Mexico Energy & Sustainability Review 2015/16 by Mexico Business Publishing

2015/16

“The reforms that we have shaped and that today are being implemented make it possible for Mexico to continue being a safe haven for large, medium, and small investments” Enrique Peña Nieto, President of Mexico

Two years have passed since Mexico decided to open its energy sector to private participation, enabling it to realize its potential as a catalyst for economic development. However, the eagerly awaited emergence of new opportunities following the Energy Reform are yet to materialize as the past two years were dominated by the definition of the legal and regulatory frameworks, as well as the strengthening of industry regulators and the creation of new institutions. With a welldefined operational framework in place, 2016 is poised to be a turning point as the newfound legal certainty and market stability are expected to trigger a wave of investment. Private players can assert their roles as producers, and new system regulators will ensure that the companies are successfully integrated into the country’s energy matrix. At the same time, the wholesale electricity market will be launched, officially opening the electricity sector to private participation.

The coming years will be characterized by the government’s continuous commitment to ensuring Mexico’s competitiveness as an energy investment destination, while companies are redefining their strategies to capitalize on the transformation of the Mexican energy market. In this context, Mexico Energy & Sustainability Review 2015/16 is an essential read for stakeholders in both the public and private sectors who seek to understand the trends that are shaping the energy and sustainability industries in Mexico.

ALL RIGHTS RESERVED © Toguna, S. de R.L. de C.V., 2015. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from Toguna S.A. de C.V. Mexico Energy and Sustainability Review is a registered trademark. The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.

ISBN: 978-0-9968026-1-1

TA B L E O F C O N T E N T S 1

STATE OF THE INDUSTRY

SOLAR

ENERGY POLICY & LEGAL FRAMEWORK

ENERGY EFFICIENCY & URBAN SUSTAINABILITY

CFE & PEMEX

TRANSMISSION INFRASTRUCTURE

STATES & MUNICIPALITIES

NATURAL GAS & COGENERATION

RISK, BANKABILITY & OFF-TAKERS

HYDRO, NUCLEAR & GEOTHERMAL

DOING BUSINESS & CORPORATE SUSTAINABILITY

WIND

FUTURE OUTLOOK

WATER & WASTE MANAGEMENT

Mexico decided to take a new path to economic growth by reinventing the core of its energy industry. The sector was opened to private investment with the 2013 Energy Reform, and since then the government has worked on the guidelines that will shape the new energy market. The country will now rely on its State-owned enterprises and private experience to capitalize on its natural resources in order to generate cleaner electricity, increase the national capacity and comply with its commitment to fight climate change.

The following chapter introduces some of the key stakeholders in the Energy Reform, who explain the implementation of the Constitutional Amendment and its secondary legislation. It also provides a comprehensive overview of the current state of the Mexican energy industry and its expected evolution in the coming years. Experts share their concerns on the implementation of the Reform and indicate the greatest areas of opportunity. Finally, prominent figures explain how the private sector is engaging to help the country meet its sustainability and power generation objectives.

STATE OF THE INDUSTRY

CHAPTER 1: STATE OF THE INDUSTRY 6

ANALYSIS: The Year in Review

GLOSSARY

VIEW FROM THE TOP: Pedro Joaquín Coldwell, Ministry of Energy

VIEW FROM THE TOP: Leonardo Beltrán, Ministry of Energy

VIEW FROM THE TOP: César Hernández Ochoa, Ministry of Energy

INSIGHT: Jaime de la Rosa, AME

VIEW FROM THE TOP: Eduardo Meraz Ateca, CENACE

VIEW FROM THE TOP: David Madero Suárez, CENAGAS

VIEW FROM THE TOP: Jesús Serrano, CRE

INSIGHT: CRE Commissioners

EXPERT OPINION: Iberdrola

EXPERT OPINION: SEMARNAT

VIEW FROM THE TOP: Guillermo Haro, PROFEPA

VIEW FROM THE TOP: Francisco Barnés Regueiro, Centro Mario Molina

VIEW FROM THE TOP: Erick Marte, Renewable Energy Commission of the Chamber of Deputies

VIEW FROM THE TOP: Richard Wells, Lexington Group

VIEW FROM THE TOP: Vanessa Pérez-Cirera, WWF

VIEW FROM THE TOP: Tanya Müller, SEDEMA

THE YEAR IN REVIEW Since Congress formally approved the Energy Reform in

In order to make the National Electricity System more

2013, the authorities have been working on drafting and

reliable, PRODESEN 2015-2029 plans for the retirement of

issuing secondary laws and regulations meant to delineate

127 facilities across 20 states in the next 20 years, equating

the path the industry and the country will take. This

to 15,840MW. Plants that will be decommissioned are chosen

package includes new legislative mechanisms such as the

according to efficiency and operation costs, so older facilities

Hydrocarbons Law, the Law of the Electricity Industry, the

are most likely to be taken offline. The geothermal segment

Geothermal Energy Law, and new laws outlining the roles

will see the decommissioning of 80MW, while the rest will be

and obligations of the State-owned energy companies, CFE

taken from conventional thermoelectric facilities. According

and PEMEX. Existing laws were modified to facilitate the

to CFE’s Unit Decommission Program, 465MW were to be

enactment of the Energy Reform, including changes to the

taken offline in 2015, but only 39MW of installed capacity

National Water Law that contemplate the development of

were retired in the first half of the year. The delay in the

geothermal resources, and modifications to the legislations

decommissioning of CFE’s generation plant is justified by the

pertaining to public works and foreign investment. As for

need for backup capacity in case of an emergency, such as

the electricity industry, the authorities spent most of 2015

the possibility of a natural gas shortage. Looking ahead, nine

working on the Rules of the Wholesale Electricity Market,

plants are expected to be decommissioned in 2016.

the document that will shape the way players interact in this sector. Now that the mechanisms are being put in place, it

PRICE DEVELOPMENT

is worth looking at the factors that will shape Mexico’s new

CFE’s strategy of replacing expensive, polluting fuels

energy landscape in the years to come.

such as fuel oil with cleaner and cheaper natural gas is already having an impact, as evidenced in the reduction

EVOLUTION OF DEMAND

of electricity tariffs. In August 2015, tariffs continued to

The comprehensive restructuring of the electricity industry

decrease for the eighth consecutive month when compared

is designed to meet the increase in demand that CFE will be

to the same periods in previous years. For the industrial

unable to cover on its own. In 2014, total energy generation

sector, electricity tariffs decreased between 28-38% in

in Mexico amounted to 258.25 million MWh. The effective

August 2015 in comparison with August 2014. Likewise,

installed capacity in Mexico amounted to 64,278MW, and

tariffs for the commercial sector dropped 12-14%, while the

25% of this (16,070MW) came from renewable sources. It

DAC tariff for the residential sector saw an 11.9% decrease.

is expected that demand will increase by more than 3.5%

The low-consumption tariff for the residential sector, which

in the next ten years, which calls for the incorporation of

has risen by 4% annually since 2006, did not increase in

an additional 38GW by 2024. The private sector is already

2015, but rather dropped 2% compared to December 2014.

seizing the opportunities brought about by the new regulatory framework, as evidenced by the fact that between

GENERATION COST(July PER2015) MWH(Source: (JULY 2015) Cost per Megawatt CFE)

2014 and 2015, CRE received 247 requests for generation

1500

permits under the self-supply, small power producer, and IPP

MX$1,388

1200

schemes, as well as exportation and cogeneration permits.

900

MEXICO’S ENERGY MIX (MW)

MX$587

Generation According to Source in 2014 (Megawatts) (Source: SENER and CRE) 600

1,428

MX$370

830

300 Thermoelectric

12,668

Hydroelectric

fuel oil

Wind

Nuclear

CFE & PEMEX

1,400

natural gas

Bioenergy

combined cycle Source: CFE

Geothermal

A crucial step in opening the market and creating a level Photovoltaic

2,551

playing field was the elimination of the vertical integration of the State-owned enterprises. According to Article 8 of the

44,599

CFE Law, electricity generation, transmission, distribution, and commercialization, as well as the supply of primary

thermoelectric

hydroelectric

wind

bioenergy

nuclear

geothermal

photovoltaic Source: Ministry of Energy and CRE

goods for the electricity industry, must be completely separated under strict conditions. In order to comply with these mandates and dismantle its vertical integration, CFE will create several subsidiaries to address each business

line. Although the subsidiaries have not yet been formally

CENACE, a former division of CFE, is now in charge of

announced, Pedro Joaquín Coldwell, Minister of Energy, has

administering the National Electricity System, which

mentioned on several occasions that there will be generation,

consists of the country’s generation park, substations,

transmission, distribution, and commercialization companies

and transmission and distribution lines. It is in charge of

operating under the umbrella of the national utility. Other

planning the operation and expansion of the National

possible divisions could include branches dedicated to small-

Electricity System, ensuring that the cheapest electricity in

scale distributed generation and natural gas.

terms of variable costs is dispatched, interconnecting new generation facilities to the grid, and proposing adjustments

Private companies are responsible for 36% of the

and modifications to the rules of the market to CRE, the

country’s electricity generation, but they were not

regulator of the energy industry. In order to help CENACE

allowed to commercialize electricity in the wholesale

begin to perform its new duties, CFE transferred the

market. Under the new framework, PEMEX is also

necessary human, economic, and administrative resources

expected to participate in the wholesale market by

to the new system operator.

forming partnerships and selling the surplus energy from its cogeneration processes. Both the CFE Law and

CENAGAS

the Law of the Electricity Industry make a clear division

administration, and operation of the country’s natural

was

entrusted

with

the

management,

between regular commercialization activities and basic

gas transportation and storage system, for which it can

services. The latter remain exclusive to CFE.

tender strategic infrastructure projects, as stated in the Hydrocarbons Law. This operator is responsible for

Following the transitory articles of the PEMEX Law,

ensuring the availability of natural gas in the country.

on November 18, 2014, PEMEX’s Board of Directors

PEMEX is transferring its natural gas pipeline infrastructure

approved a proposal to transform the company’s four

to the new system operator, an initiative on which both

existing subsidiaries into two new subsidiaries. The

entities will work together for two years.

new companies will have a legal presence, individual budgets,

and

technical

and

operational

autonomy,

although they will be subject to PEMEX’s central management and strategic direction. The first subsidiary

CFE’SBrute ENERGY MIXIn The Public Service For Generation Used Source Of Energy, 2003 and 2013.

2003( TWh and percentage participation)

3.1%

is PEMEX Exploration & Production, and it is in charge

1.2%

0.01%

5.2%

of carrying out exploration, production, and development activities related to hydrocarbons. The second is PEMEX Industrial Transformation, which will merge the activities,

14.8%

responsibilities, and assets of PEMEX Refining, PEMEX Gas

34.2%

and Basic Petrochemicals, and PEMEX Petrochemicals. In

9.7%

addition to these subsidiaries, the Board of Directors also approved the creation of five new subsidiary branches: PEMEX Drilling and Services, PEMEX Logistics, PEMEX

31.8%

Fertilizers, PEMEX Ethylene, and PEMEX Cogeneration and Services. The latter will utilize the heat and steam generated by the oil company’s industrial processes to

2013

2.3%

generate electricity. This way, it will increase efficiency

0.8% 0.7%

0.002%

4.6%

and operational reliability in productive processes while enabling PEMEX to take advantage of the economic

12.2%

opportunities in the wholesale electricity market. PEMEX has identified a cogeneration potential of 5GW across its different areas.

10.6%

CENAGAS & CENACE

53.4%

15.3%

The measures implemented to facilitate the removal of the monopoly position of the State-owned companies include the creation of two system operators in charge of the transportation infrastructure for electricity and natural gas: CENACE and CENAGAS. Both entities were created by a decree published on August 28, 2014. These are decentralized entities closely linked to the Ministry of Energy, with their own Director General and administrative board.

natural gas natural gas

fuel oil

geothermal

diesel

hydroelectric coal

hydro

wind

coal

geothermal diesel wind photovoltaic

uranium Source: Ministry of Energy, CFE, and CRE

uranium

CFE AND RENEWABLES

launch of the market, the requirement will be lowered to

Aligned with CFE’s commitment to the development of

2MW and to 1MW the following year. The rules allow the

renewables, the State-owned company began the operations

grouping of several low-consumption users in order to

of two renewable energy power plants in 2015: the Los

reach the electricity requirements needed to become a

Azufres III Phase I geothermal plant, in Michoacan, and the

qualified user. Generators with a surplus generation of at

Sureste I Phase II wind farm in Oaxaca. These developments

least 500kW will be able to supply electricity to the market.

have a combined installed capacity of 150MW and required

The fact that the electricity with the lowest variable costs,

an investment close to US$230 million. In addition, CFE has

depending on the fuels and technologies used, will be the

three more renewable energy projects under construction,

first to be dispatched is an incentive for generators to

the development of which was awarded to three different

reduce their generation costs, thus fostering competition

consortia. These include the Chicoasén II hydroelectric plant

between participants and ultimately reducing electricity

in Chiapas, the revamp and modernization of the Temascal

tariffs. This is poised to promote the incorporation of clean

hydroelectric plant in Oaxaca, and the Los Humeros III

energies into the country’s energy matrix. The wholesale

geothermal plant in Puebla. The development of renewables

electricity market will be launched on January 1, 2016.

plays a prominent role in CFE’s plans, as there is currently

However, a day-in-advance market will begin on December

one renewables project undergoing tendering, with nine

31, 2015. The authorities began running several tests and

more expected to be tendered soon. These 15 projects will

pilot programs in September 2015 to identify areas that

add close to 2.8GW to the country’s installed capacity and

need to be improved. The first tenders for electricity and

will increase CFE’s renewable energy installed capacity by

CELs will take place in October of 2015, while tenders for

20%. The investment needed for these developments is

capacity and financial transmission rights will be carried

estimated at US$4.8 billion.

out in 2016. CELs will not be enforced until 2018.

FUEL OIL CONSUMPTION

FLAGSHIP PROJECTS

Projects aimed at increasing natural gas availability and the

NATURAL GAS

expansion of hydroelectric capacity helped CFE reduce its

Some of the most emblematic projects for the energy

dependence on fuel oil, decreasing the use of the latter by

sector that were completed in the past year will be

45%. CFE went from using 201,000 b/d in 2014 to 111,000

presented throughout this publication. Other developments

b/d in 2014. With new natural gas pipelines, combined

worth mentioning are included in this section, such as the

cycle plants, renewable energy projects, and power plant

Tamazunchale-El Sauze natural gas pipeline. This project

conversions, CFE plans to reduce its fuel oil consumption

began operating in November 2014, and it consists of

by 90% by 2018 from the 2012 baseline, going down to

a 230km long pipeline with a 620mcf/d capacity. This

19,000 b/d. The polluting emissions associated with the

pipeline transports natural gas to the states of San Luis

use of fuel oil for electricity generation will, as a result,

Potosi, Hidalgo, and Queretaro, where it supplies fuel

decrease by 90%, dropping from 36 million tonnes of CO2

for the El Sauz combined cycle plant. TransCanada was

equivalent in 2012 to 3 million tonnes in 2018. THE WHOLESALE ELECTRICITY MARKET In February 2015, the Ministry of Energy published the Rules of the Wholesale Electricity Market, a document

INSTALLED CAPACITY AND ELECTRICITY Capacity In Mw Of The Administered PRODUCTION BASED ON PERMITS AWARDED BY CRE In Force Permissions (Source: CRE)

120

composed of 19 chapters that details the rights and obligations of participants regarding each product that

100

will be commercialized in this market. These include the trading of electricity and related services, capacity, financial transmission rights, CELs, and other products intrinsic to

the National Electricity System. The document also defines the administrative dispositions related to measurements,

5 20

accounting, and settlements, which are needed to provide

sign contracts with this entity. The rules consider those

Generation

Import

Export

Own Constant uses

generators, marketers, suppliers, or qualified users must

Small Production

market; therefore, parties interested in participating as

Cogeneration

charge of administering and operating the wholesale

0 Independent Production

players. According to the document, CENACE will be in

Self-sufficiency

certainty to the daily activities of both public and private

with consumption needs of at least 3MW to be qualified users, and this subsector can participate in the market by selecting the supplier of their choice. A year after the

installed capacity (GW) electricity production (million MWh) Source: CRE

TOTAL INVESTMENT BASED ON PERMITS AWARDED Investment Estimated BY CRE (BILLION US$)In Million Dollars Of The Administered In Force Permissions (Source: CRE?)

35 30

| GLOSSARY ASEA

Energy

AMDEE

Mexican Wind Energy Association

AMGN

Mexican Natural Gas Association

ANES

National Solar Energy Association

and

Environmental

Security

Agency

25 20 15

CEL

Clean Energy Certificate

CENACE

National Center of Energy Control

CENAGAS

National Center of Natural Gas Control

CFE

Federal Energy Commission

CNG

Compressed Natural Gas

CONAVI

National Housing Commission

CONACYT

National Science and Technology Council

CONAGUA

National Water Commission

CONUEE

National Commission for Efficient Energy

Generation

Continuous self-use

Import

Export

Small Power Producer

Cogeneration

Independent Production

Self-supply

Source: CRE

Use

responsible for developing this pipeline, which required an investment of US$250 million. Moreover, CFE completed

COPAR

Costs and Reference Parameters for the Formulation of Investment Projects in the

the conversion of the Manzanillo power plant in Colima in

Energy Sector

December 2014. With an investment totaling US$12 million, the converted plant has an installed capacity of 700MW

COPARMEX Mexican Employers’ Association

and receives fuel from the Manzanillo LNG Terminal. CFE

CRE

Energy Regulatory Commission

also finished converting the Central Puerto Libertad power

EJIDO

Area of communal land

plant in Sonora, which received natural gas through the

ESCO

Energy Savings Company

Sásabe-Guaymas pipeline. An investment of US$50 million

FIDE

Trust for Electric Energy Savings

was allocated to this project, and the power station now has

FTR

Financial Transmission Rights

an installed capacity of 630MW.

INDAABIN

Institute of National Assets Administration

SOLAR

INFONAVIT Institute of the National Housing Fund for

and Valuation Workers

The first stage of EOSOL’s Tai Durango solar park was inaugurated in May 2014. This is the first utility-scale solar

IPP

Independent Power Producer

development to be interconnected to the National Electricity

ITESM

Monterrey Higher Education Technological Institute

System, and its first stage consists of 70,000 panels spread out across 32 hectares. The project required investments of

LAERFTE

Law on the Use of Renewable Energies and

US$33.3 million to produce 16.8MW. The second phase of

the

Financing

the

Energy

Transition

this solar park, known as Las Ánimas, began construction in May 2015. According to the development plans, the park

LASE

Law for the Sustainable Use of Energy

will evolve to accommodate 216,000 panels resting on 100

LEED

Leadership in Energy and Environmental Design

hectares, reaching an installed capacity of 49.8MW. Once the expansion is completed, Tai Durango will become one

LNG

Liquefied Natural Gas

of the largest solar parks in the Americas and Durango will

NMX

Mexican Voluntary Norm

become a leading state in renewable energy generation.

NOM

Mexican Official Norm

PPA

Power Purchase Agreement

WIND

PPP

Public-Private Partnership

The Energía Eólica del Sur wind farm situated in the

PRODESEN Program for the Development of the Electricity Sector

community of San Dionisimo del Mar in the Isthmus of PROFEPA

Federal

Requiring an investment of over US$933 million, the

SCADA

Supervisory Control and Data Acquisition

project adds to the capacity of the 21 existing wind farms

SEDEMA

Secretariat of the Environment for Mexico

Tehuantepec, Oaxaca is Latin America’s largest wind farm,

for

City

in the region. The municipal wind farm is expected to lower

SEMARNAT Ministry of the Environment and Natural Resources

the local indigenous community were resolved, the project was finally authorized in July of this year.

Office

Environmental Protection

with 132 wind turbines capable of generating 396MW.

local electricity tariffs by 35%. After ongoing protests from

Attorney’s

SIE

Energy Information Center

| VIEW FROM THE TOP

NEW ENERGY POLICY TO BENEFIT ALL PLAYERS PEDRO JOAQUÍN COLDWELL Minister of Energy

Q: What are the main changes in the Ministry of Energy’s

the relevant knowledge and skills to face Mexico’s future

policy achievements since the Energy Reform, and which

challenges in energy matters will be required. In 2014,

hurdles have to be overcome to make the Reform a

the Strategic Program for the Development of Human

success?

Resources in the Energy Sector was published. This

A: One of the most important contributions of the Energy

program implemented mechanisms to best promote

Reform is the opening up of Mexico’s hydrocarbons and

talent development, to identify training needs, and

electricity sectors. A little over a year after its approval, it is

to enable inter-institutional coordination. This will all

generating structural changes that will lead to the increase

contribute to the development of a more competitive

of Mexico’s energy security and competitiveness. As a result,

and dynamic energy sector. For this, more than 60,000

we can attract capital and state-of-the-art technology to

scholarships will be granted to technical, high school, and

make the most of our resources in a more efficient manner.

postgraduate students, existing educational programs will be adapted, and the development of scientific

Another one of the government’s priorities is to guarantee

research, innovation, and technological modernization in

the supply of natural gas, an input that the national industry

Mexico will be promoted.

uses in its productive processes to reduce production costs. Since the enactment of the Energy Reform, six gas pipelines

Q: How is the Mexican government seeking to enhance

have been concluded with seven more under construction,

the overall competitiveness of oil and gas SMEs so they

five have been awarded, four are under bidding, and eleven

may benefit from the Energy Reform?

new projects are expected to be built in the next few years.

A: The opening of the energy sector to private investment

With these new gas pipelines, natural gas will be supplied to

will create new opportunities for the Mexican industry.

the national power company, CFE, which is modernizing its

The Reform promotes the development of suppliers and

generation plants to replace fuel oil and diesel.

the strengthening of local production chains through the establishment of minimum national content percentages,

Q: How has the creation of new agencies such as CENACE

which will increase from 25% in 2015 to 35% in 2025.

impacted the landscape of the energy sector?

These percentages will demand compliance from any

A: As for power generation, the creation of CENACE is

contractors operating hydrocarbon-related projects in

a landmark achievement. It will operate the wholesale

Mexico. Likewise, the state will give preference to national

electricity market from the start of 2016, and both public

companies offering similar prices, quality, and timely

and private companies will participate under equal

delivery conditions. The development of suppliers will also

conditions. The Energy Reform provides opportunities for

be promoted by financing training programs, research,

new public and private investments and brings Mexico up

and the obtaining of certifications through the Public

to date on international bidding practices and methods.

Trust to Promote the Development of National Suppliers

For the first time in the history of Mexico, public tenders

and Contractors, which will be operated by the Ministry of

will be open to national and international companies. The

Economy in coordination with NAFINSA.

Energy Reform established norms, institutions, weights and counterweights which guarantee the commitment of

This Trust has an initial budget of MX$200 million (US$13.3

the State to competitiveness and transparency.

million) for 2015, rising to MX$300 million (US$20 million) for 2016. Through this Trust, the direct participation of

Q: How will the Ministry of Energy ensure the availability

companies engaged in activities related to the energy

of skilled labor, given the number of jobs expected to be

sector will be promoted. Partnerships between Mexican

created over the next four years?

and foreign companies will be encouraged, and we will

A: With the opening up of the hydrocarbons and electricity

seek an increase in the transfer of technology and of

sectors, qualified professional and technicians possessing

private investment between local and foreign companies.

| VIEW FROM THE TOP

SECURITY AND ECONOMY PUSHED THE ENERGY REFORM LEONARDO BELTRÁN Undersecretary of Planning and Energy Transition at the Ministry of Energy

Q: What pushed the government to undertake an energy

oil and gas sector we are looking for the opportunities and

reform, and what would have happened if this reform had

the portfolio for harvesting the resources and generating

not been passed?

growth. We have also set up the conditions for new

A: We carried out some diagnostics at the beginning

participants in the electricity sector to come in and develop

of this administration, and we decided to include all

both conventional and unconventional renewable resources.

the stakeholders in this endeavor in order to reach a

This will create markets and foster regional growth, as

consensus regarding the energy sector. Firstly, we saw that

investors will come to different states where the resources

the production of oil had reached a peak in Cantarell in

are located. We are basically generating the conditions

the year 2003-2004. When examining the graph of public

to make Mexico an attractive investment destination and

investment and production of oil and gas, we noticed

create employment opportunities.

that the investment curve goes up, with a subsequent downward trend in production. This gives us the impression

Q: How will the Ministry of Energy ensure that the

that public investments are not enough, and in order to

transition to renewables goes as smoothly as the shift to

develop other resources for a diversified energy sector, we

natural gas?

needed private investment. As a result, we had to generate

A: The sectors in the energy industry are at varying

optimal conditions to attract private investors for the

stages. The oil and gas sector is well-established, yet the

development of the energy sector.

renewable energy industry is generally in its infancy on a global scale. In Mexico we have both renewable energy

If there had been no energy reform, we would have found

sources and natural gas. It is not a matter of one source

ourselves in the position of having to import gasoline,

or the other; it is about creating a harmony of natural

petrochemicals, and even crude oil. Eventually, the costs of

gas and renewables in order to meet the energy needs of

energy would have increased and the logistics of importing

the Mexican population. The Reform aims to ensure that

and the infrastructure for importing capacity would have

the portfolio is completely diversified, so we should not

raised costs even more. Manufacturing hubs would have

neglect the country’s natural resources.

had to be relocated to other markets to capitalize on better conditions, and Mexico would have become a net importer

Q: In what way has the creation of clean energy

of energy even though the country has plenty of resources.

certificates promoted the entry of new players into the Mexican energy market?

Q: Why did the government decide to open the energy

A: We have created a market with equal and fair conditions

sector to private investment?

for all actors. Given the state of development of the

A: We agreed as a nation that the energy sector should be

traditional energy industry and the renewables industry,

a lever for economic evolution. The goals were designed

we have created CELs, the point of which is to level the

to democratize productivity and promote growth, which is

playing field for new actors entering the market. Egalitarian

exactly what is reflected in the National Development Plan

conditions and a market with CELs makes Mexico a highly

and the sectorial programs that were generated by this plan.

attractive renewable energy industry in which to invest.

Given the chosen trajectory, the public sector was not going

Since the externalities of using certain fuels will be taken

to be the only responsible party; this required a larger effort

into account, there will be a punitive fee for using traditional

with the entire market contributing to the risk management

fuels, which will further foster equitable conditions for

aspects of the initiative. The Reform creates the conditions

investors and developers. Players are obliged to present

to match and align incentives, and create opportunities in

their certificates every three years. This gives companies

other markets that were absent when the public sector was

the chance to measure the number of certificates they

the only driver of growth in the energy sector. In terms of

need, creating the incentives to make sure that the rules will

production, we have the timeline published already. In the

not change and that the playing field is truly fair and even.

| VIEW FROM THE TOP

ELECTRICITY MARKET PUSHES MEXICO TO CLEANER ENERGY SOURCES CÉSAR HERNÁNDEZ OCHOA Undersecretary of Electricity at the Ministry of Energy Q: What progress has been made in the past two years in

A: The rules of a wholesale electricity market are naturally

transitioning from fuel oil to cleaner sources?

complex, but no more so than the rules of a banking system

A: Over the past two years, both electricity generation from

or the stock exchange. Mexico is an emerging economy

natural gas and renewables have grown by 10% compared

that has enough capacity in all of its economic sectors

with the previous two years, gradually displacing fuel oil. It

to deal with the complexity that is necessary to develop

is a tendency that will continue, and this year we carried out

sophisticated products. With this in mind, the launch of a

the first exercise in indicative planning for generation. As

system implies learning the new rules, which is why we are

stated by law, each year we have to indicate the obligatory

holding seminars and conducting consultation sessions

percentage of CELs that will come into effect in 2018. We

and intense communication with the industry. Evidently,

set this percentage with the goal of fulfilling the country’s

we cannot condense the regulations of complex products

objectives, such as 35% of non-fossil fuel generation by

to three paragraphs, and at the moment we are working on

2024. The sector’s plan includes a goal of 25% for 2018.

improving the clarity and the wording of the regulations we

The expectation for the upcoming years, which is shown

are issuing. As the rules develop and players become more

in the planning exercise, is to reach the 25% objective in

comfortable with the new arena, it will become easier to

2018 with the projects that are already under construction

become acquainted with the new regulations. Companies

or are being reviewed. Currently, we are on track to meet

have a regulatory department that knows how each of the

our objective for 2024.

elements work, and for users, the complexity of the system does not affect their daily operations.

Q: What measures are being taken to expand the role of natural gas in the energy matrix without affecting the

Q: What are the expected challenges and results of the

participation of renewables?

initial stage of the wholesale electricity market?

A: In the indicative planning for generation exercise, it was

A: I think the wholesale market will be a key tool in

shown that the most efficient model for a medium-term plan

ensuring a reduction of tariffs, which is the dominant

of 15 years consisted of increased use of natural gas and clean

objective in the restructuring of the electricity sector,

energies, mainly renewables. Therefore, rather than competing

and this will be achieved through a competition scheme.

with each other, both are growing at the expense of the

The wholesale market will generate this competition in all

inefficiency of fuel oil generation. Wind energy is expected to

the products related to electricity and in the electricity

evolve the most, with geothermal and solar following closely

itself, because this has to be dispatched through marginal

behind, as well as natural gas combined cycle plants. The

costs. This will take place in the nodes and the congestion,

policies directed at natural gas include the development of

which will incentivize players to generate energy where it

new interconnected pipelines, which has been promoted by

can be evacuated, as well as in the capacity, since we will

CFE and PEMEX. The carbon tax included in the latest Fiscal

have a market that rewards availability in demand peaks,

Reform does not impact natural gas generation, as methane

and finally in the incorporation of clean energies through

is exempted from this tax. In the case of renewables, there are

an instrument in which each clean energy generator

also fiscal incentives, such as the immediate deductibility of

will compete to become the most efficient. In each of

investments in these types of technology. Thus, natural gas

the markets -capacity, electricity, clean energy, and

does not have the burden of the carbon tax and investments

transmission- there will be competition and instruments

in renewables come with a fiscal incentive. Both are cheap

that reflect international best practices. This is a product

energy sources that will be incorporated at the expense of

and an institutional development that will guarantee

more expensive, inefficient technologies.

that there is a constant pressure on the efficiency of the electric system in economic terms, which should ultimately

Q: What is the Ministry of Energy doing to guarantee

translate into better tariffs for all users. In my view, this will

clarity and certainty in the wholesale electricity market?

be the biggest legacy this reform will leave.

MAJOR INVESTORS STRENGTHEN ELECTRICITY MARKET In 1992, the Law of Electric

Rosa laments. “After AME lobbied with the authorities in order

Energy

Public

to produce a more balanced law, participation is allowed with

Service was created to

1-3MW per customer.” Overall, the organization’s aim was to

allow private companies

guarantee that the market in which it operates is transparent

generate

electricity.

and that CFE, as the dominant player, abides by the rules.

1996,

Law

was

During government dialogue regarding the structure of the

enacted

Jaime de la Rosa, President of AME

the

three

Reform, AME representatives negotiated the secondary laws

different schemes, one of

under

so that these were appropriate for private investors, in an

which was IPP, the driving

effort to ensure that CFE competes in the market under the

force for the creation of

same terms as the private sector.

AME the following year. Applicants bidding for IPP contracts were required to be

Additionally, AME suggested the creation of a market for

experienced utility companies or large investors, and these

renewables, since it is more difficult for these resources to

large players shared common interests that consolidated

compete. De la Rosa explains, “This is why the rules of the

the creation of AME. In principle, the association was

market are important, because if a plant is going to dispatch

founded in order to strengthen private companies in a

energy below production costs, it will lose money. If we

market dominated by CFE and PEMEX.

can compete fairly, then the country and the final users will benefit.” According to de la Rosa, the previous legislation

AME was consolidated when the first combined cycle plant

was clear and straightforward, enabling the association’s

from the private sector began commercial operations.

affiliates to finance projects. Banks, financial institutions, and

Currently, AME has close to 30 members, who have

investors collaborated well, he recalls. Today, the situation

collectively made investments of close to US$28 billion,

is slightly challenging for AME because of the uncertainty

mostly in power generation through the IPP, self-supply,

surrounding the market rules, like the uncertainty regarding

and small producer schemes. In 2008, the organization

the management and bankability of clean energy certificates.

entered the renewable energy market through LAERFTE,

According to de la Rosa, “The market transition is significant,

and its members began investing in renewables under

and we need to be able to anticipate how it is going to evolve

the self-supply scheme. Today, members of AME are

and what the drivers will be.”

responsible for 34% of the energy generated in the country, with 1,000MW of wind power from private

So far, the alliance’s most rewarding experience has been

investments and roughly 17,000MW from combined cycle

with combined cycle plants under the IPP scheme, and

plants. Some current affiliates of the scheme include

de la Rosa attests to their efficiency. “We, the private

Iberdrola, Acciona, Gas Natural, Mitsui, Mitsubishi, Alstom,

investors, were able to establish a competitive tariff that

TransCanada, Ienova-Sempra, Enel, and Enagás, as well as

is divided into two areas, one for capacity and another for

other associations such as ANES and AMDEE.

energy consumption, which leads to a mutually beneficial situation for the investors and for CFE,” he explains. The

In the wake of the energy reform, Jaime de la Rosa, President

benefit for the private investors is that they have a 25-

of AME, shares that the alliance of private investors has made

year contract with a fixed tariff and natural gas charged as

concerted efforts to meet the government’s objectives for

pass-through, resulting in moderate yet attractive returns.

the electricity, oil, and gas sectors. In order to facilitate

Likewise, CFE is released from the burden of providing

investment opportunities and provide better services in

the capital to build a plant, so the utility can spend money

these industries, AME participated in several meetings with

on infrastructure developments like transmission and

the authorities, mainly with the Ministry of Energy, as well

distribution lines to provide electricity to remote locations.

as CRE and the Ministry of Finance. “Our role is to continue incentivizing private investment in Mexico and make sure

In this way, private institutions incorporated into AME have

that we have the mechanisms to continue investing as we

a successful history of working in conjunction with public

have done in the past,” says de la Rosa.

organizations such as CFE. Provided that the implications of the Energy Reforms result in favorable conditions for

Initially, members of AME were not pleased with the first

both parties, and that further guidance is provided on

draft of the Energy Reform, since qualified users were limited

the implementation of these reforms, de la Rosa sees no

to participation in projects over 5MW. “This meant that the

reason why both sectors cannot continue to work together

private sector would only have 166 possible customers,” de la

productively.

| VIEW FROM THE TOP

PRIORITIES AND DUTIES OF THE WHOLESALE MARKET’S NEW OPERATOR EDUARDO MERAZ ATECA Director General of CENACE Q: Which are the new roles of CENACE, and how will these

Q: How will transmission change once the wholesale

affect the regulator’s relationship with the Ministry of

market takes off?

Energy, CRE, and CFE?

A: Transmission modalities as we know them will change in

A: CENACE’s main priority is to ensure the proper

the electricity market. There will no longer be a price and

functioning of the National Electricity System. Secondly,

reserved transmission rights for wheeling, since all players

we have to guarantee the quality of the electricity supply;

will have equal access to the grid. This means all players

that is, we have to avoid variations in voltage and electrical

will compete for the right to use the transmission lines,

frequency. Finally, we have to ensure that the grid has

with priority given to the most affordable forms electricity.

enough capacity so that all the generators can deliver their

Since energy will be dispatched according to the variable

electricity at competitive prices.

cost of generation, renewables will be the first to access transmission lines. Renewables use natural resources

We have a good relationship with CFE at the moment,

like the wind or solar irradiation that have low variable

from which we have received valuable support. It is worth

costs, and cost-based dispatch will prioritize energy

noting that CFE has understood CENACE’s new role. For

generation methods that do not have to pay for fossil

CENACE, the operative control of the system entails giving

fuels. The challenge will be to provide enough transmission

out safe and well-planned instructions, such as the opening

infrastructure so that generators do not have to fight over

and closing of transmission lines, which will be followed by

the grid in order to reach consumption points. Congestion

CFE’s operative personnel. Not a single component in the

will be minimized through proper plans to expand the grid.

system should be operated without CENACE’s instructions.

If there is enough transmission infrastructure for everyone,

CRE, as the regulator, is in charge of making the rules and

then we can avoid regional market powers.

approving changes to these. CENACE, on its part, will be in charge of overseeing compliance with those rules under

Q: How is CENACE prepared to launch the wholesale

equal conditions for all the participants in the market

market?

and will play the role of an arbitrator. All these entities

A: Back in the year 2000, there was a possibility for a

are preparing the materials needed so that CENACE can

reform of the electricity sector. The people heading CFE

efficiently do its part.

back then thought it was necessary to carry out several tests and exercises on a virtual market, so CFE, CENACE,

Q: What have been the advancements in the transfer of

and the Institute of Electricity Research (IIE) started

resources from CFE to CENACE?

developing the model and the required software tools.

A: The transfer of these resources has been successful

CENACE started running this virtual market, and the model

and is now at advanced stages. Since the secondary

began evolving from a single-node market to a multi-nodal

laws were published back in August 2014, the Ministry of

one. Using dispatch rules, marginal costs were determined

Energy, the coordinator of the Energy Reform, and CFE

in 1,500 nodes in this virtual market.

have supported CENACE in its endeavor to become the

operator of Mexico’s wholesale electricity market. The

When the 2013 Energy Reform was approved, CENACE

transfer has consisted of 12 control centers, including

was advanced in this regard, particularly because its

buildings, equipment, and systems that CFE originally

virtual market was similar to the spot market the Ministry

used to operate the former National Center of Energy

of Energy has planned for Mexico. Putting a market in

Control Subdirectorate. The personnel that worked in

place in one year is a difficult task, but if we use this

this area were kept, enabling the continuous operation of

platform as a point of departure, making the necessary

the National Electricity System. At the moment, we are

adjustments and modifications needed to adapt to

working on administrative processes so that these people

Ministry’s plans, it will be possible to have a functioning

can officially become part of CENACE.

market in a short time.

| VIEW FROM THE TOP

NATURAL GAS SYSTEM OPERATOR IS ENTRUSTED WITH ENERGY SECURITY DAVID MADERO SUÁREZ Director General of CENAGAS Q: What is CENAGAS’ main role, and how will it relate with

system and sufficient storage capacity. Today, we are

other entities?

facing an aggressive growth in demand resulting from

A: Mexico is shifting from liquid fuels to natural gas for

the energy transition. The system operator will manage

electricity generation, making gas security a crucial

this growth in the most appropriate way so that the gas is

element in the energy industry. With this in mind,

made cheaper, safer, and more readily available in Mexico.

CENAGAS has been entrusted with guaranteeing a safe, efficient, and reliable natural gas supply. The creation of

Q: How will CENAGAS make tenders attractive enough to

this entity, as well as its efficient operation, is important

lure players into the sector?

in order to ensure that the electricity sector will have the

A: The fact that CENAGAS has to participate in preparing the

cheapest and most eco-friendly feedstock.

tenders is a great opportunity for clarity in terms of conflict of interests, ultimately making the bids more attractive. We

CENAGAS was created with the objective of serving as the

are thinking about implementing models that are similar to

technical system operator for natural gas. Therefore, it has

the ones CNH is using for the exploration and production

to carry out several functions, including the planning of

rounds, such as establishing prequalifying criteria for

the expansion of the natural gas pipeline network, carrying

companies and fostering close dialogue in order to establish

out tenders for strategic projects, and coordinating the

the exact technical and financial conditions in the contracts.

system’s operations through automation and remote

We will do this to attract companies and make the process

control systems. CENAGAS will also inherit 9,000km of

more competitive. CENAGAS is also committed to finding

pipelines from PEMEX, and it has the task of operating

the best international practices in tendering processes and

them in an efficient, safe, and reliable manner. In this

bringing them to Mexico to create more trustworthiness

sense, CRE will regulate the center’s four core activities,

among interested players, who will be able to participate in

so we will maintain a close and intense relationship with

an environment of enhanced transparency.

this authority. We will become the Commission’s main regulated organism for natural gas.

Q: What are CENAGAS’ priorities for the short term, and what expectations does this entity have for its role as a

As for other entities, CENAGAS will provide much-needed

technical system operator?

gas transportation services to CFE. We will work on the

A: Our objective as a technical system operator is clear,

sectorial coordination so that we can react immediately

and our first task is to coordinate our activities with the

and in the most efficient way in cases where there are

government and the private sector so that CENAGAS can

problems in the national supply or any other operational

react in a timely fashion, because the daily operations

problem with the pipelines or compression stations.

of the natural gas segment are filled with unexpected

PEMEX will use CENAGAS’ services when commercializing

situations. We will then seek models to ensure the most

gas, which it will produce or import, in order to satisfy

affordable supply for energy generation and to cover

the national market. In addition, CENAGAS has become

the remaining industrial and residential demand, while

a member of the AMGN, so we now have an important

reducing costs for compression and fuels as much as

interaction with the other natural gas shippers as a

possible. This means evaluating all the combinations to

technical system operator and as a shipping player.

ascertain the most efficient way to supply. We expect to conclude these projects by the end of the current

Q: Why is it important to have a technical system operator

administration. We might not achieve 100% coverage,

for the gas sector during an energy transition?

but there will be significant advancements nonetheless,

A: A common entity in Europe, the technical system

especially since the system will have the robustness and

operator aims at creating an efficient system and ensuring

redundancies necessary to be more flexible, operative, and

available supply, which entails having redundancy in the

capable of fulfilling demand at all times.

| VIEW FROM THE TOP

REFORM GIVES CLEAN ENERGIES AN ADVANTAGE JESÚS SERRANO Commissioner at CRE

Q: How competitive are renewables against fuel oil when

companies are free to choose whichever technology they

considering current oil prices, externalities, and constant

deem more viable for their operations. In this sense, it is

changes in the costs of technology?

important to take note that while the planning of power

A: There are many technologies for estimating the generation

generation of PRODESEN is indicative, the planning of the

costs of clean technologies, and a common factor is that costs

mechanisms for the clean energy certificates ensures that

continue to decrease. For example, the registered costs for

the goals for clean energy will be met.

photovoltaic technology in 2013 were 75% lower than those observed in 2007. According to CRE’s annual document

Q: What steps are being taken by both CFE and the private

called Costs and Reference Parameters for the Drafting

sector to take advantage of cogeneration and combined

of Investment Projects in the Energy Sector 2014 (COPAR

cycle plants and reduce CO2 emissions?

2014), the average cost of solar photovoltaic technology is

A: Due to the technology used and the nature of its main

US$150.59 per megawatt-hour, while that of conventional

fuel, natural gas, combined cycle plants provide several

thermoelectric technology costs US$160.2 per megawatt-

advantages over all other fossil fuel-based generation

hour. On the other hand, clean energy generation offers

methods. In 2014, the generation of electricity with

certainty regarding generation costs. While fossil fuel-based

combined cycle plants, which amounted to 149,688GWh

technology are exposed to volatile oil and natural gas prices,

and 49.7% of the total generation, prevented the release

clean energies only have to worry about operations and

of 44.6 million tonnes of CO2 from using fuel oil in

maintenance. According to COPAR 2014, fuel can represent

conventional thermal power plants. This translates to

up to three-quarters of the generation costs for conventional,

savings of MX$3,152 million (US$210 million) in externalities.

gas, and diesel-powered thermoelectric plants. Even in the

The leveled cost of a combined cycle plant is 38.5% lower

case of combined cycle plants, fuels can represent 60% of

than that of a conventional fuel oil-powered thermal plant

the associated costs. In addition, CELs provide clean energy

and 27% lower than a coal-powered plant. This is because

technologies with the necessary resources to make them

combined cycle plants have efficiency levels of 50%,

more competitive. The market will determine the price of

which are 12 and 10 percentage points above conventional

CELs, which will cover the difference between the costs of

thermal power stations and coal power plants respectively.

clean generation and fossil fuel generation, without resulting

This, added to net capacity factors above 80%, results in

in excessive revenues for clean energy generators. It is

efficient operations and considerable savings.

expected that clean sources will become more competitive in the medium term, reducing the price of CELs and, in turn,

CFE has designed a strategy to revamp its generation

lowering the cost of achieving the clean energy generation

facilities in a manner that is compatible with natural gas,

objectives implemented by LAERFTE.

including seven conventional thermoelectric plants with a total capacity of 4,558MW. In addition to this strategy,

Q: Could you describe the process of selecting and

CFE will soon tender six new combined cycle plants with

prioritizing technologies in accordance with factors such

a total capacity of 3,290MW, which will contribute to four

as cost, capacity, and efficiency?

projects with an accumulated capacity of 3,316MW that

A: Given that generation planning will be indicative,

have already been tendered and five projects for a total of

technology will be chosen according to the generation

2,373MW already under construction.

source. It is also important to know whether the technology

will be implemented for base, intermediate, or peak

Q: What measures have been put in place to allow the

demands in the power system, as well as measuring the

integration of non-conventional energy sources, and what

speed at which a technology can be implemented and its

have been the results so far?

availability. It is important to highlight the fact that the policy

A: The reform of the electricity sector was designed to

surrounding energy is technologically neutral, meaning that

reduce generation costs by replacing expensive and

| CRE COMMISSIONERS polluting technologies with more efficient non-conventional sources. Dispatch rules are based on generation costs, so those technologies with the lowest variable costs will be the first dispatched. In addition, the authorities will

FRANCISCO SALAZAR

carry out bids for long-term contracts, which will provide

President Commissioner of CRE

investors more certainty regarding the revenues they will obtain from their projects. A new approach to the planning of transmission and distribution networks guarantees open access to the grid for each participant in the electricity market. The authorities are also looking at pushing smart grids, which will facilitate the incorporation of distributed generation

technologies,

improve

distribution,

and

optimize the way demand is administered. In this sense,

GUILLERMO ZÚÑIGA

PRODESEN foresees the installation of 1.8 million smart

Commissioner at CRE

metering systems in the next five years. Q: What technical measures must be implemented in order to reduce energy losses in the grid? A: The Law of the Electric Industry points out that PRODESEN will include smart grid elements. There are many technologies that can be implemented, ranging from Advanced Metering Infrastructure (AMI) and sensors to

JESÚS SERRANO

substation control automation systems, such as SCADA.

Commissioner at CRE

One of the most attractive advantages of these solutions is that they are able to pinpoint locations of possible energy losses and implement corrective measures. Additionally, the regulations establish that losses reaching a certain percentage of the total supplied power will be charged to the suppliers. This way they will have incentives to implement the necessary technologies to reduce losses. Q: What steps are you taking in order to align the objectives

MARCELINO MADRIGAL Commissioner at CRE

proposed by the government with the aspirations of the private sector? A: The instruments that will be implemented have been designed to incentivize participants in the market to act in a competitive manner. An example would be CELs, which are a new instrument that is being introduced. The government has a set a target of increasing clean power generation by 5% by 2018 and this objective is translated

MONTSERRAT RAMIRO XIMÉNEZ

into obligations for participants in the market from the

Commissioner at CRE

demand side. CELs will be the mechanism that makes it possible to reach the clean energy objectives. Regarding economic regulation in the case of activities where there is a natural monopoly, such as transmission, the competition will be ex-ante. This means that the company that is in charge of building and operating transmission lines will be the one that offers the lowest costs while at the same time guaranteeing security and transparency. Regardless, be it a competitive activity or natural monopoly, the objective

NOÉ NAVARRETE Commissioner at CRE

remains the same: to reduce electricity costs through efficiency and incentives.

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T.: 971 711 3125 / 971 711 1778

A COMPANY BETTING ON MEXICO’S ENERGY POTENTIAL Guest article by Iberdrola - Being the main private utility

the company’s ability to adapt to any changing scenery

in Mexico, Iberdrola holds a position of authority that has

in the industry.

allowed it to embark on a five-year investment plan worth US$5 billion, enabling it to focus on diverse projects that

The company continues to bet on the development

will duplicate the company’s installed capacity of 5,000MW

of renewables, particularly wind, and the use of clean

to almost 10,000MW. Iberdrola has been in Mexico for over

technologies, while upholding respect for the environment.

15 years, constantly increasing its investment in the country.

These constitute the three main pillars of growth that the

With its current capacity, Iberdrola generates 15% of the

company has followed in the past decade, and they are

total energy consumed in the country and provides services

one of the group’s key expansion drivers. This commitment

to over 20 million people. To date, Iberdrola has invested

is reflected in the installed capacity the company has in

US$1.5 billion in three new combined cycle plants, including

renewables, which amounts to 14,600MW.

one of 300MW in Ensenada, Baja California, for CFE; a fifth generation unit in the Dulces Nombres combined cycle

Iberdrola is firmly committed to the development of a

complex in Monterrey, with a capacity of 300MW; and

sustainable energy model that is capable of complying with

lastly, a cogeneration plant for Kimberly Clark of 50MW in

three objectives. The model must incorporate an economic

Coahuila. On top of these developments, the company has

component, which will guarantee a secure supply of

completed the expansion of the Enertek cogeneration site,

energy. Secondly, it must have a social pillar where it details

increasing its capacity from 110MW to 150MW.

how people will gain access to energy and improve their economic condition. Lastly, environmental compliance

In the renewable energy arena, Iberdrola is an uncontested

is a must, since it will translate to fewer emissions, more

leader in wind power. This reputation is reflected in Mexico

efficiency in the generation and consumption of energy,

by the company’s construction of two wind farms: Pier 2 in

and further environmental normativity. Bearing this in

Puebla and Dos Arbolitos in Oaxaca. Iberdrola is the second

mind, the strategy of Iberdrola is oriented toward satisfying

largest power generator in Mexico after CFE, and these two

the demands and expectations of its stakeholders, clients,

players are tied together with IPP contracts that will ensure

suppliers, and employees. In its quest for leadership,

the generation and sale of energy for the next 25 years.

Iberdrola stresses the importance of equilibrium between

In addition, Iberdrola distributes energy to heavyweight

economic results and environmental and social compliance

industrial players in the country, all of its plants in Mexico

in all countries where its activities are developed.

boast the AENOR certification, and this year the company renovated its CSR that is bestowed by CEMEFI.

For over a century, Iberdrola has contributed to the economic development and wellbeing of the communities

Thanks to a strong, rapid internationalization process, and

where it settles in and the territories it embarks in. Besides

the fact that it supplies power to over 120 million people,

providing an essential service that is inextricably linked to

Iberdrola is able to call itself one of the major energy players

the evolution of society, the utility is a catalyst that attracts

in the world. The company has expanded operations in a

investment, creates jobs, and strengthens local supply

wide variety of markets, from the UK, the US, and Spain,

chains. In addition, Iberdrola takes steps in promoting R&D

to Mexico and Brazil, and is committed to fully developing

and technological innovation and this has a snowball effect

an active presence in these markets over the years to

in society. This commitment to social and sustainable

come. It has garnered international recognition by being

development has made Grupo Iberdrola worthy of

the first Spanish utility and one of the main operators in

several prestigious recognitions and has consolidated

the UK after the integration of ScottishPower in 2007. In

the company’s presence in the top sustainability indexes.

the Americas, Iberdrola has captured the Brazilian market,

For Iberdrola, conserving the environment is not only

where it acquired Elektro in order to take the lead. In the

fundamental to life and biodiversity on this planet, but

US, it has strengthened its foothold with the purchase

the future of the company also depends on its activities

of Energy East 2008, which is now known as Iberdrola

being sustainable. Ultimately, the company will not be

USA. In February 2014, it agreed the integration of its US

competitive if it is not environmentally responsible. On

subsidiary to UIL Holdings Corporation in order to become

one side of Iberdrola’s coin lies knowledge, innovation, and

one of the main utilities in the country. At the end of 2014,

competitiveness, and on the other is a distinct respect for

Grupo Iberdrola showcased over 45,000MW in power

its own legacy, as well as the commitment the company

around the world and it now possesses a project portfolio

has made to future generations in ensuring a cleaner and

known for its efficiency and diversity, which guarantees

greener planet.

MEXICAN GOVERNMENT VOWS TO FIGHT CLIMATE CHANGE Guest article by SEMARNAT - The climate change scenarios

become competitive and resilient in reducing its carbon

forecasted for Mexico in the 2015-2039 period are worrying.

emissions. It is worth mentioning that both instruments

It is predicted that temperature could increase by up to

address the reduction of short-lived climate pollutants,

2°C per year in the northern regions, while the rest of the

such as black carbon, which is not only crucial in fighting

country could suffer increments of between 1-1.5°C. Unless

climate change, but also fundamental in improving the

urgent actions are taken, these predictions could have

health of the Mexican people.

severe social, economic, and environmental consequences in the country.

Mexico has also been a pioneer in creating a tax on the importation and sale of fossil fuels, which came into

Globally, there is a similar situation. If the international

effect in January 2014. In addition, and as outlined in the

community does not reach an agreement in the next World

General Climate Change Law, SEMARNAT created and is

Climate Summit in Paris, the planet’s temperature could

already operating Mexico’s Climate Change Fund, which

increase by more than 2°C by the end of the 21st Century.

promotes adaptation and mitigation projects to combat this phenomenon.

The actions Mexico has undertaken to fight climate change have been internationally acknowledged. In 2012, Congress

Two of the main climate policy instruments that derive

passed the General Climate Change Law, making Mexico the

from the General Climate Change Law are the National

first developing country to enshrine climate change policy

Greenhouse

into law, and the second nation to do so, following the UK.

Emissions Registry. The former was updated during this

Emissions

Inventory

and

the

National

administrative period with figures from 2013, while the Throughout President Peña Nieto’s administration, we

latter became effective in October 2014. These instruments

have implemented this legislation, achieving significant

are crucial for identifying mitigation opportunities and

advancements, such as the drafting and issuing of the 2013

designing efficient public policies. All of these actions have

National Climate Change Strategy. This instrument will be

been carried out with the Inter-Ministerial Climate Change

the backbone of the country’s climate change policy for

Commission, the Climate Change Council, and the National

the next 40 years. The Special Climate Change Program

Ecology and Climate Change Institute. These three Mexican

spawns from this document, and it details the specific

institutions, along with federal entities, national municipal

actions the government is taking to help the country

associations, and Congress, compose the National Climate Change System. In March 2015, Mexico presented its Intended Nationally Determined Contributions (INDCs) to the UN’s Framework Convention on Climate Change, which display the Mexican Government’s commitment to support global efforts in the reduction of emissions and the promotion of adaptation. For the first time, the country will adhere to legally established goals if an agreement applicable to every country is reached during the next World Climate Summit. We have relatively ambitious targets, like the nonconditional reduction of greenhouse gases by 22% and black carbon by 51% during the 2020-2030 period, as well as aiming for peak emissions in 2026. If we can also obtain financial and technological resources from abroad, we could even reduce greenhouse gases by 36% and black carbon by 70%. The challenge is colossal, as it requires a profound transformation in a short period of time and strong leadership, both in a political and social context. In this sense, Mexican society and the government are firmly committed to doing our part.

| VIEW FROM THE TOP

ENERGY SECTOR PURSUES ENVIRONMENTAL COMPLIANCE GUILLERMO HARO Federal Attorney of PROFEPA

Q: What advancements has Mexico made regarding

A: Currently, less than 1% of companies present serious

actions to combat climate change?

irregularities worthy of sanctions. Also, the number of

A: In 2010, Mexico’s greenhouse gas emissions amounted

industries without irregularities found during inspections

to 784 million tonnes of CO2, a 19% increase from 2001.

has increased significantly, reaching almost 40%. In

In fact, Mexico was among the 15 countries that emitted

general, we predict more attention from the private sector

the highest levels of greenhouse gases in 2010, accounting

in complying with its environmental obligations.

for 1.4% of global emissions. With this in mind, Mexico’s achievements in this area are of global relevance, and the

PROFEPA is updating its staff’s technical capabilities in

country is promoting policies and strategies to effectively

order to better implement the environmental legislation.

fight climate change. Between 2010 and 2013, Mexico

We are also working on providing our personnel with

reduced its CO2 equivalent emissions by 4.5%, going

better tools for their daily activities. PROFEPA is in the

from 637 million tonnes to 606 million tonnes. In addition

process of updating its environmental laboratories, and

to the creation of the General Climate Change Law and

we have received resources to buy drones for inspection

the National Climate Change Strategy, states have been

activities.

given the faculties to draft their own Climate Change State Strategies. This will enable states to adopt and

Q: How is PROFEPA working to strengthen its attributions

create tailored and locally focused measures to decrease

and improve the environmental legislation?

polluting emissions and reduce their vulnerability.

A: PROFEPA does not have an organic law; it has attributions stated in the Organic Law of the Public

Q: What will be some of PROFEPA’s activities in the

Administration and in SEMARNAT’s internal regulation.

energy sector?

PROFEPA is a decentralized organ of SEMARNAT, the

A: PROFEPA signed an agreement with PEMEX so that

head of the environmental sector. We are pushing for

all of its facilities voluntarily comply with environmental

several initiatives, the first being a codification of the

regulations. At the moment, 30% of PEMEX facilities

environmental legislation to create a single law that

have received certification. The process for awarding the

encompasses all aspects related to environmental affairs.

certificate is completed through a thorough examination

Today there are ten important environmental legislations.

from independent auditors with credentials from the

The main one is the General Law of Protection of Ecological

Mexican Accreditation Entity. The certificate is valid for

Balance (LEGEPA), with almost ten regulations, so we want

two years, as its constant renewal allows monitoring a

to include every environmental rule in a single code. This

company’s evolution in terms of environmental compliance.

will result in simpler, more unified laws, higher sanctions,

Because of the creation of ASEA, PROFEPA no longer has

and faster procedures for addressing and ruling cases.

any faculties related to PEMEX. Now, we are working with CFE on the same process. CFE is adopting international

Our other goal is to draft PROFEPA’s Organic Law, which

standards that even surpass Mexican norms. Likewise,

would give us more independence from SEMARNAT. The

new players are obliged to comply with environmental

fact that SEMARNAT governs PROFEPA creates confusion

normativity just like any other domestic company. They

because we act as judge and jury. The idea is for PROFEPA

will also be encouraged to demonstrate the necessary

to act as a decentralized organization with its own

credentials for environmental standards in order to enter

resources and rules. The last task is to create a National

tenders.

Environmental Responsibility Penal Law. A federal law will homogenize sanctions and modify conducts throughout

Q: How is PROFEPA strengthening its capabilities now

the whole country. We are working with the executive

that the private sector will have a larger participation in

branch and Congress so that we can present a legislative

the energy industry?

package as soon as possible.

| VIEW FROM THE TOP

SCIENTIFIC SUPPORT BEHIND THE ENERGY TRANSITION FRANCISCO BARNÉS REGUEIRO Executive Director of Centro Mario Molina

Q: How do the five core subjects of Centro Mario Molina

to natural gas is wind power, which is also potentially the

influence its approach to the energy sector?

most cost-effective modern renewable. Hydroelectric plants

A: The Center operates across five core subjects: energy,

should also be considered because even though they require

climate

and

high investments, their operational costs are low. However,

environmental health, and education. Since these subjects

mini hydroelectric plants are not yet competitive against

are inherently intertwined and it is difficult to trace their

natural gas. In some regions of the country, wind energy can

boundaries, we work on them transversally. When talking

compete with natural gas because the wind resources are

about energy, we are referring to the interface between

strong enough to allow generation for most of the day.

change,

urban

sustainability,

pollution

the environment and energy in the oil, gas, and electricity sectors, as well as everything regarding demand from end

On the other hand, solar technology, which is more

users. Our current work in the electricity sector consists of

expensive than gas, has seen a drop in operational

tracing pathways to reach the country’s decarbonization

costs over the past few years due to technological

goals for 2024, which involve a 35% participation of clean

advancements. An issue with some clean energy sources

energies into the matrix. We discuss the role of each

is their intermittent nature, which is not a problem for

energy source, how to deal with intermittency, and the role

hydrocarbon-based generation. Therefore, clean energies

of gas as a transition fuel, among other aspects.

require special grid management systems and storage mechanisms. Nonetheless, the most competitive renewable

Q: In which ways does the center work within the energy

right now is wind, and solar PV will be a major frontrunner

industry, and which areas have captured the interest of

in a few years. Solar is not competitive in terms of costs

the Center?

at the moment, but when comparing costs from five years

A:Part of our work in the oil and gas sector includes

ago, there has already been a substantial reduction. Due

discussing the possibility of producing shale gas as part of

to the rate of technological advancements, I am confident

the country’s economic development without incurring a

that solar energy will be competitive in a few years.

major environmental impact, and establishing the criteria under which this activity would be acceptable. The Center

Q: More than a transition fuel, natural gas is positioning

is heavily involved in energy efficiency, and now we are

itself as the new base fuel. What are the environmental

working on a project with the tourism sector, advising

implications of using natural gas as the main source of

hotels on how to optimize their energy consumption.

electricity generation?

Hopefully, this endeavor will result in generation of a

A: Natural gas is cleaner than other hydrocarbon-based

standardized public policy for the entire hospitality sector.

fuels, such as fuel oil or coal, as it generates less carbon dioxide and sulfur oxide emissions. Additionally, combined

Generally, we try to plan for the topics we expect to work

cycle technologies are reaching significant thermodynamic

on. We try to give continuity to our lines of activity, as we

efficiency levels, optimizing costs. The price of natural gas

usually work on cross-year projects, such as the long-term

in North America is low and is expected to remain that way

clean energy objectives. In addition, we can work on similar

in the medium term. There are many factors that make gas

areas that are aligned to Centro Mario Molina’s mission or

an attractive technology for Mexico, so it makes sense for

specific projects requested by the government, the civil

it to be considered a transition fuel. However, if we truly

society, or the private sector.

want a diversified energy matrix that complies with the established targets, the role of renewables is important.

Q: What are the most economically viable clean energy

sources to begin the energy transition?

Natural gas presents some problems. For instance, natural

A: The costs of clean energy have dropped significantly

gas is not entirely clean when quantifying methane leaks

over the past few years. Perhaps the biggest competitor

through the chain, from drilling to commercialization. This

can be mitigated by reducing methane leaks, but then

The Mexican INDCs’ goals also set a conditional target

costs to end users would increase due to the companies

of 36% below BAU for 2030, which is higher than what

absorbing costs of improving the efficiency. This is

was laid out in the Law. The targets are always established

important because the benefits of natural gas are being

in relation to a baseline because Mexico is a developing

inflated due to companies’ failure to take these emissions

country that needs to grow and build further infrastructure,

and their global warming implications into account. On the

and this implies that the country has not yet reached peak

other hand, renewable energy technologies are entirely

emissions. It is possible to increase oil production and

compatible with natural gas. The latter can be used as a

simultaneously reach the climate change targets because

base load fuel with renewables, so it is possible to establish

the baseline considers the need to increase oil production.

hybrid solar-gas plants. I do not see why natural gas

Mexico cannot neglect oil and gas activities, but it can

should hamper the development of renewables, especially

produce hydrocarbons and electricity in the cleanest way

considering their compatibility and the fact that we need a

possible. The key terms are ‘clean economy’ and ‘low-

diversified energy matrix.

carbon economy’, which means being able to develop as a country in the most sustainable way.

Q: How can Mexico reconcile its clean energy objective with its increased oil production targets?

Q: Centro Mario Molina was involved in the creation of

A: The General Climate Change Law mandates two main

CELs. What made this system attractive for the Center?

objectives. The first is to reduce the country’s greenhouse

A: The logic behind CELs was to give clean energy

gas emissions by 30% from a baseline by 2020, and the

technologies, such as renewables, cogeneration, and even

second is to reduce emissions by 50% by 2050 from an

nuclear energy, an incentive. Otherwise these technologies

absolute amount measured in 2000. In the INDCs that Mexico

would not necessarily be the first choice from an economic

announced in March, which will be further discussed in

perspective. What makes CELs attractive is that they create

Paris, the country committed to reducing its GHG emissions

a market that increases the system’s economic efficiency,

by 22% by 2030 in a non-conditional way. This differs from

because for some it is cheaper to generate clean energy

the targets stated in the Climate Change Law, which were

and for others the cheaper option is buying a certificate.

set as conditional to financial support, technology transfer,

CELs are awarded to qualified users, who are obliged to

and carbon markets, among other factors.

present these certificates before the authorities.

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| VIEW FROM THE TOP

A GREEN CHAMBER WILL SET THE EXAMPLE ERICK MARTE President of the Renewable Energy Commission of the Chamber of Deputies

Q: What elements led to the creation of the Renewable

that the Energy Reform concentrated its efforts on the

Energy Commission?

theme of oil. As the Commission of Renewable Energy,

A: Traditionally, the energy theme in the Chamber of

when we spoke of energy independence we did not refer

Deputies has been summarized by two agencies: PEMEX

to Mexicans ceasing to depend on the importation of oil,

and CFE. This meant that the topics of conversation

but rather becoming independent from oil altogether.

centered on hydrocarbons and power generation. In response, in 2012, the parliamentary group PAN suggested

There was little understanding on behalf of many legislators

the need to create a special commission that focused

surrounding the energy market and especially renewable

solely on clean and renewable energies, as well as on

energies. I have proposed an initiative in the Chamber of

matters of sustainability.

Deputies that will protect the existing energy reserves. If we reduce the volume of oil used and simultaneously

In our eyes, we could not leave the subject of renewable

expand the energy portfolio with renewable energies, we

energies in the hands of the traditional Energy Commission

will reach a point where the reserves will only be used for

since we identified several potential risks. As we all saw,

emergencies. However, if we evaluate the budget assigned

the main debate regarding the Energy Reform revolved

to the Energy Reform and the goals we have for renewable

not around renewable energies but oil, so we felt that

energies, we see these are misaligned. We will not reach

by creating a separate commission, we could increase

the goals unless the resources increase, and for this reason

transparency and eliminate conflict of interest surrounding

we believe that the Mexican Hydrocarbons Fund should

hydrocarbons from renewable energies.

be more generous. Likewise, we should also provide incentives and more favorable conditions to investors and

Q: What key role does the Renewable Energy Commission

private players.

of the Chamber of Deputies play?

A: The Renewable Energies Commission is there to

Q: What steps is the government taking to make its offices

reinforce the objectives and goals that the legislative and

more aligned with sustainable practices?

executive powers defined in conjunction, and it has been

A: The Chamber of Deputies consumes MX$20 million

widely accepted by all the legislators that integrate it.

worth of electricity per year, which amounts to the

Some members see renewable energies as economically

consumption of 6,000 households. We realized that if the

crucial and as sources of employment, others see them

Chamber of Deputies is legislating for an energy transition

as cultural tools to teach the younger generations, and

and has climate change as one of its priorities, then it

others as important environmental tools. Through active

should reflect this by consuming energy efficiently and

cooperation between all political parties, we have proposed

becoming a promoter of clean energies. The Commission

several initiatives that will improve the conditions of energy

is proposing the implementation of clean energies in every

development in Mexico.

government building.

Q: What is the Renewable Energy Commission’s view on

Modifying the lighting in the Chamber would have an

the objectives stated in the Energy Reform?

immediate impact, since our electricity consumption

A: During the promulgation of the Energy Reform,

would drop by 30-40%. The effect would be greater if

the image that was constantly reinforced was that of

we generate our own energy by installing solar panels in

renewable energies. The reason is obvious, since it

the Chamber. If we carry out this project, the Chamber of

attracted the attention of younger generations that are the

Deputies would become the first green congress in the

most interested in clean energies. We were concerned that

world. We hope this project can motivate all state and

this focus would not be reflected in the actual legislation

municipal governments to follow suit and opt for greener

or in the profundity it requires. We see with great sadness

options.

| VIEW FROM THE TOP

INNOVATIVE POTENTIAL MUST LEAD TO PROSPERITY RICHARD WELLS President of the Lexington Group

Q: What are your main concerns surrounding the Energy

foreign exports. Then the country was hit by China, which

Reform and its impact on sustainability?

could manufacture more cheaply after joining the WTO,

A: Mexico has had a tendency to place too much emphasis

and Mexico suffered another setback.

on history. In a sense, it has been too easy to do business in Mexico because it is next to the biggest market in the

The country has to find a basis for growth that can

world, and historically, Mexico has had enormous amounts

of resources at its disposal. However, the country relies too

environmentally. I believe this growth must be based on

much on copying models from the US and Canada, and not

innovation and creativity, leveraging Mexico’s enormous

enough on its tremendous natural and cultural heritage or

natural and cultural diversity. Mexico has a tremendous

the creativity and innovative capacity of its people.

creative and innovative capacity. It is right next to the

sustained

over

time,

economically,

socially,

and

world’s largest and most dynamic market, and it has an Mexico will most likely benefit from hydrocarbons through

enormous short-term need for growth to address poverty

the Energy Reform. There is some talk of renewables, but

and inequality. It is tempting for Mexico to become a supplier

I am more concerned about the possible development

to such a major economy as the US in order to provide the

of Mexico’s large shale gas resources in Nuevo Leon and

quick fix that it urgently needs. I hope it can find a way to

Tamaulipas. These substantial resources are on a similar

simultaneously promote necessary growth while building a

level to the Eagle Ford shale gas reserves in the US, making

future economy based on innovation and creativity.

Mexico the world’s fourth largest shale oil reserve. If Mexico were to develop shale gas while following a successful US

Q: In your view, what policies are leading Mexico on the

development model, it would only provide a temporary

path of innovation?

solution to an energy problem.

A: I think that Mexico’s tax on carbon will be a highly successful initiative. I disagree with the argument that

Q: What are the main factors that have hindered Mexico’s

it is imposing an additional cost on Mexican industry

innovation potential?

that will make it less competitive. It may not have been

A: Historically, this country has been able to capitalize

implemented well, but objecting to stringent environmental

on rich natural resources like petroleum, therefore

regulations purely because they impose a near-term cost

encountering few problems in conducting business. In the

can be a mistake. What this tax is really doing is imposing a

early 1970s, Mexico was developing an entrepreneurial

constraint that will force innovation. The Porter hypothesis

industry, particularly in chemistry. At the time, there were

states that countries with more stringent environmental

some highly innovative chemical companies that were at the

regulations gain an advantage because they are forced to

cutting edge. When petroleum came along, it overwhelmed

adjust. Mexico will have an advantage because, eventually,

most other industries, transforming Mexico into a country

everyone will require a carbon tax. A carbon tax imposes

reliant on oil exports. Later on, NAFTA redesigned the

a short-term loss that forces innovation, something that

image of Mexico as a strategic manufacturing country for

Mexico needs to promote.

Richard Wells is President and Founder of The Lexington Group, a consulting firm that specializes in sustainable development and social and environmental management for businesses, governments, and non-governmental organizations (NGOs). He has advised major companies, governments, NGOs, and institutions across the US and Latin America. The firm focuses on the design and implementation of competitive strategies and initiatives for positive social and environmental impact. The model developed by Mr. Wells for integrating sustainability into value chains has been implemented throughout Latin America and Asia in projects for the Inter-American Development Bank, the World Bank and USAID.

| VIEW FROM THE TOP

LEADING THE PRIVATE SECTOR ON THE PATH TO SUSTAINABILITY VANESSA PÉREZ-CIRERA Director of the Climate Change and Energy Program at WWF Q: What is WWF’s approach in creating an inclusive

matrix, it is not necessarily a clean energy. It is important

agenda that all Mexicans can identify with?

that externalities are recognized, such as the impact on

A: Our emphasis is on two aspects: water, and climate change

health, ecosystems, and CO2 emissions. This is the only way

and energy. The latter was launched in 2010 and it is comprised

a fair playing field can be established for all energy sources

of four lines of business. One focuses on renewable energies,

to compete in.

as WWF is a strong believer that these can be a solution for developing economies as part of an energy security agenda.

Q: With which industries do you most commonly work in

Mexico can show other developing countries how to upscale

your business engagement strategy?

in the use of renewable energies. Another priority is climate

A: Our business engagement strategy involves working

change policy, where we have been working on an economic

with decision-makers in energy-intensive industries. We

analysis behind policy planning and the role renewable

help companies achieve the best standards and we help

energies play in climate change. Finally, we focus on

them engage with the players in their value chains in order

ecosystem adaptation, which is an important division since

to promote change. It is easier for companies in energy-

Mexico is responsible for 1.5% of global emissions. In terms of

intensive industries to instill change in their own sectors. It is

adaptation, it is one of the most vulnerable countries in the

important to suggest cost-competitive solutions that present

world due to its topography and coastal areas. We are trying

the right goals for these players’ concerns.

to implement nature-based adaptations, while leaving aside adaptations involving physical infrastructure that create

Our international Climate Savers program is made up of an

more problems than solutions.

exclusive group of 35 companies that have the most efficient benchmarks in their respective industries. These companies

Engagement with the private sector also plays an

are large international players and we believe they can

important part in our agenda. We work with companies

incentivize change across their supply chains. In the first few

on two fronts, a policy agenda for renewable energies

years, companies focus on reducing emissions derived from

and cost-competitive mitigation opportunities. In a recent

electricity consumption. Later, the company works with its

study, we arrived at the conclusion that 40 million tonnes

supply chain to implement green practices, and finally, we

of CO2 could be saved by 2020. In terms of economic

engage with companies to achieve changes in policy.

benefits, we estimate this could be equivalent to 8% of Mexico’s GDP growth over the past decade.

Q: In what ways do WWF’s objectives converge with or differ from those of the government?

Q: Do you think the Energy Reform fully considered all the

A: This administration has made a specific effort to promote

ways in which Mexico could potentially reduce emissions?

renewable energies and its ambitious goals are a reflection

A: The focus of the Energy Reform was on competitiveness

of that. The second important factor is the purchasing

and market opportunities, so the topic of sustainability

of energy, where long-term contracts are crucial for the

did not play a prominent part in its early stages.

renewable energy industry. These contracts must be long-

However, certain interesting instruments, such as CELs,

term because the most attractive incentive a company can

are encouraging sustainable practices. The Law of the

give to someone buying power from renewables is consistent

Energy Transition complements the Law of the Electricity

prices. The third point is transmission infrastructure. If a

Industry by strengthening the framework and fostering the

company wishes to develop a renewables project, it must

development and implementation of renewable energies.

have interconnection to the grid. Contrastingly, natural

Nevertheless, clean energies still require a more accurate

gas concessions are allocated and the private sector can

definition. At the moment, the Law of the Electricity Industry

then construct the pipelines. Infrastructure is crucial for

uses ambiguous definitions that include natural gas. While

the growth of the renewable industry and demands high

gas might be an important part of a diversified energy

investments and a significant investment of time.

| VIEW FROM THE TOP

UNCOVERING THE NEW CLIMATE CHANGE ACTION PROGRAM TANYA MÜLLER Secretary of SEDEMA Q: What are the main vulnerabilities of Mexico City in the

each will reduce emissions and how much cost it will entail

face of climate change?

for the government. For instance, the incorporation of

A: In 2014, Mexico City presented its Climate Change Action

the new metrobus lines represents a good opportunity

Program 2014-2020, which identified areas of vulnerability.

for CO2 reduction, since it entails renewing the old buses

Currently there are 5.6 million inhabitants that have been

with vehicles that have ultra-low emission technologies.

impacted to a certain degree by climate change; of these

The next metrobus extension is scheduled for line five,

40,000 are at risk of high floods and 3 million are in danger

which has a length of 17km entending from San Lazaro

of minor floods. The extreme hydrometeorological risks

to Vaqueritos. We know that with this new route, we will

such as flooding and landslides are a main concern. There

reduce the equivalent of 20,000 tonnes of CO2 per year.

are also less obvious impacts such as health, as the rising temperatures lead to dehydration, which impacts the elderly

Q: What are the initiatives SEDEMA has put in place in the

and the youth the most. In 2013, Mexico City was among 33

transport sector in order to reduce pollution and improve

cities that were selected by the Rockefeller Foundation to

the quality of life and security of the inhabitants of the city?

support climate change programs. Over 400 cities applied

A: One of the strongest areas in our program is

and Mexico City was chosen because of the clear vision

transportation, and this is where we will find the highest

within the Climate Change Action Program and because the

levels of CO2 reductions. The four actions we are

subject of resilience was woven throughout. Our program

implementing will require an investment of US$41.2 billion.

revolves around sustainable urban development that

With this investment we can eliminate 10 million tonnes

involves transversal and social strategies.

of emissions, and the present administration must reach three-quarters of the actual program, thus mitigating 6.5

Q: What are the main characteristics that distinguish this

million tonnes of CO2. Our scrapping program is focused

new program, and what were the stages of its development?

on public transportation, and, while we want to encourage

A: This program was developed alongside Centro Mario

the use of this transportation, we must also make sure it is

Molina and has several concrete goals. The first is mitigation,

of high quality, safe, and efficient. The tune-up verification

with the objective of reducing 10 million tonnes of CO2. The

programs incentivize people to renew their cars and

second refers to increasing the city’s resilience and helping

maintain them in good working order. As a result, the

those 5.6 million inhabitants who are vulnerable to climate

metropolitan area has the largest and newest vehicle park

change. Another important area is urban planning; if the city

in the whole country.

continues to grow horizontally toward the peripheries, then the environmental impact is larger. We need to redensify

Q: How does SEDEMA collaborate with the private sector

the urban areas of Mexico City and encourage equitative

in order to further its agenda?

development, dynamism, and densification. There is also a

A: A success story detailing this constant collaboration is

non-motorized mobility strategy which involves investment

that of Bosque de Chapultepec, where a trustfund has been

in bike mobility. The program also includes the theme of

put in place. Each peso that the private sector contributes

urban spaces and land conservation, where 60% of the land

is matched by the government. The second section of the

in the city must be considered as conservation area.

forest will be renewed in a record time of four years. We also collaborate with NGOs in order to validate our findings,

Q: What are the mitigation strategies that you are

and the study for the Ecobici is conducted externally by

implementing in order to reduce CO2 and greenhouse gas

an NGO that is specialized in sustainable transportation.

emissions?

Additionally,

A: It is important to note that there are indirect and direct

companies that adhere to environmental programs so they

reduction of emissions. In our program there are 73 actions

can receive benefits by opting for sustainable and green

in seven main areas, and it is important to quantify how

practices.

SEDEMA

provides

fiscal

incentives

Mexico’s historical Energy Reform applied a series of legislations needed to guide the country as it opens up its energy sector. CFE and PEMEX saw upgrades in their corresponding laws and regulations, such as the mandates to become State productive enterprises. In addition, entities were created or strengthened to oversee the development of the sector, which now has independent system operators. The electricity sector itself became the center of several legislative bodies, with the most important being the Law of the Electricity Industry. Among other things, this instrument promotes the development of renewables through CELs, making it a key legislation for the energy transition. The Rules of the Wholesale Electricity Market were issued, detailing the way in which all types of players will participate in Mexico’s electricity industry. The authorities continue working on pending laws and are prepared to modify issued regulations in order to foster a level playing field and attract more participants.

In this chapter, experts share their views on the development of the Energy Reform from a juridical perspective, providing critical analyses on its successes and grey areas. Representatives of prestigious law firms shed some light on regulatory intricacies, the role the public sector will play in the industry, and the way in which the wholesale market is expected to function. Some of the key instruments that will be implemented to foster an attractive market and egalitarian conditions for all players are examined. In other words, this chapter describes the roadmap players in the electricity industry will follow when building their strategies.

ENERGY POLICY & LEGAL FRAMEWORK

FIDE, un cuarto de siglo trabajando por el ahorro de energía eléctrica y la eficiencia energética Creado en 1990, el Fideicomiso para el Ahorro de Energía Eléctrica tiene por objetivo inducir y promover el empleo racional de la energía eléctrica en la industria, la agricultura y los servicios, incidir en los hábitos de la población y prestar servicios de asistencia técnica a los consumidores tendientes al ahorro de energía con un beneficio de carácter social. Acorde con estos propósitos, el campo de acción del FIDE ha evolucionado para responder a las prioridades del sector energético:

3. Incentivos para la transformación del mercado (1998) Proyectos con el fin de acelerar la transformación del mercado mediante estímulos económicos para la adquisición de equipos de alta eficiencia, para lo que se incorporó fondeo externo de agentes nacionales e internacionales. Uno de los primeros fue el Programa de Motores Eléctricos y Compresores de Alta Eficiencia que facilitó la entrada de la norma NOM-016-ENER-2010.

1. Proyectos demostrativos y de cultura del ahorro (1990) Comenzó financiando los primeros proyectos sin costo para el usuario para demostrar la factibilidad y conveniencia del ahorro de energía, logrando con la difusión de sus resultados un efecto multiplicador entre los usuarios. Después ofreció créditos a tasas blandas y periodos cortos de recuperación, para implementar proyectos de eficiencia energética y ahorro de energía con recursos patrimoniales.

4. Programas multiobjetivo con recursos de terceros (2002) Requieren de un amplio acuerdo de ingeniería financiera con otros actores y persiguen beneficios económicos, energéticos y ambientales. El primero estuvo dedicado a sustituir refrigeradores y equipos de aire acondicionado ineficientes que logró la sustitución de 1.8 millones de equipos ineficientes. Actualmente opera Eco-Crédito Empresarial, dirigido a pymes con un esquema financiero similar.

2. Atención al sector doméstico en iluminación (1996) Se implementaron los primeros programas de sustitución de lámparas incandescentes por fluorescentes compactas autobalastradas (LFCA) para usuarios residenciales. Con las acciones iniciadas en esta etapa que prosiguen actualmente, en total se habrán colocado más de 100 millones de focos ahorradores en todo el país, sentando un precedente a nivel mundial.

5. Apoyo a la sustentabilidad energética (2013) La etapa más reciente ha seguido los compromisos nacionales establecidos en la legislación, los cuales apuntan la reducción en la generación de energía con combustibles fósiles. Por ello se ha incrementado el financiamiento de proyectos fotovoltaicos y de generación distribuida, particularmente de cogeneración y microgeneración, tanto para empresas como para el sector residencial, con recursos patrimoniales.

Beneficios acumulados 1991 - 2015 Proyectos / Programas

Demanda Evitada

Recursos Aplicados

TWh (1)

Miles de tCO2e (2)

MW (3)

MDP (4)

5,747

3.34

1,805

890

3,154.00

Incentivos para la Transformación del Mercado

5,702,506

5.28

3,028

271

699.60

Sustitución de Equipos Electrodomésticos y Aislamientos Térmicos

2,670,256

6.05

5,444

306

18,019.00

Sustitución de lámparas incandescentes (1996 – 2015)

98,592,048

9.52

4,620

3,028

2,456.50

21,106

0.04

412.30

106,991,663

24.23

14,920

4,501

24,741.40

Total 2

Emisiones Evitadas

Proyectos de Eficiencia Energética con Recursos FIDE

Eco – Crédito Empresarial

Acciones

Ahorros Acumulados en Consumo

Terawatts hora Toneladas de Bióxido de Carbono Equivalente

3 4

Megawatts Millones de pesos a precios corrientes

Una de las mayores contribuciones del FIDE ha consistido en superar el escepticismo de los usuarios sobre la viabilidad y conveniencia del ahorro de energía eléctrica, logro que se constata en los resultados obtenidos hasta el momento.

CHAPTER 2: ENERGY POLICY & LEGAL FRAMEWORK 32

VIEW FROM THE TOP: Noé Navarrete, CRE

VIEW FROM THE TOP: Pedro Reséndez-Bocanegra, Greenberg Taurig

34 VIEW FROM THE TOP:

Derek Woodhouse, Woodhouse Lorente Ludlow Luis Fernández, Woodhouse Lorente Ludlow

ANALYSIS: Absence of Law in Energy Transition

ANALYSIS: Basic Financial Transmission Rights

VIEW FROM THE TOP: Miguel Jáuregui, Jáuregui y Del Valle

VIEW FROM THE TOP: José Antonio Prado, Holland & Knight

INSIGHT: Raquel Bierzwinsky, Chadbourne & Parke

ANALYSIS: Leveling the Field through Clean Energy Certificates

VIEW FROM THE TOP: Francisco Valdés, Cervantes Sainz

INSIGHT: Verónica Irastorza, NERA Economic Consulting

VIEW FROM THE TOP: Gabriel Calvillo, Carswell & Calvillo

VIEW FROM THE TOP: Gustavo Alanís Ortega, CEMDA

| VIEW FROM THE TOP

REGULATOR STRIVES TO MAKE MARKET BANKABLE NOÉ NAVARRETE Commissioner at CRE

Q: Which criteria will be used for dispatching?

A: The private sector is worried because three effective

A: Dispatching was traditionally centralized; CFE was the

mechanisms will disappear: green wheeling, the energy

only generator and it dispatched according to its criteria.

bank, and capacity recognition. Green wheeling will

However, it had to deal with IPPs and self-supply generators.

cease to exist, and now wheeling will have a regulated

CFE created a virtual market offering with its own resources,

tariff for basic service users. Some of the elements we

which competed in a virtual way, but the management was

are considering are the investment returns for existing

entirely centralized. Now that there is a market, there will be

infrastructure and attraction of more investment. As for

offerings and proposals for purchasing electricity. Whoever

qualified users, depending on the type of transactions,

comes up with the best proposals will dispatch first or will

there will probably be a methodology similar to those

be the ones successfully entering the market.

found elsewhere in the world.

The market will have two modalities: a day-in-advance

Now the law allows for bilateral contracts, so a generator

market and a real-time market. The day-in-advance market

can sign a contract with a supplier that will enable both

can be understood as a pre-dispatch model where a

parties to leverage their investments. In addition, a tender

request is submitted for electricity requirements in advance.

for CELs with ten-year duration makes any project bankable.

Generators will then offer options on an hourly basis. Once

Considering our installed capacity from renewables and

the generation and demand proposals are in place, the

the fact that we have a 35% clean generation objective,

market will seek options, thus maximizing benefits.

significant investment must be made and we have to find ways to make them bankable. The most attractive scheme

Q: What is the position of renewables in the new open

today is capacity bids for ten-year contracts, since the

market landscape?

tenders are designed to make projects bankable.

A: This is where CELs come in. The mechanism relies on day-to-day energy generation and long-term contracts of

Q: How are the costs of electricity and tariffs being

at least ten years. Generators will offer electricity in the

calculated?

market but they must be backed up with CELs, which will

A: For qualified users, the market and competition will

amortize their investments. Generators can access CELs

establish the tariffs. These users can seek options in the

and sell electricity to off-takers, which makes this scheme

spot market or they can sign bilateral agreements with

attractive for renewables.

suppliers. If they choose a supplier from clean energy sources, the qualified users will also obtain CELs. Basic

In Mexico, the clean energy requirements are imposed on

services will have regulated tariffs. This has to be a

the suppliers, not on the generator. Suppliers need to cover

clear, transparent tariff that includes costs of electricity,

a percentage of their demand with CELs, with each CEL

transportation,

being equivalent to 1MWh. To cover this requirement, a

CFE’s subsidiaries will highlight the differences between

supplier will search the market for CELs and clean energy.

distribution zones, forcing improvements that will result

A generator might be able to supply 2MW and another

in more competitive tariffs for final users. Regional tariffs

player might sell two CELs that help the initial supplier

will intentionally reflect the marginal price of electricity in

cover his requirements. The price of CELs will be set by

a given region and limitations in transmission lines. This

the market, but initially each CEL is likely to be valued at

will not be the case for distribution, since lines generally

US$30, which is the cost of each fine per megawatt.

have the capacity to interconnect the final user. Tariffs

and

distribution.

The

separation

currently consider a temperature component. It is likely

Q: What is CRE doing to address the private sector’s

that focalized subsidies will remain because basic services

concerns about the bankability of CELs and incentives for

are still considered public services, but I think they will be

renewables?

implemented differently.

| VIEW FROM THE TOP

FORGING A PATH IN THE NEW LEGAL FRAMEWORK PEDRO RESÉNDEZ-BOCANEGRA Partner at Greenberg Traurig

Q: How would you compare the legal framework

have gotten used to working with 25-year IPP contracts. The

surrounding the Energy Reform with that of other

year 2015 is a transition year and we are receiving questions

countries that have passed a similar regulation?

about how the market will look in subsequent years, and what

A: It is important to make a division between oil and

sorts of projects will be developed. There are also questions

gas industries and electricity in order to obtain a holistic

about transmission and distribution, and how the contracts

perspective. In the former, we see a crucial change in a

will function under this scheme. At the moment, we need to

legal framework that has stagnated for 60 years. The new

carry out research and learn how similar contracts work in

production-sharing agreements and license agreements

markets under the same rules.

for oil production and exploration we are now seeing were prohibited in the past, while in other parts of the world they

Q: With the Energy Reform seeking to diversify the

were being successfully implemented. We also see radical

energy mix, how do mechanisms like the model contract

changes in downstream; the law that has been enacted,

need to evolve?

amended, and enforced allows private participation in

A: CFE has created a new department for Energy

refining,

and

Modernization. This area will be in charge of studying and

commercialization. In the past it was impossible to carry

drafting the new contracts that the market is expecting at the

out joint ventures, so the only thing PEMEX was allowed

end of this year. These contracts must reflect the vision that

to do was subcontract other players, but now PEMEX can

Mexico is an evolved market and that any players wishing

partner up with the private sector.

to enter can do so by assuming the appropriate risks. For

processing,

transportation,

distribution,

the gas industry, I would like the contracts to reflect some The creation of the Mexican Petroleum Fund is significant

caution regarding the gas supply and the barriers developers

and it places us on the same level as other countries such

and investors will face. Additionally I would like the permits

as Brazil, Norway, and Colombia. CENAGAS has been

to acknowledge the environmental problems that may arise.

created to act as an independent manager of the largest

Finally, right of way is also an important consideration, and

gas pipeline system in Mexico, guaranteeing open access

under the Reform there is a new mechanism to negotiate,

and addressing concerns regarding availability, trading,

secure, and register rights of way.

and capacity. We are studying the markets that served as a basis for the consultants that were hired by the Mexican

Q: What do you believe is the role of legal instruments,

government to draft this legal framework. Additionally,

and which other elements influence the growth of the

the possibility for the private sector to co-invest in

industry?

transmission and distribution represents a promising area

A: Some companies are concerned about entering a country

of opportunity for many players.

that demands a combined cycle power plant to secure electricity production. In these cases, gas companies are

Q: How are you helping to establish alliances and

forced to risk gas prices, sometimes build the pipeline, and

partnerships between US companies and local players,

look for traders. There must be a balance between natural

and what are the major concerns of companies entering

gas and renewables. Our client base is diverse; we have

the Mexican market?

lenders, developers, off-takers, and traders, and recently

A: We are assisting companies in creating partnerships

we have begun to receive visits from Mexican investors.

and joint ventures in the sector. Recently, we have received

The competition between energy law professionals is

constant visits from international investors carrying out

very aggressive. Given that the market was essentially

independent research. The have complex questions revolving

monopolized by CFE and PEMEX, there were few law

around regulatory concerns based on their experiences in

firms specializing in the energy industry. We have a new

projects that have been developed in other countries. There are

challenging task ahead of promoting and educating the next

also questions regarding the contracts because many players

generation of energy lawyers.

| VIEW FROM THE TOP

UNDERSTANDING THE NEW MODEL LEFT: Derek Woodhouse, Partner at Woodhouse Lorente Ludlow RIGHT: Luis Fernández, Senior Associate at Woodhouse Lorente Ludlow

Q: How will the role of CRE evolve, and how will these

only focused on the CELs as a tool to promote renewable

transformations help to drive the diversification of

projects. It took a renewable portfolio standard approach

Mexico’s energy mix?

with a mix of tenders that will be implemented. From our

DW: The legislation was clear regarding the diversification

perspective, this is strategic and the only way to make the

of Mexico’s energy mix and the importance of sustainability.

system work without running the risks of having feed-in

In fact, it uses the term “sustainability” 44 times. On the

tariffs like Spain or Germany.

other hand, it is astounding how different the regulations emerged, as these only mention “sustainability” 11 times

Q: What is the biggest challenge the government will face

and “clean energies” three times. There are two possible

in the implementation of the new model?

explanations for this. Firstly, legislators created the

LF: The highest risk entails the unbundling of CFE, which

guidelines for the CELs as separate instruments; and

means that different entities will be formed within the utility

secondly, they are waiting for a new piece of legislation

company. It is predicted that approximately 20 different

that will be released imminently.

companies will emerge from CFE; some will be in charge of transmission and others of distribution, supply, generation,

The legislation will implement a transitory law that will

and basic services. This unbundling will prevent CFE from

tackle the environmental issues and, as it stands, it is

holding market power and capitalizing on the market rules.

unclear who will have to handle this, whether it will be the

The Ministry of Energy will have to make the decisions and

Ministry of Energy or SEMARNAT. The Ministry of Energy

CRE and CENACE will have to implement them correctly.

ABSENCE OF LAW IN ENERGY TRANSITION Mexico’s shift toward a low-carbon economy will depend on

environmentalists, and journalists who believe this is the

several policies and laws that will set the standard for the

key instrument in Mexico’s energy transition. The Ministry of

country. One of these instruments is the Law of the Energy

Energy’s Undersecretary of Planning and Energy Transition,

Transition, which includes clauses related to energy efficiency

Leonardo Beltrán, claims the matter will be addressed in the

and the goals and timeframes of incorporating clean energies

legislative term that will begin in the last quarter of 2015. “Of

in the matrix. This law will give the Ministry of Energy’s clean

course we are interested in having this legislation passed

energy objectives a legal format, strengthening CONUEE’s

because it will provide the tools to transition into a low

authority, and providing dispositions for the financing of

carbon economy. Nonetheless, we preferred to establish

various energy efficiency projects. It also describes regulatory

strong and robust foundations for the market rather than

benefits and guidelines for the use of decentralized systems,

speeding up the energy transition. We opted for an open

and even contemplates the possibility of having the Ministry

market, so we had to focus on developing clear rules.”

of Finance fund some distributed energy and smart grid

Hernández Ochoa is not concerned with the absence of a

projects.

law regulating the energy transition because renewables

Electricity at the Ministry of Energy, says this law incorporates

have already been given the necessary tools to thrive in

some of the best practices in energy efficiency and energy

the Law of the Electricity Industry: CELs. “The Law of

transition seen in other countries, thus it will be a valuable

the Energy Transition contributes to the development of

contribution to the legal framework.

renewables, but it is not the principal instrument in the

César

Hernández

Ochoa,

Undersecretary

progression of clean energies. As for energy efficiency,

The fact that this law was not passed during the Senate’s

LASE and LAERFTE will provide solid precedent for this

ordinary sessions has sparked the anger of many activists,

area for the duration of their validity,” he asserts.

CRE will be in charge of ensuring no insider trading or

will be incorporated under the same user. As the market

price fixing. The ambitions of CRE are sizeable and it must

matures, CRE and the Ministry of Energy will decide the

further intensify in order to face the challenges head on.

new thresholds and criteria for new users.

The Commission must carry out its goals in a short period of time and this is a massive responsibility.

Q: How much uncertainty is generated by the new model, and how will CELs play a role in this?

Q: What are the advantages and disadvantages of the

DW: The uncertainty that the new model brings poses

new framework in proposing mechanisms to make

a significant challenge since it will make projects more

municipalities potential off-takers?

difficult to finance. While the old system was ineffective, I

DW: We still need to wait for CRE to announce all the

have to recognize it had more certainty, since people were

criteria that will decide whether a player is a qualified user.

aware of the costs and would have long-term agreements

Since we do not know the criteria, we are unsure whether

under a fixed price. Under the new model there is a spot

municipalities will be in or out of the game. If it is decided

price which will vary considerably, and there will be

that it is not possible to bundle a large group of delivery

uncertainty in some instances if players have to use the

points, as in the case for a public lighting system, then a

spot market.

municipality will not be able to participate in the market as a qualified user.

Also, the value of the CELs will fluctuate and will be decided by the market, similar to the certified reductions credits

I imagine that some municipalities will be lobbying strongly

from the Kyoto Protocol. One year the certificates may be

to become qualified users because if they are not, then

US$17 and the next US$2, so a company cannot take these

they will be served by a basic service supplier, which will

to a bank to obtain finance. Due to this issue, a secondary

remain CFE. There is a lot of uncertainty as to the steps

market of certificates at a given price will be created by

required to become a qualified user. In the first year the

traders willing to make a long-term commitment. This

user must consume 3MW, the second year 2MW, and in

secondary market will create the certainty that banks need.

the third year 1MW. In the early stages there might be few

The challenge will then lie on how long Mexico takes to

users that use 3MW, but this might change dramatically

transition into the new regime, have it functioning properly,

depending on the criteria on how the delivery points

and have the new traders to come in and work directly.

BASIC FINANCIAL TRANSMISSION RIGHTS One of the new instruments intended to help the

Meraz sees FTRs as a type of insurance that guarantees

development of the wholesale electricity market is

security to electricity purchasers because the price of

financial transmission rights (FTRs). The Ministry of

electricity will not vary when the transmission lines become

Energy’s Undersecretary of Electricity, César Hernández

congested. “With the FTRs, purchasers have the variations

Ochoa, discloses that incidents such as the Enron

in price dictated by congested lines covered. This is

Crisis in California were the catalyst for the creation of

particularly important because Mexico will be implementing

innovative regulations that take into account nodal prices

a nodal market, which entails regional price variations.” In

and congestion costs. Financial transmission rights can

cases where generators wish to sell their electricity in the

mitigate the latter and they have been tested and proven

consumption point, they will assume the risk of price volatility

in other markets, such as by PJM Interconnection in the

from the purchaser. Conversely, when the generator sells in

US, which has been using this instrument for 15 years.

the generation point, then the purchaser has the option of buying its own financial transmission rights.

CENACE’s Director General, Eduardo Meraz, explains that when a line becomes congested, then electricity has to be

Since the instrument is negotiable because it is a financial

generated using more expensive plants located in other

right, explains Hernández Ochoa, it is possible to buy and

spots. “Purchasers are reluctant to pay for the variation in

sell, so a generator can buy excess energy from another

price between the two spots,” he points out. Hérnandez

party if needed to fulfill its contract. He also points out

Ochoa details that FTRs are instruments that put a price

that due to the instrument’s complexity, it will not be

on congestion so that generators can be confident of their

implemented until six months after the wholesale market

ability to deliver electricity at the established price.

is launched.

| VIEW FROM THE TOP

LOOSE ENDS POSE A THREAT TO INVESTMENT MIGUEL JÁUREGUI Partner at Jáuregui y Del Valle

Q: How have the recent political environment, global

Q: Do you see enough urgency in the government to make

economy, and dropping oil prices affected the mindset of

sure the country has an adequate rule of law?

companies looking to invest in the Mexican energy industry?

A: I do not believe the Mexican government is fully

A: The thought process of investors has been impacted,

prepared, although I do not doubt that there are enough

and we see this clearly in company investment procedures.

qualified personnel on board. However, issues like money

The current situation was neither expected nor speculated

laundering, tax evasion, irregular economy, and extinction

upon, so it turned out to be far more complex and regulated

of ownership are brought to mind. We are finding

than anticipated, with a lack of contractual freedoms. The

ourselves with a system that cannot even process the

way in which private players can participate with PEMEX

number of requests the government is claiming to receive,

has to be further defined, since the differences between

causing the portal to become bottlenecked. Are these

the two types of contracts players can use are not precise.

responsibilities the government can withstand, bearing

Further detail is needed on how the profit sharing will

in mind the situation it is in? I do not think so, and it is

work in terms of where the cut will be, the perception

important to deal with the process in an adequate manner,

of participation, tasks players must carry out to earn

since there is a lot at stake, such as people’s livelihoods,

participation, and finally, requirements of PEMEX. This

businesses, and economic losses.

lack of clarity may be attributed to several factors, ranging from policy to private interests, but at the end of the day,

Q: In your opinion, which factors must the government take

the contracts have to be perfectly defined so as to leave no

into account in order to ensure a stable energy sector?

room for interpretation or mistakes.

A: During this time the government has been juggling two aspects: policy and business. The former is abstract, so

Q: In what ways have rescission and arbitration affected

there is flexibility in whether it works, whereas in the latter,

the energy market and its main players?

there is no margin for error and it has to be addressed in

A: One area that urgently must be addressed is the

the right manner. Otherwise, it will result in a considerable

administrative rescission, which is not an easy concept for

dispute and the credibility of the government will be put

financiers of projects, investors, and players given that it

in jeopardy, since everyone will expect the outcome of the

heightens the levels of insecurity of purpose, and can be

dispute to be regulated by arbitration or the courts.

taken at a whim by the government and by the productive

enterprise of the State. Another highly complex issue

Another important variable to take into account is the

that needs to be further explored is how the arbitration

people. Some cynics may rejoice in the lack of preparedness

will play out. If we combine this lack of definition, high

and might see it as a cue to do what they please. Others

taxation threats to producers, and the backdrop of the oil

might see this lack of guidance and knowledge as dangerous

price, we see a rising wave of worry that seeps into the

factors that will interfere with their decision to enter the

decisions of the private sector, both national and foreign.

market. Companies will have to choose a camp and I hope

As it stands, the arbitrage between the price of oil and

that international and Mexican investors have clear strategies,

extraction costs is what governs in Mexico; however, if the

and are aware of how to salvage their own patrimonies and

price tag is coupled with insecurities and high taxation

how to deal with the situations appropriately. Ultimately,

rates from international market trends, then it might

the price of oil will continue to fluctuate and we cannot

discourage investment. We hope this does not occur, and

predict its significance in the Mexican economy in the next

in our experience, we continue to see a heightened interest

two years. The Energy Reform should not be seen through

in the Mexican energy industry from international players.

a short-term lens because the industry will be dealing with

PEMEX must evolve into a world class company, and it is

projects that last over 15 years. If parties sit down to discuss

freer now to be clearer in its control and operations, but it

the real consequences of the Reform, this may motivate the

must take measures to thrive on a level playing field.

government to expedite its procedures.

| VIEW FROM THE TOP

WARMING THE WATERS OF INVESTMENT JOSÉ ANTONIO PRADO Partner at Holland & Knight

Q: Now that the doors to the renewable energy market are

A: Banks are certainly willing to finance renewable energy

wide open, how do you see private investment evolving?

projects. We are currently involved in five different finance

A: CFE has to change from fuel oil to natural gas, which will

structures, in some cases we stand as the developer and

require a lot of investment. In the past few months we have

in others as a bank. Financing is a sensitive issue in this

seen investors seeking legacy projects and are carrying out

market because, from the outset, the project must have

detailed analyses of projects that fall under the previous

all the details in place in order to become bankable. We

regime. While the industry has slowed down, we have

have heard of success stories for wind and solar projects

seen new projects submitting for permits even though

that are financed by the authorities. Unfortunately, there

the regulations have not been fully established. CRE will

are some cases where developers do not consult with

request further information from these new projects as the

law firms or specialists, so they ultimately overlook some

guidance and regulations are being issued. It is important

crucial information to make their projects bankable.

to wait and gauge how the regulatory framework will look in order to evaluate the project’s level of certainty.

Q: What should CFE’s priorities be as a productive

Another trend we have identified is that the industry has

enterprise of the State? Which areas should it invest in?

a voracious appetite for PPA agreements. As it stands,

A: The whole idea is to transform CFE from an electricity

we do not want to take a project to our managing board

company to an energy company. CFE will take the place

without knowledge of how the model will be deployed.

of PEMEX Gas and Petrochemicals. On the electricity

These projects, if approved, will be there for the next 15 to

side of the business, CFE must continue developing the

20 years. We know that CFE will play a substantial role; it

infrastructure and conditions in order to provide coverage

has the money and the experience to bid for projects that

to the whole country. While 98% of the population

will generate cheaper energy, and private players will bear

might have electricity, the remaining 2% does not, which

this in mind as they compete against CFE.

amounts to several millions. CFE will continue to supply small consumers such as the commercial and residential

Q: What are the most economically viable renewable

segments but private companies will prefer to supply large

energies, and how do they prepare themselves to compete

private projects. PEMEX has announced its cogeneration

against hydrocarbons?

division and its ambition to become the second largest

A: The renewable energy market will be supported with

producer of electricity in the country. Conversely, CFE will

schemes such as clean energy certificates. The government

mark its territory within the gas industry. PEMEX and CFE

is imposing a levy upon projects that will be producing

seem to be overlapping. In my eyes this move is desirable

electricity with conventional fuels such as hydrocarbons.

given that it is part of the goal to attract foreign investment.

The market has evolved over the years; technologies have improved and prices have dropped. There is a high

Q: Which areas must be immediately addressed by the

interest in developing solar, wind, and small hydro projects.

authorities in order to ensure the growth of the energy

There is a significant piece of the puzzle missing; a solid

market?

green package must be implemented to strengthen the

A: There should be a special plan to solidify the role of

renewable market. This package must address the issues

the regulators. The regulatory issues are a crucial aspect

surrounding energy security and bankability. Mexico has

of the Energy Reform and the government should pour

an opportunity, and with the right incentives in place,

resources into supporting the regulators. If the appropriate

this market could certainly flourish. The market is in its

regulations are not issued, Mexico’s transformation will

development phase and it is yet to reach its full potential.

attract no confidence, no matter how many advantages the country possesses or how positive the environment

Q: How would you describe the relationship between

may be. It must be a clean process and the authorities are

developers and banks?

in a strong position to create a solid regulatory framework.

MAP OF THE EMERGING ELECTRICITY MARKET The new electricity market has certainly raised doubts

applies to CFE, meaning that on its own it cannot remain

among the players in the sector. Raquel Bierzwinsky,

the single multipurpose entity, but rather it will have to

Counsel at Chadbourne & Parke, sheds light on different

divest itself into different units.

aspects of how the market will operate and what companies can expect. Regarding power generation and renewables,

CFE will still remain the sole provider of transmission and

Bierzwinsky says the point to bear in mind is that a

distribution services with a few caveats. For instance,

wholesale energy market is being created. Previously, the

the fact that CFE does not have the funding to build the

market had been partially open and gave the opportunity

required infrastructure is well-known. Therefore, the law

to several market players to participate in different ways,

allows transmission and distribution companies, including

albeit not fully. “Now the market is going from semi-open

CFE and its subsidiaries, to enter joint ventures to perform

to fully open and all players will be able to participate, sell

these

to a spot market, and some generators will even be able to

are also allowed to build and operate transmission and

sell directly to qualified users through PPAs.”

distribution lines but CFE will ultimately control and bill for

services.

Bierzwinsky

says

private

companies

“Players have five years to determine if they want to continue operating under the new market or if they want to revert to the old permit. This gives companies a chance to trial the new market” Raquel Bierzwinsky, Counsel at Chadbourne & Parke

The sector is moving from a market regulated and

those services. In terms of distribution, CFE will continue

controlled by the government to a model akin to those

to be the sole provider of services to residential users and

of the US with the Regional Transmission Operators, and

qualified users, who are those that from 2014 to August of

Chile and Spain, where there is an independent system

2015 have load points or off-take needs under 3MW. That

operator. Many financial elements will be added to the

requirement will subsequently go down to 2MW, and the

market, so instead of being a pure capacity generation

following year to 1MW. She points out that the grid will

exchange market, like Mexico’s current model, now the

be operated by CENACE, an independent system operator.

market will have the more typical financial elements seen

“The idea is that if CFE is going to become a competitor, it

in open markets around the world. These include financial

should not have control of the grid.”

transmission rights, the way that the tariffs and pricing for power will be calculated, and several other elements

In terms of generation, the government wants the price of

that are new to Mexico. Bierzwinsky says that in this new

electricity to eventually reduce, particularly for the general

landscape, with the exception of those already operating in

industry, so that the country can be more competitive.

open markets, most players will have to learn from scratch.

According to Bierzwinsky, this will take time for several reasons; more generation capacity has to be built, as

Another key item, which also applies to the oil and gas

well as more transmission capacity to wheel the power

sector, is that the major energy utility in Mexico, CFE, is

to the consumption points. Nonetheless, the government

in the process of becoming a productive enterprise of the

purposely did not include any specific benefits or subsidies

State. “This means it will have to become a competitor,

for the renewable industry, thus everyone is going to have

and it will have to basically reorganize itself to become

to compete.

an entity with an independent budget and corporate

governance. That will be a significant challenge for

Bierzwinsky foresees investments in thermal conventional

CFE because it will have to reinvent itself,” comments

power plants because she believes these are more viable

Bierzwinsky, and points out that the Law of the Electricity

competitors in the open market. Bierzwinsky points out

Industry prohibits vertical integration. Companies can be

that the law does not use the word “renewable”; instead

integrated horizontally, meaning that they can have a

it mentions clean energies and it provides a long list of

holding company that can own a generator, a supplier,

technologies that can provide clean energy as a source

a power marketer, or that can enter joint ventures for

that will be able to compete, including wind, solar, hydro,

transmission and distribution. The vertical integration rule

geothermal, clean coal, and others.

Given that there are no subsidies for clean energies, the

sake of having one under the old rules, but still do not have

only benefit that the law provides for these energy sources

the means to build and operate their project.

are clean energy certificates. The government is giving a three-year period for the open market to get established

The

legacy

projects

have

the

right

enter

and for players to get used to a wholesale electricity market

interconnection agreement for 20 years under the old

and the trading of the certificates. It is not an immediate

rules and interconnect according to the old conditions.

obligation. This is another element that is significant for

“This is significant for renewable projects because those

renewables.

that already have a permit for self-supply or are on the small producer scheme, which means they sell directly to

The law respects granted permits to the extent that a

CFE at the node price, and already have a PPA, do not have

market player, who had a permit under the old law or had

an obligation to participate in the wholesale market with

applied for a permit and paid the necessary fees prior

everyone else. I think those projects will continue to be

to August 11 2014, will be able to operate under the old

successful because these rules have not changed.”

regulation for the term of the permit. “All these players that are already operating have the right to continue doing

Bierzwinsky highlights that the law allows players with

so, as forcing existing players to suddenly switch would

a legacy permit to switch to one of the new generation

destabilize the market,” explains Bierzwinsky. Players who

permits. “Players have five years to determine if they want

have one of these permits have to consider two things.

to continue operating under the new market or if they

First of all, permit holders that were not in operation

want to revert to the old permit. This gives companies a

had until October 9 2014 to notify CRE if they wanted

chance to trial the new market, providing more certainty

to continue to pursue their project under the permit.

to renewable power companies because they will be able

Companies that did not do so forfeited their right. The

to rely on the existing interconnection rules for renewable

law also states that permit holders have until December

power projects.” Those rules provide several benefits, such

31 2016, to provide evidence that they have financing for

as a stamp tax wheeling tariff, meaning that there is a set

the entire project or that they have already laid out 30%

price for the wheeling of the power regardless of location or

of project costs. Bierzwinsky explains that the objective is

distance. Renewable energy projects can certainly benefit

to weed out projects that applied for a permit just for the

from this, as they tend to be located far from the load points.

GLOBAL EXPERTISE TO GUIDE CLIENTS Since the passing of the Energy Reform, law firm

understand its implications.” She believes it will take 12 to 18

Chadbourne & Parke has been receiving a lot of calls from

more months for everything to settle and for players in the

existing and potential clients. “Many of our clients worldwide

industry to fully understand the extent of these changes.

are interested in the Mexican market. Right now we are performing several educational tasks because of the nature

Bierzwinsky is confident that Chadbourne & Parke is more

of the new market,” says Raquel Bierzwinsky, Counsel at

competitive than other firms because the expertise it

Chadbourne & Parke. She notes that clients who are already

acquired after 30 years of working in the energy sector

established in Mexico have a better understanding of the

around the world has provided the firm with a deep

new market. Even though they know the institutions and

understanding of how markets work. This statement can

have contacts, they have questions because they do not

be corroborated by the fact that Chadbourne & Parke was

entirely understand the full extent of the legislation.

awarded the ‘US Energy Award for 2014’ by The Legal 500: United States 2014. “We are already familiar with

The firm is also helping clients structure their potential

plenty of the changes that are occurring here and, even

operations. If they have existing projects, Chadbourne

though this is brand new in Mexico, we know how the

& Parke helps them define whether they want to remain

concepts are structured,” says Bierzwinsky. “Even though

under the old framework or if they want to venture into

we are learning too, we have the expertise to guide our

the new one. According to Bierzwinsky, everyone is part

clients through these changes and help them understand

of the learning process, even the authorities because

what the opportunities will be and how the new market

regulators like CRE and CNH still have to get to grips with

regulations will affect their businesses. In that way, I think

their roles. “The wholesale electricity market will not start

we are in a strategic position because of our experience in

operating until mid-2016, so the government is allowing this

other countries. We can also help clients that work in other

period of time for everyone to adjust and understand their

markets enter the Mexican market and understand or

capabilities. It is such a ground breaking reform that I think

familiarize themselves with the changes that are occurring

there is only a few people in the Ministry of Energy that fully

here,” she concludes.

LEVELING THE FIELD THROUGH CLEAN ENERGY CERTIFICATES Imagine a soccer team with unlimited access to resources,

generators will be assigned one certificate per megawatt-

with the ability to monopolize the world’s greatest talent.

hour produced from clean sources. The generators that

With all the Messis, Ronaldos, and Pélés imaginable, the team

either do not generate clean energy or that operate on

would be able to dominate the playing field unchallenged.

a mix will also be assigned CELs but under a different

This is the situation in which CFE and PEMEX found

formula. Beltrán claims players are required to present

themselves prior to the 2013 Energy Reform, but now that

their certificates every three years. This gives players the

the private sector is able to enter the market, the transfer

chance to establish the number of certificates necessary

window is wide open and a new arena has been formed.

and catch up on the quota, creating the incentives to make

As part of the endeavors aimed at creating an electricity

sure that the rules will not change and that the terms remain

market, the government, in collaboration with the private

fair. CEL requirements will not be enforced until 2018.

sector, had to foster the creation of an environment in which

Bierzwinsky explains that the government is giving a three

all the actors could operate under the same conditions. To

year period for the open market to get established and for

the extent that there are no specific subsidies or benefits

market participants to get used to the idea of a wholesale

granted by the government, a question mark remains over

electricity market and the trading of the certificates. “It is

how renewable energy projects, particularly those that

not an immediate obligation, and I would assume it would

are not legacy projects, are going to be able to compete.

be dramatic for all these companies to have to adjust to this

Leonardo Beltrán, the Undersecretary of Energy Transition

in a very quick period.”

and Planning, emphasizes the creation of tradable clean energy certificates as a solution. “The point of these

As stated in Article 165, Fraction VI, of the Law of the

certificates is to level the playing field so that new teams

Electricity Industry, CRE will be able to impose a fine of

can come and develop their game.”

between six and 50 times the minimum wage for each megawatt-hour of noncompliance in the acquisition of the

The

certificates

work

economically

conservative

cap-and-trade

scheme,

certificates. “CRE will oversee the imposing of the fines.

approach

control

The Commission will also administer the certificates and

greenhouse gas emissions. This method can be described

fine companies that do not deliver certificates at the end of

in simple terms. The “cap” sets a maximum allowable

an established period,” states Former CRE Commissioner

level of pollution, and if companies exceed their emission

Francisco Barnés. State-owned companies, in addition to

allowance, they are penalized. The “trade” refers to

paying the fines, will have to face the public responsibility

the creation of a market for carbon allowances that will

of non-compliance with targets. Barnés explains that CFE

incentivize companies to comply or undergo restrictions.

will have to make sure that it has clean certificates for the

next 25 years, for which every year it will be obligated to The less a company emits, the less it pays, so less pollution

open bids through CENACE. “The existing contracts and

is in its economic interest. Pollution cuts are transformed

plants are not enough, so CFE will have to convene bids.

into profit, making them attractive and powerful incentives.

This approach will provide certainty because it will replace

If the amount of clean energy in a generator’s mix is below

the IPP contracts that CFE used for renewables.”

the established percentage, it will have to buy clean certificates from an actor whose clean energy production

Richard Wells, President of the Lexington Group, was

is above the established target. This will create a market

involved in the group that proposed cap-and-trade in the

and those who need to buy certificates will push for a low

US for the control of sulfur dioxide emissions. “The US was

price, forcing the prices to drop and helping to achieve

dealing with acid rain, so the electric utilities were burning

the established goal at the lowest cost. The use of clean

low-sulfur coal and selling it in New England. EPA wanted

energies is incentivized because users obtain both energy

to regulate it, so they performed an analysis on the cost of

at low prices, and energy certificates.

regulation,” he recalls. “We decided to set up a market where the electric utilities could exchange the right to emit. This

According to the terms stated in Article 123 of the Law of the

meant that the most efficient ones could produce more and

Electricity Industry, suppliers, participating qualified users,

sell their reductions to the less efficient ones.” Wells believes

and end users who obtain their power from decentralized

the system worked incredibly, and this is backed by several

sources, as well as interconnection contract holders, both

figures. According to the Environmental and Health Results

public and private, are expected to comply with the Clean

of 2012, the acid deposits between 1989 to 1991 and 2010 to

Energy Certificates (CEL) requirements. Raquel Bierzwinsky,

2012 decreased by 59% across the Eastern US. Air quality

Counsel at Chadbourne & Parke, explains that energy

also went through a radical change between the periods

1989 to 1991 and 2010 to 2012, with average particulate

they need without the need for feed-in tariffs or other

concentrations of sulfate decreasing by 59% in the Mid-

incentives. Jesús Serrano, Commissioner at CRE, says

Atlantic, 57% in Midwest, and 63% in the Northeast of the US.

CELs monetize all the support required by renewables, therefore, adding another supporting mechanism in a

Wells says the cap-and-trade system was replicated

competitive environment would decrease the amount

to deal with climate change when this became a global

of economic resources resulting from CELs. “Since

issue. Initially he considered the scheme promising, but

these certificates are designed in a way that demand

he changed his mind for a number of reasons. “In sulfur

and supply will determine their value, it is expected that

dioxide, there are around 100 sources, whereas in carbon,

additional revenues obtained by clean energy generators

there are millions of sources. In sulfur dioxide, there

will be enough to cover the difference in costs against

was one country, while in carbon dioxide, there are 194

conventional

countries. Kyoto was doomed from the outset. We wasted

incentives are given, the aforementioned difference will

ten years of carbon reduction trying to make it work, and

decrease, and the price of CELs will decrease too,” he

now each country is making individual commitments.”

explains. In this sense, the total additional revenues for

generation

technologies.

additional

clean energy generators will remain the same. “Finally, we As for the initiatives Mexico has pushed, Wells praises

have to keep in mind that cash support mechanisms do

the carbon tax, mainly because it aligns with the Porter

not yield fewer benefits than material support, so CELs

hypothesis,

guarantee the most results, mainly participation in clean

stringent environmental regulations gain an advantage

energy generation, with a given social cost, which is the

because they are forced to adjust. “Carbon tax imposes

price of the certificates.”

which

states

that

countries

with

a short-term loss that drives innovation, something that we have to push in Mexico. When other countries follow

Barnés is also confident about this system because it has

suit, Mexico will have an advantage because, eventually,

yielded positive results in certain areas. In addition to

everyone will require a carbon tax.” On the other hand,

decreasing carbon emissions, he believes they will harness

Wells thinks green certificates will be more problematic

a fruitful market and push the development of renewables.

because they would have to be industry-specific in order

In this vein, Beltrán says that due to the international nature

to avoid complications and prevent the certificates market

of the electricity industry, companies are used to playing

from collapsing. “The first obstacle is establishing a

outside. Now the sector is bringing international practices to

baseline for green certificates. It was simple enough with

Mexico, taking into account the lessons learned from other

sulfur because there were only 100 plants and they all had

countries’ experiences. Eduardo Reyes, Director of Energy

the same technology. In a much broader sector, it becomes

and Infrastructure Strategy at PwC, says one of the biggest

extremely complicated. I am not sure that I see the point of

risks similar certificates have encountered in the past is the

cap-and-trade because a straightforward tax would have

price volatility, but if the mechanisms begin with long-term

the same effects.”

tenders, then there is a long-term vision of the price, and thus the volatility of the prices is reduced. However, other

There is a considerable amount of skepticism surrounding

experts like Bierzwinsky believe it will take a couple of years

clean energy certification. The authorities, however,

to determine whether the clean energy certificates alone

are confident that CELs will give renewables the push

will be able to boost the renewable energy industry.

The Guidelines on the Criteria for the Awarding of Clean Energy Certificates and the Requisites for their Acquisition states that CELs will be awarded for a 20-year period to: I.

Clean energy centrals that begin operations after August 11, 2014.

II.

Power plants that generate energy from clean sources that began operations before August 11, 2014, provided they have increased their clean energy output. In this case, the 20-year period will begin the moment the project aimed at increasing the clean energy output becomes operational. The amount of CELs will correspond to the generated clean energy that exceeds: a) The average value of the clean energy generated by the power plant between 2012-2014, which only includes the period in which the plant has operated, and b) The average value of the clean energy generated by the power plant ten years prior to the expansion project, which only includes the period in which the plant has operated

III. Clean energy centrals whose capacity was excluded from a Legacy Interconnection Contract with the aim of including it in an Interconnection Contract in accordance with the law, for the period in which the contract holder has the right to include said capacity in the Legacy Interconnection Contract. In this case, the number of CELs will correspond to the amount of clean energy generated with said capacity.

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NEW ELEMENTS AND MISSING PIECES IN THE ELECTRICITY MARKET FRANCISCO VALDÉS Partner at Cervantes Sainz Q: What are the most important elements in the Law of

delivery points allowed under an interconnection agreement.

the Electricity industry?

Basically, the main change is that CFE will no longer have

A: The legal framework is entirely new in the sense that it

control over these matters. Instead, the industry will have an

shifts the way private investment is made in the electricity

independent arbitrator who will set the rules and define the

sector, changing the way projects are now being developed.

way an interconnection has to be performed.

Essentially, this new scheme motivates the whole industry to find any kind of investor, whether you are a producer, a

Q: Which areas do you believe need to be addressed

seller, or a full service company. From now on, players will

before the wholesale electricity market is launched?

be operating as if in a wholesale market.

A: The rules open three different areas: capacity, energy, and clean energy certificates. The more complex is the capacity

Regarding the energy market, now there is no obligation

market, which is designed to prevent shutdowns in the system.

for acquisition of services from CFE, since every company

The tender’s structure has to be defined in order to deliver

can participate in all segments of the value chain. Similarly,

certainty to basic-supply providers. It is also unclear how the

there is a third and independent party who will decide how to

market of clean energy certificates will function, when the

proceed regarding the distribution of electricity. CRE will have

certificates are going to be issued or at what price, and if

the duty of finding an interconnection point, indicating the

the acquisition will be a fiscal obligation or not. Likewise, we

kind of facilities that have to be built in order to interconnect

do not know if the market guidelines will provide a specific

a power source to the grid, and determining the number of

alternative to the current energy banking scheme.

THE FUTURE OF TARIFFS IN THE WHOLESALE MARKET In spite of the uncertainty entailed in moving from a single-

also makes them inefficient. Although subsidies are being

player industry to an open market, players are excited

used ineffectively, charging too much is also detrimental. The

about the creation of a wholesale market in Mexico. In the

tariffs must be set at the right level,” she comments.

view of Verónica Irastorza, Principal at NERA Economic Consulting, one of the benefits of having a wholesale

For Irastorza, the current industrial and commercial tariffs are

market is that there will be more transparency. This is a

relatively expensive, so qualified users have incentives to look

positive element for investors, as it will give them access

for cheaper options. “It will be interesting to see how these

to crucial information such as appropriate project location

qualified users start moving to the market and participating

or the status of the transmission system.

in it. Now, it will be even easier for them to find an alternative to CFE.” She points out that it will take longer for smaller

In Irastorza’s opinion, another positive outcome of the

users to join the qualified user scheme, as experience from

Energy Reform is that now the regulator, CRE, will set the

other markets indicates that retail competition for small

tariffs instead of the Ministry of Finance. She is confident that

customers has not been of huge importance. However,

CRE’s involvement will move the tariffs in a more efficient

Irastorza foresees the basic service supply being conducted

direction, especially considering that until now, tariffs have

in a more competitive way. “CRE is going to supervise the

not reflected actual production costs. “Today, subsidies

alternatives, making sure users pay efficient and competitive

are not directed to the players that need them the most.

tariffs and that they are not being overcharged. That is where

Likewise, some tariffs such as DAC are too expensive, which

I think users will see the benefit of the market.”

At the moment, the Ministry of Energy is analysing the

Ultimately, CENACE will finalize the settlement between

methodologies that will best fit the national scenario,

these two parties at the market price of each specific

exploring additional incentives for the production of

hour of any given day. The difference will arise when, for

renewables. The Minister of Energy has sent the first draft

instance, the market establishes that on a certain day at

to the Federal Commission of Regulatory Improvement

11pm, the price of energy was US$10 per megawatt-hour

(COFEMER), where interested parties are allowed to review

and you set the price with your off-taker at US$12. The

the draft and provide specific comments or suggestions

US$2 should be the difference between what CENACE is

on how the market should be working.

going to collect from the off-taker and what it is going to pay the producer. The challenge comes when the remaining

Q: How will private parties engage in the commercialization

US$2 are to be sold through a mechanism that needs to

of electricity?

be agreed exclusively between both parties, without any

A: Companies can operate through three alternatives

participation of the authorities.

that were not available before the approval of the new legislation. The first option is to enter through a bilateral

Q: What makes Cervantes Sainz more suited to help

contract, in which two different parties agree to terms

clients in the electricity sector than its competitors?

and conditions to either buy or sell electricity. Another

A: I acted as an Executive Secretary at CRE for five years,

approach is to participate in tenders, and the third one is

and during this period I was involved in discussions and

to sell directly in the spot market. The bilateral contracts

decisions related to project developments, including

are similar to the off-taker model, but CENACE will play an

renewables. We have a strong professional relationship

important role in distributing the production contemplated

with the authorities in the sector, including the Ministry

in the contract. At the end, the physical transaction is made

of Energy, the Ministry of Finance, and CRE. Furthermore,

through the national grid, which CENACE operates, and

the most important role we have played is being a legal

at the same time this regulator dictates which facility the

advisor of the Mexican Business Council. Our firm is well-

electricity needs to be dispatched from and in what order.

positioned, and we have been approached by potential

If a company signs a bilateral agreement, it will set a selling

investors and several clients working under the legacy

price for its off-taker. Afterwards, the enterprise will have

scheme that are studying whether to switch to the new

to declare to CENACE its bilateral agreement operation.

scheme or not.

Committed to Mexico and the Energy Sector

CMS_LawTax_Negative_28-100.

Practical and commercial energy lawyers advising the energy industry locally and around the world.

Woodhouse Lorente Ludlow, S.C. www.wll.com.mx T +52 55 2623 0552 CMS Cameron McKenna LLP www.cms-cmck.com T +44 20 7367 3000

www.cms-cmck.com

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STRONG AGENCIES MUST ENSURE LEGAL ENFORCEMENT GABRIEL CALVILLO Partner at Carswell & Calvillo Q: The Constitution guarantees the right to a healthy

to the Chamber of Deputies, and the final version is being

environment. How has the Energy Reform followed

debated by the Environmental Commission of the Chamber

through in this obligation?

and by PROFEPA. The law proposes the creation of a new

A: The Constitutional Reform was designed not only to

PROFEPA, since at the moment it does not exist in the

promote investment in the sector, but to encourage human

law but as an administrative regulation. If we compare

rights that had been lacking for some time in Mexico. This

PROFEPA with Environment Canada or EPA from the US,

has a huge transcendence and it irrevocably changes

we see that Mexico clearly lacks some basic tools. For

the rules of the game, especially taking into account the

example, PROFEPA cannot initiative collective actions, and

political system ruling Mexico. The biggest changes will

it does not have an area dedicated to civil enforcement or

be the way laws will be enforced and how they will be

technical experts. This reaches deep into the constructs of

interpreted by the arriving companies. When Mexico joined

PROFEPA, transforming the agency from one dedicated

NAFTA, a corresponding environmental agreement was

to environmental protection to an agency defending the

signed to guarantee that the investments arriving in Mexico

environmental human rights of Mexicans. The theme is not

would adhere to environmental human rights. It has been

only in solving the conflicts between PROFEPA and private

over two decades since NAFTA was ratified, and the Energy

investors, but also in involving the affected communities.

Reform reflects similar social demands. Mexico wishes to

Companies entering the hydrocarbons industry cannot

develop an energy market but not at the expense of the

operate because there are social conflicts in the area. The

environmental human rights of Mexicans. We are measuring

agencies are not addressing these community problems

how companies view Mexico in terms of guaranteeing that

and are only focusing on legal matters.

the investments will be socially responsible. Q: Do you believe the creation of agencies like ASEA Q: How would you describe the capacity of PROFEPA

is beneficial and necessary for the enforcement of

to enforce the laws, and which areas must be addressed

environmental responsibility?

urgently?

A: We have been working with Congress since 2008 to

was positive, given the level of specialization of the

write and issue a new organic law for PROFEPA and it

hydrocarbons industry. The drawback we identified was

has been under discussion since then. It was presented

that we need a much stronger PROFEPA rather than

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intention

create

agency

ASEA

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MAS DE 2,600 TERA WHR generados a lo largo de 6 años.

dividing competencies between agencies. When we were

guidance of Guillermo Haro Bélchez, we have seen the

consulted by the Senate during the creation of ASEA, we

doors open and this organic law has been reactivated.

suggested incorporating the agency within the body of PROFEPA. While this might sound ambitious, it has been

Q: What is the process for punishing companies that inflict

carried out in other agencies in the past. For example, the

environmental damages and what are the complications

Federal Investigation Agency was within the Office of the

involved?

Attorney-General of Mexico.

A: The community is interested in companies and authorities taking responsibility for the direct and indirect

Dividing the competencies between agencies has created

impacts the accident has generated. PROFEPA operates

duplicity of functions that companies in the private sector

under the criteria that it can only act administratively with

find difficult to navigate. For instance, a company with

laws expedited prior to the Environmental Responsibility

contracts in the hydrocarbon industry might not know

Law. If the agency is dealing with soil contamination,

which entity to approach for permits, raising the question

then it only applies the administrative procedures of the

of what defines membership in the hydrocarbons industry.

law pertaining to waste management. Then the culprit is

Imagine there are two companies, one is a hydrocarbon

ordered to repair the damages. To repair the damage, a

player and the other is not, and both carry out identical

soil remediation order is carried out. While it might seem

environmental violations. The non-hydrocarbon player can

simple, it can actually turn into an administrative nightmare.

be fined MX$3 million (US$200,000) while its counterpart

Administrative laws are theme-based and revolve around

can pay up to MX$600 million (US$40 million). The model

water, residues, forests, and wildlife, and each are partially

that has been created for the agency is unconstitutional.

integrated into the reparation payments.

We want the agencies to work efficiently in solving the problems, and this is important for citizens and investors. In

For soil remediation the only order PROFEPA can make is

order to generate successful businesses and investments,

for the removal of pollutants from the soil. Yet what happens

we need strong agencies.

if the damage extends to water? At this stage CONAGUA takes charge of the administrative processes. However, what

Q: What are the barriers Carswell & Calvillo has faced

happens if it is discovered that wildlife was also affected?

during the process of proposing this organic law?

PROFEPA must return with a different administrative order

A: The main barrier we have encountered is PROFEPA itself,

to apply a new law. This is an administrative complication has

and we cannot understand why previous administrations

been addressed by the Environmental Responsibility Law.

of the agency refused a law that gave them multiple tools

With this law it does not matter which authority intervenes,

other than the system PROFEPA currently has. The law

and remediation is carried out in a single integrated

would give PROFEPA additional tools such as advisory

administrative process. It is difficult for our clients who

reports in order to carry out collective actions. We have

wish to resolve a conflict to work with an agency that only

been working to reform the Environmental Responsibility

partially solves the problem. Fortunately, the judicial power

Law. The main barrier we have been combatting is the

is beginning to endorse change by informing the agencies

agency’s inertia, but with a new administration under the

that they must fully enforce the law.

info@solarcell.mx

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| VIEW FROM THE TOP

ENVIRONMENTAL RIGHTS CLAIM THEIR PLACE GUSTAVO ALANÍS ORTEGA Director General of CEMDA

Q: The Mexican Constitution guarantees the right to a

The message was short but clear, and we now have to

‘healthy environment’. Do you think the Energy Reform

see enforcement by SEMARNAT, PROFEPA, and ASEA.

met the expectations of this right?

In 1992, the government created PROFEPA during the

A: The Constitution grants the right to a healthy

NAFTA negotiations as a result of US concerns about

environment, to health, and to water, with these three

Mexican environmental laws. The body was created but

rights harmonious to each other. At CEMDA, we believe

no meaningful enforcement was put in place. Now, 23

these aspects were not prioritized in the drafting of the

years on, the situation remains the same. With ASEA, we

Energy Reform. If those rights are not fully protected,

should learn from the lessons of the past about how to

it will not be possible for the Reform to have positive

create institutions without them being seen as an obstacle.

effects on the economy. I think the government missed

For example, governors blame PROFEPA for a lack of

the chance for a fully integrated Reform, as this legislation

regional investment due to environmental constraints.

contemplates many aspects but not in complementary

Most recently, the governor of Sonora publicly rejected

ways. Even though it will be positive for the energy sector

PROFEPA for trying to enforce the law. If Mexico cannot

and for foreign direct investment into Mexico, it is not

begin to respect the rule of law, the general public will

possible to achieve promising economic conditions while

have to intervene and pressure our institutions for change.

treating the environment poorly. Therefore, we need to ensure that environmental laws and regulations are put

Overall, I view the Energy Reform in a positive light, and I

in place and fully enforced. This is a huge challenge, as

believe things will move in the right direction, although this

SEMARNAT cannot handle all these obstacles on its own.

remains unclear because the economy remains a priority. The

If SEMARNAT cannot handle overseeing PEMEX, which is

government needs to demonstrate its serious commitment

just one company, it remains to be seen how ASEA will

to the environment and to safeguarding natural resources.

oversee ten or more companies. Institutionally speaking,

My real concern is the political will, or lack thereof, at the

ASEA must be created with full support for its HR, finances,

highest levels of government, since this directly affects

and infrastructure. If not, it will simply become another

change, regardless of documents such as the National

institution with no impact or influence.

Climate Change Strategy. We need to voice our concerns and push the president into embracing an environmental agenda.

We have no choice but to take the environment seriously, due to the far-reaching implications any damage creates.

Q: Is the general public educated enough about the

The second presidential report was mostly a political

actions it can take?

message and it barely touched upon the environment,

A: Unfortunately, I do not think society understands the full

although

his

scope of the reforms. Plans for the construction of a new

government was committed to the preservation of natural

President

Peña

Nieto

stressed

that

airport in Mexico City were recently announced but nobody

resources, and that sanctions would be imposed on those

has seen the preliminary technical studies that back up this

who pollute. Now we have to see this political message

decision. This means that NGOs, think-tanks, and other

being enacted in SEMARNAT’s actions, with support from

entities must act as the voice of the Mexican public. Beyond

PROFEPA and ANSIPA.

this, the federal government has poorly communicated the full impact of the Energy Reform, the secondary laws, and

Q: Do you believe the government ever considered social

the fallout of electricity prices. There is still an opportunity

benefits to be a priority for the Energy Reform?

for the government to send out the message of how these

A: President Enrique Peña Nieto has barely touched upon

legislative changes will benefit the population.

the environment. However, he did say that his government

was committed to the preservation of natural resources

Even though the reforms are taking place on a federal

and sanctions were going to be imposed on polluters.

level, states and municipalities should have a say. There

are instances, such as in land use and construction permit

As well as economic sanctions, which can reach US$4

disputes, where municipalities can intervene. A problem

million, other sanctions can be imposed, such as the

arises when things are dealt with at the federal level and

revocation of concessions or the approved environmental

are neglected at the state or municipal levels. The way

impact assessment. There are also four modalities for

agencies and institutions deal with this discrepancy is

shutting down a project: partial, total, temporary, and

crucial because it can provide opportunity for corruption,

definite. Plenty of administrative sanctions are available,

and local governments should be taken seriously due to

and in some severe cases criminal charges can be brought

their ability to halt projects.

through the Attorney General’s Office. A party may fall foul of the Law of Environmental Responsibility or may be sued

Finally, the question of where civilians can go to have their

in a civil case and forced to pay damages, and class actions

environmental concerns addressed is a complicated one.

are another possibility. The main problem, however, is that

However, there are many legal mechanisms people can use,

these mechanisms are not being put into practice. Overall,

such as amparos, reviews of sentences, or nullity suits. For

I would say these sanctions have had little consequences

instance, the environmental impact assessment process

over the past few years.

is detailed in Articles 28-35 of the Federal Environmental Law. Within this process, people have the right to a public

Q: Is there a risk that the environment will never be seen

consultation and to an informative public meeting, where

as a top priority?

developers present projects before the larger population.

A: Education, crime, and employment are important subjects

Even though these laws exist, nobody can guarantee that

that should be at the top of the public agenda. However,

the public’s concerns or suggestions will be taken into

the environment must be at the same level or even higher.

consideration.

Everything stems from nature and this country has not fully understood how important nature is. We need to change

Q: What does the government need to do to make sure

the way we think about the environment and the way we

that negative externalities are being sanctioned?

drive public policy in order to integrate the environment

A: The general population is the first to feel negative

into the country’s productive activities.

externalities because of the quality of the water or air, and the way these impact the public’s health. Every year

The first draft of the Energy Reform put some protected

in Mexico, 14,700 people die due to the poor quality of

areas at risk because land use for energy generation was

the air, according to WHO, and the country lacks a policy

made a priority. CEMDA was integral in the campaign to

to address this issue. The public is aware of the negative

change this clause because protecting natural areas is a

externalities, but I do not think the public is aware of how

priority for our organization. CEMDA was created mainly

to address these issues or which organizations to approach

because we wanted to work on the compliance and

for assistance.

enforcement of environmental regulations in Mexico.

Mexico’s energy sector has traditionally been defined by two names. In the aftermath of the Energy Reform, CFE and PEMEX must undergo a transformation in order to become productive, efficient, profit-seeking enterprises of the State. The opening of the energy sector created the opportunity for these companies to increase their scope, with CFE adopting a more prominent role in the natural gas segment, and PEMEX entering the power generation sector through cogeneration plants. Given the incursion of new players in Mexico’s power industry, these productive enterprises of the State must align their strategies with the goals set forth by the government, while simultaneously maintaining their position as the country’s leading energy companies in an open market.

The following chapter details the strategies and roles of CFE and PEMEX in the electricity segment under the new legislative structures. Additionally, the heads and representatives of some of these companies’ most trusted suppliers narrate their experiences working with these two giants and explain the products and services they offer. The chapter emphasizes information technologies, as the two State-owned companies increasingly depend on these instruments in their quest to become more efficient and outperform international standards.

CFE & PEMEX

CHAPTER 3: CFE & PEMEX 52

VIEW FROM THE TOP: Enrique Ochoa Reza, CFE

VIEW FROM THE TOP: Emilio Lozoya Austin, PEMEX

AGENCY SPOTLIGHT: ASEA

EXPERT OPINION: CFE

EXPERT INSIGHT: César Hernández Ochoa, Ministry of Energy

INSIGHT: Miguel Jáuregui, Jáuregui y Del Valle

VIEW FROM THE TOP: Francisco Barnés De Castro, CRE

ANALYSIS: Predicting the Credit Ratings of CFE and PEMEX

VIEW FROM THE TOP: Dr. Nydia Suppen Reynaga, CADIS

INSIGHT: Mauro Mendes, WEG

VIEW FROM THE TOP: Reynaldo Yruegas, Microsoft

TECHNOLOGY SPOTLIGHT: Fluke Dominion Mexico

VIEW FROM THE TOP: Javier Cordero, Oracle México

VIEW FROM THE TOP: Dario Labattaglia, Itron

VIEW FROM THE TOP: Juan Ignacio Rubiolo, AES México

| VIEW FROM THE TOP

CFE ALREADY ON THE PATH TO TRANSFORMATION ENRIQUE OCHOA REZA Director General of CFE

Q: What progress has been made and what further steps

investment for these developments is expected to equate

need to be taken to complete CFE’s transformation into a

to around US$5.2 billion. Natural gas represents an ideal

productive enterprise of the State?

energy source and is quickly gaining ground in the energy

A: The historic Energy Reform has resulted in CFE’s

market. The feedstock is both economically viable and

evolution from Mexico’s sole electricity provider to a

more environmentally friendly than the fuel sources that

company competing in an open market for the first time. On

were previously used.

top of its continued activities generating and distributing electricity, CFE will be allowed to commercialize natural gas

Tendering processes for the seven combined cycle power

as a result of the Reform, an activity that was traditionally

plants are ongoing, and to date, the contracts for three

PEMEX. CFE will therefore become a major supplier of

power plants have been awarded to three different

natural gas to the Mexican market, while simultaneously

companies. Once completed, these plants will add

using that same supply to power its generation facilities.

5.3GW of capacity to the country’s electricity grid. CFE is also developing 15 renewable energy projects worth

Increased competition with new companies for the first

over US$4.8 billion: two hydro projects, five geothermal

time highlights an important change in the electricity

projects, and eight wind projects.

market. Expensive, environmentally damaging fuels are being replaced with cleaner, cheaper feedstocks such

Q: What investments and projects is CFE carrying out in

as natural gas and renewables. The over-dependence on

the short term in order to strengthen the development of

inefficient fuel sources for power generation has long

renewable energies?

been acknowledged; however, the results of our efforts

A: Between 2015 and 2018, CFE will develop 15 renewable

to transition to alternative feedstock have only recently

energy projects that will represent an additional 2,700MW

become apparent. Between 2012 and 2014, CFE reduced

of installed capacity, with an estimated total investment of

its fuel oil consumption by 43% and this was followed by

US$4.7 billion. CFE will develop five geothermic projects

a substantial decline in electricity rates from June 2014 to

to equal around 130 MW of installed capacity, with an

June 2015. Industrial consumers have witnessed rates drop

investment of US$252 million. These developments

by 25-35%, commercial rates have decreased by 11-22%,

will increase CFE’s geothermic installed capacity by

and household rates between 11-12%.

15%. Currently, there is a geothermal power plant being developed in Puebla (Los Humeros III Phase A) and

What

infrastructure

investments

does

Mexico’s

electricity grid most urgently require?

an additional one (Los Azufres III Phase II) is currently undergoing the tendering stage.

A: CFE has more than US$17 billion in investments planned for priority infrastructure projects that aim to fulfil levels of

Likewise, with the new Law of Geothermal Energy, the

supply to address the booming electricity demand. These

geothermal energy generation sector now has the solid

include 11 natural gas pipelines (US$5.2 billion), seven

legal framework required to attract private investment.

thermoelectric power plant conversions (US$200 million),

Under these new regulations, CFE is given the opportunity

seven combined cycle power plants (US$6 billion), 15

to retain its exploration activities within 13 geothermal fields

renewable power generation projects (US$4.8 billion),

that have an estimated potential of 448MW. In addition to

and a combination of seven transmission lines and nine

the exploration permits, CFE has five geothermal energy

distribution projects (US$1 billion).

concessions: four for continued exploitation of CFE’s geothermal plants (Cerro Prieto in Baja California, Los

Between 2015 and 2016 alone, CFE plans to complete

Azufres in Michoacan, Los Humeros in Puebla, and Tres

projects

Vírgenes in Baja California Sur), and a new concession for

amounting to around 2,300km of pipelines, and the total

the exploitation of a geothermal field in Cerritos Colorados,

natural

gas

transportation

infrastructure

Jalisco. With these developments, CFE will expand Mexico’s

transformers, and the construction of 1,437km of circuits

geothermal potential by increasing its installed geothermal

will be prioritized. These projects, focused solely on the

energy capacity to reach 1,300 MW.

modernization of the country’s transmission and distribution networks, represent a total investment of around US$1 billion.

In terms of other technologies, CFE will also develop two hydropower projects. One will be a brand new facility

As a result of ongoing infrastructure modernization,

located in Chiapas called Chicoasén II, and the other

operational losses are rapidly being reduced. In 2014,

will be a revamp of an existing power plant in Temascal,

CFE registered an operational loss of US$2.1 billion, a 30%

Oaxaca. These will add 254MW of installed capacity and

decrease compared to 2013. Factors contributing to these

will require an investment of US$412 million. These projects

developments include the increasing natural gas supply

will increase CFE’s hydroelectric installed capacity by 2%.

to power generation facilities from pipelines such as Los

Moreover, CFE is currently developing eight wind power

Ramones, as well as a year of high rainfall. As a result, the

projects that equate to 2,383MW of installed capacity, with

level of hydroelectricity production was high throughout

a total investment of more than US$4 billion. These will

2014, which in turn led to efficient electricity production

increase CFE’s installed wind capacity by almost 400%.

and lower prices for consumers. In 2014, electricity sales

One of these wind projects, Sureste I Phase II, was brought

rose by more than 5% to US$19.6 billion.

online in June, with a total installed capacity of 102MW. Q: What is the significance of the five pipelines in northern Q: How can Mexico mitigate electricity losses caused by

Mexico to the country’s power generation activities?

technical and non-technical issues?

A: The Northwestern System of pipelines represents

A: CFE has reduced its energy losses from 16% in 2012 to 14%

critical infrastructure for the effectiveness of the country’s

in 2014. Our goal is to further reduce this number to between

electricity

production.

10-11% by 2018. The US$17 billion allocated to infrastructure

Corridor,

investments will have a massive impact on reducing losses

Guaymas-El Oro, and El Oro-Mazatlan. These structures

associated with electricity distribution, but more action is

will eventually be interconnected with the North-Central

needed in order to completely eliminate these issues.

System to consist of five pipelines, among which will be the

They

include

Encino-Topolobampo,

the

Chihuahua

Sásabe-Guaymas,

El Encino-La Laguna and the Ojinaga-El Encino pipelines. As part of CFE’s nine distribution projects, the installation

Connecting these structures will ultimately represent an

investment of around US$2.8 billion.

910,400

metering

infrastructure

devices,

20,500

| VIEW FROM THE TOP

PEMEX APPROACHING THE WHOLESALE ELECTRICITY MARKET EMILIO LOZOYA AUSTIN Director General of PEMEX Q: How do you envision the role of PEMEX in the Mexican

generation of electricity and thermal energy means

electricity market?

the overall efficiency of cogeneration systems exceeds

A: Renewable energies are increasing in prevalence,

that of using other electricity and thermal generation

so in this context, natural gas will play a key role in the

technologies individually. Conventional power generation

energy transition. The National Gas Strategy is centered

systems experience efficiency rates of 30-40%, while

on the construction of new transportation infrastructure to

cogeneration systems achieve levels of 80-85%. PEMEX

increase coverage, the elimination of bottlenecks in existing

has an estimated cogeneration potential of 5,000MW,

systems, and the increased importation capacity at the US

therefore the company can become self-sufficient in terms

border. An important step in the energy transition consists

of electricity and vapor (5,000 ton/h).

of capitalizing on the current natural gas availability as a Q: In your opinion, why is PEMEX well-positioned to

fuel to achieving a sustainable energy sector.

tackle the electricity market? PEMEX intends to undergo a transition by shifting from

A: The high demand for vapor in PEMEX facilities creates

fuel-based to natural gas generation in its refineries,

the opportunity for a new business line within the company,

gas processing facilities, and petrochemical complexes

especially considering the stringent requirements for

by implementing cogeneration plants and obtaining an

thermal energy that facilitate the development of large-

estimated potential of 5,000MW of clean and efficient

scale cogeneration projects. Cogeneration provides a

electricity. A first phase will focus on the Cactus Gas

reduction in losses associated with the transmission and

Processing Complex, while subsequent endeavors will

distribution network, as well as contributing to the stability

work on the Tula, Cadereyta, and Salina Cruz refineries,

and reliability of the National Electricity System, providing

totaling an estimated capacity of 2,500MW. The goal is to

voltage control, reserve capacity during contingencies,

take advantage of the company’s cogeneration potential,

cold start capabilities, and reducing congestion in the grid.

which is estimated at 5,000MW, and increase efficiency

When considering the substantial availability of PEMEX

and reliability in PEMEX’s productive processes.

facilities, electricity from cogeneration plants ensures the supply and dispatch to the National Electricity System.

With this in mind, PEMEX entered a new sector through

The Energy Reform provides PEMEX the opportunity to

the creation of PEMEX Cogeneration and Services. As a

participate in the wholesale electricity market by selling

result, the company expects to increase its operational

electricity surplus resulting from cogeneration activities,

efficiency and reliability, as well as to participate in the

while also benefiting from operational, environmental, and

new wholesale electricity market, becoming the second

economic benefits. On another note, vapor is essential in

largest electricity generator in the country in the next five

the operations of PEMEX plants, and its supply increases

years.

efficiency in the facilities and guarantees the dispatch of low-cost electricity 24 hours a day.

Q: How important are electricity generation and natural

gas transportation in PEMEX’s portfolio?

Q: What are PEMEX’s ambitions in the electricity

A: PEMEX’s productive processes require large amounts

generation sector?

of electricity and vapor, so it is crucial to implement

A: Through its cogeneration division, PEMEX seeks to

cogeneration systems as a key practice for improving

maximize value, satisfying the company’s energy demand

efficiency. Cogeneration systems allow both the reduction

and guaranteeing a reliable, efficient, and secure supply

in power generation costs by approximately 30% due

that will allow it to strengthen the sector’s competitiveness

to the recovery factor in thermal energy (vapor) for

and participate in the wholesale electricity market. It

productive processes, as well as the economic benefits

is estimated that PEMEX can seize 47% of the country’s

brought

cogeneration potential, and PEMEX Cogeneration and

about

clean

energy.

The

simultaneous

| AGENCY SPOTLIGHT

Services is expected to become a socially responsible and

ASEA

competitive player in the electricity sector.

SHOULDERS

TAKES

WEIGHT

OFF

PROFEPA’S

One of the newcomers that have arrived on the PEMEX will showcase high levels of innovation that will

new energy scene is the Safety, Energy, and

increase the value of its assets and contribute to the

Environment Agency (ASEA). In January 2015, ASEA

development of the sector by offering clean and affordable

became responsible for overseeing environmental

energy. This will permit us to position ourselves as the

compliance throughout the entire value chain of

second largest electricity producer and take advantage of

the hydrocarbons sector. “Due to the relevance

strategic alliances with leading companies in order to push

attributed to environmental security in the oil and

cogeneration projects while mitigating risks for PEMEX.

gas sector, it was deemed necessary to create a specialized agency with specific attributes for

New Pemex Structure NEW PEMEX STRUCTURE Source: El Financiero

industrial inspections and environmental security.

BEFORE

“These Exploration & Production

are

areas

that

previously

fell

under

PROFEPA’s remit in terms of inspections and supervision, and SEMARNAT in terms of approving environmental assessment,” according to Guillermo

Refining

Haro, Federal Attorney of PROFEPA. ASEA’s mission is to guarantee people’s safety and environmental integrity while bringing legal certainty to the

PEMEX (Parastatal)

Gas & Basic Petrochemicals

industry. Its vision over the next ten years is to be the agency that helped the Mexican oil and gas industry become one of the safest and cleanest in the world.

Petrochemicals

Given the scope of the oil and gas sector, Haro claims ASEA will have an enormous undertaking. For instance, there were close to 450 environmental

PMI International Commerce

emergencies resulting from illegal pipeline theft in 2014 alone. This gives ASEA plenty of material to work on in order to initiate its operations. Since

NOW

ASEA is a relatively new agency and still lacks

PEMEX (Productive Enterprise of the State)

certain resources, it has relied on PROFEPA’s Drilling and Services

assistance in following through on a significant proportion of its responsibilities. Both entities have signed agreements so that PROFEPA can act on behalf of ASEA, ensuring a smooth transfer

Exploration & Production

Logistics

of responsibilities. PROFEPA has concluded the process of conceding approximately 600 files to ASEA. This transition period will continue until ASEA

Development & Production

Fertilizers

has the necessary staff to fully undertake its duties. Even though PROFEPA is currently helping ASEA with personnel requirements, the attorney’s office has not undergone any staff alterations.

Exploration

Ethylene

Throughout 2015, PROFEPA has helped ASEA with its inspection activities, although the attorney’s office Industrial Transformation

Cogeneration & Services

will progressively withdraw from the hydrocarbons sector. Haro believes that leaving the hydrocarbons sector in the hands of ASEA will enable PROFEPA to

Subsidiary

subsidiary companies companies

Subsidiary subsidiary branches branches

focus on other industries that present environmentally sensitive issues.

Source: PEMEX

CFE WORKS ON INCREASING NATURAL GAS AVAILABILITY Guest Article by CFE - The Energy Reform, pushed by

resulted in 35 critical alerts between 2012 and 2013, during

the Executive Branch and approved by Congress, aims

which time PEMEX asked the Mexican industry and CFE to

to offer more competitive electricity tariffs for industries,

reduce their natural gas consumption, which in turn harmed

commerce, and households. Achieving this goal is

the country’s productivity. The critical alerts also forced

crucial, as it will enable Mexico to develop socially and

CFE to use more expensive fuels for electricity generation,

economically, thus benefiting the general population. The

incurring additional expenses of more than US$1 billion.

Energy Reform has created new opportunities for CFE, which is now transforming into a productive enterprise of

In order to address the lack of infrastructure in the energy

the State in an environment characterized by competition.

sector, CFE is running 85 projects across 30 states,

In this sense, CFE moves forward with the clear objective

amounting to an investment of US$28.5 billion. Four of

of providing its users a high-quality, more affordable, and

these pipeline projects, which received investments of

environmentally friendly electricity service.

US$1.2 billion, are already operating, adding more than 1,300km to the National Pipeline System. Through these

Electricity services cover 98.4% of the Mexican population,

projects, CFE is able to secure long-term transportation

and CFE has enough installed capacity to satisfy the country’s

capacity, while the private companies that own said

energy demands. In fact, the highest energy demand in

pipelines assume the risks entailed during operation and

2015 was covered with 40,000MW of installed capacity,

construction. In other words, the risk falls on the private

while CFE has a total of 54,000MW installed capacity for

sector while the benefits are public.

electricity services. Before the Energy Reform was passed, the challenge the country faced regarding energy was not

At the moment, there are eight CFE pipelines under

related to the availability of electricity services, but to high

construction, with two recently tendered that will begin

generation costs. This situation raises the question of why

construction soon. These ten pipelines have been awarded

electricity tariffs have been so high in the country. The

to six different consortia through international public

simplest answer is in the fact that 80% of generation costs

biddings, representing investments of US$4 billion and

depend on the price of the fuels used to generate electricity.

adding 2,600km to the National Pipeline System. During

If more competitive eco-friendly fuels are used, such as

the second half of 2015, CFE tendered six more pipelines,

natural gas and renewables, then generation costs, tariffs,

amounting to 1,700km and an estimated investment of

and the impact on the environment will be lower.

US$5.8 billion. In addition, CFE is currently tendering four more pipelines as well as a project to transport natural gas to

Back in 2012, Mexico had limited access to affordable,

Baja California Sur, representing the first of its type. CFE has

less polluting fuels, as the country’s infrastructure was not

also participated in open season schemes to reserve natural

enough to guarantee availability and supply. For instance, the

gas capacity, as is the case with the Howard Midstream

country did not have enough pipelines to punctually satisfy

Energy Partners open season, where the Mexican energy

the demand for natural gas because the national pipeline

company ensured natural gas transportation from Webb

system for the fuel was only 11,300km long and was not

County in the US to Escobedo and Monterrey in Nuevo Leon.

entirely interconnected. The system did not have redundancy

Aligned with the National Infrastructure Program and under

and half of the states lacked pipelines. As a reference, the US

the Ministry of Energy’s coordination, CFE and PEMEX are

pipeline network was 43 times longer than that of Mexico.

tendering pipelines that will increase the National Pipeline

Texas alone, which is three times smaller than Mexico, had

System by more than 75% from the 2012 baseline. All of

eight times the length of pipelines. This lack of infrastructure

these projects will be finished and operational by 2018.

Q: Now that CENAGAS is the technical system operator, what will PEMEX’s role be in the natural gas sector? A: PEMEX maintains its natural gas processing and commercialization activities, with which it will compete in an open market. In addition, PEMEX has a logistics company that operates natural gas infrastructure, and the company will sign contracts with shippers that will deliver gas to the end users. In order to guarantee an efficient, competitive, and safe long-term supply, PEMEX will have to coordinate with current and potential users so that it can plan the expansion of transportation infrastructure. This will be based on the expected demand and the country’s estimated economic growth, which will in turn foster private investments. Emilio Lozoya Austin, Director General of PEMEX

TRANSFORMATION BEGINS WITH POWER GENERATION Guest Article by CFE - Aligned with its mandate to

represent an investment of US$6.1 billion and an installed

efficiently generate electricity at lower costs, CFE has

capacity of 6,200MW.

a program aimed at revamping seven fuel oil-powered plants so that these can also be powered by natural gas.

Moreover, in the first half of 2015, CFE tendered the

Between December 2014 and June 2015, CFE converted

construction of three combined cycle plants: Norte III in

three power plants in Sonora, Colima, and Tamaulipas. The

Chihuahua, Empalme I in Sonora, and Valle de Mexico II in

conversion of a power central in Hidalgo is expected to be

the State of Mexico. The bidding processes for four more

concluded in the last quarter of 2015, while two plants in

centrals are expected to conclude in the last quarter of

Sinaloa and one more in San Luis Potosi are expected to

2015, while two more tenders should be completed in the

be finished in 2016. These seven refurbishments represent

first half of 2016. One of these is the Baja California Sur IV

close to 4,600MW of installed capacity and investments

internal combustion plant, which will run on natural gas by

of over US$200 million.

2018, when this fuel is made available in this state.

In December 2014, CFE added the finishing touches

The savings these investments entail are not to be

to the conversion of the Manzanillo Central plant in

overlooked. In July 2015, generating 1MWh in a fuel oil-

Colima, which now has a 700MW capacity and required

powered plant cost MX$1,388 (US$92.5). Using natural gas

an investment of US$12 million. The plant receives fuel

in the same power plant would result in generation costs

from the LNG terminal in the Port of Manzanillo. Similarly,

of MX$587 (US$39.1) per megawatt-hour. Likewise, the

the conversion of the Puerto Libertad Central in Sonora

cost of generating a megawatt-hour in a combined cycle

was finalized in May 2015. The operation required an

plant is MX$370 (US$24.6), which is four times less than

investment of US$50 million and the facility now has a

generation with fuel oil and slightly less than half the cost

630MW installed capacity, receiving gas through the

of generating in a converted power plant.

Sasabe-Guaymas pipeline. A combination of factors, such as the sufficient supply In addition to upgrading fuel oil-powered plants so that

of natural gas and the increase of hydroelectric power

they can use gas, CFE is working on the construction of

generation, have helped CFE reduce its fuel oil consumption

nine generation facilities in areas that will have access to

by 45%. This has allowed the parastatal to go from 201,000

natural gas pipelines in the near future. Of these centrals,

barrels per day in 2014 to 111,000 in 2014. According to Centro

eight will be combined cycle plants, and one will be able

Mario Molina, this reduction in fuel oil use also resulted in a

to run on both fuel oil and natural gas. These nine facilities

45% decrease of CO2 emissions in these facilities.

| EXPERT INSIGHT Q: How will CFE overcome the financial challenges

the enterprise and its administrative council have been

entailed in converting its plants from fuel oil to natural

working on new financing schemes that were not possible

gas while undergoing a budget reduction?

in the previous framework. Now, thanks to the new

A: CFE is proactively assuming the challenge of taking

legislation, CFE can create specific-purpose subsidiaries

the necessary actions. The now-productive enterprise

and use instruments that are already available in the

of the State has not been idle, and it has shown a great

Mexican market to finance some of its investment

commitment to converting its old fuel oil-powered plants

projects. Many of CFE’s assets can be monetized in a

so that they can run on gas and combined cycles, and

way that generates resources that are not contemplated

moving in a direction that is aligned with the goals stated

in the budget but are available in the market, and these

in the regulations. The budget cuts were less severe for

tools can be used to modernize the generation methods

CFE than for PEMEX, and the utility company’s response

according to the plans and objectives.

was to dismiss some duplicated expenses, but it did not cancel any modernization projects. All its revamping

César Hernández Ochoa, Undersecretary of Electricity at

plans and pipeline projects remain on the table, and

the Ministry of Energy

DRIVERS FOR INVESTMENT IN AN UNEVEN FIELD The radical shift in Mexico’s energy sector has led the

highlighting its decision to produce electricity, because

authorities to urgently develop the necessary conditions

this shows a deviation of focus from its core business.

for all players to participate in a competitive and egalitarian environment. However, Miguel Jáuregui, Partner at Jáuregui

Jáuregui posits that without an even playing field, Mexico

y Del Valle, is skeptical about the creation of a level playing

could struggle to become attractive for investors. However,

field, particularly when considering that PEMEX will start

this could be solved by Mexico’s commitment to adding

rendering electricity services and the government will

renewables to the energy matrix. “The adoption of renewables

continue operating the grid through CENACE and CFE.

is now necessary if Mexico is to comply with the codes and treaties it has ratified,” Jáuregui explains. He believes it is

Jáuregui reminds us that the policy guiding the sector will

mandatory for the authorities to support renewables with the

be that of the Ministry of Energy and not necessarily the

right policies. However, Jáuregui is concerned about unions

issue of CRE or CNH, since these are operators and should

in the renewables, hydrocarbons, and electricity sectors, as

remain as such. “The Ministry of Energy is accustomed

these groups have been left in the dark. “Let us recall how

to the self-supply scheme and not to the open field, so

the Mexican Electrical Workers Union (SME) never generated

it is at risk of suffering the same inadequacies as CNH,”

a single kilowatt when it was employed by Luz y Fuerza del

he comments. Jáuregui believes the government should

Centro. In all this upheaval caused by the Reform, where are

have established energy’s importance to the country

the unions? This is a matter that must be clarified.”

and its neighbors, while demonstrating its compatibility with US energy and clarifying that the authorities will be

According to Jáuregui, renewable energies are not designed

committed to creating a state of equality.

for subsidized consumption due to their sophistication,

“The adoption of renewables is now necessary if Mexico is to comply with the codes and treaties it has ratified”

Miguel Jáuregui, Partner at Jáuregui y Del Valle

As for the parastatals changing into productive enterprises

which demands proper PPAs and clients. Therefore, private

of the State, Jáuregui does not perceive any major problems

players in this sector must ensure that the energy goes

in PEMEX’s ability to compete because the NOC faces no

straight to the consumer through private finance and that

threat of a loss of customers. Conversely, he has reason to

there is a proper handling of the grid. “Iberdrola is here

believe CFE will lose its best clients and effectively become

because it has enough capital to expand its renewable

a burden on federal resources. “CFE’s focus should be on

energy base. The company is now a leader of the pack, but

the residential segment, as it could continue to serve the

it is unclear if this aggressive positioning will scare others

underprivileged and subsidized markets,” he argues. Given

away, since all will depend on the playing field.”

the social function CFE will play, Jáuregui stresses that the company will have to invest in capital goods, power

In Jáuregui’s view, the fact that reforms to electricity and

generation plants, and improving its equipment in order to

hydrocarbons were implemented simultaneously means

reduce inefficiencies.

there is limited capacity to deal with both. “The opening of the electricity industry should have been broader, more

“Taking into consideration the energy shortages, voltage

specific, and better planned to stand as the real success

fluxes, and inexperience, the utility will prompt the

of the Energy Reform.” Nonetheless, Jáuregui’s advice to

private sector to generate for industrial players, and this

players wishing to enter Mexico’s renewable energy market is

is happening as we speak. While CFE holds a place in

that the entry of new players will accelerate its development.

history in social terms, there are other companies with

If it is dual fired, then the companies get the green light from

modern equipment and cheaper technology that are

the country as long as they have the right technology, capital,

capable of increased efficiency, so the organization could

project finance, and are reinforced by their headquarters.

end up disappearing.” Just as Jáuregui thinks that CFE is

“Players should not wait to enter the electricity market. The

superfluous, he also believes that PEMEX should not be

time is now and Mexico is open to business,” he urges.

| VIEW FROM THE TOP

CFE WORKING TO LEAVE PAST PROBLEMS BEHIND FRANCISCO BARNÉS DE CASTRO Former Commissioner at CRE

Q: Given all the expenses entailed in the sector’s changes,

Fuerza del Centro, which was not known for its efficiency.

do you believe electricity will become cheaper?

CFE has done well in reducing losses in metropolitan areas,

A: Nowadays, electricity is more expensive in Mexico than

although this has not happened as quickly as expected.

in the US because Mexico has different technologies and

CFE has certain distribution areas with performance levels

uses different fuels. Ten years ago, the cost of fuel oil was

that are as efficient as the best distribution systems in

equivalent to the cost of natural gas in terms of energy

Latin America. If CFE can do this using old technology

units, but today, fuel oil is four times more expensive. The

without investments in smart grids, this can be rolled out

market will accelerate the substitution of fuel oil in electricity

across the whole country.

generating plants or risk losing competitiveness. If CFE wants to maintain constant generation capacity and compete

Nevertheless, some of these losses are not technical,

with qualified users as a supplier of electricity, it will need

and the most significant ones come from medium

cheap sources of electricity. To achieve this, CFE is currently

and large companies siphoning electricity illegally in

working to substitute the use of fuel oil in existing plants as

metropolitan areas. As for impoverished households that

soon as possible. All the units able to operate with natural gas

use electricity without paying, subsidies are important.

instead of fuel oil for the next couple of years must rapidly

These subsidies have to be targeted and their legal use

be transformed into combined cycle plants. The timeframe

has to be guaranteed so that CFE can recover electricity

for this process under a competition-driven market is much

costs. Subsidizing a large part of the population will act

more drastic. The State-owned enterprises will no longer see

as a tool for social development. All global governments,

their budgets constrained by the Ministry of Economy, which

including the US, have used this tool during certain stages

used to reject certain projects in the energy sector.

of development. There is a difference between subsidizing disadvantaged populations and large companies. Certain

Another aspect that will reduce electricity costs is that

major agricultural companies that use modern irrigation

losses in the transmission system are unacceptable under

processes have electricity and water subsidized when

a market that demands efficiency. In order to set tariffs,

smaller producers should be the ones receiving financial

we must initially map existing tariffs and existing losses.

aid. The Reform will force us to make those difficult political

However, CRE has to impose a strict timeframe for CFE to

decisions because CFE has to be a productive enterprise.

correct losses or absorb them in its budget and the utility company is aware of this. Although this was previously

Q: Given the difficulties faced by the utility, are the

impossible, CRE will not accept that the costs generated

expectations placed on CFE realistic?

by stolen electricity is passed on to other users, so CFE

A: CFE is addressing its problems with remarkable

will have to address this much more assertively than in

efficiency. Even before the Reform, CFE was guaranteed

the past. CFE needs to learn how to reduce the economic

access to natural gas, meaning that in a short time CFE will

losses that result from technical issues and energy theft,

be able to substitute fuel oil. This will happen independently

or the Ministry of Energy will award the transmission and

from implementation of the market rules, and will take

distribution segment to a more efficient player.

place over the coming years as pipelines are built. This process will be important in reducing tariffs in the country.

Q: What options does CFE have for reducing losses in the

In addition, CFE is moving quickly in reducing technical

grid in an economically viable way?

losses in the system, which is fortunate since CENACE

A: Marginal increments in modern grids are achieved

will only administer the operation of the system, meaning

through the use of smart grids. Smart grids could optimize

that the ultimate responsibility falls on CFE. Therefore, we

this process in Mexico, but this would imply replacing all the

will now have a regulator to establish a framework and

systems in cities such as Mexico City and its metropolitan

determine if it is possible for CFE to meet a set of targets

area. These regions were previously supplied by Luz y

in a given timeframe.

PREDICTING THE CREDIT RATINGS OF CFE AND PEMEX If the energy landscape resembled a chessboard, CFE and

more market risk. Nevertheless, this will not prevent projects

PEMEX would ultimately hold the roles of the Queens,

from being developed. The government can facilitate the

and as the strongest pieces in the game, they now move

development of renewables and fashion PPAs that are

unfettered across the black and white milieu. The most

aligned to the needs of producers,” he expands. CFE is arming

renowned credit rating agencies, Standard & Poor’s

itself with the best available tools; it will have the largest

Rating Services (S&P) and Moody’s Investors Service, have

generation footprint, access to gas, and some of its facilities

tracked the movement of these two key players and the

will showcase competitive PPAs. “CFE can now share the risk

roles they play in Mexico’s energy strategy. These two

and offer more competitive terms to customers. The changes

parastatals are now tasked with reinventing themselves

will allow CFE more commercial freedom,” Coballasi explains.

into State Productive Enterprises and, given the enormity of this feat, some begin to question the security of their

Having the best tools in the market is not enough, and in

credit ratings, and whether or not they will falter.

order for CFE to capitalize on new markets, it will have to

“We expect CFE to grow in a commensurate manner that is levelled with its commitment to society”

José Coballasi, Senior Director of S&P

Victor Herrera, Managing Director of S&P, is not so easily

provide cheaper and better services. At least this is what

swayed by such opinions. “Financially speaking we will not

Nymia Almeida, Vice President Senior Credit Officer of

see much difference, and it ultimately does not matter if

Moody’s, believes. “CFE must be wary because everyone is

they are state-owned. In fact, there are several state-owned

eager to look for alternatives; CFE must reinvent itself,” she

companies across the world with a set of goals to achieve,

adds. In this new market all players are revamping themselves

and when these are not attained there are consequences.”

and CFE is no exception, as Alberto Jones, Director General

This view is likewise echoed by José Coballasi, Senior

of Moody’s, describes, “On the one hand you can imagine

Director of S&P, as he states that in the short and medium

CFE competing fiercely with these players, and on the other

term, the ratings of both PEMEX and CFE are likely to align

you can envision CFE in a comfortable position of being the

with those of the government. This conclusion comes from

monopoly that is supported by the government.” For Jones,

looking at other countries undergoing similar circumstances.

one aspect remains clear, the energy prices will ultimately

“When we examine other markets such as Brazil, Petrobras

drive the market and the players at the top will be those

and Electrobrás have important minority ownership and the

that can offer cheaper energy.

ratings are aligned with those of the government.” Another example to highlight this perspective is Colombia’s Ecopetrol,

With this transformation, a question remains unanswered:

which continues to hold first place in the market. As a result,

how much of a challenge will it be for CFE to maintain

one fact is incontrovertible for Coballasi, “National energy

its critical and overwhelming presence when competing

companies will continue to enjoy a position of leadership

against other players? In response, Jones stresses that CFE

even as new players set up shop.”

has been very diligent in the way it finances its operations. “We expect CFE to grow in a commensurate manner that

In the past, CFE’s actions were confined since it could not

is levelled with its commitment to society. From a risk

sign bilateral contracts with an industrial client, but after

perspective, its profile will improve over time rather than

the sweeping reforms, new mechanisms will now allow it

deteriorate.” For Moody’s, CFE is committed to growth and

to do so. In S&P’s eyes, CFE will continue to sign long-term

the new entrants must find additional value, especially in

contracts and many large players will opt for the PPAs in

terms of the geographical regions where energy is urgently

order to anchor the multimillion dollar investments they

needed. “In terms of energy sources, the private sector will

will contribute. Indeed, CFE’s contracts are attractive and

step in with its ingenuity and creativity and develop the

bankable; however, according to Coballasi, the longevity

most suitable technologies,” Jones adds. As the market

and transparency of these terms remains a concern. “We

unfolds, the position CFE will hold within it is a story that is

have seen contracts in the private sector where there is

ultimately yet to be written.

PEMEX is also busy figuring out its next business strategy. As some players in the electricity market appear puzzled regarding CFE’s next move, according to Jones, this is not the case in the oil industry. “The incumbent investors are serious bidders, so they already know how the market works. Basically, the industry has revolved around one player, which is PEMEX.” The burning question for investors seems to be centered on the likelihood of PEMEX filing for bankruptcy. “According to its by-laws, it cannot. However, there is the question of what will happen if PEMEX cannot

NUESTROS SOCIOS

pay. It is a difficult question to answer because it cannot file for bankruptcy, there is no facility for repayment plans,” according to Almeida. “This is a gray area at the moment, so as a result we are seeing new financing schemes related to the new position of PEMEX as a productive enterprise of the State,” she adds. In any event, new types of instruments are needed to help PEMEX fund itself without reporting this as debt, since the raise in debt is very much a concern that Moody’s and its investors share. Regardless

new

legislation,

oil

exploration

Socios Fundadores Jorge Isaac Gastélum Miranda María Teresa Llantada Voigt Jorge Enrique Borbolla Gómez Llanos, Socio de Corporativo Alfonso Pasapera Mora, Socio Consultor Mauricio Zarza Carecer, Socio de Litigio

and

subsequent exploitation projects have always stood out as risky business ventures. For Herrera, all oil companies may lose money in their investments, but this comes with the territory. “Annually, PEMEX has been investing US$25 billion for the past seven years and still we continue to see a drop in production and persistently inefficient costs. If we begin to evaluate how much of that investment is used productively, we see the figures barely scratch 50%.” This shows that PEMEX is not as productive as other oil companies that are investing in other parts of the world. Now the NOC is given a chance to improve

Nuestras Áreas

Litigio Civil y Mercantil

Fusiones y Adquisiciones

Concursos Mercantiles y Quiebras

Competencia Económica

•

• •

•

Contratos

•

Derecho Administrativo

Derecho Corporativo Reestructuras y Financiamiento •

Derecho Penal y Asesoría en la Prevención de Delitos

• •

Mercado de Capitales •

Comercio Exterior y Aduanas

its performance across all processes. “Explaining failure in a billion-dollar project to stakeholders is a difficult task, and it is daunting to imagine doing so in front of Congress. Now that PEMEX can share the risk, its E&P segment can pursue opportunities more aggressively,” Coballasi comments. CFE and PEMEX serve as two parastatal entities that are inextricably linked, and any miniscule change in one will be reflected in the other. “If only US$500 million of the US$25 billion that PEMEX spends are used to develop gas, then obviously CFE has no other option than to burn oil to generate electricity. This will dramatically change and we will begin to see a higher rate of investment in gas and thus more productivity,” Herrera expands. These two entities will now be able to offer contracts for the oversight of certain assets and this will generate many opportunities across value chains in all industries that need energy to operate. As these two parastatals strategize their next move across the shifting sands of the energy industry, one factor remains immutable, as Coballasi explains, “The more freedom these two entities are given in the operational side, the more aggressive they will become in the commercial side.”

Condominio Arcos Oriente Bosque de Alisos 45-B Planta Baja Bosques de las Lomas 05120, México, D.F. Tel.: 33 00 19 00 Fax: 52 57 16 41

| VIEW FROM THE TOP

LCA AS THE TOOL OF CHOICE FOR PARASTATALS DR. NYDIA SUPPEN REYNAGA Director General of Centro de Análisis de Ciclo de Vida y Diseño Sustentable (CADIS)

Q: How has the perception and role of CADIS been

information on how resources and energy are being used

evolving this last year?

and how clean and renewable energies can be incorporated.

A: CADIS is a center specialized in life cycle assessment (LCA) and sustainable design that operates in Mexico and

Q: How have the two productive enterprises of the

the rest of Latin America. For ten years we have implemented

State, CFE and PEMEX, implemented LCA into their own

this methodology to assess the potential environmental

processes?

impact of an organization’s products, processes, or services.

A: The first to consider LCA as a tool for internal decision

LCA is interlinked to energy and environmental policies. It is

making were these two players. In the case of CFE, we

important for companies to know how they interact with the

carried out a project that was managed by CONACYT,

environment and the true impact of their operations. These

where we evaluated the different types of technologies with

assessments are applied in a practical way during the policy-

the exception of nuclear. This enabled CFE to examine and

making process in Mexico, allowing companies to visualize

understand the impacts of energy generation from different

how they consume fossil fuels and the opportunities they

technologies. PEMEX began implementing LCA in 2005-

have to transition into cleaner energy sources. Additionally,

2006 in areas such as petrochemical. PEMEX Petrochemicals

LCA forms part of the United Nations’ sustainable

analyzed the environmental impact of recycling oils and

production and consumption strategy that was signed in

solvents used through LCA. It also carried out an LCA

Marrakesh and is now entering its next ten-year phase. Once

on the production process of low-density polyethylene

LCA is implemented, a metric can be developed to provide

(LDPE) in the Cangreja Petrochemical Complex. Lastly,

PRODUCT DIVERSIFICATION TECHNIQUES WEG has a tradition of focusing on industrial products, from

vertical integration, such as quality and cost control, and

motors to transformers, across a wide range of industries.

being able to deliver products to clients more efficiently.

The company has a presence in a wide range of countries from Portugal, Austria, Germany, Colombia, and Argentina

WEG products can be applied to a wide range of industries,

to India, and produces specific products for these markets.

but the best opportunities for the company are in the mining,

The company has been in Mexico for 15 years, and the

oil, and gas industries. WEG holds a unique position in the

country holds a coveted position in the growth strategy of

energy value chain because its products are sold to OEMs

the company as it caters to the US, Canada, and Central

and subsequently arrive at PEMEX refineries or CFE power

American markets. Rather than buying the finished product,

generation plants or substations. “We have direct contact with

WEG will source the raw materials and produce internally.

CFE in our transformers division, since these products have a

This means that WEG will be shifting suppliers and searching

range of applications from power generation to distribution,”

for new ones further down the chain.

Mendes explains. Setting its sights on PEMEX, it has spotted a niche in ultra-low-sulfur diesel (ULSD). PEMEX is planning

Recently, WEG expanded its operations and included more

to increase the production of this fuel, thus it will need new

products into its portfolio. “Now we do not only assemble

infrastructure and WEG will participate in providing the

but we also manufacture certain components internally. The

products to make this a reality. Mendes is evaluating other

vertical integration allows us to control the planning and

areas of the energy sector that could be beneficial to the

production of the products from the start to finish,” shares

company. “The cogeneration sector represents 10% of our

Mauro Mendes, Managing Director of WEG. He claims there

revenue, and, given the heightened focus the government has

are a series of competitive advantages that come with

given to this technology, we believe this figure will rise to 15%.”

PEMEX estimated the reduction of greenhouse gases for its

This institution focuses its reports on key industries like

cogeneration project in the Morelos Petrochemical Complex.

transportation, housing, and construction. We have worked with INECC and CONAVI in developing analyses that

With

LCA,

metrics

can

obtained

that

provide

visibility across the supply chain, enabling companies to

incorporate LCA for public policies like INFONAVIT and the green mortgage.

communicate more efficiently with their suppliers. LCA allows a dialogue with important stakeholders within

The construction industry is leading the implementation

the supply chain, and it makes companies realize the

of LCA since players are adopting this methodology and

impact they have on the environment. LCA is not limited

following sustainable strategies. All these endeavors will

to industrial players or companies that make consumer

ultimately lead to urban sustainability. SEMARNAT is

products; governments, research centers, and even any

pouring its efforts into constructing a program surrounding

kind of service enterprise can benefit from this assessment.

sustainable consumption and production. This program will target different sectors ranging from tourism, construction,

Q: What role have you played in the development of

eco labelling, and research. The authorities are also

international standards and local norms to be adopted by

developing an eco-labelling project, which is related to the

industries across Mexico?

creation of a water and carbon footprint scheme.

A: As a Mexican delegate for LCA standards in ISO, I have been involved in the development of strategies in

Q: What role will CADIS play in the implementation of

carbon footprint, and water and waste management. I was

sustainability in the energy markets?

involved in the development of the Water Footprint ISO

A: Environmental LCA has been around since the 1970s. One

14046 as co-convener within Technical Committee 207.

of the drawbacks is that large amounts of data are required

The first collaboration was seen ten years ago when we

and in some regions there is a lack thereof. Sustainability

helped the Pollutant Release and Transfer Register (PRTR)

consists of three pillars: economic, social, and environmental,

area incorporate LCA data in order to align the results of

and the biggest area of opportunity for CADIS lies in social

companies and those collected by the authorities. Another

LCA. CADIS is aiming to become a leader in topics related to

important actor in global reporting and analysis is the

LCA and sustainability, and become a key player in helping

National Institute of Ecology and Climate Change (INECC).

companies opt for sustainable decision making.

| VIEW FROM THE TOP

TECHNOLOGY LEADER OFFERS A LESSON IN EFFICIENCY REYNALDO YRUEGAS Energy Lead, Public Sector at Microsoft Q: As a market leader in software solutions, what are the

the energy industry, particularly after the enactment of

global trends that are influencing Microsoft’s position

the Energy Reform?

within the energy industry?

A: The drop in oil prices has impacted Mexico’s economy

A: As we are all well aware, there is a range of shifts and

in a significant way due to the fact that the country is

forces that are driving the transformation of the oil and gas

very much dependent on its oil revenues. Microsoft aims

industry worldwide. There are several players competing in

to support PEMEX across all its divisions. Efficiency and

the emerging markets, such as China and India, countries

competitiveness are crucial terms in the business lines of

that have increasing energy demands that must be fulfilled.

exploration, drilling, and production, so PEMEX must arm

Furthermore, there is an interesting shale gas development

itself with new tools and strategies in order to achieve

occurring in the US that is expected to reach US$52 billion

optimization. The Energy Reform mandates that PEMEX

by 2016, and given that the pricing in natural gas is at

must always uphold international standards of efficiency,

an all-time low, this is bound to drive efficiency and cost

quality, and reliability. There is a series of virtues that

considerations across the industry. Another important

PEMEX must bring to its core in its endeavor to become

factor to consider is the dynamism of the workforce in the

a productive enterprise of the State: agility, collaboration,

energy industry, as we see workers moving from country

productivity, and transparency. Microsoft will support

to country and gaining expertise.

PEMEX in several areas. Firstly, it will focus on operative efficiency and will help the parastatal improve all its

According to research, the average age of employees working

operations, including HR, in order to increase productivity.

in top energy companies is 46-49 years-old, and they have

We also support PEMEX in its process management and

a high level of experience across the upstream, downstream,

corporate responsibility strategies.

and midstream segments of the industry. It is a known fact that 40% of current workers will retire in the coming six years,

Q: PEMEX is shaping itself into a productive enterprise

and this will demand a major shift within the markets. In turn,

of the State. In turn, how are its investment decisions

millennials will constitute 75% of the American workforce

evolving to consider new technologies and software

by 2025. There is also an increasing awareness surrounding

solutions?

environmental responsibility, and the penalties in the US

A: Operational efficiency ranks highly on the list of

for oil spills can reach US$8,000 per barrel. Companies at

priorities for PEMEX across its business divisions. Energy

the helm of the oil and gas industry are seeking intelligent

companies that wish to stand out in this competitive

systems, and this is partly due to the fact that the amount of

environment will take advantage of the synergies created

connected devices is expected to grow to 26 billion by 2020.

by Big Data, Business Intelligence, and other trends such as

The forecast for smartphones, tablets, and PCs will reach

cloud, social networks, and mobile technologies. We offer

US$7.3 billion during the same time period. There are mega

PEMEX predictive analytics that help it determine when to

trends that are bound to dominate in the coming decades

carry out preventive maintenance on specific machinery,

across several markets and industries. It is well documented

and this enables the parastatal to continue operations and

that by 2016, smartphones and tablets will be within the

increase competitiveness. We can monitor all variables in

reach of a billion consumers worldwide, and the working

real time, and this enables the utility to reduce costs of

population that is connected to the aforementioned devices

energy and resources in production sites. Microsoft offers

will reach 1.3 billion. These figures reflect the significant

solutions that promote interdisciplinary collaboration,

opportunities that are present in connected devices and this

such as Share Point and Office 365. This means that

is a market on which we plan to capitalize fully.

workers across PEMEX’s areas, such as corporate offices, oil platforms, and pipelines, can communicate in real time.

Q: What are the local drivers that are influencing the

Collaboration with our partners is crucial. Indeed, Microsoft

position of technology companies such as Microsoft within

can work with iPhone and Android, and it develops the

necessary data transfer channels. Microsoft provides the

a little behind PEMEX, and the workers union complicates

infrastructure and helps its partners develop the solutions.

matters even further when trying to offer aggressive

We have worked with companies like Schlumberger,

solutions. At the moment, we are working with CFE’s

Honeywell, and Rockwell in developing the solutions and

online framework and we are unifying its communication

tailoring them to their needs.

channels. Once this is completed, we will be able to venture into SCADA and evaluate the way energy is being

Q: Could you describe the advantages of your Azure

distributed and consumed in a given area. We have a

cloud service, and how similar technologies and services

pilot project with CFE where the information gathered

will improve the performance of energy players in Mexico?

by the metering systems in a given street can be pooled

A: The cloud encapsulates three main concepts: software

into a single device. This means CFE’s workers do not

as a service, infrastructure as a service, and lastly, platform

have to go from house to house checking the information

as a service. There are three main players in the realm of

manually. It is important for CFE to invest in technologies

the cloud –Microsoft, Amazon, and Google– and they have

that optimize its processes, especially in the critical areas

over 800,000 servers scattered across different points in

of commercialization and administration. It is important

the world. The cloud has been transformed from a mythical

to note that we also work with a series of governmental

concept to one of the strongest trends present in all

entities such as CRE, CNH, and SEMARNAT. The latter is

industries. The strategic focus of the cloud is to move to

incredibly important, since the government wants to stay

applications platforms, and in fact 80% of new apps in the

informed about the companies entering the market and

coming five years will be distributed and deployed by the

ensure that they uphold environmental standards.

cloud. Companies are seeking efficiency and are downsizing in cost, and the cloud offers an ideal alternative where

Q: How is cybersecurity taken into account by companies

everything will be available, meaning thatno on-site servers

in Mexico, especially in the energy sector, and how are

will be required. Microsoft holds uncontested technology

attitudes changing toward this concern?

leadership in the energy industry, which is divided into

A: The most experienced hackers in the world come from

four major areas: stakeholder management, connected

Asia, and they follow particular cyberattack models. For

operations, operations excellence, and modernization.

instance, if a user downloads a certain app or information to the PC, the device installs an agent that begins to

The cloud is one of the megatrends that can drastically

analyze all the information and sends it to a cloud. This

reduce costs. If a company uses the cloud, it will cease to

intelligent device can monitor 100 million computers and

require a server, a room to maintain it, energy to run it, and

carry out analytics. This acquired knowledge enables

people to operate it. All of this represents huge savings,

the hackers to carry out fraud, from financial felonies to

and all the data and applications can be made available in

provoking the collapse of refineries, banks, or a series of

the cloud. PEMEX has roughly 25 data centers scattered

industries. Microsoft provides defined and clear solutions.

across Mexico, which implies a lot of servers and investment

For example, Bit Locker encrypts information on the

in their maintenance and operations. All the applications

computer, and the well-known firewall monitors and

of these centers can be transferred to the cloud and this

detects external agents. The issue lies in the fact that no

may represent a saving of 25-40%. Some information

proper follow-up is carried out either by the companies or

remains on the premises of PEMEX, since it is considered

by the public sector.

sensitive, and there are cybersecurity concerns. The cloud offers unparalleled efficiency; for instance, if PEMEX uses

Q: How would you describe the contribution Microsoft has

SCADA in a refinery and has a set of parameters that are

made to the successful development of Mexico’s energy

sent to the cloud, the cloud, after months of data analysis,

sector?

can identify and predict the behavior of the systems in the

A: Our clear objective is to help all these companies

refinery. When something begins to malfunction in the

achieve their business goals and become more efficient

refinery, it can be swiftly identified and treated.

and transparent in the information they provide. With the market opening its doors, it is important for companies to

Q: What services do you provide to CFE at the moment,

be transparent when faced with all the regulatory entities

and what new products are you open to offer in order to

in the industry. Another important aspect is for Microsoft

help it succeed in the new sectors it enters?

to uphold green practices across its processes. Microsoft

A: CFE is beginning to change its model and adopt new

ultimately offers efficiency through technological solutions

technologies and tools. Microsoft has begun taking small

that make companies more competitive within the highly

steps in pushing this parastatal in the right direction. CFE is

competitive energy industry.

| TECHNOLOGY SPOTLIGHT: SOFTWARE HARNESSES POWER OF DATA Internet of Things (IoT) has taken over the industry and

tasks, which ultimately enables the company to make

a recent innovation that will revolutionize the test and

informed decisions on the maintenance and replacement

measurement culture is Fluke Connect Assets. It is a cloud-

of equipment.

based wireless system of software that enables test tools to collect all data and upload it into an online database and

The inclusion of the IoT and connectivity into test and

dashboard. This unique solution helps increase productivity

measurement solutions brings about other competitive

and lower costs, thus maximizing uptime.

advantages that might be overlooked. For instance, it provides a complete historical overview of all assets

Fluke Connect Assets stands out from the crowd by

on one screen; this means that users can compare all

being the industry’s only wireless one-step measurement

measurement data (thermal, electrical, and vibration)

transfer for more than 30 Fluke Connect wireless test tools.

and identify where they need to focus their resources

Technicians take a measurement with their test tool, use

as part of a routine preventive maintenance program.

their phone to capture the data, and with a simple click they

Companies will also gain a fast ROI, since Fluke Connect

save it to the database. This process eliminates the need

Assets is cloud-based, so it can be implemented without

for manual recording of measurements, so maintenance

support from IT or capital expenditure outside any test

managers can be more confident that the information is

tools that may be needed. This solution embodies the

accurate. End users can have a comprehensive view of their

advantages of IoT for it uses state-of-the-art electronic

critical electricity equipment, including baseline, historical,

surveillance, multi factor access control systems, built

current test tool measurement data, and past inspection

in firewalls, encrypted data storage, and secures access

data. This is extremely valuable for energy companies like

designed to protect assets. Fluke aims to keep the world

CFE, PEMEX, Iberdrola, or Shell that have several sites

up and running and today companies are aiming to do

spread across the region or globe. By using this solution

more with less. Efficiency ranks highly on the wish list of

they can measure and cross reference the results across

companies and solutions like Fluke Connect Assets can

the different sites. This system streamlines maintenance

truly facilitate this objective.

| VIEW FROM THE TOP

HELPING UTILITIES DEVELOP HUMAN TALENT JAVIER CORDERO President & Director General of Oracle México

Q: What role does the technology industry play in helping

Q: How are CFE and PEMEX changing their investment

Mexico reach the goals it has set out to accomplish?

decisions in order to include new IT concepts?

A: Oracle embodies an out-of-the-box mentality that furthers

A: Companies such as CFE and PEMEX have come to

modernization and innovation, and it has a unique viewpoint

grips with the fact that achieving significant change in the

regarding the Reforms. It has noted that these mandates

industry has to be done through the inclusion of IT across

demand a higher level of specialization in the market, which

all functions. The reason the US has transformed itself into

translates into capabilities, talent management, and human

a major energy player is due to the fact that it invested in

resources. In the past, IT had a generic application where

technologies completely related to the IT industry. The IT

information was simply stored in a database, but now the

sector allows the energy industry to make significant strides

industry has migrated to applications that are tailored for

in the development of new processes and ways of doing

specific uses. Oracle is a unique company that can offer

business. PEMEX and CFE have noted that the only way to

this generalized application and individual solutions. The

survive in the open market is through efficiency, and the

role of technology providers in the implementation of the

industry that has this virtue at its core is IT. Our aim is to

Energy Reform is crucial, since the mandate is beginning to

provide cost competitive end-to-end solutions that allow

include new concepts such as data management, which is

companies to operate with the highest levels of efficiency,

administered by the IT industry.

while simultaneously promoting innovation within their management structure. Optimization of processes ranks

Q: What steps must CFE and PEMEX take in order to

highly on the list of priorities in the agenda of both CFE and

obtain the most qualified talent available, and how can

PEMEX, and IT allows energy companies access to the many

Oracle help in this endeavor?

advantages that trends such as Big Data and IoT bring.

A: Companies must begin strategizing to obtain the best talent available at the right time in order to make their

Q: What is the impact of trends such as the cloud, IoT, and

business goals a reality. The energy industry has been in

Big Data on investment decisions carried out by utilities in

the hands of CFE and PEMEX, and now new players have a

the energy industry?

serious drive to acquire the experienced talent. Who will be

A: There are several trends governing the IT industry, and

the supplier of said talent? CFE and PEMEX. These entities

one of the drivers is simplification. In a way, the cloud

should be concerned with the possibility of brain drain.

reflects the revolution that service utilities brought to the

Both parastatals need a good talent inventory that allows

markets 50 years ago. The cloud provides services on a

them to track the capabilities and potential of workers. In

massive scale, securely, and with advanced accessibility.

addition, they must ensure that the salaries they offer are

All of Oracle’s solutions are on the cloud, and this way it

competitive in a market that did not previously exist. Talent

can provide end-to-end solutions at a competitive cost

management will be a key component in the successful

and with the least amount of complexity. This is very

implementation of the Energy Reform. Oracle has ingrained

alluring for energy companies that have many processes

a series of concepts, such as Big Data and the Internet of

and operations within their businesses. For the cloud to

Things (IoT), and this enables it to be the sole technology

exist there must be an interlocution between the brain and

provider offering end-to-end solutions to the industry. There

an unintelligent device, and the architecture is backed up

is a series of emerging technologies that will protect the

by the Internet. Oracle was an important contributor, since

human talent that, ultimately, will be the one to implement

nine out of ten devices use JAVA, a solution developed by

the Reforms. New economies are based on the Internet and

Oracle. The world of the cloud makes it possible to gain

social networks. For instance, we have a solution that seeks

access to services that work just as easily as electricity or

out social networks, such as LinkedIn and Twitter, and it

water. The Big Data trend is occurring thanks to the vast

maps human resources and profiles that match the needs

amounts of information that is collected and analyzed, and

of the industries and those of energy players.

this allows companies to identify patterns.

| VIEW FROM THE TOP

GUIDING CFE ON THE PATH TO SMART TECHNOLOGIES DARÍO LABATTAGLIA Senior Sales Manager Mexico at Itron

Q: How has Itron used its position within the market to

A: Itron leads the industry with more than 15 million end

bring new technologies and solutions to the energy

points deployed across the globe and has projects in the

sector?

US, Ecuador, Brazil, and Australia, among others. This

A: The technology and energy industries merge in one

will encourage CFE to move toward the path of smart

respect, which is efficiency. Itron has strived to share its

technologies in order to secure a ROI. It is important to build

vision on efficiency and productivity in two main areas:

a strong business case that incorporates transparency and

energy and water management. Particularly in the electric

clarity into all the benefits smart grid technologies bring

sector, we have been working with CFE, one of the largest

to the table. Itron showcases all the operational efficiency,

utilities in the world with millions of customers. Itron is

savings, and benefits that these technologies provide for

advising CFE in the adoption of innovative technologies as

companies like CFE. Operational maintenance cost is lower

the sector undergoes the Reform. CFE released Request

when implementing new technologies. If a utility in Latin

for Proposals (RFP) with the objective of becoming

America has 40% of non-technical losses, it purchases

more efficient and reducing non-technical losses, which

100MW from a power generator company and only sells

represents an important opportunity for Itron and other

60MW then it is only invoicing 60%. In cases like these, the

firms in this industry.

ROI is incredibly fast when adopting new technologies and every year the utility sees more profitability. When investing

Q: Which areas is CFE working on in order to increase its

in smart grid technologies, it is important to make sure their

efficiency and reduce non-technical losses, and how will

implementation is correctly followed through in order to

Itron help in these endeavors?

maximize efficiency and savings.

A: CFE is focusing its primary efforts in Mexico City and its surroundings. It is planning to cover approximately

Q: Which breakthrough technologies are you introducing

one third of the total population of the country, and it

in Mexico, and how are these tailored to the conditions of

is working diligently to reduce field work, greenhouse

the local electricity market?

gases, and improve customer satisfaction. In parallel, the

A: CFE is a big company and Itron acts as a partner by

company has been spending time in areas with high non-

providing key technologies that will serve to improve

technical losses rates. CFE will release more than 1.2 million

operations. Products are tailored to the way the utility

endpoint RFP’s for smart metering technologies that will

carries out its business and the way it operates. CFE has

include meters, communication networks, data collection,

technical specifications and new technologies have to be

and professional services. With the implementation of

aligned with them. In Mexico, we are also introducing the

technology comes the challenge of managing data. Imagine

communication protocol IPV6, which is used in different

capturing data from millions of metering systems across a

countries around the world. The IPV6 is a standard and

dense urban area every 15 minutes. In the US, we helped

this open communication protocol gives CFE unparalleled

CenterPoint Energy manage 220 million pieces of data per

flexibility and helps it adopt a range of different technologies.

day for 2.2 million customers; doing so with CFE will be a

It was developed in order to address the growing need of

considerable challenge, due to its approximately 36 million

connected devices, which is now impossible to support

clients. There will be a need for enterprise systems (Meter

using the old IPV4 standard, since there are no more IP

Data Management and Analytics, among others) that will

addresses available in the world to be assigned. Mexico is

allow CFE to transform data into information in order to

undergoing a considerable transformation process that is

help the company make decisions, ultimately improving its

historical in its magnitude and breadth. Companies like Itron

business.

will help smooth the transition and ease this process. The regulators and operators, such as CRE and CENACE, need

Q: How is Itron positioning itself to take advantage of the

all the support available in order to execute the mandates

upcoming tenders?

dictated by the law.

| VIEW FROM THE TOP

PLAYER READY TO TAKE ON UTILITY JUGGERNAUT JUAN IGNACIO RUBIOLO President and CEO of AES México

Q: How has the position of Mexico developed within the

to add at least 1,000MW of installed capacity by 2018. Most

world of AES with the enactment of the Energy Reform?

of this installed capacity will come from cogeneration or

A: AES is a global company with a presence in more than

combined cycles, while 20-30% will come from renewables

20 countries and an installed capacity of over 50,000MW. In

and energy storage. At the moment we have just over

1997, AES became the first IPP company to operate in Mexico

1,050MW, so we plan to double it.

by obtaining the permits from CRE for Merida III. In 2008, it acquired a second power plant in Tamuin, and now it has two

Q: What are the concerns that off-takers share with AES,

units that serve CEMEX and Grupo Peñoles. At the beginning

and how can these be overcome?

of 2014, we identified Mexico as one of our main markets in

A: In order to make a project bankable, you need to have

the Americas, with approximately 70% of our portfolio. Mexico

certain basic factors already in place. An adequate off-taker,

forms part of the Central America and Caribbean structure

a well-balanced risk profile between off-taker and supplier,

and is the largest country in terms of installed capacity.

avoidance of excessive risks and market exposures, and mid to long-term contracts are all essential for the success

Worldwide,

AES

encompasses

broad

range

of the process. Off-takers always seek competitive power,

technologies and fuel types like coal, hydropower, biomass,

and this means they might not want contracts that last

and wind. In Mexico we have two main growth pillars.

more than three years in order to reduce long-term risks,

The first is conventional power, which includes thermal

or may ask for fixed prices to avoid commodity risks and

and cogeneration, both based on natural gas. This pillar

potential loss of competitiveness over the long term. All

includes small-scale LNG distribution, and is definitely a

these challenges must be overcome in order to develop

viable energy solution for the replacement of diesel and oil

successful projects in the new market.

derivatives. The second pillar is renewables and innovative solutions that will encompass wind, solar, and our energy

Potential off-takers have approached AES with their

storage product solutions.

concerns regarding how the market will evolve and what impact it will have for their businesses. Off-takers have

Q: AES is planning to invest US$1 billion over the coming

little experience, whereas generators will bring expertise

years. How are you planning to allocate this investment?

from other markets to the new field. At the moment we

A: We have identified four markets as a consequence of

are working with prospective clients and at the same time

the Energy Reform. The first two are CFE and PEMEX,

contacting EPC companies, since the latter work closely

which are markets of their own due to their size and

with off-takers in convincing them what technologies and

specific

types of projects to develop.

requirements

projects

and

technologies.

Thirdly, qualified users, and lastly, the wholesale market will constitute the remainder of our client base. Our focus

Q: How will AES’ relationship with CFE evolve, taking into

will be on providing solutions to the private sector, and we

consideration CFE’s new position?

will also participate to a certain extent in the CFE tenders,

A: If CFE transitions, as the laws states, then it will be

provided we find the right partners to remain competitive.

unprecedented in the continent. The new CFE will have to increase flexibility by streamlining its business model. AES

On the private sector front, we have established connections

would like to compete against an efficient CFE; it is much

with potential customers, especially the companies that will

easier to compete with another company with the same

benefit from the Reform by entering bilateral contracts with

level of expertise. AES will compete against CFE in the

generators. Our current goal is to identify which are the

generation business segment and we are also preparing to

viable projects that better fit our strategy. At the moment,

challenge CFE in the wholesale market and the industrial

there is a lot of potential, but in terms of concrete projects,

segment. In the latter, CFE will have to be very aggressive

there are many question marks floating around. Our goal is

and innovative due to its restricted cost structure.

The much lauded Energy Reform has revamped the country’s monolithic State-owned companies and set out an ambitious roadmap for the development of transmission infrastructure. As renewables and clean energy players compete for the best locations, they have found ingenious ways to make up for the insufficient grid infrastructure, such as the Open Season Scheme. Under this new context we see the rise of the new agency, CENACE, which will manage the grid and further cooperation between CFE and private enterprises in creating these new transmission lines. Between November 2014 and August 2015, CFE tendered four transmission projects and a further five projects will emerge at the end of the year. In total, these nine projects represent approximately US$550 million and 1,600km of circuits. In matters of distribution, CFE has tendered 19 projects that represent a staggering investment of US$850 million. All of these projects are aimed at reducing energy losses and modernizing and expanding the grid.

This chapter reveals CENACE’s new role and clarifies uncertainties regarding access to the grid, financial transmission rights, and energy dispatch. As smart grid technologies take over major grid infrastructures across the globe, there is a focus on new smart solutions and software available in the Mexican market. Technology providers and EPCs specializing in transmission lines shine a light on the new projects and solutions that will ultimately facilitate the creation of a smart grid and improve energy quality.

TRANSMISSION INFRASTRUCTURE

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CHAPTER 4: TRANSMISSION INFRASTRUCTURE 74

INSIGHT: Eduardo Meraz Ateca, CENACE

INSIGHT: Luis Fernández, IIE

MAP: Interregional Transmission Capacity

VIEW FROM THE TOP: Oscar Miranda, Smart Grid México

INSIGHT: Ulises Castillo, Scitum

INSIGHT: Pedro Martín, GE Digital Energy

VIEW FROM THE TOP: Enrique González Haas, Schneider Electric

INSIGHT: Rigoberto Castañón, S&C Electric Mexicana

INSIGHT: Dario Labattaglia, Itron

VIEW FROM THE TOP: Fidelmar Molina, ABB

VIEW FROM THE TOP: Miguel Muñoz Báscones, Elecnor

TECHNOLOGY SPOTLIGHT: Grupo Arteche

VIEW FROM THE TOP: Manuel Fernández, Grupo Arteche

VIEW FROM THE TOP: Vicente García Montero, Isolux Corsán México

VIEW FROM THE TOP: David Flores, Ormazábal

INSiGHT: Alfonso Guarneros, Roxtec de México

INSIGHT: Paul Pauzé, SunRise Power

DESIGNING THE GRID IN THE WHOLESALE MARKET

Eduardo Meraz Ateca, Director General of CENACE

Towns, cities, and states

According to Meraz, there will be valuable opportunities

are dotted with soaring

for private companies to participate in the construction of

transmission towers, and

new power facilities. The private investment in transmission

crisscrossing the land are

might occur within the limits established by the Ministry of

power lines carrying the

Energy and in compliance with contracts with the carrier

precious

that

or distributor of CFE. “Without a doubt, tenders will be one

will power all of Mexico.

of the most important elements in the wholesale market

So who is the architect

because they will foster the stable development of new

behind

generation projects,” comments Meraz.

network?

electricity

this

impressive

Planning

the

expansion of the national

The Ministry of Energy and other authorities continue

grid is a task that has been entrusted to CENACE by the

to work on the design of the bidding rounds in order to

Law of the Electricity Industry. Even though CENACE’s title

provide certainty to future participants and make sure

of Technical System Operator is new, the entity has been

they have the necessary technical and financial capabilities

involved in the operation of the National Electricity System

to complete the projects. Recently, The Ministry of Energy

for years, so it has the expertise and abilities needed to

received a proposal for the expansion of the National

maintain the grid’s stability. Now that more players will

Electricity System over the next 15 years, estimating an

interconnect, the challenge lies in planning the expansion

average annual growth rate of 3.5% in demand. Meraz

of the grid taking into account new nodes that will deliver

explains that 2015 has seen a slow increase in demand,

electricity and at the same time ensuring the secure and

amounting to 1.3%, but if the country’s economic conditions

continuous operation of the system.

improve, demand will again rise. Once a growth rate is calculated, CENACE can forecast the increase in demand

CENACE’s Director General, Eduardo Meraz Ateca, claims

and draft the indicative plan for the new generation

that the System Operator is working on centralized plans

capacities and the retirement of some plants.

that consider probable generation projects that will need to interconnect to the National Electricity System. It is

The

important to note that the cost-benefit ratio is taken into

generation capacities will be sufficient to cover the

System

Operator

can

also

calculate

whether

account when deciding to build new infrastructure.On the

expected demand, and if the National Electricity System

list of CENACE’s duties, one particular task stands out: it can

will have enough reserve capacity to operate in a reliable

propose the construction of as many new transmission lines

manner. “These estimates allow subsequent planning of

and new interconnection points are required. According

actions to be taken at the required capacity. The plans take

to Meraz, this is particularly useful for renewables, since

into consideration the expected increase in transmission

generators are located where the resources are available.

and distribution.” Meraz points out that many generators

For instance, if we look at the wind sector, we find its players

have submitted interconnection requests for future

in isolated regions, where they benefit from the strong gusts

projects.

of wind far from the required network infrastructure. CRE created the Open Season scheme to determine the

NATIONAL INTERCONNECTION SYSTEM: EVOLUTION OF WEEKLY CONSUMPTION (GWH)

necessary infrastructure in collaboration with companies

6,000

interested in developing projects in a given region. In the new model, reinforcements for the grid are also included in the plans in order to guarantee the dispatch of electricity. However, players will be asked to pay a deposit to guarantee their commitment to their projects, meaning the authorities

5,500 5,000 4,500

will be able to invest in new infrastructure. It is undeniable that the National Electricity System must be adapted in order to successfully incorporate renewable energies, some of which are noted to be intermittent sources and, as such, their performance is unpredictable. New technologies, such

4,000 3,500 3,000

as smart metering systems, are being added to the list for adequate adaptation to the National Electricity System.

2013

Q2 2014

Q4 2015 Source: CENACE

TECHNOLOGICAL RESEARCH ARM FOR ELECTRICITY INDUSTRY The Institute of Electric

scenarios. In addition, he believes the Institute will play

Research

was

an important role in making the grid more efficient and

ago

flexible, promoting the development of local markets and

with the specific aim of

decentralized systems that will allow competitiveness

supporting CFE, although

across the entire chain. For Fernández, smart grid

it has also helped PEMEX

technologies are now indispensable because measuring

with

the offer and demand are crucial steps in developing

founded

matters Luis Fernández, Executive Director of IIE

(IIE) 40

years

electricity-related this

a market. Thus, he cannot visualize a market that does

entity can operate in the

that

not use smart metering systems. “The possibilities with

most productive way by

intelligent technologies are incredibly vast, such as

integrating

the creation of new types of secondary markets,” he

technologies

and suppliers it is not familiar with. Since its creation in

describes.

1975, IIE has worked in every energy source, including maritime, through a theoretical approach. The research

Smart technologies yield returns in the medium term, and

groups have faced challenges when certain sources have

can help CFE become more efficient by reducing technical

been discarded due to a lack of interest from CFE in their

losses and energy theft in the high-voltage segment,

development. However, all energy sources have managed

according to Fernández. He points out that there is a

to survive. Wind energy is probably the strongest energy

tendency in the federal government to assume social costs

source in Mexico today, and IIE was awarded oversight of

outside CFE’s reach, which might result in the involvement

the National Center for Innovation in Wind Energy.

of the Ministry of Social Development. “If the issue of losses were delegated to the State-owned companies,

IIE was originally a department within CFE, a situation that

things would not change. On the other hand, there have

has changed over time because private companies that

been many instances of success in Mexico where security

have their own technologies have increased their market

is tendered and awarded to private companies, like in the

participation in the past 15 years. However, a technological

case of bank security.”

intermediate has been necessary in this process in order to interpret the technologies and prepare specialized

The Institute conducts research on autonomous systems

personnel. Due to this gradual change, the Institute is

that can be implemented in the most remote places.

currently in an advantageous position because it has

Fernández explains that although the national grid covers

developed close ties with private companies and can

98% of the population, the remaining 2% amounts to

collaborate with these players and CFE.

millions of people. He reminds that CFE cannot supply remote communities because it is a costly task, and this

IIE’s efforts to support CFE always begin with the drafting

goes against the utility’s integral mandate. In addition,

of a business plan that considers how much CFE invests in

he believes decentralized systems are a better idea than

the Institute and how much it will save when implementing

expanding the grid and could create business opportunities

its suggestions. Therefore, CFE accompanies IIE throughout

for

the whole process of developing a technology until it is

financing schemes must be developed so that companies

operational and fully implemented. Over 80% of IIE’s budget

can supply this market in a competitive way. “Financial

comes from sales, as there are basically no subsidies. Luis

markets are become adverse to risk, favoring large, long-

Fernández, Executive Director of IIE, proudly states that

term investments. This is a shortcoming in developing a

the Institute has inflated its presence among private clients.

market where there is significant local participation and

“Through our work with the private sector, CFE witnesses

more distributed generation,” Fernández laments.

local

companies

remote

locations.

However,

the competitive advantages we provide, and feels inclined to buy more from the Institute,” he explains.

One

IIE’s

decentralized

developments

for

rural

communities consists of a hybrid wind-photovoltaic Fernández states that IIE is deeply involved with CENACE

system with a backup diesel engine. “Our experience

in developing software tools to model possible market

with these systems has taught us to be meticulous when

scenarios so that market rules can be drafted and a

modeling the market for such a hybrid system and demand

spot market created. He highlights the importance of

scenarios,” says Fernández, adding that it is equally

examining the market’s past responses when looking at

important to carry out a technical pilot and conduct social

market simulation models, as this helps to predict future

research to understand the end users’ needs.

I INTERREGIONAL TRANSMISSION CAPACITY (MW, 2013)

43 B

800

C 390

520

220

7 450

700

300

8 500 400

500

9 400 250

4 48

800

300

90 400

REGIONS 1.

Hermosillo

26. Manzanillo

Nacozari

27.

Obregon

28. Lazaro Cardenas

Los Mochis

29. Queretaro

Culiacan

30. Central

Mazatlan

31.

Juarez

32. Veracruz

Moctezuma

33. Puebla

Chihuahua

34. Acapulco

10.

Durango

35. Temascal

11.

Laguna

36. Coatzacoalcos

12.

Rio Escondido

37.

13.

Nuevo Laredo

38. Grijalva

14.

Reynosa

39. Campeche

15.

Matamoros

40. Merida

16.

Monterrey

41.

17.

Saltillo

42. Chetumal

18.

Valles

43. WECC (USA)

19.

Huasteca

44. Tijuana

20. Tamazunchale

45. Ensenada

21.

46. Mexicali

Tepic

240

1,250

200

Carapan

Poza Rica

6 1,050

950

21 1,100

22 1,950

Tabasco

Cancun

22. Guadalajara

47.

23. Aguascalientes

48. Villa Constitución

24. San Luis Potosi

49. La Paz

25. Salamanca

50. Los Cabos

Source: Ministry of Energy

350

San Luis Rio Colorado

D Transnational Transmission Capacity

12 380

400 kV

2,400

A. Los Brillantes (Guatemala) - Tapachula

230 kV

H 80

B. Otay Mesa (California) - Tijuana

1,600

1,300

C. Imperial Valley (California) - La Rosita D. Laredo (Texas) VFT - Nuevo Laredo

1,680

138 kV

1,400

E. Eagle Pass (Texas) BtB Light - Piedras Negras 1,150 - 1,000

F. Falcon (Texas) - Falcon

G. P. Frontera (Texas) - Reynosa

1,100

H. Sharyland (Texas) - BtB - Reynosa

1,400

I. Brownsville (Texas) - Matamoros

1,200 200

115 kV J. Diablo (Texas) - Paso del Norte

K. Azcarate (Texas) - Reforma 1,450

1,600

L. West (Belice) - Chetumal

69 kV

1,400

550

M. Military Highway (Texas) - Matamoros

31 1,350

650

140 600

3,750 700

600 750

310

2,000

800

1,500 450

2,200

28 350

270

440

3,250 1,290

37 1,750 1,200

1,500

| VIEW FROM THE TOP

SMART GRID TECHNOLOGIES FOSTER STABILITY OSCAR MIRANDA President of Smart Grid México

Q: What are the main accomplishments of Smart Grid

experienced engineers to manage the power electronics.

México in the past year that fosters the implementation

The incorporation of renewables into the national system

of smart grid technologies in Mexico’s electricity market?

must be resolved because if it is left unaddressed, then the

A: Smart Grid México was borne from the need of companies

government will not be able to reach its renewable energy

within the sector to spread the implications of smart grid

goals. Smart grids are a piece of the puzzle that will allow

technologies. In Mexico there is not enough basic knowledge

the integration of renewables into the grid.

surrounding these technologies, and a bridge is yet to be created between the technology providers and the users.

Q: What is the true value that smart grid technologies

Companies, specialists, and academics joined forces to create

provide to end users and players in the electricity market?

the association in order to represent the interests of the smart

A: Smart grid technologies should be an inherent part of any

grid community. Smart Grid fosters knowledge of the sector,

energy project with an established ROI. Smart grid is not

offers solutions, and provides networking mechanisms in

an area that is tackled separately; rather, any project that

order to create synergies between members. The association

wishes to modernize or incorporate efficiency must have

is also supported by international organizations such as the

this ingrained at the core. With the implementation of the

Global Smart Grid Federation in order to incentivize the

Reform, we will begin to see energy players solve the issue

growth of the smart grid sector globally and locally. We have

of energy storage in different ways, and this will be driven

an open dialogue with CFE, CENACE, and the Ministry of

by the innovation capabilities of all players in the market.

Energy, and we see that the authorities acknowledged the

Having smart grid technologies enables the company,

importance of these technologies and their implementation

through its control system, to see how it its generating

in the electricity market. It is a well-known fact that smart

power and know when to dispatch or store energy. New

grid technologies foster economic competitiveness and

players entering the market stand to benefit the most from

improve operational processes across the electricity market.

smart grid technologies. In Mexico, one of the greatest areas

When an industry is mature it demands IT technologies in

of opportunity is Advanced Metering Infrastructure (AMI),

order to ensure its continuous running, and overall smart

which reduces losses and provides clearer information to

grid applications make better use of the assets and increase

the decision support systems.

consciousness of energy usage. Q: What actions and strategies have CFE and CENACE

Q: How do smart grid technologies help the incorporation

implemented in favor of smart grid technologies?

of renewable energy in the National Electricity System?

A CFE and CENACE have adopted new missions in the

A: Smart meters and sensors are found in strategic areas

energy industry, and they must accomplish a series of tasks

of the grid, and these help regulate the continuous flow of

that have been mandated by the Energy Reform. Accessible

electricity in a large system. One of the advantages of a

new technologies could help solve several efficiency issues

smart grid is that it accumulates vast amounts of information

for these entities. The electricity market must take care

that can be used for analysis and helps operators identify

when adopting new technologies and it does not have the

areas of improvement. Renewable energies are intermittent

luxury to experiment with new equipment. We understand

and injecting them into the grid on a large scale can cause

that CFE and CENACE have major responsibilities in

serious disturbances in the system, but we are using a

maintaining the security of the network, so we are trying to

number of mechanisms in order to incorporate them into

help the community understand and adopt best practices,

the grid. Firstly, large-scale energy storage can enable the

technologies, and offer solutions with strong business

grid to receive a constant flow of electricity when required.

cases. Ultimately, only CFE and CENACE have a clear view

Another alternative is power electronics that regulate the

of their priorities and needs, and as a result, Smart Grid will

fluctuations of energy and establish balance mechanisms.

be aligning its academic and industrial activities to help

The latter requires precise mathematical models and

these entities achieve their goals.

HACKING THE GRID A hijacker manages to gain control of 1 million smart

is a customized type of phishing contextualized to the

meters and decides to fake consumption metrics. This

victim’s situation. Five years ago we began seeing

would invariably create a mess in the whole country’s

specific malware focused on SCADA and ICSs, which are

energy management. Even worse, the system could detect

used to manage critical infrastructure in many countries.”

the need to deploy more energy or redirect it to other

The most efficient virus so far, which has been specifically

regions, overcharging the substations and transformers

created for SCADA, is Stuxnet. “It was first used to

and causing them to blow up. While this scenario seems

attack the SCADA systems used to enrich uranium for

to be ripped out of a page from a popular Sci-Fi book,

production of nuclear power in Iran,” Castillo recalls,

for Ulises Castillo, CEO of cybersecurity firm Scitum, the

adding that Stuxnet marked the beginning of a new era

situation could very well become a reality.

of malware focused on the SCADA system.

“We need to create more awareness on the risks and expand the number of projects to increase cybersecurity”

Ulises Castillo, CEO of Scitum

Companies in the electricity market have embraced SCADA

With IoT and smart grids, security is paramount, “Four

and industrial control systems (ICSs) and these now form

years ago, security units found SCADA handbooks in the

part of IP networks and the famous Internet of Things (IoT).

hands of Al Qaeda. In addition, experts have studied the

“Developers of these smart technologies are unaware of

work of Chinese hackers, and the results show many of

security issues, so they launch products and features to

them are evaluating the intricacies of SCADA systems

fulfill the market’s expectations. However, the IoT means

around the world.” Even the director of NSA has stated

a new world of vulnerabilities waiting to be exploited,

that China has the ability to cause power cuts across an

even with basic attacks in some instances,” Castillo warns.

entire country. In the case of Mexico, there has been only

Companies implementing smart grid technologies must be

one crowning utility in the electricity market and now

aware of the risks and avoid vulnerabilities in their codes.

that this is bound to change, in Castillo’s eyes, there will

Raising awareness about cybersecurity is a monumental

be more risks for the country. “We need to create more

task for Scitum; nevertheless, it strives to offer a new set

awareness on the risks and expand the number of projects

of products and services to protect SCADA systems, ICSs,

to increase cybersecurity,” he insists.

and the IoT infrastructures, all of which are an inherent part of smart grids.

through

collaboration

that

companies

the

cybersecurity milieu can keep track of the evolution of What are the current practices electricity companies take in

malware. “Scitum is actively collaborating on a daily basis

regards to cybersecurity? This is a question Scitum sought

with different Mexican and international organizations. We

to answer a few years ago. Castillo relates the experience,

are now collaborating with Microsoft’s Digital Crime Unit

“Some time ago, one of the top executives in Mexico’s

in Seattle, which is disseminating materials and sharing

energy sector visited us to review some services we were

its information with different countries.” The company

providing at the time. His team asked us to hack some

has also started working with the Scientific Police in

substations, which we did, and ultimately we showed how

Mexico, and it has links with several cyber intelligence

easy it was.” In this instance, Scitum was able to penetrate

services. “Now we are receiving information for the Latin

the systems controlling the substation by using basic tools.

American region on issues such as possible cyber risks

These were not even considered advanced attacks and the

in the energy sector, new types of attacks, the attack

consequences could have been dire, “Once in the system,

vectors (the path attackers follow to penetrate a network),

we had the ability to shut down the substations and cause

SCADA systems, databases, and so forth. Collaborating

a blackout in an entire region. This happened a few years

with specialists across the technology industry enables

ago, and now things are even worse,” Castillo adds.

Scitum to help customers protect their infrastructure.” The services include not only the traditional IT services,

Attacks are constantly evolving, and it is common that

but also identification of risks related to SCADA, ICSs, or

attack vectors use spear phishing, which differs from

smart grids. As Mexico strides towards technology and

the typical phishing spam email. “This spear phishing

innovation, cybersecurity players will serve as its shield.

PROVEN SOLUTIONS FOR A HEALTHY GRID

Pedro Martín, Commercial Director North Latin America of GE

It is an undisputed fact that

lines, cables, and even temperature. “If the temperature

the

Electricity

rises, the transmission capacity in a copper cable is

System will be expanded

reduced. Therefore, we need to know the temperature of

in the coming years, as

every transmission cable so that the system can manage

new generators will be

all of these variables and determine the transmission

introduced,

their

capacity in real time,” Martín comments. Once GE has all

energy will have to be

this information, it examines the generators to determine

connected to the grid. This

the best alternative for evacuating the electricity. Martín

situation creates valuable

stresses that plenty of these complex variables and

business opportunities for

decisions need to happen in real time, which is what its

a well-known name in the

EMS enables users to do.

National

and

industry: GE. The multinational has developed close ties with generators over several years, so it is in a strategic

The distribution segment also provides opportunities for

position to offer them an integrated electrical plant. Pedro

GE, but Martín acknowledges that this segment faces

Martín, Commercial Director North Latin America of GE,

more challenges. “Now CFE has a different business model

explains that when strong solar or wind resources suddenly

focused on profit, so it will have to maximize its efficiency. It

generate large amounts of power, the unexpected increase

cannot afford losses, either technical or otherwise.” The main

in electricity injects disturbances into the network, such as

concern surrounding non-technical losses is electricity theft,

frequency variations and harmonics, which can blow up

and Martín says an optimal solution is to install a meter that

a substation if they are strong enough. “Every renewable

cannot be tampered with, such as GE’s automated metering

energy generator needs to mitigate these phenomena, and

infrastructure that allows for remote operations, including

GE Energy Management has tools to achieve this, such as

remote readings and management of the infrastructure.

capacitor banks and synchronous condensers,” Martín says.

“These technologies have proven successful in other countries, so they can help in Mexico too,” he asserts.

GE is also examining opportunities in the grid itself. “The Mexican electric system is well-developed, since CFE has

On the technical losses side, Martín claims the key is to

been incredibly thorough in creating and maintaining the

manage the distribution grid in the most efficient manner.

grid. I must say GE Energy Management is well-positioned

“We need to monitor certain factors, such as the capacity at

to work in this area too, as we are leaders in substation

which the lines are operating. We can also audit transformers

automation with a commanding market penetration,”

in real time and predict any failure from insulation degradation

explains Martín. He points out that the Energy Reform allows

or electrical abnormalities in aged infrastructure.” GE Energy

for private entities to enter the transmission area through

Management also uses systems to manage the workforce,

the Independent Transmission Entity modality, which

making efficient use of human resources when a technical

consists of a private company building and operating parts

issue rises. The systems can determine at which point in the

of the grid. GE Digital Energy (GE DE), a division of GE that

distribution network an outage was generated and what

provides solutions for energy management optimization,

caused it. If the problem cannot be solved remotely because

will take advantage of its leading position in technological

a transformer blew up, for example, the system will identify

development and its proximity to CFE to position itself

where this happened and send out a crew to fix it according

with new players in the transmission segment. “A private

to the location and the type of issue. “It will be done quickly

company entering the Mexican market or a domestic

and efficiently, enabling operations to be resumed as soon as

company that decides to enter the transmission segment

possible. Efficiency does not only mean maximizing the use

will have an advantage when working with GE because

of your current infrastructure, it also means saving money,”

we have been collaborating with CFE since the utility’s

Martín explains.

creation,” Martín advises. Smart technologies will be vital in Mexico beyond the

GE has solutions for grid diagnostics and demand

reduction of losses in the grid. Martín believes that there

forecasting that can help in planning the expansion of the

will be several ways to determine prices in the wholesale

grid. Its energy management system (EMS) handles the

electricity market, one of them being the spot market. “Spot

usual variables in a network, using information obtained

prices require real-time information, and a smart system

from elements in the field, such as syncrophasors. Other

reads several variables in real time and provides intelligent

pieces of equipment are used to monitor transmission

information so that a person can make a correct decision.”

| VIEW FROM THE TOP

EFFICIENCY & DIGITIZATION FOR SMART GRID INTEGRATION ENRIQUE GONZÁLEZ HAAS President and CEO of Schneider Electric Mexico and Central America

Q: Which trends in the Mexican electricity market have

users. Energy losses occur due to outdated machinery

had the most influence on the demand for products

to generate electricity, since more resources are being

and solutions across the various segments of Schneider

used up. Our products can detect energy losses and

Electric’s portfolio over the past year?

allow clients to monitor and make adjustments to the

A: The electricity market must grow at an unprecedented

grid. Our systems can offer up to 50% more efficiency

rate if Mexico wishes to sustain its economic growth. It

and between 25-30% in energy savings, so they are in

is imperative that the market grows at the same speed as

tune with the developments of the market. Schneider

other industries in the country. The Reform is allowing further

Electric’s answer for the smart grid is EcoStruxure, as it

private investment in the generation of electricity, and under

strikes a critical balance between active energy efficiency

this scope, it will be easier to resolve this challenge. It is

and smart facilities for customers, and efficient and green

estimated that the global electricity demand will double by

distribution on the supply side.

2050, so we have to be prepared to replicate the existing infrastructure in the coming 35 years.

Q: What progress has Schneider made to transform itself from a product supplier to an integrated solutions provider?

As a result, we are seeing major growth in two of our business

A: It is a process we started close to ten years ago

areas: energy efficiency and digitization. In the former we are

when we noticed that our product portfolio served as

concerned with helping our clients achieve energy efficiency

an excellent platform to provide integrated solutions.

in their normal production activities and processes, and we

We started to establish in-house capabilities in order to

also help generators use fewer resources. In the latter area

develop these solutions. In energy management we can

of interest, the focus is on software development that allows

offer solutions that interconnect our products to specific

clients to have a more stringent control platform in their

areas of our clients’ operations that require monitoring

power plants. This way we encourage the interconnection

and control. Maintaining a pioneering position is crucial

between substations and end users. In a sense the

for the company and it encourages energy efficiency

digitization area of business unites all actors involved in

programs. Schneider Electric has reduced its energy

the electricity market, from generation and transmission to

consumption by 35% and CO2 emissions by 16% in its

distribution. Our EcoStruxure software makes it possible to

300 installations worldwide, and in Mexico all of our 11

monitor and control how much energy is being consumed,

facilities have adopted specific energy saving plans.

and it is inherently tied to the development of the smart grid. For an effective smart grid, software that runs in parallel and

Q: Which flagship project reflects Schneider Electric’s vision

interacts with the customer and producer is necessary. Our

to encourage the development of energy efficency markets?

solutions make the cycle of generation, transmission, and

A: There is an alliance that started out between Schneider

distribution more efficient.

Electric and BMW three years ago. BMW decided to enter the electrical vehicle market, so it started looking for

Q: What sort of technologies can actually be successfully

suppliers for the chargers. At the beginning we developed

implemented in smart grids in Mexico?

a home-use charger, but we knew that in order for the

In the past, CFE was the only player on the market so

electrical vehicle market to succeed, charging stations

it was hard to invest in generation, transmission, and

would be needed across the city. The idea is to motivate the

distribution simultaneously. The arrival of new actors

population to invest in these cleaner vehicles, and Walmart

trying to penetrate the market will drive innovation and

was interested in providing these services. It is important to

investment. At the moment the relationship with the

note that CFE provided the infrastructure and support to

client is linear because CFE carries out all the processes,

build these stations. We hope this project will spread across

but in the future it will become more multidimensional,

the whole country and hopefully we will see a rise in these

and smart grids will allow an efficient interface with end

types of vehicles in Mexico.

INTELLIGENT TECHNOLOGIES MITIGATE ENERGY LOSSES The face of the Mexican

controlled by S&C intelligent equipment, which decide

power

not

whether electricity can pass. This region is prone to

the only one that has

weather phenomena so electricity was frequently lost,

been

beyond

causing a negative economic impact for utility companies.

recognition;

companies

The smart grid allows identification of the spots where

across

sector

electricity is being lost, and efficient control.

sector

changed the

are

now creating innovative

Rigoberto Castañón, General Manager of S&C Electric Mexicana

business models in order

S&C installed seven switch status points in Cozumel and has

to get to grips with the

been operating this project for a year and, like any prototype,

shifting

this

there have been certain problems that have needed

new

sands

energy

landscape.

adjustment. The decision to incorporate smart grids lies in

Rigoberto Castañón, General Manager of S&C Electric

the hands of CFE; however, local and state governments can

Mexicana (S&C), says his company can now seize

push for the adoption of these technologies. “In Mexico we

opportunities in generation, distribution, and transmission,

have had discussions with CFE and other authorities, but

areas in which S&C has developed expertise. “There will be

nothing has yet materialized,” explains Castañón.

a chance to offer integrated and intelligent solutions that will make the business of generation, transmission, and

Tracing the improvement of power quality begins the

distribution far more efficient. Likewise, we have identified

moment energy is generated. There are several solutions

areas of interest in the solar and wind sectors by providing

that can be used to mitigate technical losses, such as

electromechanical solutions.”

automatic and fixed capacitor banks. One of the factors leading to energy loses is voltage variations. These

Castañón says the new framework for the energy sector

fluctuations give way to rising temperatures, and if the

has set in motion an interest in his company’s products.

equipment is not maintained at operational and stable

“This new framework promotes efficiency and profitability,

temperatures then energy is lost. Poorly engineered

and these factors can be achieved through intelligent

infrastructure also contributes to energy losses. “If a

equipment. Competition will become fierce, and suppliers

transmission line of 20km long is used and no capacitor

that are not up to par will be pushed to one side.” According

banks are installed, then energy will debilitate and some

to Castañón, CFE will follow new and transparent rules so

will certainly be lost.”

that all providers are given equal footing. However, he believes the most important factor will be taking care of

The generation process of intermittent sources, such

CFE’s needs, rather than adjusting to the rules. As a result,

as solar and wind, can create voltage variations and

a public tender where the determining factor is price

imbalances. Certain pieces of equipment have to be

can be rather complicated for a company specialized in

installed in order to reduce these factors. S&C has a

technology and added value products.

product called DSTATCOM, which increases the efficiency of energy storage systems by controlling voltage variations.

As CFE transforms itself into a profitable enterprise, S&C will

“At the moment the storage solutions use batteries and

find the greatest business opportunities in the incorporation

these are not exactly environmentally friendly,” explains

of new technologies. “The company has cutting-edge

Castañón. “The plan is to transition to hydrogen cells or

equipment for protection, control, and automation of

other technologies that can be more efficient and less

transmission and distribution systems,” says Castañón,

aggressive to the environment.”

adding that S&C products are suitable for the creation of smart grids. Power failures can be isolated in efficient ways

Currently there are different battery types, such as the

that allow those in charge of the distribution network to

ones that use sodium and lithium, which are far more

repair the problem while continuing to supply electricity.

efficient than lead batteries used in industrial applications. Given the size of the batteries, sometimes there is a need

S&C is taking advantage of its success stories in order to

to control their temperature so as to not lose power. For

showcase its expertise to potential clients, particularly

instance, S&C provided equipment that made it possible to

CFE. The company has designed and installed smart

use solar generated power at night by storing it in large-

grids in several US cities, and Castañón believes some of

scale batteries during the day in several US cities. The

these projects can be replicated in Mexico. For example,

implementation of similar technologies in Mexico could

in Chattanooga there are 2,500 switch status points

boost the use of renewables in the country.

ADAPTIVE COMMUNICATIONS TECHNOLOGY FOR THE GRID Utilities around the world are now looking to smart grid

Labattaglia, Senior Sales Manager of Itron, explains how

infrastructure to solve pervasive problems like electricity

the OpenWay Riva works. “This technology uses PLC and

theft,

The

RF, which is built for the mesh network. This mesh is the

technology par excellence is that which can be shared

operational

inefficiency,

and

unreliability.

communication network that meters share and the collection

across multiple communication pathways, normally known

points decide which communication path is the most

as Adaptive Communications Technology. These systems

appropriate.” Traditional networks transmit data using either

can determine the most appropriate paths in the grid and

RF or PLC, so integrating these two modes offers efficiency

adapt to changing conditions. This is attractive for utilities

and a higher probability of successfully transmitting the

like CFE that have to interact with dense urban landscapes

data. “This capability reduces network planning, design

as well as lower density environments and rural areas.

implementation time, and significantly flattens the cost curve

Developing a dynamic communication platform that can

for field area network deployments,” he adds.

enable the flow of information across every device, link, and network can be challenging. Itron, a noted technology and

This solution builds on the Cisco IPv6 multi-application

service company dedicated to energy, sought to answer

smart grid reference architecture, which was jointly

one question: what if a utility could deploy a network that

developed

integrates multiple communications technologies like RF

interoperability for devices and applications running on

mesh and PLC on the same module? If this were to happen,

the network. These capabilities will allow utilities like

the module would always choose the best and fastest

CFE to push numerous smart grid applications to the

communication path available, and the goal posts would

very edge of the grid and include demand response and

be irrevocably shifted.

distributed generation coordination at a sub-transformer

with

Itron

and

provides

plug-and-play

level. “This will ultimately improve outage detection Itron has solved the hypothesis by creating the OpenWay

and analysis, transformer load management, revenue

network platform and using Itron Riva technology. This

assurance, and theft detection,” Labattaglia details. All of

solution is the ultimate communications infrastructure

these are benefits that CFE desperately needs, and smart

for smart grid applications, since it delivers high-speed

grid technologies such as OpenWay Riva are certainly the

network performance without straining connectivity. Darío

tools of choice.

| VIEW FROM THE TOP

INNOVATIVE TECHNOLOGY ENSURES GRID’S RELIABILITY FIDELMAR MOLINA Strategic Account Manager CFE Industrial Solutions at ABB

Q: Could you describe the opportunities ABB finds in the

it attractive for the government. ABB has led important

transmission and distribution segment?

HVDC projects worldwide, such as the recently awarded

A: In the past, transmission was held back by the federal

NSN link, which will interconnect Nordic and UK energy

budget, and CFE tried to maintain growth but fell short

markets, enabling both regions to better leverage the

every year. There have been some difficulties in increasing

benefits of renewable energy. Another example is the

transmission lines at the same pace as the demand. ABB is

DolWin2 platform in the North Sea, which will integrate

a critical partner of CFE, as 70% of the installed capacity

916MW of clean wind energy into the German grid –

uses ABB equipment. Our company brings the most added

enough to power over a million households.

value and has the most presence in transmission and distribution. CENACE is in charge of planning and analyzing

Q: ABB has a historic relationship with the parastatal. How

the regions where the future electricity corridors will be

would you describe the progress of CFE’s transformation

established, and we will support this process. We have

into a productive enterprise of the State?

developed technologies that bring stability to the grid,

A: CFE is making strides in mitigating energy losses, a

ensuring all participants access to a reliable network. One

tangible accomplishment for the parastatal. Another

of these technologies is called flexible alternating current

important development ABB is following closely is the

transmission systems (FACTS). In the future, we expect these

division of CFE into different subsidiaries. This is an

systems to be continuously updated, and an expansion of

important step, since transmission, distribution, and

the grid that results in sound reliability.

power generation all have different objectives, so having individual companies will make it more competitive.

On the side of distribution, the urgency lies in eliminating energy losses. Now, CFE is investing half of the resources

We have been strategic partners of CFE for over 70 years,

allocated to distribution to mitigate these losses. Smart

and since day one we have endeavored to work on key

grid technologies will also play an important part in this

projects. One of the systems that have gained attention is

endeavor. We have solutions and software that optimize the

Static Var Compensators (SVC), which helps stabilize the

assets in distribution networks called Asset Health Centers.

transmission network and make it more efficient. To date, there are over 20 systems installed across the grid, and

Q: Could you describe the competitive advantages of

they are critical to the functioning of the system. These

unique products such as FACTS and high voltage direct

SVCs alleviate bottlenecks in the grid and stabilize voltage,

current (HVDC)?

which can otherwise be problematic.

A: HVDC is an important technology in transmission, since

it will be the first time that it will be implemented in Mexico,

Q: What are the competitive advantages of Gas Insulated

and it poised to accelerate the rhythm of growth. This

Substations (GIS)?

solution resolves several technical aspects in the National

A: ABB’s GIS are unmatched when it comes to compactness,

Electricity System, with the ability to isolate the effects

efficiency, and safety. The GIS-based design minimizes the

caused by intermittent energies when they enter the grid.

substation’s footprint by as much as 70%, enabling it to be

When solar or wind power enter the system, the alterations

installed indoors and in urban areas. A GIS is a high-voltage

can be intense, so this technology works like a firewall

substation where the major structures are contained in

that prevents these disturbances from impacting the grid.

a sealed environment, with sulfur hexafluoride gas being

Another advantage is that it can transmit large quantities

the insulating medium. Besides the advantage of reducing

of electricity with fewer infrastructures, thus reducing the

space requirements, GIS are less sensitive to pollution and

need for rights of way and the impact on the environments

contaminants. While the initial cost may be higher than

and communities. The fact that it reduces energy losses,

building an air-insulated substation, the operation and

a high-ranking task in the authorities’ agenda, makes

maintenance costs of a GIS are considerably less.

| VIEW FROM THE TOP

TRANSMISSION LEADER DIVERSIFIES ACTIVITIES IN MEXICO MIGUEL MUÑOZ BÁSCONES Country Manager of Elecnor Q: What role does Mexico play in Elecnor’s growth

Q: How will the relationship between Elecnor and CFE

strategies?

evolve, and are you working in conjunction with any

A: A year ago, Elecnor set three priority countries for its

other companies?

global operations in the Americas: Chile, Brazil, and Mexico.

A: For us it is very important to be able to establish

These are the countries where different geographic regions

partnerships with companies such as CFE and PEMEX in

are going to be managed. In the case of Mexico, this is

order to seize investment projects. We are already in talks

where we will manage all our Central American operations.

with these companies to discuss possible partnerships,

Around 80% of our projects are carried out with CFE,

although we do not know if these could include transmission

mainly in the power lines and substations market. Mexico

lines. As I mentioned, we are interested in investing in

is becoming increasingly important for Elecnor because of

ducts, wind energy, and generation, and in Brazil we have

the changes that the Energy Reform will bring about as well

several assets in transmission lines. CFE could benefit from

as the expectations surrounding it. However, at Elecnor we

this too, but everything depends on the Reform.

want to be cautious until we see a return from this reform process. This does not mean we are halting activities, but it

We also established an alliance with APG Asset Management

means we are analyzing the sectors in which we can invest,

as part of our eagerness to grow. The specific goal is to

and our possible market options.

carry out energy transmission projects in Latin America. Since in the present financial climate resources are limited,

Q: What are Elecnor’s main objectives in Mexico, and in

partnerships with major investment firms such as APG

which sectors is the company present?

provide an attractive lever for continued growth. Over the

A: The company has a strong presence in transmission

past 15 years, we have invested a lot of resources in Brazil for

lines and substations. Three years ago we obtained the

wind energy and transmission, and we have also invested in

Morelos contract, our first contract for pipelines, and the

Canada. The objective was to have the support of a fund to

contract for Agua Prieta, in a co-ownership with CFE.

be able to invest in countries like Mexico.

Elecnor has a subsidiary called Enerfín, which develops wind farms, and another one dedicated to water treatment

Q: What are Elecnor’s immediate ambitions for its Mexican

called Hidroambiente. Enerfín recently established a base

operations?

in Mexico, although the subsidiary has already bid for

A: Mexico is a key country for Elecnor, where we want

tenders in the country from Spain. We have also made

to establish a strong and renowned company beyond

offers for satellite imaging. The main objective is to expand

substations and transmission lines. Elecnor would like to

and increase our presence in the Mexican market by taking

operate in Mexico like we do in other countries, providing

advantage of the opportunities brought about by the

services such as dumping site sealing, biodigestors, and

Energy Reform. We are carefully selecting which projects

solar energy projects. We want to be strong in renewables

to invest in. Pipelines will definitely be in our portfolio, we

and sustainable solutions. Railways are also an important

are interested in wind energy, and we are keeping an eye

segment for Elecnor, and the company even has its own

on tenders for energy generation.

design for overhead lines. We are trying to get the Ministry of Communications and Transportation to tender projects,

Our most distinguishing trait is the quality of our work and

but the bids that have been issued have been aimed at

our delivery of quality projects on time. The market for

manufacturers of rolling stock and we feel that it is a

transmission lines and substations is fiercely competitive

shame that we have to work with these manufacturers

and the prices have dropped. In the case of Elecnor, we

instead of working directly with the Ministry. We would like

have not been awarded a contract for transmission lines in a

to be recognized not only for what we have done, but also

few years, although I do not think tenders should be based

as a diversified company. Our company views Mexico as a

solely on price, since quality is beneficial for the country.

priority area for growth over the medium and long term.

| TECHNOLOGY SPOTLIGHT: MONITORING INSTRUMENT TRANSFORMERS Flaws in Instrument Transformers (ITs)

have increase

on the power factor. Given the relationship between this

worldwide at an alarming rate. In Mexico, 236 pieces of

value and the losses in dielectric energy, this methodology

equipment experienced flaws between 2001 and 2006.

offers a clear indicator of the isolation deterioration in ITs,

These malfunctions can cause fires or explosions, putting

which could be further accelerated due to a temperature

staff and substations at risk, and resulting in economic

increase. The monitoring system consists of obtaining

losses due to interruptions in the power supply, damages to

signals from the leakage current of the ITs and a reference

peripheral equipment, replacement costs, and environmental

signal, which should be the system’s voltage. Temperature

liabilities from oil leaks. A flaw in an IT implies an estimated

and humidity are also monitored in order to include these

cost of MX$17 million or more. According to several studies,

variables in the algorithms. These are obtained directly

the main cause of these faults is humidity and temperature

from the substation’s transformers and are later sent to a

increases that degrade the transformer’s isolation. At the

concentrator module.

moment, the most common way of diagnosing the condition of an IT’s isolation is through periodic checkups carried out

Since these signals have to be measured simultaneously,

every year or two. These revisions require the shut down of

they are synchronized using an atomic clock, and they

the equipment and have proven to be insufficient.

all reach the concentrator via optic fiber. Afterward, this module sends all these signals to a central server,

Arteche, through its INELAP subsidiary, developed a

along with the synchronization signal from the clock. It

monitoring system to prevent and manage flaws in ITs in

is important for the signals to be synchronized so that

real time, without the need to depower the equipment. The

they function properly across INELAP’s algorithms, and

diagnostic it provides includes the equipment’s condition

in order for the algorithms to make corrections based

and its remaining working life, enabling the user to make

on environmental conditions. The system also boasts

decisions on its maintenance or replacement. This results

a temperature and humidity monitoring card in the

in an efficient diagnostic tool that completely prevents

substation, sending information to the concentrator

flaws in high-voltage assets.

and then to the server. The system is integrated into the substation’s SCADA network through an IP address and

The methodology for the online monitoring of ITs uses

an Ethernet cable so that it can send information on the

both software and hardware, and is based on calculations

condition of all the ITs that are being monitored.

ARTECHE15_Energy&Sustainability.pdf

6/10/15

11:35

| VIEW FROM THE TOP

CUTTING EDGE TECHNOLOGY TO COUNTER TECHNICAL LOSSES MANUEL FERNÁNDEZ Director General North America of Grupo Arteche Q: How has your experience in Mexico helped open the

Q: How is Arteche working with CFE and CRE on reducing

doors to new business prospects in Latin America?

technical loses in the Mexican grid?

A: Grupo Arteche (Arteche) has been around for 65 years

A: Mexico faces a great challenge regarding electricity

and for the past two decades the Americas have been

loses, especially in Mexico City. In fact, energy loses in

a strategic region in our expansion goals. Our previous

Mexico amount to more than 30%, more than three times

experience has proven to be useful, since Arteche

the international standard. Arteche supplies products that

was a key player in the construction of wind energy

can address this problem, like high accuracy and extended

infrastructure during the renewable energy boom in Spain,

range instrument transformers and anti-theft solutions for

as well as having been involved in more than 42% of the

metering systems.

wind park projects in Brazil. In the case of Mexico, our experience opens up plenty of possibilities, particularly in

One of CFE’s objectives is to reduce technical losses,

the aftermath of the Energy Reform. Mexico has huge wind

although there is a lot of work to be done in terms of

and solar power potential, and we want to be part of this

regulation and implementation. Arteche has always

sector’s development.

worked closely with CFE and the current relationship will change drastically due to the Reform. Regarding technical

Q: Can you break down which business divisions provide

losses, we work with CFE to determine its needs, and then

the bulk of Arteche’s revenue and what are its new pillars

Arteche examines possible ways to address these needs.

of growth?

We have several pilot projects, many of which are in the

A: The most active division is our core business,

transmission and distribution segments.

Instrument Transformers. Arteche began operations with the transformer business line, and later, the company

Q: What are the main priorities of the company’s R&D

diversified through other product lines oriented towards

division at the moment?

Power Quality, Smart Grids, and Turnkey Solutions.

A: R&D is an important part of our business strategy,

Our main business in Mexico is related to transformers,

with more than 3% of our revenue invested in innovation.

but we are growing at an accelerated pace in the other

Arteche has a global technological development center

three divisions. We are using our core business line as a

that traces the evolution of technologies and it performs

foundation, although we see the largest potential in our

studies and simulations. In Mexico we opened a local

other business units.

innovation center three years ago, and it has been a unique experience that has enabled us to form ties

Arteche has traditionally been a manufacturer of primary

with other technology centers and universities. We are

equipment. Although this has been our strongest area,

working in sustainability, asset management, protocol

the company is increasingly adding value by supplying for

61850, and network reliability. Arteche develops its future

the peripheral components of primary equipment, such as

technologies according to these areas, and this approach

technological services and technical studies. Arteche does

goes hand in hand with the goals of the Energy Reform.

not focus on equipment or the construction of substations

Arteche has an engineering services division where it

exclusively; we sell integrated solutions with technical

carries out studies in fields like ferroresonance, electrical

value. The company is one of the few around the world that

interconnectivity, and energy quality, among others. One

can perform analysis of phenomenon like ferroresonance,

of the unique technologies that add value to our service

and also provide solutions in protections coordination,

is the PSS/E software used for grid interconnection.

short circuit analysis, power quality, harmonic analysis,

Often these innovations are part of the projects we

voltage

studies,

deliver to our clients or they are a special service that our

transient stability studies, system impact studies, and field

stability

studies,

dynamic

stability

customers demand. We are expanding and exporting our

diagnostics for instrument transformers.

measurements product line, mainly to the US and Canada.

| VIEW FROM THE TOP

TRANSMISSION AN OPPORTUNITY AREA FOR INFRASTRUCTURE GIANT VICENTE GARCÍA MONTERO Director of Business Development at Isolux Corsán México Q: Transmission has become an attractive investment

scheme. This is also one of the reasons we have stayed in

destination for players. What are some of Isolux Corsán’s

Mexico for so long, since we have had the financial muscle

most emblematic projects that showcase its permanence

to undertake capital-intensive projects.

in the sector? A: We began with transmission lines 25 years ago and we

Q: Are you planning on offering private companies

have a historic presence in this sector. Isolux Corsán is

services in building transmission lines and infrastructure

responsible for 5,000km of high voltage transmission lines

for energy generation projects located in remote areas?

and 50 substations, with a presence in almost every Mexican

A: We believe this will be one of the largest areas of

state. In electricity generation, the largest combined cycle

opportunity resulting from the Energy Reform. Although

plant we have built in Mexico, which has a 280MW capacity,

the regulatory framework is still unclear, we know that the

is located in Rosarito, Baja California.

law states that transmission and distribution are considered public services, and CFE will still hold ownership of the grid.

In addition to energy generation and transmission, the renewables industry has become increasingly important for

Regardless, the law considers the participation of the private

the company over the past few years. In 2014 we finished

sector and the possibility of forming alliances with CFE

the BOP for a 54MW wind park in Tamaulipas, and we were

or other State productive enterprises. The law states that

awarded the entire EPC for the construction of a 100MW

the private sector can participate by financing, installing,

wind park in the same state. We have another concession

operating, managing, and upgrading transmission lines. We

for a small 5-6MW solar park in La Paz, Baja California Sur,

would like a clause that allows the private sector to develop

intended to sell electricity directly to CFE for a 20-year

transmission lines, since Mexico is a large country that will

period under the small producer scheme. Even though this

require significant investment in transmission lines.

is a small park, it is significant because solar energy has so far seen very limited development in Mexico.

Q: Do you foresee a future for public and private partnerships within the transmission sector?

Q: Last year Isolux Corsán secured a contract to build 26km

Renewables experience bottlenecks in transmission due to

of transmission lines and ten substations in the Valle de

the remote locations where these energies are produced,

México project. How are these developments advancing?

and this lack of infrastructure is a hurdle for the development

A: The company was very lucky last year in terms of

of these sources. Our experience in this field is quite broad,

awarded projects because we won three contracts with

since Isolux Corsán is one of the leading global investors in

CFE for transmission lines in Huasteca-Monterrey, Valle de

private transmission lines, but CFE knows a lot more about

Mexico (Mexico City, Hidalgo, and State of Mexico), and

transmission, as it is a very experienced player. I believe

1116 Transformacion Noreste (Nuevo Leon).

that, regardless of the model, the authorities need private participation in this sector while respecting government

We won two of the largest transmission contracts CFE has

ownership. At Isolux Corsán, we believe that it is important

granted in the last years, with the Huasteca-Monterrey line,

that the Energy Reform expands its scope in this line; the

with 422km of 400kW transmission lines and an investment

State could retain ownership while allowing private parties

of US$127 million. The Valle de Mexico line amounts to 26km

to participate in transmission. We acknowledge that private

of transmission lines and required an investment of US$89

management will result in a more affordable development

million, and 1116 Transformacion Noreste, which also has a

of the grid, as we have witnessed in other countries. If this

substation, is 42km long with voltages of 400kW and 115kW.

segment opens to private investment, Mexico will certainly benefit because energy losses will be reduced, the required

In these cases, the capital comes from CFE in the form

investments will decrease, and renewables will have a

of public investments under the financed public works

better chance of proliferating.

| VIEW FROM THE TOP

PROMOTING THE POTENTIAL OF INTELLIGENT TECHNOLOGY IN MEXICO DAVID FLORES Managing Director of Ormazábal Mexico, Central America, and the Caribbean Q: What have been Ormazábal’s most successful projects

legal mandates, mainly in Europe. Secondly, automation

in Mexico over the past year, and how does a higher

and distribution control is seen to be important, as is

degree of intelligent equipment increase its clients’

integration of renewables or distributed generation into the

competitiveness?

system. Fortunately, Ormazábal has plenty of experience

A: Ormazábal products and services can be found in any

in these three areas. In Mexico we are already carrying out

medium-voltage market, which encompasses almost every

integration of distributed generation. For AMI, we have a

segment of the electricity industry. Until 2014, Ormazábal

company in the US called Current that specializes in power-

focused on renewable energy generation, mainly wind and

line communications, which entails the transmission of data

solar, and in electricity projects from private investment,

from the gauges through the power line instead of using

such those in the automotive, hospitality, and infrastructure

radio, GPS, or optical fiber. In automation and distribution

sectors. In 2014, through collaboration with CFE, we won

control, we want to concentrate on the projects with which

the most important substation project in Mexico: Valle de

we are already involved and contribute to the standardization

México Phase II. Our main clients here are contractors to

of products and technologies for the automation of the grid

whom we supply equipment that is later operated and

and integration of distributed energy.

maintained by CFE. Regarding distribution, we are working on automation and distribution control pilot projects in

Q: In your view, what factors could hamper the

Santa Fe, Acapulco, and Cancun’s hotel zone. These are

implementation

strategic projects for the company because they allow us

distribution technologies in Mexico?

to enter the automation and distribution control segments,

A: Firstly, a comprehensive standardization for certain

which remain unexplored in Mexico.

technologies, such as AMI, has not yet been implemented.

sophisticated

transmission

and

CFE has launched several tenders aimed at reducing We are also working on the BBVA Bancomer tower, a

losses. The basic idea is to install metering systems in

complex project in terms of engineering due to the amount

the low- and medium-voltage segments and transmit

of equipment required. Ormazábal provided sophisticated

consumption-related information to CFE, allowing this

automation and control systems that prevent serious

company to optimize the grid, anticipate its evolution

incidents that may affect the bank’s operational activity,

based on consumption patterns, and detect theft. We

such as a reliable electric system that reconfigures itself

believe that the amount of investment CFE will contribute

automatically so that emergency power plants can

to the projects justifies the need to standardize the

intervene in case of a contingency situation. A degree of

technologies that will be used in these developments, thus

intelligence in the equipment, which translates into fewer

fostering competiveness and the reduction of costs.

losses, has a clear impact on the building’s sustainability. Another achievement consisted of participating in a

Considering the advancements of AMI in Europe and

250MW wind energy project in Nuevo Leon headed by

the US, Mexico should learn lessons from international

CEMEX and Acciona, called Ventika I and Ventika II. This

experiences. For instance, in Europe conventional gauges

will be the first large-scale wind development in this state,

have to be replaced with intelligent gauges by the end

and we used the project as an opportunity to introduce

of the decade. Since companies were forced to invest

our transformers to Mexico for the first time.

in this endeavor, some utilities decided to also invest in creating a communication channel for introducing future

Q: In which projects does Ormazábal have the opportunity

technologies that would enable remote automation and

to implement smart grids in Mexico?

control of the grid. They decided to capitalize on their

A: There are three areas that are seeing the most

investment and generate profit by planning over the

development globally. Firstly, telemetry or Advanced

medium and long term. Mexico could adopt this approach

Mater Infrastructure (AMI) has been partly pushed due to

to smart technology.

PERFECTION IS IN THE DETAILS

Alfonso Guarneros, Director General of Roxtec de México

George Eliot once said

from the basement to the canopy and wind turbines.

“great

not

Roxtec even stocks products for control rooms and outdoor

done by impulse, but by

cabinets for the geothermal segment. This flexibility has

a series of small things

given the company the opportunity to work with giants,

brought together.” Indeed,

such as Iberdrola and Acciona. “Most of the equipment is

no one knows this better

imported, and Roxtec’s products are already used by the

than Roxtec, a supplier

OEMs that are established in Denmark, China, Spain, and

company whose products

Germany,” Guarneros shares. EPC companies have become

and

although

the bread and butter of Roxtec, and as such, the company

insignificant,

is eager to maintain constant communication. “They are

things

solutions,

seemingly keep

projects

are

from

grinding to a standstill. Cable and pipe seals branch

our main target, so it is important to predict their needs and be prepared for the future.”

out to almost every single energy project, and Alfonso Guarneros, Director General of Roxtec de México, is well

Roxtec places innovation at the heart of its product

aware of this. “We want to serve the whole spectrum, and

portfolio, as it allows the company to directly tackle the

we have major ambitions in the generation sector. We have

biggest industry challenges. For example, in wind power

identified opportunities in hydro and thermal generation,

generation, one of the obstacles lies in the turning of

and we are even in touch with the Laguna Verde nuclear

the nacelle, because the power cables hanging from the

plant regarding a potential project.”

fixing point of the nacelle inside the tower are exposed to vibration, torsion, and constant movement. Traditional cable

Roxtec’s strong presence in the industry is evoked in the

fixing methods fail to address these issues, but Roxtec’s

wide range of applications and products it offers. The

system for loop retention has significantly extended the

company provides equipment for several applications in

lifetime of cables, dampened the vibration, and eliminated

solar power generation, and in wind generation, it covers

the friction. “The rubber we use has a unique softness that

ADDRESSING INTERMITTENCY THROUGH INNOVATION ‘Intermittency’ is a word that strikes fear in the hearts of

Pauzé believes that the tide has turned with Tesla Motors’

solar and wind developers alike, and it is seen as a major

recent announcement of the release of its PowerWall,

roadblock the industry is yet to fully solve. Paul Pauzé,

designed to eliminate this disconnect. “It will only be

President of Canadian-based solar power equipment

a matter of time until this becomes a viable solution for

manufacturer and distributor SunRise Power, explores

residential, commercial, and utility-scale generation, and I

ways to connect solar energy to the grid. “We believe that

believe this will lead to a revolution in the power generation

most of the advancements will come from new materials

and transmission industry,” he predicts.

that will allow us to better capture the sun’s energy and to store this power more efficiently at night.” As soon as a

Once this revolution is on its way, Pauzé believes utilities

company adds renewables to its operations, it will be able

are destined to eventually disappear, much like what is

to save tremendous amounts of money. However, Pauzé

currently happening in the telecommunications market.

admits that the company has to avoid frequency issues

Just like the evolution from hardwired home phone lines

because solar energy is largely intermittent due to cloud

to cellphones, this change will be seen in a similar fashion

movement. “It is important to have a technology that

in power generation and supply. “People will no longer

allows you to buffer these energy variations.”

look for utilities to obtain their energy supply, but rather generate the energy they need themselves.” SunRise Power

Energy storage poses both a challenge and opportunity

has worked tirelessly with utilities, over 35 in Canada alone,

for the industry, mainly because common storage products

in order to help them understand the evolution, and their

are obsolete and extremely expensive. “PV technology has

requirements, in order to succeed.

largely outpaced storage technology in terms of price and

quality. Although this is quickly changing, there still exists

Pauzé feels the missing link has been found with a product

a large gap that no one has yet found a way to bridge.”

that can finally contribute to all the industries that operate

does not damage the cable and provides the required

reliability, the company is releasing new solutions. “We have

retention, flexibility, and support,” Guarneros explains.

a new product called UG that is for underground sealing against constant water pressure, which is ideal for power

The incoming investments herald the development of new

cables entering via foundations,” Guarneros describes. The

projects, all of which will require cables to be properly

seals are designed to be resistant to constant and even

sealed, and this is where Roxtec will enter the game.

catastrophic water pressure, preventing humidity from

Amidst the melee of boundless business opportunities,

damaging the equipment in a wide range of applications

the company is eyeing the transmission and infrastructure

in the power and transmission sectors. Roxtec has also

sector as a crucial target. “In transmission, distribution,

identified opportunities at the new natural gas compression

and electrical substations there are many components

stations, as many components must be sealed there, ranging

that need to be sealed in order to increase operational

throughout control rooms, engine rooms to outer cabinets.

reliability,” Guarneros tells. The company is ready to offer its corrective sealing solutions for transmission lines. This

As world leaders for modular sealing solutions, Roxtec

particular activity is called retrofit and it provides a higher

will maintain its position by investing in research and

operational reliability to the end user. Potential customers

development. “In fact we are opening a materials research

weigh the benefits of retrofit sealing in two ways,

center in Sweden. We find ourselves in a position where

operational reliability and protection of assets. According

we constantly have to innovate in order to maintain our

to Guarneros, it is not enough to be leaders in retrofit

lead,” Guarneros comments. As it stands, most of the

sealing, it is also important to understand the dynamics of

R&D is carried out in Sweden, Germany, and the US, so all

the sector in order to predict clients’ future needs.

the knowledge is then poured into Mexico’s engineering department and then tropicalized to the peculiarities

In the eyes of Guarneros, CFE is bound to see solid

of the Latin American markets. However, Guarneros has

opportunities to invest in Roxtec in order to protect its assets.

important plans for Roxtec’s Mexican subsidiary. “Mexico

“In order to avoid energy losses, the energy stations must be

has a technical engineering department, but in the

optimized, and retrofit sealers will play an important role in

future we want this country to become Latin America’s

their renovation.” Following the same lines of efficiency and

technology hub for Roxtec.”

off-grid and that want to bring renewables to their sites.

savings, and most importantly, maintain power certainty.

“We have a Variable Speed Generator (VSG) called Innovus

“This solution works with all sources of renewable power,

Power that essentially produces a constant and stable

but currently we are primarily focusing on the integration

frequency regardless of load or renewables variances.”

of solar projects.”

Pauzé compares its effect to windmills, since regardless of how fast the helix turns, it will still deliver a consistent

For Pauzé any company, whether it is connected to the grid

amount of energy both in frequency and voltage.

or not, stands to benefit from VSG technologies. “I believe

Basically, Innovus Power adopts the windmill systems and

that the companies that would benefit the most from this

reengineers them for diesel gensets. “Its design enables

technology are those that depend on energy generated

the generator to run at the most efficient operating speed

from fossil fuels.” Companies can generate the same amount

under any load. This is one of the first products in the

of energy using 10-15% less diesel or natural gas. In addition,

renewable market that allows users power certainty and

VSG can deliver 35% lower operation costs when compared

high penetration in their operations,” he adds.

to a fixed-speed generator. Innovus Power is perfect for micro-grids and unstable grids, and SunRise Power has

Current grids are powered by fixed speed generators, and

discovered that the VSG can cover the needs of a range

in some cases the energy comes from renewable sources

of companies, from hotel chains and manufacturing plants,

like solar or wind. According to Pauzé, the challenge is

to mines located in remote regions. “Companies are now

to deeply penetrate these micro-grids while maintaining

recognizing the cost benefit of generating their own power

their stability and keeping energy costs low. “This VSG has

instead of connecting to the grid.” With the disappearance

the capacity to do exactly that. Its hybrid platform control

of energy banks in the wake of the Energy Reform, this

systems prioritize the renewable portion of the power

technology has arrived on the doorstep of intermittent

system and allow it to maintain energy stability without

energies at an opportune time. As batteries and energy

storage, reducing the costs considerably,” Pauzé boasts.

storage technologies become cheaper, companies will seek

One of the competitive advantages of VSG systems is that

to become energy independent, and if a tight rein is put on

they are able to buffer power fluctuations and limit voltage

the issue of intermittency, renewables stand to conquer a

during excess generation. This can represent substantial

slice of one of the most important markets.

When Mexico began to prioritize cleaner, more efficient ways to generate electricity, natural gas was chosen as the transition fuel. A cheap and abundant supply of natural gas from the US prompted the development of several pipelines to ensure the availability of this fuel within Mexico. These endeavors are a priority in energy security due to the critical alerts the authorities issued in the 2012-2013 period. The private sector has been building and operating natural gas pipelines since 1995, so it is well-positioned to help achieve the sector’s objectives laid out in the National Infrastructure Plan. Several pipelines are being built to transport natural gas from the US, with Los Ramones being the most emblematic, in an attempt to lower energy costs for the country’s thriving industrial sector. The natural gas availability derived from these developments facilitates the implementation of cogeneration and combined cycle plants. Their high efficiency levels and cost-competitive nature is aligned with Mexico’s energy strategy, and therefore these facilities are expected to proliferate in the country in the coming years. While CFE and the private sector will continue taking advantage of these technologies, PEMEX will enter the wholesale electricity market through the creation of a cogeneration division.

The following chapter discusses the projects that will expand Mexico’s natural gas pipeline system and the players undertaking them. Key stakeholders share their perspectives on the role of natural gas in the aftermath of the Energy Reform and the development of crucial infrastructure. Developers comment on the benefits of cogeneration and the importance of this technology in Mexico’s energy transition. Although natural gas was chosen as a transition fuel, many players believe it is here for the long run.

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CHAPTER 5: NATURAL GAS & COGENERATION 96

INSIGHT: David Madero Suárez, CENAGAS

VIEW FROM THE TOP: Tania Ortiz, AMGN

ANALYSIS: Mexico’s International Natural Gas Trade

100

VIEW FROM THE TOP: Eleazar Gómez Zapata, PEMEX Cogeneration and Services

101

VIEW FROM THE TOP: Agustín Humann Adame

102

MAP: Natural Gas Infrastructure

104

INSIGHT: Fernando Calvillo, Fermaca

105

VIEW FROM THE TOP: Robert Jones, TransCanada

106

INSIGHT: Ricardo Ortiz, Compañía Mexicana de Gas

107

VIEW FROM THE TOP: Ricardo Ortiz, NEOmexicana

108

PROJECT SPOTLIGHT: Agua Prieta II

110

INSIGHT: David Fatzinger, InterGen

111

VIEW FROM THE TOP: Gerardo Pandal, Guascor de México

112

VIEW FROM THE TOP: Oswaldo Chimal, Cummins

113

INSIGHT: Severo López, Galo Energy

Juan Antonio Alonso, Grupo Ortiz 114 VIEW FROM THE TOP: Jorge Calderón, Grupo Ortiz 115

EXPERT INSIGHT: Verónica Irastorza, NERA Economic Consulting

117

VIEW FROM THE TOP: Kevin Piccolo, IGSA

118

INSIGHT: Enrique Manzano, Sampol

119

VIEW FROM THE TOP: Ramiro Rojas Cañamar, Primero Energía

OPERATOR ENTRUSTED TO DEVELOP INFRASTRUCTURE As part of the authorities’

with experience in building and operating these projects,”

effort

Madero stresses. However, he admits that the authorities

open

must identify possible storage projects and pipelines to

transparent

generate and

energy sector, CENAGAS

transport gas from new processing centers.

was created to manage

David Madero Suárez, Director General of CENAGAS

and operate the national

At the moment, no storage projects are planned for the

natural gas transportation

next few years. “Nowadays, storage in Mexico is technically

and

system.

nonexistent aside from our LNG facilities in Altamira and

In order to ensure gas

Manzanillo,” Madero states. In his view, one option would

availability in the country,

be to implement strategic projects and launch tenders. “We

CENAGAS

storage

need storage projects for the short term, with the capacity

construct a solid strategy that anticipates the average

needs

to increase supply relatively quickly. Saline cavities can serve

and peak demands based on the numbers it will obtain

this purpose. Nonetheless, we also need long-term solutions

from the electricity sector, the cogeneration industry,

that can store large volumes. In this case, we have to evaluate

and the industrial demand, as well as the penetration of

depleted oil wells and other underground geological

natural gas into the domestic market. According to David

formations where we can potentially store natural gas.”

Madero Suárez, Director General of CENAGAS, once the operator has estimated this demand, it will have to devise

Madero comments that technology will play an important

a balance of pipelines and storage infrastructure that will

role in ensuring a reliable natural gas system in the country.

allow it to bring gas to places where it is needed, while

He mentions that PEMEX already uses SCADA systems

simultaneously limiting costs.

with satellite technology and microwaves. In his view, pipeline systems are evolving as a result of technological

The existence of a technical system operator raises

improvements, and now SCADA systems not only have

questions about the role of the productive enterprises of

the capability of measuring gas flow, they can also assess

the State in the natural gas sector. “All the pipelines CFE

the quality of the gas and provide reports across large

has tendered have been built and operated by private

distances. Even though the equipment linked to PEMEX

companies. People mistake these for CFE pipelines, but the

pipelines will be transferred to CENAGAS, the oil company

fact is that they are operated by professional international

will retain its SCADA system because these can be used for

companies participating in the Mexican market,” he clarifies.

other substances, such as liquids and crude oil. Therefore,

CENAGAS will participate alongside these companies

CENAGAS will install its own SCADA, which means an

by operating 9,000km of pipelines it will inherit from

upgrade to the latest version of the software, powerful

PEMEX. Madero points out that the oil company has not

servers, and the possibility of including remote automation.

participated in the distribution segment for quite some time

“We should also seize the opportunity to implement

now. Nonetheless, PEMEX will continue to transport natural

networks such as those used by mobile phones to collect

gas until the transfer of duties to CENAGAS is complete,

information from control centers, enabling us to detect leaks,

and in the meantime, PEMEX will assist the system operator

among many other things.” Madero says CENAGAS will seek

with its transportation responsibilities. Madero is confident

a broad investment program aimed at pipelines with the goal

that eliminating the possibility of PEMEX acting as a

of tightening security and improving the operator’s daily

shipping company will allow the oil company to become an

activities, while also increasing the efficiency of technology.

important producer that could also commercialize the gas it produces, or alternatively import gas.

At the moment, CENAGAS is polishing its strategy and concentrating its efforts on completing the transfer of PEMEX

Amid these changes, Madero says that the Administrative

assets over the next two years, and beginning its activities

Board of CENAGAS does not foresee the system operator

as a technical system operator. Between three to five years

being involved in the construction of new ducts in the

from now, CENAGAS will work on improving its operational

medium term. The pipelines that are already planned will

efficiency with the goal of establishing benchmarks with the

be built by private companies, amounting to an additional

rest of the international industry, and with other worldwide

6,000km of ducts and investments of up to US$10 billion.

systems operators, to ensure CENAGAS is at the forefront

“Some productive enterprises of the State could participate

as a technical operator. For Madero, the ideal scenario would

through joint ventures, subsidiaries, or companies where

be for CENAGAS to be rated among the top 25 shippers in

they have stakes, but we are looking for private companies

terms of efficiency, costs, and operational safety.

| VIEW FROM THE TOP

THE COMMON VOICE OF THE GAS INDUSTRY TANIA ORTIZ President of the Board of AMGN

Q: What is your perspective on the emphasis the

company. Today CFE and PEMEX are the two largest gas

government has put on natural gas as a transition fuel?

marketers in Mexico, but other shippers will soon emerge

A: About five years ago, we started seeing declining gas

onto this market.

prices, which allowed Mexico to access a supply of cheap gas from the US. Natural gas is critical for Mexico, and

After 1995, PEMEX continued to have a dominant role

the country is making the right decisions in promoting

in the gas industry, as it was the largest gas supplier in

the development of pipelines to obtain this resource from

Mexico and owned the National Pipeline System. During

the US. Natural gas is not only competitive, but it is also

that

a clean and reliable fuel. A lot of people call natural gas

developed, mostly in areas where PEMEX had no presence.

a transition fuel, but I think natural gas is going to see

Furthermore,

longevity in the market.

pipelines, and CENAGAS’ role will be ensuring open access

period,

many

privately

CENAGAS

will

owned shortly

pipelines own

were

PEMEX’s

to those pipelines. PEMEX will become another in a range Q: In light of the new structures, how will the role of CFE

of users, albeit the largest. The NOC will continue to play

change in the development of pipelines?

an important role in gas marketing, but it will no longer

A: One of the main goals of the Energy Reform was to

own infrastructure.

lower electricity prices by switching generation from fuel oil to natural gas. The Ministry of Energy put together the

Q: What are the main contributions of the AMGN in the

National Infrastructure Plan. Initially, this was not targeted

development of the Mexican energy industry during the

toward CFE or PEMEX; it was a blueprint of the pipelines

drafting of the Energy Reform?

that the country needed to ensure access to gas supplies.

A: The natural gas industry was opened to private

Nonetheless, CFE is the largest gas consumer in Mexico, so

investment back in 1995 and there have been a substantial

it has a clear interest in ensuring it has access to gas and

number of companies that have been involved in the

that the resource is available at a competitive price.

development of natural gas infrastructure and the natural gas market in general since then. The AMGN was created

CFE recently started modifying its gas supply strategy

in the late 1980s, and today the Association represents

and began buying its gas directly from marketers and

each company that has investments in either natural gas

producers in order to secure an active role in pipeline

transportation or distribution in Mexico.

development. In 2012, CFE issued tenders for 2,000km of pipelines, all of which were awarded, and in the past three

In Mexico, every time a new agency issues a regulation,

years it has awarded five pipelines. CFE is transforming

it goes to a public access website and there is a process

itself into an integrated gas and power company, which

through which we can submit comments. The AMGN

are resources that are inherently linked.

evaluates all the new regulations being drafted. We have debates, and then we submit a proposal as part of this

Q: Agencies such as CRE and CENAGAS are also

process. I would not call our work lobbying, because

undergoing change. How will their roles be modified by

lobbying is more political, what we do is more in-depth.

the optimization of CFE and PEMEX?

The goal of the Association is to include every company

A: CRE will regulate both the gas pipelines and the

that participates in the natural gas industry in Mexico. With

marketers, ensuring that the transportation companies

the opening of the market, more Mexican and international

offer open access, and establishing the regulated rates at

companies are joining the Association as well as some of

which these companies will need to provide services. This

the newly created State-owned entities, such as CENAGAS.

regulator will issue permits to the marketing companies,

We are all competitors, but when sitting at the AMGN, we

including CFE and PEMEX, to ensure that there is a clear

are focused on the same goal of being able to work more

barrier between the pipeline company and the marketing

efficiently as an industry.

MEXICO’S INTERNATIONAL NATURAL GAS TRADE Mexico has always been more of an oil producer than a

Energy Reform and the opening of the electricity market

natural gas producer, yet up until 2000, it was able to

have catalyzed cascading investments in this sector. US

remain self-sufficient in terms of natural gas. In that year,

pipeline companies and producers are already evaluating

demand started surpassing production and the investment

opportunities in Mexico, as evidenced by BlackRock and

priorities of PEMEX, the only hydrocarbon producer at the

First Reserve buying shares for US$900 million in the

time, did not involve the necessary investment to ensure

emblematic Los Ramones II pipeline. This project, originally

natural gas independence. Following stagnant production

launched by PEMEX’s TAG Pipelines subsidiary, aims to

and increasing demand, Mexico became a net importer.

satisfy up to 20% of the national demand for natural gas.

Right around that time, the US was perfecting fracking,

Meanwhile, Los Ramones I is designed to facilitate the

a technology that would allow production of difficult-to-

import of 2.1MMcf/d. The other productive enterprise of

access unconventional gas resources and the increase of

the state, CFE, is also playing a prominent role in fostering

production to levels conducive to export.

natural gas imports. The energy company is tendering projects to import gas from the US, including Waha-

According to the US Energy Information Administration

Samalayuca, Waha-Ojinaga, Ojinaga-El Encino, El Encino-

(EIA), Mexico went from importing 105,102MMcf from the

La Laguna, and Enherenberg-San Luis Río Colorado,

US in 2000 to 728,513MMcf in 2014, which represents a

to meet Mexico’s increasing demand. Although these

nearly sevenfold increase. The Henry Hub natural gas spot

projects are intended to supply CFE’s plants, they will also

price has also responded to the evolution of supply and

benefit the industrial sector with a transportation capacity

demand. In 2000, Mexico paid US4.26/Mcf. The price saw

of 5.78bcf/d across 1,647km of new pipeline infrastructure.

a significant drop and hit a low of US$2.94/Mcf in 2010, when Mexico imported 619,802MMcf. Natural gas prices

EIA data estimates that natural gas exports to Mexico,

saw subsequent increases, reaching US$4.65 per million

which amounted to 3% of the US production in the first

cubic feet in 2014. To date, Mexico imports approximately

quarter of 2015, will grow to 5% by 2030. Between 2008

40% of its natural gas consumption. Given that US natural

and 2013, the capacity of pipelines connecting the US

gas prices make it more financially attractive to import than

and Mexico doubled in capacity, in anticipation of the

to produce locally, these figures are expected to continue

medium-term demand increase. Mexico’s natural gas

to rise, and by some estimates, Mexico could consume up

exports, on the other hand, tend to be low. In 2010, Mexico

to 10% of the total US natural gas production over the next

exported 19.25mcf/d, a number that drastically dropped to

two to three years.

1.30mcf/d the following year. In 2012, the country’s natural gas exports reached their lowest level in the past five

Mexico’s natural gas transportation sector has been

years, amounting to 0.90mcf/d. This segment has seen a

open to private participation since 1995. However, the

slow but progressive recovery, and export levels reached

BALANCE OF FOREIGN TRADE IN NATURAL GAS (MILLION M3, JAN 2007-JUN 2015)

Balance of foreign trade in natural gas Jan 2007-Jun 2015 in million cubic meters (Source: CRE, based on information from importers, exporters and Sener) 2,500 2,000 1,500 1,000 500 0 -500

-1,000 -1,500 -2,000 -2,500

2007

2008

2009 exports

imports

2010

2011

trade balance

Source: CRE

Importations

Exportations

2012

Balance

2013

2014

2015

DEVELOPMENT OFGas THE HENRY NATURAL GASBTU) SPOT PRICE (US$/MMBTU) Henry Hub Natural Spot PriceHUB (Dollars per Million 20

projections

2006

2007

2008

2009

2010

2011

2012

2013

Historical spot price STEO forecast price NYMEX futures price 95% NYMEX futures upper confidence interval 95% NYMEX futures lower confidence interval

2014

2015

2016

Source: Short-Term Energy Outlook and Thomson Reuters

Source: Short-Term Energy Outlook, October 2015 and Thomson Reuters

1.38mcf/d between January and June of 2015. Tania Ortiz,

expected start of operation in 2018. As Ortiz points out,

President of the Board of AMGN, explains that long before

the first priority is to ensure a reliable and efficient supply

the Energy Reform, PEMEX decided to focus its resources

to meet the local demand. The pipeline infrastructure that

on oil production. “It was a rational and economic decision,

was recently completed, is currently under construction, or

as there are limited resources and the NOC could produce

is in planning stages is destined to bring low-cost natural

oil at US$100 per barrel or gas at US$20 per barrel

gas from the US that is will allow the country to lower its

equivalent.” However, she emphasizes that the country has

average electricity costs and therefore tariffs. At the same

plenty of gas resources awaiting development by PEMEX

time, Mexico’s Ministry of Energy has mentioned plans to

and other interested parties.

export natural gas to Asia after 2017, as this market presents attractive prices for the re-exportation of natural gas as

To implement Mexico’s gasification strategy, Mexico’s

LNG. These ambitions are supported by the construction

National Infrastructure Program 2014-2018 calls for public

of liquefaction plants in Oaxaca and Sinaloa, which are

investment for the construction of pipelines. In June 2015,

included in the National Infrastructure Plan, and by the

CFE announced it would tender 24 energy infrastructure

potential development of liquefaction facilities at Sempra

projects totaling an investment of $10 billion, including a

LNG and IEnova’s Costa Azul terminal in Baja California for

US$3 billion subsea pipeline between Texas and Tuxpan,

the export of LNG to Asia. Similarly, the Executive Branch

Veracruz, that will be able to transport 2.6MMcf/d, at its

has also announced plans to export gas to Central America.

IMPORTS AND EXPORTS BY PRIVATE SECTOR VS PEMEX (MILLION M3, JAN 2007-JUN 2015)

Imports and exports by private sector vs Pemex Jan 2007-Jun 2015 in million cubic meters (Source: CRE, based on information from importers, exporters and Sener) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

2007

2008

PEMEX imports

PEMEX Importation

2009 private imports

2010

Private Importation

2011

2012

PEMEX exports

PEMEX Exportation

2013

2014

2015

private exports

Private Exportation

Source: CRE, importers, exporters and Ministry of Energy

| VIEW FROM THE TOP

COGENERATION IMPROVES PROCESSES IN PEMEX ELEAZAR GÓMEZ ZAPATA Director of PEMEX Cogeneration and Services

Q: How will PEMEX transition from being the first

Q: What are the implications of the creation of PEMEX

electricity consumer to the second energy producer in

Cogeneration and Services?

the medium term?

A: The creation of a cogeneration division represents an

A: PEMEX has followed a self-supply electricity strategy

opportunity to reduce vapor and electricity generation

over the past few years. In this sense, the Nuevo PEMEX

costs in PEMEX facilities, and to modernize and make its

cogeneration plant, which began operations in 2013, has an

plants more efficient. It is also an opportunity to reduce

installed capacity of 300MW. The electricity it generates is

greenhouse gas emissions and take advantage of additional

dispatched across the country to cover the power needs

sources of income through the sale of electricity. Our

of PEMEX facilities. After the Energy Reform, and once it

cogeneration projects are currently being developed with

achieves self-sufficiency in terms of power generation,

international consortia with extensive experience in project

PEMEX will continue developing new cogeneration projects

development, operation, and maintenance, as well as

to sell its excess power in the wholesale market.

commercialization, supported by cutting-edge technology that ensures the best efficiency levels, and thus the lowest

Q: What opportunities has the company identified in

generation costs and environmental impact.

electricity generation? A: PEMEX’s productive processes are energy intensive and

Q: How will the availability of raw materials help position

use large amounts of vapor; therefore, cogeneration is a

PEMEX in its efforts to consolidate its cogeneration

highly efficient way to cover these needs. Since 2008, PEMEX

activities?

has advanced in the design and execution of a cogeneration

A: PEMEX and its facilities produce fuels that can be used

strategy to increase efficiency and reliability in its productive

for self-consumption, such as coke, fuel oil, natural gas, and

processes, reduce operational costs, guarantee energy self-

diesel, giving the company a competitive advantage over

sufficiency, and reduce greenhouse gas emissions.

other industries in the country. For example, a cogeneration station is being built at our Cactus gas processing plant

PEMEX’s cogeneration potential represents 47% of the

to take advantage of the gas produced in this facility

national potential, and the electricity generated can exceed

to generate electricity and vapor. The availability of raw

the levels required in its industrial facilities. PEMEX has moved

materials leads to lower production costs and polluting

forward in the design of a cogeneration project portfolio,

emissions, allowing PEMEX to optimize its processes.

which contemplates its facilities with the highest energy

100

demands, smaller cogeneration plants that will significantly

Q: In what way has the Salina Cruz cogeneration plant in

reduce generation costs, and projects to transform energy

Oaxaca been a statement of intent from PEMEX into fully

leaks into generation opportunities. As part of its corporate

venturing into the path of cogeneration?

transformation, PEMEX decided to create a cogeneration

A: The plant has an estimated generation capacity of

subsidiary, which was formally constituted in June 2015.

517MW, of which 120MW will be used to power the

Through

alliances

refinery, while the remaining power will be dispatched to

with third parties to develop projects, participating as an

the wholesale electricity market. Similarly, the 850ton/h

industrial partner without investing its own resources. At the

of vapor resulting from the process will be used in the

moment, alliances with four consortia for the development of

Ing. Antonio Dovalí Jaime refinery. The latter allows for

cogeneration plants total an estimated generation capacity

flexibility in the design and scope of the project, as long as

of 2,316MW and 3,530ton/h of vapor, which should begin

all the parties agree on possible modifications and these

operations in the 2018-2019 period. The planning stage also

increase the profitability and efficiency of the cogeneration

considers an additional generation capacity of 2,700MW;

plant. Third parties also participate in decision-making

2,00MW in cogeneration plants and 700MW in cogeneration

processes regarding EPC, operations and maintenance,

systems in exploration, production, and logistics.

and financing.

this

subsidiary,

PEMEX

establishes

| VIEW FROM THE TOP

NATURAL GAS OPENS DOORS FOR THE PRIVATE SECTOR AGUSTÍN HUMANN ADAME Specialist in Natural Gas Business Development Q: What opportunities and obstacles will the private

A: One of the factors was the stabilization of production

sector face, considering CFE is aiming to become the

by PEMEX. The cost of production at the time made it far

biggest consumer of natural gas and is planning to

more attractive to re-inject gas from its own production

increase its presence in that particular sector?

to produce more oil, rather than introducing it into the

A: Frankly, I do not perceive any immediate obstacles;

national duct system. PEMEX was trying to maximize the

on the contrary, the chance to freely import and produce

value of the investments it was administrating. However,

gas will provide the private sector with many business

given the negative effects the gas shortage was having on

opportunities. At the moment, LNG is overpriced due to

the industrial sectors, the government decided that all gas

the liquefaction and transportation processes, but now

being produced would be introduced into the pipeline for

with the changes to CFE, companies will be able to import

distribution purposes.

cheaper gas. The production of gas in the US is promising, and will enable the development of a series of intermediary

Part of the demand was satisfied by the produced gas and

trading companies that will manage the gas, as well as

another part by the LNG imported through Manzanillo. This

players dedicated to its storage. In the coming five years,

did not create expectations of immediate consumption in

demand will grow thanks to the prices and the benefits of

companies that urgently required natural gas. In fact, the

the resource, so the focus will be on satisfying this demand.

companies had to wait until they had full certainty of gas availability. PEMEX also took matters into its own hands by

Q: In your opinion, is the current infrastructure in the

building specialized plants to have the nitrogen removed

country advanced enough to cope with these changes?

from the gas it produced so that this could be introduced

A: Infrastructure needs to catch up with the demand, and

into the pipelines. These actions, in conjunction with the

advancements have been made with Los Ramones I and II.

importation and the creation of compression stations,

Pipelines are being built or designed in the major ports of

helped in addressing the critical alerts, which particularly

Mexico, such as Lázaro Cárdenas, but even then there is a

affected industries in the Bajio region.

huge gap in terms of infrastructure. One of the elements that have hindered the private sector’s construction of pipelines

Q: How are you assessing the potential of Mexico as

is the fact that there were no conditions to establish a fixed

a producer of natural gas, and how will this enable the

tariff that would provide the appropriate bankability for

country’s full energy independence?

the investment. Any investor that puts money on the table

A: Mexico, as a producer of gas, occupies an important

always looks for the fastest ROI and this sector did not

role in proven and probable reserves. Production costs in

provide it, so players had to look elsewhere. On the other

Mexico are high compared to those of the US, and this is

hand, PEMEX stopped constructing pipelines because it

why it is far more convenient to import. There are a series of

ran out of resources, and the private players, while allowed

elements to be considered, such as human capital and land

to construct, would not do so due to lack of tariffs. Now,

rights, when planning to build a pipeline. The production

the system determined by CRE makes the development of

of gas in the medium and long term is completely feasible;

the pipeline feasible for the private sector. In the past, CFE

even the Ministry of Energy, through its projections and

would only build enough pipelines to satisfy the demand of

analyses, predicts that Mexico could be exporting gas by

its power plants. Now, the new pipelines that CFE builds will

2025. One of the questions that arise in the importation

have a capacity exceeding that which it normally requires.

of natural gas is whether Mexico can achieve full energy

As a result, there will be an Open Season that will allow for

independence. Right now 18% of the natural gas that is

purchases by interested parties.

consumed in Mexico is imported. While this might mean dependence, Mexico is in no risk of shortages. I believe

Q: What were the factors that led to the stopping of

this figure will remain stable and then slowly decrease as

critical alerts?

production levels rise.

101

| NATURAL GAS INFRASTRUCTURE Ehrenberd

Los Algodones

Colorado

San Luis Rio

10 Sasabe

Wana Samalayuca

Ojinaga

Northwest El Encino

La Laguna Topolobampo

La Paz

Durango

Zacatec

Aguascalientes Importation and exportation spots 1. Los Algodones 2. Piedras Negras

Guadalajara

3. Argüelles 4. Reynosa (Tetco) 5. Reynosa (Tennessee) Importation spots 6. Mexicali 7. Nogales 8. Naco 9. Agua Prieta 10. Cd. Juarez 11. Gloria a Dios 12. Acuña 13. Cd. Mier - Monterrey 14. Rio Bravo Exportation spots 15. Otay Source: Ministry of Energy

102

Lazaro Cardenas

12 2

Colombia Southern Texas

Pipelines in operation

Pipelines to be developed

Maritime route for natural gas transportation

Escobedo

Proposed liquefaction plant / natural gas compression Proposed regasification plant / natural gas decompression LNG Terminals Los Ramones

cas

V. Reyes

Naranjos Merida

Tuxpan

Tula

Cancun

Zempoala

Morelos

Jaltipan

Mayakan

Acapulco

Salina Cruz Tapachula

103

SEIZING OPPORTUNITIES BEYOND MEXICO’S BORDERS “The natural gas industry did not see much change after

While the Roadrunner project is consolidated, Fermaca

the Energy Reform. Nonetheless, the industry has taken an

is focusing on the construction of the Encino-La Laguna

interesting turn due to the lack of natural gas production in

pipeline, which has already begun. Calvillo says his

Mexico, the promotion of gas-fired power generation, and the

company is striving to meet two delivery dates, as one

pricing and availability of gas in the US.” Fernando Calvillo,

segment is scheduled to begin operating in April 2016, and

President and CEO of Fermaca, believes this dynamic will

the second part is anticipated for the first quarter of 2017.

allow his company to become an international player, as it is

As construction stands today, the project is expected to be

building its first cross-border pipeline between Mexico and

delivered on time. “We are using improved procedures and

the US. Fermaca has undertaken the so-called Roadrunner

techniques to those that we used in the Tarahumara project,

project in a joint-venture with OneOk, a leading gas company

the first pipeline delivered to the federal government on

in the US, and it is expected to be operational in the first

time and within budget.”

quarter of 2017. “This project depends on the certainty of gas supply in the US. In fact, we believe that sooner or later, an

Fermaca wants to keep its business development focused

integrated energy hub will be established between Canada,

on future projects, including any new tenders from CFE,

the US, and Mexico, a development we hope will be facilitated

CENAGAS, and PEMEX. Being a pipeline company provides

by the Roadrunner project,” Calvillo explains.

Fermaca with opportunities beyond the natural gas segment.

“The industry has taken an interesting turn due to the lack of natural gas production in Mexico, the promotion of gas-fired power generation, and the pricing and availability of gas in the US” Fernando Calvillo, President and CEO of Fermaca

The main reason OneOk was chosen as Fermaca’s partner

As a midstream company, Fermaca is also interested in

in the Roadrunner project is the close relationship both

crude oil and refined products. “We look forward to the

companies have built over the years. In fact, OneOK was

opportunity to work with PEMEX again, possibly in the crude

Fermaca’s first partner. Additionally, OneOk has a large,

oil sector. The major players of the oil and gas industry focus

competitive, interconnected system across Oklahoma and

on producing barrels of crude oil, so outsourcing pipelines,

Texas that not only achieves several systemic solutions by

systems, and tanks is a common practice. We are relying on

transporting gas into Mexico, but also taps into several

our extensive experience, our reputation, and perseverance

gas sources, providing a balance between its receipt and

to gain contracts with many of these future players of the

delivery points. “In the end, it comes down to trust and

Mexican oil and gas industry,” according to Calvillo, adding

OneOk is our most trusted partner,” Calvillo comments.

that his company is already in contact with players that wish to outsource some of these activities.

In his view, gas production in Mexico cannot sustain

104

sufficient electricity generation, so the country has no

As for the other two entities, Calvillo points out that

choice but to import. The Roadrunner project rests on the

CFE does not operate pipelines, which is why the energy

fact that this undertaking generates equal opportunities for

company tenders capacity and the transportation service

both Fermaca and its US partners by transporting gas to the

itself. In his view, CFE has done a remarkable job tendering

Mexican market. “Bringing LNG from remote regions would

transparent and competitive projects. As for CENAGAS,

be more expensive than building a pipeline from Southern

Calvillo believes this entity should focus on being a system

Texas to Mexico. Access to gas at a price between US$3-

operator rather than being an owner of infrastructure.

5 will continue to benefit Mexico’s power producers and

“Both CFE and CENAGAS should delegate significantly

industrial consumers. At the same time, US gas production

to private companies in order to implement their plans.

and transportation will benefit from close, stable and

We have high hopes that we will build, own, and operate

long-term outlets across the border that allow continuing

more pipelines within the next two or three years. By the

business with high-value products in most shale plays while

following year, Fermaca will have close to 1,300km of

selling and transporting the gas profitably. That is why we

interconnected pipelines in operation, and a substantial

have chosen to undertake this project,” Calvillo details.

compression capacity.

| VIEW FROM THE TOP

SURVEYING OPPORTUNITIES IN POWER GENERATION ROBERT JONES President of TransCanada in Mexico Q: What were the drivers that inspired TransCanada to

import gas from the US, it will be a decision highly driven

venture into Mexico in 1997?

by costs, technology, infrastructure, and certain other

A: The entry of the private sector in the 1990s helped

factors. However, the remaining variables are the need for

support the economic growth of the country and the

transportation of this fuel and the accompanying expansion

development of the industry. These conditions provided

of the current gas pipeline network. The other constant is

opportunities that TransCanada seized, which led to the

the trend of increasing the use of natural gas as a cleaner,

construction of the first privately owned pipelines in

more efficient and economic source of fuel for power

Mexico: Energia Mayakan in Yucatan and El Bajio in the

generation. This will require the expansion of infrastructure

country’s central region. In the 2000s, TransCanada built

in order to promote access to the power generation sites.

the Manzanillo-Guadalajara pipeline and subsequently the Naranjos-Tamazunchale and the Tamazunchale extension.

Q: How will TransCanada ensure a smooth transition

Currently, we are building the El Encino-Topolobampo and

from a pipeline constructor and operator to an electricity

El Oro-Mazatlan pipelines in the northwest of the country,

generator?

thus consolidating our presence. The two pipelines

A: TransCanada has a long-standing tradition of innovation

we currently have under construction will increase our

and a strong track record not only in the construction

capacity by 30%, which will increase Mexico’s participation

and operation of pipelines, but also in gas storage and

in the overall revenue for the company. More importantly,

power generation. Currently, we own and operate 19

we will continue to assess new opportunities as they arise.

energy plants in the US and Canada, providing electricity to around 11 million homes in those countries. More than

Q: Which main challenges did you have to overcome while

transitioning from one business to another, we aim to

constructing your first three pipelines in Mexico?

build on our expertise in order to contribute to the energy

A: Mexico’s geography, and even sometimes its weather,

infrastructure of the country. At the same time, we will

can be challenging for projects such as ours. In many

continue operating our projects and assessing future

cases we have had to rely on the experience of developing

opportunities in our pipeline. We will be evaluating the

projects in other countries, and in other instances we

prospects that are generated by the Energy Reform and

have had to innovate. For instance, in our Tamazunchale

even those in the power generation sector.

Extension

project,

have

used

micro-tunneling

techniques in order to overcome the geological challenges

Q: Which regions of the country stand to benefit from

of the site. In El Encino-Topolobampo, we have used air

your future developments?

cranes for transporting pipe sections to remote areas.

A: One of TransCanada’s competitive advantages is the

Some of these solutions have begun to be implemented in

positive impact it has on the communities where it develops

projects in other parts of the parts.

its projects. An example is our El Encino-Topolobampo project that is currently under construction. This project has

Q: How has your relationship with the Mexican utility

so far created around 3,000 direct and indirect jobs, which

company and the authorities evolved now that CFE and

ultimately contributes to local and state economies. We

CENAGAS have defined roles in the midstream segment?

have also provided support and assistance to indigenous

A: Now that CFE and CENAGAS have defined roles in the

communities who now have access to better schools,

midstream segment, companies involved in the sector will

electricity, and water. There are also benefits such as

have more clarity and transparency. This ultimately cascades

providing industries and power plants with access to

down to the bidding processes and operations. It has been a

natural gas, providing them an efficient, cheaper, and more

competitive and transparent process, which will ultimately

environmentally friendly source of energy. Our projects

lower the cost of energy to Mexican citizens. If Mexico

consolidate our presence in these communities for decades,

decides to increase domestic production or continue to

and we aim to have a positive impact through our work.

105

NATURAL GAS DISTRIBUTOR SEEKS TO EXPAND ACTIVITIES As natural gas becomes the anointed transition fuel, the

Ortiz believes gas imports will increase as a result of the

authorities and the incipient CENAGAS are hard at work

construction of the Los Ramones pipeline, which will

tracing the future natural gas pipeline network across

distribute natural gas to places that lacked this resource.

Mexico’s topography. The private initiative is ready to

While the availability will be of great benefit to all, the

capitalize on this endeavor and provide its two-decade

conditions the Energy Reform has prescribed will allow

expertise in the sector. Grupo Diavaz, a leading conglomerate

for increased investments in the construction of further

in the gas sector and Compañía Mexicana de Gas’ parent

infrastructure for this sector. The outcome will have a positive

company, is interested in participating in the entire value

impact on the development of already established and new

chain by dividing its involvement across different divisions.

industries. At the moment, he says, about 30% of natural gas

Ricardo Ortiz, CEO of Mexicana de Gas, claims E&P,

is imported from the US through pipelines and some LNG

Marine Operations, and the Natural Gas divisions of Grupo

imports come in through the Pacific. “I expect natural gas

Diavaz will play an important role in the oil and gas value

production to increase over the next few years, thus further

chain. He sees opportunities for the company to continue

promoting the availability of this resource. Nonetheless, I am

participating in the natural gas sector and even expand into

confident that natural gas prices will continue to follow the

other areas. “Mexicana de Gas is already active in our share

US standard, resulting in very competitive prices.”

of natural gas distribution in Monterrey, and we are already looking at potential investments and new clients in other

Mexicana de Gas will continue to take advantage of the

areas. We are evaluating opportunities in natural gas supply

natural gas culture that exists in Monterrey by considering

and commercialization for energy producers that will set up

new investments in infrastructure that supports the

operations within our distribution zone.”

connection of new customers for the coming years. Currently, Mexicana de Gas is growing at a rate of 13,000-

For Ortiz, participating as a natural gas provider in different

15,000 new clients per year in the residential market,

cogeneration or combined cycle projects is an attractive

helping the company reach its goal of having from

possibility. In fact, he considers carrying out these projects

100,000 to 170,000 residential clients by 2018. Mexicana

either within the company’s distribution zone or another

de Gas’ residential clients enjoy the benefit of paying after

area. “It is possible that in a few years we may have a

they have already used the natural gas, every 30 days.

power station and a business park that obtain electricity

Conversely, LPG consumers have to pay for the service

from Mexicana de Gas. Power generation could be another

up front. Residential clients also benefit from natural gas

business opportunity for us in the future.” Moreover, the

being safer than other sources like LPG, as natural gas

company is also looking at opportunities to take on CNG

dissipates in the event of a leak.

business through Neomexicana in areas where natural gas is still unavailable. “We know that there are significant

The company is also taking the necessary steps in order

possibilities to venture into this market, and we feel that

to start serving the new industries that are being set

this business line could complement the overall portfolio

up in Monterrey’s metropolitan area. “One of our most

of Mexicana de Gas,” comments Ortiz. Mexicana de Gas

important arguments to attract clients lies in the costs; by

is discussing strategies for developing CNG stations in

comparing the price of natural gas to other fuels, we are

places lacking pipeline infrastructure. “We consider that

able to show them that the best option for them is to use

CNG for vehicle use will be developed extensively in

natural gas,” shares Ortiz, citing the natural gas availability

Mexico over the coming years, and we want to tap into

in the Monterrey area and the northern part of the country.

these opportunities accordingly.” Even though Mexicana de Gas intends to maintain its growth

106

Regarding Mexicana de Gas’ market reach, Ortiz is aware

rate, it plans to align its strategy with the growing demand

that competition will increase in the near future and even

for gas in Monterrey’s industrial and residential segments.

more so because distribution areas will cease to enjoy

“The state government of Nuevo Leon has created a

exclusivity; these will be controlled for a determined

division specialized in energy in order to meet its objective

period of time to be later offered to other companies,

of becoming an energy hub. We have been in contact with

and that is where new participants can enter. Mexicana

the authorities and we will be collaborating directly with

de Gas will be looking out for new companies that will

this division to make it happen,” Ortiz shares. He notes that

establish operations in its area of coverage in Monterrey,

expanding into other distribution areas, either via pipeline

while increasing its infrastructure capabilities in order to

construction or natural gas transportation, is also among

guarantee its natural gas distribution reliability.

the company’s priorities over the coming years.

| VIEW FROM THE TOP

NATURAL GAS HERALDS INDUSTRIAL PROSPERITY RICARDO ORTIZ General Manager of NEOmexicana

Q: In what ways does the development of natural gas

Q: In what ways does the development of some industries

foster industrial and economic growth in a region?

such as automotive impact the adoption of natural gas as

A: Logically, the push for natural gas will demand

the fuel of choice?

investment from both the public and private sectors.

A: In late 2015, we are launching the first daughter vehicle

Monterrey has been catalogued as one of the most

charging station that will be supplied by a mother station

important industrial hubs in the country and it is no

located in Puebla, with a view to satisfying the urban routes

coincidence that natural gas has been present for over 80

in the State of Mexico. The technology we have developed is

years. Today, Monterrey is a good example of what natural

called HPU, which uses hydraulic power to efficiently displace

gas accomplishes as it fosters economic growth and job

the gas from the container to the vehicle while maintaining

creation. Given the limited pipeline infrastructure, efforts

constant

have been made to promote this resource using virtual

consumption, it is 40% faster than alternative technologies,

pipelines. A compression site is built and the compressed

and it eliminates the need for using an additional compressor

gas is then channeled into carbon fiber containers that can

to replenish the pressure. We are creating alliances with

supply to a 300km radius surrounding the base. Virtual

fleet owners, municipal governments, and urban routes. We

pipelines give access to industries and vehicle charging

are also developing programs to convert older, polluting

stations, and foster the arrival of the pipelines. Virtual

diesel transit buses and trucks to run on clean natural gas.

pipelines help generate the critical mass of consumption

We are working alongside a heavy duty OEM that uses

needed to justify the infrastructure investment.

Cummins engines in order to carry out tests to evaluate

pressure.

This

technology

reduces

energy

the performance of engines running on natural gas. In this Q: Which markets stand to benefit the most from this

program we are evaluating engine wear and all the working

peak in natural gas and which segments is NEOmexicana

conditions of the trucks in order to share this information and

targeting?

technology with other automotive players. There are many

A: The first area of opportunity is the industrial market

competitive advantages to natural gas. The first is the price

with companies that do not have access to the natural gas

that enables the company to carry out additional investments

infrastructure, and NEOmexicana is there to offer a cheap

in other business areas, and another is the level of emissions

and competitive solution. For instance, we supply gas to

that are considerably lower compared to other fuels.

an automotive supplier called Saint Gobain, and it has obtained significant savings by opting for natural gas and

Q: What role will NEOmexicana play in the medium term

removing fuel oil from its operations. We supply natural

to promote the adoption of natural gas for both industrial

gas to Nissan for its painting furnaces, and this reflects the

and automotive applications?

diverse applications of this fuel. We are also promoting

A: We want to be leaders in this transitional period in

the development of natural gas in vehicle applications and

Mexico. Firstly, we will provide a competitive solution to

urban transport. NEOmexicana is taking advantage of the

industrial players and secondly, we will help the automotive

evolution of technology and the fact that buses and trucks

industry take advantage of the push the government has

now feature natural gas engines. This solution is especially

made towards natural gas. Countries like Argentina have

attractive for fleets, buses, and urban routes. We use the

implemented strong natural gas initiatives and today it has

concept of mother-daughter charging stations, this means

1.5 million vehicles running on natural gas, which represents

we build a compression site and then transport the gas using

15% of its total vehicle park. In the case of Mexico, only

a special unit to the vehicle station that is denominated the

5,000 vehicles operate using natural gas and the vehicle

daughter site, where vehicles can be charged. Through the

park is much larger than that of Argentina. Mexico is in

patented technology of our partners, NEOGas of Brazil, we

an advantageous position, since it has the opportunity to

are able discharge the natural gas from the container to

import cheap natural gas while simultaneously increasing

the vehicle without losing its compressed state.

levels of production.

107

| PROJECT SPOTLIGHT

AGUA PRIETA II Located in Sonora, Agua Prieta II is the first hybrid power center in Mexico, consisting of a solar park and a combined cycle plant. This technology is referred to as Integrated Solar Combined Cycle (ISCC), and is the third project of its kind developed by Abengoa, a Spanish company dedicated to developing sustainable energy projects. Taking advantage of Sonora’s intense solar irradiation, the first phase of development consisted of a solar park with 104 Abengoa parabolic solar components, totaling an installed capacity of 12MW, which will be spread out across 85,000m2. The second phase comprised a combined-cycle power plant fueled by natural gas with a capacity for generating 464.4MW. This natural gas will be imported from the US and supplied through a pipeline located 2km offsite. The combined cycle unit will be interconnected with the solar park, forming a hybrid power generation plant. The facility includes two gas turbines, one steam turbine, and a heat exchanger, as well as cooling, condensing, and power systems. A modular water treatment facility will be installed to treat greywater, the only source of water available, and produce clean water for the plant and to clean the solar components. The project will also have two transmission lines and three substations. The Global Environment Facility provided US$49.3 million for the solar park, while the World Bank supported CFE in financing the combined cycle plant, which has an estimated cost of $US350 million. Aligned with Mexico’s clean energy targets and Abengoa’s penchant for sustainable energy projects, Agua Prieta II will prevent 19,080 tonnes of CO2 equivalent emissions from being released into the atmosphere every year.

109

PLANT DEVELOPER PINS FUTURE ON NATURAL GAS InterGen is characterized by an entrepreneurial spirit that

that the plant has three commercial solutions. It supplies

has pushed the company to enter emerging markets for

to CFE, industrial clients in Mexico, and industrial clients in

20 years now. David Fatzinger, Vice President and General

Southern California. “Baja California alone is an interesting

Manager Latin America of InterGen, stresses that this same

case since it is an independent market that implies closer

entrepreneurial spirit drove the company to Mexico, where

ties with the market of Southern California than Mexico’s

it won some CFE bids in the aftermath of the 2008 Energy

national grid,” comments Fatzinger.

Reform. The company built several plants and acquired others as a foundation for its secondary group of customers,

InterGen spotted an opportunity to import gas from the US

which are industrial players. The firm’s principal approach

and supply fuel for La Rosita. A 126-mile pipeline runs from

consists of developing power plants as single asset solutions

Ehrenberg, Arizona, to the combined cycle plant. Fatzinger

for governments. For Fatzinger, the first challenge when

comments that bidding for a PPA in a CFE tender is one

entering a market is to implement a single asset energy

of the most complex processes InterGen has undergone

solution, which is normally a response to a utility bid for a

worldwide. “The bids are incredibly detailed and require a

new power plant. Then, once the project is running, the

significant upfront investment in order to attain that level

company must understand the market and its constraints.

of specificity.” He also points out the immense competition,

Today, 80% of the company’s business lies with CFE, while

although he mentions that many players do not understand

the remaining 20% is made up of industrial clients.

the peculiarities of the market they are entering.

“This is a fascinating era in the energy industry and we see the consolidation of technologies like solar and wind”

David Fatzinger, Vice President and General Manager Latin America of InterGen

Fatzinger says his company tends to implement similar

Given the drop in oil prices, a lot of attention is being

systems and practices across all of its plants as a company

drawn to the electricity market. As natural gas becomes

policy, but InterGen also strives to maintain a level of

a conventional product for energy solutions, Fatzinger

competitiveness in each of the markets in which it works,

expects

forcing the company to strike a balance. “This is a fascinating

development of national natural gas. He believes supply

era in the energy industry and we see the consolidation of

options in Mexico will become more dynamic as the market

technologies like solar and wind. We are also seeing new

expands. In the short and medium term, the shale gas

trends arising such distributed generation, smart metering,

being imported from the US will be an important economic

and Internet of Things,” says Fatzinger. Keeping up with all

driver and will provide a downward pressure on the price

these changes poses a challenge to many when drafting a

of the fuel and electricity. However, the importation of

product for a customer and measuring the idea’s viability.

shale gas from the US will wane over the long term.

his

company

become

involved

the

InterGen focuses on proven and bankable technologies and integrates them under one solution.

This presents a chance to develop Mexico’s gas resources, leading to a second wave of competitive pricing. InterGen

110

The La Rosita power plant in Baja California provides an

sees opportunities in pipeline development, since the

example of InterGen’s integrated use of technology and

company can branch out from electricity to downstream

international best practices. Considered one of the cleanest

and upstream in the gas sector. “The interesting part of the

power generation plants in Latin America, SEMARNAT

Mexican market is the change it is undergoing. InterGen

and PROFEPA awarded La Rosita the Clean Industry

has diverse expertise and skills, which will enable it to take

Certificate. The combined cycle plant has a 1,100MW

advantage of opportunities as they materialize,” Fatzinger

capacity and is equipped with a water treatment facility

shares. “We entered a partnership in Baja California for

that cleans sewage water to later cool the plant. Fatzinger

a wind park with IEnova that is entering its commercial

claims La Rosita presents a unique case because it is close

stage. In addition, we bought a commercial compression

to two markets, Mexico and the US, and it had to conform

station in Tampico, Tamaulipas, and in July 2015, we will

to the expectations of both. Another peculiarity is the fact

bring another combined cycle plant online,” he says.

| VIEW FROM THE TOP

DISCOVERING ALTERNATIVE COGENERATION APPLICATIONS GERARDO PANDAL Director of Operations at Guascor de México

Q: Which industries are already clamoring for cogeneration

A: Our clients range from small to large corporations with

services, and how are you preparing yourself to meet to

several manufacturing sites across the country. For the latter,

their needs?

we propose an analysis of their sites and present the different

A: Mexico’s industries were borne with an abundance of

projects in unison in such a way that the investment figure

energy, so the term “efficiency” was consequently erased

is attractive for financial institutions. The more cogeneration

from the map. Industrial players have not sought energy or

projects are grouped together, the higher the allocation of

fuel efficiency, and as prices rise, this will become important

resources, meaning that banks and financial institutions are

leverage for distributed generation and cogeneration

more open to invest. It is far better to have a group of projects

players. Most industries make use of thermal energy,

than individual ones scattered across the country requiring

particularly pharmaceutical, food and beverage, textile,

investments of US$1 million each. Also, banks and financial

paper, ceramic, and the service sector, and many players are

institutions like to optimize their time, so it is far more efficient

conveniently located where natural gas is already available.

and less time consuming to invest in a group of projects.

A company that consumes electricity and gas for thermal

Many sectors stand to benefit from cogeneration, since they

processes can opt for efficient cogeneration and natural

use thermal energy in their processes. In an industrial cluster,

gas. It is a proven technology and there is no doubt that it

we optimize processes by placing the cogeneration plant in a

can reach efficiency levels of 70-75%, which makes it one of

strategic area, offering electricity and heat to several players.

the cheapest forms of energy generation in the market and

Biogas is a particularly interesting sector, and anaerobic

can translate into an overall energy cost savings of 25-45%.

water treatment plants have great capacity generation. We are currently installing our fifth such project.

Q: Why have financial institutions been reticent to invest in efficiency cogeneration projects?

Q: What is the process of installing a cogeneration plant

A: The barrier this sector has encountered is financial

in an anaerobic water treatment facility?

institutions’ lack of appetite for investing in this technology.

A: We work with operators that win concessions to operate

Cogeneration is a fairly young sector, so it will take time

the water treatment facility. The plant must be anaerobic and

for it to penetrate the energy mix in a significant way.

have bio-digesters in which the decomposition of residues

These projects hold a better position when facing financial

takes place. These bio-digesters are large containers where

institutions than in the past. Many institutions previously

the mud is concentrated and decomposed by bacteria. In

overlooked distributed cogeneration because the projects

order to keep the bacteria alive, the bio-digesters must

demand investments of US$1-10 million and do not seem

maintain a constant temperature, and when a cogeneration

viable. Now, financial entities recognize the importance and

plant is not on site, these are heated using diesel or other

bankability of this technology, and they are beginning to

fuels through conventional boilers. Running a water

invest in groups of cogeneration projects. The premise of this

facility demands a lot of electricity and thermal energy, so

model is to offer users cheap, reliable, and clean energy and

installing a cogeneration plant is a good opportunity. The

to incentivize efficient power generation. All players involved

decomposition of the mud generates biogas with high

have made considerable efforts to make this transition as

quantities of methane. If the gas is corrosive, it goes through

smooth as possible. There is uncertainty, however, as this

intermediary processes of carbon filters or sprays in order

is a temporary situation and we have already surpassed

to clean it before being used in the engines to generate

last year’s sales. Despite the new configurations, all players

electricity and heat. These projects offer the highest

know the benefits they will gain from using distributed

efficiency possible and fastest return of investment. We also

cogeneration.

intend to introduce further groundbreaking technologies to the Mexican market, having invested a significant figure

Q: How can grouped cogeneration projects attract the

in new technologies, and in seeking more efficiency in our

attention of investors and financial institutions?

processes and products.

111

| VIEW FROM THE TOP

NEW RULES LEAD TO EXPANDED NATURAL GAS PORTFOLIO OSWALDO CHIMAL Director of Power Solutions Mexico & CA for Cummins Q: How important is the Mexican energy generation

Q: As CFE gears up to lower electricity tariffs, how have

industry for Cummins’ growth in terms of sales and

your motivations and business objectives evolved?

manufacturing?

A: The government sees natural gas as the fuel of choice for

A: Cummins has a global growth strategy and the energy

the future, yet this transition will be very slow. In my opinion,

generation industry plays an important role within it.

it will take at least three years for the market to stabilize and

Through the expertise we have accumulated in other

for us to have a perfect understanding of the new legislation.

industries, such as automotive, oil and gas, marine, and

While we are experiencing growth, we are still tied to the

military, we have been able to integrate this knowledge

availability of natural gas and the existing infrastructure.

into systems and solutions offered to the energy

It is expected that the market will have matured by 2018.

generation industry. This allows Cummins to always be

In the interim, we are investing in providing products to

a step ahead of competitors by providing efficient and

complement existing infrastructure. For example, we supply

green technologies, while we have recently concentrated

products to natural gas compression and decompression

our efforts in the cogeneration sector. This was formerly

centers. These stations can take up to one year to be fully

considered to be an important segment for Cummins in

developed, a process that requires a lot of collaboration

specific countries, but it is now seen as a pillar of growth in

with clients. Normally, energy projects take one or two

our global strategy. We have carried out huge investments

years to mature, which means we must be proactive. We

in order to include the latest innovations in our engines

are also confident that Mexico’s natural gas supply will

and systems, which are then integrated into our electric

improve in the coming years and that the price will remain

energy generator sets. This particular branch of Cummins

stable thanks to CENAGAS. Another area of opportunity we

stands out because it offers integrated solutions rather

have identified is biogas and biomass, which are considered

than standalone products. In this industry, it is better to

renewable energy sources, as we have technologies and

offer complete solutions as they increase the efficiency

products that cater to them. However, there are many

and competitiveness of our customers.

challenges surrounding the biogas sector, such as ensuring that the machinery is compatible with the gas, otherwise it

Q: What are the flagship renewable projects Cummins has

will not work.

been involved in, and what contribution did it make to

112

them?

Q: How can your integrated solutions ensure a quick

A: One of Cummins’ flagship projects was a trigeneration

ROI, and how do you convince skeptics to choose your

project under the self-supply scheme for a renowned

solutions?

chemical company. This trigeneration solution can provide

A: In this industry, the measurement of ROI depends on

electricity, heat or cool water, and generate vapor, with

three important factors: initial investment, production

solar panels also operating in parallel. With this integrated

cost, and gas prices. Clients expect a return on initial

solution, that client will have the first LEED Platinum-

investment of two to three years, which would be a normal

certified plant in Latin America. Integrated solutions allow

timeframe in any industry. Since we manufacture our own

clients to obtain the efficiency they need. We teamed up

technology and directly provide aftermarket support,

with Coca-Cola on another memorable project, in which

our customers can be certain that they are operating at

we also followed the same trigeneration process, although

the most competitive cost throughout their project’s life.

the CO2 obtained was then used in the gasification of the

Alongside this, we have to be focused on helping our

drink. This project was carried out in Africa and Brazil,

customers obtain the full benefits of cogeneration. Clients

and we will shortly replicate it in Mexico. What stands

tend to focus on the electricity aspect of cogeneration,

out in projects like these is the integration of solar panels,

which ignores a wealth of possibilities. To summarize, all

as Cummins has successfully merged these different

these advantages are fully transmitted to our potential

generation processes into one integrated solution.

customers, leading to the expected ROI being achieved.

Q: Since Cummins is supplying emergency power plants

of low sulfur diesel impacts the types of engines Cummins

for CFE, how has the relationship between the two

can release here. In terms of the energy market, most of our

organizations evolved?

adaptations are in biogas. Given the high levels of sulphur,

A: In the past, we have collaborated with CFE by supplying

this area demands a highly competitive filtration system.

emergency power plants and by participating in public

During the design stage of our biogas components, we

tenders. There have been times when we supported CFE in

discovered a process that occurs in the combustion stage

certain areas, such as supplying over 170MW in Zacatecas.

called “knocking.” This is where the mixture alters during

However, it should be pointed out that these emergency power

the combustion, causing the piston to knock on other

plants were fueled with diesel. The Temporary Energy division

components, sometimes leading to catastrophic failures.

is another part of Cummins that is tied to this type of solution.

Cummins’ components prevent this knocking effect and

Within it, generators can be leased to provide a temporary

regulate the amount of sulphur.

energy supply during emergencies. However, while we have a longstanding relationship with CFE, our strongest relationship

R&D plays an important role, not only for Power Solutions,

lies with CRE, since it is within this particular entity that the

but for all business units. Cummins sets its sights on the

legislation is being molded and drafted. Cummins participates

future when developing new technologies, and thanks

very actively in Cogenera Mexico to promote cogeneration

to this approach, the products that exist in the Mexican

technologies. PEMEX is dipping its toes in energy generation

market today are perfectly tested and adapted to

and CFE is planning to ship natural gas. The irony does not

current conditions. Durability and efficiency are pillars of

escape us, but it is still a good business opportunity. As CFE

Cummins’ R&D strategy, so as we become more efficient,

turns its sights to natural gas, we will be positioned to supply

we are more sustainable as well. At the moment, we

it the necessary equipment.

offer products from 20KW to 2.2MW in the natural gas and biogas sectors, but we are planning to expand our

Q: How does Cummins adapt its efficient, low emission

product portfolio following the new legislation. We have

product specifications to the Mexican market?

been leaders in many industries, such as automotive, and

A: Cummins has to make adaptations to its products due to

we have the same ambition for our position in the energy

some peculiarities of the market. For example, Mexico’s lack

generation industry.

THE FINAL PIECE OF THE REFORM PUZZLE In the new energy arena, Severo López, Senior Partner at

and regulations required to succeed.” This will take time

Galo Energy, quickly spotted the need to offer specialized

and, in Lopez’s view, its implementation will affect the full

consulting services with hands-on experience, which led to

spectrum of the energy sector in Mexico.

the company’s creation. “Galo is a consulting firm specialized in the power market, natural gas, and upstream oil segment.

A missing piece of the puzzle is how CENAGAS will

It brings together a qualified interdisciplinary team, with

cooperate with CFE, considering the latter is an important

knowledge and experience in regulation, policy, and business

purchaser of natural gas in North America. López questions

development aspects of the industry,” López explains. This

how CENAGAS will maintain a level playing field in a market

enables the firm to supervise projects from their inception

with such a predominant player. Another factor that is often

all the way to their development. “Galo Energy is currently

overlooked is the availability of capable human capital.

focused on taking on infrastructure projects from US$300

“CENAGAS and all new institutions that are a product of

million up to US$1 billion,” he adds.

the Energy Reform must create the necessary building blocks of knowledge and experience in its workforce,” López

While some players relish the challenges that lay ahead,

asserts. Galo Energy has deep insight into the thought

others fear missing important business opportunities. López

process of the industry. “When analyzing the opportunities

has identified two major hurdles that must be surmounted

in Mexico, there are two major factors: uncertainty and big

for the smooth navigation of the budding energy industry.

expectations.” When facing the enforcement of the Reform.

“First of all, the transfer of assets from PEMEX to CENAGAS

Consultancy firms must amass politically shrewd teams that

must be transparent. This is a complex process in terms of

are knowledgeable in engineering, energy, and regulatory

human resources and assets, as well as from a legal and

matters in order to prevent precious business opportunities

financial perspective. CENAGAS must develop the people

from falling between the cracks of the energy landscape.

113

| VIEW FROM THE TOP

NEW SPANISH APPETITE FOR INDUSTRIAL PROJECTS LEFT: Juan Antonio Alonso, Director of Energy and Cogeneration Services at Grupo Ortiz RIGHT: Jorge Calderón, Director México of Grupo Ortiz

Q: How does Mexico compare with other Latin American

investor, so we are an energy-related service company

markets?

that invests and subsequently sells electricity and heat to

JA: Mexico has a stable political backdrop and has

industrial clients. Rather than focusing on selling a project,

experienced considerable economic growth. Additionally,

we concentrate on providing integrated solutions.

the energy demand is both significant and challenging. No other country in Latin America is growing like Mexico, and

Q: Given the conditions in Mexico, what will be the

considering its population and the growth in the demand

company’s specialization?

for energy, the possibilities are endless. Mexico has access

JA: Personally, I prefer working in the private market

to cheap gas that allows developing technologies such as

because it enables me to offer clients different alternatives.

cogeneration at attractive costs. Other smaller countries,

There is a dialogue, a negotiation, and an adjustment

like those in Central America, present a situation where

regarding the proposed solutions when dealing with private

natural gas infrastructure is lacking, making it more

customers, which is not usually the case when working

difficult to establish cogeneration plants. It is true that

with the public sector. This is because projects in the public

cogeneration can use other fuels, such as fuel oil or coal,

sector are entirely defined, leaving no room to propose

but it is still easier, cleaner, and more feasible to use gas.

areas of improvement. With these clients, it is necessary to

For example, Peru has gas resources, but in this country

follow requests, even if there is a potentially better option

cogeneration would compete against the more developed

available. Grupo Ortiz seeks to offer excellence in all of

hydro. In Mexico, gas can be used for cogeneration and

its projects, and many public projects are designed in a

combined cycle at competitive costs.

way in which this approach is not possible. Our solutions are of the highest quality, which is not always valued in a

Q: What can Grupo Ortiz bring to the Mexican market that

public project because the options we suggest might not

will allow it to succeed?

be regarded as competitive. However, we provide advice

JA: Grupo Ortiz is successfully operating in Mexico thanks

to the public sector even before a tender is launched, so

to the support of Gastélum Abogados. The first element we

whenever possible, we try to help the authorities determine

can provide customers is a broad experience. The interest of

certain technical specifications.

Grupo Ortiz in this country should also be taken into account, as well as our dedication and effort to generating the most

JC: An advantage of Grupo Ortiz is its flexibility, as we

effective technical solutions. Our tailor-made solutions in

can implement a small cogeneration plant for a hospital

previous projects have entailed the evaluation of several

or a large one for a ceramics manufacturer. Conversely,

options and optimization of services according to the user’s

our competitors do not focus on smaller projects and if

strategy, Mexico’s estimated growth, and energy costs.

they do, the client is not given the proper attention. We are closer to our clients, regardless of their size, and

114

The Group does not have any particular commitments

provide flexible solutions. There is a lack of companies

with equipment manufacturers, enabling it to use the most

that are interested in or willing to invest in their clients’

suitable machinery according to a project’s requirements.

projects, which marks another important differentiator.

Conversely, other companies use equipment that is not

Some financial institutions are willing to provide 100%

always the most adequate because they want to position

of the financing because of the Group’s experience and

a product as part of a deal with an allied manufacturer. We

reputation. In these cases, Grupo Ortiz has to be involved

adapt to our clients’ needs, proposing flexible solutions

throughout the whole project, including the operational

and even providing financial support or financial advice.

stages. Another specialty of the Group consists of turnkey

In order to do this, we offer clients pre-assessments to

projects for PV and wind energy developments, and we

determine whether cogeneration is their best option.

also see opportunities in CFE’s public works in transmission

Grupo Ortiz is open to the possibility of acting as an

and distribution through our affiliated companies.

Q: How would you describe the ideal cogeneration project

JC: I believe our experience in Spain will be replicated in

for Grupo Ortiz?

Mexico. In Spain there were plenty of industrial facilities,

JA: That would be a project for a specific industry with

such as smelting furnaces, that ran on electricity at high

a considerably high demand for electricity and thermal

costs, or by using fuel oil and coal. As a result, the product

energy. The electricity demand would have to be large

that ultimately entered the furnace did not undergo the

enough so that the design would not require exporting,

same environmental conditions as at the combustion stage,

meaning it could handle a demand for self-consumption of

thus there was a thermal exchange that reduced the output.

approximately 8,600 hours per year. The more hours, the

Natural gas, due to its excellent combustion and the fact

better, as continuous use increases the plant’s performance

that it does not produce particles when burning, provides

and stability. Another important element would be to have

a stable environment for the products to be heated.

access to natural gas in order to avoid additional gas-

Moreover, ceramics can be heated directly with natural

related infrastructure costs. In cases where electricity has to

gas. The implementation of natural gas generated massive

be exported, there should be a clear guideline to facilitate

energy savings in the Spanish industry, and companies

this process. These would be the main criteria, and then we

only had to adapt their facilities to natural gas-powered

would be open to discussing several financing options.

equipment.

Mexico

plans

develop

approximately

16,000km of natural gas pipelines in a relatively short time, Grupo Ortiz should seek projects in several sectors,

so many industrial regions will improve their performance.

including the chemical sector, the paper industry, ceramic

There are many natural gas technologies that can be used,

flooring, the food industry, vehicle manufacturing, and

and industries that utilize large engines can install speed

other industries that work continuously and have high

variation devices in order to increase savings.

demands for thermal energy. There is another market for smaller projects in shopping centers, hospitals, and hotels. In

Grupo Ortiz is interested in cogeneration projects in Mexico,

these, the cogeneration capacity needed is usually between

and we are putting a lot of effort in implementing other

1-5MW, but the technical effort is not to be overlooked, as

clean technologies. Another example of energy efficiency

these projects tend to take place in facilities that demand

would be LED technology, which allows savings of more than

both heat and cooling. In these cases, I would implement an

60%. There is a wide range of energy-saving options, but

additional technology consisting of absorption equipment.

these require evaluation on a case by case basis to establish

Unlike larger industrial projects, the plant has to be turned

the best choice for a given industry in order to make a

on and off every day, and there are also seasons when there

recommendation. We are looking at the possibility of working

is no demand for heat, complicating the programing of the

on a large photovoltaic park (150MW) in Aguascalientes that

project. I generally tend to seek the largest global output and

will feed electricity to the grid. Given the magnitude of this

efficiency levels in a plant, reaching performance levels of at

development, it would be a flagship project for the Group.

least 85% and equivalent electricity outputs of 75-78%, which

We will begin with two 30MW modules and then expand to

puts us 20 points ahead of most combined cycle plants.

150MW. We are excited about entering the Mexican market, especially because Grupo Ortiz has other connected business

Q: In addition to cogeneration, what experience does the

lines such as energy infrastructure for electricity transmission

Group have in energy efficiency?

and distribution, and natural gas pipelines and substations.

| EXPERT INSIGHT Q: What are the implications of placing so much

renewables. Hopefully, CFE will also evaluate alternatives such

importance on natural gas when this commodity depends

as nuclear power as a backup in the case of natural gas price

on international trading prices?

increases. I do not think it is a good idea to rely solely on one

A: The price of natural gas is extremely low at the moment,

source. In countries like Brazil, where there are large hydro

so it would be strategic to move toward this resource. At the

developments, the overreliance on this source led to serious

same time, I believe that a diversified portfolio is essential

problems, highlighting the need for a diverse portfolio.

in any enterprise. I hope that once CELs become effective, there will be more emphasis on energy generation through

Verónica Irastorza, Principal at NERA Economic Consulting

115

Energy is our business. And our responsibility. In Mexico and around the world, we embrace the challenges of energy solutions using a portfolio of generation technologies, pipelines, compression stations, and related infrastructure. What we build, develop, operate, finance and generate makes a difference. To ourselves, our families, our communities, our world, To Life, on InterGen.

La Rosita Power Plant, Mexicali, BC

For more information, find us on LinkedIn at https://www.linkedin.com/company/intergenenergy or visit www.InterGen.com

116

| VIEW FROM THE TOP

NATIONAL PIONEER OUTLINES BENEFITS OF COGENERATION KEVIN PICCOLO Director of Energy and Cogeneration at IGSA Q: IGSA is a Mexican company with a presence in 16

advantage. Firstly, IGSA has the most experience in

countries. What strategy allowed such an achievement?

cogeneration among Mexican companies, and secondly,

A: Our successful international presence is based on our

we have several projects that are already running. We

work with partners who are dedicated to our brand and

have gone from being an EPC company to having our own

its quality requirements. Our company also benefits from

cogeneration plants and offering services selling electric

having a relatively high participation in the national market

and thermal energy.

in terms of volume, which makes us attractive to suppliers. When it comes to sales, we prefer to collaborate with a

Q: Which are IGSA’s most emblematic cogeneration and

partner who knows the local market, rather than initiating

combined cycle projects?

operations abroad and experimenting in an unknown

A: Our energy and cogeneration plants are designed to share

business environment.

the sales and electric energy services so that our clients may have cheaper energy. The expansion of the pipeline network

Q: What makes the company unique and what benefits

will facilitate the development of different cogeneration

do clients gain from using IGSA’s electric generation

plants in places where there are shortages of fuel, allowing

products?

for more efficient and cheaper energy. Although the

A: In addition to our electric plants division, we also have

cogeneration plants we are constructing run mainly on gas,

uninterrupted power supply plants for critical sites and

we do not limit ourselves when it comes to fuels. We use

bank databases. In the exportation segment, we work with

the heat emitted from the gases in the turbine’s exhaust

backup plants, small electric generators of up to 3.5MW

connected to a heat recovery unit. From that point, we can

that we distribute through these partners. I think one of the

cool the steam and send it through an absorption chiller for

advantages that IGSA has is our wide diversity of motor and

freezing water or cooling systems.

generator brands in our equipment assembly, which allows us to create solutions according to our clients’ needs.

Our most emblematic project in cogeneration would have to be IGSAPAK, which is a 47MW project with a

Today we can work with motors or turbines. In the case of

configuration of two gas turbines, each combined with a

motors, we are able to handle various types of fuels; we

heat recovery system. The steam and 20% of the energy

can also recover the heat retained by the cylinders’ liners

produced are sold locally. We will also add a steam turbine

in the form of water, in addition to the heat provided by the

to capitalize on additional capacity in order to generate

exhaust gases. This allows us to generate steam and hot

more energy. In the public sector, the most emblematic

water from the motor’s heat. We have projects in which

project is Poza Rica III, which has a 230MW capacity.

we will use biomass from sugar bagasse. Its combustion will create steam, which in turn will go through a turbine,

Q: How is IGSA working with the State-owned energy

generating electricity. Opting for biomass depends on the

companies?

availability of the input and the chance of taking advantage

A: We have two projects for upgrading two combined

of an existing process and using its secondary products to

cycle plants, Poza Rica and Guerrero Negro, which are near

create energy. We also have projects in waste dumps and

completion. The first consists of maximizing a combined

in cattle tracks, where we can benefit from the methane

cycle plant with a 1-1-3 configuration consisting of a gas

produced through decomposition.

turbine, a heat recovery system, and three steam turbines. In the future, we would like to work with PEMEX as service

Q: How is IGSA positioned to take advantage of natural

providers on gas compression projects for the optimization

gas as a transition fuel?

of wells in which the pressure has dropped. The gas would

A: It creates a situation from which foreign companies will

be extracted, compressed, and then reinjected into the

want to benefit, but luckily, IGSA already has a competitive

well in order to increase its lifespan.

117

FINANCIAL SAVINGS FOR MID-SIZED COMPANIES Sampol

offers

the

energy input, limiting its production levels. Sampol built a

industrial

sector

access

cogeneration plant for this customer, which enabled it to

to its broad experience in

Enrique Manzano, Director of Business Development Mexico at Sampol

cogeneration,

including

financed

For Manzano, the most evident benefit cogeneration

and non-financed plants,

provides is optimization of prices. “Cogeneration and

and even operation and

trigeneration processes transform energy that would

maintenance

services.

otherwise be wasted, enabling users to obtain three different

Rather

plants,

run both presses at the same time.

being

energy sources. This improves energy efficiency and reduces

recognized as one of the

than

harm to the environment.” Manzano believes the reasons a

top international energy

company does not opt for cogeneration are entirely financial.

generation and distribution companies, this company wants

“We have come across plenty of people who are aware of

to establish a presence in the mid segment, as medium-

the costs of energy in Mexico but cannot afford to make a

sized projects are in demand and easy to undertake.

three year investment.” He claims this is also the case for other technologies such as PV and even combined cycles,

Familiarization with a client’s process is a key aspect in

a system that is becoming popular and is promoted by the

Sampol’s services. Enrique Manzano, Sampol’s Director of

government. “Mexico has plenty of natural resources for

Business Development Mexico, explains, “Knowing how to

renewables, but money is definitely the obstacle.”

use these byproducts in the most advantageous ways in each sector is what sets our work apart,” he states. For

For Manzano, adequate financing is a matter of creating

instance, a data processing center in Canada might need a

awareness

free cooling system to decrease the servers’ temperature.

acknowledge a business opportunity, but they never assume

Years of working with data processing centers has given

risks. Since banks use our money to finance projects, they

Sampol the knowledge necessary to take advantage of the

should have more affordable schemes.” He believes it is crucial

environment to optimize consumption.

for Mexico to develop financial schemes and fiscal incentives

among

the

banking

sector.

“Banks

can

like the ones found in other countries so that cogeneration Sampol’s sales pitch is that if a customer uses gas and has

can become widespread. “It is important for banks to see

a thermal consumption over 4MW, then they should be

the authorities putting efforts into facilitating the financing

interested in building a cogeneration plant with a four year

of these energy projects. If the Mexican authorities manage

ROI. Every energy generation process uses fossil fuels,

to make the procedures simpler and foster these kinds of

explains Manzano, and an engine or turbine is unlikely to

solutions, people could have a reliable, affordable source of

surpass 25-27% efficiency levels. “If we add the losses of

energy,” he voices, and adds that the private sector could

6-9% during deployment, then it becomes evident that an

always help by creating awareness within the public sector

industrial facility located in Mexico City and supplied with

so that granting permits and other procedures are expedited.

energy generated in another state will have an efficiency rate of 20%.” If a generation process that uses the same

Manzano notices that Mexican clients are used to working

fossil fuel is established in the same place where the energy

directly with equipment manufacturers, an approach that

is consumed, the thermal byproduct is channeled, and

rarely leads to optimal results, instead of working with

losses from deployment are removed from the equation,

integrators like Sampol. The company has warehouses with

meaning that efficiency levels can increase up to 70%.

spare components from both domestic and international manufacturers, which is a more efficient option than dealing

118

The company’s most significant expertise lies in the meat,

with manufacturers abroad, according to Manzano. “This

dairy, and mechanical sectors. At the moment, Sampol is

is particularly important for Mexico, where I have noticed

working with a fruit transportation company, which uses

a lack of maintenance culture.” As an engineering firm,

large refrigeration facilities that have large thermal energy

Sampol has a vast knowledge of the equipment available

consumption levels. Sampol has also worked with a rubber

on the market, enabling the company to give its clients

manufacturer that makes components for vehicle tires. “Its

freedom of choice. “Although we have our preferred

energy consumption was so significant that it was not able

suppliers, this policy has worked well for us. That is why we

to run its two presses simultaneously,” explains Manzano.

continue to operate in this way. We have trade agreements

The area where the plant was located did not have enough

with the main manufacturers, but we are flexible when a

CFE coverage so the company could not increase the

client has a specific request,” tells Manzano.

| VIEW FROM THE TOP

NEW ENERGY LANDSCAPE INSPIRES NEW BUSINESS MODELS RAMIRO ROJAS CAÑAMAR Director General of Primero Energía Q: What were the motives behind the creation of Primero

Now, CFE will compete not only with us, but with other

Energía, and how have the early ambitions of the company

energy generators. Despite this increasing competition, we

evolved throughout the years?

have an advantage and, while CFE has declared 30.6% of

A: One of the drivers behind the creation of Primero Energía

electrical efficiency, we will have 53%. We ultimately envision

came from the desire to lower the cost of electricity in

a 600MW plant. The second 480MW phase will be possible

energy intensive industries. Throughout our research we

once the transmission infrastructure in that particular node is

discovered there was a lot of potential in on-site solutions

reinforced. We have enough space and the pipeline has the

and cogeneration installations. As a result, we developed a

capacity to reach our target of 110MW. The pipeline required

business model that offers integrated solutions. We carry

for the 480MW is expected to be constructed by 2018 and

out all the investment and the only thing the client has to

from that point, it is a matter of power evacuation.

do is pay for their power consumption. Q: Which industries do you consider to be high potential With this vision we chose Agua Prieta, Sonora, as the ideal

customers for your unique product offering?

location because it is close to the US border, has access to

A: We are targeting transformation industries, and we have a

the gas pipeline, and is close to high-voltage transmission

potential customer with seven manufacturing plants spread

lines. Primero Energía would set up the infrastructure by

across Mexico, with which we can save at least 20% or even

mounting the different micro turbine plants and it would

30%. The automotive industry is incredibly interesting for

then charge companies for the space used. The clients

us and the Bajio region is growing in importance. All private

would then become the owners of the plants and they would

investment from independent producers is tied to CFE and

reap the benefits. CFE approached us because there was a

these companies do not have the option to go into the market

deficit of over 350MW in that particular node. As a result,

and explore other possibilities. Established companies are

we restructured into the previous scheme of small producers

undergoing a restructuring phase or operating under the old

and created three subsidiaries, each with a capacity of

regime and newcomers will have to start from zero, which

30MW, which fulfilled the requirements at that time. Despite

means we are ahead of the pack. Even if the bureaucratic

the struggles due to the Energy Reform and restructuring,

process is simplified, it will still take time to obtain the permits

we succeeded in obtaining the PPAs for the two 30MW

and this two year advantage means we will be able to swiftly

subsidiaries and the third was reserved for another scheme.

replicate our business model across the whole of Mexico.

Q: What are the competitive advantages of being located

Q: How would you describe the unique characteristics of

in Agua Prieta?

your business model?

A: The new model is very attractive because processes will

A: All that we need is access to gas and the grid for our

be made transparent. Viable costs are also important since

business model. Our idea is to set up 500-600MW power

the cost of fuel and maintenance represents 90% of the total

plants. Companies will be able to save on transmission,

costs. We are in an advantageous position because in Agua

operational costs, and other countless factors. For us,

Prieta, we have access to natural gas, a spot market, and

the key factor is understanding the gas pipeline layouts

secure gas transportation for 20 years with Kinder Morgan.

and building on the intersection points between grid and

Due to the strategic location of the plant the cost of fuel

pipelines. The business model also contemplates on-site

will not be added to the distribution and commercialization

cogeneration systems. We offer two solutions: on-site

costs, so we can offer competitive pricing with savings of

cogeneration and interconnection to the grid. Prior to the

20%. CFE approached us to restructure the PPA for 110MW

Reform, CFE did not incentivize this new model because

and we will simultaneously develop the second phase and

it would mean losing customers. On-site generation has

increase the capacity to 480MW. For the other two PPA

many benefits, as there are no losses in transmission and

contracts we will sell energy to CFE.

the company can contribute positively to the environment.

119

The power of nuclear, geothermal, and hydropower in Mexico’s energy mix is undeniable, as their combined capacity exceeds 14,898MW. Today’s energy discourse often offers contrasting viewpoints where, on the one hand, baseload energy is dead, while on the other, diversity of electricity sources is eagerly anticipated. Regardless of the rhetoric, in order to ensure grid stability and security, and reduce the overall risks of volatility in Mexico’s electric system, baseload energy is crucial. The combination of these three powers is viewed as an integral element to meeting demand effectively, and the investments appropriated by CFE and private players alike is testament to this fact.

This chapter begins by revealing the untapped geothermal potential hidden in Mexico and the coming tenders that will define the role private players and CFE will play. The increased participation of the former will prove essential if the right technology and innovation is to flourish in Mexico. Likewise, it also explores the ongoing risks and high costs associated with exploration and exploitation. Subsequently, hydropower enters the limelight where associations, technology providers, and developers showcase the competitive advantages of this source. Finally, the chapter closes with an exploration of Mexico’s sole nuclear power plant, Laguna Verde, the Russian expertise contributing to Mexico’s nuclear capacity, and safety measures that will secure this source’s position in the country’s evolving energy mix.

HYDRO, NUCLEAR & GEOTHERMAL

MEXICO’S ENERGY & SUSTAINABILITY INDUSTRY AT YOUR FINGERTIPS

Mexico Energy & Sustainability Review 2015/16 is the first publication that provides a comprehensive overview of the latest developments, main trends, technological advancements, and investment opportunities in the Mexican energy industry. This annual publication is based on interviews with the business and political leaders who drive Mexico’s automotive future.

Mexico Energy & Sustainability Review 2015/16 will be available in iPad edition For the latest information about the release date please visit:

www.mxesr.com

www.mxesr.com Twitter: @renewablemexico and @mexicorenovable Blog: www.renewableenergymexico.com

CHAPTER 6: HYDRO, NUCLEAR & GEOTHERMAL 124

ANALYSIS: Future of Mexico’s Clean Baseload Power Sources

125

INSIGHT: Luis Fernández, Woodhouse Lorente Ludlow

125

EXPERT INSIGHT: Jesús Serrano, CRE

126

INSIGHT: Luis Miguel Krasovsky, Krasovsky Asociados

Frédéric Sauze, ClusterGeo 127 VIEW FROM THE TOP: Roberto Ortiz, ClusterGeo 128

INSIGHT: Gerardo Hiriart, ENAL Group

129

VIEW FROM THE TOP: Brad Donovan, Consulate of Iceland

130

VIEW FROM THE TOP: Chris McCormick, Reykjavik Geothermal

130

INSIGHT: Brad Donovan, Mannvit

132

INSIGHT: Jacobo Mekler, AMEXHIDRO

133

VIEW FROM THE TOP: Jacobo Mekler, AMEXHIDRO

134

VIEW FROM THE TOP: Frédéric Sauze, Andritz Hydro

136

PLANT SPOTLIGHT: Chicoasén

137

INSIGHT: Gilbert Salvi, Sinohydro

138

VIEW FROM THE TOP: Jaime Suárez Coppel, Power Development de México

139

INSIGHT:

140

PLANT SPOTLIGHT: Laguna Verde

141

ANALYSIS: The Showdown between Nuclear and Renewables

142

VIEW FROM THE TOP: Alexander Merten, Rosatom International Network

142

INSIGHT: Juan Eibenschutz, National Commission of Nuclear Safety and Safeguards

Francisco Javier Carrión, Marersa

123

FUTURE OF MEXICO’S CLEAN BASELOAD POWER SOURCES Mexico is moving towards a greener energy mix by phasing

in the country. The presence of nuclear in the country is

out of coal and fuel oil-fired power plants in favor of natural

deeply rooted in the need to reduce its reliance on dirty

gas and renewables, which will alter the county’s balance

energy sources. Given that in the coming few years Mexico

between base load and intermittent energy sources in

will increasingly rely on natural gas, it is expected that

the country’s energy mix. Base load power plants using

nuclear may recede into the background. So far, natural

nonrenewable fuels include coal-fired and nuclear power

gas contributes 2.2% to the energy mix and its capacity has

plants, while renewable energy sources such as geothermal,

increased from 1,400MW in 2014 to 1,500MW up to July

and hydroelectric power plants can also provide base load

2015, its future capacity and role in the energy matrix lies

power. Nuclear power plants are notoriously expensive

in the hands of the government and whether it will opt to

and time consuming to build and do not offer flexibility to

develop its nuclear capacity even further.

match fluctuations in energy demand, however, they offer a low energy cost per Kwh generated, which is alluring

Hydropower is the crowning glory of baseload power

for emerging economies like Mexico that need access to

sources, and compared to the other two, represents a more

affordable energy to fuel their economic growth.

active investment from the private sector. In 2014, there was an installed capacity of 12,268MW in operation distributed across 17 states, including mini hydro projects of 30MW or less. The gross energy generation has steadily increased. In 2014 it reached 38,144GWh and 2015 promises similar

results given that the effective capacity has increased to Effective Capacity of Geothermal, Nuclear and Hydropower 2010 - 20 12,293MW and up to July, generation had already reached 15 17,582GWh. Enrique Ochoa Reza, Director General of CFE, explains the pivotal role hydropower plays in production 12 costs and electricity prices for consumers. “2014 was a year of high rainfall, and as a result, the level of hydroelectricity production was high, which in turn led to efficient electricity 9 production and lower prices for consumers.” The giant of Geothermal power is gaining favor in markets around

hydropower, CFE, plans on developing a brand new facility 6 located in Chiapas called Chicoasen II and revamping

the world as global capacity equates to 10.7GW, and the

an existing power plant in Temascal, Oaxaca. These will

US leads the way with 3.1GW online. Mexico is the fourth

3 add 254MW of installed capacity and increase CFE’S

largest producer of geothermal energy and up to 2015,

hydroelectricity capacity by 2%. Of the three baseloads,

the installed capacity reached 830MW. The gross power generation between January and July 2015 was 3,094GWh.

geothermal and hydropower will continue to hold sway in 0 Mexico’s evolving energy matrix, 2013 while nuclear 2010 2011 2012 2014is expected 2015

As a result, geothermal represents 1.3% of effective capacity

to remain on the bench for the coming years.

INSTALLED CAPACITY OF GEOTHERMAL, NUCLEAR POWER GENERATION OF GEOTHERMAL, NUCLEAR Gross Power Generation Geothermal, Nuclear and Hydropower (milion MW AND HYDROPOWER 2010-2015) AND HYDROPOWER (MILLION MWH, 2010-2015) Effective Capacity of (GW, Geothermal, Nuclear and Hydropower 2010 - 2015 (Source: of INEGI) 15

40 35

30 25

15 10

5 0

0 2010 Source: INEGI

124

2011

2012

2013

2014

2015

2010

2011

2012

2013

2014

2015

LAW FIRM HELPS REGULATE GEOTHERMAL ENERGY During the

the

drafting

Reform,

law

firm

Woodhouse

Luis Fernández, Senior Associate at Woodhouse Lorente Ludlow

has been positive because the legislation has provided the certainty it needs.”

Lorente

Ludlow was involved in

In the geothermal sector, explains Fernández, there is a

the creation of the law

recognition period, which is then followed by exploration and

and

the

exploitation periods. This sequence is similar to that of the

geothermal sector. As a

oil industry. A company obtains exclusivity permits for the

result, the firm’s services

exploration of a particular region, and if it is able to locate

have

regulations

for

experienced

unprecedented

resources after drilling a couple of wells, then it obtains a

demand

long-term concession. “This was not possible in the previous

from companies like Enel,

legal framework and as a result, it was difficult to develop

the largest producer of electricity in this particular sector. “In

a geothermal project. Amazingly, Mexico has 10,000MW

Mexico there are few law firms that specialize in geothermal;

of potential geothermal energy that can be capitalized on

in that sense we have a decided advantage,” says Luis

in the short term,” Fernández comments. Geothermal is a

Fernández, Senior Associate at Woodhouse Lorente Ludlow.

renewable source that can act as a constant energy source, and it is relatively cheap over the long term, making it an

Fernández says the Ministry of Energy and the Inter-

extremely competitive sector. In the past, CFE was the only

American Development Bank encouraged the firm to

one that was in a position to take advantage of Mexico’s

participate in the drafting of the legislation, and then

plentiful geothermal resources and, although it carried out

in the drafting of the regulations. “We tapped into the

several projects, its interest was in other sectors. “Now with

expertise of CMS Cameron McKenna, which is active in

the clean energy certificate program, it will be a matter of

other geothermal markets around the world, so it was

time before we see more geothermal projects in the market,”

easy to become experts in the geothermal sector in a

says Fernández, and adds that the private sector will be

matter of months.” In order to prepare for the task, the

able to establish projects of its own. Companies will also be

firm studied other markets like Chile, Indonesia, and

able to collaborate with CFE. “These partnerships will prove

Iceland. “From this we were able to develop a first class

beneficial to CFE since these companies have acquired a

legal framework. So far the feedback from the industry

long history of knowledge that they can share.”

| EXPERT INSIGHT Q: What financial mechanisms are being implemented

ii.

A three-year permit that can be extended for an

in order to take advantage of Mexico’s geothermal

additional three years in an area of up to 150km2.

resources and make the country a leader in this sector?

iii. The production stage, where an extendable 30-year

A: Geothermal energy faces a considerable financial risk

concession is granted.

resulting from elevated initial costs. In addition, it takes rather a long time for a project to become operational.

As part of Round Zero for geothermal energy, on January

In order to foster optimal development conditions and a

30 2015, CFE presented to the Ministry of Energy a list of the

better assessment of available geothermal resources, the

geothermal fields it plans to develop, which are located in

Law of Geothermal Energy regulates the exploration and

Michoacan, Puebla, Baja California and Baja California Sur.

exploitation of these resources according to international

These are all states where the company already operates

best practices. In this way, it provides legal certainty to

similar developments. Last July, the Ministry adjudged 13

investors and their projects so that they can have enough

exploration areas to CFE, but these areas represent only

incentives to carry out the capital-intensive initial stages.

52% of the geothermal fields originally requested. After Round Zero, there will be subsequent rounds so that

Geothermal

developments

will

have

the

following

characteristics: i.

national and international private players can develop fields on their own or in partnership with CFE.

The recognition stage, which consists of an eightmonth registration with no intrusive activities.

Jesús Serrano, Commissioner at CRE

125

PERMITS AND CONCESSIONS FOR THE NEW GEOTHERMAL SECTOR In the past, the government

in the Law of the Electricity Industry, and electricity can be

served as a guide for the

sold directly through PPAs or other models.

private

Luis Miguel Krasovsky, Managing Partner at Krasovsky Asociados

sector

given

its

inextricable links to energy,

The

but these traditions have

characteristics of aquifers close to geothermal projects

been changed with the

must remain unaffected, providing proof to the Ministry

introduction of the Energy

of Energy before a concession is awarded. Therefore,

Reform.

professional and in-depth environmental studies have to

Krasovsky,

be carried out to obtain a concession, just like anywhere

Luis

According

Miguel

Managing Krasovsky

Partner

Law

Geothermal

Energy

states

that

the

else in the world. In case it is suspected that an adjacent

Asociados,

reservoir is being affected, the Ministry of Energy will

there are chances to integrate new practices into this fresh

ask CONAGUA to get involved so that this entity may

environment.

determine what actions are to be taken.

Krasovsky has worked with Grupo Diavaz, which was carrying

There are two peculiarities of the Mexican model that

out exploration and production petroleum activities, even

Krasovsky finds interesting. Firstly, the concessionaire

before the Reform. When the firm learned that access to

can assign or transfer the concessions, including all the

the energy market was to be made available, its members

investments, as long as such transfer is authorized by the

began preparing for the new opportunities and developing

Ministry of Energy. This is something that could happen if,

the required marketing strategies to reach foreign investors.

for example, a developer runs out of money or decides to

Krasovsky was recently hired by an Icelandic engineering

make the investment in a different country. Secondly, if the

firm and world leader in geothermal energy: Mannvit.

concessionaire cannot find a company to which to transfer

Krasovsky points out that there is little experience in

the rights or fails in fulfilling its obligations, the Ministry

geothermal energy in Mexico, despite the fact that it is

of Energy may revoke the concession and call for public

poised to become one of the most important renewable

bids. “Legislation is protective and covers a plethora of

energy sources because of its constant availability.

scenarios, which speaks of the authorities’ intent to oversee a successful geothermal energy sector,” praises Krasovsky.

The first thing a company has to do to develop a geothermal project in Mexico is to establish itself in the country. Afterwards,

Although Krasovsky is preparing for a new sector, his firm

it must be registered with the Ministry of Energy, a process for

is experienced in social rights, an element highlighted in

which the company has to demonstrate technical, juridical,

the Law of Geothermal Energy. “Our real estate division

and financial capabilities. In addition, interested parties have

has constantly worked with cooperatives (ejidos) since

to present a technical program with scheduled goals and

it was created 30 years ago,” he comments. “Also, I take

investment details for each stage of the exploration process.

pride in the fact that Krasovsky is one of the leading law

The registration is valid for eight months, and companies have

firms to have actively promoted class actions in Mexico.

to request the exploration permit two months prior to the

For example, we are working on class lawsuits in more than

expiry date of the registration. The exploration permit is valid

ten Mexican cities. Krasovsky is a firm that is sensitive to

for three years and may be renewed for an additional three

legal elements that fall under the social rights umbrella.”

years. If companies are interested in exploiting the reservoir,

Krasovsky lacked strength in terms of environmental

they must then request a concession six months before the

litigation a few years ago, so it made an alliance with Celis

exploration permit expires. Krasovsky highlights that each

Aguilar Álvarez y Asociados, ultimately creating a mutually

permit and concession is limited to areas of 150m2 or less.

beneficial relationship. The firm’s extensive real estate and agrarian practice and its recent alliance gives it an ideal

126

“Exploitation concessions last for 30-year periods and

profile to successfully represent companies dedicated to

these allow the continuous and exclusive exploitation of a

geothermal energy generation in Mexico. Finally, Krasovsky

geothermal reservoir. The law does not provide property

believes the best way to become an expert is by directly

rights, but instead enables operators to take full advantage

participating in the energy sector. “Although our main role

of the property. Exploitation concessions can be extended

is as attorneys for investors, I recently decided to invest

for one or more additional periods of 30 years,” Krasovsky

in the development of a 6MW PV park in Mexicali, Baja

discloses. The energy generated from geothermal activities

California,” shares Krasovsky, eagerly preparing to become

will be regulated according to the general rules contained

a prestigious name in the country’s energy landscape.

| VIEW FROM THE TOP

HARVESTING THE EARTH’S HEAT LEFT: Frédéric Sauze, President of ClusterGeo RIGHT: Roberto Ortiz, Director of ClusterGeo

Q: What were the drivers that led to the creation of

FS: This model is very common in European countries, like

ClusterGeo, and what are its main objectives?

France, where most of the housing development around

FS: We created ClusterGeo in 2011 with the aim of having an

Paris, as well as the Orly airport, are heated by geothermal

organism that could help drive social and economic growth

power. The authorities drill wells that deliver the thermal

in the state of Michoacan. We knew there were several actors

energy and then transfer it to the heating systems of the city.

in the geothermal field in that state, so it was a promising

The French government understood that the high financial

starting point. CFE owns one of the most efficient geothermal

risks involved could not be undertaken by private investors,

fields called Los Azufres, and a number of concessions have

especially taking into consideration the size of their respective

been explored in the area. The government was interested in

companies. If the exploration campaign is successful, the

creating a cluster to promote the development of the local

investor has to repay the government through its future

geothermal industry by strengthening the local supply chain

revenues, but if the exploration fails, it is the government

and by fostering social integration. The cluster brings together

that absorbs the risk. We took this model and presented it to

scientists and researchers from public and private universities,

the Ministry of Energy and FOCIR, and since then, these two

as well as government agencies among other players.

organizations have been working hard to realize the project. Geothermal generation is relatively new and small compared

Q: What role did ClusterGeo play in the creation of CEMIE-

to other natural resource industries, so we do not always

Geo, and how will it foster innovation and strengthen the

have the capital required to fast-track our projects. Now, with

available human capital?

the help of these governmental agencies, it is possible to

FS: The main focus of the cluster is geothermal energy, but

advance projects with a lot less complications.

it is also open to other renewable sources of clean energy generation. One of the main initiatives we have seen

Q: Which advancements or opportunities have been

so far was the creation of the Center of Excellence and

created for the geothermal industry with Round Zero?

Innovation, also called CEMIE-Geo, which was sponsored

FS: The first round will tender high-enthalpy projects,

by the Ministry of Energy. In order to maximize the reach of

whereas the second round will tender low-enthalpy

this center, we partnered with UNAM and with a research

projects. CFE dominated Round Zero, since it has many

center based in Baja California called CICESE. Together,

projects of this kind in advanced exploration stages or in

we managed to raise around MX$950 million (US$63.3

development. I think that the government took its time to

million), which has been allocated to different engineering

advance the biddings to allow CFE time to analyze which

and research projects. The idea is to better understand

projects it wanted to develop and operate.

low-

and

high-enthalpy

projects,

low

temperature

resources, and the benefits of fueling power plants with

Q: What role is ClusterGeo playing in the promotion and

geothermal water for other industries such as agronomy.

implementation of new technologies and processes in

We have also fostered the implementation of an insurance

order to foster the growth of the sector?

scheme for geothermal drilling that is common in other

RO: I believe that ClusterGeo provides the perfect opportunity

countries, in which the government provides insurance

to bring cohesion to our industry by reuniting academia, the

mechanisms to investors willing to take the financial risk

government, the private sector, and society. Together we

of exploration. Aside from this, we have created a special

tackle the challenges the sector presents. The geothermal

academic program in the University of Michoacan to train

industry has developed because of the facilitation of the

students in the field of geothermal power generation.

exchange of knowledge and expertise. We see a very dynamic and motivated sector; the people that work for this industry

Q: How can this Exploration Risk Insurance Fund help

truly believe in the benefits it can bring to society. ClusterGeo

the industry mitigate the financial risks involved in the

is using this momentum to bring together some of the most

exploration of the resource?

daring and intelligent ideas to allow the sector to evolve.

127

THE REBIRTH OF THE GEOTHERMAL GOLDEN ERA Geothermal is a pioneer, as one of the first renewable

exploration capabilities, which enable detection of world

energy sources to be applied to electricity generation, not

class geothermal fields in the country. “We have successfully

only in Mexico, but in several countries around the world.

explored a large number of fields in Mexico over the last few

For instance, it has been used in Italy since the 19th century,

years, and with those, we have confirmed the vast potential

while in Mexico it has flourished since 1959. Gerardo Hiriart,

Mexico possesses for this type of energy generation.”

President and CEO of ENAL Group, recalls the decline of the geothermal industry’s golden era. “Forty years ago countries

Scouring the land looking for pockets of geothermal potential

like the US, Iceland, Italy, and New Zealand invested heavily

requires solid geological understanding. “With have a solid

in the development of geothermal fields. Unfortunately,

understanding of the volcanic setting, then geochemistry

this did not endure because the sector was forced to

and geophysics knowledge can be put into practice. These

compete with subsidized oil-carbon fuels.” The amount of

tools are crucial to understanding what is happening

projects reaching operational levels has depleted, even as

underneath our feet; the forces and dynamics, as well as the

new geothermal fields continue to be discovered. Although

amount of water trapped underground, define whether there

the sector has lagged behind, Hiriart maintains belief in its

is potential or not,” Hiriart explains. In his eyes the number of

potential, “Luckily for the world and for our industry, society

areas in Mexico that hold potential for geothermal energy is

began to develop a deeper environmental consciousness.

astonishing. “The most promising region sees considerable

People began to demand better environmental practices

volcanic activity, so naturally the Mexican Transvolcanic

and non-polluting sources of energy.” For Hiriart, this

Belt is the most attractive zone. Another interesting site to

explains the reawakening of the industry.

explore is Baja California, where the tectonic stresses that

“We have successfully explored a large number of fields in Mexico over the last few years, and with those, we have confirmed the vast potential Mexico possesses for this type of energy generation” Gerardo Hiriart, President and CEO of ENAL Group

Mexico’s social and cultural development was sparked thanks

take place propitiate fields such as Cerro Prieto.” ENAL

to geothermal energy. It is estimated that a millennium before

Group has amassed a wealth of knowledge, which it has

the Spanish conquest, many of the settlements, especially

successfully applied in its projects. “Our flagship project is

those in the central region of the country, were constructed

Domo San Pedro, where we explored for Grupo Dragón, and

thanks to the proximity of hot springs. At the end of 1959, a

all five exploratory wells we drilled hit geothermal energy.”

geothermal plant with a capacity of 3.5MW was developed in Pathe, Hidalgo, located 300km north of Mexico City. This

Geothermal holds a distinguished place in the energy matrix.

was the first plant of its kind in the Americas and it was finally

Nonetheless, Hiriart points out that companies in the field

taken offline in 1973. Today, CFE operates four geothermal

must understand the risk during the exploration phase. “An

fields with a total installed capacity of over 1,000MW and

appealing factor is the marginal costs of operations once

this is estimated to satisfy the energy demands of 2 million

the plant has been constructed, since large investments

households. The crown jewel is Cerro Prieto, located in Baja

are no longer required.” He adds that maintenance costs

California, with an installed capacity of 720MW, and close on

of the installations are minimal, as are those related to the

its heels is Los Azufres in Michoacan with 194MW.

expansion of the plant’s capacity. The industry is reliant on the performance of other industries. Hiriart explains, “The

128

To generate energy using the earth’s heat is no easy task and

competitiveness of geothermal is extremely susceptible to

the process is far more complicated than other sources. “The

the prices of energy commodities. It is hard to enter long-

latter energy sources do not require exploration, so they do

term agreements because clients are expecting the drop

not involve any risk. Geothermal fields must be thoroughly

in value of certain fuels to make their operations more

explored and analyzed before being able to ensure their

profitable.” Some companies may be intimidated by such

power generation potential,” Hiriart explains. While it can take

barriers, yet ENAL Group is undeterred in its search to

years for the energy to be harvested, in his eyes geothermal

cheapen geothermal. “Hopefully, every industry in the world

is worthy of all this hard work. ENAL Group is noted for its

will put the environment at the forefront of their priorities.”

| VIEW FROM THE TOP

ICELAND EAGER TO HELP MEXICO DEVELOP ITS GEOTHERMAL RESOURCES BRAD DONOVAN Honorary Consul General of Iceland in Mexico Q: How can the Icelandic geothermal model serve as

Q: How can the geothermal energy sector ensure

an example for Mexico as it begins to develop its own

compliance with environmental regulations?

geothermal sector?

A: Let us use the current example of Iceland. As of January

A: We have faced so many challenges that we have

2015, if a geothermal facility falls out of the safety and

overcome, and sharing those experiences with Mexico is a

environmental parameters, it is shut down that same

great pleasure because it helps speed up the process of

day and it does not reopen until it meets compliance

geothermal development. The electricity produced from

requirements. Therefore, there is no doubt in the minds of

renewables in Iceland is 20 times the domestic demand, and

the constituents that the environment is being respected.

geothermal energy has changed the economic landscape

Prior planning is the key to integrity for the environment

of the country and created not only a high standard of

and performance of the economic model. Again, we have

living for its citizens but also an environment conducive

so much experience in geothermal that there is no reason

to indirect exports. The steel and aluminum factories are

why there should be any form of environmental disaster

benefitting from low electricity prices, attracting indirect

occurring in Mexico as a result of exploiting geothermal

exports and creating employment, which leads to an

energy. If we treat the communities with respect, I believe

enhanced quality of life. This goes beyond just technology,

they will embrace this power concept and economic

risk mitigation, and finance, and leads to the main agenda

development mechanism.

and the ultimate goal of the Energy Reform, which is communal development of the country.

Q: Where will geothermal find its strength in Mexico’s renewable energy mix?

Q: What actions should the authorities take to further

A: That will be led by the data. There is such a wealth of

promote the development of the geothermal sector?

statistics about proven geothermal resources, and so we are

A: The government is currently doing well, taking advantage

going to pursue those and develop them under the auspices

of a dynamic time with results that will emerge in the

of the federal government of Mexico with the interest and

medium- and long-term. We were able to communicate

contribution of the domestic and international investment

with the Presidency, Congress, and the Senate, and all

community. It will be a natural progression given that so

levels were extremely effective in the reengineering of CFE

many studies have been done. The more renewable energy

with a reinvigorated CRE and the new system operators,

we can introduce into the grid to help meet the president’s

CENAGAS and CENACE.

goal of renewable energy content, the better.

The structural work has been carried out at the federal level

Q: What does the geothermal sector need to thrive in

and now the implementation must be passed down to local

Mexico?

levels. I suggest states within Mexico set up energy boards

A: Honestly, I think all of the elements are in place for this

whereby we can replicate models not only for investments in

sector to finally flourish. Mexico has significant potential

energy, but also the universal economic implications arising

for geothermal, and there is so much research being

from those developments. Those boards will be able to

conducted in the country as well as sizeable amounts of

attract investment, carry out the necessary training, and act

implementation. Finance and technological experts are

under the auspices of this new legal body. First and foremost,

looking to enter Mexico to take advantage of the new

we need to promote this practice in an intelligent way that

legal framework. In addition, the new planning schemes

protects the local population, whether that be through

for the transmission network will certainly help in the

royalties or production sharing contracts, or through simple

development of the geothermal industry, with mechanisms

job creation and training. The commissions will be in charge

like the Geothermal Risk Mitigation Fund playing a crucial

of ensuring that the benefits of the Energy Reform trickle

role. All of the pieces are in place; it is up to us to simply

down to the appropriate segments of the population locally.

put them together.

129

| VIEW FROM THE TOP

ICELANDIC FINANCING EXPERTISE DETONATES GEOTHERMAL SECTOR CHRIS MCCORMICK Director, Strategy and Project Finance of Reykjavik Geothermal Q: Reykjavik Geothermal’s reputation in the industry is

Mexico’s problems with geothermal were because of an

unparalleled, with projects in challenging environments

absence of laws, which is not an uncommon situation for

such as Ethiopia and Papua New Guinea. What was

Reykjavik Geothermal to run into. Experienced parties tend

attractive about Mexico and why now?

to believe they know how to develop geothermal, but it was

A: Mexico has tremendous geothermal resources from a

virtually impossible to create a process to get the approval

technical standpoint. Reykjavik Geothermal focuses on

to do it here. The most obvious issue, which is now being

the most promising resources around the world, adjusting

addressed, is the CONAGUA permitting process.

priority to political and economic landscape. The company started pursuing Mexico four years ago after COP 16, when

CONAGUA had authority over geothermal fluids but

the President of Mexico committed to a 35% contribution

had no significant experience or process for permitting

of renewable energy to the national energy mix by 2024.

geothermal. That has been the underlying problem for

For Mexico to hit that 35% target, it was clear from our

several years. Other than this issue, the regulatory barriers

analysis that geothermal was going to have to become

in Mexico were not really obstacles but catalysts in moving

more accessible. We have a background in understanding

forward. A similar problem in developing countries is

the renewable energy mix and the possibilities it offers

having separate agencies with separate interests, making

in various places. As a private geothermal developer

it hard to align everyone. Some of the staff in Mexican

operating around the world, it was obvious to Reykjavik

public agencies spent time internally aligning the various

Geothermal that Mexico was going to present one of

agencies, and it is clear that CONAGUA wants to establish a

the most tremendous opportunities for geothermal

permitting process. There is a genuine interest in boosting

development worldwide. The industry is moving forward

investment in the country, so geothermal is seen as one of

but not as fast as it could have.

several possible opportunities for economic advancement and power development in Mexico.

Q: What needs to happen, from a public sector standpoint, to unlock Mexico’s geothermal potential?

Q: What common vision did you see in Mexxus Drilling

A: The Energy Reform is boosting the industry, and it includes a

for the development of Ceboruco and the future of

specific geothermal law as part of the secondary regulations.

geothermal in Mexico?

ICELANDIC ENGINEERING EXPERTISE AT MEXICO’S SERVICE

130

Mannvit is an international consulting firm that offers

“Mannvit has a wealth of experience as a troubleshooter

comprehensive

management,

and an engineering consultant, with over 50 years of

operational, and EPCM services. It is a leader in geothermal

experience in mitigating risk and adding value for its clients.

power development with decades of experience developing

The beauty is the lack of competition because of the unique

geothermal resources. Over the past years, the firm has

skillset that exists within the company,” says Brad Donovan,

established and acquired subsidiaries in several countries

Mexico Country Manager of Mannvit. Whether in Kenya

to learn from their local expertise. Mannvit also creates

or Mexico, the firm constantly evaluates new techniques

partnerships with other established and emerging players

in drilling and reservoir management issues to help with

within the geothermal sector. The firm currently has plans to

the long-term production of power, while also examining

develop new geothermal power plants in Iceland in conjunction

environmental protection issues. With this in mind, Donovan

with Reykjavik Energy Landsvirkjun, among others.

firmly believes Mannvit has a unique expertise that will help

engineering,

consulting,

A: Mexxus Drilling is a young company but it has become well-

riskiest types of power development, but this diversification

established in the industry. It had the foresight to recognize

provides a considerable opportunity to create financial

that private development was going to expand and create

structures to facilitate development. They are implementing

more market opportunities. Mexxus Drilling’s commitment to

a program to address a historical fundamental problem

geothermal was clear, as was our own. As a result, in 2011 we

with geothermal, which is the initial outlay of US$25 million

formed a joint venture to identify and develop a geothermal

that needs to be spent before a developer knows if it will

concession in Mexico, with the expertise for identifying the

have a financially bankable project. That means putting a

appropriate location from a technical and social standpoint.

lot of equity at risk. Reykjavik Geothermal has spent a lot

It is now well-known that our concession is in Ceboruco,

of time trying to solve this problem here and around the

Nayarit. With the support of the governor of Nayarit, it was

world. NAFINSA is implementing a program of lending for

easy to analyze the region knowing that there are several

sensitive sectors by diversifying the portfolio risk.

opportunities in the state. We chose what we thought was the best technical resource leveraging our Icelandic expertise

In our case, the first phase at Ceboruco is a 30MW project.

and corresponding activities around the world.

The exact investment amount for this project is yet to be determined, but we know that the total cost for the first

We examined prior publications about geothermal energy

phase is around US$30 million, of which NAFINSA will

in Mexico, analyzed the macro landscape, performed site

probably lend US$20 million. That will leave equity at risk

surveys and several forms of scientific studies in order to

of around US$10 million but with the potential to bring

narrow the site down to one concession area. We looked at

30MW online. As for the structure of the loan, NAFINSA is

ten locations, filtered those to two, and then chose Ceboruco.

the coordinator, but the funders are IDB and the World Bank

The project was sanctioned by CRE some time ago. It is not

through its Clean Technology Fund, while The Ministry of

moving as fast as we would like but we also recognize that

Energy is a partial sponsor. This pool of capital is designed to

as a pioneering projects we are interacting with agencies at

create a revolving structure. It is an 18-month loan that aims

the national, state, and municipal levels that are not familiar

to bring a project to financial close, before the loan value gets

with the opportunity that geothermal power presents.

extracted, and goes back into the pool to be lent to another

Reykjavik Geothermal is extremely happy with our JV with

developer for another geothermal project. While all parties

Mexxus Drilling to develop Ceboruco and we will also look to

involved are assuming risk, portfolio theory diversifies that

significantly expand our activities in Mexico.

risk and, as a result, NAFINSA and the underlying funders of the program facilitate large amounts of power development

Q: How important is the risk minimizing program set up

with low cumulative risk. Realistically, 15 years from now, with

by NAFINSA and the IDB?

this program in place, Mexico will be the largest geothermal

A: From a financial standpoint, Mexico is in a unique

power producer in the world. Mexico is a wonderful economy

situation. Without exceeding its borders, it has the ability

to develop geothermal power, since there is a lot of demand

to diversify development risk. NAFINSA, IDB, and Munich

and this financing program ultimately creates opportunities

RE understand that. Geothermal development is one of the

for us to develop Ceboruco to its fullest technical potential.

in the development of Mexico’s new geothermal energy

bring all of the pieces together and that is what is needed

sector. “Mannvit definitely wants to be positioned as the

in Mexico,” Donovan comments.

reference company and the industry leader. It is committed to training and employing Mexican people, and it operates

During the Round Zero tender in Mexico’s geothermal sector,

on an extremely integral code of ethics,” asserts Donovan.

Mannvit provided some advice to different committees and legislators in the Senate and in Congress. “We have been

Among other activities, Mannvit carries out exploration,

following this even before the Reform was passed, with

drilling, and reservoir management. Given that it has been

dialogues with UNAM and CICESE and the experts in CFE,

a leader in geothermal for 50 years, the company aims to

Morelia, and the College of Engineers,” shares Donovan.

progress quickly so it can cut down on the development

However, he stresses that the company is in Mexico to help

time and either pass the project on to an EPC or provide

implement the reform with the commercial partners that

oversight internally. “I think the first part of the cycle of

choose to work with Mannvit. “Anybody with a viable project

a project is where Mannvit’s strengths lie. It is such an

should approach us in order to save time and money. The

interesting way of doing business whereby there is not a

real aim is to help enable Mexican geothermal to come to

whole lot of competition because Mannvit has the ability to

the forefront of the global market,” Donovan concludes.

131

HYDROELECTRICITY TRIUMPHS IN FACE OF UNCERTAINTY Historically, Mexico has relied heavily on hydroelectricity

knowledge sharing, the problem arises when another

for much of its power. In fact, small, hydroelectric power

company downloads the study, changes the name, prints

plants still churn out power in remote areas of the

it again, and presents it the exact same day. There is

country, and some even date back to the 1920s. Presently,

not a specific order in obtaining the permits, so various

hydroelectric plants account for more than 11,499MW of

companies may be developing the same projects with

electric generation capacity, which equates to a quarter

different permits, one might have the land rights, another

of total generation capacity in Mexico. This year CFE has

CRE permits, and others the environmental impact

projects under development that amount to 1,500MW

assessment. “AMEXHIDRO is pushing to have a Pre-

and the private sector in turn has a pipeline of 1,500MW.

Concession where only one company may be working on a

Jacobo Mekler, President of AMEXHIDRO, is keen to finally

site a time, which will bring certainty to investors,” he adds.

elevate hydro to center stage. “The government must

Hydroelectricity has been mired by misconceptions, and

recognize hydro and not be blinded by misconceptions

players take great pains to eradicate them. “Companies

and old fashioned beliefs.”

invest more time and money in developing community ties than in technology. If a technological problem arises, it can

Legal certainty remains a concern for the sector, since

be easily dealt with, yet if a project does not obtain social

CONAGUA only awards water concessions if permits

acceptance, then it is doomed to fail,” Mekler clarifies.

have been granted by CRE and SEMARNAT. As it stands,

Regarding community relations, project development

companies must approach a string of entities in order

becomes more complex due to a new law called

to obtain the permits and for many this spells a loss of

Consultation of Indigenous Peoples that was borne from an

investment and time. “CONAGUA, the Ministry of Energy,

international labor organization treaty that Mexico signed

and CRE have been receptive to streamlining permitting.

in 1992. Mexico never enforced this law until 2013, and since

On the other hand, SEMARNAT has been reticent, and we

it is a treaty, the government is the party responsible for

attribute this to its unique processes because it believes

carrying out the consultations. “The consultation cannot

its online platform is sufficient,” Mekler describes. Hydro

be conducted prior to the development, since it would not

players must also race against time in the pursuit of their

be well informed.”

projects; building a solar park can take up to six months and a wind farm up to a year, whereas building a hydro

The guidelines state that the company must invite

plant can take up to three years. This can be challenging

representatives from different agencies like the Ministry of

when considering the transition into the new legal scheme.

Economy, the Ministry of Energy, the Ministry of Finance,

“In order to adhere to the timeline authorities have laid out

CRE, and the Human Rights Commission in order to

for the project to be considered a legacy, the company

ensure that the project is being developed properly. For

would have to start building very soon.” These barriers

Mekler, this aspect will be difficult to implement because

have forced hydro companies to adopt new measures, and

the government does not have the time, human capital,

some are diversifying and building a new portfolio that

or resources to carry it out. The smartest move left for

includes wind, solar, and even thermoelectric.

Mexico is diversification of its energy matrix to make use of all the resources available. Hydroelectricity comes to the

“It is unreasonable that in Mexico it takes up to four years

forefront as a sector that will incentivize new technologies

to develop a hydro project, and even before the company

in the market and foster internal innovation. Players within

has the certainty of feasibility, it has to have all the permits

the sector have successfully tackled many barriers in their

and guarantees in place,” Mekler rails. In other parts of

quest for growth and Mekler is confident they are ready to

the world, developers are given two years to develop and

step into the limelight.

obtain all the permits and if they are able to develop the project within that time frame it legally becomes theirs. It is the opposite in Mexico, where investment does not necessarily ensure the ownership of the project. “If a company is working on a project, it is likely that there are a few others working on the same one simultaneously.” There can be other complications, for instance, when a company presents its environmental impact assessment to SEMARNAT, and the authority makes the study available to the public. While superficially this might seem like

132

“AMEXHIDRO is pushing to have a Pre-Concession where only one company may be working on a site a time, which will bring certainty to investors” Jacobo Mekler, President of AMEXHIDRO

| VIEW FROM THE TOP

HYDROELECTRICITY RETURNS TO THE LIMELIGHT JACOBO MEKLER President of AMEXHIDRO

Q: How do you feel the hydroelectric power needs were

addressed in the round table of the Consultative Council on

themselves and what short-term strategies should they

How

should

AMEXHIDRO’s

members

prepare

Renewable Energies for the National Development Plan?

employ to ensure their survival?

A: We pushed for fixed, long-term wheeling costs,

A: Private players will have to consolidate their operations

preferential dispatch, and energy banks. While there is still

in order to compete with the major players that are

space for the authorities to address these issues under the

expected to arrive. There will be a greater need for equity,

new framework, these were unfortunately not incorporated.

and lately an interest has been seen from pension funds in

The Law of the Electricity Industry places renewables and

investment in infrastructure and energy through CKDs. The

cogeneration plants on the same playing field, as they both

uncertainties in the market have made it difficult for new

receive CELs. In the past, clean energies were the exclusive

projects to arise, so there was a lack of investment in 2014.

domain of renewables, but now combined cycles with

We will wait for the new market rules to be implemented

carbon capture and cogeneration are seen as clean. Having

and gauge competition in terms of electricity prices, as

renewables compete with natural gas at current prices of

well as the contribution of newly created CELs to the

below US$3 is a difficult task. After pushing the government,

renewables target of 35% of generation by 2024.

we successfully negotiated that cogeneration plants will only receive the certificates for the additional energy that

Q: What key factors have caused hydroelectric projects to

is generated, without counting the initial energy output that

remain out of the spotlight, and what steps are you taking

the facility generated before converting into cogeneration,

to ensure that the sector acquires a leading role?

which will make renewables more competitive.

A: This year CFE has 1,500MW of projects under development, and the private sector also has 1,500MW,

Q: What role will hydro play in Mexico’s energy matrix, and

totaling 3,000MW. This means that hydro accounts for

how has the Reform placed the sector within this arena?

more than 90% of renewable generation in Mexico. Firstly,

A: In 2013, 14% of the electricity generated in Mexico came

AMEXHIDRO is lobbying the government in order to

from hydropower. This year it will increase to 16%. The issue

identify areas of opportunity and encourage resources to

is that in Mexico it is difficult to estimate the real potential of

be allocated to the development of the sector. Secondly, we

hydropower. Hydropower requires onsite research, and the

are highlighting hydro benefits, like increased control over

government was able to provide accurate measurements

generating, especially during peak times. This competitive

from the 1940s to the 1990s. After that period most of the

advantage contributes significant stability to the grid, and

installed meter stations were abandoned, so there was a

CFE benefits from this energy source because it allows for

lack of data. It is important to note that by using information

operational control.

from the 1940s to the 1990s, impacts of climate change may corrupt actual results. We have made an effort to invest in

Q: What are the key ambitions and strategies of

research that should be carried out by the government. Last

AMEXHIDRO to help hydro take its well-deserved place

year, we pushed for the creation of the Mexican Research

among the crucial energy sources?

Center for Hydroelectric Power (CEMIE-Hidro) with the

A: We want to construct the CEMIE-Hidro technological

objective of defining hydroelectric potential. At the end of

center in order to establish the real potential of hydro in

2014 the government published a request for the creation of

Mexico. We are also promoting an established distinction

the CEMIE-Hidro, to the satisfaction of many institutes and

between renewables and clean energies in order to ensure

private players. Given the changes in the law and the cuts in

that the renewable energies can compete fairly against

government spending, it has been challenging to have the

gas. A crucial advantage that is often overlooked is

Ministry of Energy lead this effort. Hopefully, the association,

that hydroelectricity negates the need for investment in

together with CONAGUA, CFE, IMTA, and IER, will be able to

additional backup facilities and serves as an important

establish a cohesive unit and create this CEMIE.

buffer for the capacity reserve.

133

| VIEW FROM THE TOP

COMPANY RELIES ON HOLISTIC HYDROPOWER ACTIVITIES FRÉDÉRIC SAUZE CEO of ANDRITZ HYDRO

Q: ANDRITZ is a company with 170 years experience

are needed, and how they must be implemented. The level

worldwide in the hydro power generation sector. How

of client input, which in this case comes from CFE, is very

would you describe the role ANDRITZ has played in the

high. CFE consults with suppliers to map the evolution of

development of the sector in Mexico?

technologies, and ANDRITZ provides attractive benefits

A: ANDRITZ has a historic presence in the hydroelectricity

to enhance its assets. The tender is a transparent process

sector, and it has continuously embarked on a series of

where the pre-specifications are published and we make

emblematic projects in different markets around the

some

world. The most recent acquisition was in 2008, when

the official request for quotation (RFQ), which is a list

ANDRITZ acquired GE Hydro’s assets and references,

of fixed specifications that must be fulfilled. There are

as it complimented its existing portfolio. The company

open question and answer sessions where we could raise

targets three main sectors. The first is large hydropower

concerns and CFE provides insight and answers. Finally, we

plants between 30MW and 800MW, and we supply

submit an economic and technical offer without deviating

electromechanical products and solutions that enable

from CFE’s requirements, and we deliver a competitive

the smooth running of the power plant. In this particular

price within the allocated budget. This is not the first tender

segment we do not cover civil engineering at all, and act

we have been allocated in Mexico. We won another contract

independently for the investor or as a sub-contractor of

in the state of Michoacan called El Infiernillo, which, like

a civil contractor. The second sector is mainly comprised

Temascal, constitutes a sizable refurbishment and an

of mini hydro power plants, for which we supply

investment of around US$20 million for three units. CFE

electromechanical products and solutions for projects

was able to see its ROI in less than a year and this shows

below 30MW. In this area we sometimes collaborate

the significant advantages of refurbishing power plants. By

with strategic civil engineering companies and carry

using the existing complex as a frame and only changing

out “Water to Wire” strategies, where we ensure that

key components, it is possible to attain higher efficiency

the electromechanical equipment is in working order

or output reliability, or sometimes even both. It is a perfect

and electricity is delivered to the grid. In addition, we

alternative to the construction of a power plant.

recommendations;

afterwards,

CFE

publishes

offer solutions for micro applications, which are suitable for villages or small companies. Finally, the third line of

Q: What opportunities do you see in the development of

business is maintenance and renovation of existing power

mini hydros?

plants, where we update the equipment in small- to large-

A: One of the advantages of compact hydro is that it can be

scale hydropower plants. We arrived in Mexico in the 1980s

extremely efficient. For instance, we developed a project

with the support of NAFINSA, and since then we have

called Truchas for a mining company that used the water

been serving the needs of Latin American markets. Here in

from their process to generate electricity. The project was

Mexico almost every CFE hydropower plant has partial or

designed, manufactured, installed, and commissioned in

complete electro-mechanical equipment from ANDRITZ.

less than one year, which is an attractive timeframe for the

The initial driver that brought ANDRITZ to Mexico was

investor. When the dust settles after the Reform, we will

the demand from the Mexican government to acquire new

see a boom of small- and medium-sized hydro projects in

practices and transfer technology.

the private sector and through CFE. The commitment of Mexico to adopt renewables is clear and there is a lot of

134

Q: Could you describe the process of winning the tender for

market potential. Every technology has its advantages and

the modernization of Central Hydroelectric Temascal 1 to 4?

disadvantages, and one of the biggest benefits of hydro

A: CFE is familiar with the hydropower sector and, as a result,

is that it can support other intermittent technologies and

has a high level of technical expertise. Usually, CFE designs

act as a source of energy storage. As more renewable

the specifications for the modernization of the plants,

energies connect to grid, hydropower will help create a

since it knows what must be changed, what technologies

balance by using Pump Storage Plants (PSP). Hydropower

can be applied to existing processes like irrigation and

and we have witnessed the authorities’ openness to new

desalination systems, channels, and water management

suggestions and ideas. At a state level, consciousness is

systems.

growing around clean and renewable energies, and some states like Chiapas, Jalisco, and Michoacan have gone

Q: Could you describe the potential of renewable energies

further by creating energy secretariats. We will maintain

in Michoacan?

our position within this market and we will contribute new

A: Michoacan is reasonably advanced when it comes to

solutions and products.

clean energies, with the main source being hydropower. CFE’s Infiernillo hydropower plant is one of the most

CFE will carry on investing alone and with partners as it

profitable in the country and Michoacan also boasts the

has done it in the past, and in this respect it is important to

second largest geothermal field in Mexico, Los Azufres.

offer the best technologies and solutions available in the

To a lesser extent, the state has biogas capabilities and

market. We will play a bigger role in the refurbishment and

some cogeneration plants. There is plenty of opportunity

modernization of power plants. There is another area into

to develop small and medium-sized hydropower plants,

which we wish to venture with CFE, and this is long term

and we will begin to see a rise of interest in developing

maintenance contracts. CFE has significant manpower,

smaller projects for municipalities. Cooperation is required

resources and technical expertise, and teaming up with

across all levels of the government and across its different

a technology-driven company like ANDRITZ would be a

agencies, but our experience so far has been positive

good fit.

Su socio en energía limpia y renovable Agua, generalmente implica fascinación e inspiración. Pero para nosotros en ANDRITZ HYDRO, significa aún más pues, representa un desafío constante para crear las últimas invenciones tecnológicas. Las compañías de servicios de todo el mundo valoran nuestro know-how y compromiso, mientras creen en la seguridad y confiabilidad de nuestras soluciones de generación hechas a la medida. Desde equipos para nuevas centrales hidroeléctricas llave en mano, hasta renovaciones y modernizaciones de instalaciones existentes, incluyendo soluciones completas en automatismo. Nos focalizamos en la mejor solución – from water to wire. 135

www.andritz.com

| PLANT SPOTLIGHT: CHICOASÉN Forty one kilometers northwest of the city of Tuxtla

operation of the plant. In order to harness the energy of

Gutierrez and at an altitude of 261m, deep in the hills of

water, these facilities are located below the base level of

Chicoasen, and nestled among the greenery in the mouth

the dam. With a total area of 7,940km2, and a length of

of the Sumidero Canyon on the Grijalva river, lays the

584m, the Chicoasén Dam provides 35% of the national

spectacular Manuel Moreno Torres Dam. Known informally

electricity consumption. In 2014, CFE announced plans to

as ‘Chicoasén’, the CFE-operated dam was completed

construct a fifth dam in the state of Chiapas, which would

in 1982, has a capacity of 2,400MW, a storage space for

be known as Chicoasén II. In January 2015, the tender for

1,376 cubic hectometers of water and is counted among

construction was ceded to the consortium comprised of

the ten highest dams in the world. The plant has eight

Omega Construcciones, Sinohydro, DYCUSA, and CAABSA

turbo generators, each with a capacity of 300MW, and the

Infrastructure. The group submitted a proposal that came

energy generated is carried through ten transmission lines.

in below budget at US$386 million and will now build the

Six of the lines carry 400kV to the city of Veracruz and

hydroelectric plant that will provide renewable energy to

across the central belt of the country, with links to the La

the southeast region, producing enough to supply 537,000

Angostura Hydroelectric dam in Venustiano Carranza, and

homes. The plant will be equipped with three 81.64MW

the four remaining 115kV transmission lines carry energy to

bulb turbines and will provide 591GWh annually to the

nearby Tuxtla Gutierrez and San Cristobal de las Casas, and

national grid. With a trapezoidal open channel of 933.62m

are linked with the Bombana hydroelectric plant in Soyala.

and a base of 25m, the main dam includes a spillway and two lateral walls. The construction is expected to last 42

136

The Chicoasén Dam boasts a machine room with

months, meaning that the plant should begin operations

electromechanical equipment and a control room for the

in July 2018.

CHINESE GIANT BREAKS GROUND IN MEXICO’S ENERGY SECTOR Over the last decade, Sinohydro Corporation has become

CFE’s budget,” tells Salvi. Once the technical, contractual,

one of the leading construction contractors worldwide,

and financial risks were considered, the consortium

with a presence in more than 60 countries. Sinohydro, a

decided to place an offer with a competitive price.

subsidiary of PowerChina Group, is responsible for more than 65% of the hydropower projects in China, including

An outstanding factor is the fact that the consortium

the biggest hydroelectric power plant, Three Gorges, which

submitted a proposal for US$390 million, almost US$20

has a capacity of more than 22,000MW. Sinohydro’s global

million below CFE’s budget for the project. “All the groups

strategy has consisted of developing a complete business

that prequalified for the tender were aware that any

line of activities with a network of more than 70 offices in

proposal above CFE’s budget price would be automatically

Latin America, Asia, Africa, the Pacific, and Eastern Europe.

discarded. Therefore, we had to make a professional and

Thanks to the reputation the construction company acquired

appropriate cost analysis of the project, with a thorough

in Three Gorges, Sinohydro has been able to establish

understanding

operations abroad, targeting hydropower projects such as

contractual requirements,” Salvi explains. As part of the

the Coca Codo Sinclair hydroelectric project in Ecuador.

bidding proposal for a financed public work contract, the

With an installed capacity of 1,500MW, this will be the largest

consortium had to come up with a way to finance up to 100%

hydropower plant in Ecuador upon its completion in 2016.

of the project. “Financing such an infrastructure project

CFE’s

technical

specifications

and

required financial partners, mainly international commercial Mexico has always been of interest to the company

banks and multilaterals, willing to share the risk based on a

because the country’s need for large infrastructure

project finance scheme, where the financing is guaranteed

projects provides valuable opportunities in energy and

by the CFE contract’s structure, the consortium’s profile,

gas, water, transportation, railways, and other fields.

and the project’s risk,” Salvi recounts.

Sinohydro recently landed a breakthrough opportunity to consolidate its reputation in Mexico by winning the

The financing structure was developed with a pool of

bid to build the Chicoasén II hydroelectric plant. Victory

banks, while the members of the consortium provided

does not come without blood, sweat, and tears, however.

equity to cover the initial costs of the development until

“Securing projects in Mexico is not easy for newcomers,

the completion of the financial contract. Fortunately,

especially a Chinese company like ours. Chicoasén II was

Sinohydro has the ability to participate in projects not

not our first tender attempt in Mexico,” says Gilbert Salvi,

only as a contractor, but also as an investor, which helped

Vice President Americas of Sinohydro, who admits his

in securing the Chicoasén II contract. Sinohydro wants to

company has had to familiarize itself with the country’s

develop a close relationship with CFE so that both state-

fundamentals through trial and error.

owned companies can work on a sustainable energy policy and implement the corresponding projects together. Salvi

When entering a new country, Sinohydro strategically

says the quality of the projects and the transparency

selects projects where it can bring added value in terms

in the procurement processes influences international

of engineering, technical resources, management, and

companies’ interest in Mexico. In this sense, he believes CFE

construction, according to Salvi. In this sense, cooperation

could benefit from updating and adapting the financing

with local partners was crucial to entering the Mexican

conditions laid out in the Public Works Contracts, using

market. Indeed, the Chinese giant won the tender as part

international standards to mitigate the risk sharing ratio

of a consortium composed of Omega Construcciones,

between CFE and the contractor.

DYCUSA, and CAABSA Infraestructura. Chicoasén II, which was tendered as a financed public work, will have a capacity

Salvi says Sinohydro’s business strategy for Mexico is focusing

of 240MW and will supply the country’s southeastern region.

on major infrastructure projects where the company can work as a single contractor or as part of a team. Salvi believes

Sinohydro first carried out a thorough analysis of the works

the latter option will increase his company’s chances of

required, making sure it would be able to provide the

being awarded a project, as the approach proved successful

adequate methodology and the most advance technology

in Chicoasén II. “Our Mexican partners will bring in their

according to the technical specifications of this project.

own resources in terms of plants, equipment, manpower,

For instance, one of the requisites for the project was the

and management. The idea is to contribute a transfer of

use of bulb turbines. “Upon completion of studies, we were

knowledge that will benefit our partners, as well as the

convinced that we would be able to carry out the project

subcontractors and local communities.” In fact, he expects

within the established time frame of four years and within

the company to repeat the strategy for the next tender.

137

| VIEW FROM THE TOP

JUMPING THROUGH REGULATORY HOOPS IN HYDROPOWER JAIME SUÁREZ COPPEL Chairman of the Board of Directors at Power Development de México Q: What opportunities were identified in the hydraulic

Q: How complex is the permitting process, and has this

industry that led to the unique business model of Power

changed with the implementation of the Reform?

Development de México (PDM)?

A: Our original vision was to carry out less permitting

A: When the company was created, it was entrusted by

processes and focus our energies on the commercial stages

the Chiapas government to become a promoter and

of the projects by looking for potential buyers or partners.

encourage investment in the region. During that time, we

For each site, there is a minimum required time of two years

were able to identify the economic potential of the state,

to be spent measuring the water resources, as stipulated by

and hydropower was the sector that stood out. It is a well-

CONAGUA, in order to obtain the water concession. This is

known fact that Chiapas holds 40% of Mexico’s superficial

then followed by detailed technical studies of the surface.

water, so in a sense it is the crown jewel of water resources.

The crucial piece of the puzzle is the environmental impact

We wish to develop mini hydro projects, since these are not

assessment that is carried out by SEMARNAT. Given that this

viewed pejoratively from an environmental perspective.

assessment is made public, any player can download the

With this new business vision, PDM was given the mandate

study and plagiarize its findings. We manage our projects

by the state government to develop a pipeline of projects

carefully in order to prevent these situations.

amounting to 400MW. To generate such a significant amount, we put together a team of specialists in several

A project reaches a commercial stage when the site has been

areas, such as technical, commercial, engineering, and

secured and the land acquisition has been negotiated. The

institutional. In simpler terms, the company was given the

permitting process encapsulates many small procedures,

task of harnessing the region’s hydropower market. As

some of which are misaligned. For instance, the prefeasibility

a result, our business model has had to undergo several

study and power generation schemes are processes

changes. Our traditional model was a portfolio of projects

demanded at the beginning of a project when, logically,

in early stages of development that could be obtained by

these should be obtained at the end. If the authorities ask

development funds, banks, developers, or EPCs.

for these permits, it puts the companies in a difficult position because at that stage there is no solid indication of how much

Q: What research methods did the company implement in

energy the site can actually generate. The first prefeasibility

order to identify the best regions for hydropower?

permit from CFE took a year and a half to obtain, while the

A: We developed a unique methodology to map opportunities

subsequent permit took even longer. We certainly hope that

within the state of Chiapas. Firstly, we collected all existing

the new framework will ease the permitting processes.

information on topography, which we then cross referenced

138

in order to begin selecting the most promising projects.

Q: How can PDM help shine a light on the true potential

During this process we discovered that it is difficult to

of hydropower?

obtain data from the State regarding transmission lines, and

A: All information collected during the exploration phases

that there is little information surrounding water resources

was donated to the local authorities. The research we carried

due to the fact that most of the research is carried out on

out helped reveal the most appropriate development sites

Mexico’s large rivers and not its affluent ones. We eliminated

and shine a light on the potential of hydro in Chiapas. We

sites found in federal natural reserves, close to agricultural

are leaders in Chiapas and our client base is diverse, so our

processes, nuclei of communities, and those focused on by

clients constitute developers that want to buy a project

social movements. In the early stages we had an ambit of 300

with all the initial permits and studies already incorporated.

areas within Chiapas, and from this large list, we selected 70

For projects that are in a ready-to-build stage, the natural

sites to carry out field work. This involved carrying out water

clients are investment funds and off-takers interested in

measurements in order to identify available resources, and

running their own plants. We are looking to expand beyond

we then hand selected the 30 sites that we found the most

the borders of Chiapas and we constantly look for fresh

promising.

business opportunities.

HARNESSING THE POWER OF THE OCEAN In today’s world, tidal and wave power is gearing up to

development. While most companies would have shied

be a sound solution for delivering clean, abundant, and

away from developing future projects, Marersa continued to

consistent energy. Francisco Javier Carrión, CEO of Marersa,

pursue the development of Rosarito.

has identified the rich coastline of Mexico, extending over 11,000km, as having significant business potential, but

Change has come in the form of the new administration

certain technologies still need fine-tuning. For instance,

and Carrión is confident that the government will support

technologies designed for waves 3-5m high need a stronger

renewable technologies. “We see that this administration has

impact to generate electricity, so they are normally installed

been honest and helpful, unlike previous ones, which were

at least 1km away from the coast. These systems require

more likely to block renewable energy initiatives.” Marersa’s

a strong connection to the seabed and submarine cables,

flagship project is evocative of this new mindset and the

which increases costs. Another technology is the Pelamis

comparable ease with which it is being developed speaks

Wave Energy Converter that consists of several partially-

of crumbling barriers. The project is located in the Lazaro

submerged

through

Cardenas port and it began in 2014 when Marersa asked for a

hydraulic motors. “This technology is expensive and it also

hydraulic

cylinders

pumping

oil

concession of 6.7km of the ocean front from the Integral Port

entails several potential problems, such as possible leaks of

Administration (API). This project has a capacity of between

hydraulic oil, and the need for replacement every two years,

100-140MW, and little environmental impact, since the

which comes at a high cost,” Carrión describes.

infrastructure will stand at 15m in front of the wave breakers.

“We see that this administration has been honest and helpful, unlike previous ones, which were more likely to block renewable energy initiatives” Francisco Javier Carrión, CEO of Marersa

Marersa has been inspired to create its own system that

All the equipment will be on top of a platform, so nothing is

tackles some of the limitations technologies face today. “Our

placed on land except cables to connect to the internal grid.

system is less expensive, with low operation and maintenance costs. Our generators are manufactured with aerospace

The uniqueness of this project has enabled the company

steel, which is resistant to corrosion and has been tested

to tackle the two barriers most projects stumble upon: off-

in aerospace facilities against accelerated deterioration,”

taker availability and financing. To address the former, the

Carrión explains. The greatest advantage of this mechanical

port has its own grid so it is possible to connect the wave

generator is that hydraulic oil is no longer needed, making

breakers to the port’s internal grids to supply electricity

it a 100% clean energy system. “From tests carried out in

to all manufacturers inside the port. For the latter, the

Naples University, Italy, we discovered that this generator has

investment of this project amounts to US$245 million,

the potential of 96% efficiency, which is more effective than

and while it was difficult to locate financing in Mexico,

hydroelectric plants and natural gas facilities,” he adds. This

Marersa found a suitable alternative. “We approached a

technology has garnered recognition, and in 2008, Marersa

Korean fund to which we provided land guarantees worth

obtained a clean energy certificate from the UN.

an approximate US$100 million,” he explains. Marersa’s project is estimated to reach 85% efficiency, which can be

Carrión recalls the hurdles the company confronted when

increased by up to 10% by installing a buoy that follows the

attempting to develop a 3MW project with CFE called

frequency of the waves. The buoy is tailored to the exact

Rosarito. “This project is incomplete because we had

conditions of the Pacific Ocean in Mexico. The system

problems with CFE’s previous administration. Initially, it

is also able to manipulate the generator to change its

provided the wrong location to build the plant, and when

frequencies to predict subsequent waves and follow their

pressed for the correct location, it told us that the information

frequency. “Our business plan is to use our experience from

belonged exclusively to CFE and could not be shared with

Lazaro Cardenas port and expand to other ports between

contractors,” Carrión laments. This led to Marersa having to

2015 and 2016. After that, we plan to expand to locations

design a project with an unspecified location, which naturally

without ports, which have no use for tourism, fishing, or

did not align with the initial specifications, halting the project

other local industries, but are suited to renewables.”

139

| PLANT SPOTLIGHT: LAGUNA VERDE Since its inception in 1976, Veracruz’s Laguna Verde

to Spanish-owned Iberdrola, while the remaining 3% went

Nuclear Power Plant has been plagued with controversy.

to Alstom Mexicana. The expansion was completed in

The first unit was activated in 1989, the second in 1995,

2013, and included the replacement of all the equipment,

and the recent announcement of a further expansion has

allowing the plant to reach a capacity of 1,640MW. This

resulted in a backlash from the Xalapa arm of activist

remodel was carried out with the intention of extending

group Pobladores A.C., which claims that the plant uses

the life of the plant, and it required more than 2,000

considerable amounts of water, generating waste that has

workers and involved many local companies, helping to

saturated the region. The announcement by Actopan Mayor

rejuvenate the economy of this coastal area of the Gulf

Félix Manuel Domínguez Lagunes of the construction of

of Mexico. Updates included the replacement of the main

a vertical dumping ground for this waste has not been

condenser, the steam heaters and separators, the turbo

received positively by the group.

generator, the ventilation systems, and the heating and air conditioning systems, as well as the auxiliary power

The plant is administered by CFE and has an area of 270

systems, transformers, isolated phase bus, and main

hectares, with two active 805MW BRW-5 reactors built

interrupter.

by GE that use Uranium 325 fortified to 3-4%. The plant employs 1,400 workers and, as the only nuclear power

Despite controversy, the plant has been awarded several

station in Mexico, produces about 4.5% of the country’s

accolades in recognition of its quality control and risk

energy supply. CENACE oversees the planning, supervision,

management practices. In 2009, the plant was given

and transmission processes of the plant, classifying it

the Nuclear Excellence Recognition Award by the World

as a base load power plant. The annual average energy

Association of Nuclear Operators (WANO), and regular

generation has been 10.5TWh and steam flow rate from

inspections reinforce the value of the safety measures

each reactor is 3,944 kt/h. Both reactors operate with 444

implemented by operators. The plant also adheres to

enriched uranium assemblies, storing the equivalent of 38.9

guidelines set out by WANO and the International Atomic

million oil barrels in power. Every 18 months, maintenance

Energy Agency, and this year, was awarded the International

is carried out on the reactors during outages, which involve

Award for Quality by the Organization for Quality in Asia

replacing 25-30% of the nuclear fuel. This is a process that

Pacific (APQO). The plant is certified to ISO 14001 and has

converts kinetic energy to mechanical energy by funneling

several awards recognizing its green processes and energy

the steam through the turbine and subsequently cooling it

efficiency. The plant currently supplies more than 4 million

in a condenser before pumping the water produced toward

people with energy in Tecali, the state of Puebla, Poza

the reactor in order to restart the generation cycle.

Rica, and the city of Veracruz, and this year, capitalizing on growing demand, plans were announced to expand

140

In 2007, a deal to expand the plant by 20% was announced

the plant to include two new reactors, with the aim of

by CFE, and 97% of the US$605 million tender was awarded

increasing supply to a national level.

THE SHOWDOWN BETWEEN NUCLEAR AND RENEWABLES Renewables are altering and lowering market prices for

The growth of renewables shows no signs of stopping,

electricity on a global basis, and much of the new capacity

and this is forecasted by an increasing number of

has circumvented the grasp of large utilities. The large

investors and financial entities. Supporters of renewables

expanse of market share that utilities enjoy is beginning

have celebrated the continuous drop in production costs

to shrink and, in this competitive environment, their

of technologies, with PV emerging as the forerunner. The

electricity sales at peak hours are also reducing. In today’s

drop in prices of energy storage is also bound to push

energy environment, utilities must contend with lower

forth the imminent transformation of the power industry.

profit margins and credit ratings. Does this energy context

According to the UN Environment Programme, global

spell doom and gloom to nuclear power? The horizon is

investment in renewables, with the exception of large

grim and this can be seen in some parts of the world.

hydro reached US$270 billion in 2014, a significant 17% increase from 2013’s US$231 billion. The largest portion

The largest nuclear operator in the world, French-based

of funding was allocated to asset financing, with a value

EDF, has been struggling for some time with debts of

of US$170 billion, 10% higher than the previous year.

massive proportions and unrelenting operating costs.

The year 2014 experienced a sharp drop in new nuclear

Credit rating agency Moody’s has identified that electricity

investment; only three new units are under construction

volumes that the utility sells under a regulated tariff are

(BarakahY3 in UAE, BelarusY2 in Belarus, and Carem in

on a downward slope from 84% to 50% by 2016. These

Argentina). This is a slight disappointment compared

choppy waters have forced European utility electricity

to the ten constructions carried out in 2013 and the 15

companies to innovate in order to remain afloat in the new

in 2010. The list of countries that now generate more

market conditions. Rebranding and restructuring are the

electricity from non-hydro renewables than from nuclear

utilities’ two favorite strategies. For instance, E.ON, owner

power is growing, encapsulating China, Germany, Japan,

of four of the remaining nine operating nuclear reactors in

Brazil, India, the Netherlands, Spain, and Mexico. It is

Germany, announced that the company would split. One

important to note that these eight countries represent

division will remain under the E.ON umbrella and will focus

45% of the world’s population.

on efficiency, distribution networks, customer solutions, and renewables. The other company will be called Uniper

While the outlook may look grim in some perspectives,

and it will manage existing generation assets. Another

nuclear power plants produce more electricity per

renowned utility, GDF Suez, has opted to take a similar

megawatt of installed capacity than renewables. Juan

route by rebranding to become ENGIE.

Eibenschutz, Director General of Mexico’s National Commission of Nuclear Safety and Safeguards, explains

Energy

digitized,

the positive nuclear global trends, “Even though some

decentralized, and decarbonized. Large centralized power

becoming

three

dimensional,

countries like Germany and Italy have moved away

stations, particularly coal and nuclear, are being affected on

from nuclear power, other countries are committed

an economic and operational level by the mass deployment

to continuing developing this power source, the most

of renewable energies. Nuclear power stations are suited

notable being China, as well as other countries such as

to baseload capacity and cannot adapt promptly enough

Russia, South Korea, India, and even the UK.” As of 2015,

to the changing prices in the market. Renewables like

30 countries were operating nuclear reactors for energy

solar and wind have no fuel costs, so they can enter the

purposes, and these generated 2,410TWh of electricity in

grid whenever they are able to generate. In addition, they

2014 alone.

produce power at lower costs. New and efficient electricity systems require flexible energy sources, whether it be waste-

In addition, the share of nuclear power in global

to-energy, decentralized storage, or even conventional

commercial electricity generation has remained constant

micro power plants that support renewables. The adoption

over the past three years. Nuclear generation has

of renewables into the energy mix is detrimental to nuclear

increased in 19 countries and surprisingly, China, Hungary,

power and other baseload generators that are structurally

India, Russia, Slovenia, South Africa, South Korea, and

rigid and therefore disadvantaged. In this way, large-scale

Taiwan have achieved their greatest nuclear production

power plants are poised to become the dinosaurs of the

to date. The plethora of trends and figures surrounding

energy industry. UBS, the largest Swiss bank, published a

this sector showcases how the debate over the role of

report in June 2015 stating that solar will one day replace

nuclear power in tomorrow’s low carbon world continues

nuclear and coal to become the technology of choice in the

to rage on, causing a striking division among countries

generation and supply of electricity.

with nuclear capacity.

141

| VIEW FROM THE TOP

RUSSIAN NUCLEAR GIANT LENDS HELPING HAND ALEXANDER MERTEN President of Rosatom International Network

Q: What are the accomplishments that distinguish

and nuclear education. We are present across the whole

Rosatom, bearing in mind it is a leader in its number

value chain from uranium mining to electricity sales and

of nuclear reactors under simultaneous construction

NPP decommissioning. Technology, safety, and reliability

globally, and in Uranium reserves and extraction?

rank highly on the list of concerns for countries making a

A: Rosatom is flexible in its interaction with foreign partners,

new NPP construction. Our units belong to the modern

as it presents integrated solutions. This approach has allowed

3+ generation and their safety systems comply with post-

it to become the leader in the volume of foreign orders

Fukushima requirements that combine both active and

that currently consists of 38 projects, 29 of which are at

passive safety measures.

various construction stages around the world. In addition, this pipeline includes contracts in nuclear fuel cycle, NPP

Q: What role should nuclear play as an substitute for fossil

service and refurbishment, and equipment supplies, among

fuels in global efforts to combat climate change?

others. Rosatom has a presence in many countries, from

A: Nuclear technologies have reached a level of advanced

South Africa to India, Bangladesh, Jordan, Algeria, Nigeria,

development that can compete head on with conventional

and Egypt. Our competitive advantages lie in the safe and

power generation based on fossil fuels. The price volatility in

referential technologies, high-end manufacturing facilities,

commodity markets forces countries to search for alternative

state support, experience, and financial resources, all of

energy sources and nuclear is a viable option. The share of

which we are ready to share with our partners.

fuel components in operational costs does not exceed 25% in nuclear, and uranium costs are even lower. This cannot

Our

state-of-the-art

be applied to conventional gas and coal generation where

technologies, modern nuclear fuel supplies, and support in

integrated

solutions

include

the share of components amounts to 80-90%. The cost of a

building nuclear infrastructure. It is important to note that we

kilowatt-hour of electricity at an APP is the least vulnerable

uphold the legal and regulatory foundations of the national

to fluctuations in the commodity market, making it the most

authorities in order to provide efficient management and

predictable. This allows energy players to plan firm electricity

supervision over the appropriate use of nuclear energy.

tariffs for the medium term.

We also have strategies to encourage the popularization of nuclear power, which entail the management of radioactive

In terms of resource use, the generation of 1MWh requires

waste, spent nuclear fuel management, personnel training,

approximately 340kg of coal or 210kg of oil, while only 1-3g

STORAGE OPTIONS AT LAGUNA VERDE

142

The sourcing and storage of fuel for nuclear energy generation

to report it to the authorities. The State can then assume

is perplexing to most, and people tend to associate the

ownership of the concession, or the mining company can

practice with misconceptions of hazardous materials of

reach an agreement with the authorities for selling the

unknown origins and deep political implications. Juan

uranium to the government.” However, due to Mexico’s

Eibenschutz, Director General of the National Commission

uranium resources, and with the value of this mineral

of Nuclear Safety and Safeguards, explains that, like most

increasing, uranium mining could be an interesting business

minerals, uranium comes from mining processes. He points

opportunity even without a clear nuclear energy program. As

out that Mexico has adopted “an old-school approach” to

for the potential dangers of the mineral, Eibenschutz asserts

uranium because the authorities have labeled this resource

that the fuel cycle for uranium procurement, enrichment,

as property of the nation, just like hydrocarbons. “If a mining

fuel fabrication, and disposal or storage must be carried

company finds uranium quantities exceeding an established

out under the safeguards and guidelines of the International

content measured in parts per million, then they have

Atomic Energy Agency (IAEA).

of enriched uranium is necessary. Annual operation dictates

Q: What role should nuclear play in Mexico’s energy mix,

that a 1,000MW power generation facility will require 24

and what best practices, knowledge, and internationally

tonnes of enriched uranium, compared to 1.7 million tonnes

proven technologies does Rosatom wish to bring to the

of oil, 2.7 million tonnes of coal, or a staggering 2.4 billion

Mexican energy landscape?

m of natural gas. In simpler terms, three uranium pellets

A: When it comes to Mexico, Rosatom is a strategic

can replace a whole wagon of coal. NPP can also combat

partner in the development of nuclear technologies that

global warming as it does not emit greenhouse gases. In

are not limited to the NPP construction based on Russian

Europe, nuclear has made it possible to limit emissions by

technologies. We offer integrated solutions that include

700 million tonnes of CO2 per year and in Russia there are

generation 3+ VVER, flexible financial solutions, and long

ten NPPs under operation, which prevent emissions of 210

term support in the operation of the NPP. We can also

million tonnes. The share of nuclear power in the global

support the utility with radioactive waste management,

energy matrix is expected to increase from the present 11%

personnel training, and nuclear education. We are also

in the coming decades. Additionally, renewables require a

interested in developing projects in other business areas

large area to generate a high output, as a 4GW wind farm

of the company, for instance, we see a potential in water

occupies 207,925 football pitches, while a NPP only needs

desalination, water treatment systems, and research

287 football pitches.

reactors. Rosatom is a major global energy company that

sees promising opportunities by cooperating with Mexico. Q: What overall role do the Latin American markets play within Rosatom’s growth strategy, and what are the

Q: What are the main areas of opportunity that Rosatom

biggest areas of opportunity Rosatom wishes to seize?

has spotted in Mexico in particular, and how are you

A: Latin America is one of the main priorities for us in

planning to seize them?

terms of business development and it is not a new market

A: In December 2013, the Cooperation Agreement was

for Rosatom. There are countries like Argentina and Brazil

signed between the Russian Federation and the Mexican

that boast a reactor fleet and are pioneers in the region. In

government, detailing the peaceful use of nuclear energy. In

April 2015, we signed the Memorandum of Understanding

July 2015, we received notice from the Mexican government

with Argentina that determines the basis for cooperation

that the Agreement was being enforced. The document

in the construction of Unit Six at the NPP, with a Russian-

highlights the legal foundations for the interaction been

designed reactor of up to 1,200MW of installed capacity in

Russia and Mexico regarding nuclear power. This includes

Argentina. In addition, TVEL, our subsidiary, has signed two

research, design, construction, operation, decommissioning,

Memoranda with the National Atomic Energy Commission

human capital training, provision and development of

of Argentina and INVAP state corporation, which detail a

nuclear fuel cycle services, radioisotopes production and

wide range of issues from supplies of nuclear fuel cycle

application, and even medicine and agriculture. Based on

products for research reactors to zirconium components

the Agreement, a joint coordination committee will be

and uranium metal. Given the growing demand for nuclear

formed to work out particular key priorities of cooperation.

power in the market, Rosatom has opened regional offices

We expect the Mexican government to further develop

in Rio de Janeiro.

nuclear power in the country.

In Mexico, 95% of the radioactive residues come from the

characteristics, these residues will have to be transferred

Laguna Verde nuclear plant and the remaining 5% comes

to permanent storage where they will stay for 300 years

from medical applications. Regardless of its origin, the

in order to decay and neutralize,” tells Eibenschutz. High-

Ministry of Energy is responsible for managing high- and

activity residues consist of the irradiated fuel, which is kept

low-level radioactive materials. The storage of low- and

in the fuel pools at the reactor buildings. He claims this

medium-level radioactive material that result from the

irradiated fuel presents a more interesting case in terms

operation of Laguna Verde, as well as radioactive residues

of storage because the fuel is stored in pools with water

from industrial and medical applications, has to be

cooling systems. Since Laguna Verde plans to apply for an

safeguarded to guarantee safety and security according to

extension of its operational license, the capacity of the fuel

strict national and international standards.

pools will not be enough. As a temporary solution, Laguna Verde has resorted to dry storage, a common practice in

Laguna Verde has temporary storage facilities for low- and

the industry. A decision will have to be made regarding

high-activity residues, with enough capacity to hold the

whether to store the fuel or reprocess it, and if this will be

materials for as long as necessary. “Due to their radioactive

done locally, or through an international service provider.

143

The energy subsector that is fashioning itself into a preponderant leader is most certainly wind power. Players in this sector play hardball, with investments reaching US$14 billion between 2015 and 2018. Some players speculate that wind energy will become the most important renewable in the country’s energy mix and the main source of large-scale renewable energy by 2033, overshadowing hydropower. Installed capacity is expected to rise to 9,500MW and, besides Oaxaca, new states such as Chiapas, Jalisco, Tamaulipas, and Nuevo Leon are garnering attention. Imposing projects such as La Ventika with a total capacity of 252MW in Nuevo Leon, and Eolica Del Sur with 396MW in Oaxaca are two fine examples of the opportunities waiting to be seized in Mexico’s nascent wind sector.

This chapter showcases the business strategies that leading global wind manufacturers and developers are carving out in this new landscape and the new technological advancements that they are ready to deploy. As developers seek new regions in which to develop projects, we explore the challenges that must be overcome with this geographical diversification, the nuances in community relations, and the opportunities that must be capitalized upon. The chapter details the newest wind projects that effectively harness the elusive power of the wind, and the wish list of major stakeholders that will position this sector ahead of the renewable energy pack.

WIND

POWERING PROGRESS With over 6,100 MW of renewable energy projects developed in North America and almost 15 years of experience in Mexico, EDF EN Group is the trusted leader in the execution and operation of successful renewable energy projects. EDF Renewable Services, our Operations & Maintenance affiliate, oversees more than 10,500 MW, ensuring your investments’ long-term performance.

EXPERTISE | COMMITMENT | INNOVATION

EDF EN México

Av. Insurgentes Sur No. 1377, Piso 9 Del. Benito Juárez CP 03920 Mexico, D.F. +52 (55) 5482 5261

CHAPTER 7: WIND 148

ANALYSIS: At the Forefront of Mexico’s Clean Energy Targets

149

VIEW FROM THE TOP: Adrián Escofet Cedeño, AMDEE

150

INSIGHT: Miguel Ángel Alonso, Acciona Energía

151

VIEW FROM THE TOP: Hipólito Suárez, Gamesa

152

INSIGHT: Marco Graziano, Vestas

153

VIEW FROM THE TOP: Gerardo Pérez Guerra, EDF Energies Nouvelles

154

INSIGHT: Renato Santos, GE Power & Water

155

VIEW FROM THE TOP: Adrián Katzew, Zuma Energía

156

MAP: Wind Projects in Operation

158

MAP: Wind Projects in Operation in Oaxaca

160

VIEW FROM THE TOP: Ana Violeta Horta, CISA Energía

160

INSIGHT: Javier Ivars, TYPSA Group

162

INSIGHT: Oscar Toral, Construtoral

163

VIEW FROM THE TOP: Toralf Hey, Biosolventus

165

PROJECT SPOTLIGHT: La Ventika

166

INSIGHT: Ricardo Pérez-Gil, Auriga

167

VIEW FROM THE TOP: Vanesa Revelli, ABO Wind

168

VIEW FROM THE TOP: Mauricio Trujillo, Climatik

168

INSIGHT: John Prock, Mexico Power Group

170

INSIGHT: Alejandro Robles, SOWITEC

171

VIEW FROM THE TOP: Jorge Ochoa, AWS Truepower

172

INSIGHT: Benigno Villareal, Vive Energía

173

INSIGHT: Brian Gaylord, MAKE Consulting

174

INSIGHT: Vanesa Magar, CICESE

147

AT THE FOREFRONT OF MEXICO’S CLEAN ENERGY TARGETS With Mexico hailed for its ambitions to achieve 35% of

with 102MW Sureste Phase II beginning operations in the

power generation through clean energies by 2024, 50%

first quarter of the year.

of this energy goal will be reached thanks to the wind sector. Between 2015 and 2018, investments in the sector

PRIVATE SECTOR JOINS THE PARTY

are expected to reach US$14 billion, according to Adrián

Miguel Ángel Alonso, Director General of Acciona Energía,

Escofet, President of AMDEE. The commitment of the

explains that the company aims to develop an additional

sector has been set in stone with the announcement that

1,000MW to add to its existing 556MW through the

US$1.4 billion will be invested in 2015, which equates to

development of four farms across Mexico. In the same

an installed capacity of 730MW. At the beginning of 2015,

spirit, Hipólito Suárez, Director General of Gamesa, states

capacity stood at 2,551MW from 31 wind farms across the

that the company will increase operations by 500MW.

country, and the number is expected to rise to 9,500MW

Iberdrola shares its immediate plans, with its new 66MW

in 2018. While Oaxaca continues to be the mecca for wind

wind farm to be inaugurated in Puebla. Iberdrola also

farm developments, the presence of the sector is expanding

stresses the importance of diversification by factoring

to other regions such as Baja California, Chiapas, Jalisco,

thermal and cogeneration projects into its estimated

Tamaulipas, San Luis Potosi, and Nuevo Leon. By 2018, the

investment of US$5 billion. Finally, the director of Peñoles,

wind sector is predicted to supply 8% of the electricity

Arturo Vaca Durán, recently announced that the 200MW

consumed in Mexico. In the eyes of Escofet, the sector

farm in Coahuila will be inaugurated in the first half of

shows no signs of slowing, with 15,000MW expected to

2016, and this will be added to the group’s existing 80MW

be installed by 2022. The importance of the wind sector

installed in the Isthmus of Tehuantepec.

will be incontrovertible, as it will come to represent 1214% of the country’s total electricity consumed. By 2022

The regions with the most potential are numerous, and

the sector will have accumulated investments of US$30

include the Isthmus of Tehuantepec in Oaxaca, La Rumorosa

billion, 80% of which will be financed by commercial and

in Baja California, the Gulf of Mexico, Yucatan’s peninsula,

development banks.

and numerous areas in the northern parts of the country. In Baja California, Sempra developed the Energía Sierra

CFE STEPS INTO THE LIMELIGHT

Juárez (ESJ) project, and its first 156MW were deployed in

As CFE transforms itself into a productive enterprise

2015. Another highlight is the Alfa conglomerate’s project

of the State, it has emphasized its commitment to the

in Tamaulipas that will require an investment of US$125

development of the wind sector. The Director General of

million to install 19 wind turbines. While La Rumorosa

CFE, Enrique Ochoa Reza, stated that CFE plans to build

has a potential of 5,000MW, the Isthmus of Tehuantepec

eight wind farms with an accumulated installed capacity

remains the preferred site for wind farm developments. In

of 2,300MW. These projects are yet to be defined and will

fact, the largest Latin American wind farm, Energía Eólica

require an investment of US$3.7billion. As a result, 2015 is

del Sur, will be developed in the Isthmus and is expected to

gearing up to be a successful year for CFE’s wind projects,

have a generation capacity of 396MW.

INSTALLED CAPACITY DEVELOPMENT OUTLOOK (MW) Evaluation of installed capacity in MexicoAND 2007-2022 (Source: AMDEE) 12,000 10,000 8,000 6,000 4,000 2,000 0 2007 2008 2009 2010 Source: AMDEE

148

2011

2012

2013

2014

2015

2016

2017

2018

2019 2020

2021

2022

| VIEW FROM THE TOP

THE WIND SECTOR CHOOSES ITS BATTLES WISELY ADRIÁN ESCOFET CEDEÑO President of AMDEE

Q: What have been the highlights of AMDEE’s contribution

national energy market, we need the possibility of regional

to the development of the Mexican wind industry over the

interchanges of electricity. The final point we lobbied for

past two years?

was the creation of a strong market, governed by clear

A: AMDEE is the only wind energy association in Mexico,

rules and regulations.

and it has worked incessantly to disseminate the benefits of wind energy and push for the development

Q: Considering this new energy landscape, what is

of a strong value chain. In the past year we have been

AMDEE’s installed capacity target for the coming years?

active in trying to present ideas and suggestions to the

A: Based on studies carried out by AMDEE members,

Ministry of Energy and Congress in order to create a

experts, and PwC, the target of installed capacity between

modern and efficient legal framework. AMDEE’s expertise

2022 and 2024 is 15,000MW to 20,000MW. Thanks to

and knowledge should be taken into account when

the development of new technologies, the targets have

drafting a comprehensive legal framework. AMDEE has

shifted over the years. With an installed capacity of

56 members and it represents all of the wind industry in

2,000MW, the Mexican wind sector has only seen the

Mexico, including both large and small players. Many of

tip of the iceberg. In the past, financing projects was

AMDEE’s members have international experience, which

problematic, but now new projects have a good ROI for

allows the association to adapt and implement specific

investors and financial institutions. Oaxaca used to be

programs and strategies that have been established in

the main area of interest because it was the only region

other countries. We were impressed that the government

where you could find projects with 40% wind factors. Now,

and parties involved in the drafting of the Energy Reform

with the new generators and technologies, the potential

and secondary laws were open to including all the serious

areas in northern Mexico have increased. Potentially, we

actors in the sector. This interaction might be considered

will be able to achieve more than 8,000MW of installed

as one of AMDEE’s main contribution in the development

capacity by the end of this administration. Besides the

of the wind sector.

2,000MW already in operation, we have another 500MW that will start operating in the next few months. There are

Q: Which were the main points you lobbied for in the

also 2,500MW in Oaxaca that will start operating between

Energy Reform?

2017 and 2018. Getting to almost 8,000MW for 2018 can

A: The wind sector is in its infancy in Mexico, with the

be achieved if we can meet requirements for transmission

oldest project in operation only eight years old. There are

infrastructure, market rules, and so on.

several issues that need to be resolved in order for the wind sector to truly develop. We require long-term visibility of

Q: What are AMDEE’s ambitions and strategy to promote

the programs, plans, and goals regarding the future of the

the development of the Mexican wind industry?

renewable energy in Mexico. The energy and electricity

A: We want to have monthly or weekly meetings with

sectors will be drastically transformed from a monopolistic

CFE, CENACE, CRE, and the Ministry of Energy in order to

structure to an open market, but this transition will take

discuss the rules and regulations, and offer our perspective.

years to complete, so a desired trajectory must established.

AMDEE will create alliances with other associations, not

AMDEE suggested important transitory articles in the

only in the renewables sector, but also with industrial

secondary laws regarding the electricity industry, which

associations. The government, CFE, CENACE, CRE, and

will allow the wind sector to continue developing projects

the Ministry of Energy have been asking AMDEE to be

that had already broken ground, also known as legacy

increasingly creative in the design of the new regulations

projects. Another important issue we discussed is the

in order to guarantee the most suitable outcome for all

development of a strong transmission network, which is

parties. Mexico has the capabilities, the people, and the

one of the main obstacles the wind sector faces at the

resources to push the wind sector forward, and AMDEE

moment. To secure the output of energy in order to have a

will be deeply involved in the process.

149

SOCIAL RELATIONSHIPS ARE ESSENTIAL FOR SUCCESS The Energy Reform will be advantageous for companies in

The 558MW Acciona has installed across Oaxaca are an

the wind sector, but Acciona Energía (Acciona) seems to be

achievement that should not be overlooked. The key to

already reaping the benefits. Acciona was actively involved

the company’s success, according to Alonso, is deeply

in the development of the Energy Reform, both individually

rooted in community relations. “We engage in social

and as part of associations like AMDEE and AME. The efforts

development because it is inherent to the company.

of these associations greatly contributed to the issuing of

When we saw the conditions under which the people

Transitory Article 13 of the Law of the Electricity Industry, which

of the Isthmus of Tehuantepec live, we saw a perfect

is noted for distinguishing legacy projects from new ones. “The

opportunity to implement Acciona’s social programs

members of AMDEE believed this to be a mandatory article

without amalgamating them with the construction of

the legislation, since it was crucial to provide certainty for all

our projects,” shares Alonso. In addition, he notes that

the projects that were already under development. Had this

when the communities noticed Acciona’s approach, they

transitory article not been approved, project developments,

realized that the company’s social commitment was not

and investments would have halted,” shares Miguel Ángel

some sort of currency the firm was using in exchange for

Alonso, Director General of Acciona Energía México.

their approval.

“When we saw the conditions under which the people of the Isthmus of Tehuantepec live, we saw a perfect opportunity to implement Acciona’s social programs without amalgamating them with the construction of our projects” Miguel Ángel Alonso, Director General of Acciona Energía México

Acciona’s strategy is centered on stable growth at a steady

Nonetheless, Alonso claims that, at first, his company

pace; so its current condition will enable the company

experienced the same hurdles as any other wind power

to develop more projects, with certainty that the law is

player; there was constant opposition to the wind farms and

protecting its assets. “The incorporation of additional

projects were being blocked. This was further complicated

megawatts in the company’s portfolio fluctuates because

by the fact that Acciona did not fully understand the

of the rate at which projects are built, but on average we

Isthmus’ culture. Alonso says that being faithful to its

grow by 150MW annually. The new legislative framework

word helped Acciona establish a solid relationship with

will push us to increase this number and also diversify our

the people in the communities. Dialogue is just one part

energy matrix,” tells Alonso.

of the endeavor. According to Alonso, companies that work in the communities should contribute to improving

150

Transitory Article 13 of the Law of the Electricity Industry

living conditions. Acciona has several social responsibility

protected Acciona’s four running projects, which amount to

programs that have been successfully received in Mexico.

558MW. Since the issuing of the Energy Reform, Acciona has

The Luz en Casa program began in Peru, where it has been

closed deals for two EPC projects with third parties, the first

developed the most. It consists of bringing electricity to

being a 250MW project for Blackstone developed by CEMEX,

households that do not have access to the grid. Acciona

and the second one a 50MW project with Actis that was later

was determined to bring the project to Mexico, and at

sold to Zuma Energía. “This was a project we developed

first it implied a lot of work because of the geographic

and then sold because we were growing too much in one

conditions of the Isthmus of Tehuantepec. However,

area and we saw an opportunity to diversify geographically,”

these challenges were overcome and now Acciona has

explains Alonso. He emphasizes that Mexico has plenty of

installed close to 1,800 electric systems in the region. It is

wind resources distributed across different regions that can

not surprising that Alonso considers this to be Acciona’s

be developed if the proper infrastructure is built. “The Burgos

flagship social program. Other social programs have also

basin has some of the best wind resources, with productive

had a positive impact in the Isthmus of Tehuantepec, such

hours equivalent to those in the Isthmus of Tehuantepec.

that with Mexfam for the detection of cervical cancer and

Transmission lines are being built, such as the La Huasteca-

HIV. “I believe this has been one of our most effective

Monterrey transmission line, but at the moment there is no

social programs, and I would like to keep it running for

transmission capacity in Burgos.”

several years,” comments Alonso.

| VIEW FROM THE TOP

GAMESA STRIVES TO MAINTAIN POSITION THROUGH VERTICAL INTEGRATION HIPÓLITO SUÁREZ Director General of Gamesa Latinoamérica Q: What were the opportunities Gamesa spotted that

Q: How can wind energy keep its leadership in Mexico’s

inspired it to establish its Latin American headquarters

renewable energy sector now that other clean sources will

in Mexico?

start competing in the market?

A: We decided to establish our headquarters for Latin

A: We have great deal of suppliers in Mexico, and it is

American operations here in Mexico because we expect the

easy to find innovation in the sector, from companies

market to experience considerable growth. This decision

manufacturing

was made even while the Energy Reform was being

construction. In order to further push the Mexican value

drafted. If the market is going to grow as we expect, we

chain in the wind energy sector, we are constantly trying

thought it was pertinent to allocate sufficient human and

to find new customers and new local suppliers. Being able

financial resources to Mexico. From here it makes sense to

to work locally provides several benefits for the company,

reach out to other markets such as Central America and

so we are putting a significant effort in finding new

the Caribbean.

collaborators that will enable us to sell equipment at lower

components

engineering

and

prices and develop more advanced wind farms. Gamesa We not only install the wind farms, but we are also

puts emphasis on local content; therefore, the company

manufacturers, with 73% of the market in 2013 as a wind

also recruits local engineers and technicians.

turbines supplier. We are the leaders and will maintain this position, so this prompts us to continue investing in

The intention of the Reform is to create cheaper energy

Mexico. The Ministry of Energy’s plan for 2017 sets a goal

sources and we think we can contribute to this objective

of installing 8,722MW, which means that around 5,000MW

because wind energy can easily compete with all the other

have to be installed between 2015 and 2017. This creates a

renewable sources. In fact, I think wind energy is more

huge market and for this reason we will continue investing

competitive than alternatives because it performs more

in Mexico and trying to sell as much as we can.

efficiently in terms of capacity, costs, and energy factors. Considering these elements, we assume that wind is going

Q: How will Gamesa maintain its position as the leading

to remain strong in the future. Gamesa will collaborate with

wind turbine supplier in Mexico now that the Energy

CFE and the rest of the energy sector in order to achieve

Reform will bring more competitors to the market?

the targets established in the law.

A: The most important thing for Gamesa is that it is imbedded in the whole value chain of the wind sector. It is

Q: Ultimately, do you think the Energy Reform achieved

crucial that we maintain our productivity across the value

the right framework to accurately regulate the renewable

chain by designing and manufacturing wind turbines,

energy sector?

developing wind farms, and carrying out Operation and

A: I think the Reform has very positive elements and some

Maintenance services (O&M). Working on these three

shortcomings. For example, positive aspects include clean

areas differentiates us from the rest of our competitors.

energy certificates, targets by percentage of renewable

Even if our main global activity is supply, our experience

energy, carbon credits, and a new wholesale market. These

in developing and selling wind farms has proven crucial to

are positive traits that will promote the development of the

our benchmark position in the self-supply segment.

wind sector. On the other hand, there are shortcomings, such as the failure to address logistics of market

At the moment, we are the leaders in Mexico with around

functioning and prices. Everything is new and everybody

1,400MW. We have developed, built, and commissioned

has expectations and wants to know what will happen with

over 244MW, an additional 70MW are under construction,

this market. Provided that the problems will be quickly

and we have more than 1,000MW under O&M. We plan on

rectified, there will be a flood of investments for these

developing our operations across these three sectors and

kinds of projects. Gamesa is investing in Mexico because

maintaining our position as leaders in the wind market.

we are confident that this will become a significant market.

151

SHAPING A PROMISING LANDSCAPE FOR LEADING FIRM Marco Graziano’s first contact with Vestas was in early

them more modular. Vestas’ equipment adapts to different

2013, a time when the company was undergoing a serious

conditions, even high altitudes, as in the case of the Valle

restructuring. Graziano, who now acts as President of

de los Vientos in Chile, which is located at an altitude

Vestas Mediterranean, says his plans for the next three

of 2,000m. One of Vestas’ competitive advantages is

years are aimed at securing the company’s position as a

its 2-3MW platforms that cover a wide range of wind

leader in the global wind industry. “Vestas has the largest

conditions. Another of the company’s strengths is the size

market share and is present in 73 countries. But more

of its fleet, which is reflected in the fact that Vestas has

interestingly, in a large number of those countries we

installed 68GW worldwide. Vestas has a rich database

were the first company to install wind turbines. It is safe

of wind resources around the world with information

to say Vestas is a pioneer in the industry,” Graziano boasts,

gathered from the turbines it operates, enabling the

adding that Vestas actually created markets in some of the

company to work with developers at the earliest stages of

40 countries where it pioneered. For him, it is important

a project. Graziano also highlights the company’s strong

to engage governments at early stages in countries where

brand name because it gives assurance to investors both

the wind industry is yet to be developed.

on the equity and lender side.

“The Reform is moving in the right direction because it aims to reduce the costs of electricity. The end of CFE’s monopoly will create room for private investment and the market will gain transparency” Marco Graziano, President of Vestas Mediterranean

Vestas entered Mexico in 1994, with the La Venta project

Vestas can play several roles according to the project’s

in Oaxaca. Since then, the company has installed 406MW

needs and development stage. “We have a strong team

of wind power capacity in the country, and it recently

and we can go from one end to the other. Vestas can

signed a 148MW order for the Tres Mesas wind project in

just supply turbines without even doing the installation,

Tamaulipas. Mexico is an important market for Vestas due

while certain customers ask for full EPC and not many

to the size of the fleet it maintains. The enactment of the

companies can offer that,” says Graziano. The role Vestas

Energy Reform, Graziano believes, will create a competitive

plays depends on the customer’s profile. The company

market by inviting new players. “In my view, the Reform

prefers to enter projects in the initial stages because this

is moving in the right direction because it aims to reduce

gives ample room to maximize value for Vestas and the

the costs of electricity. The end of CFE’s monopoly will

wind farm. The more experienced the developer, the earlier

create room for private investment and the market will

Vestas is integrated into a project. “Sometimes the request

gain transparency,” comments Graziano. Nonetheless, he

for us being the EPC contractor, or at least the head of the

finds the implementation of the Reform quite complex

consortium, comes from the financing side because of the

and thinks there may be a danger of overregulation due

guarantees we offer,” Graziano explains.

to its incorporation of best practices from all around the world. Graziano claims the Mexican authorities have been

There is a general feeling of confidence in Vestas because

relatively supportive. “Vestas signed an MOU with the

the new Mexican market will provide opportunities to take

Mexican government and that promotes collaboration in

advantage of the country’s resources and the company’s

implementing the Energy Reform. We worked on Mexico’s

capabilities. Graziano believes the ambitious clean energy

Wind Atlas in 2013, and now the MOU is part of this,” he tells.

targets could result in attractive projects for his company. As for establishing a manufacturing facility in the country,

152

Vestas plans to continue leading in the wind industry and

he says the choice is determined by the market that makes

driving down the cost of electricity, ultimately promoting

the most sense for the long-term sustainability of the

growth of the market. “As worldwide leaders, Vestas

industry. “I would recommend that the government focus

continues to reduce the cost of our products not only by

on job creation rather than on localization.” Mexico is

improving the sourcing and redesigning the cost, but also

already an important market for Vestas, and Graziano says

by increasing the efficiency of our product offering.” This

it can become a major industry in the coming years once

was done by expanding its range of turbines and making

the Energy Reform is up and running.

| VIEW FROM THE TOP

JUMPING INTO THE FRAY DESPITE MARKET UNCERTAINTY GERARDO PÉREZ GUERRA Vice President & Country Manager of EDF Energies Nouvelles Q: EDF is a noted giant in the European market. How will

stores are particularly attractive. For example, a coffee chain

you use this position to seize new opportunities in the

store may have 300 points of sale, so collectively it becomes

flourishing Mexican energy market?

a viable off-taker. The drawback is that many metering

A: When EDF began operations in Mexico some 15 years ago,

systems must be implemented in order to maintain control.

we saw the country as an ideal platform from which to launch

With 200-300 shops, 400 metering systems would be

business ventures across the North American market. While

required. On the one hand, higher revenues and competition

EDF already had operations in the US, we saw Mexico as a

are generated with AAA companies, and on the other,

market brimming with potential. Our strategy is two-fold.

volume is more substantial with these smaller off-takers.

Firstly, we are reinforcing our position in the renewable energy industry and secondly, we are broadening our participation in

Q: How will the project of 2018 consolidate the presence

other sectors. At the moment we have 400MW of installed

of EDF in the wind sector, and how does this reflect its

capacity in the wind sector and we have three 30MW solar

commitment to the sector?

farms in early stages of development. The group is planning

A: The project originated with the possibility of a second

to develop an additional 300MW wind project which will

Open Season. We wrote a proposal and we have the largest

nearly double our installed capacity. The restructuring of

project so far. We have letters of interest and intent from

the market has enabled EDF to seize opportunities in other

several potential off-takers; however, this will be decided

sectors, such as hydropower, and the company is monitoring

when the rules of the market are fully established. This project

the option of developing projects in those technologies.

is located in Oaxaca and is close to our existing projects. This is beneficial since Oaxaca is an established region for

Q: What criteria does EDF follow in order to wisely select

us and most of our maintenance and operation teams are

new business opportunities in the wind sector?

located there. In the US alone, we have 4.3GW of developed

A: The criteria implemented in the wind sector vary

projects, and we wish to replicate this position in the Mexican

from player to player, but a company like EDF must be

market. We are placing our trust in the commercialization of

extremely selective since, when a project is chosen, EDF

electricity, and we are looking to integrate ourselves with a

remains involved for the long-term. The criteria begin

partner that can make this a reality.

with the site selection, addressing important points like social conflict and security. Many companies follow strict

Q: What position does the company hold in regards to

security protocols during the construction phase of a

the newly created market rules, and what are its initial

project, but do not follow through during the operation

observations?

stage. Since EDF operates in areas for 15-year periods,

A: EDF conducted an analysis of the market rules the moment

we ensure adherence to maximum security protocols. We

they were presented in COFEMER. The market rules adopted

have regional representatives native to the area where

many elements of the US model, which is not a criticism, but

we will operate that understand the cultural nuances.

we believe that the rules must be adapted to the Mexican

Factors like resources, logistics, interconnection points and

market due to its inherent differences. It is important that the

environmental assessments are also included in the criteria.

voices of large players are heard because they have unique experiences in a wide range of markets that can serve as a

Q: How is EDF attracting new off-takers, especially those

guiding force in this transition. Incentives such as the energy

that are not familiar with wind power or renewable energy

bank, green wheeling, and recognition of capacity have been

as such?

deleted in this new market, and as a result, the projects in

A: We continue to be interested in large AAA companies as

our pipeline fall into the legacy scheme. At this stage, we are

off-takers, but we are looking to diversify our client mix. The

faced with the decreasing costs of natural gas and we are

ideal situation would be to partner 50% with large companies

racing against time. With these conditions, it is difficult to

and the other 50% with a mixture of smaller players. Chain

foresee the current bankability of a wind farm.

153

TURBINES ADAPTED TO MEXICO’S DIVERSITY The history of GE in Mexico dates back more than 100 years,

As the sector is geographically expanding to other states,

but the company’s renewable energy segment began to

the R&D division will have to provide specific solutions for

focus on Mexico rather recently. Previously, GE’s renewables

every new site, something it will do by working alongside

division was focused on the US, but the financial crisis of

customers. Santos believes R&D should not be exclusive

2008 pushed the company to diversify into other markets,

to one part of the country, but rather it should develop

such as Europe, Asia, and Latin America. As a result of the

concepts that can be adapted to every region, which is why

success GE experienced in Brazil, the company decided to

GE employs local engineers with knowledge of the area.

expand to another country in the same region and opted for

The R&D division is currently focused on application of

Mexico, deciding to increase its operations and double its

technologies such as micro-siting, which is the evaluation

workforce. Eólica Santa Catarina was GE’s first wind energy

of wind on site. This will help the company increase its

project in Mexico. According to Renato Santos, Renewables

capacity to develop new technologies and provide the

Mexico Leader GE Power & Water, the project involved the

most comprehensive solutions for its clients. Santos

installation of eight turbines with the company’s GE2.75-103

claims the company’s goal is to develop technology that

technology, and allowed GE to demonstrate that a turnkey

will enable wind power to be competitive against other

solution is not necessary for generating productivity

energy sources.

“Without the proper financial support, small developers will find it hard to push their projects”

Renato Santos, Renewables Mexico Leader GE Power & Water

Although many believe Mexico does not have a large

Santos

enough supply chain to invest in manufacturing plants,

significant knowledge and experience, but these factors are

acknowledges

that

GE’s

competitors

possess

GE has 15 manufacturing facilities in this country. Santos

focused on wind power exclusively. On the other hand, GE

believes that the Mexican renewables are estimated to

is involved in several other divisions, enabling the company

generate 500-600MW per year. Mexico’s installed wind

to optimize its operations in the wind sector. For example,

capacity reached 2.4GW by the end of 2014, and around

“While wind turbines are highly complex, other technologies

500MW more have been added. “GE is experienced in

such as gas turbines are even more so,” asserts Santos.

supplying single components to other countries, and

“We have a lot of experience with gas turbines and we can

while we understand that the market may not be large

utilize this knowledge to transfer the necessary technology,

enough in Mexico for many companies, we believe it may

including software and controls, to wind turbines.”

be possible to build these specific components here,” says Santos. He adds that GE needs the government to assure a

In addition to providing technology-related services, GE

high demand for these products for at least three years, a

can also help clients find financial support, either through

possibility that increased with the Energy Reform.

GE Capital or its global network. “Without the proper financial support, small developers will find it hard to

154

GE has an engineering center in Queretaro with 1,800

push their projects. GE has an Energy Finance Services

engineers specialized across several industries, including GE

(EFS) team to support small developers,” Santos informs.

Aviation and GE Power & Water. The R&D division identifies

Projects are financed through GE Capital by EFS, which

and solves problems that are unique to the country. In the

operates in a similar way to a bank, analyzing whether

case of Mexico, the country has good resources for wind

the projects will be profitable and lending the amount of

power, with winds of 6.5-8m/s even outside of Oaxaca, which

money it deems appropriate. “The added value that clients

has the characteristics of Class I wind speed (above 8.5m/s).

acquire through GE Capital is the technical support. Unlike

“The problem is that many projects in Mexico are situated

a bank, we can also contribute our technical knowledge

at high altitudes of up to 3,000m, with low air density, and

to support the developer during the project. GE Capital is

high temperatures, which are not a good combination for

interested in promoting GE technology, it is familiar with

wind turbines, since they are usually designed to operate at a

our technology, and knows all potential risks involved,”

maximum of 2,500m,” Santos points out.

details Santos.

| VIEW FROM THE TOP

SEEKING BUSINESS OPPORTUNITIES BEYOND INCENTIVES ADRIÁN KATZEW Chief Executive Officer of Zuma Energía Q: Zuma Energía is a relatively new platform eager to

A: This new environment is transforming the way we do

invest in Mexico. What factors do you think will help the

business, since we no longer have to structure a system

company succeed in its ambitious agenda?

around the monopolies. The market will now be ruled by the

A: There are two dimensions to be considered in the

interaction between supply and demand, so it is important to

path to success. One is the external environment that

continue promoting the renewables sector. The authorities

is comprised of the regulatory framework and market

have introduced CELs and the question right now is how

rules. The latter will enable Zuma to define the scale and

the contracts will be structured around these certificates in

attractiveness of opportunities in the renewable energies

order to make clean energies bankable. We have noted that

sector. The other dimension comprises the variables

the tenure time of the contracts is now shorter, which makes

Zuma will manage as an entrepreneurial organization, and

energy more expensive compared to longer-term contracts.

this will entail attracting the appropriate talent pool and

In addition, this exposes generators to certain market risks,

establishing a strong organizational culture. In September

so we need a proper dialogue with the authorities in order

2014, 30% of Zuma was sold to Mesoamerica Mexico Corp,

to gauge the type of market risks we will encounter.

which strengthened Zuma’s execution perspective, since it now has a larger capital base. We have the capability

Wind power will play a key role in providing CELs, and

of pursuing more opportunities, and in addition, Actis and

the certificates that will come from efficient cogeneration

Mesoamerica have a long history of building successful

plants will be significantly smaller. A significant number

projects across Central America. This track record means

of certificates will come from the most cost-effective

that Zuma can benefit from a solid reference with good

generation source, which is wind power, as reflected in the

practices and knowledge.

amount of gigawatts installed. This allows us to conclude that we will continue to see more wind projects, and as

Q: What advantages does Mexico provide for energy

the market rules are solidified, we will see what types of

projects, and what are some of the shortcomings you

projects will be developed.

have found? A: There are attractive wind resources in Oaxaca and

Q: How is Zuma Energía planning to handle the required

Tamaulipas, with net capacity factors of around 45%, which

investment in building transmission lines to interconnect

is compelling in terms of efficiency. The other factor to

its own projects?

consider is that up until the Reform, the mechanisms that

A: The lack of transmission infrastructure has been a major

were in place were conducive to attracting investments.

constraint for the development of the industry in general

Elements such as energy banks, recognition of capacity,

in Mexico. A perfect example would be the need for Open

and simplified wheeling charges made Mexico an attractive

Seasons in Oaxaca and Tamaulipas. There are companies

country for investment. It is important that that the new

that have decided to place themselves in a position where

regulations continue to promote a friendly environment for

the transmission will be expanded. CENACE must propose

investors. The issue we face right now is that the uncertainty

the expansion of the grid as an essential mechanism in

has hampered the activities of the sector, and there will be

order to take advantage of the generation potential in

an active dialogue with the authorities surrounding the

certain areas and proactively mitigate bottlenecks. We are

market rules. With the decline of oil prices, we must ensure

prioritizing the projects that have transmission in place, and

that clean energies continue to be competitive. Fuel prices

we are also looking at projects that will have transmission

always fluctuate, so we must strive to maintain a long-term

in the future. Personally, I have had the pleasure of

vision of the cost of generation.

working in regions such as Chiapas and Jalisco, and I have experienced the opportunity to create new markets. There

Q: How will this change in incentives for renewables

are other geographical regions that are poised with the

influence Zuma Energía’s business decisions?

right potential to create competitive projects in the future.

155

I WIND PROJECTS IN OPERATION Mexicali

268MW

102MW

1,080MW

La Paz

120MW

396MW 7 Zacatecas

Guadalajara

399MW

Source: AMDEE

156

Monterrey

642MW

Saltillo Ciudad Victoria

Project

Location

States

Mode project

Manufacturer

Date of operation

Capacity (MW)

Number of turbines

1. Arriaga

Chiapas

Operational

Self-supply

Vestas 1.8MW

2012

28.8

2. La Rumorosa

Baja California

Operational

Self-supply

Gamesa 2MW

2009

3. Guerrero Negro

Baja California Sur

Operational

Public Service

Gamesa 0.6MW

1999

0.6

4. Los Altos

Jalisco

Operational

Self-supply

Vestas 1.8MW

2013

50.4

5. Sta. Catarina

Nuevo Leon

Operational

Self-supply

GE 1.3MW

2013

6. El Porvenir

Tamaulipas

Operational

Self-supply

Vestas 1.8MW

2014

7. Dominica Fase I

San Luis Potosi

Operational

Self-supply

Gamesa 2MW

2014

100

8. PIER II Quecholac Felipe Angeles

Puebla

Construction

Self-supply

Gamesa 2MW

2015

9. Energía Sierra Juarez

Baja California

Construction

Exportation

Vestas 3.3MW

2015

155.1

10. Dominica Fase II

San Luis Potosi

Construction

Self-supply

Gamesa 2MW

2015

100

11. Cancún

Quintana Roo

Operational

FPW

Acciona 1.5MW

2010

1.5

12. Cemento Apasco

Coahuila

Operational

Self-supply

Zond 0.55MW

1997

0.55

13. Dzilam de Bravo

Yucatan

Construction

IPP

N/A

2015

14. Viento del Altiplano

Zacatecas

Construction

PPA

N/A

2015

100

15. Tres Mesas I

Tamaulipas

Construction

PPA

Vestas 3.3MW

2015

62.7

16. Tres Mesas II

Tamaulipas

Construction

PPA

Vestas 3.3MW

2015

85.3

1350MW

For details on Oaxaca, refer to page 158

260MW San Luis Potosi

Merida

328MW

30MW

Chetumal Mexico City Puebla

40MW

216MW

Oaxaca

Tuxtla Gutiérrez

5,564MW

16MW

157

I WIND PROJECTS IN OPERATION IN OAXACA

Matías Romero

34 18

44 41 193

43 23 7

La Ventosa

40 24

35 19

37 21 38 22

17 1

36 20

25 9

26 28 12

27 11

17 33

29 13

30 14 32 16

158

21 5

24 8

23 Juchitán de Zaragoza 39

Source: AMDEE

La Venta

Ixtepec

31 15

20 4

18 2

22 6

Project

Location

States

Mode project

Manufacturer

Date of operation

Capacity (MW)

Number of turbines

17. Piedra Larga I

Oaxaca

Operational

Self-supply

Gamesa 2MW

2012

18. Piedra Larga II

Oaxaca

Operational

Self-supply

Gamesa 2MW

2014

138

19. Eoliatec del Pacifico

Oaxaca

Operational

Self-supply

Gamesa 2MW

2013

160

20. Oaxaca II, III y IV

Oaxaca

Operational

IPP

Acciona 1.5MW

2012

306

204

21. La Venta III

Oaxaca

Operational

IPP

Gamesa 850kW

2012

102.85

121

22. Oaxaca I

Oaxaca

Operational

IPP

Vestas 2MW

2012

102

23. La Mata - La Ventosa

Oaxaca

Operational

Self-supply

Clipper 2.5MW

2010

67.5

24. Parques Ecológicos de México I (Ventosa I)

Oaxaca

Operational

Self-supply

Gamesa 850kW

2008

49.3

25. Parques Ecológicos de México II (Ventosa II)

Oaxaca

Operational

Self-supply

Gamesa 850kW

2008

30.6

26. Eurus 1era Fase

Oaxaca

Operational

Self-supply

Acciona 1.5MW

2009

37.5

27. Eurus 2da Fase

Oaxaca

Operational

Self-supply

Acciona 1.5MW

2010

212.5

142

28. Eoliatec del Istmo (Bii Stinú)

Oaxaca

Operational

Self-supply

Gamesa 2MW

2012

160

29. Parques Eólicos de México (La Ventosa III)

Oaxaca

Operational

Self-supply

Gamesa 2MW

2013

30. Bii Hioxo

Oaxaca

Operational

Self-supply

Gamesa 2MW

2014

227.5

114

31. Bii Nee Stipa II Fase IV Dos Arbolitos

Oaxaca

Operational

Self-supply

Gamesa 2MW

2014

32. La Venta

Oaxaca

Operational

FPW

Vestas 225kW

1994

1.57

33. La Venta II

Oaxaca

Operational

FPW

Gamesa 850kW

2006

83.3

34. Sureste I Fase II (Energías Renovables La Mata)

Oaxaca

Operational

IPP

Alstom 3MW

2014

102

35. Bii Nee Stipa I

Oaxaca

Operational

Self-supply

Gamesa 850kW

2010

26.35

36. Fuerza Eólica del Istmo

Oaxaca

Operational

Self-supply

Clipper 2.5MW

2011

37. Fuerza Eólica del Istmo

Oaxaca

Operational

Self-supply

Clipper 2.5MW

2012

38. Bii Nee Stipa II (Stipa Nayaá)

Oaxaca

Operational

Self-supply

Gamesa 2MW

2012

39. Bii Nee Stipa III (Zopiloapan)

Oaxaca

Operational

Self-supply

Gamesa 2MW

2013

40. Bii Nee Stipa II Fase III El Retiro

Oaxaca

Operational

Self-supply

Gamesa 2MW

2013

41. Energia Eolica del Sur I

Oaxaca

Construction

Self-supply

Vestas 3MW

2015

216

42. Energia Eolica del Sur II

Oaxaca

Construction

Self-supply

Vestas 3MW

2015

180

43. Granja SEDENA

Oaxaca

Construction

Self-supply

Vestas 3MW

2014

44. Sureste I-Fase II

Oaxaca

Operational

IPP

Alstom 3MW

2015

102

159

| VIEW FROM THE TOP

DIVERSIFICATION ADDRESSES ENERGY NEEDS ANA VIOLETA HORTA Managing Director of CISA Energía Q: CISA is a leading company in the wind power sector.

the possibility of entering the cogeneration sector, but

How has the Energy Reform transformed your products

this will depend on the prices of natural gas. We are

and services?

currently focusing on wind, solar, and hydro, and we want

A: Given all the changes in the legislative and operative

to maintain our expertise in those areas. We are leaders in

framework, we have found it important to diversify our

wind power and we want to grow in solar generation and

project and service portfolio. As a result we are now turning

hydro projects. Currently, we have a micro-hydro project

to commercial and industrial solar projects. We have been

and its construction is our current priority. In terms of wind

looking at solar energy but there will come a time when

power, we just finished the construction of a wind farm

we will need to make in-depth adjustments to the business

in Baja California, and we are open to opportunities for

model. The official announcement of investment plans for

construction and project management.

the wind sector has been made, and approximately US$18 billion are expected to be allocated between 2015 and

How

are

renewable

energies

competing

with

2018. We are looking forward to any new ventures that may

cogeneration and natural gas in Baja California?

appear, as well as all possible support from the government.

A: The problem with cogeneration is that prices are more volatile, whereas in renewables, prices tend to remain more

We have a goal to generate 450MW, and this will be

stable and predictable. The best solution is to harness these

distributed along different sectors. A part will be generated

energies in a mutually complementary way, and we are

by wind and another by solar and hydro. We are evaluating

working on a combination that offers constant resources

SOPHISTICATED ENGINEERING AT THE HEART OF SUCCESSFUL PROJECTS

160

Wind turbines are an imposing sight, with blades of over

and developers are now opting for more mature and less

50m long slicing the skies and towering over 100m tall.

costly schemes,” he explains. According to Ivars, the role

Transporting such immense items often presents problems,

of engineering firms under these schemes can achieve the

especially given the fact that projects are typically built

reduction of CAPEX costs by 10-20%. Wind farms require a

in remote areas. Roads must be widened, and in rural

multidisciplinary approach because they entail high voltage

areas, they must be built from scratch, with engineering

infrastructure, complex geotechnical conditions, and the

firms stepping in to smooth the way. TYPSA Group is a

building of road infrastructure in hard-to-access locations.

firm specialized in civil engineering and construction in

Ivars recalls the company’s involvement in the Piedra Larga

the energy sector, and through its Mexican subsidiary,

I wind farm and the multifaceted engineering processes it

MEXTYPSA, it has aimed to optimize current engineering

entailed. “In the first phase we carried out the validation

solutions. Javier Ivars, Wind Power Division Director of

and redesign for the optimization of 45 turbines. This

TYPSA Group, points out that Mexico’s wind sector is

process required geotechnical engineering, as demanded

maturing and undergoing an important transformation. In

by our client, Gamesa, in order to reduce its costs.” In the

countries where wind power is at its inception, financial

second phase the company was entrusted with the design,

entities place stringent conditions on EPC schemes due

construction, and technical support of the foundations

to the lack of experience in the country and in an attempt

of the wind farm. “This intricate process has enabled the

to lessen construction risks. “This is not the case with

TYPSA Group to develop fast track engineering, allowing

Mexico, as it has overcome the technological learning curve,

us to adapt to the timeframe that clients demand,” he adds.

at competitive prices. In the long run, we expect to have hybrid projects that depend both on wind power and cogeneration, but in order to do that, the first steps that we need to take involve land scouting and organization of our permits. We are hoping that the Energy Reform is favorable for these future projects. Q: How is the company progressing in developing its own wind farms and what problems have you encountered? A: We are progressing slowly but with promising results so far. We have the measurements for the wind farms, but its development is still in an early phase. We are waiting for the new reforms to be enforced, and negotiating the necessary technology to make the most out of these

Wind energy project predevelopment, engineering, procurement, construction, operation and maintenance, throughout Mexico

sites. Currently, we are developing wind farms in Oaxaca and in Baja California. So far, we working independently, but eventually we expect to form an alliance with other companies. As for our clients, if the market is competitive enough, we hope to offer renewable energy to private

Agregar la otra dirección de Tijuana

consumers. One of the main problems is the grid capacity, which can frequently be saturated, so we need to monitor that area closely. Q: What factors influence the allocation of investments and the geographical destination of your windfarms? A: The geographical disposition of the farms is based on the scouting process that we follow. Our projects in Baja California were chosen because it is where our main office is located and there are strong wind sites, in Oaxaca there is excellent wind capacity in La Ventosa, and we have managed to successfully develop projects in that state. In terms of security, our farms are not located in states that have high security concerns like other parts of Mexico. If consumers are offered a reasonable contract with a fair price, there is no reason to reject renewable energy. Nowadays, there is a high acceptance of renewables and most major companies harness this type of energy. Q: Which one of your projects attracts more attention for foreign investment? A: Our flagship project used to be Bii Nee Stipa, since it was the first private wind farm to enter the grid in Mexico, but currently, our most important projects are with Sempra in La Rumorosa. However, Bii Nee Stipa remains significant because we managed to develop and construct the entire project amid a highly skeptical environment. David Horta,

CORPORATE OFFICE Cándido Aguilar #17120 Col. Otay Constituyentes Tijuana, B. C., C.P. 22457 T. +52 (664) 478-8000

the founder, was a pioneer in venturing into Oaxaca when only CFE had working turbines at the time. CISA continues this pioneering spirit by taking on independent projects. We may partner with another corporation in the future, and the ideal company would be someone with experience, capital, and the appropriate networking capacity.

Jaime Balmes # 11 L-130E Col. Los Morales Polanco, México, D.F. T. +52 (55) 8526.1233 Fax. +52 (55) 1084.7565

www.cisae.com

161

SOLID FOUNDATIONS AND STRONG SOCIAL MANAGEMENT Construtoral was created in 2011 to address several

who had signed a usufruct contract with the company, but

necessities in the construction industries and now it focuses

were continuously asking for more money. “All construction

on a range of civil construction projects. At the moment, the

projects face these kinds of problems, but these are harder

firm is working with the Ministry of Communications and

to face in Oaxaca. While Oaxaca may have strong potential

Transportation on building highways and is also bidding to

for wind power, this situation may push companies to other

develop several small runways. However, this company has

states. Our considerable experience in solving these social

found a niche in the construction of wind farms.

problems has helped us minimize them,” Toral comments.

“Our strategy is to promote dialogue between the local public, the authorities, and construction companies. We are both a construction company and a mediator with social communities” Oscar Toral, Member of the Board at Construtoral

Construtoral is currently working with Acciona Energía on

The wind energy sector is diversifying geographically,

the PE Ingenio wind project. This partnership is important

now growing in states like Tamaulipas and Baja California.

to Oscar Toral, Member of the Board at Construtoral,

As an experienced construction company, Construtoral

because in his view, Acciona is one of the few companies

does not believe wind developments differ much from

that have a solid reputation when it comes to social

state to state, at least in terms of construction. The

management. The alliance becomes a powerhouse when

social elements, on the other hand, tend to vary from

we consider Toral’s statement, “Our main strength is in

state to state, and Toral says companies are unlikely

creating awareness among the public and mediating

to face the obstacles Construtoral has encountered in

between communities and the companies we work with.”

Oaxaca. Regarding construction, Toral finds rocky terrain

Toral’s experience in community relations comes from the

to be more difficult to negotiate, but his company has

25 years he spent at PEMEX’s exploration and production

the necessary machinery to overcome this obstacle.

division, where he worked as a representative of social

Construtoral is acquiring its own equipment in order to

development in Tabasco, Chiapas, and Veracruz. “At

avoid leasing costs, and Toral’s company owns 90% of

PEMEX, I developed the necessary abilities for mediation

the equipment it is using for the project with Acciona.

and social management, and I am also acquainted with

At the moment, Construtoral is collaborating with Global

the idiosyncrasies of rural areas and the way people think.

Energy Services (GES) and is bidding for new projects in

Creating dialogue with those who may not be interested

Tamaulipas and Coahuila. Construtoral is also interested

or informed about the benefits of our projects is part

in working with Eólica del Sur, which is experiencing

of the daily operations undertaken by our company,” he

social issues, and on being recognized by potential clients

asserts proudly, adding that he personally engages with

such as Gas Natural Fenosa and Enel.

communities to resolve issues that occur during the construction stages.

Toral says his company is also planning to expand to other energy sectors besides wind power, such as combined

162

Toral explains that Oaxaca, the most iconic wind energy

cycle. “We want to work with clients from the wind

region in Mexico, has significant social problems derived

sector who are interested in transferring to combined

from construction. “Our strategy is to promote dialogue

cycle plants.” Diversifying into other energy sectors is

between the local public, the authorities, and construction

a slow process, as regulatory authorities have many

companies. We are both a construction company and a

requirements such as endorsements and guarantees. In

mediator with social communities.” For Toral, working in

addition, Construtoral’s expertise lies in construction, so is

Oaxaca was remarkably difficult for his company, which at

not involved in the engineering process. This means the

the time was working on Bií Hioxo, a gas project with 117

company must decide whether it will take on a project

turbines. The hardest part of the project, as he recalls, was the

on its own or if it will enter a partnership with another

violent opposition developers and service companies faced

company to manage large projects. Construtoral already

from locals who constantly vandalized the infrastructure

has ISO certification, which is an essential requirement to

and machinery. There was also opposition from landowners

enter bidding for many projects.

| VIEW FROM THE TOP

FORECASTING SOFTWARE PLACES BIG PLAYERS ON THE MAP TORALF HEY Managing Director of Biosolventus Q: What are the advantages of using meteorological

wind the site will receive in the coming 20 years. This

data, and what benefits do these bring to solar and wind

forecast is geared to the sum of all the resources in order

operators?

to make the project bankable, and essentially serves as

A: When forecasting the exact production of a solar

an estimation of generation in a site. An actual forecast is

park or wind farm, the regional conditions must be taken

needed in the operation of the project and the distribution

into account. These conditions entail the geography,

system line connected to the actual site, in order to align

topography, infrastructure, and layout of each project

and match the profiles of the generator and off-taker, and

development. In order to determine the local conditions, it

also to allow the distribution and transmission system

is essential to consider what is occurring on a global scale.

operator to balance the grid. A generator or any off-taker

These are meteorological considerations that include wind

needs this information in order to receive the most profit

and other variables such as temperature, pressure, heat

from their investment. This data is essential in a market

fluxes, humidity, and irradiation in the case of solar. It is a

where the generator is responsible for marketing the

non-linear process in which the use of regional numerical

electricity, or where there are incentives or even deterrents

weather prediction models (NWP) is necessary, and where

that punish the company for failing to sell all of the

the regional data is then localized in the power conversion

generated electricity.

process. Q: Have there been any significant challenges in Q: What software have you implemented to build the

convincing potential clients in Mexico of the value of your

actual sets of data that you provide?

services?

A: Our software collects information, visualizes it, and

A: It is much easier to penetrate a country such as Germany,

then gives users an indication of the direction of the

where there has been a liquid market for a couple of

demand, load, or generation. Wind or solar generation

years now and off-takers have had time to experience

forecasts are only two elements of the data flow in the

and understand the importance of hedging their position

system. Our solution is web-based and, at its core, offers

with financial instruments. The functioning of the Mexican

high-resolution

combined

market is similar to any other financial market, so it is not

with powerful analysis and forecasting technology. All

meter

data

management

difficult to explain why our solution would bring value

calculated results are accessible via secure web access.

to the companies’ portfolios. The challenge today lies in

The input data used is taken from the global platform and

the layout of the market that is being currently shaped,

fed into the meteorological model, which then calculates

since clients are hesitant to make any major decision

the desired results while adapting a multiple-scenario

regarding where to invest. As we establish our presence

approach. This means that in order to determine what the

in Mexico, we want to cooperate with those companies

generation output will be, we calculate multiple scenarios,

that see themselves as pioneers and are at the forefront of

thus creating a security corridor between the maximum

the market. There is a heightened interest in the Mexican

and minimum values, and also calculating each scenario’s

market, and at first we will see a rush of investment,

probability in order to determine the most probable path

followed by consolidations. We have had experience in

at the time of calculation. The result of this first calculation

working with transmission system operators that are

may be updated by real-time data.

comparable to entities like CFE and CENACE, with control of the transmission lines. In my experience, there is also

Q: What are the advantages that solar and wind companies

a potential for industrials that have the manpower and

obtain from using your solutions?

resources to expand their core business. Biosolventus is

A: There are two different types of forecasting. The

a highly specialized company that implements a detailed

first type is geared toward the early stages of project

approach and employs German practices, using this to its

development, where the forecast focuses on how much

and its clients’ advantage.

163

| PROJECT SPOTLIGHT

LA VENTIKA One of Mexico’s most emblematic companies and an internationally recognized name, CEMEX, decided to invest in renewable energy, partnering with Blackstone to build a 252MW wind farm in the state of Nuevo Leon. The wind farm, known as La Ventika, began construction in 2014 and consists of two adjacent wind farms: La Ventika I and La Ventika II. These are located in Nuevo Leon in the General Bravo municipality, 56km from the US border. The wind farm has a total capacity of 252MW, with each section comprising 126MW. Acciona was entrusted with the wind farm’s operation and maintenance in a 20-year contract. La Ventika consists of 84 of Acciona’s AW-3000 turbines with 116 meter-long rotor blades that each has a 3MW capacity. Miguel Ángel Alonso, Country Manager of Acciona Energy, says this product is perfect for the Mexican market because its height and long blades allow for the most capitalization on the trade winds in the north of the country. Another feature of this product is its ability to stand on either steel or concrete towers, with Acciona opting for 120 meter-tall concrete towers. The project also includes a 230kV substation and 14km of transmission lines that feed the generated power into the grid. The impact of the wind farm’s construction on the local economy and the creation of jobs can be seen in the opening of a manufacturing plant in the General Escobedo municipality to supply the concrete towers for the project. The project is being carried out by Fisterra Energy, a joint venture between Blackstone, CEMEX, and other private investors. The project required investments of US$650 million, of which 75% came from debt and 25% from equity. Some of the lending parties that put forward the US$480 million include Banobras, NAFINSA, Bancomext, Santander, and the North American Development Bank, which finances renewable energy projects in the Mexico-US border region. AWS Truepower also contributed as a consultant in construction and debt financing. The energy generated at La Ventika, which is expected to begin operations in the second quarter of 2016, will be used by FEMSA, Deacero, ITESM, and CEMEX, as agreed in the self-supply scheme approved by CRE. Additional off-takers have the possibility of joining the project in the future. According to CEMEX, the use of energy from la Ventika will allow the company to save US$15 million every year.

165

GAUGING THE SHIFTING WINDS OF MEXICO The entire Mexican energy

the strong winds.” To circumvent nature’s forces, Auriga’s

sector can attest to the

cranes are equipped with anemometers to determine

capabilities

whether conditions are favorable for operations.

company

specialized

leasing

cranes

and

Wind parks also have strict security specifications, which

services.

actually gives Auriga a competitive advantage. “Safety

Cogeneration makes up

is the most important aspect for customers, even more

to 60% of the company’s

so than equipment availability and costs. We work with

activities

the

power

international companies that are accustomed to high safety

sector,

while

wind

standards.” Security requirements regarding the equipment’s

comprises

20%.

transportation

Ricardo Pérez-Gil, Director General of Auriga

Auriga,

the

age are strict. For instance, working with equipment more

latter, it has worked with top tiers like Iberdrola, Acciona,

than five or six years old is prohibited, so Auriga renews its

Gamesa, and Vestas. Auriga’s Director General, Ricardo

machines every three years. The company maintains a clean

Pérez-Gil, says installations are his company’s main focus,

track record for accidents after five years of working in the

followed by maintenance operations. “The Mexican wind

wind sector. This is the result of having certified equipment

sector is relatively new, thus maintenance operations are

made with state-of-the-art technology. “We prefer acquiring

specific and require small pieces of equipment. On the

cranes made with European technology, including machines

other hand, Auriga has the tallest cranes in Mexico, and

made by US manufacturers using European components,”

transportation systems to move the towers to the sites.”

comments Pérez-Gil. Nonetheless, Auriga recently began integrating Chinese technology. “Chinese products have

A difficult aspect of working with wind parks, says Pérez-

a bad reputation, but they are cheap and the quality is

Gil, lies in the relatively tight timeframes. Strong winds

surprisingly good.” Each time Auriga buys a new crane, its

limit the raising of towers to the months between October

operators receive training directly from the manufacturers.

and March, although maintenance operations are carried

Auriga’s strategy has put the company in a position that will

out all year round. “In Oaxaca, sometimes we can only

allow it to take advantage of two of the most promising areas

work for a couple of days and lift a few towers because of

of the Mexican power industry: wind power and cogeneration.

With energy into the future With 19 years in the market ABO Wind is one of Europe’s most experienced developers of wind energy projects. Since 2001, ABO Wind is internationally active with a staff of 350 professionals located in Germany, Finland, Spain, France, Mexico, Argentina, Belgium, Ireland, Bulgaria, Sweden, Uruguay and Great Britain. ABO Wind is involved in all stages of the wind farm project (development, financing planning, construction, operation and maintenance). ABO Wind has a leading position in wind farm development with an annual project volume of circa 300 million Euros and more than 1000 megawatts connected to the grid. Considering the enormous wind potential of Argentina, in early 2006, ABO Wind founded the subsidiary ABO Wind Energías Renovables SA based in Buenos Aires. Since then and to date has positioned firmly in the Argentine market, with a volume of more than 900 megawatts projects, which 250 MW are Ready to Build. In 2010, ABO Wind founded ABO Wind Uruguay SA, its second subsidiary in Latin America. 166

Since 2012, ABO Wind is working on several projects and providing services in Latin America by replicating the success at regional level. Due to its excellent wind condition Mexico has become ABO Wind’s next target market. For further information, please contact us: Eng. Vanesa M. Revelli Latin America Director Unter den Eichen 7, 65195 Wiesbaden, Germany +49 (0)611 267 65 – 563 vanesa.revelli@abo-wind.de www.abo-wind.de Eng. Fernando Errea Project Manager Av. Alicia Moreau de Justo 1050 – Piso 4, Of. 196, C1107AAP – Dock 7, Buenos Aires, Argentina +54 11 5917 1235 – 204 fernando.errea@abo-wind.com www.abo-wind.com

| VIEW FROM THE TOP

EXPLORING THE EARLY STEPS TAKEN BY NEW PLAYER VANESA REVELLI Latin America Director and CEO of Argentina and Uruguay at ABO Wind Q: Who is ABO Wind, and what do you believe makes the

Many equipment providers we work with in Germany are also

company different from others in the segment?

global companies, so we can collaborate with them in Mexico.

A: ABO Wind is a German company that is well-

Of course we also want to help develop the local supply

established in the European market and has experience

chain, thus we will definitely look to cooperate with Mexican

generating electricity from different technologies. Our

companies. Our main priority is to establish an autonomous

core expertise is wind energy and besides designing,

and independent subsidiary by 2016, so we need to find

constructing, and operating wind farms, we also help fund

the right people to ensure our company’s success. In order

projects through our sister company called ABO Invest.

to achieve this, we are working on projects through joint

We have been operating in Latin America for the past

ventures to generate enough capital to install our subsidiary

ten years and our main priority is to enter Mexico. Our

so that we can later on take projects independently. We

goal is to have a fully operational subsidiary in Mexico

are now working with small companies in Mexico but it is

by 2018, and in order to achieve that, we must work to

a mutually beneficial situation for all parties, since they can

offer the same range of services in Mexico that we do in

expand their knowledge and we begin to build a reputation.

Germany. We want to develop, construct, and operate our own wind farms as well as those of third parties. Mexico is

Q: What are the company’s ambitions in the Mexican

developing its industries, and to achieve this it will need

wind market?

a lot of energy. The country offers everything a company

A: We would like to begin with a medium-to-large project,

like ours needs, it has a vast wind potential, a solid supply

such as a 50MW wind farm, and of course we want to

chain, and experienced human capital. We believe that

be involved in the development and construction stages.

our company will be able to thrive in the landscape that

There are many locations in Mexico that hold a solid

has been created in the country and that we will be able

wind potential, like Oaxaca, but we are not interested in

to take wind farms to the level Mexico deserves.

entering this state because it is already saturated with wind players and it lacks infrastructure to connect us

Q: Before entering the country, companies assess

to the grid. At first, we were looking at Ciudad Victoria,

the risks involved. What challenges has the company

Tamaulipas, but security there raised questions, so right

identified, and how do you plan to overcome them?

now we are considering states like San Luis Potosi and

A: We are aware of the challenges we may encounter and

Jalisco. We have been working closely with a legal firm in

we are ready to combat them. It is important to work with

Mexico that advises us on the best jurisdictions in which

local authorities in order to be sure that the approach we

to invest and the ones that will see increased potential

are taking is the most appropriate. Besides government

as security matters improve. One of the main challenges

agencies, we believe it is also important to establish local

that we have detected, besides security, is access to the

partners. Another factor that concerns us is transparency

grid. The way the energy distribution system works in

when conducting business, and for this reason we will

Mexico is very different from other countries. There is a

be very rigorous when carrying out our due diligence

lack of information about power lines in Mexico, meaning

activities in order to ensure that we are working with the

it is difficult to locate substation or transformers for

right companies.

connection. This, of course, makes our job more difficult but thanks to our local partners we now have strategies

Q: Once you enter the country, you will have to look for

to address this issue. Our company stands out in the

local providers. How will you ensure the implementation

sense that it is capable of delivering full results within

of the best technologies in your wind farms or solar parks?

time and cost parameters. We are a company that invests

A: When selecting our providers, we seek those with a solid

in R&D, and we are looking at innovative power solutions,

understanding of the Mexican culture. We are looking for

for example, through hydrogen. Opportunities abound in

professional companies that adhere to corporate values.

power generation and through R&D we can seize them all.

167

| VIEW FROM THE TOP

MEASUREMENTS THAT PUSH THE MEXICAN WIND INDUSTRY MAURICIO TRUJILLO Director General of Climatik Q: The wind power sector is highly competitive, what

Thies Clima, the main anemometer manufacturer in Germany,

main strategies has Climatik used in order to defend its

and Renewable NRG Systems, the main producer in the US.

position within the value chain? A: Our solidified position within Mexican wind power was

Q: Which breakthrough technology reflects the ambitions

generated by our high quality wind measuring services.

of Climatik within the wind power market, and how does

Before Climatik was consolidated as a company, foreign

it stand out from the crowd?

firms coming to the country were uneasy about moving to

A: We recently made an agreement with Vaisala, which

regions like Tamaulipas, which has strong wind resources,

bought Second Wind, the manufacturer of the Triton. I believe

and the products we now offer had to be imported from

this device is the future of measurements in the industry. The

Spain or Germany, resulting in higher costs. Climatik’s

Triton is a sodar, a device that sends out sound waves into

team knows the Mexican territory, and clients in Mexico

the air and receives information like a Doppler system. This

feel comfortable using a company like Climatik as a service

equipment allows users to take measurements from 30m to

provider, which is made evident in the relationship we have

200m away and can profile the site in one day, as opposed to

with the main stakeholders in the wind industry. Most wind

the four weeks it can take to build a tower. It enables users to

farm developers in Mexico require the type of sensors we

carry out measurements for a couple of months in Greenfield

sell, and our relationship with key equipment manufacturers

sites. Before making an investment, people want to know if

has given us an advantage by allowing us to offer financially

a site is fruitful, therefore the Triton is an extremely useful

attractive solutions. For instance, Climatik has close ties with

instrument. It is also used in already-operating wind farms

DIVERSIFICATION SPELLS SUCCESS FOR DEVELOPERS While Oaxaca is considered a haven for wind energy, seed

that this market place will incentivize both producers and

firm Mexico Power Group decided to diversify its strategy

consumers to stick to their own node.”

in the country and stick to the northern territories. Instead, the company will focus on its three current projects in

This year offered the group a window of opportunity to

Baja California, Zacatecas, and Tamaulipas. These will be

concentrate on land and wind measurements and the

carried out under the old framework, which is the self-

company is open to all development options, including

supply mechanism, and the permitting projects have

solar and hybrid projects. Maintaining its power play for the

been completed. The transition into the new regulations

north, Mexico Power Group is also developing long-term

introduced by the Energy Reform has been made easier

products in Chihuahua, Veracruz, and Nuevo Leon. Prock

for the company, according to Director General John

believes that these projects will depend on the demand of

Prock, by the possibility of transitioning back to the old

the market, but since the project in Nuevo Leon is close

scheme should the new framework prove inviable.

to the node center of Monterrey, there are opportunities for hybrid projects, combining renewable energies with

168

The company’s decision to avoid Oaxaca was due to the

cheap fuels like natural gas to create a blended product

infrastructure and the availability, since there is no local

that meets green standards. “If the company were to enter

load and everything must come from the north. “Our

the solar sector, it would be through hybrid projects,”

projects in the center of the country have local loads in

says Prock, adding that now the new regulations allow

some circumstances, and in the north of the country there

companies to compete with CFE, everyone is considering

are consumption centers,” says Prock. “We anticipate

the potential of combined cycle plants.

to measure the power curve of the equipment and improve

today in more complex sites uses a computational fluid

production. The Triton is new to Mexico, but it has been used

dynamics (CFD) approach, which enables modulation

for many years in the US and Europe. We are working to bring

of performance. Climatik is a distributor and authorized

this tool to developers in Mexico and display the benefits and

dealer for WindSim, a developer of this software. These

advantages of this instrument.

are helpful tools because modulation requires knowledge of the characteristics and topography of the site, as well

Q: What challenges has Climatik faced as the sector looks

as accurate wind measurements from at least two towers.

beyond the idyllic resource of Oaxaca, and how were

Developers need enough details regarding speed and

these overcome?

force of the wind in order to make long-lasting, efficient

A: We have noticed that sites in these new locations

blades. We are working on the construction of a wind farm

are more complex, mainly due to their topography. The

in Puebla located at 2,000m above sea level, which will

company, therefore, needs to be more creative when

pose challenges in terms of equipment and maintenance.

setting up towers. Also, most wind currents are slower than those in Oaxaca, so the new wind turbines need to be

Q: Ultimately, what kind of clients would benefit the most

situated at a higher altitude. When Climatik started six or

from Climatik’s integrated services?

eight years ago, we used to put towers at heights of 40-

A: We have customers who know the industry very well, like

60m. Over the last two years the standard height increased

Gamesa and others who have been developing for many

to 80m, and now we are even reaching 100-120m. Setting

years. Moreover, people who have suitable land are aware

such tall towers in complex topographies is challenging,

that they can increase the price of their land threefold if

although it provides opportunities for new technologies

they have a wind farm. With a positive, comprehensive

such as the Triton.

response, developers can obtain a productive asset. Our current client portfolio consists of 90% experienced

Since wind currents are different from those in Oaxaca,

developers and 10% entrepreneurs, since few individuals

the designs of wind farms in these regions are different as

have the financial resources to build a tower. In order to

well. For instance, changes have to be made in the way the

reach out to interested customers on a limited budget, we

foundations are built. Additionally, the software previously

developed a leasing model that has received a positive

used had a linear approach, whereas the software used

response because it entails a lower investment risk.

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SunEdison Inc. (NYSE:SUNE) cuenta con más de 55 años de experiencia

2.7 GW de capacidad de energía solar fotovoltaica interconectada

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Presencia en más de 35 países alrededor del mundo

Más de 1000 plantas de energía solar interconectadas

Financiamiento de proyectos por casi $6 billones

Más de 1 GW de parques eólicos en operación

Centros de fabricación en 3 continentes

www.sunedison.com.mx

GEOGRAPHIC DIVERSIFICATION LEADS TO SUCCESS Wind players are pulling out all the stops to win more

For SOWITEC, it is not enough to have wind resources; a

market share in this vast energy industry, and business and

company also needs interconnection, strong engineering

investment strategies are undergoing a massive restructure.

and technical and economic factors in place in order

The wind sector is poised to be the preponderant leader

to have a bankable project. Prior to taking the plunge,

in the renewables sector and is emerging as a frontrunner,

SOWITEC seriously considers social aspects, with Robles

with investment announcements reaching US$14 billion.

explaining, “We have worked with the Equator Principles

Few companies have been part of the backbone of the

for some time. These principles are a risk management

wind industry to the same extent as SOWITEC, with

framework adopted by institutions in order to determine,

projects still holding prestige as success stories years

assess, and manage environmental and social risks in

after

projects.”

their

completion.

Alejandro

Robles,

Managing

Director of SOWITEC, intends to reaffirm this hard-earned reputation by reviving its pioneering spirit, “Companies

If a project was to take pride of place in SOWITEC’s product

are leaving Oaxaca and we were pioneers in searching for

portfolio, it would be Dominica Energía Limpia, a 200MW

new opportunities for development in different states. In

project, with 100MW having entered into operation, while

fact, we have found states that generate even more profit

the remaining half is being built. SOWITEC’S pipeline

than Oaxaca.” Geographical diversification is a business

reaches 5,000MW, a significant figure that places the

strategy that will enable the company to successfully

company as a leader in the sector. “We are developing

branch out into unknown regions and thrive.

800MW for our client Enel. We also sold 600MW to Grupo

“Companies are leaving Oaxaca and we were pioneers in searching for new opportunities for development in different states. In fact, we have found states that generate even more profit than Oaxaca” Alejandro Robles, Managing Director of SOWITEC

For Robles, the narrative surrounding the Energy Reform

Santander, and we have 350MW in advanced stages,”

remains unchanged, with promises, expectations, and

Robles describes. “Additionally, we have over 3,000MW

uncertainties still in the mix. “Envisioning a new business

in different development stages, including 1,500MW in the

model is complicated because there are factors yet to be

wind measurement stage and 500MW in the six-month

defined. In the past, we were accustomed to developing

development phase,” he adds.

projects under the self-supply scheme and we were

170

aware of all the rules and mechanisms. This is no longer

Oaxaca has earned its title as the mecca for wind

the case, so we have to familiarize ourselves with new

developers, yet the north of Mexico is beginning to garner

ways of doing business.” While these uncertainties

attention as an area rife with potential. Most of the projects

have limited the development of certain projects, it is

SOWITEC is developing are located in the north, and in

important to highlight the benefits, especially the impact

order to find a bankable project, the site must be close

of a growing infrastructure on wind farms. Robles is keen

to large substations, making it easier for the company to

to point out that the grid will be expanded in three main

use technologies for low wind resources. When deciding

ways. The first will be in accordance with governmental

to develop a project, environmental responsibility is a

decisions that take into account the development of the

crucial aspect the company considers. To succeed in the

territory, equality of conditions, and required increasing

wind sector, perseverance is needed during the gathering

capacity in certain parts of the grid. The second will be

of evidence and research, and it is during this process

through private companies wishing to develop a project

that SOWITEC identified the vast differences between

and willing to pay for the reinforcement themselves.

regions. In the north of the country land ownership is

Lastly, CENACE will distinguish the areas with the

vastly different; acres upon acres of land can belong to

highest potential and expand the grid. Thankfully, the

just one owner, while in Oaxaca a company may encounter

information of the grid will be made public and this will

a hundred owners on the same piece of land. SOWITEC is

allow players to evaluate the optimal size of projects and

not afraid to venture outside the comfort zone in search of

their prospective location.

new wind resources. ”

| VIEW FROM THE TOP

DUE DILIGENCE AND INDEPENDENT ENGINEERING GIVE CERTAINTY TO INVESTORS JORGE OCHOA Country Manager of AWS Truepower Q: Understanding and mitigating risks associated with

Q: How do your renewable energy forecast and tools

renewable energy projects is critical for developers,

directly benefit developers and operators?

lenders, and investors alike. What is the criteria that you

A: In the new framework, forecasting must be accurate

follow in your due diligence service?

because the market requires a tight control on the system.

A: AWS supported the financing arm of the largest wind

If a company has a wind farm, it will have to accurately

farm in Mexico, La Ventika, which consists of two wind farms

report the energy that it will contribute to the grid to

with a total capacity of 252MW. Through our technical

CENACE; in some cases projections will have to be made a

perspective, we give the certainty that banks need and

week in advance and in others just hours. We also have an

provide assurances regarding the viability of a project. Las

area focused on software development where we generate

Ventikas was an important project but involved a difficult

tools that are used by our clients. The most common

process, since we had to review the complete project

software is related to wind resources node layout design,

in order to detect areas in need of reinforcement. Our

which is used by developers. We have worked with CFE

contribution in due diligence must extend to the medium

by providing courses and training to help it understand

term and offer support in all stages of the construction of

our methods and tools and, while the software used to

the wind farm. Our services ensure that all stages of the

be internal, we allow other players to make use of it. Our

project progress smoothly, and dealing with uncertainty is

criteria and services will not necessarily change with the

crucial in order to understand and mitigate risks associated

new framework, rather the greatest change will be seen

with projects, as well as providing developers a higher

in the way developers sell the energy generated in the

chance of obtaining financing. We use the industry’s best

wind farm. We see many companies eager to establish

practices and apply them into the unique characteristics of

operations in the Mexican market, and this indicates a

a project. Joan Aymamí, Vice-President, Latin America of

considerable number of opportunities for us.

AWS Truepower, said, “The Ventika I and II projects are a major advancement in the development of wind energy in

Q: How do you guide your clients in making the right

Mexico and Latin America, and are also a great example of

decisions in order to optimize their economic potential

the growing momentum of wind projects globally.”

on spot and real time markets? A: Usually, developers believe there are promising wind

Q: Which other new projects are you targeting, and

resources in a site and believe they understand the

how will your services complement their creation and

characterization of wind, and as a result, they use this

development?

unsubstantiated information to begin investing in site

A: In Oaxaca we continue to see the development of

measuring. Realistically, a year is needed to determine the

large projects that rival the Ventika wind farms, despite

wind flow and carry out the necessary stages of modelling

the social barriers that some companies encounter. Other

and technology evaluation. Through our modelling and

regions, such as Baja California, Tamaulipas, and Coahuila,

preliminary evaluation of the sites, we help clients obtain

are beginning to show promise. In Mexico we continue to

information prior to making the investment decision for

offer support to developers through our energy resource

on-site research. While there is a percentage of uncertainty

assessment, due diligence, and independent engineering,

using this pre-evaluation model, it helps clients make more

with products aimed at the early development process

informed investment decisions. Financing entities are

of a wind farm. In other markets such as Europe or the

more confident in investing when a developer is proactive

US, we offer products focused on windfarms that have

in taking care of all risks and uncertainties. It is important

been in operation for over five years, so this is mainly

to determine the long-term representation of the wind

provided to mature markets. As the sector continues to

measurements, because a project has a lifetime of over

evolve, we will strive to incorporate more of our services

20 years. We must carefully evaluate the developer’s

into the market.

processes and evaluate the variability.

171

DEVELOPER’S STRATEGIC USE OF LEGACY SCHEME Uncertainty is the word of choice for the energy industry and

extent, and we will continue to do so. The lack of wind can

it has deeply characterized the development of renewable

be compensated by higher energy prices. This does not

energies in Mexico. “Even though the Energy Reform

necessarily exclude developing in places like Oaxaca, Baja

promised the accessibility of the Mexican energy market and

California, or Tamaulipas.” Villareal believes Tamaulipas has

its plethora of opportunities, there was ongoing speculation

great potential for wind energy generation and will be moving

across the sector during the debate,” recalls Benigno

forward with its own Open Season and strengthening of the

Villareal, Director General of Vive Energía. He recounts that

local grid. He foresees the development of between 300MW

the participation of financial institutions, equity investors, and

and 600MW in the Yucatan peninsula. Vive Energía expects

off-takers was put on hold until everyone could identify the

to have a project up and running in Yucatan by the end of

shape of the legislation. It is important to note that projects

2015, and the Guanajuato and Tamaulipas projects should be

were not halted in their development, merely slowing down.

functional by 2016. Finally, the Yucatán II project is expected

“The whole sector had to undergo this experience, but the

to start operations between 2016 and 2017.

long-term benefits will justify that methodology.” Villareal is confident that a wholesale energy market in Mexico will

The Yucatan Peninsula is growing in demand at over 6%

certainly bring new developers, generators, off-takes, and

annually, explains Villareal. “There is a project underway to

participants that will ultimately create the robust market that

build a new gas pipeline, and this will allow CFE and private

has long been desired.

companies to establish non-intermittent energy generation in that area.” As the population grows in the region,

For Villareal, the constitutional amendment and the

demand for energy will also grow. Therefore, transmission

enactment of the secondary legislation are considerable

infrastructure and the grid must be reinforced, opening up

accomplishments, but there are still hurdles to overcome,

future opportunities for additional interconnections.

including the structuring of organizations such as CFE, CRE, and CENACE, and guaranteeing their efficient functioning.

CFE is working on a program to create a stronger and

“Once we have an operating market in Mexico, we then

need another more time to promote the market to banks

Villareal says private companies trying to generate solar

and financial institutions in order to finance new projects.”

and wind power in Yucatan have been asked to collaborate

For Villareal, an ideal operating market is one that gives

with CFE in order to precisely improve the infrastructure.

space to developers in order to help them get the projects

“CFE usually asks companies to make modifications to

on time. “If I had to summarize an ideal market, I would say

their substations or to the grid itself in such a way that

that it should contain certainty in legal and economic terms

the existing infrastructure can receive and withstand a

for all parties involved.” Vive Energía considers itself to have

project’s energy. The investment companies have to make

ample market knowledge, enabling the company to develop

would not be necessary if they did not interconnect. With

projects efficiently and to ensure time to market its projects.

this in mind, it is only fair that CFE passes along this cost

By providing cutting edge technology, Vive Energía is able to

to the private developer,” expresses Villareal. This means

offer attractive prices, result in striking returns of investment.

that private companies with projects under development

robust

transmission

infrastructure

Yucatan.

should have a pre-feasibility agreement that can be turned In Villareal’s opinion, legacy and new projects will develop

into an interconnection contract.

at different speeds. For companies such as Vive Energía, which have had a presence in the Mexican market for some

Vive Energía’s geographic strategy continues to yield

time, legacy projects will provide short-term development

business opportunities in spite of the uncertainty surrounding

material until there is a fully operating and functional energy

the market. Potential off-takers have already expressed

market that offers certainty. One of the primary virtues of

interest in close to 300% of the generation capacity of Vive

Vive Energía is that its portfolio has a 50:50 split between

Energía’s current pipeline. “We are currently signing some

legacy and new projects. “Under the legacy scheme, we

of them for our ready-to-build projects,” says Villareal. Vive

currently have over 500MW of projected installed capacity

Energía selects its off-takers based on their credit history, but

distributed across four different projects in the state of

the company also looks at the possibilities of increasing the

Yucatan, Guanajuato, and Tamaulipas,” shares Villareal.

amount of energy that off-takers are being allocated. “The best off-taker is the one that can take energy from different

172

Vive Energía opts to develop projects in inconspicuous

projects of the pipeline.” Villareal says they want developers

locations because the company wants to access new

that can guarantee that a project will progress from a binder

markets. “We have tried to avoid congestion to a certain

full of documents to an actual power plant.

GLOBAL TRENDS SHAPE MEXICO’S WIND POWER Nations around the world

that it is important for US developers to partner with local

have earmarked the wind

players, since land access and regulations can be significantly

sector as the preferred

more complex in the country. “Five years ago, many non-

method

Spanish developers were wary of initiating operations in

renewable

for

generating

energy.

With

a wealth of benefits, it

Mexico, but after collaborating with local companies, they are aware of how to mitigate risks,” he adds.

is seen as a catalyst for

Brian Gaylord, Senior Analyst at MAKE Consulting

economic activity and a

Mexico is the second largest market for wind power in Latin

worthy combatant against

America after Brazil. As the dust settles after the Reform,

climate change. In 2013,

investors are worried that the cost of wind energy will

the global wind market was

increase with an accelerated depreciation when current fees

worth US$130 billion, which then rose to US$165.5 billion in

are eliminated. Additionally, there are concerns because the

2014, and this year it is expected to reach record heights

returns on green markets have typically been unpredictable.

of US$176.2 billion. Brian Gaylord, Senior Analyst at MAKE

Gaylord provides an additional perspective, “I believe general

Consulting, narrates the global trends that are impacting the

electricity market prices will be reduced by more private

development of the Mexican wind sector and how the latter

participation and an impartial operator. Natural gas should

can learn from international best practices.

be a focus, since it is heavily relied upon to supply new electricity to the market.” Other trends such as supply chain

Mexico’s neighboring market, the US, experiences many

development have remained relatively unchanged in Mexico,

fluctuations. “At any given point, this country can have

due to the global overcapacity. “Between 2006 and 2008

projects of 10GW per year, affording market share to turbine

Mexico missed an opportunity to manufacture and attract

manufacturers beyond the top three dominant turbine OEMs.

US investment. There is little possibility of growth in this

However, when the market contracts, these players may be

area, even with the low manufacturing costs that the country

left unable to sustain themselves,” Gaylord describes. Amid

offers,” he adds. There are some supply chain companies in

this upheaval, the three US market leaders that remain

the northeast of Mexico, including Mexican, US, Swedish, and

dominant are GE, Siemens, and Vestas. Spanish companies

German manufacturers, as there have been some successful

have maintained a strong foothold in Mexico, since they

investments in this region. “Sales are generally geared to

were the first to break into it, but when the focus is turned

blades, bearings, and towers, and while I could see another

to their own shores, the vision is rather bleak. “When wind

tower manufacturer entering this market, I do not believe

power was initiated, there was strong local demand in Spain,

multiple turbine manufacturers will come,” Gaylord admits.

but the collapse of the country’s economy has forced players to emphasize on exports, mostly to Latin America.” With this

According to Gaylord, Mexico should learn from Brazil’s

global trend, it is clear that mature markets are saturated

operations wind energy, since it is a model primarily based

and emerging ones are brimming with opportunity. Gaylord

on supply and demand. The cost of wind energy is also much

admits that picking the right profitable market can be a

lower than in most markets, even though this country works

complicated process. “Everyone is trying to invest in emerging

with more expensive, locally produced turbines. Gaylord

markets, so they are becoming saturated.” In this situation

suggests that further investments must be carried out in

two main trends have arisen. The first is that new markets

transmission, looking beyond the current ones in Tamaulipas

are looking beyond subsidies and incentives, and secondly,

and Oaxaca. The diversification of the geographical footprint

energy companies are trying to compete with natural gas.

will force investors to expand to new areas such as Coahuila and Zacatecas. Companies seeking to expand into other

Partnerships between transnational and local players

sectors should further explore transmission and infrastructure

can help companies successfully navigate the waters of

for investment opportunities. “In this case I would not

emerging markets. “Active international developers bring

recommend the Brazilian transmission model, but a similar

their knowledge, best practices, and better bankability, since

one implemented in Texas, in which the best locations for

banks are more likely to invest in companies with global multi-

resources were examined and several prefeasibility studies

gigawatt portfolios. Local partners can contribute localized

were carried out. In this way, the most cost-effective way to

information about land leasing, community outreach, and

build a new transmission was determined,” Gaylord offers.

signing of purchasing power parities,” Gaylord expands.

Indeed, it is by tracing the threads of global trends that

Latin America is shaping up to be an attractive destination,

allows the possibility of glimpsing the path the Mexican wind

especially Mexico, Chile, Brazil, and Uruguay. Gaylord advises

sector has chosen to take.

173

LAYING THE FOUNDATIONS FOR MEXICO’S MARINE WIND SECTOR After living in the UK for 17 years, Dr. Vanesa Magar, Senior

Just like her ally, Dr. Magar deeply believes that local

Researcher at CICESE, came back to Mexico in 2014 with

communities should be involved because they will be

the idea of developing the Mexican coastal wind sector.

affected by the project. “These are not just commercial

InTrust Global Investment (InTrust) is helping the project

developments that benefit someone outside the project,

advance with permits, finding clients for the coastal wind

but they have to yield benefits to the communities and

farm, and helping with planning, scheduling, and with the

help in the development of the rural and coastal regions

business plan. “The plan is to start with a wind farm in an

in Mexico.” As partners of InTrust, Dr. Magar’s team can

offshore area near a region where wind energy resources

consider similar projects in areas with many indigenous

are also exploitable in the coast and in the nearshore,

groups who have been historically disadvantaged, like

so that we can have a departing point for developing a

the Seri people in Sonora, and other communities along

coastal wind farm. This, in turn, will allow us to develop the

the coast. “It is important to think of a long-term plan to

skills and the expertise in the field of coastal wind energy.

make these communities sustainable and more resilient to

We then want to expand the wind farms toward the sea

climate change,” says Dr. Magar.

within 10km of the coast, where we can relatively easily build an offshore wind farm with our previous experience,”

The Energy Reform will facilitate the initial stages of

she explains. Ideally, the project would be located in the

the project through the opening of the market, says Dr.

Gulf of California because of the offshore wind potential

Magar. “Just like new players will come into the country,

that can be combined with other marine energy sources,

we will bring talent from abroad so that high-level,

such as tidal and hydrokinetic.

specialized offshore renewable energy skills are available

“Mexico has an extensive coastline with many prime locations for exploiting wind energy resources, so several nearshore wind farms could be built before the need to move further offshore arises” Dr. Vanesa Magar, Senior Researcher at CICESE

Dr. Magar has encountered difficulties in disseminating the

locally. These specialists, together with researchers and

benefits of her initiative, mainly changing the mindset in

university professors, will train the local populations

a country where windfarms are not a common feature. “I

and university students in the development of technical,

believe that although inland resources are easier to exploit,

financial, management, and other required skills.” Skilled

in the long term we should have a balance between

worked will also have to be brought in for the installation

offshore and onshore energy generation projects.” She

of the structures, to build the workshops where turbines

argues that, rather than using all the land for renewable

will be stored, and to install the testing and monitoring

energy projects, it would be more beneficial to install an

instrumentation.

offshore wind farm or a marine energy plant, which could also be used to produce clean water through desalination.

The cost of the farms, explains Dr. Magar, depends on

“The desalinated water could be used to improve land

their distance from the coast, so projects within 10km

for agriculture, because viable agricultural activities are

of the coast are not much more expensive than onshore

challenging in the northern part of the country due to

wind farms. Also, costs tend to decrease as the installed

water scarcity.” This would also give an alternative source

capacity increases. “The first projects using the same

of income to fishermen, who in some parts of Mexico

technology are always expensive, and then the costs

are prohibited from fishing by the government, in order

decrease because developers gain the expertise, the

to protect endangered marine species. “If clean water is

infrastructure, and the local supply chain.” Dr. Magar

provided, the fishermen could also start to think about

explains that in Europe, increasing the installed capacity

farming, agriculture, or other potential opportunities

has not decreased the costs, mainly due to developers

derived from this project.”

moving further offshore. This observation suggests that Mexico could keep costs steady once it develops the

174

One of the converging points in the interests of Dr. Magar

necessary skills and infrastructure. “Mexico has an extensive

and InTrust is their interest in community development.

coastline with many prime locations for exploiting wind

energy resources, so several nearshore wind farms could

Dr. Magar’s team are specialists on physical oceanography

be built before the need to move further offshore arises,”

studies, this is the area they are concentrating on. However,

she highlights and adds that starting with nearshore

they have partners within the bird research community

developments will gradually cause the prices to decrease.

and marine ecology departments, who are studying

“We need to work slowly to convince investors that this is a

impacts on mammal populations. Dr. Magar believes it is

good opportunity, which is why we explored installation of

necessary to identify the key players in the communities

a coastal wind farm first. Coastal windfarms are bankable

of researchers specialized in either coastal populations or

because the energy can be sold at a competitive price.”

offshore populations so that they can be involved in the project from the beginning.

Since this type of energy project is new to the authorities, Dr. Magar’s team will help with the environmental

“Hopefully, by 2018, we will have our coastal wind farm

assessments by providing information collected from

connected to the grid and a significant portfolio of clients

wind farms in Europe or Japan. “A lot of work has been

buying energy from us. By then, we are expecting to have

done in Europe regarding the environmental impact of

developed most of the local infrastructure that we will

similar projects. For example, there is a published report

need for the offshore development,” she shares. The team

in PLOS ONE on the impact of offshore wind farms on

expects to start the offshore wind farm installation by

pelagic bird populations. In fact, we are collaborating with

2020-2022. At the moment, Dr. Magar is involved in tidal

some universities in France and the UK in assessing the

and hydrokinetic energy research projects with CICESE

environmental impact of offshore wind farm foundations.

students and interns from CONACYT. “These projects are

We have been actively involved in some of the studies

far from commercial, but we hope we will be able to make

conducted in Europe, therefore we are familiar with the

that transition for tidal and hydrokinetic energy within the

effects of these projects,” she details. Since the members of

next ten years,” she says.

175

When discussing renewables, most people immediately envision solar panels that harvest the sun’s abundant light and turn it into clean energy. This image is a reality in many countries like Germany, where solar panels are a common sight on the average rooftop. However, this energy source has not managed to secure the position it deserves in Mexico, a country with enviable levels of solar irradiation. Although the development of solar energy has lagged behind compared to other renewables, the completion of Aura Solar I and the advancements in Tai Durango indicate a promising future for the development of utility-scale solar energy projects in the country. In addition, the decreasing costs of PV technology is encouraging the use of solar energy in the commercial, industrial, and residential segments, providing a clean and affordable alternative to conventional sources.

This chapter explores the development of Mexico’s solar energy sector. The heads of the most prestigious companies in this industry share their experiences regarding the obstacles and opportunities encountered while trying to promote the widespread use of solar technology. Industry experts, from developers to component manufacturers, comment on the policies that will help harness this sector, the way they will benefit from their products and supply chains to secure a privileged position in the market, and the consumer segments that provide the most promising business opportunities. The most emblematic renewable is beginning to claim its place in the Mexican energy mix, and there are several players working hard to make this ambition a reality.

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CHAPTER 8: SOLAR 180

VIEW FROM THE TOP: Dr. Alberto Valdés Palacios, ANES

181

INSIGHT: Héctor Olea, Gauss Energía

182

MAP: Solar Irradiance

185

VIEW FROM THE TOP: Óscar Bernal, EOSOL Energy México

186

INSIGHT: Miroslava Meléndez, IUSASOL

187

VIEW FROM THE TOP: Miguel Medina, Solartec

188

VIEW FROM THE TOP: Peter Eschenbach, SunEdison

188

INSIGHT: José Luis Barquet, INELECSA

190

VIEW FROM THE TOP: Pedro Elio, First Solar

191

VIEW FROM THE TOP: Charles Pimentel, Solar Frontier Americas

192

PROJECT SPOTLIGHT: Aura Solar I

194

INSIGHT: Arturo Herrero, Jinko Solar

195

INSIGHT: José Jaime Rodríguez, Saya Energy

196

INSIGHT: Sergio Beristain, Chase Solar

197

VIEW FROM THE TOP: Santiago Desentis, Yingli Solar Mexico

198

VIEW FROM THE TOP: Fidel Guajardo, Fronius México

198

INSIGHT: Massimo Ferrarini, Jema Irizar Group Mexico

200

VIEW FROM THE TOP: Kevin Luis Gutiérrez Treviño, Ingeteam

201

INSIGHT: Andrés González Reyes Retana, DMSolar

201

INSIGHT:

202

INSIGHT: Juan Antonio Balcázar, Granite Chief

202

INSIGHT: Rodolfo Martínez, BUTECSA

203

INISiGHT: David Mekler, Heliocol México Solar

Juan Pablo Revuelta, Ready Energy Solutions Rodrigo Revuelta, Ready Energy Solutions

179

| VIEW FROM THE TOP

ASSOCIATION RE-ENERGIZES SECTOR GROWTH DR. ALBERTO VALDÉS PALACIOS President of ANES

Q: How has ANES contributed to the development of the

A: Linking the supply chain would create a considerable

Mexican solar energy industry in the past two years?

advantage for Mexico, namely the creation of jobs.

A: ANES has actively participated in the drafting of norms for

The Energy Reform addresses the inclusion of local

solar thermal collectors because it is aware of the importance

components in equipment by initially establishing a 25%

of quality components. We are involved in many regulatory

quota, which will progressively increase until it reaches

committees, including the one that works on the official

35%. In the past, the absence of a strong solar market was

norm for solar thermal equipment. This norm intends for all

justified by the lack of a national supply chain, but now the

thermal equipment to comply with quality standards and be

tides are turning. There is a thriving market and players

certified by noted laboratories in the country. Once this is

such as Solartec and IUSASOL have established two

accomplished, we will work on the regulations for photovoltaic

manufacturing sites. There are many foreign companies

systems and we will start by supporting the construction of

that are eyeing the possibility of establishing a plant in

the necessary infrastructure, which entails the laboratories

Mexico for the purpose of selling to the US. Mexico is now

that will carry out the quality tests. The government cannot

a strategic location for solar technology, not only due to

issue a norm if there is a lack of infrastructure to enforce it, so

NAFTA, but also because of its access to the burgeoning

we must aid in this endeavor by supporting the development

markets of Central and South America. It is a well-known

of the laboratories. We already have five running laboratories

fact that the country with the best fiscal options will get

for solar collectors and we expect the same for PV systems.

the attention of foreign players. Competition between states will be tough and some states, such as Chihuahua,

Q: What areas must be addressed in order to encourage

Sinaloa, Guanajuato, and Queretaro, are already rising to

financial institutions to see the solar sector in a favorable

the occasion. These states are aware of the benefits that

light?

foreign companies with manufacturing on the ground

A: Historically, banks that have given credits to renewable

can bring, particularly job creation. These foreign players

energy projects have seen solar as a risk venture. This is

that are eager to venture into the Mexican market then

primarily due to the misconception that the technology

approach ANES for advice. Firstly, we tell them to learn

has yet to reach a mature stage, and this is why we need

about the country and establish business alliances. It

certified, high-quality equipment in the market in order

is important to have local partners because they will

to dispel these false impressions. The installation process

guide the company around the legislation process and

plays an important part in reducing risk, because even if a

the complexities of the market. The national players

great piece of equipment is used in the project, it will not

will also offer the international company an established

perform optimally if installed incorrectly. This area is being

distribution channel and a market niche.

addressed by the committee through the management of renewable energy competencies, where it helps certify the

Q: How will ANES re-energize the interest in solar and

people in charge of installing the equipment. Certifying the

position the sector at the forefront of renewable energies?

equipment and installers will provide certainty to investors

A: The association is building a training center that will

and financial institutions. Another route to ensure financing

include webinars in order to cater to our regional divisions

is to have an investor provide a certain amount of money

in all the Mexican states. It will be an important platform

as a guarantee in order to reduce interest on loans. This

that will reach every state in the country and we plan

would ultimately lead to reducing the high rates and the

on offering it to our corporate associates and affiliates.

risks that have been stunting the solar sector’s growth.

We are also thinking about building a showroom so that our associates can display their products. Additionally,

180

Q: What are the advantages of developing a local

we want to have an annual commercial forum in order

manufacturing base, and what have been the major

to foster networking and business opportunities among

barriers hindering its creation?

members.

REFORM CLARITY ESSENTIAL FOR SOLAR INVESTMENTS Even

Héctor Olea, President and CEO of Gauss Energía

any import duties, especially regarding PV panels, but

great potential in the solar

though

there

some projects have been obliged to pay 15% tax due to the

market, there has been a

misclassification of one tariff with another. This situation

significant

has caused great uncertainty because it will have a major

invest. Gauss Energía took a

economic impact on the projects. Gauss Energía is now

different approach, seizing

working with the Ministry of Energy and the Ministry of

business opportunities and

Economy to clarify why we are exempt from one tariff and

investments when no other

not another.”

reluctance

company saw the potential. Now the company is one of

Olea has found that projects like Aura Solar I are starting

the most renowned players

commercial operations without the proper rules for grid

in the Mexican solar industry, as evidenced by its involvement

integration. “A grid integration protocol for PV projects is

in Mexico’s largest solar park, Aura Solar I. Like many others,

still lacking, so Gauss Energía is working closely with CRE

Héctor Olea, President and CEO of Gauss Energía, believes

and CFE to formalize the rules and to come up with a

that the enactment of the Energy Reform has brought

proposal for operating with CENACE. We have been asked

about a renewed interest in the PV sector. “I was personally

by CFE to come up with a storage capacity mechanism. I am

involved in the consulting process with Congress and I can

surprised that PV has been the only sector asked to provide

say, with confidence, that it was very transparent and open,”

this.” Before Aura Solar I, project finance structuring did not

he states. “From the other side of the negotiating table I have

combine well with merchant risks. To deal with this, Gauss

witnessed that the interest from policy-makers has been

Energía has asked its equity participants and financiers to

genuine.”

come up with creative ideas to mix these two elements together. One method for convincing banks to invest in

Mexico experienced a similar reform in 1992, one which

its projects was an econometric analysis which revealed

also allowed for private participation. Since then, US$43

that the price of energy correlated with the price of oil.

billion have been directed at private energy projects, with

“While few companies understand the short-run marginal

US$7.5 billion of that revenue eventually being claimed by

cost (SRMC) methodology, everyone understands the

these projects when the renewable energy regulation was

risks of West Texas Intermediate (WTI) crude oil,” explains

passed in 2006. “That particular regime certainly began to

Olea. “To increase awareness of SRMC, we mapped the

lag, but the new Energy Reform is allowing Mexico to enter

correlation between that and WTI and discovered how

the global mainstream,” Olea points out. “The country will

changing technologies like fuel oil and gas can affect the

now be able to implement strategies that global players

cost of energy generation. The possibility of WTI reaching

already understand, such as private participation across

US$40 may be catastrophic according to the model, but

the board and competitive spot markets.” Olea believes

the probability of that happening is rather small.” After Aura

that the changes are so profound that even knowledgeable

Solar I, there was an elated sense of satisfaction at Gauss

companies have to adapt themselves to the new rules in

Energía because the IFC was able to finance three projects

the energy generation sector, while also ensuring that their

in Chile with the same characteristics of merchant risk.

roles are clear-cut and well defined. “The State is the policymaker and the owner, the companies are the operators

For Olea, solar energy is competitive enough for the retail

and the managers, and entities like PEMEX and CFE are

market. “We can easily compete with a medium-voltage

taking on a new role as ‘productive enterprises of the State’,

tariff, and if the cost of electricity goes down due to the use

while CRE acts an independent regulator,” details Olea.

of natural gas, then we will try to lower costs, but this will

For him, this differentiation was important because CFE

pose a challenge for PV’s future development. If a project

was sometimes seen as the owner, regulator, and operator

has a well-grounded commercial factor, the rest will easily

simultaneously, creating confusion in the industry.

fall into place; however, we have to be careful because the required regulations for making projects bankable are

According to Olea, the PV industry has two agendas. The

not yet clear. This issue has been recurring for off-takers

first is to look forward and focus on the Energy Reform,

that need to place a large bet on solar while considering

while the second is to analyze certain factors that are not

what will happen to them in the future. The Energy Reform

proving efficient in the current framework. In the latter,

remains positive in the short term, but some projects

the sector is facing an important issue surrounding import

have been put on hold while they wait to gain a better

tariffs, as Olea explains. “The PV industry was exempt from

understanding of the new developments,” he concludes.

181

| SOLAR IRRADIANCE

kWh/m2/d

4.4

4.5

Source: ProMéxico

182

4.6

4.7

4.8

4.9

5.0

5.1

5.2

5.3

5.4

5.5

5.6

5.7

5.8

5.9

6.0

6.1

6.2

6.3

183

/ Perfect Welding / Solar Energy / Perfect Charging

HEWLETT PACKARD PROJECT 860 KW PV SYSTEM / FRONIUS / SHARP / E2 ENERGÍAS

FRONIUS MEXICO EVOLVES TOWARDS A NEW ENERGY CONSUMPTION MODEL In January 2014 Hewlett Packard (HP) finished the installation of its 8th photovoltaic project worldwide and the first one in Mexico in a record time of four months. The facilities located in Toluquilla, Jalisco have a system consisting of over 3,000 solar panels provided by Sharp and Fronius Central Inverters like Agilo. The ambitious project performed by a company named E2 Energías which specializes in the development of renewable energy and energetic efficiency projects, is completely installed on-roof to supply the whole plant with 860 kilowatts, it saves over 30% and prevents more than 1,000 tons of CO2 from being released to the atmosphere. Fronius Mexico is a company that’s committed to overcoming the climatic change challenge and it’s proud of taking a stand in projects that move towards a new energy consumption model, making renewable energies a priority and also serving as an important partner in the development of large scale projects like this one.

Fronius México, S.A de C.V. Carretera Monterrey Saltillo 3279E Santa Catarina, NL 66367 www.fronius.mx / youtube.com/FroniusSolar pv-support-mexico@fronius.com 184

Go to webpage

| VIEW FROM THE TOP

GOING AHEAD WITH DEVELOPMENTS DESPITE BARRIERS ÓSCAR BERNAL Director General of EOSOL Energy México Q: Which segments of the energy industry represent your

A: Mexico is a country worth betting on, and Tai Durango

highest priorities?

is a reflection of our commitment. In fact, the project was

A: EOSOL’s team was tasked with developing the solar

developed with our own funds and the subsequent stages,

park for Chrysler in 2008 and since then it has not looked

two, three, four, and five, will also be financed from our

back. Our main focus in Mexico has been in the solar sector.

own funds. Right now the investment stands at US$100

The country’s potential is undeniable, yet clearly other

million and we have three Spanish investors. In a sense, it

technologies shine brighter in the eyes of the authorities and,

is the foreign players and investors that are betting more

unfortunately, the solar sector has fallen behind. In the past

heavily on the success of Mexico rather than the locals.

year alone, 110 projects were awarded permits by CRE and

The first stage has 17MW and the next stages will have

only one project is operating, which is Tai Durango. From our

an accumulated capacity of 50MW, creating a grand total

point of view, the panorama brought about by the Reform

of 67MW. The three levels of government have been very

brings home one clear message: natural gas is the energy

supportive in the development of the project. Initially, we

source of choice. It seems that the Reform was not designed

were eyeing Baja California as a potential destination, but

for the healthy development of renewable energies and the

that was before the Secretariat of Economic Development

sole advantage it could have garnered, which is the CELs,

of Durango approached us and we began a dialogue.

has also been given to natural gas. Short-sighted policies

The government has facilitated the process, and while

do not favor anyone and it is necessary to have clear laws

there might not be any clear incentives for renewables,

that delineate a precise energy transition. If this does not

we are content as long as there is a favorable political

occur, the country will become an importer of energy and

environment.

its energy security will be compromised. Our commitment to Mexico’s solar sector remains undeterred. In fact, this year

Q: What role can energy players play in encouraging state

we have added an additional 55MW, which demonstrates our

governments to develop strong energy programs and

faith in the clear road the sector will have ahead.

strategies? A: All industries develop thanks to energy, since it

Q: How can solar players like EOSOL support the evolution

represents the foundation of everything. Almeria in Spain

of batteries and similar technologies?

is a good example of this, as the region was one of the

A: The solar sector and its players play a hand in

poorest in the whole of Europe. However, 25 years ago it

encouraging innovation in energy storage and batteries.

decided to bet on renewables and greenhouses, making

One of the industries that have fostered R&D is the

it now the largest horticulture reserve in the whole of

automotive industry with electric vehicles. The automotive

Europe and an important contributor to the country’s

industry has been called a leader in innovation. Frankly,

GDP. We need a clear regulatory framework and norms

the energy industry and the solar sector in particular

that do not confuse the sectors and the technologies.

have made leaps and bounds in R&D that far outmatch

EOSOL has placed enormous faith in Mexico in the

the automotive industry. The most prominent innovation

hopes that 4,000MW can be developed and that we

is in the advancement in PV where the prices dropped

can obtain 10% market share. Even so, the government

dramatically, thus increasing competitiveness. The energy

is not placing enough emphasis on the development of

transition must occur before the last drop of oil disappears,

the sector and renewables. For example, the duty placed

and the public sector must be equally innovative and

on the importation of solar panels does not incentivize

proactive in policy making.

the local industry, nor does it help develop the projects. Everything make us think that this Energy Reform is not a

Q: Tai Durango is an emblematic utility-scale project

green reform, but we still have to see the final regulation.

in Mexico. What did EOSOL do differently to ensure its

Regardless, EOSOL has seen that a window of opportunity

successful development?

will open and that prospects will arise.

185

LOCAL MANUFACTURER SETS OUT TO CONQUER MARKETS The advantages of solar power are there for the taking, with

industries. So far, 20% of products must have local content

limitless opportunities in developing small- to utility-scale

in accordance to the Energy Reform and we highlight this

solar farms. IUSASOL is aware of this fact and thus seeks to

requirement when lobbying the government.”

position itself as a producer of solar panels in Mexico. The company’s solar panel manufacturing plant in the State of

According to CFE, between January 2014 and January 2015,

Mexico is the largest of its kind in the whole of Latin America,

110 solar projects were presented for authorization, most

with four production lines totalling 500MW of capacity.

under the small producer scheme, yet only one is now in

The manufacturing plant demanded an investment of

operation. At the moment, projects can be split between

US$200 million, with Miroslava Meléndez, Director General

legacy and those under the new regulation. In the former

of IUSASOL, assured of the advantages of manufacturing

there were two available schemes: self-supply and small

in Mexico thanks to the company’s strong local product

producer. As a small producer, the company would need to

backed by German expertise and technology. “In order

sell energy to CFE under a price set out and regulated by the

to have a competitive product, we are aiming to have as

parastatal. According to Meléndez, the financial sector was

much local content as possible without sacrificing cost and

not comfortable with the way the price was set out by CFE,

quality,” she explains. “By gathering the best components,

so few projects were financed. “The reason we got a figure

we can ensure that the best possible solar panel arrives to

like the one CRE presented is because over 90% of projects

the customer, which is why we have stringent criteria when

fell under that scheme,” she explains. In order for one of

selecting suppliers. We are trying to vertically integrate our

IUSASOL’s projects to succeed in this highly competitive

operations as much as possible in Mexico since we truly

market, the company has ensured that it forms part of

believe in the development of national industries.” Even so,

the self-supply category, which meant obtaining a strong

Meléndez stresses that some components must be imported

and reliable off-taker. “Our off-taker is naturally our parent

due to their high specifications. For example, materials

company Grupo IUSA and we tackled the financing hurdle

like aluminium are easily sourced in Mexico, but solar cells

by also being the investor that brought in the capital to the

must be imported from IUSASOL’s plant in East Germany.

project,” states Meléndez. “Our first project has 20MW, and

Eventually, the company plans to bring that manufacturing

it will be up and running by the end of 2015. It will be the

plant to Mexico in order for its products to be considered

first project to be developed in Mexico using local products,

100% Mexican made.

requiring an investment of US$40 million.” Keeping in mind IUSASOL’s strong vision of a local industry, this project is

Looking internationally, while the US and Canada have

vertically integrated in the sense that the EPC, engineering,

implemented some anti-dumping initiatives that have

and financing is Mexican. Furthermore, Grupo IUSA has

negatively impacted players from Asia, particularly from

1,600 acres in Mexico Estate (where its manufacturing sites

China and Taiwan, the tariff disputes have had a positive

are based) and it has 800 acres available to develop solar

impact on IUSASOL’s business model. “The main driver

farms. This is where the company will develop 20MW of the

behind this strategy is to create fairness in the local markets,”

400MW project. “Originally, for 2015 we wanted to develop

states Meléndez. “As a result, we see more business

100MW but due to the market uncertainty it is difficult to

opportunities in North America, and we have all the required

obtain an off-taker at this stage, so until there is clarity we

certificates and the interest from potential customers.”

cannot move on with the plan.”

Mexico is yet to implement a stringent anti-dumping initiative

186

and local companies do not want to compete with products

IUSASOL is building its reputation in order to become a

that have been subsidized indirectly or directly. According to

main player in wholesale and distributed energy. In the

Meléndez, all players want clear rules and a fair game, because

next five years, the company plans to enter other markets

many are investing heavily and making a concerted effort to

in Latin America. “While some may label these objectives

develop a healthy market. In this respect, IUSASOL has a

as farfetched, we are very aggressive in our commitments,”

firm position, collaborating with other companies to create

says Meléndez. “In 2014, we set out to manufacture,

a national association for local manufacturers called AMFEF.

accomplishing this goal in October of the same year.

“We see many markets such as the US, Canada, Europe, and

Additionally, in August 2014 we looked to develop a solar

India taking steps to protect their national industries and we

farm, making it a reality in Q3 2015.” This enthusiasm and

are concerned that Mexico has not taken these measures

ambition clearly showcases the company’s optimistic

too,” says Meléndez. “We have opened up several channels

approach to the solar market, and, although it has lagged

of communication with different governmental entities in

somewhat behind in comparison to other players, IUSASOL

order to push for the development and protection of local

continues to overflow with potential.

| VIEW FROM THE TOP

MEXICAN SOLAR LEADER AIMS TO SEIZE US MARKET MIGUEL MEDINA Director General of Solartec

Q: What progress has Solartec made toward strengthening

a young company. There is a liability insurance company

its position as a manufacturer of solar panels?

working with us on this problem so that we can compete

A: Over the past 18 months, our efforts have been directed

with Chinese players in terms of bankability.

toward making the company more vertically integrated in the solar panels business. Our main competitor comes from

Q: How do you envision the balance between your sales in

China, which has a more integrated and robust supply chain

Mexico and the US?

than Mexico. When we started out five years ago, we had

A: The costs of production in the US are higher than in

to import most components, as there was little availability

Mexico, but so are the revenues. We need to increase

of raw materials in the country. To this day, 80% of the raw

capacity in the US because, as a US company, we could

materials we use come from other countries, mainly from

receive more financing from government banks. I believe

China. However, we have created a new company, Solarcell,

Solartec will grow faster in the US because of the demand

which will make polycrystalline cells with 17.2% efficiency

in the country. We expect demand from the US for

rates for some Chinese customers, as well as Solartec

Solartec to increase by about 50-60MW in 2015. Right

modules intended for the US market. Anti-dumping policies

now, Solartec has some important clients in the US which

are leading to a shortage of solar modules in the US, where

request about 10MW per month, but we can only deliver

we are currently exporting about 40% of our production.

slightly over 1MW at the moment. If Solartec could increase

This is why we are looking at producing solar modules

its production capacity, we could increase our sales

exclusively for that market through Solarcell. To move

tenfold. Nevertheless, we also want to be present in Mexico

toward this, we decided to further integrate the company

and develop the domestic market, given the amount of

by purchasing Bosch Solar Energy’s wafer division in early

opportunities appearing here. This is why we decided to

2014. We set up a new facility in Houston, Texas, which

divide our production. In Mexico, we sold about 30MW in

began operations in January 2015. Initially, this plant is

2014, which was double that of 2013. We expect this trend

only making polycrystalline modules of 250W, 260W, and

to continue for 2015 and beyond.

315W, as these are required in the US market. Q: What sort of clients and projects do you think will drive Q: How do your panels compare to those of leading

demand in Mexico?

Chinese manufacturers?

A: We actually have some projects with GM and Nissan, with

A: We have the same warranties and certifications for the

the latter being in Aguascalientes. Mazda also has some

Mexican market as Chinese companies. Nonetheless, we

lighting systems powered by our modules, and it is looking

only have an installed capacity of 50MW while Chinese

to supply part of its energy from solar generation in the next

companies have gigawatts of capacity. We are soon going

two years. Japanese automotive companies provide a very

to input 60MW of installations in the US, and we expect

good market for solar power generation as they genuinely

Solartec’s capacity to reach 110MW in modules in 2015.

seek to include this energy source in their plants.

Compared to Chinese companies, this remains small. Chinese companies have more competitive prices right now

For 2016, we expect to work on smaller EPC projects

because of the size of their industry, which is something

ranging from 1-10MW. Considering the Energy Reform, we

Mexico still lacks. In addition, we still have to import raw

also foresee some large government-driven projects in

materials. However, we can compete on projects. The

two years or so. For the US market, we are also working

service side is also completely different as our facilities are

with EPCs on small projects around the 10MW range. One

closely connected to the main Mexican markets. Large EPC

of our dreams, which will hopefully become a reality, is to

companies, many of which come from Spain, are concerned

work with leasing companies in the US, such as SolarCity,

with price as they can get cheaper equipment from Chinese

because these have a very large demand for modules,

suppliers. In addition, bankability is an issue as Solartec is

financing, and credits.

187

| VIEW FROM THE TOP

REACHING FOR THE HOT SPOTS IN THE MARKET PETER ESCHENBACH General Manager México of SunEdison

Q: What role and position do you hold in the Mexican

to its proximity to the US and the growing local market. The

solar sector?

production of PV modules will be carried out thanks to a JV

A: Worldwide, SunEdison holds a coveted position by

with Flextronics. In Mexico we wish to position ourselves in

managing over 1,000 photovoltaic plants, generating

the wind, solar, and hydropower sectors and we are looking

2.4GW, and a portfolio of 5.1GW. SunEdison arrived to

to participate in the energy auctions in October 2015. With

Mexico in 2013 and its origins can be traced to the PV

this in mind we must secure our position in this market.

sector. We have three 30MW solar parks in Sonora, one 20MW park in Coahuila, and another in Chihuahua, which

Q: Mexico lags behind other countries in terms of large-

are all in different stages of development. Recently, we also

scale solar parks. Now that a new legislative framework

acquired a wind project of 120MW in Durango. Since the

guides the industry, do you see Mexico betting on large-

acquisition of First Wind in 2015, the company has decided

scale PV energy?

to look for new markets and business opportunities. We

A: We definitely wish to be active in the development of

have chosen Ciudad Juarez as a platform for our production

utility-scale projects. Unfortunately, we had to postpone the

of PV modules, as well as opening a support center in

construction of our solar parks because they were designed

Guadalajara for our operations in the US. It might be that

under the small power producer scheme, and due to the

many companies view local manufacturing as unnecessary,

collapse of CFE’s marginal costs, we decided to halt the

given that there is worldwide overproduction in the sector.

process. Under the new legislation there will be incentives

Nevertheless, Mexico is an attractive manufacturing hub due

to sell energy with the auctions planned by CFE. There

SPREADING THE BENEFITS OF HRES The potential for the winning partnership of renewable

renewable energy with conventional sources, as well as

energy and farming is often overlooked. Wind, biomass

creating hybrid systems,” he adds. When creating HRES,

energy, and solar technologies can be harvested infinitely

Barquet stresses the importance of outlining the costs and

and used to replace other fuels. Against this backdrop,

benefits that the customer will incur, as well as ensuring that

hybrid renewable energy systems (HRES) are becoming

the adequate energy resources are already in place. Solar

popular power systems for providing electricity in remote

has a plethora of applications and is often less expensive

areas, with hybrid systems encapsulating renewable

than extending power lines when a site is far away.

energy and efficiency, as well as generating a generous energy supply. INELECSA has perfected these business

Developing hybrid systems is no easy task, commonly

strategies by focusing on the two main areas of distributed

requiring in-depth evaluation of energy consumption. This

energy facilities in industry and commerce, and energy

involves analyzing the power consumption, the facilities,

savings and efficiency. “The company also has a presence

the equipment, and the quality of the energy used by the

in renewable energies, electrical installations, and water

consumer. In this process, INELECSA has discovered that

pumping systems, in which we act as an EPC player,” José

large companies are likely to have this information at hand,

Luis Barquet, Owner of INELECSA, mentions.

while SMEs are not. “By simply making an assessment of the facilities, we can help companies save up to 40%

188

Barquet is a fervent believer in solar power, highlighting its

by upgrading equipment,” Barquet explains. The fight to

gain in momentum as people turn to it as an economically

incorporate renewables into all market segments continues

viable energy source. “Not only do we offer solutions by

and, according to Barquet, the struggle originates from

integrating conventional structures with a PV pumping

the population growing more aware of the impact of

system, we take things a step further by combining

renewables in mitigating climate change.

will be equal opportunities for solar and wind because so

different projects across various technologies, including

far only the latter has obtained capacity recognition while

hydro. The projects we are looking for can be at different

the former does not, which has been a disadvantage. In

stages of development. Mexico is gearing up to be an

order to consolidate our presence in this emerging energy

incredibly competitive market, so we must look for projects

landscape, we plan to grow organically through greenfield

that reflect this. We need projects with good resources,

development, and we will be developing some projects on

low interconnection costs, and built near competitive

our own. SunEdison is a highly integrated company that

spots. In general, we look closely at the Leveled Costs of

started out manufacturing modules and then moved to

Electricity (LCOEs), which is the industry norm to compare

developing projects and selling them once in operation.

the competitiveness of projects. We are carrying out in-

The recent creation of the US-listed Yield Co. allows us to

depth research in order to know where the energy will be

change our business model. Now, we will no longer sell

needed and where the emerging markets are found so that

projects, as we became a utility that builds and operates the

we can be there.

projects. Yield Co. gives us several advantages, one of which is obtaining cheap financing for our projects. The business

Q: What sort of advancement have you made in bringing

model is positioning the company as a utility company and

electricity to distended communities in Mexico?

this is why Yield Co. was created.

A: We have an initiative called Share, where we give grants to different communities across the world. In addition,

Q: Could you describe the benefits of developing hybrid

SunEdison has developed a business model where it can

projects and having a diversified portfolio?

supply electricity to remote areas and isolated communities.

A: The market will tend to demand strong capacity, and by

In Mexico we donated a large solar installation for a hospital

being an intermittent energy developer, we face a difficulty

in Chihuahua. All markets are interesting for SunEdison, so

matching the profile required by CFE. I believe that by

we wish to develop projects in the residential and commercial

developing both solar and wind projects, we will have a

segments. In the residential segment, we plan on leasing the

better profile than other market participants. We will

installations and guaranteeing a discount vis-a-vis the tariffs

combine different technologies in order to have a unique

with little upfront payment. This business model has worked

load profile that will enable us to address production and

very well in the US and the UK, and we believe it will work

demand in a better way. SunEdison is looking to acquire

here because there are some expensive tariffs.

LÍDER GLOBAL EN EL DESARROLLO DE LAS ENERGÍAS RENOVABLES

AMANECER SOLAR CAP - 100 MW, Atacama Desert, Chile

SunEdison Inc. (NYSE:SUNE) cuenta con más de 55 años de experiencia

2.7 GW de capacidad de energía solar fotovoltaica interconectada

4 GW de capacidad solar fotovoltaica en operación y mantenimiento

Presencia en más de 35 países alrededor del mundo

Más de 1000 plantas de energía solar interconectadas

Financiamiento de proyectos por casi $6 billones

Más de 1 GW de parques eólicos en operación

Centros de fabricación en 3 continentes

www.sunedison.com.mx

189

| VIEW FROM THE TOP

TECHNOLOGY EVOLVES IN LEAPS AND BOUNDS PEDRO ELIO Former Country Manager of First Solar

Q: How would you describe the contribution of First Solar

in R&D over the past five years. In our research we

in the development of a sector that has notoriously lagged

strive to improve the efficiency of our products. Many

behind compared to other renewable energy sources?

companies measure the efficiency of their products

A: One of the biggest issues plaguing the solar sector is a

in a static and standard way with a defined humidity,

lack of knowledge regarding the technology. The energy

irradiation, and temperature. The reality is far from this,

industry moves almost at a snail’s pace, so when it is

since each site is unique and has different variables.

confronted with a quick and dynamic sector like solar, it

Through our research we have been able to adapt our

can be difficult to explain its evolution and benefits. It is

products to these variables, and as a result our products

a well-known fact that solar has changed and continues

are ideal for the country’s conditions. In the last few years

to do so since it mirrors very much the dynamisms of the

we have invested heavily in thin film modules. There is

electronics industry. In the new association, ASOLMEX, we

a competitive price advantage of thin film modules over

bring together key stakeholders and the public sector in

the traditional crystalline silicon PV modules. Through our

order share the advancements of technology and bring

research we have been able to improve and even surpass

clarity to this sector. Competition in the solar sector is

the efficiency of traditional modules.

tough, and all players are making momentous decisions about their business plans that will have a noticeable

Q: In this transitional phase, what are the measures that

impact over the coming years.

a company like First Solar must take in order to ensure a healthy client base?

First Solar intends to plant seeds, which means we are

A: As First Solar plants the seeds of the ten projects, it

selecting the best sites for early stage development

sees that it must be flexible when creating its client base.

projects.

For instance, we can develop a 50MW solar farm with ten

developing sites across Mexico; we see the great

are

taking

portfolio

approach

different PPAs of 5MW each. Furthermore, we can build

resources available in Sonora, the high demand in Mexico

solar farms for other companies or we can develop our

City, and the manufacturing and industrial growth in the

own projects and sell the energy to third parties. The

Bajio as it clamors for energy. All these regions are fertile

options are limitless and it is important to be inventive and

with possibilities and we look to develop ten projects to

innovative when working under these new rules. We wish

varying stages by the end of 2015. We are considering a

to engage with industrial players and exchange opinions

combination of brownfield and greenfield developments,

regarding

and our vision is to begin the construction phase by 2016-

in order to win them over. The company has a strong

2017, with operations beginning in 2018 once the market

track record, evidenced by a couple of projects that are

is well-established. We are looking forward to the energy

representative of our commitment to solar technology.

auctions that will take place in 2015 and we believe we

Topaz is located in California and has an installed capacity

can be very competitive in this respect.

of 550MW, making it one of the largest projects that

technology,

regulations,

and

uncertainties

encapsulates all the technological advancements the

190

Q: What role does R&D play in ensuring the survival of a

company has made, and we have a PPA with Apple to

company in a market that is packed with developers, but

develop a solar project in California. The off-taker will

with few megawatts installed?

receive 130MW of electricity under a 25-year contract.

A: In this sector it is important to showcase permanence

This is one of the largest agreements in the industry to

and a track record. To achieve this, we keep a strong

provide energy to a commercial end user. Moreover, this

balance sheet and we manage our corporate debt in

international experience will serve the company’s activities

order to provide that certainty to end customers. Solar

in Mexico, since it can use the expertise and knowledge

technology evolves in leaps and bounds, so it is important

acquired in other markets and apply them to the local

to keep up. This is why we have invested US$650 million

market conditions.

| VIEW FROM THE TOP

JAPANESE MODULE PERFORMANCE TO TACKLE MEXICAN MARKET CHARLES PIMENTEL Chief Operating Officer and Senior Vice President of Solar Frontier Americas Q: How do you see Solar Frontier contributing to the

Our modules are smaller and the voltage involved is higher,

development of the solar industry in Mexico?

which has an appreciable impact on the balance of system.

A: Solar Frontier is a Japanese solar energy solution provider

However, that impact still fits well within the added headroom

that manufactures state-of-the-art CIS solar modules. We

that our extra production can provide for investors.

differ from most of our competitors, as our modules offer a higher performance, specifically in the kind of environmental

Q: Could you tell us about Solar Frontier’s current position

conditions present in Mexico. We do not compete on

within the solar market, and what are your main concerns

price but on quality, marketability, and most fiercely, on

when coming to Mexico?

performance, including durability and reliability. We bring

A: In late 2012, we finally reached profitability on a Probable

the highest performing module to the market which will

Maximum Loss (PML) basis, not simply on a cash basis. That

consistently generate 5-10% more energy per kilowatt peak

is all done within the context of having over 1GW installed.

installed, thereby increasing revenues by the same amount.

We will surpass 3GW installed this year, so we are a relative

A phenomenon in the solar market, known as Light Induced

anomaly within the CIS manufacturer space. For the last

Degradation (LID), negatively affects crystalline photovoltaic

two years, we have concentrated almost exclusively on

modules. Our modules are not affected by Potential Inducer

Japanese domestic projects. Because of a very aggressive

Degradation (PID) because of the way they are built and due

feed-in tariff from the Japanese government, our company

to how the cells are laid on the glass. Our modules are also

made the conscious choice to focus the majority of our

pretty flexible and work with a wider range of inverters than

resources in Japan. We actually entered the US market in

most modules, such as floating ground and bipolar inverters.

2010, where we found ourselves competing with all our

Our largest project in the US (83MW) is with SMA, but nearly

rivals, and we successfully contracted and shipped around

every Tier 1 inverter will be compatible with our technology.

150MW within the first two years.

At the moment we are trying to figure out what role we

As for Mexico, our biggest concern in coming here is

will play in the Mexican arena. We can bring some of the

whether it will prove to be a sustainable enough market

advantages we have in other markets into Mexico, such

for us to invest in the long term. We like the way Mexico is

as the backing of Japanese quasi-governmental banking

trying to bring in solar energy through a very controlled,

and agencies, which can minimize the risk for investors at

logical process. Mexico is trying to learn from the rest of

large. The role played by the Japan Bank for International

the world’s mistakes. The government really does not want

Cooperation (JBIC) is very similar to the Export-Import

the country to be another market on the list of markets

Bank of the United States (Ex-Im Bank). In fact, the two

that skyrocketed only to fall shortly after implementation.

have a working arrangement where if Ex-Im is working on a project in Mexico, it may handle matters for JBIC as well.

Q: What would be the perfect project for you in Mexico?

The end result for our customers is less financing risk and the

A: Solar Frontier’s ideal project in Mexico would be a

potential for a lower cost of capital.

utility-scale or large, ground-mount commercial project with a developer that is a long-term owner, as opposed to

Q: What is Solar Frontier’s opinion of the Mexican market,

one that would flip the entire project to unknown investors

where most players compete on cost?

and back away from it. It is well-known that commercial

A: We do not try to be everything at the same time. We will

markets rise to the top before the large mega-projects

not be able to compete on price. Our modules provide an

do, so we expect to work on both rooftop projects and

added value of 5-10% more production over 20 years. When

larger ones. If we can find a developer that is looking to

we are approached by developers, we ask them what 10%

carry out large rooftop projects in Mexico, we stand ready

more energy production means to their project. In short, we

to support them from the design perspective with our

can compete directly with crystalline anywhere in the world.

technical expertise.

191

192

| PROJECT SPOTLIGHT AURA SOLAR I Located in La Paz, Baja California Sur, Aura Solar I is the first large-scale photovoltaic project in Mexico and the second largest in Latin America, preceded only by Amanecer Solar Cap in Chile. La Paz is one of the regions in Mexico with the highest solar irradiation levels, with a global horizontal irradiation of 5.7kWh/ m2, and an average of 250 sunny days per year. The conditions in this region enable Aura Solar I, with its installed capacity of 39MWp, to generate 82GWh per year, which is enough energy to supply 65% of La Paz’s population. Aura Solar I was completed in a record time of seven months and began producing electricity from sunlight in 2013. Unlike similar projects in other parts of the world, Aura Solar I does not receive any subsidies. The electricity generated in Aura Solar I is to be exclusively supplied to CFE, as stated in the negotiable 20-year PPA. A 2.9km long 115kV transmission line will deliver electricity to the Olas Altas substation. The solar park is owned by Corporación Aura Solar, which invested US$100 million in the project in collaboration with

NAFINSA

and

the

International

Finance

Corporation. Gauss Energía, a leader in renewable energy projects, was in charge of development, and Martifer Solar was in charge of providing EPC services, while the solar panels were supplied by Suntech. Close to 132,000 single axis polycrystalline modules were installed across 100 hectares in the La Paz industrial park. The Aura Solar I solar park has an expected working life of 30 years. Unlike most Mexican states, Baja California Sur is not connected to the national grid or the national gas pipeline system. Instead, the state uses diesel and fuel oil to generate electricity. Aura Solar I will have a significant impact on lowering the use of fossil fuels for energy generation in Baja California Sur, preventing 60,000 tonnes of greenhouse gases from being released into the atmosphere. Additionally, the project will mitigate the logistical risks of transporting hydrocarbons through the Sea of Cortez. The photovoltaic site has been certified due to its lack of impact on the surrounding area, and SEMARNAT has stated that there is no vegetation that could be negatively affected in the zone. During its development, Aura Solar I was poised to be a key project, as it would encourage the construction of more large-scale solar parks at a time when small pilot projects dominated Mexico’s solar energy sector.

193

MEXICO IS KEY FOR CHINESE MANUFACTURER’S EXPANSION The

objective

Solar

capture

much

market

possible,

Arturo Herrero, CSO and Head of Emerging Markets at Jinko Solar

Jinko

of electricity are not manipulated. We will not invest in Mexico if we do not trust the electricity prices.”

approach

To achieve its pursuit of innovation, Jinko Solar places

that has proven successful

significant importance on partnerships, such as the one it

enough for the company

has with DuPont for the development of advanced materials

to become a leader in

used in panels. Herrero acknowledges that Chinese

countries like Chile, where

products have a reputation for using low-quality materials,

it has deployed more than

but he asserts that this is far from the case for Jinko Solar.

400MW. Arturo Herrero,

“For us, innovation does not stop with our products. We

Jinko

and

also implement it in our production processes, which are as

Head of Emerging Markets, says Mexico is the company’s

Solar’s

CSO

high-quality as the materials we use. All of our equipment is

next target, where it plans to obtain 30-40% of the market

fully automatized, and we have amalgamated expertise and

share. With the company signing a 55MW contract with

technology from Switzerland, Germany, and Italy.” The fact

TSK, for a project in Durango, Jinko Solar has already taken

that Jinko Solar is vertically integrated also drives innovation,

its first steps in the market, giving it a competitive edge.

as it can introduce technological breakthroughs across the production of its ingots, wafers, cells, and modules. One of

According to Herrero, the main difference between Jinko

the key components of Jinko Solar’s manufacturing skills

Solar and other Chinese companies is the way it approaches

is related to innovation and technological improvements.

the market. In the Jinko Solar model, two teams work

For example, the company introduced four busbars in its

in continuous coordination. Its sales force team works

production to increase the efficiency of its cells.

closely with the customer in order to finalize negotiations and contracts. Another team is focused on business

There are two main courses of action Jinko Solar takes

development, approaching international investors and

when developing partnerships. The first is related to the

banks in order to make sure that Jinko Solar is bankable.

supply chain and production process. “We look for high-

This team also approaches utilities, developers, technical

quality suppliers of equipment and materials to stock our

due diligence companies, and industry analysts, ensuring

production plants in China, South Africa, Portugal, and

that they realize the value of the Jinko Solar brand.

Malaysia,” Herrero details. The second consists of a local action targeting Mexican developers and customers. In

Contrary to common reports, the tariff disputes between

this regard, the company approaches distributors that will

Chinese solar panel manufacturers and European and

supply its products to the end customer, and it also targets

American governments has actually been a driver for Jinko

EPC companies that will implement Jinko Solar’s technology

Solar’s growth strategy, moving manufacturing outside of

in the development of their projects. An important aspect in

China and supplying its markets through different bases.

Jinko Solar’s development of partnerships is its relationship

The company now invests heavily in local markets, a move

with banks. “Project financing is a tricky part of the sector,

Herrero confidently believes will further the globalization

so our business development team focuses on establishing

trend. “It shows Jinko Solar is not afraid of the imposed

relationships between banks, the developers, and the

barriers. Today we are the second largest producer of

technology provider, which is Jinko Solar in this case,”

solar equipment in the world. By 2016 the company will

mentions Herrero. At the moment, Jinko Solar has over

reach 10GW of installed capacity and supply over 85

86 banks financing projects worldwide and relies on local

countries,” Herrero states. In this sense, Jinko Solar sees

banks that support its customers for equity or debt.

the possibility of carrying out local manufacturing in

194

Mexico. “This country ranks highly on the company’s list of

Synergies with these banks are crucial, explains Herrero,

future developments because it is a key production market

since some European banks are arriving in Latin America

with several FTAs, including NAFTA, which would enable

in pursuit of JV investments with local banks. For example,

us to supply internally and serve many other countries,”

Herrero says Bancomext needs the reinforcement and

he mentions. However, he points out that Jinko Solar

expertise from European banks, since the latter have more

will only choose Mexico as the right location to invest

experience and knowledge in project financing. “Mexico is

once it has identified the feasibility and possible risks of

still learning how to carry out this kind of project finance

doing so. “We must see how serious the government is

for solar projects. Jinko Solar is happy to bridge this gap by

about establishing a stable market and that the prices

providing the needed knowledge,” Herrero concludes.

MEXICAN SOLAR PANELS CLOSE TO COMPETING WITH CHINA Many analysts view China and Mexico as manufacturing

could reduce delivery times of the finished products by

rivals in a number of industries. This is certainly true of the

up to 30 days. “Another problem with solar panels is their

solar industry, in which Mexico has benefited from high-

price,” he states. “China received significant help from its

quality solar panels while also being flooded with a slew of

government, enabling manufacturers to offer cheap panels.

cheap, unreliable counterfeits. For José Jaime Rodríguez,

Mexico could also produce affordable panels because

President and Partner of Saya Energy, this rivalry is simply an

we have great labor and we could get raw materials at a

opportunity. Saya Energy has hit upon an innovative line of

good price. The cost of labor is pretty similar in China as

business by importing raw materials from Chinese companies

in Mexico, providing plenty of opportunities for keeping

that cannot enter the American market, assembling solar

prices lower than Germany, where labor is expensive labor

products in Mexico, and then exporting them. However, the

and automation receives heavy investment.” Furthermore,

increasing competitiveness of Mexico’s own solar energy

Mexican delivery times to the US are very fast, which is one

market and manufacturing means that Saya Energy may not

of the country’s biggest advantages. With the warranties

need to get its raw materials from China for much longer.

on Mexican products also lasting longer than their Chinese

“The opportunities for solar energy in Mexico are significant because the sector is currently experiencing a considerable push from the government” José Jaime Rodríguez, President and Partner of Saya Energy

“The opportunities for solar energy in Mexico are

counterparts, Saya Energy is banking on these strengths to

significant because the sector is currently experiencing a

expand its US exports to meet 70% of its capacity.

considerable push from the government,” says Rodríguez. “In terms of competition with the Chinese market, we are

Currently, Saya Energy only manufactures solar panels from

close but not close enough. The subject of prices continues

50W to 310W, for which it exclusively uses polycrystalline

to be a common discussion between China and Mexico.”

technology. It also makes semi-transparent solar panels

He explains that the cost of solar equipment made in

that can be used as rooftops in the large warehouses of

Mexico is approximately 5% more expensive than in China,

production facilities, enabling natural light to pass through

including transportation and importation costs. Rodríguez

while producing energy. In Aguascalientes, where Saya

is adamant that Saya Energy would no longer have to

Energy has its plant, there are approximately only 50 homes

rely on Chinese components if it had the right access to

currently using solar panels. However, due to low wind

local suppliers, as it could make panels at home for less.

resources and the blossoming market, he predicts that this

According to him, a fully developed Mexican supply chain

number will increase to 1,000 homes in the next two years.

195

REVIVING THE LEGENDARY SPIRIT OF THE SILK ROAD

Sergio Beristain, Director General of Chase Solar

Globalization is sometimes

exchange of information and ideas when maintaining

considered a contemporary

the delivery of high-quality services. “Chase Solar stands

premise

been

as a bridge that enables companies established in Asia

created by today’s society,

that

to capture opportunities in the Mexican market,” he

yet

there

has

ancient

describes. The company has invested in Asia, which

footpaths over 5,000 years

are

enables it to acquire the best products at the best price.

old that first ushered in

In this process, one of the key words Beristain highlights

this concept, one of which

when having partnerships in Asia is trustworthiness. “Our

is the Silk Road. The Silk

business associates are related to the German solar power

Road was a magnificent

industry, giving us extra support and a reputable image,”

path linking China to a

he expands.

range of countries, from Kazakhstan and Turkey, to India and Italy. Camels would stomp along the dusty roads of China’s

In Beristain’s eyes, some foreign investors are hesitant to

Xian, offloading goods like sandalwood and precious stones

dip into Mexican waters, as they have been scarred with

to be traded across the far reaches of Asia and beyond.

disastrous experiences in other regions. “These investors

Adventurous travelers heralding from Europe would bring

must realize that Mexico is unique and that there is no

offerings of wool and perfume in exchange for gunpowder,

need for this suffering,” he advises. “In a way, the market

porcelain, and above all, silk. The thread binding these

resembles an oasis where consumers are plentiful and

countries went beyond commerce; it linked them to an

there is a desperate need for energy. In the past few years,

exchange of scientific and technological innovations. The

the company has seen many solar projects on paper,

spirit of this legendary trade route has been revived with

yet few have been developed. As a result, we look for

Mexico and China, and Sergio Beristain, Director General of

potential partners that have a track record and a strong

Chase Solar, has made it his mission to foster the exchange of

project pipeline. In Beristain’s perspective, the solar power

solar knowledge between these two countries.

industry has been under attack due to bad practices that some unprofessional companies have carried out, mainly

“Chase Solar traces its roots to a law firm that has provided

by offering low-quality solar panels. Chase Solar aims to

legal services to the energy sector for a long time,” Beristain

showcase the best products and services the solar market

explains. The company views Mexico as one of the best

has to offer in order to dispel these misunderstandings.

alternatives for producing solar power, and as a result, it

When choosing partners, the company implements

decided to import solar panels to Mexico. “The sector has

rigorous criteria, as Beristain explains. “We check the

been catatonic for some time, so we wanted to jumpstart

complete background of the company to see if it is sound

this burgeoning industry by bringing high-quality solar

and has an R&D department.”

panels into the market.” As it began this venture, the company quickly confronted the unique combination

Chase Solar has discovered many potential customers have

of challenges and opportunities attached to the sector.

been disillusioned by poor quality solar products, which

According to Beristain, in Mexico you need engineering

is why the company highlights the stringent international

knowledge and an understanding of the Mexican way of

standards and certifications its products possess. “Chase

doing business, which entails permitting and licensing.

Solar is going a step beyond importing solar panels and is

Chase Solar has over 35 years of experience navigating

seeking to provide comprehensive solar solutions,” asserts

Mexico’s legal waters, and now it is perfecting the technical

Beristain. “To make the jump from product supplier to

and engineering factors related to the operation and

integrated solutions provider, we will import solar power

maintenance of a project. “In our pursuit to thrive in this

water heating systems and efficient air conditioning

market, we look for partners that have similar ambitions,”

systems. One of the strongest weapons in our armory

states Beristain. “If you wish to survive the complex nature

is local insight, which will be invaluable for international

of the Mexican market, you need a local partner as a guide,

companies vying to enter the Mexican market. This has

and Chase Solar fits this role to perfection.” In the pursuit

given Chase Solar an advantage in creating profitable

of the perfect partnership, Chase Solar looked to Asia for

ventures with serious Chinese companies.” The new Silk

an answer.

Road between Mexico and China has been paved, with serious solar companies like Chase Solar lighting the way

196

Chase Solar is based in Mexico, China, and Hong Kong,

as they single out the best business opportunities in this

stressing the importance of a continuous and daily

developing environment.

| VIEW FROM THE TOP

FLASHY SOLAR PROJECTS ARRIVE ON MEXICO’S DOORSTEP SANTIAGO DESENTIS Former Country Manager of Yingli Solar Mexico Q: How close has Yingli Solar come to reaching last year’s

early stages and provided local support to our partner

goal of a 15% gain in Mexican market share by 2015?

throughout the development.

A: We anticipate achieving a 15% market share in Mexico’s distributed generation (DG) market segment, in which we

Q: What criteria does Yingli Solar use to select the right

expect to grow between 80-100% per year over the coming

projects and what help do you provide your partners in

years. Mexico’s utility market is also showing potential

terms of financing?

but, due to the Energy Reform’s slow evolution and

A: We are selective when choosing our partners, as we believe

implementation, reaching our market share goals in this

that the individuals involved in each project have the greatest

segment has been more challenging. While the companies

impact on its success or failure. Our first step is to gauge their

involved in this market remain interested, a large amount

level of experience in the market, and then we determine if all

of projects are in the pipeline and on standby while they

the necessary elements are in place for the project to succeed,

wait for more clearly defined regulations to be announced.

including financing and EPC services. When we believe that

Even though we will be ready for those opportunities

the project and our partner both have a high possibility of

when they materialize, our internal resources are currently

success, we act as an intermediary, connecting our partner

aimed at increasing market share in the DG segment. We

to financing opportunities and permitting entities. Our goal

are currently targeting many projects with PPAs and self-

is to create synergies within the sector. As an example of this,

supply schemes, which are both viable during this period

in September 2014 we held a customer summit and invited

of uncertainty. The rules of the game are still undefined,

all the local industry stakeholders. These included balance-

but the Energy Reform has certainly succeeded in opening

of-systems manufacturers, financing institutions, EPCs, and

up the market significantly. As the world’s leading solar

project developers. The summit was designed to help our

PV manufacturer, Yingli is familiar with market uncertainty.

customers and partners generate new opportunities and

We have experienced this in almost every market we have

develop the relationships they needed in order to grow their

entered to date, including the US, Australia, and many

businesses.

more. Despite uncertainties, the company has continued to thrive in these regions by retaining its flexibility and

Q: To what extent did Yingli’s World Cup sponsorship

adapting to the needs of the market.

impact business opportunities in Mexico? A: As the most-watched sporting event in the world, the

Q: Which projects constitute your Mexican portfolio,

FIFA World Cup provided us with exposure and brand

and which of those was the breakthrough project that

awareness that otherwise would not have been attainable.

consolidated Yingli’s presence and reputation in the

Our sponsorship allowed us to make a bigger impact on

country?

the awareness of solar energy than any other sponsorship

A: We are proud of our success in the DG market segment,

could, helping to drive business for Yingli and for our

which has been responsible for the bulk of Yingli’s sales in

partners in the industry. As a FIFA partner, Yingli Solar can

Mexico to date. Our panels can be found on the rooftops

announce with confidence that it is a world-class brand,

of businesses such as Mexifrutas in San Cayetano, Nayarit,

as its name is more broadly recognized than ever before.

schools such as the Colegio Sagrado Corazon México in El

Global solar companies are eager to partner up with

Pedregal, Mexico City, and hundreds of homes and small

industry-leading suppliers, but they have been restricted

businesses throughout the country. The flagship project

by their limited exposure to companies like ours. Thanks

that contributed to the consolidation of Yingli in Mexico

to the World Cup, the company has been able to quickly

was a 1.5MW system at a Soriana store. Our partner in

and effectively establish its brand in emerging solar

this project was Ilioss Soluciones Sustentables, a Mexican

markets, including Mexico. We are committed to helping

EPC provider who is very active in the DG market. As is

the solar industry’s growth in Mexico and we will continue

often the case, we became involved in the project in its

supporting our partners throughout this uncertain period.

197

| VIEW FROM THE TOP

EXPERIENCE HELPING TO AVOID COMMON SOLAR PITFALLS FIDEL GUAJARDO Director General of Fronius México Q: How does Fronius’ Austrian headquarters view the

near future. We are therefore remaining flexible enough to

opportunities present in the Mexican market?

keep up with the same pace as the Mexican solar market. We

A: Fronius’ board and its technical divisions are both

have grown sevenfold over the past seven years and we have

astonished by the business potential that Mexico presents.

to keep the pace while adapting our product offering.

While the US and Canada already have mature markets, Mexico is seeing new developments as a result of the recent

Q: Currently, what are your most successful products in

reforms, which makes it an interesting market. Mexico is

the Mexican power industry?

great at helping us determine specific needs in a growing

A: We have central inverters of every size, some of which

market, making it different from other more mature markets.

are used for voltage measured in megawatts. Our biggest seller is the IG Plus that is available from 1.5W to 10kW. Part

The main opportunities for us come from the way in which

of its appeal is that several IG Plus inverters can be linked

the solar market has developed. Our sales have dramatically

together. We also have larger central inverters, such as the

increased every year since 2007. Furthermore, since the

CL, that are used for bigger projects. 2014 also saw us roll

Energy Reform was passed, new products have been

out our new generation of inverters in Mexico, which are

launched due to CFE having set aggressive targets for solar

more flexible when it comes to installing them.

energy production. This means we expect business to pick up even more in 2015, during which time we aim to secure

Information is very important in this market, especially

a larger market share. The biggest challenge right now is

considering that Mexican customers have a difficult time

keeping up with the market’s needs. We currently have the

understanding and gauging the benefits of solar energy.

right products and services, such as inverters, but it is difficult

In a nutshell, it allows customers to use electricity that

to predict how the market’s requirements will evolve in the

they produce instead of purchasing it, but this means

INVERTER MANUFACTURER SEEKS TO BECOME A NATIONAL SUPPLIER Jema Irizar Group (Jema), a Spanish firm with significant

battery chargers, and battery banks for the combined

global expansion levels, has always maintained a good

cycle central. Ferrarini says this project was important

relationship with Mexico for two reasons: its FTAs with

due to its location and because of the opportunity it gave

many countries and the overall acceptance of European

Jema to consolidate its presence in Mexico.

products.

Massimo

Ferrarini,

Business

Development

Manager of Jema Irizar Group Mexico, wants to establish

Ferrarini stresses that the critical part in any solar system

the company as a national supplier and hopes the new

is the inverter, as the quality of the power electronics

regulations will help it gain a more relevant role in the

determines the efficiency of the entire system. This means

energy industry.”

that more efficiency equates to capturing more energy from the photovoltaic cells. To this day, all of Jema’s

198

According to Ferrarini, Jema’s flagship contribution in

inverters work at more than 98% efficiency, in some cases

Mexico is its participation with supplying 1MW solar

even achieving 99%. Additionally, the company has used

inverters for a 350MW photovoltaic park in the north

the knowledge gained from research activities and applied

of the country. Furthermore, the company is also proud

it to commercial applications of solar technology. Ferrarini

of its involvement in the Agua Prieta project, where the

identifies the continuity of the system as another important

company provided uninterruptible power systems, critical

factor, which is the ability the system has to operate under

the benefits seem intangible to most people. To spot

that customers choose to invest in our equipment, which

these advantages, customers need to look at how much

incidentally cannot be bought off the shelf. Our Mexican

energy they are saving and how much CO2 emissions they

headquarters are in Monterrey, and we have offices in San

are preventing, while also tracking their daily and annual

Luis Potosi, Puebla, and Mexico City. Fronius is located in

energy production, as well as peak production times. We

those specific areas so that we are no more than a three-

have products to fit all situations, while also adapting new

hour drive away from our customers.

features to products that were already available in Mexico. Q: What have been the main projects in Mexico that you Q: How much time and energy do you spend educating

have been involved in?

your customers about why they should invest in solar?

A: Guadalajara is the hotspot for solar systems in Mexico.

A: We have been providing training to our sales partners

We recently installed a 2MW rooftop system in this city

and customers since Fronius started. During this period,

for IMSA as well as a 1.5MW system in Hewlett-Packard’s

we have trained 320 companies in Mexico, which gives

offices there. We have ongoing projects in Puebla, we

you an idea of how much interest exists here for solar

are closing an important project in Hermosillo, and have

technologies. We are trying to educate the country in the

carried out other important solar installations in Baja

way solar energy works and its benefits, with an emphasis

California and Colima.

on Fronius inverters. A solar system is an investment that will last approximately 20 years, so customers should look

Beyond this, I do not make a distinction between the

for something reliable from a supplier like Fronius that will

industrial, commercial, and residential segments in Mexico.

guarantee long-term support.

Utility companies will provide a large market, while residential and commercial customers are really beginning

Many companies enter the solar market and then promptly

to understand the benefits of solar technology. Personally,

disappear. Demand in Europe is going up again, but last

I would focus more on utility companies, but I know that

year saw Europe go from an established market to a

residential and commercial will grow. In other markets, we

dropping one. It was a difficult time and many companies

noticed that particular segments were not growing, which

closed. Thanks to our three divisions, we had the tools to

affected the stability that a solar market requires. The

stay afloat, so we are betting on this model to continue

utility segment will continue to grow, and the information

expanding. Being in the market for 50 years certainly helps

that people are getting on solar technology will definitely

to back a product up. Our technology has been proven

trigger expansion in the residential and commercial

all over the world and it is reliable. These are the reasons

segments, particularly with SMEs.

critical conditions. “This is a huge advantage in solar

well as on big solar farms, using 1MW to 3.6MW plug-and-

technology since it guarantees that the equipment can

play solutions.

work as much as possible, with a minimal fail rate. Inverters normally function only as converters from DC to AC, but

At this moment, Ferrarini believes the Mexican electricity

now they are evolving to interact with the distribution

market is going through a deep transformation that

network to back up redistribution,” he explains. They are

will lead to investments and project development

turning into bidirectional and intelligent systems, offering

opportunities, some public but mostly private. “There

high levels of reactive power and functioning as battery

are new power generation projects approved by CFE

chargers. In Chile, for example, Jema is providing inverters

and some other projects in oil and gas, but at Jema we

for a project of 100MW in the Atacama Desert. In this case,

are mainly focused on utility-scale solar projects,” notes

out of 100MW nominal, 12MW are stored in the batteries.

Ferrarini. In both cases, Jema offers customized solutions

Energy storage is a constant issue for solar energy.

that guarantee the equipment meets strict requirements

Ferrarini highlights that ultra-low maintenance batteries,

to ensure its functionality under extreme conditions. For

such as Ni-Cd, lead-acid, or lithium-ion batteries, are the

solar inverters, says Ferrarini, Jema produces a solar box

most common technologies for solar applications. Jema

solution of up to 3.6MW that can operate in temperatures

is working on different solutions like a battery storage and

above 40°C and at altitudes over 1,500m, ensuring the

charge-discharge control systems. In Ferrarini’s view, the

delivery of active or reactive power, according to the

advantage of these turnkey solutions is the versatility and

grid’s specifications. “Not every manufacturer is able to

modularity that can be installed in low-power projects, as

offer similar traits,” boasts Ferrarini.

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MORE UTILITY-SCALE SOLAR PROJECTS ARE COMING KEVIN LUIS GUTIÉRREZ TREVIÑO General Manager of Ingeteam

Q: Ingeteam has a strong presence in wind and solar.,

A: In the past, Ingeteam focused on big inverters that

but with the changes in the energy landscape, how does

were destined for utility-scale projects. However, we are

Ingeteam see its opportunities evolving?

now incorporating new equipment that will compete in

A: We have identified two commercial targets in the coming

the string inverters market. Taking into consideration that

years: big legacy projects with a demand for specialized

the distribution and generation of energy will become

technology, which will be carried out by private players,

stronger in Mexico, Ingeteam will introduce a new 10-20kW

and projects to be developed by the government. Ingeteam

three-phase inverter in response. Ingeteam’s designs cater

normally goes for large developments, as this is how it builds

to the specifications of the European market, so any new

its flagship projects. However, we are also turning our gaze

products for the Mexican market have to be adapted to its

to other markets and we plan to introduce new products

peculiarities. These new products are tailored to industrial

for projects lower than 500kW. At the moment, Mexico

customers. We are also targeting the residential market

possesses an installed PV capacity of slightly over 100MW,

with our new novelty inverter Ingecon Sun 1 Play HF.

of which 46MW uses materials produced by Ingeteam. This great market share is explained by the fact that Ingeteam has been involved in the two of the largest PV projects in Mexico.

Q: Now Aura Solar I Is up and running, how soon will we see other solar projects on this scale? A: Ingeteam believes projects like Aura Solar I will continue

Q: What is your perspective on solar’s competitiveness,

to be seen in the Mexican energy mix. Because of this, we are

and what has Ingeteam done differently from other

preparing to supply as many PV inverters as possible. There

suppliers to obtain this significant market share?

are skeptics that believe the solar sector will not flourish, but

A: Ingeteam’s distinguishing factor is its technology, which

we strongly believe it will continue to grow and develop. Last

can be easily applied to utility-scale projects. As it stands,

year, I mentioned that local developers would be inspired

we can supply power stations with a capacity of up to

thanks to utility-scale projects like Aura Solar I, and I still

2.14MW and all the needed equipment, from inverters to

uphold that belief. While Aura Solar I is favorably positioned in

protection systems. Our contribution to the two largest

an area that allows such projects to be more easily developed

PV projects in Mexico is a testament to this. Just as

due to electricity costs, the grid is very weak and can only

developers expect their projects to last over 20 years, they

sustain a limited amount of similar projects.

also expect warranties to ensure the equipment will last an equal amount of time.

Q: What potential do you see for the introduction of batteries in solar energy projects?

In the early stages of a project’s development, clients know

A: The introduction of batteries across Mexico is utterly

how much the equipment costs, how much they need, and

unnecessary and the development of projects will be

how much it costs to maintain it. During this process, we

hindered, as prices would rise due to these technologies.

offer strong consulting services because we know how

However, we have to concede that isolated grids like the

long it can take such projects to see the light of day. This is

one in Baja California would benefit from such solutions

particularly necessary, since strong changes are occurring

to maintain their stability. There are two possible

in the Mexican energy landscape and everybody is nervous,

outcomes. If batteries are used in Baja California, there

including CFE. Despite these changes, the cost of solar

will be lower electricity prices but projects will be more

components has fallen in recent years, meaning that solar

expensive to develop. If batteries are not used, projects

energy is now available at a much more competitive price.

will be cheaper to develop but in limited quantities. The introduction of batteries will completely transform the

200

Q: Which breakthrough technologies do you wish to

financial processes that projects undergo. At the moment,

introduce to the Mexican market, and how will these

batteries are expensive and their technology still requires

impact your entry into other market segments?

development.

INNOVATIVE BUSINESS MODEL GENERATING SUCCESS “Many perceive the solar sector to be an old man’s playground

Since the installation companies and the developers have

populated by inflexible business models; however, this is far

long-term commitments with their clients, the quality that

from reality,” states Andrés González Reyes Retana, Director

DMSolar provides is crucial for protecting everyone involved.

General of DMSolar. “In truth, the solar sector is home to

To offer additional protection, the company takes control of

many entrepreneurs with innovative products and business

the warranty management on all of its products. This holds

models. Newcomers to the solar sector can find rewarding

significant added value if a product must be replaced. To be

experiences, providing that the company is innovative,

able to provide this service, and to uphold its high-quality

flexible, and most importantly, presents unique business

standards, DMSolar must also ensure that it has the necessary

opportunities.” DMSolar is one of these newcomers, securing

certifications. For instance, the assembly certification is crucial

a large share of this nascent industry since its creation in

due to the possibility of panels becoming detached from

2012. González Reyes Retana believes that the potential of

the holders. “We do not want to worry about our products

the solar sector is clear, given that commercial and industrial

deteriorating after about five years,” González Reyes Retana

players are now chasing after greener solutions. He also

states. “Instead, we want to be secure in the knowledge that

expects this trend to continue developing, predicting at least

they will maintain their quality and performance. Furthermore,

a 40% growth over the next five to seven years.

these tests and certifications have to be in place to ensure that the prices we offer are competitive.”

Part of DMSolar’s success can be attributed to the unique approach of deploying its solar panels exclusively to

While these certifications are essential, there are no different

installation companies. When the company receives a

requirements for them across commercial and domestic

project from a potential customer, it carries out an analysis

markets. For a commercial project, DMSolar can supply a

to evaluate which products should be installed based on

100kW inverter with the same certifications and quality

variables like sun resources. It can then perform test runs

standards as a 2kW residential inverter of the same brand.

with the use of optimizers, giving the customers a choice of

González Reyes Retana goes on to mention that some

which brands best fit their projects. Once this information

certifications are not yet implemented in Mexico, but expects

has been collected, DMSolar can design, build, and deploy

them to arrive sometime in the future. At the moment, 100%

the photovoltaic products. Additionally, DMSolar offers a

of the company is focused solely on Mexico, but it would like

platform called DMSolar Impulse, which helps installers track

to expand its presence to Central America. In fact, DMSolar

product performance in each project, and obtain real-time

has already begun exporting some products to new clients,

statistics for the energy generated.

showing that further success is indeed on the horizon.

RIDING THE COATTAILS OF SUCCESS Necessity is the mother of invention and no one knows

seek unique partners that have a serious business agenda

this better than solar project developer Ready Energy

and fit RES’ structure. “We recently closed a deal with

Solutions (RES). Juan Pablo Revuelta, Marketing Director

Sun Energy, a German-based company that has solidified

and Director of Operations at RES, recalls the unique origins

its commitment to Mexico. An alliance with us would be

of the company as a successful construction developer.

beneficial for a 50MW project, since we will provide the

Unfortunately, the economic crisis of 2008 led the

PPAs and Sun Energy will supply the capital,” he explains.

construction industry through several pitfalls, but it offered

According to Rodrigo, the success of a solar player will

the company a period of reinvention that led to the energy

depend on the efforts it makes to adapt to the evolving

market. Within the solar sector, a strategy that burgeoning

needs of the market. “In the solar market, competition is

companies take is to participate through larger companies

fierce and you see many companies close down, so it is

that are able to obtain CFE tenders. “A simple definition

crucial to be persistent in order to thrive,” he explains. A

would be that they win the projects and we build them.

solid business model that upholds quality and knowledge

With this experience and expertise, we can take the next

as its core principles is the perfect remedy for the pitfalls of

step and begin developing our own projects and transition

the solar sector. RES has a unique strategy that it believes

from contractors to project developers,” Rodrigo Revuelta,

leads to success, and both company representatives agree,

Planning & Strategy Director of RES, explains. Riding the

“For a company to successfully operate within this market,

coattails of large developers has enabled the company to

it needs to know the ins and outs of the industry.”

201

PV COMPANY MAKES THE MOST OF EACH MARKET Of all the words in the English vernacular, ‘explosive’ is the

Despite the specific differences, both markets are very

term chosen by Juan Antonio Balcázar, Director General of

active and interested in solar technology.

Granite Chief to describe the unprecedented growth of the solar sector over the last couple of years. “The north of the

Balcázar considers that the problem with solar energy

country is full of competitors looking for land to develop

in is that prices are rather high, therefore business only

solar farm projects; everywhere we look there is somebody

becomes viable through volume. The industrial market

searching for business opportunities in the same place.” For

provides volume, as it entails large, robust projects, while

Balcázar, this is the new tone for the solar energy business

comparatively the residential market does not provide

in Mexico, and he believes the market will continue to grow

significant volumes in the short term. “The residential

exponentially over the next two or three years. “The two

segment is in its infancy and I would not say that even 0.1%

segments responsible for this growth will be the industrial

of this segment has been installed.” For this reason, Granite

segment, which can be supplied through solar farms,

Chief designs strategies that balance costs and benefits to

and the residential segment, which will provide a great

launch this market. “We offer direct financing options that

opportunity because of the DAC tariff,” Balcázar explains.

lower the economic impact on our customers. In addition,

“Even so, both markets face obstacles that sometimes

funding can be offered through financing institutions that

overlap, such as financing. Clients in the industrial segment

could support DAC clients, for which we have been in

expect to save money over a determined timeframe, and

negotiations with a credit union,” tells Balcázar.

they want to see the ROI in no more than five years.” He continues by stressing that the residential market wants

Granite Chief has put a lot of effort into staying in the

financing, but people in this segment do not seem too

residential market. As part of the company’s strategy in

concerned with the time it takes to see economic benefits.

this segment, Granite Chief representatives go directly to

SUPPORTING GREEN POLICIES CREATES OPPORTUNITIES IN THE SOLAR SECTOR Great strides have been made in the implementation of

capacity, thus 30-40% of LPG has to be imported,” Martínez

renewable energies; yet, existing fossil fuel infrastructure

explains. BUTECSA has taken on an intriguing approach to

remains an economic barrier, hindering more rapid progress

gaining more market share by targeting the commercial and

for the industry. Rodolfo Martínez, Director General of

industrial segments. So far, the company has been involved

BUTECSA, a company specializing in thermal and PV energy

in projects with hospitals, hotels, correctional facilities, sports

generation, echoes this belief. “The Reform should have gone

clubs, and diverse industries. “We are working with La Raza

beyond oil by promoting energy diversification and giving

hospital, where we will provide solar powered boilers to heat

renewables a fundamental position.” Although much furor

up 50,000L per day. Due to our experience, ROI is possible

and controversy has enveloped the oil and gas industry,

after three to five years, which is an attractive period,” he

Martínez concedes that the energy sector has some shades

states. BUTECSA is working alongside IMSS in the installation

of green to look forward to. One promising technology stands

of thermal and PV systems in new hospitals, as an effort by

out from the crowd, and that is solar thermal energy, which

the institute to reduce operation costs.

harnesses solar energy to generate either heat or electricity. “The government has promoted the acquisition of efficient

Some players content themselves with simply importing

refrigerators and lightbulbs. Why is the same not being done

existing technologies and distributing them across Mexico,

for solar thermal equipment?” The search for an answer to

but BUTECSA promotes innovative techniques in both

this question has led Martínez and BUTECSA to take matters

its PV and thermal systems. “We are now implementing

into their own hands.

new welding techniques based on plastic materials that are replacing the use of copper in thermal equipment. We

202

Competition is fierce in the thermal energy sector, as players

are also using copper tubes and sockets that do not need

must contend with CNG, LPG, diesel, and fuel oil. “In industries

tin or highly polluting lead.” These innovations will benefit

such as hotels, the use of LPG prevails, although natural gas

developers seeking greater LEED ranking, since cold pressed

is becoming popular. Mexico does not have enough refining

copper materials are a better alternative.

households and offer technology and services. The specific

by an obstacle in the plant, the project loses all its

consumer profile that the company seeks is people under

profitability. “You might have a very well-built project,

the DAC tariff with the economic means to invest in solar

but if you do not take care of even the smallest detail,

systems.

you will lose energy instantly.” For Balcázar, the planning and conceptualization stages are very important, as

In comparison, Granite Chief has already walked the longer

these provide opportunities to cover all the details,

path in the industrial market, where the company has

avoiding possible problems in the execution and start-up

experience in starting its own plant, as well as in financing

phases. The impact of focusing on these stages, he says,

and construction. “Once the plant was completed, we

translates into lower costs.

faced the challenge of operating it. This gave us experience with operating across the whole cycle of the solar energy

In order to be a serious player in the Mexican energy

business,” says Balcázar. As a result of this experience,

industry, it is important for a company to demonstrate

Granite Chief was able to develop internal tools, such

its capabilities to CFE. Granite Chief has shown the

as technology for determining the energy output of its

Mexican utility company its expertise and knowledge

projects. This process is carried out in the company’s

in technological assessment, and for this reason it was

facilities in Mexico, enabling it to ensure the energy output

chosen to evaluate five different technologies in the Cerro

that will determine a project’s financial feasibility.

Prieto solar farm. “We want people to know that we are providing the technology for CFE’s Cerro Prieto pilot

A testament to Granite Chief’s work in the industrial

program. Granite Chief is a company that is positively

segment is the Apaseo El Grande solar farm, which is

impacting the mentality of the market, changing the way

a project intended for self-supply purposes. Balcázar

our customers think about energy and the environment.”

states that prices were stipulated at the beginning of this

Ultimately,

contract, as prioritizing this is paramount for obtaining a

change their attitude toward solar energy because large

profitable project. In addition, a project must accomplish

corporations are starting to look at renewables as viable

the forecasted energy output for the next 25 years, with

solutions. “All eyes will soon be focusing on the benefits

Balcázar explaining that if energy production is affected

that solar energy can bring,” he asserts.

Balcázar

believes

people

will

eventually

INDUSTRIAL SEGMENT PAVES THE WAY FOR SOLAR HEATING The difference between companies that fail and those that

and thought that every house should have a solar heater,

succeed lie mostly in the quality of their products. After 16

which led to the creation of green mortgages.”

years in the Mexican solar market, it is not surprising that David Mekler, CEO of Heliocol México Solar (Heliocol), is able

Heliocol’s market presence shifted dramatically in 2005,

to boast the long-term benefits of excellent quality. Heliocol

when it equipped Mexico’s Ministry of Health with state-of-

began installing solar powered heating systems for swimming

the-art solar water heaters. Soon after, Heliocol installed solar

pools in the year 2000. Today, Heliocol has installed more

water heating systems for almost 7,000m2 of the Centro

than 400,000m2 of solar powered systems across Mexico,

Médico de Occidente in Guadalajara, as well as in many other

both industrial and residential, from Tijuana to Cancun.

important hospitals around the country. Mekler credits the company’s growth to environmentally responsible programs,

The residential segment has been slightly challenging for

such as those of Coca Cola, Pfizer, and General Motors. “Our

Helicol. “People in this segment would rather buy a gas

products are also used within the aeronautical and metal

operated boiler that has to be heated every day, than buy a

manufacturing industries; in fact, anyone that uses energy is

higher quality product,” says Mekler. He believes that once

a potential client of our thermal division,” he explains.

the public is more educated about the the health benefits, economic benefits, and long-term savings involved, his

Despite these successes, Mekler has noticed that customers

product will dominate the water heating market. As of

are often content with their hot water systems and believe

today, Heliocol’s systems are only found in households

that new technology is unnecessary. However, Mekler is eager

that understand the long-term benefits. A good example

to demonstrate that solar heaters are cleaner than fossil fuels

of the mindset shift was Heliocol’s involvement in

and the ROI is relatively fast. Demonstrating the benefits of

INFONAVIT’s green mortgages. “We were working on low

solar technology with state-of-the-art, high-quality products

income housing projects with SADASI. One day, former

has been Heliocol’s main contribution to the development of

president Calderón learned about one of our projects

the Mexican solar market.

203

Mexico is at a point of transition, in which a cresting wave of sustainability is breaking across its cities, driven forward by the unrelenting pace of urbanization and the increasing demand for high-quality infrastructure that follows in its wake. The presence of cities in the landscape of the future is undeniable, as seven out of ten people will live in urban areas by 2050. It is compelling to imagine what the future urban landscape will look like when factoring in climate change, a growing population, and declining resources. Constructing successful cities or regenerating existing urban centers will require a harmonization between concrete and steel and nature. In turn, actors now seek commitments to energy efficiency policies from the government and consumer markets as a necessary strategy to achieving both climate change targets and sustainable urban development.

This chapter initially details the legal backbone for energy efficiency and the implementation of key technologies that can be adopted by multinational and small businesses alike. It delves into efficiency practices adopted by municipalities and the competitive advantages of vying for LEED certificates and other internationally recognized certifications. Ultimately, this chapter seeks to convince key decision makers that energy efficiency is an essential investment rather than a cost. Through a mosaic of ESCO associations, top consulting firms, technology providers, and groundbreaking architects, we glimpse the ways in which energy efficiency practices can be turned into profitable business.

ENERGY EFFICIENCY & URBAN SUSTAINABILITY

CHAPTER 9: ENERGY EFFICIENCY & URBAN SUSTAINABILITY 208

VIEW FROM THE TOP: Odón De Buen, CONUEE

209

INSIGHT: Santiago Barcón, AMESCO

210

VIEW FROM THE TOP: Michel Yehuda, Fluke Dominion Mexico

210

INSIGHT: Alfonso Rodríguez, Powergreen Technologies

211

ANALYSIS: Transforming the Market through Replacement Programs

212

VIEW FROM THE TOP: Sergio Villalón, Philips Lighting Latin America

213

VIEW FROM THE TOP: Octavio Azcoitia, OSRAM Mexico

Eduardo Silva Montaño, Verde Alterno 214 VIEW FROM THE TOP: Eric Villagómez Dorantes, Verde Alterno 215

VIEW FROM THE TOP: Ricardo Maiselson de la Rosa, CIME

216

INSIGHT: Guli Lima, ECOCHOICE México

216

INSIGHT: César Ulises Treviño, Bioconstrucción y Energía Alternativa

217

PROJECT SPOTLIGHT: Torre Mayor

218

INSIGHT: Femke Bartels, Greenpeace Mexico

219

VIEW FROM THE TOP: Darío Ibargüengoitia, SUMe

220

INSIGHT: José Picciotto, Picciotto Arquitectos

María Virginia Pérez, ITACA Proyectos Sustentables 221 VIEW FROM THE TOP: Caroline Verut, ITACA Proyectos Sustentables Alicia Silva, Revitaliza Consultores

222

INSIGHT:

223

INSIGHT: Pedro Paredes, EA Energía y Arquitectura

224

INSIGHT: César Ulises Treviño, Bioconstrucción y Energía Alternativa

224

INSIGHT: Enrique Abaroa, Grupo DESUS

Santiago Rodríguez, Revitaliza Consultores

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| VIEW FROM THE TOP

PUBLIC POLICY: THE BACKBONE OF ENERGY EFFICIENCY ODÓN DE BUEN Director General of CONUEE Q: CONUEE has succeeded in creating 29 energy

Regarding energy efficiency-related norms and standards,

efficiency norms. What best practices from other markets

CONUEE is the main authority. In the case of products, the

have you implemented?

Ministry of Finance enforces these regulations for imported

A: We have been working on setting standards for the past

products at customs. For an item that must comply with

22 years. We already have 29 energy efficiency norms,

a NOM and is already available on the local market but

close to 50 accredited laboratories, and six certification

does not have a certificate to prove adherence, PROFECO

organizations. In addition, the Mexican Accreditation

can step in and prevent its sale. It is much easier for us

Entity (EMA) established a system for this, and we must

to negotiate and use a more diplomatic approach rather

continue convincing others to apply these same standards.

than issuing sanctions. CONUEE has 130 people who are

There are two standards that apply to lighting systems in

in charge of dealing with municipalities, CFE, buildings

buildings and street lighting, and those are to be enforced

in the public sector, PEMEX, the building industry, and

by CFE in the contracting process. There are two others

manufacturers, along with several other players.

for building developments, one for housing and one for commercial buildings that should be enforced locally by

Q: How do you help AAA companies to establish energy

municipalities. We are also trying to fulfill the standards

management systems?

that CONAVI and INFONAVIT require for their programs,

A: CONUEE has a mandate to request information on

especially in terms of subsidies and green mortgages.

energy

usage

rates

from

high-consumption

energy

users. This segment is comprised of close to 3,000 CONUEE

holding

ongoing

dialogues

regarding

installations and frankly, we have had difficulties enforcing

harmonization of standards with the US and Canada.

full compliance with this requirement because it had

In 2002, there was an effort to harmonize minimum

previously gone unenforced.

performance standards and test procedures for three standards in the US, Canada, and Mexico. The North

CONUEE

intensifying

its

promotion

energy

America Energy Working Group was in charge of

management systems because there is a movement toward

overseeing the process, as agreed by an energy efficiency

these practices on an international level. This program is

working group. Since then, two standards have changed in

operated by five players, but we have made alliances to

the US and we are behind in terms of guidelines for engines

strengthen our efforts. In fact, we are supported by the

and refrigerators, while that of window air conditioners

Danish government in providing assistance to companies

remains aligned with the rest of North America.

here. There are also at least five private organizations with certification capacities in Mexico, and the German

Q: What role do you play in terms of enforcing energy

technical cooperation agency (GIZ) is now running a pilot

efficiency related norms and standards?

project for ten medium-sized enterprises.

A: As a regulatory agency, CONUEE is a legal authority in

208

terms of standards. We can provide support to energy users

We are working on promoting energy management systems.

with information and technical assistance regardless of

For this purpose, we are using a concept that we have not

certain capacity limitations we face. CONUEE remains the

fully developed, which consists of knowledge networks

authority for standards on refrigerators, stoves, and water

where various actors can support each other and share best

heaters, among others. In the case of systems, we are still

practices. CONUEE also has tools like blogs and social media

the authority, but we delegate to third parties. For lighting,

in order to inform as many people as it can about energy

we depend on CFE, which requires proof of compliance with

management systems and the practices of AAA companies.

the standards of its contracting process with new clients. If

There are close to 3,000 high consumption energy users,

the requirements are not met, CFE will not grant contracts

and the ideal scenario would be one in which all 3,000 make

for commercial buildings or street lighting systems.

efforts to mitigate damage to the environment.

THE RELENTLESS RISE OF THE ESCO SCHEME Sustainability

Santiago Barcón, President of the Mexican Association of ESCO Companies (AMESCO)

gaining

sheds light on this issue, “By taking the US market and

momentum across many

dividing its installed capacity by that of Mexico, it is evident

Mexican cities given the

that the US has 30 times greater capacity. The US market

unstoppable

for ESCOs represents US$7-8 million, and multiplied by 30,

urbanization. In its wake,

this means that there is an approximately US$250 million

we can see the rise of the

market for ESCOs in Mexico. Additionally, if Mexico’s lack of

ESCO scheme, which is

efficiency is taken into consideration, another 30-40% can be

comprised of companies

added, which increases the market size to US$400 million.”

pace

devoted to energy savings. This is a vision upheld

Strikingly, the ESCO model possesses unique attributes

Barcón,

in the market. The distinguishing feature of an ESCO is

President of the Mexican Association of ESCO Companies

Santiago

its approach, with an extensive energy audit for potential

(AMESCO). While the ESCO scheme has been used for

customers in order to identify required improvements for

decades in countries like the US and Germany, it has been

generating energy savings. In conjunction with the client,

a somewhat overlooked concept in Mexico. “Among the

the ESCO then designs and constructs a project that meets

OECD countries, Mexico comes last in energy efficiency.

the client’s needs and arranges the necessary financing. “If

Rather than building more generation stations, even if

a company wishes to develop a 20MW cogeneration plant

they come from renewable sources, we must improve the

because it consumes 20MW of electricity, the ESCO in this

efficiency of the existing ones first,” Barcón explains.

case will first propose a reduction in energy consumption. In these cases the client may have been consuming 20MW,

A flicker of understanding is beginning to spread through the

although operations only require 16MW. When it starts its

public sector, and Barcón is a witness to it. “There has certainly

own generation, it can sell its energy to other companies,”

been a change in the government’s mentality and CONUEE

Barcón clarifies. In the meantime, the ESCO must guarantee

has been extremely helpful.” At the end of 2008 there were

the improvements through Energy Savings Performance

only seven major formal ESCO identified in Mexico, and since

Contracts (ESPCs). These contracts have fiscal advantages,

then the number has grown exponentially, which is reflected

since they resemble leasing processes. The company pays

in the amount of members in the association. “AMESCO

for the equipment for three years, while normally it can

has 28 members and approximately ten of them are of a

take ten years to depreciate. “The most important aspect

significant enough size that they are able to commit to large

of the contract between ESCO and client is that if it does

projects. As the figure shows, we have taken considerable

not work, the client does not pay for it,” Barcón adds. While

steps, but we are only half way there,” Barcón describes.

this might seem risky, Barcón is assured that it poses no

As the numbers grow, AMESCO is tasked with weeding out

problem as long as the ESCO is certified and has enough

the weak links and choosing carefully which companies it

experience in the market. Additionally, the financing comes

accepts into its fold. “One of the premises is that an ESCO

from ESCO capital, meaning that it must be careful with the

must always install brand new equipment. If a company

clients it picks.

installs used machinery, they will be able to save energy for a significantly shorter time.” For the customer, this represents

In spite of such evident benefits, ESCO remains an

high maintenance costs and a slower ROI. “When a company

unexplored option. Barcón identifies financing as the

says that its clients will save energy just by installing a piece

biggest barrier. “The banking system is not geared toward

of equipment but does not explain how, this is a red flag that

providing support for energy saving schemes and the

indicates a lack of viability,” he adds.

government has strict rules regarding multiyear contracts,” he laments. With the latter, use of performance contractors

As AMESCO helps drive the ESCO rhetoric across Mexico, for

becomes unfeasible since there is no way these players can

the past couple of years there has been a tug of war regarding

recover the total investment in less than one year. Barcón

the true savings this scheme can offer. On one side, CONUEE

has spotted a few clouds on the horizon, and according to

maintains that the potential energy savings of 11.6 million

him, the Energy Reform does not concentrate enough on

kW translates to US$1.2 billion and a market opportunity for

improvement of energy efficiency; all attention has been

ESCO of US$121 million. While Barcón does not contest this

centered on higher and faster production. Yet, this has not

figure, he believes this is only the tip of the iceberg, since the

deterred AMESCO from its mission. “If the government

CONUEE figures are measured in terms of kilowatt-hours and

begins to pay attention and encourage the development

they do not take thermal energy into consideration. Barcón

of ESCO projects, then the opportunities will be endless.”

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| VIEW FROM THE TOP

REVOLUTIONIZING ENERGY MEASUREMENT SOLUTIONS MICHEL YEHUDA Industrial Business Unit Director of Fluke Dominion Mexico

Q: The opening of the wholesale electricity market is hailed

that would benefit from the efficiency and savings our test

by many. How would you describe the main opportunities

solutions provide. Through our on-site support and seminars

that have arisen, particularly in the commercial and

programs, we are helping energy-related companies adhere

industrial segments?

to the highest quality test and measurement solutions so

A: Fluke has been a preferred Test and Measurement

that their plants and manufacturing sites uphold the best

solutions leader in the Mexican energy sector for many years

efficiency standards. We are planting the seeds that, as the

by creating added value and fostering commercial ties with

energy market grows, will generate more demand for us.

public and private players alike. For Fluke, the opening of the wholesale electricity market is a natural transition that entails

Q: What kind of projects does Fluke wish to be involved

balancing its client portfolio equally between public and

in with the parastatals, and how will it reflect the shift in

private sectors. The new Mexican energy market has attracted

perception?

foreign investment, and many of the arriving companies

A: Fluke Power Quality analyzers are the only ones in the

are already familiarized with our solutions. New companies

world that can monetize the cost of energy waste due to

arriving to these shores require guidance and want to make

poor power quality. This unique feature allows customers

sure that they are opting for the best possible solutions.

access to the estimated cost of their energy failures on a

Two years ago, we began to map out the key energy players

yearly basis. The customer can then prioritize the correction

arriving in Mexico and identify their needs in a wide variety

of these issues. CFE has recently started to use this feature

of applications. Today, it is not enough to cater to giants like

with its customers, carrying out power measurements and

CFE and PEMEX, but we must also look for other companies

immediately identifying the related cost for each electrical

SEIZING OPPORTUNITIES IN RESIDENTIAL SEGMENTS In the residential market, there is one segment in particular

obtain results. “So far, we are the only company in the Green

that is highly coveted by energy efficiency companies: the

Mortgage scheme with a product prioritizing the concept of

DAC. There are over 30 million homes in Mexico and out of

voltage control and reduction,” he boasts.

these, only 500,000 form part of the DAC segment. While

210

companies attempt to conquer this segment, other players

The end consumer has very little consciousness of the

have set out to capture the remaining 29.5 million homes that

costs of electricity, since this is subsidized. This means the

consume subsidized energy. Powergreen Technologies forms

government is the one to carry the burden, so CFE must

part of this group and according to its Director General,

begin to adopt new forms of energy saving devices in

Alfonso Rodríguez, its ECOWISE product will spearhead

order to lessen this pressure. Every product that CFE buys

the efforts. This product is a solution for smart grid par

must undergo evaluations, and one of those filters is the

excellence, as it optimizes voltage usage by reducing the

Laboratory for Equipment and Materials Testing (LAPEM).

amount of energy wasted by appliances. The way to cater

“We are carrying out a pilot test in Irapuato with 200 homes

to this market, says Rodríguez, is through INFONAVIT and

alongside CFE in order to reduce energy consumption in the

its Green Mortgage. “Our product is included in the Green

residential sector.” It took the company three years to obtain

Mortgage, where all developers need to include certain

the contract for this project, yet its success spells a change

energy efficient products in the construction of houses,”

of mindset in the market and a rising confidence in energy

Rodríguez explains. Each product must undergo rigorous

efficiency products on the part of not only the authorities,

tests by INFONAVIT and FIDE, and it takes up to a year to

but also players that need it most, such as CFE.

problem it finds. This displays how Fluke promotes effective

Q: What are the common malpractices committed by

decision making within a company in terms of its energy

Fluke’s clients that result in energy waste, and how are

management. Another recent technological contribution has

these mitigated?

been provided by our Industrial Thermal Imagers. These tools

A: Many companies in Mexico do not have an in-house

use infrared images in order to detect electrical/mechanical

predictive maintenance program, so they hire third parties

failures faster. In the past, thermal imagers were expensive

to carry out the measurements and spot the maintenance

and fragile but Fluke’s engineers have designed affordable

issues. There is a distinct lack of culture surrounding

and durable thermal imagers for the industrial end user.

predictive maintenance, and this must be urgently incorporated into the daily operations of a company. A

Q: Which technologies stand out from the crowd, and

success story that showcases the technology’s advantages

what benefits do they bring to the electricity market?

is a project with Walmart Mexico. It used to have a third

A: One recent innovation that is bound to revolutionize the

party carrying out measurements and maintenance, and

test and measurement culture is Fluke Connect. This system of

some of its stores experienced critical electric failures

wireless tools and software helps increase productivity, lower

that caused fires and major losses to the company.

costs, and maximize uptime. Fluke Connect test tools have

A few years ago, we contacted Walmart Mexico and

both wireless and online communication capabilities that

explained the benefits of having an in-house predictive

enable the transfer of measurements from one instrument to

maintenance program that measures energy consumption

another. The data is then uploaded to our secure cloud and

and efficiency. Fluke offered to train the engineers in

can be shared with the end user’s team. This is valuable for

energy test and measurement, which took a few months

energy companies like CFE, PEMEX, Iberdrola, or Shell that

and today, Walmart’s engineers use a complete toolbox of

have several sites spread across large geographical areas.

Fluke solutions. They have much less energy management

Using our connected tools, they can measure and cross-

issues and they do not have to depend on third party

reference the results with different sites. This software can

measurement

help predict possible downtime of key industrial elements, so

important project with Audi Mexico, with our thermal

predictive and corrective maintenance can be swiftly carried

imagers helping to increase the productivity within its

out. One of the competitive advantages of this solution is

manufacturing site. Automotive companies understand

that it reduces the amount of labor force required to carry

the importance of high-quality test and measurement

out critical measurements.

systems, and the impact they have on the assembly line.

services.

Recently,

developed

TRANSFORMING THE MARKET THROUGH REPLACEMENT PROGRAMS Most countries, including Mexico, have concentrated

be staggering. The norm was implemented through various

their efforts on increasing power generation, rather than

stages; the first began with the removal of 100W bulbs in

promoting a better use of existing infrastructure through

December 2011, followed by 75W in December 2012, and

energy efficiency. Raúl Talán, Director General of FIDE

lastly those ranging between 40-60W in December 2014.

aims to turn this around by working tirelessly to create public policies in energy efficiency that aim to transform

To promote the adoption of new technologies, an

the market. In this endeavor, substitution projects are

accompanying project was undertaken called Ahorrate

an important tool for introducing new technologies and

una Luz (Save a Light), where 40 million CFI lights were

finally implementing an energy efficiency standard.

distributed to localities of up to 100,000 inhabitants, impacting 8 million families. The companies that won

One of the most emblematic projects is the removal of

the tender were OSRAM with 70%, Philips with 20% and

inefficient lightbulbs through the enactment of NOM-028-

Iluminación Especializada de Occidente with 10%. “This

ENER-2010. In Mexico, the domestic sector represents

has been the most important replacement program in the

an opportunity for considerable energy savings given

world so far. Now, we are focusing on public lighting by

that it constitutes 25% of total energy consumption. Of

helping municipalities across Mexico replace traditional

this percentage lighting alone represents 26%, so when

technology with LED,” shares Sergio Villalón, Senior Vice

contemplating the possibility of homes across Mexico using

President & General Manager of Philips Lighting Latin

lightbulbs that consume 75% less energy, the savings could

America.

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| VIEW FROM THE TOP

SHARING BEST PRACTICES ACROSS LATIN AMERICAN MARKETS SERGIO VILLALÓN Senior Vice President and General Manager of Philips Lighting Latin America Q: Philips has 124 years of experience in the lighting

all markets in Latin America. This will enable us to transfer

industry, what does the recent restructuring imply for the

technologies and knowledge to other countries. It will be

company’s position within the market?

interesting to oversee the transition of Latin American

A: Globally speaking, the lighting division has played an

markets toward energy efficiency.

important role in the strategy of the company. In those 124 years in the market, Philips has made significant

Q: What are the main trends you have identified across

investment in innovation in this sector. The company

these Latin American markets?

is preparing two leadership position companies that

A: Technology is changing and LED is becoming cheaper

will carry out independent activities in two sectors. The

and more accessible. Connectivity has entered the

consumer goods and health products will be consolidated

discourse of lighting solutions and is picking up speed. An

under the HealthTech company, and the lighting and

example would be our HUE concept, where LED lights are

energy efficiency solutions will fall under the remit of a

connected to an application and control system. Through

new company.

devices, the end user can control the light, turn it off, change its colors, dim it, and make it interact with other

212

One of the advantages is that the lighting division has had

applications. Replacing light bulbs is not enough, thus

an enduring presence in Latin American markets, with 75

we must create added value in our products by including

established years in Mexico, 90 in Brazil, and over 80 in

connectivity and next generation technology. The HUE

Argentina. In Mexico, Philips has been involved in all the

started out with only an app and now it is an interconnected

new energy legislation processes and has formed part of

lighting solution. In the premium segment, the City Touch

important initiatives from the World Bank for the energy

software is the ideal solution for municipalities looking to

efficiency transition. We formed part of the Sustainable

incorporate efficiency in their public lighting. Within the

Light Project, where we replaced 22.9 million incandescent

commercial segment we offer the Dynalite lighting control

lamps with CFI lights, and were involved in the second and

system, which integrates a series of products. There is a

third generations of the program under a different scheme.

lot of room for innovation in the lighting industry and the

This was the most important replacement program in

company reinvests 8% of its revenues in R&D. Our projects

the world of its time. Now, we are participating in public

are always people-oriented, and important monuments are

lighting projects by helping municipalities across Mexico

lit by our solutions, such as the London Eye, Eiffel Tower,

replace traditional technology with LED.

and the Empire State building.

Q: What is the flagship project that Philips wishes to bring

Q: What possibilities do you see of working with

to Mexican shores and other Latin American markets?

municipalities and offering integrated lighting solutions?

A: The most relevant project is in Buenos Aires, Argentina,

A: We have worked closely with FIDE and CONUEE in

where we are replacing 99,000 points of public lighting

order to include energy efficiency in public discourse

with the most updated LED technology. This project

and

also incorporates a control system that will enable the

Philips when it decides to bring new technologies from

municipality to monitor the lighting. So far we have

other markets, like Europe, to Mexico. Our work with

replaced 50,000 points and the system is a success, since

municipalities in Mexico includes installing over 40,000

it allows the municipality to offer better security, efficiency,

lighting points across several districts of Guadalajara. In

and address the needs of the citizens. This software is

the future, the city might also consider using our software

called City Touch and it will eventually be integrated into

in order to efficiently manage its public lighting. Helping

Mexico, Brazil, Colombia, and other markets across Latin

municipalities entails demonstrating the benefits of a

America. We have created a competence center that will

solutions provider rather than a company that only offers

collate success stories, projects, and best practices across

LED technology.

the

legal

framework.

The

authorities

support

| VIEW FROM THE TOP

MEXICO AS THE NEXT EFFICIENCY TRENDSETTER OCTAVIO AZCOITIA President and CEO of OSRAM Mexico

Q: How would you describe the evolution within the

75% in these households. The program was designed and

lighting industry and the role OSRAM will play in

implemented by FIDE with an efficient and strict control

incentivizing green markets?

process, making it one of the most successful lighting

A: The lighting industry is evolving at an unprecedented rate

programs of its kind. FIDE inspected all shipments and

and is undergoing the most disruptive phase in its history

took samples of containers in order to be sure that the

since the invention of the incandescent light bulb. The Solid

lamps met with the requirements. As a result of this

State Lighting (LED) technology has proven efficient, long-

experience, we were awarded a CFLi tender in Nicaragua.

lasting, and friendlier to the environment. OSRAM is now

When the government launched the program, it searched

more focused on the electronics, digital, and energy efficient

the market and invited all companies to offer their best

solutions, and this is evident in the product portfolio for

solution and OSRAM was given 100% of this tender. We

different applications. As the second largest producer of

are in the process of delivering 2 million pieces, and these

LEDs worldwide, and with 48 years of experience in Solid

lamps are known for their high power factor. In some cases,

State Lighting, OSRAM’s role is to implement responsible,

Mexico is shaping itself into a trendsetter for many other

high-performance solutions in the market.

countries, such as those in Central America.

Q: How does OSRAM collaborate with the Mexican

Q: What possibilities do you see of working with

government to promote norms and standards?

municipalities and offering integrated lighting solutions?

A: Behind the OSRAM name there are over 100 years of

A: Working directing with municipalities can prove

research and development, prestige, performance, and

complex, and thus OSRAM relies on its government

quality. We have been working closely with Mexican

specialized distributor network for this segment. In the

authorities like CONUEE and FIDE in order to improve

past, municipalities were eager to adopt new technologies;

standards. When a potential customer opts for an

regrettably, they tend to choose the cheapest options,

unusually low cost alternative, it is opening the doors to a

and therefore, products of questionable quality. The

potential safety risk. This is crucial because these products

solutions OSRAM offers to municipalities are unique, like

are directly related to the safety and health of the end

our specific lamps for main roads and other products for

users. OSRAM does not compete with manufacturers

public spaces or secondary roads. Sometimes the reason

that choose price over quality. We have collaborated

why municipalities find these solutions too expensive

closely with the government in the creation and review of

is because they push for the same product to be used

standards, like the NOM-028 for incandescent lightbulbs

universally.

that was successfully implemented. Q: What are OSRAM’s achievements in sustainable Q: What are the benefits and future business opportunities

practices through the supply and distribution chains?

that arise from winning the tender for the ‘National

A: Our worldwide procurement strategy takes care of the

Replacement Program of Incandescent Lamps’?

development of our suppliers and supports their green

A: The government launched a program to buy 32 million

policies and regulations. We are also paying close attention

pieces of Compact Fluorescent Lamps with integrated

to our own internal processes. For example, we have low

ballasts, and given the success of the project, this number

mercury CFLi products and lead-free soldering initiatives.

was increased up to 38 million. OSRAM was awarded

Two years ago we started a Global Value Sourcing (GVS)

the first place in the tender and we are in the process

initiative in order to develop world-class suppliers located

of delivering 27 million pieces. This project will help 7.6

in Mexico to serve our plants in the NAFTA region and

million families that are scattered across 120,000 small

around the world. By developing a local supply chain, we

cities across Mexico. The Mexican government, through

can serve our plants better, with competitive prices, and

this initiative, will be able to obtain energy savings of

shorter lead times.

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| VIEW FROM THE TOP

CREATIVE LED SOLUTIONS FOR ENERGY EFFICIENCY LEFT: Eduardo Silva Montaño, Director General of Verde Alterno RIGHT: Eric Villagómez Dorantes, Director of Operations at Verde Alterno

Q: How much longer do you think it will take for LED

percentages in order to bring over 1,000 LED models to

lights to become a staple product in the market?

Mexico and offer them at accessible prices?

ES: LED lighting is growing in Mexico, prices are dropping,

ES: At Verde Alterno, we seek manufacturing companies

and the technology is evolving, which are all factors

that offer unique products and applications at a reasonable

aiding the adoption of LED lighting. Several commercial

price. There is a pricing war so we must ensure that we

companies like Starbucks and Chili’s have incorporated

look for high standard LED products that have competitive

LED technology in their establishments, and municipalities

prices. Additionally, our LED applications are not readily

and local authorities are also following this trend and

available in the Mexican market, and are custom made to

incorporating LED in public lighting. The market is now

our requirements. We do not see ourselves as distributors

established and LED is readily available, so the next step will

of LED products, but rather as lighting project developers.

be to innovate and create new products and applications

Verde Alterno helps its clients design and develop their

with this technology. An interesting application we

lighting projects according to their needs. We import

developed was the mobile illumination towers, which are

the products from many markets, but mostly from

used in construction sites and festivals. Similar towers are

Taiwan and China. We travelled to some of our suppliers’

usually powered by diesel engines, whereas our products

manufacturing sites in order to oversee their processes

are powered by solar panels and use LED lighting.

and ensure high quality.

Q: Who is your current client base, and how important are

Q: Could you tell us about the GrowLED technology? How

the residential, commercial, and agricultural segments for

has this created new business opportunities for Verde

the company?

Alterno?

EV: The commercial segment provides the bulk of revenue

ES: It is LED technology that is used for agricultural

to the company, and in recent years we have seen a growing

processes and it is generally used by think tanks, sanitation

interest from municipalities. Currently, only 300-500 out

and governmental agencies, and laboratories. These

of 2,454 municipalities are using LED technologies. The

technologies enable scientists to monitor the growth of

tariff for public lighting is one of the most expensive ones

certain plants under strict environmental conditions. Energy

and it is almost double that of the industrial tariff, so it is

efficiency norms have largely promoted the development

important to adopt energy efficiency practices. We offer

of LED technologies in the market. There is a NOM that

municipalities a PPP where we guarantee a 50% saving in

encourages the replacement of incandescent light bulbs,

electricity bills. We absorb the investment for ten years and

but this has been targeted to the lower segments of the

we replace all the lighting fixtures, so this contract resembles

market. It is difficult to enforce these NOMs and there are

an ESCO. A business proposition for a municipality always

shops that continue to sell these incandescent light bulbs.

requires the goodwill of the municipal president. Given the

In the LED market we continue to compete with incredibly

short administrative terms of municipalities, the municipal

cheap and poor quality products.

governing body must sign the agreement in order to allow contracts to extend over five years. At the beginning we

Q: Now that normativity is creating opportunities for

would approach municipalities but it was difficult for them

energy efficient lighting, what role would you like Verde

to purchase our technology because of lack of funds. At that

Alterno to have in the Mexican efficient lighting industry?

point, the technology we offered was worth US$200 million;

ES: This year we have plans to develop three to four

now through technological advances, we can offer solutions

landfill projects and we would like to offer the integrated

costing US$20 million.

solution which includes LED technology for public lighting. To stay ahead of the game, we will continue to

214

Q: What strategies do you put in place to become an

introduce new technologies into the market and follow

authorized supplier? How do you negotiate costs and

the Energy Reform.

| VIEW FROM THE TOP

DIVERSIFIED PRODUCT PORTFOLIO OPENS DOORS TO NEW MARKETS RICARDO MAISELSON DE LA ROSA Director General of CIME Q: Since efficiency is at the forefront of the industry, how

A: A lot of the time the return of investment is related to the

is CIME positioned to take advantage of the growth in the

way in which the equipment is used. We have customers

market?

that have these systems running for hours or even days and

A: CIME’s main business line is dedicated to the supply

this prevents them from losing production, transactions,

of power generation equipment with continuous duty

and sales. One case is data centers or financial services,

and standby generators. Our model is tailored to reach

where having a backup system provides these players with

different sectors of the economy; we have products and

economic benefits by avoiding critical situations. Another

services for the private sector, including industrial clients,

case is when customers want to start their business

and companies in the construction and energy sectors.

but do not have an energy supply at the time, so they

We have a complete line of products focused on power

rent a generator to start their operations immediately.

generation, efficiency, redundancy, and flexibility, and we

This is also the case for the mining and energy sectors,

also provide power generator leasing services, so we are

where operations are run from remote locations with no

attuned with the entire engineering, construction, and

access to electricity, and companies need to use onsite

project development industries across the country.

generators as the only way to produce energy. People from the construction industry who purchase a generator

Q: Apart from the residential segment, what industries

use it across multiple worksites and the clients are likely

can benefit the most from your services?

to get a return within a period of 14-16 months. Industrial

A: CIME is a long-standing supplier of natural gas powered

clients want to reduce their electricity bills, and they can

generators; in fact, we are one of the most specialized

do that by supplying their own power with a generator. If

gas power generator supplying companies in Mexico

a client buys a natural gas-powered generator and uses

today. We are distributors for Generac, one of the largest

it for four to six hours per day to reduce their electricity

manufacturers of power generators in the world, and we

bill, the return of investment comes in less than five years.

have been its industrial dealer in Mexico for close to 17

This relates to customers in medium-sized industries and

years. CIME can provide solutions across a broader range

projects under 1,000kW.

of power that extends from 5kW to 6MW. A typical gas generator will help commercial and small- and medium-

Q: How do you tailor your products to suit the industrial

sized industrial customers reduce their electricity bills

specifications of your clients?

because they can produce their own power at peak times,

A: Our clients mostly use diesel-powered generators

when the utility prices are the highest. By using a natural

because of availability and costs, and since these systems

gas power generator, clients can reduce their electricity bill

are easy to source and finding spare parts and maintenance

by more than half in many cases. Natural gas generators are

is not complicated. CIME offers specialized products,

just one part of the product-specific solutions CIME offers.

oriented to customers related to PEMEX and the oil and gas industry with natural gas units meeting with technical

Another segment we are targeting thanks to the

specifications regarding materials and performance. If

Energy Reform is shale gas developments. Once these

these are used on oil platforms, we comply with other

developments begin taking place, we will be well-equipped

specifications like the provision of fire extinguishers and

to serve this market, providing onsite energy generation.

other safety measurements, such as alarms and pre-

Our gas-powered generators are more affordable and

alarms, digital displays for special data, remote controls,

pollute less than diesel-powered generators.

interfaces, and other requirements. CIME will continue to be present in residential, commercial, and industrial

Q: How do you manage to implement these services so

segments, as our business model needs those sectors. We

quickly and ensure that your customers receive a quick

would like our clients to see CIME as a company that can

return of investment?

provide integrated energy solutions.

215

NAVIGATING MISCONCEPTIONS IN GREEN MARKETS

Guli Lima, Director General of ECOCHOICE México

“Mexico is a country of

sector and this means that the company providing these

contrasts; you can find

services must look at energy consumption in a complete

advanced

way by taking into account all relevant variables. According

sustainability and energy

companies

to Lima, when companies claim to be energy efficient and

efficiency

only look at the lighting and air-conditioning, it is obvious

door to a company that

they are only selling efficiency equipment. In turn, a real

has made no headway

energy efficient company proposes strategies to lower

energy consumption as a whole.

these

Lima, of

right

matters,”

Guli

Director

General

ECOCHOICE

México,

There is a change in mentality on behalf of Mexican

original

companies that could benefit from adopting these green

business model was comprised of 70% consulting services

explains.

The

standards. The markets that would profit the most are

and 30% engineering. “When we began operations, we were

those that have high electricity and gas bills, and usually

hit with the stark reality that our potential customers lacked

ECOCHOICE looks at companies that consume over

trust in the industry due to previous negative experiences,”

US$200,000 a year. “Energy is a crucial part of production

he admits. In simple terms, companies were masquerading

costs as it represents 20% of total costs, yet it can be

as energy efficiency consultants, when in fact they would

reduced by 10%. The company can increase its margins, or

merely sell equipment like LEDs and air-conditioning units.

pass the savings on to the customer to be more competitive

“It was difficult to convey ECOCHOICE’s purpose and

in the market.” Lower down the supply chain, Tier 1 and 2

vision, so it decided to shift its business model from purely

suppliers of the manufacturing industries tend to have high

consultative to an engineering and project implementation

energy bills, and this is where the success stories resonate.

company.”

“We have been able to cut electricity bills by 15-20%, which is huge in some industries. In commercial segments we

ECOCHOICE has made strides in removing the misconception

can reach up to 30% of energy savings.” As ECOCHOICE

surrounding energy efficiency practices, and the first step

navigates this market, it takes pride that through its

begins by making the distinction between the imposters

practices and business model, it has been of great aid for

and the legitimate companies. Energy efficiency is a holistic

those customers facing budgetary constraints.

GREEN CITIES BROUGHT TO LIFE THROUGH NORMATIVITY

216

Perhaps the most pertinent aspect to address in the creation

The government is improving its operations through

of a solid sustainability market is the country’s normative

INDAABIN, which has an effective program similar to that

and political landscape. César Ulises Treviño, Director

of the EPA Energy Start Portfolio in the US. This entails

General of specialized consulting firm Bioconstrucción y

benchmarking 600-800 governmental buildings in order

Energía Alternativa (BEA), believes that, while the private

to establish a baseline for improving energy efficiency

sector pushes for these new innovative projects, it is the

practices. “It is unfortunate that while we have norms and

policy makers that will set the course for Mexico’s future

regulations for energy efficiency, these are not properly

cities. In his view, the government must push the boundaries

administered,” Treviño laments. He attributes this lack of

of minimum performance levels and the private sector must

control to the authorities’ limited resources for carrying

intensify interest in the market and promote initiatives.

out the evaluations and the lack of analytical follow-up.

“The process of creating norms is complex and we cannot

As former president of the Mexican Green Building Council,

expect the government to introduce energy efficiency

Treviño had the opportunity to work alongside the UN and

norms for the residential and commercial segments in

ITESM in an environmental program on green buildings

a matter of days,” Treviño admits. In 2013, the NMX-AA-

and their impact on reducing climate change. Mexico

164-SCFI for Sustainable Construction was created, and

was commended for its various initiatives surrounding

previous norms, such as the NOM-020-ENER from 2011,

sustainable housing developments like INFONAVIT and

also target energy efficiency for housing developments.

COTRAVI.

| PROJECT SPOTLIGHT UNVEILING THE SECRETS OF SUSTAINABLE BUILDING The shadow of the 1985 earthquake lingered in the minds of the architects of the Mexican skyline and at that time the thought of building a skyscraper was little more than a fantasy. According to Felipe Flores, Director of Operations at Torre Mayor, this perception quickly faded when Reichmann International Co. decided to develop Torre Mayor, marking a breakthrough in the history of Mexico City. “The building contributed to corporate and commercial activities, thus returning life to Paseo de la Reforma, the main limb of the business district of Mexico City,” he boasts. The completion of Torre Mayor convinced the construction industry of the possibility of developing high quality constructions with deep sustainability principles at their core. “Moreover, Torre Mayor was designed in 1997, a time when there were no green certifications, but it was quickly certified as a green building due to the advanced technology installed in the tower.” One of the achievements of Torre Mayor that developers should emulate is its EBOM certification. This is an award given only to buildings that are at full operation and, when Torre Mayor sought this recognition, it enlisted an expert consultant on the subject. “It was necessary to hire a technical advisor in order to create an internal committee in Torre Mayor to help us tackle the five factors required for the LEED certification.” Some of the main issues include energy efficiency and cultural behaviour, and the latter entailed modifying the way in which the tower operates and adopting a sustainable mind set. “We work with each company in the tower to educate them and promote principles in favour of sustainability,” he adds. A crucial piece of the puzzle is water, and Torre Mayor was able to significantly reduce its water consumption. “We achieved this by revising all of our bathroom features, which resulted in an additional 25% of water savings,” he explains. This was not enough for the tower’s ambitious developers, as they decided to incorporate a wastewater treatment plant that will recycle all water used daily. “This will make the tower a zero discharge building. Once again, we demonstrate the possibility of investing in green actions that align with our business model.” This thirst for innovation will help Torre Mayor maintain its position at the forefront of the building industry. “There are no secrets in what we do at Torre Mayor, and we are open to sharing all of our information in order to promote a more sustainable approach to developing and operating buildings,” Flores admits.

217

MEXICO CITY PILOT OF MEGACITIES PROJECT Acting as the Executive Director of Greenpeace in any

Mexico is the promotion of solar panel projects, but people

country is never an easy task. Every country presents

are distrustful about making a big investment without

different

guaranteed returns. This has led us to look at business

commitment within the government and the private sector,

environmental

liabilities,

varying

levels

models in leasing solar panels so that people can pay an

and a general population in need of education. In Mexico,

affordable price to install panels for renewable energy,”

this problem is compounded by the sheer size of its capital.

states Bartels. One part of the megacities project will also

With over 22 million inhabitants, Mexico City’s levels of

look at the structure of waste collection facilities in Mexico

waste management, emissions, and urban planning flaws

City. With the majority currently being carried out manually,

are just some of the issues that its government has to

Bartels acknowledges that building large, centralized

grapple with. However, this is an area where Greenpeace

infrastructures to handle waste would be pointless. Instead,

believes it can help.

Greenpeace seeks to play to Mexico City’s strengths by

“Mexico City emits more CO2 emissions than the whole of Ireland, so urgent action is required. We do not have the time to approach every municipality individually, and Mexico City is a good place to start” Femke Bartels, the Executive Director of Greenpeace Mexico

Femke Bartels, the Executive Director of Greenpeace Mexico,

designing decentralized systems that are more resilient,

explains that a major new focus for the NGO concerns

more efficient, and allow more control.

megacities. “We are piloting this program in Mexico. Mexico City emits more CO2 emissions than the whole of Ireland,

A similar final initiative concerns micro biogas installations,

so urgent action is required. We do not have the time to

which could prove particularly useful, given the scale of

approach every municipality individually, and Mexico City

Mexico City’s waste problem. These installations would

is a good place to start,” she explains. It is Greenpeace’s

allow citizens to collectively use organic waste to produce

belief that if Mexico City implements a program that leads

energy. According to Bartels, Greenpeace has been made

to success, other Mexican cities will follow suit. In the Mexico

aware of a lack of collaboration and cohesion between

City pilot program, Greenpeace will focus on transportation,

levels of government and political parties within Mexico

decentralized renewable energy generation, urban farming,

City and its metropolitan area. In this way, a particular

and green roofs. According to Bartels, many specific actions

advantage of the biogas initiative is that it is less

can be taken to make the city greener, such as regulating

focused on government action or policy-making, and the

water flow. “Mexico City faces heavy rainfall but the water

responsibility lies with public action.

simply floods the streets, leaving 5.6 million people in the capital at a high risk of flooding. Added to the fact that

This megacity project in Mexico City will be one of

Mexico City is sinking, the problem becomes acute. We want

Greenpeace’s three main enterprises in Mexico over the next

to look at the city as an ecosystem and answer questions

five years, alongside toxic rivers, and sustainable agriculture.

such as how it can generate its own clean energy,” she says.

However, these three areas will be linked, given the way in which water quality and unhealthy nutrition impact life inside

218

With the anticipated roll-out of the project scheduled for

the city. “Three to four years from now, Mexico City can be

2015, Greenpeace will be making specific recommendations

made more livable through concerted efforts to change the

to the city government, but it knows that further

infrastructure, particularly in the transport sector. The city’s

collaboration is required. Discussions have already taken

public transportation is highly inefficient, meaning that some

place with CEMDA, ClimateWorks, and Centro Mario Molina.

people might opt for a car, even if this alternative is more

Such a collective approach will certainly make Greenpeace’s

expensive. Mexico City could quickly be the ride-sharing

voice louder but Bartels knows that the aim of this megacity

capital of Latin America through shared economies such as

pilot project must go further than simply convincing the

Ecobici and Carrot, which are already active in the city, but

government to take the right steps. “Greenpeace wants

relatively overlooked,” says Bartels. Greenpeace sees these

to work alongside the Mexico City government in a

initiatives as being conducive to sustainability, especially for

complementary way. One of the primary ideas we have for

those who cannot afford cars or other services.

| VIEW FROM THE TOP

LOCAL STANDARDS NEEDED IN GREEN MARKETS DARÍO IBARGÜENGOITIA President of SUMe

Q: What benefits can Mexico gain from concentrating

localities. It is important to deliver new standards or modify

more efforts on the proliferation of green buildings?

old ones to create these new minimum requirements, and

A: The increasing prevalence of green buildings in Mexico

then create the baseline for the certification. These would

is amazing and it can be attributed to the fact that

be NMX, thus they would be voluntary. Some of these

developers are now aware of the benefits these buildings

standards will be NOM for government buildings, because

provide. LEED is the most important certification in

if the federal government is asked to comply with these

Mexico at the moment. However, SUMe is working with

standards, then we can transform an NMX into an NOM.

SEMARNAT in creating a national certification for green buildings. The first step consists of creating standards

Q: What changes in the sustainable construction market

and norms to outline the rules for buildings in general, the

do you expect to see, taking into consideration that there

purpose of which is to foster a new culture around green

are so many industrial hubs?

buildings. After all, certifications are not as expensive as

A: We are working with these hubs and industrial parks.

people believe; they raise the original investment by 8-12%,

These are growing in an amazing way in regions such as

but it is possible to recover this amount within two to five

Bajio, Monterrey, and State of Mexico. We are trying to

years. It is relatively easy to certify a building in Mexico,

change the way they use the land, as they tend to abandon

it is not overly expensive, and green buildings will lead to

their facilities, altering the landscape. We want to provide

green urbanisms, making cities embrace sustainability.

new processes for manufacturers or industries to make all the facilities sustainable and efficient. In terms of best

Q: What steps must be taken in order to create local

practices, I would love to see some drastic changes in

standards suited to the Mexican green building market?

the excavation and demolition stages of constructions in

A: SEMARNAT is coordinating the government’s efforts in

Mexico. The way we deal with residual materials is terrible.

the creation of the certification, and SUMe is overseeing

The cultural shift, however, can be seen in manufacturers

the private sector’s participation. The intention is for this

who are changing the way they manufacture their products

certification to come from the private sector exclusively,

in order to make them sustainable, regional, or are making

not the government, although local standards will be used.

them from recycled materials.

Standards in Mexico are very different from international ones, which are not always validated by the government.

Q: SUMe has become an emergent council for the World

We need to start modifying regulations and creating

Green Building Council. How would you describe the

new local standards. After all, Mexico has an appetite for

process of becoming part of this emergent council?

sustainability. We are pushing change slowly because

A: SUMe worked for a year and a half on some programs

we cannot implement international certifications at the

and processes to deliver all the required material to the

beginning of a construction, since most contractors and

WGBC to achieve emergent council status, finally achieving

developers have not yet adopted the culture and practices

the certification in March 2014. We are creating a network

for green buildings.

with councils from the US, Colombia, Canada, Argentina, and Brazil in order to provide the best practices within

Q: How helpful have norms such as Edificación Sustentable

Latin American culture. Due to the prevalence of global

been in encouraging the development of green buildings?

companies in Mexico, we are adapting standards, codes,

A: We need to create so many norms because in Mexico

and practices from all over the world, so that it becomes

the construction market has a very regional nature in

easier to provide sustainable solutions with standards

terms of state and municipal codes. I would say Mexico

similar to those found elsewhere. Our ambition is to

City is the most advanced in this area; the rest of the states

continue working with USGBC, which is the designer of

either copy Mexico City’s codes or comply with them. We

LEED, so that we can deliver the new Mexican certification

want SEMARNAT to set a single standard for all Mexican

guide, which we expect to be ready in 2018.

219

DESIGN IS AT THE CORE OF GREEN ARCHITECTURE “There is a misconception

worldwide. This brings about the issue of certifications,

regarding the definition

which are used as a marketing tool and, in Picciotto’s

of ‘green’, which is just

opinion, are not as efficient as they claim to be. Although

So-

LEED certificates have several shortcomings, in his opinion,

umbrella

called

José Picciotto, Design Director of Picciotto Arquitectos

green

term.

buildings

he believes these are better than having no certifications

aim for efficiency and

at all. Mexico could have its own certification system, says

energy

Picciotto, but this would require a leader with the ability to

consumption.” When José

reduction

draft the requirements. “There is an excess of bureaucracy

Picciotto, Design Director

surrounding this subject and coordinating the different levels

of Picciotto Arquitectos,

of the government would be very difficult. Mexico would

began focusing on energy

probably need regional certification mechanisms.”

efficient buildings 15 years ago, he was a pioneer in the market. Back then, the private sector was not familiar

In Picciotto’s view, the construction industry has not

with what Picciotto was offering, and therefore there was

been an important feature of the government’s agenda,

barely any demand for his services. The situation started

as other factors such as energy security and protecting

changing eight years ago and now sustainability and energy

ecosystems have been the center of attention. “Take the

efficiency are common subjects of conversation. A turning

Energy Reform, for example, which is at the forefront of

point, Picciotto says, was when the US became concerned

the government’s priorities right now. The construction

with the environment even though Europe had already

sector may not be high on the government’s agenda, but

made significant progress in energy efficient architecture.

the changes in the Energy Reform will eventually trickle

“In Europe, people have been aware of efficiency for

down the construction industry because of its significant

years now because of their limitations. Some countries

energy consumption,” he explains. Picciotto finds that

are not rich in hydrocarbons and so their energy costs

enforcement of normativity in the construction industry

are expensive. This situation forced European countries to

lacks coherence and consistency because too many

embrace a sustainable building approach, which the US

players are involved.

recently adopted,” details Picciotto. In his view, two events reshaped the way buildings are planned in Mexico City: the

Even though clients are now more familiar with sustainability,

1985 earthquake and NAFTA, which brought about quick

Picciotto claims they still believe green buildings are a

changes to the construction sector. He believes the same

luxury like intelligent buildings. “Clients do not see green

will happen with the Energy Reform. “Many international

buildings as a matter of design, but rather as a matter of

companies will arrive in Mexico and will look for office

electronics and certifications that require a considerable

buildings that adhere to sustainable practices.”

investment as an intelligent building would.” In Europe, he explains, legislation demands the construction of efficient

Twenty years ago, says Picciotto, intelligent buildings

buildings that can withstand extreme temperatures, while

were the trend in the Mexican construction industry. The

similar laws are lacking in Mexico. Picciotto Arquitectos

focus of these buildings was not on energy efficiency, but

promotes, among other things, bioclimatic architecture,

on the control and automation of lighting and security.

which provides energy saving advantages because it

“This was a promising start for the increasing interest in

ensures buildings have a mild temperature all year round.

energy efficiency we are seeing today, as the evolution of

“Bioclimatic architecture is not a matter of technology;

the market generated requirements for something new.”

it is a matter of design, insulation, and the orientation of

The 2009 recession, however, had negative effects on

a building. These are elements our ancestors took into

the construction sector, and green buildings were not a

account when designing their buildings,” Picciotto asserts.

priority for clients because of budget constraints. Bioclimatic architecture is proof that green buildings do

220

“It was difficult to find a client that is looking to have a green

not always require high performance, imported materials.

building from the start. Usually, we would have to convince

“Suppliers sell green and sustainable elements, but many

our customers,” tells Picciotto, who adds that nowadays

still do not really understand that the issue is design,”

the popularity of green buildings is increasing because

explains Picciotto adding that there are already enough

of marketing strategies. He resents the fact that many

foreign companies manufacturing their products in Mexico.

companies claim to be green for public image purposes, when

Picciotto claims people follow trends blindly without

in fact they are some of the highest-polluting corporations

taking into consideration the main goals of those trends.

| VIEW FROM THE TOP

CLIMATE CHANGE CRISIS SPURS TRANSFORMATION LEFT: María Virginia Pérez, Director General of ITACA Proyectos Sustentables RIGHT: Caroline Verut, Deputy Director of ITACA Proyectos Sustentables

Q: Could you share the drivers that led to the creation of

fails to correlate the deeper underlying factors, whereas

ITACA Proyectos Sustentables?

sustainability demands a wider vision.

MVP: The company was founded in Villahermosa, Tabasco, in 1994, and had been working in the region for many

Q: What are the advantages of choosing bioclimatic

years. At that time we had an established interest in the

architecture, and how can it result in cost efficiency?

environment, but it did not consitute a crucial part of our

CV: Firstly, water and waste management systems are

business vision, it was simply a point of inspiration. Then

included in our structures. For the former we maximize water

in 2007, mother nature sent Mexico its first bill in the form

efficiency and include rain water harvesting and filtration, and

of the massive floods and Tabasco was one of the first to

closed cycles are implemented for the treatment and reuse of

pay. The whole city of Villahermosa was submerged and

water within the project, and for irrigation. During the design

the inhabitants were evacuated. I decided to remain in the

process we specify local, reused, recycled, and recyclable

city for the duration of the crisis, and get involved in the

products and materials. Secondly, our waste management

clean-up of my home town. It was then that I realized that,

studies have led us to realise the complexities of this sector.

as an architect, I needed to design buidings in an entirely

In Tabasco, for instance, we visited a transfer and processing

different way to combat the repercussions of climate

center. It was a disconcerting sight, with vultures and people

change. We prioritize sustainability, and all of our projects

fighting over the organic matter and plastics, respectively,

are built with an acknowledgement of the impact they have

leading us to incorporate waste management systems in

on the environment. We have now expanded our presence

our designs. Lastly, we tackle the concept of legacy, which is

and inaugurated an office in Mexico City to enter a market

closely intertwined with the concept of beauty, using designs

that is more receptive to green architecture.

that are inspired by nature and organic geometry to create forms that are conducive to human wellbeing. Therefore,

Q: How can ITACA improve urban planning and improve

we have a significant responsibility as designers to leave

the adaptability and resilience of vulnerable settlements?

behind buildings that reflect value and culture, but that also

CV: ITACA’s transformation viewed a major natural disaster as

withstand the rigors of aging, like those of our prehispanic

an opportunity to innovate and change urban development.

and colonial ancestors.

Seeing the effects of climate change firsthand had a deep impact on us and put our values and legacy into perspective.

Q: Which is your flagship project, and how has it applied

The first step we decided to take was to create consciousness,

these sustainability principles?

so I became a Climate Reality Leader to inform people about

CV: We applied the aforementioned principles to the

climate change, as well as its effects and challenges. Then we

Centro Gerontológico Tabasco, a care center developed

decided to take action in the building industry, since it is one

for DIF to house the elderly during the day, offering

of the sectors that can have one of the most positive impacts

infrastructure

in reversing climate change and mitigating its effects. It is

healthcare. We maintained the site’s multitude of almost

the understanding of the energy and water nexus, of the link

100 trees and designed around them, using the principles

of life and biodiversity, and of the risks to human health that

of bioclimatic architecture and energy efficiency, which

allow us to create sustainable buildings. Our contribution

earned us the Premio SEEER 2014. The project is 98%

has been mostly in individual buildings rather than urban

independent of municipal water sources through the

design. While we have worked with some local authorities,

use of rainwater harvesting and onsite water treatment

most of the time they are not receptive to these practices.

systems. Photovoltaic panels generate solar energy for

For instance, the way they face the prospect of flooding

interior and exterior lighting, and thermosolar panels are

is by increasing the height of the riverbanks, and when

used to heat the water in the therapeutic pools. This is one

the water overflows there is no safeguard. This mentality

of our signature projects, which we would like to replicate

does not consider cause, it only focuses on the effects and

throughout the country and even internationally.

for

sports,

recreation,

education,

and

221

HISTORIC BUILDINGS GIVEN A NEW GREEN LIFE Wandering down the streets of Mexico City’s historical

estimate with precision how much energy the design will

center you will find buildings erected and scarred by the

consume and how it will be distributed. This enables the

tumultuous history of the country, from the buried relics

client to assess different designs of the building in order to

of the Aztec empire to the palaces of colonial power. It is

identify the most efficient. “The first advantage is obvious;

precisely these historic jewels and existing buildings that

it is cheaper and prevents making adjustments during the

could benefit the most from today’s technologies. Alicia

construction period. It shows clients how energy efficiency

Silva, Director General and Founder of Revitaliza Consultores,

measures will impact their operations and it is a tool that can

and Santiago Rodríguez, Director of Energy Efficiency of the

spell out how much a client saves per solution applied to the

same consulting firm, both agree that the market segment

design,” Rodríguez comments. Silva adds that for existing

that must capitalize on energy efficiency practices is existing

buildings, the firm also carries out energy audits using the

buildings. “There is a lot of confusion in this particular sector,

ASHRAE standards. “It is a process in which we review

since many potential customers view this new technology

the whole building from the maintenance and operation

as too expensive; however, they must realize the enormous

processes to the actual construction. We use a platform

potential and energy savings it brings,” Silva points out.

from the EPA called Portfolio Manager, where the client can

“It is better and far more transparent to opt for international standards, since they will provide increased credibility levels to the customers”

Alicia Silva, Director General and Founder of Revitaliza Consultores

For Silva, the buildings in Mexico are built to last and usually

benchmark its building against others in similar categories.”

they have durable structures that can be renovated with

Unfortunately, in Silva’s eyes, Mexico has lagged behind in

energy efficient technologies. The benefit of upgrading

terms of normativity. “We have the NOM-008-ENER-2001,

current sites over demolition and reconstruction is that

which is related to energy efficiency for non-residential

less money is spent upgrading the system. Silva offers an

buildings. This norm has seen some improvements, but

example, “We ran the ROI cycle in a project in Queretaro

will be difficult to enforce over the long term. We also

where the customer had an existing building and wanted

have programs such as the PECES, but it is inherently

to add an extra story. We discovered that working with the

inefficient,” she laments. Some organizations have made

existing structure rather than starting from scratch would

progress in setting out a national certificate, yet Silva

be more efficient.” Huge potential has been identified in the

opposes these initiatives and deems them unnecessary.

area of heating, ventilation, and air conditioning (HVAC),

“When you tropicalize processes, you make them easily

and a boom is beginning to be seen in the renovation of

corruptible. It is better and far more transparent to opt for

old buildings with new equipment, where energy savings

international standards, since they will provide increased

are significant. “We have seen, for instance, that many

credibility levels to the customers.”

old buildings have R22 refrigerants, which are bad for the environment, and are banned in Europe and the US. Mexico

In Silva’s experience, the human element plays an important

is to follow suit in banning this particular equipment, so

part in existing buildings in terms of efficiency, and if people

the companies buying these systems can only use them

participate, energy savings of up to 30% can be obtained.

temporarily and the equipment will have to be replaced

The sector that is leading the way in the sustainability

in the short term,” Silva explains. For her, complying with

market is corporate buildings, and the manufacturing

higher standards is necessary, since the client will not only

industry is beginning to understand that energy is essential

save in energy consumption, but the equipment will also

for its survival. Despite common misconceptions and

last for longer.

regulatory shortcomings, the government is beginning to adopt a greener mindset. “The issue does not lie in the

222

Offering the most advanced tools for designing sustainable

unwillingness of the government, but rather the lack of

buildings is at the core of Revitaliza Consultores. One of

knowledge in certain segments. People in general are eager

these is energy modelling, where a 3D model of the building

to adopt sustainability and become green, since they feel

is created and a thermodynamic simulation performed to

they are making a difference,” Silva declares.

ARCHITECTURE FIRM PAVES GREEN PATH WITH LEED Until a few years ago, energy was relatively cheap, and

buildings. The continuous publicity and awareness-raising

therefore there was no real economic motivation for

campaigns on climate change to which the public has

sustainability initiatives. However, when resources became

been exposed plays a fundamental role. In places like

scarce and more expensive, there was an increased

Mexico City and Guadalajara, people are starting to think

consciousness of money saving methods. People realized

about the environment and about improving sustainability

that by constructing more efficient buildings with green

of buildings, which is encouraging LEED certification.

rooftops and rainwater collection mechanisms, money

Foreign companies such as Colgate have similarly helped

could be saved. Since it was founded in 2007, EA Energía

in the development of the green building industry. Paredes

y Arquitectura (EA) has been actively promoting these

affirms that recently, real estate developers have also been

practices, and the firm discovered that LEED certifications

considering LEED certification. By offering LEED-certified

were the most effective approach in accomplishing this.

buildings, the company stands out from the competition,

The company aims to improve the way buildings are

with a product that adheres to recognized international

constructed in Mexico, as well as promoting such initiatives

standards while requiring less operational costs, which is

to reach as many people as possible. “We have always tried

very attractive to potential clients.

to be leaders in the energy efficient buildings market, both in terms of profitability and ideology. We try to advocate

The demand for green buildings represents a significant

green practices to as many people as possible through a

opportunity for manufacturers as well. “When we started

deep understanding of the benefits they offer,” says Pedro

the business seven years ago, there was a lack of availability

Paredes, Project Director of EA Energía y Arquitectura.

and variety among the products that were needed for

“The hardest element is changing people’s preconceived ideas, but ultimately overcoming this barrier becomes the most gratifying aspect of the entire process”

Pedro Paredes, Project Director of EA Energía y Arquitectura

Green buildings imply much more than just using

the construction of sustainable buildings. Today, such

renewable energy, including simple mechanisms that lead

materials are starting to be produced in Mexico and there

to cost savings. “People involved in the construction sector

is an assortment of locally-manufactured products that we

in Mexico often do not fully understand what sustainability

use to make LEED-certified buildings. The green building

and LEED are really about. They have a long-established

market is demanding a green product market for elements

way of doing business, so new and previously unexplored

such as paint or certified wood,” explains Paredes.

options are off-putting. Companies are mainly concerned with overheads and profit, thus they hesitate to adopt

The growth of the industry and EA’s success occurred

the concept of LEED,” explains Paredes. The problematic

with no proper incentives from the government, although

misconception that EA often encounter is the sentiment

Paredes clarifies that these would be welcomed by EA.

that sustainable buildings are not suited for Mexico due

However, without proper regulations, rules for certification,

to a lack of accessibility to technology and the lack of

or mechanisms to measure the performance of existing

regulations, norms, and incentives. The second is related

infrastructure, provision of incentives will create a risk

to the high costs associated with implementing green

of greenwashing. This practice consists of companies

buildings, with some believing these will total twice as

claiming to have green buildings in order to benefit

much as regular buildings. “EA has played a fundamental

financially, without paying for the permits or abiding by

role in trying to publicize the correct information. The

required green criteria. For EA, LEED is not about investing

reality is that success in green buildings is actually about

significant capital in a building in order to make it green;

strategy, planning, and developing a project that will lead

rather, it is about thinking sustainably when designing

to energy and cost savings,” says Paredes.

a building. “The hardest element is changing people’s preconceived ideas, but ultimately overcoming this barrier

Despite these challenges, Paredes asserts there have

becomes the most gratifying aspect of the entire process,”

been important drivers in the promotion of green

concludes Paredes.

223

THE RISE OF SUSTAINABLE CONSTRUCTION The presence of cities in the landscape of the future is

and is the first to achieve the gold LEED certification in

undeniable, as seven out of ten people will live in urban

Latin America. Treviño recalls the experience, “People

areas by 2050. It is compelling to imagine what the

doubted it would work; however, when we succeeded, the

future urban landscape will look like when we add climate

offers started pouring in.” The building came to deliver

change, a growing population, and declining resources

impressive economic savings in terms of operations and

into the mix. Building successful cities or regenerating

maintenance. Treviño notes that the growing market

existing urban centers will require a harmonization

is dominated by international players, “70% of green

between concrete and steel, and nature. Bioconstrucción

buildings belong to transnational companies and the

y Energía Alternativa (BEA), a consulting firm specializing

remaining 30% are owned by Mexican companies.”

in sustainable construction, is at the epicenter of this transition. César Ulises Treviño, Director General of BEA,

As the largest accredited professional group for LEED

has noticed a significant appetite for sustainability and

certification in Latin America, BEA upholds its position

efficiency in the construction industry. “International

by offering high quality and professional services. The

companies sparked this interest as they began to operate

principal factors in gaining the client’s trust are operational

under more sustainable practices,” he explains.

costs, health and productivity, and market differentiation. “Another factor we stress is that this is a technological and

The rise of sustainable construction in the private sector

scientific process that offers results, knowledge, and best

has given way to the creation of a new green market.

practices in terms of energy modelling and data analysis,”

These companies have begun to demand services,

he adds. There are many savings that can be measured,

products, and in some cases certifications, in order to

such as energy and water, but there are also intangible

reach their goals. As a specialist in LEED accreditation,

benefits such as the quality of life of workers. Marketing

BEA has been involved in the most prominent projects

and brand image plays an important role in convincing

in the entry of sustainability to the construction industry.

companies to opt for a green building. Companies might

For example, as the consulting firm for the construction

hesitate to invest due to fears related to high capital and

of the iconic HSBC tower, the company can boast an input

slow returns, but BEA reassures its potential customers

into the construction of the first green building in Mexico,

that they can achieve silver certifications or higher for

GREEN URBANIZATION USHERS IN ECONOMIC PROSPERITY Urbanization must usher in a new era of well-being,

As the approaching steps of giant conglomerates resound

resource management, and economic efficiency, but to

across the plains of the sustainability market, Mexican-

do so cities must reinvent themselves, or they will end

based companies must arm themselves in preparation for

up bursting at the seams. Energy efficiency companies

the arduous competition ahead. Consolidation will serve as

in the Mexican sustainability market boast unique origins

an important tool in this battle, and one that Grupo DESUS

and they are the chisel and hammer shaping the urban

has selected as its weapon of choice. “As a result, the

landscapes. Grupo DESUS is one of those companies,

group has reaffirmed its position within the market and the

attributed with masterminding the transformation of

companies within the group benefit from a strong image and

Monterrey from concrete and steel to green landscapes and

an outstanding product portfolio that they can showcase as

parks. Enrique Abaroa, Director General of Grupo DESUS,

success stories,” Abaroa boasts. As Grupo DESUS acquires a

recalls the company’s humble beginnings, “Forty five years

wide range of knowledge, one fact remains clear for Abaroa:

ago we began as a company called Urban Landscapes,

“Sustainability should no longer be seen as philanthropy, but

which pushed for the government to allocate funds to

a profitable business opportunity.”

green developments, and it helped in the design of urban

224

landscapes like Fundidora Park, Santa Lucia River, Calzada

The

consolidation

the

group

depends

the

del Valle, and La Pastora.” As it became entrenched in

opportunities not only within the sustainability market, but

the backdrop of the city, the company decided on two

also in the energy sector. For instance, in 2008 it created

strategies: institutionalization and the integration of more

Energreen, a company focusing on biogas energy projects

companies into the Grupo DESUS fold.

that has since grown exponentially. “At that time we had

“In the most important streets in Mexico City, such as Reforma, the owners of over 60% of the buildings are pursuing some sort of certification or adopting sustainable practices that surpass regulations” César Ulises Treviño, Director General of BEA

less than 2% of the initial cost. Treviño states that, “In the

major area of opportunity in existing buildings that do not

most important streets in Mexico City, such as Reforma,

possess sustainable qualities. “We must adapt our services

the owners of over 60% of the buildings are pursuing some

to the existing constructions in order to help them achieve

sort of certification or adopting sustainable practices that

the standards with their current facilities,” he explains. It

surpass regulations.”

is undeniable that this will require an extraordinary effort from the decision makers and owners of these buildings,

Treviño stresses that if a world class building in terms of

so to succeed in this new segment, the company must

efficiency or sustainability is desired, then processes must

present the benefits of making the shift in a comprehensive

be realigned so the building can become a reality. “The

and tangible way. Treviño explains, “every building has a

architects, project manager, engineering firms, and general

budget for operations and maintenance. If you approach

contractors must adopt a new mindset, and as consultants

this with a proposal demanding ten times the initial budget,

we facilitate this change.” Whilst there may be 118 LEED

then it is a difficult decision to make.” To circumvent this

certified buildings in Mexico, obtaining the certificate is

obstacle, Treviño proposes the implementation of the ESCO

no easy feat. “There are 520 buildings that are vying to

model and offering ESCO integrated solutions. Conquering

become LEED certified and approximately 10% of those

this new market segment requires collaboration with the

will never achieve the standard. This is due to a number

public sector through new initiatives, norms, and incentive

of factors, such as incomplete initial planning,” he states.

programs to promote a major transformation for the large percentage of existing, unsustainable buildings. For

Every city is different and its roads and avenues echo with

consulting firms like BEA the future looks bright. “It has

its history and cultures. Companies in the sustainability

taken time for the concept of sustainability and green

sector must promote understanding of these nuances in

buildings to popularize, but thanks to the media, it has

order to offer specialized services. Treviño has spotted a

gradually come to the forefront of the public mindset.”

two projects: Cancun and Atizapan. We have now added

Grupo DESUS takes on the new challenge of providing

several projects in our portfolio, including San Luis Potosi,

integrated solutions that include energy efficiency and

Pachuca, and Mextepec, and have become the company

power. In the former category, it identified considerable

with the most concessions,” Abaroa states. To survive in this

potential in the sector of efficient lighting, and following

competitive environment, players must choose their battles

its consolidation strategy, Grupo DESUS opted to create

wisely, a requirement of which Grupo DESUS is acutely

alliances with companies specializing in the sector. “We

aware. “Large corporations will assume projects that are

created an alliance with Iluminación Total, a company

larger than 30MW, so we decided to target smaller projects

with 40 years of experience in lighting engineering, and

of 2-3MW. While everyone vies for large projects, we see

with GDS (Global Display Solutions), which specializes in

a lot of potential in mid-sized commercial and industrial

LED lighting,” Abaroa states. This enabled the company

players,” Abaroa points out. Additionally, Grupo DESUS has

to begin manufacturing LED-based street lighting systems

entered the solar sector with three 30MW ready-to-build

and develop industrial applications. The success of this

projects in Chihuahua. “We have obtained funding from a

strategic maneuver is apparent, as Grupo DESUS now

Spanish company, and we already have permits from CRE

boasts clients such as Nemak and Grupo Soriana.

and CFE, as well as the approved environmental impact assessment,” he adds. After the convolution and difficulties

Consolidation will continue to hold sway and Grupo DESUS

faced in obtaining the permits for these three projects, the

will integrate smaller companies as it ventures further down

company now has a fourth solar project in the pipeline.

the new path it has pledged to conquer. For Abaroa the

Under the new law, small power producers working on

vision of the future is clear, “Our goal is to create smart and

projects lower than 30MW can switch to PPA, a prospect on

sustainable cities. It is inevitable that cities will continue

which Grupo DESUS has capitalized. “We are implementing

to grow and become overpopulated, so intelligent urban

this in conjunction with our biogas project and we are

planning is urgently required.” Certainly, Grupo DESUS will

switching to a municipality tariff,” he clarifies.

be on hand to form Mexico’s smart cities of the future.

225

Children struggle to walk across a dusty pathway carrying buckets of murky water on their shoulders. This is an image that has been ingrained in the Western World’s psyche for decades. Waste landfills spanning the outskirts of urban landscapes with carrion feeders flying overhead is fast becoming a common sight. Having well-established water and waste management strategies ranks highly on Mexico’s list of priorities, especially considering the strain population and economic growth are putting on precious resources like water and on the proper handling of waste. At the heart of this issue lies the energy-water nexus, and addressing both of these trends in an integrated way will ultimately lead to innovative and efficient solutions.

Water management policies of CONAGUA and SACMEX, and sustainability and environmental requirements emerge at the beginning of the chapter, followed by players specializing in top water treatment technologies, water remediation, and management solutions. The inherent link between waste and energy is explored through examples of landfill energy projects commissioned by municipalities and key waste-to-energy projects that incorporate top-of-theline technologies. The principal challenges generated by handling and managing waste in Mexico are unearthed, ultimately showcasing the importance these have on the overall functioning of Mexico’s society.

WATER & WASTE MANAGEMENT

Planta Clasificadora de Reciclables Relleno Sanitario

Generación de Energía Eléctrica a partir de BIOGAS

SIMEPRODE es un organismo público descentralizado del Estado de Nuevo León, dedicado al procesamiento de desechos sólidos no peligrosos generados en el Área Metropolitana de Monterrey y algunos otros municipios del Estado de Nuevo León. El medio ambiente, representa la razón principal de ser de la organización.

CHAPTER 10: WATER & WASTE MANAGEMENT 230

VIEW FROM THE TOP: Roberto Ramírez de la Parra, CONAGUA

231

VIEW FROM THE TOP: Alejandro Martínez, SACMEX

232

VIEW FROM THE TOP: Sander van de Lagemaat, OPC Ambiental

232

INSIGHT: Rubén Mendoza, Züblin Ambiental

234

VIEW FROM THE TOP: Robert Langlois, CANROMEX

235

TECHNOLOGY SPOTLIGHT: CANROMEX

236

VIEW FROM THE TOP: María Elena Giner, Border Environment Cooperation Commission

237

INSIGHT: Alejandro Martínez, SACMEX

238

VIEW FROM THE TOP: Luis Rubén Gutiérrez, PepsiCo Mexico

239

VIEW FROM THE TOP: Manuel Gómez, Walmart México

241

PROJECT SPOTLIGHT: Atotonilco

242

INSIGHT: Ricardo Páez, SIMEPRODE

243

INSIGHT:

244

VIEW FROM THE TOP: Ian Cooper, ENER-G

245

PROJECT SPOTLIGHT: Lorean Saltillo

246

INSIGHT: Camilo Pagés, Sistema Biobolsa

247

INSIGHT: Victor Pagaza, a3p

248

VIEW FROM THE TOP: Daniel González Iñiguez, Solben

249

INSIGHT: Elisa Guinea, CH2M

Eric Villagómez, Verde Alterno Eduardo Silva, Verde Alterno

229

| VIEW FROM THE TOP

A GLIMPSE OF MEXICO’S WATER POLICY ROBERTO RAMÍREZ DE LA PARRA Director General of CONAGUA

Q: How is Mexico positioned in the international arena in

Q: Most of the renewable energy CFE generates comes

terms of water management, and how is it implementing

from hydropower. How is CONAGUA improving permitting

international best practices?

processes for both CFE and private players in order to

A: Mexico is a point of reference in water management given

incentivize the creation of hydropower plants?

its hydrological diversity, the unique challenges it faces,

A: The federal government is attempting to improve

and the new solutions implemented by the government.

the permitting processes across a wide array of sectors,

We have been active in the international arena by working

and particularly in water permits emitted by CONAGUA.

with different organizations and associations like the World

The agency already has a pre-established protocol that

Water Council (WWC), International Water Association

defines the deadlines in all the permits that it receives.

(IWA), American Water Works Association (AWWA),

In terms of the projects CFE presents to CONAGUA, the

the World Bank, OCDE, and UNESCO’s International

close collaboration allows a quick response to queries,

Hydrological Programme (IHP). It is also important to

analyses, and ensures that the projects are safe and

note that we are actively aligning our activities to the

operable.

new objectives for sustainable development that will be defined by the International Water Agenda until 2030. In

For CONAGUA, all players are important and as such the

addition, we are working on the goals that were set out

permits that are granted are related to the availability

by President Peña Nieto during the general assembly of

of national waters. The Energy Reform promotes clean

the UN, as well as creating an intergovernmental water

and renewable energies such as geothermal, which uses

panel. The objective of this panel is to develop technical

water vapor and represents a reliable and clean energy

capacities in order to tackle climate change and to obtain

source. As a testament to this commitment, in July 2015

the support of other countries and organizations.

we granted CFE the first water concession for the use of geothermal water.

How

would

you

describe

the

way

CONAGUA

collaborates with other agencies in order to mitigate the

Q: What role does CONAGUA anticipate for Mexico in the

effects of climate change like drought and floods?

adoption of sustainable water management strategies?

A: Mitigating and preventing the risks associated with

A: So far, several initiatives have been carried out to

climate change is one of the toughest challenges we

achieve a greener and more sustainable management of

have to tackle in terms of water. CONAGUA has played

this precious resource. For example, we have forbidden

an integral part in the success stories over the past three

the drilling of water in different regions of the country

years, one of which was the protection of over 900,000

without our direct authorization. This measure is of great

inhabitants across 11 states against flooding.

relevance and allows us better control over the 10 billion m3 of underwater resources. In addition, we are working

230

The construction of important infrastructures like the

with international specialists for the recovery of ten

100km of deep tunnels intersecting the Valley of Mexico, the

contaminated aquifers across the country and removal of

Hydrological Program in Tabasco, and the Nuevo Guerrero

the negative factors that affect them, which represent an

Plan are among others. To mitigate flooding and droughts

unprecedented effort from our part. Another important

we have created a new Inter-Ministerial Commission that

development sparked by the 1913 act signed between

implements preventive programs. We have deep ties with

Mexico and the US is the release of over 130 million m3 of

SAGARPA and this will enable us to develop practices

water in the delta of the Colorado River. This volume of

that integrate efficiency and sustainability with water

water will allow the ecological development of 950 acres

management. Another important strategy is to increase

and will benefit the flora and fauna located there. This is an

efficiency of dams in order to cover the demand for the

excellent example of successful bilateral cooperation in the

coming two years.

management of water resources.

| VIEW FROM THE TOP

OVERCOMING CHALLENGES IN METROPOLITAN WATER SUPPLY ALEJANDRO MARTÍNEZ Executive Director of Operations at SACMEX Q: What role does Mexico City Water Systems (SACMEX)

Q: What challenges have you faced during your tenure of

play in providing water-related services to the inhabitants

supplying the Mexican capital and how are you addressing

of Mexico City?

these?

A: SACMEX is a decentralized organism belonging to

SACMEX’s objective is to supply water to everyone in

SEDEMA and is in charge of supplying potable water to the

Mexico City, but it impossible to maintain a constant supply

residential sector. We also take care of sewage and drainage,

at all times across the whole city. The way we mitigate this

and our waste water division treats 12% of the water that is

shortcoming is by supplying water to different districts

used in Mexico City. SACMEX has a program for unclogging

during different schedules. In case of an emergency related

drainage systems that provides maintenance to the pipes

to water shortage, we have 260 potable water storage tanks

throughout the year. General maintenance is carried out on

with an auxiliary 1.5 million m3 of supply. However, this water

the 13,000km of potable water pipelines every two years.

reserve would not last more than a day and a half. Given

Our water treatment operations rely heavily on the largest

these difficulties, we are currently working on a strategy to

water treatment plant in the city, which can handle 4m /s. At

improve the distribution and quality of potable water. This will

the moment, we are treating 2.2m3/s in that plant, and these

be achieved by replacing some of the pipes, as some of the

operations are supported by smaller plants that range from

city’s water infrastructure has exceeded its standard lifespan,

10l to 200l. SACMEX also maintains to the electromechanical

thus increasing the possibility of leaks. At the moment, we

systems used to supply potable water, such as pumps used

are carrying out studies to triage the neighborhoods and

in wells, pumping facilities, and water tanks.

streets where the piping needs to be replaced. We are

currently working on segmenting the city’s water network Q: How are you working on making sure that potable

in order to supply water to locations where it is currently

water is effectively supplied to the people of Mexico City?

unavailable, or where pressure levels are too high to supply

A: Mexico City obtains its potable water from internal and

water in traditional ways. The way these segments operate

external sources, and due to the city’s topography it is

is by isolation from the primary network so that pressure

difficult to import water from other locations. Therefore,

levels can be controlled during distribution.

the water that is used in the city comes from the subsoil and is extracted through wells, which are known as internal

Q: Have you sought alternatives for supplying water to

resources. Wells in Mexico City and the State of Mexico

remote settlements with infrastructure deficiencies?

comprise 70% of the supply, while the remaining 30% comes

A: We have projects to recover rain water from rooftops,

from external resources, mainly from three water systems

and we have also been working on drilling absorbing

under CONAGUA’s jurisdiction. The Cutzamala system

wells. Unlike traditional potable water extraction wells,

produces 9,000l/s, Barrientos produces 2,200l/s, and La

these wells receive the rain water we collect, which we

Caldera contributes with 600l/s. On average, the city’s total

then treat to remove large, solid particles. SACMEX, in

water consumption is close to 31,000/s. We have drilled

collaboration with the district governments of Iztapalapa,

970 wells in Mexico City and the State of Mexico, with 250

Xochimilco, and Tlalpan, has drilled approximately 400

potable water pumping facilities. SACMEX’s potable water

absorbing wells that will help replenish the aquifers to

operations also entail repairing leaks. According to the latest

some extent. It is important to keep in mind that in Mexico

studies, close to 25-26% of the city’s water supply is lost in

City, it only rains for five months per year. Making a rain

leaks. This is the equivalent of 8.5m3/s and includes water

water network is rather expensive when considering

use from households and commercial establishments that

that rain is intermittent. At the moment we are working

do not pay for their water. We repair close to 20,000 leaks

on a water recovery project with schools in Tlalpan,

each year, and so far we have replaced close to 1,500km

Xochimilco, and Milpa Alta, where rain water is captured

out of 13,000km in the potable water pipeline network with

from the schools’ rooftops, then sent to water wagons,

newer polyethylene pipes.

and ultimately used in restrooms.

231

| VIEW FROM THE TOP

NEW TECHNOLOGIES FOR SOIL AND WATER REMEDIATION SANDER VAN DE LAGEMAAT Director General of OPC Ambiental

Q: What are the main causes of contamination that OPC

Q: What are the different technologies available for

Ambiental has identified in its soil remediation business

soil remediation, and how have these been successfully

segment?

implemented?

A: The main cause of contamination we have identified is

A: We carried out an interesting project with PEMEX in the

a result of gasoline theft from pipelines and the resulting

Salamanca region where we had to deal with a difficult

oil spills. PEMEX is our main client, and once these spills

and high concentration of contaminants. Luckily, we

are detected, action is swiftly taken. Unfortunately,

completed this project in a shorter period than initially

municipalities and state governments lack the funds

planned. Time can be a constraint when working with the

to invest in environmental initiatives, especially in soil

public sector or PEMEX due to the budget cycles. Soil

remediation. I believe this is a responsibility that the

remediation and other similar projects are time consuming,

federal government must address. Within the federal

since bioventing requires 9-12 months of treatment time,

government, different entities had to deal with their

and in the case of complex contaminants like heavy

own contamination problems and seek oversight from

metals, the treatment can last for several years. There are

SEMARNAT, but during this process there were budgeting

different ways of treating contaminated soil. The first is by

barriers and a lack of technical capabilities. As a result,

excavating and incinerating the land, the second is putting

SEMARNAT now funds the remediation of contaminated

the contaminated soil in a landfill and treating it with

sites, an approach which promotes increased collective

nutrients and chemicals, and lastly, there is bioventing, in

knowledge and better results.

which we inject nutrients, oxygen, chemicals, and water

CLEANING UP THE OIL AND GAS INDUSTRY

Rubén Mendoza, Director General of Züblin Ambiental

Züblin Ambiental (Züblin)

not surprising that PEMEX is the firm’s main Mexican client.

is a company with over

Züblin mostly works on soil contamination caused by spills

50 years of experience

and leaks of oil pipelines and storage tanks. At the moment

Züblin is dealing with retrospective problems, since the

contaminated

the

restoration sites

and

previous mentality has been focused on production

groundwater

treatment.

regardless of the consequences. “The gasoline residue was

“The company was first

delayed due to lack of budget, but now PEMEX has made

established in Germany,

a considerable effort.” He adds that PEMEX adopted a new

after World War II and the

vision in the late 1990s that began to prioritize matters of

industrialization

the

safety and environmental protection. Gasoline theft by

country caused significant

duct sabotage is a new problem that was first witnessed

levels of contamination,” explains the company’s Director

six years ago, Mendoza mentions. “This problem is difficult

General, Rubén Mendoza. Züblin began as a construction

to control and in many cases it causes soil contamination

company with an arm for the restoration of contaminated

and leaking. PEMEX has developed a faster response, yet

sites and water treatment. The company arrived in Mexico

this is occurring more and more often.”

15 years ago. “Most of the problems we are solving in

232

Mexico are a result of practices from the 1970s, and while

Mendoza firmly believes waste management is a critical

these had been identified and classified, they had been

area that must be addressed and the government has no

solved at a slow pace until that point,” Mendoza conveys.

clear policy surrounding this issue. “PEMEX requires a clear

In Mendoza’s experience, the oil industry is a considerable

waste management policy since, at the moment, technology

polluter not only in Mexico but all over the world, so it is

cannot distinguish between ordinary and toxic waste.” He

into the soil, the main advantage being that there is no

they had to deal with amounts of salinity in a limited area.

need to interrupt ongoing activity.

In the 1980s, electric pulse technology was introduced to the ships to tackle these problems. OPC Ambiental

Q: What breakthrough technologies have you incorporated

adapted this technology into a variable pulse system that

into you water management product portfolio?

transmits electrical pulses in accordance with the levels of

A: In many instances, a client may not know what it wants

contaminants, and this gives us a competitive advantage,

or the type of water quality it deals with; the only thing it

since we can more accurately predict the end result and

knows is that it needs to build a water treatment plant. Prior

guarantee a stable output of water.

to building a water plant we carry out in-depth research to measure how much water is being consumed daily, peak

Q: Which markets are poised to benefit the most from

times, continuous flow of resources, and contamination

your services, and how are you positioning yourself in

levels. Once this information is collected, we design the

order to capture these new areas of opportunity?

plant and implement it. One of the breakthroughs we have

A: The private sector is open to these solutions, and we have

incorporated into our product portfolio is a mobile water

worked with the construction industry in malls and large

treatment plant. With this plant, apart from treating the

infrastructure projects. Right now a driver in the market is the

water, we also receive realtime information on the water

rising water costs that are impacting a range of industries.

quality, enabling us to better design and accommodate

Companies in the past would only install a water plant in fear

needs of that specific client.

of PROFEPA monitoring, but now they see the advantages of recycling and reusing treated water. One of our competitive

Approximately

biological

advantages is that we have a notable control over the

water treatment plants, and there are other accepted

95%

the

market

uses

output quality of the water, which makes it easier to recycle

technologies like reverse osmosis systems, but these

and reinsert into the systems. This differs from biological

require a specific water quality. The MARPOL convention is

treatment systems where it is difficult to measure the output

an international agreement covering pollution prevention

quality of the water. We are tapping into new markets by

of the marine environment by ships from operational or

offering financed water treatment plants. We offer potential

accidental causes. When it was signed, companies realized

customers the possibility of leasing a plant and afterward

the difficulties of treating waste water from ships, since

they are given the opportunity to buy the plant.

notes that, in some instances, PEMEX must implement

is based on bioventing, and it involves taking the firm’s

expensive solutions because the cheaper alternatives are yet

equipment onsite, digging wells, injecting air, and removing

to be introduced to Mexico. According to Mendoza, Mexico

the contamination as vapor. The main competitive advantage

began to draft environmental laws in the 1990s and the first

of this solution is that operations are not interrupted. Züblin

soil remediation norm was published in 2004. His concern

has successfully implemented this method since 2006.

lies not in the norms themselves, but in the authority’s lack of enforcement, which has been a long-standing issue. Züblin

Züblin is also introducing a new water treatment called

has the technology and knowledge to provide preventive

wetlands, which has been successfully developed in

measures, but the main barrier is that companies have not

other parts of the world. “The unique quality of this water

developed enough of an environmental consciousness

treatment is that the system is completely natural. The

to invest in these solutions. “Few companies in the mining

systems use natural processes involving wetland vegetation,

industry implement preventive measures, and chemical

soils, and naturally-occurring bacteria to improve water

and textile industries were

even less keen to approach

quality,” explains Mendoza. This biological method is low

environmental problems. In reality, most companies see these

maintenance and it focuses on the harmonious interaction

environmental solutions as expenses and not investments.”

between the plants, filters, and micro-organisms. This system is especially relevant for treating areas that were

In spite of the structural obstacles, Züblin has the means

lost to development and for mitigating environmental

to help PEMEX and other companies mitigate their

disturbances. “We have cooperated with Bauer, which is a

environmental externalities. Traditional soil remediation

leader in this area, in order to gain expertise and knowledge.

technologies consist of removing the soil, treating it, storing

PEMEX is interested in installing this technology in some of

it, and then returning it. Mendoza claims it is difficult for

its facilities across Mexico. We are in the planning stages,

PEMEX and other industries to implement these technologies

but we hope to see this project come to fruition by the end

because they require a halt in operations. Züblin’s technology

of 2015,” tells Mendoza.

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| VIEW FROM THE TOP

DEFYING CONVENTIONAL TECHNOLOGIES IN WATER TREATMENT ROBERT LANGLOIS Director General of CANROMEX Q: What were the main drivers that led to the creation of

and its potential in Mexico. Worldwide, there is a major

CANROMEX, and how has its experience in waste projects

concern regarding the preservation of water and its

led it to identify business opportunities in other sectors?

reserves since there is a need to ensure that it continues to

A: The company was founded in 2006 in response to a

supply our needs as well as those of our future generations.

rising opportunity in the market to transform waste into

Mexico has a long road ahead to implement sustainable

energy. We formed associations with a Canadian company

and efficient water management strategies. According

called Smart Soil that has unique technology to optimize

to governmental statistics, over 95% of the population

the production of biogas from municipal waste. The

has access to potable water, but this does not reflect the

first project was developed in 2006 in Ciudad Juarez,

realities. The water may be potable in the treatment plant

Chihuahua; it has an installed capacity of 4MW and has

but once it reaches the end user it is contaminated due to

been in operation since 2007. Despite having won seven

problems in the pipelines. Mexico is the biggest consumer

waste-to-energy project bids, working with municipalities

of bottled water in the world per inhabitant and even

has been a complex process. The first project in Ciudad

people with low incomes buy water instead of drinking tap

Juarez was a success and frankly it is one of the best

water. Mexico continues to use technologies that are over

projects in this sector. As we ventured into other projects

100 years old and it has pushed very little for innovation in

we encountered several major obstacles. All the equipment

water treatment technologies. It continues to use activated

in a project of this kind has to be located in the landfill

sludge technologies, and while these are good technology

in order to extract the biogas, and several problems arise

in terms of capabilities, they are difficult to operate. With

from this. Land ownership can be a major barrier, in some

a project that uses this technology, experts are needed to

cases the titles of the land are unclear, or in other cases the

operate it because inadequate operation will progressively

landfill is located on ejidos.

deteriorate the quality of the water to the point where it will be totally useless.

Q: What are some of the barriers you have faced when working with municipalities?

Q: What has been the process of implementing new

Reaching an agreement can be a difficult process and

technologies in Mexico’s water management sector?

you cannot carry out an investment of US$15 million

A: It was a strategic decision not to compete with companies

where there is no land title security. The second barrier is

that implement the activated sludge technology; instead we

the Mexican political system that is reflected in the short

decided to look for unique technologies from around the

administration periods of municipalities. For continuity,

world. While a technology may work very well in a country,

the State Congress must ratify agreements that are longer

it does not mean it can be implemented in Mexico; local

than three years. This is a political situation that can

conditions have to be taken into consideration. We carried

sometimes be difficult to navigate. As a result, obtaining

out an extensive study of technologies in order to identify

financing can be challenging because the investment is

those that could be implemented successfully in Mexico. We

a high risk and investors may avoid these obstacles. To

now have a selection of technologies from Australia, Canada,

develop these projects you need a secure legal system, and

the US, and Germany and they can be tropicalized to suit the

this is a weakness in Mexico due to slow judicial processes

needs of Mexico’s water treatment. The main advantage is

and there are several cases where it took up to 15 years to

that they are far more efficient and they are easy to operate.

enforce rights. This is detrimental to investment incentives.

One of the issues in water treatment is the space that will be used to construct the plant and this is especially relevant in

234

Q: In response to these challenges, how has CANROMEX

cities where the cost of land can be quite high. Our systems

diversified its service portfolio to enter into other sectors?

may occupy as little as 25% of the surface conventionally

A: We made a strategic decision to venture into the water

required, and so clients save 75% extra space where land can

management sector given the significant opportunities

be used for higher-value applications.

In a residential compound, instead of using 1,000m2 for a

keeping a colony of live microorganisms that consume

water treatment plant, we are able to achieve the same

the contaminants. These systems are mostly designed

results with only 250m2, which leaves 750m2 available

for black and grey water since chemicals are needed

for the construction of more houses. Energy costs are a

to treat industrial water. This technology is unique in

critical aspect for any business and even government, so

the sense that the oxygen provided to the organisms

by using new technologies, clients can not only reduce

comes from the ambient air, which is unusual in biological

their operational costs but also lower their energy costs.

treatment systems. It is a compact module where the

In addition, most of our systems do not use chemicals,

water is circulated from top to bottom, percolating

so there are further savings and the processes are far

on the membrane rather than through it, and allowing

more environmentally friendly. Ultimately, innovative and

the microorganisms to consume the unwanted matter.

efficient systems offer a better water quality. Normativity

Because it does not use blowers, the system achieves

is also an important driver. According to SEMARNAT’s

the lowest energy cost of any water treatment system,

NOM-003-2007, all water can be recycled into non-

using less than 0.5kWh/m3 per day. We have an exclusive

potable applications so the recycled resource can be

license to distribute this technology in Mexico.

used for washing, gardening, and toilets. Even industrial companies can reuse the water in their manufacturing

Q: What breakthrough technologies have you developed

processes. The goal is to reduce the consumption of water

in Mexico, and what are the country’s main advantages?

through recycling.

A: Our corporate and engineering offices are in Saltillo, Coahuila, and there we have developed a new portable

Q: Could you describe a technology that you have

water treatment system. This system is housed in a

successfully adapted and implemented to the conditions

container and can process from 2m3 to 80m3 of water a day.

of the Mexican market?

In many cases, it is necessary to build the infrastructure

A: We select the technologies according to each

to house the system, yet the advantage of our system is

application. One of the technologies we like to use comes

that the only things needed are the usual sewer pipes and

from Australia and it is called BioGill. It is a modular

the underground reception tank. Usually a conventional

system made up of nanoceramic membranes and its

system requires a series of tanks for separation, but in only

distinguishing feature is that it does not use a blower

two days we can deploy our treatment plant and be quickly

system for the oxygen that is usually injected into the

connected. This is a Mexican innovation that incorporates

water. The treatment of any biological system requires

the best practices from around the world.

| TECHNOLOGY SPOTLIGHT: UNVEILING THE INTEWA WATER SYSTEM Mexicans spent up to US$7.8 billion on bottled water in 2014,

between one and six membranes, with each membrane

due to a combination of factors that makes the naturally

able to treat between 1,600-1,800l/d. Several stations can

occurring resource largely unpotable or unavailable in

be installed in conjunction, meaning that the system’s

the country. In response, CANROMEX has put German

capacity is unlimited. The technology can alternatively be

technology to the test in an attempt to capitalize on this

used for very small volume of 1,000l/d up to 50,000l/d or

gap in the market and provide a more sustainable way to

more. Not only can the Purain filter be used for treating

bring clean drinking water to the complex terrain of Mexico.

potable water, but also for cleaning water for non-drinking

The Intewa water purifying system is designed to treat gray

purposes, for applications such as lawn watering, washing,

and rainwater, converting it into pure and potable water

and toilets.Among the plethora of benefits offered by the

through its integration of a simple and self-cleaning filtering

Intewa system are its adaptability, sustainability, and low

device called the Purain. This acts as a pre-treatment to

cost, with a return on investment normally generated within

eliminate solids from the source water, and subsequently

less than six months. Moreover, the need to purchase bottled

a “bundled UF” membrane station named the Aqualoop

water is eliminated, meaning mitigation of the risk associated

purifies the water by removing any particulate left in the

with refill bottles as well as pollution caused by inadequate

water, as well as bacteria, virus, and any contaminant

disposal of plastic bottles. All this means that this product

that enters the flow. The Aqualoop membrane station is

could constitute a realistic and sustainable option to combat

modular and each station has the capacity to operate

several severe environmental issues within Mexico.

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| VIEW FROM THE TOP

WATER RESOURCES IMPROVE THROUGH BILATERAL COOPERATION MARÍA ELENA GINER General Manager of the Border Environment Cooperation Commission Q: What were the situations and conditions that led to

Q: Could you outline the challenges of working on water

the creation of the Border Environment Cooperation

treatment projects with municipalities?

Commission (BECC) when NAFTA was signed?

A: All of the water and wastewater projects that we have

A: At the time when NAFTA was under review, there was a

worked on have been municipal projects, which include

lot of public opposition to the treaty because of the fact that

industrial entities that discharge into the wastewater

the border region between the US and Mexico experienced

treatment plant. In many of these projects, we have installed

serious environmental issues related to water and wastewater.

or assisted the communities in implementing pre-treatment

At that time, only 22% of the Mexican border cities had

programs, so when the industrial sector discharges into the

wastewater treatment and a lot of wastewater ran into the

municipal water and wastewater system, the quality of their

Rio Grande and other shared water bodies. On the US side,

wastewater does not impact the treatment plant. The issue

there were serious problem with communities that had no

with these programs is that there are serious enforcement

water or wastewater services, and in the case of Texas, it was

issues and the pre-treatment programs lack enough funding

documented that 500,000 people along the border lacked

to employ inspectors for random inspections. Although

these facilities. There was an expectation that the growth of

this not documented, it is what we have witnessed in the

economic development resulting from NAFTA would cause

communities we work with. The communities are interested

further degradation of the environmental conditions of these

in pursuing this, but they do not have sufficient funding for

cities, so the NGO community came to a consensus that

operations and maintenance.

attention needed to be given to environmental issues along the border. Because of that, three organizations were created:

Q: What are the short- and medium-term plans and

BECC, the North American Development Bank (NADB), and

ambitions of BECC?

the Commission for Environmental Cooperation, which is

A: Our short-term plans are to continue with our typical water

based in Montreal. At the moment, we are working on merging

and wastewater, renewable energy, and air quality projects. In

BECC and NADB into one organization. Our mandate is to

the medium to long term, I see more of an involvement in

preserve, protect, and enhance the environmental conditions

many types of environmental projects that are private sector-

along the border with the purpose of improving the quality

driven. For instance, we have not certified any projects in the

of life and addressing these environmental issues.

maquiladora area where companies are using renewables, improving their energy efficiency practices, or improving

Q: Which models or mechanisms do you use to foster

their air quality and emissions practices.

bilateral cooperation?

236

A: We have 245 certified projects that amount to a total

Regarding climate change, this phenomenon is going to

investment of US$8.6 billion, and of these, 140 are in water

be one of the greatest security threats in the world. A

and wastewater. A significant amount of work has been

greenhouse gas inventory completed in 2010 of the six

done in the wastewater area, so a need was created to

Mexican border states shows about 80% of greenhouse

address the bilateral issue of waste contaminating shared

emissions are coming from energy consumption and

water bodies. This was done through a US Environmental

transportation. More importantly, by 2025 the combined

Protection Agency (EPA) program called the US-Mexico

emissions of these states is projected to reach 31%

Border Infrastructure Fund, which contributed nearly

of Mexico’s total emissions, produced by only 19% of

US$700 million. About US$321 million was allocated to

its population. Any efforts to reduce greenhouse gas

Mexican communities adjacent to the border and the number

emissions will require the support of these border states

was matched by CONAGUA, states, and municipalities. This

in terms of targeting inefficiencies in energy consumption

bilateral cooperation improved the water treatment along

and transportation. We have addressed this by working

the US-Mexico border from 22% to 88%, which is equivalent

with utilities on energy efficiency projects, and the results

to 450 million gallons per day of treated water.

indicate a possible 30% reduction in energy consumption.

MANAGING MEXICO’S DRIVING FORCE “Water is the driving force of all nature,” stated Leonardo

the city sustainable in its water consumption. SACMEX has

Da Vinci in his Water Theory: On the Origin and Fate of

developed projects for the recovery of water from rooftops

Water, and almost 600 years later, this statement continues

by working on the drilling of absorption wells. “Unlike

to hold weight. Like the ancient Egyptian empire that rose

extraction wells for drinking water, these wells collect

alongside the banks of the river Nile or the enigmatic

rainwater and a special system removes large solids from

city of Teotihuacan that crumbled into dust as the rivers

the resource,” Martínez expands. “With the help of SACMEX,

dried up, history reminds us of the intrinsic link cultures

municipalities like Iztapalapa, Xochimilco, and Tlalpan have

and societies have to water. In the modern world, water

drilled approximately 400 wells of this type, and these help

continues to affect all cross-sections of society, and is an

recharge the natural aquifers,” he adds. However, Martínez

important motivator for industrial, urban, and agricultural

points out that it only rains five months of the year, so this

development. As a preponderant agent in Mexico’s

intermittency must be considered when deciding to invest

economic growth, one must explore the sourcing and use

in the construction of rainwater capture networks.

of this valuable resource. This limitation has inspired SACMEX to look for alternative SEMARNAT

contains

solutions. “We are currently developing a water collection

approximately 0.1% of the world’s potable water, a

and

INEGI

agree

that

Mexico

project for schools in Tlalpan, Xochimilco, and Milpa Alta,

percentage that highlights the fact that a large section of

where rainwater is captured on the schools’ rooftops and

the territory is catalogued as a semidesertic zone. In the

then recycled.” The private sector is also playing a role

whole country rainfall is approximately 1,551km of water

in these new solutions. Isla Urbana is a project dedicated

each year. This is equivalent to a pool a kilometer deep the

to finding a solution to Mexico’s water supply shortage.

size of Mexico City, and 72% of this amount evaporates.

Created by the International Institute of Renewable

While this image might be striking, on a global scale, Mexico

Resources and Temo Foundation, it has so far installed

is considered to be a country with low water availability,

over 1,700 systems in low-income regions and where water

as 56% of the territory is semidesertic and 10.6 million

shortages are becoming a real problem. This movement has

Mexicans do not have access to potable water.

helped over 12,000 people spread across Mexico. According

to Isla Urbana, when a family begins using its rainwater For time immemorial, dams, rivers, pumping plants, and

systems, their reservoir will be full for up to six months.

natural aquifers have supplied cities, and Mexico City is an important case study that highlights this particular

Access to clean water, sanitation, and water management

management of water resources. This city is a colossus in

creates

water consumption, as it receives 34,430l of potable water

communities and is a progressive strategy for sustained

per second. Alejandro Martínez, Executive Director of

economic growth. Effective water management brings

Operations at SACMEX, also known as Mexico City Water

certainty and efficiency across all productive economic

Systems, is in charge of managing the domestic potable

sectors and contributes not only to the health of

water, drainage, and sewerage of this complex network. “The

ecosystems, but also to the quality of life in the region.

city is supplied both internally and externally. The former

If Mexico wishes to succes in the goals it has set out to

consist of wells, which is due to the fact that the topography

accomplish, it must first intervene in its water management;

of the city makes sourcing potable water from alternative

without this, its social, economic, and environmental goals

sites difficult,” he describes. The wells in Mexico City and

will quickly evaporate.

multiple

opportunities

for

underprivileged

the State of Mexico constitute 70% of the total water supply. The remaining 30% comes from three systems that belong to CONAGUA: Cutzamala (9,000l/s), Barrientos (2,200l/s), and La Caldera (600l/s). “The average consumption of the city oscillates between 30-31m3 (31,000), which is the equivalent of four water pipes per second.” Given Mexico’s altitude, precipitation is considerable and one cannot forget that this large city is built on a lake, hence the common flooding. Over 1 billion m3 fall during the rainy season and 90% of this is lost. For many, harvesting rainwater is becoming a viable solution to make

“With the help of SACMEX, municipalities like Iztapalapa, Xochimilco, and Tlalpan have drilled approximately 400 wells of this type, and these help recharge the natural aquifers” Alejandro Martínez, Executive Director of Operations of SACMEX

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| VIEW FROM THE TOP

AT THE FOREFRONT OF WATER TREATMENT LUIS RUBÉN GUTIÉRREZ Vice President of Operations at PepsiCo Mexico

Q: What have been the most significant accomplishments

the value chain are also embracing a cultural change and

in terms of green practices and sustainability that have

taking better care of our natural resources.

made PepsiCo stand out in the past year? A: PepsiCo México has ingrained a clear and focused

We have implemented innovative technologies across

sustainability agenda into the company’s daily operations,

our value chain. We have worked hand in hand with local

creating a positive work environment for employees,

producers in the development of advanced irrigation

driving a strong performance, and unlocking shareholder

technologies and techniques. Today, we have managed to

value. This strategy is called Performance with Purpose

convert 90% of the potato fields to efficient pressurized

(PwP) and is designed to deliver sustained growth. One of

irrigation systems, and with the introduction of state-

the pillars of this method is environmental sustainability,

of-the-art technology to monitor climatologic variables,

and this is interpreted as the optimization of our value

water savings amount to 30%, compared to alternatives.

chain through the use of innovative technologies, while

To reduce our water consumption during production

simultaneously minimizing our impact on the environment.

processes, we have installed water treatment plants and Membrane Bioreactor (MBR) plants, which allowed us to

PepsiCo Mexico’s environmental strategy is based on three

reduce our water usage and recycle 25% of it. In addition, we

pillars: comprehensive resource management, efficient

operate according to the Resource Conservation program

water usage, and the use of cleaner energies and reducing

created by PepsiCo in 2006, which has contributed to a

emissions. Among the most outstanding developments seen

47% reduction in water consumption.

as a result of this strategy is the reduction of water usage in our production processes by 47%, migration to the use of

Q: Could you describe the creation of the water treatment

wind power for 25% of domestic operations, transformation

plants in Guadalajara and Saltillo, and what impact they

of the transportation fleet to hybrid technology, and

have on the water management of PepsiCo?

recycling of over 30 million packages. Among the newest

A: In order to minimize our environmental impact with regard

advancements are the creation of two new water treatment

to wastewater discharged from our processes, we have

plants with cutting-edge technology and the inclusion of

installed water treatment plants in 11 of our 18 production

100 additional hybrid vehicles to the distribution fleet

plants across the country. Five of these are MBR plants,

predicted to reduce carbon emissions by 44%.

which made it possible to recycle 25% of the water used in our manufacturing plants by the end of 2014. By introducing

Q: Which key water management strategies have you

this cutting-edge technology into Mexico, we have saved the

developed, and what technologies have you implemented

equivalent of the annual consumption of 1,843 families.

to reduce your water consumption?

238

A: As a global food and beverage company, we understand

These MBR systems apply a combination of technologies

that access to safe water is fundamental to our business

to purify the water. Primarily, mechanical and biological

and the communities in which we operate. It impacts

methods are used to remove solid and biodegradable waste,

both our internal company operations and our supply

and then the water goes through membrane bioreactors.

chain, much of which is dependent on water. For us,

These are essential for eliminating all solid suspensions from

water stewardship is imperative, which is why at PepsiCo

the water and reducing turbidity to less than one unit. The

our strategy and commitment to saving and using water

water is then disinfected though UV lights, carbon filters, a

efficiently is designed around the essential human right

reverse osmosis system, and the addition of a hypochlorite

of access to water. For this reason we seek to preserve

solution to guarantee the elimination of any contaminating

water resources by promoting efficiency in our operations

microorganisms. After evaluating the results, we decided to

and implementing advanced technologies that allow us

introduce these high-tech treatment plants in Guadalajara

to minimize our water usage, while our associates across

and Saltillo to reduce our water usage even further.

| VIEW FROM THE TOP

FLOURISHING SUPPLY CHAIN LEADS TO GROWTH MANUEL GÓMEZ Vice President of Sustainability at Walmart Mexico and Central America

Q: How have the attitudes towards sustainability and

A: The collaboration with our suppliers and other

CSR changed, and in turn how have you adapted your

organizations is fundamental to making greater progress

priorities in the past year?

toward

A: The attitudes towards sustainability and CSR have been

developed by our suppliers allow us to offer over 1,500

reinforced, as more companies develop and integrate

products that have managed to reduce the impact in their

sustainability strategies as part of their core business.

life cycles. A pilot test was performed on the Product

We can see a growing number of companies actively

Sustainability Index, which is a tool that identifies significant

engaged in renewable energy, waste reduction, and water

environmental impacts of products in their life cycle and the

management. In the case of Walmart Mexico and Central

actions to reduce such impact. The testing stage included

America, we have developed a sustainability business

four categories: coffee, detergents, dairy products, and

plan with clear targets, which entail 100% renewable

domestic use paper. The companies that participated had

energy consumption, reduction of energy intensity, waste

to answer a questionnaire relating to the impact of their

reduction, and collaboration with suppliers. We diverted

products, achievements, and areas of opportunity. This

74% of waste from landfill and reduced food waste by 6%

initiative allows Walmart to increase its assortment of low-

compared to last year. We developed a waste reduction

impact products and improve current versions. Our Tier 1

campaign to reduce food disposal and increase revenues

suppliers must disclose their carbon emissions to the CDP

from recyclables. We launched an online program in

Supply Chain Program. We work with GIS in implementing

Eco-Efficiency for small- and medium-sized enterprises.

the eco-efficient SME training program and in 2014, 65 of

The objective is to develop eco-efficiency projects that

our suppliers started the first module of the program, which

decrease operational costs by means of optimized use

will be completed by the end of 2015.

sustainable

supply

chain.

Initiatives

of energy, water, and raw materials. The program was developed and operated by the Global Institute for

Q: Water management is an important and rising concern

Sustainability (GIS), and is sponsored by ITESM.

for transnationals. What strategies have you created in order to improve your water management strategies?

Q: What are the implemented strategies that enabled

A: Our water management strategy has two elements:

Walmart Mexico and Central America to recycle 55,000

reducing consumption at stores and distribution centers by

tonnes in the first quarter of 2015?

installing equipment and developing initiatives to preserve

A: The strategy incorporates three elements: engage

water. We set internal water reduction goals, for example,

employees,

review

last year our goal was to reduce water consumption by 7%

processes. The campaign is called “Reduce, Recycle and

track

and

measure

waste,

and

and we achieved 8%. The second element of the strategy is

Win”, which combines best practices to reduce organic

to treat wastewater onsite and recycle as much as possible.

waste and increase the recovery of recyclable materials.

Last year we recycled 34% of our used water. Walmart is

At the end, there is a competition that rewards the stores

ahead of the pack in water management strategies, since it

with the best results in the reduction of organic waste and

aims to have 665 wastewater treatment plants, which will

the increase of recyclables. Each store has an indicator

make it the biggest water treatment network in the private

regarding the amount of recyclable materials generated

sector to date. We are strongly committed to continuing to

in relation to sales. We then conduct periodic store visits

pioneer in sustainable supply chain development. Walmart

to ensure that the procedures for recovering, compacting,

is uniquely positioned, given its scale and reach, to drive

and sending recyclables are properly implemented.

significant change and make sustainability affordable. We plan to double the size of our business over the next ten

Q: How do you collaborate with research centers, such as

years. The combination of energy efficiency and leadership

GIS, in order to help SMEs become part of your chain and

on renewable energy will allow us to grow and at the same

become more sustainable?

time reduce our carbon emissions.

239

| PROJECT SPOTLIGHT ATOTONILCO Mexico City was not always the concrete jungle that it is today. During the reign of the Aztecs, it has been reported that the city was built on an island in the middle of Lake Texcoco, with canoes used to navigate the connecting canals and advanced water management techniques to mitigate damage to the area’s biodiversity. It was only when the Spanish settlers arrived and decided to build over Tenochtitlan, extending its area to cover the expanse of water without taking the proper precautions that the city began to experience problems. As a result of the mistreatment of the land, tipping of rubbish, and overpumping of the lake, Mexico City now finds itself sinking into a chasm of its own making, in the face of chronic flooding, a shrinking infrastructure budget and a shortage of clean water. As the population increases, so too does the amount of waste water. The overpumping of water from the lake bed has also intensified, and the fact that the city is covered by asphalt and cement means that replenishment of the aquifers is limited to only 8% of annual rainfall. With a problem that involves both flooding during wet season and a shortage of clean drinking water, several initiatives have been attempted in order to address these inherently linked issues. At the beginning of the 20th century, President Porfirio Diaz inaugurated the 47.5km Gran Canal to carry sewage from the city. Additionally, the Cutzamala water system carries clean water from other states, flowing through seven dams and several hundred miles of pipes. However, demand is still not met, and around 40% of the clean water is lost through inefficient piping. As a response to Mexico’s growing water crisis, CONAGUA constructed the Atontilco wastewater treatment plant, the largest of its kind in Latin America and one of the largest in the world. The plant has an average capacity of 23,000l/s, with the potential for an extra 12,000l/s during the rainy season. The system digests anaerobic sludge through 28 points measuring 13,500m3 each, with which methane can be derived to be used for generation of electricity. This allows the plant to power itself, reducing greenhouse gas emissions and sludge volume. The project is designed to mitigate the contamination of the Valle de Mezquital, which has been an unrelenting problem over the last 100 years. Not only will the treatment plant improve living conditions for more than 700,000 people, it will lead to diversified cultivation of more than 80,000 hectares of land, and will allow for the exploration of new economic sectors such as ecotourism.

241

BIOENERGY CHAMPION UPGRADES FACILITIES The Mexican laws indicate

The maintenance operations that are currently being carried

that state and municipal

out intend to promote methane gas generation so that the

authorities have to handle

plant can also increase the amount of energy produced.

waste from the residential

“We are currently producing 17MW, and we want to take

sector. The Constitution

our capacity to 24MW. By expanding the plant and making

of the State of Nuevo

the necessary infrastructure adjustments, we can anticipate

Leon

adjudicates

the

potential limitations in energy generations,” says Páez. Under

waste

current conditions, SIMEPRODE is producing enough energy

recollection to municipal

to provide public lighting in the Monterrey metropolitan area

authorities.

and to power the city’s subway, the Government Palace, the

responsibility Ricardo Páez, Director General of SIMEPRODE

However,

municipalities have faced

Secretariat of Finances’ building, and the DIF building.

problems in fulfilling this commitment, for which they have contracted private parties dedicated to collection, while

Unfortunately, increasing capacity is not high in SIMEPRODE’s

the public sector takes care of storage.

list due to several constraints. The organization requires broad maintenance operations of recycling equipment,

The reason behind this is that privately-owned landfills

machinery, final confinement in landfills, and transmission

have a rather limited capacity and their costs are higher.

substations. “In its current condition, the sorting plant

Additionally, it is difficult for a private entity to obtain permits

does not have enough capacity to classify the amount of

for waste storage because environmental regulations are

waste we are receiving,” shares Páez. One of the reasons

stringent. Private waste collection companies can work for

SIMEPRODE is not considering investing in new technology

municipalities through concessions, but leaving collection

is because its main clients are municipalities with a limited

and storage activities in the hands of the private sector is

budget. “From a financial point of view, we are obtaining

dangerous due to municipalities’ liquidity problem. “If the

promising results, but the organization is experiencing

municipality cannot pay a government-owned operator,

problems with liquidity. Given our lack of resources, we

it still has to collect residential waste as mandated by the

cannot afford to think about mid- and long-term plans

law, but if a private company does not receive its payment,

to expand the plant or buy new equipment.” In addition,

it could stop providing the service. Failing to provide

changes in the structure of the market will also have an

garbage collection services could result in significant social

impact on SIMEPRODE’s operations, although the outcome

problems across the state, which is why waste management

could be a positive one. Páez acknowledges that CFE will

lies within the remit of the public sector,” explains Ricardo

face competition soon, which means that SIEMEPRODE will

Páez, Director General of SIMEPRODE. The company was

closely follow. “Our current strategy with CFE consists of

created in response to the unsanitary conditions generated

anticipating competition in order to grow. In addition, we

by poor waste management practices and, originally, the

want to assess the possibility of adding new clients to our

organism was in charge of confinement. Subsequently, the

portfolio, since most of the energy we sell has been focused

sorting plant was built, and then the opportunity arose for

on federal dependencies at the state and municipal levels.”

investment with private entities to use the gas generated from waste. “Private companies had the knowledge and the

New opportunities are appearing for SIMEPRODE. Páez

support of international financing institutions with experience

comments that at the moment there is no exploitation, use,

in environmental affairs, such as the World Bank,” tells Páez.

or commercialization of the waste in landfills in the outskirts of the metropolitan area. He believes the first step will not

242

Regional conditions and regulations are responsible for

entail using gas to produce energy, but rather recycling

SIMEPRODE’s success. In almost every state, says Páez,

and optimizing the raw materials. However, the Linares

each municipality is responsible for waste management.

municipality is receiving an investment for recycling and

“I believe that a model similar to ours will only work if

generating gas for waste-to-energy generation. The main

other states create their own organizations similar to

difference with SIMEPRODE is the technology being used.

SIMEPRODE, so that a part of the waste control activities

“They have an identical classification process that optimizes

falls under municipal governments and another is managed

the recovery of raw and recyclable materials. The innovative

at the state level.” In many states, the metropolitan area

aspect is that their technology enables them to capture

is the epicenter of waste generation, while suburban

the gas in tanks that can later be sold to energy generating

areas generate less, and therefore the conditions are not

entities,” Páez explains. This municipality could serve as a

conducive to generating energy from waste.

potential client or even a future partner of SIMEPRODE.

VENTURING INTO INNOVATIVE WASTE-ENERGY PROJECTS Verde Alterno has positioned itself in the Mexican energy

viable for projects that exceed 1,000 tonnes and cost at

efficiency sector due to its innovative use of LED lighting.

least US$331 million.

However, the company decided to expand into new territories, entering the relatively risky area of waste-toenergy. Eric Villagómez, Director of Operations at Verde Alterno, says his company has three landfill projects: one generating 1,000t/d, another of 500 tonnes, and a small one of 150-200 tonnes. “In the early stages, we considered the idea of installing processing plants in these landfills, but then we realized the opportunities represented by waste-to-energy,” he explains. Verde Alterno is presenting

“When approaching entities like NAFINSA and Banobras, they ask for 40% equity, which roughly equates to US$12 million” Eric Villagómez, Director of Operations at Verde Alterno

an integrated solution, as it will provide municipalities with energy generated from waste, with additional energy

Villagómez points out that obtaining financing is a crucial

savings resulting from the company’s LED lighting solutions.

component to the development of these waste-to-energy projects. “When approaching entities like NAFINSA and

Villagómez thinks navigating this sector is a rather

Banobras, they ask for 40% equity, which roughly equates

complicated endeavor, since most of the large landfills

to US$12 million. This impedes many companies because

in cities, and even the concessions of trash collection,

they are unable to meet this requirement,” he shares. “After

are contracted to large companies. The development of

approaching private banks, risk capital banks, the Inter-

these projects will depend on the size of the landfills and

American Development Bank, Banobras, and the World

Verde Alterno’s chosen partners. “Landfill projects that are

Bank, we found a US fund that helps us in the financing of

between 300-1,000 tonnes will be developed alongside

the projects that oscillate between US$40-100 million.”

our commercial partner, a Mexican company. While there is a lack of Mexican manufacturers for biogas engines, we

Eduardo Silva, the company’s Director General, is swift to

will be using top of the line equipment imported either

note that the technology that goes into a waste-to-energy

from the US or Europe,” details Villagómez. The Mexican

project is extremely complicated, so developers must always

company will provide the turnkey solutions and Verde

make sure they are choosing the right equipment that suits

Alterno will be in charge of obtaining the capital, permits,

the characteristics of the site. He explains that studies have to

and interconnectivity agreements. For projects exceeding

be carried out prior to the development to ensure the correct

700 tonnes Verde Alterno has spotted an ideal Spanish-

gas on-site. At the moment there are many municipalities

based partner. In this case, the Spanish partner will focus

being fined for establishing landfills of less than 500 tonnes

on the financing and construction, and Verde Alterno will

due to the contamination caused. These municipalities do not

be in charge of obtaining the permits, sites, and PPAs.

have the financing to invest in a proper landfill site and they

Villagómez says there is a third option, with a European

are a tempting business opportunity for budding developers

company providing the investment, but this option is only

like Verde Alterno.

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| VIEW FROM THE TOP

INTERNATIONAL PLAYER CHAMPIONS THE BENEFITS OF LANDFILL GAS GENERATION IAN COOPER Country Manager and Business Development Director of ENER-G Q: What are some of ENER-G’s achievements in the ten

the Energy Reform is fully in place in terms of the new

years it has been present in Mexico?

electricity market, it will be able to realize the potential of

A: The ENER-G Group entered the Mexican market in 2004

one of Mexico’s few operational clean energy-from-landfill

through its sister company, Biogas Technology Group

projects. While the self-supply agreement is one of the

Limited. We secured several projects to destroy harmful

most complicated contractual arrangements that we have,

methane-rich landfill gas under the Kyoto Protocol’s Clean

we believe the Energy Reform will make the development

Development Mechanism (CDM). Our projects are located

procedure much smoother in the future.

in Durango, Aguascalientes, Tecamac, and Tultitlan, and have been successfully developed and operational for

Q: What are the key characteristics of the 2.45MW plant

several years. In all, over 1 million carbon credits have been

ENER-G built to supply Nissan’s manufacturing facility in

generated to date. Carbon prices dropped during the 2008

Aguascalientes?

financial crisis, significantly affecting the economic viability

A: Nissan Mexicana has partnered with ENER-G and utilized

of each project. As a result, our business plan turned to

our expertise to deliver this flagship project. This is the

power generation. This had always been our long-term

first project globally where Nissan is consuming electricity

goal, but until the 2008 economic crisis, power generation

generated from landfill gas. The project’s construction works

opportunities did not benefit from high power prices.

were initiated by a former president of Mexico, and ENER-G is proud to have developed the initiative with the Municipality

Following the closure of a negotiation in 2010 with the

of Aguascalientes and Nissan Mexicana. The project has

Municipality of Aguascalientes and Nissan Mexicana,

two Caterpillar generation units installed, one is a CAT3520

the CDM project at the San Nicolas Landfill Site in

(1.6MW) and the other a CAT3515 (1MW). Initially the project

Aguascalientes became our starting point in the Mexico

had two CAT3520 (1.6MW) units, but experience has shown

landfill gas-to-power market. Under the rules of a self-

us that gas prediction in Mexico is far more complex and

supply contract arrangement, and working with our long-

unpredictable than in other jurisdictions where ENER-G

standing partner, the Municipality of Aguascalientes, we

operates. One of the most important benefits of ENER-G’s

teamed up with Nissan Mexicana to set up our self-supply

technology is that it successful destroys methane, which is 21

company. This enabled us to supply Nissan Mexicana with

times more harmful to the atmosphere than CO2. The project

power for its car manufacturing facilities in Aguascalientes.

is currently being reviewed to examine opportunities for

The power generation project with an installed capacity of

increasing and improving the gas collection system.

3.2MW was developed by a small team of four people and became operational in December 2011.

Q: What is the role of waste-to-energy now that the Energy Reform has been passed?

244

Q: What challenges have you faced in Mexico, and how has

A: The renewable energy that ENER-G produces is derived

the Energy Reform impacted on ENER-G’s operations?

from the waste industry, with landfill gas being the main

A: Our second power generation project is in Durango, at the

fuel source. Landfill gas has always been seen as a resource,

municipality’s landfill facility. Construction was completed in

and in fact, the USA and the UK have been exploiting

August 2013, but it was not commissioned until October 2014

landfill gas since the late 1970s and early 1980s. The reality

due to delays with interconnection to the national grid. This

is that most countries have a support mechanism, which

project is operating under the Small Power Producer regime.

incentivizes third party investors and developers, such as

Unfortunately, the financial returns are suffering because

ENER-G, to invest in renewable energy generation. In the

the Collaborative Transport Control Protocol (CTCP) node

UK we have Renewable Obligation Certificates (ROC) and

pricing system is linked to oil prices, which have dropped

in other countries there are Green Certificates. Over time,

dramatically recently. This is resulting in limited operational

this will all migrate to Mexico in terms of environmental

time, but the Municipality of Durango recognizes that once

standards and operational best practices.

| PROJECT SPOTLIGHT: LOREAN SALTILLO Waste-to-energy facilities offer safe and technologically

the installation of a second engine in 2014, elevating

advanced means of waste disposal while at the same time

the capacity to 1.6MW. This project was significant for

generating clean energy, reducing emissions, and supporting

the region since the municipality of Saltillo consumes

recycling through the recovery of metals. This list of qualities

approximately 4.5MW, which means that Lorean Energy

attracts the attention of municipalities dotted across Mexico,

began to supply 35% of the needs of the municipality with

as they stand to benefit the most from biogas projects of this

renewable energy, and at a considerable discount. This

nature. Gerardo Pandal, Director of Project Development at

biogas project was the third of its kind in the country, after

Guascor de México, describes a biogas flagship project.

Monterrey and Aguascalientes, and by April 2015 it had generated 15 million kWh. In addition, it has been certified

Three months prior to stepping down from his position

by COCEF and it is said to contribute to the displacement

as Municipal President, Jericó Abramo Masso inaugurated

of 45,015 tonnes of CO2. The NADB disbursed credit

the renewable power plant that runs on biogas from the

resources of MX$38 million and the financing fell under the

landfill in the city of Saltillo, Coahuila. Lorean Energy, in

novel structure of Project Finance.

association with Guascor de México, which specializes in the design and construction of cogeneration and biogas

After this success story, Lorean Energy finds itself in the

plants, won the tender that included the concession to

process of expanding and developing new projects to

treat the solid residue in the municipal landfill and the

supply energy to private industrial players and to the newly

contract to generate electricity. Said concession states

minted wholesale electricity market. “We will be riding

that the supply of electricity falls under a self-supply

the waves of opportunities that come with the Law of

scheme and is destined for the public lighting of Saltillo,

the Electricity Industry and CELs, which are fundamental

with a 10% discount on the tariff paid to CFE.

pieces of Mexico’s monumental Energy Reform,” Pandal shares. Waste-to-energy projects burn bright in today’s

The plant began operations in August 2013 with a

Mexican market and municipalities would do well to follow

generation capacity of 1MW that was increased with

in the footsteps of Saltillo’s success.

245

REVIVING RURAL ECONOMIES THROUGH BIOGAS For a long time, history was littered with civilizations that

for the fields and can reduce contamination of local water

crumbled into dust. Today, a pattern has appeared and

resources by mitigating animal waste contamination and

their collapse is traced to several sources, some of which

use of chemical fertilizers. “Handling the waste properly

capture our attention, including transgression of ecological

reduces the risk of infections and in some segments the

boundaries and intensive agricultural systems. It is a little-

displacement of wood in the household has additional

known fact that agriculture ranks highly on the list of emitters

health benefits,” Pagés points out.

of greenhouse gases and is a precursor for air pollution. The intensification of agriculture and energy is leading to

Displacement of energy is at the heart of these systems,

the conundrum of how to maintain existing patterns of

and Pagés is swift to confirm this. “Our efforts are aimed

consumption and the environment simultaneously. Sistema

at displacing LP gas and gasoline usage in the agricultural

Biobolsa, a company specialized in anaerobic digesters,

sector.” The level of displacement will depend on the size of

attempts to answer this question through the technology it

the system and amount of biogas produced. In some cases,

has created: modular anaerobic bio-digesters.

clients can place 100% of their energy consumption into

“Our efforts are aimed at displacing LP gas and gasoline usage in the agricultural sector”

Camilo Pagés, CoFounder and Director of Sistema Biobolsa

Sistema Biobolsa began ten years ago as a company working

biogas, and others can even enter an agreement with CFE

in creating small scale biogas technologies for Mexican

in which they displace a large part of their electricity bill.

and Latin American rural communities. Its CoFounder and

In order to generate impact reports and track the financial

Director, Camilo Pagés explains the enormous potential,

return of the clients, Sistema Biobolsa has a monitoring and

“In Mexico there are over 4 million small farms and rural

evaluation system for every digester it installs. Through its

households that could benefit from this technology and this

database the company is aware of which type of energy is

was a powerful driver to create Sistema Biobolsa.” Its system

used and which forms are being displaced.

is characterized by being small-scale and modular and it is made by using a highly resistant geo-membrane that delivers

The success of these energy systems depends heavily

flexibility. “We manufacture, package, and ship the system to

on governmental support, and for the company, the

any part of the world,” Pagés describes. “The advantages

interaction with the authorities closely resembles that of

of the system are that it is easy to install, taking up to two

a supplier. “We study different programs and operative

hours, and its modular design means the capacity can be

guidelines published by the government, and we explore

expanded.”

the opportunities in these funding sources with our clients,” Pagés explains. “Sometimes there are specific tenders and

246

Reviving rural economies, creating employment, and

programs such as the FAO food security project where our

maintaining ecosystems require a unique methodology and

technology is among a combination used to meet program

Sistema Biobolsa has perfected it. In the traditional small-

objectives,” he adds. A demand for these systems must be

scale biogas sector rustic processes are used with local

generated despite these programs, so Sistema Biobolsa

materials, a process which is inefficient since it can take

works alongside agricultural producers to present the

up to six working days to implement. “We have a unique

paperwork in order to obtain subsidies that vary between

program where we generate local capacity in communities

50-70%. In these early stages of the technology, this level

and we have biogas experts in each community,” Pagés

of government involvement is crucial in supporting early

explains. The benefits end users attain from the system are

adopters and allowing companies like Sistema Biobolsa to

numerous, with one of the most salient being that their

create a strong portfolio with a rich project pipeline. So far,

household and production processes become energy

Sistema Biobolsa has installed over 2,000 systems across

independent. This enables communities the opportunity

Mexico and expanded into markets in Central America and

to generate economic savings and displace fossil fuels.

the Caribbean with the varying support from governments

Additionally, the resulting waste can be used as nutrient

and international development funds.

RECYCLING MEXICO’S MOST PROBLEMATIC SOURCE OF WASTE One of modern society’s most ubiquitous and problematic

Despite the unique ways a3p recycled the tires, these

sources of waste is tires, due their durability, ecologically

barely scratched the surface of those 40 million tires.

problematic components, and the large volumes produced.

As a result, it sought products that could recycle tires

It is estimated that 1.5 billion tires are discarded each year

on a mass scale and this led to the waterproof materials.

worldwide. This shocking figure inspired Victor Pagaza,

“There are many commercial businesses and houses that

Director General of a3p, to start a business focusing on

require waterproofing systems and our product is an ideal

recycling used tires. The company operates within an

solution,” Pagaza explains. One of the company’s flagship

aggressive market and the figures reflect this. “In the state

projects is with McDonald’s, where it waterproofed 80 of its

of California in the US, 180 million tires are thrown away

restaurant. “This client was so impressed by the products

per year and in Texas over 36 million. In Mexico, the figure

that it wanted us to waterproof all the restaurants from

is not as steep, but it is equally galling: 40 million tires are

Mexico’s Rio Bravo to the tip of Argentina. Unfortunately,

discarded annually.”

we did not have the capacity, yet we developed a

“In the state of California in the US, 180 million tires are thrown away per year and in Texas over 36 million. In Mexico, the figure is not as steep, but it is equally shocking: 40 million tires are discarded annually” Victor Pagaza, Director General of a3p

According to Pagaza, for a time it was difficult for people

successful relationship and success story,” he boasts. A3p

to grasp the concept of sustainability and the market

has worked to acquire other large clients; however, it has

could not mantain the businesses. “It was common to see

encountered a major barrier in payment times that do not

the opening and closing of recycling factories. For a while,

suit the financial needs of the company. “For instance,

the government and the general population paid no heed

Walmart pays every 120 days. It is difficult for SMEs to

to recycling, but when news spread about the impact of

establish commercial ties and become suppliers to these

climate change and the auspicious consumption of today’s

large companies because of this,” he laments.

society, we saw a change of mindset.” As a result, a3p has found unique ways of recycling tires, and the most

Pagaza remains undeterred. The company has many

common application is waterproof materials, which has

ambitions and one of them is to open its own distribution

become part of a3p’s core business. “The company has ties

store, which will serve as an environmentally-friendly

with universities, so undergraduate students help design

supermarket that offers only green and recycled products.

and create new applications and products,” he adds. The

Recycling should be at the forefront of any company’s

support of universities and R&D centers is crucial for a3p.

business model.

247

| VIEW FROM THE TOP

PROOF THAT BIODIESEL CAN BE PROFITABLE BUSINESS DANIEL GONZÁLEZ ÍÑIGUEZ CEO of Solben

Q: How have opportunities within the bioenergy sector

there was no local technology to cater to that. We already

evolved in the fallout of the Energy Reform?

owned the patents for the technologies used to transform

A: The Energy Reform has awoken interest in the market

feedstock into biodiesel. About a year ago, we had 15

but it is still unclear where the exact opportunities for

facilities and our equipment was producing more than 80%

biofuels lie. These will come after international companies

of all the biodiesel in Mexico. However, being a company

start fully operating here, most likely through alliances

with a focus on technology meant it was hard to sustain

or joint ventures with local companies. We can use

the growth of a market we were essentially stimulating by

our branding and awareness to convince international

ourselves. We then changed our strategy to start building

companies to customize their products for the local

infrastructure to directly produce biodiesel. We also began

market. Another area of opportunity will come as these

developing other products such as lubricants and additives

players realize the potential that lies in replicating Mexican

for petroleum extraction, meaning we could show clients

renewable technologies and solutions around the world.

that replacing diesel with biodiesel was more profitable.

We just inaugurated a biodiesel facility in France, we were

We also saw that these value-added products could be

in Singapore last year to access the Asian market, and this

sold at two or three times the price of the pure biodiesel

was all achieved from companies realizing the potential of

alternative. That allowed us to buy even the most expensive

our Mexican technology. Innovative Mexican companies

feedstock, since the margin on our products was also high.

will certainly be able to grow internationally due to the exposure provided by the Energy Reform.

After we started developing these products, we realized the Mexican market was not that big. This is when we began

Q: How does the international market for biofuels compare

increasing our interest in substitutes for the petroleum

to that in Mexico?

industry, as large volumes of are required. In this way, we

A: Argentina’s nationalization of Repsol’s interests in the

integrated with a commercialization company, a production

country led to the EU blocking Argentinean biodiesel

company, and a feedstock company. By integrating the

imports into Europe. This led to an opportunity to import that

whole value chain, we produce our own biodiesel, we sell our

biodiesel into Mexico, and then export it to the EU but this led

own technology, and our R&D unit allows us to bring new

to certain disposal challenges. We are currently not seeking

technologies straight to the market. We are also innovating

to buy biodiesel, but to buy feedstock instead, processing

in terms of feedstock. From the outset, we had no desire to

it in Mexico or Central America, and selling the resulting

compete with food crops. This led us to developing a new

biodiesel to the Mexican market. In 2015, we will be able to

feedstock from animal fats, so we are building a new facility

sell biodiesel at diesel prices, which should lead to strong

dedicated to that. We obtain the oil from animal fats, turn it

growth in the domestic biodiesel market. This used to be a

into biodiesel, and use this to make water treatment plants

problem since we were selling biodiesel at higher prices than

self-sustainable.

diesel, and companies like PEMEX refused to pay a higher price only to achieve sustainability. The next challenges that

Q: In 2013, you were awarded the Innovator of the Year

the Mexican market will face concern logistics, feedstock,

Award by MIT. What was the fallout from that?

and the infrastructure needed to process that feedstock. As

A: For us, it was very important to demonstrate to

the market grows, we will also have to ensure that the quality

the market that such MIT awards rarely go to such

of our biodiesel product stays high.

young entrepreneurs. Solben’s founders were just 22 years old when we won, and that changed the entire

248

Q: Who is your traditional client base, and what new

market perspective on our company. We had received

segments are you planning to target?

entrepreneurship awards before that that accolade from

A: Solben started as a technology company in 2007, at

MIT showed that our technology was deserving of market

which point we spotted a niche in biodiesel production, but

attention.

ADVISING CLIENTS TO ENSURE SUSTAINABLE FACILITIES CH2M Hill (CH2M) was founded in 1946 when three

on waste and disposable material handling, as well as

engineers and a professor decided to combine their skills

health and safety audits, chemical audits, process audits,

and four simple values: client care, high-quality outcomes,

and risk assessments. Afterward, there is another stage in

employee value, and a culture of integrity and honesty. The

which the firm can provide auditing services and ensure

firm’s business includes the chemical and infrastructure

that the commitments its clients made to obtain their

industries, among others, and its wide portfolio enables

permits are being complied with.

it to tackle international markets. CH2M’s infrastructure services also span to consulting, and the firm performs

Guinea

master

planning,

administration,

studies

for

highlights

the

importance

promoting

energy

sustainability among the company’s clients. “Most of the

and efficiency, environmental surveys, and permitting

clients think sustainability is extremely costly. Nevertheless,

procedures. On the consulting side, CH2M examines

I believe that many companies are starting to consider

water, soil, and air in the site to measure adherence to

these kinds of measures, especially within the pharma

requirements set out by SEMARNAT, PROFEPA, and other

industry, due to its strict international standards, their

government entities in Mexico.

partner companies promote those investments.” The main problem she finds in Mexico in this respect is the fact that

Should CH2M encounter soil issues or conditions out with

engineers and managers are not aligned with the practices

regulatory parameters in the development stage, the

of international companies. CH2M will not obtain the

company researches the pollutants and then disseminates

optimal amount of business without aggressive promotion

the information with its teams of scientists from the US

of the benefits of sustainability. “We work with prestigious

and Latin America to determine potential solutions.

international companies that understand these concepts

“This is a multidisciplinary endeavor in which we involve

and this way of thinking has been proven to generate profits

scientists, lawyers, anthropologists, and other experts. This

for these businesses. We must promote the concept more

area is crucial to help our clients obtain the permits. Failing

and convince clients of the benefits they will obtain,” says

to meet the requirements can result in severe penalties,”

Guinea. The short-term strategy is displaying to clients

shares Elisa Guinea, BD Manager Energy & Chemicals at

the way in which sustainability, profit, and people can be

CH2M. When the plant is actually being built, CH2M works

combined, resulting in a shared endeavor with CH2M.

249

Mexico’s diverse topography has cemented its position as a haven for renewable energy generation; strong gusts of wind raze through Tamaulipas and Oaxaca, while in states like Chihuahua and Sonora irradiation levels reach levels similar to those of the Saharan desert. Untapped geothermal potential lies hidden under the many volcanic and seismic regions, and in the south, water resources are plentiful for hydropower generation. These opportunities will differ from state to state given the resource availability, access to the grid, and the importance local authorities place on clean energy generation. As developers scrutinize Mexico’s opportunities, municipalities and states constitute two of the fundamental factors when choosing a site and strategy for project development.

The chapter begins detailing the capacity and generation of all states, paying close attention to the northern part of the country, where exciting developments in wind, solar, and natural gas are underway. Through the unique viewpoint of governors and public figures, we explore the different states’ attitudes to clean energy sources and investment opportunities. Renewable energy players share their experience in developing projects across Mexico, as well as the social issues, requirements, resources, and grid availability they must contend with.

STATES & MUNICIPALITIES

Industry applications • Agriculture and livestock • Automotive • Breweries

“Primero Energía is a wholly Mexican company dedicated to the sale of energy and industrial equipment in the energy sector. Our mission is to help our clients achieve sustainable development through savings, innovation, technology, and the optimization of their energy resources.

• Bottled beverages • Cardboard and paper • Chemicals • Distilleries • Electronics • Food • Greenhouses • Hospitals • Hospitality • Manufacturing • Metallurgy

Our range of services • Sale of remote electricity at competitive prices • Onsite cogeneration projects • Comprehensive engineering for electricity infrastructure • Permit management with municipal, state, and federal authorities (CRE, CENACE, CFE, natural gas)

• Mining • Petrochemicals • Pharmaceuticals • Real estate • Synthetic fibers • Steel • Textiles • Tires

www.primeroenergia.com

CHAPTER 11: STATES & MUNICIPALITIES 254

ANALYSIS: Mexican States Eager to Become Energy Hubs

256

VIEW FROM THE TOP: Rodrigo Medina de la Cruz, Government of Nuevo Leon

257

VIEW FROM THE TOP: Carlos Lozano de la Torre, Government of Aguascalientes

258

VIEW FROM THE TOP: Marcelo López, Government of Queretaro

259

VIEW FROM THE TOP: José María Leal Gutiérrez, Tamaulipas Energy Agency

260

VIEW FROM THE TOP: Sinaí Casillas Cano, Government of Oaxaca

261

VIEW FROM THE TOP: Eviel Pérez Magaña, Commission of Indigenous Affairs

262

INSIGHT: Tanya Müller, SEDEMA

263

INSIGHT: Odón de Buen, CONUEE

264

MAP: Electricity Sales by State, 2013

266

INSiGHT: Rafael López de Cárdenas, Main Energy Projects

267

INSIGHT:

268

INSIGHT: Federico De Arteaga, Grupo JB

269

VIEW FROM THE TOP: Rogelio Nochebuena Tinoco, Grupo Evoasis

270

INSIGHT:

271

INSIGHT: Kai Schluetter, Internovum Solar

272

INSIGHT: Carlos Walls, SolarAct

273

VIEW FROM THE TOP: Mannti Cummins, Energía Veleta

Francisco Hernández-Manzano, Iniciativa Energía Lucía Martínez, Iniciativa Energía

Manuel Wiechers, ILUMéxico Hugo Ham, ILUMéxico

253

MEXICAN STATES EAGER TO BECOME ENERGY HUBS The federal government has planted the seeds for

SONORA

economic prosperity, and as the Energy Reform branches

If Oaxaca is considered the home of wind power in

out, the fruits will be seen in all 31 states of the country,

Mexico, then Sonora is equally important for solar power.

mapping out their individual roles in the energy industry.

According to extensive research carried out by IIE, the

Tamaulipas, Campeche, Chiapas, Tabasco, Veracruz, Baja

irradiation received by 1% of the territory of Sonora has the

California, Chihuahua, and Nuevo Leon stand out from the

potential to power the entire country. In fact, the amount

crowd, as they are seen as the main states that will attract

of solar irradiation is one of the highest in the world and

the most investment and create the most jobs following

is comparable to the Saharan desert. Players are spotting

the Energy Reform. It is also expected that these regions

opportunities to export solar power to the US, particularly

will experience a surge in the construction of public and

to California, New Mexico, and Arizona. With 320 days

private infrastructure and energy clusters. While some

of continuous sunshine, developers are jumping at the

states will exploit shale gas, natural gas, and oil, others

chance to invest here. In early 2015, CRE approved 37 solar

will pour their attention into development of renewable

energy projects and, according to ANES, 40% of these will

sources. High on the list of priorities for these states is the

be located in the sunny state of Sonora.

formation of energy clusters, which will include universities, research centers, and private players. In addition, state

COAHUILA

governments must draft strong public policies that will

“The state of Coahuila is a pioneer of energy clusters in

enable them to land those coveted investments.

this country,” affirms Pedro Joaquín Coldwell, Minister of Energy, and this leadership is reflected in the fact that the

The two giants PEMEX and CFE are also strengthening

state produces 10% of the country’s energy. In addition,

their roots across the republic. It is undeniable that the

Coahuila has played host to a wide array of industries,

Energy Reform has enabled the harvesting of development

which has led to it producing 20% of products that are

opportunities across different regions of the country, and

exported to other markets. It has garnered an important

local industries will have more room to breathe, grow and

automotive presence in the southeast region, as well as a

flourish. This is particularly true for the northern states,

reputation for mining activities in the La Laguna region.

which have already set their eye on the opportunities

Ruben Moreira Valdez, Governor of Coahuila, has stated

brought about by the electricity market. While CFE’s west

that the benefits generated by the Energy Reform are

region administrative division contributes with 27% of the

beginning to be felt, especially in the hydrocarbons sector.

company’s installed capacity, the north and northwest

Coahuila possesses 24% of non-conventional hydrocarbon

administrative regions amount to 17% and 15% respectively.

reserves of shale gas and shale oil, which is equivalent to

Nonetheless, the northern states are working on becoming

18 billion boe, and revenues that could potentially reach

serious players in the country’s electricity sector.

US$12.8 billion in the coming five years.

ELECTRICITY GENERATION CAPACITY (GW) & GROSS ELECTRICITY GENERATION BY STATE 2015 (MILLION MWH) 8

million MWh

15 12

6 9

5 4

3 2

1 0

Source: SIE

254

Yucatan

Veracruz

Tamaulipas

State of Mexico

Sonora

Sinaloa

Quintana Roo

San Luis Potosi

Queretaro

Puebla

Oaxaca

Nuevo Leon

Nayarit

Michoacan

Jalisco

Mexico City

Hidalgo

Guerrero

Guanajuato

Durango

Colima

Coahuila

Chiapas

Chihuahua

Campeche

Baja California Sur

Baja California

BAJA CALIFORNIA

TAMAULIPAS

Baja California is a unique case study given the wide array

Tamaulipas holds the coveted second position on a

of energy sources it has accumulated and the fact that it

national level for traditional energy generation, with energy

has an independent grid. In Baja California, the installed

contributing 20% to the local GDP. The wind sector in the

capacity is over 3,000MW and it boasts one of the most

state has flourished and it currently has the potential to

important geothermal sites, Cerro Prieto, with an installed

generate 2,500MW. This means that Tamaulipas is one of

capacity of 720MW. According to the Baja California:

the three top states in the country for the development of

Energy Profile 2010-2020 document, the geothermal

wind power projects. In 2015, investments in the energy

field of Cerro Prieto lays claim to estimated reserves of

sector reached over US$250 million with Iberdrola leading

1,200MW, of which 840MW are proven. Geothermal used

the way with an investment amounting to US$30 million.

to constitute 75% of installed capacity in the state and

José María Leal Gutiérrez, Head of the Tamaulipas Energy

today it represents 27%, a drop that is explained by the

Agency, stresses the importance of generating a clean

increase of natural gas. Renewables such as wind and

energy culture and incentivizing the necessary investment.

solar are beginning to gain a foothold in this independent

In 2015, CRE awarded permits for the development of 26

grid, with the La Rumorosa wind farm constituting an

wind farms and three are already under construction. The

illustration of success due to its installed capacity of

Agency, in coordination with the Secretariat of Education,

10MW. This state strives to develop a wide array of

has established a roadmap to incentivize R&D. This

technologies and it has spotted opportunities in tidal

innovation is intrinsically linked to human capital and the

energy in the Gulf of California, with a potential 800MW

government has established collaborative alliances with the

waiting to be exploited.

University of Texas in Austin, San Antonio, and Laredo.

NUEVO LEON

CHIHUAHUA

The energy sector in Nuevo Leon holds pride of place given

Chihuahua is to become a haven for the development of

the amount of employment it generates and investment

natural gas infrastructure. CFE and PEMEX have constructed

it attracts. The increasing industrial activity in the state is

important gas pipelines intersecting the state in order to

demanding greater installed capacity and Nuevo Leon is

strengthen the thermoelectric power plants located in the

responding by intensifying its presence in the renewable

region. The pipelines cross the most important cities of

energy industry. According to the Secretariat of Economic

Juarez, Chihuahua, Delicias, Cuauhtemoc, and Parral. This

Development, an investment of US$1.3 billion is expected

infrastructure is conveniently located in the state’s gas

for ten projects in solar, wind, and biogas. Among these

reserves and, once the hydrocarbon is exploited, the pipeline

initiatives authorized by CRE, one solar project stands

is anticipated to be used to its full capacity. Five pipelines

out from the crowd; it will be developed by Iberdrola in

are under construction measuring over 1,367km and the

the municipality of Galeana with an investment of US$175

investment has amounted to MX$29 billion (US$1.93 billion).

million. Nuevo Leon has an untapped wind potential that

The Juarez-Topolobampo and the Ojinaga-Laguna pipelines

could exceed 1,000MW over the next five years and, as

will supply natural gas to seven of CFE’s energy generation

one of the top energy consumers in the country.

plants, which will benefit over 2.4 million inhabitants.

ELECTRICITY SALES PER USER (MWH/USER, 2003-2013) Sales Of Electrical Energy For User And Federative Entity on KWh/User, 2003-2013 (Source: SENER with CFE’s information) 12 10 8 6 4 2

Yucatan

Zacatecas

Tlaxcala

Veracruz

Tabasco

Tamaulipas

State of Mexico

Sonora

Sinaloa

San Luis Potosi

Queretaro

Quintana Roo

Puebla

Oaxaca

Nayarit

Nuevo Leon

Morelos

Michoacan

Mexico City

Jalisco

Hidalgo

Guanajuato

Durango

Guerrero

Colima

Coahuila

Chihuahua

Chiapas

Campeche

Baja California

Baja California Sur

Aguascalientes

Source: SIE

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| VIEW FROM THE TOP

NORTHERN GIANT SHARES INVESTMENT STRATEGIES RODRIGO MEDINA DE LA CRUZ Governor of the State of Nuevo Leon 2009-2015

Q: What are the main accomplishments of Nuevo Leon in

we have two projects in operation; nevertheless, thanks to

matters of energy, and how will these contribute to the

our efforts over the last two years we have 12 new projects in

long term prosperity of the state?

the initial stages of development. It is important to highlight

A: The government of Nuevo Leon has strived to maximize

the contribution of the private sector since all the projects

the benefits brought about by the Energy Reform through

operating and under development have been fostered by

concrete actions. One of the main lines of action was to

national and international players. Executives of Nuevo Leon

create new agencies specialized in the energy industry.

that had the vision of developing the first wind farm and it

An Undersecretary of Energy was created at a state

finally became a reality in 2013. Besides wind power, another

level and it will be in charge of ensuring that the energy

sector that has caught the attention of investors is solar.

goals are achieved, as well as strengthening the business

Studies have shown that Nuevo Leon is highly attractive with

environment and promoting investment in the industry.

annual irradiation levels of 6.5kWh/m2. The implementation

The Undersecretary also follows the Energy Sector Plan of

of the Energy Reform will demand highly capable human

Nuevo Leon, which is a strategic document that describes

capital and we are working directly with public and private

the public policies and objectives related to energy. To

universities in shaping strong educational programs.

support these nascent agencies, an Energy Council of Nuevo Leon was established.

Q: What role is the private sector playing in the development of gas pipeline infrastructure in Nuevo Leon?

This council will process information following a strict

A: The participation of the private sector in this area has

scientific criteria and make recommendations for public

been significant due to the new public policies created by

policy to the authorities. The council is conformed of

the current federal government. The sector has opened its

representatives of the federal and state government, and

doors and naturally more resources are pouring into the

noted academic and private sector leaders. We are also

development of infrastructure. The National Infrastructure

fostering the collaboration between private companies

Plan announced investments of MX$7.7 billion in the 2013-

and the academic sector in order to develop talented

2018 period and 51% of these resources have been allocated to

technicians and specialized researchers in the energy

the energy sector. The most important project in Nuevo Leon

sector. In addition, the Undersecretary of Energy has

is the Los Ramones pipeline that demands an investment of

collaborated in the creation of new academic programs

over US$2.5 billion and it is expected to transport 1 billion

that are geared toward the needs of the industry. At

cubic feet of natural gas per day. Thanks to this gas pipeline

the end of 2014 the goal of reaching US$1.5 billion of

the industrial area Linares will have access to cheap natural

investment was surpassed with actual levels of US$1.6

gas and it will serve as an important tool for development.

billion, which is a record for the state and it is an increase of 47% compared to the previous year.

Q: Natural gas has become the fuel of choice for many industries. How will this energy source spark economic

256

Q: What key strategies did you implement in order to

prosperity in the state?

increase investment levels in the energy sector of the state?

A: Investments in natural gas are expected to increase

A: The model has been noted for its capacity to design,

with each coming year, and in the last three years the state

implement, and evaluate public policies of the energy industry.

has been able to reach record FDI figures. There are many

We support the development of energy projects across a

factors that come to influence the role natural gas will play

wide array of sectors, from hydrocarbons to electricity and

in Nuevo Leon, which include the energy revolution in the

renewables. Transparency plays an important role and we

US, drop in natural gas prices, proximity to the border, and

take steps to ensure that the public is informed about the

increasing industrial activities. All these elements make it

recent and most relevant energy projects in the state. I must

very attractive to develop combined cycle plants as these

concede that renewables is a fairly new sector and to date

will help supply energy to industrial players in the state.

| VIEW FROM THE TOP

AGUASCALIENTES AT THE FOREFRONT OF SUSTAINABILITY CARLOS LOZANO DE LA TORRE Governor of the State of Aguascalientes Q: What are the competitive advantages of the state of

in urban development and housing. In fact, SEDATU’s

Aguascalientes that position it as an attractive investment

strategy for the country was taken from the Aguascalientes

destination?

model. Environmental practices are not only focused on

A: Our previous experience played a major role in this

companies, we are also trying to instill a green mindset

process. Aguascalientes’ standards of competitiveness,

in each individual. We work closely with the federal

productivity, and knowledge have been more advanced

government and with the industry to develop all our

than what could be found in other countries, but its

strategies, and we are leaders in water treatment processes,

defining factors have been the working environment,

waste disposal, recycling, and energy management.

the safety of the region, and the educational level of the

Aguascalientes is the only state with electric taxis, and we

local workforce. Aguascalientes offers many investment

have a program to provide solar water heaters to senior

opportunities. Its geographic location offers a natural

citizens. We are the state with the largest amount of green

advantage, as the state is fairly close to the Pacific Ocean

areas per inhabitant, and we have just started construction

and the Gulf of Mexico. It is also situated at a short distance

of a 700 hectares park.

from the border, and it is less than 500km away from the largest markets in the country. In addition, we have lower

We are heavily involved with sustainability, and it is a

inflation ratings compared to the national indicators, and

common theme across all our projects. In terms of our

we have important infrastructure projects planned for the

electric vehicles project, we are still at an early stage and

future. In terms of electricity, Aguascalientes is probably

it remains an expensive technology. At the moment, the

the only state with no energy fluctuation whatsoever,

cars are recharging directly from CFE, but we are planning

thanks to a network grid encircling the region, completely

a strategy to generate this electricity through solar energy.

interconnected, with triple redundancy.

Aguascalientes is one of the states with the largest solar exposure in the country, so we are turning one of our

Q: What were your specific strategies in fostering

weaknesses into an opportunity, becoming the first to

Aguascalientes’

cover the entire cycle of energy generation. Currently,

current

status

terms

energy

generation?

we have some zones where people can recharge their

A: Nothing happening in Aguascalientes is circumstantial. I

vehicles, but one of our goals is to offer these solar energy

presented these goals in my campaign and I built my whole

stations to electric car owners for free. CFE has already

strategy around them. Once I took office, we already knew

presented its proposal to us, and we are planning to launch

what we had to do financially, and in terms of safety and

the project within the next six months.

education, we developed a program based on six strategic pillars: economic and social progress, legality and safety,

Q: What future plans do you have for the state, and how

efficiency, education, sustainability, and quality of life, to

do you want to end your term as Governor?

regenerate the industry in Aguascalientes. We are now the

A: We still have one and a half years to consolidate all these

most advantageously positioned state in the country, we

projects. Aguascalientes has always been an important

are the second safest state just behind Yucatan, and we

contributor to Mexican culture, we are currently finalizing

are the third state in terms of low corruption perception

a cultural complex in our old train terminal facilities. Every

according to IMCO and CIDE.

day we meet new companies interested in establishing operations in the state, and we are continuously announcing

Q: What are the key strategies Aguascalientes considers

new investments. Banamex’s forecast for this year places

in matters of energy and sustainability in order to offer a

us as the largest-growing state in the country with a GDP

better quality of life and security to its inhabitants?

increase of 7.8%, displaying that the incorporation of

A: We have become the first state with a thorough

sustainability into our development reaps not only benefits

environmental strategy, and we are the number one state

for the environment, but also for the economy.

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| VIEW FROM THE TOP

INDUSTRIAL GROWTH BOOSTS ENERGY DEMAND MARCELO LÓPEZ Secretary of Sustainable Development, Government of Queretaro

Q: What are the competitive advantages Queretaro offers

Q: What strategies is the state government implementing

for the development of renewable energy sources?

to increase the installed capacity of renewables?

A: There are two notable aspects. The first relates to the

A: Today, solar has a relatively small participation in

state’s potential due to its geographical characteristics,

Queretaro’s energy mix, and it is mainly used to supply

mainly its solar irradiation levels. The second is due to the

companies in areas, such as lighting. Although there are

state’s accelerated economic growth, which is creating a

technological and financial obstacles that prevent the

demand for energy that makes large-scale power projects

full exploitation of solar potential, foreign investors have

viable. Other states might have the natural resources

shown a deep interest in participating in energy generation

but lack this consumer demand. Queretaro’s economic

alongside industrial park developers, seeking to intertwine

growth has resulted in the proliferation of industrial

power generation and industrial electricity demands.

parks. The number of industrial parks has doubled over

The initiatives have not yet materialized due to the

the past six years, and today we have 34, resulting in

need for a financial model that includes land ownership,

promising energy consumption potential. We are trying

investment amortization, and arrangements with end

to decentralize industrial activity, moving it away from

users. Nonetheless, companies and potential end users are

Queretaro’s metropolitan area and San Juan del Rio,

confident that these subjects will mature in the near future,

and into municipalities such as Colon and El Marquez.

allowing the large-scale development of solar power in the

Coincidentally, these areas have significant irradiation

region. In this endeavor, human capital is also important.

levels that could promote the development of solar energy

There are several initiatives in place from both public and

projects.

private educational institutions regarding renewables. The state’s priority regarding education is to supply the

Q: The growth of the industrial sector creates a demand for

creative, engineering, and administrative talent needed

more energy. What challenges does this create, and what

to cover the investments entering Queretaro. Talent

is the government of Queretaro doing to address these?

development in the renewables sector is not extensive at

A: For the government, the main challenge has been

the moment, although institutions are already developing

negotiating this growth and expanding the infrastructure

programs. The business sector is attentive to the potential

at the pace of the investment attraction. In the case of

of this sector, but young people seem more attracted to

electricity infrastructure, we have had to coordinate

the industrial segment due to the abundant opportunities

closely with CFE’s planning division at the state level in

it presents.

order to address the energy demands of companies that are arriving to Queretaro in the required timeframes.

Q: What opportunities does Queretaro’s government see in taking advantage of the state’s growing energy

258

An aspect that has facilitated the state’s growth is the

demand to push a competitive and sustainable economy?

fact that municipal governments work closely with the

A: The opportunity in Queretaro lies in consumption, and

private sector in the development of industrial parks.

the state’s challenge is to promote joint collaborations

In Queretaro, all industrial parks –except for one– were

between the government and general private investment,

built with private investment, allowing the authorities

such as manufacturing companies, to start exploring

to work on the planning stages with the investors and

innovative electricity generation schemes. There are

CFE in order to ensure that the timeframes are realistic

already cases of plastic injection companies that are

and that we can successfully meet the companies’ needs.

experimenting with power generation methods in order

The challenge has been significant, but the collaboration

to reduce their electricity bills. However, this is relatively

between the state government, CFE, and the private

new territory for Queretaro and its potential is yet to

sector has yielded encouraging results when overcoming

be explored. We will certainly see a rapid inclusion of

obstacles.

renewable energy technologies in the industrial sector.

| VIEW FROM THE TOP

THE NEW EPICENTER FOR RENEWABLES JOSÉ MARÍA LEAL GUTIÉRREZ Head of the Tamaulipas Energy Agency

Q: What aspirations does Tamaulipas hold in terms of

in order to develop projects that have arisen from the

renewables, and how will it incentivize economic growth

Energy Reform and that benefit all parties. One of the

in the state?

schemes we have developed is the Energy Agenda, which

A: Tamaulipas is betting heavily on clean energies since

allows the government to manage all factors that play a

it boasts all the necessary conditions to develop them

role in the attraction of investment. The state and municipal

successfully. For instance it has strong wind and solar resources

authorities are more willing to establish points of contact

throughout the year, which is attractive for developers. Given

with private players that wish to invest in Tamaulipas.

that Tamaulipas is betting on renewables, it is important that the electricity industry is also fostered in order to capitalize

Q: What steps are you taking to increase the participation of

on all opportunities. There are many benefits that have risen

SMEs in the value chain of the energy industry in the state?

thanks to the geographical diversification of wind power

A: There are several steps that must be taken in order to

in Tamaulipas. This year CRE authorized the development

ensure the participation of small players in the industry.

of 26 new wind farms in Tamaulipas alone and this will be

Firstly, we help companies by offering training courses and by

added to the existing infrastructure in the border of the state,

creating networks with major players and important energy

particularly Reynosa.

projects. We are also working on a supply catalogue that lists all the local suppliers, which will provide them with visibility

The Tamaulipas Energy Agency was created to attract

and an opportunity to develop business opportunities within

investments and expedite the development of projects.

the sector in the region. The projects that are currently

The agency is able to establish points of contact with key

being developed can serve as a platform for developers

stakeholders and look for investment alternatives that

and suppliers. For instance, the three wind farms that are

benefit the citizens of Tamaulipas and uphold technical

being developed near Ciudad Victoria can lead to further

and legal aptitudes. The wind sector has found a second

developments in other areas like Matamoros or Aldama.

home in Tamaulipas after Oaxaca, yet we must also look to develop other sectors such as solar. There are high

Q: What are the characteristics that make Tamaulipas an

irradiation levels across Tamaulipas and it is a sector that

ideal investment destination and a manufacturing hub for

boasts a lot of potential. We have worked with Pedro

the electricity sector?

Joaquín Coldwell, the Minister of Energy in identifying ways

A: Tamaulipas boasts ideal conditions for the development

of developing this renewable source. We are working with

of solar and wind; however, another area that is often

the Autonomous University of Tamaulipas in developing

overlooked is that Tamaulipas has certainty in land acquisition.

projects across all its campuses and the state authorities

It is important to note that the world is slowly progressing

are preparing the development of a promising project in

to decarbonized markets and Mexico is following the same

the Parque Bicentenario in Ciudad Victoria.

footsteps. It will take time, but Tamaulipas will be a cornerstone for the development of renewables in the country. The Energy

Q: What role does the Tamaulipas Energy Agency play in

Agenda is clear in terms of objectives and one of the most

fostering public private collaborations?

important is the development of human capital. We have

A: In October 2014, we assembled educational institutions,

increased the number of scholarships that are associated to

public agencies, private players, chambers of commerce and

the energy sector and we have gone a step further by signing

civil organizations to create the State Energy Commission,

academic agreements with prestigious universities like the

of which the Tamaulipas Energy Agency is a branch. The

University of Texas in Austin, San Antonio, and Laredo. There

collaboration of different players has created an innovative

are many challenges that lie ahead that Tamaulipas must

model that is greatly valued not only by Tamaulipas but

conquer, but these do not differ from other states in the

by Texas and other entities as well. There is a tightly knit

country. If we implement the Energy Agenda then we can

collaboration between public entities and the communities

certainly face any obstacle that might lie in our way.

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| VIEW FROM THE TOP

WIND ENERGY LEADER WORKS TO BECOME A RENEWABLE ENERGY HUB SINAÍ CASILLAS CANO Renewable Energy Coordinator at the Secretariat of Tourism and Economic Development of Oaxaca Q: What has Oaxaca’s historical role been as one of the

far, 3,422 systems have been installed. The government is

largest renewable energy hubs in Latin America?

determined to reach isolated communities that do not have

A: Oaxaca is the state with the greatest potential for

access to electricity; therefore, it is helping initiatives like

renewable energy generation due to its biodiversity, as our

Luz en Casa and Prende Oaxaca with logistics, economic

natural resources allow for the development of wind, solar,

resources, and the design of management systems,

and hydroelectric power projects. Over the past 20 years

establishing sustainability mechanisms that are lacking in

the Isthmus of Tehuantepec has been the region with the

most electrification endeavors in the country. We believe

most outstanding renewable energy generation. The state

the development of renewable energies can foster the

has the potential for 10,000MW, it has a daily production

social and economic growth of all regions in the state.

of 2,247MW, and it is home to one of the main wind energy projects in the country. In this way, Oaxaca represents

Q: In which areas do you see the best investment

a stronghold in the fight against climate change and an

opportunities for renewables in Oaxaca, and what

important tool in reaching the 2024 clean energy objectives.

strategies have the state government implemented to achieve its investment objectives?

Q: What are Oaxaca’s priorities in strengthening the

A: Wind and hydropower energy projects have been the

energy matrix through the use of alternative power

most prolific in Oaxaca, and the majority of investments

sources?

have been channeled into the wind sector. At the current

A: One of Oaxaca’s goals is to become a national leader in

rate, investments will reach US$11 billion by 2024 and a

renewable energy generation. We will take advantage of

generation capacity amounting to 5,000MW. In order to

the wind power potential in the Isthmus of Tehuantepec,

reach the expected investment levels, we have worked with

as well as the hydroelectric potential in Paploapan, Costa

the federal government in areas such as drafting the public

Region, Sierra Norte, and Sierra Sur by implementing mini

consultation for Juchitan de Zaragoza, which will prioritize

hydroelectric plants. Additionally, the Costa Region, Valles

inclusive schemes for the indigenous communities as well as

Centrales, and Mixteca Region have a valuable potential

best practices. The Government of Oaxaca has carried out

for solar energy. If the proper promotion mechanisms are

several studies, including the Strategic Plan for the Oaxaca

put in place, it will be possible to generate 120MW of solar

Technological Park and the study for the Mexican Center of

energy in the Mixteca and Costa regions. Linking industrial

Innovation in Wind Energy in Oaxaca. It has also carried out

projects to renewable energies will promote job creation

economic, social, environmental, and financial studies for

and the development of local human capital. Finally, it is

Salina Cruz and the Isthmus of Tehuantepec. In the latter, the

crucial to integrate the communities so that they can also

authorities have emphasized studies on social factors in wind

benefit from renewable power developments. We also

projects and the impact of the development of industries and

create laws and regulations that allow the state to manage

clusters in the regional economy of Isthmus of Tehuantepec.

the renewable energy sector. We are the only state that belongs to the Mexican Center of

260

Q: How can the energy sector serve to close the gap

Innovation in Wind Energy. Additionally, there are several

between

universities in the state, such as UNISMO and the Valles

marginal

regions

and

those

experiencing

significant economic development?

Centrales University, which train specialists in the energy

A: Currently, we are implementing two rural electrification

sector. Institutions like the Isthmus Technological Institute

projects through public-private partnerships, which are

and the Oaxaca Technical Institute also offer degrees in

unique in their management model: Luz en Casa and Prende

electromechanical and electrical engineering. The success

Oaxaca. It is expected that these programs will enable the

of these programs is evidenced by the fact that a large

electrification of more than 10,000 households by the end

percentage of the wind parks are operated by graduates

of 2016 through the use of small photovoltaic systems. So

from local universities.

| VIEW FROM THE TOP

NAVIGATING COMMUNITY RELATIONS EVIEL PÉREZ MAGAÑA President of the Commission of Indigenous Affairs

Q: What are the priorities of the Commission of Indigenous

Q: What strategies should companies embrace when

Affairs and what are its key accomplishments in the past

approaching communities and what best practices do you

two years?

endorse?

A: The commissions, including the Commission of Indigenous

A: As president of the Commission of Indigenous Affairs of

Affairs, incorporate a set of objectives that have been

the Senate, and as an official for the Oaxaca Government

mapped out by law. They elaborate points of opinion and

from 2004 to 2010, where I served as Director of the Institute

reports that are then presented to the Board of Directors of

for Housing and Public Works, I have had the opportunity

the Senate, and through this process we have been able to

to trace the development of wind power in Oaxaca. Indeed,

position the commission as a leader in the rights of indigenous

the relationship between companies and communities is

communities and peoples. The Commission has strong

essential; however, it is important to highlight that there is

ties with the National Commission for the Development of

not always conflict with the communities. These conflicts

Indigenous Populations, The National Institute of Indigenous

arise when the fundamental rules have been ignored. The

Languages, the National Commission of Human Rights,

new Law of the Electricity Industry and the willingness of the

INEGI, INE, and many others.

institutions to respect the rights of indigenous people allow for the relationship between companies and communities

The Commission is comprised of Senators from Oaxaca,

to be transparent and open.

Guerrero, Hidalgo, and Yucatan, among others, and its main political responsibility is to contribute to the decision

One of the most important infrastructure projects of the

making process in order to ensure that public and private

state of Oaxaca was developed by Eólica del Sur in the

investments are realized without the stain of social conflict.

indigenous communities of Juchitan de Zaragoza and El

The Commission for Indigenous Affairs has specific attributes

Espinal in the Isthmus of Tehuantepec. After a consultation

that push laws to strengthen justice and human rights.

period of one year that encapsulated several stages and upheld international standards, the company will be able

Q: How will the Energy Reform help protect the rights of

to install 132 wind turbines in the region. This project will

communities?

have a generation capacity of 396MW and will demand

A: All the Reforms, including the Energy Reform, represent

an investment of US$4.3 billion. One of the most basic

a turning point for the contemporary history of Mexico.

best practices we endorse is permanent dialogue with

Through unprecedented effort from all national political

communities. We must all act with strict accordance to

parties, a consensus was reached and it has reshaped

these new laws for they embody a democratic, egalitarian,

the face of the Mexican government. Within the Energy

and prosperous spirit.

Reform, and specifically the Law of the Electricity Industry, there are benefits that have been incorporated for rural

Q: How will the Commission help assuage the concerns of

and marginalized regions. For example, a fund has been

communities and protect their human rights?

created that promotes the process of bringing electrical

A: Oaxaca is a state of unmatchable wealth and it is

power to rural and remote areas. In addition, the Ministry

considered to encapsulate the highest potential for the

of Energy will establish policies and strategies to supply

generation of renewables and clean energies. While

electricity to these communities at the lowest cost. It is

its biodiversity is immense, what truly stands out is its

important that the energy infrastructure that will be

cultural diversity. This demands a high level of sensitivity

created bears in mind the principles of sustainability and

and knowledge of the diverse communities living there.

the integral rights of communities. I would like to highlight

We have been witnesses to the resistance in Oaxaca to

the law that obliges the Ministry of Energy to convene the

a sector that favored the interests of the unions over the

necessary assemblies to safeguard the interests and rights

quality of the education. In this process, we have nurtured

of communities and indigenous people.

the trust of the people of Oaxaca.

261

MEXICO CITY AS AN EPICENTER OF SUSTAINABILITY Economic growth cannot be achieved at the expense

implement sustainability at its core. “New buildings are

of sustainability. This is a statement that Tanya Müller,

incorporating energy efficiency strategies and developers

Secretary of SEDEMA, upholds and it is a motto the

are looking to obtain international certifications. This is

present administration of Mancera has pushed forth. “Urban

mainly motivated by strict transnational companies that

development must go hand in hand with sustainability

ask that their buildings have a degree of sustainability,”

and on an international level, Mexico City is garnering

she expands. SEDEMA is incentivizing the construction

recognition. The C40 Cities Climate Leadership Group is a

of new green buildings and the renewal of existing ones

network of the world’s megacities taking action to address

within the city.

climate change risks and impacts both locally and globally. Mexico City has been chosen to host the summit in 2016,”

Monitoring systems and trends such as Big Data are

Müller boasts.

beginning to take a prominent position in defining public

“Urban development must go hand in hand with sustainability and on an international level, Mexico City is garnering recognition”

Tanya Müller, Secretary of SEDEMA

policy and helping governmental agencies make concise

fundamental role in changing the behavior of people and

Müller’s

eyes,

environmental

education

plays

decisions. One of the most efficient and robust systems

upholding solid sustainability practices. SEDEMA has

nationwide is SEDEMA’s air quality monitor. This platform

carried out several activities and implemented campaigns

serves as an example for other cities in Mexico and the

to raise awareness, and one of the most prominent is in

secretariat takes steps to share its knowledge by providing

water management. According to Müller, in Europe water

courses and training. Nationwide, only 92 cities have an air

consumption is around 150l per person, which is due to the

quality monitoring system in real time, and with the support

fact that water is relatively expensive per cubic meter so

of experts this could certainly increase. In order to ensure

there is an incentive to preserve this resource. Mexico City

the optimal performance of the system each year, auditors

has the lowest tariffs on a national level and, as a result,

from the US are brought in to survey the equipment and the

water consumption reaches 350-500l per person.

interpretation of the data. “Our system is the only one in Latin America that forms part of the Air Now platform, and

“We must find a balance of supplying this precious

in order to be included we must follow strict criteria.”

resource and charging the appropriate tariffs. Overall 97% of the population has access to quality, potable water

The platform is open to the public so people can evaluate

and the remaining 3% do not receive a constant supply of

the quality of the air in some cities in North America. It is

water, meaning this demographic is payment exempt,” she

important to note that Ciudad Juarez is also part of Air

explains. SEDEMA is carrying out an integral program to

Now; however, Müller makes the distinction that it does

find new supply sources, make the system more efficient,

not report its results directly, rather it uses the platform

and improve infrastructure. However, she is quick to add

to process its own data. Achieving the ambitious goals

that illegal settlements in the periphery of the city do

Mexico has set out in its climate change strategy requires

not receive infrastructure support in order to discourage

the involvement of different governmental agencies.

urban development in these regions due to unsafe and

“We also have a digital platform, which can be updated

unhygienic living conditions. There are also several waste

by each secretariat with its advancements. It is a holistic

management campaigns where families are encouraged

program and all entities have goals to reach,” she points

to separate their residues and in return receive vegetables

out. The challenges a megacity like Mexico City faces are

and goods from the productive areas of the city.

enormous. This city is an unstoppable epicenter of social, cultural, political, and economic development. For Müller

262

The private sector has also made an important contribution

the message and mission are clear, “We must ensure

in incentivizing green practices, and for Müller the

that all these activities are conducive to the themes of

construction industry is to be lauded for its attempts to

efficiency and sustainability.”

MUNICIPALITIES SET TO BENEFIT FROM ENERGY EFFICIENCY The urban landscape is at the epicenter of human

because many municipalities propose projects but never

development and cities are the depository of cultural

complete them, or do not achieve the expected ROI.

vibrancy and economic growth. The world is riding the largest

“Most municipalities have high levels of debt, and they

wave of urban growth in history; more than half of the world’s

partly depend on federal contributions to pay loans, but

population lives in towns and cities, and by 2050 this number

in many cases they have already been allocated,” de Buen

will swell to a staggering 5 billion. Mexico is no exception,

comments. There is a clear guideline that municipalities

and restraint is sorely needed to keep this conspicuous

must follow to register for the energy efficiency program,

consumption in check. CONUEE has worked tirelessly to

and according to the law, CONUEE cannot give advice to

establish a green market with efficiency at its core. “We have

municipalities. “We review their applications, identify the

been working for the past 22 years on establishing standards.

systems they have at the time, assess their proposals, and

We already have 29 energy efficiency norms, close to 50

finally determine if they are bankable,” de Buen delineates.

accredited labs, and six certification organizations,” Odón

At a municipal level, installing efficient lighting system is

de Buen, Director General of CONUEE boasts. Within this

not enough, since a full immersion in energy efficiency is

plethora of green tools, there is one market in particular that

crucial. “Our other challenge relates to building standards

stands to benefit above all: municipalities.

and their acceptance by municipalities,” de Buen states.

“We have been working for the past 22 years on establishing standards. We already have 29 energy efficiency norms, close to 50 accredited labs, and six certification organizations”

Odón de Buen, Director General of CONUEE

Public lighting accounts for 15% of the municipal budget. In

These must be incorporated into the local construction

order to incentivize efficient systems at this level, CONUEE has

codes. “CONUEE is working arduously on getting banks

implemented a program that traces its roots to the previous

to consider energy efficiency and construction standards-

administration, the National Project for Energy Efficiency in

related activities for their loaning portfolio, especially

Municipal Lighting. “It has resources of MX$120 million, to

for SMEs.” Additionally, FIDE is making notable efforts

be used for rebates for municipalities, in a fund operated

in financing, but its focus is on equipment replacement,

by the Ministry of Energy,” de Buen describes. In this area,

rather than installations that include HVAC. “Getting banks

CONUEE’s work consists of promoting the implementation

involved would require schemes similar to those we have

of NOM-certified equipment with municipalities seeking to

for standards, that is, verifications, units, evaluation and

change their systems and maintain high quality. “Once the

estimation of savings, and certification of the companies

new lamps are installed, the Ministry of Energy’s fund pays

that present proposals,” he points out.

up to 15% of their value, with a limit of MX$10 million per municipality,” he adds. Shockingly, at the beginning of the

The recent governmental budget cuts have provided

administration no municipalities had received any benefits,

CONUEE the chance to promote medium and small energy

but this is rapidly changing with 11 municipalities having

efficiency projects. In Mexico the ESCO scheme has proven

gained the support and an additional 30 registering to

to be popular in the private sector, and de Buen hopes to

obtain the funds. So far MX$45 million have been used and

replicate this success in the public sector. “At the moment,

the program has broadened its scope to help municipalities

we are slowly working on developing an ESCO market in the

define their purchasing processes. “The challenge we face is

government sector, for which the prestigious law firm Baker

making sure that every product is certified so we must ensure

& McKenzie - paid by GIZ - has helped in drafting a standard

that every municipality that receives the funds demonstrates

contract.” The budget cuts are a useful driver for this initiative

that the products comply,” de Buen explains.

and according to de Buen, the ESCO market for federal buildings is estimated at MX$300 million (US$20 million) a

There is no denying that aiding municipalities in their

year, so the savings would surpass this amount. While other

pursuit of green practices is a difficult task. During the

governmental agencies lament the fact that their programs

revision of submitted proposals by the municipalities,

will feel the pinch of these cuts, CONUEE shines a light on a

the Ministry of Finance has asked CONUEE for support

new path that will lead to greener, energy efficient markets.

263

| ELECTRICITY SALES BY STATE, 2013

1 6

Northwest / Total GWh 28,788

1. Sonora 38.6% 2. Baja California Norte 33.1% 3. Sinaloa 21.0% 4. Baja California Sur 7.2% North-east / Total GWh 50,191

Center / Total GWh 48,04

5. Nuevo Leon 33.9%

19. State of Mexico 37.0%

6. Chihuahua 21.7%

20. Mexico City 30.4%

7. Coahuila 20.9%

21. Puebla 15.7%

8. Tamaulipas 17.7%

22. Hidalgo 7.6%

9. Durango 5.9%

23. Morelos 5.4%

Center West / Total GWh 49,264

24. Tlaxcala 3.8%

10. Jalisco 25.0%

South - South-east / Total GWh 31,092

11. Guanajuato 21.4%

25. Veracruz 35.4%

12. Michoacan 15.0%

26. Quintana Roo 13.0%

13. San Luis Potosi 11.8%

27. Tabasco 10.8%

14. Queretaro 9.6%

28. Yucatan 10.3%

15. Zacatecas 5.9%

29. Chiapas 9.2%

16. Aguascalientes 4.9%

30. Guerrero 9.0%

17. Colima 3.6%

31. Oaxaca 8.1%

18. Nayarit 2.9%

32. Campeche 4.1%

Source: Ministry of Energy and CFE

264

CFE POWER GENERATION CAPACITY (MW) BY Distribution Of The Effective National Capacity Of The REGION AND TECHNOLOGY (%) 18,732.8

14,104.9

8,966.5

6,924.3

5,303.2

North-east

Center West

Northwest

Center

100

South South-east

Service I Publish For Region And Technology, 2013

80 60

40 20 0

combined cycle thermoelectric conventional hydroelectrics

carbon electrics other

alternate sources

11 14

22 26

20 23

32 25

30 31

265

NUEVO LEON SEES THE DAWN OF PHOTOVOLTAIC TECHNOLOGY Wind power developers have comfortably nestled themselves

López de Cárdenas stresses the importance of making

in Mexico’s northern states and have enjoyed competitive

a valuable offer by understanding the energy needs of

business environments. Now it would appear it is solar’s

every industry and the precedent for powering operations.

turn. Covering nearly half of the country’s total surface, the

Competition not only exists between energy sources, but

six northern border states possess an arid desert climate

also between states, as the central region is beginning to

and high levels of solar irradiation. The figures are bound to

garner more attention because of the growing activity

attract solar players in droves as there is an average daily

there. Nevertheless, in López de Cárdenas’ eyes the most

solar irradiation level of 5.853kWh/m2. Baja California takes

attractive markets continue to be located in the north in

first place with an average of 6.4kWh/m and the state of

states like Coahuila, Chihuahua, and Sonora.

Chihuahua is noted for being an area with one of the highest solar irradiation levels worldwide. Rafael López de Cárdenas,

One of the characteristics of the northern states is the

Chief Operating Officer at Main Energy Projects set out to

openness to creating a landscape for newcomers, and Main

capitalize on the opportunities in the region.

Energy Projects must ensure its position in this growing and shifting market. Joint ventures and associations with

266

“Our company is based in Monterrey, so we are focusing on

foreign players have proven to be the ideal solution for

this area. Fortunately it is an industrial city and there are

this. “The joint venture we created in 2013 provided us

many players that can benefit from the solutions we offer,”

with valuable information about some of the main markets,

he explains. One of the advantages López de Cardenas

such as Spain and Germany.” In addition, the company

has spotted is that the high irradiation levels make it

gained expertise and experience in the decision making

possible to maximize the efficiency of the photovoltaic

process, which allows it to work more efficiently in Mexico.

cells. Despite the outstanding conditions, competition

“This international knowledge gives us an advantage over

remains strong between technologies, “We face strong

other competitors with only local experience. Our insights

competition in the north, with wind companies based in the

into the industry and market will help us to capitalize on

same geographical locations as us. As a result, it is crucial

existing opportunities.” Ultimately, these collaborations

to understand the energy market and the needs of every

will allow the company to maintain a continuous workflow

off-taker.” In order to maintain a competitive advantage,

in a solar market that has yet to prove its value.

TEARING DOWN THE INFORMATION BARRIER

Francisco Hernández-Manzano, Founding Partner and Director of Iniciativa Energía

Energy

security

ranks

the fact many municipalities, even the ones that have the cash

highly

public

flow, are unaware of the resources available from the federal

agenda

the

developed

budget program, or do not know how to gain access to them.

markets and this has not

“Everyone has access to energy efficiency programs, but

been always the case with

not everyone is prepared enough to access them or knows

Mexico. “Although Mexico

which agencies to approach. The government should provide

is a large exporter of crude

additional assistance services.” He notes that a municipality’s

oil, it is a net importer

source of income, such as property taxes or revenues from

utilities, is limited. “Imagine what would happen if the

imports more than 60% of

refined

products;

federal government truly strengthened municipalities in

the gasoline it consumes

technological capabilities, civil servant career paths, and

and it is dependent on natural gas imports, even though it

training in accessing funds. This would result in a sound and

has plenty of reserves. Therefore, Mexico does not have real

effective federal energy efficiency program.”

energy independence,” comments Francisco HernándezManzano, Founding Partner and Director of Iniciativa

Martínez is convinced that the success of well-implemented

Energía. While studying in Germany, he realized energy

programs depends on tearing down the information

efficiency and energy management were part of the daily

barrier. “Many governors or municipal presidents are not

corporate culture, with companies concerned with obtaining

knowledgeable on energy efficiency, so they think they

certifications and improving their energy management

are making a difference and being energy efficient by

systems. All these factors made him and a group of

installing solar panels and LED lights.” The situation gets

colleagues realize the potential for energy management,

more complicated when lighting solutions providers develop

energy savings, and tracing a path toward energy security

energy efficiency projects. According to Martínez, the

in Mexico. This is how Iniciativa Energía, a firm specialized

challenge and solution is to broaden the municipalities’ vision,

in energy efficiency and energy management systems, was

educating them on energy efficiency, availability of resources,

created.

and optimization of these systems. Hernández-Manzano says the joint participation of the Ministry of Energy, SEMARNAT,

Although the firm’s strongest segment is the private sector,

and CONUEE, could have a deep impact in the scope of

it has important projects with the public sector. “We like

these programs because they have to guarantee that the

working with the government, mainly with CONUEE and

consulting firms they are hiring have the right certifications,

the Ministry of Energy, because there is huge potential for

credentials, and experience in energy management.

improving operations in municipalities and other areas,” Hernández-Manzano asserts. Lucía Martínez, Partner and

Hernández-Manzano feels optimistic because he has worked

Environmental & Renewable Energy Director at the firm,

with people who believe in their municipalities and seek

explains that even when working with private clients, there

advancement. More structured municipalities already know

are many elements in a project that directly involve the

what they have to do each year in order to secure resources

public sector, such as procedures, contracts, or certification

and who to approach for assistance in processes and

processes. For Hernández-Manzano, it is important for the

technical aspects, even if their executive leaders change. In

public sector to invest in energy efficiency because 40% of

these cases, Iniciativa Energía supports the authorities that

their government energy expenditure is wasteful spending.

already know what path to take by giving them alternatives.

Iniciativa Energía has already mastered the art of working with

Energy efficiency is also a promising area, since Hernández-

municipalities, which many players find cumbersome. “Once

Manzano says some municipalities have already obtained

the Chamber of Deputies authorizes budget allocations, we

their energy efficiency certificates in pumping systems,

look for an interested party. Iniciativa Energía carries out the

lighting, government buildings, and vehicular parks. The firm

technical annex and helps with procedures, such as permits

continues to gain the necessary experience to become a

and audits, assisting municipalities until the authorities

notable player, although Hernández-Manzano would like

approve the projects. Municipal presidents can rely on their

to see more competition so that the industry can thrive.

links with federal representatives that can influence the

He concludes with a piece of advice for those who wish to

approval of the projects,” tells Hernández-Manzano.

work with municipalities, “The problem with municipalities is that, although they are the main client, sometimes they

Iniciativa Energía seeks to work with municipalities with

are not the ones making the final decisions. Patience and

liquidity and a relatively large population. The problem lies in

perseverance are crucial.”

267

SMART TECHNOLOGIES EMBRACED IN SMALL TOWN Dotted across the vast

Tequila offers a promising opportunity for IBM to deploy

expanse

Mexico’s

its entire range of solutions due to the size and population

small

of the town, “Tequila serves as a comprehensive model for

epitomize

IBM and the government, which they can then replicate

landscape villages

are

that

the cultural riches and

across different municipalities in Mexico.”

traditions of the country. They are named Pueblos

Technology is a key foundation for all smart cities since

Mágicos

Towns)

it is an enabler of Big Data, mobility, traceability, and

connectivity. “It allows us to better understand Tequila’s

immortalizing

visitors, where they come from, how many days they

and Federico De Arteaga, Director of Planning of Grupo JB

(Magic

they

tapestry

stand

the rich history of Mexico.

stayed,

their

interests,

and

overall

experience,”

One of the most noted is Tequila, located in Guadalajara.

Arteaga explains. The project also ensures the inclusion of

Federico De Arteaga, Director of Planning of Grupo JB,

residents, businesses, and local government by creating

plans on developing this emblematic city into a touristic,

the Integrated Development Council of Tequila (CODIT).

intelligent, and sustainable destination that unifies many

“The objective of the CODIT is to ensure a sustainable,

aspects of the country’s culture.

structured, competitive, and inclusive urban development by aiding in the training of various fields, and to establish

The term “smart city” is not limited to the megalopolis;

the city as the heart of Agave culture.” This project aims to

small towns can also innovate and actively embrace

improve living conditions of locals and create sustainable

technology to benefit their communities. “In fact, their

opportunities for local businesses.

small size gives them an advantage over their larger counterparts since the implementation of solutions is

“Cooperation between the private and public sector is

easier to oversee,” De Arteaga declares. In addition, it is

crucial because they are ultimately mutually dependent,”

easier to evaluate the impact on the entire city and adjust

De Arteaga asserts. Grupo JB worked hand in hand with

faster, so municipalities can develop small scale projects

Tequila’s municipality to design the urban planning project

for key innovations and new technologies.

for 2040. “The plan was then approved by the local population and the communities are aware of the changes

According to De Arteaga, large cities already implement

the town is about to undergo.” When smart technologies

long term strategies for urban development and elaborate

are integrated into the fabric of a city, the community

systems within the city management. “Because of this,

understands that this represents a great opportunity for

when implementing an inclusive plan, big cities must plan

the population and investors alike. “This is the beauty of

for considerable restructuring if they wish to successfully

the project: everybody benefits from the initiative.”

execute their plans.” Through the ‘Tequila Espíritu de México’ project, the city has been able to showcase how a small town can serve as a blank canvas for the implementation of smart technologies. De Arteaga points out that the project has been able to successfully integrate health services, transportation, security, social services, energy, and water management, and roll it out across the whole of Tequila. This means that all departments share data and information and this enables the city to predict future needs. De Arteaga admits that this project has been made possible thanks to the contribution of other private players, one of which is IBM, a noted industry leader in advanced technologies and design of smart cities worldwide. “IBM helped improve the transportation system in Sweden and the security system in Atlanta. It even established a Network Operations Center in Rio de Janeiro to manage everything related to natural disasters in the city,” he adds.

268

| VIEW FROM THE TOP

SPOTTING THE UNIQUE ATTRIBUTES OF ENERGY STATES ROGELIO NOCHEBUENA TINOCO Chief Operations Officer of Grupo Evoasis Q: Grupo Evoasis follows the German distributed energy

A: The state of Jalisco is beginning to comprehend the risks

model. Could you explain how this model has been

associated with relying on one energy source and having a

adapted to the peculiarities of the Mexican solar market?

reputation as a net importer. One of the factors of attraction

A: Distributed Generation (DG) in general terms refers to

for the public sector in terms of renewable energies is

the decentralized production of electricity by small scale

that they provide a steady source of employment to local

systems. Rooftop solar systems are the preferred technology

communities. Many municipalities and states across Mexico

for DG, however, other sources such as biomass and wind

are looking for these types of investments. In the initial

can be used too. In Europe we have begun to see utilities

stages of a solar farm, 400 people may be required in the

lose position in the market as DG reaches higher levels of

construction phase and then approximately 15 people in

penetration. Germany is one of said countries and others

the operation stage. One fact is incontrovertible: renewable

such as the UK and Italy are beginning to catch up. Grupo

energies are an employment multiplier.

Evoasis was founded by Simon Lloyd, a UK entrepreneur, in response to the opportunities in the Mexican market. The

Q: Which other states show potential for solar farm

company has had unique experiences in the market, which

developments?

has led it to identify business opportunities across Mexico’s

A: Everyone is paying close attention to the northern states,

different states, such as Jalisco and Baja California.

particularly Baja California and Sonora. The main barrier the solar sector is facing is the lack of financing in the early stages

Q: What are the opportunities you have identified in

and a skewed perception regarding the costs of solar energy.

Jalisco for renewable energies?

The debate of wind versus solar has become antiquated

A: Jalisco is an attractive destination for renewable energies,

and it is important to delineate the positive aspects of solar

especially solar for a number of reasons. Firstly, Jalisco is a

energy. The technology has improved and its costs have

net importer of electricity, with 92-93% of electricity coming

decreased, which addresses the misconception that solar

from out of state. The city of Guadalajara relies 100% on

is not reliable. In the state of California, you can find solar

a power line coming from a power plant in Manzanillo.

projects that reach grid parity with fossil fuels. There are

Clearly, this dependency has several risks attached to it. A

several states in Mexico that are a fountain of opportunity for

way to mitigate this is by implementing other technologies

renewable energies and these must be seized by all players.

in the state and already there are companies like Grupo Dragón that have begun to venture into this arena. Another

Q: What unique projects have you spotted in regions such

attractive factor is the number of potential off-takers in the

as Baja California?

region. This is due to the manufacturing industries scattered

A: We are currently in the process of developing a water

across the state; in fact, Jalisco is one of the centers for

desalination plant in Baja California. At the moment we

electronic manufacturing in the country. We have also seen

are going through the permitting and land acquisition

an increasing support from the public sector, especially at a

processes. By nature, these plants are very energy intensive

state and municipal level. For instance, the solar resources

since they require high amounts of electricity to pump the

are decent in Jalisco and certain parts of the state have

water through the membranes of reverse osmosis. There

irradiation levels of around 1.9kW/m2. The permitting

are talks of developing a solar farm that can provide the

process has been relatively smooth since local authorities

plant with electricity and to other off takers as well. There

see the benefits of renewable energies, especially utility

has been some social unrest between the Yaqui Indians

scale solar farms.

and the citizens of Hermosillo. This due to the fact that the Yaqui have water rights for certain rivers and much of this

Q: How would you define the approach Secretariats of

precious resource is being redirected to supply the ever-

Economic Development take toward renewable energy

growing city of Hermosillo. We believe this project can

project and what barriers have you encountered?

mitigate some of this social conflict and unrest.

269

SOLAR ENERGY FOSTERS SOCIAL DEVELOPMENT Access to electricity has

them understand that charging for our services compels

us to give them high-quality services,” explains Wiechers.

significant

social

economic

development. As of today,

The pilot program proved ILUMéxico’s solution to be

roughly 3% of Mexico’s

successful, and since then the company has worked with

population to

Manuel Wiechers, co-founder and CEO of ILUMéxico

and

impact

the

lacks

access

almost 3,000 households in 11 states with a total installed

national

power

capacity of 75kW. Even though having the correct

grid. Most of the 3 million

partners eased the acceptance process when entering

people affected by this

communities, ILUMéxico has faced considerable challenges

live in rural communities

and obstacles when scaling up the business. “We started

located

and

four years ago and our model depended on subsidies,

highly marginalized areas. Electricity services do not reach

remote

grants, and non-profit donations. When the government

their homes because of the high costs of grid expansion,

changed in 2012, we realized that we could not depend

low population or dispersion, or complex geographical

on administrative cycles for funding. We started our own

conditions within these regions. Previously, a group of young

microfinance model with the goal of making solar systems

entrepreneurs shared a common notion of developing

accessible; this allows financial sustainability that benefits

a project to impact and foster social and community

costumers and ensures the durability of our programs over

development, promote renewable energies, and fight climate

time,” says Wiechers.

change in locations without access to electricity through technological innovation. With this in mind, ILUMéxico was

Another obstacle involves logistics, considering ILUMéxico

founded in 2010. “I used to work in wind projects for GE.

is working in regions beyond the reach of conventional

Being a student at the time, I was constantly asking myself

transportation and logistics companies. For this reason,

how I could make a meaningful contribution to Mexico. My

it had to create its own distribution channel internally by

associates and I share the notion that Mexico’s potential

integrating the whole value chain, from manufacturing

for renewable energy is not fully taken advantage of,” tells

to distribution and financing. ILUMéxico implemented

Manuel Wiechers, co-founder and CEO of ILUMéxico.

a decentralization strategy that led to the creation of ILUCentros, which are rural branches staffed by young

ILUMéxico develops its own technology to provide solar

engineers from the region that are in charge of marketing,

powered generators to marginalized rural communities

sales,

with no access to electricity through tailored micro-

operations. “Right now we have four branches for logistics

financing schemes. “Families can spend up to US$12 per

management. Once we scale up, however, we will have

month on candles or diesel lamps. In addition to being

to modify the strategy and mechanisms to make them

expensive, they are dangerous because they are fire

work correctly,” says Ham. “Even if you have the best

hazards, and the smoke they emit contributes to lung

technology, the chances are the systems will stop working

diseases,” explains Hugo Ham, ILUMéxico’s co-founder

if left unattended in a rural community,” contributes

and CIO. The solution ILUMéxico offers has an impact on

Wiechers. ILUMéxico also provides free evaluation, system

households savings and income generation capacity, as

repairs, and tailored maintenance plans for people with

having electricity at night helps people perform activities

solar equipment from other programs. These people, says

that could lead to an increased income. Wiechers claims

Wiechers, eventually become long-term clients.

training,

and

installation

and

maintenance

the impact his company has on its target population is aligned with the UN’s development plan.

ILUMéxico’s plan in the short-term is to establish, consolidate, and structure the ILUCentros model to seek

270

It was with the help of an NGO that ILUMéxico gained

and enhance investment. The mid-term goal is to reach

access to the rural community, and it launched its pilot

50,000 households in the next five years through 50

program in Veracruz in 2010. Wiechers points out that his

different ILUCentros or regional offices. The company

company has always prioritized local support, be it from

also wants to strengthen bonds with the government

an NGO, any government entity, or a socially responsible

enterprise willing to create a partnership. “It is hard to

public policies. “If we manage to provide electricity to

convince communities, as there is not a one-size-fits-all

communities, then their living conditions improve. If we

solution for this kind of situation. Each community will

can get other actors on board, the communities have a

have its own concerns and objections. It is all about making

bigger chance of overcoming poverty,” affirms Wiechers.

continue

working

together

and

even

influence

IT IS TIME FOR STATE GOVERNMENTS TO BET ON SOLAR Time and time again have Mexico’s geography and

the area covered by the modules, as this will exponentially

its world class solar resources been lauded by energy

increase the taxes to be paid.” In these instances the

players across the globe. Unfortunately, investment in the

company has to explain to the authorities the basis of the

sector has been limited and it has lagged behind that of

construction location and in Schluetter’s experience most

wind and other technologies. These several barriers that

of the officials are straightforward, open, and enthusiastic

continue to hold back the sector have not tarnished the

about renewable energies and solar technology. “They are

extraordinary opportunities for investment that some

willing to reconsider the way they calculate the property

states across Mexico offer. For Kai Schluetter, Managing

taxes and adapt them to the needs we have in order for the

Partner at Internovum Solar, the federal government has

project to be bankable.”

paved new roads for private investment and it is now time for state authorities to strengthen this new option and

Struggles arise when developing projects on community

make renewable energies a reality. “The main advantage

lands or common lands and according to Schluetter, since

of developing photovoltaic projects is that you can

there are more people involved in the negotiation process,

develop and install them in almost every region of Mexico,

the company is expected to meet conflicting interests.

which helps increase the awareness of solar technology

However, Internovum Solar does not back away from a

throughout the country,” Schluetter expresses.

challenge, “The negotiation is actually the most interesting

“The main advantage of developing photovoltaic projects is that you can develop and install them in almost every region of Mexico” Kai Schluetter, Managing Partner at Internovum Solar

In Schluetter eyes, there is a lack of knowledge surrounding

part of the project development in Mexico, and you can see

PV technology and this has driven Internovum Solar to

the differences between community and private lands,” he

bridge this gap and promote solar across Mexico. “We are

expands. Schluetter emphasizes the importance of building

developing ten projects in various states of Mexico, mostly

trust during the negotiation process with the communities,

in the central and northern states. Most of them started

“because they will be living there their entire lives and you

over two years ago and are currently being developed

will have to interact with them, whether it is pleasant or not.”

under the previous legal scheme.” The quality and quantity

At the end of the day, despite the barriers companies must

of northern Mexico’s solar resources are superb. The best

overcome, Schuletter is convinced that the construction of

solar thermal resources are in the states of Baja California,

renewable energy projects will not only bring price stability

Sonora, and Chihuahua. For instance, Baja California has

for the off-taker in the long term but economic prosperity

a solar thermal capacity of 5GW, with the potential to

to those states that decide to bet on solar.

generate 11.6GWh of solar electricity per year. Solar will play an important role in Mexico’s power matrix One of the most common stumbling blocks that companies

in the future, but for now, it will be overshadowed by

encounter when entering the local authorities’ panorama is

other technologies. Mexico certainly has its objectives

the government’s lack of familiarity with the technology.

and needs; the first to cover the energy demand, and the

“To circumvent this, there is an early consultation with the

second to generate cheap energy for all consumers. “The

government at the very beginning of a project in order to

construction of gas pipelines and imports will have an

gauge the viability of developing it, and the licenses and

impact on the reduction of electricity in the short term, but

permissions needed to build roads and other important

in the medium term the effects will be minimal.” Schluetter

assets.” An example would be the construction license

indicates that the impact will be limited due to the decrease

or the land-use permit, where normally certain fees are

in oil prices and the possibility of a similar trend in natural

involved. Schluetter explains the process, “When you are

gas. “This means Mexico should lower its dependency on

constructing a building, a predetermined area is taken into

gas and diversify its energy sources.” Renewables such as

consideration to estimate the taxes payable. With PV fields

solar provide this much needed certainty and advantage in

it is different since you want to avoid calculations based on

the medium and long term.

271

MUNICIPALITIES ATTEST TO THE BENEFITS OF SOLAR ENERGY Making solar technology

believes opportunities in the residential market will arise,

accessible

the municipal and industrial segments will continue being

will

increase

its demand among the

the company’s most important clients.

general population, which is why SolarAct has been

In order to further promote solar technology, SolarAct

focused solar

Carlos Walls, Director General of SolarAct

installing

develops its market through a distribution network

powered

lighting

comprising small companies belonging to businesspeople

systems in municipalities

that invest in implementing solar panels in their communities.

across

Mexico.

Carlos

“We are sure that SolarAct is not going to capitalize on

Walls,

Director

General

opportunities alone. We plan on doing so in collaboration

SolarAct,

says

the

with

small-

and

medium-sized

companies

that

will

most important competitive advantage that helped his

disseminate the applications and benefits of this technology

company position itself lies in offering quality products

in a way that reaches the whole population,” Walls

adapted to the conditions of the Mexican market, as well

proclaims. He believes that when it comes to popularizing

as reliable aftersales services. The latter is useful when

solar technology, small energy producers will be more

providing equipment maintenance, since spare parts have

important than the large international firms. Distributors are

to be imported. Nonetheless, SolarAct has to compete

at the core of the company’s action plan, so SolarAct has a

with foreign products aggressively entering the market.

solar energy training center to train its ambassadors. Walls

According to Walls, the low quality of some of these

points out to a lack of knowledge as one of the reasons

products can even cause interference in the national grid.

this technology not being implemented more in spite of

Before 2013, Mexican regulation was vague regarding the

its benefits. Walls believes that municipal authorities are

quality standards required from imported solar equipment.

distrustful regarding solar technology, which has slowed

The issuing of the Ministry of Energy’s NOM-031 enforced

down the implementation of solar panels for public lighting.

certain compliance standards, enabling manufacturers like

“Municipal authorities do not find it financially attractive to

SolarAct to compete in egalitarian conditions.

invest in similar technologies because they are looking for investments that are profitable during their tenures, not three

The use of LED lights has enabled SolarAct to offer high-

years later.” Changing the three-year model is something

quality, certified products that can compete with imported

SolarAct often discusses in solar energy associations.

technology. LEDs yield 50% savings when compared to

In spite of this hindrance, Walls claims the government is

technologies that use sodium vapor or metal additives,

interested in the solar energy sector. For instance, there are

leading Walls to the conclusion that this is the most efficient

several funding mechanisms, such as FIDE, in which federal

lighting source available today. “LEDs enable us to generate

resources are used so that municipalities and states can

a greater amount of light with smaller solar panels, resulting

begin implementing solar panels.

in both environmental and economic benefits. Other light emitting technologies would force us to use larger solar

The solar energy sector could be further developed if

panels and develop more expensive systems that are

certain actions are taken, according to Walls. He believes

inaccessible to the general population,” he explains.

one of the necessary incentives should be lowering the amount of bureaucratic procedures, mainly on CFE’s part,

272

Currently, SolarAct works mostly in the municipal,

so that people can have easier access to this technology.

commercial, and industrial segments. The company has

“Nowadays these procedures are too long and complicated,

developed public lighting projects in rural communities,

and the authorities tend to obstruct rather than help, which

in Mexico City’s downtown, and in small and medium-

ultimately discourages people. Regulation should facilitate

sized cities in the State of Mexico. According to Walls,

access to solar technology in remote communities, which

the costs of CFE’s traditional energy generated through

is something the government should be working on.” For

hydroelectric processes will continue increasing, while

Walls, the most important role the government can play in

the costs of solar technology will decrease, making it

pushing the solar sector is disseminating information so

more accessible to private parties. Nonetheless, Walls

that the population can learn about the benefits of solar

explains: “There will be no true competition because CFE

power. He champions this technology because he believes

needs the support of the private sector to compensate

that if the costs of solar energy continue to decrease

for the increase in Mexico’s energy demand. Rather than a

while the costs of traditionally generated energy rise, solar

competition, we see it as a complement.” Although Walls

energy will have a strong impact in Mexico.

| VIEW FROM THE TOP

NAVIGATING COMPLEX AGRARIAN AND REAL ESTATE LAWS MANNTI CUMMINS Director General of Energía Veleta Q: How have Energía Veleta’s unique origins and business

of land surface, which is creating an additional burden for

model helped it stand out from the crowd?

developers. The developer must provide a written proposal

A: The company traces its roots to the US energy industry,

to the landowner among other disclosure requirements. In

particularly the oil and gas sector based in South Texas.

this chapter of the law, new responsibilities and roles have

American Shoreline developed a successful business model

been given to a variety of governmental agencies making

in the oil and gas sector that was adapted to the wind sector.

them active participants in the land negotiation process. The

Our core skill has been our open and transparent style of

changes in land acquisition process have not impacted our

negotiation for land contracting with local land owners.

ambitions. We have signed an additional 10,000 hectares

In Mexico, Energía Veleta has four project zones with a

in 2015 and we are in the process of negotiating another

potential installed capacity of 1,000MW. We have leased

36,000 hectares. We are looking to partner up with other

over 110,000 hectares in four separate areas. We search for

companies to develop new projects and we have identified

regions and locations that have been overlooked by other

two new locations. During the land acquisition process, it is

developers and have set our sights on the north of Mexico.

important to make a distinction between private landowners and ejido lands. Private lands were expropriated during the

Q: How important is the collaboration with the Secretariats

creation of ejidos so large private owners divided their lands

of Economic Development of the respective states in

among family members in order to minimize expropriation

furthering your projects and vision?

risk. Today, these landowners are the third or second

A: The level of collaboration with the government entails a

generation after that property title division. Many family

process of education and promotion of clean energies. The

groups have conflicting goals and ideas on how the land

initial contact with the state government begins with the

should operate, so we have to navigate these differences.

Secretariat of Economic Development and, once it sees

By involving the communities in the development process it

the potential, it is very supportive. There is an interaction

could help resolve social issues,

between the state and federal governments, and the land use agreement must go through federal agencies like

Q: In your eyes, are the agencies ready to take on their

SEDATU. The cooperation between national governments

new responsibilities and how will this ultimately impact

is also noteworthy, for instance the Tres Mesas project in

the development of renewable energy projects?

Tamaulipas is being financed by the NADB, a binational

A: In the past, you would go to the notary, property

bank straddling Mexico and US. The board of directors is

and agrarian registry, now before you begin negotiating

comprised of the US Secretary of State, and Ministry of

with the landowner you need to send notice to SEDATU.

Treasury and its Mexican counterparts, among others.

Currently, SEDATU is not prepared to actively carry out

The Overseas Private Investment Corporation (OPIC),

the responsibilities entailed in this process. The economic

an agency of the US Government, is also providing debt

proposal given to the landowner must include land value

financing to the Tres Mesas project.

tables. INDAABIN is the agency in charge of publishing these reference tables, yet they currently do not exist. After signing

Q: How does the application of the Law of Electricity

an agrarian contract, an Agrarian Tribunal is necessary

Industry, especially Chapter Eight, impact the leasing

to obtain a judicial decision, and in order to check that all

process?

provisions of Chapter Eight are followed. If it is a private

A: When developing projects, there are a series of laws that

contract, you must go to the District Court. Many developers

the company must navigate, like the agrarian laws of 1992 that

do not know how the District and Agrarian courts work and,

permit the legality of ejido leasing and prescribes a process of

due to the peculiarities of a wind energy lease, it is likely

notice for development and contract approval. Additionally,

the Courts are unaware of how they are structured. There

there are 19 different clauses in Chapter Eight of the Law of

are many questions that are left unanswered regarding the

the Electricity Industry dealing with the occupation and use

efficient and smooth application of the law.

273

274

Financing can be seen as an insurmountable barrier for renewable energy developers, and the new legal scheme and contracting models are raising the bar even higher. Projects under the legacy scheme will continue to be developed without interruption, but uncertainty remains on financing of new projects. Historically, development banks pave the way for new sectors and deployment of technology, and commercial lenders follow suit in financing projects for established energy sources. AAA off-takers are thin on the ground, so developers must seek other breeds of potential off-takers with an interest in clean energy sources. Mitigating risk and overcoming these barriers are crucial for any player wishing to survive in this new energy environment.

This chapter provides insight into the concerns and interests of commercial and development banks, and the challenge developers must overcome in order to make their projects bankable. We focus on new risks that are emerging in the energy milieu, such as cybersecurity and hijacking, and we share the interest top off-takers have displayed toward certain technologies. We uncover the barriers encountered by renewable energy players in their quest to solidify their position in the market, and we offer unique insight into the decision-making process of financing agencies that play an important role in defining their survival.

RISK, BANKABILITY & OFF-TAKERS

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276

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Community

Thought Leadership

Our Clients

CHAPTER 12: RISK, BANKABILITY & OFF-TAKERS 278

INSIGHT: Enrique Nieto, NAFINSA

279

VIEW FROM THE TOP: Enrique Lara, Banobras

280

VIEW FROM THE TOP: Luis Alfonso Acosta, Bancomext

281

VIEW FROM THE TOP: Dr. Raúl Talán Ramírez, FIDE

282

INSIGHT: Guillermo Hernández, World Bank

283

VIEW FROM THE TOP: Stefan Blum, KfW-DEG Mexico

284

VIEW FROM THE TOP: Gerónimo Gutiérrez, NADB

285

FINANCIAL SPOTLIGHT: Collaboration Strengthens Financial Muscle

286

VIEW FROM THE TOP: Carlos Vargas, BBVA Bancomer

Víctor Herrera, Standard & Poor’s Rating Services 287 VIEW FROM THE TOP: José Coballasi, Standard & Poor’s Rating Services 288

VIEW FROM THE TOP: Alberto Jones Tamayo, Moody’s Investors Service

288

VIEW FROM THE TOP: Eugenio López Garza, Fitch Ratings

290

INSIGHT: Daniel Pardo, DNV GL

291

INSIGHT: Juan Francisco Toro, Astris Finance

292

VIEW FROM THE TOP: David Arelle, Ilioss

293

INSIGHT: Michael Harrington, Actis Capital

294

VIEW FROM THE TOP: Ulises Castillo, Scitum

295

INSIGHT: Ricardo Panez, Check Point Software Technologies

296

INSIGHT: Claudio Rodríguez-Galán, RGRH

297

VIEW FROM THE TOP: Juan Carlos Serra, Basham Abogados

298

VIEW FROM THE TOP: Marco Antonio Ribera, Nissan Mexicana

299

VIEW FROM THE TOP: Manuel Gómez, Walmart Mexico

277

INTERMEDIARY FINANCING TO HARNESS RENEWABLES Being entrusted by the

on projects with experienced developers and promising

government task

with

the

off-takers, a road that NAFINSA paved several years ago.

harnessing

the

This kind of competition does not raise any red flags for

participation of SMEs in the

Nieto, as he believes that his bank’s role is not just to

renewable energy sector

facilitate the entry of other financing institutions, but also

through

to promote business generation.

financing

and

other forms of assistance

Enrique Nieto, Director of Sustainable Projects at NAFINSA

is not an easy task. Enrique

NAFINSA, says Nieto, currently has a positive working

Nieto, NAFINSA’s Director

relationship with commercial banks when it comes to

Projects,

financing renewable energy projects. “We started off with

Sustainable

says that there are now

single off-takers, and then we began working with multiple

equity funds available for these projects, which was not

off-takers. Now we are starting with lower tier companies on

the case three years ago, due to lower internal return rates

smaller contracts, but these pay higher tariffs, which allow

than those of industrial projects. “Suddenly, interested

for a different kind of project evaluation,” Nieto comments.

parties started appearing, and now we have around 20

He is sure that NAFINSA will eventually own a risk portfolio

different funds looking for projects.” In order to fulfill its

similar to the one the bank has with SMEs.

obligation, NAFINSA uses intermediaries to fund SMEs. “We use commercial banks, financial intermediaries, and leasing

Nonetheless, Nieto claims NAFINSA is well-capitalized at the

companies, among others, as distributors of resources, as we

moment. “It is not a matter of how much capital NAFINSA

are not able to analyze small credits individually. NAFINSA

has available; the bank has to be ready to finance projects at

uses other banks and packages of warranties and funding

any given moment, since NAFINSA has to fund itself, which

through different third parties instead,” explains Nieto.

entails long-term difficulties. Therefore, the development bank tends to finance itself through multilateral organizations,

Working with intermediaries entails the responsibility of

as Nieto explains: “We can ask the IDB or the World Bank for

selecting the right partners to make sure the resources are

money that we will subsequently lend.”

well spent. In order to do so, NAFINSA has implemented a risk sharing model. The bank carries out due diligence on

NAFINSA will be carrying out projects to enhance the market,

its potential partners’ systems and procedures, including

such as bond markets, or taking portfolio risks in order

assessments on the granting of credit. Providing warranties

to support the foreign banks that are willing to enter the

on a portfolio basis also reduces risks, according to Nieto.

country. Nieto claims these institutions trust NAFINSA and

However, he points out that non-banking intermediaries

feel comfortable lending their resources due to the fact that

are more difficult to evaluate. “These intermediaries almost

a government development bank is involved in the projects.

have to act as a bank in terms of procedure in order for us

As a way to lure them to Mexico, NAFINSA provides funding

to be able to provide warranties.” NAFINSA has different

in order to provide a peso denominated deal. Nieto says this

products focused on small, single projects carried out

is rather difficult to manage, but NAFINSA has found novel

through intermediaries, which are known as selective

ways to implement this technique. It can be done by either

warranties and are judged on a case-by-case basis. “These

funding the project with the bank’s guarantee, which takes

are small projects with a value of up to US$40 million,

on the risk while NAFINSA provides the financing, or by

although we have carried out projects that needed US$2

funding the bank, which consequently finances the project.

million or even US$10 million.” Other banks carry out the assessments and make the decision to take the risk and

As time goes by, NAFINSA becomes more experienced in

share it with NAFINSA. Banks then apply for NAFINSA’s

financing renewable energy projects. “It took us several

warranty, and the development bank conducts a secondary

months to evaluate ways of managing the first projects.

evaluation. If the project is approved, NAFINSA agrees to

Now, the process takes little time,” says Nieto. He claims

take on up to half the credit risk.

that due diligence and authorization currently takes no longer than three months for clients with structured plans.

278

Nieto recalls that the first wind project in Oaxaca was

Financing institutions like NAFINSA are still learning how

established

The

to manage this sector, as Nieto explains, “Lending the

situation has changed over time and now private banks are

money is just one part. There is an ongoing operation that

becoming increasingly involved in this sector. Commercial

needs to be mapped and replicated, resulting in an internal

banks are getting more comfortable with taking the risks

educational process.”

development

banks

exclusively.

| VIEW FROM THE TOP

FINANCING SCHEMES DEPENDENT ON THE ENERGY REFORM ENRIQUE LARA Sub-director of Hydraulic, Social, and Environmental Infrastructure at Banobras Q: How did the initial stages of the Energy Reform

want to know how they will be exchanged and whether

influence your activities in financing renewable energy

it will be mandatory for big producers to purchase them.

projects?

When the regulatory framework for the purchase of clean

A: We had several meetings with solar developers in 2014

energy certificates is established, Banobras will still have to

to move these projects forward, but we were unable to

thoroughly analyze how the market responds to them and

establish them. This is mainly due to the fact that when the

how to incorporate them in its finance schemes.

Energy Reform was presented, the procedures to finance renewables were unclear and on top of that we were

Q: What are the main factors that make projects in the

unsure how CENACE would buy the energy generated by

natural gas sector attractive for Banobras?

renewable sources. Since these processes are yet unclear,

A: There are three main reasons that make natural gas

we are unable to establish the appropriate financing

pipeline projects feasible for us to finance. The first is that

conditions for these projects. On the other hand, the

the off-taker is either PEMEX or CFE, so as financers we are

Energy Reform mandates that projects approved before

assuming the risk from these organizations. The second is

its publication can be developed under the previous

that, in most cases, the consortium that wins the bid and

regulations, allowing us to finance these projects under

the company that is tasked with building the project are not

the self-sufficient and self-supply schemes. Despite this

the same entity, so is important to clarify construction risks

turmoil, we are financing some small hydroelectric projects

as the penalties are to be paid by construction companies.

and we are currently analyzing a wind project under the

The third is that we are already familiar with natural gas

previous scheme, and these projects are advancing as

projects, so are aware of the risks they present, such as

expected. As the dust settles, Banobras will revise the new

rights of way arguments. Being aware of potential problems

initiatives to ensure they comply with the rules that will be

is advantageous for us because we can propose potential

established with the Energy Reform.

solutions. There are companies experienced in several of these issues in other markets but this is still a new area,

Q: In terms of the challenges faced by the Energy Reform,

so future problems cannot be fully determined. Another

what are some of the remaining gray areas that lead to

important point is that these are take-or-pay projects,

uncertainty?

which means that payment is subject to availability criteria.

A: Under the former regulations, both a permit and a PPA were needed, and both processes were simultaneous. This

Q: Is Banobras concerned about PEMEX’s credit rating now

results in a problem for investors because now they might

that the company will seek profit and value creation?

be unwilling to sign a contract for the long-term purchase

A: That is a question that our credit committee has asked

of energy if the market conditions are likely to change. In

itself over the past few months. It is not possible for us

my opinion this is the heart of the discussion, but another

to analyze PEMEX the way that we used to because

mayor problem is pricing. The Energy Reform states that

the conditions have changed considerably. Now it is a

renewable energy will be sold based on market conditions,

productive enterprise of the State, and the risk levels will

meaning that the market will determine the price and

invariably increase because anything that happens to this

investors will have to risk uncertainty. This is problematic

company will impact the entire Mexican economy. However,

for us, since Banobras’ methodologies are based on project

we are certain that PEMEX will continue to be a large and

finance tools. The previous PPA model had an established

powerful company connected to the main branches of the

and well-known price for the energy produced.

economy. We will have to be careful when assessing the risks, but we do not believe they will greatly increase from

Another important gray area that is crucial in the new

one year to the next. We feel that we can handle these risks

regulations is the clean energy certificates, since the

and if PEMEX needs financing support, we can provide

guidelines for their use are still hazy. At this stage, we

reinforcement.

279

| VIEW FROM THE TOP

BETTING ON SMES AS MEXICO’S FUTURE OFFTAKERS LUIS ALFONSO ACOSTA Financing Director of the Energy Sector at Bancomext Q: In terms of renewable energy promotion, what have

toward a small group of 200 off-taker SMEs elected by

been Bancomext’s most important contributions?

these associations and Bancomext. We are currently

A: We have developed various programs to support this

looking for small corporations with sufficient credit quality

industry through preferential conditions. We began in

ratings and if the project is successful, we will diversify in

2007 when we created the Mexican Carbon Fund with

order to cover a larger set of companies.

contributions from The World Bank and KfW, in an effort to support projects in obtaining carbon credits related to

Q: What barriers must be addressed in order to allow

certified emission reductions. Since the emissions reduction

municipalities to become off-takers?

market did not prosper, this initiative was cancelled, but it

A: With the new regulations, it is necessary to have a

heralded more programs to support the renewable industry.

minimum of 3MW in one consumption point during the first

As of today, the renewable market is one of the main three

year in order to be classed as an off-taker. The project that

sectors in Bancomext, and we are fully committed to finance

we are implementing falls under the previous scheme, but

projects for different technologies, such as wind, photovoltaic,

now these companies cannot be considered qualified users.

hydroelectric, and biogas. We have received special funding

Bancomext already has many projects where municipalities

from KfW and JBIC to promote renewable energy projects

are off-takers, like in one of our projects in Santa Catarina,

and we are waiting to evaluate the development of these

Monterrey, where all surrounding municipalities are off-

projects. Bancomext obtained support from the German

takers. While they hold great potential, we are aware

Development Bank KfW and its subsidiary DEG in order to

that many of them do not have high credit ratings, so

understand on a wide scope all the changes and challenges

we are seeking regions that have support from the local

that the Energy Reform might bring.

government, in order to reduce this potential financial risk. There are other projects that involve municipalities such as

Q: How important is the renewable sector for Bancomext?

lamp substitutions for public lighting.

How many resources are destined to this area? A: Last year, we closed the year with a portfolio of MX$5

Q: What are some of Bancomext’s most emblematic

billion (US$400 million) and the year before, we had

projects, and how do these reflect its ambitions and goals

MX$1.2 billion (US$90 million). It is a significant growth

within the renewable energy sector?

and for 2015, we are expecting to achieve at least a 15%

A: Bancomext has a wide range of emblematic projects.

increase. In terms of resources, we favor wind power

In cogeneration, we carried out a project in Tabasco for

and hydroelectric because of the current development

a PEMEX plant. In the wind sector, we are collaborating

and stability of those sectors. The photovoltaic sector,

with Banobras and NADB in projects like the Ventikas in

on the other hand, is riskier given that the return is not

Nuevo Leon, which produce 252MW. In this case, we have

sizable enough to cover the investments. We are currently

first level off-takers like FEMSA, CEMEX, and ITESM. We

analyzing biogas and we still need to look into tidal and

are also involved in the EURUS wind farm in Oaxaca, Piedra

geothermal generation; both have potential but we do not

Larga I and II along with Bimbo. We are also working

yet possess the necessary knowledge of the segments.

on Eólica Santa Catarina, and the Ingenio wind farm sponsored by Actis and Comexhidro. We want to promote

280

Q: The current strategy of Bancomext is to target large

the initiatives proposed by the federal government for a

corporations. How are you going to migrate from them to

cleaner industry, creating a competitive export market

the Mexican SMEs?

fueled by clean energies. To reach this goal, we are offering

A: We signed an agreement with CONCAMIN and

products with competitive conditions in terms, prices, and

CANACINTRA to target SMEs with clean energy at

funding sources like the World Bank, NADB, and KfW. We

competitive prices. At the moment, we are designing a

have agreements with all these organizations and they are

project based on wind and photovoltaic energy directed

all eyeing renewable projects.

| VIEW FROM THE TOP

EXPLORING THE HISTORICAL ENERGY EFFICIENCY TRUST FUND DR. RAÚL TALÁN RAMÍREZ Director General of FIDE Q: How have the priorities of FIDE evolved in order to

Q: What steps are you taking to create consciousness of

continue its contribution to sustainable development

the benefits of energy efficiency and the available funds

in the country and consolidate the energy transition

in the private sector?

strategy?

A: Through EcoCredit we have been able to support SMEs

A: FIDE was created in 1990, during a time when the

that belong in the second and third electricity tariffs.

themes of energy efficiency were beginning to be taken

This program was created thanks to Ministry of Energy,

more seriously. A national program of energy efficiency

Ministry of Economy, NAFINSA, and CFE. The credits are

was integrated into the national development strategy

tailored to the needs of smaller players and help them

at the time. In the space of less than a year, several

adapt to more efficient energy practices. In the past we

institutions were created consecutively, such as CONAE,

used to work with municipalities in regards to public

which later became CONUEE. In essence FIDE is a private

lighting and water administration, and other entities have

trust fund that follows public policy in regards to energy

similar projects such as FOTEASE, the Treasury, Banobras,

efficiency and it is born out of a collaboration agreement

and SEMARNAT. When working with municipalities, it is

between CFE and major organizations like CONCAMIN,

important to evaluate the projects because sometimes it

CANACINTRA, CMIC, CANAME, CNEC, and SUTERM.

is difficult to charge them. In many cases municipalities do

All these entities established a voluntary quota, which

not know that these funds are available, so it is important

became the seed capital that boosted FIDE. A technical

to highlight them.

committee is established where the fiduciary, which is NAFINSA, delegates responsibilities for its management.

Q: What are the most important technological trends that

We were the first institution to tackle the existing barriers

will drive the energy efficiency markets?

in energy efficiency in the electricity industry. Some

A: There is an inextricable link between environmental

of these obstacles included lack of norms, incentives,

impacts and the energy industry. Today energy security is

consciousness,

a matter that is being discussed not only in Mexico but in

and

financial

institutes

interested

venturing into those fields.

other important markets across the globe, such as Europe and the US. We are migrating into other schemes and

Q: What initiatives has FIDE put forth to encourage the

FIDE is now focusing on medium-scale projects, moving

application of energy efficiency practices?

from the substitution of equipment to the retrofit and

A: For the past 20 years we have created educational

modernization of production lines. Projects are becoming

material and carried out workshops across Mexico to

more complex and integrated, and we see opportunities

promote the value of energy efficiency to younger

in new sectors such as industrial parks. Distributed power

generations. In addition, we work on training the personnel

generation is a current issue and we are financing several

that install energy efficiency equipment, and this will

PV projects across commercial and residential segments,

strengthen the human capital in the sector. In the early

having funded 500 projects in the last two years with

stages we offered free support for some projects across

extra support from FOTEASE. We are also venturing

a wide array of industries, and these were documented

into the cogeneration sector with medium-scale projects

as success stories and distributed across the chambers

and so far we have carried out six projects in hotels and

as references. We then adopted a scheme similar to

manufacturing sites. In order to successfully venture

ESCO where we financed projects with soft interest

into these new schemes, FIDE is creating the necessary

rates. So far we have financed 5,500 projects for SMEs

technical capacity and acquiring the most experienced

and municipalities. One of the factors we look at when

human capital. We also work with CFE to develop some

financing a project is the ROI, and the maximum we can

of the expertise and we plan to collaborate with CRE and

reach is four years. In the case of PV projects, we have

CENACE to gauge the opportunities and help new players

extended ROI to reflect the novelty of the technology.

connect their projects to the grid.

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A PIONEERING SPIRIT IN THE BANKING SYSTEM Mexico ranks highly on the list of countries receiving financing

The World Bank has laid out two goals to be achieved by

from some of the world’s major climate funds. The figures are

2030: end extreme poverty by decreasing the percentage

staggering; so far it has received US$591.1 million, of which

of people living on less than US$1.25 a day to no more

US$582.65 million were used for mitigating the effects of

than 3%, and promote shared prosperity by fostering

climate change. Given the sizeable chunk Mexico has received

the income growth of the bottom 40% for every country.

from international funds, some questions have arisen over

These ambitions and are deeply rooted in every single

the effectiveness of the use of the money in increasing

project the bank decides to stage within the industry. “We

renewable energy capacity and removing the focus from the

are currently implementing the Integrated Energy Services

historical domination of fossil fuels. Guillermo Hernández,

Project, which supplies electricity to remote communities

Energy Specialist with the Energy and Extractives Global

through solar PV energy,” Hernández boasts. “Through

Practice of the World Bank, attempts to answer this query.

a strong partnership with the World Bank, the Mexican

“Ultimately, we can facilitate and promote collaboration between the Mexican government and other agencies across the globe, whose best practices can serve as an example for Mexico” Guillermo Hernández, Energy Specialist at the Energy and Extractives Global Practice of the World Bank

Mexico has an ambitious climate change mitigation agenda,

government is enhancing its institutional capacity in order

finishing ahead of many other countries by becoming

to address its growing energy requirements with climate

one of the first to submit its national climate change

friendly technologies across the territory.”

plan to the UN, ahead of the climate summit to be held in Paris in December 2015. The World Bank, as one of the

Efficiency is a term that is beginning to be sewn into the

agencies with two major climate change funds, the Clean

very fabric of public policy. The World Bank has taken

Technology Fund (CTF) and the Global Environmental

steps to incorporate this concept into its project portfolio

Facility (GEF), has supported the Mexican government

and help its clients reach unprecedented levels of energy

in the implementation of innovative projects. “The aim is

efficiency. “The Efficient Lighting and Appliances Project

to remove barriers in order to increase the prevalence of

supported the Mexican government is replacing 1.8

renewable energy in Mexico. So far, sound public policy

million old and inefficient appliances, and substituting 45

and strong institutional capacity have allowed Mexico to

million incandescent lightbulbs with compact fluorescent

make efficient use of those funds,” Hernández explains.

lamps,” Hernández describes. This project stands out by incorporating an integral approach that started from the

One of the five institutions of the World Bank that has

acquisition of the goods and the creation of the distribution

developed a strong relationship with Mexico is The

scheme through retail stores, to a promotion campaign for

International Bank for Reconstruction and Development

the effective disposal of inefficient products.

(IBRD), a division tasked with providing a combination of

282

financial resources, knowledge, and technical services to

The World Bank does not stand alone in helping governments

developing countries and middle income states such as

across the globe reduce poverty and inequality. In recent

Mexico. “It has provided both financial and technical support

months, funding from Chinese development banks has

for numerous energy projects whose purpose is to promote

increased across Latin America. While some would view

renewable energy and energy efficiency technologies in

this as the arrival of strong competition, this is not the case

order to reduce greenhouse gas emissions,” he adds. These

and according to Hernández, these entities serve more as

projects are seedlings that will serve as inspiration for the

partners than fierce competitors. The World Bank’s long

private sector and will help pave the way for the commercial

history of fostering burgeoning clean energy markets

and full-scale deployment of a renewable sector. One of these

positions it favorably when supporting Mexico in its transition

seeds is the 100MW wind farm La Venta III in the Isthmus

to a low-carbon energy sector. “Ultimately, we can facilitate

of Tehuantepec. The World Bank has a pioneering spirit and

and promote collaboration between the Mexican government

is involved in the creation of unique developments, like the

and other agencies across the globe, whose best practices

solar-thermal plant in Agua Prieta.

can serve as an example for Mexico,” Hernández concludes.

| VIEW FROM THE TOP

FINANCIAL EXPERTISE OF GERMAN DEVELOPMENT BANK STEFAN BLUM Director of KfW-DEG Mexico

Q: What made KfW-DEG (DEG) choose Mexico as one of

comes from the commercial banks and is targeted for

its largest operations worldwide?

projects with a fixed-price PPA. We identified the greatest

A: Mexico is within DEG’s top five countries. We mainly

business opportunity in the Mexican renewables sector

operate in industries such as agriculture and infrastructure,

as belonging to equity and mezzanine funding, covering

which includes the renewable energy sector. Considering

the majority of the projects we acquire in the renewables

this diverse range of industries, Mexico is a significant player

sector. In the future, I foresee DEG continuing with senior

for us. We have a different structure from local development

loans, especially for long tenures and dollar-based PPAs.

banks, as these can only finance within Mexico and come

We would also be willing to provide senior loans for

under a lot of political pressure to generate returns. DEG

projects that make sense under the new scheme.

can invest in any emerging economy, but we never felt comfortable with the risk on the debt side for financing

Our acquisition strategies are regionally organized, and

a small power producer project. I can see DEG being a

we look at all the sectors in the regions where we are

pioneer on the equity and mezzanine front. Our value

active. At the second stage, after approval and clearance,

lies in that fact that we contribute global benchmarking,

we pass the projects on to DEG departments in charge

international standards, and international best practices to

of due diligence and handling negotiations until the first

projects, differentiating us from local development banks.

disbursement. Those in charge of this process are sectorial experts who are familiar with the regulatory frameworks

Q: How do you compare the ease of financing legacy

of the countries in which DEG works. When it comes to

projects that existed before the Energy Reform as

Mexico’s specific situation, we are a small organization, so

opposed to projects that are now initiating?

we rarely carry out entire sectorial studies independently

A: I believe legacy projects are going to fill up our project

from a project, instead waiting for an attractive project.

pipeline for 2015 and 2016. The continuation of projects is

During due diligence on a specific project, we can draw

a reflection on the fact that Mexico is a wide market and

conclusions that may apply to the sector in general. We

the government is promoting renewables. Being under the

can also ask for help from sectorial advisors or law firms

old scheme is optimal right now, but new companies will

that can help us understand the bigger picture.

have to accept a slight delay, since starting a new project now implies playing a pioneering role. The main question

Q: Do you anticipate DEG keeping its primary focus

that every renewable energy developer is asking is whether

on wind, or are you open to financing more solar or

the new regulation will prove better than the previous one.

geothermal?

Most are taking a cautious approach, by locking projects

A: DEG should definitely look at solar and we have been

under the old structure while gauging the implications of

in contact with several solar developers in recent years.

the new regulations. The secondary laws have been issued,

Nevertheless, we have only financed a small number of

but it will still take time for the new model to be properly

projects, since the progress of the solar sector in Mexico

constituted, and afterward, we will have to wait for a

has been disappointing, although we are open to more

conflict that indicates court rulings in order to measure the

projects in the future. In terms of hydro projects, we

functioning of the system.

have a few interesting transactions in the pipeline, and these projects come with a viability that makes them

Q: Will DEG be a pioneer institution that will get involved

easy to promote internally. Geothermal is an interesting

with new projects to help accelerate their financing?

source and there are some meaningful projects taking

A: Definitely. DEG offers equity and mezzanine funds,

place in Mexico, in which NAFINSA and Munich Re are

as well as senior loans, and as a development bank, we

involved with rotating financing. DEG is also interested

can take risks that others cannot. There is considerable

in participating in this sector, as we have financed large

liquidity in terms of debt in the renewables sector, which

geothermal developments in Kenya.

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| VIEW FROM THE TOP

PROMOTING GREEN INFRASTRUCTURE IN BORDER REGION GERÓNIMO GUTIÉRREZ Managing Director of the NADB Q: What role has the North American Development Bank

a new electricity market. A significant number of players

(NADB) played in promoting environmental projects and

are experiencing more difficulties in obtaining long-term

investments?

PPAs. The model is predicted to change for these qualified

A: The bank was created as part of some subordinate

users, who will be increasingly inclined to seek shorter-term

agreements between Mexico and the US during the NAFTA

contracts. Renewable projects will begin to gather pace once

negotiations. Both governments knew that NAFTA would

certain elements are clarified, and it makes sense for us to

generate demand for environmental infrastructure along

be present in the development of the market during its early

the border because of the population growth rate and the

stages.

economic growth of the border states, which in the last ten years has been above the national average both for

Q: How does the NADB mitigate risks when financing

Mexico and the US. The NADB was meant to be a tool to

water treatment and renewable energy projects?

help the governments of these states work with the private

A: The bank takes a conservative approach to risk,

sector and local public entities in developing and financing

whether market, credit, or operational risk. There are four

environmental infrastructure. In some way, the NADB was

elements to our approach. Firstly, our business model

the first green bank created. Over the past 20 years we have

involves a competent and professional team on the project

played an important role in three ways. We have helped

development side, which works alongside a team with

develop and finance several projects that help preserve,

strong technical capacities. The bank also gets support from

protect, and enhance the environment in the border region.

external top tier consultants, which brings me to the second

Through our technical assistance program, we have also

element. We rely on prestigious law firms to evaluate the

helped in developing and strengthening the capacities of

contracts, on technical firms to examine the wind projection

private and public entities related to the environment. Lastly,

or irradiation projections, and on relevant teams for the

we have also managed a non-reimbursable resource initiative

insurance requirements for these types of projects. Thirdly,

that has contributed to the development of a significant

we believe PPAs are crucial, thus we devote a lot of time to

number of water projects along the border.

examining the PPA and making sure it is appropriate for us, the sponsor, and all other parties involved. Finally, we put

Q: Which sector is the most important in your portfolio?

emphasis on the quality of the off-taker.

A: We work in renewables, clean energy, water and solid waste

284

management, and improving air quality, which encompasses

Q. How is the NADB fostering green practices in Mexico?

urban mobility and other similar projects. However, through

A: We wish to help develop and finance infrastructure that

our numbers, the two important segments that stand out

helps preserve, protect, and enhance the environment

are the water sector and the renewable and clean energy

of the border region. In terms of best practices, we have

sector. Water continues to be a top priority for us, but both

the Utility Management Institute (UMI), where we train

in Mexico and the US this area normally receives a significant

officials from public water utilities from Mexico and the

amount of non-reimbursable resources, so it is not easy to

US in best practices in the water management sector. We

make related projects bankable. The renewables segment

have been doing that for quite some time now and it has

has grown slightly faster in the past ten years due to the fact

been a successful initiative. We are also constantly funding

that in Mexico, the renewables market is still relatively small

studies through our technical assistance programs aimed at

and in the early stages of development. The enactment of

fostering best practices. For example, we are now working

the Energy Reform has somewhat halted the expansion of

on the green infrastructure sector, which is intended to

renewable energy projects because the players have been

help develop and foster best practices in cities regarding

waiting for certain regulations and rules to be issued. There is

basic urban infrastructure, such as sidewalks. Through our

an obvious transition from the old self-supply scheme, which

technical assistance division and UMI, we are promoting

was the way most projects were previously developed, into

best practices as part of our daily operations.

| FINANCIAL SPOTLIGHT COLLABORATION

STRENGTHENS

FINANCIAL

MUSCLE The Mexican energy sector has been characterized by a chicken-egg situation. On one side, banks claim they have the resources and openness to finance renewable energy projects, yet unfortunately developers seldom knock on their doors. On the other, developers resent the fact that banks are reluctant to finance their projects due to risks involved and lack of knowledge regarding technologies used. Given the conditions of the wholesale market and the clean energy objectives, financing mechanisms have to be adjusted if more projects are to see the light of day. Fortunately, commercial banks seem more open to financing these enterprises. According to Miguel Ángel Laporta, HSBC’s Director of

Formerly Capín, Calderón, Ramírez y Gutiérrez-Azpe, S.C., since 1997 we have been an independent law firm in Mexico. Member of GlobalLaw and InterLaw associations. Ranked as a top 10 leading Energy law firm serving global companies in the gas, power, renewables, water and midstream industries and infrastructure projects.

Corporate Sustainability for Mexico and Latin America, the Energy Reform is the reason commercial banks changed their attitude toward financing renewable energy projects. “I think that over the past year, the Energy Reform acted as a catalyst for the expansion of the market, and energy will become a prolific business within the next seven years. Now

Energy Practice lead by Claudio Rodríguez-Galán, ranked as Leading Lawyer in Energy by Chambers & Partners, Legal500, Who’sWho, IFLR1000 and Latin Lawyer.

there is an open market and investors are more interested. ” Due to the risk and capital involved in a renewable energy project, commercial and development banks will interact closely in order to provide the resources developers need.

Contact: Claudio Rodríguez-Galán claudio.rodriguez@rgrhmx.com

For instance, HSBC collaborated with NAFINSA to create the Impulso Energético fund for financing energy efficiency and

energy

generation

projects.

NAFINSA’s

support

has enabled HSBC to provide warranties, thus reducing

Regina Legorreta Palomino regina.legorreta@rgrhmx.com

interest rates. Similarly, Banobras encourages commercial banks to participate in infrastructure projects. Enrique Lara, Sub-director of Hydraulic, Social, and Environmental Infrastructure at Banobras, makes it clear that his bank’s objective is to collaborate with commercial banks and not to supplant them. “When we find bankable projects, we try to induce commercial banks into participating as well.” Lara mentions that, given a situation in which there are too many projects, Banobras would finance the first in every renewable source in order to provide a viable business model for the subsequent projects to follow through financing from interested commercial banks. The newly minted market rules have made it difficult for development banks to establish new financing conditions. Likewise, Laporta says the lack of clarity on future electricity tariffs is the reason why HSBC has not signed PPAs lately. Undeterred,

Banobras

will

continue

encouraging

commercial banks to partake in renewable energy projects. “We know the authorities are aware that renewable energy projects require clear rules in order to generate financing. Once these conditions are established, we will discuss new financing schemes,” says Lara.

www.rgrhmx.com

285

| VIEW FROM THE TOP

BANK EMBRACES NEW RENEWABLE BUSINESS MODELS CARLOS VARGAS IB Energy Executive Director at BBVA Bancomer Q: In what ways has BBVA Bancomer’s support for the

Q: What are the criteria you have for selecting your clients

UN Global Compact, the UN’s Environmental Program,

and for financing projects, and what are the requirements

the Equator Principles, the Carbon Disclosure Project, and

clients have to uphold in order for you to support them?

similar initiatives shaped the bank’s strategy?

A: First of all, the sponsorship has to be proven and clients

A: These initiatives have shaped BBVA Bancomer’s strict

have to demonstrate expertise. Even if a developer is

policy and commitment to renewables and clean energy.

new and does not have a sufficient credit rating, it should

For instance, we are in the process of acquiring a wind

have support from an investor with experience, proven

farm to supply energy for our new corporate building.

technology, and the capacity to develop a project. The

We are aware of the government’s target of generating

second element is the off-taker, which should have a solid

at least 35% of energy from clean sources, therefore our

credit profile, preferably with a credit rating. We prefer

goal is to support both investors and off-takers and to

integrated EPC services; however, we are used to other

contribute financially to these projects. We have a special

construction models, since we understand the business

division tasked with overviewing equipment, processes,

and the way risk can be mitigated. Finally, permits and

permits, and other elements related to renewables. In

environmental assessments must be demonstrated. We

order to ensure compliance with these procedures,

understand that these are long-term investments, so we

we sometimes hire advisors who are specialized in

see no problem financing projects lasting 10-20 years.

environmental affairs. This is how we ensure that in each

Financing a 20-year project can be complicated, but we

project with which we are involved, whether it is financing

have experience, both in Mexican pesos and US dollars.

an off-taker or an investor, all principles and regulations have been complied with.

We are interested in collaborating with SMEs, and in terms of our share of wallet, we are the most relevant bank in

Q: How important are renewable energy projects in your

the Mexican energy sector, particularly regarding CFE

portfolio, and what are the main risks you see in this field?

and PEMEX. I would say we are an important player right

A: Renewables are an important part of our portfolio,

now and we would like to maintain our position. BBVA will

although there are several factors that should be taken

be there for large corporations, new entities, SMEs, and

into account. The most important part of our portfolio

companies under the self-supply scheme, as we have the

is clean energy, such as natural gas and combined cycle

interest and the means. Participation in smaller projects is

plants. It is also worth mentioning the tendency of large

a key element, so we have to tackle this market and have a

consumers such as Bimbo, CEMEX, and Grupo Peñoles

bigger participation than we have at the moment.

toward renewables and obtaining their electricity from

286

wind farms. There are many factors that come into play

Q: How does the entrance of Chinese banks and trust

when assessing risk. For instance, rights of way are crucial

funds affect the Mexican energy sector?

in Mexico. Secondly, technology is rapidly changing, and

A: Chinese funds and banks are attracting a lot of attention,

parties who are already comfortable using a determined

but even though they have a strong financial muscle, they

technology have to adapt to new developments. Finally,

are not aware of the full scope of changes taking place

we are accustomed to assigning EPC to a single company.

in Mexico, which gives banks like BBVA Bancomer an

However, investors are navigating through competitive

advantage. Japanese banks have a deeper knowledge of

conditions by recruiting different companies to take care

the Mexican market, the regulations, and risk mitigation, as

of engineering, construction, and procurement separately.

well as offering competitive costs. In terms of our share of

Mitigating risk through a combination of these factors

the market, we are the most relevant bank in the Mexican

becomes somewhat challenging. We understand the

energy sector, particularly in terms of our relationships

industry is changing, so we are trying to maintain our

with CFE and PEMEX. We are an important player and we

position in order to be prepared for future opportunities.

would like to maintain our market share.

| VIEW FROM THE TOP

SPOTTING LOW HANGING FRUITS LEFT: Víctor Herrera, Managing Director of Standard & Poor’s Rating Services RIGHT: José Coballasi, Senior Director of Standard & Poor’s Rating Services

Q: How important is the Mexican energy sector to S&P’s

will be a better for the projects, since planned trajectory

activities in the country?

can be deviated due to issues with rights of way.

VH: Our activities in the Mexican energy sector are dictated by the analyses we carry out in projects that investors

Q: How do you view the arrival of the green bond market

bring to us for financing in the capital markets. From the

in Mexico, and what are the barriers to its success here?

moment the Energy Reform was enacted, we knew that

VH: The capital market in Mexico took 20 years to develop,

deepwater drilling would garner the attention of investors.

and it was possible thanks to a series of reforms that trace

The projects are astounding, as we see projects that can

back to the early 1990s. The clean energy certificates and

cost up to US$7 billion that range from exploration to

the green bonds are obscure concepts of which investors

production and take up to ten years to mature. We know

are wary. The market worldwide is limited when compared

that these projects will take some time to materialize, and

to the size of the capital markets, and being able to comply

it is probable that investors will wait until shale gas reaches

with the requirements of the World Bank will be challenging.

over US$5 per BTU, but the market has potential.

Certainly, the advantage of the World Bank’s reputation may make the endeavor worthwhile; however, the government

There are two main global rating agencies used by the

must offer some support in the creation of this market.

capital markets: Moody’s and S&P. In Latin America we hold dominant positions in certain countries in terms of

Q: How do Mexican companies fare against their US and

coverage. What differentiates us from other rating agencies

Canadian counterparts on the Dow Jones Sustainability

is our expertise and global credibility. We have the ability

Index, which S&P largely helps to prepare?

carry out complex projects, and as we see more of those

JC: In order to benchmark the efforts of companies in

arriving to Mexican shores, S&P will be well-positioned to

Mexico with their counterparts in the US and Canada, the

offer our services. We are in approximately 40 countries

countries’ context must be taken into consideration. Mexico

and we have global experience with local knowledge. There

is a country in the process of development, and in terms of

is heavy investment lined up to interconnect the natural gas

competitiveness of infrastructure, it is placed in the middle

pipelines from the border to the center of the country.

of the pack. The driving force behind the market is the substitution of fuel oil with natural gas. We see a commitment

Q: What advances have you seen in the development

from the government and private players to fully develop

of natural gas pipelines and what issues are companies

wind resources in Oaxaca. Compared to other countries in

encountering?

Latin America, like Brazil and Colombia, Mexico lags behind in

VH: At the moment the industry is importing natural

renewable energy, mainly due to the fact that these countries

gas from countries like Peru at US$16-18 per BTU, while

rely on water for most of their power generation.

at the US prices are at US$3.50-4 per BTU, so naturally importation from the US is more lucrative. Now there

VH: Countries like the US and Canada are eons ahead in

are possibilities to invest in gas pipelines to transport

water management and waste disposal techniques. At the

this cheap gas that will then be used by CFE to produce

moment, companies in heavy industries are implementing

cheap electricity. Fuel oil is currently being burnt and this

sustainability programs but not of their own volition.

source is far more expensive and polluting than natural

Once again, the focus is on the substitution of fuel oil,

gas. The importation of natural gas will not only make CFE

since Mexico continues to burn around 40% for power

more competitive, but it will contribute to manufacturing

generation. The reason we have this footprint is due to the

and heavy industries as well. Rights of way have been a

fact that the refineries were producing this fuel in large

challenge in Mexico for some time, and I anticipate the

quantities, and it made sense to burn it back then. The fact

same for gas pipelines. The possibility of speeding up the

that we did not have natural gas at the time compounded

process to compensate landowners will be tested, which

this situation.

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| VIEW FROM THE TOP

BUILDING AND MAINTAINING A GOOD CREDIT RATING ALBERTO JONES TAMAYO Director General of Moody’s Investors Service Q: Last year, Mexico’s credit rating was raised one level

already an attractive destination and prestigious players

to A3 after the energy industry opened. How will this

were already in place. Five years ago institutional investors,

upgrade draw more investors to the country and signal

primarily from North America, Europe, and to a lesser extent

the opportunities within the industry?

Asia, were setting their sights on this market. Additionally,

A: The doors to the energy industry were opened with the

a huge portion of the Mexican government’s local debt is

Energy Reform in 2013 and the sheer force and momentum

in the hands of foreign residents. For the past 20 years,

took us by surprise. In a sense, we did not expect such bold

Mexico has conducted extensive research on the economic

changes and Moody’s was the only credit rating agency

and fiscal front, and this A3 upgrade is a confirmation to all

that took action based on this. As the first credit rating

investors that the country is on the right path. Perhaps it is

agency in the world, Moody’s has had a unique trajectory,

not only financial investors, but also companies across the

with experience in providing ratings during the inception

globe that will see Mexico’s potential.

of the railroad and steel industries in the Americas. This means it has become accustomed to rating through cycles

Q: What are the concerns that investors share, and what

and looking at risk over the long term. In many respects

are the risk factors that you take into account during

Mexico holds credit A attributes, and the sheer breadth of

credit ratings?

the Reforms meant that its long-term growth profile would

A: Security issues in Mexico are a prevalent question among

change, albeit over time. Prior to the reforms, Mexico was

investors, yet for us they are not relevant because we have

| VIEW FROM THE TOP

REFORMS TO CEMENT COUNTRY’S COMPETITIVENESS EUGENIO LÓPEZ GARZA Country Business Leader at Fitch Ratings Q: In your opinion, what role did the Energy Reform play

of all reforms has been oriented to address different areas

in raising the credit rating of Mexico?

of opportunity. A new legal environment is a step in the

A: Fitch Ratings was the first ratings agency to increase

right direction, but addressing the implementation of all

Mexico’s credit rating prior to the implementation of the

these different critical reforms is essential. We cannot put

reforms. For some time, we have been questioning not

labor and education reforms to one side, since these will

only the high dependency on oil revenues in the public

have a deep and significant impact in the formation of

finances, but also the double effect that comes with this

human capital. In addition, if Mexico aspires to grow by 5%,

high reliance and the drop in oil production. The production

the Financial Reform will be its backbone in this endeavor.

of oil has consistently dropped and the public finance from

288

oil revenues has been a major barrier in the ratings we have

Q: What impact does your credit rating have on the

attributed to sovereign risk. The Energy Reform is not the

development of a project, and what process is followed

solution to all these problems, but rather the combination

with companies that are being rated for the first time?

a long-term perspective. We focus on risks that have an

company; sometimes we see that it is a local family with

impact on stability and can alter the credit profile of our

different businesses across sectors and this is something

issuers. Businesses have pragmatic viewpoints and handle

that is taken into consideration.

different levels of risk. While there might be reasonable concerns surrounding security and corruption, many

Q: When examining credit ratings for companies in Mexico,

companies have managed to thrive in equally problematic

does Moody’s apply specific criteria for this country, or

regions such as the Middle East and some African nations.

does it use the same criteria globally?

Companies need a solid balance sheet in order to face

A: A series of questions have to be thoroughly answered.

these challenges, and while insurance and operating costs

For instance, who is behind the companies? What is

may be higher, they will invest if the business model makes

their expertise? Who are their partners? What is their

sense. Investment opportunities are scarce at the moment

track record? It is not only the size that matters, but

in some markets, and when we turn our sights to Mexico,

also the experience and financial solvency that the

the prospects certainly look brighter.

stakeholders have. However, the business plan also holds great importance regardless of ownership. Having a

Q: What are the challenges of giving smaller players

renowned parent company does not necessarily mean

accurate credit ratings?

companies will obtain the same rating as the parent.

A: Transparency may be difficult to obtain from these

While this background might give them added value, it

companies, so we follow strict criteria. We want to know

may not translate to the same rating. Even if solid, high-

details of the auditors, their rank, the owners, and their

rated conglomerates are behind these new ventures, the

reputation and track records. Moody’s has a conservative

subsidiaries will not be rated as highly as their parents

approach, especially for lower rated credits and there are

without real backing, capital, and funding. Serious

a lot of new entities being created so we limit the number

companies are managed by experienced investors and

of companies to which we provide ratings. We can rate

these are the only ones that can truly be rated. To date,

an enterprise even if it is relatively young, provided the

there has been no influx of energy companies desiring

shareholders have a good reputation and the business

ratings, since they typically approach credit rating

model makes sense. We look at who is behind the

agencies at the end of the process.

A: Ultimately, our opinions put a price on the financing

Q: How are you collaborating in order to map out the

of any energy project. There are certain risks attached to

business plans and the evolution of risks of CFE and PEMEX?

any kind of project, ranging from legal, engineering, and

A: We have met with both entities to begin tracing

contracting, to construction risks. Fitch Ratings provides

their evolution and plans in accordance with the new

an opinion on the credit risk attached to a project and this

legal framework. There is a clear intention to increase

is reflected in the interest rates; for instance, the higher

productivity of these two companies and undoubtedly

the risk, the higher the interest rate. When we release our

they will face several challenges. We are in a transition

ratings, we give investors an idea regarding the real risk

period, so the implementation of the reforms at this

and the projected cost. In the past, in the global markets

stage is crucial because it will impact the competitiveness

companies would be rated using public information, even

of Mexico. When considering the amount of FTAs this

if the company did not request a rating.

country has with other nations, it is clear that Mexico must be competitive and support its national production base

In the 1990s and early 2000s companies were rated with

so it can compete with foreign players.

information that was available in the market, and next to the rating, Public Information (PI) was attached. This meant that

Foreign investors are looking beyond elements of risk, to

the company did not participate or provide any information

aspects such as insecurity, and investing heavily on new

and it was still rated. In Mexico, this was not the case, and here

productive projects across several Mexican states. With

we cannot initiate the rating process without a contract from

the backbone of FTAs there are many global entities ready

a company with a formal request. It is an active participation

to seize business opportunities. One of the byproducts

between both parties. This gives companies more freedom

of these reforms is a strong legal framework, which will

to participate in the credit rating process.

cement Mexico’s competitiveness in the global markets.

289

CERTIFICATIONS TRANSLATE INTO CONFIDENCE Very few companies can boast such unique origins as DNV

certification because of the lower level of control in the

GL, hailing from Germany and Norway through a merger of

production process. The certification standard is less

DNV and GL respectively. Since, it has become the world’s

demanding than what DNV GL considers optimum, and

largest classification society. The firm operates within the

that is why the firm advises that the panels its clients send

four business areas of Maritime, Business Assurance, Oil &

to its testing facilities come directly from the batch that

Gas, and Energy. Daniel Pardo, Mexico Country Manager

the manufacturer plans to use in a particular project. “Our

Energy Division, shares that one of the company’s main

testing scope increases the confidence of our clients in the

goals in Mexico is to help businesses attract investors.

panels that they are going to buy. We believe that it will be

To do so, DNV GL assesses the potential technical risks

beneficial for investors in the solar field to have an external

behind each project, and provides advice to clients on risk

consultant like DNV GL that operates in this way.”

identification and mitigation, and evaluates acceptability and outliers of the Mexican standard. “International

Although the development of photovoltaic energy has been

companies involve us in their projects because they want

slower than that of other renewables, Pardo believes this

to have a competent and professional opinion on how to

market will have more opportunity to grow now that the

control their risks,” he asserts.

Energy Reform is in place. “When all the details are resolved,

“When all the details are resolved, there are going to be many more large solar projects under development”

Daniel Pardo, Mexico Country Manager Energy Division at DNV GL

The two different certifications DNV GL offers to its energy

there are going to be many more large solar projects under

customers are product certification, mainly for wind turbines

development, and we expect to see developments of up to

and photovoltaic panels for the Energy Division, and

10MW.” In his view, solar energy will be particularly beneficial

project certification, which remains uncommon in Mexico.

for the northern part of the country, given its high resource

Pardo points out that, for wind turbines, the attraction

availability, but it will also help diversify the matrix and add

of certification for clients is largely generated by OEM

energy to the grid. However, Pardo believes the Mexican

product reliability. “Most turbine manufacturers around

solar energy market is still lacking in extensive background

the world certify their products and in recent years, there

research on equipment. In his view, the opening of the market

was a lot of pressure on Chinese companies to have their

might promote a focus on research similar to that seen in

products certified. Currently, some of these corporations

the wind sector. “At the moment, most solar projects are too

certify their turbines and that increases their chances of

small to justify an investment on detailed due diligence, but

competing with European manufacturers, which are the

since we are expecting to accommodate larger solar projects,

ones currently dominating the Mexican market.” Proper

theoretically there will be enough investment in the future to

certification is a way for DNV GL to build trust among the

pay for these technical revisions,” he expresses confidently.

parties involved in a project. DNV GL has been involved in the Zapoteca de Energía project, La Ventosa wind

Pardo says the opening of the Mexican electricity market

farm, and in CEMEX’s Ventikas initiative. The firm has also

to private participation will certainly have an impact on

participated in due diligence processes for wind projects

certification and standardization for projects. In terms of

that are under construction or already operating, resulting

standardization, the NOMs have many standards regarding

in approximately 1,800MW of installed power. Wind energy

infrastructure and working protocols. From that point of view,

will continue to be an important segment for DNV GL, since

there seem to be enough standards, but the international

Prado is confident that Mexico will become the second

industry is expected to bring new knowledge into the market,

largest wind market in Latin America over the coming years.

which will complement the current regulation. In terms of certification, there is still some uncertainty, regarding

290

Regarding photovoltaic technology, DNV GL has testing

mechanisms such as clean energy certificates, according

facilities for solar panels in the US. Pardo says that in solar

to Pardo. These doubts are currently under review, so all

testing, his firm tries to offer results beyond the standard

industry players need to stay aware of new developments.

COMPANY’S BUSINESS IS TO LOOK AFTER CLIENTS’ RISK Eight years ago, Astris

per kilowatt hour. “Our services are required when a client

Finance,

needs to facilitate the bankability of a project, which was

investment

and transaction advisory company

not the case for wind energy developments.”

infrastructure and energy,

The company also has a strong solar franchise, but Toro

decided

establish

admits he had higher hopes for the Mexican solar industry. He

Mexico.

explains that, in Mexico, there are other resources in addition

every

to solar irradiation that are not available in other countries

country in Latin America

where solar has become strong. The areas of Mexico where

prompted Astris Finance

solar could be developed presented conditions that made

operations Being Juan Francisco Toro, Director of Astris Finance

specialized to in

active

enter

“It

projects difficult to implement. For instance, potential

seemed like an interesting market in the sense that we can

Mexico.

locations were far from the transmission infrastructure,

actually try to understand and quantify the risk, whereas in

resulting in a need for large investments. “The fact that the

other countries, the attractiveness of the market is limited

locations are so far from the grid made investors think of

to its size,” explains Juan Francisco Toro, Director of Astris

solar as base load electricity, and that was a huge mistake.

Finance. When comparing Latin American countries, he

The requirements for batteries and additional investments for

believes only Brazil and Mexico have the proper industrial

developments of 25-30MW basically killed most projects,” he

drive, with companies establishing operations in these

comments. In his view, financing has also been an obstacle

countries in order to export to Asia and the US.

for the solar industry. “CTCP, the risk in the different nodes, has been a challenging concept to explain to banks but now

Although the size of the market was attractive for the

development banks are beginning to take that risk. All the

firm, the size of the potential market made the country

commercial banks we have talked to are unwilling to take the

even more interesting. “When looking at the states that

risks implied by solar energy because there is no stability in

are not being properly served, there is potential to install

the cost of electricity.” In Toro’s opinion, the rules will have to

efficient power plants. Given the natural resources, such as

change to accommodate these projects.

hydro, the potential market could be lucrative, but there are areas I believe require development,” asserts Toro. He

Given Astris Finance’s strong relationship with investors

also says the way in which CFE works made Astris Finance

in the electricity sector, such as funds, the firm has

comfortable with the idea of working in Mexico. “On CFE-

mandates to seek projects and companies that can be sold

sponsored projects, the type of support the utility would

or are interested in divesting. Toro perceives significant

provide and the regulatory process was relatively easy to

opportunity resulting from the current available liquidity

understand.”

in the markets. There are also some companies that might want to exit the market. “We are working with certain

The firm works in different sectors in Latin America, but its

infrastructure companies who want to get out of the

focus in Mexico has been on infrastructure, transportation,

industry, change industries, or divest,” he comments. There

water treatment, and energy. For the latter, Astris

are several infrastructure and energy funds that want to

Finance has worked on most projects related to oil and

invest in energy companies, and Astris Finance advises

gas, such as pipelines. In electricity generation, the firm

clients on possibilities within the industry.

has worked on Differed Impact on Registered Expenses Investment Projects (Pidiregas) for hydro developments,

For Toro, there are plenty of opportunities in projects where

with involvement in the bidding process of Chicoasén II.

the industrial and energy segments overlap. He believes

Although Astris Finance does not focus on wind power in

that the way in which states have attracted investment to

Mexico, it has worked in wind projects in Europe. The reason

industrial projects is by presenting similar structures to PFI

why the company has faced limitations in the Mexican wind

or PPS. In the energy segment, there are plans for industrial

energy industry, explains Toro, is that its development has

developments over the next five years, which will create off-

been a corporate-led process. “The projects are possible

takers for electricity projects. The region where these projects

with procurement of an AAA off-taker. The projects were

take place will have a direct impact on the models chosen

so bankable, that a financial advisor became unnecessary

to implement the projects. “CFE could be the developer

since off-takers were major corporations, eliminating the

in partnership with a private investor, or alternatively a

level of risk,” he explains, adding that the technology was

particular technology may have a strong link to the location.

secure due to its maturity, and projects resulted in MX$0.5

Everything can be intertwined,” he comments.

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| VIEW FROM THE TOP

INNOVATIVE FINANCING FOR SMALLER OFFTAKERS DAVID ARELLE Director General and CEO of Ilioss Q: How did Ilioss become a leader in rooftop installations

A: This was the first PPA rooftop project of its kind to be

with a project pipeline of over 500MW?

seen in Mexico, so we had to collaborate very closely with

A: Ilioss has been successful with rooftop installation projects,

Grupo Soriana and the authorities, over two years. However,

with our most prominent deal being the one with Grupo

this success story has now given us the expertise and

Soriana. For that particular project, we installed solar panels

knowledge to carry out other projects in Mexico. Another

on the roofs of ten stores in Baja California Sur, from which we

major advantage is that the final user receives tangible

are now generating and selling energy to Soriana. After this

benefits. For example, when electricity is bought from

initial project, we have been entrusted to install solar panels

CFE, it arrives to the commercial client at high or medium

in another 120 stores spread across the center of Mexico.

voltage, so it must pass through a transformer to reduce

The total installed capacity will then reach 32MW. When we

the voltage. During this process, 3% of the electricity is lost,

carried out this project, we realized how difficult it can be to

which represents a loss for the company. If generated on-

replicate it, but since Grupo Soriana is an AAA off-taker, it

site, a company will benefit from 100% of the electricity.

was easy to finance alongside Hanwha Q CELLS. We swiftly realized that financing does not exist for smaller companies,

The contracts we provide are focused on three main

so we see a great area of opportunity there. To exploit this

principles: clients need not invest, clients save money, and

potential, we endeavored to find a financial associate and

clients obtain certainty on their future energy costs while

forged an exclusive alliance with Greenwood, which is part of

becoming greener. The third point is crucial, since when

the Libra Group. We now envision an investment of US$500

a long-term contract is signed, the cost of electricity is

million over the next three years that will be allocated through

pre-established. Since companies in Mexico cannot predict

different companies around the country. Over this time, we

their electricity costs, they are still hesitant to sign a 20-

expect to reach an installed capacity of 300MW.

year contract, which is understandable when we see the fluctuation in CFE’s tariffs over time. In 1995, electricity

Q: What aspects make you confident about succeeding in

costs rose by 40%, in 2008, they rose by 34%, and by 28%

this large-scale endeavor?

in 2011. If a company had signed with Ilioss in 1995, its

A: Until the Energy Reform, the Constitution did not

electricity costs would only have risen by a pre-established

allow for the sale of energy. Part of the strategy behind

figure of around 6%.

the Energy Reform is to reduce electricity prices through private initiatives. Our alliance with Libra Group is a step

Q: How will Ilioss adapt its business model to smaller

in this direction. When we began this business, the main

companies that may also want to become off-takers?

barrier was that none of our customers wanted to invest

A: With smaller companies, it is difficult to obtain the

US$2 million to save 10% on their energy costs, given the

financing, but we can overcome this hurdle through our

long-term ROI involved.

alliance with Libra Group. Nevertheless, we have to apply some criteria when selecting potential customers. This is

We therefore had to adapt our business model so that our

carried out in a similar way to a bank, as we analyze the

clients would not have to make any upfront investment. We

client’s financial health in order to ascertain whether we

install our own equipment, which avoids any investment

can sell them energy. We can cater to clients that pay over

coming from the client. The only thing the client has to do

MX$30,000 (US$2,000) on their energy bills and we can

is pay for the energy we supply at the agreed price as we

install from 150kW upward. At the moment, we are working

take care of the maintenance of the equipment.

with 200 companies in Mexico and we have established a large network of alliances in the main regions of the country.

292

Q: How did Ilioss establish ties with Grupo Soriana, and

Since solar resources are not evenly spread across Mexico,

what obstacles did it encounter in the development of the

we will focus on the areas with the best solar irradiation in

project?

order to offer better energy savings to our customers.

NEW FUND TARGETS VAST RENEWABLE PORTFOLIO Having a renewable energy platform over 500MW in

acquisition-based and can be found in various states, with

markets such as Brazil and Chile prompted Actis Capital to

some in advanced stages and others still going through

confidently enter Mexico as a natural next step. To do so,

the land permitting process. As a global firm, we have

the private equity fund established Zuma Energía with the

been approached by many international players.”

intention of investing over US$300 million and installing over 500MW in the country. Actis has constructed,

Harrington says that prior to making investment decisions,

operated, and developed over 14,000MW in emerging

it is important to assess and evaluate the macro-level

markets, so the firm is comfortable with all technologies,

components of a country. This entails exploring the

including hydroelectric, oil, and gas. According to Michael

sophistication of the energy sector and the ease of

Harrington, Director of Energy for Latin America at Actis

interaction with the authorities. In renewable energy,

Capital, wind energy projects make sense in Mexico

Actis examines asset considerations such as resource

due to the strong wind resources, installation costs,

endowment, an element that made Mexico attractive

and sophisticated financial systems that can fund these

for the equity fund. The next aspect to look at consists

projects. In September 2014, Zuma Energía acquired the

of the cost components. “One of Mexico’s advantages is

PE Ingenio wind farm in Oaxaca, which was commissioned

that it is competitive in terms of installation costs. The

to Acciona Energía. “The reason we chose PE Ingenio as

cost of installing a wind park is roughly US$2 million per

Zuma Energía’s first acquisition was that the project was

megawatt, but in Central America, this cost approaches

already established,” explains Harrington.

US$3 million. These inputs help us tailor a risk return profile

“One of Mexico’s advantages is that it is competitive in terms of installation costs. The cost of installing a wind park is roughly US$2 million per megawatt”

Michael Harrington, Director of Energy for Latin America at Actis Capital

Soon after the acquisition of PE Ingenio, Actis sold 30% of

that meets our needs.” In spite of the ease in carrying out

its stake in Zuma Energía to Mesopower Group. Actis has

projects, Harrington stresses that the reforms need to be

identified over 3,000MW in projects, of which 250MW are

implemented quickly to make sure that the capital keeps

tangible, according to Harrington. “All these projects are

flowing and that the end users benefit.

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| VIEW FROM THE TOP

CYBERSECURITY AT THE FOREFRONT OF RISK MANAGEMENT ULISES CASTILLO CEO of Scitum Q: What is the role IT security plays within all the structural

world of vulnerabilities waiting to be exploited, even with

changes taking place in Mexico?

basic attacks in some instances that do not work on classic

A: Over the past three years, the world has seen a wave of

IT infrastructure.

cyber criminals, mainly hackers, rogue employees, former

294

employees, competitors, and even nations and organized

Q: What innovative technology have you developed to

crime groups trying to penetrate digital infrastructure.

combat cyber-attacks?

Whether it is private or public organizations is irrelevant; ill-

A: Cybersecurity agents all over the world are expecting

intended actors are trying to penetrate systems. In Mexico

bad news regarding the IoT in terms of security bridges.

there is a pool of different players from the government and

The world needs to become aware of the new risks, mainly

all other sectors who are quite unaware of the new cyber

the developers of new smart technologies, which are not

risks. For example, ransomware is a type of malware that

being designed with security in mind. One of our new

infects PCs and servers with a virus or Trojan, encrypting all

goals is to target the new security issues, with a new set of

the information. The hijacker then captures the information

products and services to protect the SCADA systems, ICSs,

held on the hard drive and holds it for ransom. This started

and the IoT infrastructure. It is important for us to gain more

happening on a wider scale about three years ago, but in

knowledge about the people or entities that pose a threat,

Mexico it began recently and has now become an epidemic

their current operations, how they organize themselves,

affecting large organizations. The typical control for

and which attack vectors they are using. For this purpose,

protecting networks used to be technologies like firewalls

we opened the cyber intelligence services division. Our

or intrusion prevention systems, and although those tools

cyber intelligent services division consists of gathering

remain necessary, they are no longer enough. The landscape

information from social media and the Dark Web, for which

has changed significantly in terms of new attacks and new

we use avatars to infiltrate the system while adhering to

attackers, so awareness needs to be raised. Investments

legal guidelines. A key component is open channels to share

in technology and also in trained professionals need to be

the gathered information with the customers and the law

prioritized to face the new threats.

enforcement agencies with which we work.

Q: What is the relevance of companies focused on

Q: What are the characteristics of the Cybersecurity

cybersecurity in the energy industry, such as Scitum?

Center that was recently launched in Latin America?

A: Companies like energy producers use SCADA and

A: This is the first cybersecurity and cyber intelligence center

industrial control systems (ICSs), which entail new kinds of

in Latin America. Normal IT security, like managing firewalls

exposure. I talk about new risks because in the past, SCADA

or content filtering solutions, is performed from our security

and ICSs were independent, autonomous, and isolated, but

operations center. However, we have a different approach

now they are part of an IP network. In many cases, clients are

for Advanced Persistent Threats (APTs). Usually, there is a

not aware of their accessibility, that is, the ability of anyone

powerful actor behind an APT, such as a criminal organization

in the Internet to compromise their systems. Now we also

or even a government, as an APT needs to go undetected by

have a new set of risks in the Internet of Things (IoT). Many

normal IT security measures. The Cybersecurity Center has

new technologies being implemented in the network, such

considerable knowledge of APTs, and we have an advanced

as smart meters or systems to economize a car’s fuel use

malware lab that provides in-depth analysis of any potential

constitute software, and the people who developed them

discrepancies in the customer’s systems. When necessary,

are not entirely aware of the possible dangers. Companies

we share information with other labs, and we are finalizing

like Microsoft or Oracle are highly aware of the risks and

strategic alliances with CISCO and HP; we have already

avoid vulnerability in their codes, but developers for smart

negotiated with Microsoft. In Mexico we have alliances with

technologies unassumingly launch products and features

the Scientific Police and with UNAM, all of which are sharing

to fulfill the market’s expectations. The IoT implies a new

information as a community.

STRONG PROTOCOLS REQUIRED FOR CYBERSECURITY Energy

the

been established in relation to nuclear power throughout

world, and anyone that

powers

Latin America, and some prototypes are decades away from

contributes to this eminent

materializing precisely because of this lack of protocols.”

sector must be cognizant

Panez is adamant that, without strict security policies

that any impact on the

embedded in the energy sector, there cannot be serious

end

have

technological developments. He compares the processes

product

widespread

Ricardo Panez, Regional Director of Latin America Sales at Check Point Software Technologies

will

implications

to those in the US, where existing nuclear reactors must

across society. No one is

comply with stringent regulatory requirements that all

more aware of this than

companies must meet. He relates the disappointing

Ricardo

Regional

reaction in Mexico when trying to work with CFE in Laguna

Panez,

Director of Latin America

Verde in his attempts to reinforce its security protocols.

Sales at Check Point Software Technologies. Cybersecurity

“It is unconscionable that the main electricity utility in the

has become a priority for energy companies, since one or

country has not renewed its protocols and has made little

two failures in a new structure will wreak havoc in an energy

advancement.”

system. Ultimately, protecting critical infrastructure is crucial, not only for prestigious energy companies like CFE and

The slow development of technologies is not the only

PEMEX, but also for all other players. IT security is no longer

challenge that lies ahead, and after the Reform there will

viewed at the peripheries of a company, and for Panez it is

be new agencies and entities adopting new strategies

not enough to have a firewall; security must be ingrained at

and procedures. “It is interesting to note that there is not

the core. “Here, we delve into governance risk and regulatory

a standard security protocol adopted and agreed on by

frameworks that support security protocols. In the IT world,

all agencies. Rather, each entity has its own approach to

assets are defined as information, and Check Point looks

security,” he points out. “Legislation is the only way to

at ways of protecting the companies’ precious data.” The

solve this discrepancy. It is important for the government

biggest factor missing in the equation is a strong regulatory

to be as transparent as possible.” As a result, cybersecurity

framework aimed at protecting infrastructure.

companies must take on advisory roles in order to show the government which path to take in relation to protecting

According to Panez, this slack regulatory framework

critical infrastructure. “In essence, all security companies

surrounding critical infrastructure has an impact on the

must play a contributory role, providing expertise in the

development of some energy technologies across not only

decision the authorities make regarding its security,” he

Mexico, but Latin America as well. “Few regulations have

concludes.

295

MERGERS AND ACQUISITIONS ON THE HORIZON Established in 1997, Ramírez, Gutiérrez-Azpe, Rodríguez-

to gain the experience or financing capabilities they would

Rivero y Hurtado (RGRH) recently adopted a new corporate

otherwise lack. This is the reason why firms like RGRH are

name as a result of several changes, but clients can rest

foreseeing mergers and alliances in the energy market to

assured that the expertise remains the same. RGRH has a

be a strong trend. “The mergers and PPP schemes will

strong M&A practice that works alongside the firm’s core

be interesting in this market because previously, there

business areas, which include energy, competition, and

were few major players, such as Iberdrola and EDF, but

taxes. Claudio Rodríguez-Galán joined the firm as Head of

now there will be a flood of investment from companies

the Energy Practice three years ago, and his experience

who are already interested in this market. I believe the

allows him to shed some light on the way partnerships and

opportunities are such that even SMEs from around the

M&As might play out in Mexico’s energy industry.

world will make attempts at entering the Mexican market through

For Rodríguez-Galán the fact that CFE might enter

partnerships

and

M&As,”

Rodríguez-Galán

shares.

agreements under civil and commercial law is an outstanding feature because it means that, in addition to

The drivers for M&As, according to Rodríguez-Galán, can be

entering new types of agreements, CFE can grant many

financial, experienced-based, or even the national content

guarantees that it was not allowed to give before. In his

requirements. “Perhaps an EPC company, a pipeline

view, this trait will definitely have an impact on PPPs with

developer, and a company with experience in transmission

international players. According to Rodríguez-Galán, the

might be interested in forming a new enterprise to create a

way CFE interacts with the private sector will depend on

gas-fired efficient project and sell that power in the market.

the company’s corporate strategy. One main difference

In order to do so and build the necessary infrastructure, a

he stresses is that now CFE has a board of directors

considerable financial capability is needed, but companies

that can decide on the path the company will take. An

will need to make many guarantees. With these elements

example of this trend is the creation of CFE International.

in mind, I see a growing importance in alliances with

In his opinion, CFE has a duty to optimize its services in

experienced Mexican companies.”

order to function well under the new legislation. “CFE can do many things to attract potential partners or to fill the

The M&A activity Rodríguez-Galán expects to see the most

gaps it still has in order to compete in the new market. The

in the renewables sector is in the solar segment. However,

energy company is currently focusing on gas distribution,

these will depend on the new rules for renewables and on

an area where it has no experience, thus creating plenty

the industry’s ability to overcome existing obstacles, such

of opportunities. I also see a lot of opportunities for PPPs

as the ones the solar energy community has experienced

in geothermal because CFE has the most experience in

so far. “Since the rulings make solar developments more

operating geothermal fields in Mexico.”

attractive, I expect more M&A transactions to happen within this segment. The wind sector is already seeing

In Rodríguez-Galán’s view, the new legislation will present

a wave of mergers and projects, like the case of Zuma

Mexico in an extremely attractive light, and will bring

Energía acquiring PE Ingenio,” he points out. In Rodríguez-

the benefit of international players with the experience

Galán’s view, there are many serious solar energy

in energy trading that is currently lacking. Another

companies in Mexico, but they are spread out across the

phenomenon that he predicts is that companies will

whole national territory. “Four years ago, everyone was

transform from firms dedicated to gas or wind exclusively

developing projects in Sonora, yet there are still no active

into full energy companies, as is already occurring with

projects in the state. If the solar market manages to finally

CFE. “Electricidade de Portugal expanded its activities

succeed, Sonora might have a second chance of becoming

and is now known as Energias de Portugal. The fact

the solar Oaxaca.”

that companies are changing their names demonstrates they are committing to diversifying their operations,” he illustrates. According to Rodríguez-Galán, companies will be likely to adopt one of two strategies to successfully thrive in Mexico. Firstly, they can transform into vertically integrated companies in order to fit into the market. The other option is to enter alliances, M&As, and partnerships

296

“CFE can do many things to attract potential partners or to fill the gaps it still has in order to compete in the new market” Claudio Rodríguez-Galán, Head of Energy Practice at RGRH

| VIEW FROM THE TOP

UNVEILING FUTURE CHALLENGES IN MIDSTREAM JUAN CARLOS SERRA Partner at Basham Abogados

Q: Periods of economic recovery, such as the current

industry. Funds will want to invest in more sophisticated,

one, have often been rife with M&A opportunities. Do you

well-structured projects, raising the quality of the sector.

believe the Mexican renewable and clean energy sectors

As more investment floods the country, assets will become

might be about to undergo such a period?

more valuable.

A: I do not believe we are in the M&A stage yet. Projects are beginning to be developed and once those endeavours

Q: The pipeline and natural gas transportation market has

become operational and bear fruit, then we will start

been open to private participation for years now. What

looking at M&A activity. One can concede that there have

are the lessons learnt that were applied in the wake of the

been some mergers and acquisitions in the hydrocarbons

Energy Reform?

sector, mainly foreign oil and gas companies acquiring

A: The most important aspects are regulation and the

or partnering with Mexican ones, often in the services

development of projects, especially when completing a

segment, with the aim of complying with the national

checklist ranging from right of way and environmental

content rules. These M&As are something we are starting

issues, to pricing and CRE’s decision-making process. Public

to explore, but I do not think the renewables segment is

consultations will be prevalent and this might delay projects

experiencing such activities yet.

in some cases, such as hydrocarbons projects, which have specific requirements outlined in the Hydrocarbons Law

Q: To what extent will the requirement of local content

for conducting public consultations and social impact

influence M&A between Mexican and foreign companies?

assessments. Mining firms already engage in these practices

A: The national content requirement may be fulfilled

because the International Labour Organization demands

through input from locals. If a company carries out an

those consultations, requiring that mining corporations

acquisition to comply with national content rules, it will

present environmental impact assessments and carry

need to maintain the acquired firm’s current operations.

out public consultations before they can be granted an

This entails employees, assets, and local facilities, among

environmental approval. Now that this is written into the

others. In my view, foreign players will try to buy local

law, more requirements are likely to surface for projects

companies to gain local presence, but not to meet the

before their development. The formalities surrounding

national content requirements. An important aspect to

these procedures, such as consulting, serving a party,

bear in mind is that under the tenders, the company that

notifying a party, and giving a party the ability to challenge,

will need to comply with the national content requirements

will be difficult to navigate, but it will also provide plenty

is the one receiving the concession from the government.

of work for law firms. Another important consideration is

If a supplier does not honour the rule for any reason, the

the development of storage capacity for natural gas. Since

concessionaire will be held responsible. Companies will

1992, private companies have been allowed to invest in

still be relying on local suppliers that are trustworthy and

transportation, distribution, and warehousing. Warehousing

have become aligned with the international operating

still requires more investment, and this may be seen when

standards of the big players. Basham has been involved

ports are developed.

in the construction of projects such as the Los Ramones pipeline and the new container terminal in the Lazaro

Once companies start bringing fuel to Mexico, ports like

Cardenas port. With this track record, we have been able

Salina Cruz and Tuxpan will see an optimal development.

to identify a trend of private equity funds seeking assets

All that we have are the three LNG facilities in Ensenada,

related to natural gas pipelines, ports, water treatment

Altamira,

facilities, and even highways. These funds might not

warehousing for CFE. These three facilities are anchored

necessarily become the final operators of the business,

to a natural gas supply agreement with CFE and to the

instead owning a minority stake. Nonetheless, they have

supply of certain private parties. As a result, there is a lack

an appetite for what is occurring within the Mexican

of storage facilities at the moment.

and

Manzanillo,

but

these

are

basically

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| VIEW FROM THE TOP

AUTOMOTIVE PLAYER EMBRACES RENEWABLES MARCO ANTONIO RIBERA Senior Corporate Manager Environment and Safety of Nissan Mexicana

Q: What role does the global automotive industry play in

Q: What are the rising concerns of Nissan Mexicana as

pushing forth green practices?

an AAA off-taker considering the upheaval in the energy

A: The automotive industry involves the use of raw materials,

market?

transformation processes, and the use of the vehicle until

A: We began to seek energy alternatives besides the

the moment it is scrapped. When you consider the entire

electricity provided by CFE in 2007. In 2012 we introduced

life cycle of a vehicle, you see the important impact it has

the first renewable energy that covered 5% of the needs

on the environment. All OEMs today incorporate themes

of Aguascalientes’ A1 Plant, and in 2013, a great volume

of sustainability in manufacturing processes because not

of energy was incorporated into the mix from the wind

doing so has a negative impact on the environment. Within

project located in Oaxaca. One of the factors we take

our Nissan Power 88 business plan there are several pillars

seriously regarding renewable energies is the intermittency.

of growth, one of which is Zero Emissions Leadership, a

When we compare renewables with other clean, traditional

major component of the company’s DNA and vision. This

sources of energy, we realize that natural gas is rising

pillar includes the Nissan Green Program, which allows us to

in popularity and it is becoming incredibly competitive.

incorporate green practices in the life cycle of our vehicles.

There are many elements to consider when studying a

The life cycle of a car begins the moment it is designed,

project, such as intermittency, cost, location, and contract

and lasts until its disposal, and throughout every stage

terms. Long-term contracts make Nissan Mexicana more

we have specific plans of action with key targets. Nissan

competitive, however, given that the automotive industry

Mexicana has stood out in reducing the carbon footprint

is known to fluctuate, we has to consider that sometimes

and raw materials used in manufacturing processes. This

the energy that was purchased might not be consumed in

is remarkable, considering the manufacturing capacity of

the future. We are attentive to the promotion of the great

Nissan Mexicana and the fact that in 2014 it assembled more

potential of renewable energies by the authorities and the

than 800,000 vehicles, of which almost 70% were exported.

rising competition faced by the industry’s emerging players. Nissan Mexicana has had a positive experience with biogas,

Q: How has the incorporation of renewable technologies

since this fuel does not suffer from intermittency, which

increased Nissan Mexicana’s competitiveness?

makes it a very attractive energy source when compared to

A: We have been able to balance Nissan’s Green Program

other traditional forms of energy.

with energy consumption. As a result, we are the leaders

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in economized energy consumption for every vehicle

Q: What steps did Nissan Mexicana take in order to align

assembled and we are even more competitive than our

its manufacturing processes with sustainability practices?

plants in Japan. A significant percentage of the energy we

A: Nissan Mexicana is the global benchmark in water

consume comes from renewable sources. In the case of

and waste management strategies. The plants in Mexico

Aguascalientes’ A1 Plant, Nissan’s biggest manufacturing

take the lead by assembling vehicles using less water,

complex in Mexico, around 66% of the electricity consumed

although this depends on the production volume. For

comes from renewable energy and the rest from combined

instance, Aguascalientes’ A1 Plant uses 1m3 of water per

cycle plants using clean fuels like natural gas. Within the

vehicle assembled, while Aguascalientes’ A2 Plant uses

58 plants of the Renault-Nissan Alliance worldwide, Nissan

1.4m3, and the CIVAC plant uses 1.5m3. In order to achieve

Mexicana is the only one that incorporates biogas generated

sustainability, there must be a balance between green

from a landfill. The waste-to-energy project falls under the

practices and economics, so as less waste is generated

self-supply scheme, and the three parties involved are the

and resources are better managed, costs are immediately

city council that manages the landfill and is certified to ISO

lowered and competitiveness increased. It is through the

14000, a UK developer called ENER-G, with the technology

implementation of water and waste management strategies

and experience, and Nissan, which acted as the off-taker

and renewable energies that Nissan has been able to

and provided the financial support for the project.

increase its competitiveness and stand out from the crowd.

| VIEW FROM THE TOP

OFF-TAKERS CONTINUE TO SUPPORT RENEWABLES MANUEL GÓMEZ Vice President of Sustainability at Walmart Mexico and Central America

Q: What have been the accomplishments in terms of

A: An ideal supplier needs to have an excellent track record,

green practices and sustainability that Walmart has

be competitive, have a solid reputation, and be a driver

achieved this past year?

of innovation. The developer has to follow best practices

A: We have proven that it is possible to expand the business

and protocols and this means taking into consideration the

while simultaneously reducing our carbon footprint. Over

environmental and social impacts. All renewable energies

the past five years, Walmart Mexico was able to increase

have captured our attention and we strongly believe in

the sales floor by 18% and it had not implemented

the importance of a mix of technologies, since they all

sustainability initiatives, its footprint would have grown

have unique strengths and they complement each other.

proportionally. Walmart invested in new technologies,

Having a mix helps build a more competitive portfolio,

such as LED lighting, and implemented operational

since development times differ and each technology has

efficiency programs at a store level. This has allowed it to

different generation peaks during the day or during the

reduce its energy impact by 26% in the past five years,

year. Another important factor to consider is the scale,

and 51% of stores are now supplied by renewable energy.

since utility-scale renewable energy projects are more

The latter is thanks to the addition of one more wind farm

competitive, and offer stability and predictable rates.

and a hydroelectric power plant. The combination of lower energy use and renewable energy has allowed us to reduce

Q: As an AAA company and ideal off-taker, what are

our greenhouse gas emissions by 12%. We would like more

the concerns that you share with players in the energy

companies to follow our lead since this hard data reflects

industry? How will you be positioned within this new

that our commitment to sustainability and our innovative

electricity market?

actions have led to a tangible impact.

A: There are two factors that position us at the forefront of the new electricity market. Firstly, we are pioneers in

Q: Walmart covers 51% of its energy needs with renewable

implementing environmental programs that demonstrate

power in Mexico. What opportunities have you identified

business growth potential. Secondly, we will reduce

within the new electricity market, especially as a qualified

our environmental footprint in absolute terms and

user?

simultaneously double the size of the business. Our

A: We are learning and evaluating how to navigate the

current pipeline showcases a range of technologies and

waters of this new regulatory framework. Indeed, in

geographies and this will allow us to diversify and build

the new electricity market, being a qualified user is one

on the strength of our project portfolio. As an AAA

option open to us, among others. One thing that remains

rated off-taker we bring a variety of factors to the table,

certain is that Walmart will continue to lead in renewable

some of which include economies of scale and quality.

energies because it strongly believes it can correlate

Our commitment to sustainability is undeniable, and

business growth with a small environmental footprint. The

Mexico has opened its doors to the opportunities to

combination of energy efficiency and renewable energy

develop competitive renewable energy projects. The new

will play a key role in reducing greenhouse gas emissions.

regulatory framework offers off-takers the choice between

We are fully prepared for SEMARNAT’s National Emissions

traditional and renewable energy, and spot versus fixed

Inventory, as we have publically reported our emissions

prices. Choice is ultimately of the utmost importance for

since 2007 to the GEI Mexico Program and to the CDP

off-takers. Mexico’s goal regarding the renewable options

since 2011. In addition, our emissions report is verified by

it currently provides is extremely ambitious and requires

an independent third party.

collaborative partnerships and an active role of the private sector. I strongly believe Mexico is well positioned to be a

Q: Which renewable energies are capturing your attention,

leader in renewable energy in a way that is sustainable. I

and what do you look for in an ideal partner to develop

trust we will continue to be a leader in the market with the

renewable projects?

new electricity regulatory framework.

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An open market entails a plethora of opportunities for players across several specialties, ranging from power generation to business development and consultancy services. Likewise, Mexico’s clean energy generation objectives are opening the door to investors and developers who will help the country achieve these goals. The market rules, as well as the newly assigned roles of regulatory organizations and system operators, are changing the environment in which companies engage with the Mexican electricity industry. Taking the new frameworks into consideration, sponsors and project developers will rely on experts to guide them through the new terrain in order to successfully carry out their business activities in a way that is both profitable and aligned with the objectives of the Energy Reform.

In the following chapter, players in different fields explain the intricacies of Mexico’s electricity industry from a business perspective, providing valuable advice navigating these waters. We address topics every project developer should consider, such as community relations. Newcomers share the innovative business models that enabled their entry into the country, highlighting the importance of innovation and entrepreneurship. Experts comment on the strategies that are poised to catalyze the market, while stakeholders describe the way in which the private sector, from SMEs to multinationals, are participating in Mexico’s energy industry. Finally, representatives of renowned firms discuss corporate sustainability strategies and explain how these have benefited their business and their clients alike.

DOING BUSINESS & CORPORATE SUSTAINABILITY

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TRUSTED APPLICATION CENTER

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ADVANCED THREAT PROTECTION Cyberattacks are becoming more sophisticated, more targeted, and more persistent. A technology layer 302

that spans all of the Blue Coat Centers, Advanced Threat Protection: Lifecycle Defense products and services let you see and block advanced threats as they happen, as well as continuously monitor your network for hidden threats that bypass your existing security defenses. Together, these innovative products empower you to create an adaptive, context-aware, advanced threat defense.

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CHAPTER 13: DOING BUSINESS & CORPORATE SUSTAINABILITY 304

VIEW FROM THE TOP: Juan Acra, COPARMEX

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VIEW FROM THE TOP: Dr. Isabel Studer, Global Institute for Sustainability

306

INSIGHT: Luis Aguirre-Torres, GreenMomentum

307

INSIGHT: Jonah Greenberger, Bright

308

VIEW FROM THE TOP: Fernando Flores, GREENid

309

INSIGHT: Jesús González Arellano, KPMG

310

INSIGHT: René Maingot, Thermion

311

INSIGHT: Antonio Garibay, Ingeniería Administración de Contratos

312

VIEW FROM THE TOP: Leopoldo Burguete Stanek, González Calvillo Abogados

313

INSIGHT: Edgar Villaseñor, ICLEI

314

VIEW FROM THE TOP: Jaime Martínez, ERM

316

VIEW FROM THE TOP: Francisco Acuña, InTrust Global Investments

317

INSIGHT: Brad Donovan, Nova Monarca

318

INSIGHT: Lewis Adams, Heidrick & Struggles

319

VIEW FROM THE TOP:

320

VIEW FROM THE TOP: Eduardo Reyes, PwC

321

VIEW FROM THE TOP: Jesús González Arellano, KPMG

322

INSIGHT: Miguel Ángel Laporta, HSBC

323

VIEW FROM THE TOP: Enrique Nieto, NAFINSA

324

VIEW FROM THE TOP: Eduardo Piquero, MÉXICO2 Mexican Carbon Platform

325

VIEW FROM THE TOP: Gabriel Quadri, SigeaCarbon Mexico

326

VIEW FROM THE TOP: Nadim Chaudhry, Green Power Conferences

327

VIEW FROM THE TOP: Daniel Casados, Blue Coat Systems

328

INSIGHT: Rodrigo Benet, Soriana

328

INSIGHT: Ana Paula Fernández del Castillo, ICA

329

INSIGHT: José Navarro, EJ Krause

Karen Sainz, Baker Tilly Mexico Raúl Aguilar, Baker Tilly Mexico

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| VIEW FROM THE TOP

STRENGTHENING LOCAL SMES IN RESPONSE TO INCOMING COMPETITION JUAN ACRA President of the National Energy Commission of COPARMEX Q: How much communication has COPARMEX had with

Q: How is the advice COPARMEX giving to the public

the government and other entities regarding the rules and

sector evolving as new companies enter the Mexican

legislation that have been passed since the Energy Reform?

market?

A: There is constant communication with the government,

A: Joint ventures between local and foreign companies

mainly with the Ministry of Energy, the Ministry of Finance,

will prove beneficial for national ones for a number of

and the Ministry of Economy. COPARMEX’s Energy

reasons; one of them is that the technology transfer will

Commission is comprised of members of the oil industry,

push local entities toward the cutting edge of innovation

which include the executive directors of Exxon, Mobil,

and state of the art technology. The formula for success

Chevron, Shell, BP, Repsol, and other oil companies. There

is a combination of connections with key players and the

are also members in the natural gas, LP gas, electricity,

appropriate knowledge. COPARMEX is also working with

and renewables sector. There is an important link between

the government in developing a web platform where

the Energy Commission and state governments, and we

potential foreign investors can obtain all the information

have state energy commissions in 20 states related to

they need related to the private sector, chambers, and

electricity, and the oil and gas industries. In COPARMEX

associations. This will help users initiate contact with the

we have 37,000 SMEs and 200 of the largest companies

private entities that could prove to be valuable contacts.

in Mexico are also members of the confederation. We see

We are working together with the Ministry of Energy and

many opportunities arising from the Energy Reform and

the Ministry of Finance in order to develop a solution.

we wish to support companies and parties interested in making investments in Mexico.

Q: What will happen when foreign SMEs come to Mexico and start competing with domestic SMEs?

Q: What have been some of the topics that have been

A: Right now, we have to work on the financial aspect so

debated in COPARMEX’s Renewable Energy Work Group?

that SMEs can access competitive credits. The national

A: We have a National Energy Efficiency Program that is

content clause in the Energy Reform was proposed by the

being developed in conjunction with the Mexican Bank

private sector, and the COPARMEX Energy Commission

Association (ABM), Ministry of Energy, and FIDE. We want

suggested a section devoted to national content, which

to promote self-supply projects and help SMEs gain access

was drafted by the Ministry of Economy. The second

to cheap electricity generated from renewable sources.

subject in our proposal was to create two consulting boards

We also want to aid SMEs in getting financial support for

for the oil and gas industry and for the electricity industry.

equipment that would make them more energy efficient,

The Ministry of Economy invited COPARMEX to formally

so we will carry out efficiency studies in order to provide

create these boards at the beginning of 2015. In addition,

them with viable solutions. COPARMEX has been working

we are promoting the creation of a national supplier and

with NAFINSA on a pilot project in State of Mexico,

contractor registry. Companies that wish to register have

intended to help 40 companies by providing them with

to fill out a large amount of paperwork, and then it is

renewable energy. We will also help them obtain financial

possible to generate a number of qualified companies, so

aid for any efficient equipment they might need.

these companies can be linked with financing institutions that provide financing according to the companies’ rating

304

We could decrease these companies’ electricity bills by 30-

and financial indicators. The organization that rates

50%. The annual amount each of these 40 SMEs pay for

the companies is the one that links them with financial

electricity amounts to US$10 million. CFE is pleased with this

institutions. If a company wants to improve its own rating

program since it will allow the utility to increase its capacity

in order to obtain more funds, there is an opportunity to

by lowering stress on transmission lines. Making these

take courses, seminars, and training sessions for a wide

companies more competitive will enable them to compete

array of subjects. This is the model we want to follow for

on an international level.

our national registry to strengthen the Mexican SMEs.

| VIEW FROM THE TOP

TURNING SUPPLY CHAINS GREEN THROUGH SMES DR. ISABEL STUDER Founding Director of the Global Institute for Sustainability

Q: How can the renewable energy industries and

given the scarcity of water in Mexico, which will be more

sustainability markets foment innovation in the country?

profound with the effects of climate change. We need to be

A: Mexico’s history and development is ingrained in

aware of how increasing the use of renewables will directly

hydrocarbons, so it is sometimes difficult to believe that it

benefit water availability and reduce water contamination.

can fundamentally transform itself into a renewable country. However, Mexico is rich in renewable energy sources, and

Q: What are the most emblematic projects of the Global

the potential for solar, hydro, geothermal, and wind is

Institute for Sustainability (GIS), and how has its project

enormous. It is fascinating that countries that have faced

with SMEs promoted eco-efficient practices?

scarcity such as Germany and Japan are at the forefront of

A: GIS’ project with SMEs is in its infancy, so it is difficult to

innovation. Scarcity is the mother of innovation, and this is

report results. The pilot project was carried out with 3,000

especially true when dealing with limited natural resources.

small suppliers of Walmart and FEMSA. The preliminary

It is precisely Mexico’s abundance of natural resources that

results with a pilot project of 30 SMEs show that companies

has made it slow to understand the potential to innovate.

have realized that being small does not exempt them

In the promotion of innovation, Mexico lags behind other

from impacting resource availability and climate change.

emerging economies such as India, China, and Brazil.

The advisory program encourages them to become more

Being next door to the US, and having the presence of

efficient and less dependent on fossil fuels. The program has

transnational companies that develop technology, negates

also allowed these companies to become more efficient in

the need to innovate. The question is not whether renewable

their use of natural resources and improve their productivity

energies will bring innovation, the question lies in whether

levels. When we devised the program, we wanted

Mexico is willing to make the investment and develop the

companies to understand that sustainability is intrinsic to

infrastructure required to promote innovation within this

the business model and not a fleeting effort. Eco-efficiency

industry. There must be not one fund, as exists now, but

allows companies to obtain financial resources that would

the construction of a complete network that supports

be otherwise unavailable from a commercial bank, by

universities and provides collaboration opportunities with

freeing up resources in their own production systems in

the private sector in a more systematic way so as to harness

order to make the enterprises grow.

ideas and technological breakthroughs. Q: What has been your experience working alongside Q: In your eyes, is Mexico willing to see itself as a leader in

companies like Walmart and FEMSA?

terms of promoting this industry, not only as a source of

A: These companies are beginning to understand that their

innovation, but also as a driver of economic growth and

influence does not stop at their own factories’ borders,

dynamism?

and in fact they have to work with their supply chains to

A: It is not only a matter of whether the country is going

address major sources of emissions and environmental

to promote an energy transition and fight against climate

impacts. While FEMSA and Walmart have different

change, but rather whether it wishes to become a leader

sustainability strategies, they converge in the importance

or lag behind. Sooner or later, we will run out of fossil fuels.

they place in working with small suppliers. Turning the

One of the benefits of using renewable energies is the

supply chain green encourages growth and productivity,

positive effect on health and water conservation. Given

and we are considering expanding our partnerships with

that most of the population around the world is migrating

other companies. We are increasingly convinced that the

to cities, using these energies will dramatically reduce

issue of inefficient use of natural resources will become

health costs. Another aspect that is often disregarded is

ever more evident in the development of competitive

the lack of association between renewables and water.

strategies for both large and small companies. For many

Water and fossil fuels are inherently connected, which has

of these small suppliers, the only way to improve their

a tremendous effect on water availability. This is crucial

competitiveness is through resource efficiency.

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INNOVATION ESSENTIAL TO THE FUTURE OF CLEAN ENERGY

Luis Aguirre-Torres, CEO of GreenMomentum

When operating within an

technology to return to GreenMomentum in order to seek

industry that relies heavily

development financing after the competition is over.

innovative

changes,

important

that

Another of the keys to entrepreneurial success within any

innovation is proactively

industry is the formation of business clusters, something

promoted. By helping to

that GreenMomentum hopes to facilitate with the help of

provide the environment

the Mexican Technology Platform (MTP). The company

that inspiration requires to

wants to work in Puebla, Queretaro, and State of Mexico

flourish and by rewarding

to create a cluster that is focused on energy efficiency;

those

the

however, the Fund for Sustainable Energy will not play a part

who

bring

best ideas to the table,

in its inception. “I do not think the fund is an appropriate

GreenMomentum hopes to encourage the innovation that

vehicle for creating clusters,” says Aguirre-Torres. “Besides,

the clean energy sector needs in order to realize its full

INADEM has regional programs that could finance their

potential.

creation within municipalities as long as they provide a comprehensive report on the region’s strengths.” When

There is a continued interest in clean technology (cleantech)

combined with the changes laid out in the Energy Reform,

in Mexico, enough so that GreenMomentum is focused on

GreenMomentum’s cluster could attract Corporate Venture

market intelligence for these forms of energy generation.

companies looking to invest in and develop their own

Now that the Energy Reform will enforce renewable energy-

supply chains in Mexico. Aguirre-Torres cites the Mexico-US

related targets, the company’s customers are realizing

Entrepreneurship and Innovation Council (MUSEIC) as being

the viability of cleantech, providing a welcome boost to

particularly favorable for both GreenMomentum’s cluster

GreenMomentum’s pool of business opportunities. Luis

ambitions and the industry in general. “MUSEIC produces

Aguirre-Torres, CEO of GreenMomentum, believes that

extremely innovative ideas because those at the helm are not

distributed solar energy generation is the future. However,

concerned with losing their jobs if they make a bad decision.

solar companies are still faced with the challenge of

One of its subcommittees recently obtained about US$2.6

raising the necessary capital, meaning they are forced to

million to finance the iCluster project. This project is relevant

opt for creative leasing options. This is where the Fund

to GreenMomentum as it is represents an easy-to-replicate

for Sustainable Energy comes in. Approved by Mexico’s

model for financing the creation of energy clusters.”

Ministry of Energy and CONACYT, the Fund for Sustainable Energy will help GreenMomentum to finance more pure-

GreenMomentum’s

reasons

for

actively

incentivizing

play cleantech SMEs, as well as promote the development

innovation in Mexico are clear, especially when its CEO

of disruptive technologies. The initial idea behind the fund

describes the country as having “no culture of innovation and

was to bolster innovation, but unfortunately, there were

no infrastructure for innovation”. Now that the reforms have

some problems with missing funds, as Aguirre-Torres points

passed, he believes that these will play a role in guaranteeing

out. “The money invested from 2008 to 2012 has just gone,

a more competitive market. “The country has had consistent

meaning that the innovation that we expected to see never

problems with sophistication across the whole of the clean

surfaced.” According to the company’s CEO, the first call

energy sector. Young entrepreneurs are now bringing a

of business for GreenMomentum is to discover what went

higher level of sophistication to the supply chain and the

wrong with the fund, and to ensure it does not fall victim to

distribution network, giving them a competitive advantage

previous mistakes.

over SMEs.” Aguirre-Torres explains that even though public universities have the resources, the funds, the incentives, and

To combat this less than favorable perception of the

the people needed to bring more sophistication to Mexico,

fund, GreenMomentum has affiliated itself with Cleantech

their resistance toward the release of new patents for their

Challenge Mexico (CTCM). For the last five years,

cutting-edge technology is holding the country back.

CTCM has promoted economic development by pitting

306

cleantech entrepreneurs against one another in an annual

By taking decisive control over the Fund for Sustainable

competition for innovation. The initiative also provides

Energy, using it to nurture those with new ideas, uniting

services that facilitate the progression of ideas into viable

businesses in a collaborative cluster, and rewarding those

business models in Mexico and Latin America. Aguirre-

who drive the industry forward, GreenMomentum is making

Torres considers CTCM to be a useful pipeline for the

great strides towards its goal of bringing innovation to the

fund, as it allows participating developers of disruptive

forefront of the clean energy industry.

SOFTWARE FOR MASS SOLAR ADOPTION One of the conundrums

The company’s main target is DAC consumers, the highest

of solar is that it is mature

tariff, but Bright is also creating a solution for the mass

population. “DAC customers paying the highest tariff

the US, but it is relatively

some

are the primary market, but we want millions of homes

immature

markets

to adopt solar. If we want to address the mass market in

where solar would make

Mexico, we have waive upfront cost because a home that

the

most

has US$20,000 available would rather spend this amount

sunny

on their children’s education or a car.” In Bright’s model,

climates, high electricity

clients’ pay a monthly fee with no upfront costs, equating

tariffs, and low labor costs.

to less than their CFE bill. The contract is for ten years, so

Mexico is a great example,

Bright becomes these clients’ solar energy provider.

countries Jonah Greenberger, CoFounder of Bright

countries

sense, with

since it is close to the US, it has much higher irradiation rates, often twice the electricity rates, and a fifth of the

In order to expand its business, the company created a

labor costs. These conditions led Jonah Greenberger,

partnership model with installers and sales companies

CoFounder of Bright, to choose Mexico as the laboratory

to sell solar subscriptions as well. Greenberger quickly

for a business model intended to spread the use of solar

noticed Mexico’s entrepreneurial ecosystem, where there

technology. “Something interesting about lending credit to

are thousands of family-run companies. In his perspective,

a solar installation versus lending credit to a consumer for

many people want to start companies, but once they

an unsecured loan is that the default rates look much more

do, they often lack access to financing and experienced

like default rates on paying a utility bill versus default rates

software talent. Bright is working to link the entrepreneurial

on paying a credit card bill or a loan, which in Mexico is

spirit of Mexico to financing and software talent found in

much higher. However, people pay their CFE bills because

other areas of the world. However, a challenge Bright ran

they need electricity.”

into is the lack of high quality installers in Mexico. “The ecosystem is also new, so there are a lot of solar installers

Greenberger found that there was a recurring belief among

but not many have decades of expertise,” Greenberger

Mexican investors about the importance of being a first-

explains.

mover, while US investors were skeptical about Mexico’s political and regulatory risks, even though the business

Another issue relates to consumer awareness, since solar

model made sense to them. Fortunately, Bright was accepted

is still a relatively new asset from a consumer perspective.

into Y Combinator’s program, the incubator responsible

According to Greenberger, homeowners believe solar

for Dropbox and Airbnb. “Y Combinator saw risks in our

technology advances like that of cellphones, are in need

proposal, but thought if we could figure out how to address

of constant replacement, so they are reluctant to adopt a

them, we could replicate the model in other countries with

system that could become obsolete in a few years. “A solar

similar trends,” Greenberger tells. The company’s new

system supplying 100% of your electricity today will also

traction generated investment from both Mexico and the US.

supply 100% of your electricity next year. You can replace it with a newer, smaller installation, but that will not add much

Bright’s goal is to enable mass solar adoption in the

value for consumers,” he tells, highlighting his company’s

residential sector in the developing world, and it wants

challenge in educating consumers.

to do so in a scalable way. The real delay in the market is how to reliably install solar in a viable way that makes

Greenberger is aware of CFE’s renewable energy targets

financers comfortable. “We are hoping to target millions

and the fact that more power is needed in Mexico, two

of consumers, so that is millions of underwriting processes

elements with which his company is attempting to align

that we have to perform. We need a reliable and repeatable

itself. “Since most of the population receives subsidized

process that is controlled through software.” The software

electricity, it would be interesting if we could also partner

component is not easy to replicate, and a lot of that goes

with CFE to lower electricity tariffs by providing solar to

back to sourcing talent. Much of the best software talent

the segments that are most subsidized.” In doing so, the

is in Silicon Valley, so the company’s software and finance

amount of funding CFE would need to provide for the solar

teams are in Silicon Valley, working on taking friction out

installation would be much less than what it currently pays.

of the process of billing, underwriting, and partnering with

“We are intrigued by this idea but have not been able to

installers. The sales and operations teams are located in

find the right connection to CFE. Hopefully this will happen

Mexico, along with the projects.

soon,” he shares.

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| VIEW FROM THE TOP

SYNERGIES BETWEEN ENTREPRENEURSHIP AND INNOVATION FERNANDO FLORES Mexico City Office Manager of GREENid Q: How does Green ID bridge the supply and demand for

A: Innovation is crucial so we have close links with regional

new clean and smart technologies in energy and water in

science parks and universities. We see the possibility of

Mexico?

creating an internship program for Mexican entrepreneurs

A: Both founders of GREENid are Mexican and we studied

in key industries called Pioneers in Technology. In this

sustainable energy technologies. The business model

program, entrepreneurs can shadow key stakeholders in

resembles a bridge and this image has driven the company

their respective industries and learn best practices. Most

forward as it strives to connect emerging markets with

of the entrepreneurs originate from start-ups in different

established ones around the world. GREENid wants to

incubators and we offer them the opportunity to test out

reduce the technology gap and promote the smooth

their technologies in other markets around the world. We

transfer of technologies. One of the questions that have

are in the process of creating a green innovation hub,

emerged from the Energy Reform is how to do business in

which is an online platform where entrepreneurs can see

this new environment, and companies are now evaluating

where other players in other sectors are established.

which technologies will best suit their needs of the future. We are a link that provides the information the industry

Q: What opportunities exist for entrepreneurs working

players need and it gives companies the best available

with the giants of the market?

business scenarios. We serve as a bridge between key

A: The prospect of entrepreneurs partnering up with

stakeholders and the most advanced technology suppliers

large companies depends on how the project is tailored

to create the most sustainable project.

and technology opportunity. We can help big companies learn more about new technologies and give a chance to

Q: What are the highlights of this unique business model,

entrepreneurs to become partners. There are funds that

and how can these be applied to the Mexican market?

support the development of new technologies, but the only

A: We represent the Dutch Cycling Embassy and we have

drawback is that some funds ask for a proportion of the

been involved with several successful activities with this

intellectual property and this can be difficult to negotiate.

entity. We also developed a new concept of doing business

The aim is not to put the entrepreneur at a disadvantage

with communities called the Sustainable Seed Project, and

by working with a large player, but rather to complement

it is aimed at rural communities that need energy. In general

technologies and experience.

terms, we select a public building in a community and we transform it not only by applying new technologies, but

Q: How do the barriers converge between Mexican and

also by carrying out technology workshops and identifying

foreign entrepeneurs wishing to enter the market?

the real needs of the community.

A: The barriers Mexican entrepreneurs face are networking and accessibility to funds, and regrettably these two are

We held a competition in the Netherlands for start-ups

interlinked. Most of the funds are locked and very few can

and entrepreneurs that wished to participate in the project

reach them so entrepreneurs need the support of more

and form part of a new endeavour in another market.

experienced players to gain access. Obtaining funds can be

This way we could encourage the implementation of new

very complex for start-ups to untangle so many incubators

technologies and companies that wanted to develop

have coaching to help the process. However, after a start-

projects in these rural communities. Networking is crucial

up completes the incubator program it is left to its own

when creating strong business ties and we have over 300

devices and this can be daunting for the entrepreneur. It is

entrepreneurs in our sustainable technology network, all of

important to create a community of entrepreneurs so they

which are looking for opportunities to enter Mexico.

can share business experience and identify opportunities. International entrepreneurs, have to face new types of risks,

308

Q:What is the link you have discovered between

so in order to reduce these barriers they must establish ties

entrepreneurship and innovation?

with local players and this is where we step in.

SUSTAINABILITY AT THE HEART OF SME BUSINESS VISION Historically, large corporations have been viewed by

at long-term issues like energy costs, emissions, resource

the public as mammoths stomping their way to the top,

availability, and regulatory compliance. González explains,

consequentially leaving behind sizable ecological footprints.

“When speaking of sustainability we incorporate strategy,

In recent years, corporations have begun to tread softly as

energy costs, regulations, waste management, raw material

they realize that their global, overarching supply chains

availability, and resources. If a company wishes to have a

have been made vulnerable to climate risks and resource

place in the markets of the future it must incorporate this

constraints. As sustainability strategies are incorporated into

concept in its business plan.” Sustainability does not only

corporate culture, sights are turned to the less conspicuous

encompass risks, it also includes a plethora of opportunities.

consumers: SMEs. Suppliers and customers are increasingly

“The challenge now lies in the lack of education and

demanding incorporation of sustainability management

knowledge. While sustainability incentives exist, the question

across supply chains, and this is especially relevant for

lies in whether companies are aware of them.”

those SMEs that are looking to acquire contracts with large corporations. Sustainability is no longer a term that

Within this scope it is important to benchmark Mexico against

pertains exclusively to corporations, meaning that small

other developing countries. Countries like Brazil, India, and

and medium companies must disentangle themselves from

China made an impact in terms of carbon credit sales, while

the misconceptions that sustainability is an unnecessary

Mexico’s role was limited in comparison. “From 130 projects

burden. In fact, they must quickly realize that sustainability

issued in Mexico that obtained the credits, 80 of them were

must be fully ingrained in their business vision.

farms. This figure is insignificant when we compare it to

“It is believed that Mexico is one of the most susceptible countries to the consequences of climate change”

Jesús González Arellano, Advisory Partner of Corporate Government, Risk Management and Sustainability at KPMG

Individually, small players might leave behind slight traces of

those 5.1 million enterprises in the other markets,” González

an ecological footprint, but when measured as a whole, their

laments. There are relevant challenges from a social,

true impact is revealed. “There are 5.1 million organizations

economic, and environmental perspective, but there are also

in Mexico. Of these, 95.5% is comprised of micro and small

opportunities to be seized. “It is believed that Mexico is one

organizations, 0.3% are medium-sized, and 0.2% are large

of the most susceptible countries to the consequences of

enterprises,” Jesús González Arellano, Advisory Partner of

climate change.” It is not a matter of only comparing Mexico

Corporate Government, Risk Management and Sustainability

with other countries, but of recognizing the significant risks

at KPMG, calculates. These entities normally do not look

and opportunities for citizens over the long term.

Green ID is the international ecosystem for business innovation where startups and SMEs connect with investors, cities, governments and corporates to drive climate action by bridging supply and demand for new, smart and clean technologies.

Be part of the Green future. Where to find us: Mexico City, MX Rotterdam, NL 309

Visit us in: www.green-id.eu

FLEXIBLE SOLUTIONS THROUGH A DIVERSIFIED PORTFOLIO Having a strong name in a specific segment definitely

Thermion’s goal is to build a strong and profitable cash-

boosts a company’s reputation, but having a diversified

generating platform for its investors, for which it aims to

portfolio and making a name across the entire industry is

invest close to US$17 billion in debt and equity in Mexico

good for business. Thermion, a private equity firm focused

over the coming years. “The investment opportunity

on the power sector in Mexico, is currently building a

diversified IPP platform using both renewables and natural

approximately US$154 billion in electricity infrastructure,

gas-fired generation facilities. Since the start of 2013, the

US$78 billion in power generation, US$45 billion in

company has been developing approximately 15 projects

transmission and distribution, $16 billion in maintenance,

and is negotiating the acquisition of a few more. Thermion

and another US$15 billion in gas pipelines,” says Maingot.

focuses on a combination of proven power generation

In terms of energy sales, almost all will be supplied to

technologies, such as wind, solar PV, landfill gas-to-energy,

companies in the private sector based on traditional

and combined cycle power plants.

PPAs, although in some cases Thermion will also sign

Mexico

significant,

the

country

requires

“The benefit of renewables is that the energy prices are incorporated into the contract from day one and there is no volatility of the electricity price” René Maingot, CEO of Thermion

“Our energy mix is geared toward renewable power

long-term contracts with city and state governments, as

generation and is complemented by the combined

well as public institutions, including CFE.

cycle plants. We believe this provides us with a strong customer value proposition, as we are able to offer power

Maingot claims his company’s approach is to provide

in practically any electricity tariff segment,” explains the

practical and value-enhancing customer solutions. “It is

company’s CEO, René Maingot. Thermion’s mix is currently

easy to get caught up in technology, when the real focus

comprised of 67% wind, 22% solar, 10% combined cycle,

for us is the customer.” Thermion’s ideal client base consist

and 1% landfill gas-to-energy. Nonetheless, its mix is not

of customers with an annual consumption of 30-40GW;

static; it evolves with opportunities. “With time, the natural

nonetheless, the company is flexible when it comes to

gas component might grow to a larger percentage, but

working with clients with lower energy needs. For Maingot,

our focus will always be biased towards renewables. We

the aim is to win customers, not to discard them. Some

anticipate that as solar energy becomes increasingly

aspects he looks at when selecting clients and projects

competitive, it should also comprise a larger segment of

include credit quality, tariff ranges, and growth rates. Most

our mix.” Maingot says Thermion’s energy blend resembles

clients like the idea of a mix, as they feel more comfortable

that of many leading global utility companies and

with several plants delivering energy to their operations,

independent power producers, meaning a combination of

as opposed to just one. “In practice, there is not much of

renewables and natural gas-fired facilities.

a difference, given that most clients will not notice which source their energy comes from. What they will certainly

310

New power projects require that their owners ensure they

notice is the value of the electricity bill and whether they are

can produce at least 90% of the production contracted for

paying less than before or not. Regardless, we show them

the next 15-20 years before building the facility. Therefore,

pictures of the plants and sometimes invite them to visit

Maingot finds solar energy and landfill gas-to-energy

the sites,” Maingot explains. This approach allows Thermion

projects to be speedy solutions because of their small

to tailor the energy supply solutions to its customers’

size and rapid deployment. The company’s wind farms

needs rather than impose a solution on them. “Customers

are sizeable, most of them with capacities ranging from

like this aspect and see it as an integral part of our value

100-250MW. “The benefit of renewables is that the energy

proposition,” he boasts, adding that companies are unlikely

prices are incorporated into the contract from day one and

to sign a PPA in Mexico just for the sake of becoming green,

there is no volatility of the electricity price, so customers

so there always has to be an attractive savings component

know what they will be paying every year and they can

involved. Depending on the electricity source, the savings

plan with an increased level of certainty,” Maingot asserts.

Thermion offers could be anywhere between 7-20%.

NEW BUSINESS MODELS WILL THRIVE IN THE NEW MARKET For a firm specialized in integrated contract management,

business development plans. Now that CFE will compete

technical and financial consulting, and turnkey project

with other private companies, and private projects of all

development, the opportunities are endless in the

sizes will arise, Garibay says IAC needs to redefine its

aftermath of Mexico’s structural reforms. Antonio Garibay,

strategies and start following the lead of private players

Director General of Ingeniería Administración de Contratos

on a more regular and permanent basis, while trying to

(IAC), sees a lot of potential in Mexico’s renewed electricity

enter new projects at the point of conception.

market, as companies show rising interest in developing renewable energy projects, among others. With this in

Garibay says that CFE helped craft the first generation

mind, IAC is broadening its horizons by examining new

of regulatory mechanisms to foster renewables, and with

sectors such as solar, wind, biomass, and even nuclear if

the Energy Reform seeking to level out the playing field,

the possibility arises, since the firm can take advantage of

mechanisms such as contract models need to evolve.

its previous participation and experience won in a Laguna

He believes several aspects have to be addressed in the

Verde retrofit project a few ago. Garibay says his company

regulation, such as market demand, production costs, TIR

is also looking to delve deeper into cogeneration and

analyses, and environmental impact assessment. “In the

combined cycle plants. After all, IAC was involved in the

case of renewables, which tend to be in isolated areas, it will

first private cogeneration projects in Mexico. According

be crucial to define the technical and legal considerations

to Garibay, the transmission and distribution markets

and rules for interconnection to the grid, and these should

for EPC projects have traditionally been dominated by

be included in the contracts.” For Garibay, it is important

European companies, but now he is noticing players from

to clarify how energy will be integrated into the grid so

other countries wishing to enter the local market. “We are

that companies can enjoy the same interconnection and

aiming to work with them and offer our local expertise

dispatching possibilities.

and knowledge. One of the competitive advantages of IAC is its vertical integration. We have the technical,

A popular business model in the renewables energy industry

legal, environmental, and financial aspects under control

is to develop a project and sell that developed project to a

and we understand how to navigate this complicated

buyer under a stock or asset purchase and sale agreement

environment.”

(PSA). Garibay explains that a company’s desire to sell

“New schemes in Mexico will provide new criteria and will incorporate variables into the general analysis for selling and acquiring assets in the industry” Antonio Garibay, Director General of Ingeniería Administración de Contratos

For Garibay, important projects are not defined by size,

or buy a legacy project does not rely on the new laws or

but rather by their transcendence in terms of technology,

new schemes, but rather on how the company wishes to

environmental, and social impact. “I can think of a waste-

be positioned in a particular market and how it can use the

to-energy project of less than 1MW that incorporates

features of the new schemes and new laws to do that. For

interesting technology and has an evident impact on

example, a natural gas transporting company may wish to

the adjacent communities. Geothermal projects are also

buy a legacy project in order to incorporate generation into

beautiful in terms of where the energy originates from and

its business portfolio model. Garibay recalls that there has

the complex technology that they incorporate,” Garibay

been a shift of paradigm in the electricity industry, resulting

shares, adding that IAC likes to be involved in the early

in more consolidation around the world. He claims the

stages of a project in order to help select the financing

acquisition of Alstom Power by GE, and joint ventures created

schemes and the technology.

in the renewable energy industry herald a diversification within the industry, and as a result, the market will consist of

IAC has kept a close eye on CFE in order to secure business

small and large companies with differing business strategies.

in Mexico. The Mexican utility publishes its future projects

“New schemes in Mexico will provide new criteria and will

according to its power generation and distribution needs,

incorporate variables into the general analysis for selling and

enabling IAC to approach CFE and its contractors with

acquiring assets in the industry,” he asserts.

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SOCIAL CONSCIENCE REQUIRED FOR SUCCESSFUL PROJECTS LEOPOLDO BURGUETE STANEK Partner at González Calvillo Abogados Q: How will the shifting energy landscape impact the

might request public hearings, which differ from public

healthy development of renewables?

consultations. Some banks even require compliance with

A: One of the main objectives of these Reforms is to allow

the Equator Principles for financing projects over US$10

private investment in energy-related sectors in order to

million. The idea is to involve the community and for the

foster growth. The initial idea behind this new legislation

community to be aware of the projects and their scope.

was to promote an energy transition from conventional electricity generation to renewable and clean energy

What González Calvillo Abogados has been doing in public

sources. Yet this new framework seems to favor conventional

consultations is identifying opinion leaders and the opposing

power generation instead of renewable or clean sources.

parties to find out why they are against the project. Such

However, this landscape provides an opportunity for foreign

methods help in preventing possible confrontations later on.

investors to participate in the development of renewable

I would say projects fail not because of a lack of alignment

energy. Legal certainty is the most important aspect

between developers and ejido members, but rather between

because without a strong legal framework, incentives

ejido members and opinion leaders. Once we identify them,

cannot flourish. The legislation motivates public companies

we talk with them and we make an executive summary of the

to increase competitiveness, and consumers also want

project and its possible economic, social, and environmental

these players to be more environmentally friendly, so this

impacts. We create questionnaires and ask the respondents

will foster changes in the short-term.

if they are familiar with similar projects and their concerns regarding their development. Once we obtain the information,

Q: How does Mexico’s new legislative framework compare

we answer the most frequent questions and concerns during

with that of other countries?

a public hearing. In addition, having records and information

A: Mexico is not creating brand new legislation, but rather

allows developers to comply with the Equator Principles.

basing the Reform on best practices from other countries. When comparing the Mexican environmental regulation

Q: What is the best way to avoid social problems when

with that of the US, there are similarities. However, Mexican

developing projects when working with ejidos?

legislation is stronger and stricter than that of the US because

A: It is important to educate and inform both ejidos and

Mexican law has many more formalities. The management of

developers. Sometimes foreign companies, particularly

hazardous waste is one of the areas in which the protocols

investors from the US, have difficulty understanding the

differ greatly. There are some forms of waste materials

concept of an ejido. Investors need to be educated on the

that are not considered to be hazardous in the US, but in

obstacles they will face and the ways to navigate them while

Mexico they are, which can be problematic for companies

evaluating possible social impacts. Developers must make

that want to work the way they do in the US. Mexico has

it clear that projects involve investment and developers

a lot of restrictions and any activity that has a potential

are looking for their returns on investment. Companies

environmental impact needs a permit. This is highlighted in

have to detail how many jobs will be created and who

the energy sector, where a set of authorizations need to be

will be eligible for those jobs. Unfortunately, the bulk of

obtained before any project or activity begins.

the labor these projects need is in the preconstruction and construction stages. The subsequent stages include

312

Q: What are your recommendations for companies that

operating very sophisticated machinery, which requires

want to develop wind projects?

20-30 people with specific technical skills. These people

A: If the project is going to be built on an ejido, public

can receive the necessary training to continue working in

consultations are essential. González Calvillo Abogados

later stages of the project. The important aspect of these

is frequently hired to carry out public consultations

projects is that they are going to last for a couple of years,

and public hearings and we have 20 years’ experience

and it is essential to promote the ongoing construction

in this area. The corresponding environmental agency

work, which will promote the local economy.

MUNICIPALITIES IN THE FIGHT AGAINST CLIMATE CHANGE Edgar Villaseñor, Regional

problem Villaseñor identifies is that SEMARNAT distributes

Secretary

Mexico,

funds but it does not ask for specific project plans. In order

Central America, & the

to address the problem of inefficient allocation of funds,

Carribbean

Villaseñor believes the government should ask for strong

expects

for at

the

implement

ICLEI

time

project proposals prior to releasing the money for funding.

renewable

projects in municipalities

Over the last few years, one of the most important projects

to decrease as a result

ICLEI has carried out is the Municipal Climate Action Plans

of the Energy Reform.

(PACMUN), in collaboration with the National Institute

Furthermore,

also

of Ecology and Climate Change (INECC) and funded by

anticipates larger funds

the British Embassy in Mexico. In the PACMUN strategy,

destined

local

local governments and different actors from civil society

governments for these developments. If these conditions

carry out climate change action plans. In turn, ICLEI offers

are met, ICLEI could fully unleash its potential to help

training and technical assistance. “At the moment, our

develop renewable projects at the local level. ICLEI is

criteria are focused on establishing a strong public policy,

established in many cities across the world where it

for which we review information alongside the INECC using

works on implementing activities, training programs, and

IPCC protocols.” Nowadays, PACMUN is benefiting more

preparing relevant information to assist cities in renewable

than 300 municipalities and more than 25,000 people are

projects. In Mexico, it has not been easy to replicate this

involved in the project. “The climate change strategy was

success because of cumbersome procedures.

only focused at the state level, but local authorities did not

Edgar Villaseñor, Regional Secretary for Mexico, Central America, & the Carribbean at ICLEI

he for

have the tools to enable resilience in preparing projects, In Mexico, municipalities do not collect as much tax revenue

until ICLEI proposed PACMUN to the British Embassy,”

as they need, leaving them dependent on money from

details Villaseñor. This project, alongside Mexico’s General

the federal government. The main barriers hindering the

Climate Change Law, encouraged municipalities to create

implementation of renewable practices are a lack of funds,

public policies in order to receive climate change funds.

time, unfamiliarity with the rules, and the short political terms for municipal authorities. “This is a big problem when

A first step for municipalities is to identify how vulnerable

trying to develop renewable projects and this will become

they are to climate change at the social and economic

more apparent in the next years if the distribution of

levels, and secondly, a greenhouse gases inventory must

funds does not change,” says Villaseñor. “Fortunately, new

be carried out. Villaseñor explains that local governments

opportunities have risen thanks to the interest of private

often spend a lot of money on infrastructure, but every

companies wishing to invest in local renewable projects.”

year the same environmental issues arise and result in great

Now with the Energy Reform, solar and wind projects

economic losses. If local authorities have a strong strategic

represent promising opportunities. ICLEI is in direct

plan, they can reduce this loss and improve efficiency. Of

contact with mayors and public officials, and trains them in

the 330 municipalities carrying out climate action plans in

different aspects of sustainability. “We have to be very clear

Mexico, 61 have a complete public policy and are trying to

that sustainable development does not only take place in

implement the projects they have included within it.

the economic and environmental spheres, but also in the social sphere,” details Villaseñor. For this reason, ICLEI’s

Villaseñor expects to be working with close to 500

advises municipalities to look for different options rather

municipalities by 2015. In addition, a lot of private companies

than focusing on just one. “It is likely the project with the

want to implement this program, for which they are actively

best economic proposal will be chosen, although it may

looking for funding and local support. Today, not only

not be the best one in terms of sustainability. We must

government bodies, but civil societies are recognizing the

push for projects that include social and environmental

impact of PACMUN at municipal levels. At this point, it is

issues rather than exclusively involving economic gains.”

uncertain how many PACMUN projects ICLEI can continue to fund with its own funding. ICLEI will approach different

A second opportunity the Energy Reform presents is

organizations to raise funds before targeting specific

energy efficiency at a municipal level. At the moment,

municipalities that would benefit the most from renewable

ICLEI has a lot of projects in municipal public street

energy. “We already have success stories from countries

lighting and electricity, like the PEPS Mexico Program

like India and Brazil and that knowledge can easily be

that promotes public procurement in the public sector. A

implemented here,” asserts Villaseñor.

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CHARACTERISTICS OF THE SOCIAL IMPACT ASSESSMENT JAIME MARTÍNEZ Business Development Director of ERM Q: What new services must you launch, taking the energy

but once they pick up on the first signs of true interest in

transition into consideration?

engaging properly then a project can move forward.

A: The aftershocks of the Energy Reform are beginning to be felt and we have been preparing ourselves for some

Q: To what extent can consulting services for engaging

time now. As we transition from the old scheme to the

with communities impact the increased development of

new one, there are particular factors that are gaining

projects?

importance such as the Social Impact Assessment for

A: One of the key aspects that cannot be disregarded in the

energy projects. ERM has been providing services in these

Social Impact Assessment is the definition of the direct and

areas and it will gain momentum, which is why we have a

indirect areas of influence of a project. A company should

designated group for tackling social aspects. In addition

not limit the impact area to the footprint of the project

to prepared staff, we are active in contacting relevant

because the impact typically goes beyond that. Firstly, ERM

authorities such as the Ministry of Energy to facilitate this

helps determine the areas of influence and identify the key

transition process and share our expertise in developing

stakeholders in the region and, once this is mapped out,

the social guidelines of this new era. The Social Impact

plans for engaging with key players can be designed based

Assessment and ILO Convention No. 169 are two factors

on the assessment of the social context. It is important

that will impact the industry and we are well positioned to

that companies consider all relevant stakeholders in the

support our clients in these areas.

communities in order to define the social strategies and investment plans. These investments must be allocated to

Q: How successful have companies been in upholding

areas of real need so these resources can have a positive

their commitment to benefit indigenous communities

impact on the development of the communities.

with their projects, and what are the main barriers to be addressed for improving these practices?

Q: How does the approach to social management differ

A: It is important to distinguish between general social

between regions in the country and the type of technology

aspects and indigenous communities. Currently, there is

to be implemented in the project?

some confusion and uncertainty in the industry regarding

A: Companies are learning that doing things right from

the definition of what constitutes an indigenous community.

the outset pays off. A company in Tamaulipas developed

When it is clear that a project must liaise with indigenous

a wind farm on ejido land and it implemented a proactive

communities then it can begin to address the issues related

approach by including the ejidatarios in the process.

to ILO Convention No. 169. This is an area of concern for our

One of the conditions they negotiated was to pay above

clients so we are creating a dialogue between authorities

the average in land leasing and the ejidatarios became

and private sector representatives so these issues can be

stakeholders in the project. This approach had a positive

addressed with clarity. As a result, we have seen a flexibility

impact in the development and operational stages of the

and willingness from entities such as the Ministry of Energy

project, since ejidatarios are now involved in providing

in helping players respond to these social aspects. We have

information about malfunctioning equipment. We help

seen more activity from companies preparing their social

other wind developers adopt best practices and engage

management strategies and the main driver behind this

early by organizing group meetings with community

change is the level of maturity in the industry.

members and defining the message they wish to transmit. There

314

are

many

factors

that

influence

the

whole

Companies have learnt that the best way to face social

development of the project, such as the location and the

implications of the projects is to engage as early as possible.

biodiversity. Proposing a power plant in Chiapas, where

Once the communities perceive the openness, proactivity,

there is more biodiversity and where the impact may

and transparency of the company then a level of trust is

be bigger, differs from developing a project in the north

created. At the beginning, communities can be defensive,

of the country, where the environment is more arid and

desert-like. In situations like this, these assessments help

regional Social Impact Assessments to potential bidders

companies make the right decision before they commit

and subsequently companies would be obliged to carry

a significant amount to the development of the project.

out local assessments. There will be a new agency

Solar and wind are technologies that require a lot of land

called ASEA involved in the environmental assessment.

and developers have to scout for regions where there is

International best practices dictate that the environmental

real potential. This means that developers are more likely

and social assessments have to be conducted in parallel

to be familiar with carrying out the environmental and

and presented in a document called ECHA; however, in

social assessments before breaking ground.

Mexico these must be separated and players have to become accustomed to this peculiarity.

Q: What are the challenges companies have pinpointed with the implementation of ILO Convention No. 169,

Q: How do ERM’s integrated solutions help clients tackle

especially in how to perform the public assemblies?

all the obstacles encountered in the life cycle of an energy

A: Companies must conduct public and open assemblies

project?

prior to the development of the project in accordance to

A: ERM offers integrated solutions in order to provide

international standards. They cannot start measuring and

support throughout the entire life cycle of a project. In the

assessing the site without these consultations, so they have

startup phase we ensure that the facilities comply with

to participate in early engagement with the communities

safety and security regulations, and that the plant operates

and thoroughly document this. The aim of this early work

in accordance to Mexican regulations. After 20 or 30 years,

is to identify potential red flags that might pop up and

a power plant is decommissioned and the company must

address them as soon as possible. When the secondary

bear in mind all the environmental and social implications,

legislation was published, the players in the industry

meaning that sometimes Asset Retirement Funds are

knew that the Ministry of Energy would be involved in the

necessary. In the past we would offer individual services

Social Impact Assessment, yet it was unclear what role

ranging from regulatory compliance to environmental

the agency would play. It was only later that companies

remediation, now our approach is holistic and it suits the

understood that the Ministry of Energy would provide

new energy market.

315

| VIEW FROM THE TOP

LINKING HUMAN CAPITAL AND COMMUNITY DEVELOPMENT FRANCISCO ACUÑA CEO and Founder of InTrust Global Investments Q: What are the basic elements of the Applied Leadership

leadership because this concept entails developing skills

Program in Renewable Energies and Energy Efficiency in

such as self-confidence and creating alliances, and some

Mexico?

of these professors are confined by the Mexican education

A: This program’s core characteristic is that it enables

system to the point that they feel trapped. The education

sponsors to partner with individuals within indigenous or rural

system has created an inertia in which professors are

communities, who have commonly mistrusted traditional

involved in many activities that are not at all linked to

developers. At InTrust, we realized that energy could be the

the development of the country. However, the majority of

best vehicle for building community engagement, while also

professors in Mexico possess the skills and passion to lead

lowering the credit and political risks within projects, making

change in their classrooms and beyond, representing one

them much more attractive for all stakeholders. The first step

of Mexico’s great potential successes.

was to acknowledge and study the growing tension within these communities in Mexico, leading to the discovery of

We thought it would be unique to train these professors and

an inherently economic issue that directly correlates with

engineers to think differently about their role as developers

communities’ lack of active participation in projects. As a

while staying in school. A similar approach is used by many

result, while projects are creating a cluster of wealth around

universities around the world, where professors are sponsors,

the country, the communities surrounding them still live in

consultants, promoters, or developers of strategic projects

impoverished conditions.

that bring more wealth and development to their communities. The main eye-opener for Mexican teachers was learning that

We found that three main actors in rural Mexico have

professors in other universities were encountering the same

the ability to act as a bridge between communities and

issues, which included dealing with bureaucratic procedures

developers: priests, physicians, and teachers. While political

and facing obstacles to the development of projects, such as

actors change every three years, these actors are consistently

teaching long hours and writing several papers. This mirror

present, so providing them with the skills to connect the two

with Harvard’s professors created an empathic link, which

demographics is vital to the program’s success. The main

was a key motivator for Mexican teachers.

stakeholders we are able to train are engineering professors, so we mapped out their locations and established who had

The program did not train the professors to become

raised either public or private funds to develop projects,

financiers, developers, or social activists; it trained them to

representing the first building blocks of the program. We also

be able to engage with communities and foster community

partnered with Harvard University’s Center for Health and the

development around green energy initiatives, as well as

Global Environment, as well as with international and local

to understand the banks’ lending requirements and what

investors and developers, before inviting the professors to a

developers look for. The program trained them to create

graduate program supported by the Ministry of Energy. The

incentives within their universities so they could become

program, which took place in Sonora in the north, Morelia in

hubs of energy and social innovation within rural Mexico.

the central region, and Yucatan in the south, was attended

According to one of our studies, Mexico is capable of

by participants from all Mexican states. The experience has

achieving a significant GDP increase in rural productivity if

been rewarding and a lot of universities are requesting more

5% of its professors can support strategic projects without

chances to participate, fulfilling our desire for universities to

leaving academia. The country has one of the largest

see themselves as allies to development.

numbers of engineering professors in the world, so we need to harness that 5% and seize the opportunity.

Q: How is the program changing the teachers’ attitudes

316

towards project development?

Linking Mexican professors to their counterparts has allowed

A: The program is focused on leadership, business

them to see the necessary process during negotiations

development, and energy. We chose to concentrate on

with stakeholders, helping them to understand that there

is a critical path to take if they are to increase their chance

The biggest opportunities are with communities that are

of success. This was transformational for the professors,

able to make a project more competitive by either working

as they were not aware of what they could do under the

for the project, being on the board, or training the next

new rules that emerged from the Energy Reform. The nine-

generation to eventually scale it. This is just starting to

month project has helped them to upscale their ideas and

happen in Mexico, with Oaxaca presenting the most

potentially turn them into real projects. We also introduced

extreme example since there is already a large installed

them to investors willing to work with cooperative systems,

wind power capacity in the state, but most of the human

which have expanded their perspective. Since InTrust

capital working on these projects comes from abroad. Our

takes care of training them to play a more prominent role

challenge as Mexicans is to invert that reality.

in organizing their communities, these professors should focus their innovation on energy developments that have a

Right now there is an opportunity for sponsors and

significant social and financial impact.

developers to look for partnership opportunities in Mexico, in which

professors and universities can help

Q: What kind of communities is InTrust Global targeting

make energy projects more competitive while fostering

in its program?

community

A: We are focusing on communities are ready to move

getting the locals to do some of the work. They will not

forward with projects, or are still hesitant about the idea of a

immediately operate the wind farms, but maybe they

project but are organized and willing to listen. Communities

could do so in the second or third project if trained

that are not well-organized or are in extremely impoverished

properly, making them part of the real value chain. InTrust

conditions require more dedication. These communities

is now negotiating a second phase of the project, as a

do not want to lease their land because they want to leave

lot of institutions want to replicate the model and take

something to their children. Those are the key targets for an

it to the next level. Ultimately, the Applied Leadership

intervention for community development projects because

Program in Renewable Energies and Energy Efficiency in

sometimes they can pledge land and capital, and clean

Mexico is a win-win situation for investors, communities,

energy and agriculture initiatives can be their way out.

and universities in the country.

development,

lowering

credit

risk,

and

LUCRATIVE BRIDGES BETWEEN CANADA AND MEXICO About seven years ago, Nova Monarca began implementing

building commercial links. “At Nova Monarca, we believe

renewable energy projects in Canada. “Our partners,

that the proper implementation of the Energy Reform will

Monarch Energy and Sunfire Energy, are the largest solar

lead to community development and mechanisms that will

installers in the country, and we figured if we could do it in

improve the wellbeing of millions of people. It is an exercise

the snow, we could do it in Mexico,” asserts Brad Donovan,

in building commercial connections, but the end result

President of Nova Monarca. The company’s typical

should also generate an important cultural exchange,”

installation consists of rooftop systems for commercial

Donovan expresses.

facilities, and Donovan is eager to capitalize on Mexico’s natural resources. “If you look at California, there are 2,000

Donovan believes that many Canadian companies are still

solar farms, but just across the border, there are only two.

largely confused by the Mexican renewable energy industry.

Therefore, we see the opportunity to help Mexico realize its

That is why Nova Monarca is working with ProMéxico,

potential.” He believes Mexico’s solar energy industry has

Bancomext, and other trade associations and agencies in

not taken off because the market has only recently been

order to provide clarity and understanding, and in order to

deregulated. Now that the legislation has changed, it is up

forge a clear path to project implementation and finance in

to the industry to capitalize on this market.

Mexico. By working through Scotia Bank, Nova Monarca is able to provide extremely inexpensive insurance and warranties

In Donovan’s view, the relationship between Canada and

to Canadian manufacturers and exporters. “The Canadian

Mexico requires communication because the Canadian

banks, like the Mexican banks, are strong, and the more

press and the Canadian government have misinterpreted

collaboration we can foster between these corresponding

Mexico in many ways. One way to promote and protect

institutions, the better,” comments Donovan and adds that

Mexico’s reputation in Canada, according to Donovan, is by

this is a key element of Nova Monarca’s mandate.

317

ENERGY SECTOR’S SUCCESS DEPENDS ON DOMESTIC TALENT In order for emerging economies like Mexico to sustain

to fill the gaps in their experience so they can become

growth and development in the wake of the Energy Reform,

global leaders in the Mexican market,” he remarks.

substantial enhancement of human capital is required. If

“However, compensation structures are still lacking.”

this is handled correctly, the country will inevitably attract

Regardless of these factors, there are very few countries

more investment. As the energy landscape continues its

which can lay claim to a market as open as Mexico’s, while

metamorphosis, executives within the sector are doubtful

also providing so many kinds of energy sources, from

about finding the right leaders to address the growing

renewables to hydrocarbons, which presents a significant

issues and opportunities confronting the sector. For Lewis

advantage for the sector.

Adams, Principal in the Mexico City office of Heidrick & Struggles, “Mexico does not have the capacity to cover the

For many developing and emerging markets, despite

sector’s future demand for specialized human capital. It

their growing and relatively young populations, the lack

is likely that there will be a huge deficit within all levels of

of available talent is one of the biggest obstacles to

expertise, not only in leadership and management, but also

future growth. Many people are working in Mexico with

in engineering and technical positions.” As a provider of

considerable expertise on renewables, but the majority

senior-level executive search, culture shaping, and leadership

of these are expatriates with more than a decade of

consulting, Heidrick & Struggles aims to play a fundamental

experience. In the short-term, the country will have to

role in mobilizing this necessary talent. By following the

continue importing talent, but at the same time, it needs to

current trends impacting the renewables sector through

properly invest in younger talent to encourage knowledge

its Alternative and Renewable Energy Team, the company

transfer so that domestic talent can eventually take the reins.

obtains the knowledge required to help Mexico adapt and

This challenge will demand massive financing for education

thrive through its transitional period in this industry.

and training, as well as increased talent planning within

“Mexico does not have the capacity to cover the sector’s future demand for specialized human capital. It is likely that there will be a huge deficit within all levels of expertise” Lewis Adams, Principal at Heidrick & Struggles

Adams knows that in order to be successful in Mexico,

companies and other measures designed to attract and

companies have to understand the domestic market, the

retain both domestic and international talent. “We want to

culture, and the local procedures in the country. “As Mexico

contribute more in terms of attracting talent, ensuring good

is not able to satisfy the human capital demand, Heidrick

succession plans are in place, transferring more knowledge,

& Struggles will be looking for international candidates to

and helping Mexican companies develop the cultural shape

fill the executive voids while the Mexican energy market

needed to succeed on the international stage. To do so,

grows,” he explains. “By communicating with partners

we are building strong links in locations where renewable

and various sector leaders the company is able to identify

energy is more developed so we can eventually bring more

global trends and practices that need to be understood

skills and expertise from those areas,” comments Adams.

by all executives operating in Mexico.” Although Mexico has started to move away from hiring expatriates, Adams

The risk of talent shortages is exacerbated by the fact that

predicts that this trend will return as talent becomes more

Mexico is entering a new stage in its development. “Mexico

scarce. In terms of the energy sector, potential candidates

still only represents a relatively small part of the renewables

are expected to come from Venezuela, Colombia, and the

side of our organization, but that will soon change,” Adams

US, although attracting the latter will be difficult because

reasserts. “In order to succeed in today’s competitive

of the country’s natural gas and energy boom.

business

environment,

companies

must

aggressively

manage their talent to ensure the right people are in the

318

Adams considers that opportunities exist in terms of

right place at the right time. We want to work directly with

growth; multinationals will attract more investment,

Mexican companies to recruit, develop, and retain talent

motivating growth from local Mexican companies. “We

to help our clients build transformational leadership teams

are focusing on how to develop Mexican leaders and how

designed for seizing opportunities in Mexico.”

| VIEW FROM THE TOP

ELECTRICITY SECTOR OPENS DOORS TO INVESTORS LEFT: Karen Sainz, Energy Desk Associate at Baker Tilly Mexico RIGHT: Raúl Aguilar, Energy Desk Associate at Baker Tilly Mexico

Q: How do the core activities of Baker Tilly’s Energy Desk

Q: In your eyes, why is the electricity sector the truly

help its clients successfully develop projects?

revolutionary element of the Reform and where are the

KS: The Energy Desk can be thought of as a business

areas of opportunity for newcomers?

developer. We have a highly diversified client portfolio, as

KS: The Energy Reform’s focus on the oil and gas sector

we work with experienced industry players and newcomers

might have created the most hype, but for me, the truly

alike. These people put their money in our hands and ask

revolutionary element of the Reform is the one related to

us how to move their money in order to create a business.

electricity, which pushes the development of renewables,

The Energy Desk can also help customers who are looking

facilitates the entrance of investors, and creates a level

to enter a tender by assisting them with all the necessary

playing field. I have noticed a particular concern regarding

documentation and steps, as we have the diversified

the way clean energy certificates will work. Regardless,

professionals needed to accomplish this. Our highly

companies are under the impression that the electricity

interdisciplinary team has outstanding strengths in finance,

sector can be more profitable than oil and gas. Investors

engineering, and project management. The idea is to be able

are aware that now is the right time to jump on board, and

to develop an entire project from scratch until all agreements

those who do not have previous experience in energy are

are closed with the EPC companies, which entails fiscal,

looking at electricity, mainly clean energy sources.

accounting, and legal consulting services. In addition to staff members with experience in lobbying, we also refer to

RA: Investment levels required in the electricity sector are

external professionals according to a project’s requirements.

lower, thus more investors are attracted. The Energy Reform represents the beginning of a necessary change that was

Q: How can the integrated services you provide help ease

not carried out quickly enough. The Mexican oil and gas

the challenges that arise in the development of energy

industry has been characterized by the State’s historical

projects?

dependence on oil revenues and PEMEX’s lack of resources

RA: The fact that our team consists of experts in financing,

for future investment. Deepwater was never an option

law, and fiscal matters enables us to advise firms in a

until Cantarell started declining. The great contribution of

way that helps them streamline registrations, contracting

the Energy Reform is its power to enable investment in

procedures, credit approvals, and access to financing for

alternative energy sources, because this is an area that will

their projects. Since the Energy Desk helps clients design

see plenty of activity, job creation, and competitiveness;

their projects from their conception until the final stages,

this is where Mexico is aligning with the rest of the world.

we seek the support of engineering firms to provide turnkey solutions. We are also present in the public sector,

Q: Which other sectors are the low-hanging fruits for

where we advise government organizations in areas such

investors and how should they seize the opportunities?

as public accounting or tax collection.

RA: If we were to advise investors on where to allocate their money in Mexico’s energy sector, I would suggest natural

Q: What are your clients’ most common questions and

gas pipelines, cogeneration plants, and similar projects.

concerns regarding the energy sector?

Mexico is lacking when it comes to infrastructure for natural

KS: The first thing worth pointing out is that the electricity

gas transportation, which is much needed now that the

sector is drawing our clients’ attention more than oil and

country will increase imports from the US. This situation

gas because the latter is being seen as an overcrowded,

creates plenty of opportunities for investments and project

slower, and more complicated area. Opportunities in oil and

development. We are keen on mini-cogeneration because it is

gas are limited because reservoirs must be identified and

an effective starting point for obtaining cheaper energy, and

then companies have to begin exploration drilling activities.

renewables are a promising sector. We are excited about the

Oil and gas is a less inclusive market due to the technology

development of these projects, and we currently have a client

it demands in areas such as deepwater fields.

who is looking to build a 100MW solar photovoltaic park.

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| VIEW FROM THE TOP

REMOVING UNCERTAINTY FROM THE INVESTMENT EQUATION EDUARDO REYES Director of Energy and Infrastructure Strategy at PwC Q: How did PwC participate with the Ministry of Energy

embroiled with commodity risks such as natural gas, so they

regarding the National Energy Strategy 2012-2027?

opt for renewables. There are others that have a higher risk

A: We began working with the Ministry of Energy,

profile and wish to enter commodities because they see

development banks, key stakeholders, and power sector

more value in these investments. By diversifying the energy

associations like AMDEE and AMEXHIDRO as early as

portfolio a country can mitigate risks that arise when the

2008. We have worked tirelessly in revealing the economic

price of natural gas jumps. Apart from power generation,

potential of renewables in Mexico given the competitive

there are several opportunities in transmission since, until

natural resources that are available. It is important to

now, CFE was the owner of the assets, and now companies

note that Mexico has a unique profile compared to other

can play a hand in developing the transmission infrastructure.

markets, such as Europe, where there are feed-in tariffs and subsidies for renewables. Mexico has a market-driven

Q: How do you think tariffs will be set during the initial

philosophy, so the inclusion of renewable resources must

years of the wholesale electricity market?

come without hampering the competitiveness of the

industry.

transformation in the energy mix, more combined cycles

During

the

first

few

years

will

witness

will enter the market, and expensive fossil fuel power Q: Do you believe CELs will work as planned or has their

plants will be decommissioned. In the coming six years,

implementation been too hasty and convoluted?

the price will be linked to the value of natural gas, and

A: In all fairness, these certificates are complicated

ultimately the market will be based on economic merit and

mechanisms to implement and control and this has

the most competitive technologies. After the zero price

been made evident in other markets across the world.

technologies are dispatched, then come the cheaper ones.

The situation Mexico presents is not unique and the

In the short term, market natural gas and renewables will

uncertainty is normal in this process. The value of the

be competing head on. The natural market for renewables

clean energy emissions in Europe practically dropped to

is not envisioned to enter in the short-term market, but

zero, while in others the prices were so high governments

rather in the long-term market, through tenders that have

had to intervene. The certificates will begin to represent

fixed-price contracts for the coming 20 years.

value in 2018, so it is too soon to make a judgment. In the first phase, the market will be driven by long term tenders

that will occur in October 2015 for clean energy. These

decentralized. How will this momentous shift impact the

Energy

3D:

digitized,

decarbonized,

and

contracts will last for 15 years, while the certificates for

evolution of Mexico’s electricity industry?

expire after 20. The contracts will be with CFE and having

A: One of the advantages of being one of the last countries

the parastatal as an off-taker reduces the risks in the long

to implement a reform in its energy industry is that it can

term contracts. One of the biggest risks of the CELs have

identify best practices and avoid mistakes. This utility

had in the past is the price volatility, but if the mechanisms

model transformation can be attributed to two factors.

begin with long-term tenders, then there is a prediction of

The first is the transition to distributed generation where

the price and as such the volatility is reduced.

the power generation is closer to consumption points. This trend is somewhat underdeveloped in Mexico, so we are

320

Q: What advice would you give players wishing to invest

working on creating a national solar distributed generation

in the electricity industry?

plan in order to boost investment in the sector. The

A: The best strategy in the current climate is diversification

other trend is market driven, and renewables in Europe

and we are working with public and private sectors alike

increased with the support of feed-in tariffs and this has

in identifying investment opportunities in both fossil fuels

forced utilities to adapt in order to survive. Here in Mexico,

and renewables. It all depends on how companies identify

there are no feed-in tariffs so the utility model will not be

their risk profile, since some companies do not wish to be

compromised in that way.

| VIEW FROM THE TOP

OVERCOMING FINANCIAL HURDLES WINS INDUSTRY GROWTH JESÚS GONZÁLEZ ARELLANO Advisory Partner, Corporate Government, Risk Management and Sustainability at KPMG Q: Since the Energy Reform, what evolution have you seen

A: If we think about M&As in the Mexican market, we see

in the risk profiles for renewable energy projects among

that they have developed considerably over the past ten

commercial banks?

years. Many Mexican companies have been acquired, and

A: The Energy Reform has brought about many opportunities

this is mainly due to globalization. Mexican companies are

for renewable energy projects, yet this surge of projects

attempting to take advantage of the new opportunities,

that we see cannot be attributed only to the enactment

and we have seen SMEs come together to form strong

of the Reform. When we think about the development of

groups. The current mindset is the acquisition of strength

a renewable energy project, we must come to terms with

to consolidate market positioning or to become attractive

the fact that it takes at least five years for it to fully develop.

to potential buyers in the near future. Local organizations

The Reform was not even in place when companies took the

can prove their expertise and business viability, which

plunge and started to invest in Mexico.

might be attractive to investors from more mature markets. Finally, Mexico has over 120 million potential consumers.

We are working with several banks and measuring the

There is definitely a market out there, and this is something

different methods to attract investors. One of the trending

investors always appreciate.

topics we have identified is the creation of integrated packages that are comprised of financing, compliance,

Q: On the fiscal side, how can development and

business strategy case, and even infrastructure. In the

commercial lenders come together to help the solar

past, financing was a difficult barrier for renewables due

energy sector grow?

to the fact that the business models for certain financial

A: Investing in solar energy represents a significant

organizations are not designed for the peculiarities of

commitment and a significant investment in terms of

renewable energy projects. For example, some projects

technology and infrastructure. Based on feedback, small

have a ROI of 20 years and many financing models are

companies do not see enough incentives in place to invest,

conceived to generate an earlier return. Funds have more

and at the moment it is cheaper for them to remain as

flexible deals in terms of what they look for in a project

they are. Large corporations can carry out these types of

and the type of investments that can be made over the

investment decisions, but SMEs cannot afford to make an

long term.

investment that will involve a return in ten years’ time. While there might be an accelerated depreciation in place, this

Q: How will the government incorporate new players to

is not enough to push the solar sector forward, especially

more easily meet climate change targets?

when we think about the ROI.

A: Mexico has done well in the disclosure and publicity of the Reform. We worked with several international enterprises

Q: What role will KPMG play in helping the sector develop?

in 2014 and they are excited to take advantage of the

A: KMPG must quickly adapt to the changes seen not only in

opportunities in the market. With a developed country,

Mexico, but all over the world. The stock market, investors,

opportunities are usually thin on the ground. Here, there are

and regulations are changing, and we must remain up to

plenty of chances to be creative and forge new markets to

date. Through the in-depth research we carry out, we will

cater to the expanding needs. The government has been

be able to continue advising our clients on how to improve

showcasing these opportunities abroad to potential foreign

their business in terms of compliance, financing, efficiency,

investors, but now it must guide these new investors into

and operations. Our broad communication network in both

Mexico formally, clearly, and with transparency in order to

the public and private sectors enables us to venture into

help them successfully implement their projects.

the complexities of the Reforms. We have multidisciplinary teams focused on identifying opportunities and risks in the

Q: To what extent will the Mexican renewable energy

Reform, as well as in any other sustainability matter that

market be a prime market for M&As?

can be of value to our clients and Mexican society.

321

SUSTAINABLE PRACTICES ENSURE SURVIVAL “HSBC has been around for 150 years, and we believe

that HSBC has been analyzing the possibility of signing a

that if we want to be around for another 150 years, we

PPA to become an off-taker of renewable energy. “HSBC

need to be sustainable.” The words of Miguel Ángel

has an important alliance with KPMG, which is helping us

Laporta, Director of Corporate Sustainability for México

make this deal, and we are evaluating how much of our

and Latin America at HSBC, highlight the importance

energy consumption will come from clean sources.”

of sustainable practices in the bank’s corporate culture and daily activities. For HSBC, sustainability means

Becoming an off-taker would make sense, considering

taking care of its operations before looking after its

HSBC’s participation in the energy sector. “It is important

investments. In this sense, the bank has implemented a

for HSBC to motivate its customers to participate in climate

campaign aimed at reducing 1 tonne of CO2 equivalent

business, which consists of economic activity that has a

per year for each employee. “In Mexico, our employee-

positive impact on the environment,” Laporta explains. In

created CO2 emissions equate to 3.2 tonnes per year, so

2014, HSBC collaborated with NAFINSA in the creation of

by 2020 we have to reduce this number to 2.2 tonnes.

the Impulso Energético fund, which is focused on giving

Accomplishing this goal is challenging because there are

credits to CFE and PEMEX suppliers. There is a significant

more than 17,000 HSBC employees in Mexico,” explains

market surrounding the parastatal companies, as SMEs are

Laporta, adding that this model is being implemented in

seeking credits so that they can grow and improve their

each country in which the bank operates.

service offering. So far the fund has been successful, as

“Our energy consumption is similar to that of other countries. However, the CO2 emissions in Mexico are higher because of fossil fuels used in electricity generation” Miguel Ángel Laporta, Director of Corporate Sustainability for México and Latin America at HSBC

HSBC is also keen on adopting sustainable models for its

evidenced by the fact that HSBC has already distributed

assets, like the HSBC tower, which became the first double-

60% of the resources.

LEED certified building in Mexico. It was first certified upon its construction in 2008, and then it was awarded

Laporta says the bank is pleased to see an increase in

another certificate for operations and maintenance in

demand for financing in the solar energy segment, and

2013. The bank’s penchant for sustainable buildings was

HSBC is analyzing potential new projects. According

taken a step further a year ago, when HSBC partnered up

to him, the financial sector’s challenge lies in the risk

with the Green Building Council to certify 25 branches. “All

analysis of these projects, which should vary given the

of our branches are built under the same protocols and

project’s duration and capital requirements. “Normally,

using similar prototypes, which allowed us to obtain LEED

banks, including HSBC, do not provide credits to projects

certification for the 25 branches. No other bank in Mexico

lasting longer than seven years, and energy projects last

has carried out a similar program,” Laporta boasts.

between 15-25 years.” HSBC has created specialized areas to analyze these projects. Once a project is approved

322

In order to reduce its carbon footprint, HSBC implements

in Mexico, a group of experts based in London analyze

various initiatives, such as carrying out energy consumption

the project. Sometimes the bank provides consultancy

awareness campaigns with its employees or adopting a

services to our clients so that they can obtain certifications,

paperless scheme. According to Laporta, several reports

making it easier for them to obtain a credit. It is worth

show that these initiatives have helped reduce the bank’s

saying that the bank is aligned with the Equator Principles,

energy use. In spite of this success, HSBC will not sit on

so it analyzes every project with investments of over

its laurels and will strive to become even more energy

US$10 million. In addition to financial indicators, HSBC

efficient. “When comparing our energy consumption

looks at elements such as the social and environmental

with other countries like Brazil, we can see that our

impact of these projects within the areas where they are

consumption is similar in terms of kilowatts. However, the

to be implemented. “In fact, we have rejected significant

CO2 emissions in Mexico are higher because of fossil fuels

projects because of their negative environmental and

used in electricity generation,” Laporta explains, adding

social impact,” Laporta comments.

| VIEW FROM THE TOP

CONTINUED PARTICIPATION IN FINANCING THE RENEWABLES SECTOR ENRIQUE NIETO Director of Sustainable Projects at NAFINSA Q: How has the role of NAFINSA changed as renewable

A: We started with Eurus, which was exclusively financed

energy projects begin to enter Mexico’s energy mix?

by development banks, including the World Bank and the

A: NAFINSA is a development bank focused on small- and

IDB. Subsequent projects have been financed by NAFINSA

medium-sized businesses and tends to provide funds

and commercial banks. Although this led to problems

through intermediaries such as commercial banks or leasing

with exchange rates, Mexican banks became more active,

companies. Sometimes these have programs specialized in

triggering more business. In regards to solar, NAFINSA’s

specific sectors. For example, HSBC was providing around

participation has been crucial to its development, but

US$2 billion for energy generation and energy efficiency.

water projects are different, as they involve well-known

In this initiative, HSBC was using NAFINSA products, such

technology. This same strategy will be implemented with

as warranties. We have two different areas of focus in the

geothermal and we have a new scheme where we will

investment banking division. Energy is the first, where we are

provide a type of credit to attract investors. We have

responsible for almost 2GW worth of projects, and we have

developed a new mechanism together with the IDB to

a project portfolio worth approximately US$5 billion in terms

use grant money to support several projects and help

of total investment. NAFINSA has been involved in projects

companies get through the exploration phases, although

for wind, solar, and geothermal energy, although we are also

we will do this through the whole cycle. Once companies

interested in developing cogeneration projects with PEMEX,

have certainty, an exploration stage will follow, which will

CFE, and the private sector. We have completed two projects

also be part of the scheme. Then there is the building of

in this area, and we are analyzing the opportunity for more,

the plant and if companies do not succeed, our credit is

especially because natural gas will soon come to the forefront

insured and losses will be equally shared. We already have

of the market. The second area is the investment banking

two projects undergoing early analysis.

division, which deals with infrastructure such as pipelines. We want to be involved in this area along with other development

Q: To what extent does NAFINSA take issues such as

banks because the expected investments will be huge.

relationships with communities into consideration when deciding to develop a project?

Q: How do small businesses rank in NAFINSA’s priority list,

A: Our business and social development objectives are

considering the bank is known to finance large projects?

usually aligned. I was once at a meeting on climate funds,

A: Today, 90% of NAFINSA’s balance sheet is probably

and there was a general concern about the availability

comprised of small businesses given that SMEs are included

of resources that were not being used. People were

in the National Development Plan for financial inclusion. We

asking about funds destined to help indigenous people,

have programs for these purposes, and in that sense, we

rural communities, and disadvantaged populations. My

are developing a new energy efficiency program that will

answer was: “The money is already there.” For instance, in

work through intermediaries in order to provide technical

Oaxaca there was land that was used for either livestock

assistance for measurements and diagnosis so that small

or agriculture yielding very little productivity. Now the

businesses can have access to financing with an interest

people are still using that land for the same purposes, but

rate that is attractive for both companies and banks. We

they also have a 30-year contract with a project developer,

have to consider that energy efficiency is an area that is

which allows them access to money to invest at will. If you

hard to enter. This program has been approved and is under

look at Juchitan, the population is growing and businesses

development, so I expect it to be ready by the last quarter

are booming. In addition to benefiting from specific social

of this year or the beginning of next year.

projects, such as schools and cultural centers, communities benefit from the infrastructure built for the projects,

Q: What have been NAFINSA’s contributions to the

like roads. Additionally, people in the communities have

development of renewable energy and cogeneration

gained credit scores and can now borrow money from

projects in the past five years?

banks because of their contract, which is a huge benefit.

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| VIEW FROM THE TOP

SETTING FOUNDATIONS FOR A CARBON MARKET EDUARDO PIQUERO Director of MÉXICO2 Mexican Carbon Platform

Q: How is the fact that companies rate higher in the

Q: What are the respective roles of the public and private

Mexican Stock Exchange Sustainability Index pushing the

sectors in disseminating information surrounding the

development of Mexico’s carbon market?

carbon tax?

A: In 2014, the National Emissions Inventory was finally

A: The tax is not on emissions but fossil fuels and their CO2

approved by SEMARNAT and now over 3,000 companies

content. The dirtier the fuel the more companies have to pay.

nationwide are requested to annually submit their

At the moment there are only two companies that account

emissions reports. This is the first step that will enable

for 90% of this tax, which are PEMEX and CFE. Once the

the development of a compulsory carbon market and will

hydrocarbons and electricity markets are fully deregulated,

also allow companies to benchmark their positions with

there will be more companies that will comply with this

their competitors, which includes many sectors such as

carbon tax. The Ministry of Finance needs to develop

aerospace, automotive, construction, steel, and cement.

secondary regulations that include emission reductions and

No industry wants to be the most complacent, so this will

carbon credits. The private sector, on the other hand, must

incentivize many companies to regulate their emissions.

understand that it is good practice to lower emissions, and

Mexico is the first country in Latin America to do this and

this sends a clear message that the players are thinking long

one of the few worldwide. There are now more countries

term, and investors have always liked long-term visions.

taking steps to develop their own carbon markets such as China, South Korea, Chile, and South Africa. Mexico is

The biggest lesson Mexico could learn comes from the

moving quickly and is taking decisive steps toward creating

European Union’s European Union Emissions Trading

a mechanism that tackles greenhouse gas emissions.

Scheme (EUETS). This scheme set the targets before knowing how much CO2 was being emitted and this

The Inventory is a crucial step for creating a solid carbon

miscalculation led to a drop in prices. Another important

market, and once companies begin reporting, no company

lesson Mexico can learn from this market is that it is

will want to lag behind. Large companies face pressure

essential to have institutional strength, and by this I mean

from investors to comply with environmental obligations

that the authorities must be very clear and flexible. The

so they will submit to the inventory. At the moment there

private sector must understand that a low carbon economy

is a significant knowledge barrier to be tackled since many

is not only good for the environment, but represents an

companies are not familiar with this sort of inventory and

important investment in the long term.

they must learn how to calculate their carbon footprint. As a result, the market needs more professionals in the field in

Q: How can you help clients secure financing for projects

order to help companies incorporate these new requirements.

that will decrease their emissions and, in some cases, help

The second step must be taken by the government to set a

them produce their own electricity?

strong regulatory backbone for the carbon market.

A: Mexico needs a deeply entrenched carbon market where companies can sign purchase agreements and use these

324

Q: How will the mandatory requirement for clean energy

as collateral. This year, there is a plan to develop a green

certificates impact carbon credits?

bond market, where the debt programs will be labelled as

A: An electricity company has carbon and renewable energy

either green or otherwise, which will allow investors the

obligations to comply with, and these clean energy certificates

opportunity to invest in debt for green projects. When an

can be accounted for in both markets. If this occurs then

investor picks a green project it knows the money will go to

Mexico will have a de facto carbon market with incentives.

renewable energies, waste management, or agriculture. At

Certificates cover energy, while carbon credits cover energy,

the moment, there are questions surrounding the oil and gas

electricity, and other industries such as transportation

industry, especially concerning oil prices so the attention is

and agriculture. Mexico is gearing up to have an emission

being drawn to renewables. This green bond market is an

reduction based mechanism in the electricity sector.

ambitious initiative and the first of its kind in Latin America.

| VIEW FROM THE TOP

ENVIRONMENTAL IMPACT ASSESSMENTS ARE KEY IN LOW-CARBON ECONOMY GABRIEL QUADRI Partner and Director of SigeaCarbon Mexico Q: Given Mexico’s vulnerability to the effects of climate

the most important concerns are pollution, wastewater

change, how can the country benefit from climate change

disposal, reinjection of water, and hazardous waste.

economics? A: Before considering a comprehensive cap-and-trade

Q: What are some of the challenges that companies like

system, Mexico should explore the possibility of a carbon

Sigea experience?

tax. A carbon tax has many advantages, as it has almost

A: The relationships with local communities and political

no administrative costs and it can generate a substantial

groups are usually out of our control. Therefore, we work

amount of revenue for the government. Mexico has a CO2

alongside other companies to try to disseminate the best

tax but it is insignificant. The cap-and-trade system would

possible information based on experience in order to

be an unnecessary change given that the Law of the

incorporate local suggestions and concerns. In the end, it is a

Electricity Industry and the Energy Reform offer certificates

complex political operation, especially in states like Oaxaca,

for clean energy, making a carbon market redundant.

Guerrero, and Veracruz. We work as a team with a group of the most competent environmental lawyers in Mexico and

We will run out of oil and, in the long run, what will

we have a protocol for public consultations with indigenous

transform Mexico into a sustainable productive economy

people, as stated in Article 169 of the Constitution.

will be electricity. Therefore, a carbon tax could be an interesting possibility, marking a new architecture and

Q: Considering that Sigea aspires to be the workplace

increasing the possibility of a low-carbon economy. This, in

epitome

turn, could become a major source of government revenue

perspective on the available talent pool?

and it may lead to an opportunity to reduce income taxes,

A: Nowadays there are many universities that offer

making the Mexican economy more competitive and

environmental engineering programs, and we employ

attractive, with a broader growth potential. If we raised

people with other types of backgrounds like civil

the prices of gas and diesel to the same levels of Brazil,

engineering, chemical engineering, and environmental

Chile, or any European country, the resulting revenue from

economy. Rather than a deficit of professionals gravitating

this tax would be immense. Annually, Mexico consumes 80

toward environmental issues, we probably have a lack of

billion liters of fuel. If we add a tax of just MX$10 (US$0.66)

opportunities and an excessive supply of professionals.

for

environmental

experts,

what

your

to every liter, we could generate MX$800 billion (US$60 billion) in revenues, which is about 80% of the revenue

The environmental consulting business in Mexico is closely

obtained from income taxes.

tied to the GDP growth; in other words, if there is no growth, there is a lack of jobs. It is cyclical, so if the US economy

Q: What are the most important externalities to be

grows, the Mexican economy grows. Other contributory

considered in the renewable energies market in Mexico?

factors are public and private investment, productivity,

A: Sigea works closely with renewable energy developers

violence and crime, and education. The productivity

in environmental impact assessments. For wind energy

in Mexico is extremely low and we need a profound

the most important aspects would be birds and bats,

educational reform. Besides that, the fiscal structure of

visual impact, noise, and sometimes opposition from local

the country is a major factor that explains the economy’s

communities. For hydro plants the main problems are

behavior. Investment plays a pivotal role too, since if there

catchment area management and confrontations with local

is no investment in new projects, then there is no sufficient

communities. Additionally, there is a considerable deficit

demand for environmental consultancy. The projects to

in meteorological stations in Mexico, so we need a more

develop the trains to Queretaro and Yucatan have been shut

efficient and comprehensive network that can provide

down and many infrastructure projects are being cancelled.

information about water, precipitation, and other important

This could mean a failure to capitalize on a promising

variables that hydro energy requires. Finally, for geothermal,

growth opportunity for the environmental industry.

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| VIEW FROM THE TOP

PECULIARITIES OF DOING BUSINESS IN MEXICO NADIM CHAUDHRY President and Founder of Green Power Conferences

Q: What are the crucial trends that are impacting the

Time is an important consideration for technologies, and

adoption of renewable energies around the world and in

nuclear power faces some challenges in how fast it can

Mexico?

be deployed compared to other technologies. One of the

A: Globally speaking the renewable energy industry has

benefits of some renewable energy technologies is the

been growing exponentially, and in 2014 alone it expanded

speed with which they can get to the grid. Mexico needs to

by 16%. This will lead to more renewable assets being built

double its grid in order to satisfy the growing demand for

and costs will continue to decline. In the last six years,

energy and to become a top ten global economy it needs a

costs of solar technology have decreased by 80% and this

strong and diverse energy mix. Governments have noticed

dramatic change is encouraging a revision of forecasts and

that the renewable energy industry provides jobs and this

plans in an energy industry that is traditionally conservative.

is vital for growing economies.

We are witnessing a switch from centralized to decentralized power generation and this will have a significant impact on

Q: How can events help the development of renewable

business models. This evolution is threatening the utility

energy projects and ease the business process?

model while simultaneously creating tremendous value.

A: Green Power Conferences has specialized in renewable energy events since 2003 and it has seen huge amounts of

Q: How will the transition to decentralized power

change in the industry. Equity and debt investors play an

generation impact the utility model?

important part in the survival of a project, so we are careful

A: Utilities are investing vast amounts of money in

to ensure that they are present at the events. Renewable

developing energy projects with the assurance that they

energy development banks also play an important role in

have a strong customer base. We are seeing a rise of self-

bridging the gap between equity and debt and addressing

supply and solar rooftop installations in the residential

risks. In the geothermal sector, NAFINSA has underwritten

market and this will grow with the adoption of energy

US$25 million in order to lower exploration risks.

storage technologies. Batteries have been improving

Developers have to juggle many aspects in the pursuit

dramatically and, just as the prices of PV and silicon

of their projects, from contracts, permits, operational

went down, we anticipate the same trend with lithium ion

licenses, PPA expiration dates, COD dates, and even land

batteries. The improvement in this technology is driven by

acquisition. We have seen the dramatic rise of green bond

electric vehicles and personal devices, and ultimately the

markets in the last few years and this is a key component

beneficiary will be solar power. Utilities are now making

since institutional investors control a huge part of the

an effort to understand their customers and provide a

economy. The more percentage points that are poured

multitude of services.

into renewable power, the faster we will reach targets of decarbonizing the global electricity market.

Q: What role will governments play in ensuring that the

326

proper regulation is in place?

Q: To what extent can events allow energy players contact

A: It will be challenging for governments to regulate this

potential off-takers from energy intensive industries?

transition and some are reluctant to help this evolution. The

A: In the past two years, we have seen a rise of large

fossil fuel industry has an irresistible pull in policy making

multinationals interested in setting renewable energy

and we see former politicians sitting at the helm of fossil

targets. In Mexico there is an interest from the mining

fuel companies. The energy industry is conservative and at

industry since mines are often located in remote regions

the moment it is going through unprecedented changes.

with no access to the grid, so solar farms and other

In terms of other trends, the coal industry is floundering,

renewables are becoming extremely cost-competitive.

with 24GW of coal having been decommissioned in the

Renewables provide companies certainty in their balance

US, China stopping the development of new coal and India

sheets and forecasts because they do not have to deal

having stopped importing coal from Australia.

with the cost variabilities of fossil fuels.

| VIEW FROM THE TOP

CYBERSECURITY PROVES ESSENTIAL IN MITIGATING RISK DANIEL CASADOS Director General of Blue Coat Systems Q: What are the driving forces influencing the adoption of

activity worldwide, as well as being equipped with the

cybersecurity in companies’ business models in Mexico?

most comprehensive internet cloud security.

A: Mexico is a high consumer of internet access technology and mobility has grown considerably quickly. The spread

Q: Why should companies in the energy industry adopt a

of applications and technology for end users has had a

strong cybersecurity practice?

significant impact, and as it progresses, one begins to

A: The Energy Reform has opened the doors and new players

discern security gaps. Mexico may be very active in terms

will enter an environment that was previously dominated by

of internet access, but this does not mean that it is secure.

CFE and PEMEX. This is why it is important to have an open

Blue Coat Systems was acquired by Bain Capital and

architecture so companies can liaise with PEMEX and CFE

the plan is to become public in the coming three years.

in a transparent way. The energy industry must develop at

In order to reach this goal, the company will continue to

speed and one of the crucial components is SCADA. All the

invest in R&D and acquire companies that are suited to

information traffic that a utility like CFE and PEMEX compile

Blue Coat Systems’ growth strategy. The operations in

has to be protected and we are developing systems that

Mexico have been tasked with maintaining double digit

secure SCADA and the traffic data. CFE and PEMEX are

growth and expanding human capital. Mexico represents

transforming themselves into productive enterprises of the

50% of revenue in Latin America and is our most strategic

State, and cybersecurity might not rank high on their list of

location in the entire region.

priorities. It is our responsibility to foster internet security in their business strategies and we aim to do this through

Q: How will global IT trends foster innovation and

sharing best practices. Not only must industries conform to

economic development in the country?

the new reforms, but so must federal entities. Sometimes, we

A: The Internet of Things (IoT) embodies the idea that any

go beyond the norms and we are one step ahead, so it is

device can gain access to the internet and that a single

important to effectively communicate all advancements to

individual can have an array of devices available for use.

industry players.

On the one hand, we see the internet as a recreational tool, but on the other it is used for enterprise and business.

Q: What cybersecurity malpractices has Blue Coat

Now that the Reforms, especially in Energy, have increased

Systems spotted, and how will it help address them?

market accessibility, the implications for the companies

A: Companies with experience in other markets are already

that rely on this tool must be considered. The Reforms are

accustomed to dealing with cybersecurity and, in many

pushing for the adoption of new technologies, platforms,

instances, they share their own processes and techniques.

and the ongoing dependency on the internet. Companies

Companies that will work with PEMEX and CFE have to

and individuals must distinguish between uses of devices

have a comprehensive approach to cybersecurity. In the

in order for companies to safely secure their assets, which

case of the parastatals, the work they have carried out

in this case it is data.

so far shows that they are heading in the right direction. The federal government has also been developing

Blue Coat Systems firmly believes that security empowers

best practices and in many ways it is more advanced in

business and that it should be an enabler rather than an

cybersecurity compared to the private sector. We have

inhibitor. We are a leader in the security sector and we

to dispel misconceptions about cybersecurity and make

consider the concept of cybersecurity to be an important

companies realize the potentially disastrous implications

component of any business strategy. The company has

of complacency toward protecting their data. When we

an open architecture that allows the adoption of different

approach potential clients we always pose one specific

solutions and technologies across a wide array of industries

question: what is the value of your brand? The name and

and sectors and this flexibility is crucial in our approach.

reputation of the brand is one of the most important assets

We have global visibility and we can detect malware

that are at risk if cybersecurity is neglected.

327

SUPERMARKET GIANT PROMOTES SUSTAINABILITY BENEFITS Companies

are

something back, ultimately benefiting the people and the

increasingly realizing the

country.” The second driver is that the people at Soriana

potential of sustainability

are convinced that such policies make the company more

in many of their business

efficient, as it achieves savings, profitability, and better

practices, and Soriana is

resource management, ultimately proving an effective

advancing in this regard

business strategy for the company.

Rodrigo Benet, Director of Planning Strategy and Communication at Soriana

rapid

today

pace.

Five

years ago, the company

Benet feels fortunate because the company has experienced

took sustainability to a

significant

strategic level and even

the past few years. In 2007, Soriana launched a recycling

created

advancements

and

many

achievements

sustainability

program with internal and external scope. The original

division. Rodrigo Benet, Soriana’s Director of Planning

goal was to recycle all waste materials generated from the

Strategy and Communication, says his company views

company’s operations, but Benet says the company then

sustainability as something positive enough to be included

decided to take the program one step further and installed

in the corporate strategy. “Sustainability goes beyond

recycling modules in its stores so that the community could

social and environmental benefits; being sustainable is

dispose of its cardboard, paper, batteries, and electronics.

actually profitable and provides a wealth of benefits to the

The recycling modules are strategically located next to the

company,” he explains.

customer service desks, although additional channels are used to inform customers about this initiative. In order to

The main driver behind Soriana’s adoption of sustainable

promote a culture of recycling among its clientele, the retailer

practices is the firm’s sense of commitment to Mexico.

provides incentives to the clients using the recycling modules

“We see ourselves as a national champion and Mexico

through points systems, and subsequently ensures that those

has given a lot to Soriana. Therefore, we wanted to give

materials undergo the proper recycling process. Nonetheless,

THE ROAD TO A GREEN ECONOMY The road to a Green Economy is fraught with obstacles

There are several areas a company must consider, such

that, for some countries, are almost insurmountable. This is

as water consumption, waste, energy, biodiversity, and

understandable considering the continuing uncertainties in

emissions. Organisms like OECD, UN, Global Compact

the financial markets and the debt crises that still continue to

and GRI release criteria to evaluate the best performance

haunt the global economy. While the challenge of attaining

in matters of environmental commitment and social

a Green Economy and sustainable society is daunting,

responsibility. Irrevocably it also touches upon Social

there is no alternative. Countries cannot forget that growth

Responsible Investment (SRI) and it has gained momentum

at all costs comes with rising emissions, disappearing

in emerging markets such as Brazil and Mexico. In the

ecosystems, and fast declining resources. The debate on the

US market, SRI represents 12% of total investments in

Green Economy takes an interesting turn when estimating

the market while in Europe, this is between 12-15%. It is

the costs and benefits in monetary terms of low-carbon

estimated that of these international resources only 3-6%

resources, efficiency, and a socially inclusive economy. One

will reach Mexico and other Latin American markets.

of the green threads woven into Mexico’s economy is the

328

Sustainability Index in the Mexican Stock Exchange. It has

ICA is the sole construction company in Latin America that

become an ideal parameter from which to identify the best

belongs to the Sustainability Indexes of the Mexican Stock

sustainability practices of companies with the objective

Exchange and the Dow Jones. Ana Paula Fernández del

of building this fabled Green Economy. Companies that

Castillo, Chief Sustainability Officer of ICA, describes the

can prove high performance in environmental, social, and

trajectory that allowed the company to enter this eminent

corporate governance gain a place in this platform and

list. “In order to be included for a third year in a row in these

gain access to a new set of investors with serious concerns

platforms, we defined eight key priorities that would enable

about the country’s sustainability. Listed entities become a

the company to grow sustainably,” she explains. “Sustainability

reference point in the financial markets and a benchmark for

is immersed in our daily operations in order to identify the

other companies striving to obtain the same achievement.

added value we bring to all projects we develop,” she adds.

Benet stresses that the main incentive should come from

provide the financing. “I praise the fact that there are

environmental consciousness, not economic benefits.

financing institutions that are willing to support these types of projects and have credits specifically destined

With this in mind, Soriana also works on creating awareness

for the development of clean energies,” Benet expresses.

within the community, for which it relies on collaborations with other companies. For instance, Soriana and several

In Baja California, Soriana has approximately 25 stores that

other companies from Monterrey organized a recycling

generate 25% of their electricity through wind energy. A

structure, in which PASA took care of collection, Vitro

wind farm that provides electricity for 32 units became

assumed the recycling responsibilities, and Multimedios

operational in 2012, and the following year the company

gave the program visibility. “Grouping companies for

entered another wind energy project that supplies 100%

sustainability initiatives makes a stronger case and can yield

of the energy required to power 163 stores. In 2015, the

promising results. Creating synergies is important, whether

company announced the construction of two more wind

these are done with NGOs, non-profit organizations, or even

farms that will cover the electricity needs of 350 stores.

the government. After all, these issues pertain to everyone,

“Our goal is to be using clean energy in all of our units

therefore everyone has to contribute,” he explains.

within three or four years. We hope to integrate 160 Comercial Mexicana stores into our sustainability platform,

As the company strived to generate more savings from

and once this is achieved, we will look for ways to provide

sustainable practices, it opted to change the lighting

clean energy to these stores so that our entire chain can

systems in its sales floors, an initiative that years later was

function exclusively on clean energy,” says Benet.

also implemented in some of the stores’ parking lots. More specific targets were defined in 2012, including minimizing

Benet hopes Soriana’s experience encourages other

water and energy use, and reducing greenhouse gas

companies to adopt similar practices. “We are convinced

emissions by 15% by 2017. After these targets were set,

this is the way forward because it benefits the country and

Soriana became deeply involved in clean energy, mainly

our business model. I would tell other enterprises that it

from wind farms and solar parks. Benet notes that

is worth doing some research on this subject and delving

Soriana is an off-taker, and its associate, Gemex, makes

into it, as it will increase their efficiency and profitability.

the investments and develops the wind farms, while

There is no downside; everybody wins, and that is the

Banorte and the North American Development Bank

objective of any company,” he asserts.

BUSINESS OPPORTUNITIES UNDER ONE ROOF All companies are at the starting line with their eyes trained

allow companies to glimpse the rising trends in the

on the best projects in the market. The race is about to

industries. “Mexico recycles very little of its waste and, as

commence and players are paying close attention to

a result there is a need for new recycling businesses to

the changing legal paradigms. In parallel, they are also

be developed. We have witnessed the evolution of a new

measuring themselves against their closest competitors,

business model and we are intent on helping recycling

and what better way to gauge a company’s positioning than

companies develop and grow through our events,” he adds.

at a trade show where all businesses are gathered under

Another flagship tradeshow is Mexico WindPower, which is

one roof. EJ Krause, a global company that has created

dedicated to the development of the Mexican wind energy

over 40 events worldwide, has identified a growing interest

market. “It features the largest array of companies that

in emerging markets, such as Mexico, for staging trade

manufacture wind energy equipment and products, and

exhibitions. José Navarro, Director General of EJ Krause de

offer services to aid the wind energy generation,” Navarro

México, has particularly noted that the renewable energy

describes. This show also gathers the most influential

and sustainability industries bring together a rich variety of

players, from policy makers, manufacturers, and wind

investors, financiers, and other professionals.

farm developers, to academia. To ensure the success of tradeshows, associations like CONIECO and AMDEE play an

One of the main events it hosts is the GREEN Expo, an

important role in representing the interests of the companies

environmental and renewable energy show that has been

in their respective sectors. These entities aim to share

growing over the past 22 years, and every year it gathers

knowledge, liaise with the government, and encourage ties

over 300 companies from around the world. “The GREEN

between international and national industrial communities.

Expo covers a wide range of trending topics, from waste

“We are a perfect match because we can share our expertise

management, to recycling, water management, energy

by gathering renowned industrial players under one roof to

savings, energy efficiency, green cities, and construction

do business, and at the same time assume the financial risk

markets,” Navarro explains. Events such as GREEN Expo

of hosting a professional event,” Navarro states.

329

330

The pieces are in place. The first tenders for the electricity sector are scheduled for the last quarter of 2015, and the day-in-advance market will be launched on December 31, meaning that the wholesale electricity market will come into existence on the first day of 2016. The private sector has been gauging opportunities for some time, and now players are polishing the strategies that will secure their places in the Mexican power industry. CFE already began its transformation in order to meet the challenge of being the largest and most important player in Mexico’s open electricity sector. Meanwhile, the authorities are working on clearing up the remaining areas of uncertainty. Entities such as the Ministry of Energy, CENAGAS, and CENACE are meeting with other stakeholders and running pilot programs to ensure that every element is in place. The process has been intense and arduous, and the government is aware that it will have to make the necessary changes, for a new open market is a work in progress.

The last chapter in this edition examines the future of Mexico’s power industry. It details the actions the government is taking to ensure that the country has enough specialized human capital to meet the expected demand of the energy sector. Key players share their ambitions, expectations, and predictions regarding the development of the industry, as well as the challenges it faces and the opportunities it presents. The Reform has well and truly been set in motion and there is no turning back.

FUTURE OUTLOOK

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332

CHAPTER 14: FUTURE OUTLOOK 334

VIEW FROM THE TOP: Leonardo Beltrán, Ministry of Energy

335

VIEW FROM THE TOP: David Penchyna, Energy Commission of the Senate

336

ANALYSIS: Electricity Industry Outlook

341

INSIGHT: Carlos Ortiz, Ministry of Energy

342

ANALYSIS: Mexican Centers of Innovation in Energy

343

PROJECT SPOTLIGHT: Preparing Oaxaca’s Future Wind Farm Operators

344

INSIGHT: José Pablo Fernández, Grupo Dragón

345

ANALYSIS: Untangling the Market Rules

345

EXPERT INSIGHT: Gabriel Quadri, Enerclima

346

VIEW FROM THE TOP: Pierre Comptdaer, ABB Mexico

347

ANALYSIS: Industry Experts’ Future Outlook

333

| VIEW FROM THE TOP

AUTHORITIES GUARANTEE A SUCCESSFUL ELECTRICITY MARKET LEONARDO BELTRÁN Undersecretary of Planning and Energy Transition at the Ministry of Energy Q: What have been the highlights in the implementation

Q: What will be impact of the creation of the wholesale

of the Energy Reform in the electricity area?

electricity market on the electricity users in Mexico?

A: By the end of June 2015, we will have the Program

A: Given the policy and regulation, we are envisioning a

for the Development of the System, a roadmap of how

competitive electricity tariff, which entails a reduction of

CENACE is planning to develop the infrastructure it needs,

costs for the industry as a whole, and that translates into a

and how we see the development of certain projects in

more productive environment because one of the main inputs

the infrastructure program. This will map the supply and

will be more competitive than it used to be. Ultimately, we are

demand in order to have a more integrated electricity

creating these conditions for a more competitive economy,

system. The idea is to have a more robust network, to take

and there will be trickle down effects in other markets,

advantage of the resources available across the country,

thus other industries are deciding to come to Mexico. For

and to create better conditions for regional development

instance, the first quarter of 2015 experienced the highest

in specific areas. We recently presented a series of CFE-

investment any first quarter has seen in Mexico, amounting

promoted

and

to US$7.5 billion of direct investment in a single quarter. If

distribution with the intention of having the private sector

projects

transmission,

generation,

you look at other signals from the market, you will see that

partnering with CFE and developing these projects.

the economy as a whole is adjusting to this new environment.

This outlook will rely on CENACE’s help in incorporating

The fact that industries are setting up facilities in Mexico,

government policy.

such as automotive, construction, and manufacturing, means that people have confidence in the country.

Q: What steps must be taken to reduce the remaining

334

uncertainty and allow companies to start investing?

Q: How is Mexico advancing in its goal to meet the 2018

A: Proper policies send out a strong signal that can lead to

and 2024 clean energy targets?

informed decision-making. In this sense, the policy serves to

A: We are on track to meet the targets, even those

guide and inform the market on demand and infrastructure

established for 2018. In addition, there is a Program for the

development from the public sector side, and support the

Promotion of Renewable Energy in which there are two-

evolution of the market with government data. The demand

year targets per technology or resource. This particular

side is something the private sector, as a participant, should

document was created through the Renewable Energy

assess through surveys and other methods to determine

Council, with actors from the private sector, academia, and

the value of the market. With the appropriate information,

all relevant stakeholders interested in renewable energy.

a player can decide if it wants to be a service provider or

The policy was drafted before the Reform, and now that

a supplier, and if it will have a primary or a secondary role.

the regulation is in place, we have a stronger position for

There are then different elements, including regulation, and

complying with those targets due to the wholesale market

the degree of clarity of this regulation, which allow a player

and CELs that ensure that a percentage of consumption

to decide whether to enter the market or not.

comes from clean energy.

In preparation for the launch of the market, we will run a

The wind power industry announced plans to invest

test during the last quarter of 2015 in order to measure the

US$14 billion in wind projects alone. Recently, CFE also

possible challenges. Since the test will take place in the

announced a few projects in wind and one in geothermal, in

fourth quarter, we will have ample time to learn about the

addition to CFE’s existing geothermal activities. Although I

interactions between the operators and regulators, and

agree that there was a lapse in the past 12 months, actors

the intricacies of operating the new market. Just like with

are now starting to resume projects. We have set up the

any other test, the goal is to learn, adapt, and practice.

mechanisms for the community as a whole to take part

Players will be able to quickly determine if they will take

and interact. If anything, the Reform created a more robust

part in the spot market or the overnight market.

path toward these particular objectives.

| VIEW FROM THE TOP

FIRST SEEDLINGS OF THE ENERGY REFORM DAVID PENCHYNA President of the Energy Commission of the Senate

Q: What have been some of the achievements of the Senate’s

A: By becoming a new player in the global energy

Energy Commission, and what are its new objectives?

market, Mexico will have to compete for investments

A: I can proudly claim that the achievements of the Senate’s

on an international level. This will force the Reform’s

Energy Commission have no parallel in recent legislative

implementation and measuring mechanism to attract the

terms. Constitutional Articles 26, 27, and 28 were modified,

needed capital, while considering that Mexico is lagging

thus enabling the Mexican electricity industry to become

several decades behind other open markets. The progress

an open market. After these Constitutional Reforms,

of these national markets will be delayed due to the nature

several secondary legislations and bylaws were issued

of these developments. In the concrete case of CFE,

to regulate, among other things, private participation in

significant investments are already in place, which will foster

the production chains of hydrocarbons and electricity

the development of a wholesale electricity market that will

production and commercialization. We paid attention

allow the diversification of the country’s energy matrix.

to all the voices and opinions regarding the possible modalities of the Energy Reform, while disseminating the

Q: How is the Senate working to ensure the success of the

Constitutional Amendment as much as possible so that

Energy Reform?

citizens could be aware and informed about the meaning

A: The Senate is already participating actively in the

and implications of the legislative reforms.

implementation of the Energy Reform. Our job is to identify, suggest, and perfect the application measures that

The Senate is not in charge of the administrative application

will allow the country to obtain the most profit from the

of the approved legislation. However, our responsibility

decisions made in the energy sector. Changes and results,

entails constantly overseeing the public administration’s

particularly in the hydrocarbons sector, will not be seen in

application

constant

the short term because of the nature of the projects. The

information about the advancements and achievements

the

reforms.

demand

Energy Reform was devised with future generations in

with the aim of directing the implementation of the

mind, who, in spite of the market’s volatility, should adopt a

objectives set by the Reform.

positive outlook on economic prosperity for public finances, the private sector, and consumers in general.

Q: What tools are being given to CFE and PEMEX so that they can overcome the obstacles in their journey toward becoming productive enterprises of the State? A:

The

transformation

PEMEX

and

CFE

from

decentralized organisms to productive enterprises allows for more administrative and financial autonomy in both companies’ operations. Proof that these companies took the right path is already evident in the fact that CFE is performing more efficiently, which has reduced electricity tariffs, particularly for the national industry. It is obvious that this transformation cannot happen overnight, as it implies a thorough restructuring of both companies, enabling them to simultaneously become more competitive and attractive enough to receive future investments. Q: What are the key elements in ensuring that the new operative framework creates a level playing field for the private sector?

335

ELECTRICITY INDUSTRY OUTLOOK Optimism surrounds the electricity sector due to the Energy Reform, which will allow increasing productivity and investments in the segment, ultimately promulgating Mexico’s economic development. The Mexican economy is expected to awaken from its lethargic stage in the next few years, even in the face of the currently low hydrocarbon prices, which are intesifying the attractiveness of natural gas in the energy mix while having a negative effect on the competitiveness of renewables. Nevertheless, according to data from the IEA, 60% of the investments aimed at the development of energy infrastructure will be allocated to green energy sources following a combination of countries pledging to decrease emissions and the continuing shift in the cost of renewable energy toward price parity with hydrocarbons. This is expected to reduce the global dependency on fossil fuels over the long term. Mexico has opted to limit the use of oil and its derivatives, which not only reduces power generation costs and benefits the environment, but also mitigates potential future risks for the sector through diversification. Mapping the future development of Mexico’s electricity market requires analysis of economic variables and fuel prices, as well as the needs of the population and the impact of the implementation of energy efficiency technologies and incentive programs.

THE RELATIONSHIP BETWEEN MEXICO’S GDP GROWTH AND ELECTRICITY CONSUMPTION Evolution of GDP growth and National Electricity Consumption 8% 6% 4% 2% 0 -2% -4%

Gross Domestic Product (2003 prices)

GDP growth

Source: Ministry of Energy and CFE

National electricity consumption

electricity consumption growth

FOUNDATION OF THE MEXICAN ENERGY STRATEGY

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

-8%

2003

-6%

Source: Ministry of Energy and CFE

Annual growth of electricty sales by sector

(yearly average) ANNUAL ELECTRICITY DEMAND GROWTH BY SECTOR

Variations in the GDP have been relatively moderate over the past decade, following a period of stagnation

2.5%

4.5%

between 2001 and 2003. Optimism regarding the country’s economy grew afterward, until the dawning of the 2009 global recession. Mexico’s electricity market

1.2%

3.4%

forecasts up to 2028 are based on an expected annual

4.1%

GDP growth rate of 3.5% combined with a 1% annual growth of Mexico’s population of 112.3 million inhabitants

3.1%

based on the country’s 2012 census. The model considers two pricing scales to estimate the behavior of demand patterns. The first is the price of fuels that is subject to fluctuation based on global supply and demand, while the second is the price of electricity in the country. NATIONAL ELECTRICITY CONSUMPTION Based on the forecasted 3.5% GDP growth, energy demand is expected to increase at an annual rate of 4.4%, almost one percentage point above the growth recorded in the last decade. Over the past few years,

336

4.1% 1.3% 2.9%

3.8%

2002 - 2012

2013 - 2028

Industrial industrial

Services

Residential

agriculture Agriculture

Commercial

services

Source: Ministry of Energy and CFE commercial residential

Source: Ministry of Energy and CFE

the industrial sector has been the largest electricity consumer. The industrial sector is expected to grow by 4.5% per year, representing 61.8% of sales in the wholesale electricity market by 2028. The residential, commercial, and services segments are anticipated to grow by 3.9% annually; however, the residential segment’s annual growth rate is expected to shrink. The agriculture sector is growing at a yearly rate of 1.2%, a considerably low rate compared to the 3.4% recorded in the previous decade. REGIONAL ELECTRICITY CONSUMPTION In 2013, electricity consumption in the National Electricity System amounted to 277.6TWh, and this figure is expected to reach 502.9TWh by 2028. Mexico is divided into nine regions composed of 149 zones, 6 exploration areas, and 11 isolated systems, which facilitates evaluation of the needs of each section. Calculating the electricity requirements of each section is an important variable when determining the capacity and location of new power plants. SELF-SUPPLY LOADS In the process of planning the expansion of the grid, it is important to first evaluate and predict the impact of private projects on the grid. Obtaining this information is a complex process, and projects must be evaluated on a case by case basis by compiling the total value of the local loads and the remote loads. Afterward, these amounts are then added to the public demand in accordance with the different regions of Mexico. The results show that the annual self-supply load grew by 5.8% in the 2003-2012 period, while the remote self-supply load attained an annual average growth of 18.4%. For 2013-2028, the local and remote loads are forecasted to increase by 1.6% and 8.9%, respectively. When renewables are added into the mix, the remote load reaches 10.2%. In 2013, the impact of remote renewable energy projects began to be felt in the self-supply load, which started out with 3,379MW and reached 5,674MW in 2015. From 2019 onwards, groups of self-supply loads derived from renewable energy will be called Renewable Energy Blocks. It can be noted that there is a considerable peak in the 2016-2018 period that can be attributed to the interconnection of renewable projects under the legacy scheme, the implementation of Clean Energy Certificates (CELs), and the fact that also by 2018, at least 5% of energy consumed by users and companies in the wholesale electricity market must come from clean energy sources.

EVOLUTION OF CAPACITY OF PRIVATE PROJECTS (MW) Evolution of capacity from private projects (MW) 20,000 16,026

16,766 16,966 16,366 16,566

17,166 17,366

17,566 17,766 17,966

18,166 18,366

15,000

10,161

10,361

10,561

10,761

10,961

11,161

11,361

11,561

11,761

11,961

12,161

6,205

6,464 5,865

5,709 5,217

3,379 5,086

5,441

2,579

5,000

8,465

4,766

7,345

5,167

10,000

5,865

12,329 10,608 10,926

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Local local

Remote

remote

Source: Ministry of Energy and CFE

Source: Ministry of Energy and CFE REDUCING ENERGY LOSSES

In 2024, non-technical energy losses are expected to have been reduced from 8.7% to 2.5% while technical losses will decrease from 7.9% to 5.5%. Some regions of Mexico will have to step up their game, especially in the central, eastern, and western areas. Other regions such as Baja California and Baja California Sur are close to reaching the established goal, and this is mainly due to the reduced geographic coverage, implementation of previous programs, and the smaller proportion of rural areas. Of the recovered energy, 30.9% stems from preventing technical losses, while the remaining 69.1% comes from the reduction of non-technical losses. The anticipated reversal of the downward trend in energy losses in 2024 is attributed to the increase of energy demand that is intrinsically linked to losses, although it is important to note that these losses are in line with international standards. The east, west, and central regions will be required to make most progress in reducing energy losses, while Baja California and Baja California Sur are facing a lesser challenge.

337

TECHNICAL AND NON-TECHNICAL LOSSES (TWH) Total technical and non-technical losses in the National Electric System (TWh) 50 45

44.05 16.6%

39.34 8%

40 35 30

32.33 8%

23.08 7.9%

25 20 15 10

22.34 5.5%

27.19 5.5%

9.99 2.5%

12.15 2.5%

20.97 8.7%

5 0 2012

2013

2014

technical losses Technical

2015

2016

2017

2018

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

losses Non-technical non-technical Total

total losses

Source: CFE

CFE Source:DECOMMISSIONING PLANT AND INSTALLED CAPACITY

In order to keep the National Electricity System efficient and cost-effective, the authorities have planned the retirement of 15,840MW between 2015 and 2020. By the end of 2012, 19,457MW of installed capacity came from plants operating for over 25 years, and 15,317MW came from plants over 30 years old, representing 36.6% and 28.8% of the total installed capacity, respectively. In order to delineate the development of the power generation system, the authorities established a decommissioning program based on the facilities’ generation costs and years of operation. Some of these facilities include Puerto Libertad U1-U4, Topolobampo II U2 and U3, Mazatlán II U3, and Río Bravo U3. CFE’s Unit Decommission Program states that 465MW is expected to be taken offline in 2015; however, the government acknowledged that only 39MW was decommissioned in the first seven months of this year.

UNIT DECOMMISSION PROGRAM (MW) Unit Decommission Program (MW)

1,800

1,666

1,600

1,552

1,481

1,400

1,267

1,463

1,218

1,200 1,000

893

800

765

720

400

636

583

600 239

200

489

169

154 27

0 2013

2014

2015

2016

2017

2018

2019 2020

2021

2022 2023 2024 2025 2026 2027 2028

Source: Ministry of Energy and CFE

Thermoelectric power plants and facilities powered by gas turbines over 30 years old will be decommissioned, according to the plan. However, some conventional thermoelectric centrals that are now powered by fuel oil will be converted into dual-generation facilities so that they can operate on natural gas in the meantime. Plant rehabilitation seeks to improve and modernize insulation, cooling, control, and protection systems and are aimed at increasing a power plant’s reliability, working life, availability, and efficiency. In some cases, efficiency levels can increase by 17%. Recently, a rehabilitation program was completed in the Laguna Verde nuclear power plant, with units 1 and 2 increasing their capacity by 122.6MW each. Poza Rica units 1 and 2 are undergoing the process of becoming combined cycle plants in order to increase their efficiency by 16.8%, while the performance of the El Sauz combined cycle plant will be enhanced by 9.4%. Rehabilitation and modernization operations in hydroelectric power stations will see the installed capacity expanded by 97.1MW, not only increasing efficiency levels, but also leading to an additional 590GWh per year. CFE is assessing the possibility of converting other thermoelectric plants into combined cycle plants, particularly Río

338

ESTIMATED AVAILABILITY OF GENERATION PARK (%)

Estimated availability of the generation park (percentage) 88.5

88.3

88.4 88.1

88.0

87.8

87.7

87.5

87.3

87.8 87.6

87.3

87.2

87.1

87.5

2025

2026

87.2 87.0

87.0

86.5

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2027

2028

Source: Ministry of Energy and CFE Source: Ministry of Energy and CFE

Bravo U3, Francisco Villa U4 and U5, Topolobampo II U1 and U2, and certain units in CT Tuxpan. Overall, the rehabilitation endeavors are poised to increase the availability of CFE’s thermoelectric park over the next 15 years. In 2013, the availability index was estimated at 87.8%, a number that is now estimated at 88%.

ESTIMATED AVAILABILITY OF GENERATION PARK (MW)

Estimated availability of the generation park (MW) 15,000

Historical

Forecast 12,126

aag 10.2%

12,000

10,126 aag 8.9%

9,000 aag 2.4%

6,000

5,730

4,783 aag 1.6%

3,643 3,379

3,000 1,092

Remote plus renewable projects Renewable projects Remote Local

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2011

2012

2010

2009

2008

2007

2006

2005

2004

aag 18.4%

2003

Source: Ministry of Energy

EVOLUTION OF GRID CAPACITY The capacity of the National Electricity System totaled 53,114MW in 2012, but is expected to reach 95,342MW by 2028 based on the addition of 55,550MW, the decommissioning of 13,322MW, and additional privately sponsored projects will add 9,582MW. According to these predictions, the grid will have a 107,503MW capacity by the end of 2028. Private local and remote projects will contribute with an additional capacity of 11,020MW, so the National Electricity System is forecasted to have a total capacity of 113,708MW by 2028. At that moment, natural gas-based technologies are expected to constitute 47.1% of the energy mix; renewables will amount to 27.6%; fuel oil, diesel, and coke will see their participation reduced to 2.8%; and coal will also see decreased participation, constituting just 4.2% of generation. Conventional and new clean generation technologies, including nuclear, will represent 40.3% of the electric sector’s capacity. EXPANSION OF THE NATIONAL ELECTRICITY SYSTEM The expansion strategy for the national grid is based on both the demand outlook and the locations of the new power generation and transmission plants that the system will require to meet the demand increase. Two fundamental aspects

339

cannot be overlooked. The first factor is time, since the projects related to the expansion of the grid can take years to fully mature. The time between the moment a generation facility is tendered and the moment it enters into commercial operation can extend up to seven years, while transmission projects can take three to five years to enter the operational stage. The second factor to consider is that the decision to expand the grid has long term economic repercussions since these projects have life cycles that extend over 30 years. Expansion plans are no easy undertaking, since they require updated information of all generation and transmission projects that can be incorporated into the program. This information is sourced from studies carried out by CFE and other specialized sources, and with this data it is possible to catalogue feasible projects in accordance with technical information, technology, and costs. The projects undergo economic and technical evaluations, based on six major elements. These consist of the forecasted energy demand, existing generation infrastructure, decommissioning programs, planned investments in generation and transmission, fuel costs, and political priorities in matters of electricity development. All of these studies are carried out for the three systems: the National Interconnection System, Baja California and Baja California Sur. Each study pinpoints where new generation sites must be located. During this process an important development was made with the interconnection of the Baja California grid to the National Interconnection System. This interconnection will generate several benefits, including support to meet Baja California’s peak demand through generation resources located in the interconnection system. In turn, during periods of less demand in Baja California the surplus energy can be exported to the interconnection system. This way, the diversity in demand can be fully capitalized upon, the investment costs in infrastructure will be reduced, and opportunities will be presented for energy transactions with the US. INSTALLED CAPACITY OUTLOOK The Ministry of Energy and CFE carried out studies that indicate that, in order to satisfy the electricity demand for the next 15 years, an additional installed capacity of 54,950MW will be needed. Of this amount, 4,848MW is currently under construction or being tendered, the remaining 50,102MW corresponds to future projects, while rehabilitation and conversion initiatives will contribute with an additional 600MW. Of the installed capacity to be added in 2014-2022, almost 24% will consist of non-fossil fuel powered plants, while 76% will operate on fossil fuels. For the latter, combined cycle plants represent 72% of the additional capacity. For the period between 2023 and 2028, an additional 26,955MW are expected to meet the demand, of which 47% is expected to come from new clean generation technologies, followed by combined cycle plants contributing 40%.

DEVELOPMENT OF MEXICO’S ENERGY MIX Mexico’s installed capacity by technology (MW) 2012

2028

2.7% 0.9% 0.1% 1.3% 8.9%

1.2% 4.2%

7.9%

0.8% 1.6% 0.3% 1% 5.5%

13.8% 31.2%

19.3%

10.9% 45.2%

1.8% 0.5% 5.6%

carbon

19.7%

Carbon

Solar

Nuclear coke

Biomass

nuclear

solar

Coke

biomass

local private development geothermal

Geothermal

Combined Cycle combined cycle conventional thermoelectric Conventional

Local Private Development

Source: Ministry of Energy and CFE

340

0.3% 1.9% 1.7%

Thermoelectric

turbo gas

Turbo Gas

internal combustion

Hydroelectric

wind Combustion Internal hydroelectric

Wind

Source: Ministry of Energy and CFE

MEXICO’S MINISTRY OF ENERGY COMMITTED TO TRAINING TALENT The Energy Reform was passed and is being implemented,

to invest in addressing the talent gap in order to increase

while the authorities are perfecting the finishing touches

opportunities for Mexican professionals.

of the wholesale electricity market. Now, one of the next tasks consists of ensuring the availability of the talent

Ortiz wonders if the market has the talent the industry

that will guarantee the success of the authorities’ efforts.

requires, as this question will help the authorities determine

Documents like PRODESEN help the Ministry of Energy

the areas to be addressed. “If you only focus on developing

predict how the industry will play out in terms of talent

one specific output within the system, then the rest of the

requirements. Carlos Ortiz, Director General of Research,

elements will not be ready to assimilate the growth of that

Technological Development and Human Resources at the

single variable. This is a systemic approach where we try

Ministry Of Energy, explains, “If the electricity sector’s

to play a significant role in producing talent at the level

forecast says we are to increase the installed solar capacity

of maturity that the industry requires.” However, there is a

by a specific percentage in a determined time frame, we

worrisome scenario in which the talent the authorities invest

then use this information to determine what this capacity

in ends up working for another industry. “I think this is a

increase implies in terms of talent requirements.” In other

question of the kind of risk we are willing to assimilate. Do

words, the Ministry plans and implements programs to train

we want to assimilate the risk of the energy sector maturing

people when it detects a gap between highly specialized

and the lack of talent becoming bottlenecked, or the risk of

talent and current workforce existence and production.

a talent surplus?” Ortiz uses South Korea as an example of a

This is based on the analysis of industry best practices,

country Mexico could learn from, with its massive investments

data taken from existing projects, educational information,

in education, drastically overhauling its economy within less

and occupational surveys, among other factors.

than 40 years. Also, he views talent surplus as something

“A kid in a rural community, given the right opportunity, can exploit his full potential and become a sector leader or a bright scientist” Carlos Ortiz, Director General of Research, Technological Development and Human Resources at the Ministry Of Energy

Ortiz stresses the fact that the industry will be highly

positive that can trigger innovation. “People who do not find

competitive in the aftermath of the Energy Reform. The

a niche will eventually seek new challenges or opportunities

challenge is for government, industry, and academia to

that are not being capitalized on, and propose solutions

jointly accumulate all the pieces to deploy Mexican talent

that will add value. This is how many startups begin. A lot of

that is internationally competitive, and ready to retain

talent and energy could be focused on creative solutions for

high-quality employment opportunities.

problems that were probably not even there.”

Some might also question why the government should get

The Program will yield results in the short, medium, and

involved in fostering talent rather than letting the industry

long term. Initiatives like ‘Ciencias para Compartir’ will

solve the issue on its own. “I consider talent gaps to be a

take longer to show results. This initiative is aimed at

market flaw, and an important role of the government is to

promoting interest in science, technology, engineering,

work on solutions to address market flaws,” responds Ortiz.

and math to children with limited resources. “A kid in a

“If the industry is left alone, it will find more investment

rural community, given the right opportunity, can exploit

barriers, less profitable projects, and a harsher environment

his full potential and become a sector leader or a bright

to deploy technologies.” In the second perspective, the

scientist. We do not only invest in fixing today’s problems;

government intervenes by developing programs to train

we also look further in to the future and invest in a cultural

people, which will strengthen the industry. “In this scenario,

change that will become the basis of the energy sector

we will facilitate investment flow, which in turn is positive

of tomorrow,” comments Ortiz. For him, the fact that

for the economy and for the people who will get the

the Program has inspired many actors in the academic

opportunities for higher skilled and higher paying jobs.” In

community to reinvent themselves in order to become

addition, with the creation of the Energy Sectorial Funds,

relevant to the energy sector means some immediate and

Congress made a statement about its desire and willingness

even unexpected results are already tangible.

341

MEXICAN CENTERS OF INNOVATION IN ENERGY While the potential economic benefits of the Energy

implemented to make sure that there is enough talent to

Reform have been broadly celebrated, there is one issue

cover the demand as the industry grows. “Now that the

that raises concerns for both companies and authorities

sector is open, market driven, and transparent, CFE and

in that 500,000 jobs are expected to be created in the

PEMEX will have to compete for talent with private players.

electricity industry in the next few years. Leonardo

If we do not provide a skilled labor force from the outset, it

Beltrán, Undersecretary of Planning and Energy Transition,

must be imported, which is not sustainable,” Beltrán warns.

explains that the growth of an economy depends on

342

capital, land, and labor. He is confident that capital will not

Part of the government’s strategy to develop the value-

be an issue due to the new legislation and the country’s

creating skilled labor for the sector consists of investing in

natural resources. As for talent, several initiatives must be

networks aimed at exchanging knowledge and technology.

| PROJECT SPOTLIGHT PREPARING OAXACA’S FUTURE WIND FARM OPERATORS With a shrewd awareness of the region’s natural resources, the government of Oaxaca has undertaken several initiatives to develop the human capital needed to meet the growing energy sector demands. Back in 2002, the government of Oaxaca created a public institute of higher education and scientific research: Universidad del Isthmo (Isthmus University). This institution has three campuses located in strategic parts of the state, Santo Domingo Tehuantepec, Ciudad Ixtepec, and Juchitan de Zaragoza. The Tehuantepec campus offers a plethoxeering. However, the institution has a penchant for renewable energy sources, as evidenced by its master’s degrees in solar energy and wind power. The

Juchitan

campus

has

capacity-building

center exclusively devoted to wind energy, to which the university contributes with infrastructure and personnel, while renowned turbine manufacturer Gamesa provides the necessary equipment. This research center is poised to significantlt impact on Oaxaca’s wind sector, as it will provide locals with the necessary skills and knowledge to take advantage of the state’s energy potential and position themselves in the job market. Wind farm technicians are commonly imported from abroad, which implies high costs for companies and the loss of employment opportunities for locals. The Isthmus University is undertaking similar initiatives to ensure that Mexican youth can progressively take on technical positions in wind energy projects that were previously reserved for more experienced foreign professionals.

The Ministry of Energy and CONACYT developed an

more focused on concrete subjects. Considering the

initiative known as Mexican Centers of Innovation in Energy

assigned resources and their institutional design, I believe

(CEMIEs) through the Energy Sustainability Fund, in which

CEMIEs will yield favorable results,” he asserts.

the academic sector, research centers, and companies join forces to develop each renewable energy source. The

At the moment, there are already CEMIEs working on solar,

idea is to create products that will generate growth and

wind, and geothermal energy, and centers for biofuels and

create a market, or will promote competitiveness in their

marine energy are being tendered. Beltrán stresses that

respective industry. The Undersecretary of Electricity,

the authorities do not want CEMIEs to compete between

César Hernández Ochoa, explains that CEMIEs will work by

themselves at the moment because their numbers are still

building links between academia and the productive sectors

relatively small. “We would like them to join forces as a

across different institutions in the country. Due to the way

community to compete in the international market. Of

these centers are designed, researchers do not need to be

course we want competition once we have established a

stationary, so they work in a network model. “CEMIEs need

solid base of researchers, which is what drove us to come

a link with a production demand that makes the research

up with the CEMIE initiative in the first place.”

343

NATIONAL CHAMPION SEEKS TO BECOME AN ENERGY TRADER The rapidly changing energy industry poses challenges

area. According to Fernández, CFE experiences annual

for even the most experienced players. Grupo Dragón, a

losses of MX$57 billion due to malfunctions in software and

prolific player in the renewables segment and a pioneer

invoicing, energy theft, and poorly executed commercial

in Mexico’s geothermal energy sector, is aware of the

strategies. Instead of being perceived as a competitor,

difficulties involved in understanding and adapting to the

Fernández would like his company to be seen as a supplier

new landscape. José Pablo Fernandez, the company’s

of solutions and potential partner.

CEO, is taking advantage of the dynamism caused by the market’s shift and is looking at new opportunities. In this

Grupo Dragón’s power generation activities will keep the

sense, Grupo Dragón is now preparing to create an energy

company busy while it crafts its commercialization division

trading division. “Grupo Dragón has solid knowledge

and the rules of the game are established. “As we shape

because it was the first company in Mexico to implement

ourselves to become an energy trader, this particular strategy

a real trading strategy five years ago. It is worth noting

of power generation will form part of our core business.

we did not establish this in the spot market. The company

Our plan is to divide the business into power generation,

created a monthly trading strategy that gave us the

marketing, and lastly a service division,” Fernández shares. The

necessary knowledge on management, regulations, and

service division will focus on the operation and maintenance

communication with CRE and CFE,” Fernández boasts.

of the company’s infrastructure, and even on other players’

“In our eyes, the Energy Reform has tackled many themes and is geared to be a success. My only concern lies in that the time of the transition phase should be shortened” José Pablo Fernandez, CEO of Grupo Dragón

Energy trading creates both opportunities and challenges

solar and wind plants. The generation division is comprised

for the company that has so far dedicated itself to energy

of renewable energies. “We are not the only company that

generation. Férnandez believes Grupo Dragón is well-

has the ambition to become such an integrated energy

positioned to establish itself as the main player in electricity

company. Therefore, we must be aggressive in our strategies

commercialization in Mexico, as the company has the

and attentive to the trends of the industry in order to remain

technology, both software and hardware, needed to initiate

ahead of the game,” according to Fernández. In this sense,

such an endeavor. The fact that CFE will create several

Grupo Dragón will specialize in segments other companies

subsidiaries makes Fernández even more optimistic about

do not find interesting. In the long term, Grupo Dragón might

his plans. “CFE will decide to focus less on certain areas it

diversify into other energy sources such as natural gas, but

deems less profitable, so there will be segments for other

Fernández says this is far in the future.

companies to seize. We want to commercialize electricity, and we are talking with many generators about our strategy.”

In the past, Grupo Dragón shied away from the limelight, but the company’s is now ready to reveal its ambitions in

344

In order to establish the best model possible, Grupo Dragón

the new market. The themes at the top of Fernández’s wish

is working with the authorities, mainly CENACE. The key,

list can be summarized as a solid, efficient regulation. “In

according to Fernández, is to be prolific when working with

our eyes, the Energy Reform has tackled many themes and

these entities. He says idly waiting for a solution would

is geared to be a success. My only concern lies in that the

result in his company’s demise, so the firm proactively

time of the transition phase should be shortened.” Grupo

proposes initiatives and carries them out. The company

Dragón has five projects it wishes to fully deploy once

is providing software and hardware solutions to CFE and

the uncertainty has been cleared: the geothermal plant in

CENACE, although the system operator will gradually gain

Nayarit, two solar parks, and the Los Altos II and Vigil wind

a more important position in Grupo Dragón’s portfolio.

farms, which fall under the legacy scheme. The marketing

Fernández acknowledges CFE’s experiences in distribution

and trading division will receive the most attention, and the

and commercialization, so in his view, Grupo Dragón will

company continues to work on creating a solid strategy

be another player in the market. However, the company

that will be presented to the rest of the world, leaving no

has detected some issues CFE is facing in its commercial

room for doubt in terms of the company’s potential.

UNTANGLING THE MARKET RULES The government has finally defined the rules whereby

qualified services stops providing the agreed services to

private players can participate in the wholesale electricity

a qualified user, the Last Resource Supplier will provide

market. The Minister of Energy, Pedro Joaquín Coldwell

electricity to the client in question until a stable supply is

expressed that these would be the foundation that would

once again achieved. There will be a Last Resource Supplier

encourage competitiveness in the electricity industry and

in each geographic division, and in case a determined area

where generators would have to offer their best prices,

does not have a Last Resource Supplier, providers of basic

which would translate into lower costs. “The Reform we

services are obliged to offer their services.

are implementing has vigorously shaken up Mexico’s old electricity system. Ultimately, we intend to balance the

Traders can be specialized in just one type of product, such

electricity supply,” he expresses. During this lapse, the

as CELs or electricity. As a result, it is unnecessary to establish

Ministry of Energy revised over 400 pages of suggestions

a minimum installed capacity requirement when upholding

proposed by companies, organizations, and users. The

a contract in the case of non-supplier commercializing

Law of the Electricity Industry indicates that suppliers

companies. According to the Law of the Electricity Industry,

are those energy traders or marketers that can sell to end

supplying electricity or representing exempted generators

users, whether these are qualified users or consumers in

requires a CRE permit in the Supplier modality, and this

the basic service segment. These players must first submit

organization can impose additional conditions for basic

a request to obtain a permit for supplying electricity from

service providers and Last Resource suppliers.

CRE, and the agency will verify the technical, financial, and legal capacity of the companies in order to ensure that

CFE will be able to supply through two modalities. The

they have the capacity to offer the services. It is important

first includes generation integrated in the Federal Expense

to note that marketers can skip this process if they do not

Budget and intended to be delivered to basic service users

sell to end users.

at the lowest price, through electricity coverage contracts. Generated power that is not part of these contracts, as well

In addition, suppliers have to sign long-term electricity

as additional CFE energy, can be sold to the highest bidder

coverage contracts for periods established by CRE.

through long-term contracts or in the spot market. Prices

Suppliers of basic services have to sign electricity

in the wholesale market will be determined in each node

coverage contracts through tenders launched by CENACE.

according to electricity, congestion, and losses, reflecting

Article 55 of the Law of the Electricity Industry states that,

marginal costs in each node based on a minimal dispatch

in cases where suppliers of basic services do not fulfill their

cost. CENACE will be in charge of calculating local marginal

payment or obligations set out by CENACE, the Ministry

costs, which will be determined by the energy offerings for

of Energy will intervene. Likewise, in case a supplier of

a specific node during a determined period.

| EXPERT INSIGHT: THE POSSIBLE FUTURE OF MEXICO’S ENERGY MIX Q: What should Mexico’s energy mix look like in the long

the next decade, and without nuclear it will be difficult

term?

to enhance economic development and mitigate climate

A: I would expect that by 2050, Mexico will have a significant

change simultaneously. There have been discussions on

proportion of electricity generated by renewable sources

constructing an entire electricity grid with renewables, the

and nuclear power. Due to few possibilities for large dams,

intelligence of which would need to be high in order to

there will only be two or three more large hydroelectric

account for the intermittent nature of the resources. Even

plants. I would also predict 40,000MW of wind energy

if power generation was possible through exclusive use of

being generated by 2050, 10,000MW of solar, and between

renewables, it would be extremely expensive for a number

20,000MW and 30,000MW of nuclear electricity. Mexico

of technical reasons. Nuclear will undergo a dramatic

also has geothermal capacity, and around 10,000MW

evolution, with new technologies available, more safety, and

can probably be generated with this resource, which

smaller reactors less prone to accidents. If we are going to

is minimal. Geothermal is limited, as it is not a resource

be serious about climate change and we want to grow, we

that can be expanded indefinitely. I think climate change

need to be serious about nuclear energy.

will hugely impact the world’s energy sector sooner or later. This will become a major and overriding issue overv

Gabriel Quadri, Director General of Enerclima

345

| VIEW FROM THE TOP

FLOURISHING INDUSTRIAL GROWTH BOOSTS ENERGY INDUSTRY PIERRE COMPTDAER Country Managing Director of ABB Mexico Q: What contribution will Mexico make to ABB’s growth

advanced distribution transformers that help significantly

strategy, and how will its importance evolve over the

reduce energy losses. In addition, we can help redesign

coming years?

and automate the grid in order to maintain the quality and

A: The geopolitical scenario that Europe is facing has

reliability of the network. This smart grid is administered

wounded its industrial growth, while the Asian economies

by powerful software with a hardware backbone. Once a

are decelerating. In the case of North America, we have seen

country has reached enough energy quality, it can upgrade

that its politics are leading to a sort of reindustrialization.

the system through automation. Basically, before creating

In Mexico we see an enormous potential for growth due to

a smart grid, you need to be sure it is strong enough. We

the strategies that the government has implemented. In

are working on a smart grid pilot project in Cozumel and it

2014 we saw the number of large projects and investments

will offer insight into its workings.

recovering, especially in the infrastructure segment. We are now participating in the expansion project of the

Q: What will Mexico need in order to meet the target of

maritime port of Lázaro Cárdenas, Michoacan, where we

generating 34% of its electricity from renewable energy

are involved in the automation and electrification process.

by 2024?

This terminal is based on ABB’s smart port concept and

A: When we talk about renewables, we need to consider

will be the first completely automated terminal in Latin

four sectors: wind, solar, geothermal and hydro. In terms of

America. We are also participating in another large

technology there are no major difficulties. Companies are

electrification project for PEMEX.

struggling a little with the regulations and the profitability of those projects. In the short term, I believe the biggest

Q: What obstacles threaten the healthy development of

potential is held by wind and solar power because this is

the energy sector in Mexico?

where the majority of investments are going. The cost of

A: Most of the investment that will be poured into energy

photovoltaic cells has decreased tremendously in the last

generation will come from the private sector, since most of it

five years. It is now cost-effective for end users to install

is destined to cogeneration plants, renewables, and IPPs. The

their own solar systems to power their consumption needs.

government must focus on how it will install the transmission

A lot of people in Germany, France, and Holland already

lines that are needed to deploy the electricity faster than the

have solar panels working in their house, which has been

demand growth. On one side, you need to make cheap gas

driven by government incentives. Unfortunately, there are

available to the companies looking to enter the country, and

no incentives in Mexico as there are in Europe.

on the other, the transmission capacity has to be competitive. For that reason, HVDC transmission technology will provide

Q: What are ABB’s ambitions to bring more R&D activities

a robust and efficient infrastructure to alleviate the stress on

into the country?

the grid, and also to provide certainty for medium and long-

A: We have already begun with R&D practices in the country,

term generation investments.

in fact, we have an R&D team working on low and medium voltage solutions. The idea is that whatever knowledge

346

Q: What role will ABB play in supporting the parastatal

comes from these investigations will be used to develop

reach its goals in these areas?

products for the Americas. In medium voltage we have a

A: One of the concerns for CFE is related to energy

smaller team working on adapting the products to Mexican

losses that occur in its distribution lines. CFE managed

norms. ABB has seven corporate research centers that

to reduce losses from 16% in 2012 to 14% in 2014. Ochoa

are working in different business units (BU). The product

Reza plans to end at 10% by 2018. Addressing technical

development is done at BU level, coordinated on a global

losses is important, not only to increase profitability for

basis. Normally, where we have manufacturing sites, we

the distributor, but also because it dramatically improves

like to concentrate our R&D teams to try to support local

the quality of the energy and the service. ABB has highly

suppliers and adapt the products to specific market needs.

| INDUSTRY EXPERTS’ FUTURE OUTLOOK

“

The Energy Reform’s fundamental purpose is to fully capitalize on the country’s energy resources as a lever of economic growth, in order to improve the population’s quality of life. Another objective consists of ensuring universal access to reliable, efficient, clean, and competitive energy. The Reform poses a new juridical framework that allows attracting

”

private investments and cutting-edge technology to maximize energy revenues, ultimately benefiting the country.

Emilio Lozoya Austin, Director General of PEMEX

“

The Energy Reform was devised with future generations in mind, who, in spite of the market’s volubility, should adopt a positive outlook on economic prosperity for public finances, the private sector, and

”

consumers in general. There is now no turning back, as the application and instrumentation of this structural reform will deeply and positively change Mexico’s profile in the 21st century.

David Penchyna, President of the Energy Commission of the Senate

“

The energy sector has history, infrastructure, and a model we have yet to take advantage of. Previously, the public sector was the main driver and now it will be complemented with the strength of the private sector. The Reform creates the conditions to match and align incentives, and create opportunities in other markets that were absent when the public sector was the only driver of growth in the energy sector. For the electricity segment, we have formulated the conditions for new participants to come and develop renewable resources, thus creating markets and regional growth. We are also generating the conditions to make Mexico an attractive investment destination and create employment. Leonardo Beltrán, Undersecretary of Planning and Energy Transition at the Ministry of Energy

“

”

Scarcity is the mother of innovation, and this is especially true when dealing with limited natural resources. It is precisely Mexico’s abundance of natural resources that has made it slow to grasp the potential to innovate. The question is not whether renewable energies

”

will bring innovation; the question lies in whether Mexico is willing to make the investment and develop the infrastructure required to promote innovation within the energy industry.

Dr. Isabel Studer, Founding Director of the Global Institute for Sustainability

“

The problem I see is that there is no culture of innovation and there is no infrastructure for innovation. Now that the reforms have passed, their implementation will be a challenge, raising above all the issues of transparency, competitiveness, and financing. The reforms will play a role in guaranteeing a more competitive market, and energy is a particularly interesting market because of the push that is coming from the federal government, and now the

”

conditions are optimal. What is currently happening in Mexico is going to help the energy industry flourish. The cultural change required for innovation will take many years, but energy will be at its core.

Luis Aguirre-Torres, CEO of GreenMomentum

347

INDEX A-C

INDEX C-G

a3p 247

Check Point Software Technologies 295

ABB 84, 346

CICESE 174-175

Abengoa 109

CIME 215

ABO Wind 167

CISA Energía 160-161

Acciona Energía 148, 150, 165

Climatik 168-169

Actis Capital 293

ClusterGeo 127

AES México 69

Commission of Indigenous Affairs 261

Agustín Humann Adame 101

Compañía Mexicana de Gas 106

AMDEE 148, 149

CONAGUA 230, 241

AME 13

Construtoral 162

AMESCO 209

Consulate of Iceland 129

AMEXHIDRO 132, 133

CONUEE 208, 263

AMGN 97, 99

COPARMEX 304

ANDRITZ HYDRO 134-135

CRE

ANES 180

Francisco Barnés 40-41, 59

Arteche 86, 87

Jesús Serrano 16-17, 125

ASEA 21, 45-46, 55

Noé Navarrete 32

Astris Finance 291

Cummins 112-113

Auriga 166

DMSolar 201

AWS Truepower 171

DNV GL 290

Baker Tilly Mexico 319

EA Energía y Arquitectura 223

Bancomext 280

ECOCHOICE México 216

Banobras 279

EDF Energies Nouvelles 153

Basham Abogados 297

EJ Krause 329

BBVA Bancomer 286

Elecnor 85

Bioconstrucción y Energía Alternativa 216, 224-225

ENAL Group 128

Biosolventus 163

Enerclima 345

Blue Coat Systems 327

ENER-G 244

Border Environment Cooperation Commission 236

Energía Eólica del Sur 9, 148, 261

Bright 307

Energía Veleta 273

BUTECSA 202

Energy Commission of the Senate 335

CADIS 62-63

EOSOL Energy México 9, 185

CANROMEX 234-235

ERM 314-315

Carswell & Calvillo 44-45

Fermaca 104

CEMDA 46-47

FIDE 211, 281

CEMEX 165

First Solar 190

CENACE 7, 14, 35, 74

Fitch Ratings 288-289

CENAGAS 7, 15, 96

Fluke Dominion Mexico 66, 210-211

Centro Mario Molina 22-23

Fronius México 198-199

Cervantes Sainz 42-43

Galo Energy 113

CFE 6-7, 52-53, 56, 57, 98-99

Gamesa 148, 151

CH2M Hill 249

Gastélum Abogados 114

Chadbourne & Parke 38-39, 40-41

Gauss Energía 181, 193

Chase Solar 196

GE Digital Energy 80

INDEX G-J

INDEX K-R

GE Power and Water 154

KfW-DEG 283

Global Institute for Sustainability 305, 347

KPMG 309, 321

González Calvillo Abogados 312

Krasovsky Asociados 126

Government of Aguascaliente 257

Lexington Group 25, 40-41

Government of Nuevo Leon 256

Main Energy Projects 266

Government of Oaxaca 260

MAKE Consulting 173

Government of Queretaro 258

Mannvit 130

Granite Chief 202-203

Marersa 139

Green Power Conferences 326

Mexico Power Group 168

Greenberg Traurig 33

MÉXICO2 Mexican Carbon Platform 324

GREENid 308

Microsoft 64-65

GreenMomentum 306, 347

Ministry of Energy

Greenpeace 218

Carlos Ortiz 341

Grupo DESUS 224-225

César Hernández Ochoa 12, 34, 35, 57, 342-343

Grupo Dragón 344

Leonardo Beltrán 11, 34, 40-41, 334, 342-343, 347

Grupo Evoasis 269

Pedro Joaquín Coldwell 10, 345

Grupo JB 268

Moody’s 60-61, 288-289

Grupo Ortiz 114-115

NAFINSA 131, 278, 285, 323

Guascor de México 111, 245

National Commission of Nuclear Safety and Safeguards

Heidrick & Struggles 318

141, 142-143

Heliocol México Solar 203

NEOmexicana 107

Holland & Knight 37

NERA Economic Consulting 42, 115

HSBC 285, 322

Nissan Mexicana 244, 298

Iberdrola 19

North American Development Bank 236, 284

ICA 328

Nova Monarca 317

ICLEI 313

OPC Ambiental 232-233

IGSA 117

Oracle México 67

IIE 75

Ormazábal 89

Ilios 292

OSRAM Mexico 213

ILUMéxico 270

PEMEX 6-7, 54-55, 56, 98-99, 347

INELECSA 188

PEMEX Cogeneration and Services 100

Ingeniería Administración de Contratos 311

PepsiCo Mexico 238

Ingeteam 200

Philips Lighting Latin America 211, 212

Iniciativa Energía 267

Picciotto Arquitectos 220

InterGen 110

Power Development de México 138

Internovum Solar 271

Powergreen Technologies 210

Intrust Global Investment 174-175, 316-317

Primero Energía 119

Isolux Corsán México 88

PROFEPA 21, 45-46, 55

ITACA Proyectos Sustentables 221

PwC 40-41, 320

Itron 68, 83

Ready Energy Solutions 201

IUSASOL 186

Renewable Energy Commission of the Chamber of

Jáuregui y Del Valle 36, 58

Deputies 24

Jema Irizar Group Mexico 198-199

Revitaliza Consultores 222

Jinko Solar 194

Reykjavik Geothermal 130

INDEX R_Z

TECHNOLOGY SPOTLIGHT INDEX

RGRH 296

Software Harnesses Power of Data, Fluke

Rosatom International Network 142-143

Monitoring Instrument Transformers, Arteche

Roxtec de México 90

235

Unveiling the INTEWA Water System, CANROMEX

S&C Electric Mexicana 82 SACMEX 231, 237 Sampol 118 Saya Energy 195 Schneider Electric 81

PROJECT SPOTLIGHT INDEX

Scitum 79, 294 SEDEMA 27, 262

109

Agua Prieta Ii

SigeaCarbon Mexico 325

165

La Ventika

SIMEPRODE 242

193

Aura Solar I

217

Unveiling the Secrets of Sustainable Building

Sinohydro 136, 137 Sistema Biobolsa 246 Smart Grid México 78 Solar Frontier Americas 191 SolarAct 272 Solartec 187

241

Atotonilco

245

Lorean Saltillo

336

Mexican Centers of Innovation in Energy

343

Preparing Oaxaca’s Future Wind Farm Operators

Solben 248 Soriana 292, 328-329 SOWITEC 170 Standard & Poor’s 60-61, 287 SUMe 219

PLANT SPOTLIGHT INDEX

SunEdison 188-189 SunRise Power 90

136

Chicoasén

Tamaulipas Energy Agency 259

140

Laguna Verde

Thermion 310 TransCanada 8, 105 TYPSA Group 160 Universidad del Istmo 343 Verde Alterno 214, 243

FINANCIAL SPOTLIGHT INDEX

Vestas 152 Vive Energía 172

285

Collaboration Strengthens Financial Muscle

Walmart Mexico 239, 299 WEG 62 Woodhouse Lorente Ludlow 34, 125 World Bank 282 World Wildlife Fund 26

AGENCY SPOTLIGHT INDEX

Yingli Solar Mexico 197 Züblin Ambiental 232-233 Zuma Energía 155, 293

Asea Takes Weight off PROFEPA’s Shoulders

MAP INDEX

Interregional Transmission Capacity (MW, 2013)

102

Natural Gas Infrastructure

156

Wind Projects in Operation

158

Wind Projects in Operation in Oaxaca

182

Solar Irradiance

264

Electricity Sales by State, 2013

ADVERTISING INDEX

SENER – Fondo de Sustentabilidad Energética

166

ABO Wind

Construtoral

169

SunEdison

Züblin Ambiental

178

Solartec

FIDE

184

Fronius

Woodhouse Lorente Ludlow

189

SunEdison

44-45

Solarcell / Solartec

195

Jinko Solar

Scitum

206

FLUKE

Gastelum Abogados

288

SIMEPRODE

Standard & Poor’s Ratings Services

243

CANROMEX

ABB

247

Sistema Biobolsa

S & C Electric Mexicana

252

Primero Energía

Arteche

266

Iniciativa Energía

Cummins

276

ERM

116

InterGen

285

RGRH

122

MESR

302

Blue Coat Systems, Inc.

135

Andritz Hydro

309

Green ID

146

EDF Energies Nouvelles

332

Beristain Abogados

161

Cisa Energía

CREDITS

EDITOR-IN-CHIEF: Jeroen Posma

COMMERCIAL DIRECTOR: Neja Brglez

SENIOR EDITOR & INDUSTRY ANALYST: Wallace Porter

PUBLICATION COORDINATOR: Antoine Hurel

SENIOR EDITOR & INDUSTRY ANALYST: Michelle Adams

PUBLICATION COORDINATOR: Carolina Mendoza

EDITOR: Sara Warden ASSOCIATE EDITOR: Matt Kendall

DESIGN DIRECTOR: Vanessa Rocha

COLLABORATOR: Bernardo Flores

DESIGN ASSISTANT: Marcos González

COLLABORATOR: Chris Dalby

WEB DEVELOPMENT: Arturo Madrazo

COLLABORATOR: Michel Cuvillier COLLABORATOR: Alejandro Salas

PUBLICATION ADMINISTRATOR: Alena Lipková

COLLABORATOR: Iwona Knap

ADMINISTRATIVE ASSISTANT: Rebeca Garduño

COLLABORATOR: Ana Givaudan

CIRCULATION MANAGER: Ana Cristina Garantón

PRINTED BY Foli, Negra Modelo # 4 Bodega A Fracc. Cervecería Modelo, Naucalpan Estado de México T:. 9159 2100

PHOTO CREDITS

Inner front cover - Iberdrola

Scitum

MBP

Espinosa-reo

Schneider Electric Mexico and Central America

Ministry of Energy

MBP

Ministry of Energy

ABB

Ministry of Energy

MBP

AME

MBP

CENAGAS

MBP

CRE

MBP

CRE

CFE

COMEXHIDRO

CENAGAS

PROFEPA

AMGN

MBP

100

PEMEX

Chamber of Deputies

101

Natural Gas Business Development

Lexington Group

104

MBP

WWF

105

TransCanada

SEDEMA

107

MBP

Oracle

108-109

CFE

CRE

110

InterGen

Greenberg Traurig

111

MBP

WWL

112

Cummins

MBP

114

MBP

Holland & Knight

117

MBP

Chadbourne & Parke

118

MBP

119

MBP

120

Andritz Hydro

MBP

124

CFE

Greenpeace

125

Woodhouse Lorente Ludlow

CFE

126

MBP

CFE

127

MBP

CFE

128

MBP

PEMEX

129

MBP

130

MBP

133

AMEXHIDRO

S&P

134

MBP

135

Andritz Hydro

MBP

136

CFE

Fluke

138

MBP

Oracle México

139

MBP

Itron

140

CFE

MBP

142

Rosatom International Network

144

Acciona

MBP

149

MBP

150

MBP

151

MBP

PHOTO CREDITS

152

Vestas Mediterranean

222

Revitaliza Consultores

153

MBP

223

MBP

154

MBP

225

BEA

155

MBP

226

CONAGUA

158

Iberdrola

230

CONAGUA

160

CISA Energía

231

SACMEX

162

MBP

232

MBP

163

Biosolventus

234

MBP

164-165

Acciona

236

Border Environment Cooperation Commission

166

MBP

238

PepsiCo Mexico

167

ABO Wind

239

Walmart Mexico and Central America

168

MBP

240-241

CONAGUA

170

SOWITEC

242

MBP

171

MBP

244

ENER-G

173

MBP

245

Guascor de México

174

CICESE

246

Sistema Biobolsa

175

Acciona

247

MBP

176

Gauss Energia

248

Solben

180

ANES

249

BECC

181

Gauss Energia

250

185

MBP

187

Solartec

256

Government of Nuevo Leon

188

MBP

257

Government of Aguascalientes

190

MBP

258

Government of Queretaro

191

Solar Frontier Americas

259

Tamaulipas Energy Agency

192-193

Gauss Energia

260

Secretariat of Tourism and Economic

194

MBP

195

MBP

261

Commission of Indigenous Affairs

196

Chase Solar

262

SEDEMA

197

MBP

263

MBP

198

MBP

267

MBP

200

MBP

268

MBP

204

Fluke

268

Acciona

208

MBP

269

MBP

209

AMESCO

270

MBP

210

MBP

271

MBP

212

Philips

272

MBP

213

OSRAM Mexico

273

MBP

214

MBP

274

Torre Mayor

215

MBP

278

MBP

216

MBP

279

MBP

217

Torre Mayor

280

Bancomext

218

MBP

281

MBP

219

MBP

282

MBP

220

MBP

283

MBP

221

MBP

284

NADB

Espinosa-reo

Development of Oaxaca

PHOTO CREDITS

286

MBP

287

Standard & Poor’s Rating Services

288

MBP

290

DNV GL

291

MBP

292

Ilioss

293

Actis Capital

293

PepsiCo

294

Scitum

295

MBP

295

www.freeimages.com

297

Basham Abogados

298

MBP

299

Walmart Mexico and Central America

300

OSRAM

304

MBP

305

Global Institute for Sustainability

306

GreenMomentum

307

Bright

308

MBP

309

MBP

310

Thermion

311

MBP

312

MBP

313

ICLEI

314

MBP

315

Acciona

316

MBP

318

Heidrick & Struggles

319

Baker Tilly Mexico

320

PwC

321

MBP

322

MBP

323

NAFINSA

324

MBP

325

MBP

326

MBP

327

Blue Coat Systems

328

Soriana

330

334

Ministry of Energy

335

Senate

337

MBP

Inner back cover - CFE

356