2014
The days that key areas of the Mexican energy sector were closed, or hard to access, for the private sector are about to be gone following the passing of the Energy Reform. Realizing that a time of unprecedented opportunity is arriving, Mexican and foreign companies alike are now starting to rethink how their products, technologies, and business models can be applied to transforming Mexico’s energy landscape. At the same time, the Mexican business community is accelerating its investment in sustainability practices that are not only going to create competitive advantages, but will also serve as a catalyst for the country’s renewable energy sector as it is gaining momentum.
As the Mexican energy sector is entering a period of structural change, reliable and relevant information is crucial for business and political leaders shaping the Mexican energy and sustainability sector. Mexico Energy & Sustainability Review 2014 provides a comprehensive overview of the latest developments, industry trends, legal and regulatory changes, and operational challenges in these crucial industries.The topics covered in this year’s edition of Mexico Energy & Sustainability Review are those that mattered the most over the past twelve months, and those that are destined to shape the development of the Mexican energy and sustainability industries at this time of change.
ALL RIGHTS RESERVED Š New Energy Connections LLC, 2014. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from New Energy Connections LLC. Mexico Energy & Sustainability Review is a registered trademark of New Energy Connections LLC. The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.
ISBN-13: 978-0-9855346-3-9
4
TA B L E O F C O N T E N T S 1
STATE OF THE INDUSTRY
8
FINANCE & OFF-TAKERS
2
OPERATING FRAMEWORK
9
TRANSMISSION INFRASTRUCTURE
3
NATURAL GAS & COGENERATION
4
NUCLEAR, GEOTHERMAL & HYDRO
5
WIND
12
SUSTAINABILITY
6
SOLAR
13
DOING BUSINESS IN MEXICO
7
BIOENERGY
14
FUTURE OUTLOOK
10 11
ENERGY EFFICIENCY
GREEN CITIES
1
2
STATE OF THE INDUSTRY
1 Mexico’s ambitious Energy Reform was passed at the end of 2013. An anchor of President Peña Nieto’s political agenda, it seeks to give an impulse to the Mexican economy by taking full advantage of the country’s energy reserves and renewable energy potential. This follows on from Mexico opening up a new front in its fight against climate change, with the General Climate Change Law setting legally binding emission reduction and renewable energy targets.
This chapter provides a comprehensive overview of the current state of the Mexican energy sector, the impact the Energy Reform is expected to have on Mexico, its institutions and its industry, analyzes the regulatory changes that will follow, gives an in-depth look at the National Energy Strategy and the expected results of the government doubling down on sustainable economic growth.
3
CHAPTER 1: STATE OF THE INDUSTRY 6
The Year in Review
8
VIEW FROM THE TOP: Sustainability Priority for Economic Growth
9
VIEW FROM THE TOP: Long-Term Goals Set for Renewable Strategy
10
National Climate Change Strategy
12
Scientific Community Pushing Government to Take Action & Glossary of Terms
14
Climate Change: Essential to the Government Agenda
16
Global Carbon Emissions
18
VIEW FROM THE TOP: Breaking Up Monopolies, Freeing Up the Private Sector
19
VIEW FROM THE TOP: Building Complete Map of Mexico’s Renewable Energy Resources
20
Urgent Need for the Electricity Sector to Deliver
22
Priorities of the National Energy Strategy
24
Role of CRE in Reaching Renewable Energy Goals
26
VIEW FROM THE TOP: CFE Required to Act Against Its Own Interests
27
VIEW FROM THE TOP: Urgent Need to Diversify Mexico’s Energy Mix
28
VIEW FROM THE TOP: Long Mission to Change Government Policies
29
VIEW FROM THE TOP: Barriers to Real Sustainability
5
THE YEAR IN REVIEW 2013 marked the beginning of a new era for the Mexican
NATURAL GAS AND COGENERATION
energy sector, with a new government shaping Mexico’s
The National Energy Strategy has identified natural gas
energy future and a landmark Energy Reform being
as Mexico’s major resource for the future due to its high
approved. President Enrique Peña Nieto’s administration
availability and low cost in the North American region.
dedicated its first year in office to advancing its ambitious
According to CRE, 216MW of new capacity was added last
reform agenda, which slowed down economic growth to
year through self-supply and cogeneration projects. CFE
1.2% as opposed to the forecast of 3.4%.
called for bids for the combined cycle power plants of Centro II (660MW in Morelos), Valle de Mexico II (601MW in the State
OPERATING FRAMEWORK
of Mexico), and Noreste (1,034MW in Nuevo Leon). Although
Last year’s milestone has undoubtedly been the Energy
natural gas is a fossil fuel, it is considerably cleaner than
Reform, which was approved in December 2013 and the
fuel-oil, coal, and petcoke, with CFE planning on replacing
specific changes to the secondary laws are scheduled to
heavily pollutant plants with this cleaner alternative. The
be announced in April 2014. The Energy Reform opens
main challenge in the natural gas sector remains bottlenecks
up the power generation market to private parties and
in transportation infrastructure, but more pipelines are
establishes an express constitutional prohibition on granting
being built to import natural gas from the United States
concessions to private parties for wheeling and distribution
and distribute it throughout the country, increasing its
of electricity, as well as for planning and operational control
participation in the energy mix to 72% by 2027. While natural
of the National Electricity System (NES). However, the
gas will remain the main component in the Mexican energy
private sector will be able to participate in the construction,
mix in the short and medium-term, it is considered to be a
maintenance and operation of the electrical grid. Wheeling
transition fuel in Mexico’s long term energy future.
and distribution rates, as well as the permits to generate electricity, will be regulated by the CRE. CFE will remain as the sole developer of transmission infrastructure but the
ELECTRICITY GENERATION (TWH) 200
National Energy Control Center (CENACE) will become the independent organism that operates and controls the NES. Within this operating framework, Mexico will pursue its
150
ambitious goal of generating 35% of its energy from clean sources by 2024 while reducing greenhouse emissions by
100
30% by 2020.
help Mexico successfully face the
Total production
nation’s ownership of PEMEX and CFE, while opening up new
2013
2012
Source: CFE
HYDRO, GEOTHERMAL & NUCLEAR Hydropower already accounts for over 21% of the total power generation in Mexico. CFE called for a bid of 225MW for the Chicoasen hydroelectric project and four small hydroelectric projects in the states of Veracruz, Jalisco and
opportunities for the country.
Oaxaca, taking Mexico one step closer to capitalizing on
This reform opens the energy
power plant, Laguna Verde, has been in operation for more
its 56GW hydropower potential. The country’s only nuclear
sector to investment, technology,
than 20 years, with a capacity of 1,610MW. Using nuclear
and competition, allowing the
the environment and society. However, new technologies
country to have more energy at
reduced, which might clear the way for a second nuclear
lower costs.” 6
2011
Independent power producers
challenges of the 21st century. It keeps and guarantees the
2010
2009
2008
2007
2006
in the last five decades. It will
0 2005
the most transcendental reforms
50
2004
“The Energy Reform is one of
energy remains controversial due to the associated risks to are being developed and the safety risks have been power plant in the future. CFE has several geothermal
President Enrique Peña Nieto
projects around the country with the largest facility at
RENEWABLE POTENTIAL (MW)
of solid waste the country generates a year. SEMARNAT has determined that 112 landfills are needed and few
20,000
states already take full advantage of opportunities for the selective recollection of waste. The possibilities to create energy out of solid municipal waste can also become a viable solution to waste management and energy challenges in Mexico. On the other hand, there are still no
10,000
large-scale biofuels plants in Mexico. 6,300
6,000
10%
Used in 2012
Obtaining financing is of the main challenges for renewable energy projects. LAERFTE allows private companies
1%
0%
obtain energy from renewable energy projects through
Biomass
Mini-hydro
Wind
Geothermal
2%
Solar PV
5%
FINANCE AND OFF-TAKERS
3,000
the self-supply scheme. Companies such as Peñoles, Cemex, Walmart, Femsa, Volkswagen, and Grupo Bimbo are examples of off-takers that have made the financing of
Potential for 2020
wind projects viable based on their credit ratings. However, the amount of companies with AAA credit ratings is limited,
Source: SENER & PwC
which has motivated companies to develop new models Cerro Prieto, Baja California, representing 720MW installed
to work with smaller off-takers, either from the public or
capacity. Mexico is the world’s fourth largest producer
private sector and potentially pooled together.
of geothermal energy with a total installed capacity of 980MW. Geothermal energy has received special attention
TRANSMISSION
during the Energy Reform, and once the secondary laws
Access
have been made public, it will become clear to which extent
infrastructure is essential for the development of energy
this sector will be opened up to private participation.
and renewable energy projects alike. The main challenges
to
reliable
transmission
and
distribution
posed by renewable energies are the fact that power WIND
generation and consumption are often in geographically
The Mexican wind industry had a total installed capacity
different locations, and that renewable energy sources
of 1,635MW as of September 2013, and remained largely
such as wind and solar are intermittent by nature.
dominated
The
Historically, CFE has been the only entity authorized to
inauguration of the Santa Catarina project in the state was
construct and operate energy transmission and distribution
an important milestone as it is the first project in Nuevo
infrastructure. However, with the Energy Reform the private
Leon, the first project which saw GE turbines were installed
sector will be able to participate in the development and
in Mexico, and the first case where several municipalities
construction of transmission lines, while CFE will remain as
became collective off-takers. Projects in states including
the planner of the grid. The operations will be handed to
Baja California, Tamaulipas, Zacatecas, Puebla, San Luis
CENACE, a former CFE division that will now become the
Potosi, Oaxaca, Chiapas, and Yucatan are in the planning
independent grid operator. During 2013, CFE built 729km
or development stage, with more states expected to follow
of transmission lines and further expansions are necessary
in the coming year.
in the coming years to support the growth of the electricity
by
self-supply
projects
in
Oaxaca.
sector in Mexico. SOLAR Mexico’s solar resources are considered to be among the
ENERGY EFFICIENCY
best in the world, especially in northern states such as Baja
Increasing generation capacity and energy efficiency
California and Sonora. The Mexican solar market consisted
are equally important to meet Mexico’s future energy
of 1MW of installed capacity in 2010, but increased to 6MW
demand. During 2013, energy efficiency projects for public
in the following years. In 2013, the first large-scale solar
administration facilities, states and municipalities and for
project, the 30MW Aura Solar I, started operations in Baja
small, medium and large companies and were supported
California Sur. Throughout the year, permits have been
by the National Commission for the Efficient Use of Energy.
awarded for the development of solar projects totaling
2013 was the last year in which incandescent light bulbs
434MW, creating a substantial solar project pipeline.
could be sold to the residential sector and only 40W and 60W light bulbs were available. The year 2014 will
BIOENERGY AND WASTE MANAGEMENT
be crucial to increase the energy efficiency due to the
Mexico has vast bioenergy resources and important
recent abolition of incandescent light bulbs in the market,
opportunities can be drawn from the over 41 million tonnes
promoting the use of LED lighting.
7
| VIEW FROM THE TOP
SUSTAINABILITY PRIORITY FOR ECONOMIC GROWTH JUAN JOSÉ GUERRA ABUD Minister of Environment and Natural Resources (SEMARNAT)
Q: What are your priorities in ensuring Mexico develops in
to experience their own local tragedies before they act.
an environmentally balanced way?
Mexico is taking action regarding climate change because
A: One of President Enrique Peña Nieto’s priorities for
we believe we need to be an example to other countries
this administration is sustainable and sustained economic
and demand they do their part. We are also working on
growth. SEMARNAT has to make sure this happens and
reforestation, a carbon tax and the Energy Reform, among
demonstrate how wrong the perception is that economic
many other areas, that will put us in a favorable position to
growth and sustainability cannot coexist. Mexico has to
reduce our greenhouse gas emissions.
seek economic growth without harming the environment. Mexico is one of the 17 megadiverse countries in the
Q: What role will SEMARNAT play in helping Mexico reach
world. This means that even though it only has 1% of the
the goals stated in the General Climate Change Law?
total surface of the planet, it contains 10% of the world’s
A: The targets for the reduction of emissions are established
biodiversity. One of our goals is to make the most out
in the General Climate Change Law and are not the sole
of the country’s biodiversity, while helping Mexicans to
responsibility of SEMARNAT. The goals are to reduce
improve their quality of life. One of the points we have
greenhouse gas emissions by 30% by 2020, and 50% by
repeated across many forums and conferences is that it is
2050. On the other hand, we must have 35% of our energy
vital to see how energy projects can help foster sustainable
generated from clean sources by 2024. These goals are part
economic growth.
of a public policy Mexico has established. Therefore, the Climate Change Inter-Secretariat Committee is composed
Q: How does environmental protection fit into the strategy
by 13 federal government agencies and ministries that are
of a country that also has to invest in jobs, healthcare,
working together to guarantee the reduction of emissions.
education and poverty reduction?
8
A: Each country has to learn from others. There is no doubt
Q: Are you concerned about the fact that those governing
that countries in northern Europe, North America and Asia
the country today will not be in government in 2024,
can serve as examples but there are areas in which Mexico
leaving no way to make them accountable?
has acquired a leading position all by itself. An example of
A: The basis for these reductions to happen came into
this can be found in the policies that Mexico has established
being through the Energy Reform. Currently, the country
to reduce greenhouse gas emissions. Environmental
is still burning fuel oil to generate electricity and even
ministries from other countries as well as UN Secretary
though we have ideal conditions to generate renewable
General Ban Ki-moon have praised Mexico for its efforts
energy, the amount generated from these resources
in reducing greenhouse gas emissions. Mexico is not one
is insignificant. However, this subject is on the federal
of the top greenhouse gas emitters but it has to reduce its
government’s agenda. Recently President Peña Nieto
emissions before it can demand others do the same. Being
inaugurated Aura Solar I, the first 30MW PV plant in
environmentally friendly fosters green businesses, which
Mexico. I am convinced that we will reach our goals with
adds value to the companies and to Mexico.
the current guidelines.
Q: Europe has reduced the scope of its climate change
Q: What message do you have for foreign companies
targets, while Mexico is becoming more ambitious. Is
about the future direction of the Mexican renewable
Mexico beginning to set an example?
energy and sustainability industries?
A: Unfortunately, many countries have not understood that
A: Foreign companies have to understand that Mexico
climate change is a reality. We experienced it throughout
is a country with great opportunities and that they are
2013 in Mexico during the hurricane season, and parts of the
welcome here. However, there is a clear legal framework
US that had historical levels of snow, while California was
that has to be complied with. SEMARNAT will guarantee
mired in drought. It seems that many countries are waiting
that environmental laws are fully complied with.
| VIEW FROM THE TOP
LONG-TERM GOALS SET FOR RENEWABLE ENERGY STRATEGY RODOLFO LACY TAMAYO Undersecretary for Environmental Policy and Planning at SEMARNAT Q: How have the goals of SEMARNAT changed under
this matter is of great concern for players in the sector.
the new administration and in light of the National
The chapters pertaining to renewable energy are modeled
Development Plan?
after Germany’s example. This country established a goal
A: The National Development Plan seeks to harness
of producing 70% of its electricity from renewable sources
natural resources through a new approach known as green
by 2050 and allows many producers to generate their own
development. We aim to achieve sustainable development
power. This is possible because solar energy is already a
within a green economy. This means increasing investments
commodity there. Thanks to the Energy Reform and carbon
for sustainable products and services. We will measure the
taxes, Mexico will have better opportunities to work on the
impact green investments have on GDP and promote the
supply of renewable energy. Households will also have to
creation of green jobs in renewable energy production.
generate some electricity, separate their waste, and treat
For example, employment opportunities that result from a
their water. We are trying to change the entire paradigm.
new wind farm are considered green jobs. If a community decides to build a dam or a mini hydro plant, we have to be
Q: In order to achieve this, what are your objectives for
able to quantify this effort in economic terms and ensure
the development of natural gas and renewable energy
that the people in charge of these projects are properly
projects in the coming years?
established and certified. Projects generating natural gas
A: Over the next five years, CFE will have some renewable
and those involving the capture and storage of CO2 in
energy projects but the larger ones will come from the
the subsoil, are also considered part of a green economy
private sector, mostly in wind power. We are more interested
because they close the carbon cycle.
in developing the geothermal energy industry, which is seen as a risky endeavor. It requires plenty of exploration,
SEMARNAT controls territories such as protected natural
which Mexico has not done yet. We are trying to eliminate
areas. However, not all hotels inside these protected areas
the risks linked to geothermal exploration by ensuring
are certified as sustainable buildings or as green hotels.
that we can count on exploration insurance policies with
We want to make sure that investments being made in
the support of the Inter-American Development Bank and
protected natural areas are sustainable and help fight
the Energy Transition Fund. Five years from now, more
climate change and pollution. There are also natural areas
exploration will have been done and investments will have
that foster economic activity, such as agriculture, and we
grown, possibly even surpassing those in the wind sector.
can make these activities entirely green. Q: What can SEMARNAT do to help speed up the Q: What can the government do to reconcile the National
bureaucratic
General Climate Change Law and the National Energy
projects and ensure these comply with environmental
Strategy while making renewable energy targets clearer?
requirements?
A: The National Energy Strategy deals with energy
A: We are developing a single-window scheme. Anyone
democratization, which means every segment of society
interested in developing a renewable energy project will
has access to energy and the chance to generate it for
be able to do all the paperwork at a single office. We are
self-consumption. Independence from CFE then becomes
also preparing a roundtable on environmental impact. We
possible. On the other hand, the law establishes that
have two important regulations in the environmental sector:
renewable energy sources have to comprise 35% of the
the environmental land management regulation and the
energy mix by 2024. These renewable energy goals are
environmental impact study. The single-window scheme
clearly laid out. The National Climate Change Strategy
will merge these two regulations to accelerate the permit
is fixed for the next six years but the National Energy
obtaining process. However, wind energy projects take up to
Strategy (NES) is going to be modified every year. The
a year, which is something everyone must keep in mind. Any
NES will clarify the role of renewable energy sources as
investment in renewable energy is a long-term investment.
procedures
for
renewable
energy
9
NATIONAL CLIMATE CHANGE STRATEGY Mexico is the 13th largest greenhouse gas emitter, accounting for 1.6% of total emissions that contribute to an increase in global temperatures. In the case of Mexico, temperatures might increase 2oC by the year 2020 and 4oC by 2080 if climate change continues its current pattern, according to the Mario Molina Center. Mexico might not be one of the most important greenhouse gas emitters but it is highly vulnerable to the consequences of climate change. Aspects of Mexico’s geography make the country particularly vulnerable to certain effects of climate change. The country’s 11,000km of coastline and narrow shape attract high levels of humidity from the Pacific and Atlantic Oceans. It is argued that as a consequence of climate change, the number and frequency of cyclones, hurricanes and tropical storms is increasing. Mexico is known for its desert ecosystems, which make the country vulnerable to seasonal droughts. Climate change is also said to be decreasing precipitation rates, which mainly affects the northern and northeastern Pacific regions, as well as basins in the center of the country and the Valley of Mexico. Periods of drought are expected to start becoming longer and more intense, since the amount of rain will remain the same but the rainy season will become shorter, increasing the probability of flooding too. Besides long-term changes in weather patterns, the consequences of climate change can also be seen in the economic realm. Agricultural activity could be negatively affected, as well as seasonal crops, and an increase in forest fires would undoubtedly impact silviculture. The number of fisheries would decrease if commercial species found themselves forced to migrate to regions with a more suitable water temperature. Furthermore, the poverty index will also rise if food production decreases or populations are displaced from areas affected by natural disasters. These concerns were among the drivers behind the presidential mandate to reduce greenhouse gas emissions and make Mexico an example for other countries, which it hoped to encourage to follow suit. The National General Climate Change Law establishes a legislative framework that regulates public policies aimed at adapting to climate change and also sets mitigation strategies. Many countries have accepted the need for, and taken part in, international agreements to fight climate change, but Mexico and the UK are the only nations with binding legislation pertaining to fighting climate change.
THE NATIONAL CLIMATE CHANGE STRATEGY CAN BE ARTICULATED IN EIGHT MAIN POINTS: 1.
Reduce the vulnerability to climate change of Mexicans living in hazardous situations and strengthen their ability to adapt
2.
Diminish the vulnerability of production systems and strategic infrastructure to climate related eventualities
3.
Strengthen the capacity of ecosystems to adapt to the effects of global warming
4.
Accelerate the transition towards clean energy sources
5.
Reduce the intensity of energy consumption through rational energy efficiency schemes
6.
Shift towards sustainable city models, with intelligent mobility systems, integral waste management, and low carbon footprint buildings
7.
Drive better farming – agriculture and livestock – and forestry practices, using REDD Plus schemes (Reduced Emissions from Deforestation and Forest Degradation)
8.
Reduce the emission of short life climate pollutants, as well as black carbon and methane to improve the health and well-being of the Mexican people
The government’s efforts to fight climate change did not stop with the aforementioned law. In June 2013, the country’s Environment and Natural Resources Ministry (SEMARNAT) issued the National Climate Change Strategy, an instrument intended to shape the country’s shift towards a sustainable economy, with an emphasis on the reduction of carbon emissions. The strategy is meant to guide the nation’s course in its fight against climate change over 10, 20, and 40 years period. It is based on hard scientific data and sets goals that go beyond reducing greenhouse gas emissions, such as fostering better health conditions and quality of life for Mexican citizens, or suggesting mechanisms that will make the country more resilient. The strategy details key points and actions for tackling climate change and orients policies from the three government branches, while also fostering responsibility and accountability from all sectors of society. The document encompasses three main topics: national policies on climate change, adaptation to the effects of climate change (assessments and diagnostics on vulnerability and adaptation capacity), and the development of low emissions and mitigation schemes.
10
The National Climate Change Strategy stresses the importance of adaptability by allowing for immediate action to be taken concerning the local impacts of climate change on the most vulnerable segments of society. For example, in 2007, the state of Tabasco suffered intense flooding that covered 80% of its territory. The situation was particularly chaotic for people who lived in rural areas because the infrastructure in their communities had to be rebuilt from scratch. Adaptability has become a necessity rather than an option, a distressing consequence of environmental neglect. If preventive and reactive measures are taken, the adverse impact of climate change related phenomena can be reduced, if not entirely avoided. The latter is particularly important because Mexico has not been able to separate its economic growth from CO2 emissions or loss of biodiversity. This is most evident in relation to the country’s ecosystems, which are being transformed into agricultural or livestock areas. The main challenge for Mexico is to find a way to foster economic development without causing pollution or environmental damage, which is not easy given that the country is still growing and needs to use its resources in order to gain momentum. Sustainable growth is a key concept in Mexico’s development strategy. The government has reaffirmed its commitment to use its institutional capacity to include the authorities and wider society in long-term environmental policies. As it was issued by SEMARNAT, the strategy does not have legislative power, and enforces no sanctions or short-term action plans. The latter are established in the National Development Plan 2013-2018 and the State Programs for Climate Change. Despite these norms not being legally enforceable, the strategy is based on Article 4 and Article 5 of the Constitution. The former states that every person has the right to a healthy environment, while the latter makes the government responsible for ensuring integral and sustainable national development. The National Climate Change Strategy has received criticism for contradicting the National Energy Strategy, which is heavily focused on hydrocarbons, particularly the increasing prominence of natural gas as a transition fuel, and promotes controversial actions such as the use of shale gas and deepwater oil extraction. Additionally, the strategy does not distinguish between clean and renewable energy sources. Article 3 of the Renewable Energy Use and Energy Transition Financing Law defines the latter as “(…) originating from natural phenomena (…) that are naturally renewed, which means they are available continuously or periodically.” This definition encompasses wind, solar, tidal, geothermal and biomass energy. However, critics claim that a blurry distinction also includes nuclear and hydroelectric energy as clean sources, in spite of their environmental impact. The strategy has been praised in the international arena. The International Panel on Climate Change (IPCC) has stated that Mexico has taken an important step, and that other countries are likely to follow its example. The IPCC believes this is the right time for Mexico to develop its renewable energy sector. In order to achieve a successful energy transition, the government should consider the economic benefits of combining renewable energy sources with the use of fossil fuels. On the whole, there is international consensus regarding the immediate need to decrease greenhouse gas emissions, and the National Climate Change Strategy demonstrates Mexico’s commitment to this cause.
30
billion tonnes
GLOBAL CARBON EMISSIONS 1970-2012
25
20
15
10
5
2010 2011 2012
2000
1990
1980
1970
0
Source: Netherlands Environmental Assessment Agency and the European Commission’s Joint Research Centre
11
SCIENTIFIC COMMUNITY PUSHING GOVERNMENT TO TAKE ACTION Scientists have been working to define the impact of
of the population, particularly segments with higher
climate change but tend to stumble when it comes to
income. This case provides an example of subsidies given
communicating their findings to the public at large.
to the people and industries that need them the least.
According to Dr. Mario Molina, President of the Mario Molina Center for Strategic Studies in Energy and the
Mexico depends to a very large extent on oil revenues
Environment, scientific findings on climate change have
for its economic progress, but the government has
been obscured by misleading efforts from PR campaigns
acknowledged that this needs to change. “It is not wise for
sponsored by the fossil fuel industry. “The fact is that the
a country to depend on a single natural asset, particularly
media brought attention to both sides of the debate and
a non-renewable resource. We know that we will run out of
that is not always justified, particularly when one side is not
fossil fuels and we have a situation in which the country is
providing evidence supported by scientific consensus. They
very vulnerable to climate change,” says Molina. Mexico is
succeeded in misinforming society saying that scientific
left vulnerable because of its dependence on oil, he states,
findings are not entirely certain, particularly when talking
while adding that a developing country like Mexico can
about possible risk projections,” says Molina. However, the
continue using fossil fuels, as long as it is undertaking a plan
effects of climate change are becoming evident and this
to change this situation. He adds that it would make sense
has changed people’s attitudes.
for Mexico to be part of a North American energy strategy, in which Mexico, the US and Canada form a joint goal of
“Economists cannot weigh up the costs of climate change
not importing fossil fuels. For that to happen, energy use
and its social and economic effects alone; they need
has to become more efficient and demand has to decrease.
scientists to make projections in order to choose suitable
“There are some simple minds that think that decreasing
alternatives,” says Molina. In order to properly address
fossil fuels would leave society unable to address poverty.
the problem, a multidisciplinary approach should be
But it is actually the other way around, as climate change
taken, gathering economic, social, political, and scientific
will impact poor people more directly,” explains Molina.
expertise.
The
scientific
community
is
encouraging
governments and policy-makers to adopt measures that
Molina also encourages incentives for hybrids to be used in
make sense with or without climate change. “Efforts
the transportation sector, on the condition that they cost
should focus on improving energy efficiency and rethinking
less for using less fuel. While this could result in higher
energy subsidies by trying to remove them, or at least to
fuel prices, it would mean less taxation on hybrids. The
slowly phase them out, because there a lot of significant
same applies for the construction industry where existent
resources are now being misused,” explains Molina. He
regulations and norms are necessary to ensure proper
gives the example of low fuel prices benefit a small portion
isolation systems on new buildings. The Mario Molina
| GLOSSARY OF TERMS
12
AGM: Mexican Geothermal Association
CNSNS: National Nuclear Safety and Safeguards Commission
AMDEE: Mexican Wind Energy Association
CONACYT: Science and Technology Council
AMEH: Mexican Hydroelectric Association
CONAGUA: National Water Commission
AMNG: Mexican Natural Gas Association
CONUEE: National Commission for Energy Efficiency
ANES: National Solar Energy Association
DAC: High Residential Consumption Tariff
CDM: Clean Development Mechanism
Ejido: Areas of community owned land
CENACE: National Energy Control Center
EP: Equator Principles
CFE: Federal Energy Commission
IEA: International Energy Agency
CRE: Energy Regulatory Commission
IIE: Electrical Research Institute
CHP: Combined Heat and Power
INECC: National Institute of Ecology and Climate Change
CNG: Compressed Natural Gas
INFONAVIT: National Housing Fund for Workers
CNH: National Hydrocarbons Commission
ININ: National Institute of Nuclear Investigation
Center is already working with the private sector to develop
should promote the use of raw petroleum for industrial
isolation technology for social interest housing. This is due
development and not just as a power source. Despite
to proper isolation being a good investment because of its
certain links between them, Molina says an adequate
fast returns, particularly when energy or electricity are not
renewable energy strategy needs to consider each energy
subsidized. Similar obstacles impair a number of industries,
source separately. The case of biofuels, for example, has
says Molina. Even though the wind energy industry does
caused some controversy. Initially, there was a lot of
not need subsidies, the many barriers that hinder this sector
optimism surrounding this source but it backfired due to
and ensure its collaboration with CFE and SENER are in
poor implementation. “It is important to ensure that these
the process of being taken down. Wind farms tend to be
initiatives do not have negative effects on food prices or
located far from the grid although the aftermath of the
agriculture,” he warns. Proper planning, measurements,
Energy Reform should begin resolving this, as well as the
updated technology, and taking risk factors into account
similar situation of natural gas which lacks infrastructure.
can still shed positive results, particularly with second
“Solving infrastructure issues related to energy should be
generation biofuels.
seen as a single challenge, since there is an undisputable need for appropriate infrastructure across various energy
It may seem that the Mario Molina Center is taking on an
sources,” says Molina.
impossible task, seeking answers to such a broad range
“Economists cannot weigh up the costs of climate change and its social and economic effects alone; they need scientists to make projections in order to choose suitable alternatives” Dr. Mario Molina, President of Mario Molina Center for Energy and Environment
While the government knows it would make sense for
of Mexico’s energy and environmental challenges. “Our
Mexico to undergo a transition from fossil fuels to natural
goal is to impact public policy, but in a way that facilitates
gas and then to renewable energy sources, Molina points out
implementation. This is not limited to academic studies; we
such a process would depend on technological upgrades.
aim to have specific projects recommending public policy
This would be helped if PEMEX developed its future
changes, working towards a federal energy strategy while
priorities, not by only centering itself around oil extraction
taking into account the individual potential of each region,”
but by exploiting other fossil fuel reserves as well. This is
states Molina, who personally champions the potential of
something Mexico lacks which has to do with economic
hydro, geothermal, and wind energy. This leads the Center
interests, Molina believes, although the government is
for Strategic Studies in Energy and the Environment to be
moving ahead with tapping up Mexico’s shale gas reserves.
confident in providing precise recommendations for each
He adds that the current and subsequent administrations
sector.
IPCC: Intergovernmental Panel on Climate Change
NMX: Mexican Voluntary Norm
IPP: Independent Power Producer
NOM: Mexican Official Norm
ISO: Independent System Operator
PPA: Power Purchase Agreement
LAERFTE: Law on the Use of Renewable Energies and the
PPP: Public Private Partnership
Financing of the Energy Transition and its Regulation
PROFEPA: Federal Attorney’s Office for Environmental
LPDB: Law for the Promotion and Development of Bioenergy
Protection
LASE: Law for the Sustainable Use of Energy
SAGARPA: Ministry of Agriculture, Livestock, Rural
LEED: Leadership in Energy and Environmental Design
Development, Fisheries and Food
LNG: Liquified Natural Gas
SEMARNAT: Ministry of Environment and Natural Resources
LPG: Liquified Petroleum Gas
SENER: Ministry of Energy
LSPEE: Public Service Electricity Law
SHCP: Ministry of Finance and Public Credit
LSTPS: Law for Special Tax on Production and Services
SNM: Mexican Nuclear Society
13
CLIMATE CHANGE: ESSENTIAL TO THE GOVERNMENT AGENDA According to figures published by SEMARNAT at the end
Nieto strengthened this Commission by making the
of 2013, climate change costs Mexico the equivalent of
Mexican President its head, with the power to delegate
7% of GDP, or US$120 billion each year. Faced with this
responsibility to the Minister of the Interior or the Minister
scenario, the government has stated the importance of
of the Environment and Natural Resources.
environmental sustainability as a catalyst for economic development, and not the hurdle it was once seen as
From a broader perspective, the National Climate Change
being. “It has long been discussed how to make economic
Strategy integrates all efforts by the ministerial commission,
growth compatible with the preservation of natural capital,
state governments and INECC, as well as the private sector,
pollution alleviation, and carbon emission reduction
academia and NGOs. Barnés Regueiro stresses that this new
through sustainable development. The executive power,
composition is very relevant for INECC as it decentralizes
through SEMARNAT, is convinced it is feasible to achieve
control and provides it with budgetary autonomy. “We
both and foster economic growth while preserving
are part of SEMARNAT but our main governing body is a
Mexico’s natural capital for future generations,” explains
board integrated by state ministries and CONACYT. This
Francisco Barnés Regueiro, the current Director General
also fosters integration because INECC’s work is not only
of the National Institute of Ecology and Climate Change
focused on SEMARNAT, and has to be compatible with
(INECC). He emphasizes how President Enrique Peña
the sustainability needs of other government agencies,”
Nieto’s administration is working towards continuing the
he says. This strategy also establishes goals and financing
efforts and commitment of previous administrations.
mechanisms, such as the creation of a green fund, which is designed to channel foreign resources and provide
NEW ORGANIZATIONAL CHART FOR CLIMATE CHANGE
resources for specific projects in Mexico.
Barnés Regueiro argues that the General Law on Climate Change, published in 2012, has become a turning point not
INECC works with all Mexican states to complete their
only for Mexico, but on a global level, since Mexico is the
climate change plans. Barnés Regueiro adds that many
second country to have enacted such a law after the UK.
municipalities are also working on their own plans and have
He stresses that the law covers multiple issues but one of
put together their own vulnerability and risk maps. “The idea
its main goals is strengthening the planning tools to fight
is to focus on two broad issues: the route Mexico has to take
climate change. It mandated the creation of the National
to achieve economic growth while also lowering emissions
Climate Change Strategy and laid out its amendments for
in different economic sectors, and reducing Mexico’s
the next 10, 20 and 40 years, while detailing the concrete
vulnerability to climate change as it is currently one of the
actions to be taken on climate change during the current
most vulnerable countries in the world,” he emphasizes.
presidential term. It obligates states to carry out their own climate change planning. This will mean including the
As Barnés Regueiro underlines, economic growth and
creation of climate scenarios and vulnerability atlases to
sustainable development are not two opposing concepts. As
better understand the risk of different climate effects.
a developing country, Mexico has to take all necessary actions to achieve economic growth and a sustainable approach can
Barnés Regueiro notes that the law also formalizes a
yield many positive returns toward reaching the first goal.
number of goals that Mexico must reach. These include a
“For example, avoiding gas flaring has many environmental
30% reduction in carbon emissions by 2020 compared to
effects but it is also economically better as it reduces gas
2000, and a 50% reduction in carbon emissions by 2050,
consumption.” To identify the best portfolio of actions for
35% of energy generation must come from renewable
Mexico to get closer to its goals as well as the economic effect
sources by 2024, and the forestry sector must have net
they would have on job creation and income redistribution,
emissions of 0% by 2020. “In a way it is a compendium of
INECC develops general balance models. Barnés Regueiro
the commitments Mexico has made and their formalization
warns these models are not predictive of what will happen but
into law. Obviously these strategies have to be reflected on
set a direction for actions that are both economically sensible
the sectoral plans, but most importantly all are compatible
and compatible with sustainable development. “What we
with Mexico’s international obligations.”
have seen in the low carbon emission project portfolio is that we could even achieve economic growth of over 5% in the
14
Previously, the Ministerial Climate Change Commission,
trending scenarios, while generating up to 500,000 jobs a
formed by 13 state ministries that are involved in the
year. This has to be economically progressive as many of the
fight against climate change, fell under the responsibility
initiatives are directed towards the most vulnerable sectors
of SEMARNAT. However, in early 2013 President Peña
of the population.”
SOURCES OF AIR POLLUTION
MEXICO AT RISK Mexico is particularly vulnerable to climate change because of the range of different climates that exist across its extensive territory, but also due to the living conditions of
•
Vehicular sources: 61%, cars, trucks and buses.
•
Natural sources: 22%, volcanoes, oceans, plants, bacterial activity.
its poorest citizens. Barnés Regueiro points out that 46% of the population in the country is poor, that 63% of the agriculture is seasonal, making it prone to frost, drought and
•
cleaning activities, industrial baking, LP gas
storms among many other natural disasters, and that most
storage, water treatment, landfills.
of the watersheds have been affected by land use. “The impact and intensity of these situations are worsened when
•
increased to 1,300 in 2008,” Barnés Regueiro says.
Fixed sources: 7%, electricity generation and other industrial activities.
combined with the effects of climate change. For example, in 1990, Mexico only had 200 extreme climate events, which
Area sources: 9%, solvent use, surface
•
Non-road vehicular sources: 1%, construction and agricultural vehicles, train engines,
The increase in extreme climate events has led to worsening
aircraft, and ships.
poverty in already poor communities, but approaches taken so far may not have been enough. “We need to determine the value of climate change risks. How much will a strong
NEXT STEP: ADAPTING NORMS FOR MEXICO
hurricane in the Yucatan Peninsula cost for the tourism
Even though the Mexican authorities have taken decisive
industry? What is the risk of flooding in Mexico’s southeastern
steps to face climate change, there is still a lot to be done
cities? What is the risk to agriculture in the north if struck
regarding normativity, Barnés Regueiro says. “We need to
by drought, and which harvests will be affected? These are
change many regulatory frameworks. For example, changes
questions we have to ask ourselves to prepare for what is
in the regulatory framework have enabled the growth of
coming,” says Barnés Regueiro. Once the value of the total
renewable energy. The self-supply scheme defined by CRE
risk and the most vulnerable locations are known, the right
has made the use of renewable energies feasible.”
adaptation strategies can be established. “But we need to provide resources for adaptation, otherwise we will keep
But a large quantity of norms need to be adapted to Mexico’s
facing horrible disasters. It is a way of insuring ourselves,”
current situation. Barnés Regueiro is optimistic, pointing
he says
to the introduction of a norm regarding the efficiency of new automobiles, which looks to standardize the Mexican is
market with its American counterpart. “We will apply the
environmental pollution which, in Barnés Regueiro’s
same norms, not just regarding CO2 emissions but also
opinion, has mostly been left out of the agenda. “Our cities
energy safety, because it will reduce fuel demand in Mexico.”
are still very polluted, and the expansion of urban areas has
However, air quality and fuel quality norms still need to be
brought about a series of issues which have to be solved,
updated.
The
other
great
challenge
the
country
faces
such as air quality. We have to strengthen monitoring to know when we are exceeding contamination levels and
Part of this agenda would be to tackle the revision of energy
create the required policies to reduce pollution.”
and water subsidies, which have strong economic implications and an environmental impact. In Barnés Regueiro’s opinion, if energy is almost free, there is no incentive for optimization,
MEXICO CARBON DIOXIDE EMISSIONS (CO2) (MILLION METRIC TONNES OF CO2)
usage goes up and subsidies are not directed to the most vulnerable sector of the population. “The poorest people of the country only receive 6-7% of the fuel subsidy, for example. 490
472 (est)
462
443
446
471
455
441
435
410
405
391,
400
394
500
Subsidies are very costly for Mexico, they need to be revised while the government searches for a better way to provide them to those who really need them.”
300
In 2011, INECC analyzed fossil fuel and electricity subsidies 200
and the figure came to MX$289 million (US$25 million), which, according to Barnés Regueiro is more than all social
100
programs directed to the most vulnerable segment of the
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
population. “We need to modify the legal framework, but 0
the real challenge is creating economic and fiscal incentives, as well as providing the market with clear signals to move from polluting energy to clean, renewable energy,” he adds.
Source: United Nations Statistics Division
Source: SEMARNAT
15
| GLOBAL CARBON EMISSIONS
Source: Trends in Global CO2 Emissions: 2013 Report
CO2 EMISSIONS PER CAPITA While the United States can claim some solace in knowing
China is now beginning to cloud cities in neighboring
it is no longer the world’s biggest emitter of CO2, its per
countries, like South Korea and Japan, seems to be finally
capita emissions remain twice as high as China’s. The world’s
taken seriously. The Chinese central government, backed
leading economy pumped out 16.2 tonnes of emissions per
up by its major cities, announced a package in 2013 that
person in 2012, as opposed to 7.1 tonnes in China. Long-
will stretch into the billions of dollars to reduce carbon
standing environmental policies have helped the EU mitigate
emissions in its heavy industrial sector. Once again, the
its contributions, limiting itself to 7.4 tonnes per person,
Asian economic boom led to the region being a global
proving to other developed countries like Canada (16 tonnes
hotspot for pollution, as worsening conditions in many
per capita) and South Korea (13 tonnes) that it can be done.
of the continent’s cities attest to. But meanwhile, Latin
A stern finger can be pointed at Australia, whose long-term
American leaders performed creditably, with Mexico and
political tussle over forming and sticking to a real climate
Brazil putting out 4 and 2.3 tonnes per person. These per
change strategy seems to have stumbled, with the country
capita figures also seem to help reveal the disparity within the
topping the rankings with 18.8 tonnes of CO2 emissions
BRICS concept, as Brazil and India’s emissions are dwarfed
per capita. This exacerbating situation, where smog from
by their partners in the popular classification.
CO2 EMISSIONS PER US$1,000 OF GDP GROWTH
16
Whereas China may have led total CO2 emissions in
growth, the US put out 384kg, while Canada beat them
2012, with Australia contributing the highest total per
both with 446kg. This combined performance leaves the
capita, neither of these had the costliest economic
North American trio paling when compared to rivals like
growth in terms of pollution. With a massive 1,107kg of
the EU and Brazil, which emitted 265kg and 225kg of CO2
CO2 being emitted for each US$1,000 of GDP growth,
emissions respectively. But the combined performance
the Ukraine is found far outpacing the pack. A lack
of the NAFTA bloc remains positively pristine when
of firm environmental regulations or modernization
compared to Saudi Arabia and Russia. Thailand, Taiwan
policies left the country ranked 102 out of 132 countries
and South Korea also contribute to a grim Asian context.
in Yale University’s Environmental Performance Index
The traditional dominance of the northern hemisphere
2012. When CO2 emissions are divided by national GDP
in terms of pollutants remains the case, given the lion’s
growth, a truer picture about the state of industries in
share of major economies based there. However, the
various countries emerges. Where Mexico pollutes far
southern hemisphere is now seeing real contributors of its
less than the US when total or per capita emissions are
own. Africa is not spared the rod with its major economy,
taken into account, this third measure narrows the gap.
South Africa, putting out 659kg of CO2 emissions for
Mexico emitted 319kg of CO2 for each US$1,000 of GDP
every comparable unit of GDP growth.
Source: Trends in Global CO2 Emissions: 2013 Report
TOTAL CO2 EMISSIONS PER COUNTRY The complaints that accords like the Kyoto Protocol are
burden to fix the environment, due to past emissions, rings
meaningless unless ratified by major polluters are brought
hollow when looking at emissions in absolute terms. The
into sharp contrast when looking at which countries were
second-tier of emitters includes economic powerhouses
the largest CO2 emitters in 2012. China leads the world,
in both the developed and developing world. Mexico and
with its continued rapid pace of industrial growth, coming
Indonesia both emitted 490 megatonnes of CO2, ahead of
at a cost of 9,860 megatonnes of CO2 emissions being
Brazil and Saudi Arabia on 460, and Iran on 410. Whereas
belched out into the atmosphere. It also leads a polluting
some of this growth is down to countries finally having
pack across East and Southeast Asia, with India weighing in
economic clout but without the accompanying sense of
with 1,970 megatonnes of its own, and even Japan is found
environmental awareness, others cannot so easily shift
wanting with 1,320 megatonnes. Across the Pacific, the US
the blame. Australia contributed with 430 megatonnes,
was the 2nd largest polluter with 5,190 megatonnes, 28%
a total that is likely to worsen in future years, given the
more than the EU bloc combined. These figures do reveal
pro-business stance of the current administration. All this
an inconvenient truth, namely that the developing world’s
proves one major claim, the only way to reduce emissions
claims that developed countries should take on a heavier
is by doing it together.
Source: Trends in Global CO2 Emissions: 2013 Report
17
| VIEW FROM THE TOP
BREAKING UP MONOPOLIES, FREEING UP THE PRIVATE SECTOR DAVID PENCHYNA President of the Energy Commission of the Senate Q: What is your opinion regarding the role that renewable
and here is a frightening fact: 80% of Mexico’s electricity
energy plays in the energy debate?
comes from fossil fuels. This has to stop. If we have sun, wind,
A: A major flaw in the energy debate is the way it is
and air, we should take the next logical step.
centered around PEMEX. It is the duty of Congress to take this grand Energy Reform beyond PEMEX. Energy
Q: How can the Energy Reform help achieve goals such
encompasses oil, hydrocarbon fuels, gas, and electricity.
as reducing CO2 emissions and generating 35% of energy
But Mexico, due to its high dependence on fossil fuels, has
from clean sources by 2024?
completely abandoned a subject that should have been
A: Mexico will not be able to fulfill national and international
established as an economic paradigm. We now need to
commitments – such as the Kyoto Protocol, CO2 emission
create awareness about the non-renewable nature of oil.
reductions, or the use of clean energy resources – without
We are a country with great wind and photovoltaic energy
an energy reform. Mexico is not a country that is lagging
potential in some regions, while also having hydroelectric
behind in international agreements. It is very well-
and geothermal resources. There is no doubt the clean
positioned in terms of environmental agreements, but
energy agenda will be part of discussions in Congress as
without the reforms we cannot put these into practice.
the paradigm is easier to build because it does not require
This goes beyond signing international agreements and
a constitutional debate. Clean energy sources are part of
not fulfilling them.
a debate relating to secondary reforms that require fewer votes and therefore are easier to navigate politically.
Mexico needs to start encouraging the development of renewable energy resources to lower the 80% rate of fossil
Q: How will the Energy Reform support renewable energy
fuel use. Once we have the right legislation, we will reduce
resources without introducing subsidies or tariffs?
fossil fuel use, start fulfilling the agreements and work
A: Renewable energy resources belong to the topic of
on the mid and long term objectives. The second step is
power generation, which is currently in the hands of a state
to channel more investments, which we currently do not
monopoly. We need to foster competition against CFE. The
have because of the sector’s closed-mindedness. This will
private sector is now allowed to generate power and sell
give us more capital to do things right. If we assure the
the excess to CFE, which is an important step forward, but
wheeling of electricity from renewable energy, investment
the distribution and transmission of said energy is in the
will proliferate in this sector and CO2 emissions will diminish
hands of an inefficient state monopoly. This is the main
in consequence.
challenge when working to make renewable resources more viable and ensure that this sector receives an
Q: What would the private sector and renewable energy
increasing amount of national and international investment
operators like to see as part of the Energy Reform to make
capital. Once we solve the transmission and storage issues,
the industry grow?
the renewable energy industry will receive a boost without
A:
the need for much legislation. However, we have to make
competitiveness. It demands a reform. Mexico needs
sure CRE gets involved in renewable energy affairs, taking
the private sector to become more active and involved.
care of arbitrage, competitiveness, and setting clear rules.
I strongly believe the Energy Reform’s best ally must be
The
private
sector
demands
productivity
and
the private sector. This has nothing to do with the private
18
The industry is already open. State monopolies are not
sector wanting to get oil revenues. It wants a reform as
competitive or productive and they are corrupt and costly.
currently, the energy sector is incapable of generating
Investment in renewable energy resources should be praised
the necessary resources needed for the country to be
as the investment costs involved are relatively high. However,
competitive. I really hope private sector companies will
renewable energy resources create jobs and reduce CO2
take an active role rather than simply grumbling as they
emissions. Mexico has been an oil country for over 100 years
have tended to do in the past.
| VIEW FROM THE TOP
BUILDING COMPLETE MAP OF MEXICO’S RENEWABLE ENERGY RESOURCES LEONARDO BELTRÁN Undersecretary for Energy Transition and Planning at SENER Q: What are the administration’s priorities to create the
is why we are developing a participatory process in which
required operating environment for emission reduction
the private sector can provide its views. Based on that, we
and clean energy generation goals to be reached?
are developing forecasts for the energy sector, wherein
A: The first target is to simplify the red tape that crowds
we incorporate the expected growth of the economy with
the power generation process. Projects have to comply
the level of available resources. We are about to complete
with 16 different permits, but without a roadmap showing
the inventory of renewable resources in Mexico, which will
them how to proceed or which institution to approach
quantify resources in each part of the country. There will also
first. SENER is currently developing a website in which
be a dedicated legal framework for geothermal activities to
the process for developing a generation project will be
dispel all doubts about how geothermal resources can be
clearly laid out, whether for hydro, wind, solar, bioenergy or
exploited. Beyond that, the National Energy Strategy will
geothermal. It will also list the specific requirements for the
provide a clear roadmap for the next 25 years. This might
permit application process. President Enrique Peña Nieto
sound like a simple process but last year, Mexico faced critical
launched the e-government initiative, a digital strategy
alerts almost every single day while also importing increasing
which will create a one-stop shop for all activities within the
volumes of natural gas. If participatory planning had taken
federal government. This e-government website will have a
place, it is likely that other choices would have been made to
dedicated sector for renewable energy. In the second stage
meet the expected growth in energy demand. This is what
of this simplification process, developers will only need to
we are now doing. We are beginning with a strong diagnosis.
have one single permit, instead of having 16 different ones.
From there, we will coordinate with the relevant stakeholders
That is our main plan to reduce the administrative costs
to create a policy, including mandatory targets, as well as
of developing a project. We also have the transition fund
instructions on how to best reach those targets.
which exists to promote projects that can demonstrate the benefits of clean technologies. Next year, we will invest
Q: What are the priorities for the development of the
around US$75 million in this fund. 80% of it will go toward
energy mix?
energy efficiency and the rest toward renewables, mostly
A: Our generation portfolio is mostly fossil fuel-based
solar for residential purposes in rural areas.
but we are shifting our hydrocarbon usage to natural gas, which has a lower CO2 content and is much more efficient.
Q: What would be the optimal impact of the Energy
Utilizing more natural gas also lowers the generation cost,
Reform on the renewable energy sector?
which will be directly reflected in the electricity tariffs.
A: Mexico is the fourth largest geothermal energy producer
We see natural gas as a transition fuel. In early 2013, we
but we are using only 10% of our resources. International
announced an investment in exploration to quantify shale
experience has taught us that dedicated regulation is needed
gas resources in the northern part of the country, but there
to promote geothermal activities. Right now, the government
is no conflict of opinion on what we should do with our
is developing such geothermal regulations and these were
natural resources.
a priority in the Energy Reform. Secondly, an independent system operator, the National Center for Energy Control
Q: What are the main priorities for the expansion of the
(CENACE), was empowered to oversee the national grid. It
hydro, geothermal, solar and wind sectors?
will have to comply with the rules of the market, including the
A: We see clear potential for growth in each of these
incorporation of the externalities of using fossil fuels.
resources. We expect to find that Mexico is using about 10% or less of its cogeneration opportunities, 5% of its
Q: What is this Undersecretariat doing to ensure that the
wind resources, 2% of its mini hydro potential and 1% of its
availability of energy does not limit economic growth?
bioenergy capacity. We have only 20MW of installed solar
A: The role of this office is to make sure the country can plan
capacity nationwide while having one of the best solar
ahead and guarantee its sustainable energy security. That
resources in the world.
19
URGENT NEED FOR THE ELECTRICITY SECTOR TO DELIVER During the Energy Reform proposal presentation in early
developing protocols to deal with agreements signed with
August 2013, President Enrique Peña Nieto said, “If we carry
indigenous people and members of other communities.
out this reform, gas and electricity prices will go down, and
It has technical groups in which different federal bodies
our countryside will benefit from higher fertilizer production.”
participate, such as SEMARNAT, the Ministry of the Interior
He also noted that even though a third of the electricity
and CFE, as well as governments from different states and
generated in Mexico is produced by the private sector, this
municipalities. The idea is to develop specific protocols
electricity is predominantly used by big companies that have
depending on the type of technology that will be used;
the capacity to enter the self-supply scheme.
namely different protocols for wind power, hydro power,
“We need to establish contracts with private companies through international tenders, and bring in new technologies to reduce technical and non-technical losses as rapidly as possible” Lourdes Melgar, Electricity Undersecretary at Mexico’s Energy Ministry (SENER)
Lourdes Melgar, Electricity Undersecretary of Mexico’s
and transmission lines. “We need a set of protocols that
Energy Ministry (SENER), notes that the Energy Reform
covers most of the developments that take place in the
aims to improve the competitiveness of Mexico’s power
power sector, and that can be approved as part of Mexico’s
sector and reduce the electricity rates, which are high both
general protocols,” Melgar says.
by local and international standards. “Getting lower power rates is a high priority for our government. Without those
Regarding the creation of a generation market, in which
we cannot achieve the growth that the country needs,”
CFE, PEMEX and private participants can take part, Melgar
she claims. Melgar explains there are three priorities that
stresses that an independent system operator (ISO),
will frame the Peña Nieto administration’s actions in the
CENACE, is being created separately from CFE. Former
electricity sector. The first is creating a generation market
regulation saw CFE run transmission and distribution,
in which all energy sources, particularly renewables, can
creating a potential conflict of interest if CFE was reluctant
be promoted. Expanding transmission infrastructure is
to allow perceived competitors equal access to the grid,
another pending issue and represents a huge challenge
according to Melgar. “There is a natural monopoly in
since, according to SENER figures, 47% of Mexico’s
transmission and distribution. We are allowing CFE to
transmission lines are more than 20 years old. Additionally,
continue being the owner of the transmission lines, but
there is discontinuity between the north and the south of
CFE does not decide on their expansion. CENACE will
the country; the grid is much denser in the southern part
decide where and how we connect and expand the lines.
of the country, leaving grid density in the north in need
It will also take care of feasibility studies to determine
of further development. Transmission lines that are able
where other participants are going to be interconnected,”
to connect renewable energies to the grid also have to
she says. The possibility of CENACE penalizing CFE if
be developed. Melgar says this is not only true for wind
it decides not to grant access to projects has also been
energy in areas like Oaxaca, Baja California or Tamaulipas,
discussed, Melgar added.
but also for solar and geothermal energy. The third priority is to improve and modernize the distribution side of the
CRE determines the wheeling rate for using transmission
power sector to reduce losses. “We suffer important
and distribution lines. The Energy Reform stipulates
technical losses, on average about 15.5% of total generated
that, even though transmission and distribution stays in
electricity, but there are areas of the country where losses
CFE’s hands, it will be able to hire private companies to
reach 30% or 35%,” Melgar stresses. Another challenge that
build and operate its transmission lines. This scheme will
Melgar says has to be faced is reducing the electricity debt
be cheaper than the current Open Season scheme for
and underpayment which is still common in certain regions
expanding transmission lines to renewable energy projects
of Mexico, due to a culture of not paying for electricity.
which Melgar sees as an expensive and slow way to build needed transmission lines. “According to CFE, Mexico
20
SENER must also address any social issues that may arise.
should be increasing its transmission lines by 1.1% over
The Undersecretariat of Electricity is working directly on
the next few years to match an increasing demand of 4.1%
per year. This rate is extremely low. In other parts of the world, if you increase your demand by 4.1%, you should expand your transmission infrastructure by at least 6%,”
ESTIMATED INVESTMENT OF CURRENT PERMITS IN US$ MILLION 20,000
15,000 15,053
be developed but it represents a huge investment that Melgar claims the Mexican government cannot make on its own. A similar scheme is being proposed for distribution, not only to modernize distribution lines but also to
17,618
she argues. There is no doubt transmission lines should
10,000
a significant way. CRE would have a fundamental role in
Usos Propios Continuos*
Import
Small Energy Producer
up. As for CRE, “the main proposal is to strengthen it in
Export
to introduce different types of contracts will be opened
Cogeneration
Reform does not entail privatizing CFE, the opportunity
Self-supply
0 Independent Energy Producer
as rapidly as possible,” Melgar states. Since the Energy
18
technologies to reduce technical and non-technical losses
560
3,867
5,000
companies through international tenders, and bring in new
2,322
create the opportunity to establish contracts with private
3,752
implement international best practices. “We need to
overseeing the market, in establishing certain rates and
But what is required to meet the goal of having 35% of
15,000 12,000
Mexico’s energy coming from renewables by 2024? The Undersecretariat of Electricity is in charge of approving
9,000
12,098
says Melgar.
MW CAPACITY OF CURRENT PERMITS (TO DEC 2013)
14,251
in granting permits. It would maintain a very active role,”
CFE’s investment program and it has emphasized the
generation in Mexico is based on hydrocarbons, including
has not yet been made regarding increasing nuclear power. “We will consider the nuclear side of the equation after the Energy Reform. We are working on strengthening our nuclear regulatory body, on defining nuclear policy, and on improving radioactive waste management. We are updating our nuclear policy, bringing it in line with the
476 Usos Propios Continuos*
1,351
273
Export
20,000 0
1,411
of energy in Mexico. However, Melgar explains a decision
Usos Propios Continuos*
more than 6%, while being one of the cheapest sources
40,000
Independent Energy Producer
the installed capacity of the country but at times generates
1,513
60,000
Verde nuclear power plant. Laguna Verde represents 3% of
Import
energy given Mexico’s positive experience with the Laguna
80,000
4,062
sources. SENER is thinking of promoting more nuclear
Small Energy Producer
achieve the 35% goal while using the full mix of energy
100,000
12,767
Part of the idea, Melgar emphasizes, is to be able to
120,000
Export
times as expensive.
GWH GENERATION OF CURRENT PERMITS (TO DEC 2013)
63,502
the amount of emissions as natural gas but is also four
Self-supply
22% on fuel oil. Melgar explains fuel oil not only has twice
Import
gas has increased in the energy mix. 85% of power
Small Energy Producer
In order to reach this mandate, the prominence of natural
Self-supply
0 Independent Energy Producer
2024 and we are very far from that goal,” she says.
102,555
meets this challenge. “We must have 35% clean energy by
1,817
3,667
3,000
make sure that any proposal that it brings for approval
Cogeneration
climate change and renewable energy targets. It has to
6,000
22,038
being selective. Melgar stresses that CFE has to meet with
Cogeneration
importance of CFE complying with all the laws, without
conventions that Mexico has already signed. We are, at the moment, looking to increase our capacity, at least in Laguna Verde,” she adds.
Source: CRE *Self-supply permits granted before 1992
21
PRIORITIES OF THE NATIONAL ENERGY STRATEGY The National Energy Strategy (NES) 2013-2027, presented
In this context, it becomes vital for the country to focus on
in early 2013 by President Enrique Peña Nieto to the Senate,
energy efficiency elements that support economic growth,
outlines the federal government’s plan for the development
decrease energy losses across the value chain and allow
of the energy sector. Its two main strategic objectives are
consumers to choose higher efficiency alternatives with
economic growth and social inclusion. According to the
lower environmental impact. As a result, improvements in
strategy, both objectives are linked to energy demand,
energy efficiency may reduce the need for infrastructure
which itself stems from GDP growth, improving energy
investments, mitigate the risk associated with the volatility
access and efficient energy consumption. The NES
of fuel prices, increase the competitiveness of certain
identifies 22 strategic subjects within the energy sector
industries, and lower the dependency on fossil fuels, while
and presents a program to analyze the progress made
providing benefits such as reductions in emissions and
during three defined periods: respectively by the end of
pollutants. Energy tariffs are also taken into account. The
2018, 2024, and 2027. These are subsequently housed
main line of action is to create efficient tariff structures
under three principal objectives: Sustainability, Energy
for energy prices that reflect the opportunity cost of
Efficiency and Energy Security.
primary energy, including environmental externalities and implement billing schemes for households based on
Mexico has set itself the legally binding requirement of
income level and consumption ratio. On the other hand,
increasing the amount of electricity generated from non-
the strategy acknowledges the need to develop fiscal
fossil fuels to at least 35% by 2024. More advanced IT
incentive schemes for private users and companies that
infrastructure is enabling electricity systems to integrate
adopt energy efficient measures.
their distributed generation capacity, a phenomenon that is modifying the design and operation of grid infrastructure.
ACCESS TO ENERGY
This has pushed Mexico to consider a broader energy
The NES acknowledges that access to energy is crucial
portfolio, as well as to take bold steps to reach the targets
to improve people’s quality of life. While 98% of the
defined in the National General Climate Change Law.
population is now connected to the electricity grid, many
This will require promoting renewable energy use on a
small communities in isolated areas do not have access to
large scale, as well as contemplating other non-fossil
electricity. The NES proposes strengthening the regulatory
technologies such as nuclear energy. Nuclear itself could
framework to allow the promotion of private investment
represent a viable option to achieve the 2024 target
in areas defined by law with the objective of increasing
and is beginning to see a measure of support within
energy coverage and diversifying the energy portfolio. The
SENER, despite lingering public anxiety. The energy
improvement and adjustment of regulatory instruments
transition process is not exclusive to the electricity sector,
would also provide certainty and incentivize private
but it is where the energy sector will face some of its
investment in renewable resources. The NES promotes
most significant challenges. The NES also establishes
self-supply schemes supported by public institutions
public policies for oil production, refining, distribution,
and operating companies, as well as the entrance of
transportation, and storage, although these issues will not
independent operators into regions not well attended by
be explored here. Its main relevant thrust for renewable
CFE. It also improves collaboration channels across all
energy is to establish a public policy for energy transition
levels of government for specific topics, such as the use
and a permanent shift toward clean technologies.
of biogas from landfills, as well as agricultural waste and treatment.
ENERGY EFFICIENCY During the last decade, energy consumption has ticked
ENERGY TRANSITION
along at an annual growth rate exceeding the country´s
Historically, Mexico’s energy mix has largely been focused
GDP growth. Today, more energy is required per capita to
on hydrocarbons. The NES acknowledges that Mexico’s
ensure economic growth compared to 10 years ago. If this
energy transition has to strike the right balance between
energy intensity per unit of GDP continues to grow at this
keeping the country competitive and technologically
pace, Mexico’s energy demand will increase by more than
innovative while diversifying its energy sources. The three
50% between 2011 and 2021.
defining issues for Mexico’s long-term energy transition are: optimizing the use of Mexico’s natural gas reserves,
22
According to the NES, energy efficiency not only
quantifying the potential and environmental benefits of
contributes to the reduction of the emission of greenhouse
renewable energy, and reevaluating nuclear energy as a
gases, but also supports growth and competitiveness goals.
clean energy source.
NATURAL GAS Natural gas is the preferred transition fuel in the NES,
availability, reliability and safety in its transmission and
which includes strengthening the operation and reliability
distribution systems, as well as the development of smart
of the natural gas transportation, storage and distribution
grids. Other steps that need to be taken include building
system as a priority objective. The expansion of the
more transmission lines and increasing their capacity
national pipeline system has advanced at a slow pace,
across different regions. This would enable the exchange
and is currently insufficient to meet the rising demand for
of electricity between control areas to meet requirements
natural gas imports, combined with low prices following
for system reliability and safety. The latter might, in some
the US shale gas boom. The national pipeline system
cases, avoid the need for the installation of new generation
is close to full capacity, and this essentially rules out an
capacity in certain regions. On the other hand, the
increase in imports in the short term. The NES encourages
expansion of transmission capacity is required to integrate
the private sector to invest in the construction of new
clean technologies into the energy mix of the country. The
pipelines and has modified the current legal framework
transmission infrastructure in Mexico’s windiest regions is
to create additional incentives. The strategy promotes the
not currently sufficient to maximize the use of available
use of pricing schemes that reflect the real conditions of
wind resources. The NES proposes the expansion and
supply and demand and the cost of transportation.
upgrading of the transmission network to optimize resource use and seeks to guarantee investments that
RENEWABLE AND NUCLEAR ENERGY
allow connections between regions to be improved
The NES aims to diversify and optimize the current
through smart grid technology. To foster renewable energy
energy mix, and prioritizes the construction of combined
interconnection, the NES suggests a strict enforcement of
cycle plants based on natural gas to substitute other
general rules concerning interconnection to the national
energy sources such as fuel oil. It suggests that plans for
grid, while facilitating transparent and non-discriminatory
this diversification must be based on the promotion of
access. It also fosters facilitating interconnection with
renewable energy and acknowledges the need for CFE
generation hubs for self-supply projects, independent
to optimize its back-up capacity for the incorporation of
producers and small power producers, using renewable
renewable energy. However, the NES also requires putting
energy. The NES also proposes coordination mechanisms
together a technical proposal with the purpose of reviving
between private developers and CFE that would facilitate
the country’s nuclear program. To do so, the NES calls for a
the construction of transmission lines to secure future
proper communication strategy, the training up of human
renewable energy projects.
talent and the strengthening of regulation. It also targets the permitting process that renewable energy projects
SMART GRID DEVELOPMENT
have to undergo, calling for this to be streamlined while
The development of a smart grid would boost reliability,
also laying out the economic requirements for renewable
safety, efficiency and flexibility across the electricity network.
auto-generation wheeling from CFE. The design and
It would also transform the traditional management and
creation of financial mechanisms and tariffs to incentivize
operation of the grid by acquiring and analyzing user data
renewable sources is also made a clear priority.
in real time to enhance decision-making, identify trends and improve predictions and strategic planning. In Mexico’s
TRANSMISSION
case, the implementation of a smart grid could also help to
The NES acknowledges that the main challenges facing
reduce costs by lowering electrical losses and reducing the
the electricity sector are achieving increased efficiency,
overall environmental impact.
23
ROLE OF CRE IN REACHING RENEWABLE ENERGY GOALS Francisco Barnés de Castro, one of the five Commissioners
that SENER uses a methodology developed by the Mario
of Mexico’s Energy Regulatory Commission (CRE), explains
Molina Center to calculate the externalities but he believes
that the regulator has a fundamental role to play in the
it still lacks precision. “The law must be changed to decrease
country’s energy transition, since it has helped develop
emissions in Mexico to a precisely determined level, instead
the renewable energy sector in Mexico, even before the
of just setting a long-term goal. If a commitment is made to
related laws or subsidies existed. “We helped with the
decrease emissions to a specified level, achieving it would
development of the wind sector in Oaxaca, we helped to
entail setting very clear targets,” adds Flores García.
build it up on other sites, and we have done the same for solar and hydro. But there is still much more to do, such
NATURAL GAS AS TRANSITION FUEL
as seizing the opportunities that small producers provide,”
The National Energy Strategy (2013-2027) fosters the use
he says. “We have to use private investment because the
of natural gas as a transition fuel and notes that “the use of
public sector cannot afford the funding and operation of
this fuel will bring benefits for the evolution of the energy
renewable energy plants.”
mix of Mexico.” The Mexican government has declared that
“Natural gas is seen as a transition fuel, until we can develop other energy alternatives. But it will take decades for these alternatives to be developed up to the required level” Francisco Barnés de Castro, Commissioner of Mexico’s Energy Regulatory Commission (CRE)
The Law on the Use of Renewable Energies and the
priority will be given to natural gas in the coming years
Financing of the Energy Transition and its Regulation
since it has become the cheapest fossil fuel available in
(LAERFTE), mandates that 35% of Mexico´s energy mix
North America. “The technological development of shale
has to be generated using renewable energies by 2024.
gas in the US already allows for bigger production while
For Rúben Flores García, another of CRE’s Commissioners,
Canada and Mexico have a great potential to join in. The
the real issue is not the percentage of energy coming from
cost of natural gas is lower than that of fuel oil. Fuel oil
renewables, but the amount of greenhouse gases emitted
prices still depend on oil while natural gas has become
into the atmosphere. “The US made the effort to change
cheaper, at least in North America,” Barnés de Castro
its main energy generation source from coal to natural gas
explains. Another reason for boosting natural gas use
and as a result, it is no longer the most polluting country
has to do with the fact that its greenhouse gas emissions
in the world. This happened by changing from a highly
are much lower than when burning fuel oil. “Its use in the
pollutant fossil fuel to a less polluting fossil fuel,” he says.
industrial and residential sectors is less harmful and much safer than other alternatives. It is also easy to use and
Flores García notes that renewable energies are more
transport,” claims Barnés de Castro. “This is why natural
competitive compared to fossil fuels in certain regions of
gas is seen as a transition fuel, until we can develop other
Mexico, such as Oaxaca and Tamaulipas. However, he stresses
energy alternatives. But it will take decades for these
that the main problem is that the 35% goal is at odds with
alternatives to be developed up to the level where they
the mandate of the Federal Electricity Commission (CFE)
can become viable replacements.”
to always produce or purchase electricity at the cheapest
24
possible price. “Energy should be purchased at the cheapest
One of the rules of any electricity system is to try to
cost for Mexico, not for CFE. The costs are calculated
diversify generation as much as possible, in order to avoid
mathematically, taking into account future expansion, but this
too heavily depending on one source. “The next factor is
law distorts the problem.” Externalities also have to be taken
the need to understand how the loss of any single energy
into account when calculating the cost of energy. Barnés
source would affect the economy,” says Barnés de Castro,
de Castro mentions the tax established to recognize the
citing the example of Brazil. The country depends massively
externalities from the use of fossil fuels, but acknowledges
on hydro resources for energy generation but found itself
difficulties remain. “It is complicated to determine the cost
forced to ration energy during periods of drought until it
of externalities because climate change is global, and not
developed a strategy to further diversify its energy mix. “In
just located in one country,” says Flores García. He explains
Mexico, it would be a mistake to let our energy generation
depend only on natural gas, but that does not change the
contract with CFE have not been clearly developed through
fact that natural gas remains the best option at this point.”
transparent legal instruments,” Zúñiga Martínez adds.
How will Mexico promote healthy competition between
Flores García stresses that given the cost differences
natural gas and renewables? Guillermo Zúñiga Martínez,
between energy sources, areas with large renewable
another of the five CRE Commissioners, acknowledges
energy resources are not often taken into account at
this is a thorny issue. As natural gas becomes cheaper,
the strategic planning level. “This has led to a lack of
CFE will allocate generation needs to natural gas plants,
transmission infrastructure connecting renewable energy
removing some renewables from the equation for being
sites to the customers because the grid was not designed
more expensive. Nevertheless, the mandate to produce
to accommodate them,” he says. Now regulators say
35% of Mexico’s electricity from renewable resources by
that any expansions have to be paid for by those that
2024, added to the sector’s continuous technological
will benefit from them. With that frame of mind, CFE is
development,
become
seeking for the private sector to invest in expanding that
competitive as well. “The two have to complement each
will
enable
renewables
to
grid, allowing investors to come together and jointly pay
other. Renewable sources are very profitable because
for development under the Open Season scheme. The cost
natural gas in Mexico is scarce, although this will change
attached to the last Open Season in Oaxaca was calculated
when we have abundant natural gas production. But even
at about US$250,000 per MW of newly installed capacity.
then, renewables will continue to become cheaper and will
But given the excellent conditions that state presents,
receive constant support from the government,” Zúñiga
investors have not balked at this price tag. On the other
Martínez says. However, due to the intermittent nature
hand, as part of the Energy Reform approved in December
of renewable resources such as wind and solar power,
2013, CENACE (National Energy Control Center) will be
back-up capacity is essential and must be considered as
created and will be in charge of providing open access
well. “Nuclear energy could provide a good base energy
so that all energy generators, private and CFE alike can
option, while geothermal is a very interesting renewable
transmit all the energy they generate. Cheaper energy
energy source from the base energy perspective. There are
will be given priority during the distribution process. The
studies that show that we have only been utilizing about
impact CENACE will have on the Mexican energy market
10% of our geothermal potential,” he adds.
will be fully defined in the upcoming months when the operating framework is defined.
TRANSMISSION INFRASTRUCTURE The development of transmission infrastructure exemplifies
Zúñiga Martínez believes the Energy Reform will enable
an ongoing concern between CFE and CRE. The Open
Mexico to become more competitive by decreasing costs.
Season scheme is mainly responsible for this as it enabled
“Currently, private companies are dependent on CFE
the acquirement of the funding needed to develop feasible
and cannot compete against it. The reform will enable
clean energy projects. “If CFE does not have the necessary
private companies to invest in generation infrastructure,
incentives to develop and create infrastructure, regulation
decreasing their dependence on the utility. It will also create
can help market forces find their own way,” Zúñiga Martínez
the necessary framework so a private firm can generate
says. Transmission capacity is often the main hurdle when
electricity and sell it to its customers, be it in a city or in an
developing a renewable energy project. “Up until now, the
industrial park. With this new framework, CFE will find itself
legal framework established that CFE has a monopoly
having to compete with private parties in the market. This
regarding
with
will be a huge incentive for it to invest in better resources and
regulatory instruments for interconnection put in place, the
technologies, which will result in lower prices for customers,”
processes and requirements for obtaining an interconnection
he concludes.
transmission
infrastructure.
But
even
Smart grids provide instant two-way communication, allowing the supplier to watch consumption trends in real time and provide the consumer with key information. “Smart meters can help pinpoint where energy leaks are taking place and even remotely cut the electric supply to that area. Another advantage is self-healing, in which a grid can reorient transmission to avoid damaged areas and reestablish supply,” he describes. But Mexico still has a long way to go as only a small amount of smart meters are used in the country so far, mainly due to the large investment they represent. “Regulators in every country authorize a part of the cost to be included Rúben Flores García, Commissioner of CRE
in the tariffs, but if developments are expensive and do not provide an immediate cost-benefit, the regulator is not going to allow those costs,” Flores García explains.
25
| VIEW FROM THE TOP
CFE REQUIRED TO ACT AGAINST ITS OWN INTERESTS LEFT: Derek Woodhouse, Partner of Woodhouse Lorente Ludlow RIGHT: Giancarlo Schievenini, Associate of Woodhouse Lorente Ludlow
Q: Does the current legal framework meet the standards
The impact the reform will have on the renewable sector is
required to attract national and international investors?
still unclear. Renewable projects depend largely on long-
DW: The legal framework actually looks very good.
term PPAs to make them financially viable. It is expected
Problems do exist, not at the legal level but in the details,
that electricity rates for private generators will be lower
and the main problem is in the power held by CFE. Mexico
than current CFE rates, but the impact of the reform on
decided not to create a system based on feed-in tariffs or
CFE’s production costs also remains uncertain.
subsidies, so instead the responsibility of developing this industry hes been left to the private sector. A big effort has
On the other hand, the reform does not clarify how the
been made to create legislation that allows the development
participation of renewable generation in the new power
of renewable energy projects. New legislation and reforms
market will be ensured, given the fact that its production
were passed, and CRE created instruments, such as access
costs are considerably higher than those of conventional
to an energy bank and transmission infrastructure, that
technologies. Still, the reform acknowledges the 35%
changed the industry completely. Everything is in place to
renewable energy generation target by 2024, which certainly
create significant interest in Mexico’s energy sector, and
opens up a window of opportunity for renewables in Mexico.
the number of companies that are currently trying to make projects work in Mexico is incredible.
Q: What other legal challenges do your clients face and how can they be addressed?
Q: If the required legal framework is in place to foster
GS: An issue we have to deal with is that most banks
renewable energy projects, why has the industry not
are requesting certain kinds of guarantees. If you do not
taken off more rapidly?
have an AAA off-taker, it is going to be complicated to
DW: There is a flaw in the way the rule of law has been
find financing in Mexico. If we take into account that there
designed, which is that we rely on CFE for things that go
are very few AAA companies in Mexico, the opportunities
against CFE’s interests. This flaw is the main reason that
become even narrower. The issue is how we tackle such
projects have stopped moving ahead. Ultimately, only around
guarantee requirements from the banks to conduct projects
one in 10 projects will move ahead, with the remainder facing
that do not serve AAA companies. One of the things we
problems resulting from this flaw in the rules. CFE’s main
came up with at Woodhouse Lorente Ludlow to address
priorities are to be as efficient as possible and to provide
this concern was to work with municipalities as off-takers.
access to transmission infrastructure for newcomers. But
Municipalities are paying the highest electricity rates as
for CFE, this means doing more and receiving less. On top
the electricity for public lighting is the most expensive in
of that, the current operating framework allows private
the country. By using a PPP scheme, we create a way of
companies to focus on the CFE customers that are paying
making self-supply projects viable and bankable.
the most, which results in CFE losing those customers. CFE therefore has no interest whatsoever in getting private
Q: What are Woodhouse Lorente Ludlow’s ambitions
sector projects up and running, but the rules require CFE to
within the renewables sector in Mexico, given potential
sign off on many of these projects.
developments in the short and long-term? DW: Our objective is to become the number one boutique
26
Q: What are the major impacts you see the Energy Reform
law firm in this industry. Our intention is not to be perceived
having on the Mexican renewable energy sector?
as a very large law firm that covers every industry. We want
GS: Mexico is opening up the possibility for the private
to improve the way things work in our country – Mexico has
sector to generate electricity, since power generation
a lot of resources and it is a pity that they are not being put
is no longer defined as a public service, although the
to use. We will therefore seek to help the country make the
government keeps control of the national power system as
best of its resources. We want to make sure that whoever
well as exclusivity over transmission and distribution.
we are advising gets the best possible advice.
| VIEW FROM THE TOP
URGENT NEED TO DIVERSIFY MEXICO’S ENERGY MIX PABLO MULÁS Executive Director, Mexican Committee of the World Energy Council Q: What have been the defining factors for renewable
done what they can to reduce energy consumption, due to
energy development in Mexico in recent years?
financial reasons. Reducing energy consumption between 10-
A: The fact that Mexico is rich in hydrocarbons has made
15% and improving energy intensity is rather inexpensive and
the development of renewable energy projects slower than
has been done already. The problem is taking the huge leap
in other countries. However, this has been a good thing,
of reducing consumption by 30-40%, because this requires
despite the challenges renewables have faced. For example,
a large investment and complete process changes. As plants
the Isthmus of Tehuantepec has a high concentration of
become older, they will be replaced with much more efficient
wind energy, which is an interminable resource. But if a
facilities or with expansions that will use better technologies.
huge quantity of megawatts is installed, there will be a serious problem at times with limited wind for the rest of
Q: What are the main objectives of the World Energy
the grid, due to the high concentration of infrastructure
Council?
in one place. If this capacity is distributed over a larger
A: The World Energy Council is a large NGO in which both
area, no issues would arise when the wind dies down, since
companies and governments participate. Its main objective
other parts of the network can compensate.
is to promote the use of sustainable energy by everyone. Currently, the major worry is that 2 billion people in the
The same goes for nuclear energy which has not grown
world do not use commercial energy, and if measures are
since the construction of Mexico’s only nuclear power
not taken, that figure will grow. Other issues are climate
plant. Geothermal energy has had issues, even though it
change, energy security and social equity. However,
would be an easier option for CFE, requiring lower capital
the biggest worry for industrialized countries is energy
investment and offering high reliability and safety. The
security. In 2012, coal-fired power generation capacity
problems with geothermal and oil are similar: not every
increased in Europe, the champion of alternative energies,
well that is drilled will be a commercial success, and the
due to economic reasons.
behavior of a reservoir creates a degree of uncertainty during energy production.
Q: What is expected from the renewable energy sector in the coming years?
Q: What are the main challenges facing the Mexican
The diversification tendency of energy sources will
energy industry?
continue. Currently, the low natural gas prices have had a
A: The main challenge Mexico is facing is how to diversify its
big impact in North America, where coal is being displaced.
energy mix. It will be very difficult for a country with large
Coal is currently being sold cheaply to Europe and the
hydrocarbon resources to undergo diversification to such
continent has seen its carbon emissions increase over the
a degree that it is possible to reduce carbon emissions to
last year. Economists cannot predict what will happen in
required levels. The temptation of having a secure resource
the next six months, due to the volatility and instability
without threatening energy security is there. This is the
of the global economy. The world is purely reacting
reason why it is essential for Mexico to develop domestic
to economic indicators, even though the ecological
technology for better carbon capture and sequestration.
indicators are showing that this course of action might create future problems. Carbon emissions are a problem
Q: What is the importance of the renewable energy
that will not be solved until there is a global scheme that
industry for the Mexican economy?
puts a price on carbon emissions. At the current pace, the
A: The Mexican economy will continue growing and will
International Energy Agency is considering a potential
require a stable and cost competitive supply of energy. There
4°C increase in global temperatures, which is expected
will be a lot of pressure to make processes more energy
to have devastating effects. The precise impact of global
efficient, especially in the residential and industrial sectors.
warming is unknown and it is very difficult to predict what
This will be a slow process as many Mexican industries have
changes will take place.
27
| VIEW FROM THE TOP
LONG MISSION TO CHANGE GOVERNMENT POLICIES GUSTAVO AMPUGNANI Campaign Director of Greenpeace Mexico
Q: How serious is the commitment of the Mexican
the authorities do not facilitate investment in renewable
government to decreasing the country’s dependence on
energy, there will never be a shift in generation.
fossil fuels? A: Mexico needs to change the way it is looking at the
Q: How do you justify investments in renewable energy
sector. The authorities know the oil and gas sector very
being made by the government in a country that also
well and are continuing to invest in it. At the same time, the
needs to tackle poverty, education and security?
government’s public discourse could lead one to believe
A: Shifting investment to the right areas allows you to
that Mexico truly cares about fighting climate change. But
target problems like education and poverty. Betting on
if you contrast this discourse with the facts about where
renewables leads to an increase in the number of green jobs.
investment in the energy sector is being allocated, it
This process also entails identifying which technologies
becomes nothing but hot air. We are not seeing a real shift
and sources of energy should be relied on. Following on
from fossil fuels to renewable energy.
from that, investment is needed in infrastructure. We need engineers and technicians, which means that we have to
Q: What steps could President Peña Nieto take to boost
improve technical career options within universities.
the renewable energy sector? A: First of all, he should take advantage of all the potential
We have to challenge the idea that Mexico is just a poor
Mexico has to increase energy efficiency across different
country. Mexico is currently investing in drilling in the Gulf
sectors. This includes finding solutions for pumping water
of Mexico to obtain more oil. That oil is not being used to
in the agricultural sector and reducing CO2 emissions in the
solve energy problems; it is being exported to the US to
transportation sector, as the latter will soon be the main
bring in revenue. That revenue is not being used to create
cause of CO2 emissions. Boosting public transportation
jobs or feed the poor in rural areas.
systems like the Metrobus is the way to go. After having maximized that potential, President Peña Nieto should
Q: How does Greenpeace ensure that any potential plans
start replacing the coal share in the energy mix. This is
it presents to the government also factor in the loss of
a small part of the energy mix, with only two coal power
revenue your recommended actions might lead to?
stations accounting for 7% of Mexico’s power generation
A: This is a matter of concern for us. We believe that if we
capacity, which could easily be replaced by renewable
shift the subsidies to foster the needed infrastructure for
energy sources. He should also replace the share of nuclear
renewable energy sources, the numbers must make sense.
energy with solar and wind.
Of course, Mexico cannot abandon its oil policy from one day to the next. We have to look closely and evaluate how
Q: What is Greenpeace’s strategy to get its message across
and where we can best invest some of the revenues from
and promote sustainability among the key stakeholders in
the oil and gas sector. If we do not change the way Mexico
Mexico’s energy future?
generates its income, public finances will never be able to
A: Many people believe that the way Mexico is producing
change the country’s energy mix.
energy right now is fine because it is cheap. Our core
28
audience is the general public, who are not currently aware
Greenpeace does not have the capacity to present an
of the advantages of renewables and how much potential
entire reform for the whole of the Mexican government.
using them could unlock. Most of our work seeks to creatie
We are not experts on financial issues. We are very clear
awareness among the general public that Mexico has the
with the authorities regarding that. Confronting the
potential to produce energy much more efficiently than it
government does not mean that I am obliged to provide a
does today, but needs investment to do so. We also have
solution. The government is paid to do that. We show them
more detailed strategies for communicating technical
where they can improve, but officials have to come up with
reports to the authorities, such as SENER and CFE. If
the solutions.
| VIEW FROM THE TOP
BARRIERS TO REAL SUSTAINABILITY VANESSA PÉREZ-CIRERA Director of Climate Change, WWF
Q: What were the main environmental achievements
The playing field should be leveled. Mexico spends at
under President Felipe Calderón’s administration?
least MX$3 billion (US$224 million) per year on subsidies
A: One of the things Mexico has done right is to become
for fossil fuels; it is impossible for the renewable industry
a pioneer in low carbon planning. Mexico has specifically
to realize its growth potential in such a distorted market.
looked at low carbon development from an economic point
However, subsidies are a sensitive issue in any country,
of view and has been able to communicate its efforts to
and making sure they reach the population that needs
international audiences. Mexico’s General Climate Change
them is a delicate topic. Public investment in transmission
Law is one of the most forward thinking legislations in the
infrastructure and smart grids can also help to level the
world, especially among developing countries. It has sent
playing field. The business community needs to be very
a clear signal to the world that Mexico wants to travel a
vocal about the need to level the rules of the game, such
different path. Mexico has shown it does not believe that
as ensuring fair terms for small producers and open access
there is a tradeoff between economic development and
to the grid. Companies could also be more outspoken in
low emissions.
terms of subsidies and tariffs.
Q: What is driving Mexico’s progressive approach?
Q: Did you push for the operation of the grid to be
A: It is a combination of political will at the highest level and
separated from CFE’s other activities?
the formation of a critical mass of civil society organizations
A: Definitely, but this does not mean that the operation
(CSOs) and businesses. We have a better organized CSO
of the grid had to be privatized. It is to be done by a
community and a forward-looking business community.
government entity separated from CFE. We need a true
The big catalyst to this critical mass was COP16, the 2010
re-alignment of institutions under a federal policy. If the
UN Climate Change Conference in Cancun. This critical
current administration wants to scale up renewables to
mass is still going strong and there are big opportunities
their full potential, it has to make a few critical changes:
for the current administration to implement Mexico’s plans
clear and escalating goals, investment in transmission
along with the business sector and CSOs.
infrastructure, smart grids, and an industrial supply chain policy.
COP16 resulted in the drafting of national climate change legislation, which serves as a great basis on which the
Q: What has to be achieved this year in order to ensure
current government can work, but the most interesting
that Mexico is on the right track?
times are yet to come. Structural changes must happen
A: In 2014, the renewable energy sector should be given the
within this presidential mandate. This government should
role it deserves in the National Energy Strategy. It should not
be clever enough to seize that platform and use the
be seen as a good alternative but as part of the core energy
international leverage it has gained to take the country to
mix of the country. A strong national renewable energy
a different level.
program should be published, calling for a minimum of 18GW generated from renewable energy by 2018, supported by
Q: What do you see as the key elements of a successful
transmission grid investment plans. This figure is based on
energy policy for Mexico?
a study undertaken by PricewaterhouseCoopers, supported
A: Renewable energy development should be part of
by the Climate Works Foundation and WWF and launched
Mexico’s industrial policy, which has not been wrong up
by IMERE, which shows that the 18GW potential can be
until now, it has just been insufficient. Artificial barriers
realized before 2018. Solar is already competitive with certain
to international trade are never a good solution. Mexico
commercial tariffs, and by 2020 it could be competitive in
should start crafting a clear industrial policy around
the medium voltage tariff. Meanwhile, increasing investment
renewables by identifying the products and services in
in the development of grid infrastructure can unlock the
which it has a competitive advantage.
development of large wind power capacity.
29
30
OPERATING FRAMEWORK
2 With the historical approval of the Energy Reform, 2013 will be seen as a turning point for the Mexican energy sector. Three constitutional articles were modified, with power generation being further opened up to private parties. The Ministry of Energy (SENER) remains the policy maker for energy, CRE’s responsibilities as a regulator are enhanced, while CFE must become competitive in the marketplace within two years. CFE retains its role as the planner for the electrical grid, but the operation of the grid itself passes to CENACE, an independent body spun off from CFE. Private investors will now also have the right to develop and build the transmission infrastructure, under CENACE’s supervision.
This chapter gives the perspective of the different government entities in charge of regulating clean energy, shows the intricacies of the changes sweeping the energy sector, and anticipates modifications to the regulatory framework through the change in 26 secondary laws.
31
CHAPTER 2: OPERATING FRAMEWORK 34
Who’s Who in the Mexican Energy Sector
36
Operating Framework for Energy Projects
37
Main Uses for the Model Contract
38
Impact of Externalities
39
VIEW FROM THE TOP: How the Energy Reform Will Reshape CRE
40
Energy Demand Clashes With Restrictive Regulations
41
VIEW FROM THE TOP: The Importance of Constitutional Change
42
EXPERT INSIGHT: Luis Vera Morales, Vera & Carvajal
43
New Legal Structures for Future Energy Projects
44
Information for All Players in the Energy Sector
46
CFE Down the Years & The Unhealthy Finances of CFE
48
Understanding the Mexican Electricity Tariffs
49
PROJECT INSIGHT: Mareña Renovables: A Warning to Project Developers
50
Real Costs and Benefits of Renewable Energy
50
Commercial and Industrial Tariffs
52
PPPs: a Strong Ally for Project Developers
53
VIEW FROM THE TOP: Fostering Private Participation in Energy Matrix
54
Intricacies of New Energy and Environmental Laws
55
VIEW FROM THE TOP: Keeping Climate Change Actions Moving Forward
56
VIEW FROM THE TOP: Lack of Communication Impeding R&D for Renewables
57
VIEW FROM THE TOP: Government Action Sorely Needed to Unlock Renewables
58
PV Dilemma: When Connecting to the Grid is Not Enough
58
Pushing for Mexican Energy Efficiency Standards
60
Lack of Standards and Certifications in Mexico
61
VIEW FROM THE TOP: German Expertise in the Renewable Energy Sector
33
WHO’S WHO IN THE MEXICAN ENERGY SECTOR | PRESIDENT OF MEXICO Enrique Peña Nieto was born in Atlacomulco, an industrial city in the State of Mexico, as the son of an electrical engineer and a teacher. He is related to two former governors of the State of Mexico and the nephew of a former mayor of Atlacomulco, giving him an introduction to the world of politics from birth. After graduating with a BA in Law from the Universidad Panamericana, and an MBA from the Instituto Tecnologico y de Estudios Superiores de Monterrey, Enrique Peña Nieto started his political career. He formally entered in 1993, when Enrique Peña Nieto
he was appointed as the Personal Secretary of Arturo Montiel Rojas, who was then the
Minister of Economic Development for the State of Mexico. He took a big step up to a higher level of government when Montiel Rojas became the State Governor and Peña Nieto was appointed as the Undersecretary of the Interior. He won his first elected position as Federal Deputy in 2003 representing his hometown of Atlacomulco in the Congress of the State of Mexico. Two years later, after a successful election campaign, he became the Governor of the State of Mexico, a position he occupied until September 2011. The crucial element of his mandate was the pledge to fulfill 608 promises made on the campaign trail, a pledge he signed in front of a notary to prove his capabilities to deliver results. After stepping down from the position of Governor in September 2011, Peña Nieto released his book ‘Mexico, The Great Hope’, in which he argued for the importance of expanding the economy to create formal jobs. He won the presidential election of July 1, 2012 and acquired 38.21% of the votes, followed by Andres Manuel López Obrador of the PRD with 31.59% after an intense campaign. Peña Nieto’s mandate runs from 2012 until 2018. He has already overseen a period of important changes during which long expected political changes, such as the Energy Reform, the Fiscal Reform and the Telecommunications Reform, have been approved. Peña Nieto’s presidential mandate runs from 2012 until 2018. To construct the consensus needed to get constitutional reforms anchoring his political agenda approved by Congress of the Union, Peña Nieto created the Pact for Mexico, a political arrangement under which the country’s three ruling parties came together to achieve the necessary changes. He has already overseen a period of important changes with landmark reforms such as the Energy Reform, the Fiscal Reform, Education Reform, and the Telecommunications Reforms.
| MINISTER OF ENERGY On December 1st, 2012, the 63-year-old Pedro Joaquín Coldwell was appointed as Energy Minister in President Enrique Peña Nieto’s cabinet, only hours after he resigned as President of the PRI. In this position, which he held for just under a year, Coldwell worked closely with campaign manager Luis Videgaray, the current Finance Minister, on the successful election campaign of that resulted in the PRI reclaiming the presidency after 12 years of rule by the Pedro Joaquín Coldwell
PAN. After graduating with a law degree from the Universidad Iberoamericana in Mexico City, Coldwell was elected deputy to the Congress of his home state Quintana Roo at the age of 25.
He served four years as Secretary General in the Quintana Roo government, and became a Federal Deputy in 1979. Two years later, Coldwell was elected Governor of Quintana Roo at only 31 years of age, a position that he held until 1987. He subsequently served as Director General of FONATUR (National Fund of Tourism Promotion), and was Mexico’s Tourism Secretary from 19901993 in the PRI-led government of President Carlos Salinas de Gortari. Coldwell’s long history of involvement and leadership in the PRI – which also included a post as Mexican Ambassador to Cuba between 1998-2000 and a term as Senator between 2006-2012 – has positioned him as a key member of the party. According to José Merino, a political science professor at ITAM, “If you open up a dictionary and look for the word PRI, the definition could include Pedro Joaquín Coldwell. He is distinguished by his bargaining, dialogue, and openness. It is an appointment that will lead to a honest and healthy discussion and debate with Mexican society, with the potential to build public policies that will help the country,” says Senator David Penchyna, President of the Senate Energy Commission. “Mexico needs someone who has a lot of political muscle to push through a comprehensive energy reform and make it a reality.” Coldwell will also have to deal with multiple issues during his tenure as Minister of Energy, which include maintaining and increasing current oil and gas production levels, improving and expanding transportation infrastructure, increasing Mexico’s refining capacity, and ensuring that Mexico’s power generation and transmission infrastructure is able to meet the rising demand to fuel the country’s forecasted economic growth.
34
| DIRECTOR GENERAL OF CFE Francisco José Rojas Gutiérrez was born in Mexico City and has served as the Director General of CFE since December 4, 2012. He has a BA in Public Accounting from UNAM and has been a member of the PRI since 1960. He served as Finance Secretary of the National Executive Committee and was part of the presidential campaign of Miguel de la Madrid. He was also Assistant Manager of Public Spending and Coordinator of Advisors in the Treasury until 1983 when former President Miguel de la Madrid named him as the representative of the Francisco José Rojas Gutiérrez
Federal Public Administration Ministry, a position he held until 1987 when he was appointed
as Director General of PEMEX. He retired from active politics after his term ended in 1994 but returned in 2003 as a PRI deputy, serving two terms from 2003-2006 and from 2009-2012. He was also the President of the Colosio Foundation from 20072010, and was Chairman of the Board of UNAM from 1995 to 2003. In the private sector, he served as Executive President of the Mexican Committee of the Consumer Products Industry from 1996 to 2003. The coming years will see CFE invest approximately US$14 billion in the development of infrastructure and power plants, complementing investments made by the private sector in gas pipelines and generation plants. As Director General of CFE, Rojas Gutierrez is tasked with lowering costs, improving profitability, and ensuring the efficient transition from fuel oil to natural gas, while guaranteeing a permanent power supply to every Mexican.
| COMMISSIONER PRESIDENT OF CRE Francisco Xavier Salazar Diez de Sollano was appointed as the Commissioner President of the Energy Regulatory Commission (CRE) in 2005, by Former President Vicente Fox, and was ratified in 2010 to remain in his post for a further term, ending in 2015. He was named as President of the Ibero-American Association of Energy Regulatory Entities in 2012. Francisco Salazar concluded his Chemistry Engineering studies at UNAM in San Luis Potosi and obtained Francisco Xavier Salazar Diez de Sollano
a Master’s degree in Economics from the London School of Economics & Political Science. He also holds a degree in Parliamentary Law from Universidad Iberoamericana.
His political background includes serving as Federal Deputy for the 6th district of San Luis Potosi from 1997 to 2000, being Secretary of the Ecology and Environment Commission and a member of the Budget and Hydraulic Affairs Commission during this period. He has also served on the Public Economic Council and the Economic Development Council. His objectives as Commissioner President are to regulate transparently, impartially and efficiently the energy industry including gas, refined hydrocarbons, derived products of hydrocarbons and electricity. He seeks to generate certainty to promote productive investment and healthy competition. It is also within his objectives to provide an adequate electrical coverage and attend the reliability, quality and security of the supply of energy and related services provided at competitive prices in order to benefit the final user. He is responsible for promoting the growth of the private power generation industry by efficiently issuing permits as well as regulating the transportation of natural gas through pipelines.
| MINISTER OF ENVIRONMENTAL AND NATURAL RESOURCES After Enrique Peña Nieto won the presidential election, Juan José Guerra Abud was appointed to become Mexico’s Minister of Environment and Natural Resources (SEMARNAT) as of December 1st, 2012. Guerra Abud, born in Toluca in the State of Mexico, is a member of the Mexican Green Party. He holds a Bachelor’s degree in Industrial Engineering from Anahuac University and a Master’s degree in Economics from South California University. After 14 years working in the private sector, he entered politics in 1990. That year, he was named Minister of Juan José Guerra Abud
Economic Development for the State of Mexico by former Governor Emilio Chuayffet. In this
position, he supervised the early political career of Peña Nieto in the State of Mexico. Guerra Abud was also Director General of Krone Comunicaciones from 1990 to 1992 and President of Unitec Boelhoff from 1992 to 1994. After serving as Minister for four years, he held various positions in the state government, including Director General of Industrial Promotion at the State of Mexico’s Economic Development Ministry from 1994 to 1999. Guerra Abud was then named Executive President of the National Association of Bus, Truck and Tractor Producers (ANPACT) in 2001. He returned to politics in 2009, being elected as a congressman for the Mexican Green Party, after resigning from ANPACT. After three years as a congressman, he was appointed as Parliamentary Coordinator for the Mexican Green Party in Congress. His experience in the environmental sector also saw him become an advisor to the Mario Molina Center for Strategic Studies in Energy and the Environment.
35
OPERATING FRAMEWORK FOR ENERGY PROJECTS The renewable energy sector’s operating framework
considered to be part of the public service, such as self-
depends mainly on three government entities: the
supply schemes, small power producer schemes, and
Ministry of Energy (SENER), CRE, and CFE. SENER
cogeneration. CRE approves the regulatory instruments
oversees Mexico’s energy policy to guarantee competitive,
that lay out the relationship between permit holders and
economically viable, and environmentally sustainable
CFE as part of its objective to drive renewable projects
energy supply needed for national development. In other
forward. Planning the expansion of the national grid is
words, SENER establishes the long-term energy strategy,
one of CFE’s duties, along with carrying out the necessary
after which the entity works with other ministries to make
technical assessments for the interconnection of new
sure the regulations cover specific characteristics of each
power generation projects. Projects that use renewable
energy source and the costs associated with externalities.
energy sources have become increasingly important in Mexico’s strategy to diversify its energy mix. It is important
The Energy Regulatory Commission (CRE) was created by
to note that a significant amount of the private sector’s
decree in 1993 as a decentralized administrative agency
participation
responsible for addressing matters, as defined in Article
The modalities under which the Electric Energy Public
27 of the Constitution, regarding energy. The commission’s
Service Law (LSPEE) allows private parties to participate
fundamental objective is to efficiently regulate the electricity,
in Mexico’s energy sector are self-supply, cogeneration,
hydrocarbon, and gas sectors providing legal certainty to
independent power producer, small producers, power
foster investment and promote healthy competition among
export, and power import. As energy generation activities
the different players, while ensuring coverage at competitive
are subjected to project approval, developers should
prices for the consumers; CRE’s regulatory character makes it
consider their maximum production capacity and the
essential. It is also in charge of approving budgets for power
maximum demand for imported electricity, as well as the
infrastructure requested by federal entities, municipalities,
final destination of the power. It is also worth pointing
and other users of this public service.
out that those interested in developing a cogeneration
is
through
renewable
energy
projects.
or renewable energy project should take into account The Federal Electricity Commission (CFE) is the national
certain considerations. Article 21 of the Renewable Energy
utility in charge of power generation, transmission and
Development and Financing for Energy Transition Law
distribution as well as managing the national power grid.
(LAERFTE) states that projects over 2.5MW must ensure
The Electric Public Service Law (LSPEE) states that CFE
the participation of local and regional communities in
must produce the most affordable energy, while the
the consulting process and project development. The law
Law for the Energy Regulatory Commission states that
mandates that developers should also pay land owners the
CRE should verify that energy distribution entities offer
corresponding fees and promote social development in
their product at a low cost while maintaining quality and
the local communities where the projects are located.
keeping the national electric system stable and safe. CRE is in charge of determining tariffs for the supply and sale of
The legal framework for the electricity industry will see
electricity. Even though CRE is independent from SENER,
significant changes in the next few years due to the 2013
the commission’s regulatory framework states that it must
Energy Reform, which allows public and private investment
provide insights when SENER requests them. Some of the
for electricity generation and commercialization activities,
matters in which CRE advises SENER involve the energy
though the transmission and distribution of power will remain
sector program, expansion of the national electricity
strategic areas under the exclusive responsibility of the state.
grid, CFE’s projects, participation of
private parties in
Among other purposes, the reform is intended to transform
the electricity sector, and establishing the terms and
PEMEX and CFE, the national companies dedicated to
conditions for tenders and concessions. Natural gas is also
respectively hydrocarbons and electricity, into “productive
part of CRE’s responsibilities, so it must approve the terms
companies of the state.” In order to make this a reality, the
and conditions for the first-hand sale of natural gas and LP
Energy Reform approved by the Senate and the Chamber
gas unless the Federal Competitiveness Commission has
of Deputies amended constitutional articles 25, 27 and 28,
stated conditions that indicate otherwise, and approving
and established 21 transitory articles. A timeframe was also
the terms and conditions for the transportation, storage,
defined within which the secondary laws must be enacted.
and distribution of natural gas and LP gas.
The Mexican Energy Reform has been recognized as an important effort to increase the competitiveness of the
36
Regarding renewable energies, CRE grants and revokes
Mexican energy sector. The opening up of the Mexican
permits
energy sector will bring new opportunities for Mexico in the
for
electricity
generation
in
activities
not
coming years, following 75 years of intense governmental control over oil and energy resources. The modifications made to the original energy reform document by Congress included different contracting schemes for oil and gas production, which will increase the attractiveness of the market for foreign companies, allowing greater private sector involvement in the funding of exploration and production as well as risk and profit sharing. Though the oil and gas industry will open the door to the private sector there will be no concessions for hydrocarbons, which will remain property of the Mexican State. PEMEX will also remain the priority company for exploration and exploitation activities, over private sector companies. The
Energy
Reform
includes
the
creation
of
two
decentralized public bodies: National Center for the Control of National Gas (CENAGAS), which will operate the
“With
the
Energy
Reform,
investment expectations in the country will broaden and there will be more job opportunities. We believe that Mexico will attract up to US$10 billion a year in direct foreign investment for the energy sector, in addition to the investment it already attracts” Pedro Joaquín Coldwell, Minister of Energy
national pipeline system and natural gas storage facilities, and the National Center for the Control of Electrical Power
benefits that are expected to derive from the Energy Reform
(CENACE), which will manage the national electric system.
include increased revenue for the federal government, a
Additionally, environmental protection activities will be
drop in electricity and natural gas prices, and the creation
incorporated through the creation of the National Agency
of a considerable amount of jobs, with a forecast of 2.5
for Industrial Safety and Environmental Protection, which
million to be generated by the year 2025. By opening up
will regulate environmental protection activities within the
the generation area of the electricity sector, increasing
hydrocarbons sector and waste management activities.
investment is expected to enter the Mexican economy,
As part of the reform, concerted efforts will be made
which will boost the renewable energy sector and provide
to prevent, identify and sanction corrupt activities. The
industry with access to cheaper energy sources.
MAIN USES FOR THE MODEL CONTRACT All power producers that
and efficient a model contract has shown itself to be.
intend to interconnect to
This instrument enables both the industry regulators and
the Mexican grid need to
producers to reach effective agreements under the current
celebrate a contract with
regulatory framework. It is this very flexibility that is being
CFE. The type of contract,
called for by a market in which the conditions for different
known as a model contract,
renewable sources can vary drastically.
depends on the installed energy
“We created the first generation of regulatory mechanisms
source. Its specifics vary
to foster renewables but the pace of change is set by the
greatly
capacity Guillermo Zúñiga Martínez, Commissioner of CRE
and
some
industry. For example, a sugar cane factory argued that its
aspects have already been
bioenergy scheme was designed on a yearly basis, while
fixed by the law and by regulatory instruments while CRE
its resources were useable for only six months of the year.
will also modify certain conditions. This foundation enables
This showed us that we had to modify the scheme and
the regulator and the producers to analyze each project
tailor it to a very important sector. We have to react rapidly
and design a contract that fits industry needs and the
and sensitively to such issues so a more adequate form of
project’s specifics. CRE Commissioner Guillermo Zúñiga
regulation is created,” says Zúñiga Martínez.
although
Martínez looks ahead to the implementation of these contracts. “The main uses for the model contract will have
Following the Energy Reform, model contracts will play a
to be communicated to the industry, but it will provide
primary role in the diversification of the Mexican energy market
certainty, uniformity and predictability. These elements are
but also in the development of transmission infrastructure by
the pillars of any regulatory instrument.”
public and private enterprises. Zúñiga Martínez stated that new legislation, including model contracts, will provide a
These contracts are periodically revised, with changes
more transparent model for developers, including issues such
and adjustments being made depending on how useful
as property rights and financing.
37
IMPACT OF EXTERNALITIES Being able to effectively determine the cost of externalities
sure these rules consider the specific characteristics of
is crucial to increasing the competitiveness of renewable
various forms of renewable energy and the costs associated
energy when compared to fossil fuels. However, this is no
with the externalities of electricity generation from fossil
easy task as calculating externalities goes beyond simply
fuels.” Nevertheless, he adds that confusion in the law
measuring the amount of CO2 emissions released into the
should not be left unattended. “First you need a proper
atmosphere. The factors that need to be considered vary
legal framework, or there will be contradictions. CFE has
tremendously depending on location, source, installed
to produce, transmit and distribute electricity at the lowest
capacity and short, medium and long-term effects. The
possible cost. If CRE does not recognize the externalities
problem inflates with an apparent contradiction in legal
that CFE does not pay, clearly there is a contradiction in
texts. The LSPEE states “the production of energy that
CFE having to pay the lowest price.”
results in the lowest short and long-term costs for CFE should be used for the provision of the electricity public
Currently, there are no clear incentives to implement
service, considering environmental externalities for each
less polluting but more expensive energy sources in the
technology.” However, the General Climate Change Law sets
Mexican energy mix. The methodology used to calculate
a clear mandate to diminish emissions and increase clean
externalities plays an important role in effectively estimating
energy production. CRE Commissioner Rubén Flores García
long term costs and consequently making renewables more
stresses the importance of such a contradiction. “We would
competitive. According to Flores García, the methodology
like change that mandate because you cannot establish
used by SENER and developed by the Mario Molina Center
the priorities of a company over that of a nation. The cost
to calculate externalities lacks precision, “determining
of electricity should be the cheapest for Mexico, not CFE.
the cost of externalities is complicated as the problem
The costs of externalities were calculated mathematically,
presented by climate change is a global issue.” This issue
taking future expansion into account, but this law distorts
could be partly solved by forcing private companies to
the problem.” According to Francisco Barnés de Castro,
calculate externalities while considering how many of these
another CRE Commissioner, the issue is passed on to various
are reflected in carbon emission taxes. According to Barnés
government agencies in charge of establishing Mexico’s
de Castro, “we must begin to distinguish between the
energy policy, tariffs, prices and permitting processes.
estimated costs, what methodologies have been validated
“SENER is in charge of establishing the rules of our long-
by the academic community, and how much of this has
term planning. It has to work with other ministries to make
been reflected in taxes on fossil fuels.”
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| VIEW FROM THE TOP
HOW THE ENERGY REFORM WILL RESHAPE CRE NOÉ NAVARRETE GONZÁLEZ Commissioner at CRE
Q: How will the Energy Reform help Mexico to meet its
the power provided by law. CRE needs to have a more
growing electricity demand in the future?
proactive role in promoting the sector and, as regulator,
A: Mexico’s power generation capacity will not be increased
it will have to translate legal certainties in specific actions.
only by opening the market to the private sector. The reason
One example is the energy transportation methodology,
why the approved Energy Reform is ideal is because it
which was adapted from international methodologies to
modifies the entire sector. For example, shale gas resources
the Mexican sector, but the truth is that it does not work.
in northeastern Mexico will generate jobs and attract new
We need a more transparent, dynamic methodology in
investment once development is underway. The Energy
which every player can go online into the transmission
Reform detonates productivity, which will have a positive
company or independent operator’s website, provide the
impact on other sectors and will attract investment. When
node where it will connect, the amount of energy it will
planning energy demand, it is important to take into
add to the grid, and know how much the wheeling will
consideration the country’s economic growth. With this
cost. We, as regulators, have the responsibility of making
reform, the country’s GDP will increase by two or three
this possible. We have to promote conditions that show
percentage points. Obviously this will be reflected in energy
legal certainty so that investors become aware it is safe to
demand, and when demand is growing, power generation
invest in the Mexican electricity sector.
has to increase. If the Energy Reform had only focused on hydrocarbons without involving the electricity sector, there
Q: What will be the role of off-takers in electricity
would have been a problem. Industrial growth would have
generation following these changes?
been fostered, but we would not have had an efficient way
A: On one hand, Mexico has the goal of generating 35%
to guarantee electricity supply. When the electricity market
of its electricity from clean sources by 2024. We have to
is restructured, it sends a message that markets are opening
comply with this mandate and renewable energy project
and are becoming attractive for investment.
developers are aware of this. On the other hand, there are consumers and socially responsible companies that
Q: How will the implementation of the Energy Reform
are interested in covering their energy requirements with
affect CRE?
clean energy. For renewables, the federal government has
A: With the Energy Reform, we will have to wait and see how
to integrate externalities into the regulatory framework
the new legal and political framework will work out. We are
governing supply, which will be reflected in electricity
expecting to take over all hydrocarbons regulation matters
prices, making renewable energies more attractive to all
concerning pipeline transportation. One of the most
market participants. The small power producer scheme
important modifications made by the reform is to have all
is mainly focused on conventional energy generation, but
transportation of hydrocarbon products by pipeline come
there is something that has to be taken into consideration
under CRE regulation. Future electricity market regulation
since investors find it very attractive to use this scheme
will also be the responsibility of CRE. The market will no
because Mexico’s natural gas supply is still limited. When
longer be ruled through bilateral contracts, and there will
there is no natural gas, energy has to be generated with
be increased access to the market. We will also strengthen
other more expensive sources and the short-term marginal
the legal framework for the natural gas sector. Right now,
cost increases, opening an opportunity for small power
that might seem like a smaller issue, but it is only a matter
producers. However, when the Los Ramones pipeline begins
of time before it becomes very important.
operating and Mexico has the capacity to import cheap natural gas from the US or when we begin extracting non-
Q: How can CRE act as a communication facilitator between
conventional gas, electricity prices will go down and so will
public and private players in project development?
the short-term marginal cost. Nowadays, the small power
A: More than facilitating communication, we are an
producer scheme is still very attractive, but that situation
authority in the sector that works transparently and applies
might change in the near future.
39
ENERGY DEMAND CLASHES WITH RESTRICTIVE REGULATIONS There is no single recipe that is certain to strengthen a
To deviate from the restrictive regulatory framework, the
country’s renewable energy sector. Each country presents
Open Season scheme was created. This public bidding
particular social, cultural, economic, physical and regulatory
process invites private interests to pay for the expansion
traits which require a tailor-made regulatory framework
of transmission infrastructure that CFE will eventually build
and planning. Emerging economies and developing
and own. This process aims to develop projects that would
markets that possess the quantity and quality of resources
otherwise not be financially viable for CFE to carry out
needed for renewable energy development often lack a
alone. The self-supply scheme can only provide growth
clear regulatory framework, long-term policies, or even
under certain conditions and is principally an option for
the needed infrastructure to ensure smooth progress for
large companies that can afford to invest millions of dollars
sector. A murky framework does not necessarily stifle the
to secure a source of renewable energy.
expansion of the industry but does make growth harder, riskier and more uncertain. Mexico is unique in its regulatory and cultural traits. Schemes that found success in Brazil or China would not have the same effect in Mexico. Any Mexican framework would have to contend with the country’s size, geographical position, diverse communities and regional conditions. Furthermore, the constitutional and regulatory implications of the energy sector are quite particular in Mexico. The constitutional conceptualization of public goods and energy resources stems from the actions of President Lázaro Cardenas in 1938 which led to the creation of two state monopolies: CFE and PEMEX. As a result, the Mexican government is
CFE needs to considerably expand its grid infrastructure in order to sustain further economic growth. However it lacks the resources – both human and economic – to facilitate such growth in tandem with meeting growing energy demand.
the only party that can be involved in so-called strategic areas of the energy sector.
Unlike some European countries, where feed-in tariffs and subsidies have played an important role in the
Another particular challenge facing the market is the
development of the renewable energy sector, the growth
regulation concerning usage rights and land ownership.
of the Mexican wind energy industry has been driven by
These regulations also derive from historical events,
market forces. However, the private sector is seeking for
starting with the Reform Laws promoted by Benito Juárez
the Mexican government to support growth via a scheme
more than 150 years ago. The reform in 1922 established
that works around existing restrictive regulations, allowing
the concept of ejidos, or communal lands, to protect
for expanded infrastructure and the creation of a long-
indigenous communities and their property. But as the
term planning strategy. The establishment of such a long-
lack of a clear framework was not resolved, the ejidos have
term plan would help to speed along the creation of a
become places where rights of ownership or land usage
local supply chain. However, without guarantees about
remain uncertain.
enforcement, it might not be enough to spark confidence in continued government support of the industry or dispel
The energy regulatory framework in Mexico is full of
uncertainty regarding future growth.
provisions which can act as barriers to growth. CFE has
40
a monopoly over the provision of electricity as a “public
Fortunately, Mexico’s GDP is expected to grow at more than
service” and handling transportation, which necessarily
3% in 2014, a rate that is expected to continue matched or
implies the building and designing of grid infrastructure.
exceeded in the years ahead. In order for this to happen,
This presents issues for CFE and for project developers
the energy supply needs to be guaranteed in the medium
alike. Many sites are located far from the grid, greatly
and long-term. Relying solely on hydrocarbons is neither
raising initial project costs, with many becoming downright
secure nor wise, given that Mexico has already become
financially unfeasible. At the same time, CFE needs to
a net importer of natural gas and can support its energy
considerably expand its grid infrastructure in order to
independence by transitioning towards a low-emission
sustain further economic growth. However it lacks the
energy industry. Therefore, ensuring the growth of viable and
resources – both human and economic – to facilitate such
competitive renewable energy sources is destined to be one
growth in tandem with meeting growing energy demand.
of the pillars of Mexico’s sustainable economic development.
| VIEW FROM THE TOP
THE IMPORTANCE OF CONSTITUTIONAL CHANGE MIGUEL JÁUREGUI ROJAS Partner of Jáuregui, Navarrete y Del Valle, S.C. Q: Why were constitutional changes essential for the
participating company. In many cases our law firm is
Energy Reform?
helping large companies that want to use renewable
A: The Energy Reform has amended Article 27 and
energy to do just that. However, this process still raises
Article 28. We have to respect the constitution, but if the
questions that need answering. First of all, the company
legal framework is not sustainable at the constitutional
has to determine how many megawatts it needs, which
level it will not be sustainable at any other level either.
determines what permits it needs. Then we have to
The constitutional basis for a clear and strong legal
navigate the government’s central planning, which sets
framework will remove doubts about the financeability of
limits on the amount of energy a project can generate, or
projects, which in turn guarantees that they can be built
demands that it generate no less than a certain amount.
and interconnected with the grid very quickly. A mass
Getting a private company to pledge to produce 100MW
of projects being developed would lead to a boom in
is a big commitment, which puts the private sector off.
suppliers, the floating of stock, the issuing of securities,
This is the type of centralized planning that should not be
and the creation of jobs.
done through agencies like CFE. The government should observe how the market is working and create public
Q: What aspects do you think will need to be covered by
policy based on those observations.
secondary laws? A: The current framework is too stringent and secondary
As for renewables, the world is passing CFE by, precisely
laws could pose a threat to the energy industry if they are
because of the ways natural resources are increasingly
left unclear, as is currently the case. The secondary laws
being used and the fact that CFE views them as
were likely drafted and negotiated along with the main text
competition. Another problem is seen in the way CFE
of the Energy Reform, and the issue now is to ensure that
wheels its electricity and delivers it to off-takers. It has
the Energy Reform and the secondary laws create a more
to deliver that energy at the price in the PPA and not at
level playing field.
its own price. You have to wonder what kind of margin is being lost there.
Q: Is it beneficial for Mexico to split CFE and create an independent grid operator?
Q: How do you see Mexico’s various renewable energy
A: It depends on the economics. Duplicating the grid
sources developing in the future?
infrastructure would require a lot of resources, concessions
A: All of them are the future. To unlock that future,
and permits. When our clients tell us they want CFE’s
technology is a great enabler, but you have to make sure
authority to be divided, we tell them there are several
that the right technology is being applied. If you look at the
ways of addressing this. Do they have the ability to pool
PV sector, the viable range for installations was between
together the resources of very large companies to finance
0.5 and 3.5MW for several years. Now we are seeing
this construction of an independent grid? If not, do they
30MW projects, and we will soon have 100MW projects.
want the government to privatize the grid? Privatization
However, I am concerned about the development of the
of the grid is impossible for the foreseeable future. The
wind industry since there have been a number of failures
opposition keeps talking about privatization but the
in areas with strong wind resources, mainly because of
Energy Reform is not about privatization. It is about
social problems and a lack of access to the grid. Today it
opening an area of the economy up to the participation of
is very difficult to design a wind project that can easily be
private capital, both Mexican and foreign.
connected to the Mexican grid. Geothermal energy is also going to have a great future, but the question remains
Off-takers are going down the self-supply route. The
how many exploratory wells companies can afford to drill.
reason for self-supply is obvious, as the productivity
The state of biomass is surprising as it should have taken
of any type of plant can be geared to the needs of any
off by now, at least in Mexico City.
41
| EXPERT INSIGHT Q: What do you see as the priorities that should be tackled
concerns about the projects they wish to develop, we start
regarding the Mexican regulatory framework?
by studying similar cases and projects that ran into trouble
A: Mexico has a rather complex law-making process, which
or were not approved. This enables us to suggest different
begins with the proclamation of a general law. Following
course of action for our clients to get the green light on
on from that, several specific secondary laws are made.
their projects, based on real examples.
As this creates various legal contexts for each subject, conflicting views can arise with different interpretations
Q: How can the concepts of environmental law be spread
surrounding
among the Mexican public?
basic
legal
concepts.
Generally,
laws
pertaining to the development of the energy sector are
A: We are now seeking for ways to spread this awareness
linked to the passing of environmental impact laws, which
among our clients and among the Mexican public. The firm
can also lead to considerable legislative uncertainty.
has dedicated a lot of its time to academic endeavors.
Mexico has very sophisticated laws but the country needs
We partner up with universities to teach courses on
homologation in order to eliminate such doubt. Regarding
environmental law, carry out research and publish papers.
environmental subjects, the very definition of technical
Passing on this information and creating awareness are
terms, such as pollution, is linked to a series of specific
essential to ensure that Mexico continues to grow in an
and technical assessments. Taking this into account, Vera
intelligent way.
& Carvajal’s priority is making sure that society at large is well-informed and understands the legislation.
Environmental law poses its own set of challenges. To fully deal with its complexities, our firm has a technical division
Q: What specific benefits does your firm bring to its
that works alongside our legal advisors. This allows to
clients’ projects?
provide efficient solutions in a fast and dynamic way that
A: We are developing several projects, mostly in the
differs other branches of law. The nature of environmental
energy and environmental sectors. We work in projects
law is changing the way we think about progress.
in Mexico, in the US, Central America and Peru, giving us a strong understanding of the region’s various regulatory
Luis Vera Morales,
frameworks. Once our clients approach us with their
Founding Member and Associate at Vera & Carvajal
NEW LEGAL STRUCTURES FOR FUTURE ENERGY PROJECTS In uncertain times, it is
a project. CFE’s contract and permit process can be
only natural to seek clarity
daunting to companies entering the Mexican market but
from trusted sources of
Goodrich Riquelme´s lawyers have made navigating this
information
advice.
process a specialty. From the outset, the firm seeks to ease
companies
this process by ensuring that their clients’ pre-feasibility
Mexican
studies are carried out in a complete fashion. This helps to
renewable energy sector,
smooth out the process with CFE by showing their clients
the law firm of Goodrich,
are to be taken seriously.
For
many
entering
Diana Sasse, Partner at Goodrich Riquelme & Associates
and the
Riquelme seeks to be just such a source. Taking into
Much of Goodrich Riquelme’s recent work has been to
account the opportunities
provide support for legal issues relating to the growth of
the sector is offering, the firm has specialized in providing
the PV sector over the last two years. One major aspect
full legal services for renewable energy projects, as well as
of this work has been legal questions stemming from how
providing clients with “information, knowledge and advice
CFE could buy and distribute energy from small power
in taxation, forecasts and labor law issues”, among other
producers. “If financial institutions are willing to finance
topics, according to Junior Partner Diana Sasse. “We know
small power producers, CFE’s capacity to buy energy in
the market, we know the companies that are active in the
the development pipeline would be boosted,” says Sasse.
market, we know their projects, and we know what the
“One positive issue about PV development is that the
off-takers are trying to get.” Goodrich Riquelme’s ability
transmission infrastructure is still sufficient, the limitations
to work across several renewable energy sources and
facing wind power do not apply to PV yet.”
projects saw its Energy and Natural Resources practice group top Chambers & Partners’ 2014 ranking for Mexico.
This focus on PV projects has entailed Goodrich Riquelme working on new legal structures for the energy sector,
So, given the bonds of trust and reliance that Goodrich
particularly
Riquelme has developed with its clients, how does Sasse
partnerships with public entities, municipalities or states.
see her clients reacting to the expected impact that the
The legal framework to implement these projects is in place,
climate law and energy reform will have on the renewable
Sasse confirms, but this marks the first time such structures
energy sector? The answer is simple: they are waiting. The
would be put in place. The law firm is also working with
climate law has not had any impact for now, according to
industrial clients that are planning to implement bioenergy
Sasse. A major impact will be felt, should it be implemented,
projects as well as efficient cogeneration plants. The latter
in areas such as the creation of an emissions registry for
plants can start at a capacity of 12MW, which represents
municipalities but this is yet to be confirmed. As for the
a substantial amount when compared with PV plants,
Energy Reform, improvements to the current landscape
according to Sasse.
for
off-takers
that
create
public-private
would be welcomed but companies are still working under the best schemes through which they will enter the market.
Another area that the law firm is on guard against covers any potential disputes with government institutions. Sasse
However, Sasse is encouraged by signs that lobbying is
is quick to dispel any doubts her clients might have about
working as the renewable energy sector fights its corner.
the Mexican judicial system. “We can find reasonable
“In the first version of the tax reform, the right to deduct
sentences in federal courts,” she confirms, stating a case
the 100% of investments in renewable energy equipment
where a company, represented by Goodrich Riquelme, won
and machinery was deleted. However, after its discussion
a decision against a municipality over a contract dispute.
and subsequent approval in Congress of the Union, the
“I do not agree with people that say that you cannot find
right to deduct the 100% was reinserted in the tax laws,
justice in Mexico, the main difference is the cultural issue.
while also granting the right to deduct 100% of investment
There is a culture here of not going to court.”
in efficient cogeneration equipment and machinery. This shows the renewable energy sector already has good
Ultimately, Goodrich Riquelme recommends that it is to be
lobbying in place,” she explains.
better safe than sorry. To ensure this, all clients are told to do their best to fulfill every requirement, even if said
Given this backdrop, it is not surprising that much of
compliance is not a legal must. In this way, by considering
Goodrich Riquelme’s strategies are aimed at dispelling
the needs of clients, CFE, CRE and even landowners, the
the uncertainty investors might have when developing
risk of litigation is drastically minimized.
43
INFORMATION FOR ALL PLAYERS IN THE ENERGY SECTOR Access to resources is important for the development of
clear and concise message: anyone interested in developing
any industry but that development will lag if the main actors
technologies for the energy sector requires pertinent
are unacquainted with the resources available to them. In
information in order to have access to these funds,” says
Mexico, SENER and the Science and Technology Council
Ortíz Gómez. Even if the energy sector can benefit from
(CONACYT) have financing schemes to foster the creation
SENER’s funds, these cannot alter the market alone. “Like
of new technologies and projects that can push renewable
any investment portfolio, we look for diverse projects,”
energy and clean technologies forward. These are supported
explains Ortíz Gómez. The Energy Sustainability Fund has
by dissemination strategies to let the private sector know
total assets of approximately MX$7 billion (US$538 million),
that they can count on the government’s support.
which is substantial but not enough to compete with leading markets. As with any other investment portfolio,
SENER’s Information and Energy Studies Department
SENER has short, medium and long-term investments.
(DGIEE) takes care of planning and managing research
Short-term investments are used to identify and invest in
and development funds. The most important financial
projects that increase locally generated technology. For
mechanisms managed by this department are the Energy
longer-term objectives, DGIEE is investing on developing a
Sustainability Fund and the Hydrocarbons Fund. Although
critical amount of skilled professionals to create the human
these funds were created in 2008, Carlos Ortíz Gómez,
capital infrastructure required that will eventually provide
Director General of Information and Energy Studies at
tangible results.
SENER, says they have remained underused until now, and that big efforts are taking place to turn this around. These
The funds are still at an early stage and Ortíz Gómez hopes
funds were designed as important instruments to help the
their contribution to science and development will be seen
energy sector to break technology chains and thus achieve
in the medium to long-term. One challenge for DGIEE is
its potential. Both funds have economic resources dedicated
demonstrating that science and technology are not to be
for investment in R&D to increase the domestic power
gauged through the same metrics as investments. At this
related technology supply. An important challenge towards
stage, initiatives and projects are ongoing and tangible
fostering increased participation from eligible candidates
results for the energy sector will require time, perseverance
to financing is a lack of knowledge about the funds, while
and patience. DGIEE has precise figures as to the amount
other actors do not know how to use them effectively.
of people who have been trained through the funds, the
Ideally, federal government mechanisms designed to help
number of patent request forms it has received and all
finance the development of technologies should not face a
publications. Despite not developing at a fast pace, the
situation in which only a small number of privileged parties
funds are gradually increasing the human capital and
have access to the right information. “There should be a
institutional capacity of the energy sector. Their greatest
HYDROCARBON FUND SUSTAINABILITY FUND
The Hydrocarbon Fund intends to grow the number of projects focused on technological development to close xxxxxxxxxone of the best stock exchange systems in the world - the Toronto Stock Exchange - and approximately technology gaps and develop the Mexican technology base to support the extraction of more complex hydrocarbons. 80% of all money raised worldwide for mining takes place there. Financial institutions and banks are very comfortable Companies and institutions can submit their project proposals related to technology and innovation, which are investing through Canada because of the strength, transparency, and tough regulations that protect investors. This reviewed by a committee formed by SENER, CONACYT, and PEMEX. Approved projects are then provided with the has resulted in investors from around the world going through the Toronto Stock Exchange in order to access growing necessary funding to be developed. The Hydrocarbon Fund’s budget comes from 0.65% of the annual value of extracted companies that are active in foreign jurisdictions. Simply put, the Canadian financial system has made it easy for the crude oil and natural gas given to scientific research and development, of which 63% is allocated to this fund. Its total creation of mining companies, in the same way that the Mexican regulation system, NAFTA, and the Mining Law, make it accumulated budget had reached US$697.67 million at the end of 2012, which will go to help technological development attractive for foreign companies to invest in and create businesses in Mexico. It is a win-win situation for both countries. across universities, public and private educational institutions as well as research centers and laboratories in both the public and private sectors. In its almost seven years of existence, the fund has focused its scope providing financial resources to the creation of production enhancing technologies and catalysts for refining processes. The fund is aligned with PEMEX’s Strategic Technology Plan, and deepwater resources as well as shale oil and gas are critical issues that PEMEX will be addressing, with shale gas and oil exploration being seen as the fund’s priority. During 2013, US$244 million of the Hydrocarbon Fund’s budget was allocated to the search for shale gas with the goal of acknowledging Mexico’s prospective resources and laying the foundation for their sustainable exploitation.
44
strength lies in their ability to improve the position of the
is catered exclusively to universities and research centers.
players involved in the power industry. Ortíz Gómez claims
However, DGIEE is working on initiatives to promote the
the objectives stated in the National Development Plan and
industry’s participation in this process. Ortíz Gómez states
the National Energy Strategy could be achieved with or
that it is important to make additional efforts in making the
without these funds. However, the investments do make a
industrial sector see research centers as solution providers.
difference in how these goals are approached. For example,
“We want the industry to approach research centers to
Mexico has been importing technology for a long time.
help develop technological solutions that can be financed
“The country not only buys foreign equipment, but is also
through SENER’s funds. If companies can work hand in
dependent on foreign services throughout the life cycle
hand with universities or research centers, technological
of the technology as there are few local suppliers able to
advancements would speed up in Mexico.”
provide the required products and services. But when these funds are added to the mix along with strategic instruments,
DGIEE analyzes the gaps in the life cycle of technological
domestic participation and local contents can be created,
development to determine where the funds could be
bringing about more favorable conditions. These funds
destined. Prior to this, there were no mechanisms to
make the sector stronger and give it a more national focus,”
close the chain, according to Ortíz Gómez. But today a
explains Ortíz Gómez.
technological proposal may be supported by the federal
“We want the industry to approach research centers to help develop technological solutions that can be financed through SENER’s funds” Carlos Ortíz Gómez, Director General of Information and Energy Studies, SENER
The law states that funds should be destined to research
government from the basic or applied research stage, and
and educational institutions, excluding private companies.
all the way towards the production stage. If a profitable
That limits their profit scope and potential. “If we could
business results from such external funding, companies
take advantage of the knowledge and experience of large,
could secure better revenues. Technology companies could
well-established companies, we could develop interesting
then be allowed develop in a reduced-risk environment
projects
engineers,
through SENER’s funds. Ortíz Gómez sees Mexico as a rich
increasing their abilities. This would accelerate the
country in terms of funding resources devoted to research
assimilation process and the development of technology,”
and development. It is just a matter of tapping into the
says Ortíz Gómez, adding that the Mexican private sector
right resource and exploiting it. Information should not
has not enjoyed such incentives in the past since the funds
be an obstacle to such development, which is one of the
were very recently established and their legal framework
cornerstones of SENER’s mission.
that
would
challenge
Mexican
SUSTAINABLE ENERGY FUND SUSTAINABILITY FUND
The Sustainable Energy Fund is an instrument created to foster scientific research and development, as well as xxxxxxxxxone of the best stock exchange systems in the world - the Toronto Stock Exchange - and approximately the adoption, innovation, and assimilation and technological development in areas including energy efficiency, 80% of all money raised worldwide for mining takes place there. Financial institutions and banks are very comfortable renewable energy, clean technologies and diversification of primary energy sources. In 2008, it was decided that investing through Canada because of the strength, transparency, and tough regulations that protect investors. This 0.65% of the annual value of extracted crude oil and natural gas would go to support scientific research and has resulted in investors from around the world going through the Toronto Stock Exchange in order to access growing development concerning the energy sector. Since 2010, 20% of this budget has been allocated to the Sustainable companies that are active in foreign jurisdictions. Simply put, the Canadian financial system has made it easy for the Energy Fund. creation of mining companies, in the same way that the Mexican regulation system, NAFTA, and the Mining Law, make it attractive for foreign companies to invest in and create businesses in Mexico. It is a win-win situation for both countries. Since it was created and until 2012, the fund has published six calls for projects. The first went out in 2009, the second in 2010, and four more during 2012. These have supported 49 projects with a total of MX$380 million (US$29 million) in grants. 67% of the supported projects are dedicated to renewable energy, 14% to clean technology, 11% to the diversification of primary energy sources, and 8% to energy efficiency. UNAM has been one of the main recipients, which also include the Energy Research Center, the Electricity Research Institute (IIE), and the Mexican Petroleum Institute, as well as other private institutions. One of the most interesting projects was the creation of the Mexican Energy Innovation Center during 2012, which has the goal of establishing innovation alliances for renewable energy research. Nevertheless, the Sustainable Energy Fund has been named within the National Energy Strategy as a fundamental player to help Mexico reach the target of generating 35% of its energy from renewable sources by 2024.
45
CFE DOWN THE YEARS At the beginning of the 20th century, Mexico had a
from the 64kW it had just eight years earlier. Private utility
electric power generation capacity of 31MW which was
companies stopped investing, forcing CFE to generate and
owned and operated by private companies. But in 1933,
sell these private companies energy for distribution.
under the administration of President Lázaro Cárdenas, it was declared that power generation and distribution
In the late 1950s, CFE was contributing 54% of the 2,308MW
were public responsibilities. It took some time before this
of the national installed capacity. However, only 44% of the
decree became fully effective. By 1937, a crucial year in
population had access to electric services in spite of the
Mexico’s electricity industry, the country had 18.3 million
government’s efforts to expand the grid. This led President
inhabitants, out of which only seven million had access to
López Mateos to nationalize the electricity industry in
electric power. The three private enterprises that provided
1960. The President’s action led to the integration of the
this utility focused on profitable urban areas, supplying
National Electric System and accelerated the country’s
power with constant interruptions and at high tariffs, while
industrialization by extending power supply coverage.
62% of the population that lived in rural areas was left out
The installed generation capacity amounted to 35,385MW
of the coverage.
at the beginning of the 21st century, with CFE’s services reaching 94% of the population through a distribution
This marginalizing situation was hardly conductive to the
and transmission network of 614,653km. It is estimated
country’s development, leading the Federal Government to
that CFE now serves close to 27 million clients and adds a
create the Federal Electricity Commission (CFE). This entity
million new customers each year.
was entrusted with the task of directing a national system of electric power generation, transmission, and distribution
In 2009, the administration of former President Felipe
based on economic and technical principles. CFE did not
Calderón, issued a decree dissolving the state-owned
seek profit and was meant to deliver the best performance
company Luz y Fuerza del Centro (LyFC). CFE took on
for minimal costs to meet the interests of the larger
LyFC’s distribution operations in Mexico’s central region,
population. The state-owned utility began building power
expanding its operations and supplying electricity to the
plants and expanding transmission lines, contributing to
entire country. CFE is currently the largest utility company
the country’s development by enabling water pumping for
in Latin America and operates Laguna Verde, the only
irrigation purposes and powering mills. By 1946, CFE had
nuclear plant in Mexico. In 2013, the utility company’s gross
an installed capacity of 45,594kW, a staggering increase
power generation amounted to 157TWh.
THE UNHEALTHY FINANCES OF CFE In the past decade, CFE’s finances have weakened gravely,
in 2013, compared to just MX$10 billion (US$769 million)
according to a document presented by Francisco Rojas
in 2012. This is mainly due to fuel price increases, which
Gutiérrez, CFE’s Director General, in 2013. The utility
represent 40% of the utility’s total costs. The CFE allocated
company’s tariffs are not enough to cover its costs as the
MX$50 billion (US$3.8 billion) for fuel purchases in 2002,
subsidy given to electricity is higher than the company’s
compared to almost MX$160 billion (US$12 billion) in 2012.
profit. The difference between the subsidy and CFE profit’s
According to SENER’s figures, CFE faces losses of 12% of
reached its highest points in 2009, when its operating loss
generated energy at a national level, and 20% in the central
amounted to MX$42.855 billion (US$3.296 billion). Until
region of Mexico. This generated but not billed energy adds
1999, operating profit covered the total subsidy and even
to the operating costs. Liabilities must still be added to
left a positive balance. However, since 2000, the operating
this financial picture. The utility company’s liabilities grew
costs combined with the subsidy have consistently been
139.7% between 2003 and 2013, amounting to MX$884.261
higher than the revenue generated. CFE blames this financial
billion (US$68 billion), half of which are pension liabilities.
burden on energy losses incurred in Mexico’s central region. The Federal Budget for 2013 allocated CFE MX$269.250
46
In the last ten years, the company’s debt has grown by
billion (US$20.71 billion), but according to the company’s
371% while its equity has fallen by 82.2%. Additionally, the
Governing Board, this was not enough to cover its financial
company has overdue loans that amount to MX$44.14
requirements. As for 2014, CFE saw its budget lowered by
billion (US$3.395 billion), which are equal to 14% of its total
MX$7.5 billion (US$576 million) compared with 2013. This
2012 revenue. The company is facing a budget deficit that
year the CFE will devote MX$56 billion (US$4.30 billion) to
was estimated to amount to MX$54 billion (US$4 billion)
buy electricity to private producers, which is MX$8 billion
The Mexican legal framework details how the electricity
take CFE’s opinions and advice into account. CFE is ruled
sector operates. Article 27 of the Constitution states
by a Governing Board composed of the Minister of Energy,
that the electricity industry belongs to the State, which
who heads up the board, the Minister of the Treasury, the
is charged with controlling and developing it. There are
Minister of Social Development, the Minister of Economy,
several laws that further expand on Article 27. The Electric
the Minister of SAGARPA, as well as the General Director of
Energy Public Service Law (LSPEE), a legal document that
PEMEX and three representatives of the CFE trade union.
details CFE’s institutional and operational framework, was published in 1975. The LSPEE indicates that the State is
According to Article 36 of the LSPEE, self-supply is
responsible for electricity related affairs intended for public
permitted when the corresponding permits are granted.
services, such as generation, distribution, and supply.
This legislation also regulates the sale of energy outputs to
The regulatory framework emphasizes that concessions
CFE. It is not surprising that the utility company has grown
will not be given to private parties. Instead, the LSPEE
to be more in favor of cogeneration and renewable energy
appoints CFE as the sole provider of electricity for public
projects in recent years. A developer’s creation of a project
purposes while SENER dictates the policies and rulings
is followed by a request for permits submitted to CRE. CFE
related to electricity as a public service. These have to be
then conducts interconnection viability studies. If these are
observed by CFE and every person or entity that touches
positive, an interconnection contract is signed. In the case
upon power generating activities. CFE’s responsibilities
of larger projects where CFE calls for bids, the winning
include planning the national electricity system, being
party concludes a commitment and purchase capacity
the sole responsible party for generating, transforming,
agreement with CFE and then requests permits from CRE.
distributing, and selling electricity in Mexico, and carrying out works and installations that involve the national
CFE’s vision for renewable energy projects, as laid out on
electric system. Following the Energy Reform, CENACE
its website, is to have them develop Mexico’s industrial
was empowered to run the grid as an independent systme
capacity and create jobs, diversify the energy matrix,
operator.
while making use of the country’s renewable resources contributing to the health and well-being of its citizens.
Although CFE is the only company allowed to distribute
Other benefits include complying with international
energy, the generation of power for self-supply or to sell
agreements and environmental commitments, decreasing
electricity to CFE is permitted under several conditions
the variability of energy production costs, lowering
that have to be approved by several entities. Granting
dependence on hydrocarbons and fostering private
these permits falls to SENER, which nevertheless still has to
investments.
(US$615 million) more than in 2013. According to SENER,
carried out by the private sector, equivalent to US$5 billion
36% of generated electricity currently comes from private
in much-needed investments.
companies. With the Energy Reform mandating for PEMEX and CFE to CFE limited the use of cogeneration and hydroelectric plants
turn a profit within two years by becoming competitive in
due to natural gas critical alerts that PEMEX issued in the
the market, the utility is going to have to undergo a period
past few years as a result of insufficient pipeline capacity,
of adaptation. But in a market where the private sector has
as well as the droughts Mexico experienced between 2011
shown itself to be enthusiastic about helping out financially,
and September 2013. The cost for CFE of each million Btu of
and with many of the aces still in CFE’s hand, careful
fuel oil is US$17, compared to just US$4 of natural gas. This
planning and investments could lead it back to profitability.
situation forced the utility company to make extra expenses that amounted to MX$19 billion (US$1.46 billion) in 2012. CFE still operates 17 fuel oil power generation plants.
DIFFERENCE BETWEEN PROFITS AND SUBSIDIES (MX$ MILLION) 10,000
Despite competition, the private sector is also a financial
4,064
-124
-2,440
pillar of support for CFE. The need for improved transmission infrastructure in Mexico is an example of this. From 2006, when the first Open Season was carried
-16,353
-20,000
-32,257
out in Oaxaca, to 2012, 141 licenses for the installation of 4,605.1MW of capacity had been given out by CRE.
2011
2012
2010
2008
2009
2007
2006
2005
2003
2004
2001
2002
1999
2000
transmission-related projects in that timeframe were
-42,855
-50,000 1998
Statistics from the regulator show that over 70% of
Source: CFE
47
UNDERSTANDING THE MEXICAN ELECTRICITY TARIFFS Many different factors influence the electricity tariffs
consumption. Due to the heavy subsidies on domestic
that CFE applies to its wide range of users, including the
tariffs for basic users, renewable energies do not offer
type of user, the amount of electricity used, temperature,
a competitive alternative for supplying energy at this
tension, hour of the day and whether the electricity is for
domestic rate. However, the most expensive domestic tariff,
domestic or industrial use, to name just a few. Different
“Doméstica de Alto Consumo” (DAC or High Residential
combinations of these elements will determine the tariff
Consumption), is paid when any household surpasses
that the user has to pay. CFE has applied seven domestic
the locality’s consumption limit. According to the tariff
tariffs and 36 industrial tariffs in Mexico’s electricity
in place, this takes away the subsidies completely and
market, which also vary depending on the geographical
sometimes multiplies the cost of electricity by more than
zone in which the power is consumed. Some of the main
five times. This has come to represent the most important
categories into which the tariffs are divided are residential,
opportunity for renewable energy at the domestic level.
industrial, agricultural, and public lighting.
The solar industry has made a big effort to target this market, by installing rooftop-mounted solar power systems
Residential tariffs vary according to the minimum average
in households that consume high levels of electricity, thus
temperature of the locality, with seven different fares
placing them in the DAC category. Within this scheme, the
divided incrementally between 25°C and 33°C. The higher
households that usually acquire solar energy systems for
the temperature the lower the price of the electricity,
domestic consumption and using bi-directional meters are
with the consumer having the right either to consume a
able to reduce their tariff to 1-1F. By doing this, within five
larger quantity of energy on a lower tariff, or in the case
to eight years, these households can make a return on their
of Tariff 1F being offered a lower price per kWh. Tariff 1
investment in solar technology. Given that this equipment
offers a general price for the domestic use of electricity
tends to have a lifespan of 25 years, this allows them to
up to 250kWh, while Tariff 1F has a limit of 2,500kWh per
make important savings for 17 years. The domestic market
month, with consumers paying a subsidized fare for power
has been one of the main markets for photovoltaic power
TARIFFS FOR THE RESIDENTIAL SECTOR IN MEXICO Electricity tariffs vary widely across the residential, commercial and industrial sectors in Mexico and their conditions are also very variable. In Mexico, residential tariffs are subsidized by CFE in order to guarantee access to electricity for all Mexicans. Through such mechanisms, Mexico has achieved a 98% electrification rate for the population, with the remaining 2% largely representing communities in remote locations. The residential tariff is applied exclusively to domestic usage and connected individually to every residence, apartment, condominium or household. The tariffs that apply to the Mexican residential sector are “Tariff 1” and the rate for high residential consumption “DAC”. However, Tariff 1 varies depending on the consumption rate and the temperature of the geographic region, ranging from Tariff 1A to Tariff 1F. The base tariff for the residential sector is of MX$0.79/kWh for each of the first 75kWh, increasing to MX$0.967kWh for the next 65kWh and up to MX$2.82 for any additional kWh are consumed as long as the user is not considered a DAC user. It is important to mention that depending on the tariff, the upper limit to be considered a DAC user changes. The limit for Tariff 1 is 250kWh per month, increasing progressively reaching a limit of 2,500kWh with Tariff 1F. Temperature is also a crucial factor in determining what tariff will be charged to the residential sector in each area. As the average temperature rises in a region, the tariff will be modified within the range of 1A to 1F. Categories are set based on whether the temperature in a region reaches 25°C, 28°C, 30°C, 31°C, 32°C or 33°C for three or more years out of the last five. The measure is based on the average temperature exceeding these limits for two consecutive months, according to the reports issued by SEMARNAT. These services will always be provided in low tension voltage and cannot be applied to other general tariffs. However, as long as the domestic consumption of energy does not surpass the limit to become DAC, the tariff is subsidized. The main opportunity for the renewable energy sector comes from the unsubsidized DAC tariff that exceeds MX$3.1 per kWh in every region in Mexico, substantially increasing the competitiveness of renewable energies, especially for rooftop-mounted PV equipment. On the other hand, renewable energies are still not competitive with subsidized tariffs of CFE in the residential sector. For the time being, subsidizing electricity tariffs in Mexico represents an important load for the national power company, reducing CFE’s profits and generating losses for the state.
48
in Mexico in recent years, and there is huge potential for it to continue developing in this way.
| PROJECT INSIGHT
Public lighting costs present another real tariff challenge for municipalities, as this type of electricity incurs one
MAREÑA
of the highest tariff costs in Mexico - 5 and 5A. The high
PROJECT DEVELOPERS
prices that municipalities must pay for public lighting
The Mexican wind industry has had to learn some harsh
represent another important niche market for renewable
lessons from social and community issues that have
energies in Mexico, since in the long-term they can
arisen from projects being developed in the region of
offer more competitive prices to municipalities. Larger
the Isthmus of Tehuantepec. When a wind resource
scale renewable energy projects can be a cost-effective
is identified, land rights are needed to develop and
alternative for municipalities that wish to reduce their
build a project. The existence of ejidos and communal
electricity bills, while also contributing to the development
land ownership, dealing properly with communities
of renewable energy and reaching established renewable
has become an important a critical success factor for
energies targets. The competitiveness of large-scale
wind projects. Particularly, the poster child illustrating
renewable energy projects has been increasing in recent
such difficulties is the Mareña Renovables wind farm.
years and can offer alternative ways of saving resources
This 396MW project in Oaxaca was meant to become
among different municipalities. This has been the case in
the largest wind park in Latin America. However,
Nuevo Leon, where the Santa Catarina wind farm provides
local communities went into an uproar, going as far
energy to several municipalities around Monterrey.
as blockading roads to stop construction from going
RENOVABLES:
A
WARNING
TO
ahead. The main issue raised by the community is that Renewable energy projects are also becoming a more
they signed a contract based on what they felt was
competitive alternative for the industrial sector, the majority
incomplete information. News reports said that the
of which operates under Tariff 2. The wind farms that are
developers increased the planned number of turbines
currently operating in Oaxaca offered a cost-effective
without the consent of the community. This project
solution for off-takers that were paying Tariff 2 prices
was funded by the Inter-American Development
through PPAs signed for 25 years. In the coming years such
Bank, Macquarie and several other banks with FEMSA
investments will represent important savings in electricity
set to participate as an off-taker. The wind turbines
consumption for companies like Grupo Bimbo, Peñoles
have already been delivered and are sitting in the port
and Cemex, and will make a major contribution towards
of Salina Cruz, waiting for installation. But the locals
reducing the level of CO2 emissions in the country. Small
have kept up their resistance, claiming irregularities
energy producers have found another opportunity by
and the violation of the rights of the communities
providing energy directly to CFE, a scheme under which the
of San Dionisio del Mar, San Mateo del Mar and San
national power company pays for energy at the short-term
Francisco del Mar, among other indigenous localities.
total cost. Off-takers are key players in the development of the renewable energy sector in Mexico. It is off-takers that
The use of land has been a matter of great importance
will guarantee demand for energy produced and thereby
for many years in Mexico with companies growing
provided a fixed income that enables project developers to
increasingly aware of the consequences of not
obtain the necessary financing.
negotiating continued
adequately stalling
of
with
communities.
The
Mareña
Renovables
puts
Private renewable energy projects have proven to be
millions of investment dollars at risk. The wind
successful in competing with CFE for clients whose electricity
industry has learned a lesson from this experience
tariffs fall into the DAC, Tariff 2 and Tariff 5 categories.
however. Negotiation know-how with ejidatarios and
It is thanks to these areas of opportunity for Mexico’s
communities is widely needed by companies that are
energy sector that the established emission reduction and
planning on developing a project. Several developers
renewable energy targets can be reached. Major markets fall
have come up with their own strategies to form long-
into these categories that could support the development to
term ties to the communities they work with. Mareña
the renewable energy sector in Mexico, including high energy
Renovables, having now been frozen for well over
consuming households, major industries that fall under
a year, has become a key incident in the Mexican
the Tariff 2 category, and a large amount of public lighting
renewable energy landscape, having somewhat halted
infrastructure throughout the country. The renewable energy
the hype of wind energy projects. Companies are
sector must focus its attention on these potential clients
becoming more cautious when developing a project
in order to grow at the quickest rate possible. The small
that involves dealing with local communities. This
producer scheme is becoming an increasingly viable way of
is not limited to wind but to every project with any
doing that, which will provide an important opportunity for
potential social or environmental impact.
the renewable energy industry going forward.
49
REAL COSTS AND BENEFITS OF RENEWABLE ENERGY Ten years ago, renewable energy projects in Mexico were
is not. These sources will become truly competitive once
inexistent with the exception of hydroelectric plants. It was
generation costs, including externalities related to CO2
not until recent administrations that renewable energy
emissions and their social and economic consequences, are
sources began getting more attention and a decided
calculated and taken into account.
push from the government. Sergio Alcocer Martínez, former Coordinator of Innovation and Development at
Carbon emissions, according to Alcocer, are in particular
the National Autonomous University of Mexico (UNAM),
need of attention, given the shifting of weather patterns.
applauds certain government strategies such as the Law
Alcocer suggests that considerable human and economic
for the Use of Renewable Energy Sources and Law for the
losses caused by climate change should be considered
Financing of Energy Transition (LAERFTE). However, he
externalities of CO2 emitting technology. The prices
reasons that the country is still far from being able to fully
of natural gas production and distribution make them
exploit the sector’s potential. He believes Mexico needs to
favorable right now, but externalities raise the value of
act faster by initially mapping opportunities. For instance,
other competitive energy sources. Alcocer mentions
the potential of solar, wind, and geothermal energy needs
geothermal energy as an example of a power source that
further definition.
requires high investments but has a competitive cost per kWh. “In order for renewable energy sources to keep
Charting the national potential for renewable energy
advancing, the government must make different decisions
will help establish if the objectives stated in the General
and promote them.”
Climate Change Law, such as reaching a 35% participation of renewable energy in the energy mix by 2024, are truly
The promotion of renewable energy use needs concrete
achievable, says Alcocer. Other issues, including possible
actions beyond mere intent. “The 35% use of renewable
tariff costs, need to be addressed. The fact that natural
energy sources stated in the General Climate Change
gas is available at affordable prices at the moment makes
Law is a political statement. I applaud it, but we have to
thermoelectric projects more feasible than renewables. The
realize its implications,” Alcocer says, while adding that it is
law established that CFE has to provide energy at the lowest
unclear how the country will afford the energy transition. “I
cost, but said cost is not specified. However, the lowest
doubt this percentage will be reached without significant
cost has been interpreted as meaning the most affordable
investments and increasing tariffs.” The importance of
fuel, which points to natural gas. As for renewable energy,
nuclear energy in fulfilling these national objectives has
Alcocer says that solar radiation is free, but PV technology
also been underestimated, with the UNAM representative
COMMERCIAL AND INDUSTRIAL TARIFFS While Mexican households are segmented into eight
There are also special tariffs for electricity destined to pump
different tariffs, the commercial and industrial sectors are
water for agricultural purposes. Tariff 9, as the base tariff, is
divided into 36. This increases the complexity of the system,
applied exclusively to low voltage electricity provided for
in which electricity tariffs depend on the use, the region,
water pumps as well as public lighting located in the area
the voltage and the type of service. Public lighting is an
where the equipment is installed. Tariff 9M is a slightly more
important user of electricity and has been assigned a tariff
expensive variation of the base tariff for medium voltage
of its own, Tariff 5. This tariff is only applied to energy that
electricity supplied for the same services and objectives.
is used to power street lights, and ornamental lighting of
Furthermore, Tariff 9CU is a significantly cheaper stimulus
plazas, parks and public gardens in the urban zones of the
tariff for the same purposes provided to individuals that are
Federal District, Monterrey and Guadalajara. The tariff that
registered as beneficiaries within the agricultural field, within
is applied for public lighting in the rest of the country is
a limit established by SAGARPA. Under this same scheme,
defined as Tariff 5A, which is lower than the tariff applied
Tariff 9N is the night time stimulus tariff that reduces cost
to the aforementioned highly populated cities. This tariff is
by more than half in order to promote productive activities
particularly relevant since public lighting is one of the main
in the Mexican agricultural sector.
costs for a municipality, and renewable energies within a self-
50
supply model have proven to be a competitive alternative to
The main opportunity for renewable energy is competing
CFE supplied electricity under the public lighting tariff.
with Tariff 2 rates for industrial and commercial energy
explaining that a combination of gas, oil, nuclear, and wind
decide whether it will continue taking advantage of low cost
energy raised the cost per kWh, which was passed on to
hydrocarbons and sacrifice the development of renewable
the public in the form of taxes or tariffs.
energy sources, or invest in the development of these sources at a higher short-term economic cost. Considering
The clean energy industry can be very profitable without
the country’s economic inequity, it is likely that the
burdening
sector
government will opt for the most affordable option,” says
contributes more to the GNP than the food or pharmaceutical
consumers,
Alcocer
believes.
This
Alcocer. Renewable energy sources should be stimulated in
industries at the international level, and should be a national
subtle ways that make sense, such as environmental reasons.
priority. CFE has a team of experts on renewables but the
Energy efficiency could be an important step to bringing
institution has seemed to have certain doubts about energy
this process forward. For example, the transportation
sources that are outside its traditional areas of expertise.
sector represents 50% of Mexico’s energy intensity. Alcocer
CFE is well-versed in geothermal energy because it operates
proposes
geothermal plants, and it has plenty of experience with
through mandatory practices and regulations, he sees this
hydroelectric plants as well. However, Alcocer calls for CFE
as potentially lowering the fuel demand and the need for
to expand its internal capacities in areas such as solar and
imported gasoline and diesel, leaving PEMEX resources to
tidal energy. This diversification would require action from
be assigned to renewable energy sources.
improving
public
transportation
efficiency
the Mexican government to promote and foster the training of specialized professionals. This fits in with Alcocer’s vision
To foster growth, says Alcocer, it is necessary to look for
for each energy source to have a pool of specialists devoted
and stimulate the most promising projects, such as large-
to its advancement. This was done in the US, where each
scale developments with strong technological content. For
renewable energy sector had its potential mapped out and
Alcocer, the public and private sectors should not invest
tailor-made strategies designed for it.
in technological experimentation, but in improving proven technologies instead. As for renewable energy sources,
But Alcocer has not seen efforts from the Mexican
Alcocer believes these have an interesting potential
government to disseminate the benefits of renewable
to be developed by small communities with no access
energy sources yet. In fact, he sees many foreign
to the grid. These could help detonate the renewable
companies are more interested in exploiting the national
energy market as a whole as well as the creation of small
potential than domestic firms. “Foreign companies should
businesses across Mexico, making the investment more
partner up with local companies so a significant national
than worthwhile. Many sources of renewable energy could
capacity can be developed.”
be involved in these tailored programs, from wind to solar and geothermal. These could work if they were carried out
Facilitating project development and providing incentives
within the context of a government framework that takes
could nurture the sector. However, it is important to assess
a holistic approach to renewables, seeing the potential in
the implications entailed in these actions. “Mexico has to
small installations and mega-projects alike.
consumers. This tariff applies to all low tension use of
the price of electricity in Mexico. The Energy Reform is still
energy of up to 25kWh, excluding services for which the
being developed and its secondary laws are to be finalized
tariff is specifically fixed. Its rates are MX$2.281 for the first
in April. However, CRE Commissioner Noé Navarrete says
25kWh, MX$2.754 for the next 25kWh and MX$3.032 for
the price of electricity may decrease in the future after
any extra kWh beyond this. The cost of electricity under
these modifications are completed; the increased flexibility
Tariff 2 is, generally, higher than mid and high tension
they will give the electricity system will allow the private
supply. As renewable energies have become better able
sector to take a larger part in generation, transmission and
to compete with prices at Tariff 2, it has become more
distribution activities.
attractive for companies facing high electricity costs to look for renewable energy alternatives. The success of the wind
Until now, the self-supply scheme has been the preferred
industry in Oaxaca is largely based on its ability to compete
alternative for large energy users in the private sector
with the price of electricity in Tariff 2.
looking to reduce their energy costs. Modifications to Articles 25, 27 and 28 of the Constitution will boost the
Mexico’s National Energy Strategy has stated that the
viability of the Independent Power Producer scheme as
country will move away from more pollutant fossil fuels to
an alternative to PPAs. This wider variety of options will
the benefit of natural gas, a statement that is becoming
provide an opportunity for the development of renewable
a reality with the building of more pipelines. But critical
energy projects, but also for combined cycle plants that
alerts due to the lack of natural gas still lead CFE to use
use natural gas as a fuel, thus helping Mexico lessen its
more expensive fuel oil, an important factor that influences
dependence on fossil fuels.
51
PPPS: A STRONG ALLY FOR PROJECT DEVELOPERS The
enactment
of
the
Public-Private Association
a good decision. Now we can start exploring renewables,” states Resendez Bocanegra.
Law came in early 2012,
Pedro Resendez Bocanegra, Partner at Greenberg Traurig
creating broad access to
The current legal framework can help create synergies
public-private partnerships
between natural gas and renewable energies. Instead of
(PPPs) for the first time in
competing, they can complement each other. Mexico’s
Mexico. Prior to this law
regulation does not impede or favor non-renewable
being
the
resources and, from Resendez Bocanegra’s perspective,
Mexican government had
this is the reason why renewable projects are becoming
included PPPs within the
a reality in Mexico. “The private sector is taking the risk.
federal system, but these
There are three or four large wind and solar projects in
implemented,
were only accessible in highly restricted conditions.
Mexico where a private developer took the risk to invest in renewable energy because their off-takers did not want to
Pedro
Resendez
Bocanegra,
Partner
at
Greenberg
depend on CFE or on the rate that CFE decides to charge.”
Traurig, says the law firm was engaged by the Mexican
Resendez Bocanegra says the looming challenge is
Construction Chamber (CMIC) and helped it to propose
transmission, despite it not being a legal issue. He believes
regulations about PPPs to the government. “So far we
the market needs to be reorganized and is placing trust in
have been successful with a couple of clients that have
the Energy Reform. “Changes need to be made in order
already submitted PPP proposals to the government,”
to enable private parties to build more transmission lines
he adds. Greenberg Traurig has seen how this process is
with CFE, and to transmit electricity through contracts
transferring the critical decisions for renewable energy
with private parties. We need to change the structure of
projects to the private sector. Rather than relying on the
the Mexican electricity market: we need an independent
government, the private sector is tabling proposals and
operator because the current one, CENACE, is part of
is working with the government on financing and project
CFE. The transmission lines are all owned by CFE and
development. “Instead of having a rigid law, we are seeing
this creates conflicts when deciding to start a renewable
more flexible regulations which show that the government
energy project or an IPP,” claims Resendez Bocanegra.
is supporting the private sector in proposing projects,” Resendez Bocanegra acknowledges.
As the Energy Reform moves forward, renewable actors anxiously wait to see where the secondary laws will stand.
Greenberg Traurig has been involved in the bidding and
“Based on previous experiences, if secondary laws are left
financing of major projects. Resendez Bocanegra uses the
until the end, the expected results might not be achieved. I
project financing granted by Korea’s Nexon Bank, where
believe that secondary laws are essential, and the government
the whole risk was allocated within a project’s assets, as
has to ask the players how they would be willing to invest.”
an example of the increasing challenges for firms such
52
as Greenberg Traurig. “For example, we drafted CFE’s
In the meantime, the renewable energy market continues
independent power producer (IPP) contracting model.
to move forward and this translates in Greenberg Traurig
Even though CFE is using the same model with some
being increasingly consulted about renewable projects
changes applicable to the renewable energy sector, what
ahead of non-renewable ones. This situation is expected
has promoted the growth of renewables is not necessarily
to continue throughout 2014 since the law firm is seeing
the legal instruments,” Resendez Bocanegra notes. “Wind
a large number of investors with resources available to
power is almost cost competitive with combined cycle or
invest in renewable projects, a sign that the renewable
even offers a cost advantage,” he says. When his firm started
sector is becoming profitable. This may well be linked
considering helping IPPs work with renewable energy,
to the development of small and medium-scale projects
the problem was that renewable energy was simply too
that can be developed by teaming with private off-takers,
expensive. “CFE by law has to buy the cheapest energy, so
or with state and local governments. This evolution
now that renewable energy rates are becoming competitive,
represents a very attractive opportunity for private equity,
there is no reason not to do a renewable energy or
and Greenberg Traurig is well aware of that. “We have
combined cycle project.” The second issue with renewable
decided to focus on Mexico. We have been here for a
energy is the intermittence of some renewable sources,
long time, we are committed to the country, and we know
which requires a diverse energy mix. Mexico shifted most
how to develop projects here, but also know how to bring
of its energy to combined cycle and natural gas, which was
financing to Mexico,” adds Resendez Bocanegra.
| VIEW FROM THE TOP
FOSTERING PRIVATE PARTICIPATION IN ENERGY MATRIX ALEJANDRO PERAZA GARCÍA Director General of Electricity and Renewable Energies at CRE Q: What are the priorities of the Energy Regulatory
sources were also not economically viable because of their
Comission (CRE) in terms of developing Mexico’s energy mix
intermittent nature. This problem was solved once the
and positioning the sector as a driver of economic growth?
energy bank was created. Nowadays, most technologies can
A: CRE works under the mandate of making the energy
enter the domestic market and compete with CFE’s tariffs.
industry more efficient. Although demand is increasing, there is another mandate which dictates that clean energy
Q: What are the achievements and shortcomings of the
sources should be incorporated into the energy mix. We see
Renewable Energy Use and Energy Transition Financing Law?
this as a business opportunity in which Mexico can invest in
A: We began working with renewable energy sources
equipment manufacturing, engineering firms, construction
before this law was passed, which was quite difficult as
companies, or any other area related to the industry. The
duties were not assigned. There is much more clarity
changes made to the Electric Energy Public Service Law
now and the legislation made us create rules to facilitate
(LSPEE) were intended to reduce the amount of public
investment. The transparency that resulted from these
resources invested in the energy sector. Public education
laws is one of the biggest achievements for the renewable
and the power sector should not compete for resources.
energy sector. However, this legal framework does not
This is also the reason why private parties, currently
foster competitiveness.
responsible for 45% of national power production, were allowed to participate in energy generation.
Q: What schemes similar to the Open Season could facilitate private participation in the expansion of
It is not wise to hinge the well-being of an entire country
transmission infrastructure?
on a single energy source. Incorporating renewable energy
A: In every other country, private actors pay for the
sources into the energy mix is a clear sign of diversification,
infrastructure they need to connect to the grid. Open
which is the right path for Mexico at the moment. An
Season is a great option because many companies
advantage of renewable energy sources is that we can
collaborate and build the infrastructure instead of a single
calculate costs from the day the generator is chosen until the
company assuming the total costs. The second Open
last day of the equipment’s working life, the source itself has
Season in Oaxaca consists of an 800km transmission
no cost, unlike oil or gas. Another asset is that the renewable
line and there are no other projects currently capable of
energy industry is growing fast enough for costs to drop,
matching this capacity. This was only made possible in
which makes projects more competitive.
Oaxaca by gathering several developers. Private projects should be paid for by private parties.
Q: How does CRE facilitate private participation in the Mexican energy sector?
Q: Which international best practices could Mexico adopt
A: CRE establishes a set of rules which are examined
to make renewable energy sources more competitive?
by potential investors, who then decide if they want to
A: We are working on a bidding scheme in which CFE will
participate or not. We ensure equity by setting rules.
grant small producers throughout the country long-term
The private sector’s involvement in renewable energy
contracts for renewable energy projects up to 30MW.
production works because it is a profitable enterprise.
Large projects only allow large companies to participate.
Unlike many other countries, Mexico does not subsidize
These 30MW projects will enable Mexican entrepreneurs
power from renewable sources. This decision meant
to enter the sector by manufacturing, building, operating,
that projects were not going to be developed until
and maintaining small energy plants, which also create jobs.
technology costs were low enough to be competitive in
Additionally, this will allow CFE to focus on large projects.
Mexico. However, there are plenty of regulated incentives aimed at leveling market conditions for renewable energy
The next step should be a booming solar energy industry.
with traditional sources. Previously, renewable energy
Mexico has a greater solar resource than Germany.
53
INTRICACIES OF NEW ENERGY AND ENVIRONMENTAL LAWS 2008 was supposed to be the key year when the government
environmental protection, and district judges. “However,
moved to implement rules for the development of the
nowadays they are dealing with criminals in administrative
renewable industry. However, Daniel Basurto González,
matters, so dealing with environmental matters in a
founder of IDEAS, a firm that specializes in environmental
proper way will be difficult. While there are thousands of
law, claims that so far the operating environment just
ongoing criminal investigations, nobody has gone to jail
encourages the development of the renewable energy
for environmental crimes,” argues Basurto González.
instead of providing a platform for real action.” He argues that “the law, as it stands right now, does not give enough
Interestingly enough, Mexico is a very important player in
resources or enough tools to allow developers to carry out
the international environmental sphere, as it has signed
their projects effectively.”
more than 120 treaties related with the environment. Basurto González argues that the country has a better
In order to help its clients avoid common mistakes that
reputation at the international level than at home. He
might delay a project, IDEAS has developed environmental
emphasizes that in the last administration, Former
audits that can be used to comply with norms. The targets
President Felipe Calderón destined plentiful resources
include energy efficiency, water usage, and compliance
to fight climate change, pointing out that in 2008 some
with environmental law, which are three main pillars of
laws were enacted as starting points, along with related
concern for companies. “It is quite common for companies
public policies that were designed to promote sustainable
to have forgotten a particular regulation, not because they
development.
do not want to comply but because of the intricate nature of different laws,” explains Basurto González. IDEAS’
Nowadays, the country is facing a conundrum: there are
strategy when approaching different jurisdictions and
not enough financial resources to continue pushing these
helping clients comply with all requirements begins with a
policies. “This is not just happening in Mexico but all
sales assessment. If a company wants to build a wind farm,
around the world. If there is not enough financial capacity,
for example, it needs to obtain permissions to change
acquiring new technology becomes a difficult task. There
the use of the land. This is just the first step in IDEAS’
were initiatives destined to involve some entities in the
relationship with a client. Once the necessary permits
financial schemes such as the British government and
have been acquired, IDEAS looks at the development plan,
USAID. However, project developers face difficulties over
including the timeframe and the government entities that
the lack of certainty and clarity provided by current laws
will be involved. “When a federal government entity is
and regulations. In consequence, investors are hesitant to
involved, the process tends to be more bureaucratic but
come to Mexico because the actual operating framework
easier overall. Locally, municipalities may have murky or
does not provide enough support for these types of
unclear regulations, which can make things more difficult,”
projects,” Basurto González remarks.
notes Basurto González. This, however, largely depends on On a happier note, Basurto González recognizes that
the state where the project will be developed.
Mexico has experienced many positive changes. Institutions concerning
such as the Mexican Bar Association, COPARMEX (Mexican
environmental litigation processes, is another issue that
Confederation of Business Owners), and CONCAMIN
has to be taken into account. Basurto González emphasizes
(Confederation of Industrial Chambers of Mexico) have
that the Mexican system highlights the maximum pollution
developed
levels. Therefore, anything under those levels is considered
has taken an important role in corporate schemes
as permissible, he says, and it is the Environmental
mainly because energy costs account for a large part of
Responsibility Law that defines what is considered to
companies’ overall costs,” he says. “But I believe President
be environmental damage. “This definition does not
Enrique Peña Nieto thinks all matters related to energy
contemplate anything that is harmful for the environment
generation should be part of the open market. Realistically,
as damage. Instead, the lack of compliance with permits,
the private sector will clearly play an important role in
authorizations and general requirements is considered
taking electricity to places where it is inexistent.” The
environmental damage,” he says. As far as handing down
current operating framework may not be perfect, but
punishment, the law establishes penalties of around
Basurto González does not think it is necessary to eliminate
MX$600,000 (US$46,000) and/or to develop actions in
what has been worked on so far, stating that the existing
order to restore the environment. The authorities that will
laws and regulations simply require a few changes to fit
deal with this are PROFEPA, the federal legal body for
Mexico’s new needs.
The
54
recently
enacted
Amparo
Law,
energy
commissions.
“Energy
efficiency
| VIEW FROM THE TOP
KEEPING CLIMATE CHANGE ACTIONS MOVING FORWARD JUAN CARLOS BELAUSTEGUIGOITIA Secretary of the Council on Climate Change Q: How does the Council on Climate Change contribute to
Q: What would you like to see included in the PECC?
effective policy making at the federal government level?
A: From a mitigation perspective, I would like to see
A: It is important for authorities to be in regular contact with
ambitious, even aggressive, actions to take advantage of
experts and become acquainted with their point of view.
all the win-win opportunities offered by energy efficiency.
Through the Council on Climate Change, they can access two
A couple of important steps can be taken, such as fixing
areas: expertise of those who sit on the Council and experts
the right energy prices. Fortunately, it seems like things
in industry, NGOs and academia. The Council derives its
are converging from financial, fiscal, environmental, and
legitimacy from its accumulated experience and knowledge,
social standpoints. On the adaptation side, I would like to
and we try to ensure that all voices are well represented.
see a strong analytical effort to describe and understand Mexico’s risks and vulnerabilities. I would like to see a
The government believes that climate change represents
process of institutional strengthening so that municipalities
both a challenge and an opportunity that has to be taken
and states become more capable of addressing climate
seriously. Developing the climate change strategy was
change and extreme meteorological events.
a big challenge because it had to be created in a short period of time. The next challenge will be the Emerging
Q: What are the challenges in internalizing all the
Climate Change Program (PECC). We have to make sure all
externalities in the sector?
sectors are on board and that the objectives are reached
A: From the mitigation point of view, it is about providing
off the backs of solid analytical support. Climate action
certainty that the sectors responsible for producing
plans and initiatives tend to be statements of intent rather
emissions internalize the cost they bring upon the global
than elaborate and precise plans. The challenge is to make
community. A carbon tax or a cap-and-trade mechanisms
sure the climate action plan is a real plan. We rely on a
would be the best ways to do this. This is the most cost-
talent pool that possesses the technical and analytical
effective way to internalize climate change. If you asked me
resources to advise and encourage ministries to pay more
how sectors can adapt to climate change, I would mention
attention to climate change by producing documents,
insurance companies. Mexico has to develop this line but
facilitating discussions, and bringing in the latest scientific
funding is crucial. FONDEN, the national disaster fund,
and technological news, methodologies and knowledge.
now provides support in the wake of natural catastrophes. I would push for the creation of another fund that helps
Q: How can the PECC become a scientifically, economically,
communities adapt and prevent the most extreme impacts
and socially founded policy?
of severe meteorological events.
A: First, we need to involve all stakeholders as well as the parties involved in the latest technological developments.
Q: What types of incentives could influence these sectors
We need valuable people, economists and lawyers who
to adapt quickly and become more efficient?
know the sector and who can devise a list of actions
A: There is a straightforward incentive: conditions are changing
that can be later discussed with stakeholders. It is a very
and these sectors will be affected if they do not change as
difficult mix of attributes; we need the right people, the
well. PEMEX has a climate action plan with an adaptation
right skills, the will to listen, the right mechanisms, and a
section where the company looks for vulnerabilities across all
timeline.
its sites. They want to reduce potential risks and damage to their facilities. PEMEX is financing reforestation programs in
In 2015, there will be a set of international negotiations on
Chiapas and making sure that deforestation does not reach
goals that will help countries focus and consolidate their
drastic levels. What happens in Chiapas affects Tabasco,
action plans. We know that promises do not necessarily
where PEMEX has many facilities. If PEMEX does not
translate
mitigate deforestation in Chiapas, its facilities will invariably
into
actions,
but
commitments to become feasible.
accountability
pushes
be affected at some point.
55
| VIEW FROM THE TOP
LACK OF COMMUNICATION IMPEDING R&D FOR RENEWABLES JORGE HUACÚZ VILLAMAR Manager of the Non-Conventional Energy Division of SENER’s IIE Q: Which role do renewable energy sources play in the
to manufacturing, meaning that many elements that are
activities of the Electrical Research Institute (IIE)?
obvious to researchers and technology developers are
A: There are two renewable energy divisions in the IIE: one
being missed by businesspeople.
is exclusively devoted to geothermal energy and the other covers all other non-conventional energy sources. We have
Q: What is needed to drive the renewable energy sector
been working on renewable energy sources for 35 years
forward?
and our objective is to push the sustainable application of
A: Initial investments are an important barrier. We have
renewable energy in Mexico. We contribute to the entire
addressed this by doing workshops on financing and PV
national power sector by developing energy sources,
systems with banks and international financing institutions.
carrying out technical research and supporting CFE with
We want investors to know they can invest in the renewable
regulatory and normative issues through reports that
energy sector. The introduction of financing mechanisms
eventually lead to resolutions or CRE norms.
could be sped up if, for example, the Energy Transition Fund dedicated some resources to financial coverage. This
Q: What is IIE’s strategy to turn proposals into results?
could ease concerns banks have about potentially risky
A: First and foremost, we need human capital with the
investments. The National Energy Strategy is also lagging
necessary abilities and qualifications to develop proposals.
behind, with fossil fuels still set to account for 50% of power
This has historically been a key subject in the development
generation by 2050. This is both a huge challenge and
of renewable energy sources. Another part of our strategy
a great opportunity for renewables. However, the role of
consists of creating support infrastructure, gauging
renewable energy must be properly stated and assimilated.
stations, and digital databases that enable us to have strong and consolidated information. This requires time,
Renewable energy should be used to reactivate the
money, and a national program. The institute has therefore
country’s economy. Economic motivations drove countries
sought the support of organisms that could help us. We
like Spain and Germany to develop renewable energy
created the National Laboratory for the Assessment of
industries, and they are now world leaders in the field. If
Renewable Energy Sources through a joint investment
we take advantage of the wind resources that have been
with the National Technology Council.
already identified in Mexico, 40,000 to 50,000 jobs could be created. Another aspect to reconsider is how projects
Q: What are your thoughts on those who think technology
could be developed to maximize resources. Renewables are
development is redundant because imports offer faster
dispersed energy sources; centralizing them to deploy them
and more affordable solutions?
to different places later on seems rather counter-productive.
A: Based on my professional and academic experience, I
Big definitely works, but small is also nice and profitable.
obviously do not share this point of view. Mexican industry
56
is traditionally inclined towards commercializing rather
Q: What priority actions do you think energy-related
than producing technology. We noticed that in the solar
government organisms should take?
energy sector, every company is either buying or selling
A: Oil gives us time and economic resources, but we have
parts, except for two companies that assemble photovoltaic
to use these intelligently. The funds that result from the
modules using imported components. Companies that
Energy Reform should be aligned with national objectives.
commercialize are clearly part of the value chain, and we
This is not the case nowadays as Mexico is still struggling
do not disregard them because local manufacturing makes
to assign and distribute the resources needed to achieve a
no sense if no one is distributing and selling. The real
concrete policy on renewables. The US set itself the goal
issue is that there is very little liaising between renewable
of generating 20% of its energy from wind power by 2030
energy companies and the institutions carrying out R&D.
and it is on the right track. Mexico needs to make the same
Companies do not have clear foresight when it comes
level of commitment.
| VIEW FROM THE TOP
GOVERNMENT ACTION SORELY NEEDED TO UNLOCK RENEWABLES ODÓN DE BUEN RODRÍGUEZ Founder and President of Energía, Tecnología y Educación (ENTE) Q: What was the main purpose behind ENTE’s creation?
projects in Oaxaca bankable. The photovoltaic industry is
A: The firm is focused on three main areas: renewable
also growing stronger. This sector has experienced a bit
energy, energy efficiency, and climate change. We
of chaos because of the way in which the government has
have been working alongside the International Copper
determined the technical standards to ensure quality and
Association for six years now, in addition to working
performance. In my opinion, the government has been
for Germany’s GIZ and USAID, among others. ENTE is
reacting to how the private sector has made the renewable
involved in non-profit activities within the Network for
energy sector profitable and attractive rather than paving
Energy Transition in which we exchange opinions and
the path or leading with initiatives.
information and provide important documents to the authorities.
Q: What do you believe the current administration will do to support the renewable energy sector?
Q: What are the main limitations and challenges that the
A: I believe the private sector will have the upper hand
renewable energy industry faces at the moment?
on this subject. As a producer and a final user, the private
A: The country has subsidies for oil, gas, electricity, and
sector will be in favor of more renewable energy in the
liquified natural gas, but not for renewable energy. The
country. Companies will look for business opportunities
previous administration was very noisy about renewable
and will pursue the government to push this industry.
energy but they did not really facilitate progress. The
The current administration has showed its concern for
framework has been a bit disorganized. At the center,
modernization, particularly regarding PEMEX and the oil
we have CRE with the regulatory instruments but the
industry, but I have not heard many plans for a modern,
law that is supposed to support the industry, from the
environmentally sustainable energy sector yet. The federal
2008 package of energy laws, is not functioning. We
government should definitely set the national priorities
do not have a clear model, we are using the model of
while state governments should be involved in promoting
the Electricity Law of 1992, but we have to use a model
renewable energy projects and developing their own legal
that would allow open access to the network, such as in
frameworks.
Europe with feed-in tariffs, or define a more stringent plan for CFE following the American model of the Renewable
Q: What should be the top priorities for the development
Portfolio Standards.
of Mexico’s energy sector? A: The production of renewable energy should be
This would require CFE to commit to a certain percentage
increased as much as possible. This, however, will require a
of the energy it supplies to end users coming from
restructuring of the entire energy sector. Renewable energy
renewable sources. In addition, the current self-supply
is more complicated because it implies actions such as
system is subject to rules that are defined by the executive
installing PV systems on individual rooftops, municipalities
branch of the federal government in terms of pricing,
using biogas, or collecting animal waste for biomass. It is
instead of being defined by the law, which would bring
easier to think of the big players doing the hard work rather
it more certainty. We need a more secure and more
than imagining a more complex transformation to a more
consistent regulatory framework.
decentralized power generation system. Finally, helping municipalities throughout the country with transmission
Despite these challenges, the renewable energy sector
and storage capacity and investing in energy transition
has developed well and continues to do so due to
at the local level should be priorities. Decisions with an
pressure from the industry. This is definitely the case
economic impact are usually taken in large urban centers.
for the wind industry, which has had permits since 1995
Therefore, this last priority deals with urban planning, land
and has worked with the federal government to develop
zoning, transportation infrastructure, and construction
regulatory instruments that were later used to make the
regulations.
57
PV DILEMMA: WHEN CONNECTING TO THE GRID IS NOT ENOUGH By Severo López Mestre
interconnection agreement, the commercial net-metering
Arana- For solar energy to
interconnection agreement and the small power producer
thrive, a good regulatory
(SPP) scheme.
framework
Severo López Mestre Arana, Director of Mexenergy and Founding Partner of SUMe
that
a
stable
for
investors
creates
environment
The residential net-metering interconnection agreement is
crucial.
between the utility and the PV system owner. It allows for
Stability can be a broad
up to 10kW of renewable power to be installed. The energy
concept,
solar
produced can be offset with the energy consumed from
is
but
in
predictable,
the utility on a kWh per kWh basis. If there is any surplus
simple and with incentives
for the system owner at the end of the year, it will not be
for
it
means
These
awarded. The utility residential market in Mexico holds
principles create conditions where investors are willing
about 33 million clients. However, since there is no feed-in
to risk capital given the predictable returns but are also
tariff and the rating system for residential power is heavily
continuously focused on reducing costs in the long run in
subsidized (the warmer the temperature in the locality, the
order to remain competitive.
more subsidy the area receives without socio-economic
innovation.
considerations) only about 550,000 homes out of the 33 Could we say that the Mexican regulatory framework
million can be considered as viable candidates for PV. This
provides this stable environment for solar power? Simply
is because they are the only residential group that actually
put: no. There are several reasons for this, such as a
pays the non-subsidized real price of electricity, which would
subsidized and politicized electricity rating system, the
be around US$0.26 per kWh. This represents “la crème de
lack of a solar policy model with specific targets and
la crème” and the highest rate the system will pay in Mexico
the adequate regulatory instruments to achieve them, as
for a solar kWh in any scale. The name of the game in this
well as an interconnection and net metering policy that
segment is sizing solar projects up to the point where the
was forced into all of this. For the sake of this analysis
reduced consumption level of the system owner qualifies
we will concentrate on the interconnection agreements
him to reenter the utility subsidized residential rate category
which constitute the only solar specific policy instruments
depending on the location (temperature) of his living area.
created so far. These are the residential net-metering
The commercial net-metering agreement contract is also
PUSHING FOR MEXICAN ENERGY EFFICIENCY STANDARDS The National Commission for Energy Efficiency (CONUEE)
ensuring that products entering the Mexican market meet
was created in 2008 to promote energy efficiency and
high performance standards. As a result, new energy
to serve as a technical body for sustainable energy use.
efficiency programs have surged, such as public lighting
Two laws provide strength to CONUEE: the Law for
programs in municipalities. By complying with CONUEE
the Sustainable Use of Energy (LASE) and the Law for
norms, the organizers of such programs can receive
Methodology and Standardization (LMN). The LMN is the
payments proportional to the cost of the project. “The key
base of the 25 NOMs (Mexican Official Standards), which
function of this commission is to give technical certainty
are at the core of the organization. “Energy efficiency
on performance and the quality of products. But when
is reached through these norms since most of them
there is technological change, low quality products may
include improvements in energy saving characteristics of
appear in the absence of normalization,” de Buen states.
products,” says Odón de Buen, President of CONUEE. De Buen argues that a lot more can be done to save energy
58
Based on the LMN, tests must be run in laboratories
at lower costs than generating energy from renewable
with certifications being given by specific organisms,
sources. However, energy saving programs are not visible
all of which are accredited by the Mexican Entity of
and therefore do not gain political traction. “The NOM-015-
Accreditation. From de Buen’s perspective, it is a very
ENER-2002 was created to certify the energy efficiency of
solid system that provides technical certainty, while the
refrigerators and was published a decade ago. While its
norms allow higher energy efficiency to be reached by
implementation avoided the necessity for several power
executed between the utility and the PV system owner. It
specific regulation but it has been creatively adapted for
allows for up to 500kW of on-site solar power. The energy
the purpose since it is the only viable structure to develop
produced can be offset with the energy consumed from the
utility-size solar projects despite its limit of 30MW.
utility on a kWh per kWh basis. If there is any surplus for the system owner at the end of the year, it will not be awarded.
The SPP requires an agreement where 100% of its capacity
Most of the attractive candidates for this contract (small
shall be committed to CFE, the sole off-taker in the project.
and medium industries, malls, corporate office buildings,
Not undermining the technical and developer merits of such
sports clubs and retail stores) are subject to a utility
projects, the SPP approach holds deep regulatory and policy
rate applicable to medium tension users with an overall
concerns. The most relevant of them is the discretionary
power usage of 100kW or above. This commercial market
nature of these agreements. The SPP represents the only
obviously represents a very attractive and key segment for
loophole in the Mexican electricity law where the utility
the solar industry to develop and also constitutes a very
can acquire capacity without a legally binding open public
important sector to pursue and further urban renewable
bidding process. This places the process in a dangerous
energy and sustainability policies. Unfortunately this market
discretionary limbo that has never been good for sound
has remained largely untapped since the price at which the
regulatory policy. How can a company qualify and get the
solar kWh is compensated by the utility is extremely low
signature from the utility for one of those agreements? At
given the commercial interconnection agreement design.
what price? Should companies simply approach them with
This rate level for commercial size PV projects either creates
a project?
perverse incentives to deploy “cheap low quality equipment” which kills the market and/or makes the sponsors postpone
Mexico has only taken a very small step in solar policy with
and put on hold PV investments until “conditions change”
a limited perspective by only granting interconnection
in Mexico. The central problem is that the net-metered or
rights to residential and commercial solar projects. There
compensation price for each solar kWh was anchored to the
is no regulatory or policy vision of an overall solar industry
HM utility rate at the intermediate rate level, which has an
model to seriously develop the solar sector to its full
average price of US$0.09 per kWh. This situation that could
potential. We are at a crossroads with the Energy Reform
seem as a minor regulatory design flaw has proven to be the
changing the face of the Mexican energy sector. But up
most important disincentive for commercial PV projects.
to this point, there is no express mention that the heavily subsidized and politicized rating system will be revised, for
The small power producer (SPP) scheme, has been an
example. Sometimes policy making is more an art than a
investment alternative in the Mexican power sector, along
technique and, as in any other art form, you should never
with self-supply, cogeneration and the independent power
lose sight of the big picture: a stable environment for solar
producer scheme, for the past 20 years. SPP is not a solar
investors.
plants, these energy saving are hardly noticed by the
example, CONUEE is now working on certifying PEMEX
wider public, which prevents them from being popular,”
and CFE. Another important issue is strengthening its
he says. Water heaters are another source of high energy
relationship with municipalities. “We need to reinforce the
consumption. CONUEE created the NOM for water heaters
norms for buildings since air conditioning has become a
and ensures the quality and efficiency of heaters to
basic need in many areas of Mexico. We are very interested
mitigate energy consumption.
in cooperating with municipalities to improve compliance with these norms,” explains de Buen.
CONUEE has been an observer of energy efficiency programs such as the Energy Saving Program and the
CONUEE’s goal continues to be the broad implementation
Sustainable Lighting Program. “For public lighting, a LED-
of energy saving practices through the development
based program is being considered. CONUEE participates
of regulatory instruments that promote professional
by offering technical insight and providing the quality
certifications,” says de Buen. As technological changes
norm for such products,” he says. Though such programs
become a reality, the competitiveness of renewable energy
are generally held to have had great success, de Buen
is rising and costs will become lower, but in de Buen’s
sees a need for evaluation instruments to increase their
opinion, the Mexican energy sector will continue to move
effectiveness in the future.
very slowly. “Small companies can make a big difference in the energy market and that is why the private sector
Repositioning itself to be recognized as a reliable technical
is crucial. They need to assume part of the risk, provide
organization to work with has become a general priority
financing, and bring technology to the country. CONUEE
for CONUEE. The commission is demanding that large
has to manage the technological changes from the demand
industrial consumers become ISO 50001 certified. For
side and guarantee the quality of innovative products.”
59
LACK OF STANDARDS AND CERTIFICATIONS IN MEXICO “The growth in Mexico has been incredible and few
and risky process. “For me to build the capacity to audit
countries can match the speed of its development and
wind turbines, for example, would cost about US$40,000,”
growth,” says Ernesto Bächtold García, Director General
explains Bächtold García. “To make the process worth the
of QS Mexiko, the company that for the past 12 years has
investment, there have to be more customers asking for a
been certifying quality management systems in Mexico.
specific type of certification.” Getting a renewable project
“But the country took a shortcut instead of the normal
certified under the currently legal framework is also very
process of development. The government and the Ministry
costly for the client. “No local certification company is
of Economy try to paint Mexico as a developed country but
willing to spend money on preparing an audit in such a
that makes us lose the worldwide benefits that developing
small market. Therefore, renewable energy companies that
countries can get,” he adds. “Using standards brings a lot
wish to be certified have to get a European auditor. This
of benefits not only to the industry but, more importantly,
brings the certification cost to between US$40,000 and
to the final user. But as important as standards are as well
US$46,000 when it would cost no more than US$10,000
as the certification they provide, Mexico seems to be falling
to have it done by an equivalent certification agency in
behind in this particular issue.”
Mexico,” Bächtold García claims.
Two domestic standards are in place in Mexico, the obligatory
Currently, the law does not require companies in the
NOMs and the voluntary NMXs. ISOs are voluntary but
renewable energy sector to be certified. However, Bächtold
Mexico sometimes adopts such international standards.
García believes that the industry would take a great leap
There are about 4,000 standards in Mexico, but only about
forward, should CFE or SEMARNAT ask for certification
800 are in use. In comparison, Germany or England have
as one of the requirements to hand out their permits. He
90,000 to 95,000 standards, as do Spain and France.
believes that once customers pressure companies to follow
Furthermore, Bächtold García adds that machinery checks
a certain standard, companies will have no choice but to
are done once every one or two months in Europe or the
comply. “In every industry, every process needs a standard.
US, while in Mexico, these checks are carried out every five
It is important for customers to demand them. This begins
or ten years. “The common practice here is to check on the
with little actions like asking for guarantees, no matter what
equipment once it stops working,” he states.
the price of a product is,” explains Bächtold García.
In Bächtold García’s opinion, it is important for the
Voluntary certification does have its benefits. For example,
government and customers to be aware of the importance
when exporting a product to Europe, certifications will
of standards, but companies also have to be conscious of
be required, not only for the processes directly related
this and decide they need to be socially responsible. “Many
to the product but also in areas such as eco-labeling and
factories in Mexico are family businesses. But when these
packaging. Bächtold García explains that when a company
companies grow, they need a system that works because it
wants to enter such a sophisticated market, certifications
is well-designed, not because an authority figure told them
are necessary, regardless of whether they are not legally
to adopt it. Standards are missing here to guide them in
required or if Mexican customers choose to pay any
the right direction,” he notes.
attention to them or not.
“No local certification company is willing to spend money on preparing an audit in such a small market. Therefore, renewable energy companies that wish to be certified have to get a European auditor” Ernesto Bächtold García, Director General of QS Mexiko
60
The renewable energy sector is even further behind in terms
QS Mexiko is ready to provide its services when the renewable
of adopting standards and certifications. Bächtold García
market requires them. The company is under the oversight
believes the first step is to change the legal framework and
of the International Accreditation Forum (IAF), with every
free the market from its current restrictions. In the current
member country possessing its own body for accrediting
environment, a would-be certifier of companies that work
certifications, such as EMA in Mexico. This ensures that all of
with renewable energies has to go through an expensive
QS Mexiko’s certificates are valid internationally.
| VIEW FROM THE TOP
GERMAN EXPERTISE IN THE RENEWABLE ENERGY SECTOR EDMUND DUCKWITZ German Ambassador to Mexico Q: Germany is a world leader in the development of
the tariffs set to channel energy generated by renewables
renewables. What are the main lessons that Mexico could
into our grids. The public sector supports technical
learn from Germany in this area?
development through government funded programs, by
A: The development of the German renewable energy
promoting entrepreneurial chances for the private sector,
sector came in answer to the demand for specific
and by helping individual energy users and producers in
technologies in my country and abroad. Germany is
their decisions to invest in alternative energy sources.
poor in natural resources, but it is rich in engineering capabilities and technological development. Emphasizing
Q: What changes could be made to the Mexican operating
the development of the German renewable energy sector
framework to unlock its renewable energy sector?
is also a logical response to fighting climate change.
A: A liberalized energy market with a broader variety of energy sources would certainly help meet the goals the
The guideline for Germany’s main strategy is the principle of
country has set for itself. The Energy Reform will bring about
diversification of its energy production. We are continuously
greater transparency regarding prices for clean energy.
seeking to further develop a sound mix of energy sources
These have to be calculable and attractive for potential
fueled by wind, sun, biomass, and geothermal sources
producers and banks to be willing to finance projects.
in the light of distancing us from nuclear power by 2022. The German Energiewende (transition to a sustainable
Q: What are the main opportunities that Mexico offers
economy) is currently under discussion and adjustments
German companies in the energy sector?
are necessary. Germany is well-advised to share with Mexico
A: The opportunities for German companies in the renewable
both the positive and negative experiences it has seen in its
energy sector in Mexico do not differ to a wide degree from
energy reform efforts. However, Germany is far from being
other markets. But the panorama of Mexican companies in
in a position to teach lessons to Mexico. We have not had
the field, as well as the high number of cooperation projects
only positive experiences, given rising energy prices and the
between German and Mexican firms are promising. Germany’s
continued application of an unpopular and highly criticized
strength in the sector is defined by its enormous number
subsidy system for large-scale energy users. The respective
of SMEs which will find counterparts in the Mexican market.
energy production and distribution markets of our two
They have to actively investigate business opportunities on
countries are too different to compare. We are convinced
all levels. The German government is assisting them through
that the Mexican government’s plans for an energy reform
programs financed by the German Ministry of Economics
should lead to the partial liberalization of the market. This
and Technology, and through our worldwide network of
would trigger the generation and distribution of renewable
German Chambers of Industry and Commerce.
and clean energy at fair and realistic prices. At the same time, Mexico has set itself ambitious goals regarding the
The main advantage of the Mexican energy market is
use of clean energies by the 2020s. For that very reason,
clearly its enormous size as well as the potential demand
Mexico has shown it is interested in how best to develop a
it will offer in the future, coupled with the power of the
new energy-mix.
Mexican economy in general. There are still limitations in terms of training and finding technically skilled specialists.
Q: What are the respective roles of the private and
In a market still regulated by long-established regulations,
public sector in making the change toward a new energy
we are calling for liberalization and modernization. But we
generation mix in Germany?
are convinced that the Mexican energy market will present
A: The private sector is the main economic source of
a growing number of opportunities to German companies
technical innovation and for the supply of technical solutions
of all sizes that will provide information, investment, and
for the changes we are making in the German energy sector.
technical expertise to support the diversification of the
The public sector is providing the legal framework, such as
Mexican energy market.
61
62
NATURAL GAS & COGENERATION
3 Natural gas is the main component of Mexico’s energy mix due to its low cost and low emissions. Mexico is planning that natural gas will have a participation of 72% in the national energy mix by 2027, and sees it as a transition fuel towards a cleaner energy mix in the long term. But while PEMEX now feels empowered to start shale gas exploration at home, no production is expected for the next few years. A bottleneck of transportation capacity both in terms of interconnections with the US and in the national pipeline network is being dealt with, with new pipelines snaking their way across the border and throughout the country, enabling more cheap natural gas imports.
This chapter examines the entirety of the Mexican natural gas sector, from the role of natural gas in the energy mix and new pipelines being built, to the opportunities natural gas provides for small power producers, the arrival on the market of gas transportation companies operating outside the network, and the many possibilities cogeneration offers for industrial development.
63
64
CHAPTER 3: NATURAL GAS & COGENERATION 66
Role of Natural Gas in Power Generation
67
Gas Market
68
VIEW FROM THE TOP: All-Round Presence in Natural Gas
70
The Netback Pricing Model for Natural Gas
72
Urgent Need for Expansion of the Pipeline Network
73
Main Pipelines & LNG Terminals
74
Natural Gas Pipelines for Economic Development
76
Natural Gas Companies Eye Up Vertical Integration
78
Introducing the World’s Largest Gas Turbine
79
Market Price Hinders the Future of Cogeneration
80
Capitalizing on Inconsistency in the Natural Gas Supply
81
VIEW FROM THE TOP: Private Sector Must Drive Natural Gas Deployment
82
Virtual Pipelines Develop Ahead of Real Ones
83
CNG Transportation: an Alternative to Gas Pipelines
84
Shale Gas Exploration Finally Becoming Possible
85
Energy Sector Opportunities for Pipe Manufacturers
86
Many Sectors Can Provide Cogeneration Off-Takers
87
VIEW FROM THE TOP: Cogeneration Schemes Become Mexican Reality
88
Cogeneration: the Solution for Rising Industrial Costs
89
VIEW FROM THE TOP: Cogeneration Leader Paves the Way
90
Promoting the Benefits of Thermal Energy
91
Maximizing the Potential for Trigeneration Turbines
65
ROLE OF NATURAL GAS IN POWER GENERATION Over the past decade, the expansion of the electricity
COMBINED CYCLE (MWH)
sector has been driven by the construction of natural gas
100
combined cycle plants, which join efficiency with reduced CO2 emissions while taking advantage of the low prices of natural gas, caused by the US shale gas boom. The private
80
sector has played an important role in the construction of new generating capacity, selling the energy produced to CFE
60
through the Independent Power Producer (IPP) scheme. 40
Before 1992, private energy production was permitted only
However, natural gas was not the most popular energy
CFE
2013
2012
2011
2010
2009
2008
2007
2006
2005
cycle plants, alongside state-owned sugar mills and mines.
20 2004
producer who received permits for natural gas combined
2003
for self-supply. At the time, PEMEX was the main energy
Independent power producers
source prior to 1992 due to the lack of pipelines and
Source: SENER
infrastructure. Fuel oil and diesel were more common. In 1992, the Public Electricity Service Law (LSPEE) underwent
currently generate 44% of Mexico’s total power production,
changes that enabled the private sector to generate energy
but to meet demand in 2026, CFE and IPPs must increase
for self-supply. It also created IPPs, but it took until 1997 for
power production by 60% to reach 86GW.
the first permit to be awarded to American company AES Mérida III, which began generating electricity in 2000. The
Natural gas is the transition fuel favored by the government,
fact that there was a five year gap between the creation
as stated by the National Energy Strategy, and an increase in
of the IPP scheme and the issuing of the first permit was
the use of combined cycle plants is expected in the next few
due to the lack of legal structures for these projects.
years. Issues with natural gas infrastructure and distribution
However, once it took effect, this legal framework enabled
will have to be resolved, since critical alerts have exposed
the expansion of natural gas combined cycle plants and
the risk associated with increasing Mexico’s dependence
industries like food and paper took advantage of this
on natural gas for power generation while transportation
model. The IPP scheme was created to complement the
infrastructure
public electricity supply to satisfy the growing demand.
generation by IPPs dropped by 3,830GWh in 2012 relative to
is
facing
capacity
constraints.
Power
the previous year, and has still not returned to previous levels Over the course of 2013, IPPs generated 40,196GWh more
despite a slight uptick in 2013. At the same time, CFE actually
than CFE using natural gas in cogeneration plants. There
managed to increase production by 8,859GWh between 2011
are currently 28 IPPs in operation, of which 22 use natural
and 2013, reaching 43,308GWh. However, this decision has
gas for power generation in cogeneration plants. The boom
greatly impacted CFE’s finances as it had to import LNG at
of natural gas for IPPs goes back to the early 2000s. IPPs
higher prices to achieve this increase.
MEXICO’S NATURAL GAS PRODUCTION (MCF/D)
Mexico’s daily production of natural gas increased from
8,000
2003 to 2009, but after peaking at over 7,000mcf/d, levels have declined for the past 3 years. Mexican
7,000
production has not been enough to cover industry demand, creating the need to emit critical alerts
6,000
restricting the supply of natural gas. This decline 5,000
and increasing demand promoted the decision to import fuels and the rapid construction of pipelines
Source: SENER
66
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
4,000
interconnecting to the United States.
GAS MARKET
NATURAL GAS PRICE (US$/MILLION BTU) 10
Natural gas prices were low at the end of the 1990s, and spiked in 2000 before skyrocketing over the course
8
of 2003. Given this volatility, investments in gas-fired power generation became seen as riskier, until shale gas
6
discoveries and new extraction technologies allowed natural gas production to grow significantly in North
4
America. This heightened availability of natural gas
2013
2011
2012
2010
2009
2007
2008
2005
2006
2003
2004
2001
2002
2000
1998
US$3.94 per million Btu in 2009, the lowest price since
2 1999
a peak of US$8.86 per million Btu. These were lowered to
1997
reduced prices drastically after 2008, when they reached
2003, and have dipped ever since. Mexico is trying to secure a long-term hold on this cheap resource, since its low price is now expected to hold steady for several decades. To achieve this, the expansion of the pipeline network connecting Mexico and the US, as well as
IMPORT VOLUME (MCF/D) 1,200 1,000
Mexico’s domestic pipeline network, is essential in order to supply natural gas to end users. If this is not achieved
800
and LNG imports are increased, electricity prices and,
2013
2012
2011
2010
a row before reaching their peak in 2008 when 128mcf/d
2009
200 2008
Mexican exports of natural gas increased for three years in
2007
NATURAL GAS EXPORTS AND IMPORTS IN MEXICO
400
2006
will increase significantly.
600
2005
consequently, the cost of operation of many industries
was exported. After this, they dropped off drastically in the subsequent years, going under 1mcf/d in 2012. At the same time, Mexico has become a major importer of natural gas, especially due to the shale gas boom that is strengthening the position of the US as an energy exporter. The demand for natural gas in Mexico will increase in the coming years and PEMEX’s production will not be able
EXPORT VOLUME (MCF/D) 150 120 90
to keep up with the demand of the Mexican market. Through the construction of more pipelines, the tendency
60
of natural gas imports is on the rise while exports look to
2013
2012
2011
2010
2009
2008
0
2007
alerts and to guarantee supply for the Mexican market.
2006
of natural gas are expected to reduce the risks of critical
30
2005
remain low in the coming years. The increased imports
ENERGY TRANSITION Increase the national gas supply
Responsible Entity
Drive natural gas producing projects that will foster the country’s energy
SENER, PEMEX
transition. Increase and adapt the capacity of natural gas to ensure the entire demand is
PEMEX
processed. Guarantee the quality of natural gas according to valid norms.
SENER, PEMEX
Explore other organizational options within the legal framework for the
SENER
development of natural gas, considering these projects’ relatively low profitability, though alternative business models. Push the implementation of the new Contracting Scheme, one of the tools that
SENER, PEMEX
Congress granted PEMEX in the 2008 Energy Reform. Source: SENER
67
| VIEW FROM THE TOP
ALL-ROUND PRESENCE IN NATURAL GAS CARLOS RUIZ SACRISTĂ N President and CEO of IEnova
Q: What have been the main strategic objectives for
opportunity as that oil and gas will have to be transported
IEnova in the last 15 years?
to the US and Central America. We are analyzing all
A: The company started as a gas distributor in the north
potential opportunities to enter into the electricity market
of Mexico and has continuously expanded through
in order to create a more balanced portfolio rather than
the development of gas and electricity projects. Our
remain only a transportation company.
philosophy has remained the same since the beginning and it has always been successful. We build and operate
Q: What roles can the public and the private sector play in
large infrastructure projects provided that we have a long-
ensuring that the construction of the planned pipelines is
term contract to sell the natural gas or electricity. We take
finished on budget and on time?
a proactive approach and we seize opportunities as they
A: Mexico has the advantage that pipelines are covered
arise, rather than waiting for the perfect project to come
by a strong regulatory framework, which helps provide
along. Our development in Mexico has been twofold. We
certainty to investors. Public tenders are held to build and
have a power generation company in Mexicali that had a
operate natural gas pipelines, which has translated into a
contract with the US, but that has now ended so we are
lot of kilometers of pipeline currently being built, not just
looking for a new contract, and we also distribute natural
by us but also by other companies. The Energy Reform
gas. The number of opportunities here in Mexico has
will introduce even stronger regulation, which is vital for
increased substantially, and we expect that this increase in
opening up new markets. This means now is the perfect
activity will also attract increasing competition.
time to build our pipeline network. The market is clamoring for it and there is huge liquidity in Mexico that needs to
Q: The natural gas market has seen rapid changes in
be invested in sectors that offer good returns. We have to
recent years with the shale gas boom and the resulting
take advantage of the fact that financing is now available
reduction in the natural gas price. As you operate in the
to build up the network as fast as possible.
US and Mexico, how do these changes influence your strategic direction?
Q: IEnova’s IPO on the Mexican Stock Exchange showed
A: The drop in the natural gas price has had a profound
a real commitment to Mexico. Has this move lived up to
impact on both the US and Mexican markets, and it seems
your initial strategic and financial objectives?
that the price of gas will remain low for the foreseeable
A: Yes, it has as we had a clear strategy to keep the company
future, which is a great opportunity for Mexico. We have
growing. In 2012, IEnova invested US$2.4 billion and we
to produce more natural gas in Mexico, but we must
invested another US$1.1 billion from June to November 2013.
also continue to import gas from the US. Having cheap
The second goal was to access the credit market. We secured
electricity will help Mexico to become more competitive
our AAA credit rating and placed a 10-year bond, which had
against other countries that compete for the US market.
the lowest rate ever for a private company in that market.
Our main commercial partner is the US, and the fact that
Third, we wanted to increase our capital base by including
many companies and factories that were moving to China
local partners, such as pension funds, to guarantee access
for cost reasons are now returning to the US or Mexico,
to the necessary resources to continue our expansion. The
can greatly benefit the Mexican economy. IEnova’s role
next step will be to increase our low leverage. Listing on
in this process will be very important as we can build
the stock exchange gave us visibility and the opportunity to
the necessary pipelines and storage facilities. Using that
accelerate our growth, and resulted in people approaching
expertise, we want to expand into other areas of the
us with new ideas and new projects.
transportation business, such as oil pipelines as well as
68
constructing transmission lines for CFE. Should the Energy
Q: How much room is there in the Mexican market for
Reform achieve the objective of increasing oil and gas
IEnova to expand, both in terms of access to financing
production in Mexico, this will provide us with a huge
and your execution capacity?
A: If you have a good project, you will always find financing,
Califoria. The problems are the same as in the rest of the
but you have to prove to the market that you have the
country, but the needed investment is lower in Baja. The
ability to execute the project. By carefully picking projects
permitting process here may not be that easy, but it is less
that we can build within budget and on time, we have not
complicated and time consuming than in California, where
yet experienced limitations on our activities. We have the
for example it can take two years to get a permit for a
ability to raise US$1 billion without any problem, so the
transmission line.
critical success factor is finding the right projects. 2014 will present a lot of opportunities as CFE and PEMEX both need
Q: If IEnova develops renewable energy projects in Baja
new pipelines. We also want to play a part in the electricity
California and exports the energy to the US, should those
field as CFE will need to put a few new plants into operation
projects count toward Mexico’s renewable energy targets?
soon. In addition, we are developing our first wind project,
A: The US-Mexico border should be an integrated energy
Energía Sierra Juárez in Baja California, and further growth
border. It makes sense to have electricity flowing more
is expected there as we find the right off-takers.
freely and more efficiently in that area. California has huge demand but it is difficult to build plants and generate the
Q: How realistic would it be to reconfigure your Energía
energy there because of the permits issue.
Costa Azul LNG for gas exports rather than imports? A: There is a huge opportunity to change the terminal’s configuration to exports. It is the first terminal on the Pacific coast of North America and we could use the natural gas not just for exports, but also to fulfill the needs of the Mexican market. We are studying this at length to see the opportunities. The gas would still have to come from the US since Mexico’s gas reserves are not in Baja California. However, this would not pose a problem since the North American grid is becoming better integrated. Q: How would such a move impact Mexico’s energy market, which might experience a shortage of natural gas? A: The shortage is due to a lack of infrastructure. This problem will be solved but it could take a couple of years, and we are determined to play an important role in this process. We are building an 840km pipeline in Sonora and Sinaloa that will provide gas to CFE and other companies, and we are also
Q: In addition to wind and solar, what role would you
developing Stage I of Los Ramones, which is a relatively short
potentially want to play in Mexico’s geothermal sector?
pipeline but with a huge capacity. In the future, we will see
A: We have done little so far but we have evaluated
more gas production in Mexico as well as the construction of
potential sites in Mexicali and Michoacan. The government
infrastructure to transport and store that gas.
should move faster to develop this sector. Cerro Prieto has been producing for many years, but it is reaching its
Q: Why did IEnova decide to invest in a wind farm?
production limit and that system needs to rest. Mexico
A: Sempra Energy, which owns IEnova has invested a lot
has huge potential for geothermal and with the Energy
in wind power generation in the US, where it is considered
Reform, the sector should be promoted. We will be present
part of their core business. This meant we already had the
in the geothermal market.
know-how to enter this market, so when the opportunity came we took it. The whole idea is that this allows us to
Q: How will IEnova evolve over the next few years?
develop a more diversified portfolio. Mexico also has a lot
A: IEnova is the only company that operates in all the
of potential for solar energy, so it seems like our time to
energy fields that are open to private participation. One
invest in solar may also be drawing near.
of our strengths is that we have been in Mexico for many years, we have a team that knows how to build energy
Q: What are the main differences between constructing a
infrastructure and we have a good relationship with the
wind project in California and in Baja California?
regulators. We have to take advantage of that expertise
A: First, it is cheaper to construct a wind farm in Baja
and continue to grow toward a more balanced portfolio.
69
THE NETBACK PRICING MODEL FOR NATURAL GAS Since the 1990s, CIDE has been helping CRE to create a
In order to develop an optimal pricing structure for the
pricing system for the natural gas market in Mexico. During
market, CIDE had to learn how the market worked in detail.
the research and analysis period, CIDE and its economists
“First of all, it is important to understand that there are
considered several models that could serve as a foundation
three different types of markets for natural gas in Mexico:
for the model. Juan Rosellón Díaz, current Professor of
the commercial market, the industrial market, and the
Economics at CIDE and one of the economists that led the
residential market,” Rosellón Díaz explains. Each market
analysis, explains the process of establishing the current
has to be analyzed separately to be really understood, and
model and the reasons it works in the Mexican market.
then compiled into a unique model that would regulate the price of natural gas.
Changes in the regulation of natural gas in Mexico have been underway since the natural gas transportation and
In terms of residential and commercial consumption,
distribution market was first opened up to the private
the main competitor for natural gas is liquid propane
sector. “CRE has tried several ways to open up competition
gas (LPG). “This product is very well established in the
in the natural gas market, so that prices could be
Mexican market,” says Rosellón Díaz. “Although natural
optimized through market forces,” Rosellón Díaz explains.
gas is considered a substitute for LPG, the distribution
“Institutional and political constraints, as well as the fact
and price advantage of LPG allows it to maintain a
that PEMEX operates as a monopoly, have slowed those
dominant position in Mexico’s residential sector. CIDE
regulations from being fully effective. The privilege that
and CRE together have conducted several studies on the
PEMEX has to control the entrance of new players, and
prospects of natural gas replacing LPG in the residential
establish where to allow competition, makes a free-market
market, which seems unlikely to happen in the short-term
pricing model impossible. Supply and demand would
since LPG has a competitive advantage over natural gas.”
not work as a price-setting strategy within the current
In power generation activities in the industrial market,
configuration of the natural gas market in the country.”
there are several other substitutes for natural gas. “Fuel oil is the most frequently used source. However, the high
“The fact that the monopolistic market allows PEMEX to
level of emissions that it produces and the environmental
be both a player and a regulator, in terms of price-setting,
regulations in place have pushed companies in the power
created several loopholes within the structure that CRE
generation market to use natural gas instead,” says
wanted to put in place,” Rosellón Díaz explains. “Competition
Rosellón Díaz. “Analysis done by CIDE and CRE indicates
is essential to developing the natural gas market in Mexico
that the market will keep increasing its use of natural gas
and introducing a market based price-setting mechanism.”
in the future instead of other alternatives.”
Since the current configuration of the industry does not allow a free-market structure to set the prices, CRE started
Once CIDE’s analysts fully understood the way the Mexican
looking for a different pricing model.
natural gas market works, they started analyzing possible
EXCHANGE RATE MX$/US$
NATURAL GAS PRICE US$/MMBTU
14.50
4.50 4.00
14.00
3.50
13.50
3.00 13.00
2.50 12.50
2.00
12.00 12/11
3/12
6/12
9/12
12/12
3/13
1.50 12/11
3/12
6/12
9/12
12/12
3/13
Mexico produced 6,300Mcf of natural gas in 2008 which dropped to 5,700Mcf by 2012. National demand was higher than the amount of gas deployed in pipelines. In 2012, 22 critical alerts were issued and 13 additional ones were added in 2013. To mitigate this situation, natural gas has been imported, amounting to 30% of national consumption. Source: PEMEX
70
alternatives for price regulation. “The first alternative
gas directly affects the market in Mexico.” The arbitration
analyzed was setting the price through the Nobel Prize
point was set in Los Ramones, Nuevo Leon, since it is a
winning economic theory of netback pricing,” Rosellón
central location from which gas flowing from the US and
Díaz explains. “The netback pricing model would allow us
the north of the country could meet with gas coming from
to establish a fixed benchmark price. This structure would
southern Mexico. “The fact that most of the gas production
not allow PEMEX to determine or strategically influence
took place in the country’s southeastern regions, and
the price, making the NOC a price-taker.”
production efforts were ongoing in Burgos, Tampico and Veracruz, made Los Ramones the best location to
The first options evaluated were similar energy sources in
obtain a balanced assessment of transportation costs,”
Mexico that could be used as substitutes: diesel, fuel oil,
Rosellón Díaz describes. “The arbitration point needed to
or LPG. “Both diesel and fuel oil were influenced directly
be dynamic, central and balanced, since any change in its
or indirectly by the oil extraction process, which works
location would affect prices and could make the whole
under very different economic conditions, so they were
operation’s profitability go down.” The netback pricing
ruled out of the feasible set of pricing benchmarks,” says
formula was set: the price would be set based on the
Rosellón Díaz. “LPG was further analyzed, since its price
Houston Ship Channel Index price to which transportation
was established through a benchmark process similar to
costs from Houston to Los Ramones would be added,
the netback pricing model. However, the transportation
and transportation cost from Los Ramones to distribution
of LPG does not really compare to the transportation of
nodes, such as Ciudad Pemex, would be subtracted.
natural gas, which made the alternative non-optimal.” There is still one problem with this pricing model, which Rosellón Díaz explains that the netback pricing model was
is not economic in nature, but relates to the regulatory
the best alternative after the free market approach, since
framework under which the industry operates. “Currently,
it would allow a relevant market to establish a benchmark
PEMEX has the possibility of changing the location of the
price, and add transportation costs from the central node
arbitration point in the company’s best interest,” Rosellón
to the rest of the nodes in the system. The problem then
Díaz remarks. “They can change the location of the central
was to determine which market would be the most relevant
node upwards or downwards to balance out the financial
for the country’s natural gas sector. After analyzing several
side of its projects. This is the reasonable choice to make
alternatives, CIDE suggested that the benchmark price
for rational economic agents.”
should be established based on the Houston Ship Channel Index. “The alternative we suggested was to use the price
“One way of undermining the risk of PEMEX changing
of the Houston Ship Channel Index as the benchmark
the arbitration point would be to grant regulators such
price and add the net transportation costs, which would
as CRE additional power to control PEMEX’s investment
depend on where the arbitration point – or central node
strategies, encourage it to produce more natural gas
– would be located,” Rosellón Díaz explains. “It made a
within the country and keep the arbitration point where
lot of sense. None of the substitutes in Mexico was really
it will optimize the country’s energy welfare, instead of
viable as a standard and the market has three different
the profits that could come from natural gas,” Rosellón
types of consumers, which made it difficult to compare
Díaz concludes. “If the regulator is given the power to set
the natural gas market to other markets working under
strategies focused on maximizing the country’s energy
different conditions. The market in South Texas was also
welfare, the pricing model will continue to optimize the
the most reasonable to use, since US supply and demand of
market conditions.”
71
URGENT NEED FOR EXPANSION OF THE PIPELINE NETWORK With natural gas production having declined over the past
is the reason that drove the introduction of compressed
five years, Mexico has proven to be a lucrative market for US
natural gas (CNG) into the Mexican market, as it is more
gas companies keen on exporting their own product, and
expedient. Compressed natural gas distribution is a limited
bringing the US closer to becoming a net energy exporter. In
and temporary solution and companies doing it know that;
2013, Mexico imported around 2Bcf/d (billion cubic feet per
they are merely waiting for pipelines to be built. “This way,
day), but this figure could double by 2016 as new pipelines
we can at least participate in the market and have industrial
come into operation. This is a dramatic increase over just five
clients. By the time the pipeline is built, we will know what
years ago, when imports hit 1Bcf/d. However, Luis Vázquez
the market is like,” Vázquez Sentíes adds. Humann Adame
Sentíes, President of the Board of the Mexican Natural Gas
points out that players who have the infrastructure in place
Association (AMGN), says that SENER is predicting Mexico
to receive compressed gas could also develop distribution
will be able to once again become a net natural gas exporter
channels for domestic and commercial use once the
by 2020, because of advancements in deep water drilling
pipeline network reaches their place of operations. In
and shale gas production.
order for Mexico’s pipeline network to be sufficient to meet commercial and industrial demand as quickly as possible,
The inflow of natural gas from the US poses several
Vázquez Sentíes says that the construction of new pipelines
challenges, with limited pipeline capacity being the highest
has to be carried out under open access schemes. AMGN
hurdle to jump. Vázquez Sentíes explains that talks about
is backing government efforts to gradually decrease
new
been
natural gas imports by increasing production in the Burgos
ongoing for more than 10 years now, revolving mostly
Basin and its deepwater natural gas fields that are under
around opening the market to let the private sector invest
development, as well as through shale gas.
pipeline
infrastructure
development
have
in pipeline construction. Agustín Humann Adame, Executive President of AMGN, confirms the urgency of such opening
To concerns that exploiting shale gas might not be atop
up as the pipelines currently being built will not satisfy the
PEMEX’s list of priorities, Vázquez Sentíes responds that
country’s needs. Nevertheless, Vázquez Sentíes claims that
PEMEX has announced it will be creating a new company
the government is very aware of the challenges that the
to exploit shale gas, as well as deepwater crude, both in
natural gas industry has been facing over the past 20 years
Mexico and in the US. “The reality is that PEMEX is too big
and is intensifying its efforts to accelerate the construction of
to handle small shale gas fields, but they will put elements
this infrastructure. The Pacific coast region is taking priority,
in place to develop this. It is going to take time but it will
according to Vázquez Sentíes, with a new north-to-south
happen.” From AMGN’s perspective, the private sector is
pipeline increasing the flow of gas along the coast. However,
the safest bet in developing the shale gas industry. And with
despite government goodwill, Humann Adame says the
the Energy Reform now having passed, the opportunity for
pipeline construction process suffers from many limitations
the private sector to participate in the exploitation of shale
in terms of institutional support and financing. Although
gas could accelerate activity in this area.
recent bids were demanded to have at least 50% of pipelines being of Mexican origin, AMGN realized that domestic firms
As AMGN’s main priority, the development of new pipelines
could not reach the production levels needed to reach this
remains absolutely paramount to cater to the country’s
target. However, Vázquez Sentíes compliments the way the
growing demand. AMGN expects to see CRE issue more
bidding process for the Los Ramones pipeline took place. “It
distribution permits in new regions of Mexico currently
was very good, fast, and the results are quite positive. Now
outside the pipeline network. The pace at which the Mexican
we just have to wait for the pipeline to be built.” The first
pipeline network needs to expand can be hinted at by
phase of the Los Ramones pipeline runs for approximately
looking at past growth. Since 2009, natural gas exports from
120km from the US border through Nuevo Leon and has the
southern Texas have grown by 600%, as opposed to just 15%
capacity to carry 2.1Bcf/D. The project’s second phase has
growth for the rest of the US gas export points combined.
been divided into two parts, Los Ramones Norte and Sur.
The arrowhead of this growth explosion is aimed right at
The 441km Norte section will be developed by a JV made
Mexico. Data from the US Energy Information Administration
up of TAG Pipelines and Gasoductos de Chihuahua, while the
shows three major pipeline expansions to be completed in
287km Sur section will be developed by TAG Pipelines and
2014, that will allow more natural gas to flow from Sierrita
GDF Suez.
in Arizona, Samalayuca in New Mexico and South Texas. Yet, with the private sector potential the Energy Reform
72
Vázquez Sentíes explains that the market cannot wait for
has helped to unlock, it seems these expansions may just be
the pipeline construction process to be completed. This
scratching the surface of future pipeline growth.
| MAIN PIPELINES & LNG TERMINALS
2
1
3
LEGEND
private pipelines
LNG terminal
TLAXCALA-MORELOS PIPELINE Proyecto Integral Morelos (PIM) consists of a 160km pipeline that goes through the states of Tlaxcala, Puebla and Morelos and two combined cycle power plants of 620MW each. The construction of the pipeline was appointed to Elecnor and Enegás while the power plants were entrusted to Abengoa. The project was intended to be completed in October 2012, but negotiations with the communities lasted until the final months of 2013. The estimated total investment in PIM stands at US$1.6 billion. TAMAZUNCHALE-EL SAUZ PIPELINE The 235km Tamazunchale-El Sauz pipeline will connect the Palmillas-Queretaro pipeline with the private NaranjosTamazunchale pipeline. A combination of 76cm and 91cm diameter pipes will be able to transport up to 630MMcf of natural gas. Awarded in February 2012, the project is expected to come online in the first quarter of 2014. The contract will be operated by TransCanada under a 25-year term with investment reaching US$500 million. LOS RAMONES PIPELINE The Los Ramones natural gas pipeline will run for approximately 1,000km through the states of Tamaulipas, Nuevo Leon, San Luis Potosi, Guanajuato, Queretaro and Zacatecas, and could be extended into the states of Jalisco and Aguascalientes. It is expected to require an investment of approximately US$3 billion, and will carry 2.1Bcf/d. PEMEX announced in January 2013 that the project would be split into two parts, with the northern part being constructed by TAG Pipelines and Gasoductos de Chihuahua while the southern section will be built by TAG Pipelines and GDF Suez. ZACATECAS PIPELINE The Zacatecas pipeline was the first new pipeline in Former President Felipe Calderón’s natural gas development plan, and will be integrated into the Los Ramones pipeline system. This 173km pipeline involved a total investment of approximately US$60 million. It will supply 20Mcf/d of natural gas in its first phase, with a maximum limit of 40Mcf/d, to Grupo Modelo and Jugos del Valle while seeking to attract other industries. The pipeline will start operations in June 2014 as more than 60% of the project has already been completed. CHIHUAHUA CORRIDOR PIPELINE At the end of 2011, CFE awarded the contract for the 385km Chihuahua Corridor to Tarahumara pipeline to Fermaca. With an investment of US$450 million, the pipeline has the capability of transporting up to 850Mcf/d from Ciudad Juarez to El Encino, where it will connect with the Chihuahua-Torreon pipeline, to deliver gas from the US for power generation in the states of Chihuahua, Durango and Coahuila. The pipeline will provide transport services over a 25-year period and began operations in July 2013. NORTHWEST GAS PIPELINE The Northwest Gas pipeline is the flagship project of the previous administration’s US$10.5 billion natural gas strategy. CFE has awarded 25 year contracts to Sempra to build, own, and operate the two sections of the pipeline from Sasabe to Guaymas and Guaymas to El Oro, at an expected investment of US$1 billion. TransCanada was awarded the contract to build the final section of the pipeline from Topolobampo to Mazatlan and its construction started in the last quarter of 2013.
73
NATURAL GAS PIPELINES FOR ECONOMIC DEVELOPMENT The critical alerts for natural gas supply issued by PEMEX
expensive liquefied natural gas. The Mexican natural gas
in the last few years, which were addressed by liquefied
market has flourished as it is directly influenced by the US
natural gas imports, have had a negative impact on
natural gas price, which has undergone a price reduction
CFE’s finances. According to the utility’s numbers, the
as a result of the shale gas boom. Ortiz Hernández
cost overruns of using fuel oil instead of natural gas in
explains this has led natural gas to become Mexico’s
thermoelectric plants led to a cost of US$1 billion, which
most competitive energy source. This has seen Compañía
represented almost 30% of the financial losses incurred by
Mexicana de Gas receive an increase in clients, particularly
CFE in the first nine months of 2013.
from the industrial sector. The residential sector has grown
“Natural gas has always been a development factor across Mexico. Higher availability will imply greater development and more job creation” Ricardo Ortiz Hernández, Director General of Compañía Mexicana de Gas
The critical alerts have not only been a challenge for CFE,
as well, though Ortiz Hernández acknowledges that the
but for natural gas users as well. Ricardo Ortiz Hernández,
city of Monterrey, where the firm is based, has a natural
Director General of Compañía Mexicana de Gas, claims
gas culture. “Perhaps the most interesting fact is that
PEMEX’s National Pipeline System as well as other private
consumption at the industrial level has increased because
carriers do not have sufficient capacity to supply the
many companies are using natural gas in cogeneration
country’s needs, while there is still a shortage of natural gas
plants,” he adds.
availability for Mexico. “We have two main issues here, which
74
will not totally be resolved by the Los Ramones pipeline.
Power generation is a key factor for Compañía Mexicana
PEMEX has not issued any critical alerts since June 2013,
de Gas as it has experienced an increase in natural gas
and with the entrance of liquefied natural gas, the system
consumption from clients that have chosen to produce
has balanced out. But it has also had an impact on the price,
electricity and heat at cogeneration plants in order to
as LNG is currently selling at around US$17 per million BTU,
access more attractive energy prices. Ortiz Hernández
which inevitably has a knock-on effect on the price we can
claims natural gas consumption by such clients has
offer our clients.” He believes the entry of higher quantities
increased between 30% and 50%. On the other hand, the
of natural gas through the pipelines that are being built will
company is detecting the interest of firms that want to
help further the system and limit the need for purchases of
establish themselves in the geographic zone Compañía
Mexicana de Gas attends with the goal of producing electricity in cogeneration plants and selling it to clients, which also drives natural gas demand. “The challenge for us will be being able to make the most out of these changes. In order to prepare for the coming opportunities, we are investing in increasing our pipeline capacity to improve availability in the geographic area where the company has the distribution permit,” says Ortiz Hernández. The company was founded in 1927 and has over 80 years experience delivering natural gas in the metropolitan area of Monterrey. Ortiz Hernández proudly recalls that the first natural gas receiver station in Monterrey belonged to Compañía Mexicana de Gas. In 1990, Grupo Diavaz acquired Compañía Mexicana de Gas, which then went through a crucial modernization and renovation period. On the other hand, it enabled the group to participate in
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the whole value chain; from exploration and production to distribution to the final consumer. Ortiz Hernández notes that Grupo Diavaz is the only group that has this presence across the value chain. Perhaps one of the most
Beneficios económicos del 25% al 40% de descuento en el pago de recibo de energía eléctrica.
important benefits that came as a result of being part of a conglomerate is that Compañía Mexicana de Gas now has access to better financial tools that have enabled it to improve its operations. “The network modernization and residential market growth were achieved thanks to the financial backup of the group,” says Ortiz Hernández. He explains that for a long time, the company had an industrial calling, but after it was acquired by Grupo Diavaz, it developed a new focus on the residential market. “We have over 100,000 clients and we are growing every year. Part of Companía Mexicana de Gas’ strategic plan is to have 270,000 residential clients connected by 2018,” he adds. Ortiz Hernández is bullish about the future of natural gas. Nevertheless, he acknowledges that the real challenge is that, through the new policies of the Energy Reform, pipeline construction has to be incentivized in order to
Puede funcionar de manera independiente al 100% de la energía eléctrica y logra producir agua caliente, fría y aire acondicionado con un chiller, cubriendo todas sus necesidades sin depender de ninguna otra fuente de energía. Sume su empresa al cuidado del medio ambiente, al operar eficientemente con gas natural que produce bajas emisiones contaminantes, así como gas LP, diesel y biogás, entre otros. • La Trigeneración provee de energía eléctrica, térmica y frigorífica. • Ahorros del 25 al 40 % en el pago de energía eléctrica y otros ahorros. • Eficiente desempeño que abastece de energía eléctrica bajo demanda y sin interrupciones.
reach all of Mexico’s growth centers. “Natural gas has always been a development factor across Mexico. Higher availability will imply higher development and more job creation. Having access to cheap natural gas from the US is an opportunity that we have to seize by developing the required infrastructure,” he says. Compañía Mexicana de Gas is currently focused on continuing its investments in new infrastructure that caters to Monterrey’s continuing urban growth, as well as improving its position in industrial zones to serve the new companies in the city. On the other hand, new distribution zones, pipeline carrier opportunities and even cogeneration projects are some of the opportunities being analyzed. “We see a great future in the energy sector. We are aware that the energy sector is a key factor for Mexico’s economy
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and we want to play an essential role within it.”
75
NATURAL GAS COMPANIES EYE UP VERTICAL INTEGRATION The Energy Reform has been lauded for the chances it
be of most benefit to power producers as they consume the
is extending to the private sector, but Fernando Calvillo
largest amount of gas.”
Álvarez, President and CEO of Fermaca, believes the evolution of the market has been a subtler process. “This
After decades with an energy monopoly, “the cost of
process was made up of a chain of activities that gradually
producing, transporting and distributing fuels did not
evolved out of aspects of PEMEX’s monopoly being
matter in Mexico. As for power, little attention was paid to
opened up to private investment, from joint ventures and
daily, weekly or seasonal swings in generation. There was
investment agreements to bidding processes,” he explains.
no certainty about whether enough gas or pipeline pressure
Mexico’s natural gas situation made this development
was available at the time it was needed,” he explains.
process evident, given that the average price of natural
Given the obvious costs such inattention incurred in terms
gas in the US through 2013 hovered at around US$3.5 per
of penalties and mismanagement, the benefits of peak
million BTU, as compared to US$12 for fuel oil, US$16 for
shaving became evident. Through a strategic alliance with
diesel and US$19 for LPG. Ever since the US began shale
a technological partner from the Netherlands, Fermaca
gas production forward with intensity, it has become the
developed peak shaving facilities that connect to pipelines
cheapest source of natural gas in the world. This means the
at times of high availability but low demand. This gas is then
lack of current infrastructure and interconnection points at
stored as LNG, and can be re-gasified and re-injected into
the US-Mexico border makes for an extremely attractive
the grid, should gas supplies falter in peak hours. Calvillo
opportunity for firms like Fermaca, who can now eye up
Álvarez lists the advantages of peak shaving as optimizing
bringing cheap gas to Mexico.
the dispatching of power plants, safeguarding against temporary critical alerts, allowing for better management
As this process moves forward, private companies will be
of the supply and use of gas over time; it also allows
competing against each other in a crucible that will test
withdrawals during periods of scarcity or to cover a price
which of them have the capacity to guarantee the supply
spike. “We know that the peak shaving project will come to
of natural gas. Fermaca feels confident it will come out on
fruition because it is needed. We see ourselves as owning
top, given the long-term vision it applies to its projects and
and operating such a facility and providing peak shaving
due to the process of vertical integration that many natural
services to power generators, initially with a capability to
gas companies end up going through, taking the step from
cycle up to 20 Mcf/d, which is not large but very important
being purely transporters of natural gas to becoming power
as a first step,” says Calvillo Álvarez.
generators. Fermaca dipped its toe into these waters a few years ago, setting up a partnership to develop power plants,
Fermaca is committed to making an expansion into power
but the closed generation market and dependence on supply
generation, though it knows its experience does not lie in
from PEMEX derailed this move. Critical alerts, commonplace
that field. By teaming up with a power producer to yield the
in certain parts of Mexico lead to a reduction in the volumes
best result, Calvillo Álvarez estimates that in the first stage
of natural gas being distributed to customers, and have also
of development, 700MW of private power generation could
held back this integration process. For Calvillo Álvarez, it is
be set up, with Fermaca considering several options to best
unthinkable to invest in power plants while such a situation
claim a slice of the power generation market. The company
endures. “If you are going to invest between US$100 million
is looking at projects in different regions of Mexico, while
to US$1 billion in a power plant, you have to ensure the
also considering an expansion of its cogeneration projects,
reliability of the gas supply. It would be impossible to finance
and combining gas and renewable energy. With the ink still
a project that is vulnerable to critical alerts and risks running
drying on the Energy Reform, Calvillo Álvarez expects this
out of fuel.” Such a problem led to innovations from Fermaca.
process to be drawn out. “It is slow and difficult but we
The 385km Chihuahua Corridor pipeline was designed for
believe our first plant will be operating within two to three
the needs of CFE, but also to allow for greater capacity to
years. The Energy Reform will completely open up power
be used by third parties. When building such infrastructure,
generation. Fermaca can be extremely competitive and
Fermaca laments the short-sighted planning of certain
will become an important player in the region.” In the last
players, as it vouches to plan for the next 15 to 20 years.
two years, Fermaca invested almost US$600 million and
With additional capacity in its pipeline and with natural gas
estimates that with its current pipeline infrastructure, it could
prices at US$3.5 per million BTU, energy-intensive industries
already move 20% of the natural gas consumed in Mexico.
now see the potential of reducing their costs by more than
76
50 percent, says Calvillo Álvarez. “We have been pushing for
Despite this early stage of its vertical integration, Calvillo
the creation of energy hubs along the pipeline. This would
Álvarez believes Fermaca has demonstrated its superior
value offering through its previous projects. It secured
Chihuahua. “In the case of Chihuahua, many complex factors
the win for the Chihuahua Corridor pipeline by having
were managed smartly. We excelled in the right of way
a substantial difference in its offering to those of its
process, we anticipated most of the engineering challenges
competitors. In a joint venture with Spain’s Enagás, Fermaca
which saved a lot of time and money, and we implemented
tabled a bid of US$88 million to build and operate the
a smart management plan for the construction. But whether
compressed natural gas of Soto La Marina in Tamaulipas.
it takes more or less days does not matter, it is about hitting
Calvillo Álvarez said the difference in net present value
the deadlines you set and finishing the project on time,”
was around US$100 million dollars, showing that Fermaca
explains Calvillo Álvarez. “The Chihuahua pipeline is the
is confident that it can provide the best services around at
first such project to be built and delivered on time to CFE.
the lowest price. Both companies naturally complemented
Foreign companies have not accomplished that in Mexico.”
each other since Enagás had certain problems developing
For him, this shows the importance of having Mexican
and materializing projects in Mexico but had a lot of capital
companies be competitive in Mexico. If Canadian, French
to invest. On the other hand, Fermaca had masterminded
or Spanish companies are more competitive at home for
successful project executions but had struggled to find
having the support of their governments, there is no reason
competitive financing alternatives. “Enagás brings a large
the same should not happen in Mexico.
technical base of experienced people, grown and seasoned in a fairly protected market,” says Calvillo Álvarez.
Despite Mexico now facing a challenge in developing
“Fermaca brings local strength, adaptability, project and
its own shale gas industry, Calvillo Álvarez is not overly
financing expertise and execution capabilities.”
concerned about what ultimate success in this line of work would mean for his business. “I do not think it will have
Given these competitive strengths, why has Fermaca not
an effect for some time to come. Fracking is not an easy
had a greater range of projects to date? “Unfortunately,
process. Mexico must open up shale gas exploration and
the administration of Former President Felipe Calderón
production to private investors, because that is the only
made bids more attractive for international companies than
way the country will see this activity happening.”
for Mexican companies. So new criteria were added to the bidding rules that Mexican companies could not compete
But with the Energy Reform having passed, a new market
with,” says Calvillo Álvarez. He sees this failure to use Mexican
is being born, one in which Fermaca will have to navigate
potential to its full value as a shame, beyond the fate of
very different relations with the public and private sectors
Fermaca, since these projects missed out on the knowhow of
to ensure fruitful results. The company sees working
Mexican players in areas such as how to obtain permits and
with the private sector as a complicated process, varying
how to control development and construction costs, among
according to which companies are willing to take risks and
other advantages.
which have the right credit credentials. To ensure success
“We have been pushing for the creation of energy hubs along the pipeline. This would be of most benefit to power producers as they consume the largest amount of gas” Fernando Calvillo Álvarez, President and CEO of Fermaca
Fermaca itself has adapted to the different realities of
in power generation with the private sector as customers,
different projects in the Mexican market. For example, its
“you have to take the big players in the Mexican economy
Chihuahua Corridor pipeline presented fewer problems
and negotiate stable power consumption for your project for
than its Palmillas-Toluca pipeline. This was largely due to
15 years. Unfortunately, in Mexico, nobody ever says no so
major differences in the conditions of the two construction
you end up in negotiations that were never going anywhere,”
projects, especially in terms of dealing with land owners and
says Calvillo Álvarez. But working with CFE is different, he
struggling with geographic challenges. The Chihuahua to
adds. The bidding process is hard, involving a tough battle
Tarahumara pipeline involved dealing with 400 land owners
with competitors in which potential returns are reduced.
over 385km, as compared to negotiating with 1,600 in just
But in case of a win, a 25 year contract is ensured. It will be
122km for its Toluca equivalent. The Toluca pipeline also
interesting to watch the formation of the power market in the
had to run across uneven terrain such as hills and expensive
coming years. “With the Energy Reform, the participation of
agricultural land, while the Chihuahua one had a clear run
the private sector is imminent and a power market will be
across flat desert and big ranches. Ultimately, both projects
created. Today, 40 to 45% of power generation is already
were completed in around 14 months, with Fermaca
being done by private players but only through exclusive
achieving a good learning curve from both, but mostly from
contracting with CFE. There is no power market yet.”
77
INTRODUCING THE WORLD’S LARGEST GAS TURBINE Over the next decade, natural gas-based power generation
it was first launched. The growth of the Mexican natural gas
technologies will be at the center of Mitsubishi Heavy
sector and the increasing number of combined cycle power
Industries’ growth strategy for Mexico, driven by the
plants to be developed will increase the potential to further
consistently low prices that are expected for this fossil fuel
apply this technology in the coming years.
as a result of the shale gas production in North America. Existing CFE plants burning highly pollutant fuel oil will
Today, Mitsubishi is participating in bids to develop
be phased out and substituted by natural gas fueled
combined cycle power plants for CFE in Topolobambo,
combined cycle plants, while turbines are becoming more
Escobedo and the Valley of Mexico. On the other hand,
efficient and their capacity is increasing. Mitsubishi Heavy
the company has participated in the geothermal sector
Industries also sees important opportunities in wind, solar
at Cerro Prieto, CFE’s largest geothermal power plant.
and geothermal energy, but the company does not have
Even though the size of the geothermal market in Mexico
manufacturing activities for wind or solar power in Mexico.
remains limited for the moment, the Los Azufres plant
“We are active in the geothermal sector, even though
is also receiving support from the company, which is
the market is relatively small compared to natural gas,”
expecting to participate in further geothermal projects
says Hidetoshi Shigemitsu, President of Mitsubishi Heavy
in the future. The merger of the power system businesses
Industries Mexico. “The main business for us is natural gas
of Mitsubishi and Hitachi will increase the market share
since we manufacture technology for this sector in Mexico.”
for the company to over 40%, making Mexico one of the countries in which Mitsubishi has the strongest presence
“In the case of Mexico, the Type J Mitsubishi turbine may
globally. “Mitsubishi Heavy Industries has been present
prove very useful to fulfill the country’s power generation
in Mexico for over 40 years,” says Shigemitsu. “We have
needs,” comments Shigemitsu. The 60 hertz J-series
worked on many of Mexico’s challenges and we know how
gas turbine achieves a 460MW combined-cycle power
its market functions.”
generation, making it the world’s largest. Combined-cycle technology uses high-temperature exhaust gas to generate
Mexico
also
needs
clean
fuel
alternatives
for
the
power by a steam turbine, while achieving over 60% thermal
transportation sector which is one of the main contributors
efficiency in these applications. Mitsubishi strives to offer
to the country’s total CO2 emissions. “A high speed rail
the highest efficiency levels in the world. The J-series
network would be a possible part of the solution to this
turbines are flexible since they can use different fuels to
challenge and Mitsubishi Heavy Industries is very interested
generate energy, and can reduce CO2 emissions by 50%
in participating in such projects, as we have international
compared to conventional coal-fired power generation.
experience in unmanned train equipment for airports and
“This turbine is compatible with Mexico’s climate change
other applications,” comments Shigemitsu. “There may not
mitigation strategy, which will start to take effect in the
be a major need to develop high speed trains in Mexico
coming years,” says Shigemitsu. The first 1600°C J-series
today, but there is a big project connecting Texas and
turbine provided test results in 2012, validating the initial
Nuevo Leon and we are very willing to participate in order
performance expectations established by Mitsubishi when
to make it a reality.”
MARKET PRICE HINDERS THE FUTURE OF COGENERATION The 2013-2027 National Energy Strategy emphasizes the
economic and energy efficiency. Attractive gas prices also
importance of cogeneration, a process in which electricity
incentivize the substitution of oil fuel plants. However,
and useful heat are simultaneously generated using the
several structural limitations should be addressed, such as
same fuel. A similar process, trigeneration, simultaneously
uncertainty regarding the value of energy surplus resulting
generates electricity, useful heat and cooling. Cogeneration
from cogeneration.
systems have been used in Mexico since the 1990s, although mostly in individual industrial applications with
A 2009 study done by CONUEE and GIZ concludes that
an energy demand of over 1MW.
the national potential for cogeneration is divided among three important sectors: sugar mills, PEMEX, and other
The main factors motivating the use of this technology are
industries. The latter category is rather ambiguous, but
Mexico’s high electricity costs, especially in the commercial
SENER mentions the cardboard, cellulose, paper and
sector, and the relatively low fuel prices. Although most
food industries as being particularly prone to benefit from
energy sources can be used for cogeneration, natural gas
this energy production method. A significant interest
has proven the most popular source on the market. One of
in these systems can be observed in hospitals, hotels,
the greatest advantages of cogeneration is that energy is
malls and small and medium-sized businesses. Hospitals
produced close to the consumption point, thus avoiding
benefit from trigeneration because its final products are
changes in voltage and long distance deployment, which
electricity for illumination and air conditioning, while
are responsible for energy losses. In Mexico, cogeneration
heat is used for hot sanitary water and laundry purposes.
users enjoy independence from the grid and the stable
Hotels reduce costs by using cogeneration for illumination,
availability of electricity and heat, in addition to reducing
elevators and air conditioners. If full economic feasibility
the release of greenhouse gases into the atmosphere.
is taken into account, CONUEE has calculated that the
However, the advantage of local generation is offset by the
maximum exploitable potential for cogeneration in Mexico
inability to transmit that energy anywhere.
is 10,164MW.
Cogeneration’s fundamental principle is the recovery of
Cogeneration is of particular interest to PEMEX. Mexico’s
residual heat, a byproduct of combustion, in an energy
state owned oil company consumes 9% of the country’s
generation plant. In trigeneration the residual heat is used
energy and is therefore the primary client of cogeneration
for absorption refrigeration. Usually, said residual heat would
projects. The Nuevo Pemex Gas Processing Complex,
be released into the atmosphere, wasting an important
located in Tabasco, is an important step in PEMEX’s path
source of available energy. Cogeneration’s expelled heat
to self-sufficiency. It produces 300MW of electricity and
can be used for thermal or refrigerating processes as well as
up to 800 tonnes of vapor. The plant’s production is equal
heating water near the plant. Because residual heat is used,
to 11.2% of Mexico’s total electricity from cogeneration
cogeneration turns 75-80% of the fuel source into useful
installations.
energy. The average efficiency rates in traditional plants
cogeneration and trigeneration, their implementation
using fossil fuels is 35-37%, while combined cycle plants
has been less generalized due to a lack of definition and
reach efficiency rates slightly above 50%. The advantages
certainty regarding legislation, technology costs, energy
that cogeneration provides when speaking of energy
costs, low efficiency in small capacity plants and users’
efficiency thus become self-evident.
lack of knowledge about the benefits of these systems.
As
for
micro-cogeneration,
small-scale
These systems are mainly used in hotels, hospitals, These advantages have already been noticed and used
and commercial settings and their respective installed
around the world. For example, the US currently draws 8%
capacities varies between 240kW and 3,600kW, out of an
of its energy from combined heat and power solutions.
estimated potential of 1,671MW.
The Department of Energy has set the goal of raising that figure to 20% by the year 2030. To meet this target, eight
According to various polls, most project developers do not
clean energy application centers have been established
follow through when the return on investment takes longer
across the US. Mexico has promoted the implementation
than five years. Limitations in the availability of natural gas
of cogeneration projects in order to achieve maximum
also deter users from implementing cogeneration systems.
energy efficiency, reduce fossil fuel consumption, and avoid
Micro and small cogeneration and trigeneration projects
greenhouse gas emissions. The installation of cogeneration
could see an increase in profitability in Mexico if the excess
plants does not require subsidies, according to SENER,
energy could be sold at a reasonable market price, either
and its penetration is explained by the technology’s
to CFE or to third parties.
79
CAPITALIZING ON INCONSISTENCY IN THE NATIONAL GAS SUPPLY Mexico’s increased focus on natural gas has provided the
afford to have an interrupted supply. “PEMEX has been
opportunity for companies to pounce on the current lack
making a big effort to expand the flow of natural gas and
of infrastructure by linking up markets that have so far not
LNG shipments, which is not the most economical solution
been able to access natural gas. Companies like Igasamex,
but is the right one at the moment,” Arriola Jiménez says.
that design, build and operate gas pipelines, have been
“Developing infrastructure can significantly improve the
closely watching these developments. “One particular
reliability of the overall system, but this involves long
issue that we face is the inconsistency of gas supply; the
timeframes.”
system is currently over-stretched and is operating above capacity, which has created reliability issues,” says Carlos
Natural gas transportation companies take on the role of
Arriola Jiménez, Director General of Igasamex. His firm
enablers in the transition to natural gas. Offering natural
focuses on providing more reliable services to end users
gas services in Mexico is complex, particularly in areas that
by finding long-term solutions to the natural gas network’s
are not part of the pipeline network’s distribution zones.
thornier problems, to increase the competitiveness of high
The challenges stretch across permitting, acquisition
CAPEX industries by making their operation more efficient
and the marketing of natural gas. “Our key strengths
and cost competitive.
come from the deep and keen understanding we have of the market and regulatory framework, as well as the
Today, Igasamex is delivering natural gas via pipeline only
operational challenges that come with developing energy
but is looking to expand into serving off-grid customers
infrastructure in Mexico,” says Arriola Jiménez. Even though
with compressed or liquefied natural gas transported
Igasamex is still not relying on LNG-specific operations, it
by truck. This expansion is targeting markets that are
is seeking strategic partnerships that will ensure safety,
inaccessible via pipeline due to their isolated locations
quality and reliability in such projects, allowing them to
or to their distance from existing infrastructure, thereby
take advantage of the opportunities created by natural
contributing to the coverage of natural gas in Mexico
gas supply inconsistencies. The reliability that Igasamex
through
focuses
itself offers can be noted in the continuity of their services
more on industrial users. The power generation sector
since the Mexican transportation market for natural gas
has traditionally been outside our scope, since it requires
was opened 17 years ago. “This is a business in which we
a much higher level of investment,” says Arriola Jiménez.
tend to contractually commit to long-term relationships.
“This sector also has needs that are different from those of
For the most part, the great majority of those partnerships
the market that we serve,” he adds.
have turned out to be very successful with a tremendous
continuous
investments.
“Igasamex
“Intensive energy consumers should look at Mexico as an investment option, as the country can provide competitive advantages to companies” Carlos Arriola Jiménez, Director General of Igasamex
Inconsistencies within the system and the state of over-
amount of value being created for the parties involved,”
capacity in the sector are the main challenges that need
comments Arriola Jiménez.
to be overcome. Natural gas transportation companies
80
are working hard to guarantee natural gas supply to their
“Many multinationals that have set up operations in Mexico
customers. However, in order to keep offering reliable
have put their trust in Igasamex and we feel proud that we
services, several additional strategies are being adopted.
are doing our small part to contribute to the development
“We ensure that all of our pipelines and every investment
of our country,” Arriola Jiménez says. “The companies
we make are in line with international and national norms,”
that are deciding where to locate their manufacturing
says Arriola Jiménez. Everything must be tested before
facilities should know that entities like Igasamex can help
a project starts operating to ensure that there will be no
to ensure easy access to adequate services,” concludes
problems related to the supplied parts in the construction
Arriola Jiménez. “Intensive energy consumers should look
of the pipeline, which can affect reliability. Igasamex has
at Mexico as an investment option, as the country can
also developed backup systems for customers that cannot
provide competitive advantages to companies.”
| VIEW FROM THE TOP
PRIVATE SECTOR MUST DRIVE NATURAL GAS DEPLOYMENT JORGE SUĂ REZ OREA Director General of GNPI Mexicana Q: What opportunities will the coming Energy Reform
requires a large investment. PEMEX is setting limits on
create for GNPI Mexicana?
the access to natural gas, which means a barrier for the
A: We specialize in the construction of natural gas facilities
industry. There is a huge contradiction. For example, while
and providing services and maintenance for our clients’
we are invited to attend symposiums to discuss how to
facilities, to allow them to better comply with norms and
fully develop cogeneration schemes, there are still severe
regulations. The main opportunities for GNPI Mexico will
limitations on the use of natural gas. It is not consistent to
come with the anticipated increase in demand for these
hear that there is plenty of natural gas while its use is being
types of services. For example, one of our clients has been
limited. We constantly see increased promotion of the use
unable to build a natural gas installation because PEMEX has
of natural gas, but its use is facing more restrictions with
been reluctant to approve it, apparently because our client
every passing month.
does not have the right capacity. Our client operates an 18inch pipeline but PEMEX requires a connection through a
Q: How could this problem be solved?
48-inch pipeline. However, the 48-inch duct is 60km from
A: Mexico has not exploited or taken advantage of its
the site of the installation, while an 18-inch duct is 20km
energy potential, due to the lack of governmental capacity
away. To comply with PEMEX’s demand would considerably
to manage the economic and political implications of said
increase the level of required investment.
potential. The current government is just beginning to realize that we are lagging behind and that there is not enough
Q: Which have been the most important projects for GNPI
infrastructure to meet the increasing natural gas demand
and what were the main lessons that the company learned
from industries and the general public. For this reason there
from them?
are many doubts surrounding future investments. What will
A: We have installed many steel and polyethylene pipelines
happen if a company invests in Mexico but suddenly faces a
around Mexico City. Before, pipelines were generally
lack of natural gas to meet its requirements?
made of steel, so installing polyethylene was a completely different experience. Every time we work on a new project
The main contribution of the Energy Reform will be
we learn something different, especially when considering
allowing companies to invest and exploit the resources
the changes to the regulatory framework in recent years.
that the government cannot. You cannot ask companies
PEMEX used to be the entity in charge of establishing
to consume natural gas instead of other resources if the
norms and regulations, but CRE is now in charge of that.
government does not provide the necessary tools for
Issues can arise as soon as gas installations begin operating.
them to do so. Unfortunately, this has caused the fossil
Our clients do not usually have the technical knowledge
fuel sector to become stuck. The government uses PEMEX
necessary to notice these issues before they start operating.
revenues to cover its budget needs. If 60-70% of its revenue
The main hindrances come from poor equipment selection
is allocated to paying taxes, PEMEX is barely sustaining
and quality of the installation. This means that modifications
itself and reinvestment proves impossible. Only the private
are often needed shortly after a plant starts operating.
industry can take advantage of this situation, because the government has proved over and over again that it does not
Q: What actions could be taken by both the public
have the capacity to do so.
and private sector to address the lack of gas pipeline infrastructure?
Private companies have to contribute to the development of
A: Many cities need access to natural gas but are denied
the energy sector, but people are currently afraid of investing
that access due to the lack of sufficient gas pipelines.
given the security situation in Mexico. Large territories are
The first issue that needs to be addressed is financing.
controlled by violent groups, and nobody wants to invest
Currently, if a company wants access to natural gas it
in a problematic area; the situation is so fragile that even
needs to build a 48-inch pipeline for its own use, which
strong and structured companies have doubts.
81
VIRTUAL PIPELINES DEVELOP AHEAD OF REAL ONES In large part due to the fortuitous development and
gas started long before,” states Patiño. However, in order
maturation of technology, North America now has a
to be able to transport natural gas while keeping the cost
reserve capacity of natural gas that will last for over a
as low as possible requires experience. “As individuals,
century. “Mexico currently has the fourth largest shale gas
we have been in the natural gas market since 1990,
reserves in the world. That is a resource that has to be
encouraging other companies to go into this business
developed,” says Lino Patiño, Senior Partner at Promotora
while neither acting as company owners nor resellers, and
Energética E3 (E ). Other fossil alternatives such as fuel-oil,
we have worked with some of the major companies in Latin
diesel or LPG are very expensive while the Mexican market
America,” adds Patiño. E3 has created a partnership with
has been very dependent on these types of resources.
IMW that has experience working with virtual pipelines in
Natural gas would offer a cheaper and cleaner alternative,
Indonesia, China and Europe, all of which pose their own
potentially reducing energy costs from US$15 per million
difficulties as a natural gas market.
3
Btu when using fuel oil to US$4 per million Btu, bringing very important savings. “North America is the region which enjoys the cheapest natural gas, and according to the Energy Information Administration of the Department of Energy of the United States, there will be no high volatility as far as 2045, not even in the US with all the exports they are undertaking,” comments Patiño. The US, from being a net importer of natural gas, has shown a desire to become a net exporter. The country has concentrated its efforts on increasing its own gas reserves, trying to sever itself from a reliance on imports from Trinidad and Tobago, Niger, and Qatar among others. In the past, the volatility of natural gas prices could see prices quickly spike from US$6 per million Btu to over US$10 per million Btu since it was tied to oil prices. This is no longer the case and the market is expecting to have access to cheap natural gas for 30 years
“One of the challenges for natural gas production in Mexico is that this fossil fuel does not represent the best investment opportunity for PEMEX given its investment budget limitations. However, it is an excellent business for the private sector” Lino Patiño, Senior Partner at Promotora Energética E3 (E3)
or more. The market will keep growing due to the increasing The situation in Mexico is different since PEMEX is the only
demand for natural gas. Mexico will not be an exception
entity allowed to carry out exploration and production
to this rule, with the government being very aware of
activities for natural gas, even though it is no longer the
the benefits natural gas can offer and axing much of its
exclusive transporter of natural gas in the country. “One
energy planning around the fossil fuel. “This fuel is the
of the challenges for natural gas production in Mexico is
only one that can guarantee a feasible transition toward
that this fossil fuel does not represent the best investment
real clean energy generation such as wind, solar and
opportunity for PEMEX given its investment budget
geothermal. Transportation and virtual pipeline companies
limitations. However, it is an excellent business for the
have found an important opportunity in Mexico since they
private sector,” comments Patiño. New policies that allow
have mitigated the risk of volatility and believe that the
the private sector to use those skills that PEMEX has not
prices will not change importantly in the near future. The
developed would likely rapidly boost natural gas production.
advantage is that natural gas is the only fossil fuel that does not have any kind of subsidy and yet remains very
82
“Virtual pipelines” have become an alternative in regions
cheap.” As a market maker and consulting services firm, E3
as yet not serviced by pipeline infrastructure, consisting
wants to maintain its partnership with IMW, and continue
of trucks that ferry natural gas to these locations. Even
acting as the representative of the brand in the market.
though these virtual pipelines are not as competitive as the
“The Mexican market is a product market. You have to go
real deal, they have proven to be a feasible alternative for
to companies, show them that they have a problem and
many industries. Several companies are taking advantage
offer them a solution,” Patiño says. “When the market
of the opportunity that arose from the lack of pipelines
gets mature enough, we will become a more commercial
in the country, taking the natural gas from the cheapest
company. We might be called a market leader once the
source available. “Virtual pipelines have been used formally
market becomes a reality but today, we are still one of the
since the 1990s but the use of trucks to transport natural
market makers.”
CNG TRANSPORTATION: AN ALTERNATIVE TO GAS PIPELINES Mexico’s energy transition
viewpoint and there are significant shale gas deposits
strategy
new
that have not been exploited. This might seem puzzling;
creates
opportunities
the
however, PEMEX is trying to maximize return on investment.
but
“There is no way natural gas can compete with oil,” explains
Mexico’s pipeline network
Allier. “PEMEX’s course of action is understandable from a
is currently lacking the
business perspective, but it is not necessarily the best course
capacity
the
of action for the country.” Allier claims this situation might
to
change once other players are allowed in the market, after
natural
gas
to
distribution Alejandro Allier, General Manager of NEOmexicana de GNC
meet
for sector,
fulfill needed
Despite
the Energy Reform is implemented. Allier is in favor of letting
a large-scale investment
demand.
private investors participate in gas and oil production. If this
being made in pipeline
happens, oil would be handled by international corporations
infrastructure, this capacity constraint has been seized
while smaller companies would take on gas, as happens in
upon as a market opportunity by companies dedicated to
the US. However, Allier also sees PEMEX holding on to its
the transportation of compressed natural gas (CNG).
status as Mexico’s only gas producer for years to come.
Under
the
aforementioned
scenario,
Brazilian
firm
Although the development of pipelines does not threaten
NEOgás entered the Mexican gas sector with local partner
NEOmexicana’s activities, the company has to evolve
Grupo Diavaz, through a joint venture under the name
alongside the sector. If NEOmexicana attracts a client
NEOmexicana de GNC. Alejandro Allier, General Manager
outside the pipeline network, the company is able to
at NEOmexicana, explains that Grupo Diavaz covered
interconnect other nearby customers and create an
every aspect related to gas supply while NEOgás brought
important consumption point. The firm develops maps
the technical knowhow, engineering expertise, including
charting self-supply opportunities to demonstrate the
logistics, and the design and production of decompressing
need to build a pipeline or to show distributors where CNG
units and trucks. Unlike other companies, NEOmexicana
is consumed. Even if a pipeline eventually reaches some
encompasses the whole CNG delivery process. Additionally,
of NEOmexicana’s clients, the company can always move
NEOmexicana was the first company to get a permit
on, and this has become an integral part of its strategy.
from SENER to work with CNG in Mexico, and NEOgás is
“NEOmexicana’s business model is completely mobile; we
currently the only company in the world with an ISO 9001
distribute gas by truck so we are always ready to move
certification for compressed natural gas operations.
somewhere else,” says Allier. This mobility is helped by the fact that natural gas fuel stations across the country share
Allier says NEOmexicana is a direct beneficiary of PEMEX’s
a basic feature: they are interconnected to the natural gas
decision not to invest in this infrastructure, but he refutes that
grid. They extract the gas and then compress it by using a
PEMEX is unwilling to do so. He sees it more as a matter of
booster. The business strategy for NEOmexicana is based
available resources, and explains that PEMEX cannot afford
on identifying significant industrial consumption areas,
to fully develop the Mexican pipeline network, in large part
determining if they have access to natural gas, and then
because it has to comply with its fiscal duties. This has
figuring out the shortest routes to get there, says Allier.
proven to be a financial limitation for PEMEX but a good business opportunity for NEOmexicana, which capitalizes on
Currently, NEOmexicana caters to industrial customers
the lack of infrastructure for natural gas in Mexico. “Several
only, but supplies a wide range of sectors. Allier says that
pipelines are going to be built in the near future. However, the
the company has focused on opportunities in the industrial
infrastructure will still not be sufficient due to the size of the
sector because many companies do not have access to
country,” tells Allier, while admitting that the transportation
natural gas but would like to take advantage of the fact
of CNG by truck could not possibly compete with pipelines.
that natural gas prices will remain low for years to come.
Despite this, he sees collaboration opportunities between
Once pipeline infrastructure becomes a fierce competitor,
companies like NEOmexicana and pipeline developers as
NEOmexicana will tackle other sectors, such as natural gas
more likely than increased competition.
vehicles (NGV). Allier sees this as an interesting avenue in which competition will be inherent, since a single
Anyone would have thought, according to Allier, that the
company could never cover Mexico’s entire demand for
most economically efficient way to supply natural gas in
NGVs. Despite this, NEOmexicana harbors the ambition of
Mexico would have been for PEMEX to develop natural
one day being the largest supplier of NGVs for Mexico’s
gas basins in the country. It makes sense from a geological
industrial sector.
83
SHALE GAS EXPLORATION FINALLY BECOMING POSSIBLE Over the past decade, technological advancements in
the development of its Canadian counterpart and spurred
horizontal drilling and hydraulic fracturing have allowed
interest in Europe, Asia and Australia.
access to large volumes of shale gas that were previously uneconomical to produce. Shale gas refers to natural
The rapid expansion of shale gas production in the US
gas that is trapped within shale formations. Shales are
has created a large number of jobs and reduced energy
fine-grained sedimentary rocks that are usually valued
bills, not only for natural gas, but for electricity in general.
as sources of petroleum and natural gas. Conventional
Another important benefit of recent shale gas production
gas reservoirs are created when natural gas migrates
has been the weakening of the historical link between
from an organic-rich source formation into permeable
natural gas prices and volatile international crude oil
reservoir rock, where it is trapped by an overlying layer
prices. In 2011, 34% of all natural gas produced in the US
of impermeable rock. In contrast, shale gas resources
was shale gas, which could rise to 50% of total natural gas
form within the organic-rich shale source rock. The low
production by 2040.
permeability of the shale prevents the gas from migrating to more permeable reservoir rocks.
In Mexico, the demand for natural gas increased consistently during the 2000-2011 period, with an average annual growth
Natural gas is the cleanest burning fossil fuel. The
rate of 5.7%. This trend is the result of affordable gas and
combustion of natural gas emits significantly lower
better efficiency in plants that use gas compared to those
levels of carbon dioxide and sulfur dioxide than does the
that use oil-based fuels. If this situation is prolonged, imports
combustion of coal or oil. When used in efficient combined
will increase alongside national demand because domestic
cycle power plants, natural gas combustion can emit less
investments are focused primarily on oil which is currently
than half as much CO2 as coal combustion per unit of
more profitable than natural gas.
electricity output. Several scientists believe that methane and other emissions from shale production are greater
Importing natural gas makes sense from an economic
than commonly thought. The majority of experts, however,
perspective,
find the emissions associated with shale gas-fueled electric
production has experienced turbulence in recent years.
power generation to be significantly lower than those
Between 2010 and 2012, PEMEX issued several critical alerts,
emitted when using coal or oil as a fuel source.
linked to the availability of this resource. The expansion of
but
also
because
Mexican
natural
gas
the Los Ramones pipeline further highlights the industry’s The climate impact advantage is well established for
intentions to import natural gas from the US. Currently,
conventional natural gas, but it has been questioned for
PEMEX imports 1,300Mcf/d and this number could reach
shale gas. The fracturing of wells requires large amounts of
3,400Mcf/d by 2015 once this project is complete.
water. But if mismanaged, hydraulic fracturing fluid, which may contain hazardous chemicals, can be released through
Mexico has rich shale gas resources that are still being
spills, leaks, faulty well constructions, or other exposure
explored. The Energy Information Administration ranks
pathways. Fracturing also produces large amounts of
Mexico as the fourth country with the most shale gas
wastewater, which may contain dissolved chemicals and
reserves, with 681Tcf. This is 11 times the total gas reserves
other contaminants that would require treatment before
that were previously estimated formerly quantified.
disposal or reuse. Because of the quantities of water used
Mexico’s shale gas reserves are located in the states
and the complexities inherent in treating some of the
of Chihuahua, Coahuila, Nuevo Leon, Tamaulipas and
wastewater components, treatment and disposal are vital
Veracruz. PEMEX began shale gas exploration in Coahuila
but challenging issues.
in 2010. Gas production effectively began a year after. However, the natural gas sector will not be boosted
Technological developments resulted in an unprecedented
overnight as legal, economic and technical aspects are still
production of shale gas in the US, which offset declines in
undergoing a thorough assessment.
production of conventional gas. Considering recent shale
84
gas discoveries, estimated natural gas reserves in the US
The 2013-2027 National Energy Strategy states that non-
were 35% higher in 2008 than in 2006. The number of
conventional hydrocarbons, a category that includes shale
unconventional natural gas wells in the US rose from 18,485
gas, will see their exploitation adapted to prevalent legal
in 2004 to 25,145 in 2007, a figure that is expected to
and economic conditions. Nonetheless, investing in shale
continue increasing through at least 2020. The economic
gas production would provide the country the opportunity
success of the shale gas industry in the US has sparked off
to become a natural gas exporter once again.
ENERGY SECTOR OPPORTUNITIES FOR PIPE MANUFACTURERS One of the towering infrastructure projects for Mexico’s
hydrocarbons in Mexico until it was recently approved for
future is the Los Ramones pipeline that is set to supply
natural gas. The materials are now more affordable and
20% of Mexico’s natural gas demand. This infrastructure
larger tubes are being manufactured, increasing cost-
will ensure the availability of natural gas that will enable
competitiveness. “We have been preparing for this for
the country to pursue its economic growth targets based
the last four years and we have doubled our production
on a reliable and cost competitive energy supply.
capacity,” comments González Garza.
Large infrastructure projects in Mexico are international and
Another important challenge that exists when developing
many companies are crowding to participate in the bids.
pipelines is preventing corrosion and maintenaning the
As a pipe supplier, Tubacero is one of the main Mexican
installations. Suppliers of the project developers must
players in the value chain of pipeline’s development. This
comply with rigorous quality control schemes from the
company won the bid to supply the 118-km Phase 1 of the
outset. “From the beginning of the steel production
Los Ramones pipeline. Tubacero attributes its success
process, we have our engineers measuring the liquid steel
to participating aggressively in the bidding process and
when it is being cast. When it is turned into plate or coils,
taking advantage of the competitive advantages that
we already know that the steel meets the customer’s
being based in Monterrey offered. “Los Ramones is the
quality standards,” says González Garza. The junctions
most important project for us,” says Teodoro González
between pipes have the highest probability of corrosion. By
Garza, Director General of Tubacero. “Being based in
providing 80-foot instead of 40-foot pipes that are welded
Monterrey gave us an important advantage in logistical
with an automatic machine, Tubacero pledges that higher
terms; bringing tubes from Korea, India or Germany would
quality is present throughout the manufacturing process.
be more difficult than producing them here,” he adds.
These longer tubes also reduce the amount of welding by
“Important cities with important industrial clusters are still lacking access to natural gas through pipelines which creates tremendous business opportunities” Teodoro González Garza, Director General of Tubacero
By working with local companies to manufacture pipes
half, which removes half the potential structural problems.
and develop pipelines, Mexico is drawing immediate
Tubacero is confident that its installation processes and
benefits, such as job creation and collecting more tax
maintenance activities will ensure the long-term optimal
revenue. “There was a willingness from the companies in
performance of the pipeline. “There are pipes that are 65
charge of the project, PEMEX and IEnova, to work with
years old and are still working with no problems,” González
Mexican companies,” comments González Garza. Tubacero
Garza says. In the particular case of natural gas, this fossil
has worked on many pipelines constructed by CFE in
fuel is notably less corrosive than other hydrocarbons,
Tamaulipas, Morelos, along the Pacific Coast and for the
reducing wear and tear on the piping.
Chihuahua-Sinaloa line, among others. “We have taken advantage of our production capacities and our technical
“Giving contracts for the construction and operation of
capacity to make high quality pipes,” states González Garza.
pipelines to the private sector will become an important factor in the expansion of Mexico’s natural gas pipeline
Natural gas demand is set to rise and companies have
network. Important cities with important industrial clusters
started to position themselves to meet the needs of
are still lacking access to natural gas through pipelines,
the market. Pipe providers play a crucial role in the
which
development of infrastructure and have become important
comments González Garza. Tubacero is also considering
contributors to lowering installation costs and construction
expanding its activities to other important areas of the
times. “Tubacero is now building a plant for coiled tubes
energy sector. “The production of towers for the wind
that are more affordable and are also used in pipelines,”
industry is an area of interest for us. The core business of
says González Garza. Even though coiled tubing is not
Tubacero is piping, but we believe we can do a lot in the
a new form of technology, it was not used to transport
hydrocarbon and renewable energy sectors.”
creates
tremendous
business
opportunities,”
85
MANY SECTORS CAN PROVIDE COGENERATION OFF-TAKERS The North American boom in shale gas, and the resulting
purpose, not their brand. Nevertheless, the final decision
low natural gas prices, made Mexico a very attractive
will always fall to the party acquiring the system.”
region to invest in for companies such as Sampol, a firm that specializes in cogeneration. “The price of natural gas
Another way for Sampol to diversify has been to offer EPC,
is expected to remain stable for the next 10 or 15 years,
operation and maintenance services to its customers. “We
increasing the profitability of our natural gas fueled
can be in charge of everything related to the project and sell
projects and considerably reducing the amortization
electricity and heat at the moment of consumption, if we
time,” says Gonzalo López, former Business Development
have a guaranteed consumption rate,” states López. Before
Director of Sampol. Mexico represents 30% of the
signing up for cogeneration solutions, companies must also
company’s total sales and projects have been developed
decide whether they prefer to produce their own energy or
from Playa del Carmen with Mexican engineers that travel
engage in PPAs to fulfill their energy needs. For a project
to the Dominican Republic, Costa Rica and Jamaica.
to provide the optimal solution on a client-by-client basis, it
Cogeneration companies are benefiting from the needs
has to be analyzed economically by both the provider and
of industries that cannot afford to lose their power supply
the consumer. However, industries that cannot afford to
but are at risk of experiencing downtime, and suffering the
have power failures at any time may not mind paying more
resulting economic losses, when CFE is not able to provide
as long as they can be sure they will receive a guaranteed,
them with electricity. “Today, any malfunction or damage
uninterrupted source of power. “Our clients need only be
caused by a company to its customers can have a strong
concerned about their core business as we will handle all
negative impact since information travels very fast. It is
issues related to power generation. This implies higher costs,
very hard to build a reputation, but it is even harder to
but Sampol commits to its services in a contract. If anything
make up for the failure to deliver on promises,” comments
goes wrong, we will assume the penalties,” says López.
López. Cogeneration systems minimize power failure risks since the generating equipment is located at the point of
A diversification of the energy mix is recommended and
consumption, avoiding the need to transmit electricity
Mexico has different areas in which cogeneration projects
over long distances. “But one of the main disadvantages of
could prove successful. “We have developed both greenfield
cogeneration is that thermal energy cannot be transported
and brownfield projects for hotels, airports and railways,” says
over long distances,” says López. “This type of energy
López. This echoes the fact that many different sectors of the
can be transported 2km away at most. This is the main
Mexican economy can become off-takers for cogeneration
difference with electric energy, which can be transported
projects. The development of Mexico’s electric railway system
nationwide by using CFE’s grid and paying wheeling costs.”
has been included in the National Development Plan, offering
“One of the main disadvantages of cogeneration is that thermal energy cannot be transported over long distances” Gonzalo López, former Business Development Director of Sampol
86
Sampol has bet on a diverse portfolio of cogeneration
big opportunities for cogeneration. “The railway sector
products and technologies. “We work with different engine
is a priority and we want to apply the experience we have
companies, such as Cummins, Rolls Royce and Caterpillar
gained in Europe on any projects using electricity to drive
among many others, in order to provide the most suitable
engines,” López explains. For the moment, the vast majority
solution for the needs of the client,” comments López.
of Mexican locomotives run on diesel but electric trains are
“We have developed the capability to integrate the best
being explored as an option. The transportation sector as
solutions with different technologies and coordinate them
a whole could prove to be a key business opportunity for
to easily replace equipment by reconfiguring the system. On
cogeneration systems as airports are another important
the other hand, international companies such as Siemens
potential client. “We want to be near industries that want to
and Schneider design a whole system, manufactured
increase their energy efficiency through cogeneration or PV.
with their own components. At Sampol, we integrate the
We are aware that projects of all sizes will be developed in
systems with the best fit of components based on their
the future,” concludes López.
| VIEW FROM THE TOP
COGENERATION SCHEMES BECOME MEXICAN REALITY JORGE ARMANDO GUTIÉRREZ VERA President of Cogenera México
Q: How has the potential for cogeneration projects
customers are paying for liquefied natural gas, which is
evolved in recent years in Mexico?
extremely expensive at around US$18 per million Btu. The
A: The benefits of cogeneration in Mexico are huge. The
solution is to build gas pipelines along the Pacific Coast and
development of cogeneration and trigeneration schemes in
have an interconnected natural gas network to develop the
the country means that efficiency could be as high as 88% in
industry nationwide. We have vast shale gas resources in
the case of trigeneration. If you compare this efficiency rate
Tamaulipas and we have to take advantage of that.
with the 33% standard efficiency of CFE’s single cycle power plants, this means we would be using fewer fossil fuels in
Q: How do you convince the industry that cogeneration is
order to produce more electricity, heat and cold.
a competitive energy source in which they should invest? A: If companies are steam consumers and need electricity,
The potential of the cogeneration schemes in Mexico so
it should be easy for them to develop a cogeneration
far stands at around 10GW, of which PEMEX can develop
scheme. Development companies and industry firms may
over 3GW. The first cogeneration developed by PEMEX
sign a PPA in which the developers are responsible for the
and Abengoa has operated since the beginning of last
engineering, investment, construction and commissioning
year. PEMEX will also be involved in future cogeneration
of the facility. Developers can offer a cost reduction of 12%
developments in Cadereyta, as well as in other facilities in
to 18% on paper mills as well as in the petrochemical and
the country. To generate the 900 tonnes per hour of steam
food industries in comparison to their business as usual
that PEMEX requires in Tabasco through cogeneration, a
scenario. On top of that, you will be reducing the emission
total of 300MW must be produced of which only 50MW
of pollutants into the atmosphere.
would be consumed locally. The remaining 250MW have to be wheeled to other PEMEX facilities, but the modifications
In the near future, we would like to convince PEMEX to
to the legal framework affecting the cost of this wheeling,
develop all potential cogeneration schemes, somewhere
implemented in April 2012, make this project very bankable.
in the range of 3GW. We have to convince the Minister of Energy, Pedro Joaquín Coldwell, to get in touch with all
Q: How does the availability of natural gas affect the
the governors of Mexico and ask them to convince those in
development of the cogeneration sector?
charge of landfills to develop cogeneration schemes, to set
A: It would be impossible to develop cogeneration schemes
more biogas as a fuel for internal combustion engines. This
without natural gas. The only exception is biogas in sanitary
will mean methane will not be released into the atmosphere.
landfills, which is mainly natural gas. According to the law, electricity produced from biogas coming from landfills is
With the development of new cogeneration schemes, the
the main opportunity to develop a cogeneration scheme
competitiveness of the industry will improve. There are
without natural gas, though is also possible to develop
many industries that could develop huge cogeneration
cogeneration schemes using sugar cane bagasse as a fuel.
schemes, while others might develop smaller scale projects. For example, shopping malls in the north of Mexico may be
The problem with natural gas is the lack of infrastructure.
facing outside temperatures of around 40°C and need air
Most of the natural gas pipelines are located along the coast
conditioning. In such cases you can use the heat from gases
of the Gulf of Mexico. With the development of shale gas
in internal combustion engines or gas turbines, and drive
and oil, natural gas is going to be abundant in Mexico for
these gases into an absorption chiller to get cold water.
many years so the price is going to be lowered, remaining
This means that you could create a shopping mall with a
at between US$3 and US$6 per million Btu for the next
cogeneration scheme in the range of 2 to 10MW. We have
15 to 20 years. The big challenge is the construction of
been in touch with ANTAD, the association of department
the infrastructure we will need elsewhere, mainly along
stores, to raise awareness of the potential benefits of using
the Pacific Coast. Nowadays, CFE and other industrial
cogeneration schemes.
87
COGENERATION: THE SOLUTION FOR RISING INDUSTRIAL COSTS Cogeneration
offers
(which has an installed capacity of 5.2MW) and Fermicaise
and
(5MW), both of which have been up and running for
environmental benefits as
over a decade with good results. Morales explains that
it turns otherwise wasted
cogeneration in Mexico has been being developed for
heat into a useful energy
approximately 14 years, and has benefited from the price of
source.
greater
gas remaining competitive. Another essential aspect is the
efficiency means carbon
fact that cogeneration equipment is not very expensive,
dioxide
are
making investments affordable and allowing companies to
reduced by up to two-
expect a rapid ROI. Cogeneration projects enable a direct
thirds
compared
savings on a company’s electricity bill, which in turn raises
major
Enrique Morales, General Manager of IECEL
economic
This
emissions when
with conventional power
its competitiveness, says Morales. “The reductions vary
stations. IECEL is a Mexican company that focuses on
from project to project. Cogeneration is like a tailor-made
the operation, maintenance and regulatory framework
suit. If it fits you, the reduction is big but if it is not used
compliance of cogeneration plants, mainly through gas
properly, the reduction is smaller,” states Morales. “These
turbines and natural gas internal combustion engines.
savings can fluctuate from 10% to 40%.”
“Cogeneration has always offered the opportunity to fulfill all heating and electrical energy needed in industrial
The two things that the Energy Reform will bring to
processes,” claims Enrique Morales, General Manager
the cogeneration sector, in Morales’ opinion, is greater
of IECEL. “It also provides a great opportunity for the
certainty in the supply of energy resources and the
industrial sector to lower its costs.” On the other hand,
construction of required infrastructure. Once the energy
the company offers energy advisory services in areas
sector opens up following the Energy Reform, it will bring
such as interconnection contract revisions, agreements
the possibility for companies to enter energy generation
with CFE, supply and distribution of natural gas, energy
projects with greater strength. Another basis for Morales’
sale contracts, and maintenance contracts with specialized
confidence is the National Energy Strategy, which outlines
suppliers like GE or Caterpillar. Morales explains that IECEL
a planned increase of 30GW in generation capacity and
runs diagnostics for cogeneration and self-supply plants
an increase in the proportion of natural gas in the energy
and evaluations for potential cogeneration projects.
mix to 72% by 2027. This will directly translate into more opportunities for all sectors that need a higher supply
Changes in CRE regulations concerning cogeneration have
of gas. Another reason for this optimism is the support
led to the creation of a cogeneration efficiency certification
renewables are seeing from the current administration.
for projects that meet minimum efficiency standards.
Morales also expects the Mexican economy to return to a
The modifications to the legal framework allow for
healthy growth rate, which means that power generation
capacity recognition, usage of energy, and more feasible
projects that were put on standby in recent years, given
transmission costs, which has led to an optimistic outlook
the lack of certainty regarding energy generation and
for the sector according to Morales. “Cogeneration is on
consumption outlook, will be back on the table.
the right track but we are still missing the right approach
88
to obtain more competitive prices for cogeneration
IECEL does not intend to rest on its laurels. Once the
equipment, such as turbines or motors, which could impact
cogeneration sector matures, Morales says the firm
the profitability of projects,” Morales says. In his opinion,
will diversify its operations into renewables. “We have
the federal government could work with manufacturers
experience
and producers, or establish commercial agreements with
management so we could operate a small solar or biomass
European or US players, to ensure more affordable prices.
plant, even a solid urban waste plant. However, we might
This would be especially helpful for smaller projects in
enter these areas by providing consulting services first. We
which achieving profitability is more complicated, due to
would need a technical partner, similar to the one we already
the fixed costs they need to cover such as engineering,
have in biomass and biogas,” he points out. Nevertheless,
permits and installation. “Potential cogeneration projects
Morales warns that before renewables are considered, the
on Mexico are in the range of 10MW and below, which is
right balance must be struck for cogeneration, bringing
exactly where costs and services start to be competitive.
together a complex mix of regulation, technical knowledge
Projects of more than 10MW are more profitable,” claims
and human capital. “For that, there needs to be more
Morales. IECEL has been behind some of Mexico’s first
support from all levels of government for cogeneration
and most successful cogeneration projects such as Italaise
projects,” he says.
with
permits
and
energy
infrastructure
| VIEW FROM THE TOP
COGENERATION LEADER PAVES THE WAY GERARDO PANDAL RODRÍGUEZ Project Development Director of Guascor de México
Q: What differentiates Guascor from its competitors in the
is a 3MW project, is particularly efficient, achieving 75%
Mexican market?
and generating steam and hot water besides electricity.
A: Guascor is a multinational company that started building
This was a milestone for us as we demonstrated that a
engines for ships before shifting to gas engines that can
very sophisticated and complex CHP project could have a
also use biogas. After a few years, the company ventured
payback of less than two years. It also enabled us to obtain
into alternative energies and focused on energy efficiency
financing by demonstrating to financial institutions that
with combined heat and power (CHP) projects based on
CHP projects made sense. Our clients were very satisfied
cogeneration technology. This is currently Guascor’s core
and told the media they invested US$3 million in a CHP
business, and the company has positioned itself as one of
project and got a payback of 1.5 years, which beat our
the leading manufacturers of cogeneration technology.
estimate of two years.
Our engines are modular and range from 300KW to 1.3MW, which creates flexibility and allows for off-grid solutions in
Q: How have these projects positioned Mexico within the
locations such as Amazonas, Brazil, where we implemented
company’s global operations?
one of our signature projects. We combine our flexibility
A: After establishing Guascor de México, we faced a
with technological capabilities to develop off-grid projects
couple of tough years without selling a project. We had
based on multiple modular engines combined with solar
to convince clients by taking them to see CHP projects
and wind power.
in other countries. Until then, Mexico did not play a significant role in Guascor’s global operations. However,
We have been working in Mexico since 2001, when it
things started shifting around 2007 as our sales started
was hard to convince clients to potentially invest millions
to increase. We established our credibility in the market
of dollars in a cogeneration power plant, due to the
by investing in ourselves. This investment was not just
immaturity of the market. This country was not used to
made in our own operations, as we also financed a couple
cogeneration projects because it was not used to the self-
of external projects with our own money. Since 2007, we
supply concept. We were one of the first companies to bet
have been growing steadily, until 2012 when we grew
on this market. The Mexican market historically developed
exponentially.
based on cheap fuels, with the industrial sector prioritizing low capital costs over energy efficiency. This means that
Q: How can you help financial institutions trust in CHP
companies would often rather invest in a cheap boiler,
projects?
without taking its efficiency into account or considering
A: Experience is the main argument. At first, nobody
the savings another boiler could bring them. Now the
understands how cogeneration projects work and it takes
market is maturing and opportunities are emerging for
time. We can accelerate this process as much as possible,
providers of energy efficient solutions. A distributed CHP
but we cannot skip it. Another important factor is that it
project can achieve up to 70% efficiency, while electricity
has to be easier for paperwork to be processed. The fate
from the Mexican grid achieves around 25% efficiency. This
of a US$300 million wind project rests in the hands of two
shows that we make better use of the fuel we have in this
or three people in the government who can easily rule that
country when we invest in CHP projects.
the project will not go through, without any third party being able to argue in its favor. Financial institutions know
Q: What do you consider to have been the milestones of
how complicated this process is, and will not finance your
Guascor de Mexico?
project until you have proven that it is ultimately viable.
A: We won the bids to develop cogeneration projects for
The problem is that you can easily spend US$5 million on
Sigma Alimentos and Qualtia Alimentos, the biggest food
pre-developing a wind farm, but this is a gamble and not all
companies in the country, for which there was intense
players have that kind of money to bet with. We need more
competition. The power plant for Sigma Alimentos, which
certainty in the market.
89
PROMOTING THE BENEFITS OF THERMAL ENERGY Having been involved in the electrical industry for a long
a partner, a former biogas industry advisor for the Mexican
time, it was a natural move for Ambar Electroingeniería
government, and recently signed an engineering contract
to enter the cogeneration game. “The time is right for
to manage around 30 tonnes of organic waste daily and
many industries to invest in this technology,” says Daniel
start a joint bio-condensing program. “We have over 30
Salazar, Director General of Ambar Electroingeniería.
mechanical, electrical and control engineers, as well as
His company always looks at its projects from a thermal
information technology specialists, working full-time on
capacity viewpoint and has specialized in the low and
cogeneration and biogas projects, supported by in-house
medium voltage fields, because of opportunities spotted
legal expertise. Ambar Electroingeniería can count on its
in these areas over 20 years ago. After taking a chance
own services to provide better delivery times than the
and succeeding in the medium voltage market, introducing
competition,” states Salazar. “This translates into quality
new technology for air insulated switching systems into the
service. For example, our technicians have European
market in cooperation with a Spanish partner, the medium
certifications for working with an international brand
voltage market proved to be the right choice. Salazar
of combustion engines, adding quality to our after-sale
believes that cogeneration and renewable energy sources
services. “When you invest in a cogeneration project, you
should complement each other rather than compete, and
will deal with your supplier for more than 10 years, making
concentrates on medium voltage actions that can be taken
after-sale service crucial.”
for both cogeneration and renewable energy projects. Today, Ambar Electroingeniería is mainly focused on the
Salazar
highlights
the
attractive
rate
of
return
for
private sector, covering anything from 10KW up to 30MW
cogeneration plants. “Considering the current electricity
projects. The company can also install cogeneration
and natural gas prices, amortization takes between 2.5 and
systems starting from 5KW, which consist of a small engine
3.5 years. That is a very good deal for our customers,” says
that can be used in a large household to produce electricity
Salazar. If the customer has electrical problems such as
or to heat water. However, Ambar Electroingeniería does
outages, installing cogeneration equipment will solve these
most of its work in industrial settings, offering EPC projects
issues. It is similar to having an emergency power plant
with optional operating services.
working 24 hours a day. “A few years ago, nobody talked about cogeneration, but Ambar Electroingeniería has been
Since wind and solar power are not markets that Ambar
a very enthusiastic proponent of cogeneration for the past
Electroingeniería is interested in, the company is currently
six years,” says Salazar. “I would like to see industries that
focusing its renewable energy activities on biogas projects.
use thermal energy using cogeneration systems to fulfill
The biogas industry is complex, which motivated the
their power needs. Paybacks and quality of electricity are
company to enter this market through urban solid waste
the most attractive features that can improve a company’s
where it saw several opportunities to succeed. As a biogas
financial health.” The company forecasts an increase of
plant requires thermal energy, Ambar Electroingeniería
300MW in installed capacity in the next four years, which
uses a system that generates electricity and thermal
is equivalent to 30-35 projects, and implies a significant
energy, which is re-used in the biogas cycle. It works with
amount of potential work.
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MAXIMIZING THE POTENTIAL FOR TRIGENERATION TURBINES Watching the evolution through time that led to the
biogas technology, says Garduño Landázuri, stating that
creation of Soluciones Energéticas Sparx (Sparx) is to chart
trigeneration gas turbines could provide a hotel with hot
a timeline of Mexico’s renewable energy priorities. After
water, air conditioning and electricity, while providing a 40%
being shuttered for 10 years after 1994 due to the economic
reduction in costs and a 30% reduction in CO2 emissions.
crisis, its parent company TAPE was revived in 2003 as an energy consulting firm, providing services to the Mexican
The Sparx line covers both cogeneration and trigeneration
manufacturing industry. Today, it has further evolved to sell
products, but there is a clear difference in their value
the Sparx line of microturbines and turbo generators.
proposition. The payback for cogeneration, which produces hot water and electricity, takes over three years while
As an early advocate of ways to reduce energy consumption
trigeneration turbines, when running at full capacity, take
and energy bills, Soluciones Energéticas Sparx sold
less than two years to provide payback to clients. Garduño
these ideas in the beginning, says Director General Luis
Landázuri says that demand for air conditioning is growing
Garduño Landázuri, adding that the original goal was
every year, making trigeneration a better option as it uses
to help companies reduce their costs, rather than their
the remaining heat to power air conditioning, instead of
carbon emissions or energy consumption. Following on
electricity. “Investing around US$500,000 in our equipment
from this, the company was contracted by various federal
means that a hotel could reduce its operating cost by
and municipal governments, before scaling up to offer
around 40-50%,” he explains. He adds that the first time
consulting services to corporations such as ABB, GE and
TAPE provided a trigeneration system was to a hotel in
Siemens while beginning to sell trigeneration gas turbines,
Calzada del Hueso. The results have been monitored ever
providing electricity, hot water and air conditioning at once.
since installation and have been found to be very satisfying.
The company’s commitment to the solutions provided
“Investing around US$500,000
by gas turbines has placed a number of challenges in Sparx’s path, including a lack of natural gas infrastructure and whether microturbines can compete with established mechanisms such as the PPAs offered by renewable energy plants. Garduño Landázuri dismisses the first concern, saying that while “Mexico City does not have an adequate availability of natural gas infrastructure, many other cities
dollars in our equipment means that a hotel could reduce its operating cost by around 40-50%” Luis Garduño Landázuri, Director General of Soluciones Energéticas Sparx
such as Monterrey, Saltillo and Queretaro have over 95%
It is this aptitude for providing turnkey products that Sparx
availability.” As for any competition between PPAs and
sees as making it stand out from direct competitors such
microturbines, PPAs are signed by Sparx. But Garduño
as Siemens or Guascor. “Siemens might offer a product
Landázuri feels neither solution should be exclusive and that
that is the closest one it has to a client’s general needs,”
“many clients are not big enough to sign PPAs with major
says Garduño Landázuri, “while Sparx takes a custom-
energy distributors and have to buy smaller turbines.”
based approach to client service that results in the firm developing a system solution for each client, which bigger
Sparx technology is now at the core of the company’s
corporations might not be interested in.” Sparx adopts a
operations, and Garduño Landázuri is trying to broaden
modular approach to larger projects, connecting smaller
its appeal. Having started with a gas turbine, the company
products in parallel to produce a higher load. While this
has been tweaking its R&D and is close to rolling out a
does present some risks if the system fails, backups are
steam gas turbine that will boast 3-5% more efficiency
stocked for each Sparx product operating in the market
than its previous products. Garduño Landázuri explains the
to guarantee rapid service to clients. The evolution of
company is also trying to broaden its customer base by
TAPE looks set to continue as it follows a strategy involving
playing to the needs of the Mexican market, such as biogas.
projects across new technologies, including wind and solar.
In Mexico, international banks are funding the collection of
The company is developing a 1.5MW solar project in Sonora
biogas, especially from livestock farms with high methane
as well as tabling an offer to take part in a large wind park
emissions. The farmers are paid to burn the methane, but
in Oaxaca. Although Sparx would only participate in the
the gas is not always being used. Sparx offers farmers the
engineering process, the firm’s commitment to reducing
opportunity to burn the methane in one of its turbines and
Mexico’s dependence on fossil fuels makes it confident
sell the power to the grid, under the small power producer
that it will make a real difference in creating the most
scheme. The tourism sector could also benefit from
environmentally conscious wind park in Mexico.
91
92
NUCLEAR, GEOTHERMAL & HYDRO
4 In recent years, hydroelectric, geothermal and nuclear projects have confirmed their status as stable components of Mexico’s energy mix and feasible alternatives to expand base load power generation capacity. The current contribution of hydroelectricity to the country’s total generation capacity stands at 21%. While this is mostly generated by large hydropower plants, the small hydroelectric sector is starting to clamor for a place at the table. Globally, Mexico ranks as fourth in terms of installed geothermal capacity, but the cost of drilling new wells has put off investors. The Energy Reform is destined to enhance the regulatory framework and reduce the financial risk for geothermal exploration. Meanwhile, in Veracruz, the Laguna Verde Nuclear Power Plant has been quietly chugging away for over 20 years, providing 4-5% of Mexico’s total energy generation.
This chapter provides an overview of the hydroelectric, geothermal and nuclear energy sectors in Mexico and the possibilities that each offers to the Mexican power market. We dedicate special attention to the challenges each sectors faces, from acquiring financing, mitigating risk and, for nuclear energy, communicating its benefits.
93
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CHAPTER 4: NUCLEAR, GEOTHERMAL & HYDRO 96
Global and Mexican Nuclear Industry Trends
97
VIEW FROM THE TOP: Nuclear Power in Mexico’s Energy Mix
98
VIEW FROM THE TOP: Safety Regulations to Mitigate Nuclear Energy Risks
98
Changing Minds About Nuclear Energy
100
NUCLEAR SPOTLIGHT: Laguna Verde
101
Research to Optimize the Role of Nuclear Power
102
International Best Practices for Geothermal Development
102
Trends in the Geothermal Industry
104
First Steps of a Geothermal Energy Boom in Mexico
105
VIEW FROM THE TOP: Government Actions to Promote Geothermal
106
Profits to be Found in Private Geothermal Drilling
108
Open Market Opportunities
109
Diversification of Drilling Activities for Geothermal
110
Pillars for the Development of the Geothermal Sector
111
VIEW FROM THE TOP: Reminders of the Importance of the Hydroelectric Sector
112
Global and Mexican Hydroelectricity Trends
114
Participation of Small Hydroelectric Projects
115
Hydroelectric Projects for Better Social Inclusion
117
HYDROPOWER SPOTLIGHT: La Yesca
118
Successfully Following Clients to Mexico
119
Developing Mexican Patents for Renewable Energy
95
GLOBAL AND MEXICAN NUCLEAR INDUSTRY TRENDS The future development of the nuclear power industry
to fossil fuels, that can enable countries to reach their
is largely dependent on the balance that will be struck
clean energy targets. Asia’s capacity will grow from 83GW
between
through
at the end of 2012 to between 153GW and 274GW by 2030.
technological advancement and the actual and perceived
enhanced
safety
and
efficiency
On the other hand, Western Europe shows the largest
risk associated with nuclear power stations. Third generation
differences between low and high projections, and will
nuclear reactors have proven to be more efficient and safer
either see its capacity reduced from 114GW to 70GW, or
than previous iterations. The use of new types of fuel has
slightly increased to 126GW.
increased the quantity of nuclear fuel reserves available, providing an alternative source of base energy for global
Conventional uranium reserves are estimated to be at 5.3
markets. As of December 2012, there were 437 nuclear
million tonnes at a recoverable cost of less than US$130/
power stations in operation worldwide with a total installed
kg; there are also an additional 1.8 million tonnes at a
capacity of 372.1GW. During 2013, total capacity increased
recoverable cost of between US$130/kg and US$260/
by 3.3GW, due to new projects in China and Korea and
kg. Following the Fukushima incident, greater measures
two reconnections in Canada. However, the impact of the
have been taken to ensure safety at nuclear reactor sites,
accident at the Fukushima Daiichi nuclear power plant
and to strengthen the global nuclear safety framework.
continued to impact the industry, which was most notable
Operationally, nuclear power plant safety around the world
in the small number of reactors that broke ground during
is still high and steady improvements have been made.
2012 and 2013. Despite the fallout from Fukushima, the total quantity of newly installed capacity surpassed the nuclear industry’s 2011 performance. The number of reactors under construction remains high at 67 globally, with long-term growth prospects focused on Asia, particularly in China which seems undeterred by the potential risk.
Laguna Verde has an installed capacity of 1610MW, accounting for 0.4% of the global installed nuclear power capacity.
At the end of 2012, the global leader in nuclear power generation was the US, with 104 units and a total installed
In Mexico nuclear power is generated by CFE’s Laguna
capacity of over 102GW, followed by France that has 58 units
Verde plant, with 1,530MW of installed capacity, in Veracruz.
operating with a total capacity of 63GW, and Japan with
According to the National Energy Strategy, in order to be
an installed capacity of 44GW distributed across 50 units.
able to reach the target of generating 35% of Mexico’s
However, expansion in the nuclear sector is led by China,
electricity from non-fossil fuels by 2024, increasing the
with an aggressive increase of 28GW under construction,
proportion of nuclear energy in the country’s energy mix
and Russia with 9GW. The International Atomic Energy
is key. Due to the availability of skilled human resources,
Agency has published two potential scenarios for nuclear
the current operating framework, and the experience
energy, with one being more conservative and the other
that has been acquired, expanding the nuclear sector in
more ambitious. The scenarios vary from envisaging a
Mexico is viable. Laguna Verde could be expanded but
23% increase in installed capacity to a 100% increase
important challenges still exist, such as the lack of available
by the year 2030. The more modest prediction is to be
information about the future role of nuclear energy in the
expected if current trends continue, only minor changes to
Mexican energy mix. The National Energy Strategy praises
policies affecting the nuclear energy sector are made, and
nuclear energy as an important driver in mitigating climate
not all countries fulfill their nuclear power objectives. The
change in Mexico, and as a reliable source of base load
higher projection is to be expected if the economic crisis
energy for the Mexican energy grid.
passes, electricity demand resumes and strict policies to mitigate climate change are enforced. In the first scenario
Energy demand will continue to rise, while climate change
the predicted installed capacity will reach 430GW, while in
must be properly mitigated in line with the General Climate
the second scenario it is predicted that nuclear power will
Change Law, and nuclear energy offers reliable, emission-
reach a total installed capacity of 740GW globally.
free, low-cost electricity. Laguna Verde has proven itself to be a cost-effective and reliable project over the course of many
96
Most of the growth of the nuclear industry is expected to
years, which makes expanding Mexico’s nuclear capacity
take place in countries that already operate nuclear power
a feasible option that will be considered in the discussions
plants. The strongest growth will take place in Asia, which
surrounding the development of Mexico’s energy mix and
still widely sees nuclear energy as an important alternative
the expansion of its power generation capacity.
| VIEW FROM THE TOP
NUCLEAR POWER IN MEXICO’S ENERGY MIX FERNANDO RUIZ NASTA Deputy Director General at SENER
Q: What role can nuclear energy play in a diversified
standards. Another important theme is human capital. We
energy mix, and what are the main arguments for
are facing a generation gap in the nuclear sector, so we
increasing Mexico’s nuclear energy capacity?
are designing strategies to bridge this gap. Right now, the
A: Uranium resources are distributed among politically
nuclear industry does face a human capital shortage, but if
stable
Mexico decides to install additional nuclear capacity then
countries
in
several
regions
of
the
world.
Furthermore, uranium reserves, proven and estimated,
this would require of new qualified workforce.
guarantee a fuel supply for more than 100 years. These estimates do not consider new reactor technologies,
Q: Does Mexico have the technological capacity to
such as breeder reactors which are capable of generating
correctly manage its radioactive waste?
more fissile material than they consume. This makes
A: The management of radioactive waste is a crucial part
nuclear production capacity predictable in the long run in
of ensuring the sustainability of nuclear energy. The waste
contrast with fossil fuels’ future availability. Another strong
created from nuclear power generation can be confined
argument is the price. The cost of uranium has always been
with virtually no problems. Mexico has the capacity
stable and is expected to experience little fluctuation in the
to manage its waste, but radioactive waste is not only
mid-term, which provides stability for nuclear energy.
produced in power generation processes. The health sector, industries, and even research projects also produce
Mexico is producing electricity from fossil resources, mostly
with
conventional
thermoelectric
nuclear waste.
techniques.
Nuclear energy would allow the diversification away from
Q: How can information about the nuclear sector be better
fossil resources by acting as a base load power source that
communicated in order to change public perceptions?
complements intermittent renewable energies. The last
A: The perception of risk is a very sensitive subject for
point is that the law limits Mexico’s future CO2 emissions,
nuclear energy. Public opinion around the world shows
and as a consequence, the proportion of energy generated
skepticism about nuclear energy, but when you inform
from fossil resources. From what has been calculated,
people of what nuclear energy really is, explaining its
Mexico cannot currently reach the targets established
benefits and risks, they start to view it in a more objective
by the General Climate Change Law, and nuclear energy
way. The nuclear energy discussion plays on perceptions,
seems to be the only energy source that can allow us
not arguments. Most of the perceptions about nuclear
to satisfy future demand while meeting legally binding
energy and radioactive waste are mistaken. What we have
emission targets.
to do is make the information at our disposal crystal clear, and there is room to improve public opinion about nuclear
Q: What is the role of the nuclear division of SENER in
energy in Mexico.
facilitating the development of nuclear energy? A: The Constitution establishes that the use of radioactive
Q: The Energy Reform and the National Energy Strategy
minerals and power generation by nuclear means can only
have a strong focus on natural gas. What does this mean
be done by the Mexican government. This responsibility is
for nuclear energy in the country?
attributed to SENER and the office in charge of overseeing
A: There is no competition. Mexico has the huge advantage
the nuclear sector belongs to the Undersecretariat of
of having a diversified energy mix and all resources are
Electricity. Our work is not limited to nuclear power
useful. Nuclear energy should not be seen as competition
generation, but also includes waste management and
for natural gas, and the development of natural gas does
the transportation of nuclear fuel. We work closely with
not reduce the need for nuclear energy in Mexico. Natural
CNSNS, the nuclear regulator, which is responsible for
gas and nuclear energy can both be seen as transition fuels.
overseeing the proper use of radioactive resources,
The difference between them is environmental; although
ensuring high security levels that meet international
natural gas has low emissions, nuclear has none at all.
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| VIEW FROM THE TOP
SAFETY REGULATIONS TO MITIGATE NUCLEAR ENERGY RISKS JOSÉ RAÚL ORTIZ MAGAÑA President of the Mexican Nuclear Society (SNM) Q: How can Mexico ensure that its nuclear activities meet
them that although Mexico does not have its own, we have
the highest safety standards?
adopted and applied the well-known US norms, they gave
A: The two GE reactors at Laguna Verde are boiling water
us permission to operate the reactor. The US norms satisfy
reactors; there are more than 30 reactors of this type
the standards of IAEA. SNM ensures compliance with IAEA
operating in the US, so we apply the same security norms
agreements and applies the US regulations. Of course, we
here as are applied in the US. The agreements we have
have the freedom to analyze the regulation and add to it
with the International Atomic Energy Agency (IAEA)
or remove elements from it, if needed. Nowadays Mexico
force us to follow their norms when there is no national
belongs to a regulatory forum that tries to homogenize
regulation on the matter. Usually these norms are more lax
norms. There is an Ibero-American forum of regulators
than the more detailed and specific norms in place in the
that meets periodically, including members from Spain,
US. When the IAEA asked for the local norms and we told
Brazil, Argentina, Mexico, Chile and other countries that do
CHANGING MINDS ABOUT NUCLEAR ENERGY “Laguna Verde has been operating for more than 20 years
country does not have nuclear power reactors but invites
but many people do not know about it,” comments José
specialized journalists every six months to presentations
Raúl Ortiz Magaña, president of the Mexican Nuclear Society
by experienced nuclear energy professionals,” says Ortiz
(SNM). “There is a lot of ignorance about the nuclear sector.”
Magaña. “The idea is that if Chile decided to build a nuclear
SNM, as an independent organization in the Mexican nuclear
power plant, the sector would not face the same problems
sector, has more freedom to address industry issues as it is
with the media as Mexico does, since the population has
not directly linked to the Mexican government. According
been introduced to this industry.” Finally, after the decision
to Ortiz Magaña, the problems with the acceptance of the
makers are convinced and the media is adequately using
nuclear energy sector in countries like Mexico can be broken
accurate information about the nuclear sector, it becomes
down into several stages.
possible to launch a public campaign to raise awareness about the risks and benefits of nuclear power.
First, it is necessary to convince politicians, who are
98
the decision makers; however, this is difficult given the
The current importance placed on sustainability and
frequency with which they change. “The energy sector
the
has had seven different ministers in the last 10 years,”
nuclear energy back into the spotlight because it
comments Ortiz Magaña. If the nuclear sector had more
does not emit greenhouse gases during its operations.
time to inform decision makers about the realities of this
Renewable energies also do not emit greenhouse gas
industry, important progress could be achieved. However,
emissions, though this perspective tends to exclude the
working with one ministerial team for 18 months does not
manufacturing processes. For example, the production
allow the nuclear sector to change the mindset through
of PV cells and of nuclear fuel does generate greenhouse
which it is perceived. On the other hand, CFE is more
gases. “If we compare the emissions of the complete cycle
stable and the existence of Laguna Verde has allowed the
of wind, solar, hydro and geothermal, these emissions are
utility to evaluate the nuclear sector efficiently and create
very similar to the ones generated by nuclear energy,”
longer term plans. Nevertheless, planning the future of
comments Ortiz Magaña. “Also, the uranium used as fuel
nuclear energy requires national consensus, which poses a
can be bought from Australia, Canada, Russia, Kazakhstan,
major challenge. The second stage consists of convincing
Nigeria, Kenya or South Africa. This diversification avoids
the media. “Chile is an example that comes to mind. The
creating a dependence on one specific country.”
reduction
of
greenhouse
gas
emissions
brings
not necessarily have nuclear reactors. Mexico attends the
To prevent problems that occur during a nuclear plant
meetings of this organism and promotes the forums for
shutdown, the plant uses energy from the exterior to keep
international regulators which allow for an interchange of
cooling systems functioning. If there is no external energy,
knowledge.
then a battery of diesel motors that generates electricity is essential to keep the cooling system working. If there is
Q: What are the main risks that nuclear plants pose?
a failure in these mechanisms, there is a battery bank that
A: The main risk is the fusion of the core. As a reactor is
lasts for eight hours to substitute the necessary energy
operating, it accumulates a great amount of radioactive
while we repair the problem.
material in its core. That radioactive material is confined in the fuel matrix and in the fuel rod, but if for some reason
Q: How can new technology make nuclear power safer?
the reactor needs to be turned off, the control rods stop
A: The third generation reactors that are in the market right
absorbing the neutrons, the neutrons disappear and there
now are advanced boiling water reactors, simplified boiling
is no fission reaction. What is left is waste heat generated
water reactors and advanced high-pressure water reactors.
by the amount of accumulated reagent. That waste heat
They incorporate passive security systems that do not
lowers rapidly and in an hour or two the reactor is shut
need electricity to function. By using gravity, convection,
down to 5-6% of its initial potential, falling further to
and evaporation, the probability of a fusion of the core is
1-2% in 24 hours. A large amount of heat is produced in
10 times lower. These reactors also have a lower probability
the process, and the reactor requires constant cooling. It
of failure because they have more efficient systems that
takes many days to reach a cold shutdown but after that
make better use of the fuel, reducing the radioactive waste
presents no risk with the reactor.
content.
According to the National Energy Strategy, nuclear energy
SENER coordinates the creation of Mexico’s nuclear strategy
is a clean energy and that could make an important
and supports its decisions based on CFE and ININ studies.
contribution to reaching the goal of generating 35% of
These three entities are part of the Nuclear Committee
Mexico’s electricity from clean energy sources by 2024
along with the Nuclear Energy Commission. Also, as part
and 50% by 2050. Nuclear energy reactors have a very
of international agreements, CNSNS, the national regulator,
high plant factor of between 85% and 90%, similar to the
and its international counterpart IAEA, are involved in
efficiency reached by coal-fired power plants and higher
administering the nuclear sector in Mexico. The challenge
than the 75% efficiency reached by combined cycle plants.
for nuclear energy is that, given current technology, there is a gap of seven or eight years between the decision to
“The government must include nuclear energy in its energy
build a nuclear power plant and the start of operations,
plans, because even given the potential of hydro, wind and
surpassing the six-year presidential term. Natural gas-fired
geothermal, backup from nuclear is needed,” comments Ortiz
power stations take less time to be built and can easily be
Magaña. Nuclear plants are a source of base load energy for
completed during one administration. “I am happy that we
the country while most renewable energies are intermittent
have a National Energy Strategy that plans for the next 15
energy sources, with the exception of hydropower which can
years; it would be ideal to plan 25 years ahead, but for that,
be administered to cover demand at peak times.
a lot still needs to be done,” comments Ortiz Magaña.
“The truth is that there is almost no competition between
SNM seeks to launch campaigns to change the mindset of
renewable energies and nuclear power because nuclear is
Mexican decision makers while freely spreading information
a base load, while solar and wind are intermittent energy
among schools and universities. Supported by specialists
sources,” says Ortiz Magaña. “Nuclear competes with other
and experts from different institutions, SNM can provide
base load energy sources such as coal and natural gas.”
independent counseling to the government regarding the
The success of Laguna Verde is a major argument for the
economic, financial, regulatory and technical elements of
expansion of nuclear capacity in Mexico. This plant started
the nuclear operating environment. “By strictly following
operating in 1990 with a capacity factor of 70% due to the
safety and quality standards, nuclear energy can become
time needed to refuel the plant, which took approximately
a source of highly specialized employment and reliable
40 days every 12 months. Today, the availability of the plant
electricity generation. Laguna Verde in Veracruz shows
has increased, since refueling is done every 18 months and
that Mexico is capable of boosting the use of nuclear
takes only 25 days.
power in its energy future,” concludes Ortiz Magaña.
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| NUCLEAR SPOTLIGHT
LAGUNA VERDE The sole nuclear facility in Mexico is the Laguna Verde
to the promotion of safe operations for all nuclear power
Nuclear Power Plant, owned by CFE, with an installed
stations. Since then, the Mexican nuclear power plant has
capacity of 1,610MW. Located in the municipality of Alto
won numerous national and international awards for its
Lucero de Gutierrez in Veracruz, the facility has two GE
management, operation and organizational structure.
boiling water generators of 805MW and is closely supervised by the Mexican nuclear energy regulator, CNSNS. Laguna
As a safety mechanism, Laguna Verde has installed a
Verde’s reactors use 3-4% enriched uranium-235.
system where the steam that goes through its turbines is condensed by refrigeration with seawater before being
The operational permits for Laguna Verde were handed
sent back to the reactor to be reused. In order to control the
down by SENER, with the construction process of Unit I
nuclear fission reaction, control bars are used depending
beginning in 1976 and finished on target to start operations
on the amount of energy that is used and that is needed.
in 1990. Unit II started its construction phase in 1977
These bars contain boron carbon, which absorb neutrons
and began production in 1995. In February 2007, CFE
and stops the chain reaction created by the radioactive
announced that it was planning to expand the capacity
fuel. As a second barrier, the reactors use a system that
of the Laguna Verde Nuclear Power Plant by 20%, with
can inject sodium pentaborate into the reactor in order to
Iberdrola winning the international tender; a US$605.4
stop the fission reactions when needed. This secondary
million contract that was completed in late 2010.
system is used as an alternative security method should the control bars ever fail.
Ever since Unit 1 entered into operation, social protests from a
100
civil group called “Madres Veracruzanas” have been ongoing.
Despite the international acknowledgements of its safety
The group argues that the power plant has a negative impact
system and record from various organizations, Laguna
on the environment and lacks the right security measures.
Verde faced further controversy after the Fukushima
CFE has strongly refuted such claims, stating that Laguna
incident,
Verde does not represent any danger for the environment
population that the nuclear reactors installed on Mexican
or the surrounding population. Laguna Verde has passed
soil are safe. SENER sees Laguna Verde as an example
repeated inspections and operates under the guidelines
of the contribution that nuclear power can make to the
of the International Atomic Energy Agency and the World
Mexican energy sector, although the potential for nuclear
Association of Nuclear Operators (WANO). In 2009, WANO
participation in the energy mix to be expanded might be
rewarded Laguna Verde with the Nuclear Excellence
offset by low prices of natural gas, according to the World
Recognition prize, stating that the plant had contributed
Nuclear Association.
but
the
federal
government
assured
the
RESEARCH TO OPTIMIZE THE ROLE OF NUCLEAR POWER
Lydia Paredes Gutiérrez, Director General of National Institute of Nuclear Investigation (ININ)
Nuclear power has been
burned,” mentions Paredes. Through its research, ININ
part of Mexico’s energy
works on reactor design to advise Laguna Verde about
mix for more than 20
the most adequate technology to be used throughout
years, contributing around
the reactors’ 60-year lifespan. “New reactors are easier
5% of the country’s total
to operate and are less vulnerable to earthquakes or high
electricity
generation.
temperatures due to higher security controls,” Paredes
However, communicating
comments. “If a process is not done correctly, the system
the
using
controls itself without human intervention.” In addition,
nuclear energy at Laguna
new reactors have a higher availability rate since they
Verde has been a real
are operating more days per year and require minimum
challenge.
benefits
of
the
maintenance. Security measures have become more robust
most important actors overseeing the Mexican nuclear
One
of
and radioactive wastes are reduced significantly. The new
sector is the National Institute of Nuclear Investigation
reactors also use heat generated as a byproduct that could
(ININ) that has been seeking to find peaceful uses for
be used for different activities that need thermal energy.
nuclear fission since 1956. Today, the institute owns an investigation reactor, a gamma irradiation plant, a fuel
Third and fourth generation reactors are being developed
production plant and a particle accelerator. The main role
to avoid catastrophes, such as Fukushima, occurring in
of ININ in the energy field is to support CFE by constantly
the future. The financial risk associated with investment in
assessing technology and allowing Laguna Verde’s license
nuclear power plants is comparable to other types of energy
of operation to be extended along with CNSNS, nuclear
projects and the third and fourth generation nuclear reactors
energy’s regulatory body in Mexico. “To prevent nuclear
could use other fuels such as plutonium-239, thorium-232
equipment from malfunctioning, we perform batteries of
and uranium-233. “Considering existing resources, coal
tests to cover every eventuality that could result in the
will last 155 years and natural gas availability is guaranteed
reliability or safety of nuclear equipment being affected,”
for at least 65 years. However, by using the various types
says Lydia Paredes, Director General of ININ.
of nuclear fuel, we have enough resources to meet the world’s increasing energy needs for 3000 years,” comments
ININ stays vigilant to new technologies and innovations but
Paredes. “It is important to consider the long-term effects
does not decide which equipment is acquired. However,
of energy consumption on the planet and to think about
CFE uses ININ’s studies to make informed decisions. ININ
the possible alternatives that are available to guarantee the
was an active participant in the development of Laguna
survival and development of humanity based on energy
Verde, in terms of nuclear engineering and training
availability. By the year 2050, it is expected that power
personnel in electronics and radiation measurements. The
plants could have inexhaustible, clean and waste-free fuel
institute also designs emergency plans for the operation of
if nuclear fusion is controlled since hydrogen is the most
the power plants and waste management strategies for the
abundant gas on Earth. Nuclear electricity generation has
plant, where electricity is generated using uranium-235 as a
become a mature technology with very competitive costs.
fuel. ININ’s investigation reactor needs 5kg of fuel while the
If its waste is handled correctly, nuclear energy is clean and
Laguna Verde reactors need 80 tonnes. “The principle is the
sustainable as it does not emit greenhouse gases. We do
same, but the scale varies. In our reactor, we are performing
not have the intention to make nuclear energy the dominant
fission to generate radiation and the pool is open because
energy source, but we want to ensure that the energy mix
we are interested in the applications of that radiation,”
includes different energy sources in the right proportions,”
Paredes says. “In Laguna Verde, the pool is closed so that
concludes Paredes.
water can evaporate to generate electricity from heat and steam.” The reactors at the plant originally had a capacity
It is not desirable for every country to have access to
of 650MW, which was increased to 850MW in 2011. ININ’s
uranium enrichment technology to avoid the proliferation
reactor pales in comparison with a capacity of 1MW, but this
of nuclear weapons. “We want to create a group of
is sufficient for the body’s investigative purposes.
countries through the IAEA to have plants to process fuels that are then distributed throughout the world. It
The amount of energy produced through the fission of
will become a closed cycle and users will obtain fuels that
uranium-235 surpasses other types of fuels. “When an
are ready to be used, avoiding the proliferation of nuclear
atom is broken, 200 million electronvolts are generated,
weapons,” adds Paredes, certain that this would improve
while a tonne of coal generates 500 electronvolts when
the public perception of nuclear power generation.
101
INTERNATIONAL BEST PRACTICES FOR GEOTHERMAL DEVELOPMENT The International Geothermal Association (IGA) has created
developing a project, and they require interdisciplinary
partnerships with 33 associations worldwide, the Mexican
teams to work on the reservoirs, test the conditions and
Geothermal Association included, to ensure that these
thereafter design the power plant,” states Sander, who
new technologies reach the main geothermal energy
thinks that providing financial institutions with technical
markets. “Our task is to spread expertise and knowledge
expertise would allow them to create tailored solutions
on the latest technologies, projects, regulatory issues,
for these projects. “For example in East Africa, the EU
investment opportunities, capacity building options and on
Infrastructure Trust Fund and the German Development
how geothermal energy contributes to mitigating climate
Bank (KfW) promote the development of geothermal
change,” says Marietta Sander, Executive Director of the
projects through an insurance scheme and a comprehensive
International Geothermal Association. “We also offer a
technical development aid program.”
networking platform for academia, private companies, international development partners, and public entities on
The IGA has researched, analyzed and compared the different
both a national, global and individual level.” Organizations
regulatory frameworks and best practices in Germany,
that strive to promote the development of geothermal
Iceland, Kenya and the Philippines, among other countries.
activities and institutions, such as the World Bank and the
Germany created a feed-in tariff system for geothermal
International Renewable Energy Agency, also participate
energy in the early 1990s that provided a guaranteed price
with the IGA in initiating regional projects. Raising awareness
at which the electricity would be purchased for a defined
in the financial sector about the need to develop insurance
period, guaranteeing a safe return for investors. In Iceland
schemes for the geothermal industry has also become one
a very comprehensive monitoring and planning system
of the IGA’s priorities.
for geothermal sites was developed. This was part of the country’s master plan for geothermal and hydropower
The biggest challenges that the global geothermal industry
development that ranks each project according to its
faces today include the relatively high investment costs
economic and preservation value, taking into consideration
for drilling operations and the risks that are inherent in the
the impacts, benefits, energy needs and nature of the project.
exploration phase. “Pre-feasibility studies are crucial when
A complex interdisciplinary monitoring scheme involves
TRENDS IN THE GEOTHERMAL INDUSTRY The global geothermal energy sector reached 11,765MW of
second with 1,884MW, followed by Indonesia with 1,333MW
installed capacity as of August 2013. Coincidentally, there
and Mexico with 980MW. The Middle East and Africa have
are also 11,766MW of planned geothermal projects in the
just begun to develop their first projects and face challenges
early stages of development or under construction across
due to the lack of legislation, rules and incentives to
70 countries around the world. As a result, global capacity
increase the attractiveness of their geothermal markets. For
could approach 14GW by the end of the decade.
example, Djibouti is looking to develop a 50MW geothermal site, and Rwanda and Tanzania have as objectives to bring
102
Indonesia is leading the total geothermal capacity under
300MW and 140MW in geothermal power online in the next
construction with approximately 425MW, followed by Kenya
few years. Europe also has substantial geothermal resources
which is constructing 296MW. Other important participants
with many projects being developed in Germany and Italy.
in the expansion of the global geothermal sector are
Iceland remains the global leader in terms of proportion
Iceland with 260MW, the United States with 178MW and
of its energy mix that consists of electricity and thermal
New Zealand with 166MW. The most used technology for
energy from geothermal sources, with four projects under
geothermal power is single flash representing 39% of the
construction. However, Iceland’s population is relatively
total installed capacity, followed by dry steam with 25% and
small and the local demand does not grow at an accelerated
double flash at 19%. However, the leading country in terms
pace despite the plentiful supply of energy. In order to reach
of the sheer number of geothermal power projects being
larger markets, Iceland has investigated the possibility of
developed is the United States with 182 projects. But many
connecting to Europe’s electricity grid through a marine
of these have been stuck in the same phase of development
transmission cable connection with Scotland and eventually
for several years. In terms of installed capacity, the United
continental Europe. Geothermal energy in South America
States leads the way with 3,889MW, the Philippines ranks
is mostly at the exploration stage but important initiatives
“Mexico could play a leading role among Spanish speaking countries, since geothermal facilities have already been developed here” Marietta Sander, Executive Director of the International Geothermal Association
different public entities with the aim of preventing any
taken by the government to advance skills was a critical
damage to the geosphere, air, sea or any other area of the
success factor,” she says. “The United Nations University
environment. The initiative started by Kenya’s government
Geothermal Training Program in Iceland has also been
for the reform of the country’s geothermal sector is
crucial in providing geothermal training to many sector
noteworthy. Through the program Kenya Vision 2030, 4GW
professionals. Due to their geographic position, neighboring
of geothermal energy capacity is planned, which will be
countries in Central America could easily work together and
achieved by drilling 20 wells annually and putting 15 rigs into
share technology and expertise. Mexico could play a leading
operation. This looks possible, given Kenya’s track record for
role among Spanish speaking countries, since geothermal
training staff overseas, as well as inviting foreign experts to
facilities have already been developed here.” Technology
train on site. In the Philippines, incentives are oriented more
and expertise sharing in the region would go a long way
towards creating tax and fiscal benefits for the private sector.
towards increasing the competitiveness of the geothermal
“Foreign staff, as well as the import of specific equipment,
sector in Mexico. The Mexican government has played a key
does not incur any surcharge or import tax,” explains
role in the development of the country’s geothermal sector
Sander. The government has also declared geothermal
during the past thirty years. The expertise that the country
energy as being a priority sector for investment under the
has accumulated and the implementation of best practices
Philippine Geothermal Service Contract Law, with the aim of
in Mexico combined can open up new areas of opportunity
incentivizing the development of this industry in the country.
and position the country as a leader in development, as well as installed capacity. “I would like to encourage Mexico and
Looking at these examples, Sander concludes that in order
the AGM to further share their geothermal expertise within
to successfully develop geothermal energy in Mexico,
Mexico and with the country’s neighbors in Central and
capacity building is required. “As seen in Kenya, the initiative
South America,” advises Sander.
have been carried out in Chile, Peru and Argentina. Chile
that would allow private firms to drill wells without taking
is to start producing geothermal power by 2017 and Peru
on the full financial risk.
has 660MW of geothermal potential already unveiled, with 24 projects ready to begin exploration. In Central America,
In Mexico, projects are in the pipeline that will add 100MW
Guatemala and Nicaragua both have projects in advanced
to the country’s total geothermal installed capacity. A
development stages. The United States leads the world’s
project called Los Humeros in Puebla and Los Azufres III in
geothermal market, and Canada’s Geological Society has
Michoacan are advancing rapidly toward completion. Los
established that the country has at least 5GW that could
Humeros is already operating a 25MW unit while 50MW
be used for commercial activities with currently available
are under development in the second phase of the project.
technology.
The 50MW now under development are expected to start operations within 2014. The Los Azufres III bid was won
Geothermal energy development is an activity that involves
by Mitsubishi Heavy Industries and a 50MW power plant
exploration risks. Some governments finance the initial
is planned to start operation by December 2014. At the
geothermal exploration and lease the resources to private
same time, the operating capacity of the Cerro Prieto
developers or government entities who then construct the
Geothermal field in Baja California, Mexico’s strongest
power plant. Other models promote the creation of joint
geothermal presence for a long time, has decreased in
ventures to share the exploration risk. Finally, concession
recent years.
systems have been created in which private companies carry out the exploration, development and operation
Here Mexico can take advantage of the expertise that the
phases
agreements.
country has developed in the oil and gas sector, mainly in
The Mexican government has also sought to create an
drilling activities. Such knowledge and technology transfer
insurance scheme for the exploration phase, working with
to the geothermal industry could serve as a catalyst for the
the Interamerican Development Bank to offer financing
development of the Mexican geothermal energy market.
after
signing
fixed
concession
103
FIRST STEPS OF A GEOTHERMAL ENERGY BOOM IN MEXICO
Luis Carlos Gutiérrez Negrín, President of the Mexican Geothermal Association (AGM)
The Los Azufres II project
exploit and drill wells and get permits from CRE to install
in 2003 marked the last
a self-supply or small producer plant and start operating.
new installed geothermal
The risk in this case is that other companies might be
capacity in Mexico. But a
exploiting the same deposit, thus reducing the production
decade later, interest in this
of the well. A concession regime would be useful to avoid
sector has been reignited
that happening. The regulation is also different in the US,
by
50MW
where the proprietor of the terrain is also the owner of
geothermal development
the
new
whatever exists in the subsoil, with very few exceptions.
at Los Humeros and the
In Mexico subsoil is the property of the nation, geothermal
50MW expansion of Los
energy is regulated by the National Water Law and there
Azufres. “The fact that
are no major restrictions on exploiting a deposit.”
new projects are being developed reflects the worldwide boom that geothermal energy is experiencing today,” says
The initial investment costs, which are considerably higher
Luis Carlos Gutiérrez Negrín, President of the Mexican
compared to other renewable energies, are a key challenge
Geothermal Association (AGM). The growing interest in
for geothermal energy development. “It is important
the Mexican geothermal market came about as a result of
to consider the risk of the initial investment, since it is
increasing private sector participation and the government’s
possible that after drilling you may not find the expected
commitment to promoting renewable energies. “Despite
resource,” warns Gutiérrez Negrín. “However, these risks
many flaws in the government, one of the wisest choices
have been mitigated in Europe by creating a system in
has been its commitment to the environment and climate
which the government, or a trust fund, absorbs part of
change,” says Gutiérrez Negrín. “Geothermal sector growth
the cost of unsuccessful wells that have been drilled.” The
will be driven by the need to reduce our dependence on
only incentive that currently exists in Mexico is a type of
fossil fuels and the fact that more investors are interested in
drilling insurance that was approved during the previous
entering this market.”
presidential term, but more regulation is needed for it to be used in practice. The privatization of the geothermal
104
According to AGM, addressing Mexico’s lack of specific
sector is a possibility that has been widely debated. “I think
legislation for geothermal energy should be a priority.
that future geothermal developments should take place
While having a set of specific regulations brings certainty
through PPPs,” says Gutiérrez Negrín. In his vision, CFE
for investors, the use of a concession system would
does not have the financial capability to invest in building
incur different types of risks. “The great risk posed by a
geothermal power plants, but it would be possible for the
concession system is that the market becomes vulnerable
private sector to participate through IPP schemes. The
to financial speculation, which has happened in Chile and
geothermal resources and the well would remain property
is happening in Australia. After several years of having had
of CFE while the private investor would construct, own and
many companies invest and explore in Chile, there is not
operate the power plant. Under this scheme, CFE would
one geothermal plant operating yet,” says Gutiérrez Negrín,
provide the geothermal steam that allows the private power
who nevertheless thinks that a concession system could
plant to generate electricity, which can then be sold back to
bring benefits. “A concession scheme similar to that used
CFE without any legal impediment. “If CFE does not have
in the mining industry could be developed for geothermal
the financial means to invest in its own geothermal power
energy in Mexico, where concessions could be divided into
plants, it has to look for private investors that are willing
exploration and production phases,” he suggests.
to work in this innovative scheme,” states Gutiérrez Negrín.
In the absence of a specific framework for geothermal
“The government will need to incentivize development, not
energy, there are alternative ways for the sector to
only of geothermal energy but of all renewable energies,
develop. In the US, over 3GW of installed geothermal
include tax deductions for investments in geothermal
capacity has been developed by the private sector without
energy, fund the testing of equipment or processes, and
any specific geothermal regulation being put in place. “In
set federal guarantees that credit can be obtained at low
the US, private companies do not possess geothermal
rates,” says Gutiérrez Negrín. Though such incentives are
concessions, but they must be sure to control the land
yet to be established, Gutiérrez Negrín is positive about
where the project will be developed,” says Gutiérrez
the outlook for the sector: “I think that there will be more
Negrín. “Under current Mexican regulations, any private
investment from the domestic and foreign private sectors,”
producer can rent or buy land through private contracts to
he concludes.
| VIEW FROM THE TOP
GOVERNMENT ACTIONS TO PROMOTE GEOTHERMAL MAGALY FLORES ARMENTA Former President of Mexican Geothermal Association (AGM)
Q: What role does AGM aspire to play in developing the
Q: How can the legal and operating framework be improved
geothermal sector?
to make the sector more attractive for private investment?
A: AGM is a civil association that is affiliated to the
A: LAERFTE states, among other clauses, the obligation
International Geothermal Association and was founded in
SENER has to create a Special Program for the Use of
1991 with the objective of reinforcing academic, scientific,
Renewable Energies, as well as a National Strategy for the
industrial
between
Energy Transition and the Sustainable Use of Energy. In the
the national geothermal community and international
case of geothermal energy, regulation is almost inexistent.
institutions. Its goal is to promote and inform about the
There are a few articles in the National Water Law that
development, exploitation and research activities of the
mention geothermal energy, but we need to adopt models
geothermal energy sector in Mexico. AGM has become an
of other countries to efficiently regulate the resources and
analysis and discussion forum that allows the exchange
give legal certainty to future developers and to CFE. There
of knowledge and experience between its around 100
is a lack of awareness about geothermal energy, meaning
members.
that obtaining the right paperwork becomes difficult and is
and
technological
collaboration
a drawn out process. We need to create a dedicated team, Q: How has private participation evolved in the Mexican
possibly within Congress Energy Commission, to regulate
geothermal sector?
the future use of geothermal energy in order to exploit it in a
A: For many years, the participation of the private sector
sustainable manner. There is practically no investment in the
in the geothermal industry was zero or limited to public
Mexican geothermal sector due to the lack of legal certainty
work contracts or engineering services. The development
among investors. Somebody within the government needs
and execution of the geothermal projects have been
to take charge of this.
dominated by CFE. After the publication of the Law on the Use of Renewable Energies and the Financing of
Due to the high risk involved at the initial stages of
the Energy Transition (LAERFTE), and the objectives
developing geothermal energy resources, the government
established by the federal government to increase the
has focused more on solar and wind energy. While these
participation of renewable energy in Mexico’s energy mix,
renewable energy sources require only short periods to
the private companies have developed a keen interest
evaluate the potential resource and to build a power plant,
in the geothermal sector. Even though no commercial
developing a geothermal project takes between five and
geothermal project is in operation yet, the first efforts of
seven years. Nevertheless, the government is interested in
the private participation in geothermal exploration are
geothermal energy as a base load energy source with a high
starting to be noticeable.
plant factor, offering long-term reliability and profitability.
105
PROFITS TO BE FOUND IN PRIVATE GEOTHERMAL DRILLING “It is all about profitability; alternative energies in general
Frederic Sauze, founder of ClusterGEO, provides an
are based on profitability and efficiency,” says Carlos García,
example of the risks and costs involved in developing
Director General of Mexxus Drilling. “Geothermal energy is
geothermal wells with a capacity of 5MW, involving an
well-known for its high efficiency factors of nearly 90%,
average cost of around US$1 million per MW. “If a company
vastly surpassing the 40% efficiency that can be reached
wants to build a 25MW operation and prospective studies
as well at good wind sites, and the 25% efficiency of high
are 75% accurate, then it will be necessary to drill seven
irradiated solar sites. It may be more expensive to undertake
wells instead of five. This represents a large investment
a geothermal energy project but it is more profitable in the
and high risk, and banks are reluctant to provide loans
medium to long-term.” Mexxus Drilling started in 2007 with
for high risk investments.” In order to mitigate this risk,
one set of drilling equipment and one team of engineers
ClusterGEO is promoting the creation of a Geological
and technicians, the majority of which had a background
Risk Insurance Fund of MX$50 million (US$3.77 million) to
drilling wells for CFE. Mexxus Drilling believes that Mexican
help small producers in Mexico and eventually to be used
companies have the opportunity to offer services that are
as a commercial instrument to incentivize the Mexican
usually outsourced to large international companies such as
industry. The Capital and Investment Fund for the Rural
Schlumberger, Halliburton and Baker Hughes. Substituting
Sector (FOCIR) has been proposed as the manager of this
external suppliers with competitive Mexican alternatives
fund. “The investors’ risk would be managed by charging
would benefit CFE as well.
an entrance fee to the fund, which would be refunded according to a hedging model. But in order to mitigate the
The National Energy Strategy provides an important
risk and ensure the profitability of the fund, it would need
opportunity for the geothermal energy in Mexico as
to be mutualized across multiple wells,” explains Sauze.
it could become a more important component of the energy mix. “Unfortunately, in the past, investors had no
In October 2013, Mexxus Drilling started a joint venture
chance to enter the area of geothermal energy extraction,”
with Icelandic firm Reykjavik Geothermal, Mexxus-RG,
García says. This situation forced companies to look for
which was granted the license to begin prospecting at the
opportunities abroad, including Mexxus Drilling that is
geothermal project of Ceboruco in the state of Nayarit.
considering a field in Nicaragua. However, when the chance
Reykjavik Geothermal struck Mexxus Drilling as the right
came, the firm decided to work at home.
partner, given its origins in a country that has pioneered
“Drilling exploration wells requires high capital investment, a willingness to take risk, and the patience to develop a project” Carlos García, General Manager of Mexxus Drilling International
Due to the current size of the geothermal energy sector in
geothermal exploration, as well as owning a project
Mexico, the firm has diversified its activities to the oil industry,
portfolio stretching across Africa, the Middle East and
where it can offer the same services because its drilling
Oceania. In October 2013, Reykjavik Geothermal inked a
equipment can be used for oil wells as well as geothermal
deal with the Ethiopian government to build up to 1GW
drilling due to its power and ability to reach large depths.
in geothermal power at an estimated investment of US$4
Great expectations arose when the company obtained the
billion, and also helped Papua New Guinea tap into its own
first small producer title that CRE gave out in the geothermal
geothermal potential. Given this experience in some of the
energy sector. “Not a lot of companies are involved in this
world’s most demanding terrains, any challenges posed
field, but it represents a great opportunity for those willing
by the Mexican geothermal reality are likely within the
to take risks,” comments García. Just as in financial markets,
capacity of the Icelandic market leader.
higher risks imply high potential returns, and the geothermal
106
sector’s efficiency rates could make it a very attractive
“The technical knowledge from our joint venture partners
opportunity. “Drilling exploration wells requires a lot of
Reykjavik Geothermal also helps to obtain financing,”
capital investment, a willingness to take risk, and the patience
comments García. Partnerships also play an important
to develop a project,” García cautions.
role for private companies by increasing the quality of the
human capital available, increasing competitiveness and productivity. Mexxus Drilling has sent its staff to Iceland to learn from the country’s exemplary track record in geothermal energy development. Iceland’s success with geothermal energy will be hard to replicate in Mexico but Mexxus Drilling is looking to maximize its chances through such learning experiences, to ensure higher profitability when better times do roll around. The company plans to start its exploratory drilling phase in early 2014, with the first phase set to be for 30MW, later followed by a 70MW second phase. This deal also marks the first geothermal IPP in Mexico. “We take it one step at a time because our development is dependent on the Mexican authorities which are slowly paving the way for the geothermal sector to develop,” comments García. “Without the government’s support and without their will to remove bureaucratic hurdles, we would not stand a chance.” To optimize profitability, the technologies used to determine the right production areas must be carefully evaluated. Even though drilling equipment used in the oil industry is similar to that used for geothermal wells, the drilling procedure is different due to important variations in temperature. New technologies have to be able to better withstand the high temperatures. “Overheated vapor can be found in a liquid state at 300°C since there is enough pressure at a depth of 3,000m,” says García. Special equipment is needed to lift the water column and withstand its violent expansion as it reaches the surface and guide it to the turbine. By introducing the latest technologies, the error margin greatly decreases, which is matched by a rise in the likelihood of finding promising geothermal resources. Maintenance must also be factored in as a needed cost. García insists that certain wells need regular maintenance, depending on their specific conditions. “In Cerro Prieto, where we have our base, the well contains high levels of sulfur, which is very corrosive. This harms the piping which must then be changed every five years or so. However, alongside that, there are geothermal sites such as Los Humeros, Puebla or Momotombo in Nicaragua that have been running for 20 years without needing any such changes,” explains García. “Although the process is very expensive, it is better to invest in technology that will enable a margin of risk and error to be measured and controlled,” comments García. “Even if initial costs are more expensive to generate 1MW from geothermal resources compared with wind or solar, geothermal is more profitable in the long run.” The operating framework’s modifications and the recent support for renewable energies make the company believe that a new vision for the role geothermal energy might soon sweep Mexico. “We would like to be the most important company in the geothermal energy field. We do not have a monopoly perspective but we want to seize opportunities,” concludes García.
OPEN MARKET OPPORTUNITIES
Enrique Lima Lobato, General Manager of Overseas Business Department of West JEC
The wealth of geothermal
country attractive to our business,” says Lima. Although
resources
Mexico
the Mexican business climate has appealing traits, there
enjoys has been a constant
may be lingering concerns about security. While not all
lure
international
Mexican states are equally attractive, the overall country
investors, but they have
risk in Mexico is considered to be manageable. Finally,
soon run up against an
analyzing the technological risk involves two sides:
operating framework that
the availability of human resources and the geological
has not given them the
reality. Financiers need to be certain that the projects
chance to participate freely.
will be properly operated and managed, in order to have
Despite these hindrances,
assurances about that loans will be repaid. Private entities
for
that
international players have
will have fewer problems making decisions on whether
involved themselves with the Mexican market in different
or not to participate in the geothermal power if there is
ways such as drilling, development and, in the case of West
already a good HR pool within the country that can readily
JEC, consulting. West JEC is a subsidiary of Kyushu Electric
take over the operation and maintenance of the projects.
Power Company, one of Japan’s nine electric utilities. “We
Fortunately, Mexico has created a critical mass of human
have been assisting CFE in the development of geothermal
resources capable of running these businesses. On the
resources through resource consulting,” says Enrique Lima
other hand, the current operational framework has led
Lobato, General Manager of Overseas Business Department
geothermal companies to apply their strategies on a global
of West JEC. The company has participated in the Cerro
level in order to penetrate the most accessible markets.
Prieto, Los Azufres, Cerritos Colorados and Los Humeros
This has caused a delay in the development of the Mexican
geothermal plants, collaborating with CFE in order to
geothermal sector, even though the country represents
optimize the generation processes. Another company,
a low risk. West JEC is waiting for the geothermal power
Diamante Azufres, part of a Mitsubishi-led consortium, is
sector to be opened up to private participation, including
planning to build a plant for CFE that West JEC proposed
legislation to set the rules for competition in the market
after carrying out feasibility studies.
and the pricing for geothermal power.
The
the
There are other hazards in the geothermal sector that
development of these projects have come from the
financial
resources
that
have
supported
highly experienced players can mitigate. “Geological
Japanese government, explains Lima Lobato. Japan is
risk represents a degree of uncertainty in the evaluation
expanding its geothermal market through companies
of the size of a geothermal reservoir and its longevity
such as West JEC, given that Japan excels in geothermal
when subject to exploitation,” says Lima Lobato. “These
energy technologies. “70% of the geothermal power plants
uncertainties can impact the evaluation of the required
in the world are Japanese, so in a sense our work opens
number of exploitable wells and the capacity of the
new markets for the Japanese industry,” Lima Lobato says.
reservoir. In turn, this will impact the estimated cost
“West JEC enables government bodies like CFE to expand
per kWh of energy produced, which will determine the
on their own terms; we do not force anyone to acquire
competitiveness of the geothermal project,” he adds.
Japanese products. We give them our industry opinion but they can proceed in their own way,” Lima highlights. West
That competitiveness could be spurred if development
JEC is present in Mexico with three combined cycle units
alternatives could be found, such as the creation of public-
in Tuxpan, while also having activities in Indonesia and the
private partnerships. However, despite the presence of
Philippines.
PPPs in the oil and gas sector, these have not yet become widespread in the exploitation of other energy sources.
108
In looking for countries that carry the lowest risk factors,
“I firmly believe that geothermal is a very viable business
West JEC analyzes market, political and technological
and that the experience and capability of CFE could be
risks. Market risk refers to the past, present and future
used for the benefit of the country within an open market,”
of the power market in the country as well as structure
states Lima Lobato. West JEC is encouraging a regulatory
and the rules that govern the sector. In Mexico, these rules
framework that would encourage broader participation,
are crystal clear as CFE is the only buyer and the only
including PPPs, as this would spark the interest of investors
developer of geothermal energy. Lima Lobato says that
while also providing more opportunities for West JEC’s
some countries are not ready to enable the private sector
consultancy services. Such cooperation between the
to participate due to a weak or inefficient legal structure.
public, private and academic sectors, in Lima Lobato’s
“Mexico’s well defined legal structure for the power sector
eyes, is the only way to effectively take advantage of the
is providing security to investments, and is making the
resources that lie within Mexico’s subsoil.
DIVERSIFICATION OF DRILLING ACTIVITIES FOR GEOTHERMAL With
an
oil
and
gas
industry that dates back over
a
drilled in oil fields every year.”
century,
drilling
are
nothing
Despite these costs, geothermal technology and market
new to Mexico. CP Latina
conditions have been improving over time. Today, 3,800m
has been involved in this
deep wells are being drilled while numerous studies have
sector since the 1960s,
been carried out to minimize risks. Geothermal wells are
drilling
activities
Rodrigo De Vivanco, Deputy CFO of CP Latina
about 60 to 70 days to drill, while thousands of wells are
and
water,
gas
wells
and
oil
built under very specific conditions, but these conditions
in
the
may vary drastically between two wells that are drilled
northern part of Mexico
just 500 meters apart within the same field. To mitigate
before moving to drilling
the risk, it is critical that the equipment is working at
geothermal wells in the 1970s in Baja California and central
maximum efficiency, the drilling process meets all technical
Mexico. Today the company is still drilling geothermal wells
parameters, and that enough of an understanding of the
in different parts of the country.
terrain is acquired.
CP Latina has participated in the development of all of
CP Latina is also very active in repairing existing wells. “One of
Mexico’s geothermal fields, including Cerro Prieto in Baja
our keys to success in the partial field administration project
California, Los Azufres in Michoacan and Los Humeros
at Cerro Prieto was our ability to drill less while maintaining
in Puebla. “We have participated in many bids, with very
the same production level. We were able to succeed because
good results,” says Rodrigo De Vivanco, Deputy CFO of CP
we were constantly cleaning and servicing the wells to
Latina. “There are few companies that participate in these
guarantee greater efficiency, increasing production levels
bids, but it is important to mention that CP Latina has had
with fewer wells,” tells De Vivanco. Alongside the level of
a very good success ratio.” Since the geothermal energy
maintenance that all geothermal projects require, the fields
industry has experienced slow growth, the company has
themselves can evolve and change through time. Given this
sought to expand into the oil and gas sector, even though
lack of predictability, certain issues are bound to affect each
the core of its business has remained drilling geothermal
well differently, especially given the relatively long lifecycle
wells. To successfully exploit geothermal resources, which
of geothermal projects.
are closely related to tectonic plates, the right conditions must exist in terms of water, porosity and pressure. Even
For the geothermal industry to really pick up, De Vivanco
though it is a renewable energy, incorrect exploitation of a
is waiting for government action. “It is important for the
geothermal well can cause depletion of the resource, which
government to open tenders on the administration of
means that it is of vital importance that geothermal drilling
geothermal projects and on binary cycle projects. It is clear
companies have experience in all phases of a project.
that the legislation should be improved,” says De Vivanco. “CP Latina is not alone in this fight. The geothermal
Drilling activities in the geothermal sector are very similar
sector in Mexico as a whole has been trying to push these
to the process that is followed in the drilling of oil and gas
improvements, but since very few companies are currently
wells, barring several small differences. For example, the
operating, the lack of a geothermal drilling association has
oil and gas drilling of oil and gas wells requires a flaring
largely limited our actions. We do not have the strength
tower, while geothermal drilling needs a separation tower
or the opportunity to promote the needed actions to the
to control and clean the steam. “Some tools vary, but in
government.” Due to the slow development of geothermal
reality the equipment is basically the same,” explains De
energy in Mexico, companies like CP Latina have started
Vivanco. Despite these similarities, the different market
looking for new opportunities in other developing Latin
conditions have resulted in the geothermal market
American markets such as Costa Rica, El Salvador,
remaining small, and depending on only one client, CFE.
Guatemala and Chile.
“Geothermal energy sites are located far away from oil and gas fields and very few companies are willing to move their
“I do not know if the proportion of geothermal power in
equipment to geothermal fields. The transportation costs
Mexico’s energy mix will increase, but if we have this vast
are very high, on top of the costs of setting up a base and
resource, why not use it? Geothermal energy may not gain
other important investments,” says De Vivanco. “Also, the
the same importance that hydroelectricity or wind power
geothermal market in Mexico requires the drilling of very
have, but it could be exploited in a more strategic way,”
few wells. 40 to 50 wells are drilled per year, each taking
concludes De Vivanco.
109
PILLARS FOR THE DEVELOPMENT OF THE GEOTHERMAL SECTOR In 2011, ClusterGEO was created with the objective of
be sold in Mexico or exported to Latin America and the
ensuring communication between the government, the
rest of the world. Training plays a crucial role in creating
private sector, academia, institutions and associations.
the human capital that can operate the technology and
“The idea was to group under ClusterGEO all the
exploit geothermal resources. “There is a community of
entities that work in the sector but rarely work together.
people with a tremendous amount of experience that
ClusterGEO helps them unite as a sector, rather than just
was active in the 1970s and 1980s, and afterwards the
operating independently,” says Frederic Sauze, President
generational gap is evident,” says Sauze. “It is vital to
of ClusterGEO. Alstom, after developing the Los Azufres
organize the transfer of knowledge to the next generation,
geothermal power plant, supported the creation of
to the private sector, and to other countries. Institutions
ClusterGEO and suggested that it should be based in
such as the Michoacan University of San Nicolas de
the natural center of the country’s geothermal industry,
Hidalgo (UMSNH) and UNAM’s geophysics campus are
Morelia. CFE’s geothermal department has been based in
actively transferring that knowledge in the Morelia area.
this city since the 1950s, and today it oversees every type
In other parts of the country the Electrical Research
of renewable energy excluding hydroelectric power.
Institute (IIE), Center for Scientific Research and Higher Education of Ensenada (CICESE) and Center for Research
“The
Mexican
government
and
the
Inter-American
and Advanced Learning (CINVESTAV) are examples of
Development Bank (IDB) are interested in creating a
institutions that are collaborating to transfer knowledge
competitive hub for geothermal energy in Latin America
and experience in geothermal energy.”
in order to help countries in the region to develop,” said Sauze. “Today, it is necessary to go to Iceland, Japan or
The third pillar is raising awareness both within and
the US to find technical and financial expertise required
outside the country that there is extensive expertise and
for the development of geothermal activities, but that can
geothermal energy potential in Mexico. ClusterGEO plans
change. The challenge is structuring profitable projects
to organize the World Geothermal Congress, organized
that can access available funds to create added value and
every five years, in 2020 by developing a well-structured
promote the development of a country.” ClusterGEO was
proposal that demonstrates the opportunity for the
founded by 12 partners and now has 30 members, many
government to attract greater investment to Mexico. The
of which are from the Morelia region. The association has
final strategic pillar promoted by ClusterGEO is economic
established several strategic pillars. The first is enhancing
development. The development of geothermal projects
Mexico’s operating framework, which is essential for the
impacts many people. “There is great synergy between
sector to fully develop. “CFE has already successfully
companies that are developing the Mexican geothermal
developed geothermal projects and is focused on large
sector, which should have a direct impact on their
projects in large fields with proven resources. However,
commercial success as well as the economic development
based on modest estimates, there is potential for around
of Mexico,” says Sauze.
four or five times more geothermal power generating capacity than the current installed capacity,” says Sauze.
The idea of concentrating geothermal expertise in Morelia
This represents an opportunity not just for CFE but also for
and promoting research and training is also the objective
the private sector, provided that the operating framework
of another project: CIMIE-GEO. “We proposed this idea to
creates attractive opportunities for private participation.
the federal government and today there is a project that involves the Ministry of Energy (SENER), National Council
110
The second pillar is conducting research activities in
for Science and Technology (CONACYT), and the Energy
the fundamental sciences, such as chemistry, mechanics
Sustainability Fund, who are cooperating to create the
and geophysics, an area in which Sauze believes a more
Mexican Center for Innovation in Geothermal Energy,”
focused approach could yield better results for the
explains Sauze. “There are several additional parties
geothermal sector. “For example, Alstom has a budget
involved in this project, such as the state government
of €3 million per year for R&D activities focused on
and universities such as UNAM, Center for Research and
geothermal activities, but that mostly goes to activities
Advanced Learning (CINVESTAV) and the University of
in Europe and the US. Very few resources stay in Mexico,
Guadalajara. In addition, CP Latina, a company specialized
but with the development of high quality research and
in the drilling of geothermal wells, is actively participating
application centers more money could stay here.” In
in research activities, and other large Mexican companies
ClusterGEO’s view, research activities should be focused
are
on finding applicable commercial solutions that could
geothermal energy.”
becoming
interested
in
developing
self-supply
| VIEW FROM THE TOP
REMINDERS OF THE IMPORTANCE OF THE HYDROELECTRIC SECTOR JACOBO MEKLER President of Mexican Hydroelectric Energy Association (AMEH) Q: Which changes to Mexico’s operating framework have
projects, there is a 36GW potential capacity that could
the greatest impact on the Mexican hydropower sector?
be installed in Mexico. This offers important investment
A: Mexico has a great potential for hydroelectric projects.
opportunities. Many of Mexico’s rivers cannot be used for
The Energy Reform is going to make the private sector feel
any purpose, as established by presidential decree 70 years
more comfortable about not being limited to participation
ago. There is no sense in preventing people from using the
through self-supply schemes only. We are going to start
water from these rivers since hydroelectric projects do not
seeing generators that will be able to provide electricity
deplete water bodies. This law has been changed, and it is
directly to CFE. This will create a lot of opportunities since
possible to obtain a permit to generate power and a license
the self-supply scheme is limited because of the limited
from CONAGUA to build a project without the need for a
availability of bankable PPA off-takers. The Energy Reform
concession. However, we still have to make a bigger effort
is opening up opportunities to the renewable energy
to further change the legislation; we need a presidential
developers.
decree to eliminate river closures for renewable projects.
Q: Which role should hydropower play in the national
The Peña Nieto administration has done a great job putting
energy strategy?
together the National Development Plan. In crafting it, they
A: Without hydroelectric projects, Mexico will never be
put together roundtables on renewable energy and created
able to comply with its target of generating 35% of its
the Consultative Council on Renewable Energies, on which
energy from renewables by 2024. Right now, hydroelectric
our association has a seat. We are not only working closely
power makes up over 16% of installed capacity, but the
with the federal government, but also with CONAGUA,
government is not giving the hydropower industry the
CRE, CFE and SEMARNAT, who are asking for our input
importance it deserves. Hydropower can be generated
on the development of the operating framework and are
the moment when electricity is required, which means it
recognizing the importance of hydropower. CFE states that
offers flexibility to produce more electricity during peak
renewables are not reliable because when you install 5GW
demand hours. Solar and wind power are generated
of wind power, you need to have 5GW of backup fossil fuel
whenever there is wind or sun. Although hydropower
based generation capacity for moments when wind farms
is much more developed and provides greater local
are not producing sufficient energy. Hydropower can be
economic benefits than wind or solar, these renewable
used to generate electricity whenever necessary and can
energy sources receive a lot more attention in Mexico.
be used to stabilize the grid.
When a wind farm is developed, 70% of the investment goes to imported turbines and related technology, while
Q: What are the opportunities to use existing infrastructure
30% goes to infrastructure, construction and salaries. The
for future hydropower projects?
opposite is the case for hydropower development, where
A: Ideally, existing infrastructure can be used without
70% of the investment stays in Mexico, providing economic
altering or affecting the surroundings. By using the water
local benefits and creating jobs.
that was already being used for irrigation and switching the valve for turbines, there is barely any environmental
Q: What are the challenges the hydroelectric sector is
impact. It is definitely possible to use CONAGUA’s
facing today, and what is AMEH doing to enhance the
existing irrigation dams, which entails lower infrastructure
operating framework?
investment, but the problem is that there may not be a
A: One of the most important elements is that, after three
nearby CFE substation to facilitate interconnection to the
years of debate, the law has been changed and no longer
grid. This means that a long distance power line might
limits small hydroelectric projects to 30MW. If you consider
be necessary to get to the nearest substation, but having
the potential of hydroelectric projects below 30MW, this
to make this expenditure to produce 3MW might not be
add up to around 1GW. Now that we can consider larger
worth the investment.
111
GLOBAL AND MEXICAN HYDROELECTRICITY TRENDS The global hydropower sector has grown substantially in
South America presents a differing scenario for renewable
recent years, commissioning over 27GW in hydropower
energy development; whereas some countries are taking
capacity during 2012. Its rise has in part been thanks to
committed steps towards developing the sector, others
pro-renewable energy policies in place in the US and
are still heavily reliant on fossil fuels. Countries such as
Japan and regional carbon trading schemes in Australia,
Paraguay, Argentina and Chile intend to increase the
China and Colombia. North and Central America still hold
proportion of hydropower in their energy mix, while other
significant potential and there is a lot of opportunity to
countries are already constructing or developing new
modernize existing facilities. Canada is one of the world’s
facilities. The region’s hydropower leader is Brazil, with
leading hydropower generators and has the potential to
23GW under construction or development, followed by
double its more than 75GW of installed capacity. One
Colombia, Venezuela, Ecuador and Peru.
of the industry’s main priorities is to address regulatory
112
hurdles so that hydropower can be further developed in
In Europe, several countries have a substantial installed
the region. Important projects that have recently been
hydroelectric capacity, led by Norway with 30.3GW,
developed include La Yesca in Mexico, with a capacity of
France with 25.4GW, Italy with 19.5GW, Spain with 16.1GW,
750MW, and Reventazon in Costa Rica, with a capacity
and Sweden with 16GW. However, these countries did not
of 305.5MW. Panama is planning to increase its installed
increase their installed capacity in recent years, with the
hydropower capacity by 720MW but currently lacks
exception of Sweden which showed a 200MW increase last
sufficient transmission systems, and also faces divided
year. Africa has the lowest installed hydropower capacity,
public opinion about some of its planned projects. Central
with 27GW in total. The continent also has the biggest
American development is closely linked to the Central
unexplored potential for renewable energies and overall
American Electrical Interconnection System (SIEPAC),
capacity building, with transmission and transparency
which facilitates the exchange of power between six
being the biggest challenges to developing hydropower
countries in the region: Guatemala, Honduras, El Salvador,
in the continent. In West and Central Asia energy
Nicaragua, Costa Rica and Panama.
development has been recognized as an important driver
for socio-economic development. Russia and India lead
to Jacobo Mekler, President of the Mexican Association
the region’s hydropower sector with 47.6GW and 43.2GW
for Hydroelectric Energy. Regions of Mexico with high
installed capacity respectively, and big projects are due to
hydroelectric potential are Puebla and Veracruz on the Gulf
be developed in Pakistan, Nepal and Sri Lanka. East Asia is
of Mexico side of the country, as well as Chiapas, Oaxaca
currently the region with the largest hydroelectric capacity.
and Guerrero on the Pacific side. Even though the north
Hydropower world leader China has an installed capacity
of Mexico is relatively dry, hydroelectric projects have also
of 248.9GW, and added 15.5 GW in 2012. Japan is also an
been possible in Baja California thanks to adequate water
important player in the development of the hydropower
management. It is important that SENER, CONAGUA, CFE
industry, with 46GW installed. Noticeable growth has been
and CRE determine a way to increase the effectiveness and
seen in Vietnam, which increased its installed capacity by
efficiency of hydropower projects. Using water resources
almost 8GW between 2005 and 2012.
in Mexico is a delicate matter. Hydroelectric projects may face environmental challenges, and to make hydroelectric
Hydroelectricity has been an important part of Mexico’s
projects feasible challenges of land acquisition and remote
energy mix for decades, now accounting for approximately
resources must be overcome.
16% of the country’s electricity installed capacity. This type of energy generation has different advantages, in particular
Legal certainty for hydroelectric projects is one of the main
that the technology can generate electricity at peak times.
concerns for this sector because CONAGUA only awards
Mexico has excellent potential for hydroelectric energy
water concessions if permits have been granted by CRE
generation, which according to the Mexican Hydroelectric
and SEMARNAT, and a detailed engineering plan has been
Energy Association stands at approximately 6GW, of which
established. Another important issue is that companies
2GW is accounted for by plants that have a capacity of less
must have land rights to the area surrounding the water
than 100MW. The expected trend is that CFE will continue
source, which requires a commitment of time and money,
to build large-scale hydroelectric power plants, because
without having certainty regarding the future development
the government is better able to manage the social and
of the project. In addition, CFE only allows interconnection
environmental issues that could arise as a result of such
with the grid for high voltage projects, which means
projects. Small hydropower plants have the potential to
high costs for mini hydro projects. The transmission cost
attract private sector participation, and the capacity of a
diminishes significantly when projects are interconnected
small hydroelectric project can exceed 30MW if the power
at medium voltage, and if this were possible the Mexican
density coefficient falls within a certain range, according
hydroelectric sector would benefit greatly.
113
PARTICIPATION OF SMALL HYDROELECTRIC PROJECTS Large and small hydroelectricity projects have defined roles
for energy, effectively becoming an intermittent resource
and use different types of resources and infrastructure.
as opposed to dams, which can be made to act as a base
While large scale hydroelectric projects involve the use
energy provider.
of dams, small projects can be managed as run-of-theriver hydropower plants, in which little or no storage is
The total worldwide installed small hydropower capacity
provided, whereas traditional storage power plants range
was expected to reach 113GW in 2013, growing at 2.9% year
from 1MW to 50MW. For example, Canadian law dictates
on year. China is by far the largest small hydropower market,
small hydropower projects can reach up to 50MW, but in
accounting for 55.3% of the total installed capacity in 2011
the US these are limited to 30MW. However, international
with 59GW, followed by India and the United States, with 9%
regulations do not vary for mini hydro projects that can
and 6.9%. The total installed capacity of small hydropower
reach up to 1MW. In order to be considered a micro hydro
projects represents 10.2% of the total global hydroelectric
power plant, a project’s capacity may not exceed 100kW.
installed capacity of 1.1TW. In Mexico, most hydroelectric
Research states that the total installed hydroelectric
projects in the energy mix are owned and operated by CFE.
capacity stood at 1.1TW at the end of 2013, taking into
However, small hydropower projects are being increasingly
account both large scale and small hydro projects.
considered by energy companies as a competitive and affordable alternative to generate renewable energy.
Small and mini hydroelectric projects offer the advantage
According to CRE data, 289MW of small hydroelectric
of having a lower environmental impact since they do
projects are under construction in states such as Veracruz,
not require large-scale flooding and deforestation, as
Jalisco and Sinaloa, which are expected to all be operational
opposed to large scale projects and dams. Furthermore,
at the beginning of 2016. There are more hydroelectric
large hydroelectricity plants need substantial amounts
projects categorized as self-supply projects, however,
of investment, depending on the size of the dam that
out of the 23 projects in the hydroelectric pipeline, nine
needs to be built. In this sense, small hydropower projects
will be operating under the independent power producer
represent an opportunity for a broader range of private
scheme. According to the permits granted by CRE, these
sector participants. These projects are faster to construct
small hydroelectric projects that are being developed by the
and offer higher rates of return since the capital investment
private sector represent a total investment of US$434 million
as well as operational and maintenance costs are lower. In
in the 2012-2016 period. There are 14 small hydroelectric
addition, another advantage of small hydropower projects
projects under 30MW operating in Mexico today, making
is that the social impact is reduced since less land is
up a cumulative installed capacity is of 119MW; considering
needed for a project.
the amount of projects that are expected to start operating, the market will grow in 143% by 2016. In the case of Mexico,
Despite the fact that run-of-the-river hydropower plants
small hydroelectric projects represent 1% of the country’s
are environmentally and socially less aggressive, their main
total installed hydropower capacity, while the rest is covered
disadvantage is that they depend on the flow of the river
by large hydro projects.
www.comexhidro.com
COMEXHIDRO STARTED OPERATIONS IN 1997 TO DEVELOP, BUILD AND OPERATE ENERGY PROJECTS, PRIMARILY IN THE RENEWABLE ENERGY SECTOR IN MEXICO. The first self-supply projects in Mexico were developed by Comexhidro with three small-hydro plants which added 54 MW of clean energy into the grid. Not only did the first projects won several awards from the Ministry of Energy and Conacyt, but they were also the first plants in Mexico to receive carbon credits under the Kyoto Protocol’s Certificates of Emission Reduction. Today, Comexhidro has developed an additional 52MW of clean energy which are currently in operation through a 22MW Wind Farm in Santa Catarina, Nuevo Leon and a 30MW Hydroplant in Zongolica, Veracruz. It’s growth continues through the building of a 60MW hydro facility in the north of Puebla, an 8MW small hydro in Cruz Grande, Guerrero, and over 800MW of wind parks and hydro facilities in different stages of development throughout Mexico.
HYDROELECTRIC PROJECTS FOR BETTER SOCIAL INCLUSION Hydropower plants have
projects, especially for hydroelectric,” mentions Jinich.
the advantage of being
“Convincing the communities just to get a right of way for
able to generate additional
a transmission line has proved very difficult,” he adds.
electricity at peak times.
Carlos Jinich, President of Grupo Comexhidro
One of the ways to achieve
Constant
this is by creating water
overcoming this issue. Public consultations, discussions on
storage mechanisms that
local radio stations, distributing information and reaching
enable
to
out to educational institutions all play an important role in
produce electricity when
allowing the company to explain what it is intending to do.
the tariffs are higher. This
“Comexhidro arranges trips for the local communities to
developers
communication
seems
to
be
the
key
to
makes the value of the
places where we have already built plants. This does not
electricity higher for such projects, as compared to wind
only serve to help them see the plant; our intention is for
and solar plants that cannot control generation times.
them to talk to the people of communities that Comexhidro
Given their frequent setting in mountainous regions, many
has worked with in the past. We leave them alone so they
of these hydroelectric generation plants are located at the
can freely ask and answer questions,” says Jinich. This helps
end of CFE’s transmission lines, which allows for counter-
to communicate the benefits of hydropower projects, while
flow electricity generation in the transmission line to be
also making sure that people understand that a hydropower
achieved. “According to some CFE studies, there is still
plant does not consume water and does not affect the
around 6GW of unexplored hydroelectric generation
existing water quality. “Communicating as much as possible,
potential in Mexico,” says Carlos Jinich, President of Grupo
always presenting the truth and fulfilling your promises are
Comexhidro, a firm specializing in the construction of small
key factors in achieving success. There have been a lot of
hydroelectric projects. “There are plenty of opportunities
unfulfilled promises which affect the development of the
in the market, but these need to be made clear so that
sector as a whole. If you cannot make things happen then
attention is not being given just to wind and solar.”
you should avoid making promises,” suggests Jinich.
The arid north of the country leaves most of the available
Finding the best way to transfer long-term benefits to the
hydropower resources to the country’s southern parts. The
communities is a crucial subject. “Hydroelectric projects can
country’s greatest rivers are located in the southern part of
initially create direct and indirect jobs, as well as provide an
the country, such as the Usumacinta River that has not seen
overall economic boost for the area,” says Jinich. Transferring
its hydroelectric potential tapped as of yet. However, the
benefits to the local population starts when jobs are created
fact that the resources are located in these areas implies
during the construction of the project, including indirect jobs
different challenges that need to be carefully handled.
surrounding the project. Economic activity increases since
“The first challenge that exists is the lack of information
houses are built for the workers and restaurants are set up
about the main advantages and issues that can come
to feed them. Commercial activities then blossom due to
with the development of a hydroelectric plant. We need
the increase of local consumption. Once the hydropower
to differentiate between small and large hydroelectric
plant starts operation, highly qualified people are needed to
projects so we can communicate the right information to
maintain and operate the plant. “We have found local people
local people,” comments Jinich.
that have acquired abilities in the different technical institutes in the areas where we operate. We hire these people and
The social challenges that arise around the construction of
take them to one of our plants to receive training, while
hydroelectric projects can be considerable. In fact, Jinich
the plant where they will eventually work for is still under
believes that it is likely that the largest hydroelectricity
construction,” says Jinich. Mexico has many technological
plants built in the future will still be developed by CFE due
institutes that educate people to the standards expected
to the social and environmental conflicts that could arise.
by Comexhidro and these graduates become an important
Many adequate sites for this type of energy generation are
target for project developers. The fact that the number of
located in poor and isolated areas. People subsist in these
people needed to operate a hydroelectric plant is limited
areas through elemental agriculture and with virtually no
impairs hiring capacity. Therefore, Comexhidro is developing
industrial activities. In these rural settings, land rights are
useful and productive side-projects during the lifespan of
a common barrier to project developments. “The land
a project, ranging from rainwater storage and collection
rights issue is very delicate in rural areas and has been a
facilities to harvest development and livestock farming
serious obstacle to the development of renewable energy
techniques.
115
| HYDROPOWER SPOTLIGHT
LA YESCA La Yesca Dam is located along the Santiago River at the border between the states of Nayarit and Jalisco. Located 90km northwest of Guadalajara, its construction was appointed to Empresas ICA and began in 2007. ICA won the CFE bidding with a proposal of US$768 million, beating the US$811.2 million proposal tabled by Constructora IDEAL and the US$855.98 million offer from Impregilo. CFE both owns and operates the 750MW hydroelectric project, which was inaugurated in 2012 by former President Felipe Calderón. The second tallest dam in Mexico behind the 261m high Chicoasen dam, La Yesca is 220m high and 628m long. Its power production capacity is destined to cover half the power demand of the city of Guadalajara, which is comparable to 12.5 million 60 watt light bulbs being turned on simultaneously. Among the world’s largest hydroelectric dams, La Yesca is also part of the Santiago Hydroelectric System that links 27 projects. This project alone was able to create 5,000 direct jobs and an extra 5,000 indirect ones during the four parts of the construction phase, namely the deviation of the river, the 208.5m high curtain, the spillway, and the generation facilities. The most important challenge that was overcome during the construction of La Yesca was due to the seismic fault running through the area, which caused the displacement of 5 million cubic meters of rocks in a major landslide. This increased the total cost of the project by 30% given the need to do away with dangerous portions of the neighboring hills and strengthen security. La Yesca will contribute to regulating the water flow downstream along the Santiago River in order to improve power generation at El Cajon and Aguamilpa dams. The reservoir of 2.5 million cubic meters will see 55.68% of its potential used to generate electricity, or a surface area of 1,329 million m3. The power plant atop the dam has two 375MW Francis turbine generators and it is producing approximately 1.21GWh annually. The Santiago Hydroelectric System is not yet complete, but the inauguration of La Yesca brought the goal of 4.3GW in installed capacity along the Santiago river, set by the administration of Former President Vicente Fox, one step closer.
EFFECTIVE HYDROPOWER CAPACITY (GW) 12
10
8
6
2013
2010
2005
2000
1995
1990
1985
1980
4
Source: SENER
117
SUCCESSFULLY FOLLOWING CLIENTS TO MEXICO “When participating in a bidding process, value engineering
development. The firm has a laboratory in Spain where
procedures are the most important asset, which means
it runs small-scale hydro simulations, including channels,
providing high quality solutions at a competitive price that
ports, and dams as part of the research phase to improve
provide our clients with a sustainable advantage over their
technical details of larger projects. TYPSA also develops its
competitors,” says Pablo Salazar Magaña, Director General at
own software for simulations, and has an ongoing research
MEXTYPSA. TYPSA is a global engineering company involved
project focused on the optimization of foundations for
in areas such as installations, architecture, infrastructure,
offshore wind generators. This particular effort is focused
roads, railways, airports, and water engineering, among
on reducing the development cost of this relatively
others. Needless to say, the company felt the need to be
expensive renewable energy technology.
involved in the Mexican renewable energy market. MEXTYPSA is not looking to get involved in transmission, TYPSA has a long history in the hydropower market, building
although it can provide transmission infrastructure to
a number of hydropower dams in Spain, but it was not until
support its projects should it be needed. Salazar identifies
ten years ago that the company became interested in solar
CFE’s total control over national transmission infrastructure
and wind energy. Until now, the wind department has been
as a major issue. “In a free market, it is common to negotiate
responsible for 15GW in installed capacity across the globe,
with several operators and potential third parties that could
while the solar department has developed installations with
benefit from the additional kilometers of transmission lines
a capacity totaling 2GW. The renewable energy division has
that are to be built. This creates the possibility to reduce and
become the most important pillar for TYPSA, despite not
split the infrastructure costs.” In Mexico, however, developers
being the firm’s main source of income.
are moving their projects as close to the transmission lines
“International players that were previously not present in Mexico are arriving in the country with high expectations and strong investment capital” Pablo Salazar Magaña, Director General of MEXTYPSA
The company arrived in Mexico in 2008, following Spanish
as possible to gain access to the grid. The distance to
clients that were already active in the country, and started
the grid interconnection point determines the cost of the
operations one year later. “The fact that our frequent
necessary transmission line, which ultimately determines
customers from other parts of the world were already here
how developers prioritize projects.
meant that we could have the same client base in Mexico,”
118
tells Salazar. MEXTYPSA has already participated in three
“One of the objectives of Mexico’s National Energy Strategy
wind farms for Vestas, two for Gamesa, one for Enel,
is diversifying the methods used to produce energy and
and another one for Tradeco. The firm has also finished
the financing mechanisms for these projects. This benefits
a 30MW solar park in Baja California for Martifer, one of
MEXTYPSA because investors and producers that have
the largest in Mexico to date. For Salazar, Mexico’s solar
worked with the firm in other parts of the world are
energy potential is undisputable. “The solar sector will
requesting the company’s services in Mexico. International
continue developing, as Mexico has plenty of resources.
players that were previously not present in Mexico are
If Germany can reach outstanding levels of solar energy
arriving in the country with high expectations and strong
production, Mexico can do anything,” he tells. In addition
investment capital,” says Salazar, who interprets this as an
to these Mexican solar and wind sectors, MEXTYPSA is
indicator that the market is moving in the right direction and
experiencing great growth in the hydro sector. According
will continue to do so. “We think we are very well positioned
to Salazar, Mexico suffers from uneven water distribution,
in the Mexican market, considering that we have only been
with great humidity in the south and dry areas in the north.
operating here for four years,” states Salazar. During this
To help solve this, MEXTYPSA is developing aqueducts to
time, the company has been involved in all sorts of projects.
transport water from the humid areas to the dry regions.
MEXTYPSA’s positioning in the Mexican market is the
In order to continue providing similar problem solving
result of executing its value engineering strategy, the next
tactics, TYPSA is constantly investing in its research and
challenge is becoming a reference in engineering in Mexico.
DEVELOPING MEXICAN PATENTS FOR RENEWABLE ENERGY Wave and tidal energy
Developing new technologies in Mexico can be challenging.
are
and
Carrión says Marersa has struggled with the government
new,
reliable
affordable
alternative
to get several projects going, particularly in the wind
energy sources that are
sector. Furthermore, he believes Mexico does not have
destined
be
added
full confidence in most renewable energies. In order to
Mexican
energy
attract private sector investment and earn a position in
mix in the coming years.
the market, reducing the cost of wave and tidal energy
“Marine energy is one of
has been the main priority. Marine technology is expensive
Francisco Carrión,
the most efficient energies
and maintenance costs are high because the equipment is
CEO of Marersa
in the world because it is
located underwater. “We are not going to need any oil to
to
the
to
predictable and there is
use our systems, which makes our equipment different from
a very limited amount of time during which there are no
the equipment developed by other companies,” explains
waves,” says Francisco Carrión, CEO of Marersa. “Mexico
Carrión. “This technology was developed by Marersa along
has 11,000km of coast and we are able to harvest 1MW per
with an aircraft company that manufactures parts for Boeing
80m of coast at an 85% to 95% efficiency rate.” Another
and Airbus.” The aerospace company that collaborated with
advantage of marine energy is that it avoids the problem
Marersa had been developing the system for two years,
of land ownership, which is one of the major challenges
testing it on beaches to prove that the technology works,
that must be overcome in developing energy projects in
and it is today Marersa’s exclusive representative worldwide.
Mexico. Marine energy projects must not necessarily be
In 2015 a manufacturing plant will be built in Mexico to start
located on beaches but can be in rocky coastal areas that
exporting Marersa’s technologies.
are not usually in high demand. Marersa is not only using its own developed and patented The value that this technology can bring needs to be proven
technologies but is also constantly in search of the best
before the government will be motivated to push for its
innovations around the world. For example, in order to
development. “In 2009, the Chamber of Deputies allocated
avoid electricity leaks, nanotechnology from Germany
US$2 million to deploying marine energy, but in the end
is going to be used in the recently patented mechanical
decided not to use the money, showing us that they were
equipment developed by the company. “We integrate these
not willing to explore new technologies,” says Carrión, who
technologies into our solutions and we give them a wide
expects that the new government will be more interested
variety of applications while avoiding the use of pollutants
in marine energy than the previous one was. The private
to minimize the environmental impact,” says Carrión.
sector is expected to be an important market for marine energy technologies as companies are becoming more
The company is also focusing on a technological solution
aware of the technologies that are being used. Companies
for electric cars: by using piezoelectricity - crystals that
like Marersa are already starting to develop a pipeline of
generate voltage when compressed or distorted - the tires
projects for the private sector and this will grow as time
of the car are able to generate energy that can be sent
passes. “We are planning to use our patented hydraulic
to the batteries. “Generating wave energy with hydraulics
and mechanical systems to harvest the energy from waves
and mechanics and using piezoelectricity adapted to tires
and we are going to be able to install 20kW equipment for
to charge electric cars are our breakthrough patents,”
beach houses and small buildings,” says Carrión. “However,
comments Carrión. These patents will be very useful
we are also focusing on working with companies that have
in positioning the company and its technologies in the
consumption levels exceeding 1MW.”
Mexican renewable energy market. Carrión claims that the company’s main project for this year is the construction
Marersa views innovation as key to ensuring continued
of its first 100MW tidal development in Mexico, due to
success. The company has patented modified wind turbines
be finished by the first semester of 2014, with another
with a powerful electromagnetic ring that aids movement.
100MW due to be completed by mid-2015. He is also
Though this equipment does not support perpetual
planning to use the patented technology to expand into
movement, only a small amount of wind is needed to make
other countries and approach partners in the Dominican
it spin, and the modifications the company has made have
Republic, Colombia, Panama and Guatemala. “In five years,
increased the efficiency of the turbine from 30% to 48%.
we hope that we will have proved the cost-efficiency of
Another important breakthrough made by Marersa has
marine energy plants and that we have started developing
been the foldable solar panels it has developed.
new technologies,” concludes Carrión.
119
120
WIND
5 The Mexican wind sector has gained momentum as the main driver of renewable energy growth in recent years. Aware of its potential, the wind industry is determined to make this sector a mainstay in the Mexican energy mix. After leading global wind turbine manufacturers and project developers opened the market, a wide range of companies is not involved in building the Mexican wind industry. Technological advancements are now allowing the expansion of the sector to places that were once thought unviable. The bastion of Mexican wind power, Oaxaca, is now seeing attention being diverted to Baja California, Chiapas, Zacatecas, Nuevo Leon, and Tamaulipas, among other Mexican states
This chapter features the perspectives of the major players in the Mexican wind industry, the challenges they have overcome and the opportunities they are aiming to capitalize on. We look at how wind projects have depended on the Open Season scheme, seek to explore new projects popping up across the country, and hear of how wind intends to stay ahead of the renewable energy pack.
121
122
CHAPTER 5: WIND 124
Global Wind Energy Trends
125
Highlights of the Mexican Wind Energy Industry
126
VIEW FROM THE TOP: Wind Industry About To Truly Take Off
126
Time For Continuous and Sustainable Wind Industry Development
128
VIEW FROM THE TOP: Larger Turbines to be Rolled Out in Coming Years
129
EXPERT INSIGHT: Jesús Zaldua Lasa Games Energía Latin America
130
VIEW FROM THE TOP: Pioneering Commitment to Mexican Wind Energy
131
Turbine Pioneers Lobbying for Continued Success
133
WIND SPOTLIGHT: La Venta III
134
VIEW FROM THE TOP: Hybrid Projects Could Become Mainstay in Energy Landscape
134
Wind Industry Drives Crane Demand
136
Well-Planned Projects May Surpass Larger Competitors
137
Small Steps toward Securing National Presence
138
VIEW FROM THE TOP: New Player With Wealth of Experience
139
VIEW FROM THE TOP: Aggressive but Careful Growth Strategy
141
Regional Experience for Mexican Wind Projects
142
Adaptability Key to Survival
143
VIEW FROM THE TOP: Envisioning the Mexican Wind Power Sector from a Global Perspective
144
Untapping Tamaulipas’ Full Wind Potential
145
Green Way to Expand Mexico’s Wind Sector
146
Lightning Damage Protection
147
VIEW FROM THE TOP: Early Promoters of Mexico’s Wind Potential
123
GLOBAL WIND ENERGY TRENDS Wind energy’s participation in the world’s total installed
developed in Morocco, Ethiopia and Kenya, while Egypt has
renewable energy capacity, excluding hydro, has decreased
settled on an ambitious plan to build over 7GW by 2020.
from 62% in 2010 to 59% in 2012 due to the increasing competitiveness of solar energy. The expansion of the wind
The Latin American region was due to surpass 2GW of
market continued despite the global economic slowdown,
newly installed capacity in 2013. By September 2013,
and global cumulative installed wind capacity increased by
Mexico had increased its installed capacity to 1,636MW
19% in 2012. By the end of 2012, total global installed capacity
with an additional 306MW due to be added before the end
increased to 282,587MW, with 44,799MW installed that
of the year. Growth was affected by the delays of several
year. The leading wind energy markets globally remained
projects that were planned to start operating. On the other
China, the US and Germany, with approximately 75,324MW,
hand, Brazil installed 1,077MW to surpass 2,500MW in
60,005MW, and 31,308MW of respective installed capacity.
2013. Brazil has set the objective to reach 16GW by 2021
These countries increased their installed capacity in
while Mexico aims to reach 12GW of installed capacity
12,960MW, 13,124MW and 2,415MW respectively during 2012.
by the end of 2020. In the rest of the South American region, Venezuela installed its first 30MW commercial
The Global Wind Energy Council predicted a slowdown in
wind power plant and Argentina added 54MW, reaching a
global new installed capacity in 2013, with new installations
total installed capacity of 167MW. In the Central American
to decrease by -11.6% relative to 2012. Nevertheless,
region, Nicaragua and Costa Rica contributed a joint
cumulative global installed capacity was forecast to increase
55MW. In North America, Canada installed 935MW in 2012,
by 14.1% for 2013, with the diversification of new growth
showing a slight slowdown compared to the 1.2GW installed
markets continuing to compensate for the slowdown across
the previous year.
China, India and Europe, which accounted for 62.6% of the total new installed capacity in 2012 and 76.3% in 2011.
Excluding China and India, the rest of the Asian markets did
The slowdown in China was caused by the tightening of
not show important increases in capacity, but countries are
regulations and bottlenecks impairing access to the grid.
making efforts to start participating in this market. Japan
India’s wind energy sector struggled due to the removal
reached a total of 2,614MW with just 88MW coming online in
of the government’s accelerated depreciation incentive
2012. Pakistan commissioned its first large-scale wind energy
while Europe’s debt crisis is still slowing down growth
project of 50MW in the province of Sindh to add to the 6MW it
in the renewable energy sector. Several countries across
has installed right now. In Oceania, Australia installed 358MW
Europe bucked the trend with the UK adding 1,897MW,
in 2012, boosting its installed capacity to reach 2,584MW and
Italy 1,273MW and Spain 1,122MW. Out of the newly installed
claim 85% of the wind industry in the region.
capacity in the United Kingdom, 854MW was installed offshore showing how the island nation is becoming the
In 2014, the wind industry is expected to bounce back from
undisputed offshore wind development leader, accounting
its slight dip in annual installed capacity growth in 2013.
for 65% of 2012’s global offshore growth. The increase in
Renewable energy has become ever more used around the
installed capacity in emerging wind markets was spread
world as installed capacity continues to grow, but wind
across several continents. Africa continued its emergence
seems to have the staying power to remain ahead of the
as a renewable energy destination, with projects being
pack, thanks to some major commitments.
WIND MARKET FORECAST 2013-2017 600
(GW)
(%) 536.1
500 14.0% 10.8%
418.7
367.7
300
474.9
12.6%
400
10.2%
322.4
25 20 15 10
8.9%
282.6
5 0
200
-5 100 0
2012 Annual installed capacity (GW) Source: GWEC
124
-10
-11.6% 44.8
39.6 2013
45.3 2014 Cumulative (GW)
51 2015
56.2 2016
61.2 2017
Annual installed capacity growth rate (%)
-15
HIGHLIGHTS OF THE MEXICAN WIND ENERGY INDUSTRY The Mexican wind industry essentially drew its first breath
companies to provide their excess generation to CFE
when a group of developers in Oaxaca noted that the legal
and take it back from the grid when their plants are not
and regulatory framework was not ready for renewable
producing sufficient electricity. Renewable energies also
energies. From this stemmed a process of lobbying
have the advantage of paying fixed wheeling costs, no
the federal government to begin truly considering
matter where the energy is being transmitted to, with
Mexico’s wind energy potential and to make the needed
the wheeling tariff for renewable energies being lower
changes. “Those changes in the legal and regulatory
than the conventional tariff for electricity transmission.
framework coupled with increasing competitiveness of
These incentives, despite not being as generous as feed-
wind technology gave rise to the first large scale wind
in tariffs that are in place in some other countries, are
projects, starting with CFE’s La Venta II in 2006,” says
enough to promote the creation of economically feasible
Leopoldo Rodríguez Olivé, Renewable Energy Manager
wind projects. The small producer scheme, which applies
for Peñoles and the former President of the Mexican
to projects of up to 30MW, represents another important
Wind Energy association (AMDEE). The development of
opportunity as the Energy Reform is opening up the
wind projects in Oaxaca also benefited from the Open
potential market for IPPs (independent power producers).
Season scheme, which helped to address the serious
“The wind sector in Mexico is just about to explode,”
constraints that the wind sector was facing concerning
comments Adrián Escofet Cedeño, President of AMDEE.
transmission infrastructure. For a long time, the wind
As of 2013, Mexico has 1,636MW installed, mainly in
energy industry essentially only existed in Oaxaca. The
Oaxaca, but social problems in the state remain a crutch,
state is considered to have one of the best wind resources
and land ownership and usage is a complicated topic.
in the world, particularly in the Isthmus of Tehuantepec, but transmission challenges and overcrowding hinder its
Renewable energies must have a 35% participation in the
future. New technologies have transformed states such as
country’s energy mix by 2024, a goal that will require
Tamaulipas, Nuevo Leon, Chihuahua, Baja California, San
substantial growth in installed wind power capacity to
Luis Potosi and Chiapas into potential locations for wind
be accomplished. But Lourdes Melgar, Undersecretary of
power development, while other states are also receiving
Electricity at SENER, dismisses discussion of competition
industry interest.
between renewable energy sources and natural gas. “The development that we have experienced in terms
One issue that has impaired full trust from being placed
of wind, solar and geothermal is very slim compared to
in wind power is the resource’s intermittency, with critics
the challenge that we need to meet,” she says, stating
claiming that power plants using conventional fuels would
that there is a lot of room for the Mexican wind industry
be needed at times when wind is not blowing. However,
to continue to grow. Despite the goal to expand installed
an energy bank scheme created by CRE, SENER and CFE
wind capacity to 12GW by 2020, little long-term certainty
has now been developed as an important tool to match
has been provided to manufacturers. Nevertheless, with
the consumption needs of off-takers. Since wind power
the Energy Reform having passed, enthusiasm for the
can create generation surpluses, the energy bank allows
future of the wind sector seems to be rising.
WIND ANNUAL MARKET FORECAST BY REGION 2014-2017
20.5
24
25
25.5
(GW) 22.5
30
13.5
15
12.5
3
1.2
3
2.5
2.2 1
1
1.5
2 1
3
5
0.8
9
10
11
11
13
15
14
20
0 2014 Europe
North America
2015 Asia
2016 Latin America
Pacific
2017 Middle East and Africa
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| VIEW FROM THE TOP
WIND INDUSTRY ABOUT TO TRULY TAKE OFF ADRIÁN ESCOFET CEDEÑO President of the Mexican Wind Energy Association (AMDEE)
Q: Over the past five years, the Mexican wind industry
actually used. The remaining 97% can be used for other
underwent a transformation. What have been the
purposes. This is not the case for solar, hydro, or other
milestones in its recent development?
renewable energy technologies.
A: We currently have approximately 2GW of installed wind capacity in Mexico, mainly in Oaxaca. The government has
Q: Can 12GW of installed wind power capacity be achieved
dedicated itself to reach the target of 12GW to be installed
within the current operational framework?
by 2020, a target that AMDEE has been pushing for. Over
A: The current legal and regulatory frameworks work
4GW are either in their planning or construction phase.
fine but there is always room for improvement. AMDEE
These projects will be operational by 2016 or 2017 as long
is constantly in discussion with the government and
as transmission infrastructure constraints are solved. The
the regulatory authorities. Many things have to be
wind industry is actually just about to take off.
done, such as making it easier for small producers to participate in the development of the Mexican wind
The generation costs of wind energy are competitive with
industry and improving the planning for transmission
other energy sources, and there is little doubt this industry
infrastructure. Improvements could be made in terms
will be the strongest player in the Mexican renewable
of understanding whether the self-supply scheme is the
sector. The government’s objective to generate 35% of
best way to promote renewables or if the government
Mexico’s electricity from renewable sources by 2024 is not
should buy electricity through CFE. We are moving in
possible without wind power. On its own, wind can provide
the right direction and the government is willing to take
between 40% and 50% of that capacity. Additionally, only
the necessary measurements for renewable energy to
3% of the total land on which a wind project is built is
comprise 35% of the total electricity production.
TIME FOR CONTINUOUS AND SUSTAINABLE WIND INDUSTRY DEVELOPMENT
Leopoldo Rodríguez Olivé, Former President of AMDEE
AMDEE, the Mexican Wind
long-term plan for the expansion of transmission capacity.
Energy Association, has
The Open Season scheme has provided a solution in
helped the government to
regions where transmission deficiency has been an issue,
set the target of reaching
but Rodríguez Olivé says the Open Season scheme has
12GW installed wind power
certain elements that are not ideal, such as private parties
capacity by 2020. Some
needing to pay for planned capacity three to four years in
optimists
that
advance. Today, over 60% of installed wind power capacity
this target is moderate,
comes from private projects and off-takers. “Many of these
given
how
believe
the
projects are profitable and sustainable,” says Rodriguez
wind industry in Oaxaca
quickly
Olivé. “However, with the natural gas price hovering at
developed in recent years,
around US$3 per million Btu, it is hard to justify investing
while new technology is enabling capacity factors of 35-
in wind energy or other renewables. But should the natural
40% in places where installing wind turbines was unheard
gas price rise to a range of US$4-6 per million Btu, then
of. However, Leopoldo Rodríguez Olivé, AMDEE’s former
wind energy would become competitive.”
President from 2011 to 2013, remains sanguine. He says that
126
transmission will be a major bottleneck, which is why the
Incentives include an energy bank that serves as a virtual
association is seeking for the government to commit to a
energy storage for self-supply projects, and transmission
Q: What is your perspective on Mexico’s planned increase
promotes and coordinates several studies that focus on issues
in the use of natural gas?
that are important to the sector, such as small producers and
A: Mexico is rich in natural gas and its northern neighbor, the
infrastructure. We provide information for policy makers in
US, has become one of the largest natural gas producers
the government by giving them access to studies done by
in the world. It makes sense for the Mexican government
the private sector, academia and experts in the field.
to expand its natural gas-fired power generation capacity, but this is not as green as wind energy although it is less
Q: Why has the wind industry been slow to expand outside
polluting than other fossil fuels. Renewable energies are not
of Oaxaca?
yet capable of playing a central role alone. Wind has huge
A: In Oaxaca it is possible to achieve capacity factors of
potential, hydropower is underdeveloped, and solar is still not
more than 40% with wind technology that is five years old.
competitive enough. In spite of our best wishes to shift from
There is a significant difference with the capacity factors of
natural gas to renewable energy, this is just not possible yet.
just above 20% that can be achieved in other parts of the country or the US. However, new technologies are creating
Q: What are the limitations of the wind sector in Mexico?
opportunities for wind development in Tamaulipas, Baja
A: The main limitation we face has to be transmission
California, Chihuahua, Coahuila, Zacatecas, Puebla, and
infrastructure. This situation affects the wind sector more
other states.
than any other. Oaxaca has a potential of 6-8GW, but current transmission infrastructure cannot deal with this
Q: How can a local supply chain for the wind energy
amount of energy. There are also other nuisances affecting
industry be created in Mexico?
the Mexican wind sector but they are not problems: it
A: Mexico has been successful in developing supply chains
is a new sector, everyone is learning about it, including
for industries such as automotive and aerospace. This
experienced international companies, since every country
could also be achieved in the wind industry. AMDEE has
approaches renewable energies in its own way.
to convince manufacturers to come to Mexico and share technology with local companies that could become
Q: How can AMDEE push CFE to provide more certainty
suppliers for domestic projects. However, manufacturers
to producers?
need some degree of certainty. We talk about installing
A: As an association representing most of the Mexican wind
12GW in the next ten years but the industry does not know
sector, we work alongside CFE, CRE and SENER. AMDEE
what is going to happen in the next two, four, or five years.
at a fixed rate regardless of where the energy is generated
ranging from operation and maintenance to consulting,
and consumed, are already producing results in the absence
construction, and financing. In the short term, advanced
of feed-in tariffs and subsidies. “The combination of these
components will be imported, especially given that
incentives and Mexico’s available wind resources eliminate
European manufacturers are looking for new export
all questions about the financial viability of wind energy
markets due to overcapacity in their home countries.
projects,” Rodriguez Olivé adds.
“With much of the equipment and machinery still coming from abroad, there is a strong potential for Mexican
In Mexico, most wind projects have been financed by
manufacturers to move up,” explains Rodríguez Olivé.
development institutions, such as IFC, NAFINSA, Banobras,
“A lot of electronic and mechanical components could
the North American Development Bank, and the Inter-
be manufactured domestically since Mexico has already
American Development Bank, as well as commercial banks.
shown its potential for manufacturing joint ventures in the
However, a growing track record has seen more commercial
automotive and aerospace industries. Small and medium
banks interested in investing in wind projects, says Rodríguez
size companies as well as large turbine manufacturers are
Olivé. He adds that this has translated into manufacturers
already looking for suppliers in Mexico.”
and service providers developing strong human and technical capabilities in Mexico and acquiring expertise in the
“The Mexican wind industry has the chance to grow in a
market. Domestic abilities for engineering projects and the
continuous and sustainable way,” he concludes. “There
construction of towers and turbines are thus increasing.
is potential to fully deploy this industry across the value chain and beyond power generation projects. To do so,
To take the next step, Rodríguez Olivé recommends that
every strategy must be based upon long-term objectives
Mexico strengthens its services and supply industries,
and take into consideration the expansion of the grid.”
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| VIEW FROM THE TOP
LARGER TURBINES TO BE ROLLED OUT IN COMING YEARS TEODORO MONZÓN ARRIBAS President Mexico & Latin America of Gamesa Q: What is Gamesa’s strategy to deliver on its commitment
number one wind turbine manufacturer in Mexico due to
to offer customers the lowest possible cost of energy?
the concentration of parks that Gamesa has developed, as
A: Currently our strategy is focused on providing a product
well as machines that have been acquired by clients.
with proved state-of-the-art technology at a competitive price. We are investing millions of dollars each year in
Q: Which role can Gamesa’s 2.0-2.5MW platform, with
research and development, and from our initial range of
different blade options and tower heights, play in the
600kW, 650kW or 850kW wind turbines, we jumped to
diversification of the Mexican wind industry from Oaxaca
2-2.5MW turbines and more recently to our new 4.5MW
to states with lower wind factors?
wind turbine platform. Few companies have a 4.5MW
A: The wind sector is currently working in many states
wind turbine in the market nowadays. We have recently
in Mexico. The initial focus of the industry was on the
taken an important leap by installing an offshore 5MW
region with the strongest wind, which is the Isthmus of
prototype in the Canary Islands, which has been working
Tehuantepec, but new developments are now taking place
since October 2013 and is our first product for the offshore
in the northern states, such as Baja California, Sonora,
market. We are working on certifying the wind turbine
Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas. Due
of the Canary Islands and we plan to begin installing our
to its potential and advanced network, Tamaulipas will
machines in Scotland and the Baltic in the next few years.
follow Oaxaca’s development. Baja California is facing
We believe offshore will enable us to install higher power
an interconnection issue; if it was connected to Mexico’s
machines, possibly reaching 7-8MW in the future. Large
national grid, it would be a different story. The day this
scale offshore development is going to happen on a global
network exists, and CFE is working on it, Baja California
scale, as long as the continental shelf is not very deep and
will be able to develop a lot of renewable energy. It will
the ecosystem on the seabed allows it. We are constantly
take time because we are talking about a high voltage
investing in developing new high power products with low
400km grid, as well as finding the land, and building the
energy costs because we are aware that wind power is
wind farms and substations. It could take years, but when
competing with other types of energy.
that is done, Baja California will become an important wind energy center. There are other states like Zacatecas,
Q: Gamesa’s 2.0-2.5MW platforms are the most used in
San Luis Potosi, Puebla, and Yucatan where developers
Mexico due to their capacity to adjust to the geographical
are already at work. As for Oaxaca, the Open Season 2 will
conditions and existing resources. What have been the
take at least three years to build the required transmission
most important developments using this product in terms
lines and substations. During this time, developers will be
of quality and performance?
concentrating on other states. In the next two or three
A: Our main development area in Mexico is Oaxaca, where
years, wind farms will be built in eight or ten Mexican
we have been developing parks and selling turbines for
states.
almost 10 years. The high speed winds in the Isthmus of
128
Tehuantepec require special Class I wind turbines due
The design of our 4.5MW turbines is state-of-the-art.
to the potential for earthquakes and very strong winds,
Installed with blades that have a diameter of 128m,
when machines might be stopped due to excess speed.
these turbines generate energy for 15,000 families. The
The machine protects itself when the wind speed goes
equipment is transported in precast segments and are
over a determined speed to prevent damage to the
assembled on site, in the same way as our 2MW turbine
blades. Currently, we are operating close to 1GW and we
equipment. The next five years will see the installation of
are building an additional 550-560MW. This means that
4.5MW wind turbines in Mexico. However, projects have to
Gamesa will have close to 1,500MW operating in Mexico,
be planned in a way that enables them to use this type of
adding the small development in Baja California to the
equipment. It also takes three to four years to develop a
Isthmus operation. This means we will continue to be the
wind park using these turbines, because of the extended
| EXPERT INSIGHT wind measurement period that is needed to determine if
Taking
into
account
the
country’s
unique
the turbines are adequate for a project.
characteristics, how does Gamesa adapt to specific conditions within Mexico?
Q: What is your strategy to optimize your maintenance and after-sale service portfolio?
Gamesa has a strong position in Mexico based on
A: Between operation and maintenance, Gamesa oversees
local knowhow, human resources, domestic supply
more than 19GW of the 27.6GW it has installed globally.
chain relations, knowledge of customer needs,
The rest is the responsibility of companies that have their
the reliability of our products, and our ability to
own maintenance operations, such as CFE. Over the past
successfully deliver our projects. The first thing that
two decades, we have worked in the wind energy sector in
we establish is viability. When you are putting up a
major markets such as India, China, Europe, the US, Brazil,
wind farm, the first thing you have to do is present
and Japan, among others. Working across five continents
your track record and the performance of your
creates knowledge and experience which can be applied
technology. Secondly, we must become incredibly
to specific situations.
familiar with the conditions in which we are going to develop a wind farm. For example, the wind industry
Our main alliances are with electricity companies and
in Oaxaca has developed along the Isthmus of
utilities. Iberdrola owns 19.7% of Gamesa, and we have
Tehuantepec, which has very strong wind conditions
ties to Enel, EDF, Gas Natural Fenosa, Grupo Mexico and
and the machines we use there are certified as Class
Renovalia. We have also worked very closely with CFE
I by international bodies. We have the right machines
since it started acquiring wind turbines from us.
on the ground. We have a Class I 850kW machine and a 2MW machine with blades that are 80m in diameter.
Q: How attractive is the small and medium-size wind
We also recently installed a Class I turbine but with
project market for Gamesa?
blades of 87m in diameter. We have to understand the
A: Projects that fall under the small power producer
conditions, including turbulence, mountainous terrain,
scheme are part of our portfolio. For example, we are
warm environments as well as cold climates, where
working on a 2MW wind farm for a municipality in Sonora,
ice can form on the blades. There are always certain
which might be expanded to 6MW at a later stage. The
aggressive environmental conditions that we have
issue with small wind farms is their financing capacity.
to adapt to. The Isthmus of Tehuantepec has seismic
One way of supporting them is to pass regulation wherein
conditions over sandy terrain as well as the risk of
another entity, such as the state government, throws its
flooding. It is simply a matter of engineering while
support behind such projects. This does not change the
using a design that is adequate for the conditions
fact that small power producers need the involvement and
presented. You can construct buildings that shake
backing of a third party for financial institutions to approve
and do not crumble during an earthquake. We are
the financing.
using similar technologies. If you do not take these issues into account, the project will fail.
Q: What is the main impact that the secondary laws will have on the Mexican energy sector?
Since all wind turbine manufacturers use the same
A: This depends on how the secondary laws will settle
methodology, the company with the machines that
certain issues, such as how wind energy will be billed, how
can provide the most megawatt hours for the right
contracts will be structured, how tenders will proceed, and
price will win. It is always about the combination of
the future of the self-supply scheme. All of these issues will
production and price. The particularity here is that
be clarified in the secondary laws. CFE’s role will also be
the open season for bidding and project proposals
clearly defined, which will bring further development. The
closes. Six years ago, 2,500MW were being solicited.
target to produce 35% of Mexico’s electricity from clean
There has been a long development period while CFE
sources by 2024 is very ambitious, but it can be reached if
installed all of the transmission lines from the Isthmus
a sturdy legal framework is achieved through the secondary
de Tehuantepec to the center of the country. Hopefully,
laws. Mexico is a very attractive country for foreign
with the end of the Open Season, our colleagues will
investment in different sectors, including renewable energy.
see their projects up and running, and 2,500MW will
In order for projects to become a reality, three elements
come online.
need to be working in sync: resources, grid, and regulation. Mexico is developing its grid infrastructure, resources are
Jesús Zaldua Lasa,
available, so the only thing missing is regulation.
Former Chairman of Gamesa Energía Latin America
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| VIEW FROM THE TOP
PIONEERING COMMITMENT TO MEXICAN WIND ENERGY ADRIAN KATZEW CORENSTEIN General Manager Mexico, Central America and Caribbean of Vestas
Q: How did Vestas reach such a dominant position within
creating larger rotors and then gradually introducing larger
the global wind industry?
generators. This is important as knowing what type of rotors
A: We have always led the industry because we gave rise
will be available in the next few years helps us plan ahead in
to the industry. We have always designed our own core
different areas of the country.
technology, and have the largest fleet of wind turbines in operation. We use our advantageous position to predict
I was particularly interested in participating in this research
the market while investing heavily in our manufacturing
because people were asking the wrong questions. Prior
capacity. Vestas has taken decisive steps, changing its
to this, it was common to hear stakeholders talking about
vision from focusing on developed markets to focusing
Mexico’s wind power potential in GW. This question is
on emerging markets such as Latin America. We have a
pointless because it does not involve generation costs.
meaningful presence in Mexico, where we cover activities
When we published the results of our own research,
for local execution across the value chain. Our local
including a graph of the supply curve that clearly
office takes care of equipment transportation as well as
demonstrates that the available amount of wind power
replacements and components, through our Mexican
depends on the amount of capital invested. This is also
service and maintenance team. We have managed to
the case for possible off-takers and available self-supply
become a local company and becoming local in emerging
projects. There are many off-takers who have great credit
markets is part of our global strategy.
options but variable tariffs. Companies like FEMSA and WalMart have retail mid-voltage tariffs, which make projects
Q: How does Mexico’s investment environment compare
more attractive. This phenomenon will grow over time as
to other emerging markets in Latin America?
technology becomes more competitive. By 2017, many
A: Mexico is more attractive than other emerging markets
industrial off-takers will be viable for self-consumption. In
in macro-economic terms, mainly due to the lower financial
addition, there is a pool of potential off-takers in the public
risk it presents. The country struggled with the financial
lighting system, the water pumping system, and others
crisis before the rest of the world but cleaned up its act
which have not been extensively explored.
much earlier too. Looking at credit ratings and liquidity in the banking system, it is possible to find better credit for
Q: How much of the development of a local supply chain
projects in Mexican pesos than in US dollars. In addition,
will be driven by industry leaders such as Vestas as
the unlocking of the pension system in Mexico is opening
opposed to the government?
several opportunities for the energy and infrastructure
A: The industry is very committed to making this happen.
sectors. There is a lot of capital available right now and
When these markets are born and are explored by
the economy keeps on growing, therefore it makes sense
developers, there is an evolution towards visibility and
to invest in energy in Mexico, even when it does not make
risk-taking. Usually, these pioneers demand a regulatory
sense to do so in other markets.
framework within two to three years. This helps the market get started. However, these timeframes change for
130
Q: What would be required to create the critical mass
investments in manufacturing. Once developers manage to
needed to sustain the development of the wind sector
open up a market, manufacturers appear and this creates
and secure its steady growth for the future?
political expectations. When the Mexican government
The idea behind SENER’s latest study on Mexico’s wind
and market show the foresight to create a long-term
power potential came from a previous experience within
regulatory mechanism, the industry will begin investing
the European photovoltaic industry. For wind power, we
as it will acknowledge the need to protect the regulatory
can foresee a number of technological innovations that will
framework. In short, authorities should procure wind power
continue to drop its costs. This is a fixed trend but challenges
and specify the type of mechanisms or contracts that will
remain. We need to overcome the technical challenge of
allow the industry to grow.
TURBINE PIONEERS LOBBYING FOR CONTINUED SUCCESS Potencia
Industrial
is
not new to technology development,
as
products, an essential factor when selling to the demanding markets of the US and Canada.
it
came up with the first
To prepare for future challenges, Potencia Industrial operates
direct-drive
one of the only two laboratories for high voltage efficiency
magnet
permanent
generator
wind
testing in Mexico, the other one belonging to CFE. “We have
turbine in the world, a
invested heavily in testing facilities and engineering that
5kW
the
enable us to develop technology that would generally require
Carlos Gottfried Joy,
company patented in 1975.
more time and money from a larger company,” says Gottfried
President of Potencia Industrial
Aiming to make renewable
Blackmore.
machine
that
Other
technological
achievements
in
the
energy a practical reality,
company’s portfolio include the development of frequency
the company moved on to design and build 550kW
converters for aircraft docking terminals in American
induction and 750kW doubly fed wound rotor generators
airports. Despite the development of new technologies and
for companies like Enron in the 1990s. During Mexico’s
its testing laboratory, Gottfried Joy does not feel the Mexican
economic crisis of that decade, Potencia Industrial shifted
energy market presents the right conditions to justify the
its manufacturing model as part of a survival strategy.
development of a domestic value chain. “We do have the US
The company went from building industrial motors
market next door, but that market stops and starts and does
and generators to machines for the renewable energy
not require or incentivize permanent operations in Mexico,”
industry. New activities included making generators for
explains Gottfried Joy. “However, there are a few strong
small hydroelectric projects. “These are highly efficient
suppliers here in Mexico, such as Trinity Industries that has
generators with variable speed applications, which happen
plants in Texas and Ireland.” He explains that Mexico has the
to be the perfect match for wind generators,” states Carlos
capacity to manufacture wind turbines but actually doing so
Gottfried Joy, President of Potencia Industrial. The main
would require clear objectives. “It would make more sense
client of the company over the years has been Clipper
for such products to be manufactured in Mexico and sold to
Windpower, which acquired 3,500 generators with total
the US. But the US has encouraged an increase in domestic
capacity of 2,700MW.
manufacturing, so this has become more difficult.”
As a member of AMDEE, one of Potencia Industrial’s
However, Gottfried Joy believes that Mexico’s manufacturing
responsibilities
the
potential could supply American and Canadian factories, if
government about renewable energy. “As an industry,
is
maintaining
a
dialogue
with
assembly processes were brought back to the country and
we are now more institutional in terms of lobbying. The
if idle industrial potential was properly utilized. Potencia
country has very clear renewable energy targets for 2024,
Industrial would be ready to act if such a situation arose.
but the steps that must be taken to reach these targets
“If there are going to be turbines made in Mexico, we want
have not been clearly defined,” explains Pablo Gottfried
Potencia Industrial to supply the generators. Most turbine
Blackmore, Director General at Fuerza Eólica, a company
manufacturers like us have vertically integrated and are now
belonging to Potencia Industrial. “The government and
making their own generators.”
private sector have to reach agreements on infrastructure and transmission in order for investment to grow in the
The state of Mexican manufacturing can also be seen in
sector. Wind energy has proven itself by producing power
the challenges Potencia Industrial faces to keep its market
at prices that can compete with coal or hydropower
position. Gottfried Joy says that a ten-year head start in
without the need for subsidies,” says Gottfried Joy. The
R&D has given the firm several advantages. However, he
technological developments that have increased the
adds that “Potencia Industrial’s Mexican competition is
wind energy sector’s competitiveness, made it more
fading when compared to international manufacturers.
challenging for Potencia Industrial to find suitable turbine
This situation encourages the company to reinvest
manufacturers to partner with. Eventually, Spanish firm
significant resources in research and development, such
Made designed a turbine for the strong winds in Oaxaca.
as sophisticated software for designing electric rotating
The company, later acquired by Gamesa, installed the first
machines.” But whatever direction the market might take,
utility-scale wind farm in Mexico with modern turbines.
Gottfried Joy is confident the 60-year-old firm’s quality
This also allowed Potencia Industrial to bring another of
products will see it through. “We want to help Mexico
its products into play, high efficiency permanent-magnet
make a decisive move towards renewable energy and we
generators. High efficiency is at the core of the company’s
are waging on that happening,” he concludes.
131
132
| WIND SPOTLIGHT
LA VENTA III Just two months before leaving office, former President Felipe Calderón inaugurated La Venta III, Iberdrola’s third wind farm in Mexico. Located in the Isthmus of Tehuantepec, the wind farm has a total installed capacity of 102MW and an estimated annual production of 255GWh. It is comprised by 121 Gamesa G52 850kW wind turbines. Under the independent power producer scheme, Iberdrola signed a power purchase agreement to sell the energy to CFE for the next 20 years. Iberdrola also operates two additional wind farms in Mexico: La Ventosa (102MW) and Bii Nee Stipa (26MW). La Ventosa’s capacity was increased from 80MW to 102MW in an extension that was finished in January 2014, which saw 11 new wind turbines erected, alongside new transmission lines. This means that Iberdrola’s oldest wind farm in Mexico can now supply electricity to over 190,000 Mexican households and avoid some 230,000 tonnes of CO2 emissions each year. In January 2014, the firm announced a major new wind farm in Esperanza, Puebla. With an estimated investment of US$120 million, the first phase will involve 35 turbines with a combined capacity of 65MW. Eventually, this wind farm is expected to reach a total installed capacity of 362MW, vastly increasing Iberdrola’s current installed capacity of 230MW. Iberdrola’s Mexican presence stretches well beyond the wind indsutry as the firm stands as the largest private power generator in the country, and second overall behind CFE. It already has six combined cycle power plants in Mexico, representing a total installed capacity of 5,287MW. This sector of its operations also looks set to keep growing as in January 2014, Iberdrola won a US$270 million contract to build the Baja California III 300MW gasfired power plant, with CFE as the off-taker under a 25-year power purchase agreement. This expansion is linked to a US$3.2 billion investment plan Iberdrola has announced will be rolled out across Latin America from 2012 to 2014, with Mexico and Brazil as its two anchors.
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| VIEW FROM THE TOP
HYBRID PROJECTS COULD BECOME MAINSTAY IN ENERGY LANDSCAPE HÉCTOR MARTÍNEZ VIVAS CEO & Managing Director of Next Energy Q: Why did you select GE as your partner for the
Q: What are the projects in the pipeline to build additional
development of the first wind farm in Nuevo Leon?
renewable energy capacity?
A: The 22MW Santa Catarina wind farm, which will provide
A: Next Energy is currently seeking to build the Santa
energy to seven municipalities in the Monterrey area,
Catarina II wind farm and we are in negotiation to use land
was not only the first wind farm in Nuevo Leon but also
in Corcel de Piedra, Nuevo Leon. The company’s strategic
marked the entry of GE into the Mexican wind industry.
vision is to diversify by having wind farms in several states.
The technology offered by GE was one of the major selling
We are now working on wind projects in Durango and San
points for the partnership, as its equipment was 30%
Luis Potosi as well as geothermal facilities in Baja California.
cheaper than what Vestas was offering, for example. GE
Our El Durangueño project in Durango will be a hybrid
has a huge wind operation in Texas, which has a spectacular
project, combining wind and solar, with a total capacity of
availability of 99.7%. We signed a 5-year contract to get a
150MW. The Next Energy team also plans on constructing
minimum availability of 97.5% at Santa Catarina, which is
a 15MW geothermal facility in Baja California to which we
a very good availability percentage for our project. When
will add 10MW of solar power. Construction began on this
compared on initial purchasing cost alone, GE turbines
project in 2013, and technical feasibility requirements have
are not the cheapest option in the market. However, it
been sent to CFE for the interconnection of 25MW.
is essential to take into account other issues that occur after the commercial operations date (COD). The most
Q: How important could your larger hybrid project in
important issue after COD is the availability factor, and GE’s
Durango be to inspire others to follow suit?
exceptional availability factor means that a developer can
A: It is very important to optimize the use of land as land
compensate for the initial price of GE turbines by knowing
owners want to maximize their income. In the case of El
they will pay off this difference in less than five years.
Durangueño, we decided to include a solar plant to make
WIND INDUSTRY DRIVES CRANE DEMAND Auriga,
a
company
operating
in
strong background serving a number of industries, allowing
City,
it to best identify the technologies needed by developers,
Villahermosa,
has
purchasing machinery such as a 600-tonne capacity crane
carved a niche for itself by
commonly used to erect wind turbines. “We also bought a
providing
transportation
specialized truck for the transportation of wind turbines,
and crane leasing services,
which offers the added advantage of a narrower crawler
as well as selling heavy
track. This feature allows easier access to the wind farm, as
machinery, to renewable
this truck does not need the wide roads that a crane would,”
energy project developers.
Pérez-Gil explains. “Auriga’s engineering department
“Our equipment’s capacity
makes use of specialized software to plan out all technical
ranges from 15 to 800 tonnes, and we also provide
maneuvers in detail, prior to carrying them out. Coupled
specialized transport,” said Ricardo Pérez-Gil, Director
with its focus on renewing equipment, this pre-planned
General of Auriga, explaining that the company has recently
approach helps to ensure optimal performance and safety
focused its business on the wind sector. Five years ago,
conditions for the machinery. They are equipped with the
Auriga sensed a need for high capacity cranes in the wind
latest technologies, such as anemometers which measure
power industry and made a large investment in the sector,
wind speed and stop the machines if they detect winds
including renewing and updating its equipment portfolio.
that are too strong for safe operation,” Pérez-Gil explains.
Ricardo Pérez-Gil, Director General of Auriga
134
Prior to branching out into the wind sector, Auriga had a
Mexico
Queretaro, and
Mexican
use of those parts of the wind farm’s layout that were not
100MW. After that, investors can move in and construction
being used. This solution convinced the landowners to
gets under way. For geothermal, the same process costs
sign the land lease agreement. The wind farm started with
approximately US$4-5 million, without the same guarantees
120MW, but we then added 30MW as a solar project. The
being in place. After spending that money, the findings
best kind of business is created when all parties involved
might be disappointing, effectively meaning that money has
are winning, as they are in this case.
been wasted. This risk level is hampering the development of geothermal. However, if you do hit the right spot after
Next Energy is setting the example on how to be successful
that big investment and a geothermal project becomes
with hybrid projects, which will encourage other companies
feasible, the potential is phenomenal as geothermal plants
to develop them. But such projects do face certain
have capacity rates of between 90% and 95%. For example,
restrictions. For example, our El Durangueño plant can
three different locations have already been explored for our
assign the energy produced by its wind farm to off-takers,
Baja California geothermal project. The presence of energy
but the same is not true for the solar plant. It is important
sources was confirmed in October 2013. This was crucial as
to consider the difference in Mexican legislation here. As the
it allowed us to prove the viability of our project to potential
wind farm was built under the self-supply scheme model,
investors. Before that happened, Next Energy invested
we can assign its energy to the off-taker. On the other hand,
a lot of its own capital into demonstrating that it had an
the solar plant was built under the small power producer
important geothermal site.
scheme, capping its potential at 30MW. The produced energy will be going to CFE, and we are in negotiations to
Q: What are the development ambitions of Next Energy
sign a PPA with the utility. If we did not have this restriction,
for the coming years?
we could have built a solar farm with a capacity of 50MW,
A: Next Energy will definitely focus on large-scale projects
as we have an excellent location for both solar and wind.
in the future. For wind and solar, the company has overcome the learning curve and knows how to carry out business
Q: Why has the private sector showed limited interest in
development for different capacity plants. Our pipeline of
developing geothermal projects in Mexico?
projects should allow us to have 1.2GW installed by 2019.
A: Mexico has fantastic geothermal resources but the risks
This is likely to be an 80-15 split between wind and solar, with
are simply too high for companies to be willing to invest.
geothermal making up the rest. If we can succeed with the
To take a wind farm from its pre-feasibility phase to its
geothermal project in Baja California, we will replicate this
feasibility stage costs around US$1 million for a capacity of
model in other states, such as Aguascalientes and Michoacan.
Pérez-Gil also insists that the machinery component of
energy industry are also barriers to growth for Auriga itself,
Auriga is complemented by a strong focus on developing
with social problems being chief among them. “They are our
the human side of the business through training and
clients’ problems,” said Pérez-Gil, “but they extend to us as we
retaining staff. “Many employees have been with us for 20
face problems in terms of coordinating logistics. For example,
years and are constantly receiving training,” says Pérez-
members of ejidos and other communities have their hair
Gil. “Our cranes supplier also provides us with specialized
stand on end when they see a big piece of machinery arrive.”
training, which we pass on to operators and laborers.”
In addition, he explains that the procedures imposed by the
Auriga’s commitment to safety and security has helped it
government have also stifled industry growth. “Regulation
to build and maintain power plants across the country. In
about the construction of wind farms is not well defined,
2013, the company finished work on the construction of a
which ultimately costs us, in terms of time and money. Some
combined cycle power plant for Grupo Mexico. But a more
projects get furloughed or suffer major modifications due to
common task for Auriga is to assist with plant maintenance
regulatory factors,” he said.
for companies such as Siemens, Iberdrola and Mitsubishi. Auriga’s positive streak in the wind sector has given the “We have worked on eight wind farms,” said Pérez-Gil.
company confidence that continued investment in this arm
“Several Spanish companies have hired us for transportation
of the business will pay off in the end. “We have refrained
of equipment, usually from Veracruz or Mexico to Oaxaca.
from committing equipment to other large scale construction
We hauled and installed towers for leaders in the sector,
projects in expectation of a wind farm boom,” Pérez-Gil
such as Gamesa, Acciona, Iberdrola, Vestas, and Siemens,”
shares. “When this boom arrives, Mexico will need many
he adds. Yet the challenges that threaten the growing wind
more cranes than the country currently has available.”
135
WELL-PLANNED PROJECTS MAY SURPASS LARGER COMPETITORS Most wind power projects in Mexico are developed by
will be challenging for the government to meet its target of
large global companies from Spain, Germany, or the
having 12GW of installed wind capacity by 2020.
United States. Zapoteca de Energía, on the other hand, is
136
a development of the Mexican conglomerate Grupomar as
Zapoteca de Energía has carved itself a niche in the small-
part of its efforts to diversify its assets and investments in
scale energy production market. The company does
renewable energies. At a time when many wind companies
not wish to limit itself to any particular combination of
are turning their attention away from Oaxaca to other
renewable energy sources, as its objective is to develop
states, Zapoteca de Energía is proud that its flagship
as many renewable projects as possible, based on costs
project, a 70MW wind farm in Juchitan, has contributed
and feasibility. “There is a lot of contradictory information
to the rise of Oaxaca. Zapoteca de Energía’s Executive
surrounding renewables which drives how companies invest.
Director, Adrián Escofet Cedeño, admits that Oaxaca has
Many companies prefer wind because they think hydro is
had problems, but disagrees the state is losing its shine
too complicated. Others prefer hydro because they see it as
for the wind sector. “Setting up wind plants there is
easier to manage. We try to choose the best possibilities in
complicated, it requires a big effort in terms of money and
order to maximize our return on investment and flexibility to
time, but it is achievable. The proof lies in the 2GW of wind
present an optimal power offer to our potential off-takers,”
power operating in Oaxaca,” says Escofet Cedeño.
explains Escofet Cedeño.
Grupomar invested in this wind farm to generate power for its
Zapoteca de Energia is planning exponential growth
own plants, but external off-takers were also sought. Escofet
by 2020, and the goal is to expand far beyond Oaxaca.
Cedeño says the search for off-takers involved Zapoteca
Zapoteca de Energía’s most important projects are located
de Energía approaching different types of companies than
in Oaxaca, Tamaulipas, and Nuevo Leon, and experts
some of their competitors. “We have to compete in an open
are currently analyzing sites in the north of Mexico for
market. Everybody looks for the sophisticated, globalized
their next endeavor. Zapoteca de Energía believes the
companies but these are almost booked up already. This
renewable energy sector will offer many opportunities and
means there is a large and virtually unexplored market
is the third sector in which Grupomar wishes to become an
in Mexico among smaller companies, who have energy
important player. Zapoteca de Energía wants to become
demands ranging between 5MW and 15MW. Electricity is an
a significant player without growing too much in order to
important part of their costs and they are keen to discover
avoid having to compete with the largest companies in the
how they can diminish this part of their production costs.
industry. “Our goal is to have a fair share of the market
Since our wind farm is not that big at 70MW, it gives us the
with projects that are not necessarily big but are very well-
flexibility of working with lower-demand type of clients,”
planned, have flexibility, strong optimization capabilities,
explains Escofet Cedeño. Additionally, he points out that
and offer benefits for off-takers,” Escofet Cedeño points
with the Energy Reform giving chances to small producers,
out. Larger companies have specific goals measured in
more projects on a smaller scale are likely to emerge. He
megawatts, but Zapoteca de Energía’s model allows for
adds that without their contribution in the wind energy, it
more time given to meticulous planning.
SMALL STEPS TOWARD SECURING NATIONAL PRESENCE Four years ago, Mase Energy first entered the renewable
According to Martínez, Mexico has done a good job in
energy sector with a bioenergy project in Chiapas. The
promoting technological development, but the widespread
endeavor was not well received due to its use of jatropha
implementation of this technology needs public and private
seeds amid land use restrictions. The company changed
sectors to collaborate. However, the private sector appears
its focus to wind energy and began scouting properties
to continue being very skeptical of the public sector, he
in Oaxaca. After shutting the project down, the company
believes. “The government has many support programs
returned to Chiapas only to run into a number of difficulties
and funds that are regrettably difficult to access,” says
with CFE’s grid. Additionally, the company had to earn the
Martínez. “The private sector needs tax incentives to be
trust of the industry’s big players who were distrustful of yet
attracted to invest in renewable energies and to develop
another new enterprise trying to muscle in on the market. Its
domestic technologies,” Martínez says. As such, he is
first project is being built in San Luis Potosi, with construction
concerned about the correct allocation of public funding.
having begun in 2013 after three years of development. Two
“Frequently, this money ends up in the hands of companies
more wind farms are being planned for 2014.
that may not have the technical expertise or knowledge
“There are great opportunities for growth here but the government has to further the reforms and create the right conditions for investment” Sergio Martínez, CEO of Mase Energy
Mase Energy is betting that being a local Mexican firm that
to actually develop anything concrete. This happens when
knows the Mexican market and business practices will help
the person in charge of allocating the funds is not familiar
it get ahead. As Sergio Martínez, the company’s CEO says,
with the renewable energy sector.”
having a small, efficient and detail-oriented ally that pays close attention to details can increase any given project’s
Mase Energy may be dedicated to the wind sector today, but
return rate. “There are highly qualified people in big
it has not forgotten its roots in biofuels. A major challenge
public companies but their interests are usually different
it faces in being unable to pursue this line of business is
from those of smaller players,” says Martínez. In the case
the lack of inputs to produce biofuels. The government
of Mase Energy, being a smaller, non-public company is
promoted the farming of jatropha plants to create biofuels
about focusing on the development of the project and
and collect the used oil, but this initiative did not yield the
on benefits to the communities and to society at large.
expected results. “The much needed raw materials are
Mase Energy has developed alliances with large European
considered waste and agricultural communities are not
companies. However, the Mexican firm must secure a
aware of the best jatropha farming methods,” explains
majority participation in the projects to guarantee quality
Martínez. “The Mexican government has to cooperate with
service and continue building trusting relationships with its
the private sector to inform and educate people about
clients.
these practices. Mexico has powerful winds, high solar radiation, and potential geothermal resources. There are
The players in Mexico’s renewable energy sector are
great opportunities for growth here but the government
changing. A few years back, building a 200MW or 300MW
has to further the reforms and create the right conditions
project was not impossible due to the availability of suitable
for investment. This is the perfect moment to start working
wind resources in Oaxaca. These conditions attracted
in Mexico. If any foreign or Mexican company is interested,
big companies like Iberdrola, Acciona, or Gamesa, who
now is the time to enter the market,” states Martínez.
came to Mexico with capital and expertise to spare. Their Mexican counterparts, such as Mase Energy, could not
During the next five years, Mase Energy expects to develop
possibly compete at first. They had to start small and
at least five more projects in the wind industry and,
acquire experience thanks to a project by project learning
hopefully, enter the cogeneration market as well. These
curve. “We want to learn by taking small steps according to
projects will help Mase Energy reach its objective: to be
our capabilities in order to continue building smaller scale
well-known for generating a large amount of megawatts in
wind farms,” tells Martínez.
and for its homeland.
137
| VIEW FROM THE TOP
NEW PLAYER WITH WEALTH OF EXPERIENCE BENIGNO VILLARREAL DEL RÍO Director General of Vive Energía
Q: How do you leverage the experience of your team while
projects at a P90 level, which means 90% probability
being a young company?
that the foreseen capacity factor will be reached. At Vive
Vive Energía is a new company but our executives
Energía we have a wealth of experience in securing project
and management team have led the teams of diverse
financing. This is one of the most common problems in the
companies and organizations that participated in nearly
Mexican market, as many developers lack knowledge about
60% of Mexico’s current installed wind capacity. We are
how to make a project bankable.
currently developing nearly 800MW across eight different projects: two wind projects in Yucatan, two in Guanajuato,
Q: What would happen if you fail to deliver the amount of
one in the State of Mexico, two projects in Tamaulipas, and
energy that you agreed with your off-takers?
one solar project in Baja California Sur. The most advanced
A: Wind resources are evaluated in adherence to what we
project is in Yucatan, with 100% of the land rights
consider a viable technique. The wind resource is certified
secured, including those needed for the transmission
by an international company that is recognized by the
lines. We are currently getting the project approved by
banks, making it reliable or financeable. However, changes
the environmental agency. We are also working closely
in the natural wind resource occur year by year, and that
with our selected wind turbine manufacturer in order
directly affects the amount of available energy that can be
to establish the most efficient way of carrying out this
delivered to the off-takers. Our task is to provide energy
project, which shall be constructed in 2014.
at a discount, but we cannot give discounts for energy we do not provide. If the contracted energy is not delivered
Q: What are the critical success factors in a Mexican wind
to an off-taker due to our responsibility, then there will be
project, and at which stage do potential off-takers get
consequences for our company. However, if the problem
involved?
is due to lack of wind, then it is not our responsibility. We
A: After locating the optimal site, it is crucial that CFE allows
also have years in which the wind resource is above all
us to connect to the grid through a substation. Once the site
expectations and projections, in this scenario we either
and grid connection are confirmed, we start securing land
feed the grid with the excess energy or deliver it to an
rights. The off-takers come in parallel to the development
off-taker, as established in the applicable energy power
of our projects, thus the energy provided to them will
purchase agreement.
indistinctly come from different projects. When an off-taker
138
signs a contract with us, it is then defined which project
Q: Which role does Vive Energia aspire to play in the
will supply the energy. If an off-taker signs up late for a
development of the Mexican renewable energy sector?
particular project, he will be the first one on the list for the
Vive Energía will be constructing a 70MW wind energy
next project to become operational, which normally follows
project this year in the Yucatan Peninsula, which is the
after 14-16 months. Off-takers are eager to wait because
first of several projected for that region. Therefore, this
they are getting either an attractive flat rate or a discount
continued development effort and the proven track
on CFE tariffs without having to invest a single dollar. Also,
record of the Vive Energía team, have established us as
many things can go wrong in renewable energy projects.
the country’s leaders in efficient renewable and clean
Beyond failing to secure land rights correctly or not being
energy project development. The Energy Reform will
able to provide financial back up, the wind resource may
surely bring new and powerful players to the energy
not have been adequately measured if towers were not
sector in the following years, yet we believe to have the
correctly placed or set at the correct height, making the
capabilities to maintain this leadership position despite
information collected unreliable. It is important to carefully
the new challenging scenario, considering that the Vive
follow international procedures at every step of the way
Energía team already has the proven track record and the
as the information you collect defines the bankability of
credibility of the market, derived from years of experience
your project. Banks and lenders in general will only finance
of efficiently developing energy projects in Mexico.
| VIEW FROM THE TOP
AGGRESSIVE BUT CAREFUL GROWTH STRATEGY JOSÉ PABLO FERNÁNDEZ CEO of Grupo Dragón
Q: What were the motivations for Grupo Salinas to enter the
Q: What new technology is Grupo Dragón harnessing to
crowded renewable energy sector through Grupo Dragón?
make wind farms viable in areas which have lower wind
A: The original motivation was always the price of
capacity than Oaxaca?
energy, but it was also about doing something right for
A: In order to solve the problem of lower wind capacity
the environment and generations to come. At first, this
in certain areas, we are planning to combine different
venture began out of Grupo Salinas’ desire to secure a self-
renewable resources in hybrid projects to get better results.
supply scheme but we ended up seeing the opportunity to
For example, we will combine wind farms with PV solutions
create our own wind farm. That is how Grupo Dragón was
or biofuels. The precise way this will be done will depend
created. Since then, we have been constantly searching
on the region, as it is crucial to combine these resources
for new horizons and new technologies. We have always
properly to reap good profits. This is a very complicated
sought to adapt, while striking a balance between high-
process because of the amount of factors that enter into
tech knowhow and human capital. Grupo Dragón’s
the equation for hybrid projects. Many areas have to be
adaptation means it takes ideas from the international
reviewed, from finding the right blend of technology to
market and develops them in the context of Mexico and
involving the local communities.
its specific conditions. This involves an element of risk but it is impossible to achieve something if you do not take
Q: Grupo Dragón has stayed below the radar in expanding
risks. We are a Mexican company at heart, our staff is 95%
its business. What benefits has this discretion brought you?
Mexican. This means we understand the country’s context
A: Due to our corporate culture and the prevailing market
and the implications of getting a good project going.
conditions, discretion was the right strategy. It allowed us to take our time and pick our projects, rather than have
Q: What new opportunities will open up in the renewable
to be chosen by others. We are also able to choose our
energy sector following the Energy Reform?
partners, depending on the specifics of each project
A: The Energy Reform is only the beginning of the
we tackle, which enables us to minimize the total cost
reform process. We will have to work together with the
of ownership and keep the door open to any kind of
government on the secondary laws, as the private sector
technology, companies, and suppliers.
has to be more proactive. The door is now open for private firms to be involved after having been closed for 75 years.
Q: What is the typical profile of off-taker that you are
Eventually, no single type of renewable energy is going to
looking for?
win over the others. In 2014, our projects will expand to
A: Every consumer of energy is a potential client, from
seven geothermal projects, four wind projects, two solar
municipalities and AAA companies to ordinary consumers.
projects and our first biofuel project.
The difference between Grupo Dragón and other companies is that we do not differentiate between consumers; we take
Each year, we reassess our priorities and the advantages
on a wider variety of off-takers than most developers.
and disadvantages of every energy source. For example, we chose to develop geothermal energy given Mexico’s
Q: What is your growth strategy over the next five years?
potential. In five years, geothermal might be bigger than
A: Grupo Dragón’s strategy is to have very aggressive
wind in Mexico, but we first need to reach a point where
growth, we aim to install 400-500MW of new capacity in
private companies are submitting enough proposals to the
the next five years. However, it is difficult to give precise
government and where sufficient investment is flowing
estimates as we do not know what will happen in the Mexican
into the sector. We must consider that geothermal energy
renewable energy market in the years ahead. Grupo Salinas
is very expensive to exploit, which is stopping it from
is not afraid to take risks but Mexico needs to solve a lot of
becoming a major source of renewable energy for the
things as a country first. There is too much uncertainty out
moment.
there, but we will do our best to keep growing.
139
140
REGIONAL EXPERIENCE FOR MEXICAN WIND PROJECTS The Global Wind Energy
projects,” Gallegos mentions. “Moreover, when we finish
Council
construction of our current projects in Costa Rica, we will
2012,
Jay Gallegos, Managing Director of Globeleq Mesoamerica Energy
reports
only
that,
1.2%
of
in the
world’s
installed
wind
power
capacity
have 343MW of installed capacity in the region.”
was
“Central America’s energy market totals about 11GW.
located in Latin America or
There are only a finite number of wind projects that can
the Caribbean. This figure
be developed and their progress has been slow,” Gallegos
contrasts with this region’s
admits. At the same time, many other Latin American
great potential for wind
countries have considerable untapped potential for wind
energy
and
power generation. In 2010, Globeleq decided to acquire a
generation
growing energy demand.
majority share in Mesoamerica Energy as a platform to enter
However, a few countries are spearheading the development
new markets within Latin America. Mexico is now one of the
of the wind industry across the continent. Among these, Brazil
major focus areas for Globeleq Mesoamerica Energy. “We
stood out as the source of 71.6% of the region’s total output of
have a mandate to increase our presence in Mexico,” Gallegos
wind energy in 2012. There is also an unlikely laureate in this
says. “We have identified almost 1GW of opportunities and
list: Costa Rica, which has an installed capacity of 147MW of
we are trying to choose projects where we can add value. We
wind power as of 2012, making it the third-highest producing
want to invest as much as US$500 million of equity in Mexico
country in Latin America and the Caribbean. This production
over the next seven or eight years,” he asserts.
level puts Costa Rica only 20MW behind Argentina, and well ahead of much bigger economies such as Chile, Mexico,
In Mexico, the company wishes to step in to help projects
Venezuela and Colombia.
that have already achieved certain development milestones, taking them through EPC contract negotiations, financing,
Costa Rica is in fact the cradle of Latin America’s first wind
construction and operations. “Mexico has a lot of projects
project. Almost 20 years ago, Jay Gallegos led this project
at the development stage, as many companies have set up
and built up a successful company as a result. Now, he is CEO
meteorological towers to measure the wind resource, signed
of Globeleq Mesoamerica Energy, a division of Globeleq, an
land agreements, and have advanced in the permitting
experienced developer of energy solutions with projects in
processes. But many development companies may not have
the emerging markets of Africa and the Americas. “A key
the resources and expertise to take their project through
consideration in choosing Costa Rica as the location for
to commercial operation,” Gallegos points out. “We like to
Latin America’s first wind farm was the fact that the windy
get involved at this point as our forte is the negotiation of
season in Central America is opposite to the rainy season,”
construction contracts, the procurement of the equipment,
Gallegos explains. “These countries can generate much
upgrading environmental impact studies, designing the
of their energy needs from hydropower during the rainy
social support program, managing construction, and
season, and use wind in the periods of little to no rain.”
ultimately handling the operations.” Gallegos also perceives attractive conditions and levels of access to credit for
Additionally, Gallegos identified an immediate need for
investments in Mexico. “Banks here have a far greater
alternatives to oil in this region. “Central America has
capacity to fund projects than in Central America. One
no commercially viable oil resources, or at least none
drawback is local currency volatility, and that is something
that are currently being exploited. The resulting import
we need to take into account in our commitments to EPC
dependency leads to huge currency drains. In some
contractors, off-takers and equity shareholders. We are
developing countries, up to 10% of GDP is destined to the
working on creative mechanisms to finance projects to
payment of hydrocarbon imports. Although Costa Rica
consolidate investment,” he mentions.
was not the country in the region which could benefit the most from wind power, it was the region’s most stable
Ultimately,
investment destination at the time,” he states. Globeleq
projects that already have or are just about to complete
is now an important energy generator for various Latin
environmental studies, where land rights have been
American countries. Besides having a deep penetration in
secured, and where enough wind measurements have
the Costa Rican market, the company currently produces
been made to push through to commercial operation.
7% of total energy consumption in both Nicaragua and
“We believe this is the moment at which we can supply
Honduras. “We are on track to become the source of 10% of
something many projects lack: the capital and experience
energy consumption in these two countries with expansion
to bring these projects to completion,” Gallegos affirms.
Globeleq
intends
to
help
wind
power
141
ADAPTABILITY KEY TO SURVIVAL The ability to adapt is key to survival. German firm SoWiTec
involved parties in the right mindset. The northern part
has exemplified this as it has entered and opened markets
of the country, however, has proved to be a great place
across the globe. After establishing a strong presence in
to develop projects. Land conditions vary according to
Brazil, Peru, Uruguay, and Argentina, the company opened
region. “The south mostly consists of ejidos and small
its Mexican chapter. Combining this multinational expertise
properties, while in the north it is easy to find private land
and taking advantage of the local talent pool has proven to
owners with 10,000 hectares of property. While in Oaxaca
be a competitive asset to aid the firm’s success. The price
you might find a suitable area that has over 1,000 owners,
of setting up a large wind park in Germany is very high,
in Monterrey we usually deal with one or two proprietors.
explains Alejandro Robles, General Director of SoWiTec’s
The social risks are different,” says Robles.
Mexican subsidiary. The comparatively modest price of setting up parks in Latin America has given the region an
With 5GW currently under development, SoWiTec’s
important place in SoWiTec’s expansion plans. Its strategy
projects include a joint venture with Grupo Santander
for the Mexican market revolves around developing projects
for an 850MW development and an additional 800MW
with the technical and engineering aspects being handled
with Enel, which was hired to start the construction of a
by the German office. However, taking full advantage of
project in San Luis Potosi. The company is well diversified
local professionals is crucial for navigating the market.
and strives to develop as much as possible in Mexico.
“Because of CFE’s control over the power industry, it is
Regarding the firm’s partnerships, Grupo Santander was
hard to come across professionals specialized in renewable
looking to develop projects outside Oaxaca within two
energy,” explains Robles. “We find it more feasible to invite
to three years. SoWiTec happened to have several such
young talent to come on board and then teach them about
projects in the north of Coahuila, Monterrey, and San Luis
renewable energy.”
Potosi, which the banking group found quite appealing.
“While in Oaxaca you might find a suitable area that has over 1000 owners, in Monterrey we usually deal with one or two proprietors. The social risks are different” Alejandro Robles Hüe, Director General of SoWiTec
SoWiTec is currently scouring Mexico for suitable wind farm
Being associated with giants like Grupo Santander and Enel
sites that combine a good wind resource with access to
has allowed SoWiTec to gain attention from prospective
grid interconnection. To help weed out unsuitable locations,
investors. These partnerships showcase the mutual benefit
SoWiTec uses the rule that 115kW grid infrastructure and
each party draws from them. The Italian and Spanish
substations must be located within a distance of 1km for
giants needed external help to develop local projects
every 3MW of potential installed capacity of the wind site
while SoWiTec benefits from its partners’ negotiating and
that is being evaluated. The first step is looking for favorable
financial abilities. Other alliances were struck with turbine
interconnecting conditions followed by seeking areas with
manufacturers. For this, track records are important
the least constraining environmental restrictions. SoWiTec
beyond a manufacturer’s number of installed turbines. The
sees the Mexican grid as much better than the available
German firm needs to assure that a supplier is capable of
infrastructure in some other countries where it operates.
installing a turnkey project in Mexico. “Handling EPC in Mexico is no easy task; we need to know they can build
The firm avoided competing for resources against other
the wind farm. Our main criterion is to ensure profitability,”
companies by keeping away from crowded hotspots, such
explains Robles. When it comes to wind turbines, the
as Oaxaca, Tamaulipas, and Baja California. Besides land
company has to enforce these standards in order to keep
availability, SoWiTec found several advantages in working
developments cost-effective.
outside Oaxaca. For instance, the company deals mainly
142
with private landowners and avoids the problems that
In terms of precise plans, SoWiTec is seeking to develop
often crop up when approaching ejidos. Getting to know
2GW by 2017 in the country. “We expect to have at
the stakeholders, involving them in the projects, and
least 1GW up and running by 2016,” says Robles when
establishing mutually beneficial payment mechanisms
emphasizing the importance of working faster than the
also guarantee the operability of the endeavors. As
competition and having strong allies on EPC, financing and
Robles explains, it is about getting landowners and other
supplies to ensure on-time project delivery and credibility.
| VIEW FROM THE TOP
ENVISIONING THE MEXICAN WIND POWER SECTOR FROM A GLOBAL PERSPECTIVE DANIEL PARDO Mexico Country Manager of GL Garrad Hassan Q: What did GL Garrad Hassan find attractive about the
farm, including aspects such as turbine design or providing
Mexican wind market?
assessment on the strategy that any given company,
A: Before establishing our Mexican office, most activities
government, or NGO should follow to reach its objectives
involving this country were done through our Spanish
in the renewable market. The industry has a lot of hard work
headquarters in Zaragoza. Our clients needed energy
to do to earn trust from lenders, investors, and developers.
assessments, wind measurement campaigns and due
We are committed to making the industry trustworthy
diligence, among other services. This growing demand
through the expertise we have gained by working around the
and the number of projects we had in Mexico made us
world. People must feel assured that the technical aspects
realize that we needed to open a regional office to offer
have been covered properly, step by step. When you have
our clients better services and strengthen our local
someone who knows what needs to be done, you can be
presence. Mexico is a good place for investment because
certain that you are going in the right direction.
the regulatory framework regarding wind energy is solid in comparison to countries like the US or Spain. The growing
Q: What are your expectations for the development of the
demand for energy and the local electricity costs make
Mexican supply chain in the coming years?
Mexico appealing for international players to invest. This is
A: It would be great to see a supply chain that grows
the reason we are actually seeing capital coming into the
alongside Mexico’s wind power capacity. If we have specific
wind industry and related projects in Mexico, which is the
installed capacity objectives, investors will be able to see
second largest wind power market in Latin America. We
long-term and make decisions based on the expected
share AMDEE’s expectation of installing between 1-1.5GW
future investments. This is related to the wind industry
of new wind energy capacity per year until 2020. We are
supply chain because investors would have certainty on
going to see high investment levels and we are certain that
developments to come. For instance, if we knew 1GW of
we can contribute to the growth of this market. We have the
wind energy capacity would be installed each year for the
experts, the knowledge, and the international experience,
next seven years, we could then determine the amount of
as well as the local understanding to offer a portfolio of
investment needed in order to accomplish this objective.
services for the developers, investors, lenders, and owners.
This would in turn allow manufacturers from different parts
We have all the necessary tools and we intend to stay in the
of the supply chain to evaluate how profitable it is to invest
very attractive Mexican market.
in local manufacturing facilities and know if they would be able to sufficient sell parts in the Mexican market. Long
Q: Can you describe the role that the company aspires to
term objectives bring investment, create jobs, and build a
play in its clients’ projects?
solid and reliable renewable energy market.
A: Although we have not participated in their recent wind energy resource studies, we have our own completed
Q: Do you have any ambitions to get into other types of
studies on around 1.5GW of installed capacity in Mexico. We
renewable energy in Mexico?
focus on giving our clients technical and strategic advice,
A: GL Garrad Hassan provides services for wind, solar,
and share our best practices. We have learned what to do
and tidal energy. So far, we have only been providing our
and what not to do, and we want to spare our clients from
services to the wind market in Mexico, but we are paying
this somewhat painful process. This does not rule out the
close attention to the development of the solar industry
option of creating new solutions for new situations, which
since we expect it to experience rapid growth in the near
is at the core of providing expert consultancy advice. We
future. We are very keen to have our solar experts come
have a very varied clientele: we cater to developers, NGOs,
to the country and provide assistance to the industry. Not
investors, and project owners. Our aim is to be a one-stop
much has happened in the wave and tidal sectors in Mexico
shop, and our services range from feasibility studies to
but we also have a team of experts who would be happy to
decommissioning. We cover the full life cycle of a wind
take part in any opportunity that arises.
143
UNTAPPING TAMAULIPAS’ FULL WIND POTENTIAL Oaxaca
the
The company’s plans in Mexico include the El Porvenir
omega
project in Reynosa’s south-east region. “Starts off at the
for Mexican wind energy
coast and goes 70km inland. I bet you can get 10GW
generation.
However,
there,” says Cummins to emphasize the attractiveness
alpha
was and
American
Manti Cummins, Wind Energy Director of American Shoreline
once the
Shoreline,
of Tamaulipas’ wind resources. Maybe the best spots in
banking on past successes
Oaxaca are already taken, but American Shoreline sees no
based on exploring new
limits to Tamaulipas’ potential. “There are currents going
areas, had the ability to
from Tampico to Nuevo Laredo and the wind quality in
see
geographical
Tamaulipas provides significant advantages. For example,
options that would help
other
the absence of turbulent flows allows for more affordable
the company. Aware that
turbines to be installed.” American Shoreline’s Tamaulipas
wind resources are not limited by international borders,
project is expected to be operational in 2014 and will
American Shoreline made the most out of its consulting
consist of two sites amounting to 800MW in total, with
contracts with Mexican companies and decided to seize a
150MW installed in the first phase. El Porvenir has received
virtually unexplored opportunity at the time: Tamaulipas.
great support from the state authorities who are also putting their best efforts in ensuring that the projects have
Manti Cummins, American Shoreline’s Director of Wind
a smooth development.
Energy, explains: “Tamaulipas is well linked with South Texas in cultural, economic, and business terms. People commute
The wind industry offers a positive outlook for the
across the border on a daily basis. Because of the strong
Texas-based company. Its home state operates as an
maquiladora presence, locals are quite used to dealing with
independent grid, separate from the rest of the US. “There
transnational companies, making them valuable actors in the
are approximately 65GW in the Texan grid, which has
economy”. Tamaulipas provides a simple cultural landscape
70GW of stock capacity,” Cummins states. “The situation in
for foreign companies, which facilitates a transnational
Mexico is similar when you include self-suppliers and CFE’s
business climate. This is an advantage over Oaxaca, where
energy generation.” The main difference and challenge
international power companies might have to struggle with
is transmission infrastructure. In Texas, the capital costs
one of many ethno-linguistic groups that are not necessarily
of transmission are not borne by the project but by the
integrated in international commerce flow.
overall rate payers, who are not greatly affected by slight increases in the bills that end up paying for new zones. On
In 2007, American Shoreline prepared the necessary
the other hand, projects in Mexico, such as Open Season,
legal requirements and documents to set up in Mexico,
typically require US$200-400 million in investments.
where projects may seem like an easy task once they
Furthermore, there are regions in Tamaulipas with great
are completed, but a project is likely to be suspended or
wind conditions but no transmission infrastructure. In
terminated before completion because of cultural and
order to address these obstacles, Cummins advocates for
environmental issues, according to the American Shoreline
stronger collaboration efforts between public and private
representative. The company began developing projects
players in the energy sector. “An enhanced CFE would
in Mexico before the 2008 Energy Reform, which has
be of great help because of the organization’s political
worked in the company’s favor. American Shoreline’s team
weight. CFE is facing a notorious challenge, making itself a
found itself lucky enough to come across 13,000 hectares
viable stand-alone entity without significant support from
belonging to a single owner. “Single land owners are
the government,” declares Cummins when talking about
simpler to deal with; multiple owners do not see eye-to-
the Mexican market and competitiveness. “It is not viable
eye all the time and neither do their multiple attorneys,”
to put all the eggs in one basket. CFE needs to increase its
Cummins points out. “During the development stage,
portfolio of power purchase arrangements. If we want to
land owners receive a significant amount of money to
see how wind power will play in the market, let it compete
ensure mutual cooperation. Once the project becomes
with natural gas,” Cummins adds.
operational, land owners receive a bonus payment and participatory royalties on a percentage basis, making them
“Standing out in the challenging Mexican wind market
active stakeholders.”
requires significant expertise and tenacity, traits of worldclass players. American Shoreline possesses these qualities
144
American Shoreline has been responsible for installing
that are destined to ensure our success in the country. The
2GW in Texas over a four-year period and 11GW since 1999.
lesson learned here is to never give up,” says Cummins.
GREEN WAY TO EXPAND MEXICO’S WIND SECTOR Mexico Power Group was
self-supplying each location separately is unviable. “The
officially spun off from
case of Volkswagen was very successful since they were
Cannon Power Group in
interested in green energy and the cost of electricity we
2011, but founders Brian
could offer was very attractive for them,” explains Prock.
O’Sullivan
and
Monkhouse
John Prock, Director General of Mexico Power Group
Gerald
took
their
With natural gas imports from the US now in full swing,
first steps in the energy
Mexico Power Group is planning to build combined cycle
industry
1979.
plants in addition to its wind projects. While CFE sets
Cannon Power Group was
the cost of wheeling for non-renewable energy sources
created after Monkhouse
based on distance, companies close to the border only
back
in
decided to get involved in
need to pay small fees to transmit their energy over short
sustainable technologies before this became trendy, citing
distances. As for renewable energy sources, Mexico Power
environmental concerns that led them into an industry that
Group pays a staple price that enables the company to
was not yet fully formed. Uncertain as to whether political
transmit power for the same cost regardless of distance,
changes in many countries would result in more support
giving it a unique opportunity to benefit from this useful
for renewable energy, he and O’Sullivan worked around
combination.
the world. The entrepreneurs entered various European markets in the 1990s and partnered on projects such as the
Another incentive is that producers can provide energy
construction of a 450MW wind plant in Italy, the largest in
directly to consumers. “This is not possible in any other
Europe at the time, which was sold to Enel.
country that I have worked in,” declares Prock. Usually, the producer sells its electricity to a utility, but Mexico has only
Eventually seeking to capitalize on emerging opportunities
one middleman: CFE. “We have to look to supply companies
in Mexico, Baja California seemed like a good choice to
that cannot afford to build combined cycle plants and that
set up shop. “We leased land 15 years ago to carry out
are not close to affordable power from the United States.
wind studies. Meanwhile, the wind market in neighboring
This has changed our strategy,” adds Prock. However,
California deteriorated due to saturation,” says John Prock,
the effects of the recently approved Fiscal and Energy
Director General of Mexico Power Group. “This situation
Reforms must be taken into consideration, he warns. While
gave Monkhouse and O’Sullivan the idea of selling wind
the Energy Reform will attract foreign investment and
energy from Mexico across the border.” Mexico Power
promotes the development of renewable energy projects,
Group remains active in Baja California, where the
the Fiscal Reform will become an important challenge to
company is finalizing deals with off-takers for its 72MW
the creation of green energy projects in Baja California,
wind plant in La Rumorosa. A deal has already been inked
Prock warns. The state’s VAT used to be 11%, as opposed to
for the new wind plant in La Rumorosa to supply energy
16% in the rest of Mexico, but from the start of 2014, Baja
for street lighting to the municipality of Tecate. Another of
California’s VAT will match the national rate. Since Mexico
its wind farms, the 180MW La Bufa project in Zacatecas,
Power Group is based in Baja California and is opening a
will have Volkswagen Mexico as its principal off-taker,
wind plant there, this governmental decision will inevitably
signing a 20-year PPA for 130MW. This move will generate
affect its returns on investment.
estimated savings in electricity of US$3.6 million a year for Volkswagen once La Bufa begins operating in late 2014.
Besides this setback, Prock sees that Mexico offers plenty of opportunities since only a few companies are well positioned
While self-supply strategies have delivered positive results
to cover the nation’s power needs. “With the influx of new
for the country, companies along the border have also
players following the Energy Reform, it is important to
sought to import electricity and cheap natural gas from the
diversify. Although wind energy is Mexico Power Group’s
United States. “Some of our biggest clients in Baja California
main business, solar energy will become very important in
were very interested but they changed their mind after they
the future as prices drop and technology improves,” states
identified the opportunity to start importing low cost natural
Prock. For the moment, well-developed wind projects will
gas,” says Prock. “We seek clients who want to balance
remain its staple. Further decisions may have to wait until
attractive prices with green energy.” When working with
the secondary laws to the Energy Reform are finalized in
prestigious clients like Volkswagen, Mexico Power Group is
April 2014, given that their impact will be key to determining
looking for just one or two off-takers per project, particularly
the future economic viability of different renewable energy
those who need to power sites in different locations since
projects, especially in border states.
145
LIGHTNING DAMAGE PROTECTION
Ernesto Díaz Lozano, Director of ERICO Latin America
The sustained growth of
Lozano. Although science cannot accurately predict
renewable
in
when and where lightning will strike next, there are maps
recent years has motivated
that can help to gauge the likelihood of such incidents
well-established industrial
in different parts of the country, using variables such as
power
energies
electrical
the average number of storms per year and the number
engineering companies to
and
of lightning hits per square kilometer (a factor known as
expand their business. One
isodensity). Without a more precise method for predicting
such example is ERICO, a
where lightning will strike, protecting wind farms from
corporation that was born
lightning remains a valuable investment. Besides installing
110 years ago as Electrical
lightning receivers and conductors in wind turbines,
Railway
Improvement
ERICO also designs grounding systems using their own
Company. “ERICO started out in the railway sector by
products like CADWELD exothermic connections, ground
supplying electrical continuity for railroads and their safety
enhancement materials (GEM) and ERITECH Ground Rods.
signs, a market in which we still participate, and we later
The durability and reliability of these grounding systems
developed the exothermic welding procedure,” explains
is especially important because of the implications for
Ernesto Díaz Lozano, Director of ERICO Latin America.
occupational safety. “Once the energy that is produced by
“ERICO is renowned as a leader in product innovation. We
the lightning has reached the ground it must be correctly
set the bar for lightning and surge protection, grounding
dissipated, otherwise the high voltage that is generated
systems and other product lines.” The company’s expertise
can endanger those working on the ground,” Díaz Lozano
in providing protection for electrical systems is particularly
explains. “Electric currents must be respected, as they
valuable for Mexico’s wind farms, because wind generators
can cause fatal accidents.” Investing in grounding and
are vulnerable to damage from thunderstorms. ERICO has
protection systems is also important from an economic
developed a protection system that is installed inside the
perspective, given that the damage lightning can cause
turbine’s blades, which have the highest impact risk as they
to costly equipment will also have a significant effect on
are the tallest points in an open field, with receptors placed
the bottom line of the project. “Each wind turbine costs
in the parts of the turbine that are most likely to be hit by
a significant amount of money, and physically replacing
a lightning strike. “We protect turbines by using internally
them is made even costlier due to the remote location of
connected receivers that pass the power through the rotor
wind farms and the logistical challenges of transporting
to the grounding system. This design has been tested in
such large equipment, with blades of up to 45m in length,”
laboratories owned by the blade manufacturers,” Díaz
Díaz Lozano warns. He points out that “what makes us
Lozano explains.
different is that we provide our clients with a service as well as backup support. If there is a problem, we apply all
146
Given the damage that lightning can cause when it strikes a
of the technology and expertise that ERICO possesses to
wind turbine, having effective lightning protection systems
propose solutions for our customers.” Having been present
installed is crucial to ensuring the continued operation of
in the Mexican market for 43 years, and with a large pool of
a wind park. “Unfortunately there is no way of predicting
international expertise, ERICO is well positioned to leverage
the exact point at which lightning will strike,” says Díaz
its expertise in the country’s growing wind industry.
| VIEW FROM THE TOP
EARLY PROMOTERS OF MEXICO’S WIND POTENTIAL ANA VIOLETA HORTA Chief Administrative Officer of CISA Energía
Q: What motivated CISA Energía to start promoting
has become a service, which we offer right alongside our
renewable energy sources?
engineering and our human capital.
A: We began looking at renewable energy more than 10 years ago at a time when Mexico had little to no renewable
Q: What measures are needed to guarantee a steady
projects. Our founder, David Horta, carried out wind
demand for wind capacity in the future?
measurements in different parts of Mexico and came
A: Wind power will keep becoming more efficient. New
across the La Ventosa site in Oaxaca. At the time, CFE
technologies will make it more competitive compared to
was developing small wind plants there, in partnership
other forms of energy. More government support would
with Vestas, but they were nowhere near using the site’s
be a big help as well, while the expansion of public
full capacity. We started contacting different companies
consciousness about the benefits of wind energy could
to find partners with the knowhow to develop wind energy
be huge. Originally, the public was very skeptical when
projects. At first, Gamesa was very skeptical that Mexico
we started selling the idea of wind power. But right now,
had great wind energy potential, but they changed their
people are beginning to adapt and to realize that clean
minds when they saw the wind measurements. At the time,
energy can be a reality in Mexico.
there was no legal framework for companies to start their own wind farms. The market has since come a long way.
Q: Natural gas will play a vital role in the Mexican energy market for the foreseeable future. How will that affect
Since the electrical construction industry has not grown
CISA Energía’s activities in renewable energy?
majorly, wind energy has allowed us to create a successful
A: That will depend on how we develop our future business
new business line, with new clients and new technology.
plans as we are very open to new markets. We are focused
Since we started developing our own wind farms, we
on wind right now as it is increasingly cost-competitive
have also seen potential growth in their operation and
and it fits into our motivation to develop clean energy. We
maintenance. Those areas could be a big focus for us in
have not developed any natural gas projects so far, but
the future. On a broader scale, the biggest challenge we
if it made economic sense then we could likely use it in
have had to overcome has been the level of support from
combination with other forms of energy. We have invested
the government. If we look at how the wind energy sector
in gas turbines already but they are not in operation as the
has skyrocketed in the US and Europe, it comes down to
prices for natural gas were volatile in the past.
government support and tax benefits. We have to take those examples and adapt them to the Mexican culture.
Q: What are the benefits that CISA Energía enjoys from
Once the government here decides to help the wind
being based in Baja California, where the grid is separate
industry, it could take off as it did in the US. Over the next
from the Mexican grid but is connected with California?
five years, we are seeking to develop around 450MW of
A: On the construction side, we built a very large
installed capacity in different parts of Mexico across wind,
transmission line that connects California to Mexico. We will
solar and hydropower.
also be doing the construction for another wind farm here to export energy to California. While this is an advantage
Q: What is the nature of your partnerships with industry
based on our geographic position, we are focused on all
leaders such as Gamesa and Sempra?
of Mexico. We have an office in Mexico City, and we have
A: We helped Gamesa by scouting for land, by carrying
representatives developing projects nationwide. In this
out wind measurements and by securing all the permits.
day and age, it is not about where you are geographically.
We played a very hands-on role to provide added value
Our nationwide presence and our international experience
for Gamesa. For Sempra, we provided mostly electrical
is a bigger advantage than simply being based in Baja
construction services, in which we applied the knowhow
California. We are a Mexican electrical construction
we gained from working with Gamesa. Our knowledge
company that promotes its own projects.
147
148
SOLAR
6 The boom of the renewable energy sector in Mexico was marked by high expectations being placed on solar energy during 2013. As technology costs for solar energy continue to drop, the feasibility of projects is on the rise. Mexico has opened its first large solar plant in Baja California, the 30MW Aura Solar I, showing a crowded market that it can be done. While large solar projects are becoming a reality, residential sector opportunities remain an attractive niche for solar companies and a viable alternative for power generation.
In this chapter, we look at the expectations of companies that have been attracted to Mexico’s levels of solar irradiation, we consider the challenges that have limited their participation in Mexico to date, such as financial issues and bureaucratic obstacles. The key aspects in this chapter elaborate on the development of a local supply chain, finding a measure of support within the government, increasing competitiveness and building trust within the Mexican market.
149
150
CHAPTER 6: SOLAR 152
Global Trends in the Solar Industry
152
The Best Incentive Is Already There
153
Mexican Trends of the Solar Industry
154
VIEW FROM THE TOP: At the forefront of the Mexican Solar Reality
154
Proving that Large-Scale Solar Works
156
Staying Ahead of a Rapidly Growing Pack
157
VIEW FROM THE TOP: Breaking Down Barriers for Solar Energy
158
Four Phases for Mexico’s Largest Solar Project
159
Catering to Self-Supply Demand for Solar Energy
160
Wide Range of Solar Technologies on Offer & Focusing on Niche Markets in Mexico’s Solar Industry
162
Common Sense and Profit Make Solid Combination & Waiting for Right Government Actions on Solar
164
VIEW FROM THE TOP: Solar Energy Needs Government Support to Thrive
164
Trust Essential to Open the Market
166
Small-Scale Solar Projects Can Step Into the Light
167
Dose of Realism for Solar Power
168
Innovative Mexican PV Panels Enter Export Markets
169
Patient Business Development for Solar Cells
170
Pragmatic Approach to Exporting Solar Panels
171
Mexico Presents New Market for Chinese World Leader
172
German Leader Banks on Mexican Inverter Market
173
Energy Efficient Solar Electronics Made in Germany
174
Loyal Commitment To Quality in Mexico & Chinese Solar Leader Focused on Mexico
176
State of Mexican Research on Solar Technology
177
Pioneers of the Mexican Sector
178
Domestic Drive for Needed Technological Standards
178
Mexican Photovoltaic Producer Emerges
179
Integrated EPC Services for Solar Plants
180
Bringing Energy to Remotest Corners of the Country
181
VIEW FROM THE TOP: Mexican Solar Powered Water Heaters Take On Global Competition
182
VIEW FROM THE TOP: Concentrated Solar Power Now Reality in Mexico
183
TECHNOLOGY SPOTLIGHT: Concentrated Photovoltaics (CPV)
151
GLOBAL TRENDS IN THE SOLAR INDUSTRY Solar technology is becoming increasingly competitive and
Solar energy investments represent 16% of total global
the market expects to keep seeing cost reductions in the
renewable energy investments, ranking just behind wind.
near future. Emerging economies are starting to make efforts
In 2012, US$143 billion were invested in solar projects with
to contribute to create a cleaner environment, but where
investment expanding in many emerging markets such as
countries such as China and Japan are strengthening policies
Brazil and other countries in Latin America due to rising
for renewables, some European countries have reduced
electricity demand and falling solar technology costs. Capital
incentives for these projects. Japan has introduced feed-in
costs for solar PV technology continue to fall, experiencing
tariffs for different renewable technologies to accelerate the
the most important cost reductions in comparison with
diversification of its energy mix away from nuclear power,
other renewable energy technologies. The costs of solar
while China has made efforts to provide grid connection for
technology for utility-scale projects are still higher than
10GW of solar energy. However, investment fell sharply for
traditional power generation, although off-grid solutions
photovoltaic projects in countries such as Germany, Italy and
have become increasingly competitive. For example, in
Spain. The International Energy Agency (IEA) recommends
Mexico, solar technology is garnering a lot of attention
that by 2020, 10% of the global electricity generation should
due to the widespread availability of the solar resource
come from wind and solar technologies, increasing to 30%
and important differences between solar energy’s cost per
by 2050. For 2020, the IEA has set the objective of reducing
kWh and certain electricity tariffs. This allows fast payback
the cost of solar power to make the technology cost
periods, especially in the large residential consumer sector.
competitive with wind power. Despite the fast-paced growth of the solar photovoltaic sector, concentrated solar power
The sun offers 885 million TWh globally per year,
(CSP) experienced a slower growth of 20%. Further R&D
approximately 4,200 times the expected global energy
investment is needed to increase the competitiveness of the
consumption in 2035, which means that the amount of
CSP technology, which has many excited as to its potential.
energy provided by the sun is enough to meet all human electricity needs for a year in one hour and 25 minutes.
Europe
is
still
the
leading
region
in
photovoltaic
Different scenarios have been created to forecast the growth
installed capacity, surpassing 70GW and representing
of the global PV energy. The European Photovoltaic Industry
approximately 70% of the world’s total up to 2012. China,
Association forecasts that the market will grow to 200GW
the USA and Japan are the next countries leading the
by 2016 in a business-as-usual scenario and if no further
global solar energy market. Two-thirds of the global solar
efforts to incentivize the market are made, or to 420GW in
market is concentrated in Germany, China, Italy, the US and
a policy driven scenario if new guidelines are promoted in
Japan. In this sense, the Asia-Pacific region follows Europe,
the next two years. Increasing cost competitiveness of solar
with North America as the third leading region due to
technology is the key to unlock new markets. Based on its
developments in Canada and the US. However, countries
location in the Sun Belt, strong environmental commitments,
like Mexico, Australia and India have barely scratched the
and its attractiveness as a foreign investment destination,
surface of their enormous potential for solar energy.
Mexico has caught the attention of the global solar industry.
THE BEST INCENTIVE IS ALREADY THERE
152
The former president of Mexico’s National Solar Energy
growing at a slow pace, but this does not mean firms should
Association (ANES), Vicente Estrada-Cajigal, agrees that the
look to move from being higher tariff consumers to low tariff
Mexican solar industry could benefit from subsidies, if done in
consumers through subsidies. Estrada-Cajigal explains that
the right way. Despite this, he points out that the best incentive
ANES is calling for the elimination of all subsidies on fossil
is already here. “We have almost twice the solar resources
fuels. “Subsidies should be seen as an investment rather
Germany has. This is a very good incentive, provided by
than an expense. Subsidies should not pay for gasoline or
nature. To generate the same amount of electricity Germany
electricity but should help to finance equipment such as solar
draws from the sun, Mexico needs to invest only half the
water heaters or solar PV systems. If we used the more than
money,” he says. For him, the European models whereby
US$3 billion that Mexico spends every year on subsidizing
renewable energy sources are propped up by subsidies are
electricity, in seven or eight years, every single home in
undesirable, arguing that when those subsidies stop, the
Mexico could have its own PV system. After that, there would
market grinds to a halt. The Mexican solar market may be
be no more need for subsidies.”
MEXICAN TRENDS OF THE SOLAR INDUSTRY In the last five years, the PV sector has grown primarily
Many companies have become interested in the Mexican
in the Mexican residential market due to its cost-saving
solar market but regulatory issues, transmission, fossil-
potential under the DAC tariff. According to the National
fuel subsidies and subsidized tariffs are still proving
Solar Energy Association (ANES), three years ago the
to be limitations. Even though the Aura Solar I project
solar market size was of around 1MW and until recently,
represents a big advance, the opportunities that exist in
this had remained at approximately 6MW. Nevertheless,
the Baja California market are very different from those
the first large-scale solar project, Aura Solar I, started
present in Mexico’s central grid. Solar energy projects
operations in 2013, accounting for 30MW to come online
still have to increase their ability to compete with tariffs
in different phases. One of the main challenges that
in the central grid and complement the expansion of the
the Mexican solar market must contend with is that the
electricity sector through natural gas.
country has easy access to cheap natural gas from the US and the absence of subsidies and feed-in tariffs. Financing
Solar technology can vary from solar PV to CSP, ranging
is another important challenge, starting with ensuring
from
that financial institutions are interested in supporting
polycrystalline panels, concentrator panels and flexible
solar projects. Mexico has important solar resources,
panels. But in the Mexican market, price determines the
standing at around twice the solar irradiation received
interest of project developers. Yet having access to reliable
by Germany. However, the Mexican market does not have
data on solar energy production would transmit confidence
the feed-in tariffs and subsidies that helped the European
to the international markets and position Mexico more
solar sector grow, thus it has to grow by itself at a slower
firmly as an emerging solar energy producer. At the
but more sustainable pace. Seeking to tap into Mexico’s
moment, each company holds on to their information, and
manufacturing potential, solar panel manufacturers have
decides individually whether to share the information or
started operations here but primarily do so in order to
keep it as a trade secret. A reliable information system
export panels to the US market.
could become a key driver to motivate the government
amorphous
solar
panels,
monocrystalline
and
to change policies and banks to finance more projects, The recently created energy bank scheme is an important
benefiting all players.
facilitator of the competitiveness of renewable energy in Mexico, as it provides virtual storage possibilities that
Mexico is undergoing a cultural change towards sustainable
reduce the payback period. In Mexico, ANES is working
practices and environmentally friendly solutions. Having
to raise awareness about the benefits of solar energy
important solar resources in states such as Baja California,
in the public sector. However, the participation of solar
Baja California Sur, Sonora, Chihuahua and Durango, and
energy in Mexico’s energy mix, as established in SENER’s
given its political and macroeconomic stability, Mexico is in
Renewable Energy Forecasts, is forecasted to be of only
a good position to become an attractive solar market. This
1% to 2% by 2026. There is widespread belief, however,
rings all the more true, considering the expected decrease
that the potential for solar will prove to be much greater.
in costs and the increase of equipment efficiency.
153
| VIEW FROM THE TOP
AT THE FOREFRONT OF THE MEXICAN SOLAR REALITY ÁLVARO DEL RÍO Country Manager of Martifer Solar Q: Which role does Mexico play in Martifer’s global
that the industry will receive more support from future
operations?
regulation because Mexico will become the market to be
A: We internationalized very quickly and the company
in for the solar industry.
experienced a significant growth even though we were late to enter the renewable energy market. We learned
Q: How did you manage to bring your global expertise
from the mistakes of some of our competitors which had
and adapt it to the local needs of this country?
very big structures in place. We have very little physical
A: We are now finishing the Aura Solar I project where we
presence in the countries where Martifer is operating but
found that the Mexican labor force is very skilled and able
we have a very strong back office in Portugal that gives us
to deliver a very high quality of work. Companies in Mexico
an important competitive advantage.
are very serious and foreigners have to be aware of this. Sometimes, people from the US or from Europe are afraid
When we entered the Mexican market in 2011, everyone
of coming to Mexico to work or build projects because they
was just starting out and wanted to develop projects. Now,
do not know how the market works and underestimate the
thanks to the government and the support it has begun
capabilities of Mexican companies. For us, working with
giving the industry, we have the possibility of developing
Mexican companies has been a very good experience, and
power plants under the small producer scheme. I hope
Mexican technicians have very strong knowhow in general.
PROVING THAT LARGE-SCALE SOLAR WORKS Where
some
players
enter the Mexican solar
difficult for any infrastructure project in the power sector to get off the ground,” he says.
industry sector with little
Héctor Olea, President and CEO of Gauss Energía
154
experience in the country,
One recurring concern among energy companies is
the same cannot be said
whether enough is being done at the institutional level to
for Héctor Olea, Gauss
solicit private involvement in the power sector. How does
Energía’s
and
Olea respond to claims from some private developers that
CEO. From 1995 to 2000,
CFE is not inclined to create a level playing field for private
Olea
was
President
of
companies that could become its competitors in power
CRE (Energy Regulatory
President
generation? He dismisses any conspiracy theories and
Commission), playing an
encourages ambitious private projects to challenge CFE,
integral part in designing the regulatory framework of
saying that “as long as a project can provide energy that
the Mexican electric sector. While this door remains ajar
is competitive with CFE rates, it will be successful. Mexico
at the moment, the Energy Reform should kick it open.
has a good energy supply thanks to CFE, but this does not
The opening up to the private sector proved a savvy
mean that challenging CFE is pointless, it is simply about
move for Olea as in 2004, he found himself heading up
knowing how to compete successfully.” A further difficulty
Gauss Energía, one of Mexico’s leading renewable energy
is that project developers are also competing amongst
firms. With his cross-sectorial background, Olea is able
themselves in wind, hydro, and solar projects, all trying
to judge what the public sector still needs to do to help
to bring energy prices from renewable sources down. But
make private investments more productive. “A crucial
those able to distinguish themselves and deliver a project
element for all infrastructure projects, especially in energy,
to a private off-taker in better conditions than CFE will
is that the regulatory environment provides a measure
reap the benefits, vows Olea. He believes that CFE has
of certainty for investors. Without that, it becomes very
changed and realizes that private sector energy projects
A very strong solar sector will be created in Mexico because
prices have decreased significantly; we are almost reaching
people here are capable of contributing to its growth and
the minimum limit which helps us to offer stable prices.
success.
The financial sector must take these facts into account and understand that the solar industry is here to stay.
Q: What makes Martifer’s value proposition unique? A: We have the global expertise of installing 400MW, not
Q: For how long do you expect to remain market leaders
many companies can say that. We can build projects in
in the Mexican solar market?
record time and we have the experience of working in new
A: Martifer is very well-placed to keep its position as a
markets since we have cooperated with 18 different utility
market leader and has all the capabilities to remain there.
companies. We are now market leaders by virtue of having
We are starting new projects in late 2013 and early 2014.
constructed the biggest project in the country. It is also
The projects will be developed in northern Mexico. We have
important that the company has gained a lot of experience
a 20MW project in Hermosillo, Sonora, and we are looking
thanks to this project and the developers have noticed that.
for new opportunities in Chihuahua and Coahuila. Mexico
Mexico is not an easy market, we know that after two years
now represents 10% of Martifer’s global operations. If we
working here.
continue working in this market at the same pace, Mexico may become the most important market for Martifer.
Q: What convinced the financial system, specifically NAFINSA, to finance the Aura Solar project?
I would like to see Mexico develop 5GW of solar power
A: What the banks should do is look at what the IFC did.
in the next 10 years, which is similar to what Spain has
NAFINSA is part of this project and they financed part of
developed. We hope that Martifer will be an important
our debt but other banks should follow the IFC’s example.
contributor and play a significant part in that new solar
It has high expectations and confidence in renewables and
power generation capacity. We also would like to be a
in the country. Solar technology is not new worldwide, but
development leader since Martifer is able to work on both
it is in Mexico. The efficiency of panels is increasing while
development and EPC.
can contribute to the good of Mexico. “Companies need
The importance of Aura Solar I cannot be overstated as with
goodwill from CFE to develop their projects. Six years ago,
this project, Gauss Energía answered a lot of questions that
CFE saw private companies as outsiders but its attitude
the industry was pondering. Firstly, its site in Baja California,
has changed and it wants to work together with companies
although abundant in resources, is an electric island not
for the good of the country.”
connected to Mexico’s national grid. This would have made any power generation attempts extremely costly for
As for the concept of subsidies for renewable energy, Olea
CFE, Olea points out. But since the small prower producer
is skeptical, saying that projects that combine commercial
scheme mandates that CFE buys all energy generated
sense and financial viability should not require them. This is
from renewable sources at 98% of its own margin cost of
of direct concern to the solar industry which is competing
generation, the ensemble became attractive for Gauss
with cost competitive wind technology, although the price
Energía. After identifying the opportunity, Gauss Energía
gap is closing. This perspective of change has encouraged
contracted Portugal’s Martifer to provide EPC while the
Gauss Energía to move ahead with solar projects, particularly
financing for the project was completed when NAFINSA
Aura Solar I, the largest solar plant in Mexico to date. Gauss
and IFC provided the last US$75 million needed. CFE is the
Energía is involved in other renewable energy sectors, but it
only off-taker for Aura Solar I under a 20-year PPA that
sees solar as the easiest to work with. Hydro is competitive,
makes this the first utility-scale PV project in Mexico, and
but involves exhaustive searches to locate sites, says Olea,
one that multiplies the country’s installed PV capacity.
while wind is booming but its heartlands such as Oaxaca are becoming crowded. Both of them also present difficulties in
Fresh from pulling off this coup, Olea is aware that seeking
being linked to existing transmission infrastructure, which is
to emulate such projects might be risky for competitors. “We
a problem that does not affect solar. As Olea explains, “with
have CFE as an off-taker so there is very little risk. But finding
solar, it is easier to put up a project near current infrastructure.
other bankable off-takers will be a big challenge. There are
This is a real competitive advantage, along with the speed of
maybe 10 AAA off-takers who have already bought all the
development. With Aura Solar I, it took 15 months to go from
energy they need. It is a challenge to look for other off-
initial development to commercial operation.”
takers with strong financials outside the AAA scale.”
155
STAYING AHEAD OF A RAPIDLY GROWING PACK The has
road not
to always
“Everything revolves around an inverter’s efficiency rate,”
been
explains Gutiérrez Treviño. “This is something Ingeteam
Spanish
takes seriously and its products can prove it by achieving
engineering
98.9% maximum efficiency levels. Maintenance is another
firm Ingeteam. In 2007,
important element to consider when working with large
the company decided to
inverters. A major advantage of our equipment is that the
capitalize on opportunities
most sensitive parts can be easily repaired by changing the
in
damaged components and replacing them with new ones
smooth
for
electrical
Kevin Gutiérrez Treviño, Director General of Ingeteam
Mexico
the
industry.
Mexican A
wind
production
with no loss of production.”
facility soon sprang up in Monterrey to manufacture
Ingeteam’s strategy is borne out in two direct ways for each
converters for wind turbines, which began producing in
project: the design of the inverters and close collaboration
2008. All would have been well but for the looming specter
with the EPC providers. One of the main factors that worry
of the financial crisis. The crisis took its toll on the wind
plant developers is the loss of production if an element
industry that slowed down considerably in 2009. At the
breaks down and is hard to repair. To avoid this problem,
time, Ingeteam had facilities in Europe and Mexico but the
Ingeteam has designed its inverters to offer the greatest
opportunity came up to expand with a new plant in the US.
ease of maintenance possible. “The inverter is a big cabinet
With the latter option proving more financially attractive,
with four doors containing all the electronics. If they are
the decision was taken to shutter the Mexican plant in
damaged, you can localize the problem and quickly swap
2010 after it had churned out around 200 converters. This
used parts for new ones. In that way, we avoid any loss of
was not a loss of faith in the Mexican wind market but the
production,” says Gutiérrez Treviño.
financial conditions forced the firm to make some tough economic choices.
Aware that participation in Aura Solar I and global experience
on
PV
plants
distinguishes
it
from
its
This strategizing did allow Ingeteam to devote more
competitors, Ingeteam is doubling down on Mexico.
time and resources in Mexico to expand another part
Gutiérrez Treviño explains that the company is going to
of its operations: solar. This decision has proven to be
increase its presence across Mexico and seek long-term
a wise one since Ingeteam’s inverters were chosen by
relationships that will make it easier to convince clients to
Martifer to supply the Aura Solar I plant in La Paz, Baja
invest in solar. But these growth prospects never forgot
California Sur, the first utility-size PV plant in Mexico. Kevin
what first brought Ingeteam to Mexico, the wind industry.
Gutiérrez Treviño, Ingeteam’s Director General, says this
500MW of their converters are already up and running in
is due to Ingeteam’s worldwide reputation as an inverter
Oaxaca for Acciona, Gamesa, and other partners.
manufacturer and its focus on innovation. “We are one of the top five inverter manufacturers in the world. We have
The company also has no qualms about using its success
a very strong R&D department in Spain, in which we invest
with Martifer, a European company, to grow its reputation
around 10% of our sales to ensure the technical quality of
and links to Mexican companies. “Aura Solar I was built
our equipment,” he states.
in Mexico and we were knocking on doors every day to communicate efficiently. For the moment, we work with
156
Ingeteam’s core business is the installation of smart relays
companies who can develop a 30MW solar project, from
to monitor voltage and analyze the quality of the grid. The
Spain or elsewhere. But the first large-scale solar project was
company has its own brand for this type of equipment,
always going to be the hardest. Now, local developers are
which complies with CFE NOMs. For example, the Power
going to become more confident and more willing to invest,”
Max central V inverter is designed to comply with grid
predicts Gutiérrez Treviño. He banks on his knowledge of
connection standards according to the country where it
the past to predict the future of the Mexican solar industry.
will be used, contributing to the quality and stability of
In 2010, Ingeteam was handling projects involving tens
electricity systems. This device was installed in La Paz,
of kilowatts. By 2011, that went up hundreds of kilowatts,
Baja California Sur, where the grid characteristics differ
and to entire megawatts during 2012. Accompanying this
from the rest of Mexico. These inverters feature a low
growth has allowed Ingeteam to plan the future accurately.
voltage ride-through capability, they can inject reactive
“Other companies will have to plan very well to compete
power and also control the active power delivered to the
with Ingeteam in areas where we already know what to do,”
electricity grid.
concludes Gutiérrez Treviño as a warning shot.
| VIEW FROM THE TOP
BREAKING DOWN BARRIERS FOR SOLAR ENERGY ÁLVARO LENTZ HERRERA President of National Solar Energy Association (ANES) Q: How has the solar energy industry evolved since the
We are also in close contact with the Congress of the
new administration took over at the end of 2012?
Union, where we focus most of our efforts on raising
A: Under the previous administration the solar industry
awareness about the importance of renewables. In our
experienced growth, and under the current administration
case, we display the benefits of solar energy and explain
that
what has to be done in order to stimulate the industry.
tendency
has
been
confirmed.
Conservatively
speaking, 8.5MW were installed during 2012. I would not be surprised if the installed capacity had reached 16MW in
Q: What has enabled the solar industry to become more
2013, but what I can confidently confirm is that the solar
established without subsidies?
market is growing exponentially.
A: The big thing that has propelled the industry forward has been the price drop in solar technology. Three years
Q: What are the main challenges that ANES currently
ago, the price per watt was US$3, compared to US$1 today.
faces?
In terms of installed capacity, it is currently about US$2.5
A: One of the main challenges is getting solar companies to
per watt, while before it was above US$6. The DAC (high
share information. The Mexican solar industry has to learn
residential consumption) tariff is not a subsidized electricity
that sharing data is beneficial for everyone. This would
tariff, making it the most expensive tariff in Mexico. By
allow us to see what the real market situation is and that
installing PV systems, users can reduce their consumption
might force the government to modify the current legal
and therefore become eligible for a subsidized tariff.
framework. Financial institutions would also realize that
Return on investment can therefore be achieved in five
Mexico is an important market and would be more willing
to six years. CFE estimates that there are about 500,000
to extend low interest credits to solar energy developers.
potential DAC tariff users, without counting residential
ANES has to convince the solar companies working in
Tariff 1 users. This is a market with great potential, since
the country that the data collected will not be given to
DAC and Tariff 1 users alone are worth millions of dollars.
competitors but that it will be used for the benefits of the industry. Another important objective is strengthening
Q: What is your opinion on the importance given to solar
each regional section of ANES, which in turn will enable us
energy in the National Energy Strategy?
to collect and exchange information more easily.
A: The strategy is to have 1% of the country’s energy generation coming from photovoltaic systems by 2026. This
ANES’s reputation is built on 35 years of work. We
figure is too low because the estimate is based on what CFE
are always part of energy forums and work with the
is able to do during those years, when in reality, the private
government and other relevant renewable energy actors.
sector will drive the growth of the market. As long as CFE
For example, we were part of the working groups for the
remains a monopoly, we are highly dependent on its will, and
National Development Plan. Our role was to provide a
if it decides not to invest in solar energy then Mexico will not
view of the future and the path that needs to be taken
reach this objective. So far, CFE has done a good job and is
to get there. We expressed the importance of promoting
opening up to renewable energy. However, it will stop being
distributed power generation, which the plan says will be
so open when its interests might be affected. The objective
boosted, along with domestic photovoltaic systems. CFE
of generating 35% of the country’s energy from clean
did not previously believe in solar energy, so we suggested
energy sources by 2024 is achievable, but we need to take
that it should build its own plant in order to experience
immediate action to make it a reality. DAC tariff users alone
the benefit of photovoltaic energy and test different
form an interesting target market. Another issue that has
technologies. That is what it did and CFE is now learning
to be added to the equation is CFE’s auctions to replace
from experience how solar energy interacts with the grid.
fossil-fuel power stations with PV systems. Companies are
We collaborate with CFE every day because our goal is to
starting to install 2-3MW plants because they are realizing
educate and spread knowledge about renewable energy.
how profitable it is.
157
FOUR PHASES FOR MEXICO’S LARGEST SOLAR PROJECT So far, operational solar projects in Mexico have mostly been
and paperwork regarding the company’s PPP as well as
residential PV systems but the reality of big solar farms might
negotiating with authorities. “We have had to convince
be just around the corner. Since 2009, Consorcio Integrador
municipal authorities that a street lighting project using PV
Sonora 80M (Sonora 80M) has been working on creating
energy would reduce costs. You have to sell this idea from
the biggest solar park in Latin America, which will have a
both a technical and legal point of view, while convincing
capacity of 80MW, upon completion of its four phases.
the entire town council. Afterwards, we had to deal with the political parties, who will reject a proposal just to spite their
Sonora 80M is a consortium formed by four Mexican and
opponents. It has been exhausting and our biggest challenge
two Spanish companies. After analyzing the renewable
by far,” Martín Rodríguez says. The fourth challenge was
energy market for some time and waiting to see if subsidies
finding an off-taker who was interested in only keeping the
would be introduced, they banded together. After due
production surplus. Sonora 80M had to overpower its park by
consideration and research, a partner specializing in land
20%, so it needed a partner interested in keeping the excess
regulations noted that Sonora had the economic and
production. Ford Motor Company turned out to be just that
political climate Sonora 80M was looking for, in addition
off-taker. According to Martín Rodríguez, it was fairly easy
to an excellent solar resource, setting the company’s first
selling the idea to the automotive company. “Ford asked who
project in motion.
the investors were and what we wanted from them. We told
“Administrative procedures need to be more agile for the market to properly emerge, although CRE has been doing a great job. Knock down the procedure barriers and the market will boom” César Martín Rodríguez, CEO of Consorcio Integrador Sonora 80M
César Martín Rodríguez, CEO of Sonora 80M, believes
them to jump aboard as it would not cost them anything, they
that being a bi-national company gives the group a
would reduce their energy costs, and get positive publicity.
strong advantage. “We started working in Mexico with the
Since Ford is a socially responsible company with a plant in
intention of contributing and making the most out of the
Hermosillo, everything fit together perfectly,” he recalls.
local knowhow. I have been working in Latin America for ten years now and my experience has been that projects
After four years of work, the biggest solar park in Latin
are successful when you work with local people. This is
America is still not a reality. Martín Rodríguez explains that
where many large companies fail: they have money and
the company lagged on Phase 1 because of the time it took
knowledge, so they feel entitled to doing things their way.
to acquire the necessary resources. However, Phase 2 is
An invasion is not the way to do business.”
already progressing at a good pace. As soon as Phase 1 begins construction, the company expects Phase 3 and 4
158
Sonora 80M has had to overcome many hurdles in order to
to be quite dynamic. “Three more states have approached
sell the idea of an 80MW photovoltaic park in a market still
us to develop a project that delivers economic benefits
at such an early stage of development. The first challenge
and could employ up to 1,500 people. This creates
the company faced was coming up with the capital for a
prosperity in the state where these projects are being
project of such magnitude. Martín Rodríguez underlines the
developed.” However, Sonora 80M has not jumped to
difficulties that rose from this task in a non-consolidated
other states because its efforts are still focused in Sonora.
market. “People thought we were insane and considered our
Martín Rodríguez considers that the time is right to invest
project impossible,” he recalls. The company had to reach a
in certain market niches but warns that one of Mexico’s
point of balance and decided that even though 20MW would
major problems is the procedures required to make a
require a large investment, it was more viable. This is when
project happen. “Whatever project you want to take on,
the decision was made to split the megaproject into four
you are going to spend at least six months dealing with
segments. The second challenge was finding adequate tariffs.
paperwork. Administrative procedures need to be more
The project came down to numbers with the company’s
agile for the market to properly emerge, although CRE
financial model, warranties, and IRR coming under thorough
has been doing a great job. Knock down the procedure
scrutiny. The third challenge was the permitting process
barriers and the market will boom,” he adds.
CATERING TO SELF-SUPPLY DEMAND FOR SOLAR ENERGY 2013 was a big year for the Mexican solar industry, mostly
on solar energy and are more willing to invest in wind,”
because the 30MW Aura Solar I came online in Baja California.
explains David Martínez, Managing Director of M+W
The solar industry may still pale in comparison to the Mexican
México. However, utilizing wind energy also means
wind sector, but there is a lot of activity taking place behind
depending on CFE, while solar panels offer more energy
the scenes. Kelly Desy, M+W Group’s Director of Business
independence. Martínez says that the acceptance of solar
Development for Latin America, says that investors and
energy has a lot to do with the profile of each client, as
developers have seen heightened activity in the solar sector.
well as how their projects are financed. M+W Group offers
“Customers in both the industrial and commercial sectors are
turnkey solar projects, including design, solar panels
asking for on-site panels to supplement their energy supply,
and engineering, while guaranting that its customers
enabling them to use more solar energy and less energy from
will save money. Perhaps the most important aspect for
the grid, making them more self-sustaining,” she explains. The
many clients, the company helps them find financing. The
success of solar projects in the commercial sector has been
company is looking at large scale solar parks to serve
price driven, she adds, while in the industrial sector it tends
clients in the private sector. As Desy explains, larger parks
to be a matter of energy security, due to the occurrence of
can offer customers solar energy at more competitive
power shortages that affect production processes.
prices. In addition, M+W Group explains to its clients that
“In order to fully develop a domestic value chain, everyone involved in the sector has to promote solar power as an affordable and viable energy solution” David Martínez, Managing Director of M+W México
M+W Group is an engineering and construction partner
these solutions can be implemented with minimal CFE
for its clients, immersing itself in many different areas of
involvement and without having to deal with financial
the Mexican market, including pharmaceuticals, cosmetics
institutions. By fully understanding their situation and
and the food industry, working with clients such as Procter
aspirations, M+W Group is able to offer its clients practical
& Gamble and Coca-Cola. The company has developed
solutions, such as schemes in which several companies
the largest number of solar panel production facilities
share a photovoltaic park. M+W Group believes that this
worldwide, and M+W Group is making solar energy a main
strategy will lead to the company becoming a big player
component of its thrust into the Mexican market. The firm
in solar energy for direct industrial clients. “In order to
started out in the Mexican solar industry by building a
fully develop a domestic value chain, everyone involved
solar panel manufacturing facility in Mexicali. This German
in the sector has to promote solar power as an affordable
firm divides its solar energy operation into two branches:
and viable energy solution,” Martínez says.
large solar installations focused on providing electricity to utility companies, and rooftop installations mainly for
Martínez compares the sector’s current situation to
self-supply purposes for commercial and industrial clients.
concrete pavements in the country 20 years ago.
One of the biggest benefits of the second approach is
“CEMEX brought in the technology and equipment and
that it reduces engagement between clients and utilities,
then convinced everybody that this was a good option.
in Mexico’s case CFE. This dual approach enables the
Eventually, people started using it. CEMEX facilitated
company to diversify its client base, which now ranges
the entire process, and today 50-60% of pavements in
from large multinational firms to medium-sized company
Mexico are made of concrete. Similarly, we have to work
clusters in industrial parks.
together with developers, suppliers, contractors, and our competitors, to ensure that everyone knows what a great
Many international companies still doubt whether solar
option solar energy is.” Desy expects to see more solar
energy is a worthwhile investment. Companies generally
installations appearing as distributive generation systems
want to have their facilities operating before considering
on industrial facilities and rooftops, as well as more
the option of installing solar power, rather than incur
innovative and larger plants that provide energy on a large
more risks during the start-up of their facilities. Moreover,
scale. “In 2014 we will see another giant step forward in the
some companies do not want their operations to depend
Mexican solar industry,” she concludes.
159
WIDE RANGE OF SOLAR TECHNOLOGIES ON OFFER In September 2013, Granite
ago, the prices of solar technology and PV components
Chief Solar inaugurated its
began going down to a level where solar energy started
1MW Apaseo El Grande
becoming commercially viable, motivating the company to
solar park in Guanajuato.
get started on actual projects.
The
Juan Antonio Balcázar, Director General of Granite Chief
project
supplies
energy to the business
“Today, our portfolio includes four different technologies:
center of four companies
concentrated photovoltaic (CPV), typical monocrystalline
including a steel company,
and polycrystalline PV, concentrated thermal panels, and
an automotive company,
traditional thermal panels. However, we do not seek to
and
The
offer a huge range of products as we focus on offering the
Granite
Chief.
investment totaled US$3
best solutions in the market,” says Juan Antonio Balcázar,
million and has an expected return on investment of 9 to
Director General of Granite Chief. He acknowledges that
11 years. Building a 1MW solar plant for industrial use might
one of the main challenges the Mexican solar industry faces
not be common but it is still attractive since companies get
is the current legislation and the validations, paperwork, and
cheaper electricity and will avoid over 7,000 tonnes of CO2
verdicts that are directly related to solar energy. Another
emissions a year.
intricate issue he recognizes is the availability of financial resources to create solar projects, and that a critical effort
Granite Chief was created six years ago when the solar
has to be made to be able to access financing.
energy market in Mexico was practically nonexistent, so it dedicated its first three years to market analysis
However, Balcázar does not believe the Energy Reform
and investigation. The company focused on analyzing
will bring benefits to the renewable energy sector as it is
the cost of solar energy and the trade-offs associated
focused on promoting private investment in oil exploration
with the development of solar plants. About three years
rather than on the development of the renewable energy
FOCUSING ON NICHE MARKETS IN MEXICO’S SOLAR INDUSTRY Until last year, Grupotec’s earnings in Spain were
a year and we already have one project in our portfolio,”
considerably higher than its profits from international
says Miguel Ángel Játiva, Managing Partner USA West and
markets. Nevertheless, as the economic crisis in Spain has
Mexico of Grupotec. Besides its excellent solar resources,
deepened, this situation has shifted. Having identified the
the political stability of the country, the legal certainty
need to diversify, Grupotec started venturing into France,
and the fact that international funds invest their money
Italy, the UK and the US, among others, seven years ago. No
in Mexico were some of the reasons Grupotec decided to
less than 60% of the company’s income in 2013 came from
venture into the Mexican market. “It is not only a matter
international markets, with the main source being the UK.
of having a solar resource, legal certainty is also essential
Capitalizing on its experience in Europe, Grupotec went
since these are long term projects,” explains Játiva.
on to open an office in the US, and later began projects in Ecuador, Chile and Mexico, which have led to significant
Grupotec’s efforts are very much focused on its Baja
growth for the company’s portfolio.
California project, but Chihuahua and Sonora have also captured the company’s attention. “The strength of
160
When Grupotec started in Spain, it would only participate
Mexico’s resources is reflected in the fact that the area
in the engineering, procurement and construction of
in the UK that has the best solar resources has 40% less
the project. It was not until it began operating outside
potential than the areas in Mexico with the least irradiation.
of Europe that the company decided to venture into
Grupotec developed a project of 50MW in the UK where
development. “We have experience in construction after
the
building over 400MW in other countries and we are trying
compared to the 2,000kWh/m resource that exists in
to take advantage of the opportunities that arise for us as
Chihuahua. There is a lot of potential in Mexico, but it is
developers. We have been working in Mexico for more than
not unlimited. The technology is not competing with green
irradiation
reaches
only
1,100kWh/m2
annually,
2
sector. “One of the main benefits of the reform should be
visit the plant and see its operational characteristics, its
an increase in oil and natural gas production, reducing the
advantages and the benefits offered by this technology,”
costs of natural gas that can be used to generate electricity.
says Balcázar. “We have showed permanence in the market
With this, solar energy and other renewables will lose out
and we are backing up investments with a long term vision.
on competitiveness,” he adds. He predicts that, in the short
Granite Chief is ready to become a main player in the solar
term, the Energy Reform will not have a substantial impact
energy sector. We want to invest in a solar generation plant
on tariffs. “Therefore, there will be opportunities for solar
that commercializes energy through a PPA agreement.”
energy across the industrial, commercial, and residential sectors,” Balcázar points out. Although investment in a solar energy project has to be approached from a long-term perspective, many potential clients want fast savings and results, leaving even fewer truly concerned about climate change and global warming. “Many solar developers consider the market to be relatively immature and its potential as being much higher than what has been effectively exploited. We address this challenge by reducing technology costs in design and installation, and are constantly researching the main technological breakthroughs to increase energy generation efficiency,” Balcázar says. From the company’s perspective, Mexico has a great opportunity and it should make the most of its low-cost manufacturing to become an international powerhouse for solar energy. Apaseo El Grande solar park is a decisive project for Granite Chief as it is one of the few examples of CPV technology
“Many solar developers consider the
market
to
be
relatively
immature and its potential as being much higher than what has been effectively exploited. We address this challenge by reducing technology costs in design and installation, and are constantly researching the main technological breakthroughs to increase energy generation efficiency”
currently working in Mexico. “Prospective clients can
Juan Antonio Balcázar, Director General of Granite Chief
energies, it is competing with subsidized electricity. There
In Játiva’s experience, utility companies resist renewable
are not that many opportunities and it is wrongly believed
energy technologies because they view them as intermittent
that, due to the large quantity of resources in Mexico, over
energy source that cannot be managed freely. “CFE is one
20GW can be generated this way,” Játiva stresses. “Our
of the biggest utility companies in the world and it has not
main focus is on the commercial and industrial markets,
completely understood this new market, not because it is
even though we have detected an important opportunity
not capable of doing so but because it is a completely new
with the DAC tariff. However, the market is getting flooded
sector,” says Játiva. In his experience this has hampered the
with companies seeking the residential opportunity.”
process of getting projects off the ground. When Grupotec approached CFE, the company had difficulty finding out
When financing a project, Grupotec considers the position
who was in charge of the processes that it needed to follow.
of the off-taker and its credit rating. CFE’s advantage
Despite these teething problems, he is confident that it is
is that its off-taker is the Mexican government. Játiva
just a matter of time before CFE gets used to these projects
believes that the company’s project in Baja California works
and the sector starts to develop more quickly.
because power generation in the area is limited, isolated and subject to high tariffs. In the rest of the country this
Grupotec is ready for Mexico’s coming solar energy boom.
scheme does not apply because, he argues, “energy is
Játiva underlines that the company’s experience is what
still too cheap. CFE pays 98% of what power generation
sets it apart from other companies operating here, although
costs for the company and that reduces the profitability
Grupotec says its real competitive advantage is the volume
of a project.” The company is using the same model that
of solar panels it moves. “Economies of scale are a very
it uses in the US; if the off-taker is credit-worthy, Grupotec
important aspect that makes us more competitive, and
funds the project and the off-taker does not invest. On the
we have established long term relationships with our
other hand, if the off-taker does not have the necessary
providers. We guarantee security to investors, since we
credit rating, Grupotec develops a turnkey project for the
are beside our clients in the operation and maintenance
company but does not offer the resources to make it a
of their equipment. We share our knowhow with them and
reality.
verify that the plant is working correctly,” he explains.
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COMMON SENSE AND PROFIT MAKE SOLID COMBINATION The journey that took Donald Walter from inside the Beltway
The project, dubbed SEGF CFE 1, and located in Puerto
to inside Mexico has been a curious one. From having worked
Libertad, Sonora, will be the first project at the utility sale
in Washington, DC, as Director of Research and Policy in
to sell electricity directly to CFE and to several private off-
the White House for the Reagan administration, he moved
takers, with a planned capacity of 250MW. Walter states
to developing public policy and governance initiatives in
that the first phase of the project, at 46.8MW, is quite
countries such as Colombia, Venezuela and Peru throughout
small from the perspective of an international developer.
the 1990s and 2000s. Walter first came to Mexico in 2002 to
“But for us, our project is the biggest and most important
work on a political campaign in Sonora. With a background
facility in the world. Despite its initial installed capacity,
in public policy, rather than engineering or environmental
our model is threatening to others because of what it
advocacy, Walter takes a different approach to the Mexican
represents.
solar industry than many competitors. “Internationally the
outsiders proving that a PV project is not complicated.
industry is typically driven by greed and dysfunction. Highly
Second, our project is in Mexico demonstrating that this
developed countries, like the US, Spain and Germany, have
country, like so many others stereotypically ignored by
artificially propped up the solar industry through feed-
US-based banks and investors, is a safe place in which to
in tariffs and public land giveaways. This was corruption,
work. Third, our project makes solid returns,” he explains.
First, our project is developed by industry
feeding itself upon a broken financial model,” says Walter. “The US poured billions of dollars in public funds into
To Walter’s mind, many competitors from around the
advancing private interests. So, my approach is different as
world will not succeed in the Mexican market, despite a
it is based on common sense and profits.”
wealth of experience. He links this to the track record of the European solar market, which he says was hooked on
His interest in solar grew after he settled down in Sonora
“welfare from feed-in tariffs.” He adds that “while such
and looked at the real estate needed to make solar work.
projects are receiving US$0.10 a kilowatt, the developers
Walter and his partners bought several parcels of land
often borrowed at around 9%. That means that if anything
across northwest Mexico. One of these is next to an existing
happens to the feed-in tariff, they are done as they will
CFE power plant, which allowed for very easy access to the
start losing money for every single kilowatt they put into
grid. He sees it as possible to build more than 10 projects in
the grid.” SEGH will be sidestepping any such problems
that area that will all benefit from easy grid access and low
by seeking to buy its components economically. “Our
costs. Their company, Sonora Energy Group Hermosillo
development strategy is to buy the best panels, trackers
(SEGH), is now building a utility scale, private PV plant
and parts without owing allegiance to anyone.” This
after having received its production permit from CFE.
attitude towards efficiency and economy is one that
WAITING FOR RIGHT GOVERNMENT ACTIONS ON SOLAR Sonora is one of the areas
at the moment, we are simply waiting for the government’s
with
solar
final approval to unlock projects,” says José David Rico
irradiation in the country,
the
highest
Garibaldi, Director General of Solarscape Mexico. “In
making it an attractive
Mexico, more than 40 different rates exist making the cost
place for the installation
of Kw/h hard to determine. If these prices were clearly
of
solar
The
specified, taking into account the subsidies applied to
taken
reduce them, a variety of challenges would be solved. A
a special interest in the
flat rate would be the best option as the subsidies could
development
solar
be outlined in a clear and well-defined way,” he adds.
power plants recently and
Solarscape uses PV cells on the projects it develops,
CFE has assigned a special
and has signed agreements with Sunpower to take
office dedicated to the sector. In addition, the government
advantage of this firm’s high efficiency portfolio. Despite
plans to create the National Center for Innovation and
having access to new solar technologies, Solarscape
Energy in Hermosillo. “Although we do not have any plants
is aware of its most important competitor: natural gas.
government
David Rico Garibaldi, Director General of Solarscape Mexico
162
plants. has of
Walter sees as a direct challenge to all developers.
Cost is also at the forefront of Walter’s mind as a critical
Under SEGH’s strategy, if a rival team cannot operate a
success factor. The project development costs and
utility scale solar project in Mexico at under US$1,500
the interest rates set by the financial backers are what
per installed kilowatt, they simply do not represent
determine the utility margin. “If costs and interest rates are
competition.
too high, then the utility margin will be negative or very
“Our development strategy is to buy the best panels, trackers and parts without owing allegiance to anyone” Donald Walter, CEO of Sonora Energy Group Hermosillo
The confidence Walter exudes about the Mexican solar
low. Developers want a safe investment with a solid return
market is based on SEGH’s strategy to profit from the
while consumers want cheap electricity,” Walter points
fast price drop of PV panels and inverters combined
out. This means that for solar energy to be competitive,
with Mexico’s strong solar resources. However, matching
solar parks have to be developed with very low costs.
his point about companies failing here, he expects the Mexican solar market to experience a contraction sooner
According to Walter, it is essential to make optimal use
or later. “Just because there is a new market does not
of the supply chain for solar equipment. “Companies that
mean that your product is going to work in that market.”
claim they make panels rarely do. They may assemble the
The Mexican solar sector presents certain particular traits
panels from the cells but if you follow the supply chain,
that make it essential to develop a customized business
they are being manufactured in China. We get panels
model in order to be successful, which will determine
directly from China and get the storage from Nadcap, the
which companies survive the market ordeal. Walter says
largest manufacturer of lithium-ion batteries in the world.
that SEGH’s success is also based on its ability to select
Buying panels directly from the real producer dramatically
sites that sidestep many of the problems that can affect
diminishes costs. This results in US$80 million investment
renewable energy projects. When selecting a site, solar
for SEGH, including the substation and 4-5% storage
irradiation is not the only important aspect to consider
availability at our plant, instead of an investment of over
in terms of location, Walter says. Buying land fence-to-
US$100 million. If a park cannot be built at a reasonable
fence with CFE allows for easy interconnection to the
cost, it will not generate profit. But if companies are not
grid. Furthermore, owning the land means SEGH does
making money from renewables, they will turn to natural
not run into land usage issues or other problems that can
gas to develop more profitable projects and less renewable
stagnate the development of a project.
energy projects will be installed.”
The low price of this resource is what makes it highly
to happen. Garibaldi says it is too expensive and the market
competitive in producing electricity. Solarscape offers a
is too small to create good business opportunities. Finding
complete solution that includes purchasing, installation,
panels with a good price-quality ratio is not a challenge
maintenance and financing of solar energy systems but
due to the competitiveness of the international markets.
challenges appear during this process. The main challenge for the company is finding customers at the right rate and
“The future of the large scale industry will probably be
size. Not all producers can benefit from projects of less
promoted by CFE when projects over 100 MW are built.
than one megawatt since that is the minimum transmission
It is a CFE priority to look for foreign companies that
requirement. In addition, financing has represented another
have developed similar projects in recent years,” says
important challenge when working in the residential sector.
Rico Garibaldi. As for Solarscape, its immediate priority
Solarscape cooperates with financial institutions to obtain
is to build the first 1MW plant for online retailer Coppel.
lower interest rates, such as the American Ex-Im Bank.
“This is just a test project for Coppel but if the company likes the project, the opportunities can be very big,” says
The company is looking to establish long-term relationships,
Rico Garibaldi. “The initial investment can be recovered
which is the reason why it has been skeptical of acquiring
in seven or eight years and the average life span of the
Chinese solar panels. In general, the Mexican market is
equipment can reach 30 years. In the meantime, actions
very sensitive, placing a very high premium on pricing.
taken by the government are expected to boost the
Therefore, developing a local manufacturing hub is unlikely
sector as a whole.”
163
| VIEW FROM THE TOP
SOLAR ENERGY NEEDS GOVERNMENT SUPPORT TO THRIVE JAVIER GARCÍA Director General of Socios Energéticos de México Verde Q: What does Mexico need to support the development of
Q: What was the motivation behind the creation of Socios
the solar energy industry?
Energéticos de México Verde (SEMV)?
A: The government has to get involved. In the US, regardless
A: SEMV’s intention is to transmit the importance of
of the project size, the federal government provides a 30%
generating energy from renewable sources, while lowering
investment tax credit on the cost of PV equipment, on top of
environmental pollution. We are convinced that solar energy
other state and municipal tax incentives. This is something
is the best option. It is a free energy source and we believe
we do not have in Mexico but we need it in order for the
that if we have been able to generate energy from fuel, we
solar sector to thrive. This should perhaps not come in the
can do it from solar energy in a profitable way. That profit
form of incentives or subsidies, but the government could
may not come in the short-term or match those coming from
help the industry by facilitating financing at low interest
fossil fuels, but the sun is definitely a profitable source of
rates. The main obstacle we have faced is getting access
energy.
to financing. Solar projects are not common in Mexico and people are hesitant to invest. When 10% of the energy in
Q: How would you rank the attractiveness of the Mexican
the country is generated by the sun, the situation will be
market in comparison to the US and European markets
different and everyone will want to invest.
today?
TRUST ESSENTIAL TO OPEN THE MARKET Sharp, the Japanese designer and manufacturer of
provides solar panels for space missions carried out by
electronic products, has over 50 years of experience
NASA and Japan’s National Space Development Agency
in
essential
speaks to the quality of its products and its insistence
contributions to solar technology. “We decided to come to
on top-notch R&D. “It is very important to know that the
Mexico as part of our global strategy to boost solar energy.
components you use can guarantee the efficiency of the
Also, we are trying to help the country reduce its CO2
equipment for 25 years. Our production processes must
emissions because we believe that it is our responsibility,”
enable the module to operate with at least 80% of its initial
says Adolfo Sánchez, Director of Sharp Solar’s Energy
power,” he stresses. This is a crucial factor, considering that
Division. His company has made a strong bet on the
a solar park audit done in early 2013 revealed that 43%
commercial, industrial and residential sectors, with the
of manufacturers cannot guarantee even three years of
latter being its strongest market. In order to address the
operation. “Our products may be 30% more expensive but
growing demand for solar energy from the residential
that buys you a guarantee of optimal performance.”
photovoltaic
products
and
has
made
sector in the Mexican market, e2 Energías Ecológicas
164
was created over five years ago in Jalisco. CEO Guillermo
“e2 Energías Ecológicas was responsible for opening the
Corona is proud to work together with Sharp Solar’s Latin
solar energy market in Guadalajara, Jalisco, which was no
America Energy Division on project development. “Sharp
easy task,” says Corona. “There are now over 30 companies
acts as a manufacturer of solar panels and e2 Energías
offering these services, but competition has heightened
Ecológicas works as an integrator,” he explains. “One of
public awareness about the benefits of solar energy and has
our strengths in convincing clients is that we have the
broken down many barriers that e2 Energía Ecológicas faced
support of a very respectable company, the oldest still
when it began operating.” The company has transitioned
operating solar panel manufacturer. It is one of the rare
from selling six systems in its first year, seen as a success
companies to have been around for longer than its solar
at the time, to installing between 15 and 20 per month. 80%
panels’ warranty.” According to Corona, the fact that Sharp
of the market is currently in the residential sector, a logical
A: Opportunities exist for solar energy almost everywhere
high and requires a lot of extra accessories. On top of that,
in the world. The difference lies in who wants to invest
maintenance is 30% more expensive than for the systems
and how, as solar projects involve a long-term return on
we install. SEMV sells 1MW in systems but installs 1.2MW in
investment. We are aware the competition is strong, but
capacity. Tracking can be done using those extra 200kW,
we know that the projects with the strongest foundations
thus reducing maintenance and saving clients from having
are the ones that will be successful.
to pay for the tracker.
Q: How does SEMV work in order to generate local
Q: What separates SEMV from other solar energy
knowledge of the solar industry?
companies currently operating in Mexico?
A: Creating a wealth of local knowledge about the solar
A: Our main differentiator is that we provide 100% financing
industry makes sense for us as a company and the industry
and a 25 year warranty on our projects. There are no excuses
at large as it will benefit us in the future. We are currently
to not start up a solar project with the conditions we offer.
working with Universidad de Monterrey and Universidad de
Our clients do not have to invest for five years and do not
Monclova, offering them training courses and looking at the
pay until the project is up and running.
possibility of adding a class to their engineering programs. Q: What do you see as the greatest growth opportunities Q: Which technology trends will have the greatest impact
for SEMV in the future?
on the cost competitiveness of solar energy?
A: Over the next five years, we want to become industry
A: Over the two years we have been working in this sector,
leaders with an installed solar energy capacity of 500MW.
we have been constantly searching for the best technology
Our strategy is focused on low cost, quality, and guarantees.
and capacity. Technology improves each day and we
Our goal is to open a solar panel manufacturing facility in
strive to offer the best options to our clients. We do not
Mexico. But first we have to sell 100MW to have the demand
favor solar trackers as their energy consumption is very
needed to open a local facility.
situation for Corona, since it has the highest electricity tariff
to navigate CRE’s approval process and CFE’s viability
in the Mexican market. The payback in this sector can take
assessment on whether transmission lines can reach
from three to four years, but the real incentive is in its 100%
potential sites. Additionally, the Environmental Impact
depreciation in the first year. The energy tariff is much lower
Assessment has to be obtained while social issues often
in the industrial sector which makes large projects more
prove troublesome. “The sector will only take off when
complicated due to the larger CAPEX needed for construction.
large projects become a reality and the government
In order for solar energy to keep growing in Mexico, Sánchez
provides incentives to the industry. We still have a long
believes the sector needs government incentives. He also
way to go in order for solar energy to reach 1% of Mexico’s
mentions clients’ desires to have a faster return on investment
total power generation,” states Corona.
than what is available right now. “I believe Mexico needs similar incentives to those in place in Germany and Japan,
However, if conditions change and the market explodes,
where anyone that installs a photovoltaic system, apart from
e2 Energía Ecológica, with Sharp’s support, will be ready
investing in renewable energy, is motivated because the kWh
for whatever the industry requires. “For larger projects,
is paid at twice the price. In the case of Mexico, people that
we have enough expertise gained through 54 years in
are very environmentally conscious invest in solar technology,
the sector. Our projects have technical support from
but the rest need government incentives.” To address the
professionals around the world. Also, Sharp has had a
lack of knowledge in the country about PV systems, Sharp
wealth of experience in repairing the damage that other
Solar is working on education programs to spread the
companies have done, satisfying clients and keeping
benefits of this type of renewable energy. It provides training
them believing in solar power,” Corona considers. Sánchez
courses to CFE employees to improve their understanding of
adds “We are aware that our growth is highly dependent
the solar energy industry and is also involved with academic
on the market and other external factors, but we expect
institutions.
future incentives from the government and will definitely see higher growth. Our most important contribution to
Corona views the current regulatory framework as a
the sector is that Mexico has access to state-of-the-art
challenge for large solar power projects, given the need
photovoltaic technology.”
165
SMALL-SCALE SOLAR PROJECTS CAN STEP INTO THE LIGHT Good things come to those who wait. For Carlos Flores,
for decades, in their respective countries. This double
Director General of renewable energy solutions firm
influence is moving Conermex to accommodate that
Conermex, that wait has lasted a long time. “35 years after
expected growth, from seeking new partners to expanding
I began my degree studies on renewable energy against
their warehouse storage space.
traditional sources of energy, we have finally become competitive. The moment has arrived at last.” The appeal of
Although keeping an eye on future expansion, Conermex
renewable energy, particularly solar, has been heightened by
sees its near-term market opportunities still lying within
favorable economic changes, such as the cost of solar panels
the residential market and small commercial projects.
dropping by 50% from 2010 to 2012. When set against the
Such opportunities do not require a speculating financial
high electricity prices that large domestic consumers are still
investment but promote the company’s commitment to
paying, the appeal becomes clear.
sustainability and environmental issues. Flores says that small-scale systems represent a 9MW market for the
Growth may not come overnight, Flores knows. In 2012, the
company, including a 180KW project for the Science and
National Association of Solar Energy (ANES) predicted an
Technology Council of Zacatecas that opened in October
increase in installed solar capacity of 7MW per year, a figure
2012. A larger 1MW project with the government of Guerrero
dwarfed by the 7.6GW Germany installed that year. However,
is also underway in Acapulco. While companies wait for
the companies operating in the nascent solar market must
big projects to arrive, solar energy has increasingly been
plan ahead and be ready for rapid expansion. In 2012,
harnessed to provide solutions to Mexico’s smaller energy
Conermex sold 2.7MW of PV modules, which accounted for
problems. Conermex has been integral in helping CFE with
25% of the wholesale market. However, Flores anticipates
its rural electrification efforts. It has built mini-grids for CFE
that large solar projects could soon jump to 50MW each, if
where a small solar plant provides for a few homes, such as
not more. Should Flores prove right, those companies who
one covering 30 houses in Sierra Del Nayarit. Flores is a firm
have not scaled up their availability of financing or of human
believer in such budget solutions, and hopes to see CFE
risk falling by the wayside. Conermex does not intend to
soon build the 50 mini-grids it has promised. As Flores says,
be among them. Its shareholders combine Mexicans
such mini-grids coupled with the residential solar panel
and Germans who have worked in the solar business
market instill a long-term commitment to sustainability.
Conermex is the leader company in the solar industry in Mexico.
We offer a wide range of support to our clients looking to successfully develop and install their photovoltaic systems, regardless of project size and specifications. Conermex has executed the most important projects in Mexico in the last few years thanks to our experienced technicians and engineers with over 20 years of experience in the solar industry.
166
www.conermex.com.mx
After residential solar instalations increased from 1,700 in
seen with plans to develop plants in four municipalities
2012 to 4,000 in 2013, the future seems bright for small
in Sonora. Flores is quick to warn that the potential for
commercial installations. Flores is confident that the
solar plants in the municipal market may be high but that
correct financing could see the market move on to bigger
developers must take into account that administrations
“35 years after I began my degree studies on renewable energy against traditional sources of energy, we have finally become competitive. The moment has arrived at last” Carlos Flores, Director General of Conermex
plans. “FIDE, the national commission for energy savings, is
at the municipal level change every three years, whereas
starting to fund this type of projects,” according to Flores.
the lifecycle of a PV system runs for 20 years. Flores is
These signs of confidence from the government, in terms
confident that a perfect storm of market forces will take
of solar, is why Conermex has been seeking to guarantee
shape. He states that with prices dropping across the
a nationwide presence for its services, despite the relative
value chain, the government ready to make changes to its
size of the market.
regulatory framework, with a growing market, effective suppliers and technological improvements, solar energy
So just when will the awaited bloom happen? Flores
will be able to punch well above its weight class.
expects market pressure to drive that through alone, although government help would certainly help it go
Is he concerned that the heavy hitters have not yet
faster. Flores is gladdened to see such initiatives as “FIDE
committed to solar? “No,” he answers, “Iberdrola, Abengoa
testing a financing scheme where savings in electricity
and other big guys have not taken a step in this market
costs would equal repayment of loans, which could see
despite having been in Mexico for many years. When they
loans paid off in as little as five years.” Combined with
do take that step, very big changes will happen.” When
“CFE tariffs that are high enough to make financing
those companies do decide to do more than dip their
feasible up to repayment terms of 15 years,” such
feet into the solar energy pool, they might find Conermex
initiatives are making large plants feasible, as can be
swimming right beside them.
DOSE OF REALISM FOR SOLAR ENERGY “In Mexico City, all new commercial buildings with more
As Chairman of the renewable energy committee of
than 51 employees, are required by law to have 30% of
CANACINTRA, a national business chamber dedicated
their energy needs provided by solar. This would be
to the evolution of Mexican industry, Mekler saw the
a fine start but there is very little enforcement. People
committee’s membership grow from four to 140 in three
know they will not even be fined if they do not obey the
years. While many of these are one-man firms looking
law,” states David Mekler, Director General of Heliocol
to enter the market by selling equipment made in China,
México Solar (Heliocol). Should official support remain
the speed and scale of this expansion speaks volumes
lacking, companies like Heliocol may have to use their
about growing interest in the sector. No matter their size,
own reputations and track record to change minds and
Mekler believes these Mexican homegrown companies
increase compliance. Mekler explains that, despite being a
could maintain an edge in human resources and business
small enterprise, Heliocol is growing its distribution chain
practices over foreign counterparts for at least a decade.
with precisely that goal in mind. Even with eight offices
Looking to the next five years, Heliocol’s growth will be
around Mexico, it is tough for the firm’s advice to reach
tied to that of the industry. Mekler forecasts that the
more than a small percentage of the public. However, this
market could double in size annually, bringing in a lot of
nationwide commitment is part of its vision for a greener
competitors. The company’s signature projects, such as
Mexico. This motivates Heliocol’s team more than focusing
installing solar thermal heaters for low-income households,
only on the industrial sector of one particular city, with a
have brought it this far. But with expansion now firmly on
larger immediate market, Mekler explains. “Heliocol wants
the cards, its focus will switch from the residential sector
to convince businesses that using solar thermal will make
to the large-scale solar market while diversifying to 50%
them more profitable.”
thermal and 50% PV in its services portfolio.
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INNOVATIVE MEXICAN PV PANELS ENTER EXPORT MARKETS The Mexican solar energy industry is a net importer of
companies have also started knocking on Solartec’s door,
photovoltaic technology. Solartec, a Mexican company,
asking for 5MW and above capacity per month.
realized
the
market
was
flooded
with
products
manufactured in Asia or Europe. After exhaustive research
But how exactly did Solartec manage to acquire part of the
and development, the company produced its first solar
American market and compete with the biggest Chinese
panel in early 2010. Solartec’s continuous drive for
players? Tomé emphasizes that the distance between
innovation has enabled it to manufacture new products
the US and China worked to Solartec’s advantage since
that take into account the specific needs of the Mexican
the company is able to deliver its products much faster
solar energy sector. “Three years ago, we created the first
as well as guarantee a quicker turnaround time than
micro-inverter especially designed for the Mexican market,
Chinese manufacturers, which makes its clients feel more
which remains one of our biggest products,” says Gustavo
comfortable. “Another factor is that many people in the US
Tomé, CEO of Solartec. “We also created a very cheap
prefer consuming Mexican products than Chinese ones.
mounting system for the modules with a PET pipe firm, a
Since we are certified manufacturers, we can produce
sister company of Solartec. Both of these are examples of
the same or better quality technology than that made
our focus on innovation to capture a bigger share of the
in China,” he adds. Additionally, enhancing customer
market.”
relations by focusing on offering its clients a face-to-face relationship rather than having them travel to China, has
Tomé explains that the process of producing modules is
proven to be a successful part of the company’s strategy.
rather easy: the glass, frame and many other components are bought from external providers before Solartec
Solartec is working to get the CSI (California Solar
assembles them in Mexico. Where the company really
Initiative) certifications which will enable it to acquire
innovates is in sales. It adds value to its products by
more clients in the state. Despite this, there is still doubt
researching the different ways in which the modules can
about Solartec’s ability to survive in the market over
be adapted. “The micro-inverters we use are assembled in
time. Tomé explains that, in order to create certainty,
China, but we have the patent for that product. We can also
the company is now focused on smaller projects but
reduce the costs of the mounting systems by designing
he recognizes the need to take the next step to tackle
them with the combined expertise of our PET company
larger ventures. “We need to move quickly to not miss the
partner,” Tomé states. Currently, Solartec has a module
opportunity, but we need to avoid growing the company
production capacity of only 25MW, whereas companies in
too fast. We are in the process of looking for an insurance
China have tenfold that capacity. Even though the Mexican
company to guarantee the high quality of our products.
solar energy industry has not taken off yet, the company
Another step that we need to take soon is to open more
is ready to take advantage of business opportunities
local offices in the US. We have one in California with
the sector provides. The acquisition of Photovoltech, a
our partner WCAP, but if we are working to get bigger
Belgian producer of multicrystalline silicon solar cells,
projects and clients, we will need to expand,” he stresses.
in February 2013 enabled Solartec to become the only manufacturer of this product in Latin America.
The Mexican market has also presented many challenges, including the lack of knowledge about solar power back
Four years ago, Solartec’s main objective was to export to
in 2009. “It is difficult to persuade people to invest in a
the US. The firm realized how complicated this was back
system that will make them save money in the long term
in 2011 when faced with the much lower prices Chinese
when they would rather buy an expensive flat-panel TV,”
companies could offer. However, the market shifted in 2012.
Tomé emphasizes. Convincing Mexicans that they should
Soaring wages in China added to high transportation costs
turn to green solutions has proven to be complicated.
enabled Solartec to become a player in the US market. The
Nevertheless, the company knows the importance of
company is currently exporting 20% of its total production
promoting and working together as an industry to achieve
but aims to increase this to 50% in 2014. “If we wanted,
a bigger goal: the consolidation of solar energy in Mexico.
we could focus only on the US market. With our capacity,
168
we can have one or two big clients and allocate our full
“We want to help our customers establish themselves in
capacity to them, but we also want to grow in the Mexican
the photovoltaic industry and ensure that they get the
market,” Tomé adds. Solartec’s strategy is growing one
training they need to replicate these projects. We want
step at a time, with smaller companies that install solar
to get this technology installed in many homes across
panels with lower capacity projects. However, bigger
Mexico,” Tomé adds.
PATIENT BUSINESS DEVELOPMENT FOR SOLAR CELLS The solar industry boom that California underwent in
track record in the solar industry, which entered Mexico in
2009-2010 reminded Alejo López of a gold rush. He saw
2012. “We saw that Latin America would soon become a
the craze where those with sun-kissed land and access to
crucial market. The first step to enter Latin America was to
a power line invested without investigating the amount
move to Puerto Rico as it is part of the US but is very Latin
of radiation or the quality of the land. Predictably, this
in the way business is done there. Mexico was next and we
created a long line of projects left in limbo as many of
fully entered the country in October 2012,” explains López.
them were not financeable. López, the Mexico Country Manager for Hanwha Q CELLS, sees the same bottleneck
López is excited about the small power producer projects,
now happening in Mexico. “We are going through that
and places his faith in the development of the rooftop
phase where inexperienced small developers try to do
sector. “Rooftops are a very exciting market because a lot
a project. They should keep doing so, but they need to
of customers are paying a lot of money for power today,”
understand that even a 10MW project requires a significant
says López. The giant’s experience in the US showed that
investment and contract guarantees that small companies
any project is feasible if the right financing is found. In
cannot afford,” observes López. From the perspective
this light, the real challenge in Mexico will be customer
of the Korean-owned conglomerate, real opportunities
aggregation, says López. This process involves finding
are cropping up at a time when nobody seems to have
enough customers for a project so it becomes attractive
figured out the best strategy for now to secure projects.
as a financing option for banks. The steps outlined above
However, several factors will combine to force the
are just the first ones that Hanwha Q CELLS plans to take
market to mature. López believes a cycle of mergers and
to legitimize the potential of small producers. By the
acquisitions is needed to filter out those companies that
end of 2014, the company would like to have deployed
do not have staying power and allow the stronger players
at least two commercial projects. “We are aiming to get
to make their mark. During this process, banks would set
anywhere above 10MW of installed capacity. This would
out requirements to help level the playing field. López also
serve as conclusive proof that this sector is real and that
feels CFE should “impose more stringent requirements on
projects can be executed. It would prove this not just to
developers to block transmission capacity.”
our company but also to our partners, our customers, and
“We are aiming to get anywhere above 10MW of installed capacity. This would serve as conclusive proof that this sector is real and that projects can be executed” Alejo López, Manager for Hanwha Q CELLS
Hanwha Q CELLS’ view may come from just over a year
the financial community.” As it looks to larger projects,
operating in Mexico but it is a heavyweight perspective
Hanwha Q CELLS is basing its strategy on co-development,
nonetheless. Hanwha is part of the Global Fortune 500 and
finding local partners that bring added value. López quips
one of South Korea’s ten largest companies. Its solar efforts
that the firm can afford to be choosy, seeking mostly to
operate alongside its interests in the construction and
partner with large energy users to develop and finance
chemical industries, as well as financial services. Subsidiaries
solutions for them. In terms of positioning in the broader
like Hanwha SolarOne, which manufactures wafer ingots
market, Hanwha Q CELLS does not intend on making
and modules, make for a small component of the company’s
many announcements, preferring to focus on developing
US$105 billion balance sheet. However, this diversification
projects using their execution capacity. As López points
means that its solar outfit can be nimble while relying on a
out, few firms in Mexico have the resources and expertise
powerful parent organization. Then in 2012 came the buyout
to execute a project at the 10MW scale. But Hanwha has
of Germany’s QCells, once the largest solar cell maker in
built over 500MW in projects and has many more on the
the world. This buyout allowed Hanwha to execute on its
go. This has translated into a very rational approach to
downstream integration strategy, which includes greenfield
the Mexican market, where investment does not flow to
project development, M&A, and project financing. It was the
projects with low viability. While this might disappoint
new entity dubbed Hanwha Q CELLS, combining Hanwha’s
some, this is a by-product of Hanwha Q CELLS’ pledge to
engineering and financial ability with Q Cells’ R&D and EPC
commit to a project, follow through and get it done.
169
PRAGMATIC APPROACH TO EXPORTING SOLAR PANELS Saya Energy can be seen
recognize the quality of our products,” Rodríguez explains.
as a microcosm for the
He adds that the company’s forays into the solar market
changes
have been positive so far.
taking
place
in Mexico’s energy mix.
José Jaime Rodríguez Torres, President and Partner of Saya Energy
Since its early days as a
Not much competition exists for Saya Energy at home
diesel generator firm, Saya
and Rodríguez Torres notes gladly that Mexicans are
Energy has evolved into
very patriotic when it comes to locally manufactured
a manufacturing of solar
products. But local companies are not the only ones to
panels
Mexican
have detected the opportunities for solar technology in
market. The company has
for
the
the country. Rodríguez Torres is not worried about the
also found opportunities
quantity of international companies that are flooding
to export its products to the US. By combining efforts with
the Mexican solar market as he believes it is big enough
its providers, many of whom are Chinese companies that
to accommodate them all. He quotes the example of
are unable to tap the American market due to anti-dumping
the automotive market, where companies still have big
regulations, Saya Energy manufactures its products in
opportunities, regardless of whether they are old Mexican
Mexico based on components from other countries and
hands or new arrivals. “If the product is good enough, we
prepares them for the US market. “We receive the raw
can have a place in the market and our main goal is to be
materials from Chinese companies that cannot export
a player in our country,” he says. “We know the challenges
to the US and we transform it into a product that can be
that dealing with CFE represents and the implication of
exported. The challenge is in combining efforts and creating
dealing with other government agencies. Once we are
the partnership with firms that are willing to explore this
able to solve these local problems, then we will think
opportunity,” says José Jaime Rodríguez Torres, President
about entering other markets.”
and Partner of Saya Energy. The Mexican solar market might actually be ready for Saya Energy started considering solar panel manufacturing
a full supply chain, in Rodríguez Torres’ opinion. “The
three years ago when it was a solar integration company that
government could help the solar industry because a lot
imported panels, inverters, and batteries from other countries
of companies are interested in acquiring this technology
for end users. Saya Energy’s technology is imported from Asia
but initial investments are proving to be a financial burden.
where the company says it can find the best components at
Resources are available, but the paperwork takes too
the best price. When the firm finds what it is looking for, its
long, causing customers to lose interest and seek other
strategy is to seek ways to reduce costs even more since the
alternatives. In spite of structural complications the solar
company is competing with the prices of wholly Asian made
industry has grown steadily in the industrial, residential
solar panels. According to Rodríguez Torres, the quality of
and in the rural sector.” However, Rodríguez Torres points
the company’s products is the same as those which can be
out there is still a lot to do since the installed capacity in
obtained anywhere in the world. Perhaps the biggest issue
Mexico is considerably lower than in other countries with
is acquiring raw materials from Mexico. “This country has just
similar socio-economic situations.
started manufacturing solar panels and there are very few companies that can provide raw materials with the specific
As more companies and households seek for alternatives to
characteristics we need to produce solar panels. In Mexico,
reduce their electricity spending, the Mexican solar energy
these products can be two or three times more expensive
market will continue to grow. Companies and households
than our imports. We would like to buy these products
that spend a fair amount of their economic resources on
locally but there is no availability, either in terms of quality or
electricity bills are increasingly looking at solar energy
volume,” explains Rodríguez Torres.
as a good alternative due to relatively short payback periods. Rodríguez Torres is aware of the opportunities
170
Being one of the first companies to manufacture solar
Saya Energy could grab in the residential and industrial
panels in Mexico has its advantages but clients can prove
sectors. “Solar energy is a concept that does not only help
skeptical about Saya Energy’s expertise. In order to clear
the company be better but is also a way to mitigate our
any of these doubts, the company is ISO 9001 certified,
actions and avoid future consequences. Mexico is prepared
as well as complying with Mexican NOMs. “Regrettably,
for the solar industry market to boom, but we are still
Mexico has no laboratories that can certify solar panels yet,
missing the initiative of companies that need to bet on
but there are international companies that support us and
solar technology,” he concludes.
MEXICO PRESENTS NEW MARKET FOR CHINESE WORLD LEADER “Expanding operations into emerging markets in Latin
of Yingli’s operations is its biggest advantage. It has 2.45GW
America is both timely and strategic,” says Santiago
of nameplate manufacturing capacity and, according to
Desentis,
Solar.
Desentis, can provide the volume of modules required by
“Although many emerging markets, especially in Latin
Mexico
Country
Manager
for
Yingli
large-scale projects on schedule. He also points out that
America and Asia, have long supported a relatively sizeable
the size advantage works to the company’s benefit in the
market for off-grid applications, we are beginning to see
commercial and residential market segments. “The fact that
on-grid solar become more mainstream across all market
we have both local inventory and a dedicated local team
segments.” The Chinese company, founded in 1998, recently
are key differentiators from our competitors in the region.
hit the significant milestone of 1GW in sales to the Americas
This has helped us build a deeper understanding of the
and the Caribbean. In order to be able to establish long-
local market, and given us the ability to respond quickly
term partnerships with its customers and provide technical
to changing market dynamics,” claims Desentis. Being the
and marketing support, Yingli has corporate bases in San
largest PV module manufacturer in the world allows Yingli to
Francisco and New York, and offices in Mexico and Brazil.
reduce costs, increase quality controls, bring new products
“This strategy has helped us become a more supportive
to market more swiftly, and offer more competitive prices.
and effective partner,” remarks Helena Kimball, Head of Marketing Americas at Yingli Green Energy Holding. “That
In order to clear up any doubts the client might have
is paying dividends: in the second quarter of 2013, we
concerning the quality of the panels, the company performs
expanded our customer base in Latin America by 32% to
rigorous in-house testing and has a comprehensive research
more than 65 customers. Undoubtedly, having a local team
and development strategy. Yingli also works with leading
in the region was a major factor in that growth.”
suppliers of key components such as backsheets, for which DuPont is a primary supplier, and tests new products and
Mexico is a top growth market for the company and
prototypes at three different R&D labs located around the
establishing a local presence was the first step towards
world. If any doubts still remain regarding Yingli’s quality,
gaining a solid market share. Yingli’s management team
its clients are offered the opportunity to visit its PV Testing
believes there will be a significant advantage for companies
Lab in San Francisco and its factories in China. Technical
that enter the market early and develop a presence and
support is also a crucial element in providing customer’s
brand awareness. “Major projects are starting to get
satisfaction. “If a Mexican client was to ever experience
underway and there is a concrete project pipeline, which
an issue, they could send the products to our regional
makes this the right time to form strong partnerships in
PV Testing Lab in California for support. This allows for
the market. We are primarily targeting large-scale projects
a much faster turn-around time than would take place
and distributed generation projects, as these are the
if claims were processed in China,” Kimball points out.
most attractive investment opportunities for our regional partners,” stresses Desentis.
As the company moves forward in the Mexican solar market, some challenges remain. “The main issues we
Brand awareness is a crucial element in Yingli’s marketing
are currently looking at are on the policy side,” says
strategy and the FIFA World Cup™ is the perfect stage for
Kimball. “We have to ensure that when the solar market
it. “Our visibility as a sponsor is a tremendous driver for
develops, the right policies are in place for the sector to
our brand awareness, especially in emerging solar markets
grow. Currently in Mexico, there is no policy for private
in Latin America,” explains Kimball. “Importantly, our
companies to become deeply involved in the sector: the
customers have told us that our sponsorship helps build
government is taking the leading role. We applaud the
awareness for solar energy in general, as our perimeter
government’s virtual net metering policy, the goal to install
boards and advertisements read Yingli Solar, and much of
2GW of solar by 2025, and the plan to reduce greenhouse
our messaging is geared towards education concerning
gas emissions by 30% before 2020. Nevertheless, we hope
renewable energy.” The strategy seems to be paying off.
that policy developments that are more supportive of
“During the FIFA Confederations Cup this past June, the
the market’s growth will take place.” In order to maintain
volume of inbound sales leads grew exponentially, which
its leading position, Yingli aims to continue providing
led to an increase in sales across the Latin American
affordable green energy and continue growing in the Latin
region,” Desentis adds.
American market. In Mexico, the company looks to grab 15% of the market share within one or two years, as well as
Commercial, residential, and utilities are the company’s
to participate in many of the nation’s upcoming milestone
three main markets. Regarding the utility market, the size
projects.
171
GERMAN LEADER BANKS ON MEXICAN INVERTER MARKET According to Thomas Götz, Sales Vice President at SMA
demand for electricity,” says Götz. Furthermore, indicators
Solar Technology (SMA), “photovoltaic technology has
as Gauss Energía’s 30MW Aura Solar I and the presence of
reached a development stage where it can generate
financers, banks and investors willing to invest here, show
electricity at comparative costs as natural gas, wind, coal,
that the Mexican solar market is taking off and becoming
and other types of energy.” Currently, the opportunities
more attractive to global players. However, Götz still
for the sector tend to be more oriented toward large-scale
recognizes there is a long way to go. Although interest in
projects that are suitable for the self-supply scheme. Clients
solar energy and renewable sources in general has been
are often searching for one-stop shops that offer them all the
growing, some technical aspects remain to be addressed.
services and solutions they require. Therefore, a company
The company sees the inverter as the difference between
that is able to offer the whole package from generation
having performing or distressed assets, which should be
activities to power transmission will stand to benefit.
of crucial importance to anyone interested in investing in
German manufacturer SMA believes it is one of the few
a solar project.
competitors in the market that can fit that description. SMA has an advantage in the Mexican market in that it develops,
In emerging markets, such as Mexico, the grid code evolves
produces and sells its own PV inverters, for applications
in a peculiar way. Initially the grid is developed for relatively
ranging from small residential projects to large-scale plants.
low amounts of energy, but this will increase due to the
In Götz’s perspective, providing integrated solutions helps
development of industries and urban areas. The power
clients ensure greater efficiency and reliability, twin goals
plants connected to the grid have a lifecycle of 20 to 25
which are at the core of any energy project. Götz says SMA
years and they have to be able to provide quality over the
is able to maximize the return and the cash flow for its clients
long-term, while maintaining high efficiency ratios. This
as well as minimize the risk involved in investing in a solar
poses a unique challenge for companies that design and
project, especially in large-scale power plants with long
produce equipment used in power plants as their products,
operating life cycles. For all that it has expanded toward
once installed, will need to be future-proof. This means all
a vertically integrated model, SMA still has over 1,000
the equipment requires a lifecycle that emulates that of
people working in its German research and development
power plants and can adapt to future needs. Of course, no
department in order to improve the quality and technology
one can guarantee that the products are going to reach
of its main product: inverters.
this future-proof status, but Götz says SMA is focusing
“Photovoltaic technology has reached a development stage where it can generate electricity at comparative costs as natural gas, wind, coal, and other types of energy” Thomas Götz, Vice President Strategic Sales of SMA Solar Technology
Although SMA is not interested in developing storage on its
many efforts toward that goal being a reality for its solar
own, the company understands its importance. This is why
equipment.
SMA’s second R&D priority is precisely storage as a tool to be able to use electricity in more efficient ways. When setting
“The Mexican solar market is developing positively and
up systems, the company considers with its clients which
rapidly. SMA expects to soon announce its plan to fully
precise storage and battery solutions are best for them and,
enter the local market, aiming to become leaders here as
of course, how to optimally connect them to the inverter.
they have in more than 20 other countries,” states Götz. The company knows that to provide the best option in terms of
172
With more than 30 years of experience and 30GW installed
quality, technological issues, service and grid management,
around the world, SMA has plans to keep growing in both
it must make sure each of these areas is worked on optimally
its product portfolio and the markets it has presence in.
within its operations. That is why SMA is already working
As part of its expansion strategy, Mexico has become
with Mexican firms and CFE in order to quickly advance on
an interesting market for SMA to introduce its products
its Mexican learning curve and position itself in the market.
and services. “Mexico has everything to be a great solar
“People know SMA is cooperating with them and, for us, this
market: solar irradiation, growing economy and important
may be one of our biggest achievements,” concludes Götz.
ENERGY EFFICIENT SOLAR ELECTRONICS MADE IN GERMANY FIDE, the Electrical Energy
determines which power stage has had the least amount of
Savings Trust, was created
operating hours and assigns it to take the main load, keeping
over 20 years ago to foster
an equal balance on component wear. IG Plus inverters have
energy savings and energy
a ventilation system that keeps dust and moisture away,
efficiency, as well as to
which comes in handy in Mexico’s northern states. Cold air
support new technologies
is fed to a cooling element through a hermetically sealed
and
venting duct, keeping the PC boards intact. The system is
the
development
of a sustainable energy
kept cool, ensuring its long-term working life.
culture. Since its creation
Markus Rieder, Managing Director of Fronius Mexico
in 1990, it has provided
“It is important not to look for the cheapest solution, but
over 2.5 million credits
rather to put the focus on the service level in Mexico,”
to the residential sector. During 2012, 530 companies
Rieder claims. “As in the long-term, the development
benefited from its credits to replace existing equipment
of solar power projects always entail maintenance and
with newer energy efficient technology, resulting in
services. Quality is extremely important in Mexico. The
electricity consumption savings of 1,996GWh, as well as
distances to travel are great, meaning it takes a long time
preventing the emission of over 1 million tonnes of C02 into
for repairs to be undertaken. Our high quality inverters
the atmosphere.
ensure maximum energy production and minimum service requirements. A system can cost you half the price, but if
In October 2013, Fronius, the Austrian manufacturer of
it does not work properly then it will not be able to deliver
battery charging systems, welding technology and solar
energy,” Rieder says.
electronics, which has been present in Mexico for over 30 years, obtained the FIDE seal for its Fronius IG and IG Plus
Fronius has collaborated on projects with Mexican
V invertors, an acknowledgement of their energy efficient
federal institutions, works across private industry, and is
performance. Despite the company having been present
heavily involved in the residential sector as well as in the
in Mexico for so long, it did not open a local office until
commercial sector. Rieder views the Mexican solar industry
2007. “Because of the market’s potential, we started with
as being at a very early stage, at which most people still
the welding technology division,” recalls Markus Rieder,
do not realize the extent of the economic benefits they
Managing Director of Fronius Mexico. “Later on, we spotted
can acquire. The lack of information and experience has
potential in the solar business when CRE authorized the
been one of the most significant challenges the company
on-grid market. We were able to react quickly with our
has encountered, compelling it to adjust its operational
existing infrastructure, so in 2010 the solar electronics
strategy to offer continuous training for the local market.
division began operating in Mexico.”
On the other hand, a lot of installers have just entered the market and need technical support with inverter
In just three years, the company has acquired a leading
installation. Another issue that could be attributed to
position as an inverter manufacturer in Mexico, which
the fact that the market is still young is the difficulty of
has yielded positive results, such as the FIDE recognition.
finding or applying international best practices, due to the
Because this equipment transforms direct current collected
absence of feed-in tariffs. “When a market is as young as
through solar modules into alternating current, it is essential
Mexico’s, we have to offer even more services and support,
for solar power systems to deliver energy. Rieder explains
because installers are not completely independent yet.
that Fronius’ inverters adapt very well to the extreme
For this reason, Fronius strives to offer greater services,
environmental conditions found in certain parts of Mexico,
making this the foundation of our success,” Rieder says. In
especially in the north where Fronius inverters work at peak
his opinion, the market will definitely experience growth,
efficiency during sweltering heat for “so much longer than
though likely not as quickly as Europe did. “Mexico lacks
our competitors.” One of Fronius’ interesting designs for
financial instruments and direct government incentives
concept, which allows PV
for the PV market. Regardless of the state of the market,
systems to generate energy even during cloudy conditions at
Fronius’ strategy is focused on furthering the company’s
maximum efficiency. In Fronius inverters, such as the IG Plus,
heavy involvement in residential and small utility projects,
up to six power modules work together. Depending on the
while continuing to tap its international experience in
level of utilization, these can either function simultaneously
providing industrial solar power installations,” he adds.
or operate individually when called upon. If one module fails,
Having FIDE’s seal of approval is one of many different
the others can continue functioning. A central processor
elements that prove this.
the Mexican market is its MIX
TM
173
LOYAL COMMITMENT TO QUALITY IN MEXICO Desmex analyzed the Mexican market and explored the
“Commercial success lies in developing many small and
possibility of entering its solar industry back in 2002, but
medium-sized projects instead of a few enormous ones,”
ultimately decided it was unfeasible. “CFE did not know
says Thomas Bjarnemark, CEO of Desmex Solar. “The
about the interconnection of renewable energy sources,”
experience required for colossal projects has not been
explains Andre Von Frantzius, Commercial Director at
locally available, although international firms can bring that
Desmex. It took until 2006 for the Guanajuato-based
experience to the table. Plenty of fly-by-night enterprises
company to take its first steps in residential solar installations
will enter the residential segment simply because the entry
but its commercial sector breakthrough happened in 2007.
threshold is much lower. But in the larger industrial and
Walmart requested solar energy installations for two of its
commercial segments, such firms will appear and vanish
stores in Aguascalientes and another one in Baja California
overnight. The threshold is very high and only top-tier
Sur, regardless of the cost. This was Desmex’s first such
companies will make it.” As a distinctive trait, Desmex
project in Mexico and involved the first Walmart stores in the
mostly favors German technology for its PV projects. “We
country being converted for renewable energy use. In spite
mainly use Aleo Solar’s modules. For inverters, we turn
of the success working on this project, the company’s focus
to SMA, the most common and best-known supplier,”
remained on the residential sector that it found simpler to
explains Jaime Montes de Oca, Head of Engineering of
work with. This is not surprising, as Mexican homeowners
Desmex Solar. This penchant for German technology has
in the high domestic consumption tariff represent a 2GW
to do with product quality, explains Montes de Oca. “We
market, according to Desmex. “We have completed over
are selling top-notch equipment and have tested the
3,000 residential installations, which gave us a solid
products we use in high-end laboratories where German
background to start pursuing a number of projects below
products have always come out on top. They are not the
10MW. Other areas of expertise involve developments for
most affordable but Desmex can manage to move them
smaller commercial applications, along with single digit
around the Mexican market. These products have ten year
MW installations for larger companies. Our success can
manufacturing guarantees, while Chinese products come
be attributed to our low and competitive market prices,”
with two to five year guarantees.” However, von Frantzius
explains Von Frantzius. “We would like to install four or five
points out that Desmex is currently also working with two
small commercial developments each year and even own
Chinese partners who provide the PV modules while the
and operate our own solar plant to sell energy.”
Mexican firm does the rest.
CHINESE SOLAR LEADER FOCUSED ON MEXICO The fast growth of Jinko Solar should not be easily
with a very well-known brand with high quality product and
dismissed. In 2010, four years after its foundation, the
pricing.” To further guarantee quality to its customers around
Chinese company was listed on the New York Stock
the world, Jinko Solar has focused on obtaining well-known
Exchange. It became the industry leader in Italy and South
international certifications – such as UL certifications, as well
Africa in 2012, and now also ranks among the top five solar
as equivalents from the UK and Japan. “This is just one facet
companies in France, China, and Germany. With 1.3GW
of the quality that drives the firm,” states Arguedas, who
of installed capacity, Jinko Solar has become one of the
affirms that Jinko Solar’s leading technology is differentiated
largest solar panel manufacturers in the world.
by that very attention to quality. Another key aspect to Jinko Solar’s performance is its vertical integration.
174
The company turned to emerging markets when the solar
Arguedas explains that being vertically integrated allows
industry came to a halt in many European countries. Latin
the company to control every stage of production and test
America is one of the markets that the company is entering
all its suppliers, leading to constant improvements all the
in its quest to strengthen its global market position. “We
way down the supply chain. “We invest a lot of money in
need to be very aggressive to position our brand and to gain
R&D so that our panels will have a very high performance.
trust from our customers,” says Carlos Arguedas, Director
Photon Laboratory rated our products among the best
for Latin America and the Caribbean at Jinko Solar. “We
solar panels on the market,” states Arguedas, adding
need to assure our customers that they will be teaming up
that vertical integration also helps when negotiating with
Bjarnemark believes the Mexico’s manufacturing sector will
Bjarnemark lays out how being a renowned foreign
allow the economy to grow at a tremendous pace, but the
company is not enough to make it in the Mexican market.
resulting rise in energy demand will put a lot of stress on the
He believes it is necessary to know the country well, which
current electricity infrastructure. “Considering the conditions
cannot be achieved in a matter of weeks. Taking this into
of CFE’s production capacity and grid, there can be no
account, Mexican firms have a great advantage, says the
single answer to Mexico’s energy situation,” says Bjarnemark.
Desmex Solar CEO. “They understand Mexico in ways
“Mexico is running out of capacity, contributing to power
no foreign company could, but international companies
outages. PV energy could provide a solution, but current
have the upper hand in many cases because they own
infrastructure is inadequate to allow this to happen,” says
the technology and the intellectual property that Mexican
Montes de Oca. “Solar plants larger than 30MW are going
companies crave.” Desmex found a good solution to this
to have a hard time connecting to the grid. Power storage
conundrum. The company has partnered up with strong
systems can provide solutions for small projects, but not for
technology firms, but remains a Mexican company with
larger developments such as PV parks,” he adds. “However,
long experience in the market. “Local experience will turn
renewable energy sources will have to play a significant role
out to be more valuable than experience developing large
in whatever strategy is carried forward. Aside from irradiation
projects,” says Bjarnemark.
rates, solar has a distinct advantage over wind as it is prone to a decentralized architecture whereas wind projects are
Working to expand its own capacity, Desmex already has
clustered in certain areas. Moreover, prices for solar energy
CFE’s permission for a 3MW solar project but the company
will continue to drop, which will raise demand even further.”
is still working on signing the PPA. “Permits should not
As these prices fall, Desmex is finding solar energy becoming
have to take long, but they can take up to a year and a half
more competitive, which has promoted the appearance of
here at least,” says Montes de Oca.
many small competitors that offer low prices. “Unlike them, we are a stable company that has been in the market since
Five years from now, Desmex plans on being a key player
1994,” says Montes de Oca. “We would not be surprised if
in the Mexican industry and move towards the clean tech
many of these companies also failed as the same situation
and energy efficiency businesses. “We want to expand
took place with solar heating systems. Companies started
and not rely exclusively on solar power since we know
bringing in thermo-siphons but two years later they were
how changeable and risky the market can be”, says Von
gone as the guarantees, the products, and the results they
Frantzius. The company wants to continue working on
offered were poor.” Desmex is bracing for an influx of foreign
making the sector interesting and appealing, hoping to
competition over the next two years. “Several suppliers have
build the renewable energy industry. As Von Frantzius puts
told us that most European companies have their sights set
it: “Hopefully, I will look back 20 years from now and say I
on Mexico, especially Spanish firms,” says Montes de Oca.
was part of a big change in Mexico.”
suppliers, resulting in cost reductions. This low cost is then
strategy has held true in Mexico where the company has
passed on to customers, allowing it to provide high-quality
partners that are 100% Mexican. “Jinko Solar has a good
panels at good prices tailored to fit every market.
relationship with Mexican companies but we also want to team up with European, American and Asian companies
The fact that Jinko Solar has invested in establishing a sales
here,” says Arguedas. He explains and underlines that the
office in Mexico reflects the importance of the country in
solar industry is still very new and will only be successful
the company’s growth strategy particularly because, as
if the public, private and industrial sectors work together.
Arguedas points out, very few cell manufacturers have sales
Nevertheless, Jinko Solar believes the Mexican market has
people working on the ground in the Mexican market. “We
major growth potential.
respect small, medium, big and utility-scale customers. This industry was born because of small and medium customers.
For many Mexican consumers, the question about the
A country like Germany, which installs more than 6GW per
quality and reliability of Chinese products still persists.
year, sees 50% of its installation come from companies that
In order to face this challenge, Arguedas emphasizes the
install between half a megawatt and 20kW. Jinko Solar
investment China has made to achieve its current status
respects every partner, no matter what their size.” The
in the renewable energy market. “When you think of high-
company provides international knowhow, which added to
quality cars, you think of Germany. When you think of good
this local expertise, paves the road toward expansion. It
wine, you think of France. Right now, the leading companies
has been particularly important for Jinko Solar to become
in the renewable energy industry are Chinese because
grounded in each market by finding strong local partners
they have invested in the human, financial, and industrial
that have the experience and the knowledge to navigate
resources that are essential for producing high-quality
some of the obstacles each new market represents. This
products. China is the leader in this new industry,” he adds.
175
STATE OF MEXICAN RESEARCH ON SOLAR TECHNOLOGY Thanks to resources from SENER, an investment of
energy and PV systems, the development of new materials,
MX$452.9 million (US$33.7 million) will be made to create
methodologies to optimize the use of UV radiation to clean
a new virtual organism called the Mexican Center for
water, solar towers for concentrated thermal power and
Innovation in Solar Energy, which will gather 67 research
solar power generation engines. Besides spurring national
institutes and 21 foreign and Mexican companies. The
technological development, the Center will also seek
Renewable Energies Institute (IER), part of UNAM and
to build up Mexico’s human capital to ensure a constant
established in Morelos, will be the coordinating entity of
flow of trained professionals for the solar energy industry.
this new organism. This initiative was strongly supported
R&D activities for solar technology often take place in
by the National Solar Energy Association (ANES), in
the countries of origin of large multinational companies.
order to foster the transition to renewable energies.
As such, another aim for the development of the Mexican
“We have to stop focusing all our attention on finding
Center for Innovation in Solar Energy is for it to become
oil and start looking up. Mexico has major wind and
an important hub of knowledge, incentivizing companies
solar potential and these resources could contribute to
to establish more R&D facilities in Mexico and creating the
building a more equal and sustainable country,” says
foundations for the development of a local supply chain.
Álvaro Lentz Herrera, President of ANES. This new
The potential combination of Mexico’s natural logistical
research center will be directed by Jesús Antonio del Río
and manufacturing advantages combined with R&D
Portilla, Director of the IER at UNAM and President of the
activities would increase the attractiveness of the country
Science Academy of Morelos. Del Río Portilla stated that
for the solar industry. The creation of the Mexican Center
SENER and CONACYT promoted the coordination of the
for Innovation in Solar Energy, among other initiatives,
project by bringing the right research institutions to the
demonstrates the government’s desire to start developing
table. The Mexican Center for Innovation in Solar Energy
Mexican solar technology and support the creation of a
will begin coordinating around 50 projects with leading
green manufacturing industry. However, the development
scientists from different institutions, while initiatives
of such technology will require skilled labor, creating a
from companies that wish to commercialize products
high-tech, manufacturing industry. The combined efforts
in the short-term will also be considered. Initial projects
of different participants in the solar industry will be needed
will include the optimization of the use of thermal solar
to make this a reality.
Somos los desarrolladores del proyecto de ingeniería, construcción, puesta en marcha y mantenimiento de un Parque Fotovoltaico en el Estado de Sonora para la generación y Autoabastecimiento de energía eléctrica renovable y no contaminante en la República Mexicana, de la cual se benefician tanto Instituciones Públicas como la Iniciativa Privada del país.
176
para mas información visita la página web: www.sonora80m.com o contáctanos a este teléfono: +52 55-1107-0486
PIONEERS OF THE MEXICAN SECTOR When
three
researchers
Rodolfo Martínez Strevel, Director General of BUTECSA
academic
decided
BUTECSA’s strategy focuses on offering quality products,
to
which does not necessarily translate into providing the
create BUTECSA almost
cheapest solution. Martínez underlines that the company’s
35 years ago, the Mexican
staying power in the market over 33 years is down to its
solar
a
long-term solar energy solutions. These satisfy customers
distant dream. The three
industry
and show the need for certified products, he says. Another
were working at UNAM’s
aspect BUTECSA considers as vital is personnel training,
Department
Solar
which it offers to many companies in the solar thermal
Energy and had completed
sector. The idea goes that as great as a product may be,
many successful projects,
it will not work if it is not installed properly. “Personnel
of
was
including the creation of
training, certified products, experience and innovation.
the first test bank for solar heaters in the country in 1979.
Those are the key components driven by BUTECSA and
In the early 1980s, the group had to choose between their
we are willing to establish strategic alliances with any
research careers or BUTECSA. It was not an easy choice
company that will strengthen these components through
since conditions back then did not favor renewable energy
technological or economic resources,” he adds.
sources. “Fossil fuels were very cheap in Mexico and there was no concern for the environment,” recalls Rodolfo
Martínez also served as president of ANES in 2006-2008.
Martínez Strevel, Director General of BUTECSA.
During his period at the association, ANES was invited to advise INFONAVIT on its Green Mortgage program, which
The company reached an important milestone in 1985
encourages solar heating, energy-saving light bulbs, on-grid
when it was hired by INFONAVIT (National Housing Fund
PV systems, and thermal insulating systems to be installed
for Workers) to elaborate bioclimatic design norms for
in low-cost housing. ANES also worked on the legislation
low-cost housing. BUTECSA made recommendations
and norms that enabled energy sources to be connected
for housing in hot and humid climates in places like
to the grid. “This period was crucial in developing a
Villahermosa, for colder places like Toluca, and hot and dry
regulatory framework which did not exist before and was
areas such as Hermosillo or Mexicali. This project opened
a way of fostering renewable resources. It also served for
the consulting door for the company, which spent much
the development of programs such as Green Mortgage,
of the late 20th century advising NGOs and government
which had a positive impact on the Mexican solar industry,”
agencies, while carrying out early PV projects. “We did
Martínez mentions. The 2007 shift in the legal framework
projects in which we invited researchers from every
compelled BUTECSA to change the focus of its business
academic institution in the country who were involved
strategy from rural communities and pool heating systems
in renewable energy sources at the time,” Martínez
to on-grid systems, covering residential, commercial and
says. Nowadays, BUTECSA is an industry leader in solar
industrial needs. Because of its founders’ backgrounds,
thermal energy. The company has been working in hotels
BUTECSA remains on a constant search for innovation.
and hospitals for eight years now, installing systems that
Martínez claims that research is as important to the
range from 2,000 liters to 30,000 liters of hot water per
company as carrying out projects. This is the reason why
day. The growth of thermal energy systems has a lot to
the company’s project portfolio lists successes in installing
do with return on investment becoming quicker since the
anti-freezing systems on PV cells, indirect heating systems
1990s, moving from an 8-10 year period to just 3-5 years.
and panels with amorphous silicon in thin sheets, among
Additionally, the impact on the environment has become a
many others. “We have received awards for our innovations
matter of greater concern. Recent legislation particularly
in engineering and design, which supports our quest to find
in Mexico City, is making companies check their carbon
new ways of doing things,” he adds. It might be some time
emissions, with solar heaters being a way to mitigate these
before the Mexican solar industry booms, but from Martínez’s
emissions and reduce operational costs.
perspective, the future of renewable energy is shining bright and will do so even more once the necessary public policies
The current Mexican solar industry is a far cry from
are implemented. In the meantime, BUTECSA is preparing
BUTECSA’s early days. Over the past three years, a number
itself and reaching for the right international partners. “Few
of companies have entered the market, many of which offer
Mexican companies have experience installing solar energy
low prices. However, Martínez is quick to point out that
systems amounting to megawatts, but we have allies with
most of these product providers are not certified, saying
that experience that will give us the right knowledge when
“price is important, but it is not the only thing to consider.”
the time comes,” Martínez concludes.
177
DOMESTIC DRIVE FOR NEEDED TECHNOLOGICAL STANDARDS Carlos
Walls,
General
of
Director
solar
Mexican solar panel manufacturing could be improved.
SolarAct,
“To spark the use of Mexican panels in the US and across
technology
Latin America, we need to first address the insufficient
manufacturer sees
solar
currently into
being
two
connected systems. Carlos Walls, Director General of SolarAct
focused
divided
manufacturing capacity. Several Mexican companies,
grid-
besides SolarAct, are finding investors that are willing
off-grid
to take chances in Mexico and produce high-quality
areas, and
SolarAct on
he acknowledges that international awareness about
panel
the
has
products at competitive prices. The other issue is that
latter,
the peripheral components of PV systems are not being
which the firm classifies as
manufactured in the country at the moment. To create
the fastest growing market
a vertically integrated Mexican supply chain, it is crucial
in Mexico. The decision to concentrate on this area was
for the country to develop these systems at home, since
also motivated by the delay usually involved in connecting
reducing dependency on imported technologies would
a PV system to the grid. “Given that CFE often needs six
lead to more opportunities for Mexican companies in
months or more to connect a PV system to the grid, off-grid
markets across Latin America,” he says. “SolarAct is
systems present a major opportunity. They may not be the
ahead of the game on this and is constantly looking for
most efficient, but they cover specific needs and provide a
markets to which we can export our products.”
quick solution when power from the grid is unavailable or too costly, such as in remote communities,” says Walls. Its
Alongside solar panels, SolarAct has also spotted the
experience in rural communities has also allowed SolarAct
potential of energy efficient lighting, such as LED. Walls
to identify another area of opportunity: solar-powered
acknowledges that the initial investment in LED lighting
street lighting. Walls explains that developing this market
is high but promises that returns on investment become
could help bring safety to traditionally unsafe areas such as
tangible after three to four years of the decade that LED
town squares, playgrounds and sports fields that are often
light bulbs can last. But as the enthusiasm for LED lighting
poorly illuminated due to the lack of a grid connection.
has grown in Mexico, Walls laments that the market has been flooded with LED bulbs that do not comply with
Walls is confident that SolarAct’s panels have the
international quality standards, although the government
quality to compete with the best international brands
is taking action. “SENER Norm 031 was just approved,
and can sell at prices that match the offerings from the
and suppliers who want to use LED technology for public
Chinese, Japanese and Korean manufacturers. However,
street lighting will have to comply with this norm.”
MEXICAN PHOTOVOLTAIC PRODUCER EMERGES
Alejandro Caballero Robles, Director General of ERDM Solar
178
ERDM Solar is not afraid of
are not enough incentives for companies to develop
competition. This Mexican
solar projects that could help address the CFE’s energy
company from San Andrés
shortages and satisfy the energy demand of the country.
Tuxtla, Veracruz, is the
“There has to be a commitment from the government,”
leading Mexican producer
Caballero Robles says. “There has to be a link between
of photovoltaic modules,
the private sector and the government in order to meet
and
venturing
Mexico’s future electricity demand. Another element that
into other products and
prevents the full growth of the solar industry in Mexico
services.
to
is a lack of knowledge among the general population
is
Alejandro
now
According
Caballero
and the business community. Solar energy is thought to
Robles, Director General
be expensive or inefficient and this misunderstanding
of ERDM Solar, “Mexico has great potential in terms of
needs to be tackled.” As a result of this lack of general
solar irradiation but the country is wasting its capacity.”
knowledge, companies often focus on equipment costs
Caballero Robles thinks the main problem is that there
rather than on the long-term benefits.
INTEGRATED EPC SERVICES FOR SOLAR PLANTS EPC has been a thorn
have been creating products and solutions for housing and
in the side of many a
for small businesses,” explains López de Cardenas. “This
project developer, as it
has led us to the conclusion that Mexicans are starting to
can involve having to find
take better care of the environment.” Although it began
separate firms to deal with
with a double focus on wind and solar, from 2012, MEP
engineering, procurement
turned its attention largely on solar and began leveraging
and
contracting.
Main
its relationships with German firms specialized in PV
(MEP)
energy transmission. MEP is aware that solar technology
ability to provide services
is a rapidly evolving sector so these relationships allow
across all aspects of EPC is
the firm to constantly refresh its portfolio of products,
Energy Rafael López de Cárdenas, COO of Main Energy Projects
Projects’
what allows it to stand out.
while also having signed collaborative agreements with
Finding that Mexico had great solar and wind potential but
laboratories, to constantly monitor the performance and
lacked the policies to operate very large renewable energy
quality of its products.
projects, MEP’s founders started the company in 2011 to provide integrated EPC services for large PV plants.
López
de
Cárdenas
says
that
many
entrepreneurs
look for short-term profits by signing EPC contracts MEP’s COO, Rafael López de Cárdenas, says that this
with international companies. However, he challenges
integrated strategy gives the company greater control over
companies who say they want the wealth they create to
its projects, by directly working on them at every stage.
stay in Mexico to contract firms that use Mexican labor
“Trusting the high engineering standards that Germany has
for a project’s engineering and construction. He adds that
become identified with, MEP is known for hiring German
although MEP brings in German engineers for projects due
engineers to oversee every project the company develops.
to their high standards and experience, the firm values
López de Cárdenas explains that, unlike many competitors,
collaborating with national firms because they know the
his company will not focus exclusively on larger consumers,
market, policies, and contracts. As López de Cárdenas
either among the government or in heavy industry. “The
explains, a company has a better chance of succeeding in
residential sector provides great opportunities, but analysis
a foreign market when it is inclined to adapt rather than
shows that it is a highly competitive market. It is this in-
impose a single structure and strategy on its operations. In
depth analysis of the residential sector that has made MEP
that line, despite building its early reputation on German
optimistic that Mexicans are increasingly paying attention
expertise, MEP “wants to acquire less from Germany and
to the environment. In 2013, more and more companies
make the most with what can be done in Mexico.”
To compete in the new emerging solar market, ERDM
projects help CFE to increase its efficiency and to offer a
Solar relies on its principles, along with its competitive
better service to more people. ERDM is also looking to
prices, and what it calls “the alma mater” of its essence:
develop projects that help households lower their electricity
top-of-the-line German technology. “This is crucial for the
consumption by enabling them to generate their own
development of ERDM Solar. German companies were
energy. This initiative is targeting high-energy consumers
the first in the market and have maintained their leading
that are paying the DAC tariff. Another initiative is to develop
position over time,” Caballero Robles emphasizes. ERDM
a photovoltaic project for Mexican roads. This project would
Solar brings together German technology with the talent
need government cooperation but will not only bring
of Mexican engineers and workforce,” explains Robles.
benefits for the authorities but for the users of these roads that are currently neglected, dark, and unsafe. For Caballero
Although its main focus is the development of solar panels,
Robles, the future of the solar industry seems bright. He
ERDM Solar also offers other products and services. One
believes that the Energy Reform and the general interest in
product that ERDM sells is an individual project known as an
renewable energy resources are creating a positive growth
island, which consists of solar panels, inverters and energy
outlook for the Mexican solar market, and a platform for
storage facilities to create an off-grid energy system solution
the international expansion of ERDM. “We are interested
to satisfy local energy demand. Islands are used mainly
in expanding into international markets. We are already
in remote rural areas where it is not profitable for CFE to
exporting to the US and we are ready for direct competition
construct a grid connection for a small community. Island
with our Asian competitors,” concludes Caballero Robles.
179
BRINGING ENERGY TO REMOTEST CORNERS OF THE COUNTRY According to the National
makes us very proud because it represents what Energía
Institute
Renovable del Centro is all about. We enabled kids from
and
of
Geography (INEGI),
very poor and isolated locations to get the education they
over half a million Mexican
Statistics
deserve,” Fernández Velasco emphasizes. The company
households do not have
has also been part of projects that brought energy to
access to electricity. This is
isolated communities in the Sierra de Queretaro, Sierra de
mainly due to the remote
Oaxaca, and Guanajuato.
and scattered location of Arsenio Fernández Velasco, Director General of Energía Renovable del Centro
many
communities
and
Solar
water
heating
solutions
are
also
becoming
the lack of infrastructure
commonplace in the residential sector, appreciated for the
development.
Arsenio
savings they give to users on their gas bills. The industrial
Fernández Velasco, Director General of Energía Renovable
sector, always keen to reduce costs, is also beginning to
del Centro, realized this presented a business opportunity
eye up the saving opportunities sustainability provides.
for solar energy systems while searching for electricity
For example, Energía Renovable del Centro installed the
solutions for a family home. Looking for companies that
biggest solar thermal system in the Americas at Nestlé’s
provided this service, he found close to none. Soon after,
plant in Toluca, which has the capacity to heat 500,000
Energía Renovable del Centro was founded in the city of
liters of water to 32°C a day. As technology progressed
Queretaro with the goal of filling the void in electricity
while becoming both more accessible and profitable,
solutions for remote locations through photovoltaic
Energía Renovable del Centro decided on a multi-pronged
systems. Not long after the company was born, the rise
approach to renewable energy, allowing it to explore
of domestic gas prices enabled it to add solar thermic
separate
solutions to its portfolio.
emphasizes that the company’s goal is to always seek
sectors
simultaneously.
Fernández
Velasco
the most efficient solution, technologically and financially Fernández Velasco sees the company’s survival during
speaking. In order to be able to continue being a relevant
difficult financial times as one of its main achievements,
player in the sector, Energía Renovable del Centro
especially in the early days when knowledge about the
seeks to maintain its edge by relying on the best quality
economic benefits of renewable energy was very limited.
equipment from the most reputable manufacturers in the
“Today, people are aware of the environmental and social
world. “Anyone can import cheap panels from China,” says
benefits of renewable energy although its economic
Fernández Velasco. “But selling the best panels in the
benefits
these
world is no easy task. We always use the best technology,
economic savings are the very reason INFONAVIT made
striking a balance between quality and quantity. This does
these systems a part of their affordable housing program,”
not translate to simply looking for the most expensive
he adds.
technology because it might not necessarily be the most
remain
largely
unknown.
However,
efficient or the most cost-effective.” Fernández Velasco argues that Mexico has the most
180
expensive DAC (high domestic consumption) tariff in the
“It is expected that the solar industry will boom in the next
world. Energía Renovable del Centro promises a return
few years,” says Fernández Velasco. “So far, the industry
on investment (ROI) of approximately 4 years for its
has grown in an organic fashion, without any government
installations. This rises to 4.5 years for commercial rates,
support. However, any type of support or incentives from
which are included in tariff 2 and can go up to 5 years for
the authorities will provide an impulse for faster growth.”
public lighting installations in tariff 5. The ROI for industrial
Energía Renovable del Centro is focused on becoming one
installations takes longer at 9-10 years, but in Velasco’s
of the main engineering solution providers of Mexico. Long
experience, the industrial sector tends to shy away from
gone are the days when the company strived to keep afloat.
solar power projects due to financial reasons. The company
Energía Renovable del Centro is now dealing with the
has worked in many residential interconnection projects
challenges of exponential growth. With client satisfaction
but the electrification of rural secondary schools that had
always in mind, its constant focus is on maintaining
no access to energy stands out as a firm favorite. “This
quality and timely delivery for its projects. Aware that any
was a great project as these schools work with televised
company is only as good as the people within it, Fernández
courses, but they did not have the electricity to power a
Velasco says “our primary concern is human talent. We
TV. We provided solar and wind systems to generate basic
invest in our people with training courses, so as to be fully
energy so that these schools could function. This project
prepared for what is coming.”
| VIEW FROM THE TOP
MEXICAN SOLAR POWERED WATER HEATERS TAKE ON GLOBAL COMPETITION DANIEL GARCÍA Director General at Módulo Solar Q: What are the main milestones in Módulo Solar’s
in which the installation of solar-powered water heaters
technological development?
is included in the house’s construction and the heater’s
A: Módulo Solar has three product lines on the market:
value is included in the total value of the mortgage. This
Axol, which consists of water heating for households, Maxol
is the only program of its kind in the world, enabling users
for heating water for industrial purposes, and Poliheat for
to use the equipment without having to pay the full price
swimming pools. Axol are the best-selling solar-powered
right away. According to studies made about the Green
water heaters in Mexico and have characteristics that
Mortgage program, a solar water heater for a house with
were specifically designed for the Mexican market. This is
four people and one bathroom can save up to MX$250
currently our strongest line because it is used in houses that
(US$19) per month worth of gas. The heater only raises
come under the Green Mortgage program. In Mexico, water
the total cost of the mortgage by MX$100 per month so
is rather impure as it contains chlorine and other particles
the final user saves MX$150 per month. Ordinary people
that make it corrosive. This is something we consider
can thus help the country by being eco-friendly while
when designing equipment and we are able to guarantee
contributing to Mexico’s economic situation as gas is
a ten-year lifespan using Mexican water. The Maxol line
subsidized. Around 200,000 houses with solar-powered
of products was made for the European market. Those
water heaters have been installed over the past four years
water heaters consist of flat solar collectors designed for
as part of the Green Mortgage program, and Módulo Solar
industrial purposes in international markets, making it our
has been responsible for making 25% of them.
line with the most potential. The success of our products has seen Módulo Solar, a Mexican company, rank among
Q: What advantages does Mexico have in the solar water
the top five companies with the best efficiency rates for
heating market?
solar collectors in Europe.
A: Over 40 years, solar-powered water heating has developed
a
longstanding
tradition
here.
Mexico
Q: What motivated Módulo Solar’s focus on obtaining
has
certifications?
technology, and production costs. Manufacturing a solar-
A: Mexican certifications are not recognized in Europe, so
powered water heater in Mexico is more affordable than
we have worked on obtaining the necessary certifications
doing so in the US but the quality standards are the same.
to enter the European market. We have ISO 9001-2008
In Mexico, technological development for this specific
certification and we are certified by the Spanish Association
sector provides strong opportunities. Also, this sector is
for Norms and Certificates. Solar Keymark is the most
highly specialized but does not fall under the high-tech
prestigious certificate for solar power products as it covers
category like the photovoltaic sector, which requires
product efficiency, manufacturing processes, and product
patented technology. Mexico can become a leading
quality. Every year, we receive visits from Solar Keymark
solar heater technology manufacturer in Latin America.
technicians who audit our company and make sure we are
Currently, Brazil installs the largest number of solar-
working according to their standards. Our US certifications
powered water heaters in the Americas. Last year alone,
include the Solar Rating Collector Certification and the
Brazil probably installed 1 million m2 of solar-powered
Florida Solar Energy Center certification. In Mexico, Módulo
water heaters. The problem is that Brazil closed its borders,
Solar complies with the NMX-01 and NMX-04 norms for
so it is now lagging behind in technological development.
solar collectors and water heaters.
A Mexican-made solar powered water heater offers better
advantages
regarding
geographical
conditions,
quality and efficiency than a Brazilian one. This will affect Q: What incentives could the Mexican government create
Brazil as foreign companies will have better technology
to incite people to use solar heaters?
when they do enter the market. In Mexico, the five largest
A: The most important program to incentivize the use of
companies making solar-powered water heaters all work
solar heaters is probably the Green Mortgage program,
with European technology standards.
181
| VIEW FROM THE TOP
CONCENTRATED SOLAR POWER NOW REALITY IN MEXICO ENRIQUE IRANZO MARTÍN Manager for Mexico, Caribbean and Colombia, Abengoa Solar Q: What are the main opportunities that Abengoa sees in
A: Both technologies are necessary for the development
Mexico, and which unique strengths do you bring to this
of the solar industry in Mexico. Thermal solar technology
market?
is an ideal solution for large-scale plants due to its
A: Solar energy is inexhaustible and investing in research,
hybrid capacities, which allow it to be used with other
development and innovation (R&D+i) is the base of
renewables or with conventional plants. Its facilitation of
success for any technological company. Following this
storage also allows a plant to adjust its energy production
piece of advice, Abengoa’s strength has been its vertical
to electric demand or to produce energy for 24 hours a
integration in terms of engineering technology, used within
day. PV technology is ideal for medium-sized plants and
the context of a global strategy powered by clear local
for distributed production. It produces clean energy at a
understanding. Mexico has excellent solar irradiation levels
low cost but is still intermittent. Initially, Abengoa focused
across great parts of its territory, especially in its northern
its R&D+i efforts in CSP technology, but today we are a
regions. The irradiation levels in certain regions are among
reference in PV as well.
the highest in the world, reaching up to 2.800kWh/m of 2
direct annual radiation.
We can develop solar projects or hybrid projects that also make use of fossil fuels such as natural gas. Solar
Q: What has been the experience of working in Mexico
technology is compatible with traditional technologies,
compared to other countries in which Abengoa has
and at the end of the day a country needs a diversified
developed projects?
energy mix with renewable sources that can lower CO2
A: Initial support for the solar industry in a country is key
emissions. The key to the development of CSP has been
for its future growth. To attract the required investment, a
thermal energy storage. Some solar plants in the US have
convincing and well-defined set of measures is necessary.
storage capacity for 6 hours, and one solar plant in Chile
According to our experience in other countries, Mexico
has storage capacity of 17.5 hours. Through this storage
should develop independent tenders for each renewable
capability, solar power is no longer intermittent, which
energy source. In independent tenders, the government
gives CSP a clear advantage.
defines a specific capacity to be satisfied by each renewable source in order to achieve the energy mix defined by the
Q: How do you convince clients, financial institutions and
National Energy Strategy. The construction and operation
off-takers that CSP is competitive in a market that has
of power plants would then be granted through such
mainly focused on PV?
tenders. Furthermore, the government would establish a
A: We have made advancements in storage capacity, and
tariff cap which would guarantee competitive rates. Tender
costs are being lowered due to accumulated expertise
participants would have to fulfill a series of requirements,
and investments made in CSP. We have been able to
such as investment capacity, and construction and
position CSP as a convenient alternative for traditional
operation experience. Certain conditions would be set
energy sources and that has the capacity to play an
to avoid future problems in the project, such as having
important role within the energy mix of different countries.
location with sufficient evacuation capacity. A long term
The development of CSP helps the industrialization of
PPA with a public company also assures the contract will
certain regions of a country, while PV modules have
be fulfilled. These mechanisms have been successfully
practically become a commodity. However, CSP and
applied in countries such as South Africa and Israel, and
PV are complementary. The government’s capacity to
would help Mexico make a real commitment to solar.
incentivize these technologies, the technical capacity of the developers, and being attractive to financing are all
182
Q: What are the respective roles of solar thermal and
essential. Small and big companies are compatible in a
photovoltaic technologies in the development of a
market but it is clear that the market has to be opened by
country’s solar industry?
big companies.
Q: What are Abengoa’s priorities in the development of
Q: How do such combined cycle projects compare with
new technology?
projects that are 100% renewables?
A: No company can have a future without investing in this
A: A hybrid plant is not completely renewable but it is a
area. It is through R&D+i that we differentiate ourselves and
great opportunity to increase clean generation in countries
become more competitive in the race against conventional
where funding mechanisms for renewable energies are
energy. Today, Abengoa is the only technology company
still not available. The consumer gets a cleaner energy
that masters all solar technologies and has a clear
at a lower cost. CSP is the only technology that can be
positioning in terms of innovation, thanks to its two
hybridized in this way.
globally recognized R&D centers in Denver and Seville. Among our new developments is high concentration
Q: What are the ambitions and possibilities for new
photovoltaic energy (HCPV), which moves away from silica
projects in the Mexican energy market?
and is based on Fresnel lenses. HCPV promises to be an
A: Our objective is to turn Mexico into an energy
important technology for the future, and will be ideal for
development pole and a reference in Latin America.
the Mexican market due to the country’s high irradiation.
Aside from environmental benefits, the construction and operation of solar plants generates considerable
Q: What are the highlights of the development of the
economic benefits, diversifies the energy mix, and helps
hybrid solar power plant in Agua Prieta?
the country become energy independent. It engages major
A: Agua Prieta is a reference for Mexico and Latin America,
Mexican companies that can complement the knowhow
since it is the first solar and gas combined cycle plant
of international players. It will spur the development
developed in the region. Abengoa built this 12MW CSP
of a manufacturing industry for the exporting of solar
plant for CFE, and the project was developed with a US$50
equipment. Abengoa is already doing this; some of the
million subsidy from the Green Climate Fund. The hybrid
parts we produce in Queretaro are used in our 100MW
technology allows the use of two abundant resources in
CSP plant in Abu Dhabi. Finally, it creates jobs for qualified
Mexico and combines the benefits of cheap natural gas
personnel in the construction of plants, manufacturing of
and zero CO2 emissions.
components, and in operations and maintenance.
| TECHNOLOGY SPOTLIGHT
CONCENTRATED PHOTOVOLTAICS (CPV) IHS forecasts that concentrated PV (CPV) installations
CPV systems typically have 20 power units per panel,
will rise to 1,362MW in 2020, increasing from 160MW in
and 36 panels per system or array mounted on a dual-
2013. This means double-digit growth during the coming
axis tracker. The power units consist of a primary mirror
years, driven by continuing lifetime cost reductions
and a smaller secondary mirror on top that concentrate
that are increasing the competitiveness of CPV against
the sunlight. This is consequently sent to the receiver unit
conventional PV systems.
within the power unit which has a tertiary non-imaging optical rod and a high-efficiency multi-junction cell.
The use of optical systems and mirrors to focus sunlight on PV
A panel of 20 power units produces 432 watts of rated
cells raises the efficiency of CPV, as well as its cost. However,
power, which amounts to 15.6kWp DC rated power on an
the multi-junction cells that are used instead of conventional
array of 36 panels. Where traditional PV systems have
silicon PV cells are able to convert the large amounts of
efficiency levels of around 19%, CPV panels are already
sunlight, generated by magnifying the illumination on the cell
reaching 25% and can get up to 40% efficiency, or 42% in a
by up to 650 times, into electric power at high efficiency. This
laboratory setting. There still is a lot of room for innovation
means that fewer solar cells are needed to generate the same
and improvement, as 50 % efficiency is achievable in the
amount of electricity. Panels with these CPV systems are
future, industry specialists believe. The efficiency curve
installed on dual-axis trackers which allow them to trace the
shows a very steep improvement over little time, with a
sun when it crosses the sky, resulting in a perfect alignment
range increase of 5% over three years, compared to 1% for
between the sun and the panel.
the same period in the case of silicon PV.
183
184
BIOENERGY
7 The bioenergy sector in Mexico is still in its infancy, although its potential is being sought after as urban areas grapple with waste management. The amount of organic resources available and the waste generated in cities can both go towards energy production, providing Mexico with an abundant source of energy. Only a few biofuel production projects have cropped up, since the lack of connection and communication between the supply and demand sides of the equation has prevented the market from achieving a substantial production increase. Municipal solid waste management is becoming a growing concern which may well drive forward a still underdeveloped sector, opening up opportunities ranging from waste-to-energy to recycling.
This chapter looks at the companies seeking to be pioneers in the Mexican bioenergy sector while also offering solutions that could spur economic development in rural areas, the controversies surrounding biofuels and food safety, and the industries that could most benefit from using bioenergy. It also includes the vision of entrepreneurs committed to turning waste management challenges into business opportunities.
185
186
CHAPTER 7: BIOENERGY 188
Instruments and Actions for a Sustainable Nation
189
Global Trends in the Bioenergy Sector
190
A Willing Industry without a Market
191
Merger Between Goals for Transportation and Biofuels
192
Social and Environmental Arguments for Biofuels
192
Selecting the Best Crops for Biofuel Production
194
VIEW FROM THE TOP: Fostering Bioenergy for Rural Development
194
Mexican Regions Combine to Create Bioenergy Potential
196
VIEW FROM THE TOP: Mexican Players in the International Biodiesel Market
197
Aviation: Large Potential Market for Use of Biofuels
198
Education: Key in Unlocking Biofuel Potential
198
Raising Awareness of the Needs of Biofuel Production
200
Exploiting Methane from Landfills for Generation
201
Bordo Poniente: Large Steps toward Cleaning Mexico City
202
VIEW FROM THE TOP: Water and Waste Management Opportunities Abound
204
Monterrey, a Pioneer of Bioenergy Generation
204
Waste to Energy Potential Not Well Utilized
206
Sweden as an Example of a Waste Management Strategy
207
VEW FROM THE TOP: Improving the Waste Management Legal Framework
208
VIEW FROM THE TOP: Missed Business Opportunity of Plastics
187
INSTRUMENTS AND ACTIONS FOR A SUSTAINABLE NATION Mexico has the good fortune of being among the countries
a change in land use, it has to reforest an area three times
with the world’s greatest biodiversity. The country is home
the size of the zone that will be deforested. The interested
to around 12% of the world’s species but is in growing danger
party must also justify that the environmental and social
of losing its privileged position. Forests have been among
benefits of any relevant project exceeds any predictable
the most critical losses, since 50% of the national territory is
environmental impact.
considered to be forest vocation land due to this ecosystem’s prior abundance. Illegal logging is seeing Mexican green
Even though Mexico was one of the first countries to adopt
cover vanish at a rate of approximately 150,000 hectares per
strategic environmental evaluations, the Environmental
year. In addition to the loss of biodiversity, environmental
Impact Assessment has not seen many changes in the
degradation has costs amounting to 7% of GNP. The
past 20 years. Although the Assessment has always been
number of vulnerable and extinct species and the annual
strict, SEMARNAT is seeking to improve it so it may better
deforestation rate are clear signs that the conservationist
cater to today’s environmental needs, such as measuring
model is not working as expected.
cumulative impacts in one area. This is just one of several
“The problem is that a very small portion of trash is being reused and we still have a long way to go before waste-toenergy becomes a viable option” Rafael Pacchiano, Undersecretary of Management for Environmental Protection of SEMARNAT
Rafael Pacchiano, Undersecretary of Management for
changes SEMARNAT is making to its tools, which also
Environmental Protection of SEMARNAT, explains that the
includes modifications to the way a project’s carbon
current administration is taking a different approach toward
footprint is measured.
these issues. He says that the lack of economic resources and opportunities leads to environmental deterioration.
The power and transportation sectors are responsible for
Therefore, the government sees it as vital to enable people
22% of Mexico’s greenhouse emissions, making one of
living in naturally rich areas to take advantage of available
SEMARNAT’s priorities to reduce emissions across both
resources in a sustainable way while improving their quality
sectors. Waste management in cities is another keystone
of life. This strategy empowers local communities as part of
in SEMARNAT’s plans, a priority for current federal
Mexico’s actions against climate change.
and state administrations, and is included in political agreements. Pacchiano states that 30% of a large urban
188
SEMARNAT’s duties include facilitating the development
center’s trash ends up in open pits, some of which operate
of large energy projects in Mexico while ensuring that all
without permits. “Some landfills are under development.
projects respect the environmental regulations. To do this,
The problem is that a very small portion of trash is being
SEMARNAT has coordination mechanisms to establish norms
reused and we still have a long way to go before waste-
and regulate projects and their processes with the active
to-energy becomes a viable option.” SEMARNAT is doing
participation of three undersecretaries. The Undersecretary
extensive research on incineration techniques to generate
of Management for Environmental Protection, run by
power with inorganic waste. For example, the Mexico City
Pacchiano, is in charge of monitoring national programs that
government has plans to make the city trash free by giving
enable SEMARNAT to manage emission inventories.
value to waste that can be used for energy production.
Under this umbrella, a wide range of instruments are used
Finally, Pacchiano points to specific indicators having been
to protect Mexico’s natural resources. The Environmental
included within the National Development Plan for the first
Impact Assessment is used to evaluate the risk of
time. All actions taken by the different secretariats must
environmental alterations. This instrument determines the
now include these indicators to allow the performance
magnitude of possible environmental impacts and proposes
of their activities to be measured. These indicators’
measures to minimize them, while holding involved parties
methodology has been tested and approved at the
accountable for externalities. The Mexican Forestry Fund is
international level. “This forces us to work hard because we
a clear example of this mechanism. When a party requests
are going to be subjected to constant public evaluation.”
GLOBAL TRENDS IN THE BIOENERGY SECTOR The use of renewable resources to generate energy has
are accounted for, the amount of land needed and the
become an iron-clad priority to create a sustainable world
demand for cropland is reduced. The production of second
with bioenergy being an important contributor, given its role
generation biofuels allows for the use of feedstocks that
as a potential substitute for conventional power generation
do not compete with foodstuffs and can be grown on
and fuel production. Biomass, composed by products
marginal land, largely avoiding land usage issues and
from agriculture, forestry and waste among other sources,
posing no risks to food security.
represents the fourth-largest energy source after coal, oil and natural gas. This positions it as the renewable energy
The global biomass market is still quite centralized, with
resource with the highest availability, able to fulfill energy
the large markets of Brazil, India and the US accounting for
needs both locally and globally. However, land availability
around 50% of the total industrial use of biomass worldwide.
is an important factor to consider in determining the full
However, more diversification is becoming a possibility with
potential of generating energy from biomass.
the use of biomass gasification for use as a complementary fuel in combined cycle power plants. But for the moment,
Only 0.19% of the world’s land area is destined to grow energy crops
the low price of natural gas makes it the more costcompetitive choice. The clear leader in the production of biofuels is the US with a 48% share of the global market. In
for biomass, which represents
order to promote the use of biofuels in markets such as the
0.5-1.7% of all land dedicated
consumption, public policies have been enforced to blend
agricultural purposes.
bioenergy production is linked to public policies and to the
US and Brazil, the latter accounting for 22% of global biofuel biofuels with gasoline. These are examples that show that commitment of countries to mitigate climate change and
Another important aspect is that algae have not largely
reduce greenhouse gas emissions.
been taken into account in determining bioenergy capacity, while being a valuable potential energy source. Bioenergy
Biomass includes wood and agricultural crops, herbaceous
production has been closely linked to government policies
and energy crops, organic wastes and manure. In
since the production of low-cost biomass fuels is highly
developing
dependent on local incentives. But the global increase in
consumed for cooking and heating with considerable
the price of fossil fuels is incentivizing a faster growth of
impacts on health and the environment. In these countries,
the biomass and biofuels sectors as the security and the
modern bioenergy supply is minute when compared to
diversification of energy sources becomes an ever higher
traditional uses. However, a total of 280TWh of bioenergy
priority. According to the World Bioenergy Association
electricity was produced globally in 2010, accounting
report
on
bioenergy
potential,
the
global
countries,
these
resources
are
largely
primary
for 1.5% of the world’s electricity generation, with 8EJ of
production of biomass has reached 4,500EJ (exajoules)
bioenergy for heat also being used by industry. In 2011,
per year. By using 5% of this amount, almost 50% of the
10% of the world’s total energy supply was generated from
world’s primary energy demand in 2006 would have
biofuels and waste, actually marking a step back from the
been covered. However, there are fears that the use of
10.6% it accounted for in 1971, thirty years earlier.
biomass for energy production could negatively impact the economy and the environment. For bioenergy to bring
As stated in the study for Large Industrial Uses of Energy
the private and public sector together, it is essential to
Biomass by the IEA, the use of biomass for energy
demonstrate that its advantages exceed the costs of any
purposes is growing in the world. The International Energy
potential environmental damage.
Agency’s Energy Technology Perspectives 2012 present cost effective strategies for reducing greenhouse gas
First generation biofuels are currently being produced
emissions in the energy sector by 50% in 2050 compared
from sources such as corn, raising food security issues that
to 2005 levels with the objective of stabilizing atmospheric
threaten to limit their role in future energy supply. On the
greenhouse gases around 450 parts per million and
other hand, sugarcane ethanol biofuels avoid greenhouse
limiting the global temperature rise to 2°C by the end of
emissions and can be produced in a sustainable way.
this century. According to this roadmap, bioenergy can
The role of biofuel by-products have not been usually
play an important role in reducing emissions, and its share
taken into account when charting the benefits of biofuels
of world primary energy supply is expected to increase
and their possible uses in the livestock industry. If these
from the current 10% to 24% by 2050.
189
A WILLING INDUSTRY WITHOUT A VIABLE MARKET The National Energy Strategy states that it is important to
Some of the issues regarding land use can best be
substitute fuel imports with biofuels to reduce greenhouse
understood by drawing comparisons. In Mexico, it is stated
emissions and enhance Mexico’s energy independence.
by law that a single producer is eligible to use 100 hectares.
According to Benito López, General Director at Biomex,
At such a rate, it would take 2,500 Mexican producers to
alternative fuel sources have seen little support in Mexico
match the land used by a single producer in Brazil. Brazil is
compared to Brazil and the US. This has changed since the
a world leader in ethanol production, due to the large areas
current administration has shown its support for renewables,
designated to grow sugar cane and create economies of
and the biofuels industry must seize the moment. According
scale. The country’s sugar cane costs are regulated by the
to Biomex’s statistics, Mexico imports approximately 150
law of supply and demand. In contrast, the price of sugar
million liters of ethanol per year for these purposes. Small
cane in Mexico depends on a government decree. This
plants and the sugar industry produce ethanol in Mexico
makes the country unable to compete with producers such
to supply these markets, with production reaching 60 to
as Brazil in the global market.
70 million liters per year. This is not significant considering the market demands up to 250 million liters per year. This
The law pertaining to biofuels, published in 2008, explains
means that Mexico’s high ethanol demand is largely being
the role and responsibilities of the Mexican government and
met through imports.
the Inter-Secretariat Commission, composed of five different ministries. These organisms have been working since 2008
López claims that while previous administrations failed at
but their activities have been hampered by the fact that
creating a market for biofuels, the private sector came up
PEMEX was the only potential ethanol buyer. López admits
with many ideas to kick off biofuel production hoping that
that PEMEX has to pursue its mandate, and therefore cannot
PEMEX would become a consumer. Most of these projects
subsidize the biofuels industry or buy more expensive
turned out to be unprofitable. Some plants were built that
additives. Developers of potential biofuels projects have
could not operate as the use of corn was forbidden while
to juggle a number of balls at once. In order to produce
other plants worked with sugar cane, a very expensive
agricultural products for biofuels, candidates must inform
raw material. Some companies operating in Mexico have
SAGARPA one year in advance, specifying the location to
tried to cover the demand once anticipated from PEMEX,
ensure proper land use and no deforestation. Biofuels are
and the private sector is ready to meet potential demand
required to be sustainable, which involves an evaluation by
once the public sector launches new bids to buy biofuels.
SEMARNAT. It is important to consider the area where inputs
“PEMEX approached us to obtain a better understanding
will be produced and the location of the plants, since raw
of Mexico’s ethanol supply capacity, in order to avoid
materials should not be transported long distances. Finally,
failed bids,” says López. PEMEX representatives needed to
the end user must be relatively close to production facilities
know if projects complied with environmental regulations
to avoid the transportation of large quantities of biofuels in
and if the types of land use would need to be modified
diesel-powered trucks.
since Mexican legislation forbids changing land use from agriculture for human consumption to biofuels production.
Different ministries have been working in order to establish
If all these requirements are met, PEMEX will try to find
the legal infrastructure required. SAGARPA has done its
viable biofuels projects in the country to raise new bids.
part by promoting investment in biofuels projects with support programs to ensure inputs, SEMARNAT has given
Land use remains the main issue for biofuel producers in
the go-ahead for several projects, and SENER has started
Mexico. The country’s Biofuels Law states that the impact
a program to begin mixing biofuels with gasoline. These
on food production must be minimized. Despite the legal
elements paint a promising landscape, but López points
specifics, López says there is no available suitable land for
out that the biofuels market in Mexico is still very weak.
biofuel production, therefore the industry has to focus on
190
existing land. SAGARPA states that marginal land should
The plant Biomex is building in Tamaulipas is slated to create
be used for biofuel production, meaning low-quality lands
close to 1,500 jobs during its construction stage and 2,500
that are currently not being put to productive use. The
jobs during the operational phase. The firm attributes its
international debate over whether land should be used
ability to compete with international prices to its experience
for human consumption or industrial purposes has slowed
in the agricultural sector. “Our project is the only one that
down the development of the biofuel sector globally, but
is considering sorghum as a raw material because of our
López believes well-planned biofuel projects could be
experience with this grass. We produce approximately 35%
compatible with both land uses.
of the sorghum in Mexico,” explains López.
MERGER BETWEEN GOALS FOR TRANSPORTATION AND BIOFUELS The
energy
of
a minimum demand that would allow for investment in
fluctuate
larger production schemes to supply needed biofuels.” He
depending on the industry
suggests that, even though the transportation industry
in which they operate. In
has not been actively involved, biofuels producers could
the particular case of the
approach CANAPAT, a body that regroups a very important
transportation
number of transportation companies.
companies
needs
industry,
the cost of fuel is naturally the Juan Carlos Uriarte Amann, President of Grupo ADO
most
important
Communication between industries could become a very
expense, emphasizing the
important platform to guarantee a minimum consumption
importance of developing
of biofuels, thus increasing their competitiveness. “The
fuel-saving
strategies.
challenge is that in the transportation industry, these
Such is the case of Grupo ADO, a Mexican transportation
topics have not been addressed homogeneously and there
leader that has been in the market for more than 70 years
might be a lack of interest in trying such alternatives,”
and has always closely monitored its energy expenses.
Uriarte argues. Nevertheless, CANAPAT could become a
“Fuel expenses are the main costs of Grupo ADO’s
very important channel to raise awareness of the benefits
operations. In the recent years we have observed monthly
for the transportation industry. This is an example of the
increases in the price of diesel of approximately MX$0.11
alternatives that the biofuels industry has besides PEMEX
per liter,” says Juan Carlos Uriarte, President of Grupo
in order to boost its development, rather than waiting on
ADO. “We are very concerned about the use and price of
the national oil company to drive biofuel demand.
fuel. We are conducting research in order to consider the best projects to increase fuel saving within the company.”
The second most important cost for Grupo ADO is electricity, due to the large amount of facilities owned
The transportation industry is also one of the main
by the company including bus terminals, maintenance
contributors to greenhouse emissions in Mexico and
warehouses,
developing new solutions is needed to mitigate its
energies become competitive to provide energy for the
environmental impacts. The cooperation between Grupo
facilities that work under the Tariff 2 scheme. “We must
ADO and its providers has demonstrated that it is possible
evaluate and analyze the proposals of the companies
to develop alternatives that not only increase the efficiency
that offer clean energy at a more competitive tariff,”
of the engines but also reduce emissions. “By using a
says Uriarte. “However, it is important to compare them
substance called AD Blue we have considerably reduced
to the projects that we are planning on implementing
NOx emissions,” explains Uriarte. “However, efficiency and
internally and select those projects that offer the highest
emissions depend on the manufacturer of the engines and
return on investment,” he explains. As a result, several
the buses. We are complying with EPA and Euro norms,
PV energy projects have been developed internally with
which are accepted in Mexico.” Grupo ADO has also found
bidirectional gauges taking advantage of the energy bank
that the fuels supplied by PEMEX are below the company’s
scheme. Nevertheless, the solution is not only to increase
efficiency standards, and that the oil giant has not reduced
renewable energy generation but also energy efficiency
sulphur levels in its diesel and gasoline in line with its
performance. “It is important to cover an important
commitment to do so five years ago.
amount of facilities so that the savings generated become
and
corporate
buildings.
Renewable
substantial for the company. Grupo ADO is focusing on Biofuels have demonstrated that not only do they reduce
PV technology as well as potential energy efficiency
emissions, but are also a highly efficient fuel that can be
gains in air conditioning and lighting among other
used without requiring any modifications to engines.
equipment. We need to create a plan for the next three
Grupo ADO has been testing biofuels in their Turibús – the
to five years,” says Uriarte. “We were invited to invest in a
company’s bus service aimed mainly at tourists in different
wind park in Tamaulipas called Los Vergeles; we analyzed
cities across the country – in order to rate the performance
the project but it did not reach the profitability that we
of the buses when using this fuel. “Emissions are greatly
consider adequate since it required a heavy investment
reduced but the main problem is that there is not enough
and the returns were not attractive,” comments Uriarte.
production of biofuels in Mexico so they are very difficult
“These projects are still expensive and have very long
to get,” says Uriarte. “There should be agreements between
term payback periods but we will be waiting for a good
the producers and the consumers of biofuels. The consumer,
project. We are very willing to become part of the right
such as a transportation company, could commit to creating
one,” he adds.
191
SOCIAL AND ENVIRONMENTAL ARGUMENTS FOR BIOFUELS According to the Ministry
a passenger transportation company with a fleet of 10,000
of
buses. Additionally, Biofuels de México also collaborates
Social
there
Carlos Campos, Director General of Biofuels de México
were
Development, million
with LIPU, the leading transportation company ferrying
people living under the
16.7
employees and students. Both clients are interested in
poverty line in rural Mexico
trying out new technologies and biofuels to understand
in 2012. For decades, the
how they can benefit from implementing eco-friendly
lack of opportunities in
solutions. On the downside, Biofuels de México is only able
the countryside has forced
to supply a small portion of these large fleets since the
millions to migrate either
transportation industry is reluctant to invest on scale given
to urban regions or the US
its need to keep costs low and stable. “It is hard to convince
in search for opportunities.
customers to pay more simply by relying on a green flag,”
It is in this context that Carlos Campos, Director General
explains Campos. Biodiesel is generally more expensive
of Biofuels de México, decided to enter the sustainable
than regular diesel, which is a subsidized fuel supplied by
energy market. He claims that the biodiesel industry is
PEMEX. “We thought about subsidizing biofuels as well. We
an employment opportunity for a lot of economically
sought the government’s help and found no support for the
disadvantaged people, particularly in the countryside.
idea,” explains Campos. He adds that biofuels will just have
“Because of the magnitude of the biodiesel industry, you
to succeed without subsidies as there is no point in funding
can provide jobs for people in abandoned areas. We are not
an industry that cannot survive without the government’s
going to substitute food crops for crops destined to produce
help. Other options are cutting down costs and investing in
biofuels; the land we use is already abandoned,” underlines
new technology.
Campos, who states that biofuels can bring much-needed money to these lands. Using biodiesel for transportation is
Mexico is already producing ultra-low sulfur diesel, which
their best known application. Biofuels de México is working
needs a product to make up for the lubrication lost during the
with the largest transport enterprises, including Grupo ADO,
sulphuration process. PEMEX could pay for the added value
SELECTING THE BEST CROPS FOR BIOFUEL PRODUCTION
192
The awareness and concern about reducing greenhouse
The Mexican government and several industries have
emissions has fostered innovative ideas on how to fight
stepped up to fight climate change and greenhouse gas
environmental degradation. In order to counter the negative
emissions and working on the development of a domestic
effects of fossil fuels and their carbon dioxide emissions,
biofuels industry has been a part of this crusade. 2008 saw
biofuels have become a sought after alternative. Biodiesel
the creation of the Law for the Promotion and Development
is a clean fuel made from renewable sources, such as
of Biofuels, which defines biofuels as fuels obtained from
vegetable oil, animal fat or used cooking oils. Biodiesels
biomass resulting principally from agricultural activities.
can range between being 45 to 90% less toxic than diesel
In order to address some of the aforementioned debates
made from petrochemicals. Conventional oils used as raw
regarding biofuel production, the law also established
materials for biofuel production include oilseeds from plants
that official land use cannot be changed to specifically
such as sunflowers and rapeseed, widely used in Europe,
plant crops intended for biofuel production. Many parties
and soybeans, which are popular in the United States, and
promote the use of lands that are not suitable to grow
coconuts in Southeast Asia. As such, bioethanol is used
plants for human consumption to grow crops for biofuel
as a motor fuel and fuel additive, usually made from sugar
production. The Mario Molina Center states that in order
cane, sorghum, and maize. Biofuels, however, are not yet
to be an effective solution, biofuel production should not
competitive against hydrocarbons, and their efficiency has
compete with food sources, negatively affect biodiversity,
not reached its peak. The main issue is that these sources
cause deforestation, or exhaust resources such as water
could threaten food security, particularly in the use of food
and fertile soil. Although several plants can be used for
crops, like maize and sugar cane. Environmental concerns
biofuel production in Mexico, there are several criticisms
include potential deforestation, erosion, and water shortages.
aimed at some of the candidates. The International Energy
of biodiesel and still have lower costs compared to other
focus on producing virgin oils, leaving the oil company having
options. “There is an opportunity in the oil industry since
to import these products. Campos highlights the fact that the
SENER was behind the idea of using biodiesel in this sector,”
largest biofuel user in Mexico imports the source materials as
says Campos. The drilling industry provides another area of
a major obstacle to the national biofuels industry.
application because biodiesel can be used as an additive to maintain a determined consistency in drilling fluids. Campos
Biofuels de México originally became known for obtaining
sees the drilling industry as a potentially robust market
used vegetable oil from restaurants in Mexico City. Campos
because the sector has widespread activity in Mexico.
says that producing and using sorghum or canola oil to produce biofuels will not yield different results because
“Biofuels de México could supply one million liters per
the government’s attitude will not change. Therefore, there
month, and could serve as a catalyst for the entire biofuels
are not many options that can foster the sector’s growth.
industry. The potential uses of biofuels should be further
Making synthetic oil from waste, however, provides more
promoted, as they can be used in the agroindustry as well,”
opportunities. Biofuels de México representatives visited a
explains Campos. In spite of the market potential, Campos
German plant that produces a unit of biodiesel from every
believes the biofuels industry in Mexico is lagging behind
three units of biomass. Campos’s team realized that this was
for political reasons and a general misunderstanding of the
an attractive option as Mexico City produces approximately
impact these fuels have on the economy. “Policymakers are
10,000 tonnes of solid waste daily, which could be turned
afraid of negatively affecting PEMEX because it is a state
into one million liters of biofuels per day. Furthermore, this
company,” he claims and adds that, even if the biodiesel
waste is just dumped, making it a current environmental
industry successfully thrived, it would never grow large
liability and an economic burden for the city’s government.
enough to compete with PEMEX. This means the biofuels
Campos proposes a special fund to mitigate the initial risks
industry would actually contribute to the development of
of implementing this technology in Mexico City. “If Biofuels
the energy sector, since PEMEX needs a strong vegetable
de México buys this technology and demonstrates its
oil and biodiesel supplier.
feasibility, it would be easier for us to acquire more capital from investors and expand by installing similar facilities.”
90% of Biofuels de México’s raw material consists of oil but
Regardless of future outcomes, Biofuels de México will
Campos points out that there are no relevant policies for
continue with its restaurant campaign, which enables the
SAGARPA to foster the sector, leaving SENER powerless to
company to raise awareness among the general population
act. Additionally, PEMEX’s suppliers need to have a strong
about the existence of biodiesel.
Agency claims ethanol made from sugar cane and second
a stable biofuel source because its seeds, which grow six
generation lignocellulosic biofuels are the only biofuels
months after planting, contain up to 40% oil. Jatropha is
that significantly reduce greenhouse gases. Other studies
resilient to droughts and its toxicity and bitter taste keep
published by the Mario Molina Center show that ethanol
pests away. Although jatropha plants are an option for
produced from maize is not very effective in reducing
biofuel production, there are several concerns surrounding
greenhouse emissions. In general, the benefits of using
the crop. This plant has not been properly domesticated
biofuels are dwarfed when fertilizers and fossil fuels for
therefore the long-term effects of its large-scale use on
production and transportation are used in the production
the soil and the environment are still unknown. In Mexico,
chain. The Food Policy Research Institute is in favor of
farmers have shown concern about jatropha plantations
using sugar cane in Mexico, which should be used to drive
using fertile land and thus competing with edible crops, as
biofuel use because it is more effective than maize. In fact,
happened in Las Choapas, Veracruz.
he believes using maize would bring about problems as it is a staple in Mexico. SAGARPA is aware of the importance of
The biofuel sector in Mexico is a promising one, highlighting
maize and only grants permits to use this crop for biofuels
the urgency to solve the many problems entailed in
when there is a surplus in national production intended
the production process. By law, PEMEX requires large
for human consumption. Permits are not required if corn
amounts of bioethanol and biodiesel to mix with its fuels,
is imported.
but currently Mexico does not produce these quantities, therefore discharging PEMEX from this obligation. It is
Given its biodiversity, Mexico has some alternatives for
important to ensure that biofuels really contribute to
the production of biofuels. There are certain species that
fighting climate change by making an integral life cycle
are more adapted to regional conditions and thus favor
analysis that quantifies all the emissions associated to
a specific country’s bioenergy sector. This is the case of
their production. In Mexico, regulations promoting biofuels
jatropha, a shrub native to Central America that easily
should include monitoring and certification mechanism
grows in Mexico. This plant is a strong candidate to become
that guarantee the expected results.
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| VIEW FROM THE TOP
FOSTERING BIOENERGY FOR RURAL DEVELOPMENT GUILLERMO DEL BOSQUE MACÍAS Director General of Natural Fibers and Biofuels of SAGARPA
Q: What are the different opportunities that bioenergy
million, plus other costs. This project would generate about
could bring to the development of rural Mexico?
22,000 permanent jobs.
A: The potential to diversify income in rural areas through an investment in bioenergy is huge. The first program
Q: What can SAGARPA do to promote an alliance between
under consideration is replacing MTBE, the oxygenate used
PEMEX and biofuel producers to create a viable market?
in PEMEX’s gasoline, with ethanol as MTBE is prohibited in
A: In past tender processes, PEMEX acted in ways that
most of the US and in the European Union. Guadalajara,
halted the profitability of biofuel projects. Today, PEMEX
Mexico City and Monterrey would require 810 million liters
is willing to make the necessary steps to launch tenders in
of ethanol per year, which would require the development
different parts of the country. We are trying to determine
of six bio-refinery plants, with an investment of about US$1
what volumes PEMEX will require in order to adapt the
billion, considering that each plant costs about US$150
investment in biofuel capacity to expected market demand.
MEXICAN REGIONS COMBINE TO CREATE BIOENERGY POTENTIAL The
potential
bioenergy
Iram Mondaca, President of REMBIO
in
for
scale biodiesel plants beyond demonstration projects.
Mexico
Biomass power plants have not been announced either,
is very high for forest
although three sugar mills have started a cogeneration
biomass in the south and
project that will be interconnected to the national grid. To
southeast regions of the
avoid the potential negative consequences of developing
country,
new
bioenergy, Mondaca says it is very important to evaluate
sugar-cane plantations in
high
the lifecycle of each technology, together with the
all the states surrounding
feedstock used for the production of biofuels, in order to
the Gulf of Mexico, and
determine the potential environmental impact and energy
middling for other energy
gains. “It is very important to determine the amount of
crops
energy obtained and compare it with the input of energy
such
for
as
castor,
sorghum, and jatropha in central, western, and northern
from other sources, which most often are fossil fuels.”
Mexico. This potential is also fairly distributed in crop
194
residues all over the country. REMBIO, the Mexican
Jatropha planting has been encouraged by three states
bioenergy network, has been focusing on guaranteeing the
through subsidies and promotion programs since 2008
steady development of this sector in Mexico. “The public
but few positive results have been achieved, and most
sector should promote policies, create opportunities, call
planted areas have now been abandoned by farmers.
for proposals, and encourage research and development
However, the operating framework in Mexico is still not
activities,” says Iram Mondaca, President of REMBIO. “In
actively promoting the production of bioenergy. “There
order for the bioenergy sector to truly develop, efforts from
are isolated efforts by some government offices but they
private companies, universities, and researchers in biogas
lack coordination to develop the sector,” says Mondaca.
generation, advanced biofuels, first generation biofuels
The Law for the Promotion and Development of Bioenergy
and evaluation of already existing potential have to be
(LPDB) has succeeded in setting up the first legal basis in
coordinated.” While several bioethanol plants are already
Mexico for biofuels, which has resulted in an improvement
in the planning stage, REMBIO sees no prospects for large-
in funding. However, the lack of regulations is still impairing
Q: What are the main advantages and disadvantages of
was importing 100,000 tonnes of ddgs, but we are now
the prohibition to produce biofuels from corn?
importing around 2 million tonnes. Although we are not
A: The law is very clear, as legislation was put in place
affecting the chain, this remains a controversial topic.
to protect the food supply for people. Biofuels cannot compete with food, which is why the use of corn to
Q: How can Brazil’s bionenergy model be replicated in
produce ethanol is prohibited. As a country, Mexico is
Mexico?
self-reliant for human consumption. Our consumption of
A: Apart from Brazil’s goal to be self-reliant in terms of energy,
white corn does not exceed 7 million tonnes and we are
it looked for rural development opportunities. In Mexico, the
producing more than 13 million tonnes. We are importing
first goal has to be rural development as this sector has not
yellow corn but this is not used to feed people. None of
received the recognition it deserves. If the bioenergy sector
the biofuel projects that supply PEMEX are based on corn;
is developed in Mexico, this would provide an alternative
they always use other types of crops. The competition
source of economic development in rural areas.
with food is relative because we have already proved that when you use a tonne of corn to produce ethanol, you get
Q: Is it possible to promote alliances between small
about 330kg of distilled grains (ddgs). The protein value
producers in order to enable them to sell to PEMEX?
of those 330kg is the same as the protein value of the
A: This type of project requires the creation of a biofuel
whole tonne of corn. This is then used for food production
producers association. Independent producers do not
for cattle, so the agro-processing chain is not affected.
have the capacity or the land to do this, they have to be
When the ethanol industry developed in the US, Mexico
associated.
the development of the industry. This law also only includes
main challenge is to consider the social, economic, and
first generation biofuels but does not address advanced, or
environmental impacts of these activities.
second generation biofuels. “SAGARPA has worked mainly with crop derived biofuels while SENER and PEMEX have
“Companies such as Moosi & Ghisolfi, which is a leading
not made real advances in developing this sector,” Mondaca
producer of PET, are becoming interested in developing
claims. Advanced biofuels are not obtained from crops and
facilities for the production of advanced ethanol that would
have been recognized as a better option but there is no
be obtained from biomass. Kuosol, a company formed by
regulation that indicates which governmental entity is in
Repsol and KUO, the Mexican cluster of companies in the
charge of regulating second-generation biofuels.
food, chemical and farming sectors, are set to develop biofuel projects from jatropha in Southeast Mexico.
Renewable energies have found support from the Mexican
Companies like Kuosol are covering the entire value chain,
government in such documents as the General Law on
from crop production with R&D processes, to the future
Climate Change. However, bioenergy has not received
oil extraction industry and the production of biodiesel,”
the same treatment and there has not been a public call
Mondaca explains. “Given the high amount of resources
for biofuels projects in Mexico. “Other countries have
available in Mexico for the production of bioenergy,
subsidized biofuels like ethanol or biodiesel. However,
these activities could generate economic growth, create
the Mexican government is not doing that,” Mondaca
new jobs, and contribute to reducing greenhouse gases
emphasizes. “It is hard to believe that there will ever be
emissions.”
any subsidies for biofuels to boost the development of the industry.”
If the sector fully develops, some estimates have stated it has the potential of creating 200,000 jobs involving power
REMBIO
Mexican
generation through biomass and 500,000 more jobs from
government to study the potential of biofuels in the
has
been
collaborating
with
the
the production of methanol in sugar cane plantations in
country and the sustainability of first generation biofuels.
Central Mexico. REMBIO will continue to work alongside
The association has also created an important partnership
both the public and private sector to the potential of this
with UNAM and other Latin American, European, African
industry. “We must start development as soon as possible
and Asian institutions to develop strategies to boost the
because if tomorrow we decide that we need bioenergy,
growth of biofuels in industrialized countries. Developing
it will not be easy to make it appear out of nowhere,”
countries can be the main providers of feedstock but the
Mondaca adds.
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| VIEW FROM THE TOP
MEXICAN PLAYERS IN THE INTERNATIONAL BIODIESEL MARKET DANIEL GOMEZ Ă?Ă‘IGUEZ CEO of Solben Q: How is the Mexican bioenergy industry positioned
faced the problem of having to centralize raw materials
internationally?
and started struggling because of the lack of feedstock.
A: The bioenergy market in the US started growing because
The problem with small biodiesel facilities is that this
the army developed a strategy to reduce its dependence
equipment can be bought online but might not actually
on imported fossil fuel The sector went from producing 0.5
produce biodiesel. If you put what those plants produce
million gallons per year in 1998 to 1.2 billion gallons last year.
into a motor, it might not work due to the low quality of the
There are currently 196 large certified biodiesel facilities in
biodiesel, leading people to claim that biodiesel does not
the US. The country has a sound regulatory framework and
work at all. Instead of following the centralized model, we
subsidizes about 30% of biodiesel with tax incentives. In
started introducing a distributed focused on high quality
comparison, the Mexican biodiesel industry has not been
standards. We are also developing new models to not only
developed. People here have a closed mind toward the idea
sell our technology, but to let others lease and operate it
of biodiesel competing with diesel. But diesel is subsidized
while splitting the profits of the biodiesel production. We
and biodiesel is not, so there is no way it can compete.
are getting into the biodiesel production industry, which is why we are taking the leasing model to the US. Another
Q: What initially moved you to create Solben?
advantage we have internationally is that we develop
A: Solben was started six years ago by a group of young
customized solutions. Being able to adapt to change, to
engineers interested in biodiesel. Every time we went to a
innovate, and to anticipate the next stage in technological
conference on renewable energy, the focus was on solar and
development has allowed us to position ourselves in the
wind but we were especially interested in the development
international market. We have a global vision but are acting
of biodiesel technology in Mexico. We were told to buy
locally so that we can transform the local environment and
technology in Europe, Brazil, or the US, but we did not
then become global.
believe that buying international technology would be effective if we wanted to reactivate rural areas and teach
We promote distributed energy models where the
farmers to operate that technology. That led us to consider
technology follows the feedstock, which helps to cut
developing Mexican technology for biodiesel production.
logistics costs and create self-sustainable communities
We had no money, no business plan, and we did not belong
that consume the fuel. Jatropha, castor oil and other
to any business association so we thought about creating
feedstock have been tried in the market, but Solben has
an NGO. We would ask for money from the government,
developed a multi feedstock technology that can adapt to
we would get a grant to develop our technology in five
local conditions and produce cheaper oil to ensure a faster
to 10 years, and we would develop and commercialize
return on investment.
patents. However, we never got the grant so we started developing new strategies that were sustainable and
Q: How important are community relationships for the
generated income. We do not depend on money from
biofuel sector and for Solben?
sponsors, donations or the government, we developed
A: Our objective is to increase the quality of life in rural
the company by reinvesting our profits. Right now, 80% of
areas, first in Mexico, then in the world. We know energy
Mexican biodiesel facilities use Solben technology.
can both generate jobs and increase the quality of life of those living in rural areas, by increasing salaries, creating
196
Q: How does Solben distinguish itself from international
awareness about renewable energy and providing better
competitors?
education that could lead to the creation of technology.
A: The international market has two options for the biofuels
We need to teach people in rural areas that they can
industry: enormous biodiesel plants and small biodiesel
develop certain high value added products locally to
facilities. The first ones centralize 100,000 liters of oil per
create sustainable communities where the oil is produced,
day and then distribute it to clients. However, those plants
transformed and consumed.
AVIATION: LARGE POTENTIAL MARKET FOR USE OF BIOFUELS
Captain Gilberto López Meyer, Director General of Aeropuertos y Servicios Auxiliares (ASA)
Mexico has one of the
The sector is expected to grow at a reasonably slow pace,
20 largest aviation fleets
as it depends on technological advancements and the fossil
in
an
fuel market. ASA had two options to push the development
estimated 10 million liters
the
of biofuels. The first consisted of waiting for another party to
of aviation fuel are used
produce biofuels for aviation, a rather safe alternative. The
in the country every day.
second was taking advantage of ASA’s strategic position to
This numbers make Mexico
influence the market and push the industry by itself. “As the
a
market
only supplier of aviation fuel in Mexico, anyone interested in
for the aviation biofuel
producing fuels or biofuels for the aviation sector will have
industry.
Additionally,
to sell the product directly to us. This puts us in a great
key
world,
potential
and
Mexico has the conditions
position to stimulate the development of this industry. You
and resources to become a major aviation biofuel producer.
could say we are taking advantage of a monopoly for a
According to Captain Gilberto López Meyer, Director General
good cause,” explains López Meyer.
of Aeropuertos y Servicios Auxiliares (ASA), a lot of land in Mexico has suffered from negative ecological impacts.
Prices are the main challenge for the implementation of
These lands have lost nutrients due to heavy agricultural use
biofuels in the aviation industry. The first flights for which
or to not receiving enough water, and are now regarded as
ASA used biofuels cost 15 times more than regular flights.
low quality soil no longer suited for food production. “There
However, that ratio was only six times in 2012, still vastly
are millions of hectares of this kind of land in Mexico that
more expensive but a sign that costs are coming down.
are waiting to be put to good use. So availability of land for
López Meyer indicates that some developers are producing
biofuel crops is not an issue,” he says.
biofuels that cost three times as much as traditional fuels. So far, ASA has carried out around 40 flights using
Six years ago, airline companies would not have considered
biofuels but no one can really predict when the prices of
biofuels as a viable option because aviation fuels have
biofuels will become competitive. “Lowering prices is the
distinctive traits. For example, they have to be able to
main challenge, and we are working on a diagnostic of the
function at a wide range of temperatures and pressures.
entire chain that includes farmers, government organisms,
But research and development on biofuels has come a
financing, and shipment,” López Meyer adds.
long way and these fuels earned certification for use on commercial flights in Mexico in 2011. The International Civil
Nobody is producing the required quantities of biofuels in
Aviation Organization established that, ideally, biofuels
Mexico due to the absence of market demand. However,
should represent at least 1% of Mexico’s total aviation fuel
this scenario is changing in other countries. For example,
consumption by 2015. This percentage is the equivalent
the US implemented the use of biofuels in the army to
of 100,000 liters per day. By 2015, this goal will entail a
create economies of scale and foster the sector’s growth.
production of almost 40 million liters per year.
This resulted in an increase in the production of raw materials and investments. ASA has asked for government
The aviation industry’s strategy to address climate change
support in expanding the use of biofuels, which responded
contemplates four lines of action. First, investing in better
by creating an inter-sectorial commission in charge of
technology. Current airplanes are 70% more efficient than
developing the biofuel sector, linking SAGARPA, SENER,
aircrafts from the 1970s and technology is still improving.
and SEMARNAT. ASA is working with this organism in
The second line consists of better aerial operations by
promoting a coordinated debate to improve policies and
ensuring that fleets and airports function in the most
regulations regarding biofuels.
efficient ways possible. Third, market measurements are enforced and polluting actors are fined. Biofuels comprise
By using advanced biofuels that are manufactured from
the fourth line of action. ASA is currently participating in
biomass or agricultural residues, the aviation industry is
all these mechanisms, having shown a commitment to
operating in a safe zone. This means aviation biofuels do
energy efficiency and sustainability for the past 15 years.
not compete with food production, which is a common
Additionally, ASA saw biofuels as an opportunity for
critique of biofuel production. López Meyer says ASA
economic development. López Meyer believes countries
measures the precise environmental impact of the biofuels
that are already investing biofuels as part of their energy
and alternatives it could use, ensuring that when a full
transition strategy will have greater chances of getting
commitment is made, it will be both economically and
ahead when the market detonates.
environmentally sound.
197
EDUCATION: KEY IN UNLOCKING BIOFUEL POTENTIAL One of the main challenges faced by any new industry
actively participating by giving conferences at universities,
involves the lack of information and how to get traction
but the education campaigns have proven to be more
within society’s well-established consumer habits. Pioneer
successful with children than with adults. “There are a lot of
companies must take on the burden of introducing new
interests involved and instead of receiving support for our
processes and convincing potential consumers. “In order
environmentally responsible business, we have been asked
to promote the creation of an industry and guarantee
to pay for the used kitchen oil,” he remarks. Used kitchen
high-quality products, we have created partnerships with
oil has no real use in Mexico and is commonly discarded
schools and universities so we can use their facilities to
down the sink, polluting 1,000 liters of water with just 1 liter
work on new production alternatives,” says Luis Andrés
of used oil. For Biodiesel Moreco, this situation makes little
Álvarez, CEO of Biodiesel Moreco.
sense since usually people pay to have their trash taken
“The key to educating the public is to approach the children of Mexico, fresh minds that are willing to accept these new ideologies” Luis Andrés Álvarez, CEO of Biodiesel Moreco
The supply of biodiesel in Mexico is limited due to the
away and now people are charging them for taking the
few companies that produce it. In the particular case of
used oil. “The government should regulate and promote
Biodiesel Moreco, the company has focused on producing
these initiatives because we are providing a service
biofuels with used restaurant kitchen oil in different cities
managing waste materials,” says Álvarez.
outside of Mexico City. “The main problem that we have found in our home state, Michoacan, is how to best educate
Many restaurants and households do not know what to
people, show them how to recycle, and explain why they
do with the leftover oil and cleaning oil polluted water
should do it,” explains Álvarez. Biodiesel Moreco has been
is a very complicated process. As such, the company’s
RAISING AWARENESS OF THE NEEDS OF BIOFUEL PRODUCTION
Daniel Zavalza, Director General of Perkin Elmer
“We actively participate
Mexico is still taking the first steps toward fully developing
in the energy sector with
its biofuels sector and, compared to countries like Colombia
PEMEX,
CFE,
the
and Brazil, there is less support from the government for
Laguna
Verde
and
nuclear
this industry. “Mexico is not taking advantage of biofuels
plant by providing them
even though many educational institutions, such as the
with instrumentation for
National Polytechnic Institute (IPN) or Oaxaca University,
industry
development,
have biofuel projects. Several factors can affect the
while we also work on the
development of this industry,” says Zavalza. “The first
development of biofuels
among these is the price of fossil fuels, which should not be
plants,”
subsidized to further open the door to biofuels. Secondly,
says
Daniel
Zavalza, Director General
198
raising
environmental
awareness
helps
the
biofuels
of Perkin Elmer de Mexico. “To build a biofuel project, it
market since it is an important tool to reduce greenhouse
is important to determine the source of biomass and the
emissions. Finally, the biofuels industry can become an
process needed to transform it into biofuel. The process has
important source of jobs as it is a sector that is open to
to undergo quality controls to ensure that the final product,
anyone that can grow crops and Mexico has enough land
being bioethanol, ethanol or biodiesel, meets high quality
to make it possible. It is very important to carry out serious
standards in order to ensure a return on the investment.”
research to define the real advantages of biofuels from
education programs revolve around teaching people what
through a strategically defined price scheme. “However,
to do with their used oil and communicating the benefits of
without regulations to complement this cultural change,
using biofuels. It has even organized oil collection centers
there cannot be a complete incentive to donate used kitchen
and campaigns, similar to existing battery collection
oil on a broader level,” Álvarez emphasizes. “Issuing fines for
centers. Despite the initial lack of interest, the citizens
the incorrect disposal of oil could be a way to promote the
of Morelia have slowly become more aware about waste
donation of oil to green companies.”
management topics. “This is why the key to educating the public is to approach the children of Mexico, fresh
People around the world are increasingly aware of green
minds that are willing to accept these new ideologies,”
initiatives and sustainable practices, bringing a favorable
comments Álvarez. Free advertising in social networks has
reaction to such projects that encourage eco-friendly
also proven to be an important incentive for providers to
practices. “But there is a long way to go from being
give up their used oil. In order to put these initiatives to
interested to really becoming green due to the costs that
work, strategic alliances with federal, state and municipal
this implies,” says Álvarez. “However, there are many people
agencies such as SEMARNAT and Michoacan’s Ministry of
and restaurants willing to collaborate with us by collecting
Urban Development and the Environment, were needed. By
oil in their communities.” Biodiesel Moreco has designed
establishing an award system for contributors, supported
collection routes to go to different restaurants in an area,
by these agencies, providers are able to more easily see the
providing containers for used oil. Different local councils
appeal of donating used kitchen oil to biofuel companies.
have become very interested in applying these initiatives
Biodiesel Moreco manages this program across the board
and getting similar campaigns starting. “Personally, I am
but has sought government approval.
not betting on planting crops to obtain oil since this would require a very important investment and large fields,” says
A measure of support was received from the state government
Álvarez. “With that amount of investment, you could create
and the company was awarded a prize for its environmental
a very efficient recollection network within major cities.”
care activities. “We signed an agreement to sell biodiesel for 19 trucks belonging to the government and OAPAS, the
Biodiesel Moreco has been working in Queretaro collecting
municipal water entity. They even wrote about us on the back
oil while the government of Guanajuato recently invited
of the water bills when they found out about our initiative,”
the firm to start operations there. But many Mexican cities
says Álvarez. Two noticeable advantages can be observed by
represent large opportunities for waste oil facilities due to
using biofuels in vehicles; the black fumes that spout from
the amount of waste they generate. “We want to become
exhaust tubes disappear and the wear and tear on engines is
an authority and educational entity regarding oil issues,
significantly reduced. Moreco sells biodiesel regularly to five
but we still need governmental support to reach a larger
companies in Morelia, farmers and Grupo Perc in Queretaro
audience,” adds Álvarez.
an economical and technical aspect by promoting R&D
to this energy source,” says Zavalza. “This varies from well-
activities in universities,” argues Zavalza.
developed players in the biofuels markets to those that are just starting out, which gives us the possibility of sharing
“We contribute with technological support, analytical
our expertise with the entire Mexican market,” he adds.
instrumentation and optimal methodologies to ensure that high quality biofuel production is possible,” says
“Mexico has enough technology, equipment and human
Zavalza. Perkin Elmer can support a biofuel project with
capital for the development of biofuels but it has to be
its large diversity of analysis instrumentation. Plasma
actually put to use in the industrial sector,” says Zavalza.
spectrometers measure trace elements in the development
“Nevertheless, government support is essential for the
of biofuels, gas chromatographs analyze methanol, and
development of the bioenergy sector in Mexico. In this
liquid chromatographs determine the fermentation of
sense, specific goals could promote the growth of this
sugar. Furthermore, oxidation stability processes and
industry, such as including a certain amount of biofuels
determining the biofuel potential of products are needed
into Mexican gasoline without having to modify engines.”
to optimize the quality of biofuels. “The process of producing biofuels is known in Mexico The Mexican government carries out studies and research
and the country could take advantage of having access to
programs regarding bioenergy through INIFAP (National
the best technologies and sharing them with industry and
Institute for Forestry, Agriculture and Livestock) using
research centers. Information and awareness are the tools
Perkin Elmer’s equipment. “Our efforts to raise awareness
that are needed to create a stronger demand for biofuels
about bioenergy have been focused on seminars and
and strengthen both the supply side and the value chain,”
conferences, which we use to introduce interested parties
Zavalza adds.
199
EXPLOITING METHANE FROM LANDFILLS FOR GENERATION Methane is 21 times more
Mexico. The municipality of Saltillo, which has a population
effective
of 800,000, saves over US$30,000 a month on its electricity
infrared
Jorge Armando Gutiérrez Vera, President of Cogenera México
at
preventing from
bill with this project, which began operating in late 2013.
escaping the planet than
radiation
Another representative project is a cogeneration project
CO2, making it a far more
using biogas from the municipal water treatment facility
dangerous
greenhouse
of Leon, Guanajuato. Pandal explains it is an anaerobic
gas. However, it is far less
plant that separates water from the residues, which then
prevalent than CO2 and has
go to a large scale bio-digester. Prior to the project, the
an
lifetime
bio-digesters needed boilers that kept water temperature
of just 12 years, versus
atmospheric
at 37°C, requiring a lot of energy. The plant used to burn
between
200
LP gas, while additional energy was taken from the grid.
years for carbon dioxide. Jorge Armando Gutiérrez Vera,
50
and
Pandal stresses that using electricity to treat water is
President of Cogenera México, stresses that one of the main
expensive in Mexico. Guascor reengineered the process
environmental challenges Mexico is facing is in avoiding the
so the water treatment plant could produce electricity
emission of biogas into the atmosphere as it is mainly made
with the biogas that resulted from the treatment in the
up of methane. The association has strongly recommended
bio-digesters. Currently, the project generates 21,000m3
that SENER force landfill management teams to pump out
of biogas daily, of which 66% is methane, which project
the biogas and burn it to turn methane into CO2. “CO2 can
produces 1.5MW representing 66% of the electricity
be mitigated with trees. The best approach is to use biogas
consumed by the plant. The project was inaugurated in 2011
as a fuel for internal combustion engines and to produce
and represents a turning point for sustainability projects
electricity, but if that is not an option, the second best thing
in Mexico for Pandal. “If we could implement these types
is to burn it,” says Gutiérrez Vera.
of projects nationwide, the electricity needed for water treatment would be free and clean. We might not be able
An example of generating electricity from a landfill can be
to generate all of Mexico’s required power but two thirds of
found in Monterrey, where 16MW are being produced using
the power could be supplied by the country’s own biogas
the biogas that is pumped out from a landfill. Gutiérrez
potential. The operators would pay only for a third of the
Vera explains how a similar concession exists to develop
electricity,” says Pandal.
the same scheme in Bordo Poniente, the huge landfill near Mexico City Airport, which before it was closed in 2010,
For Cogenera México, convincing SENER of the benefits
was the biggest landfill in Latin America. In Mexico most
of biogas is a priority. “The Energy Minister, Pedro Joaquín
landfills are developed, built, financed, and operated by
Coldwell, has to get in touch with the governors, while
states or municipalities. In the case of the state of Nuevo
making an effort to convince landfill management to
Leon, the landfill is owned by a state government company
develop cogeneration schemes to extract the biogas
from which in 2000 it launched an international bidding
and use it as a fuel for internal combustion engines. This
process and a successful partnership between the private
will mean that less methane will be released into the
and public sector was born.
atmosphere,” Gutiérrez Vera says. “In Monterrey, this was a real success as this energy was provided to the
200
Guascor began manufacturing diesel engines in 1966 and
seven municipalities in the metropolitan area, resulting
soon after created a complete range of gas engines. It was
in important cost savings for public lighting, the subway
only logical that after 30 years, its first biogas engine came
system and the water system.” Pandal is very positive
into operation. The company began working in Mexico in
about the future of renewable energies in Mexico. “We could
2001 with a focus on cogeneration, but it also develops
generate 40% Mexico’s electricity from renewable sources,
turnkey projects in biogas. Its signature project was done
while cogeneration could add 13% more. If we really pressed
in the city of Saltillo for Lorean Energy. “When the project is
on with developing renewable energies and diversifying
complete, it will generate 3MW of electric power after having
our energy sources, we could reach that scenario by 2020.
started with 1MW in the first phase. The consumption of the
However, the government has to simplify paperwork and let
municipality of Saltillo for public lighting is around 4MW, so
the private sector participate. We do not want to privatize
we will be providing 75% of the power needed for municipal
the energy sector; we want to participate so we can reach
lighting just by taking advantage of the residual biogas
40% renewables and 13% CHP in the energy mix. This would
generated from waste,” explains Gerardo Pandal, Project
bring stable prices and significant economic benefits for the
Development & Renewable Energy Director of Guascor de
country,” he adds.
BORDO PONIENTE: LARGE STEP TOWARD CLEANING MEXICO CITY Mexico City generates approximately 10,000 tonnes of
waterbeds. Both CONAGUA and SERMARNAT have issued
solid waste per day and half of this amount ends up in
warnings on the dangers that Bordo Poniente’s poor
landfills. The remaining volume goes through recycling
management poses to the inhabitants of Mexico City and
programs, with 1,023 tonnes being used for waste-to-
the metropolitan area. Nevertheless, actions are being taken
energy purposes while 507 tonnes are used as compost.
since the city was authorized to produce and use biogas
Bordo Poniente was opened in 1985 and over time became
from the landfill to recover some of the investments that
the sole sanitary landfill of Mexico City. 25 years later, it had
its closure entails. In addition, this action forced the city
become the largest landfill in Latin America and the city’s
to introduce garbage separation and recycling programs
main environmental liability. Bordo Poniente contained
as well as waste-to-energy initiatives to reduce the need
70 million tonnes of solid waste that reached a height of
for more landfills. Mexico City also made an agreement
25 meters and housed 1.5 million tonnes of methane gas
with CEMEX, one of the largest producers of cement and
trying to reach the surface.
building materials in the world, to supply 3,000 tonnes of solid waste inorganic fractions every day to use as fuel.
In November 2010, the government of Mexico City signed an agreement with federal authorities to stop operations at
The Bordo Poniente biogas project was won by the BMLMX
the landfill. In the agreement, it was settled that the local
Power Company consortium, which was chosen because of
government would conduct the closure in compliance with
its experience in closing landfills, infrastructure for capturing
appropriate technical standards. The initiative started back
biogas, electricity production, and obtaining carbon credits.
in 2007 during a C40 Cities Climate Leadership Group
BMLMX Power Company, a consortium made up by Mexican
meeting where former Mexico City mayor Marcelo Ebrard
and Spanish firms, will be in charge of definitely closing
and other leaders identified Bordo Poniente as one of the
down the Bordo Poniente landfill and building a plant to
biggest sources of greenhouse gas emissions in the city.
capture biogas. The consortium will operate for 25 years,
Even the Clinton Climate Initiative opened offices in Mexico
beginning in 2014 and ending in 2039, investing US$60
City in order to support the local government’s efforts
million into this development. The Bordo Poniente project
to find a solution to the problem. Shutting down Bordo
is planned to produce 58MW, enabling the Mexico City
Poniente seemed like a great idea, as it would prevent
government to buy electricity for street lighting 10% below
1.8 million tonnes of carbon dioxide from being released
CFE prices, and saving the city US$22 million annually. The
into the atmosphere annually, or around 26% of the city’s
project will not require investment from public funds since
greenhouse emissions. Although the closure of Bordo
it is contracted out, granting BMLMX Power Company the
Poniente is regarded by many as Marcelo Ebrard’s most
rights to exploit the biogas that comes from the 70 million
assertive action against climate change, its subsequent
tonnes of rubbish buried in Bordo Poniente. Part of this
management sparked some controversy. Months after
initiative is aimed at reducing public expenditure because
the closing of the landfill, people became curious as to
proper waste management will translate in lowering waste
why nothing was being done to recover the 374 hectares
management costs and it goes hand in hand with the current
of federal land. Although the closure did prevent further
local administration’s plan of implementing mechanisms to
accumulation of solid waste, it did not spark off actions to
avoid accumulating waste in landfills.
manage the hazardous materials and restore the land. The garbage was not covered to avoid unpleasant odors and
The CEMEX initiative and the biogas plant are alternatives
the compost plant continued for months receiving 2,000
but do pose a small but significant challenge to Mexico
tonnes of waste each day. These were stored in an open
City’s inhabitants and government: garbage has to be
space without the required industrial handling, rotting in
separated and disposed properly. Once the recyclable
the open and attracting all kind of pests.
materials have been separated, remaining materials are processed through a mechanical separator that divides
Currently, the landfill presents several bodies of leachate
organic from inorganic waste. The latter is used for biogas
that boil when combined with methane gas and carbon
generation and compost production while the inorganic
dioxide. This situation is particularly concerning during the
waste is sent to be processed as alternative fuel for CEMEX.
rainy season when these toxic fluids are washed away and mix with clean water reservoirs. Furthermore, the plastic
On June 2013, the Mexico City government submitted the
membrane that covers the landfill’s floor, intended to
executive project to finally close down the Bordo Poniente
prevent leachate from permeating into the subsoil, is torn
and have SEMARNAT assess environmental impacts before
and leading to potential serious pollution of subterranean
beginning biogas extraction in 2014.
201
| VIEW FROM THE TOP
WATER AND WASTE MANAGEMENT OPPORTUNITIES ABOUND ALBERTO GARZA SANTOS Chairman of the Board of Promotora Ambiental Q: What were the main opportunities you identified 20
In 1997, we merged with a company called USA Waste, taking
years ago when you founded Promotora Ambiental, and
over their operations in Mexico. After a couple of mergers
how have these evolved to date?
and a period of national expansion, we performed our initial
A: The first comprehensive Mexican environmental law,
public offering on the Mexican stock market and our private
known as the General Ecology Law, was enacted in 1988.
equity partners were able to exit their investment.
From that point, we knew that Mexico would start adopting the standards of the developed world, particularly
Q: How important have municipalities been to your growth
US standards. After finishing university, I decided to
as a company?
dedicate myself to an environmental cause. A study of
A: During the past 10 years, we did not receive much
the development trends in the US environmental industry
revenue from municipal governments. It is disappointing
carried out throughout the 1980s showed that the sector
that
was growing fast, with about a third of the projects being
significantly increased during the past 10 years, particularly
linked to water, about a third involving municipal solid
in the last five years. We recently lost a bid in the city of
waste (MSW) and the remainder to deal with everything
Monterrey, where we have successfully provided MSW
else. This study provided me with a roadmap to start
services for the past 12 years. We offered a better price, in
focusing on water and MSW. Since I did not have the
addition to a proven value proposition and highly regarded
money to enter the water sector, which was more focused
service model, yet the project was awarded to one of
on building water treatment plants instead of efficient
our competitors. This matter is currently the subject of
water use, I entered the MSW market by buying a small
a legal dispute. Sometimes in our industry, best business
company that picked up garbage and adding recollection
practices are not valued and it is frustrating to see the
services, mostly for industrial and commercial customers in
market stumble into bad behavior. The administration
the Monterrey area. Over time, this small start-up became
of President Vicente Fox passed laws that considerably
Promotora Ambiental. In 1992, we replicated our business
empowered states while diminishing their accountability.
model in Mexico City, Guadalajara, and Reynosa while
Money was transferred to cities and states, with state
beginning to look at getting into government contracts.
congresses being allowed to allocate those funds as they
We studied SIMEPRODE’s business, which was the only
saw fit. This embedded a direct conflict of interest: the
existing landfill operation in Monterrey at the time.
authority in charge of supervising where the money went
corruption,
bad
practices
and
impunity
have
was the one spending it. The executive branch should start
202
In 1996, we broke ground on our first landfill project in
addressing some of the voids created during the last two
Monterrey. Increased competition benefited the generators
presidencies. Both were very lax with state governments
as the gate rate began to come down. This refers to the
and let them act without consequences. During this time,
charge levied upon a given quantity of waste received at
Promotora Ambiental made the conscious decision to
a waste processing facility to offset its operating costs.
not grow much on the municipal side. We are focusing
Monterrey today has some of the lowest gate rates in the
on the specialized private sector, recycling, water and soil
country, which impede landfills from reaching appropriate
bioremediation, hazardous waste and a few new niches
levels of profitability. In general, low gate rates are not good
that should open up with the Energy Reform. In addition,
for the market as they incentivize low operating standards
we have captured attractive growth opportunities outside
and little recycling. They also make the MSW business
Mexico. We recently acquired Environmental Management
shady since people tend to cut corners and environmental
Group in Panama, we are expanding to Costa Rica, and we
risks increase as companies are not operating according to
have an operation in Belize along with the Inter-American
appropriate standards. But one way a project can bridge
Development Bank. The undesirable issues surrounding the
the profitability gap is to try and make money out of the
municipalities can be fixed through increased responsibility
gas a landfill produces to offset losses on the disposal side.
and improved regulation. Over the past 18 years, we have
seen many municipal contracts with an excellent track
the water industry matures. Mexico has the opportunities,
record of environmental care. We believe these examples
financial resources, international operators, and several
will be gradually replicated and the market will improve its
domestic companies that are committed to executing
standards.
these opportunities. Finally, we are looking into renewable energies. We dabbled in wind in Oaxaca and looked at the
Q: Which new opportunities do you expect to arise as a
Open Season scheme, but things got too complicated. Now,
result of the recent reforms?
we are focusing on solar PV and landfill gas to energy. We
A: We are taking a serious look at water concessions by
may come back to wind at some point, but the conditions
strategizing with a handful of multinational corporations
need to be right. The beauty of renewable energy projects
and bidding for concessions that come up for offer. In
is that they fit into our environmental philosophy, and long-
one city, we were ready to bid but everything unraveled,
term contracts with AAA off-takers provide a measure of
due to excessive, impractical and unrealistic conditions.
predictability. Waste management projects are completely
There was a gap between what the government expected
different: they involve a wide customer base, higher risks,
to fetch from this concession and the actual value of the
less leverage and lower margins.
concession as estimated by the private sector. The city was requesting an upfront payment for the concession before
Q: Having diversified from being a waste management
any investment was made. This is different from cities like
company to new business areas, what kind of company
Aguascalientes, Saltillo and Cancun that offer shares in the
will Promotora Ambiental be in the future?
project company to those investing in the project. Those
A: We operate under three different and separate umbrellas.
are the types of projects that interest us. According to
The first is our waste management, environment and water
the global efficiency index, only 40% of the water injected
business, the second is our renewable energy business
into the Mexican grid is collected while the other 60%
and the third is our gas business. It makes sense for each
vanishes between physical and commercial losses. This is
business to operate separately, making it compelled to
an incredibly poor performance when compared to other
stand on its own. The fact that we are entering these other
OECD countries. There are huge opportunities in this area,
sectors makes sense, although it is challenging and any new
and significant investment is needed. We have framework
business faces a seemingly endless uphill battle. I want our
agreements with international companies in place to help
group to set high standards when it comes to social and
us develop such projects. We are seeking to implement
environmental responsibility. It is very hard to transmit this
a business model where a local operator that wants to
message as customers frequently only see our operational
develop the industry and put equity in place, partners
side. We are making an effort to effectively communicate
with a big international player that wants a small amount
our social and environmental responsibility efforts and the
of equity but is mostly interested in the fees. This makes
results they achieve. We have been socially responsible
the ownership and operating sides quite complimentary.
since the beginning; however, we remain very discrete.
Another element is the amount of pension fund money
We do not care if the market or the press see our actions,
that has accumulated in the financial system. The structure
it is just the right thing to do. We believe the market will
regulators have provided for these funds to be invested in
appreciate our system and values, and potentially join in
infrastructure projects. These funds will play a major role as
our efforts.
203
MONTERREY, A PIONEER OF BIOENERGY GENERATION The metropolitan area of
energy in one of its landfills in 2003. “We started producing
Monterrey, the industrial
7MW from methane gas. The landfill kept growing and in
heartland
2007 we increased production to 12MW. Right now, we are
is
of
formed
municipalities.
Ovidio Alfonso Elizondo, Director General of SIMEPRODE
Mexico, by
nine
One
at 17MW.”
of
these, San Pedro Garza
Back in 2002, when SIMEPRODE was planning on building
García, is not only the
a bioenergy power plant, it partnered with SEISA Energy,
richest
municipality
another renewable energy firm based in Monterrey. The
in Mexico, but in all of
partnership has been very successful since SIMEPRODE
Latin
a
manages the gas and leaves the operations to SEISA.
America.
With
population of 4.5 million
Once the plant began operation, the state of Nuevo Leon
– of which 4 million are concentrated in the Monterrey
became a pioneer in bioenergy production. The World
metropolitan area – the state of Nuevo Leon contributes
Bank provided financing for the construction of the
to 7.5% of the national GDP, while Monterrey produces 1.2
energy plant and, after the first phase was completed,
million tonnes of waste a year.
it recognized SIMEPRODE and SEISA for preventing the emission of 46,280 tonnes of methane gas, the equivalent
SIMEPRODE (Integral System for Ecological Management
to 83,796 tonnes of CO2.
and Processing of Waste) was created in 1990 with the goal of providing a solution to the disposal of the waste
The energy production project did not have any significant
generated by Monterrey and the rest of the state. Its
social or political challenges, given the widespread
Director General, Ovidio Alfonso Elizondo, recalls the
positive reception it garnered, and became a nationwide
company originally found support at the highest level,
example for waste management. However, the regulatory
since municipalities could not each afford their own
framework posed certain challenges, given the limitations
landfill, making waste disposal a real problem. Currently,
it contained, with changes being needed to make the
SIMEPRODE receives close to 4,500 tonnes daily across 13
project profitable. “Previously, the law did not consider
landfills dotted throughout the state. Not keen on letting
methane gas a renewable energy source, so there were
opportunities go to waste, the company began producing
legal obstacles that we had to overcome,” Elizondo says.
WASTE TO ENERGY POTENTIAL NOT BEING WELL UTILIZED According to SEMARNAT reports, very few municipalities
window of opportunity. The company has its headquarters
have waste management programs. Most of those that
in Germany, although it is guided internationally by areas
do are part of the metropolitan areas of Aguascalientes
it finds to be fruitful and opens local offices whenever it
or Monterrey, while Chiapas and Oaxaca have the least
identifies an opportunity. Portugal and Spain are important
programs in place. There has been some progress made in
energy production centers for the firm as these countries
recent years, but there is still a lack of infrastructure, public
have set an example in terms of integral designs for
policies, and normativity in this area. Most municipalities
industrial parks, recycling facilities, and energy generating
have not regulated their waste management operations and
plants. “Spain has particularly provided a great lesson, but
those that do usually only have set regulations and processes
behind the efforts were regulations,” Olmos adds.
for garbage collection. In fact only 13 of Mexico’s 32 states practice selective waste collection, which explains why
This international platform gives Ferrostaal the perspective
only 9.6% of the country’s total collected waste in 2012 was
from which to advise Mexico on one of its main challenges:
recycled.
getting municipalities to manage the increasing volume of waste that is being produced. The current model manages
204
“Mexico has a waste management problem.” The words of
waste in two steps: collection and disposal. A more
Roberto Olmos, International Affairs Manager for Ferrostaal,
advanced model would entail separation, transference,
are not meant to overstate the obvious but to highlight a
recovery, and final use. In this integral management method,
The firm’s main achievement in this regard was having
programs to foster such awareness.” The efforts have
methane gas considered as renewable, instead of a form of
today borne fruit since the sorting plant is getting
natural gas. Elizondo says the change in the legislation has
less material, meaning people are increasingly sorting
facilitated many renewable energy projects by enabling
their trash at home. “Recycling should be promoted
them to become profitable and self-sustaining. In order
everywhere, and it is a profitable activity. There are
to be granted the waste, SIMEPRODE has contracts with
programs in which people receive customer points or
municipal governments but must also make sure to offer
other rewards in exchange for their recyclables, such as
a cost competitive service. Elizondo claims a former
aluminum or cardboard.” Despite this downturn, the plant
governor of Nuevo Leon instructed the company to charge
still processes around 800 tonnes of waste a day, of which
as little as possible to benefit the community. Currently,
50 tonnes are recyclable products that are reincorporated
SIMEPRODE charges around MX$60 (US$5) per tonne,
into industrial processes.
but turns a profit from its energy production. On the other hand, the project has also qualified for carbon credits, the
SIMEPRODE’s work has gained national and international
sale of which has further enabled the company to support
recognition, but although there have been attempts to
its facilities.
replicate its processes in Ciudad Juarez and Aguascalientes, these have not proven fruitful to date. Elizondo believes
One of the difficulties of creating bioenergy is dealing with
that unlocking this success is a matter of working on
leachate, the pools of liquids in landfills that often contain
confinement
dissolved or suspended materials that can be harmful.
production methods will eventually be replicated around
Elizondo explains leachate has to be dealt with carefully
the country. “We are open to the national and international
in order to keep gas production simple. “You need to build
community. We provide tours, information, consulting
a cell to extract methane gas. You dig a hole, fill it with
services, the complete package that interested parties
waste, compress it, encapsulate it using a membrane, cover
need to develop similar projects,” he says and adds the
it with dirt, and then you drill, as if you were extracting
company is currently focusing on expanding its energy
natural gas.” He notes that most Mexican landfills are
production capacity to 24MW.
methods
and
expects
that
bioenergy
not built properly, causing the gas to escape because it is not properly confined. “This is a matter of initial landfill
But where does the energy produced by SIMEPRODE-
planning,” he adds.
SEISA go? The energy feeds 80% of the public lighting of seven municipalities in the area, it powers lines I and
Elizondo notes that people are becoming more conscious
II of Monterrey’s subway system, as well as the Palace of
about recycling and sorting. “There is more environmental
Government and other government offices. Not bad for 1.2
awareness and we have a couple of school-oriented
million tonnes of annual waste.
the waste can become useful at various stages throughout
used to generate electricity. The multinational firm carried
the process. Some elements can be recovered and reused
out a thorough analysis and concluded that Mexico has an
or recycled, as in the case of cardboard, paper, or PET
enormous potential for waste-to-energy, if this industry taps
plastic. For Olmos, solid municipal waste also provides an
into municipal garbage disposal. Several plants belonging
alternative for energy generation and Ferrostaal has the
to Ferrostaal are already operating and yielding positive
technology to capitalize on this.
results, such as facilities that recycle tires and use some of the recovered materials as an alternative fuel source.
Many industries in Mexico already have access to technologies that generate heat from solid materials, but Olmos says these
If policies and norms are created and enforced, energy
users face challenges including the lack of regulations and
generation from waste can alleviate Mexico’s garbage
incentives for investors. Guidelines should be strengthened
accumulation problem while producing energy. The complex
to ensure waste is truly managed, instead of being disposed
landscape has led Ferrostaal to turn its attention to other
of in landfills with dubious safety conditions. “Burying trash
vast and neglected sectors such as recycling. “We are well
instead of properly disposing of it is dangerous, mainly
armed and prepared to participate in any sector that needs
because there is no control over the types of waste that are
our presence,” says Olmos. Ferrostaal has made several
being thrown out,” warns Olmos, adding that current disposal
calculations and estimates that municipal waste production
techniques can seriously pollute water mantles.
will grow at 3% on average annually until 2025. Although the landscape looks promising, regulations are essential
Ferrostaal is interested in applying its resources and
for the industry to spark off. In the meantime, Ferrostaal
technology to turn solid waste into energy. Heat energy,
is preparing to wade into the market once the regulatory
for example, can be transformed into vapor, that can be
framework has been set.
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SWEDEN AS AN EXAMPLE OF A WASTE MANAGEMENT STRATEGY The amount of waste generated by population and
waste and organic waste on landfills, which must now be
industries is one of the main sustainability concerns of
used only when it is absolutely necessary for waste that
many countries. Waste management policies have proven
cannot be treated otherwise. Nevertheless, if a certain region
to be more successful in some countries than others, where
lacks the capacity to manage waste to these standards, it
governments have stepped up to the growing challenge
may be granted an exemption from the landfill ban.
of land pollution. Sweden has become an example for other countries due to its highly efficient Municipal Solid Waste (MSW) management strategy. In fact, the waste management system in Sweden is so efficient that the country is now importing waste from Norway in order to keep its waste-to-energy plants running. In order to be able
The amount of waste that ended up in landfills was reduced from 22% of MSW in 2001 to 1% in 2010.
to promote the creation of an efficient waste management
Another important incentive that motivated the growth
strategy for Mexico, the example of Sweden can be taken
of recycling in Sweden was the landfill tax introduced in
into account to learn from its experience.
2000. The level of tax increased annually until 2006 and is paid by the owner of the landfill on the basis of weight
Historically, Sweden has been very committed to the
of waste. This tax motivated the use of the incineration
protection of the environment through initiatives and
potential that waste represents, while recycling was
policies. In 1969, the country established the Environment
another option to manage waste instead of paying the
Protection Act that increased the reach of environmental
landfill tax, increasing the proportion of recycled waste
obligation for waste treatment facilities. Municipalities
from 39% to 49%. Better MSW management has important
started being responsible for the collection of waste with
environmental benefits since greenhouse emissions are
the collection of hazardous waste further improving in
avoided, although the emissions generated by each waste
the 1980s. In the 1990s, regulations came into force to
management option need to be considered to determine
increase the importance of producer responsibility and to
the net benefits of an efficient waste management system.
concentrate efforts to reduce the amount of waste going to
In order to achieve these advances in waste management,
landfills. Also, the Environmental Code of 1999 integrated 15
Sweden has focused on four different areas of action that
existing environmental laws to create complete legislation
Mexico could implement as well. First, regulations must be
promoting the sustainable development of Sweden. A
put in place, the created instruments must be used and
Strategy for Sustainable Waste Management was passed
progress must be monitored to ensure that the desired
in 2005 and set targets for 2010, giving municipalities the
effects are achieved. Second, a great emphasis is needed
responsibility to collect and dispose of household waste
on reducing the quantity of waste and the hazards that
and as well as the right to issue local regulations to comply
result from this. Third, knowledge must be improved about
with their obligations. On the other hand, households are
pollutants and hazardous substances. Finally, mechanisms
obligated to separate and deposit waste at the available
that facilitate the sorting of waste within households are
collection
essential to achieve real progress and to increase public
points
set
by
municipalities.
In
addition,
producers are responsible for the disposal of products that
participation in the waste management process.
are no longer useful such as packaging, cars, recycled paper, batteries, and electronic equipment.
A successful waste-to-energy strategy for Mexico could make an important contribution to meeting the country’s
206
The generation of MSW increased steadily from 2001 to
increasing energy needs as well. Considering that Mexico
2008, before dropping from 516kg to 465kg per capita
generates over 41 million tonnes of solid waste per year,
in 2010, possibly because of the economic slowdown.
there is a high potential to greatly improve the waste
The main waste management alternatives in Sweden are
management system and find many different uses for the
incineration and recycling. Through these different policies
waste. This matter should become a priority for the country
and incentives, the amount of waste that ended up in
since it would help to face important environmental and
landfills was reduced from 22% of MSW in 2001 to 1% in
health challenges as the nation develops. There are many
2010, with only 42,000 tonnes deposited in 2010 compared
opportunities in the field of waste management in Mexico,
to 880,000 tonnes in 2001. Although recycling rates have
and just like Sweden, important progress can be achieved
stagnated at 49% over the last five years in Sweden, this
by coordinating regulations, public policies, governmental
ratio is expected to increase to 62% by 2020. The Swedish
entities, the private sector and, perhaps most importantly,
government has also largely banned the use of combustible
Mexican households.
| VIEW FROM THE TOP
IMPROVING THE WASTE MANAGEMENT LEGAL FRAMEWORK GABRIEL CALVILLO Partner of Carswell & Calvillo Q: How can the current regulatory framework be optimized
verify the information, similar to the one used by the
to diminish risks associated with dangerous substance
tax authority to verify invoices. This new mechanism
management and increase the use of waste-to-energy?
is not expensive for companies. Today, the Mexican
A: The first step is to implement the principles established
government lacks the capacity to ensure safety when
by the General Law for Waste Management and Prevention
managing certain types of waste as it does not even know
(LGPGIR). Even if waste confinement is a last resort, we
where they are. No one has guaranteed or audited the
still need it because there are some types of wastes that
information, but even a very superficial revision would
can only be confined. We have only one confinement
turn up plenty of incoherencies. This is the reason why
facility currently operating, and a few authorized but non-
very small modifications are fundamental for the further
operating facilities, mostly due to political reasons. We
development of this country.
need more confinements even if reuse is the best solution to manage waste.
Q: Which parties are responsible for the damage produced during the handling of waste?
The neutralization risk has a lot to do with the adequate
A: It depends on the stage at which the damage happened,
management of waste. One of the pending topics for
and also on the type of responsibility. If damage is
Mexico is to guarantee adequate waste management for
caused when handling waste, liability is solidary. Both
citizens. The government lacks information regarding what
the transport company that did not handle the waste
happens to more than 50% of hazardous waste materials.
properly and the person who hired that company are
There are no guarantees because the system that was
responsible. This is one of the main changes within the
implemented under an American model – a tracking
Environmental Responsibility Law, destined to promote
scheme – is barely reliable. The Mexican government
control mechanisms. If the state has a limited control
does not have the capacity to link information, and there
capacity then it is necessary for the waste generator to
is no intelligence system that enables us to corroborate
become an additional control organism. There are some
the information provided by those who are emitting and
companies that have been hiring others to transport
handling waste. PROFEPA should have a system to verify
their waste for the past six years, but they have not once
the information, similar to the one used by SAT to verify
thought about verifying if their waste is being properly
invoices. This mechanism is not costly for companies but
disposed of. We have seen plenty of fraud cases, where
the Mexican government lacks the capacity to ensure
people do not realize their omissions until there is a
safety when managing these types of wastes because they
large and palpable consequence. What happens is that
do not even know where they are.
usually the government turns towards whoever generated the waste in question. This is fine, but the government
Q: What are the main issues that the current scheme
does not investigate what happened with the transport
presents and what can be done to improve it?
company that did not handle the waste appropriately and
A: The current investigation scheme is completely
that will continue to offer such services. As such, one of
reactive. PROFEPA begins investigating if there has
the biggest debts the Mexican government owes to its
been a waste deviation whenever it finds a dump. What
people is to develop more effective supervision systems.
we actually need is a one paragraph modification to the
One of the reasons we have been working on an organic
LGPGIR. Our law firm has been working closely to achieve
law for PROFEPA is to create an internal control organ
this change. The only thing we are asking for is for those
that will handle such issues. Infrastructure is fundamental
handling waste to report their obligations online within
to effectively control waste management. But in order to
a given timeframe. The online system has already been
develop sufficient infrastructure we need to know the real
applied for environmental obligations and has proven
numbers, the real information so we can fully measure the
quite fruitful. PROFEPA should also have a system to
extent of the problem we are facing.
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| VIEW FROM THE TOP
MISSED BUSINESS OPPORTUNITY OF PLASTICS CARLOS ALBERTO SALDATE PATĂ“N Director General of Comercializadora Folgueiras Q: What is the importance of the recycling sector in
Plastic is mainly transformed in two ways: mechanical
Mexico, and what are the main challenges in its operating
recycling and energy recycling. Mechanical recycling is a
environment?
method by which waste materials are recycled into new,
A: The recycling industry includes glass, cardboard, metal
or secondary, raw materials without changing the basic
and plastic. It has evolved slowly since it is not governed
structure. Energy recycling is when plastic is transformed
by a regulatory framework and there are no norms to
into energy. In Sweden or Switzerland, almost 100% of
foster the sector’s growth. A recycling system begins with
plastic materials are recycled using both of these forms.
recollection at homes, offices and manufacturing facilities
Germany has advanced recycling systems; its mechanical
and is based on the separation of material, which does not
recycling stands at about 38% and energy recycling at 52%.
generally happen in Mexico. One first positive step was
In comparison, Mexico has a mechanical recycling rate of
initiated by the Mexico City government when it established
14% and energy recycling stands at 3%. There are signs
a norm, in February 2011, stating that organic and inorganic
that the Mexican industrial sector is beginning to adapt.
waste should be separated to improve the quality of
The cement industry has started substituting its natural
waste. The second step were the modifications made to
gas consumption for waste material, including plastic. The
the General Law of Urban Solid Waste Management. For
advantage of plastic over other waste materials is its high
the past three years, laws and norms covering recycling
energy value.
and waste management have taken a higher importance. Another issue is that waste recollection in Mexico is very
Q: How is the company working to improve the current
peculiar since it is a municipal responsibility but there is
legal framework?
no legal framework outlining how municipal governments
A: Our partners are well-known in the Mexican plastic
should do it. The industry is working with authorities to
industry as well as with the authorities, which has enabled
try and bring some clarity to the norms. The third issue is
us to design adequate recollection systems and advise
the lack of incentives for the recycling industry. In 2008,
government officials on how to improve the regulatory
the recycling industry had a tax break that allowed us
framework. We work together with the National Plastic
to deduct up to 70% of our operating costs, as well as
Industry Association, and are one of the 264 companies
having a 5% income tax, but these incentives disappeared,
authorized by the Chamber of Deputies to lobby and
discouraging any further investments.
communicate the needs of the industry. In Mexico, around 3.8 million tonnes of plastic waste are generated a year,
Q: What were the original motivations for the creation of
but only 1.4 million tonnes are recycled. This is a big area
Comercializadora Folgueiras and how have these changed
of opportunity that could be taken advantage of with the
until today?
right blend of technology and investment, although this
A: Comercializadora Folgueiras began operations 27 years
would require a legal framework and a clear fiscal policy.
ago just as globalization was taking off. Mexico was a
This could trigger investment of US$7-8 million for each of
much more closed economy back then and protected by
over 40 recycling facilities and would generate between
duties, although the possibility of free trade agreements
2,000 and 3,000 direct jobs.
was beginning to appear. This led us to create a company
208
to enter the resin market and another company dedicated
Q: How do you develop new technologies and innovations
to plastic recollection, recycling, selection, and production.
for the sector?
Comercializadora Folgueiras is the commercial division of
A: We work with both a national and an international
Bio Reciclados Folgueiras. We reach across every industry
institute to pursue technological innovation. We collaborate
and market segment, such as electricity, automotive,
with CIATEQ on the development of new formulas for
textile, footwear, construction, among many others. Plastic
plastic waste to generate better quality materials. The
is present in all segments of the Mexican economy.
automotive industry has asked us to generate pellets from
recycled materials for car bodywork that match the required
Pacific coast that today is either burned or sent to landfills.
technical conditions. This represents a turning point for the
The current administration is well-disposed toward this
industry. Additionally, we work with CONACYT and have
industry. We have been working with SEMARNAT and
long-distance programs with the Polytechnic Institute of
other government agencies and we believe they are willing
Milan. We also have a technological exchange program with
to make needed modifications to the legal framework.
an American company to develop bioplastics in Mexico.
Recycling may seem like a trendy subject, but it could also bring many benefits to other industries. Incorporating
Q: What are the future ambitions of the company, and
recycled materials to lower costs and produce more
how do you see the waste management sector growing in
sustainable products is a necessity. We need to reprocess
the next five years?
more waste material at home to avoid importing products
A: By 2015-2016, we will open a new recycling facility
made with the same recycling materials. The idea is that we
with a recollection capacity of 100,000 tonnes annually
provide manufacturing companies with high quality raw
of plastic materials and a production capacity of 25,000
materials, at a lower price, to make their products more
tonnes more than we have right now. This will be possible
competitive on the global market. Mexico could become
thanks to Italian technology. It is a great project because it
a great competitor in recycled materials in Latin America
will contribute to recollecting waste material on the north
and North America.
209
210
FINANCE & OFF-TAKERS
8 Acquiring financing is perhaps the main challenge to develop renewable energy projects and Mexico’s financial sector is still adapting to this newly arisen energy market. While various technologies have shown the viability of renewable energy, commercial lenders remain skittish, with development banks stepping in and showing their willingness to finance such projects. Self-supply has been the main way of developing large-scale energy projects through off-takers signing power purchase agreements. But with the number of large and financially secure offtakers dwindling, other alternatives will have to be considered.
In this chapter, we look at the actions taken by the main banks to participate in clean power generation projects, track the spread of green banking concepts in Mexico, and turn our attention to the challenges developers have to overcome to make their projects feasible. We dedicate special attention to ensuring that ambitious players in the renewable energy sector get an insight in the decision making processes of the financial institutions that often define their future.
211
212
CHAPTER 8: FINANCE & OFF-TAKERS 214
Self-Supply Scheme: An Outlook on Finance and Off-Takers
215
Tax on CO2 Emissions: Mitigate, Reduce and Collect
216
VIEW FROM THE TOP: Mexico’s Clean Development Mechanism Potential
218
Government Policy Advisors Concerning Carbon Markets
219
VIEW FROM THE TOP: Carbon Platform Reinforces Climate Change Fight
220
Renewable Financing Grows in NAFINSA’s Portfolio
221
VIEW FROM THE TOP: German Financing for Mexican Renewables
222
Large-Scale Funding to Mitigate Climate Change
223
Social Entrepreneurship Spreads Financial Values
224
Equator Principles Essential to Sustainable Banking
225
VIEW FROM THE TOP: First Green Bank Promoting Sustainable Financing Instruments
226
PROJECT SPOTLIGHT: Mining Industry Self-Supply Schemes
227
Financial Institution, Gatekeeper and Off-Taker
228
Wise Hands at Securing Infrastructure Financing
229
VIEW FROM THE TOP: Innovative Solutions to Support Large Financing Needs
230
Overcoming the Crucial Early Financing Steps
231
VIEW FROM THE TOP: Managing Relations with Indigenous Communities
213
SELF-SUPPLY SCHEME: OUTLOOK ON FINANCE AND OFF-TAKERS With only a glance at the state of the renewable industry,
Mexican market. Sharing the financial risk has always been
one can notice the very long shadow that CFE casts over the
a commonplace strategy. The Eurus wind farm for CEMEX
energy sector. Allegations have been rife that the Mexican
saw US$375 million in loans, co-arranged by an array of
utility has been less than well disposed towards renewable
institutions, including international lending bodies such as
energy projects. The Energy Reform has been hailed for
the IDB and the IFC, Mexico’s NAFINSA, France’s Proparco
giving the private sector more opportunities in the Mexican
as well as private banks such as BBVA and Espirito Santo.
energy sector but private firms first got a foot in the door
La Ventosa was simpler, with US$80.6 million being put up
in 1992. The Public Electricity Service Law, passed that
by the Export-Import Bank of the United States, and IDB
year, redefining the scope of the Mexican electricity sector.
accounting for much of the remaining US$103 million.
While the status of CFE was comforted as the sole entity responsible for generation, transmission, and distribution
The dilemma for financial bodies to consider is which
of electricity, the law included three categories in this
projects to finance and reject without becoming a
scheme, categories that have remained essential to this day:
bottleneck, while knowing that bringing smaller off-takers
cogeneration, self-supply and small power producers.
into the self-supply mix is essential for Mexico to have a chance of meeting its renewable energy generation
The self-supply scheme allows private companies to
targets. NAFINSA, a Mexican development bank created
generate energy for their own consumption. While this
to help small and medium enterprises, is dedicated to
might seem like an encroachment of CFE’s mandate, in
getting involved with smaller renewable energy projects,
1992, SENER declared that the self-supply program ‘does
by taking on more risks but also acting as an anchor of
not cause any inconvenience to the nation.’ Self-supply
trust to bring in other multilateral institutions. It also acts
could come in the form of on-site generation as well as
as a source of information, spreading knowledge to smaller
off-site generation, with the grid being used for the sole
players about the types of financial instruments they
purpose of delivering power to the final off-taker. The
might be able to access for self-supply projects. Foreign
small power producer scheme allowed smaller players to
financial players, having helped to foster the development
generate electricity and sell it all to CFE, with a maximum
of renewable energy markets overseas, are also playing
capacity of 20MW, now increased to 30MW. Essentially,
a part. As explained by Stefan Blum, Mexico Director of
this scheme is a smaller scale variant of the self-supply
KfW-DEG, the arm of the national German development
model with the option to sell electricity to CFE in addition
bank devoted to emerging economies, wind farms in the
to private off-takers.
country have proven themselves to be very competitive, an encouraging fact for future projects. Furthermore, with the
214
The self-supply model whereby power is generated off-
increasing cost-competitiveness of PV technology, solar
site for one or several off-takers proved to be a big hit
plants have also become an increasingly bankable option.
in the renewable energy sector. CFE had already opened
One important solution to overcome the limited availability
two wind farms before CEMEX became the first private
of AAA off-takers has been to find smaller off-takers
company to dip its toe in the waters of self-supply in 2009
and cluster them. One example comes out of Monterrey
with the opening of the Eurus wind farm, signed under a
where developer Next Energy has brought together seven
20-year PPA and using Acciona turbines. Walmart would
municipalities around the city together to build a 22.5MW
follow suit in 2010, teaming up with EDF for the 67.5MW
wind farm. The company identified a common problem
La Ventosa wind farm in Oaxaca. Manuel Gómez Peña,
that these municipalities faced, the high cost of street
Walmart Sustainability and Energy Director in Mexico, says
lighting, which helped when negotiating between all the
that La Ventosa now powers 378 Walmart stores in the
municipalities to seal the deal. Private companies have
Mexico City metropolitan area, proving just how useful such
cottoned on to the fact that in unity lies strength, with
self-supply projects can be to off-takers. Grupo Bimbo,
entities like business parks proving to be better able to
another strong off-taker, would also enter the self-supply
find financing for self-supply schemes to their members.
market in 2010, signing a PPA to guarantee the demand of
However, the jury remains out on the long-term viability
energy of the Piedra Larga wind farm. For developers to
of the self-supply scheme involving smaller companies.
go ahead with wind farms, securing financing is essential.
Major developers, such as Acciona and Iberdrola, keen to
Having a company with a AAA credit rating, such as
shore up their future revenue streams, have called for a
CEMEX, Walmart or Grupo Bimbo, as the project off-taker
new model to be developed. They have even spoken out in
provided a major reassurance for banks that were still
favor of a green tariff that they say would allow companies
cagey about financing renewable energy projects in the
to buy the energy they need in a much simpler manner.
TAX ON CO2 EMISSIONS: MITIGATE, REDUCE AND COLLECT The Kyoto Protocol in 1997 set the guidelines for many
scheme’s appeal and promoting the fulfillment of climate
international policies taken to fight climate change. One
change mitigation strategies. The law also provides an
of the international components aimed at mitigating
incentive for the transition towards a cleaner power
greenhouse gas emissions was the idea of a tax on carbon
generation sector since methane, the main component
dioxide (CO2) emissions, colloquially known as the carbon
of natural gas, is not taxed by the LSTPS. Greenhouse
tax. Although Mexico is not among the world’s largest
emissions can be greatly reduced while the industrial sector
emitters of carbon dioxide, its emissions went from 264
is encouraged to help make the country’s energy transition
million tonnes in 1990 to 490 million tonnes in 2012,
a reality. However, some critics have pointed out the lack
the year with the highest recorded CO2 emissions. The
of transparency in the government’s objectives regarding
transportation sector is responsible for 151.4 million tonnes
green technologies. But aside from such issues, the
of greenhouse gases from burning fuels, mainly gasoline
scientific community and other players are predominantly
and diesel. Electricity production accounts to 123.2 million
positive about this mitigation strategy.
tonnes of CO2 due to the prominent role hydrocarbons play in the energy mix.
According to representatives of the Mario Molina Center, the CO2 tax is an opportunity to incentivize the energy
A tax on carbon dioxide emissions was included in the 2013
transition towards renewable and clean energy sources
modifications to the Law for Special Tax on Production and
because the energy market is not internalizing the
Services (LSTPS). It is estimated that this tax will collect
externalities of the environmental deterioration industries
approximately MX$21 billion (US$1.57 billion) during its first
cause. The institute’s spokespeople claim that the short-
effective fiscal year. The Mexican Institute of Competitiveness
term goal is to avoid 7.5 million tonnes of CO2 from being
has identified those sectors that will be most affected
released into the Mexican atmosphere in 2014 and that if
by the new tax. The transportation sector is expected to
the money from this tax is invested in energy efficiency, the
pay MX$8.62 billion (US$647 million) through this tax
number of CO2 tonnes could then exponentially decrease
annually while CFE alone will contribute a further MX$4.38
in subsequent years. For instance, an estimated US$1.14
billion (US$329 million). Items taxed under the LSTPS
billion dollars collected from this tax could be used to
include propane, butane, gasoline, kerosene, diesel, fuel oil,
build more innovative public transportation infrastructure
and mineral carbon. The amounts taxed are determined
in Mexico City, which will prevent 135,000 tonnes of CO2
according to each fuel’s CO2 content, considering fees per
from being released annually.
unit of measure. The most expensive fee in the CO2 section of the LSTPS goes for almost MX$40 (US$3) per tonne of
Despite its heralded benefits, the Mexican carbon tax has
carbon, while gasoline is taxed at MX¢10.38 per liter.
not had a warm reception for several reasons. First, it has not received enough coverage for the general public to
The LSTPS allows the use of carbon credits as long as
understand its scope and objectives. Second, critics in the
these comply with UN standards and come from projects
industrial sector claim that carbon taxes would increase the
carried out exclusively in Mexico. Each carbon credit is
production and importation costs of refined petrochemicals
worth a tonne of carbon dioxide that is not released into
and natural gas due to their carbon contents. Not only would
the atmosphere. Under this model, companies that release
PEMEX and CFE find themselves at a disadvantage, but
moderate amounts of CO2 benefit while the more polluting
this tax would also hinder the national goal of decreasing
enterprises are penalized. Additionally, projects that
electricity prices by making production costs higher.
mitigate pollution, such as renewable energy generation,
Some argue that the penalty fees set for the carbon tax in
improvements in energy efficiency, reforestation, or the
Mexico fell short in terms of their punitive and correctional
restoration of water bodies, are also eligible to generate
objectives. The development of this tax in hand with the
carbon credits. These can be sold to other companies or
Energy Reform will soon show if it is the successful policy
countries as greenhouse gas reductions, to compensate
that other countries praise or if it needs further enforcement
for emissions elsewhere.
or legislative adjustments. The carbon tax itself remains a contentious case because Mexico has not yet been able
Mexico’s carbon tax is meant to discourage environmentally
to separate its development from environmentally harmful
detrimental practices and promote investments in clean
practices. The initiative can be a great source of revenue
technology. As a result, the participation of private parties
as long as the government facilitates alternative energy
in renewable energy generation has the advantage of
production methods that foster the energy transition as well
not paying carbon emission taxes, thereby increasing the
as the country’s industrial development.
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| VIEW FROM THE TOP
MEXICO’S CLEAN DEVELOPMENT MECHANISM POTENTIAL RENAT HEUBERGER CEO of South Pole Carbon Q: What are South Pole Carbon’s flagship emission
rising to meet the challenge. Without emission reduction
reduction programs, and what are the main green
targets, the CDM does not work nor does cap and trade.
technologies you are relying upon to make these projects
Nothing works if there is no political ambition to reduce
successful?
emissions.
In Mexico, South Pole Carbon has always had the vision of being a leader in developing new concepts. We have about
Q: What do you see as the main opportunities for emission
250 projects worldwide, but it is very tiring to go through
reduction projects to be conducted here in Mexico?
the UN approval procedure for every single project.
A: Mexico has a very high potential for renewable energy.
Back in 2007, there was a new concept invented by the
We are talking about a wind potential greater than 40GW,
UN called the CDM (Clean Development Mechanism). It
and a hydro potential of about 53GW. But surprisingly
was a game changer, as from then on an entire program
little has been done so far. In 2011, the share of electricity
could be registered at once, instead of through a case-by-
produced with renewable sources in the public sector was
case basis. We thought this would be a fantastic solution
16%. On the other hand, generation licenses for renewable
because it saves transaction costs and it makes everything
sources are still rare. If the country could generate a
much faster.
system where the government and large power companies cooperate and pay a higher tariff, combined with a carbon
We see Mexico as one of the biggest adventures that we
benefit that could be sold internationally, Mexico could
have ever undertaken. We began with a range of activities
transition to a much higher fraction of renewables. Due to
covering the entire renewable energy space. From now on,
the country’s economic growth and the increase in resource
whichever renewables sector you are in, wind, hydropower,
consumption, this could be a very attractive cash flow.
solar or tidal, you can easily apply and get the carbon credits through our platform with a small effort. This is a
Q: How do you think the carbon credits that are already
very efficient way of channeling carbon finance. We are
being generated through wind, solar and energy efficiency
quite proud of our success in Mexico because it is probably
projects in Mexico could be optimized?
the most important country in Latin America. Since the
A: The biggest problem and the reason why carbon
global economic crisis, we are experiencing very low
markets are not moving so quickly is because there is
carbon prices and the incentive to go for carbon finance
limited demand. Only countries that have signed the Kyoto
has been relatively low. Nevertheless, the infrastructure is
Protocol are providing that demand. In order to improve the
in place. Renewable energy, energy efficiency, and waste
use of carbon credits, we could start to generate a Mexican
management projects are South Pole Carbon’s flagship
domestic demand for carbon offsets. A growing number
programs.
of cities and countries around the world are doing just that. For example, São Paulo announced that it wants to
Q: What are the optimal roles of the public and private
offset its carbon footprint. China allows domestic Chinese
sector to ensure the success of the CDM?
credits for its emissions trading scheme. A trading scheme
A: The public sector needs to take the next step. The private
where Mexican domestic offsets can be used would be
industry has used the CDM to channel a lot of investments,
a great way to increase demand for carbon credits. For
and its involvement in projects has been very successful.
example, South Pole Carbon is sitting on a panel which is
US$200 billion have come through the CDM in the past few
discussing how to integrate Mexican forest projects into
years, which is a massive amount of money leveraged in a
the Californian trading scheme. Mexico could very well be
very short time. The problem is that governments around
a provider for international offsets.
the world are currently unable or unwilling to agree on
216
more ambitious reduction targets. Mexico is not among
Q: What are the key projects that South Pole Carbon
these, but many others are hiding behind figures instead of
wants to develop in Mexico in the coming years?
| COP 21 - PARIS 2015 A: At the moment, we are working on two key projects.
“The global climate framework works only when most
One is a wind project that fits well into our program. We
– if not all – countries are part of it,” stresses Renat
see a lot of potential in wind farms and we see a lot of
Heuberger, CEO of South Pole Carbon. The US is not
activity in the wind energy sector. The second is related
part of the Kyoto Protocol, and other essential players
to other renewable energy types such as hydropower
such as Canada, Japan, and Russia have dropped out.
stations, solar or even tidal and wave power. However, the
This makes the participation of emerging markets such
latter three involve projects that are at a pilot stage and
as Brazil, Mexico, India, China, and South Africa, all the
are installed on a much smaller scale. Wind is number one,
more crucial for a new climate deal to stand a chance.
hydro is number two.
“Mexico must absolutely take a strong position when it comes to the negotiation of a new climate framework.
Q: You were named Best Project Developer in a carbon
If it does not participate, other countries will hide
market survey in 2011, 2012 and 2013. What sets you apart
behind this excuse,” Heuberger adds. South Pole
from your competitors?
Carbon is working in collaboration with international
A: Two things have given us our competitive advantage. The
organizations and the Mexican government to shape
first is that we have always focused on high quality projects.
the country’s commitment ahead of the Paris 2015 UN
We never got involved in big industrial gas projects because
Climate Conference. “The country’s participation is
we anticipated that people might not always want to buy
going to be very important in the big picture of this
carbon credits from such projects. From the beginning,
new deal. We need all hands on deck, all countries
we focused on renewables – solar and biogas – and on
onboard,” emphasizes Heuberger. “Mexico is very
projects which provided an additional benefit for society.
vulnerable to climate change, it is at risk from sea-
Our second advantage is that we are also very active in the
level rises and droughts among other blights. It
voluntary market. It is a market where companies, such as
would be a win-win situation if Mexico could take
banks or consumer goods companies, reduce emissions not
a bold position. I hope that South Pole Carbon can
because they have to but because they want to contribute
contribute towards this goal and make sure people
to protecting the environment. We happen to be a very
understand that moving to a low-carbon path can
large player in that active market. This is why we are in such
only benefit them economically.”
a healthy position as compared to our competitors.
IAC Project management Construction supervision Contract management Claim management Risk management Engineering design Bidding process services Environmental assessment services Due diligences and investment analyses Arbitration and litigation support
Ingeniería en Administración de Contratos, is the leading
multidisciplinary supervision and project management company in Mexico and Latin America that provides total consulting services to the power generation, T&D, water, oil & gas, transportation and industrial building infrastructure sectors. We offer our clients a comprehensive technical, economical, financial and legal consultancy for the development and optimization of EPC infrastructure projects.
WORLD TRADE CENTER, México, +52 (55) 9000 9550 CORPORATIVO BLANCO, Querétaro, +52 (442) 216 6570 antonio.garibay@iacmexico.com
www.iacmexico.com
217
GOVERNMENT POLICY ADVISORS CONCERNING CARBON MARKETS
Enrique Rebolledo, Business Development Manager of Bajo en Carbono
2008 was a year of mixed
derived from electricity generation in Mexico. The company’s
fortunes.
world
findings were that, given CFE’s obligation to buy electricity at
was rocked by an epic
the lowest cost possible, Mexico should prioritize investment
financial tailspin, but clean
in renewable energy. “If we all included the global and local
technology
The
carbon
externalities generated by CO2 emissions, we would notice
markets remained afloat
the need to make a shift towards renewable energies,” says
as companies continued
Rebolledo. While Rebolledo and fellow founder Fernando
to invest in them despite
Rodríguez are hopeful their advice will soon be implemented,
economic
and
uncertainty.
they understand they face opposition from within certain
This rise that was behind
institutions. “PEMEX and CFE are the two largest polluters in
the creation of Bajo en
the country. If we do not regulate both, it becomes difficult for Mexico to transition to a low-carbon economy,” explains
Carbono that same year.
Rodríguez. As explained by Enrique Rebolledo, Bajo en Carbono’s Business Development Manager and one of the company’s
Bajo en Carbono has had to adapt to help its clients navigate
founders, the firm has begun to tap into the opportunities
a changing landscape. Priorities have evolved, forcing the
formed by the clean technology market. Given the
company’s team to adopt a more flexible approach to finding
subsidies and support grants clean technologies had
solutions. Rebolledo says that originally its clients were
been receiving in Europe, the opportunity to transfer that
interested in carbon credits. Following the changes seen
technology to Mexico was there for the taking. The Bajo
over the last two years, Bajo de Carbono has been solicited
en Carbono team had several goals at the outset: beyond
to help customers obtain carbon financing, after these
a transfer of technology from overseas, the idea was also
had begun a new industrial process or had starting using
to kick start the development of local Mexican technology
renewable energy for their installations. But the need for the
and to support government policies aiming to help that
consultancy service Bajo en Carbono offers is predominant
process.
among all its clients, says Rodríguez. Bajo en Carbono is able to help develop CDM projects, energy efficiency projects
Five years on, Bajo en Carbono has developed two main
or even act as an equipment supplier, varying its offering
areas of activities that are equally important to achieving
to service any mixture of needs. Our clients may not come
those original goals. The first activity sees the company
from the big leagues, says Rebolledo, but they come from
working closely with ministries and environmental agencies
the ranks of the “medium-sized companies that have not
as its staff assesses and supports the development of
gone public, that do not have a sustainability department or
climate change policy ideas at the federal and state levels.
the right expertise in these areas.”
“Many of SEMARNAT’s policy documents were done by us. We carry it out economic analyses about the potential of
Bajo en Carbono maintains this flexibility by not being a
introducing certain technologies or approaches in Mexico.
technology provider itself. Instead, it relies on a wide pool of
We have closely looked at feed-in tariffs and at valuing the
technicians and suppliers to find the solutions its clients are
cost of carbon in the electricity sector, which was done for
looking for in terms of return on investment, of the energy
SENER,” says Rebolledo.
they will generate and of the regulation they will face. Where such a thorough analysis might prove daunting to many,
The company’s second core business is to help companies
the experience of Rebolledo and Rodríguez in designing
find ways to finance their own clean technology, particularly
solutions for the IDB and the World Bank has readied them
through
Development
for these challenges. With these international institutions,
Mechanism or the LAERFTE (Law on the Use of Renewable
the pair worked on clean transportation and ways to reduce
Energies and the Financing of the Energy Transition).
cities’ carbon footprints. Such a track record serves as an
According to Rebolledo, the General Law on Climate
excellent calling card in the Mexican market. But rather than
Change was “ambiguous,” causing companies to turn to
rest on its laurels, Bajo en Carbono is already eyeing up its
Bajo en Carbono for fear they would be over-regulated in
next move. “We see a void for a local lobby system that
a new market seeking emission reductions.
could help develop local public policy on carbon emissions.
the
Kyoto
Protocol’s
Clean
This void could easily be taken up by a private company like
218
The LAERFTE also gave Bajo en Carbono the chance to work
us. This would be a good growth prospect for us along with
on another government project, evaluating externalities
our usual project development.”
| VIEW FROM THE TOP
CARBON PLATFORM REINFORCES CLIMATE CHANGE FIGHT EDUARDO PIQUERO Director of MEXICO2 Carbon Platform Q: What were the main reasons the Mexican Stock
the Mexican government supports market mechanisms to
Exchange launched the MEXICO2 Carbon Platform?
help lower emissions. No other country in Latin America
A: This project can be divided into two important
has the level of government support that we have. We have
milestones. In 2011, the Mexican Stock Exchange launched
the General Climate Change Law, and we have the carbon
its Sustainability Index, which allows companies that have
tax. In the future, we will see a certain level of demand for
sustainable practices to be rated more highly than others.
carbon credits among those companies that have to pay
Having those practices is appreciated by investors and
the carbon tax. Beyond that we have to create some extra
consumers alike. We also have the General Climate Change
demand. Companies, both listed and non-listed, are already
Law that came into force in October 2012. These two events
demanding offsets for their emissions to either increase
were the main reasons that led to the creation of the platform
their rating on the Sustainability Index, or to strengthen
in November 2013, after receiving financial support from the
their corporate sustainable responsibility. The MEXICO2
British Embassy. An additional boost came in the form of
Carbon Platform is making history in the fight against
the Fiscal Reform. It introduced the carbon tax, which will
climate change, as well as in its stock exchange. This is the
be enforced in 2014. We want to provide carbon credits for
only stock exchange to have a platform for carbon credits
this tax. Even though we have been frustrated by the failure
in the Americas.
of the global carbon market, some of its initiatives are still quite healthy.
Q: What were the main challenges you faced when establishing the methodology behind the MEXICO2
Q: What are the main reasons that account for the failure of
Carbon Platform?
the global carbon market?
A: The largest obstacle is educating large corporations
A: There are three different reasons. Globally, the UN
about climate change. Even though the stock exchange
created the Clean Development Mechanism (CDM) but it
has a sustainability committee, there is still a lot of work
came into force very late. Registering projects involved
to do. We are working on educating the demand base on
a lot of bureaucracy and the issuance of carbon credits
what carbon is and on what products are suitable for one
was quite expensive. The financial crisis was another
company or another. As for the Treasury, we are setting up a
big problem, as were the failures of the issuance of
mechanism whereby carbon credits go from projects to the
allowances for carbon credits. Those allowances enable
purchasing companies and then to the Treasury. This is the
companies to emit greenhouse gases, but the EU did not
first time a mechanism has been structured in such way in a
cope very well with the expectations for the current phase
developing country.
of the carbon market, which runs until 2016. They issued more allowances than were actually needed so prices
Q: What are the direct benefits that this new platform will
plummeted in a matter of months. We also had a strong
bring to energy-intensive industries?
supply from large Chinese and Indian projects that were
A: If companies are interested in the direct offsetting of
issuing too many credits. So we had an oversupply while
carbon emissions, they can buy carbon credits without
prices fell, which proved to be a deadly combination.
giving much importance to their origin. We also promote
Nevertheless, at a national level we have very efficient
the idea of sustainable development, so that energy-
carbon markets, comparative to those in California, New
intensive industries will comply with the carbon tax and
Zealand, Canada and South Korea.
help Mexico’s sustainable development. To secure a very transparent price and get carbon credits quickly, we will
Q: Why is the MEXICO2 Carbon Platform viable in the
connect the supply and demand sides of the market while
Mexican market?
also conducting auctions. There is no better place than this
A: MEXICO2 is a trading platform that represents the first
platform for companies to buy carbon credits and secure
step towards a Mexican carbon market. It is viable because
the best deal for all sides.
219
RENEWABLE FINANCING GROWS IN NAFINSA’S PORTFOLIO Nacional
Financiera
will have to be created. Meanwhile, NAFINSA is working in
(NAFINSA) financed 50%
coordination with public and private financial institutions
of the required capital
for the increasing financing demand for renewable projects.
for Aura Solar I, the first
Enrique Nieto Ituarte, Director of Sustainable Projects of NAFINSA
large scale photovoltaic
“Competition is being created and we are involving
plant
The
commercial banks in the process,” Nieto Ituarte states. He
financing of this project
found that getting involved in renewable projects came
is a sign of the Mexican
very naturally as soon as the market heard NAFINSA was
development
in
mandate
Mexico.
to
bank’s
financing these types of projects. Demand has increased
promote
and the development bank is expecting it to grow even
renewable energy projects
more in the near future. “There are many players that have
in the country but more specifically, is an endorsement
the technology, the land or the resources but do not have
for the Mexican solar energy industry. For over two
the financing. We enable those projects to become a reality,”
decades, NAFINSA has been focused in providing financial
he adds, recalling the early days of wind energy in Mexico
resources and warranties to small and medium-sized
when it did not enjoy the trust it does today. “Now financial
companies. It was just six years ago that the bank started
institutions are very comfortable with this type of energy and
funding renewable energy projects. “NAFINSA’s role
the same is going to happen with solar and hydropower.”
is to be a pioneer in the development of financing for projects involving new technologies or technologies that
What makes NAFINSA more attractive than other financial
have not been used in Mexico,” explains Enrique Nieto
institutions? Nieto Ituarte does not hesitate to mention the
Ituarte, NAFINSA’s Director of Sustainable Projects. “Clear
reasons why NAFINSA is a competitive option. “First of all,
examples of these are our financing of two major solar
we have long-term resources that commercial banks do not
energy projects – Aura Solar I with 30MW and another
have. However, we design mechanisms so commercial banks
project of 18MW – with market risk present in the tariff
can participate in case there is some kind of restriction.”
price.” In other words, the tariff is based on what CFE is
He emphasizes that NAFINSA does not give money away,
paying in the short term, which is a merchant risk.
there are no lost funds or nonexistent rates. “These projects are profitable under market rates and without subsidies,
NAFINSA is seeking to contribute to Mexico’s shift towards
therefore they have market prices.” To acquire financing
renewable energy by financing more projects, taking on
from NAFINSA, project developers must first comply with
more risk with the capital it has available to invest, and
many regulatory requirements. Nieto Ituarte underlines
forming strategic alliances with multilateral organisms. “We
that one of the most important issues is land management.
have combined diverse sources of funding such as funds
When the land is privately owned there are usually less
destined to the mitigation of climate change, and canalized
complications, but when the project is being developed
them toward Mexico. Furthermore, we are focused on
on ejido land, NAFINSA does not provide any funds until
creating feasible structures and spreading knowledge about
an independent entity certifies that all requirements are
new financial instruments that might allow more access to
being complied with. “The social risk for us, in particular,
this type of energy,” he says.
is very important because communities can be adversely affected instead of benefiting from a project.” NAFINSA
The fact that the Mexican renewable energy market is not
also provides consulting services to its clients. The bank
booming yet is actually a healthy sign for Nieto Ituarte. He
begins a negotiation that ends with the structuring of the
mentions examples in Europe, where renewable energy
debt’s size, term and rate, depending on the risks. All those
was subsidized in an effort to promote it, but making it
factors go toward creating a financial model that gives the
unmanageable in the mid-term. The organic growth of
project feasibility.
renewable energy in Mexico is allowing all players – from
220
financial institutions to CFE – to provide the required
NAFINSA is trying to double its renewable energy projects
demand that will build a stronger market for the future.
compared to 2012. “I believe renewables will take up about
“The current legal framework is adequate for the country’s
15-20% of NAFINSA’s portfolio. The bank is making its
need. Nevertheless, the lack of infrastructure is an issue
way into the sector and has a commitment to support
that has to be acknowledged by CFE through its Open
the government’s renewable energy ambitions. If a good
Season scheme,” Nieto Ituarte says. However, he believes
project comes to NAFINSA, we will support it,” Nieto
that in the future, other types of infrastructure financing
Ituarte underlines.
| VIEW FROM THE TOP
GERMAN FINANCING FOR MEXICAN RENEWABLES STEFAN BLUM Director of KfW-DEG Mexico
Q: Could you give us a brief introduction to KfW and its
Q: After seeing the opportunities in Mexico, what would
subsidiaries, their activities and their specialities?
be the most important challenges that this country needs
A: KfW, with assets of more than €500 billion, is the
to face?
largest national development bank in the world. It has
A: It is difficult for me as a foreigner to comment about this
three subsidiaries that are active outside of Germany: KfW-
topic. A main concern from the banking perspective is that
Ipex Bank, KfW Development Bank, and KfW-DEG. DEG is
the PPA offered by CFE, within the small power producer
KfW’s subsidiary focused on promoting the private sector
scheme, is not at a fixed price. The dependency of prices on
in emerging economies. Its mandate is to directly finance
the short term total cost makes it very difficult for banks to
projects that are at least 51% privately owned. There is no
finance such projects. One of the reasons why wind energy
need for any German or European supplies or sponsors,
has been relatively successful in Mexico is that regulation
DEG can finance projects which are 100% Mexican. However,
has enabled self-supply projects for the private sector
we do need for these projects to have a developmental
which involve a fixed-price PPA.
impact on the country such as job creation, infrastructure development or a contribution to combat climate change.
For Mexican companies, it can be very difficult to obtain
DEG provides the whole range of financing products
long-term financing from commercial banks and funds
from straight equity through different types of mezzanine
alone, so we offer our services as a development bank to
financing to senior loans. Our portfolio at the moment is
overcome these challenges. We have investment experience
about 40% equity/mezzanine and 60% senior debt, but
in more than 85 countries and our dedicated sector experts
we want to grow more on the equity/mezzanine side. We
in Cologne can draw from that experience when assessing
always provide long-term financing, starting from four years
projects and coming on due diligence missions. Being a
and going up to periods longer than 15 years. DEG provides
German governmental entity, our financing for a company
financing ranging from US$10 million to US$50 million,
or project provides a ‘seal of approval’, which we have seen
depending on the project. Together with partners, we also
can really add value when it comes to relations with other
offer syndicated senior loans above US$100 million.
banks or planning an IPO at a later stage.
Q: How do the opportunities in Mexico compare to other
Q: How large would you consider the financing demand to
Latin American markets where DEG is active?
develop renewable energy projects in Mexico to be?
A: Last year, Latin America was the most important region
A: There are many project ideas in Mexico but only a
for DEG regarding new business and commitments. In DEG
small number of them are going to be solid enough to get
as a whole, we committed about €1.3 billion of new business
financing. Therefore, the challenge is to match the good
last year, of which €500 million went to Latin America, with
projects with the available financing. It is always more
€100 million for Mexico. This made Mexico the second largest
difficult at the beginning of a cycle to distinguish good
country within DEG in terms of new commitments, just behind
projects from bad ones. But when the current ‘gold rush’
India. To come second in DEG’s investment universe is quite
in solar PV has settled, criteria for project and financing
an achievement, as we are talking about Mexico being ahead
success will have been found and tested, leading to a
of Brazil and China. Within Latin America, and specifically in
more transparent and straight-forward selection process
the renewable energy sector, Mexico is definitely one of the
where good projects will obtain financing. This has already
countries with the highest potential. So far, we have mainly
started since the first project in Baja California became
financed wind energy projects. In the past, Mexican wind
operational. Due to its isolation from the national grid, Baja
farms have been very competitive, mainly in Oaxaca, but
California is a special case and may not quite yet lead to
the sector has been spreading in different regions of Mexico.
a breakthrough for solar PV projects on a national scale.
While we expect wind projects to continue, a new big wave
But in the end, I am fully convinced that viable projects will
has started in the solar photovoltaic industry.
attract financing.
221
LARGE-SCALE FUNDING TO MITIGATE CLIMATE CHANGE Created in 1959 to spur the development of Latin America
666 projects, less than many Central American nations such
and the Caribbean, the Inter-American Development
as El Salvador, Honduras or Guatemala. Yet involvement
Bank (IDB) is now the largest multilateral player in the
in Mexico brings particular risks that the IDB has grown
region, according to Leandro Alves, the Head of its Energy
adept in adapting to. Alves sees two major issues that
Division. “We finance approximately US$1 billion a year just
stand out in Mexico. The first difference is that social and
on the energy side, which accounts for between 14% and
environmental regulations vary from state to state and how
20% of our portfolio. Since we have a mandate to finance
they apply to local populations. “As in any large country,
up to US$3 billion per year, there is a lot of room for us
there is a difference in terms of project location and the
to expand our financing to mitigation of climate change,
way they are presented, which breeds either positive or
which includes renewable energy,” he explains.
negative reactions towards each project.”
But despite being a leading development bank tasked
The other aspect relates to off-takers. Alves outlines that
with different responsibilities than its commercial rivals,
should the IDB take on large renewable energy projects
the IDB’s lending criteria are not too distant from those
targetting private sector companies looking for self-supply,
of traditional lenders. The development bank looks for
then Mexico would have a limited number of very large off-
financial sustainability, for experienced and knowledgeable
takers. “Mexican industry is mainly composed of relatively
shareholders and for companies with a track record in the
small and medium-sized companies as opposed to large
projects they are looking to have financed. “They also need
conglomerates, a reality that is not reflected. That may be
to be able to backstop, to put in the equity requirements for
a limiting factor on the self-supply agreements that are
a project, as well as certain guarantees,” says Alves. While
currently being drawn up,” he outlines. That being said,
the IDB has no specific guarantees that it looks for up front,
climate change has made it essential for the energy mix to
its limited lending capability means it looks very closely
shift toward renewable sources in the IDB’s opinion. One
to see if a project is bankable. For private sector projects
aspect that could be of great benefit to non-conventional
in Mexico, the bank can only lend up to 25% of the total
renewable energy sources, such as wind and solar, is smart
cost of the project. Typically, Alves explains, this means
grid technology, says Alves, while outlining its advantages.
that another 30% is equity, and the other 45% has to come
“The smart grid would provide more consistency and duality
in some other form of lending. In essence, this means that
for transmission lines. This would be helpful in compensating
projects have to be bankable under commercial terms in
for droughts in peers related with hydro systems. But more
order for IDB to finance them. Where the IDB does stand
importantly, as more and more intermittent energy comes
apart is in its consideration of risk factors. Economic, social
into play, the smart grid will be a key feature to bring new
and environmental sustainability are far higher on IDB’s list
investment for non-conventional resources.”
of priorities than normal banks. “We want to make sure that the projects that we are working on are exemplary, not just
The future of renewable energy projects, as well as the entire
for the shareholders but for the regional population directly
Mexican energy sector, has been changed by the approval of
affected by those projects and the country as a whole.”
the Energy Reform. Alves, like many in the financial sector, is enthusiastic about the reform’s potential. However, he
In terms of which renewable sources it has worked with,
strongly advises Mexico to move ahead step by step. “The
the IDB has had most success in hydro projects, although
best approach to changing a sector is through incremental
wind projects are rapidly becoming a priority. Alves
policy steps. Any drastic actions will end up causing a much
acknowledges that the application and execution of wind
tougher battle, both for internal political reasons and from
projects often involve social and environmental concerns
a social point of view.” The other move that he advises
that the IDB seeks to address. The scale of such projects can
Mexico to take, in order to shore up any lingering doubts
also be reflected in the proportions that these concerns can
about investment and financing in the energy sector, is
take. As such, Alves explains that it does not make sense
to create an infrastructure bank similar to Brazil’s BNDES.
for the IDB to finance very large infrastructure projects that
Although Mexico already has Banobras and NAFINSA, a
have a negative impact on the local population.
new bank could introduce specific lines of credit for public and private entities that have long-term financing needs for
222
The IDB’s work across Latin America seems equally spread
renewable sources. As Alves explains, 80% of the cost of
across the region’s larger and smaller economies. While
these resources is return capital so, as that cost is amortized
Brazil tops the list with the IDB involved in 1,105 projects
over longer terms, renewable energy projects can become
there as of early 2014, Mexico has seen IDB participation in
more and more competitive.
SOCIAL ENTREPRENEURSHIP SPREADS FINANCIAL VALUES Mexico’s
bank,
The value of Bancomer’s CSR division has always been
BBVA Bancomer, did not
measured from the bank’s financial perspective. Bancomer
simply
tackles its sustainability initiatives as it would a business
the
largest want
examples
others.
Irma Acosta Pedregal, Director of Corporate Responsibility and Image of BBVA Bancomer
In
to
follow set
model, by quantifying them and seeking to make them
when
profitable. Acosta Pedregal explains that giving such
it started its corporate
initiatives a precise value allows Bancomer to create
sustainable responsibility
tangible indicators and track the various impacts its
(CSR) division, Bancomer
initiatives are having.
centered the of
2008,
by
it
twin
around concepts
responsibility
As the financial sector is not directly a highly pollutant
and
sector, Bancomer decided to focus on the indirect changes
reputation. The first sought to make Bancomer responsible,
it could make. BBVA adopted the Equator Principles in 2004
in all aspects of its operations, while its actual CSR
as a crucial commitment to willingly integrate their activities
programs were linked to its core business. For example,
into more sustainable markets. Projects depend strongly on
the bank focused heavily on financial education and social
financing and as an Equator Principle Financing Institution,
entrepreneurship. Irma Acosta Pedregal, Bancomer’s
the bank avoids being part of potentially damaging projects
Director of Corporate Responsibility and Image, explains
to society and the environment. The bank also generated
that social entrepreneurship became a particular priority
a global eco-efficiency plan for 2008-2012, which is now
after the bank started the Momentum Project.
in its second iteration. Having created a benchmark to establish what this plan should include for all the countries
The Momentum Project, currently operating in Mexico,
in which Bancomer works, the focus became to reduce the
Spain and Peru, aims to train and provide support to
bank’s carbon footprint worldwide. This took into account
entrepreneurs and allow their initiatives to evolve in a
the use of water, energy and paper, CO2 emissions and
socially and ecologically friendly way. “We see a need to
environmental certifications. The company has obtained
educate these types of entrepreneurs, as they sometimes
ISO 14001 certifications for some buildings it already owned
lack the right business approach for their company. They
and will obtain LEED certification in countries in which new
need to understand cash flow management, marketing
headquarters are being built, such as Mexico and Spain.
models and financing,” says Acosta Pedregal. Momentum
A commitment to a 20% reduction in CO2 emissions was
allows companies to accelerate their growth and Bancomer
fulfilled by cutting back on travel trips and increasing the
taps up the skill set and experience of its retired workers
number of videoconferences and telecommuting.
to help participating companies develop their business models. The program has been having an impact since
Bancomer has placed a particular focus on certifiable
the beginning. “In the first year, we had 112 participants,
buildings, vowing that 20% of its employees will work in
from which 10 were selected to work on the steps already
buildings possessing ISO 14001 certification, covering 10 of
outlined,” explains Acosta Pedregal. Momentum was also
its buildings in Mexico. The company’s flagship projects will
created with two important partnerships, New Ventures,
be focused on LEED, however. “Mexico City will see Torre
a top Mexican start-up accelerator company, and EGADE,
Bancomer with a capacity for 4,500 people and with LEED
one of Mexico’s most famous business schools. From the
Gold certification. The operations center will house 4,200
outset, Bancomer sought to ensure that sustainability was
people and will have LEED Silver certification. We have also
not being forced on the company, to avoid such practices
made some changes in the installations of old bank branches
being viewed as an annoyance by staff. Instead, it sought to
to introduce technology that fits our goals,” states Acosta
ensure that sustainability was incorporated seamlessly and
Pedregal. The second phase of its global eco-efficiency plan
that the development of the new division could be tracked
has targeted a reduction of 3% for energy, 3% for paper and
at every stage. Although support within Bancomer for this
6% for CO2 emissions. The process of building these two new
sustainable change came from the top, it was important
buildings and getting them ready is what has led to the bank
for the bank to involve its employees lower down the
not making particularly aggressive sustainability goals for the
corporate ladder. “We had 20 sessions with the employees
moment. Migrating over 7,000 employees once the buildings
and an online course to target sustainability issues
are ready will take between 12 and 18 months, and Bancomer
depending on different regions. Every new employee also
knows this will lead to a rise in its energy consumption. To
has to go through a corporate responsibility workshop,”
mitigate this, the company is working on developing its own
says Acosta Pedregal.
wind farm, scheduled to be in operation in 2015.
223
EQUATOR PRINCIPLES ESSENTIAL TO SUSTAINABLE BANKING Sustainable banking is not a concept with a long and storied
been accepted and rejected under EP regulations, as well as
history. While different sectors of industry came to sustainable
the positive ecological impact of already financed projects.
practices throughout the 1990s and 2000s, the banking sector remained mostly on the outside until June 2003. That
Two wholly Mexican banks, CIBanco and Banorte, have joined
month, 10 banks, including international heavy-hitters such
so far, both of them doing so in early 2012. BBVA Bancomer is
as Barclays and Crédit Suisse, vowed to throw their support
also in but its Spanish owner, BBVA, joined way back in 2004.
behind a new vision of financing. This vision would seek to
Mexico has not been the only Latin American country whose
fight against climate change, promote biodiversity, and
banks have seen the EP light. Brazil has five members, while
seek to alleviate or offset negative impacts of projects on
Argentina, Chile, Colombia, Costa Rica, Peru and Uruguay
ecosystems, communities, and the climate, thus, the Equator
each have one. The traction the EPs have gained in Latin
Principles (EPs) were born. In their first iteration, the EPs were
America and Africa has seen them obtain more credibility as
limited in several ways that sparked concern among NGOs
a global initiative.
over whether the EPs would have any bite at all. As they were initially devised, the EPs were only applied to project finance
The EPIII (third version of the EPs adopted in April 2013) now
for infrastructure plans within the countries the signatories
place far more stringent demands on clients seeking to gain
were based in. This covered such developments as power
loans from EPFIs, as well as on the banks themselves. The
plants and pipelines. Secondly, the EPs were non-binding. In
EPIII added two measures to the portfolio of EP solutions.
lieu of any real enforcement, the signatory banks allowed for
These are: project-related corporate loans with a tenor of
rule by consensus, under which they would pledge to follow
at least two years where the loan is dedicated to a single
standards set by the International Finance Corporation (IFC),
project over which the borrower has control, and bridge
the private-sector lending arm of the World Bank.
loans with a tenor of less than two years that are intended to be refinanced by project finance or project-related corporate
In 2006, the IFC improved its standards by lifting the
loans. After a transition period in 2014, EPFIs will need to
limitation on project finance to cover banks’ project advisory
require from clients regular reports about the emission
services while the investment barrier for projects was
levels of greenhouse gases in the operations of projects
lowered from US$50 million to US$10 million. This was a
that emit over 100,000 tonnes of carbon dioxide equivalent.
commitment that was met by the EP members, who followed
Such potentially polluting projects will also be required to
suit in strengthening their pledge in order to broaden the
provide a detailed analysis of alternatives that would result
scope of the EPs to supervise a far wider range of potential
in fewer emissions. Such an analysis cannot be provided
deals. In the summer of 2013, after the EPs underwent their
for operations alone, as it must detail feasible options
second alteration, the number of Equator Principles Financial
through which to reduce greenhouse gas emissions during a
Institutions (EPFIs) had reached 78 members across 35
project’s various stages, including design, construction, and
countries, covering over 70 percent of international project
operation. The more strict rules for loans under the EPs were
finance debt in emerging markets. If followed, the new rules
not developed by the EPFIs themselves but were part of an
would mean that EPFIs would reject offers to finance projects
upgrade in the IFC Performance Standards, which govern
that would result in significant environmental damage, or
much of the content of the EPs.
even pose the potential for such damage. The scope of the EPIII and the commitment that member
224
Criticism of the EPs started almost as soon as they were
banks have shown has been reflected in changes to banks’
born, especially among NGOs and social groups that were
internal processes and beyond. The roster of a bank’s staff
skeptical of banks voluntarily taking on socially responsible
now includes trained staff that can plan environmental impact
measures. An early flaring point was the Baku-Tbilisi-Ceylan
assessments or advise on whether loan proposals are viable
pipeline running from the Caspian Sea to the Mediterranean.
under the EPs. In the broader financial world, development
In 2004, eight EPFIs and the IFC itself supported this project
banks and export credit agencies have grasped the idea
despite NGOs reporting a great number of breaches, which
and are using standards that are closely based on their EPs,
proved to be a stern test for the EPs public reputation.
providing a continuity of requirements that spreads outside
Another concern that the EPFIs might press the IFC to water
the current roster of EPFIs. Furthermore, the concept of the
down its standards to benefit them was met with a stern
EPs has trickled down to companies seeking loans. Financial
response from member banks. Many of the larger EPFIs have
consultants report being increasingly approached by clients
taken their own measures and begun publicizing their own
wanting advice on how to ensure their projects meet the
compliance with the EPs, showing how many projects have
Equator Principles.
| VIEW FROM THE TOP
FIRST GREEN BANK PROMOTING SUSTAINABLE FINANCING INSTRUMENTS MARIO MACIEL CASTRO Director General of CIBanco Q: CIBanco was the first Mexican bank to join the Equator
loans. The companies that look for that level of financing
Principles (EP). What made you decide to do so?
usually have access to such funds with larger banks. In order
A: Joining EP is the main flag that a green bank has to fly.
to be consistent with CIBanco’s size and objectives, our loans
We could have just decided to be a green bank, nobody
have a maximum term of five years and involve amounts not
would have asked us why we had become a green financial
exceeding US$30 million. We also believe safe investments
institution, but joining the EP made it official. We were the
can be found in projects where energy efficiency or savings
first Mexican bank to do so and we are happy for other
allow for credit repayment, such as energy efficiency projects
banks to adhere to this green philosophy. However, among
in small and medium-sized firms.
our customers and the wider community, CIBanco is the green bank. Any additional green strategies in the financial
Q: The PV sector is mostly concentrating on the
sector help our philosophy, many banks may become
commercial and residential sector. How does this shape
green and this will benefit society in general.
your loans strategy? A: It is not easy to create a business plan, relying only on
Q: What criteria does CIBanco use to ascertain the
a green philosophy. Therefore, we created two types of
financial viability of its green customers?
green credits: the green auto loan and the PV residential
A: Our first criterion is that we provide loans in which
loan. We are the only bank in Mexico providing such types
repayment is feasible. The first issue is to analyze if a
of loans. In implementing them, we ran into two challenges:
project is feasible and if the loan will be repaid. We are
a cultural barrier and interconnectivity with CFE. The
not an NGO, we are a company and we must take care
cultural barrier meant we had to educate customers
of our depositors. We analyze and approve all the green
about PV energy and how it works.
loans through the credit committee, so we provide optimal
problem with bidirectional controllers installed by CFE. If
financial conditions to our customers. But this also means
you decide to use PV technology, the provider installs it,
that we are not going to approve a loan simply because it is
our bank provides the loan but you will not be using that
a green loan. At first, these loans are just simply loans, but
energy until CFE interconnects you to the network, which
after they are approved, we provide better conditions for
can take three months or more. That is actually already an
those customers that request loans for a green purpose.
improvement as we worked closely with CFE to bring this
Second, we had a
down from six months to three. We will provide medium-sized companies with mediumterm loans but feasibility is the name of the game. However,
Q: Does CIBanco have the ambitions to become a private
sustainability does not go against profitability. Just recently,
banking partner for larger projects through collaboration
we turned down a wind project as it seemed unfeasible
with development banks?
based on the developer’s forecast and projections. When
A: Not yet as there are many regulations for banks that
we started the bank, I told my sustainability committee
have to be taken into account. Large projects require a
to watch out and to ensure that we fulfill all the basic
large amount of credit but as a small bank we have a credit
requirements of a bank. We are looking for a certain return
limit, while huge companies have access to huge loans
on equity for our shareholders and we must provide our
through development banks or through big commercial
customers with the right interest and security.
banks. This is the reason why we have decided to focus in mid-sized companies. However, CIBanco can enter the
Q: Which types of renewable energy have been the most
market through medium-sized companies that ask for
financially attractive?
loans of around US$700,000. The size and timeframe of
A: Among renewable energy sources, we view solar energy
such loans fit our strategy. Since this type of customer is
as the most reliable technology and safest investment.
not being attended to by larger banks, it creates a niche
However, we are not a huge bank that can provide US$1 billion
we can exploit.
225
| PROJECT SPOTLIGHT
MINING INDUSTRY SELF-SUPPLY SCHEMES Renewable power sources
Grupo Mexico is taking advantage of cheap gas imports
are
attractive
from the US and generating power for self-consumption
clean
at the La Caridad mine and metallurgical complex and the
not
for
self-supply
Buenavista copper mining project expansion. The mining
schemes can also be a
group is also developing wind power for medium and
good way for companies
low-voltage use. “We are already investing in wind power
to reduce costs. Mexico’s
because of the cost advantage. We will be able to supply
largest mining company
our different locations at a competitive cost,” says Xavier
is
several
García de Quevedo, President of Grupo Mexico. However,
renewable energy projects
this strategy is not limited to self-supply as Grupo Mexico
aimed
is looking to also supply third parties in any industry
energy,
Xavier García de Quevedo, President of Grupo Mexico
only
providing but
working
on
at
increasing
productivity while reducing energy costs.
that might need it. The company started investing in the renewable energy market because it seemed like an
Grupo Mexico is investing approximately US$810 million in
attractive business opportunity.
five renewable energy plants for self-supply. Once these projects are operational, Grupo Mexico will become the first
The mining firm’s self-supply strategy is missing about
mining company to produce its entire energy supply. The
150MW, some of which are needed for the Buenavista mining
company’s current energy costs rise above US$350 million
complex. To mitigate this situation, the company plans
per year, which will start to see substantial reductions
to invest in combined cycle capacity once new pipelines
by the end of 2014. Mexico Generadora de Energia is the
are developed. Grupo Mexico will be a customer for the
Grupo Mexico subsidiary specifically created to manage
companies building the pipeline but will operate its own
and operate the group’s self-supply power plants, which will
power plants. Although this project could be jeopardized
provide energy for mining and railroad activities.
if gas prices were to rise considerably, García de Quevedo and most of the market believe natural gas will remain
226
The mining company’s plans include two combined cycle
competitive for the foreseeable future. Despite the company’s
power plants in Sonora with a capacity of 500MW each,
recent investments in renewable energy projects, García de
two wind farms in Oaxaca with a respective capacity
Quevedo believes that reaching the target of generating 35%
of 124MW, and a 500MW hydroelectric plant at the La
of Mexico’s energy from clean sources by 2014, as stated in
Angostura dam in Sonora.
the General Climate Change Law, remains a challenging task.
FINANCIAL INSTITUTION, GATEKEEPER AND OFF-TAKER Sustainability policies show how institutions relate to
complex authorization process as Banamex was the first
social and environmental issues and their commitment
financial institution in Mexico to go through this procedure.
to tackling these problems. Many financial institutions
Reducing the company’s environmental footprint was
have shifted their mission from one based on maximizing
definitely motivating, but Marroquín says wind power prices
profits at all costs to one that fosters socially and
were the main reason that drove Banamex to become
environmentally conscious actions. Banamex, Mexico’s
an off-taker. “All the sustainability initiatives we pursue
largest bank, has embraced this perspective and says
have significant savings or cost-reduction effects on our
it has an energy savings program to prove it. Citigroup
business.” Marroquín says the current unfavorable economic
started a sustainability unit almost ten years ago in New
times actually provide a good opportunity for banks to
York to oversee the whole group’s operations. The unit was
invest in sustainable practices and encourage them among
created under pressure from board members, clients, and
their clients. “The world needs to start thinking about new
NGOs who wanted the banking group to play a more active
business models. In times of high market turmoil and credit
role in matters of sustainability. Banamex, a subsidiary of
crunch, being aware of emerging business opportunities
Citigroup, followed the sustainability unit’s advice out of
and risk mitigating mechanisms is very important.”
conviction, as the mandate came straight from the CEO. The Citigroup sustainability unit was created with the focus
As an off-taker, Banamex has some advice for those who
of engaging both employees and interest groups, whilst
want to follow the bank’s lead, particularly small players.
promoting awareness about Banamex’s environmental
“Off-takers often do not fully understand the development
footprint. Banamex has a mandate stating that 80% of
risks linked to land ownership and to securing permits from
the company’s energy must come from clean sources by
local, state and federal authorities,” says Marroquín. “It is
2017. This makes the renewable energy sector crucial to
very difficult for smaller companies, which devote most
Banamex’s activities, both as an off-taker and as a financial
of their time and resources to their business, to evaluate
services provider. Partnering up with Italian utility company
and address such risks. Banamex looked at 20 different
Enel has helped the bank achieve significant electricity
projects, involving a very detailed approach to looking
savings while demonstrating the company’s commitment
at developers and at the feasibility of their projects.
to minimizing its environmental impact.
That analysis capability might be one issue that smaller companies will run up against,” he outlines. Marroquín
Daniel
Marroquín,
Banamex’s
Sustainability
Director,
acknowledges that, given this gauntlet of regulation and
recounts the process by which Banamex chose Enel. The
research, it is rather difficult for small companies to develop
bank looked and reviewed the experience and track records
a self-supply project on their own. However, he provides
of several candidate companies, including their work in
a valuable piece of advice: pooling several companies for
Mexico and abroad. Experience was a crucial element,
self-supply developments. “Smaller customers have little
since Banamex was looking to create a partnership that
negotiating power with large project developers, but
would last over a decade. “We looked at the project’s risks,
similarly, it is hard for developers to sign 50 different PPAs.
since Mexico is full of stories of developers that waited
Both of these obstacles can be solved by pooling together
for years without finalizing their projects. We looked at
several companies that wish to become sustainable and
those projects that were ready to be built, we carried out
efficient.”
financial, legal and technical due diligence to ensure that, for example, these projects had properly secured the
Banamex sees a large role for itself in Mexico’s renewable
legal rights to the land from the corresponding parties,”
energy sector. “Being an off-taker in a wind energy project
says Marroquín. The Enel project covered all of Banamex’s
is just a small part of what we can do,” says Marroquín. In
requirements and expectations. Additionally, Enel is one
choosing what projects to finance or not, Banamex has an
of the world’s largest utilities and has three hydroelectric
environmental and social risk management policy. Certain
plants and two wind farms already in operation in Mexico.
sectors are excluded de facto from Banamex’s financing
In this, Banamex saw a trustworthy partner with global
programs, such as casinos or arms dealers. Potentially
expertise and local knowhow. No less than 40% of all
viable projects may also be assigned an external consultant,
electricity used by Banamex comes from Enel’s Dominica
who will work with developers on environmental and social
wind farm in San Luis Potosi. “We are expecting to save
issues. To continue improving these practices, Banamex has
approximately US$2.5 million a year from the project, which
been working with SEMARNAT on establishing ways to have
roughly amounts to 15% of that plant’s associated power
financial institutions act as gatekeepers to decide which
bill,” tells Marroquín. The project with Enel underwent a
projects should receive support or not.
227
WISE HANDS AT SECURING INFRASTRUCTURE FINANCING Developers of renewable energy projects are not created
For Ramos, the financing needs of the renewable
equal. Some are international heavyweights that have
energy sector cannot be detached from those of
installed hundreds of megawatts of capacity around the
broader infrastructure, even if different energy sources
world and confidently swagger into the Mexican arena.
present difficult particularities. Should the government’s
Others take more tentative first steps into an unpolished
infrastructure plans go ahead, long-term financing will not
sector, full of determination but slightly uncertain as to
be a need for renewable energy alone. In such a scenario,
how best to operate. One factor that levels the playing field
large-scale infrastructure projects such as ports and
is the access to financing. The hoops to jump through to
airports will appeal to banks for help. This would trigger a
satisfy potential backers are numerous, from environmental
Darwinian process of natural selection, in which the banks
assessments to government permits and certification
would pick the best-structured projects from among these
processes. This is where Astris Finance comes in. The
different sectors.
American investment advisory firm may not have the fame of a PwC or a KPMG but its Managing Partner Eduardo
“With these bottlenecks looming, a large part of Astris
Ramos is willing to stake its track record against that of
Finance’s work in Mexico is to give developers a mild
its competitors. “We may be a smaller firm but we have
reality check.” Ramos describes developers as being very
spent 15 years in infrastructure financing, and our core
optimistic about their projects’ viability. To prepare them
business is energy, oil and gas. We also thrive on having
for the road ahead, Astris acts as their counselors, giving
a lean structure, so our clients will see the most relevant
them an objective idea of what is achievable in terms of
person in the company and the head of each project will get
debt and equity. “Our top priority when we engage with
involved,” says Ramos.
clients is to pitch them on the best scenario. We tackle
“With these bottlenecks looming, a large part of Astris Finance’s work in Mexico is to give developers a mild reality check” Eduardo Ramos, Managing Partner of Astris Finance
This boutique’s approach to business has translated to
their capabilities, what Astris Finance can do for them and
Astris getting involved on behemoth contracts, such as
we make sure that our clients understand what the best
playing a lead role in arranging a US$900 million loan in
option for them and their project is. We provide a roadmap
2007 for Mexican engineering firm ICA. This loan went
to success,” explains Ramos. This overarching vision led
toward the building of the 750MW La Yesca hydroelectric
Astris Finance to focus largely on one source of renewable
power plant. Such a coup alludes to a commitment to
energy: solar. Through involvement in solar projects in
Mexico, given the reputation needed to work on this scale
France, Portugal and Peru, the company’s commitment to
of project. As Ramos explains, despite also having offices in
the sun comes down to evolutions in technology. Where
Washington and Paris, Astris Finance sees Latin America as
wind has traditionally dominated the Mexican renewable
its geographic homeland. Far from the critics of the Mexican
energy mix, Astris is betting on technological advances to
business environment, Astris revels in the advantages it
make solar more cost-competitive than wind. With Mexico
finds here. One of the main opportunities it has tapped
enjoying high levels of solar irradiation in the Sonora Desert
into is the availability of long-term financing, especially
of Baja California, Astris is seeking to replicate the success
when compared to regional competitors. Chile might offer
it had in Peru, where a careful financial structure, involving
longer-term loans than Mexico, but in Brazil banks normally
multilaterals and banks, saw two solar plants successfully
limit their financing to between five and seven years. Ramos
built for its clients.
points to the clear advantage Mexico has in this regard,
228
saying “the local capital market is able to finance 30 years
“It has taken a little longer to develop projects, but the states
for infrastructure projects, even on wind and solar.” Such an
are pushing for changes to the law to allow PPAs. There
option has made Mexico competitive worldwide in financing
is a lot of pent up demand. You need incentives from the
renewable energy projects, given how important long-term
government for more of these projects to come to fruition,
financing is to developers.
to attract the right kind of investors to the energy sector.”
| VIEW FROM THE TOP
INNOVATIVE SOLUTIONS TO SUPPORT LARGE FINANCING NEEDS ENRIQUE LARA Sub-director of Hydraulic, Social and Environmental Infrastructure of Banobras Q: What is Banobras’ role in promoting the development
financing the whole projects by ourselves. If promoters
of clean energy infrastructure?
can get commercial banks interested in these ventures, we
A: Banobras has a long history and significant experience in
can adjust our schemes. The goal is to make sure a lack of
financing infrastructure projects. The main sector Banobras
financing does not hinder energy related projects.
finances is the transportation sector, particularly highways, but energy related projects have become increasingly
Warrantees have become important in ensuring a project’s
important to us over the past four years. These projects,
success and Banobras is aware of that. Some projects
which include renewables, as well as projects for PEMEX
struggle during certain periods, particularly the initial
and CFE, currently amount to one fourth of our portfolio.
operational stages. Banobras guarantees that loans will be
Renewable energy projects are seeing an accelerated
paid during these difficult periods and we will recover the
proliferation because of technological improvements.
capital in subsequent years. We have promoted this scheme
This is particularly true for solar power, which was not
because it facilitates liquidity for project development.
financially viable a few years ago. Efficient technologies
We have also created a scheme that banks have found
have improved the bankability of these projects, and we
attractive, particularly when financing in US dollars. It is
can tell the sector is opening up because of the requests
called ‘sequential repayment’ and is designed for projects
for financing we receive.
that require long-term financing, over 15 to 25 years. Commercial banks have restrictions for long-term projects.
Banobras’s background with energy related projects is
To overcome this obstacle, our sequential repayment
most evident in its financing of mini-hydroelectric plants.
scheme divides loans into two periods: a short period,
These are noble and viable projects from a banking
usually ten years or less, and a longer one estimated at
perspective. Banobras has also financed many wind power
18 years. Development banking covers the long-term loan
developments, for which we have an interesting portfolio.
while commercial banks cover the short-term financing.
Currently we are assessing solar power, and although we
Solutions like this emphasize that development banks
have not yet financed any projects, our portfolio includes
collaborate rather than compete with commercial banks.
solar projects that will soon be financed. Q: How does Banobras select which projects to finance? Q: What mechanisms does Banobras implement to
A: We look for financial viability and well-structured
facilitate the development of renewable energy projects?
project planning. Not only does it have to be a profitable
A: The National Development Plan promotes renewable
project, it has to comply with legal requirements: permits,
energy projects through its ambitious goals. Banobras,
right of way, land rights, and environmental assessments.
as a financing entity, prioritizes the facilitation of such
We also ask for technological evaluations from external
projects. We have an area specialized in renewable energy
consultants. It is important to note that the best projects
developers, which identifies potential projects in solar and
are not necessarily the most expensive; we have financed
wind energy, cogeneration, and even gas pipelines. The
1MW mini-hydroelectric plants because they made sense.
gas sector has seen turbulent times of late; there have
As far as resources are concerned, in 2013 we had a
been cases in which the industry has been asked to cease
MX$19 billion (US$1.42 billion) budget for public-private
activities because of insufficient gas supply. Gas pipeline
partnerships. In the past six years, we went from having
projects involve significant amounts of financing that a single
a resource pool of MX$12 billion (US$897 million) to just
bank cannot always cover entirely, as these projects require
MX$92 billion (US$6.9 billion) in 2013. This makes us the
between US$500 million and US$1 billion. However, the gas
sixth largest bank in terms of portfolios and the most
industry will benefit from impressive pipeline developments
important for the Mexican infrastructure industry. Our
in which Banobras is involved as a financing institution.
financial program assigns resources to each sector where
We assist promoters in securing funds, as opposed to
private parties participate.
229
OVERCOMING THE CRUCIAL EARLY FINANCING STEPS Some
why
clients’ requests for loans at banks,” explains Hanhausen.
companies with talented
may
The more favorable the financing terms are, the higher the
engineering firms do not
internal return rate will be for the investors. This leads to
embark
direct negotiations with banks, which are carried out by
on
ask
renewable
energy projects for self-
clients but with EEE’s support.
supply. The answer could
Ernesto Hanhausen, Managing Director of Emerging Energy and Environment (EEE)
be that long and painful
A common obstacle in the renewable energy market,
administrative procedures
according to Hanhausen, is that not many developers
are involved that can delay
know how to properly plan and structure a well-balanced
projects,
time
project. Since renewable energy is an innovative idea,
costing
and money. These may
it tends to attract people who think outside the box,”
be seen as a necessary evil, but for Ernesto Hanhausen,
says Hanhausen. “These creative minds have great ideas
Managing Director of Emerging Energy and Environment
but may not have enough experience when it comes to
(EEE), the main element deterring companies from self-
preparing business plans. Thus, they are often rejected
supply projects is financing. The EEE team is comprised
by financing institutions.” What EEE representatives are
of specialists in the creation of investment funds. The
seeing in the market is a thorough crop of projects from
team’s goal is to create funds to invest in the development
the more experienced developers, followed by other
of renewable energy projects and promote sustainability,
players. Generally, parties approach EEE directly, attracted
renewable energy use, and energy efficiency in Latin
by the firm’s potential to act as a venture capitalist, to take
America. Hanhausen sees Latin America as having unique
on the investment risk side of their endeavors. Since this
economic, market, and regulatory conditions suitable for
trait also brings in less experienced developers, EEE does
the development of the aforementioned activities. Said
not only contribute with robust capital. It also provides
conditions have been recently implemented on different
the necessary technical and technological aspects that
levels across the continent. Brazil stands out as a country
unexperienced promoters need.
that began funding such projects earlier, especially through its development bank, BNDES. Mexico, however, has
When his firm first approached banks, especially smaller
made several recent changes to its regulatory framework,
ones, explaining the projects took too long and the meetings
culminating with the Energy Reform, that will facilitate the
never materialized into an actual development. This meant
development of sustainability projects.
that EEE initially chose projects financed with existing capital from associates and international financial institutions at very
The Mexican renewable energy market is relatively new,
high interest rates. The first Mexican financial institutions to
making it attractive for foreign companies. However,
show a willingness to back this sector were development
Hanhausen cautions that success is not guaranteed since
banks, particularly Banobras. Among the private banks,
foreign firms are unfamiliar with the country’s particular
larger ones such as Banamex and Bancomer were the first
conditions. For example, in terms of risk analysis, land
to break rank and show interest. The market has evolved and
related issues are one of Mexico’s most delicate and
almost every bank now has some kind of scheme to finance
complicated subjects. Foreign companies might hit brick
renewable energy projects, says Hanhausen. Furthermore, the
walls when it comes to land ownership, ensuring client
government is heavily focused on these matters, providing
orders, and contracts with suppliers as navigating these
guarantee schemes through development banks.
obstacles requires significant Mexican experience. “All these steps must be properly assessed and complied with in order
Currently, the firm is working through its Emerging Energy
to make a proper project proposal package that a bank will
Latin America Fund II, which focuses on renewable
accept,” warns Hanhausen. “We, as a specialized investment
infrastructure investments in Latin America’s high growth
platform, collaborate with developers in making these
economies: Brazil, Mexico, Peru, Chile, and Colombia. The
packages because the requirements for us to participate as
fund is mainly intended for companies that want to invest
investors are very strict.”
in hydropower, wind power, and solar energy. “EEE takes care of the initial financial risks. After that, developers only
230
EEE participates in projects by injecting capital and taking
have to deal with social, political, and currency exchange
on the financial risks. The investment capital follows an
risks, which can all be easily mitigated.” He adds that if
internal interest rate while the funds are on a fixed interest
the initial steps are properly taken care of, projects rarely
rate. “We support a project with capital to facilitate our
encounter any financial difficulties.
| VIEW FROM THE TOP
MANAGING RELATIONS WITH INDIGENOUS COMMUNITIES FRANCISCO ACUĂ‘A CEO & Founder of InTrust Global Investments Q: What work is being done to improve the impact that
We have partners that have a long track record of doing
renewable energy projects have on local communities?
small, clean energy projects and working well with the
A: Development finance institutions are focusing strongly
local communities. When we go and negotiate with the
on how to bring communities on board as stakeholders.
communities, we want a mutually trusted third party to
They are considering the best ways of involving them as
come and reassure them that we are telling the truth. This
real partners, and the best way of doing that is clearly not
ensures that the communities fully understand what they
through royalty payments.
are getting into. This was not the case for some projects in Oaxaca - the relationship between these communities
Q: What does making them partners mean in practice?
and the nature that surrounds them is not going to be
A: There are a lot of guidelines to follow. We have seen
overridden by a local developer negotiating with them
companies that have shot straight in, negotiated with
over a couple of beers and giving them a pick-up truck.
people that were not the real community leaders but were commissioners that were in office for three years.
The market is shifting away from these types of
Negotiations were often poorly managed and did not
negotiations. Chevron being sued for billions in Ecuador
fully involve investors and developers. Companies have
after being accused of causing a huge environmental
offered the communities a royalty payment, no matter
crisis created a huge discussion. We are being very
what happens with the company. The problem in practice
pragmatic by saying that we can make a lot of money
is that the indigenous community members feel robbed if
doing things differently. It might take more time, but more
the company is doing well. This makes them react and stop
money is there to be made in the long-term. However, few
operations. The company goes down, but they do not care
models like this are currently being implemented in Latin
because they are getting their royalty payments.
America.
Q: How could a new model help to overcome these
Q: What do the communities get in return for cooperation
obstacles?
with the development of a wind farm?
A: The new model dictates that you do not buy the land
A: It depends on what they provide. They can invest with
in question, but instead you negotiate for the indigenous
land and capital or they can invest only with land. The
communities to give you the land as an equity contribution.
problem with the latter option is how the land is valued.
This is a different type of negotiation, because it gets them
For example, Baja California is great for wind but the land
involved in the management process. Naturally, they will
itself is worthless. There is the need to create real value for
not be managing the wind farms, but this arrangement
that land in line with a 200MW project. This opens up some
will give the next generation the option of buying part of
very interesting opportunities. You have to value the land
the company. This process has worked in Canada, Europe
according to the value of the project, its capacity and the
and Australia. It is simply becoming too expensive to
amount of money needed to operate compared to the size
create any such infrastructure project in Mexico without
of the land. That value can be calculated to percentages of
the involvement of local communities, and the largest
between 5% and 15%. If forestry is involved that percentage
hydropower plant in the western hemisphere is stopped
can go up to 30%, as the communities are directly using the
in Brazil for that very reason. Enabling these communities
forest. However, with this combination of factors, the social
to become partners results in greater government support
return on investment goes up, which then allows you to
for your project than for your competition, because of the
monetize. You can show investors that the communities are
positive social impact it implies. We are also showing the
getting clean water, that young people are working on the
value for the community of having their kids working in
wind farm and that entrepreneurial value is being created.
renewables, rather than on a factory line. The difference
Some investors, such as pension funds, are particularly
with our fund is that we get involved as an asset manager.
amenable to such evidence of community relations.
231
232
TRANSMISSION INFRASTRUCTURE
9 Renewable energy sources are often hampered by one simple fact: geography. With the wind, geothermal or hydro resources needed to generate power at great distances from Mexico’s main economic centers, the role of transmission infrastructure becomes paramount. In the past, transmission and distribution activities were the sole responsibility of CFE. However, grumblings about the pace at which the grid was being upgraded and expanded were common among private companies. The Energy Reform has now opened up this market, allowing the participation of private investors in the development of transmission infrastructure, with CENACE becoming an independent grid operator.
This chapter looks at the wishlist of renewable energy developers to access the grid, the role that both innovative and proven technologies can play in improving energy quality, reducing energy losses, and supporting the creation of a smart grid. We also provide an overview of the future of the Open Season scheme and consider proposals of models for private investment in this area.
233
Electric Power Systems Solutions and Services SCHWEITZER ENGINEERING LABORATORIES Renewable energy operations worldwide take advantage of advanced power management solutions from SEL, which are supported by SEL engineers who know their industry and business. We provide power solutions for critical operations in over 125 countries and for some of the most renowned companies in the world.
SOLUTIONS SEL protection, control, and metering solutions meet the specific needs of the alternative energy industry. These solutions provide highly reliable, flexible options in order to meet all your requirements for: • Power Management & Protection • Precise Timing • Synchronized Phasor Measurements (synchrophasors) • Systems Interconnections • Electrical Power Systems Metering, Submetering, and Invoicing • Generator Protection and Synchronization • Motor Protection • Power Quality Monitoring and Control of Electrical Power Systems • Substation Control Enclosures • Protection, Control and Monitoring Panels • Data Communications & Cybersecurity • Engineering Services
EXAMPLES OF INDUSTRY EXPERIENCE IN MEXICO Solar Farms with CFE: • Nayarit, Jalisco, Mexico, Durango and Sonora Cogeneration projects: • PEMEX-CFE Cogeneration, Tabasco and Salamanca Wind farms with CFE: • La Ventosa, Oaxaca; Rumorosa, Baja California; Los Altos, Jalisco Other Projects with CFE: • Thermal Solar Power Plant, Agua Prieta, Sonora • Geothermal Power Plants, Los Azufres, Humeros, Cerro Prieto
SALES AND TECHNICAL SUPPORT OFFICES IN MEXICO Monterrey, Guadalajara, Mexico City, Villahermosa and Global Excellence Center, San Luis Potosi.
www.selinc.com | 01 800 228 2000 | servicioclientes@selinc.com
Making Electric Power Safer, More Reliable, and More Economical ® 234
CHAPTER 9: TRANSMISSION INFRASTRUCTURE 236
Transmission Infrastructure Development in Mexico
238
Smart Grid Technology, Made in Mexico
239
Making Smart Grids a Reality
240
TECHNLOGY SPOTLIGHT: Synchrophasors for Smart Systems
241
VIEW FROM THE TOP: Trusted Equipment and Solutions Provider for CFE
242
Solutions to Reduce Network Energy Waste
243
VIEW FROM THE TOP: Solutions for Preventing Losses in Transmission Lines
244
VIEW FROM THE TOP: Experienced Support to Modernize Transmission and Distribution
245
Astute Models of Private Participation in Transmission
246
Energy Sector Players Bonding Around Copper
247
Open Season: Key to Interconnection with Grid
248
From Largest Solar Park to Smart Measuring Systems
249
VIEW FROM THE TOP: Problems that Modular Seals Solve in the Energy Industry
235
TRANSMISSION INFRASTRUCTURE DEVELOPMENT IN MEXICO For decades, Mexico’s key player in the electric industry,
AGE OF TRANSMISSION LINES
CFE, has been tasked with the exclusive development of transmission infrastructure. As economic activity increases, population grows and energy demand rises, more energy
8% (67)
has to be generated to fulfill the country’s needs. However, as generation increases, the capacity of the transmission
28% (243)
infrastructure needs to increase along with it. In order to allow electricity to travel from distant locations to where it needs to be consumed by the Mexican domestic,
23% (204)
commercial and industrial sectors, CFE has to develop enough transmission lines, substations and distribution infrastructure to make power available to these users. CFE operated the national transmission grid, consisting of 43,000km of high voltage lines, 45,000km of medium
19% (171)
22% (196)
voltage lines, and 600,000km of low voltage distribution lines, through CENACE. Following the recent Energy Reform, CENACE is scheduled to become an independent grid operator, as opposed to the CFE division it has long
Over 30 years
6 to 10 years
been.
21 to 30 years
5 years or less
Limitations in the transmission capacity have created
11 to 20 years
Source: CFE
bottlenecks that impede taking advantage of the energy coming from regions with generation surpluses. These
The priorities for CFE, as established in the National Energy
situations are also closely tied to weather conditions, such
Strategy, are increasing efficiency, availability, reliability
as the increased energy demand of the northern part of
and security in the transmission and distribution system
the country to power air conditioning during summer. At
as well as incorporating smart grid technology. Increasing
the same time, transmission infrastructure connecting the
efficiency and reducing energy losses during transmission
southern part of the country with the Mexico City area is a
and distribution may lead to a reduction in the need to
major hurdle for the development of Oaxaca’s wind power.
install additional generation capacity in specific areas. Increasing the flexibility of the grid implies that it should be able to handle double contingencies, changing the
AGE OF SUBSTATIONS
current methodology from handling single contingencies, as long as it is economically viable. Also, the increased 7% (25)
flexibility will allow issues regarding gas availability and extreme weather conditions to be successfully managed. Furthermore, the fact that 48% of Mexican substations are over 26 years old and 47% of transmission lines are over 21 years old has also contributed to power losses. Degradation
29% (110)
of the equipment is affecting transmission capabilities 48% (179)
and an important percentage of this equipment may be reaching the end of its useful lifespan. Differing from fossil fuels, wind, solar and hydroelectric energy have to be generated where the resource is located, and there are frequently no nearby transmission
16% (60)
lines available to transport the generated electricity elsewhere. In other cases, substations that are located 6 to 15 years
16 to 25 years
5 years or less
Source: CFE
236
near the proposed renewable energy projects do not have
26 years or more
the capacity to handle numerous projects in an area with a high concentration of resources, such as the Isthmus
of Tehuantepec. The availability of sites that are located
Mexico is planning to develop an increased network of
near substations is decreasing and the investment costs
transmission lines that will provide alternative routes to
for new projects are, consequently, going up. Increasing
distribute electricity from generation zones to demand
transmission capacity is a key driver to ensuring the
points. Once built, renewable energies would gain easier
development of the renewable energy sector in Mexico
access to interconnection points and investment costs are
and is a priority area in the National Energy Strategy.
destined to be reduced significantly. However, one of the main challenges that slows down the development and
Investment in smart grid infrastructure will add to the
expansion of the Mexican electric grid is the resistance of
previously
it
communities to allow transmission lines to traverse their
possible to acquire data that can improve decision making,
lands. Obtaining right of way through ejidos is a highly
help identify trends and improve strategic planning. The
complex matter that must be solved in order to be able
development of new technologies to implement smart
to fully make use of electricity generated in regions with a
grids can bring different solutions to the challenges that
high concentration of renewable energy sources. Programs
renewable energies cause for electricity management.
to reach agreements between the government and the
These new technologies can create self-healing systems
communities owning these lands must be implemented to
and would increase the efficiency of transmission and
remove this barrier that stagnates the development of the
optimize energy use. Consumers are provided with greater
grid and to ensure that rights of way are respected.
mentioned
grid
development,
making
information and can choose their source of supply, while energy management would also be facilitated. These
Transmission infrastructure development is a key matter
innovative systems can optimize the performance of the
for the expansion of the Mexican electricity sector. The
electric distribution system by providing bi-directional
availability of interconnection points and the flexibility of
flows of power and information. They can balance supply
the grid are essential to support the development of the
and demand in the network and could significantly reduce
renewable energy industry and will mitigate technical issues
the intermittency challenges that renewable energies
caused by intermittency. However, as a difference to the
create. Smart grid technologies automatically monitor
past, CFE will no longer be the sole entity responsible for the
and manage energy use, generating important savings
construction and operation of transmission infrastructure
by using real-time information on power demand. With
due to the modifications to the Mexican Constitution by the
automatic
long-haul
Energy Reform. But it will remain as the strategic planner of
transmission losses are reduced by improved management
responses
to
energy
demand,
the system while the private sector is expected to become a
of the electricity supply.
key driver for the development of projects.
237
SMART GRID TECHNOLOGY, MADE IN MEXICO
Santiago Barcón, Managing Director of Arteche PQ Business Unit
Technology transfer in the
drops in the Mexican market. The pragmatism that guides the
energy industry has usually
company naturally sees Arteche seek opportunities outside
seen Mexico as a recipient.
of renewable energy. For Mexico’s wider energy generation
Yet, Arteche’s activities in
needs, Arteche is pushing for better power quality and an
Mexico allowed it to create
ultimate move toward a smart grid. The company provides
international best practices
instrument transformers for metering, reactive compensation
that were then passed on
systems, power quality studies and reclosers, all of help to
to company headquarters
create a more automated and secure grid in Mexico.
in Spain. The company first entered Mexico in 1993 to
Is Arteche really able to make a difference to the way CFE
focus
opportunities
does business? Consumers and CFE frequently complain
in the market for distribution automation, or smart grid
on
about each other but little action is being taken to resolve
technology, and power quality, the latter having long been
the problems, says Barcón. For him, the first step is to install
an anchor of the Spanish firm’s product portfolio. Arteche
precise metering. This would allow CFE to have a better
had been in the middle of a Latin American expansion that
idea what is happening in its system at any time. “In terms
also saw it buy a Brazilian company, working on distribution
of power quality, instead of aiming for an unlikely state
automation. Quickly, knowhow began flooding between
of having no faults across the system, looking into minor
Brazil and Mexico, before being taken on board centrally in
interruptions would be a good place to start,” Barcón adds.
Spain. Two decades later, Arteche is still confident about its
CFE has started taking actions, such as in Puebla, where
future in Mexico, according to Santiago Barcón, Managing
measurements are being taken while solutions are being
Director of Arteche’s power quality business unit. “Mexico
found for customer complaints. To take this to a national
is a stable market and has a stable economy. We see good
level, he insists, implies moving to a smart grid, a possibility
opportunities in the local electric sector; transformers here
that seems remote given CFE’s current financial situation.
are at least 35 years old, and sooner or later this equipment will have to be replaced.”
Arteche does not just operate at the macro-level, the needs of the small town of Tubares in Chihuahua were
238
The firm provides key services to both the wind and
also met by Arteche technology. Given that the town
solar industries, from turnkey solutions for wind farms to
was in a remote location, a long distribution line would
equipment and system packages for power substations
have proven prohibitively expensive. Arteche created a
as well as distribution and transmission lines. At a time
potential transformer that could connect directly to the
when there is real concern among developers about CFE’s
transmission grid and provide the low voltage needed by
ability to ensure grid connections, Arteche’s expertise in
the community. This product had already been developed
the interconnection of wind power to the grid will be more
when Barcón joined Arteche but he saw the potential
than welcome. “Arteche is the only private company in
to apply it to rural electrification. Since the success at
Mexico to use the same PSS/E (power system simulation
Tubares, it is now being rolled out for other rural projects.
for engineering) as CFE. With the expansion of wind farms,
In this, Barcón sees another example for the value of good
such software is crucial to observe and optimize the impact
power quality. “Giving people solar panels and light bulbs
that future projects will have on the grid. Arteche has a
is not electrification. They want good power. They want
team of engineers that specializes in this simulation, which
to be able to pump water and connect a refrigerator. In
would allow all stakeholders to more confidently plant
Tubares, people could now have a fan and a fridge,” he
interconnection procedures,” states Barcón.
explains.
The tumultuous times surrounding the passing of the Energy
Arteche spends around 3% of revenues on R&D and is
Reform also seem to leave Barcón unfazed. “I see the enemy
betting on various smart grid solutions that it believes will
being inside, not outside. As well as we take care of our
be necessary. This commitment is not divorced from the
customers, control our costs, and offer good prices and
Mexican need for a domestic supply chain. Arteche’s meters
services, we will do well whoever is at the top.” Arteche’s
are developed here, as are much of the production relays.
model seeks to depend as little as possible on the government
Supporting this initiative, Arteche’s HQ in Spain provided
and to have an export-focused mindset. Although operations
generous funds for R&D in Mexico, an initiative that has
may be based here, exporting products to countries all
allowed the company to make an all too rare statement: its
around the world is a good barrier against any potential
products are designed and made in Mexico.
MAKING SMART GRIDS A REALITY According
Rigoberto
Castañón Nava. In Mexico, the company is looking for a
Castañón Nava, General
to
city to transform into an intelligent island and use it as
Manager of S&C Electric
a laboratory to showcase techniques that could later be
Mexicana, smart grids are
applied to the rest of the country.
what the Mexican market needs
Rigoberto Castañón Nava, General Manager of S&C Electric Mexicana
to
ensure
more
Smart grids can help the development of the renewable
efficient use of energy.
energy sector by stabilizing the grid and increasing
S&C Electric, an American
the efficiency of power generation and distribution for
company
in
renewable energy sources. For example, if wind power
power switching, is aware
specialized
from Oaxaca is needed in Sonora, a supplier can use CFE
that creating efficient and
as an energy bank. Castañón Nava believes this to be
reliable transmission and distribution systems is not just a
an intelligent solution, because it promotes the use and
matter of implementing intelligent solutions but designing
development of renewable energy and allows the industry
the whole process. In smart grids, the system makes
to generate power in renewable resource rich locations and
decisions by itself. “For example, when systems experience
use it in energy consumption centers. However, Castañón
power failures, smart grid technology can locate the flaw,
Nava points out a problem, “there is too much attention
isolate it, and provide energy to the rest of the affected
for power generation while transmission and distribution
area in less than one minute. Without smart grids, repairing
are being neglected.”
the system and bringing power back online could take from two hours to an entire day,” says Castañón Nava.
Mexico is an important market for S&C Electric because of
“The objective is to isolate faults as soon as possible. Once
the potential in the solar and wind industries. The country
the contingency is isolated, it is possible to choose an
has considerably high levels of solar radiation and there
alternative power source or an optimal substation. Energy,
are regions with powerful winds, such as Oaxaca. Even
therefore, is efficiently provided by other substations while
though S&C Electric is present in Brazil, China, the UK,
specialists work on the problem.”
the US and Canada, company representatives think the best business opportunities lie in Mexico. For wind and
Because human intervention is needed to identify and
solar energy, S&C Electric also offers storage technologies
fix the problem, the problem solving process is rather
since these are intermittent energy sources. Its equipment
slow. If smart equipment is installed in the nodes, the
can even store solar energy produced during daytime
issue can be worked on in very little time. However, a
and save it for nocturnal use, thereby stabilizing energy
challenge arises because communication mechanisms
production and ensuring a more leveled distribution.
need to be improved for smart grids to be implemented.
Although S&C Electric has the infrastructure and product
Usually, grids are operated through a control center that
portfolio to supply distribution systems for any kind of
receives copious amounts of data used to identify the
renewable energy generation project, including biomass
sections that are receiving energy. When there is a flaw
or geothermal, it does not want to cater to these markets
in the system, the control center detects a problem in a
in Mexico yet since the solar and wind sectors offer so
specific zone and people are sent to supervise this area.
much potential at the moment.
Installing smart grids means sending human technicians would be unnecessary since critical decisions could be
$7.42
if a problem arises.
8
$4.58 2018
2017
can already be seen and savings are considerable,” says
0 2016
points that control the system. The returns on investment
1
2015
the creation of smart cities in the US with 2,000 sectioning
2
2014
equipment is already operating. “We have contributed to
2013
in smart grid solutions and invites them to places where this
$3.67
3
$3.02
and technical references to convince key players to invest
$2.048
4 $2.03
implementing this technology. S&C Electric uses hard data
$1.60
5
$1.23
decision makers and explaining the possible outcomes of
6
2012
grids by approaching the market’s most prominent
$6.03
7
As expected, S&C Electric promotes the use of smart
2020
lose any valuable information and will keep receiving data
MEXICO SMART GRID INVESTMENT 2012-2020 ($US BILLION)
2019
made from the control center. The control center will not
Source: Zpryme
239
| TECHNOLOGY SPOTLIGHT
SYNCHROPHASORS FOR SMART SYSTEMS In the last two years SEL has implemented, together with
certain periods of the day when the system was more
CFE, several projects to prevent blackouts and improve
prone to instability. These limitations to operation were
management of the electrical power system all over
not in the best interest of Guatemala’s AMM (Wholesale
Mexico. Mauricio Toache, Director General of SEL Mexico,
Market Administrator) as downtime in the link to Mexico
explains the company has been promoting synchrophasors,
threatened to compromise the security of the Guatemalan
which seek to understand a system’s parameters by
power system. Unstable active power oscillations between
measuring electrical variables on an electricity grid. CFE
Guatemala and El Salvador on November 27, 2011, among
is using synchrophasors in different locations and making
other occurrences that ended in blackouts, prompted AMM
decisions based on their measurements as this makes it
to find the proper tools to guarantee the stable operation
possible to design and implement a smart system that
of the power system. AMM realized the potential that
makes decisions, speeding up processes.
synchrophasors presented in providing information and as flexible tools to operate the power system in stable
A synchrophasor characterises the electrical parameters
conditions.
on an electricity grid, using a common time source
240
for synchronization. The basic synchrophasor system
AMM now monitors the operation of the Guatemalan power
building blocks are formed by GPS satellite synchronized
system using supervisory control and data acquisition
clocks, phasor measurement units (PMUs), a phasor data
(SCADA) systems and synchrophasors. A traditional
concentrator (PDC), and visualization software. Multiple
SCADA system is in operation supplying pertinent data
PMUs provide synchronized phasor measurements from
to the operators every 4 seconds. AMM operators also
across an interconnection to a PDC which collects and aligns
have access to visualized, real-time synchrophasor data,
the data for analysis. Synchrophasors are used for real-time
which are updated 30 times per second. The faster rate
situational awareness, disturbance recording and analysis,
allows the operator to view and recognize transients never
wide-area monitoring and control, high-precision state
before seen in the SCADA system. Preexisting but invisible
estimation, system model verification, and island detection,
phenomena are now visible and actionable due to low
among its many other applications. Satellite synchronized
latency and the simultaneous measurement of information
clocks allow time-stamped measurements that enable
(data
data to be aligned on reference time base, providing an
limitations associated with typical SCADA client-server
accurate and comprehensive view of a power system. The
communication. One example is the recovery of the power
advantage of synchrophasors is that they allow the dynamic
system after a transmission line fault. Operators can now
measurement of the system’s state in real-time and enable a
visualize the power oscillations, generation trips, and
snapshot view of the power system as a whole.
power flows in the interconnection lines.
PRACTICAL APPLICATION OF SYNCHROPHASORS
The coherent nature of the synchrophasor measurements
Mexico began exporting electricity to Guatemala in 2010,
allows the implementation of both simple and sophisticated
with the transmission of 120MVA. The power system in
algorithms. A simple algorithm, for example, is the sum of
Guatemala is part of the long, interconnected network
two active power quantities measured from different nodes
in Central America that runs from the south of Mexico
on the network. With traditional SCADA measurements
to Panama. A 400kV line from the Tapachula substation
that are not synchronized, mathematic operations using
in Mexico to the Los Brillantes substation in Guatemala
less reliable measurements are questionable. One of the
interconnects the Mexican power grid with the two power
direct benefits of synchrophasors has therefore been to
systems. A power transformer takes the voltage level down
satisfy the Mexican power system requirements, helping
to 230kV, which is the SIEPAC (Central American Electrical
Guatemala prevent interconnection limitations as stated
Interconnection System) transmission voltage level. The
above. They have ensured the secure operation of the
transmission system in Guatemala distributes the imported
Mexican power system and have prevented the unwanted
power to the local loads, but mostly wheels the power
oscillation associated with the Central American system.
from Mexico to the SIEPAC system via the Ahuachapan
With this scheme in service, the interconnection between
substation in El Salvador. One of the challenges of operating
Mexico and Guatemala no longer has restrictions during
the interconnected system is complying with the security
certain moments of the day, providing Guatemala and the
requirements of interconnection with Mexico. In the past,
rest of the Central American countries with a more stable
the link with Mexico was not allowed to operate during
power system and additional energy resources.
coherence).
This
overcomes
data
collection
| VIEW FROM THE TOP
TRUSTED EQUIPMENT AND SOLUTIONS PROVIDER FOR CFE MAURICIO TOACHE Director General of SEL Mexico. Q: What role does Mexico play in the world of SEL and
Q: Where do you see the most opportunities for growth,
what has been your main focus in this country?
between generation, transmission and distribution?
A: CFE was our first international customer in 1986, and is
A: Our first products served this transmission area, so we have
now one of our top three global customers. This created
a lot of expertise there. We then moved into automatizing
a close relationship with Mexico, and CFE has become a
distribution networks, which are becoming more complex as
strong source of knowledge and understanding on how
they grow in size and as consumers become more demanding.
utility companies see operational aspects, infrastructure,
Another factor has been the rise in efforts to produce greener
and business models. They pitch in with ideas on product
energy, sparking the entry of small producers. The use of solar
development. We develop products that suit CFE’s needs,
panels in homes has an impact on the grid. A neighborhood
we test them together, we implement product applications
where all homes have solar panels will see demand increase
together, and we even write technical papers together.
when a cloud is overhead, for example. The grid has to be
CFE is the reason we are in Mexico and the reason why we
reconfigured to adapt to such situations.
do what we do in this market. We are also involved in generation, but to a lesser extent. The first thing we did in Mexico was to create an
We already offer protection for generators and we are
engineering team to develop products for this market,
expanding into different services, such as remote controlling.
while also moving into assembly. We also acquired the
Our mission is to make electric power safer, more reliable,
company that supplied SEL with rotary switches, as part
and more economical. However, some technologies are
of our downwards vertical integration culture. We have
not necessarily making power more affordable. There has
a strong R&D team in Mexico with engineers of different
to be a balance, particularly regarding renewable energy
disciplines
pre-manufactured
sources, because their intermittence requires backup
buildings, our RS rotary switches, and our cabinets. We are
power sources, which translates into redundancy in the
also doing software development as, due to the protection
system. We have participated in the renewable sector and
and automation involved in the power systems, several
worked with CFE on the first Mexican wind farm, and we
software tools are needed to integrate them.
are also working on solar projects as well as pilot projects
for
the
PowerCORE
for tidal power. CFE is progressive in the way it protects, monitors, and operates its systems. We also do business with hundreds
Q: What are the main areas that SEL and CFE are focusing
of utility companies in the US and other countries, and the
on in their research and development?
differences with Mexico are remarkable. CFE is innovative, it
A: Although we do not develop products together, CFE
is willing to do things in a different way, which is compatible
shares its concerns and the obstacles it is facing. We relay
with our way of thinking. SEL favors the concept of vertical
these issues to our R&D division, which assesses feasibility,
integration over outsourcing because it gives us control
looks at solutions SEL has provided elsewhere, and develops
over quality and competitiveness. Our Mexican operations
tailor-made solutions for CFE. That is how we work together.
were started based on serving the market, selling products
Sometimes, we pitch ideas that turn into CFE pilot programs.
to CFE, and expanding our vertical integration. The
This is what happened with optic current transformers for
company started with relays, then meters, computers, and
high voltage substations that use fiber optic sensors. We
radios, before finally moving into everything that is used to
have been testing this product with CFE for a while now.
protect and monitor a system. We see ourselves growing
Another example is experimenting with nontraditional
to complement all aspects of the system, with different
applications of existing products. If CFE wants to increase
devices and applications that will support CFE’s work or
the speed of a distribution network in a certain area or
anyone who uses electricity. CFE may be our largest client,
reconfigure the grid due to a fault, we provide a solution,
but we also serve a growing and important customer base.
CFE tests it and if it works, it is implemented elsewhere.
241
SOLUTIONS TO REDUCE NETWORK ENERGY WASTE Much
energy
of generation. This not only has an impact on the user’s bill,
produced from available
of
but also on the generating capacity of CFE, as the required
sources
energy to fulfill demand is lower,” Rancé points out.
is
inefficiencies distribution
Luis Rancé, CEO of Telvent Mexico
the
wasted
by
in
the
process.
“In
On high voltage transmission, the Mexican network
Mexico, for example, out
can compete with the performance standards of other
of 3W generated, only 1W
networks in the world, but on distribution it is outdated.
will actually be consumed,
Rancé notes this is where the market opportunity lies. “For
the rest gets lost in the
a long time, distribution has been left aside on a global
network,” says Luis Rancé,
level, but as the trend shifts towards smart grids, efforts
CEO of Telvent Mexico.
are being concentrated on efficiency, services, and a direct
This alarming figure illustrates the importance of having a
relationship with the user. In this regard, the end user stops
smart grid, he adds, explaining that all networks have losses,
being captive and becomes a client, aware of options and
at least 8% of which are technical losses due to physical
different tariffs,” says Rancé. “In Mexico, bidimensional
factors. The real challenge is in tracking intentional waste
meters are already being installed. This enables the utility
through smart grids and advanced monitoring systems.
company to read what is going on in the user’s household and bill, without having to go to the actual location and
In 2011, as part of Schneider Electric’s ambition to strengthen
read the meter. CFE may be willing to invest in such smart
its positioning as a complete solution provider to its
grid technology in a massive way.”
customers, it acquired Telvent. The company has specialized for over a decade in IT software and solutions for real-
After working in CFE for 25 years, Rancé says the utility
time management of critical infrastructure in electricity,
company is very zealous in the way it does things. Therefore,
oil and gas, water, and transportation. Telvent’s strategy
companies involved in the electricity sector have to adapt
in the Mexican market goes hand in hand with Schneider
to CFE’s needs and pace, regardless of the options that
Electric and is the sum of both companies’ capabilities.
they may have. He emphasizes that Telvent has a state-of-
Rancé explains that Telvent’s main goal is to complement
the-art product to manage an electric distribution network,
Schneider’s software and hardware portfolio with control
which has been implemented in Sweden, Finland, Italy and
solutions. One of the company’s main objectives is to
the US. “We are one of the best companies in smart grid
make products more efficient by helping detect water
development and our synergy with Schneider Electric,
and energy waste, as well as limiting CO2 emissions, at
which is the global leader in low voltage products, is a
both a company and state level. Rancé says that one of
significant point of added value. On a distribution level, 70%
Telvent’s characteristics that has added value to Schneider
of the world’s energy passes through Schneider Electric
Electric is the company’s integral project management
equipment. Each year, Schneider Electric invests 5% of
capacity: “We develop software, but in order for software
its revenue in R&D to improve its technology and allow it
to be managed, we have to provide an integral solution,
continue being a sectorial leader.”
in which our products come with other components, such as sensors, which we acquire from other companies to be
Due to the high energy waste, lack of quality, and integration
able to deliver extremely competitive turnkey solutions,”
with the client, the Mexican distribution network has to be
Rancé emphasizes. However, the market demand is not
prioritized for development. Distribution in 23kW, 34kW,
directed to the product itself, but to solutions that provide
or 38kW – the voltages managed by CFE – is provided
financial, productivity, and sustainability terms. “These go
directly to the industrial sector but substations and control
beyond the product and are able to reduce cost, improve
systems for the network are often provided by Schneider
efficiency, increase productivity and lower pollution, all of
Electric. “Big consumers get their energy in blocks and
which are the ultimate goal,” he says.
do the transformation themselves, enabling them to seek for more efficient solutions,” explains Rancé. For private
242
This goal can be illustrated with the network energy waste
users such as households, the transformation is done in the
example. Through smart systems, the points of loss are
street; through small cables the energy is transformed in
detected by Telvent’s software, generating savings and
low voltage of 127 or 220 volts. “The client requires better
allowing for these mistakes to be corrected, thanks to
service at a lower cost, and all companies, us included, have
Schneider’s equipment. “With our combined solutions,
to offer these solutions. Savings are not just about installed
saving 1W at the point of use means saving 2W at the point
capacity, but financial and sustainable savings,” Rancé says.
| VIEW FROM THE TOP
SOLUTIONS FOR PREVENTING LOSSES IN TRANSMISSION LINES ANDRÉS FLORES Business Development Manager of General Cable Latin America Q: What are the most important new opportunities that
new underground line, thereby minimizing environmental
General Cable has detected in the Mexican energy market?
and social costs. For underground lines, CFE is looking to
A: The Mexican market is always evolving and changing,
work with firms that can provide longer cable lengths and
and it is clear the Energy Reform will create opportunities
guarantee fewer losses so that CFE does not have to dig
that will change the way we look at business in the energy
many pits and disrupt people’s lives.
sector. CFE has been one of our most important customers for a few years now. Four years ago, we started to serve
In the renewable energy domain, we work with generator
the renewable energy sector, especially wind farms. Since
manufacturers that are specialized in minimizing power
then, we have been pursuing renewables as hard as we can,
losses and downtime. For example, we install torsionable
and wind and solar will keep on providing us with business.
cables inside wind turbines that can turn and not break. We
We see a lot of opportunities in the construction of new
also work on underground grids that connect generators
transmission infrastructure, which is why we expanded
and are built locally in Mexico. We will release a solution
our Mexican plant for transmission lines two years ago.
in 2014 that will help underground grids be installed faster
We foresee market growth in new transmission lines and
and be more environmentally friendly.
the reconductoring of power lines to improve transmission capacity, and have been focusing on providing solutions
Q: What added value can your specific cables for different
to CFE and engineering firms to enable it to use existing
types of power generation plants provide?
towers and infrastructure to increase transmission capacity
A: It depends on which energy source is concerned. The
through reconductoring.
Laguna Verde nuclear plant installed our cables during its expansion a few years ago. That added value was to ensure
Q: Which of your products could increase efficiency in
fewer losses since our cables were designed to withstand
high-voltage transmission,where most losses occur?
the nuclear environment within the reactor. Geothermal
A: We can lower or raise the temperatures that the cables
plants need cables that can withstand high temperatures,
can withstand, as this will help transmit more power without
so we make sure that the chemical composition of the
losing energy in the process. We use well-established high-
cables is designed to last longer under such conditions.
tension, low-sag cables that are being gradually brought into
Normally, a good cable in an ordinary house can last 30
Mexico. CFE knows that our solutions allow it to increase
years. We want our cables to last the same amount of time,
capacity and reduce losses along transmission lines. We
wherever they are installed.
have been invited to join CFE’s committees for transmission lines and for new transmission line technology. There is no
Q: How can Mexico take full advantage of General Cable’s
written norm or standard for transmission lines due to the
global expertise and broad product portfolio?
amount of technologies that exist. However, CFE is trying
A: Being a global company, it is hard to bring all the
to collect as much knowledge as it can from manufacturers
technology we possess to a specific country like Mexico.
to set technology standards in the future.
But we work very hard so each country within the world of General Cable can leverage the entire group’s knowledge
Q: What innovations has General Cable made in order
and avoid mistakes made elsewhere. We try to provide
to address common problems related to transmission
custom-made solutions for our Mexican clients, using what
infrastructure maintenance challenges?
we have learned around the world, either in manufacturing
A: To optimize maintenance throughout the lifecycle of
or in customer solutions. General Cable recently created a
transmission infrastructure, it is essential to ensure that the
Latin America division, which allows us to concentrate more
same towers can be used and to carry out reconductoring.
specifically on the needs of this important market. Despite
CFE is looking for technologies to ensure it does not
opportunities in Peru and Chile, Mexico and Brazil offer the
need to change urban plans or close streets to build a
major growth opportunities in this region.
243
| VIEW FROM THE TOP
EXPERIENCED SUPPORT TO MODERNIZE TRANSMISSION AND DISTRIBUTION RICARDO MORENO DÍAZ General Manager of GE Industrial Solutions Q: What are the core areas of GE Industrial Solutions’
A couple years ago, in Mexico City’s Centro Histórico,
expertise?
we installed a charging station for the municipality’s taxi
A: We are focused on how to manage the transmission,
program, combining solar panels and the power from
distribution and control of electrical energy. One of our
CFE. We did this because electrical vehicles represent a
business segments covers utilities, where we are oriented
solution for the pollution of fuel engines. We needed to
on the automation and efficiency of transmission and the
bring an alternative to better generate that electricity. That
electrical grid. Another line of business is more focused
is the combination between renewable energy and a green
on power conversion, which covers variable frequency
approach to energy management. We are also working
drives, certain motors and small generators. We also have
with CFE to understand its need for substation automation
our industrial solutions business, which takes care of the
and build automation architecture for existing equipment.
electrical distribution and control part of our portfolio,
We try to understand its requirements, we present our
including solutions for energy saving applications, motor
international best practices, we train its engineers, and
control centers, switchboards and lighting controllers.
we introduce our innovative solutions. Then we take its
The final area of focus is automation, where we integrate
concerns on board, we devise pilot programs to carry out
platforms with programmable logic controllers (PLC),
real tests and give them hard data so it can take decisions
automation software and power management control
based on what would happen.
systems. With all these businesses, we intend to provide customers with reliable and efficient energy solutions.
Q: What have been the greatest breakthroughs in your R&D activities, and how could they be applied in Mexico?
244
Q: What are the key areas of opportunity that you have
A: A great example of how we are investing in R&D and
found for the transmission, distribution and conversion of
making a change in the industry is how we are treating arc
electricity in Mexico?
faults in industrial applications. We developed this solution,
A: One of our priorities is grid automation, namely how we
while people said the world was not ready for a complete
are going to interconnect all the different sources of energy
system including arc fault mitigation. But GE has proven
and how we can bring a degree of smart technology to
we are already there. It is the only company in the world
the grid. If we look at industrial consumption, one of the
that can offer a combined solution for mitigation within
biggest concerns right now is safety. Therefore, we are
a complete system. We are working on bringing quick
investing a lot of money in R&D for arc flash mitigation
solutions to customers’ needs while bringing something
problems that we hear a lot about from our customers.
new to the market.
Q: How can GE cooperate with CFE in order to improve
Q: How is GE approaching the challenge of increasing
and optimize the processes it works with?
energy efficiency to make the Mexican industry more
A: GE has been cooperating with CFE for a long time.
competitive?
We want to bring our experience from different markets
A: For example, 2013 saw the launch of the Industrial Internet,
worldwide, where solutions such as smart grid technologies
which is a GE initiative to have all our equipment connected
have already been proven, to Mexico. We are testing smart
through the Internet to ensure its smart activity. For
meters in projects with CFE and local governments; for
industrial customers, the Industrial Internet can interconnect
example, we are helping CFE understand what impact the
all their equipment, allowing the maintenance manager
introduction of electrical vehicles and the accompanying
to make decisions on a tablet about what level of energy
charging infrastructure would have on the grid. GE is also
consumption is being used or to move loads from utilities to
analyzing the government’s needs in terms of expanding
a generator. This does not just concern electrical equipment,
transmission lines and bringing in protection technologies
the intention is to have all of our equipment and features
to avoid certain problems.
communicating through the Industrial Internet platform.
ASTUTE MODELS OF PRIVATE PARTICIPATION IN TRANSMISSION Unlike many of its competitors, Isolux Corsán has been
Isolux Corsán has been closely watching the recently passed
betting on the Mexican market for 25 years now. The
Energy Reform and has its own wish list for it. Above all,
consortium was born out of the merger of several Spanish
López Fernández believes the reform will focus on lowering
companies with Mexico as its first international market,
energy costs in a way that will impact the public. “I think
where it has established a close collaboration with CFE.
the government wants to adopt systems that have proven
From the perspective of Isolux Corsán, Mexico has moved
to be economically and environmentally viable and efficient
on from the 1990s when its electricity and energy sectors
in other countries. We want to be around to contribute
demanded immediate attention. Roberto López Fernández,
to these changes,” says López Fernández. The company
Director General of Isolux Corsán, says these sectors are
is keen to discover the opportunities the Energy Reform
now among the prime drivers of Mexico’s development
will extend to the private sector, especially in terms of the
and modernization. The company accompanied this
transmission lines that will be built. “Isolux Corsán is one of
evolution by building “over 5,000km of transmission lines.
the leading private companies in the world in transmission
Every state has a line built by us,” says López Fernández.
line investment. We have invested in over 10,000km of
He adds that Isolux Corsán views Mexico as its second
high voltage transmission lines, including over 3,000km
headquarters.
in Brazil,” says López Fernández. Distributing energy in
“PPPs will speed up and facilitate investments, which are important for the development of basic infrastructure needed in the energy sector.” Roberto López Fernández, Director General of Isolux Corsán México
Isolux
included
such a large country required private capital. In Brazil,
maintenance work at the Plutarco Elias thermal plant in
Corsán’s
other
contributions
have
Isolux Corsán built the power lines but operates them for a
Guerrero and developing the Guerrero Negro and Baja
monthly fee, with partners found through tenders. López
California III thermal power plants. The firm has also
Fernández believes Mexico should consider implementing
regularly tabled proposals for other combined-cycle
a similar model alongside the Open Season scheme, as
projects with CFE. López Fernández sees the company’s
this could offer new solutions to solve the transmission
next step in Mexico as investing in renewable energy
gridlock. For example, Oaxaca is the largest producer of
sources, capitalizing on extensive experience operating
wind energy but is not a major electricity consumption
solar parks and wind farms around the world. “We are
center. López Fernández says a model such as the one
promoting the production of renewable energy sources
he suggests could help resolve such problems, through
amongst states and municipalities.”
greater involvement from the private sector.
Isolux Corsán has identified that municipalities are particularly
On the same theme of collaboration, he advocates the
keen on entering the energy sector, either as off-takers
furthering of public-private partnerships (PPPs). Mexico
or by building their own plants. However, short electoral
has experience with PPPs through concession agreements
cycles have hampered Isolux Corsán’s attempts to enter
in infrastructure projects, such as highways and airports.
this market and assist municipalities. “We have tried to work
López Fernández sees that these agreements have helped
with municipalities but the first problem is that governments
to develop the relationship between the government and
change every three years, while the planning and execution
the private sector, adding that this collaboration could
of power projects takes more time. Some state and municipal
also happen in the energy industry. Again, Brazil provides
governments are already economically developed enough to
a good example of Isolux Corsán’s vision. “We invested
start projects alone, but the federal government still has the
in the power line infrastructure and we operate it but the
ultimate say. Furthermore, those states that do not have the
government does not lose its ownership or responsibility,”
same economic means need to have the financial backing
says López Fernández. “I believe PPPs should be at the core
of the federal government,” claims López Fernández. This
of the Energy Reform. PPPs will speed up and facilitate
has made it slow going for Isolux Corsán to get renewable
investments, which are important for the development of
energy projects started at the municipal level.
basic infrastructure needed in the energy sector.”
245
ENERGY SECTOR PLAYERS BONDING AROUND COPPER The use of copper in electrical equipment and installations
its direct competitor, aluminum. “At the end of the day, the
is commonplace but associations such as ProCobre
difference between copper and aluminum is the efficiency
are seeking to further promote the use of copper in
level that each metal can reach. In most of the cases, copper
different industries. ProCobre, a Latin American network
wins,” states Franco Villaseñor. While its name would
representing the copper industry, wants copper to be seen
suggest a sole focus on copper, ProCobre’s broader energy
as an important tool in the development of the Mexican
efficiency and sustainability goals mean it is also pushing
energy sector. Efrén Franco Villaseñor, Executive Director at
for the use of other materials, whose inclusion in equipment
ProCobre Mexico, is convinced that the benefits of copper
alongside copper can yield greater results.
can have a knock-on effect on economic growth. To do so, ProCobre seeks to ensure that the virtues of high-quality
To ensure that the benefits of copper are well-perceived by
copper materials and the impact they that can have on
the next generation, ProCobre has developed a technical
energy efficiency and safety are well understood. “Should
training program about the uses of copper. Developed
there be a marked increase in the use of copper in motors,
jointly with the National College of Professional Technical
transformers or cables, energy losses could decrease by
Education (CONALEP), this program reaches 20,000
70%, a considerable figure since inefficient and obsolete
students per year. This community outreach has also been
transformers cost users about 40% of their electricity bills,”
carried out with the public sector. In the city of Villahermosa,
according to Franco Villaseñor. As such, the association has
ProCobre hosted technical discussions and roundtables that
been pushing for the use of high-efficiency transformers by
helped the municipality update its building codes to include
working on a report for CFE to address this issue.
the use of solar water heaters. In Guerrero, the association
“Energy losses could decrease by 70%, a considerable figure since inefficient and obsolete transformers costs users about 40% of their electricity bills” Efrén Franco Villaseñor, Executive Director of ProCobre Mexico
“Copper has proved to be essential for the wind sector. The
worked with the government to bring electricity, through the
first wind turbines to be installed in Mexico were static and
use of copper products, to a poverty-stricken community of
used aluminum rods that could not be twisted, whereas the
40 families, which Franco Villaseñor says helped increase
newer turbines replaced aluminum with copper cables that
the average lifespan of inhabitants.
could offer torsion and allow the turbines to move,” says Franco Villaseñor. Highlighting such successes is part of
As Franco Villaseñor puts it, ProCobre has the flexibility
ProCobre’s work, as well as providing technical advice on
to educate the users, help manufacturers sell efficient
how companies can use copper to improve their products.
products, meet customers’ needs and provide technical
ProCobre is also keen to point out the energy efficiency
advice about the latest trends in the market. “Being an
contributions of copper to cooling systems. Refrigerators and
association, we have the flexibility of working with many
air conditioning can benefit from using copper in their piping
groups, but our strategic plan sees us linked closely with
and systems, which translates into faster cooling in both
the government. Our core business is related to regulations
systems. Franco Villaseñor points out that copper products
and standards, since improving the standards benefits
are also integral to solar water heaters and solar panels, as
most of the population,” he says. ProCobre acknowledges
they are used in the transmission of solar thermal energy.
that it could choose to take isolated actions, but this would defeat its real purpose of optimizing the impact
While the electric vehicle industry has not yet gained much
of its actions for its associates and participants in the
traction in Mexico, ProCobre is supporting its development.
ProCobre network. Mining companies, manufacturers and
Copper is used in electrical charging stations and offers
municipalities have all placed their trust in ProCobre.
solutions to charge vehicles in a fast and sustainable
246
manner. ProCobre is lobbying for copper to be selected as a
ProCobre is confident due to the favorable outlook for
part of the changing structure, while working on identifying
Mexico to realize its twin goals of broader energy efficiency
other advantages that copper can offer when compared to
and increased use of copper.
OPEN SEASON: KEY TO INTERCONNECTION WITH GRID CFE has a number of priorities on its to-do list, but transmission
required investments. The Law on the Use of Renewable
infrastructure has perhaps become its most pressing issue to
Energies and the Financing of the Energy Transition and its
ensure the smooth growth of Mexico’s energy demand. With
Regulations (LAERFTE), published in 2008, handed new
the country’s major energy consumption centers often far
regulatory responsibilities to CRE. It could now oversee
away from generation sites, having adequate transmission
interconnection contracts and the methodology for setting
lines and substations is of paramount importance. The existing
prices for the transmission of electricity from renewable
network of lines is in need of real expansion and overhaul but
energy or cogeneration systems. These steps removed
the indebted CFE is not able to face this costly burden on its
some major private sector concerns and the Open Season
own. Hence the importance of the private sector.
scheme pressed ahead.
Over the last decade, the private sector’s pressure on CFE
August 2011 saw bids opened up for a new round of Open
to expand and upgrade the transmission network grew
Season schemes in Oaxaca, Puebla, Tamaulipas, and Baja
into an outspoken desire to participate, a fact that would
California. 128 applicants took part in a round covering
prove essential to the development of self-supply projects.
a reserved capacity of 22GW, but this was later lowered
In 2006, SENER began working with CRE to develop
to 4GW due to infrastructure costs, the location of the
the first Open Season in the Isthmus of Tehuantepec in
sites and the feasibility of the projects. Despite the Open
Oaxaca. Under this scheme, elements of the private sector
Season concept being taken to other regions of Mexico,
and CFE would collaborate on the design, construction
Oaxaca has still benefited the most from the scheme to
and financing of the transmission infrastructure needed to
date. Oaxaca was targeted first for Open Season due to
unlock the region’s wind capacity.
its superlative wind potential and the many investors it
Over 70% of the transmission
could attract. By early 2017, it is expected that Oaxaca’s second Open Season will allow installed wind capacity for
were
private projects of 1,130MW, as well as another 800MW
developed by private parties
Tamaulipas targets nine participants, all of them private,
in the last six years, most of
1,666.5MW. The Open Season underway in La Rumorosa in
infrastructure
projects
them through the Open Season
coming from CFE plants. The current Open Season in in the Reynosa-Tamaulipas corridor and has a capacity of Baja California involves a reserved capacity of 740.5MW with seven private participants. But outside of wind
scheme.
energy, the Open Season has not had the same success.
The first Open Season in 2006 was crucial to the explosion
the border of Puebla and Veracruz ran into trouble. With
of wind power projects in and around the Isthmus of
only two participants declaring an interest in the bid, this
Tehuantepec. It helped meet the needs of private parties
scheme was declared closed in 2012, although the projects
interested in self-supply projects, and also served as an
themselves went ahead by using existing substations or
excellent testing ground for the mechanisms needed to
finding other solutions to their transmission needs.
One scheme that sought to develop hydro resources at
promote private investment in renewable energies. By the end of 2013, CRE had authorized 49 licenses for The Open Season for Oaxaca was divided in three stages
wind projects, leading to the installation of 4,883MW
based on the different types of transmission infrastructure
of reserved capacity through the Open Season scheme.
needed.
of
According to CRE Commissionner Guillermo Zuñiga
transmission lines around the parks of Parques Ecológicos
The
first
phase
boosted
the
capacity
Martínez, over 70% of the transmission infrastructure
de México and Eurus, two of Mexico’s first wind parks.
projects were developed by private parties in the last six
The second phase targeted projects that would operate
years, most of them through the Open Season scheme,
through 115kV transmission lines, covering four parks: Bii
resulting in an additional investment of approximately
Nee Stipa, Eléctrica del Valle de México, Eoliatec del Istmo
US$5 billion since the first Open Season opened. Open
and Fuerza Eólica del Istmo. The last phase covered the
Season alone will not solve all the problems facing
bidding process for entirely new transmission lines serving
transmission infrastructure in Mexico. But when used as a
six new sites and the second phases of two existing
support tool for policies governing renewable resources,
projects. At the same time, the scheme needed rock solid
it is destined to prove vital to meeting national renewable
regulation for the private sector to be willing to make the
energy generation targets.
247
FROM LARGEST SOLAR PARK TO SMART MEASURING SYSTEMS Ormazabal has participated
industry, Flores estimates that 50% of the distribution
in the construction of close
equipment installed in Mexican wind turbines comes
to 23GW of installed wind
from Ormazabal. “The solar side of its business opened
and solar capacity around
up when Martifer, the company responsible for the
the world, making this its
development of Aura Solar I, contacted us to request our
prime area of expertise.
participation in the project,” according to Flores. “La Paz
When
with
was not an easy site from a logistical point of view, but
experience,
despite the challenges the installation of Ormazabal’s
the David Flores Martín, Director General Mexico, Central America & Caribbean of Ormazabal
companies right
capability
contacts
equipment has been completed. Negotiations concerning
enter a new market, they
and
the maintenance of the equipment will begin once Aura
can often swiftly adapt to
Solar I is fully operational. Our equipment does not need
become involved in landmark projects. Hailing from Spain,
frequent maintenance but we advise some revisions every
the country of renewable energy leaders like Gamesa,
now and then,” says Flores. The conditions in which some
Acciona and Iberdrola, allowed Ormazabal to follow
of Ormazabal’s clients work demand low maintenance
them into Mexico as a trusted supplier. Having decided to
requirements for its equipment. For example, Flores
expand into promising international markets, the company
explains that Ormazabal is a global leader in supplying
renewed its interest in Mexico and its management
medium voltage switchgear for offshore wind parks, which
confirmed that the renewable energy sector will remain
require reliable technology due to their difficulty of access
the company’s priority here. Specializing in electricity
and environmental conditions. As a backup, Aura Solar
distribution systems, such as substations and medium-
I keeps all the equipment and components that could
voltage switchgears, Ormazabal spent its first years in
potentially need replacement in stock and has protocols
Mexico supplying private wind farms until an epiphany in
established for any contingency.
year 2010. Outside of supplying wind and solar generation projects, While wind continued to be a mainstay of Ormazabal’s
smart grid technology is atop Ormazabal’s list of priorities
Mexico strategy, the company entered the solar sector and
in Mexico. Flores’ own background as Smart Grids Project
soon became a supplier for Aura Solar I, Mexico’s largest
Leader for Ormazabal saw him participate in the sector’s
solar energy project to date. Ahead of this new focus,
pioneering development in Europe. When Flores arrived in
Ormazabal had not provided equipment to CFE or PEMEX,
Mexico, CFE was looking to implement smart technology
with its Director General, David Flores Martín, saying that
in its grid to obtain more efficient energy consumption
Ormazabal’s line of products did not suit their needs.
and distribution. “However, too many departments within
However, aiming to bring its own technology to the market,
CFE were involved and nothing came of it,” says Flores.
Ormazabal approached CFE once again, hoping for the
“There is a need to narrow the matter down,” he says.
same success it had in selling its products to Luz y Fuerza
“Intelligent energy can cover many things. Regular electrical
del Centro (LyFC, a now defunct Mexican electrical utility
meters measure total consumption, leaving out important
company). “LyFC was more technologically advanced
information such as energy consumption patterns at specific
than CFE, and had invested in cutting-edge technology in
times. One aspect of smart grid technology that can help
certain areas. CFE was more outdated, so when it took over
is telemetry, an intelligent measurement tool connected to
from LyFC, the central part of Mexico saw a real slowdown.
a control system that analyzes the information and makes
That affected Ormazabal as our products were installed in
decisions based on that. This technology has been deployed
LyFC, but we were suddenly out as CFE’s team brought
in two areas of the country, Mexico City’s neighborhood of
in the equipment it was used to,” says Flores. Since then,
Polanco and Acapulco. These two locations were chosen
Ormazabal has kept targeting CFE, especially in the areas
as high consumption areas, with many users connected
of automation and distribution, and is helping CFE with
to the same gauges. Since the installation of these smart
pilot projects regarding normativity.
meters, better estimated measurements have been made, distribution problems have been reduced and energy bills
248
The acquisition of Grupo Ikusi, a Spanish conglomerate
have been lowered,” states Flores. Wider installation would
specialized in electronic system integration, was the next
facilitate more efficient oversight by CFE. To ensure that
step. Ikusi had a presence in Guadalajara and Monterrey,
CFE takes advantage of this opportunity, Flores believes its
which boosted Ormazabal’s market presence and added
standards must be renewed to better adapt to and integrate
300 employees to its Mexican workforce. In the wind
new technologies.
| VIEW FROM THE TOP
PROBLEMS THAT MODULAR SEALS SOLVE IN THE ENERGY INDUSTRY ALONSO GUARNEROS Managing Director of Roxtec México Q: How will Roxtec position itself in the electricity market?
Q: How do your products and services add value for your
A: Roxtec is stronger in the Mexican oil industry than any
clients?
of its competitors, but CFE is our second largest customer
A: We talk to business owners and EPC companies and
after PEMEX. We could not have imagined this situation
once they agree on the projects, we jump into front-end
two years ago, but CFE found out about modular seals.
engineering development, which is followed by detailed
We have been sealing several electrical substations for
engineering. The installation process becomes easier as
CFE and we have been working on distribution for five
each step becomes more standardized after everything
substations. Transmission is an important segment for the
has been specified at the design stage. Our technicians
company, since this market consists of 450 substations
can modify cabling systems without having to carry
plus the ones that are yet to be built. The distribution area
out civil engineering each time. It is hard to measure
includes over 1,000 substations, which makes it a huge
the consequences of not having proper seals. Cabling
potential market for us. We are also beginning to work
is an easy procedure but it has put a lot of companies
with other companies in the wind energy industry and in
out of operation. We provide operational reliability so
cogeneration plants. This is an important sector and it is
engineers can worry about important things and not
easy to cater to as foreign companies have used similar
waste time on trivial matters, such as water or dust
solutions in their countries of origin.
getting into the system.
| TECHNOLOGY SPOTLIGHT Roxtec’s modular seals are designed based on the
Humidity tends to be a common but costly problem in
Multidiameter, the company’s greatest invention to date.
substations. To avoid this, Roxtec seals cables into the cable
Roxtec’s Multidiameter is an adaptable device based on a
trench that connects the wind farm to the substation. Sealing
rubber-sealing module that consists of two halves, a center
several cables at one point in the substation wall reduces
core, and removable black and blue layers. This design
the risk of water leakage by diminishing the number of entry
ensures adaptability to different sized cables and pipes.
points. Additionally, the man hours required to manage the
Modular seals have a metal or plastic frame surrounded by
cables are reduced, cutting down costs. Roxtec seals are
rubber modules. Roxtec modules are used in combination
strong enough to carry the weight of the high voltage single
with a frame and a mechanical compression unit, resulting
core cables at the point of entry into the substation and
in an optimum sealing solution suitable for wide-ranging
provide spare capacity for upgrades.
industrial applications. These systems are used in places where cables or pipes need to be routed through openings in
One of the biggest challenges for the wind industry is the
structures. Modular seals are intended to protect equipment
vibrations within wind turbines. The higher the turbine, the
from water, dust, gas, fire, and vermin, and are widely
more intense the vibrations become. To further complicate
used in industries that use complex cabling systems and
things, vibrations shake the turbine from the inside,
have proven to be resourceful for a number of hazardous
depending on the direction of the wind. The rubber in the
endeavors, such as oil and gas extraction, petrochemical
modules is softer than the outer jacket of the cables. If the
manufacturing, cement factories, paper mills, and power
clamp system is made of a harder material than the outer
generation and transmission. Already having a strong
jacket of the cable, the clamp might damage the cable,
presence in the Mexican oil industry, Roxtec is now entering
increasing maintenance costs. Therefore, a fixing system
the power generation sector.
that includes these modules extends the cables’ life span.
249
The economic and environmental benefits of energy efficiency are not disputed by public sector institutions or private sector companies. Both businesses and consumers have sought to adopt a range of technologies to reduce their power bills, and utility companies are encouraging these practices. Other actors are seeking for the government to commit to energy efficient policies as a necessary strategy to reach climate change targets. Mexico’s National Energy Strategy reveals how the government has taken such advice on board, with the legally binding document demanding that measurements of energy efficiency be used to dampen environmental impacts.
This chapter details the steps that must be taken for energy efficiency practices and technologies to be adopted by companies ranging from multinationals to small businesses, looks at how to convince executives to see energy efficiency as an investment rather than a cost, and how several players have turned energy efficient practices into a profitable enterprise.
ENERGY EFFICIENCY
10
CHAPTER 10: ENERGY EFFICIENCY 254
Climate Change Fight Depends on Energy Efficiency
256
Innovative Solutions for an Efficient Network
257
VIEW FROM THE TOP: Energy Efficiency at Every Step of the Value Chain
258
Increasing Efficiency through Hybrid Systems
259
VIEW FROM THE TOP: Impact of Air Compressors on Energy Efficiency
260
Energy Efficiency: One Light Bulb at a Time
262
Promoting the Switch to Led Lighting Technology
263
Energy Audits Crucial to Pursue Energy Efficiency
264
VIEW FROM THE TOP: Lighting and Water Solutions for Industry
265
Optimizing Energy Use through Power Factor
266
Energy Savings with no Upfront Investment
267
Equipment Efficiency across Renewable Energy Sectors
253
CLIMATE CHANGE FIGHT DEPENDS ON ENERGY EFFICIENCY Over 30 years of experience shows that energy efficiency
private and public entities to adopt energy efficient practices.
is the most abundant, cheapest and fastest approach to
It is also important to note that, in most cases, energy
reducing greenhouse gases today. There is widespread
efficiency measures will pay for themselves over time in the
access to the technology required to implement energy
form of lower energy bills. This is another element that can
efficiency on a number of different scales, from households
and should be used to persuade industries and businesses to
and cars to large office buildings and industrial facilities.
pursue greater energy efficiency in their operations.
An analysis of the cost of implementing energy efficiency measures, compared to clean energy sources, shows that
Energy efficiency policies led to a 1.7% annual decrease
most measures are cheaper and bring a faster return on
in global energy intensity between 1973 and 2009. It is
investment. The goal of energy efficiency measures is
estimated that the current energy demand would be 50%
to use less energy while allowing operations to continue
higher if these policies had not been implemented. Other
unabated. The concept is often confused with energy
projections claim that energy intensity will decrease 70%
conservation, in which the use of a particular service is
by 2035 if efficiency measures continue to develop and
reduced or suspended. Individuals, organizations, industries
grow. This would also allow for a potential 69% decrease
and businesses often engage in energy efficient practices
in CO2 emissions over the same period. These numbers
to promote economic and environmental sustainability, in
were influential in the creation of Mexico’s National Energy
essence maximizing efficiency and minimizing costs.
Strategy (NES), which highlights the need to incorporate energy efficiency mechanisms that will foster economic
The energy saving potential of energy efficiency solutions
growth, reduce energy losses throughout the production
is vast, and ranges from individual domestic energy use
chain and enable users to choose more efficient utility
to transportation systems for a wide range of industries.
services with less environmental impact.
The energy sector itself also offers great potential for reducing energy transmission losses and fuel consumption
Mexico has made significant advancements in fields
in trucks, as well as energy losses during power generation
such as lighting and electrical appliances, although an
processes, refining processes and hydrocarbon exploration
integrated transportation policy is still pending. Increased
and
for
energy efficiency could have a substantial impact on the
Standardization has created ISO 50001, a rating system
transportation sector because of fuel consumption levels and
that helps organizations reduce their energy consumption.
the prevalence of outdated equipment. An initial step would
Through this standard, companies can identify areas
be to make a comparative assessment of transportation
of
boosting
options that takes both efficiency and social benefits into
competitiveness and improving their public image. However,
account. The NES does set goals for this sector, aspiring
because reducing these costs requires an initial investment
to total energy savings of 280TWh per year, including
that not everyone is willing to make, the power of public
197.4TWh from gasoline and diesel in transportation and a
image provides an additional strategic incentive to persuade
reduction of 8% in the electricity loss rate.
production.
opportunity
The
for
International
increasing
Organization
efficiency,
ENERGY INTENSITY PER UNIT OF GDP AND ENERGY CONSUMPTION PER CAPITA
75
75
75
77
77
76 74
69
921
2003
2004
2005
2006
Energy Intensity per unit of GDP (KJ/US$ GDP) Source: Balance Nacional de EnergĂa 2011
254
904
923
978
912
914 2011
963
2010
910
2009
904
2008
878
2007
882
2002
65
2001
66
67
Energy Consumption per capita (GJ/person)
offers a solution for achieving these objectives, although
ENERGY CONSUMPTION BY SECTOR
critics point to the high costs of such technology. 3%
75
The NES and the General Climate Change Law are influential components in overcoming structural barriers 20%
that hinder energy efficient practices, such as market and policy flaws. Regarding the former, poor or nonexistent standards contribute to irresponsible utility use.
69
Similarly, insufficient financing schemes deter people 67 and 48%
66 energy efficient technologies. companies from adopting 65 Most public and corporate policies are aimed at expanding
energy supply and increasing installed capacity instead
addition to benefiting privileged parties. In 2011, MX$87
96
2005
2003
sources and ignore environmental consequences, in
2002
910
2001
882 878 detrimental, as they promote the inefficient use904 of power
2004
of properly managing demand. Subsidies can also be 29%
billion (US$6.5 billion) was spent on electricity subsidies for the Mexican domestic sector, according to the Mario Transportation
Residential, commercial and public
Industrial
Agriculture
Molina Center. Needless to say, this economic burden could be eased by establishing promotional policies for energy efficiency. The optimal scenario would include the coordination of energy efficiency with increased production, to increase the efficiency and competitiveness
Professor Tim Green, of Imperial College in London, carried
of the electricity system and the country.
out a study on grid efficiency and concluded that losses in the grid during generation can account for between 45%
Since 2008, the Mexican government has passed many
and 55% of the total electricity generated, depending on
norms that promote the implementation of energy
the technology used. The negative impact non-technical
management tools that are similar to ISO 50001. These
energy losses have on utility companies is alarming. The
are intended to seize energy saving opportunities in
NES traces most non-technical losses in Mexico back
the largest electricity consuming sectors. The Mexican
to illicit use, particularly in the low tension grid. These
government heads this list, accounting for 38% of
consequences are further aggravated by electricity theft,
national energy consumption. Because energy efficiency
debt evasion, poor planning in household construction,
is a fundamental component of sustainable economic
irregular settlements, the expansion of the informal
development, the NES addresses topics that go beyond
commercial sector and institutional deficiencies. The
encouraging responsible energy use or implementing
Mexican energy industry needs to mitigate this situation
efficient technologies in houses and offices. Some
by increasing energy efficiency and availability, as well as
of its goals include expanding and unifying national
improving the reliability of transmission and distribution
transportation networks and fuel storage facilities, as well
systems. According to the NES, smart grid technology
as improving electricity distribution.
DIStRIbuIDoR DE mAtERIAL ELéCtRICo E ILumINACIóN ComERCIAL
RESIDENCIAL
fb: alcionemx twitter: @alcionemx www.alcione.mx
EmPRESAS DE SERVICIo
INDuStRIAL
255 Departamento de proyectos en: Energías alternas, Iluminación, Automatización y Control, Calidad de energía, Equipo especial, telecom
255
INNOVATIVE SOLUTIONS FOR AN EFFICIENT NETWORK Increased efforts to raise public awareness in Mexico
the areas with the greatest potential for savings,” says Mitre.
about the importance of energy efficiency have opened
After energy savings have been made, Alcione can then
many doors for Alcione, a leading distributor in Mexico’s
steer its customers toward cogeneration.
electricity market. According to Francisco Mitre, Director General of Alcione, the household sector provides plenty
According to Mitre, the company also benefits from its
of opportunities given the high CFE tariffs in place in this
strategic alliances with the third parties that are hired
segment, since after a consumer uses 30kW, their electricity
to install its systems because their representatives, who
rate increases fourfold. Alcione’s representatives advise
attend the aforementioned training sessions, can take the
customers on ways in which they can reduce their energy
company to the larger public. Alcione is equally as thorough
consumption by changing the lighting system or equipment
in its own approach to distribution, acting as a distributor
they use, as well as avoid peak-time consumption. The
for a number of well-known and highly regarded brands,
company’s representatives can also install solar panels
such as Philips and Osram. “We are confident that, with our
and change their clients’ bidirectional gauges, enabling
extensive portfolio and well-trained representatives, we
people to generate power while consuming it. Alcione has
can always offer the most efficient solutions to its clients.
essentially used bidirectional equipment to replace the need
We work with industry leaders and we transfer their quality
for batteries.
to our customers,” explains Mitre.
“We started by modifying our own headquarters in Cuernavaca, where we generate 20% of our energy consumption. In fact, on Sundays our gauge works inversely, because we send electricity to the network” Francisco Mitre, Director General of Alcione
Due to their increasing efficiency, photovoltaic panels are
Given that many of the manufacturers the company works
the company’s preferred power generating technology.
with do not do their own direct marketing, Alcione has
However, gas turbines are also widely used, which are
positioned itself as a reliable distribution channel for them,
particularly helpful for businesses that operate 24 hours
while also maintaining its commitment to providing its
a day. “Some industries work under specific tariffs that
customers with the best solution they need. Mitre voices
charge high prices during peak hours. In these cases, clients
concern regarding some companies operating in the industry
are advised to use gas turbines during peak times and turn
that recommend unnecessarily expensive solutions when
them off for the rest of the day. To optimize the choice of
mixed generation techniques would be more affordable. He
energy source, financially speaking, we study each client’s
argues that becoming acquainted with each client’s precise
consumption patterns. We need to be well acquainted with
needs is crucial when prescribing a product or service.
their operations in order to decide on the best solution,” says Mitre. Because micro-turbines run on natural gas, the
Although Alcione is in favor of public policies that promote
company also encourages their use in regions that have
renewable energy use, the company has strong views on
access to the natural gas distribution network.
the role industry leaders should play in developing the sector. “Manufacturers should be in charge of ensuring
256
Given Alcione’s focus on diagnostics, the company’s own
standards are met in these areas, because they do a
energy generation and transmission experiences open up
great job at it,” says Mitre. He believes that placing such
great business opportunities. “We started by modifying our
responsibility on producers would avoid cheap, poor
own headquarters in Cuernavaca, where we generate 20%
quality products from flooding the market. Alcione wants
of our energy consumption. In fact, on Sundays our gauge
to increase sales in 2014 by 5%, with a subsequent 15%
works inversely, because we send electricity to the network,”
growth objective for 2015. If the company meets these
explains Mitre. Alcione has been taking on similar projects in
objectives, its growth will be outpacing that of the market
the industrial sector, reducing its clients’ consumption rates
itself. “We are not growing alongside the sector, we are
by installing solar panels. The first step usually consists of
moving faster than that,” says Mitre. “The market is huge
offering clients energy saving and optimization options.
and we want to make it even larger. We want to drive its
“During the diagnostic phase, we point out to our customers
additional growth forward and make that our legacy.”
| VIEW FROM THE TOP
ENERGY EFFICIENCY AT EVERY STEP OF THE VALUE CHAIN ENRIQUE GONZÁLEZ HAAS President and CEO of Schneider Electric Mexico and Central America Q: What is the importance of the Mexican market for
demanded and what is being generated. Distribution is
Schneider Electric’s global operations?
extremely important, and connecting the two sides – the
A: Mexico is a very critical country for Schneider. It is very
consumer and the producer – is crucial. Mexico has a very
well positioned geographically and is among the largest
up to date transmission network. In Mexico, you can have
economies in the world. Schneider Electric has invested
your industrial facilities in the north of the country and a wind
heavily in Mexico over the last 15 years, and we now have
farm in the south. But through the CFE transmission network
more than 8,000 employees in 12 locations throughout the
you can connect the wind farm to your energy consumption
country. Last year, we opened a design center here, one
center in the north of the country. Many companies are
of five that we have in the world. We have 240 engineers
interested in establishing a good system to manage the
working in our design centers and our objective is to increase
energy they are generating and consuming, and to maximize
that to more than 300 in the next few years. We have very
the benefits of using renewable energies.
ambitious growth goals in Mexico. In order to achieve these, we are focusing on satisfying our power customers with the
Q: What are the main technological challenges in integrating
best technology and human talent, as well as on solving the
the value chain through a mixture of smart generation,
energy solutions required by the energy market.
flexible distribution and active energy efficiency? A: It is a challenge because awareness needs to be created
Q: How would you compare the competitiveness of the
among energy consumers regarding the best ways of
Mexican electricity sector to other emerging markets?
using electricity efficiently. For example, saving 1kW on
A: Mexico has advantages and disadvantages. In electricity,
the consumption side can save 3kW on the generation
the advantage is that there is only one utility, CFE, operating
side. Tremendous savings can be made, and if you work on
across the country. This means that companies do not have
reducing consumption on the demand side you will obtain
to deal with several different companies, which would lead
significant benefits on the generation side. The question
to a lack of coordination. However, we need to improve the
that follows is how people can save 1kW on the demand
coordination between demand and production so that we
side. There are obvious changes that can be made without
are producing the same amount as is being demanded. But
affecting employees’ comfort, such as changing light bulbs
the challenges we face are not exclusive to Mexico.
or using better air conditioning equipment. Areas where energy can be saved need to identified at the start of the
Q: Which role do research and development play in
development of new projects. There are measures that can
Schneider Electric’s competitive positioning?
be taken that relate to human capital, such as ensuring
A: Schneider Electric invests 5% of its revenue in research
that working hours are between 7am to 7pm when there is
and development. Each year we dedicate that money to
natural light, installing lights that are only on when necessary,
developing new markets, new activities, new products,
or turning air conditioning off after working hours. These
new solutions, and new technologies, or even to acquiring
measures stop energy from being wasted. Automatic
other companies that will help us to continue consolidating
systems can also be created that identify how many people
ourselves as a global leader in energy management.
are present and adjust the lighting, air conditioners or heating accordingly. Computers and servers in particular
Q: How does Schneider Electric contribute to creating better
use a lot of energy and produce a lot of heat. We need to
connections between power generators and consumers?
combine different technologies and systems so that data
A: Schneider Electric’s smart grid technology connects the
centers are managed with the proper information, and help
energy consumer with the energy generator. Electricity
us to adjust and control energy consumption accordingly.
cannot currently be stored as such, but we introduced
We also do not need entire cities that are lit up all night.
the smart grid to avoid electricity being wasted. It is
Such improvements have to be coordinated between the
very important to close the gap between what is being
public and private sectors to combat global warming.
257
INCREASING EFFICIENCY THROUGH HYBRID SYSTEMS Versatile companies have
that enable a constant rate of generated energy across
the advantage of being able
different operating environments. “We are trying to break
to cater to several markets,
the paradigm by lowering power generation costs even
though having the right
further than when using a traditional fuel source,” says
technological
resources
Olmos Esquivel. Perhaps surprisingly, it turns out that a
to supply different sectors
combination of diesel and photovoltaic systems generates
is
more affordable energy than using a single energy source.
essential.
A
creative
research and development Roberto Olmos Esquivel, International Affairs Manager of Ferrostaal
division plays an important
Every project has different suppliers of both equipment
role in establishing new
and other services. For Ferrostaal, offering the best
ways of providing solutions
solution involves incorporating its commercial partners’
across sectors, such as using hybrid energy generation
technological innovations into a project’s development.
systems. Ferrostaal is a company that has created a large
In this capacity, the firm acts as a coordinating agent
support network of partners that can build any type of plant:
between different companies. Ferrostaal works together
refineries, power plants or recycling plants. While foreign
with its basic engineering team to determine a project’s
companies often see Mexico as a difficult place to start a
feasibility. The project’s goals have to be determined
business, Ferrostaal is working on changing this perception,
during the planning stages, and this includes selecting
emphasizing that opportunities abound in areas that lack the
which partners will be involved. Once the project is
procedures for incorporating new technology.
approved, Ferrostaal selects its best in-house specialists and outsourced suppliers to achieve all-round integration
Roberto Olmos Esquivel, Ferrostaal’s International Affairs
and begin the construction phase. Clients appreciate this
Manager, claims that the company’s multi-faceted approach
collaborative network, says Olmos, adding that they like
has allowed it to become a specialist in waste-to-energy,
the cost-benefit ratio and feel safer knowing who is behind
solar power and wind power all at once. In terms of the
their projects. Working with powerful partners helps the
contributions Ferrostaal makes to each project following
firm fulfill its commitment to finding the most effective
the feasibility stage, the firm can create turnkey projects,
solutions. The collective approach has proven to be
including EPC services, or simply provide components,
effective in the different environments in which Ferrostaal
depending on the needs of each client. Ferrostaal has four
has used it across Europe, Asia and the Middle East.
sub-companies, each of which provides a more focused service: Flagsol, Sun Power Group, Solitem and E-Solar.
Ferrostaal wants to become more active in the Mexican
These subsidiaries cover CSP, parabolic trough power
energy market, increasing its participation by 20% in
plants, thermal energy storage and water desalination
the coming year. “Government agencies are opening
respectively.
up to renewable energies and they are becoming more transparent regarding energy generation systems. This
258
Through a number of different studies, the company
helps us to be more selective about which projects we
has also backed up findings that point to Mexico’s great
want to participate in and gives us greater possibilities to
potential for solar energy generation. “The development of
grow,” says Olmos Esquivel. 200MW projects require a lot
the solar industry in Mexico is just starting,” says Olmos
of capital, making them unfeasible for some governments
Esquivel. “We are expecting growth in the sector and
and companies to pursue. This means that, while having
Ferrostaal will offer its expertise and experience to support
a significant number of contenders in the 5-10MW sector,
the development of this new industry.” Through its Flagsol
Ferrostaal has little significant competition in this area. The
division the company is combining photovoltaic cells
company has even stated its desire to work on projects
with diesel engines to build hybrid systems and energy
exceeding 200MW. Olmos Esquivel says Ferrostaal is more
storage systems. Several Flagsol plants that are already in
than capable of fulfilling its promises. In fact, the firm
operation use wind power and hybrid systems. However,
shows its clients the operational costs of companies it has
the combined use of diesel and natural gas with clean
worked with to prove it. “Every industry wants to achieve
technologies still produces CO2 emissions, albeit in smaller
the lowest operational costs possible, in order to be more
quantities. Regarding hybrid systems, the main task is to
competitive. If a company is able to lower its operational
accurately determine which technology to use in a specific
costs, it will have a better selling price and higher returns.
region and how to take advantage of the local resources,
We help our customers to reach this goal, and it will help us
and Ferrostaal has proved successful in developing systems
to position ourselves better in the Mexican market.”
| VIEW FROM THE TOP
IMPACT OF AIR COMPRESSORS ON ENERGY EFFICIENCY LUIS ALVAREZ General Manager of Compressor Technologies of Atlas Copco Q: Which products have positioned Atlas Copco as one of
Q: What is the importance of implementing energy
the leading suppliers of air compressors?
efficiency solutions for the Mexican industry?
A: The only way to maintain market leadership is through
A: The best way to demonstrate this is by looking at what has
innovation. This has been one of the main values driving
been done in other countries. Those countries that have given
our company since its creation back in 1873. Nowadays
more importance to energy efficiency are more productive.
innovation implies energy efficiency, to which we have
Energy efficiency solutions will aid Mexico’s economic growth,
dedicated many products. Around 4-5% of our revenue is
create more jobs and improve the general quality of life. If the
reinvested in research and development, to keep innovating
government focuses on implementing proper and efficient
our products and solutions. We are pioneers in the
energy use across industrial sectors, economic productivity
development of variable-speed drive (VSD) technology for
will increase. Increasing awareness as to the importance of
air compressors. Although this is used for other products
energy efficiency is a big step and a challenging task, but it
as well, we were the first compressor manufacturer to
will enable us to find more market opportunities. We want to
incorporate VSD technology. The technology was launched
contribute by helping our customers increase energy savings
in 1994 and can represent up to 35% in energy savings.
by 20% by 2020 and reduce energy consumption in their transportation operations by 20% over the same timeframe.
Q: What are the main challenges that Atlas Copco faces
We also want to stabilize the use of water within our clients’
in developing tailor-made solutions for Mexican clients?
operations, instead of seeing them increasing that use.
A: One of the major challenges we have faced in Mexico is accessing a qualified labor force. Certain industries require
Q: In which sectors does Atlas Copco see the biggest
complete packages of products and solutions, which have
potential for the application of its products and services?
to be developed in the country. However, it has become
A: Before the Energy Reform, the main sector was
difficult for us to find partners that meet our quality
automotive. In 2013, 15% of our revenues came from the
requirements. Partnering with foreign companies instead
automotive industry, a sector that also accounts for the
would have a negative impact on delivery times and costs.
largest quantity of Mexican exports. Air compressors are used in many industries, but CFE is among our top four
Q: How does Atlas Copco help its customers reduce costs
largest customers. With the electricity sector finally opening
and improve efficiency?
up to private investment, we will see a lot of investments
A: Among the energy saving products we offer, we have
being made. Small companies will become more involved
a product called Smart Link. The main focus of Smart
in the market, and they will need air compressors for their
Link is to supervise and control the functioning of the
new plants. We see a lot of opportunities opening up in the
air network. By reducing pressure by just one bar, we
months ahead. If things go according to plan, the oil and
increase energy savings by 7%. All the products that we
gas sectors will acquire a lot of importance within Atlas
install for our customers in specific locations are able to
Copco’s activities. As for the renewable energy sector, we
communicate with the central supervisors and our own
also see a lot of potential in these growing industries, as
team via interconnected computer networks. This way,
they have a big need for air compressors.
we can detect fluctuations in our customer’s air demands, enabling us to remotely suggest options that reduce costs
Q: What are the main products and solutions that Atlas
and save energy. We are the first compressed air product
Copco is planning to roll out in the future?
manufacturer to offer an energy recovery unit in our
A: Our future products and solutions are currently under
portofolio, the principal focus of which is harnessing the
development, but our main focus is and will be saving
heat produced in the compression process and using it for
energy. Every day we work to improve our energy efficiency
other purposes. Installing this product is easy. The more
products. Small changes lead to big changes, so this is the
difficult part is convincing customers of its results.
main aim of our R&D.
259
ENERGY EFFICIENCY: ONE LIGHT BULB AT A TIME During 2011 and 2012, the Sustainable Lighting Program
to make the light bulb exchange, even though it was free,”
substituted 45.8 million incandescent light bulbs with
claims Villalón Antuñano. Communication challenges
energy-saving light bulbs. Philips worked closely with
prevented Philips from being able to fully explain the
the Mexican government to introduce the use of this new
benefits to the Mexican population. Many did not believe
technology among Mexican families. During the first stage
the promised results until they saw their next electricity
of the program, the company was directly responsible
bill, and that was when the word started to spread.
for replacing 22.9 million incandescent lights for more than 5 million families across Mexico. “We replaced those
“The main opportunity for energy efficiency in lighting
incandescent lamps, which use an average of 100W, with
is in the public lighting sphere, due to a current lack
compact fluorescent lamps, which use an average of
of maintenance of public lighting in most states and
23W. This meant that every home that had an average
municipalities, added to the fact that the products used are
usage of 400W immediately decreased that to less
often obsolete, as the budget available for such resources
than 100W,” explains Sergio Villalón Antuñano, Country
is usually scarce. If we were able to change 100% of public
Manager of Philips Mexico, General Director Lighting Sector. He emphasizes the importance of the program for the Mexican government, globally recognized for running the largest replacement program of its kind in the world. The government then conducted the second phase of the program, which oversaw the replacement of an additional 20 million incandescent bulbs through retailers. “We have a large presence in Mexico, so our products accounted for a significant percentage of that replacement, reaching 10 million energy-saving light bulbs during the second phase. Overall, in two years, more than 30 million incandescent lamps were replaced by Philips energy-efficient lamps,” says Villalón Antuñano.
“The
major
challenge
was
actually convincing people to make the light bulb exchange, even though it was free” The fact that 2013 is the last year in which incandescent lighting will be used in Mexico further illustrates the authorities’ commitment to the shift towards energy efficiency. Villalón Antuñano highlights the benefits that will come from no longer using this type of lighting. “No more incandescent light bulbs from the beginning of
January
2014
means
no
more mercury vapor, and no more
inefficient
products.”
Interestingly enough, Philips encountered an unexpected challenge Sustainable
during
the Lighting
Program. “The major challenge was actually convincing people
260
lighting points we would make substantial energy savings, enabling us to diminish the amount of electricity needed from power generation,” he says, quoting the example of Mexico City, which recently changed lights that consumed 250W to Philips 140W products on Paseo de la Reforma, the city’s main boulevard. The savings were massive and enabled the recovery of important public spaces. The authorities also extended the replacement program to include other main streets and squares. Nuevo Leon, Aguascalientes and Jalisco, among others, are examples of other states that are also in the process of changing their obsolete public lighting. In terms of its sustainability strategy, Philips has a number of different targets. For example, all components used in its lighting solutions have to be completely reusable, recyclable and have minimum environmental costs. “As a result of such initiatives, Philips is recognized as the 23rd best company in the world in terms of sustainable practices,” says Villalón Antuñano. Energy efficiency is what drives a big part of the company’s R&D, across all its divisions. Villalón Antuñano states that more than 7% of the company’s total revenues are funneled directly to R&D, and that in the past two years this has increased, given the speed with which LED lighting is taking off. Opportunities to improve Mexico’s energy efficiency remain abundant. Villalón Antuñano believes that the government has to continue fostering these practices through sustainable lighting programs and allocate more resources towards public street lighting in municipalities. “Public street lighting is very important because it is one of the only ways in which a municipal president or a governor can demonstrate that they care about the population. Having this type of lighting creates a lot of benefits for everyone. It is a commitment to energy saving, it facilitates the recovery of public spaces and it improves safety.” Philips has the goal of becoming the number one LED lighting provider in Mexico. In order to do this, the company has coined the concept “livable cities”, in which it targets specific cities with which it has been working closely to recover public spaces, and lights up an iconic landmark. For example, Merida’s Cathedral is now completely lit by LED lighting, both inside and outside. Next year, Philips will be celebrating its 75th anniversary in Mexico, but the company has been developing lighting solutions for over 120 years. “Throughout its history, Philips has been focused on energy efficiency, but we take a sustainable approach across all our divisions, not just in lighting,” states Villalón Antuñano. Philips’ mission and vision is to deliver its innovative products and solutions to up to 3 billion people worldwide by 2025. “Integrating our products from the health and lighting spheres to make cities livable for people is our main ambition. We want our innovations to change people’s lives, and we want our brand to deliver innovation directly to people,” Villalón Antuñano concludes.
261
PROMOTING THE SWITCH TO LED LIGHTING TECHNOLOGY Mexico
an
instruct them on adopting new products, such as energy-
excellent job when it comes
is
doing
saving light bulbs, compact fluorescent lamps and LED
to
lighting,” explains Bortolan. The latter is already a popular
introducing
energy
efficient
consumption
product among professional clients.
norms, according to Paolo Bortolan,
Paolo Bortolan, President and CEO of OSRAM México
and
Educating middle-class customers in energy efficiency
CEO of OSRAM México.
is not difficult, says Bortolan, as for them, changing from
These norms have defined
incandescent to fluorescent lighting is not a drastic decision.
specific
On the other hand, such a change represents a colossal
for
President
requirements
products
in
terms
investment for professional customers who own facilities
of safety, efficiency and
with thousands of lights. Bortolan says that the only way to
quality of lighting. “This is one of the best efforts I have
introduce a product with a lifetime of 10 years is by proving
seen in this area worldwide,” says Bortolan. In recent years
to clients that the product will comply with the advertised
OSRAM has participated in the development of these
characteristics. Therefore, OSRAM’s strongest marketing
norms, giving the company invaluable experience of how
tool is the quality of the products the company distributes.
the Mexican industry works, and the direction in which
“We are aiming to sell the highest quality products on the
it is heading. When people think of lighting they tend to
Mexican market; that has always been our strategy,” says
think of light bulbs and street lamps. For OSRAM, however,
Bortolan. To achieve this aim, OSRAM spends 6% of its global
lighting includes the automotive industry, movie theaters,
revenues on research and development, and hosts some
airports and any other place or application that requires
of the few laboratories that can certify lighting products
illumination. The company is not focused on a specific
in Mexico. “A supplier alone cannot prove the quality and
sector, instead regarding lighting as a market in itself.
working life of its products; they need laboratories to do so,” states Bortolan. To further corroborate the quality
In terms of promoting and improving efficiency in
of the company’s portfolio, OSRAM has a department
energy consumption in Mexico, OSRAM recognizes the
focused on energy auditing, which is dedicated to choosing
achievements of the public sector. For instance, the
which products to use in installations, warehouses or large
Sustainable Lighting Program has now been running
industrial complexes. According to Bortolan, lighting is
for two years and is actively pushing the transition from
the only energy related area where switching from one
incandescent light bulbs to compact fluorescent lights.
technology to another can result in savings of up to 80%,
Bortolan believes this initiative has been the public
making it an extremely attractive area to invest in. Energy
sector’s largest accomplishment in this area. FIDE was the
audits are an easy way of showing potential customers how
organism in charge of managing the Sustainable Lighting
much they can save by installing proper lighting systems. It
program and OSRAM participated in the second phase.
is not as simple as it may seem, for customers have different
OSRAM also worked alongside CONUEE to develop energy
needs that go beyond efficient energy use. OSRAM
efficiency norms, which resulted from its recognition that
needs to determine the light’s quality, life expectancy and
the market needed to be understood before the move
temperature in order to advise its customers on the best
towards energy saving technology could truly happen.
solution. Maintenance is something that is also taken into
For Bortolan, the private sector plays an important role in
consideration. “If someone needs to change lights on a
fostering this transition. Shifting from traditional lighting
ceiling that is 12 meters high and we sell them a product
technology to LED lighting is not an easy move for large
that will last 10 years, we are drastically reducing their
companies but players like OSRAM promote this change
maintenance challenges,” tells Bortolan.
among their clients. Bortolan claims that the private sector is responsible for introducing new ideas to the general
As Mexican society becomes more aware of the need
population, such as switching to new technologies.
for energy efficiency, OSRAM expands its commercial activities by recruiting and instructing more clients in the
262
OSRAM divides its market into regular customers and
art of intelligent lighting. “OSRAM’s active involvement
professional industries, and educates both segments in
in the process of drawing up official norms and our firm
efficient lighting by constantly proposing and explaining
commitment to research and development combine with
better solutions, which are tailor-made to suit each client’s
the company’s commercial experience to create products
needs. “We work with retailers, which represent strong
that
communication channels, to get to our final customers and
customers’ lighting solutions,” concludes Bortolan.
incorporate
safety,
efficiency
and
quality
into
ENERGY AUDITS CRUCIAL TO PURSUE ENERGY EFFICIENCY An energy audit aims to evaluate the existing energy
can provide water at the same temperature, whatever the
consumption of a company or household and identify
weather. With an inverter, geothermal can also provide
potential energy savings. “Though Mexico still has not
heating or cooling,” he says. Of course, the issue is that
implemented audits to certify energy efficient companies,
geothermal does not produce electricity at a residential
many companies seeking to lower production costs
level. “The required investment for solar energy is lower,
are turning to this tool in an effort to lower their energy
so people prefer it because they often focus only on the
consumption,“ says Rodrigo Güelfo Suárez, the General
initial investment. A solar installation might cost US$5,000
Manager of Natural Project, a Spanish company that
as opposed to $US20,000-30,000 for geothermal, but a
introduced energy audits to the Mexican market in 2011.
geothermal installation has a longer lifespan and is more
The company acquired vast experience in the Spanish
efficient, which will pay back the initial investment,” he states.
renewables market and hopes to apply this in Mexico, confident that its expertise provides an added value that many local companies are lacking. “What seems innovative in Mexico is not so to us. We have proved the efficiency of these technologies. Currently, a combination of financial and political interests might be slowing down the development of these technologies, but this is the future,” he underlines. He explains this concept is currently geared toward big energy consumers. “A company that has a factory with many working motors, special lighting, and boilers requires the involvement of specialized staff to analyze the situation. With that, we provide a report, through which we offer different energy solutions and a budget for how these could be implemented,” he adds.
“Though Mexico still has not implemented audits to certify energy efficient companies, many companies
seeking
to
lower
production costs are turning to this tool in an effort to lower their energy consumption” Rodrigo Güelfo Suárez, General Manager of Natural Project
Through an energy audit, a consumer can save millions of
What could be a good step for the Mexican market to
pesos just by reducing its energy consumption by 10%.
continue growing? Güelfo Suárez believes it would be interesting to see communities generating small amounts
Güelfo Suárez claims that companies like the numbers when
of energy and argues the government could use such
they see them. Natural Project has been successful since
projects, which do not require a lot of investment. He cites
Mexico does not have many companies that offer energy
the Spanish experience, in which big corporations were
audits. He adds that, the company saw huge demand for
allowed to come and buy vast tracts of land and install
its audits at the Green Expo not only from companies but
huge amounts of solar panels. He argues that “it is more
also from architects seeking how to incorporate energy
profitable to help communities that could produce energy
efficiency technology into their projects. Natural Project’s
for their own use with small panels. This is more interesting
business model is not limited to just one sector. When it
than a large production in terms of megawatts, which is
provides a solution, the company seeks to offer the most
the mistake that happened in Spain.”
adequate solution, whether in solar, biomass, wind or LED lighting. “We can offer our clients a solution across various
As the Mexican renewable market moves forward, Natural
renewable sources. Mexico still has a long way to go, as there
Project will try to collaborate with the public sector, and
are some technologies out there that are not yet known in
particularly with PEMEX, to whom the firm is offering its
the country, but they will be used more in the future,” Güelfo
solutions to make the state-owned company’s facilities
Suárez adds. The Mexican market has shown interest in
greener. Güelfo Suárez explains he would like to work
what Natural Project has to offer. “We provide something
with bigger companies to establish and improve Natural
different because we do not just sell products, we provide
Project’s reputation in Mexico for good. The company’s
solutions to problems,” explains Güelfo Suárez.
General Manager would also like to see biomass developed in the country as he believes it could prove to be very
Natural Project is one of the few companies that includes
profitable. “For us, it would be interesting to find a biomass
geothermal in its portfolio. Güelfo Suárez explains that
producer in Mexico because that would allow us to start
even though there is always solar irradiation, its intensity
selling our equipment. There are a lot of things to do.
can vary from day to day, while geothermal depends on
We have been here for a very short time but we have big
the temperature of the soil, which remains constant. “We
expectations,” he adds.
263
| VIEW FROM THE TOP
LIGHTING AND WATER SOLUTIONS FOR INDUSTRY GUILLERMO CARRILLO Director of Operations of The Haskell Company
Q: What opportunities first made Haskell enter the
without seeking certifications such as LEED. That is appealing
Mexican market?
for clients. It stops them from spending a lot of money on
A: We established ourselves in Mexico in 1998, as the needs
certifying a building, but they still derive the same benefits.
of one of our US-based clients, Frito-Lay, brought us here.
We can also help them to become fully certified, of course,
They had a new project in Orizaba that was going to be
but that is a decision for the client to make.
handled from within Mexico. We ended up running the construction management team, as their team in Mexico
Q: How much demand is there for your water treatment
did not have the right cultural approach to design and build
solutions in Mexico?
fast-track projects. When we finished that job, another client
A: Almost all of our clients ask us to provide water treatment
from the US asked us for a project in Mexico. Then it started
plants. For Honeywell’s facility in Mexicali, we worked on a
snowballing. Five years later, we became fully established in
water treatment system for their aerospace division. It gets
Mexico and it was clear to the company that the Mexican
extremely hot in Mexicali, and since operating water chillers
market was growing and that business here was good for us.
is more expensive during the day, they are run at night. We found a company in Texas that builds storage tanks for
We are also working with Driscoll’s, a leading US agricultural
chilled water, so we applied that technology to our solutions.
and berry-growing company that grows its products in
Now, the Mexicali plant produces the chilled water at night,
Michoacan, Guanajuato and Jalisco. We are changing their
and simply relies on the storage tank during the day.
lighting system from fluorescent lights to LED lighting, and are adding different features to create an intelligent
Q: Which of Haskell’s sustainable solutions have been
lighting control panel. At the moment, if they want to
most popular with clients in Mexico?
turn on one light, they have to light up the entire plant.
A: Haskell’s most popular electrical solutions are motors,
We also encourage them to reuse rainwater in the cooler
remote
tunnels where they freeze the fruit and for irrigation. The
conditioning) units and lighting options, such as skylights.
company does not produce much wastewater, they mostly
For example, Procter & Gamble have chosen high efficiency
use water accumulation from their condensers and their
motors and CCMs that allow them to monitor their entire
sanitary sewer. We treat this water and put it into the soil,
operations through screen panels and rapidly identify what
on a property that accounts for around 30% of their overall
is causing any deficiencies. Our solutions have allowed
production in Mexico.
clients to stop running all of their equipment at 100% all the
controls,
HVAC
(heating,
ventilation
and
air
time. Instead, they can optimize their processes so that, if Q: A company like Driscoll’s already has its own sustainable
the equipment is not needed at any specific time, it can go
practices in place. How difficult is it to convince companies
offline. This means that they can run some of their equipment
here to switch to green building practices?
at 20% of its capacity and still fulfill all their production needs.
A: It is not easy to convince companies in Mexico to invest
264
in green buildings. We have found that many companies
Q: What new products and technologies is Haskell going
come here in order to avoid complying with US regulations.
to roll out on the Mexican market?
These companies tend to have a green manifesto that they
A: We will stay focused on lighting, given the need for it among
must comply with, but in Mexico it is easier for them to bend
our clients. However, we are trying to help them produce
the rules. However, we try to incentivize these companies
their own energy internally, through cogeneration. One of
by providing efficient solutions at the same price. That way,
our clients in San Luis Potosi produces a lot of steam, which
they can afford to invest in products such as LED lighting or
they have simply been releasing into the atmosphere. We are
high efficiency motors. We do everything we can to help save
looking into the possibility of establishing a cogeneration
energy on each of our assignments. Essentially, we approach
system that allows them to use energy generated from that
these projects as if we were building a green building, but
steam in their facilities, and sell the rest to CFE.
OPTIMIZING ENERGY USE THROUGH POWER FACTOR According to SENER, Mexico’s electricity consumption
There are many ways to optimize energy consumption.
in 2012 was 7.2% higher than in 2010. Given that the First
“A good place to start searching for opportunities is the
Governance Report of President Enrique Peña Nieto
power factor, which is a ratio of energy usage. In the
stated that the industrial tariff price had increased 191.4%
industrial sector, CFE charges for the use of energy as
between 2000 and June 2013, energy efficiency has
well as demand, by stating that consumption has to be at
become a pressing matter for Mexican companies. Keeping
least 90% of the ratio of energy usage. If the consumption
energy costs low has become essential to continue being
is less than 90%, CFE applies a fine that the company
competitive in the global market. “The most important thing
has to pay, but there is also a bonus if the consumption
to keep in mind is that energy efficiency can be optimized
exceeds 90%. By increasing its power factor and keeping
from the outset if equipment with the proper power
it higher than 95%, a company can therefore reap
factor and high efficiency is selected. The fact is that, if
economic benefits. One benefit for the companies is that
companies maintain their old or obsolete equipment, they
they will stop paying the fines imposed by CFE for low
will consume more energy,” says Víctor Manuel Hernández,
power factors, and might even be able to get a bonus,”
Director General of IICE.
explains Hernández. “The fine can be up to 120% of the energy charge and the demand charge. In comparison, the
IICE has provided consulting services and equipment to
bonus can be just 2.5% of the same. Nevertheless, it can
Mexican industries since 2007, with the aim of helping them
represent a huge benefit for the companies.” Another issue
minimize energy consumption. “We observe and analyze
that has to be taken into account is harmonics. Nowadays
our clients’ situations, in order to recommend the best
systems are automated, which helps reduce production
equipment that will suit their needs. Our philosophy is to
time and costs, but generates harmonics. These harmonics
give a good and efficient service to our clients,” Hernández
can damage electrical equipment. IICE offers a solution
says. Siemens, Schneider Electric and ABB are some of the
for that problem: a capacitor bank and a harmonic filter
big names that compete with IICE, but Hernández explains
that combine to reduce harmonics. “Companies need to
that his company offers added value through its customer
understand that they need a specialist that pays attention,
service, from pre-sale to post-sale. “We are in close contact
not only to the power factor but also to harmonics. This is
with our clients throughout the whole process. We look
where we come in,” says Hernández.
after their needs, we give them advice, and we suggest the best product. After the equipment we recommend has
When working with a client, IICE carries out a series of
been installed, we keep track of their energy consumption,
tests to diagnose existing problems and identify areas of
too,” states Hernández.
opportunity. Afterwards, the company presents a cost-
“Energy efficiency can be optimized from the outset if equipment with the proper power factor and high efficiency is selected” Víctor Manuel Hernández, Director General of IICE
When IICE explains to a client that they should change the
benefit analysis and electrical solutions to the client and
way they consumes energy, and that this requires special
advises which equipment is needed to correct the power
equipment, doing so is often viewed as an unaffordable,
factor. “We take care of our customers,” Hernández says.
avoidable expense. “We have to show them a cost benefit
“They want to see results once the equipment is installed.
analysis, emphasizing that they will reduce their CFE bills,
Our job is not just to sell the equipment but also to stay with
as well as calculate how many months it will take before
the client, so that if there is a downturn in the power factor,
they see a return on investment. The problem is that many
we know why it happened and what to do about it.” IICE
companies do not have the budget to make the initial
works intensely to communicate the benefits that might be
investment,” Hernández says. He considers that CFE could
seen by industries if the correct power factor is established.
help the industry and finance such equipment through
“It does not just bring benefits for the companies, we also
FIDE (Electrical Energy Saving Trust Fund). He believes
see this as bringing benefits for the future, when it might not
that doing so would help to improve the quality of energy.
be so expensive to consume energy,” explains Hernández.
265
ENERGY SAVINGS WITH NO UPFRONT INVESTMENT For one local company in Monterrey, the near constant
its society since the energy crisis of the 1970s. ESM has
use of air conditioning and subsequent crippling energy
ties to the California Energy Commission, which manages
bills translated into a business opportunity. ESM Industries
the inspection of buildings to ensure that they comply with
partnered up with counterparts in the US to seek ways to
norms and levies fines if they do not. In the US the rules
save power and lower electricity costs. This quest brought
are enforced, meaning that people comply. To Buxadé
the ESM team to realize that the same issue plagues
Hernandez’s mind, policies like this could shift Mexico
street lights, compressed air tanks and other systems. The
towards a more energy saving, sustainable approach.
company opened up a niche in the market for themselves,
Children’s education in Mexico has played an important
working on generation and cogeneration. “Since 1990, the
role in shaping perspectives on energy saving, recycling
cost of electric energy has risen over 1,000%. The current
and sustainability, which is likely to make these types of
view that saving even a kilowatt also helps the environment
projects more popular in a few years. But currently, Buxadé
is really motivating,” says Manuel Buxadé Hernandez,
Hernandez believes that the average Mexican’s way of
Director General of ESM Industries.
thinking does not take sustainability into account. In order
“Since 1990, the cost of electric energy has risen over 1,000%. The current view that saving even a kilowatt also helps the environment is really motivating” Manuel Buxadé Hernandez, Director General of ESM Industries
CFE wants energy consumption to drop because its
to learn more about these attitudes, as well as increase
mission, to distribute electricity to all Mexicans, is becoming
sales, ESM plans to enter the American market in 2014.
increasingly difficult and expensive to accomplish. ESM has a circular business model: consumers pay less, CFE
ESM takes Motorola’s Six Sigma approach to improving
saves energy, and ESM makes a sale. In developing this
processes where anything that does not add real value gets
model, ESM hit upon a simple yet effective sales strategy.
eliminated or reduced. This approach has reduced energy
ESM representatives approach governments and private
consumption by 50-60% for some companies, without
businesses and explain that the company will provide them
requiring any initial investment. Once energy consumption
with a complete solution. “We take the last one or two years
levels are at their lowest point, it is possible to move to a
into account as a reference for the solution we provide, and
cogeneration system, or even solar and wind energy sources.
we charge our clients according to the results. If we reduce
Efficiency is about taking advantage of existing resources
their costs, they pay us. If we do not reduce their costs, they
and situations and putting them to work. “Clients in hotels
do not have to pay. This means clients do not have to make
and hospitals have told me that they want to install solar-
an upfront investment, and they are able to net savings from
powered water heaters. I have told them that they are already
the very first month onwards. ESM gets a cut of whatever
expelling heat into the atmosphere. Air conditioners heat up,
the client saves. After some time, ESM withdraws from the
and we can use that heat because it is available and free,”
operation and the client maintains the long-term benefits.
explains Buxadé Hernandez.
ESM has measured the risk over a 20-year period to ensure the continued viability of this hallmark business model. From
“Producing 1MW costs an average of US$1 million for a
the results we have seen, our clients are in for a pleasant
hydroelectric plant, which is the cheapest energy producing
surprise,” says Buxadé Hernandez.
source. For solar energy, the cost is about US$3.5 million per MW. These costs highlight the importance of energy
266
One challenge is that potential customers seem to be
efficiency. For instance, several countries, such as the US, use
resisting new energy models. “People are skeptical, and for
motion sensors to turn electricity systems off when no one is
some reason do not want to take part in this strategy,” says
around. These societies have a deep-seated notion of energy
Buxadé Hernandez. The fact that people are not interested
efficiency. Energy is very expensive in Europe because they
in saving money and power demonstrates the need for
do not have oil reserves like we do. For this reason, you can
greater promotion of an energy-saving culture in Mexico.
see a lot of solar and wind energy projects in Europe, they are
In contrast, the US has appreciated how vital energy is to
thinking about the future,” says Buxadé Hernandez.
EQUIPMENT EFFICIENCY ACROSS RENEWABLE ENERGY SECTORS Dresser-Rand, the supplier
Dresser-Rand also sees a smaller but evolving market
of
in environmental solutions. For example, changes in
custom-engineered
rotating
is
legislation have made it attractive for sugar mills to
with
produce electricity from biomass and export electricity
PEMEX to help Mexico’s
to the grid. Dresser-Rand provides needed products for
national
company
the process, such as a steam turbine generator set, or the
energy
complete solution which is the power aisle. Pacheco recalls
For
that the company provided a 33-38MW steam turbine
working
Jesús Pacheco, Executive Vice President of New Equipment Worldwide for Dresser-Rand
equipment, closely oil
optimize
its
efficiency
levels.
example,
the
company
generator for a large sugar group. Another segment that
installed
15
DATUM
has caught the attention of the company is the smaller
the
power sector, or producers of less than 10MW. Dresser-
cryogenic plants in Reynosa, which have since then operated
compressors
at
Rand has a dedicated engine product line to cover this
without unscheduled shut-downs or malfunctioning in their
segment, it includes gas and diesel engines that use
operation. “This equipment uses less energy and turns
combined heat and power systems. These products can
residue or lean gas into an exportable asset that brings in
be used in landfills to burn gas to generate power. They
more revenue instead of burning it,” explains says Jesús
can even be applied in municipal wastewater treatment
M. Pacheco, Executive Vice President of New Equipment
plants, where the gas they produce can be burnt to
Worldwide for Dresser-Rand. This success has seen Dresser-
generate power.
Rand’s machinery prove popular in the oil and gas, with over 3,000 pieces of equipment installed across the upstream,
Pacheco emphasizes that Dresser-Rand is very focused
midstream and downstream sectors. However, Pacheco
on creating green solutions that reduce carbon footprints
emphasizes that Dresser-Rand does not just supply the oil
and reuse as many resources as possible in many sectors.
and gas industry. It has long been a technology supplier to
“We created an environmental solutions team to develop
the entire Mexican energy sector and has begun providing
answers to several problems that are created in the oil and
solutions to the renewable energy sector.
gas sector as a result of resource mismanagement. We also formed that team because we realized that the technology
The efficiency of its equipment enables Dresser-Rand’s
we already had could be applied to other environmental
clients to require less equipment while also getting better
solutions as well,” he points out.
results, states Pacheco. One of the main arguments given in favor of Dresser-Rand’s equipment is that there are often
Since 2006, as part of its goal to develop alternative
hidden costs involved in buying cheaper equipment that
energy sources, Dresser-Rand is working on wave energy.
has a much larger footprint or weighs a lot more. Weight
The company patented a variable radius turbine called
has a multiplication effect, he explains, every ton of steel
HydroAir to be used on oscillating wave column power
put on an oil platform needs three or four tonnes of steel
plants. Pacheco explains that the company is using its
below it to support its weight. “You might think of this
impulse steam turbine technology to use this renewable
technology in terms of the support it lends to upstream
resource in power generation. “We are taking core
tasks, but in fact we are impacting the sustainability of the
building blocks of high speed highly engineered rotating
processes. It is all about doing what you need to do with the
equipment and applying that. We are not deviating from
least amount of resources possible. We are producing the
our core, we are finding new applications for what we
most efficient solutions that have the least environmental
know how to do. HydroAir uses steam turbine impulse
impact and that can most reduce our footprint,” Pacheco
technology as part of a larger device that captures the
says. When less energy is used to produce the same
oscillating wave and pushes air up and down the turbine
amount of resources on a large scale, efficient solutions
with the movement of the wave. That is how power is
can have a larger impact on the entire value chain. On a
generated.” Mexico’s wave energy potential is particularly
national level, Mexico’s goals of increasing the roles of
interesting and can be perceived just by looking a map.
natural gas and renewable energies in the energy mix are a
The country has an average of 17kw per meter of wave
challenge that Dresser-Rand is gearing up for as it caters to
frontage. With the potential in Mexico and the technology
both markets. “Dresser-Rand impacts the better utilization
Dresser-Rand has available, a lesser amount of specific
of natural gas resources by bringing in technology that
power can be obtained, but since the coastlines are so
reduces the use of less natural gas to achieve the same
ample, this issue can be easily solved by installing more
results in quantifiable ways,” he adds.
devices to generate power from the waves, says Pacheco.
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In a rapidly urbanizing world, cities play a central role in the fight against climate change. Cities not only consume over two-thirds of the world’s energy and account for more than 70% of global CO2 emissions, the hundreds of millions of people living in urban areas around the world will be affected by climate change. Cities are both part of the climate change problem and its solution. Large urban centers in developing economies are following the lead of some of their more developed neighbors that have been praised for sustainable designs and policies.
In Mexico’s main cities the general mindset is slowly turning toward green urban planning, minimizing a city’s carbon footprint, and improving the quality of life. While some companies work to implement energy efficient strategies in municipalities, others provide consultancy services so that clients can implement LEED or other internationally recognized certifications for green building. Additionally, as new skyscrapers begin to tower above the cityscapes of Mexico, water recycling, lighting efficiency and emission reductions have become necessities.
GREEN CITIES
11
CHAPTER 11: GREEN CITIES 272
Exploring the Building Blocks of Green Cities
273
Consequences of Air Pollution in Mexican Cities
274
Building Green Cities
275
VIEW FROM THE TOP: Public Participation Essential for a Sustainable City
276
Bridging the knowledge gap for smart buildings
277
VIEW FROM THE TOP: Mexico Green Building Council Pushes LEED
278
A Professional Hand in Obtaining LEED Certification
279
Creation of Green Certifications for Mexico
281
Sky is the Limit for Green Buildings
282
Green Business Made Easy
283
Obstacles to Popularizing Green Architecture in Mexico
285
Offices Designed as a Showcase of Sustainability
286
Turnkey Energy Efficiency Solutions for Municipalities
288
Long-Term Benefits of High Quality LED Lighting
289
Private Sector Shows the Way in Sustainability Standards
290
VIEW FROM THE TOP: Establishing Sustainable Solutions and Carbon Emissions Reductions
291
Queretaro Tackles Sustainability at Central Level
292
Corrugated Piping can Help Solve Water Challenges
293
Water Management to Increase Quality of Life
271
EXPLORING THE BUILDING BLOCKS OF GREEN CITIES A sustainable city’s design takes its environmental impact
these certificates. Lacy Tamayo highlights the need to
into consideration and aims to utilize resources efficiently
extend this tendency to other sectors, such as residential
and minimize its ecological footprint. Mexico’s recent reforms
and commercial areas, hotels, government buildings and
might open the door to such ideals, but, the country has
even museums. The Mexican government recently released
to overcome the obstacles that come from urban sprawl,
the non-mandatory norm NMX-AA-164 for sustainable
overpopulation, waste generation and poor urban planning.
buildings that will help establish a qualification system for domestic construction. Hopefully, this system will improve
SEMARNAT representatives describe Mexico City as an
efficiency in buildings through the promotion of bioclimatic
incredibly complex case. Originally, the city had an urban
technologies that reduce the ecological footprint.
center and some suburbs connected to it as most of the economic, political and social activity took place there.
SEMARNAT has established land use regulations as part of
Nowadays, the situation remains the same but urban
its urban development plans. For instance, any new building
sprawl has increased. For example, Santa Fe used to be
on Paseo de la Reforma, one of Mexico City’s main avenues,
a small borough and went on to become a financial and
must have LEED certification. This requirement is expected
business center with restaurants, schools, hotels and
to contribute to the national standardization of green
residential areas. It was developed in a way that allowed
buildings. The high costs of sustainable buildings remain an
people who live there to carry out their daily activities
issue, mainly because construction materials have not yet
within the neighborhood. Originally, this was also the case
become standardized or widely available in Mexico. Lacy
for places such as Coyoacan and Azcapotzalco. However, it
Tamayo believes this problem has to be addressed soon,
was only a matter of time before these independent towns
since companies are speculating without guidance when
succumbed to the city’s centralized dynamics.
choosing sustainable materials, which can be risky.
“We need to achieve good ecological urban planning in order to reduce the population’s vulnerability, make better use of resources and improve the overall quality of life” Rodolfo Lacy Tamayo, Undersecretary for Environmental Planning and Policy at SEMARNAT
A much larger problem, according to Rodolfo Lacy Tamayo,
The government’s efforts to broaden the use of green
Undersecretary for Environmental Planning and Policy at
building techniques are evident, but the private sector will
SEMARNAT, arises when the economic activity of other cities,
be in charge of implementing them. This calls for incentives
such as Toluca, Pachuca or Cuernavaca, intertwines with
to make sustainable construction attractive to the private
Mexico City, leading to interstate agglomeration. Previously,
sector. “The most important step to making this happen is
these cities were somewhat isolated and each one had its
to set industrial standards. For example, the government is
own dynamic, but they are now coming together to form a
establishing a standard for the quantity of megawatts per
megalopolis. This situation suggests the need for a different
hour consumed per square meter each year,” Lacy Tamayo.
approach in governance. A first step would involve seeking
“Setting this guideline will facilitate the quantifying of
more integrated urban development, planned by several
which projects and buildings are above or below expected
state governments in conjunction with federal authorities.
consumption rates.”
“We need to achieve good ecological urban planning in order to reduce the population’s vulnerability, make better
Policies aimed at luring the private sector into establishing
use of resources and improve the overall quality of life,” he
greener practices can also be seen in to residential
explains, while adding that Acapulco is an example of how
projects. Parties who wish to obtain housing loans
a city should not develop, becoming more susceptible to
from the government need to be part of the Green
climate change related damage as it has.
Mortgage program, which demands several sustainable characteristics in the design of houses. This is one way for
272
Mexico is experiencing a commercial trend towards the
the government to encourage sustainable construction
use of LEED certification as the largest building leasing
and standardize materials. Another crucial element in this
companies, which are transnational corporations, require
shifting paradigm concerns the transfer of technology,
as a significant amount of the equipment used in green buildings is not made in Mexico. “For example, the country does not have a local low-cost solar cell manufacturer, meaning that photovoltaic cells are mostly imported from China. Solar powered water heaters and geothermal heat pumps are also brought in from abroad,” says Lacy Tamayo, who highlights the need for institutional changes that would address this situation. Similar to what happened in the automotive industry, he proposes that solar cells sold in Mexico should have at least one of their
“The point of a green economy is that the factory and the jobs involved are green. Using our money to buy foreign technology is not going to help us reach our sustainability objectives”
components made here. “The point of a green economy is that the factory and the jobs involved are green. Using
little continuity between one administration and the next.
our money to buy foreign technology is not going to help
This leads to the private sector refusing to participate,
us reach our sustainability objectives.” Another prominent
because there are no clear rules stating its role, leading
environmental issue comes in the form of solid waste from
to insecurity and fear of making a bad investment.” Lacy
urban centers, though this can also provide a solution in
Tamayo believes a legal framework that offers greater
energy generation, as all waste streams have value. There
certainty to private parties has to be created if Mexico
are economies of scale involved in the process of using
wants to bolster waste to energy projects.
waste, and cities with a population exceeding half a million inhabitants have a better chance of implementing waste
The private sector and specialized public organisms are
to energy projects. SEMARNAT is promoting a model of
highlighting shortcomings and lobbying for frameworks
integrated urban waste management that will work well in
and policies that promote sustainability. “Although it may
medium-sized cities, although tests will also be carried out
seem impossible to make major modifications to large cities
in smaller cities.
such as Mexico City, it is important to test out new ideas in small towns and even disadvantaged neighborhoods.
“The Constitution gives municipal governments the power
Once an idea demonstrates positive results, it can be
to decide how they handle solid waste. This places waste
implemented elsewhere, contributing to gradual change.
to energy generation beyond the scope of CFE and the
Today, green cities are part of SEMARNAT’s agenda, which
private sector, although their participation in these
may yet surprise Mexico with its upcoming projects and
projects is sorely needed,” says Lacy Tamayo. “The main
proposals that are aimed at improving quality of life and
problem is that municipal governments have a three-year
environmental conditions at the same time,” concludes
term, which leaves projects incomplete, since there is often
Lacy Tamayo.
CONSEQUENCES OF AIR POLLUTION IN MEXICAN CITIES A healthy environment is enshrined as a constitutional
85.9 micrograms per cubic meter of air (µg/m3), followed
right in Mexico, but a large proportion of the country’s
by Guadalajara with 70.19µg/m3. Mexico City is in sixth
inhabitants are exposed to bad air, poor water quality
place with 57.09µg/m3. In terms of ozone concentration,
and soil degradation. According to Yale University’s
Guadalajara is the most polluted city in Latin America
Environmental Performance Index 2012, Mexico ranked 79th
with a concentration of 69.3µg/m3. Mexico City comes in
out of 132 countries for air quality. Atmospheric pollution
fourth with 59.4µg/m3 and Monterrey in fifth with 55.2µg/
accounts for the highest percentage of environmental
m3. Between January 2010 and September 2013, there were
degradation costs in Mexico, costing the country around
53,191 hospitalizations and 19,242 premature deaths related
3.6% of GDP in 2011.
to air pollution in 34 Mexican cities. If stronger measures are not taken to reduce the pollutants in the air, premature
There has traditionally been a general lack of information
hospitalizations could reach 103,629 by 2018, and deaths
available to the public concerning the design and
could reach 37,488, representing a total economic loss of
evaluation of government programs that aim to improve
MX$20 billion (US$1.5 billion). The problem of pollution in
air quality. Nevertheless, trends show that the air quality
Mexican cities is not only environmental but economic as
in Mexico’s major cities has improved, despite remaining
well. Between 2010 and 2013, air pollution generated costs
far from satisfactory. According to a study carried out by
of MX$14 billion (US$1.05 billion): MX$11.5 billion (US$861.55
the Clean Air Institute, Monterrey has the most polluted
million) in productivity losses and MX$2.5 billion (US$187.3
air in Latin America, with a PM10 annual concentration of
million) in health expenses.
273
BUILDING GREEN CITIES Concerns about climate change have motivated both
in green building designs. The World Green Building
countries and cities to work towards developing eco-
Council’s mission summarizes its goal of making building
friendly environments. Reykjavik in Iceland provides an
certifications ignore common practice throughout the
example that more cities could learn from, having taken
world, “to facilitate the global transformation of the
advantage of its natural surroundings, this city is powered
building industry towards sustainability through market
by renewable energy, mainly geothermal and hydropower,
driven mechanisms.” The UK uses the BREEAM system,
and will be completely independent of fossil fuel by 2050.
the most widely used certification system in the world.
Vancouver in Canada is well-known for using technological
BREEAM has been used for over 20 years, and over that
innovations in its sustainability strategy. For example, the
time it has certified 250,000 buildings in 50 countries.
city uses solar-powered trash compactors that are the same
The International Organization for Standardization has
size as a regular bin but can hold up to five times more
jumped aboard this trend, issuing the ISO 21931 for the
garbage. This results in fewer garbage pick-ups, therefore
environmental performance of construction works. The
lowering carbon emissions. The waste to energy incineration
LEED certification is also becoming increasingly popular,
program in place in Sweden has shown itself to be even more
creating franchises in many countries including Mexico.
successful than expected, providing heat and electricity to its inhabitants so efficiently that the country actually ran out
Mexico has no obligatory regulations in place regarding
of trash to be used for this purpose.
sustainable buildings, or federal incentives that promote certifications. But in 2013, Mexico took an important step in
For green cities to work, they depend on technology,
sustainable building planning when norm NMX-AA-164 was
proper use of available resources and a commitment
issued. This voluntary norm sets the minimal requirements
from their inhabitants. Many countries have found that
buildings must meet in order to be considered sustainable
the houses people live in and the buildings they work
under Mexican government standards. Norm NMX-AA-164
in can be improved to become pillars of sustainable
is not the only measure the Mexican government has
support. Construction is the primary structural element
taken to encourage the construction industry to embrace
of urbanization and can change cities from their core
sustainable methods. The Sustainable Building Certification
infrastructure outwards. Traditional construction methods
Program (PCES) is an environmental policy planning tool
become costlier, ultimately affecting the quality of
that aims to promote green buildings in Mexico City. The
buildings and their subsequent environmental impact.
program’s mission statement emphasizes concepts like
Similarly, poorly designed buildings have disproportionate
resource preservation, environmental efficiency and quality
utility consumption rates that take a heavy economic and
of life improvement for the inhabitants of Mexico City.
environmental toll. Sustainable building practices have
The implementation of this program is entirely voluntary,
proven capable of delivering a more efficient final product,
driven by economic incentives and tax deductions. These,
by reducing utility consumptions and environmental
however, are not specified, the PCES statement states
impact, thus reducing running costs. According to studies
that interested parties should negotiate incentives with
by Schneider Electric, green buildings tend to have 30%
the Finance Ministry. Although Mexico’s rather loose
lower energy consumption, between 30% and 50% lower
regulation regarding sustainable building standards might
water consumption, and 35% lower carbon emissions. It is
seem discouraging, government organisms are taking
true that green buildings incur greater initial investments,
other actions in this area. CONAVI, INFONAVIT, and the
but these are paid back through lower running costs.
Mexico City Housing Institute have implemented eco-
Greater efficiency rates also help make these buildings
designs within public housing projects. Houses designed
more commercially successful.
under the direction of these entities have energy efficient lights, water-saving devices, rainwater harvesting systems
Sustainable buildings have attracted the commercial
and solar-powered heaters and street lights.
interest of a number of different actors. This includes
274
organizations that have developed standards, codes and
Urbanization puts pressure on the availability and quality
rating systems that help to increase confidence in this
of resources, such as utilities, and reduces the natural
approach. Some have even been successful in persuading
environment’s capacity to integrate the impacts that result
legislators to adopt these standards when creating
from human settlements. Economically, urban sprawl
sustainability and construction regulations. Green building
raises the cost of delivering basic services, as these require
certification institutes have played an important role in
greater investment the more cities expand. Furthermore,
shifting architecture and construction models towards
unplanned urban sprawl, a common phenomenon in
greater sustainability and efficiency. The latter has been
Mexico, blurs municipal boundaries and creates inefficient
the most powerful incentive for increased investments
and chaotic settlements.
| VIEW FROM THE TOP
PUBLIC PARTICIPATION ESSENTIAL FOR A SUSTAINABLE CITY TANYA MĂœLLER Minister of Environment for the Federal District Q: What are the priorities for Mexico City’s Environment
A: Mexico City has set an example, in terms of encouraging
Ministry during the current administration?
public participation in sustainability. Our public bike
A: We have determined five priority areas on which we will
system, Ecobici, has received a very positive response.
focus for the next five years. The first two go together: air
One of the elements that has the biggest impact on quality
quality and climate change. Our air quality target during
of life is the time it takes to commute. We have seen an
this administration is to reduce ozone by 25%, as well as
increase of 40% in the use of bikes in the last couple of
reducing PM2.5 and PM10. The third is biking infrastructure or
years. Ecobici saw an increase of 50% in its total users
sustainable mobility. The fourth is green urban infrastructure,
in 2013. I really think there is a predisposition among
which covers the benefits that green infrastructure can
inhabitants to change their transportation habits, as long
provide. The fifth line of action is water management.
as they can do so efficiently and safely.
Q: What are the main challenges that come with
Q: How is the Mexico City government pushing for more
implementing sustainability policies in a metropolitan
stringent construction regulations that would lead to on-site
area the size of Federal District?
energy generation and water recycling in new buildings?
A: One of the greatest challenges we face is ensuring much
A: Our regulations have become much more stringent
more sustainable and cleaner mobility in Mexico City but
and norms are being changed to reflect this. Every new
we have come a long way since the 1980s, when pollution
building or construction now has to have mitigation and
and air quality were the city’s biggest problems. There is
compensation actions. We are switching from a voluntary
much more consciousness about the environment today.
mitigation program to an obligatory one. The private sector
Right now, our greatest challenge is the increasing number
has reacted quite well to these changes so far. Obviously they
of vehicles in the metropolitan area and the accompanying
have to make a bigger investment, but they are aware that in
high levels of fuel consumption and emissions. Our
order to be competitive their buildings have to be greener,
challenge is getting people who drive their own cars to
as clients are increasingly looking for sustainable buildings.
switch to cleaner methods of transportation: either public transportation or cycling.
Q: What potential is there to use the Bordo Poniente landfill for waste to energy conversion?
Q: What lessons has Mexico City learned from overcoming
A: The plan is that by 2015 we will be able to use methane
some of its environmental challenges, and how can that
from Bordo Poniente for energy production, and that by 2018
serve as an example to other cities?
it will provide close to 75% of the energy requirements for
A: The main lesson we have learned is regarding how the
public buildings and public lighting. In the meantime, we are
budget is invested, which provides lessons especially
considering using wind power to provide the remaining 25%.
for Latin American cities and other metropolitan areas
We are analyzing our options for how to best start using wind
of Mexico. We see that, contrary to what is happening in
energy and will announce the project officially in late 2014.
Mexico City, air pollution is getting worse in other Mexican cities. One of the great lessons from Mexico City is the
Q: How are you combining the environmental and
importance of investing in public transportation. If there
economic priorities of the government of Mexico City?
is a safe and secure transport system, there will be much
A: We cannot have a greener, better city, without public
better mobility and air quality. As for green buildings, if they
policies that are focused on sustainability. We are planning
want to be competitive, they have to be certified, which is
important investments in public transportation in the next
something that the market is pushing cities toward.
few years. For example, we will extend the rapid bus transit system, RTP, by a further 100km from its current 105km.
Q: How have you convinced the public to implement
For Mexico City to be competitive, sustainable growth and
sustainable practices in their daily lives?
economic development must go hand in hand.
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BRIDGING THE KNOWLEDGE GAP FOR SMART BUILDINGS
Jorge Luis Hagg Hagg, President of IMEI
The transfer of knowledge
every possible permutation. According to Hagg Hagg,
and
not
“over the three to five years that it takes on average to
always a smooth process
design, construct and make a building livable, 25% of
in which one benevolent
the total investment will be spent just on constructing
overseer hands down their
the building. 75% will go toward the everyday running of
experience
single-
the building, from normal operation to maintenance and
handedly creates a new
renovation. The financial model of a green building is
sector in a developing
such that an initial investment, although seeming sizable
market. Such a process
to some, translates into the best performance possible
usually involves a complex
throughout a building’s lifespan. The savings come in the
scenario
technology
of
and
is
competing
long-term, while also bringing higher rents from tenants.”
market interests, with negotiations between private
Those tenants hold the answer to another important
and public sector bodies and the gradual building of a
question. If owners are reluctant to design an intelligent
domestic supply chain.
building due to the bigger original outlay, might tenants also not be put off by more expensive rents? Not so, says
Mexico’s discovery of the green building concept and its
Hagg Hagg. “Having more amenities, automation, security
accompanying technologies and certifications has not
and comfort for the building’s users raises the rent, but the
always been straightforward. When IMEI (the Mexican
productivity and lifestyle in that environment also greatly
Institute of Intelligent Buildings) was founded in 1991,
improves, which makes tenants want to stay.”
it was intended to fill the knowledge gap that existed in Mexico in the very sectors it would advocate. Its founder,
For Hagg Hagg, the biggest challenge presented by
Jorge Martínez Anaya, sought to create an institution that
intelligent buildings is a curious one: the technology itself,
would identify trends in the market, provide training and
or more specifically how it is integrated. When architects,
ensure the constant availability of information to players
civil engineers and the owners of the building sit down to
interested in intelligent building technology. More than 20
decide what the features of the building will be, it becomes
years on, this scope has broadened significantly. “We now
tricky to get everyone thinking on the same page.
give an annual prize to the smart building of the year. We
Technological solutions exist to cater to various visions for
will soon start giving more prizes, such as the safest and
solar cells, fabrics or air conditioning, but getting everyone
greenest buildings,” says Jorge Luis Hagg Hagg, IMEI’s
to agree to the same solutions is where IMEI steps in. “We
President.
provide all the information and training to help with this process, and we give our members information on new
An alliance with the Building Owners and Managers
technologies and trends,” says Hagg Hagg. IMEI taps
Association (BOMA) has also proved fruitful. The links to
into its vast network of contacts to bring together such
BOMA have helped spread LEED certification in Mexico,
specialists as architects of high performance buildings
since BOMA is also linked to the US Green Building
or automation experts, to speak on how their work can
Council, which developed LEED. Ten years ago, Mexico
benefit intelligent buildings.
had no LEED certification processes under way, compared to more than 30 LEED-certified buildings today, with 230
Mexico has come a long way since 1991. Torre Mayor
more projects undergoing the certification process. Hagg
and the HSBC Tower dominate the Mexico City skyline
Hagg acknowledges that although Mexico should develop
as ambassadors to the possibilities of LEED certified
its own standards, that time may be a long way off. “IMEI
buildings. The intelligent building industry must now look
has been working with ISO and other associations to
forward and face its future challenges, such as developing
create higher building standards in Mexico that may in
zero net energy buildings. For goals like this to be
time become NOMs. But in the meantime LEED is a good
achieved, the government must step in, states Hagg Hagg.
start, and serves as a good guide while its standards are
“Government participation is the most crucial factor, as
being adapted to the local Mexican market.”
the technology is already there and constantly evolving. Conviction as to the importance of sustainability is there
276
One of the obstacles that has long hampered a boom in
and the funding is accessible through banks. But we still
smart buildings is the initial cost, seen by many firms as an
need the support of governments around the world. The
unnecessary expense rather than a wise investment. Over
entire political environment has to be set up so that it
more than two decades, IMEI has heard this argument in
supports these initiatives.”
| VIEW FROM THE TOP
MEXICO GREEN BUILDING COUNCIL PUSHES LEED CÉSAR ULISES TREVIÑO Director General of Mexico Green Building Council
Q: The Mexico Green Building Council (MGBC) was
invest to improve your systems or equipment. In green
created based on the model of its US counterpart. How
construction, you have to invest more up front and get
was this model adapted to the Mexican reality?
your results afterwards from energy savings or by having
A: The MGBC was founded as a member of the World
a lesser environmental impact. These three challenges are
Green Building Council (WGBC), of which the US Green
common to many countries and have been addressed by
Building Council (USGBC) happens to be the most
Green Building Councils worldwide.
successful organization. We share the common goal of market transformation with our US allies, but the MGBC
Q: How are you helping to spread LEED throughout the
adapts and takes care of the priorities of the Mexican
country beyond the main urban centers?
market with the specific tools it needs. One of these tools
A: By definition, LEED recognizes the merits and the
is LEED certification. Until recently, Mexico did not have
efforts of higher performance buildings. This certification
a national norm or ratings system so LEED was adopted.
should be attained only by the top green building projects.
It has become an important way of driving this market
Since it was originally designed for North America, any
toward energy efficiency and sustainability.
LEED-certified project around the world should be at a comparative level to the environmental and energy
Q: How have you raised awareness about the need to
performance of top buildings in the US. However, LEED
establish green building practices in Mexico?
is now localizing to different countries so as to be
A: In 2006 we launched the first International Green Building
implemented in a less burdensome manner. This does not
Congress in Monterrey, with 2,500 attendees from 26
mean that its requirements will be compromised, but if
countries. In 2011 we held another international congress on
local norms are as stringent as LEED we will understand
sustainable building in Mexico City, with a far larger scope. You
and respect their equivalence. In 2005, the federal
can see the evolution in our goals between the two events.
government itself expressed concerns that the impact of
In 2006, our focus was on spreading information about
LEED’s international requirements would dilute national
what sustainability means for industry and for institutions.
norms. But this new strategy should help LEED get better
But in 2011, we were way past that and had moved on from
recognition around the country, as authorities see that it is
basic issues to sharing best practices in public policy for
promoting the enforcement of local regulations.
sustainable building in Latin America. Q: What was the tipping point that led to LEED taking off Q: What are the main challenges the MGBC faces in
in Mexico?
spreading its message in Mexico?
A: Iconic projects built in Mexico, such as the HSBC Tower,
A: We have identified three main challenges in achieving
helped spread awareness among stakeholders. Both
the advancement of sustainable construction in Mexico.
transnational companies and leaders in the domestic
The first is dealing with education: most of the decision-
industry decided to go green in their real estate investment
makers had not been exposed to such projects before,
as understanding about sustainability spread. Companies
so it was hard to push them to change. The second is the
wanted to fulfill their CSR promises regarding the way
regulatory framework: when norms are not engineered to
they operate their businesses, including their offices and
promote green construction, they become a major obstacle
warehouses, and they knew about the success LEED had
to any sustainable real estate or housing developments.
had in the US and abroad. Some of them started their own
In recent years, the government has realized this issue
internal assessment mechanisms, as they felt LEED was
and has created new norms to enhance green building.
not the best tool for addressing their challenges in making
The third concerns the financial challenges: without
energy and environmental progress, but many others did
access to money it does not matter if you have the right
not think twice and opted to use LEED for all their new
knowledge and the right regulations in place, you cannot
properties.
277
A PROFESSIONAL HAND IN OBTAINING LEED CERTIFICATION
Alicia Silva Villanueva, Founder of Revitaliza Consultores
Since its creation in the
plants and key buildings. “We review their standards
US in 1998, Leadership in
and the results are unsatisfactory,” says Silva. The most
Energy and Environmental
frequent problem is air quality. Buildings do not have
Design (LEED) certification
outside air coming in and this poses serious health risks,
has become the worldwide
with potential long-term consequences. “We notice that
standard
green
in many meeting rooms, people drink unusual amounts
buildings. LEED certificates
of coffee. They are struggling to stay awake and the real
are awarded to buildings
reason is that they are not getting enough oxygen. This
that pass a series of tests
is unacceptable under LEED standards.” Creativity and
on
water
productivity depend on a person’s working environment,
air
therefore employers and companies should see the value
energy
efficiency,
for
and internal
quality and environmental impact. Such certifications
of investing in adequate buildings.
are becoming increasingly important in Mexico. Quick to capitalize on the opportunity, Revitaliza Consultores seeks to
Regarding suitable work environments, Revitaliza Consultores
give advice to a entities that are looking to obtain a LEED
did a study for the headquarters of OXXO, one of the largest
certificate.
convenience store chains in Mexico. The consultancy firm estimated how many days employees were away for health-
Anticipating that the market would move towards green
related reasons, due to poor temperature control inside the
building initiatives, Alicia Silva Villanueva founded Revitaliza
facilities. Silva concluded that OXXO needed to build better
Consultores with the aim of offering LEED consulting
stores: “the amount they would save over 10 years is almost
services. This was a tough nut to crack at first, as many
the same amount they are spending on salaries. The price of
international companies that Revitaliza was in touch with saw
the building would be completely paid off by these savings.”
it as difficult, if not impossible, to apply LEED certifications in
Most studies on green buildings focus on energy and water
Mexico. Silva proved them wrong by scoring several victories
efficiency, but Silva says human capital is the most expensive
and ultimately helping a number of companies to achieve
asset and is worth investing in.
the highest quality buildings. The consultancy firm worked with Nestlé, resulting in the first LEED NC Platinum v3
LED lights have become increasingly popular in recent
rating in Mexico and Latin America. This broke down several
years, as people see this technology as an investment
barriers and other companies followed, resulting in six more
and a more achievable way of being sustainable. Silva
Platinum certificates being awarded, including Torre Mayor,
questions this approach, based on feasibility. “LED is a
one of the tallest buildings in Mexico City.
great technology, but it requires further development. Investing in LED lights is a wonderful idea, but using them
Silva claims that people in Mexico have been spoiled by low
in an entire building does not always make sense,” says
utilities costs, ultimately resulting in careless consumption.
Silva, adding that changing some LED lights to fluorescent
While recent increments in utility prices have driven people
and T5 lights on Torre Mayor resulted in huge differences in
to consider alternatives, the situation has not yet become
costs. Much like LED lights, Silva believes that photovoltaic
severe enough to cause a real push towards more sustainable
technology is not yet mature enough. For instance, two
energy consumption. However, Silva estimates that 30% of
hectares of solar panels would be needed to power the
energy could be saved across the board if people changed
whole of Torre Mayor. The most obvious solution would be
their “reckless consumption patterns.” LEED certifications
to build solar parks in the Mexican desert, but according
offer one way of changing general attitudes towards more
to Silva, this way of thinking ignores the environmental
efficient utility use. Buildings that want to be considered
impact of these technologies, which she believes should
for LEED certificates strive to have proper construction
be fully considered before a solution can be called truly
planning, infrastructure and maintenance. Even existing
sustainable.
buildings can get LEED certificates by renovating and transforming their infrastructure in a way that increases
According to Silva, there are people and institutions that
operational efficiency. Silva sees these efforts as important
have not understood the principle of LEED certification,
in shaping the way people act in favor of sustainability.
resulting in unrealistic market demands and expectations. Revitaliza Consultores helps its clients understand how each
278
In order to disseminate the benefits of LEED certifications,
solution can benefit them and why certain measures should
Revitaliza Consultores visits showrooms, manufacturing
be discarded, regardless of how eco-friendly they may be.
CREATION OF GREEN CERTIFICATIONS FOR MEXICO Although
Darío Ibargüengoitia, President of SUMe
has
NMX-AA-164, which details the minimum environmental
not yet embraced green
Mexico
requirements for sustainable buildings. It is also tailored to
building certifications as
the Mexican market, taking into account specific social and
common
the
economic conditions to make compliance more feasible.
foundations are being laid
Ibargüengoitia highlights the need to promote Mexican
and many different entities
certification and the enforcement of norm MNX-AA-164,
are working on promoting
which will demand optimal performance from potential
this culture. Against this
candidates.
practice,
backdrop, Sustentabilidad para México (SUMe) was
There are approximately 300 large construction companies
created as an organization
in Mexico, according to SUMe, which represents a large
that aims to improve the general population’s quality of life
market
through collaborative actions that promote sustainability.
operations, close to 40 Mexican companies were already
Part of its strategy includes lobbying for the creation
implementing sustainable measures in their buildings and
of national certification systems, to be applied across
choice of construction materials, but Ibargüengoitia knows
the public and private sectors. As a cornerstone of this
this is far from enough. “The public sector needs help creating
strategy SUMe has built its own network, by approaching
policies on sustainability that can reach the private sector.
universities, private companies and certification institutions
Companies know this,” he says. The association continues
such as Underwriters Laboratories.
to expand its network as a strategy for promoting the LEED
for
green
certifications.
When
SUMe
began
brand in Mexico. Other steps that will be taken with the aim SUMe’s web of influential collaborators is a strong
of achieving medium-term results will involve changing the
argument to convince other important companies to join
educational approach to quality and normativity.
the association. Additionally, SUMe is deeply involved in promoting sustainability through education, hosting
Ibargüengoitia claims there are no incentives in place
several programs together with universities that are aimed
to encourage construction companies to make more
at informing young people about global trends in this
sustainable decisions. However, fulfilling the requirements
area. Working alongside the government is undeniably
for a LEED certificate involves implementing designs that
important when pursuing such a cause. SUMe has joined
result in a medium to long-term positive economic impact
with SEMARNAT and ONCE in the process of creating
through the utility savings they deliver. Unfortunately this
regulations and adjusting normative aspects, and this will
is not a strong incentive, because when a LEED rating is
enable the association to develop new strategies. Part of
pursued, the cost of initial design and construction rises.
SUMe’s vision involves integrating, applying and shaping
Ibargüengoitia observes that prestige and reputation
sustainable
well-established
are the main things encouraging Mexican construction
international certifications, such as LEED certificates. “In
development
through
companies to obtain certificates. He advocates the setting
Mexico, LEED remains a niche accomplishment, with mostly
of specific goals to guide the use of construction materials
international companies such as HSBC having obtained
and utilities. Even making a habit of separating trash, a
it here. But in order for Mexico to move in a sustainable
well-established practice in some parts of the world, is a
direction, it will be necessary to develop, implement, and
significant step to changing the popular mindset towards
popularize certification tools,” says Darío Ibargüengoitia,
more sustainable cities.
President of SUMe. Sustainable
buildings
play
a
big
part
in
Mexico’s
LEED certified buildings use resources more efficiently than
environmental goals, which include a 30% reduction
conventional buildings, providing healthier surroundings
in carbon emissions by 2020. Those buildings can
for workers. This is said to foster higher productivity in
only come into existence if the industry abides by local
working environments, which appeals to employers and
standards, which are not yet being enforced. “Finally, if
corporations. However, organizations like SUMe and policy-
we could establish an organism in charge of reviewing
makers champion LEED because of its overall benefits, such
national standards, we could make a difference,” states
as improving air quality, saving on water and energy and
Ibargüengoitia. “Norm NMX-AA-164 is an important step
reducing solid waste. LEED certifications are based on US
towards making that crucial difference. Hopefully Mexican
standards, and do not shift to fit local particularities. With
construction companies will follow this trend and subscribe
this in mind, Mexico recently passed the non-binding norm
to the growing culture of quality certification, too.”
279
280
SKY IS THE LIMIT FOR GREEN BUILDINGS For almost five years, Torre Mayor, one of Mexico City’s most
to go back to basics,” says Flores. “We taught them what
emblematic buildings, was the tallest skyscraper in Latin
being green means, from the very beginning up, including
America. “We started building Torre Mayor in 2000 and
the benefits that could be reaped for companies, the
broke all the established rules of Mexico,” says Felipe Flores,
building and the market.” Most importantly, “we showed
Director of Operations of Torre Mayor. “It was considered
that all this could be done at the same cost, simply by
impossible to build skyscrapers in Mexico City because of
choosing to buy recycled paper, for example.” The effort
the damage that was caused to thousands of buildings
translated into 9,000 people changing their attitudes,
by the 1985 earthquake. But we had the engineers, the
which Flores expects will have a knock-on effect on their
technology, the materials and the expertise to get it done.”
families and friends. “We are having a far greater impact than if we were just trying to get people to lease a space
Torre Mayor broke paradigms in more ways than just its
for a business. Our vision goes much further.”
height. It was one of the first sustainable buildings to be built in the city and has three ongoing goals: efficiency,
He claims Mexicans need to change their mentality and
productivity and safety. For companies, the efficiency of
accept expertise from abroad. While each country has its
the building means reduced operational costs, for example
national pride, one sometimes needs to set that aside to
on electricity. “They are learning that a building that has
welcome knowledge and expertise from a variety of sources.
an efficient design immediately provides savings for its
“We came to Mexico in 2000 to build this skyscraper; we
clients,” says Flores. As for productivity, Torre Mayor houses
brought materials from other countries but we also trained
over 70 companies with a total of 9,000 employees, as
local human talent,” states Flores. The Canadian origins of
well as 2,000 daily visitors. The building’s administration
Paul Reichmann, the man behind Torre Mayor, were another
is in charge of controlling the atmosphere, canceling out
issue. “We were the first to invest foreign capital into Mexican
noise, letting the perfect amount of light in and pumping
real estate. There was widespread concern about why we
fresh water. “All these services are very important for the
were sharing knowledge with locals, with some warning
productivity of employees. We help companies reduce
us that we were training our future competitors. But if we
employment absence because they have high-quality
invest here, it is because we care about this country, it is not
offices to work in,” adds Flores.
just about business,” Flores highlights.
“We started building Torre Mayor in 2000 and broke all the established rules of Mexico. It was considered impossible to build skyscrapers in Mexico City” Felipe Flores, Director of Operations of Torre Mayor
In 2013, Torre Mayor obtained the LEED Gold certification,
Torre Mayor’s success has helped the market answer
awarded by the US Green Building Council, which was
certain questions about how much sustainable changes
granted to the whole building, including its tenants. During
cost. “The changes we implemented in Torre Mayor cost
the LEED process the building was classified as EBOM,
what they needed to cost, financially speaking. What
Existent Building Operation and Maintenance, which Flores
is more important is to consider the costs you will face
says is the most sophisticated certification available. “One
if you do not make these changes,” Flores argues. “If a
of the conditions was that we needed the involvement
company does not want to spend the money, it does not
of all the companies located in the building. Beyond the
have to. But it will soon lose money and be outpaced by its
systems and the design of the building, which have been
competitors.” The proof that this works, Flores claims, lies
very clear from the start, it was very important to show the
in the fact that after 10 years all of Torre Mayor’s tenants
work we did within the community of Torre Mayor,” he says.
renewed for another decades. “If we do not collaborate to raise the bar in the cities where we work, we are lost. After
To make sure that all the players involved understood what
we opened the doors to Torre Mayor everybody began
sustainability meant, a survey was conducted among the
to understand, and we can see the results on Paseo de la
tenants to assess their level of awareness. This revealed a
Reforma today in the amount of construction taking place
bleak picture: 70% knew next to nothing about it. “We had
and the presence of many qualified workers,” he adds.
281
GREEN BUSINESS MADE EASY EnviroSense is an environmental consulting firm that works
program is voluntary, it offers fiscal incentives such as
mainly in the energy, construction, tourism, and mining
reductions on the property and payroll taxes, in addition
sectors. Its expertise in environmental matters made it also
to energy and water consumption savings. Convincing
decide to venture into sustainability and green construction.
real estate developers, who are mostly preoccupied
For the past four years, the company has offered its clients
with recovering their investment as fast as possible, to
a wide range of studies required by the current regulatory
implement green strategies has not been an easy quest
framework. These include the Environmental Impact
for EnviroSense. “Green and sustainable buildings are very
Assessment, technical studies for changes to land use,
trendy right now and everyone is talking about these issues.
environmental management plans as well as feasibility
This has convinced many firms to invest in sustainability,
and site selection studies. “We strive to offer an integrated
because it is fashionable. Nevertheless, when constructing a
service to our clients with the aim of helping them develop
building, there are many hurdles that have to be overcome,
their project in compliance with all legal requirements,”
such as getting the construction license and land use
says Miriam Isabel Sámano Rosillo, Founding Partner of
license as well as dealing with civil protection issues. This
EnviroSense. “We accompany the client from the selection
contributes to the vision that a green project is not a good
of a project’s site to the operation to the completion of the
choice for businesses,” Alanís Quiroz explains. “But even
project, depending on each client’s specific needs.”
if constructors invest in sustainability for public relations
“We strive to offer an integrated service to our clients with the aim of helping them develop their project in compliance with all legal requirements” Miriam Isabel Sámano Rosillo, Founding Partner of EnviroSense
In 2008, Mexico City created the Sustainable Building
purposes, they begin to truly value making that choice once
Certification Program (PCES), in order to promote and
they see the savings generated on their operating costs.
encourage emission reductions and the efficient use of natural resources in the design and operations of buildings
While EnviroSense was founded only four years ago, it has
in the city. Ana Eugenia Alanís Quiroz, Founding Partner
enjoyed rapid growth. “We started the company with just
of EnviroSense, explains that PCES is similar to the LEED
three founders, but we now have between 20 and 25 people
certification system, but has been adapted to reflect the
working for the company, and we are the main consultancy
needs and realities of the Mexican market. PCES uses a
firm for a number of important clients,” Sámano Rosillo
scoring system to grade different criteria such as energy
states proudly. “We are working on many projects in the
and water consumption, waste management, quality of
fossil fuels sector, related to activities such as oil pipelines
life and social responsibility, and environmental impact
and natural gas storage terminals, but we also work with
and innovation. Depending on these different scores, a
the renewable energy sector on hydroelectric plants
building is awarded a certification on compliance, efficiency
and wind farms,” she states. Navigating the permitting
or excellence. “PCES strives to incentivize real estate
processes related to environmental legislation is just one
developers and construction companies to transform
of the challenges that await Mexican and international
and adapt buildings under sustainable and environmental
companies that start developing projects. “There are many
efficiency schemes. In this way, these firms and their
environmental consultancy companies, but Envirosense
buildings contribute to the conservation and preservation
is the only one that has a full understanding of all legal
of natural resources and the quality of life of the population
aspects to offer an integral and multidisciplinary solution,”
of Mexico City,” explains Alanís Quiroz. Even though the
comments Alanís Quiroz.
“Green and sustainable buildings are very trendy right now and everyone is talking about these issues. This has convinced many firms to invest in sustainability, because it is fashionable” Ana Eugenia Alanís Quiroz, Founding Partner of EnviroSense
282
OBSTACLES TO POPULARIZING GREEN ARCHITECTURE IN MEXICO Architecture
with
was a lack of concern for efficiency or ecology. Even if
spaces, linking it intricately
pollution was an evident problem, the government did not
to
the
was
plays
environment.
common
to
constructions had their
been
adapted
surroundings
preindustrial José Picciotto, Founder of Picciotto Arquitectos
It
address it with a system approach, preferring short-term
see
mitigation solutions. Over time Mexican authorities have
that
become more assertive regarding environmental affairs, and
to
this can be seen in recent legislation that has been passed,
in
even though many regulations are not yet being enforced.”
societies,
but this has not been the
The Mexican government is also taking small steps toward
case
contemporary
promoting certification, though it is still playing catch-up
for
urban settlements, which
with the private sector. “The private sector moved first and
alter the landscape and ultimately take their toll on the
more quickly than the public sector, because it is generally
land and its natural resources. This situation has led many
more conscious about sustainability than the government,”
visionary architects to adopt more sustainable designs and
says Picciotto. The North American Commission for
try to minimize the environmental impact of their projects.
Environmental Cooperation was formed when NAFTA
Although this been the tendency in Mexico, it has yet to
was signed and was meant to address the environmental
become widespread practice, due to a number of obstacles.
impact that might come as a result of this international treaty. One of the first recommendations it came up with
José Picciotto, Founder of Picciotto Arquitectos, explains
was for government buildings to set an example by being
the challenges green architecture faces in Mexico. Picciotto
more efficient and sustainable. The US and Canada stuck to
often invites his clients to consider green buildings, and
this agreement but Mexico did not. One of the main reasons
while he is no longer surprised to see that they are usually
for this rejection was that most entities in Mexico, including
unfamiliar with the concept, he perseveres in his efforts to
the government, do not own the buildings they are based
convince them to ‘go green’. “I would rather promote green
in. For this reason, they do not assume responsibility for
architecture than expand my client base,” he says. Convincing
the lack of sustainable mechanisms in their offices. On
clients has proved to be a challenging task, despite the fact
top of this, developers tend to prioritize safer investments
that sustainable buildings offer clients tangible benefits, such
over long-term benefits. Picciotto uses the example
as savings on utilities and maintenance. “Green buildings are
of certifications, such as the Leadership in Energy &
efficient by definition. However, clients are skeptical about
Environmental Design (LEED), which serve as mechanisms
the concept, and this calls for more information on the
to promote sustainable buildings. In his experience, those
matter,” adds Picciotto. “In Mexico, people are not aware of
that obtain such certifications usually do so as a result of
what green buildings can mean for them.”
pressure from transnational companies during business transactions. Whatever the motivations behind obtaining
European countries provide a good example, as they
them, the certification trend is gradually expanding and that
are more focused on energy efficiency as a result of
can only be a good thing.
higher utility costs. “In this context, building designs are architects’ responses to government-imposed limitations.
Picciotto would like to see a change in the government’s
The designs come as a result of the national rules that are
approach to sustainability: while it talks about sustainability,
in place,” says Picciotto, adding that this has not been the
it has stalled on taking specific actions to promote
case for the US. “The US consumes 25% of the world’s
sustainable practices in the construction and transportation
energy, while being home to only 6% of its population,”
industries. “For example, Mexico offers tax deductions to
says Picciotto. The architect argues that Mexico lives in
those that can demonstrate sustainable practices, and while
the shadow of the American lifestyle, with the government
this is stated in the law,” according to Picciotto it often
paying too much attention to the unsustainable practices
does not happen because civil servants are not aware of
that exist in the US. However, this might be about to
the regulation. “Buildings, such as hospitals and hotels,
change, as the Mexican government has begun to take a
consume enormous amounts of energy and there are no
closer look at sustainable development in buildings.
incentives to encourage them to modify this,” he says.
According to Picciotto, for a long time Mexican government
Picciotto
officials did not consider environmental issues to be
sustainable city designs, even if this means struggling with
important. “Energy used to be cheap, which meant there
skeptic and indifferent parties.
Arquitectos
is
committed
to
promoting
283
284
OFFICES DESIGNED AS A SHOWCASE OF SUSTAINABILITY A couple of years ago, the momentum of the renewable industry allowed sustainability consultancy ERM to undergo a period of rapid growth. This expansion meant the company had to seek a larger base of operations capable of accommodating the team. Manuel Ortiz Monasterio, Director General of ERM Mexico, notes that this period of change also allowed ERM to become the company it needed to be, seizing the opportunity to lead by example and turn its offices into a showcase of sustainability. “An essential part of our strategy is being sustainable in everything we do, and we found a location to reflect that. Our office is a LEED-certified building and contains many environmental and social features such as water recycling, a centralized air conditioning system, and vertical gardens. The air conditioning uses a chilled water system as opposed
company, involving ERM’s personnel in the decision-making
to refrigerants and is much more energy efficient.”
process. This was a successful aspect, according to Ortiz Monasterio, since not a single employee left ERM as a result
In order to fully understand the concept and the design
of moving its offices, mitigating the high cost implied by
of the new ERM offices, several elements that depict the
turnover in the company. In terms of its power setup, the
company’s sustainability philosophy must be taken into
office maximizes the use of natural sunlight in order to cut
account. Transparency is the first element that the company
down on electricity as much as possible, but energy efficient
wanted to express through the design of its facilities.
LED lamps are used if additional light is needed. One of
“This transparency is physically visible, and from almost
the most notorious expressions of sustainability at ERM’s
everywhere in the office, you can see the whole space,”
office concerns the materials used for the interior design of
says Roberto Fraú, Social and Sustainability Team Leader
the workplace. The inside of the office is mostly made up
at ERM. “The walls are made out of glass and furniture is
of recycled materials, once headed for the landfill, such as
shorter creating an open space.” Second, as most of ERM’s
waste marble, glass and wood. “The floor is literally made up
clients are coming from the industrial sector, the company
of different pieces of marble that were put together,” Ortiz
wanted to include an element that they would identify
Monasterio explains. “We went to different construction sites
with. “Tubing is purposely made visible in the ceiling as
and collected broken glass and wood to make our furniture,”
we wanted to transmit the feeling of being in a factory of
he adds. The green transformation of ERM has brought
ideas,” comments Fraú. Fraú mentions that collaboration
many benefits for the company both by reducing costs and
among its teams, across various specialties and disciplines,
generating savings and by serving to prove its commitment
makes ERM stand out in the market. “With collaboration
to sustainable solutions. “Such a movement is fairly easy
in mind the office was designed so that our employees do
to organize and the returns are immense once a company
not have a specific assigned place. Sitting next to different
makes sustainability a priority. If someone says it is difficult
colleagues from time to time helps to promote collaboration,
to do, it means that they have not tried,” comments Fraú.
productivity and innovation by improving communication,” says Ortiz Monasterio. Finally, the fourth aspect incorporated into the office was sustainability. The first action taken by ERM to become an example of sustainability involved choosing a more sustainable building location in the center of Mexico City. The site had to be conveniently located to be reached by public transportation, such as subway, buses, and public bicycles, enabling employees to reduce their commuting time. “ERM was only considering LEED certified buildings but the company also wanted to promote the redensification of urban areas in Mexico City,” comments Fraú. “Instead of picking a greenfield project, we wanted it to be a reconstruction of a previously used space.” The process sought to foster social sustainability awareness within the
285
TURNKEY ENERGY EFFICIENCY SOLUTIONS FOR MUNICIPALITIES Much of the debate surrounding energy efficiency in
diagnostics are correct, helping to lobby Congress to get
Mexico takes place at a theoretical level, concerning the
the needed authorization for such programs, and supplying
thrust and parry of federal government policy and leaving
a variety of financial strategies from pure leasing and direct
aside what is happening on the front lines, in Mexico’s
credit to trust funds. The complexity stems from the fact
2,500 or so municipalities. Yet, implementing long-lasting
that Mexican states have their own legislation, meaning that
and real changes at the municipal level would garner vast
Inteligenciæ is not able to develop one universal package
energy savings for Mexico, help fight climate change and
that it can use across the country. Instead, the company has
assist in reaching central targets for the participation of
had to develop tailor-made solutions for each state, a process
renewable sources in the energy mix.
that involved some hard knocks along the way. “We found out the hard way that the lighting departments of many
“Energy efficiency projects for municipalities in Mexico
municipalities have unions that sometimes try to sabotage
have had a lot of difficulties in becoming successful. 90% of
the projects. Then, we let municipalities do the installations
projects have failed because they lacked financing. Of the
for energy-saving lights, but they did not always have the
10% that got financing, 90% failed because they could not
right people to do it,” says Romo. Inteligenciæ hired lighting
get the energy savings recognition from CFE.” So says Raúl
workers outside normal working hours to net them extra
Enrique Romo, President of Inteligenciæ, a company that
income, involved CFE from the beginning to pave the road
specializes in providing turnkey solutions for municipalities
for minimal bureaucracy, and hired local people to help the
to successfully cut their energy spending. Romo explains that
economy. Romo explains that it can be so difficult to work
municipalities are troubled by a number of aspects, including
around specific local problems that the CFE has appointed a
venal companies that do not deliver on promises. Companies
large team of dedicated superintendents, with one working
sell their products to municipalities by pledging that the town
in each Mexican municipality.
will make savings on the costs it pays to CFE, but when these do not materialize municipalities are often left with a debt
“The disconnect in the dialogue between federal, state and
they cannot pay. Seeing this, Inteligenciæ decided to act.
municipal actors is at the root of much of this discord,”
Romo states that the company backs up the municipalities
Romo believes. He provides the example of Georgina Kessel,
it works with from the start by ensuring that the initial
the former Minister of Energy, who moved from SENER to head up Banobras with the express purpose of financing energy-saving projects in municipalities, but was unable to close even one. To solve this problem, Romo suggests that energy efficiency projects should no longer be decided on by the presidents of municipalities but should be weighed up at the state level by the governors. Seeking to turn this suggestion into concrete action, Inteligenciæ is working on establishing a trust for every state that would see the firm deal only with governors. The advantage of this scheme for the municipalities is that, through a trust backed by the state, they would be able to access cheap loans that no banks would extend to them individually. In order to trust Inteligenciæ and follow the firm into such a framework, municipalities must already possess an inherent faith in the company’s capacity to deliver on its word. Not a problem, says Romo, who states that the company’s integrated solutions are at the core of its business success. “We do not only sell lamps. If you want to buy lamps, you can buy them cheaply from the market. We solve political, legislative, financing and technological problems in order to make projects work under the different requirements of each municipality.” One of the major differences is the time it takes to make a project work. Romo points out that in the State of Mexico, an energy efficiency project is
286
“Energy efficiency projects for municipalities in Mexico have had a lot of difficulties in becoming successful. 90% of projects have failed because they lacked financing” Raúl Enrique Romo, President of Inteligenciae
75667
mandated for 24 months, whereas other states might allow
do not require the authorization of financial authorities to
them to run for 36 months. For Inteligenciæ, the longer
operate. This gives them just the flexibility Romo is looking
the better as this allows the firm to generate more savings
for, because as he explains: “One municipality could not get
and use better technologies, such as LED lighting. Shorter
the right authorization from Congress, so instead of a long-
timeframes mean that cheaper technologies need to be
term credit the Sofome gave them a 90-day credit, as this
used to ensure quicker results. This flexible attitude has
timeframe does not require the registration of the financing
seen Inteligenciæ carry out successful projects in over 60
with Congress. Every 90 days, they re-sign the contract,
Mexican municipalities so far.
which a bank would never do, but a Sofome can.”
Financing remains the prominent contributing factor to
So why does Inteligenciæ fight so hard to implement the
the failure of municipal energy efficiency projects. “We can
latest technologies such as LED lighting in municipalities?
provide the best technology in the world but it will not work
Surely the aggravations listed above would put off many
if the municipalities do not have money. The only way they
other players. For Romo, despite these hurdles, working
can do the project is if you supply them with the money to
with municipalities is easier: the initial investment required
do so,” Romo argues. But Inteligenciæ believes it has come
is smaller and the projects are worth more. He estimates
up with some creative solutions to avoid that problem as
that small municipal energy saving projects can be worth
well. Beyond regular financial partners, such as Banorte and
between MX$2-5 million (US$148,000-370,000), as opposed
Grupo Financiero Interacciones, the company has turned to
to MX$1-3 million for a small private project. And given the
Sofomes for support. Sofomes are financial entities that can
size of the public lighting market in Mexico, Inteligenciæ is
provide credit or lease holding for specific projects, but that
unlikely to run out of potential clients anytime soon.
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LONG-TERM BENEFITS OF HIGH QUALITY LED LIGHTING
Eduardo Silva Montaño, Director General of Verde Alterno
It seems every sector could
get from a 1,000W lamp, and finding a way to install solar
benefit from LED lights:
panels that could produce sufficient energy to power the
street lighting, businesses,
device. After running several experiments, Verde Alterno
households and industries.
settled on the idea of using many LEDs on single lamps.
LEDs dwarf regular light
In taking up Ecofest’s challenge, Verde Alterno created
bulbs in areas such as
a valuable, sustainable product that brings its customers
energy
and
a return on investment within approximately one year.
durability, with a 50,000-
efficiency
A diesel-powered tower costs from MX$125,000 and
hour
MX$150,000
lifespan.
In
other
(US$9,250-US$11,100),
and
while
Verde
words, an LED light that is
Alterno’s prices are in the same range, they offer the added
in use for eight hours per
value of representing a sustainable investment.
day will last for 17 years. On the downside, they represent a significant investment. Eduardo Silva Montaño, Director
Verde Alterno’s sales strategy is also an inventive one.
General of Verde Alterno, explains that regular 100W light
According to Silva Montaño, Verde Alterno goes straight
bulbs cost between MX$2 and MX$50, whereas an LED light
to the companies it wants on its client list. The firm sells
bulb costs MX$200. “Those interested in this technology
its signature light tower to companies that lease light
should keep the long-term benefits in mind. As well as lasting
towers, in the construction and event industries. This is
for far longer, LED lights run on 6W of energy, which is far
complemented with a simple yet intelligent strategy for
less than regular light bulbs, and the technology is mature
remaining ahead of the competition: developing clever
enough to be applied anywhere. However, because the
LED products. This goes beyond selling lights, which
market has been saturated with Chinese products, a lot of
anyone can do, it is more about developing products
people are selling the same LED lights.” Silva Montaño is
that no one else has. The company acts as a consultant,
adamant that the industry needs innovation so as to offer
determines its customers’ needs, and then develops
added value and competitive differentiation.
products that respond to those needs. “We have cheap products because we are also involved in a price war,” says
Verde Alterno specializes in making and distributing products
Silva Montaño. “There is no doubt that we can compete
that are unavailable from its competition. For example, the
with Chinese products, but we also have products that are
MR16 LED works on 110V and can be dimmed, which makes
of the highest quality.”
this Taiwan made lighting solution more technologically advanced than most of its mainland China competitors. Silva
Despite the wide range of businesses the company serves,
Montaño and his team traveled to Taiwan looking for suppliers
it remains entirely focused on the private sector, citing the
and products with an edge and came across the MR16 LED,
difficulties one can face in working with the government.
which was not being sold in Mexico at that time. Needless to
“They may ask us to install 100 lamps for testing purposes,
say, Verde Alterno became the Mexican ambassador for this
which represents a big investment. They tell us they do not
product, which was a good complement to another of the
want to use our products because they have learned how
company’s most interesting designs: light towers.
to install the equipment themselves or have found other suppliers,” says Silva Montaño.
Verde Alterno maintains a close relationship with Ecofest,
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which hosts an annual sustainability exhibition that requires
For a time the company considered building a LED factory
light towers that run on clean energy. Ecofest asked Silva
in Mexico, but several factors derailed the idea, not the
Montaño’s crew to develop a light tower in line with the
least of which was the fact that this type of endeavor would
exhibition’s green ideals, rightfully thinking that using light
require a qualified labor force. “In Mexico, the workforce is
towers that consume 50 liters of diesel for every 8 hours
not that specialized and the people who are specialized
running time to host a sustainability event would lack
tend to be difficult to afford,” explains Silva Montaño. He
credibility. Verde Alterno complied by creating a solar-
also points out that this industry requires a type of silicon
powered light tower. The company had three months to
that is not distributed in Mexico. “It would be possible to
build the towers, which meant very little turnaround time,
import diodes and assemble the lights, but making the
and in addition they had to meet Ecofest’s desire to have
diodes in the country could not be done in a competitive
each tower illuminating as much as a 1,000W lamp. This
way. Nevertheless, such a project would have the added
proved challenging on two fronts: finding LED lights that
advantage of helping revenues stay in the country and
were powerful enough to simulate the light you would
speeding up delivery times.”
PRIVATE SECTOR SHOWS THE WAY IN SUSTAINABILITY STANDARDS A group of professionals from different backgrounds came
and even got involved with the National Renewable Energy
together to create Mexenergy as they felt the renewable
Laboratory in the US,” explains López Mestre Arana. His
energy sector needed a push since the public sector was not
company has strong ties to the US Green Building Council
acting fast enough. “We took our chances and assembled
and both entities are working on adapting a LEED based
a team of talented people to start developing impressive
rating system to Mexico. “We want city regulations to
photovoltaic projects,” says Severo López Mestre Arana,
evolve and become aligned with the LEED certification
Director of Mexenergy and Founding Partner of SUMe.
requirements,” says López Mestre Arana. “LEED awards
The company has always showed a preference for urban
require a significant percentage of renewable energy
areas, which it believes to be crucial for the development
generation for certified buildings but Mexican regulation
of renewable energy. The market has grown exponentially,
does not recognize LEED standards. Players should not
but some deficiencies that have been hampering the
have to wait for the government on this. The market
development of solar power since Mexenergy’s earliest
is asking for high quality renewable energy solutions
days have not improved. Projects often do not follow
because contractors want LEED certificates. We want to
through due to financial reasons, which López attributes
ensure this happens in many more projects nationwide,”
to shortcomings in the Mexican regulatory design. “For
says López Mestre Arana. Renewable energy use, including
example, even though Aura Solar I might be the largest
photovoltaic
solar project in Mexico, it is not even connected to the
companies like Mexenergy have to ensure everything is in
national grid,” López Mestre Arana points out.
order for projects to go through. “The residential sector
power,
is
policy
driven,
which
means
“The market is asking for high quality renewable energy solutions because contractors want LEED certificates” Severo López Mestre Arana, Director of Mexenergy and Founding Partner of SUMe
López Mestre Arana believes that it is essential to help
has been considering PV energy as an alternative to the
government officials see the big picture regarding the solar
rising costs of electricity, which stem from the lack of natural
industry. Mexenergy cooperates with other companies and
gas and infrastructure. However, the residential sector is not
associations to help create standards that currently have
very profitable at the moment as its commercially viable
voluntary norm status (NMX) and López Mestre Arana will
segment represents no more than 100,000 households in
work with SUMe on creating binding norms. “The key to
Mexico City,” according to López Mestre Arana. “Homes
success in an increasingly overcrowded market is having the
that are not paying CFE’s DAC rate are paying a subsidized
right technology and knowing how to operate it. The latter
rate and I do not know of a single place on Earth where
is rather complex, as it involves understanding distribution,
PV systems can compete with subsidized conventional
transmission, rating systems, and regulations. Mexenergy
electric rates.” Usually, the PV sector asks for incentives.
has an advantage in these fields because using exclusively
This is not the case in Mexico, where PV players are asking
cutting-edge equipment has been a priority since the
for a level playing field where subsidies on hydrocarbons do
company’s beginning,” says López Mestre Arana. “When
not impact electricity rates negatively. López Mestre Arana
we started, the vast majority of the market was taken up
claims this situation has been holding the PV sector back.
by low quality equipment and Mexenergy set standards. We are interested in developing projects and, in doing so
“The residential market is experiencing a sustained growth,
we bring the best equipment to the table.” He warns that
providing future opportunities,. while the commercial and
distributors can get away with selling low quality products
industrial markets require major changes in regulations
in a market where not all people are well-informed.
and policies,” says López Mestre Arana. “Mexenergy has been forced to put way too many projects on hold due to
“Equipment should not be only judged based on its quality
uncertainty regarding financial returns. LEED certifications
but also in terms of its adaptability when developing green
sometimes mitigate the negative effects of the insufficient
cities in Mexico. We traveled around the world, tested
regulation. It makes sense for Mexenergy to continue working
different types of equipment, learned about standards,
on industrial certifications for the Mexican market.”
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| VIEW FROM THE TOP
ESTABLISHING SUSTAINABLE SOLUTIONS AND CARBON EMISSIONS REDUCTIONS GABRIEL QUADRI Director General of Enerclima Q: What motivated you to move out of your role in
to renewables in Mexico. However, I am confident that even
government and get involved in the private sector,
without price support renewables will achieve parity. We
specifically in the renewables industry?
have actually already achieved parity in some areas of the
A: I moved into the private sector immediately after finishing
country for various types of electricity users.
my responsibilities with the federal government. I worked for the National Business Council for Sustainable Development,
We also need a smart grid, a grid that can transfer energy
while also founding an environmental services company.
from areas where renewables are competitive, as well as
Three years ago we started to explore the possibility of
devices for energy storage. We need for the government
developing renewable energy as one of the core areas in our
to intervene on land tenure issues with local communities.
business. This was as the result of my experience as Director
The government should take a more proactive stance
of EcoSecurities, a British firm that operates in Mexico
regarding these problems and try to facilitate negotiation,
and Central America and specializes in the carbon market.
to reassure communities about the benefits of such
We developed a number of projects in Mexico relating to
projects and also reassure investors that they will have
renewable energy, and specifically the generation of carbon
legal certainty if they sign contracts with landowners.
credits in order to sell them in the European market. I foresaw that the carbon market would not always be as attractive
Q: How can Enerclima provide the best results for industry
as it was previously, so I began exploring the possibility of
and municipalities alike?
developing physical assets, focusing on emissions reductions
A: Regarding municipalities, the most important challenge
and mitigating climate change.
is dealing with the very short municipal government terms. They only govern for three years and they have very short-
At Enerclima we have explored a number of alternatives,
term vision as a result. They are subject to broader political
such as methane in pig farms, methane in landfills and solar
pressures and do not have the opportunity to clearly envision
energy. We opted for solar energy, since this kind of business
the future. That is why we seek to immediately offer them
does not require a lot of capital. We started out partnering
discounts on the electricity they are going to pay, including
with a German company. Germany has been the leader in
the financial cost of the project, which is not easy to do. We
solar energy for decades, and we were able to learn from
have to offer them benefits in the first year of operation.
their expertise and start developing projects for different
You also need guarantees from the federal government, as
industries in the private sector. Given that electricity prices in
without them you cannot go ahead with the municipalities.
Mexico are going up, solar energy will soon match the tariffs that the industrial sector is currently paying. Solar energy
Q: What are your priorities for growth in the solar market
is also ideal for promoting corporate image, in relation to
in the next five years?
sustainability policy. Once you have a solar installation you
A: In the next five years, we expect Mexico to have 1GW
eliminate all uncertainty about prices, because you know
of solar power, and this number will grow exponentially
what you will be paying per kWh for the next 25 years.
after that. It would give the power sector much more flexibility, it would give much more freedom to consumers
290
Q: In terms of the operating framework, what are the most
and will make the whole ensemble more decentralized. It
important measures that need to be implemented for the
will put pressure on CFE to be more efficient and to build
development of the sector?
a smart grid capable of incorporating intermittent energy
A: There are a number of issues. Firstly we need a market,
sources, such as solar and wind. Fortunately, with the
we need to have the right to sell electricity. You currently
Energy Reform, we will have the institutional framework
have to resort to the self-supply model. The law allowing
needed to develop renewables in Mexico. Even without the
for a market with bilateral contracts would be a very
subsidies seen in Europe, Mexico will be a huge player in
important change, as this would give a competitive edge
the renewable energy market.
| VIEW FROM THE TOP
QUERETARO TACKLES SUSTAINABILITY AT CENTRAL LEVEL MARCELO LÓPEZ Minister of Sustainable Development of the State of Queretaro Q: What can you tell us about the Sustainable Queretaro
from a geothermal plant near San Luis Potosi. There is a
project?
high demand for energy in Queretaro, and we are not self-
A: The Sustainable Queretaro project is an initiative of the
sufficient at all.
Queretaro government that aims to ensure that public policy is formulated with the state’s sustainable growth in mind.
Q: Besides solar power, what other natural resources
Queretaro is one of the largest and most dynamic states
could Queretaro use for energy generation?
in Mexico, with one of the country’s highest GDP growth
A: In terms of renewable energy development, our main
rates. The Sustainable Queretaro project is the first state-
focus right now is on wind and geothermal power. We
level program in Mexico to be focused on controlling the
could take advantage of two big geothermal hot spots that
growth of a state and the metropolitan area, and is based
are close to Queretaro, one of them is near Guanajuato and
on four strategies. The first tackles population and looks to
the other is close to the State of Mexico. Given the shift in
develop infrastructure, social services, security and human
technology for wind power, we are also looking to open
rights. The second looks at competitiveness, which can help
a few spots with strong wind resources. In addition, we
move us toward a knowledge economy. We have to make
are also starting to review the possibilities of using certain
a transition towards a service-based economy, especially
municipalities’ landfills to generate energy from biogas.
in information technology and telecommunications. The third strategy is directed toward social policies that address
Q: How is Queretaro’s academic sector involved in the
inequality and other problems that exist in the state. The last
potential development of the renewable energy industry?
strategy is environmental and oversees natural resources
A: Queretaro has a couple of R&D centers that are focused
in Queretaro, education regarding sustainability and the
on the renewable energy sector. Those are mostly involved
integration of renewable energy.
in carrying out research in the wind sector, as well as water management and conservation. There is also a GE R&D
Q: How can you turn the state’s environmental challenges
center that has been working on hybrid systems for wind
into economic benefits?
and solar.
A: We first have to work on our current consumption of natural resources. Right now it costs Queretaro US$300
Q: What goals do you have for the next five years for the
million to bring water to the metropolitan area. We are also
Sustainable Queretaro project?
investing a lot in water treatment facilities. With regard
A: In 2011, we carried out an exhaustive study of Queretaro’s
to the implementation of renewable energies, we are
energy consumption and carbon footprint, which allowed
creating incentives to attract private investment, with the
us to establish very clear benchmarks for what we have to
aim of developing a 40MW solar power project across 100
accomplish in the coming years. Our economic goals are
hectares in the Queretaro desert. In Queretaro, the first
very clear. We have to grow our GDP at a yearly rate of 6%,
party interested in solar energy is the government. We are
which is the same growth we have had over the past three
paying around MX$300-400 million (US$22-29 million) a
years, and we have to generate 80,000-90,000 jobs. We
year for energy, so reducing our consumption and costs
have also created social programs through which we are
would be of great benefit to public finances.
aiming to provide concrete floors, water, light and power to everyone in the state. If we are successful, we will be the first
Q: What is Queretaro’s energy mix comprised of
region in all of Latin America to accomplish this. One of our
nowadays?
main concerns is education: we need to create renewable
A: Queretaro generates approximately 10% of the energy
energy university programs as well as new environmental
that is consumed in the state, which makes the state an
programs. We are investing 16% of our budget in public
energy importer. A lot of the energy consumed in the
infrastructure and are facing the challenges sustainability
state comes from hydropower plants near Hidalgo and
brings, but I am sure that we will be successful.
291
CORRUGATED PIPING CAN HELP SOLVE WATER CHALLENGES The switch from concrete
During the process of working on water treatment and
pipes
polyethylene
drainage ADS Mexicana became a supplier of CONAGUA, the
pipes required a wholesale
national Mexican water utility. To do so meant undergoing
shift in the mindset of
a rigorous certification process to show that ADS Mexicana
Juan
had the right background and quality. Raigosa Valadez said
When
Juan Raigosa Valadez, Director General of ADS Mexicana
to
Raigosa
Valadez.
working
for
that the company threw open its doors to anyone who
Bufete Industrial, he was
wanted to visit its plant or test their products, which was part
accustomed to and set
of its commitment to showing CONAGUA that it did business
on the idea of concrete
in the right way. “Some companies import tubes from the
pipes, until the merits of
US and just concentrate on selling them, instead of following
corrugated plastic piping
up on delivery, installation and general services,” he explains.
became obvious to him. “The larger the tube diameter,
“We begin talking to constructors at the pre-construction
the thicker the pipe is. This thickness, involving double
stage. While we recognize their expertise, we ask them to
layer technology, provides mechanical resistance through
let us show them how to install our tubes and pipes in order
the corrugated exterior layer, while the inner layer serves
to avoid future potential issues.” But ADS Mexicana’s growth
for hydraulic conduction. Having this corrugated exterior
potential does not stop at the water’s edge. The growth in
is fundamental if a tube is to last a number of years
the Mexican energy sector has also thrown up opportunities
underground. Also, concrete pipes deteriorate due to the
that the company is trying to seize. For example, the firm
methane gas produced by wastewater, but polyethylene
adapted one of its pipelines to run electric and fiber optic
pipes do not,” explains Raigosa Valadez. It seems the
cables through it. “The main reason behind this was to attack
revelation of Raigosa Valadez made commercial sense, as
visual contamination. In this way, cables can be installed
he is now the Director General of ADS Mexicana, a Nuevo
underground. New residential developments are already
Leon-based firm that specializes in plastic tubing for water
seeing lighting and electrical cables being installed under the
drainage and wastewater systems. Plastic tubing has also
sidewalk,” explains Raigosa Valadez. This method of shielding
proved its financial superiority over concrete solutions, as
cables inside plastic tubing has proven effective for various
its light weight means it can be installed without the use of
other problems besides stopping cables from being eye-
a crane, saving on construction times and costs.
sores. For energy efficiency, ADS Mexicana’s solutions have also helped in places where transmission lines are affected by
ADS Mexicana was formed as a joint venture between
external factors such as wind. In severe cases, wind can cause
Mexico’s Ecological Drainage Systems and ADS International,
energy shutdowns, which means significant economic losses.
which had over 40 years of experience in the sector and
CFE has also used these solutions for street lighting and to
was seeking the best way to bring its products to Mexico.
prevent cable theft.
The immediate motivation behind the formation of ADS
292
Mexicana was to mitigate environmental degradation by
Across all the sectors it works with, from sewage to
providing solutions to river, lake and ocean pollution. At the
agriculture, ADS Mexicana’s research and development
time, Raigosa Valadez says the Mexican wastewater system
priorities run in the same direction. “Our tubes are not made
contained both pluvial and sanitary drainage, raising some
for drinking water but for pluvial and sanitary sewage. Our
obvious environmental and health concerns. He explains
tubes have more hydraulic capacity since the inner part of
that the situation has now evolved and project developers
the tube is smoother, whereas a concrete tube has many
have to send sanitary drainage to a dedicated water
pores. This increased hydraulic capacity actually diminishes
treatment plant so it can be reused for other purposes. “For
the need for construction work,” says Raigosa Valdez. This
sustainability purposes, an increase in water treatment in
one-size-fits-all focus has helped the firm’s sales explode
Mexico would allow underground drinkable water to be
from US$2 million in 2000 to US$85 million in 2010, showing
destined exclusively to human consumption, instead of
how one good product can make or break a company. Now,
being used pointlessly for industrial purposes.” In order
with plants in Nuevo Leon, the State of Mexico, Sinaloa
for this plan to become a reality, Raigosa Valadez reveals
and Yucatan serving the Mexican market, ADS Mexicana
that ADS Mexicana has been working on developing its
is looking abroad. Land has been bought in Costa Rica to
engineering department and installing as many water
build a plant to supply the Central American market. The
collectors
additional
company is quietly confident that, even when working in
treatment infrastructure would go a long way to solving
as
possible
nationwide.
“This
different countries, the model that found success in Mexico
Mexico’s water shortages,” he adds.
will prove to be a winner once again.
WATER MANAGEMENT TO INCREASE QUALITY OF LIFE In March 2011, Former President Felipe Calderón inaugurated
a leading competitor in each of those small fragments. It
the sewage pumping plant of La Caldera, located in the
will also on its experience and reputation as a big company
eastern part of Mexico City. With a capacity of 40m per
with an established brand not only in Mexico but around the
second, it is part of the authorities’ efforts to lower the
world, too. Service plays a big role in that strategy: for KSB,
flood risk on the La Compañía canal. The surrounding
it is not just about selling valves and pumps, the company
municipalities are densely populated, with over 1.1 million
seeks to sell systems, solutions and services, too. The goal
inhabitants who year after year face the risk of losing all
is to be recognized as a provider, by adding unique value to
their possessions during bouts of heavy flooding. A year
the products and making KSB the most attractive option
later, El Caracol, another sewage pumping plant that is part
for existing and potential customers. “We want to build
of the Túnel Emisor Oriente, was also inaugurated. It sends
a reputation for being reliable and for offering excellent
residual water to the first stage of the tunnel, which will be
service, high quality spare parts and complete solutions,”
completed in 2016. La Caldera and El Caracol are both part
Padrón states. In order to guarantee quality KSB uses three
of the government’s commitment to improving Mexico City’s
different standardization systems, which govern quality
sewage system. “We worked together with contractors
management as well as health and safety: ISO 9001, ISO
and the government in the construction of these two big
14001 and OHSAS 18001. These standards are in place in all
pumping stations for sewage systems,” says Gerson Padrón,
of KSB’s manufacturing facilities, while the company makes
Director General of KSB de México. “This kind of technology
additional investments in machinery, equipment and other
is also being used in other large cities, such as London.”
resources on a regular basis, with the aim of guaranteeing
3
“We use our pumps to provide access to drinking water, and we also process wastewater in order to keep the country and our cities clean” Gerson Padrón, Director General of KSB de México
KSB, which was founded in 1955, originally came to Mexico
the quality of its products. Padrón explains that KSB
to produce submersible pumps for groundwater extraction.
is always looking for ways to improve profitability and
After 15 years, KSB developed a variety of brands and
efficiency, by investing in more technologically advanced
models, obtaining a larger market share in the oil, energy
systems that allow higher quality production processes.
and industrial sectors, aside from the water sector. The company then diversified and began manufacturing pumps
Padrón emphasizes the importance to the company of being
for environmental activities, such as sewage and soil
socially responsible. “We use our pumps to provide access
transport. Padrón explains that the company is currently
to drinking water, and we also process wastewater in order
only producing submersible water pumps, which it began
to keep the country and our cities clean. We are investing
manufacturing 57 years ago, and horizontal pumps for the
in green projects around the world, and although Mexico
industrial market. Confident of the opportunities that exist
does not have a large number of these types of projects,
in Mexico for these products, he has set an ambitious goal
we want to be a part of those that do exist,” he says. As
for KSB in the country: grow 250% by 2018. “It is not an
KSB’s commitment to Mexico becomes more consolidated,
unreasonable goal when you look at the growth potential
Padrón expects the company’s business model to revolve
in the market that has come as a result of new projects
principally around water and wastewater, but in the future
being developed by the federal government, as well as the
the plan is also to venture further into the mining and oil
future plans of CFE, PEMEX and CONAGUA, which have
and gas sectors. Padrón is also looking to seize on the
to be developed by 2018,” says Padrón. “We know our
increasing opportunities that Mexico’s growth is creating
competition and their weaknesses, as well as our own. But
in North America. “The idea is to create synergy between
we also know what our strengths are, and how we can use
Mexico, Canada and the US and, on the Mexican end, to
them to acquire a bigger share of the market.”
become a competitive producer and manufacturer for the NAFTA and Caribbean markets. We are in the process of
The pumps and valves market in Mexico is very fragmented,
establishing which products could be manufactured in
Padrón observes, so KSB’s strategy is based on becoming
Mexico,” he concludes.
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SUSTAINABILITY
12 The days that companies were convinced that investing in sustainability would erode their bottom line are long gone. Realizing that sustainability can be a critical driver of positive change, companies are now starting to rethink the way they approach products, technologies, processes, and business models, transforming the competitive landscape and the way companies interact with their environment. The transition towards sustainability is not going to be easy, but the early movers are destined to create competitive advantages that will not only boost their reputations and financial performance, but will also be hard to match by their industry counterparts.
This chapter will talk about what sustainability means, which measures sustainability leaders are taking in Mexico, what drove the change in attitude of the country’s businesses community, and how Mexico’s business leaders are incorporating sustainability into their long term business strategies.
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MÊxico D.F. +55 5000 2500 +55 5211 0090 erm.mexico@erm.com The world’s leading sustainability consultancy
CHAPTER 12: SUSTAINABILITY 298
Warning Against Becoming Sustainable Too Quickly
299
Client Engagement Key for Sustainability
300
Hurdles to Overcome for Carbon Market Success
301
Knocking Down Barriers to Climate Change Strategies
302
Green Banking as a Strong Financial Strategy
302
Call for Sustainability Enforcement
304
Oaxaca’s Great Renewable Resource Potential
305
Partnerships Key to Sustainability Achievements
306
Global Influence Translates into Major Commitment
308
Keeping Ahead of the Pack on Sustainability
309
VIEW FROM THE TOP: Food Industry Relies on Wind Power
310
Peñoles Invests in Renewable Energy for Self-Supply
312
Catalyst for the Success of Green Technology
312
Local Strategies for Global Issues
314
Academia and Private Sector Team Up for Sustainability
315
VIEW FROM THE TOP: Community Empowerment Priority in Major Infrastructure Projects
316
VIEW FROM THE TOP: Mineral Solution to Paper Pollution and Waste
316
Connecting Smaller Greentech Companies with Big Opportunities
318
Efficiency Seen as Pillar of Solar Development
319
VIEW FROM THE TOP: Building a Supply Chain for Renewable Energy
297
WARNING AGAINST BECOMING SUSTAINABLE TOO QUICKLY Few enterprises have the breadth of strategic vision that
strategy should be enshrined in a company’s core mission.
KPMG enjoys. Where many seek to praise Mexico’s drive
“One person in one department preparing a sustainability
toward sustainability or list how many companies are adopting
report on a yearly basis is not being sustainable,” states
environmentally friendly practices, KPMG pours cold water
González
on Mexico’s ambitions. Jesús González Arellano, Partner, Risk
understand that sustainability is good and a requirement
Advisory Services of KPMG, says that any discussion about
for the company.” One argument that has proved effective
sustainability in Mexico has to take the different realities into
is making companies understand that the initial investment
account. “There are approximately 5 million companies in
required will translate into savings down the road and
the country but those companies are very different. A tiny
increase the value of a company’s stock. “The trick is to
fraction of them are large organizations and those are the
ensure companies understand that being sustainable is part
ones that have been talking about sustainability for years.
and parcel of any business, not just some sideline about
The 4.9 million small or medium-sized companies in Mexico
giving back to society,” says González Arellano.
Arellano.
“The
whole
organization
has
to
do not realize what sustainability is as it does not concern them. They are focused on paying their next salaries instead
Part of KPMG’s job is to help clients avoid such pitfalls.
of thinking about the long term,” says González Arellano.
As such, the first step is to build a tailor-made corporate
“However, he adds that even among those few companies
governance
that talk about sustainability, a significant percentage do
organizational structure and identifies its exact needs.
not completely understand what sustainability is. This
González Arellano has seen many company owners
leaves Mexico with a long way to go before becoming truly
complain that sustainability provides no value, but he
sustainable,” he concludes.
counters that this is because they often fail to understand
framework
that
respects
a
company’s
“Going green in three months cannot be done, as any sense of balance between economic and social factors would be lost” Jesús González Arellano, Partner, Risk Advisory Services of KPMG
González Arellano is perfectly placed to comment on KPMG’s
the core of what corporate governance means. He
sustainability practices, both in Mexico and globally. He is
states that a company that takes this position risks not
part of the firm’s international sustainability group, in which
evolving with the world and losing out to competitors
representatives from 35 countries meet annually to discuss
that are reducing operational costs while implementing
the latest trends and regulations. However, this experience
environmentally friendly programs. “Big companies in
has taught him that international knowledge and practices
Mexico are investing in wind and solar energy, and are
cannot directly be put in place in Mexico. “The economy, the
thinking about complicated sustainability issues. This is
structure of the organizations, the willingness to invest, and
not because they are just nice and care about minimizing
the capacity to work globally is different, so the knowledge
pollution, they know that this cost reduction is key
cannot be put to work in the same way,” he explains. This
to maintaining the privileged position they have,” he
has influenced the ways in which KPMG advises its clients
explains.
in Mexico on how to best become sustainable. Rather than rushing into things, González Arellano advises the crafting
For KPMG to keep leading its clients toward effective
of a clear strategy through time that is realistic for each
sustainable solutions in the future, it must lead by
individual organization. “Going green in three months
example. To do so, the firm has reduced its CO2 emissions
cannot be done, as any sense of balance between economic
by 50% over the last five years. The company knows that
and social factors would be lost. The transition must take
future sustainability moves will be more complicated,
into account a realistic idea of a company’s expectations
but its commitment is anchored in the knowledge that
and capabilities,” says González Arellano.
the sustainable actions that it takes, together with those taken by its clients, will significantly benefit the economy,
298
So what precise advice does he provide to clients who are
the broader development of Mexico, and the success of
seeking help on sustainability? The main point is that the the
the firm.
CLIENT ENGAGEMENT KEY FOR SUSTAINABILITY The world’s largest bank in terms of assets takes its history
Another
seriously. Having been around since 1865, HSBC considers
sustainability can be seen by looking at the Mexico City
the reputation it has accumulated over close to 150 years to
skyline. To “remain in the market for another 150 years,
be sacrosanct. It is now relying on its sustainability strategy,
HSBC has long known sustainability is the way to go. The
revolving around community and client engagement, to
HSBC Tower in Mexico City was the first building in Latin
anchor its reputation going forward. “We are a business and
America to gain LEED Gold certification in 2007. In 2012,
we have to create profits, but if we do so sustainably, we are
the tower obtained LEED Platinum certification for its
going to be able to do more for society and the communities
maintenance and operation, which means that the HSBC
where we operate,” says Miguel Ángel Laporta, HSBC
Tower is saving 60% of the water and up to 40% of the
Mexico’s Corporate Sustainability Director. As such, the bank
energy used by a similar sized tower. But Laporta explains
dedicates 0.5% of its profit before tax to its sustainability
that HSBC’s LEED efforts are not reserved only for its Mexico
strategy. This money is then divided to the tune of 50% to
HQ. “By January 2014, we are going to have 25 branches
education projects, 25% in environmental projects, and 25%
with LEED certification while six of those branches will
to various community projects. Further funds are raised
have solar panels installed. Almost 60% of the energy of
for social programs by inviting clients to make a donation
these branches will be generated by solar power.” HSBC
every time they access HSBC’s network of over 6,000 ATMs
has made important strides on energy efficiency across the
across Mexico. As well as being an effective way to fundraise,
board, with operations in each country needing to reduce
Laporta states that this action fits into another of HSBC’s
their energy and water consumption, as well as their CO2
priorities, namely how much engagement it is able to create
emissions and waste production by 10% every year. The
among clients, staff and stakeholders.
bank also recently moved away from being a carbon neutral
of
the
bank’s
major
achievements
toward
“When we give a credit, we do not only analyze the financial perspective but we also consider the social and environmental impact of our investments” Miguel Ángel Laporta, Director of Corporate Sustainability of HSBC México
As indicated by its budget allocation, HSBC has long
bank. Disappointed that the carbon trade market did not
considered education a priority. Three years ago, the bank
progress as expected, Laporta states that the group now
started the Solo Levanta La Mano (Just Raise Your Hand)
invests the same amount of money in water programs.
program. Since HSBC divides Mexico into eight administrative regions, the goal was for the bank’s operations in each region
HSBC’s sustainable actions do not stop at their buildings and
to adopt a school, enhance its infrastructure and improve the
charitable programs. The way the bank finances programs
quality of education by implementing three strategies. “We
and gives credits has also been completely transformed
provide scholarships to 100% of students in these schools, we
since it signed on to the Equator Principles. “When we give
help the schools build needed infrastructure, such as clean
a credit, we do not only analyze the financial perspective
bathrooms, and we train the teachers so that they can better
but we also consider the social and environmental impact
teach the students.” The program has grown and HSBC now
of our investments,” says Laporta. Adopting the Equator
sponsors 26 schools in 22 states, supporting more than 5,000
Principles was hard for HSBC at first as it meant letting
students. This form of community engagement also gets
go of some business deals that were soon snapped up by
the bank’s clients involved as they can choose to sponsor a
competitors. HSBC also has a policy that dictates that a
student at one of the schools, described as “giving an added
certain percentage of the company’s total portfolio has to be
value to the clients by letting them become involved with
invested in clients creating sustainable projects, ranging from
the community.” The bank’s CSR goals also state that every
ranging from renewable energy to green technology. Laporta
year, 10% of the total staff of HSBC Mexico must participate
says that 10 years ago, sustainability was a nice feather in a
in different social activities. Making sure that these numbers
company’s cap but today, it is essential. “Clients are deciding
are reached involves a major effort but in 2012, HSBC logged
who to work with depending on the company’s principles.
more than 32,000 hours generated by more than 2,500
80% of recent graduates prefer to work for a company that is
employees.
implementing sustainability principles,” he explains.
299
HURDLES TO OVERCOME FOR CARBON MARKET SUCCESS In 1999, Alfonso Lanseros
helped them manage and process CDM projects through
Valdés
travelled
to
the UN framework, as well as monitor and implement
Denmark
to
investigate
the sale of carbon credits. It also provides help in the
why a decision was made
commercialization stage and for carbon credit sales, so
to
companies do not have to dedicate additional human
shut
down
a
coal
power plant. The manager explained
Alfonso Lanseros Valdés, CEO of CO2-Solutions
Denmark
resources to administrate the credits.
had
decided to reduce its CO2
The decision to work in Mexico came naturally. It was
emissions by 20%. At the
not only a matter of speaking the same language and of
time,
Lanseros
Valdés
cultural proximity as Lanseros Valdés also saw a great
was
promoting
fossil
future in the country. “In the next ten years, Mexico will
fuel projects but came to an important realization: if the
experience important growth, industry is going to flourish,
Danish were shutting down a carbon plant in which they
violence will diminish and people will have access to quality
had invested millions of euros, then carbon emissions were
jobs. I have no doubt that it will become the strongest
truly critical to the energy sector. It was the first time he
economy of Latin America. The US knows that Mexico
was confronted with a movement in favor of reducing CO2
has all the energy the US needs, whether for oil, gas, and
emissions. Lanseros Valdés points to that moment as being
natural resources. That creates a guideline for the Mexican,
behind the birth of CO2-Solutions, a Spanish company, of
American and Canadian relationship, regarding an energy
which he is the CEO, that focuses on carbon credits and
strategy where the three would not have to depend on
works closely with the renewable energy sector.
other countries.”
CO2-Solutions began working with European governments
The carbon credit market is still reeling from the global
and companies in relation to the EU policy to create a
economic crisis and carbon credits are at a very low
carbon trade market. Since then, it has helped international
price. But Lanseros Valdés believes that as the global
companies create strategies to learn how to operate in a
economy recovers, the carbon credit will also pick up.
low-carbon economy. Soon enough CO2-Solutions started
“Global warming is a fact and I believe that countries are
working on international Clean Development Mechanism
conscious that they have to shift towards sustainable
(CDM) projects with a strong focus on Latin America.
development,” he states. In order for carbon commerce to
“We were pioneers in developing CDM renewable energy
thrive, Lanseros Valdés emphasizes that CDM projects are
projects,” states Lanseros Valdés. The company decided
rather unfair since the country generating and receiving the
to focus on renewable energy as it went hand in hand with
most carbon credits is China, which is not in the grips of an
sustainability. “The fact that something is sustainable does
economic crisis and is actually buying debt. “We are seeing
not mean it does not have an impact and a cost,” says
China buy up European debt but we are simultaneously
Lanseros Valdés. “Nothing in life is free of consequences
waiting for European countries to buy Chinese carbon
and renewable energy is not exempt. Hydroelectric plants
credits. It does not make sense. It is unfair that only Europe
and wind parks have a negative impact but that impact is
is buying carbon credits when everyone is generating
offset than their positive aspects. At the end, the renewable
carbon emissions. This affects the market significantly.”
option is clearly better than other alternatives.” In Mexico,
However, there is a silver lining when comparing the current
CO2-Solutions has worked so far on many wind energy
situation to only a decade ago, carbon credits and global
projects, including Acciona’s Eurus I, Oaxaca II, III and IV and
warming today is on everyone’s mind. “Before, it was not
Peñoles’ Fuerza Eólica, as well as on PEMEX’s project at the
part of any political speech or electoral agenda. Now,
Dos Bocas port and CFE’s hydroelectric Chicoasen plant.
it is part of every government agenda. It is clear we are living a tough moment, and the market has to go in the
300
CO2-Solutions provides consulting services and advice
same direction as the political agenda,” he acknowledges.
to government agencies about policies that help create
As the market moves forward, it might be time for CO2-
Mexico’s energy strategies. It also works closely with
Solutions to reinvent itself due to the world’s focus on
governments on Nationally Appropriate Mitigation Action
natural gas, Lanseros Valdés admits. However, he believes
(NAMAs), which countries take to reduce greenhouse gas
renewable energy will benefit from crucial technological
emissions under a UN compact. In Mexico, CO2-Solutions
developments that will make it more competitive in the
has worked with CONAGUA, CFE, PEMEX, and SEMARNAT
short-term. “This environment is very positive to the energy
and renewable energy project developers. The firm
industry in general, and particularly to Mexico.”
KNOCKING DOWN BARRIERS TO CLIMATE CHANGE STRATEGIES Consultancy
firms
program, evaluating practices in mitigation strategies, and
and
facilitating access to international finance agencies and
governments plan energy
institutions. “We support innovation in climate change
strategies
increase
strategies in order to design a new framework alongside
energy efficiency through
international agencies, which is compatible with DNV
technical and operational
KEMA’s mission and vision,” claims Rescalvo. The company’s
support. Challenges such
priorities and strategies fluctuate according to clients and
as climate change raise the
market conditions. Rescalvo says the firm is looking closely
bar for consultancy firms
at new market mechanisms that should follow mitigation
dedicated to the power
and adaptation services, and emphasizes DNV KEMA’s
sector
can
Miguel Rescalvo, Regional Manager for DNV KEMA’s Climate Change Division
help
utilities and
providing
ambition to use its globally acquired expertise and know-
opportunities to stand out in the market. Norwegian
while
how in program implementation. On the other hand, DNV
classification firm DNV already had a strong presence in the
KEMA has plenty of experience in energy efficiency, which
oil and gas sector before entering the wind and solar energy
the firm wants to implement in Mexico once barriers are
industries. However, the company lacked experience in areas
torn down.
such as distribution and transmission infrastructure, energy efficiency, and management consulting for the energy
“Mexico’s electricity sector might be tightly regulated,
sector. Dutch firm KEMA was proficient in these areas, and
however the fact that the country holds a position as one
the merger of both companies expanded their landscape to
of the frontrunners in fighting climate change – partly due
a broader set of activities related to climate change issues.
to the country’s General Law on Climate Change – is an
Their current services encompass the entire chain of value
indicator this has to change,” says Rescalvo. “Maybe the
of the energy industry. The company diversified its services
government is not green for the sake of it, but it is definitely
and interests using its knowledge of the Kyoto Protocol
able to identify business and employment opportunities
mechanisms after the CO2 market dropped. “DNV KEMA
for Mexico,” says Ramiro Barrios, Climate Change &
has become a prime mover in the fight against climate
Sustainability Consulting Services Coordinator for DNV
change, working alongside international institutions such as
KEMA. He firmly believes that the current administration will
the World Bank, and is assisting the Mexican government
not drop the environmental agenda, given its creative ways
and several multilateral organizations on rethinking their
of involving the private sector and attracting investments
adaptation and mitigation mechanisms within the context of
through sectional programs. Linked to this, DNV KEMA
the decline of the CO2 market and its unfavorable aftermath
wants to participate in feasibility studies in collaboration
showed that it was unviable. Its shortcomings became more
with the World Bank and five private institutions. The goal
evident after five years, but this also helped show the virtues
is to make energy efficiency programs more attractive
of certain initiatives virtues in mitigating the effects of
in order to open up the market. “The private sector’s
climate change,” says Miguel Rescalvo, Regional Manager for
involvement is complex,” says Barrios. “Critics highlight
DNV KEMA’s Climate Change Division. He believes that the
the lack of fairness in this program because it only finances
bitter experience actually left a positive legacy, particularly
one private actor, but it is a necessary initial step.”
for Latin American countries. The Clean Development Mechanism had a positive impact raising awareness and
When the new Climate Change Commission was ratified,
getting the private sector involved through the use of
the government stressed the lack of correlation between
financial incentives. After all, the private sector has the
economic growth and environmental protection. “The first
power to change the rules for the industry and market.
step should be creating incentives to promote activities that might be seen as unattractive from an economic
DNV KEMA is proficient at measuring, verifying, and
viewpoint.” Barrios directly points to reducing subsidies
reporting information and programs, helping develop
for fossil fuels as a priority, arguing that making petrol
new strategies and improving the operational reliability of
more
existing ones. Although the firm is not working directly in
impacts
the Mexican energy sector, it is working with the federal
resources. Simultaneously, the quality of fossil fuels should
government on designing programs with a sectional
be improved by removing sulfur from gasoline and diesel
approach. Advancements in evaluating programs include
to improve air quality. When environmentally conscious
improving the energy efficiency of refrigerators and
measures are not against economic growth, intervening in
light bulbs, launching programs like the green mortgage
the energy sector is a profitable endeavor.
expensive and
would
increase
have the
positive
availability
environmental of
economic
301
GREEN BANKING AS A STRONG FINANCIAL STRATEGY “Sustainability is not at odds with profit,” says Mario Maciel
who decided to make it the pillar upon which a new bank
Castro, Director General of CIBanco. As the cost of energy
would be created. In 2008, the financial authorities approved
and other natural resources rise, companies that use these
the creation of new banking products. The first deposit
resources more effectively will gain a significant edge.
products were released in October 2008 and the first loan
Maciel Castro sees three main approaches toward gaining
was provided a year later. “In 2012, CIBanco became the
that edge. The first is adopting a long-term perspective
first green bank of Mexico by adopting sustainability as a
that initially involves investing in more expensive methods
business guideline, embracing the Equator Principles, and
of sustainable operation, which will eventually translate
joining the UNEP- Finance Initiative, the global partnership
in lower costs. The second is a more gradual process
between the United Nations Environment Programme
that starts with small changes to internal processes that
and the financial sector,” said Maciel Castro. This allowed
can generate substantial savings, which can then in turn
the fledgling bank to nevertheless contribute to the
be reinvested into more efficient technologies. The third
implementation of internationally agreed sustainable
approach is to spread sustainable practices among
development goals and commitments. ”We are betting on
customers. CIBanco, Mexico’s first self-proclaimed green
future generations who will seek for the green option in
bank, chose the latter approach. “This does not mean that
banking,” emphasizes Maciel Castro.
we only service green customers because it is not feasible for a bank to do that. What we do is provide added value
Making sustainability practices trickle down to clients is no
to our green customers; we offer better conditions if they
easy task with the main challenge being to educating the
adopt our green products,” adds Maciel Castro.
client. Maciel Castro observes that many customers still do
“In 2012, CI Banco became the first green bank of Mexico by adopting sustainability as a business guideline, embracing the Equator Principles” Mario Maciel Castro, Director General of CIBanco
CIBanco was born 30 years ago as a currency exchange
not understand the concept of the sustainable account,
bureau. In 1999 it was bought by its current shareholders,
which is paper-free by offering all banking services
CALL FOR SUSTAINABILITY ENFORCEMENT Mexico has an abundant
passed mandating that externalities be taken into account,
set
environmental
there are still no mechanisms to ensure that these rules
regulation
are implemented and complied with,” states Alanís Ortega.
official
“What we are seeing on a regular basis is that companies
norms are not properly
do not internalize but rather externalize in order to avoid
upheld, believes Gustavo
paying for their environmental impact.” The public sector,
Alanís
legislators, and CEMDA are confronted with the challenge
laws and
of but
technical
Ortega,
Director
General of the Mexican Gustavo Alanís Ortega, Director General of the Mexican Environmental Law Center
302
Environmental
of finding ways to enforce these laws.
Law
Center (CEMDA). “There
CEMDA was angered when the government’s new energy
is something wrong with
policies did not sufficiently seek to replace fossil fuels with
the law when externalities are not considered at the initial
renewable energies. “Mexico cannot make decisions based
stage,” says Alanís Ortega. Externalities have recently
purely on economic interests while its natural reserves are
moved into the spotlight as they are seen as crucial to
being depleted. We feel that Mexican policy decisions are
increasing energy efficiency and boosting the development
currently pointing towards a sustainable future,” says Alanís
of renewable energy. “Even though a recent law was
Ortega. Incorporating externalities requires the creation
through the internet. “Many people still prefer to receive
However, convincing the market that the green bank
their account statement in hard copy because they are not
concept was viable but that customers should sign up for
convinced they can see it online. It is a matter of a cultural
such programs was not as difficult as once thought. CIBanco
switch and education,” he notes. However, it has been easier
had the advantage of having previously operated as
to sell the CI Green Auto Loan – a loan for cars that emit
Consultoría Internacional Casa de Cambio, which provided
up to 180g of CO2/km with a preferential rate – as clients
it with an existing concentrated customer base. “We did not
immediately notice they are getting better conditions on
start from nothing,” stresses Maciel Castro. “We created the
their loan interest rate. Maciel Castro explains that when
bank on top of a previous business, which was easier for us
buying a regular car, the client will receive a 12.9% interest
as we did not have to suffer through the learning curve. It
rate, but when buying a green car, CIBanco provides them
was more a matter of selling our employees internally and
with a 9.9% interest rate, translating to savings of around
convincing them to act like bankers.”
26%. “People that buy a green car are making a rational purchase rather than an aspirational one; they do not
CI Banco’s green strategy has two major components. The
buy a car as a matter of status but because it is cheaper,
first one is corporate sustainability and the reduction and
environmentally friendly, and has lower fuel consumption.
efficiency of the bank’s use of natural resources. In the
A person who thinks in those terms is more focused on
past year the bank has managed to reduce its own carbon
sustainability and is more responsible,” he adds.
footprint by 34%, which has led to operative cost reductions. “We started with the PV system installation in some of our
Given the complexity of sustainability and the cross-sectorial
corporate buildings and signed an agreement to purchase
approach it requires within the bank, CIBanco designated
60% of our branches’ energy consumption from a solar
José Gómez Santamaría as its Chief Sustainability Officer
park. This will mean that we will be saving around 35% on
to implement the bank’s sustainability agenda. Gómez
our electricity bill each year,” underlines Maciel Castro. The
Santamaría acknowledges that sustainability doubles up
second component of the green strategy is increasing the
as a great marketing strategy because it sets CIBanco
proportion of profits generated from green business. “The
apart from other banks. He explains the three generations
CI Green Auto Loan has grown 250% in this past year,” he
of Mexican banks. First generation banks are those that
adds. While the bank is also exploring opportunities in new
were nationalized in 1982 and reprivatized 10 years after.
sectors such as eco-friendly transportation (GNV) and
Second generation banks are those that were approved in
more efficient industrial machines, it will mostly be focused
the mid-1990s, while third generation banks are the ones
on renewable energy projects in the coming years. “The
that have been authorized during the last two presidential
Energy Reform encourages the use of renewable energy
administrations, such as CIBanco. “The main challenge
by eliminating regulatory hurdles for new projects and by
we face is linked to being a third generation bank. We are
building more transmission lines. In addition, the financial
competing with institutions that have been in the market
sector will provide access to preferential green credits,
for more than 100 years and that are worldwide brands,”
although we are still waiting for the secondary laws to
says Maciel Castro.
come through to finalize this,” Maciel Castro adds.
and the publishing of a measuring methodology, he
favor of establishing a mandatory car verification program
recommends, while adding that CEMDA will also advocate
in every state while establishing local standards,” says
the reduction of the use of fossil fuels in the transportation
Alanís Ortega. He declares that labor, education, culture,
sector and a halt to the promotion of nuclear power.
crime, and the economy feature far more prominently on Mexico’s public agenda than environmental issues. CEMDA
“According to the World Health Organization, around
notes that the preservation of natural resources, quality
40,000 people die every year in Mexico due to poor air
of life, and public health go hand in hand. “By increasing
quality, but not many policies address this issue although
the use of renewable energies, the annual mortality rate
plenty of laws exist,” Alanís Ortega laments. CEMDA points
linked to poor air quality would dramatically decrease.
to a broad array of issues that need immediate attention
The overlapping of social and environmental issues
across several sectors. “First, the question of subsidies
should also concern lawmakers. An existing phenomenon
should be addressed. For example, the subsidy on gasoline
known as ‘environmental migration’ has recently received
only benefits a small segment of society with financial
attention, as it has grown in scope. Environmental migrants
means and promotes air pollution. Second, law enforcement
are people who have moved because they can no longer
should place more emphasis on illegally imported cars,
remain in their original place of residence due to droughts,
which arrive in Mexico every year in large quantities. These
heat, hurricanes, floods, among other environmental
vehicles often do not have catalytic converters and do
contingencies. Today, more than ever, vulnerability should
not comply with technical norms. Therefore, CEMDA is in
be taken into account but it is not happening.”
303
OAXACA’S GREAT RENEWABLE RESOURCE POTENTIAL The Isthmus of Tehuantepec, the narrowest region of Mexico,
and most projects have 20-year agreements with the
stretches across Oaxaca, Veracruz, Chiapas, and Tabasco. In
communities,” he adds.
this part of the country, the Pacific Ocean and the Gulf of Mexico are separated by only 215km. Around the Isthmus,
Oaxaca also has a great hydro power resource. According
warm maritime stream emerges, originating a thermic and
to the National Meteorological Service, Oaxaca was among
pressure gradient that results in an intense northern wind
the five states with the most precipitation in Mexico during
from November to February. According to the Wind Resource
2012 with an average of 1,360mm, while the state had the
Atlas of the state of Oaxaca, the best wind resources areas are
most accumulated precipitations in the country in Cerro
located in the southern region of the Isthmus of Tehuantepec,
del Oro with 4,362.4mm. “The state has eight regions and
along the coast and in the mountains, where the La Mata-La
two of its regions – Sierra Sur y Sierra Norte – have very
Ventosa wind park is located.
interesting river drops. There is a huge quantity of water in these regions as well as on the Papaloapan region, close
During the 1980s, the Electrical Research Institute (IIE)
to Veracruz, and along the coast,” points out Casillas Cano.
began studying the possibility of generating wind power
Solar energy is another abundant but untapped resource
in the region. However, it was not until 1992 when the legal
in Oaxaca. Casillas Cano claims the federal government
framework modifications allowed the private sector to
has tried to guide solar projects to the north of Mexico
generate energy. “It was then that the wind industry was
but Oaxaca has great potential in all of la Mixteca, Sierra
born in Mexico, it first happened in Oaxaca,” says Sinaí
Sur, the coast of the Isthmus of Tehuantepec, as well as
Casillas Cano, Director of Renewable Energies for the State
the Valles Centrales region, a strip of 12,000km2 that has
of Oaxaca. “This experimental project – built by CFE using
a solar resource of 5kWh/m2. Salina Cruz, for example,
Vestas technology – was inaugurated in 1994 in La Ventosa
has an average of 5.8kWh/m2, while Hermosillo in Sonora
and generated 1.5MW.”
has 6kWh/m2, with the latter being considered part of the
“Oaxaca is a very interesting place for wind energy development since it has 4,500 wind hours a year, compared to European wind plant clusters which have 2,000-2,500 wind hours a year” Sinaí Casillas Cano, Director of Renewable Energies for the State of Oaxaca
However, wind energy developments did not take off until
Solar Belt of North America and a prime location for solar
President Vicente Fox’s administration in the 2000s, when the
energy projects. “To put things into perspective, Germany
first Open Season was launched, which created the necessary
has a 3kW/m2 potential and is a global power when it
guarantees for companies to begin developing projects.
comes to solar energy,” says Casillas Cano.
Nowadays, the Isthmus of Tehuantepec has 17 wind farms with 1,600MW installed capacity, and many global companies
Oaxaca has the ambition to become Mexico’s central
have invested in the region such as Acciona, Vestas, Gamesa,
production hub for a number of renewable energy
Iberdrola, Energies Nouvelles and many others.
sources, an aim that is coupled to the goal of developing technology locally. “This would allow us to consolidate
304
Today, Oaxaca produces 90% of Mexico’s wind energy, with
the value chain, create jobs, and bring technologies to
1,100 installed wind turbines occupying 13,000 hectares of
the local communities,” notes Casillas Cano. However, the
land. Casillas Cano highlights the fact that to generate 1MW,
Oaxaca’s greatest challenge may well be dealing with the
7 hectares are occupied at an average investment cost of
800 communities that still do not have access to electricity.
US$2 million. “Oaxaca is a very interesting place for wind
Oaxaca has 12,000 communities, distributed across 570
energy development since it has 4,500 wind hours a year,
municipalities and 16 ethnicities. Its topography has
compared to European wind plant clusters which have
caused a dispersion of population, making it difficult and
2,000-2,500 wind hours a year. It is profitable because
unprofitable for CFE to connect all communities to the
renewable energy projects around the world recover their
electricity grid, especially since many of them are formed
investment in 12 to 14 years on average, while wind energy
by only 10 to 15 houses. Renewable energy sources, and
projects in the Isthmus recover their investment in 8 years
especially solar energy, provide hope for these communities.
PARTNERSHIPS KEY TO SUSTAINABILITY ACHIEVEMENTS
Victor Treviño, Director of Energy and Environment of FEMSA
Over the course of 120
to substitute its fossil fuel consumption with renewable
years, FEMSA states it has
energy sources. Other plans to reduce FEMSA’s carbon
shown commitment to the
footprint include reducing energy consumption, and each
community,
education,
business unit has specific projects to reduce the amount
social security, and the
of energy it consumes. The company operates OXXO, the
environment. However, the
largest convenience store chain in Mexico, which represents a
largest beverage company
challenge as this involves a very large number of consumption
in Latin America decided
points. “For example, the Smart Store project looks to
to take its efforts to the
optimize the amount of energy used in OXXO convenience
next level by integrating
stores on a store-by-store basis. This is a continuous process
its
area
and energy consumption has been going down every year,”
and energy division in 2011. FEMSA’s sustainability
sustainability
states Treviño. He says that energy efficiency is an ongoing
strategy, which is focused on positively transforming the
process because businesses have to always look for new
communities where the company operates, involves three
technologies and find ways to incorporate them in operations.
main areas: energy, waste and recycling, and water use. FEMSA’s social and environmental commitments extend FEMSA’s energy strategy aims to lower the company’s
to its supply chain, with a major focus on sustainable
carbon footprint in ways that are economically feasible.
sourcing. Recently, the company launched a pilot program
The first step in this strategy consisted of mapping the
involving equipment suppliers for the OXXO convenience
company’s largest energy consumption points. The results
store chain. Imbera, a FEMSA supplier that is the second
showed that out of the ten countries where the company
largest refrigerator producer in the world, implemented
operates, Mexico represented 80% of the firm’s energy
the One Planet Living Principles. Imbera is now producing
consumption. This situation made FEMSA decide to
refrigerators that are 70% more energy efficient than the
incorporate renewable energy sources into its operations.
ones produced eight years ago. Imbera also implemented
Wind energy was the most promising renewable source
the Environmental Leadership Program with PROFEPA,
at the time. FEMSA partnered up with Macquarie Goup
involving 16 suppliers in the process and generating around
to develop a wind farm in Oaxaca in which the firms
MX$9 million (US$660,000) in energy saving practices. At
took equity stakes of respectively 45% and 55%. Mareña
the same time, this led to a 14% reduction in CO2 emissions.
Renovables was destined to become the largest wind
The Imbera case provides a good example of how FEMSA
farm in Latin America, with 396MW to be installed on the
approaches federal government initiatives. SEMARNAT
Isthmus of Tehuantepec. Before development started,
has a program where large companies are invited to lead a
in April 2012, FEMSA sold its 45% equity to Mitsubishi
strategy in which suppliers are involved. Larger companies
and Dutch pension fund PGGM, but together with the
have more resources and information to design strategies
Heineken-owned
Cuauhtémoc
for smaller companies that might not have the time to learn
Moctezuma remained the project’s off-takers under a
about the latest trends in energy efficient technologies.
20-year self-supply contract, with FEMSA using 85% of
FEMSA partnered with the Global Institute of Sustainability
the generated electricity while Cervecería Cuauhtémoc-
at Tec de Monterrey, FOMIN, and Banorte, inviting 3,000
Moctezuma would consume the remaining 15%. After the
small suppliers to share information and educate them on
project had been held up for well over a year due to local
green practices as well as the types of energy efficiency
community resistance, the decision was taken to relocate
technology
the project to two alternative wind sites in the same region,
important but small when compared with the number of
meaning that Femsa will have to remain patient to receive
SMEs in Mexico. We need to be successful with this project
its anticipated wind energy supply.
so we can scale it up,” says Treviño. FEMSA also teamed
brewery
Cervecería
they
could
implement.
“This
number
is
up with Ashoka, one of the world’s leading NGOs for social Deciding how to approach the incorporation of renewable
entrepreneurs, in promoting entrepreneurship among young
energy required thorough planning and analysis. “We
people between 14 and 24 years old. The youngsters explain
identified that the key for us was to maintain our focus in
a specific idea and FEMSA-Ashoka helps them to develop
our core business and try to find strategic alliances with
a business plan. This collaboration has already led to 210
specialists in other areas,” says Victor Treviño, Director
projects across Mexico, with 1,320 more in development.
of Energy and Environment of FEMSA. Treviño’s team is
“This is the best way in which we can really seed the right
evaluating possibilities such as photovoltaic and geothermal
spirit for future leaders of the country,” concludes Treviño.
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GLOBAL INFLUENCE TRANSLATES INTO MAJOR COMMITMENT Walmart’s journey toward
become possible as solar becomes more competitive in the
sustainability
began
in
next few years. In the meantime, the reality is that speed is
2006
its
global
of the essence, and that it is easier for Walmart to commit
CEO launched a series
to large renewable energy projects, allowing hundreds of
of
to
stores to be converted at one time. “We will be adding three
be applied across all of
new projects in 2014, two wind farms in Oaxaca and one
Walmart’s
hydro project in Veracruz. We will add 222MW from the
This Manuel Gómez Peña, Sustainability and Energy Director of Walmart Mexico and Central America
when
ambitious
goals
operations.
contrasts
with
wind farms and 30MW from the hydro plant, allowing us to
the approach of many
connect 886 stores.” Aware that the wind sector in Oaxaca
corporations,
where
is beginning to be crowded, Walmart’s pipeline of projects
sustainability practices are
is eyeing up wind projects in Tamaulipas and Baja California.
often drawn up in their home country first, before being
Economically, renewable energy has proved popular since
progressively rolled out to other markets. The three pillars
the company doesn’t pay premiums and makes savings
of Walmart’s global sustainability plan were announced
since it is not paying the public utility rate. Gómez Peña
in the US, Mexico and everywhere else. These pillars aim
points out that a long-term impact of this decision is to
to make the retail giant powered by 100% renewable
pay more predictable rates and to escape the volatility that
energy, to generate zero waste and to sell environmentally
has been seen in CFE’s rate. Renewable energy sources
friendly products. Given Mexico’s increasing acceptance
are not the only way Walmart is seeking to change the
for renewable energy sources, the first of these pillars was
footprint of its stores. LED lighting and closed refrigeration
of particular interest to Manuel Gómez Peña, Walmart’s
are just some of the latest technologies that Walmart has
Sustainability and Energy Director in Mexico. In 2009,
harnessed to make its latest stores 30% more efficient than
two Walmart stores in Aguascalientes and Baja California
the ones it opened in Mexico five years ago. Energy control
became supplied by solar energy. This was just a drop in
and measurement systems are also installed on a wide
an ocean as in April 2010, Walmart kicked off a partnership
scale, helping to identify equipment that is functioning
with EDF to build the 67.5MW La Ventosa wind farm in
outside parameters.
Oaxaca. Gómez Peña explains that this wind farm provides energy for 378 stores in the Mexico City metropolitan area.
Although its sustainability goals have come straight from
The company has also modified these stores to ensure
the top, they would have little chance of succeeding
optimum water and energy efficiency, seeking to make its
without incentivizing and encouraging store managers and
outlets sustainable in more ways than one.
employees to take part. “We have found that two stores with identical technology can have differences in energy
Mexico has played a leading role in Walmart’s global
consumption of up to 20%,” says Gómez Peña. “This can
sustainability practices, a role that was reinforced further
occur in the way staff operate the store, such as leaving
in April 2013. “In April, we launched our 2020 Strategy
doors open or lights on. That engagement has been critical,
which was defined globally. That strategy seeks to reduce
both through training and through campaigns where
our energy intensity by at least 20% by 2020, as compared
they have to follow simple steps, leading to a ranking of
to 2010. This will see us supplied by at least 7,000GWh of
stores. We then highlight the store manager with the best
renewable energy worldwide and 3,000GWh in Mexico,”
performance in important meetings. No technology can be
explains Gómez Peña. Should these figures be reached,
better than an engaged store manager.”
Mexico would provide more than 40% of the total amount of renewable energy used by Walmart worldwide, which
As commendable as this commitment is, Walmart still has
speaks volumes about the company’s renewable energy
to rationalize whether these decisions make economic
expectations in the country.
sense. For Gómez Peña, the two go hand in hand. Since the ultimate objective is to offer customers the lowest
306
Walmart, although having started off with solar, decided on
prices possible, Walmart aims to be a low-cost operator
a massive commitment to wind but Gómez Peña explains
across the board, and sees sustainability as a great way to
this did not mean solar was being totally excluded. In
do that. “Reducing waste, being energy efficient, enjoying
2012, three more stores were powered by solar, bringing
the tariffs of renewable energy all helps us be competitive
the total number to five. Gómez Peña states that Walmart
as possible,” says Gómez Peña. He explains that the first
wants solar to be as competitive is possible and use it on a
challenge was environmental but the retailer worked hard
large scale, adding that there are high hopes that this will
to reconcile its environmental and financial priorities.
For all its successes, Walmart knows it is not alone in this
he acknowledges that smaller companies may lack the
fight. A retailer of its size works with thousands of suppliers
financing to make the initial investment in more efficient
and sees it as mandatory to help incentivize its suppliers to
technology and processes.
follow its lead. Gómez Peña quantifies the importance of such a strategy, explaining that when looking at the footprint
A large part of Walmart’s involvement with its suppliers
of the entire supply chain, Walmart’s direct operations
also happens directly at the agricultural level. Walmart’s
account for about 8-9% of the total. More than 90% of the
foundation works with very small farmers, by offering
carbon footprint in the Walmart supply chain comes at
specialized technical advice to allow these smallholders to
other stages of the process. As such, Walmart has devised
develop the capabilities to join Walmart’s supply chain. This
strategies to work with different sizes of suppliers. “With
technical advice includes the development of sustainable
large corporations that have their own sustainability goals, we
practices. For slightly larger farms, Walmart acts as a hub
develop joint programs to improve packaging, transportation
between suppliers, passing on best practices from one to
and processes at distribution centers,” he states. Packaging
another or bringing certain suppliers to visit the base of
has been a major area of achievement, as the company
another and establish dialogue. Gómez Peña adds that
seeks to fulfill its zero waste pillar of sustainability. Reducing
Walmart will also soon begin drawing up a sustainability
packaging eliminates waste that would otherwise go to
index, which will seek to methodically identify where the
landfills but also saves on costs. Cutting down on packaging
best sustainability opportunities are in the supply chain,
by half allows twice as many products to fit in every truck,
divided into various categories. Suppliers will then be
thus also saving on fuel costs and emissions.
ranked in the categories most relevant to them. “There will be no direct commercial benefit stemming from
“We also work a lot with SMEs. We strongly believe that
these rankings, but they will allow suppliers to have a
sustainability is not only for the large corporations, and
stronger long-term relationship with us. We also believe
that it does make sense for businesses of all sizes,” says
this will help sustainable practices to spread, making
Gómez Peña. He dismisses concerns that sustainability is
suppliers more efficient and more competitive. But for
not relevant for small companies that are worried about
its customers, Walmart does not necessarily believe it is
paying their next month’s salary. To overcome such doubts,
its role to educate them. Although it does have certain
Walmart has started training programs that over 250 SMEs
awareness campaigns, Walmart seeks to avoid customers
have gone through so far. These workshops identify viable
having to choose between an ecological product and an
sustainable projects for these firms to put in action, while
affordable product. As a retailer, it seeks to “offer them
also having a financial payback. While Gómez Peña insists
the best and cheapest products, to which sustainability
that sustainability can help to reduce costs in the long run,
contributes.”
IDEAS provides a broad range of legal support to its clients by advising from a legal and technical standpoint, to maintain the business sustainability, considering current trends in legislation and related public policies, both domestic and international, with the specific impact on productive sectors operations, focusing on increasing our clients resource efficiency, accomplishing their goals and minimizing operational risks, taking into account the protection of the environment through sustainable development perspective.
307
KEEPING AHEAD OF THE PACK ON SUSTAINABILITY
Rosalío Rodríguez, Director of Operations of Grupo Bimbo
Few companies in Mexico
Another major area where Grupo Bimbo has long sought
have the visibility and fame
to reduce emissions is its vast fleet of over 40,000
of Grupo Bimbo. Arguably
vehicles. Naturally, the company’s main producer of CO2
the
important
emissions is gasoline, so finding ways to improve the
baking company in the
fleet’s performance has been high atop the sustainability
world,
most
move
the
agenda, along with increasing efficiency at its plants. One
corporation
makes
is
step in the right direction at the plants has been to replace
instantly
scrutinized,
all motors with high-efficiency versions, which brought
and it is expected to be
immediately noticeable benefits in terms of reducing Grupo
a
Rosalío
Bimbo’s carbon footprint. For its vehicle fleet, several
CSR
every
leader.
group’s
programs have been rolled out. A partnership for eco-
Director of Operations, knows something of Grupo Bimbo’s
friendly vans running on LNG was struck with Mercedes-
commitment to give back to society. “We formalized
Benz in 2012, while experimentation with electric cars has
sustainable practices in the 1990s, before it was called
happened more recently, and despite their limited range
sustainability. Our system was called SIGA, which sought to
these have proven popular. “These cars are very useful
correctly manage resources, such as energy, raw materials
in cities. A hybrid car in Mexico City reaches an average
and waste. This was part of a commitment to respecting
speed of 32km/h if using highways. If it is just moving in
the needs of the community, rather than to make money
downtown areas or at peak congestion times, this speed
or to improve our reputation,” says Rodríguez. What began
drops to under 10km/h. This can make a significant carbon
as SIGA has become a global set of processes that aim to
footprint, which we save, since we do not use these cars to
reduce environmental impact, as well as energy and water
travel long distances,” says Rodríguez.
Rodríguez,
the
use. One of its principal moves was to invest in the Piedra Larga wind farm in Oaxaca, which began operations in
Optimizing this sustainability strategy across all the different
October 2012. Piedra Larga supplies virtually all of Grupo
areas of the business has netted Grupo Bimbo a significant
Bimbo’s electrical needs in Mexico. Although few companies
amount of savings, though these have not gone toward
could hope to emulate Grupo Bimbo’s strategy of going it
the company’s bottom line. Instead, all of the money is
alone on a single wind farm, the move still echoed across
reinvested in more sustainable initiatives, ensuring a three-
the Mexican corporate world as a herald of the potential of
pronged win-win scenario: money is saved, those savings
wind energy. As Rodríguez explains, the bakery giant had
are re-invested and the environment directly benefits. As
been trying to enter the wind energy sector for more than
one of Mexico’s leading companies, Grupo Bimbo is also
six years. Regulations had long been a hindrance to this kind
aware of how the example it sets will influence other
of investment, but Grupo Bimbo was active in lobbying the
companies, as well as its suppliers. As such, all information
government to simplify the creation of renewable energy
about the group’s sustainability program is made publicly
projects. The group’s desire to engage in wind rather than
available. Collaborations are formed with suppliers to
any alternative energy source came from internal benchmark
ensure that solutions are created for environmental issues.
studies that showed the generation potential and the
Some of these partnerships have been so successful
minimal environmental impact of harvesting wind energy. A
that Rodríguez recognizes that some of Grupo Bimbo’s
further advantage was that this research also showed such
suppliers are “just as good as we are, if not better in certain
projects could be profitable and spark savings for Grupo
areas.” In October 2013, Grupo Bimbo and over 30 of its
Bimbo, making them a perfect sustainable fit. Grupo Bimbo
suppliers even participated in Walmart’s sustainability
is expecting cost advantages throughout the 18 years that
forum, ‘Together for a Better Planet 2013’, to share their
the contract is due to last. To make sure these expectations
collective experiences and successes in reducing their
are met, a number of financial estimates will take place to
overall environmental footprint.
ensure that the wind farm’s energy contributions do not cost
308
the group more per kWh than that generated by regular
Grupo Bimbo is contemplating sustainability progress in
means. Although Piedra Larga has been up and running for
five year increments, and has set clear targets for 2015
just over a year, initial results have pleased the company.
and for 2020. As should be expected of a worldwide
Despite still being at an early stage, Rodríguez gives Piedra
corporation, such efforts are not being fought alone in
Larga a ringing endorsement, saying “The experience has
Mexico, as all the achievements listed above fit into the
been good. We are trying to find solutions of this kind for
broader spectrum of targets for Argentina, the US and
our facilities in other countries.”
every other country where Grupo Bimbo operates.
| VIEW FROM THE TOP
FOOD INDUSTRY RELIES ON WIND POWER FRANCISCO AVELAR Financial Director of Grupo Bimbo
Q: What discussions took place inside Grupo Bimbo
has been increasing but electricity prices have increased,
before going ahead with the Piedra Larga wind farm?
too. We participated in this project because in the past
A: Feasible projects need to be financially viable, socially
electricity tariffs were increasing twice as fast as inflation
responsible and environmentally sound. We first received
and we felt comfortable with that. Nevertheless, we do
proposals for various potential projects in 2004, but at the
not know what will happen in the future, but during these
time it was not possible to submit all the needed paperwork
seven months we have saved the money that we were
because of the operating framework. In 2006, the government
expecting to save.
approved certain rules that allowed wind farms to become a real possibility. After this, we started to go deeper into the
Q: What were the critical success factors that allowed
technical, financial, social and environmental aspects until
Grupo Bimbo to change from food and bakery to energy
the project covered all of them, just as the word sustainability
and engineering for the wind farm?
implies, and it was not difficult to get the project approved
A: Our company did not participate with an actual
because it became a perfectly sustainable project.
investment because that is Renovalia’s area of expertise - we focus on our business, which is baking, not building
Q: Why did you choose to cooperate with Renovalia in
wind farms. This separation of responsibilities may
order to make Piedra Larga a reality, and what made the
have been one of the most critical success factors of
project different from others?
this project, as it left the technical issues to the experts.
A: We felt more comfortable with Renovalia because they
Mexico has established many different tariffs depending
offered greater clarity and a more competitive contract; they
on the consumption of energy and our corporate energy
offered the best financial option, too. Even if it might look
department has developed an in-depth understanding of
like a smaller company, Renovalia has proven its expertise
the way we use power. Grupo Bimbo pays the HM tariff,
in Mexico. In building our wind farm Renovalia experienced
which is divided into three different timeframes during the
some social issues in Oaxaca, but they reacted as well as
day: base, intermediate and peak. By understanding the
possible. We feel that we have the best partner available.
group’s consumption profile we can compare that with the power that is being generated by the wind farm. We are
Q: What approach was taken to solve these social issues
now validating the assumptions that we had made about
in a way that aligned the interests of the developer and
the power generation expected from the project.
the community? A: The region of Union Hidalgo in Oaxaca is a region
Q: What advice would you give to other off-takers who
with many social issues. Renovalia spent a lot of time
might be interested in self-supply energy projects?
explaining the meaning of the project and its benefits to
A: It is important to analyze your current situation, create
the community, in both Spanish and Zapoteco. Renovalia
a team of experts, either internal or external, and lawyers.
had worked there before and already gone through a
It is very difficult for companies to find professionals to
learning process about the needs of the community. Grupo
work on these types of projects and few companies are as
Bimbo did not experience problems with the community
big as Grupo Bimbo. It is possible to band together with
thanks to Renovalia’s involvement, and we signed a Power
a number of companies to gather financial strength and
Purchase Agreement for 18 years.
become joint off-takers. At first, we considered 90MW for the wind farm, but our estimations were not accurate and
Q: How does this project impact your financial bottom
this would have been too much power generation capacity
line, since many people think that wind power is very
for the goals that Grupo Bimbo was looking to achieve.
expensive?
Therefore we invited our strategic partners, under the
A: In the first seven months of operation, the wind farm’s
umbrella of Amigos de Bimbo, to the project, who now
performance was in line with our projections. Inflation
consume 18% of the power generated by the wind farm.
309
PEÑOLES INVESTS IN RENEWABLE ENERGY FOR SELF-SUPPLY Mexico’s largest companies
started looking for hydroelectric projects, since we knew
have seen their electricity
that these projects can generate low cost electricity after
costs more than double
the payback period of the initial investment,” explains Vaca
over
decade.
Durán. At that time electricity in Mexico was not expensive
The combination of rising
in comparison to other markets, since the cost of oil
energy prices and delayed
came down as low as US$8 per barrel (Mexican mix) and
improvements
Mexico’s national currency was undervalued, following the
the
past
in
power
generation capacity has led Arturo Vaca Durán, Energy and Technology Vice President of Peñoles
Mexican peso crisis.
to an increasing reliance on energy self-sufficiency
While the Mexican government tried to attract developers
strategies among Mexico’s
to come to Mexico and build combined cycle plants,
most energy intensive companies. Peñoles, one of the
Peñoles saw the installed power capacity margin, or the
country’s leading mining companies, produced 92.9% of the
difference between installed capacity and maximum
energy it consumed in 2012 and added wind power to its
demand. This becomes a problem when plants are in
energy mix, through its Fuerza Eólica del Istmo subsidiary.
maintenance or being repaired. “In 1996 we were aware that if power generation investment did not come to Mexico we
Peñoles, founded in 1887, is the world’s top producer of
were going to face a period of energy shortages, which
refined silver, the largest in the western hemisphere for
would affect our mines and plants since our operations
metallic bismuth, the leading Latin American producer of
run 24 hours a day, 365 days a year. For example, without
refined gold and lead, and among the main refined zinc and
electricity a mine can flood in just four hours, which
sodium sulfate producers in the world. Arturo Vaca Durán,
may mean the mine is lost for six months, and that has
the company’s Energy and Technology Vice President,
happened in the past. Our main motivation for getting into
emphasizes the difference between a pure mining
self-supply then was to avoid electricity shortages in our
company and a mining company that also has electrolytic
mines and plants,” explains Vaca Durán.
and smelting processes, with Peñoles, which has integrated operations in smelting and refining non-ferrous metals and
Peñoles considered combined cycle power plants, but
also produces chemicals. “In a mining company that has
the volatility of the natural gas prices made the company
smelting and refining processes, very frequently the most
reluctant to invest in this technology. However, in 1998 it saw
important part of the operating costs is electricity,” Vaca
another opportunity to use pet coke as an energy source
Durán says. Since the company’s operations depend on a
when Pemex modernized its refineries, resulting in an excess
substantial and continuous supply of electricity, energy
of pet coke that had to be exported at a loss. “We were able
constitutes an important component of production costs for
to enter into a 20 year supply agreement with Pemex, since
Peñoles. Energy efficiency has therefore been a permanent
at that time pet coke was considered to be a residue rather
fixture in the minds of the company’s management team.
than a fuel. The cost savings we made through sourcing
“We have people working continuously on studies at each
pet coke at a competitive cost and burning it in an efficient
of our mines to develop strategies for being as efficient
and environmentally friendly way have been significant,
as possible in the use of electricity,” says Vaca Durán. An
while this agreement provided us with a predictable energy
example of this is the initiative the company took to reduce
source until 2024,” notes Vaca Durán. In the end, the feared
electricity demand at peak times by increasing the capacity
energy shortages did not occur, since many combined cycle
of pumping stations that are responsible for pumping water
plants were installed, but the volatility of natural gas prices
out of its mines, in order to be able to operate them for
between 2000 and 2007 created a lot of uncertainty in
18-20 hours per day and shut them down at peak times
Mexico’s electricity market.
when electricity is more expensive. “We were not saving electricity, we were just reducing demand on peak hours to
Peñoles is following a low-cost producer strategy, meaning
obtain lower electricity cost,” explains Vaca Durán.
that when its revenue decreases as a result of declining commodity prices the company stops investment in order
310
When Mexico’s power generation sector was opened to
to keep a positive cash flow. “Since the mining industry
private participation in 1992, a new range of opportunities
goes through ‘metal prices’ cycles, smaller companies
opened up for Peñoles to pursue its mission of adding
start having problems very early on in a downward cycle.
value to non-renewable natural resources in a sustainable
If Peñoles did not have the low cost strategy (including
manner. “We saw this as an opportunity and immediately
self-supply scheme) we would be in trouble too, since we
could never obtain electricity at the low prices at which the world’s zinc plants can” explains Vaca Durán. Increasing the level of energy self-sufficiency is thus a priority strategy for Peñoles. In 2012, the company’s operations and its subsidiaries required an average of 276MW, with peak demand reaching 316MW, representing an increase of 2.5% over the previous year, despite having improved overall energy efficiency. Of its total electricity requirements 92.9% was provided through self-supply, 86.1% by the company’s pet coke plant in San Luis Potosi, 3.7% through wind power supplied by Fuerza Eólica del Istmo, and 3.1% from internal cogeneration initiatives. The remaining 7.1% was purchased from the CFE. As part of its Vision 2020 growth strategy, Peñoles estimates that its electricity demand will grow to 480MW in 2015 and 580MW in 2020. When thinking on a longer time horizon, Vaca Durán would like to recommend Peñoles an energy mixture of 60% natural gas and 40% renewable energy by 2030. “We need to have at least 80% of firm
Photovoltaic has also become impressively competitive,
power for peak times and we should design our mines and
compared to what it cost three years ago, and Peñoles is
plants to rationalize the energy demand at peak times.
exploring the possibility of installing this technology. “A
Should we need to reduce the natural gas price volatility,
photovoltaic power plant currently produces energy at
we may have to decide whether to enter into a strategic
a cost of US$10-11 cents per kWh, which is not yet good
alliance with natural gas companies in the US to secure
enough for us to develop it on a commercial scale, but
a natural gas price below US$6, for example,” says Vaca
we may start with pilot facilities of 1 to 15MW,” says Vaca
Durán. “However, the cost of wind power would be lower if
Durán. “Solar plants are easy to build and maintain, making
we consider that natural gas prices will be at US$6. While
this type of energy a good option for mid-sized companies,
energy cost is very important, you also have to consider
since they get their energy at higher prices, making solar an
security of supply, taxes on emissions and the Mexican
economical option for them. Unfortunately, the best solar
legal framework certainty.”
resource is not always available where the minerals are located. We have one project where this is the case, at one
Following the completion of Phase I of the Fuerza Eólica del
mine in Sonora. We may construct a pilot plant there, and
Istmo wind farm, with 50MW installed capacity located in
if costs continue improving, we may consider a larger plant
the La Ventosa region of Oaxaca, Peñoles has added another
afterwards. Some open pit mines require large amounts of
30MW in Phase II. This brings the company’s total wind power
diesel fuel for their off-road mobile equipment, which at
investment to US$175 million and enables the company to
today’s natural gas prices may open significative saving
generate up to 15% of its annual consumption. The process
opportunities. If they can replace the use of diesel with
of constructing these wind projects has met with relatively
LNG they could save tens of millions of dollars per year and
little operational issues or social resistance, since Peñoles
simultaneously reduce their CO2 emmissions. That could be
gave careful attention to these issues, and was able to apply
the best energy efficiency project I have ever seen.”
certain skills that it had developed as a mining company. “Our company has acquired skills in engineering and construction;
The expertise of the mining industry has proven to be an
we do not actually execute the construction of the project
important asset when developing renewable energy projects.
but we closely supervise it,” states Vaca Durán. “Peñoles has
However, given the lack of transmission infrastructure in
also people fully devoted to negotiate land access, since
Mexico not every mining company has the financial strength
this is needed to deal with ejidos and comuneros for the
to participate in these projects, since putting in transmission
mining projects, and these land owners do not always have
lines can represent up to 15% of the cost of the project.
their papers in order and sometimes they inherit or sell their
“The government should actively develop transmission
land through verbal commitment. Our negotiators are very
infrastructure, and private investment will come,” Vaca
gentle and offer these people important benefits with a view
Durán adds. “By reducing the costs of renewable energy
to developing a good relationship with the community, even
projects, through cutting subsidies, an increasing number
though costs are an ongoing concern. The land negotiators
of companies will be able to participate in self-supply
and the engineering department at Peñoles were the key to
schemes, reducing their energy expenses and increasing the
the success of this project.”
competitiveness of the Mexican industrial sector.”
311
CATALYST FOR THE SUCCESS OF GREEN TECHNOLOGY The United Nations Environment Program launched the
and financing for clean technology projects. Aguirre-
Green Economy Initiative in late 2008. It consists of several
Torres explains this model is different from others as it
components that collectively provide the analysis and
proposes a unique scheme, known as an ecosystem of
policy support for investing in green sectors and greening
technological, social and economic innovation. According
environmental unfriendly sectors. According to the UN’s
to the World Economic Forum, there are 12 pillars that
definition, a green economy has low carbon emissions, is
determine a country’s competitiveness and Cleantech
resource efficient, and socially inclusive.
Challenge includes four of them. “It seeks to contribute
“Why do we have to wait for other countries to act when Mexico is very capable of making its own contributions?” Luis Aguirre-Torres, CEO of Greenmomentum Inc
When Luis Aguirre-Torres, CEO of Greenmomentum Inc.,
to the transition from an efficiency-oriented economy
read the UN’s publication in 2008, he was not pleased.
to an innovation-oriented economy,” he says. Cleantech
“It basically states that countries like the US have the
Challenge Mexico’s 2014 edition invites green business
obligation to contribute to a green economy, whereas less
entrepreneurs to enter, with a chance to win MX$250,000
developed countries like Mexico can wait for developed
(US$18,700) and to network with potential investors and
countries to before acting. Why do we have to wait for
strategic partners. “The latest buzz around cleantech
other countries to act when Mexico is very capable of
is about water technology,” says Aguirre-Torres. Local
making its own contributions?” This set in motion a series
governments are installing the technology, while SMEs
of actions that saw Greenmomentum become part of
are developing it. “We talk to about 200 SMEs every year
the UN Climate Change Conference of 2010 in Cancun
and about 10% of them are focusing on water technology.
and liaise with many key environmental players, leading
This area presents an opportunity that will continue
to the creation of Cleantech Challenge Mexico, a form
expanding because there is a real need for it in Mexico.
of competition to increase Mexico’s competitiveness.
A lot of money is going to come in from investment and
The contest promotes entrepreneurial culture and green
technology development.” he adds. Due to its success,
jobs, while providing training for company development
Greenmomentum
has
undergone
a
restructuration
LOCAL STRATEGIES FOR GLOBAL ISSUES
312
In the fight against climate change, non-governmental
initiatives are undermined by legislations that impede
actors have the distinct advantage of being able to work
local governments from accessing resources.” Villaseñor
across national boundaries to address matters that affect
Franco states that the NGO participates in modifying
the entire globe. Local Governments for Sustainability
technical and legal tools that could benefit municipalities
(ICLEI) is an international non-profit organization made
in adopting sustainable policies. In Mexico, ICLEI analyzed
up of governments from various levels around the world.
Mexico’s General Climate Change Law and worked
Having achieved official UN Observer status, ICLEI
alongside the Congress of the Union to review the 2013
represents the collective vow of its more than 1,400
federal budget and ensure the proper use of the country’s
members to work together on sustainable development.
green fund. “We want to present financial, technological,
Its chapters, such as the Latin American & Caribbean
and economic alternatives to municipalities. We want
division,
to join academic, public, and private efforts to improve
help
local
governments
through
projects
supported by international mechanisms. For example,
public
ICLEI has fought for the improvement of financial
governance, renewable energy, energy efficiency, waste
mechanisms such as green funds,” says ICLEI Mexico’s
management, water use and sustainable transportation,”
Executive Director, Edgar Villaseñor Franco. “But such
explains Villaseñor Franco.
policies
regarding
sustainable
development,
process. Cleantech Challenge has been so successful that
of the biggest banks in Mexico that wanted to implement
it now operates as separate entity from Greenmomentum,
sustainable actions across its operations. Greemomentum
although still part of the same group. Greenmomentum
was able to make recommendations that transformed the
itself offers marketing intelligence services with the aim
institution, not only by reducing its carbon footprint, but
of boosting the development of clean technology projects
also including internal actions to maximize the efficient
through financing and technical support. Aguirre-Torres
use of water and energy resources. These actions were
observes that Greenmomentum’s business model is like a
eventually reflected in the reduction of operating costs.
funnel: at the top, one finds many small and medium-sized enterprises (SMEs) that develop clean technology, while
Cleantech Challenge has had a positive impact on Mexico’s
a few corporations exist on the bottom. The company
competitiveness
generates revenue through its consulting services to SMEs,
program, spreading its brand name. In 2012, the White
big corporations, government agencies, and NGOs alike. “To
House recognized the company for promoting social,
larger companies, we offer solutions to problems relating
technological, and economic change in Latin America.
to efficiency, waste management, and carbon emissions,
With this recognition, the company acquired an implicit
based on what the SMEs can offer.” Ideally, by offering and
commitment from the White House to replicate the
implementing these solutions, small and medium-sized
Cleantech Challenge model in the next three years in 12 Latin
companies eventually become national providers for larger
American countries, Aguirre-Torres empathizes. Last year,
corporations. In this way, Greenmomentum helps the big
the company began international operations by establishing
players directly support the process of economic growth
strategic partners outside Mexico with Cleantech Forum
and national competitiveness.
across Europe, Innobasque in the Basque Country, and
and
is
Greenmomentum’s
flagship
LabCorp in Panama. It also participated in energy summits However, Aguirre-Torres points out that it is common for
in New York and San Francisco as part of a marketing effort
small companies not to be able to sell their products to
to position the company outside Mexico and start offering
corporations as they do not fulfill their requirements to
services for foreign firms coming to the country.
become suppliers, such as production capacity, financial backup, and scalability. Greenmomentum steps in at this
Mexico’s way to a green economy is still a long and winding
point to help small companies validate their technology,
road. The first step in Aguirre-Torres’ perspective is making
business and commercial models. It assists them in
energy efficiency mandatory. “I am not talking about
creating a structure that allows them to have the financial
changing light bulbs but of installing predictive systems
backup and the commercial processes to become part
that tell how much energy is being consumed. We have
of the supply chain for big players. This is all part of
to invest in energy efficiency technologies at a residential
Greenmomentum’s goal to create a national supply chain
and commercial level. On the other hand, it is urgent that
that is both sustainable and financially viable. Usually, it is
CFE transitions to a smart grid to reduce energy waste.” All
up to Greenmomentum to promote sustainable initiatives
this goes back to financing clean technology but Aguirre-
although it is seeing larger clients approach it in search for
Torres believes the challenge lies in simply understanding
green solutions. Aguirre-Torres recalls the example of one
how to make that financing process profitable.
One of ICLEI’s major projects is the Municipal Climate
this does not distract him from the fact that Mexico is facing
Action Plan (PACMUN), a program financed by the
several challenges that need to be addressed. “First, more
British government to help local governments in Mexico
political will is needed among local authorities, and ICLEI is
limit the effects of greenhouse emissions and adapt to
working to rapidly create awareness about environmental
climate change. This initiative complements the General
issues before irreparable changes take place due to climate
Climate Change Law, which encouraged the involvement
change. Second, the political terms of local authorities are
of municipal governments but did not define specific
short at just three years, which affects how governments
strategies for them to act. “This is where ICLEI came in,”
prioritize issues. This often sees environmental issues
says Villaseñor Franco. “We are currently working with
placed at the bottom of the agenda. Furthermore, the legal
over 65 municipalities to raise awareness about their
and judicial frameworks should be modified to facilitate
susceptibility to climate change and the impact certain
the way local governments work,” he states. “Current
industries have on the environment. These communities
regulations are so complex that even if a local government
can then introduce mitigation measures with immediate
has the will and resources to use renewable energy, a
environmental, economic, and social benefits.” Villaseñor
project can usually not be implemented within a three-year
Franco highlights the growing commitment of Mexican
term. It is also imperative to improve tax collection at the
civil society to sustainable development, which he says is
municipality level to finance environmental policies and
crucial to transforming political will into action. However,
actions,” he explains.
313
ACADEMIA AND PRIVATE SECTOR TEAM UP FOR SUSTAINABILITY In September 2013, Mexico
emphasizes the importance of working across the complete
experienced
value chain to truly establish sustainable practices in the
the
direct
effects of global warming when
Dr. Isabel Studer, Director of the Global Institute for Sustainability
tropical
manufacturing sector.
storms
Manuel and Ingrid made
In this project, the institute is currently working with 3,000
landfall simultaneously on
small and mid-sized companies that are FEMSA and Walmart
respectively
Pacific
providers. “Working with FEMSA and Walmart has enabled
and the Gulf of Mexico,
the
us to approach these companies and collaborate with them;
affecting
states.
this partnership has been a gateway for us,” Studer says.
According to the Mexican
22
She explains that working with these companies would
Association of Insurance
otherwise have been very difficult, but that it has not been
Institutions (AMIS), the monetary cost of this natural
challenge free. “There are great training differences between
disaster amounted to MX$75 billion (US$5.6 billion),
the owners and workers of the different companies. It is
making it the most expensive weather phenomenon in
difficult to gain their interest to create a sustainable training
Mexican history. One of the most important issues that
process, especially in relation to an issue which might not
arose from this natural disaster was the incapability of
be essential for their competitiveness,” Studer says. “For
the government to face climate change challenges on its
FEMSA and Walmart, it is obvious that if they want to make
own. As part of its 2015 vision, the Monterrey Institute of
a significant contribution to the Mexican economy, they
Technology and Higher Education (ITESM) – one of the
need to work with small companies, because they represent
most important networks of private universities in Mexico
the majority of Mexican companies.” Another issue is the
– in an alliance with Arizona State University, created the
green economy, a broad new concept that is essential to
Global Institute for Sustainability (IGS) in 2011. Its director
foster public policies and business strategies that include
and founder, Dr. Isabel Studer, explains IGS’ main objective
sustainability. Studer quotes the many studies and reports
is to work with the private sector to see sustainability
published by KPMG, PwC, and McKinsey about the cost of
included in the business models of Mexican companies.
natural capital degradation, which stands at about 10-11% of the global GDP. “The numbers and expenses have sounded
Another important project is the Agreement for a
the alarms of many companies, who are realizing that the
Sustainable Mexico which has been signed by 50 companies
lack of government actions will have a direct impact on
– such as Nissan, P&G, Banamex and GE. Studer stresses
their finances. For example, Federal Express is calculating
this agreement includes specific commitments in terms of
the impact of flooding due to climate change on the
energy efficiency, water conservation and consumption,
logistics business in many countries,” she says. In Studer’s
renewable energy implementation, and waste management.
perspective, there are many tangible problems that are the
“It seeks to boost a public policy agenda from the academic
result of climate change and natural capital degradation.
and private sectors that inevitably will have an impact in
Thus, it is the perfect time for IGS to seek to make
the states and federal governments.” However, it is not only
significant contributions to addressing these problems. This
private companies that have signed the agreement, since
is where the institute’s partnership with the State University
other universities outside the ITESM network, as well as
of Arizona plays a significant role since it has about 300
SEMARNAT, are participating. Studer says the agreement
researchers working on sustainability issues.
has enabled the institute to articulate a relationship with companies, but most importantly, transform commitments
Even though it has a great collaborative relationship with
into actions, while creating a collaboration network to
SEMARNAT, the institute is not interested in working
supply needed human talent and developing knowledge
directly with politicians because, as its founder stresses, it
about green projects.
is very complicated to directly influence public policy. “Our strategy is to work hand in hand with private companies
314
There are about 4 million companies in the country, but only
to influence public policies through coordinated and
1% of them are responsible for 60% of the manufacturing
collective efforts that will gain traction. I believe this is
GDP. “It is also a fact that 99% of industrial facilities in
more effective,” Studer adds. It is from the private sector’s
Mexico are small and medium-sized companies,” Studer
trench that the institute will continue working to foster the
says. In order to reach these companies, IGS is working
adoption of sustainability practices in Mexico as one of the
with small and medium-sized companies that are providers
main axes to boost economic competitiveness and protect
for AAA companies in sustainability training courses. She
the country from the effects of climate change.
| VIEW FROM THE TOP
COMMUNITY EMPOWERMENT PRIORITY IN MAJOR INFRASTRUCTURE PROJECTS ALONSO QUINTANA CEO and Director General of ICA Q: What is the current importance of energy projects
Jalisco had to be relocated nearby. However, they saw a
in ICA’s overall portfolio, and where have you identified
great increase in their quality of life, with improvements
opportunities following the Energy Reform?
in housing, transportation and facilities. At the regional
A: Through our industrial construction joint venture with
and local levels, construction of this dam had a significant
Fluor Corporation, ICA Fluor, we have long been a major
economic impact through the creation of direct and indirect
player in the energy sector, particularly in developing and
jobs, and fostered commercial and tourist fishing. The river
upgrading refineries, gas processing plants, petrochemical
interconnection along the reservoir and the construction
plants, and power plants. We are also one of the key
and improvement of land access roads will give inhabitants
contractors for offshore oil and gas platforms. Energy
greater access to development and trade activities. This
is clearly one of Mexico’s fundamental sectors, and we
benefit is tangible in the communities of Magdalena and
expect the Energy Reform to have positive impacts on
Hostotipaquillo, where there has been remarkable growth
all parts of the sector, and to give a significant boost to
in the number of commercial establishments. According
overall economic growth. We see ICA’s role principally
to the Mexican Business Information System, 45 and 12
as a contractor and service provider. We look forward
companies were created respectively in the municipalities
to exploring the new opportunities in oil field services,
of Magdalena and Hostotipaquillo.
both offshore and onshore, resulting from the Energy Reform. At the same time, we think there will be attractive
Q: What are the main pillars of ICA’s sustainability
investment opportunities for us in areas such as mini-
strategy, and which role does sustainability play in the
hydro and wind farms.
firm’s evolving identity? A: Our experience in managing social and environmental
Q: What have been the highlights in ICA’s development of
issues has made us more competitive in the Mexican and
the 750MW La Yesca hydropower project?
international market. Our main sustainability focus is on
A: ICA delivered the La Yesca hydroelectric project on
community engagement and quality of life. We aim to
schedule after six years of construction, and the two
construct meaningful and long term relationships with the
turbines are now providing a large part of the electricity
communities neighboring our projects. In order, to do this
needs of the Guadalajara metropolitan area. Completing
we have many social responsibility programs like Adopt
La Yesca on time was a major accomplishment, given
a School, ICA Help, ICA Health and social reforestation
that previously undetected geological flaws in the slopes
programs with our employees. We also work together
anchoring the dam curtain wall required a complete
with INEA (the National Institute of Adult Education)
reengineering of the project after the contract was
to support basic adult education for our workers and
awarded. ICA’s reputation for ability to execute, even in
surrounding communities. The next pillar is health and
the most challenging circumstances, is one of our key
safety. All our business units operate with OSHAS 18001,
competitive advantages. La Yesca is located at the border
which is considered to be one of the world’s most
between Jalisco and Nayarit on the embankment of the Rio
recognized standards. Our third pillar has to do with eco-
Grande de Santiago, and has 1.21GWh of annual generating
friendly practices and environmental protection. We are
capacity. This is equivalent to all electricity supplied to the
currently measuring the CO2 emissions of our machinery in
metropolitan area of Guadalajara for 3.5 months.
order to minimize and mitigate our environmental impact. We also have a corporate program to reduce our energy
Q: What role do local communities play when ICA
consumption called Turn Off or Pay and we work closely
develops a project?
with universities and biology institutes for our reforestation
A: Our work on La Yesca involved developing close relations
and biodiversity protection programs. As for the future, we
with local communities and authorities. When the project
will ensure most of our urban construction projects are
started, two of the surrounding communities in Nayarit and
LEED-certified.
315
| VIEW FROM THE TOP
MINERAL SOLUTION TO PAPER POLLUTION AND WASTE EDGAR MATUTE General Manager of Mineral Paper Q: Why did you decide to invest in the mineral paper
Q: The concept of mineral paper is not widely known.
business in Mexico?
What is your strategy to reach prospective clients and
A: The paper industry generates a lot of pollution. On average,
convince them to use this kind of paper?
it takes 75,000 liters of water and 20 10-year old trees to
A: We have to work very closely with the federal
produce one ton of paper, but with mineral paper, you do
government, as they are the main consumer of paper in
not use a single drop of water or any trees. Given that 7.1
Mexico. The federal government is essential to develop the
million tonnes of paper are used in Mexico annually, the main
norms required to properly build the mineral paper market.
idea behind introducing mineral paper technology to the
Until now, there have been no regulations concerning
country was to offer a more sustainable paper solution. We
mineral paper. In the next few months, we must focus
are working closely with the Taiwanese owners of the patent
on building our plant and ensuring that we have enough
to find the right funding opportunities, as this sector requires
production to supply the market, as well as establishing
significant investment. Given 24 to 36 months and the right
the norms to create a basis for the market. Our interactions
financing, we could fully develop this industry, especially
so far with high school and college students have shown
since Mexico has a lot of calcite to use as a raw material.
that they love the product. The main problem right now is
CONNECTING SMALLER GREENTECH COMPANIES WITH BIG OPPORTUNITIES Long experience in the trade show industry had given
Climate Reality Project. This gave her awareness of the full
Marcela Altamirano extensive knowledge about how to put
scope of the problem, as “sometimes we do not make the
on most types of trade shows, but it was a lucky encounter
right changes, not because we do not want to, but because
with a newsletter in 2008 that guided Altamirano toward
we do not know how.” The focus of the show rapidly
her current position as General Manager of Gente Como
revolved around smaller players, as many larger firms were
Uno, organizers of Expo En Verde Ser, one of Mexico’s
already aware of sustainability practices and had a number
leading conferences on sustainability and Green business
of events catering to them. The particular challenge of
practices. The newsletter was explaining new regulations
working with smaller companies rapidly became obvious.
about the separation of organic and inorganic waste
Many had either never heard of green concepts or rejected
in Mexico from early 2010. Conversations with people
them as too burdensome for firms trying to ensure their
around her convinced Altamirano that if college-educated
next paychecks. But with the show having attracted 180
Mexicans had little concrete knowledge about recycling, it
exhibitors and 14,000 visitors in its 2013 edition, Altamirano
would be very tough for such initiatives to work nationwide.
says she has seen a real evolution in this regard.
This gave her the impulse to launch En Verde Ser, which held its first edition in 2009.
“Five years ago, Expo En Verde Ser was half the size and half the number of exhibitors and visitors. Companies did
316
The initial focus for En Verde Ser was to educate people as
not even understand what we were talking about; they
to the realities of sustainability within companies, especially
thought that changing their light bulbs was being green.
smaller ones, the fostering of green technologies and
It has been a long process of explaining the benefits, of
the impact of renewable energy. Altamirano underwent
teaching companies that they do not need to make huge
an education process herself when she obtained the
changes like putting up a new building, but that small
opportunity to be trained by Al Gore as a speaker for his
steps will bring change over time,” says Altamirano. “We
the price of mineral paper, as it can cost 30-40% more than
paper suffers the same effect when in the sun for 30 days, or
ordinary paper. But once we set up our plant, their prices
in just five minutes if it is raining. This paper has no problem
will become almost the same as that of ordinary paper.
with water and is more resistant. It is also 100% recyclable.
Q: What are the main ways mineral paper can help the
Q: How do you see the use of mineral paper in Mexico
Mexican industry?
developing over the next five to 10 years?
A: Mineral paper comes in a variety of different formats. In
A: I think it will be in general use. It will prove to be very
Mexico, 24% of the paper produced is used for publishing
important in the education sector, since mineral paper is
and 57% is used for packaging. The wide array of products
much more resistant and does not get damaged by water.
that mineral paper is used for means we will eventually
The millions of text books that are printed yearly would no
enter the packaging sector and start substituting some of
longer need to be printed, as with this paper, they could
the products that are currently being used.
be passed on from generation to generation. Mineral paper will really change the way we read. The technologies we
Q: It has been reported that mineral paper can cause
use right now will continue to grow but we will always use
troubles for digital printing. How can you overcome
paper. Society likes to think it has been using less paper
barriers like this?
per person over the years. But in 1961, we were consuming
A: The mixture of 80% stone and 20% high density
21 kilograms per person per year. In 2007, this reached 54
polyethylene, coupled with the heat, can make some
kilograms per person per year. There are not enough trees
printers crash. Mineral paper works with digital printing,
or water to maintain that rate. At this moment, mineral
there might just be one or two digital technologies that
paper is the only technology in this sector that can change
would be affected by the heat. Mineral paper must spend
that. I believe we are just beginning to see what this
12 months in direct sunlight to begin to degrade. Any other
technology can be used for.
teach them how to change some supplies, to stop using
further development of potential suppliers should relax
styrofoam, to start thinking of new ways of marketing,
tough conditions on financing or on the return of products.
to teach them that there are some tax incentives if they
Small companies cannot comply with these policies.”
become green.” Her latter point represented a major stumbling block for small companies. The government
Some success stories that have come out of En Verde
has created a number of incentives to encourage the
Ser are a real feather in its cap for Altamirano. One
use of sustainable practices and green materials but this
small company that has participated in every edition of
information did not filter down to the right level. En Verde
the exhibition has now grown significantly through its
Ser’s target base was not aware of the benefits of having
waterproofing systems for roofs made from tires that also
a green roof or installing a solar panel. It has been part
regulate internal temperature based on external conditions.
of Gente Como Uno’s work to make sure they understand
A small cleaning company, Tecnoecológicos Antares, has
these benefits and see them as a competitive advantage
put out a range of products that has become so popular
instead of a waste of time and money.
for its lack of damage to the items being cleaned that it is now used by Volvo and Ferrari, as well as by museums
En Verde Ser has also come to count on the government as
around the world who use it to clean art pieces.
a good ally. For example, the National Fund for the Support of Micro, Small and Medium Enterprises (FONDO PYME)
With 10% of exhibitors now being international, Gente
has invited companies that could not afford to participate
Como Uno wants to increase the scope of the 2014 edition.
in such trade shows. It has also helped promote the event
Altamirano says a widely applauded change made ahead of
among its network, helping drum up attendance. “I get
the 2013 event was that more stringent requirements were
amazed every year by all the products we find at the expo.
placed on exhibitors. “Companies had to offer solutions
The innovation is amazing,” says Altamirano, while lamenting
in energy, water, food, healthcare or cosmetics. We ran
the high barriers to entry imposed by large corporations
potential exhibitors through a gauntlet of research and
on their suppliers. “Even larger companies sometimes
questions to keep only those offering very good solutions.
cannot become their suppliers because the conditions are
This guarantees the quality of exhibitors that visitors will
so tough. Any company that wants to be involved in the
encounter at En Verde Ser 2014.”
317
EFFICIENCY SEEN AS PILLAR OF SOLAR DEVELOPMENT Sustainability,
energy
technology, and innovation to help manufacturers create
efficiency,
capital
more productive and efficient equipment.
and
effectiveness. These are the priorities that DuPont’s
Efficiency, one of the three pillars of DuPont´s sustainable
sustainable
solutions
solutions program, is integral to this work as it is what
focused
determines whether solar technology can compete with
for
division
its
other energy sources. Leveraging its global presence to
customers. Vice President
achieve this goal, DuPont has been helping to develop
of Sustainable Solutions,
next generation solar panels, dubbed Apollo, which
Latin America for DuPont
Fernández claims will be “lighter and more efficient” when
on
Pedro Fernández, Vice President of Sustainable Solutions, Latin America for DuPont
has
providing
Pedro Fernández explains
they become available in Mexico within a decade. That
that it was through DuPont’s work on food and energy that
efficiency is also the goal of DuPont’s collaborations with
the company developed a focus on these three priorities
Sharp Solar and Suntech, which it is hoped will yield solar
that aligned perfectly with the needs of their customers.
technology that puts it on par with fossil fuel costs.
This commitment has proven to ring true for DuPont’s work across various sectors of renewable energy, including
Claims of new and cutting-edge products might alarm
wind, solar, and bioenergy. In 2011, DuPont acquired Danish
players in the Mexican solar market but Fernández is
bioproduct company Danisco, partly to gain access to
quick to reassure them. “We do not want to compete
the latter’s research into enzymes used in biofuels. The
with others since DuPont is not involved in the solar panel
Danisco acquisition provided a boost for DuPont’s R&D
manufacturing. We just wanted to lead the market toward
capacity to develop biofuels, although with some careful
innovation and show what can be possible through our
restrictions. As Fernández makes clear “at DuPont, we
Apollo project,” he explains. DuPont’s Apollo technology
do not want to use food to produce biofuels. We wish to
consists of silicon-based thin film photovoltaic cells of high
avoid risking the nutritional security of anyone. Our main
power performance. What characterizes these cells is that
improvement has been to develop techniques to produce
they can work effectively even under problematic weather
biofuels through biomass resources.” While DuPont has
conditions, such as rainy days or hot and humid climates,
been very active in this line of research in the US and
because of their tolerance to damp. heat and humidity.
Brazil, its activities in Mexico have been curtailed by a
Apollo modules’ traits make them a great solution for both
lack of agricultural inputs. But the company is committing
roof-mounted and off-grid projects.
itself to using economically and environmentally suitable biomass products and put them to good use. Given such
Reassuring the market has become a large part of DuPont’s
limitations, it is not surprising that DuPont has elected
success
to focus much of its attention in Mexico on solar energy.
entrepreneurs have been downcast by the lack of concrete
Since DuPont develops these technologies alongside its oil
successes seen in the sector. To counter this pessimism,
and gas activities, it is in a very good position to assess
DuPont has been sharing its global successes and seeking
the competitiveness between fossil fuels and renewable
to use its partnerships with renowned firms such as Suntech
energy sources. “Solar technology can get very close to
and Kyocera to help investors regain confidence. Part
fossil fuel energy-based projects,” says Fernández, but it
of DuPont’s actions to stimulate the sector has been to
all depends on the equipment put into play. For Mexico,
encourage Mexicans to enter the solar sector. Getting them
where renewable energy sources are seeking to gain more
to do so has been done by DuPont showing how to forge
traction and approval from the government to compete
links with financial backers and by lobbying the government
with fossil fuels, the right technology might be a godsend.
to make more efforts. Fernández is puzzled at the reticence
strategy
in
Mexico.
Potential
Mexican
solar
the authorities have shown to pushing solar forward. “The
318
The minimum length for a solar panel warranty is 25 years,
government has made very shallow attempts to promote the
DuPont asserts. Anything less than that and a product
sector with a couple of solar farms in the north, but given the
cannot keep up on the Mexican market. With DuPont having
resources available in Mexico, it does not make sense. You do
started work in the solar industry before solar panels were in
not even find this level of resources in the sunniest part of the
commercial use, this is a guarantee they have little trouble
Mediterranean,” he says. Governments from China and Japan
in providing to their customers here. Today, the company
to Spain and Germany have been integral to kick-starting
focuses on three areas: materials for the structure and
solar power generation in their countries and DuPont is
design of solar panels, electrical connections for its Solamet
hopeful Mexico will soon benefit from that same advantage.
| VIEW FROM THE TOP
BUILDING A SUPPLY CHAIN FOR RENEWABLE ENERGY CARLOS ESCAMILLA Former Regional Manager of Dow Chemical
Q: In which areas of the renewable energy industry does
understanding that allows us to zero in on the different
Dow Chemical see the greatest opportunities?
needs of different markets, and on how the sun behaves
A: We are currently looking for opportunities within
in different parts of the world. This is why the Enlight
renewable energy, with a stronger focus on wind and solar.
protective film lasts for as long as is needed, even after
Given our presence from the very beginning of the value
being applied just once, when the module is built.
chain, we have the opportunity to impact several sectors. Solar energy has proven to be easier, since the wind energy
Q: What are some of Dow Chemical’s other flagship
supply chain has not developed as quickly as we expected.
products that have become trademarks for the company?
This is all due to what has been happening with fossil
A: For the solar market, we have solar shingles under the
fuels, the prices of which were going up until shale gas
Powerhouse trademark. This is a very interesting solution,
rapidly became feasible, changing the price dynamics. This
since it is similar to solar panels for residential applications,
allowed solar panels to become the best solution, though
except it is shaped like a shingle. The design is unique and
we are still looking at some opportunities in wind power.
aesthetically beautiful when installed on top of a house.
Q: What has been Dow Chemical’s contribution to the
Q: How does Dow Chemical differentiate itself from other
development of renewable energies and to increasing
component developers operating across the supply chain?
their competitiveness compared to fossil fuels?
A: We are very competitive within the industry. All our
A: It is hard for any company, no matter how big, to compete
competitors are huge companies with great R&D activities,
with fossil fuels and their price dynamic. However, one
which is very good as it promotes healthy competition and
important element is just how reliable renewable energy is
pushes us to try and make innovations that have the biggest
compared to fossil energy. Dow Chemical’s main objective
possible impact as quickly as possible. We are constantly
is to provide the technology that will allow renewable
finding new global challenges that need to be addressed.
resources to become reliable enough to compete with
Our company is putting a lot of effort into finding solutions
fossil fuels. For wind energy, we have a system and brand
to these challenges, which are critical if we are to reach
revolving around adhesives. We have created strong
our sustainability goals. We are always thinking about how
blades that remain very light, meaning better performance
scientific materials can help, from reducing the weight of
than other products on the market. We also have a specific
packaging to getting the most energy out of solar and
coating for the painting of wind turbines, which improves
wind. At the same time, we are very responsible regarding
their performance when they are exposed to sun, wind and
our operations, and we are optimizing our energy efficiency
rain. For the solar industry, one of our biggest products is
around the world.
the Enlight Polyolefin PV module encapsulant film, under the Enlight trademark, which helps to both protect the
Q: What are the next challenges you will be facing within
panels and enhance performance.
the renewable energy industry in Mexico? A: One thing that has strikes me is that people are very
Q: How does Enlight enhance the durability and
eager to say that renewable energy is a booming industry
performance of solar panels?
in Mexico and that demand is going to grow, but we need
A: One of the advantages of Enlight products is that
to realize that increasing demand will not directly result in a
they can be tailor-made. We work together with the
better supply chain. We still have China and Europe, among
manufacturers to find out what their needs are and we
other regions, which are not doing well economically and
make specific products for them. For example, we need to
are trying to sell their renewable energy equipment. For
understand the planned lifetime of the panel, so that we
example, companies might import components from
can develop the optimal Enlight product. We have solar
Europe to produce solar panels in Mexico. This might be an
plants in Thailand and the US, which gives us a global
opportunity for Mexico and the entire renewables sector.
319
320
DOING BUSINESS IN MEXICO
13 As the economic crisis battered traditional economic stronghold, the renewable energy market has shifted its gaze toward developing economies. After a decade of slow economic growth, Mexico was quick to recover from the global financial crisis and following a year of groundbreaking reforms is now well positioned to embark on a rapid economic growth trajectory. Mexico has become an increasingly attractive energy investment destination, combining the political will to develop the country’s green economy with an increasingly attractive investment climate and world class energy resources.
This chapter analyzes key issues that Mexican and international companies must take into account when operating in the Mexican energy and sustainability industries, ranging from financial, business and legal issues to the potential challenges of navigating sometimes fractious relations with local communities and complying with the complicated environmental permitting processes.
321
Cleantech for Latin America
Buscamos soluciones trasformadoras al problema del cambio climatico.
Inteligencia de mercado e innovación sistémica para el desarrollo, implementación y financiamiento de tecnología limpia en México y Latinoamérica. genera inteligencia de mercado especializada en el sector de tecnología limpia como sustento para la toma de decisiones en el desarrollo, implementación y financiamiento de soluciones bajas en carbono. Cuenta con la experiencia necesaria para detectar, analizar y desarrollar nuevas oportunidades de negocio en el sector cleantech en México y Latinoamérica. GreenMomentum se especializa en brindar soluciones a empresas internacionales en expansión que busquen aprovechar nuevas oportunidades de inversión y participación en el mercado mexicano de tecnología limpia. Como parte complementaria a los esfuerzos de GreenMomentum para promover la competitividad en México, en 2010 se crea la organización Cleantech Challenge, hoy en día considerada la principal aceleradora de empresas verdes en Latinoamérica. Ésta, en colaboración con GreenMomentum y la Agencia de Desarrollo Internacional de los Estados Unidos, es el
www.greenmomentum.com info@greenmomentum.com info@cleantech.mx www.cleantech.mx
principal promotor del concurso de empresas verdes más importante de México: Cleantech Challenge México, que en su edición 2014 cumple 5 años de fortalecer el ecosistema emprendedor nacional.
En sus primeras cuatro ediciones, Cleantech Challenge México ha impulsado la creación de más de 2,500 empleos verdes y apoyado la constitución de más de 190 empresas, responsables de más de 100 solicitudes de patentes de tecnología limpia nacional. Se estima que en los próximos cinco años Cleantech Challenge México, y las más de 500 empresas participantes en el nuevo ecosistema de tecnología limpia nacional, logren una reducción en la emisión gases de efecto invernadero superior a las 15 millones de toneladas de CO2e. Hoy en día, GreenMomentum y Cleantech Challenge son considerados elementos esenciales del nuevo ecosistema de innovación sustentable mexicano, consolidándose como motores de desarrollo económico y competitividad.
CHAPTER 13: DOING BUSINESS IN MEXICO 324
Smooth Transition toward Mixed Power Generation
325
VIEW FROM THE TOP: Vision for Making Green Development a Reality
326
VIEW FROM THE TOP: Mexico Lagging Behind in Social Management
327
Getting Local Communities Involved
328
Avoiding Social Conflicts in Renewable Energy Projects
328
Multi-Sectorial Studies to Back Up Project Developers
330
Attention to Detail in Contract Management
331
Civil Infrastructure Support for the Energy Market
332
Competitiveness as a Manufacturing Hub
333
Private Studies to Reduce Renewable Uncertainties
334
VIEW FROM THE TOP: Expansion of Services for New Energy Markets
334
Stepping Up Mexico’s Manufacturing Industry
336
Communication Essential for Success of Renewable Energy
336
Mexicali: A Manufacturing Haven for Renewable Energies
337
Competition Paves the Road to Renewables
338
VIEW FROM THE TOP: Particularities of the Baja California Energy Model
339
VIEW FROM THE TOP: Access to US Market Makes Baja California Attractive
340
Ensenada: Building Up its Energy Infrastructure
340
Tijuana: From Manufacturing to Green Technology Hub
342
Bringing the Wind Energy Sector Together
343
Joint Green Initiatives
343
Green Expo: Exchanging Green Ideas
323
SMOOTH TRANSITION TOWARD MIXED POWER GENERATION
Antonio Martínez Dalmau, Partner in PwC’s Strategy and Operations Group
PricewaterhouseCoopers
been working with Mexico’s key stakeholders, including
(PwC)
network
SENER, to tap up renewable energy sources for two years.
of clients that allow the
SENER commissioned a project on which PwC had to fully
company to be tapped into
determine the competitive potential of each renewable
the power sector around the
energy technology, from wind, PV and biomass to efficient
world. With over a century
cogeneration, mini-electrohydraulic plants, and geothermal
of advising companies in
energy. The value PwC brought to the table became
the power industry, PwC is
evident when SENER published the firm’s conclusions and
able to harness its global
included them in the National Energy Strategy 2013-2027.
experience and knowledge
Once the main obstacles had been identified, PwC’s work
to
has
provide
a
best
with the authorities was largely concentrated on drafting
solutions for the Mexican reality. Antonio Martínez Dalmau,
the
agreements and building consensus between the public
Partner in PwC’s Strategy and Operations Group, explains
and private sectors to ensure mixed power generation
how the professional services firm has divided its power
develops in an optimal manner.
team to address the needs of the oil and gas, power and utilities, and mining sectors. This is a formula that has worked
Work with SENER, CFE and other industry leaders
across 158 countries, and this global structure has been
continues apace to ensure renewable energy is backed
closely replicated in Mexico. “We cater to foreign companies
up by a framework that addresses every detail. For
and domestic companies working in Mexico. As a global
PwC, the financial sector, which is so deeply involved in
firm, we move people with technical skills to where they
the renewable energy industry, is crucial. With the same
might be needed. For renewable energy, Spain has a strong
application used for its private clients, both globally and
track record and a mature market, so we help out Mexican
locally, PwC presents international practice proposals
companies from there,” explains Martínez Dalmau.
and then works with institutions on how to adapt these practices to Mexico. This collaboration has looked at
This global approach to tackling local problems is
precise challenges, such as how best to incorporate
particularly relevant at the moment. As a consulting
intermittent power generation into the system. As CFE has
firm, PwC is poised to help deal with the fallout from the
to measure the impact of introducing new energy sources
structural changes expected as a result of the Energy
to the mix, PwC is helping to guide the utility through the
Reform. Martínez Dalmau expects the reform to force all
process, including the introduction of guidelines operators
energy companies in Mexico to revise their development
should follow.
strategies. PwC is gearing up to help the public sector tackle challenges coming from the implementation of
PwC is planning a workshop with CFE, along with
mixed generation techniques, train CFE system operators
international experts and operators, to go through the
and advise on which policies would best attract investment.
entire process of integrating renewable energy into a
For PwC, there is no doubt that the Fiscal and Energy
power grid. This will set up a channel through which to
Reforms will be a shot in the arm for Mexico’s growth.
share information with Mexican operators, which can be
Industrial improvement in the US and pending requests for
used to learn from countries that have walked this path
bids on Mexican infrastructure projects will contribute to
before. These efforts are part of PwC’s broader strategy to
that synergy, according to Martínez Dalmau. The energy
ensure a smooth passage over troubled waters, with the
sector will be an important part of this growth, as long as
best way to include renewable energies still under debate.
it is able to meet key challenges head-on. Martínez Dalmau
324
adds that much of Mexico’s current capacity is obsolete
What has left Martínez Dalmau surprised along this journey
and will soon have to exit the generation infrastructure
is just how quickly the cost of renewable energy sources has
mix. This means the country will not only have to add a
dropped over time, leading to a continuous improvement in
significant amount of power generation capacity but
their competitive advantages over fossil fuels. “Sustainability
also replace its existing infrastructure. PwC estimates
is now a good investment offering high returns for businesses,
that this transition will require the installment of 40GW
not just because of competitive renewable energy sources
in the next 12 years, or 60% of Mexico’s current installed
but also because of the benefits it brings for branding,” he
capacity. Such a large-scale undertaking creates ample
explains. “But Mexico still needs to develop knowledge in the
opportunities for companies working across all energy
public and private spheres to fully push the sector forward.
sources. To capitalize on these opportunities, PwC has
The plan is for PwC to be of great help in this transition.”
| VIEW FROM THE TOP
VISION FOR MAKING GREEN DEVELOPMENT A REALITY GILBERTO ALFARO Energy Partner of KPMG Q: How important is the energy sector for KPMG’s
wind projects but that also presents complications, since a
activities, in Mexico and globally?
wind farm requires significant investment and a company
A: On a global basis, energy is one of our key strategic
must have the capacity to switch to another type of energy
areas. Energy is going to be one of the main economic
when the wind is not blowing. Companies that are trying
triggers, which will have many implications for cost,
to make a business in this sector face severe restrictions.
pricing and as an engine of social development. We have a specialized group worldwide that has key knowledge
Q: How can KPMG help build a financial model that
about the technologies and mechanisms of the energy
can increase the confidence of financial institutions in
sector and our operations in Mexico are aligned with that.
bankrolling renewable energy projects? A: We have a lot of experience in working with financial
Q: How does KPMG perceive the Mexican market for
institutions. In our advisory area, we have specialists that
renewable energies?
help our clients to structure projects from a technical and
A: Mexico is in a very privileged position because it has a
financial perspective. We also help them to participate in
lot of renewable energy resources. However, the country is
governmental bidding processes.
still facing a paradigm where oil is woven into the national fabric. Mexico does not seem to want to fully implement
Q: By 2027, 35% of Mexico’s electricity must come from
changes that would allow the country to draw the full
clean energy sources. What would be the right incentives
benefits from its renewable energy resources.
for the private sector for Mexico to reach this target? A: The first step would be tax incentives, not only for the
Q: What are you doing to help your clients prepare for the
producer but also for the consumer. They have to be really
impact of the Energy Reform on the Mexican energy sector?
clear incentives, especially for the consumers. For example,
A: Most of the challenges our clients face in Mexico are not
owning a solar heater could mean a tax reduction. We
just national, they have competitors from all over the world.
need a strategy for promoting the benefits that renewable
These companies may be working in Mexico but their market
energies can bring. If you do not link these benefits to
is global. Industrial players are facing significant price
general public awareness, nobody is going to implement
competition, and being located in Mexico does not translate
renewable energy projects due to not being aware of the
into being able to match the price of foreign products. It
positive effects that can come from such ventures. We need
is also hard for companies to put an operation in place
more promotion of the benefits for both the producer and
without focusing on efficiency and cost competitiveness.
the consumer. Furthermore, we face natural restrictions
Technology, the cost of labor, security risks, taxes, permits
with these types of energy because not all of them work
and bureaucracy all hamper efficiency in Mexico.
in similar ways. We need to develop a particular strategy for each specific project, taking into account particular
Q: How has awareness about renewable energy evolved
infrastructure needs. These are the strategies that need to
in recent years, and what are the drivers that will lead to
be made clear to the public rather than making laws, rules,
Mexico becoming a green economy?
and programs.
A: The renewable energy sector has been growing but not at the promised rate. This is mainly down to costs and a
Q: What role can KPMG play in supporting the further
lack of incentives to promote the use of these technologies.
development of the Mexican energy sector?
The lack of infrastructure is another issue. The energy
A: Both our regional and global strategies reflect our strong
needs are there and CFE, due to the restrictions imposed
commitment to the energy sector. We have an understanding
on a government-owned entity, is not capable of providing
of the local laws and regulations and can help our clients
all the energy required.
There needs to be significant
decide whether they wish to invest in Mexico. KPMG offers
growth in this area. Certain companies are investing in
its clients a global network with standardized local services.
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| VIEW FROM THE TOP
MEXICO LAGGING BEHIND IN SOCIAL MANAGEMENT LEFT: Manuel Ortiz Monasterio, Director General of ERM Mexico RIGHT: Roberto FraĂş, Social and Sustainability Team Leader of ERM Mexico
Q: What opportunities has ERM spotted for its services in
RF: Compared to solar or wind energy, natural gas is a
the Mexican power generation market?
bigger pollutant but it is already replacing the use of more
MOM: Power is one of our strategic sectors. We are
polluting hydrocarbons, which is a marked improvement.
focusing on growing that area of our business and on
Renewable energies and natural gas complement each
carrying out projects for different companies in the
other very well. Mexico is seeing increasing demand for
sector. The recent surge of renewable energy in Mexico
both, creating great development potential for each sector.
means that many projects require integrated services in
Mexico is going to become a very interesting global case
their approach to sustainability. Being sustainable does
study on how natural gas and renewables can be surprising
not just mean carrying out an environmental impact
partners as both are going to develop simultaneously.
assessment or getting the right permits. A sustainable
326
commitment needs to go much deeper than that. It must
Q: How does ERM convince its clients that money spent
look at stakeholder engagement, understand the needs
on sustainability is an investment rather than an expense?
and expectations of local communities, and plan for
MOM: There is plenty of proof available to show that taking
the minimization of environmental damage before the
a holistic approach to sustainability too late in the project
project even starts. The different and complex services
cycle ends up being much more expensive. We have seen
that sustainability entails are very well-matched to the
specific examples of this happening in Mexico. This has led
portfolio that ERM provides at the global and local level.
to clients coming to ERM at a very early stage of a project
Clients often come to ERM asking for one service, but
to ask us to check every aspect and raise any red flags,
soon realize that they require more services at different
even if problems are not being expected. The market is
stages of the project cycle. Our ability to offer those
becoming much more sensitive to the need for early risk
services under one roof allows us to become involved
identification, as it saves a lot of money and can make
in the country’s highest profile projects in wind, hydro,
projects more viable. Many projects become unviable
biofuels, and increasingly solar. Our clients are generally
because of apparent sustainability risks that were not
not new in the market. They might be new to Mexico,
addressed early on. The question is no longer whether this
but what they really need is support in managing the
is a necessary expense or not, it is now how much should
sustainability challenges of complex projects.
be invested and at what stage of the project cycle.
Q: Natural gas will play an increasingly prominent role in
Q: What are the main sustainability challenges that
the Mexican energy mix in the future; what implications
projects face and how can they be prevented or overcome?
will this have for your company?
RF: The social component is the biggest obstacle. Mexico
MOM: ERM also works in oil and gas, so this would still
has become mature in environmental and risk management
be positive for us. There is also a lot of investment in the
over the last couple of decades, but proper stakeholder
sector and we hope there will be more. Given that the
engagement is lagging behind, which is where a lot of
price of gas is currently very low, investing in gas-fired
sustainability risks can emerge later in the project cycle.
power generation and related infrastructure is of course
In our experience, projects often involve many partners,
more attractive. However, the situation with renewables
among which one Mexican entity claims that it has long
is very different. High oil and gas prices in the past have
experience in the area and that the communities are
enabled renewable energy technologies such as wind and
fully supportive of the project because it will bring jobs.
solar to become increasingly cost-competitive with fossil
Sometimes, the other partners are skeptical, and carry out
fuels. Despite the recent drop in natural gas prices, the
a social risk analysis anyway. But others trust their Mexican
renewable energy sector has gained sufficient momentum
counterparts and assume all will be fine. Unfortunately, this
to continue benefiting from growing economies of scale
regularly leads to foreign companies underestimating the
and lower technology prices.
social risk component involved in these projects. As the
market continues to grow, there is a risk of all companies
that any development for any type of project will have
are being grouped together, with some tarnishing the
an impact on the environment and the surrounding
reputation of the rest. ERM integrates this thinking into its
communities. Take Juchitan in the Isthmus of Tehuantepec,
practices, and has a specific consulting team that identifies
for example. Before the arrival of the wind industry, there
social risks early on. Our thinking is that there are two ways
was no industrial activity there. For the local people, the
of managing social risk in a project. You can hope for the
wind farm is the first industrial facility they have to deal
best and pray that nobody ever opposes you or you can
with. A social license to operate from communities is much
actively manage these relationships and turn them into
easier to maintain than to regain. If companies do not work
an asset. Reputation is an aspect that can differentiate
to maintain social acceptance and lose it, it is gone forever.
companies from the very beginning. The strategies we suggest can help them and their product stand out.
Q: How has Mexico’s national consciousness about environmental and social sustainability evolved in the
Q: How successful are companies in the renewable market
past years?
in avoiding social problems?
RF: In the last few years, it has become evident that
RF: Unfortunately, many are not avoiding these problems
Mexico has started to lag behind in terms of international
effectively. There is an implicit assumption among
best practices. Other countries around the world, and in
renewable energy companies that they are doing good
Latin America, are moving ahead of Mexico in seeing that
things for the world. This has led them to have an implicit
sustainability is an integral part of a project’s commercial
belief that nobody would oppose a wind farm or a mini-
decision-making process. With Mexico lagging behind, the
hydro plant. They believe they are the good guys, as
renewable energy sector is going to have to catch up with
opposed to mining and oil and gas. Sadly, they enter
the rest of the world a lot quicker than the rest of Mexico if
proceedings with that mentality, without acknowledging
it wants to be successful.
GETTING LOCAL COMMUNITIES INVOLVED In a country rich with diverse cultures, customs, and
Lasa, “we must be renting the land at a fair price.” Once a
languages, Jesús Zaldúa Lasa, former CEO of Gamesa Energy,
fair price for the land has been established, it is a question of
emphasizes the importance of recognizing the unique social
negotiating the price of production, he explains, which must
characteristics of the areas where investors are looking to
also meet international standards. “Local communities should
construct their next renewable energy projects. He attributes
be directly participating in the construction of the wind farm,”
the success of Gamesa in large part to the company’s
said Zaldúa Lasa. “We have appointed a committee to look
attention to the specific social conditions of each community
at property rights, and another committee that is working
and its long-term goal of keeping communities involved in
directly with the communities where wind farms will be built
project development and beyond. “We were completely
to discuss how local people can share in the jobs that are
overwhelmed by the extraordinary cultural diversity in this
created.” He adds that another crucial issue is to respect the
wonderful country,” says Zaldúa Lasa, who previously worked
environment during the construction process. “We have to
in Spain, China, India, and Germany. “Mexico has taught us
take responsibility and cover all of the damage done to the
that the reality on the Isthmus of Tehuantepec is not the same
land during construction.”
as the reality in the capital of Oaxaca, which is different from the reality in the Sierra Mixteca.” Approaching communities
In the long term, local job creation remains one of the most
and evaluating their specific social and economic needs
important pieces of Gamesa’s development strategy. “You
has been easier for Gamesa than for similar companies
must give security of employment to the local families who
from other countries, he speculates, given the similarities
own the land. All of this, in the end, benefits everyone.” While
between the two cultures. Spain and Mexico share a common
the relatively new and small wind industry in Mexico makes
language but, as Zaldúa Lasa explains, “we share a lot of the
it difficult for Gamesa to contract local manufacturers,
same values: family, food and people. We are able to adapt
Zaldúa Lasa explains that Gamesa would eventually like to
our plans and be flexible with our development strategy
have 100% of the maintenance to wind farms performed
depending on conditions. This is much more related with
by local employees. “80% of the maintenance will be
culture than language.” Yet after a company has successfully
immediately done by local people and, in the long term,
entered a community, there is still much to negotiate before
it will be 100%,” he said. “There is no reason to import
a project can successfully begin. “First of all,” said Zaldúa
Spanish staff or any other people.”
327
AVOIDING SOCIAL CONFLICTS IN RENEWABLE ENERGY PROJECTS Securing land rights can be a real bottleneck for all
community members to ask for more money and change
renewable energy project developers. If done without the
the easements. Usually, we tell our clients to buy the land,
right amount of attention, this bottleneck can escalate
but if that is not an option, well-shielded easements (to
into a nightmare. “There have been many projects on
evacuate the generated electricity as well as to place
the verge of construction, or that were in the operating
infrastructure) are the second best thing. One way the
phase, that were stopped because of social issues, which
easements can be shielded is by seeking the approval
often are reflected in obtaining environmental permits,”
of the local assembly,” says Luis Esparza, Associate at
says Leopoldo Burguete Stanek, Partner at González
González Calvillo, S.C.
Calvillo, S.C., the law firm that provides an interdisciplinary approach to legal matters surrounding renewable projects.
The most important thing is getting legal certainty,
Burguete Stanek notes that many wind projects are located
Burguete Stanek points out, and this goes beyond going to
on land belonging to ejidos and communities. According to
the public notary in charge of the land registry deeds. The
data from the Ministry of Agrarian, Territorial and Urban
first step is visiting the project site and then the National
Development, 78% of the land in Oaxaca belongs to ejidos.
Property and Commerce Registry as well as the Agrarian
There are two options to deal with this scenario: change the
Registry in order to determine the chain of transfers, while
land’s status from communal property to private property
working out issues to do with agrarian reform. These lease
or negotiate leasing schemes with the community.
contracts are limited to a 30 year period, and involve working out the type of land possession that the company
Burguete Stanek explains that technically speaking, the
will enjoy, as well as how it will be managed.
law states that land ownership rights cannot be acquired without the consent of the local assemblies, but it can be
There is no magic process to secure land and every case
leased without the intervention of the local assemblies. In
is different but the best way seems to be to approach the
principle, the assemblies can be circumvented by following
community directly. “We use environmental and social
the procedures or talking to the right people. A simple
methodologies from the World Bank and the IFC, which
option is to buy the land, but that may turn out to be nigh
approach the issue through four lines,” Burguete Stanek
on impossible. Another option is to use the easement
says. When banks lend money, they request that the
option, wherein one party can enjoy the rights to use
project fulfill certain social and environmental aspects.
land without owning it. This is the option most companies
Before carrying out the needed social and environmental
choose. “But problems may arise when outsiders tell
assessments, the conflicts and conditions of a community
MULTI-SECTORIAL STUDIES TO BACK UP PROJECT DEVELOPERS Environmental
Miguel Montañés, CEO of Natura Medio Ambiente
studies
areas with an abundance of birds in Spain, to redesigning
have a real impact in the
roads in protected protected areas, and social projects
infrastructure
projects.
in Mexico for the development of schools, hospitals, and
Natura Medio Ambiente, a
universities. This has given the company, which has specialists
specialist in environmental
in areas such as cartography, landscape, vegetation, fauna
studies for infrastructure
and archeology working together in mixed teams with staff
projects,
from Spain, Bulgaria, and now Mexico, a mature and long-
can
the
potential
of
the
or
impact
term approach to its business.
construction
modification
of
For Natura Medio Ambiente, Latin America represents
if
a clear opportunity. While countries like Brazil and Chile
necessary, recommend alternatives and solutions for the
have had a rapid development, Montañés is placing his
development of a project. Throughout 16 years of carrying
trust on the Mexican market. The interest of the Mexico’s
out studies for big developers, Natura Medio Ambiente has
new administration in attracting foreign investment and
gained experience in almost every area, from wind farms in
diversifying the energy mix makes Montañés believe that
infrastructure
328
evaluate
and,
should be evaluated. “This is a preventative measure. It is
by a renewable project, both parties (developer and
not only part of the legal framework but it is also necessary
community) have to benefit. The energy that is generated
to construct the social and environmental arguments to
will not benefit the community directly, because it is
convince the members of the community and get their
loaded into the grid for CFE to distribute. However, the
support,” Esparza states.
company can negotiate with the community and create
“There have been many projects on the verge of construction, or that were in the operating phase,
that were stopped
because of social issues, which often are reflected in obtaining environmental permits” Leopoldo Burguete Stanek, Partner at González Calvillo, S.C.
Another important step is getting support from municipal
programs that will have a tangible positive local impact,”
authorities. The local government must become involved
explains Burguete Stanek. “In this process, openness and
and take ownership of the project. This will enable the
honesty with the community, particularly regarding the real
municipal leader to inform the community that they are
benefits that will be generated, are essential. Sometimes,
working together with the project developer, seen as a
the community can misinterpret what is being proposed,
way to empower the community as well. However, the law
therefore the project developer has to be very clear when
firm knows that a social conflict cannot be spotted from
offering something,” adds Esparza.
an office desk. “At González Calvillo, S.C., in addition to revising the paperwork, we like to make on-site visits. We
The World Bank and the IFC acknowledge the importance
visit the local communities and identify potential social
of community management. They do not just finance a
conflicts as well as stakeholders. If an existing social
project for its moral good; they want to have their return
conflict is not spotted early on, it can become a deep-
on investment warrantied. This is the main reasons why
seated problem that can lead to project closure,” Burguete
financial institutions comply with the Equator Principles.
Stanek emphasizes.
“If the social requirement is complied with, the economic side is guaranteed,” Burguete Stanek explains and
In order to avoid social conflicts, a strong community
underlines the importance of having a planned and
management plan has to be created. A starting point
shielded community strategy, recalling one hapless
is to pinpoint the needs of both the community and
project that was bogged down with 160 lawsuits related
the municipality and create a program that addresses
to social issues that ended up having an environmental
both those needs at once. “If the land is being affected
impact as well.
large scale development will accelerate, impacting the
presenting the design of a project, before specific research
entire population. The company has long enjoyed working
into detailed areas such as the impact on fauna or on local
relationships with companies like Acciona, Iberdrola and
archaeological ruins is conducted. This implies a big risk
Vestas, which provided natural ramp from Natura Medio
since the design process could be wasted if the specific
Ambiente to launch itself into the Mexican market. However
research invalidates the planned location.” Natura Medio
these companies did not fully prepare Montañés and his
Ambiente is lobbying SEMARNAT to switch this around so
team for what they would find in Mexico: technicians ready
specific studies are done first before a company is given the
to start working with its international teams of experts,
green light to prepare and present its designs.
which helped the company reach an operational stage sooner than expected.
When a project is designed, various studies must be presented
in
order
to
comply
with
documentation
The company is offering its knowledge base to SEMARNAT.
requirements. Miguel Montañés, CEO of Natura Medio
“The potential benefits of this endeavor could be huge since
Ambiente says that the problem comes after this process,
the transfer of knowledge could lead to proper and efficient
when nobody verifies that the construction of a project in
regulation governing the way infrastructure projects are
reality matches what was stated in these studies. Natura
developed in the country,” says Miguel Montañés, CEO of
Medio Ambiente suggests a solution that it already
Natura Medio Ambiente. “A clear example is the way studies
established in Spain. Namely, every project should involve
are developed in Mexico, which can be drastically improved.
an environmental project director that certifies that the
At the moment, general impact studies are done, including
project is executed in line with the documentation.
329
ATTENTION TO DETAIL IN CONTRACT MANAGEMENT Wind farms and transmission lines make up just one
mini-hydro, geothermal, wind farms, biomass, biogas, and
chapter of an ample portfolio owned by Ingeniería en
tidal and ocean energy. We are actively participating in
Administración de Contratos (IAC) that includes roads,
wastewater plants that use waste mud to produce biogas,
airports and convention centers. But given Mexico’s current
which is used by the plant operator to produce energy that
needs, few chapters of that portfolio are more crucial than
serves for self-consumption purposes,” says Garibay. To
energy. As IAC’s Director General Antonio Garibay explains,
ensure this ambitious plan is achievable, IAC has studied
the company has always identified key factors that enable
every type of project that can happen in Mexico, both in
it to participate in the right infrastructure projects.
the public and private sector.
“We want to be a big player in consulting services to develop green energy projects: mini-hydro, geothermal, wind farms, biomass, biogas, and tidal and ocean energy” Antonio Garibay, Director General of IAC Mexico
The company carefully assesses external conditions. In this
The above priorities have been amalgamated into a key
light, IAC has looked closely at the investment that Mexico
element for IAC: contract management. In order to identify
has made in the energy sector for the last 15 years, through
major potential risks and opportunities, IAC conducts deep
the actions of CFE and PEMEX. “CFE is very committed
analysis of every project’s legal and contractual conditions.
to developing new power generation, transmission and
These include IPP (independent power producer), BOT
distribution projects. This has been a huge opportunity for
(build-operate-transfer), and EPC contracts. To ensure that
IAC to find new business,” says Garibay.” IAC can count
this expertise is a company asset at every level, Garibay
on its experience of supervising turnkey infrastructure
explains that all employees are required to understand the
projects as well as EPC for various sectors. Unlike many new
strategic thinking and cultural profiles of different clients,
players in the Mexican market, IAC masters the make-up of
both international and Mexican. “We prepare our engineers
the market, and knows how to navigate the maelstrom of
to think as well as lawyers, to write what they want to
public contracts, applicable laws, and the right norms and
transmit in a contract in perfect Spanish and English,”
codes to follow.” Garibay states this overarching expertise
explains Garibay. “We prepare them and encourage them to
has translated into savings and profits for IAC’s clients, and
negotiate in the most convenient terms for our clients during
has formed its reputation as a consulting services provider
project implementation and execution.” For the public sector,
that it has exported across Latin America.
IAC focuses on doing project and contract management by the book, aware that public entities like PEMEX, CONAGUA
It is this diverse knowledge base that has allowed IAC to
and CFE will face more regulation and scrutiny to ensure
invest US$4 billion in projects since its creation in 2000,
they fulfill all the applicable laws anytime they enter into a
including over 120 infrastructure projects in Mexico and
contract. For the private sector, IAC adopts a more flexible
Latin America. As one of the few firms with experience in
approach based on the type of law that regulates each
virtually every type of energy project from hydroelectric
investment, the lifecycle of a project and on the fact that
power stations to combined cycle plants, and even nuclear
building and developing infrastructure in Mexico tends to be
plants, IAC seeks to work only on important projects. “We
faster when involving only private entities.
understand the importance of the key aspects that can lead to the collapse of an otherwise well-thought out project at
IAC is clear on where it will turn its broad focus in the future?
any time if executed by a company that does not have the
The renewable energy sector has the firm’s attention in a
experience to successfully handle the crucially important
major way, and not just in wind, solar or waste-to-energy
social and environmental aspects of infrastructure projects,”
projects. IAC also worked with Alstom on the Los Azufres II
says Garibay to explain IAC’s track record.
and Los Humeros II geothermal power stations, but Garibay has a particular interest in tidal and ocean energy. The
330
IAC is confident that it can continue to make a big splash
federal government has been aggressively investing in the
in the Mexican energy sector. “We want to be a big player
development of these resources, and it is no surprise that
in consulting services to develop green energy projects:
IAC is gearing up to participate.
CIVIL INFASTRUCTURE SUPPORT FOR THE ENERGY MARKET Aware
of
Mexico’s
example, local and municipal governments have three-year
energy
terms, making continuity a real problem for large projects
potential, a Mexican civil
that take longer to get under way. “We have proposed
infrastructure firm made
changes and legal initiatives that will enable large projects
some
to continue in spite of administrative changes. Proper
renewable
modifications
to
its business focus. 2008
regulation can prevent many mistakes,” he explains.
saw ERYVITSA enter the
Alejandro Velasco Hernández, CEO and Chairman of ERYVITSA
renewable energy industry,
Velasco Hernández sees the goal of generating 35% of
particularly through solar
Mexico’s electricity from clean energy as ambitious. “It will
energy
the
depend on strategies implemented by SENER and CFE,
projects
in
north of Mexico and civil
as it will determine which bids are held back.” However,
works for wind parks in Oaxaca. ERYVITSA realized that few
he believes the predicted 12GW of installed wind power
Mexican companies were qualified enough to offer project
capacity by 2020 could be reached or even surpassed
development and consultancy services. The company,
by the wind energy industry. Given ERYVITSA’s belief in
motivated by its recently gained experience, decided to
the wind industry, its staff working on wind farms attends
seize the opportunity by dispatching personnel to Europe
training sessions with qualified personnel from Germany.
to learn about renewable energy and energy efficiency.
“They become specialists in renewable energy and energy
These efforts enabled the creation of a collaborative
efficiency and then mentor local workers who apply the
network with companies from Germany, Spain, Canada,
recently acquired knowledge on Mexican wind farms.
and Portugal. The main goal was to increase the amount of
Because the construction and installation lasts between six
human capital and competitiveness in Mexican companies
months and a year, people will gain plenty of experience
with international certifications.
during that period and once the project ends, the workers can go to other states where wind energy projects are
Civil works are ERYVITSA’s main area of expertise as
being developed. This is a way for ERYVITSA to create
the company has been working in road construction
employment opportunities,” states Velasco Hernández.
and infrastructure for 30 years. Its experience in the renewable energy sector, however, is limited to five years.
ERYVITSA is using part of its profit to build a renewable
Nonetheless, this area has rapidly become of crucial
energy training center where anyone, regardless of age
interest for the firm, which actively works in development,
or educational level, can assist. This provides a great
project management, consultancy, construction and small
opportunity for people in rural communities with no formal
to medium-size project launching. ERYVITSA also provides
schooling. The idea was conceived after collaborating with
specialist advice on market development for renewable
a renewable energy center in Germany, and the main goal is
energy with federal and state governments, especially the
educating and training community members and fostering
Renewable Energy Commission of Oaxaca.
a clean energy culture. “There are plenty of opportunities in the Mexican renewable energy sector with more projects
Having close ties to Germany, ERYVITSA has incorporated
being conceived every day. Now that the regulatory
international practices that could help the Mexican
framework for renewable energy was modified, the solar
energy industry. “For example, we are pushing for an
energy sector is expanding. This has given ERYVITSA plenty
enhanced legal framework, adjusted to regional needs,”
of opportunities to assist clients with construction, public
says Alejandro Velasco Hernández, CEO and Chairman of
property registry, paperwork, and obtaining permits with
ERYVITSA. He believes that this would result in an increase
municipal and local governments. Activity in the solar sector
of local economic activity and the availability of renewable
is expanding, the regulatory framework was modified, and
energy services throughout the country. Velasco Hernández
the CFE is calling for new bids. More companies want to
claims that this would result in a swathe of improvements,
use solar power for self-supply and we keep on identifying
including more scientific and technological research,
opportunities,” tells Velasco Hernández. ERYVITSA’s CEO
employment opportunities, a larger contribution to gross
stresses the company’s goal of strengthening Mexico’s
national product, and would be a step further for Mexico to
energy sector through renewable energy sources, but its
become a global player in the renewable energy industry.
contribution to developing qualified human capital is at the core of the firm’s priorities. The outcome will be future
One particular challenge according to Velasco Hernández
generations of skillful Mexicans that can hold strategic
is the political and regulatory operating environment. For
positions in the global energy market.
331
COMPETITIVENESS AS A MANUFACTURING HUB Contributing
Silvano Solís Vázquez, General Manager of Interpuerto Monterrey
of
or other producers of renewable energy technologies that
Mexico’s GDP, the country’s
13%
could find in the RFE the possibility to manufacture their
northeastern
region
products at lower costs before exporting them to their final
consisting of Nuevo Leon,
markets. “Interpuerto Monterrey is also looking to obtain
Coahuila, and Tamaulipas,
Mexican preclearance within its facilities so that companies
is one of its wealthiest
can undergo this procedure at our facilitites and then cross
and
industrialized
directly into the US. We are even looking to have American
regions. With an industrial
most
customs procedures completed at its location but that
market primarily focused
seems harder to realize. If all this is achieved, companies
on
and
will save time and money as trucks could drive straight into
production
manufacturing, companies
the US,” states Solís Vázquez. “This is certainly an asset for
based in Northeastern Mexico must be well connected
companies focused on exports that currently lose between
with the rest of Mexico and the world, in order to be truly
3 and 20 hours when their trucks are sitting at the border.”
competitive. To meet this need, and attract yet more companies to the area, the government of Nuevo León
Moreover, Interpuerto Monterrey is building a 3MW solar
decided to position the state as a logistics platform for
plant that will supply electricity to companies based on
international trade. Interpuerto Monterrey is the new
the industrial park, enabling them to use renewable energy
business hub that embodies this ambition.
without having to make the initial investment. The solar energy project will initially start with 1MW and will focus
For Silvano Solís Vázquez, General Manager of Interpuerto
on powering the park’s street lighting, offices, equipment
Monterrey, one of the most important attributes of the
and infrastructure. The installation of the remaining 2MW
project is its location. The site has access to power lines,
will be carried out during 2014. Solís Vázquez predicts that
natural gas pipelines passing along both sides, and an
by the end of 2014, the solar project will be up and running
existing water treatment facility 7km away, which will be
at its full potential. This capacity will add to the 140MW
expanded to better serve the park. The major Mexican
produced by a gas-fired cogeneration plant located on site.
railroad networks of Ferromex and Kansas City Southern
Interpuerto Monterrey also offers companies the possibility
Railway also converge in the area. This last characteristic
to develop a master plan for industrial development. Firms
is very attractive for companies interested in having their
can acquire as much land and infrastructure as they need,
facilities at Interpuerto Monterrey that rely on exporting
with the certainty that there will be no zoning changes
their products. “Having two railroads at the site provides
that could affect their long term operations.
not only access to the train system, but also to the ports,” explains Solís Vázquez. “You have access to the four mayor
Companies are not the only ones that benefit from this
ports in Mexico: Veracruz, Altamira, Manzanillo and Lazaro
project. Because of the current labor market situation
Cárdenas, as well as to major land crossings with the United
in Mexico, it is becoming increasingly hard for people to
States, such as Laredo, Brownsville, and Eagle Pass.”
seek jobs outside their immediate communities. Parks like Interpuerto Monterrey can help bring jobs to places
Interpuerto Monterrey is strengthening its logistical
where they are needed and contribute to the development
advantages by creating a free trade zone and customs zone
of local communities. “Once fully developed, the park is
through a regime called Recinto Fiscalizado Estratégico
expected to have between 35,000 and 40,000 full time
(Strategic Financial Hub, RFE), allowing companies
employees,” explains Solís Vázquéz.
operating within the park to introduce, for a limited time,
332
foreign, domestic or nationalized goods. These could
Interpuerto Monterrey has the breadth of vision to focus on
then be subject to handling, storage, exhibition, sale,
manufacturing, distribution, and export development. The
distribution, production, processing, or repair. RFE intends
importance of this and other similar parks across Mexico
to increase Mexican competitiveness as well as to drive
is that they can help companies with a global mindset
national trade. By being in a free trade zone, manufacturers
connect with other markets, attracting and increasing the
would not have to pay taxes for the raw materials they use
interest of local and foreign companies to work in Mexico.
for the production of their products. Instead they pay the
With two signed customers and its 350-hectare first phase
applicable taxes when the final product arrives to its final
already built and fully serviced, Silvano Solís Vazquéz is
destination, in Mexico, the US, or anywhere in the world.
expecting 2014 to be the year Interpuerto Monterrey roars
This characteristic can attract solar panel manufacturers
into life.
PRIVATE STUDIES TO REDUCE RENEWABLE UNCERTAINTIES In the past, developing renewable projects in Europe was
minimum. Energy to Quality is a mobile lab that allows the
a natural choice, as attractive subsidies and feed-in tariffs
company to make simulations directly on the field. At the
were provided by European governments. Ironically, the
moment, CFE provides approval for those studies or directly
regulatory cornerstone that allowed these projects to
conducts them, but Galaviz states that “we are awaiting
grow at impressive rates was the factor that eventually
further openness from CFE regarding the information
rendered many of them unfeasible when the financial
they take into account when conducting transmission
crisis struck. Barlovento was one Spanish wind energy
and interconnection studies, in order for independent
company that was so affected that it was forced to expand
developers to conduct their own studies without having to
its operations into other regions due to the acute impact
depend 100% on CFE.” These studies always have a degree
of the financial crisis from which Spain is still recovering.
of uncertainty as the measured resources are variable,
Expanding beyond European borders enabled the firm to
making them challenging to measure. “The ideal scenario
keep its place in the market. As Omar Galaviz, the Mexico
would be conducting studies during a 10-year period for
Director for Barlovento says “growth in the Latin American
each future wind turbine but this would mean decade-long
market is proportional to the contraction of the same
measurements for 100 prospective wind turbines. This is
market in Spain.” Yet as is true in any developing industry
unfeasible, but it also means the studies are not completely
within a developing country, uncertainties remain present.
precise,” states Galaviz.
“There might be an unclear regulatory framework and a compromised grid but the market forces and the growth expectation will cause the necessary changes” Omar Galaviz, Director of Barlovento Mexico
The infrastructure, regulatory framework, established
Investors are conscious of the uncertainties caused by
guidelines, and social understanding of such projects
variability within resources. Solar and wind are intermittent
remain inadequate on the ground in Mexico for Galaviz.
everywhere, but that is widely known and dealt with.
As a consulting firm, Barlovento focuses on reducing
“What changes in Mexico is the amount of time lost in
uncertainties in renewable energy projects. According to
order to conduct these studies. If there were guidelines
Galaviz, the most common uncertainties that the company
provided by CFE, private parties could help themselves
faces are related to the lack of a stable or specialized
by conducting the necessary studies faster and stop CFE
regulatory framework, as well as the technical uncertainties
from being overwhelmed with so many requests,” says
which come along with each resource.
Galaviz. Companies like Barlovento possess the ability to conduct high quality studies, but they depend on the
While a clear regulatory framework provides certainty in
studies conducted by CFE and the certification the body
legal, economic and financial terms, it is a lot to ask that
awards. Galaviz believes that CFE lacks the resources to
a regulatory framework provides an effective solution for
conduct studies for all the companies with prospective
social issues, especially on matters as sensitive as land
projects and since the utility does not provide guidelines
rights within a community or ejido. “The land regulation
for measurement and feasibility studies, companies cannot
scheme in Mexico is anything but easy. Designing a
conduct their own studies. The information provided by the
regulatory framework for renewable energy that fits the
studies is crucial for developing and engineering projects
contours of this scheme is proving extremely complicated,”
and for banks to evaluate their willingness to finance. If this
says Galaviz. The second type of uncertainties is technical. It
process takes too long, a project will fall apart or happen
is linked to the techniques and instruments used to conduct
somewhere else, in Barlovento’s experience.
studies for renewable projects, as well as with the lack of grid infrastructure. Investors will certainly be dubious if the
“There might be an unclear regulatory framework and a
future feasibility of their investments is compromised by the
compromised grid but the market forces and the growth
lack of capability in the grid to handle the greater stress
expectation will cause the necessary changes. Mexico is
provided by intermittent energy sources. Barlovento has
ready to increase its installed capacity while the grid is
several instruments to reduce technical uncertainties to the
upgraded and expanded,” concludes Galaviz.
333
| VIEW FROM THE TOP
EXPANSION OF SERVICES FOR NEW ENERGY MARKETS ALEJANDRO LOREA Senior Project Manager at MGM Innova
Q: How have MGM Innova’s priorities evolved to reflect
A: Enough incentives exist to encourage people to take
the current Mexican business environment?
energy efficiency steps on their own merit; we do not need
A: The new opportunities we see here are in the area of
to look for additional incentives. Furthermore, a regulatory
energy efficiency. In the past we were focused on carbon
framework that demands compliance with certain energy
markets, the development of the Clean Development
efficiency rules is not desirable. Companies have the
Mechanism,
the
common sense to take such actions by themselves, rather
reduction of greenhouse gas emissions. The big drop in
than being compelled to do so by the government. It is
the price of carbon credits meant that our former business
true that some firms may still approach energy efficiency
model was no longer viable, and we are now shifting
as a cost rather than an opportunity, but they represent a
towards a broader area of business by seeking to work
diminishing proportion.
and
the
opportunities
surrounding
more on energy issues. Our value proposition is our ability to link energy issues and climate change issues at the
Q: What opportunities does MGM Innova identify in the
business strategy level. We help companies improve their
power generation and renewable energy sectors, and how
competitiveness and productivity while complying with
important will such activities be within your portfolio?
the specifics of the General Climate Change Law.
A: MGM Innova is being restructured, moving from solely focusing on consultancy to becoming a group of four
Q: How can government initiatives persuade individuals
companies. The three new companies are MGM Innova
and companies to become more energy efficient?
Energy Services, MGM Innova Renewables and MGM Innova
STEPPING UP MEXICO’S MANUFACTURING INDUSTRY The Mexican manufacturing sector came to life in 1965 at the
These 5,000 companies are part of the maquiladora
northern border of Mexico as a result of the Bracero (manual
program and represent 65% of Mexico’s total exports of non-
labor) program that enabled Mexicans to legally work in
petroleum products. At the end of 2012, INDEX members
American fields. At the end of this program, the workers had
accounted for US$200 billion exports and 2.3 million direct
to leave the US and moved to the northern states of Mexico
jobs. “Considering this, plus indirect jobs, we are talking
to wait for the reactivation of this program, a day that never
about 9 million families that receive their income from this
came. “Local entrepreneurs started looking for ways to
industry in Mexico,” Aguirre Lang says.
offer jobs to these people, most of whom did not have any professional education,” explains Luis Aguirre Lang, Former
“Sustainable practices are essential for the Mexican
President of the National Council of the Maquiladora and
manufacturing sector to compete in the global market,”
Manufacturing Industry Exports (INDEX).
says Gerardo Vázquez, Director of the Safety and Environment Council of INDEX. “Sustainability performance
334
In 1966, the first 12 maquiladoras were established in Ciudad
is measured based on water consumption and discharge,
Juarez, performing simple assembly processes for foreign
waste generation, greenhouse gas emissions, volatile
companies. INDEX represents some of the most important
organic compound emissions, energy costs, installed
multinational companies involved in different sectors:
capacity of different energy sources, energy efficiency,
automotive, aerospace, electrical equipment, electronics,
EHS management systems, certifications and voluntary
biotechnology, medical devices, and telecommunications.
programs.” INDEX’s sustainability plan analyzed these
Capital. Under this new structure we will look to provide
long-term relationships with our customers, rather than
integrated solutions for energy and sustainability. The
focus solely on a project-by-project basis.
Energy Services and Renewables branches will structure projects based on the findings of the consultancy, while
Q: Power generation accounts for a significant proportion
the Capital company will raise funds to support projects
of CO2 emissions. What can be done to reduce emissions
that our clients cannot fund themselves due to capital
in this sector?
restrictions. We hope this fund will grow to reach US$100
A: On the generation side, clean energy generation will
million. We see a chance to build up a very good portfolio
offer companies more opportunities to reduce their
that links energy efficiency, sustainability and climate
carbon footprint. Nuclear energy, as we have seen in
change.
France, is a big help in reducing carbon emissions and should be expanded in Mexico. We would like the ISO
Q: How does MGM Innova persuade its clients that
50001 standard, which oversees energy management
investing in energy efficiency solutions will eventually
systems, to be used more widely. The savings that were
prove to be profitable?
seen in Europe after this standard was established were
A: There is a current trend for businesses to reduce their
substantial, between 8% and 10%. We feel this standard
carbon footprint, which means that we do not need to
could be even more effective here in Mexico, including in
convince them. However, many of them do not know how
the area of power generation.
to develop strategies that will help them do so. Often, a company’s head office, located outside of Mexico, will
Q: What are MGM Innova’s future goals in the Mexican
mandate that local subsidiaries must reduce their carbon
energy market?
footprint, but locally this can be difficult, as there has not
A: We will work to become partners for government
been much discussion about what it even means to have
bodies such as CRE, CENACE, CONUEE and FIDE. We
a carbon footprint, let alone how to reduce it. We need to
may introduce NAMAs (Nationally Appropriate Mitigation
offer proper solutions so that the adaptation process can
Actions of Developing Countries) into Mexico, since nobody
go smoothly. MGM Innova advises clients on how to shift
here knows what they are; if we were to do so, forming a
toward solutions that are best suited to them. We seek
partnership with the government would be essential.
“There might be an unclear regulatory framework and a compromised grid but the market forces and the growth expectation will arouse the necessary changes” Luis Aguirre Lang, Former President of INDEX
metrics during the last quarter of 2013, in order to create an
to change our culture, since customers and consumers are
action plan that will improve the environmental performance
demanding socially and environmentally products.”
of
the
maquiladoras.
The
council’s
Environmental
Performance 2013 report demonstrates the benefits that
The Mexican manufacturing industry has been facing
the sustainable actions of only 17 maquiladoras have
increasing energy prices, recently rising at about 8.3% per
rendered. CO2 emissions have been reduced by 1.03 million
year, which is negatively affecting its competitiveness and
tonnes, water usage was reduced by 96,000m3, and waste
long-term strategic decision making. This makes renewable
production was reduced by 81,600 tonnes, which amounted
energy technology attractive since it allows consumers
to savings of around US$6.32 million. “We are part of a
to fix energy cost per kilowatt through PPA agreements.
highly competitive global market and environmental and
“The red tape around renewable projects comes at a high
social issues have to be taken into account,” underlines
cost, but when the regulation allows you to generate your
Aguirre Lang. Vázquez adds that more than 95% of the
own energy, you can create a customized energy solution,”
products manufactured in Mexico are exported. “It is critical
Aguirre Lang stresses.
335
COMUNICATION ESSENTIAL FOR SUCCESS OF RENEWABLE ENERGY Influencing
and
speak Spanish? Providing solutions to these challenges is
an
where we focus our efforts,” he explains. LR&A Business
essential element in the
and Marketing began as a consulting firm in 2008. This
success of any renewable
year, many political and industrial figures approached
energy project. In a broader
the firm asking for its services regarding advertising and
scheme,
policymakers,
communications. LR&A Business and Marketing then
environmental authorities,
specialized in providing consulting services to high profile
as
academic,
individuals. Its services became known by word of mouth
corporate and community
and soon the firm had to take the next step and become a
leaders must be informed
full-blown communication and strategy agency.
public
Luis Manuel López, Partner of LR&A Business and Marketing
well
about
leaders
opinion
the
as
is
benefits
of
energy efficiency and renewable energy projects. But how
The agency has many clients involved in sustainability and
much do traditional and non-traditional communication
the renewable energy market. For example, LR&A Business
strategies, such as social media and web interaction, influence
and Marketing took care of all sustainability issues and press
the image of the renewable sector in Mexico? Luis Manuel
affairs for the past administration of Mexico City, and its
López, Partner of LR&A Business and Marketing, identifies
services were extended to content creation and ally mapping
the challenges of creating a successful communication
with important organizations. The creation of alliances is
strategy in Mexico. He notes that, in digital terms, only 35%
crucial since it enables LR&A Business and Marketing to
of the Mexican population has access to the internet, and
generate a renewable energy lobbying strategy that might
communication largely depends on public policies. “Mexico
have an impact on the political agenda of the city and not
is such an unbalanced country and there are many Mexicos.
simply act as a promotional tool for the renewable industry.
It is difficult to achieve a consensus, and without consensus
“It is not easy to put a green issue on the government’s
it is impossible to influence the perception of Mexicans.
agenda if it is not supported by the industry. It is a fact that
Unfortunately, political concerns come before the wellbeing
Mexican companies are just starting to give importance to
of citizens. As long as there is a gap between what is being
sustainability and green issues,” states López. All actors
said and done, the unbalance will remain,” says López. He
involved in the sector agree about the importance of
claims that this situation hinders any communication
using communication as a tool to promote sustainability
strategy because efforts only reach the middle class,
initiatives, but for López it is not just about advertising
which might be perceived as elitist. “How can you provide
and promotion, it is about fostering a cultural change. “In
useful information to an indigenous person that does not
Mexico everything is about culture,” he concludes.
MEXICALI: A MANUFACTURING HAVEN FOR RENEWABLE ENERGIES Mexicali, the capital of Baja California, is home to 160
is on top of 40 technical trade schools that Lagarde says
foreign companies or maquiladoras that have made the
have been critical to provide the skillsets required by various
city a true manufacturing hub. It has established a good
industries. Lagarde now believes the city can combine its
reputation for itself across a number of sectors: electronics,
manufacturing appeal and its renewable energy potential
aerospace, automotive and medical products. It is now
into a strong combination.
looking to add one more sector to that list: renewable
336
energy. Eugenio Lagarde, former President of the city’s
Mexicali already has access to generating power through
Industrial Development Commission (CDI Mexicali), explains
renewable opportunities through the 720MW Cerro Prieto
how the city’s demographic advantages have proven
Geothermal Facility, located south of the city. Electricity
essential in capturing the imagination of investors. “We
from this plant is exported to the US, mainly to Southern
have a total population of 1 million, with more than 64%
California. The reason that allows Mexicali to export energy
of it being under 34 years of age. Labor is currently our
to the US is because Baja California is the only state in
number one asset, mainly due to our educational system.”
Mexico that is not connected to the Mexican national grid,
Mexicali has 12 universities, either private or public. This
but to the neighboring grid in Southern California. “That
COMPETITION PAVES THE ROAD TO RENEWABLES The
Mexican
of
Institute
of methodologies to internalize externalities, improving
Competitiveness
the return on investment (ROI) of projects when such
(IMCO) is an advocate for fighting and
climate sees
renewable
The shale gas boom in the US is also shaping the
energy as a pillar of that
development of the renewables market in Mexico. “However,
advocacy.
Focusing
on
even with low gas prices, the country still faces the high
has
cost of building pipelines. These investment costs will
helped IMCO convey its
definitely play a big role in the balance between renewables
message, while providing
and shale gas,” Gallegos Toussaint argues. “The main issue
a
competitiveness Rodrigo Gallegos Toussaint, Director of Technology and Climate Change at IMCO
externalities are taken into account.
change
perspective
for renewables is competing tête à tête with gas prices even
to the analysis. “Our core business is not protecting the
different
when externalities are taken into consideration. My view is
environment, but giving a financial analysis of the effects
that if we have competition in distribution, as in generation,
of climate change,” explains Rodrigo Gallegos Toussaint,
the situation could improve for renewables.”
Director of Technology and Climate Change of IMCO. It is this financial analysis that has enabled the institute to
The European crisis has brought mobility to investments
promote dialogue between the industry, NGOs, and the
and Mexico has benefited from this environment. “Mexico
public sector. “We believe that Mexico’s natural assets are
has to deregulate the energy sector and open it up to
key to triggering the country’s competitiveness,” states
competition to really take advantage of these capital
Gallegos Toussaint. “However, investing in anything is
movements,” says Gallegos Toussaint. One way he believes
costly, thus our approach is more focused on the cost and
Mexico’s competitiveness can be increased is by simplifying
benefit analysis of climate change investments.”
regulation so that investors have long-term contracts with CFE and selling electricity to the grid becomes
IMCO has divided the climate change investment palette
simple, regardless of whether the seller is a household or
into those that are efficient and have rates of return
a larger provider. Another essential issue that Mexico has
that are above capital cost, those that have rates similar
to work on is providing legal certainty regarding property
to or lower than the capital cost, and those that need
rights. “All of IMCO’s efforts focus on making Mexico
international assistance to make them profitable. This cost
more competitive, and the renewable energy sector will
benefit analysis, in which private, social, and environmental
really take off in countries with a competitive operating
costs are being considered, has enabled the development
environment,” Gallegos Toussaint concludes.
gives us the opportunity to set up renewable energy
as SunPower set up shop in an old Mitsubishi facility and
projects in Mexico and hook them up to transmission lines
now has about 800 employees. Lagarde reveals that the
that head into the US,” says Lagarde.
two sides of the border are working on a joint strategy to offer manufacturing in Mexico and power generation in
California’s aggressive renewable energy mandate states
the US. “We have a couple of projects in the pipeline that
that by 2020, 33% of its energy needs have to be met by
will hopefully be confirmed in the near future.” The arrival
renewable energy. This represents a great opportunity for
of SunPower in 2010 was a big coup for the city as the
solar power because of Mexicali close geographic location.
company is among the top five solar manufacturers in the
Near Mexicali in the US, Calexico and Imperial Valley have over
US. At the time, SunPower had two manufacturing facilities
50 renewable energy projects in the works. Lagarde explains
in Malaysia but due to growth in the American market and
that two big solar parks, 110MW and 120MW respectively,
shipping costs, the company decided to set up operations in
are right next to the border. “The solar panels used in those
Mexico. “Mexicali was chosen because of the availability of
projects are currently being produced in Europe and Asia,
skilled labor,” says Lagarde. On the other hand, the company
which makes them strong potential prospects for us. We are
did not want to go very deep into Mexican territory as it
negotiating to have them manufactured in Mexico in a facility
wanted to be within easy reach of San Diego in case of any
five minutes away from where they need to be installed,” he
technical problems. When there was an issue at SunPower’s
explains. This strategy is beginning to pay off dividends. In
manufacturing site in Malaysia, the distance meant it could
2010, the first solar panel manufacturer arrived to Mexicali
take up to a week to get it fixed,” he explains.
337
| VIEW FROM THE TOP
PARTICULARITIES OF THE BAJA CALIFORNIA ENERGY MODEL DAVID MUÑOZ ANDRADE Former Director General of the Baja California State Energy Commission Q: How has the energy mix of Baja California evolved in
Q: How is the solar sector developing in Baja California?
recent years?
A: In 2006, we had only three or four commercially
A: Baja California is different from every other Mexican
operational installers and developers, whereas now, the
state because it is not connected to the national grid. Also,
state has at least ten developers with experience in off-
the weather here makes the summer peak load very high
grid and grid-connected systems. We are trying to attend
compared to the winter load and we are located on the
to utility-scale facilities, while also having a program
border. During the California energy crisis, two companies
specifically designed for small businesses. We have seen
built combined cycle natural gas facilities in Mexicali to
big announcements made by large companies, stating they
generate power and export it to the Californian market.
would develop many megawatts of solar energy here, but
As a result, we have pipelines that come from Arizona and
some of these have fallen by the wayside. This has nothing to
California, as well as the Energía Costa Azul LNG terminal.
do with Baja California itself and we still welcome such large
These are the traits that make Baja California’s energy mix
investments. Distributed generation in the commercial and
quite different.
residential sectors has proven to be a steadier supply and has a far greater influence on creating local jobs.
Q: What is Baja California’s potential for wind, solar and
338
geothermal?
Q: Do you think other regions of Mexico should focus on
A: Geothermal was the first one to be studied and exploited.
smaller solar projects as you do?
CFE operates 720MW of capacity, making it the second
A: Everyone should but they do not because larger projects
largest geothermal field in the world. If CFE would invest in
look better for PR purposes. Small distributed generation
the binary cycles of geothermal facilities, they could exploit
projects just make more sense for us. Baja California has
the geothermal potential even more. The wind potential
a ridiculously high solar potential if you look at kWh/m2
in Baja California is around 1,500MW, but the potential for
figures. But if you do not have any likely off-takers that can
solar is much greater since our territory receives a solar
harness the potential of that square meter, it is ridiculous
irradiation of more than 5.5kWh/m2 per day.
to say that we have 2,000MW waiting to be tapped.
Q: What is being done to develop Baja California’s
Q: What do you see as the energy priorities for Baja
renewables potential?
California in the next five years?
A: We have helped and promoted the creation of the
A: We need to keep focusing on energy efficiency for
Mexican Center for Geothermal Innovation. The governor
disadvantaged families. We also need to incorporate new
of Baja California is supporting CFE to find additional
technologies for smart metering. Currently, CFE is sending
geothermal energy sources. We also hope that companies
its people door to door to read the meters. Because of
in Mexicali see geothermal as a potential energy source, not
weather conditions and fear of unsafe neighborhoods, a
just for electricity, but for heating and cooling as well. Not
lot of meter readers are making educated guesses about
all of Baja California’s wind potential is economically and
power consumption. But there are remote metering
environmentally viable to develop. Baja California has a
systems today which make going from house to house
lot of national parks, which are all excluded from potential
obsolete. We ask the Mexican government to incorporate
development. That leaves 1,500MW of feasible capacity, but
very simple technologies that would help with the realities
much of that will depend on the access to technology, the
of Baja California. Urban sprawl is becoming a problem,
impact of tariffs and the different permit modalities given
which means more roads, more power lines and more water
by CRE. CFE is developing three stages of 100MW installed
systems, and is completely energy inefficient. Finding a
wind capacity each at La Rumorosa, and Sempra is building
solution and promoting vertical integration in towns and
the 156MW Energía Sierra Juárez wind farm. The state of
cities would allow for district energy solutions as well as
Baja California will be an off-taker for these projects.
for the potential of distributed PV to be fully explored.
| VIEW FROM THE TOP
ACCESS TO US MARKET MAKES BAJA CALIFORNIA ATTRACTIVE FRANCISCO JAVIER ORDUÑO Director General of the Baja California State Energy Commission Q: What are the main priorities and objectives for the Baja
increasing our reliance in natural gas would involve
California State Energy Commission during the current
the development of a considerable amount of pipeline
administration?
infrastructure while renewable resources are already
A: Until December 31, 2013, the appointment of the head of
present in the state. Investing in solar or wind is a safe bet.
the Baja California State Energy Commission depended on the Ministry of Urban Development and Infrastructure. From
Q: What is the strategy to replace highly contaminating
January 2014, this responsibility will pass to the Ministry of
power plants with clean energy generation plants?
Economic Development. The main reason for this change
A: The State Energy Commission is not focusing on power
is that Governor Francisco Vega de Lamadrid is focusing
generation, which is CFE’s responsibility. However, clean
on attracting companies and investors that are interested
energy generation is important for the environment, which
in power generation in Baja California. Other than validating
is why we are focusing on attracting companies that want
and approving projects, we will have a renewed focus on
to develop our renewable energy sources. We have clear
promoting and facilitating companies to invest in the state.
examples of the potential of clean energy generation right across the border, and Baja California has greater wind and
Q: What are the main actions and policies being
solar resources than California. We need to take advantage
implemented to position Baja California as one of the
of what Mother Nature gave us.
pivotal states for renewable energy development? A: We are seeking to provide companies with the right
We are interconnected with the US grid, not the Mexican
incentives to develop our important solar and wind energy
grid, and our largest base energy generation facilities
resources. We are not looking for the state to invest in
are geothermal and thermoelectric. These plants have
energy generation projects, but we want to take advantage
already been upgraded, so the need to make the transition
of the already explored public-private partnership (PPPs)
from polluting power plants to clean power plants no
scheme, through which the state government can partner
longer applies to Baja California. We are now looking to
with a private entity.
complement that clean power generation as demand increases. The government does not have enough money
Q: What are the main challenges facing power generation
to invest in the very expensive technologies that clean
in Baja California?
generation involves as it has many other priorities, this is
A: We currently have a number of projects at different
why PPPs are so important.
stages of development, with many of them being destined to export their electricity to the US. We are developing
Q: What are the main traits that differentiate Baja
different schemes at the state level to help companies
California from other states with high renewable energy
comply with the various requirements and permits.
resource availability?
Overcoming our challenges depends on providing enough
A:
opportunities and facilities for investors to come to Baja
development of our renewable energy industry as we
California.
are next to the US. In other states with similar potential,
Our
geographical
location
is
perfect
for
the
an investor could be interested in generating energy for Q: How can renewable energy projects contribute to Baja
local consumption but a greater incentive comes with
California’s energy security?
the possibility of exporting that energy to a market like
A: The Energy Reform clearly states that the development
the US, whose demand keeps increasing. The moment
of renewable energies will be a priority, and Baja California
to invest in these types of energies is now. Many studies
clearly has the right traits to develop such energies. Natural
confirm Baja California’s resource availability, investors
gas prices have been decreasing but that is no guarantee
have money and the state government is interested in
about where they will go in the future. Furthermore,
supporting these projects.
339
ENSENADA: BUILDING UP ITS ENERGY INFRASTRUCTURE “The last three to five years have seen a tendency away
and smart grids; the municipality could become an
from globalization and toward a regional manufacturing
example in Mexico.The region is also aiming to combine
approach,”
of
the capabilities of Ensenada, Tijuana, Rosarito, Tecate,
Economic
and Mexicali as municipalities by focusing on the main
Industrial Promotion
says
Robert
Development Commission
Gallant, of
the
Vice-President
Ensenada
has
strengths of each one of them. “Baja California has 1,600km
high hopes of bringing industrial investment to the Baja
(COPREEN).
COPREEN
of coastline in total and we have a lot of land. Ensenada is
California region, given the competitive advantages it sees
the largest municipality in Mexico with 52,000km2,” says
increasing the region’s appeal. Mexico is considered to be
Gallant. “There is a lot of opportunity and hunger for new
a low-cost manufacturing location, due to its proximity
economic development and job opportunities.” The region
to the US and its infrastructure favoring supply chain
is not saturated and these cities are connected by train
logistics. According to Gallant, Ensenada combines these
in order to complement each other logistically. “We have
advantages with all the benefits of a border city without
the largest share of scientists per capita in Mexico,” says
the usual problems such a location implies. The port of
Marco Navarro Steck, President of COPREEN. “The region
“We have the largest share of scientists per capita in Mexico. The region can complement industrial activity with technological research and development” Marco Navarro Steck, President of COPREEN
Ensenada is Mexico’s most northern and has the capability
can complement industrial activity with technological
to transport containerized and non-containerized material,
research and development.” In addition, the Baja California
which is crucial when moving merchandise and inputs for
III combined cycle power plant will aid Ensenada on its
the Mexican energy sector. COPREEN proposes that, by
journey toward energy efficiency. The National Energy
taking advantage of the research base in Ensenada, new
Strategy of 2012-2026 specifically mentions this project
technologies could be developed for energy efficiency
since, according to Gallant, the previous administration
TIJUANA: FROM MANUFACTURING TO GREEN TECHNOLOGY HUB California’s
Renewables
anything in the world, plus we have great human resources
Portfolio Standard (RPS)
and lots of binational, bicultural, and bilingual human talent.
is
with
We have proximity to our clients, quick response times,
33%
and cost competitiveness with Chinese prices, but without
energy
the issues associated with being located in China, such as
very
ambitious,
a
mandate
of
the
for
state’s
consumption to come from renewable
David Mayagoitia, President of DEITAC
by
2020. Tijuana, California’s
Tijuana is one of the largest medical device manufacturers in
southern
is
North America, and Mayagoitia argues that if San Diego and
opportunity
Tijuana united their medical device clusters, the binational
eyeing of
340
resources
transportation, communication, or intellectual property.”
neighbor, the
green
region might be the largest medical device manufacturer
technology hub. David Mayagoitia, President and founding
becoming
a
in the world. “Tijuana has always been very successful in
member of the Tijuana Economic Development Corporation
electronics and around 27 million TV sets are assembled
(DEITAC), believes the region has the potential to become
locally a year. We are also leaders in the aerospace industry.
something similar to Hong Kong and Shenzhen in the next
Everybody talks about Queretaro but there are twice as many
10 years: “Between Tijuana and Los Angeles you can buy
people employed in aerospace companies here than there are
was not so supportive of it and the former municipal
generate and export more electricity to the rest of Mexico
president would not allow the plant to progress during his
and the US,” comments Romero.
term. With new federal and local governments, COPREEN and its members have been pushing for the plant to be
Within this context, the potential of renewable energies
built as fast as possible. However, a key aspect that is yet
to create new economic activity in Baja California goes
to be defined is the agreement between the natural gas
hand by hand with the growth of energy demand. “By
supplier and CFE which will determine the cost of energy.
adding more generation, our excess capacity margin
The closer natural prices in Mexico get to those across the
will increase but we have to link this energy availability
border, the higher the benefits will be for Baja California
to the manufacturing sector, thus lowering the cost of
and for the new power plants. For example, COPREEN
electricity,” says Romero. In essence, the energy supply
points to a plant established in Rosarito that is stuck
for companies must be ensured, a real concern given
paying US$9 per million Btu for natural gas due to a long-
the experience of the Mexican grid with critical alerts.
term contract signed before prices dropped. “We must
However, as opposed to the central system, the natural
make sure that this plant negotiates a competitive price at
gas infrastructure of Baja California is only being used
which it can acquire gas, which will pass on the low cost
at 38% of its full capacity, meaning that the region has
of generation to the consumer,” comments Gallant. “This
still potential for growth in the energy sector. COPREEN
would have a huge benefit for Ensenada and for all of Baja
is proposing to Baja California that this excess capacity
California.”
be used to reach out to companies that consume a lot of natural gas. They could establish themselves in Ensenada
Baja California has the highest concentration of foreign
and promote the economic development of the region.
investment for industrial activities in all of Mexico. However,
“A new era of manufacturing could happen due to cheap
most of this industry is related to light-assembly type
gas prices,” says Romero. For renewable energies, Baja
operations, which are typically small energy consumers. If
California offers important opportunities due to the high
more competitive pricing structures are established in the
costs that CFE has to cover when generating power due
region, more energy and capital-intensive industries would
to the inefficiencies of its transmission and distribution
be attracted to this manufacturing hub, allowing the state
infrastructure. “It is possible to avoid such inefficiencies
to create better-paid and more technical jobs. Romero
by attracting the solar sector and taking advantage of
also believes the state, which currently functions under a
Baja California having 295 clear days on average per
separate island electrical grid, could be connected to the
year,” comments Romero. “We should be promoting the
rest of Mexico in the next few years, with the installation of
use of solar panels at a residential and industrial level all
transmission lines with a capacity that would range from
over the state. This would allow us to experience the full
150MW to 300MW. “This would allow Baja California to
economic advantages they offer.”
in Quertaro, about 13,000 people. Because of Mexicali, Baja
in Baja California is Mexicali, because of its high level of
California is a powerhouse in aerospace,” says Mayagoitia.
solar irradiation and the fact that it is close to La Rumorosa, where wind farms are starting to be developed. Mayagoitia
DEITAC’s 2010-2015 strategic plan consists of traditional
stresses the importance of renewables as a way to supply
promotion to attract investment, building better links with
clean, affordable, and reliable electricity and an opportunity
San Diego, and increasing the level of manufacturing in the
to attract companies like Google and Yahoo, whose huge
region. Mayagoitia believes that contract manufacturing
server centers position them among the largest electricity
is the new trend, and that it will continue for the next 20
consumers in the world, with large amounts of capital to
years. “More and more companies will shift from single
spend. He quotes the example of Imperial County, right
name manufacturing to multiple brand manufacturing,”
across the border from Mexicali, which has attracted US$5.3
he says. On the other hand, DEITAC fosters innovation
billion for renewable energy projects in the last three
through Ignitus, the entrepreneurial program certified by
years. But before that happens, there is still an unflattering
CONACYT, which already has an incubation model with
perception challenge that Tijuana has to overcome. “Tijuana
support from the Ministry of Economy. Mayagoitia is a
has 23 violent crimes per 100,000 inhabitants, which is
believer in the potential of the Mexican-American border
lower than New Orleans, Washington DC and Detroit,
region, and emphasizes that the six Mexican border states
and our challenge is to raise awareness about the relative
and the six US border states combined have a population
safety of Tijuana. This is a battle that we are not going to
of 90 million people and form the world’s sixth largest
win overnight, but there are 600 companies currently
economy, with Tijuana-San Diego as the capital of this
manufacturing successfully in Tijuana. They are the city’s
region. The area with the biggest potential for renewables
best spokespersons,” Mayagoitia concludes.
341
BRINGING THE WIND ENERGY SECTOR TOGETHER Any actor deeply involved in an industry can attest
2014 edition of Mexico Wind Power is expected to receive
to the importance of networking, for both personal
around 2,000 visitors, and can count on the participation
and professional gain and to collectively advance the
of 90 companies, most of which are foreign. Also, the event
development of a sector. Industry events provide a perfect
will see some newcomers that are becoming an important
opportunity for key stakeholders to come together under
part of the value chain,” says Navarro.
one roof, and Mexico Wind Power is the main event where the wind industry leaders meet to discuss the development
Mexico Wind Power might seem small compared to other
of their industry and plan their future strategies.
industry events but Navarro says it is well planned and
“After growing from 800 visitors in 2012 to 2,000 in 2013, the 2014 edition of Mexico Wind Power is expected to receive around 2,000 visitors” José Navarro, Director General of E.J. Krause Mexico
The first Mexico Wind Power congress and exhibition took
concise. Navarro finds that a lot of companies are very
place in 2011. Unlike other events, Mexico Wind Power has the
well informed about the sector, resulting in interesting
support of the Global Wind Energy Council (GWEC) and the
and dynamic exchanges at the event. The increasing
Mexican Wind Energy Association (AMDEE). The presence
number of attendants seems proportional to the interest
of these industry leading organizations emphasizes the
in the industry, although adding more exhibition space
fact that this is not a predominantly commercial show. E.J.
to the event attracts more people. According to Navarro,
Krause, a company specializing in organizing international
exhibitions
business forums, exhibitions, and conferences is in charge
want to find out about suppliers in the market, create
of putting the event together. The 2012 edition included a
strategic alliances, and negotiate technological transfers.
minor exhibition with a high level conference program, but
Foreign companies that are not present in Mexico also
in 2013 the event went into high gear, putting together a
attend Mexico Wind Power to get a glimpse of market
large exhibition where companies could showcase their
opportunities. Entities like ProMexico and the Ministry of
technological capabilities and services. The event sparks
Economy are involved in the show and seek to trigger
interest as a meeting point for the most influential wind
alliances and foster agreements between Mexican and
energy players in the national and international arena.
foreign companies.
attract
60-70%
of
the
attendants,
who
Talks revolve around the direction of the Mexican and international wind markets. The upcoming event will deal
Every year, Mexico Wind Power invites companies seeking
with the Mexican landscape and the expectations that exist
to use renewable energy for self-supply. The government,
regarding the goal of reaching 12GW of installed capacity by
manufacturers, and developers are evident actors, but off-
2020, and the impact of both the Energy Reform and the
takers are rarely in the spotlight. Navarro acknowledges the
Fiscal Reform on the Mexican wind industry. José Navarro,
importance of these players, particularly large corporations
Director General of E.J. Krause Mexico, says the most
that are considering getting involved in renewable energy
appealing aspect about Mexico Wind Power is that it is an
projects. “AMDEE is doing an extraordinary job securing this
event made by the industry for the industry.
segment’s participation in the event,” says Navarro. “Another interesting audience consists of people who live in or have
Mexico Wind Power has a larger attendance each year,
ties to the communities where wind generators are installed.”
while similar events in other countries see stagnating
342
attendance rates. Navarro believes the same may soon
It can be inferred by now that in addition to disseminating
happen in Mexico but that this should not be seen as a sign
relevant information, Mexico Wind Power is a powerful
of discouragement. In fact, Mexico Wind Power’s success
networking
should be measured by the industry’s potential and market
exhibitors about how to make the most out of the show,”
expansion, which Navarro says will be fostered by the
says Navarro. “Like with any other show, we try to have as
current administration’s focus on renewable energy. “After
much activities or moments where people can really talk to
growing from 800 visitors in 2012 to 2,000 in 2013, the
each other and reach agreements.”
platform.
“We
share
information
with
JOINT GREEN INITIATIVES “After NAFTA was signed, players in the Mexican
organization also seeks to improve Mexico’s economic
construction sector found themselves in a rather difficult
well-being by pushing the environmental industry, which
situation caused by the US’ misconception that Mexican
is most evident in The Green Expo, a landmark event on
companies were not willing to comply with the free
the Mexican energy and sustainability calendar. Although
trade agreement’s environmental requirements,” says
initially, companies joined CONIECO because they feared
Carlos Sandoval, President of the National Council of
they might go out of business, today, even large firms
Green Industries (CONIECO). This perception led to
relish environmental initiatives, like saving water and
the creation of the Federal Attorney for Environmental
energy. These actions make companies more competitive
Protection (PROFEPA), which led certain companies to
while portraying a positive public image. In addition,
fear they might be shut down for non-compliance with
market conditions are favorable for sustainable practices.
environmental regulations. Sandoval says that while large
“Mexican customers are starting to prefer competitively
companies had the legal resources to protect themselves,
priced products when these are environmentally friendly.
medium-sized companies came together under CONIECO,
This is already common in other countries, and medium-
an umbrella organization comprised of entrepreneurs from
sized companies are embracing this model,” explains
diverse backgrounds, such as consultancies, construction
Sandoval. “In fact, many medium-sized firms are becoming
firms, and environmental engineering firms. “We gathered
well-known for their low-cost sustainable products, which
companies from different sectors and came in contact
also help them establish contact with bigger companies
with similar organizations in San Diego and Washington
that seek suppliers. These commercial chains, which
DC, which gave us support across NAFTA,” says Sandoval.
have no government support, are influencing corporate decisions that help give Mexican companies a great
Members of CONIECO, all businesspeople, found that
international image.” Sandoval attributes this to the fact
complying
its
that medium-sized companies are run by people with
economic benefits. They share a common concern for
higher education degrees, making the corporate culture
environmental issues and today, the organization works
reflect middle class values. The next challenge is for these
mainly with small and medium-sized companies, fostering
companies to pass their knowledge and expertise on to
their environmental awareness. To achieve this, CONIECO
smaller firms that might not still be entirely clear about
actively participates as a public sector advisor for all
sustainable models, the benefits these provide and how
three government branches and international panels. The
they could apply them.
with
environmental
regulations
had
GREEN EXPO: EXCHANGING GREEN IDEAS The Global Resource Environmental and Energy Network,
“Green Expo is not just a conference; it is an event where
commonly referred to as The Green Expo, is the result of
attendants get to see sustainable ideas in action,” says
E.J. Krause and CONIECO’s efforts to create an event that
Carlos Sandoval, president of CONIECO. Because Mexico is
brings together all sectors related to sustainable practices.
seen internationally as a business opportunity, international
Green Expo has positioned itself as the most important
companies are attending Green Expo to look for local
event for energy and water related subjects, environmental
representatives. Additionally, entrepreneurs and academics
affairs, and sustainable cities. It is a business forum
get a broader understanding of the domestic and global
where national and international companies present their
business climate at this event.
sustainable technology and solutions for any industry, which then contribute to increasing efficiency and savings for the
Sandoval would like to see more involvement from the
Mexican business, industrial, and government sectors.
public sector. “We hear great ideas at The Green Expo, but industries cannot benefit from them if they do not
The Green Expo has four areas of interest. EnviroPro
influence legislation.” Members of Congress want to know
deals with waste management and recycling. PowerMex
where the industry stands; they want to be able to talk with
Clean Energy and Efficiency presents solutions for
entrepreneurs about topics of mutual concern. The Green
efficient energy use and generation through renewable
Expo provides the opportunity to bring together different
energy sources. WaterMex involves companies sharing
perspectives from the public and private sector to create
technological innovations for sustainable water use. Green
common ground. Future editions of Green Expo will grow
Cities presents cutting-edge technology and relevant
to include more workshops that better reflect the needs of
information for the development of green cities.
entrepreneurs and small companies.
343
FUTURE OUTLOOK
14 2014 is likely to go down in history as the year in which the overhaul of the Mexican energy sector took shape. With the Energy Reform now having passed, the country will get down to the business of implementing it. The secondary laws are to be finalized in April, laying out the details for the new regulatory environment. One thing is for sure, the private sector will play a more prominent role in the development of the Mexican energy sector. Wind and solar plants are being built across an increasing number of Mexican states, redrawing the country’s renewables map. New pipelines, filled with cheap natural gas, will snake across the landscape. Private firms, both foreign and Mexican, stand ready to invest in renewable energy and transmission infrastructure, awaiting only the right conditions to be in place.
This chapter sounds out government and industry leaders on their expectations for the future, on the Energy Reform’s medium and long-term impacts, and on how Mexico can best achieve its climate change and power generation targets.
345
MEXICO’S ENERGY AND SUSTAINABILITY INDUSTRIES AT YOUR FINGERTIPS
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Mexico Energy & Sustainability Review 2014 is available in iPad edition Download your free copy at:
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346
CHAPTER 14: FUTURE OUTLOOK 348
VIEW FROM THE TOP: Guaranteeing the Future of Sustainable Economic Growth
349
VIEW FROM THE TOP: Mexico to Recover its Energy Self-Sufficiency
350
VIEW FROM THE TOP: Legal Opportunities of New Legal Framework
351
VIEW FROM THE TOP: Steps to Come After the Energy Reform
352
ENERGY OUTLOOK
353
VIEW FROM THE TOP: Future of the Electricity Sector After the Energy Reform
347
| VIEW FROM THE TOP
GUARANTEEING THE FUTURE OF SUSTAINABLE ECONOMIC GROWTH JUAN JOSÉ GUERRA ABUD Minister of Environment and Natural Resources (SEMARNAT) Q: One of the big steps taken in the Energy Reform is that
Q: What is going to be your approach in order to ensure that
externalities are going to be taken into account as part
shale gas in Mexico can be developed in a responsible way?
of the cost of electricity. How will the monetary value of
A: There is no human activity that does not have an effect
externalities be measured?
on the environment. SEMARNAT’s responsibility is to
A: Along with SENER, we are participating in this calculation
minimize the environmental impact of human activities. If
as is established by the law. The Ministry of Health will have
we weigh up the advantages and disadvantages of shale
to participate as well in the future. It is not an easy or simple
gas, the benefits will win out. The effects of drilling a
model but we have many Mexican scientists and institutions,
well to exploit shale gas can have a negative impact, but
such as the Mario Molina Center, that are working on the
the benefits of natural gas, such as drastically reducing
calculations of externalities. We will reach a proposal for the
greenhouse
measurement without a doubt. For example, an innovative
compensate for those negative effects by far.
emissions
of
other
less
efficient
fuels,
proposal put forward in Mexico is the carbon tax for fossil fuels, based on their carbon emissions.
Q: In countries such as Russia or Brazil, environmental regulations have been used to wield influence over energy
Q: Will the Energy Reform bring SEMARNAT more
companies operating in the country. What is going to be
influence over the energy sector?
done to make sure that this does not happen in Mexico?
A: Everyone in the government is conscious about the
A: The rule of law must prevail. The environmental legal
importance of taking care of the environment. Taking the
framework - norms, laws, and regulations - has to be
right measures to protect the environment, particularly
applied equally to every company, private or public.
in the context of climate change, is a direct order from
Nobody should have reasons to fear that, due to political
President Peña Nieto. He recently stated that the natural
issues, we would use environmental issues to attack a
disasters that struck Mexico in 2013 were linked to climate
particular company. This will not happen in Mexico.
change. It is only natural for SEMARNAT to play a central role in this process.
Q: What are your main priorities for the coming five years? How are you going to measure your performance relative
348
Q: Reasons to invest in renewable energy and fighting
to the goals you have set for SEMARNAT?
climate change range from energy security to general
A: Climate change is a global priority and it goes beyond
social well-being and economic growth. Which one is the
any local goal. We do not have a bigger challenge than
most important for you?
controlling climate change. From a local point of view, it
A: All of them are important. The Energy Reform means
is critical to implement reforestation programs. We need
that Mexico will be able to exploit its own natural gas
to recover the forests we have lost. We have a commercial
resources. Obviously, we need to make the most out of our
deficit of US$6 billion in forestry products, but this
resources while using the best international environmental
issue goes beyond economic reasons because of the
practices. There should be no doubt that the measures
environmental benefits this will bring. Another priority is
we are going to implement will use the best international
municipal solid waste management as we can create added
practices. Nowadays, the energy sector is essential to foster
value from this waste. We are working on this project
economic growth, and the sustainable economic growth is a
together with state and municipal governments as waste
very important priority for us. It is not a matter of choosing
management is a responsibility of municipalities in Mexico.
between economic growth and sustainability, both have
Obviously, the implementation of any programs to tackle
to go together to promote the well-being of Mexicans. It
solid waste has to be done while respecting biodiversity
is critical that the majority of poor Mexicans improve their
and guaranteeing sustainable economic development. We
quality of life, which will happen once we manage to achieve
have to facilitate economic growth but we cannot allow
sustainable use of our vast natural resources.
this growth to come at the expense of the environment.
| VIEW FROM THE TOP
MEXICO TO RECOVER ITS ENERGY SELF-SUFFICIENCY DAVID PENCHYNA President of the Energy Commission of the Senate
Q: What were the main arguments that allowed PAN and
in the drafting of the secondary laws, nor will there be any
PRI to find support for the Energy Reform?
small print. The content of the secondary laws is marked
A: Political timing was crucial to the relatively fast approval
and bound to the reforms of the three constitutional
of the constitutional reforms regarding energy. A similar
articles and 21 transitional articles. These clearly mark
in-depth initiative to the Energy Reform that was recently
the general sense of the secondary laws, which will be
approved was presented in 1998 but the President was
discussed and probably approved during the first period of
unable to get it passed. In other words, the arguments in
Congressional sessions of 2014. These dispositions require
favor of the Energy Reform had been on the table for at
the strengthening of the existing regulatory agencies, such
least 15 years. However, the political conditions changed
as the National Hydrocarbons Commission (CNH) and CRE.
over time. An element that worked in favor this time was
In this same direction, the Energy Reform points towards
the Pact for Mexico (an alliance between PAN, PRI and
the transformation of PEMEX and CFE into productive
the left-wing PRD to facilitate the passing of reforms;
public companies, that will no longer be subject exclusively
the PRD pulled out of the Pact in November 2013, citing
to public finance needs. We need PEMEX and CFE to
disagreements over the Energy Reform). Another decisive
become companies that follow market behavior in terms of
element for the Energy Reform’s approval was the
investment, current expenditure, and the development of
ratification by Congress of the National Energy Strategy
human talent. These goals can be achieved in a relatively
2013-2027. Its approval in early 2013 set the tone for a
short period with the autonomy given to these companies
precise diagnosis of the consequences Mexico would face
by the recent reforms.
if an in-depth Energy Reform was not approved. It was clear from the outset that the 2008 Energy Reform did
Q: What challenges does CFE currently have to overcome?
not go far enough, showing the need for a constitutional
A: CFE’s goals should be: promoting productivity and
reform that opened up the energy sector and granted legal
competiveness,
certainty to potential new investors.
facilitating the development of renewable energy, and the
working
on
lowering
energy
costs,
transparency of its activities as the institution responsible Q: Which are the main benefits of the Energy Reform for
for the country’s power resources. The reform should
the development of the renewable energy sector?
make changes while secondary laws will facilitate these
A: The opening of the energy sector to private investment
objectives by giving CFE efficient and modern normative
places the focus on fostering renewable energies. Mexico’s
instruments that will help overcome those challenges.
energy transition away from primary energies such as hydrocarbons and associated products will enable to
Q: How will the Mexican power generation sector look five
speed up the move towards renewable energies. Mexico
years after the Energy Reform?
has enormous potential for these resources, which it
A: With the achieved reforms and their secondary laws,
can turn into a competitive advantage at a global scale.
it is estimated that in five years, the country will double
Additionally, the reformed Article 25 of the Constitution
its current production of hydrocarbons while fuel oil for
mandates the creation of the National Industrial Safety and
power generation could have been totally replaced with
Environmental Protection for the Hydrocarbons Sector
natural gas and other primary energies. At the same time,
Agency, which will be part of SEMARNAT, to achieve a
in five years, close to 30% of the national energy mix
balance between productivity and sustainability.
will come from renewable resources. These figures mean much more than a quantitative change. It represents a
Q: How will the secondary laws effectively integrate
qualitative transformation in Mexico’s production and
renewable energy sources into the Mexican energy mix
energy consumption, accomplished over a relatively short
and help to reach emission reduction targets?
timeframe, in which the country will recover its sovereignty
A: Contrary to what is being said, there will be no surprises
and self-sufficiency concerning primary energy sources.
349
| VIEW FROM THE TOP
LEGAL OPPORTUNITIES OF NEW LEGAL FRAMEWORK SERGIO BERISTAIN SOUZA Partner of Beristain + Asociados Abogados
Q: Did the Energy Reform live up to your expectations?
the Ministry of Finance and Public Credit to cooperate and
A: The changes made to the Constitution were better than
support the industry. We have to remove all the deficiencies
expected. The first issue is that we are experiencing the first
within CRE, SENER, PEMEX and CFE and allow them to
real transition away from the monopoly position of PEMEX.
become efficient regulators, policy makers and operators.
But we still need to define what the private sector and the energy authorities can now do and what their obligations
Q: How will the targets set in the General Climate Change
are in legal terms. First, the electricity sector will attract
Law influence the creation of the secondary laws?
important investment in transmission and distribution, as
A: The generation of clean energy is still a complicated
well as in large-scale generation schemes. CFE will start to
issue in Mexico since there are no fiscal incentives. It
reduce its participation in power generation, transmission
is difficult to believe that the government did not grant
and distribution in the coming years. Foreign investment
these important benefits for clean energy, and this will be
will be more protected and the reform ensures better legal
an important challenge. It is crucial to determine the best
tools that guarantee this protection. New ways will be
strategy to convert a conventional energy user into a clean
developed to do business very efficiently and in a way that
energy user without tax incentives.
offers legal certainty. Q: How do you think the Energy Reform and the increasing Q: What are the main opportunities that the industry may
interest of doing business in Mexico will change the
not be aware of?
market for law firms?
A: The industry still does not know how to build new
A: Incredible times are coming for law firms because the
schemes and start new businesses such as gasoline imports,
market will grow and, consequently, there will be more cases
the commercialization of diesel, new power generation
and more clients. However, very few lawyers are specialized
schemes, how to move from being an IPP to transmission and
in the energy sector. We are now living under a new and
distribution activities, or to participate in pipeline projects.
complicated legal framework with new laws resulting from
Engineers and lawyers must work together to create new
the Fiscal Reform and the Energy Reform. In the end, being a
schemes that will allow projects to be technically viable and
successful lawyer means being aware of the civil, mercantile,
have the required legal support to guarantee their success.
criminal, administrative, and the specific energy laws.
However, it is important to first convince the authorities to support these areas of activity and, should legal barriers stop
Q: Large firms with experience in different areas would
them, the private sector must fight for these to be changed.
then have an advantage over specialized energy firms like yours. How are you going to compete with the big firms?
350
Q: Which authorities will be involved in defining the
A: The challenge that the new laws bring is very clear: the
secondary laws?
old scheme under which law firms worked can no longer
A: In my opinion, the main participant will be the Ministry
be applied. A new and more efficient scheme is needed,
of Economy as it has to start creating a general awareness
which means firms have to increase their dynamism. They
of the way the energy sector can impact the country’s
have to be constantly training their staff to understand all
economic development. It will have to sign off on all the
the new laws and regulations, and be able to apply their
energy projects that positively impact the country and the
knowledge of every area of law into just one document. In
economy. It has to promote natural gas import schemes that
the past, one document would only need one lawyer but
are VAT-free and pay taxes later. At the end, the Ministry
now, it will be necessary to create teams that are able to
of Economy has the opportunity to support the creation of
cooperate very efficiently to cover all the areas related to
these different models and make them very efficient. The
a specific case. Providing legal services will become much
rapid and efficient development of the energy sector will
more complex for law firms, but it also represents a very
depend mostly on the ability of the Ministry of Economy and
interesting challenge if you love this profession.
| VIEW FROM THE TOP
STEPS TO COME AFTER THE ENERGY REFORM JUAN ACRA President of the National Energy Commission, Coparmex
Q: What role did Coparmex play in ensuring that the
CFE cannot build all the required infrastructure. These
implementation of the Energy Reform would benefit the
energy lines will be used exclusively for the exchange of
country and your members?
energy between private companies, but not for public
A: The secondary laws are essential, and Coparmex
services. According to the Energy Reform, PEMEX and
wants to promote Mexican companies. This means firms
CFE must make all necessary changes as state-owned
with Mexican employees, regardless of the shareholders’
companies to improve their profitability and efficiency, and
nationalities. We have talked to the government about
make the right decisions to become part of a competitive
creating a platform that would enable industry leaders
world and deliver affordable power.
to communicate with the government and develop the secondary laws together. President Enrique PeĂąa
Q: What do you see as the future role of medium sized
Nieto believes that collaborative efforts are essential to
companies, both as power producers and as off-takers?
successfully implement the Energy Reform, which will be
A: We want to develop projects for the sale of energy
the biggest development for Mexico since the signing of
between medium-sized companies and help them build
NAFTA.
needed power plants. If a medium-sized company is willing to build its own power plant and sell energy to
Q: What are the main steps in the implementation process
others, we will help them gather a group of off-takers into
of the Energy Reform?
an industrial park or a cluster. However, we must work hand
A: During the first 120 days, SENER is going to design the
in hand with financial entities because if we do not have
types of contracts that will enable private companies to
PPAs with a strong financial index, we will have a problem.
work with state-owned companies and address technical
The way to finance a project is through companies with
issues affecting tenders. The National Hydrocarbons
high credit ratings, which does not depend on the size of
Commission (CNH) will work on the guidelines for the
the company. We need to group these companies and,
bidding process to authorize offshore exploration and
with the help of financial institutions, review their credit
production. CRE will focus on the permitting process
history. Of course, there is always a level of risk involved
for the storage, transportation, and distribution of
but creating a cluster of medium-sized companies
hydrocarbons. The Treasury will set the conditions for the
decreases that risk potential.
tax and royalties associated with the new contracts. The laws pertaining to environmental affairs will have been
Q: Each industry has its own priorities for the Energy
developed as well. Before the end of 2014, two organisms,
Reform. How did Coparmex ensure a unified approach
the National Center for Natural Gas Control (CENAGAS)
among its many members?
and the National Energy Control Center (CENACE),
A: We organized roundtables for the different industries
will operate the natural gas transportation system and
in order to get their feedback, understand their concerns,
electricity
initiative
get multinational companies on board, understand what
will help us plan ahead. The President plans on having
is happening internationally and bring in their expertise.
affordable gas delivered throughout the entire country.
We created an agenda in cooperation with the government
Currently we are using expensive gas, despite having shale
based on each sector’s diagnosis, their ideas and global
gas, but the legislation is not currently in place to develop
trends. For renewables, the proposition was to open the
that sector.
sector and enable the sale of electricity between private
transmission
infrastructure.
This
companies, promoting energy efficiency and opening the Q: What are the recommendations of Coparmex regarding
sector for private projects in transmission and distribution.
the participation of the private sector?
The grid is owned by the state, so if you want to build your
A: The Energy Reform enables the private sector to choose
own project you have to make sure that CFE gives you
the way in which it wants to build transmission lines, since
access to the grid.
351
| ENERGY OUTLOOK
EXPECTED ELECTRICITY GENERATION MIX FOR 2026
NEW RENEWABLE ENERGY INSTALLED CAPACITY FORECAST FOR 2025 (MW)
1.9% 1.8% 0.5% 2.8%
12.0% 12.8% 0.3%
24.3%
47.8%
60.3%
35%
0.7%
Combined cycle
Turbo gas
Wind
Solar thermal
Renewable energy
Petroleum coke
Geothermal
Biomass
Coal
Internal combustion
Hydro power
Source: SENER
Thermoelectric
Source: SENER
The Mexican energy mix is expected to undergo substantial diversification. Combined cycle power plants will account for 47.8% of the total installed capacity in Mexico, while renewable energy participation is destined to increase to 35% by 2026. Although renewable energies and natural gas are expected to represent more than 80% of the total power generation capacity in Mexico, coal will still play an important role accounting for 12.8%. Other technologies such as thermoelectric, turbogas, coke and internal combustion power plants will only add up 5.5% of the total installed capacity in Mexico by 2026. New installed renewable energy capacity will be driven primarily by wind power, which is expected to be the dominant renewable energy technology in the national energy mix, accounting for 60.3% by 2025. Small hydropower will follow wind with 24.3%, and solar energy is expected to account for 12% of new renewable energy generation, mostly through PV technologies. The geothermal and biomass are expected to make more modest contributions to new installed capacity according to SENER’s forecasts.
NEW RENEWABLE ENERGY INSTALLED CAPACITY FORECAST FOR 2025 (MW) Public service
Self-sufficiency
Distributed generation
Total
2,023.0
8,264.2
991.0
60.3
102.0
-
34.4
0.7
Hydro
3,531.0
575.1
435.2
24.3
Solar
-
-
-
12.0
Photovoltaic
5.0
600.5
1,567.1
-
Thermosolar
14.0
-
55.0
-
-
342.2
194.3
2.8
5,675.0
9,764.0
3,277.0
100.0
Type of energy Wind Geothermal
Biomass Total Source: SENER
352
| VIEW FROM THE TOP
FUTURE OF THE ELECTRICITY SECTOR AFTER THE ENERGY REFORM NOÉ NAVARRETE GONZà LEZ Commissioner at CRE Q: What opportunities will the Energy Reform provide the
Q: How will this growing flexibility in energy sector
private sector in transmission and distribution?
influence CFE to become a more roductive company?
A: The constitutional modification of the Energy Reform
A: CFE is a good company but it has to become more
means that the State will control and plan the grid while
efficient, it has to be able become part of the stock
the activities regulated by Article 25, namely the strategic
exchange, and needs better conditions to operate and
areas of transmission and distribution, will be opened up
standardize activities, while working closely with the
to private participation. The government will be in charge
union. The scheme created for PEMEX and CFE by the
of planning the grid and the involvement of all payers.
Energy Reform does not exist yet. It has to be created
Distribution is more complicated as there are many social
in the secondary laws, which determine the conditions
issues involved and tariffs are subsidized. We need to wait
under which these companies will be improving their
and see how the subsidy model will change, whether it
operations. Under this new legal framework, issues like
will continue subsidizing the first level of consumption or
how the subsidies will work and the relationship between
whether subsidies will become focalized. Subsidies are a
CFE, its union and its pension liability will be dealt with.
big issue for investors seeking to enter the distribution
Subsidies and pension liability are CFE’s major problems.
market. Transmission is a more secure area for investment
If these two issues are removed, then the company can
as Mexico needs this infrastructure. As energy generation
become more productive. CFE has to keep generating,
in remote areas increases, investment in infrastructure will
transmitting, distributing, and commercializing energy,
be required in order to get that energy to consumption
while also becoming a more competitive player.
centers. The investor puts the infrastructure in place and offers its transmission service to the generation market.
The law mandates CFE has to generate energy at the lowest cost for the country, rather than the lowest cost for CFE.
Q: How is the Open Season scheme going to change and
This has been one of the main problems when internalizing
what role will it play in the future?
externalities; if energy is bought at the lowest cost for the
A: Open Season was a tool to attract private investment
state, then social and environmental variables would have
without changing the regulatory framework. Now that
to be added to the technical variables that are already
limitations in the regulatory framework have been removed,
being taken into account. This is why it was important to
the possibility of expanding the Open Season schemes will
separate CENACE from CFE, otherwise the market and
increase, although the name might change. Following the
sector management would favor only one player.
Energy Reform, infrastructure requirements can be covered by private parties without having to go through an Open
Q: How long will it take to provide the required legal
Season, although a tender process will still exist.
certainty? A: In the Energy Reform, a period of 120 days was established
Q: How important will model contracts become?
to create the new legal framework. The legislation has to
A: We do not have the model contracts in place yet.
go through Congress which begins working in February
However, I can tell you that the public sector will not be
and ends its first term of 2014 on April 30. By that time, at
the only responsible party for satisfying electricity demand
least 60% to 65% of the secondary laws should be set. We
as private players will also be involved. Large consumers
have determined that 23 to 28 laws have to be modified
will be able to enter into agreements with large energy
due to the Energy Reform. This is a huge endeavor to take
generators. On the supply side, groups of small consumers
on in 120 days. The sector that will be able to respond most
can pool their energy demands to create energy off-taker
quickly to these changes is the electricity sector as most of
and enter the market to obtain lower costs. This model has
the work has already been done. Most of the infrastructure
to be reflected in the legal framework, and there will be
is already there and it is now mostly a matter of protocols
more flexible models with more legal certainty.
that have to be developed.
353
INDEX A-E
INDEX E-I
Abengoa: 73, 87, 182, 183
e2 Energías Ecológicas: 164,
Acciona: 135, 156, 214, 248, 300, 304, 329
Emerging Energy and Environment (EEE): 230
ADS Mexicana: 292
Enerclima: 290
Aeropuertos y Servicios Auxiliares (SAS): 197
Energía Renovable del Centro: 180
Alcione: 256
Energía, Tecnología y Educación (ENTE): 57
Alcocer, Sergio (UNAM): 50
En Verde Ser / Gente Como Uno: 316
AMDEE: 12, 125, 126, 127, 342
EnviroSense:282
AMEH: 12, 111
ERDM Solar: 178
American Shoreline: 144
ERICO Latin America: 146
AMGN: 72
ERM: 285, 326
ANES: 12, 152, 153, 157, 166, 177
ERYVITSA: 331
Arteche: 238
ESM Industries: 266
Astris Finance: 228
FEMSA: 305
Atlas Copco: 259
Fermaca: 76, 77
Auriga: 134, 135
Ferrostaal: 204,205, 258
Baja California State Energy Commission: 338, 339
Flores García, Rubén (SENER): 24, 25, 38
Bajo en Carbono: 218
Fronius: 173
Banamex: 227, 314
Gamesa: 128, 129, 327
BANOBRAS: 229, 286
Gauss Energia: 154, 155
Barlovento Solar: 333
GE Industrial Solutions: 244
Barnés Castro, Francisco (CRE): 24, 25
General Cable: 243
BBVA Bancomer: 214, 223, 224
Gente Como Uno/ En Verde Ser: 316
Beltrán Rodríguez, Leonardo (SENER): 19
GL Garrad Hassan: 143,
Beristain + Asociados: 350
Global Wind Energy Council (GWEC): 124,
Biofuels de Mexico: 192, 193
Globeleq: 141,
Biomex: 190
GNPI de Mexico: 81,
Bordo Poniente: 201, 275
González Calvillo, S.C.: 328
Butecsa: 177
Goodrich Riquelme & Associates: 43
Carswell & Cavillo: 207
Granite Chief: 160
CDI Mexicali: 336
Green EXPO: 343
CEMDA: 302, 303
Greenberg Traurig: 52
CENACE: 7, 12, 19, 20, 25, 31, 37, 47, 236, 335, 351
GreenMomentum: 312, 313
Centro Mexicano de Innovacion en Energia Solar: 176
Greenpeace Mexico: 28
CFE: 6, 7, 9, 18, 20, 21, 23, 25, 26, 35,40, 46, 47, 48, 49, 51,
Grupo ADO: 191
52, 66, 68, 69, 73, 100, 108, 114, 117, 133, 154, 155, 162, 163,
Grupo Bimbo: 308, 309
214, 220, 236, 237, 238, 241, 243, 247, 278, 333, 350
Grupo Comexhidro: 115
CIBanco: 302
Grupo Dragón: 139
Cisa Energia: 147
Grupo Mexico: 226,
ClusterGeo: 106, 107, 110
Grupotec: 160
CNH: 349, 351
Guascor: 89, 200
CO2 Solutions: 300
Guerra Abud, Juan José (SEMARNAT): 35, 348
Cogenera Mexico: 87, 200
Hanwha Q CELLS: 169
Comercializadora Folgueiras: 208
Heliocol: 167
Compañia Mexicana de Gas: 74
HSBC : 299
Conermex: 166
Iberdrola: 133
CONIECO : 343
ICLEI Mexico: 312
Consejo de Cambio Climático: 55
IDB: 222
Consorcio Integrador Sonora 80M: 158
IDEAS: 54
CONUEE: 58, 79
IECEL: 88
COPARMEX: 54, 351
IEnova: 68
COPREEN: 340
Igasamex: 80
CP Latina: 109
IICE: 265
CRE: 6, 24, 35, 36, 38, 39,53, 70, 247
IIE: 56
Del Bosque Macías, Guillermo (SAGARPA): 194
IMEI: 276
Duckwitz, Edmund ( German Ambassador to Mexico): 61
INDEX: 334
E.J. Krause: 342, 343
Ingeniería en Administración de Contratos (IAC): 330
INDEX I-P
INDEX P-Z
Ingeteam: 156
Potencia Industrial/Fuerza Eólica: 131
ININ: 101
ProCobre: 246
Instituto Global para la Sostentabilidad: 314
Promotora Ambiental: 202
Instituto Mexicano de Competitividad (IMCO): 337
Promotora Energética E3: 82
Instituto Nacional de Ecología y Cambio Climático (INEC):
PwC: 324
14
QS Mexiko: 60
Inteligenciae: 286
REMBIO: 194, 195
International Geothermal Association (IGA): 102
Revitaliza Consultores: 278
Interpuerto Monterrey: 332
Rojas Gutiérrez, Francisco José (CFE): 35, 46
InTrust Global Investments: 231
Roxtec: 249
Isolux Corsán México: 245
S&C Electric Mexicana: 239
Jáuregui, Navarrete y Del Valle, S.C.: 41
SAGARPA: 190, 193, 194,
Jinko Solar: 174
Salazar Diez de Sollano, Francisco Xavier (CRE): 35
Coldwell, Pedro Joaquín (SENER): 34, 37
Sampol: 86
KfW-DEG: 214, 221
Saya Energy: 170
KPMG: 298, 325
Schneider Electric: 242, 257, 274
KSB de México: 293
Schweitzer Engineering Laboratories (SEL Mexico): 240,
Lacy Tamayo, Rodolfo (SEMARNAT): 9, 272, 273
241
LR&A Business and Marketing:336
SEDEMA: 275
M+W Group: 159
SEMARNAT: 14, 35, 188, 190, 348
Main Energy Projects (MEP): 179
SENER: 19, 20, 21, 36, 38, 44, 45,56, 97
MARERSA: 119
Sharp Solar: 164, 165
Mario Molina Center for Energy and Environment: 10, 12, 13,
SIMEPRODE: 204, 205
38, 192, 193, 215, 256
SMA: 172
Martifer Solar: 118, 154, 155
SNM: 98, 99
Mase Energy: 137
Socios Energéticos de México Verde: 164, 165
Melgar Palacios, Lourdes (SENER): 20
SolarAct: 178
Mexenergy: 58, 289
Solarscape: 162, 163
Mexican Geothermal Association (AGM): 12, 103, 104, 105
Solartec: 168
Mexico Green Building Council: 277
Solben: 196
Mexico Power Group: 145
Soluciones Energéticas Sparx/TAPE: 91
MEXICO2 Carbon Platform: 219
Sonora Energy Group: 162, 163
MEXTYPSA: 118
South Pole Carbon: 216, 217
Mexxus Drilling: 106, 107
SoWiTec: 142
MGM Innova: 334, 335
State of Oaxaca: 304
Mineral Paper: 316, 317
State of Queretaro: 291
Mitsubishi: 78, 103, 108
SuMe: 279
Modulo Solar: 181
Telvent: 242
Moreco: 198, 199
The Haskell Company: 264
NAFINSA: 155, 214, 220
Torre Mayor: 276, 278, 281
National Climate Change Strategy: 9, 10, 11
Tubacero: 85
National Energy Strategy: 9, 22, 97, 111, 157, 254
UNAM: 45, 50, 110, 176
Natura Medio Ambiente: 328, 329
Vera & Carvaja:l 42
Natural Project: 263
Verde Alterno: 288
Navarrete González, Noé (CRE): 39, 353
Vestas: 130, 147
Neogás: 83
Vive Energía: 138
Next Energy: 134, 135, 214
Walmart: 174, 214, 306
Ormazaba:l 248
West JEC: 108
Ortíz Gómez, Carlos Roberto (SENER): 44, 45
Woodhouse Lorente Ludlow: 26
Osram: 262
World Energy Council: 27
Pacchiano Alamán, Rafael (SEMARNAT): 188
WWF: 29
Peñoles: 7, 310, 311
Yingli Solar: 171
Peraza García, Alejandro (CRE): 53
Zapoteca de Energía: 136
Perkin Elmer: 198, 199
Zúniga Martínez, Guillermo (CRE): 24, 25
Philips: 260, 261 Picciotto Arquitectos: 283
PHOTO CREDITS
2
123rf
107 Mexxus Drilling International
8
SEMARNAT
108 NEC
9
SEMARNAT
109 NEC
13
Mario Molina Center
111
AMEH
18
Senator David Penchyna
112
IAC
19
NEC
115
Comexhidro
20 SENER
116
ICA
24
CRE
117
ICA
25
CRE
118
NEC
26
Woodhouse Lorente Ludlow
119
Marersa
26
Woodhouse Lorente Ludlow
120 Gamesa
27
World Energy Council
126 AMDEE
28
Greenpeace Mexico
126 AMDEE
29
WWF
128 NEC
30
NEC
130 NEC
34
Presidencia de la República
131
34
SENER
132 Iberdrola
35
CFE
134 Next Energy
35
CFE
134 NEC
35
SEMARNAT
137 Mase Energy
37
CRE
138 Vive Energía
39
CRE
139 NEC
41
NEC
140 Globeleq Mesoamerica Energy
43
Goodrich Riquelme & Associates
141
45
NEC
142 Sowitec
52
NEC
143 GL Gerrad Hassan
53
CRE
144 American Shoreline
55
Council on Climate Change
145 Mexico Power Group
56
NEC
146 NEC
57
NEC
147 CISA Energía
58
NEC
148 Gauss Energía
60
NEC
154 NEC
61
German Embassy in Mexico
154 Gauss Energía
62
Fermaca
156 NEC
68
NEC
157 ANES
69
IEnova
158 NEC
71
IEnova
159 M+W Group Mexico
74
Compañía Mexicana de Gas
160 Granite Chief
74
NEC
162 Solarscape Mexico
77
Fermaca
163 Sonora Energy Group Hermosillo
NEC
Globeleq Mesoamerica Energy
80 IGASAMEX
164 Socios Energéticos de México Verde
81
GNPI
167 NEC
83
NEOmexicana de GNC
169 NEC
85
Tubacero
170 NEC
86
NEC
172 SMA
87
NEC
173 Fronius Mexico
88
NEC
177 BUTECSA
89
NEC
178 Solar Act
92
ICA
178 NEC
97
SENER
179 Main Energy Projects
98
NEC
180 NEC
100 IAC
181
101 ININ
182 NEC
103 NEC
184 SIMEPRODE
104 NEC
188 SEMARNAT
105 NEC
191
105 IAC
192 NEC
106 Mexxus Drilling International
194 SAGARPA
NEC
Grupo ADO
194 REMBIO
283 NEC
196 Solben
284 ERM
197 Aeropuertos y Servicios Auxiliares (ASA)
285 ERM
198 NEC
285 ERM
198 NEC
286 Secretaria de Turismo - Ciudad de México
200 NEC
287 NEC
202 Promotora Ambiental
288 Verde Alterno
203 Promotora Ambiental
289 NEC
204 SIMEPRODE
290 NEC
207 NEC
291 NEC
208 NEC
292 NEC
209 Promotora Ambiental
293 NEC
210 Secretaria de Turismo - Ciudad de México
294 SEMARNAT
216 South Pole Carbon
298 KPMG
218 NEC
299 NEC
219 NEC
300 CO2 Solutions
220 NEC
301 DNV KEMA
221 NEC
302 NEC
223 NEC
302 CEMDA
225 NEC
304 State of Oaxaca
226 Grupo México
305 FEMSA
226 Grupo México
306 Walmart
228 Astris Finance
308 Grupo Bimbo
229 NEC
309 Grupo Bimbo
230 NEC
310 NEC
231 InTrust Global
311
Peñoles
232 SENER
312
Green Momentum
238 Arteche
314 Global Institute for Sustainability
239 NEC
315 ICA
241 SEL Mexico
316 NEC
242 Telvent
318 DuPont
243 NEC
319 Dow Chemical
244 GE Industrial Solutions
320 Gamesa
245 NEC
324 PwC
246 ProCobre Mexico
325 KPMG
248 Ormazabal
326 NEC
249 NEC
326 NEC
250 IEnova
328 NEC
256 NEC
329 González Calvillo, S.C.
257 Schneider Electric
330 IAC
258 NEC
331 NEC
259 Atlas Copco
332 Interpuerto Monterrey
260 Philips
333 Barlovento Mexico
262 OSRAM
334 NEC
264 The Haskell Company
335 INDEX
265 IICE
336 LR&A Business and Marketing
266 ESM Industries
337 IMCO
267 Dresser-Rand
338 NEC
268 NEC
339 NEC
272 SEMARNAT
340 NEC
275 SEDEMA
340 NEC
276 NEC
342 EJ Krause de Mexico
277 Mexico Green Building Council
344 SEMARNAT
278 Revitaliza Consultores
348 SEMARNAT
279 NEC
349 Senator David Penchyna
280 NEC
350 NEC
281 NEC
351 NEC
282 EnviroSense
353 CRE
CREDITS
EDITOR-IN-CHIEF: Jeroen Posma
DESIGN DIRECTOR: Vanessa Rocha
SENIOR EDITOR: Chris Dalby
CONCEPT DESIGN: Christine Guiang
SENIOR EDITOR & JOURNALIST: Edwin Castellanos
WEB DEVELOPMENT: Arturo Madrazo
SENIOR EDITOR & JOURNALIST: Ana Luisa Quintero
ILLUSTRATIONS: Arno Avilés
EDITOR: Cristina Padrés EDITOR: Wallace Porter JUNIOR EDITOR: Montserrat Rodríguez
COLLABORATOR: Lucy Fisher
JOURNALIST: Alejandra Mohar
COLLABORATOR: Laurens Schöningh
JOURNALIST: Eva Hershaw
COLLABORATOR: Pedro Alcalá
JOURNALIST: Selene Aparicio
COLLABORATOR: Sofía Zafra
MARKETING DIRECTOR: Marie Jung
COLLABORATOR: Aurora Ganz
COMMERCIAL ASSOCIATE: Neja Brglez
COLLABORATOR: Isabelle Schäfer
PUBLICATION COORDINATOR: Sandra Sikman
COLLABORATOR: Nicolás Zapata
PRINTED BY Artes Gráficas Panorama, Avena 629, Col. Granjas México, C.P. 08400 México D.F. T.: (52) 55 5649 7080
ADVERTISER INDEX
5
CONACYT-SENER/Fondo de Sustentabilidad
176 Consorcio Integrador Sonora 80m
Energética
186 Beristain Abogados
32 EnviroSense
212 Mexico WindPower
38 Next Energy
234 SEL
42 Woodhouse Lorente Ludlow
237 S&C Electric Mexicana
64 Hispanic International
252 Philips
78 Mexicana de Gas
255 Alcione
90 IICE
261 Inteligenciae
94
270 Tubacero
Mexxus Drilling
122 Mexico Power Group
287 Dresser-Rand
136 Mase Energy
296 ERM
146 Cisa Energía
307 IDEAS
150 Atlas Copco
322 GreenMomentum
153 Granite Chief
346 Mexico Energy & Sustainability Review
166 Conermex