IMPACT REPORT
0222
OUR SPONSORS
Gold Sponsors
Networking Cocktail Sponsor
Lanya rd Sponsor
Networking Coffee Break and Matchmaking Platform
Livestream Sponsor
SilveSponsorrSponsors
Charging Po le Sponsor
Networking Cocktail Sponsor
Gold Sponsors
OUR SPONSORS
Matchmaking Platform and Livestream Sponsor
Silver Sponsors
0222
Mexico is in the middle of a crossroads regarding its energy policy. The failed attempt to introduce a new energy reform, the Supreme Court’s reactivation of the LIE reform of 2021 and the struggle to fulfill international decarbonization commitments challenge the energy sector domestically. Meanwhile, rising fuel prices following the Russo-Ukraine conflict, inflation and the race against the clock to fight climate change are influencing international energy markets.
Through live, virtual and hybrid environments, Mexico Natural Gas Forum 2022 and Mexico Energy Forum 2022 ECHO allowed leaders and stakeholders from the private and public sectors to engage in enriching conversations about the present and future opportunities in one of the country’s strategic industries.2022
Efforts to achieve net zero goals by 2050 keep driving innovation in the energy sector, with renewables and energy efficiency at the center of decarbonization strategies. At Mexico Energy Forum ECHO, industry experts shared the country’s potential, in favor of a diversified energy matrix that can support economic and social development.
Top industry leaders met at Mexico Energy Forum 2022 ECHO for in person and virtual interactions to debate the latest industry trends driving business opportunities for the energy transition, both regarding traditional and renewable energies.
As the main source of energy production in Mexico, Mexico Energy Forum gave natural gas a headlining role in its latest edition launching the first Mexico Natural Gas Forum. Natural gas is a key element in the energy transition worldwide and the source for 60 percent of the energy generation in the country. Mexico’s strong dependency on natural gas, however, raises questions regarding the country’s energy security, as increasing gas prices and reduced supply amid geopolitical tensions have shattered the international market.
Conference social media impact social media impact direct duringimpressionsMEF/MNGF direct pre-conference LinkedIn impressions click through rate during MEF/MNGF 4.54% pre-conference click through rate engagementconferencerate 9.45% engagementpre-conferencerate
Delivering intent-based matchmaking powered by Artificial connects people. matter where
Mexico’s leading B2B conference organizer world’s leading event platform.
networking
the right
75,145
9.43%
18.15%
Breakdown by job title
Pre-conference
22,895
Network, no
C ONFERENCE I MPACT5
introduces the
Intelligence that
you are. 250 participants 1,199 communicationsmatchmaking 132 1:1 conductedmeetings Matchmaking intentions Total 3,772 616 Networking 829 Investment 1,904 Trading 280 Recruitment 143 Mentoring 148 companies 537 participantsconference 70 speakers 15 sponsors 5,825 visitors to the websiteconference 192 attendancein-person 03% President/Partner 04% Energy Director 09% CEO/Director General 13% Analyst Advisor 28% Vice DirectorPresident/ 43% Senior ManagerManager/
• FEMSA
C OMPAN y A TTENDANCE6
• Cenace
• Gadex
• Gobierno del Estado de Guanajuato
• Brella Ltd
• Centauro Energia
•
• Blavatnik School of Government, Oxford University
• Enlight
• Finergreen
• Enestas S.A de C.V Engie Enix
• AB Energy Mexico
•
• Natgas Naturgy
• Bonatti
• 27Pivot
• Clúster Energético de Nuevo León
• American Chamber of Commerce of Mexico
• Bocar Group
• Consultoría Sustentable G2H
• Cryoinfra SA de CV
• Ammper Energía
• Deacero
• Emerson
• Aerones
• Enel Energía
• Envision Energy Exterran
•
• Cox Energy América S.A.B. de C.V.
• GEMEX ENERGIA
• Goodrich Riquelme
• Burns & McDonnell Mexico
• AES México
• Gasoducto de Morelos
• Heineken Mexico
• Iberdrola
• Fermaca
• International SOS
• Kepler Constructora SA de CV
• GE
• General Motors
• Kiewit
•
• KPMG
• Comexhidro
• Cydsa
• EDF
• Energetika Energía Infra ENERGy CHINA Energy to Market
• Gruma
• Grupo EDECSA
• Generac
• HR CONSTRUCCIONES y SERVICIOS
• LONGi
• Comisión de Energía de Tamaulipas
• Bergen Engines
• Hartree Consulting Mexico
• GAN
• HITACHI ENERGy
• COBRA
• MAHLE Mexico Marcos & Asociados, consultoría energética Mexico’s National Energy Control Center
• CITRUS
•
•
• Gallo Abogados, S.C.
• Mexico View
•
• Asociación Mexicana de Energía, A.C.
• British Embassy
•
• CFE
• GLE
• Grupo México
• Capwatt
• ASOLMEX
• Comisión Reguladora de Energía
• Business Finland
• AME
•
• Air Liquide
• GreenPowerMonitor a DNV company
• Mextypsa Mitsui Infrastructure Solutions N-III
• Carbon Trust
•
• Balam Energy
• GDM SAPI DE CV
• Finsolar
• Ata Renewables
• Jenbacher
• Independent
• EC
• AMDEE
• DNV ENERGy SySTEMS MÉXICO
• Government of Alberta in Mexico
• Jema Energy
•
• ABB
• INNIO Jenbacher
• Agencia de Energía del Estado de Puebla
• CORFLEX TECNICA MEXICANA, S.A. DE C.V.
• HUAWEI
• BP Energía México
• Acclaim Energy
• IHS Markit
C OMPAN y A TTENDANCE7 • Nexus Energía Mx • NxtLab • OCA Global • Picarro, Inc. • Pilgrim’s Mexico • PJ Piping Inc • POWER ELECTRONICS • POWERTIS • PPG • Quartux México • Radient Trading • RER Energy Group • Rystad Energy • S&P Global • Secretaría de Desarrollo Económico del Estado de Durango • SECRETARIA DE DESARROLLO ECONOMICO SUSTENTABLE • Sempra • SENER Engineering MEX • Shell • Siemens Energy • Siemens Gamesa • SIETE ENERGy • Sinia Renovables • Solar180 • Solfium • Soluciones Químicas para el campo y la industria S.A. de C.V. • South Pole • SUSTENTABILIDAD EMPRESARIAL • TC Energía • Tokyo Gas America Ltd. • TOP MANAGEMENT MÉXICO • TÜV Rheinland México • Udlap • Vansertec Green Energy • Vector Renewables • Von Wobeser y Sierra • Walworth • Wood Mackenzie • WorldWise Consulting LLC • WSP • WTS Energy • X-ELIO • young Pipeline Professionals y PP • Zigor México • Zuma Energía
15:45
09:00
Moderator: Alejandra León, S&P Global Panelists: Pedro Elio, BP Energía México Francisco Salazar, Enix | GADEX Miriam Grunstein, US Mexico Center - James Baker Institute Rajan Vig, Indimex
NETWORKING COFFEE BREAK - AI-POWERED 1:1 MEETINGS
NETWORKING COFFEE BREAK - AI-POWERED 1:1 MEETINGS
Moderator: Neyra Gutiérrez , yPP Panelists: David Dewar, Fermaca Gustavo Núñez , ROSEN Rashid Luyen, DNV
12:00
NETWORKING COFFEE BREAK - AI-POWERED 1:1 MEETINGS
Moderator: José Pablo Rikenbach, AINDA Panelists: Areli Covarrubias, Sempra Infraestructura Fernando Tovar, Fermaca Gustavo Blejer, Bonatti Rafael García, TC Energy
Speaker: Theodore Lorentzos, Bergen Engines
09:30
ENHANCING THE CONNECTIVITY OF MEXICO’S PIPELINE NETWORK
GLOBAL GAS OUTLOOK AND THE IMPLICATIONS FOR THE MEXICAN MARKET
NATURAL GAS IN MEXICO
14:00
Moderator: Julia González, González Calvillo Panelists: Ricardo Zúñiga, CapWatt Jean-Nicolas Lejeune, ENGIE Mexico Alejandro Bargalló, Generac LATAM Aldrich Richter, Bergen Engines
STATUS AND CHALLENGES OF MEXICO’S GAS SYSTEM
OPERATIONS AND MAINTENANCE AS BASIS FOR RESPONSIBLE PIPELINE INFRASTRUCTURE
16:30
NATURAL GAS AS THE ENGINE OF MEXICO’S INDUSTRIAL ACTIVITY
8 P ROGRAM D A y 1
Speaker: Francisco Salazar, Enix | GADEX
OPTIMIZING THE EFFICIENCY, PERFORMANCE AND OUTPUT OF GAS ENGINES
08:00
Speaker: Eduardo Prud’homme, GADEX
NETWORKING COFFEE BREAK - AI-POWERED 1:1 MEETINGS
13:00
Speaker: Héctor Moreira, CNH
11:00
10:00
15:30
Speaker: Eduardo Andrade, Burns & McDonnell
09:00
Speaker: Rocío Abreu, Mexican Senate
Moderator: Edmond Grieger, Von Wobeser
Lilian Alves, Mitsui & Co. Infrastructure Solutions
Panelists: Katia Bernal, CITRUS
Speaker: Edy Jiménez , AES Mexico
Speaker: David Herranz, Veolia
EFFICIENT SUPPORT TOWARD AN IMPROVED GRID SYSTEM
THE FUTURE OF POWER INFRASTRUCTURE IN MEXICO
NETWORKING COFFEE BREAK - AI-POWERED 1:1 MEETINGS
Panelists: David Hernández, Energetika
16:30
NETWORKING COFFEE BREAK - AI-POWERED 1:1 MEETINGS
HOW ESG TRENDS DRIVE ENERGY OPPORTUNITY
Sergio Carey, Siemens Energy Latin America
Luis Felipe Cantor, Siemens Energy Mexico, Central America and Caribeann
13:15
ORIGIN, PRESENT AND FUTURE OF DISTRIBUTED GENERATION AND ITS IMPACT ON THE ELECTRICITY SECTOR
Moderator: Érika Santiago, AES México
José Buganza, Enegence
10:00
Panelists: Alfredo Zárate, KPMG
12:00
SMART TECHNOLOGY TO REVOLUTIONIZE ENERGY EFFICIENCY
HOW TRANSMISSION INFRASTRUCTURE COULD HELP STABILIZE THE MEXICAN GRID
08:00
Fidelmar Molina, Hitachi Energy Alejandro Hinojosa, Veolia
14:00
15:30
15:45
Panelists: Eduardo Andrade, Burns & McDonnell
Moderator: Diego Arjona, CIGRE
P ROGRAM D A y 29
ENERGY SOVEREIGNITY AND OPTIMIZATION MOVING FORWARD
Ivette Castillo, GE Grid Solutions
Daniel Herrmann, DNV
11:00
Ruth Guevara, E y Jorge Radi, Enel
17:00
NETWORKING COFFEE BREAK - AI-POWERED 1:1 MEETINGS
13:00
FROM POWER-TO-X TOWARD WASTE-TO-ENERGY
THE PANORAMA FOR MEXICO’S WHOLESALE ELECTRICITY MARKET
09:20
Speaker: Jorge Musalem, CFE
Moderator: Ignacio García de Presno, KPMG
NETWORKING COFFEE BREAK - AI-POWERED 1:1 MEETINGS
Andrés Cabrera Palacio, AES Mexico
BEYOND WTGS
10:00
TURNING HYDROGEN POTENTIAL INTO A REALITY
Speaker: Ramón Moreno, AME
15:30
Mauricio Reyes , State Energy Agency - Queretaro Amado Villareal, State Energy Agency - Monterrey
Panelists: Gonzalo Azcárraga , SENER
THE ENERGY SECTOR AND THE USMCA. PAST, PRESENT AND FUTURE
08:00
Moderator: Israel Hurtado, H2Mex
THE TECHNOLOGY OF THE WIND FARM OF THE FUTURE
NETWORKING OPPORTUNITY - AI-POWERED 1:1 MEETINGS
Panelists: Armando Gómez, X-Elio
Rafael Valdéz Mingramm, Envision Kaspars Litavnieks, Aerones
ENERGY AS THE LEVER FOR SOCIAL DEVELOPMENT
13:15
Moderator: David Martínez López, Envision
16:45
08:00
SOLAR: KEY DRIVER OF THE GLOBAL ENERGY TRANSITION
NETWORKING OPPORTUNITY - AI-POWERED 1:1 MEETINGS
Moderator: Fredy Obando, AES
14:00
Moderator: Sofía Tamayo, Zuma Energía
David Macías, Iberdrola Iván Reyes, LONGi
11:00
STATE OF THE INDUSTRY
Speaker: Israel Hurtado, H2Mex
Speaker: Benjamín Torres-Barrón, Baker McKenzie
Panelists: Efraim Castellanos Frayre, SEDECO Durango
SUSTAINABLE MOBILITY
Antonieta Gómez, Energy Agency Tamaulipas
NETWORKING OPPORTUNITY - AI-POWERED 1:1 MEETINGS
Moderator: Rafael Sánchez, OCA Global
Panelists: Tonino Parente, Enel
09:45
Patricia Tatto, ATA Renewables
15:45
12:00
MEXICO’S STATE ENERGY DEVELOPMENT OUTLINED
Ana Ludlow, ENGIE Mexico
NETWORKING OPPORTUNITY - AI-POWERED 1:1 MEETINGS
P ROGRAM D A y 310
Moderator: Nelson Delgado, ASOLMEX
09:00
13:00
11 C ONFERENCE H IGHLIGHTS
The pivotal role to be played by natural gas in the energy transition is something Mexico does not quite appreciate yet. Nevertheless, in the coming years, the importance of natural gas as a cleaner fossil fuel is only going to grow, outlined CNH Commissioner, Héctor Moreira.
The term natural gas is used to refer to many different substances. When discussing extraction from wells, a substance called hydrocarbon gas is produced in addition to oil and water. This hydrocarbon gas is made up of two parts: natural gas, which consists of hydrocarbons from C1 to C7, and other components and contaminants, which include carbon dioxide (CO2), nitrogen (N2), water (H20) and hydrogen sulfide (H2S). The quantity of each component depends on the play. At Cantarell, for example, Nitrogen makes up more than 30 percent of the gas emitted from a well. For this reason, it is important to distinguish between natural gas, which refers to hydrocarbon gas, and the other accompanying gasse s emitted.
From this point, even more pressure and cryogenic freezing can be applied to separate natural gas into methane, ethane, butane and propane, which Moreira referred to as the “petrochemical precursors,” since this extra process is only required when the gas is intended for use in the petrochemical industry. Regarding consumer goods, methane is used to produce fertilizers, resins, solvents and adhesives, ethane for polyester, refrigerants, PVC, polystyrene and plastic bags, propane for plastic fibers and acrylics and butane for tires.
As intermediaries, methane can be used for ammonium phosphate, formaldehyde and acetic acid, ethane for vinyl chloride, styrene and polyethylene, propane for propylene and acrylonitrile and butane for polybutadiene, isobutane and isobutylene. Despite the somewhat misleading prefix, 86 percent of all the world’s petrochemical products are produced using gas. Underscoring the importance of natural gas for this plethora of petrochemicals, Moreira remarked that “A large part of the revenue Mexico generates by exporting crude oil is immediately spent on importing petrochemical products we do not make enough of o urselves.”
NATURAL GAS KEY FOR MEXICO’S LONG-TERM ENERGY SECURITY
To be captured, the gas must first be cooled to separate the natural gas (C1C4) from the liquid condensates (C5C7). Pressure is then applied to separate the dry gas (C1-C2) from the LPG (C3C4). This dry gas is what the US sells to Mexico, not natural gas, Moreira was keen to underscore the di stinction.
Other hydrocarbon gasses have important uses, too. Moreira explained that dry gas is used both as a combustible and to produce power. LPG is also used as a
“It is somewhat of a contradiction to not exploit unconventional reserves at home for fear of environmental reserves while continuing to import natural gas produced from unconventional plays across the border,” Moreira noted. While acknowledging that the pressure that fracking exerts on the earth does indeed
PEMEX mostly consumes the gas it produces, 70 percent of Mexico’s gas needs are imported, primarily from the US. The percentage of natural gas on the market which is imported rises 8590 percent when we exclude PEMEX’s consumption. This, of course, comes at a high cost and so far, faltering gas production has been a strategic oversight in the push for energy sovereignty. In Moreira’s view, “it is simply unsustainable to depend on imports for 70 percent of national electricity generation (...) For example, when harsh weather hits Texas, the repercussions are felt in Mexico with interrupted gas supplies.” Moreira therefore saw it as a national priority to increase gas production.
than two-thirds come from unconventional plays in the Burgos, Sabinas-Burro-Picachos and Tampico-Misantla basins in the north of the country. To put these figures into perspective, Mexico is ranked 18th globally in terms of oil reserves. However, for gas, Mexico climbs to the sixth spot in the world, which Moreira argued will provide the country with much-needed energy security going
“A large part of the revenue Mexico generates by exporting crude oil is immediately spent on importing petrochemical products we do not make enough of ourselves”
The next question is how well-positioned Mexico is in terms of reserves of this valuable resource. In total, Mexico counts on just over 31bcf of 3P reserves, which at current production rates is enough for 20 years of domestic consumption. The country has a further estimated 22.47bcf in prospective reserves, of which more
Héctor Moreira Commissioner | CNH
12 C ONFERENCE H IGHLIGHTS
As a fuel, dry gas is the cheapest on the market, at least in Mexico. Compared to diesel and gasoline, for example, which cost MX$624/GJ (US$30.9/GJ) and MX$691/ GJ (MX$34.3/GJ) respectively, dry gas is a fraction of the price at MX$149/GJ (US$7.4/ GJ). LPG, meanwhile, is the most expensive at MX$944/GJ (US$47.9/GJ). For generating electricity, dry gas is almost six times cheaper than petroleum, while emitting less than half the emissions. While renewable electricity sources such as onshore wind and solar power cost roughly the same to run, the initial capital expenditure required to initiate such projects is triple the cost of equivalent combined cycle infrastructure. Moreover, in Moreira’s view, renewables have a carbon footprint when we consider for example the emissions released in manufacturing solar panels. “The future of power production will come from renewable energies and natural gas. This is a perfect marriage since gas offers a constant supply while renewables are intermittent. When there is little wind to power turbines, that is when we call upon gas,” noted Moreira, underscoring yet another factor in natural gas’ favor.
combustible, while condensates are used for refining to facilitate the processing of the high viscosity, heavy crude Mexico typically produces.
To this end, Moreira proposed increased exploration to open new gas plays in states such as Tamaulipas and Coahuila, as well as the creation of a new state-owned company dedicated to the exploration and production of unassociated natural gas. Moreira believed that PEMEX’s need to balance the books has caused the NOC to neglect gas production since the revenue produced from gas sales is lower than oil sales. He also supports fiscal restructuring to further incentivize the development of natural gas projects as well as a program to promote unconventional gas production.
Consideringforward.that
The US produces around 88Bcf/d of natural gas and has a daily domestic demand of 80Bcf. The outlook on the quantity of liquefied natural gas (LNG), suited for longdistance transport outside of pipelines, that the US can export today is 30Bcf/d. Mexico remains the most attractive market for the US’s production surplus, said Prud’homme.
to cover the 8BCf/d domestic consumption, Mexico will have to turn toward greater imports. “Mexico produces 4Bcf/d, but only a small fraction of this reaches the market because PEMEX is always involved as the consumer of its own production,” added Prud’homme.
In the context of a conflict with one of the world’s biggest natural gas producers, Russia, the EU is looking toward the US, which is rapidly becoming the complementary source of natural gas.
Prud’homme mentioned that most of Mexico’s natural gas is indeed produced by PEMEX for its consumption, which means that the market is subjected to the centralized decisions of the dominant NOC in the national market, this despite the fact that the regulatory framework of the 2014 Energy Reform was designed with a more open process in mind, featuring more players and options to source natural gas from. Prud’homme pointed out the need for a higher number of players active in the mid-stream segment so that more of what is produced reaches the market. “Energy
13 C ONFERENCE H IGHLIGHTS
to be constructed in Mexico for when demand is lower in the summertime. What is more, a national network of natural gas transportation should be erected across the country to guarantee supply to every state. Finally, the country should carry out supply chain improvements to manage increased production rates.
As Mexico’s power matrix and industrial activity become increasingly dependent on natural gas, Mexico should diversify and consolidate its gas supply chain to meet the country’s ever-shifting demand, said Eduardo Prud’homme, Co-Partner, GADEX.
DIVERSIFICATION: CRUCIAL FACTOR FOR ENERGY SECURITY
Furthermore,gas.
produce tremors, Moreira pointed out that there has not been a single earthquake recorded higher than magnitude 3 because of such actions so far. In any case, Mexico City is subject to 3,000 earthquakes below magnitude 3 annually. Moreira also called for more long-term gas production contracts to be handed out and storage facilities
of the fossil fuel’s largest consumers. Mexico has been producing less and less natural gas throughout the past decade, and the drop has been more dramatic in the past five years. Nonetheless, production figures from the Ixachi and Quesqui fields are encouraging, as the projects are maintaining a standard of production but do not show a change in this trend of decline. This means that the efforts to increase production have not been sufficient. The reason for this is that most of the gas produced in Mexico is a byproduct of crude oil production that in the past years has also been deteriorating, mentioned Proud’homme. In that sense, Mexico has a major opportunity to enhance the exploitation of the existing reserves of natural
Mexico is not a big gas-producing country compared to other countries. This poses a challenge, because it is simultaneously one
“We have a very complex supply chain with logistical areas of opportunity. It is imperative to achieve more transparency and open access in the sector. Planning of infrastructure projects in Mexico must consider operative as well as commercial issues because distribution networks are key to gasifying the country,” concluded P rud’homme.
security requires diversification in the use of natural gas pipelines, despite PEMEX and CFE’s tendencies toward monopolization,” he added. Nevertheless, for the time being, Mexico will retain its current market structure, focused on imports.
“the government does not have the resources to make these investments. Also, it is not optimal for a state-owned company to take on risky investments. Instead, the private sector shouldthoseassumerisks”
Due to the war in Ukraine, several countries imposed sanctions on Russia, which in turn lowered the natural gas supply it sells on international markets. This then led to skyrocketing prices. Gas shortages
Francisco Salazar Founding Partner | Enix and Gadex
Prud’homme explained that the biggest problem with the natural gas network in Mexico is that a logistical and structural change in the natural gas transportation system, called SISTRANGAS, is needed. Today, the main player in operative terms is state pipeline operator CENAGAS, which leads its private competition by far. Nevertheless, the largest private player, TC Energy, can look toward closing the gap with new infrastructure projects and is growing its market share. Other players like Sempra, Fermaca and Engie also hold a fair amount of the mar ket share.
“Today, a country’s political position is irrelevant when dealing with such a sensitive issue as gas shortages,” said Rajan Vig, Founder, Indimex, as he explained how France, Italy and Germany are willing to find new business deals with countries outside of their usual trade partners.
are mainly threatening the EU’s energy security, as imports through Nord Stream 1 remain well below the normal levels, forcing European countries to look for new sources of supply even despite the rising costs.
In the legal framework, all pipeline operators have open access to the national pipeline network, which means that offtakers can explore different options and the government can foster a more transparent security energy strategy. “To diversify the operability of the pipelines is imperative, but with the current policy we are observing a monopolization from national companies CFE and PEMEX,” expressed Prud’homme. CFE still has the majority of these pipelines under its control.
14 C ONFERENCE H IGHLIGHTS
hand, others argue that the biggest lesson learned from the war in
NATURAL GAS IS REDEFINING GLOBAL ENERGY SECURITY
Marked as the key fossil fuel to materialize the energy transition, natural gas took on a prominent role in the global economy. However, several geopolitical events such as the pandemic and the Russian invasion of Ukraine transformed the environment and changed the outlook on the worldwide energy transition. These abrupt changes in the natural gas market are threatening the energy security of many countries, Mexico included.
Tensions in the international gas market have split opinions on the future of the energy transition. On the one hand, some reaffirm the need to double efforts to abandon the dependency on fossil fuels and bet on renewables to democratize energy. This view highlights the geopolitical power of natural gas-producing countries that, like Russia, can strongly influence global stability through unilateral political
Ondecisions.theother
Ukraine is that the global economy cannot function without fossil fuels. This debate has governments and societies positioned at a “Withcrossroads.the globalization of natural gas, what happens on the other side of the world now affects us and increases market volatility,” explained Pedro Elio, VP of Business Development, BP Energy. Despite the increase in gas prices, Mexico has some advantages: “Because its domestic market has become more competitive and mature, Mexico is in a more favorable position to adapt to changes in the gas market than other countries,” Elio noted.
Miriam Grunstein
15 C ONFERENCE H IGHLIGHTS
Mexico is no stranger to the negative impacts of recent geopolitical shifts. The country is extremely vulnerable to fluctuations in the gas market, as 58 percent of its primary energy sources come from natural gas whereas the global average is 24 percent. Few countries have such a high dependence on gas.
Underground natural gas storage has been an option for Mexico, but its development has not taken off. “The lack of clarity in the current regulatory framework has been the main cause of highly productive gas storage projects falling apart,” said Grunstein. If Mexico wants to start developing this kind of crucial infrastructure crucial, it must first modify its regulatory framework to allow the development of these projects.
challenge due to its missing gas storage infrastructure. “Storage is a reality in other countries that gains them greater reliability in the gas supply. However, in Mexico, storage has not materialized,” said Francisco Salazar, Founding Partner, Enix and Gadex. Nevertheless, developing more storage infrastructure is key to combating Mexico’s energy vulner abilities.
Contemplating the relevance of natural gas, people usually visualize power production. However, natural gas goes far beyond energy production, as the fuel is key for various industrial and petrochemical processes where there is no substitute for its use. “In electricity production, we can decrease our dependency on gas, but the substitution is unviable for manufacturing and other industrial processes,” explained Miriam Grunstein, Senior Partner, US Mexico Center of the James Baker Institute.
Aside from its dependency being a vulnerability, Mexico also faces a major
To take advantage of this opportunity and reduce its vulnerabilities in the short, medium and long term, Mexico must change its energy policy and redirect it toward a
Senior Partner | US Mexico Center of the James Baker Institute
“In electricity production, we can decrease our dependency on gas, but the substitution is unviable for manufacturing and otherprocesses”industrial
Moreover, market conditions must favor private investment in storage infrastructure development. “In Mexico, there is a belief that the obligation to develop gas storage infrastructure is PEMEX’s,” commented Salazar, but “the government does not have the resources to make these investments. Also, it is not optimal for a state-owned company to take on risky investments. Instead, the private sector should assume tho se risks.”
Increased tensions between the US and China are driving nearshoring within North America, giving Mexico a unique opportunity to increase its industrial activity thanks to its competitive advantages coming from its integration into the value chains of the US and Canada. “In these efforts to strengthen the North American region, natural gas will be necessary to boost national and regional competitiveness,” said Alejandra Leon, Director for Latin America Upstream, I HS Markit.
companies, PEMEX and CFE, harming the potential to compete for private players. But as long as regulatory uncertainty remains, it will be much more complicated for Mexico to adapt to the current geopolitical conditions and strengthen its areas of opportunity in energy matters.
Although Mexico’s natural gas infrastructure has significantly grown in the past few years, there is still a lack of storage terminals around the country. “We only have the capacity for two-day storage, while they have 98 days in countries like Germany and 58 days in the US. There is still a great opportunity to store natural gas here in Mexico, considering it is the neighbor of the the largest global natural gas producer,” added Tovar. Most of Mexico’s gas storage is stored in the form of liquefied natural Gas (LNG), but Mexico has only three LNG plants.
energy security, as well as to keep growing Mexico’s economy and take advantage of its strategic position.
Mexico is known for its vast natural resources and as a big natural gas consumer. Nonetheless, there are still areas of opportunity to enhance the connectivity of its pipeline network in order to distribute gas more equally around the country. In that sense, new infrastructure projects must be planned and developed, focusing on interconnectivity as a key aspect.
“The development of natural gas network infrastructure in Mexico has been prominent and even extraordinary,” said Areli Covarrubias, Commercial and Development Director, Sempra Infraestructura. Moreover, she explained that most of this development happened in a short period, approximately 15 years. During this time, the gas pipeline network has grown from 11,000km to 17,000km and the number of compression stations has doubled. There are also three new regasification terminals where previously there were none, she added. These efforts were achieved thanks to the collaboration between the private and public sectors. Nonetheless, despite having this infrastructure, many factors are still lacking in order to achieve a solid level of
16 C ONFERENCE H IGHLIGHTS
INTERCONNECTING PIPELINES TO ENHANCE THE NATIONAL NETWORK
“The gas sector is going through a critical time due to the crisis involving Russia and Ukraine. Natural gas remains key to the energy sector and Mexico has an important opportunity due to its geographical position,” says Fernando Tovar, CEO, Fermaca. The war in Eastern Europe has made it clear that although the energy transition toward cleaner resources is a fact, natural gas will remain key for the energy sector, for many years to come at the least.
Another of Mexico’s geographical advantages is its Pacific Coast, said Tovar. The global energy crunch is highlighting the need to liquefy gas and develop maritime natural gas transportation options. Currently, all of Mexico’s liquefaction plants are on the side of the Gulf of Mexico, aiming to transport to Europe. If Mexico takes advantage of its Pacific Coast, Mexico could transport natural gas to Asia, where demand for the fuel is immense. Nonetheless, these projects will not be able to rely on the
strategy that protects its energy security and fosters an attractive market dynamic for the energy industry to reactivate. Currently, Mexico was called for consultations under the USMCA by the US and Canada because of the preferential conditions that Mexico’s energy policy has created for its state-owned
“Our country has two main separate transportation systems: CENEGAS’ SISTRANGAS and the Naco-Hermosillo system, but there are no bridges that interconnect them,” said Covarrubias. She explained an effort should be made to interconnect them so that they can operate in a coordinated manner and support the country during crises. Current market challenges show that there is a lack of diversification in the global natural gas supply, which could be a great opportunity for Mexico.
existing pipelines, so new ones will have to be built, explained Tovar.
Companies are working to guarantee safe and efficient transport and distribution of key natural gas resources, said Gutavo Núñez, Managing Director Mexico and Central America, Rosen Group. The first step toward this safety is compliance with the industry standards and regulations to bring best-practices and safer methodology to the sector. “The activities carried out by each business varies. Pipeline engineers operating in the south of Mexico obviously have different threats and risks to those operating in the north of the country. For
cover large distances with minimal impact on the environment. One of the principal tasks to ensure distribution and transportation, therefore, is maintenance to prevent accidents, leaks and other undesirable events. Such incidents can result in unplanned stoppages to operations and fuel waste, two costly outcomes,” explained Neyra Gutiérrez, Investment Project Manager, yPP.
increase the benefits and bring gas to more states and industries,” said Tovar. In states where natural gas is present, the GDP is 50 percent higher than in those where there is none, he added. Only with the help of the private sector will it be possible to transport natural gas to the marginalized states, because CFE’s pipelines are built with the purpose to transfer natural gas to CFE plants and not necessarily to interconnect the pipelines or to boost industry and national development.
17 C ONFERENCE H IGHLIGHTS
O&M, CORNERSTONE FOR RELIABLE PIPELINE INFR ASTRUCTURE
“Pipelines are the most efficient method of gas transportation that exists, since they can
“You can have the most expensive tech and most competent personnel, but if information does not flow freely it is wasted”
Rashid Luyen Head of Offshore and Mid/ Downstream | DNV
“Lately,end.conflicts
between the private and public sector in the country have grown, but we need to go back to an environment where collaboration is possible in order to
Safe and reliable supply chains are crucial for Mexico’s energy security, and to this end, optimizing midstream infrastructure such as pipelines is an essential piece of the energy sovereignty puzzle. New technologies, such as data analysis and cloud services are making operations and maintenance (O&M) more efficient, as well as promoting a much safer industry.
“In order to develop these projects, much money and financing are needed, and they will only become more expensive over time,” said José Pablo Rinkenbach, Founding Partner and Director General of AINDA. According to Rafael García, Government Relations, TC Energy, the main challenge to attracting investment is the risk perception of the country. “There is a difference between the information that is being communicated in the media and what is happening in reality,” added García. Gustavo Blejer, Managing Director, Bonatti, explained that a company’s project approval is based on security and return of investment. Understanding the dynamic of project development in Mexico is key to that
with Luyen’s assessment that a large part of risk management should already be made superfluous
Gustavo Núñez Managing Director Mexico and Central America | Rosen Group
Vice President of Operations, Fermaca, concurred, as he listed some of the challenges companies face to guarantee safe and efficient pipelines. He noted that part of the problem is that pipelines are designed to manage specific quantities of gas. In Mexico, some pipelines are operating at 20 percent of this designed capacity, causing complex problems for the “brains of the operation” in control centers. Another issue Dewar addressed was the learning curve between construction and operation that can take some time for personnel, though he acknowleded that this is a “better problem to have than some of the issues arising from aging infrastructure faced elsewhere.” Dewar also mentioned problems resulting from Rights of Way as one of the biggest challenges operators face, citing the need to liaise with communities to ensure pipelines can pass through established communities securely.
DavidNúñez.Dewar,
Luyen took a more pragmatic approach: “None of us really know how to ensure leaks never occur. Risk is part of life and we can never reach zero accidents. That is why each company needs to manage risk as best they can, assessing in turn the different types of risk which vary across the value-chain. It is a process we all need to participate in
“Something we try to encourage is that every member of our on-site personnel feels empowered to shut down any activity they do feel sure about. As industry leaders and stakeholders, the worst thing that can happen is a leak or fault to occur which derails an entire project”
Rashid Luyen, Head of Offshore and Mid/ Downstream, DNV, noted that “O&M has to start from design conception. Short, medium and long-term goals must be set since operational capacity is something manufacturers commit to for at least 10 to 15 years. As such, a manufacturer can make sure it receives tubing, valves and other parts exactly as specified to meet the required
Dewartogether.”concurred
Preventing safety hazards such as leaks is paramount to ensure this security. “It starts from the top down. Business leaders need to show that attention to every detail, even to the smallest risks, if the approach is to be taken seriously. Apart from procedures, it is also a state of mind, since at the end of the day most accidents are a result of human error. That is why we need to make sure our teams embrace a zero-accident culture in their everyday work,” emphasized Núñez, adding that “Something we try to encourage is that every member of our on-site personnel feels empowered to shut down any activity they do feel sure about. As industry leaders and stakeholders, the worst thing that can happen is a leak or fault to occur which derails an entire project.” He also called for greater dialogue between operators and their suppliers, since both parties bring different perspectives to risk assessment, while Dewar stated that risk management starts with first finding out what you do not know and where blind spots might lie.
criteria.” Regarding construction, Luyen highlighted the importance of supervision and always having the right documentation on hand. Once a pipeline is in operation, Luyen emphasizes the importance of having the right instruments and monitoring tools in place to track what is working well and what is less than optimal. “There is a growing awareness that operational security does not just fall on technicians and inspectors, but the concerted efforts of the entire organization,” Luyen added.
this reason, thorough knowledge of the environment you are working in and the exact activities to be undertaken is key for safe and efficient pipeline operations,” said
18 C ONFERENCE H IGHLIGHTS
19 C ONFERENCE H IGHLIGHTS
However, Luyen also pointed to the wider context surrounding the regulatory framework. “It depends on each business’ own cultures and policies. There are those who decide to do the bare minimum and others who go beyond the requirements, testing out new and different initiatives until they find a methodology that works best for them,” he said. Another key element to regulatory compliance is the need to clearly assign roles and responsibilities so a company can be sure of who is doing what. This helps an operator determine whether it has the capabilities to carry out O&M activities alone or if it needs to subcontract a specialist. Communication is also key. “ you can have the most expensive tech and most competent personnel, but if information does not flow freely it is wasted,” underscored Luyen.
David Dewar Vice President of Operations | Fermaca
He insisted again on the need to maintain neighborly relations with the communities a pipeline passes through, since they are ultimately the people on the other side of the pipeline, and if they notice something amiss, they can alert the operators. “The biggest risk is someone finding a pipeline and vandalizing or tampering with it, which is why local communities are our biggest allies in pipeline integrity,” Dewar explained.
before construction even begins. “We have contracts stipulating almost 100 percent availability, which is obviously a huge challenge. To ensure this, our attackplan starts at the point of engineering and design and continues right through to construction and operation,” he said. “We want to see how O&M can extend the useful life of equipment before rushing into operations. We also make sure to always have extra equipment on standby, so if a compressor needs replacing we can do that without overhauling the entire project,” Dewar added.
On a financial note, Dewar argued that investment in O&M pays dividends in the long term, and the costs saved preventing long-term stoppages or accidents far outweigh the initial investment. “When we come home and turn a light on, we often do not realize the collective effort that has made such convenience possible. That is why I like to see our teams move Mexico, since they are the ones ensuring gas can flow freely and efficiently.”
As to what improvements can be made to enhance safety and efficiency in the midstream sector, Luyen highlighted the need for more offshore infrastructure. Apart from the Texas-Tuxpan offshore pipeline, which is now set to be extended to Coatzacoalcos and Dos Bocas, there are not enough underwater pipelines to make the prospect of deepwater gas extraction or offshore gas liquefaction viable. Dewar called for cooperation across regulatory frameworks on a national level to develop pipelines in tandem with other infrastructure
“The biggest risk is someone finding a pipeline and vandalizing or tampering with it, which is why local communities are our biggest allies inintegrity”pipeline
Luyen emphasized a company’s need to foster a culture of O&M compliance: “It must be in a company’s DNA. Ultimately,
when it comes to safety concerns, people’s lives are on the line and nothing is more important than that.” Commenting on how the regulatory framework can be improved to enhance safety and efficiency in the midstream sector, Luyen pointed to Integral Administrative Plans, which consists of a risk assessment to work out priorities, an inspection plan to assess the current state of a pipeline and an evaluation of the inspection’s result to determine how best to address any problems. “This should be a cycle that is repeated over and over again, accumulating more and more information each time to enrich future risk assessment plans and optimize our methodology,” he said.
20 C ONFERENCE H IGHLIGHTS
According to McKinsey’s Global Energy Perspective 2022, electricity and hydrogen will become the main consumable fuels by 2050, with electricity representing 50 percent of the energy consumption. By 2050, the growing energy demand will soften, despite population growth of more than 2 billion, this thanks to technological innovation making the world more energy-
potential but the key to implement it in the industry has yet to be found,” said Dewar, while Núñez hailed the benefits of data analysis that “allow you to prioritize which threats to attack and assess how serious the potential failures are.” Luyen, meanwhile, called for Mexico to adopt “technical committees with people who know about probability and that have experience in the control room.”
GAS ENGINES PROVIDE ADAPTABILITY IN THE ENERGY TRANSITION
The energy sector is witnessing historic times. On the back of the COVID-19 pandemic, increases and fluctuations in commodity and transportation prices and war, uncertainty remains the only constant in the outlook ahead. As the industry navigates these challenges, the world seeks to recover economic growth and fulfill climate targets as well. This challenging overview is driving trends such as the transition away from fossil fuels toward cleaner sources of energy. Meanwhile, grids are transforming worldwide, becoming more
Rewardingefficient.power
production, renewable energy sources are taking over the market at a rapid pace. Renewables are expected to consolidate their role, acquiring up to 60 percent of the energy matrix by 2035 and up to 86 percent by 2050. However,
projects. Moreover, the experts agreed on the need for more agile mechanisms and closer communication between operators and regulatory bodies to resolve doubts or ambiguities more quickly, as well as the need to incorporate international best practices and industry standards locally.
Technology can help support such optimal practices. “Machine learning has a lot of
Natural gas has been designated as the key transition fuel toward a greener global energy matrix. As more intermittent renewable energy enters the power mix, the stability gas engines provide become increasingly important. Nevertheless, even natural gas will eventually be phased out, as higher efficiency and a greater share of blended green hydrogen will allow these engines to provide cleaner power.
modern. As power production is coming closer to consumers, smaller distributed and decentralized projects are growing. Moreover, electrification is taking over almost all aspects of daily life, which is causing electricity demand to grow rapidly.
According to Ricardo Zúñiga, Country Manager, Capwatt, Mexico has sufficient
COGENERATION PROJECTS TOWARD ENERGY EFFICIENCY
Gas engines play a key role in the future of cleaner power production, as they provide flexible support for intermittent renewable power. As thermal energy allows the grid to produce reliable energy, many power producers are migrating from coal and fuel oil toward natural gas. Just by changing fuels, thermal power production becomes more sustainable. Likewise, new technologies are reducing carbon emissions through power production processes. “Bergen’s lean-burn engines ensure very low carbon emissions with efficiencies up to 48 to 50 percent and more than 93 percent fuel utilization,” shared Lorentzos.
“There is no sole solution for us to navigate the challenges we are witnessing around the world while we push to keep economic growth and achieve climate goals. All energy sources have unique advantages and disadvantages that countries should balance when designing the integration of their energy mix,” said Lorentzos.
The second area is that of cogeneration. Through this process, the efficiency of natural gas-fired engines is optimized from 50 percent to 90 percent, allowing for the simultaneous production of both electricity and heat. This is convenient because industries do not only demand electricity, as thermal requirements represent half of the industry’s energy needs.
Moving forward, natural gas engines can adapt and function with other gases as input. Natural gas is marked as the transition fuel toward net zero, but to fully leave fossil fuels behind, fuels like green hydrogen are showing promising results as the power source of the
Mexico has a privileged geographic position, abundant natural resources and large natural gas reserves. Nevertheless, the Mexican Institute for Competitiveness (IMCO) published a report analyzing Mexico’s energy security vulnerabilities under varying short- and long-term natural gas supply scenarios. Among its findings,
despite this growth, “natural gas will remain to play a key role in the present and future of power production,” said Theodore Lorentzos, Theodore Lorentzos, Head of Sales Americas, Berge n Engines.
Solar and wind energy’s intermittency can compromise the grid’s reliability, which is a disadvantage compared to other clean energy sources like hydro, thermal and nuclear power, do not have. Nevertheless, some of the alternatives have higher carbon emissions, such as thermal energy. Here, natural gas plays a key role in producing reliable energy with lower emissions.
the institute highlights the need to develop its domestic natural gas industry, but also make optimal use of the resource for power production by adopting more cogeneration solutions.
21 C ONFERENCE H IGHLIGHTS
Hydrogenfuture.
testing has already begun for different natural gas engines by feeding small percentages of the fuel to natural gas-fired engines. These engines can already work sustainably using a 15-percent hydrogen blend, with this hydrogen proportion expected to increase in the following years. The final goal is to take major steps toward zero emissions. To achieve the goal, natural gas engines will play a leading role in adaptation throughout the entire energy transition towards net zero.
There are two principal areas where natural gas engines will continue to grow in the near future. The first is pure power generation. Thermal electricity production is highly flexible. Therefore, applications may include migrating baseload to natural gas to produce reliable power so that the grid can support solar and wind power when demand goes up. Microgrids are increasing in demand too. Here, gas engines can help optimize industrial power consumption.
Now, the Mexican market is facing challenges in its mission to build a more stable and larger grid network. The main hurdle for energy companies in the country is the lack of permitting, as well as other obstacles coming from public policy, agreed the panelists. “The resources and supply options are there, but the difficulty to develop cogeneration projects is holding back Mexico’s industrial players,” sai d
as he added that efficient cogeneration plants would be “essential to increase the competitivity of the country.”
“Not only will electric energy be cheaper but with cogeneration, thermal energy such as heating will be available for the industrial process. This will decrease production costs, allow companies to grow and create more jobs,” added Aldrich Richter.
Aldrich Richter Managing Director LATAM | Bergen Engines
“Although prices in Mexico have tripled, natural gas is still the most competitive fuel in comparison to other solutions,” said Jean Nicolas Lejeune, Managing Director Energy Management and Supply, Engie. Furthermore, he explained there are two ways to mitigate fuel prices: via energy efficiency and fixed prices.
said Lejeune. Before, the best natural gas marketer was the one that could provide a contract indexed to US prices and compete for the lowest margin within that framework. Today, the strategy needs to be changed: the best marketer will be the one that can offer to fix prices in optimal conditions with flexibility and reliability. This will represent a radical change, said Lejeune. “The real question is how to incentivize marketers to provide the most certainty they can regarding fixed prices,” said Julia González Romero, Counsel, González Calvillo.
“Not only will electric energy be cheaper but with cogeneration, thermal energy such as heating will be available for the industrial process. This will decrease production costs, allow companies to grow and create more jobs”
“There are not many alternatives to natural gas and it is the main fuel used to produce power in Mexico today,” added Zúñiga.
Other than pricing, the mitigation of climate change is also an urgent issue for offtakers, which is why traceability will be an important factor for a more sustainable industry, said Lejeune. Natural gas can be produced with processes that generate little or excessive methane emissions. Being able to measure and trace this factor will be fundamental to fostering best practices regarding sustainability. Furthermore, any investment destined for energy efficiency will result in profits, mentioned Lejeune. What is more, “having a reliable energy generation system is fundamental for the stability of an electricity network,” added Aldrich Richter, Managing Director LATAM, Bergen Engines.
22 C ONFERENCE H IGHLIGHTS
ZúñigaRichter.agreed,
supply capacity but is lacking efficient logistics and transport. What is more, Mexico should begin thinking more about making efficient use of natural gas and understand that it is the “fuel of the future.”
Moreover, Zúñiga highlighted that the optimal solution to develop Mexico’s natural gas network and reach higher production levels is building cogeneration for the industry. “This will be the only way to reach optimal energy efficiency,” said Zúñiga, pointing toward the high efficiency of cogeneration installations, making them providers of clean power without any of the downsides of intermittency of distributed renewable energy sources.
Lejeune explained that during the past decade, the industry has worked with standard natural gas commercialization contracts in which the prices were indexed to the US market, often using the famous Henry Hub as the benchmark. Now, we are living through a change of paradigm marked by high fuel prices. To gain more control over these ballooning prices, gas marketers should be convinced to change this approach,
C ONFERENCE H IGHLIGHTS23
Mexico has drastically changed its energy policy over the past few years. Questions have arisen among varying stakeholders, as the state has increased its participation in the energy sector and drawn a line away from the previous administration’s policy perspective. This current approach seeks to create national energy security and sovereignty, promoting social interest ove r
“Mexico reformed its regulatory framework for energy in 2014. However, this reform has not yielded the expected results, as it has not been able to lower energy costs nor foster a more equitable infrastructure distribution,” said Rocío Abreu, President of the Energy Commission of Mexico ’s Senate.
Sinceprofits.2018,
the government has placed energy security as a pillar of its policies. Access to energy is fundamental to ensure the fulfillment of multiple human rights. Therefore, building the supply of reliable and accessible energy spills over into developm ent plans.
MEXICO TO ACHIEVE ENERGY SECURITY THROUGH NEW ENERGY STRATEGY
Alejandro Bargalló, Director of Engineering LATAM, Generac, said that the southeast of Mexico has been somewhat neglected when it comes to grid connectivity. Nevertheless, bringing the grid to the region will bring
the production of oil and refined products in the medium term, the Olmeca Refinery, located in Dos Bocas, Tabasco, was constructed. This new refinery is expected to reach a production capacity of 172MMb/d of gasoline, 125MMd/b of diesel, 9.4MMb/d of propylene and 9.3MMd/b of natural gas liquids.
These different government strategies tackle the different aspects of the energy industry. Regarding hydrocarbons, licensing rounds were held at the beginning of President López Obrador’s administration, seeking to exploit mature fields near
To push toward these unachieved goals, the government carried out strategic changes in regulation and public policy. International developments during the past two years led the government to rethink the role of the state in the energy industry. “Within the Mexican government, various actions have been undertaken to achieve the objective of social development through energy policy,” Abreu said.
ToCantarell.increase
more investment, benefits and competitive costs. “The resources are already available, we only have to make it work under an adequate regulatory framework,” added Bargalló.
meet the growing energy demand in the southeast region of the country. This expansion project is carried out through an alliance between CFE and TC Energy.
C ONFERENCE H IGHLIGHTS24
To change a long-standing trend where Mexico purchases the lion’s share of its refined petroleum products in the US, the Deer Park refinery in Texas was purchased. During 1H2022, this refinery processed 281MMb/d of crude oil and refined 293MMb/d of petroleum products. “By producing these products domestically, Mexico’s finances benefit, as the capital loss from the purchase of refined products is reduced,” Abreu stated.
In addition, the government undertook, in collaboration with the private sector, the construction of two combined cycle power plants in yucatan to provide the peninsula with reliable energy. The Valladolid plant will have an installed capacity of 1,0037MW, while the Merida plant will have an installed capacity of 509MW.
Concerning the strengthening of the national energy infrastructure, the government is promoting the development of new natural gas pipelines to expand its reach throughout Mexico. The Cuxtal I pipeline will interconnect the Mayakan pipeline with the national gas system, SISTRANGAS, and thereby ensure the supply of natural gas in the y ucatan Peninsula. On the other hand, the 715km of the Southeast Gateway pipeline will
“The national energy strategy also contemplates the advancement of clean energies,” Abreu commented. Among the clean energy projects is the construction of the Puerto Peñasco photovoltaic solar plant in Sonora. This will be the first massive-scale solar park in Mexico, with an installed capacity of 1GW. In addition, an ambitious modernization plan has been undertaken to upgrade 14 of CFE’s 60 hydroelectric power plants. Mexico is also developing its first green hydrogen pilot project that will be developed in three stages between 2022 and 2024.
The ultimate goal is to achieve Mexico’s energy security through this new strategy. Energy goes beyond a profitable industry, argues the government; it is a fundamental human right that enables social development. This is the main reason why the state must place all its efforts in favor of national energy security.
The actions taken so far are not enough, however. Mexico needs greater investment in infrastructure and in the development of generation and transmission projects that guarantee reliable and accessible energy for all Mexicans. “Achieving energy security to boost the country’s economic and social development represents challenges and opportunities that we will not be able to solve if we do not face them together, with public and private sectors,” stres sed Abreu.
In conjunction with investment in energy projects, the new energy policy also altered the regulatory framework. “Our regulatory initiatives seek to maintain equality in Mexico, because if energy costs continue to rise, the Mexican population will be severely affected,” explained Abreu. Among the main modifications are the Electricity Reform initiative in Congress and the reform of the Hydroca rbons Law.
C ONFERENCE H IGHLIGHTS25
GROWING DISTRIBUTED GENERATION INFR ASTRUCTURE
Accordingpower.toMusalem,
CFE’s grid,” said Musalem. The disruption of this technology will only grow stronger because of the economic convenience for the final user that solar panels provided. From 2020 to 2022, Mexico’s DG installed capacity doubled. Moreover, 99 percent of DG comes from photovoltaic panels on roofs, as other alternatives such as cogeneration are nowhere near as popular because they are more limited in their ap
adoption happens due to network parity, explained Musalem. This means that the cost of solar energy on the roof of a house is the same or less than the electricity of the grid. The investment in a solar system can be recovered in between two to seven years, whereas the system has a useful life of 25 years.
Jorge Musalem, Strategic Projects Manager, CFE, explained that DG is the generation of electric energy near the place where it will be consumed, often with the goal to be selfsufficient, incorporating available technology and using the backup of the grid to send off excess electricity or supplement the required
The impacts that DG has on the system, such as lower transmission and distribution costs, a lesser need for expensive transmission infrastructure investment and a reduction in technical losses from localized power production in distribution circuits provide further added value.
Thisplication.accelerated
In the near future, CFE foresees a model of DG in which local electricity charges are combined with other sources of power generation to provide support and backup to the system.
the market has been disrupted during the past four years, driven by four factors: cost, innovation, technology adoption and convergence. In 2009, the cheapest power energy was thermal energy, but today, photovoltaic solar energy has the cheapest leveled cost of energy in the world.
Moreover, solar energy adoption at an international level has developed at an accelerated pace, with the technology growing 155 times in capacity in 16 years. Solar power technology is innovative: “It allows the user to gain independence from
Distributed Generation (DG) has seen unprecedented growth in the past years. As Mexico’s energy policy stalled renewable utility-scale developments, the private sector has turned to DG as the alternative to move forward with its decarbonization agenda. Mexico’s stateowned electric utility, CFE, is planning to adapt to this trend to achieve Mexico’s climate goals for 2024.
and the vision we shared in 2014 does not conform to the reality we are confronted with today,” said Alfredo Zárate, Partner, Leader Electricity and Public Services, KPMG. “Nevertheless, we must be proactive as well as innovative and keep putting our proposals on the table. The alteration to the Clean Energy Certificates (CELs) has poured cold water on many of our plans in the renewable energy sector. Regardless, we must reconfigure our way of doing business and recoup some of the investment that was lost. We need to analyze different aspects of the electricity industry law (LIE) and see where the opportunities are,” he added.
Mexico’s wholesale electricity market (WEM) was born out of the country’s 2014 Energy Reform. It promised to open up opportunities for businesses and bring benefits to consumers. However, regulatory uncertainty has halted the WEM’s growth. To stimulate sustainable economic growth, reliable access to clean energy is required. The question, therefore, is how the market will develop from here, as experts argue that the WEM remains essential if Mexico is to decarbonize its industry and boost its competitiveness.
“Mexico completed phase one, and then the ETS was halted because the two biggest companies that belong to the state were not ready to comply with the obligations”
“Change is a constant in our industry. These changes, however, have certainly been an obstacle to the development of the WEM,
Rising prices are bothering the WEM, to the point that they cannot be ignored. Daniel Herrman, Country Manager, DNV, sketched out the context that defines the pricing balance between supply and demand, commodity prices and transmission restrictions. “We have seen an increase in prices since the COVID-19 pandemic. This is expected to continue over the next two years due to price increases in commodities
“Renewable energy will not be able to cover demand when it is at its highest peak because of the low reliability of wind and solar power,” added Musalem. Nevertheless, battery energy storage can remedy this issue by storing electricity when it is produced and discharging it when it is needed. “The electricity system will have to change and develop the necessary transmission and distribution infrastructure to enable energy storage and keep increasing the percentage of energy produced from renewable resources,” conclude d Musalem.
HOW WILL MEXICO’S WHOLESALE ELECTRICITY MARKET DEVELO P FURTHER?
What is more, climate change is increasing the risk of weather-based disasters, a problem that will eventually impact electric infrastructure. In the change toward a cleaner industry, Mexico needs to find a balance between where investments are made and which technologies grow in size, as varying business models need to be orderly and incorporated into the electricity system. “There is an urgent need to modify the business model of electricity companies,” stated Musalem.
C ONFERENCE H IGHLIGHTS26
in prominence, as 29 percent of electricity is generated through renewable resources, with hydroelectric power leading the pack. Mexico aims to increase this number to 35 percent by 2024, but an investment of around US$10 billion will be needed for this to happen, added Musalem.
CFE is the second-biggest company in Mexico and will also have to adapt to growing trends to remain relevant, added Musalem. Mexico has a privileged position when it comes to solar radiation. By the end of 2021, it had generated 328.6TWh, with 3 of every 5 lightbulbs being powered through natural gas. Nevertheless, renewable energy is growing
José Buganza CEO | Enegence
Lilián Alves, Director of Business Development, Mitsui and Co. Infrastructure Solutions, pointed toward the impact that gas prices have on the market. “Mitsui examines the market as both a power producer and a qualified supplier. The stress we are seeing in the market does not come from just one commodity,” she explained. Even though Mexico’s WEM is young, “the level of resilience it has shown in the face of extreme weather conditions such as hurricanes and the Texas Freeze, as well as a major global crisis, is striking. These events have also opened our eyes as to where regulation could be improved. When the war started in Ukraine, the impact was not all that immediate. However, since then gas prices have doubled from US$4/ MMbtu to US$8/MMbtu. We are expecting this figure to drop down to around US$5/ MMbtu by 2024, but in the short term it will remain elevated.”
Herrman also noted that the post-pandemic market recovered quickly, a welcome trend that is expected to continue. However, Mexico’s installed capacity has stayed the same, causing stress on the system and price increases. “We have also seen many renewable energy projects face delays and cancellations, which could affect our ability to meet demand in the near future,” explained Hermann. Regarding commodity prices, he noted that Mexico is a thermal energy-minded market, where more than 60 percent of electricity generation comes from combined cycles. “There is a clear correlation between electricity prices in Mexico and natural gas price indexes in the US such as Henry Hub. Regardless of the high production levels in the US, factors such as the current demand for natural gas in Europe and the closure of many wells during the pandemic are causing prices to
and the gap between supply and demand for energy services. Moreover, continuing geopolitical uncertainty combined with high inflation rates will continue to drive commodity prices up.”
to the center of the country where demand is higher,” he said, adding that demand does not match what is on offer in Mexico for this reason. “In the peninsula, electricity is imported, and transmission restrictions result in elevated prices,” said Edmond Grieger, Partner, von Wobeser y Sierra, who concurred that the segmentation of nodes plays a huge role in the WEM. “To have a viable electricity system, integral planning is key,” concluded Grieger.
Herrmanincrease.”explained
C ONFERENCE H IGHLIGHTS27
that Mexico is a nodebased market, with over 2,000 nodes spread across the country, each maintaining different prices. “We must consider the spread-out geographical location of these nodes. In the Northeast, we see lower prices, while in yucatan prices are much higher. This is due to the characteristics of each node. In the north of the country, some nodes export electricity, but when congestion becomes a factor it is not so easy to send electricity
“Change is a constant in our industry. These changes, however, have certainly been an obstacle to the development of the WEM, and the vision we shared in 2014 does not conform to the reality we are confronted with today”
Alfredo Zárate Partner, Leader Electricity and Public Services | KPMG
Regarding transmission restrictions, Alves argued to consider supply and demand individually at every one of the 2,000 nodes to determine which areas already have an excess of capacity and which require firm capacity: “Recent emergencies were not factored in when the regulations were
As prices continue to balloon, commodity traders will need to absorb the risk. “This risk perception is factored into the higher prices we are paying. As we approach the winter in the US again, we need to consider the effect this will have on prices. Of course, there are strategies out there to manage this, such as using hedges to buttress the market,” Alves said.
Alves agreed that the energy sector must play a leading role in the efforts to reduce emissions. “It would be negligent of us not to discuss emission reductions, considering that the energy market in Mexico is responsible for 70 percent of the country’s emissions,” she said, adding that Mexico must invent methods to reduce this percentage. “In that sense, we have already taken steps forward. CRE published a report this month detailing how we already have 300,000 solar distributed generation (DG) interconnection contracts under 0.5MW and now we are going for 2MW,” Alves added, though this development is insufficient for Mexico’s vast industrial offtaker base. Nevertheless, DG is an optimal solution for them because it enables cheap, clean power production close to where it is used. Keep pushing these alternatives,” urged Alves, a point that Buganza underscored. “This will reduce prices for consumers due to the high efficiency of these solutions,” he said.
friendly schemes that can be measured through environmental, social and governance (ESG) criteria, industry experts said.
Sustainable and responsible investment has gained global relevance in recent years. “ESG criteria have become an investment benchmark for business development,” said
written up. Now that these events once thought of as extreme are becoming more regular, we need to consider adopting power subzones to better administer crisis Josémanagement.”Buganza, CEO, Enegence, noted that the WEM is lacking solid transmission. “Today, we are not getting the required investment in Mexico because we lack energy capacity. There is a huge appetite out there for investment in industrial parks, but investors’ efforts are frustrated because they have no access to energy,” he said. Buganza concurred that commodity prices will continue to be a problem for the market, “since demand keeps on growing and supply has been impeded. Even when commodity prices stabilize again, prices will continue to be pressured. It takes time to build up infrastructure and we simply do not have the capacity at the moment. Even if we take new regulatory measures tomorrow it will be five years before we start seeing results because the process is slow.”
C ONFERENCE H IGHLIGHTS28
Mexico is also developing an emissions trading system (ETS), but Buganza explained the obstacles in the way. “Mexico completed phase one, and then the ETS was halted because the two biggest companies that belong to the state were not ready to comply with the obligations.” Nevertheless, Mexico cannot put the ETS off much longer, said Buganza, because major Mexican businesses have signed international contracts which will be broken if they are not carbon neutral by 2030. “Therefore, the next seven to ten years promise dynamic changes as businesses adopt cost-effective green energy supply,” he said.
Many would argue that the capitalist business model has fostered economic growth and created wealth. However, it has also brought environmental damage and degraded social inequalities. The growing effects of climate change prove the need to rethink our economic dynamics and redesign them toward fairer and more environmentally
Herrman emphasized the need to address legal ambiguities and foster more confidence for investors if the private sector is to play a front-running role in the energy transition. “It is clear CFE alone will not be able to satisfy the growing demand for electricity in Mexico. A clear example of this is what we have seen in Baja California, which has lacked the necessary capacity and infrastructure for years. If we are to double installed capacity from 90GW to 180GW, we need to facilitate private investment in technologies and renewable energy projects,” he said, adding that “we can take a page out of the US’ book by promoting private sector innovation in offshore wind and green hydrogen projects.”
SUSTAINABILITY DRIVES THE FUTURE OF BUSINESSES
In addition, companies obtain many more benefits in the long term by investing in ESG strategies, outweighing the costs required to implement them. “Joint investment in efficiency, sustainability and well-being is the best long-term decision to reduce costs and increase productivity,” noted Carey.
Likewise, the drive to reduce costs and increase sustainability leads companies to innovate, which allows for greater competitiveness in the long term. It is also
Another major driver has been the regulatory change pushed by international commitments to combat climate change, developing a double-incentive system in which sustainable practices are encouraged and environmentally damaging practices are punished. The resilience companies gain
Érika Santiago, Senior Manager of External Affairs Communication and Sustainability, AES Mexico.
ESG investments are transforming the business models of companies, driving them to become more responsible regarding society and the environment. In 1Q21 alone, more than US$21 billion was allocated to global investment funds based on ESG criteria, proving the attractiveness of developing such strategies.
“ESG is an inevitable path for everyone. There is no other way to look at the future of business without considering its impact on the environment in which it operates,” said Sergio Carey, Finance Director, Siemens Energy Latin America.
For companies, the main driver has been the financial sector. Through its investment and capital injection policies, companies have had to increase their ESG commitments. Many investment funds are entirely abandoning investments that harm the environment or are socially irresponsible. This means that if companies are to access capital, they must prove their commitment to sustainable business models.
Ruth Guevara
In addition, consumers are becoming increasingly aware of their purchasing decisions and how their consumption habits impact their environment. Therefore, they choose to buy from companies that align with their sustainability values.
C ONFERENCE H IGHLIGHTS29
The ESG vision aims to nurture a cohesive approach to business development, in which economic profitability must go together with environmental, social and governance issues. “Incorporating environmental, social and governance responsibility must become part of companies’ core business,” explained Jorge Radi, Head of Commercialization and Trading, Enel.
by adopting ESG best practices add further value for businesses.
Market studies have shown that consumers, especially the younger ones, trust companies that made their operations transparent and disclose their sustainability strategies. This has also led to an increase in accountability reporting to comply with sustainability commitments. Therefore, ESG strategies must be measurable.
To make their results transparent, companies are often resorting to international standards to produce their sustainability reports. However, due to the variety of standards that exist, comparisons between sustainability achievements are difficult. “There are initiatives that seek to standardize sustainability reporting to facilitate measurement and comparison between different agents and facilitate data transparency in these processes,” explained Ruth Guevara, Partner and Leader for Climate Change and Sustainability Solutions, E y
“There are initiatives that seek to standardize sustainability reporting to facilitate measurement and comparison between different agents and facilitate data transparency in these processes”
Partner and Leader for Climate Change and Sustainability Solutions | EY
Engaging the communities where companies operate is critical to improving ESG policies. “Businesses must promote social welfare in their environment,” explained Katia Bernal, CEO, Citrus. In addition, “ESG requirements go beyond the company’s internal operation and management; these requirements must be extended to suppliers and customers, which will allow us to redesign production chains in favor of a more responsible and sustainable economic system,” no ted Carey.
The risks of avoiding implementing ESG measures are increasing at a rapid pace. As time progresses, the financial costs of migrating to sustainable strategies will increase depending on the lack of adaptation. In addition, failure to meet community-accepted ESG criteria can result in fines, increased production and operating costs and more expensive investments. There are also indirect costs such as reputational risks that can be much more damaging than direct costs.
So far, the private sector in Mexico has done the most to foster ESG approaches. “Ultimately, the drive toward sustainability
right, the energy industry must always contribute to this issue. Implementing ESG strategies is one way in which the energy industry can contribute to this right being exercised at all levels of society,” said Bernal. Therefore, the energy sector should focus on resilience and implement strategies that promote clean, reliable and accessible energy as soon as possible.
Jorge Radi Head of CommercializationandTrading|Enel
“Energyplemented.isahuman
The concept of sustainability implies building a business that is sustainable in the long term. “This should be the best incentive for companies to adapt to new market demands in favor of environmentally sustainable and socially responsible models,” noted Guevara.
has come from the private sector rather than from the political leadership in power,” said Bernal. To drive the development of sustainable businesses, collaboration between the public and private sectors is essential, however. Governments must modify their laws and regulations to sanction bad practices and implement positive incentives to encourage industries to implement ESG s trategies.
“Although complying with ESG criteria is currently seen as a formality, in the future it will become part of the overall business vision. Companies that do not comply will cease to exist,” Carey concluded.
heavyweight companies like Veolia are making an effort to implement and generate new business models to adapt to this new reality, including by repurposing waste for power p roduction.
C ONFERENCE H IGHLIGHTS30
Amid a climate emergency, the energy industry faces a major challenge to implement renewable energy infrastructure and sustainable business models in Mexico. International
It is in this leadership role that energy companies are spearheading the migration toward more sustainable economic dynamics, since energy is an integrated input in all value chains. This has positioned energy measures as one first ESG actions to be im
through this innovation that industries become more resilient to the challenges of the future, Radi added.
CARBON FOOTPRINT MEASURING ESSENTIAL FOR WASTE PROJECT EXPANSION
“Incorporating environmental, social and governance responsibility must become part of companies’ core business”
C ONFERENCE H IGHLIGHTS31
If environmental costs are not presented to companies, these projects will not take off: “Assigning costs to the carbon footprint and focusing on the production of thermal energy will be key to developing these markets,” added Herranz.
Veolia, a company specializing in optimizing resource management, offers services for thermal and electric energy production. Moreover, it designs and implements solutions for the management of water, waste and energy as an ally in the sustainable development of cities and industries. Its business model is based on guaranteeing saving energy to its clients and providing a complete service beyond merely supplying the technology.
It will be imperative to include the reduction of carbon footprint in the business model of these projects because it enables companies to visualize and plan what they can save in terms of costs, opening up new opportunities in the market.
more efficient in the way that companies consume less kW/t of produced product,” added Herranz. In that regard, the easiest way to make the change is by calculating the carbon footprint. “As operators of waste, water and energy plants, we have to report our carbon footprint because otherwise, we have difficulties finding financing,” said Herranz.
David Herranz, Associate Director DTP, Veolia, explained that any thermal or electrical kW produced with a sustainable source is often more expensive than those relying on fossil fuels. “The price per kW generated through biomass is pricey in a market that seeks out the cheapest kW. And if these costs do not get integrated into the business model, no sustainable project will be carried out because it will be more expensive for the company,” Herranz added.
The problem that renewable energy companies are facing in Latin America is that natural gas comes at a bargain from the US, and they must compete with that. Furthermore, when a client is connected to the natural gas network, they have access to it nearly instantly. If an industrial user wants to produce power using biomass, suppliers need to guarantee that sufficient biomass to comply with energy needs is available.
“Energy saving is not only about using waste, it is about making the manufacturing process
Mexico’s industry needs to clean up the power it uses and find ways to deal with the waste it generates simultaneously, said Herranz, adding that to operate effectively, companies need to have stable operational costs and save energy in industrial processes. One beneficial solution would be to use organic waste to produce heat and electricity, or exploit inorganic waste to produce a fuel that can then be utilized to produce power.
Diego Arjona, Board Member, Cigre Mexico, outlined a quandary faced by Canadian nuclear power plant operators. Should control systems be machine operated or controlled by humans? The former eradicates the risk of human error and offers quicker decision-making for when crucial action is required. However, are machines capable of processing information using Artificial neural networks (ANNs) like the human brain? And are they capable of carrying out the nonlinear equations required to manage complex situations?
David Hernández, Engineering Director, Energetika, said that the future lies in programming machines to behave like a human brain, which Hernández believes to be “the most complicated organism in existence.” “It has even been estimated that there are more interconnected neurons in the brain than stars in the known universe. And every single one of these synapses that take place in the brain every nanosecond is something we want to replicate as part of Industry 4.0, where machinery will start to behave more and more like a living organism and start thinking for itself using AI algorithms,” he continued, adding that “when each piece of machinery, each
factory and power station are all connected to larger systems such as the grid, that is when we can start to mimic cerebral patterns and truly talk about the energy industry behaving like an organism.”
Fidelmar Molina, Utilities Sales Manager, Hitachi Energy, said a phenomenon we will see increasingly more of on a macro level is machines being given responsibility for critical analysis and problem-solving. “In this sense, AI will play a major role in regulation. If we view digitization as a pyramid, analytics is at the bottom, serving as the foundation. Everything that involves measurements and data provides diagnostics. When going to the doctor, data is obtained and information gathered to provide a diagnosis. Where the doctor uses professional experience to provide a diagnostic, AI employs a series of algorithms to arrive at its conclusions, which results in quicker decisions devoid of human error,“ Molina said.
C ONFERENCE H IGHLIGHTS32
As to how companies can combine software based on AI and hardware to generate optimal benefits, Hernández said that “new technology software helps collect data regarding operational activities more efficiently. More software is becoming specialized for individual activities such as energy administration
“One degree lower on your aircon is a 10-percent cost saving, for big businesses that is huge. We are lucky that energy costs are still much lower here in Mexico than in Europe or elsewhere, but reducing emissions is another reason why the efficiency provided by smart monitors is to be celebrated”
The rise of automation, digitization and AI is set to revolutionize all aspects of our lives and the energy industry is no exception. Indeed, these smart technologies promise to improve energy efficiency while reducing operating costs for producers, say industr y experts.
SMART TECHNOLOGY REVOLUTIONIZES ENERGY EFFICIENCY
Alejandro Hinojosa Energy Project Manager | Veolia
Alejandro Hinojosa, Energy Project Manager, Veolia, outlined how smart technologies can be used to minimize waste and reduce costs. “For Veolia and many other businesses, looking after our resources is important. To this end, new technologies can be employed to make everything run more efficiently,” he said. According to Hinojosa, the optimal outcome is a combination of human expertise and smart technology: “We find maximum efficiency comes from merging new technologies such as AI and digitization with human knowledge. Traditional methods will continue to be valuable, but we must implement AI to better inform our personnel, helping them to make smarter decisions and obtain better results.”
Molina further explained how smart technology can be incorporated into a
Fidelmar Molina Utilities Sales Manager | Hitachi Energy
Arjona also cited the use of smart meters, especially for appliances like central heating and air conditioning, since the weather is something that changes drastically. “It is not reinventing the wheel to say you need to turn your heating off in summer or air con in winter. Smart meters, however, track the curve in demand for heating or lighting or other services,” Arjona said. Hinjosa concurred, as he explained how smart technology minimizes the impact of intermittency through forecasts. “When the supply of renewables is interrupted, we can plan ahead and turn to natural gas or other alternatives,” he said.
“I think this perfectly describes the relationship between hardware and software. Just as the doctor needs to have accumulated the relevant data and information before diagnosing a patient, they also need certain tools or instruments to identify what is wrong with someone, and then provide a cure,” said Molina, adding that with AI and digitization, the diagnosis or discovery comes much more quickly. Therefore, “facilitating the flow of communication between software and hardware is key.”
“Facilitating the flow of communication between software and hardware is key”
and asset management. Therefore, a range of software is available. When combined with hardware or operational tools, it helps us visualize what is actually going on in a system, and this is really breaking new ground for energy effi ciency.”
C ONFERENCE H IGHLIGHTS33
Smart technology can also be used to make predictions going forward. Arjona provided the example of renewable energy and its intermittencies. A smart grid, however, helps foresee these gaps and plan for alternative energy sources. “For solar power especially, you have an abundance of energy generated during the day and then nothing at night, so we make use of smart technology to make grids and transmission lines more dynamic and predictive.”
“At Veolia, we have pioneered Hubgrade to visualize, evaluate and optimize resource management for buildings. By combining computer analysis with human analysts, we provide practical solutions to make the energy use more efficient and cost-effective. If a piece of equipment is not using electricity efficiently or malfunctioning in some way, you will receive an alert and be able to take immediate action to address the issue,” Hinojosa said. According to the company, Hubgrade is so precise it can even identify which components are at fault. “This is where AI and digitization can provide practical, money saving solutions, producing graphics of ongoing activities to help us visualize, interpret and act on problem areas to make our consumption of energy more efficient,” he concluded
company’s operations and maintenance (O&M) solutions. “Hitachi uses the same software that goes into facial recognition technology and applies it to enhance the performance of electric routers. When CFE is tracking transmission lines, it can take images and videos of what it sees, which are sent forward for processing at a data center to ensure each piece of equipment is behaving as it should and operating efficiently. Therefore, Information Technology, Operational Technology and AI allow to reduce maintenance times in electrical networks.”
Hinojosa noted how even little tweaks can produce drastic changes to a company’s bottom line. “One degree lower on your aircon is a 10-percent cost saving, for big businesses that is huge. We are lucky that energy costs are still much lower here in Mexico than in Europe or elsewhere, but reducing emissions is another reason why the efficiency provided by smart monitors is to be celebrated,” he stated.
Today, this model is challenged by a new scheme with a different power flow. Thanks to smarter grids, Distributed Generation (DG) and microgrids, several elements can be connected to the distribution networks, creating bidirectional power flows.
BATTERY STORAGE WILL SUPPORT THE GRID OF THE FUTURE
“Theseoutlook.three
A disrupted commodity market is challenging the energy transition and the planned path toward achieving climate goals. The incorporation of new energy sources into the energy matrix has challenged the operation of grids around the world, forcing systems to evolve towards higher efficiency to achieve decarb onization.
The decline in the global marketable natural gas supply has impacted the prices of gas and other fuels, increasing the cost of energy and other goods and services. While facing natural gas shortages, governments and other stakeholders are in a quandary regarding how to optimize the flexibility of their assets to adapt to the imminent challenges. This disruption both the public and private sectors to a dilemma: whether to accelerate efforts toward the energy transition or rethink the strategy and loosen the implementation of decarbonization
and companies analyze which path to take, the world has continued
to evolve. Some trends have reached the point of no return, becoming crucial for present and future strategical decisions. Trends like the electrification of demand, further decarbonization through the implementation of renewable energy and sustainable processes as well as increased digitalization will become a constant in our global
being employed to manage the weather factor and maximize output. The biggest concern for energy producers is cost-reduction, which is why efficiency is key. Smart tools mean we can take advantage of strong winds when they are available and minimize costs when they are not,” Molina added.
Whilestrategies.governments
Hernández said that smart technology also allows power producers to better manage their available resources and supply chains: “Power networks need to be in constant communication so you can have the energy you need when you need it and in the right quantities.” “For wind power, digital tools are
C ONFERENCE H IGHLIGHTS34
trends are reshaping the way power systems operate in the face of the challenges of the energy transition,” said Edy Jiménez, Market Operations & Contract Management Director, AES Mexico. Traditionally, power systems are vertically integrated, meaning that power flows in one direction: from generation, transmission and distribution to the end user.
Storage systems are not only meant for power charging and discharging, but also serve as backup systems in case of blackouts and as tools for power flow frequency regulation. These multiple tasks allow for better management of the grid, benefitting its stability and reliability. This makes storage one of the key tools for the grid of the future.
The traditional solutions of increasing power production capacity and system infrastructure are the first steps to addressing these challenges. Moreover, new technologies have created innovative solutions focused on the grid’s efficiency. Parallel solutions are alternatives that are faster to implement and optimize the existing grid.
The implementation of battery storage systems can combat the intermittency of renewable energy sources, reducing issues of congestion and instability. The use and analysis of big data in real-time optimize the reactions to changes in the demand curve. As digitization advances, cybersecurity measures will maintain the security and integrity of the grid.
Modernizingdisturbances.the
grid is a top priority project that involves strong capital investments, costs that public budgets cannot always absorb. “In Mexico, the necessary transmission systems have already been identified by CENACE. However, their implementation is complicated due to budget and permitting restraints,” explained Jiménez.
“This DG revolution forces electricity system operators such as CENACE and CFE to rethink their operation, either toward establishing penetration limits or rethinking the system entirely,” explained Jiménez.
To support the energy transition, AES moved into battery energy storage systems (BESS). By partnering with Siemens, the two companies created Fluence, which focuses on increasing storage capacity worldwide. To date, Fluence has more than 5.2GW of storage capacity installed or in the pipeline in more than 25 countries.
This change of scheme brings a set of challenges to the grid’s commercial, regulatory and operational structure. First, there is the operation of traditional distribution networks. Their overcurrent protection schemes are conditioned for unidirectional power flows. There is also the voltage quality with which the energy reaches the end user.
Mexico has great potential to lead global energy transition strategies because it has a wide availability of solar and wind resources.
One condition that systems must correct to allow the grid’s evolution is the modernization of the regulatory framework for energy. “We cannot pretend to modernize the grid with all the new technologies that have emerged under the current regulatory framework,” said Jiménez. Laws and regulations need to change so that these new technologies have clear implementation lines. “Without clear regulatory schemes, the competitiveness of grid modernization and renewable implementation projects will decrease.”
“To take full advantage of our renewable energy hubs, we need to identify areas of improvement and develop more transmission
New technologies create further challenges. Intermittency and congestion created by Non-Conventional Renewable Energy (NCRE) are the best-known of these issues, as they weaken the grid’s ability to absorb
At the operational level, Mexico must also consider how regional power production profiles complement each other within the energy matrix to maintain grid stability and efficiency. Mexico’s geography is a challenge for the national electricity system. Changes in terrain make it difficult for the grid to maintain optimal efficiency.
C ONFERENCE H IGHLIGHTS35
lines to move the energy from where it is produced to where it is most needed,” explained Jiménez. Furthermore, improving transmission infrastructure will reduce grid congestion and increase access to electricity in isolated areas.
In addition, Castillo also mentioned the necessity of the private sector to participate in the discussion regarding grid planning, because this has led to problems in the past. “Power production was planned independently from energy transmission, but they need to be planned together,” mentioned
C ONFERENCE H IGHLIGHTS36
JOINT PLANNING IMPERATIVE TO ENHANCE TRANSMISSION INFR ASTRUCTURE
in the power grid is not only about production but also about distribution. Getting power to everyone while maintaining stability and reliability of service is critical,” said Cantor. To plan where the possible and the largest users of the network will be in the future will also help to make the grid more reliable and stable.
Mexico’s transmission and distribution infrastructure has long since been identified as a weak point in its clean energy transition strategy. To many industry analysts, this is no surprise, as Mexico’s geographical, technological and financial constraints prove challenging. If Mexico is to improve its grid system, public-private cooperation will be key, argued Accordingexperts.to
“To discuss stability, voltage and frequency must come into the conversation because that is what needs to be controlled and regulated to have a stable network,” said Castillo. According to her, voltage problems arise when there is no balance between
“This is a breaking point in the electricity industry, during which many things need to be defined to close that gap. It is a real problem as we are getting left behind in terms of modernization if we do not start planning based on access for all and considering technological disruptions”
This is a challenging situation, in which the private sector will play a fundamental role because it can assure the sustainability of the energy sector in the future. “There is no precise solution planned that can tackle all these challenges,” said Andrés Cabrera Palacio, Commercial Director, AES Mexico.
“GrowthCastillo.
Eduardo Andrade General Director | Burns & McDonnell
says Luis Felipe Cantor, Transmission Head, Siemens Energy Mexico, Central America and the Caribbean, Mexico’s market situation is curious because “the need for local power supply is causing different types of loads to be connected to the same network, generating new connections and causing instability.” Therefore, he explained that it will be crucial to establish how different actors in the market should support each other if they are to maintain the stability of the network.
is currently modernizing. “Security, reliability, effectiveness, green power and low costs are the priority right now in the Mexican system. This is imperative to understand where investment and policy should be directed,” added Castillo.
“Over the past four years, there has been little investment in the power transmission network, and we are beginning to feel the effects. The system is reaching a point where it is getting too expensive to be able to connect to the transmission network,” said Eduardo Andrade, General Director, Burns & McDonnell. Andrade added that focusing on getting more money for CFE will be fundamental to enabling other companies to interconnect. Although the state utility has often declined the support of the private sector, it needs help to carry out bigger projects. “It must be the goal to reach a point where collaboration between the private and public sector inside a more monopolistic system,” added Andrade.
Moreover, Ivette Castillo, Managing Director LATAM, GE Grid Solutions, pointed out that successful planning requires that all market actors understand the objective of the grid operators, which is different in every system. The Mexican system is mature and
Someone who has followed all the constitutional amendments and regulatory
modifications over this time is Eduardo Andrade, Director General, Burns & McDonnell. “I remember a promotional event for one such reform to the electricity sector around 2003 or 2004, in which I made myself available to be interviewed by each of the local stations of Televisa. The only question on everyone’s mind was: ‘How much am I going to have to pay (for electricity),” Andrade explained, adding that
“Security, reliability, effectiveness, green power and low costs are the priority right now in the Mexican system. This is imperative to understand where investment and policy should directed”be
Ivette Castillo Managing Director LATAM | GE Grid Solutions
The Mexican electricity sector has been in a constant state of evolution since the first major reforms were initiated 25 years ago. The most recent shift appears to be positioning state utility CFE in the central role once again, as Mexico simultaneously needs to boost further clean energy initiatives.
C ONFERENCE H IGHLIGHTS37
country and connecting the whole country to the electricity network can be a challenge. What is more, bringing electricity to remote locations is not seen as a viable business by many carriers. “These lags seem to increase growing the unequal access to electricity gap in the country,” said Ignacio Garcia de Presno, Partner, Lead Deal Advisory&Strate gy, KPMG.
these two aspects. When disturbances in weak networks arise, the solution is to invest in technology: the problem is not that there is no technology to address issues, but that there are no policies to spur investment in that technology.
In Mexico, CFE is the only player involved in the transition in distribution. The state utility maintains a standard of conduct regarding acquisitions and modernization. “The concept of planning in the Mexican market is excellent because it comes from
an expansive plan. Nonetheless, firstly the current problems must be identified, and then it should be analyzed how technology can be used to enhance the system,” sai d MexicoCantor.isalarge
MEXICO’S POWER INFRASTRUCTURE MOVING FORWARD
“This is a breaking point in the electricity industry, during which many things need to be defined to close that gap. It is a real problem as we are getting left behind in terms of modernization if we do not start planning based on access for all and considering technological disruptions,” Andr ade added.
Recently,achieve.”the
C ONFERENCE H IGHLIGHTS38
Before the reforms of the early 2000s, CFE used the Energy Sector’s Program for Works and Investment (POISE) to carry out studies, analyze macroeconomic trends and retire outdated power plants. With this document, CFE would then draw up a list of power production and transmission line projects for the next 10 to 15 years. As Andrade described, “the POISE was a very well-researched and carefully drawn up study for future prospects. Typically, the projects scheduled were completed on time. If the economy was in a rough patch, a plant might be delayed a year, but we also saw plants completed a year earlier when the market was in good shape, so it all balanced out. It looks like we will be returning to a similar model to accompany the National Electricity System Development Program (PRODESEN).”
paradigm established in the 2014 Energy Reform has been challenged, since the government aims to pull back the reins of privatization and gain greater control of the energy sector to fulfill its aim of energy sovereignty. Andrade expected more of the same to come in the next decade or so: “The current government has two years left in power, and it will likely be succeeded by a similar administration which will continue the Fourth Transformation (4T). This means that the future of electricity in Mexico will continue to be centered around CFE.”
Andrade expressed his desire that a natural gas pipeline network will be a key driver in the new sector plans. “The entire west coast was severely underserved by gas supplies, but CFE has since installed plants in major cities all across the Pacific to address the problem,” he said, adding that while transporting gas is difficult, a ready supply is crucial to develop industrial activity. If such projects are unpopular, a thermal power plant can anchor and justify a large pipeline in the region. “This was the strategy between 2002 and 2012,” said Andrade, as he cited the example of the ammonia plant in Los Mochis, Sinaloa, which lowered the costs of generating electricity with cheap natural gas supply and allowed greater availability to areas previously out of reach. Industry analysts agree that such natural gas projects will play a leading role in Mexico’s energy sector for years to come.
From 2013 onward, however, Mexico’s energy sector started to see much greater levels of investment in renewable energy. While acknowledging that renewables are ultimately the future of the industry, Andrade noted that renewable plants must be constructed at the source of the renewable energy, unlike traditional power plants, which does not necessarily match up with the requirements of supply chains and transmission networks. “This causes problems for our networks, which for decades were based on the building power plants in strategic locations to optimize supply chains and address demand,” he said. The smaller renewable plants meanwhile sprang up in a manner that largely ignored supply chains and transmission networks. Andrade therefore called for renewable resources to be developed more strategically: “It does not make sense to put a solar power plant in Mexico City where demand is high but there are only 5 hours of sun with lowquality radiation. Oaxaca may have better solar resources, but the electricity demand there is much lower. We must also factor in the impact of intermittencies to ensure electricity supply remains constant even when days are overcast.” Therefore, “combined cycle plants will remain CFE’s anchor just as they have proven to be with the latest projects carried out.”
“it is taken as a given that electricity will be supplied where it is needed. What people care about most is the price. Providing a consistent and reliable supply of electricity at a reasonable price is therefore what all these different reforms have sought
“Combined cycle plants will remain CFE’s anchor just as they have proven to be with the latest projects carried out”
Eduardo Andrade Director General | Burns & McDonnell
Andrade urged Mexico to adopt reliability standards in line with international norms, which would provide a significant boost to Distributed Generation (DG), as well as update the design of its transmission networks. This applies especially to outdated cable specifications, which would enhance transmission capacity. Finally, the publicprivate divide must be bridged if Mexico is to provide the clean power capacity it needs for its development. “We are wasting valuable time that should be devoted to debating new energy initiatives on political rather than technical discussions,” Andrade concluded.
C ONFERENCE H IGHLIGHTS39
Under the previous government, companies were “essentially free to locate an adequate site, propose it to CENACE and receive the required investment.” Andrade nonetheless expressed some optimism toward the prospect of a return to open development, even if it is not the most efficient model. “Open seasons are basically when you reserve transmission capacity for future projects. This allows CFE to invest in putting the necessary infrastructure in place. We have seen this work effectively before in Oaxaca in particular, and I believe that in its next open seasons, CFE will be able to sell clean energy to potential customers.”
clean source of energy and a pillar of the energy transition,” he said.
This would also benefit investors tied to decarbonization, raising the prospect of a new solar plant being pitched in advance to clients keen to divest from foss il fuels.
Andrade also said that nuclear energy will make a comeback as the “cornerstone of clean power production.” This next generation of nuclear power plants will not be on the 2,200MW scale of Laguna Verde but rather Small Modular Reactors (SMRs). Three such units, each with an individual capacity of 80MW, are already being constructed in the US using the latest technology. Referring to one frustrated attempt during the final year of Felipe Calderón’s presidency, Andrade argued it is time to stop kicking the can down the road regarding nuclear power. “In the fifth year of a presidency, there is simply not enough time left to complete such projects. We need to embrace nuclear power as a priority
Furthermore, Mexico lacks any form of natural gas storage and is forced to rely on pipeline pack. This leaves the country vulnerable to volatile import markets and price hikes such as we have seen this year. Storage solutions can also be applied to the hydroelectric sector, allowing water to descend at peak times when costs are higher before circulating back up when demand is lower.
Newer technologies, such as green hydrogen, must also be explored, which Andrade believes has the potential to ultimately replace natural gas. Meanwhile, to stabilize the electricity system, improve the quality of energy available and optimize the application of renewables, Andrade noted that storage is critical and will help ease the burden on the grid.
In Texas alone, the price of natural gas has increased four times over in the past two years. In Europe, the increase in natural gas prices has been much more drastic due to the Russia-Ukraine war. Against the backdrop of rising energy prices and fuel shortages looms a shortage in the winter. “If action is not taken soon, this shortage will last for some years,” said Ramón Moreno, President, the Mexican Energy Association (AME).
must be addressed in two ways: mitigation and adaptation to irreparable changes in the environment. Mitigation efforts focus on eliminating greenhouse gas emissions such as CO2 and methane. To achieve decarbonization in light energy consumption, equivalent to 65 percent of energy demand, countries need to focus on clean power production, electrification and storage. Decarbonizing the remaining 35 percent of heavy power consumption will require the development of clean
Furthermore,fuels.
the world’s power systems need to adapt to new climate conditions and become resilient to different environments.
As weather conditions become increasingly extreme and atypical weather events increase in frequency, power grids must be
to natural gas shortages and rapidly-rising energy prices in international markets.
C ONFERENCE H IGHLIGHTS40
The current energy crisis is at odds with the decarbonization and energy transition agenda pushed before the pandemic to combat climate change. Trends show that oil consumption will stabilize in the coming years, reaching peak demand in the next Owingdecade.tohigher
efficiency rates of other power sources and the electrification of global consumption, the shift away from oil as the main fuel is approaching. However, this trend may be delayed somewhat due
Climatemarket.change
ENERGY MARKETS MUST KEEP PUSHING FOR DECAR BONIZATION
The world is facing its biggest energy crisis since the 1970s. The pandemic and geopolitical tensions have led to disruptions in supply chains and fuel price hikes, leaving the energy security of several regions in jeopardy. For Mexico, the only way out of the crisis is forward, while keeping the push toward decarbonization.
“Energy crises can no longer be measured solely by a supply and demand issue or by geopolitical interests. The biggest challenge is how to confront the change toward an economic and energy model that facilitates the transition toward decarbonization and climate change mitigation measures,” Moreno explained.
The current global energy model emerged in the 1980s as a result of the oil crisis of the previous decade. This model has been operating for over 50 years. “Likely, the reconfigurations to the energy model will also guide the economic dynamics for decades to come,” Moreno explained, adding that “we must make the right adaption for our solutions to truly combat climate change.”
There are four main components affecting today’s energy systems: climate change, technology, energy security and policy. These components interact with each other, setting the agenda and the future of the energy
Fatih Birol, President, the International Energy Agency, has repeatedly emphasized that “policy decisions are the most important element in combating climate change.” If this component is missing, the transformation of economic dynamics will be much more complicated and will take more time than the world likely has to prevent fatal climate change scenarios.
Energy security has become a priority on Mexico’s public agenda. This concept positions reliable and accessible energy supply as a key component for the wellbeing and integrity of countries. Energy security has two main components through which it can be understood: reliability and Reliabilitysovereignty.is
C ONFERENCE H IGHLIGHTS41
Energy sovereignty focuses on the geopolitical implications of energy and the risk that over-dependence on the outside generates for countries on a financial level. Renewable power technologies are facilitating on-site power production, which decreases dependence on imported fuels. However, as long as the energy transition is not completed, the energy security of countries remains exposed to geopolitical tensions.
modified to maintain their power flow and prevent blackouts.
Meanwhile, advancements increased the safety of nuclear power production and made it possible to find economically-viable sources of energy, for example through waste management. In addition, big data and data analytics are transforming grids, making them more efficient and stable. All these advances, are driving the energy transition toward the 2050 net zero goals.
gradually remedied the intermittency problems of renewa bles, too.
Mexico must therefore foresee the implications of its overdependence on natural gas imports from the US and aim to increase its domestic gas production while diversifying its energy matrix. To do so, the country can take advantage of the ample availability of renewable resources and protect itself from disruptions in the gas supply or price hikes in commodity markets.
Mexico faces a dilemma regarding its energy future. The development of electricity infrastructure is critical to the country’s economic and social development. The expansion of transmission and distribution networks is key to ensuring the right of access to energy. This infrastructure requires long-term investments from both the public and private sectors. “Incentivizing these investments requires legal certainty and regulatory certainty,” Moreno said.
Technology has been the key tool in overcoming the challenges of the energy transition. Continued innovation has enabled solar and wind energy to be at a record low levelized cost of energy. Advances in storage capacity have
based on the capacity of the electricity system to generate and distribute enough energy to meet demand and to keep the system stable in the face of changes in the power flow. “The challenge is to match variable power production with instantaneous consumption,” Moreno said. The intermittency of renewable sources calls into question the reliability of the system. Nevertheless, the correct implementation of storage can help mitigate these gaps.
Long-term planning with a vision toward decarbonization is the second crucial challenge for Mexico. The transformation of the energy matrix must be based on clean resources and gradually reduce Mexico’s dependence on na tural gas.
Likewise, countries must adapt their strategy to their particularities. “Mexico’s energy industry cannot be imagined without the participation of state-owned companies,” explained Moreno, who stressed that it is in the country’s interest to have strong state energy companies. However, this is not contradictory to increasing private sector participation in favor of a successful energy transition. “Mexico’s energy policy has to
global and long-term challenges,” Moreno concluded.
To support the continued influx of foreign investment looking to influence the early development of Mexico’s green hydrogen industry, the public sector must assist via the legislation and ratification of fiscal incentives and the construction of green “Theinfrastructure.timelyexecution of these initiatives has the potential to catapult the formation of a competitive hydrogen industry, stimulate the development of new manufacturing industries and prevent the emission of 300 million tons of carbon emission by 2050,” said Israel Hurtado, President, the Mexican Hydrogen TechnologicalAssociation.innovations and increasingly efficient hydrogen production processes have progressively improved the technology’s economy of scale, hinting at the rapid growth of a global hydrogen economy expected to bring about significant geoeconomic and geopolitical shifts. In the Americas, Mexico is poised to become a strategic center given its natural and favorable geographic and macroeconomic conditions. Its forecasted potential has motivated early entrants like Spain’s SENER Ingeniería Mexico and
“Beyondaboration.the
C ONFERENCE H IGHLIGHTS42
oil and gas that will still last many decades, green energy and decarbonization will be gaining ground. That is why we want to be the first to consolidate ourselves as leaders in Mexico. There is even the potential to export green hydrogen to the rest of Latin America from our country,” said Javier Pascuale, Commercial Director, SENER Ingeniería Mexico.
meet the country’s needs, take advantage of the geopolitical situation and address
INCENTIVES, INFRASTRUCTURE KEY TO MEXICO’S HYDROG EN TAKEOFF
While symbolic, the inclusion of hydrogen in Mexico’s National Electricity Sector Development Program (PRODESEN) indicates that the country already recognizes the strategic importance of the domestic hydrogen industry. However, increasingly extreme weather events and the Russia-Ukraine war have shifted geopolitical priorities. This has forced countries to accelerate their clean energy transition, a process in which hydrogen may play a protagonist role. To seize on the opportunity, Mexico’s emerging hydrogen sector is looking to the federal government to support it through the codification of
Japan’s External Trade Organization in Mexico (JETRO) to invest and seek out coll
In recent years, natural gas has been presented as a transition fuel on the road to decarbonization. However, even though it is cleaner than other fossil fuels, the time will come when natural gas must fall by the wayside of progress as well. Hydrogen has opened the door for this eventual transition from natural gas, since it is a source of renewable energy which produces zero emissions. Thanks to technological advances
fiscal incentives that would encourage the use and adoption of hydrogen.
Otherfinancing.non-monetary
the maturity of Mexico’s hydrogen industry will be a concerted effort by governments to encourage sustainable mobility, evidenced most
the adoption of green license plates, which would allow the use of parking spaces reserved for electric and hybrid vehicles. Confined lanes for hybrid and electric vehicles, an exemption or reduction in toll fees and free parking could also serve as powerful i ncentives.
recently by legislative efforts in Europe and California, said Hurtado. In Latin America, Mexico currently leads in the sale of hybrid and electric vehicles, speaking to domestic appetite. What is more, the need for hydrogen to support the intermittency caused by wind and solar technology adds to its uses. To encourage this shift, the federal government must create fiscal incentives like immediate deductions, zero percent interest rates on aggregate value, tax deductibility on interests as well as accessible bonuses or credits and access to
C ONFERENCE H IGHLIGHTS43
and investment in innovation, the promise of hydrogen is starting to become a market reality with more commercially viable projects.
Fundamentalothers.to
incentives include
Regarding the factors that could make Mexico a successful hydrogen-producing country, Ana Laura Ludlow, VP Chief Government, ENGIE Mexico, noted that “access to renewable energies is fundamental to making green hydrogen available. We also must
Some key hydrogen applications include the storage of renewable energy, replacing industrial fuel inputs, the decarbonization of natural gas through blending and green mobility. Individually, the formation of a domestic hydrogen industry is expected to generate 3 million jobs, attract US$59 billion in foreign investment and prevent the emission of 300 million tones of CO2 from 2021 through 2050. Furthermore, Hurtado envisages it encouraging the formation of new manufacturing industries, including electric turbines for hydrogen, electrolyzers, storage tanks and compressors, among
GREEN HYDROGEN: MOVING FROM POTENTIAL TO VIABILITY
Experts point out the initial capital investment required to develop a new market as a key barrier. Likewise, businesses require stability and assurance to invest in a young industry. Another possible obstacle is the water supply, an issue Mexico already struggles to manage. “As a country, we are already beginning to face water scarcity, and having different industries competing for the same natural resource is far from ideal,” said Ludlow.One solution to provide the necessary water to power green hydrogen projects is desalination. Ultimately, Ludlow believes it will be up to the government to define a national strategy for the development of green hydrogen.
C ONFERENCE H IGHLIGHTS44
Israel Hurtado, President, the Mexican Hydrogen Association, concurred that a
factor in water supply, human capital and all the investment required to build the sector. Public finances will also play a key role in developing a robust ecosystem for projects to flourish in, as well as the need for strategic cooperation between government entities and the private sector.”
Such an initiative has already been lauded in the state of Tamaulipas, as Antonieta Goméz, President, the Tamaulipas Energy Agency, said. “We carried out a study assessing the potential use of green hydrogen in tandem with the German Cooperation for Sustainable Development (GIZ) with an eye on ultimately replacing fuel oil, given that Tamaulipas is the Mexican state that sees the largest amount of heavy transport via trucks. We are also the country’s second-biggest producer of energy. Reducing greenhouse gas emissions in Tamaulipas would therefore be highly beneficial for the public sector,” she continued, pointing toward the possibility for hydrogen to store electricity.
Azcárraga explained that innovation is required to make green hydrogen more commercially viable: “The most widely used technology to produce green hydrogen is alkaline electrolysis. However, new sources of production that allow for lower costs and greater effectiveness in the process should be studied.” He furthermore noted that his company is already developing
“In terms of geography, located between two oceans and with an abundance of sun available, Mexico is a paradise for renewable energy. There is no reason why we cannot be one of the leading exporters of renewable energy to the world in the near future”
Gómez also explained that the use of hydrogen as a fuel is nothing new, but what is innovative about green hydrogen is that it uses renewable energy to generate electricity. Like Ludlow, Gómez is concerned about the water green hydrogen uses, an issue that can be resolved via desalination plants.
Listing some of the strengths Mexico boasts to develop hydrogen projects on a large scale, Ludlow mentioned the sheer availability of renewable energy sources compared to other countries, the country’s strategic location and access to the US market where green hydrogen projects are already up and running as well as Mexico’s human capital, especially engineers and other technical experts wellversed in all areas of renewable energy. These three factors position Mexico favorably to become not just a producer but a large-scale commercial exporter of green hydrogen.
Gonzalo Azcárraga Director General | SENER Mexico
national strategy to develop hydrogen must become a priority for Mexico. He also called for the use of industry-led technology roadmaps to carry out studies across different regions of the country.
Gonzalo Azcárraga, Director General, SENER Mexico, a Spanish engineering company not to be confused with the energy ministry described green hydrogen as a “catalyst for future growth.” He added that the challenge ahead lies in substituting the polluting grey hydrogen, first for blue hydrogen, which is hydrogen produced from capturing as much as 90 percent of CO2 emissions from the combustion of natural gas, and eventually for zero-carbon green hydrogen.
border and abundant renewable resources position Tamaulipas, Coahuila and Nuevo Leon to become a hub for green hydrogen production. Hurtado also cited Oaxaca, with its ample wind resources and optimal location on the trans-isthmic corridor, as another region with huge potential for the production and export of green hydrogen to both Europe and Asia.
“In terms of geography, located between two oceans and with an abundance of sun available, Mexico is a paradise for renewable energy. There is no reason why we cannot be one of the leading exporters of renewable energy to the world in the near future,” Azcárraga said, a point that Hurtado has frequently underscored. To achieve such a target, however, Mexico needs to improve infrastructure for the transport of ammonium and bioethanol as well as liquid or compressed hydrogen.
Hurtado pointed toward the characteristics of Mexico’s northwest: proximity to the
Ludlow believes the private sector’s pursuit of more sustainable practices will be the anchor for the development of the green hydrogen market and its supply chains, creating the next generation of jobs in the energy sector and putting the necessary infrastructure in place. She cited Chile as an example of the difficulties presented by industry reorganizing and infrastructure repurposing. In a similar vein, Hurtado called for initiatives aimed at students and young professionals. “Talent strategies will have to change at academic institutions if they are to serve unique requirements of the green hydrogen industry,” he said.
Gómez described how oil and gas companies are already diversifying their portfolios in this regard. In terms of how to incentivize national hydrogen production, she pointed toward fiscal stimulus packages as well as other favorable government policies. “The countries which have advanced the most in terms of green hydrogen have adopted a clear national strategy and set out a roadmap to develop the sector. We have a huge
C ONFERENCE H IGHLIGHTS45
more advanced electrolyzers to this end, as well as studying potential alternatives such as Proton Exchange Membranes (PEM) and new technologies to produce green hydrogen with less pure water. Ultimately, for green hydrogen to rival grey hydrogen and eventually natural gas, production costs must be made more comparable. “The company SENER is trying to evolve, collaborating with different institutions in both Mexico and Spain. One perhaps lessknown technology we are developing is ion exchange. This is essentially a combination of the best aspects of alkaline electrolysis and PEM technologies.”Azcárraga and Hurtado agreed that the challenge lies in developing large-scale solutions that can be implemented as cheaply as possible. Hurtado highlighted the use of graphene in place of more expensive platinum as an example.
C ONFERENCE H IGHLIGHTS46
opportunity now to coordinate hydrogen hubs across the country,” agreed Ludlow.
“Varying estimates from public and private entities agree that solar energy will be at the center of Mexico’s energy transition,” said Nelson Delgado, President, Mexican Solar Energy Association (ASOLMEX).
Solar power will account for 5.2 percent of the energy mix by the end of 2022. At the end of 2017, utility-scale solar plants had only 171MW of installed capacity. In 2019, the installed capacity had already reached 1,768MW. For solar-based distributed generation (DG), the yearly growth currently stands at 500MW.
has been improving its Levelized Cost of Energy (LCOE) owing to a constant investment in R&D, which has allowed it to become a more efficient and cost-effective technology,” said Ivan Reyes, Sales Director LATAM, LONGi. The LCOE of solar energy has decreased 85 percent in the past decade, making it the currently cheapest source of electricity. In addition, solar technology is developing constantly, improving its attractivity further over time.
“Solarsystems.}energy
To conclude, Hurtado emphasized the potential of green hydrogen once again, as he detailed how the most recent
international studies concur that green hydrogen production costs are expected to drop significantly this decade to a similar level as gray hydrogen, just as solar power has become much cheaper to produce in the past ten years.
74 percent of Mexico’s energy matrix is fired by fossil fuels. Mexico remains highly dependent on natural gas, coal and fuel oil, government data has shown. While the share of solar has increased steadily over the past five years, it still has much growth potential ahead.
The fight against climate change is one against the clock, so decisive action must be taken quickly. Otherwise, the goal of containing the global temperature increase below 1.5°C remains out of reach. Therefore, 25 percent of climate change mitigation actions must occur within the next decade. A key part of strong action on climate goals is the migration to renewable energy. Here, solar power will be the protagonist, the experts agree.
“Thanks to the commitment of more than 136 countries to achieve net zero by 2050, solar power production is experiencing an unprecedentedmomentum”
Today, there are still significant barriers to the detonation of solar’s market potential. In terms of infrastructure, most grids were designed for traditional energy sources. “To realize the energy transition, we must foster a paradigm shift in which we transform and modernize our electricity grids to adapt them to the needs demanded by renewable energies,” Gómez said. Likewise, the modification of regulatory frameworks will set the pace
SOLAR: LEADING SOURCE OF THE ENERGY TRANSITION
“Thanks to the commitment of more than 136 countries to achieve net zero by 2050,
Efforts to realize the clean energy transition place renewable energy at the center of the transformation. Among the available technological resources, solar energy stands out as the most accessible and competitive renewable energy source, positioning it as a major player in the global push for Asdecarbonization.ofJuly2022,
Armando Gómez Country Manager | X-Elio
solar power production is experiencing an unprecedented momentum,” said Armando Gómez, Country Manager, X-Elio. This mounting interest in solar energy is closely linked to the increased competitiveness of solar
C ONFERENCE H IGHLIGHTS47
To spur further DG-based solar development, Mexico must modify its regulatory framework in favor of greater DG capacity, however.
“The DG boom must go hand in hand with investment in smart grids that facilitate the incorporation of these renewable flows into the grid,” said Patricia Tatto, Vice President Americas, ATA Renewables. Smart grids make it possible to manage bi-directional electricity flows, injected by DG into the grid, which is not feasible through traditional, unidirectional grids.
“If these DG solutions are implemented correctly, the cost of energy for end users will be cheaper. In addition to the environmental factor, lower energy costs are always attractive to consumers,” Tatto added.
In addition, there are gaps concerning the incorporation of storage as a complement to renewable power projects. “The faster these areas of opportunity are addressed, the faster Mexico will be able to move towards a successful energy transition,” noted Macias.
Proposals to increase the cap to 1MW have floated around in Congress before. The issue has not yet materialized in serious discussions, but for many, the benefits are clear. Greater incorporation of DG can help reduce grid congestion and transmission losses over long distances. However, Mexico’s electricity infrastructure needs to be adapted to exploit these benefits.
The potential of solar energy as the backbone of the energy transition is undeniable. Mexico has a privileged position because it enjoys abundant solar radiation and can exploit this potential on any possible scale, from a single solar panel
“The concentration of control over the supply chain may make it difficult for solar to expand in the face of logistical disruptions such as the COVID-19 pandemic,” Reyes added. Rising commodity prices will also be a factor to consider in the near-term push for the spread of solar technology.
The greater participation of solar energy in the energy matrix can help mitigate risks to sovereign energy security. The greater the share of solar energy, the lesser the need for fuel imports. However, countries must be aware of the vulnerability of the solar industry’s supply chain, as it is concentrated in a single country and may be subject to geopolitical conflicts in the Chinafuture.hasthe
Unlike large power plants, which are located in remote places and take up much space, DG involves small-scale power plants built so that their power is consumed on-site. This has the added value of reducing electricity transmission losses. “In Mexico, about 25 percent of solar generation comes from DG, equivalent to US$4 billion of investment,” said David Macias, Manager of Smart Solutions, Iberdrola.
“DG defined by Mexican law is limited to 0.5MW. Anything beyond this capacity ceases to be DG regulation-wise, although it is still on-site generation,” explained Macias. The advantage of DG in Mexico is that no permits are required for its implementation, as long as the famous 0.5MW-threshold is not breached.
for the penetration of solar energy in the ener gy matrix.
largest manufacturing capacity for the main inputs in the solar value chain. This includes everything from silicon production to solar panel manufacturing.
ENVISION: GLOBAL ENERGY INTERNET ECOSYSTEM
Worldwide and increasingly devastating weather events resulting from climate change have become seasonal, inescapable phenomena, forcing state leaders and government bodies to accelerate their domestic energy transitions toward clean energy. Global warming, however, is already causing greater impacts than expected and anticipated. It necessitates the immediate transformation of the world’s energy systems. This gargantuan task stands to benefit from the development of a global energy internet ecosystem, the final phase of Envision Energy’s vision that the company said will “transform the way people create and use energy.”
to multiple-GW solar parks. Improving regulatory frameworks and supporting infrastructure are the main challenges,
“The old energy paradigm is breaking down and will be replaced by a new era of energy. Envision is leading a global energy technology revolution openly and collaboratively. Together with world-class partners, we are dedicated to making the new era of beautiful energy a near-term reality,” said Lei Zhang, Founder and CEO, Envision Energy.
Entopia, the company’s vision to shaping a future where everyone has access to
C ONFERENCE H IGHLIGHTS48
however. Once this is taken care of, Mexico will be able to truly boost solar and drive its clean energy transitio n forward.
clean, sustainable and affordable energy, is premised on a world powered by wind turbines and solar panels, continued technological innovation and, ultimately, their connectivity to a global energy internet. The ecosystem is imagined to change the way people generate and consume energy, “delivering a future where energy is the catalyst to solve the biggest world issues.” Envision has already partnered with private and public organizations to help them reach and achieve their net zero goals.
Through its expanding global footprint, today representing a total of 40GWh of productive capacity, Envision is steadily working toward its goal, said David Martinez Lopez, SPVs Director, Envision. In Mexico, the company has two projects in operation, totaling 160MW in the yucatan peninsula, where energy demand has surged in the past decade. Furthermore, Envision aims to support Mexico’s ambitions to augment its use of clean energy technologies for power production with the use of Envision’s frontrunning digital Smart RE Systems and Smart City solutions in order to manage and identify
THE INNOVATIVE WIND FARM OF THE FUTURE
percent cost savings recorded between 2010 and 2019 for onshore and offshore operations respectively.” The next trend Parente highlighted is integration, which extends beyond the wind farm. “When we talk about integration, we mean storage. This infrastructure allows us to carry out prognoses and ensure there is enough energy to meet demand even during intermittencies.” Parente explained that Enel wind farms have lithium batteries installed for energy storage.
efficiencies through a macro vision of the country’s energy grid. This software as a service solution can function on any scale, including the largest asset profiles i
C ONFERENCE H IGHLIGHTS49
However,landscapes.as
Rafaél Valdéz Mingramm, Managing Director Latin America, Envision, noted that the latest designs of wind turbines are increasingly capable of adapting to deployment in different types of environments. This includes everything from utility-scale farms to smaller off-grid units based on distributive generation (DG). “We are seeing more evolution, raising aerogenerator capacity above 10MW, but also facilitating the combination of smallerscale turbines with solar panels and battery systems on the same site. This is a technology
Tonino Parente Head of O&M Improvement | Enel
The energy giant is also collaborating with Swiss company Energyworx to come up with circular economy solutions featuring kinetic storage. “The project consists of taking decommissioned blades that cannot be reused and converting them into 35T material blocks. These are lifted when there is a surplus of energy and descend when additional energy is required,” said Parente, adding that the last trend is sustainability, tying into the circular economy once more. “We need to factor in the impact our plants have on local communities and the environment so that value is created for everyone,” he explained.
“When we talk about integration, we mean storage. This infrastructure allows us to carry out prognoses and ensure there is enough energy to meet demand even intermittencies”during
electricity supply must be reliable and cost-efficient. Solutions are
“Themaginable.country’s
Innovation has long been key to making wind power more competitive. New technologies are improving the efficiency of turbines, reducing the initial investment and operating costs, as wind farms adapt in line with changing economic and environmental
often considered to provisionally solve problems in the short term, due to budget cuts and the public sector’s debt. It is time to make a deep diagnosis and establish a long-term plan for the economic development of Mexico, taking advantage of technology, digitalization and energy efficiency,” said Martinez.
with solar power, wind farms will continue to be a protagonist of the energy transition,” Tonino Parente, Head of O&M Improvement, Enel, said, before listing three trends that are key to wind power´s competitivity: “The first trend is technological. Already, we have seen that by increasing wind turbine rotors to a 200m diameter, we can produce more energy more efficiently, with 40 and 30
Rafael Sánchez, Division Manager, OCA Global noted, there is still room for technological advancement in all areas of wind power, from the initial resource analysis and site assessment to acquiring the best materials to increase the lifespan of equipment. “Competitivity is key to the renewable energy sector,” Sánchez explained. So, how can the technology improve its competitiveness toward the “Togetherfuture?
that has shown it does not require any government subsidies to be competitive,” he said. Part of this attractiveness is digitization: “data analytics tools are allowing us to anticipate and take decisions in advance that will optimize the performance of not just one farm but an entire portfolio or system of wind Kasparsfarms.”Litavnieks,
“Adding value to existing operations is our bread and butter at Aerones. We work around the world, changing the mindsets and approach of asset managers to invest in preventative maintenance instead of more costly repairs down the line,” noted Litavnieks. He compared the role of an asset manager to that of a doctor: “Preventing illness is always better than having to come up with a cure. That is why we have medical checkups.” Traditional O&M solutions are reactive in nature, Litavnieks explained, but preventive
Operators can add more value to existing projects by optimizing O&M programs
Valdéz also pointed out that if a repair is required, on-site maintenance and the availability of spare parts through local supply chains are imperative. “If you are relying on a Chinese manufacturer to provide maintenance services to a wind farm in Chile or Argentina, for example, even the most minor fault could have your units out of service for weeks.”
Valdéz described how digital monitoring has become its own line of business for Envision, with companies already using such systems to monitor a collective 200GW worth of wind farm portfolios. “Our monitoring systems allow operators to make real-time decisions, using a series of alarms and alerts to identify faults and keep units online to boost profits and reduce costs,” explained Valdéz. “Monitoring is key to a robust renewable sector where the biggest challenge is intermittency. Our
C ONFERENCE H IGHLIGHTS50
Business Development Teams Lead, Aerones, emphasized how the current geopolitical crisis and subsequent market volatility it has released onto energy markets underscore the value of wind power. “The capital of my country, Latvia, is just 700km from where the war is happening. However, the whole world economy has been shaken this year since the war in Ukraine began, with the EU especially subject to an energy crisis. This further underlines the need to build a renewable and independent energy market, and already, we are seeing wind and solar become a force to be reckoned with. In this sense, talk of competitivity is irrelevant, wind and solar are the future and we need to embrace them,” he said.
Parente offered a similar outlook, describing Enel’s three-point plans for O&M that consist of an initial energy prognosis to predict long-term capacity from a given farm, the deployment of drones to monitor performance and inspect wear-andtear, as well as constant data collection and monitoring to carry out a complex equipment analysis in a short time.
maintenance ensures operators save money by not losing out on energy production and increasing the lifespan of their units: “We are really trying to change mindsets in wind power because in many ways we already think like this in other aspects of our dayto-day lives. Operators still tend to wait until something breaks down before replacing it, which they would not do with their car.”
systems do not just detect the symptoms but locate the root cause of faults or inefficiencies. This way, operators can address minor issues before they become a major problem and minimize the time a unit is offline and losing an operator money,” he continued.
There is a clear business opportunity in this transition toward sustainability. Energy demand from RE100 companies, the 370 most influential global companies, will continue to grow in the coming years.
constructed with automated systems. We also have alerts in place to schedule orders in advance for any parts that will need to be replaced. We developed algorithms to accompany our monitoring systems which analyze 800,000 scenarios in realtime, enabling us to foresee future faults or accidents and intervene before any damage occurs,” Parente said. This allows Enel to recommend hardware improvements and software updates to improve performance efficiency and reduce the costs of older units.
The shift away from fossil fuels in favor of decarbonization creates unprecedented opportunities to redesign business models, leading to approaches with a greater focus on comprehensive sustainable development that places social welfare at the center of
Commercial Vice President México and Central America, AES. Consolidating this transition brings both opportunities and challenges for the energy industry and global economic dynamics , however.
THE ENERGY TRANSITION CAN ENCOURAGE SOCIAL DEVELOPMENT
Parente explained how Enel has made monitoring a priority, investing extensively in its recently launched multi-technology control room in Mexico City. Here, active wind, solar and hydroelectric power operations are monitored from a centralized platform. “Wind turbines are simple to monitor since they are
The experts agreed that the LCOE should take priority. “The initial investment in equipment is only about 60 percent of the total CAPEX. For OPEX costs, therefore, the quality of design and component material which increase the use-life of equipment must be factored in as the primary concern to maximize profits long-term,” Valdéz noted. “At the end of the day, there is no bigger cost than a turbine out of service,” he concluded.
“Thestrategies.energy transition, if implemented correctly, will be a lever for social development,” said Freddy Obando,
Monitoring and the principle of preventive maintenance go hand-in-hand, explained Litavnieks: “The goal with monitoring is ultimately to make an operation as efficient as possible, and produce the most energy from the same resources,” he said. Nevertheless, “the growing size of their turbines and their capacity makes their maintenance the main challenge for its providers.”
C ONFERENCE H IGHLIGHTS51
However, these companies have committed to reaching net-zero emissions by 2050.
Latin America is rich in natural resources and human capital, but also has strong social inequality. This context creates specific challenges for the successful implementation of the energy transition.
With Mexico being one of the largest energy markets in Latin America, it has the potential to become a benchmark in the creation of green jobs. “Investment in renewable energy is generally considered passive, but in reality, it nurtures positive dynamics with other projects and indirect industries,” said Obando.
These areas include banking, industry and the lab or market.
Likewise, the International Labor Organization (ILO) estimated that by 2030, there will be 24 million jobs created by the new green economy, while the Global Renewables Outlook 2020 study predicted that the renewable energy sector will provide 42 million jobs by 2050.
Mexico has a unique opportunity to take advantage of geopolitical shifts to boost its energy and industrial sectors. Thanks
First, an optimal diversification of the energy matrix must be safeguarded. Geopolitical situations prove that an overdependence on a single energy source of power can jeopardize the energy security of countries.
By taking advantage of the value chains that renewable energy creates, Mexico can integrate more local human capital into the market under decent working conditions, improving social justice and reducing poverty.
A great opportunity to boost development is to take advantage of new investments in renewable energy projects to integrate local markets into the required value chains.
“The trick is to match the economic opportunity of growing demand for clean energy with a positive social impact that enhances the development and wellbeing of societies”
Fredy Obando Commercial Vice President Mexico and Central America | AES México
One option promoted in Mexico to achieve this local is the issue of Green Jobs. “These are dignified jobs that contribute to preserving or protecting the environment, improving energy sources and production inputs while minimizing carbon emissions and waste production,” Obando explained. The promotion of green jobs is in line with the transition to a sustainable circular economy model.
While the energy transition has been criticized as indirectly causing the disappearance of jobs, the reality is that it will also generate new job opportunities. Data from the International Renewable Energy Agency (IRENA) supports this trend.
C ONFERENCE H IGHLIGHTS52
“The trick is to match the economic opportunity of growing demand for clean energy with a positive social impact that enhances the development and well-being of societies,” Obando added. To increase renewable power production capacity, countries must create attractive investment environments. To do so, clear regulatory frameworks that remove barriers and enable the integration of renewable energy into the grid are of th e essence.
According to IRENA, the contribution of jobs to the sector in the US was 10 times greater than all jobs derived from the fossil fuel industr y in 2020.
The energy transition will be carried out at different speeds, according to the capabilities and resources of the country. To optimize the transition, Latin American states must maximize the use of existing infrastructure, thereby reducing costs for the system.
Taking advantage of this opportunity would bring multiple benefits to Mexican society, especially to the most vulnerable sectors.
“Under the criteria of sustainability and social responsibility, companies are taking advantage of the transformation of the energy transition to modify their dynamics and improve their profitability in conjunction with a positive social impact that improves welfare and brings about social justice,” concluded Obando.
“During this transition period. we must see the private sector as an essential ally and not only as a creator of inputs and jobs,” said Obando. The private industry is an example of going the extra mile to drive sustainable development objectives within business models.
C ONFERENCE H IGHLIGHTS53
to nearshoring, multiple value chains are migrating closer to their hubs. Due to its strategic location and its integration into North American value chains through the USMCA, Mexico has great appeal for companies looking to relocate.
ENERGY POWERS MEXICO’S ECONOMIC DEVELOPMENT ECOSYSTEM
Sustainable electrification plays a critical role in the economic development and competitiveness of countries. As the strategic prominence of Mexico continues to grow, it is fundamental that its government works to augment the country’s energy distribution infrastructure, accelerate its transition toward renewable energy and fortify compliance as well as fail-safe measures to avoid disruptions. Pushing toward these goals should be considered a multilateral objective from the state,
“All states across Mexico are being affected by both the transmission and the distribution network. This causes problems when trying to attract the desired investment,” said Efraim Castellanos Frayre, Director of Energy, Ministry of Economic Development of Durango.
The supply chain crisis that occurred during the pandemic led many companies to rethink their location and move their production closer to demand centers. Its young and skilled population, competitive energy prices and proximity to the US are competitive advantages that Mexico should take advantage of to drive the energy transition in conjunction with its economic and social development.
private industry and academic institutions, their collaboration elemental to building an electricity generation and distribution system that transmits reliability to industry players and private investors alike.
Mexico can become a major supplier of inputs for the energy industry of the future.
“Coordination between energy commissions and cluster networks leads to a unified economic development ecosystem,” said Amado Villarreal, Cluster Director, State Energy Agency of Monterrey.
This realization has mobilized state leaders and private sector executives in the north, where Mexico’s manufacturing industries are mainly concentrated, to come together to advance the realization of a reliable energy generation and distribution system. Through collaboration, these regional clusters are working to identify and address regional needs in line with their respective geopolitical and financial constraints. These efforts have led to the development of key infrastructure, but according to the leaders, the overarching objective is to build a unified economic developme nt system.
“One way to ensure that this required investment arrives is to grant absolute transparency and certainty to investors regarding the regulation they need to comply with. Investors and companies need to be supported because they are the key to a functioning electricity network,” said Sofía Tamayo, Corporate and Regulatory Affairs Director, Zuma Energía.
If the 2014 Energy Reform promised greater protections for free trade and a partial retreat of the state, recent reforms have seen the state re-immersed in all aspects of the energy industry. Through these reforms, it has been alleged that Mexico has violated aspects of the USMCA free trade agreement by fomenting state monopolies
“All states across Mexico are being affected by both the transmission and the distribution network. This causes problems when trying to attract the desired investment”
The technological advancement and increasing sophistication of manufacturing industries have augmented the sector’s need for stable power production, a demand that currently far exceeds the capacity of the system. Furthermore, despite the internal development of internal power systems, they increasingly find themselves competing with adjacent and rapidly growing industries. Overall, experts agreed that Mexico’s power production and distribution falls profoundly short of what the country’s growing economy needs and will require as it develops to become an important regional business hub.
In practice, this will require a more aggressive adoption of technology and digital solutions, costs that will require compromise on behalf of the public and private sectors. Furthermore, as expressed by the private sector, the public sector must augment its capacity to verify the compliance of energy producers working outside of these constraints being that they pose a significant risk not only to the reliability of energy transmission but to its supporting infrastructure, too. Overall, the development plans of these energy clusters composed of multilateral parties pose a compelling model for domestic and international businesses that are looking for access to reliable energy and supportive business env ironments.
MEXICO’S ENERGY SECTOR UNDER ALLEGED USMCA VIOLATIONS
“Government cooperation is needed to finance the necessary infrastructure so that investments can be made,” says Mauricio Reyes, President, State Energy Agency of Queretaro.
within the energy sector and hindering the participation of private companies, particularly from the US. Earlier this year, the US initiated formal proceedings between both countries. An expert in free trade legislation and energy law, Benjamín Torres-Barrón, Principal, Baker McKenzie, outlined the state of play, describing how
Efraim Castellanos Frayre Energy Director | SEDECO Durango
C ONFERENCE H IGHLIGHTS54
the arbitrary process will continue to unfold and the possible implications if violations of the USMCA are found to have occurred.
“Some statements made by the Minister of Economy suggest Canada might be looking to start its own case,” Barron-Torres said.
“This chapter upholds the rights of private intensities to pursue arbitration proceedings in an appeal for compensation for foreign investment in a guest country”
By failing to establish an even playing field, these modifications appear to be in violation of articles 2.3 and 14.4, as well as the investment chapter of the General Agreement on Custom Tariffs and Trade from 19 94 (GATT).
The role of Canada in the current process has been somewhat ambiguous, even though the country confirmed its agreement with the assessment of the US government.
Another example of possible violations is the inaction, delays and revocations private businesses have been subject to regarding permitting. “We have seen many private companies complain that their permits to generate electricity or export hydrocarbons were not renewed without justification. In some cases, such requests were met with silence by both SENER and CRE, leaving businesses unable to carry out everyday activities,” said TorresBarrón, adding that such actions suggest that state authorities are not exercising regulatory authorization im partially.
The USCMA allows for opinions from nongovernmental entities to be presented in writing. Governments are also allowed to call upon testimonies from legal or technical experts while the opinions of the respective governments are also heard in person.
As Torres-Barrón noted, the current process was initiated on July 20, 2022, when the US government submitted a request for consultation, after which negotiations must begin within 30 days. “We now know that negotiations indeed commenced on August 23,” Torres-Barrón explained. Both governments have issued statements regarding the ongoing consultation process, and Mexico’s Minister of Economy, Tatiana Clouthier, confirmed a meeting is set to take place this month in Mexico.
Benjamín Torres-Barrón Principal | Baker McKenzie
If the parties cannot reconcile and decide how to move forward before the deadline on October 3, a panel will be established to settle the controversy. The panel then has 150 days to reach a verdict, with the possibility of an additional 30-day extension.
Since the explicit violations have not yet been made public, Torres-Barrón listed the four examples of the types of violations believed to have been committed by the Mexican government, the first of which are modifications to various rubrics of the Electric Industry Law (LIE). “The modifications to the LIE were not only very disruptive, having taken place in the middle of the pandemic, but they also include measures that appear to be incompatible with articles of USMCA by demanding grid operator CENACE to dispatch electricity produced by CFE at the expense of electricity produced by its private competitors, even when they offer lower costs or cleaner energy.”
C ONFERENCE H IGHLIGHTS55
A dispute is resolved either through consultation between parties or by having formal proceedings heard before a panel. The two governments therefore have initiated bilateral negotiations in which they will attempt to arrive at a mutually satisfactory agreement. If the dispute, is not resolved within 75 days, however, the US government can request that an arbitration panel be established to resolve the dispute.
Other possible violations include potentially unfair exemptions allowing PEMEX to circumvent regulation for ultra-low sulfur diesel and the government’s efforts to ccompel private companies to purchase natural gas supply contracts from stateowned companies.
Torres-Barrón pointed to some key dates for the proceedings, as he highlighted Mexican
A preliminary decision would therefore be reached no later than April 2023, a final decision would come one month later.
Independence Day on September 16, with President López indicating he will clarify his position at the parade. Moreover, economic discussions are due to take place this month with US Secretary of State Antony Blinken.
If punitive action is taken by the panel, this could result in increased trade tariffs, customs barriers and other serious economic consequences, targeting Mexico’s energy industry specifically. Nevertheless, it might affect other sectors of the economy. “Nearshoring is generating hugely significant resources for Mexico currently and makes it much more competitive than other countries in the US market. In the event of punitive tariffs or trade barriers, this could be a major casualty for Mexico and affect the economic viability of various industries. I simply cannot imagine the prospect of our country not having an FTA with the US, and the devastating impact it would have across sectors as diverse as agriculture, pharmaceuticals and the automotive industry,” he said.
C ONFERENCE H IGHLIGHTS56
On a positive note, President López Obrador and President Biden sustained what was described as a “very cordial discussion” just a few weeks ago, with both describing their comfortability with the topic of the USMCA consultation process. November will also see the North American Leaders Summit and Midterm elections in the US. Furthermore, the looming prospect of the 2024 presidential elections in both countries will play a part.
The position of the Mexican government has been based so far on Chapter 8 of the USMCA, which recognizes Mexico’s “Direct, Inalienable and Imprescriptible Ownership of Hydrocarbons” and defends the “full exercise of their democratic processes” in addition to Mexico’s “sovereign right to reform its constitution and its domestic legislation” to this end.
According to Torres-Barrón, Mexico’s government has mainly adopted this stance because it sought to portray the ongoing dispute as being driven by one disgruntled US company, Talos Energy, as a result of the Zama field’s unification process. Meanwhile, the government maintained that most US companies have no problem with current energy policies. Torres-Barrón noted that the
Given the intransigent positions taken so far by both governments, TorresBarrón believes it is unlikely the dispute will be resolved within the initial 75-day consultation window. The parties will therefore have to present their cases before a panel, which would see the controversy drawn out further, without factoring in appeals.
Torres-Barrón highlighted that under the sunset provisions established upon the expiry of NAFTA, a three-year window exists for expired clauses present in NAFTA but absent from the USMCA to be re-invoked. Therefore, businesses are free to appeal for compensation for investments under NAFTA’s broader framework for the time being.
Mexican government’s reading of Chapter 8 is short-sighted: “The reach of Chapter 8 is limited to the oil and gas industry and only mentions the upstream sector. If we refer to the US government’s complaints, these concerned the midstream and downstream sectors primarily, with natural gas transport and electricity generation cited. If the Mexican government continues to base its argument on Chapter 8, the defense will therefore be seriously limited.”
Torres-Barrón concluded by drawing attention to Chapter 14 of the USMCA, which protects foreign investment. “This chapter upholds the rights of private intensities to pursue arbitration proceedings in an appeal for compensation for foreign investment in a guest country,” he explained, adding that “the widereaching protections stipulated in any other type of investment treaty, such as
C ONFERENCE H IGHLIGHTS57
direct expropriation, fair and equitable treatment and full protection and security, are limited within Chapter 14 USMCA since they are only granted to businesses with direct contracts with the central administration. Even though they are state-owned, both CFE and PEMEX possess legal personality, own equity, and technical, operational and managerial autonomy, which may expand the reach of such
Furthermore,rubrics.”
www.mexicobusiness.mx