients’ bids,” he says.

information and prevented them from capitalizing on the

“Assertive due diligence processes remain critical because

country’s new energy model. This issue persists today, says

certifications and warranties as defined by the WEM’s

Víctor Sotomayor, Director General of 32Energía. "As a

regulatory framework are still subject to modifications in an

result, large corporations – foreign and domestic – may be

infant industry that is growing parallel to its regulation. We

missing out on the benefits, as well as unwillingly ignoring

want to ensure conditions that grant and guarantee qualified

the regulatory obligations of the new energy market,”

users’ continuous capacity to operate in the market without

Sotomayor explains. “Qualified users remain misinformed

disruptions.”

about the clear advantages and fall short of meeting their obligations to migrate toward the new wholesale electricity

To provide added value and consolidate its diversification

market, which is the key reason for the creation of 32Energia

efforts, 32Energía secured strategic alliances, connecting

and the conception of a unique business model to do so.”

with IDB financing to provide energy efficiency solutions. “For this business niche, we have primarily targeted specific

The parent company of which 32Energía is a subsidiary

business models like hotel chains and other susceptible

operates diverse business interests in the public and private

businesses where energy deficiencies are present,”

sectors, from outdoor advertising and brand construction to

Sotomayor says. “32Energía wants to capitalize on its

high-level international business relations, counting among

business relationships in other industries, including some

its commercial base important clients like Grupo Modelo,

of the most important hotel chains in Mexico.” The company

BMW México and Grupo Salinas. “The Energy Reform

is looking to reinforce its consultancy services within the

provided a natural next step for our organic business growth

wholesale electricity market as a counteroffer to consulting

by opening the possibility to commercialize energy from the

firms like the Big Four qualifying agencies operating in

WEM," he says. "We were among the select few companies

the country, whose services, Sotomayor says, are onerous

that were able to prevail until today by establishing a formal,

for most of Mexico’s SMEs. “We capitalize on our deep

well-thought, tangible and workable business model for

knowledge of local conditions and business climates, for

SMEs conducive to a gradual implementation of Mexico’s

which our client growth becomes our primary selling point.

emerging energy framework.”

We want to address the significant pool of large companies with the electricity demand required to become qualified

While tackling initial administrative, technical and financial

users while providing the knowledge and expertise to have

challenges, 32Energía started investing significative

them participate in the new electricity market.”

capital and commercial resources in product and service diversification to specifically meet the needs of qualified

Sotomayor believes that focusing primarily on supporting

users. “We have invested millions on analysis, research and

the correct migration of its clients’ businesses toward the

the creation of the right strategic alliances with responsible,

WEM will underpin 32Energía’s successful growth. “After

prudent and reputable companies,” Sotomayor says. “The

overcoming diverse difficulties at the outset of Mexico’s

results allowed us to absorb market expertise and the use

infant deregulated electricity market, we were able to secure

of our business intelligence resources while aligning our

a parallel pilot project with BMW México for the development

clients’ success to our own results.”

of an EV charging station network in our country,” he says, adding that this project is challenging but scalable once

The company’s energy consulting services help identify

the pilot succeeds while putting the realities and needs of

the ideal supply partners for its clients. “Through due

Mexico’s EV charging stations into perspective.

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THE MARKET LIQUIDITY ALGORITHM ANDRÉS LANKENAU Chairman and CEO of Enicon Energy & Infrastructure

130

Q: What is Enicon Energy & Infrastructure’s contribution

forward would be resolving the pending implementation of

to the maturation of Mexico’s wholesale electricity

financial rights of transmission to cover congestion risks.

market (WEM)? A: Enicon Energy & Infrastructure contributes by injecting

Q: What is your assessment of Mexico’s first year of CELs?

an added sophistication to the WEM’s design. This means

A: 2018’s CELs transactions showcased the price levels we

providing the capacity to offer structured products that

anticipated, supported by long-term auctions contributing

provide certainty and confidence to both power producers

clean energy integration. In the short to midterm, we are

and qualified suppliers, which in turn is transferred over

convinced the volume of CELs transactions will increase,

to their own clients. Our market participation is primarily

considering that more clean power generation projects

financial. Since 2017, Enicon has had operational interactions

belonging to the auction-winning companies will come

with major players among Mexico’s border electricity

online and that more private off-takers will be aware of their

markets: Guatemala’s AMM, the Electric Reliability Council

CELs obligation. Nonetheless, it is important to mention that

of Texas (ERCOT) and California’s Independent System

there are many CELs transactions, which positively pushes

Operator (CAISO). We are also looking to set a foothold

the OTC market.

in the electricity infrastructure market to ensure that clean power generation finds its way to the country’s primary

Q: How is the market reaching an equilibrium between spot

consumption points. We are developing products that

market prices and long-term electricity auction prices?

can structure, among several clients, a competitive hedge

A: It all boils down to liquidity coverage. The real-time, hour-

that addresses the different price levels of the country’s

ahead and day-ahead market-price variation dynamics do

electricity nodes per zone. These products are based on

not adhere or react to the conditions outlined in the auction’s

proven, algorithm-based models, in-depth market studies

long-term coverage contracts. There needs to be a middle

and price histories to feed market forecasts and projections

ground where risks can be distributed evenly, according to

that could bring clarity to Mexico’s market.

each stakeholder’s payment capacity and warranty level. Enicon offers electricity coverage to suppliers, providing

Q: What financial instruments can help develop the

them with certainty that can be transferred to end users.

sophistication that Mexico’s WEM needs? A: Before designing and deploying trading-related financial

Q: What are Enicon’s ambitions pertaining to the

instruments to foster market liquidity, Mexico requires sizable

development of energy infrastructure?

investments across the power generation, transmission and

A: While our core business is energy trading, Mexico is in dire

distribution spectrums. Financial instruments can assist in

need of a strengthened and extended energy infrastructure.

taking well-measured risk positions and distributing them

While the focus has been around power generation, bolstered

among all participants to be effectively mitigated, generating

by the country’s long-term electricity auctions, we are

price certainty and reducing volatility. At this early stage,

interested in contributing to the country’s transmission and

Mexico’s WEM requires a constant investment flow and

distribution infrastructure. Through our group, we cemented

legal certainty for investors. It is a natural stage that other

a track record in energy infrastructure construction projects.

more mature markets have also experienced. A positive step

The number of stakeholders involved and the permitting layers of a transmission and distribution project in terms of rights of way and land use make it much more complex than

Enicon Energy & Infrastructure. is the energy trading branch

a power generation project. Our local market and cultural

of Grupo Elefante. It includes privately-held subsidiaries with

background knowledge of the prime regions to develop such

business operations across Mexico. It specializes in retail

projects is our key core competency to reach our objectives

support, trade marketing services, energy and infrastructure

for this specific energy infrastructure niche.

INSIGHT |

IN NEW MARKET, KNOWLEDGE IS POWER PAOLO SALERNO Founding Partner at S&J Law Firm

In a new electricity market with infant rules and regulations, it

To strengthen its work in solidifying market players’

is little surprise that many players have trouble unravelling its

understanding of the electricity market, S&J is betting on

intricacies. Paolo Salerno, Founding Partner at S&J Law Firm,

strategic alliances, including with other legal firms. Salerno

says this presents opportunities for those who are well-versed

says these alliances serve to bridge gaps in respective

in the regulatory framework to provide legal and consultancy

specialties. “This synergy provides S&J the tools to offer a

services to new players. “When analyzing a coverage contract

diversified service portfolio to our clients without investing

from a purely legal standpoint, many things might slip through

in additional human resources, infrastructure or engaging in

the cracks without adequate knowledge of the market’s

a lengthy and costly learning curve in a niche that is outside

development,” he says. “Mexico’s wholesale electricity market

our realm of expertise.”

(WEM) is complex and PPAs are actually bilateral contracts for a wide array of products and services.”

S&J has also signed agreements with EPC companies to participate in client bids for specific requirements. “Alliances

S&J is an international firm that provides specialized legal,

are vital, especially in such a new energy market like that

business, infrastructure and training services for Mexico’s

in Mexico,” he says. “Its dynamic nature means it is easy to

energy industry players. It prides itself on breaking the

be left out of potential business opportunities or overlook

traditional law firm mold. Instead of trying to cover all

new legal developments. Alliances with companies that are

bases, S&J sticks to what it knows and cultivates broad

renowned experts in their respective business area reinforce

expertise over a handful of specialties. “We are highly

credibility and work quality in the eyes of our customers.”

specialized on the WEM and renewable energy,” Salerno

S&J believes the main issue in the market is the lack of

says. “While some firms remain focused on relatively

access to information. “Taking the Basic Supply Tariff as a

superficial aspects, such as permitting procedures, we

reference, we are not yet at a point where we can pinpoint

are able to undertake much more complex transactions.”

the variables in the methodology of the tariff calculation,”

This includes coverage contract structuring and project

he says. “Meanwhile, Basic Supply Tariffs are still affected

purchase process structuring.

by political interference unrelated to market forces.” He says the optimum phase where Basic Supply Tariffs reflect CFE’s

In addition to this list of legal specialties in Mexico’s energy

generation, transmission and distribution costs, separate

market, S&J also includes a business area where it advises

from political cycles, has yet to be reached.

on and assists in the development of renewable energy projects, from the greenfield stage and onward. Salerno

In an effort to combat this uncertainty, S&J has catalogued,

says this department is the result of the firm’s deep

analyzed, studied, read between the lines and identified

expertise. “As a vertically-integrated firm, we provide a

business applications of all energy-related legislative

turnkey process where we can identify Tier 1 products,

publications in the Official Federal Journal from December

draft contract warranties, and assist with the design of

2013 to date. Salerno stresses the importance of the efforts

isolated supply and distributed generation systems,” he

made in disseminating all available information. “It is a

says. “By providing for both areas, we can craft regulatory

daily follow-up activity. Knowledge of new regulation will

and business planning for our clients based on their

separate the firms that will prosper in the market from

consumption level and pair them with fitting suppliers.”

those that will not,” he says. With this information acting

Rather than taking the responsibility for projects out of the

as a launchpad, S&J is primarily focused on SMEs, across

owners’ hands, Salerno says the firm felt it could create far

the power generation, qualified supply and qualified user

more added value by teaching its clients about the market.

niches. “We are well-positioned to provide project purchase,

He says this offers clients the comfort that the firm really

permitting, advisory and regulatory structuring services to

makes the right decisions for the benefit of the project.

WEM players,” says Salerno.

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| VIEW FROM THE TOP

SOLIDIFYING THE ENERGY TRADING BRIDGE ALFONSO GUTIÉRREZ Business Development Director of Antuko Mexico

132

Q: What Makes Antuko the ideal partner for Mexico’s

or fuel oil. Renewables are the exception as the absence of

wholesale electricity market (WEM)?

an indexed commodity brings their marginal cost close to

A: Our understanding of the evolution of the Local Marginal

zero. The last MWh used before supplying the demand of an

Price puts us at the forefront of Mexico’s energy trading

electricity node is the reference price. This happens on an

market. We have developed a range of tools around this

hourly basis in close to 3,000 nodes across the country. The

knowledge with which we can assist clients that engage in

results are directly linked to the composition of the energy

trading transactions. Our services are rooted in a thorough

matrix, fuel costs, the power generator’s production profile,

model that projects the workings of the SEN into the future,

energy demand and the transmission grid’s capacity, where

complemented by Monte Carlo value-at-risk analysis. We

congestion hikes electricity prices.

have already developed two commercialization vehicles in Chile that manage more than 500GWh/y each. In Mexico,

To compete, Antuko developed three crucial and interrelated

we are developing a qualified supplier capitalized by our

divisions. First, our quantitative consulting division is fully

own balance sheet in combination with investors interested

dedicated to price projections based on nodal prices,

in placing capital in energy trading operations. We offer the

predicting the grid’s behavior and anticipating economic

advantage of a specialized outsourced service in trading

dispatches. The data gathered is critical for future project

market participation, bypassing the need to build a corporate

viability assessments and useful for financial entities looking to

energy department from the ground up.

participate. By developing accurate forecasts of local marginal prices, we can craft competitive trading offers.

Q: How is Antuko tackling the pricing imbalance between generators and qualified users?

Our second division is commercialization through qualified

A: Qualified users are looking for short-term commitments

supply. On the qualified user side, we can include bundled or

payable in local currency while generators prefer 15-year PPAs

component pricing for energy, capacity, and CELs, in addition

in US dollars. Because they are responsible for the payment

to pass-through services for distribution and transmission

from qualified users to CENACE, qualified suppliers could

rates as published by CRE. CFE’s rates are characterized by

bridge this gap through the qualified user’s short-term local

an identifiable and aggressive upward trend, whereas we

currency PPA. The complex intricacies of these transactions

can provide a predictable price slope, conferring certainty to

require choosing qualified suppliers that can best manage

future energy rates. On the generator’s side we offer tailor-

this imbalance risk. Adequate management of these variables

made PPAs depending on the inherent characteristics of

guarantees secure energy supply, effective representation

the power plant’s location, generation technology, financing

services, and competitive prices in the long term.

schemes, and surrounding energy infrastructure to turn it into a bankable project. We can manage production surpluses,

Q: How is Antuko positioning itself in a price-driven market?

swaps, short-term products and hedges depending on the

A: To conquer a price-driven market, one must fully grasp

project’s location and consumption profile.

each cog within its inner workings. In Mexico’s WEM, each generator reports the marginal cost of its generation directly

The final division is asset management services, which

linked to the commodity used, such as natural gas, diesel

primarily consist of market representation. As qualified suppliers, we are required to have a 24/7 desk and operate seamlessly as CENACE’s Market Information System (SIM). We

Antuko is a consulting company with offices in Chile, Mexico

developed an in-house software solution to automate market

and Spain, specialized in quantitative consulting and energy

participation, invoicing, re-billing, collection and payments.

price

Antuko is the back and middle office of market participants’

projections

(spot

prices,

stabilized

prices,

differences), market intelligence and energy trading

nodal

activities before CENACE.

INSIGHT |

TRANSLATING MANUALS INTO CONTRACTS MYRIAM DELGADO Director General of Celergy

Despite efforts to strengthen and consolidate the WEM,

CRE has strict and defined standards regarding grid code

there is still a widespread lack of understanding over

technical requirements but Delgado would like to see

how the new market functions. Myriam Delgado, Director

more communication from the commission because few

General of Celergy, says the company was established to

companies are aware of the consequences that might arise

meet this exact need. “The Energy Reform was created to

by not complying with current standards. “The rules of

attract investment into Mexico and stimulate economic

the game should be very clear for every participant,” she

growth. How is a company supposed to operate under the

says. “My suggestion is to apply guidelines, publications,

WEM scheme if there is not a complete understanding of

addendums, agreements and dispositions as these tools

its procedures?” she asks. Celergy is a Mexican company

are easier to understand and regulate.” By April 2019,

that provides consulting services to market energy

these requirements will be mandatory for every market

and CELs under the new market scheme. “We are a

participant with the major sanction being the disconnection

nonsupplier, commercializing company that acts as a

of the plant from the NES.

broker through the issuing of bilateral contracts between power producers and final consumers. Our company also

Delgado attributes the accelerated drive toward renewable

provides consulting services regarding the acquisition

energy generation in part to the country’s commitments

of CELs and compliance with grid code requirements,”

made in the Paris Agreement. But she says the private sector

Delgado says.

needs some additional incentives to get fully on board with the initiative. While Delgado believes the CELs initiative

In January 2016, CENACE started operations with real-time

is a great mechanism to achieve national goals in terms

transactions under the new WEM scheme. Three months

of renewable energy generation, she acknowledges that

later, the grid code guideline was published in Mexico’s

this tool is undergoing a maturation process as well. “This

Official Federal Journal. It obliges every participant in

incentive demands an investment with an ROI of between

the electricity system to comply with specific technical

five and six years,” she says. “2018 was a particularly

requirements. Under the Electricity Industry Law, these

challenging year as companies had to achieve 5 percent

players are distributors, generators, traders, qualified

of clean energy consumption.” According to PRODESEN

suppliers and qualified users with active participation in

2018-32, to achieve a 26.7 percent increase of clean energy

the market. “To be able to operate in the WEM, you need

generation by 2019, CELs consumption will have to increase

to cover certain requirements demanded by CENACE,” says

to 5.8 percent by 2019. The goal is to achieve a clean energy

Delgado. “As a certified user, we operate in the market on

generation target of 31.7 percent by 2022.

a 24/7/365 basis.” Despite being a relatively new company, having been The company’s strategy is to approach companies

created in 2017, Delgado has high ambitions for its future.

operating under medium and high-tension voltages, as

“We want to be the No. 1 energy trading company in Mexico,”

these must comply with grid code regulation. It provides

she says. The company is not only focusing on expanding

advice to help these businesses understand this scheme.

its own footprint but expanding that of international clean

Additionally, if a company is a candidate to issue CELs or

energy companies in Mexico. “Another important objective

introduce a cogeneration system, Celergy can suggest

is to attract international investment to Mexico. Various

various options and pre-feasibility studies. “This is an

companies in the US have approached us as they want

integral trading process and every player benefits,” says

to know how the energy industry operates here and we

Delgado. “The off-taker gains an economic income and the

are advising them on the governmental and administrative

power producer or company with energy surplus can avoid

procedures involved when entering the Mexican electricity

penalties and has profitable inputs as well.”

market,” she says.

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| INSIGHT

PREPARING QUALIFIED USERS FOR TOMORROW ANDREA LOZANO Director General of BID Energy

134

Qualified suppliers in Mexico’s WEM are a critical piece of

Much depends on the load zone and the matching nodes a

the puzzle when it comes to ensuring the bankability of a

specific client operates with,” Lozano continues. “There is

utility-scale renewable energy projects as they act as the

also the possibility of relying on the real-time and day-ahead

middleman between power producers and qualified users,

markets, although our stance in that regard is to keep market

says Andrea Lozano, Commercial Director of BID Energy.

exposure to a minimum and rely primarily on coverage.”

“Our responsibility as a qualified supplier is to work hand in hand with financial institutions, such as development and

BID Energy is the energy trading subsidiary of BID Group, a

commercial banks, to provide the market with the adequate

conglomerate offering commercial development consulting

PPA structures to finance renewable energy project

services for institutional, technological and financial

developers,” says Lozano. “Accessible financial structuring

operations, assisting private companies and governmental

in terms of debt and merchant risk is vital to create market

entities. It was the fifth qualified supplier to launch

liquidity and commercialize the energy produced from these

operations in the WEM in February 2018 and now represents

projects.”

several load centers. “We are working with CENACE and

“

To reflect real market costs, Basic Supply Tariffs must reflect the real operational costs of CFE’s generation plants”

with CFE Transmisión and CFE Distribución for the efficient management of operational details within the market. We received recognition from CENACE for our work; they subsequently asked us to help improve the efficiency of its market transaction systems,” says Lozano. Mexico’s WEM is also dependent on transparent electricity rates. “To reflect real market costs, Basic Supply Tariffs must reflect the real operational costs of CFE’s generation plants, which have yet to be disclosed,” Lozano says. Although

BID Energy has found itself playing a significant role before

she admits their methodology is well-defined, she believes

industrial councils and the emerging energy teams of

the constant changes to reference tariffs and the lack of a

several companies. “Our intention is to provide clarity over

tariff methodology prior to November 2017 to serve as a

the way electricity rates are defined and about the product

comparison create uncertainty for qualified users that have

that is acquired when qualified users pay their electricity

not been guided through these changes. The productive

bill,” Lozano says. “We also need to clarify the difference

enterprise of the state’s electricity bills could be a good

between energy and power, highlighting the compulsory

starting point, as the information showcased does not clearly

requirement of CELs. All these elements help clients identify

reflect the users’ consumption in a user-friendly way. “Final

the hours or days during which energy costs severely impact

user empowerment over their consumption levels is critical

their consumption and how this consumption impacts their

for the market to prosper,” Lozano says.

operational costs on a monthly basis,” she adds. BID Energy is looking to cement its wholesale electricity To provide efficient solutions to its clients spanning different

market foothold in its capacity as a compliance player,

industries, BID Energy undertakes a fundamental analysis

protecting its clients’ interests and guaranteeing their

on a case-by-case basis in which the specific elements that

benefits. “We are satisfied with our market position and the

compose the demand curve are thoroughly scrutinized.

work done so far, both with public institutions, such as CRE,

“We match all these variables with the adequate coverage

CENACE, and qualified users,” Lozano says. “We remain

or generation technologies within our portfolio. At the

focused on increasing our energy supply portfolio, with more

same time, we assess CEL, power and energy requirements.

of a focus on Mexico’s northern region and Baja California.”

ROUNDTABLE | Among the new figures that emerged during Mexico’s energy transition was that of the qualified supplier. With the ability to offer short-term contracts and increase price competitivity for final users, many companies are beginning to look at this option over becoming power generators. Mexico Energy Review asked industry leaders to discuss the greater role they have in consolidating the energy market and fostering confidence among end users.

HOW CAN QUALIFIED SUPPLIERS HELP TO CONSOLIDATE THE WEM?

135

We can back final users to the best of our ability. All our discussions are aimed at users fully grasping every cog of the electricity market machinery. The efforts of the Mexican Association of Qualified Suppliers (AMSCA), co-founded by E2M, are solely directed toward fine-tuning market rules to create further prosperity. CFE Transmisión and CFE Distribución are taking the first steps in a corporate culture shift by operating as two separate, fully-fledged companies in their own right, tasked with the development of their own business models. AMSCA works hand in hand with CFE Distribución to capitalize on its potential and generate profits based on

HANS KOHLSDORF Managing Partner of E2M

high service-quality benchmarks.

Developers remain on the lookout for easier mechanisms to obtain financing flows for their projects with shorter term contracts, an option still unavailable in the market. The very essence of the WEM is to provide the opportunity to select from different offers available and be able to choose the best option in terms of honest, fair and profitable prices consistent with the load zone where they are located, as well as their energy demand curve. As qualified suppliers, we will continue working closely with CRE and CENACE to foster clear rules of the game and observe their compliance.

ANDREA LOZANO Director General of BID Energy

One of the biggest challenges for qualified suppliers is to manage risks to mitigate term mismatches inherent to the industry. Qualified users are reluctant to sign contract terms longer than five years and banks remain averse to financing projects that lack long-term PPAs. Qualified suppliers are tasked with bolstering qualified users’ confidence in Mexico’s new energy model. By providing valuable insights into the market’s operation and benefits, qualified users can boost the market’s energy trading activities, minimize uncertainties and manage reduced risks in the market’s operation.

JUAN GUICHARD CEO of Ammper Energía

Telefonica Mexico's KAIXO solar park, Ascension, Chihuahua

OFF-TAKERS

Competitiveness is the key ingredient on Mexico’s new energy menu and Mexico’s private sector is intent on shifting toward clean, sustainable, cost-effective, commoditized and predictable energy consumption. Renewable energy in Mexico is no longer solely environmentally conscious but also business sound.

Some industry heavyweights have taken 180-degree turns toward renewables and sustainability, while others with complex energy consumption schemes are taking a more prudent, step-by-step approach to capitalize on present and future opportunities. The country’s energy options have expanded and now is the time for the main consumers to choose among the existing possibilities to meet the criteria of competitiveness and efficiency.

The criteria chosen by Mexican off-takers when opting for a qualified supplier or for an energy producer, the impact of renewable energies on the competitiveness and productivity of some of the country’s largest consumers, the importance of Corporate Social Responsibility in the daily activities of a company and its longterm vision are some of the issues that will be analyzed throughout the pages of this chapter.

137

CHAPTER 6: OFF-TAKERS 140

ANALYSIS: Ready to Take Control?

141

VIEW FROM THE TOP: Jorge Gutiérrez, Energía Eléctrica BAL

142

VIEW FROM THE TOP: Irene Espinola, Grupo Bimbo

143

VIEW FROM THE TOP: Andreas Müller, CAMEXA

144

TECHNOLOGY SPOTLIGHT: Thinking Differently, Producing Solutions, Guaranteeing Results

146

VIEW FROM THE TOP: Juan Carlos Pardo, Nestlé México

148

INSIGHT: Victor Treviño, FEMSA

149

VIEW FROM THE TOP: Francisco Con, CEMEX Energía

Christian de Cosio, CEMEX Energía

150

VIEW FROM THE TOP: José Ruiz, Buenavista Renewables

151

VIEW FROM THE TOP: Gustavo Ortega, Grupo México, Energy Division

152

PROJECT SPOTLIGHT: Grupo México Preserving Culture, Fostering Entrepreneurship

154

VIEW FROM THE TOP: Armando Ibarrarán, 3M

155

VIEW FROM THE TOP: Ricardo Cardiel, Latin American Rainmakers

156

VIEW FROM THE TOP: Miguel Calderón, Telefónica Movistar

157

VIEW FROM THE TOP: Raúl Ceballos, Organización Soriana

139

| ANALYSIS

READY TO TAKE CONTROL? Mexico’s household industrial names are leading the charge toward clean energy consumption as the country’s industrial tissue stands to benefit the most from cost-effective energy and energy efficiency. Others, however, remain cautious about ambitious clean energy targets and are awaiting further market maturation

140

At its core, Mexico’s new energy model is mandated with

explain as clearly as possible how the wholesale and retail

the empowerment of final users. With a diversified menu

electricity markets work, as well as how the projects are

of options in cost-effective electricity supply, the window

financed and developed in different ways. Costs associated

of opportunity has grown as much as the sophistication

with conventional sources to generate electricity are an

and complexity of monitoring variable local marginal prices

important factor to consider in the long-term stability of

across the country’s 2,453 electricity nodes. If a company’s

prices. That being said, renewable energy sources then

industrial activity requires more than 1MW per year of

become an important tool for intensive energy consumers

electricity consumption, it complies with the primary trait

to ensure their costs associated with energy consumption

to become a qualified user enabled to participate in energy

are more stable in the long run,” says Ruiz.

transactions in the wholesale electricity market.

THE INDUSTRIAL HOLY GRAIL Power producers are poised to educate the country’s

Mexico’s industrial tissue includes energy-intensive

industrial tissue over the new energy consumption

companies poised to benefit the most from clean energy

possibilities unlocked for Mexico’s industrial players

and energy efficiency practices, such as automotive,

nationwide, with added competitiveness in mind as the

steel, mining and paper manufacturers. PRODESEN 2018-

energy consumption savings can be allocated toward

32 estimated electricity amounts to 33.4 percent of the

performance-enhancing investments. “Off-takers are trying

industrial sector’s final energy consumption, second

to consume more renewable energy sources to lower their

only to dry gas and above petroleum products and coal.

carbon footprint but the most important factor to consider

Moreover, the Ministry of Energy’s Energy Information

when buying electricity is the economic benefits. This

System reports that between January and September

means that they need to have monetary savings through

2017, industrial users grew from 327,903 to 339,293, a

time and stable energy prices,” says José Ruiz, CEO of

3.5 percent increase. This rise in the number of industrial

Buenavista Renewables. Fortunately, some off-takers enjoy

players comes with an equally sizable increase in energy

a higher added value by consuming clean energies because

needs, of which the Electricity Industry Law stipulates 5

their clients reward them for that. “As an example, we

percent must come from clean energy sources via the

developed the solar park Los Santos Solar I in Chihuahua,

purchase of CELs. This requirement is scheduled to grow

one of the first solar parks in Mexico, to deliver electricity to

to 13.9 percent by 2022.

a German company that wanted to reduce its environmental impact. According to our client, its opportunities to get

“The Energy Transition Law is quite clear, defining which

new customers would increase significantly not only

sources of energy are clean and renewable. Our goal is to

because its products and service prices would decrease

examine the most suitable sources for our business,” says

or be stable through time, thanks to more efficient energy

Jorge Gutiérrez, Director General of Energía Eléctrica BAL.

consumption but also because its clients wanted to have

“We also continue to implement the best energy efficiency

more environmentally-responsible suppliers,” Ruiz adds. He

programs for the group’s companies. Peñoles, for example,

also highlights the prevalent complexities of switching to a

has a program that measures how many kWh it needs to

bilateral PPA. “The first obstacle comes at the moment of

produce 1oz of gold, silver or zinc. The final purpose of

asking them to sign a long-term contract where they will

this program is to incorporate every relevant input and

not receive energy right away, but up to a year or more.

showcase the best option and process to produce more

Clients would much rather sign a contract to buy energy

minerals with less power.”

now and for a short-term period that they could extend if needed. But for a PPA we need a committed purchaser

Mexico is capitalizing on the momentum created by

of energy and a signed contract to be able to finance the

household names such as Grupo Bimbo, FEMSA and

development of the project.” The low prices for electricity

Nestlé. These industry heavyweights in their respective core

reached in the long-term electricity auctions represent

businesses are showcasing aggressive clean energy and

another challenge. “Potential clients have asked us why we

sustainability targets to serve as references and establish

do not offer the same low prices as those perceived in the

guidelines for other industrial players across the country

long-term electricity auctions. In those cases, we have to

looking to do the same.

VIEW FROM THE TOP |

CLEAN SELF-SUFFICIENCY JORGE GUTIÉRREZ Director General of Energía Eléctrica BAL

Q: How close is Grupo BAL to reaching its 2023 plan to be

Q: What progress has been made by the EnerAB JV

a 100-percent self-sufficient energy company?

between Energía Eléctrica BAL and AES?

A: I would say that Grupo BAL has progressed about 86

A: I think that there have been significant changes from

percent to its goal and after we become self-sufficient we

last year to date. For example, we already have an ongoing

will stop purchasing electricity from CFE and will even start

project with a defined financing package for a 306MW wind

to participate in the wholesale electricity market and sell

farm in Llera, Tamaulipas. The power produced at this wind

electricity, adapting our strategy to the market’s conditions.

farm will be sold to Peñoles’ consumption centers and will

In other words, we will be playing in the major leagues.

be transported through a 400,000V transmission line running from Güemez to Champayan.

Q: What technologies or strategies is Grupo BAL putting in place to cope with its clean energy requirements?

The project’s financial model is an innovative scheme that

A: The Energy Transition Law is quite clear, defining

will be used for future developments. It consists of issuing

which sources of energy are clean and renewable. Our

a long-term bond to cover the equity investment, which

goal is to examine the most suitable sources for our

showcases the confidence investors have in this type of

business. We also continue to implement the best energy

project. To deconstruct this financial model, let us say

efficiency programs for the group’s companies. Peñoles,

that we have a US$400 million project to develop and our

for example, has a program that measures how many

lenders provide 70 percent of the capital and the remaining

kWh it needs to produce 1 ounce of gold, silver or zinc.

percentage is covered by our equity. We could finance the

The final purpose of this program is to incorporate every

equity percentage with Afores or with a three-to-five-year

relevant input and showcase the best option and process

mezzanine loan, which is typically used to pay off income-

to produce more minerals with less power. This program

producing projects. The problem with these two financing

can even tell us the energy efficiency of each component

options is that both are payable in the short term, so we

present in the production line, so we know exactly how

would need to refinance the loan afterward, which could

many need maintenance or replacement. Grupo BAL has

increase the interest rates and our financial exposure. This

taken advantage of the extremely low renewable energy

is why we are more comfortable issuing long-term bonds

prices. PV technology prices, for instance, have decreased

to finance our equity.

around 85 percent in the last 10 years. This has allowed Grupo BAL’s companies to cover their energy demand with

Following this financial strategy, we already have another

renewables, using cost-efficient schemes.

project with Peñoles in the pipeline, which is a cogeneration plant in Coahuila. This plant will generate 20MW and 110t/h

The only problem that renewable energy sources have is

of steam. To produce the energy required, we need a 60MW

that they are intermittent and can produce losses, which

turbine, which means that the plant will have a surplus of

is a big issue for industrial companies like ours for which

40MW that could be transported from Ocampo, where

downtime costs millions of dollars. Fortunately, CFE is

the cogeneration plant will be built, to Torreon through

already working to make sure that electricity is available

a transmission line whose price would be absorbed by

24/7 across Mexico, even in isolated systems like that in

the project.

Baja California. Now, and with the Baja California case in mind, if a company wants to build a PV solar park or a wind farm in an isolated system, CFE, through CENACE,

Energía Eléctrica BAL is Grupo BAL’s subsidiary for power

asks developers to provide storage for at least one-third of

generation projects. In 2016, Grupo BAL established an alliance

every 1MW produced. This increases the CAPEX and OPEX

with AES to create EnerAB, to capitalize on Mexico’s renewable

of the projects.

projects, efficient CHP schemes, LNG and energy storage facilities

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| VIEW FROM THE TOP

CLEAN ENERGY USE A COMPETITIVE ADVANTAGE IRENE ESPINOLA Global Renewable Energy Director at Grupo Bimbo

142

Q: Grupo Bimbo is a world-renowned bread-maker and

individually or the project as a whole. In the end, we realized

also part of the RE100 global initiative. What was the main

the most beneficial thing to do was to select a partner

reason for joining and what is its purpose?

at a national level because it is quite complicated to have

A: RE100 is a collaborative, global initiative that brings

various partners and control all this equipment in many

together more than 100 influential businesses committed to

locations. We are working with Enlight on this project as it

100-percent renewable electricity consumption. In fact, we

is the biggest distributed generation company in Mexico.

are the first company in Mexico and even in Latin America to join this movement. Generally, in these initiatives, Grupo

Q: What was the main driver behind being the first

Bimbo participates as an agent of change. The idea is that

company to issue a CEL through distributed generation?

after taking the first step, more companies follow up by

A: We do not have a set goal for CEL but we already have

identifying successful case studies. This has an important

covered this requirement due to the legacy contract the

impact in Mexico as renewable energy is the best option

company holds with Piedra Larga’s wind farm. As Grupo

for achieving sustainability. For Grupo Bimbo, being able

Bimbo, we do not need to accomplish that goal as we

to use clean energy represents a competitive advantage

are registered as basic users with CFE, so we are already

from a social, environmental, and economic perspective.

paying for CEL in the tariff CFE is charging. Even so, we are participating with our distributed generation facilities. The

Q: What is the company’s guideline when selecting

goal is to generate 5 percent of clean energy in 2018 and

strategic alliances to work with?

to increase that to 8 percent in 2019. We do not need that

A: Grupo Bimbo is present in 32 countries. Our strategic

renewable energy certificate as we are already covered but

allies are located in every region we open. We do not always

the idea is to offer these certificates in the market for other

work with the same companies but we explore options in

companies that cannot invest in clean technologies but must

each location. When we enter a country, we get to know

comply with this requirement. So far, Enlight has served as the

the current legislation and open auctions related to energy

generator and ENGIE has acted as our qualified supplier for

topics. For these auctions, we seek out companies that we

trading these certificates in the market. This company reports

already know so they can introduce us to other players. In

these CEL in the system and collocates them in the market.

the end, the energy industry is small and we know each other. These auctions are open to the market and any player

Q: What differentiates Mexico from the other 31 countries

that wants to participate, can do so.

where Grupo Bimbo holds operations? A: Mexico was the first country where we started with

Q: What is Grupo Bimbo’s role is the solar distributed

the RE100 initiative. We began in 2012 with the Piedra

generation segment?

Larga wind farm located in Oaxaca. Through this project,

A: We are installing 20MW at our 42 producing plants in

we supply 70 percent of our national operations. The

Mexico through this scheme. This project is already being

remaining 30 percent comes from solar distributed

executed and we hope to finish it by July 2019. For this

generation and the installment of another wind farm.

project specifically, we conducted a national auction

With this capacity, Grupo Bimbo produces 40 percent

process. We weighed whether to address installments

of its global energy supply through renewable energy generation. For 2019, we have signed a contract with Invenergy to construct a 100MW plant in Texas that

Grupo Bimbo is a world-renowned Mexican bread-maker with

will start operations this same year. This installment will

operations in 32 countries in the Americas, Asia, Africa and

provide an additional 35 percent capacity globally. With

Europe. The company produces more than 13,000 products

this, we still face a 25 percent generation deficit that will

through 100 different brands, employing 139,000 people

be supplied from other geographies.

VIEW FROM THE TOP |

QUICK, EFFICIENT BENCHMARK FOR ENERGY TRANSITION ANDREAS MÜLLER Deputy Director of CAMEXA

Q: What can Mexico learn from Germany’s experience

real estate and transportation. We also continue fostering

with renewable energy to further consolidate its energy

the development of solar technologies in Mexico, such as

transition?

PV and thermo-solar technologies. We are also working

A: What Mexico can learn from Germany’s experience

with ANES to keep implementing a program called Solar

regarding how to operate an energy transition is how to

Payback, which is a tool to incentivize the use of thermo-

make things public, faster and how to do that correctly.

solar technologies across every segment, mainly for

Germany decided a few years ago to boost its renewable

industrial and commercial purposes. Finally, CAMEXA is

energy generation, removing nuclear energy from the

incentivizing the integration of PV projects across our

equation, by incentivizing companies, cities and even

members and also working together with local companies

householders to generate clean power. In terms of

interested in our business integration methodologies,

renewable technologies, Germany transferred its PV know-

particularly for energy efficiency and management.

how to the point where China became a greater market to produce and export solar panels. Regarding wind, the

Q: What is your assessment of the country’s energy

country is still a great market to improve this technology

efficiency policies and what is missing for these policies

and to market it anywhere in the world. It is also worth

to further permeate the country’s productive tissue?

mentioning that Mexico is going through a deeper and

A: Mexico’s regulatory framework is well-designed; what

more complex energy transition than that which Germany

is missing is a proper implementation of its laws, rules and

experienced. However, both countries can benefit from their

guidelines. Also, regulation has to be extremely clear so

open markets and keep finding ways to make their power

companies can identify what part of it is mandatory and

generation cleaner and more effective.

what part is just a recommendation. To name an example, CRE’s norm regarding how to report CO2 emissions is a

Q: What renewable energy market niches are of the highest

regulation that will be mandatory for companies once it is

interest for German companies in Mexico?

formally launched, and companies should understand how

A: Alongside CONUEE, CAMEXA is implementing a

this and other mandatory norms work.

methodology that we call learning networks, which basically are ways to create effective energy-efficiency programs,

Our job is to help our members to understand these

along with more sophisticated methodologies like energy-

regulations and do the necessary work to comply with them,

management programs. These learning networks allow

if needed. Once companies understand their obligations,

companies to interact between each other, share expertise

then we work with them to build strategies to comply with

and knowledge and, of course, create standard procedures

this regulation in the best way possible. We even created a

to measure the success of everyone’s methodologies to

consortium with AMEXGEN and AMENEER to consolidate

improve their energy efficiency and management. The

our methodologies and keep improving energy-efficiency

purpose of these learning networks is to consolidate and

programs across the industry. This joint effort has been

validate the best energy management model for everyone.

well-received and more companies are contacting us to help them build out our methodology to implement energy-

Last year, CAMEXA initiated a first phase of this model with

efficiency programs in their organizations.

Bosch and we are now working to begin a second phase. We also implemented our learning network methodology with eight companies from Nuevo Leon’s automotive

CAMEXA is the Mexican-German Chamber of Commerce and

cluster, and we are setting up, with the support of GIZ

Industry, composed of 800 associates. It is an information

and CONUEE, four learning networking methodologies

exchange platform and articulates the interests of its members

in different productive sectors of the country, mostly for

before governmental agencies and private associations

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| TECHNOLOGY SPOTLIGHT

US$13 million in economic return

144

RAMADASA 4.0 ENERGY MANAGEMENT SYSTEM POWERED BY SAYSAP

Initial assessment, proposals for improvement

Smart project management Online supervision

Engineering platform and advanced control processing

Monitoring and verification of savings

Interconnection with clients' ERP

Digital management based on ISO 50001, 50004 and 50015 Facilitates evidence for CELs, carbon market, information for Annual Operations Certificate (COA) and National Register of Emissions (RENE)

Audit preparation

THINKING DIFFERENTLY, PRODUCING SOLUTIONS, GUARANTEEING RESULTS Heat is a key energy consumption variable for agro-industrial corporations. When Reny Picot, a Spanish dairy producer with a manufacturing plant in Mexico, decided to analyze its processes to find opportunities to reduce its energy cost, it turned to RAMADASA. RAMADASA, a Mexican business consultancy specialized in energy management and collaborative engineering, deployed its RAMADASA 4.0 Energy Management System to conduct an exhaustive diagnosis of Reny Picotâ&#x20AC;&#x2122;s production processes to determine its patterns of energy consumption and areas of improvement. The analysis showed that at the end of the milk concentration process, the company lost energy that could be recuperated and reused. The best solution for heat recovery was to incorporate a thermocompressor in the last phase of the evaporation process. This allowed the recovery of enough energy to generate 800 tons of cooling using absorption chillers while also employing heating coils to harness the remaining energy to preheat air. This procedural modification provided a three-pronged benefit: a yearly reduction of 180,000MBTU, mitigation of the emission of 10,000 tons of CO2 and a decrease in yearly energy costs of MX$50 million, representing an ROI of less than two years. While this procedural modification seems straightforward, integrating these improved mechanisms remains challenging. IMPROVEMENTS IN MARGINAL CONTRIBUTION (MC) BY TAKEN ACTIONS

Energy-intensive companies continue to resist changes to their production processes when those processes are functioning properly, albeit inefficiently.

Actual cost of energy Cold improvement

-210.8

The threat of economic losses when shifting toward energy-

-1.3

RAMADASA 4.0 Energy Management System powered

17.9

Substitution of fuels Heater optimization

by SaySap. Rooted in ISO 50001 compliance, it not only

5.1

Air system optimization

1.4

Water optimization

2.1

integrates energy consumption diagnostics but also digital and collaborative engineering practices. It enables the simulation of production process modifications to provide

Marginal Contribution increased capacity

-200

-150

Loss reduction Natural gas

-15.5

-50

changes before placing the first equipment purchase

100 15

-100

operational certainty regarding the intended procedural

44.2

Cogeneration

-250

saving procedures is deeply ingrained in the core of the

56.6

Heat recovery

improvement projects and integrate automation and control measures, while monitoring key performance indicators. 50

100

CURRENT STATE

IMPROVED STATE

Energy Intensity GJ/t

17.1

9.8

Emissions CO2 eq/t

1.4

0.7

INDICATOR

order. The platform can also supervise the progress of

The all-encompassing platform allows the delivery of expected results, providing certainty to investors and transparency regarding the obtained results, based on the International Performance Measurement and Verification Protocol (IPMVP) promoted by the Efficiency Valuation Organization (EVO).

145

| VIEW FROM THE TOP

CREATING SOCIAL AND ECONOMIC VALUE THROUGH COOPERATION JUAN CARLOS PARDO Shared Value Creation and Sustainability Director of Nestlé México

146

Q: What is Nestlé’s main contribution to Mexico’s energy

policies is to have hybrid or electric vehicle fleets in every

transition?

country where we operate. If a big company like Nestlé

A: Nestlé defines these types of policies at an international

starts to implement these types of internal policies or

level. We normally are one step ahead of every country’s

guidelines, we can encourage and incentivize our supply

regulation as a result of our internal assessments. In

chain to do the same.

Mexico’s case, this assertive mentality has allowed us to be pioneers and among the first companies to implement

Q: How is Nestlé adapting its energy consumption curves

renewable energy consumption, not because it is a trend

to intermittent energy sources such as wind or solar?

or it is the right thing to do, but because it makes business

A: In theory, the installed capacity from our wind farm

sense for us, which is the most important consideration.

doubles our energy consumption to compensate wind’s intermittency. Having this extra installed capacity allows

Q: What is missing from a regulatory standpoint for

us to reach, at least, our minimum energy requirements.

qualified users such as Nestlé to take full advantage of

Another factor that prevents intermittency is electricity

Mexico’s wholesale electricity market?

transmission. It is one thing to generate renewable energy

A: There are more operational components that need

and another to transport it. Fortunately, CFE has done a

fixing rather than regulatory. When a company is

marvelous job in this regard and solved every issue we

immersed in its operation, it needs to truly assess where in

have had in extraordinarily short time frames. Having an

its daily activities it must improve its energy consumption.

extra installed capacity as well as reliable and effective

Companies like CFE or any other energy producer then

transmission infrastructure has allowed us to prevent

need to assess how to become more competitive and

energy intermittency and eradicate operational losses.

fix the regulatory and operational components, such as simplifying right of way permitting or which technology

Q: How did Nestlé encourage its supply chain to implement

can deliver a better cost-benefit to then sell the electricity

renewable technologies, such as biodigesters?

produced. Mexico has a great deal of potential to generate

A: We were able to do this with ranchers and milk

clean and reliable electricity from natural gas: it is a matter

producers that already had the infrastructure or means to

of untapping every opportunity. In general terms, I think

invest in technologies like this. With a significant amount

that Mexico’s Energy Reform has been evolving at a good

of cattle, it is possible to produce a considerable amount of

pace and we think more opportunities will emerge in the

organic waste that can be used in biodigesters to produce

near future.

energy or as an organic fertilizer. Sometimes, ranchers even export some of this organic fertilizer, which creates

Q: Why must a global food industry leader like Nestlé be

an additional income to their core operations. But again,

a champion of renewable energy consumption?

these benefits are only achievable with a considerable

A: In my opinion, it has nothing to do with the type of

amount of livestock and the proper means to invest in the

company; it is a question of leadership. Big companies

infrastructure that is needed to implement biodigesters or

like us have the power to influence and move an entire

to process organic fertilizers.

value chain toward energy efficiency and renewable energy consumption. But again, this is not a matter of trends,

Nestlé stopped using fuel oil in our plants and started using

but a matter of having a more efficient and competitive

natural gas shipped in through pipelines or by trucks and in

business. For example, we have encouraged some ranchers

some locations, we continue to use liquefied petroleum gas

that work with us to use solar technologies or biodigesters

(LPG). Regarding the machinery we use, we are investing

to improve their energy consumption efficiency and final

in efficient motors and are increasing our energy cost

costs. Another example is that one of our international

reductions and creating greater efficiencies.

A Nestlé factory, Ocotlan, Jalisco

147

To highlight a commendable example, since 2012, Nestlé has

our international commitments and related efforts. To

consumed 85 percent of its energy requirements through

date, Nestlé has 41 international commitments that are

its Bii Nee Stipa II wind farm located in La Ventosa, Oaxaca.

divided into our three key areas, which at the same time

Our goal is to run our operations entirely by renewable

are aligned with our sustainable development objectives.

sources by 2019, mainly by wind technologies. But we also

We did not reinvent the wheel, we just adapted to

plan to add solar technologies to the equation to achieve

global conditions and aligned our global efforts to local

this goal.

conditions. Becoming a greener company is just one of the commitments to improve our foothold internationally.

Another example is the biomass plant installed at our

As mentioned before, being a big company carries an

Toluca facility, which represented an investment of US$20

enormous responsibility to not just perform according to

million. We reuse the coffee waste generated nationwide

best international practices, but to encourage others to

to produce energy to heat the boilers used to toast the

do the same. We always share our knowledge and best

coffee we sell.

practices with our partners, clients and vendors.

If we combine all these efforts, Nestlé is then able to reduce

Q: After fulfilling its goal to consume 100 percent

its CO2 emissions and reduce its footprint in a sustainable

renewable energy, what is next on Nestlé’s energy agenda?

way and with a business-oriented vision. We call this

A: Internationally, and within our planet focus, we have

process a circular economy where we take advantage of all

several issues to solve, such as water treatment, waste

the waste generated in our processes. To date, none of our

management, hybrid or electric vehicle fleets and reducing

17 factories in Mexico uses landfills; we reuse and recycle

our footprints, be they carbon, hydric or waste-based. Our

everything, from water to any kind of waste.

shared value creation policy has granted us the opportunity to share our knowledge and expertise and to nurture other

Q: How does your Creating Shared Value (CVC)

companies’ best practices. Through different associations,

concept permeate your plan to consume 100 percent

initiatives and chambers in which we take part, we transfer

renewable energy?

our knowledge and participate in consultative committees

A: The core value of our operations is based on a single

to incorporate best practices that can help us to solve

purpose: to generate a healthier and better future. We

specific problems and vice versa. One company alone

focus and divide this vision in three key areas: individuals

cannot generate a significant change, which is why we need

or families, communities and the planet. Our shared

to collaborate with our peers, supply chain and others to

value creation is based on Porter and Kramer’s theory

generate a greater value.

that states, in general terms, that companies need to generate value for their stakeholders, mainly investors, but also for communities. In other words, create win-

Nestlé México is part of the Nestlé global nutrition and wellness

win scenarios. This is why Nestlé decided to change

group. During the past 10 years, it has introduced several efficiency

the name of its social responsibility division to shared

and renewable energy technologies into its processes to reduce

value creation. We did this to integrate and coordinate

its environmental impact and become more competitive

| INSIGHT

EARLY AMBITIOUS TARGETS FOR COMPETITIVE GROWTH VICTOR TREVIÑO Energy and Sustainability Director of FEMSA

148

Large, cross-sectional multinationals in the country are betting

of Mexico’s energy availability as a whole. “The auctions do

on clean energy sources and energy efficiency to improve

not take into account additional elements beyond generation

their competitiveness. But coupling growth and its inherent

costs,” he says. “A qualified user must account for transmission,

surge in energy consumption with clean energy is easier said

distribution and financial transmission rights, ancillary services

than done, says Victor Treviño, Energy and Environment

and power demand.” He identifies solar PV as a rising star

Director of FEMSA. “To reach FEMSA’s 85 percent target of

emerging from the auctions.

clean electrical energy consumption in Mexico by 2020, we use a two-pronged approach: searching for energy efficiency

Reaching its target of 85 percent clean energy by 2020

across all our operations and adhering to primarily renewable

required a comprehensive overhaul of FEMSA’s productive

electrical energy consumption,” he says.

chain, far beyond clean energy consumption. “While we make sure all our operations contribute to this effort by including

FEMSA, which operates the largest independent Coca-Cola

them in our renewable energy acquisition contracts, we do

bottling group worldwide, was among the early movers

not stop at electricity,” Treviño says. FEMSA is also lowering

in fully committing to using renewable energy sources in

its water-consumption footprint and implemented a waste

2007, when it signed its first PPA. FEMSA recognized early

management and recycling program. Today, 81 percent of

on the importance of reducing the environmental impact

Coca-Cola FEMSA’s plants recycle 90 percent of their waste.

of its operations and designed a now-tenured strategic sustainability framework. “Incorporating renewables is a

As it defines and revises its clean energy goals Treviño

critical element within this strategy,” Treviño says. On the

identifies technology as a key pillar for the company’s strategy.

energy efficiency side, the FEMSA group incorporates new

“FEMSA is constantly on the lookout for new technologies

technologies across its different business units to ensure

applicable to refrigeration, lighting, efficient compressed-air

optimal efficiency. These include OXXO retail stores, Coca-

generation systems, high-efficiency motors and new control

Cola FEMSA manufacturing plants and the retail operations of

algorithms for our bottling lines and sensors to further

its pharma division. “Each year, we are proud to report lower

automatize processes and avoid downtimes,” he says.

kWh consumption,” he adds. FEMSA’s philosophy, Treviño adds, is to view competitiveness Based on FEMSA’s particular energy consumption profile and

through a long-term lens. “Competitiveness is a work in

its international footprint, it adapts its energy requirements

progress to which all components of our cost structure must

based on the location’s options. “Each country has its own

contribute. We continuously look at ways in which we can

energy regulatory framework, renewables capacity and

maintain competitiveness through our project management

resource availability. For instance, Panama stands out for

capacity, translated into environmental responsibility with a

its hydroelectric use, while the Philippines has important

positive economic impact for the industry,” he says. FEMSA

geothermal resources,” he explains. “If it makes economic

remains open to new instruments and incentives deployed

sense, we adapt those trends and technologies to Mexico’s

in other markets, such as carbon bonds, but he says Mexico

specificities.” But he adds that wind power remains the

still requires the further development of an incentive-oriented

renewable technology best-suited to the company’s needs

market. Treviño is optimistic about attaining the company’s

in Mexico. This may not necessarily be the case in the long

clean energy goal, even prior to 2020. “In 2018, we anticipate

term, as the company is constantly searching for the best

reaching 60 percent of renewable energy consumption and

option. “We continuously evaluate different technologies,

expect to reach 85 percent by 2019, with a strong possibility

including solar PV, wind and thermo-solar,” he says. According

of surpassing it,” he says. “We will continue working toward

to Treviño, while the country’s long-term electricity auctions

achieving this major milestone, providing our support to

can serve as a reference, they should be viewed in the context

renewable project execution.”

VIEW FROM THE TOP |

BALANCE BRIDGES GAP AMONG USERS, DEVELOPERS, INVESTORS FRANCISCO CON Business Developer Director of CEMEX Energía

CHRISTIAN DE COSIO Commercial Manager of CEMEX Energía

Q: What is CEMEX Energía’s major contribution to the

start developing projects together. Three of these projects

Mexican energy industry?

will start operations in 2019 and another couple are in

FC: CEMEX Energía is both a multinational intensive energy

advanced development stage. Since the number of buyers

user and an experienced project developer in Mexico. The

in the wholesale market, besides the highly competitive CFE

company can bring a particularly balanced perspective

long-term auctions, remains relatively small, the pace has

to the power industry, helping to bridge the gap between

been a little slower than what we would like. So far, we have

users, developers and investors. For instance, we were

closed some deals to bring forward our projects.

an active participant in the consultation process for the establishment of the Clearing House for the long-term

Q: How has the Energy Reform impacted CEMEX Energía

electricity auctions. We also engage with authorities

operations and what areas of opportunity has the

and other industry participants through several bodies

company spotted?

on subjects as varied as the network code, energy rates,

FC: The introduction of the clean energy obligations and

promotion of renewable energy sources and wholesale

the wholesale power market as part of the Energy Reform

market trading, among others. We had a view of promoting

brought many opportunities to CEMEX and other industry

an open, efficient and flexible power sector for the benefit

participants. More capital became available at a lower cost,

of final users and industry participants alike.

while competitive pressure, experience gains and increased scale, all contributed to achieve a substantial reduction in

Q: What is CEMEX’s current energy mix and why did it

the cost of renewables since 2015. This new panorama

decide to begin developing sustainable energy projects?

opens up opportunities to optimize our power costs by

CC: CEMEX’s global power mix is composed by

including new generation assets in our supply portfolio.

approximately 75 percent thermal energy and 25 percent

We also expect that the upcoming introduction of the

renewable energy. In the next two years we aim to boost

dispatchable demand resources will let us benefit from the

the participation of renewables by 10 percent, to 35 percent.

value that our production process flexibility can bring to

CEMEX is a producer of heavy building materials such as

the wholesale market.

concrete, cement and aggregates. Because of this, our production processes demand large amounts of energy.

CC: We have a qualified supplier through which we

Therefore, to meet our customer’s expectations, we aim to

purchased a small amount of energy in the last auction.

have low and stable production costs, reducing emissions

With the projects we are currently developing, there will

whenever possible. In 2006, CEMEX started to develop the

be some new duties for the supplier. One of the conditions

250MW Eurus wind project in Oaxaca to increase our share

that we must work with is that we have legacy self-supply

of self-supply power and to lower our energy costs through

contracts; if we want to migrate further into the market, we

the introduction of what, at the time, was a novel technology

must first transition from the portfolio we currently have.

in Mexico. Then in 2012 we started the development of the

Another challenge is the liquidity within the market. We

252MW Ventika wind farm, and something very good that

have operations all over the country, and the price of energy

comes from these types of projects is that renewable assets

ranges as well. This makes it so that one project does not

provide long-term price certainty.

really add value to one plant as it does to another.

Q: What are CEMEX Energía’s main projects in Mexico and what new projects would it like to develop?

CEMEX Energía is a division of Cementos Mexicanos (CEMEX),

CC: CEMEX Energía began developing projects in 1998 with

one of the world’s largest cement and concrete product

two thermal power plants that started operations in 2004.

manufacturers. The energy division is focused on the development

In 2015 we announced a JV with Pattern Energy Group to

of projects in the Mexican power industry

149

| VIEW FROM THE TOP

INFRASTRUCTURE EXPERIENCE FOR BETTER RENEWABLE ENERGY PROJECTS JOSĂ&#x2030; RUIZ CEO of Buenavista Renewables

150

Q: What specific added value does Buenavista Renewables

Q: What factors make intensive energy consumers hesitate

offer to the energy industry in Mexico?

on signing PPAs?

A: Buenavista started activities in 2013 as a Chinese-US-

A: Entering into a PPA is not easy. Sometimes it is hard to

Mexican company. Many of the founders come from the

explain the specifics of the contracts to potential clients.

banking sector with a focus on financing infrastructure

The first obstacle comes at the moment of asking them

projects for transportation, water, sanitation, solid waste

to sign a long-term contract where they will not receive

and energy, among others. Our backgrounds give the

energy right away, but up to a year or more. Clients would

company a specialized knowledge of how projects are

much rather sign a contract to buy energy now and for a

carried out and financed, as well as their associated risks and

short-term period that they could extend if needed. But

mitigation factors. The business opportunity for Buenavista

for a PPA we need a committed purchaser of energy and

in Mexico began when we recognized that intensive energy

a signed contract to be able to finance the development

consumers suffered when structuring energy projects that

of the project.

needed to incorporate clean energy sources. They did not fully understand all the elements related to regulation and

The low prices for electricity reached in the long-term

banking. Given our experience developing financial schemes

electricity auctions represent another challenge. Potential

for infrastructure projects, we knew we could add value to

clients have asked us why we do not offer the same low

Mexicoâ&#x20AC;&#x2122;s energy market conditions.

prices as those perceived in the long-term electricity auctions. In those cases, we have to explain as clearly as

Q: What key factors do off-takers consider when choosing

possible how the wholesale and retail electricity markets

an energy provider for PPAs?

work, as well as how the projects are financed and

A: It is true that off-takers are trying to consume more

developed in different ways.

renewable energy sources to lower their carbon footprint but the most important factor to consider when buying electricity

Costs associated with conventional sources to generate

is the economic benefits. This means that they need to have

electricity are an important factor to consider in the long-

monetary savings through time and stable energy prices.

term stability of prices. That being said, renewable energy

Fortunately, some off-takers enjoy a higher added value

sources then become an important tool for intensive

by consuming clean energies because their clients reward

energy consumers to ensure their costs associated with

them for that. As an example, we developed the solar park

energy consumption are more stable in the long run

Los Santos Solar I in Chihuahua, one of the first solar parks

and with that argument in mind it becomes easier for

in Mexico, to deliver electricity to a German company that

potential customers to understand the benefits of our

wanted to reduce its environmental impact. According to our

solutions.

client, its opportunities to get new customers would increase significantly not only because its products and service prices

Q: What main challenges have you encountered when

would decrease or be stable through time, thanks to more

developing renewable energy projects?

efficient energy consumption but also because its clients

A: Mexico has set a transparent and healthy regulatory

wanted to have more environmentally-responsible suppliers.

framework through its Energy Reform but we must admit that it has also presented a challenge for companies like us since this framework is still evolving and we must adapt

Buenavista Renewables, headquartered in San Antonio, Texas,

to it. This has caused delays and unexpected changes in

is a greenfield energy company focused on emerging markets.

our projects. We hope this evolution continues to move

It develops bankable and technically sound energy projects

in the right direction, toward its final purpose of making

aimed at providing energy savings for off-takers

the participation of industry players smoother and clearer.

VIEW FROM THE TOP |

PRODUCING CLEANER COPPER GUSTAVO ORTEGA Director General of Grupo México, Energy Division

Q: How can a mining off-taker meet its rampant

A: Grupo México has taken advantage of the new regulatory

energy needs?

framework by participating in the Wholesale Electricity

A: We are always looking to optimize our results. Energy

Market (WEM). Through our combined cycle plants,

is one of the most expensive inputs in the mining industry.

the company’s operations consume 400MW and the

This is why the company decided to look for cost-efficient

rest is commercialized in the market. Achieving this has

options under the self-supply scheme. Grupo México

represented a major challenge.

Infraestructura, with its respective energy division, was created for this purpose. The company started operations

We are confident that participating in the WEM will result in

with two combined cycle plants that together generate

many benefits for the company but at the moment we are

500MW and supply electricity to our Sonora mines. The

adjusting to this new regulation. There are many elements

company also entered the renewables field with the

that need to be much clearer, such as how congestion

construction of a 74MW wind farm located in Juchitan,

and loss components are determined. In this sense, day-

Oaxaca. Renewable energy represents 12 percent of the

ahead and spot market prices have to be determined as

company’s energy mix. Our electricity power supply

well. An official website could make these processes more

comes mostly from natural gas. In fact, we have our own

transparent and accountable because, at the end of the

gas pipeline, measuring 100km. Mining also consumes

day, market prices have the greater impact on users. On

high quantities of diesel, mainly for cargo trucks used

the other hand, all the administrative procedures and their

for transporting minerals. Grupo México consumes

handling by CRE takes a great deal of time.

approximately 15 million liters of diesel per month but the company is analyzing opportunities to decrease this

Q: What advice would you give to companies to improve

amount with the use of LNG, in particular by adapting the

their energy management practices?

truck’s engines with dual technology so they can work with

A: The first recommendation is to evaluate processes

both fuels.

internally and improve them. There are always areas of opportunity and sometimes we do not look to the

Q: What measures have been taken to reduce the

simplest option. Companies should create interdisciplinary

company’s energy consumption?

groups related to these topics and train them. Sometimes

A: Our goal is to reduce the company’s use of energy by

equipment is not replaced for cost reduction but it often

employing all available techniques. From efficient water-

results in inefficient performance, which can be reflected

pumping systems to the modernization of our technologies.

negatively in ROI. Looking at this way, the replacement

We are working to get the ISO 50001 certification for

is justified. There are many advanced technologies for

the mining division as well. To this end, the company

water-pumping systems, lighting and the integration of

reduced its copper-related energy intensity by 8 percent.

renewables across the whole value chain.

These measures have been implemented throughout the process: during development and production, we use fewer

The second recommendation would be that when market

explosives; when executing the flotation process, we use

prices stabilize, companies should evaluate their options,

other types of chemical reagents to recover more copper

such as isolated supply or participating in the WEM.

and in the leaching process, bacteria are used to increase the metal’s recovery. With all these measures, we have recovered 20 percent more copper.

Grupo México is a leader in copper production, rail transportation and infrastructure. Over 80 years, Grupo México has evolved

Q: How has Grupo México capitalized on the new regulatory

and diversified its business to become a stable and sustainable

framework?

company that is always innovating in terms of technology

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| PROJECT SPOTLIGHT

GRUPO MÉXICO PRESERVING CULTURE, FOSTERING ENTREPRENEURSHIP Through its energy division, México Generadora de Energía, Grupo México focuses on environmental discipline through the efficient use of energy, community engagement and the constant diversification of the company’s energy mix. Grupo México’s installed capacity generates 74MW from the El Retiro wind farm. This represents close to 1 percent of the country’s clean energy generation. Additionally, the company generates 500MW from La Caridad combined cycle plant. In recent years, Grupo México has offset 560,000 tons of CO2 equivalent, which has the same impact as removing 120,000 vehicles from the roads. El Retiro wind farm is located in the municipality of Juchitan de Zaragoza in Oaxaca. These terrains were modernized through the installation of electricity lines and are leased to landowners whose main productive activities are agriculture and farming. At the same time, people from the region are employed to work at the wind farm. In 2014, the Casa Grande Lídxinu community center was inaugurated. This project serves as a meeting point for citizen participation. Through various activities such as free workshops, cultural events, education and sports programs the center promotes an inclusive environment as activities are delivered both in Spanish and native language Zapotec. Since 2014, more than 9,200 inhabitants have experienced the benefits of 55 programs and 900 activities that address the community needs. Another important initiative is “La Ventosa Sustentable, tu Proyecto tu futuro,” which is a citizen participation fund that invites the community to present proposals that solve common problems in the social, productive and infrastructure spheres. To date, more than 60 projects have been approved and Grupo México has provided the seed capital for their development, benefiting more than 3,000 people in the municipality of Juchitán de Zaragoza alone. In the last five years, Grupo Mexico in its entirety has invested more than US$320 million in social projects, promoting the community’s participation and supporting its quality of life. All of this is accompanied by a positive environmental impact. Due to this, the company has been included in the BMV’s IPC Sustentable index for seven years in a row. In 2018, it was featured in the S&P Dow Jones Sustainability MILA Pacific Alliance Index (DJSI MILA) for the first time.

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| VIEW FROM THE TOP

SCIENCE AND INNOVATION POWER EFFICIENCY, COUNTER SUSTAINABILITY CHALLENGES ARMANDO IBARRARÁN Country Business Leader Electronics and Energy Business Group at 3M

154

Q: How does 3M approach sustainability across its product

Q: What products is 3M bringing to its portfolio to underpin

portfolio?

the sustainability of its clients’ operations?

A: Our vision is to apply science to life and use that

A: 3M has created a special film that can be applied to

strategy to counter sustainability challenges. 3M’s view

windows to increase the energy efficiency of buildings.

of sustainability has three dimensions. First, the footprint

Additionally, we created a Paint Preparation System (PPS)

of our manufacturing operations. Second, sustainability

for the automotive industry that eliminates the need for

applied to our products. And third, the development of

solvents when cleaning the paint can, which reduces waste.

sustainable technologies. Both 3M’s corporate offices and

Additionally, 3M’s glass microspheres are used in the plastic

3M Mexico have aligned their efforts toward sustainability

components of many vehicles to reduce gas consumption.

and look at this concept as a driver for innovation. Our Novec 1230 product is a fire suppressor that does Globally, 3M has a committee that focuses on linking these

not use HFCs and has a low carbon footprint. The global

three dimensions of sustainability. The main challenges

use of this product has eliminated 100,000 tons of GHG

to sustainability that 3M has identified are in the areas of

emissions. Another Novec product is used in immersion

energy, climate change, raw materials, water, health and

chilling processes at data centers. Data centers account for

safety, education and development. These challenges

2 percent of global energy consumption and the use of this

are related to the UN’s Sustainable Development Goals.

product can reduce the refrigeration and ventilation costs

Sustainability must be addressed as an opportunity to think

of a data center by up to 97 percent.

outside of the box, innovate and take advantage of new markets and profitable business opportunities rather than

Q: How has the Mexican market reacted to 3M’s sustainable

as a requirement to meet regulations.

product offering? A: There has been a shift toward renewable energy and

Q: What milestones has 3M reached toward advancing its

specifically toward wind power in Mexico. Our products

sustainability vision?

have delivered a great performance in that specific sector.

A: About 30 percent of all 3M manufacturing facilities have

Wind farms usually have generation peaks depending on

reached a zero-landfill goal. Another target is to increase

wind speed, and several materials used in the junctions

our use of renewable energy by 25 percent toward 2025. We

and connectors of wind turbines must withstand electrical

are well on track to meet these objectives, so the company

overloads. 3M’s materials have passed several tests to

needs to continue working on the pillars of its sustainability

handle the overloads and have become favorites in the

vision. For instance, the company made major investments

market because they ensure low maintenance costs.

to generate wind power in situ at 3M’s factories in the US. At the same time, 3M’s Mexico manufacturing plants, its

Q: How is 3M contributing to the segments of energy

products and the technologies that it develops must be

transmission and distribution?

oriented to sustainability. For instance, our factories have

A: Our Aluminum Conductor Composite Reinforced (ACCR)

advanced toward a sustainable use of water and energy

cables allow for more efficient energy transmission with the

and waste reduction.

same cable weight and diameter. When energy consumption in some areas increases, electricity utilities usually need to develop an alternate line or increase the diameter of the

3M is a US-based multinational corporation that designs

cables they use. This causes higher temperatures and greater

and manufactures a variety of technologies. The company

energy losses. Employing ACCR cables ensures greater

produces electronic materials, electronic circuits, optical films,

electrical conduction and even lower temperatures without

electric cables and similar parts for the energy industry

compromising resistance, thus reducing energy losses.

VIEW FROM THE TOP |

PROVIDING THE GUIDING VESSEL TO BRING PROJECTS TO PORT RICARDO CARDIEL CEO and General Manager of Latin American Rainmakers

Q: What is Latin American Rainmakers’ most valuable

believe this mounting interest will become a mainstream

contribution to Mexico’s energy transition?

trend toward 2023. The supply and demand equation of

A: Latin American Rainmakers has worked hard to

Mexico’s energy market yields a supply shortage despite

understand the new market’s rules and fully grasp its

CFE’s close to 60GW of installed capacity. The state

benefits from a business standpoint as well as its likely

productive enterprise is facing the challenge of modernizing

impact on the country’s industrial development in the

and injecting efficiency into its aging power generation

mid to long term. The company is deeply involved in the

assets. As long as supply and demand do not attain

generation and consumption ends of the energy market.

equilibrium and marginal prices reflect this imbalance, the

On the power generation side, we identified early on that

appetite for full-merchant projects will continue growing.

traditional project finance approaches, as existed for legacy projects under the previous regulatory framework, were no

Full-merchant projects are not developed without difficulty

longer the best fit. Mexico’s new energy model is a costs

but financial institutions show a more conservative approach

market rather than a sale price market. This small difference

when it comes to financing this type of project due to their

is critical when structuring the financial model of a power

inherently high long-term risks. This translates into lower

generation project under the new regulatory framework. We

leverages, higher equity stakes from the developers’ end

are providing a steady course for power generation projects

and robust collateral warranties. Our advice to developers

ready to reach operational phase but that were left adrift

is always to diversify risk and distribute the commercial

with the regulatory shift of the Energy Reform.

aspects of a power generation project in a 60-40 scheme, with 60 percent output allocated in coverage contracts and

We are gradually transitioning from a PPA market to a

40 percent merchant output.

coverage contract market and we are positioned as the guiding vessel to bring Mexico’s new power generation

Q: What pending regulation will prove critical for the

projects to port. Full-merchant projects will also become the

energy and oil and gas industries to reach further

next step of Mexico’s energy industry maturation process

maturation?

in the short to midterm. The increase in electricity rates we

A: Mexico’s energy and oil and gas regulatory authorities

are witnessing is a reaction to market dynamics. There is an

are overseeing a significant shift. The learning curve is

overwhelming demand for electricity supply from end users

not only theoretical but also empirical. Some regulatory

across the country and supply remains limited. Latin American

requirements will not manifest themselves other than by the

Rainmakers’ primary task in this market is to advise developers

market’s experience. It is an ongoing process where portions

looking to tackle full-merchant projects and bring them

of the regulation will be adapted to the reality observed

successfully to operation. On the consumption side, we are

in the market. The theoretical framework behind Mexico’s

approaching potential end users to capitalize on the available

new energy model will be molded accordingly as it gathers

options. We are assisting them in trimming down their energy

an identifiable operational track record. Adjustments are

consumption as a first step to then provide a tailor-made

necessary and should be an integral part of any market’s

option to consume electricity at the most competitive rate

maturation process. Quick and effective reactions will be

available based on their specific consumption curve.

key to managing the requirements of such dynamic markets.

Q: What is required to see an increased number of fullmerchant projects?

Latin American Rainmakers is a socially-responsible company

A: Based on the results of the long-term electricity auctions

offering reliable industrial systems solutions backed by 20

and the thin margins obtained, full-merchant projects are

years of experience in supply, engineering, design, installation

an increasingly appealing option due to higher margins. We

and maintenance of power systems

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| VIEW FROM THE TOP

WHEN TELECOMS MEET RENEWABLES MIGUEL CALDERÓN Vice President of Regulatory Affairs and Institutional Relations at Telefónica Movistar

156

Q: Which characteristics define Telefónica as an exemplary

Solar, a 65MW solar park located in Chihuahua. The project

off-taker in the telecoms industry?

was constructed in collaboration with Bas Corporation and

A: Telecommunications is a high-consuming energy industry.

Dominion and it represented a total investment of US$100

In response, we have designed a responsible energy

million. Telefónica consumes 70 percent of the power

consumption plan based on three central strategies. This plan

generated by this power plant. The message here is that

is not only implemented within the company’s operations,

the main motivation behind working with renewables was to

but extends to our clients as well. The first strategy relies on

be coherent with our long-term vision to improve people’s

measurement. If you do not measure, you cannot identify

lives, looking for our most sustainable operation, from all

the impact of your activities or set goals. Telefónica is

points of view. But this transition has translated to monetary

present in 20 countries. In Mexico, we have 11,000 radio

savings as well.

bases that generate signals, which is why measurement is a very important topic. We use innovative technologies, such

Q: What is the role of IoT and AI in the company’s energy

as IoT and AI, to measure our energy consumption. Next,

management segment?

we establish methods to generate energy savings through

A: IoT allows us to distribute millions of mobile devices

reasonable consumption. After measuring and implementing

and connect them to a network. All these devices are

energy management practices, we look for renewable energy

generating information that leads to AI-based decision-

options to supply the company’s energy needs.

making. IoT can be implemented in various applications, such as our Smart Energy services. This helps our clients

Q: How will Telefónica supply 50 percent of its energy

reduce their consumption at a 30 percent rate. If the same

needs through renewable generation by 2020?

technology is applied to fuel consumption, our study cases

A: To date, Telefónica consumes 330,000GW. In order for

show a 15 percent reduction in the energy used within our

our clients to communicate using cellphones, cellular base

logistics operations. In the specific case of Smart Energy,

stations are needed. Seventy-six percent of the company’s

we insert sensors to measure the energy consumption in

total energy consumption comes from those sites, of which

our clients' devices. With this central control system, our

there are 11,867 facilities. Another 19 percent is generated

clients can see in real time how much energy its being

from our communication centrals, which permit the call

consumed per device. For instance, it is not beneficial to

connection and related services like Internet. The remaining

have air conditioning systems working at the same intensity

6 percent is consumed by our offices and retail stores.

all the time. With our system, the decision related to air conditioning can be made manually or through an AI system

Telefónica generates 40 percent of its energy from

that will maximize performance and results.

renewable energy sources. The main strategy has focused on addressing our low-tension consumption first, by powering

Q: What main goals does the company hope to achieve

it with renewables. We are launching another project that

by the end of 2019?

will convert medium tension and this will represent a 36

A: We have changed a huge portion of our low-tension

percent additional capacity toward meeting our goals.

consumption to renewable energy generation. The idea

The energy that powers our operations comes from Kaixo

is to make a similar move with medium tension. We are looking for an ally to add 36 percent renewable capacity to the company’s energy mix through this strategy. This is a

Telefónica has competed in the national telecommunications

priority goal for 2019. We believe in partnerships because in

market since 2001. The company has more than 26 million

this globalized world, there is always someone that can do

customers in Mexico. Telefónica unifies its operations through

something better. We look for the best companies in each

the Movistar brand, with operations in 21 countries

segment but also those that share Telefonica’s values.

VIEW FROM THE TOP |

GREEN BETS PAY OFF RAÚL CEBALLOS Deputy Director of Technology at Organización Soriana

Q: As a supermarket chain with 815 locations, what role do

Q: What must be done to promote the generation of

renewables play in the company’s sustainability strategy?

renewable energies in Mexico, in addition to CELs?

A: Soriana’s goal is to supply the energy required by its

A: It is time for the authorities to incentivize the development

stores using only clean and renewable energy sources, and

of solar parks as never before. CRE needs to help boost the

wind power in particular. The company started working on

use of solar panels at companies. Energy costs have seen

renewable energy matters in 2005, and nine years later, we

significant increases and a great alternative to mitigate

consolidated our first wind power supply project. During

this is to make sure that companies can use 25 percent of

this time, we also put several programs in place that

renewables in their energy mix. Since the US$/MWh can

contribute to the sustainability of our operations.

be easily predicted, it is possible for companies to factor those costs into their budgets and reduce the percentage of

First, we focused on developing a structure to ensure

their energy supply exposed to changing energy prices. In

efficient energy use at our stores. Second, Soriana

terms of CELs, we are not directly affected because Soriana

quantified its energy consumption and calculated its

does not generate energy on its own. We do not own wind

impact on the company’s operations. We then put in place

farms or solar parks but purchase the entireity of our energy

energy-monitoring systems to understand our energy-use

production of our generating partners.

patterns and only then did we start looking for generators that could supply the clean energies that we need, as we

Q: What are Soriana’s most important sustainability-

do not own any wind farms or solar parks. Among our

related plans for 2019?

milestones, Soriana came third in the Ministry of Energy’s

A: The top priority is to star operations at the wind park

2010 National Energy Prize contest in the segment of

in Ciudad Victoria. It will have an installed capacity of

commercial consumers.

117.5MW and will produce 460,000MWh/y. We expect this project to reduce our carbon footprint by 268,000 tons

Q: What prompted Soriana to select wind power as its

of CO2 and to supply 85 percent of our stores with clean

source for generating clean energy?

energy. The remaining 15 percent will be sourced from

A: Although wind power is an intermittent energy source,

conventional energy. We also want to incorporate around

one of its advantages is that it does not require an oil

96 stores into the company’s energy-monitoring system.

pipeline or a fuel line to feed the turbines. Soriana identified

The Soriana stores with the highest energy consumption are

areas whose wind resources could ensure a constant supply,

our top priority to monitor. By incorporating them into this

even if it was not 100 percent of the time, and started from

monitoring system, we can make the necessary adjustments

there. We recognized that Oaxaca and Tamaulipas could

to increase their energy efficiency. In 2017, Soriana reduced

provide a steady source of clean energy from wind power

its energy consumption by over 20,000MWh. We expect

and partnered with Iberdrola in wind farms in Puebla and

to reduce consumption by 19,000MWh in 2018 simply by

Oaxaca. The energy generated by these windmills now

monitoring energy use. We are also working on a new

helps to power Soriana’s operations.

energy strategy that includes everything from the renewal of the HVACs at our stores to more efficient water and

Between 2016 and 2017, the company increased its use

waste management.

of wind energy by 59 percent as a result of two new wind farms developed by GEMEX entering operations and supplying Soriana. GEMEX is developing another

Organización Soriana is a Mexican chain of supermarkets

wind farm in Ciudad Victoria, Tamaulipas, that will

with more than 50 years of experience in the market. With 815

increase Soriana’s renewable energy use when it enters

stores currently in operation, the company is one of the largest

operations in 2019.

retail chains in Mexico

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Grupo MĂŠxico combined cycle generator

NATURAL GAS

Natural gas is a cleaner and more economical source of energy than any petroleum derivative and eligible to receive clean energy certificates, hence its importance for Mexico in achieving the clean energy objectives the country has set. To cope with Mexicoâ&#x20AC;&#x2122;s 15 percent increase in natural gas demand expected in the following four

years, the country is going to need a strong and reliable natural gas transmission and distribution network. With the open seasons developed by CENAGAS, the first steps have been taken to ensure that natural gas supply answers demand, although the new government wants a strategy that boosts domestic production versus imports.

The creation of an attractive gas market, the challenges for transmission, distribution and storage of this energy source, the role that imports of natural gas represent in the short term and the regulatory framework are among the issues that will be addressed in the pages of this chapter through the insights of the key players in the industry, who offer their expectations and a complete analysis of the present state of natural gas in Mexico.

159

CHAPTER 7: NATURAL GAS 162

ANALYSIS: The Bedrock of Mexico’s Energy Transition

164

MAP: Natural Gas Infrastructure and Power Plants 2018

166

VIEW FROM THE TOP: David Madero, CENAGAS

168

VIEW FROM THE TOP: Ron Daye, Rangeland Engineering Canada Corp

Fred Smith, Rangeland Engineering Canada Corp

170

VIEW FROM THE TOP: Neus Peniche, CRE

171

INSIGHT: Jorge Gutiérrez, COGENERA

172

VIEW FROM THE TOP: Fernando Calvillo, Fermaca

173

VIEW FROM THE TOP: George Opocensky, ATCO Mexico

174

INSIGHT: Enzo Losito, AB Energy México

César Sánchez, AB Energy México

175

VIEW FROM THE TOP: Narcís de Carreras, Naturgy

176

VIEW FROM THE TOP: Alberto Escofet, Enagás

177

VIEW FROM THE TOP: Caio Zapata, Énestas

179

INSIGHT: Sampo Suvisaari, Wärtsilä

Raúl Carral, Wärtsilä

180

VIEW FROM THE TOP: Eduardo Curiel, Grupo Industrial Aguila

181

VIEW FROM THE TOP: Oscar Olmedo, Zenith Holding México

161

| ANALYSIS

THE BEDROCK OF MEXICO’S ENERGY TRANSITION As renewable energy gradually penetrates Mexico’s energy mix, its inherently intermittent nature will be a growing cause of concern for the grid’s reliability and stability. Natural gas’ baseload supply can act as a stabilizer and bide time for battery-based storage to be implemented in Mexico’s power generation The debate over natural gas’ role in Mexico’s energy

considered contradictory, considering an extended natural

mix continued unabated in 2018, with imports of the

gas infrastructure implies more imports, it is necessary

fuel overpowering local production to meet increasing

for the country to tackle its regional imbalance in natural

demand. The imbalance has led to calls for infrastructure

gas infrastructure, most apparent between the south and

improvements to maintain energy security. But the dilemma

northern regions.

may have an economic upside, some insiders say. “It is also critical to address the infrastructure gap between

162

“Natural gas imports are seen as negative but from a

Mexico’s northern and southern regions. Historically, natural

regulatory standpoint this activity represents an economic

gas infrastructure availability has been identified as the

opportunity,” says Neus Peniche, Commissioner at CRE.

primary reason for the economic development gap between

“Imports by themselves do not necessarily infringe

both regions,” says Peniche.

on energy security; on the contrary, they provide an additional layer of diversification to guarantee energy

FUELING THE ENERGY TRANSITION

security. Infrastructure availability and international price

Natural gas is by definition Mexico’s transition fuel.

conditions in the US render such an approach technically

Environmentally friendly and cost-effective, power

and economically viable. The equilibrium lies in diversifying

generation technologies fueled by natural gas are

our options.”

expected to take an increasingly important role in the country’s energy mix. Even in an aggressively competitive

The IEA estimates that US natural gas production in 2019

environment such as the long-term electricity auctions,

will total 853.9bcm and is projected to increase to 922.4bcm

natural gas was able to make its mark with turbogas

by 2023. BP’s Statistical Review points out that US natural

and combined cycle projects, such as the Los Ramones

gas price levels remain the lowest on a global scale, ahead

550MW natural-gas fired thermal peaker. Companies fully

of Germany, the UK, the Netherlands and Japan, at an

dedicated to Mexico’s midstream niche are recognizing the

average 3US$/MBtu. Given this macroeconomic scenario

opportunity and organic growth possibilities of diversifying

and considering Mexico’s natural gas infrastructure includes

their business to natural gas-powered generation. “Fermaca

24 interconnection and import points with the US, it is

expanded its business to natural gas compression with a

economically sound for Mexico to import the fuel from its

cumulated operational 170,000HP compression capacity

northern neighbor.

at its Chihuahua and Soto la Marina compression stations. Our compression investments respond to our long-term

In recent years, however, the country faced a delicate

vision and the anticipated increase in natural gas demand,”

situation in which local natural gas production has been

says Fernando Calvillo, Chairman of the Board at Fermaca.

overrun by consumption growth. The Ministry of Energy’s

“Upgrading our natural gas corridor to an energy corridor

Statistical Report from October 2018 reveals a point of

provides the opportunity to transform and adapt natural

convergence was reached between local production of

gas to several other applications such as petrochemical,

natural gas and imports in 2015. From that point onward,

fertilizing or kWh production.”

local production continued to be overrun by imports to such an extent that by August 2018, Mexico produced

To find further efficiencies and consolidate a solid

2.7bcfs/d of natural gas and imported 5.2bcfs/d to cater to

business case for natural gas-based power generation,

8bcfs/d of national consumption. Projecting into the long-

Mexico is benefiting from the long-standing expertise

term, this state of affairs appears unsustainable and calls

of foreign players looking to establish a foothold in the

for a revamped natural gas production capacity.

country’s unlocked market. “Since the third quarter of 2018, Mexico has held the perfect conditions for cogeneration’s

Mexico also stands at a crossroads between increasing

development, with a fully deployed regulatory framework,”

local natural gas production and extending natural gas

says César Sánchez, Regional Sales Manager of AB Energy

infrastructure nationwide. While the two notions can be

México. “We are identifying a ROI of less than two years,

NATURAL GAS IMPORTS (Bcf/d) 5

4.81

Pipelines LNG

4.16 3.54

2.86 2.51 2.12

1.10

2007

1.33

1.25

2008

2009

1.45

2010

1.74

2011

2012

2013

2014

2015

2016

2017

Source: Ministry of Energy

163

which is what we observed in Italy when the boom of

increasing demand is to find the best way to satisfy it. Beyond

cogeneration took place.”

extending the existing infrastructure, we need to think of ways to render the existing pipelines in a more useful way.” One

EXTENDING REACH

way of doing this, Madero says, is to continue emphasizing

Natural gas access is synonymous with economic

the importance of multiplying the number of interconnections

development. Superposing natural gas infrastructure

between existing and new pipelines. The end game is to

availability and economic growth across Mexico’s states,

provide natural gas in the most efficient and cost-effective

a direct correlation between both variables can be easily

way to support the country’s power producers, industries and

found. “At the moment, Mexico is still in the development

families. “CENAGAS is looking to use natural gas as a lever

process to achieve an adequate production platform, so it

for national development and reach greater economic growth

has to import over 60 percent of its natural gas consumption.

rates. From the new administration’s perspective, this level can

Nevertheless, a national production capacity would be in

prove to be fundamental in reaching the stipulated objectives

place to reach a healthy commercial balance,” sasy Alberto

from an economic growth standpoint. The Energy Reform

Escofet, Country Manager of Enagás. Ricardo Cardiel,

attributes a key role to CENAGAS to detonate projects that

CEO and General Manager of Latin American Rainmakers,

enable the expansion of natural gas supply to benefit the

points out that pipelines are the direct economic trigger of

country,” he adds.

a country’s regional growth. “Their impact spills over into efficient production processes, environmental improvements,

NATIONAL PRODUCTION CHALLENGE

competitive energy costs and a revamped industrial tissue

Still, according to the Ministry of Energy’s latest Statistical

with the entry of new economic players, wherever new

Compendium published in October 2018, Mexico’s total

pipelines are entering operation. Extending natural gas

utilized cryogenic capacity in its Gas and Petrochemical

pipelines to the southeastern region of Mexico will bring a

Processing Centers remained above 60 percent on average

much-needed economic boost for the Yucatan Peninsula.

from 2000-14. Starting 2015, this capacity witnessed a steady

Electricity rates in that region are much higher than the

decline to average 40 percent throughout 2018. Getting

national average due to the lack of energy infrastructure,

Mexico’s natural gas production back on track will prove

which is why its extension is an urgent matter,”

difficult but not impossible. In a document published by the hydrocarbons regulator on Sept. 20, 2018, CNH listed a series

CENAGAS, the natural gas pipeline system operator, is doubling

of recommendations for the country’s natural gas sector to

efforts to bridge the prevalent infrastructure gap within the

fulfill the entirety of its potential. CNH looked at the country’s

country. “In the next few years, a pool of strategic projects for

petroleum provinces, including Sabinas, Burro-Picachos,

the extension of Mexico’s pipeline network tendered by CFE

Burgos, the Gulf of Mexico, Tampico-Misantla, the Southeast

will come into operation. This implies Mexico’s transport and

Basin and Veracruz. Adding the 1P, 2P, 3P, conventional and

distribution capacity is poised to significantly increase,” says

unconventional reserves, the country is sitting on 217.8Tcf

David Madero, Director General of CENAGAS. “For a brief

of natural gas. Despite the fact CNH anticipates a continued

time, we are expecting Mexico’s transport capacity to surpass

natural gas production drop up to 2020, the exploratory

natural gas demand. This effort is designed to the country’s

tasks of PEMEX and the Licensing Round winners allows it

increasing natural gas demand, which will also remain in an

to estimate an increased production starting in 2020, which

upward trajectory for the next 10 years. The challenge with this

could reach 7,250MMcf/d by 2029.

| NATURAL GAS INFRASTRUCTURE AND POWER PLANTS 2018

3 4 2

7 5

164

9 10

——Pipelines in operation ——Import ——Transport system 24

Maritime transport route Pipelines under construction

——Five-Year Plan projects Pipeline interconnections 22

Import interconnection points Compression station 22

POWER PLANTS (OVER 300MW) No.

Unit

Total capacity (MW)

Scheme

Presidente Juárez

773

CFE Generation

Tijuana

345

CFE Generation

Termoeléctrica de Mexicali

680

Export

Mexicali

489

IPP

Puerto Libertad

632

CFE Generation

Guaymas II (Carlos Rodríguez Rivero)

484

CFE Generation

Caridad I and II

500

CFE Generation

Samalayuca II

522

CFE Generation

Chihuahua II (El Encino)

619

CFE Generation

Francisco Villa

300

IPP

Huinalá

378

CFE Generation

Huinalá II

471

CFE Generation

Monterrey III (Dulces Nombres)

1,000

CFE Generation

Dulces Nombres II

300

Río Bravo II (Anáhuac)

16 17

37 38

PROJECT PIPELINES 2020-2024 Pipeline

Length (km)

Estimated investment (US$ million)

Entities

Lázaro CárdenasAcapulco

331

456

Michoacan, Guerrero

Mérida-Cancún

300

463

Yucatan, Quintana Roo

CFE Generation

Jáltipan-Salina Cruz

247

643

Veracruz, Oaxaca

495

IPP

Río Bravo III

442

IPP

Salina CruzTapachula

400

495

Oaxaca, Chiapas

Río Bravo IV

500

IPP

RamonesCempoala

855

1,980

Nuevo Leon, Veracruz

PIPELINE DEVELOPERS 2012-2018

CENAGAS Private Players

19,966km built

US$18.93 billion in investment

45.6% 54.3%

8.1%

35,931

91.9%

capacity (MMcf/d)

14.5% 85.5%

11 -14

15 -17

19 20 18 21

Total capacity [MW]

Scheme

Altamira

500

CFE Generation

Altamira II

495

IPP

Altamira III and IV

1,036

IPP

Altamira V

1,121

IPP

Mazatlán II (José Aceves Pozos)

616

CFE Generation

Norte Durango

450

CFE Generation

La Laguna II

498

IPP

Villa de Reyes

700

CFE Generation

Tamazunchale

1,135

IPP

Salamanca

550

CFE Generation

Cogeneración Salamanca

393

CFE Generation

El Sáuz - Bajío

495

IPP

El Sáuz

591

CFE Generation

Tula (Francisco Pérez Ríos)

489

CFE Generation

Tula (Francisco Pérez Ríos)

1,606

CFE Generation

Tuxpan (Adolfo López Mateos)

2,100

CFE Generation

Tuxpan II (Tres Estrellas)

495

IPP

Tuxpan III and IV

983

IPP

Tuxpan V

495

IPP

Manzanillo (Gral. Manuel Álvarez Moreno)

1,300

CFE Generation

Manzanillo (Gral. Manuel Álvarez Moreno)

1,454

CFE Generation

Valle de México

549

CFE Generation

Centro

656

CFE Generation

Cantarell

363

Cogeneration

Mérida III

484

IPP

Valladolid III

525

IPP

No.

Unit

Combined cycle

Turbogas

Conventional thermoelectric

25 26

29 27 28

34 -36 30 32 31 39 40 41

Source: Ministry of Energy, Banobras, BN Americas

165

| VIEW FROM THE TOP

EFFICIENT PIPELINE SYSTEM HAS VITAL ROLE IN ENERGY TRANSITION DAVID MADERO Former Director General of CENAGAS

166

Q: What are CENAGAS’ noteworthy achievements of 2018?

will be free from any additional bureaucratic processes. It

A: CENAGAS is mandated to provide an efficient natural

is imperative that Mexico continue to receive inflows of

gas transport service through SISTRANGAS. This mandate

the world’s most cost-effective natural gas just as Mexico’s

will contribute to the clean power generation market’s

imports are critical for US natural gas producers.

participation in the country’s energy mix and will play a pivotal role in Mexico’s energy transition. A recent

Q: How is CENAGAS preparing for the new administration’s

landmark is the renewal of CENAGAS’ firm base contracts.

plans to revamp refining and natural gas production?

We concluded the first open season in 2017 and placed

A: The natural gas transportation system CENAGAS

97 percent of SISTRANGAS’ firm base capacity via one-

inherited from PEMEX is designed to receive the natural gas

year term contracts. We launched the contract renewal

produced locally and showcases surplus capacities to pick

process early on and we are pleased to say the number

up natural gas production levels similar to past peaks. We

of contracts has increased considerably, meaning that

are undertaking an in-depth review of our pipeline network

service unbundling is progressing at a fast pace across the

and compressor inventory to make sure our assets continue

country. To date, we have more than 60 firm base contracts.

operating at optimal efficiency levels and in a safe and

This progression shows traders and final consumers are

reliable way. This revision includes both the active assets

choosing to directly administer their capacity. Another

working daily and those that are not operating because of

critical milestone is the increase in SISTRANGAS’ flexibility

scarce natural gas flows at national injection points.

and capacity via investments, either from CENAGAS or interconnected private companies. Among the pipelines

Q: How will CENAGAS’ MX$1.75 billion investment

in the works, Tuxpan is the most advanced. This pipeline

announced for the Yucatan Peninsula be allocated?

represents a sizable injection of millions of cubic feet,

A: Part of this investment will be allocated to the

unlocking significant supply for the southern and

reconfiguration of the Zempoala compression station and

southeastern regions of the country.

the interconnection of the Tuxpan pipeline. Another project to be financed by this investment is ENGIE’s interconnection

CENAGAS also reconfigured the Zempoala compression

between the Mayacan system with SISTRANGAS pipelines

station via a contract allocated in September 2018. It will

in the southeastern region of the country to freely transit

compress natural gas and direct it toward the south of

toward the Yucatan Peninsula. ENGIE is additionally

Mexico and bolster the system’s flexibility with the addition

investing in the Mayacan pipeline to increase compression

of two new turbo-compressors that will increase our

capacity and possible flow. Its capacity is close to 0.25Bcf/d

operational range from 0.35Bcf/d to 1.3Bcf/d as opposed

while flows have yet to surpass the 0.08Bcf/d mark.

to the previous configuration that only allowed 0.8Bcf/d and upward. The reconfiguration is paired with a general

Q: What is the logic behind increasing SISTRANGAS’ tariff

modernization of the compression station’s auxiliary

zones from six to nine?

services to bolster reliability in natural gas supply.

A: The new SISTRANGAS tariffs were enacted on Oct. 1, 2017, including a rezoning. The increase in the number of

Q: How is CENAGAS capitalizing on the USMCA’s

zones from six to nine stemmed from the need to split

energy chapter?

the size of the Gulf tariff zone, which was quite large, into

A: The most important aspect of the new agreement is that

three separate zones. The end goal was to design a more

it remained trilateral. Mexico imports more than 4.5Bcf/d

efficient tariff system, with fewer crossed subsidies. The

from the US and is getting closer to importing 5Bcf/d. The

previous zone delimitation was based on such a large zone

agreement guarantees no restrictions will be imposed on

because the price was regulated under PEMEX’s first-hand

these imports and natural gas flows between both countries

sale scheme. That ended in July 2017, making the rezoning

necessary. With the end of this scheme, it made more

authorities that make use of our infrastructure. It is where

sense to reduce the Gulf zone and divide it into a sufficient

our demand is. It is a central exercise as it constitutes a

number of sub-zones to obtain natural gas prices that

perfect complement for our top-to-bottom planning with a

reflected the reality of the logistics necessities of each zone.

bottom-to-top perspective. This second public consultation

It is not designed to increase CENAGAS’ income. Rather,

was an improvement compared to the first one because we

the primary goal is to make CENEGAS more efficient and

created online formats through which people could interact

competitive given we are facing competition from pipelines

with us directly. On this occasion, instead of a single event

being developed outside of SISTRANGAS that can deliver

in Mexico City, we organized several in other parts of the

fuel to the same locations in which we operate.

country, including Chihuahua, Monterrey and Merida. The common denominator resulting from our interactions was

Q: How is CENAGAS’ Consulting Committee contributing

an increased demand for backhaul services. It also brought

to the company’s objectives in the natural gas market?

clarity regarding the regions that expect the greatest

A: CENAGAS has two fundamental roles in terms of

growth in natural gas demand, what types of services they

business lines. First, as natural gas distributor with 8,900km

are expecting and what storage services and ancillary

of pipelines and nine compression stations at the core of

services will complement them.

the country’s natural gas system. CENEGAS has a great

167

responsibility to ensure those pipelines are operating

Q: What technologies is CENAGAS looking to implement

seamlessly and efficiently, with top-tier O&M services.

to improve its natural gas distribution service?

Second, from its capacity as a technical manager, more in

A: While natural gas distribution has not changed much in

line with public policy objectives, it provides services to the

the last 60 years, data-related technologies have dramatically

benefit of Mexico’s natural gas supply security. We do so

evolved, as well as metering system technologies. These

by fostering firm base capacity markets. In this sense, it is

new developments enable us to generate sizable volumes

imperative for this second aspect to rely on a forum where

of additional information and to obtain it in short periods

different market participants and renowned academics can

of time. CENAGAS is close to concluding the deployment

provide feedback on CENAGAS’ actions and programs to

of its own SCADA system. This enables CENAGAS to use

advance public policy objectives.

its own main and alternate control rooms that monitor a generalized SCADA operation of SISTRANGAS’ pipelines. We

Q: What progress have you seen regarding the coordination

are also fairly advanced in a telecom project that will provide

agreement between CENAGAS and CENACE?

CENAGAS with independent communications instead of

A: CENAGAS and CENACE were created on the same

those historically used by PEMEX. The next step will be to

day and both operate as control centers, the former for

invest in the modernization of all the metering and on-site

natural gas and the latter for electricity. While there are

transmission systems to gradually replace mechanical meters

differences between both, we also have similarities. Our

with computers on a national scale to effectively measure

core objective as control centers is to offer the safest, most

and monitor the volume, pressure, flow and natural gas

reliable and efficient transport system aligned perfectly

quality conditions. This data will be transmitted to a control

with CENACE’s mission to offer an electricity system that

center that unlocks the possibility of real-time decision-

is equally safe, reliable and efficient. In this sense, part of

making related to the operation of SISTRANGAS.

our work requires us to provide feedback related to project demand growth projections for electricity and natural gas,

Technological developments have also drastically improved

coupled with ensuring the safety and reliability of natural

internal pipeline inspection. CENAGAS is investing heavily

gas supply to enable a solid electricity industry. When

to assemble an interior inspection plan for its pipelines to

operating with a vision of natural gas as a transition fuel, it

identify potential flaws and repair them preventively. We are

is particularly critical to enable the support it can provide

also pairing corrective maintenance with Big Data practices,

to tackle renewable energy intermittency. This is why

applied to both pipelines and compression stations. In

constant coordination between CENAGAS and CENACE

essence, we are looking to increase the allowed operational

is equally critical. The first fruits of this collaboration have

pressure thresholds in our pipelines to offer more supply

resulted in planning improvements, emergency reaction

without sacrificing safety and reliability while decreasing

and management between both control centers as well as

average supply costs.

administrative efficiencies. Q: What was the most insightful feedback from CENAGAS’

CENAGAS is a decentralized organism of the government

second public consultation?

that acts as a wholly independent operator of Mexico's

A: These public consultations allow CENAGAS to have

National Natural Gas Transportation and Storage System

direct contact with final users, traders and local and state

(SISTRANGAS)

| VIEW FROM THE TOP

COLLABORATIVE ENGINEERING FOR A STABLE ENERGY BASELOAD FRED SMITH Power and Cogeneration Director of Rangeland Engineering Canada Corp

RON DAYE CEO of Rangeland Engineering Canada Corp

168

Q: How can Rangeland Engineering Canada help spur the

Q: How do cogeneration plants stand against battery-

consolidation of Mexico’s cogeneration sector?

based energy storage technology in renewable energy?

FS: Rangeland Engineering has broad expertise in

FS: Renewable energy is fantastic and tremendously

scenarios we think can prove quite beneficial to Mexico’s

beneficial but it must be backed up by a stable form of power

natural gas storage and transportation niches. We are

generation, independent from the intermittency of the sun

specialists in salt cavern and depleted reservoir storage

or the wind. Cogeneration is the most economical way to

development and believe that our expertise from

do that because it capitalizes on the economy of combined

designing more than 100 projects of this sort in Canada

heat power: using a single fuel source and converting it

could be reproduced in Mexico. We also know that Mexico

into two forms of energy, heat and electricity. It provides

has issues supplying reliable and inexpensive electricity.

the best of both worlds by generating energy savings

Cogeneration offers an environmentally-friendly way

overall and enabling electricity generation at much lower

to provide electricity reliability savings in utility costs

costs compared to a simple cycle gas turbine generator.

and reduced CO 2 emissions. Rangeland and its key

The key concept is energy efficiency. Generating power

management personnel have provided assessments,

with just a single gas turbine provides energy efficiency

FEED, detailed engineering, construction, installation,

close to 42 percent. Recovering the heat produced from

relocation, and commissioning services on more than 40

the exhaust of this turbine can increase that efficiency to 85

power generation and cogeneration facilities involving

percent or even higher. Cogeneration’s inherent stable load

combustion turbine and reciprocating engines worldwide.

backs up wind and sun power’s intermittencies. We think

Moreover, we are allied with a Canadian manufacturer of

it is important to have a combination of power generation

small gas turbines ranging between 700kW and 4MW,

in the mix.

which are quite suitable for small industry players that use heat and purchase electricity. These provide steam

Q: In what specific niches in Mexico is Rangeland

and electricity and the surpluses from the latter may be

Engineering looking to set a foothold?

put back into the grid. We are also experts in all aspects

FS: When prospecting possibilities during a trade

of midstream engineering for NGL recovery, fractionation,

mission organized in July 2018 in Mexico, we detected

treating and storage facilities including the design of rail

an unexpected yet significant window of opportunity in

and truck terminals that could load and transport Mexico’s

salt cavern storage given the country’s lack of natural gas

crude oil and gas. We have completed the detailed design

storage capacity. We have an extensive track record of

and procurement for one of the largest rail car terminals

developing hydrocarbon storage infrastructure and Mexico

in North America, the Edmonton terminal. It moves over

has a lack of natural gas storage facilities. We immediately

450 crude oil tanker cars per day. We undertook all the

saw this as an opportunity because as far as we know, no

engineering, procurement and construction supervision

Mexican companies have this technology or the engineering

for that facility. Additionally, we have completed detailed

skills. We have the technology and engineering skills to fill

engineering and procurement for four world-scale NGL

the gap. As a result of the trade mission, we held meetings

fractionation facilities plus over 30 salt cavern projects

with some Mexican companies looking to develop storage

over the past five years.

to offer our skills and engineering to them, including salt caverns and depleted reservoir storage.

Rangeland

Engineering

Canada

Corp is

full-service

Q: How is Rangeland Engineering Canada Corp preparing

engineering, procurement and construction management

its market entry into Mexico?

company. It specializes in oil and gas processing, natural gas

FS: We are capitalizing on our business relationships with

liquids, cogeneration plants, product treatment and storage

companies present in Mexico and with which we have

worked in other markets, such as ATCO and TransCanada. In parallel, we are looking to close alliances with local companies to assist us in adhering to the countryâ&#x20AC;&#x2122;s regulations and specifications. Local engineering and construction companies can also help us adhere to Mexicoâ&#x20AC;&#x2122;s engineering cost structures to foster our business and competitive pricing. RD: Collaborative approaches create many more opportunities for all parties involved. In many cases, our clients have a pool of companies they prefer to work with but that do not have all the skills required for the project. We are more than happy to work with these companies under a collaborative approach. Q: What client profile are you targeting? RD: Primarily energy companies, industry players that could benefit from cogeneration systems and companies involved across the upstream, midstream and downstream sectors of the oil and gas industry that require project engineering services. It includes gas processing, gas treating prior to pipeline transport, recovering gas liquids and terminal transport, both by truck and rail. On the cogeneration side, we believe the sectors that stand to gain the most from this technology include heavy industry, heavy manufacturing and the food industry. Q: What are the added value specifics of Rangeland Engineering Quality Management System? RD: In Canada, each province has a professional association of engineers. Alberta, for instance, has the Association of Professional Engineers and Geologists of Alberta (APEGA). That professional group is supported with local legislation that demands that quality management systems are in place. We have done that in each of the applications we provide. We are qualified to perform our work in most Canadian provinces and in six US states. We are committed to providing a quality product. To ensure that, we have developed internal quality management systems that cover processes and procedures for all our engineering disciplines. Although Rangeland is not ISO registered, we meet all the requirements of ISO 9001. Q: How does Rangeland Engineering go about proposing technological innovation to its clients? FS: Sometimes it is just a matter of introducing the client to a technology or a vendor that it was not aware of. We are in the marketplace all the time. We constantly attend seminars and upgrade our knowledge so we can offer these new insights to benefit our clients. Safety is at the core of our focus when it comes to technological innovations and improved engineering designs. We are also well-versed in 3-D modeling software and using the latest tools and technologies to facilitate work-sharing procedures.

| VIEW FROM THE TOP

STRENGTHENING THE LINK BETWEEN CONVENTIONAL AND RENEWABLE ENERGY NEUS PENICHE Former Commissioner at CRE

170

Q: What is your primary contribution to CRE’s regulatory

Q: How is CRE incentivizing a fair and level playing field for

activities?

market entry in natural gas distribution?

A: Mexico’s regulatory institutions highly value interdisciplinary

A: Natural gas distribution channels are unevenly developed

integration. As a tenure lawyer, I always make a point of going

in Mexico across different regions. Through its regulatory

through the entirety of the documents I sign to ensure the

attributions, CRE has promoted open, nondiscriminatory

content’s regulatory certainty. Within CRE, I always want to

market access and increased pipeline capacity through

ensure that our assessments and suggestions have a positive

the design of open seasons, among other mechanisms.

impact on the operational decisions of each department.

The prevailing challenge is dealing with the disparity of infrastructure availability.

Q: How is CRE coordinating its efforts with other regulators such as COFECE and CNH?

Q: Where is the balance between developing infrastructure

A: As a coordinated regulatory entity, CRE operates under a

for natural gas imports and fostering local production?

formal coordination and interaction mechanism with other

A: In our regulatory capacity, CRE wants to provide the

government agencies: The Energy Sector Coordination

necessary conditions to foster a diversified energy matrix.

Council. This council is under the direction of the Ministry of

More often than not, natural gas imports are seen as negative

Energy and includes the President Commissioners of CRE and

but from a regulatory standpoint this activity represents

CNH. It acts as an exchange forum to assess the government’s

an economic opportunity. Imports by themselves do not

energy policy and its objectives and to translate them into

necessarily infringe on energy security; on the contrary, they

effective regulation. From a more operational standpoint,

provide an additional layer of diversification to guarantee

it contributes to establishing permanent working sessions

energy security. Infrastructure availability and international

between CRE, CNH, COFECE and even PROFECO personnel.

price conditions in the US render such an approach technically and economically viable. The equilibrium lies in diversifying

Q: What impact will the new transport modalities approved

our options. When price and interconnection conditions allow

by CRE for LPG have on the industry?

it, we can import natural gas. It is also critical to address

A: CRE is working on a wide array of LPG-related issues.

the infrastructure gap between Mexico’s northern and

Together with COFECE, we have identified a series of

southern regions.

market entry barriers in certain regions using the framework established by international best practices for LPG distribution.

Q: How does a regulatory body foster a balanced playing field

LPG is a basic commodity for Mexican families and is part

between a productive state enterprise and private players?

of a strategy directed at the country’s most disadvantaged

A: That is perhaps the most complex task of an industry

population. We want the remainder of the population that still

regulator. Mexico’s energy policy justifies the existence

relies on coal and firewood for heat to transition to LPG. A

of asymmetric regulation between the productive

robust and competitive LPG distribution is fundamental in that

enterprises of the state and the private sphere, balancing

particular regard. A recurrent complaint is the deteriorated

the impact of public policy on CFE’s competitiveness and

status of gas cylinders provided for residential use and CRE

further unlocking the market to private players. In the

is working to solve this issue.

short term, CRE is looking to develop an appropriate level of advanced competition conditions to gradually dilute the premises of asymmetric regulation. This would imply

Neus Peniche has 18 years of experience as a public servant in

that the playing field is level enough for private players

the Ministries of Energy and Finance, the Fiscal Prosecutor’s

to compete against CFE on one hand, and on the other,

Office and the Tax Administration Service. She also worked at

that CFE has delved deeply into a corporate rather than

PEMEX and the Mexican Petroleum Institute (IMP)

a policy logic.

INSIGHT |

PAVING THE WAY FOR SMALL-SCALE COGENERATION JORGE GUTIÉRREZ President of COGENERA

Competitive costs and Mexico’s prioritization of clean energy

In Mexico, clean energy sources include PV, wind, geothermal,

places natural gas-fired technologies like cogeneration toe-

hydro, biogas, biomass, nuclear and efficient cogeneration,

to-toe with renewable energy technologies. Cogeneration

mirroring Germany and Spain’s scope that considers

can compete as a cost-effective large-scale technology but

cogeneration equivalent to a certain point to renewable

in smaller capacities, it is subject to a series of hurdles, says

energy sources. CRE’s methodology considers cogeneration

Jorge Gutiérrez, President of COGENERA.

as a fossil fuel-free technology. As in some specific projects 48 percent of the total energy generated by cogeneration

The main problem, he says, is legislation, which favors large-

is fossil fuel-free, those MWh are eligible to be traded as

scale cogeneration, such as PEMEX’s assets, with 200-

CELs to help Mexico comply with its 5 percent clean energy

400MW of installed capacity and 900-1,200t/h of steam.

consumption requirement. “As this is set to grow to 10

Gutiérrez says the current regulation is also favorable for

percent in 2021 and 15 percent in 2024, it is essential that

intermediate cogeneration projects common in the paper,

the country looks to cleaner fuels,” says Gutiérrez.

petrochemical, chemical and food industries, where cogeneration plants have capacities ranging from 20MW to

Regulatory changes have also thrown up a financial hurdle.

80MW. “As a result of regulations, costs can be prohibitive

According to Gutiérrez, the most viable projects are those

for small-scale cogeneration plants between 3MW and 10MW

operating under a legacy contract, which considers the

of installed capacity,” he says. “CENACE’s indicative system

postage stamp tariff as a transmission cost under the

impact and facility studies for interconnection can cost up

previous Electricity Public Service Law. This means postage

to US$20 million, equivalent to the installation of four small-

stamp rates are fixed and the projects are easier to finance.

scale cogeneration systems.”

Under the new law, postage stamp costs are variable and their fluctuation depends on a wide array of factors,

Also working against these projects is that they operate in

such as transmission distance, node saturation and grid

an isolated supply system. “While large-scale cogeneration

status. This creates a higher transmission rate when selling

plants are interconnected to CFE’s grid, small-scale systems

energy surpluses either directly to market with spot-price

only have an automatic transfer switch for when the steam

uncertainty or to a third-party. This situation is exacerbated

turbines or motors fail,” says Gutiérrez.

by the fact that energy trading contracts last no longer than five years versus a cogeneration plant’s 20 years of

Created as an exchange platform where public, private,

useful life.

financial and academic players meet to create coordinated action plans and initiatives to promote cogeneration,

Gutiérrez says that the lack of clarity in the market is making

COGENERA engages in exchanges with the country’s

many financing entities reluctant to enter into the kind

energy authorities. It regularly drafts technical opinions on

of long-term PPAs that would make cogeneration more

the Energy Reform’s content for the Ministry of Energy,

viable. “No third party is willing or able to sign a 20-year

CRE and CONUEE. “Cogeneration, since it does not use

PPA unless it is an energy intensive, large-scale consumer

traditional fossil fuels, is considered a clean energy and

knowledgeable of how the market operates under new

is even eligible for CELs,” Gutiérrez explains. “Not all

rules,” he says. While this variability generates unease for

renewable power plants from the long-term electricity

financial entities, Gutiérrez says COGENERA is in talks

committed to going online in 2018 will do so, which could

with development banks to convince them to view success

create a potential CELs supply gap with demand for

cases from other countries as a reference. “The US PJM

2018.” But he says as renewable energy power plants from

Interconnected System, California’s CAISO, or Texas’ ERCOT

subsequent auctions reach interconnection phase, this gap

should be used as references to corroborate the profitability

will be gradually resolved.

of a mature electricity spot market,” he says.

171

| VIEW FROM THE TOP

COMPRESSION AND COGENERATION TO MEET RISING DEMAND FERNANDO CALVILLO Chairman of the Board at Fermaca

172

Q: Why is Fermaca’s cogeneration business the best option

facilities is natural gas. The drawbacks of the alternatives

for its clients?

make natural gas the ideal candidate. On the consumption

A: Fermaca expanded its business to natural gas

side, the US spends US$2.75 per 1 million BTU produced,

compression with a cumulated operational 170,000HP

while Mexico spends US$4. Connecting our pipeline system

compression capacity at its Chihuahua and Soto la Marina

to the US system makes more sense than losing money

compression stations. Additionally, it is developing close

in producing gas. In this context, building pipelines will

to 90,000HP of compression in La Laguna, Aguascalientes

remain a priority. CENAGAS’ national pipeline system,

and San Luis Potosí. Our compression investments respond

SISTRANGAS, is capped due to the lack of investment

to our long-term vision and the anticipated increase in

from PEMEX and CFE, creating the need for more open

natural gas demand. Fermaca wants to continue providing

seasons. This places Fermaca in an ideal position to partner

high-quality, cost-competitive natural gas as established

with CENAGAS.

in its long-term supply contracts with companies such as CFE. Fermaca has 2,150km of pipelines with free

Q: What are Fermaca’s ambitions in gas transportation from

capacity, including Roadrunner, Tarahumara, Palmillas-

southern Texas to central-western and southeast Mexico?

Toluca and El Encino-La Laguna. We are also developing

A: Our asset business is looking to set a foothold in an

La Laguna-Aguascalientes and Villa de Reyes-Guadalajara.

increased number of interconnections within SISTRANGAS

Cogeneration is the next step. Combining our steam surplus

to extend our gas distribution capacity. We want to

and our available turbines with additional investments, we

distribute gas further down in Mexico’s central belt and

could provide an estimated power generation capacity

southern regions and connect our 1,164km-long operational

of 100MW based on the assets set to be operational

system, with a transport capacity of 3,086MMcf/d, to our

by April 2019. Upgrading our natural gas corridor to an

127km long Palmillas-Toluca pipeline.

energy corridor provides the opportunity to transform and adapt natural gas to several other applications such

Q: What key features does Fermaca look for in

as petrochemical, fertilizing or kWh production.

potential partners? A: Our international expansion in the US shows how

Q: How is Fermaca preparing its transition from pipeline

Fermaca chooses its partners and closes successful business

developer to operator?

partnerships. To date, we have made investments in the US in

A: The state of Texas operates close to 90,000km of

the vicinity of US$600 million, through our joint venture with

pipelines. Mexico’s current natural gas pipeline infrastructure,

ONEOK. The rationale behind it was finding a reliable partner

including the projects the last administration developed,

that understands the intricacies of building pipes, permitting

amounts to 20,000km of pipelines. Regardless of the

procedures and reducing risks, which ONEOK provided. In

results of the presidential elections, Mexico’s 130 million

Mexico, Fermaca’s parent company, BRYCSA-BCYSA, built a

population will still require energy. Projecting a conservative

market presence that spans 50 years. This lengthy expertise

scenario of 1.5 percent GDP growth over the next six years,

enables us to negotiate rights of way within a strict budget

the country will need an additional 55,000MW of energy.

and to provide procurement procedures. The results of

The only way to supply that additional amount to gas-fired

CFE’s tenders demonstrate that Fermaca provides Mexico’s most competitive OPEX, CAPEX and NPVs. Efficiency and competitiveness are key parts of the game, which our full

Fermaca is a Mexican energy company. It specializes in providing

in-house capacity on the engineering and procurement side

natural gas solutions to the midstream segment. Fermaca’s

can provide. The EPC segment of our projects is outsourced

professional team can develop projects from conception to

to companies comfortable within that particular stage of

completion, managing engineering, financing and construction

the project.

VIEW FROM THE TOP |

COLLABORATION: THE ROAD TO SUCCESS GEORGE OPOCENSKY Senior Vice President and General Manager Electricity of ATCO Mexico

Q: What is the relationship between ATCO Mexico and

of indigenous communities into the project. That is part of

ATCO Energía in the development of new projects?

the experience we hope to bring to Mexico, even though

A: ATCO Energía is a qualified supplier, an integral part of

we understand that dealing with indigenous communities

ATCO Mexico. We only recently acquired this distinction,

here will imply different complications.

so at the moment we are approaching potential clients and finalizing the details of our certification and we will start

We see hydro as an excellent development opportunity

ramping up our operations early 2019. The intention for

and if done right, projects can be of great benefit to the

ATCO Energía is to market not only ATCO’s generation, but

company and the communities surrounding them. That

also generation from other companies to meet the needs

being said, we will not actively pursue more hydro projects

of our customers.

until we fully understand the way of working in the country.

Q: Why did the company decide to establish a joint venture

Q: What would you consider the main differences between

with RANMAN Energy and how has this led to increased

developing a project in Canada and doing so in Mexico?

competitiveness for both players?

A: The social aspects are different and the legal system

A: We escalated our relationship with RANMAN Energy

demands a different approach from what we are used to

into a joint venture years ago and we view it as a good

in Canada. Mexico is also a more diverse and competitive

relationship because of the business it has generated. Our

market and many global players are coming into the country

partner has good knowledge of the Mexican industrial

because of all the opportunities it presents. Canadian

markets and is well-positioned with industrial clients, which

Energy market is also more mature with well-defined

is what led to the creation of the San Luis Potosi project.

market rules, making it easier in general to do business. We

We see more opportunities for similar developments in the

are learning how to navigate these challenges and succeed

future; the project has been successful with the exception

in doing business.

of the grid interconnection which is about a year late and which is currently targeted to be completed by the end of

Q: What are your plans regarding energy storage

2018. This joint venture is also developing a 26MW project

technology and its application in your projects?

at Chemours’ facilities in Durango. This was the result of our

A: We are very interested in this technology and we

successful partnership in the San Luis Potosi venture and

are reviewing the potential acquisition of a project that

we are positive we will give the green light to this project

includes battery storage. We are also in discussions with a

by the end of 2018.

US company that provides storage to generation projects.

Q: What led you to invest in hydropower through the

Our goal is to find a suitable partner with enough

acquisition of Electricidad del Golfo?

experience in this technology. Regulation in Mexico is

A: Hydro is viewed as a good renewable resource and the

still lacking regarding energy storage, though. As in

best part about this company is that it works with legacy

most new technologies, government incentives through

contracts. ATCO’s target is to develop a diversified portfolio

supporting regulations are generally necessary to make

of renewable projects including hydro, solar and gas-fired

new-technology projects profitable.

generation. We have good experience working with hydro projects

ATCO Mexico is part of the ATCO Group, a Canadian holding

in Canada and even though these usually carry added

focused on profitable and sustainable development. ATCO

environmental challenges, we have found that the best

Mexico started operations in August 2014 to take advantage of

route to solve these is through dialogue and involvement

the new open nature of the energy market

173

| INSIGHT

REINVIGORATING COGENERATION’S REPUTATION IN MEXICO ENZO LOSITO CEO of AB Energy México

174

CÉSAR SÁNCHEZ Regional Sales Manager of AB Energy México

Mexico is committed to achieving 35 percent clean energy

product has been adapted and its production is tailored

generation in its mix by 2024 and renewable energy provides

to comply with CENACE’s conditions.” Sánchez also says

a variety of sources to meet these requirements. Nevertheless,

that dynamic grid codes are quite developed in countries

efficient cogeneration still plays a significant role in this

like Germany and Italy, where AB Energy has significant

transition. “Cogeneration is a good choice for Mexico’s

operations. “In Mexico, the grid code is relatively new, and

relevant industrial sectors as this technology can be integrated

while other companies struggle to operate accordingly, we

into different production processes,” says Enzo Losito, CEO

already know how our machines should behave with the

of AB Energy Mexico, the Mexican subsidiary of AB Group, a

new regulation.” He adds that financial institutions are also

global leader in cogeneration turnkey solutions.

maturing as they have seen good returns in this sector and are becoming more open to invest as a result.

Cogeneration systems can be introduced in almost any industry, Losito says, especially those where thermal power

One area where cogeneration technology is making a

is relevant, such as the chemical, pharmaceutical and food

breakthrough in Mexico is in greenhouse systems. The

industries. “Based on this principle, we customize each plant

electrical energy can be used for lighting or fed into the grid,

for every customer and every application as we work with

the heat can be employed for hot water production and the

natural gas, biogas, special gas and greenhouse systems at

CO2 contained in the engine’s gases can be absorbed and used

commercial and industrial scales,” he adds.

to stimulate crop growth. “We installed our first cogeneration greenhouse system in the country and it is the first one of

According to CRE, in 2017 there were 30 certified

its kind in Mexico. The plant has been running for three

cogeneration plants in Mexico, representing 1.7 percent of

months and it generates 3MW of electricity and almost the

total installed capacity and generating 2.1 percent of overall

same amount of heat. At the same time, CO2 gases are being

electricity. “When we arrived in the country in 2016, we were

recovered and cleaned to be reinjected into the greenhouse,”

faced with an immature market. Some cogeneration plants

says Sánchez. He adds that this client is innovating in the

were operated by nonspecialized companies and this resulted

market, as it participates in the MEM by complementing this

in a bad reputation for our technology. To some extent, we

power source with solar energy generation. Losito adds that

had to intervene in some projects because clients asked

the proper federal policies can go a long way to developing

for our cooperation and we wanted to create confidence in

cogeneration capabilities. “Distributed power with gas

our products.” says César Sánchez, Regional Sales Manager

engines provides the market with stability and flexibility and

of AB Energy México. According to Sánchez, the market’s

offers the opportunity to produce energy very close to the

opening had some loose ends in terms of legislation at the

point of consumption. Given the current development of the

beginning of its implementation, although these have since

Mexican electricity mix, the implementation of cogeneration

been closed. “As of the third quarter of 2018, Mexico has

technology is unavoidable.”

the perfect conditions for developing cogeneration. We are identifying an ROI of less than two years, which is what we

Going forward, AB Energy is targeting a wider presence in

observed in Italy when the cogeneration boom took place

Mexico that helps boost jobs and competition. “Even though

there.” Globally, efficient cogeneration produces 9 percent

our industry is not labor intensive, our goal is to grow our

of the total installed capacity.

footprint in the country and create professional competencies by training our people abroad,” says Losito. In June 2018, AB

Sánchez adds that within the new regulatory framework,

Energy also inaugurated DOABLE, a digitalization research

entrant technologies must be adapted to the market and

center located in Italy that aims to achieve a conjuncture

its players. “Over the last three years, we have come to

between industrial and digital capabilities through the

understand the grid code’s technical requirements. Our

introduction of 4.0 industry practices.

VIEW FROM THE TOP |

NEW IMAGE, NEW VISION NARCÍS DE CARRERAS Country Manager Mexico of Naturgy

Q: What is behind the company’s recent rebranding from

A: Three years ago, GPG had an installed capacity of

Gas Natural Fenosa to Naturgy?

2,234MW from its power generation facilities. As a result

A: The main reason behind this rebranding is the company’s

of the technical optimization that has taken place at our

transformation along with its global operations. Our brand

combined cycle plants, the company has added 200MW to

has undergone three renovations: a merger in 1992 between

its capacity, and we have another 200MW in the pipeline.

Catalana de Gas and Gas Madrid, followed by Gas Natural

We want to develop greenfield projects in the solar and

and Union Fenosa in 2008, and another in 2018. Through

wind segments. The company is waiting to see the new

this process, we realized that we had been losing touch with

administration’s strategy for the electricity industry, but

the reality of both the company and industry alike. Having

Mexico has great potential in the field of renewables.

natural gas in our name even though we now not only deal in this energy source, but energy as a whole, no longer

Regarding the development of the WEM, our experience

made sense. This is why we took advantage of our recent

has been good. Our main focus has been bilateral contracts

strategic plan launched in June 2018, the organizational

with industry off-takers. The market is maturing and needs

transformation and the refocusing of certain business

liquidity and continuity. In Spain, this transition took 10

divisions, to launch Naturgy.

years, so we cannot expect a big change in the short term. In general, from the electricity and gas perspective, the

Q: What major contribution is Naturgy making to the

model derived from the Energy Reform has been very well-

Mexican energy industry?

constructed. As for our own plans, Naturgy is still working

A: Over the last few years our objectives have not changed

on the final phases to achieve a relevant participation in

much. We have been in Mexico since 1997 and since 2008

this market as a qualified supplier.

as an integrated gas and electricity group. The last 10 years have seen Naturgy contribute by becoming the number

Q: Looking forward, where do you see the company at

one player in terms of natural gas distribution, and number

the end of 2019?

four as a private electric power producer, not only through

A: Our goal is to have continuity in the development of

combined cycle plants, but wind power as well, with our

our distribution network, specifically in important urban

wind farm in Juchitan, Oaxaca.

hubs like Mexico City and Monterrey. Our viewpoint is for natural gas to be on the agenda of every city that wants a

Our most important contribution in 2018 was initiating

profitable energy source with low carbon emissions. In this

natural gas distribution activities in the region of Sonora.

particular context, given the 20,000km pipeline network

We worked on this project intensively over the last three

that Naturgy has developed across the country and the

years as it was a new area for the company. Our top

almost 60,000km of the industry, there is a great deal of

priority is the acceleration of our distribution activity

room for natural gas to grow. The opportunity this network

because we believe that natural gas has a bright future in

offers as an energy solution is already there, for energy

Mexico. Nevertheless, the penetration of this service is quite

solutions, the development of stations for vehicular natural

low. Natural gas consumption in the residential segment

gas applications, and more. This is an amazing opportunity

represents 7 percent of the total energy mix. Even the use

and Naturgy is ready to be part of it.

of biomass in the form of wood holds a major share. The path forward is daunting, but Naturgy’s main goal is to offer a more reliable, comfortable and cost-effective service.

Naturgy is a private Spanish utilities company that specializes in the generation, commercialization and distribution of electricity

Q: What role is Naturgy’s GPG division playing in the

and natural gas. It has a global presence that spans more than

development of the country’s electricity industry?

20 countries with a portfolio of over 22 million clients

175

| VIEW FROM THE TOP

O&M SERVICES FOR EVERY PIPELINE ALBERTO ESCOFET Country Manager of Enagás

Q: What role does Enagás expects to play in Mexico’s

their cars and this is safe as the engineering of those cars is

energy market?

well-executed.

A: Enagás has almost 50 years of experience as a midstream 176

player offering its knowledge and playing the expected role

Q: What is the company’s strategy to increase its client

in Mexico. The company assists in completing the needed

portfolio in Mexico?

infrastructure and taking advantage of the transport and

A: CFE remains an important client as it is the main player in

storage of natural gas in the country. Natural gas is a reliable

supplying electricity. Nevertheless, the current infrastructure

source of energy, more sustainable than other conventional

creates a platform for new customers in the distribution

sources and is truly efficient. At the moment, Mexico is still in

segment. The development of virtual pipelines is important

the development process to achieve an adequate production

as it involves different sectors. The company is also identifying

platform, so it has to import over 60 percent of its natural gas

new off-takers and we want to approach them as well. Our

consumption. Nevertheless, a national production capacity

main clients are the big consumers and distribution companies

would be in place to reach a healthy commercial balance.

that require big volumes of energy supply. Additionally,

Energy endeavors are needed to generate profitable results

Mexico’s pipeline system is under a maturation process.

from private investment to generate local production. Natural

Natural gas infrastructure is not only focused on pipelines.

gas deposits have no borders. Possible dependence on

Enagás has substantial experience working with O&M services

imports from the US is as real as its dependence on Mexico

in Spain where our objective was to achieve a more efficient

for the income generated by those imports.

service. The integral management of O&M, the introduction of cogeneration technology in some compression stations and

Q: What project best highlights Enagás’ development

even the use of cold temperatures at re-gasification plants

capabilities?

for cooling distribution networks are some examples of the

A: Enagás is part of the consortium that developed the

services that the company can provide in this area. In Mexico,

Morelos pipeline project. The 171km pipeline transports natural

our idea is to take advantage of the current infrastructure

gas from Tlaxcala to Morelos and represents a door to the

by optimizing costs and management for O&M processes.

Pacific region as it is interconnected to other pipelines that

Pipeline integrity is very important to ensure the infrastructure

supply energy to Toluca and Aguascalientes. Gas transport

can last many years. Preventive and predictive maintenance

trucks also load up at compression points along the pipeline

avoids corrective maintenance, which is expensive.

to provide gas to Guerrero. The project was completed three years ago and is already operating. In these kinds of projects,

Q: What main goals does the company want to achieve by

Enagás’ main asset is to inform the communities about the

the end of 2019?

possibilities and the real prospects for growth. The company’s

A: We want to maintain our position in Mexico as a reference

strategy is to do things right from the beginning. Researching

in developing projects in the natural gas sector. This will be

and defining the path where the pipeline is going to pass

achieved by maximizing the benefits of involved communities,

through is very important as well. When the engineering is

optimizing and increasing energy efficiency in pipelines

done properly, everything goes right. After all, every day,

and developing the O&M market as an added value to our

people sit on internal combustion engines when driving

services. Regarding the contribution to the decarbonization process, Enagás is already developing projects in Spain to boost the development of cleaner gases such as biomethane

Enagás has been present in the Mexican energy market since

and hydrogen that can be transported through the pipeline

2011. It has a participation of 40 percent in the Altamira

infrastructure. In Mexico, the conditions to introduce this

regasification plant, 50 percent in the Morelos gas pipeline and

technology will be in place in the future and we will be

50 percent in the Soto la Marina compression station

prepared to be a key partner.

VIEW FROM THE TOP |

SECURE INVESTMENT, PROVEN SOLUTIONS CAIO ZAPATA Director General of Énestas

Q: How is Énestas clearly contributing to the development

energy generation and vented gas solutions. There is still a

of a healthy natural gas market in Mexico?

misconception about the contribution that natural gas can

A: There are approximately 35 natural gas service stations

make to different industries, which is why most people think

in the country, which speaks to the lack of infrastructure in

natural gas can only be used in vehicles. However, it can be

this niche compared to other countries. The US, for example,

used in greenhouses, boilers in the mining industry, fuel for

has more than 1,000 service stations countrywide. We can

vehicles and ships, and even as a source of energy in remote

build the required infrastructure considering the locations and

places with no access to conventional energy. Énestas works

routes that our clients may use to supply their natural gas

tirelessly to disseminate the knowledge and usage of natural

requirements. One of the advantages we offer is Liquified

gas in Mexico.

Natural Gas (LNG), which increases travel distance on a full tank by 2.4 times compared to compressed natural gas (CNG).

Énestas is present in all the markets that benefit from the

LNG is a reliable fuel option for buses, trucks and other types

use of natural gas; therefore, our focus is not on expanding

of transportation related to exports or cross-borders logistics

our presence but on the escalation in the type of projects

services. In terms of power generation, while I think CFE’s

we participate in. We are continuously searching for larger

power generation scheme has a broad scope, there are still

projects like installing conversion kits in cargo ships so they

remote places that the national company cannot reach, such

can use natural gas as fuel.

as industrial parks or mines. Énestas offers a solution for these remote locations by providing the required LNG for energy

Q: How have your shared-risk testing schemes allowed the

generation and even the generation itself, all at low costs.

company to take advantage of business opportunities? A: There is uncertainty about the functionality and

Q: How does Énestas promote the use of natural gas?

effectiveness of using natural gas in the Mexican market

A: Énestas recently participated in the LATAM Mobility

because it is a relatively new alternative energy source and

Summit with a presentation about the benefits of using natural

customers are already using other fuels with which they are

gas as a transportation fuel. The company highlighted the

more familiar. Our free-testing scheme for projects aims to

advantages of using natural gas to power a vehicle compared

eliminate this barrier of uncertainty by allowing the client

to other options in the market like electric cars. An electric

to test our solutions. Once the client is convinced and the

car can be a good option but it is limited because even if

necessary infrastructure is in place, this transformation

it pollutes less, it has low capacity to travel long distances.

goes smoothly.

There is a long way to go before electric cars become a viable means of transport. That is why Énestas focuses on informing

Q: What would you like to achieve by the end of 2019?

the public about the advantages and disadvantages of the

A: The company has a strong presence in the private sector

available options in the market. Very few people know that

so we would like to expand our participation in the public

the battery life of an electric car is around seven years and

sphere. We would like to approach the new administration

the renewal price is close to the original value of the car. This

to seek collaborations and see how we can be part of the

is not the case with cars that use natural gas. The customer

natural gas-related tenders and projects that take place in

just needs to be aware that when volumes are high and long

the public sector.

distances are required, LNG is the better choice and when distances are shorter and the volumes are lower it is better to use CNG.

Énestas is involved in the creation of natural gas access and solutions in Mexico. With activities in the generation, distribution

Énestas works with natural gas solutions for the transportation,

and retail of natural gas for vehicles, Énestas is working to

mining and agrobusiness industries, as well as for remote

become the preferred company for natural gas-related services

177

178

WĂ¤rtsilĂ¤'s 250MW natural gas power plant in Kiisa, Estonia

INSIGHT |

FLEXIBLE SYSTEMS OFFER GRID ALTERNATIVE

SAMPO SUVISAARI Regional Director, Latin America North and the Caribbean at Wärtsilä

RAÚL CARRAL Business Development, Mexico, Central America and the Caribbean at Wärtsilä

Given Mexico’s ambitious 2032 renewable energy goals,

2032 goal. “Hybrid plants are very attractive, as part of the

baseload plants need to respond to the increasing demand

investment costs can be lowered and emissions mitigated by

to plug more renewable technologies into the grid. “Traditional

relying on renewable energy generation,” he says. “At a global

power plants can support between 5 and 10 percent of

level, the concept has been well-received but the contractual

renewable energy share but when 20 percent generation is

framework has not been developed yet in some emerging

reached, the impact will be significant as traditional generation

markets.” As an example, Wärtsilä hybridized an existing

cannot cope with the load variations,” says Sampo Suvisaari,

57MW diesel power plant with an additional 15MW PV plant

Regional Director of Latin America North and the Caribbean

for a mine located in Burkina Faso, reducing fuel consumption

at Wärtsilä. The Finnish company manufactures flexible

by 6 million liters and cutting CO2 emissions by 18,500t/y.

power plants that are powered by either liquid or gaseous fuels. “Fuel-flexible systems can cover demand at sites where

The company is now finishing a power plant adjacent to

access to natural gas pipelines is unavailable. This is the one

the Huinala Flexicycle power plant in Monterrey. “This

of the opportunities we are seeking in Mexico,” Suvisaari says.

new power plant will duplicate the total installed capacity of the plant complex, but the extension will not deliver

Raúl Carral, in charge of Business Development for Mexico,

electricity to the grid. Instead, it will supply power to an

Central America and the Caribbean at Wärtsilä, says Mexican

industrial customer through a bilateral PPA,” says Carral.

authorities should be prepared for a large penetration of

The company is also about to finish a 110MW natural gas

renewable energy generation in the national grid. “They need

plant in Chihuahua. “It is the first project under the new

to consider the introduction of flexible technology to balance

WEM scheme that will supply 100 percent of its electricity

the grid and ensure the quality of the national electricity

to the national grid,” he adds.

system while lowering the cost of electricity in Mexico,” he says. Wärtsilä’s experience in other countries shows that when

Regarding other projects in the region powered by flexible

renewable energy share grows, the grid starts experiencing

systems, the company has a significant presence in the

problems. “It is ironic, as more renewable energy comes online,

Caribbean islands. “The Caribbean market represents a

grids without flexible power experience higher emissions and

great opportunity for our flexible fuel alternatives, such

a significant increase in costs,” says Carral.

as our dual and tri-fuel systems. LNG is another option, but the implementation of this technology requires bigger

Wärtsilä has delivered various white papers by modeling

investments in the transportation and storage segments,” says

flexible technology and comparing it with traditional power

Suvisaari. The company has invested in working with a variety

generation plants and has proposed improvements for

of fuels in liquid and gas state, such as propane, ethane and

specific electricity systems. In the company’s case study

even biofuels.

Optimizing the power grid in Baja California Sur, Wärtsilä estimated that the region will require an additional 584MW

Wä r t s i l ä re ce n t l y a cq u i re d G re e n s m i t h E n e rg y

of thermal generation capacity by 2030. By comparing two

Management Systems, a leading provider of energy

alternatives, the first consisting of power plants based on

storage software and project integration services. The

gas turbines and the second based on generation by internal

company now develops EPC hybrid projects with solar

combustion engine (ICE) technology, total operating costs

PV technology and battery systems. “We already have a

could be lowered by 9.1 percent by choosing the more flexible

siginificant reference in the market with this technology.

ICE technology.

It provides a complimentary option as potential clients can develop hybrid systems in a combination between

But Suvisaari is concerned that PRODESEN does not consider

engines working along with batteries and renewables with

flexible technology as a midterm transition model toward the

an energy storage back-up system,” says Carral.

179

| VIEW FROM THE TOP

EXPANDED VISION TARGETS FULL-LIFE SERVICES EDUARDO CURIEL Commercial Director of Grupo Industrial Aguila (GIA)

180

Q: Why should project developers choose GIA as their

a stronger foothold in this arena and take part in projects

partner of choice?

from the very beginning to maximize the added value we

A: GIA already has deep experience developing projects that

can offer. We have fixed our geographical presence in the

involve the entire life cycle of industrial complexes and oil

southeast region with an office in Coatzacoalcos and are

and gas facilities, from the engineering and manufacturing

discussing the opportunity of opening another office in the

of the equipment to the delivery and installation of the

north, with Saltillo and Monterrey as the main possibilities.

solutions, including O&M services. The electricity industry is

The purpose of these new offices will be to serve the

no different as it requires highly specialized solutions where

wind project developers located in the respective region,

engineering must be optimized to find the best solutions

together with any other energy project that we can get

over the entire life cycle of a project. We manage highly-

our hands on.

specialized industrial equipment. We train and certify all our workers so they are able to operate the needed tools

Q: How could Mexico help its local value chain become

and deliver optimal projects. We are now increasing our

stronger for the benefit of the energy industry?

activities in the electricity segment, training and certifying

A: I would like to see the government getting more involved

our human capital for that industry and providing the same

with Mexican companies so they are able to take part in

dedication with which we served our oil and gas clients.

more investments. As of now, most of the investment is being driven by foreign companies and we would like to

Q: Where is GIA setting its strongest foothold in the

see that change with time, having more local companies

renewable energy industry?

driving the market. We have had conversations with

A: Our strongest foothold is civil engineering for wind

many local governments to strengthen their local value

farms. For example, we manufacture metal-mechanic

chains. One of the most fruitful discussions has been with

components or build the civil infrastructure required for the

Tamaulipas through its Energy Commission, with which

correct functioning of the wind farms, which includes the

we have had the opportunity to disseminate information

construction of the turbineâ&#x20AC;&#x2122;s base, rainwater management

about the importance of foreign investment for the energy

and so on. We are also entering conversations with other

industry in the country. The work we have carried out with

project developers to establish a presence in other renewable

the Tamaulipas Energy Commission has also spurred many

energy projects and we see big potential in the PV market.

companies to seek out our services, instead of us having

We like to offer turnkey integral projects to our customers so

to knock on doors.

they do not have to worry about any aspect of the civil works. Q: How has political uncertainty affected the development Q: Does GIA plan to offer O&M services to the electricity

of energy projects in Mexico?

industry similar to its oil and gas division?

A: There is always a level of uncertainty when developing

A: Although building infrastructure or installing equipment

energy projects. 2018 in particular brought more

for both industries is our core business, we know that the

uncertainty due to the political environment and transition

future for the company is in closing deals that involve O&M

we are experiencing and this has made the private sector

services for this infrastructure. As a result, we want to set

uncomfortable. Fortunately, we are looking at some companies that are placing bets on the future of the country, because the development of renewable energy projects

Grupo Industrial Ă guila (GIA) is a consortium of companies

makes sense across economic, social and environmental

that offer a full range of services to the energy industry, from

spectrums. But, for the country to see the greatest benefit,

EPC to O&M. The group is working to strengthen its position in

we must not forget that investment must always benefit the

the Mexican renewable energy sector

communities where the projects will be installed.

VIEW FROM THE TOP |

CAPITALIZING ON NORTH AMERICA’S ENERGY INTEGRATION OSCAR OLMEDO CEO of Zenith Holding México

Q: How did Zenith Holding México expand its footprint

A: From a regulatory standpoint, CRE’s efforts are

across several sectors in such a short time?

commendable. Regulatory modifications are ongoing,

A: While Zenith Holding México was born in 2014, most

particularly for permitting purposes. It is understandable

of the companies comprising the group were already

given the regulatory framework forms the building blocks

operational and had a certain track record prior to joining

of Mexico’s natural gas market consolidation, which remains

the holding entity. The effort among our partners is

a work in progress. CRE’s regulatory attributes in natural

centered around diversification, and we are constantly on

gas are fairly new and it is building up its own expertise

the lookout for business niches in Mexico’s most dynamic

through each new or modified regulation. We are positively

sectors that are propelling the country’s economic growth.

surprised with CRE’s commitment toward transparency in

We were naturally drawn toward the country’s energy

the permitting process relating to our business niches.

industry, specifically oil and gas. We participated in some oil production and commercialization activities as well as

Transparency will be the bedrock for investment flows as

associated projects in the US. The drop in crude oil prices

both local and foreign investors’ corruption fears are lifted.

turned our attention toward commercializing natural gas

This will serve as a reference for other sectors to showcase

in Mexico. We reached a joint venture agreement with US-

how well the permitting process works without resorting

based Twin Eagle to replicate in Mexico what the US has

to corruption. The same can be said for CNH’s Licensing

achieved in the last 20 years. Twin Eagle went through the

Rounds. We participated in Round 1.3 and were pleased

deregulation process in the US, so we understand the next

with how CNH carried out the process. Based on our

steps Mexico’s natural gas market will take in the foreseeable

interactions with government agencies and regulators on

future. We wanted to capitalize on this experience.

diverse subjects such as natural gas rates, system balance and open seasons, we noticed greater interinstitutional

Q: In which natural gas niches is Zenith Holding México

coordination and alignment is necessary. We think it is only

looking to establish a strong foothold?

a matter of time before these diverging criteria align.

A: Our first stage involves completing our permitting processes, including a qualified supply permit. Beyond

Q: What is your assessment of Mexico’s natural gas

selling a product, we see ourselves as a company

infrastructure?

that wants to create long-term business relationships,

A: The weakest link in the natural gas infrastructure value

providing consulting over the inner workings and enclosed

chain is transportation. It is an issue that was constantly

opportunities of the Energy Reform. As is common in a

relegated as low priority in the past. Infrastructure in general

service business, Mexico’s natural gas market is rather

has to grow and investment needs to pour in. Texas alone

standard, including tenured companies providing quality

has more kilometers of natural gas pipelines than the entire

services. The primary differentiator in those cases boils

SISTRANGAS system. Mexico’s southern region needs to be

down to price. Our competitive advantage lies in our

connected with the rest of the country’s pipeline system.

willingness to educate our clients on detecting the on-

PEMEX’s southern compression plants supplying natural

hand opportunities available. Covering each link of the value

gas are facing difficulties in meeting the increasing demand,

chain, from the upstream to the off-taker’s finished product,

to the detriment of industrial growth.

we can optimize costs with larger margins. Additonally, we can provide long-term contracts with fixed prices and financial coverage.

Zenith Holding México is a Mexican business integrator created in 2014. It covers the oil and gas, infrastructure, energy, health,

Q: What is missing for Mexico’s natural gas market to reach

services and security sectors, along with human resources with

the US’ sophistication levels?

its Stella Resources division

181

It would not be an issue to solve in the short-term, but we have to draft a plan for self-sufficiency Andrés Manuel López Obrador

INDUSTRY WISH LIST FOR THE NEXT 6 YEARS Before he entered office, there was a great deal of anxiety over Andrés Manuel López Obrador’s energy policy strategy. The cancellation of the fourth long-term electricity auction confirmed one of the main fears. According to President López Obrador’s plans, the road to self-sufficiency will be led by the state-owned company CFE. The administration’s support for conventional power plants also raises questions about whether Mexico will reach its clean energy goals. Furthermore, many projects awarded during the previous auctions are coming online but audits of approved projects will be scrutinized.

In this supplement, Mexico Energy Review presents the suggestions and concerns of the leading industry voices as the administration launches its National Electricity Program.

183

| INDUSTRY WISH LIST FOR THE NEXT 6 YEARS

THE 2013 ENERGY REFORM IN PERSPECTIVE One of the most important legacies of Enrique Peña Nieto’s administration will be the foundations of a liberated energy market in Mexico. The Energy Reform promised competitive energy tariffs and a greater participation of renewables, among others. These are the reform’s breakthroughs and shortcomings

184

At the time of its conception, the new energy model

capacity increased between 2013 and 2016 from 597.6MW

resulting from the Mexican Energy Reform was projected

to 699.15MW but wind power generation fell to 86.3MW

to deliver several benefits for Mexico. These include a

in 2017 since in that year the generation of Independent

faster substitution of thermal, fossil fuel-powered power

Energy Producers (PIEs) was no longer registered. Mexico’s

generation for cleaner, more efficient and less costly power

nonrenewable effective generation capacity increased

generation and a competitive energy market where private

between 2013 and 2016 before falling in 2017. The country’s

companies can take part in the development of generation

nonrenewable effective capacity in 2013 amounted to

capacity. When the Energy Reform was approved in

40.55GW, which increased to 41.87GW in 2016 but slowed

December 2013, it met strong criticism by the opposition as

to 29.4GW in 2017 as PIEs’ combined-cycle generation

it was seen as a path to privatize PEMEX and CFE. Inasmuch

plants were no longer considered.

as the reform’s objectives aimed to reduce electricity, gas an oil costs to the benefit of the Mexican population, by

RISING POWER TARIFFS

the end of Enrique Peña Nieto’s government, the reform

Tariffs in all segments have increased since the entry

fell short of reaching most of its goals.

into force of the Energy Reform. The agriculture sector experienced the largest increases with an average 166.6

The government kept control and planning of the national

percent rise between 2013 and 2017. Average tariffs in

electricity system as well as of transmission and distribution,

all segments of agriculture went from MX$1.25/kWh to

while generation and commercialization were open to free

MX$3.35/kWh. The second-largest tariff increases took

competition. This policy led to the creation of Mexico’s

place in the public services sector (27.4 percent) from

Wholesale Electricity Market in 2016, which is operated

an average MX$2.40/kWh in 2013 to MX$3.05/kWh in

by the National Center for Energy Control (CENACE) and

2017. Domestic tariffs in all segments (including high-

includes both the spot market and electricity auctions. The

consumption households) were in third position for largest

secondary laws pertaining to Mexico’s 2013 Energy Reform

increases during that period. On average, the price of 1kWh

were published in December 2014. Among these, the Energy

in that segment went from MX$1.36 in 2013 to MX$1.46 in

Industry Law (LIE), CFE Law, Geothermal Energy Law and

2017, which is an 8.2 percent increase. On the other hand,

Law of the Energy Coordinated Regulatory Bodies are

industrial tariffs in all sectors remained the most stable.

perhaps the most important for Mexico’s electricity market.

There was an increase of only 2.7 percent between the average MX$1.04/kWh of 2013 and the MX$1.07/kWh of

The 2013 National Energy Balance shows that Mexico’s

2017. The second-most stable sector was commercial, where

effective electricity generation capacity in that year was

the average tariffs increased 2.6 percent from MX$3.65/

53.5GW, with an effective renewables capacity of 12.93GW.

kWh in 2013 to MX$3.74/kWh in 2017.

Hydropower was the most important renewable in this category with an installed capacity of 11.5GW, followed

A NASCENT POWER MARKET

by geothermal with 823.4MW. By 2017, Mexico’s effective

The creation of the Wholesale Electricity Market is among

electricity generation capacity fell by 20.5 percent to

the key breakthroughs of the Energy Reform. Private

42.5GW but renewables increased their participation by

companies can now supply renewable and clean energy

about 13.7 percent in Mexico’s effective generation capacity

directly to qualified users. These users now purchase energy

and accounted for 13.1GW of the total. In 2017, hydropower

both from basic suppliers or become basic suppliers on

remained the most important renewable energy in terms

their own. In 2018, at least 5 percent of the energy that

of effective capacity with a total 12.1GW.

qualified users buy in the new energy market must come from clean sources. Companies that cannot reach this

The effective capacity of other renewables suffered

amount must purchase CELs or face sanctions. 2018 is the

minor changes since the entry into force of the Energy

first year that these certificates started applying.

Reform. While Mexico’s solar power effective capacity remained constant at 6MW between 2013 and 2017, in that

This market also saw long-term energy auctions for private

period geothermal increased its capacity from 811.6MW

generators to sell electricity directly to CFE. Since 2016,

to 873.6MW. In terms of wind power, Mexico’s effective

three auctions have taken place. According to data from

the Sixth Government Report of President Enrique Peña

up to 2032, which would require an investment of around

Nieto, these three auctions generated an investment of

MX$1.7 trillion over the next 15 years. The report adds that

around US$8.6 billion and will add 7.4GW of clean energy

by 2032, up to 55 percent of all the added generation

capacity. These investments will prompt the development

capacity will be in renewable technologies and the rest

of wind, solar, hydro, geothermal and turbogas generation

in conventional technologies, especially combined-cycle

projects in 18 Mexican states that will start operations

generation plants. PRODESEN expects that wind and solar

between 2018 and 2020. The cost of each clean MWh

capacity will be the most added renewable technologies

has dropped 56.2 percent between the first and the last

with a total 14.8GW and 11.4GW, respectively. More than

long-term auction. While the cost of each MWh of clean

2GW of hydropower and efficient co-generation capacity

energy closed at US$47 in the first auction in March 2016,

are projected to be added by 2032, geothermal and

this figure dropped to US$20.57/MWh in November 2017.

biomass will have minor capacity increases and another

In terms of CELs allocation and total power allotted, the

4GW of nuclear power capacity is expected to be installed.

second long-term auction of 2016 was the strongest year with 9.3 million MWh+CELs marketed and a total 8.9 million

As this capacity is added, PRODESEN expects that

MWh adjudicated. The fourth long-term energy auction was

11.8GW of capacity will be retired between 2018 and 2032.

projected to take place in the first week of December 2018.

Conventional thermal stations are forecasted to be the most

However, the newly inaugurated government of President

decommissioned generation plants and account for 7.4GW

Andrés Manuel López Obrador has suspended the auction.

of the capacity retired in that period. An aggregate capacity of 4.3GW of conventional technologies such as combined-

THE ROAD AHEAD

cycle, coal-powered, turbo gas and internal combustion

While the more immediate results of the Energy Reform

will also be retired. PRODESEN expects that only 61MW of

have not met the expectations presented in 2013, the

renewables capacity (geothermal and wind) will be retired

Ministry of Energy expects that by 2032 the results will be

up to 2032.

more palpable. In PRODESEN 2018–2032, it was projected that Mexico’s gross energy consumption will increase at an

From an investment perspective, PRODESEN estimates

average rate of 3.2 percent between 2018 and 2032.

that MX$2 trillion will be invested in Mexico’s electricity infrastructure over the next 15 years. Generation will

The report underlined that 66.9GW of added capacity are

account for 84 percent of that compared to transmission

needed to satisfy this increasing demand for electric power

with 9 percent and distribution at 7 percent.

reduced the costs of generating electricity from renewable sources and incentivized the development of wind, solar and other clean generation projects The creation of CELs and the obligation to source a growing percentage of electricity from renewable sources is projected to invigorate the production of clean

Rather than being reduced, electricity tariffs have increased. In 2017, households were paying 8.2 percent more per kWh in 2017 (including high-consumption homes) B e t w e e n

2013

and

2 0 1 7,

conventional technologies still accounted for more than 90 percent of the electricity that Mexico generated

energies Mexico’s renewable capacity has As part of Mexico’s WEM, qualified users can now purchase electricity

not experienced major changes between 2013 and 2017

from qualified suppliers that compete against CFE

The fourth long-term energy a u c t i o n p ro j e c t e d t o t a ke

Mexico will generate 25 percent of

place in December 2018 was

its energy consumption through

suspended due to the change of

clean sources toward 2024

government

NEGATIVE

The long-term auctions have

POSITIVE

WHAT WAS THE POSITIVE AND NEGATIVE?

185

| ELECTION RESULTS

THE SHIFT IN POWER The July 1 elections brought the biggest change in the history

President-elect López Obrador, held less than 3 percent of

of Mexico’s federal executive power. The country now has

the chairs in the Deputies chamber for the 2012-2015 period

for the first time ever a president that is not from one of

and had no representation in the Senate for the 2012-2018

the biggest and oldest political parties PRI or PAN. But the

period, it has now jumped to holding over 40 percent of each

legislative power has also seen a tremendous shift. That

chamber. The Mexican people have spoken and it remains to

same day, Mexicans also voted for the Senators and Deputies

be seen how the President-elect will act for the benefit of the

that would represent them. While MORENA, the party of

country wielding the power in both chambers.

Mexico’s benchmark

BIGGEST WINNERS

stock index, the S&P/BMV IPC,

Company

Opening July 2

Closing July 2

Variation

Company

Opening July 2

Closing July 2

Variation

plummeted 7.6

LACOMER UBC

20.77

21.77

4.81

CIE B

20.80

18.90

-9.13

AEROMEX

26.99

27.94

3.52

VITRO A

61.00

57.85

-7.50

GSANBORN B-1

19.00

19.53

3.33

PE&OLES

355.24

331.38

-6.93

GENTERA

17.67

18.13

3.19

CIDMEGA

43.00

-6.91

SARE B

0.035

2.94

PINFRA

141.00

136.35

-5.31

percent in May, marking its biggest one-month decline since February 2009.

Source: BMV

SENATORS IN THE CHAMBER IN 2012-2018

42 RELATIVE MA JO RIT Y

186

BIGGEST LOSERS

55 PRI 34 PAN 19 PT 8 Independent candidates 7 PRD 5 PVEM

8 7 6

HOW ARE MEXICAN SENATORS ELECTED?

5 5 1 N/A

The Mexican Senate is composed of 128 seats. Of those, 64 are elected by simple majority. Every state is represented by three senators. Each party or coalition nominates a “formula” composed of two senators. The formula that earns the most votes earns two seats in the Senate for its two candidates. Another 32 senators are elected by the “first minority” system. The party that earns the second-highest

number of votes can send one of the two senator candidates it nominated. The remaining 32 seats in the Senate are assigned according to the principle of proportional representation and are dubbed plurinominal senators.

PLURINOMINAL SEATS

13 MORENA 6 PAN 6 Social Encounter 2 PRI

2 PRD 2 PT 1 Citizens' Movement

Source: Mexico's Senate, INE

2018 STATE GOVERNMENT ELECTION RESULTS

MORENA-PT-PES Citizens' Movement PAN-PRD-MC PAN-MC PAN-PRD-MC-PSI-CPP

2018 PRESIDENTIAL ELECTION RESULTS AND PERCENTAGES 187

53.19% AMLO

Source: INE

DEPUTIES IN THE CHAMBER IN 2012-2015

212

22.27% Anaya

16.40% Meade

214 PRI 113 PAN 99 PRD 27 PVEM 12 Citizens'

5.23% Rodríguez

12 MORENA 11 PT 10 New Alliance 2 Independient candidates

Movement

12 8 5 2

HOW ARE MEXICAN DEPUTIES ELECTED? There are 500 seats in the Mexican Chamber of Deputies. Each of the 300 uninominal deputies that occupy them are elected by simple majority. They each represent one of the 300 electoral districts into which Mexico is divided. The remaining 200 deputies are elected by proportional representation and are dubbed plurinominal deputies. No

200

party can have more than 300 deputies in total. In some districts, individual parties field their own candIdates outside of a coalition.

Together We Will Make History coalition (MORENA, PT, Social Encounter Party)

For Mexico in Front coalition (PAN, PRD, Citizens' Movement) Everyone for Mexico coalition (PRI, PVEM, New Alliance)

200

PLURINOMINAL SEATS

85 MORENA 41 PAN 37 PRI 12 PRD

11 PVEM 10 Citizens'

Movement

4 PT Source: Mexico's Chamber of Deputies, INE

| PROFILES

ANDRÉS MANUEL LÓPEZ OBRADOR President of Mexico

Andrés Manuel López Obrador (AMLO) started his political career in 1976 by supporting the candidature of Carlos Pellicer as Senator for the state of Tabasco. The next year he became the Director of the Indigenous Institute of Tabasco. After the creation of the Democratic Revolutionary Party (PRD) in 1989, AMLO was named 188

president of the party in Tabasco. He was PRD’s President from Aug. 2, 1996 to Apr. 10, 1999, a period during which the party gathered the widest national presence since its creation in 1989. On Dec. 5, 2000, AMLO became the Mayor of Mexico City. Among his achievements are the creation of programs to support the elderly, single mothers, unemployed, rural producers and micro-businessmen, together with major infrastructure projects such as Periferico’s second floor. His first attempt to become President of Mexico began on Aug. 11, 2005. He was supported by PRD, the Working Party (PT) and the Convergence Party. After his defeat, he published a document called Nation Project on March 20, 2011. After that, on Dec. 9 of the same year, he registered as pre-candidate to run for the presidency for a second time, supported by the same parties. Again, he was unsuccessful. After creating MORENA, AMLO became President of the party’s national council on Nov. 20, 2012. He held that position until Dec. 11, 2017. One day later AMLO registered as pre-candidate for the presidency for the third time, representing the coalition MORENA, PT and the Social Encounter Party (PES). On the evening of July 1, 2018, AMLO registered a consistent lead during the ballotcounting process, leading his opponents to recognize him as President-elect and offer their congratulations. On Dec 1, 2018, López Obrador was sworn in as Mexican president.

“We must end corruption. [...] Projects are currently assigned directly and at times tenders are not even held. We are ending with these practices and you (construction workers) will be able to work and have benefits again” Andrés Manuel López Obrador, at the CMIC Jalisco Conference

ROCÍO NAHLE

ALBERTO MONTOYA

Minister of Energy

Deputy Minister of Energy

Rocío Nahle is the Minister of Energy for

Alberto Montoya is President of the Center

AMLO’s executive branch. She worked at

for National Strategic Studies (CEEN), a civil

PEMEX in several areas, including processing

association that groups openly and plurally

engineer, quality analysis and control, and

academic institutions, workers’ organizations,

finance and administration in the petrochemical

farmers, students and entrepreneurs. He

complexes Cangrejera, Pajaritos and Morelos.

has written several books on the topics of

She is a member of the National Committee

neoliberalism, technology and Mexico’s

of Energy Studies and the Institute of Energy

industrialization. Montoya holds a Master’s

Studies of Latin America and the Caribbean

degree in Communication, as well as a Ph.D.

and has published several articles related to the

in Public Policy, both awarded by Stanford

petroleum and petrochemicals market in Mexico.

University, and is an academic fellow of the

She also took part in the Senate debates of

Iberoamerican University.

2008 related to the Energy Reform. Graduated as a chemical engineer from the Universidad Autónoma de Zacatecas, she also holds diplomas in chemical processes engineering, economics

ALFONSO MORCOS

and strategic engineering analysis.

Director General of CENACE

MANUEL BARTLETT

Alfonso Morcos is an electrical mechanical engineer with more than 50 years of experience in the Mexican electricity industry.

Director General of CFE

From 1966 to 1989 he worked for CFE in the planning of the National Electricity System

Manuel Bartlett is a Mexican lawyer that has

and its 10-year Program of Works and

held various political positions. He started his

Investments (POISE). From 1983 to 1989,

career as Secretary General of the Institutional

Morcos also served as head of CENACE. At

Revolutionary Party (PRI) and later he served as

this time, the organism was still a sub-division

Interior Minister during President Miguel de la

of CFE. During his management, the control,

Madrid’s term. Bartlett also served as Minister of

communications and real-time supervision

Public Education and as Governor of Puebla. In

systems were modernized. Additionally,

recent years, he has held the position of Senator

during this period, Laguna Verde Nuclear

and since December 1, 2018, Bartlett has led the

Plant was incorporated to the National

country’s national electricity company as Director

Electricity System and several operation

General of CFE. He studied law at the National

protocols had to be established for this to

Autonomous University of Mexico, where he also

take place. Morcos has also participated

obtained his postgraduate education degrees.

in the private consultancy services for the

Bartlett holds a Diploma in Public Administration

electricity industry. In December 2018 he was

from Victoria University of Manchester.

appointed Director General of CENACE.

189

| THE NATION PROJECT

POLICY PRIORITIES AMLO hopes to pave the way to energy self-sufficiency with a strategy of austerity and an emphasis on seizing the capacity of existing resources. Hydropower leads the development of renewables but conventional power plants will be reinforced, raising questions about how Mexico will reach its clean energy goals

190

President López Obrador has made his energy strategy

Of concern to the market are the budgets for the regulatory

clear: the government’s priority will be focused on

commissions of these industries. While productive state

reinforcing CFE’s activities from a financial and technical

companies PEMEX and CFE will get budget boosts, CRE

perspective. The administration will also review elements

will be provided MX$248.28 million and CNH will work

of the Energy Reform, including the long-term auctions.

with a budget of MX$215 million, representing cuts of 28

AMLO announced his National Electricity Program in

percent and 27 percent, respectively. “We are now in the

December 2018. The program bolsters CFE’s budget in an

stage of analyzing the impact but we believe that it will

effort to return Mexico to energy self-sufficiency. AMLO

translate into a reduction of CRE’s reaction speed, both in

also suspended the fourth long-term electricity auction.

permits and in regulation,” says Guillermo García, President

“We used to be a self-sufficient country. Now, we have to

Commissioner at CRE. “I believe that this did not involve

purchase half of our electricity demand at very high prices.

a profound reflection, due to the time frame in which the

All of this has to change,” said López Obrador, announcing

budget was planned and approved, but I think that we have

the program at the Malpaso Dam in Chiapas.

to establish this dialogue and try to reduce the impact that it will have on our operations.”

The auction suspension in particular sparked concern across the industry. The main driver behind the

CFE AT THE TOP OF ITS GAME

development of the long-term electricity auctions was to

The budget proposal provides CFE with MX$434.7

provide a platform to promote the construction of new

billion, giving it an extra MX$20 billion to accelerate its

generation plants, mostly solar and wind technologies, to

modernization processes. This has left little doubt that

cope with the country’s energy demand while removing

state-owned companies will be given more support. “It is

investment responsibilities from CFE. This market scheme

important to note that the Mexican industry has space for

has secured investments totaling US$8.6 billion, which

very large and important state-owned companies and also

translates to the development of 46 solar parks and 19

for the private sector; there is no doubt that a strong effort

wind farms. The latter will add 7,000MW to the country’s

from both sectors is required,” says García. But AMLO’s

capacity. As of November 2018, there were 61 companies

decision to suspend the fourth long-term electricity auction

operating in the electricity market, with another 59 in the

is a strong – and concerning – indicator of his priorities.

process of registering.

“The risk that we are facing of not renewing the auctions, from our perspective, is the risk of having blackouts in

But López Obrador believes this model essentially

2021. We are running late and we have to implement the

introduced a dismantlement program for CFE as it

necessary measures to ensure there are enough plants in

promoted the shut down of public plants with a preference

three years to keep up with the pace of demand.”

for foreign energy producers. “The dependence on the purchase of electricity is not going to be reverted in the

One focus of the National Electricity Program is on

short-term. But we have to elaborate a plan toward self-

maintenance services for CFE generation plants. The

sufficiency, as before,” he said.

strategy seeks to use the majority of CFE’s facilities to help meet rising demand. Modernizations, reconversions

THE BUDGET PROPOSAL FOR 2019

from fuel oil to gas and the potentiation of facilities also

To put muscle behind his priorities, the 2019 Federal

are expected to address the country’s energy needs in the

Expenditure Budget is projected to total about MX$5.81

short and medium terms. For this purpose, the budget

trillion, of which MX$1.08 trillion will be allocated to

proposes a total MX$34.31 billion to be divided as follows:

the administrative branches of the government, with

MX$15.36 billion will be allocated to combined cycle

public education, welfare, health, national defense,

thermoelectrics; MX$10.42 billion toward carbon plants;

communications and transport, governance, agriculture

MX$7.04 billion to conventional steam centrals; MX$171.1

and rural development, labor and social security, navy and

million to diesel plants; MX$980.5 million to geothermal

energy. This final area will receive about MX$27.23 billion,

plants; and MX$340 million directed to modernize

covering both the oil and gas and the electricity industries.

hydropower infrastructure.

191

The plan also aims to direct 96 percent of CFE’s budget

“Angostura, Chicoasén, Malpaso, Peñitas and the

to enhance technologies powered by conventional energy

remaining 60 hydro power plants can produce more

sources. In 2017, conventional thermoelectric plants accounted

energy if modernized,” says López Obrador. Tthese

for 17 percent of the total installed capacity and carbon-

facilities owned by CFE generate the cleanest and

powered plants contributed 7 percent of the mix. The country’s

cheapest energy in the market, he says. Nevertheless,

energy goal calls for a 35 percent participation of clean energy

the president is aware of the challenge involved in

in the mix by 2024. The Indicative Program for the Installment

constructing new plants. “More hydro power plants

and Retirement of Electric Centrals (PIIRCE) establishes

cannot be constructed. It is very complex as there is

the requirements for generation capacity to satisfy energy

opposition from environmentalists,” he says. CFE, in close

demand while the 2018-32 PRODESEN foresees the retirement

collaboration with CONAGUA, will increase its generation

of 115 units, property of CFE, during this period. Of these,

capacity at a 26 percent rate by adding 3,300MW to

62.81 percent corresponds to conventional thermoelectrics.

the grid from this energy source. The administration has

Nevertheless, AMLO does not consider the shut down of any

already approached Canada’s Hydro-Québec to develop

power plant an option during his sexennial term.

a mutual collaboration in this matter.

According to Manuel Bartlett, Director General of CFE, the

NATURAL GAS

state-owned company’s generation plant capacity equals

As with the revision of the assigned contracts derived

56,000MW. Of this, 27 percent comes from renewable

from the past licensing rounds, the new administration

energy sources, such as hydropower, geothermal and

will execute an audit on several projects approved in the

nuclear. Additionally, the company holds 11,000MW in

last years. 2017 concluded with natural gas consumption

steam generation plants.

totaling 7,611.9MMcf/d, mostly led by the electricity generation segment. This segment accounted for 67.8

LONG LIFE TO HYDROPOWER

percent of the fuel’s consumption. In the same year,

Hydropower as emerged as the president’s clean energy

4,815Mcf/d was imported from the US, representing an

of choice. According to the 2017 National Energy Balance,

increase of 15.5 percent from 2016. The increasing demand

hydropower represented 10 percent of total generation

suggests the need for the construction of production

with an installed capacity that covers 17 percent of the

and transportation infrastructure, a pressing priority for

energy mix, supplied by 86 plants. “To date, CFE holds

the country’s energy agenda. Bartlett also emphasizes

12,642MW from hydropower sources that produce an

the creation of a smart fuel usage policy through the

energy output of 30TW. This amount of energy represents

utilization of every primary source of natural gas from

2.4 times Mexico City’s annual electricity consumption,”

PEMEX and LNG of various origins. But rather than point

says Bartlett. Hydropower was the first renewable resource

to combined-cycle plants or cogeneration, Bartlett has

developed in the country, and the most predominant

instead focused on the need to modernize and increase the

technology in the 20th century. In 1970, this energy source

capacity of Mexico’s existing conventional hydroelectric

generated 53 percent of CFE’s electricity supply.

and thermal plants.

| THE NATION PROJECT

THE NATION PROJECT: A BREAKDOWN President López Obrador’s Nation Project outlines his goals and expectations for the next six years. Energy policy will be focused on achieving self-sufficiency through the reinforcement of CFE. While the state's productive enterprises will receive major financial support, measures will be applied with austerity

After taking office on Dec. 1, 2018, President l López Obrador unveiled his National Electricity Program at Malpaso dam. This CFE facility is the oldest and one of the most important works in the country’s electricity history. With an installed capacity of 1,080MW, Malpaso is Mexico’s second-largest dam, only surpassed by Chicoasén with 192

2,400MW. Both plants are powered by the Grijalva river. AMLO emphasized the need for the country to again become self-sufficient in terms of energy. “In 1992, concessions started being offered to private companies. At that time, we were self-sufficient. Now we have to purchase half of the electricity we consume and at higher prices,” he said. He highlighted the importance of economic policies that create growth and progress and how this leads to the construction of significant infrastructure works. The reinforcement of the electricity industry will be motivated by an austerity plan where the main beneficiary will be CFE. His strategy then relies on taking advantage of the existing generation plants, energy efficiency measures and a policy of zero shutdowns. “We are going to save money. And this is why there is going to be budget for investment. CFE will have budget to invest next year,” said AMLO. In addition, Manuel Bartlett, Director General of CFE, stated that the company’s energy capacity and its human organization had suffered during the last few administrations. “Financial limitations, tariff insufficiency

• Emphasize corrective and preventive maintenance • Avoid plant shutdowns and retirements

• Strategic use of all natural gas resources from PEMEX • Use of LNG of various origins • Audit on natural gas pipeline network promoted during the previous administration

Others include a lack of maintenance and modernization, arbitrary retirements, inconsistent structural reforms and a change in CFE’s mission. “(These factors) have provoked a critical financial situation.”

RENEWABLE ENERGY PROMOTION

• Strategy to mitigate Mexico’s dependence on imported natural gas • Hydro, solar PV, wind, geothermal and cogeneration technologies will be promoted • Special support will be provided to hydro power with the objective of adding 3,300MW

HUMAN CAPITAL TRAINING

• CFE will integrate a group of professionals with wide experience in the management of the company • Training and technological development through universities and training centers • Incorporation of Young People Building the Future Program to this initiative

and the non-transfer of subsidies for residential and agriculture segments” are some of the reasons he gave.

ESTABLISHMENT OF A FUEL USAGE POLICY

DELIVER INTERNET SERVICE THROUGHOUT THE MEXICAN TERRITORY

• The existing 47km of optic fiber will provide Internet service to every corner of the country • Transmission and distribution facilities from CFE will be used for this purpose • The main objective is to foster information, knowledge and research possibilities

KEY POINTS

INCREASE GENERATION CAPACITY OF EXISTING CFE PLANTS

• Invest more money to take complete advantage of these facilities

ANTICORRUPTION PLAN

• Rigid system of audits within the company • Specialized personnel dedicated to ensuring honest practices

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| INDUSTRY WISH LIST

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WHAT IS ON YOUR WISH LIST FOR THE NEW ADMINISTRATION TO STRENGTHEN MEXICO’S ENERGY INDUSTRY?

LEONARDO BELTRÁN Former Deputy Minister of Planning and Energy Transition It should strengthen the wholesale electricity market and regulatory institutions, while also focusing the attention on transmission line projects and fostering investment flows toward new technologies. Strengthening the market and energy infrastructure are two sides of the same coin. Despite Mexico’s energy industry being relatively new, the long-term electricity auctions showcased highly competitive package prices on a global scale.

RAMÓN MORENO CEO of Mitsui Power Americas Mexico’s new energy model is the perfect base for the country’s desperately-needed energy transition. It confers Mexico the tools to consolidate its energy security and autonomy, with a greater penetration of renewable energy. On the legal side, continuous variations within the industry’s regulatory framework reflects poorly on the industry. It can cause a negative impact on the seriousness showcased so far, demonstrated by contract design and compliance. While some aspects of the industry remain in legal grey areas, the basic fundamentals should not change.

195

ALEJANDRO PREINFALK

LUIS VERA

Vice President of

Former Partner at V&A

Energy Management at Siemens Mexico

There should be a revision of structures, procedures and regulatory framework within the context of ASEA and SEMARNAT. This should all be integrated into a single energy agency to avoid differing interpretations of the same framework. Compliance with timeframes and deadlines is also crucial, with efficient internal procedures to avoid inhibiting investments. We also need clear, consistent resolutions with accepted, established criteria based on a legal alignment between ASEA’s guidelines and federal laws on the other. The new administration should discard legislation that only elevates project development costs. The most important achievement would be to set environmental protection and investment attraction on an equal footing.

It should continue bolstering renewable energy generation. This necessity is aligned with the new administration’s messages to the industry. To do so, Mexico’s grid needs to be further developed and strengthened. For renewable energy to be successfully integrated to the grid, we also need smart grids. Mexico’s Smart Grid Program needs to be reinforced and followed up, as does the National Electricity System’s digitalization.

| INDUSTRY WISH LIST

JAVIER ROMERO Executive Director of AMFEF AMFEF has emphasized the importance of distributed generation and how it can secure Mexico’s renewable energy and sustainability commitments signed during the Paris Accords. We are also insisting on providing the necessary conditions that enable Mexico’s long-term electricity auction projects to continue their natural course and reach operational phase, guaranteeing a seamless flow of investments for the country’s utilityscale projects for renewable energy.

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JORGE OCHOA Country Manager Mexico of UL Renewables

FLORIAN GOUTTE Latin America Development Manager of Valeco Energía México

Our vision for Mexico’s renewable energy industry mirrors the charter of the industry’s principal

While there is confusion about the reform’s

renewable energy associations published across

capacity to bring down electricity prices in

several media outlets in June 2018. This agreement

the short term, the reality is that the reform’s

was signed by the Wind Power Mexican Association

core purpose is to bring prices closer to

(AMDEE), Mexico’s Cogeneration Association,

real costs. The work that has been done is

COGENERA Mexico, the Mexican Association

commendable, despite criticisms. CRE stands

of Hydroelectric Energy (AMEXHIDRO) and the

out among other government agencies with

Mexican Association of Solar Energy (ASOLMEX).

an open-door policy and a genuine intention

The charter’s main goals are energy sovereignty

to help the industry move forward. We are

and diversification of the energy mix, enhancing

still undergoing a learning curve. Important

the use of clean energy, competition and long-

milestones have been reached but a lot of

term electricity price certainty, training engineers,

work remains to be done. The industry is

technicians and industry specialists, generation

headed in an interesting direction, but it is

of new opportunities for local production and

important to maintain the momentum and fill

regional development, ensuring respect for

the remaining regulatory voids. For instance,

indigenous communities and the environment, rural

selling energy from one state to another

electrification, continuity for renewable energy

implies a transitional cost determined by CRE

project investments, expansion of the electricity

as a fixed cost per kWh regardless of distance

transmission infrastructure and the consolidation

and without a calculation methodology, and

of the infant wholesale electricity market.

there is no visibility on future levels of this cost beyond 2018.

FRANCISCO TORRES Director General of Veolus For the electricity market to truly operate, kW prices should be determined by market forces, reflect true generation, transmission and distribution costs, be subsidy-free and move away from a fixed tariff logic. Based on that, each private player will be in a real position to offer competitive advantages and viable alternatives to the benefit of the final user.

JORGE GUTIÉRREZ Director General of Energía Eléctrica BAL We recently published a statement, through COGENERA and some other energy-related

FELIPE SALAZAR

associations, describing 10 points related to sustainability and energy sovereignty. We think that the new administration should continue the

Country Manager Mexico of

efforts of the incumbent government regarding

Alten Energías Renovables

the Energy Reform’s achievements and vision, because it would be a serious problem to

Mexico’s Energy Reform is built on a solid base.

reverse it. For example, CFE should not have

The next administration must keep what is

programmed power cuts anymore. Given the

working well and tackle the country’s transmission

efficiency-related conditions provided by the

infrastructure issue, opening the door to private

reform, the company needs to apply these

participation as the amounts of capital required for

positive conditions into its operations to

this type of developments cannot be provided by

become more competitive and efficient. Finally,

CFE alone. The transmission and interconnection

CFE should also incentivize the smooth flow of

projects already underway, such as the Hermosillo-

investments and development of interconnection

Baja California and Oaxaca-Valley of Mexico

projects instead of implementing extremely high

transmission lines, added to Tamaulipas’ plans

costs and technical requirements for companies

to increase its renewable generation evacuation

interested in developing this type of project.

capacity, are the first steps down a long road.

RUBÉN CRUZ Energy and Natural Resources Lead Partner of KPMG We believe that it is crucial to give continuity to the new energy model in Mexico and to the commitments made in the Paris COP21 summit and the Energy Transition Law. We must achieve the transition to a clean energy model and lower our dependence on fossil fuels. Continuity and certainty are the most desirable factors for industry players and investors to be able to trust in the government’s long-term planning up to 2031. It is understandable that there will be some adjustments to this plan, but these should be minor ones that do not undermine the long-term view.

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| INDUSTRY WISH LIST

RAMÓN BASANTA CEO of ATCO Energía

The main obstacle for the electricity sector is the market design, as how it is designed greatly influences how price signals are showed to the market participants. As I mentioned before, electricity is a very specific kind of commodity. Gasolines, for example, rely on very clear supply and demand forces. When fuel prices are low, it can be contained in storage facilities and when prices go up, it can be sold. With electricity this is not possible as it must

198

MARCIAL FRIGOLET

be consumed as the energy is being produced. This strong relationship acts as an invisible hand in the market

President and CEO of Toshiba de México

and regulators have to make sure that

The next administration could prioritize the review some

Regarding QSS regulatory framework, I

matters that remain on standby. Great efforts were put into

think CRE and CENACE should continue

launching and implementing the Energy Reform, which

demanding high requirements to

rules are very clear for all participants.

the country urgently needed. There are several issues to

ensure that only the most prepared

correct and other matters that need to be addressed to

companies enter into the market.

propel it to new heights. The new administration needs to

Ultimately, trading is a zero-sum game

go beyond preserving continuity and find ways to provide

and if one player fails the whole system

new momentum for the country’s energy transition.

suffers. Additionally, regulation has to

Establishing electricity tariffs is among the greatest

be constantly revised as it is greatly

difficulties we are witnessing, creating added complexities

influenced by market trends.

for CFE and hampering potential investments. While competing on a level playing field with private entities, CFE needs to be strengthened and its outdated, inefficient generation park modernized or replaced to cater to the growing energy needs of the country.

ALEJANDRO BLANCO-MORENO Co-Founder of Tradeon Energy The next administration should avoid abrupt changes in the rules of the game, especially in a market where multiple participants are making long-term investments. If required, changes should only be to benefit market participants, applied in coordination with them or based on their feedback. It should also continue working toward injecting competitive forces in the retail side of the market, with products and tariffs to incentivize users to shift to the new market.

JUAN CARLOS PARDO Shared Value Creation and Sustainability Director of Nestlé México Both the government and the industry need to understand what society needs and develop technologies to cover these needs. One clear example is public lighting. Local governments should seek technologies to make their public lighting consumption more efficient. These innovations can come from technical features or even disruptive financial schemes like partnering with a company able to cover the necessary investment and then pay this company with the energy savings produced by a new and better technology applied to the local grid.

CAIO ZAPATA 199

Director General of Énestas I think CFE and PEMEX are great companies. However, they should focus supply in the country, in addition to the

OSCAR OLMEDO

production and generation of fuels.

CEO of Zenith Holding México

more on improving the quality of fuel

The new administration could begin by improving the quality of the existing natural

Over the next six years, investment in energy

gas services and fuels, and then start

infrastructure is critical. If the country seeks to

growing from that point. It is important

achieve cost-competitive natural gas services,

to have a local natural gas production and

nationwide availability is a must. An economy fueled

not be dependent on other countries. Yet,

by natural gas is a recipe for growth that can open

the authorities should not forget that the

pathways toward new markets, such as natural gas

main objective is to maximize the access

exports toward Asia. We strongly believe Mexico

and quality of fuels available in the country,

has the potential to become the next natural gas

as well as to improve what has been done

hub, capable of injecting competitiveness in natural

in that regard.

gas production, wholesale and exports.

LEOPOLDO RODRÍGUEZ President of AMDEE One issue to address is the development of transmission lines. Also, the new administration should establish ground rules regarding social matters and motivate the transparency and agility of administrative processes. Maintaining the development of the long-term electricity auctions is another recommendation. It is important to keep and independent system operator, such as CENACE, as it ensures market transparency and a level playing field for all players. Also, there should be a strong independent regulator that acts as a mediator and makes sure rules are being complied with by all players, regardless of size and regardless of their private or state character. We believe that CFE could be stronger and AMDEE, along with private initiatives and the state, could represent an important ally to achieve many goals. If we are to triple the capacity from wind energy during this administration, we should do it together.

| INDUSTRY WISH LIST

ALEJO LÓPEZ Senior Director Mexico and Central America of NEXTracker Fostering the development of a strong local industry is positive but Mexico must avoid protectionist schemes. A clear example of the

200

results protectionism may bring is the Trump

RAFAEL VALDÉZ

administration, which has imposed tax schemes that have increased the cost of clean energy

Managing Director Latin America

production. Mexico has produced record-low

and the Caribbean of Envision

prices at its long-term electricity auctions and

Like any other foreign investor developing and operating renewable energy projects in Mexico, we expect continuity and legal certainty. First, we would suggest a re-evaluation of the long-term electricity auction mechanism to consider the necessity of maintaining a balanced energy matrix. Argentina’s auction design seems more accurate as it maintains quotas per generation technology and per region, discarding any notion of price-based awarding. Second, we would recommend drafting admissibility criteria that mandates projects participating in the auctions be ready-to-build. This measure would block speculators from entering

any increase in price will decrease the chances of Mexico reaching its clean energy production and emissions goals. Increasing international competition in the country with an open market will put positive pressure on local companies to rise up to the requirements of international companies. Regulating storage is another area in which the government must be more involved. Although the auctions have been successful in ensuring the implementation of the projects, they will pose a big burden in the already existing transmission and distribution infrastructure and in the national electricity system overall.

and doing damage to the market.

SOFFIA ALARCÓN Director Mexico of Carbon Trust Energy across the world can be categorized into two different topics: oil and gas and renewable energy. Despite Carbon Trust’s work with renewable energy, it does not mean the oil and gas sector is not relevant. I think it is critical to consider the importance of both industries. I am worried that the new government is not seeing this as a priority. Renewable energy projects should be developed not only because they help mitigate climate change or help achieve national GHG reduction goals, but because they make business sense. As long as the new administration understands that there are two different priorities in the energy sector, things will work out well. The UK and Germany are good examples of how the transition must work simultaneously because one sector should not be ignored to develop another market. It is a process that works both ways and our job is to establish renewable energy as part of the public agenda.

MICHEL YEHUDA Industrial B.U. Director at Dominion Mexico, Fluke Corp. Master Distributor in Mexico

There needs to be a Balance between progress and the human factor. Smart grids, energy savings, Industry 4.0 and AI will propel industries to new levels of growth and development. Yet, we must avoid boosting the achieved advances at the expense of human and social components. To illustrate, China’s

CYNTHIA BOUCHOT

unprecedented levels of pollution,

Director General of Energía

causing severe health hazards to its

CB Consultores

population. While showcasing the

impressive economic development and manufacturing capacity brought about

benefits of Mexico’s energy transition

Political will, above all. Mexico’s Energy Reform is highly

and raising awareness of the positive

ambitious and includes several participants across the

social impact of energy efficiency, we

board, both in the private and public sphere. The critical

must stick to global best practices

component lies in indigenous consultations and social

and not cut corners with the material,

impact assessments. The new chapter of the Electricity

economic aspects of this shift.

Industry Law pertaining to those issues was enacted without the Ministry of Energy being fully prepared to tackle it. It created a procedural backlog of pending social impact assessments to be authorized. This particular branch must be reinforced to go forward with the visualized energy projects, especially to avoid litigations and lawsuits.

MARIO PANI Mexico Leader of BayWa r.e. The Energy Reform has already provided a strong set of tools and market access to the clean energy industry to compete with conventional energy. This required change was fundamental to CO2 emissions reduction goals to which Mexico is a leader in the Americas. This sector support combined with strong market fundamentals have brought significant credibility to Mexico’s energy market and, therefore, given investors, both local and foreign, the incentive to come and invest in the country. My hope for the new administration is that they continue to see the value of renewables development and its incredibly positive social and economic impact and provide the support necessary to maintain the significant market momentum.

201

Oak Creek Energy's Tres Mesas wind farm, Llera, Tamaulipas

WIND

Wind power has one of the longest track records among Mexicoâ&#x20AC;&#x2122;s renewable energy sources. The first wind farm to become operational, Venta I, was inaugurated in 1998. Since then, wind power has consolidated as the secondranked renewable power source after hydroelectric, allowing for the prosperous development of wind power in the country. While the vast majority of wind farms are concentrated along Oaxacaâ&#x20AC;&#x2122;s Isthmus of Tehuantepec, other states, such as Tamaulipas, Coahuila and Yucatan, are set to gain increased prominence.

The evolution of energy generation costs and sale price, the importance of O&M services for the installed technology, the challenges of intermittency related to wind and the transmission of energy from generation points to the points of consumption, the ability of wind energy to coexist with solar energy and the role that this energy represents in the countryâ&#x20AC;&#x2122;s energy mix are among the topics addressed in the following pages.

203

CHAPTER 8: WIND 206

ANALYSIS: Wind Blows Into Energy Contention

207

VIEW FROM THE TOP: Leopoldo Rodríguez, AMDEE

208

INFOGRAPHIC: Harnessing the Potential of Wind

210

VIEW FROM THE TOP: Rafael Valdéz, Envision

211

INSIGHT: Ralph Wagner, Mexión Corporation

205

Julio Ochoa, Climatik

212

VIEW FROM THE TOP: Elie Villeda, Emergya Wind Technologies

214

INSIGHT: Lourival Mendes, Composites VCI do Brasil

215

INSIGHT: Julio Ramírez, Mexión

216

VIEW FROM THE TOP: Jack Weisz, GE Renewable Energy

217

VIEW FROM THE TOP: José Hernández, ABS Wind

218

VIEW FROM THE TOP: Alejandro Cobos, NOTUS Energía México

Thomas Tack, NOTUS Latin America

219

INSIGHT: Simon Galico, SUZLON

220

INSIGHT: Jochem Sauer, Spares in Motion

221

VIEW FROM THE TOP: Rafael Ordoñez, Telener 360

222

VIEW FROM THE TOP: Alejandra Domínguez, SOWITEC

223

VIEW FROM THE TOP: David Barnes, Oak Creek Energy

| ANALYSIS

WIND BLOWS INTO ENERGY CONTENTION Wind power is rapidly climbing the ranks of necessary resources for Mexico to achieve its clean energy goals. Improved technology and innovation are driving the upsurge in generation. But infrastructure issues remain a hindrance to further growth

206

In Mexico, the wind blows strong. It is no wonder, then, that

specialized technicians and O&M services. “The wind energy

investors are looking at more regions across the country to

sector in Mexico started to see activity in 2006 and now,

place their money, attracted by decreasing generation costs

almost 60 percent of the wind farms are out of warranty, with

and industry innovation. As more clean energy powers the

mature equipment starting to see component failures,” says

grid, however, infrastructure needs to be fortified to prepare

José Hernández, Director of Renewables Mexico at ABS Wind.

for further developments.

This is becoming a pressing issue as time goes by.

“Twelve years ago, the only region that was attractive for

Power demand and attractive investments also are

investment was the Isthmus of Tehuantepec. Today, wind

motivating the development of a national manufacturing

projects are present in 11 states, with the strongest growth

industry, a tendency that in recent years was unimaginable.

taking place in Tamaulipas, Coahuila and Nuevo Leon,” says

“Almost every company in the Mexican market has to send

Leopoldo Rodríguez, President of AMDEE. The country

its turbines and components for repair either to Europe or

is experiencing growth in wind energy developments in

the US. Doing so involves downtimes that can last from eight

regions that were once considered nonviable. The state

to 12 months from the moment the element is shipped until

of Tamaulipas alone, hosts 1,197MW of installed capacity.

its return, meaning not only significant losses in production

In August 2018, the largest wind farm in Mexico was

but also in logistics and shipping,” says Hernández. The

inaugurated in this same region, adding 424MW to the grid.

industry is taking action and very soon components, such as turbines and blades, will be accessible in the country. In

Oaxaca remains the state with the largest installed capacity,

2017, Danish manufacturer Vestas started the construction

with 2,756MW and 28 wind farms. This region injects 62

of a production plant in Reynosa. ACCIONA will start

percent of wind-sourced energy to the country’s grid, up

manufacturing wind blades in the country in 2019 with a

17 percent in 2018 from the previous year. The Eólica del

factory located in Tamaulipas. These projects and others

Sur project was concluded in 2018, adding 396MW to the

have been strongly supported by the local government due

energy mix and positioning itself as one of the biggest

to the generated income.

developments in the country. The Isthmus of Tehuantepec still plays an important role in the country’s wind power

WHICH SCHEME FOR WIND?

output and projects like the Ixtepec-Yautepec Transmission

Wind energy development in Mexico has been highly

Line are critical.

motivated by long-term electricity auctions and PPAs. In the first auction, wind energy accounted for 394MW but in

INNOVATION DRIVING GROWTH

the latest auction in November the results totaled 1,323MW.

Among the main drivers of wind energy success across the

Bilateral contracts also are becoming more popular between

country is technological innovation that is driving down

off-takers, mostly driven by long-term price certainty.

production costs. “The new generation of wind turbines

“Under the previous regulatory framework, it was not easy

allows us to take better advantage of the wind resource.

for small or medium-sized consumers to participate in the

Technology has improved rapidly and right now the

PPA structure. Before, the off-taker had to become partner

challenge is more economic rather than technical,” says

of the project in question. It was a game in which only

Alejandro Cobos, Head of Notus Energía México. Examples

big players could participate. Now, every consumer can

include the Amistad III and Amistad IV wind farms located

participate without becoming a partner of the project,”

in Coahuila. These will be the first projects globally to use a

says AMDEE’s Rodríguez. Companies such as Grupo Bimbo,

new generation of wind turbines that have the highest LCOE

Grupo México, Grupo Soriana, Nestlé and CEMEX Energía

of their class. These technological advancements are giving

have taken the lead, supplying their operations through this

companies the opportunity to seize different wind profiles

scheme. These long-term contracts are viable because O&M

and take advantage of wind currents at different heights.

costs are low compared with conventional energy sources. The market is constantly evolving and while the transition

Wind technology’s success has also been good news

toward bilateral contracts takes place, virtual PPAs are

for services providers, with the industry requiring more

becoming more tangible.

VIEW FROM THE TOP |

MORE TRANSMISSION LINES ARE NEEDED TO BOOST WIND GENERATION LEOPOLDO RODRÍGUEZ President of AMDEE

Q: From a technological perspective, what is the main

Q: Which market scheme is best suited for the development

hurdle for wind energy development in Mexico?

of wind energy projects?

A: As wind resources can only be found in specific

A: Wind energy projects manage high volumes of generation

regions of Mexico, AMDEE has identified saturation

in Mexico. This technology is benefiting from PPA schemes and

and bottlenecks in several nodes across the country.

the long-term electricity auctions. Bilateral private contracts

Twelve years ago, the only region that was attractive for

are gaining traction because the prices offered by wind

investment was the Isthmus of Tehuantepec. Today, wind

projects are at least as competitive as conventional energy

projects are present in 11 states, with the strongest growth

sources and usually, even more competitive. Additionally, they

taking place in Tamaulipas, Coahuila and Nuevo Leon. The

represent long-term price certainty. Long-term contracts can

Ministry of Energy’s PRODESEN 2018-32 establishes the

be established because O&M costs are low and there is no fuel

requirement of new transmission lines but these have

in between, which means low volatility. Under the previous

not been built at the needed pace. This infrastructure

regulatory framework, it was very not easy for small or

has to be fortified, not only to transmit energy from the

medium sized consumers to participate in the PPA structure.

generation facility to the consumption point but to design a robust electricity network that allows the exchange of

Before, the off-taker had to become partner of the project

energy between regions. The energy mix has significant

in question. It was a game in which only big players

participation of wind and solar technologies and even

could participate. Now, every consumer can participate

though their generation profiles are different, they are

without becoming a partner in the project. Before the

complementary. When exchanging energy between

implementation of the new energy model, we were used

regions, we can minimize the dependence on other

to having fixed prices for at least one month but now these

carbon-based energy sources. A collaboration between

prices change every hour. We also still have a methodology

public and private entities is needed to finance and comply

to define electricity tariffs and this is limiting smaller

with these transmission requirements.

consumers’ participation in bilateral contracts.

Q: What role will renewable energy and storage play in the

Long-term electricity auctions allow the purchasing parties,

electrification of the Mexican energy system?

mainly CFE Suministro Básico, to fulfill their energy needs

A: In a recent study carried out by AMDEE, the Commission

without the need of investing. These projects attract the best

of Private Sector Studies for Sustainable Development

possible prices and are located in the regions where they are

(CESPEDES), the Mexican Association of Solar Energy

required to solve supply bottlenecks. Under these auctions,

(ASOLMEX) and Iniciativa Climática de México, it was

several projects are awarded under the same scheme and at

determined that by 2024 there should be 300,000 electric

the same time, which is a big difference from the traditional

vehicles in Mexico. At the same time, internal combustion

public tenders where a single project is awarded, limiting

engines and electric vehicles will reach cost parity. The

the use of more than one technology. Long-term electricity

electricity sector has to be prepared to satisfy this

auctions have proven to be a very effective mechanism to

demand and a great percentage of it will be provided by

attract and award clean technologies for power generation

renewable energy and energy storage systems. Batteries

at prices that have broken world-record lows.

are valuable elements of the electricity system. In case of a failure in the generation facility, batteries could supply energy for a while. This technology also provides

The Mexican Wind Energy Association (AMDEE), founded in

voltage and frequency regulation providing support to

2005, brings together developers, manufacturers and service

the grid and reducing the need for transmission lines in

providers to represent common issues before the authorities,

several cases.

society and economic players related to the wind energy sector

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| INFOGRAPHIC

HARNESSING THE POTENTIAL OF WIND The estimated potential of wind resources in the country is

Nuevo Leon. Innovation has played an important role as novel

close to 15,000MW. A few years ago, the only attractive region

turbine models can now leverage different wind profiles. As

for this purpose was the Isthmus of Tehuantepec. Today, this

wind farms can be located in isolated regions, transmission

technology is operating in 10 states, with the strongest growth

and distribution infrastructure is a pressing issue for their

taking place in Tamaulipas, Coahuila, Yucatan, Puebla and

development.

WIND FARM INVESTMENT PER STATE (US$ million) Nuevo Leon

600 (US$2/MW) 548 (US$2/MW)

Baja California

206 (US$2/MW) 322 (US$2/MW)

38%

Tamaulipas

Coahuila

62%

1,137 (US$1.12/MW) 605 (US$2/MW)

700 (US$2.01/MW) 401 (US$2/MW)

208

64%

San Luis Potosi

Durango

241 (US$2/MW)

180 (US$2/MW) 400 (US$2/MW)

52%

36%

48% 69%

Zacatecas

32%

640 (US$2/MW)

Yucatan

31%

1,983 (US$6.47/MW)

68%

Jalisco 42%

360 (US$2/MW) 500.8 (US$1.89/MW)

Veracruz

180 (US$2/MW)

58% 82% 18%

Guanajuato

206 (US$2/MW)

15% 85%

Queretaro

60 (US$2/MW) Under Construction Operational

Puebla

Oaxaca

Chiapas

600 (US$2/MW) 132 (US$2/MW)

822 (US$2/MW) 4,692.6 (US$2/MW)

103.93 (US$2/MW)

MAIN WIND POWER PLAYERS

1,424

1,500

1,617

1,800

Source: CRE, SENER

297 148.5 Grupo ACS

204 102

308 154 GEMEX Energía Renovable

ENGIE

312 156

180 Mexico Power Group

IEnova, InterGen

360.7 180 Siemens Gamesa

360

401.2 199.5 EDP Renováveis

455 228 Renovalia Reserve

541.5

468 234 Naturgy

EDF Renewable Energy

Enel Green Power

Acciona Energía

300

270.8

600

Iberdrola Renewables

783 391.5

712

900

809

1,200

WIND FARM PROJECTS PER STATE

INSTALLED CAPACITY OF WIND FARMS PER STATE (MW) 2,346.3

Oaxaca

411 319.98

Zacatecas

302.5

Tamaulipas

1,197 274 300

projects in total, 41 operational and 32 under construction

Nuevo Leon

265 180

Jalisco

200 94 199.5 350

Operational

Under Construction

53.7% Oaxaca 12.9% Tamaulipas 7.4% Nuevo Leon 4.9% Zacatecas 4.9% Jalisco 4.9% Baja California 4.9% Chiapas 2.4% San Luis Potosi 2.4% Coahuila 2.4% Puebla 21.8% Tamaulipas 15.5% Yucatan 9.3% Jalisco

6.3% Oaxaca 6.3% Coahuila 6.3% Nuevo Leon 6.3% Puebla 6.3% Guanjauato 6.3% Baja California 6.3% Veracruz 3.1% Durango 3.1% San Luis Potosi 3.1% Queretaro

Coahuila

166 102

300

51.97

121

103

CIC, PDR 40 Green Power 20

44 22 COMEXHIDRO

99 50 Zuma Energía

148 74 Grupo México

160 80 Industrias Peñoles

168.8 84.2 CFE

164.8 97 Grupo Dragón

Operational

Puebla

Chiapas

Durango

Guanajuato

Veracruz

Querétaro

Under Construction

MAIN WIND POWER PLAYERS Company

Investment (US$ million) Installed Capacity (MW)

Baja California

Yucatan

306

Wind technologies represented 6.1 percent of total installed capacity in 2018

San Luis Potosi

No. of projects

US$ million/ MW

ACCIONA Energía

Enel Green Power

EDF Renewable Energy

Iberdrola Renewables

Naturgy

Renovalia Reserve

EDP Renováveis

2.011

Siemens GAMESA

Mexico Power Group

IEnova, InterGen

GEMEX Energía Renovable

ENGIE

Grupo ACS

Grupo Dragón

1.706

CFE

Industrias Peñoles

Grupo México

Zuma Energía

COMEXHIDRO

CIC, PDR Green Power

209

| VIEW FROM THE TOP

DOMINATING GENERATION, BRANCHING OUT TO CONSUMPTION RAFAEL VALDÉZ Managing Director Latin America and the Caribbean of Envision

210

Q: What is Envision’s primary milestone related to the

upward. People are increasingly dependent on smartphones

consolidation of Mexico’s wind power sector?

and other mobile telecommunication devices, which also

A: 2018 marks a landmark for the company related to the

consume energy and require data storage solutions. All these

operational launch of the first utility-scale wind power

different megatrends reach the same conclusion: energy

project in Latin America, the Eólica del Golfo 1 wind farm

consumption per capita is expected to increase exponentially

in Dzilam de Bravo, Yucatan. This wind farm contributes to

and continuously over the next 40 years. This reality creates a

the development of Mexico’s southeast region, given the

set of challenges and opportunities for energy companies to

lack of sufficient power generation capacity in that specific

position themselves across the value chain. In Envision’s case,

area. This project experienced no setbacks from a social or

at the generation level, we have positioned ourselves as the

environmental standpoint as our work with local communities,

second-largest wind turbine manufacturer in China and fifth

environmental groups and local authorities was impeccable. It

on a global scale. Envision’s ambition to accommodate global

stands out from the development of other renewable energy

energy megatrends motivated us to look increasingly toward

projects in other complex states across the country, such as

the energy consumption niche. The company has invested

Oaxaca or Tamaulipas.

heavily in its digital division to create sophisticated, smart, in-house, cloud-based software to monitor power generation

Q: How advanced is Envision’s wind power portfolio

assets, including wind farms and solar PV parks, in real time.

in Mexico?

Close to 120GW of renewable energy generation plants are

A: Our Mexico wind power portfolio totals close to 1.5GW. It

administered with our software solutions. We have also made

includes our two wind farms in Yucatan totaling 150MW of

significant investments in a US company that develops EV

installed capacity: Eólica del Golfo 1 and Energía Renovable

charging stations with replicable possibilities for Mexico and

de la Península. The latter is close to launching its construction

Latin America as the EV industry progresses.

phase, in alliance with Bow Power. We also have one legacy wind farm contract in Guanajuato that is close to reaching

Q: What is missing in Mexico to detonate full-merchant

construction phase, in addition to two wind farms both

projects and bilateral PPAs?

in development and undergoing permitting processes in

A: The process requires a learning curve. That implies knowing

Campeche and Yucatan. For these last projects, we are looking

what kind of contracts and virtual financial PPAs have been

to cover the commercial aspects through a hybrid spot market

structured so far and how they have been structured in

and bilateral PPA rather than participating in the long-term

other more sophisticated, more mature markets, such as

electricity auction projects. Our goal is to consolidate an

the US, where virtual PPAs are quite common. At this level,

installed capacity portfolio of 2GW in the country by 2020.

physical energy exchanges have opened the way to financial contracts among signing parties. By concluding this learning

Q: What advances has Envision made regarding its

curve, project sponsors, investors and banks using project

digitalization and metering ambitions?

finance will be confident enough to absorb certain amounts

A: The world is transitioning toward energy electrification. The

of financial risk. There are very few full-merchant finance

automotive industry is betting on electric vehicles. The world’s

projects at this point where part of the project is sold in the

rising temperature is driving air conditioning consumption

spot market, while bilateral contracts with hybrid projects are multiplying. Mexico’s spot market is rather new, without a track record long enough to serve as a reference and fully

Envision is a China-based smart energy solutions provider

grasp the inherent risks of such a volatile market in the short,

offering smart wind turbines, smart energy management

mid and long terms. This inhibits financing. There is also a

software and technology services, with facilities established

lack of warranty-capable sponsors to share risks with financial

worldwide

entities. There is a dire need for such sponsors.

INSIGHT |

STANDARDIZING DATA-BASED DECISION-MAKING

RALPH WAGNER CEO of Mexión Corporation

JULIO OCHOA Commercial Director of Climatik

Mexico has proven to be an attractive hub for the development

companies. Our solutions are designed to offer a 360-degree

of utility-scale renewable energy projects. As several of these

data and information service, from the commissioning of met

are scheduled to start operations throughout 2018, there

masts and their equipment with the latest hard and software

will be a growing need for reliable measurement data and

and their maintenance service to 24/7 monitoring, reporting

information focused on keeping these facilities up and running

and interpreting of wind and solar data.” He adds that the

efficiently over the lifetime of the project. According to Ralph

company assures data availability to its clients due to the

Wagner, CEO of Mexión Corporation, good groundwork and a

professionalism and coordination between its monitoring and

long-term vision is required to maintain optimal power output

maintenance teams that are prepared for prevention as well

levels over the lifetime period. “Corrective maintenance due

as corrective interventions.

to sustained systematical failures is primarily a result of lack of knowledge or lack of specialization,” he says. “Much of this

The measurement of wind and solar sources is important

corrective maintenance is easy to anticipate, prepare for and

in the integration phase of a renewable energy project

avoid with adequate metering solutions and insightful critical

but gathered data is increasingly necessary further down

data. These can produce significant savings in unnecessary

the line. “We observe that more and more of our data

operational costs and can apply to both solar and wind

is generated for operating projects, whose decision-

technologies.”

makers rely on our information to optimize and protect their installations. In particular, the effects of climate

Climatik is a commercial brand belonging to Mexican

change can be seen as renewable energy’s Achilles’

investment holding Mexion Corporation. It specializes in

heel due to its uncertainty and variability,” says Wagner.

wind and solar resources data and information, measurement

“But wind and solar parks are getting smarter thanks to

products, services and consultancy. With 10 years under its

the design of our met mast circuits and the sensor and

belt operating in Latin America, the company is well-versed

IoT solutions we offer in alliance with our international

in Mexico’s intricacies. “We distinguish ourselves through the

providers and developers.” He adds: “We are a strong

synergy of high-end technological solutions, international

ally when it comes to experience, know-how and high-

quality standards, the most experienced local labor force

end technological solutions that maximize production

and our profound market knowledge,” says Wagner. He adds

and minimize downtimes in the O&M phase. On one

that Mexico’s renewable energy utility-scale projects are

hand, Climatik provides data for real-time reaction and

experiencing new issues related to performance, power output

protects the blades by pitching them out of the gusts,

and maintenance as they reach operational phase. “These can

increasing their lifetime significantly. On the other hand,

be mitigated with the appropriate metering technology in the

Mexión, another Mexión Corporation company, provides

early stages of the project,” he says. “Climatik can prepare its

inspection, rehabilitation and maintenance of wind energy

clients to face these potential issues and provide them much

blades and other composite components with the highest

more effective results for more accurate decision-making.”

quality and safety standards and the most experiences blade technicians in the Mexican market.”

Julio Ochoa, Commercial Director of Climatik, says the company’s primary contribution lies in introducing new

Reliable data turned into critical information can make

metering and meteorological technologies to the Mexican

working with a nonpredictable resource less challenging and

market and the correspondent data management and analysis

it is therefore the key to success in the increasingly price-

to ground a solid base for tailor made decisions making. “We

driven market, Wagner says. He points out that projections

continuously monitor new trends and changes in the industry

fed by historical data provide more certainty for financial

to offer our clients the newest products and technologies,

or maintenance models and Climatik can deliver historic,

making the energy transition easier to manage for these

mesoscale data of up to 30 years for some sites.

211

| VIEW FROM THE TOP

INTERNATIONAL EXPERTISE APPLIED TO LOCAL COMMUNITIES ELIE VILLEDA Head of Business Development and Sales Mexico of Emergya Wind Technologies (EWT)

212

Q: What is EWT’s main contribution to Mexico’s wind

around 1-5MW. EWT focuses on industrial projects with

power generation and how can wind prosper in a

a yearly production of at least 3GW. Our clients could be

predominantly solar distributed generation niche?

automotive factories, agricultural farms with high energy

A: EWT pioneered Mexico’s distributed generation (DG)

consumption or remote mining sites with good wind

market with its wind technologies in regions where wind

resources where we can install bigger wind turbines. In

resources are greater than solar. This is something that

other words, our target market niche is plants or factories

EWT has been doing over the years around the world

with 24/7 intensive energy consumption.

to compete against solar technologies. We always make sure to focus our efforts in regions where there

Q: What regulatory advances have you seen for wind

is a greater potential to produce cheaper kWh with our

power in the distributed generation segment in Mexico?

wind technologies, instead of using solar. For example,

A: Mexico’s regulatory framework for distributed

solar technologies installed in Yucatan have, at maximum

generation has disregarded wind potential and has focused

levels, a 17 percent power generation factor, while our

solely on solar technologies, which is a mistake. Distributed

wind technologies have 35-40 percent success. Wind

generation in Mexico is limited to producing 500kW, which

technology’s CAPEX is higher than that of solar, but if

is extremely low for the kind of business we seek and

we compare the power produced by both technologies,

for wind technologies in general. We need at least 1MW

wind always wins. Having a balanced combination of

to build cost-efficient projects and to compete against

wind resources and CAPEX is what we always look for

solar companies with lower power generation or even with

to develop our business.

CFE’s prices. With today’s regulatory framework, EWT can participate in the Mexican market with an isolated supply

Another clear advantage is space. Although solar PV

or local generation legal scheme. However, developing

panels are cheaper and easier to install, they require a

power generation projects under these schemes takes

bigger installation area to produce 1MW, which could

longer, is more difficult and could increase the final cost

represent an extra cost for clients. Wind turbines, on

of the projects, which is a shame, given that the purpose

the contrary, only require a 15m 2 radius to produce the

of DG projects is to strengthen and stabilize the country’s

same amount of power. Space could be beneficial not

deficient grid.

only because wind technologies require smaller areas, but also because a company that has a wind turbine in

Allowing DG projects to produce at least 1MW, instead of

its parking lot sends a stronger message regarding its

only 500kW, could facilitate more wind power generation

environmental policies. So, in many ways regarding the

projects and make Mexico’s grid more sustainable and

country’s DG market our wind technologies are more

stable, which is something that solar cannot do given its

competitive than solar.

higher intermittency. Some potential clients using solar or conventional power generation technologies have told us

Q: What wind power project in Mexico best showcases

that if regulation changes, allowing 1MW for DG projects

EWT’s value proposal?

would convince them to move into wind technologies

A: We developed a project for a factory in Merida where

for their energy consumption, given the benefits already

electricity costs are escalating quickly, a 22.6 percent

mentioned.

increase compared to last year’s prices, for industrial consumers. As mentioned before, our wind turbines

EWT’s purpose is to allow its clients to worry less about

have a 36 percent competitive advantage in production

their energy consumption costs and focus on their

rate compared to solar technologies. To date, we have

core business to be more competitive. We can help

over 20 projects in the pipeline and each will generate

them achieve this goal by providing the best solution

for their energy-intensive consumption with our wind

experts, and not on how to build conventional or renewable

technologies.

energy plants. This is where EWT can offer tailor-made solutions to industrial players that want to reduce their

Q: How have decreasing MWh+CELs package prices

energy consumption costs and maximize their operations.

impacted EWT’s business? A: Mexico’s long-term electricity auctions have increased

We normally carry out a preliminary study where we

the acceptance and understanding of renewable energy

analyze the best solution for our clients, and even if

projects. These results have also created controversy

our services are not the best solution we always come

given the extremely low package prices achieved during

forward and tell them which technology or solution better

each edition. To be honest, these low prices are only

meets their energy consumption requirements.

achievable if there are economies of scale present in the value chain of the projects and financial entities with

Q: What are EWT’s key goals for its Mexican portfolio for

knowledge and specialization on how to fund these types

2019 and how are you going to achieve them?

of projects. It is one thing to achieve low MWh+CELs

A: We plan to start operating our Yucatan, Veracruz and

package prices during the auctions and another to

Tamaulipas projects. We will keep developing our pipeline

actually build those projects and bring them online. Of

of projects as we wait for the regulatory framework to

the wind projects awarded during the first long-term

be more inclusive and allow for 1GW DG projects. But

electricity auction there is a good chance that around

most important, we want to contribute to Mexico’s goal of

30-40 percent will not be built for several reasons.

including more renewable energy sources into its energy mix, as we are doing in other countries. Although Mexico

We have also seen that the auction results are not

is making a monumental effort to incentivize investments

necessarily allowing the industrial sector to pay less for

and diversify its energy mix, the country needs to fully

their electricity bills. On the contrary, as mentioned before,

understand the needs of its energy consumers. In this

in states like Yucatan industrial energy consumers are

case, industrial, commercial and residential sectors

paying 22.6 percent more on their bills compared to last

should be completely involved with the country’s efforts

year’s prices. Another thing to bear in mind is that energy

to strengthen its grid, make it more efficient and reducing

produced by large-scale projects, such as those awarded

electricity costs for final users.

in the auctions, needs to be distributed to multiple points and Mexico’s grid is, at the moment, inefficient. What can

To mention an example, EWT created a business model in the

be very cheap for some consumers due to their proximity

Netherlands called Buurtemolen that involves communities

to the plants, may be more expensive for others due to

in the decision-making process to build wind farms and get

distance and higher transmission tariffs.

the best advantages out of the energy produced by them, like cutting their electricity bills in half. Communities are

Every country needs to diversify its energy mix as well as to

also encouraged to invest in these projects and become

find ways to distribute its energy production and maximize

co-owners. EWT already has four projects operating under

the operational efficiency of its transmission network.

this scheme, has more in the pipeline and plans to replicate

Developing DG projects contributes by adding operational

this business model in Mexico.

efficiency to the grid, providing competitive prices and reducing transmission losses due to the proximity of the

With projects like this, EWT can help the country boost

projects with final consumers. The ideal formula is to have

the business and social opportunities brought about

large-scale projects combined with DG projects and efficient

by its Energy Reform, while working directly with the

transmission lines to create a sustainable and competitive

government to fill the missing regulatory gaps and

grid that could satisfy the increasing energy demand.

strengthen Mexico’s distributed generation business opportunities. Finally, EWT is more than open to

Q: What products and services make EWT the

discussing with the new government its experience in

ideal partner?

other countries, particularly to develop community

A: EWT is the world leader in wind power distributed

projects such as those already developed in the

generation projects. Our core business is 100 percent

Netherlands.

focused on this niche. We are not just wind turbine manufacturers; we offer integral and vertical solutions such as viability studies, permitting processes, full EPC services

Emergya Wind Technologies (EWT) is a global designer and

and even O&M services for the entire life cycle of our

producer of utility standard, high-performance gearless wind

wind turbines. Having this idea in mind, our clients’ focus

turbines. It has headquarters in Holland and over 600 turbines

should be directed toward their operations, where they are

across North America, Europe and Asia

213

| INSIGHT

O&M SERVICES FOR THE OUT‑OF-WARRANTY MARKET LOURIVAL MENDES Former Technical Sales Manager of Composites VCI do Brasil

214

Mexico’s wind power footprint can be traced as far back as

embraced drone use in blade inspection work, reducing the

1994, with the inauguration of La Venta I, a 1.5MW wind farm.

average three days of manual inspection on a single turbine

Fast forward to 2018 and there is now a wind power market

to a single day with a drone,” he says. “It usually takes a truck-

ripe for out-of-warranty services in which wind turbines need

mounted elevator platform to undertake these tasks.” For

to continue operating seamlessly for optimal power output.

small-scale turbines, built on metallic towers, the company

“Mexico’s wind power market is growing at an outstanding

also developed a laser that can remove rust from 1m2 in under

pace but it lacks the sufficient local technical expertise to

one minute, which is especially useful for those located close

cater to the market’s needs in blade repairs and other O&M

to the sea. To obtain the same results manually would take

services,” says Lourival Mendes, Technical Sales Manager of

two hours, he says.

Composites VCI do Brasil. “We want to service this niche to

“

help accelerate the growth of wind power in Mexico.”

Our first and foremost concern revolves around continued internal improvements in terms of maintenance procedures”

And while there is concern about the MWh+CELs package prices for wind power projects hitting a low US$17.7/MWh+CEL in the auctions, Mendes says O&M services do not obey energy price trends. “Downtime is our primary selling point. Reducing or removing time lapses during which the wind farm does not produce electricity injects competitiveness and bankability across the useful life of the wind farm,” he says. “Our first and foremost concern revolves around continued internal improvements in terms of maintenance procedures. Our work to that end, coupled with the use of new technologies, allowed us to reduce our O&M service pricing by 30 percent.”

Composites VCI do Brasil set up shop in July 2014. It is the Brazilian branch of Canada-based Composites VCI, which

Mendes says Mexico is Composites VCI do Brasil’s priority

specializes in composite materials for the energy, aeronautics

market to further expand the company’s international

and transport industries. In Brazil, it supplies nacelles to Tier

participation. “Mexico’s wind power market is similar to

1 companies such as GE, Siemens GAMESA, ACCIONA and

Brazil’s, with the added advantage of its border with the US,”

Vestas. “Our company has 15 years’ experience in blade

he says. He adds that local manufacturing is a possibility,

manufacturing and repairs,” Mendes says. “Our Canadian HQ

given that one big problem regarding wind turbine nacelles is

developed its expertise while catering to the manufacturing

logistics. Mendes believes this would give the company better

need for different parts and components related to the

traction to offer the same portfolio of products and services

aeronautics industry. It transferred all its expertise organically

it provides in Brazil.

to wind power.” As a tentative first step, the company is working to gain While the company’s Brazilian subsidiary focuses on

a foothold with Enel Green Power’s wind farm portfolio in

manufacturing nacelles, spinners and composite materials like

Mexico. Based on the results of all three long-term electricity

fibers and resins, it has different plans for the Mexican market.

auctions, Enel Green Power is looking to install 694MW of

“We want to be an ally to wind farm developers, helping to

wind power capacity in Mexico. “This represents close to 400

reduce downtime when performing both preventive and

wind turbines to be installed,” Mendes estimates. “We can

corrective maintenance tasks,” says Mendes. The company

transfer the knowledge and expertise of the Composites VCI

remains in a prospective phase, gauging the best locations

do Brasil team of engineers to Mexico’s wind power market,

and projects where it can showcase its top-tier technologies

to fill the country’s gap in O&M services for wind power

for maintenance services. “Composites VCI do Brasil fully

components.”

INSIGHT |

WIND SAFETY, QUALITY AND EXPERIENCE JULIO RAMÍREZ Managing Director of Mexión

Wind energy was one of the victors of Mexico’s first long-

Mexión takes training of its personnel seriously, ensuring all

term electricity auctions but with the expected surge in

its technicians are fully DC-3 and GWO certified to perform

these projects, Julio Ramírez, Chief Operating and Technical

maintenance work at great heights and comply with Basic

Officer of inspection and maintenance company Mexión,

Safety Training Standards (BST). To further mitigate personal

says regular inspections to detect failures and damages at

risk, the company carries out a thorough risk assessment

an early stage is a crucial factor for long-term results. “The

on each project prior to beginning, which can sometimes

expertise of our inspection technicians is the first analytical

throw social issues into the spotlight. “We coordinate our

filter when examining rotors and nacelles,” he says. “Lack

workforce’s logistics to avoid high-risk zones and engage

of knowledge regarding the behavior of materials can lead to the wrong conclusions being drawn about a turbine’s performance. We design a maintenance procedure based on our vast experience and technical know-how and deliver it to our client’s engineering department or to blade manufacturers to get the go-ahead or to integrate procedural adjustments, if needed.” Based on its extensive field work, Mexión noticed a prevalent lack of knowledge among technicians purported to be blade specialists contracted by the wind farm owners. Ramírez says Mexión is often called upon to offer

“

regularly in security talks with our personnel,” he says.

Lack of knowledge regarding the behavior of materials can lead to the wrong conclusions being drawn about a turbine’s performance”

a second opinion when insurance claims are made by wind farm owners.

“Many companies try to perform maintenance tasks using vertical access techniques with ropes. It is a high-risk practice

Although he acknowledges the steps being taken by

compared to suspended platforms, which include several

academia to provide qualified technicians to Mexico’s

safety features in the form of anchorage points within a wind

booming wind power market, there is still the need to foment

turbine’s nacelle. A suspended platform’s steel cables can

practical experience. “We know that a highly qualified and

support dynamic loads and provide stability,” says Ramírez.

trained workforce makes all the difference, and therefore we

“This also assures operational and consequently economic

offer young professionals the chance to work with the most

advantages, such as better quality due to the 360° access

experienced wind blade technicians in the Mexican market,"

around the blade, coverage of larger areas to be repaired, more

he says, adding that the benefits go both ways. "For these

room on the platform for technicians and materials, fast and

young professionals, working for Mexión is the possibility

easy ascent and descent of the platform, easy mobilization,

to specialize in blade repair and maintenance services and

less downtime and it is much cheaper than a crane.”

ensure a durable career in this market.” Thinking ahead, Mexión is looking to consolidate its Ramírez adds that improper management of components

foothold in Brazil, Uruguay and Chile. Conversations with

can be fatal in some cases. “Optimal and continuous

local companies in Mexico are also ongoing to promote

maintenance services relating to wind farms are primarily

Mexión’s service offers. “We are offering integral schemes

composed of three variables: safety, quality and experience,”

covering composite materials,” he says. “Cleaning, repairs,

he says. “Failure to provide any of these three components

inspections and checklist services are also included. For

not only jeopardizes the wind farm’s optimal efficiency but

competitive pricing, we are proposing monthly, three-

also puts technicians at risk.”

month and six-month servicing packages.”

215

| VIEW FROM THE TOP

INTEGRAL SOLUTIONS FOR LOWER LCOE JACK WEISZ Commercial Director Latin America of Onshore Wind at GE Renewable Energy

216

Q: How do GE’s specialized technologies differentiate from

electricity system. Our expert team can support this activity

others in the market?

to optimize the design of the connection and its costs. Doing

A: At GE Wind, part of GE Renewable Energy, we not only offer

the work right and implementing the right technology from

cutting-edge technology to customers but also a complete

the beginning may save costs, for example eliminating the

solution that allows them to place the lowest LCOE possible.

need for unnecessary capacity banks or static synchronous

This is achieved by offering a packed solution with all the right

compensators. In terms of the business model, if a customer

items coming from the broad set of activities in which GE has

is seeking a financial instrument to further enhance its

a business. This means, for example, working hand in hand

competitiveness by getting subordinated debt, equity or

with GE Capital’s Energy Financial Services team, or with GE

enabling an export credit agency to value the project and be

Energy Connections business to optimize the balance of plant

part of it, that is something we can offer through GE Capital

of wind farms. Our final objective is to become the partner

and working with GE Energy Financial Services. GE Capital

of choice that gets completely involved with its customers at

has the ability to deliver tailor-made solutions to customers

each and every step of the project development.

for specific projects.

Q: How can GE help its customers make viable projects in

Q: What barriers is GE working to bring down in the wind

Mexico, where prices have dropped drastically?

energy sector?

A: Mexico is blessed with wind resources. This has allowed

A: The next frontier is related to the integration of hybrid

wind project developers to place low prices in the auctions.

systems that include wind, solar and energy storage. In this

For developers to successfully finish projects they must focus

area we have Wind Integrated Solar Energy (WISE), which

on reaching the lowest LCOE possible. Beyond thinking in

is a hybrid solution that integrates wind and solar. These are

CAPEX and OPEX only, this means considering 10 to 15

complementary resources that work very well together since

variables at the same time. To ensure customers do reach

there may be periods with wind but without sun or vice versa.

the lowest LCOE we sit down with them to find the best way

The technology finds a balance between the resources to

to achieve it. This is not only for the benefit of the company

reduce costs and increase production, therefore improving

that wants to participate in the auctions, but for Mexico overall

the LCOE of the project. What makes this solution even more

to reach its clean energy goals. Our offer goes beyond a

effective is the usage of energy storage, and GE is heavily

turbine as a commodity. We bring together a wide portfolio of

investing in that arena to make renewables less intermittent

services offered by GE to make the project more competitive.

and more dispatchable to the grid.

It is a solution that delivers the lowest LCOE possible. Q: How important is the digital world for GE’s future Q: What other GE business divisions can offer value for your

business direction?

customers in the wind energy sector?

A: Our GE Digital division is extremely important for us. As

A: In terms of technology, it is important to remember that

the world becomes more digital, the ability to include digital

it is not enough to build a wind farm, it has to be connected

tools to optimize performance will be more valuable. Thanks

to the grid. This connection involves heavy engineering to

to the wide array of digital solutions available, there can be

integrate the substation and get it connected into the national

several small changes introduced into the functioning of a plant, all of them ultimately having a bigger impact on the customers’ profitability. Within the GE Digital division, we

GE Renewable Energy is a US$10 billion company that brings

have the ability to create a digital wind farm, which is a set of

together one of the broadest products and service portfolios in

tools that essentially mimic a real wind farm to run a series

the renewable energy industry. It has over 22,000 employees in

of optimization processes that continuously help customers

more than 80 countries

improve the operation of the real wind farm.

VIEW FROM THE TOP |

ALIGN NORMS TO DEVELOP ECONOMIES OF SCALE JOSÉ HERNÁNDEZ Director Renewables Mexico of ABS Wind

Q: What made ABS Wind see Mexico as an attractive market?

Q: Why is the installation of the repair bench in Puebla

A: Almost every wind company in the Mexican market has

important for your Latin American market?

to send its turbines and components for repair to either

A: There are only a couple of testing benches like these in

Europe or the US. Doing so involves downtimes that can last

the world, and ours will be the only one of its kind. Being

from eight to 12 months from the moment the element is

such a novelty means that we do not have qualified human

shipped until its return, meaning not only significant losses

capital to operate it, forcing us to train our personnel in

in production but also in logistics and shipping.

Europe. We also had to align our certifications with most of the manufacturers in the market to be able to produce

The wind energy sector in Mexico started to see activity in

a component in our workshop when it is not in stock. This

2006, and now, almost 60 percent of the wind farms are

has been done through several non-disclosure agreements

out of warranty, with mature equipment that is starting to

(NDAs) that are allowing us not only to gain knowledge about

present component failures. This creates a strong market

component manufacturing but also to offer feedback to the

opportunity for those willing to provide repair services

manufacturing companies, and even help them redesign their

to that equipment locally. Based on such an attractive

equipment according to their specific needs. In the future,

market opportunity we decided to install a testing facility

we will look at how to take the best advantage of the testing

in the city of Puebla together with an integrated repair

center via collaborations with universities and institutes from

center to provide maintenance services for the mechanical

across the country. By installing the testing facility, we are

components of the country’s turbines, from multipliers to

supporting the development of an economy of scale in this

main axes. This center will allow us to offer an economic

area. We are placing our confidence in Mexican talent, which

advantage for any repair service, including all the required

can be seen in the fact that our staff is 100 percent Mexican.

certifications from component suppliers. Our objective is to bring alternatives to the market that perfectly fit our clients’

Q: What other services is ABS Wind offering to the

needs. That is why we are having conversations and building

Mexican market?

agreements with most of the wind technology companies

A: ABS Wind Mexico consists of two divisions, and while

doing business in the Mexican and Latin American markets.

the repair area is getting a strong boost with the creation of the workshop in Puebla, the second division overseeing

Q: What repair options is ABS Wind offering to its

operation and maintenance already has a strong presence

customers in Mexico?

in the country. In 2017, the operation and maintenance

A: We are offering two options. The first is what we call

division was awarded a rehabilitation contract for the La

a change circuit, for which we are gathering a stock of

Ventosa II wind farm owned by CFE. That contract involves

repaired equipment and spare parts. When a customer joins

the rehabilitation of 35 generators with 24 multipliers,

our change circuit scheme, he or she has the peace of mind

18 main shafts and any other component related to the

that, when equipment or components get damaged, we can

repair. The division has also performed many end-of-

provide an immediate replacement from our spare stock,

warranty inspections. This division will make us the first

minimizing downtimes and logistics costs. Another option

company capable of performing oil changes in turbines

is to receive normal repair services that are not inside the

via train trucks.

change circuit scheme. While the change circuit scheme is optimal to avoid any downtime, our traditional repair service provides lower downtimes, with none expected to

ABS Wind is an engineering company offering products,

take more than two months, in a worst-case scenario. That

services and solutions for power transmission in the wind

is a decrease in downtimes of at least 75 percent compared

industry. Its objective is to lower the life-cycle costs related to

to sending the equipment to Europe or the US.

its clients' mechanical transmission elements

217

| VIEW FROM THE TOP

WIND DEVELOPER EYES SOLAR OPERATIONS

ALEJANDRO COBOS Head of NOTUS Energía México

218

THOMAS TACK Head of NOTUS Latin America

Q: What expertise does NOTUS Energy bring to Mexico

ago are just starting to mature to the point where they

through its subsidiary NOTUS Energía México?

can be commercialized. NOTUS Energía México has been

AC: NOTUS Energía México has strong support from NOTUS

selective in terms of which company it sells its projects

Energy’s headquarters in Germany, not only from the brand

to. We consider ourselves a boutique developer and we

but from the quality of the company’s internal processes.

make sure that our customers understand the value of

Even though most of these processes have undergone

every project.

an adaptation phase in Mexico, the company started with a structure that has been improved and successfully

Q: How are technological advancements helping to

implemented. Mexico based the opening of its energy

develop the wind segment in Mexico?

market on different studies and the previous experiences of

AC: The new generation of wind turbines allows us to

other countries that today have standardized the industry’s

take better advantage of the wind resource. Technology

best practices. Nevertheless, time plays an important role.

has improved rapidly and right now the challenge is more

When the energy transition took place in Germany, the

economic rather than technical. As a project developer, the

understanding and adaptation process took eight years

company’s strategy is not based on establishing alliances

and Mexico probably will follow a similar timeline. Every

with technology providers. This allows the off-taker to

player in the market is going through a learning process

decide which turbine is better for every application. NOTUS

and it will take us a few years to understand how the market

Energía México proposes the best turbine for each case and

should operate.

by not collaborating with any one company in particular it has more freedom regarding this choice, fostering

TT: From my point of view, project finance and technical

competitiveness.

developments are the main areas in which the company seeks support from its headquarters. When Germany

Q: What main objectives does the company want to

undertook its energy transition 20 years ago, the system

achieve by the end of 2019?

was based on a highly-subsidized regime. Additionally,

AC: NOTUS Energía México entered the market as a

the developed projects were smaller and the company

developer. Four years ago, the company identified a special

was not used to utility-scale projects and interconnection

interest in wind projects. Nevertheless, the first long-term

processes. It took time to understand how the industry

electricity auction was an important lesson for every project

worked, especially in the wind segment. The advantage in

developer given the resulting strength of the solar segment.

Mexico is that people already are knowledgeable about this.

The company has to move forward with this new market and become more dynamic. To date, its portfolio encompasses

Q: What strategies is NOTUS Energía México adopting to

large-scale utility projects in the wind and solar segment

improve its foothold in the country?

but the company is also participating with distributed

AC: For the moment, NOTUS Energía México depends

generation installations. Our nature as a project developer

solely on foreign investment. Our goal is to have a

is evolving and now turning to the EPC and operator niche

stable flow of income that maintains our operations and

in distributed generation. The objective of establishing

incentivizes growth. The projects we started three years

a solar distributed generation business department is to learn the operating principles from the beginning and to advance from there. NOTUS Energía México just started

NOTUS Energía México was founded as a branch of the

the construction of one distributed generation project

Germany based NOTUS Energy. Based in San Luis Potosi, the

with the aim of launching operations right away. At the

company develops wind and solar parks in Mexico and Central

same time, we keep developing large-scale wind and solar

America

utility projects.

INSIGHT |

KEEPING MARKET RISKS, PRICES IN CHECK SIMON GALICO Mexico Representative of SUZLON

Mexico’s long-term electricity auctions are offering the

Mexico’s wind resources and believes it can capitalize on

country’s energy sector cheaper MWh+CELs package prices,

the country’s comparative advantages. Mexico enjoys rich

creating an environment of aggressive pricing conditions.

wind resources and boasts more than 4,000MW of installed

This has created an opportunity for foreign companies to

capacity in wind power projects, according to AMDEE.

use their global footprint to create new products that can

SUZLON has set its sights on the country’s central belt and

compete in the Mexican market, says Simon Galico, the

the Isthmus of Tehuantepec region, where there are strong

Mexico Representative of SUZLON, an India-based turbine

wind resources and economic incentives. “Incentives in value

manufacturer. “Our R&D centers are developing new solutions

chain development have been deployed outside Oaxaca,”

that better suit our Mexican clients,” he says.

Galico says. “There are also serious projects and developers in Tamaulipas, Nuevo Leon, Puebla, Queretaro, Yucatan and

SUZLON is a global company that uses German technology

Baja California.”

and R&D centers in Germany, Denmark, the Netherlands and India. On this side of the world, it has developed market

Whether working in Mexico or in any of its global markets,

footprints in the US, Nicaragua, Uruguay and Brazil. Using

Galico stresses the importance of coherence for the company.

this experience, SUZLON is dissecting Mexico’s countrywide

“SUZLON’s priority is to maintain consistency across the

wind farms portfolio to identify developer needs and offer

international markets it decides to enter,” he says. “As a result,

technologically-sound solutions and competitive turbines

our price matrix reflects this consistency and we are able to

based on location, tower height and rotor diameter, among

reflect market costs and counter market risks. As a company,

other variables. “Mexico’s wind farm projects range from

we insist on keeping market risks and market prices in check,

greenfield to ready-to-build projects,” explains Galico. “We

to the benefit of a sustained healthy reputation.”

are analyzing all the links in Mexico’s wind industry value chain, with a particular emphasis on ready-to-build projects

Galico says the company is more than prepared to face

to further increase SUZLON’s Mexican footprint.”

Mexico’s inherent challenges in a turbine manufacturer capacity, as it can make the most of its developer experience

The company's largest turbine promoted for Mexico’s wind

in other markets, such as India. “SUZLON is used to dealing

farms is 2.8MW and it will soon launch its next generation,

with sizable investments, securing the provision of a large

Galico says. “SUZLON has also made a considerable effort to

number of turbines, generating thorough wind resource

offer competitive prices in order to remain attractive to our

studies and analyzing all critical aspects of the conditions

customers,” he adds. Notwithstanding, Galico warns that as a

of the targeted location, considering wind farms have

result of low auction prices, the value chain is being squeezed

fewer modular capacities compared to solar power and its

and “a stressed value chain, coupled with long-term market

residential suitability,” Galico says.

uncertainty, is the perfect storm that can put wind farm projects at risk.”

As Mexico’s market competition increases, Galico adds, the presence of qualified technology manufacturers is

Despite this potential difficulty, SUZLON remains confident

even more important. “Mexico’s market is demanding

about the direction in which Mexico is headed. “We are

increased competition, parallel to advanced, robust and

convinced the reform will generate positive changes in the

efficient technologies and wind power has an important

long term but the market distortion has in turn produced

part to play in that regard,” he says. The company’s history

aggressive selling prices, making competition highly complex.”

of success in other jurisdictions strengthen Galico’s conviction about the value of Mexico. “We developed a

Regardless of potential difficulties caused by auction

habit of betting on other markets successfully and will

prices, the Indian multinational has thoroughly mapped

continue to do so in Mexico.”

219

| INSIGHT

E-COMMERCE CONNECTS WIND FARM OPERATORS AND SUPPLIERS JOCHEM SAUER Owner and Managing Director of Spares in Motion

220

The renewables industry is like many others: If you want

provide a ZIP-coded address, we provide an e-link for main

to lower costs, cut out the middle man. When it comes to

carriers such as DHL and FedEx,” says Sauer. “Our system

spare parts, companies are doing just that, says Jochem

can generate and calculate transportation costs and provide

Sauer, Owner and Managing Director of Spares in Motion,

a track-and-trace service.”

which provides these spare components. Instead of relying on third-party maintenance services, owners are beginning

Spares in Motion covers the out-of-warranty market, where

to find spare parts online and using their own knowledge to

operators’ older turbine model parts are either out of stock,

make the repairs.

not produced anymore or need replacement or repowering in a cheaper and faster scheme. “We gather close to 11,000

“The renewable energy industry is developing at a quick

different brands and parts, offering a complete range of

pace, with increasingly professionalized, knowledgeable

products and services under a single online store,” says Sauer.

online buyers,” he says. “Due to costs or control, renewable energy project owners are gradually shifting toward

Spares in Motion’s product portfolio includes wind turbines

performing wind farm maintenance on their own, becoming

from wind power heavyweights such as Siemens GAMESA

less reliant on third-party services,” Sauer says.

and Nordex ACCIONA. It also stocks components from companies such as ABB and Carbex AB and unused stock

KPMG’s The Truth About Online Consumers 2017 Global

that service providers sell to Sauer’s store. In Mexico, Spares

Online Consumer Report estimated that the global online

in Motion has supplied Vestas V90 turbine parts to Grupo

shopping arena was valued at US$1.9 trillion. At a time

Cobra and Grupo Dragón, the latter looking to provide direct

when renewable energy must capitalize on every tool

maintenance to its wind farm portfolio.

available to push forward its power generation footprint, online platforms such as e-commerce and e-financing are

Sauer’s online store started as a third-party marketplace

shaping up to be valuable allies. With its history in the

bringing together buyers and sellers of wind turbine spare

aerospace industry, Spares in Motion saw an opportunity

parts and evolved into the web shop as it exists today. “We

to enter the wind turbine segment due to the lack of spare

are now able to provide sourcing services for big utilities that

parts availability in that sector. “Wind power and aerospace

provide a list of components so we can have them on-hand

share similar characteristics,” Sauer says. “They both rely on

and secure the best power output and maintenance of their

highly technical, expensive parts. Profitability is driven by

wind farms,” he says. The company’s service portfolio grows

availability and uptime is extremely important. If a particular

based on the needs of its buyers.

component breaks down, spare part availability determines the uptime of both wind or airplane turbines.” He says the

The wind turbine e-commerce platform wants to provide

main difference between both sectors is that wind power is

options that can reach all parties. “Purchases can be made

relatively new, so the company capitalizes on its aerospace

either through our website or a sourcing site.” For some

experience and applies it to its online store.

companies, Sauer explains, the latter option fits better because its internal processes remain unaligned with how an

Given these costly concerns over downtimes, efficient

online shop operates. Sourcing sites tend to work better as

logistics is part of Spares in Motion’s game, and this is

they use SAP systems that generate purchase orders rather

complex considering wind farms are developed in remote

than online requests.

locations, often lacking the infrastructure required for easy transportation and access. The wind turbine web shop

Although the venture is expanding quickly, Sauer estimates

established a strategic partnership with Germany-based XAL

Mexico’s “golden era” will be after 2020, when its wind farms

Wind for safe oversized transportation. “If the end user can

will have become an attractive out-of-warranty market.

VIEW FROM THE TOP |

SAFETY, TECHNOLOGY FOR IMPROVED MAINTENANCE RAFAEL ORDOĂ&#x2018;EZ Director General of Telener 360

Q: What makes Telener 360 a reference in wind

A: Mainly, it has given us the ability to have a compact group

power safety?

of engineering and safety personnel who understand the

A: Our experience in telecom tower construction allowed us

approaches to regulation compliance in different countries.

to develop a safety department and to set up the needed

This has become our main competitive advantage. 221

safety standards, opening the doors to big companies in the wind energy industry. We have changed rudimentary

Q: Is Telener 360 engaged in partnerships in the

processes, such as emails, scanners and Dropbox, by

wind industry?

developing an in-house software together with a mobile

A: We signed a three-party agreement with an aerodynamics

app that enables our office personnel to digitally maintain

engineering company that has experience in blade repair.

documentary control of a project. The app also allows

The second company also has blade-repair experience and

the client to verify the credentials of the team and its

works in South America. This alliance allows us to operate in

certifications. This means that we not only guarantee our

preventive repair but also in the corrective field. We see an

work to the client, but internally as a company, we guarantee

opportunity in places like Oaxaca where weather conditions

that we are compliant in terms of safety certifications and the

are complex. With this alliance, our goal is to introduce

quality of our risk assessments and reduce possible incidents

to Mexico the needed capabilities for blade diagnosis,

to a minimum. Another important issue in the industry is

evaluation and repair procedures.

related to maintenance services and how companies expect this service to be immediate. There are a number of factors

Q: What technologies is Telener 360 exploring to integrate

such as wind speed, rain or ice that could prevent us from

into its services portfolio?

performing our on-site tasks safely, despite their urgency. At

A: More often we see the integration of lidar and sodar

first, this focus on safety generated a great deal of friction

technologies for the wind measurement campaigns

with our clients but it has become a differentiating element

and power production in wind farms. Therefore, we

that has helped us broaden our market footprint to expand

are in the process to develop standard procedures to

internationally.

provide temporary or permanent solutions with these technologies.

Q: Why does Mexico need to switch from corrective to preventive maintenance?

Q: How is Telener 360 working to strengthen its

A: A positive offshoot of FDI flows and the arrival of

participation in the different market niches of wind power?

foreign companies is the expertise that these companies

A: We think the future of vertical work in Telener 360 is

have and the guidelines that they have developed to

precisely in the blades. Wind farms in Mexico are relatively

guarantee the long-term profitability of a project. This

young, most of them still under the manufacturerâ&#x20AC;&#x2122;s

exposure has led Mexican SMEs to recognize niches

guarantee. Gradually these guarantees will expire and the

of opportunity in the industry. SMEs have shifted from

industry will demand that repair companies comply with

focusing solely on construction to now also include

all the security and quality requirements. At that moment,

maintenance services and the offer of added-value

Telener 360 will be well-positioned to cater to this niche

services such as procedure development, software

as a market reference.

solutions, monitoring systems and personnel training that helps them develop the tools required for them to provide maintenance services.

Telener 360 is an engineering firm with more than 10 years of experience in wind power-related turnkey solutions, including

Q: How has Telener 360â&#x20AC;&#x2122;s international exposure developed

the engineering, design and installation of meteorological

a competitive advantage?

towers, O&M services and wind farm installation assessments

| VIEW FROM THE TOP

THE DO’S AND DON’TS OF GREENFIELD TO READY-TO-BUILD ALEJANDRA DOMÍNGUEZ Director General Mexico of SOWITEC

222

Q: What is SOWITEC’s vision for Mexico?

their leadership position in Mexico’s energy transition.

A: We continue to trust in the potential of wind power

Our philosophy is to lay the bedrock on which our

and want to continue developing wind power projects.

partners can solidify their market foothold with successful

SOWITEC specializes in social and environmental impact

projects. We also believe it to be equally important

assessments, resource metering and permitting procedures

to strengthen our relationships with governmental

to commercialize ready-to-build projects. In some markets,

authorities. The Ministry of Energy’s workload relating to

such as in Uruguay, we have projects in the construction

social and environmental impact assessments’ review is

phase or already operating. In Mexico, we have five projects

creating a backlog in project development. CENACE and

undergoing metering campaigns to gauge the quality of the

CRE only focus on the business aspects of the project,

resource in Coahuila, Sonora, and the central region of the

providing the most competitive prices to bidding projects

country. We also have an interest in developing PV projects

close to the most cost-effective interconnection points. It

with different partners.

amounts to bypassing an integral analysis to gauge zones that are both economically and technically attractive

Q: Why focus on the first link of the value chain in Mexico?

on one hand but also generate the lowest social and

A: SOWITEC was founded with a clear project-development

environmental impact on the other.

mandate in mind. Based on the rapid growth and dynamism of the renewable energy market showcased globally, we want

Q: What are the most important factors to successfully

to advance and grow parallel to this market and position

transition from a greenfield to a ready-to-build project?

ourselves in other links of the value chain. We are looking for

A: Securing land ownership is the most critical aspect

the right partners to build up our financial capacity to do so.

of any greenfield renewable energy project. For this to

Looking further down the road, we want to be an active player

happen, developers need to make sure to identify the

in Mexico’s wholesale electricity market and bid for projects

rightful owner of the land for the contract to be valid.

in the long-term electricity auctions that meet building and

Otherwise, time is lost in contract negotiations that

operational requirements. For now, we remain focused on

will invalidate the legality of the contract. It can even

resource prospection services and permitting procedures to

cause a ripple effect and become a social issue where

support projects for our partners, who can prove the technical

communities organize to put a stop to the project’s

and financial capacity of our ready-to-build projects. We

development. Ad-hoc project design is another crucial

have the expertise and capacity to build up greenfield-stage

point. Every project needs to echo the environmental

projects and present them to different companies that then

conditions and biotic and abiotic factors of its location.

can select the best fit and the appropriate commercialization

This is where well-executed topography geotechnics

scheme, such as electricity coverage contracts.

and hydrological studies are significant. Bypassing these factors can generate exorbitant additional costs,

Q: Who are SOWITEC’s ideal partners to build its growth

effectively compromising bankability.

in Mexico? A: SOWITEC has closed critical partnerships with long-

Q: What are SOWITEC’s objectives for 2019-20?

term electricity auction winners that continue cementing

A: We are looking to present a winning project for the fifth long-term electricity auction. In parallel, we will continue working with our auction-participating partners to make

SOWITEC entered Mexico in 2008 where it has developed and

sure they bid on winning projects and grow their portfolio.

sold seven projects with a total capacity of 1.2GW in operation

We are also looking to deepen our footprint in project

or under construction, as well as 3.1GW of wind and 2.7GW of

construction and project operation. Clean energy is setting

solar projects under development

the pace for Mexico’s future.

VIEW FROM THE TOP |

WIND DEVELOPER SEES VALUE IN SOLAR PROJECTS DAVID BARNES Executive Vice President of Oak Creek Energy

Q: How would you describe Oak Creek’s experience when

working in the region. Oak Creek have developed and sold

developing projects in Mexico?

five phases now totaling over 600MW. The first two phases

A: Oak Creek is a developer at its core. The company

were Eólica Tres Mesas (ETM) and Eólica Tres Mesas 2 (ETM2).

typically develops projects to a point where ground can

These first two projects represent a total installed capacity

be broken and then sells them as a constructible asset.

of 148.5MW and were finished in 2017 to supply energy for

Our other core business is the long-term operation and

Alpha Group and Walmart facilities. While developing and

management of these assets. The development division is

completing these projects, one of the major hurdles was

focused on identifying new projects and working out all the

overcoming the security risk. We had to do significant work

related pieces that turn it into a financeable project such as

upfront to establish a security protocol, build relationships and

permitting, wind resource assessments, transmission and

demonstrate to investors that their investment would be safe.

interconnection. Developing projects in Mexico has resulted in an enriching opportunity to learn the processes and

Q: How do you foresee the evolution of Oak Creek

understand timelines required as opposed to the US. Oak

in Mexico?

Creek has been developing projects in the country since

A: Until now, Oak Creek has focused its efforts on the

2012, but the company has a long track record of working in

development and operation of wind projects. Even

other regions of the world since 1982. In Mexico, relationships

though it is not the company’s core offering, we realize

and face-to-face meetings are critically important and we

solar is a valuable component of the market and we have

spend a lot of time in nurturing this aspect.

begun developing some solar projects. Until recently, solar technology was an economic challenge. There were

One of the major obstacles that any company faces when

some developed projects with reasonably low margin, but

developing a project is the regulatory environment. FCPA

enough to draw attention. Now, equipment costs have

policies must be very strict as there cannot be a single

come down and efficiencies have come up. This is driving

hint of bribery or policy violation. In Oak Creek, we treat

further development of solar across the country and Oak

this issue very strongly as all of our staff undergo training

Creek plans to be a big part of that market. Regarding

twice a year to deal with these potential hazards. At the

Oak Creek’s operations division, Oak Creek de Mexico,

end of the day, due to this management we have earned

we are actively seeking management and operations

the respect of our partners and the people we work with

contracts with third parties, as well as continuing to

across the industry and regulatory environments. Another

support the projects developed by Oak Creek. Oak Creek

important key to the company’s success is the fact that

de Mexico has over 600MW of operations management and

all of its principals have had very dynamic careers in the

construction management contracts. We see Oak Creek de

renewables industry. Personally, I have represented the

Mexico continuing to expand and we have developed an

entire value chain, including the OEM, the engineer, the

extremely talented team of professionals and infrastructure

bank, the investor and the equity partner. This has served us

in the country for this purpose. Our ideal prospective clients

well in negotiations and getting to a point where everybody

are not the big utility companies but institutional investors

can come together and close the deal.

and funds that do not have any operational and technical background or capabilities internally.

Q: What were the main hurdles and how has the company addressed them? A: The company’s pipeline is focused in the northern region

The Oak Creek Energy Group develops renewable energy

of the country in states such as Tamaulipas, Nuevo Leon,

projects using in-depth strategic plans and risk-management

Chihuahua and Coahuila. Oak Creek ended up in Tamaulipas

programs. Its team of experts guides these projects, step-by-

by default, as the company we initially purchased was

step, through the entire project development process

223

Array Technologies' DuraTrack HZ v3 trackers

SOLAR

After three successful long-term electricity auctions, solar power has proven it can compete on an equal footing with other cost-effective power-producing technologies, winning the lionâ&#x20AC;&#x2122;s share of the total renewable energy capacity to be installed in the near future. Most of the components remain imported but this paradigm might change after the US announced an 11 percent tax on imported solar panels, and Mexico can be the launching pad to access Central and South American markets due to its bevy of free trade agreements with the regionâ&#x20AC;&#x2122;s renewables heavyweights. O&M services are also set to rise as the first MWs of solar power won in the first long-term electricity auction reach operational phase and energy storage solutions will in all likelihood take an increasing part in the countryâ&#x20AC;&#x2122;s renewable energy conversation.

The next chapter will address the challenges facing solar energy in Mexico, its coexistence with other renewable energy such as wind, the impact of the US solar panel tariff on the Mexican market, the ability of the industry to continue generating added value through technology and the possibility of using solar energy in the residential, commercial and industrial sectors, among other topics.

225

CHAPTER 9: SOLAR 228

ANALYSIS: Solar Underpins Alternative Energy Success

230

INFOGRAPHIC: Large-Scale PV Per State by Capacity (MW)

232

INSIGHT: Carlos Abad, Chint Power Systems America

233

VIEW FROM THE TOP: Juan Ávila, Top Energy

234

PROJECT SPOTLIGHT: Seizing on Solar Through Distributed Generation

236

VIEW FROM THE TOP: Héctor Olea, Solar Energy (ASOLMEX)

237

INSIGHT: Luis Garrido, Braux Energy Group

238

VIEW FROM THE TOP: Alejo López, NEXTracker

239

VIEW FROM THE TOP: Arturo Duhart, EXEL Solar 227

240

VIEW FROM THE TOP: Hongbin Fang, LONGi Green Energy Technology

Iván Reyes, LONGi Green Energy Technology

241

VIEW FROM THE TOP: Alberto Cuter, Jinko Solar

242

VIEW FROM THE TOP: Álvaro García-Maltrás, Trina Solar Latin America and the Caribbean

243

VIEW FROM THE TOP: Cesar Alberte, Array Technologies

244

INSIGHT: Andrea Bernardi, Enerray

245

VIEW FROM THE TOP: Kevin Gutiérrez, Huawei Mexico

246

VIEW FROM THE TOP: Luis Flotte, Avitar Energía

247

INSIGHT: Simon Zhao, Solarever

248

INSIGHT: Oscar Bernal, Eosol Energy

249

INSIGHT: José Marquina, Marsam Solar

Miguel Marquina, Marsam Solar

251

VIEW FROM THE TOP: Hisayoshi Kobayashi, TMEIC

252

VIEW FROM THE TOP: Nicolás Serrano, Risen Energy

253

VIEW FROM THE TOP: Carla Ortiz, RER Energy Group Mexico

254

VIEW FROM THE TOP: Baltasar Balaguer, MASPV ENERGY

255

VIEW FROM THE TOP: José Alcalá, Arctech Solar

256

VIEW FROM THE TOP: Andrés Fautsch, GCL System Integration

257

INSIGHT: Philippe Esposito, Dhamma Energy

258

INSIGHT: Albert Rojas, Centurion Solar

259

ROUNDTABLE: Wind vs Solar: Sworn Enemies or Perfect Complements?

| ANALYSIS

SOLAR UNDERPINS ALTERNATIVE ENERGY SUCCESS Solar reaped the benefits of low auction prices to leap onto Mexico’s energy stage, making photovoltaic energy generation the most competitive in the world, helping to make the country and its Energy Reform a success story for alternative energy

228

Mexico is blessed with high levels of solar irradiation across

been covered. “An overwhelming majority of the market’s

most of its territory and sliding prices have opened the door

solar panels come from China,” says Arturo Duhart, Co-

to a greater participation in the energy mix. PV large utility-

Founder of EXEL Solar. “These panels have reached a degree

scale facilities dominate the solar landscape but the country’s

of quality, competitive pricing and state-of-the-art technology

regulatory framework is also making distributed generation

that is hard to surpass. As such, Mexico is at disadvantage and

a reality. Together, thermo solar technologies represent an

should prioritize other solutions rather than local assembly or

opportunity to seize the full potential of this resource.

actual manufacturing.”

“The entire sector has worked to make photovoltaic energy

THERMO SOLAR FOR INDUSTRIAL PROCESS

generation the most competitive in the world and improve

HEATING

on prices offered by conventional technologies,” says Álvaro

According to the IEA’s 2018 edition of the Solar Heat

García-Maltrás, President of Trina Solar Latin America and the

Worldwide, in 2017 solar thermal heat supplied 388TWh,

Caribbean. “When the authorities developed this plan, they

followed by photovoltaic technology at 494TWh. The 2018-

were unaware of its potential reach. Mexico is becoming a

2032 Renewable Energy Outlook Report, published by the

success story for alternative energy. Most alternative energy

Ministry of Energy, states that the installed capacity of thermo

projects have been implemented within a predicted budget

solar technologies equals 0.01 percent in terms of electricity

and with the budgeted energy generation. It is now necessary

generation. Nevertheless, the 2032 landscape does not

to improve the strategy and continue growing.”

contemplate any growth in the power generation area. On the other hand, there is room for thermo solar applications in

According to the Mexican Association of Solar Energy

the heating segment, mainly for industrial consumers.

(ASOLMEX), 2018 closed with 32 solar parks in operation with the most relevant growth in the northwestern region of

High solar irradiation and strong industrial production are key

the country. Among these is the second-biggest solar park in

ingredients for the solar process heat market, and Mexico has

the world: Villanueva, a 754MW park located in Coahuila and

these characteristics. “In Mexico, 70 percent of the energy

developed by utility giant Enel Green Power.

used in industrial processes comes from heat and the remainder comes from electricity,” says Angélica Quiñones,

After three successful long-term electricity auctions, solar

President of the National Solar Energy Association (ANES).

PV has emerged as the leading technology for power

According to the 2017 National Energy Balance, the industrial

generation, driven by record-breaking prices. The country’s

sector is the second-most energy intensive, accounting for 35

high solar irradiation combined with market incentives have

percent of the country’s energy consumption. In September

also helped position Mexico as one of the most attractive

2017, Mexico had 65 projects with solar heat applications

markets for investment, although the cancellation of the fourth

for industrial processes, totaling an installed capacity

long-term electricity auction has raised uncertainty and cast

of 13.7MW. The main technology used for this purpose is

doubt on bankable contracts. As Guillermo García, President

parabolic trough collectors. To exploit this segment to its

Commissioner at CRE, states: “The risk that we are facing

full potential, the existent regulatory framework should be

of not renewing the auctions, from our perspective, is the

adapted to address high-enthalpy applications, Quiñones

risk of having blackouts in 2021. We are running late and we

says. “Successful case studies are what is missing for the

have to implement the necessary measures to ensure there

industry to embrace thermo-solar technology. At the same

are enough plants in three years to keep up with the pace

time, this generates major consciousness. With supporting

of demand.”

data, we can motivate the construction of a better policy strategy for the industry.”

In the meantime, the installations that already entered into operation will need O&M services, a niche that will have to be

GETTING READY FOR DG BOOM

reinforced in the coming years. Mexico should focus its efforts

Despite CFE filing a legal protection against distributed

on this segment, as the manufacturing industry has already

generation because of its potentially negative impact

229

on the company’s bottom line, it has taken steps toward

PV trackers are an indispensable component for any large-scale

collaboration. From 2017, solar distributed generation has

project as they increase generation capacity. “Considering the

grown 70 percent, with the appearance of approximately

standard life cycle of a PV park with fixed panels, trackers

82,000 solar roofs. The legal framework is up and running,

unlock an energy-efficiency factor that goes well beyond

with interconnection modalities that encompass net

the standard 20 percent,” says Cesar Alberte, International

metering, net billing and direct sale. The next step toward

Vice President of Sales at Array Technologies. Given the

this revolution is collective distributed generation. “This

resource in some regions of the country, this amount could

model has already been implemented elsewhere in the

increase to 25 percent. In addition to solar tracking devices,

world and it is something that the industry has requested,

the market has seen the penetration of bifacial modules. With

so we are working on its regulation,” says García. “Having

this technology, power can be produced from both sides of

multiple injections to the distribution network creates

the panel. According to Solar Power World, when installed in

a more stable system with frequency regulation and

high-reflective surfaces, a 30 percent increase in production

high-power services throughout the day. Moreover, this

can be achieved. The industry is adapting this trend by

development is creating employment opportunities and

merging trackers with bifacial modules. “Mexico will be one

strengthening the Mexican industry, which is a priority for

of the countries where bifacial modules will be implemented

the new presidential administration.”

faster on a large scale as this technology will allow tenders to become more competitive,” says García-Maltrás.

Additionally, the new tariff scheme determined by CRE has marked a major milestone in the deployment of distributed

Energy storage technology is yet another disruptor that is

generation. “Now, Mexico’s electricity price evolution

already available, although pricing is a key hurdle today. “This

will obey market variables, such as supply and demand

is a movie that we already watched with PV equipment – not

equilibrium, node saturation and transmission solidity,”

only with inverters but with solar panels as well. From 2013

says Juan Ávila, Director General of Top Energy. “Volatility

to 2018, energy storage costs have dramatically decreased

is commonplace in mature energy markets and will start

and this motivated a 70 percent decrease in generation

to show in Mexico. To address it, Mexico’s final users can

costs as well. Big utility storage through battery systems

either start generating their own energy for self-supply or

is the second wave of innovation that will hit renewables,”

capitalize on their bargaining power now that CFE is no

says Héctor Olea, President of the Mexican Association

longer the only energy supply option and energy efficiency

of Solar Energy (ASOLMEX). There is only one project in

measures are available.”

Mexico that showcases the capabilities of energy storage, but the regulatory framework is setting up the conditions

REVOLUTIONIZING TECHNOLOGIES

for this transition to happen. Says CRE’s García: “We have

Industry innovation no longer relies on increasing solar

identified over 18 storage services, such as frequency

cell efficiencies. Elements such as tracking devices, energy

regulation, transmission in peak periods, generation in peak

storage systems and bifacial modules are revolutionizing how

periods, storage in hours of negative costs and sale in hours

these energy systems seize solar irradiation.

of high costs.”

| INFOGRAPHIC

LARGE-SCALE PV PER STATE BY CAPACITY (MW) Mexico has 34 solar PV projects in operation located in

PLANNED LARGE-SCALE PV PER STATE BY CAPACITY

11 states, totaling 1,966MW. These solar parks are mainly

TO BEGIN CONSTRUCTION

located in the northwestern region of the country, where average daily solar irradiation can reach more than

Projects

6.15kWh/m2. In 2018, this technology reached 2.5 percent installed capacity in the country’s energy mix. Thermo solar technology represented just 0.02 percent.

US$ million/MW

ZACATECAS

US$2.227 billion

US$4.056 billion

12 1.27

30 1.34

Chihuahua 592.76

500 400

Total Projects

169.36 MW

300 200 100

30 MW

3,029MW

Total capacity (MW)

US$788 million

Total investment

105 105

229

US$803 million

Baja California Sur

No. of projects Investment

Durango

(US$ million)

70 MW

2 2 US$140 million

5 2.16

DURANGO YUCATAN NUEVO LEON

214 MW

199.87 MW

30 US$45 MW million

US$583 million 4 2.72

US$3.5 million/MW

481 MW

US$427 million 3 1.42

300 MW 1

QUERETARO

150 MW

invested in Chihuahua, Baja California Sur and Durango

1,753MW

356MW

Capacity (MW)

1.50

BAJA CALIFORNIA

114 MW

US$497 million 8 2.49

VERACRUZ

100 MW US$114. million 1 1.14

US$208 million 3 1.83

US$209 million 2 1.39

US$713 million 6 1.48

1.06

1.39

2.4

1.44

1.23

2.55

0.85

Atlas Renewable Energy

Iberdrola Renewables

X-Elio

FRV

Fisterra Energy

Engie

1.97

Neoen

1.07

Energía Aljaval

TOP 20 PV PLAYERS*

Enel Green Power

230

INVESTMENT

SONORA

OPERATIONAL LARGE-SCALE PV PER STATE 600

UNDER CONSTRUCTION

3.0 2.5 2.0 1.5 1.0 .5 0

Investment (US$ billion) Sources: CRE, CENACE

Capacity (MW)

US$ million/MW

No. of projects

TOTAL PLANNED LARGE-SCALE PV COUNTRYWIDE

15,059MW

Capacity

US$20.9 billion

Projects

CHIHUAHUA

US$2.611 billion

191.09 MW

US$1.310 billion 7 1.16

10 1.13

10 3.50

US$1.467 billion

1,127MW

1,351MW

1,563MW

US$370 million 4 1.94

JALISCO

US$1.531 billion

21 1.80

1,837MW

AGUASCALIENTES

US$2.817 billion

16 1.42

US$5.7 billion

Investment

142

COAHUILA

2,331MW

130 MW

419MW

30 MW

2 1.59

1 3.50

US$105 million

US$207 million 231

PUEBLA HIDALGO

516 MW 101 MW

TLAXCALA US$447 million

US$146 million 1 1.44

QUINTANA ROO

81 MW

2 1.24

US$444 million 3 0.85

70 MW

1 1.22

120 MW

30 30 MW MW

28 MW

1 3.50

US$1.228 billion 5 1.12

SINALOA 30 MW

1 3.50

US$98 million

US$105 million US$105 million

1 3.50

US$105 million

BAJA CALIFORNIA SUR

MEXICO CITY 1

3.50

GUERRERO

CHIAPAS

30 MW

1,096 MW

US$420 million

US$45 million

1 3.50

10 2.27

640 MW

3 2.03

1 1.50

MORELOS

US$85 million

US$100 million

30 MW

US$1.455 billion

US$1.075 billion

530 MW

520 MW

2 0.87

GUANAJUATO

SAN LUIS POTOSI

1.80

3.50

US$193 million

US$54 million

55 MW

27 2 3.50 MW US$95 million

Total projects: 88

1.09

1.13

1.08

0.89

1.07

1.3

0.88

0.66

0.85

1.63

1.47

US$16.4 billion 11,977MW

Kronos Solar

total capacity

174 Power Global

Solarcentury

Tuto Energy

Cubico Sustainable Investments, Alten

Renersol Consortium

Cimarron Solar

El Gritรณn Solar

Planta Solar Villa de Reyes

Jinko Solar

BayWa r.e

total investment

* Figures include operational, under construction and to be built PV parks

| INSIGHT

SETTING HIGH STANDARDS FOR THE BENEFIT OF THE MARKET CARLOS ABAD Head of Latin American Markets at Chint Power Systems America

232

Even with big names already present and doing business

Close relationships with clients and the ability to serve

in the emerging Mexican solar market, there is still an

them quickly and with high-quality products and services is

opportunity to raise the bar regarding quality and safety

something that CPS America has already done in the US, and

standards, says Carlos Abad, Head of Latin American Markets

a strategy that Abad wants to apply to Mexico. “We have

at Chint Power Systems (CPS) America. “Our goal is to raise

broad expertise and connections in the US, including almost

the quality and safety standards of the installations being

every company in the DG area to almost every warehouse,

built in the American market,” he says. “It is all about helping

so now we want to get to know the Mexican market as

project developers be more successful because then we will

well as we know the US and build similarly strong business

be successful too.”

relationships here.”

To that end, CPS America is introducing a proven concept

Abad sees every market like a chess board, where every

commonly used in the US: podcasts. “We offer podcasts and

move must be considered carefully. “The projects selected

webinars that help the industry understand the features and

by a company pave the way to the business model it wants

advantages of our products. These instruments also provide

to deploy,” he says. “In the US, our business model is more

employees with an open channel to ask questions about

focused on DG, while in Mexico and the rest of Latin America

the equipment and for us to provide direct feedback as well

we are targeting DG first so we can then use those projects

as to offer best-practices in a more direct way,” says Abad.

and communication channels as a springboard for bigger

The company’s 12-year presence in the solar industry and its

things.” As a first step, Abad is looking for projects with

certifications for building solar installations are proof of the

existing clients in the US market that also have commercial

quality CPS America will bring to Mexico, Abad says. “We

DG activities in Mexico. The ultimate goal, he says, is to enter

only work with certified providers, push them to meet highest

industrial and utility-scale projects.

standards and provide them with the required training.” All these segments have well-considered frameworks that CPS America is a business division of Chint Group, which

should make doing business relatively simple, Abad adds. “The

is listed on the Shanghai Stock Exchange and with highly

country now has robust residential, commercial, industrial and

profitable businesses around the world in almost every

utility markets, which is incredible considering the state of

industry related to technology. CPS America successfully

the industry five years ago,” he says. “Of course, there are

entered the US market in 2009. “This company is one of the

things that can and should be changed and improved but

main shareholders of the commercial DG solar market in the

considering the novelty of the market, what has been achieved

US. Our US team is composed of local engineers, salesmen

is impressive.”

and administration personnel,” he says. He believes one of the keys to the company’s success was learning to adapt its

Although the presence of international companies in Mexico

processes to the local culture, rather than expecting others to

is extremely beneficial for the local economy, it is important

adapt to it. “We do business the US way, which is much easier

that the jobs and economic benefits already created stay in

than dealing with cultural differences and logistics problems

the country for the long term. “There are many companies

that may arise from being in contact with local personnel

entering the Mexican market, which is good in terms

in China,” he says. “We speak the same language as our

of growing investment, but we should never forget the

clients in the US, which has made our business successful

importance of creating a strong local supply chain that creates

since our entrance in 2009. In Mexico, we are not entering

jobs in the country and does not simply bring workers from

as Chint Group coming from Shanghai or as CPS America

abroad;” he points out. “It is important that the people who

coming from the US, but as CPS Latin America, an extension

live and work in Mexico see the benefits of foreign investment

of CPS America.”

coming into the country."

VIEW FROM THE TOP |

EMPOWERMENT BY CHOICE JUAN ÁVILA Director General of Top Energy

Q: How is Top Energy contributing to Mexico’s energy

primarily targeting industrial clients. Our latest landmark

transition?

is our involvement in Mexico’s largest PV plant under

A: We are promoting the transition to renewable energy not

distributed generation, with 500kW AC of installed

only as a company but also in the chambers we participate

capacity. This flagship project is set to be our business

in, such as COPARMEX, CAMEXA and the British Chamber

case to multiply our PV distributed generation portfolio

of Commerce. We capitalize on the platforms provided by

with industrial clients. We are convinced Mexico’s PV

these chambers to show audiences the main objectives of

growth lies in fostering distributed generation projects

the Energy Reform and the milestones reached four years

because an EPC company cannot survive on residential

in. In the particular case of Aguascalientes, prior to the

and low-tension tariff projects alone if it wants to thrive

reform, the state was a net energy-importer, with no self-

in the long term. Capacity and investment availability is

supply capacity, no generation investments nor any energy

the end game and distributed generation is the surest

efficiency programs. Now, Aguascalientes concentrates

path forward.

over 33 percent of the country’s long-term electricity auction-related PV-generation capacity. The lion’s share

Q: What milestones are you hoping to achieve for your

of investment flows coming to the state is PV-dedicated.

Energía Real power production branch?

To take these positive developments even further, through

A: In 2018, we signed a sizable PPA deal to sell power

a COPARMEX-Aguascalientes initiative, we created a

directly to a large real-estate company, worth 15MW of PV

regional energy cluster, Cluster Energético Bajío, grouping

installed capacity. This was parallel to another PPA we had

companies from Guanajuato, Aguascalientes, San Luis

in the works with a real-estate-owning private equity firm.

Potosi and Queretaro. This shows the reform is progressing

Both took more than a year of constant, serious work and

and is backed by a myriad of competitive players and the

will provide the bedrock on which Energía Real can thrive

development of an organized civil society of entrepreneurs

as a solid PV power producer to serve Mexico’s energy

as both a government partner and counterweight.

intensive players.

Q: What particular elements cemented Top Energy’s PV

Q: Which states are ideal for Top Energy’s expansion?

business origins in the agroindustrial sector?

A: Top energy is developing PV projects in Mexico City,

A: When Top Energy was launched in 2013, most of the EPC

the State of Mexico, Guanajuato, Cancun and Jalisco,

companies nationwide were focused on the agroindustrial

showcasing our capacity as an EPC company to grow

sector based on the 50 percent CAPEX subsidy provided

nationwide. We recently developed a PV project in

by FIRCO to promote the development of energy projects

Hermosillo, Sonora, where the Unión Ganadera Regional is

on livestock farms, primarily using biogas and solar

the off-taker. The strong business relationship that resulted

technology. We shifted from that scope in 2015 to focus

from that project led us to open a Top Energy office in

on unsubsidized industries because the subsidy factor

the state to not only manage EPC projects but also to

encourages slower decision-making processes.

capitalize on the business niche we developed there to promote other company branches, Energía Real chief

Q: How have Top Energy’s objectives changed from its

among them.

first steps to where it is now? A: Looking at the long-term game plan, it makes more sense for us to be generators rather than limiting ourselves

Top Energy is a Spanish company created in 2002 and present

to be an EPC company. This is why we are focusing all

in Mexico since 2013, headquartered in Aguascalientes. Its

our business efforts in Energía Real, our power generation

business is oriented toward the installation of small, medium

branch. Top Energy, in our capacity as an EPC company, is

and large energy systems for self-consumption

233

| PROJECT SPOTLIGHT

SEIZING ON SOLAR THROUGH DISTRIBUTED GENERATION Top Energy has always been characterized for providing the best engineering and design solutions to its clients, with more than 300 interconnected projects across the Mexican territory to support this statement. Nevertheless, the Central Eléctrica Fotovoltaica Diseko Soluciones project has marked an important milestone by being the largest PV plant interconnected under a distributed generation scheme in Aguascalientes. Diseko Soluciones is one of the biggest manufacturers of display systems in Latin America. Looking for strategies to reduce its electricity bills, the company approached Top Energy in 2017 to develop its first self-supply facility. This PV power plant generates 601.92kWp, conformed by 1881 polycrystalline solar panels each with a power output of 320W. The installment also includes two sets of inverters. One set has eight SMA STP 60 inverters of 60kW and the other includes a 20kW SMA STP20000TL inverter. The whole installation totals 1,113.552kWh that annually represent total savings of MX$2.4 million considering current electricity prices.

Installation totals 1,113.552kWh for total savings of MX$2.4 million One of the main hurdles during the project development was the installation of the modules at a 15-meter height. These were installed while respecting the lighting systems and without drilling the ceiling during execution. This was achieved through the utilization of a special anchorage system that was attached from the lateral sides of the construction without perforating the roof sheet. Another important challenge relied in the interconnection process, as this project was the first case where an installation with such a high level of power took place under the distributed generation scheme in the region of Aguascalientes. The project has decreased Diseko Soluciones’ energy consumption by 50 percent, which translates to savings of more than MX$200,000 per month. Central Eléctrica Fotovoltaica Diseko Soluciones is not only lessening its environmental impact, but also generating financial benefits for the final user. This project also showcases how the use of renewable energy is not exclusive to utility scale developments. Nowadays, many national and international companies can select this type of installments to supply their own energy needs.

235

| VIEW FROM THE TOP

A UNITED SOLAR FRONT HÉCTOR OLEA President of the Mexican Association of Solar Energy (ASOLMEX)

236

Q: What has been ASOLMEX’s major contribution to the

with the revision of the regulatory framework, many things

solar industry in Mexico?

could be improved. But the main industry pillars, such as the

A: ASOLMEX has achieved many objectives in the past few

Wholesale Electricity Market, the autonomy of regulatory

years. In 2014, when we started the association, ASOLMEX

institutions and the central role that CENACE plays, are

was comprised of 10 founders and to date it has more than

important for the market to grow at the needed pace.

110 members. The first achievement is the consolidation of an industry in constant growth. ASOLMEX unites the interests

Q: What is missing for energy storage technology to take

of all the parties involved in the solar industry value chain,

over the Mexican market?

from big utilities to distributed generation. This kind of

A: This is a movie that we already watched with PV equipment

unification did not exist a few years ago and has motivated

– not only inverters but with solar panels as well. From 2013

a greater interaction with relevant decision-makers, such as

to 2018, energy storage costs have dramatically decreased

the Ministry of Energy, CRE, CENACE and even CFE. During

and this motivated a 70 percent decrease in generation

this journey, we have fought many battles, including the

costs as well. Big utility storage through battery systems is

removal of the 15 percent import tariff imposed on solar

the second wave of innovation that will hit renewables. We

panel technology. Among the association’s activities, one

are observing this trend in the US, Europe, China and South

of the most interesting initiatives is Ilumínate. This social

Korea. In the next two years, battery prices will decrease

program delivers solar lamp kits to communities that do not

by half and will affect Mexico from a technological and

have access to the grid. It is one of the flagship projects we

regulatory standpoint. The technology has been around for

are most proud of. ASOLMEX’s main goal is to develop the

some years now but the disruption will reside in the price. The

solar industry in Mexico and energy democratization plays

important thing is to establish ground rules that permit the

an important role within this.

development of this technology in Mexico. There is a whole committee in ASOLMEX dealing with this issue directly with

Q: What are the most common headaches for

CRE to motivate the consolidation of a regulatory framework

ASOLMEX’s members?

that acts as a catalyzer. Aura Solar III, a 30MW solar park,

A: Solar energy plays an enormous role in the Mexican project

is the first project in the country to have a 10MW energy

portfolio and there is always room for improvement. Under

storage solution. The idea behind developing this project

the current political landscape, the association’s agenda will

was to show regulatory institutions and investors that this

have to hit the stand-by button. Our main concern is that

is now a reality in Mexico.

the new administration really understands the country’s wide energy needs. The new business model derived from

Q: What are ASOLMEX’s main objectives for 2019?

the Energy Reform led to the positioning of renewable

A: The association’s eyes are set on the needs of

energies, including an investment boom, because certain

communicating and coordinating with the next administration.

conditions are present. If the new administration modifies

This is to reveal the basic principles that an industry requires

these conditions of certainty and competitiveness, the whole

to flourish, bringing investment and more capacity to the

sector will be affected, but mostly the solar segment. At the

country. This is an atypical year for the association because

moment, we are waiting for concrete signals. We believe that

we will not know the next administration’s strategy after the first 100 days. If the current business model goes forward and there is certainty for investment, ASOLMEX will continue

ASOLMEX groups operators, investors, providers and developers

to grow. This may not be in size, because the association

of utility-scale solar projects. It represents the interests of the

is composed of many members, but in quality to influence

industry through a forum that motivates the advancement of the

and talk with the corresponding authorities and develop an

regulatory and legal framework

ecosystem around solar industry in Mexico.

INSIGHT |

TRACKING PROFIT IN AN INCREASINGLY COMPETITIVE MARKET LUIS GARRIDO Sales Country Manager Mexico of Braux Energy Group

Long-term electricity auctions in Mexico have seen a

hopes will build long-term client relationships. “One of

staggering drop in prices. While this is good news for

our mandates as a company is to always comply with all

the industry’s competitiveness and final users who will be

of our clients’ requirements, therefore becoming a well-

receiving cheaper and cleaner energy, it places a burden

known company in the industry,” he says.

on the value chain, warns Luis Garrido, Sales Country Manager Mexico of Braux Energy Group. “To become more

This strategy has led the company to establish links

competitive, companies must optimize their manufacturing

with some of the biggest players in the market. “We

processes while keeping them adaptable to the evolving

are having close conversations with companies such

market conditions worldwide, especially in Mexico where

as ENGIE, Mitsui and Canadian Solar to show them the

the market has become much more competitive in a short

installations we have already finished,” he says. According

period,” he says.

to Garrido, these are promotional activities, since it will not be the developers who hire Braux directly, but the

Considering the competition in the long-term electricity

EPC companies that auction the actual installation of the

auctions that have, according to Garrido, “punished the entire

projects. “Nevertheless, it is always helpful to have the

industry in terms of revenues,” he can foresee the creation

approval of the main companies in the country to get

of new financing schemes that will adapt to the new and

more contracts,” he says.

evolving market conditions inherent to those auction results. As manufacturers start flooding the Mexican market Braux Energy Group is a multinational founded in 2006 in

and looking to provide the lowest prices in the industry

Spain that over the years has entered into activities in 16

and for developers to increase their revenue margins,

countries. It is involved in the entire solar PV value chain,

Garrido warns of the importance of keeping standards

from design and engineering of PV plant elements such as

high. “Up until now, the selection of PV components

the manufacture of trackers to services for the solar industry

has been dictated by the companies’ preference and to

such as EPC, O&M and even commercialization of energy.

their usual providers, instead of up to minimum quality

Aiming for other opportunities while the market consolidates,

standards,” he explains. “This is the same case for the

Garrido says Braux Energy Group has preferred to work in

entire system, until it reaches the interconnection point,

Mexico developing projects in more well-known and stable

where normativity is directed by CFE, as the owner and

schemes, such as the ones provided by PPAs.

operator of the entire grid.”

The company has already managed to enter into important

While Garrido recognizes that it will take time for the

contracts with major project developers, he continues. “Braux

consolidation of the projects that were awarded in the

Energy Group is consolidating its presence in the country.

long-term electricity auctions, he warns that continuity

We are developing a PV park of 180MW for ACCIONA and

is key to avoid an industry crash. “Populist measures

are close to sign another 54MW worth of projects,” he says.

should be avoided as they affect private players and

“Besides those opportunities, we hope to obtain another

could slow down investments in the country, ultimately

utility-scale and self-supply project soon, as we are already

hurting the Mexican people,” he says. “Mexico is a country

working on the project economic and technical proposals.”

where plenty of foreign investment has been deployed, and the new administration should recognize that and

Braux Energy Group is aiming to install 250MW to

avoid restricting the country’s growth. Optimally, the new

300MW per year until the end of 2020. While this may

administration should not only recognize the existing

be considered a small number, Garrido explains that

momentum but also foster the entrance of more capital

Braux aims for quality rather than quantity, a strategy it

into the country.”

237

| VIEW FROM THE TOP

CAPTURING THE POTENTIAL OF THE SUN ALEJO LÓPEZ Senior Director Mexico and Central America of NEXTracker

238

Q: Which NEXTracker technology will revolutionize the

A: At one point we were constructing 5MW per day at Enel’s

Mexican energy industry?

Villanueva project. We can install at such a pace thanks to

A: TrueCapture™ is an evolution of the control software

the design simplicity of the mounting system. The mounting

already used by our flagship product, NX Horizon™ solar

design ensures there are no bottlenecks in the installation

tracker. It solves problems that solar park owners do not

process, meaning that if more power needs to be installed

even know exist. The first is related to the real conditions

it can be done by an increase in the number of people

of the terrain. Simulations prior to the installation take for

working on the project. Furthermore, the people involved

granted that the terrain is perfectly flat, even if it has some

in the installation do not require any electric or electronic

inclination, it assumes that this inclination is constant so

knowledge, they only need to have experience mounting

the panels are arranged and have a tracker that is set to

mechanic elements.

follow the movement of the sun with the information from this unprecise simulation. The second issue is related to real

Q: What is next for NEXTracker in Mexico?

weather conditions. Through an upgrade of our software

A: According to Greentech Media’s Global PV Tracker

and a set of sensors implemented in the field, TrueCapture

Landscape report of March 2018, as of May 2018 we have

considers real weather conditions together with the terrain’s

a market share of 42 percent in Mexico, and a total hired

particularities that may cause unexpected shadows. It then

power of 1.5GW, including the entirety of the project we

sets the panels to an optimal angle that will always maximize

developed with Enel. By the end of 2018, we want to have

the power output of the solar park at any time of day.

at least 2.5GW of hired power.

Traditional tracking software considers it necessary to only have the panel permanently perpendicular to the sun’s direct

We also see a great future in the implementation of energy

irradiation, without taking any other factor into consideration

storage to both reduce peak consumption and also provide

to optimize power production.

energy during times of intermittency. To that end, we have our NX Flow integrated platform, a vanadium flow

Q: What differentiates the trackers designed by

battery system plus solar tracker that provides many more

NEXTracker?

advantages than the traditional technologies managed in

A: Our single-row systems make each row capable of

the market with lithium ion. Flow batteries are capable of

moving completely independently from the other rows. This

fully discharging without deteriorating the storage capacity.

advantage is exploited by TrueCapture, which ensures that

In our tests over a period of more than 13 years of fully

each individual row is in a position that ensures the maximum

charging and discharging our flow batteries, they have

amount of solar rays are received by the panels. This allows

only diminished their storage capacity by 0.5 percent.

TrueCapture to increase power output by 2 to 6 percent.

Meanwhile, a storage system composed of lithium ion

Any tracking system that uses a multi-row arrangement is

batteries must consider replacing over 80 percent of them

therefore losing the capacity to use TrueCapture.

in the first 10 years of operations. With flow batteries the net capacity of the system is almost entirely equal to its

Q: What has allowed NEXTracker to install power at such

real capacity. Meanwhile, lithium ion batteries have a big

a quick pace in Enel’s Villanueva project?

discrepancy, because in order to avoid degradation they have a maximum discharge capacity. This means that the systems’ net capacity must be oversized to provide a

NEXTracker is an American-based global leader in PV

certain real storage capacity. The Mexican market is not yet

trackers. Founded in 2013, the company offers design,

prepared to take full advantage of storage systems due to

construction and servicing of the most advanced trackers

its tariffs and regulatory schemes, but once it is ready, we

and energy storage systems in the industry

will introduce all these advantages at full speed.

VIEW FROM THE TOP |

STATE-OF-THE-ART TECHNOLOGY GREENLIGHTS SOLAR ARTURO DUHART Co-Founder of EXEL Solar

Q: How is EXEL Solar positioning itself to provide the best

Q: What is your assessment of Mexico’s PV value chain?

PV system solution available?

A: Manufacturing a solar panel involves an intricate

A: Our business revolves around PV integrators,

process of extracting the silicon, slicing the wafer,

companies dedicated to providing solar energy solutions

applying the relevant chemicals and integrating them

to the residential, commercial and industrial sectors. Our

into a module. To date, no one in Mexico covers the

positioning to offer an attractive solution is rooted in our

entire process, while an overwhelming majority of the

solar and wholesaling experience. EXEL Solar’s founders

market’s solar panels come from China, the latter being

have been present in Mexico’s solar distributed generation

determined to dominate this niche. Chinese solar panels

market since 2008, making it the longest-serving participant

have reached a degree of quality, competitive pricing and

in the sector as the country launched distributed generation

state-of-the-art technology that is hard to surpass. As

in 2007 when it enacted the Interconnection Contract Model

such, Mexico is at a disadvantage and should prioritize

for Small-Scale Solar Energy. Our early entry provided us

on other solutions rather than local assembly or actual

the time required to build a clear visibility on what final

manufacturing.

users were looking for at a time when solar energy was still costly compared to fossil fuels. A thorough CAPEX

Q: How can Mexico match state-of-the-art technology with

and OPEX analysis is a primary aspect of each product we

equally optimal PV system installations?

integrate into our portfolio; we add strategic brands and

A: There is a regulatory gap that remains to be filled

technologies to showcase the best solutions available on

as the Official Mexican Norm NOM-001 on electricity

the market. The second important aspect is education. In

installations falls short and the absence of an official

a usually price-driven market, highlighting our selection

certifying entity remains prevalent. The creation of this

process and the comparative advantages of the products

entity should be carefully planned to avoid inhibiting the

we offer our clients over the long term, covering heavily-

market’s growth. It should have the capacity to absorb

technical data with a user-friendly coating, is critical when

demand from the large number of SMEs that would seek

fostering a transition toward solar power. The importance of

to obtain these certifications to further stimulate Mexico’s

this factor alone justifies our courses and webinars, which

distributed generation market. Failing to do so would

are available to our clients.

almost guarantee a market bottleneck, to the detriment of distributed generation’s scalability potential, added

Q: How does EXEL Solar advocate for both solar power

to the requirement of a streamlined interconnection

and e-commerce solutions?

procedure. One way to go about this is by using technology.

A: On one hand, we make the case for solar power by

Conducting interconnection proceedings online would be

advising our clients on the best technology and components

a big step forward. We are open to working with CFE to

available to build reliable and long-lasting PV systems. On

provide this online open-source platform for the sake of the

the other hand, most of EXEL Solar’s clients are young

sector. Regarding certifications, we need a combination of

entrepreneurs looking to launch their solar SME. These

factors involving free data availability, as well as rigorous

people are more inclined to using e-commerce platforms.

and thorough certification exams to improve Mexico’s

Parallel to that, we also provide more traditional ordering

installation quality standards.

services, either by phone, e-mail, and even WhatsApp. We continuously strive to provide the most complete and informative tools so our clients can count on a streamlined

EXEL Solar is a PV system wholesaler, providing over 300

decision-making process, bypassing the need for that

products from 25 brands, from inverters to batteries. EXEL Solar

additional phone call for information and enabling them to

is a unit of EXEL Group and can take advantage of the Group’s

close their solar projects at a quicker pace.

25-plus years of wholesaling experience

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| VIEW FROM THE TOP

TOP-QUALITY PALES FOR HARSH CONDITIONS

HONGBIN FANG Director of Product Marketing for LONGi Green Energy Technology

240

IVĂ N REYES Mexico Country Sales Manager of LONGi Green Energy Technology

Q: What added value does LONGi offer to the market

critical components of the PV plant. To offer the overall

that no other competitor can provide?

best PV module in the market we have developed strong

IR: LONGi centers its business on the production of high-

partnerships that help us create better designs that

quality products that deliver the best power production

ensure good grid parity and a lower LCOE with long-

in the market. One of our most important efforts is in

lasting products.

the production of panels for the utility-scale market in Mexico, which has been boosted by the long-term

Q: What makes LONGiâ&#x20AC;&#x2122;s modules suitable for the

electricity auctions and the high share of solar projects

Mexican market?

it has assigned. These technologies are also highly

IR: The modules we produce are not only highly efficient

applicable for the DG market. Our monocrystalline high-

in energy production but are also capable of handling

efficiency modules are applicable for both segments,

harsh environments. This makes them ever more suitable

since both have the objective of producing more energy

for Mexico where deserts have high temperatures and

in a smaller space. We have developed strategic alliances

degrading environments. Our module power degradation

in Mexico, and in all the countries we are present, to

warranty is one of the best in the market because we

ensure that the best final product is delivered to our

know that the modules are capable of handling whichever

clients. Our partnerships with reliable EPCs also ensure

environment they may find. The Mexican market has been

that our products are used by the best companies that

opened for the long run, and we are here to stay. We also

place quality above all.

think strong financial health of our company is the best warranty for our products.

HF: Costs of modules are dropping all over the world at an incredible pace. We want to bring savings not only to

Q: To what extent has LONGi thought about establishing

the cost of the module, but to overall cost of the system

a manufacturing plant in Mexico?

for the entire life cycle of the project. Our modules are

HF: We are always looking at all the possibilities to offer

specifically developed to bring down the LCOE of the

our clients the best product. In that sense, we do not

plant, and this is achieved by not only reducing costs

discard the possibility of placing a manufacturing plant

to a certain extent, but also by increasing conversion

closer to or even into Mexico. Nevertheless, the industry

efficiency and power output. The monocrystalline

conditions do not yet allow it because the value chain for

modules we manufacture have another advantage: they

the manufacturing of our panels is much more developed

are capable of showing extremely good energy yields

in Asia than in Latin America, meaning that it is still much

at high temperatures. Added to the bifacial technology

more viable for us to import our products from abroad

of some of our modules the additional gains in energy

and bring them to Latin America. Of course, we will

production can increase by 10 to 15 percent from the

keep our eyes open to the possibilities that the future

baseline. While we focus on manufacturing PV modules,

may bring.

which is our specialty, we are aware of how vital it is to manufacture components that can be easily and

Q : Wh at w i l l b e t h e ro l e o f b at te r i e s i n t h e

effectively integrated with each and every one of the

Mexican market? HF: Battery costs are dropping, but they are still high. We hope that in the following five to 10 years prices will

LONGi Green Energy Technologies was founded in 2000.

be low enough to create powerful combinations of PV

The

monocrystalline

with storage on a utility scale. Without a doubt, a strong

manufacturer worldwide. It provides high-quality products

combination of PV with storage will be critical to see a

and services for PV systems

world powered by the sun.

Chinese

company

the

largest

VIEW FROM THE TOP |

MEXICO: THE STRONGEST MARKET IN LATIN AMERICA ALBERTO CUTER General Manager Latin America and Italy of Jinko Solar

Q: Why should project developers in Mexico choose Jinkoâ&#x20AC;&#x2122;s

My suggestion for the local value chain is to start developing

solar panels?

a strong expertise in the O&M segment, since many projects

A: Our products are of one of the highest qualities in the

will be installed in the coming months and after they are

global market and we are eager to bring them to Mexico. We

installed, someone will have to take care of them. Maintenance

have a strong local presence already in the country, and in

is a strategic and fundamental part of the development of

Latin America overall, with a team that includes technicians

any generation plant to ensure that production levels remain

and salespeople that in general also support the activities

high. A proper maintenance service should be considered

of our customers, particularly the development of their

from the beginning of a project to be able to clean the

projects. This takes us beyond being simply a solar panel

modules and perform preventive maintenance properly. For

provider but also makes us a local partner for the project

example, the design of the size and location of the inverters

developers. As partners, we aim to follow our clients in the

can highly affect the maintenance requirements.

entire development process, from the beginning of their participation in the auction until the installation finishes and operation starts. In terms of post-sale services, we also offer a high added value due to our local operations in the country. All of this is reflected in the fact that we have approximately 50 percent of the market share in Latin America and over

70 percent: Jinko's market share in Mexico

70 percent in Mexico. With the extremely low prices that came from the first Q: What project in Mexico could best showcase Jinko Solarâ&#x20AC;&#x2122;s

three long-term electricity auctions, everything has to work

capabilities?

perfectly to ensure that the plants remain profitable. This is

A: The most iconic project on which we are working at

extremely important since a well-developed and constant

the moment is the Villanueva solar PV park, where we will

maintenance service can increase the life and power output

provide 830MW of solar panels, making it the biggest solar

of a PV plant significantly, and Mexican companies have the

PV project in Latin America. All the modules will be provided

advantage of being in the country, close to the clients and

by Jinko, and we must say that the very short timelines make

capable of delivering in short time frames.

it a difficult project. Successfully finishing with the best times in the market makes me feel proud of what the team

Q: What would you like to achieve by the end of 2018?

in Mexico is managing to do so far.

A: By the end of 2018, we expect to have delivered a cumulative total of 2GW in Mexico, while for the entire Latin

Q: How would you rate the development of the local

American market the goal is to have delivered a cumulative

renewable energies value chain in Mexico?

total of 4GW. This means that Mexico will represent almost 50

A: I am happy to see that there are constantly more Mexican

percent of the capacity delivered by Jinko in Latin America

EPCs in the market, whereas years ago, the market used to

in 2018. In 2017 Mexico was the biggest market for Jinko

be dominated by European EPCs. This was because Mexico

in Latin America, and I am sure that our prediction will be

did not really have the chance to pursue these opportunities

accurate for 2018.

until a couple of years ago but the country started to create a strong set of companies with expertise in EPC activities. Now, local companies are managing to gather experience

Jinko Solar is a China-based PV manufacturer and project

and going through learning curves smoothly. This growing

developer. It distributes its products, solutions and services to

expertise is extremely important for the development of the

a diversified utility, commercial and residential customer base

local value chain in Mexico.

worldwide and has more than 30 offices around the world

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| VIEW FROM THE TOP

BIFACIAL MODULES COULD IMPROVE COMPETITIVITY IN TENDERS ÁLVARO GARCÍA-MALTRÁS President of Trina Solar Latin America and the Caribbean

242

Q: What is Trina Solar’s main contribution to Mexico’s

A: It is necessary to carry out a comprehensive analysis

energy transition?

of the land surface when installing bifacial modules as the

A: The entire sector has worked to make photovoltaic

reflection will vary greatly from one soil type to the next,

energy generation the most competitive in the world

but the country would greatly benefit for these types of

and improve on prices offered by conventional

modules. Mexico will be one of the countries where bifacial

technologies. When the authorities developed this plan,

modules will be implemented faster on a large scale as this

they were unsuspecting of its potential reach. Mexico is

technology will allow tenders to become more competitive.

becoming a success story for alternative energy. Most alternative energy projects have been implemented

Q: What synergies can be generated between IoT and

within a predicted budget and with the budgeted energy

photovoltaic generation and what are Trina Solar’s

generation. It is now necessary to improve the strategy

strengths in this synergy?

and continue growing.

A: Integration of IoT principles into PV generation supported by strong storage capabilities is one of Trina’s strategies for

Q: How is Trina Solar adapting to the narrower profit

the future. For that reason, Trina invested four years ago in

margins emerging from the tenders?

its battery division and we expect to launch some products

A: As an equipment manufacturer, we find margins to

from this line in 2019. Adding these systems to energy

be very narrow but it is possible to overcome this with

control software aims to generate synergies between

economies of scale and process optimization. However, we

consumers and producers at a local level in order to

are reaching the cost limits of equipment manufacturing

optimize the management and consumption of the energy

and it is becoming increasingly harder for economies of

produced. Having connected PV units, batteries, monitors

scale to make up for reduced margins. For that reason, we

and energy management software in every single house in a

are betting on combinations of different equipment that can

community will allow for a better use of electricity between

operate together within a PV plant. Bringing this equipment

neighbors as they can share among each other what they

together does not necessarily imply lower costs but greater

produce when they do not need it. Systems of this kind are

generation of energy. In 2018, Trina Solar acquired tracker

already being implemented in California, Japan and China.

manufacturer Nclave to design an optimal combination for a tracker-module that is both less expensive to install and

Q: Considering Mexico’s areas of opportunity in tenders,

generates more energy than the two components installed

commercial and private sectors, what is next for Trina?

separately. Equipment of this kind will be especially relevant

A: We are interested in Mexico’s residential, commercial and

considering bifacial modules. Merging the tracker and

industrial segments as tenders are increasingly reducing

the bifacial module will allow for better sun tracking and

operational margins, making it difficult for operators to

optimize energy production, allowing us to offer clients a

keep participating. In that sense, we do not believe the

competitive, integral solution.

current model for tenders will be sustainable. We expect the energy market to increasingly shift toward private PPAs

Q: You are among the few companies introducing bifacial

and other added-value solutions that can benefit small and

modules into Mexico. What is their potential?

medium-sized consumers. Smaller clients will allow for the generation of Mexico’s own local photovoltaic industry and we expect to contribute in this area. In terms of technology,

Trina Solar delivers PV products, applications and services to

Trina Pro is our integral solution that brings together the

promote global sustainable development. Through 2017, Trina

module, tracker and inverter. This allows us to offer a single

Solar delivered over 32GW of solar modules worldwide, earning

solution with personalized software and the commitment

it the 13th spot on the Global Top 500 New Energy Enterprises

of minimum energy generation.

VIEW FROM THE TOP |

OPTIMIZING LCOE WITH RELIABLE TRACKER SOLUTIONS CESAR ALBERTE International Vice President of Sales at Array Technologies

Q: Why should PV project developers rely on Array

acquisition, installation and operational costs for improved

Technologies’ solutions?

profitability. We are working on incorporating automatic

A: PV project prices in Mexico are very competitive.

cleaning systems, capitalizing on the continuous row

IPPs and project sponsors are working with extremely-

architecture of our trackers. Array’s architecture, with

adjusted profitability margins. Under these circumstances,

industry leading density, is particularly compatible with

products with a lengthy track record that ensure minimal

robotic cleaning solutions. We are also working to increase

LCOE throughout the life of the contract are critical. Array

our already high levels of pre-assembly to provide a plug-

Technologies’ tracker is backed by 25,000MW years of

and-play version of our trackers that will be even easier

operation, guaranteeing foreseeable operational costs,

to install and completely error-free. As PV trackers are

with zero scheduled maintenance. It allows our clients to

the only mechanical component in a PV system, we have

maximize profitability despite thin margins and assists

dedicated many engineering hours to designing and

in the design of a solid business plan. Trackers can have

incorporating mechanical and structural improvements for

significant differences from one company to another,

zero maintenance and simplified assembly. Improvement

especially in terms of installation and O&M. When analyzing

is a continuous process and we are already adapting our

the total costs inherent to a tracker, taking into account

product to bifacial PV panels, updating our designs and

acquisition, installation and operation, the differences are

directing research in collaboration with US-based national

substantial. While acquisition costs are within a narrow

research facilities to ensure our trackers deliver on the

range, we are 25 percent more efficient in installation costs.

laboratory conditions for efficiency of bifacial modules

Our components do not require preventive maintenance,

once operational.

which removes the scheduled O&M costs associated to the tracker. Developers must consider a comprehensive cost

Q: What automated cleaning systems is Array Technologies

approach when it comes to trackers, beyond solely looking

developing?

at acquisition costs, especially considering the aggressive

A: We firmly believe our company needs to be open to

prices showcased during the long-term electricity auctions.

all cleaning solutions the market provides. Renewable

In a 100MW PV solar park, operational costs throughout the

energy’s ecosystem, in our view, is an open one, where all

park’s life cycle can imply an extra US$12 million from one

different players must collaborate and make our respective

tracker to another, and that means US$4 million of higher

products compatible with one another to fully capitalize

net present value.

on the various innovations that different entrepreneurs are working on.

Q: How is Array Technologies navigating the trend toward lower long-term electricity auction package prices?

Q: What is Array Technologies’ targeted business niche?

A: PV trackers are an indispensable component for any

A: We are targeting the two main types of PV plants Mexico

large-scale project as they increase generation capacity.

offers: the utility-scale long-term electricity auction plants

Considering the standard life cycle of a PV park with fixed

and private PPAs between large energy consumers and IPPs

panels, trackers unlock an energy-efficiency factor that

that signed long-term energy supply agreements. Our value

goes well beyond the standard 20 percent. In states such

proposal fits both segments well.

as Aguascalientes or Sonora, it even goes as far as 25 percent. In contrast, the extra cost of installing trackers instead of a fixed structure is well below 10 percent and

Array Technologies is the leading solar tracking solutions

considering the benefits, they are more of an investment

and services provider for utility-scale projects. Its efficient

than a cost. Array Technologies goes the extra mile

installation and terrain flexibility coupled with high reliability,

by continuously innovating its solutions to decrease

durability, and performance, delivers the best project returns

243

| INSIGHT

REAPING THE BENEFITS OF OUTSMARTING FIRSTMOVER HURDLES ANDREA BERNARDI Former Country Manager Mexico of Enerray

244

Although Mexico’s energy sector has been developing steadily

opening a new window of opportunity. “At Enerray, our long-

since the reform was passed, there is no denying that the

term relationships with our clients makes O&M an integral

technologies are still relatively new for the market, creating

part of our value-added proposal,” says Bernardi. In 2018,

resistance to their widespread adoption. Enerray, an 11-year-

Enerray’s global portfolio provided O&M services to more

old company that specializes in PV systems, provides flexible

than 800 MW of projects, which the developer can also offer

financing to allocate the lowest possible risk to end-users and

as a complementary service to utility-scale operators. “It all

convince them of the technology’s benefits.

comes down to mitigating risks through a forward-thinking operator that can integrate optimal O&M services as early as

“Our product provides either 10 years’ worth of financing

the blueprint stages, based on the inherent characteristics of

or 15-20 years of leasing possibilities, which eliminates the

the project,” he says.

need for credit lines or corporate evaluation procedures,” says Andrea Bernardi, the company’s Former Mexico Country

Enerray also is part of a tenured, Italy-based construction

Manager. “We can offer a tailored, integral solution to address

conglomerate, Gruppo Industriale Maccaferri, which allows

our clients’ energy consumption with the benefit of a zero-

the developer to stay up-to-date with the latest technological

investment requirement, while at the same time providing the

advances. “Our engineering and purchasing division in

benefit of decreased energy costs.”

Italy closely monitors new R&D and procurement trends, from residential to utility-scale applications,” Bernardi says.

While development banking is at the forefront of financing

“Through our long-standing relationship with suppliers we

operations for utility-scale renewable energy projects born

developed a whitelist, based on our constant search for

from the country’s long-term electricity auctions, Bernardi

the best solutions for our clients, not only from an initial

highlights the viability of the technology and says the

investment standpoint but also from a long-term power

increasing number of pension funds and North American

generation perspective.”

private equity funds participating is proof. “This is mainly due to the rate of return on PV projects that is rooted in their

Data availability remains one of the key issues that remains

financial and debt structuring and equity placement, ensuring

to be addressed in Mexico’s infant energy market. “Studies

a secure tier.”

relating to the country’s node capacity, transmission line saturation and the mapping of the specific power traffic

The PV system developer partnered up with Prana Power, the

in Mexico’s transmission network are gaps that should be

energy subsidiary of private fund manager Artha Capital, to

addressed,” Bernardi says. “This would instill developers

make the most of Mexico’s favorable financial environment.

with the confidence to launch interconnection permitting

“Our alliance is a response to a young Mexican energy market

procedures, while also reducing CENACE’s workload

that still requires certain aspects to be solidified, such as

and response time, ultimately providing clarity over

collateral warranties and credit lines, to ensure project finance

interconnection feasibility.”

is attractive,” he says. “The objective is to provide an integral service from a tenured financial company that is backed by

Before the end of 2018, Enerray expects to add another

Enerray’s technical expertise, based on our global portfolio of

three to four distributed generation projects to its Mexican

300 roof-installed power plants.”

portfolio and wants to enter PPAs with private off-takers that prioritize financial solidity, value-added O&M services

Now that financing schemes are available and on par with

and expertise over price. “We want to extend our services

Mexico’s distributed generation requirements, Enerray already

to local developers to enable investors, developers and off-

has set its sights on the next prize. Renewable energy plants

takers to improve cost structures from the very blueprint of

from the first long-term electricity auctions are coming online,

the project,” Bernardi says.

VIEW FROM THE TOP |

ICT KNOW-HOW FOR TOP-TIER PV INVERTERS KEVIN GUTIÉRREZ Sales Vice President of Inverter Business at Huawei Mexico

Q: What added value can Huawei inject into Mexico’s PV

now, costs are on par. It is a clear and unstoppable trend.

market from its ICT DNA?

Huawei’s cost reduction strategy in string inverters stems

A: Huawei offers a completely different way of developing

from volume. As we install a greater amount of GW in solar

PV technology compared to what the market is used to. To

inverters capitalizing on a decreased CAPEX, it is a portion of

date, there are two ways of developing utility-scale PV solar

the market that our competition cannot serve. 245

parks. One is with central inverters ranging between 2-5MW to optimize costs by centralizing control and automation in this

Q: How does Huawei deal with the increased risk inherent to

equipment. The other, which is how Huawei does it, is relying

new technologies against proven tech?

on string inverters. Huawei’s value proposal boils down to

A: Thanks to technological advances, cost reductions

providing similar CAPEX levels in initial investments compared

and quality improvements, the added benefits of the now

to central inverters, with an at least added 2 percent in power

improved string inverters and how they are changing

output and decreased O&M costs by a 70-90 percent range.

the game in utility-scale PV park development remain

Central inverters have a single controller generating power,

widely unknown to Mexico’s PV stakeholders, including

which looks to make the most of the average power output

developers, EPC companies, O&M technicians, financial

of each module. String inverters include six controllers for

entities and technologists. By showcasing the advantages

every 100kW and do not rely on averages that downgrade

of this technology and delivering on the expectations

performance modules against underperforming ones. At

of each stakeholder, we have closed nearly 800MW of

present value, these advantages outweigh the string inverters’

string inverter sales in Mexico alone. We have permeated

cost. On the O&M side, central inverters require on-hand

the market in such a way that 2019’s renewable energy

stock of spare-parts and readily-available technicians to

projects will start to include engineering that is specific

perform maintenance or repair tasks. Huawei’s process for

to our technology.

supplying string inverters is fully automated, from the moment the product leaves storage to its on-site trials. Huawei also

Q: How is Huawei developing smart PV solar parks?

has an extended network of 27 warehouses for spare parts

A: Virtually all of Huawei’s business lines are focused

across the country. These warehouses are located no more

on the AI revolution. Every new development must be

than three hours away from any primary highway. Our ICT

duly monitored and measured. Huawei specializes in

background spans well over 30 years, installing antennas and

developing chipsets and devices that transform analog

routers in remote locations with no electricity infrastructure

signals into digital signals. To transmit signals in a safe,

available. During that time, we specialized in designing and

reliable and efficient way in real time, Huawei develops

manufacturing inverters to power up telecom infrastructure

top-tier wireless and cabled communication devices, as

in these remote locations. We are transferring that know-

well as data processing servers. By integrating all these

how and R&D to Mexico’s PV solar parks. To date, Huawei

elements into a PV solar park, our string inverters replace

has supplied close to 60GW in inverters globally.

the traditional combiner box of central inverters, where all power generation information is produced, digitalized

Q: How have PV string inverters grown in market share

and stored in an efficient and seamless manner, with an

compared to PV central inverters?

exactitude degree of 0.5 percent.

A: GTM’s 2018 Global PV Inverter and MLPE Landscape Report shows string inverters have taken a larger share of the PV inverter market in recent years, representing 15-23 percent

Huawei is a leading global ICT and network energy solutions

growth per year. 2017 went down as the first year where string

provider. Its solutions, products and services are used in over 170

inverter sales surpassed central inverter sales on a global scale.

countries. Huawei provides new generation string inverters with

In the past, string inverter costs inhibited profitable ROIs;

smart management technology

| VIEW FROM THE TOP

CHIHUAHUA’S BRIGHT PV FUTURE LUIS FLOTTE Director General of Avitar Energía

Q: Why should entities from the industrial, commercial

technologies in our portfolios as these appear in the market

and residential niches turn to Avitar for their PV systems?

if they have proven to outperform those we already provide.

A: PV energy is becoming more accessible given the

Avitar uses these new developments to improve the cost

reduction in PV component costs over the last seven years.

and performance of its technological solutions.

Avitar helps keep the cost of energy competitive by taking 246

advantage of opportunities offered by the exchange rate

Q: What is your view of Chihuahua’s PV potential?

and the development of world-class technologies, such as

A: Three years ago, Chihuahua had just one PV park but

solar panels that optimize the MWh/m ratio. Investment in

today there are around close to 10 that participate in the

PV technology can ensure greater profitability by making

wholesale electricity market. The first solar park, with 15MW,

energy expenditure more cost-efficient. Avitar is very aware

was built during the administration of President Felipe

that savings are key to improving economic performance.

Calderón, under a self-supply scheme and conditioned on

Our services and solutions are designed to help companies

transmission payment. Today, the installed capacity of each

achieve this.

of those solar parks ranges from 35-250MW.

Avitar has the capacity to develop large-scale projects

Avitar’s expertise and Chihuahua’s solar irradiation are a

thanks to its complete distribution network and Chihuahua’s

solid combination to provide attractive energy solutions

favorable solar irradiation that maximizes the performance

for companies. The ROIs are very favorable and Chihuahua

of our panels. The company’s more than 17 years of

has the necessary infrastructure to develop large-scale PV

experience helps make it the ideal partner for those that

solar parks.

want to invest in PV systems and create savings. We support our clients throughout the entire process, from

Q: What are your growth expectations?

finding the right property to delivering turnkey solutions

A: Our growth prospects are encouraging. In terms of

as well as post-sale maintenance services. Moreover, we just

residential and commercial interconnection contracts

signed the two first national contracts to interconnect to

nationwide, the figure for the first half of 2018 grew by

the grid and, therefore, become pioneers in energy trading

150 percent compared to 2017. That is a positive market

operations to CFE outside of the long-term electricity

signal for Avitar to position itself with the best PV system

auctions.

installation warranties available for residential, commercial and utility-scale projects, as well as wholesale transaction

Q: How does Avitar choose the components it uses to

contracts.

install its PV systems? A: Most of the solar panels are designed to have a life

Q: What is your assessment of the removal of the Chinese

cycle of 30 years. To ensure this value, we look for the best

solar panel import tariff?

components with the best possible performance to meet

A: This situation has two implications. On one side, the

the needs of our clients. The brands supplying our inverters,

removal of the tariff is making PV technologies more

for instance, have local representation to directly support

profitable and accessible. On the other, removing tariffs

the client in terms of product warranty. We include new

from solar panels implies a risk of injecting poor-quality panels with no certifications into the market. Ideally, this initiative should be accompanied by an improved

Avitar is a Mexican company based in Chihuahua that installs

regulatory framework to filter poor-quality products

PV systems for the residential, commercial and industrial

and ensure the solar module supply available in Mexico

segments. It selects top-tier PV components and provides

is primarily composed of certified and high-quality

cost-effective financing options

solar panels.

INSIGHT |

FOSTERING LOCAL MANUFACTURING AND INNOVATION SIMON ZHAO President of Solarever

Mexico has the potential to become a manufacturing and

can offer,” he says. “Our leadership, as a solar solutions

technological hub for PV generation but it is still too

provider stems from our capacity to always think for

reliant on natural gas to make that goal a reality, says

our customer. Providing solar modules, inverters and

Simon Zhao, President of Solarever. “In Mexico, the most

distributed generation systems alone is not enough.

relevant energy source in its energy matrix is still natural

Several of our customers are not PV specialists nor

gas,” he says. “This is despite the fact the PV generation

do they include PV experts on their teams.” Solarever

cost per MWh represents 35-40 percent of the overall

provides training, financing and aftersales services to

generation cost of natural gas.” Zhao says not only is PV a

secure the long-term success of Mexico’s PV industry.

much cheaper technology, it is also free of CO2 emissions. “The future of energy relies on PV,” he says.

Solarever is also moving to expand to help households lower their electricity costs. It created Solarinter in 2017

Although the increased penetration of national PV

as an independent brand that is meant to operate as

manufacturing may be limited by the removal of import

a franchise model. The brand helps households that

tariffs applied to solar panels, Zhao is confident this

consume electricity levels for which CFE charges the DAC

new development will not have as great an impact on

rate to decrease their consumption by up to 97 percent.

Mexico’s PV value chain as is expected. “It does not

For the foreseeable future, Solarever wants to focus on

affect us because a sizable inflow of imports was already

distributed generation projects of 500kW of installed

taking place prior to the tariff’s removal,” he says. To

capacity and below. “We can provide our full range of

promote the national industry, Solarever has a PV module

financial, engineering and construction services to this

manufacturing plant in Hidalgo and it is discussing

niche and the process is easier and faster compared to

options with universities to develop a national laboratory

larger projects that require more permitting procedures

to provide innovative products adapted to Mexico’s

and interconnection studies through CENACE and CRE,”

market requirements and specific climate conditions. “We

Zhao says. In addition, Solarever is setting things in

want to be ready to assess new technologies coming

motion to become Mexico’s first stock market-listed PV

into Mexico’s PV market, its possible applications and

company. “It will help develop our business, our sales and

to gauge its potential impact on the country’s PV value

allocate greater investment into technological innovation

chain,” he says. “For us, it is not about taking a larger

and R&D,” he says.

share of the cake. Rather, we want to make sure the cake becomes bigger.”

Zhao is confident that PV is poised to become the most important energy source on a global scale. In Mexico,

Solarever is in talks with government institutions and

this growth is happening exponentially. “We would like

academia to establish the foundations of technological

the next administration to focus its efforts on building

innovation the county needs to strengthen the links

up the country’s manufacturing capacity, developing

of its PV value chain and bolster its PV manufacturing

technological innovation initiatives and supporting local

niche. “By encouraging a long-term vision, fostering

manufacturing facilities and research centers for Mexico’s

local technological studies, component testing and

PV industry to be better positioned on a global scale,”

local innovation of PV components, we can fully unlock

he says. “Mexico’s capacity to board the third energy

Mexico’s potential in terms of solar resources,” Zhao says.

revolution train will rely primarily on its capacity to inject renewable energy into its energy mix.” According

Solarever has been present in Mexico’s PV market since

to him, solar energy development is directly linked

2012. “Our first approach in Mexico was to get acquainted

to the country’s energy security and hopes the new

with the needs of its solar market and match it to what we

administration takes full advantage of this.

247

| INSIGHT

INJECTING LIQUIDITY INTO THE ELECTRICITY MARKET OSCAR BERNAL Director General Mexico of Eosol Energy

248

The increasing aggressiveness showcased by the

Its experience in the European market allowed Eosol to

companies set on winning the country’s long-term

recognize the critical aspect of entering Mexico’s solar

electricity auctions, offering package prices considered

sector as a first-mover and Óscar Bernal can predict

unattainable just a couple of years ago, has limited

how the industry will develop. “Every country placed

the window of opportunity renewable energy offers in

within an advanced energy transition cycle displays the

Mexico for smaller players. In fact, Oscar Bernal, Director

same phases,” he says. “A development window opens,

General Mexico of Eosol Energy, says the lessons from

where the novelty of the sector fosters the emergence

other countries illustrate the prospects on tap in Mexico.

of renewable projects. At a certain point, developments

“France went through a similar process,” he says. “When

saturate the market and the window closes, paving

solar power was given the go-ahead, the Mediterranean

the way to a focus on O&M services. After some years,

was the go-to place to develop PV systems.”

momentum tails off and although developments continue, it is at a slower pace and lower rate.”

He says Eosol’s strategy was focused on locations that had enough potential to offer scale but were not necessarily

The company’s 14-year history abroad and eight-year

the first target for larger developers. “We entered the

experience in Mexico means it can identify the essential

French market in Bordeaux,” he explains. “Locations large

requirements for successful project development. Óscar

developers have not prioritized are our primary target so

Bernal says it is beneficial to work across both development

when they eventually shift their gaze toward them, we can

phases: from design to ready-to-build and from ready-to-

compensate for our size with our advanced development

build to interconnection and commercial operation. “There

portfolio in that particular location.”

is a misunderstanding that obtaining a permit secures all phases of the project but this is not the case,” he says.

Using that logic, the Spanish energy developer was able

“A developer can be awarded construction permits but

to build up a solar portfolio in Durango, starting with Tai

without an activity and operation permit the project will

Durango I in 2013, which was built using full equity. Bernal

not be able to start operations. It can have the indicative

says it was Mexico’s first project to be interconnected to

power plant installation studies required by CENACE but

the National Electricity System. With the exception of

without registering properly as a wholesale electricity

the 23MW Parque Solar Coahuila self-supply project it is

market participant, it will not be able to operate.”

operating, Eosol’s portfolio is focused on Durango, and includes another 67MW in operation at Ánimas I. The

In 2018, Eosol is set to finalize the construction of its 108MW

company won project financing approval from NAFIN

La Trinidad PV plant, launch the construction of the 67MW

for its 108MW La Trinidad PV full merchant project, with

Las Ánimas II and the 80MW of Versalles de las Cuatas

the inauguration scheduled for December 2018. Eosol’s

project. “We will have our hands full with a total portfolio

Las Ánimas II 67MW PV project located in Durango’s

of 200MW in operation prior to the year’s end and with an

Industrial Logistics Center is in the final process of due

additional 150MW under construction,” says Bernal.

diligence undertaken by Bancomext. It is also developing the 80MW PV project of Versalles de las Cuatas. The

Further ahead, Bernal believes the company’s proven O&M

former and the latter are located in the state’s capital.

expertise will be a critical component for its portfolio,

“As far as we know, Durango is the exclusive territory of

together with its asset management services and the

Eosol,” says Bernal. “We are also acting in a technical

representation services for the wholesale electricity

advisory capacity for PV projects under development

market (energy and power balance) and Management

by companies such as ENGIE, Neoen, InterGen and EXI,

of CELs before CENACE and traffic with third parties it

ranging from 60-340MW of installed capacity.”

launched early in 2018.

INSIGHT |

SME RECIPE FOR PV SUCCESS

JOSÉ MARQUINA Director General of Marsam Solar

MIGUEL MARQUINA CFO of Marsam Solar

Despite Mexico’s attractive PV irradiation levels and the

the essence, Miguel says. “CFE’s fragmentation into several

development of a sizable pipeline of utility-scale PV

companies has complicated things in terms of lengthy

projects resulting from the long-term electricity auctions,

internal execution procedures,” he says. “Interconnection

PV projects remain a challenging venture for SMEs looking

processes can prove to be a real headache.” After

to plant their flag in residential, commercial and industrial

normalizing the Electricity Installation Verification Units

projects. “Many companies entered the PV market game but

(UVIE) procedures, he believes the current hurdle for mid-

did not adequately gauge the risks,” says José Marquina,

voltage projects is the solar inspection. “The idea is for

Director General of Marsam Solar. “We were able to lay the

the market to establish price levels but in reality, given the

bedrock of our business with clean competition and client

few companies authorized to undertake inspection work,

satisfaction to foster win-win scenarios in Mexico’s infant

charges are expensive,” he says.

PV market, which is now poised to grow exponentially.” He also believes the variability of the demand and Based on CRE’s latest numbers, more than 40,000

distribution charge related to distributed generation must

distributed generation contracts were signed in 1H17 alone.

change. “It has been modified several times since 2013. It

By 2023, this figure is expected to increase tenfold with an

represents from 25 percent to as much as 40 percent of a

estimated 480,000 contracts. Marsam Solar is poised to

final user’s electricity bill, depending on consumption, and

reap the fruits of its labor. “Several factors impacted our

it cannot be mitigated by the installation of PV modules.”

business, including the US presidential elections in 2016, the Sept. 19 earthquake in Mexico City and the recent variations

Despite challenging odds, Marsam Solar has posted

of the US dollar and Mexican peso exchange rate,” says

constant growth since 2014, with an expected 50 percent

Miguel Marquina, CFO of Marsam Solar. “We were able to

sales increase in 2018 compared to 2017. “Not only was

establish a solid basis for orderly growth despite these

our company able to close a partnership with US-based

unfavorable events.”

heavyweight SunPower, we also obtained a 220kW PV canopy project for a truck assembly plant,” says Miguel.

Marsam Solar is a Mexican company founded in 2012

The company will supply 35 percent of the plant’s energy

and dedicated to the design, integration and installation

consumption, using premium panels. “There are several

of turnkey PV systems. These systems range from 1kWp

industrial facilities across the country that could benefit

to 350kWp covering the residential, commercial and

from such a solution,” he says.

industrial segments. To prepare for the expected surge in distributed generation contracts, the company underwent

Marsam Solar has also been able to close PV system

a re-engineering of its business structure. “A fully horizontal

installations for companies belonging to the paper

organization, systematized by processes instead of

manufacturing and agrobusiness industries. The company

department functions, is a much more dynamic, efficient,

is confident about the future, considering its niche of

flexible and successful structure,” José says. He says

clients is progressively considering factors beyond

Marsam’s re-engineering process breaks the usual paradigm

ROI when switching to solar. “Clients are also looking

of how a Mexican SME works. “We are integrating all the

at fiscal incentives and the benefits of realizing energy

aspects of a PV project, including assessment, site visit,

consumption autonomy,” José says. “We are looking at

sales, logistics and system installation, in a single team and

other strategic partnerships with top-tier technology

making it work seamlessly,” he continues.

companies to offer battery-bank management and peak-shaving solutions as soon as battery costs justify

To ensure the prosperity of Mexico’s PV-powered

their inclusion into either an industrial, commercial or

distributed generation, dynamism in CFE procedures is of

residential PV system.”

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250

VIEW FROM THE TOP |

MORE THAN AN INVERTER, A POWER AND CONTROL SYSTEM HISAYOSHI KOBAYASHI Senior Executive Officer of TMEIC

Q: What makes TMEIC the perfect partner for project

A: For us, excellent quality, reliability and durability are

developers installing PV parks in Mexico?

always set as a minimum standard along with the specific

A: We have a strong and wide expertise developing PV

requirements of our clients. We are aware that a PCS is

inverters. The first PV inverter that we installed outside of

vital and cannot stop working for the proper functioning

Japan, 30 years ago in Arizona, is still working properly. It is

of the PV park, and because of that, we always aim toward

interesting to see how it was actually the panel component of

delivering products that work non-stop. Of course, quality

the system that degraded and had to be changed. Since then,

like that has a price that may be higher at the moment, but

we strongly increased our manufacturing capacity. During

considering all the benefits of our systems the total cost of

2012 we had the capacity to manufacture 100 units per month

ownership sinks, together with the entire LCOE. The higher

and in 2013 this jumped to 400 units. We have provided

benefit for the customer is always at the forefront for us

inverters all over the world to a wide array of projects.

and we aim to meet and even surpass their expectations. That is our culture.

We have seen a staggering amount of renewable energy plants, especially in terms of PV parks, being developed all

Q: How does TMEIC ensure its systems are properly installed

around the world. In that sense, we are happy to see that

to ensure they offer the greatest benefits?

Mexico has jumped on board, especially due to the good

A: We can provide EPC solutions related to the inverters,

solar conditions present in the country. Our interest in Mexico

depending on the client requirements and state of the local

was raised approximately two years ago as we started doing

value chain. In some countries, customers have required

market research in the US and saw the tremendous potential

us to provide EPC services for the entire installation of the

of Mexico, with many plants already installed and many more

inverter, while in others, we simply deliver the system and tell

in the pipeline. I am excited to help Mexico reach its clean

the clients how to connect. It is up to the clients to choose

energy commitments with our high-quality products.

which service to select, and so we are on the same page, we always maintain close communication with them. In that

Q: What makes TMEICâ&#x20AC;&#x2122;s PV inverters the best option in

sense, we think globally but act locally. In Mexico, we have

the industry?

received a purchase order to supply 300MW of inverters. The

A: While for a PV park the panels are the key component

installation will start soon, and we are in charge of supervising

to generate power, we like to consider that the heart of the

the installation, while the actual installation will be done by

park is the inverter, because without an inverter the change

the customer.

from DC to AC cannot happen, so nothing will work in the park. Because of this and the advanced engineering we place

Q: What role will batteries have in the development of PV

behind each of our products we do not call our products

parks in the future?

inverters, but Power and Control System (PCS). Our PCSs do

A: Batteries will be a really important element of the PV

not only offer the traditional inverting capacity of any inverter

parks. We are already starting to work with these systems;

in the market, but also support with grid stability, voltage drop

in Japan we will provide a 100MW battery system along with

and frequency control capabilities, meaning it goes above and

700MW from our PCS. The system will be useful to offer

beyond and truly becomes the most important element of

back-up power during short intervals when power is lost.

the PV park. Our PCSs are also ready to work together with Power Plant Controllers (PPCs), to have full control of the entire state of the PV park.

Toshiba Mitsubishi-Electric Industrial Systems Corporation (TMEIC) specializes in the delivery of creative solutions

Q: How does TMEIC bridge higher CAPEX costs with the

to overcome the variety of challenges faced by industries

long-term benefits of high-quality inverter systems?

throughout the world

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| VIEW FROM THE TOP

FROM IMPORTATIONS TO DEVELOPMENT, ORGANIC GROWTH CONTINUES NICOLĂ S SERRANO Business Development Manager at Risen Energy

Q: What added value is Risen Energy introducing to the

Guanajuato. If we can close these deals soon, we could reach

Mexican energy industry?

almost 85 percent of our target by the end of 2019.

A: Risen Energy has gathered a great deal of experience

252

and knowledge in more mature energy markets, which is

Q: What challenges has Risen faced in Mexico when

being used as leverage to enter new markets and become a

developing PV projects?

stronger player. In 2015, the company started operations in

A: We are greatly interested in purchasing legacy projects

Mexico by importing and commercializing PV modules. Over

and developing small production projects, mainly for self-

the years, we have developed business divisions in project

consumption. One of the legacy projects we purchased

development, EPC services and even project start-up. We

appeared to come with everything needed to start

did this with the objective of becoming more flexible and

construction. In reality, important paperwork related to land

gaining a presence across a wider spectrum of the energy

ownership was missing. It has been extremely difficult to

value chain, therefore creating more value than if it were just

manage this situation with our headquarters in China since

a PV modules manufacturer. Ultimately, this makes us more

our team over there sees signed contracts and permits but

profitable because we are interacting in different aspects of

does not necessarily understand the reality of the industry in

the projects. In Mexico, we have a team of 12 people with

Mexico and the reasons why we had to delay the beginning of

broad experience in the energy market. Since our expertise is

construction. It is unfortunate that the documentary evidence

in the development end, we prefer to leave legal and financing

says one thing but the real story is different.

elements to third parties. Legacy projects are an interesting business model to Q: What is Risen developing at the moment in Mexico,

approach since they require less due diligence in several

and how will these activities help the company reach its

areas, such as interconnection, energy purchase or even

2019 targets?

land ownership. We decided not to go into the long-term

A: We are developing a solar park in Guanajuato. When we

electricity auctions precisely due to the extremely low-priced

started, the projected installed capacity was 275MW but

bids and the problems we foresaw could arise, particularly

due to problems with land owners we had to cut it down

with due diligence activities. This is why we prefer to purchase

to 150MW. With this new installed capacity, we will have the

legacy projects that already have a bilateral contract or a

permits and everything that is needed to start the project by

PPA scheme.

the end of 2018. We expect to start construction in 1Q19. Our objective is to have this PV park up and running by the end

Q: What technology advancements is Risen working on at

of 2019 with a defined commercialization scheme, be it under

a global level?

a PPA, as market participants or as a QSS.

A: While bifacial modules seem to be the buzzword of the moment, we do not manufacture them yet because this

We have an ambitious plan to develop 1GW in Mexico by the

technology does not have a certification for the amount of

end of 2019. Although it will be hard to achieve, we are in

power it produces. It makes no sense to manufacture them

the process of closing three projects with a total capacity

yet because, although they can truly produce more energy,

of 600MW, another of 100MW and the 150MW project in

they cannot be certified and would not be considered in the contracts. It is also clear that batteries are the future. Our headquarters has decided to invest in that area and acquire a

Risen Energy is a listed China-based PV company founded in

company that commercializes batteries to make our projects

1986 that mainly engages in R&D, production and sales of PV

more integral. In terms of production capacity, we are building

grid-connected systems, independent PV systems, LED lights and

a new factory that will allow us to double our production

other solar products

capacity by the end of 2019.

VIEW FROM THE TOP |

US EXPERTISE IN EFFICIENT GENERATION MIX CARLA ORTIZ Business Development Director of RER Energy Group Mexico

Q: Why should the commercial and industrial sectors turn

that it was going to launch a pilot market where it would

to RER Energy Group when shifting to solar power?

change the methodology used to calculate its tariffs. The

A: RER Energy Group provides an integral solution, specialized

methodology was launched but the changes remained

in commercial, industrial and on-site systems. The industrial

uncertain so CFE announced a provisional methodology.

sector in particular is ideal for on-site solutions because the

For those that want long-term PPAs, it has been very difficult

facilities in this sector already have the required space and

to convince clients to enter into a beneficial agreement for

infrastructure. These companies also have high electricity

both the client and the developers. However, we are seeing

consumption but not high enough to be candidates for other

the market stabilizing to somewhat more rational prices.

supply options like PPAs with remote PV parks. With CFE’s

Comparing Mexico with international prices and considering

price volatility, final users can obtain immediate benefits in

installed capacity, I think that we will start to see many more

the range of a 20-40 percent price reduction without having

bilateral PPAs, especially since we are experiencing a lower-

to invest more money. These investments are similar to real-

price auction trend and PPA prices are going up.

estate investments and generate IRR’s of 20-35 percent, but with lower risks. Our on-site solutions are intended to help

Q: What is RER Energy Group’s flagship project in

commercial and industrial businesses maximize their savings

the country?

in energy, knowing that we will provide excellent quality and

A: We have a pipeline of around 90MW of distributed

a product that will last for several decades.

generation. We are working on building around 1-3MW per month. We calculate that by 4Q18 we will have our

Q: How is RER Energy Group providing solutions and

first project ready, with an installed capacity of 500kW,

services to heavy industrial energy users?

and larger ones will be completed in 2019. Our pipeline

A: We provide them with an efficient mix. Usually, when

of projects is for companies in different sectors, including

industries consume a lot of energy, relying solely on a PV

steel manufacturing companies, agribusinesses, processing

on-site solution tends to fall short, since it will require a

industries and metal-mechanics companies. We are

great deal of space to generate enough energy. There

focusing our efforts in the Bajio and northern regions, as

are many combinations that could work, such as PV and

well as the Yucatan peninsula.

combined cycle or CHP. Analyzing their options from a mere solar perspective, companies have three choices.

Q: How do you choose the best components based on a

They can either participate through net metering, wholesale

project’s specificities?

or net billing. Solar energy has the particularity that its

A: The most important factor is obtaining bankable projects,

production curve is similar to the curve of the highest local

especially if a fund is going to participate and is looking

marginal nodal prices. We designed a market strategy

for long-term returns. Quality is critical, which is why we

where companies sell the energy at the point where it is

have only been allowed to use components from Tier 1

the most expensive and buy over the course of the day. This

companies. Given the supply and demand issues and time

way, it can compensate the consumption curve by buying at

constraints, we incorporated several brands. This turned

the lowest points and selling when the price is the highest.

out to be a good move since it helped us develop a solid relationship with several brands showcasing healthy growth.

Q: What is your assessment of the growth of merchant projects and private PPAs? A: The problem that merchant contracts faced was the

RER Energy Group is a US-based solar energy national leader

lack of certainty in the market regarding electricity rates.

that designs, builds, finances and sells cost-efficient and

Between 2015 and early 2018, the market experienced

quality solar energy systems to midsized commercial and

huge volatility with no clear trend. In 2018, CFE announced

nonprofit organizations

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| VIEW FROM THE TOP

DIVERSIFYING FOOTHOLD IN MEXICO’S PV PROJECTS BALTASAR BALAGUER Regional Project Engineering Manager of MASPV ENERGY

254

Q: What makes MASPV ENERGY the ideal partner for PV

solutions. In Mexico, our first PV project, a 1MW PV plant in

developers?

Santa Rosalia, Baja California Sur, was developed in 2012

A: Our primary advantage is the long-standing experience

together with MICROM, part of the CONDUMEX group. We

and expertise MASPV ENERGY amassed through the

were involved in PV projects in Mexico as early as 2010,

projects it has developed and built on a global scale since

opening a local office in 2013. From then on, our project

its inception, including projects located in Spain, Japan,

portfolio developed in the southern region of Mexico,

China, Panama, Brazil, Colombia, Nicaragua, Costa Rica

including Yucatan and Quintana Roo. It primarily consists of

and Mexico. By establishing local offices in some of these

commercial and industrial PV projects. We are also looking

locations, we strengthened our technical muscle to design

to set a foothold in the country’s long-term electricity

tailor-made PV power plants based on the location and

auction projects, either with CFE or with Triple-A IPPs. We

specific client we worked with. The company also provides

are already working on a 125MW PV project in Mexicali and

patented, in-house products, such as our fixMag mounted

another 25MW PV plant in Yucatan.

structure for PV panels, eliminating the need for drilling because of its magnetized fixation technology. It drastically

Q: What is your assessment of Mexico’s PV value chain?

decreases mounting times and involves zero maintenance

A: To strengthen our market foothold in Mexico, MASPV

costs. MASPV ENERGY also developed a lightweight,

ENERGY is drafting cooperation agreements with local

flexible panel with the same power output of its rigid,

electricity companies. We have already signed strategic

heavier competition. The common solar panel weight is

agreements, expanding our presence to Puebla, Queretaro,

23kg, while our product only weighs 8kg. We are looking

Yucatan, Torreon, Tampico and Veracruz. The companies

to showcase both solutions in Mexico’s PV market.

we chose to partner with have 20-30 years of experience in Mexico’s electricity market, yet PV technology is a

Q: What other technological developments are you looking

rather new concept for them. We are contributing with

to showcase in Mexico?

our own expertise, providing training sessions on optimal

A: True to its innovative core, MASPV ENERGY is pulling

dimensioning practices, cost calculation and efficient and

out all the stops in building up its differentiating factors

durable installation methods.

in Mexico’s PV market. Added to our flexible, lightweight modules and our fixMag solution, we also want to

Q: How is MASPV ENERGY adapting to decreasing package

demonstrate the comparative advantages of our PV-

prices as showcased in the long-term electricity auctions?

powered electric vehicle charging stations. We are also

A: The prices showcased in the long-term electricity

planning to introduce a containerized solution with pre-

auctions are tightening the margins of the stakeholders

mounted panels and generators for emergency situations,

involved in each awarded project. MASPV ENERGY

such as power outages.

participated in the first two long-term electricity auctions but did not enter the third. We are looking

Q: What project best illustrates this added value?

to participate with projects located in Yucatan. In our

A: We have a 250MW in Panama that was developed and

particular case, we are diversifying our project pipeline,

built using our latest fixMag and lightweight solar panel

combining utility-scale projects with private PPAs signed with AAA qualified users with intensive energy consumption where our expertise can provide 20-25

MASPV ENERGY is a Hong Kong-based EPC company

percent of savings compared to CFE electricity prices.

specialized in PV technology for the commercial and industrial

We are confident the CELs requirement will propel the

sectors. It has developed an international 500MW portfolio of

industrial and commercial niches, where we want to

projects in Japan, Spain and Latin America

cement a solid foothold.

VIEW FROM THE TOP |

CHINESE MANUFACTURER HITS THE GROUND RUNNING JOSÉ ALCALÁ Regional Director Mexico and Central America of Arctech Solar

Q: What makes Arctech Solar technology the best choice

office. From a broader perspective, Chinese companies

for solar energy development in Mexico?

have a very ambitious vision to expand on a global level.

A: Artech Solar is a Chinese manufacturer and solutions

2018, we expect to position our company among the Top

provider of solar tracking and racking systems for utility

3 manufactures of solar trackers in Mexico, with the goal

and industrial scale projects. Founded in 2009, and with a

of becoming the No. 1 choice by 2019. Currently, we have

wide range of experience worldwide, we decided to start

more than 650MW signed that are in the production phase

operations in Mexico at the end of 2017. China has the most

and 300 of this will be delivered in 2018. Globally, we own

installed solar PV capacity in the world, followed by the

an annual capacity production of 9GW, and the company’s

US, India, Spain and Mexico. With this background, it is

goal is to make Mexico its third-most important market.

a fact that we care about each project, making our best effort, working hand-in-hand with our customers, giving

Q: What financing options can you offer that set you apart

support in any topic related to it and finally not only making

from competitors?

a one-shot service. In the first three markets, we have R&D

A: We have very good relationship with Chinese

departments that have registered more than 50 patents

development banks interested in investing in Latin America,

and here we can say our technology is always looking to

and mostly in Mexico. Additionally, we own collaboration

improve for the added value to our clients. In Mexico, we

agreements with the main manufacturers of PV modules

are making sure we are aligned with local legislations and

and inverters. When our clients ask about financing or

standards and we are eager to establish an R&D department

optimizing a project, we propose solutions from every

here as well.

provider’s point of view. That is how we create the bridge between financial assistance, technical support and EPCs.

Q: Which products specifically are you looking to position

We are also interested in fostering the local market because

in Mexico and why?

our support represents an added value for those companies.

A: In Mexico, the primary targets are large-scale solar PV

This has been done through training sessions related to our

projects. Our Sky Smart and Sky Line are two models of

equipment and by working side-by-side in the development

tracking systems that adapt to a 20 percent north-south

and design stages. The idea is to train the local force, which

slope equivalent to 11.3 degrees, which is convenient for

is why we are collaborating with ASOLMEX and ANES. After

Mexico’s terrain. The main objective is to position this

positioning our company, we want to start a conversation

technology as No. 1. The first one (Sky Smart) was the first

with academia.

tracker specifically designed for bifacial modules. We are the first manufacturer to install PV plants with this system,

Q: What are the main challenges Arctech Solar faces in

having installed 80MW in China, and we want to be the

achieving this goal?

first to do that in Mexico. We are working on a pair of pilot

A: One particular challenge is that we are a young company

projects and negotiating a contract for a plant that will start

that arrived late to the market related to the first tenders

operations at the end of 2Q19.

after its opening. Nevertheless, we are excited to have already obtained 650MW. Our main challenge is being able

Q: What is your priority in terms of growth?

to generate confidence for a new product.

A: We are new entrants in the Mexican industry as we started operations in October 2017 and opened our commercial offices at the beginning of 2018. Nowadays we

Arctech Solar is among the largest global manufacturers and

have developed a technical and site supervision department

suppliers of PV utility-scale, commercial and industrial PV tracking

in the short term. In a short term, we expect to support

and racking systems. With over 13.5GW installed in more than 15

Central America, Colombia and the Caribbean from this

countries,, its technologies focus on improved energy yields

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| VIEW FROM THE TOP

OPTIMIZING MEXICO’S PV DISTRIBUTED GENERATION ANDRÉS FAUTSCH Former Mexico Business Development Director of GCL System Integration

256

Q: How does GCL’s comparative advantages translate into

generation market to develop a footprint in the residential,

added value for its clients?

commercial and industrial markets through well-positioned

A: GCL Power Group is China’s largest IPP. As a corporate

local distributors. We designed a successful commercial

group, our energy portfolio includes combined cycle, wind,

strategy with DM Solar, which has done outstanding work

hydroelectric, nuclear and PV, the latter taking the lion’s

in fostering GCL-brand awareness in Mexico. In DM Solar we

share. GCL Power Group is also strongly positioned in the

found the ideal partner as it has a long-standing trajectory

oil and gas industry, with our largest natural gas deposit

in Mexico’s PV market and a logistical advantage given

in Africa. GCL is vertically integrated and owns the largest

its headquarters are in Guadalajara, with storage facilities

polysilicon market share, allowing for a rigorous selection

in Mexico City and Monterrey. Our products are being

of premium materials for our products and enabling us to

well-received, especially when potential clients become

sell this raw material to all our competitors to manufacture

familiarized with our brand, track record and corporate

their PV modules. In China, our PV portfolio is made up of

size. Based on our projections, our growth in Mexico will be

nearly 6GW of solar farms installed with our products. We

rooted in the commercial and industrial sectors, especially

are solidly established across the value chain, not only as

200-500kW industrial and self-consumption projects,

PV manufacturers but also as power producers. In the eyes

given they are free of interconnection permits and are

of financial entities, this advantage places us as a preferred

competitively sized. Our flagship project in Mexico is a PV

option for financing and inspires investor confidence.

system installation in a shopping mall in Aguascalientes, developed together with Top Energy. Private PPAs with

Q: Why did GCL Power Group turn to Mexico for the next

AAA companies will remain our core focus regarding

chapter of its global expansion?

business development in Mexico for the foreseeable future.

A: In 2016, GCL Power Group was 100 percent focused on the Chinese market. The first step was opening a US office

Q: What new R&D products are you looking to showcase

that same year, followed by Europe, India, Japan and Africa.

in Mexico?

From our standpoint, Mexico can be the launching pad to

A: At the moment, GCL System Integration is fully focused

the rest of Latin America. The decision was more rooted

on developing battery energy storage solutions. Our

in familiarizing ourselves with global markets rather than

primary market for such product is Australia, where we

increasing sales, given the size of the Chinese market. India’s

developed a similar alliance with a local distributor to

market is also considerable, as is the US. But the US has

showcase our energy storage solution. Our batteries are

been subject to tariff-related issues that complicate business

still second-generation, development-wise, so it is still on a

development there, and Latin America is poised to become

trial run. Depending on the results, we will determine if our

one of the most attractive PV markets in the short term.

solution is suitable for replication in other markets. Mexico’s PV market has expressed interest in this solution but in

Q: What market niches in Mexico is GCL System Integration

real terms it is not yet ready, especially for the distributed

focusing on?

generation segment.

A: As market newcomers, our strategy is rooted in developing strategic alliances within the distributed

Q: In your view, what is missing in Mexico to develop a strong PV value chain? A: Mexico has all the links to assemble a competitive PV

GCL System Integration is a unit of GCL Power Group, a global

value chain. For Mexico’s PV sector to prosper, closer

leader in the supply of polysilicon raw materials and electric

attention needs to be paid to social development and

wafers for the solar industry. Its GCL Solar Power subsidiary

raising awareness of the benefits of renewable energy with

develops, operates and manages utility-scale PV projects

local communities.

INSIGHT |

PPAs STRENGTHENING MEXICO’S PV MARKET PHILIPPE ESPOSITO Co-Founder of Dhamma Energy

The political will to advance renewable energy projects is

adding that this allows a more intelligent and consumer-

among the key attractions for solar developers looking at

friendly implementation of solar parks. Weighing the pros

Mexico as a new opportunity, says Philippe Esposito, Co-

and cons, Dhamma Energy made the decision to enter

Founder of Dhamma Energy, a Europe-based developer and

Mexico and develop solar generation projects through PPAs,

operator of large and medium-sized solar parks. “Mexico

both corporate and with CFE. Today, it has plans to enter

has a strong will to develop renewable projects, specifically

the wholesale energy market, to sell its energy surplus. “This

solar,” he says. “When we arrived, some wind farm projects

market is interesting in certain areas of the country where

were already well-advanced but there were only a handful

nodes have a high cost and the wholesale electricity market

of solar parks.”

could boost solar projects,” says Esposito.

That set the stage for solar developers like Dhamma, which

By the end of 2018, the company had established a healthy

entered Mexico in 2013, betting that the country’s top-notch

footprint in the country, with two plants developed in

transmission and distribution network would help overcome

Guanajuato with a combined capacity of 108MW acquired

the technology’s main drawback: intermittency. “Solar’s main

by Prana Power, a 37MW solar project in San Luis Potosi

hurdle is intermittency. But since the country’s network can

sold to Balam Fund and a 130MW project in Sonora sold to

absorb variations, it eliminates the need for hybrid solar-fuel

ENGIE. Additionally, Dhamma Energy is developing a 118MW

generators or batteries in the short term,” Esposito says.

project in Aguascalientes, which was awarded in the third

He cautions, however, that the country may need hybrid

long-term electricity auction to Canadian Solar. “These solar

technologies and storage by 2024 to ensure the stability

parks will provide a total capacity of 275MW (excluding

of its energy system and to balance energy generation with

Aguascalientes) and will be connected to the grid before the

consumption, due to the rapid growth of solar parks that he

end of 2019,” Esposito says. Looking ahead, the company

forecasts. “When these technologies are in place, it will be

is developing over 1.2GW worth of solar projects under the

possible to offer solar power from the first hours after dark.”

new regime laid out by Mexico’s Law of the Energy Industry (LIE). “We are negotiating PPAs for those projects.”

Electricity tariffs, however, were a question mark, especially when Dhamma Energy arrived in Mexico. Although electricity

Dhamma Energy’s offering includes structuring and financing

tariffs were set to climb in the initial stages of the Energy

solar generation projects through its own resources and

Reform – a positive for project developers like Dhamma –

in collaboration with commercial banks and multilateral

the company realized that these tariffs would come down

organizations. According to Esposito, several factors are

if the country succeeded in incorporating more renewable

considered when determining the feasibility of financing

energy sources into its mix. “If we pull together all solar

energy generation projects in Mexico. Aside from the credit

resources in a single area of Mexico, the node price of that

quality of the company hiring the financial product, it looks

area can be reduced. But there is no point in concentrating

at the duration of a PPA and whether the project is signed in

solar generation in the Bajio region to solve electricitytariff

US dollars or Mexican pesos. “It is difficult to finance projects

issues in Sonora,” Esposito says. “The whole country can

that have PPAs of only five or seven years,” says Esposito.

benefit from solar energy.”

For instance, a PPA lasting 10 years or longer makes the financing more feasible. At the same time, a PPA signed in US

Solar differs from thermal energy sources in the sense that

dollars is more easily financed because it mitigates currency

it allows for the planning of installation sources. “While

risks, which is more attractive to investors. “Exports-oriented

thermal sources need access to a natural gas pipeline or

Mexican companies may be interested in buying their energy

a port to be supplied with fuel oil, solar parks need no raw

in US dollars because they sell in US dollars,” he adds. “The

materials once the installation is in place,” Esposito says,

cost of money is lower in those cases.”

257

| INSIGHT

PLANTING THE SEEDS OF PV MERCHANT PROJECTS ALBERT ROJAS CEO and Co-Founder of Centurion Solar

258

Mexico’s long-term electricity auctions have attracted

method, establishing relationships with different finance

so much competition that prices have been pushed to

companies in Mexico,” Rojas says. “We are promoting

rock bottom levels, which is positive for the country’s

the use of lease vehicles and other financing options

energy consumers. But the increasingly thin profit

that made commercial PV projects what they are now

margins stemming from the aggressive package prices

in the US.”

means merchant projects are driven to multiply, says Albert Rojas, CEO and Co-Founder of Centurion Solar.

Equity investors are the primary target of Centurion

“A PV generation project is sold by its bottom line: profit

Solar’s plans, considering it wants to focus solely on

margins,” he says. “There is a lot of money to be made

merchant PV parks outside of the long-term electricity

in generation and sale of kWh in Mexico.” PV module

auctions. “We created a financial model for utility-scale

costs are coming down, as are prices for PV system

solar parks. We are in talks with different investment

components. Installation costs are on the low side, while

entities to showcase our model and the expertise behind

electricity rates are on an upward trend.

it,” he says. Permits, engineering, installation, O&M, are all integrated into this model, Rojas says.

Centurion Solar is among the leading PV installers on the US East Coast. It enjoys an active partnership

While he remains confident that commercial banking

with PV heavyweights SunPower and NRG. “SunPower

will eventually rise to the occasion and capitalize on

manufactures one of the best solar panels in the world,

PV business opportunities, these institutions are still

on a retail and commercial basis. We act as a PV

hesitant to finance merchant projects. Bureaucratic

installation partner,” he says. In NRG’s case, Centurion is

procedures also remain a hurdle for companies looking

an O&M partner, overseeing 27,000 PV installations and

for their financing. But Rojas says the model is starting

completing EPC work for over 4,000 installations so far.

to show results, as Centurion Solar won a bid for the EPC and O&M contracts for a 175MW solar park in Puebla.

Rojas says the decision to install only, rather than offering

“Funding is already flowing,” he says. “It is a great success

design and sale, is key to Centurion’s success. “It is

for Centurion Solar as one of the largest projects it has

impossible to do all three at the same time and be a great

undertaken since its inception.”

company,” he says. “Many companies in the US started that way. But by trying to do everything in-house, they

The company’s goal is to build up the quality of Mexico’s

created chaos for their businesses.”

PV installations. “Through Centurion Solar’s NABCEPcertified team of engineers, our priority is to transfer

The company encountered a rough patch of its own while

the US National Electricity Code standards to Mexico’s

trying to set up shop in Mexico in 2013, as the country’s

PV generation,” Rojas says. He believes the company’s

nascent PV industry stumbled on financing difficulties.

multiple affiliations are a testament to its continuous

“We knocked on the door of many AAA companies,”

quest for quality and durability. “Our US affiliations are

Rojas says. “While initially enthusiastic about the idea of

mainly prerequisites to obtain the necessary certifications

switching to solar, the initial push turned into lukewarm

and licenses to install PV systems,” he says. “The number

support when cost estimations came in.”

of affiliations increased in parallel to our growth.”

In 2017, Centurion Solar decided to adapt and refocus

In addition to putting the finishing touches on its 175MW

its approach. The PV EPC company replicated what it

PV park with a secured investment of US$220 million,

learned from the US model in terms of financing. “We

Centurion Solar is developing a pipeline of PV projects in

reinforced our business strategy with a rethought

Mexico, covering the 5-30MW range of installed capacity.

ROUNDTABLE | Intermittency is a big problem for renewable energies, but instead of implementing hybrid systems with conventional energy sources, would it be feasible to complement wind with solar to mitigate intermittency? Would it be possible for solar peaks to complement times of low wind speeds? Mexico Energy Review asked a panel of experts about the benefits and drawbacks of each technology and the possibility of implementing a fully-renewable energy

WIND VS SOLAR: SWORN ENEMIES OR PERFECT COMPLEMENTS?

generation system.

By design, wind power’s system and favorable wind sites usually do not favor solar energy, with few exceptions. Favorable wind resources are more often associated 259

with mountainous systems or within close proximity to them, as opposed to favorable solar resources, which are common in large plains with poor winds. Technology-wise, they are absolutely compatible as they compensate each other’s intermittency. Solar is among the most stable renewable energy sources in terms of predictability and with new technological developments, the certainty degree is increasingly higher. Wind power systems, to date, do not provide this degree of power output certainty but they can start producing power as early as 4am, compensating solar power’s

OSCAR BERNAL Director General Mexico of Eosol Energy

limitation of producing power at late hours..

The commercial and industrial niches in particular lack the certifications to work with reliable suppliers and high-quality standards in Mexico. Also, investors need to receive the expected yields and other expectations must be met to boost the growth of the market. Within the value chain, there are many companies trying to enter the country but when it comes to logistics certain elements are still missing and we still need certainty regarding the regulatory issue. The more certainty there is, the more these markets will be catalyzed in the long-term. In this market, we redraw our objectives depending on how the Energy Reform is being implemented and how CFE is reacting. We want to build at least 30MW of our distributed generation pipeline

CARLA ORTIZ Business Development Director of RER Energy Group Mexico

in the next year. We have other projects within the small to medium scale but these are not part of our core business.

It is much harder to find a location that meets with all the requirements needed for a solid wind farm project compared to those required for a PV solar park. Wind resources require two to three years of study to gauge attractive wind speed factors. Wind farm investments are higher and developments take longer to build. Capacity factor is another critical variable and it is much higher for wind power than it is for PV power, with the restriction of finding an attractive wind resource location. Under Mexico’s new electricity regulation, the postage stamp scheme with fixed transmission costs is gone. Now, distance matters as costs increase over longer spaces. It is much easier to install a PV solar park directly in the desired node to bypass the transmission risk.

KEVIN GUTIÉRREZ Sales Vice President of Inverter Business at Huawei Mexico

A SER Consultores employee in the field

ENVIRONMENTAL & SOCIAL RESPONSIBILITY

Mexico has one of the best growth projections for the development of clean and renewable energies in the world. At the same time, it is among the most biodiverse countries in the world. In this context, the development of Mexicoâ&#x20AC;&#x2122;s energy industry cannot grow without assurances related to the environment, for

which the public and private sectors need to work hand in hand, a regulatory framework that meets international standards, and corporate social responsibility programs undertaken by companies.

In the pages of this chapter we will analyze the evolution of the Mexican regulatory framework, adoption of international standards without losing productivity, the environmental policies undertaken by the private sector to address the environmental and socio-economic needs of the communities where projects are developed and the projects that could become watersheds for future investment in the country.

261

CHAPTER 10: ENVIRONMENTAL & SOCIAL RESPONSIBILITY 264

ANALYSIS: Between Economic Growth and Sustainability

265

INSIGHT: Luis Vera, V&A

266

SPOTLIGHT: Providing Direction for Community Engagement

268

VIEW FROM THE TOP: Jaime Martínez, ERM

Paola Romero, ERM 263

269

VIEW FROM THE TOP: Soffia Alarcón, Carbon Trust

270

VIEW FROM THE TOP: Victoria Contreras, Conecta Cultura

271

VIEW FROM THE TOP: Luis Ugalde, Integralia Consultores

Sergio Sanmiguel, Integralia Consultores

272

VIEW FROM THE TOP: Julia González, Enûma

273

VIEW FROM THE TOP: Lucía López, Control Risks

274

VIEW FROM THE TOP: Alfonso Caso, AOS Social

276

INSIGHT: Ricardo Medina, ADFERI Consultores Ambientales

277

VIEW FROM THE TOP: Eloy Rodríguez, Acción Social Empresarial

278

VIEW FROM THE TOP: Miguel Puras, SER Consultores

279

INSIGHT: Marinieves García-Manzano, GMI Consulting

280

INSIGHT: Juan Jiménez, DiTerra Consultores Ambientales

281

INSIGHT: Miguel Montañés, Natura Medio Ambiente

282

VIEW FROM THE TOP: Omar Meza, Terranova

283

ROUNDTABLE: How Have New Rules Impacted Community Relations?

| ANALYSIS

BETWEEN ECONOMIC GROWTH AND SUSTAINABILITY The energy industry must overcome the dilemma of balancing economic development against sustainability. In this context, the protection of the environment and social elements where industrial activity takes place have become essential for any project to achieve success

264

The development and growth of Mexico’s energy sector

of all emissions worldwide, hence the importance of an

needs to go hand-in-hand with the protection of the

energy transition that puts the country at the forefront

environment and the social context in which the activity

of clean and renewable energy. The plan is ambitious,

takes place, especially in a territory blessed by nature

as it represents a radical change of mentality regarding

and which bases a significant part of its GDP on the

the energy future, as indicated in the Energy Reform

management of natural resources. With its goal of achieving

implemented during the administration of Enrique Peña

the objectives set out in the Paris Agreements, Mexico is

Nieto and the Energy Transition Law approved in 2015.

immersed in an energy transition whose purpose is to find

Now, the ball is in the court of the private sector, while

the ideal balance between economic development and

the application of the rule of law, key to the legal security

sustainability, in addition to complying with the plan to

necessary for the continuity of foreign investment and

reduce 45 percent of CO2 emissions internationally.

international competitiveness, continues to fall on the shoulders of the government. “When a company involved

In this context, the regulatory framework and the application

in the energy industry wants to start a new project, it is

of laws, especially this last point, seem essential, in

required by law to present a social impact assessment of

addition to the coexistence of the energy industry with the

the project, based on the Ministry of Energy’s guideline,”

environment in which it is developed. This is what Victoria

says Eloy Rodríguez, Director General of Acción Social

Contreras, Director General of Conecta Cultura, a Mexican

Empresarial (ACCSE). “Prevention and planning are key to

consultancy dedicated to building bridges between the

the success of a project where social and environmental

government, energy companies and the socio-economic

responsibility must go hand in hand with this process.”

environments in which they develop their activity, believes. “An indigenous community can live without the developers’

The Ministry of Energy continues to take steps to achieve

profit but a developer would not be able to operate without

the objectives set out in Paris and the Energy Reform,

the consent of the indigenous community,” Contreras says.

especially when it comes to standardizing processes at

Ricardo Medina, General Director of ADFERI Consultores

an international level. “The Administrative Dispositions

Ambientales, agrees, especially with the management

on Social Impact Assessments directly responds to the

carried out in this regard by the Safety, Energy and

dire need to strictly adhere to international best practices

Environment Agency (ASEA). “Under this convention, socio-

regarding these assessments, standardizing the services

economic and cultural perspectives are considered as social

of the social consulting sector,” says Marinieves García-

impacts go hand in hand with environmental assessments.”

Manzano, Founding Partner at GMI Consulting. “Some kinks need to be worked out, such as how to proceed

However, the application of these standards would be

with geothermal projects and their exploration timeline,

impossible without the implementation of communication

but in general terms, the level of the provisions is highly

channels based on transparency and pedagogy with

satisfactory in addressing the issues that social impact

respect to the inhabitants of the communities where the

assessments suffered from in the past.”

energy projects will be carried out. “A repeated error made by project developers is to arrive to a community

The path followed by all the segments involved in Mexico’s

and expect the project to be developed just because they

energy sector has left a halo of optimism over the industry

have a permit granted by the government,” says Miguel

since the beginning of the Energy Reform. But the

Montañés, Director of Natura Medio Ambiente. “For a

advancements made in 2018 face uncertainty. President

project to materialize, it is all about creating a positive

López Obrador incorporated his idea of consolidating the

communications channel with communities where both

fossil fuel sector in his energy plan for the next six years

parties can truly be listened to and understood.”

and suspended the last clean energy auction. Most insiders agree that the future of clean and renewable energy in

According to the World Resources Institute, Mexico ranks

Mexico is thus facing a watershed that could define the

10 in terms of highest emissions, generating 1.68 percent

country’s future for decades to come.

INSIGHT |

RECONCILING SOCIAL AND ENVIRONMENTAL PROTECTION WITH BUSINESS DEVELOPMENT LUIS VERA Former Partner at V&A

A first reading of the energy industry’s regulatory framework

includes two additional development phases that will add

suggests that environmental impact assessments should be

another 150MW of installed capacity. “Each development

prioritized, followed by indigenous consultations and finally,

stage required a different assessment, including social and

the social impact assessment. But Luis Vera, Former Partner

environmental impact assessments,” says Vera. Based on the

at socio-environmental law firm V&A, says this is not always

firm’s extensive work dealing with social and environmental

the case. “The logic behind this established timeline is at

issues, Vera believes it is essential for developers to be

odds with the actual fieldwork,” he says. “Environmental

aware of the importance of these steps. “Investors must

impact assessments have looser time frames and we use

become increasingly aware that nontechnical issues have a

this time to simultaneously cover the social aspects that

prominent social component,” he says. “Anthropologists and

overlap with environmental issues.” This means the firm

sociologists must be involved to build lasting relationships

can get a sneak peek at social insights such as indigenous

with local communities.”

presence or sensitive environmental areas prior to carrying out the consultation process.

When presenting its social and environmental impact assessments, V&A adds a chapter that takes into account

Compliance with the social and environmental requirements

the project location’s needs and regional development

when developing a large-scale energy project can prove

goals. “By doing so, our clients obtain increased certainty

challenging, especially considering the regulatory

on where to focus their investment, not only to grow

framework remains largely in the draft stage. Duplication

the company’s own business but also to contribute to

of responsibilities within government agencies does

the long-term regional development of the project’s

little to solve the problem, says Vera. “SEMARNAT and

location,” Vera says. The firm is also actively involved in

ASEA developed two different standards of the same

the public side of the social and environmental equation.

regulatory framework due to their respective mandates,”

“One of our partners is developing an algorithm together

he says. “Meanwhile, the Ministry of Energy’s social impact

with the Ministry of Energy so it can be more selective

guidelines are still on the drafting table, meaning social

in the projects it reviews, shifting from anecdotal to

impact assessments lack an established reference.”

standardized procedures.”

In 2017, the firm obtained 43 authorized social impact

In the near term, Vera worries litigation services will be

assessments, with 24 more in the pipeline for 2018. Using

more in demand due to the way the first procurements

this experience, V&A established a series of precedents

and allotments were carried out after the reform passed,

related to energy law interpretation and how environmental

both in the oil and gas licensing rounds and the long-

legislation applies to both regulated and nonregulated

term electricity auctions. “ASEA’s and SEMARNAT’s early

users. “V&A showcased consistency in all its assessments

heavy workload and understaffed agencies mean some

and legal interpretation to help decision-makers streamline

shortcuts were taken, such as hastily granted authorizations

their authorization and permitting processes,” he says. “Our

and procedures, casting doubt over the legality of a few

work also generates certainty in evaluation by financial

projects,” Vera explains.

entities.” From its outset, V&A established itself as a strategy firm Oak Creek’s Tres Mesas wind farm in Tamaulipas is among

rather than a litigation firm, given effective strategies

the large-scale energy projects V&A was involved in. It

eliminate the potential for later litigation, but that is

started as a pilot project that soon extended to a first and

changing. “We prioritized creativity over legal defense. But

second development phase totaling 148MW of installed

considering the coming scenario, we are also developing a

capacity, operating since May 2017. The project now

specialized litigation department,” says Vera.

265

| SPOTLIGHT

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PROVIDING DIRECTION FOR COMMUNITY ENGAGEMENT The social impact assessment is an essential stage during the preparation and execution of investment projects. It provides the necessary information to evaluate and manage potential impacts and risks, fortify social acceptance and project support within involved communities. V&A has incorporated this assessment alongside its project management processes with the objective of risk prevention, better decision-making and permanent benefits. As well as national norms, international legal instruments and best practices are also considered. Even before the Energy Reform, V&A has drafted a myriad of social studies, due diligence assessments, environmental and social feasibility studies and socioeconomic, indigenous and social impact studies. The company has also participated in verifying execution plans for specific programs in ports, tourism, transport, communications, mining, electricity and hydrocarbons. This has resulted in a valuable experience that position V&A as the leading firm in the application of best practices within all kinds of social impact assessments. The aforementioned experience spans different regions of the country. This has led to an integral vision about the most pressing social issues at each site, in-depth insights into each kind of project and the most convenient strategies to achieve common agreements with communities. This reduces considerably the probability of delays in approvals, unexpected expenses related to claims and legal matters as well as losses for reputation detriments for participating companies. A very good example that showcases the acquired experience by V&A during the execution of environmental impact studies is this detailed knowledge of communities in each region. In this sense, the most complex projects from a social standpoint take place in the south of Mexico. With a strong vision of nature and its relationship to the human being, communities are more protective of their natural resources. On the contrary, the north and central regions of the country hold a much more instrumental vision, where nature is a resource provider. In the southern region, V&A has concentrated its efforts in the design of measures that avoid adverse impacts to the resources that communities consider important. In the northern region, similar measures have been taken into consideration but with a major focus on economic revenue. In every case, success has been achieved with a vision of respect for human rights and participation of the involved communities.

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COMPREHENSIVE STAKEHOLDER MAPPING AND NEW TECHNOLOGIES FOR PROJECT SUCCESS JAIME MARTÍNEZ Business Development Director of ERM

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PAOLA ROMERO Impact Assessment and Power Sector Partner Lead at ERM

Q: Why is ERM the perfect ally for renewable project

balance so the benefits provided by the project outweigh

developers?

its impacts. Usually, the negative aspects of projects

PR: Our primary differentiator is the swiftness with

are overwhelmingly focused on, without sufficiently

which we can handle the permitting processes that

highlighting the benefits, which can include regional

project developers require to launch their projects.

development, employment, fostering a clean energy

Once the pre-feasibility studies are done and both

matrix and relying on more efficient power producing

social and environmental risks are mapped out, we

technologies.

focus on mitigation measures at the early stages of the project, ensuring successful project development

PR: Communication is key. Communities linked to the

on every stage. A developer’s priority is to obtain the

project should be the first to fully know the details of

relevant permits to start the construction phase. By the

the project and unfounded concerns or deeply rooted

nature of Mexico’s electricity industry, the deadlines and

misinformation should be addressed. Highlighting the

delivery dates for power producing projects are preset,

virtues of a renewable energy project is an important

meaning it is a developer’s first concern to comply with

part of the work.

aggressive timelines. We can ensure developers obtain the expected results in the allotted time frame. We can

Q : Wh at re n ewa b l e e n e rg y p ro j e c t i n M ex i co

also communicate with the involved relevant authorities

demonstrates ERM’s added value to potential clients?

in an effective way during project evaluation process.

JM: ERM has been involved in a couple of successful wind

ERM works with regulators to ensure the project will not

farm projects in Tamaulipas. Our role was centered on

hinder the area’s natural resource equilibrium and that it

verifying that the environmental and social management of

is compatible with the project zone’s land use.

those projects was solid, as the financial entities involved wanted to ensure risks remained at a minimum. Through

JM: ERM’s added value is its capacity to assist

elaborate preparatory work with the project sponsors and

developers in managing and mitigating nontechnical

the sharing of valuable information, all parties actively

social, environmental and financial risks relating to their

supported the project to ensure a positive end result.

particular projects. Time is a project’s worst enemy, and delays as small as 24 hours can generate significant

One of the prevalent challenges for this type of work in

additional costs.

the preliminary phases consists of effectively identifying all relevant parties through detailed and comprehensive

Q: How does ERM turn social and environmental

stakeholder mapping processes and addressing

assessments from a hurdle to a strength?

their concerns.

JM: Despite their contribution to cleaner generation, developing renewable energy projects undoubtedly

PR: Coahuila also comes to mind. A wind farm project

carries environmental and social impacts, particularly

adjacent to an Important Bird Conservation Area (AICA)

considering the amount of land required for utility-scale

caused great concern. During the preliminary stages of

projects. In the end, what matters is reaching a positive

the project, we identified the concerned stakeholders and delved into the AICA’s characteristics to illustrate its relevance and launch negotiations among all interested

Environmental Resources Management (ERM) is a leading

parties. As discussions reached an end, it was agreed

provider of environmental, health, safety, risk, social consulting

that the project was to establish a buffer zone between

and sustainability related services. It has more than 160 offices

the project and the AICA, securing the wind farm’s

in over 40 countries, employing more than 4,500 professionals

construction.

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REDUCING MEXICO’S CARBON FOOTPRINT SOFFIA ALARCÓN Director Mexico of Carbon Trust

Q: In what activities does Carbon Trust apply its

we realized there were not too many instruments these

consultancy services?

entities could use for this purpose. It took us a year and a

A: Carbon Trust has a long track record of working with

half to design a scheme in which banks were completely

various industries around the world, including the electricity

sure they would be paid by the state because of the

industry. For a long time, in the UK we have focused on

existence of a fund that acts as a guarantee. In doing so,

environmental responsibility which, over the past few years

states do not have to use the Ministry of Finance as an

has been a target area for companies. Because that area

intermediary anymore.

is now relatively mature, the environmental component has become more straightforward as there are various

Q: How would you rate the advancement of the carbon

methodologies and standards that can be employed

market in Mexico?

nowadays. Our job is to evaluate our clients’ environmental-

A: The carbon market has two channels: the voluntary and

related data, identify a baseline and propose methodologies

the compliance market. The voluntary market is already

to motivate them to make their processes greener.

established, but the main barrier is that there is no demand for carbon credits. A good example of this market is the

Q: What is your strategy while working with energy-related

aviation sector: when traveling by airplane, money can be

companies?

donated for this purpose. Airlines place this profit in a fund

A: There are two different points of view when considering

with the objective of buying offsets for various projects.

environmental and social responsibility. One is how these aspects are managed internally within the company to

The compliance market was enacted recently with the

comply with regulation, and the other relies on how the

amendment to the General Climate Change Law that

company invests externally in its projects. One of Carbon

establishes the implementation of a carbon market. It

Trust’s main activities is to help companies become qualified

works under the same concepts as the EU Emissions

suppliers by taking the lead on environmental responsibility

Trading System (ETS) or the Cap-and-Trade (C&T) in

via renewable energy generation. To accomplish its goal,

California. With this compliance market, the creation of a

we first identify if our client can invest in renewable energy

cap economy-wide will oblige companies to reduce their

technologies. The next step is to determine the best financial

GHG emissions by providing market-based instruments or

mechanism for the project and explore if the company is

boosting innovation to achieve GHG emissions. In order to

eligible to issue green bonds, a CKD, a SERPI or any other

comply with the ETS/C&T, companies are obliged to submit

relevant financial instrument. As companies usually work

annually a GHG inventory report to SEMARNAT under the

with long-term planning schemes, it becomes difficult to

National Emissions Register framework. This regulation is

disrupt their strategy in the medium or short terms.

currently being modified to make sure the amendments of the General Climate Change Law are properly incorporated.

Q: What hurdles has Carbon Trust encountered while working

The pilot market starts at the beginning of January 2019

with the Ministry of Finance and how have you solved them?

and will last for three years. The full implementation of the

A: Carbon Trust works closely with municipalities and state

carbon market in accordance with the Climate Change Law

governments in Mexico. These entities are not eligible to

starts in 2021.

gather funds from international sources if they do not go through the Ministry of Finance first. This process is complicated as some states do not have the required

Carbon Trust is an independent partner of leading global

qualifications for applying to these funds. Banks often see

organizations, helping them contribute to and benefit from a more

these entities as a considerable risk. Two years ago, while

sustainable future through carbon reduction, resource efficiency

facilitating this financing process for a state government,

strategies and commercializing low-carbon technologies

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CULTURAL TRANSLATION DONE RIGHT VICTORIA CONTRERAS Former Director General of Conecta Cultura

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Q: What are Conecta Cultura’s main services and

considered in a serious, professional and responsible way,

contributions to the Mexican energy industry?

it affects the economic feasibility of the projects directly.

A: Conecta Cultura understands the cultural and social

Looking at the bigger picture, this situation is hurting

phenomena present in a specific territory. We address

foreign investment in the country as many developers

culture as a manifestation derived from cultural expression

prefer to abandon their projects due to social conflicts or

and even the contradictions that can take place within it.

misunderstandings. The worst scenario is to have a lack

Our job is to construct a dialogue between the project

of economic deployment in one of the most productive

developers and the community, as we facilitate an

sectors for investment in Mexico.

understanding of what is happening in the political, social and cultural landscapes of each area in which we work. Both

Q: How does Conecta Cultura address the construction

developers and communities have completely different

of communication channels between the different

values and goals and the learning and communication

stakeholders involved in energy-related projects?

curves between both parties tend to be slow. This becomes

A: The developer and the community are not the only

even more complicated when working with international

parties involved in the equation. Mexico must deal with

companies, many of which have entered Mexico since the

political structures that are outdated. The Catholic Church

market’s liberalization. When a developer overlooks these

is still a relevant and powerful figure within communities.

situations as a relevant issue, project implementation can

There is also the involvement of civil organizations and

become problematic. As companies develop economic

political groups. During our research process, we approach

feasibility studies, they also need to invest in social

every stakeholder involved and map them. Then, we define

feasibility studies. There would not be any energy-related

which players have direct and indirect influence and start

project without conflict solution schemes that can be

a dialog with each one. Another important element is

applied by professionals in the field.

the way communities must modify the management of their relationship with project developers. Both parties

Q: Why is it important to develop social impact studies

have strong negative stereotypes of each other and

while executing a project?

this perception needs to change. These situations are

A: A clear example is that an indigenous community can live

unpredictable and that is why we tailor our services to each

without the developers’ profit but a developer would not

project. Ultimately, we are cultural translators.

be able to operate without the consent of the indigenous community. This is supported by the International Labor

Q: What benefits can be achieved by executing a project

Organization’s Convention No. 169 related to indigenous

with a social approach?

consultation. If companies carried out a proper social

A: When collaborating, shared benefits can be achieved

impact study at the beginning of negotiations, their

between the developer and the community. First, developers

approach toward communities would be different. In 2017,

will be able to build projects on time and on budget.

56 infrastructure projects were stopped because they were

Second, these shared benefits could aim to strengthen the

rejected by communities. These blockades can last between

productive capabilities of the communities. By enabling

700 and 1,000 days in Mexico. If social feasibility is not

a recruitment process in their productive activities, we can pursue an economic income for the community. And third, communities can project themselves as more

Conecta Cultura is a Mexican company founded in 2010 that

autonomous and mature after creating positive consensus

offers consultancy services to energy-related companies as

with the private sector. This is how Conecta Cultura builds

a way to bridge communication gaps with local groups of

economic and social development over time, benefiting

interest and communities where energy projects take place

both developers and communities simultaneously.

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LINKING CORPORATIONS, REGULATORS AND LOCAL COMMUNITIES SERGIO SANMIGUEL Social Impact Director of Integralia Consultores

LUIS UGALDE Director General of Integralia Consultores

Q: Why should renewable energy project developers rely on

this issue is relevant. Our local network includes academics,

Integralia Consultores’ social impact assessment services?

opinion leaders and public officials.

SS: Integralia Social, the social impact assessment division of Integralia Consultores, was created when the

Q: How does Integralia Consultores deploy an effective

Energy Reform was enacted in 2013. Since then, we have

stakeholder-mapping mechanism?

undertaken social impact assessments for renewable energy

LU: Our follow-up stakeholder-mapping mechanism goes as

generation projects across all technologies and midstream

far back as the launch of the electoral process for the 2018

projects in the oil and gas industry, among others. From this

presidential, legislative and local government elections.

extensive track record, we have developed solid expertise

Throughout this process, we published a series of precise

and in-house methodologies. Our added value lies in our

reports concerning candidates, pre-candidates, electoral

in-depth fieldwork with the communities where projects

showdowns and campaigns. We also published equally

are being developed. Our on-site team includes specialized

thorough studies covering both local and federal congress

anthropologists, sociologists and other experts in related

compositions. All these reports are complemented by

disciplines. Social impact assessments, at their core, are

fieldwork, including discussions with political players from

risk management tools. This tool should not be seen as

the country’s different localities and qualitative analyses.

another permitting procedure by project developers. It is a tool that helps them to get the lay of the land and sensitizes

SS: In the case of specific projects or energy-related issues,

them to local community perceptions of a project and

we perform a two-pronged mapping. Research on one side

the company developing it. Mexico is made up of diverse

includes a stakeholders’ Who’s Who. On the other side, we

communities, cultures, ethnicities and perceptions. Our

produce qualitative tools such as anthropological analysis,

tools can assist in overcoming the project’s handicap of

in-depth interviews, focus groups or population census. Our

generating negative perceptions from the outset. It revolves

fieldwork allows us to establish how key relationships and

around mitigating potential impacts through constructive

links among each stakeholder might affect the project’s

dialogue and collaborative participation and avoiding the

development.

imposition of unilateral positions. We are the impartial bridge between the industry’s regulator, local communities

Q: How is Integralia Consultores consolidating itself as the

and corporations.

reference firm for social impact assessments? LU: We first need to understand what is going to happen with

Q: How is Integralia Consultores building bridges between

Mexico’s energy model under President López Obrador. He

corporations and local governments?

announced that PEMEX will recover its crude oil production

LU: We are closely monitoring the new contingent of

activities in marginal onshore and shallow-water fields.

municipal and state officials. We are also following up on

Traditionally, the NOC has had a direct contractor role and

new developments in local congresses. Twenty-seven of the

is now taking back a direct role in negotiating with the

32 state congresses were renewed parallel to the presidential

communities. This represents a risk of going back to a model

election. In 19 of those, President López Obrador’s party,

where PEMEX, the state government and the mayor directly

MORENAhas a majority. We are keeping an eye on new

negotiate all aspects of the project.

legislations and regulations at a municipal level. SS: Based on our tenured, local, boots-on-the-ground

Integralia Consultores is a consulting firm specialized in

knowledge of local communities, we outlined the new socio-

legislative and political intelligence, social impact assessments,

political panorama for project developers. This includes

accountability

laying out security issues in the states and locations where

professionalization services and strategic communication

and

anti-corruption

practices,

training

and

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EXTENDED NETWORK OF COLLABORATORS FOR PROJECT SUCCESS JULIA GONZÁLEZ COO of Enûma

Q: Why should project developers partner with Enûma to

communication mechanisms. Enûma is active in presenting

ensure the success of their projects?

these complexities to its clients when working with local

A: Our operation is centered in Mexico City but we have

governments while at the same time sharing these issues

built a network of local collaborators. We do not pretend

with the federal government to design a proper solution.

to know every corner of the country, but we work with 272

local specialists who can understand local dynamics and

Q: How does Enûma provide effective stakeholder

provide us with valuable insights. To guarantee the success

mapping services?

of any project, it is necessary to recognize and identify its

A: The primary criteria is identifying the parties that will be

specific social aspects. We can assist in reinforcing that

affected by the project’s development. The first steps of

and turn a specific project location into a place where it is

effective stakeholder mapping are outlined by the IFC. The

possible to operate.

importance of identifying these parties prior to undertaking any field work should not be minimized. Enûma starts with

Q: How does Enûma select its alliances?

open sources, combined with its network of local allies

A: Prior to building any type of alliance, Enûma undergoes

to identify the stakeholders within the influence areas of

a thorough reputational search regarding the person

each project.

or company with which it wants to partner up. This pre-selection process is particularly critical, especially

Q: How does Enûma capitalize on technology to provide

considering foreign companies have high compliance

better services?

standards. In parallel with the Federal Law to Prevent and

A: Based on Enûma’s extensive field work, we are looking

Identify Operations with Resources of Illegal Origin, we

to capitalize on technologies that enable us to create well-

mandate comprehensive background checks not only for

provisioned databases that can be efficiently managed.

the people we work with but also the companies we are

For instance, we are pioneering efforts to work closely with

looking to forge alliances with.

ports across the country, which provides us a clear vision of Mexico’s fishing cooperatives, their specific needs and

Q: How does Enûma provide a constructive interaction

their leadership. To our knowledge, this database is one

platform between corporations and local communities?

of a kind, considering fishing licenses are not available

A: One of the primary barriers to entry, beyond issues

to the general public. We have also consolidated land

of cooperation among the three levels of government,

tenure, property rights, local and federal environmental

are the different agencies we must interact with at the

areas databases.

federal level. Companies wanting to operate in Mexico find they must deal with different prerequisites depending

Q: How is Enûma able to work on technologically

on the authority and these authorities are not necessarily

diverse projects?

communicative or coordinated. Our extensive field work

A: While the projects we work on can use different

from the evaluations we have participated in has shown

technologies, they all have the same legal basis. The

that local governments are often sidelined when the federal

Ministry of Energy has yet to publish formats to undertake

government enacts regulations, indicating a lack of efficient

social impact assessments. To be best prepared against this procedural void, Enûma’s multidisciplinary team, which includes lawyers, philosophers, economists, engineers

impact

and communications experts, can sit with its clients

consultancy firm founded in 2015 and based in Mexico City. It

and comprehensively dissect the prospective project to

offers a range of services that extend beyond legal frameworks

contemplate its inherent variables, goals and reach of

to offer a higher added value to its customers

each project.

Enûma is

social

development

and

strategic

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MANAGING SECURITY RISKS IN REMOTE LOCATIONS LUCÍA LÓPEZ Senior Consultant at Control Risks

Q: What is Control Risks’ primary contribution to Mexico’s

management plan for operations in Mexico and afterward

energy transition?

we generate specific plans for each of their locations and

A: Control Risks helps developers manage the inherent risks

for every project.

of operating in Mexico. Managing these risks effectively prevents delays in the development of renewable energy

Q: What would be your advice to project developers?

projects and helps protect the reputations of the involved

A: Risk management of social issues, security and

companies and stakeholders. We evaluate specific risks

corruption are not usually a priority for large-scale project

related to the precise location where a project will operate.

developers. Even though there are many things to consider,

This evaluation can be done either before the long-term

risk management should be given serious consideration.

electricity auction process takes place or during the

Beyond the production of energy and the costs related

construction stage. In Mexico, when we talk about risks

to the projects, these companies also have to protect

we refer primarily to security, given the deterioration in

their employees. Another important issue to take into

the last 10 years and the complexity of organized criminal

account is that, as the new presidency unfolds, we will see

organizations. Locations with good wind and solar potential

several changes that will further complicate the situation

tend to be in rural areas where we often find overlap

in some locations such as Chihuahua and Tamaulipas. We

between organized crime groups and common criminals.

anticipate that stability will bring more favorable project

Another risk element we analyze concerns the political

environments to some locations while difficulties will prevail

environment, corruption and the labor unions companies

in other parts of the country. Companies need to research

must interact with. The last element of risk to consider

what this transition process will mean for the locations in

is social, for which we deploy research and stakeholder

which they operate and what this change of government

mapping practices.

entails for them.

Q: What local project could best showcase Control Risks’

Q: What technological tools does Control Risks use to

added value?

deliver its services?

A: Control Risks is a global company. In Mexico, most of

A: When it comes to technology solutions, our main tool is

our clients are developing projects in complex locations

our monitoring center that lets us visualize and track critical

such as Tamaulipas. The added value we provide for these

factors. We have also developed an app to track people and

companies is the combination of analysis and research,

verify their location. In the event of a major incident, we set

with work from our physical and technical security experts.

in motion a previously established crisis management plan.

This includes the security design of PV parks, how to

We can equip vehicle fleets with panic buttons that alert

protect on-site equipment and the design of emergency

us to any dangerous situation that users might encounter.

protocols. We craft specific plans related to operations,

The monitoring center is constantly retrieving information

such as the logistics of moving panels from a port to the

from social media and our on-the-ground network, to

site, or how to transport the plants’ engineers. We provide

detect if there are any incidents in the areas where our

tactical information, rather than just an overview of the

clients operate. If something happens, we take a proactive

country’s different security variables. Should our clients

approach to notifying our clients.

face an extortion or kidnapping case, we can manage the situation. We also take charge of risk management, not only in security issues, but also for reputational

Control Risks is an independent and global risk consultancy

crises or incidents that lead to a loss of production. For

specialized in helping organizations manage political, integrity

companies that have a pipeline of projects in different

and security risks in complex environments, and building

locations, we integrate their assets into a single risk-

organizations that are secure, compliant and resilient

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SOCIAL IMPACT AS PROJECT SEED CAPITAL ALFONSO CASO Managing Partner at AOS Social

Q: How does AOS Social (AOS) contribute to strengthening

was complemented by financing from the municipal

the social fabric of renewable energy projects?

and state government as well as the workforce from

A: During 4Q17 and the first half of 2018, we saw increased

the community. This shared-benefits financing structure

activity within the social component of renewable energy

created a considerable multiplier effect.

projects. As a social consulting firm, we successfully 274

provided accompaniment services for four Free, Previous

Q: How are the interactions between corporations and local

and Informed Consent indigenous consultations: (CLPI) two

communities changing based on social and environmental

for wind farm projects, a PV park and one that combines a

regulations?

wind farm and a solar energy project.

A: The most important challenge is to demonstrate shared benefits, that is, that communities can obtain resources

Early community engagement has proved to be a key

to improve the situation of their communities, undertake

element to develop long-term successful investments.

productive projects and improve their levels of education

Renewable energy projects will transform not only the

and health. For companies a harmonious coexistence is

sources of energy supply but also bolster economic and

the premise for adequate operation in the medium and

social growth in rural communities based on shared benefits

long terms.

programs. As a part of this contirbution, for Licensing Rounds 2 and 3 of oil contractual areas we are preparing

Companies must focus their social management plans with

social analysis works to define if these projects will need

a sense of investment rather than spending, because in the

indigenous consultation. AOS has undertaken the largest

end a community that thrives is an ally for the operation

number of CPLI consultations for the energy industry in

of the project. On the other hand, it is the communities

Mexico to provide the social support developers need.

themselves that establish the needs to be met and the projects to be developed, making it possible to diversify

Q: Is there a benchmark project in Mexico that serves as a

their sources of income. For the first time there is the

reference for environmental and social impact assessment?

possibility of long-term planning, since the resources

A: Mexico’s Energy Reform is still in an early stage from a

established in the social management plans can be

project development standpoint. The investment cycle of

designed and committed over more than 20 years.

the country’s energy projects is just starting to generate energy and fulfill their social commitments. The cycle

Q: What is your assessment of the Ministry of Energy’s

begins with the project’s social impact assessment (EVIS),

Social Impact Administrative Dispositions published in

from which the social management plan is drafted. The next

June 2018?

step is the management plan execution. Few projects have

A: The most relevant aspect of these dispositions is

reached this last stage. In the projects we have counselled

their very publication, delivering a legal framework that

we are executing the management plan. As an example,

provides certainty. The Ministry of Energy went the extra

in a PV project in Jalisco the seed capital provided by the

mile to ensure all stakeholders could provide feedback on

company represented 10-30 percent of the budget invested

what these dispositions had to include. The final version

in social community programs. The sponsor’s investment

published in the Official Federal Journal effectively reflects these opinions, including ours. In the end, social consulting requires a professional team, with a specific methodology

AOS Social (AOS) specializes in designing strategic solutions

and no room for improvisation. For instance, the dispositions

for Mexico’s energy market. Its services include technical

recognize the most important element of social analysis:

feasibility, social engineering, CSR, land tenure, follow-up

the recognition of human rights and the importance of

negotiation and assessment and project management

field work to identify the social impacts that the projects

will generate on the community’s behavior. The EVIS are

locate a community or location, this database provides

rooted in in-depth community knowledge and a willingness

a complete, 360-degree overview. We complement and

to listen to concerns. Gender and human rights are also

update this database through field work as some variables

at the center of developing the EVIS, reinforcing equality

are not homogenous and correspond to different years.

factors. Equally important, social management plans are

We also have an in-house film production division to create

now required to have an assigned budget, fostering greater

video broadcasts and awareness campaigns for, and with,

resource allocation efforts to build shared benefits within

the communities, in both Spanish and local dialects. The

the project and strengthen its positive impact.

new change in administration is a fundamental shift for the country. President Andrés Manuel López Obrador

Q: How is AOS updating its stakeholder mapping with the

was elected with the highest voter share in our modern

upcoming administration?

history. This change has allowed people to feel they can

A: All our projects have two-level stakeholder mapping.

and will be heard. In our capacity as social consultants,

First, prior to entering a local community, there is an

we want to position ourselves as the vehicle to transmit

established social tissue, which the project will impact.

social concerns and link them with the time frames and

Understanding its inner hierarchical organization, its

requirements companies must follow for their projects. This

relationship with the local authorities and the implicit rules

paradigm shift confirms that AOS has been moving in the

driving its behavior is key. On a general basis, we tailor

right direction over the past three years.

an early community engagement. Second, as both the project and the investments progress, we can identify the

Q: What lessons can developers learn from the

stakeholders who are ready to understand the reach of the

development of the long-term electricity auctions in the

project and those who are against it. The key is adding

southeastern region of the country?

as many favorable stakeholders as possible. A common

A: From our point of view, the auctions carried out by CFE

mistake in project development is failing to consider

have created a win-win scenario, since at the international

municipal authorities as the most important authority to

level the prices per MW of generation both in wind and solar

securing the project’s execution.

energy have been extremely competitive, with recognition of the transparency in which auctions were handled

Q: What value proposal does AOS Social provide to

worldwide. For the winning companies, these contracts are

its clients?

internationally bankable and allow them to integrate solid

A: Social consulting and developed joint-working

financial structures with long-term amortizations, which

relationship via agreements with the companies and the

makes it possible to integrate competitive costs.

communities constitutes the base for a solid understanding. Our multidisciplinary approach has proved to be an effective

For Mexico, complying with the international commitment

tool to a successful community engagement by joining

to reduce polluting emissions into the atmosphere has

forces. We realized we could consolidate a considerable

a triple benefit. Firstly, we can take advantage of the

critical mass of projects. We have been able to generate

enormous potential that solar and wind generation has in

an update database for more than 150,000 communities

our country, secondly diversify our sources of generation

nationwide with 80 variables. Using KMZ coordinates to

and thirdly contribute to the sustainability of the planet.

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MONITORING, THE KEY TO ENVIRONMENTAL IMPACT ASSESSMENTS RICARDO MEDINA Director General of ADFERI Consultores Ambientales

Environmental impact assessments are a critical aspect of

perspectives are considered, as social impacts go hand in

energy infrastructure-related projects, with the successful

hand with environmental assessments.”

completion of a project hanging in the balance. Companies

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need to get it right, says Ricardo Medina, Director General

Despite the fact that ASEA is an administrative organism

of ADFERI Consultores Ambientales. “Every infrastructure

decentralized from SEMARNAT, many of the ministry’s

project has an impact on its surroundings. This is why

practices are still present at the agency as its human capital

developers need a mitigation strategy that not only complies

is mainly made up of former ministry staff. Medina says

with regulation but also leaves a positive footprint on the

that, while the efforts made by ASEA are commendable,

environment.”

certain aspects still need to be tweaked. “While ASEA’s authorization process is rather seamless, follow-up measures

The General Law of Ecological Balance and Environmental

in the project’s development still need to be improved,”

Protection (LGEEPA) establishes a wide array of economic

he says. “The same can be said for mitigation, prevention

sectors and project types where environmental impact

and compensation measures across the project’s different

assessments are mandatory. To help companies comply with

phases. All these previous efforts to improve environmental

this law, ADFERI Consultores Ambientales’ services portfolio

impact assessments are limited given the lack of monitoring.”

includes social impact assessments, land-use changes and energy and environmental audits. “We are certified as a

ADFERI Consultores Ambientales is a member of the

verification unit by the Federal Agency of Environmental

Mexican Association of Verification Units for Environmental

Protection (PROFEPA). In Mexico, PROFEPA evaluates all

Auditing (AMUVAA), an organization in charge of ensuring

74 certified units to ensure we comply with the authority’s

that environmental audits are carried out based on LGEEPA

requirements,” says Medina. "Apart from us, in Mexico there

requirements. Medina had the opportunity to preside over

are 74 certified verification units. These are evaluated every

this association, where he had access to relevant market

year in order to comply with the authority’s requirements

information and influenced diverse decision-making

and provide a qualified service to their clients”.

processes. “One of the main objectives of AMUVAA is to raise awareness of the fact that environmental protection

One of ADFERI’s main advantages, Medina believes, is its

and conservation are linked to economic development,” he

multidisciplinary team that assesses projects. “Our company

says. “Mexico is considered among the countries with the

does not outsource human capital. We have a group of

best environmental regulation, but law enforcement and

25 specialists from different professional backgrounds:

compliance are lacking.” Part of AMUVAA’s mission is to

biologists, environmentalists and geographers, among

standardize environmental auditing costs and services for all

others,” he says. “Individually, we provide a unique vision,

its members. “In theory, we all offer the same service because

but together we complement each other and depend solely

every unit is audited by PROFEPA on a yearly basis,” he

on our team’s capabilities and knowledge.”

says, “This standardization motivates a change of paradigm where clients get to know the real value of environmental

With 24 years of experience in the Mexican market, ADFERI

consulting services and respect the current legislation.”

Consultores Ambientales’ main focus remains on the renewable energy sector. Due to recent changes in the

Environmental assessments are in constant evolution and

energy regulatory framework, environmental regulation

several technologies are being implemented to reduce

has been modified as well. “Now, environmental impact

operational timelines, which ADFERI embraces. “ADFERI

assessments are regulated by ASEA, which incorporates

Consultores Ambientales has invested in fourth-generation

international elements such as the Equator Principles,” says

drone technology, which offers a broader perspective of a

Medina. “Under this convention, socio-economic and cultural

project’s surroundings,” Medina says.

VIEW FROM THE TOP |

INTERNATIONAL STANDARDS FOR THE LOCAL VALUE CHAIN ELOY RODRÍGUEZ Director General of Acción Social Empresarial (ACCSE)

Q: Why is it important to have integral social and

Prevention and planning are key to the success of a project

environmental practices in the energy industry and what

where social and environmental responsibility must go

is ACCSE’s role?

hand-in-hand with this process. Companies that introduce

A: ACCSE has been an avid promoter of social

a social management component in the early stages of the

responsibility practices for the private sector in Mexico

project find it easier to manage their social risks, unlike

for a long time. After the Energy Reform was signed, new

companies that wait to act when the problems are already

players were allowed to participate in the oil and gas

there. The mentality of companies should be focused on

and electricity industries, which were previously limited

identifying risks and preventing them instead of dealing

to the government’s former state-owned companies.

with crises or incidents. When companies have strong social

These new players entered under a new set of regulations

planning from the beginning they are able to respond more

that include business, social and environmental matters.

quickly in the face of any latent risk that may arise.

ACCSE is a social promoter that already has experience with companies involved in intensive industries like

Q: How does ACCSE create a shared social responsibility

mining so it is natural for us to provide services to the

between energy companies and the local value chain?

energy and oil and gas sectors. ACCSE helps promote

A: Normally, transnational companies have good social

the social activities of its clients and strategically plans

responsibility standards and practices already established

social programs aligned to their business profiles. ACCSE

in their global operations. These companies have become

helps its clients carry out their social responsibility

role models for companies across the world in terms of best

programs and strategies more naturally. For example,

social responsibility practices given the interaction between

we helped an infrastructure company involved in the

this type of project developer and the local suppliers in

energy industry use its expertise to provide training to

every country where they operate. In some cases when

its construction personnel. The importance of planning

these companies cannot find a local provider, they create

a good social responsibility program lies in the ability

social responsibility programs to guide their peers to follow

to use a company’s economic resources and personnel

the same norms. ACCSE participates in this process by

to make social contributions. ACCSE seeks to maximize

sharing the same standards across its clients’ supply chain

the companies’ social opportunities by analyzing their

so they can have more certainty across all their processes.

economic and intellectual capabilities, as well as the communities where they operate to create programs that

Q: What project best illustrates ACCSE’s capabilities in

benefit both the company and the community.

the energy industry? A: ACCSE has participated in approximately 16 social impact

Q: Why is it important that companies design a good social

assessments for the private sector in five states of the country.

responsibility program before starting any project?

Our experience and our vision to go beyond what is expected

A: When a company involved in the energy industry wants

allows us to exceed our clients’ expectations and to be seen as

to start a new project, it is required by law to present a

a leading company in the industry. For the near future, ACCSE

social impact assessment of the project, based on the

wants to become the ally of choice for companies seeking to

Ministry of Energy’s guideline. We guide the company

design their social responsibility programs.

on how to present its social impact report and how to implement it, so the company can maximize the positive social impact of the project. The goal of the solutions

Acción Social Empresarial (ACCSE) integrates business vision

we provide is to ensure that our clients’ projects provide

with social responsibility under a mutually-beneficial model

social support and meet the requirements of the

that leverages corporate profits and creates shared value for

communities involved.

society and the environment

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WALKING CLIENTS FROM DUE DILIGENCE TO DEPLOYMENT MIGUEL PURAS Director General of SER Consultores

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Q: Why should companies developing an energy project

Q: Why did SER Consultores turn to Mexico when deciding

choose SER Consultores to complete environmental and

to offer its consultancy services?

social impact assessments?

A: Some members of our team worked for the

A: We have the capacity to accompany our clients from due

Interamerican Development Bank in defining a public policy

diligence to the deployment of the project and can even

recommendation that would maximize the benefits of the

follow them in their operation and maintenance activities

communities where wind power projects were taking place

to ensure that environmental and social responsibilities

in Mexico. This activity was performed in 2013 while all the

are always considered. In terms of due diligence, we

members were still in Spain, and it was our first contact

have provided services to ensure flawless change of land

with Mexico. After finishing this workshop with the IDB,

usage, together with flora and fauna studies. We acquired

we saw Mexico as a highly attractive market, and therefore

those capabilities, and many others, by focusing all our

decided to venture into it. To date, SER Consultores has

activities in Mexico and moving from Spain, where the

already worked in over 2.3GW of projects.

company started. We have worked in the states with the highest potential for the development of renewable energy

Q: What is needed to improve project development

projects: Oaxaca, Yucatan, Sonora, Tamaulipas, Chihuahua,

regulation in Mexico?

San Luis Potosi, Queretaro, Zacatecas and Veracruz. Our

A: The social and environmental regulation in Mexico has

consultancy also covers the mining industry, railway

been evaluated by a wide array of public and private players,

industry and road projects.

and overall it is showing good results. The implementation of a strong regulation is extremely important to ensure

This broad experience is important because we need to

that projects are finished and deployed while maximizing

ensure that every project we are involved in complies with

benefits for the communities involved. Leaving gaps

all social and environmental requirements. We are the

in this regulatory framework could open room for

face of our clients in front of the regulatory institutions

misinterpretation from both companies and communities,

and ensure that the EPC companies they hired correctly

which can lead to legal hurdles that do not only affect the

follow every process, that the project complies with all

projects but the industry as a whole. What we need now

requirements and that its development will encounter

is to implement the regulation more effectively as well as

no issues. The way we work is by maintaining constant

to decrease the amount of unnecessary bureaucracy that

interaction with both the developers and the EPC

creates bottlenecks and delays the economic benefits for

companies. When working with EPC companies we have

both companies and communities.

close contact with the people working onsite to make sure the nuts and bolts of the operation are correctly

Q: How can the long-term electricity auctions be improved

managed in line with all the regulatory requirements.

for the benefit of the country and project developers?

Furthermore, from our studies, we are capable of

A: Mexico has gone through the titanic task of opening its

analyzing the risks involved in a project and proposing

market in record time. It has managed to positively take into

ways to manage those based on the rules dictated by the

account the best international practices and models. The

International Finance Corporation.

long-term electricity auctions have been successful in the sense that they are attracting investment into the country but we see potential for the government and regulators

SER Consultores is a consultancy with broad experience in

to consider equally-important aspects besides lower price

social and environmental impact assessments in Mexico. Having

schemes. One way this could be done is to use a points

participated in over 2.3GW of projects in Mexico, the company

system and assign points to a project depending on the

pursues sustainability in every project it works with

state of its environmental and social assessments.

INSIGHT |

INJECTING INTERNATIONAL BEST PRACTICES INTO SOCIAL IMPACT ASSESSMENTS MARINIEVES GARCÍA-MANZANO Founding Partner at GMI Consulting

Mexico’s burgeoning utility-scale renewable energy projects

nobody wanted to talk about it. It also proved to be a strategic

have put a spotlight on the country’s social impact issues,

tool when browsing for strategic alliances,” she says.

demonstrating a clear need to adhere to the strengthened regulatory framework related to this specific issue. “Developing

Based on García-Manzano’s experience, the common

energy infrastructure projects requires collaboration, working

denominator when developing infrastructure projects in

hand in hand with local communities to identify the specific

communities is the arrival of outsiders. “From high-impact

impacts of these projects on their day-to-day activities

extractive industries such as mining to low-impact industries

and local environment,” says Marinieves García-Manzano,

such as PV, it is a shared issue. Mexico remains prey to

Founding Partner at GMI Consulting.

insecurity and outsider workforces nurture this feeling of insecurity among local communities. From there, issues vary

García-Manzano commends the work of Rodolfo Salazar,

depending on the project. Dealing with misinformation and

Director General of Social Impact and Superficial

establishing effective communication filters is another critical

Occupation at the Ministry of Energy, to enact a critical

issue. GMI Consulting conducts its evaluation according to

piece of legislation. “The Administrative Dispositions on

the International Association for Impact Assessment (IAIA)

Social Impact Assessments directly responds to the dire

guidelines. We divide our evaluation between community

need to strictly adhere to international best practices

fears and aspirations, followed by specific impacts, such as

regarding these assessments, standardizing the services

way of life and culture.”

of the social consulting sector,” she says. “Some kinks need to be worked out, such as how to proceed with geothermal

While fears and aspirations do not necessarily represent a

projects and their exploration timeline, but in general

tangible impact derived from a project’s specific activity, they

terms, the level of the dispositions is highly satisfactory

can be managed effectively with an airtight communication

in addressing the issues that social impact assessments

and linkage plan. “Communities need to know in full detail

suffered from in the past.”

what the project is really about. The proven track record of the technology must be showcased. Other potential impacts

GMI Consulting is a Mexican consulting firm that combines

can be managed by combining prevention, mitigation

technical, scientific and legal expertise related to its

and compensation measures. The greater the number

specialization in environmental, social and infrastructure

of preventive measures it includes, the more reliable the

assessments The firm’s methodology includes sending its

social impact assessment will be,” García-Manzano says.

research team to live in impacted communities. “This builds

She considers the utility-scale PV farms developed by Atlas

trust over time,” García-Manzano says. “The host family

Renewable Energy to be leading examples of the successful

integrates the team into the community, providing an ideal

implementation of social management programs. To capitalize

condition to undertake true field work. It allows for an

on the strengthened regulatory framework relating to social

effective stakeholder-mapping of the community’s players

impact assessments, GMI Consulting is designing a tool to

and to identify all potential impacts of a specific project’s

follow up on its ongoing social management plans based

development. Based on this exhaustive research, we tailor a

on international best practices. “We are in talks to develop

mitigation framework that company in charge of the project

it as a joint venture with a software company. The Equator

implements. The firm used industry associations to help shine

Principles ruling social impact assessments require the

a light on social impact issues and develop allies. By joining

development of a social management system that translates

COPARMEX, COMENER, The Mexican Bar Association and

a social management plan into a set of specific tasks, also

the Canadian Chamber of Commerce, to name a few, GMI

granting the ability to manage complaints and following up

Consulting was able to get the message across. “It allowed us

on the commitments agreed with local communities,” says

to place social impact issues in the limelight at a time when

García-Manzano.

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| INSIGHT

A CULTURE YET TO DEVELOP JUAN JIMÉNEZ Director General of DiTerra Consultores Ambientales

Mexico’s Energy Reform has introduced a series of public

responsible. However, over the course of the project this

policies and regulations that have shaped the industry into

vision was lost due to budgetary cutbacks, meaning

a system that promotes investment while ensuring projects

the money assigned for the environmental aspects was

are developed to the highest quality and safety standards.

insufficient for high-quality work.”

As international companies start facing the intricacies 280

of the market, Juan Jiménez, Director General of DiTerra

DiTerra took part in the tendering of the environmental

Consultores Ambientales, explains the benefits of reaching

works for the project and won. While the company did

out to a local partner. “Companies do not necessarily

its best to push the project to the highest environmental

understand all the elements they have to comply with to

standards, Jiménez admits the job was not easy and

get permits approved, which is why it is critical for them to

sometimes even frustrating. “The project developers

get in contact with firms like ours from the very beginning

were not really committed to the construction of a green

of a project,” he says. “It is not just about helping them

project,” he says. “It became very frustrating that they

make a safer long-term investment but also about helping

completely changed the approach of the project to be

them avoid extra costs due to delays or changes in project

developed and it ended up being very different from the

management due to a wrongly-designed project.”

initial plans.”

DiTerra is a Mexican consultancy specialized in the study

According to Jiménez, the lack of knowledge on how to

and mitigation of environmental impact, regulation and

approach environmental elements properly is rooted in the

ecological restoration. It has worked on a variety of projects.

country’s education. “Mexican culture is used to complying

Jiménez highlights the benefits of being environmentally

with the regulatory framework only if an authority is

responsible. “Helping the environment is not only necessary

monitoring the activities,” he says. “We are not yet at the

in terms of protecting the future of the planet and offering

same level as other developed countries where companies

higher quality of life to future generations,” he says. “It also

protect the environment on their own initiative.”

makes economic sense.” Some elements of the regulatory framework and its For example, Jiménez says that many companies are

enforcement may be copied from best international

reducing expenses related to potable water consumption

practices but Jiménez says these aspects should

by using treated water in their processes. “The economic

always be adapted to the cultural, economic and social

benefits of complying with environmental guidelines are not

reality of Mexico. “We hope to reach the same levels

only related to the use of fewer resources but also related

of environmental protection that developed countries

to avoiding fines,” he says. “We know that some elements

have in 20 years or so, but before that, every aspect

of the projects’ design may be completely obvious for us,

of the local compliance and due diligence has to be

while for our clients this may not be the case.” DiTerra offers

monitored closely.”

a personalized service to its clients, accompanying them in the development of the entire project.

This is also where society plays a vital role. “We, as society, have a commitment to demand that the government

To date, many activities related to the care of the

enforces strict compliance processes,” Jiménez says. In

environment are mostly carried out for the benefit of

terms of the regulatory framework, Mexico is in an advanced

a company’s image, Jiménez says. Now is the time to

stage, he adds. In fact, the country has one of the best

establish a stronger environmental education in Mexico,

environmental frameworks in Latin America, but for this

he says. “One project we worked on was a road project

framework to work properly he believes strict enforcement

that was purported to be green and fully environmentally

is needed.

INSIGHT |

WIN-WIN SOLUTIONS FOR THE BENEFIT OF THE COUNTRY MIGUEL MONTAÑÉS Director of Natura Medio Ambiente

Environmental concerns surrounding energy projects

and the communities, receive a great benefit.” A very

pushed public institutions to publish strong related

simple idea, he suggests, is to allow the communities to

regulations but the social impact from these projects is

repurpose the wood pallets used to transport solar panels

more complex and requires further legislation, says Miguel

or equipment. Additionally, if a project is to be constructed

Montañés, Director of Natura Medio Ambiente. “It is critical

in an area where there is a forest, the trees that were

that the social impact of energy projects in Mexico is

chopped down could very well be used by the community.

correctly regulated because otherwise the development

This would save the company money by avoiding costs

and deployment of the projects can be jeopardized.”

related to transportation and disposal of the wood and would allow communities to take economic advantage of

Natura Medio Ambiente has developed more than 2,000

something that would otherwise be wasted.

projects in Spain, Bulgaria and Latin America over the last 20 years, many of which were highly challenging. It participated

Unfortunately, due to the lack of a fully-fledged regulation

in the construction of the Romulo project, a sub-marine

these kinds of mutually beneficial scenarios are not so easy

transmission line that connected Valencia with Palma de

to achieve. “Regulations state that trees that were chopped

Mallorca, the first sub-marine line in Spain. The company

down or the wood used to transport materials must be

also participated in the construction of a wind park at -20°C.

crushed for use in fertilization, but that may not always be the best use for it,” Montañés says. “Other possibilities for

Since arriving in Mexico 10 years ago, the company has

the use of this material should be considered.” Natura Medio

proactively participated in the creation of the industry’s

Ambiente has experience achieving win-win scenarios by

regulatory framework. It took part in the discussion

listening to the needs of the communities.

workshops organized by the Ministry of Energy to evaluate the legislation related to environmental and social impact

According to Montañés, requirements brought by international

assessments for the development of energy projects.

companies starting operations in Mexico are another aspect

Unfortunately, Montañés says, this initiative has not yet

that slow down projects but that will ultimately become

yielded the expected results. “The workshops took place

beneficial for the entire value chain. One clear example is the

in 2015 but the changes that resulted in the regulation have

trucks used for transportation of equipment inside a project

not yet been officially published,” he says.

area. According to the rules followed by international players, those trucks must have all their paperwork and certifications

As a result, it has fallen to consultancies in the area of

up to date, but Montañés says that in Mexico it is difficult to

social and environmental impact assessments to make

even find a truck with that is insured. “In some cases, Natura

sure projects do not run into hindrances, Montañés says.

has had to pay for 50 percent of the insurance and negotiate

“A repeated error made by project developers is to arrive

with the company providing the service,” he says.

to a community and expect the project to be developed just because they have a permit granted by the government,” he

To properly handle all the complexities associated with

explains. “For a project to materialize, it is all about creating

social and environmental impact assessments, Montañés

a positive communications channel with communities

emphasizes the highly valuable human capital the company

where both parties can truly be listened to and understood.”

has built up in the country. “Our entire team is made up of young professionals with the dream of positively impacting

Thinking out of the box to achieve win-win scenarios for

the environmental and social aspects of the energy projects

companies and communities is a practice that has to be

developed in the country,” he says. “We always look for

further developed in Mexico, Montañés says. “There are

people who have a passion for their job and who will love

many resolutions wherein both parties, the developer

what they do.”

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360-DEGREE ENVIRONMENTAL RISK ATLAS OMAR MEZA Director of Environmental Projects at Terranova

282

Q: Why should project developers turn to Terranova for

fed by satellite-based cartography to evaluate the types

social and environmental impact assessments?

of vegetation, which were later used to estimate the

A: With over 12 years of experience, Terranova is a market-

stratified sampling effort, considering the variation,

recognized company that is well-respected among its peers

concentration and amount of vegetation per hectare.

in the sector. The company has broad knowledge about

Afterward, a customized onsite team specialized in

the industry and its regulatory framework. Several staff

vegetation and wildlife diagnosis conducted the field

members, myself included, have worked for governmental

study homogeneously across the entire field, based on

institutions such as SEMARNAT, Mexico City’s Ministry of

the predesign data.

Environment and others. This experience provides Terranova with the necessary tools to address any contingencies

Q: What are the primary components of Terranova’s Risk

that might arise prior to, during and after administrative

Atlas for renewable energy projects?

procedures presented before government agencies. Our

A: A Risk Atlas is a thematic map with superficial and

expertise goes one step further given our comprehensive

underground information in certain areas, covering

understanding about how the public and private sectors

meteorological, hydrological, geological, hydro-

work. This means Terranova is prepared and experienced

meteorological, chemical, social and other risks related to

to operate under current market trends and the country’s

the industry. The Risk Atlas allows us to detect and evaluate

regulatory framework.

the specific risks of a determined surface, such as floods, landslides, geological faults or any other environmental

Q: What project best showcases Terranova’s added value?

factors that might affect a given population or geographic

A: Terranova specializes in field studies for wind resources

zone. This tool can improve urban planning and help project

and has developed several studies for companies in places

developers to mitigate the possible risks and contingencies

such as San Luis Potosi, Coahuila and Zacatecas. These

related to their projects.

studies covered areas of 7,000ha, 5,000ha and 12,000ha, respectively. Terranova’s studies provide complete

Q: What is Terranova’s comparative advantage in its

inventories and diagnostics of the vegetation and wildlife

consortium capacity?

present across the entire terrain, as well as soil conditions.

A: Terranova is made up of companies and civil

Companies with our support can build evidence-based

associations. This group includes Ingeniería Aplicada

projects with greater certainty and security.

y Sustentabilidad Ambiental, a company that offers a wide range of services on impact and environmental

The Zacatecas project posed a series of challenges,

risks, integral waste, water and land management and

such as delicate security conditions but in the end, we

environmental legal advice and management procedures.

contributed to the development of a successful project.

In general, the group of companies that make up

On the positive side, the land for this project belonged

Terranova do work related to environmental risk within

to a single owner, which streamlined the process and

the energy sector, including the oil and gas and renewable

allowed us to carry out a quick and strategic ecological

energy industries. Considering we are also very active in

assessment. This evaluation relied on predesign elements,

the agrobusiness sector, our consortium includes Base Consultores Agropecuarios, a company specialized in topics related to reforestation, soil use, vegetation

Terranova is a consortium of companies and civil environmental

production, management of governmental resources

associations specialized in the design of integrated solutions

and other consulting services. Pangea, another company,

for the public sector at the federal, state and municipal levels,

carries out projects focused on urban development and

aimed at territorial urban and ecological planning

ecological land use.

ROUNDTABLE | Developers of renewable energy projects know only too well the disruption that can be caused by community objections. No project is a starker warning of the dangers of overlooking community consultation than the Mareña Renovables wind farm in the Isthmus of Tehuantepec, which was eventually moved to Juchitan. Mexico Energy Review asked experts in the field about what steps companies must take prior to breaking ground on a project to integrate and

HOW HAVE NEW RULES IMPACTED COMMUNITY RELATIONS?

communicate with the surrounding communities.

ERM is the first to recognize the work of the country’s regulatory bodies relating to social and environmental impact assessments. There needs to be definitive guidelines on both compliance with regulation and the undertaking of effective and thorough social impact assessments. It should not be considered an obstacle but should become a mainstream practice, based on international benchmarks. Anticipation is the name of the game. Social issues go well beyond official regulations and permitting processes. The World Bank and the IFC have extensive references on how to best approach these matters that are being applied worldwide and that Mexico’s private

JAIME MARTÍNEZ Business Development Director of ERM

sector can also reference.

Projects can no longer be developed as they used to be in the early 20th century. After years of arduous work, communities are increasingly involved in infrastructure project development designs. GMI Consulting was among the first firms to speak out in 2016 against social problems stemming from developing projects without consulting local communities. Collaborative development is slowly but surely becoming the norm. It is rooted in social impact assessment best practices. Megaprojects developed by companies with a real sense of corporate social responsibility fosters less controversial, more pacific approaches to project development.

MARINIEVES GARCÍA-MANZANO Founding Partner at GMI Consulting

Thanks to the new regulation and the obligation for companies to carry out social impact studies prior the development of an energy project, the importance of environmental impact and risks studies is gaining ground. The objective of environmental studies is to disseminate the conditions surrounding a project’s development, including from a socio-economic standpoint. There are economic and social ways to compensate communities impacted by the projects to reduce the environmental footprint that a project could generate. If the inhabitants of a community have alternatives to generate benefits from the same project it helps

OMAR MEZA Director of Environmental Projects at Terranova

mitigate the discomforts and uncertainties that they might feel about the project.

Prior to the Energy Reform, the relationship between local communities and energy projects was centered on PEMEX and CFE. These two state-owned companies historically imposed their projects and did not establish any sort of dialogue or interactions. Project consent was obtained either through political negotiations or money transfers. This pattern established by both companies gradually engrained an economic negotiation culture among communities, sometimes bordering on extortion. The Energy Reform became a turning point as more private players started interacting with communities. Gauging whether the relationship has improved or deteriorated can only be determined on a case-by-case basis.

LUIS UGALDE Director General of Integralia Consultores

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Fluke Corporation's Ti450 SF6 gas detector

FINANCE, OPERATIONS & MAINTENANCE

Risk reduction programs are essential in all facets of a project development in

the Mexican energy market, especially in the face of a constantly evolving energy scenario: design, financing, engineering, acquisitions, construction permits and talent attraction. However, financing is the foundation on which the development of an investment is built. The government has opened the door to fiscal incentives that attract local and international investment and has emphasized improving the transparency of all auctions and bids; however, the change of president has generated some uncertainty regarding what the future may hold.

The following pages will analyze the financial mechanisms used by the public and private sectors to grow in the Mexican energy market, the role of O&Ms in the energy supply chain and what processes help companies remain competitive in the middle of the countryâ&#x20AC;&#x2122;s energy transition.

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CHAPTER 11: FINANCE, OPERATIONS & MAINTENANCE 288

ANALYSIS: Access to Financing, the First Step to Sustained Growth

289

VIEW FROM THE TOP: Alan Sakar, Clifford Chance Project Development and Finance

José Guardo, Clifford Chance Project Development and Finance

290

VIEW FROM THE TOP: Raúl Solís, NAFIN

291

INSIGHT: Marian Aguirre, Bancomext

292

VIEW FROM THE TOP: Cynthia Bouchot, CB Consultores

294

VIEW FROM THE TOP: Salomón Amkie, Citibanamex

295

VIEW FROM THE TOP: Cesar Urrea, China-Mexico Fund

Andres Millan, China-Mexico Fund

296

VIEW FROM THE TOP: John Bates, Prana Power

297

VIEW FROM THE TOP: César Romero, W.W. Williams

298

VIEW FROM THE TOP: Vicente Corta, White & Case

299

VIEW FROM THE TOP: Ariel Ramos, Mayer Brown

300

VIEW FROM THE TOP: Jaime Falcones, Beel Infrastructure Partners

Aniceto Huertas, Beel Infrastructure Partners

301

INSIGHT: Emmanuelle Matz, PROPARCO

302

VIEW FROM THE TOP: Leonardo Hernández, Marathon Capital

303

INSIGHT: Santiago Morales, Becquerel Capital

304

VIEW FROM THE TOP: Emiliano Detta, KfW

305

VIEW FROM THE TOP: Omar Galaviz, Anabática Renovables

Alejandro López, Anabática Renovables

306

INSIGHT: Gustavo Galaz, F Tech

307

VIEW FROM THE TOP: Jaime Pérez, Balam Fund

308

VIEW FROM THE TOP: Victor Vilar, Ingeteam

309

INSIGHT: Franco Capurro, Banverde

310

VIEW FROM THE TOP: Jorge Barragán, Barlovento Recursos Naturales

311

VIEW FROM THE TOP: José Díaz, Sinia Renovables México

312

Nacho Soucheiron, Sinia Renovables

ROUNDTABLE: Can Fibras, CKDs and Structured Instruments Prosper as a Viable Financing Source?

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| ANALYSIS

ACCESS TO FINANCING, THE FIRST STEP TO SUSTAINED GROWTH Mexico’s energy industry has blazed a path that has been hailed internationally for its rapidity and transparency. There remain many areas of concern and chief among them is financing. As multilateral financing institutions carry the load, private players want the commercial banking segment to increase its participation Commercial bankers are traditionally risk-averse and the

So far, the main backers for projects have been multilateral

federal election and subsequent inauguration of President

banking institutions as all players adapt to the new energy

López Obrador threw them a curve ball in 2018 that rippled

reality. One reason is the size of the projects. “Mexico’s

across the energy industry. The uncertainty that lingered

renewable utility-scale projects require long-term financing

over the year called into question the path forward for

options that commercial banking by itself is not able to

the sector a time when the private sector was already

provide. Developers have primarily turned to multilateral

struggling with financing clean energy projects.

banking institutions, development banks and Export Corporation Agencies (ECAs) to provide for their financing

288

“The world is facing significant challenges,” says Alfredo

needs. Commercial banking’s participation is limited to

Álvarez, Energy Segment Leader at EY. “In Mexico, these

certain tranches of these loans,” explains Ramos. EY’s

include a political transition that has created uncertainty

Álvarez agrees. “Commercial banks are still very cautious

regarding the country’s vision for a cutting-edge energy

when financing utility-scale projects. Given their lack of

industry.” The market, however, is optimistic, especially

experience and risk aversion, commercial banks tend to be

the electricity sector, despite the latest decisions taken

extremely conservative and only finance small percentages

by López Obrador, including delaying the fourth long-

of these types of projects.”

term electricity auction. “Mexico’s long-term electricity auctions and the electricity chapter of the Energy Reform

As inherent risks hold back wider financing, some Mexican

is a success story,” says Ariel Ramos, Partner Global Energy

energy projects have turned to a model that has been

at Mayer Brown. “We consider it as such because CFE, the

growing at a much higher rate compared to countries with

Ministry of Energy and CENACE implemented auctions that

similar scenarios. “Mexico’s energy projects are starting to

were well-received by Mexico’s infant energy market.”

get an increasing taste of merchant risk, which not all banks

“

are comfortable with when it comes to providing financing

Commercial banks are still very cautious when financing utility-scale projects, given their lack of experience and risk aversion” Alfredo Álvarez, Energy Segment Leader at EY

in this specific modality,” says Emmanuelle Matz, Global Head of Energy at PROPARCO. Smaller projects, such as the installation of solar panels are also facing a worrisome scenario, according to Angélica Quiñones, President of ANES. “The financial sector needs to be prepared to invest in new renewable technologies. If a company goes to the bank asking for a loan to install solar panels, the interest rate would be around 15 percent. This is the same interest rate that banks ask when lending money to purchase a car,” she says. Going forward, disruptive models, key in other markets and

The context of the industry’s growth since the reform is

industries, could play a preponderant role when attracting

also a source of optimism, and private sector players say

financing. Christoph Frei, Secretary General and CEO of

that financial entities need to confront the challenges of

the World Energy Council, believes digitalization could be

a market that practically started from scratch in 2013 and

a key disruptor. “Digitalization offers many opportunities

deliver the financing that participating companies require.

and its capacity to create a future uberization in the energy

They point to a favorable regulatory framework for this type

industry is one of the most exciting." Uberization means the

of investment, tax incentives and clean energy certificates

capacity of taking a capital-intensive sector and coming up

issued by the previous administration. To these incentives

with business models that bring additional value to existent

it is necessary to add the transparency with which the

assets via digital processes. That is, those companies that

auctions have been carried out, which has projected

are able to offer added value to the value chain through

legal security.

technology will be among the first to receive financing.

VIEW FROM THE TOP |

HOW TO FINANCE MERCHANT PROJECTS

ALAN SAKAR Associate at Clifford Chance Project Development and Finance

JOSÉ GUARDO Partner at Clifford Chance Project Development and Finance

Q: What is the biggest contribution that Clifford Chance

While we will see more private placements in the near

makes to the clean energy industry in Mexico?

future, institutional investors have not been participating

JG: Clifford Chance brings a robust global track record

that much in the renewable space for several reasons.

in structuring some of the most innovative projects and

Notably, they tend to look for long-term contracts of over

financings in Latin America. Compared with other markets,

20 years and big-ticket transaction values, as we have seen

and notwithstanding the global attention that Mexico’s

in the midstream sector in Mexico.

energy market has drawn, the Mexican market is quite young and the renewables industry even younger. Having been

Q: What are the main financial risks when financing a

involved in flagship projects across the region, the firm’s

merchant project?

bilingual, culturally fluent team has an unrivalled depth of

JG: In the short term, we will not be concerned with the

resources and the experience required for the development

differences between merchant and contracted projects.

and financing of complex structures. Younger markets need

Looking further ahead, PPAs will be considered a privilege

this kind of support to achieve sustainable growth.

for renewable energy projects due to an aggressive shift that we expect in connection with merchant structures,

AS: Among other key factors, we establish the necessary

just as we have seen in other markets. We do not foresee

relationships with local players and create the required

inherent differences between these models. Merchant

synergies to develop and finance our projects faster

projects will be increasingly accepted by financing entities

and at a lower cost. This includes strong communication

over time. The fundamental risk here will center on

channels with the Mexican government, which enable us to

adjusting the leverage on the project. Other risks depend

understand the public policy behind the energy industry and

on macroeconomic factors, such as the country’s stability

draw comparisons against other jurisdictions in the region.

and growth. Renewable energy targets are really ambitious

As a result, we are able to design and structure innovative,

and the merchant scheme will be a suitable environment for

tailor-made solutions for each project, leveraging deep

the development of these kinds of technologies.

familiarity with trends at a global level while measuring the impact within each relevant jurisdiction.

AS: Ultimately, all project finance schemes depend on the certainty of future cash flows; thus, merchant projects face

Q: Which financing schemes are more suitable for financing

a major hurdle given their complete lack of such certainty.

long-term electricity auction projects?

We saw this when the first full merchant projects were

AS: This is a very interesting area related to the Energy

being developed in Chile. These projects initially offered

Reform. The type of financing depends on a number of

attractive market prices, but over time, the prices gradually

factors, such as the type of energy resource involved,

dropped, and several projects faced financial trouble. In

the project’s contractors and equipment suppliers, the

Mexico, many developers and banks are moving toward

identity and nationality of the sponsor and the sponsor’s

merchant projects relying on the node price projections,

desired relationship with the banks. Most often, sponsors

with strong cash sweeps, strong reserves, short tenors and

combine different sources of financing. For instance, in the

moderate leverage ratios, and perhaps in the near future we

financing of the projects awarded during the first three

will see virtual or synthetic PPAs as seen in Europe.

clean-energy auctions and by CFE’s bilateral tenders, we were involved in traditional long-term financings, soft and hard mini-perms, private placements and vendor financings

Clifford Chance is a preeminent global law firm with expertise

– involving local and international banks (mainly Japanese

in project finance, sovereign financing, capital markets,

and European), local development banks, multilaterals,

corporate, finance, risk management and real estate across a

ECAs and institutional investors.

number of sectors

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| VIEW FROM THE TOP

MEXICO’S RENEWABLE ENERGY FOUNDATION RAÚL SOLÍS Deputy Director of Investment Banking at NAFIN

290

Q: What contribution does NAFIN make to Mexico’s clean

NAFIN’s mandate is to support the development of these

energy industry?

technologies but if we limit ourselves to financing renewables,

A: As financial engineers, we build bridges between the

we would help achieve COP21’s goals but the national grid

present and the future. Without the financing for projects

system would not have equilibrium. During the Peña Nieto

that will benefit the country later, there would be no project

administration, NAFIN financed 19 wind farms, seven solar

and no benefit. Similarly, every project has two components:

parks, two mini-hydro plants, six natural gas plants and one

technology and finance. If the technical part is not resolved,

transmission line.

having the capital serves no purpose. On the other hand, if the technical part is figured out and all the ideas are laid out but

Q: What are the most suitable financing vehicles for

there is no money to put them together, there is no project. It

renewable energy projects?

is a binary situation wherein one part depends on the other.

A: CKDs and CERPIs are the preferred long-term investment vehicles. NAFIN manages MX$20 billion for Afores, with

MX$56 billion: NAFIN’s portfolio value, with half invested in energy projects

CERPIs used to invest abroad. FIBRAS, on the other hand, invest in projects with at least one year of operation. NAFIN can help companies that want to develop clean energy projects, either with capital or with debt, at the beginning of a project or for a project that is already operating, and we can offer financial instruments according to the project’s needs.

Investment bankers also tend to be conservative when it

In the end, the project’s sponsor coordinates the financing

comes to innovative projects, which is the case with renewable

efforts. If the sponsor prefers a determined structure through

energy. There are always hurdles, such as the testing of

a CKD, part of its own capital and the participation of a

disruptive technologies or acquiring rights of way to develop

commercial bank, we are more than open to support that.

a project. Our job is to be a spearhead and in 2010, NAFIN and Bancomext became the first banks in Mexico to finance

Q: What are your recommendations for the new administration

a renewable energy project. Today, NAFIN holds almost 10

when it comes to the financing of these projects?

percent of the total installed capacity of renewable projects

A: The most important recommendation is that Mexico

in the country, which translates to nearly 5.6MW.

continues to produce electricity according to the demands of small, medium and large-sized companies. SMEs represent

Q: What sustainable projects is NAFIN most interested in

95 percent of Mexico’s economy and if we do not support

financing?

them through cheap electricity prices, it could have a lasting

A: The power generated by renewable energy projects has to

impact on the country’s GDP. In this sense, renewable

be incorporated into the National Electricity System. These

energy is a good option for achieving cheap prices without

power sources, like wind and solar, are intermittent and

compromising the environment. NAFIN believes this is the way

need to be complemented with natural gas plants, known as

to go, although it must be combined with other technologies

peakers, that can cope immediately with peak-demand hours.

to ensure equilibration of its energy system. NAFIN targets a 10 percent share of the country’s total installed capacity. When I began working at NAFIN, we had a budget of MX$1.5

NAFIN is a development bank that channels financial

billion. Today, NAFIN works with a portfolio of MX$56 billion

and technical support to foster the integral development

and half of this amount is invested in energy projects. This

of the industrial sector and promotes its efficiency and

development will continue and the next administration has a

competitiveness

very clear view about this.

INSIGHT |

PAVING THE WAY FOR FULL‑MERCHANT PROJECTS AND BILATERAL PPAs MARIAN AGUIRRE Energy Finance Vice President of Bancomext

The Triple-A status of the country’s biggest off-taker, CFE,

“We published a series of manuals and safeguards that

has aided the success of the auctions because the thin

outline step-by-step measures to comply with the Equator

margins for projects match the equally thin development

Principles,” she says, adding that across all projects,

risk. In contrast, Mexico’s renewable merchant projects and

Bancomext undertakes full monitoring activities, from

bilateral PPAs continue to showcase high risk levels with

environmental impact assessments to the Ministry of

equally high returns, says Marian Aguirre, Energy Finance

Energy’s evaluations. “We remain deeply involved in

Vice President of Bancomext. “Warranties are normally

processes and focus on continuous follow-up throughout

included in a trust as part of the financial structure of a

the project’s phases and useful life,” she continues. “Limiting

bilateral PPA,” she says. “We must analyze how we can

monitoring activities exclusively to public indigenous

access those warranties for structure to be strengthened

consultations and environmental management is a short-

and ensure project bankability. We are working closely on

sighted approach we discourage and avoid.”

this specific issue with qualified suppliers.” Such follow-up processes are deeply embedded in Development banking institutions like Bancomext need to

Bancomext’s safeguards as they provide a solid level of

understand the inherent mechanisms of qualified suppliers

certainty from a project execution standpoint. “This represents

in the WEM and their link to project finance, Aguirre adds.

a considerable amount of additional work for us and added

“The conception of Mexico’s new energy model places

complexity that relies on specialized social and environmental

the qualified supplier figure as a commercializing entity,

advisers to comply with our manuals and safeguards as early

the middleman between power producers and bilateral

as the request for proposal. But it provides a way to align with

PPAs with private off-takers. We are in talks with qualified

international standards,” says Aguirre.

suppliers with consolidated long-term PPA schemes to guarantee increased security by absorbing part of the

Bancomext is also taking a leadership role in the

merchant risk on the qualified suppliers’ end.”

improvement and success of the Clearing House, a private energy and power purchase mechanism introduced during

Bancomext has entered the fray on the merchant project

the third long-term electricity auction. “It is a critical

front and it is planning to keep including them in its

issue considering it works as a payment source for the

renewable energy investment portfolio. “Based on our

development of utility-scale renewable energy projects and

analysis, we are designing more conservative financing

heavily influences project risk,” Aguirre says.

criteria, including lower leverage levels and more conservative debt service coverage indexes,” Aguirre says.

Lending money to CFE, a productive enterprise of the state with specific credit-risk characteristics, is not the same as

The development bank also is determined to retain its

lending to a private company with an unclear track record.

leadership role in the long-term electricity auctions,

As a result, the Clearing House is piquing the interest of

both in projects under construction and future auctions.

private energy and power purchasers.

“Our participation in auction projects is predominant. Bancomext’s project finance foothold represents close to

To inject certainty over the Clearing House’s future

80 percent of the aggregate projects from the auctions,”

performance, Bancomext fosters interactions with

says Aguirre.

CENACE to incorporate improvements. “The key issue lies in understanding the implications of the private operator

To secure the viability of long-term electricity auction

figure and the inherent mechanisms between suppliers

projects, Bancomext has been working for several years

and purchasers to know which part represents our risk,”

on its environmental and social management unit (UGAS).

Aguirre says.

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| VIEW FROM THE TOP

OPENING THE OFF-TAKER WINDOW OF OPPORTUNITY CYNTHIA BOUCHOT Director General of Energía CB Consultores

292

Q: What makes Energía CB Consultores the ideal partner

and challenges, proposing implementation of possible

for project developers?

solutions and attention mechanisms. Energía CB has three

A: Project development in Mexico requires not only legal

primary business branches: electricity, natural gas pipelines

and technical expertise but also comprehensive knowledge

and energy consumers support. We have been involved

of the country’s idiosyncrasies, particularly in the case of

in several combined cycle, wind farm, PV and small-scale

foreign developers because they are not used to socio-

hydroelectric projects on the off-taker end of electricity

political aspects of Mexico, or, the uses and native costumes

projects. Our differentiating factor on the electricity market

of communities located in the project areas. Energía CB has

side is our work with off-takers. It is the natural, organic

more than 20 years of experience in the project development

next step after accumulating a successful track record

segment nationwide. We can tackle any activity regarding

overseeing projects developed to their operational phase.

management and obtaining real estate rights, environmental

Mexico’s new energy model unlocked a bevy of new options

and social authorizations, federal, state and municipal

to choose from, aiming at an efficient and cost-effective

permits, insurance, financial and commercial models, as well

power supply. The number of variables that need to be

as all types of contracts for the projects, whether in an early

considered in the decision-making processes of off-takers

planning stage, during construction, or during commercial

has grown exponentially and we are empowering them to

operation of the projects; the above, pursuant to the

make informed decisions. As industry experts, we work to

requirements and needs of our clients. We have the capacity

shed light on the remaining grey areas they might have. We

to perform onsite work to ensure all phases of the project

want off-takers to fully capitalize on the opportunities of the

unfold according to plan. Our understanding of Mexico’s

new market, be aware of their options and choose the best

regulatory framework and its permitting particularities at

fit for them, based on their consumption profile. Regarding

both the federal and local levels allow us to treat each project

hydrocarbons, the implementation of the Energy Reform

with its very own, specific personality. To ensure their success,

has represented a series of legal and factual challenges,

Energía CB Consultores can also structure optimal financing

particularly in social matters and rights of way. In this regard,

conditions for these projects and secure the commercial

our main contribution has been to provide transport for

requirements that ensure a project’s bankability once it is

the projects through land pipelines, certainty in investment

online. One of the added values of Energia CB, is that, through

and development, through legal and management support

our broad experience in project development before, during

in rights of way, permits and Environmental and Social

and after the Energy Reforms, we can design adequate work

authorizations, in order to achieve a successful execution,

strategies for the above described activities, adjusted to the

from the early stages of construction. On the natural gas

applicable regulations of each project and, at the same time,

pipelines side, our main contribution was the supervision of

pursuant to the times and needs of our clients.

the Los Ramones pipeline project. We oversaw the process of major permit obtainment and rights of way, parallel to

Q: What is Energía CB Consultores’ most important

the revision of more than 2,000 contracts. We are also

contribution to Mexico’s energy industry?

supervising the pipelines tendered by CFE and won by

A: Provide support and certainty in decision making to

TransCanada.

project developers and off-takers, detection of main risks Q: Which financial players have the best profile to accompany development banking’s financing efforts? Energía CB Consultores is a Mexican consulting firm specialized in

A: Private equity funds have shown interest but their

developing energy projects, natural gas pipelines, project finance

participation remains conditioned by the off-taker tier

and energy consumers. Its services include project management

interested in purchasing a particular project’s energy. They

as well as legal financial and commercial advisory services

are also searching for long-term certainty over merchant

price levels, which cannot be provided by such a nascent

long-term electricity auctions is the decreasing trend in

market. International and national development banking

price packages showcased throughout each edition. This

institutions have expressed interest and they are already

decreasing trend has a direct impact on power producers

granting financing for merchant projects. This lack of

when they are the key puzzle piece for the rest of the WEM.

commercial clarity is precisely the reason why Energía

Qualified users and suppliers depend directly on thriving

CB became fully invested in the off-taker side, both to

and numerous power producers. We are anticipating that

showcase the benefits of purchasing clean energy for

the market will mature by 2025, depending on the pace at

consumption and to secure project bankability. The CKDs

which regulators are able to reflect total transparency over

issued by the country’s stock market, integrating several

the inherent generation, transmission and distribution costs

energy projects at the development stage, provide a

of the regulated electricity rates.

good alternative for projects that still lack off-takers to fill the commercial aspects of the project. Not having off-

Q: Which service offered by Energía CB Consultores is

takers complicates the obtainment of financing flows for

driving your growth?

energy projects and CKDs can bridge the gap between

A: Energía CB Consultores is supporting the energy market

final users’ short-term expectations and the mid to long-

throughout the entire value chain. We are advising project

term timeframe of project development. These instruments

development and assisting in the permitting process,

will also help break the complex cycle of determining a

accompanying power producers operating in the market

project’s priorities between sufficient equity, signed off-

and providing business for qualified suppliers. Our recent

takers and financing.

focus on strengthening off-takers closed the value chain’s loop. We are working on basic-supply permitting and

Q: What financing schemes are best suited to Mexico’s

structuring for a client and are anticipating this particular

energy projects?

business line will grow in the short term. No link in the

A: Mexico’s utility-scale projects resulting from the country’s

value chain is left unattended. We are also working in

long-term electricity auctions are showing increasingly

transmission bids, such as the two major ones linking

aggressive prices with progressively thin profit margins.

Oaxaca to Morelos and Baja California to the rest of the

Large, multinational utilities are virtually the only players

National Interconnected System.

that can design competitive offers under such conditions, given the observed ROIs. The few remaining self-supply and

Q: What are Energía CB Consultores’ objectives for the

legacy contract projects remain the preferred option for

near term?

conservative investors, given the security of price stability

A: We will continue consolidating our off-taker portfolio,

and the locked-in consumers. Merchant schemes are an

assisting them in their transition to the new electricity

attractive option given the differential between nodal

market and capitalizing on new opportunities, such as

and auction prices but banks are still working to adhere

distributed generation. We are developing integral services

to this particular scheme given the long-term uncertainty.

to deliver critical data to assist their decision-making

Development banking will continue leading the financing

process, including new load points and other key electricity

push and based on its determination, commercial banking

infrastructure developments and continue supporting

will closely follow suit. The interesting aspect of the

renewable and gas pipelines projects.

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| VIEW FROM THE TOP

INJECTING CREATIVITY INTO PROJECT FINANCE SALOMÓN AMKIE Vice President, Head of Power and Utilities for Citibanamex

294

Q: What is Citibanamex’s primary contribution to Mexico’s

low pricing obtained in the coverage contracts. These low

energy transition?

levels made certain assumptions about merchant revenues

A: Like any financial institution, Citibanamex is trying to

that not everyone was willing to accept, including financial

push the envelope on creative financial structures. Financing

institutions. We believe the emergence of bilateral PPAs

is a key component for any developer or project sponsor to

to be incredibly positive. For one, it means that more

complete a power generation project. It is a very interesting

developers are pushing the commercial side of their

time for renewable energy in Mexico and the critical aspects

business and not just relying on CFE. Second, a pool of

of bringing in international investors, creating more access

industrial players willing to sign these PPAs is steadily

to capital markets, both internationally and locally, and

growing, meaning they are getting more involved so they

structuring financing solutions with extra creativity are the

can enter into commercial conversations with project

aspects in which Citibanamex can truly excel.

sponsors. It is a rising trend that will consolidate as we move forward under the new administration.

Q: In what specific areas is Citibanamex emphasizing to attract capital to Mexico’s renewable energy projects?

Q: What financial schemes are best suited to bolster

A: We are increasingly focusing on the US private

distributed generation in Mexico?

placements sector. It is a niche within US capital markets

A: Looking at mature distributed generation markets such

but it allows more flexibility in financial structuring than a

as the US, the usual financing structure involves assembling

typical 144A issuance. Aside from closing three transactions

a pool of distributed generation PPAs or leases that comply

related to large energy-projects, we also put together a

with a specific set of criteria in terms of creditworthiness. If

large USPP investor seminar at our Banamex corporate

it is residential, for instance, a solid credit score is a must,

offices in Mexico City where we brought 12 large pension

together with location and home values. Banks look at it

funds, mutual funds and other institutional investors we

as financing a credit card portfolio rather than a pool of

interact with in the US. We organized full sessions in which

mortgages in that it is considered a retail risk rather than a

key regulators, government officials and select clients in

performance risk. Ideally, we would like to see this evolving

Mexico could interact with these investors. We also organize

in a sense that by 2021 we can also open the door of capital

on an ongoing basis meetings in New York in a similar

markets to finance pools of distributed generation projects.

fashion to engage with potential investors. There are two main challenges for this to occur in Mexico. Q: What more is needed to develop full-merchant projects

First, there is less transparency compared to the US related

and bilateral PPAs in parallel to long-term auction projects?

to creditworthiness. Mexico’s credit bureau is a rather new

A: Merchant projects and bilateral PPAs are a market

practice. Second, lack of capital market access is an issue

reaction to the aggressive results showcased in the long-

as Mexico’s pool of distributed generation projects would

term electricity auctions. A significant contingent of

be denominated in local currency and capital markets need

more stable and multinational sponsors that have certain

to be available for this particular modality. In other words,

constraints on capital structure were not thrilled or not even

Mexico’s local pension funds would need to meet certain

able to participate in the long-term auctions because of the

rating criteria and thresholds to be able to invest in these distributed generation pools. There is a tremendous amount of solar resource in Mexico for a distributed generation

Citibanamex is the Mexican subsidiary of Citigroup, an

boom in the near future but it is dependent on these two

American multinational investment banking and financial

specific conditions being met, especially considering that

services corporation. It has about 200 million customer

distributed generation will be primarily equity-driven as it

accounts and is present in 160 countries

consolidates and matures.

VIEW FROM THE TOP |

MEZZANINE EXPERTISE AGAINST MERCHANT RISK

CESAR URREA Head of the China-Mexico Fund

ANDRES MILLAN Chief Investment Officer and CoHead of the China-Mexico Fund

Q: Why should project developers rely on IFC’s China-Mexico

AMC autonomous manager status. As such, we can evaluate

fund as a go-to financing source?

projects based exclusively on their technical, financial,

AM: We bring several factors to the table. Our team’s

environmental and social aspects.

capacity to diligently anticipate and follow Mexico’s infant energy market is a fundamental element. The IFC actually

Q: What is your assessment of Mexico’s renewable energy

supported the implementation of the country’s Energy

project finance practices?

Reform, providing feedback on the drafted regulation and

AM: Financing in Mexico’s renewable energy industry can be

highlighting the critical aspects that would make it work.

divided into two main prongs: long-term electricity auction

The fund was primarily structured to inject capital into

projects and merchant risk. The former’s operations are

infrastructure projects for periods of 12 years, making us a

easier to grasp and navigate for the financial sector given

long-term partner. Our fund always invests jointly with the

the long-term conditions of the coverage contracts and

IFC, using international best practices and making social and

CFE being the off-taker of these projects. The issue with

environmental issues a priority. Also, the fund always acts as

long-term electricity auction projects is the level of equity

an active minority shareholder but without influencing the

returns and debt costs, which reduce the number of players

decision-making process inherent to the project.

willing and able to develop projects under these conditions. The upcoming challenge will be to finance merchant risk-

CU: As a global investor in emerging markets and industries

based projects. Using its global network of operations, IFC

such as energy, IFC knows what works and what does not

is thoroughly analyzing the possibility of financing merchant

because it has already experienced similar cases in other

projects and assessing suitable structures, both for PV, wind

countries. We can provide this feedback and expertise to

and solar thermal energy. Merchant projects are paving the

the companies we are looking to invest in. The fund’s size

way for equity-based and mezzanine financing. The main

and access to IFC capital provide interesting investment

issue of merchant projects lies in yielding attractive margins

opportunities, placing us in an ideal position to be Mexico’s

and returns in the short term, which become uncertain in the

development banking partners.

long term based on the unpredictability of energy-related commodities, like natural gas, or electricity price variations.

Q: What is the context behind the fund’s creation?

We are looking for the appropriate partners to detonate and

CU: The fund was implemented in 2014 after an official

standardize merchant projects, leveraged by appropriate debt

meeting between former President Enrique Peña Nieto and his

structures.

Chinese counterpart, Xi Jinping. They were looking at different ways to attract capital to Mexico’s reformed industries: oil

CU: Mexico’s pension funds and infrastructure funds are well-

and gas, energy and telecommunications. The approved

positioned to take on energy project finance. We are looking

capital to be allocated to these efforts required a specialized,

for integral projects, with attractive growth components such

neutral third-party to manage it. An IFC subsidiary, the Asset

as scalability in installed capacity or with the possibility of

Management Company (AMC), was entrusted with this task.

adding other business lines, such as energy trading. Our fund

This subsidiary was selected due to the rigorous transparency

is better positioned to provide these elements, well beyond

the IFC operates under to avoid misinterpretations of the

simple project finance.

fund’s objectives. Despite its recent creation, our US$1.2 billion fund has already placed investments in the three core industries it focuses on.

China-Mexico Fund was created in 2014 as part of the IFC’s Asset Management Company (AMC). Worth US$1.2 billion, it makes

AM: The idea of entrusting this fund to the AMC is to separate

equity, equity-related and mezzanine investments in privately-

the investors from the decision-making process, granting the

held Mexican companies in the energy and telecom industries

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STANDARD LEASE AND LOAN PRODUCTS FOR POSITIVE CASH FLOW JOHN BATES CEO of Prana Power

Q: Why should Mexico’s developers of renewables projects

showcased. As qualified users move into those industrial

turn to Prana Power for financing?

parks, we will already have an asset built. We will provide

A: On the distributed generation side, we are one of the few

competitive power and sell it under a merchant scheme.

companies that provides a competitive standard lease and

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loan product. Our focus when working with channel partners

Q: What impact have decreasing package prices had on

is to support their significant growth in the business. In other

the distributed generation segment?

markets such as the US, when financing came in for distributed

A: When examining the most recent long-term electricity

generation, there was a 40-45 percent year-on-year growth

auction at US$20/MWh+CEL, and factoring in transmission,

in orders, driven precisely by the lease and loan products

distribution and congestion, prices are in the US$35-40

available. The challenge that companies have in the distributed

range. When these kinds of tariffs better reflect Mexico’s

generation sector is working capital. Managing the growth

costs, distributed generation will be competitive. Our

of a business, hiring more people and opening more offices

challenge is not to build our business around the auctions.

while simultaneously trying to execute projects is a complex

Rather, it is engaging the market and dissipating our

task. Our plan is to provide favorable payment terms to keep

customers’ doubts and fears over distributed generation

our channel partners cash-flow positive. This is not only at

and the benefits of it in the commercial and industrial space.

project level but also to the extent they need a cash infusion

With subsidized energy pricing, the attempted creation of a

or are looking for an investor; as part of an equity firm, we

new and unregulated market can create economic friction.

have the ability to pour capital directly into these companies.

While we understand its role in the residential segment,

Prana Power extends well beyond the distributed generation

there is no reason to continue subsidizing the commercial

niche. We will have 300MW of renewable energy projects

and industrial sectors to the detriment of true cost. We do

under construction by the end of 2018, providing significant

not believe there needs to be major changes in the way the

leverage on the supply-chain side and extending the inherent

market is being formed or regulated. Rather, the next step

benefits of this portfolio to our 15 channel partners, which

for Mexico’s energy market is more about providing energy

are some of the best EPCs in the Mexican market. On the

prices that reflect cost and allowing the market react to it.

procurement side, we are partnering with companies such as GCL and Huawei, and this directly enhances the profitability

Q: What financing schemes are best suited to Mexico’s

and competitiveness for our lease and loan products, which

commercial and industrial distributed generation?

are distributed through our channel partners.

A: If, as large projects, we could rely on 15-year US dollarbased PPAs in our legacy contract projects, we would be

Q: How did Prana Power consolidate a 300MW pipeline

able to finance those from any number of capital sources.

portfolio in less than a year?

On the distributed generation side, to tackle the commercial

A: Very early on, we capitalized on the remaining legacy

and industrial segments, equity is essential. Our standard

contract projects of 290MW worth of solar power. We

lease and loan product is rigorously underwritten to

also built up two 20MW projects, both for industrial parks.

integrate a quality portfolio of projects and to develop

Those two projects were built on full equity, based on the

quality credit. Our unlevered return on a pure equity basis

attractive nodal pricing and favorable land pricing they

is the array of options unlocked to best capitalize on that portfolio. This includes selling it for a solid spread – which is not our preference – to building it up and creating a

Prana Power is an energy-focused fund operated by Artha

securitization, regenerating that cash back into the business

Capital, a private equity administration firm for alternative

or providing a financing warehouse facility where after

investments, focused on the creation, development, acquisition

we build each asset and it is operating between 70 or 80

and operation of assets in real estate, infrastructure and energy

percent leverage, we draw that capital out and regenerate it.

VIEW FROM THE TOP |

QUALITY PROJECT INSTALLATIONS TAKE TIME CĂ&#x2030;SAR ROMERO Sales Director of Power Generation at W.W. Williams

Q: What advantages will clients realize when selecting

While we are an extremely good option to produce CELs,

W.W. Williams as their project developer?

companies also need to know about our limitations. It takes

A: W.W. Williams is an official distributor of MTU products.

18 months for a project to go from the initial studies to

While in the US the company focuses solely on selling

the end of the installation to start producing CELs. Many

equipment, in Mexico we have had to become developers

companies are not aware of that and now want projects

due to the market's preferences. In the country, the roles of an

to be installed right away for them to start producing and

equipment provider, an EPC company and a developer are not

consuming CELs. That is not possible in such short time

clearly established. Thanks to the broad experience we have

frames. In that sense, we are the first to admit when a

gathered over almost a decade of working with CHP projects,

project can not be developed, as we do not compromise

and myself having worked in the renewable energiesâ&#x20AC;&#x2122; arena

quality over time or money.

for even longer, we are capable of getting excellent results, benefiting all stakeholders. We have installed 18 projects in

Q: How would you rate the role of FIDE as a program to

the country and none has had any subsequent problem. All

promote renewables and energy efficiency?

these projects are still operating in optimal conditions, which

A: Although it is a good program that has correctly evolved

is a clear statement of our capabilities.

over time, in the beginning it committed the error of making it too easy to implement projects, which then created

Q: What do companies that require CELs in their daily-

problems in the installed systems and made clients stop

basis operations need to know?

trusting on the benefits that renewable systems, such as

A: There is a big difference between installing a renewable

solar ones, have to offer. This even caused some clients

energy project, such as a PV rooftop, and actually

to refuse paying the projects as they were promised a

generating CELs, but this is not completely understood

saving that never materialized. Now, thanks to the cutting-

by the people who have made that part of their CELs. To

edge technologies we use, we have placed CHP projects,

get a CEL, companies have to measure their generation

together with the support of FIDE, that have ROIs of less

and ensure it is recognized by the MEM, according to the

than four years and are looking to replicate them as much

regulation that is in place. This process can significantly

as possible all over the country.

increase the costs and times involved in the development of an energy system.

Q: What common struggles do companies find when developing renewable projects in Mexico?

CHP does not have all its energy production recognized

A: When performing the installation of a project, usually

as CEL because it has a green and nongreen part, the

two main hurdles arise. The first is that many developers

green being the thermal and the nongreen being the

start the project but are not able to finish it because the

electricity production. Some of the electricity produced

permits with CRE are not properly managed and the project

can be recognized as CELs, but not all. Nevertheless, on

cannot get interconnected. Secondly, it is common that the

average, solar systems find it hard to produce for 2,000h/y

project does not reflect real costs and therefore the capital

and reaching 2,500h/y is almost unheard of. Meanwhile,

for the development of the project is exhausted sooner

a CHP system can produce a minimum of 8,200h/y. This

than expected.

means that the share of energy considered as CELs that is produced by a CHP system is higher, more than three times compared to a solar installation. If the fuel is biomass

W.W. Williams provides on-site cogeneration solutions in

then the generated energy 100 percent can become CELs,

Mexico ranging from installation to the startup of the project.

meaning that we become an even better option compared

With over 100 years of experience, the company has become

to either solar or wind.

one of the most diversified solution providers in the Americas

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PRO-CYCLICAL AND ACYCLIC PRACTICES FOR MARKET MATURATION VICENTE CORTA Partner at White & Case

Q: How is White & Case assisting its clients in navigating

part worth mentioning would be financing and how auction

the regulatory uncertainty of Mexico’s energy model?

participants choose to leverage their projects.

A: Mexico’s Energy Reform unlocked a wide array of

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investment opportunities for a varied pool of investors.

Q: How is White & Case leveraging its global presence to

These include incoming investors interested in the

anticipate Mexico’s regulatory changes related to energy?

licensing rounds and midstream projects to local and

A: Based on the precedent set by CFE’s structuring and

tenured investors interested in power generation projects,

placement of a Fibra E in Mexico’s stock exchange, in

both conventional and clean. White & Case specializes

which we participated, resources available to finance

in the bidding procedures of the industries we serve and

power generation are set to multiply. We anticipate

ensuring that contract prices and economic conditions

this Fibra E will be used to boost transmission and

comply with market rules. White & Case secured a solid

distribution infrastructure. This niche is strategic for

foothold because of a series of long-standing practices

CFE to best capitalize on the efforts of private players

in bidding processes, including power generation and oil

developing utility-scale renewable energy projects as a

and gas, in addition to administrative litigation, regulatory

result of the long-term electricity auctions. We are also

and financial advisory services. We developed the

anticipating Mexico’s regulatory framework will further

capacity to inspect potential vulnerabilities for our clients

push renewable energy generation against conventional

in those specific aspects. White & Case made a point

generation.

of integrating both a cyclical and an acyclic practice. The former is ideal for growing markets while the latter

Q: What are White & Case’s latest landmarks in Mexico’s

answers to corporate restructuring and litigation, primary

energy industry?

traits of a market in difficulty.

A: Our participation in CFE’s Fibra E is a clear example of our expertise and comparative advantages. We provided

Q: How is White & Case securing the success of long-term

the design and implementation of this financial instrument.

electricity auction participants facing reduced margins?

It is a project that required the combination of our fiscal

A: Based on our interaction with long-term electricity

departments’ expertise, our global track record to

auction participants, the lion’s share of these players

implement what has been done in other markets that relied

are tenured investors familiar with CFE tenders. Power

on Fibras or similar financing solutions, our knowledge

generation investors are well-versed in calculating such

of capital markets and Mexico’s energy sector and its

projects’ margins and conditions that need to be met.

framework for transmission and administrative law.

Auction participants choose this specific scheme because their business model stems from cumulating a sizable

White & Case has also been actively involved in key natural

mass of projects and benefits from economies of scale.

gas pipeline projects, such as the Los Ramones pipeline, and

The legal aspects of auction participation are also less

has participated in CFE’s contracting processes with private

complex compared to CNH’s licensing rounds. The legal

companies for generation, transmission and distribution

framework of Mexico’s long-term electricity auctions comes

projects. We also contributed to PEMEX’s restructuring to

from a rather standardized background. The only delicate

become a full-fledged NOC, assisting in defining the core business PEMEX would focus on and the peripheral areas where the NOC could partner with private players. White &

White & Case is a global law firm with a foothold across a wide

Case is also an active player in strengthening the country’s

range of industries, including power generation and oil and gas.

midstream sector from storage to distribution. We are

It specializes in regulatory issues, project finance, asset sales and

collaborating with all stakeholders, including PEMEX, CFE

acquisitions, workout assessment and corporate restructuring

and private companies.

VIEW FROM THE TOP |

SOLUTIONS FOR COMBINED PROJECT FINANCE ARIEL RAMOS Partner Global Energy at Mayer Brown

Q: What are Mayer Brown’s primary strengths relating to

is not able to provide. Developers have primarily turned

Mexico’s energy industry?

to multilateral banking institutions, development banks

A: We provide Mexico’s energy industry the combined

and Export Corporation Agencies (ECAs) to provide for

experience of our local team and Mayer Brown’s

their financing needs. Commercial banking’s participation

international team, cumulating over 30 years of experience.

is limited to certain tranches of these loans.

Mayer Brown’s Mexico team has actively participated in the country’s energy industry since the mid-1990s. We cover

Our experience tells us that this financing scenario is far

both the electricity and oil and gas sectors and have done

from permanent as we are witnessing a soaring number

so since the emergence of the first IPPs and the unlocking

of financial products with different characteristics and risk

of oilfield services to private players. We have staff across

profiles. Mayer Brown has adapted by combining different

various offices in the US, including New York; Washington,

expertise and practice areas to provide our clients a better

DC; Chicago, as well as in Asia and Europe. They have

service and stronger analyses of these new financing

worked tirelessly to evaluate Mexico’s opportunities in

options. Projects financed through mini-perms followed

both sectors and have developed a capacity to work as

by project bond or corporate bond-shaped take-outs are

a single unit even across continents to provide our clients

an example of this trend. The challenge is to ensure the

an integral vision of our expertise. Mayer Brown Mexico

harmonious coexistence of these options within the same

now echoes this approach in the upstream, midstream and

project and how, in the event of a refinancing scenario, the

downstream segments, and with the long-term electricity

relevant mechanisms to soften its effect can be established.

auctions, renewable energies, CFE’s Qualified Supply Contracts, the secondary market for electricity assets and

Q: What primary factors have allowed companies to

energy infrastructure tenders coordinated by CFE, PEMEX,

showcase aggressive pricing bids in the long-term

CNH, CRE, ASEA and the Ministry of Energy.

electricity auctions? A: Mexico’s long-term electricity auctions and the electricity

Q: How does Mayer Brown want to position itself among

chapter of the Energy Reform is a success story. We

Mexico’s new local and foreign energy players?

consider it as such because CFE, the Ministry of Energy and

A: Given our decades-long experience in the industry,

CENACE implemented auctions that were well-received by

we can provide context for the reform and how its

Mexico’s infant energy market. The prices obtained during

implementation has drastically modified the industry, with

these auctions is multi-pronged. This is partly due to the

in-depth knowledge of the different sectors, industries, key

strategy followed by some participants to generate a critical

players and stakeholders. In doing so, we can map different

mass of projects to obtain better financing conditions and

risks and provide adequate risk-mitigation measures and

attract institutional investors, while there is a prevalent

structures. These projects require interaction with both

focus on the continuous cost reductions associated with

existing and new government entities, a process we can

technologies for renewable energy. The third long-term

streamline for our clients.

electricity auction introduced the market to the Clearing House, showcasing Mexico’s serious intent to implement

Q: What kind of financial entities are most suited to

best practices and work toward international standards.

assisting the financing efforts of development banks? A: For Mexico’s renewable utility-scale projects to ensure long-term financial viability, particularly considering the

Mayer Brown is a Chicago-based international law firm

package prices obtained during the long-term electricity

operating in Mexico since 2013, with proven expertise in all

auctions and their inherent margins, they require long-

subjects pertaining to the energy sector, including oil and gas,

term financing options that commercial banking by itself

mining, distribution, transmission and generation

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PROJECT FINANCE, STRUCTURED INSTRUMENTS TO BOOST ENERGY DEVELOPMENT JAIME FALCONES Co-Founder of Beel Infrastructure Partners

ANICETO HUERTAS Co-Founder of Beel Infrastructure Partners

Q: What are the areas of opportunity Beel Infrastructure

still to develop, especially for greenfield projects. The projects

Partners has recognized in Mexicoâ&#x20AC;&#x2122;s energy market?

established so far are brownfields with 20+ year PPAs that

AH: There is a lack of expertise when it comes to structuring

do not support construction risk. Construction guarantees

financial products for infrastructure projects in Mexico and

could be given by multilateral entities or development banks

Latin America, although there are large pools of money

to strengthen the market and credit quality.

available to finance large profitable projects. Investors 300

are taking an interest in many projects in the country but

JF: In private placements, we are seeing long-term activity

there is a mismatch in the intermediariesâ&#x20AC;&#x2122; skills to identify,

from US insurance companies, especially large projects such

structure and provide long-term financing. This is important

as the Fermaca pipelines, and some in renewables like the

because infrastructure provides the country with basic

Frontera Energy project. We think that investment in long-

services. Beel has ample experience in infrastructure.

term consolidated brownfield projects will continue to grow in the long term. We believe the best opportunities can be

JF: While working in Santander Sponsors, I identified the

found within the subordinate and mezzanine debt markets

opportunity within structured debt in energy projects

as they help increase returns, recycle capital and monetize

that is not as developed as other emerging economies.

future flows. We believe it is necessary so that sponsors and

Capital markets, project finance and private debt, as well

industrials can pursue new projects and monetize assets

as mezzanine and subordinate debt, are the areas in which

that they have already consolidated.

we want to focus and where we have spotted the greatest area of opportunity in Mexico. We are a local team with the

Q: What are the main challenges in the project financing

local expertise needed for these projects. We have created

of Mexican energy infrastructure projects?

a flexible structure that will adapt to the needs of our clients

JF: Project finance is the future. There are huge international

without developing any conflict of interest with any other

utilities that are doing it with their own balance sheets,

financial institution because we are completely independent.

but it must be sustainable for the market. Within project finance, the long-term auction market is being financed

Q: What are the most commonly-used methods of funding

well through development banks with 15-year energy PPAs

for energy projects?

and 20-year CELs. We see a problem within the merchant

AH: There is a great deal of liquidity in the Mexican market,

market because it is still recent and immature, with a short

whether its from local or international funds, and Australian,

price history. Banks, funds and institutional investors will

Canadian, Middle Eastern and Asian sovereign funds are also

have to finance those types of projects because they are the

present in the market. From a project finance point of view,

future and because the long-term auction prices are very

there is an opportunity where most of the participation in

low and do not provide the profitability required.

energy is dollar-denominated. Asian and European banks participate in a more of an opportunistic manner with smaller

AH: The new electricity market must still develop so that

teams in Mexico and they tend to have a great deal of

investors can feel more comfortable investing long term

concentration in CFE and PEMEX. From a bond standpoint,

with merchant risk. There will also be an issue with the

there have been a few energy bonds but it is a sector that is

exposure limits from local and international banks because so far CFE accounts for 80 percent of participation. If an adequate Clearing House is not developed, the banks will

Beel Infrastructure Partners is an advisory and asset

reach their exposure limits rapidly. The goal is to develop

management firm focused on infrastructure in Latin America

2,000MW annually for the next five to six years. We must

and headquartered in Mexico City. It offers attractive risk-

diversify the funding sources for project finance so that

adjusted investment assets to long-term institutional investors

credit exposure limits are not reached.

INSIGHT |

RECONCILING ECONOMIC GROWTH WITH ENVIRONMENTAL EQUILIBRIUM EMMANUELLE MATZ Global Head of Energy and Infrastructure at PROPARCO

Mexico’s clean energy ambitions are ready to reach the

auction sponsors are discussing the appropriate steps to

next level in energy project finance, says Emmanuelle Matz,

support part of those projects’ financing plans. “We can

Global Head of Energy and Infrastructure at PROPARCO.

design the appropriate structure to mitigate risks together

“Mexico’s energy projects are starting to get an increasing

with local Mexican development banks and international

taste of merchant risk, which not all banks are comfortable

banks as well. We see a need for large-scale capital. That

with when it comes to providing financing in this specific modality.” PROPARCO is a subsidiary of the French Development Agency (AFD) and is focused on private sector development. It has been promoting sustainable economic, social and environmental development practices for 40 years. Matz says Mexico is a historically great market to invest in renewable projects, as showcased by the organic and smooth transition to its new energy model. “It is reaching maturity levels in record time compared to the industry’s global benchmarks.”

“

is part of our new role,” Matz says.

We see a need for large-scale capital. That is part of our new role”

The right financial instruments for merchant renewable energy projects is a mix of different tools, Matz adds. “We can provide financing in US dollars on a long-term basis. The added value lies in complementing sizable financing plans to build current and future projects. Thanks to the

When PROPARCO expanded its mandate outside of Africa

competitiveness of Mexico’s energy projects, sponsors are

in 2010, it started by financing one of the first utility-scale

also considering scaling up their portfolio and looking for

wind farm projects in Oaxaca: Eurus. With an installed

investors, especially quasi-equity investors,” he says.

capacity of 250MW and with ACCIONA Energía at the helm of the project’s development, it was the largest wind

AFD’s agenda relating to renewables projects is to support

farm Latin America of its time. “It was our first stepping

and follow-up on COP21 agreements, added to the renewed

stone in our support for renewable energy in Mexico.

commitments agreed upon by French development agencies

At that time, although the financing market was mature

during the COP23 in 2017. “Based on both precedents,

enough to bypass the involvement of multilateral financial

PROPARCO is committed to exclusively supporting projects

entities and the ready-to-build status of the pipeline of

that would allow low-carbon development for all the

programmed projects to be developed, the 2008 financial

countries it is supporting. That is exactly the case as well

crisis hampered financing flows,” says Matz.

for Mexico. It means we will be financing and supporting renewable projects and increasing the country’s installed

The key to the successful development of the Eurus wind

capacity to keep developing the country on a long-term

farm, according to Matz, was to properly assess the project’s

basis,” says Matz.

environmental and social aspects. “In Oaxaca, PROPARCO executed these critical aspects, properly and thoroughly,

At the federal level, AFD is proposing technical assistance

without issue. In so doing, ACCIONA Energy was able to

and funds for Mexico to properly assess the optimization

capitalize on Mexico’s best location to develop additional

of this development trajectory. “PROPARCO is looking to

extensions to the initial project,” Matz says.

support the financing of a consolidated database of specific studies that could shed some light on that. We are also

With the emergence of merchant risk, inherent to

focused on deploying the necessary tools for the Mexican

developing utility-scale renewable energy projects outside

government to support the implementation of this new

of the long-term electricity auctions, PROPARCO and some

thinking on that specific subject,” Matz says.

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COST-EFFECTIVE CAPITAL FOR MEXICO’S RENEWABLE ENERGY PROJECTS LEONARDO HERNÁNDEZ Director Latin America of Marathon Capital

302

Q: What key factors make Marathon Capital a reference in

Q: Which financial players could best support the efforts of

raising funds for renewable energy projects?

development banks to finance renewable energy projects?

A: Our firm has been in business for almost 20 years and we

A: Development banking institutions have taken a leading

have successfully completed more than 150 energy-related

role in providing financing for utility-scale renewable energy

transactions during this time, the large majority of which

projects. While commercial banks are looking to participate,

were for utility-scale renewable energy projects. We stand

compliance with the Basel III rules constrains their involvement

among the most active firms when it comes to investment

in long-term project finance. The Basel rules specify that banks

banking advisory services for renewable energy projects in

must maintain a certain amount of capital for the amounts

the Americas. That expertise makes us a reference in the US

they are lending, raising the bar for long-term financing

and Latin America, allowing us to sit with top-tier developers

placements. New players are entering the fray, such as

and assist them in their capital-raising efforts.

international infrastructure and pension funds. The latter have been looking closely at long-term electricity auction projects,

Q: What project in Mexico best showcases this added value?

PPA structures and their respective equity requirements for

A: We advised Mexico Power Group when it was financing the

some time. These funds do not have the same limitations as

La Bufa wind farm project. We provided an integral advisory

commercial banks, allowing them to offer in some cases more

service to bring in a capital partner. Our process culminated

competitive terms, which are key for project finance.

with First Reserve becoming a financial partner for the project, coupled with the capital endowment required for La Bufa’s

Q: How is Marathon Capital adapting its services to the

development and debt structuring. Because it was a self-

diminishing margins resulting from the long-term auctions?

supply project, La Bufa wind farm’s developer had already

A: This is an attractive opportunity for Marathon Capital.

negotiated a bilateral PPA in local currency with a private

Auction participants need to have access to low-cost capital,

off-taker. We helped Mexico Power Group renegotiate the PPA

fostering competition to find cost-effective capital sources

to consider US dollars and make it bankable in the long-term.

to develop renewable energy projects, such as international

That project was the stepping stone that positioned Marathon

pension and infrastructure funds. Finding such efficient

Capital with long-term electricity auction players.

capital sources is our bread and butter, especially for project developers whose capital is better placed developing

Q: Which renewable energy technologies are most attractive

greenfield projects rather than owning a 15-year project and

in Mexico from an investment standpoint?

recuperating the placed capital through operational yields.

A: Based on the long-term electricity auctions, solar and

We can match investment appetite to project characteristics

wind power are among the most attractive, given Mexico’s

to produce the best yields available.

world-class wind and solar resources. While hydroelectric and fossil fuel plants have enjoyed a significant historical

Q: What market foothold is Marathon Capital looking to

role in Mexico’s energy mix, the development schedules and

develop in Mexico?

investment requirements and both the environmental and

A: Our mission is to guarantee our clients’ success, especially

social implications of developing such projects render them

at a time when developers are distancing themselves from

less attractive for investors.

long-term projects due to the aggressiveness of the prices showcased in the long-term auctions and their inherent thin margins. Instead, developers are increasingly attracted

Marathon Capital is a Chicago-based investment bank and

to bilateral PPAs and pondering making their projects full

financial advisory firm focused on delivering financial products

merchant. The key to bankable PPAs is to find low-risk

and services to the energy and infrastructure markets. It

counterparts; full merchant projects must still make a case

specializes in selling and financing companies, projects and assets

for being financeable in Mexico’s developing energy market.

INSIGHT |

MAXIMIZING SUCCESS PROBABILITIES SANTIAGO MORALES Partner at Becquerel Capital

When it comes to financing, the energy landscape in Mexico

says the aggressive offers that create small revenue margins,

appears to be a tale of two project types. Whereas those

added to risk distribution, present problems for projects.

resulting from the long-term auctions have little trouble

“Awarded developers obtain successful projects but must

obtaining low-cost financing, it remains a challenge for

manage the risk of speculating construction costs in the

merchant projects, bilateral PPAs and others outside the

next two-to-three years, when they must begin generating

auctions, says Santiago Morales, Partner at Becquerel

and delivering energy,” he says. The credit capability of

Capital. “Mexico’s energy market is evolving and operational

purchasers is also prone to speculation. “CENACE’s Clearing

self-supply legacy projects are becoming scarce,” he says.

House, introduced in the third long-term auction, cannot

“The problem is commercial. Off-takers receive so many

quantify projects on a risk basis,” he adds. “Several variables

offers that it is difficult to convince them of the advantages

have to be considered, such as who participates, their credit

of a legacy self-supply scheme.” Morales believes there is a lack of awareness about bilateral PPAs and how they operate. Chief among the unknown variables is congestion risk and which market players are willing and able to absorb this risk. “The qualified supplier must be sophisticated enough to absorb risks but few large qualified users can understand the complexities of power trading at this level. This is exacerbated by scarce historical data,” says Morales. “A risk quantifying method for grid congestion and financial rights of transmission still needs to be developed. A balanced project requires balanced risks.”

“

rating and how their offers are backed up.”

Off-takers receive so many offers that it is difficult to convince them of the advantages of a legacy self-supply scheme”

Through sophisticated credit risk analysis based on portfolio

He adds that isolated supply and local generation can be

theory, Becquerel Capital was able to design replicable

two options to solve these issues but only if the qualified

commercial schemes, allowing access to critical mass in

users’ facility is located close to a generation plant.

renewable energy projects. “Our credit risk analysis presents commercial and industrial projects before rating agencies

Becquerel Capital is a boutique investment and financial

and banks as less risky and more attractive compared to

structuring firm specialized in clean energy infrastructure.

utility-scale projects,” says Morales. The boutique firm knows

Its team has an extensive track record in financing and

there are ways to provide certainty to reluctant financial

developing renewable energy, fossil fuels, energy efficiency

entities. “PV and wind powered generation, for instance, do

and water infrastructure projects. “Solar energy represents

not depend on future natural gas prices or any other input

90 percent of our activities while cogeneration and energy

cost variation,” he says. For off-takers still hesitant to switch

efficiency constitute the rest of our focus,” says Morales.

to renewable energy, Morales warns against the market

The firm’s primary focus lies in maximizing the success

noise caused from long-term electricity auction prices. “It is

probabilities of a project. “We understand what projects

important that these consumers understand these projects

need to be bankable and how to structure profitable PPAs.

are selling energy to CFE Suministro Básico, which still

We are able to save sizable amounts of time and money to

has to develop its generation portfolio within competitive

developers that are still riding the slopes of Mexico’s energy

margins to add distribution and transmission costs and risks,”

market learning curve,” he says.

he says. “While electricity rates are virtually impossible to predict in the long-term and committing to long-term supply

In their quest for bankability, developers of mid to large-scale

that today can be very competitive, off-takers can play a

projects look to the long-term electricity auctions. Morales

fundamental role in absorbing part of the market’s risk.”

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INNOVATIVE PROJECTS KEY FOR SECTOR DEVELOPMENT EMILIANO DETTA Sustainable Energy Expert at KfW

Q: What role does each KfW Group unit play in Mexico?

is reputational. We therefore analyze each project in which

A: KfW Development Bank focuses on financial and technical

we might participate with a view of ensuring high quality in

cooperation as a second-tier bank. We work with development

its execution. We mostly focus on environmental or social

banks and sometimes with the Ministry of Finance to support

issues, as well as serious technical issues that could impact

the national government in the funding of projects. KfW

the financial viability of the project.

Development Bank has the largest portfolio in the energy 304

sector in Mexico, representing almost US$1 billion approved

Q: What are the main initiatives that KfW is developing and

in loans. IPEX is a first-tier bank that works directly with

how are they evolving?

developers for large projects with tickets of US$50 million or

A: We are working on the re-funding of large projects, mostly

over that have an export component with Europe. For smaller

in the wind and solar power segments. At the same time, we

tickets, we have another first-tier bank called DEG that works

participate in programs like EcoCasa, where we have invested

with the private sector directly and can work with several

over US$250 million, and Eco Crédito Empresarial, where we

instruments, such as loans and equity contributions.

have US$100 million. Both projects have been successful and we want to increase our investment in 2019. EcoCasa focuses

Q: What are the main risks of funding a project in Mexico and

on supporting low-income housing projects and developing

how do you handle these?

energy-saving initiatives linked to these. Meanwhile, Eco

A: On a broader scale, we work with sovereign guarantees,

Crédito Empresarial funds SMEs through a financing scheme

which means the risk we take is directly linked to Mexico’s

operated by FIDE and linked to CFE’s receipt. The idea is for

economic position as a country. Another large risk for us

these companies to upgrade their equipment and services in such a way that their energy savings can gradually pay off the loan. The next step with Eco Crédito Empresarial is to escalate

Kreditanstalt für Wiederaufbau (KfW) , established in 1948 in

this business model to distributed energy with solar PV. This

Germany, is one of the world’s leading promotional banks. Its

will allow FIDE to offer longer term loans so companies can

KfW Development Bank division has been present in Mexico

install solar panels to power their facilities without requiring

since 2001 and opened offices in Mexico City in 2012

large down payments.

VIEW FROM THE TOP |

FINANCIAL GEARS TO PROPEL PROJECT DEVELOPMENT MACHINERY OMAR GALAVIZ Former General Partner and CoFounder of Anabática Renovables

ALEJANDRO LÓPEZ Technical and Commercial Director Mexico and Central America of Anabática Renovables

Q: What makes Anabática Renovables a reference for

number of players in Mexico’s industrial sector that have

technical advise to financial entities and developers?

the potential to participate in this area and generate

OG: Anabática Renovables started operations in Chile

added value for themselves in terms of social benefits,

in 2012 with a financial profile. The idea was to provide

sustainability and profitability. Mexico’s industrial players

advisory services to banks and their decision-making

should fully capitalize on this opportunity and enter the

committees related to project financing schemes. Our

fray. In Argentina, for instance, close to 70 percent of the

expertise addressed their criteria and risk models for

projects awarded went to local companies. 305

evaluating renewable energy projects. Based on what the market’s different players were working on, we refocused

Q: How is Anabática Renovables developing its public

and redirected the models used by financial entities

entity interaction service in Mexico?

to adopt a more technical-financial posture and better

OG: Given our recent arrival to the Mexican market, we are

respond to these players’ needs. Our work allowed projects,

still in the initial phases of establishing this service. More

even those under development, to reach financial closing.

generally, in markets such as Chile, Argentina and El Salvador, we built strong ties with government entities. For instance,

Q: How does Anabática Renovables provide the best

we worked closely with El Salvador’s General Superintendent

solutions to its clients’ most common problems?

of Electricity and Telecommunications (SIGET), advising on

OG: The lack of project structure under a long-term market

the technical and financial aspects of the renewable energy

vision is a common issue. More often than not, developments

tenders it was looking to organize. We helped it set the

are undertaken on the basis of land ownership or the

energy price caps, risk models and the technical assessment

availability of seed capital, without an integral vision of

strategy for all proposals.

what the project is for, whether the market will respond favorably to it, who the off-takers are or what the business

Q: What is your primary advice for project developers

model is. Several puzzle pieces need to be put in place

in Mexico?

when developing a project and clear visibility over every

OG: Project development should be viewed from the

single one is critical.

outset as a financial issue. Often, developers prioritize the technical, legal and contractual aspects of a project,

Q: What financial entities have expressed interest in

considering the financial aspects halfway through. Financial

financing renewable energy projects?

pre-feasibility studies under various scenarios are critical.

OG: From our interactions with development banking

Some developments integrate predictions for future node

institutions in Mexico, we can say that commercial banking

price fluctuations, which should be encouraged. Once the

still requires greater certainty to get involved in these projects

financial aspects are covered, market analysis is the next

on their own. They still rely on development banks to lead

logical step. A project’s competitiveness can be impacted

financing efforts and to provide the platform for creating

based on the particular location, what other projects are

pools of financial entities to build up a healthier financing

being developed nearby and their respective advancement.

scheme for each project. This is not exclusive to Mexico’s

This would help anticipate potential grid saturation if more

market and there is financing appetite for projects, especially

advanced projects are connected first.

from private financial entities that are affiliated with funds and which are looking to branch out to other markets. Anabática Renovables is a Santiago de Chile-based strategic

AL: Mexico’s investment capital for renewable energy is

energy assessments service provider specialized in project

primarily provided by foreign companies but the country

finance. It was founded in 2012 and provides technical advisory

also has a significant financial influence. There is a great

services to financial entities

| INSIGHT

LEADING THE SHIFT TO A PREVENTIVE CULTURE GUSTAVO GALAZ Director of Fire, Gas and Energy at F Tech

Mexico is witnessing exponential growth in PV and wind

on battery-powered storage solutions to address renewable

power projects, which are gaining ground over conventional

energy’s intermittency, Galaz sees an additional risk in

systems powered by fossil fuels. Despite the competition,

the installation and operation of battery banks. “Storage

fossil fuels and renewable energy have one thing in common:

systems are primarily composed of highly-combustible

the importance of safety and security in their operation.

hydrogen,” he explains, emphasizing their instability in the case of a fire.

“Renewable energy power plants, especially wind farms 306

and solar parks, rely heavily on insurance to cover the

To best counter these risks, F Tech is introducing technology

installation and production phases, to the detriment of fire-

that is unavailable in Mexico’s renewable energy market

prevention systems,” says Gustavo Galaz, Director of Fire,

from risk-averse countries such as the US and Germany.

Gas and Energy at F Tech. “While developers see the value

But F Tech does not rely on brand exclusivity. “That limits

in having an insurance policy in place to mitigate losses in

the amount of technologies and components we can offer.

the case of an accident, preventive safety features like fire-

Different power generation technologies imply different

prevention systems are instead seen as an additional cost.”

risks, to which different mitigation, protection and fireprevention systems apply,” he explains. “We want to be able

F Tech is on a mission to showcase the benefits of fire

to provide tailor-made solutions to address the diversity of

prevention. “We are working to show Mexico’s energy

Mexico’s energy mix.”

industry the benefits of fire prevention against production loss, bypassing the time required for the reinstallation

Galaz believes that F Tech’s strength lies in its tenured

of faulty or damaged equipment,” Galaz says. Shifting

risk-analysis practice for optimal design, installation and

from a corrective to a preventive culture requires greater

aftersales service. “In our experience, our clients’ decision to

awareness of the risks of power generation, even with

rely on fire-prevention systems is based 20 percent on price

renewable energy sources.

and 80 percent on service quality and seriousness,” he says. He finds that energy industry players are unwilling to expose

These efforts extend not only to the private sphere but

their infrastructure to inexperienced companies, and F Tech

also to strengthening the existing safety and security

is backed by a successful 20-year track record. “Safety

regulatory framework in Mexico. As members of the Mexican

is not a commodity; it requires specialized engineering,

Association of Automatic Fire Sprinklers (AMRACI), F

software and fire-prevention system design,” he says.

Tech coordinates efforts with the US-based National Fire Protection Association (NFPA) to propose safety regulation

F Tech is determined to grow parallel to the country’s

before the industry’s regulators and government. This brings

renewable energy penetration. “There is an intense

Mexico’s safety Official Mexican Norms (NOMs) closer to

growth of renewable energy projects in Mexico, backed

international best practices relating to fire detection and

by significant public and private investment and requiring

extinction systems.

the level of specialization in fire-prevention that F Tech can provide,” Galaz says. Cogeneration plants, offshore

The highest risks for wind farm and PV park operations

platforms, storage and distribution terminals for gasoline

lie in possible heat sources within the installations, says

and kerosene, booming in Mexico’s northern region and the

Galaz. “The energy from a nacelle’s spinning motion, electric

Gulf states, are also in F Tech’s crosshairs. “Heavyweight

boards, substations and converters generate a great deal

IOCs such as ExxonMobil and Shell are investing heavily in

of heat,” he says. “Should these components overheat, a

licensing-round projects and we want to accompany them

potential explosion can go well beyond material damages or

and provide the safety and security to guarantee their

power-generation loss.” Considering the industry’s reliance

success,” he says.

VIEW FROM THE TOP |

FOCUS ON THE PROJECT, NOT THE NUMBERS JAIME PÉREZ Managing Director of Balam Fund

Q: What is the main financial added value that Balam Fund

while the remaining 50 percent is controlled by Mitsubishi

offers the energy industry?

Corporation. It has an installed capacity of 400MW and

A: Balam Fund is an infrastructure fund that also invests

entered the operational stage in 4Q18.

in renewable energy projects. It is one of the few market players that has implemented a differential strategy in terms

Q: What key points should companies willing to finance a

of investment. By developing projects on a full equity basis,

project focus on?

the company adapts much better to the needs of off-takers.

A: We are in a very good position to offer different

The result is that contracts are closed and construction

investment vehicles. This gives us the ability to match the

started more rapidly compared with many players that

investment vehicle to the investment in a way that best

close a PPA and then spend subsequently 4-6 months

suits the project. Companies should not think of project

arranging the details of the financial structure. Regarding

finance as the goal. Efforts should be directed to finding a

the long-term electricity auctions, we decided to take a

good project, analyzing potential revenues and the project’s

different approach, employing merchant financing. In 2016,

resilience in order to implement the best structure. Each

Balam Fund became one of the first funds to invest in the

project is different, each revenue stream is different and I

construction and operation of a merchant project. Under

think companies should try to think outside the box when

this scheme, the project first sold energy to CFE at marginal

structuring a project. The money is there and if it is a good

prices and now it is directly selling energy in the market. At

project it could be financed from a private equity fund or

the time, this was the largest solar project in Mexico, with

through banks with the objective of reaching COD.

a 40MW capacity on a full equity basis. Many investors and developers are now trying to implement projects under these conditions but our company pioneered this approach. Q: How is Balam Fund positioned in Mexico’s renewable energy segment? A: Balam Fund was created in 2013 by BK Partners alongside The Rohatyn Group after winning a public bidding process structured by Banobras through the National Infrastructure

The management of Balam Fund worked over 10 years on the financing and operation of renewable energy projects for third parties in 10 countries

Fund. This resulted in the issuing of the first green fund in Mexico. Prior to this, the management of Balam Fund

Q: What main goals does Balam Fund want to achieve by

worked over 10 years on the financing and operation of

the end of 2019?

renewable energy projects for third parties in 10 countries.

A: Regarding the company’s business development, Balam

We have a very good track record in M&A processes and

Fund is working with alternative strategies for merchant

project finance but our main expertise is in operations. The

and self-supply projects. Participating in future editions of

company has operated close to 2GW in the solar and wind

the long-term electricity auctions is also on the table. We

segments. Regarding investment, Balam Fund currently

want to consolidate our portfolio by acquiring additional

have four projects in Mexico that total 500MW of installed

capacity to create a bigger platform.

capacity. Three of these employ solar PV technology and were developed on a full equity basis. Two projects are in the operational phase and the third started construction in

Balam Fund is a private equity fund co-managed by BK

4Q18. It will start operations in July 2019. The last project

Partners and specialized in power generation projects, such as

in our portfolio is the Eólica del Sur wind farm, located

solar PV plants, wind farms and mini-hydro plants. Its portfolio

in Oaxaca. Balam Fund holds 50 percent of the facility

also encompasses cogeneration and energy efficiency

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| VIEW FROM THE TOP

DEDICATED ENGINEERING AND RESEARCH DEPARTMENTS FOR FUTURE UTILITY NEEDS VICTOR VILAR Director General of Ingeteam

Q: What added value does Ingeteam provide to the clean

proposals to expand not only our reach but also the

energy industry?

portfolio of products and services we can provide.

A: Ingeteam first set foot in Mexico in 1998, leading the

308

control equipment supply and O&M sectors. Today, our

Q: What is Ingeteam’s most significant contribution to

company’s equipment represents close to 50 percent of

Mexico’s utility-scale projects?

Mexico’s power producing market, meaning Ingeteam’s

A: Enel Green Power’s Villanueva PV park is Latin

brand is present in close to 2.5GW of both installed

America’s largest PV plant, set to produce 1,700GWh/y.

and maintained capacity. Our workforce totaled 20-30

Ingeteam provided the electricity substations for

people in 2008 and has grown to more than 500 in 2018,

this project’s phases I and III, through a technological

based on demand from Mexico’s energy projects. Oaxaca

automation system. This is an important step forward to

stands among the country’s busiest states in terms of

increase our capacity in Mexico’s PV sector, as we also

renewable energy projects and has been the centerpiece

provided its top-tier protection, control and metering

of Ingeteam’s recent growth. Our successful corporate

dashboards. Our company capitalized on its GLC and

social policies are at the core of Ingeteam’s success story

SCADA software tools for wind farm and solar park

in Oaxaca. Our tenured control sales business remains

output optimizations to provide a latest-generation

our company’s primary differentiator. It will continue

control center for Zuma Energía. Ingeteam invests 5-7

providing the solutions our clients require, adapting to the

percent of its budget in R&D, with dedicated engineering

changes brought forth by the country’s unlocked industry,

and research departments to anticipate our clients’ future

modified and new regulations and our clients’ evolving

needs and to be prepared to meet them. Year after year,

demands. Many new entrants in Mexico’s market from

Ingeteam places electrical equipment in the market with

foreign countries deal with the complexity of Mexico’s

increased power and solar platforms, improving isolation

particularities, and we can walk them through this.

and power output.

Q: How does Ingeteam support the design and conclusion

Q: What are Ingeteam’s set objectives in Mexico for the

of successful energy projects over the long haul?

near term?

A: Our global footprint on four continents enables us to

A: Ingeteam has been building and consolidating its

provide our top-tier products on time, as well as providing

brand in Mexico for the last 20 years. We want to maintain

qualified personnel to install, operate and maintain it.

our privileged position in the country’s energy industry

Our large workforce brings to the table the flexibility

and to continue building on the milestones we have

required to address any of our clients’ emergencies, be

reached since day one. With each new project comes new

it on the side of either installation or maintenance. Our

opportunities to showcase our ability to provide optimal

global experience coupled with our O&M track record

efficiency levels and value proposals for our clients. We

in Mexico for utility-scale PV parks, such as Enel Green

never settle for what we have and are always looking to

Power’s Villanueva PV projects, positions us as the go-

deepen and extend our market foothold beyond PV and

to company for optimal performance. Ingeteam also

wind power.

developed an extended network of partners with value We will remain vigilant about the development of future long-term electricity auctions to drive our growth and Ingeteam is a Spanish company that specializes in power and

open up to new technologies and markets. For instance,

control electronics such as inverters, frequency converters,

Ingeteam first entered Mexico’s hydroelectric sector in

controllers and protections, including generators, motors and

early 2018, with O&M services to be provided to Jalisco’s

pumps, electric engineering and automation projects

Tacotán and Trigomil hydroelectric plants.

INSIGHT |

FINANCIAL SUPPORT FOR A MARKET WITH A BRIGHT FUTURE FRANCO CAPURRO Partner and CEO of Banverde

Green technologies provide clear and long-term benefits

this kind of capital. “Banks do not make it easy for their users

but some end-users often have trouble seeing beyond the

to obtain financing. The problem is even more pronounced for

required initial CAPEX that must be deployed to install them,

green technologies, which are relatively new to the country

according to Franco Capurro, Partner and CEO of private

and which traditional banks are not accustomed to financing.”

equity fund Banverde. “The industry’s real challenge is to

He says this is especially true in Mexico.

create economic structures that make sense in relation to the investment in green technologies so it becomes a clear-cut

As it was launched with the objective of promoting green

decision for the end user to go green,” he says.

technologies, Capurro says Banverde is capable of thinking like an energy company, instead of thinking like a bank.

Banverde is a private equity fund specialized in providing

“Therefore, competitiveness and ease of use is at the core of

financial solutions to Mexico’s distributed generation

what we do so we can design the most attractive schemes

developers at the industrial, commercial and residential levels.

for the players in the market,” he says. Capurro adds that the

It is the result of a joint venture between CAAAPITAL, an

major advantage Banverde has over other banks is that its

investment bank founded by Capurro and Javier Mozó. In 2017,

executives and backers are made up of those specialized in

CAAAPITAL represented a portfolio of US$4.2 billion on its

the renewable energy industry as well as in financing, making

investment platform. “Most resources were directed into the

it a bridge between the two. “We are the perfect choice

mining and energy industries, primarily for the Latin American

for project developers because most big financing groups

region”. With innovation at its core, the company created a

have a great deal of experience in investment banking but

web platform with over 150 private equity funds, from small

they are not aware of the best framework under which to

to large, on a global level. For the energy industry most of the

make investment easy for end users who are technically

capital was directed toward solar and wind projects.

proficient but do not know how financial tools work in the market,” he says.

As CAAAPITAL became increasingly well-known, more solar distributed generation companies reached out looking for

Another of Banverde’s features is that it offers 15-year

funding. “Unfortunately, the amount they wanted to raise was

financing schemes compared to the 5 years typically offered

quite similar to our commission fee, meaning that there was no

by banks. This is a useful tool considering the length of PPAs,

point in us supporting them,” says Capurro. That was when in

Capurro says. “While our financing schemes last for longer,

2016, Total Capital proposed CAAAPITAL to create a joint pilot

our decision-making periods are shorter,” he says. “A bank

fund. “This effort ultimately grew beyond our expectations

usually takes a minimum of two weeks to approve or deny an

and resulted in the creation of Banverde.”

application, and this can stretch up to one month, depending on whether all the right documents are provided from the

The fund has the support of renowned clean energy

outset.” In contrast, in some cases Banverde can give an

entrepreneurs, including Jigar Shah, who founded SunEdison

answer in around 10 minutes.

and is widely recognized for having unlocked a multibilliondollar solar business. This support is reinforced by a clear

For the industry to live up to its full potential, Capurro

long-term vision. “We want to become the go-to green bank

highlights the need for strong government institutions. “The

for Latin America,” says Capurro. “That is what we believe is

industry depends on the government actually enforcing

necessary for society to achieve a sustainable future and leave

regulations and imposing penalties if companies are found

behind the murky present we have now.”

to be noncompliant,” he says. One example is the CELs. While they are mandatory, Capurro says the government could

While many banks market themselves as green banks, Capurro

actually penalize those who do not cover their minimum CELs

says the reality is that most make it quite difficult to access

requirements, or else the industry will not advance.

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| VIEW FROM THE TOP

RESOURCES PROSPECTION FOR EASIER FINANCING JORGE BARRAGĂ N Country Manager of Barlovento Recursos Naturales

Q: What is Barlovento Recursos Naturales (BRN) main

offering of standard products and services that are extremely

added value for the Mexican energy industry?

well-assembled. For example, in relation to wind farms, we

A: Barlovento Recursos Naturales (BRN) provides technical

are one of the few companies capable of performing noise,

certainty by studying the energy resources, whether wind

flickering and energy-delivery quality studies, which are

or solar, available in certain areas. We apply international

elements that not all similar companies can offer in Mexico.

standards and provide a certification describing the 310

approximate amount of resources. With the information

Q: Beyond resources measurement, what other services

acquired and thanks to in-house methodologies, we also

does BRN provide to the Mexican market?

provide accurate estimations of the total amount and

A: Many developers are arriving to Mexico without knowledge

quality of the energy to be used to produce electricity.

of the particularities of the regulation and technologies

Clients can then use that information when presenting their

present in the country. We can provide support in this area.

projects to financing entities to receive greater financing

Our studies include every aspect related to the development

flexibility or achieve better approval rates. Our client

of a project, from looking at the geographical availability to

portfolio focuses on utilities and big project developers,

analyzing nodal prices. We also provide grid interconnection

such as ENGIE and Enel Green Power, with which we have

studies that are extremely important for project developers.

been working to get macro contracts that allow us to offer

Although a substation may be built close to a project, this

them better services and preferential rates. We also work

solution does not mean it is the best option to connect a

with big industrial groups that have the economic resources

plantâ&#x20AC;&#x2122;s power production to the grid. There are other factors

to finance projects but not necessarily the knowledge.

to take into consideration, such as substation robustness and congestion that may increase the projectâ&#x20AC;&#x2122;s cost. This is often

Q: What makes BRN different from its potential competitors

missed by project developers and could force them to spend

in the Mexican market?

a large amount of money unnecessarily.

A: There are very few companies that perform the specialized studies that we do and not all of them follow

Q: How can BRN help companies better finance their

international standards or have certified processes. Our

projects in Mexico?

headquarters in Spain has provided us with all the protocols

A: Our services are provided in three main stages. The first

and procedures followed in the EU for these types of tasks.

is measurement of the resource, the second is engineering

We are certified by MEASNET, ENAC and IEC-RE, the three

and selection of the proper technologies and the third

main certifiers for energy resources measurement.

refers to project financing. The company has developed agreements with the World Monetary Fund and the

We were the first company to install a 150m-tall wind-speed

World Bank as well as good relationships with private

measurement tower in Mexico. This is extremely important as

banks that are supporting the development of renewable

most windmills are now over 140m. In terms of solar energy,

energy projects. We are therefore well-positioned to help

we were one of the first companies to install measurement

project developers find the best financing tools for their

towers for solar resources in Baja California, Coahuila and

projects. Banks and financial entities in Mexico are not

San Luis Potosi. Our deep experience has translated into an

fluent in reading reports related to resources availability for the development of renewable projects. That is why many renewable energy projects have to be financed with

Barlovento Recursos Naturales is an international engineering

internal capital resources. We are capable of providing

firm that helps clients across the solar, wind and grid integration

understandable reports that minimize uncertainties and,

project life cycle. Founded in 1998, the company has worked in

therefore, help project developers find better financing

over 20GW of wind and 2.5GW of solar projects

plans with more ease.

VIEW FROM THE TOP |

INTRODUCING MEZZANINE FINANCE

JOSÉ DÍAZ Director General of Sinia Renovables México

NACHO SOUCHEIRON Global Head of Sinia Renovables

Q: Why should renewable energy project developers rely on

Our ideal partners are midsized sponsors because large-

Sinia Renovables as a financing source?

scale utilities can finance their projects independently.

JD: We are a relatively new player in the Mexican market that provides financing solutions directed at project sponsors,

Q: What lessons learned from operating in Spain and the UK

such as mezzanine financing and equity participation,

are you looking to replicate in Mexico?

differentiating us from several other financing firms that

NS: Our experience allows us to clearly identify the project

usually only provide one or the other. Sinia Renovables is

sponsors we want to partner with. Our repeat rates for financing

backed by more than 20 years of experience on a global

projects with the client portfolio we developed in Spain showcase

scale, primarily focused in Spain and the UK. Since July

our capacity and commitment. Mexico will be the trial market for

2017, we have been looking to set a foothold in the Mexican

our mezzanine financing as the Spanish market requires other

market, successfully closing mezzanine financing and

types of solutions and Mexico still has gaps to cover.

equity investments. Sinia Renovables is keen on replicating its tradition of establishing long-term relationships with

Q: What is the key differentiator for mezzanine financing

its clients in Mexico. We have an approved fund valued at

compared to other financing sources?

€150 million (MX$3.4 billion) to invest in Spain, the UK,

JD: We were able to design a product that provides the right

Mexico and other locations in Latin America. The lion’s

balance between senior debt and equity with the flexibility

share of this approved line will be allocated in Mexico

to adjust to our clients’ requirements. To that end, Sinia

to build up a diversified portfolio of both US dollar and

Renovables provides mezzanine credit for terms longer than

Mexican peso-based PV, wind and hydroelectric projects,

10 years, considering that by year three to five of the project’s

combining legacy, long-term electricity auction and

development, the credit can start to be refinanced as the

merchant projects.

construction risk is no longer present and the debt capacity of the project can be increased from mezzanine debt to senior debt.

NS: We are the private equity branch for renewable energy projects of Banco Sabadell. We want to be more than a

Q: What is the relationship between financial structuring and

mere funder and become the go-to partner for Mexico’s

risk mitigation in renewable energy projects?

project sponsors. So far, we have closed mezzanine

JD: The critical part is for all stakeholders to fully grasp

financing totaling MX$400 million with Grupo GEMEX’s

risks involved. Our analysis always makes a point of

two operational 50MW wind farms in Tamaulipas. Our

understanding the fundamentals of a projects: top-tier

second success story is the MX$475 million in mezzanine

components, optimal levels of natural resources and

debt and 10 percent equity to cover the project’s

execution of our financial runs over multiple scenarios.

construction risk. NS: Sinia Renovables has a balanced team of expert Q: What sets apart a project sponsor partner from a funder?

economists and engineers. While project development is

NS: Funders provide senior debt to fund projects via

primarily a financial structuring business, the technical and

project finance. To actually build the project, equity is

engineering aspects must also be thoroughly examined to

required, usually provided by the project sponsor, as well

assess its long-term potential.

as complementary financing from banking institutions. We support project sponsors by providing funds that banking institutions are unwilling to provide, becoming partners and

Sinia Renovables Renovables is Banco de Sabadell’s investing

accompanying the sponsor throughout the development

arm in equity solutions for renewable energy projects, from

stages of the project. Once the project is completed we can

promotion and financial structuring to construction and

sell it and rotate our portfolio.

operation

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| ROUNDTABLE

CAN FIBRAS, CKDs AND STRUCTURED INSTRUMENTS PROSPER AS VIABLE FINANCING SOURCE?

Alongside the Energy Reform came a revolution in terms of the financing that could be offered to the energy sector. With so many new business models now viable, specialized equity funds and venture capital began to emerge. Among the new mechanisms was the Fibra E, a fund designed for the energy sector. But with the first Fibra E issued for a highway project, Mexico Energy Review asked industry experts about the viability of these structured instruments and their suitability for the energy sector.

Fibra E still has some constraints in terms of the tax implications for some of the sponsors. It is no coincidence that two of the larger ones were issued by CFE and GACM. It might make sense in some specific cases where tax implications are minimized for certain sponsors. On the CKDs and CerPIs side, we have seen 312

renewable CKDs from some private equity funds and others trying to raise money with pension funds. It is still too early to see how these CKDs will evolve in the short

SALOMÓN AMKIE Vice President, Head of Power and Utilities for Citibanamex

term when private equities will start divesting some of these funds and how these CKDs transform either into a Fibra E or a more classic IPO-type structure. CerPIs are increasingly popular as they provide more power to a project’s management team and less to the pension funds, making it an attractive option for project sponsors and developers; also gives pension funds access to investments outside of Mexico.

Private equity funds have shown interest but their participation remains conditioned by the off-taker tier interested in purchasing a particular project’s energy. They are also searching for long-term certainty over merchant price levels, which cannot be provided by such a nascent market. International and national development banking institutions have expressed interest and they are already granting financial support to merchant projects. The CKDs issued by the country’s stock market, integrating

CYNTHIA BOUCHOT Director General of Energía CB Consultores

several energy projects at the development stage, provides a good alternative for projects that still lack off-takers to fill the commercial aspects of the project.

Fibra-Es are valuable instruments and four have already been issued. The mechanism has the potential to develop projects and securitize them in the public market. But there is a liquidity problem with the Fibra-E, where the fiscal extension is not available to foreigners so it is not made attractive to international players. There is a lot of debt securitization for already stabilized projects so we must look for mechanisms that can take on more demand and construction risks. We believe CerPIs will continue

NACHO SOUCHEIRON Global Head of Sinia Renovables

to instrumentalize investment in developing projects from Afores.

CFE’s Fibra E established a good precedent in the Mexican energy market. CKD rates must be analyzed closely. As more diverse financing sources are available in the market, whether they are CKDs or foreign funds, the sizable amounts of investment required by Mexico’s new energy model will be secured. These diverse financing sources can be a viable answer to private equity firms’ limited funds.

JOSÉ DÍAZ Director General of Sinia Renovables México

From a developers’ standpoint, these instruments constitute a good financing alternative to the available options. Investing in Mexico’s stock market presents the advantage of placing investments in local currency, making a good match for bilateral PPAs negotiated in Mexican pesos. In terms of capital cost, however, certain 313

players resorting to CKDs or CERPIs might be at a disadvantage compared to foreign institutional investors with a lower capital cost. The comparative counterweight is the local knowledge and expertise that companies placing CKDs or CERPIs have.

LEONARDO HERNÁNDEZ Director Latin America of Marathon Capital

Green bonds make sense when talking about securitization. Our idea is to build portfolios and equity. Credit sleeves are critical for them to work but to simplify the process, Prana Power is definitely taking a closer look at Mexico’s green bond issuances to further strengthen our portfolio. To date, we are just trying to wrap our heads around the inner workings of the financial tool. Our ambition relies heavily on financing speed and if it can get us further faster, we are definitely interested.

JOHN BATES CEO of Prana Power

Mexico’s energy projects are a perfect match for pension funds. These projects do not require immediate bankability but long-term cash flows and profitability. Pension funds can tackle the volatility inherent to these markets, be opportune in their investments and adopt a long-term vision. If Mexico enables regulation over diversified financing sources, the country can build bridges between financing requirements for energy sources and the long-term income flows required by a specific pool of investors, which in the end will strengthen Mexico’s financial tools.

VICENTE CORTA Partner at White & Case

KAIXO workers constructing a PV solar park

TRANSMISSION & DISTRIBUTION

With a transmission and distribution network extending well over 831,000km, reaching more than 90 percent of the population, CFE certainly reached its target of delivering “energy for the progress of Mexico.” The country’s new energy model is tackling the complex task of bringing the network up to speed to meet growing demand. The former leadership of the Ministry of Energy had been creating transmission line tenders to revamp and expand the electricity grid but the new administration has put this on hold. Mexico’s distribution network requires flexibility in the face of the country’s increasingly renewable energy generation.

The influence of the Mexicali-Manzanillo HVDC transmission line on future developments, the choice of the necessary technologies to continue closing the transmission and distribution gap, the industry’s capacity to overcome energy intermittency, the role that the private sector should play in the segment’s development and growth and the ability of foreign investment to adapt to the reality of Mexico are some of the topics that will be analyzed in this chapter.

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CHAPTER 12: TRANSMISSION & DISTRIBUTION 318

ANALYSIS: The Foundations of the Electricity System

320

MAP: Mexico's Transmission Infrastructure 2018-2032

322

VIEW FROM THE TOP: Marcelino Madrigal, CRE

324

VIEW FROM THE TOP: Alejandro Preinfalk, Siemens Mexico

326

INSIGHT: Genaro Pérez, Pfiffner Group

327

INSIGHT: Emerson de Souza, Itron

328

VIEW FROM THE TOP: Oscar Miranda, Smart Grid México

329

VIEW FROM THE TOP: Herwig Ragossnig, NEC Energy Solutions

331

INSIGHT: Eloy López, ISEBSA

332

INSIGHT: Massimo Ferrarini, Jema Energy Mexico

333

INSIGHT: Nuno Inácio, Grupo Tres R Termotécnica (G3R)

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| ANALYSIS

THE FOUNDATIONS OF THE ELECTRICITY SYSTEM The increase in generation in isolated regions demands the modernization and expansion of transmission and distribution lines. If disregarded along with generation units, blackouts could ensue in the next three years. This poses a huge burden for CFE as the only company in charge of these segments The transmission and distribution segments are essential

processes for these strategic projects along with the fourth

for providing electricity supply across the country. As

long-term electricity auction. CFE will not address the topic

renewables take the lead in the country’s energy mix, their

in 2019. “The 2019 project of budget outflows does not

isolated locations in relation to the National Electricity

contemplate resources for the transmission segment and it

System (SEN) mean new lines are needed to ensure every

is a topic that needs to be revised,” says Guillermo García,

region has access to electricity. Everyone knows and

President Commissioner at CRE.

understands this but getting it done is another matter. PROJECTS IN THE SPOTLIGHT

318

“The Ministry of Energy’s PRODESEN 2018-32 establishes

Ixtepec-Yautepec Transmission Line: In 2015, the Ministry

the requirement for new transmission lines but these have

of Energy awarded CFE the Ixtepec–Yautepec Transmission

not been built at the needed pace. This infrastructure

Line project. This DC line will transport 3,000MW from the

has to be fortified, not only to transmit energy from

Isthmus of Tehuantepec region to the rest of the country.

generation facility to the consumption point but to design

The project consists of 1,221km of line circuits that will carry

a robust electricity network that allows the exchange

a 500kV voltage from the municipality of Ixtepec to various

of energy between regions,” says Leopoldo Rodríguez,

consumption points located in Veracruz, Puebla, Morelos,

President of AMDEE.

State of Mexico and Mexico City. “Oaxaca is Mexico’s leader in renewable power generation, with the most installed

According to the Constitution, transmission and distribution

capacity from wind energy in the country. It hosts 27 wind

activities are considered strategic areas and are reserved

farms that supply 2.3GW to the national grid. With this

for the Mexican state. Even though, Article 2 of the

project, Oaxaca will be able to double its installed power

Electricity Industry Law (LIE) indicates that while the

capacity and the electricity generated will be transmitted to

state will maintain its titularity, contracts can be signed

other regions of the country,” says José Luis Calvo, Minister

between particulars in compliance with the respective legal

of Environment, Energy and Sustainable Development at

framework. The Energy Reform opened the door for the

the State of Oaxaca.

generation and commercialization segments to participate in a free market regime, liberalizing the two ends while

Baja California – National Interconnected System

leaving electricity transportation system in the hands of the

Transmission Line: This project will interconnect

state, and CFE in particular, through its CFE Transmisión

Baja California’s electrical system with the National

and CFE Distribución subsidiaries.

Interconnected System (SIN) by being the first DC transmission line in the country. This region is the

“During (the Peña Nieto) administration, we opened an

only electrically-isolated system in Mexico and holds

opportunity for the industry to participate directly in

significant potential for the development of renewable

transmission and distribution infrastructure projects,” says

energy projects. The transmission line will start from the

Fernando Zendejas, former Deputy Minister of Electricity.

municipality of Seri in Hermosillo and will travel 1,400km

He adds: “At the moment, there are two important tenders

toward the municipality of Mexicali in Baja California.

on the agenda regarding the construction of transmission

Besides interconnecting the entire country, Baja California

line projects. The first will be in association with CFE for the

remains a strategic region due to its closeness to the US.

Ixtepec-Yautepec Transmission Line. The second is a private

“To date, we have 11 interconnections with the US: six

project involving the interconnection between the National

emergency connections and five for continuous supply. The

Interconnected System and Baja California. The latter will

idea is to have them operating as a connected market,”

be the first project in the country’s history to install DC lines

says García. Tijuana-Miguel and La Rosita-Imperial Valley

for electricity transport.”

are the two interconnection points that trade electricity with California Independent System Operator (CAISO). On

But the new administration threw a spanner in the works

previous occasions, this frontier interconnected system has

when it took power in December, delaying the auction

supported energy blackouts in both countries.

GRID CONGESTION

or increasing the capacity of the existent lines, CENACE is

In 2017, the latest data available show that Mexico registered

calling for the installation of new lines to modernize the grid,

a peak power demand of 43,319MW. This total increased

using the old scheme as reinforcement.”

5.9 percent from 2016. 2018, however, registered a total generation capacity of 75,685MW, with 70.5 percent

THE ROAD TO ELECTRIFICATION

coming from conventional energy sources and the rest from

The electrification of the energy system is becoming

clean energy sources. The interconnection of new plants, as

more tangible. In a recent study carried out by AMDEE,

well as the associated load centers, combined with greater

the Commission of Private Sector Studies for Sustainable

demand suggests the necessity to modernize and expand

Development (CESPEDES), the Mexican Association of

the current transmission and distribution infrastructure. At

Solar Energy (ASOLMEX) and Iniciativa Climática de

the end of 2017, the interconnection capacity of the 53

México, it was determined that by 2024 there should be

transmission regions totaled 76,697MW. The northeastern

300,000 electric vehicles in Mexico. “This projection offers

region led demand and experienced 14.8 percent growth

a sizable opportunity for private companies versed in

versus 2016.

transmission networks to provide the required investments to prepare the country for this technological revolution,”

Regarding the expansion of transmission lines, 2,909km

says Marcelino Madrigal, Commissioner at CRE.

were added in 2017, for a total 107,042km. Considering an annual demand growth of 2.9 percent, CFE Transmisión’s

In this sense, energy storage technologies also play an

2018-2022 Business Plan projected a total investment of

important role for grid stability. Gradually, the energy system

MX$100 million for this period. From that amount, MX$88

will be composed of renewable sources, peaker plants and

million will be destined to expand the transmission network

energy storage facilities that will balance the consumption

and the rest will be focused on modernizing transmission lines

profiles with support of the electrical infrastructure.

and substations. “The system is modeled according to the

“Batteries are valuable elements of the electricity system.

necessities of power generators and load centers. Distribution

In case of a failure in the generation facility, batteries could

does not present many problems for dispatch; issues come

supply energy for a while. This technology also provides

at transmission level,” says Eloy López, Director General of

voltage and frequency regulation, providing support to the

ISEBSA. He adds: “Large load centers are inherently difficult

grid and reducing the need for transmission lines in several

to recalibrate. Due to these difficulties, instead of recalibrating

cases,” says Leopoldo Rodríguez, President of AMDEE.

CAPACITY OF CONNECTIONS BETWEEN THE 53 SEN TRANSMISSION REGIONS

76,697MW total interconnection capacity of the 53 transmission regions at the end of 2017

Up to 499MW Between 500 and 999MW Between 1,000 and 1,500MW Over 1,500MW

CFE Transmisión’s 2018-2022 Business Plan projected a total investment of MX$100 million for this period

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| MEXICO'S TRANSMISSION INFRASTRUCTURE 2018-2032

SUBSTATION +500kV 400kV 230kV

320

138-161kV 69-115kV 34.5kV or lower Projects under analysis TRANSMISSION LINE VOLTAGE +500kV 400kV 230kV 138-161kV 69-115kV 34.5kV or lower Projects under analysis

Main interconnection projects to be developed 2018-2032

NEEDED INVESTMENT AND INFRASTRUCTURE Estimated cost (MX$ billion)

Transmission lines (km)

Transmission Capacity (MW)

Baja California - National Interconnected System

20.24

1,400

1,500

Ixtepec - Yautepec Transmission Line

22.08

1,221

3,000

7.5%

97% average load factor in Mexico's central transmission region

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61% of the total wind energy installed capacity is generated in Oaxaca

Source: Ministry of Energy, CENACE, Banobras

| VIEW FROM THE TOP

PREPARING TOMORROW’S ENERGY INFRASTRUCTURE MARCELINO MADRIGAL Former Commissioner at CRE

322

Q: How will the first midterm auction results lead to

of Energy in coordination with CENACE, prior to being

changes in future auctions?

transferred to CRE. The execution of the first financial

A: Mexico’s electricity market is structured by a wide array of

rights of transmission auction is in the hands of CENACE.

elements. Chief among them, long-term electricity auctions,

The National Electricity Grid’s operator is in the process of

midterm electricity auctions, the annual capacity market,

training interested parties to participate, subjecting them

the day-ahead market and the spot market. These are the

to a series of preliminary tests to prepare the first financial

primary cogs in Mexico’s electricity market machinery and

rights of transmission auctions before the end of 2019. It is

their operations need to be coordinated. Their objective

the only puzzle piece left of fundamental importance for

is to secure a reliable, safe, efficient and environmentally-

the qualified supply market.

friendly electricity supply. The long-term market acts as an investment catalyst that is operated efficiently through

Financial rights of transmission are a complex instrument

short and midterm markets. The latter acts as a key link

but they are not exclusive to Mexico’s market and have a

between the auction’s long-term coverage contracts and

proven track record. In essence, these mechanisms provide

the spot market. Midterm electricity auctions compensate

the possibility to purchase rights over congestion pricing.

imbalances in both short-term and long-term coverage.

This means acquiring the rights, through an auction, obtaining the rights over node price differentials between

The midterm electricity auctions were designed to

energy injection and extraction. They essentially act as

trade energy and power for three-year periods, to be

a shield for power producers and qualified users over

purchased six months in advance by end users who are

electricity price variability over time.

not sophisticated enough in their energy consumption over long-term periods. A direct result of the first midterm

Q: What are the implications of CRE enacting the

auction was the purchase of 50MW of power. We are in

calculation methodology for financial guarantees for

the process of receiving feedback from participants over

power plant interconnection and load center connection?

the design and results of the first midterm electricity

A: The Energy Reform issued the criteria for the

auction so we can make the necessary adjustments. My

interconnection of power producers and load centers to the

personal consideration is that, given the midterm auction

transmission network in 2015. It was a substantial paradigm

was designed for small-scale off-takers, there is leeway in

shift that enabled any power producer to access the grid via

the design to simplify the process to attract an increasing

CENACE, following the rules established by CRE. It paved

number of interested parties.

the way for IPPs to participate in the long-term electricity auctions and planted the seed of distributed generation

Q: What regulatory advances has CRE achieved for the

across the country.

implementation of financial rights of transmission? A: The design of Mexico’s electricity spot market is node-

In the intervening years, we have been able to assess the

based. Financial rights of transmission were designed as an

effects of these criteria, gather feedback from the industry

instrument to bring any power producer wishing to transfer

and fine-tune the criteria to continue guaranteeing grid

its energy to a specific point in the grid closer to a stable

access within a nondiscriminatory procedure and with

price. It does not act as an absolute guarantee of price

the appropriate balance of incentive. Guarantees were

levels. Rather, it mitigates price variations in the specific

designed to that effect for the interconnection process.

location of the energy injection and extraction node.

IPPs pay their interconnection procedure and must pour the required investment into the grid to reinforce it. Should

The financial rights of transmission manuals are public and

these investments fail to be placed in transmission and

available. They were prepared and drafted by the Ministry

distribution works, the extra costs would be reflected in the

final user’s electricity bills. To avoid this, guarantees ensure

On the innovation side, the Ministry of Energy drafted a

the seriousness of the player looking to interconnect to the

smart grid plan in 2016, approved by CRE, with information

grid and prevent transferring extra costs to the consumer.

provided from CENACE. CFE’s grid expansion plan therefore includes investments in innovative technologies, such as

Guarantees charged are sufficiently high to guarantee a

smart metering. Talking about distributed generation,

player’s seriousness without constituting an entry barrier.

CRE defined the interconnection rules for this specific

In 2015, warranty levels were on the high end as we lacked

technology adapted to the scale of the projects. CFE even

sufficient samples of grid reinforcement costs. Back then,

launched a portal within its website for users to determine if

average grid reinforcement costs averaged US$36,000/

the grid has the capacity to absorb a distributed generation

MW of capacity. The guarantee figure was consequently

system in a specific location, residential or other.

abnormally high compared to international markets: US$20,000/MW in California, US$8,000 in England and

CRE is also working on the design of an instrument that

US$11,000 in Spain, to name a few. With a three-year

eliminates entry barriers for new technologies like energy

track record and multiple samples, we re-evaluated and

storage. There are technical safety rules to be drafted and

adjusted the methodology and obtained an actual average

comply with for this technology to prosper. Another more

cost of US$11,000/MW. This methodology is reviewed on

sophisticated rule will determine how this technology

a yearly basis to ensure guarantees are on par with grid

interacts with the energy market given its inherently

reinforcement costs.

multifaceted nature. Energy storage can contribute with power, energy trading transactions and ancillary services

This guarantee adjustment solved another issue, which

such as frequency response and voltage, and as an energy

was expected to recur as Mexico’s renewable energy

transmission and distribution asset. We will be closely

projects increase in numbers. In some instances, the

analyzing these contributions and the monetizing models

installed capacity of a pool of renewable energy projects

that could come with it throughout 2019.

makes it more efficient for them to connect in the same node. Group interconnection distributes guarantee costs

Q: What is CRE’s regulatory contribution for the success

between several stakeholders. So far, no power producers

of large-scale transmission line projects?

or developers have made use of this scheme because the

A: Transmission line tenders, such as the Baja California—

guarantee level for group interconnection in 2015 was

Sonora and Oaxaca—Morelos interconnections, materialize

US$130,000/MW. With the guarantee adjustment, we are

based on a regulatory provision enacted by CRE. It specified

expecting group interconnection to become more common

the income to be received by a transmission project born

as the methodology establishes an additional discount for

from a PPP. Based on the Ministry of Energy’s Transmission

this modality compared to individual interconnection. It is

Grid Plans, there is a large number of transmission projects

a triple-win scheme considering it decreases guaranteed

that need to be built for Mexico’s committed capacity to be

costs for power producers, avoids extra cost absorption

installed to reach critical consumption points. To cater to this

by final users and alleviates CENACE’s workload with a

urgent necessity, more agile schemes to attract the necessary

single interconnection study for several power plants.

investments to develop this infrastructure are required.

The coming challenge will be to redouble efforts for transmission and distribution investments to be swiftly

CRE’s PPP regulatory framework for transmission and

and effectively deployed by CENACE to manage the grid’s

distribution infrastructure tenders stipulates that the

rapid growth.

lowest bidding value is a fixed yearly amount representing the value of the income to be paid to the winning bid.

Q: How is CRE preparing Mexico’s transmission and

This efficient cost is reflected in the transmission and

distribution grid for technological advances?

distribution rates. CRE also made available two contractual

A: The electricity rates CRE approves for CFE recover

schemes, one to be used by CFE and another to be used

the grid’s operation, maintenance and growth costs. CRE

by the Ministry of Energy. Looking ahead, these public-

has a regulatory mechanism in place where, provided the

private participation mechanisms for energy infrastructure

right rates, CFE, in its role as electricity transmitter and

will become critical for renewable energy to continue

distributor, has the required incentives to improve the grid.

developing in Mexico.

Going further, we will be assessing if CFE Transmisión y Distribución has the right incentives to improve and extend the grid. If not, CRE will be exploring the use of its attribution,

Marcelino Madrigal has over 15 years of experience in

through tools such as functional and accounting separation

international development banking, the public sector and

for CRE Transmisión y Distribución, to focus solely and

academia. He holds a PhD in electrical engineering and was

primarily on transmission and distribution matters.

appointed Commissioner in 2014 for a period of seven years

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| VIEW FROM THE TOP

125 YEARS OF TECHNOLOGICAL INNOVATION ALEJANDRO PREINFALK Vice President of Energy Management at Siemens Mexico

Q: What is Siemens’ primary contribution to Mexico’s

trading it in the market at a more convenient time based

energy transition?

on electricity rate variability. For final users, it unlocks

A: Siemens is Mexico’s technological partner on several

the possibility to shave the maximum peak demand and

fronts related to the country’s energy transition. We

significantly reduce electricity bills at a time when they are

are committed to Mexico’s growth in the long term, as

expected to steadily increase. It also provides long-term

showcased by our 125-year presence here. We are a

certainty over electricity costs.

pioneering company in innovation and new technologies 324

that enable this transition. We are developing smart grid

Q: Siemens reduced its CO2 emissions by 4 million tons in

technologies that integrate renewable energy sources into

2016 with the implementation of its sustainable solutions.

the country’s grid, hand in hand with CFE. Our company is

What new milestones has the company achieved in

committed to Mexico’s development and is supporting the

that regard?

efforts undertaken by the government and private industry.

A: Toward 2024, Siemens’ objective is to reduce its carbon

We developed the Smart Electricity Grid Program jointly

footprint by 50 percent compared to 2017 levels. By 2030,

with the Ministry of Energy and contributed to the drafting

we are working to become a fully carbon-neutral company.

of the Energy Industry and Energy Transition laws. Through

It is an ambitious target but it is directly related to energy

different representation chambers, such as CANAME,

efficiency, operational digitalization and renewable energy,

CONCAMIN and CAMEXA, Siemens is an active participant

three of the niches in which we excel.

in shaping the regulatory framework for the energy transition. With CENACE, we are participating in SCADA

Q: How is Siemens fostering energy efficiency in the

technology applied to energy management projects.

country’s industrial activities?

Virtually, all of Mexico’s electricity will be transported by

A: Siemens continues to work closely with its clients to

our systems by the end of 2019. It is a major step toward

assist them in attaining their energy efficiency goals,

the digitalization of Mexico’s Electricity System.

using our technologies. We are involved in significant consulting activities in the market on that specific issue.

On the private industry front, we are well-positioned as

The requirement of CELs established for qualified users

a component supplier for utility-scale solar PV parks,

will contribute to the faster implementation of these

wind farms and cogeneration plants across the country.

technologies. Adoption of digitalization in Mexico’s

In a JV with AES, Siemens created Fluence, a company

electricity systems will be increased by the implementation

fully dedicated to developing utility-scale energy storage

of measures to comply with the country’s Grid Code by

solutions.

April 2019. We are working with our clients so they are ready to comply with these requirements on both the power

Q: What synergies is Siemens creating with other

producer and energy consumer spectrums. The target is to

private players in the industry to propel the grid to new

provide operational efficiency and adequate load factors

technological highs?

for our clients based on internal diagnostics.

A: One way of doing so is to develop business cases for these new technological developments with our clients

Q: How does Siemens provide the best solution to its

for generation and consumption. The primary goal is to

clients’ most common problems when adopting energy

obtain swift and profitable ROIs. In the case of energy

efficiency practices and technologies?

storage, for instance, ROIs are averaging five years. For

A: A common factor is the implementation of efficient

the grid operator, that translates into a reliable power

lighting systems. Siemens developed smart lighting

supply, meaning stable frequency and voltage. For power

management systems applicable in commercial buildings as

producers, it provides the possibility of storing energy and

well as industrial parks. This enables effective management

of both artificial and natural light. Installing and operating

microgrids paired with smart controllers to efficiently manage

high-efficiency industrial engines to save energy is

energy consumption. Microgrids provide the comparative

another common issue. Focusing specifically on buildings,

advantage of diversifying energy consumption options, from

there is also interesting business potential in ventilation

relying on renewable energy generation at certain hours to

management. This mainly involves deploying smart air-

importing energy from other sources in other time brackets

conditioning controllers to efficiently manage room

and relying on energy storage. For the industrial niche,

temperatures with HVAC systems. Based on this diagnostic,

cogeneration is poised to become the preferred power source

we developed an integrated building management platform

for companies requiring both electricity and steam.

called Desigo CC for efficient building operation. It is a smart system that orchestrates the energy features and

Q: How is Siemens further cementing its market foothold

requirements of a building, considering energy, water

across the niches unlocked by Mexico’s new energy model?

and natural gas consumption, lighting, fire control,

A: Siemens stands on three business pillars: electrification,

ventilation, air-conditioning, video surveillance and building

automation and digitalization. Electrification covers

access controls.

clean energy generation, transmission and distribution. Automation gathers industrial solutions for efficient

Prior to building operation and focusing on building

machinery and production lines via automatic controllers,

design, we developed BIM, a tool specifically used for

electricity grid solutions for smart and efficient power

civil engineering and architecture works and with which a

supply and building automation. Digitalization enables

building can be integrally designed in its blueprint stages

interconnecting autonomous systems via the cloud and

with a single platform. Usually, a building’s design goes

capitalizing on the cumulated Big Data to make these

through different, separate stages: the civil engineer does

systems smarter and foster predictive maintenance. Siemens’

part of the layout and the electricity engineer does another,

digitalization operating system is called MindSphere. This

followed by the energy and water supply layouts. More often

platform captures sensitive and useful information from

than not, it proves challenging to integrate these different

millions of devices in the ecosystem of a company located

layouts. Our platform is meant to resolve that issue.

in a production area, a country, or different locations across the world, including buildings, electricity industry devices

Q: How does Siemens shorten its clients’ learning curve

and even locomotive systems, to name a few. MindSphere

and associated costs when implementing its technological

is capable of performing data engineering processes to

solutions?

capitalize on the gathered information. The name of the

A: On the cost side, the important factor is to shed light

game is efficiency and cost-effectiveness.

on the total cost of ownership, which is not limited to the investment involved in implementing this new technology

Q: Where can a company such as Siemens find room

at present but also includes the investment projected in the

for growth?

long term, for operation and spare-part cost optimization,

A: The company’s pillar is innovation. We cannot remain in

among other factors. On the learning curve side, Siemens

any comfort zone. Our core value is to maintain our role

is immersed in an intensive awareness-raising campaign

as digitalization pioneers in the market. We are focused on

in the market. We are present across different exhibitions

remaining close to our clients to get a first-hand perspective

and forums, such as data center expos and HVAC fairs.

of their needs and provide value-added solutions to cater

We also provide detailed training and certification services

to them. Innovation is only as valuable so far as it can be

to integrators and engineering companies that thoroughly

implemented and if it solves a specific problem. Mexico

dissect the inner workings of building management systems

continues growing and developing its industrial tissue,

and incorporate our solutions in their designs.

meaning electricity consumption will be on the rise, calling for a sturdy and smart grid. Energy efficiency is another

Q: Given the uptake of distributed generation in Mexico,

critical issue. Forty percent of the country’s electricity

how is the National Electricity System going to adapt to

consumption is used by buildings. To that extent we can

isolated supply systems and microgrids?

make this consumption more efficient, greatly impacting the

A: Mexico is showing a clear trend toward distributed

way Mexico produces and consumes energy. There is much

generation systems. We are gradually shifting from the

work left to be done.

traditionally large and centralized power generation plants to generation closer to consumers, with solar PV systems at the helm. This bypasses the need to rely on the main grid. For

Siemens is a global company focused on the areas of

particularly large consumers with specific requirements and

electrification, automation and digitalization. The company

space availability, such as universities or mining companies,

is a top-tier producer of energy-efficient, resource-saving

we are anticipating a niche favorable to the development of

technologies

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| INSIGHT

INTEGRATING SWISS QUALITY TO THE MEXICAN INDUSTRY GENARO PÉREZ Regional Manager Sales of Pfiffner Group

The new Network Code to be approved by CRE will require a

Pérez also says that part of Pfiffner’s responsibility is to

renewal of old infrastructure and the introduction of high-end

educate market participants about the benefits of new

technologies to get the already existing T&D infrastructure

technologies. “Our goal is to introduce trustworthy, high-

up to the code’s requirements, providing a large opportunity

quality products that have long life cycles,” he says. “This

for energy-oriented companies. However, many technologies

specific factor that we consider in the initial design of the

remain restricted from entering the Mexican market, says

product allows us to increase the lifetime of our products.”

Genaro Pérez, Regional Sales Manager at Pfiffner Group. 326

“The Energy Reform marked the liberalization of the market.

According to Pérez, Pfiffner’s service-oriented vision has

With more companies in the country, regulators need to

driven its growth and global presence. “Our slogan is

create a proper framework for the integration of the required

Current and Voltage, our Passion,” he continues. “This shows

technology for the reform to work properly.”

the commitment that the company has to the products it develops.” Pérez says Pfiffner drives all its design efforts to

A leader in the market with 500 employees and six

achieve the highest quality for the entire life of the product.

production centers on three continents, Pfiffner’s goal is

“We work with Swiss quality from the product design to its

to serve the new energy market by introducing the highest-

delivery. We put special emphasis on having high-quality

quality products for HV, MV and LV applications. “Over its

providers that offer us the best raw materials. We always

90 years, Pfiffner has created long-term relationships with

choose those that have values aligned with ours because the

global players that are now established in Mexico, such

perfect equation for the best quality is having excellent raw

as Enel Green Power, Iberdrola and EDF. This means that

materials together with Swiss and German in-house high-

Pfiffner already knows how to work with those companies

quality design and manufacturing processes.”

and can help them set a stronger foothold in Mexico,” says Pérez.

When it comes to the manufacturing process, Pérez emphasizes Pfiffner’s integration. “While most companies

But regulations are hindering companies like Pfiffner

outsource certain elements of their manufacturing processes,

because some of the most beneficial technologies are still

we integrate them into our entire manufacturing process,”

too cutting-edge for the country. “For example, on a global

he says. “That truly makes a difference in the quality of the

level, instrument transformers are using composite silicone-

product.” Although establishing a production facility in

rubber, oil-filled paper or SF6 gas as insulation,” he explains.

Mexico has been desirable for some time, several market

“All these provide several advantages for clients in terms

and political conditions have held the company back.

of quality and security. But Mexico’s regulatory framework

Nevertheless, Pérez says Mexico remains an important

still requires that instrument transformers use porcelain,

commercial center for Pfiffner not only due to its market

which shrinks the market opportunity to introduce new

attractiveness but also due to its strategic location as a

technologies that could benefit Mexico’s infrastructure.”

direct neighbor of the northern and southern regions of the continent.

Pfiffner is ready to introduce such cutting-edge technologies into the market as soon as they are allowed, using the wide

Pérez sees a huge long-term opportunity in Mexico. “Two

network of partnerships it has developed. “Since 2013, we

main elements mark Mexico’s attractiveness. The first is

have had a representation office in Mexico on behalf of

the liberalization of the industry that allowed the entrance

our manufacturing facility in Switzerland,” he says. “When

of foreign investment to develop infrastructure for energy

local clients buy our products, we have a set of commercial

generation, distribution and transmission,” he says. “The

partners and a distribution network that allow us to deliver

second is the need for investment to revamp the existing

according to the clients’ needs and time requirements.”

seasoned infrastructure owned by CFE.”

INSIGHT |

GLOBAL PLATFORMS TO INCREASE COMPETITIVENESS EMERSON DE SOUZA Vice President of Sales, Marketing and Delivery of Electricity Business Latin America at Itron

Mexico’s new energy model has allowed the country to

While waiting for regulation to change in Mexico and allow

implement better and cleaner technologies for producing

for the entrance of more competition, Itron is working to

electricity and the creation of a more sustainable grid.

solidify its base of clients. De Souza says the company is

But Emerson de Souza, Vice President of Sales, Marketing

already working in the country with “major companies

and Delivery of Electricity Business Latin America at Itron,

and entities, such as Gas Natural Fenosa, for which we

says the market’s opening has not been reflected on

provided smart gas meters; CENACE, for which we created

the consumption side where the integration of new and

a forecasting service platform for informed decision-

global technologies remains a hurdle. “Mexico’s regulatory

making regarding the control of the national grid; and

framework does not allow for companies to use global

CFE, for which we provided smart metering devices and

platforms. Instead, companies must adapt their global

services.” While the company has established a foothold

systems to specific local requirements,” he says.

in Mexico, de Souza says it has not been able to introduce some capabilities that the company has offered in other

While setting specific legal requirements is necessary, de

countries, such as Brazil where, “through a partnership

Souza believes that implementing a strict regulation that

with a Brazilian company, Itron worked to implement smart

does not allow the entry of global technology platforms

technologies for industrial and commercial clients. The

into the Mexican market becomes “a barrier for the sale of

system we implemented provided the client with the ability

software platforms, since adapting them to the country’s

to remotely measure the most important elements of its

regulation takes time and money, therefore decreasing

system,” he says. “With that information the company can

profitability.” As fewer software platforms enter Mexico,

better understand its consumption and even use it to make

the entire industry is harmed because other countries that

better decisions.” Because all the information is transmitted

allow these types of platforms subsequently spearhead

through cloud services, he adds, clients can control their

their development, de Souza says. “When a country creates

operations from anywhere, not just the control room.

specific standards or regulations for its economic sectors, there is greater control over the industry’s protection

To bolster its offering, Itron acquired US-based Silver

systems but this also limits the market’s capacity to

Spring Networks at the beginning of 2018. De Souza says

innovate, which in the end damages the country’s economic

the acquisition of one of its main competitors will allow

development as competition is reduced and costs are

it to offer better technologies and services to its clients,

increased. Furthermore, being open to the world allows

especially in Mexico given its closeness to the US and its

companies with broad expertise and knowledge to inject

lack of smart technology implementation. “The US is one

that into the country,” de Souza adds.

of the most advanced markets in the world, which means that Mexico and Latin American countries have a great

Itron is a global player that offers technologies and services

deal to learn from it regarding the adoption of newer

related to the measurement, management and analysis

technologies,” de Souza continues. “Over 50 percent of

of commodities usage. The company has a strong focus

the installed base for metering in the US is smart, and

on the electricity industry and on making the industry

of the yearly purchases for metering, over 85 percent is

smarter. “Itron offers a wide array of solutions that allow the

smart equipment. In Latin America, over 90 percent of the

customer to measure its real energy consumption, its billing

installed base for metering is still electro-mechanic and

and how much of the billed energy is efficiently used. For

not smart, and 85 percent of the new purchases are still

the industrial sector, for example, we can measure which

nonsmart electro-mechanic meters. Because it is a leader

machines are consuming the most energy and with that

in the US smart-metering market, Itron has a lot to offer

information the client can take action to reduce its energy

not only to its current clients but to the entire Mexican

costs by implementing efficiency measures,” de Souza says.

industry,” de Souza says.

327

| VIEW FROM THE TOP

MAKING THE MEXICAN ENERGY INDUSTRY SMARTER OSCAR MIRANDA Co-Founder and President of Smart Grid México

328

Q: What impact can smart grids have on the Mexican

creating a positive impact through the use of smart grids.

energy industry?

The objective of one of our seminars is to help people

A: Smart grid technologies cannot be considered potential

understand the grid code updates that will be implemented

technologies anymore. Smart grids, through automation

on April 8, 2019. If companies understand the grid codes

and systematization of the Mexican electricity grid, are now

and implement actions to comply with them, they will

a reality and it is an error to think that these technologies are

avoid fines,. However, most of the industrial players in

new concepts. For example, all the necessary measurements

Mexico do not even know of the existence of the current

for correct billing in the WEM are fully automated and every

codes. The Ministry of Energy also is contemplating the

operation related to the security and protection of the

implementation of controllable demand instruments for

electricity grid in Mexico is done with telecommunication

large energy consumers. Compliance with the regulatory

protocols that are automated. As a matter of fact, for

framework for controllable demand will be a must for

the WEM to work properly every process has to be fully

consumers to understand what that means and how they

automated. As for DG projects, they also need smart grids

will have to control their energy demand.

for participants to measure bidirectional energy fluxes and to bill clients correctly.

Having a full understanding of these instruments and their implication, particularly for energy consumers, is then

Q: What is Smart Grid México’s vision for the country?

vital. This theme is covered in the Innovation in Energies

A: Our goal is to boost smart grid development and allow for

and New Technologies for the Smart Electricity Grid

the regulation to evolve in an orderly way, considering both

diploma program we designed and offer in partnership

the public and private sectors’ needs. We do that by taking

with Anahuac university. Other themes include energy

part in forums and working with groups and committees

efficiency and automation in buildings and industrial parks.

organized by local, state and federal governments that

After taking the diploma course, alumni will be able to

include the viewpoints of industrial players. When we

see the big picture of the Mexican WEM, fully understand

started the organization, which was around the same time

smart grids and evaluate the pros and cons of different

the Energy Reform was implemented, our focus was aimed

technologies used in the smart grids in terms of engineering

at disseminating information. Now that more people and

and financial criteria.

companies know about smart technologies we seek to specialize and deepen their understanding, as well as to

Q: What still needs to be done to facilitate the introduction

showcase the challenges and business opportunities that

of smart grids in Mexico?

are emerging in the Mexican energy industry as a result

A: Mexico’s infrastructure requires modernization that

of newer concepts like blockchain and crypto-currencies.

allows smarter elements to be connected so it can be better managed. To reach this goal, a proper legal and

Q: How does Smart Grid México work to achieve its vision?

regulatory framework must be established. Regulation

A: The association has a set of solid training and

has to properly measure the needs of the industry and the

diploma programs that are designed with the goal of

country to match them and create the correct framework

disseminating knowledge, deepening understanding and

that allows an orderly growth of the energy industry. The government must set out the correct tools for the

Smart Grid México is a nonprofit organization that promotes

creation of more opportunities in terms of technologies

the

technological

that will pave the way toward a cleaner energy industry.

solutions to enhance operational efficiencies in the Mexican

This includes incentives that take down barriers for the

energy industry

implementation of new technologies in the country.

development

and

implementation

VIEW FROM THE TOP |

STORAGE SOLUTIONS TO STABILIZE GRID CAPACITY HERWIG RAGOSSNIG Head of Business Development for Smart Energy in Latin America at NEC Energy Solutions

Q: What makes NEC Energy Solutions the go-to company

Q: What are the comparative advantages of the GSS Grid

for Mexicoâ&#x20AC;&#x2122;s transmission and distribution needs?

Energy Storage Platform for renewable energy projects?

A: NEC Energy Solutions is one of the leading providers of

A: Whether this technology is used for grid stabilization

completely integrated storage solutions with lithium-ion

or renewable energy integration, the same GSS platform

batteries for electricity grids in need of ancillary services

can be used. The GSS platform evolved in the past mainly

for markets with high penetration of renewable energies or

for short term energy applications like ancillary services

unstable grid infrastructure.

due to the high costs of long-term energy storage. With falling battery prices in the last years, longer term storage

In Mexico this is certainly becoming an important issue

applications became economically feasible and are now the

given the surge in renewable energy and the fact that in

most dynamic market. With renewable energy integration,

certain regions the grid is not designed for high penetration

long-term storage is necessary. In the last years, the

of intermittent sources of energy generation. We see the

energy storage duration of our products and those of

Mexican market as a very strong area of opportunity for

our competitors increased significantly and we see at the

grid storage solutions.

moment storage durations up to 6 hours with our solutions as most attractive.

The most recent studies on Mexican energy storage potential for the next 10 years show that almost 4GWh

Q: How is NEC making the business case for energy storage

of storage capacity will be required to meet the countryâ&#x20AC;&#x2122;s

beyond the additional cost for the developer?

needs. This covers frequency regulation, transmission

A: At the moment, we are talking to many renewable energy

support, voltage support, peak shaving, load shifting and

companies in the Mexican market. We are carrying out

demand-charge management for the countryâ&#x20AC;&#x2122;s industries.

simulations of business models for energy storage for our

In Mexico, there are many opportunities to leverage the

clients to support their project development efforts.

existing infrastructure to increase transmission capacity. One of the most promising is the participation of renewable Q: How is the energy storage segment positioned in the

energy projects in the capacity market. Additional value

Mexican market?

can be generated for these projects if the developer is able

A: Energy storage in Mexico is in an early stage compared

to generate reliable capacity. Another interesting business

to the US or Europe. It is less developed than in other

case relates to demand charge management for industrial

Latin American countries. It is not yet a very market-

and commercial clients with battery installations behind

oriented segment; it is still in the stage where decisions

the meter.

are being made. We are also talking to authorities in Mexico to incentivize We have some potential projects in Mexico, especially in

a change in legislation in favor of including energy storage

the renewable energy sector, but they are in early stages.

solutions for grid stabilization, such as frequency regulation.

Clients are currently studying various models to determine

Ultimately, the regulation will be the important element that

viability because the regulation in Mexico is not yet clear

makes these business models feasible.

enough to define profitable business models. There is still a great deal of insecurity in the market. Everyone knows there will be many opportunities in Mexico but nobody

NEC Energy Solutions uses energy storage combined with

yet knows how to make money from these projects. Clear

intelligent controls to provide turnkey solutions for power

regulations are needed so that investors feel secure in their

grid reliability, enabling greater shares of renewable energy in

investments.

electricity grids with high penetration of intermittent generation

329

330

Dominion's electrical substation

INSIGHT |

TRANSMITTING GRID QUALITY ELOY LÓPEZ Director General of ISEBSA

With a swelling population, Mexico’s energy consumption

“PRODESEN’s objective boils down to capitalizing on clean

needs are only growing. Eloy López, Director General of

energy sources, lowering generation costs and evenly

ISEBSA, says transmission and distribution infrastructure

distributing generation centers across the country,” he

needs to be a priority to mitigate energy losses and secure

says. “The growth in the Bajio region’s load centers is a

a reliable and continuous supply. “Despite its evolution,

testament to PRODESEN’s progress. Energy now travels

the National Electricity System was showing signs of

shorter distances, presents fewer voltage and frequency

obsolescence, with large generation centers far away from

variations and there is less service interruption.”

load centers,” he says. As the manager of the National Electricity Transmission As President of Mexico’s Federation of Colleges of

and Distribution Scheme and the General Transmission

Mechanical Electrician Engineers (FECIME), López engaged

Grid, CENACE continuously analyzes consumption points

in discussions with the Ministry of Energy’s Former Deputy

and how to optimally generate and distribute energy

Minister of Electricity, Lourdes Melgar, in 2014, about the

toward them. “The system is modeled according to

status of the system. From these conversations, a large-

the necessities of power generators and load centers.

scale transmission scheme to mitigate transmission losses

Distribution does not present many problems for dispatch;

was designed.

issues come at the transmission level,” López explains. “Large load centers are inherently difficult to recalibrate.

López says a more distributed transmission system would

Due to these difficulties, instead of recalibrating or

lead to greater efficiencies. For example, Oaxaca’s wind farm

increasing the capacity of existing lines, CENACE is

generation is on the brink of saturation while the central

calling for the installation of new lines to modernize the

region of the country lacks energy. “Today, the Ministry

grid, using the old scheme as reinforcement.”

of Energy is testing a direct-current transmission system from Juchitan, Oaxaca to Topilejo, Morelos that includes a

In terms of renewable energy generation, López says PV has

larger substation to capture and transmit generation more

slowly taken a larger share of ISEBSA’s work, predominantly

efficiently toward the country’s center region,” he says.

in wind farm inspections. “We design mathematical models tested with on-site trials at generation plants,” he says.

ISEBSA is a Mexican company founded in 1994 to provide

“Once the mathematical model is validated, the system’s

specialized services in the design and construction of

behavior can be anticipated under any situation. The model

electro-mechanical works, as well as corrective and

can be applied to different generation technologies, albeit

preventive maintenance services for industrial facilities.

with different calculations based on the equipment used.”

López says one factor behind the company’s success is its constant drive to stay ahead of regulatory changes.

As a message to energy intensive industries, López calls

“It is critical to be in the best position to make sure

on them to join the country’s transition efforts. “Under

the electricity installations we assess comply with the

the Electricity Law, energy-intensive users must justify

Electricity Law, the Load Center Connection and Generation

that 5 percent of their energy consumption comes from

Center Interconnection Manuals and the Complementary

clean energy sources and this percentage is set to grow

Administrative Dispositions,” he says. “This allows us

over time,” he says. “Most see it as an extra cost but it is

to design procedures under which installations must be

rather an effort to create a benefit for the country, implying

structured, ensuring they are modern and efficient.”

less pollution and better energy quality. The benefits far outweigh the costs and our energy generation and

From López’ standpoint, Mexico’s PRODESEN is on track

consumption models must evolve and move forward for

to meet the country’s transmission and distribution needs.

the sake of future generations.”

331

| INSIGHT

QUALITY AND STABILITY FOR THE GRID MASSIMO FERRARINI Director General of Jema Energy Mexico

332

As Mexico prepares to inject close to 9GW of clean energy

present in Mexico for 20 years, meaning it has a broad

installed capacity resulting from the long-term electricity

understanding of Mexico’s PV technology in the country

auctions, the country’s grid must be strengthened to

prior to the Energy Reform. “Our policy was not to enter

secure the reliability and energy quality needed at its main

the market at the lowest price but with the best solutions

consumption points. “Mexico’s renewable energy market

for every project,” he continues. “We transmit reliability in

requires solutions for dynamic power regulation for renewable

our market expertise and provide adequate, tailor-made

energy plants, to strengthen the quality and stability of the

solutions and knowledge of the compliance requirements

country’s electricity grid,” says Massimo Ferrarini, Director

of interconnection to the Mexican grid.”

General of Jema Energy Mexico. As an expert in the intricacies of Mexico’s electricity industry, Jema Energy, a Spanish subsidiary of Grupo Irizar, designs

Ferrarini offers some suggestions to the new administration

and manufactures innovative high-tech solutions, such

to continue the success of the Energy Reform. “The

as static-power converters for renewable energy and

fundamental point is to continue investing in the direction the

conventional power plants and special power supply to

Energy Reform has taken, primarily with renewable energy,”

research laboratories. It entered the long-term electricity

he says. The second important point is electricity tariff price

auction PV projects with manufacturing of power-conversion

stability due to the important fluctuations seen in the tariff

equipment for power-generation plants.

levels and new calculation methodologies throughout 2018. “While it was an inevitable change with new Basic Supply

But Ferrarini says the company is not limited to one business

Tariffs, implementation could be much more gradual and

segment; it closely follows industry trends to react quickly

fine-tuned,” he says. “Drastic variations in electricity tariffs

to market needs. “Following the publication of the basic

generate distrust among market players.”

supply new tariff calculation methodology in November 2017, we developed peak-shaving renewable energy solutions

Third, he believes it would be beneficial to implement measures

customized for each client,” he says. “This is an in-house

to foster the real operation of the wholesale electricity market,

technology to deplete demand peaks that heavily impact

which is operating intermittently. “It should be strengthened

fixed-cost concepts in the electricity bill with the load and

to multiply transactions and normalize liquidity levels,” he

distribution charges. In some instances, these fixed costs

explains. “The industry can only be as efficient, cost-effective

represent up to 80 percent of the bill.”

and successful as the regulatory framework allows.”

Jema Energy was awarded several contracts for the supply of

Given Jema Energy's long history in the country, Ferrarini

power conversion units for PV projects won in the long-term

has witnessed first-hand the evolution in Mexico’s electricity

energy auctions, for more than 800MW. “This achievement

market since 2013, particularly with the approval of the

made us a reference manufacturer in the market,” says

Energy Reform, the requirements for network interconnection

Ferrarini. The projects, between 60MW and 200MW each,

and its manuals, the publication of basic supply rates and

developed mainly by the Spanish X-Elio and the French

the evolution of the wholesale electricity market. At present,

ENGIE, are located in the states of Guanajuato, Morelos,

Ferrarini says Mexico is one of the most important markets

Puebla, Chihuahua, Aguascalientes and Sonora.

for the company’s energy business and that opens the doors to other strategic markets in the region such as the US and

Ferrarini says reliability and quality were key factors in

Central America. “Central America for example, requires

winning the contracts. “These contracts are the result of

applications similar to those in the Mexican market, such as

our step-by-step approach and long-standing knowledge

energy storage solutions for grid-connected and isolated

of Mexico’s energy market,” he says. Jema Energy has been

systems,” he says.

INSIGHT |

DECENTRALIZING BUSINESS FROM A SINGLE CLIENT NUNO INÁCIO General Manager of Grupo Tres R Termotécnica (G3R)

For over 70 years, energy infrastructure companies

Inácio believes working with private developers has its

developed their business portfolio with a single client: CFE.

specific set of challenges, such as an increasing demand

Mexico’s new energy model calls for these companies to

for integrated, one-stop services for a cost-effective

adapt and prepare for demand from private companies

development process. But he says certain aspects are

looking to set a foothold in the country’s unlocked energy

often overlooked, meaning it is invaluable to contract an

industry, completely changing the sector’s dynamic.

experienced company such as G3R. “More often than not, developers do not gauge adequately the actual reach of

“Since 1992, we have developed around 40 substation and

their project in its entirety. It becomes apparent in the pre-

distribution line projects for CFE. Now, we want to decentralize

engineering guidelines of the project,” he says. “We want

our business to answer to increased competition and reduced

to assist them in the design of this pre-engineering for

margins,” says Nuno Inácio, General Manager of Grupo Tres

the proposal of the project to secure investor interest and

R Termotécnica (G3R). Inácio says Mexico’s new energy

be ensured of a seamless grid interconnection process.”

model feels familiar, based on his European experience. “It

In addition, Inácio’s company is deploying a simple yet

was a similar process compared to Portugal. First, private

effective strategy to find synergies with companies that

players are allowed to participate in power generation

have greater financial capacity to strengthen its financial

projects. Transmission and distribution follow shortly after,”

muscle. “We are looking for companies that follow through

he says. Inácio sees this as a positive step forward to meet the

on their projects successfully,” he says. “Our screening

country’s energy needs. “Private participation is paramount

process includes both Mexican and foreign companies.”

to the development of Mexico’s electricity infrastructure as CFE’s budget alone does not cut it.”

The other key element when working with developers is flexibility. In an energy model in which different generation

G3R is well aware of Mexico’s hurdles when it comes to

technologies compete against each other, it is vital to

developing electricity infrastructure. “The big transmission

provide services that fit well for all clients. “We do not work

line projects can range between 100-500km in length,

with specific component suppliers. G3R is continuously

posing a sizable challenge in terms of rights of way and

on the lookout for the market’s primary trends and

land ownership-permitting procedures,” he says. “The Baja

technological advances,” he says. “From an EPC standpoint,

California and Oaxaca-Centro transmission projects add up

many of these projects have defined technologies by

to a length of 1,000km.”

project developers. When we enter the project, we provide advice related to technology, products and components

On the road to client diversification, G3R is intent on

when passing from pre-engineering to construction in order

capitalizing on its 25 years of experience in building

to optimize the design.”

substations, transmission and distribution lines. “Our company has ISO certifications in security, environment

BID Group purchased G3R in 2014. Up to 2017, the company

and quality. We are looking to provide turnkey projects for

underwent a restructuring effort and started operations

developers and offer our tenured engineering services,”

under a new mandate to focus on EPC services for a

Inácio says. While continuing its participation in CFE

diversified pool of clients that started in December 2017.

tenders, G3R is also looking to set a foothold in private

“Further down the line, our goal is to build up a project

substation and distribution line projects, but it has come

management service portfolio. Our market perspective is

across some hurdles. “CFE’s two-year plan in electricity

positive,” says Inácio. “We will end 2018 by invoicing US$15-

infrastructure includes 15 substation and transmission line

20 million in substation, distribution and transmission

projects. While the new administration settles in, the bids

projects. Our target is to grow our invoicing to US$70

inherent to these projects are being put on hold,” he says.

million by 2023.”

333

NEC Energy Solutions' largest grid connected lithium battery in Europe

NEW MARKET ENTRANTS & TECHNOLOGIES

The unlocking of the energy industry in Mexico has placed the country as the ideal place for the development of new technologies applied to the industry. However, to continue with these technological developments, appropriate regulation is necessary to allow new projects to take place. In this context, new market participants are a critical factor for success, while interactions between the public and private sectors will be key to shortening the industryâ&#x20AC;&#x2122;s technological learning curve.

The new products and services that have reached the Mexican market, its regulation and economic viability, the continuous relationship between the sectors participating in the industry and the ability of Mexico to develop technologies that are exportable to more mature markets are among the issues addressed in this chapter, along with the possibilities for success of implementing processes already used in other markets.

335

CHAPTER 13: NEW MARKET ENTRANTS & TECHNOLOGIES 338

ANALYSIS: For Companies, a Focus on Continuity

339

VIEW FROM THE TOP: Luis Aguirre, GreenMomentum

340

VIEW FROM THE TOP: Michael Ross, Kiewit

341

VIEW FROM THE TOP: Zhang Chunnuan, China Gezhouba Group Corporation

342

INSIGHT: Gustavo Rodríguez, Vansertec

343

INSIGHT: Gus Gruner, NRG Systems

344

INSIGHT: Timothy Effio, Fluence

345

VIEW FROM THE TOP: Jam Attari, BayWa r.e

Mario Pani, BayWa r.e.

347

VIEW FROM THE TOP: Jacob Randall, Cone Drive

348

VIEW FROM THE TOP: Marco Käpernik, Astronergy

349

INSIGHT: Luis Escobedo, Aerospec Technologies

350

INSIGHT: Jennifer Skylakos, DHR International

351

INSIGHT: Phil Vyhanek, Yaskawa Solectria Solar

Mercedes Pereyra, Yaskawa Solectria Solar

352

VIEW FROM THE TOP: José Moya, Sacromonte Ganuc de México

353

INSIGHT: Manuel Sánchez, CSolar

Oscar Montenegro, CSolar

354

VIEW FROM THE TOP: Santiago Desentis, AlsoEnergy

356

INSIGHT: Alexander Wolf, meteocontrol Central America

357

VIEW FROM THE TOP: Ron Shen, GoodWe

337

| ANALYSIS

FOR COMPANIES, A FOCUS ON CONTINUITY Amid widespread uncertainty in the aftermath of federal elections that introduced an administration focused on potentially redefining the Energy Reform, industry insiders argue that two elements are needed to keep attracting companies and technologies to Mexico’s energy sector: continuity and talent The arrival of new companies to Mexico’s liberalized

the Energy Reform. “While companies need to continue

energy market has also introduced innovation and

investing in innovation, governments need to continue

technological advances that helped to make the industry

advancing public policy toward incentivizing, rather than

an attractive investment destination. But with a new

inhibiting, market-driven innovation,” says Luis Aguirre,

federal administration in place, continuity became a

President and CEO of GreenMomentum. “Everything is

widespread buzzword. Throughout 2018, leading to the

connected - climate change and energy, innovation and

presidential vote in July and President López Obrador’s

financing; it is all part of the same problem.”

subsequent inauguration in December, uncertainty

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as to the industry’s direction under the new president

Mexico must also overcome the so-called generational

rattled newly-entered companies and those seeking to

gap and seek the best possible talent to continue

participate, with calls to maintain the course set under

growing the sector and attracting companies, and with

previous administration.

them, innovation. This is especially true among those workers who have exercised their profession under a

Jennifer Skylakos, Global Head of the Infrastructure and

model that has been based for decades on the monopoly

Energy Funds Practice at DHR International, believes that

of CFE and PEMEX and that now is focused on clean

continuity in the policies carried out by the government

and renewable energies and in which new players with

during the administration of Enrique Peña Nieto would

experience in more mature energy markets participate.

help instill confidence abroad. “There will need to be a

“Those professionals who seek to bring their knowledge

continuation of efforts to accomplish Mexico’s energy goals

and commitment to the renewables sector will need to

to maintain the trust of international investors and developers

adapt to working with institutional capital in transparent

already in Mexico and provide confidence to those deciding

organizations with proper governance,” Skylakos says. In

if it is the right time to enter the market,” she says.

this context, education must adapt as soon as possible to the new demands imposed by the Energy Reform. “When

Navigating the nuances of the federal government and

the Energy Reform was implemented, study programs

energy officials can also be a challenge for aspiring

did not change accordingly to prepare college students

entrants. “Dealing with the government is complicated

for the future labor market. Although we as a country let

for them. That is where most of the obstacles arise,”

this opportunity pass, it is encouraging to see educational

says José Moya, CEO of Sacromonte Ganuc de México,

institutions stepping up to the challenge and undertaking

a consultancy that supports the entrance of companies

talks with foreign universities and companies to offer

into Mexico. Mario Pani, Mexico Leader of BayWa

their students the best opportunities,” adds Moya.

r.e. adds: “A challenge for foreign companies is the uniqueness of how to best navigate federal and regional

The country’s strategy to continue attracting new

entities. Coordinating development efforts with federal

companies that want to participate in the national energy

institutions such as CENACE, the Ministry of Energy, CRE,

market must therefore be supported in two directions. On

INAH, CONAGUA or SEMARNAT is part of the complexity

the one hand, the public sector must continue working

that increases when dealing with local institutions and

on a correct evolution of the regulatory framework to be

authorities.”

able to attract the latest technological innovations that come from more mature energy markets. On the other

A clear example is the continuous evolution of the

hand, the private sector needs to carry out deeper risk

regulatory framework, which complicates the growth

analyses aimed at not compromising its presence in the

of companies already installed in the country and the

country in the short term, especially in large projects

arrival of those that have shown interest in the Mexican

since, according to Pani, “some of the larger project

energy market. Hence the importance of the public and

development risks are related to regional factors, such

private sectors assuming their responsibilities in the

as existing infrastructure, workforce development and

energy generation process included in the framework of

unique social requirements.”

VIEW FROM THE TOP |

LEADING THE MEXICAN CLEANTECH REVOLUTION LUIS AGUIRRE President and CEO of GreenMomentum

Q: What is GreenMomentum main contribution to the

the supply chain at large corporations. We began working

Mexican clean-tech sector?

with entrepreneurs and research centers, partnering them

A: Energy is not a monolithic matter. The simplest division

with potential corporate partners and investors, hoping

you can have in this industry is innovation, public policy and

to develop strong business relationships by uncovering

investment. But looking at these elements independently

immediate business opportunities.

may be misguided; while companies need to continue investing in innovation, governments need to continue

Q: How does the P39 Clean-tech Center complement

advancing public policy towards incentivizing, rather than

GreenMomentum’s mission?

inhibiting, market-driven innovation. The ambition should

A: P39 Clean-tech Center stands for Platform 39A, as a

be to develop innovation with high market pertinence.

reference to the platform from which Apollo 11 was launched

At GreenMomentum we work with key stakeholders in

as the first successful effort to fulfill one of humanities

both public and private sectors, always trying to properly

most important dreams. Our ambition at P39 is to do just

contextualize information in a way that may lead to progress

that: develop moonshot ideas in Mexico that could forever

in the form of market-driven policies and innovation. In the

transform the way we relate to our planet. We decided it was

end, we believe that when we allow ourselves to look at

no longer enough to promote incremental innovation, we

things from more than one perspective, it is possible to

needed to find people willing to do the work and invest in truly

find more than one solution that aligns to all represented

transformative solutions. For this to take place, we believe we

interests. Everything is connected. Climate Change and

need to focus on the most pressing issues affecting humanity

Energy, innovation and financing, it is all part of the same

today, such as water scarcity or climate change. Our first

problem. We understand these relationships and that is why

attempt led us to meet the people at Imaginea Energy, an

we consider our job to provide context and perspective to

innovative-thinking Canadian oil company working on “clean

policymakers , innovators and investors.

hydrocarbons.” This concept, which many fail to understand, really means guaranteeing the lowest carbon footprint

Q: What was behind the creation of Clean-tech Challenge

during the exploration, extraction, production and refining of

Mexico, the region's largest green business plan competition?

oil. Imagine if PEMEX were to adopt the technology Imaginea

A: GreenMomentum was founded in California in 2008 as

Energy was working on. It would mean a dramatic increase

a clean-tech market intelligence firm. Driven mostly by the

in water recovery and a massive reduction in CO2 emissions.

financial crisis of the end of last decade, we decided to

That kind of project is representative of what we want to

start business operations in Mexico. At that point, and with

achieve at P39 Clean-tech Center: big problems, radical

support from the United Nations and the World Bank, we

solutions, technological innovation and disruptive business

focused our efforts in the design and implementation of an

models. We plan to look for real innovators, and for that we

economic competitiveness program that could assist Mexico

need to promote a new way of thinking by promoting that

in its efforts to overcome the financial crisis and migrate to

which we believe is the only thing Mexico needs to borrow

a green economy. That economic competitiveness program,

from places like Boston, Tel Aviv or Silicon Valley: intellectual

launched in February 2010, is now called Clean-tech

diversity. P39 Clean-tech Center is, in a way, the last piece of

Challenge Mexico. The main objectives were to create jobs

GreenMomentum’s puzzle.

and economic opportunities, as well as to increase the level of economic and technological sophistication in Mexico. For the first few years, Cleantech Challenge Mexico was

GreenMomentum is a market intelligence and innovation

financed by the UN, World Bank and the US government. It

company focused on the Latin American clean-tech and energy

was not until 2014 that we started working with the private

industries. It specializes in public policy and in the design and

sector that we were able to identify the missing elements in

implementation of economic development programs

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| VIEW FROM THE TOP

TARGETING POWER INFRASTRUCTURE DEVELOPMENT MICHAEL ROSS Vice President and Country Manager Mexico of Kiewit

340

Q: What piqued Kiewitâ&#x20AC;&#x2122;s interest in the Mexican

present in the US, but not at the same level. Sometimes we

energy market?

find ourselves trying to find out how to properly address

A: Kiewit has been following the development of the market

insecurity as a calculated risk. It is even harder to handle this

in Mexico for the last four years. When our customers

problem with newspaper headlines covering these kinds of

started calling us to talk about business opportunities

issues. Fortunately, and thanks to our strong relationships

in the country, we decided to enter the market and get

with our Mexican clients, we are handling this challenge well

involved in the process of looking for projects, specifically

and learning how to proceed with caution to take advantage

in the power generation arena, where we see many

of the business opportunities present in the country. We

opportunities emerging.

also heard that trade unions were very difficult to deal with in Mexico and thought this would be a challenge. This has

Q: Which technologies is Kiewit most interested in

not been the case. Our culture is to focus on long-term

installing in Mexico?

relationships, work to the highest safety standards, deliver

A: Kiewit has strong expertise in generation plants powered

projects on time and on budget and create an excellent

by natural gas. We have worked on the construction of

work environment. This performance culture has allowed

almost 70GW of these facilities around the world, which is

us to build extremely good relationships with the unions we

already more than the entire installed generation capacity

have worked with. Kiewit is not interested in subcontracting

in Mexico. In May 2018, we had almost 7GW of natural gas

in the long term. While we have had to use this mechanism

generation plants under construction on a global scale.

for our short-term activities, we want to create a strong

In Mexico, Kiewit installed a 550MW simple-cycle natural

team of Mexican talent and engineers to nurture our

gas power plant. While this is a relatively small project,

Mexican business.

our objective in the future is to become the company of choice for the development of power infrastructure

Q: How easy has it been for Kiewit to find talented human

in Mexico. We are also aware that to reach this status it

capital in the country?

will take time. As for renewable projects, we have broad

A: We are very happy with the people we have found in

international experience with all these technologies. For

Mexico. The country certainly has an excellent labor force

example, Kiewit has constructed geothermal plants in the

with good skills and great ambition. This is also true of the

Philipines, Indonesia and Nicaragua. While in the US and

engineers in the country. Due to the presence of a company

Canada we have developed T&D projects, we do not yet

as strong on a global level as PEMEX, it has been easier to

feel comfortable enough to extend ourselves to this kind of

find people for the oil and gas sector than for the power

project in Mexico. Before going into T&D, we will first work

generation business. Another point to mention is that it has

to develop renewable projects in the country.

not been easy to find female workers. We hope that as our database of people expands, these challenges will be solved.

Q: What have been the specific challenges Kiewit has encountered in the Mexican energy industry?

Q: What would you like to achieve by the end of 2019?

A: One thing specifically related to Mexico that we have

A: Kiewit is in the process of moving the bulk of its business

never dealt with before is insecurity. Of course, this is also

activities to Queretaro. Our goal is to employ around 300 engineers at this new center by the end of 2019. In terms of our projects, we want to have completed the construction

Kiewit is a Nebraska-based, Fortune 500 contractor involved

and have a simple-cycle facility in full operational status in

in construction, mining, oil, gas and chemicals, power,

Mexico. Kiewit is not in the country for one project, so this

transportation and wastewater projects. It has developed

job will mean the beginning of a strong pipeline for other

project portfolios in Canada and Mexico

power projects.

VIEW FROM THE TOP |

CLOSE RELATIONSHIPS IMPROVE KNOWLEDGE OF TECH REQUIREMENTS ZHANG CHUNNUAN General Manager of China Gezhouba Group Corporation

Q: What added value is China Gezhouba Group Corporation

long-term electricity auction but that will depend on our

(CGGC) bringing to Mexico?

internal calculations and the partnerships we develop in

A: CGGC is a subsidiary of China Energy Engineering Group,

the coming months. We are actively looking for local and

with business lines in design, construction, investment and

international partners to make a bid.

operation in hydropower, thermal, nuclear and wind power, power transmission and transformation. The group has other

Q: What is the profile of the partners CGGC is looking for

companies under its umbrella related to the development

in Mexico?

of products and services for energy projects such as China

A: We are looking for two main types of partners. The

Power Engineering Consulting Group Corporation, the

first and most important is a local company that knows

Electric Power Planning and Engineering Institute and China

everything about Mexico and how to complete projects

Energy Equipment, as well as with education institutions that

in the country, that has local talent and broad experience

have strong R&D departments. Having close relations with

developing projects. Most of the companies that were

all of these players allows CGGC to improve its knowledge of

awarded projects during the auctions are from Europe and

the industry’s technology needs and best practices, as well

North America and are also looking for this kind of partner.

with the trends that will shape the future of the global energy

The second type of partner we are looking for is one that

industry. While the company is already one of the biggest

can conduct O&M activities. In China we already have a great

EPC companies in the world, with a strong presence in China

deal of experience in that area and we want to provide it in

and several projects in South America, we are looking to

Mexico, but first we need a local partner that has experience

start proper activities in Mexico’s energy sector soon.

in the country and with which we can partake in operations

Furthermore, a strong competitive advantage we possess

here. Meanwhile, CGGC can bring financial muscle to the

is our ability to not only participate as an EPC but also as a

table to support the activities of its partners.

financial entity to develop projects. Q: What other expectations does CGGC have for its Q: What kinds of projects does CGGC want to develop

activities in the country?

in Mexico?

A: CGGC has experience in water and waste treatment, from

A: Worldwide we are one of the leading companies working

recycling to the creation of energy from waste. Cement is

in hydroelectric projects. Although we entered the country

another area of interest for us because we manufacture

four years ago with the idea of developing these kinds

equipment for the production of this material. Our

of projects, we have witnessed a clear slowdown in that

involvement in the cement industry started because of all

sector, as well as a strong push from the government for the

the cement needed for our infrastructure projects. We have

development of renewable energy projects. As a result, we

facilities that produce this material inside and outside China.

are now looking at solar and wind as the types of projects

I can see CGGC introducing its water and waste treatment

with the biggest opportunities.

solutions in Mexico in the next five years, together with the possibility of fabricating cement. At the moment, renewable

Q: What role does CGGC want to play in the Mexican long-

energies are the entry point for us, and our leverage to

term electricity auctions?

expand activities later on.

A: Three long-term electricity auctions have come and gone, and all three have resulted in increasingly lower prices. We did not enter directly into the auctions because

China Gezhouba Group Corporation (CGGC) is a core member

we are not accustomed to the market conditions in Mexico,

of China Energy Engineering Group. CGGC’s businesses cover

which would have been a major hurdle for the construction

design, construction, investment and operation in hydropower,

of a viable business model. We may participate in the fourth

thermal power, nuclear power and wind power, among others

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| INSIGHT

INTRODUCING LATEST TECHNOLOGIES TO MEXICO GUSTAVO RODRÍGUEZ CEO and Founder of Vansertec

Mexico’s energy model entered late in the game compared

with public officials to discuss public policy possibilities

to more mature markets such as the US or Europe. The

regarding natural gas-fueled transportation. In parallel, we

advantage of this late entry is the availability of a range of

are working to close strategic partnerships with national

innovative clean generation technologies the country can

carriers to foster their transition from diesel and gasoline-

benefit from. But Gustavo Rodríguez, CEO and Founder of

fueled vehicles to natural gas.”

Vansertec, says finding the right talent to implement them is a challenge.

Rodríguez estimates that if Mexico City’s entire public transportation fleet were to transition to this cost-effective,

342

“The Mexican energy market lacks technological specialists

environmentally-friendly fuel, the city’s pollution levels could

due to the novelty of the country’s energy model,” Rodríguez

decrease up to 70 percent. COPARMEX is also convinced

says. “This gap needs to be filled as universities do not offer

of the sizable potential that hydrogen holds for both public

mainstream renewable energy engineering programs.” As the

transportation and private vehicles. “While countries like

first generation of renewable energy engineers from a select

Germany are already developing products and solutions

few universities are only recently entering the professional

for this technology, Mexico is still in the research phase,

sphere, he says the answer lies in seeking talent from abroad.

spearheaded by INEEL. We are looking to close this gap

“We need to turn to other countries for human capital with

and prepare the country to absorb the benefits of these new

tenured experience in the subject matter and introduce their

developments,” Rodríguez says.

technologies into Mexico.” Vansertec also recently closed a strategic partnership with a Vansertec is a Mexican engineering group with more than 10

European holding company. “In my capacity as Mexico City

years’ experience with integrated green-energy technologies

Vice President of COPARMEX, several business opportunities

and energy-efficiency solutions, focusing on reducing

come my way, but Vansertec does not have the capacity to

companies’ energy costs and mitigating the environmental

cater to all of them,” Rodríguez says. “An international holding

impact of their daily activities. The company’s initial focus was

is the ideal partner to provide the financial and engineering

to provide engineering equipment. “Our expertise was built

muscle that Vansertec lacks, while we in turn use our sales

around the telecoms sector, followed by IT security products

strength to build its brand presence and promote its products,

for Mexico City’s government agencies,” explains Rodríguez.

such as an electromagnetic support structure for PV modules,

“In 2014, we shifted toward renewable energy. Vansertec’s

which are ideal for government offices that cannot be

differentiator is its access to innovative technologies.”

modified due to the historic value of some of the facilities.”

Rodríguez’s SME also continues capitalizing on its COPARMEX

While growth prospects for SMEs in Mexico remain limited,

membership. It is a syndicate of voluntary affiliation that

Rodríguez is confident about the company’s future. “We

aims to protect the growth of Mexico’s national companies.

are strong enough to keep growing and are always on the

“COPARMEX represents close to 30 percent of Mexico’s

lookout for alliances to allow us to do so. We are primarily

economic activity within the country’s different industries.

targeting foreign companies with the proven track record

As Vice President of COPARMEX’s Mexico City office, the

and expertise to engage in knowledge-transfer dynamics and

association is working to propose a smart and sustainable

improve our financing sources. Europe has a longer history

energy basket to government agencies,” he says. While

over Mexico in developing and commercializing sustainable

COPARMEX’s primary mandate nationwide focuses on

solutions, reaching economies of scale that turn sustainability

fostering transparency across Mexico’s industries and

and renewable energy into a solid business case. Our focus

government agencies to tackle corruption, it recently adopted

is to capitalize on this expertise and grow from distributed

an antipollution agenda. “We organize monthly breakfasts

generation projects to large-scale developments,” he says.

INSIGHT |

ADAPTING IS THE FIRST STEP TO RENEWABLES SUCCESS GUS GRUNER Territory Manager Americas of NRG Systems

Mexico’s renewable energy resources are often found in

alliances. “We are always open to growing our network of

inaccessible regions with rugged climatic environments.

partners or suppliers. If new clients want to contact us directly,

From initial feasibility studies to O&M activities, foreign

we are open to working with them,” he says.

companies are often faced with the challenge of adapting their resources to these conditions, while also dealing with

NRG Systems recently added two new products to its portfolio.

language and culture issues. Gus Gruner, Territory Manager

The first relies on the intellectual property acquisition of the

for the Americas of NRG Systems, says that decades’ worth

Spidar technology developed by Pentalum Technologies.

of field experience across the globe and technologies that

This vertical wind profiler uses Pulsed Direct Detect Lidar to

have been designed for maximum flexibility are the keys

measure wind with high reliability and accuracy at the heights

to the company's success in demanding locations. “Our

that wind farms require and at a significantly lower cost than

technologies have been put to the test in various markets

conventional Doppler Lidar technologies. “For 2019, one of

around the world. This has helped us refine our solutions

our main goals is to integrate the Spidar platform into the

so that they work effectively across different languages,

NRG Systems portfolio,” Gruner says.

time zones and climates,” he says. “Another benefit of using equipment that is very quick to install and easy to use is lower

The second product is a patent pending Bat Deterrent System

overall supply chain costs, which is always a plus.” Gruner

that was developed to help the wind industry lessen its impact

adds that NRG Systems leaves no stone unturned in testing

on wildlife. While it is well researched that wind turbines

and engineering its products to ensure they can withstand

increase bat mortality, successful minimization methods have

Mexico’s tough conditions and circumstances, including

been implemented. Currently, the most effective techniques

security. “We are used to working in very challenging

involve curtailment. “When turbines present a danger to

locations with complicated terrain. Security is another

the surrounding environment and ecological balance, often

important factor we consider for each project and we put

operators must stop generating power,” Gruner says. NRG

great care into ensuring that our customers’ equipment and

Systems’ technology is based on nacelle-mounted ultrasonic

data is protected from animals and theft,” he says.

devices that minimize bat take by keeping bats out of a turbine’s rotor-swept area. This means that operators will be

NRG Systems is a technology provider that develops,

able to produce more renewable energy longer while keeping

manufactures and engineers measurement solutions for

bats out of harm’s way. NRG Systems plans to launch their Bat

wind and solar. It has operations in over 170 countries, with

Deterrent System in 2019.

more than 35 years in the international market. The company also has an established foothold in the Mexican renewable

Despite the political and trade uncertainty that marked

energy industry, having been introduced to Mexico by

2018, Gruner is hopeful that the future will be smoother

Climatik, its technical and distribution partner. Climatik is a

sailing. He is a strong supporter of keeping the market’s

Mexican company focused on meteorological measurement

opening on track in the face of a new federal government

campaigns. Gruner says this partnership enables NRG Systems

and believes that energy projects will not only benefit

to remain close to its clients in this region with on-the-ground

from the long-term electricity auctions, but also through

service. “Our technical support team can provide real-time

PPA schemes. Collaboration, he says, will be essential,

support through a step-by-step process. This allows our

particularly among the North American bloc countries.

customers to get their measurement campaigns up and

“It is important to nurture the partnership between

running in a timely manner.”

Mexico, Canada and the US. I know there is a great deal of ambiguity surrounding the USMCA, but we really hope

While Gruner says Climatik is NRG Systems’ most important

the deal keeps trade flowing for the long run to achieve

partner in Mexico, the company is also open to forming new

mutual success,” says Gruner.

343

| INSIGHT

BEYOND ENERGY STORAGE: ENERGY SERVICES TIMOTHY EFFIO Market Director LATAM of Fluence

344

As renewables are integrated into energy grids worldwide,

While utility-scale projects may be the ultimate goal for a

the need for control systems that stabilize supply and

company like Fluence, since they require massive energy

demand increases exponentially to ensure that energy

storage deployment, Effio sees potential in Mexican

is available at all times. Timothy Effio, Market Director

commercial and industrial players. “These players require

LATAM of Fluence, says that for this reason, energy storage

optimal management of their energy consumption to

systems have great potential in Mexico. “We have identified

aim for better tariffs, reduce their costs and promote the

significant areas where energy storage projects can be

inclusion of renewable energies,” he says. For those players,

developed to add value and stability to the grid by allowing

Fluence is ready to offer the Siestorage platform, which it

the inclusion of low-cost renewable projects and, overall,

inherited from Siemens and that is capable of reacting in

reducing the marginal cost of energy,” he says.

milliseconds to disturbances in the grid. “Siestorage is a very interesting solution for industrial clients that cannot

While Mexico’s long-term electricity auctions are a hot

afford any interruption or disturbance to their energy

topic, as they promise to bring more renewable energies

supply and require excellent energy quality,” he says.

into the grid, Effio points out the shortcomings of the scheme. “In Mexico, we are looking at a market that favors

As Fluence is a JV between Siemens and AES, Effio

the trading of bulk energy,” he says. “While this is good to

emphasizes that all its clients are guaranteed the highest-

incentivize the development of projects, Mexico still lacks

quality solutions on the market. “Both AES and Siemens

a proper legal framework directed toward the quality of

have a long track record of working together on projects to

energy to be bought, like capacity or dispatch control.”

deliver the optimal outcomes for their clients,” he says. “The companies do not sell products, but solutions, and that brand

Because of this lack of a legal framework, Effio says

identity is also reflected on Fluence.” According to Effio,

project developers are not incentivized to include energy

this is extremely important in a market where competition

storage, a crucial element for grid stability, into the

is fierce and companies must establish themselves as

renewable energy projects to be developed. “Storage can

trustworthy partners that share a vision with their clients.

offer balance, robustness and resilience to the electricity system, therefore allowing for the adoption of large-

Fluence was born with the goal, according to Effio,

scale renewable energy sources, which are not firm and

of becoming the world’s biggest integrator of energy

vary greatly in production,” he explains. “In that sense,

storage technologies to make electricity systems

storage systems can be considered as an active system

worldwide more reliable and sustainable. “Fluence

of the grid.”

wants to electrify everything,” he says. “This is already happening in a tremendously fossil-fuel dependent niche

Effio gives the example of interconnection requirements,

like transportation, through the use of EVs, which shows

especially those to be implemented in Baja California

that our objective is feasible.”

Sur. “Since interconnection projects in Baja California Sur have to comply with certain requirements, developers are

Effio believes this goal can be pursued all over the world

starting to include energy storage with batteries in their

in many industries to make them more self-sufficient and

projects,” Effio says. He also mentions that energy storage

sustainable in terms of energy consumption and diminish

can be used to cut down costs that would otherwise be

their dependence on cost-fluctuating fuels. “That same

used to interconnect isolated systems by ensuring quality

potential is present in Mexico,” he concludes. “Energy

energy is available at all times in smaller grids that demand

storage is capable of increasing the momentum that

lower investments for the transmission and distribution of

Mexico’s energy revolution has, and Fluence wants to

electricity.

become a key player in that.”

VIEW FROM THE TOP |

RETHINKING ENERGY FOR ALL USERS

JAM ATTARI CEO of BayWa r.e

MARIO PANI Mexico Leader of BayWa r.e.

Q: Why did BayWa r.e. find Mexico an attractive market in

the best value for our customers. Also, as a technology-

which to do business?

agnostic organization, we can ensure the latest and most

JA: BayWa r.e. is a company with nearly 100 years of history.

effective technology is always implemented. We believe this

Its focus on the global scale started about 15 years ago,

approach allows the most appropriate selection of solar,

assessing the potential of new markets on a yearly basis.

wind and storage technologies that offer the highest added

Three years ago, Mexico became a top-tier country in

value to the customer.

terms of market attractiveness for us due to strong market fundamentals, its long-term predictability and the emphasis

Q: What kind of risks has BayWa r.e. encountered while

being given to renewables.

developing projects in Mexico? MP: Some of the larger project development risks are related

MP: The Energy Reform certainly triggered a transition in

to regional factors such as existing infrastructure, workforce

the country. Although Mexico was already in our crosshairs,

development and unique social requirements. As an example,

it became even more interesting for us after the reform was

we have noticed that social diversity requirements vary in

signed. While still an early-stage market, the opportunities

the southeast from those in northern areas of the country.

we can see are significant and tangible.

To minimize project delays or increased costs we identify the challenges, understand them and work hard to mitigate them

Q: In which segment of the energy industry is BayWa r.e.

in the early stages of the project development.

looking to develop activities? MP: BayWa r.e. has the capacity to develop a wide variety

Another challenge for foreign companies is the uniqueness

of projects, from utility scale for the long-term electricity

of how to best navigate Federal and Regional entities.

auctions and C&I offsite structures to onsite projects for

Coordinating development efforts with federal institutions

C&I customers. Our goal is to become a leader in providing

such as CENACE, the Ministry of Energy, CRE, INAH,

sustainable energy solutions in the country. We already

CONAGUA or SEMARNAT is part of the complexity

have a sizeable portfolio of projects under development in

that increases when dealing with local institutions and

Mexico, which has allowed us to improve our economies of

authorities. We have the know-how to navigate these market

scale and become more competitive in both in costs and

complexities, and that allows us to provide more certainty

our ability to serve a broad market.

to our customers that we can successfully execute projects.

JA: Mexico fits perfectly within our global strategic

JA: I oversee the Americasâ&#x20AC;&#x2122; portfolio, and it is interesting to

development considering the market support for increasing

see that the complexity of developing a project is lower in

investment in clean energy projects. With Mexicoâ&#x20AC;&#x2122;s

Mexico than in the US. Although Mexico has several levels

commitment to increase energy consumption through clean

of government that have to be managed, in the US this

sources, an effective and quick way to comply with this

number is significantly more considering that each state,

requirement is to install on-site power production plants.

often regions in each state, have their own governmental

Because of our global reach, multinational C&I customers

agencies and processes, along with different market and

have been very receptive to BayWa r.e. supporting their

infrastructure operators.

renewable energy needs for their Mexican operations. Longer term, offsite, utility scale projects both for the longterm electricity auctions and offsite C&I structures have

BayWa r.e. is a leading renewable energy developer, service

been very attractive for us. Ultimately, because Mexico is

supplier, wholesaler and energy solutions provider. With

a strategic market for our organization, we will continue

operations around the world, the company entered the Mexican

to adapt to market mechanisms required to support

market with a large portfolio of solar PV projects

345

346

Neoen-Tesla Hornsdale power reserve, Australia

VIEW FROM THE TOP |

ZERO BACKLASH WITH CUSTOMIZED PV TRACKER DRIVE DESIGN JACOB RANDALL Global Director of Strategic Markets at Cone Drive

Q: Why should OEM companies use Cone Drive’s solutions

motion-control solutions developer, robotics is a natural

in PV technology?

fit since we develop strain wave gearing solutions.

A: One of the many value propositions Cone Drive offers to the OEMs of tracker drives is a tenured market presence

Q: How does Cone Drive achieve zero backlash in its

spanning 90 years manufacturing precision motion-control

customized solar product design?

products, including 10 years of PV market experience. Cone

A: Cone Drive is divided into two different solar segments:

Drive has sold over 18GW worth of tracker drives as a direct

CSP and PV. On the CSP side, we work with Heliostat CSP

result of its manufacturing expansion into Asia, continuously

OEMs, which reflect the light from several mirrors toward

refined manufacturing process, product development,

a single point at the top of a tower. It is mission-critical to

testing capabilities, global engineering, service and sales

attain precision levels to hit the tower and our CSP drive

support. These elements are all in pair with the quality levels

provides industry-leading torsional stiffness in the smallest

and expectations of our customers. Every single tracker

available package to achieve the crucial level of accuracy

drive is customized for each one of our customers. Our

required. Cone Drive uses an in-house, advanced software

engineering resources, proprietary worm-gear software and

that drives the design and manufacturing process for our

testing capabilities allow us to develop our clients’ further

double enveloping worm technology to reduce motion loss

transmission-related, mission-critical specifications.

between gears and worms and to prevent backlash. On the PV side, backlash is not as critical since the sunlight is not

Q: What specific aspects of Mexico’s PV market attracted

being directed toward a tower but rather trying to track the

Cone Drive’s attention?

sun. We can hit virtually any backlash.

A: PV tracker OEMs see Mexico as a sizable growth market. Solar irradiation levels in the country, coupled with the

Q: What does Timken’s acquisition of Cone Drive mean for

amount of land available and the stable macroeconomic

your renewable energy portfolio?

variables, turn Mexico into a prized location for this specific

A: Timken is a large multinational that will close 2018

pool of companies. These factors become the perfect

with nearly US$4 billion in revenue. Its extensive global

formula for PV tracker OEMs to grow over the next 10-20

footprint is an opportunity for Cone Drive to expand its

years given this niche has barely been tapped in Mexico. The

product portfolio into other countries, including Mexico.

number of solar installations remain limited in comparison

Having Timken Mexico’s foothold unlocks an opportunity

to other more mature markets, such as China, the US

to leverage those resources and look at manufacturing and

or Europe.

assembly possibilities in the country. With a consolidated local availability of resources, we could potentially see an

Q: What is your view of adapting robotics to the

in-country product supply offering for our customers. One

energy industry?

of the reasons Timken went after this acquisition was to

A: From a global standpoint, the robotics market is

integrate a solar portfolio. It saw a significant added value

showing double-digit growth, especially in the area of

in augmenting its core bearing business by branching out

collaborative robots (cobots). Many cobots are being

to solar, robotics and the food industry, all covered by

used in manufacturing settings to optimize and increase

Cone Drive.

efficiencies within the production process. This creates tremendous opportunities for PV drive manufacturers like Cone Drive in providing increasingly cost-effective solutions

Cone Drive is a US-based global manufacturer of precision

for our customers. It spans well beyond PV technology or

motion-control solutions and critical mission applications. The

power generation in general to encompass benefits across

company’s product solutions deliver the highest torque density

all markets. For Cone Drive specifically, as a precision

and precision available in the global marketplace

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| VIEW FROM THE TOP

HANDS-ON AVAILABILITY FOR DG COMPONENTS MARCO KÄPERNIK General Manager Mexico of Astronergy

348

Q: What key elements make Astronergy the ideal partner

A: We have a professional with a long-standing career in

for PV developers?

renewable energy who started in Spain in 1992, building

A: Astronergy is a global company with a healthy balance

strong business relationships with developers, EPC

sheet in the Tier 1 market. We represent 2.5GW of annual

companies, developers, financiers and equity funds. We are

production, growing slowly but steadily. We opened our

looking to establish the same strong business relationships

Queretaro offices in July 2018, a legal entity designed to

with Mexico’s local midsize distributors that allow direct

work as a full-fledged Mexican company. The idea is to

sale of our products for distributed generation projects

place our products directly into the hands of our Mexican

to develop a strong market position. Astronergy obtained

clients, with the added value of local representation for

international certifications, such as the UL and ICE. We can

after-sale services. Our clients also can bypass import

comply with the strictest quality norms in countries such

procedures because we take care of those aspects. They

as Brazil, the UK and the US.

can pick up solar panels and PV components directly at our local warehouse, as we are developing a large stock

Q: What R&D advantage are you looking to showcase

of on-hand products. Queretaro’s status as a logistics

in Mexico?

hub, both by land or by air, was highly attractive for our

A: Astronergy’s R&D laboratories work full-time to find

business operations. Its proximity to Mexico City and its

further efficiencies and to reinforce the quality of its existing

competitive real estate and storage facility costs were

product portfolio as well as to find new products that

added benefits. We are looking to set a strong foothold

best adapt to the necessities of the PV markets where we

in Mexico’s residential and distributed generation markets

operate. Every three months, the efficiency of our modules

for PV systems of up to 500kW. Astronergy’s products and

increases, improving our power class.

solutions can meet the clean-energy requirements of both the commercial and industrial sectors.

Q: What is the added value of Chint Electrics’ holding in Astronergy?

Q: What flagship products or services are you looking to

A: Chint Electrics is a large multinational company, that

provide to Mexico’s PV market?

incorporates businesses that work from basic products,

A: Astronergy wants to introduce its in-house 370W

such as electric plugs up to high-voltage substations,

bifacial modules to Mexico’s PV market. Under the right

conferring us the capacity to combine the entire portfolio

surface conditions, bifacial modules can generate greater

of components that Chint Electrics provides. For instance,

efficiency gains of up to 40 percent compared to standard

we supplied the entirety of the components required for

PV modules. Our value proposal comes from our 30-year

Isuasol’s PV park, including the inverters, substations and

warranty and a slower degradation process. Per year,

the junction boxes.

bifacial modules degrade by 0.5 percent, compared to the standard 0.7 percent.

Q: What are Astronergy’s growth plans in the near term? A: We are determined to help bolster Mexico’s distributed

Q: How is Astronergy working to successfully cement its

generation sector. For companies such as Astronergy, the

market foothold in Mexico?

package prices showcased in each edition of the longterm electricity auctions are extremely aggressive, leaving rather thin margins. We believe the market size of mid to

Astronergy is a monocrystalline and polycrystalline PV modules

small-scale installations to be considerably larger and more

provider specialized in research, development and production

profitable and we know from experience a PV market stands

of high-efficiency solar modules. Astronergy’s growth expanded

taller with several points of support rather than relying on

its production capacity from 25MW to 2,500MW

a few projects, however large.

INSIGHT |

DRONE TECH IMPROVING EFFICIENCY OF RENEWABLES LUIS ESCOBEDO Country Manager of Aerospec Technologies

As renewable energy gains momentum in the national

Escobedo is confident that these inspection demos will

energy mix, Industry 4.0 supports its development through

attract more clients to the company’s product portfolio. In

the introduction of innovative technologies, such as artificial

a case study developed by the company at a 100MW solar

intelligence, cloud services and drone inspections. Aerospec

park located in the US, 3,500 faulty PV panels were identified

Technologies, a Boston-based data analytics company,

and repaired, avoiding an estimated replacement cost of

is looking to expand its O&M services in the Mexican

US$1 million. He also wants to replicate the company’s US

solar industry within this niche. “Traditional O&M service

operational scheme in Mexico. “We offer our clients insured

companies take 45 days to complete inspection processes

drones and cameras. An insurance policy for third-party

at a solar PV utility-scale project. We finish this process in a

damages is also mandatory because if a drone falls on a

span of three days and at a fraction of our competitors’ total

panel, it could break the whole stream, representing a total

cost,” says Luis Escobedo, Country Manager of Aerospec

loss,” he says. “Our drone pilots are certified so they can

Technologies.

do their job properly; our main objective is to provide a

“

professional service.”

The company’s core service consists of thermal imaging drone inspection that turns raw data into specific analyses related to preventive maintenance in utility-scale projects. “The data management platform translates color gradient temperatures into the exact fault of each defective panel, such as glass fractures, shading, hot spot, bypass diode, string outage and disconnection,” says Escobedo. Aerospec Technologies was founded by Lance Li, a Chinese student who incubated the company at Harvard Innovation Labs in 2015. To date, the company serves some of the largest operating solar plants in the US and China and is

Traditional O&M service companies take 45 days to complete inspection processes at a solar PV utility-scale project. We finish this process in a span of three days”

backed by investors like Pritzker Group Venture Capital. According to Escobedo, the company has high-profile

The company is already seeing high demand for O&M

external advisers that are experts in raising capital and

services in the wind energy segment, which is a segment

nurturing companies.

Escobedo predicts will develop further in 2H19. According to Aerospec Technologies, wear and tear on blades can

According to the 2017 Greentech Media’s Latin America PV

lead to between 10-25 percent in productivity losses. The

Playbook, Latin America’s share of global solar demand is

company also provides wind turbine blade inspection

expected to hit 6.2 percent by 2018. Mexico, in particular, will

services, which lead to timely repairs to extend the asset’s

have the largest project pipeline with 4GW to be developed

lifespan by reducing operating costs. “We have not

between 2018 and 2019, which is why Escobedo started

introduced this business segment in Mexico yet because

contacting O&M companies in the country to showcase

I want to develop a good reputation in the solar segment

Aerospec Technologies’ proposal. The company delivered

first,” Escobedo explains. “Additionally, you need bigger

a 5MW demo inspection for Enel Green Power México at its

and more expensive drones for this purpose, as well as

Villanueva solar park located in Coahuila. With this demo,

having a good provider in the region.” In growth terms, the

we identified that 2 percent of the scanned panels did not

company wants to consolidate a solar portfolio of 3GW and

work properly. If you extrapolate this to 823MW, it results

open its commercial representation office in the country

in 16MW of lost generation,” Escobedo says.

by the end of 2019.

349

| INSIGHT

TALENT AND THE ENERGY INVESTMENT MARKET JENNIFER SKYLAKOS Global Head, Infrastructure and Energy Funds Practice of DHR International

With the Energy Reform in full implementation mode, it

corporate space specifically – hiring candidates to invest

is important that the new government carry out ongoing

balance sheet money into the necessary greenfield projects,

initiatives at the current pace, says Jennifer Skylakos,

that in turn can also help local communities.”

Managing Partner and Global Head of the Infrastructure

350

and Energy Funds Practice at executive search firm DHR

DHR International works closely with investment funds and

International. “There will need to be a continuation of efforts

their respective portfolio companies behind energy and

to accomplish Mexico’s energy goals to maintain the trust of

infrastructure projects, giving it a clear understanding of each

international investors and developers already in Mexico, and

link in the value chain. “Understanding an organization from

provide confidence to those deciding if it is the right time to

its roots, as well as its fundraising initiatives, goals for growth,

enter the market,” she says.

and portfolio makeup, allows us to better understand their culture for recruiting and long-term organizational purposes,

According to Ministry of Energy estimates published in the

and to become credible brand ambassadors in the market

Strategic Program of Human Capital Training for the Energy

on their behalf.”

Industry, in 2018 alone, 50,000 additional, well-trained professionals will be required to meet the needs created by

For Skylakos, it is all about market approach. “Our group

the country’s energy security goals. To that end, Skylakos

exclusively focuses on the energy and infrastructure market,

explains that the gaps in high-level talent are starting to show.

allowing us to delve much more deeply into what is happening

“Organizations are looking for top talent, with experience

on the ground,” she says. “We not only talk to those putting

in infrastructure and energy investing and experience with

capital to work, but bankers, lawyers, equity researchers and

foreign organizations, not just local development and

government officials to really understand what is driving the

operational experience.”

market and talent.” The company’s holistic perspective of the market is present in every country and region it covers,

In addition to the challenge of finding more talent for the

whether it is Mexico, Brazil, Europe, Asia or the US.

industry, Mexico must also tackle the generational gap between the talented professionals who made a career

Skylakos notes that the Mexican market has particularly

working under the now-defunct monopolies of CFE and

unique features. For example, as “private equity is relatively

PEMEX and the new professionals trained to develop

new in Mexico, the number of qualified professionals with

renewable energy projects and who are now working in an

principal investing experience is light. Also, for groups

unlocked energy industry. “There is, of course, significant value

looking for institutional capital from abroad, there must

in senior talent from PEMEX. And those professionals who

be an understanding of how important fund management,

seek to bring their knowledge of, and commitment to, the

fiduciary duty, governance and transparency is to the

energy space and greenfield projects within the renewables

LPs.” The Global Infrastructure and Energy Funds Practice

sector will need to adapt to working with institutional capital

recruits across all levels and assists in the design of talent

in transparent organizations with proper governance.”

management and retention practices adapted specifically to Mexico’s energy industry. “We want to do our part to bring

Corporations are another interesting entrant into the

more talent to Mexico and to raise awareness about the

renewables sector. “Corporates are getting increasingly

opportunities and investment potential it offers,” Skylakos

involved in renewables. Of course, tax breaks relating to

says. The company also wants to focus on solving Mexico’s

carbon footprint-reduction measures can be very attractive,”

diversity issues. “As more foreign investment comes in and

she says. But also “some companies are looking at renewables

foreign institutions seek more diverse talent, we want

projects as a way to help with efficiency in their supply chain.

to help encourage women to enter the space and those

Thus, there is the potential for talent needs to grow in the

already involved, to stay long-term.”

INSIGHT |

THE MARRIAGE BETWEEN DEVELOPERS AND INVERTER MANUFACTURERS PHIL VYHANEK President of Yaskawa Solectria Solar

MERCEDES PEREYRA International Product Manager of Yaskawa Solectria Solar

When evaluating supplier costs, many developers simply

was a slightly false start initially. “We saw the promise in

consider the initial installation price of a given site. But

Mexico for many years, as the country has the largest solar

according to Phil Vyhanek, President of inverter manufacturer

potential in Latin America,” she says. “We were here for

Yaskawa Solectria Solar, they should add the cost to operate

several years but nothing really happened.” Now that the

the site over 20 years into their calculations. “When talking

first energy auctions have kicked off and the first projects

about the latter, which is what the industry should be talking

are becoming a reality, she says the company is working

about, we provide the best value,” he says. “It is not about

to anticipate the needs of the changing industry and

the initial purchase price but about being able to guarantee

developing products to meet them. To do this, Yaskawa

the reliability, dependability and ease of maintenance of

is launching a new 1,500V inverter and hopes to target

that site over the lifetime of the PV asset.” He says this is

the winners of the upcoming auctions. “We want to try

what Yaskawa tries to emphasize as a company. “What the

to focus more on the utility and commercial segment as

developer is buying into is not simply an inverter; it is buying

this was our strength in the US,” she explains. “The new

into our company.” he says, adding that, while many power or

line was being developed in 2018 so in 2019 we will be

consumer electronics are simply throwaway solutions that last

able to take advantage of all these opportunities and the

for around one year, PV equipment must endure 20 to 30-year

contacts we have established in Mexico.” For utility-scale,

life cycles. “Not only does it need to operate on Day 1 but it

she says Yaskawa wants to target the global players it has

also needs to operate at the same level in Year 20,” he says.

already worked with in other jurisdictions. “If you want to

“This means developers need a partner that will be there when

do business with Enel, you have to go to Italy,” she says.

they need support. This is what Yaskawa provides.”

“We are targeting EPCs in Mexico and trying to leverage our existing clients globally.”

Yaskawa acquired Solectria in 2014 and the company is now the largest commercial PV inverter manufacturer in the US,

Two product lines that Vyhanek predicts will be successful

delivering PV inverters to the residential, commercial and

in Mexico is Yaskawa’s XGI next generation grid-connected

utility-scale segments. Combined, the company is over 100

inverters. The 1,000V product will be targeted toward the

years old and has a value of US$4.6 billion, manufacturing

commercial rooftop or small ground mount setting, while the

over 2 million inverters per year. According to Vyhanek, that

XGI 166 kW inverter will be designed exclusively for ground

attention to quality and long-term history gives Yaskawa

mount systems with distribution flexibility. “This product has

one of the best reputations in the world. “When looking at

the capacity to be deployed in a centralized or decentralized

the market today, the quality of the product is paramount

layout but it is still only one piece of equipment,” he says.

and that is what our customers should be willing to buy,”

“This provides EPCs and developers with ultimate design

he explains. “Our desire to provide the highest-quality unit

flexibility and, through the use of a single unit, flexibility in

is exactly in line with the industry’s desire to have the lowest

terms of O&M.” He says in all likelihood this will be by far

levelized cost of energy over the lifetime of that plant.” As a

the preferred model going forward. Yaskawa’s distributor

Japanese company, the manufacturer’s presence is strongest

in Mexico is Pillar Mexicana, and Vyhanek says this decision

in Japan and in the US but Vyhanek says that, when looking at

was not entered into lightly, given the long-term business

expansion, Mexico was the natural next step. “Our XGI product

relationship implicit in buying an inverter. “We build our

line is designed, engineered and manufactured in the US so it

reputation not only on the quality of our products but

is NAFTA compliant and we see Mexico has enormous solar

also on our service and client relationships,” he says. “Our

potential,” he says.

relationship with our customers is really like a marriage – when they choose to buy our products they have essentially

This vision is shared by Mercedes Pereyra, the company’s

chosen to do business with us for the next 20 years over the

International Product Manager, although she admits there

life of the project.”

351

| VIEW FROM THE TOP

DISRUPTION AND FLEXIBILITY FOR SUSTAINABLE PROJECTS JOSĂ&#x2030; MOYA CEO of Sacromonte Ganuc de MĂŠxico

Q: What impact does Sacromonte Ganuc want to have

flexible in terms of how to work sustainable projects, but

in Mexico?

traditional consultancy is rigid and structured, meaning that

A: We want to help Mexico become more sustainable. To do

it is hard for such companies to adapt to the new business

that, Sacromonte Ganuc offers consultancy services that

models needed in the new energy market. Sacromonte

support the entrance of companies into Mexico to develop

Ganuc offers disruption and flexibility as a core value

green and sustainable infrastructure projects. Green financing

for the benefit of the companies that want to enter the

is a strong tool that is in use around the world, and we believe

Mexican market.

it can be used to introduce these kinds of projects in Mexico. 352

Q: What challenges are foreign companies finding when Q: How is the company fostering the development of

venturing into Mexico?

sustainable infrastructure projects in Mexico?

A: Dealing with the government is complicated for them.

A: We foster sustainable projects by serving as a shelter and

That is where most of the obstacles arise when providing our

consultancy for international players, small or large, that have

shelter services. One challenge in that area is that sometimes

activities in some part of the energy value chain and are

public officials want to work for their personal benefit,

looking to enter Mexico. Our objective in that sense is to help

therefore hindering the development of a project if it does

these companies to find an attractive market in Mexico. Doing

not follow that pattern.

so is no easy task, but we developed a clear understanding of the Energy Reform and the opportunities it opened. We also

The fact that regulation is evolving and changing also makes it

have strong expertise in due diligence, making us the perfect

hard for companies to follow up on all the requirements. Here

partner capable of lining up their processes and, if need be,

is an example: We were contacted by a UK company in 2006

tropicalize them so they adhere to Mexican regulation.

to help it manage what would have been the first contract for distributed generation in Mexico. The talks were going in the

Q: Why should foreign companies choose your services over

right direction but as the Mexican Congress could not reach an

those of major consultancies?

agreement on the way it would process distributed generation

A: Big consultancies can help big international companies

permits at that time, the project had to be stopped. We are

make their entry into a new market like Mexicoâ&#x20AC;&#x2122;s, but it

happy to see more consistency and more opportunity for the

is hard for them to adapt their business models to the

development of these kinds of projects now that the Energy

concepts of sustainability and disruption, as well as to the

Reform is maturing. Companies are constantly calling us to

Mexican culture and way of doing things. As a matter of

inquire about the country and to define the right time to enter.

fact, we met with one of those consultancies to evaluate a project, which was focused on sustainable development

Q: Is Mexican human capital up to the challenges arising from

goals, and to decide whether the project was a viable

the projects coming to Mexico?

business opportunity in Mexico. The conclusion of this firm,

A: We are lagging behind the requirements of the industry.

which is one of the Big Four, was that there was no viable

When the Energy Reform was implemented, study

way to make this project work. However, we did see an

programs did not change accordingly to prepare college

opportunity. In Mexico, we need to be more disruptive and

students for the future labor market. Although we as a country let this opportunity pass, it is encouraging to see educational institutions stepping up to the challenge and

Sacromonte Ganuc is composed of a multi and interdisciplinary

undertaking talks with foreign universities and companies

team of professionals with the objective of providing

to offer their students the best opportunities. It is all about

businesses with optimal financing, strategic planning and staff

creating the right synergies among these parties to create

integration solutions

a better opportunity for the country.

INSIGHT |

TECHNOLOGY, FLEXIBILITY AND PERSONALIZED SERVICE MANUEL SÁNCHEZ Director General of CSolar

OSCAR MONTENEGRO Argentina General Manager of CSolar

The abundance of PV manufacturers and installers on a

improvements to its design portfolio and mounting

global scale means differentiators are more important than

methods, to evaluation of new materials, incorporation

ever. Manuel Sánchez, Director General of CSolar, says the

of new aluminum alloys that can better resist long-term

way to stand out from the crowd is by treating each project

weather effects and development of new functional shapes

as unique rather than providing the typical one-size-fits-

and figures adaptable to any and every roof. “Our structures

all solution. “We elaborate a comprehensive study of the

are adaptable to any panel available in the market. For

roof’s details and wind load bearing capacity, after which

the more uncommon, thin-layered panels, we are capable

we provide a solidity certification to guarantee no problems

of developing a tailored mounting structure within two

will ensue after the installation,” he says.

to three weeks that complies with the manufacturer’s warranties over the panel’s lifetime,” says Sánchez.

One way to increase the accurancy of this process is through the use of specialized software that CSolar, which

In 2012, CSolar patented a mounted module that does not

designs, manufactures and supplies support structures for

need to be anchored to the floor nor to the roof. It is a self-

PV facilities, has developed. “Our Fluent software generates

supported system that works with a light concrete ballast,

a variety of simulations in fluid dynamics applied to solar

ideal for nondrillable roofs. It includes wind baffling plates

panels to fill the gap in wind load factor calculations for roof-

on the back, preventing wind suction and mitigating wind

mounted structures,” explains Oscar Montenegro, Argentina

load factors. “We expect it to become our star product

General Manager of CSolar. “With it, we can analyze wind

Mexico’s given the extensive number of flat roof surfaces

loads affecting both the solar panels and the base structure

available,” Sánchez explains.

and design the best-adapted PV system for it.” The Spanish PV company has had its sights set on Mexico The Barcelona-based company believes attention to

from the very beginning, even when initially developing

detail is paramount. “Our engineering and architecture

the company. Now employing 50 professionals, CSolar

department is solely focused on the delicate issue of

jumped at the opportunity to internationalize, starting

placing roof-mounted structures,” explains Montenegro.

in Chile and Argentina. Cementing its South American

He says this expertise means the engineers can easily

foothold, CSolar inaugurated the operation of a PV

address any doubts customers have. “Often, facility

support structure manufacturing plant in Mendoza,

owners raise concerns that their activities will be

Argentina. It will be the focal distribution point for the

disrupted while the installation is ongoing or worry about

region. The decision was made to provide improved

possible water filtration during the work.” In response,

delivery times to the final client and capitalizing on the

CSolar schedules recurrent site visits and follows-up

trade benefits of MERCOSUR. “As UNEF members, we

on the PV system’s performance once the installation

continuously received market intelligence about business

is concluded.

opportunities in Latin America. With Chile’s favorable policies toward renewables and its trade agreements

Montenegro says the strong competition also requires

with the EU, we decided to start there,” explains Sánchez.

companies to be flexible and willing to innovate. “We

CSolar has a fully-fledged subsidiary operating in Chile.

continuously think of ways to lower a structure’s costs,

For Mexico, the company opted for a different approach

optimize the use of materials and profiles, decrease

and is looking to close a strategic local partnership.

mounting times and use as few tools as possible for the

“To create brand awareness, we are looking for a local

mounting process,” he says. “Our R&D department works

distributor with a developed and sturdy distribution

around the clock based on our clients’ feedback.” Sánchez

chain and an efficient logistics network that extends

adds that CSolar looks at every aspect of a project from

nationwide,” Sánchez says.

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| VIEW FROM THE TOP

DATA MANAGEMENT, THE KEY TO EFFICIENT OPERATIONS AND COST REDUCTION SANTIAGO DESENTIS Country Manager Latin America of AlsoEnergy

Q: What is the main added value you offer to the

our advanced PowerTrack software to create end-to-end

energy industry?

solutions for our clients. Our scalable solutions range from

A: Our main added value is our ability to offer end-to-end

small commercial to utility scale, and may be used for

solutions in monitoring systems through our PowerTrack

monitoring and control of solar PV, wind, energy storage,

platform. It integrates software and hardware components

and more. We offer specialized applications for a variety of

that make up an integral monitoring solution and showcases

user needs including PowerTrack Web, PowerTrack Mobile,

our biggest added value. The platform was built to provide

and locally hosted software solutions.

our clients with the best user experience, drawing on 354

AlsoEnergyâ&#x20AC;&#x2122;s own experience from the 22,000 sites it

PowerTrack enables users to streamline business processes

monitors, representing an aggregate 18GW of installed

in a single enterprise platform. Clients use PowerTrack for

capacity. It is 100-percent customizable and user-friendly. It

a huge range of needs including performance analytics,

easily adapts to a wide variety of systems and can be used

diagnostics, KPI displays, alerts, reports, invoicing, asset

by a broad range of users, from investors to electricians

management, SCADA control dashboards, and CMMS job

in charge of O&M, enabling us to land a solid foothold in

ticketing. We also provide services to integrate PowerTrack

a variety of energy market niches. Our platform is energy

with software programs already being used by our clients,

agnostic, meaning it can work with virtually any power-

such as Salesforce.

producing technology and is adaptable to a wide array of power inverters, PV trackers, weather stations and plant

Acquisitions are another avenue through which we can offer

controllers. We make a point of developing both in-house or

an added value to clients. On July 16, 2018, AlsoEnergy

subcontracted software with no particular license to make

announced the successful conclusion of its merger with

good on this versatility.

Skytron Energy, a Germany-based leader in PV software and hardware. This was in addition to the acquisition of

A monitoring platform should not be seen as an additional

select assets of Draker Corporation, a pioneering company

investment but as a long-term savings strategy. The

in PV monitoring. Both acquisitions place AlsoEnergy at

information that is being generated through a solar plant

the forefront of renewable energy monitoring services,

is massive. It is important to take advantage of this data

considering the end result is the creation of a global leader

to better understand the project and operations. This

with more than 18GW of PV, wind and energy storage

is particularly essential in a growing and competitive

assets under management. It will allow AlsoEnergy to

region such as Mexico and its nascent open market. It

provide the most complete platform in renewable energy

helps improve not only the operation of a plant but also

asset management, control and monitoring solutions, and

the contracts, services and solutions that the company is

it provides standardized products and support for clients

offering to the industry.

with international portfolios.

AlsoEnergy is building the operating system for the grid of

Q: How is AlsoEnergy taking advantage of the opportunities

the future. We promote greater operational efficiency for

that the Reform has made available to the sector?

energy professionals with a complete line of products and

A: The core business of our company is rooted in solar

a comprehensive software platform, enabling our clients

energy and that has taken us to other technologies such as

to save time and reduce costs while delivering optimized

wind. We mostly serve commercial and industrial companies

generation.

as well as utility-scale projects ranging upward of 100MW of installed capacity. We have grown considerably from

Integrated product packages from AlsoEnergy combine

collaborating in solar projects that were between 5MW

easy-to-install hardware and professional services with

and 50MW to projects of 100MW. Our technology and

experience allow us to provide a multi project technology

It can help prevent problems and facilitate the creation

and provide a portfolio aggregation.

of contracts. This would give investors an easy way to access data whenever there is miscommunication. Having

Our company has a presence in over 40 countries and each

a standardized way of managing data makes operations

region we enter implies a different set of rules that need to

better and allows companies to make faster decisions.

be applied. We believe that Mexico has big opportunities available because the market is just starting to develop

We are talking with CENACE about the standardization of

and our monitoring platform can provide a great deal of

SCADA technologies but we understand that it prefers to

insight into the wellbeing of its energy industry and its

make these types of agreements through associations. It is

future performance.

a way to make sure its decisions reflect the majority and not just the interests of a particular company. We understand

Monitoring is an important component in asset

CENACE’s focus is centered on Mexico’s electricity grid and

management due all the information and savings it can

making sure the country’s new renewable energy projects

provide. Companies with a growing power generation

reach interconnection phase, but it has manifested interest

portfolio should invest more in these systems to keep all

in reinforcing standardizing efforts for power production

their projects in check. It is also a good way to cut O&M

monitoring.

costs. As the era of government control subsidies ends in Mexico’s energy market, there will be a growing demand for

Q: What strategies is the company using to minimize the

energy sources with stable supply and cost. There are great

energy industry’s learning curve when it comes to data

opportunities here now for investment in renewable energy.

management? A: This is one of the biggest challenges that not only the

As portfolios grow, the cost of inefficient operations grows.

company faces but also the country in general. Mexico is not

As the Mexican market grows and consolidates, companies

used to seeking its own suppliers as it used to solely depend

with efficient operations will have a great competitive

on CFE. We can educate clients on the best way to maneuver

advantage. For this reason, a monitoring platform should

through these changes. We seek to be a platform where

not be seen as an additional investment but as a long-term

companies can see results in real time. Also, Energy offers an

savings strategy. PowerTrack software provides a huge

introductory demonstration where clients can interact with

range of features to improve operational efficiency. We

the platform and see for themselves all the benefits it offers.

have a proven record for helping clients meet their business challenges. As a result, GTM Research has ranked AlsoEnergy

Big Data is a concept that is still being developed in the

as the No. 1 independent solar monitoring provider in the US

industry but it will be extremely important in the near future.

commercial market for the past 4 years in a row.

The most important thing is to understand the means to best calculate the true costs of the product. We are working

In the Mexican energy market, now is the time to standardize

on our business intelligence to provide even more solutions

on AlsoEnergy technology solutions. Companies who adapt

to the client. AlsoEnergy provides extensive resources

early to a standardized platform will enjoy efficient operations

for training and support. We are available seven days a

and increased asset availability. It will be easier to grow

week, and we offer helpful support features that include

portfolios and operations with clearly defined workflows and

appointment-based support and prioritized support for

well-established systems for communication. AlsoEnergy can

technicians in the field. We offer a well-organized program

help Mexican companies take full advantage of this moment

for client onboarding, along with access to a large library

to position themselves for success and future growth.

of training videos and documentation.

Q: What challenges does the industry face when it comes

Customization is another important element for customer

to data management?

success. AlsoEnergy works with each client to understand

A: It can be hard to maintain control of information in the

their internal processes, then we configure the PowerTrack

industry if each company has a different system for data

platform to meet each company’s needs. Customization makes

management. Our interactions with the market in general

data management intuitive for users with configurations such

and financial entities in particular, such as development

as user permissions, KPI dashboards and automated reports.

banks, show that norms do not require a monitoring system from suppliers, although this means that it can be difficult to keep track of 10 different companies when each one

AlsoEnergy provides technology solutions for energy production

is sharing data in different ways. It makes it challenging

assets, focused on solar PV. Its solutions range from standardized

to control the project. Working with a single true source

DAS systems to custom-designed SCADA systems, with services

of data facilitates administrative and operational matters.

to integrate generation assets in its PowerTrack platform

355

| INSIGHT

ADVANCED MONITORING TO BYPASS DOWNTIMES ALEXANDER WOLF General Manager of meteocontrol Central America

356

Utility-scale renewable energy project developers are facing

economies of scale inherent to the size of these projects.

increased pressure to make good on their power-output

“A single client can use our platform to monitor between

projections throughout the entire life of their projects, set at

200 and 500 assets in one place in a user-friendly and

15-20 years. The road to accurate yield measurement can be

efficient way,” he says. “We provide maintenance alerts,

paved by new metering technologies integrated in the early

a specialized O&M application for the onsite technicians

stages of the project but Alexander Wolf, General Manager

and fully-automated reports. Our platform is a centralized

of meteocontrol Central America, says many developers do

command center to realize preventive and corrective

not place enough importance on this aspect in advance.

maintenance as time and cost efficient as possible.” Today, 45,000 installations worldwide are monitored

“The different companies involved across the development

by meteocontrol’s platform, equivalent to 13GW of

phases of a PV project prioritize primary components, such

renewable energy installed capacity.

as panels, inverters and mounting structures,” he says. “More often than not, less attention is put on the selection of an

Besides existing offices in the US and Chile meteocontrol

effective monitoring system, which can make a difference

extended its coverage in the Americas in 2017 by

by significantly reducing downtimes. This could equate to

establishing a subsidiary to cover Mexico, Central

hundredfold cost reductions for O&M in the utility-scale,

America, Colombia and the Caribbean, with presence in El

commercial and industrial sectors.”

Salvador and Mexico. Wolf is looking to promote its Blue Log X-Series Data Logger and Power Plant Controller,

Germany-based meteocontrol started supplying PV

which is also able to limit the plant production under the

monitoring residential systems in the late 1990s to secure

concept of peak shaving or zero injection where needed.

the yield of PV systems and to regulate feed-in management.

“The core of our business is to provide a one-stop-shop

“Meteorological metering is crucial to determine with

with our Data Logger for energy production, secure data

certainty a particular location’s irradiation levels,” says Wolf.

transfer and evaluation,” he says. “At the same time, we

“A PV project’s financial analysis is usually limited to yield

offer all the required peripherals, including sensors,

reports.” Although he says these are important, they fall

energy meters, local SCADA and remote-monitoring,

short in predicting the sun’s behavior on a particular day or

all directed at C&I and utility-scale projects.” He says

a specific point in time. “A yearly average still encompasses

there is a gap between 500kW distributed generation

future uncertainty,” he says.

projects and utility-scale projects that meteocontrol looks to fill. As Mexico’s market matures, he expects to

To counter this uncertainty, meteocontrol uses irradiation

see development of PV parks with 1-10MW of installed

sensors to collect valuable data for comparison with a PV

capacity to become more common.

plant’s power output. “Modules, inverters and cables are components that can translate into energy loss,” he says.

Another of meteocontrol’s products that Wolf considers

“Our solutions depict a digital twin of the PV plant and

ideal for Mexico’s utility-scale PV projects as the market

can accurately calculate the critical performance ratio (PR)

matures is its Solar Power Forecast in conjunction with

factor. In doing so, our customers can provide PR warranties

its PV plant performance assessment as an independent

to their clients against actual energy production to reduce

third-party service provider. “This service enables us to

the uncertainty factor.”

provide technical due diligence in cases like ownership transfers. We analyze the state of all components and

While the company’s first steps in Germany involved

audit the PV plant for international certification, provide

residential solutions, meteocontrol is solely focused on

construction supervision and can ensure the technical

commercial, industrial and utility-scale sectors due to the

solidity of the project.”

VIEW FROM THE TOP |

CHINESE GIANT BOOSTS PV SEGMENT RON SHEN International Sales Vice President of GoodWe

Q: What added value does GoodWe offer to the Mexican

to our customers. GoodWe offers a solar academy for

solar sector?

training and forums but we want to emphasize our post-

A: GoodWe has an installed capacity of 12GW globally

sales service. To that end, we are introducing an office in

and is the No. 1 provider of PV inverters in China’s solar

Monterrey to provide high-level customer service. In the

distributed generation segment. Based on that, last year

meantime, this team will be supported by our headquarters

we designed a specific plan to determine our 10 strategic

to make sure our brand always highlights human care. PV

global markets. In Latin America, we selected Mexico and

distributed generation is a market that will take off in the

Brazil. Mexico represents an attractive emerging market due

near future, as we have seen in countries such as China,

to its new policy framework and the country’s high solar

Brazil and India.

irradiation. The solar market is taking off in the country. We also have seen large-scale utility projects with the results of

On the supply side, technology is moving closer to the

the long-term electricity auctions. In this context, we expect

consumer and there is no need for long-distance energy

substantial growth in Mexico’s solar sector. Our mission

transmission. We believe the regulatory framework in

is to become one of the Top 5 solar inverter providers in

Mexico will motivate this transition. In Mexico, we already

the industry. Bloomberg ranked GoodWe as the sixth PV

have an installed base of 50MW and our goal is to add

inverter provider in terms of global revenues but our goal

40MW by the end of 2018. Our target for the next year is to

is to become stronger by covering every strategic market.

triple our revenue in terms of a sales but mostly to expand

We are conducting a step-by-step assessment of Mexico’s

our brand and position our products.

market to make sure we are growing hand in hand with the market.

Q: What benefits does GoodWe’s solar academy platform provide your customers?

Q: In which market segments does GoodWe seek to

A: GoodWe’s solar academy started in China and was the

position its products and services?

first initiative of this kind in the country. The academy

A: We have a comprehensive portfolio of PV inverters,

provides technical proposals, system solutions and is used

ranging from 1kWh to 80kWh. Additionally, our energy

as a support tool from an EPC point of view. In China, we

storage systems have received a very good response in

have organized several training sessions and forums that

other markets. We believe that when Mexico’s PV market

not only focus on our clients, but installers, distributors and

matures, energy storage will become an inherent segment.

all public entities interested in the solar sector.

This is why our strategy in Mexico is to cover the residential and commercial segments.

At forums, we do not talk about our product, we talk about a technology platform to share information with our

We are also starting to look beyond utility-scale projects

peers and competitors. This platform adds value to our

since our products are a good match for power generation

practices and we have not identified any other company

systems. We understand that it is not the best timing to

that offers this kind of in-house activity. GoodWe is proud

introduce solar storage to Mexico but we are trying to offer

of its pioneering solar academy and it really represents an

this option to our clients. By using our products, our clients

added value for the company and our clients.

can pre-emptively save on their investment because they will need to incorporate energy storage in the last stage of every energy generation facility in the near future.

GoodWe is a leading enterprise that focuses on research and manufacturing of PV inverters and energy storage solutions.

GoodWe is an international player with high-quality

GoodWe solar inverters are largely used in residential rooftops,

Chinese technology but we also want to be very close

commercial systems and energy storage systems

357

ENERGY MANAGEMENT

Clean and renewable energy projects in Mexico have captured the international spotlight; however, the efforts made by the public and private sectors to save energy and optimize their performance go unnoticed at times. The regulatory

framework proposed by Mexico illustrates the governmentâ&#x20AC;&#x2122;s objectives to achieve necessary energy efficiencies, although implementation is lagging. In this context, both energy traders and the application of IoT and data-mining can be key to achieving the goals set by the industry.

This chapter will analyze the energy policies with the most impact on energy efficiency, what financial instruments can be applied in the country to safely meet the objectives of the industry and the role that Mexico should play on the international clean and renewable energy stage. In addition, it will analyze the technologies Mexico can adopt to continue lowering energy costs and the role the public and private sectors should play in attracting the best talent needed to maintain the industryâ&#x20AC;&#x2122;s growth.

359

CHAPTER 14: ENERGY MANAGEMENT 362

ANALYSIS: Efficiency And Optimization, the Catalysts of Sustained Growth

363

INFOGRAPHIC: Mexico's Energy Management

364

VIEW FROM THE TOP: Víctor Fuentes, Mitsubishi Electric Automation Mexico and Latin America

366

VIEW FROM THE TOP: Enrique González, Schneider Electric

367

VIEW FROM THE TOP: Francis Pérez, RAMADASA

Marco Amezcua, RAMADASA

368

VIEW FROM THE TOP: Francisco Torres, Veolus

369

VIEW FROM THE TOP: Riker Martínez, Danfoss Drives

370

VIEW FROM THE TOP: Michel Yehuda, Dominion Mexico, Fluke Corp. Master Distributor in Mexico

371

INSIGHT: Bulmaro Rojas, Generac Ottomotores

372

INSIGHT: Enrique Papadimetriou, GEOTER Renovables de México

373

VIEW FROM THE TOP: Iago Crespo, Genesal Energy Mexico

374

VIEW FROM THE TOP: Rodrigo Calderón, Energetika

375

VIEW FROM THE TOP: Miguel Barrientos, Industronic

Luis González, Industronic

376

VIEW FROM THE TOP: Sergio Julian, Bender

377

INSIGHT: Steven Clarke, Newcomb Anderson McCormick

378

VIEW FROM THE TOP: Víctor Silva, Grupo ProSidsa

379

VIEW FROM THE TOP: Federico Casares, Veolia

380

VIEW FROM THE TOP: Markku Aspholm, Rolls-Royce

381

VIEW FROM THE TOP: Jorge Othon, OSOLEC

382

VIEW FROM THE TOP: Alejandro Delgado, Inaccess

383

VIEW FROM THE TOP: Luis Raymundo Ávila, INGENIERIA ENERGETICA Y CONTROL

361

| ANALYSIS

EFFICIENCY AND OPTIMIZATION, THE CATALYSTS OF SUSTAINED GROWTH As giants of energy production from around the world began to bet on large projects in Mexico, it forced all players to adapt to the new landscape. This helped spur a rapid development of the nascent industry. To keep it going, efficient management of resources is required and digitalization will play a key role

362

The evolution of the regulatory framework, energy

the public and private sectors must work together in the

efficiency, storage and management of energy, energy

search for a balance that allows economic growth without

optimization and investment in R&D have become

obstructing the environmental protection policies

common concerns for all energy sector participants,

promoted both by the government and by the corporate

both public and private. In this context, the Internet of

social responsibility programs preferred by companies.

Things and processes digitalization are essential on the

The goal is to create incentives not only to consume

path toward optimization and energy saving. Although

less energy but to make the most of what is produced,

Mexico has taken steps in this direction, there is still much

such as using a mixture of energies in a specific project,

to be done, says Víctor Fuentes, Director of Mitsubishi

which is becoming more common in Mexico. “A few years

Electric Automation Mexico and Latin America. “While

ago, there was a great demand for renewable projects

the country enjoys one of the lowest labor costs in the

that targeted the development of only one technology;

region, production costs are extremely high due to the

now we are increasingly seeing an increased demand

lack of an energy efficiency culture. Strong investments

for projects that include different technologies, such as

and technology transfers are of the utmost importance

biomass, biogas, batteries and fuel cells,” Steven Clarke,

in this regard. In the early 2000s, when FIDE began

Director General of Newcomb Anderson McCormick, says.

operating as an entity separate from CFE, it was highly

“The goal of these innovative technologies is to reduce

active in promoting energy efficiency, albeit limited to the

energy consumption intensity and GHGs.”

residential sector. The country’s industrial tissue has yet to open itself to such aggressive and effective awareness

Like the government, the private sector has also taken

and support campaigns.”

steps forward in search of optimization and energy saving. Companies are focused on complying with

Mexico has listened to and implemented the requirements

the regulatory framework and point out that it must

demanded by the industry, although not at the desired

continue to be updated quickly so that Mexico does

speed. As the market matures, it is critical to put in place

not lose competitiveness in the international context.

the measures needed to successfully overcome the so-

“In Latin America, the market is flooded with low-

called energy dilemma, pitting the environment against

quality products that do not comply with regulations

economic growth. “We are at a crossroads where fully

and the lack of information makes this situation more

environmental policies may hamper economic growth,

critical. Disseminating this information is vital in terms

whereas fully focusing on productive activities risks

of providing users with better access to quality energy,”

damaging the environment. For us, the answer lies in

explains Luis González, Deputy Director of Sales at

increasingly optimizing energy utilization to foster

Industronic.

environmentally-friendly economic growth,” says Enrique González, Zone President Mexico at Schneider Electric.

The key lies in compliance with that regulation, which is

One of the first steps to raise awareness about what

the absolute responsibility of private players. “Mexico has

energy means for Mexico’s economic future is for market

a good regulatory electrical standard; however, I think

participants to be aware of the importance of investing

the country requires proper monitoring of compliance

in energy efficiency, whether large, medium or small

with the regulation. It is one thing to have a good text

consumers. “Final users are gradually being made aware

inspired by the US or European electrical standard; it is

of this critical issue as it is now impacting their budgets.

quite another to make sure that people and companies

Mexico’s new energy model now shows the real costs of

comply,” says Sergio Julián, Head of Latin America at

generating, distributing and transmitting electricity and

Bender. According to Jorge Othon, Director General

is acting as a conscience trigger,” continues González.

of OSOLEC, “now is the time for adjustments, and decision-makers must send clear signals to the industry’s

The goal that Mexico has set for 2050 not only implies a

stakeholders. Providing certainty to the industry is key to

change of energy model but of mentality, meaning that

incentivizing investment in the country.”

INFOGRAPHIC |

MEXICO'S ENERGY MANAGEMENT the new tariff scheme proposed by CFE. Another factor

fell 0.8 percent to 509.69kJ/MX$. This result is partly

was the increase in demand for natural gas imports as

the product of the 1.2 percent increase in the country’s

PEMEX decreased production. Low gas prices in the US

energy consumption and a deceleration in GDP.

also played a role. In 2017, Mexico's natural gas imports

Regarding electricity prices, the industrial segment was

totaled 4,815.1MMcf/d, which represented an increase of

the most affected even before the implementation of

15.5 percent from 2016.

NATIONAL AVERAGE ELECTRICITY PRICES PER SECTOR (MX$/kWh)

ENERGY INTENSITY (kJ/MX$ produced)

From 2016 to 2017, Mexico's energy intensity indicator

590 *In October 2017, INEGI executed a change of basis from GDP to baseline prices from 2013

570 550 530 510 490 470

509.69kJ/MX$: the value of energy intensity in 2017

450

4.0

3.5

Commercial Public services Residential

363

Industrial Agriculture

3.7

3.7 3.4

3.4

3.2 3.0

2.5

3.1

2.9 2.7

2.7 2.3 2.1

2.0 1.7

1.8

1.9

1.1 0.7

2.4

1.8 1.4

1.2

0.8 0.7

0.5

2.5

2.1

1.5

1.0

3.4 3.2

1.3

1.1

0.9

1.4 1.2

1.3

1.6 1.4

1.4

1.7 1.4

1.1

0.9

1.5

0.8

0.6

0.5

2007

Source: Ministry of Energy

2008

2011

167.5

128.7

143

2013

2014

99.6 74

83.8 63.7

95.3

2012

63.6

136.5

124.5 67.3

2010

50.1

2009

72 86.9

144.6 87.1 100.6

93.8 102

96.5

100

74.7 83

116.3

140

150

149.6

158.8

205

*Differentiated prices estimated by CRE. These do not represent the prices applied to final users from licensed distributers.

96.9

Residential Industrial Commercial

75.9

200

57 65.6

NATIONAL AVERAGE PRICE OF NATURAL GAS PER SECTOR (MX$/GJ)

2015

2016

2017

| VIEW FROM THE TOP

NURTURING MEXICO’S INDUSTRY 4.0 VÍCTOR FUENTES Director General of Mitsubishi Electric Automation Mexico and Latin America

Q: What is Mitsubishi Electric Automation’s most relevant

investment is energy-allocated. We manufacture products

contribution to Mexico’s energy transition?

from semiconductors to satellites and our entire electronic

A: Our goal is to keep contributing with new technological

and electric equipment portfolio is injected with R&D

developments. Our company invests close to US$2

investment, making a special emphasis on industrial

billion per year in R&D. Our R&D assets include an

automation and electricity transmission and distribution

American market research center in Boston, where we

equipment. Case in point: these two specific sectors alone

develop new products for the Americas, from Canada to

receive close to US$250 million in R&D investment each year.

Argentina. Boston is only the tip of the iceberg for our

364

integral research network, together with three research

Mitsubishi Electric Automation is characterized by

centers in Japan, one in Singapore, and others in India,

quality products, with useful life as long as 25 years and

China, Germany and the Czech Republic. This highly

product updates every seven to 10 years. In the electricity

interconnected network analyzes global trends and

distribution subsector, we are developing more compact,

requirements that fuel the technological developments

IoT-ready equipment. Our challenge in Mexico is to further

we commercialize on an equally global scale.

deepen complete integration of all components, equipment and systems involved in a generation or manufacturing

One of Mitsubishi Electric Automation’s primary

plant into a single control platform. We are actively

objectives as a business is a healthy coexistence with

promoting gradual changes with our industrial clients so

the environment. Changes for a Greener Tomorrow is an

they can begin visualizing the benefits of integrating these

integral part of our corporate motto. All of Mitsubishi

new technologies as we bring them closer to our e-F@

Electric Automation’s divisions focus on reducing our

ctory concept and see tangible results. IoT and Industry 4.0

carbon footprint. Our equipment is designed to optimize

in Mexico remain largely theoretical concepts. Mitsubishi’s

energy use, from high-precision metering equipment

e-F@ctory is a tangible solution to achieve them.

to energy management equipment, together with an integral SCADA system and everything in between.

Q: What is Mitsubishi Electric Automation’s message for

We are leading by example as all the components we

industrial players looking to follow the 4.0 revolution?

commercialize in Mexico are manufactured in Japan,

A: A typically accepted ROI period when it comes to

where all manufacturing plants are solar-powered with

technological equipment in industrial processes must be

our own solar panels, and our facilities integrate our latest

less than two years, depending on the specific status of

generation air-conditioning technologies.

each manufacturing plant. Mitsubishi Electric Automation is that key equipment supplier that not only ensures an

Q: What new developments for Mexico’s energy industry

attractive ROI time frame but also a long-standing use

has Mitsubishi Electric Automation developed from its

for that investment due to our cost-effective total cost of

US$2 billion R&D investment?

ownership. While some companies can provide acceptable

A: This R&D investment is evenly distributed among

technologies at the lowest cost, they often lack the highest

Mitsubishi Electric Automation’s 11 divisions. All 11 divisions

quality. In contrast, providing equipment that can last at

are energy-related so you could say the entirety of this

least 20 years at optimal efficiency operation levels, makes all the difference. Moving away from the limited scope of ROIs and gauging the overall impact and future use of a

Mitsubishi Electric Automation has been in Mexico for over

product due to its useful life is essential.

28 years. It is a subsidiary of Japan-based industrial giant Mitsubishi, which operates across several industrial markets

These small changes and investments at the end of the

with an automation product line

day translate into sizable shifts in competitiveness. This

is especially true when we find our industrial clients are

large-scale consumers. Mitsubishi Electric Automation is

increasingly pressured to produce more with as few

committed to relaying these concerns to the regulatory

expenditures as possible to remain competitive. The level of

authorities so energy efficiency becomes an integral part

desired change is proportional to the amount of investment.

of the country’s energy transition.

For in-depth modifications, investment is required not only in technology but also in the people who will operate it.

While the country enjoys one of the lowest labor costs

To raise awareness of these issues, each year we organize

in the region, production costs are extremely high

the Tech Summit and in September 2018 we held our first

due to the lack of an energy efficiency culture. Strong

Latin American edition in Queretaro. It is a three-day event

investments and technology transfers are of the utmost

in which we invite hand-picked system integrators with the

importance in this regard. In the early 2000s, when FIDE

greatest engineering development capacity to train them

began operating as an entity separate from CFE, it was

in installing and operating our technologies.

highly active in promoting energy efficiency, albeit limited to the residential sector. The country’s industrial tissue

Q: What is your assessment of Mexico’s energy efficiency

has yet to open itself to such aggressive and effective

policies and regulation?

awareness and support campaigns.

A: Policies are being implemented at a slow pace and there is a great deal of expectation over the future of

Q: What are Mitsubishi Electric Automation’s growth

these policies. Mexico’s governmental institutions and

objectives for 2019-20?

regulators have all hands on deck to accelerate the

A: We will continue following our double-digit growth

country’s clean energy growth in the mix, but we also

plan, which we have adhered to since 2013. We are also

need to turn toward Mexico’s industrial tissue. We need

investing in our local team dedicated to technical support

to think about what mechanisms or incentives can be

based on the group’s growth.

deployed to grant the tools that will allow Mexico’s industrial players to contribute to this shift via optimal

In 2016, we invested US$9 million in a new logistics hub

efficiencies in productive processes.

in Queretaro. By 2020, we are hoping to consolidate a substantial market share in industrial digitalization and

Our industrial clients are noticing increased costs in their

automation services to become among the country’s Top

power consumption, whether they are small, medium or

5 companies providing these services.

365

| VIEW FROM THE TOP

CONSOLIDATING THE LINK BETWEEN PRODUCERS, CFE, END USERS ENRIQUE GONZÁLEZ Zone President Mexico at Schneider Electric

366

Q: What is Schneider Electric’s most relevant contribution

their disposal to invest in energy efficiency. Final users are

to Mexico’s energy transition?

gradually being made aware of this critical issue as it is

A: Schneider Electric is in the business of consolidating

now impacting their budgets. Mexico’s new energy model

a critical link between power producers, CFE’s role as

now shows the real costs of generating, distributing and

electricity transmitter and distributor and final users. Our

transmitting electricity and is acting as a conscience trigger.

purpose is to empower final users with an increasingly

It encourages energy savings and there is a wide array of

efficient energy consumption. Schneider Electric not only

options to attain them. The prevailing electricity subsidies

specializes in delivering quality products and services, it

should be rethought with a social lens to benefit the most

also enhances the productivity of final users in terms of

marginalized portions of Mexico’s population. Schneider

energy use in their production processes.

Electric has supported these communities by providing them solar energy, particularly in the state of Oaxaca. It

Q: What is the potential of the circular economy in Mexico?

is an effective solution for locations out of reach of the

A: Energy efficiency, as our core expertise, is among

traditional transmission and distribution grid.

our primary contributions to providing an optimal exit strategy to the energy dilemma. The latter revolves

Q: What is the comparative advantage of Schneider

around continued fostering of economic growth using

Electric’s EcoStruxure platform?

finite resources to sustain entire populations. For that

A: Schneider Electric’s EcoStruxure platform capitalizes on

to happen, a country needs dynamic productive activity,

the existing and increasing convergence between energy

which in turn implies increased energy consumption.

and IoT. The number of devices, components, engines and

Eighty percent of carbon emissions is related to power

machines that can be connected to share information in

generation. We want to provide an answer to economic

an interconnected network is on the rise. EcoStruxure

growth that addresses the environment. We are at a

organizes this connectivity to generate critical and user-

crossroads where fully environmental policies may

friendly data on performance and fosters effective decision-

hamper economic growth, whereas fully focusing on

making processes.

productive activities risks damaging the environment. For us, the answer lies in increasingly optimizing energy

We now have the technology to allow a user to capitalize

utilization to foster environmentally-friendly economic

on and switch between different energy sources with

growth. This is the value Schneider Electric is focused

variable costs throughout the day, as stipulated by supply

on building in the near term.

and demand to optimize the user’s energy consumption. Without IoT, corrective measures in productive systems

Q: How is Schneider Electric contributing to a generalized

could take up to seven months to be successfully

energy efficiency practice in Mexico?

implemented. Now, corrective and preventive measures

A: We must continue working to raise awareness about the

can be deployed in real time.

importance of energy efficiency among the pool of final users across all scales: small, medium and large consumption.

Q: How is Schneider Electric working to introduce the

To be empowered, they need to be aware of the means at

future of digital energy today in Mexico? A: Schneider Electric’s latest developments follow a digitalization agenda. Several of our newest product

Schneider Electric is a global leader in the digital transformation

launches were designed with a mission to connect to

of energy management practices and automation processes.

Mexico’s growing IoT network. We have also invested

Its IoT platform, EcoStruxture, can connect, compile, analyze

in reputable software companies, such as Invensys and

and generate actions based on data analytics

AVEVA, to further push our digitalization ambition.

VIEW FROM THE TOP |

CONSUMING LESS WHILE PRODUCING MORE

MARCO AMEZCUA Commercial Director of RAMADASA

FRANCIS PÉREZ General Manager of RAMADASA

Q: What makes RAMADASA the go-to option for

evolution. It allows registration of organizational activities as

sustainable ROIs?

a whole to foster shared knowledge to efficiently manage

FP: We have a business approach. When talking about making

the amount of data generated. Our solution is meant to

important investments to change some industrial processes

foster collaborative engineering to switch from conceptual

for business competitiveness, developing the capacity to

engineering to detailed engineering, reducing error margins.

drive both operational and financial certainty is critical. To

Special attention is given at the pre-manufacturing level of

obtain guaranteed results, our sustainability model, rooted

the equipment to be installed, reducing times for energy

in obtaining excellent performance, is backed by a proven

efficiency infrastructure installation work.

specific method and science. Q: How does RAMADASA create energy efficiency in a userOur flagship product, RAMADASA 4.0, is an integrated

friendly way?

management system aligned with ISO-50001 that establishes

MA: One of the ways we work with SMEs is by focusing

continuous improvement systems for energy consumers to

on selling an outsourced service, just as human resources

ensure an efficient use of their consumption and increase

or fiscal tasks are often outsourced. Energy management

their profitability. For certain companies, energy can total 30

can be outsourced just as well. We offer the opportunity of

percent of their costs. Without any infrastructure additional

leaving all energy consumption and efficient management

investment besides the integration of this system to improve,

issues to a capable and expert team specialized in IoT and

automate and control their processes, significant energy cost

remote management so companies can take advantage of

reductions ensue. RAMADASA 4.0 works through different

the benefits and opportunity areas while bypassing labor

phases. First, it runs an energy consumption diagnostic focused

liability issues.

on identifying major energy uses and profiling management indicators that could be used to address them. Then, the

FP: We also make our clients think about how much

system designs smart data management mechanisms

they are paying for their energy consumption and what

based on policies and procedures for the company’s entire

proportion of their overall production costs it represents

organization to be fully aware of the measures to be taken

against their sales. Our system works to estimate the

and how to implement them. These measures will be followed

improvement of margins through energy efficiency

up with the creation of an Energy Committee that will draft

measures. Companies are constantly immersed in their

the company’s energy policy, committed to energy efficiency.

day-to-day operations and energy efficiency requires

Then the engineering of energy efficiency projects follows.

not only time and effort but also the constant pursuit

The system allows the client to run process simulations to shed

of possible areas of improvement. There is always room

light on the contemplated energy efficiency measures. Our

for change within an operational model, especially if it

solution relies on data intelligence gathering. We can design

can be improved and more cost-effective through our

a tailor-made strategic census on energy consumption and

platform. With no directives from top management levels,

integrate it into our platform to undertake the relevant analysis

change is difficult to trigger. If we can get management

and showcase our diagnostics via user-friendly dashboards

onboard and it is committed to making a change, it

aimed at different corporate decision-making levels.

becomes much easier.

MA: The core differentiator of RAMADASA 4.0 is its proprietary digital platform that systematically integrates ISO-50001

RAMADASA is a Mexican business consulting company specialized

and a database repository where user consumption profiles

can be consulted and validated. An ordered timeline can be

engineering. It focuses on driving efficient performance in the

generated to monitor the company’s energy consumption

design and purchase of its clients’ manufacturing infrastructure

energy

consumption

management

and

collaborative

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| VIEW FROM THE TOP

ENERGY EFFICIENCY, CHP GENERATION AND O&M AS A SINGLE BUSINESS FRANCISCO TORRES Director General of Veolus

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Q: What makes Veolus’ offering the best solution for its

significant amounts of hot water and steam to disinfect

clients’ energy consumption problems?

surgical equipment and for laundry activities; depending on

A: Veolus’ differentiator is its expertise regarding the

the geographical location, they need cold water for their air

operation and management of technical equipment.

conditioning and last but not least, they require electricity.

Energy savings begin by ensuring that equipment

Veolus excels at managing, air conditioning and boilers,

performs optimally in relation to the efficiency for which

providing the possibility of concentrating all these needs

it was manufactured. Anything less than that generates

in a single solution: CHP. To our knowledge, there is not a

increased energy consumption. Our clients’ primary interest

single hospital in Mexico that relies on cogeneration, be it

in approaching us is obtaining those energy savings. We

private or public. In Europe, particularly in countries with

provide commissioning services for new projects where

low temperatures, cogeneration is rather mainstream. Our

the equipment is tested and benchmarked based on the

only requirement is that financing for this solution must not

manufacturers’ technical specifications to guarantee the

come from federal funding as it contravenes the purpose

equipment complies with the specifications provided.

of our IDB-financed fund.

Deploying O&M services, the next step is to extend optimal efficiency throughout the equipment’s life cycle through our

Q: What other financing solutions should be further

total or partial refurbishment solutions. At the same time, in

developed to foster energy efficiency businesses?

energy efficiency projects we can finance electromechanical

A: Energy project finance virtually does not exist in Mexico.

infrastructure modifications so our clients can capitalize on

Commercial banks issue loans based on your balance sheet.

new, more efficient equipment. This means our clients can

While it varies depending on the technology used, each

substitute their equipment without a down payment and

MW installed requires an investment ranging from US$1.2-

the equipment gets paid with the energy savings obtained.

1.5 million. The advantage of our IDB’s funding program is

Our warranty also assures savings are seen from the first

it provides project finance credit line without conditional

bill and we are reimbursed from the generated savings,

funding depending on the size of your balance sheet. You

which is a no brainer. Veolus is one of two companies in

have to create SPVs where the projects are concentrated

Latin America to be chosen by the IDB for energy efficiency

by customer and after securitizing such projects through

projects from an initial pool of more than 40 companies. Our

green bond securitizations, the IDB recovers the capital

two-pronged advantage guarantees both energy savings

lent. Mexico’s local banks need to delve deeper into

and equipment performance throughout the projects.

project finance and transfer risk across the project’s

Additionally, our solutions are typically provided onsite.

development phases.

Q: Why is Veolus interested in developing a hospital client

Q: Which Veolus business line is most popular?

portfolio?

A: While our O&M services of technical infrastructure

A: Mexico’s health sector is of great interest to us. We

(HVAC, Electric escalators and elevators, power plants,

have analyzed possible projects with institutions such as

boilers) continue to be the most important share of our

IMSS and ISSSTE. Hospitals are the ideal infrastructure to

business, the fact that we also provide energy efficiency

develop CHP solutions. A hospital’s daily activities require

solutions allows us to cover the entire performance analysis spectrum of a power consumption system: lighting, air conditioning, thermal issues and electricity

Veolus is the former O&M unit of a French multinational, now

installation. In bypassing a prone-to-fail approach where

a fully Mexican-owned company. It provides O&M for technical

entire systems and installations are replaced in the short

infrastructure and energy efficiency services, is present across

term, we can extend the life cycle of the installation

the country and employs 750 professionals

as a whole.

VIEW FROM THE TOP |

FOOD, ENERGY, CLIMATE AND INFRASTRUCTURE RIKER MARTÍNEZ Regional Director North Latin America of Danfoss Drives

Q: What are Danfoss' main operations in Mexico?

elements for saving energy and securing quality standards.

A: Danfoss is a Danish company with operations in more

In the oil and gas industry, these elements are also used

than 100 countries and manufacturing plants in over 60

in the production of hydrocarbons and transport of fuels.

countries. Its portfolio is divided into four main business lines. First, Danfoss Cooling, dedicated to manufacturing

Q: How is Danfoss providing value in the renewable

ventilation and air conditioning components. Second,

energy industry?

Danfoss Heating, focused on the production of central

A: Danfoss manufactures power inverters for solar

heating solutions and heating control systems. Third,

applications. The company acquired 20 percent of the

Danfoss Drives, which fabricates speed drives for AC

shares in SMA Solar Technology, a German company

engines. And fourth, Danfoss Power Solutions, which

that develops solar energy solutions based on electricity

develops hydraulic power systems. Based on these divisions,

transformation. This technology could be useful in the

our action axes are food, energy, climate and infrastructure.

development of non-electrified rural zones in Mexico’s

In Mexico, the company started operations in 1996 with the

southeast region, mainly in the utilization of solar

construction of a manufacturing plant located in Monterrey.

powered water pumps for harvesting crops or through

At that plant, Danfoss produces thermostatic expansion

water potabilization.

valves, drying filters, distributers for refrigerators and heat exchangers for national manufacturers that export their

Q: What measures is Danfoss implementing to become a

products worldwide.

more sustainable company? A: Danfoss is already a sustainable company. It has paid

Q: In which market segments is the company looking to

a great deal of attention to minimizing the environmental

position its products?

footprint from its activities by reducing its CO2 emissions.

A: In Mexico, Danfoss executes its activities through a

The strategy has focused on exchanging ideas between

distribution network and the participation of various

the company’s offices worldwide to address this issue.

strategic allies. The company participates actively in the

Danfoss’ Monterrey plant has implemented natural-lighting

refrigeration processes of the food and beverages sector

solutions and installed solar PV systems for self-supply

through its Danfoss Cooling division. Its major clients

purposes. Regarding efficient use of energy, the company

are FEMSA, ARCA, Grupo Modelo, Heineken, Nestlé,

has introduced various in-house components across the

SuKarne and Sigma. In the HVAC segment, it provides

entire value chain of its manufacturing processes.

components for various companies that install these systems in nonresidential buildings, such as hospitals and

Q: What are Danfoss’ main objectives for 2019?

supermarkets, shopping centers and corporate offices.

A: The company wants to become a major collaborator in

In both segments, the company offers energy efficiency

the Mexican mining industry, as there are various energy

solutions through innovative technologies, such as using

efficiency opportunities in this particular sector. Danfoss’

CO 2 as a refrigerant gas. The Danfoss Drives division

second objective is to develop better energy efficiency in

participates in the manufacturing processes of metals and

the food and beverages value chain, which is the company’s

cement and works with companies like Ternium, Deacero,

strongest segment.

Tamsa, CEMEX, Holcim and Cruz Azul. The company also works closely with municipalities in the water and waste management segment, where water pumps and frequency

Danfoss Drives is focused on developing, manufacturing and

drives improve the system’s use of energy. In the automotive

supplying AC drives. Its portfolio of high-quality, application-

industry, it is involved in the manufacturing and assembling

optimized products maximizes process performance, saves the

processes as pumps, ventilators and compressors are key

most energy and minimizes emissions

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| VIEW FROM THE TOP

CLIENT-BASED SOLUTIONS FOR OPTIMAL PLANT PERFORMANCE MICHEL YEHUDA Industrial B.U. Director of Dominion Mexico, Fluke Corp. Master Distributor in Mexico

Q: How do Dominion and Fluke contribute to providing

collaboratively design an optimal energy measurement plan,

Mexico a clean, safe and reliable energy supply?

with the customer’s ROI at its center. This advisory service

A: Mexico’s ongoing transition process to a smart grid and

takes place early on to planning process in order to achieve

Industry 4.0 are posing enormous challenges for companies

the expected results.

across the value chain. The shift is new for most companies,

370

even for Dominion, which made its EPC debut in Mexico

Q: What regulatory advances have Dominion and Fluke

with Chihuahua’s Kaixo project, a 65MW PV park. Long-term

witnessed across the energy industry?

electricity auction winners, for instance, are pressured to

A: CRE’s norm relating to the obligation of measuring the

verify the performance of their projects to ensure that power

electric power factor produced, consumed, transmitted

output pledges are met. The collaboration between Fluke

and distributed by companies across the value chain, NOM-

and Dominion in Mexico means our customers can rely on

EM-007-CRE-2017 published in February 2017, has been

getting innovative solutions and quality for their smart grid

ignored by many local companies. This new norm includes

projects. What you cannot measure, you cannot control, which

a homogenous quality provision for the grid. Today CRE is

is why we provide measurement and verification solutions

being more proactive in its enforcement, with established

for the entire process, including generation, transmission,

fines and power plant inspectors measuring the committed

distribution and consumption. Fluke is a recognized US-based

power output.

global leader in both portable and fixed energy measurement solutions. Dominion is a Spain-based company with 25 years

Q: How does Dominion’s diversification to EPC services obey

of experience in tailor-made energy-efficient technological

its business growth plan?

solutions. It has witnessed exponential growth over the last

A: Our diversification grew organically from our metering core.

20 years, with 8,000 professionals in its global workforce.

In providing our clients specialized Fluke measurement and

Dominion also develops software solutions for optimal

analysis solutions, we detected a series of energy consumption

process management and recently launched its EPC division

problems, which our clients wanted us to solve. It pushed us

for PV projects in Mexico. Together with our Mexican team of

to develop an integral problem-solving platform, including

400 professionals, our 50 Fluke distributors and close to 1,500

EPC services to develop PV systems. The solidity of Fluke and

qualified sales advisers, we help our Mexican customers to

both the flexibility and innovation of Dominion to meet client

solve hundreds of on-site measurement challenges every day.

requirements, made this diversification possible.

Q: How do Fluke and Dominion provide the best solutions

Q: What new solutions are you looking to showcase

for their clients’ most common problems?

in Mexico?

A: With the dynamism of technological innovations the

A: Fluke and Dominion are focused on the Industry 4.0

energy industry is witnessing, users expect immediate ROIs

trend and on digitalization, wireless, real-time cloud-

or a particular US$/MWh gain. Fluke and Dominion organize

based data mining, data analysis, predictive maintenance

frequent seminars and information sessions with our clients’

and energy savings. In a word, optimization. Our Fluke

plant or project managers to develop a 360-degree scope of

Connect platform integrates all these concepts, added

the primary factors to consider and measure. This allows us to

to our newly created Accelix plataform, designed to work as a connected reliability platform. It merges all digital data available, from portable metering devices

Global Dominion Access is a global provider of multi-

to wireless sensors, through a powerful cloud-based

technology services and specialized engineering solutions.

analysis software, available at the tip of our client’s fingers

Fluke is the world’s leading manufacturer of electric and

(through a smartphone app), enabling effective, on-line

electronic test tools and software

asset management for optimal performance.

INSIGHT |

FUTURE WILL BE NATURAL-GAS POWERED BULMARO ROJAS Managing Director of Generac Ottomotores

Mexico is moving toward a clean energy future by

When calculating costs, Rojas says certifications can go

prioritizing renewable technologies. But due to the

a long way to trimming outgoing expenditures. “As part

time required to develop the projects needed to meet

of Generac Power Systems, we have the capacity to issue

the country’s energy requirements, transition fuels are

certifications for Tier 2 solutions that not only translate

necessary. Transitioning to natural gas is not only good for

into a reduced environmental impact but also represent

the environment, it is good business, according to Bulmaro

sizable operational savings,” he says. The company’s

Rojas, Managing Director of Generac Ottomotores.

financial arm also allows it to maintain local inventories and

“Traditionally, Latin America has been dependent on diesel

provide the most competitive delivery times in the market.

to fuel its industrial activities due to a less developed

“Our service department in Mexico employs close to 300

natural gas infrastructure compared to the US,” he says.

service technicians throughout the country,” he says.

“But complying with environmental regulation is a sound business as decreased fuel consumption in large power

The company’s ability to spread out across the country is

equipment represents thousands of dollars in savings

bolstered by its June 2018 purchase of company Selmec.

per year.”

“Selmec brings to the table its long-standing experience in telecommunications, power-backup solutions, data centers

Generac’s mobile LED lighting towers for construction

and other applications of critical power mission where

sites, for instance, reduce fuel consumption by 70 percent,

energy is essential for operational continuity,” Rojas says.

compared to traditional mobile lighting solutions. “One

An analysis of their respective market penetration showed

of the pillars of our business strategy is cemented in the

an overlap of 10 percent between the two companies.

development of new natural gas-fueled equipment of up

“This scenario was ideal for Generac Ottomotores to set a

to 750kW to provide continuous and reliable energy. This

comfortable foothold in business niches it otherwise would

equipment is expected to be launched by 3Q18,” he says.

not have access to, both in Mexico and Latin America,” he says. Between Generac, Ottomotores and Selmec,

Capitalizing on its strong technological DNA, Generac

the corporation now has 145 years of experience in its

Ottomotores looks to provide energy consumption

respective markets.

monitoring solutions to pair energy consumption with efficiency. “We are working on solutions to help industrial

Modern society also faces uncertainties that could disrupt

operations reduce energy-consumption costs during peak

daily lives, Rojas says, adding that the company is well-

hours,” says Rojas.

positioned to address contingencies. He says that with the unexpected and devastating earthquake that hit Mexico

With an on-hand experience workforce that includes close

City on Sept. 19, 2017, the concept of risk perception was

to 400 engineers based in its design and technology

awoken among the country’s population. “Our portfolio

centers around the world, Generac Ottomotores goal is

includes a solution for each necessity, budget and sector:

to produce innovative solutions that are increasingly more

residential, commercial, industrial and health services.

environmentally friendly, with fewer emissions and lower

Our mobile backup plant solutions can be moved by a

fuel consumption. The company is confident about the

single person.” After the earthquake, Generac Ottomotores

future and has set ambitious goals. “To continue selling

donated some equipment to maintain the seamless

reliability, we are continuously improving our processes

operation of shelters left without power. To raise awareness

and providing tailor-made solutions to meet specific

about effective measures against such critical situations,

needs,” Rojas says. He predicts this two-pronged action

the company also launched a prevention campaign via

plan will allow Generac Ottomotores to grow by double

social media, advising the population on how to prepare

digits year-on-year.

for an emergency.

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| INSIGHT

LOWER TEMPERATURES FOR A WIDER REACH, ONE STEP AT A TIME ENRIQUE PAPADIMETRIOU Technical and Sales Representative of GEOTER Renovables de México

372

Geothermal resources have the advantage of being clean,

framework. But the challenge has been bigger in Latin

predictable and constant, which translates to power

America than in Europe, which is why the company has had

generation with the same characteristics. While Mexico

to diversify its portfolio of services, says Papadimitriou. “In

has pioneered in the development of geothermal fields

Chile, GEOTER Renovables has developed several projects

for power generation, it has overlooked low-temperature

related to natural gas. In Mexico, we have diversified our

resources, says Enrique Papadimitriou, Technical and

portfolio to include solar PV.” But he emphasizes that the

Sales Representative of GEOTER Renovables de México.

final goal of introducing low-temperature geothermal

“In Mexico, the concept of low-temperature geothermal

is always in sight. “In Chile, we have already successfully

is unknown,” he says. “The Geothermal Law does not

introduced the concept for heating services in greenhouses,

include the low-temperature geothermal resource concept,

and in Mexico, we are starting to work on a project to heat

and there are no manufacturers of heat pumps for low-

water for pools, making GEOTER Renovables de México the

temperature applications in the country.”

first company in the country to create a project using this resource,” he says. “The road has been long and difficult, but

Instead of throwing in the towel and accepting the fact

the results are tangible.”

that Mexico will not be able to take advantage of its lowtemperature geothermal resources, Papadimitriou believes

Overcoming challenges is one of GEOTER Renovables’

that his company can capitalize on this opportunity.

specialties and beyond the short-term difficulties,

“GEOTER Renovables de México is at the right time and

Papadimitriou looks at the business opportunity Mexico

place as its business opportunities increase by being

represents for the company. “The country has great

pioneers in the area of low-temperature geothermal

potential for the development of geothermal projects due

resources,” he says.

to the strong demand for heat pumps-related services, such as air-conditioning systems in the north and south and

GEOTER Renovables was born in Madrid in 2007, with

heating systems in the central belt, as well as water heating

a focus on geothermal projects. It pioneered in heat

for the residential, commercial and industrial sectors across

generation through low-temperature geothermal resources

the entire country,” he says. Papadimitriou also explains how

in Spain, which can also be used for climatization purposes

the biggest beneficiaries of such technology would be the

or to heat potable water. The company is used to challenges

residential and commercial sectors. “Hotels and offices in

and likes to overcome them, as Papadimitriou explains:

general can implement our low-temperature geothermal

“GEOTER Renovables helped Spain to develop the

system for heating and achieve significant economic

concept of low-temperature geothermal resources and the

savings,” he says. “We chose Aguascalientes as our Mexican

regulation around it,” he says. After supporting the local

headquarters because it is a small city where costs for

government of Madrid in this segment, the company was

administrative operations are lower, but also because its

granted the first permit for a low-temperature geothermal

residential, commercial and industrial markets are growing

project in Madrid. GEOTER Renovables then started to work

and are well-connected to the entire country.”

in Spain with important players such as BBVA and even the Spanish Air Force.

Maintaining a long-term vision, Papadimitriou is raising awareness of the potential that low-temperature geothermal

The company opened an office in Chile in 2012 and another

resources have to offer. In terms of customers, he says it

in Mexico in 2016 with the goal of spreading the utilization of

is all about walking the walk, not just talking the talk. “The

low-temperature geothermal resources. GEOTER Renovables

more projects we develop, the easier it is to sell our systems

wanted to replicate the same process of supporting local

since more people can see the way they work and the clear

governments to include the concept into their regulatory

benefits they provide,” he says.

VIEW FROM THE TOP |

CUSTOMIZING GENERATION SOLUTIONS IAGO CRESPO Director General of Genesal Energy Mexico

Q: What added value does Genesal Energy Mexico offer

tunnel that connects the cities of Coatzacoalcos and Villa

to the Mexican energy market?

Allende in Veracruz. The supplied voltage equals 13.2kV

A: Grupo Genesal is a Spanish company founded in 1994.

and a power of 2,000kW is needed to nurture the whole

The Genesal Energy Mexico subsidiary was established

system and associated services. Additionally, electricity

in 2014, although we have participated in the Mexican

supply must be in complete synchronization with the grid

market since 2007. Our added value is to provide quality

as a failure can compromise the user’s security. If the air

products and services, while including energy efficiency

extraction system does not work, CO might accumulate

and adaptability. We offer power generation solutions

in the interior walls of the tunnel, resulting in the death of

based on three pillars: quality, reliability and efficiency.

the vehicle’s passengers. In the case of water filtration and

Even though our products can be integrated into almost

floods caused by a failure in the pump system, a similar

every industry supply chain, we are focusing on special

problem may occur.

projects in the energy and construction industries. We must also bear in mind the associated environmental In 2017, we identified an increasing demand for

catastrophe. We delivered a solution based on unique

personalized services for wind and solar installations. The

equipment. The system was delivered in February 2017,

market is in constant growth and our goal is to provide

and the tunnel was inaugurated three months after. The

solutions that can be adapted to the Mexican normativity.

challenge of this project was not only in the design of the

We comply with high-quality standards and at the same

equipment but in the logistics and installation. This is one

time, we want to help the country on its path to a smooth

example of the customized solutions that Genesal Energy

energy transition.

Mexico offers to its clients.

Q: What innovations does Genesal Energy Mexico bring

Q: What has been Genesal Energy Mexico’s most

to the power generation niche?

important participation in the renewable energy sector?

A: Grupo Genesal has always been at the forefront of

A: Genesal Energy Mexico provided a backup power

power generation technology. Apart from the innovative

generator for Los Azufres, a geothermal plant located

spirit of the company, in 2011 we created the Technological

in Michoacan. The power generator supplies electricity

Center of Distributed Energy (CETED). The center’s

to the essential loads in case of a grid failure, to bring

research purpose is not only to consider our clients’

the plant to a safe shutdown. We are already installing

specifications or to launch new products but to create

our power generators in several solar parks across the

new ways of manufacturing and developing products and

country, such as the Caborca PV plant in Hermosillo, and

processes efficiently.

the Santiago PV plant in San Luis Potosi. There is a high demand for technical specifications from CFE but we have

The objective is to provide a tailor-made solution for every

demonstrated broad experience in this area. Also, we

customer. CETED is one of the few research centers with

have manufactured equipment with NATO specifications,

a manufacturing department of power generator sets. We

which in my experience is the most complex normativity

consider ourselves a cutting-edge company focused on

in the market.

local and global technology advancements. Q: Is there any project where Genesal Energy Mexico’s

Genesal Energy offers standard power generation sets. The

participation was a key differentiator for its development?

company provides extra value in technical ability related to

A: We started a project in 2016 and the main challenge

developing specialist solutions, including viability assessments,

was to supply medium voltage electricity to a submerged

detailed planning, execution and on-site commissioning

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BRIDGING GAPS BETWEEN DATA MINING AND INTERPRETATION RODRIGO CALDERÓN Director General of Energetika

Q: What is Energetika’s most valuable contribution to

Mexico’s smart and efficient energy consumption?

the warranties and maintenance of each asset. The app’s

A: Energetika assists companies to interpret energy

development is anticipating the inclusion of IoT technology

consumption data and identifying the primary factors

in electric and electronic appliances.

within their operations that drive the intensity of their

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consumption. Energetika’s clients are deeply embedded

Q: What has been your experience with local governments

in Mexico’s economic activity and include household names

integrating energy-efficiency policies?

such as Walmart, Chedraui, H&M, 7-Eleven and Coca-Cola

A: At the municipal level, there is an ongoing crusade in

FEMSA. We are bolstering their data-mining capacity.

favor of energy efficiency as ESCOs are dead set on selling

Valuable insights can be created from a single in-depth

efficient LED lighting to municipalities, which is a double-

analysis of their respective electricity bills, compiled in

edged sword. On the one hand, municipal presidents

operational KPIs. Energetika is bridging the gaps between

are increasingly pressured to inject efficiency into their

data collection and interpretation to the benefit of energy-

energy consumption, especially considering public lighting

intensive companies.

represents close to 60 percent of municipal energy consumption. On the other, the execution side of the project

Q: How does Energetika provide user-friendly data

is poorly done more often than not. Large cities know about

regarding complex energy-consumption variables?

CONUEE’s work and LED lighting norms NOM-013 and

A: The market is witnessing a boom of companies offering

NOM-031 pertaining to lighting certifications and street

IoT, telemetry and artificial intelligence services for energy

specificities. CONUEE’s guidelines for efficient and effective

consumption. In our view, these services are a second

LED installations have yet to reach the municipal levels of

stage to a critical first step involving a certain expertise

government. There is one particular issue that is virtually

and long-standing work in O&M to provide clarity over what

untapped among municipalities: water pumping. Selling

to look for in the generated consumption data. Without this

water-pumping systems is the easy part. Complexities

knowledge, insightful KPIs cannot be generated, regardless

arise when trying to automate water-pumping stations,

of how good the data interpretation technology is.

opening a large window of opportunity. Sizable amounts of

Energetika is laying the building blocks to provide predictive

energy are wasted every year by using inefficient and dated

maintenance services to its industrial clients via an online

water-pumping systems, making energy savings greater

app that can control maintenance times, maintenance

in this niche than with LED lighting. The issue revolves

budgets and rate maintenance providers. Based on our

around electricity tariffs, where water-pumping systems

energy data-interpretation expertise, we provide prompt,

are charged the HM tariff and lighting is charged under 5A

effective and efficient action plans to our clients based

tariffs, the latter being considerably costlier.

on the results obtained. Efficiency stems from both a virtuous operational cycle where all the equipment works

Q: What is missing for Mexico to fully capitalize on energy

in optimal conditions and development of a 360-degree

efficiency measures?

view of the industrial operation’s energy consumption. We

A: We lack the legal certainty for ESCOs that would let

are also developing a residential app where the client can

energy consumers see them as an option for energy supply through energy efficiency. Such certainty could unlock access to risk capital to finance our business and avoid using

Energetika provides energy savings and control solutions.

client loans. Energy savings as a concept in the regulatory

Its energy intelligence solution uses different technologies to

framework is not clearly stipulated. An institutional

achieve operational connectivity that generates unique and

transformation to recognize, from an accounting and

specialized information

financial standpoint, energy savings is needed.

VIEW FROM THE TOP |

RELIABLE, UNINTERRUPTIBLE POWER

MIGUEL BARRIENTOS Sales Director of Industronic

LUIS GONZÁLEZ Deputy Director of Sales at Industronic

Q: What is Industronic’s primary contribution to quality,

commercialization. We want our clients to feel they have

reliable and secure energy supply?

our complete support.

MB: Industronic’s portfolio comprises integral solutions that include a filtering system, a voltage regulatory system and

Q: What is your assessment of Mexico’s regulations and

energy backup solutions for all industries and company

NOMs to guarantee the quality of electric components and

sizes. The company offers comprehensive and customized

installations?

solutions adjusted to the needs of its clients. It is committed

MB: For mature market products such as regulators and

to providing innovation and research for improving the way

UPS, the regulatory framework is adequate. There are

in which these solutions are driven. Regarding customer

also several North American and European ISO and other

service, our sense of urgency and responsiveness to the

norms regarding quality and other standards that can be

client separates us from our competitors because Industronic

incorporated to qualify and position companies in the

is committed to delivering its solutions within 24 hours.

sector. Some incipient regulations related to renewable energy, however, could be improved.

LG: Industronic is a technology developer. We are going to release a UPS battery backup system with a 1-3kVA rack in

LG: The existing regulatory framework requires greater

2H18. The difference is that this technology will be equipped

dissemination. Many companies in the sector are unaware

with lithium-ion batteries in place of lead-acid batteries. It

of the power-factor penalties on their electricity bill and

will stand out for being smaller, occupying less space, being

just see overcharges. In Latin America, the market is

more efficient and with a battery that lasts nine to 10 years,

flooded with low-quality products that do not comply with

unlike similar products in the market that pollute more and

regulations and the lack of information makes this situation

have considerably shorter lifespans.

more critical. Disseminating this information is vital in terms of providing users with better access to quality energy.

Q: How do you solve the most common problems your industrial clients face in terms of energy consumption?

Q: What are Industronic’s plans for growth in 2019-20?

LG: Companies that require a constant and intensive use of

MB: Industronic’s continuing goal is to grow 25 percent for

energy for critical processes are our most common clients.

10 consecutive years in sales, which we have achieved for

For example, Valeo is dedicated to the design, production and

the last five years.

sale of components for the automotive industry and it has a commitment to deliver its products on time. In this regard,

LG: Industronic has experienced this 25 percent growth in

Industronic’s technology ensures Valeo can work efficiently

the industrial sphere. To maintain this pace, the company

for 24 hours a day, experience no power failures and maintain

must enter other markets, such as IT or telecoms, where

quality in its processes. Industronic is aware that production

some of our competitors already are participating. Once

halts can delay the programming of the supply chain of a

Industronic enters these niches and consolidates its

company for up to 10 hours, damaging the on-time delivery

presence, we will impact the segment and our competitors.

required by local and international companies.

From there, we expect to grow our volume and expand to other countries such as Colombia, Cuba, Panama and Peru.

MB: Our customers require solutions regarding three major concerns: supply-capacity demand, energy quality and critical emissions applications. Without access to high-

Industronic is a Mexican company founded in 1973 that designs,

quality energy, the performance and competitiveness of

produces and commercializes integral solutions for energy quality,

a company can be compromised. Industronic’s goal is

protection, energy backup and energy generation improvements.

to provide a product or service that goes beyond mere

It is strongly versed in R&D, servicing and maintenance

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GERMAN TECH IMPROVING THE EV SEGMENT SERGIO JULIAN Head of Latin America at Bender

Q: What added value does Bender offer the Mexican

A: VFD, cables or any other type of electrical equipment are

energy market?

prone to insulation faults. Our equipment and technology

A: Bender is a German company founded 80 years ago and

help to monitor a cable’s electrical insulation properties. Our

focused on manufacturing specific technology for electrical

technology provides real-time information on the state of the

insulation control and ground fault prevention. Today, Bender

insulation to prevent a ground fault current from becoming

is a technology leader in this market niche. Our company’s

an accident. We prevent accidents and energy blackouts that

added value, not only to the Mexican market but to any

could stop production, saving time and money for the client.

market, is that we are global leaders in these products for

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the safe handling of electrical power. Our portfolio of electrical

Q: What specific project in Mexico best reflects the

safety services and solutions is unique in Mexico and also

capabilities that Bender offers?

in the US, Germany, Spain or any other country. That is our

A: We began working in the electric vehicle segment because

greatest added value: our technology.

of a US client that has manufacturing facilities in Mexico. In this particular segment, we participate in the electric charge and

Q: What opportunities does Bender see in the Mexican market

in insulation control for the electric protection of the vehicle

and how are you introducing the company’s solutions?

itself. This manufacturer is using our insulation monitors to

A: To better focus on the Mexican market, in 2017, our holding

protect the vehicle’s insulation and to protect people from

was divided into three business units: industrial applications,

electric discharges while they are driving. Vehicles that work

hospital applications and applications related to electric

with gasoline or diesel are made from both electric and

vehicles. In Mexico, our market approach is directed at the

combustion components but vehicles that are 100-percent

oil and gas sector and mining. These are sectors in which we

electric have a battery set that is larger than the battery in

excel; we already have subsidiaries focused on mining and

combustion vehicles. Because it has greater power and bigger

also on the oil and gas segments in the US and Canada. In

batteries, any case of insulation loss in a 100-percent electric

Mexico, we are trying to replicate known strategies used with

vehicle can result in an accident. Existing regulation forces

global clients.

companies to include insulation monitors in electric vehicles to prevent these types of accidents. We are supplying this

Q: What is Bender’s participation in the power generation

equipment to an automotive OEM. We expect electric vehicles

segment in Mexico?

will represent 18 percent of our global sales in five years, from

A: We participate in the energy generation and renewables

around 12 percent now.

segment, with photovoltaics or wind power, for example, where there is a natural demand for our services and

Q: How would you grade Mexico’s regulation, compared with

products that address issues related to ground faults. The

other countries where Bender has worked?

right monitoring measures can locate a fault quickly, allowing

A: Mexico has a good regulatory electrical standard.

for a rapid correction.

However, I think the country requires proper monitoring of compliance with the regulation. It is one thing to have

Q: What are the most common electric problems that Bender

a good text inspired by the US or European electrical

helps to solve?

standard; it is quite another to make sure that people and companies comply. However, this does not mean that if companies are not complying with the regulations they

Bender is a global provider of top-of-the-line electrical safety

should be fined. What we need is an awareness campaign

products and solutions, with applications in the field of mobility

that creates a consciousness of the regulations and how

for electric or hybrid vehicles, energy generation and distribution,

they protect people and equipment, ultimately leading to

regenerative energy extraction and building technology

the further development of industries.

INSIGHT |

WRAPPED SERVICES FOR OPTIMAL INTEGRATED OUTCOMES STEVEN CLARKE Director of Newcomb Anderson McCormick

The US renewables industry is quickly maturing and facing

be vital for the development of optimal projects in Mexico.

political challenges, limiting the number of available

This breadth of knowledge gives NAM the ability to offer

opportunities. The logical next step for US developers is to

the turnkey services that are increasingly demanded by

step across the border to the infant Mexican market, says

the market, Clarke says. “We manage the entirety of the

Steven Clarke, Director of Newcomb Anderson McCormick

project. Although we might not be experts in each and every

(NAM). “The market landscape for energy projects in

area the project covers, we are experts at integrating and

the US, especially in California, is capped as most of the

managing complex projects that require a great number of

low-hanging fruit has already been picked, which makes

specialized teams.”

payback times for future projects more difficult to handle financially and harder to sell,” he says. “Mexico is still a

Clients not only demand integrated projects in terms of

couple of years from that point and therefore it offers a

the service provision but also in terms of the technologies

variety of projects that can still be considered attractive.”

involved. “A few years ago, there was great demand for renewable projects that targeted the development of only

Entering into a new market is not easy for any company,

one technology. Now we are increasingly seeing an increased

especially for smaller businesses that require B2B

demand for projects that include different technologies,

connections to strengthen their presence. As energy

such as biomass, biogas, batteries and fuel cells,” Clarke

engineering and management consulting firm, NAM

says. “The goal of these innovative technologies is to reduce

prepares to make its own move south. Clarke says the

energy consumption intensity and GHGs.”

company is deploying all the tools at its disposal to enter Mexico properly. “We are using every connection we have

Managing such complexity is not easy since processes

to get involved in projects to understand the clients’ needs

have to be established for technologies that constantly

better than anyone else and to begin creating long-term

change in terms of efficiencies and prices, as well as for

relationships,” he says. “Our immediate goal is to fully

technologies that rapidly surge and become commercially

understand the Mexican market and evaluate how we can

viable. Clarke says NAM has managed these complex

offer the highest added value to potential clients.” By the

scenarios before with successful results. “We have worked

end of 2019, Clarke expects to have a concrete expansion

in projects that implemented energy efficiency, renewable

strategy in place and to close five key partnerships that

energy technologies, EV integration and other sustainable

will allow the company to enter the market with strength.

projects for all kinds of clients, from auto manufacturers to food-packaging companies and public agencies” he says.

As part of this planning process, NAM has begun carrying out its due diligence and has learned Mexican bureaucracy can be

In the face of so many options, Clarke says that NAM

a difficult area to negotiate, especially given the fragmented

remains technology agnostic, meaning that it does not

levels of government. “From the business intelligence that we

favor any specific application or product, instead looking

have gathered, we know that since the federal government

for the best option to address the client’s needs. He uses a

is deeply involved in the development of projects, it needs

micro-grid project being developed by NAM as an example.

to build good communication channels with other levels of

“This micro-grid aims to help the community meet its

government,” Clarke says. “Considering that we have worked

energy related needs in the areas of reliability, resiliency,

with many public and private institutions in the US, we are

environmental impacts and economic impacts. Depending

used to successfully managing the interests of several diverse

upon how the priorities are set, NAM can balance how the

stakeholders, as well as looking for ways to fund projects.”

project addresses energy consumption, energy generation

He adds that NAM’s experience of structuring, scoping, de-

from the grid or renewables, vehicle charging and energy

risking and managing projects from scratch in the US will

backup and storage solutions,” he says.

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MOVING IN LINE WITH CLIENT NEEDS VĂ?CTOR SILVA Director General of Grupo ProSidsa

378

Q: How has Grupo ProSidsa consolidated its current

A: Grupo ProSidsa is a project integrator that provides

business portfolio for Mexicoâ&#x20AC;&#x2122;s energy industry?

turnkey projects with the best interests of its clients in mind.

A: Grupo ProSidsa was founded in 2011. Since then, it has

We deliver our solutions related to energy projects through

grown organically in the Mexican energy industry thanks

our qualified personnel. Our lean structure allows us to

to its fully client-centered service vision. We started by

deliver on-time and economically attractive solutions. We

offering thermal energy solutions to final users with the

have landed highly-complex projects by collaborating with

Thermo Pro brand. As some of our clients needed to install

strong partners. For example, we worked on the installation

sustainable public lighting, we created a company to fulfill

of streetlights for the fourth section of Chapultepec

that purpose called Luminarias ProSolar. Today, Luminarias

Park and provided maintenance for the public lighting

ProSolar is one of the most well-known companies in

on the second floor of the Periferico overpass. We also

the public lighting market. More clients subsequently

collaborated with IPN on a project for which we installed

approached us to build interconnection projects, which is

solar PV panels on its rooftops and interconnected the

how INTERCONEXIONES was created. Finally, to properly

surplus power generated to the grid.

manage large volumes of supplies for all of our projects we decided to create EnergyMarket, a company dedicated to

Q: How prepared is Mexican human capital to handle the

the wholesale of products.

development of renewable energy projects? A: Our workers, all of them Mexican, are outstandingly eager

Q: What new areas does Grupo ProSidsa want to

to meet any challenge. Flexibility is required since a client

branch into?

can suddenly change certain requirements or the delivery

A: We are planning to start venturing into energy storage,

date. Our staff knows that excellence in customer service is

a technology with a great deal of market potential and

our philosophy and those are the kinds of people we need.

implementation in Mexico. This is not the first time we will

I am fortunate to have an excellent team of mechanical,

enter into an innovative area. With Thermo Pro we were one

electrical and mechatronic engineers but most of them

of the first companies to introduce hybrid heaters, powered

admit that they lack more practical knowledge. Some of

by the sun and electricity, into the Mexican market. This

our younger engineers have never seen a solar panel before,

technology allowed our customers to be completely sure

even when they studied a degree focused on renewable

that hot water would be available at all times, no matter

engineering. Nevertheless, all of them are eager to learn

what. We are also working closely with a manufacturer to

and overcome these obstacles quickly. One aspect that

design and introduce new products and services to the

we have to work on as a country is to have human capital

Mexican market. We do not want to simply commercialize

with English fluency because it is an extremely necessary

products but to be innovative players in the industry. Our

language today.

lean organization allows us to provide innovate and integral solutions rapidly to our clients.

Q: Why does Grupo ProSidsa work on social projects? A: We are socially committed to the development of the

Q: How does Grupo ProSidsa offer fully-fledged energy

country. We have worked on projects where our profit

solutions to its clients?

margins are almost zero to install solar PV panels in communities where there is no access to the main grid nor additional power sources. We have installed over 1,500

Grupo ProSidsa is fully dedicated to carrying out energy

micro systems to brighten the life of the people. Ultimately,

efficiency and renewable energy projects. With a commitment

although these projects are not carried out for profits, the

to efficiently using resources, the company is driven by the

gratitude of the people in these communities is enough to

goal of offering the best solutions to its clients

keep working on them.

VIEW FROM THE TOP |

INTEGRAL UTILITY MANAGEMENT FOR MEXICO’S IPPs FEDERICO CASARES Business Development and Institutional Affairs Director Mexico of Veolia

Q: How does Veolia make a case for its energy management

of years ago as the company understood that its expertise

services through Seureca Ingenieros Consultores?

was energy generation, for which water matters are simply

A: Seureca is Veolia’s consulting branch. As a part of Veolia, it

fundamental. As the latter is not Iberdrola’s core business,

does not provide a report and wait for some other company

it tendered the operation of its water treatment plants.

to implement its diagnosis. On the contrary, it provides the

Our management has saved the company US$1.1 million

diagnosis and a solution that Veolia can implement with

per year..

its own technology and expertise. Seureca has helped us lead in business development for infrastructure projects,

We are striving to further develop our industrial solutions

both for the private and public sectors. Veolia’s energy

for water management. When we started in Mexico, we

model is different from the one that other sectors in Mexico

lagged in this niche because our core business for many

pursue, as we work based on demand. We do not install

years was the sale of water treatment equipment though

power stations to generate electricity, but add value based

Veolia’s Water Technologies. But we realized that even if we

on the demand. We help our clients reduce their energy

sold the best equipment to a client that does not have the

consumption or be more efficient in their use. This model

expertise to properly use it, the machinery would eventually

works for both cities and municipalities and the industrial

fail. Over the last five years, we have implemented a

sector. For a given building Veolia can operate all systems,

business model that integrates our equipment as part of

including air conditioning and lighting. Through a thorough

the management services we offer. We do the installation,

technological monitoring, we can reduce consumption. We

finance the equipment and operate it through long-term

have several types of contracts for these operations, mainly

contracts to add more value to the industry.

on a performance basis so we charge on the savings that we are able to achieve for our clients. We establish the baseline

Q: What is the role of a circular economy in improving the

for their consumption and set a gap of savings that usually

the water and waste management sector in Mexico?

goes from 20 to 50 percent. After we determine how much

A: Veolia is dedicated to promoting a circular economy

investment is needed to attain the agreed goal and after

through all its processes. I think this is the global

deducting expenses from savings, we share the remainder.

development model to pursue, as it not only shifts from a linear economy that extracts, uses and disposes of resources

We are also increasingly implementing a modality called

but it promotes reuse and recycling. China recently

utility management, which entails the whole service

launched a regulation that prohibits the importation of

management and maintenance. In the case of industrial

material for recycling. As China was the biggest receptor of

services, we also do industrial cleaning. This goes along

this material, countries now need to find other alternatives

with our energy efficiency model. We actively participate

for disposing of their waste. This entails developing more

on a global scale for our clients to obtain energy efficiency

infrastructure for waste management and recycling and

certifications such as LEED. But these also imply a better

modernizing existing facilities. If a material cannot be

use of waste, water and energy. Veolia is no certifying

reused, at least it can be turned into energy. Regarding the

company, but we do seek this alignment in the projects

industrial sector, the circular economy demands companies

we work for.

have an extended responsibility approach to products.

Q: Why is Veolia the right partner to operate the power plants of IPPs?

Veolia Group is the global leader in optimized resource

A: Regarding water management for energy companies,

management. With nearly 169,000 employees worldwide,

nowadays we operate four water plants for five Iberdrola

the group designs and provides water, waste and energy

electricity stations. We won the bid for this project a couple

management solutions

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DRIVING GRID SUPPORT MARKKU ASPHOLM Director – Americas (Bergen Engines – Land Power Applications) of Rolls-Royce

Q: What does Rolls-Royce bring to the table through its

(BMV) was founded. To date, the company has sold more

Power Systems division in Mexico?

than 7,000 engines. Our medium-speed gas and liquid fuel

A: This division offers products that conveniently match the

engines can be used in a broad range of power applications.

country’s current energy mix. Renewables are increasing

These products are characterized by their flexibility,

rapidly and prices are coming down, especially for solar

reliability, long-term service agreements, modularity and

PV technology. The introduction of these systems causes

possibility of partnering for turn-key installations.

fluctuations into the grid, which is why more fast-reacting

380

engine solutions are needed to support it. Our medium-

Q: What is the company’s strategy to position its

speed engines can go from zero to full load in three

technological proposal in the power segment?

minutes, which matches perfectly with solar generation. As

A: In Mexico, Rolls-Royce has developed various power plants

a matter of fact, in September 2018, Rolls-Royce introduced

located in states like Sonora and Queretaro. To date, we are

a new engine that offers 20 percent more output, with an

in the process of supporting our existing customers and

electrical efficiency up to 50 percent. This is one of the

increasing our client portfolio. We are also focusing on service

best-in-class engines and we introduced it to the Americas

support through our local personnel. The company also offers

market in late 2018. Through this fast-reacting technology,

remote monitoring support where our experts have remote

the company works closely with two engine product lines

access to power plants’ parameters with previous permission

in Mexico: Combined Heat Power (CHP) and grid-connected

of our client. Globally, 85 percent of our installed base in the

baseload and peaking power plants. The CHP line is the

power generation market is covered by Rolls-Royce service

one that we have installed the most globally, mainly in

agreements, and this is also happening in Mexico. Our latest

combination with greenhouses or connected to the grid.

project encompasses a 20MW power plant located in the

Baseload and peaking power plants only produce electricity

port city of Altamira. Together with an EPC and a developer,

so there is no heat recovery present.

this project was constructed for Mexichem, the third-largest chemical and petrochemical company in Latin America.

In September 2018, RollsRoyce introduced a new engine that offers 20 percent more output, with an electrical efficiency up to 50 percent

Q: What are the two main goals that the company wants to achieve by the end of 2019? A: The company aims to fully enter into the baseload and peaker power plants segment as it is an area where we have not yet developed a project in Mexico. Also increasing our CHP customer base remains a priority to position the brand. At the moment, the key for our business development in Mexico relies on developing local support.

Q: When did the company decide to diversify its portfolio

As of Jan. 1, 2019, we have a Rolls-Royce Mexico service

to cover the power segment needs?

company that will be operated by Bergen Engines. From a

A: Rolls-Royce medium speed engines date back to 1855

regulatory point of view, we would like the government to

when the original company Bergen Mekaniske Verksted

review how beneficial reciprocating engines are and why they are needed in this energy mix. You cannot rely only on renewables because the technology does not provide

Rolls-Royce is a leading provider of cutting-edge technologies

constant power. Given the country’s thermal demand and

that deliver clean, safe and competitive power solutions. The

natural gas consumption profile, there will always be a

Power Systems portfolio includes high-speed engines and

requirement for fast-responding power units and that is

propulsion systems

our biggest strength.

VIEW FROM THE TOP |

ELECTRICAL EXPERTS GO FOR SOLAR JORGE OTHON Director General of OSOLEC

Q: How does OSOLEC’s offering improve its clients’ business

comes from the fact that our work is widely known. Our

in the northwestern region of the country?

clients see us as experts in developing electrical installments,

A: OSOLEC is well-known for delivering its solutions on-time

providing energy efficiency assessments and now distributed

and on-budget, working to high-quality standards and at

generation. We have a group of oriented, motivated, highly-

competitive costs. Originally, the company’s core business

qualified personnel who share the company’s objective. This

relied on the design of electrical installations for the industrial

has allowed us to grow as a business and increase our revenue.

and commercial segments, while also providing related energy

We truly believe that the richest part of the company is the

efficiency solutions. We have since extended our expertise to

talent of its people.

renewable energy projects, and PV systems in particular. Our goal is to exceed our clients’ expectations, working alongside

Q: How would you rate the development of the energy

them from the beginning of every project.

regulatory framework? A: I believe Mexico’s regulatory framework will undergo

Q: What was the business opportunity that OSOLEC identified

changes, as happened with the implementation of the

in the PV segment and what are your keys to success?

Energy Reform. Usually, country’s simply replicate successful

A: We identified an increase in PV technology use in the

regulatory models, adapting some specific aspects to

northwestern region of the country. PV CAPEX has decreased

the country’s needs. Now is the time for adjustments, and

thanks to the implementation of the long-term electricity

decision-makers must send clear signals to the industry’s

auctions and given the increase in the electricity tariffs, this

stakeholders. If the Energy Reform is modified, there may

option is more easily available and more competitive for

be some financial fallout, jeopardizing further investments.

almost every customer. If a better, more adequate solution

Providing certainty to the industry is key to incentivizing

appears in the market, OSOLEC will develop it.

investment in the country. The energy transition that Mexico desperately needs implies a significant amount of capital

The northwestern region of the country has built an industrial

and for that to happen we need national and international

base and our main targets are the commercial and industrial

investment.

sectors. To succeed, we have worked to earn our clients’ trust. As an example, on one occasion a customer asked us and

Q: What are the two main goals that OSOLEC aims to achieve

another well-known company in the region to develop the

by the end of 2019?

same project: to supply electricity to an ice factory. The client’s

A: We have a project in the pipeline that will increase our

purpose was to determine which company would deliver the

installed capacity in early 2019 tenfold. We are also planning

better result in order to continue with further developments.

to grow our staff by as much as 300 percent. It is an ambitious

Today, we are working on a project that is four times bigger

goal but the results will speak for themselves and we are

for this client. Delivering purchase security and support are

going to achieve it. Mexican companies should also build

crucial characteristics for creating long-lasting relationships

more strategic alliances, rather than competing against each

with our clients because they are making a large investment.

other. The country’s industry has to compete internationally

If they are investing in a 25-year installation, clients should feel

against big players, so local alliances are important and our

secure that they are doing it with the best option available.

future is aligned with this belief.

Q: What is OSOLEC’s competitive advantage in terms of its staff?

OSOLEC provides specialized electrical services to SMEs

A: Our teams receive constant training and we try to attend

in Sonora. It serves the residential, industrial, commercial,

as many industry events as possible. Since 1996, the company

agribusiness and public sectors. Its main areas are energy

has experienced exponential revenue growth, most of which

efficiency, electrical and PV installation and consulting

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TACKLING OPEX THROUGH OPTIMAL EFFICIENCY ALEJANDRO DELGADO Business Development Director Latin America of Inaccess

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Q: Why should IPPs and EPC players take a closer look at

A: We operate in 40 countries in all regions, with more

Inaccess’ solutions?

than 8GW managed by our solutions, meaning close

A: While these businesses work based on different

to 3,000 PV parks use our technology and platform.

perspectives, asset operators, owners and EPC companies

Our goal is to enter the Mexican market to provide our

benefit from the added value of a centralized data mining,

expertise in these technologies for the upcoming pipeline

asset management, monitoring and control platform

of utility-scale, renewable energy projects. We are actively

as it unlocks optimal efficiency and performance and

cumulating listings for our solutions in Mexico and are

minimizes malfunctions. A key factor in our solutions is asset

close to concluding our permitting process before

optimization. By minimizing inefficiencies or idle periods,

CENACE to become an authorized player operating in

we can dramatically decrease OPEX throughout the power

Mexico’s renewable energy market. Inaccess’ involvement

plant’s useful life. Our software can be adapted to the

in the integrated plant power control of the largest PV

electrical hierarchy of the power plant to not only fully reflect

project in the world, Abu Dhabi’s 1.2GW PV park, attests

the magnitude of any failure or underperformance but also

to its technical expertise. Our versatility also allows us to

pinpoint it with surgical precision to optimize energy output.

oversee 500kW PV systems, which speaks volumes about

This double advantage enables power plant operators to

our platform’s flexibility in dealing with a wide range of

promptly dispatch field technicians to the specific location

installed capacities.

that requires the attention of the O&M team, solving the issue effectively and efficiently. Last but not least, our market-

Q: What is Inaccess’ market entry plan to secure a solid

proven Power Plant Controller (PPC) allows a seamless

foothold in Mexico?

integration of the asset with the grid without surprises.

A: Inaccess is in fairly advanced discussions to close a local partnership. As our operations in several countries show,

Q: How does Inaccess contribute to fostering a generalized

we are favorable to closing local alliances and Mexico is no

preventive maintenance practice?

exception. The country’s renewable energy market is growing

A: Quick reactions to potential malfunctions and solving the

at a fast pace and we are looking to make the most of it with

issue at its core is a definitive advantage. From a prevention

reliable partners so we can focus our resources on catering

efficiency standpoint, it is a matter of grasping the costs of

to the needs of the Mexican market. Our SCADA platform

data acquisition, failure costs and component replacement

and our power plant controller are the two products in our

costs. Depending on the malfunction’s impact on the power

portfolio that best answer the country’s specific needs.

plant’s performance, strategies involving data analysis and performance trend identification can be deployed to provide

Q: Can Inaccess’ solutions be applied to different renewable

clarity over the specific useful life and remaining lifespan. It

energy technologies?

significantly prevents relying on costly corrective maintenance

A: While our core business is solar power, our solutions are

and reduces idle time in the power plant’s generation activity.

also used in storage, wind, hybrid and off-grid projects. This diversification stems from our client pool that manages a

Q: What project best showcases the added value of Inaccess’

mixed power-generation portfolio, spearheaded by these

solutions?

technologies. It provides the comparative advantages of integrating valuable data from different types of generation in a single platform. The combination of solar and battery

Inaccess is a UK-based digital infrastructure management

storage will also be a major growth factor for renewables

company. It designs and develops state-of-the-art products and

in the next years, and we are ready for this challenge

solutions that enable major energy producers, large constructors

having already delivered solutions combining these two

and telecom operators to optimize asset performance

technologies.

VIEW FROM THE TOP |

ENERGY EFFICIENCY EQUALS CLEAN GENERATION PLUS CONSUMPTION SAVINGS LUIS RAYMUNDO ÁVILA Technical Director of INGENIERIA ENERGETICA Y CONTROL

Q: How does the company work toward energy efficiency

possible, regardless of whether it comes from a renewable

and what is your methodology when approaching projects?

source or fossil fuels.

A: We carry out energy efficiency studies; what is not measured cannot be improved. Energy solutions should

Q: What is your assessment of the regulatory framework for

not be implemented just because they are fashionable. Each

energy in Mexico?

client has a particular opportunity to address and a solution

A: Mexico’s regulatory framework lagged in promoting higher

to its problem. The energy efficiency solution for a hospital is

efficiency for many years, unlike the regulations in Europe

highly unlikely to work for industrial users. Our methodology

and Asia, which have addressed this topic since the end of

when approaching every project starts with a deep study of

World War II. There has been great awareness internationally

their operations and their energy consumption, analyzing

about the importance of energy efficiency since the 1980s and

each of their internal consumers to map an energy-mass

Mexico is just joining the party. While we arrived late, I think

balance that determines points of improvement.

the country is on a positive path in providing maturity to its framework. In short, I believe that Mexico has developed a very

In the case of the pharmaceutical sector, for example, we

good consciousness regarding energy matters and we are

provide help with steam and hydraulic energy balances.

more than ready to jump into energy savings and renewable

We first tackle the basic heat needed to produce electric

sources. The goal is not merely to build wind farms or install

energy, targeting a balance between fossil fuels and electric

solar panels but to only use the exact amount of energy

energy consumption in the network. In this cogeneration,

that we need.

we propose the use of Jenbacher engines, an electric energy generator that works with the gases produced

Q: What is your main added value regarding water-

autonomously through an industrial process. It is a system

management operations?

of heat recovery that warms water and produces steam

A: We were founded in 2010 and work across multiple sectors,

energy. This is an interesting infrastructure investment

including energy, water management, environment and

for the client as it allows it to capitalize on the heat and

health. The water sector is mainly dominated by the public

better benefit from all resources. Cogeneration processes

sector with a segmented participation of private companies

are applicable to every industry or process that needs to

and only in certain states. This private contribution is always

generate heat and electric energy.

heavily regulated by the government. In this scenario, we work specifically on the recovery of flows, compartmentalization

Q: What would be your advice for clients seeking to

of network management, optimization of pumping systems,

implement an efficient photovoltaic system?

process automation, remote monitoring and micro and

A: Photovoltaic processes are as good as cogeneration

macro measurement. The company offers a wide variety of

because they promote the better use of resources while

solutions for water management. Our goal is for processes

adding to the generation of clean energy. We deploy

and projects to be capitalized in a sustainable way. We also

these processes particularly for residential projects. But

contribute to water treatment processes and compliance with

the benefits of solar energy can only be achieved after a

SEMARNAT’s water quality regulations, seeking the lowest

previous study that considers the infrastructure investment

environmental impact.

to be made in the panel. If the customer has not revised its energy system and consumption before implementing a PV model, the old failures in it will be patched but will

INGENIERIA

prevail underneath. We recommend the electricity network

installs projects designed to improve efficiency in the use

be reviewed before building the PV installation. In the end,

of energy in order to reduce maintenance costs, providing

the idea is to make energy consumption as efficient as

personalized and specialized attention

ENERGETICA

CONTROL

develops

and

383

| ACRONYMS AC

Alternating Current

CONAGUA

National Water Commission

API

Application Programming Interface

CONCAMIN

Industrial Chambers Confederation

AICA

Important Bird Conservation Area

CONUEE

National Commission for Efficient

AMDEE

Mexican Association of Wind Power

AMIPE

Mexican Association of the Petroleum

CRE

Energy Regulatory Comission

Industry

CSP

Concentrated Solar Power

ANCE

Certification and Normalization

Direct Current

Energy Use

Association

Distributed Generation

BTU

Bristish Thermal Unit

DOF

Official Federal Journal

C&I

Commercial and Industrial

EPC

Engineering, Procurement and

CAMEXA

Mexican-German Chamber of Commerce

CANAME

National Electricity Manufacturing Chamber

ESCO

Energy Service Companies

CAPEX

Capital Expenditure

Electric Vehicle

CEL

Clean Energy Certificate

EVA

Ethylene Vinyl Acetate

CEMIE

Mexican Center of Energy Innovation

FCPA

Foreign Corrupt Practices Act

CENACE

National Center of Energy Control

FDI

Foreign Direct Investment

CENAGAS

National Center of Natural Gas Control

FIBRA

Mexican Real Estate Investment Trust

CERPIs

Fiduciary Security Certificates of

FIDE

Trusteeship for Electric Energy Savings

Investment Projects

FIRCO

Shared Risk Trust

CETE

Treasury Certificates

GDP

Gross Domestic Product

CFE

Federal Commission of Electricity

GHG

Green-House Gas

CHP

Combined Heat Power

HP Horsepower

CKD

Equity Development Certificate

HVAC

Heating, Ventilation and Air

CLPI

Free, Previous and Informed Consent

Carbon Monoxide

HVDC

High Voltage Direct Current

CO2

Carbon Dioxyde

ICE

Internal Combustion Engine

COD

Commercial Operations Date

IDB

Interamerican Development Bank

and Industry

Construction EPCM

Engineering, Procurement, Construction Management

Conditioning

IEA

International Energy Agency

PCS

Power and Control System

IEEE

Institute of Electrical and Electronic

PIDIREGAS

Investment Projects for Productive

Engineers

Infrastructure with Deferred Payments in

IEPS

Special Tax on Products and Services

IoT

Internet of Things

PMC

Project Management Consultant

Public Spending

IPP

Independent Power Producer

PML

Local Marginal Price

Joint Venture

PPA

Power Purchase Agreement

KPI

Key Performance Indicator

PPC

Power Plant Controller

kWh

Kilowatt hour

PPP

Public Private Partnership

LCOE

Levelized Cost of Electricity

PRODESEN

National Electricity System Development

LIDAR

Laser Imaging Detection and Ranging

LIE

Electricity Industry Law

PV Photovoltaic

LNG

Liquefied Natural Gas

QSS

Qualified Service Supplier

M&A

Mergers & Acquisitions

R&D

Research & Development

MMcf/d

Million Cubic Feet per Day

RFP

Request For Proposal

MW Megawatt

ROI

Return On Investment

NABCEP

North American Board of Certified

SCADA

Supervisory Control and Data

NAFTA

North-American Free Trade Agreement

SIN

NATO

North Atlantic Treaty Organization

SISTRANGAS

NDA

Non Disclosure Agreement

NOM

Official Mexican Norm

SME

Small and Medium Enterprise

NPV

Net Present Value

SPV

Special Purpose Vehicle

O&M

Operation and Management

STEM

Science, Technology, Engineering and

ODAC

Coordinated Assistance Office of the Energy Sector

T&D

Transmission and Distribution

OEM

Original Equipment Manufacturer

UMSCA

United States Mexico Canada Agreement

OPEX

Operational Expenditure

WEC

World Energy Council

P50

Average Level of Generation

WEM

Wholesale Electricity Market

Program

Energy Practicioners

Acquisition National Interconnected System National Integrated Natural Gas Transport and Storage System

Mathematics

| INDEX #-F 32Energía 129

CEMEX Energía 149, 206, 369

Guillermo García 14, 16-17, 36,

3M 154

CENACE 8-11, 13, 14, 17, 18-19, 31, 37,

228, 318

AB Energy 162-163, 174

40-41, 44, 48-49, 55, 62, 65, 70-71,

Marcelino Madrigal 8-11, 319,

ABS Wind Mexico 206, 217

72-73, 78, 79, 80, 85, 91, 92-93, 96,

322-323

Acción Social Empresarial 264, 277

103, 123, 124, 125, 127, 128, 132, 133, 134,

Neus Peniche 162, 170

ACCIONA 55, 90, 97, 106, 206, 208-

135, 141, 166-167, 171, 174, 184-185, 189,

Luis Pineda 117

209, 214, 220, 237, 301

198, 222, 230-231, 236, 244, 247 248,

Montserrat Ramiro 26

ADFERI 264, 276

288, 291, 299, 303, 318-319, 320-321,

ADM 101

322-323, 324-325, 327, 331, 338, 345,

CSolar 353

Aerospec Technologies 349

354-355, 382

Cubico Sustainable Investments 45,

AES Mexico 70-71, 103, 141, 324-325,

CENAGAS 8-11, 13, 159, 162-163, 164-

61, 230-231

344

165, 166-167, 172, 384

Cuestamoras Energía 128

AlsoEnergy 354-355

Centurion Solar 258

Danfoss Drives 369

Alten Energías Renovables 61, 78, 197

CFE 8-11, 12, 13, 15, 24-25, 27, 28-29,

Deloitte 31

AMDEE 199, 206, 207, 219, 318-319

31, 36, 37, 45, 57, 58, 59, 61, 62, 64, 70-

Dhamma Energy 257

AMEXHIDRO 58, 70, 196

71, 75, 76, 78, 82, 84, 95, 97, 101, 102,

DHR International Group 338, 350

AMFEF 25, 196

103, 116, 117, 118-119, 120-121, 122, 123, 124,

DiTerra Consultores Ambientales 280

Ammper Energía 8-11, 116, 126, 135

125, 128, 131, 132, 133, 134, 141, 142, 146-

E2M 116, 124, 135

Anabática Renovables 305

147, 149, 155, 162.163, 164-165, 170, 171,

EDF Renewables 21, 96, 106, 208-

ANES 24, 25, 143, 228-229, 255, 288

172, 176, 177, 182-183, 184-185, 188-189,

209, 326

Antuko Mexico 132

190-191, 192-193, 196-199, 207, 208-209,

Emergya Wind Technologies 212-213

AOS Social 274-275

212-213, 217, 228-229, 236, 237, 239,

Enagás 176

Arctech Solar 255

246, 247, 253, 254, 257, 259, 274-275,

Enel Green Power Mexico 8-11, 28-29,

Array Technologies 228-229, 243

283, 288, 289, 291, 292-293, 294, 295,

54, 55, 90, 100, 106, 109, 116, 122, 208-

ASOLMEX 56, 90, 196, 207, 228-229,

296, 298, 299, 300, 303, 307, 312. 313,

209, 214, 228-229, 230-231, 238, 308,

Guillermo Zúñiga 27

236, 255, 318-319

318-319, 322-323, 324-325, 326, 327,

310, 326, 349, 351

Astronergy 348

333, 338, 350, 354-355, 362-363, 364-

Energetika 374

ATA Renewables 81

365, 366, 373

Energía CB Consultores 201, 292-293,

ATCO 116, 122, 168-169, 173, 198

China Gezhouba Group

312-313

Avitar 246

Corporation 341

Energía Eléctrica BAL 103, 140, 141,

Baker McKenzie 82

Citibanamex 8-11, 294, 312-313

197

Balam Fund 19, 257, 307

CLG Abogados 63

Energy Agency of Campeche 20

Bancomext 28-29, 40-41, 80, 248,

Clifford Chance 289

Enerray 244

290, 291

Climatik 211, 343

Enertis 62, 65

Banverde 309

COGENERA 171, 196, 197

Énestas 177, 199

Barlovento Recursos Naturales 310

COMEXHIDRO 90, 110, 208-209

Enicon 116, 130

BayWa r.e. 201, 230-231, 338, 345

Composites VCI do Brasil 214

Enix 120-121

Becquerel Capital 303

Conecta Cultura 264, 270

Enûma 272

Beel Infrastructure Partners 300

Cone Drive 347

Envision 70-71, 200, 210

Bender 362-363, 376

Control Risks 273

Eosol Energy 248, 259

BGBG 30

CONUEE 23, 24, 25, 143, 171, 374

ERM 268, 283

BID Energy 134, 135

Chint Power Systems America 232

Estrategia Energía Eléctrica 127

Boston Strategies International 46

CRE 8-11, 12, 13, 14, 25, 31, 36, 58, 63,

EXEL Solar 228-229, 239

Braux Energy Group 237

65, 74, 76, 77, 78, 80, 92-93, 103, 116,

EY 28-29, 288-289

Buenavista Renewables 140, 150

120-121, 122, 123, 126, 127, 128, 132, 133,

FEMSA 140, 148, 369, 374

Burns & McDonnell 37, 65

134, 135, 143, 151, 157, 162-163, 171, 174,

Fermaca 162-163, 172, 300

CAMEXA 24, 143, 233, 324

181, 196-199, 208-209, 222, 228-229,

Fimer 55

Carbon Trust 200, 269

230-231, 236, 247, 249, 297, 299, 318-

Fluence 103, 324-325, 344

Celergy 133

319, 326, 338, 345, 362-363, 370

Fotowatio Renewable Ventures 80,

INDEX F-Z | 230-231

meteocontrol Central America 356

Renovalia 111, 208-209

F Tech 306

METKA EGN 56

RER Energy Group 253, 259

GCL 256, 296

Mexión 211, 215

Risen Energy 252

GE Renewable Energy 102, 214, 216

Ministry of Energy 8-11, 12, 13, 14, 27,

Rolls-Royce 380

Generac Ottomotores 371

31, 36, 37, 40, 51, 58, 65, 67, 74, 80, 98-

S&J Law Firm 131

Genesal Energy 373

99, 100, 105, 116, 120-121, 123, 140, 157,

Sacromonte Ganuc de México 338,

GEOTER Renovables de México 372

162, 163, 164-165, 170, 171, 184-185, 201,

352

GMI Consulting 264, 279, 283

207, 222, 228-229, 236, 264, 265, 272,

Schneider Electric 362-363, 366

GoodWe 357

274-275, 277, 279, 281, 288, 291, 299,

SEMAEDESO 20

Goodrich, Riquelme y Asociados 74

315, 318-319, 320-321, 322-323, 324-

SER Consultores 278

GreenMomentum 338, 339

325, 328, 331, 338, 345, 350, 362-363

Siemens 8-11, 21, 103, 195, 208-209,

GRS 84

Leonardo Beltrán 12, 36, 194

214, 220, 324-325, 344

Grupo Bimbo 48-49, 111, 140, 142,

Fernando Zendejas 13, 14, 36,

Sinia Renovables 311, 312, 313

116, 318

Smart Grid 8-11, 328

206 Grupo Enal 51, 70-71

Mitsubishi Electric Automation 19,

Solarever 247

Grupo Industrial Aguila 180

102, 251, 307, 362-363, 364-365

SOLBEN 60

Grupo México 151, 152-153, 206, 208-

Mitsui Power Americas 70, 90, 91,

SOWITEC 222

209

102, 195, 237

Spares in Motion 220

Grupo Ortiz 61

Munich Re 52

SUZLON 219

Grupo Tres R Termotécnica 333

NAFIN 28-29, 40, 248, 290

Telefónica Movistar 156

Huawei 245, 259, 296

Natura Medio Ambiente 264, 281

Telener 360 221

HellermannTyton 108

Naturgy 175, 208-209

Terranova 282, 283

Iberdrola 90, 98-99, 106, 109, 116, 122,

NEC Energy Solutions 329

Thompson & Knight 75, 85

157, 208-209, 230-231, 326, 379

Neoen 70-71, 90-91, 106, 248

TIBA 107

IFC China-Mexico Fund 8-11, 40-41,

Nestlé Mexico 140, 146-147, 199, 206,

TMEIC 251

42-43, 272, 283, 295

369

Top Energy 228-229, 233, 234-235,

Inaccess 382

Newcomb Anderson

256

Industronic 362-363, 375

McCormick 362-363, 377

Toshiba de México 102, 198

INGENIERIA ENERGETICA Y

NEXTracker 200, 238

Tradeon Energy 8-11, 125, 198

CONTROL 383

Norton Rose Fulbright 44

Trina Solar 228-229, 242

Ingeteam 57, 308

NOTUS Mexico 206, 218

TSK 57, 80

Integralia Consultores 271, 283

NRG Systems 343

TÜV Rheinland 53

Invenergy 48-49, 65, 110, 142

Oak Creek Energy 223

UL Renewables 40-41, 196

ISEBSA 318-319, 331

OCA Global 47

V&A 195, 265, 266-267

ISOTRON Energías México 109

Orca Energy 116, 123

Valeco Energía México 54, 196

Itron 327

Organización Soriana 98-99, 157,

Vansertec 342

Jema Energy 332

206

Veolia 379

Jinko Solar 230-231, 241

OSOLEC 362-363, 381

Veolus 197, 368

KfW 80, 304

Pfiffner 326

Wärtsilä 179

Kiewit 340

PowerChina 59

White & Case 298, 313

KPMG 8-11, 76, 197

Prana Power 244, 257, 296, 312-313

WillScot 83

Latin American Rainmakers 155,

PROPARCO 288, 301

Wood 42-43, 65

162-163

ProSidsa 378

World Energy Council 22, 288

LONGi Green Energy

PwC 77, 85

W.W. Williams 297

Technology 240

RAMADASA 144-145, 367

X-ELIO 79, 230-231, 332

Marathon Capital 302, 312-313

Rangeland Engineering Canada

Yaskawa Solectria Solar 351

Marsam Solar 249

Corp 168-169

Zenith Holding México 181, 199

MASPV ENERGY 254

Red Energía 64

Zuma Energía 105, 208-209, 308

Mayer Brown 288, 299

Rengen Energy Solutions 90, 95

Zumma Energy Consulting 50

| ADVERTISING INDEX 2

Prana Power

6 CRE 34

Mexico Business Communication

UL Renewables

Mexico Energy Forum 2020

EDF Renewables

Rengen Energy Solutions

114

Mexico Business Publishing

121 Enix 138

Latin American Rainmakers

160

Beristain + Asociados Abogados

169

Rangeland Engineering Canada Corp

204 Amdee 226

Top Energy

250

IOS Offices

262 V&A 275

AOS Social

286 Veolus 293

Energía CB

304

W.W Williams

316

Mexico Business Events

336

Tarsus México

360 CRE 365

Mitsubishi Electric

| MAPS AND INFOGRAPHICS INDEX 38-39

Energy Mix 2032 Outlook

72-73

Status of Long-Term Electricity Auctions

92-93

New Power Plants by June 2019

118-119

CFE Electricity Sales Countrywide

164-165

Natural Gas Infrastructure and Power Plants 2018

208-209

Harnessing the Potential of Wind

230-231

Large-Scale PV per State by Capacity (MW)

320-321

Mexico's Transmission Infrastructure 2018-2032

363

Mexico's Energy Management

| SPOTLIGHTS 144-145

RAMADASA: Thinking Differently, Producing

235-236

Solutions, Guaranteeing Results 152-153

Grupo México: Grupo México Preserving Culture, Fostering Entrepreneurship

Top Energy: Seizing on Solar Through Distributed Generation

266-267

V&A: Providing Direction for Community Engagement

PHOTO CREDITS | Cover

84 MBP

Inner Front Cover

86 RENGEN

Grupo México, Energy Division

MBP, MBP, MBP

12 MBP

91 MBP

95 MBP

Ministry of Energy

16 MBP

96 MBP

18 CENACE

ACCIONA Energía

Energy Agency of the State of Campeche

IBERDROLA México

21 MBP

100

Enel Green Power Mexico

101 ADM

World Energy Council

23 MBP

102

24 MBP

103 MBP

25 MBP

104 ZumaEnergía

26 MBP

105

27 MBP

106 Neoen

28 MBP

107

30 MBP

108 HellermannTyton

31 MBP

109

110 MBP

IBERDROLA México

MBP, MBP

Zuma Energía MBP, MBP ISOTRON Energías México

37 MBP

111 MBP

40 MBP

112 AlsoEnergy

42 MBP

117 MBP

44 MBP

120 MBP

45 MBP

122 MBP

46 MBP

123 MBP

MBP, MBP

124 MBP

MBP, MBP

125 MBP

Zumma Energy Consulting, MBP

126 MBP

51 MBP

127 MBP

52 MBP

128 MBP

129 MBP

MBP, MBP

54 MBP

130 MBP

55 MBP

131 MBP

56 MBP

132 MBP

57 MBP

133 MBP

58 MBP

134 MBP

59 MBP

135

MBP, MBP, MBP

60 SOLBEN

136

Telefonica México

61 MBP

141 MBP

62 MBP

142 MBP

63 MBP

143 MBP

MBP, MBP

146 MBP

MBP, MBP, MBP, MBP

147

Zuma Energía

148 FEMSA

Nestlé México

74 MBP

149

75 MBP

150 MBP

76 MBP

151 MBP

77 MBP

154 3M

78 MBP

155 MBP

79 MBP

156 MBP

80 MBP

157 SORIANA

81 MBP

158

82 MBP

166 MBP

83 MBP

168

CEMEX Energía, CEMEX Energía

Grupo México, Energy Division MBP, MBP

| PHOTO CREDITS 170 MBP

247 MBP

171 MBP

248 MBP

172 MBP

249

173 MBP

251 MBP

174

252 MBP

MBP, MBP

175 Naturgy

253 MBP

176 MBP

254 MBP

177 MBP

255 MBP

178 Wärtsilä

256 MBP

179

Wärtsilä, Wärtsilä

257

180

Grupo Industrial Agila (GIA)

258 MBP

Dhamma Energy

181 MBP

259

MBP, MBP, MBP

182

IBERDROLA México

260

SER Consultores

188

Marcos González

265 MBP

191 CFE

268

193 ENVISION

269 MBP

194 MBP

270

Conecta Cultura

195

MBP, MBP, IBERDROLA México

271

Integralia Consultores, Integralia Consultores

196

MBP, NATURA MEDIO AMBIENTE, MBP

272 Enûma

197

MBP, Array Technologies, MBP

273

198

MBP, ATCO México

274 MBP

199

MBP, MBP, ENVISION

276 MBP

200

MBP, NEXTracker, MBP

277 MBP

201

MBP, RENGEN Energy Solutions

278 MBP

202

OAK CREEK ENERGY

279 MBP

MBP. MBP

Control Risks

207 MBP

280 MBP

210 MBP

281 MBP

211

282 MBP

Mexión Corporation, MBP

212 EWT

283

MBP, MBP, MBP, Integralia Consultores

214 MBP

284

Fluke Corporation

215 MBP

289

Clifford Chance, Clifford Chance

216 MBP

290 MBP

217 MBP

291 MBP

218

292 MBP

MBP, MBP

219 MBP

294 MBP

220

295

Spares in Motion

MBP, MBP

221 MBP

296 MBP

222 MBP

297

223 MBP

298 MBP

224

299 MBP

Array Technologies

W.W. Williams

229 X-ELIO

300

232

301 PROPARCO

Chint Power Systems America

MBP, MBP

233 MBP

302 MBP

236 ASOLMEX

303 MBP

237 MBP

304 MBP

238 MBP

305

MBP, MBP

239 MBP

306

F Tech

240

307 MBP

MBP, MBP

241 MBP

308 MBP

242 MBP

309 MBP

243 MBP

310

Barlovento Recursos Naturales

244 MBP

311

MBP, MBP

245 MBP

312

MBP, MBP, MBP

246 MBP

313

MBP, MBP, MBP, MBP

314 Dominion

354 MBP

322 MBP

356

324 MBP

357 MBP

326 MBP

358 INDUSTRONIC

327 Itron

364

Mitsubishi Electric

328 MBP

366

Schneider Electric

329

367

MBP, MBP

NEC Energy Solutions

Meteocontrol Central America

330 Dominion

368 MBP

331 MBP

369 MBP

332 MBP

370 MBP

333 MBP

371 MBP

334

372 MBP

NEC Energy Solutions

339 MBP

373

340 KIEWIT

374 MBP

341 MBP

375

342 MBP

376 BENDER

343

377

NGR Systems

Genesal Energy Mexico MBP, MBP Newcomb Anderson McCormick

344 MBP

378 MBP

345

379 MBP

MBP, MBP

346 Neoen

380 MBP

347

381 MBP

Cone Drive

348 MBP

382 MBP

349 MBP

383

INGENIERIA ENERGETICA Y CONTROL

350 MBP

384

ACCIONA Energía

351

385

ACCIONA Energía

MBP, MBP

352 MBP 353

MBP, MBP

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| CREDITS JOURNALIST & INDUSTRY ANALYST: Estefania Villavicencio JOURNALIST & INDUSTRY ANALYST: Esteban Pages JOURNALIST & INDUSTRY ANALYST: Arturo Mora SENIOR WRITER: Daniel González EDITOR: Ricardo Guzmán EDITORIAL MANAGER: Oscar Tello SENIOR EDITORIAL MANAGER: Sara Warden EDITORIAL DIRECTOR: Mario Di Simine PUBLICATION COORDINATOR: Anny Arzuaga PUBLICATION COORDINATOR: Borja Astorgano COMMERCIAL MANAGER: Bruna Brandão COMMERCIAL DIRECTOR: Jack Miller GRAPHIC DESIGNER: Mónica López SENIOR GRAPHIC DESIGNER: Ailette Córdova DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Omar Sánchez SOCIAL MEDIA COORDINATOR: Karen Sujo CIRCULATION MANAGER: Elizabeth Solís DIRECTOR GENERAL: Jeroen Posma

$199.00 ISBN 978-1-7328256-2-8

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Mexico Energy Review 2019

Articles inside

NEW IMAGE, NEW VISION

MORE TRANSMISSION LINES ARE NEEDED TO BOOST WIND GENERATION

CLEAN ENERGY USE A COMPETITIVE ADVANTAGE

A UNITED SOLAR FRONT

ITALIAN GIANT WANTS MORE

TRADING ON THE WHOLESALE ELECTRICITY MARKET

MANY \u2018FIRSTS\u2019 AS ENERGY REFORM UNFOLDS

RECONCILING SOCIAL AND ENVIRONMENTAL PROTECTION WITH BUSINESS DEVELOPMENT

PAVING THE WAY FOR FULL\u2011MERCHANT PROJECTS AND BILATERAL PPAs

TRANSITIONING TO THE NEW ENERGY POLICY