2018
2018
Mexico completed its first decisive steps toward a liberalized and competitive energy market in 2017 and is determined to stay the course. The country’s liberated energy mix now welcomes different technologies, which combined will meet the clean energy requirements Mexico pursues. The three rounds of the long-term electricity auctions showcased the competitiveness of several technologies against fossil fuels, including solar, wind, hydroelectric and geothermal.
To further incentivize the number of market participants, Mexico’s authorities introduced the Clearing House during the third long-term auction, allowing private players to purchase energy on a level playing field with CFE, effectively ending the practice of the first two auctions in which the productive enterprise of the state was the sole purchaser. In addition, the first midterm electricity auction was launched in August 2017, offering terms that enable commercial banks to actively participate and complement development banks’ efforts in securing the country’s energy transition.
As Mexico’s installed capacity powered by clean technologies is set to increase, the country’s infrastructure needs to be ready not only to absorb it but to distribute and transmit it efficiently and securely. Disruptive and trend-setting innovations, such as smart grids and energy storage, are set to put the country’s revamped infrastructure to the test.
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ISBN: 978-0-9993108-6-1
TABLE OF CONTENTS
2
POWER AUCTIONS
3
POWER PRODUCERS
4
NATURAL GAS
5
WIND
6
SOLAR
7
DISTRIBUTED GENERATION
CFE AT 80: THE ROOTS OF CHANGE
STATE OF THE INDUSTRY
Supplement
1
8
PROJECT DEVELOPMENT
9
ENERGY INFRASTRUCTURE
10
ENERGY TRADING
11
ENERGY MANAGEMENT
12
DOING BUSINESS
13
OFF-TAKERS
14
MEXICO’S ENERGY TRANSITION
La Venta wind farm, Oaxaca
STATE OF THE INDUSTRY
1
As power production and commercialization open for business, local and international players are looking to capitalize on the new opportunities in a liberalized market with a level playing field. CFE has preserved its transmission and distribution responsibilities and is taking head on the challenges of becoming a full-fledged and profitable public enterprise.
Three long-term electricity auctions, one midterm auction, the financial closing of utility-scale projects and the increasing relevance of distributed generation and energy trading are but a few of the major issues discussed in the next pages.
This chapter provides a glance at the major milestones achieved in Mexico’s electricity and renewables sectors, both from the regulator’s perspective and the valuable insights of key players across the value chain on the industry’s opportunities, challenges and major trends.
5
CHAPTER 1: STATE OF THE INDUSTRY 8
Analysis: The Year in Review
12
View From The Top: Pedro Joaquín Coldwell, Ministry of Energy
14
View From The Top: Fernando Zendejas, Ministry of Energy
15
Insight: Leonardo Beltrán, Ministry of Energy
16
View From The Top: César Hernández, Ministry of Energy
18
View From The Top: Jaime Hernández, CFE
20
View From The Top: Guillermo García, CRE
22
View From The Top: Marcelino Madrigal, CRE
23
View From The Top: Guillermo Zúñiga, CRE
24
View From The Top: Jesús Serrano, CRE
25
View From The Top: Montserrat Ramiro, CRE
26
Insight: Luis Pineda, CRE
27
CRE Organization CHART
29
View From The Top: Eduardo Meraz, CENACE
30
Insight: Juan Acra, COMENER
31
Insight: Alfredo Álvarez, EY
32
View From The Top: Ángel Lárraga, AME
33
Insight: Sergio Arnaud, ANES
34
Roundtable: How Would You Rate Mexico’s Energy Regulatory Framework?
7
ANALYSIS
THE YEAR IN REVIEW From regulations to auctions, 2017 saw Mexico put in the necessary legwork to make its market liberalization efforts pay off in terms of new projects and the boosting of clean energy sources that will help the country realize its ambitious goals for sustainable energy and wider electricity availability
8
Mexican regulators have pulled all the stops to provide the
editions. Confirming Coldwell’s estimations, the results
required regulatory framework that will strengthen every
published on Nov. 22, 2017 produced an average package
link of the industry’s value chain and guarantee competitive
price for MWh and CELs reached US$20.57. Another US$2.4
schemes so that all players can compete on a level playing
billion in investments and 2.7GW of additional installed
field. For the energy industry, 2017 was about maintaining,
capacity powered by clean energy are expected. One key
and even ramping up, the momentum from the year before
feature set apart this third edition: the Clearing House.
While staying true to its objective of increasing
Through this innovative instrument, CFE will no longer be
electricity generation through clean energy sources
the sole purchaser of power, energy and CELs, opening
up to 35 percent of the country’s total energy mix by
the door to private players after proving their credit
2024, Mexico has also set an ambitious 100 percent
worthiness. KPMG’s Energy and Natural Resources Lead
coverage goal through the Universal Electric Service
Partner Rubén Cruz says the Clearing House is a “positive
Fund, launched in May 2017. Considered as the social
step toward building up an energy market. The reform’s
face of the Energy Reform by Minister of Energy Pedro
mandate clearly stipulates reaching a wholesale market
Joaquín Coldwell, the fund is intended to extend CFE’s
with diversified purchasers and suppliers. A single off-
electricity distribution capacity to the doorstep of
taker, instead of creating market conditions, impacts
remote communities and also to install off-grid systems
power producer’s margins and value through the former’s
where extending the grid is not viable.
purchasing power.”
The Ministry of Energy published the first tender for off-
While the industry welcomes the Clearing House, some note
grid contracts to install more than 10,000 off-grid systems
that these are still early days; it will take time before the true
that will impact 898 municipalities across 11 Mexican states
effect of the entity is realized. “Mexico’s renewable energy
and benefit approximately 45,000 habitants, amounting to
scene is seeing an increased number of private energy
an investment of US$23 million. The second phase of the
traders and suppliers, but the aggregate volume they can
fund, announced on Nov. 13, 2017, called for the country’s
purchase in the market at the moment is not significant
productive companies of the state and their affiliates
enough for the Clearing House to have a decisive and
to participate in the extension of the public service of
notable impact,” says Eduardo Reyes, Partner Power and
electricity distribution by presenting grid extension projects
Utilities of Strategy&, a PwC company. “We anticipate that
aimed at homes located anywhere between 1 and 12km from
the energy percentage that other suppliers, outside of basic
the nearest grid.
supply, will purchase through the chamber will be relatively low, although it will keep growing over time. In the long-
Mexican development banking represents a joint portfolio of more than US$2.5 billion dedicated to renewable projects
term, as the energy volume increases, the impact will be consequential and will be reflected in the final consumer price through increased volume and the number of private suppliers offering energy.” The year also saw the country release terms for its first midterm electricity auction, the goal of which is to provide certainty and reduce exposure to price volatility for electricity spot-market players. In August 2017, the Ministry
Capitalizing on the success and learning from the results of
of Energy launched the auction, with the results set to be
the first two long-term electricity auctions, the terms for the
announced in February 2018. The primary objective of this
third long-term auction, published in May 2017, took Mexico’s
new instrument is to allow energy suppliers and energy
energy transition one step further, and expectations were
purchasers to participate in contracts with terms no longer
high. Coldwell declared that this third edition could triple
than three years. “Private players are hesitant to sign long-
Mexico’s electricity production from clean energy sources
term bilateral contracts given that predicting market
and continue the low tariff tendency of the previous two
behavior is complex, while renewable technologies are
experiencing a downward slope in costs. Three-year terms
MAIN EVENTS IN THE ENERGY INDUSTRY 2017
provide acceptable risk levels as well as equating tariffs with market tendencies,” says Cruz. In comparison to the long-
Month
Event
term electricity auctions, “shorter terms mean different financial schemes. This is where commercial banking feels more comfortable and more likely to participate through mini-perms,” says Marian Aguirre, Energy Finance Deputy
January
Power Balancing Market starts operations
February
Pre-basis for the Oaxaca-Valley of Mexico HVDC transmission line project bid published by the Ministry of Energy
Director of Bancomext. May
As a testament to Mexico’s commitment to empowering consumers through a liberalized energy market and transitioning to a cleaner energy mix – enshrined in the
June
Energy Reform – the country was admitted as a new member of the OECD’s International Energy Agency (IEA) by a unanimous vote on June 21, 2017. The agency
August
determined Mexico’s energy policy is aligned with the IEA’s
First stage of the Universal Electricity Fund (FSUE) program launched by the Ministry of Energy with isolated-supply tenders Mexico’s candidacy for the International Energy Agency’s (IEA) full membership approved by the agency Ministry of Energy launches first midterm electricity auction. Results expected to be announced in March 2018
shared objectives of following international best practices and designing policies oriented toward sustainability and
Ministry of Energy publishes 2017’s update on the Smart Electricity Grid Program
market competitiveness. September
Ministry of Energy announces new financing model for electricity transmission and distribution lines
November
Conclusion of the third long-term electricity auction
BANKABLE PROJECTS Making long-term electricity auction projects bankable is one of the biggest challenges posed by the new market. Compartmentalizing risk within the different stages of the project, relying on best practices, integrating innovative
Second FSUE tender for companies and affiliates to offer grid extensions to existing public distribution services
financing schemes and reaching financial closure are but a few of the elements that turn project development into a success story. “So far, two strategies have dominated
CRE publishes the Basic Supply Tariff for the reference of Qualified Suppliers
the auction process: either you equate your offer price to your cost structure and see if it sticks, or you take a deeper look at the market, the competitive context and converge accordingly with the value chain to identify the prices that need to be reached,” says Adrián Katzew, Director General of Zuma Energía. “In contrast, the execution phase is highly specialized, working with banks and contractors to close pending contracts and begin project construction. This stage is particularly fulfilling in
December
Pre-basis for the Interconnection Project to connect Baja California’s isolated system to the rest of the National Electricity System announced by the Ministry of Energy Mexico’s Senate ratifies the country’s membership to the IEA Ministry of Energy delivers to CRE the First Electricity Market Rules package
the sense that we are defining unprecedented financial structures – meeting the requirements of annual energy volume, CELs, alternate markets that used to honor those obligations – and studying their intrinsic risks in relation to our business.”
Enel Green Power’s 250MW Villanueva 3 PV plant in Coahuila, awarded during the first long-term electricity auction, launched commercial operations The Capacity Balancing Market starts operations
Development banking institutions will have a key role to play in ensuring the success of the auction projects, which in turn will send positive signals to the market.
Scheduled awarding of the Oaxaca-Valley of Mexico HVDC transmission line project
“Banobras finances infrastructure projects, NAFIN focuses on production chains and Bancomext fosters foreign trade. Despite specializing in different segments and
Source: DOF, CENACE, CRE, Ministry of Energy
having different mandates, all three development banking institutions are placing capital in energy projects to
Social impact is the other element that project developers
respond to the sector’s high financing needs. Put together,
need to tackle head on. “Energy projects need to be
we represent a joint portfolio of more than US$2.5 billion
directly related to social development. Energy projects
dedicated to these projects,” says Aguirre.
are by nature long-term investments and are sprouting in
9
ANALYSIS different locations, surrounded by different communities.
Mexico’s energy authorities are not alone in this effort:
Coherent corporate social responsibility policies are at
“We are backing PRODESEN’s process of developing
the core of this necessity. Companies that show resolve in
the country’s electricity network. There is a significant
finding ways in which a project can give back and have a
investment forecast in the expansion and digitalization
positive impact on a community’s quality of life are those
of the network and we are pushing for an automated
that will see their project prosper in the long term,” says
and smarter network with balanced power loads, as well
Ángel Lárraga, President of AME and Gas Natural Fenosa.
as providing the equipment for a sturdier grid,” says Alejandro Preinfalk, Vice President of Energy Management
The success of the long-term electricity auctions will 10
for Siemens Mexico.
become apparent in 2018 as most of the projects awarded during this auction are set to start operations in the first
Another major player in Mexico’s energy scene, Acciona,
quarter. Enel Green Power showcased the first tangible
has stepped up to take on the challenge of building two
success case as its 250MW Villanueva PV park, awarded
transmission lines and two power substations, in Sinaloa
during the first auction, entered commercial operation
and Sonora, for the Topolobambo III combined cycle plant,
in the wholesale electricity market on Dec. 18, 2017 and
representing a US$24.5 million investment. The project is
is now injecting renewable energy into the National
expected to be finalized by March 2019.
Electricity System.
DISTRIBUTED GENERATION 2.0 STRONGER AND SMARTER INFRASTRUCTURE
While on-site power generation is an important element
Boosting Mexico’s installed capacity to address the
of the country’s Energy Reform, Mexico had already
expected increase in demand for electricity also requires
experimented in that area prior to 2013, with bidirectional
sturdy and lengthy infrastructure to transmit and distribute
contracts with CFE and regulated by CRE. The scheme
it to key consumption points. Controllable demand and
stipulated that whenever energy surpluses were produced,
automated processes will be at the core of strengthening
CFE stored them in a virtual energy bank for one year to
the grid by avoiding saturation and guaranteeing a
be used at a later date. This initiative was the precursor to
seamless supply of electricity. “In 2017, we published
creating an appetite for residential and commercial solar
the Program for Smart Electricity Grids. We designed
systems in Mexico.
a systemic vision to integrate new technologies under specific time frames, mirroring international tendencies.
“Distributed Generation 2.0 regulations allow the closing
Progressive incorporation of energy storage, controllable
of an interconnection contract with CFE through which
electricity demand, electric cars and IoT are contemplated
you can not only store energy surpluses but also sell
in this program,” says César Hernández, Former Deputy
them under net billing and net metering schemes,”
Minister of Electricity at the Ministry of Energy.
says Guillermo Zúñiga, Commissioner of CRE. Between 2013 and 2017, according to CRE’s statistics, small and
PRODESEN is scheduling the construction of 23,772km2 of transmission lines, representing a total investment of US$11.5 billion
medium-scale interconnection contracts increased from 4,613 to 40,109, respectively. Installed capacity in that period went from 29,131kW to 304,167kW, an impressive tenfold increase. Although distributed generation in Mexico can now operate within net metering, net billing and wholesale schemes, the final users expected to benefit from these new schemes are still primarily relying on net metering as
In line with Mexico’s Electricity System Development
CRE’s secondary regulations roll out. “Very few contracts
Program (PRODESEN), the Ministry of Energy developed
have been signed under these schemes. The main issue
a new financing model for electric transmission lines where
involves price certainty, as local marginal prices vary
private third parties can participate. The announcement of
on an hourly basis. This fluctuation makes it difficult to
the first bid for a major transmission line project, parallel to
design a long-term financial model that aligns with these
transmission line development on behalf of CFE with private
variations, especially considering that an interconnection
players, was announced in December 2017 to connect Baja
contract can span the better part of 25 years,” explains
California to the rest of the country’s National Electricity
Rodrigo Pantoja, Director General of Greentech Ingeniería
System. In its latest 2017-2031 version, PRODESEN is
Sustentable. “Net billing suffers from similar hurdles. It is
scheduling the construction of 23,772km2 of transmission
difficult to predict at what price the generated electric-
lines, representing a total investment of US$11.5 billion.
power surplus will be sold. Net metering seems to be the
most viable option in terms of certainty, especially because
ENERGY GENERATION IN MEXICO DURING 2016 PER
the electricity system’s capacity has been increased for
TECHNOLOGY
inclusion in the net metering model. Previously, domestic high consumption and commercial tariffs were capped at 30kW of electric capacity. Now, those have increased up to 50kW.”
Total Generation
79.69% Conventional 20.31% Clean
319,364GWh
While the industry feared that CFE’s amparo pertaining to interconnection requests from burgeoning small-scale, renewable powered systems could derail distributed
11
generation’s growth, companies involved in distributed generation and solar power associations were reassured when interacting with CFE regarding this issue. “When CFE
Conventional
acquired legal protection against the interconnection rules Clean
published by CRE, ASOLMEX sat down with CFE. Instead
Total conventional energy generation
CFE was not able to handle so many interconnections in such a short time. After those talks, both CFE and the
254,496GWh
companies involved in distributed generation were ready to keep working together,” says José Zambrano, Director General of Galt Energy.
Conventional Thermoelectric
Fluidized Bed
Fluidized Bed
Conventional Thermoelectric
Energy had a preponderant role in crafting the policies Internal Combustion
Coal
and priorities for Mexico’s electricity industry while
Total clean energy generation
CRE transposed the Ministry of Energy’s vision into the regulatory framework. In the case of the electricity
64,868GWh
auctions, CENACE undertook the design and unfolding
63.02% Combined Cycle 15.85% Conventional Internal Combustion Thermoelectric
13.44% Coal 4.95% Turbogas 1.50% Fluidized Bed 1.23% Internal Combustion
Turbogas
Combined Cycle
In the first years of the Energy Reform, the Ministry of Clean
Turbogas
Coal
of burning bridges, we looked for a way to fix the problem.
STRENGTHENED REGULATOR Conventional
Combined Cycle
of this innovative mechanism to inject clean energy into the country’s power mix, while CRE acted as
Hydroelectric
Hydroelectric 47.65% Nuclear Bioenergy and FIRCO 16.29% Nuclear Wind Solar 16.13% Wind Geothermal Regenerative Breaks Geothermal 9.48% 7.79% Efficient Cogeneration 2.33% Bioenergy and FIRCO 0.33% Solar 0.01% Regenerative Breaks
technical adviser. With the fourth edition of the longConventional
Combined Cycle term electricity auction looming on Turbogas the horizon, CRE
will now coordinate the design of the fourth auction, Clean
Conventional Thermoelectric
Fluidized Bed
while CENACE will implement it and the Ministry of Coal
Internal Combustion
Hydroelectric Efficient Cogeneration Source: Ministry of Energy Nuclear
Bioenergy and FIRCO
Wind
Solar
Energy will act as technical adviser. “We will not change
variations. This new attribution is historic as tariffs will
what is working well. CRE’s message to all interested
Geothermal be determined Regenerative for the Breaks first time by an independent,
parties is one of continuity and any eventual change
autonomous regulator, contributing to the market’s
will help make auctions more attractive to potential
development,” García adds. During a ceremonial official
participants. Financial entities are growing accustomed
act on Dec. 20, 2017, the Ministry of Energy handed
to the auction’s new schemes and are developing
to CRE the First Electricity Market Rules package,
project finance mechanisms. We want to maintain their
containing the operative dispositions in accordance with
interest in the auctions,” says Guillermo García, President
the Electricity Industry Law’s Third Transitory Article. The
Commissioner of CRE.
package includes the Fundamentals for the Wholesale Electricity Market, 27 Market Practice Manuals and one
CRE will also be responsible for announcing all tariffs
Efficient Cogeneration
Operative Guide.
pertaining to the electricity industry, the first of which was the Basic Supply Tariff published on Nov. 29, 2017.
This act signaled the official conclusion of the emission of
“Tariff methodologies have already been approved
the First Electricity Market Rules, which integrate global
and published. The relevant point is that these tariffs
best practices adapted to the country’s specificities to
will be based on the monthly electricity generation
ensure Mexico’s electricity market operates efficiently.
cycle, while they previously were calculated based on a
From this point on, CRE will be the regulatory body that
1990s methodology that used a fixed power-producing
evaluates and determines the further modifications or
mix where price was solely impacted by fuel price
updates required as the market evolves.
VIEW FROM THE TOP
FOSTERING COMPETITION AND INVESTMENTS TO CONSOLIDATE ENERGY MARKET PEDRO JOAQUÍN COLDWELL Minister of Energy
12
Q: What major achievements have helped the Ministry of
A: Mexico can be a launching pad for profitable clean power
Energy strengthen Mexico’s electricity sector?
generation projects. Auction results attest that Mexico has
A: To date, we registered 32 companies participating as
joined the international trend of lowering generation costs.
power producers, qualified suppliers and traders and an
During the first auction in March 2016, the average package
additional 32 have already signed market entry contracts
price per MWh and CEL reached US$47.78 and attracted
with CENACE. A new milestone was set by the third long-
US$2.6 billion in investments while the second auction
term electricity auction as the lowest MWh plus CELs
attained a 30 percent lower average price, at US$33.47
package price yet was obtained at US$20.57. With the
and will contribute US$4 billion in investments. The latest
conclusion of the first three electricity auctions, US$9
auction surpassed expectations further as costs fell as low
billion in investments and 7,000MW of additional solar and
as US$20.57 for the MWh plus CELs package and reached
wind power generation capacity are expected, effectively
prospective investments to the order of US$2.4 billion.
quadrupling the county's renewable energy infrastructure by 2020 in comparison to the beginning of this
Q: What outstanding results has the coordination with
administration in 2012. The Ministry of Energy unveiled the
other government agencies yielded?
new contractual model for the construction of transmission
A: The Ministry of Energy maintains a constant and extensive
lines, in which private players can participate in financing,
inter-institutional coordination mechanism whereby
development and operation of such infrastructure through
different federal government agencies, including CENACE,
competitive and transparent bids. We also published the
CRE, INAH and SEMARNAT, participate. The purpose of the
first tender basis for the development of an interconnection
mechanism is to expeditiously address all matters under
project for Baja California with the rest of Mexico’s National
the attribution of each office and continuously generate
Interconnected System.
updated information pertinent to social and environmental requirements. The objective is to resolve them promptly and
In January 2017, we also disclosed the new technical and
within the regulatory framework, guaranteeing the rights
administrative guidelines enabling small-scale electricity
of communities and indigenous populations located in the
consumers to generate their own power and connect to
areas of influence of the new projects to be developed and
national distribution grids in a simpler manner. This boost
providing legal certainty to the inherent investments.
for distributed generation means users can install PV systems on their own residential and commercial roofs to
The Ministry of Energy’s Interinstitutional Linkages Office
cover part or all of their electric consumption needs and
created a follow-up methodology to monitor the results
reduce their electricity consumption costs.
of these efforts and streamline resolution times pertaining to project development. For instance, it developed an
May and November 2017 mark the first two Universal
Administrative Procedure Control Board to identify and
Electric Fund (FSUE) sessions, meant to be the social face
mitigate potential risk situations that delay or block the
of the Energy Reform and funded by contributions from the
advance of the projects in time and form. To date, we have
wholesale electricity market participants. Through CFE’s
registered an 80 percent advance in the resolution of such
extension of distribution grids and private companies’
administrative procedures.
contribution to installing off-grid PV systems, electricity will be within the reach of 1.8 million citizens who would
Q: What will the Ministry of Energy’s role be now that CRE
otherwise remain deprived of it.
has greater responsibilities starting in 2018? A: The Ministry of Energy will keep bolstering the
Q: What lessons has the Ministry of Energy learned from
consolidation of the emerging wholesale electricity
the auctions?
market. As the sector’s leading institution, we will continue
devising guiding policies for the remaining steps, fostering
energy prices, without overlooking the preponderant role
the entry of new players and new technologies, as well
they play in Mexico’s energy transition and clean energy
as the construction of new transmission lines that enable
goals. The benefits of competition, the unlocking of
competitive electricity tariffs to benefit all Mexicans.
electricity tariffs and the preservation of the environment are the major elements that give sense to this new model,
Q: What is the status of Mexico’s energy transition?
making it self-preserving.
A: The expansion of gas pipelines should be of note, especially considering that between 2012 and 2018, this
The construction of a solid institutional pillar for the
administration estimates the increase will be 65 percent,
electricity sector was our priority. The sector's regulator,
contributing to the commitment of providing cheaper and
CRE, is endowed with the tools and faculties to carry
cleaner fuel to generate electricity for a greater number of
out its tasks objectively, effectively and efficiently.
regions in the country. Mexico’s wholesale electricity market
Our market operator, CENACE, acts autonomously to
is burgeoning with dynamism, as in less than two years, it
guarantee the electricity system’s reliability, as well as the
went from one sole participant to more than 60 registered
greatest possible benefits for consumers. Our productive
by CENACE, of which 32 are already active in energy
enterprise of the state is no longer a monopoly and takes
trading operations, fostering competition, innovation and
advantage of the opportunities brought about by the
finding efficiencies. As new participants enter the market
reform to offer better services and compete with other
and our productive enterprise of the state competes on a
companies. Our regulatory structure generates incentives
level playing field, through effective and modern regulation,
for all participants to act in the public interest, favoring
efficiencies found and new technologies used, costs will be
innovation as well as public and private investments. In
reduced throughout the value chain, positively impacting
2016, electric generation capacity grew 8.1 percent, the
final users’ electricity tariffs.
highest rate since 2003, thanks to national and foreign investments that the new market is attracting. Essentially
Q: What legacy will you leave to Mexico’s electricity market
the Energy Reform is promoting job creation and setting
once your administration comes to an end?
the groundwork for accelerated economic growth in the
A: The sector’s progress is starting to change the
mid and long terms. The Ministry of Energy will continue to
architecture of the country’s electricity industry, creating
implement the changes and improvements required by the
a solid foundation for a competitive and efficient market.
industry, convinced that a modern and efficient electricity
With the launch of the short-term wholesale electricity
sector is fundamental for promoting productivity in our
market, electricity generation, supply and trading activities
country and fostering social inclusion.
are witnessing new participants that compete with CFE’s subsidiaries and affiliates. For long-term transactions
Q: What challenges will the ministry face in 2018?
and the fostering of clean energy sources, the conclusion
A: In what will be the last year of the current
of the three long-term electricity auctions show quite
administration, the Ministry of Energy will continue
positive results. Mexico is steadily and hastily advancing its
working toward the consolidation of the reform with the
transition toward an economy with lower carbon emissions,
same pace and commitment it has shown so far. Based on
enabling us as a country to reach the 2024 goal of 35
our action plan, we will keep fostering the arrival of new
percent of green generation. A new model was created
investments in every link of the sector’s value chain. The
for the procurement of transmission lines, allowing private
conclusion of the first midterm electricity auction, the
players to participate in its financing, development and
tender for the first transmission line under the new model
operation. Through the distributed generation scheme,
of private procurement and FSUE’s third stage are among
homes and businesses alike can place PV modules on their
the major steps that will be taken in 2018. By the end of
roofs to produce a large part of the electrical energy they
this presidential term, we will have laid the foundation
require, while generating savings in their electricity bill and
of a more modern electricity industry, witnessing the
contributing to decreasing emissions to the atmosphere.
arrival of multiple operators, which will promote new investments, economic benefits, job creation, energy
Q: How can continuity be fostered for the wholesale
democratization and multiple electricity supply options
electricity market of the future?
for consumers.
A: The industry’s answer reflects the market’s confidence in the processes we have fostered. The catalyzation of the electricity market is imminent and the market has started to
Pedro Joaquín Coldwell has been Mexico’s Minister of Energy
create its own mechanisms, guaranteeing its permanence.
since the start of President Enrique Peña Nieto’s government in
The power of competition and technological advances have
2012 and has overseen the liberalization of the country’s oil and
made their presence known with competitive renewable
gas and electricity sectors
13
VIEW FROM THE TOP
CONCLUDING AN ENERGY REVOLUTION FERNANDO ZENDEJAS Deputy Minister of Electricity at the Ministry of Energy
14
Q: What are your goals as the new Deputy Minister of
competition by developing an efficient and clean industry.
Electricity at the Ministry of Energy?
As part of a chain, it is important they are all completed.
A: Although I have recently been appointed Deputy Minister,
Nevertheless, a project that will be shaping Mexico’s energy
the team and I have been working since the beginning of
infrastructure in 2018 is the public tender for the construction
this administration on the same goal: the implementation and
of the interconnection line between Sonora and Baja California.
consolidation of the Energy Reform. As head of the Deputy
Its importance resides in the fact that it will interconnect an
Ministry I can bring a transversal vision of the whole energy
isolated system with the rest of the country, with the benefit of
industry and the way the oil and gas and electricity sectors
providing the first system with more reliability, demand peaks
relate and affect each other, due to my experience interacting
coverage and the ability to reduce and even possibly stop
with CFE, CENACE, PEMEX and CENAGAS.
energy imports from the US. The pre-basis for the tender was published on Dec. 7, 2017, and we have happily witnessed a
Q: What is the importance of CFE’s separation into several
strong reception from the whole industry. We hope to be able
subsidiaries for the Mexican energy market?
to receive offers by 2018 with the start of operations expected
A: The Deputy Ministry of Electricity takes part in the Board of
in 2021. This project represents an estimated investment of
Directors that monitors the strict legal separation of CFE. As a
around US$1.1 billion.
part of that board, I have witnessed how several projects have been submitted for review by CFE’s generation subsidiaries,
Q: What is the importance of Mexico’s admittance into the
including associations with private companies. Such
International Energy Agency?
associations are highly beneficial for both players. CFE can
A: As a member, Mexico is now part of an association with
provide tangible and intangible assets such as the generation
the mission to promote both the creation of more clean
plant, previous knowledge of the industry and generation
sources of power generation and energy efficiency. As
permits, among others, while the private company can offer
our country is a strong producer of oil and gas, but also
cutting-edge international technologies and experience,
has plenty of renewable resources available, Mexico can
as well as investment capital. We are heading in the right
profit from the broad knowledge and experience of the IEA
direction regarding CFE’s effective and complete separation,
member countries, learning from their best practices and
but there is still a great deal of work to do to ensure that the
avoiding their previous mistakes. We will also obtain a series
previously monolithic company, which owns over 85 percent
of international regulatory best practices from the agency
of the installed generation capacity in the country, allows for
as well as five-year evaluations of our energy policies. As
fair competition in the Mexican market, while also remaining
the Executive Director of the IEA, Fatih Birol, mentioned,
a competitive player.
Mexico’s fast implementation of its Energy Reform equates it to an energy revolution.
Q: What project do you consider critical for the proper development of the Mexican energy industry?
The agency is also benefiting from our integration, since
A: It is hard to talk about how important the projects outlined
Mexico is the first Latin American country to become a
in PRODESEN 2017-2031 are, as they are all part of a plan
member. Furthermore, we have been the fastest country to be
to achieve a dynamic sector that fosters investment and
accepted after application. The letter of intent was presented to the agency on November 2015 and by December 2017 the Mexican Senate was already ratifying the International
Fernando Zendejas was named Deputy Minister of Electricity
Energy Program. One of the contributing factors for our rapid
at the Ministry of Energy in Nov. 2017. Zendejas has gathered
integration was the fact that the agency was able to witness
experience in the energy sector by working with PEMEX, CFE,
the solid participation of the private industry supporting
CENACE, CENAGAS, the International Energy Agency, and INEEL
public institutions in the energy sector.
INSIGHT
A TRANSITION LEGACY FOR THE LONG TERM LEONARDO BELTRÁN Deputy Minister of Planning and Energy Transition at the Ministry of Energy
Three long-term electricity auctions, a committed investment
high participation during the hydrocarbons licensing rounds,
of US$9 billion, new rules for the third long-term and first
which have a minimum local content requirement. Beltrán
midterm auctions and the regulation, policy and vision for
is not worried about this because the main intention of the
the CELs market that is ready for launch are some of the
current administration is to create a market. “We are not yet
milestones achieved until now by the Energy Reform. “It
at the point when local companies can compete against their
was a momentous 2017 for Mexico’s energy industry that
international counterparts, mainly due to a lack of investment,
not only marked the consolidation of the Mexican wholesale
technology and expertise,” he says. “In doing things this way,
electricity market, but also wrote a fresh chapter in the
we are ensuring that we will have the most competitive market
country’s energy history,” says Leonardo Beltrán, Deputy
possible.” He adds that high international participation means
Minister of Planning and Energy Transition at the Ministry of
that the country is attractive at a global level.
Energy. And there is more to come. Investing in the long term is not always easy. Governments Beginning with the fourth long-term electricity auction, the
want to see results, most of which will not materialize during
Ministry of Energy will hand the reins to CRE, which will
an administration’s term. Beltrán is instead focused on
manage the process and carry out the auction through its
investing in a mixed portfolio that comprises investments
executing arm CENACE. Beltrán expects CRE to become
for the long, mid and short terms. “Talent is a long-term
an even stronger regulator due to the opportunity it had to
investment for which we will not see a return in the next
witness the auctions without being responsible for them. “CRE
few years,” he says. “But that investment will produce
has been able to learn and incorporate that experience into
results when people who have gone abroad to study, come
its ethos, ultimately making it a strong, robust and impartial
back years later to the country and join the labor industry's
regulator that can ensure an unbiased market,” he says.
market.” For the medium term, he says Mexico should invest in infrastructure, meaning that when the talent returns, it will
Although the auctions have produced good results, Beltrán
be able to replicate the R&D conditions seen abroad. “Finally,
expects improvements in the next editions. The fact that
in the short run we need a robust legal framework that
resource availability is different across the country, with more
allows for the strong participation of the market,” he says.
solar power in the north and more wind in the south, is among
“By combining these three elements, Mexico can become a
the possibilities to explore. “It might be worthwhile to have
powerhouse for clean energy.”
this reflected in the process, to make resources competitive in every region,” he says. “I think the regulator has to be flexible
Looking forward, Beltrán sees a big opportunity with storage
enough to increase competitivity by allowing different prices
technologies, which are the missing link keeping renewable,
across the country for the same source of energy.”
intermittent technologies from further spreading across the country. Although these technologies are just being adopted,
Beltrán adds that flexible regulation will attract more
he highlights the importance of incorporating storage
participants to the market, which will therefore encourage
technologies into the country’s planning and day-to-day
competition – the ultimate goal of the electricity auctions.
operations.
“The focus has to be on having more market participants,” he says. “In addition to ensuring a more competitive market,
On the political front, where the winds of change will blow
it would also confirm that the regulation, the legal framework
across the country with 2018’s presidential elections, Beltrán
and the models we are using are attractive.”
believes the strong legal and regulatory frameworks that have been established will allow companies and investors to base
Critics have pointed to the underwhelming participation
decisions solely on economic factors. “Investors can be sure
of local industry in the electricity auctions compared to its
their capital will be safe,” he says.
15
VIEW FROM THE TOP
CONSOLIDATING MEXICO’S ENERGY TRANSITION CÉSAR HERNÁNDEZ Former Deputy Minister of Electricity at the Ministry of Energy
16
Q: What were the Ministry of Energy’s major
2016, and a complementary document in February 2017. We
accomplishments in 2017?
drafted it with a systemic vision that included the integration
A: 2017 was an important year, marked by several
and time frame for new technologies and renewable
milestones in the wholesale electricity market. We launched
electricity generation, mirroring international trends. For
the tender documents for the third long-term electricity
instance, we considered the progressive incorporation of
auction in April. February saw the operation of the first
energy storage, controllable electricity demand, electric cars,
Capacity Market, overseen by CENACE. The first stage of
IoT and the expansion of distributed generation. Greater
the Universal Electricity Service Fund (FSUE) was initiated
measuring, managing and telecommunications capacities
on May 30 and more than 20 private players participated
are the major implications for the grid. Specific programs
in the spot market. A Legacy Contracts Resolution for
both for independent system operators and distributors,
basic supply was also published on Aug. 25. Planning
relating to specific projects regarding cost-benefit analysis
ahead, we published the third version of PRODESEN and
and other viability-measuring tools for a smart grid, were
the basis for the ready-to-launch CELs. Restructuring CFE
made available. Schemes for contracts in transmission-line
further liberalizing Mexico’s wholesale electricity market,
development are also under consultation with the electricity
infrastructure planning and the universalization of electricity
industry to finalize the details of the draft contract model.
services helped push the Energy Reform one step forward. Q: What mechanisms are under development to integrate Q: How are subsidies for electricity prices expected to
new technologies into the Mexican electricity system?
evolve in 2018?
A: In 2016, we published the Interconnection Manual
A: The Basic Supply Tariff will be available before the end of
for Distributed Generation, a landmark that targets
2017. It will be published by CRE, as the regulator now has
administrative procedures and the shortening of time
the Legacy Contracts Resolution it required to finalize the
frames for different distributed generation technologies
tariff calculations. These contracts are basically between
to be connected to the electricity system. It stipulated
old or new CFE generation plants and CFE Basic Supply,
the design of the electricity market from the architecture
the main ingredient of generation cost. Without the cost of
outlined in the Electricity Industry Law, integrating
generation, the formula to obtain the Basic Supply Tariff,
specifications according to market rules, and remuneration
adding transmission and distribution costs, is incomplete.
mechanisms for any product that adds value to the system. Two major elements stand out when it comes to
This will be the first time in history that CRE publishes a
incorporating technological innovations. First, the ability to
Basic Supply Tariff, as the Ministry of Finance held this
connect to the grid, as long as it is technically feasible and
responsibility until now. Signaling the cost reference for
in some cases under specific regulations. Second, the ability
electricity services to different types of users, established
to offer services from energy storage or associated services.
by an independent economic regulator isolated from
Transitioning from a vertically-integrated monopoly to a
political processes, is at the core of the Basic Supply Tariff.
market system requires the integration of technological
The number of bilateral long-term energy contracts in the
innovations into the electric grid. Markets incorporate
wholesale market will be significantly higher thanks to this
technological innovations at a much faster pace compared
new reference.
to vertically integrated systems.
Q: What new technologies will have the greatest short-
Q: What platforms are in place to reinforce interactions
term impact on Mexico’s electricity market?
between government authorities and private players?
A: As a requirement embedded in the Energy Transition Law,
A: Every regulation and instrument published by the Ministry
we published the Program for Smart Electricity Grids in May
of Energy as early as the constitutional reform of 2013 —
secondary laws, the electricity market’s legal basis and
project, parallel to the transmission lines tenders to be
market practice manuals — have been the object of public
developed by CFE Transmisión. The CFE tender was
consultations, some formally in COFEMER, pertaining
originally launched in 4Q16, and received feedback from
to market rules. So far, there have been three editions of
consortiums interested in developing a transmission line
PRODESEN resulting from consultations with industry
from Tehuantepec to Morelos. This particular tender
players. Clean Energy Requirements were published as
is expected to be announced by January 2018 by CFE
a legal and compulsory requisite of clean energy, also in
Transmisión. Deferred-Impact Public Spending Project
consultation with industry players. The Program for Smart
schemes complement transmission line development
Electricity Grids went through the same process. The
efforts under the responsibility of CFE.
different contract models for the long-term and mediumterm electricity auctions were consulted as well. The new
Q: How will the new electricity market give the country a
scheme for transmission line contracts is under consultation
competitive edge?
with industry players to define the most suitable version of
A: The basic premise of the Energy Reform is to lower
the contract model. Every process includes industry opinions
costs for energy services. The only way to achieve that
and feedback, either through formal schemes in COFEMER
in the electricity sector is to attract investment and
or schemes outlined by the law, such as with PRODESEN’s
install cheaper and modern generation plants to replace
electric system planning. The novelty of 2017 was the
outdated and expensive facilities. Reducing costs in
creation and installation of the evaluation committees for
a durable manner in the mid to long term can only be
CENACE and the wholesale electricity market, in which the
achieved under competition schemes. This is at the core
system operator as well as the variety of market participants
of the design of the competitive long-term electricity
are represented, including generators and suppliers, offering
auctions, the short-term electric market, the building
constant interaction with regulatory authorities.
of a competitive power market and the development of schemes for competitive transmission lines. Each and
Q: How is the Ministry of Energy fostering CENACE’s
every measure attracts investment. The first two auctions
maturity as the administrator of the national electric system?
totaled US$6.6 billion and the third auction brought in an
A: The Ministry of Energy is part of CENACE’s Board of
additional US$3 billion. The midterm electricity auction
Directors, overseen by the Minister of Energy. The ministry
was similarly designed. The Tehuantepec-Morelos and
provides support for different processes, obtaining
Sonora-Baja California transmission lines are estimated
resources and management. Evaluation of CENACE’s
to attract between US$1-2 billion each. We consider both
performance is vital. We hired international consulting firm
to be the most important new infrastructure projects for
Utilicast in the last quarter of 2016, together with Deloitte, to
2018 by far.
evaluate the degree of advancement in the implementation of different market components stipulated in the Law and
Q: What are the major arguments for industries that are
in the Market Basis. They designed an evaluation based
not related to the electricity market to support Mexico’s
on the traffic-light system for each process and presented
energy transition?
the report to CENACE’s Board of Directors. CENACE’s
A: The most convincing argument for any Mexican industry
evaluation committee also reports to the Ministry of Energy,
to bet on clean energy is that it is more cost-competitive
wherein everything pertaining to progress in the process is
than fossil fuels. Electricity generation prices achieved
taken under consideration.
in the first two auctions were lower than combined-cycle generation, which is the greatest lesson the transition process
Q: What is the expected impact of the new financing model
showcased. We hope to repeat this with the coming auctions.
for transmission lines?
While different variables such as purchasing power, capacity
A: This model recaptures something already outlined in
and intermittency evoke skepticism when compared to fossil
the constitutional reform, where private third parties can
fuels, more companies are switching to renewables. Two
develop transmission lines to be operated and maintained
years ago it would have been much harder to make a case
on behalf of the government. The Electricity Industry
for clean energy. The competitiveness of new clean energy
Law stipulates that the Ministry of Energy can conclude
sources has changed the game of power supply, in addition
contracts with private players. Eight months went into
to the positive impact on the environment.
developing a scheme hand in hand with international consultants. A series of best practices were integrated into this process from schemes similar to those in Chile
César Hernández was named Deputy Minister of Electricity at
and Brazil. PRODESEN transmission lines can be built
the Ministry of Energy in Feb. 2014. His position oversees the
through this scheme. In December 2017, we published
development of the new Mexican electricity industry, fostering
the first pre-basis tender for a major transmission line
free market rules and a revamped power infrastructure
17
VIEW FROM THE TOP
FROM CORPORATE STRUCTURE OVERHAUL TO CUMULATING EFFICIENCIES JAIME HERNÁNDEZ 18
Director General of CFE
Q: What were CFE’s 2017 milestones?
diesel, with more cost-effective, environmentally friendly
A: The reform of Mexico’s electricity sector meant the
sources such as natural gas and renewables a priority.
overhaul of CFE’s corporate structure. To date, we are operating with 13 new companies. The process involved
From the 25 gas pipelines we are developing, 12 are
a considerable operational challenge, which we tackled
already operational, 12 are in construction phase and one
successfully. Of the 13 new companies created, six are
branch line in the northern region of the country was
power producers that compete against each other and
recently tendered. Between 2012 and 2016, we decreased
the rest belong to the private sector. There is also a sole
our emissions relating to electricity generation by 44
national transmission company for the sake of system
percent. We also launched a pilot program for fuel storage
security, two new energy trading companies—one for basic
in Sonora and Baja California to strengthen the country’s
supply for small-scale consumers and a qualified user for
energy security. While the international standard sets
primarily industrial consumers. We have one distribution
fuel storage capacity at 30 days of average equivalent
company that oversees mid and high voltage with 16
consumption, Mexico only has three. This pilot project
business units spanning different regions, enabling us to
will increase Baja California’s fuel storage capacity by 10
better address the challenges pertaining to technical and
extra days and Sonora’s by 14 extra days. Considering an
nontechnical losses. Our business plan pillar is cemented
increased number of storage tanks will be available as we
on our financial strength. CFE’s significant financial losses
transition toward natural gas, we could practically double
pushed us to renegotiate the company’s collective labor
the country’s fuel storage capacity.
contract in 2016, reframing the utility’s pension system. Through an established incentive, we cut labor liabilities
On the operational side, we outlined the objective of a steady
in half, obtaining US$17 billion in savings. In the last three
reduction in energy loss. In 2012, these losses amounted to
years, we have reduced CFE’s indebtedness compared to
16 percent on average nationwide, versus OECD’s average
the previous year, a trend that will continue in 2018. While
of 6 percent. Our latest data from October 2017 suggests
CFE’s debt used to be issued entirely in US dollars in 2012,
our energy losses are below 12 percent. For 2018, we are
we now have a currency exchange exposure within a 20-30
setting a 10-11 percent objective. We are confident we can
percent threshold, guaranteeing the company’s financial
reach this milestone and will continue working to bring this
health during periods of high currency volatility, as we have
indicator closer to international standards. Some regions
recently experienced. CFE also managed to significantly
in the country are even below the 6 percent reference,
reduce operating costs, which decreased close to 13 percent
highlighting the challenge for Mexico’s central region.
between 2012 and 2016. The combination of all these factors
Each additional percentage point of efficiency is more
led to us to close 2016 with assets greater than US$26
complex than the last. CFE has also designed an ambitious
billion. We will persevere in our financial discipline and cost
investment plan. We continue investing in new generation
reduction agenda to attain a sustainable balance toward
plants, with seven of these under construction. The long-
2021. The reform confers CFE the possibility of participating
term electricity auctions organized by the Ministry of Energy
directly in the fossil fuels market. We established two
resulted in 52 new clean and renewable energy projects,
additional companies for that purpose, one in Mexico and
meaning one in every two states in Mexico will have a new
another in the US. Their primary objective is optimizing
plant powered by clean energy, helping us contribute to the
fuel supply for CFE’s own consumption and eventually
35 percent of clean energy by 2024 landmark. Renewable
commercializing these fuels to third parties. Close to 80
energy has considerable potential in the country, as it could
percent of the cost in electricity generation is associated
double the 55,000MW of installed capacity we have in the
with the fuels we use, making the gradual replacement of
coming years. Our investment portfolio is structured to
costly and highly contaminating fuels such as fuel oil and
allocate an estimated US$13 billion for the next five years.
Cogeneration plant, Tula, Hidalgo
19
Close to US$9 billion will be directed to generation projects
of associations with the private sector to promote new
involving different technologies and regions, US$2 billion
generation projects, especially considering our limited
to transmission projects and US$3 billion to distribution
capital and our ongoing efforts for cost reductions and
projects. The aim is twofold: mitigating energy losses and
financial discipline. Mexico’s electricity consumption keeps
modernizing technologies we use to foster a national
increasing 3 percent per year, meaning there is a window of
smart grid.
opportunity for CFE to continue building on alliances and partnerships, while private projects can have an increased
Q: After CFE’s transformation, what is the next step?
participation in Mexico’s electricity sector. The needs of
A: CFE’s transformation is complete. The productive
the private sector provide an open door for harmonious
enterprise of the state has 13 new companies that have a
development of different technologies and partners, and
separate and independent legal, accounting, operative and
the long-term electricity auction results attest to that.
human resource structures. Adapting this new structure to the new rules of the game is also well underway. Our next
Q: If CFE’s financial health allowed it, where would you
stage will primarily consist of capturing and cumulating
primarily channel additional capital?
efficiencies, as well as strengthening the company
A: In the event CFE generates extra capital, we would
financially and adapting CFE’s culture to a competitive
definitely allocate it to reducing energy loss, technological
environment from top to bottom. The Ministry of Energy
modernization and two or three generation projects that
has scheduled CFE’s first audit for 2018 to evaluate the
would revamp the company’s generation portfolio. When
compliance of our restructuring. Another important
CFE started in 1937, it only had one generation plant. Today,
change was the separation and creation of CENACE,
it has 186 nationwide, using different technologies. Eighty
born from CFE’s former intelligence unit to become a
years ago, CFE had no transmission nor distribution lines.
full-fledged, independent market operator and National
Today, CFE’s transmission and distribution lines amount
Electricity System manager.
to more than 100,000km and 800,000km nationwide, respectively. In 1937, we had close to 100,000 clients.
Q: What are the key elements in the intricate processes of
Today, we have more than 42 million. Going forward,
the new CFE’s strategic decisions?
our challenges will be directly linked to integrating
A: We now have a new corporate Board of Directors with
technological innovation, financial strength and identifying
four independent members of recognized prestige, while
the most profitable energy projects, ideally in association
each of CFE’s companies has its own management board.
with the private sector, to continue reinforcing Mexico’s
Decision-making processes in a newly-created competitive
electric market.
context, added to our corporate rules, dictate that each of CFE’s companies can determine — notwithstanding the effect these decisions might have on the other companies of
Jaime Hernández is an economist and PhD in Political
the group — which investments are the most profitable and
Economy from Essex University. Before being appointed
should be pursued. A common denominator can be found
to the helm of CFE in August 2016, he served as the state-
among CFE’s generation companies in the importance
owned company’s CFO
VIEW FROM THE TOP
BUILDING ON MILESTONES TO ENSURE A ROBUST ENERGY MARKET GUILLERMO GARCÍA President Commissioner of CRE
20
Q: What were CRE’s successes in 2017 and what can we
impacted by fuel price variations. This new attribution is
expect as its regulatory responsibilities increase in 2018?
historic as tariffs will be determined for the first time by
A: In 2017, consolidating both the oil and gas markets by
an independent, autonomous regulator, contributing to
increasing the number of private participants, diversifying
the market’s development.
the offer available and empowering final consumers was our greatest achievement. We also enjoyed success
Q: What steps will CRE implement to ensure the
regarding renewables in the wholesale electricity market
continuity of the Energy Reform under the next
to provide the country the electricity it needs.
administration? A: Continuity is key for fostering certainty and reliability.
In 2018, the fourth long-term electricity auction will be
CRE’s commissioners have seven-year mandates, outside
published and executed by CRE, together with CENACE.
of political cycles, with phased nominations. Another
The difference will be in how the two entities are switching
major component is CRE’s organizational structure. We
roles. In the first three auctions CRE acted as a technical
restructured CRE to provide an ever-improving service.
adviser but it will now coordinate the design of the fourth
While my predecessor’s commission was completely
auction, while CENACE will implement it and the Ministry
cross-sectional, we set out to reassemble CRE into
of Energy will act as technical adviser. We will not change
business units, with new rules of procedure published in
what is working well. CRE’s message to all interested
May 2017. These outlined our four substantive business
parties is one of continuity and any eventual change
units – petroleum products, natural gas, LPG and
will help make auctions more attractive to potential
electricity – with four underlying departments. Each
participants. Financial entities are growing accustomed
business unit comprises all of CRE’s service branches:
to the auction’s new schemes and are developing project
tariffs, contract terms and conditions, market monitoring
finance mechanisms. We want to maintain their interest
and permits. This structure has helped develop procedures
in the auctions.
and protocols that work seamlessly regardless of who is at the helm.
To date, there are 11 interconnections with the US, six as emergency interconnections and five for continuous supply, with another two in the pipeline
Mexico’s Energy Industry Law (LIE) was launched with the Ministry of Energy as the primary regulator but it was meant to be transitional. The Ministry of Energy published a wide array of manuals and concluded this process in the last half of 2017, creating the market’s legal basis that CRE inherited as the new permanent regulator of Mexico’s electricity market. Q: CRE signed a MoU with Canada’s Energy board. How
CRE will also be responsible for announcing the electricity
is CRE shaping an integrated version of North America’s
tariffs, the first of which was the Basic Supply Tariff we
energy market?
published on Nov. 29, 2017. Tariff methodologies have
A: We also signed a MoU with the North American
already been approved and published. The relevant
Electric Reliability Corporation (NERC) and the National
point is that these tariffs will be based on the monthly
Association of Regulatory Utility Commissioners
electricity generation cycle, while they previously were
(NARUC). To date, we have 11 interconnections with
calculated based on a 1990s methodology that used
the US: six emergency interconnections and five for
a fixed power-producing mix where price was solely
continuous supply, with another two in the pipeline. The
idea is to have them operating as a connected market but we still have discrepancies in terms of reliability rules, which is preventing us from enabling all interconnections as continuous supply. Baja California already complies with these rules as it incorporated NERC’s best practices and our constant interactions with NERC, NARUC and Canada’s Energy Board will help bring the rest of the
Mexico requires close to US$100 billion of investment in power generation alone to remain competitive compared to international markets
country up to speed with these best practices. These efforts are vital for the region’s energy security, especially
The reform is unmovable and constitutional, and reverting
considering the precedent of California’s 2010 blackout,
it requires a two-thirds approval from Congress, meaning
where Baja California responded swiftly to restore
an unlikely association of several different political forces.
electricity to its American neighbor.
For this sector, such an exercise has only been done once in the last 80 years. Achieving it in itself was a feat,
Q: How did CRE make sure CELs were ready for launch
repeating it, considerably harder, especially considering
in 2018?
the Mexican Supreme Court has repeatedly pronounced
A: The design of CRE’s S-CEL system was developed
itself in favor of the reform’s constitutionality when any
jointly with USAID over the course of the year. This
legal issue pertaining to the reform arose. Academia’s
platform has the potential to enhance the amount of
intensive involvement in the sector should also be of note.
renewable energy in Mexico’s energy mix to help meet
Many universities are integrating curricular programs in
its clean energy generation commitments. Visibility and
energy law, renewable energy, and environment-related
transparency on CELs transactions – purchase, sale and
disciplines. Local governments have recognized the
ownership tracking – are key.
economic development potential of the reform, beyond political affiliation.
Q: What are CRE’s priorities for 2018? A: From a regulatory standpoint, CRE will focus on
Q: With all these new developments going in the right
developing Mexico’s natural gas market through 2018’s
direction, what is CRE’s primary concern?
Open Season. This year’s edition, proposed by CENAGAS,
A: We went through an orderly and gradual gasoline
was regarded as highly successful and we want to build
price-liberalization process, with adjustments from the
on that positive momentum. Forty-four percent of the
Ministry of Finance, so that gasoline prices would reflect
country’s natural gas capacity is now in different hands
logistics costs. It was a major shift, without which the
from those of CFE and PEMEX, and we want to continue
wide array of international gasoline brands would not be
to provide certainty for all interested parties.
able to set up shop across the country. Looking forward, a potential risk that must be avoided at all costs is
Developing the country’s natural gas price hub is also a
investment levels beginning to stagnate. Mexico requires
priority. We are already shifting from publishing national
close to US$100 billion of investment in power generation
monthly prices to regional monthly prices and we will
alone to remain competitive compared to international
eventually achieve regional daily prices. Working jointly
markets. Being content with our recent milestones is, I
with the Mexican Association of Natural Gas (AMGN), we
think, our greatest risk.
identified the intrusive nature of natural gas regulation and designed a more flexible framework for permitting
The retail market may be moving at a fast pace but much
and profitability track terms compared with the prevailing
remains to be done to develop a solid wholesale market.
accounting terms.
True competition will be achieved when wholesalers, both local and foreign, build a market footprint large enough
Q: How do you think the business community will react
to inject competition to the point that PEMEX feels this
or adapt to the uncertainties of an election year?
competition is real, strengthening and reinventing its
A: Looking back, the most uncertain period in the country’s
processes. When both productive companies of the state
recent history was last year’s US presidential elections.
feel pushed from their comfort zones, we can consider
One month later, we witnessed the success of Round 1.4,
our work is bearing real fruit.
the deepwater chapter, which included participation from major US companies such as ExxonMobil and Chevron. This experience tells us that the business world is above
Guillermo García has served as President Commissioner
political discourse or alignments. As long as the rules are
of CRE since April 2016. García took part in the technical
clear, transparent and foster open participation, business
and drafting group for the 2013-2014 Energy Reform and
will continue and investments will pour in.
conducted support studies for the 2008 Energy Reform
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VIEW FROM THE TOP
TRANSPARENT REGULATION FOR A STRONGER MARKET MARCELINO MADRIGAL Commissioner at CRE
22
Q: What actions is CRE taking to improve the Mexican
Overall, the transition has been successful as we have worked
electricity market?
very closely with the Ministry of Energy and have heard the
A: The wholesale electricity market has diversified. With
industry’s input through all the stages as the rules were
more companies taking part, it has become liquid, allowing
crafted. CRE has the capabilities to continue enforcing and
participants to better understand the market’s pricing while
managing all market regulations, not only for the long-term
becoming a reference for the real price of electric energy
auctions.
in Mexico. Although most of the country’s energy will be covered via the long-term market to ensure supply, the
Q: What role will distributed generation play in the market?
short-term market is important because it provides price
A: Distributed generation was already possible before
signals. The short-term market, under its spot and real-
the reform, but with many limitations. The new regulation
time versions, is gradually maturing and getting stronger,
takes advantage of the open energy market, allowing
with over 30 participating companies. Industrial players
power producers to seize opportunities in the market
now understand it, although they also point out the need
and innovate new business models. During 2016, Mexico
for more information to allow them to better prepare and
counted 29,560 users of distributed generation, from
act more efficiently. Most of the information is already
residential to industrial. The number is directly related to
available for the long-term market, but we still have room
the transparency of the information CRE provides and the
to improve information sharing in the short-term market.
declining prices of some technologies, especially solar
At CRE we are fighting hard to improve the transparency
photovoltaics. We expect this sector to grow. This is good,
of the information CENACE offers to all participants, as we
because it means that energy consumers are empowering
have the faculty to define what information must be made
themselves, finding more and better options to produce
available. Of course, greater transparency will also attract
the energy they consume or market it elsewhere, which is
more participants.
the objective of a competitive market.
Q: How is CRE handling the transition of responsibilities
Q: What is the status of the regulation for transmission and
from the Ministry of Energy to the Commission?
distribution projects in Mexico?
A: The law is very clear and states that the rules for the
A: We understand the need to revamp and expand the
first, second and third long-term electricity auctions were
transmission and distribution grids in Mexico, and are
to be published by the Ministry of Energy, but starting with
therefore part of the development of PRODESEN. We provide
the fourth, CRE will take over this responsibility seamlessly.
our opinion to the Ministry of Energy on the priorities and
We also took over the monitoring of the market, which we
requirements that need to be covered. We also understand
started doing at the beginning of 2017. The transfer went so
that, due to the high funding needs of the projects, the
smoothly that no one noticed the change. We are working
participation of the private sector is a must. We issued
without delays, thanks in part to our independent monitoring
a milestone regulation that will determine how private
entity, comprised of national and international experts and
transmission projects to be auctioned will get paid, providing
academics. They have noticed errors from time to time,
the certainty that private participants require to invest and
which have been rapidly corrected, almost automatically.
ensuring that they will have a stable and secure income for the lifetime of the project. In the transmission sector we expect an investment of approximately US$11 billion. Regarding rates,
Marcelino Madrigal has over 15 years of experience in
our approach continues to be making sure network costs
international development banking, the public sector and
are recouped with tariffs that have a transparent and lean
academia. He holds a Ph.D. in electrical engineering and was
structure, which is key for a market under development when
elected Commissioner in 2014 for a period of seven years
new players have so many new rules to digest.
VIEW FROM THE TOP
BEYOND CLEAN AUCTIONS, A LONG-TERM COMMITMENT GUILLERMO ZÚÑIGA Commissioner at CRE
Q: How would you describe CRE’s significance in the new
Q: How can Mexico further develop distributed generation?
energy market?
A: In Mexico, we have seen significant advancements in
A: CRE’s mission is to provide transparent information to
the distributed generation segment with the design of
ensure good, quality decision-making. We are working
bidirectional contracts. Before the energy reform, contracts
on the first transparent Basic Supply Tariff, since the
worked under an energy bank scheme in which the extra
current tariff is sending a misleading signal to the market,
energy produced could be withdrawn from the main
discouraging investment. Once this Basic Supply Tariff is
grid within one year. Now, we have the net metering, net
published it will provide robust information to investors
billing and total energy sales schemes, which are making
about the country’s competitiveness. Having a regulated
the market much more attractive for both small and large
tariff was useful in the past to reach the universal supply
residential and commercial consumers. These could be
principle that governed CFE, but the new energy market
called the regulation for distributed generation 2.0. With
has to focus on providing value to participants. One perfect
distributed generation 2.0, every household and company
example is the Mexico City subway system. It has always
in Mexico has become a CFE competitor.
been supplied with electricity from CFE, but as soon as competition was put on the table, CFE had to compete
Q: How does CRE work with the recommendations
against other energy suppliers to offer the service to the
provided by the OECD?
subway system. With competition in place, CFE made an
A: The OECD has been enthusiastic in reviewing Mexico’s
offer that represented savings of over US$100 million per
regulatory framework after the overhaul in 2013, making
year for the subway system.
peer-review recommendations and creating diagnostic analyses for us to take into consideration when designing
Q: What made the long-term electricity auctions such a
future modifications. Beyond these modifications, Mexico
success in the area of renewables?
complies with all the international standards and is
A: The electricity auctions are actually designed to be
categorized as a strong regulator with a well-designed
technologically agnostic, providing a level playing field for
regulatory framework. We still have a couple of challenges
everyone. The electricity auctions are for the long term, and
to overcome. We need to simplify the regulatory system and
although renewables usually have high CAPEX costs, they
offer greater transparency, while creating more flexibility to
also have very low OPEX costs. Renewables are even more
adapt to the dynamic environment we face in the energy
competitive than almost any other conventional energy
market, which is highly reliant on technologies that change
source, as conventional fuels have the disadvantage of costs
almost daily. A clear example of technological change is in
associated with extraction, processing and transportation.
energy storage. In this segment, regulators in Mexico and
One of the disadvantages of renewables is the intermittency
around the world are simultaneously learning how to adapt
element. This has allowed CCGT plants to become a
and make this technology fit into their respective markets.
particularly useful technology that is secure, flexible and
To allow for a flexible regulation, CRE is in constant contact
economical. Nevertheless, with the grid becoming more
with both national and international regulatory institutions,
flexible, which includes the introduction of batteries and
such as ASEA, keeping itself on a constant learning curve to
higher levels of distributed generation, we expect this will
ensure we achieve a competitive energy market.
change. CELs are a very important topic that will become even stronger in 2018, when they become obligatory by law. We still have to make some changes related to the norms,
Guillermo Zúñiga has over 14 years of experience in the public
system management and certifications for clean plants,
sector, occupying positions of leadership in areas of regulation,
but once this is sorted out they will become an important
competitiveness and energy at the Ministry of Energy, PEMEX,
second income flow for clean-energy generators.
CFE and the Federal Commission of Competitiveness
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VIEW FROM THE TOP
INTERNATIONAL STANDARDS FOR THE ELECTRICITY SEGMENT JESÚS SERRANO Commissioner at CRE
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Q: What regulatory aspects of the electricity market can
enforcement and inspection. For instance, according to the
be improved in the short term?
OECD's best international practices, we follow rules for the
A: CRE is focused on ensuring the reliability of the
supervision and verification of Mexico’s electricity sector
National Electricity System. On April 8, 2016, we published
compliance with the regulations we publish. It is important
the Network Code that embodies the rules relative to
not only to draft regulations but also to implement
the efficiency, quality, reliability, continuity, security and
regulatory observance mechanisms to make sure everyone
sustainability criteria for the system. We started a working
is playing by the rules. Being a member of the IEA will give
group to check the specifications of this code to make
us a front row seat among the agency's success stories
it more functional and to ensure it meets its objective of
around the world as well as the tools to adapt it to Mexico’s
grid reliability — quality, power outages, surcharges —
specificities, capitalizing on the agency’s international teams
and reduced interconnection costs, avoiding excessive
of electricity market specialists. Mexico will also have a say
requirements that impact energy costs for final users,
on which practices should be considered benchmarks for
diminishing household budgets and the competitiveness of
countries looking to launch energy transition processes
corporations. Grid planning is essential to achieve this goal,
or to inject efficiency and top-tier demand-response
providing an adequate balance between service quality and
technologies into their electricity generation systems. This
reliability against costs. Working under the premise that
membership will also be an important boost to develop the
everything can be improved is our main priority.
country’s fuel storage capacity and attain OECD levels of supply security. The Ministry of Energy issued provisions for
Also, we consider that on-site generation has inherent
petroleum. Other fuels are following suit and CRE will ensure
advantages, especially considering that investment
compliance, through elements such as minimum inventory
requirements in transmission lines and supply costs are
and verifying that the numbers match the empirical reality.
reduced. In this model, energy losses are also mitigated as you
The policies adopted in line with the IEA will echo the
avoid transporting energy through thousands of kilometers
process in place where the Ministry of Energy is the overseer
of transmission lines. On Oct. 27, 2017, we approved the
that defines energy policies and gives them direction, while
criteria for a clear regulatory framework to operate on-site
CRE is the arbiter in the game that leads policies through
generation systems. One of the most important outcomes of
regulation, verifies compliance and serves corresponding
the Energy Reform was the establishment of Clean Energy
sanctions when compliance is not met.
Generation Targets for the electricity industry. CELs will help to meet these goals and will be registered through a
Q: How is CRE contributing to a stable baseload through
compliance system, operated and supervised by CRE.
its regulatory capacity? A: Cogeneration has proven to be good for business and for
Q: What does an IEA membership mean for Mexico’s
the system. It exploits residual heat in industrial processes
energy market?
that otherwise would be wasted, is exempt of some
A: CRE supported the Ministry of Energy’s initiative of
regulatory fees and enjoys a preferential rate for transmission
becoming a full member of the IEA. IEA’s link to the OECD
while generating electricity without emitting GHG. Efficient
shows that CRE is adopting the OECD’s best practices for
cogeneration regulations have been in place since 2012. These outline the methodology for measuring this fuel-free energy to receive the same payout as renewable technologies.
Jesús Serrano has served as CRE Commissioner since 2014. He
The philosophy behind conferring sustainability to electric
has served as Resident and Project Engineer for Luz y Fuerza
cogeneration and achieving Mexico’s clean energy goals is
del Centro and Economic Policy Director in the Economic
enshrined in the CEL, while also serving as a second income
Planning Unit of the Ministry of Finance
source for renewable and clean generation processes.
VIEW FROM THE TOP
REGULATING AND ENABLING MEXICO’S ENERGY MARKET MONTSERRAT RAMIRO Commissioner at CRE
Q: Which aspects of Mexico’s environmental regulation
Certificates (CELs), which are technology blind. CRE can
are still pending?
create clear rules that promote well-functioning markets
A: Environmental regulation falls solely on SEMARNAT,
that will eventually provide the right incentives, so that all
and on ASEA for matters related to the hydrocarbons
kinds of projects can be developed; agents themselves will
industry. CRE does not regulate environmental aspects of
choose the most efficient options, renewables and natural
any kind. In fact, in the renewable sector our mandate is
gas being at the helm. In times such as these, technological
to be technology neutral. Our objective is to have efficient
change happens so fast that regulation should not limit
markets without a bias for any given technology, with the
itself to what is currently known.
purpose of drafting the rules that provide certainty to every participant in the market and a level playing field, and with
Q: How prepared is Mexico for the CELs market?
the ultimate goal of benefiting consumers.
A: CELs are happening. There are several things that will continue to unfold in the coming months. However, there
Q: What are Mexico’s challenges and opportunities in
is no reason to doubt their introduction into the market.
natural gas?
The remaining factor is now readily available. The new
A: CRE does not decide whether we should incentivize the
basic supply fee was issued by CRE in November 2017,
growth of the natural gas market. The Ministry of Energy is
providing relevant information to the qualified users market
in charge of establishing public policies for this segment;
and a benchmark of power generation, transmission and
the rules to make that happen are our responsibility. To that
distribution costs.
effect, we approve CENAGAS’ open seasons, and regulate the incumbent PEMEX asymmetrically. An example of this
Q: What is your message to the power industry?
is the gas release program, published in February 2017, also
A: There are many things that we need to work on in the
designed to provide a level playing field. To have a market,
short term. Some examples include the basic supply fee,
new entrants need to have the possibility of competing
distributed generation and isolated supply regulations.
with the incumbent. This is precisely the objective of the
We need to ensure that all these instruments are clearly
gas release program.
understood by the industry and that we have a fluid conversation with them so we can make things happen,
Natural gas infrastructure has grown significantly since 2014.
not in years, but in the next few months. I like to think of
More than 7,000km of new pipelines have been committed
CRE as a facilitator. Regulation should not be necessarily
and the future growth of the system has already been
restrictive; it should foster growth through clear rules, level
announced in the Ministry of Energy’s Five-Year Plan. Price
playing fields and creativity. Ultimately, the energy sector
signaling will be at the center of natural gas infrastructure’s
can bring about significant economic growth. We strive on
future growth. Regulation to this effect has already been
a daily basis to help develop the economic growth potential
issued, primarily regarding terms and conditions for first-
of the sector. As a regulator, I try to be open to change
hand sales and the elimination of price regulation for first-
regarding those things that do not work and my ultimate
hand sales. These measures try to eliminate distortions in the
goal is to, through regulation, bring about certainty and the
market, and will eventually result in increased investment in
right conditions that can result in GDP growth.
natural gas infrastructure. Q: How is CRE fostering natural gas as a transition fuel?
Montserrat Ramiro has served as CRE Commissioner since
A: CRE cannot provide benefits or special treatment to any
2014. Prior to this, she worked at the Mexican Institute for
given technology or any given fuel. The only instrument
Competitiveness, PMI International Trade, PEMEX, SEMARNAT
we have that promotes clean generation is Clean Energy
and as a consultant both in Mexico and in the US.
25
INSIGHT
STATES SHOULD CONSIDER ROLE IN REFORM, CLEAN ENERGY POTENTIAL LUIS PINEDA Commissioner at CRE
26
As Mexico’s authorities press on with efforts to capitalize
Despite these major milestones, much work remains to
on the momentum of the country’s implemented Energy
be done. For instance, “Michoacan’s ‘green gold’ sector,
Reform, some local states are realizing their potential
agroindustry in general, and avocado in particular, has
and the important contribution they could make toward
yet to grasp the benefits of solar power for energy-
the country’s energy transition, beyond the abundance
intensive processes such as refrigeration,” says Pineda.
of their renewable resources, says Luis Pineda,
CRE’s Institutional Liasion Office is working to ensure
Commissioner at CRE.
Commissioners are present at specialized forums that cover themes such as electricity, hydrocarbons, natural
“Tamaulipas is quickly becoming the most dynamic
gas and LNG, and organizes workshops pertaining to these
state in Mexico in terms of electricity generation
technologies. “The idea is to captivate corporate decision-
through renewable energy, especially wind power, to
makers and direct their investment appetite toward cleaner
the point that it is getting close to Oaxaca’s wind-power
and greener power-producing technologies.”
generation levels,” says Pineda. The northern state recognized the dimension and importance of Mexico’s
He says associated markets will also play an extremely
revamped and unlocked energy sector by creating its
important role in the success of the reform. “The reform
own Energy Commission, the equivalent of a local State
will be successful only as far as its associated markets
Ministry. “Usually, a state’s energy sector is imbedded in
work. Our fundamental goal is to provide the required
its economic development ministries (SEDECO), which
regulation for all these markets to be economically sound,”
focus on industrial clusters and corporate projects,
Pineda says. “The sustainability of the electricity market
placing energy in second place,” Pineda says. Tamaulipas’
and the use of clean, reliable and sustainable power
Energy Commission’s efforts are starting to pay off, as
generation technologies, with the required interconnection
Danish wind-power heavyweight Vestas announced in
infrastructure and assistance of CENACE through
July 2017 the installation of a wind turbine production
institutional coordination go hand in hand in removing
plant in Reynosa.
persistent entry barriers.”
“Some energy projects are going the extra mile by inviting
To remove these barriers, CRE’s General Administrative
local communities to be active participants of utility-scale
Dispositions and other regulatory mechanisms enact the
wind-power projects, avoiding the problems generated
technical conditions to establish the reliability, security
by lack of interaction, sensitivity and the establishment
and sustainability of Mexico’s renewable-powered
of communication processes and agreements with local
generation projects, echoing Mexico’s commitment to
communities. No matter the technology, be it solar, wind
the Paris Agreement of 2015. “Through Normalization
or hydroelectric, all are vulnerable to being stalled by
Committees, we design the Official Mexican Norms (NOMs)
excluding local communities,” Pineda adds.
integrating the incentives and proposals embedded in the best international practices and tailored to Mexico’s
Pineda also recognizes the efforts and opportunities that
specificities,” Pineda says. This includes solidifying Mexico’s
other states are capitalizing on. “Baja Califronia Sur has
manufacturing know-how and extending it to renewable
the largest operating PV power plant in Latin America to
energy-related products. “CRE can coordinate with private-
date, Aura Solar I, launched in 2013 and which generates
sector players involved in manufacturing and project
82GWh of electric power per year. Guanajuato’s Puerto
developers to regulate effective technical specifications
Interior industrial park inaugurated DESMEX’s 3MW solar
for renewable technology parts and products that are best
power plant in 2010 and Enel Green Power launched the
suited for Mexico’s electricity system, under its technical
construction of the Don José 238MW solar power plant.”
specifications.”
CRE ORGANIZATION CHART
A NEW ORGANIZATION FOR A NEW INDUSTRY As its regulatory arm was extended to all subsectors of
of the long-term electricity auctions with help from its external
Mexico’s energy industry, CRE had to ensure an organizational
right hand CENACE. To do so, CRE reshaped the cogs of its
structure that would answer to all players involved. For 2018,
regulatory machinery under the coordinated direction of
the energy regulator will be in charge of publishing electricity-
CRE’s six Commissioners and President Commissioner to
related tariffs and will manage the fourth and future editions
ensure a competitive and sustainable energy market.
INTERNAL CONTROL DEPARTMENT
President Commissioner
Commissioner
Commissioner
Commissioner
Commissioner
Commissioner
Commissioner
Executive Office
Administrative Office
DG of Information Technologies DG of Material and Human Resources and General Services
DG of International Planning and Affairs DG of Social Communication DG of Liaison
DG of Operation Permits, Electricity Registries and Permits DG of Electricity Regulation Electricity Unit Directorate
DG of Electricity Markets DG of Economic Analysis of the Electricity Sector DG of Technical Analysis of the Electricity System DG of Petroleum and Bioenergy Produts Retail DG of Storage, Transport, Distribution and Commercialization
Petroleum Products Unit Directorate
Permits for Petrochemicals and Petroleum and Bioenergy Products DG of Petroleum Products Markets DG of Petroleum Products Verification and Standardization DG of LPG Permits Operation and Supervision
Liquefied Petroleum Gas Unit Directorate
DG of LPG Markets DG of Economic Analysis of LPG DG of Economic Analysis of Natural Gas
Natural Gas Unit Directorate
DG of Natural Gas Markets DG of Natural Gas Regulation DG of Natural Gas Permits Operation and Supervision
Legal Affairs Unit Directorate *DG: Directorate General Source: CRE
DG for Administrative-Contentious Law DG of Consultation and Regulation
27
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Osborne Power Facility/ Adelaide, Australia / ATCO MĂŠxico
VIEW FROM THE TOP
A NEW MARKET IS BORN EDUARDO MERAZ Director of CENACE
Q: What expectations do you have for the Mexican energy
than three years. For Mexico, our Clearing House has to
market in 2018?
cover risks for 15-20 years. All of the international firms
A: 2018 is the year where the energy market will consolidate.
that we hired to advise our activities showed their surprise,
It all started with the first long-term electricity auction
but at the same time their interest. Although CENACE
in November 2015. followed by the short-term market,
has the ability to manage the Clearing House per the law,
launched in January 2016. CENACE has been working
we chose to hire a specialized third party because it is a
from the outset toward a variety of milestones set for
purely financial activity that does not fit with our core. Of
2018, including the execution of the first midterm electricity
course, we retain responsibility for its functionality. If at
auction, contract signing for the assigned projects during
any moment we do not see it working as it should, we have
the third long-term electricity auction, implementing all
the capacity to intervene and call for a new tender so that
the aspects surrounding the short-term market and finally,
a new third party takes charge of the operation while we
executing the first auction regarding financial transmission
manage the interim phase. Some international experts who
rights. The latter should happen during 4Q18 due to the
offered their advice also think that applying this model to
complexity it represents. Achieving all these landmarks will
finance projects for longer terms is interesting, as it would
mean all mechanisms contemplated in the reform for the
offer more certainty to the projects under development.
market will be ready to properly work. Q: What is hindering the development of more Q: What was the biggest challenge for the implementation
transmission projects?
of the Mexican energy market?
A: The transmission grid requires expensive mega projects
A: The biggest challenge we had to overcome was timing.
that are not easy to manage, or even to auction. The Oaxaca
In less than a year and a half, Mexico had to create a
transmission line auction has gone through delays not because
completely new market, which on a global average usually
CFE or the Ministry of Energy are putting up barriers, but
takes four to seven years. The creation of the software that
because it involves extremely high costs and a great deal of
runs the market was a continuous improvement process
legal struggles. But Congress has overcome the issues and the
that needed a deadline and constant communication
auction is about to begin. Future projects to auction will be
between regulators and developers. Working with INEEL
worked out in other ways, meaning that they will materialize
was an important part of this process. CENACE was also
faster. This is important for interconnection. Many people
in charge of the creation of the auctions’ core software.
state that interconnections are being managed in a very
Having an in-house development of this kind has been
slow and inefficient way, but the truth is that the problem is
extremely useful and speaks volumes about Mexico's
more technical than that. The grid is not capable of handling
capabilities in the development of technology. Talking
all the capacity to be interconnected. Considering that there
about Mexican talent, we are also working with IPN,
are certain regions where projects are stockpiling and more
which acts as a third party that verifies the results of the
permits are being requested, the grid is becoming saturated.
auction. For that, IPN developed another piece of software
Fortunately, as in every process, we are becoming more agile
to check our results. As is well-known, the results were
and knowledgeable, and with stronger transmission and
positive and the projects were correctly awarded.
generation projects Mexico will become more competitive.
Q: How was the creation of the Clearing House handled by CENACE?
CENACE is a decentralized public entity that was founded in
A: The model of the Clearing House created for the auctions
2014 to act as Mexico’s independent grid operator. It sprouted
is completely new on a global level. Clearing Houses all
from CFE's former intelligence unit and now acts as manager
over the world are used to mitigate risks in terms no longer
of Mexico's National Electricity System
29
INSIGHT
INNOVATE TO MAXIMIZE BENEFITS JUAN ACRA President of COMENER
30
In 2016, energy council COMENER and IPADE Business
this cannot be done overnight. Nevertheless, he says that
School organized a meeting for the energy sector under
such a change would result in huge benefits. “It would
the name 2021 Vision: Mexico’s Energy Sector Structure.
be a big mistake to let older companies die just because
During the event, IPADE and Strategy&, a PwC division,
they are old, as that would mean destroying an important
unveiled a study they had conducted, and the results were
infrastructure that is already in place and works, even if
astonishing, says Juan Acra, President of COMENER. “In
it is inefficient. The legal framework must also allow and
the electricity sector, there is a need to double the current
facilitate this transition.”
capacity owned by CFE by 2031, which is around 57GW. This means that during the next 15 years, we have to install
Efficiency is another important point to be considered
the infrastructure that took CFE over 80 years to build.”
when talking about costs and environmental impact. In 2014, the International Energy Agency reported that
To this end, the electricity auctions, will be an integral part
around 8 percent of electric energy worldwide is lost just
of the equation. There is work yet to be done to keep private
in transmission and distribution lines, without considering
money flowing in, and Acra believes that a legal framework
efficiency losses in final consumption. Acra is aware of the
that offers certainty in energy projects — particularly in
problem, but emphasizes Mexico’s capabilities to increase
terms of social licenses — and makes energy purchasing
its efficiency across the whole value chain.
contracts bankable is crucial. “A legal framework ensuring social licenses are present before a project is offered in an
Energy efficiency in transmission and distribution is not
auction or in a contract would guarantee that the project
vital for power producers as it actually decreases the
proceeds, mitigating risks as a result.”
amount of energy they sell, while energy consumers want to implement energy efficiency to reduce their costs.
COMENER has a team that focuses on social licenses and
Acra says energy-trading entities could play a critical
Acra says that, after a deep analysis of the law, the team has
role as mediators between energy generators and energy
found that amparos have become a dangerous legal tool,
consumers. “As mediators, it is in their best interest to sell
both for the oil and gas and the electricity sectors, capable
cheap energy produced through renewables, so their clients
of preventing investment flows into the country. “This is
can reach their renewable implementation goals, but it is
because an amparo can be granted by a federal judge who
also important that clients maintain low consumption, so
may or may not be knowledgeable about the project, what
these entities can offer energy to more customers, which
it represents in terms of securing electricity supply and
is why offering energy-efficiency analysis services to their
the associated positive social impacts,” Acra explains. The
clients is a big incentive,” he says.
council is now working together with the Mexican Lawyers’ Bar Association to make sure that the government knows
Innovation is another important element in developing
and understands the problem, and to find ways to solve
the country’s infrastructure, be it in the generation,
it. COMENER’s commitment to the development of the
transmission, distribution or efficiency areas, Acra adds.
industry is backed up by a total US$25 million assurance
COMENER signed an agreement on Nov. 16, 2017, with the
from its members.
Houston Technology Center (HTC) to support projects in sustainability and hydrocarbons. “With this partnership,
Acra also believes that older companies and their production
we expect to attract investments from institutions such as
plants have a role to play in the country’s energy future and
the Mexican Petroleum Fund and the Energy Sustainability
should not be forced to die out. “Mexico’s energy transition
Fund, as well as from initiatives such as that promoted by
should instead allow companies to switch from one business
Bill Gates, called Mission Innovation, to promote Mexican
model to a newer one,” he says, while acknowledging that
technologies and innovation,” he says.
INSIGHT
BALANCING MARKET CONSOLIDATION AND PARADIGM SHIFTS ALFREDO ÁLVAREZ Energy Segment Leader at EY
As Mexico’s electricity market becomes an open platform for
for natural gas have put it in the front seat as the transition
private players, the country must rise to the challenge of both
fuel between conventional and renewable energy sources.”
planning for the long term and developing an electric system
The priority is conferring certainty to power producers
flexible enough to integrate new and often unpredictable
regarding their mid and long-term incomes. Mexican
technological developments that could make both the grid
authorities have to ponder, as the market consolidates
and power-producing facilities more efficient, says Alfredo
among the long and midterm electricity auctions and the
Álvarez, Energy Segment Leader at EY.
upcoming CELs market, if this new structure runs the risk of becoming obsolete. “The backbone of it all is pricing
“We are entering a disruptive phase where it is difficult to
electricity at levels where its marginal value can generate a
make nine-figure, 25-year-long investment decisions, while
profitable rate of return, while experiencing and increasing
the world is abruptly changing. Major utility companies are
the number of incidences where, thanks to renewable
uncertain about what the future holds and how the energy
energy and new technologies, its marginal value is zero.”
market will operate,” says Álvarez. As renewable energy gains increased prevalence in the global energy mix, utility
To inject liquidity to the market, Mexico’s energy regulatory
companies must figure out how to make business profitable
authorities designed and launched the first midterm electricity
under a zero marginal price scheme and how distributed
auction. “The idea behind these auctions involves creating
generation is going to impact grid use with the rise in
certainty to alleviate immediate merchant risks. The schemes
installations of autonomous power systems.
for the new Mexican electricity market are well-designed and standardized around global best practices,” Álvarez
“Financial closing for the long-term electricity auctions’
says. Mexico is bringing every piece of the local electricity
renewable energy projects will be the industry’s measuring
market puzzle together. “The real question is if these pieces
stick. Reaching this phase is extremely complex, which
will continue to be relevant in five to 10 years, and how the
is not something exclusive to Mexico,” Álvarez says.
country will adapt to upcoming technological changes.”
“Technology type — solar, wind, cogeneration — is not so much the reason for this caution as is the absence of a
Lack of generation and transmission capacity implies an extra
track record that is long enough to justify an investment
cost to the electricity system. Total transmission costs are
decision,” he adds. Available cash flows under P90 models,
calculated based on the transmission cost of a particular node
which predict generation levels to exceed 90 percent
over the total amount of MWh transmitted. As distributed
throughout the year, make a project’s repayment capacity
generation progresses, the latter will decrease while the
uncertain. “The root of the challenge lies in financial entities
former will increase. “Exponential effects can be anticipated
being able to transition from financing government-backed
from this progression as it can cause a massive abandonment
CFE and PEMEX projects to developing new financing
of the electric grid, jointly with the increased use of batteries,”
schemes in an incipient market surrounded by long-term
Álvarez says. He believes electric generation in situ remains
uncertainty,” says Álvarez. Paving the way toward lucrative
costly and inefficient compared to a centralized generation
yields will take a coordinated effort between development
scheme. As new technology developments are integrated
and commercial banks to absorb financial risks inherent
into this scheme, there could be a paradigm shift and a new
to renewable energy.
set of opportunities and challenges. “A couple of years ago, installing 1MW of solar power under US$1 million was nearly
When looking at Mexico’s energy mix, solar and wind take
impossible. Today, you can have it for under US$800,000.
the lead but other sources could emerge as leaders, Álvarez
Inventive regulation and preparing the grid for the coming
says. “Fifteen years ago, no one doubted that investing in
fleets of electric cars will be key factors in addressing the
nuclear energy was a great idea. Today, the price variations
country’s electricity challenges.”
31
VIEW FROM THE TOP
ASSOCIATION EYES NEW PARADIGM, NEW RELATIONSHIPS ÁNGEL LÁRRAGA President of AME
32
Q: What role do major consulting and legal firms play as
evacuate their own energy. A new model was presented
members of AME?
by the Ministry of Energy to mitigate this and advance
A: Mexico’s electricity market requires, first and foremost,
transmission projects via open tenders spearheaded by
technology suppliers. Liberalizing this market involves a
the ministry. AME and other energy-related associations
high component of new and modified rules and regulations.
are analyzing this proposal. Third is tariff implementation.
Legal interpretation of an evolving regulatory framework
The Ministry of Finance is in charge of this particular task,
and the different subsequent rulebooks can sometimes lead
while CRE defines the tariff framework under transparency
to discrepancies, which is where legal experts intervene
and efficiency criteria in which all value-chain costs are
to identify and tackle these discrepancies, sometimes in
reflected, including generation, transmission, distribution
representation of clients that are AME partners. Even when
and commercialization. In the near future, CRE will have sole
major power producers have their own legal teams, when
responsibility for the implementation of electricity tariffs.
common regulatory issues impact us as a whole, using
These subsidies continue to be a major component in this
specialized services can be more effective.
process, as well as technical and nontechnical losses, which independent power producers cannot continue to absorb.
For instance, regulation of prices for natural gas as a molecule, under the first-hand sales scheme, was recently annulled.
Q: What is your assessment of renewable energy projects
Supply contracts that referenced this scheme became
reaching financial closing?
void as a result of this change. It also impacted all power
A: AME’s partners have not experienced difficulties
producers using natural gas. This is where specialized legal
pertaining to financing their respective projects, since these
and consultancy services are valuable. These consulting
projects are anchored by a long-term contract with CFE,
and legal firms know how dynamic the energy regulation in
as the sole purchaser. Renewable energy projects from the
Mexico is becoming. They want to remain close to investors in
first auctions are also anchored in this way. As long as the
power-generation projects, especially when parties involved
anchor has a proven track record of bankability and return
can interpret it in different ways and cause market disparities.
payments, financial entities have no issue in directing their capital toward these projects. While still scarce, market-
Q: What are AME’s strategic priorities to ensure the success
priced private projects will increase as long as established
of Mexico’s new electricity market?
and credit-worthy private players are involved.
A: Several challenges remain. First, guaranteeing a level playing field between CFE and other players.
Q: What is the most important factor that ensures a
Client information must be equally transparent for all.
project’s longevity?
Transparency is also a major factor in CENACE’s activities as
A: Energy projects need to be directly related to social
the system arbitrator and administrator. Second, CFE holds
development. They are by nature long-term investments and
all the cards relating to electricity transmission through its
are emerging in different locations, surrounded by different
CFE Transmisión subsidiary. We have not seen significant
communities. Coherent corporate social responsibility
investments in this subsector, while several projects
policies are a necessity. A clear picture of a communities’
require construction of additional transmission lines to
shortcomings, where the project can address them, with solutions such as supporting educational programs and environmental improvements, to name a few, should always
Mexican Energy Association (AME) groups 27 companies
be considered. Companies that show resolve in finding ways
from Mexico’s energy sector, amounting to 34 percent of
in which a project can give back and have a positive impact
the country’s electric-energy production and 16,000MW of
on a community's quality of life are those that will see their
installed capacity
project prosper in the long term.
INSIGHT
FILLING THE GAPS BETWEEN ACADEMIA AND ELECTRICITY INDUSTRY SERGIO ARNAUD President of ANES
As Mexico’s new electric market sets up shop, with new
effective and efficient market entry strategies to foster
business schemes, new players and new technologies,
competition.”
the reality is that the country must absorb a wide array of disruptive changes, encompassing qualified human capital
New notions like the electricity spot market, peak hours
and drafting regulations to address both the current and
and equilibrium price algorithm schemes for the wholesale
future needs of final users, the electric industry and Mexico’s
electricity market are gaining increased prevalence and the
electricity infrastructure.
industry requires qualified professionals to address them. “Academia and field research are lagging the vertiginous
“For Mexico’s new electricity market to work, fostering free
growth the market is showcasing. University students have
competition is vital, overseen by a regulating organ with
yet to absorb the new parameters and knowledge on par
capabilities of instrumentalizing market rules under level
with the reform’s effects,” says Arnaud. “The new electricity
playing field principles,” says Sergio Arnaud, President of
market integrates schemes from other markets around the
The National Solar Energy Association (ANES), a nonprofit
world and is developing notions such as energy rights and
organization designed to promote the development of
learning to cohabitate with productive enterprises of the
solar energy in Mexico. The publication of the new Electric
state.” CFE is undertaking an ambitious transition from
Transition Law, as well as the Wholesale Electricity Market
fuel oil to natural gas for its power plants, gas pipeline
and the retail electricity market dispositions launched
extensions are underway nationwide and CFE’s intelligence
the market’s rapid growth based on the country’s new
organ is now the autonomous and independent CENACE,
renewable energy penetration objectives for the energy
posing a fundamentally different scenario from what ANES
mix. This quick-paced transition compelled the 41-year
was accustomed to.
old association to refocus. “ANES’ foundation was based on research and academia for Mexico’s electric sector,
Cost transparency across electricity’s value chain, as
as attested by the creation of the National Institute of
demanded by competitive markets, will imply a tariff
Electricity and Clean Energies (INEEL) and the Institute of
update for electric energy. “Electric tariff subsidies will
Clean Energy (IER),” says Arnaud. “As the market opens,
consequently be revealed as focused, exposing the
we face a very different scenario, transitioning from dealing
electricity system’s disparities in terms of infrastructure
exclusively with CFE to incorporating notions like the cloud,
availability and final user’s socioeconomic levels,” Arnaud
Big Data and electricity startups.”
says. Previously in the hands of CFE, the Ministry of Finance will now be the entity in charge of determining subsidy
The country’s long-term electricity auctions were
levels. “Parameters under consideration for future subsidy
designed under a simple model, Arnaud says, in which
considerations must integrate a new scheme prioritizing
Mexico’s generation scheme was opened to the private
sustainability, a long-term perspective and energy quality.”
sector, offering volume, power, renewable technology and CELs. “Mexico’s electric market was launched with
Workshops and courses in legal and technical certainty,
great speed, backed by strong investments and large
integrating the latest developments in solar technology,
companies participating in the auction process. We have
energy-efficiency practices and social licenses are a few of
yet to see a spillover effect to smaller players,” he says.
ANES’ measures to prepare the country’s professionals to
Arnaud believes CRE’s role will be vital in that regard.
contribute to a prosperous energy market. “The solar sector
“While competition will be initially limited given the
must couple a large-scale industry transition to renewable
logistics, know-how and knowledge of global stature
energy with financial schemes to permeate across the value
required to do business in Mexico’s newly opened market,
chain and be absorbed by smaller players, academia and
Mexican companies of all sizes must gradually develop
research, fostered by innovative public policies.”
33
ROUNDTABLE
34
HOW WOULD YOU RATE MEXICO’S ENERGY REGULATORY FRAMEWORK?
Mexico’s unlocked energy market and energy transition ambitions can only be as successful as its regulation allows. As the rules of the game are progressively set, ensuring a level playing field and providing a seamless process for all private players to set up shop will gauge the success of the country’s energy sector. More than a regulator, CRE wants to be an enabler, open to the private sector’s feedback on the remaining regulatory roadblocks and transparent in its regulatory priorities. Constant interactions between the private and public sectors will ensure that the upcoming regulatory challenges will be met head on. What follows is an account of these joint efforts.
We need to acknowledge the effort put in by the authorities to implement an in-depth transformation like the reform in such a short period of time. Globally, one of the lessons we take away from electricity markets is their constant change and evolution. There is no reference model to turn to and ours is still emerging in some ways. The auctions, for example, resulted in awarded and signed contracts, opening the door to new players such as Zuma Energía. The standardization of
ADRIÁN KATZEW Director General of Zuma Energía
the power generation market and the implementation of automated O&M systems are pending issues. The success of the auctions also highlighted a challenge for the future in the imminent saturation of the transmission grid and the urgency to develop a decisive expansion plan for the power evacuation infrastructure.
Mexico has set some very aggressive targets to meet its goal of having 35 percent clean energy production by 2024. The challenge lies in defining what clean energy is. Having defined these objectives and being part of COP21 makes a significant difference. It is something quite new for Latin America; we do not see many other countries being so direct and straightforward with such goals. Looking at other countries like Denmark, Sweden or Norway, while each has its own energy context,
ANGÉLICA RUIZ Vice President and Mananging Director Mexico and Latin America of Vestas
they have significant energy trading because of their continental proximity. Their economies rely heavily on renewable energy while at the same time relying on energy backups to deal with intermittency. In Mexico’s case, we believe in a stepby-step approach, redefining the new targets as we advance.
There were many prospects for the changes in the market provided by the legislative and regulatory amendments. We have strong experience in advising international companies throughout the analysis and review processes of the new rules, allowing them to invest and actively participate in the market. Recently, these processes have evolved into an action plan that actively involves clients in public energy auctions directly investing in developing projects. Goodrich, Riquelme
JORGE SANDOVAL Associate at Goodrich, Riquelme y Asociados
y Asociados is reaching final users to understand their needs and understanding how private companies can participate in the market either through the bids or by contracting directly with final users. Whichever company has inserted itself as an active player in Mexico’s market understands that its chances of a positive return will be quite high.
We have followed the reform’s legislative process closely and, in our opinion, the form in which it began, with the creation of the National Agency for Industrial Safety and the Protection of the Environment for the Hydrocarbons Sector (ASEA) and the separation of energy matters, for environmental-administrative purposes into hydrocarbons on one side and electricity on the other, has generated a series of problems. When two separate authorities undertake the same responsibility, despite following the same law, both prioritize different criteria. The Ministry of the Environment and Natural Resources’ (SEMARNAT) objective is environmental protection, whereas ASEA’s mandate is to make the Energy Reform work. Comparing
LUIS VERA Founding Partner at Vera & Asociados 35
the legal framework of hydrocarbons and electric energy, regulations on social impact studies benefit hydrocarbon projects much more than electricity projects.
Mexico’s wholesale electricity market is just beginning. As the first qualified supplier actually operating in the market, SUMEX is collaborating extensively with the Ministry of Energy, CRE and CENACE. We continuously provide feedback to these government agencies on what we believe is working well and what should be modified or improved. The first steps have been smooth and will continue to be so in the coming years, while the market consolidates and other players in the process of entering the market start to operate. Like any new process, there will always be things to improve and refine, yet in broad terms the relationship has been good,
JAVIER GARZA President of SUMEX
mutually respectful and collaborative. Above all, it should be noted that regulators want SUMEX and other market participants to do well, since our success will have a positive impact on Mexico.
Considering the complexity of the sector, the parties involved and the value of the transactions, the inclusion of arbitration and other alternative dispute resolution provisions in contracts related to energy and infrastructure will be significantly increased. The implementation of these alternative dispute resolution procedures will be subject to various challenges. Additionally, there are great expectations from private companies regarding the implications of having private parties as vendors instead of a public entity providing the services. I believe the use of fair and impartial alternative dispute resolution mechanisms that are agreed upon will help parties to
EDUARDO PIZARRO Partner at SMPS
resolve the disputes in a favorable manner. It is an ongoing process that will move a step ahead with each case that comes along, incorporating general commercial and negotiating practices to create agreements that were not feasible before the reform.
Several challenges remain, such as guaranteeing a level playing field between CFE and other players. Client information must be equally transparent for all. Transparency is also a major factor to integrate into CENACE’s activities as the system arbitrator and administrator. CFE holds all the cards relating to electricity transmission through its CFE Transm¡sión subsidiary. A new model was presented by the Ministry of Energy to mitigate this and advance transmission projects via open tenders. AME and other energy-related associations are analyzing this proposal. CRE inherited the implementation of electricity tariffs reflecting all value-chain costs, including generation, transmission, distribution and commercialization. These subsidies continue to be a major feature in this process, as well as technical and non-technical losses, which independent power producers cannot continue to absorb.
ÁNGEL LÁRRAGA President of AME
Natural gas power plant, Invenergy
POWER AUCTIONS
2
From crowning achievement to energy market benchmark, the long-term electricity auctions will determine the success of Mexico’s transition toward renewable energy and provide the means for the country to meet its 35 percent goal for clean energy in Mexico’s power-producing mix by 2024.
Three long-term electricity auctions later, with one midterm auction in the pipeline, the projects won throughout the process are put to the test as to their capacity to reach financial closing and become operational by the appointed time. The aggregate impact of the first three auctions are set to inject close to 8.8GW of additional installed capacity to Mexico’s National Electricity System, of which 83 percent will be clean. All eyes are set on the first auction projects planned for completion in the first quarter of 2018 as a testament to the true success of both the public sector’s auction design and the private sector’s project development and execution abilities.
This chapter provides the feedback of auction participants and winners to evaluate the conception of the auctions, what it takes to win them and the implications of launching 58 utility-scale energy projects.
37
39
CHAPTER 2: POWER AUCTIONS 40
ANALYSIS: Power Auctions: The New Measuring Sticks
42
Map: Power Auctions
46
RoundTable: How Would You Rate the Design and Results
of the Long-Term Electricity Auctions?
48
VIEW FROM THE TOP: Adrián Katzew, Zuma Energía
50
VIEW FROM THE TOP: Osvaldo Rance, Cubico Sustainable Investments
51
VIEW FROM THE TOP: Asier Aya, Jinko Solar
52
VIEW FROM THE TOP: Benjamín Torres, Baker McKenzie Abogados
53
INSIGHT: Rubén Cruz, KPMG
54
VIEW FROM THE TOP: Jorge Ochoa, AWS Truepower
55
VIEW FROM THE TOP: Juan Rubiolo, AES Mexico
56
VIEW FROM THE TOP: José Guardo, Clifford Chance
Alan Sakar, Clifford Chance
58
VIEW FROM THE TOP: Paolo Romanacci, Enel Green Power México
60
RoundTable: How Will The Clearing House Impact Mexico’s Electricity Market?
ANALYSIS
POWER AUCTIONS: THE NEW MEASURING STICKS The auction mechanism has been hailed both locally and internationally, given the overall positive results attained, both in terms of average MWh rates and the injection of renewables into the country’s energy mix. Now, it is time to gauge the readiness of utility-scale projects set to begin operations in 2018
40
The stage is set for auction winners to answer the
in the second round,” says Albert Sunyer, Field Systems
challenge of transitioning from positive results to
Sales Director of SunPower. The country’s average
tangible power plants that contribute to the supply of
irradiation levels of 5kWh/m2 as reported by the Ministry
electricity nationwide.“With the conclusion of the first
of Energy make solar power an attractive source of energy
three editions of the long-term electricity auctions,
nationwide. The data speak volumes: three auctions in 12
US$9 billion in investments and 7,000MW of additional
states are developing utility-scale solar PV projects with an
solar and wind power generation capacity are expected,
installed capacity greater than 20MW. This means Sonora,
effectively quadrupling the county’s renewable energy
Coahuila, Aguascalientes, Yucatan, Chihuahua, Guanajuato,
infrastructure by 2020 in comparison to the beginning of
San Luis Potosi, Tlaxcala, Jalisco, Zacatecas, Morelos and
this administration in 2012,” says Pedro Joaquín Coldwell,
Baja California are well underway to reaping the benefits
Mexico’s Minister of Energy.
of their advantageous solar irradiation levels.
The convening power of the third edition was as strong
Should all auction projects come online as expected, the
as ever, as CENACE received 400 proposals from 48
three long-term electricity auctions should inject almost
bidders. That set a high bar for expectations, and the
5,000MW of solar installed capacity, which in turn could
resulting average package price broke all records to date.
prove a major selling point for smaller PV projects favored
“A new milestone was set by the third long-term electricity
by the industrial, commercial and even residential sectors
auction as the lowest MWh plus CELs package price was
and consequently boost Mexico’s young distributed
US$20.57. This is 38 percent lower than the average price
generation market.
at the second auction and 57 percent lower than the first
“
auction’s package price.” Coldwell says.
WHAT ABOUT OTHER CLEAN ENERGY SOURCES? The long-term electricity auctions are also setting a
US$9 billion in investments and 7,000MW of additional solar and wind power generation capacity are expected, effectively quadrupling the country’s renewable energy infrastructure by 2020” Pedro Joaquín Coldwell, Minister of Energy
precedent as the first and only mechanism in which all clean energy technologies compete against themselves for power, energy and CELs. This disruptive design showcases the possibility of different renewable technologies being capable of coexisting under a positive sum game scenario. “It is a matter of finding the right places and the right resources, which does not necessarily mean that you will find yourself competing against other renewable resources. At the end of the day, we are looking to have local, diversified energy matrices that allow economies and governments to diversify power risks, to be able to use both fossil fuels and renewables to obtain an optimized power system,” says Angélica Ruiz, Vice President and Managing Director Mexico and Latin America of Vestas. The auctions are aligned with this vision as, so far, projects developed using solar power,
A BANKABLE SUN RISES
wind power, combined cycle, hydroelectric, geothermal,
Solar power was the biggest surprise, capitalizing on
and turbogas have come out winners.
the technology’s recent downward trend in terms of development and installation costs for utility-scale PV
While solar has claimed the auction crown, Mexico’s wind
systems. “Solar power was the decisive winner in Mexico’s
resource is not far behind, having won an aggregate 2.4GW
energy auctions, with 74 percent of the megawatt hours
of installed capacity between all three auctions, which
awarded to solar in the first round and 54 percent awarded
shows a commitment to the country’s goal of having a
CLEANENERGY ENERGY GOALS 2017-2031 (PERCENTAGE) CLEAN GOALS 2017-2031 (percentage) 40.0 37.5 35.0 32.5 30.0 27.5 25.0 22.5 20.0
41
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
Source: Ministry of Energy Source: Ministry of Energy diversified energy matrix and providing a balancing source
suppliers offering energy,” says Eduardo Reyes, Power and
of power to compensate solar’s availability issue. While
Utilites Partner of Strategy&, a PwC division.
Oaxaca is the favored location to date to develop wind farms, dominating with over 70 percent of the operational
CRE AS AUCTION EXECUTOR
wind farms nationwide, other states are stepping up to
The year also saw the Ministry of Energy follow through
take a shot at the wind power crown. “You can find great
on its intention to raise CRE to the level of a full-fledged
resources in Mexico, such as the state of Tamaulipas,
energy regulator for the electricity market. Starting in
Oaxaca, and the northern part of Baja California, where
2018, CRE will inherit the responsibility of the electricity
you have extremely good wind resources, with capacity
sector’s tariff publication from the Ministry of Finance
factors of 40 percent on average,” says Ruiz.
and be conferred the additional attribution of overseeing the design and development of the fourth long-term
CLEARING HOUSE
electricity auction together with CENACE. The difference
Mexico’s energy regulators and authorities, in parallel to
will be in how the two entities are switching roles. In the
the private sector, engaged in a learning curve throughout
first three auctions, CRE acted as a technical adviser but it
each edition of the long-term electricity auctions. Yet, both
will now coordinate the design of the fourth auction, while
have proven to be fast learners in a complex process aimed
CENACE will implement it and the Ministry of Energy will
at providing open access to an entire market in a record
act as technical adviser. “CRE’s message to all interested
three years. The successful results include an increased
parties is one of continuity and any eventual change
number of auction participants on a level playing field and
will help make auctions more attractive to potential
a high amount of investment pouring in, to the tune of US$9
participants. Financial entities are growing accustomed
billion only for the auctions’ power-generation projects, as
to the auction’s new schemes and are developing
Coldwell outlined. The auction’s architects have also shown
project finance mechanisms. We want to maintain their
the capacity and ability to implement improvements, with
interest in the auctions,” says Guillermo García, President
new elements meant to foster the clean energy market’s
Commissioner of CRE.
competitiveness. There are, of course, concerns regarding the auction Compared to the first two editions, the third long-term
results. “Project assignment mechanisms do not factor into
electricity auction saw a commendable performance from
the advancement status of a project and how close and
the Clearing House. For the first time, private players other
probable it is that energy is delivered on the appointed
than CFE were enabled to purchase power, energy and
date,” says Rubén Cruz, Energy and Natural Resources Lead
CELs. Iberdrola and CEMEX – through Menkent – made
Parnter at KPMG. Other voices in the sector are making
the most of this new instrument and purchased 9 percent
the case for same-technolgy auctions. “The auction design
of the overall power, energy and CELs made available. As
continues to be perfected, encompassing an increasing
authorities work on the design of the fourth auction, the
number of positive elements and players. The Argentinian
Clearing House is expected to outperform the third edition,
auctions, in which we also participated, allowed fixed
with renewed confidence among private players. “In the
quotas per technology – solar, wind, cogeneration –
long term, as the energy volume increases, the impact will
fostering competition among same-technology projects,”
be consequential and will be reflected in the final consumer
says Rafael Valdéz, Managing Director Latin America and
price through increased volume and the number of private
the Caribbean of Envision.
POWER AUCTIONS MW 0 50
150
250
350
450
550
23
2 19
7
13 7 42 9
12 10
16 12
4
18 3 13 2
15
Power allocation was declared deserted during the first longterm electricity auction
16
CONTRACTS AWARDED IN FIRST AUCTION Power Plant
Company
Plant Size (MW)
Energy (MWh/y)
CELs
1
Ticul I
SunPower
500
740,135
725,450
2
Villanueva Solar Park
Enel Group
330
972,915
972,915
3
Villanueva III Solar Park
Enel Group
250
737,998
737,998
4
Don José Solar Park
Enel Group
207
539,034
539,034
5
El Cortijo Wind Farm
Acciona Energía
168
585,731
585,731
6
Las Viborillas
Jinko Solar
100
277,490
277,490
7
Guajiro II
SunPower
100
269,155
263,815
8
Energía Renovable de la Península
Envision Vive Energía
90
275,502
275,502
9
Tizimín Wind Farm
Alarde
76
291,900
291,900
10
Concunul
Jinko Solar
70
176,475
176,475
11
Aguascalientes Potencia I
Canadian Solar
63
140,970
140,970
12
Kambul
Alter Enersun Renovables
30
54,975
53,477
13
Chacabal Wind Farm
Aldesa
60
230,888
230,888
14
Sol de Insurgentes
ENGIE
23
60,965
60,518
15
San Ignacio
Jinko Solar
18
48,748
48,748
2,085
5,402,881
5,380,911
TOTAL
PV
1st Auction Wind
2.1GW Total Capacity
81% PV 19% Wind
Wind
2nd Auction CONTRACTS AWARDED IN SECOND AUCTION Power Plant
4GW
1
9
8
11
6
3 14 5 1
3
22 4
14
0
3
388
1,613,416
0
1,613,416
4
Potosí Solar
Fotowatio Renewable Ventures
300
779,161
0
779,161
5
Gunaa Sicarú
EDF Énergies Nouvelles
252
818,264
0
818,264
6
El Mezquite Wind Farm
Cúbico
249
820,636
77
774,938
7
AT Solar
Acciona Energía BioFields
180
478,261
29
478,261
8
Alten Aguascalientes
Alten
150
373,577
39
420,335
9
Santa María
Fisterra Energy
143
393,611
0
393,611
10
Proyecto Planta Fotovoltáica
Alten
140
348,467
36
392,082
11
Trompezon
ENGIE
126
342,630
0
338,851
12
Orejana
Fisterra Energy
125
0
0
353,466
13
Torreón-HQ 100
Hanwha Q-Cells
101
252,445
18
252,444
14
Salitrillos
Enel Group
100
399,130
0
399,129
15
Tepezalá II
IEnova
100
278,358
10
285,606
16
Bluemex Power
Bluemex Power
90
249,982
0
249,982
17
Energía Renovable de la Península
Envision - Vive Energía
90
0
30
0
18
Andalucía II
OPDE
83
213,655
0
213,655
21 27 26 5
20
5 PV Wind Turbogas
0
375
Geothermal
6
475
0
Hydroelectric
24
0
394
Combined Cycle 4
505
CFE
Wind
7
Fisterra Energy Intaván México
PV
6
CELs
Agua Prieta II
pv
1
Power (MW)
Reynosa Wind Farm
Combined Cycle Wind
Energy (MWh/y)
2
Total Capacity
46% PV Wind 29%Geothermal 23% Combined Cycle Hydroelectric 2% Hydroelectric 1% Geothermal
Planta Frontera 06 PFT-PTA
Plant Size (MW)
Company
Source: CENACE
43
POWER AUCTIONS CONTRACTS AWARDED IN SECOND AUCTION (CONTINUED) Power Plant
44
Company
Plant Size (MW)
Energy (MWh/y)
Power (MW)
CELs
19
Conejo Solar PV Park
X-Elio
80
193,771
16
193,771
20
Xoxocotla Solar PV Park
X-Elio
70
169,366
14
169,365
21
Necaxa
SME Mota-Engil
53
0
0
250,245
22
Tres Mesas III
Oak Creek Energy
50
223,011
22
223,010
23
Rumorosa Solar
Ienova Intergen
41
114,116
0
117,064
24
Mexsolar Solar PV Park
Grenergy
30
146,958
12
146,957
25
Aguascalientes Sur I Solar Park
OPDE
30
75,854
0
75,853
26
CG Azufres III
CFE
25
198,764
25
198,764
27
Patla II
SME Mota-Engil
15
0
0
64,386
3,908
8,483,433
1,177
9,202,616
SMALL STATE, SIZABLE CAPACITY smallest state with a surface area of 5,618km , Aguascalientes is 2
Power Plant
becoming a renewable energy gold mine. Between the three long-term become the location of 1,104MW of PV installed capacity.
3rd Auction
2.7GW Total Capacity
48% PV 31% Wind 20% Turbogas
Turbogas Wind pv
resources to foster a harmonious coexistence between its projected 618MW of solar power and 316MW of wind power.
17 8
9
2
12
13 10
1
Company
Plant Size (MW)
Energy (MWh/y)
Power (MW/y)
CELs
Compañía de Electricidad Los Ramones
Compañía de Electricidad Los Ramones
550
0
500
0
2
Pachamama
Neoen International
300
616,692
0
770,864
3
Dolores
Enel Group
244
848,883
0
848,883
4
FV Bacabachi 1 Solar Park
X-Elio Energy
200
435,355
10
483,727
5
Calpulalpan
Consorcio Engie Solar 1
200
486,313
0
524,997
6
El Cortijo Wind Farm
Energía Renovable del Istmo II
168
0
52
0
7
Villa Ahumada
Consorcio Engie Solar 4
150
379,603
0
434,486
8
Energía Limpia de Amistad IV
Enel Group
149
510,680
0
510,680
9
Energía Limpia de Amistad II
Enel Group
101
373,017
0
373,016
10
Tastiota
Canadian Solar Energy Mexico
100
235,640
0
265,095
11
Energía Limpia de Amistad III
Enel Group
100
357,032
0
357,031
12
El Mayo
Canadian Solar Energy Mexico
99
210,426
0
252,511
13
Abril 99
Consorcio Engie Solar 1
99
280,055
0
302,332
14
TM4 V150 4.0 105 v1
Consorcio Engie Eólica
96
362,935
31
391,805
15
Horus AG (HORUS Solar)
Canadian Solar Energy Mexico
95
206,017
0
247,220
16
Calera Solar Park
Mitsui & Co. Trina Solar
80
189,928
0
189,928
2,731
5,492,576
593
5,952,575
15 15
8
installed capacity, Yucatan has the
1
electricity auctions, the state will
10
in development to date in terms of
CONTRACTS AWARDED IN THIRD AUCTION
Despite being Mexico’s fourth-
25 11
Home to Mexico’s largest solar park
14
TOTAL
11
BRIGHT SUNLIGHT, STRONG WINDS
TOTAL
LONG-TERM ELECTRICITY AUCTIONS KEY FIGURES Auction
First
Second
Third
Mar 30, 2016
Sept 28 2016
Nov 15, 2017
Avarage Package Price [US$/ (MWh+CEL)]
47.7
33.7
20.57
Expected Investment (US$ billion)
2.6
4
2.4
Demanded Power (MW)
500
1,483
593
Power Covered (%)
N/A
80.1
41.9
Demanded Energy (GWh)
6,361
10,630
6,089
Energy Covered (%)
84.9
83.8
90.2
Demanded CELs
6,361
10,630
6,089
CELs Covered (%)
84.6
87.3
97.8
Date
TOTAL CAPACITY TO BE INSTALLED PER STATE (MW)
Sonora 1,287
Coahuila 1,114
Nuevo Leon 1,043
Aguascalientes 1,004
Tamaulipas 970
TOP FIVE STATES IN RENEWABLE ENERGY CAPACITY TO BE INSTALLED (MW)
Yucatan 934
Aguascalientes
1,200
Tamaulipas
600 400 200
25 Geothermal
Guanajuato
337
San Luis Potosí
300
68 Hydroelectric
0
PV Wind Turbogas
373
Chihuahua
Nuevo Leon
Coahuila
800
Sonora
1,000
Oaxaca
Combined Cycle
252
394 Combined Cycle
Tlaxcala
200
THIRD AUCTION POWER PURCHASE OFFER (MW)
1,288 122 4
CFE
91.1%
Iberdrola
8.6%
Menkent
0.3%
Total 1,414 MW
550 Turbogas
Zacatecas 80 Power Purchase Offer (MW)
THIRD AUCTION ENERGY PURCHASE OFFER (MWH)
5,547 526 16
Jalisco 100
CFE
91.1%
Iberdrola
8.6%
Menkent
0.26%
2,381 Wind
Morelos 70
Puebla 68
Total 6,089 MWh
Energy Purchase Offer (GWh)
Baja California 41 4,803 PV
THIRD AUCTION CELS PURCHASE OFFER
1,288 122 4
CFE
91.1%
Iberdrola
8.6%
Menkent
0.3%
Michoacán 25
8,221 MW Total
Baja California Sur 23
Total 6,089 CELs
1,300 CELs Purchase Offer
1,100
900
700
500
300
100 0
45
ROUNDTABLE
46
HOW WOULD YOU RATE THE DESIGN AND RESULTS OF THE LONG-TERM ELECTRICITY AUCTIONS?
Committed to its energy transition goals, Mexico has undertaken three long-term electricity auctions and one midterm electricity auction. In total, the Ministry of Energy estimates investments for the awarded projects will reach about US$9 billion. The auctions stood out both for the absence of government subsidies and for the low average tariffs reached, which decreased in each auction. Auction winners are prioritizing reaching financial closing for all projects to achieve ready-to-build status, while 2018 will witness the operation of the first auction projects, which will be an indication of the viability of Mexico’s energy market.
The auctions ended with favorable prices and conditions for the Mexican market and for CFE, which was the only buyer. We have yet to see which of the winning projects will be built. Several factors are putting them at risk, with financing and permitting being the most critical. The banking sector is hungry to finance renewable energy projects but the lack of structure is hindering its participation. Higher interest rates in the past few years have also made it harder for companies to acquire attractive
JUAN RUBIOLO General Manager of AES Mexico
financing. The fact that private projects have a spot price component makes the problem even worse because Mexico has no spot market history. Technologically speaking, projects are also becoming harder to justify because the most accessible places in Mexico with the best natural resources and available infrastructure will become scarce.
The auctions were conceived as national, multi-techonological, multi-product bids. Identifying your desired placement in the offer structure and assessing your acceptable risk according to price levels is imperative. Navigating the auction process means either you equate your offer price to your cost structure and see if it sticks or you take a deeper look at the market and the competitive context and converge accordingly with the value chain to identify the targeted prices.
ADRIÁN KATZEW Director General of Zuma Energía
The execution phase entails working with banks and contractors to close pending contracts and to begin project construction. We are defining unprecedented financial structures, meeting the requirements of annual energy volume, CELs, alternate markets that used to honor those obligations, and studying their intrinsic risk in relation to our business.
Not every EPC local contractor participating in the industry has enough capacity or experience. Foreigners entering our market might have the resources and a solid track record in other countries, but they still need to understand that this is a new business environment with a new regulatory framework. In project implementation, there will be a lot to learn. Although this short-term scenario may sound pessimistic, it is not going to be a failure; there will be project delays due
BENJAMÍN TORRES Partner at Baker McKenzie Abogados
to flaws or ambiguities in the contracts, but these can all be solved by finding the right consultant with enough experience in EPC contracts. There will be a need for more EPC contractors because, although many have already arrived, the number of companies in the market will not be able to cover the number of projects that will be implemented.
From the moment the tenders were announced and up to the awarding of the projects, we saw a decrease in the number of PPAs. This was expected because developers wanted to see whether it would be a better market to focus on auctions or if PPAs would still be attractive. Now that there is a known floor for the prices in auctions, we have seen PPAs starting to move again as developers can now evaluate the advantages and disadvantages of each market. We have experienced that big companies that won in the auctions also found the PPA market interesting because they can create economies of scale. Medium-sized companies, on the other hand, are finding the PPAs more attractive because within them they can offer more services
JORGE OCHOA Mexico Country Manager of AWS Truepower at UL
and innovative business models. Finally, the small ones are seeking associations with
47
both medium and large companies.
So far, we think the auctions have been successful in their objectives. We are satisfied with the transparency shown throughout the whole process, as well as the power volumes allocated. Through this instrument, Mexico has become the most attractive country in Latin America energy-wise. This long-term view allows us to plan ahead and to compete for large volumes of power generation. The participation mechanisms are somewhat complex, involving many different variables, but once understood, the process goes smoothly. Another important aspect of the auctions is that we are starting to witness how banks are willing to finance the projects, guaranteeing attractive liquidity. The Ministry of Energy and CENACE have done a great job in creating a well-received auction process and more private players are looking forward
ASIER AYA Managing Director Americas, International Power Division of Jinko Solar
to participating.
We were definitely influenced by the auctions. When we decided to expand from Uruguay, pushed by a saturation of the market due to overinvestment, we started analyzing Latin America’s biggest markets. In South America, we first looked at neighboring countries. Brazil was a complicated market to work in and we concluded that Argentina made more sense for our business plan. Mexico today is a market made up of more than 3,000MW of installed wind power capacity in operation, with the potential of tripling, which will generate more opportunities for companies like Ventus. We know there is fierce competition because it is a
JUAN SALTRE CEO of Ventus
market that has been developing for many years with very competitive prices. We are not interested in engaging in a price war, but in providing a competitive proposal as a whole.
The fact that the market started with auctions is positive for the solar sector. The first auction was subject to several technical conditions aimed at concentrating projects in areas that needed to reduce the cost of energy. The projects that were established in these zones came up against some permitting barriers related to social and environmental impact of operations. We are seeing a slowdown of projects from the first auction unfortunately, such that some are projected to start in 2018. Financing is therefore less viable, and the permitting situation is not projecting confidence. We hope that all these projects can overcome these obstacles because it would send a vote of confidence to the industry. Finalizing projects would also lower energy costs and encourage other industries to operate in hubs that need the economic support.
FRANCISCO GARCĂ?A Country Manager Mexico of Gransolar
VIEW FROM THE TOP
ENGINEERING A SUCCESSFUL AUCTION-BASED BUSINESS ADRIÁN KATZEW Director General of Zuma Energía 48
Q: What are the main challenges in obtaining awarded
that we are defining unprecedented financial structures —
auction projects and how did Zuma Energía overcome
meeting the requirements of annual energy volume, CELs,
these?
alternate markets that used to honor those obligations —
A: Auction participation implies different stages in business
and studying their intrinsic risk in relation to our business,
procurement, mainly development, participation and
among other things.
execution. These different stages present a particular set of challenges, while each company’s configuration in the
Zuma Energía was designed as a project-oriented
market heavily influences the peculiarity of these trials.
platform. Our mission is to present our company as a
In Zuma Energía’s case, we are an independent Mexican
reliable partner, an ally for developers, offering our full
energy producer. As such, our equity capital is raised and
structuring capacity and capital base to turn projects into
committed but we depend on project financing to launch
success stories. Our reliability rests on our vast expertise
projects. In comparison, large utility-scale companies can
in structuring project financing, managing procurements
self-finance their projects, creating a different level of
and construction, operating assets and winning long-term
complexity. Understanding the typology and segmentation
auctions. We go beyond what is commonly known as
of the different players involved in the auctions and their
project development, which is usually limited to terrain
distinct advantages and disadvantages is an important
transactions, measurements and obtaining permits and
factor in talks with the authorities or when exploring
licenses.
business opportunities in the sector, even for suppliers spread across the value chain. In turn, this shapes the
Q: Will you continue participating in the auctions or seek
auctions’ regulatory framework. Even among independent
alternative ways of participating in the renewable markets?
power producers, there are those like Zuma Energía that
A: We are primarily focused on the auctions. Zuma Energía
take a long-term perspective to solidify their market
invested a considerable amount of time in collaborating
presence and cumulate assets, whereas others take a
with the authorities and participating in the public and
project-by-project approach. When looking at Zuma
private-sector dialogue and designing efficient contracting
Energías’ preparation for the auctions, we can boast a
schemes, providing the lowest generation costs to secure
particularly diligent, multidisciplinary effort in mapping the
more contracts. We noticed some players strategically
competitive context.
believe the new commercialization options available can offer more cost-effective opportunities. These will mature
The auctions in Mexico were conceived as national,
over time and we will see greater certainty and credibility
multi-technological, multi-product bids. To win, there are
cemented around published prices; some projects are
serious intricacies in discerning who your competition is.
starting to sell CELs to private players, for example. Certain
Identifying your desired placement in the offer structure
elements still require analysis and implementation for
and assessing your acceptable risk according to price levels
commercialization to truly work, such as financial rights
is also imperative. So far, two strategies have dominated
of transmission. Buyers are also experiencing a learning
the auction process: either you equate your offer price
curve. Zuma Energía is not closed to future opportunities
to your cost structure and see if it sticks or you take a
but auctions remain the primary source of the agility that
deeper look at the market, the competitive context and
ensures our continuous growth.
converge accordingly with the value chain to identify the prices that need to be reached. In contrast, the execution
Q: How would you evaluate the performance of and
phase is highly specialized, working with banks and
interaction with the energy regulators and authorities?
contractors to close pending contracts and begin project
A: First, we need to acknowledge the effort put in by the
construction. This stage is particularly fulfilling in the sense
authorities to implement an in-depth transformation like
the reform in such a short period of time. Globally, one of the lessons we take away from electric markets is their constant change and evolution. In that sense, there is not a conceptual reference model to turn to as a completed exercise. Ours is still emerging in some ways. The auctions, for example, resulted in awarded and signed contracts,
In August 2017, Zuma Energía closed US$600 million in project financing for its 424MW Reynosa wind farm
opening the door to new players such as Zuma Energía. But the Clearing House to allow entry for new players
One is a consequence of the other in the sense that power
from the supply side with CELs purchases is still in the
storage is a possible solution for confronting intermittency.
pipeline. Standardizing the power generation market and
Instead of considering them challenges, Zuma Energía
implementing automated systems of O&M are pending
prefers to view them as opportunities. There is little doubt
issues. The success of the auctions also highlighted a
that renewable energies have persuasively demonstrated
challenge for the future in the imminent saturation of the
their status as competitive power generation sources;
transmission grid and the urgency to develop a decisive
whether in terms of costs, power security and autonomy.
expansion plan for the power evacuation infrastructure.
Dialogue between private players and public regulators will be essential in drafting possible solutions. Besides energy
Q: How can recently constituted Mexican energy
storage you could also design bonuses for high-response
companies keep up with veteran international
thermal energy versus longer response time energy
conglomerates?
sources. More efficient dispatch and transmission schemes
A: Our business model responds to a different logic despite
are also a tentative solution, among other considerations,
the fact we practically do the same thing. International
that can foster new investment opportunities.
utility-scale companies are part of a global conglomerate, with good practices across the entire spectrum of
Q: What other strategic alliances, partnerships or joint
their functions, decades-long learning processes and
ventures do you have in the pipeline?
an international and expert workforce. Zuma Energía
A: All our projects are a result of alliances, co-investment
is implanted here and does not yet consider other
or acquisitions with developers. By definition, Zuma
geographies. For us, it is necessary to engineer a business
Energía’s core business is to become a developer’s most
model that works in Mexico, for Mexico and which outlines
trustworthy associate to win auctions together. We are
a deep commitment to our local market. These groups are
analyzing other elements of the value chain, such as
also characterized by heavy bureaucracies compared to
debt and capital financing, equipment and construction
our decision-making flexibility. Zuma’s relationship with
supply. But our most efficient approach at the moment
its shareholders and the outlined strategy has helped
is locating competitive, large-scale projects and winning
us attract distinctive talent, with average experience of
auctions. The value chain is relatively mature, so in terms
12 to 15 years in the sector, to lead our business. Our
of awarded, mature projects with an attractive scale, there
specialization in renewable energy, which encompasses
is significant appetite to compete for different activities.
clean energy, also gives us a competitive edge.
The most efficient approach is to sit at the table and negotiate with the best-positioned players.
Q: What added value does Mesoamerica Investments and Actis provide to Zuma Energía?
Q: Going forward, where do you see Zuma Energía in the
A: The concept of Zuma Energía was born from these two
next five years?
companies. As our shareholders, Actis successfully leads
A: For our business, five years is rather short term. In that
our Mexican business model in Central America, Brazil,
time, we have a very clear vision of where we want to be,
Chile, South Africa, Egypt and India, to name a few. It
capitalizing on future auctions, increasing and operating
has a considerable capacity to transpose fruitful business
our generation portfolio with our current business
models across geographies. Actis is tremendously active
model, keeping our eyes wide open while looking at a
in our business and passes on the lessons learned. It brings
tremendously dynamic sector that is seeing notable cost-
a prime relationship with the value chain that reaches the
effective changes, taking into account that this term will
highest levels, including equipment manufacturers and
witness new shifts and with it, new opportunities.
construction companies. Q: How is your company tackling intermittency and
Zuma Energía is a Mexican company born from the possibilities
power storage?
triggered by the Energy Reform. It develops, acquires, finances,
A: These challenges will become increasingly relevant as
builds and operates renewable energy generation projects
renewables increase their penetration of the power matrix.
across the country
49
VIEW FROM THE TOP
LONG-TERM VISION WITH SOPHISTICATED FINANCIAL STRUCTURING OSVALDO RANCE Head of Mexico at Cubico Sustainable Investments
50
Q: How did Cubico develop a profitable business model while
350MW Solar PV project in Aguascalientes. Both are already
focused exclusively on renewable energy projects?
under construction and were among the first to reach financial
A: It was a major part of the added value proposal for our
closing out of more than 50 projects awarded between the
shareholders, which was attractive enough for them to invest
first two auctions.
in a specialized, renewable energy focus. This expertise allows us in-depth insight of all the intricacies and dynamics of the
Q: What business prospects has Cubico identified in
sector’s different markets. Our core is onshore wind, as well
Mexico’s energy market?
as solar PV, and most recently concentrated solar power
A: We are extremely pleased with the reform’s creation
(CSP). Determining the geographical locations in which we
of private access to the energy sector and we believe
operate also entails an exhaustive and selective process. Our
the auctions have played a key role in attracting sizable
parent company is based in London, which is a financial hub
investments and creating the required critical mass for the
that enables us to access relationships to sizable financing
electricity sector. While we participated in the first two
funds, complementing our capital. On this side of the world,
auctions, if future auctions are similar to the third long-term
we have offices in Sao Paolo, where we have more than
edition, Cubico will likely take a separate course. The third
600MW in operation and from which we oversee the rest
auction’s prices and respective returns were not attractive
of Latin America. Our Mexico City office manages 600MW
for us. Off-takers are increasingly aware of and interested
under construction and a pipeline of another 600MW. In 2017,
in renewable energy, not only in terms of clean-energy
we opened our office in Stamford, Connecticut to tap the
consumption compliance starting in 2018 but also in terms of
US market.
its high competitiveness compared to fossil fuels and thermal energy. Renewables bypass commodity price volatility in the
Q: What key factors allow financial closing for renewable
international market. We can offer fixed, inflation-indexed
energy projects?
prices for long-term periods, providing a powerful financial
A: One of our primary strengths is our expertise in financial
planning tool. We believe all conditions required to reactivate
structuring pertaining to renewable energy projects. Our team
the PPA market are there and want to make the most of it.
has a significant trajectory in investment banking and can
All commercialization options are under consideration,
anticipate project maturation processes to comply with the
whether bilateral PPAs for self supply, PPAs under generator
requirements from lenders exposing their funds to risk factors
arrangements or future auctions. Our flexibility even allows for
for 20-year periods. As pension funds, our investors have a
co-investment schemes with interested off-takers.
permanent need for long-term cash flow predictability by nature. Mitigating all risk factors related to all of a project’s
Q: What are your expectations for 2018?
phases — development, construction and O&M — is a
A: By the end of 2018, our 350MW Solem Solar PV project
permanent priority for Cubico. We have a clear vision of all
must be operational and our El Mezquite wind farm should
these risks and the respective structural mitigating factors that
be one quarter away from being fully functional. We also
best answer them. During the second long-term electricity
hope to have closed the PPAs for our additional 600MW of
auction, Cubico won PPAs for two projects: a 250MW wind
wind power in the pipeline. Cubico’s global installed capacity
farm, El Mezquite, located in Nuevo Leon, and Solem, a
portfolio totals 2.3GW and our ambition is to surpass 5GW in the next three to four years, to which Mexico will contribute 1.2GW. Mexico will have an important part to play in Cubico’s
Cubico Sustainable Investments is an investment firm
future growth and geographical diversification. Cubico wants
specialized in renewable energy projects. Ontario Teachers’
to be the go-to, long-term, strategic partner in renewable
Pension Plan and PSP Investments are 50-50 shareholders of
projects for all players involved: developers, off-takers and
the company
even competitors.
VIEW FROM THE TOP
HOW SUCCESSFUL BIDS TURN INTO SUCCESSFUL PROJECTS ASIER AYA Managing Director Americas, International Power Division of Jinko Solar 51
Q: How would you rate the design of the long-term
Q: What technology developments in renewable energy is
electricity auctions?
Jinko Solar watching?
A: So far, we think the auctions have been successful in
A: All relevant players in the solar sector are looking at
their objectives. We are satisfied with the transparency
the same technology. The changing variable in most
shown throughout the whole process, as well as the power
technological equations will be pricing and its variation
volumes allocated. Through this instrument, Mexico has
over time. Also, technology-wise, solar manufacturers
become the most attractive country in Latin America
have a choice between mono-crystalline and poly-
energy-wise. This long-term view allows us to plan ahead
crystalline modules, or using both. The next step everyone
and to compete for large volumes of power generation.
is monitoring closely is batteries. They still have to become
The participation mechanisms are somewhat complex,
cost-efficient, given that in the future the name of the game
involving many different variables, but once you get the
will definitely be energy storage, both for wind and solar
hang of it, the process goes smoothly.
power. This will allow renewables to have a larger stake in the energy matrix of most countries. Storage will boost
Another important aspect of the auctions is that we are
renewables to the next step and will scale up the sector.
starting to witness how banks are willing to finance the projects, guaranteeing attractive liquidity. The Ministry of
Q: What makes a good corporate social responsibility
Energy and CENACE have done a great job in creating a
program?
well-received auction process and more private players are
A: First, you need to be totally integrated with the local
looking forward to participating.
communities of the locations where you build a project. Then, you need to make sure that they benefit from it
Q: What elements of its auction-winning strategy did Jinko
and embrace the project through different means, such
Solar adapt to Mexico’s specifics?
as integrating community members into the project’s
A: First, you must find the most competitive projects.
workforce, particularly in the construction, operation and
Second, you should adapt the design and development
maintenance segments of the project. This approach is of
of the project according to auction rules. For instance, in
capital importance to our projects in Yucatan, for instance,
Mexico’s first long-term auction, we identified important
where there are important Mayan communities.
benefits from projects in Yucatan. Then, once you know the rules, you single out and focus on the most
Q: What have been the highlights for Jinko Solar in Mexico?
competitive variables inherent to the project. Primarily,
A: Definitely the first auction. Jinko entered the Mexican
financing, designing a competitive EPC and O&M plan
market in January 2016. One month later, we qualified
and the project’s cost. The auction’s rules may change,
for five projects and in March of the same year we won
which is why you just need to adapt and offer a quick
three of them, representing an investment of close to
and effective response to these modifications. That is
US$300 million. In that short period, we became one
what Jinko does.
of the big winners in terms of awarded MWs. We are finishing the development of the projects and will see
Q: Did the introduction of the Clearing House change Jinko
them come online in 2018.
Solar’s strategy? A: This new mechanism is attracting several new energy buyers to the bidding process. Along with some relevant
Jinko Solar is a China-based PV manufacturer and project
financial entities, we are looking into these incoming off-
developer. The company distributes its products and sells its
takers. We expect a bundle of off-takers in the future, but
solutions and services to a diversified utility, commercial and
for now CFE will take most of the energy.
residential customer base worldwide
VIEW FROM THE TOP
BRIGHT FUTURE AFTER SHORT-TERM STRUGGLE BENJAMÍN TORRES Partner at Baker McKenzie Abogados 52
Q: How is Baker McKenzie working to consolidate itself in
answers. It will take a few years to settle the regulatory
the Mexican power sector?
framework and to create a smooth transition from our
A: We are involved in all types of projects and all are
prior model.
challenging. With our large number of specialists, all with different backgrounds and academic training, we have been
Around 95 percent of the regulatory framework is
able to participate in auctions, power trading, importation
complete. We need to develop specific regulations to
and the development of power plants, both renewable and
address all the issues that are not yet specified under
conventional. Many of our clients, whether they are power
the law. In general terms, the perspective of the Mexican
generators or off-takers, have asked us for help in terms of
regulatory framework continues to represent a major
interconnection. We are proud to help our manufacturing
challenge for every player involved.
clients become off-takers because those are the clients that need the most help, given that they do not belong to
Q: What are the biggest challenges that the projects
the power sector. We also represent many companies in
resulting from Mexico’s power auctions are facing?
the natural gas sector, particularly for the development of
A: Not every EPC local contractor participating in the
pipelines and storage facilities.
industry has enough capacity or experience. Although this short-term scenario may sound pessimistic, it is not going to
Q: What are the major challenges for Mexico’s energy
be a failure. There will be a need for more EPC contractors
market in the short and long terms?
because, although many have already arrived, the number
A: During the last three years, we have seen an impressive
of companies in the market does not correspond to the
evolution of the different regulatory bodies and entities.
number of projects that will be implemented.
Authorities have enacted a variety of provisions from different levels. It is a big challenge for every party
Q: How would you rate the design of Mexico’s energy
to understand the regulations from all the different
auctions?
perspectives.
A: Mexico needs to establish certainty regarding the Basic Supply Tariff and the facilitation of electricity trade between
For government energy agencies, it has also been a
the US and Mexico by crafting specific and clear laws for
challenge to adapt to the new way of doing business. Even
this particular process, which will be vital. We must also
for the regulatory authorities it is sometimes challenging
remember the need to develop the transmission lines
to recognize that there are various interpretations because
that will facilitate the electricity exchange. Medium-term
that means they have to create regulations that provide
auctions are also required.
a proper interpretation of the law to produce certainty for investors.
Today, there is a high dependency on renewable energies. Mexico is targeting a 35 percent share for renewables in
Companies need to be patient because they need to
its energy portfolio but once that goal is achieved, natural
realize that implementation of new regulations always
gas should provide the remaining power generation.
requires a learning curve and that no one will have all the
Cogeneration is falling behind, even though it has the greatest production potential in Mexico. We need to see more incentives for cogeneration, or perhaps a more
Baker McKenzie is an international law firm. Founded in 1949,
suitable framework to facilitate the investment in such
it offers advisory services to many of the most dynamic and
technology. Ensuring this will increase our manufacturing
successful organizations worldwide through more than 11,000
capacity. Reduction or mitigation of energy consumption
professionals located in over 75 offices in more than 45 countries
is likewise as important as power generation.
INSIGHT
STRATIFYING PROJECT RISK TO ENSURE CASH FLOW RUBÉN CRUZ Energy and Natural Resources Lead Partner of KPMG 53
The foundations have been laid for Mexico’s energy
regulation, companies need a firm with KPMG’s capabilities
transition with a new injection of renewables into the
and people who have the required expertise.”
country’s energy mix that will be provided by the projects awarded in the long-term electricity auctions.
In any project finance deal, effective risk allocation
The immediate challenge will be to apply project finance
between parties is key. “One way of dividing risk fairly is
principles to power-producing technologies that lack
to provide those partners that are comfortable handling
a sufficiently long track record in the country to put
construction risk, such as EPC companies, the benefits of
investors’ minds at ease. The ability of the projects to
the project’s sale once the project reaches ramp-up phase,”
achieve financial closing will be the measuring stick of the
says Cruz. A strategic combination of flat rates under long-
success of the energy transition.
term bilateral contracts and variable rates obtained in the spot market will play a major role in diversifying risk levels.
But financing requires stability, and according to Rubén
Cruz expects a secondary market of derivatives to develop
Cruz, Energy and Natural Resources Lead Partner at
as the market matures.
KPMG, the success of the projects could be jeopardized by political uncertainty. “We are living the implementation
Mexico’s energy transition eliminates government
of a reform that is subject to political terms,” he says.
subsidies, enhancing renewable energy’s power-generation footprint. Instead, the country’s regulatory authorities have
The maturing market will welcome a larger number
implemented CELs, a compulsory requirement that starts in
of players, both on the supply and demand side. Cruz
2018 with the intention of providing liquidity to renewable
sees CENACE’s Clearing House, introduced during the
energy projects and transferring part of the cost of creating
third long-term auction, as a positive step forward. “The
a green generation matrix to the industry. “This is a step
previous system of having a single off-taker imposing
in the right direction as it avoids market distortions and
a maximum price and expecting savings from there is
incentivizes companies to balance their energy costs with
equivalent to forcing private suppliers to reduce their
their energy savings to avoid transferring this differential
profit margins,” he says.
to the final consumer,” says Cruz. “The great question surrounding CELs remains their market exchange value in
Cruz believes the first midterm electricity auction is a
monetary currency, for which the noncompliance penalty
valuable complement to the Clearing House initiative
is an initial approximation.”
since it addresses the issue of signing long-term bilateral contracts. “At KPMG we think that no one knows how the
KPMG has set out to incentivize participation and increase
market will evolve in such an extensive period of time,
the number of private players in Mexico’s energy market by
especially when technology costs like solar are drastically
providing optimal conditions for financial funding within
decreasing,” he says. “A project’s viability is greatly assisted
commercial development and transnational banking, either
by shortening terms to three years.”
through club deals or syndicate loans. Cruz says the firm’s added value lies in its ability to anticipate the direction
Engineering a business model that is efficient and attractive
in which the market will evolve, with the advantage of
enough to win a long-term electricity auction can be tricky,
its international network of 152 offices worldwide and
but Cruz says KPMG supports it clients in various ways
more than 189,000 partners and staff. “We cannot predict
throughout the process. “KPMG structures a sponsor’s
the future, but we can look back at history,” he says. “A
investment under a competitive-cost framework, taking
comparison with other countries that have undergone the
into account the local tax structure and capital repatriation
same process can give us an idea of the most likely future
provisions,” he says. “To do this adequately and in line with
developments in the country’s energy market.”
VIEW FROM THE TOP
CERTIFYING THE SECURITY OF PROJECTS JORGE OCHOA Country Manager Mexico of AWS Truepower at UL 54
Q: How would AWS Truepower describe the development
mainly focused on the initial stages of the project life
of the Mexican energy market?
cycle, conducting studies on the availability of resources
A: The Mexican market is unique; it has been created out
and some on the technical aspects of the technologies.
of pieces from different countries, mainly from the US
After some years we went into financing by working on
because of its similarities. This fact also makes it complex,
due diligence and engineering certification for banks.
with many public and private participants, such as the
On the operations side, DEWI became a perfect partner,
Ministry of Energy, CRE, CENACE, various generators,
allowing us to provide structural and life-cycle analyses
qualified distributors and CFE. All these players have a
for technologies having the DEWI certification. In Mexico,
big appetite to make the Energy Reform successful and are
we want to become the strongest and preferred company
aware that working together is the only way to do it. It is
for certification consultancy for developers and banks.
good that each has shown an openness to work together because with every new initiative, it will take time to make
Q: Where do you see the greater potential for the Mexican
the market work in the best and most positive way. Some
market: PPAs or long-term auctions?
mistakes will be made but the most important thing is to
A: AWS Truepower is a technical consulting expert for the
learn from those mistakes, recover and keep in mind a
technologies and resources involved in the development
long-term vision. The bidding process is a perfect example
of renewable energies. We offer the same certification
of the mistakes that may take place. Some of the awarded
service for two types of clients: developers and banks. Our
projects are having problems seeing the light of day. That
developer clients want to certify the generation capacity of
is not ideal but it is logical for a new market. If the market
their projects before banking them and banks want to make
is intelligent, it will learn from its own experience and result
sure that the generation capacity of the projects in which
in more value in the long term.
they are interested in investing is actually the generation capacity the developer states. This service can be offered
AWS Truepower participated in a low-carbon interconnected electricity system study from Mexico to Argentina in 2016
to any developer or banking institution, no matter the type of commercial relationship they are entering into, be it a result of an auction or a PPA. From the moment the tenders were announced and up to the awarding of the projects, we saw a decrease in the number of PPAs. This was expected because developers wanted to see whether it would be better to focus on
Q: How does the merger between UL, DEWI and AWS
long-term auctions or if PPAs would still be attractive.
Truepower benefit the Mexican market?
Now that there is a known floor for the prices on tenders,
A: AWS Truepower is now merged with both UL and
we have seen PPAs starting to move again as developers
DEWI. The strategy behind the decision to enter into
can now ponder the advantages and disadvantages
this merger was to expand the number of services we
of each market. What we have experienced is that big
were able to offer. At the beginning, AWS Truepower was
companies that won in the auctions also found the PPA market interesting because they can create economies of scale. Medium-sized companies, on the other hand, are
AWS Truepower , a company of UL, is a leader and innovator in
finding the PPAs more attractive because within them they
renewable energy consulting, providing engineering services
can offer more services and innovative business models.
and operations as well as software solutions to support clients
Finally, the small ones are seeking associations with both
while developing their projects to turn them into durable assets
medium and big companies.
VIEW FROM THE TOP
WHEN LONG-TERM VISION PAYS OFF JUAN RUBIOLO Director General of AES Mexico 55
Q: What is AES’ long-term plan for Mexico?
technologies into the market and, most importantly, make
A: In Mexico, we are focusing on the private sector with
them economically viable and attract investor interest.
three business lines. The first is in conventional energy, mainly natural gas, cogeneration and combined cycle.
Q: How should Mexico approach its talent gap problem in
The second is in renewable energies with a focus on solar,
the renewables sector?
wind and energy storage on a utility scale. The third is
A: Mexico has an extremely well-prepared workforce on a
the desalination of seawater and the production and
technical level. Mexican operators are among the world’s
distribution of small-scale LNG to replace diesel and fuel
top performers because the country has a long history in
oil in the industrial and commercial sector. In 1997, we
this sector. Some areas of opportunity can be explored for
became the first IPP to enter Mexico and the first private
the commercial side of projects. Before the reform, there
company that trusted in Mexico’s potential. Our aspiration
were no competitive market incentives to provide human
is to be long-term operators here. Our objective is to
talent with commercial skills. To solve the human talent
develop a diversified portfolio by 2020 that ensures our
gap, Mexican universities, government and industry need to
presence in the market, mainly in the private sector. We
work together to improve study programs and facilitate the
have over 1.1GW installed and in the coming five years
transfer of knowledge between them. If those three pillars
expect to reach 2-3GW.
work together, we believe that in the next five years Mexico can start filling the gap with local content.
Q: How can Mexico facilitate the integration of more renewable energy projects into the grid?
Q: What are your expectations for the future long-term
A: Infrastructure almost always becomes a problem in
electricity auctions?
countries where there is a strong penetration of renewables.
A: The auctions ended up having favorable prices and
That is understandable because most of the infrastructure is
conditions for the Mexican market and for CFE. We have
not designed for intermittent energies. The most important
yet to see which of the winning projects will be built.
factor is to maximize the use of Mexico’s natural resources
Several factors are putting them at risk, with financing and
to strengthen the grid and enable the integration of these
permitting being the most critical. The fact that private
sources. The PRODESEN is a powerful tool that outlines
projects have a component that depends on the spot price
plans for revamping and expanding the infrastructure
makes the problem even worse because Mexico has no spot
that requires it the most but it does not include the use of
market history. Technologically speaking, projects are also
storage systems that could help achieve a proper national
becoming harder to justify because the most accessible
integration of renewables into the grid.
places in Mexico, those with the best natural resources and already available infrastructure, will become scarce.
Energy storage is a concept that could solve many problems at once: relieving bottlenecks, allowing for
All these factors should lead to an increase in auction prices
more connections, solving issues related to intermittency
which in turn could increase energy prices for the final user.
and even helping the substations handle variations.
We are anticipating a new market balance with pricing
Furthermore, with congested transmission lines, such
converging to a reasonable level by 2018.
as those in Mexico City, storage may allow the inclusion of small distributed generation sources. Overall, these systems enhance the versatility of the grid.
AES is a Fortune 200 global power company. It provides affordable, sustainable energy to 17 countries through a
We are working with the Ministry of Energy, CENACE
diverse portfolio of distribution businesses as well as thermal
and CRE to find solutions that will bring energy storage
and renewable generation facilities
VIEW FROM THE TOP
EFFECTIVE COORDINATION FOR DEVELOPMENT AND MULTINATIONAL BANKING 56
José Guardo Partner at Clifford Chance Project Development and Finance
Alan Sakar Associate at Clifford Chance Project Development and Finance
Q: What makes Clifford Chance the key ally for
financing, which will serve as a proxy for other developers
companies looking to participate in Mexico’s renewable
in the country and in Latin America.
energy market? AS: Clifford Chance’s reputation as a leading international
JG: Mexico has placed a strong bet on renewable energy,
law firm in Latin America spans nearly four decades and
and the country is taking its first steps on a path we have
involves a track record that few firms can match. Our energy
had the opportunity to take with our clients over the last
and infrastructure team combines substantive expertise
20 years in markets across Europe and in Latin American
with bilingual capabilities and cultural fluency, and has
jurisdictions for over 10 years. We are very familiar with
assisted with the structuring of some of the most innovative
advising on renewable energy projects, not only across
financing for renewable energy projects across the entire
jurisdictions but throughout their lifespan. This global
region. We know how to get deals done for our clients.
vision applies to Mexico in a unique way, mainly thanks to our understanding of the Mexican energy sector, to
In Mexico, we have advised sponsors and financial
our wide-ranging experience in renewables and to our
institutions in the country’s most high-profile projects,
relationships in the country.
such as the Eurus, La Bufa Wind and Aura Solar projects, which were developed under the previous system. We
For instance, we are one of the few international law firms
were also involved in the Reynosa Wind, Orejana PV and
capable of putting together a team comprising partners,
Santa María PV projects, which were awarded during the
senior, midlevel and junior Spanish-speakers from our
second long-term auction, and we are taking part in the
Washington, DC, New York and Madrid offices, who are
financing of three additional projects awarded during the
very familiar with the issues typically arising in financings
recent auctions. Our lawyers know Mexico very well and
structured in civil law jurisdictions.
are extremely adept at navigating its business, legal and regulatory landscape. We understand the relevant policies,
Q: What is your assessment of Mexico’s project financing
procedures and expectations within the Mexican market
capacity for renewable energy projects?
and are deeply familiar with the main equity concerns and
AS: It is important to understand the structures available
bankability issues. As a result, we can circumvent these
for the generators to sell electricity, given that there are
issues and provide commercial solutions to our clients
different kinds of financing structures to develop projects
participating in the next auctions or financing the projects
based on whether it will sell only in the spot market or
to be awarded.
through a medium-term, a long-term or a bilateral PPA.
Looking across the region, in Uruguay we advised the
In the spot market, for instance, most power producers
lenders on the renegotiation of the PPA with UTE (the
would rely on equity; it is difficult to finance a merchant
government’s state-owned off-taker) for the first wind
project on the spot market due to the uncertainty of future
farm financing to come to the market, becoming the
electricity prices. However, we are seeing a trend in Latin
benchmark for the country’s entire renewable energy
American jurisdictions, where spot market prices can be
program. In Argentina, we advised the government,
projected over the long term thanks to a sufficiently long
under the institutional umbrella of the IFC, on the design
track record, in which banks are assuming a certain degree
and implementation of the RenovAr renewable energy
of merchant risk.
program and are involved in nine financings of projects awarded under that program. In Chile, we closed the first
With respect to auction projects, we expect to see soft
financing of a renewable energy project with regulated
and hard mini perms, which are a trend now in the region,
PPAs and recently closed a complex wind portfolio
with strong reserves and cash sweeps, which could be
refinanced through the capital markets after achieving
Q: How can Clifford Chance provide support regarding the
commercial operation.
challenges for Mexico’s project developers in the long term? JG: Mexico’s new electricity system is based on competitive
JG: Project financing has always revolved around future
offers. Behind every offer, there is a financial structure
cash-flow certainty. As the market evolves and operators
that allows developers to bid under these conditions.
gain maturity and experience, the range of possibilities
As a top-tier player in the power sector, Clifford Chance
in bankable projects expands. Not so long ago, merchant
brings substantial industry expertise in the structuring of
financing was unthinkable, but we are now starting to
increasingly sophisticated and competitive mechanisms,
see incipient examples of merchant projects in different
which helps us lower costs and mitigate risks in favor
countries, signaling a breaking point with past practices.
of bankability. These mechanisms enable our clients to
Formulas that allow future certainty through swaps, financial
come up with competitive schemes and establish a strong
derivatives and the like are emerging. It is an ongoing and
footing to win auctions. Our proven track record is the main
ever-changing process that ultimately will result in a market
argument for our credibility.
where financing formulas will diversify and the energy market will become increasingly competitive.
AS: Clifford Chance has the advantage of having opened markets hand-in-hand with international, local and
Q: What market impact are you expecting from the third
commercial financial entities. We understand the cultural
auction’s Clearing House?
and transactional reality of all the different jurisdictions
AS: In the first and second auctions, CFE was the sole
we are involved in, including Mexico. Each jurisdiction has
purchaser and virtually absorbed a measurable off-taker’s
its own challenges, added to the jurisdiction’s cultural and
risk. Starting with the third auction, the Clearing House will
commercial particularities. We understand the commercial
represent a pool of purchasers per auction.
objectives of the sponsors and, at the same time, of the lenders.
Clifford Chance applauds the authorities’ design efforts when structuring the electricity auctions. We understand
Q: What are the prevailing challenges for Mexico’s
that some banks were involved in the structuring of
electricity sector?
the Clearing House, which is a strong sign that the
AS: Mexico has made tremendous efforts in the design
government took into consideration certain bankability
and implementation of the wholesale market but the
issues, which the banks would raise during the financing
real success of Mexico’s electricity reform will depend
of the projects. We have no doubt this model will be
on the proper execution of the grid modernization plan
replicated in other countries in the coming years. The
designed by the Ministry of Energy and CFE. Without
success of the upcoming auctions will be largely based
a reliable electric system and a smart grid, Mexico’s
on the independent performance of CENACE, which will
energy-mix goals will be difficult to attain. CFE and the
manage the risk of buyers’ nonpayment, the guarantees
Ministry of Energy are making remarkable efforts to this
and the reserve funds.
end. For instance, in 2016, CFE published the pre-tender documentation for the development of transmission lines,
Q: What added value does Clifford Chance bring to the
under build-operate-transfer schemes while the Ministry
success of utility-scale projects?
of Energy recently unveiled a new contracting model for
JG: Projects like these require complex coordination across
transmission line development with private parties. This is
international and local entities involved in the financing
the next step in the implementation of Mexico’s electricity
process. Clifford Chance excels at this. Among other
reform. The PRODESEN lists 410 transmission projects to
notable matters, we acted as counsel for international
be developed between 2017 and 2029, offering a wide
sponsors in the financing of the three projects awarded
array of opportunities for the private sector and financial
to Zuma Energía during the second auction, and we were
entities. We expect to be involved at the cutting edge of
involved in the 425MW Reynosa wind farm, which was
some very interesting financing schemes for these projects,
the first project to achieve financial closing among those
as we have done in jurisdictions throughout the region. We
awarded during the long-term auction of 2016. One key to
are fully committed to Mexico and look forward to these
success lies in our proven ability to establish synchronized
new developments.
and efficient communication channels between all participating financial entities. In our capacity as counsel to international sponsors, we helped foreign entities grasp
Clifford Chance is an international law firm with expertise
Mexico’s practices, while also making sure that all local
in capital markets, corporate, finance, risk management
financial players were on par with the requirements of the
and real estate, with particular expertise in energy and
international financing entities.
infrastructure
57
VIEW FROM THE TOP
2GW OF EXPERIENCE, INNOVATION AND SUSTAINABILITY PAOLO ROMANACCI Director General of Enel Green Power México 58
Q: What are Enel’s key success factors in Mexico?
achieving in the design and execution of bankable
A: From the outset of our venture in Mexico, which
renewable energy projects.
began in 2008, Enel’s story has been marked by the innovations we introduced to the market. As showcased
Our expectation for the future is to maintain our
by the first two long-term electricity auctions, Enel
leadership position in Mexico pertaining to renewable
displayed continuity in its disruptive financial processes
energy, both in terms of installed capacity and project
and components within its proposals compared to the
portfolio. We believe that the transition of Mexico’s
usual market behavior for the third long-term electricity
energy market from a matrix dominated by fossil fuels
auction. One of the keys of our success lies in the long and
to greener energies is proving to be successful and will
prosperous relationship we maintain with our suppliers.
continue to do so in the future.
The fact that Enel Green Power is a renewable energy leader in the country, with 728MW of installed capacity
Q: What are your plans for Mexico’s spot market?
and 1,285MW under construction, enables us to move
A: Without a doubt, Mexico’s Energy Reform has opened
large volumes. Our 10-year history in Mexico ensures we
a wide spectrum of opportunities and a sizable field of
can rely on strategic partners with whom we exchange
potential investments for which Enel has always shown
the best solutions available in the sector.
interest in participating. At present, we are focusing on two main areas. First, power generation. Enel Green
The four wind power projects we were awarded in the
Power Mexico is determined to become the country’s
last long-term electricity auction are a testament to our
largest renewable energy producer and a commercial
commitment to top-tier technology, including larger and
leader in energy trading, with a bilateral contract portfolio
more efficient wind turbines by market benchmarks.
nearing 2TWh per year to supply electricity to the largest
Our track record of successful results has won us the
commercial and industrial groups in Mexico. Second, we
confidence of both national and international markets,
will keep strengthening our qualified supply division,
unlocking optimal financial conditions. Adding up all these
Enel Energía México, officially launched in October 2017.
factors equals a highly competitive economic offering, on
Through this new division, we offer electric energy, power,
par with the requirements of Mexico's utility-scale projects.
CELs and other energy solutions for companies with an electricity demand larger than 1MW per year and looking
Q: What are your expectations and ambitions for future
to comply with the soon-to-be compulsory requirements
long-term electricity auctions in Mexico?
for consuming electricity provided by clean energy
A: The auctions published and executed by the Ministry
generating technologies starting in 2018.
of Energy and CENACE are an excellent instrument for the construction of new renewable energy projects. In
Q: What is Enel’s investment portfolio status and how
the three editions completed so far, Enel Green Power
will it evolve in 2018?
was awarded close to 1.6GW, making it the largest winner
A: Since we set up operations in Mexico, we have invested
across the board. We have all hands on deck to turn
close to US$2.7 billion just on generation plants. The
the first auction projects into soon-to-be operational
investment required by the four awarded projects we won
additions to the grid. Projects such as Villanueva,
during the third long-term electricity auction amounts
advancing at a record pace, will become the continent’s
to another US$700 million. Both numbers demonstrate
largest PV park and Enel’s largest worldwide.
Mexico is a strategic market for Enel Group.
These landmarks will contribute to demonstrating
Q: Could you give us an update on Enel’s soon-to-be
the successes both the public and private sectors are
operational projects for 2018?
A: Enel’s 754MW PV solar plant in Villanueva, Coahuila
complement other projects using solar PV technology
and its Don José 238MW PV solar plant in Guanajuato,
that were also awarded. We believe wind power can
awarded during the first long-term electricity auction, will
effectively answer solar power’s inherent intermittency.
begin operations in 2018. The same can be said for our
We are aware of the challenge that renewing and
Amistad, Coahuila wind farm with 200MW of installed
extending Mexico’s electric transmission grid entails.
capacity, the fruit of a signed PPA. This means that before
We also know the country’s authorities are aware of
the end of 2018, Enel will be contributing to Mexico's energy
the importance of this factor and that they are working
transition efforts and goals with close to 1.2GW of additional
tirelessly to improve conditions in the short term.
renewable energy capacity connected to the grid. Q: What project best attests to Enel’s expertise in self-
59
supply, and how is Enel increasing this business line in Mexico? A: Enel Green Power supplies electricity to more than 17,000 client-owned load points, a significant contribution to consolidating our leadership in renewable energy. Our ambitions in self-supply will be covered by Amistad, our PPA wind farm. Through our qualified supply division, Enel Energía México, we will develop new ways to answer our clients’ needs with our characteristic elements:
Enel Green Power's Mexican portfolio includes 728MW of installed capacity and 1,282MW of projects under construction
experience, innovation and sustainability. Q: What positive impact will Enel have on Mexico’s Q: How would you rate the progress of the long-term
energy market in 2018?
auctions?
A: Enel Green Power is always aligned with its three
A: The Energy Reform has been positive for the sector
trademark characteristics: experience, innovation and
and the auction system, in particular, has established
sustainability. Those are the three guiding principles with
a catalyst for the growth of renewable energies. When
which we want to impact Mexico’s electricity market in
renewable projects such as Villanueva or Don José
the long run. The cumulative experience from operating
become operational, we will be in a position to showcase
in 30 countries enables us to set the course opened by
the first fruits of the auctions, providing a tangible
the reform. We can bring expertise and experience from
argument in favor of the auctions’ success. While we
diverse markets to ensure, from the private sector, the
cannot speak for other projects, we can assure that
best implementation and benefits for Mexico as a whole.
projects won by Enel Green Power will be operating under
Innovation is a major element in the disruptive moment
the stipulated time-frame.
we are experiencing. As a group, we are aware of this and are constantly exploring new ways of doing things,
Q: What is your assessment of congestion risks in
always focusing on our clients. We want to bring new
permitting processes due to the large number of projects
and better practices.
arising in Mexico? A: We are fully confident in the capacity and faculties of
Our commitment to sustainability will enable us to
Mexico’s authorities, as they were able to implement an
guarantee that the benefits from all our initiatives will
ambitious Energy Reform in record time. Enel’s global
spread evenly among all parties involved, including
experience has shown that such a complex paradigm shift
local communities. Enel Green Power integrates into the
as the one we are living now requires both time to mature
development of every project with which it is involved the
and adaptation processes, making this potential congestion
sector’s entire value chain by implementing economic,
a natural process of any major transition. It is vital that the
social and environmental best practices. Our objective
agencies in charge of these processes continue implementing
for 2018 is to use our identifying characteristics and
improvement measures to avoid delays that impact the
leadership to guide and develop Mexico’s energy sector
sector’s value chain as a whole, including Mexican society.
toward the best possible outcome.
Q: How can Mexico manage renewable intermittency given its current electric infrastructure?
Enel Green Power is the renewable energy division of the Enel
A: Intermittency draws attention to the necessity of a
Group, present in 30 countries. Enel Group is a global leader in the
diversified energy mix. Enel Green Power’s four wind
green energy sector with a managed capacity of around 40GW
power projects won in the third long-term auction
including wind, solar, geothermal, biomass and hydropower
ROUNDTABLE
HOW WILL THE CLEARING HOUSE IMPACT MEXICO’S ELECTRICITY MARKET?
Unlocking a country’s entire electricity sector to private initiative is not something done overnight. Mexico’s authorities and private players alike are riding the steep slopes of the sector’s learning curves. Each step brings all parties involved closer to their objectives, and the longterm electricity auctions are a testament to this process. In the third installment of the auctions, CENACE introduced the Clearing House, a mechanism allowing private players to purchase power, energy and CELs parallel to CFE, effectively ending the single off-taker scheme of the previous two auctions and cementing the base of a competitive market.
60
In the first and second auctions, CFE was the sole purchaser and virtually absorbed a measurable off-taker’s risk. Starting with the third auction, the Clearing House will represent a pool of purchasers per auction. Clifford Chance applauds the authorities’ design efforts when structuring the electricity auctions. We understand that some banks were involved in the structuring of the Clearing House, which is a strong sign that the government took into consideration certain bankability issues, which the
ALAN SAKAR Associate in Project Development and Finance at Clifford Chance
banks would likely raise during the financing of the projects. We have no doubt this model will be replicated in other countries in the coming years. The success of the upcoming auctions will be largely based on the independent performance of CENACE, which will manage the risk of buyers’ nonpayment, the guarantees and the reserve funds.
The Mexican market at the moment is at an early development stage where all the transactions are and will remain on a bilateral level for some time, making it mostly a demonstrative market. Once there is enough liquidity and the processes are standardized, the market will integrate the Clearing House for the business associations to include more participants. There are still plenty of challenges and details to be addressed that will shape the Mexican market. These include the mid-
SALVADOR ALARCÓN Founding Partner and CEO of Tradeon Energy
term auction, financial transmission rights and other final details that will allow for the regulatory pieces to start working correctly.
In the short term, in all likelihood it will not have a significant impact. Mexico’s renewable energy scene is seeing an increased number of private energy traders and suppliers but the total volume they can purchase in the market at the moment is not significant enough for the Clearing House to have an impact. We are anticipating that the energy percentage that other suppliers besides basic supply will purchase through the house will be relatively low, although it will keep growing over time. In
EDUARDO REYES Partner Power and Utilities of Strategy&, at PwC
the long term, as the energy volume increases, the impact will be consequential and will be reflected in the final consumer price through increased volume and number of private suppliers offering energy.
Long-Term Contracts (LTCs) are fundamental to the financing of projects, at least during this stage of the reform. As the market evolves and generates a track record for prices, project financing entities will have a reference, making it easier for merchant projects to attract funding. So far, the most relevant LTCs materialized during the long-term electricity auctions or the pipeline tenders organized by CFE. Now, we are already seeing incentives for developing a more diversified market in the third long-term electricity auction, where CFE will no longer be the sole load-serving entity allowed to participate as a potential buyer.
FRANCISCO SALAZAR Founding Partner of Enix
Private load-serving entities and qualified user market participants will be allowed to make purchase offers through the Clearing House.
61
The Clearing House is proof of how auction design continues to be perfected, integrating an increasing number of positive elements and players. The Argentinian auctions, in which we also participated, allowed fixed quotas per technology – solar, wind, cogeneration – fostering competition among same-technology projects. We believe this approach to be coherent both with the objective of reducing energy costs and the necessity of maintaining a balanced energy matrix. Conversely, pricebased auctions would not solve intermittency problems if solar power achieves a predominant footprint in the mix. Storage and redistribution technologies have yet to become cost-effective for solar power to avoid providing excess supply at certain
RAFAEL VALDEZ Managing Director Latin America and the Caribbean of Envision
hours, while projects under equal terms can compete for logistics and production efficiencies, load factor and other characteristics that set them apart.
Due to their complexity, the bidding rounds have involved a steep learning curve but the changes have certainly been for the better. We are quite pleased that the auctions are based on clean technologies. Some of the most important aspects where we have seen improvement is in the fluidity of communication with CENACE, the support desk that was launched and the new, much clearer regulatory framework. Regarding the launching of the Clearing House, we have yet to see how this will affect the development of the contracts but hopefully it will be positive, and make the warranties clearer and more robust for other participants besides CFE.
CARLOS EGIDO Country Manager Mexico of X-ELIO
CENACE’s Clearing House, introduced during the third long-term electricity auction, is a positive step forward. The single off-taker scheme used in the previous auctions, whereby a maximum price was imposed and savings were expected to be generated from there is equivalent to forcing private suppliers to reduce their profit margins. The first midterm electricity auction is a valuable complement to the Clearing House mechanism since it addresses the issue of signing long-term bilateral contracts. At KPMG we doubt anyone knows how the market will evolve in such an extensive period of time, especially when technology costs like solar are drastically decreasing. A project’s viability is greatly assisted by shortening terms to three years.
RUBÉN CRUZ Energy and Natural Resources Lead Partner of KPMG
Geothermal power generation
POWER PRODUCERS
3
The ability to provide fast and economical power whenever needed is a critical requirement for a country’s energy security. The exclusive installation of renewable generation plants is an ideal that is hindered by intermittency issues that could jeopardize the country’s energy availability. Under such circumstances, it could be said that Mexico’s energy supply is unsustainable. The same could be said for a country with a generation capacity based solely on fossil fuels. Having a balanced energy mix is the healthiest option.
Taking this into consideration, Mexico’s ambitious goal to increase the share of renewable energies in its mix must be properly planned to ensure an appropriate implementation that can also help boost the economic growth of the country. With greater participation of renewables and natural gas, the best fossil fuel option to provide relatively clean and cheap power. Mexico is heading in the right direction. This chapter shares the insights of industry leaders on power production requirements in Mexico, and what the country must do to achieve them.
63
CHAPTER 3: POWER PRODUCERS 66
ANALYSIS: The Race for Diversified Power
68
MAP: CFE Generation I-VI Assigned Plants
70
VIEW FROM THE TOP: Gerardo Pérez, EDF Énergies Nouvelles México
71
INSIGHT: Alejandro Preinfalk, Siemens Mexico
72
VIEW FROM THE TOP: Jaime Zubillaga, MAN Diesel & Turbo Mexico
73
INSIGHT: Akira Matsuzawa, Toshiba de México Marcial Frigolet, Toshiba de México
75
VIEW FROM THE TOP: Oscar Scolari, Rengen Energy Solutions
76
VIEW FROM THE TOP: Ramón Moreno, Mitsui & Co. Americas
77
VIEW FROM THE TOP: Mario Chávez, GE
78
INSIGHT: Francisco Carrión, MARERSA
81
INSIGHT: Raquel Igualá, Power Electronics
82
INSIGHT: Massimo Ferrarini, Jema Energy Mexico
83
INSIGHT: Vicente García, Isolux Corsán
65
ANALYSIS
THE RACE FOR DIVERSIFIED POWER A stable and reliable means to produce power is vital for the energy security of a country. With solar and wind accounting for 82 percent (7.81GW) of the capacity to be installed, the importance of installing and revamping non-intermittent and readily available power capacity in the country has never been more obvious Mexico’s first three long-term electricity auctions have
burden on the system in coming years that will require secure
attracted international attention due to their record-
and flexible solutions, according to many industry insiders.
breaking results, with the last edition taking away the crown
66
from Saudi Arabia in wind power by reaching the lowest
In Mexico, energy demand varies widely from one region
international price at US$17.7/MWh.
to another. According to CENACE’s National Electricity System Development Program 2017-2031 (PRODESEN
Although the success of these auctions is hard to dispute, the
2017-31), maximum energy demand for 2016 in the Central
fact that they are based mostly on renewable technologies,
control region took place on Dec. 6, at 8pm, while in
which are intermittent and hard to predict, could place a
the Occidental region it was on May 25, at 2pm, which illustrates the daily and yearly demand variations that
SHARE OF CAPACITY TO BE INSTALLED PER TECHNOLOGY, ACCORDING TO PRODESEN 2017-31 Share of capacity to be installed per technology
the Mexican electricity system must cover. Four of the 10 control regions had peak demand in 2016 at times when the sun did not shine, and the two regions with the highest energy consumption were in areas where there was low wind availability (see accompanying map), suggesting the need for a secure and flexible energy source. As Jaime Zubillaga, Managing Director of MAN Diesel & Turbo
55,840 MW
Mexico, explains, “we now have a competitive market that demands all players showcase their advantages with smaller, flexible projects. These projects will provide important backup services for renewables because they will offer the possibility of having power when the wind does not blow or the sun does not shine.”
34% Combined cycle 24% Wind 14% Solar 10% Efficient cogeneration
7% Nuclear 3% Hydro 3% *TC, CI, TG, coal 2% Bioenergy 2% Geothermal
PRODESEN 2017-31 considers that to cover future energy demand the country will require the installation of 55,840MW, of which 61 percent will be via non-intermittent technologies that provide security to the grid, and 38 percent from solar and wind, highlighting the importance of
SHARE OF NON-INTERMITTENT TECHNOLOGIES TO Share of non-intermittent technologies to be installed BE INSTALLED, ACCORDING TO PRODESEN 2017-31
maintaining a secure market where intermittent technologies do not take over. The coupling of energy security with clean energy goals can be found in combined cycle, efficient cogeneration, nuclear, hydroelectric, geothermal and bioenergy technologies, which will make up 95 percent of the non-intermittent technologies to be installed, with the
34,062 MW
rest landing on the carbon, conventional thermoelectric, internal combustion, turbogas and fluidized bed. Following such a plan, a stable and balanced power generation capacity can be expected. While the construction of new capacity is a challenge both economically and from the point of view of technology, the road seems even bumpier
56% Combined cycle
5% Hydro
when it comes to updating old power generation plants to
16% Efficient
5% *TC, CI, TG, coal 3% Bioenergy 3% Geothermal
current requirements of production and emissions control.
cogeneration
11% Nuclear
REVAMP AND EXPAND
*TC: Conventional Thermoelectric, CI: Internal Combustion, TG: Turbogas
Despite its strong clean energy goals, Mexico remains a
Source: CENACE
major user of fossil fuels to power the country. Currently,
MEXICO'S CONTROL REGIONS AND ENERGY CONSUMPTION 4 Northwest
5 North
6 Northeast
8 Baja California
10 Mulege
9 Baja California Sur
67
ENERGY CONSUMPTION PER CONTROL REGION DURING 2016 (TWh)
Mulege 0.15
2.54 Baja California Sur
12.13 Peninsula
13.44 Baja California
23.40 Northwest
East
Northeast
Central
0
West
10
24.70
20
North
47.64
30
52.30
59.10
50 40
63.41
70 60
7 Peninsula
3 West
Highest consumption on May 25, at 14:00
1 Central
Highest consumption on Dec. 6, at 20:00
2 East
Source: Ministry of Energy
it produces 74 percent of its energy through fossil fuel
THE FUTURE
technologies that offer a secure power supply, with
While natural gas has been targeted as a leading contender
31 percent of that coming from turbogas, carbon and
to cover future energy needs, some are looking to innovate
conventional thermoelectric technologies, which are highly
in the market to make sure the country does not only
polluting. The need to shut down that capacity, or at least
reach its clean energy generation goals, but surpasses
make it more efficient when possible, to achieve the clean
them with ease. Ramón Moreno, Chief Technical Officer of
energy production goals settled by the government is clear,
Mitsui & Co. Americas, emphasizes the need for properly
according to Marcial Frigolet, Vice President of Toshiba de
designed regulation that allows for the integration of
México. “The Mexican government has placed a strong bet
storage technologies. “Usually, power supply adapts
on the implementation of natural gas plants that include
to power demand, but efficient and innovative power
combined cycle and efficient cogeneration.”
generation requires inverting the equation. Mexico’s energy authorities and regulators need to strengthen
While new companies entering the market will be
the regulatory framework to ensure economically viable
constructing infrastructure that includes clean technologies,
energy-storage initiatives.”
CFE faces the challenge of making 19GWs of its already installed capacity from conventional thermoelectric,
Others, like Francisco Carrión, CEO of MARERSA, prefer to
internal combustion and turbogas technologies more
place their bets on cutting-edge technological innovations
efficient, or to change it completely, if it is to compete in
that use new types of renewable sources, such as wave
the new market, says Frigolet. “CFE has plants that are old
power. After almost 10 years of work, Carrión has created a
and that must compete on an energy-price basis against
technology that he hopes will revolutionize the production
new and more efficient plants that will be installed by new
of power in Mexico. “During this whole time, we have
generators in the market. It is going to be hard for CFE
improved our patents until achieving a technology that can
to adapt to this change.” Oscar Scolari, CEO of Rengen
provide a non-interruptible, 100 percent environmentally
Energy Solutions, goes one step further: “CFE has no other
friendly energy supply. Even when the system undergoes
choice but to improve these plants or shut them down.”
maintenance, its modular design means it only stops
(See pages 74-75 for a map of plants assigned to each of
production at 500kW intervals, while the overall system
CFE’s subsidiaries.)
keeps running.”
CFE GENERATION I-VI ASSIGNED PLANTS MAP
68
ASSIGNED TECHNOLOGIES PER SUBSIDIARY CFE Generation
I
II
III
IV
V
VI
Turbogas Hydroelectric Conventional Thermoelectric Coal Combined Cycle Internal Combustion Solar Thermal Solar Wind Geothermal
CFE GENERATION I-VI, TOTAL ASSIGNED POWER (GW) 13
12.85
12 11 10
8.94
9 7.74
8 7 6
8.52 7.66
7.01 I
II
Source: Official Federal Journal, CFE, CRE, Ministry of Energy
III
IV
V
VI
Total Generación VI SHARE OF ASSIGNED TECHNOLOGIES Conventional Technologies
Clean Technologies
32% Conventional Thermoelectric 4% Turbogas 1% Internal Combustion
38% Combined Cycle 23% Hydro 2% Geothermal
1% Cogeneration 1% Wind
SHARE OF ASSIGNED TECHNOLOGIES PER SUBSIDIARY
Owns 45 plants with a total capacity of 7,798MW
8%
I
41%
8%
41%
69
2% Owns 32 plants with a total capacity of 9,230MW
28%
II
35%
36% 1%
CFE GENERATION
Owns 34 plants with a total capacity of 8,391MW
30%
III
42%
25%
3%
Owns 22 plants with a total capacity of 9,683MW
7%
IV
8%
42%
43%
Owns 29 plants with a total capacity of 12,952MW
96%
V
4%
Owns 60 plants with a total capacity of 10,005MW
21%
VI
49%
6% 5%
10%
8% 1%
0
20
40
60
80
All percentages rounded
52,716MW
of total installed capacity assigned to CFE's subsidiaries. Does not include emergency plants and 30 projects for which no information is published
100
VIEW FROM THE TOP
WINDPOWER GIANT BETS ON SOLAR GERARDO PÉREZ Director General of EDF Énergies Nouvelles México
70
Q: Which renewable source is the top priority for EDF?
their involvement, making sure our projects are implemented
A: Since our arrival in Mexico in 2001, we have bet heavily on
smoothly. The overall process pertaining to permits has also
wind power. Today, the 68MW we operate comes 100 percent
become more efficient.
from wind farms. In the second long-term electricity auction, we won two projects, one 252MW wind power project in
Q: How is EDF facing the industry’s human capital availability
Oaxaca and a 90MW solar PV farm in Sonora. Considering
challenge?
the evolution of Mexico’s energy market, we are responding
A: Our company’s approach is twofold. First, we bring in
to this development by focusing our attention on wind and
highly-qualified professionals with solid expertise, both
solar power, while at the same time scouting opportunities in
from the local and international markets, capitalizing on our
mini-hydraulic projects.
presence in over 22 countries. Second, we are backed by EDF’s US branch office in San Diego and its vast structure.
Q: What challenges is Mexico’s electricity infrastructure
The San Diego office has more than 1,000 professionals,
facing?
while our Mexico City office has 100. We are in constant
A: PRODESEN outlines the construction of the first high-
communication when it comes to personnel requirements or
voltage direct current line from Oaxaca to the center of
outlining effective commercial strategies.
Mexico, with a transmission capacity of 3,000MW and a length of 610km, with two 500kV circuits. The project will be
Q: How will EDF allocated its US$800 million investment
carried out through an open bid process under a PPP scheme
in Mexico?
and is set to become operational by 2021. In total, there will
A: This investment is intended for the two projects we
be four lines of this type in the country. These projects will
won at the second long-term electricity auction. The
ensure grid interconnection for the upcoming projects in
wind farm project will receive between US$500-600
renewable energy, which is set to increase our total electric-
million and the PV solar park will receive the rest. We
power capacity. For us, this is Mexico’s greatest challenge.
are estimating both projects will generate around 2,500
The abundant renewable resources are there, as well as the
temporary jobs and 100 permanent positions once both
financing to develop them. Social and environmental impact
projects are completed.
assessment processes for renewable energy projects can also be improved and social unrest addressed, but this is
Q: What are EDF’s long-term ambitions in Mexico?
progressing. Infrastructure, in contrast, has to be operational
A: In 2001, we made our first moves in the industry. In 2008,
without delay.
we planted our foundations with the La Mata La Ventosa wind farm. Between 2010 and 2011 we created two more
Q: How has wind farm development changed since 2013?
wind parks. In 2015, this meant 400MW of installed and
A: The changes implemented by the reform are overwhelmingly
operating renewable energy. In 2016 alone, we practically
positive. Everyone involved, including CRE, CENACE and the
won another 400MW, duplicating in a year what took us 16
Ministry of Energy, have clear responsibilities and know the
years to achieve. From here until 2021, our goal is to operate
issues very well. Local governments in particular, as shown
a total of 2,000MW. To achieve this, we are counting on
by our work in Sonora and Oaxaca, have surprised us with
both auction participation and PPAs. Of the 300MW we have in Oaxaca, 252MW were won at auction and 50MW are operating under a PPA. Our potential off-takers can count on
EDF Énergies Nouvelles is a global IPP based in France that
EDF’s longstanding expertise, top-tier technology and its firm
generates, develops, builds and manages renewable energy
grip across the entire value chain. EDF’s differentiator is its
projects. In Mexico, EDF operates 392MW of wind power and
presence throughout the different phases and entire lifespan
is developing 300MW of wind and 365MW of solar PV power.
of a project.
INSIGHT
TECHNOLOGY: THE BACKBONE OF MEXICO’S ENERGY TRANSITION ALEJANDRO PREINFALK Vice President of Energy Management for Siemens in Mexico
71
When CFE decided to update and modernize the national
opportunities to develop the country’s generation,
electric grid, it turned to an old friend for help. Siemens has
transmission and distribution of electricity. Preinfalk
been in Mexico for 123 years and is an integral component
says that 23 percent of Mexico’s electricity generation is
of the country’s energy sector. A cooperation agreement
produced through Siemens' technology and 50 percent
signed with the Mexican state-owned electric company
of the equipment used to bring electricity to Mexican
further cements a foothold for the German multinational
households is provided by the company.
that already had a deep imprint. Despite its favorable position in the Mexican market, Alejandro Preinfalk, Vice President of Energy Management
Siemens continues to look for opportunities to further
for Siemens in Mexico, says the bilateral deal will bring
cement its foothold in the country, positioning itself as
reliability and efficiency to the grid. “We agreed with CFE
a reliable partner for authorities and regulators. “We are
on the assessment of new technologies to modernize and
backing PRODESEN’s process of developing the country’s
digitalize Mexico’s electric system. The purpose in using
electric network. There is a significant investment forecast
these technologies is to reduce costs by mitigating technical
in the expansion and digitalization of the network and
and nontechnical losses and to increase the reliability of the
we are pushing for an automated, smarter network with
network by conferring it modern and top-tier components.”
balanced power loads, as well as providing the equipment
The accord signed in June 2017 was the culmination of a
for a sturdier grid,” Preinfalk says.
memorandum of understanding signed in February 2017 between the German company and the Mexican state-owned
This new technology input comes with challenges. Mexico will
entity to select projects that would launch the national
need skilled professionals to manage, operate and provide
electric grid into a major modernization phase.
maintenance for these new developments and equipment. As Siemens is present in more than 190 countries, the company’s
Preinfalk emphasizes that Siemens’ priority lies in “working
human capital includes experienced personnel in developing
hand in hand with Mexican authorities and clients to
these new systems and technologies and applying them in
understand the system’s requirements, and to see how we
other countries’ electrical companies. Siemens is undertaking
can contribute to this development through the use of our
technology transfers to Mexico through training programs
technology and the robust base of plants and R&D centers
that will provide the human capital capable of using these
readily available in this new environment brought about
technologies efficiently.
by the reform.” The company also focuses on community relations and the The company is anticipating the challenges Mexico will face in
training of potential candidates. “Beyond satisfying our
the mid and long term by adapting its electric infrastructure
clients' needs, we want our technology to contribute to
and technology to the country’s growing electricity demand,
the growth of the local communities where we operate. We
as well as to the increased power-generation capacity that
have several social-development programs with the Ministry
renewable energy projects are adding to Mexico’s energy
of Education to reach both schools and universities through
mix. This endeavor is already bearing fruit: CFE has so far
the implementation of dual-education programs,” Preinfalk
installed 600,000 electricity smart meters nationwide.
says. By dividing their time between academic pursuits and
Technical energy losses have decreased from 16 percent in
practical work at Siemens, students participating in the
2012 to 12 percent by late 2017, according to CFE figures.
program will graduate with both theoretical and practical industry knowledge. This program has a lengthy track
With the unfolding of the previous and forthcoming
record of success in Germany, and Siemens is looking to
long-term electricity auctions, Siemens detected major
replicate that success in Mexico, Preinfalk says.
VIEW FROM THE TOP
STABLE POWER FOR ENERGY TRANSITION JAIME ZUBILLAGA Managing Director of MAN Diesel & Turbo Mexico
72
Q: What opportunity does MAN Diesel & Turbo see in
& Turbo embarked on a project with a wind park developer to
Mexico’s new energy industry?
eliminate intermittency and offered a backup to the 12 wind
A: The era of big combined cycle power plants in Mexico,
turbines installed, adding a total of 25MW. With this project,
when CFE was the sole presence in the market with some
MAN Diesel & Turbo ensured the island would have access to
projects ranging from 500-1,000MW, is over. We now have a
energy at all times, no matter the weather conditions.
competitive market that demands all players showcase their advantages with smaller, flexible projects. These projects will
A local example is the Bajio region, which is highly
provide important backup services for renewables because
industrialized but is also situated about 1,800m above sea
they will offer the possibility of having power when the wind
level. Natural gas turbines have the disadvantage of decreased
does not blow or the sun does not shine. Traditional natural
energy output the higher the altitude. MAN Diesel & Turbo
gas turbines coupled to generators have the disadvantage
gas engines do not suffer power decreases, even at heights of
of needing several hours to provide full energy, which does
3,000m above sea level. These gas engines could be installed
not fit well with Mexico’s present market and new renewables
almost anywhere in Mexico without losing efficiency. As a
scheme. In this regard, MAN Diesel & Turbo is the perfect
matter of fact, one of those gas engines is being installed in
option because its natural gas engines can supply full energy
the Bajio region, where one of our clients required a secure
in less than one minute at any time and when renewable
and steady energy output. To meet the high demand and
energies are not available.
energy security needs at very competitive prices in the region, we have developed and implemented the first distributed
Q: What makes MAN Diesel & Turbo the perfect option to
generation plants. We are providing our customers with an
provide energy security to the Mexican system?
excellent choice and energy flexibility at consumption centers,
A: MAN Diesel & Turbo offers high capacity natural gas
with our high-tech and high-efficiency natural gas engines.
engines with power outputs of 10MW and 20MW per unit. Multiple units are ideal to cope with the total power plant
Q: Does MAN Diesel & Turbo offer its financing capabilities
size and reliability guarantee. We are one of the few engine
in Mexico?
manufacturers that supplies its own turbochargers, meaning
A: Yes, and we are very proud of having this financing
that the air compression in those systems is designed to
capability. Beyond that financing arm, we also offer project
directly maximize the power output and efficiency of our
developers that choose to work with us the benefit of our
engines. While others purchase their turbochargers from
brand. MAN Diesel & Turbo is helping Mexican customers
other companies, ours are tailor-made to increase efficiency
to take a minority equity stake on selective projects. When
by several percentage points. This might not seem like much,
a financing institution sees that MAN Diesel & Turbo is also
but in a typical lifetime of 10 to 20 years, which is the minimum
investing in the project, it feels safe in providing the required
we target at MAN Diesel & Turbo, that efficiency can represent
financing to secure its implementation.
millions of dollars in fuel and operating costs. Q: What is MAN Diesel & Turbo’s vision for Mexico? One perfect example of the capabilities we want to deploy in
A: MAN Diesel & Turbo believes in the virtues of the country
Mexico is located in Bonaire, in the Dutch Antilles. MAN Diesel
and is willing and committed to continue developing its capabilities and presence in Mexico. We are proud that 100 percent of our personnel in the country are locals and the level
MAN Diesel & Turbo is a leading force in design and manufacturing
of expertise is identical to anyone else coming from Europe
of low- and medium-speed engines for marine applications and
or the US. Many of our service engineers are so well-trained
stationary power plants, including compressors and turbines for
and have such broad experience that they are often needed
oil & gas, process industries and the power generation sectors
in other parts of the world.
INSIGHT
A GIANT RECOVERS, AND STRENGTHENS
Akira Matsuzawa President and Director General of Toshiba de México
Marcial Frigolet Vice President of Toshiba de México 73
What does not kill you makes you stronger, goes the old
combined cycles and efficient cogeneration. We are
saying. Akira Matsuzawa, President and General Director of
working to make sure that most of the steam turbines to
Toshiba de México, believes that, like that adage, a time of
be used at these plants are provided by Toshiba.”
crisis can produce positive results. That is what happened to the Japanese titan and Matsuzawa says the company is
As the reform moves forward, CFE will play a critical role
better for it as it is now focusing on what it does best. “It is
in securing Mexico’s energy transition due to the fact the
no secret that Toshiba went through a crisis that started in
commission owns the vast majority of generation plants using
2015,” he says. “Now, we are developing spin-offs and selling
natural gas in the country. This leaves CFE in a tight position,
business units to recover the huge loss triggered by the
because the energy company is also struggling with a low
nuclear business and to enhance our financial health.”
budget and debts, explains Frigolet. “CFE has plants that are old and that must compete on an energy-price basis against
Matsuzawa says that although the undertaking has not
new and more efficient plants that will be installed by new
been easy, by focusing on Toshiba’s highest added-value
generators in the market. It is going to be hard for CFE to
the company is not only able to offer better solutions to
adapt to this change.” It does not help that the best option
its clients but also a strong brand. “The Toshiba name still
for CFE is to install new units with higher efficiencies, Frigolet
represents safety and reliability in the market, and main
continues. “The only way the company can solve this issue is
banks and other financial institutions continue to back
through Public Private Associations (PPAs) to help it finish
us, as do the clients that trust our technology.”
the projects it has in its portfolio.”
Unlike many companies that employ a discontinuous
To win contracts in Mexico, Toshiba is relying on its capabilities
strategy for technological products, Toshiba prefers to
and advantages. “Our turbines are the most optimized
follow a more traditional approach to its technology that
in the world. They offer the best performance and a clear
ensures the company’s clients can get the most out of the
competitive advantage on ROI,” Frigolet says. He also points
products they receive, particularly in the energy area. “The
to the long-term vision Toshiba develops with its clients.
philosophy of Toshiba’s energy division is based on offering
“Another competitive advantage we have is our long-term
continuous improvements for each one of its turbine
maintenance contracts. Our strategy is based on always
generators,” Matsuzawa says. “This has allowed us to reach
offering the best post-sale, long-term service we can provide.”
even higher temperatures, which directly equates to more production capacity and more efficiency.” He says that by
Toshiba is also looking at other business prospects in Mexico.
following the continuous improvement method, Toshiba
Geothermal represents an important opportunity for the
achieved 63 percent efficiency at one of the combined cycle
company, which already has experience in the segment. “We
systems installed in Nishi Nagoya, Japan.
are the No. 1 provider of geothermal turbines in Mexico and the world. In Mexico, we have the largest installed capacity,
An approach based on brand trust and tangible results
with over 400MW just in Cerro Prieto, the biggest plant CFE
can offer a strong foothold in Mexico’s energy market,
has for geothermal production,” Frigolet says.
says Marcial Frigolet, Vice President of Toshiba de México. Toshiba is looking to capitalize on the opportunities
The company also is keeping an eye on the electricity
opened by the Energy Reform as renewable energies are
auctions as an opportunity to solidify its position in the value
intermittent and the country is going to need a secure
chain. “We are not among the companies looking directly at
baseload to support their integration into the energy mix.
the electricity auctions. Instead, we support generators. We
“The Mexican government has placed a strong bet on
are interested in both the long-term and midterm electricity
the implementation of natural gas plants that include
auctions,” says Matsuzawa.
74
VIEW FROM THE TOP
ONE-STOP SHOP FOR MEXICO’S ENERGY MARKET OSCAR SCOLARI CEO of Rengen Energy Solutions
75
Q: What is keeping waste-to-energy from becoming
running. The most efficient way to produce thermoelectric
attractive in Mexico and how is Rengen working to make
energy is with natural gas. For this reason, natural gas-based
waste-to-energy a reality in the country?
energy production will remain the backbone of the world’s
A: Waste-to-energy is based solely on an alternative for solving
generation capacity for a long time.
environmental problems. It is a way to avoid burying trash that generates toxic leaching, poisoned groundwater and methane
Q: How has CFE received Rengen’s offers to convert and
that is released into the atmosphere and contributes to global
revamp its power plants?
warming. As a matter of fact, waste-to-energy, although much
A: CFE will be a big consumer of these types of services
cheaper than plasma and pyrolysis, is not an economical way
because it has inefficient power plants that must be brought
to produce energy. Therefore, waste-to-energy should not be
up to proper production and efficiency levels. CFE has no
considered as a primary method for producing energy but as
other choice but to improve these plants or shut them down.
a way to solve an ever-increasing environmental problem that
Although it now has the biggest share of consumers, as more
also allows us to create energy. Mexico’s politics make it hard
producers enter the market and start to aggressively offer
for waste-to-energy projects to become a reality. These are
cheaper MWs, those consumers may leave CFE.
expensive developments, and while the financing is available, it may be approved too close to the next round of elections.
Rengen has also been working with smaller plants in a range of 50-200MW. We have provided quotes for several clients
To address this issue, we are working to attract loans
in the center and western regions of the country. Although
from international organizations and to offer lost fund
we have mastered the technological and economic processes
schemes to spark these projects, but this is still under
required to complete the quotation, we are now working on
development. We are also perfecting waste-to-energy
facilitating financing solutions so our clients have access to
technologies and processes to make them more efficient
long-term loans if they need them, thereby increasing the
and environmentally friendly.
possibility they will accept our services. Some banks are interested in our models, as well as some international funds.
Culture has been an obstacle as it is not the state government
This solution has also attracted the attention of CFE.
but the municipalities that are responsible for the trash they generate. A municipality generating a small amount of trash
Q: What market opportunities does Rengen see in the
with a small budget much prefers to simply bury it than to
construction of transmission lines?
make a big investment for an expensive plant.
A: Rengen is constantly providing project quotes for this sector. This is a highly attractive and competitive market
For this reason, we are also promoting a strategy wherein
that will boom as ever more power-generation projects
small municipalities can band together and gather the needed
are being constructed. In this area, we are finishing three
amount of refuse or urban solid waste to make the project
projects on the Yucatan peninsula. Our goal is to offer CFE,
economically viable. Now is the moment to invest, and we
and other customers that are looking to construct new plants,
should not miss the opportunity. The environment demands it.
the possibility of also installing the transmission line, thus becoming a one-stop shop for them.
Q: What is the potential of converted and revamped power plants in Mexico? A: When the wind does not blow or the sun does not shine,
Rengen Energy Solutions is a Mexican engineering, procurement
industrial processes cannot stop. Thermoelectric energy
and construction (EPC) firm specialized in building and
is therefore the basis of any industrial process because it
operating gas-fueled cogeneration plants and projects for the
provides constant energy generation to keep processes
oil and gas and petrochemical industries
VIEW FROM THE TOP
ANTICIPATING REGULATORY CHANGES FOR RENEWED COMPETITIVENESS RAMÓN MORENO Chief Technical Officer of Mitsui & Co. Americas
76
Q: What is the unique factor in Mitsui’s proposal for
Another problem brought about by an open energy market
Mexico’s renewable energy sector?
is the risk inherent to price signals emitted by the electric
A: Mitsui is not only involved in natural gas power generation.
node market. These short-term signals impact the design
We have a 3GW-strong portfolio of combined-cycle
of PRODESEN’s long-term infrastructure projects, which
power plants, making us the second-largest private power
need to be evenly distributed nationwide, as uneven
generator in the country. But we also jointly participate
infrastructure projects can impact renewable energy
with EDF Énergies Nouvelles México through a 50 percent
penetration across the country.
ownership in the operation of two wind farms in Oaxaca. We are analyzing the possibility of expanding our portfolio
Q: Within your diversification strategy, what are the key
in wind power and integrating PV power projects. Mitsui
requirements that ensure Mitsui’s involvement in a project?
has an undeniable comparative advantage in mastering
A: Mitsui is interested in projects that are sustainable over
combined cycle and natural gas technologies.
the mid to long term, with a solid ROI. We also take social impact seriously. If we are to be involved in a project, it
Q: How is Mitsui’s business contributing to the expansion
must generate added value for the people around it. This
of Mexico’s natural gas and electric infrastructure?
factor is key because any and every project is vulnerable
A: Traditionally, combined-cycle plants entail increasing the
to regulatory changes and political transitions, but social
intake capacity of the available pipeline. In the past, we
acceptance ensures the longevity of the project against
participated in pipeline infrastructure expansion projects.
these factors.
We remain open to that. Grid insufficiency is also an issue. Despite Mexico’s relatively low penetration of intermittent
Q: How is Mitsui facing the challenge of limited specialized
generation, the country urgently needs to deploy or facilitate
human capital in Mexico?
electricity demand-response mechanisms. Combined cycle
A: Electric generation outside of CFE, undertaken by private
helps to increase intermittent generation penetration to
investors, started back in 1999-2000 but that is a relatively
a degree that few other generation technologies allow.
short period of time to develop a highly trained technical
Usually, power supply adapts to power demand but
workforce, especially considering the technological
efficient and innovative power generation requires inverting
dynamism of the sector. The professionals involved in power
the equation. Mexico’s energy authorities and regulators
generation since that time are concentrated among the
need to strengthen the regulatory framework to ensure
few private players that tackled the combined cycle niche:
economically viable energy-storage initiatives.
Mitsui, Iberdrola, Gas Natural Fenosa and Intergen, to name a few. Renewable energy in Mexico is close to a blank slate
Mexico’s electric power scheme is well assembled, with
when it comes to trained professionals.
adequate power and energy-payment mechanisms. If you want to inject a higher portion of renewable energy
Mitsui’s human resource scheme consists of hiring young
into the country’s energy mix, with almost zero variable
professionals and focusing on their growth through quality
cost, combined cycle is the perfect supplement due to the
training programs. This allows us to maintain our working
system stability it provides.
culture, permeating generations. We keep a close eye on what Mexico’s academia is doing, the new educational programs that are being designed and the technical
Mitsui & Co. Americas is a 100 percent Mexican subsidiary of
professionals who are being trained. We would like to
Mitsui & Co. Its purpose is managing and developing power assets
contribute to developing a Mexican human capital pool
in the Americas. Mitsui & Co. is a global service and investment
that is highly specialized in the energy sector, eliminating
company with six business areas and 12 business units
the need to look for them abroad.
VIEW FROM THE TOP
CATCHING UP TO MEXICO’S RENEWABLE ENERGY MARKET MARIO CHÁVEZ Executive Commercial Director of GE
77
Q: What have been the highlights and lessons learned
technology. We are confident about what this technology
during GE’s development in wind power?
can bring to Mexican projects. We have highly competitive
A: The wind industry suffered an impasse between 2014
2X and 3X platforms suitable for Class II and III winds, to offer
and 2015 because of low electricity prices. Back then we
the lowest electricity cost that can be produced at Mexican
were pushing, together with developers, for self-supply
sites. Plus, some projects allow us to put our financing arm
schemes directed to industrial companies. Given these
into play with GE Capital, using the Energy Financial Services
circumstances, private customers lost interest in moving
branch. This division joins forces with customers to increase
forward, preferring to adopt a wait-and-see approach.
returns, as well as accelerating the project.
Then the auctions took off, which was a boost for wind energy projects. We have been particularly interested in the
Q: How do you choose the developers you take on as
energy auctions and partnering up with some developers,
partners?
particularly in the second auction and moving forward to
A: We try to let them choose us. Matching our technology
the third auction. We are well-positioned with a couple
with the best sites, which can vary in terms of wind
of projects that we are confident will secure us 20 to 25
capacity or land constraints, can make our technology
percent of the wind power market before the end of 2017.
more suitable than others. We build cases with our
Our goal is to achieve 30 percent market share in 2018, if
potential developers and investors to ensure the price we
our current trend continues.
offer in auctions is competitive.
Although GE does not have solar plants or solar panels, we do have a versatile balance of plant solutions for solar parks and wind farms, as well as inverters. A new opportunity has emerged for GE. Everything solar-related in Mexico is growing tremendously, and we hope to be a part of it. Q: How does GE plan to compete with major companies already well-positioned in those segments?
GE is preparing 5 lithium-ionbased energy storage projects in Mexico, for an estimated US$25 million in aggregate minimum investment
A: GE is in catch-up mode. We are developing technologies, which will be available soon. We are also looking for
Q: How do your turbines’ initial investment and the total
procurement in several places internationally as our inverter
cost of ownership compare to major manufacturers?
facilities in Germany, Brazil and India demonstrate. I believe
A: Our turbines are highly ranked as we develop them to
that optimization of our procurement systems will provide
optimize wind power projects, especially the 2X and 3X
us with the competitive edge we need. Additionally, GE’s
platforms. Also, we are digital wind farm entrepreneurs,
transformers help us envision the larger scope of our
wherein availability levels and dispatch can be higher,
participation in the project. It should also be mentioned that
compared to traditional wind farms. Guaranteed capacity
GE’s digital efficiency guarantees higher levels of reliability
percentages can be a profitability game-changer, depending
for our inverters.
on the size of the wind farm.
Q: Would you consider repeating a similar approach to GE’s wind power scheme, joining forces with developers in power
General
auctions, to guarantee a foothold in Mexico?
conglomerate corporation. As of 2016, the company operates
A: GE has over 30,000 wind turbines installed globally.
through Aviation, Global Research, Healthcare, Lighting, Oil
We have learned a lot while improving and developing this
and Gas, Power, Renewable Energy, Transportation and Capital
Electric
(GE) is
a
Boston-based
multinational
INSIGHT
WHEN THE WAVES ARE ON YOUR SIDE FRANCISCO CARRIÓN Director General of MARERSA
78
Mexico’s Energy Reform brought a wave of opportunities
to US$500/MWh on average. The report also highlights how
for clean energies, with wind and solar being the champions
such a high cost illustrates the immaturity of the technology
of the transition. Ranking 13th globally in terms of shoreline
and its relative youth, while placing hopes on the creation
length, Mexico has great potential to develop ocean wave
of economically viable technologies through R&D efforts.
power, says Francisco Carrión, CEO of MARERSA, which is
“MARERSA has found a way to solve this, and with our project
focusing on the new segment.
in Lazaro Cardenas, we are going to become the first company in the world to produce an economically viable project with
In its 2016 Marine Energy Resources report, the World Energy
this technology, on a large scale.”
Council (WEC) states that, up until the creation of the report, there was 0.5GW of commercial marine power generation
Generation intermittency, together with oil waste, is a problem
capacity in operation, with 1.7GW under construction.
that, although diminished with the use of renewable energies,
Meanwhile, in a study conducted on behalf of the International
still exists, says Carrión. “Renewable technologies, although
Panel on Climate Change (IPCC), scientists estimated that
environmentally friendly, still have some related sins. For the
the total global theoretical wave energy potential was in the
big champions, wind and solar, the environmental problem
range of 2-32PWh per year. These numbers vary mainly due
rests with the oil used inside the turbines and the batteries
to different technical and economical assumptions. According
manufactured with polluting materials. Neither technology
to the World Energy Council report, the North American
can provide a continuous, stable supply of electricity.”
region, especially along the Pacific coast, is ranked highly in its energy generation potential through wave power production
“ technologies.
We improved our patents until we achieved a technology that can provide non-interruptible, 100 percent environmentally friendly energy supply”
Ocean wave power used to commit the same sins as these two other technologies, he continues. “Most wave power systems use hydraulic oils, just as wind turbines do, which due to temperature and pressure must be replaced almost every two years. A wave power project in Rosarito that we were working on together with CFE required an estimated 2 million liters of oil to be changed every three years, incurring both environmental and economic costs. Wave power technologies that use these kinds of oils also have the disadvantage of not being able to produce power during harsh environmental conditions when the floating devices must be retracted, stopping the flow of energy, which makes the technology intermittent just like wind and solar.”
The Ministry of Energy’s 2016-2030 Renewable Energies
To solve the problem of intermittency and pollution,
Prospective describes ocean wave power simply as a potential
MARERSA has come up with an innovative mechanism,
clean energy. Cost has been a top factor for neglecting the
which will be deployed at its Lazaro Cardenas 150MW
source’s promise, a perception that MARERSA believes it can
project. It uses water, air and a set of buoys to transform
change. “Few countries in the world have companies that
kinetic energy from the ocean into potential energy ready
are strongly committed to wave-power technologies. This
to be transformed into electricity, even in harsh ocean
is due mainly to costs, which can make ocean wave power
conditions. Achieving the needed level of technological
too expensive to develop,” says Carrión. In its Marine Energy
maturity did not come easily. “Our Lazaro Cardenas project
Resources report the WEC highlights how wave energy
did not develop overnight, we have been working on
production has the highest cost of electricity, reaching up
wave technologies since 2007. During this whole time, we
improved our patents until we achieved a technology that
“MARERSA has raised US$500 million for the development of
can provide non-interruptible, 100 percent environmentally
the project. Half of that amount is on standby for future steps
friendly energy supply. Even when the system undergoes
of the project, and the other half is invested in a nontraditional
maintenance, its modular design means it only stops
way as cryptocurrencies,” he says. Investors who agreed to
production at 500kW intervals, while the overall system
work in this way are now happy to see that monthly profits
keeps running.”
have increased by between 8 to 10 percent. “We decided to take the risk, and are now seeing extremely positive results,”
In addition to providing a constant, economic and
says Carrión. “We expect to be producing 10MW by February
environmentally friendly source of electricity, the project
2018, and by May 2018 we want to start supplying 20MW
has provided the port with other benefits. “API Lazaro
each to API and a municipality,” he adds. “In the long run, we
Cardenas receives the biggest benefit from this project.
expect to supply API with 70MW and several municipalities
First, we offer API compensation for using an area of
with 80MW. Since 2008, our objective has been to provide
the port that has no value, and actually represents
all of API installations in Mexico with clean energy produced
maintenance costs. Because our wave-power units take
by wave power. This project is the first step to materialize
the brunt of the waves, the port suffers less damage and
the dream.”
over time, maintenance costs decrease. Finally, we reduce API’s energy-related costs by as much as 60 percent.
But the company is not stopping in Mexico. It is already
As a matter of fact, this port will become the first in the
looking at opportunities for expansion. “We are making a
world to be fully supplied by completely clean energy,”
strong move into the Colombian market, where we will start
says Carrión.
working soon on a 1GW ocean wave-power project,” Carrión says. “Another business area in which we want to focus is
In terms of the project’s financing, Carrión emphasizes the
transforming organic and inorganic waste into construction
challenge of doing so in a highly innovative area like that of
material and energy as well, which is an excellent way to get
ocean wave technologies. “While widely proven technologies
rid of waste while supporting sustainable and innovative
such as wind and solar are still hard to finance, innovative
methods for the infrastructure industry. Also in Colombia, we
ones like ours are even harder,” he explains. Innovation is at
are in negotiations to process 250 tons of waste from Cali to
the heart of MARERSA and the company has incorporated
create construction materials.” In the medium term, MARERSA
it into its business model through its financing scheme.
also wants to expand to the Dominican Republic.
79
Los Azufres geothermal plant, Morelia, Michoacan
80
INSIGHT
POWERING MEXICO’S SOLAR MARKET RAQUEL IGUALÁ LATAM Director, Solar Division of Power Electronics
81
The magnitude of Mexico’s utility-scale projects generated
are working with virtually all of the first and second auction
by the long-term electricity auctions is opening the door
winners,” says Igualá.
for specialized private players to participate in every stage of the projects. Raquel Igualá, LATAM Director of Power
But the awarded projects from the auctions have faced
Electronics’ Solar Division, says the strong framework
several challenges in terms of social and environmental impact
surrounding the auctions is only calling more attention to
assessments, which have delayed permits and subsequently
Mexico, from both local and international companies. “The
the launch of projects. “Some of the awarded projects are still
design of Mexico’s long-term electricity auctions generates
in the first phase of development and the issue of permits has
certainty about costs and contract maturation, together
extended the planned implementation date,” Igualá explains.
with Mexico’s stable macroeconomic variables,” she says.
“As for construction, only Enel’s PV park in Villanueva has
“It is well-known that Mexico’s economic and demographic
reached this stage. Iberdrola’s 300MW of solar PV projects,
growth will translate into increased demand for electricity,
for which we are suppliers, are also at the construction stage,
paving the way not only for long-term electricity auctions
but those two projects are being built through PPAs.”
but also for private PPAs.” Power Electronics views PPAs favorably and decided With increased demand comes more competition, and
to diversify operations by expanding its business line
Power Electronics offers two differentiating factors among
beyond the electricity auctions. “We have secured
power manufacturers. “First, our company is focused on
several projects ranging from 30-40MW and we believe
customer service across the entire value chain, particularly
that the market will grow not only through auctions, but
in the development of projects and technical services. Power
also through the multiplication of private contracts in the
Electronics always tracks the entire project process, up to
coming years,” Igualá says.
execution and operation,” Igualá says. “Second, our response time for any customer-related requirement has yet to be
With a growing energy sector comes the need for
matched.” The company’s Power On Support service means
professionals to take on new, more complex roles and this
service is guaranteed 24 hours a day, 365 days a year in
process brings alongside it a strengthening of the talent in the
countries where Power Electronics has a local presence. “We
region. “This is a constant throughout Latin America. When
strive to show a level of commitment to our customers that
the Chilean renewable energy market began to develop, most
is not seen anywhere else in the renewable energy industry,”
of the participating private companies were from Europe,”
she adds.
says Igualá. “Panama and Uruguay went through the same process, and in Brazil we have seen the same phenomenon,
The Spanish power manufacturer is supplying 759MW
with the difference that it is a much less-developed market.”
in Latin America and 6GW worldwide. Power Electronics
Power Electronics seeks to hire and train local talent that will
first established in the US and continues to consolidate
contribute to the development of the sector throughout the
throughout the Americas. It has spearheaded several
region in general, and Mexico in particular.
flagship projects, such as the Uyuni solar park in Bolivia, located at 3,800m above sea level. “This is testament to
Mexico’s energy demand is already transforming the country,
our effective and high-level products and services,” Igualá
and it is expected to grow further while electricity costs will
says. Power Electronics is also supplying the first large solar
remain high. “The country’s stable macroeconomic variables
park in Argentina and outlining a strategy to penetrate the
encourage financing from private banks and other financial
Colombian market. As for its current projects in Mexico,
institutions,” says Igualá. “Mexico’s energy market continues
besides the two developments it is supplying to Iberdrola,
to take its first steps and Power Electronics will be there every
Power Electronics signed an additional 418MW in 2017. “We
step of the way.”
INSIGHT
DIVERSIFY AND CONQUER MASSIMO FERRARINI Director of Jema Energy Mexico
82
Alphabet Inc., Google’s parent company, wants to solve
on the derivable potential opportunities created before the
renewable energy’s intermittency issue through an energy
Energy Reform and the sector’s inherent transformations
storage system that employs salt. Tesla is building the
resulting from the long-term electricity auctions, PPAs and
world’s largest lithium-ion battery storage system in
the modification of legacy contracts. The company is also
Southern Australia. Siemens is developing energy storage
confident in its ability to provide technological solutions,
solutions in Mexico. Dutch startup Physee developed PV
assisting with the injection of renewable-energy generation
PowerWindows, that are capable of generating electricity
into an electric grid capable of receiving it, while efficiently
by installing them as building facades.
managing and distributing the additional electric capacity.
These are but a few examples of how technology and
“Batteries are the talk of the town in renewable energy. Yet,
research have become indispensable allies in rendering
there are other storage technologies under development.
renewable energy sources a viable solution in power
Jema is testing flywheel, supercapacitor and fuel-cell
generation, on par with conventional energy sources. But
systems,” Ferrarini says. The company tests the impact of
technology is as unpredictable as it is useful.
different energy sources and storage solutions in iSARE, a pilot smart grid, based in San Sebastian, Spain, that is
One of renewable energy’s main challenges lies in becoming
aiming to develop large-scale versions of technologies that
a stable, cost-effective and predictable source of electric
show promising results. “There are at least 25 scenarios for
power. Developers of highly technological and innovative
technological developments that we have identified. We
solutions know this well. In Jema Energy’s case, the
want to integrate a cohesive and diversified technological
company wants to capitalize on its 60 years of experience
portfolio of renewable energy applications with solutions
and its specialized laboratories to develop value-added PV
that can coexist in the electric grid,” he adds. Jema Energy
power-generation solutions, including solar inverters and
places a particular importance on its 360-degree vision
energy-storage systems for the industrial sector.
when it comes to technological innovations with largescale potential, high-power capacity and high precision
“Wind, solar, hydroelectric, energy storage and conventional
that make them applicable to the electric vehicle sector.
power generation have to compensate for peak electric demand, integrate an up-to-par supply-and-demand
Ferrarini agrees that batteries are a proven technology,
monitoring system and be able to supply electricity during
with an extensive track record in research and product
critical demand periods,” says Massimo Ferrarini, Director
improvement. The window of opportunity for batteries in
of Jema Energy Mexico. The company manufactures and
energy-storage applications is quite large, not only because
supplies power electronics solutions for highly demanding
of market trends but also because of the increasing demands
technological heavyweights like Nuclear Fusion Laboratories
of final customers to reduce electric consumption. In Mexico,
in California, Geneva’s CERN and NASA. In Mexico, Jema
battery-powered energy storage solutions exist but they
Energy has supplied top-tier equipment for more than
have yet to become mainstream enough to develop a local
30 power-generation projects, both for combined-cycle
battery-component market.
installations, such as the Agua Prieta plant, Empalme I and Empalme II plants, as well as for industrial PV projects and
Jema Energy’s objectives in Mexico are threefold: first,
pilot energy storage systems.
implementing large-scale renewable energy projects, with a particular focus on solar energy. Second, providing
Mexico is a natural market for Jema Energy as it is the
innovative energy-storage solutions. Third, developing
country where the company has the most business outside of
large-scale applications to improve electric infrastructure
Europe. Its experience here started 18 years ago, capitalizing
and electric-grid efficiency.
INSIGHT
THINK GLOBALLY, ACT LOCALLY VICENTE GARCÍA Business Development Manager Mexico of Isolux Corsán
83
Mexican energy market players were surprised as energy
project in December 2014 and it had to be connected to
prices plunged with each long-term auction. Now, with
the grid by July 2015 so that it could enter a subsidized
solar energy itself growing more competitive, Vicente
feed-in-tariff scheme that the government of Honduras
García, Business Development Manager Mexico at Isolux
offered.” Had Isolux Corsán not delivered and connected
Corsán, says that the new challenge developers are facing
the plant by that date, the whole project would not be
in the market is to find ways to lower project development
profitable. Stepping up to meet the challenge, Isolux Corsán
costs. “Isolux Corsán, is reinventing itself daily to become
built a 61MW plant from scratch in around six months in an
flexible and adaptable when it comes to the market’s
isolated region.
needs,” he says. Isolux Corsán ensures the viability of these kinds of The company, an EPC with experience in developing
innovative projects by ensuring a strong funding model.
infrastructure, power plants and transmission lines, has
García says the company’s escrow accounts hold the
decided to grab the opportunity to lower costs further by
entirety of funds and pay any expenditure, which ensures
breaking the projects down into smaller batches through
projects will have funds to finish on time and on budget.
its balance of systems (BOS) scheme. “We recognize
“Isolux Corsán does not finance projects itself, but we can
that renewable energy is an important business niche for
extend the good relationships we have developed with
Mexico and we want to become a strong player in that
banks, including Bankia, Caixa and Goldman Sachs,” García
market,” he says.
says. This scheme is being carried out to finance a 100MW wind project in Ciudad Victoria, Tamaulipas.
Although EPCs traditionally prefer to manage all aspects of a project throughout its lifespan, Isolux Corsán’s BOS
García says Isolux Corsán’s main goal for 2018 is the timely
approach allows for greater flexibility. “Having our own
and successful completion of the US$1 billion worth of
workforce in Mexico has turned out to be extremely
projects that the EPC is executing. But he says Isolux Corsán
advantageous for BOS developments as we do not have
wants to diversify its project portfolio in the near future
to subcontract workers like most EPCs do,” says García.
and enter as many business lines and energy projects as
Additionally, he points out that the company combines the
it can, including the construction of power plants and the
virtues of a global contractor with a global vision and a
development of transmission lines and substations.
local presence that means it has developed expertise on the Mexico-specific market value chain.
According to EY and PwC reports, PRODESEN is set to tender the construction of almost 24,000km of HV
Some of the most important projects the company
transmission lines with a required investment of US$12
manages are a CFE power plant worth US$400 million,
billion until 2031 and, with its broad expertise, Isolux
three transmission lines, a wind park in Ciudad Victoria
Corsán wants to get in on the ground. “Almost 50 percent
valued at US$160 million and the Mexico-Toluca train, for
of CFE’s 100,000km of HV transmission lines are over
which the company manages over US$180 million.
20 years old,” says García. “Given an estimated annual generation growth of between 4 and 5 percent and
According to García, the 61MW project Isolux Corsán
future budget limitations at the federal level, the need
carried out in Cholulteca, Honduras, best illustrates the
for private investment to extend and revamp this aged
specific capabilities the EPC can bring to the table. This
infrastructure is a critical reality.” García highlights the
was a landmark project for the company because of how
success of countries such as Brazil, India and the US in
challenging it was. “The project had very demanding time
opening their markets to private investment and indicates
frames,” says García. “Isolux Corsán was awarded the
that Mexico should adopt these best practices.
CFE's cogeneration plant, Manzanillo, Colima
NATURAL GAS
4
Natural gas is the cleanest fossil fuel for power generation. It also offers a higher flexibility and reliability that very few renewable energy sources can compete with. This is reflected in the fact that natural gas turbines can be used to back up wind farms and solar parks during peak consumption hours when the wind does not blow or the sun does not shine and there is an energy demand to be satisfied. Mexico, as a country with a processing and manufacturing industry that is essential to its GDP growth, requires high levels of availability in energy generation for its industrial processes. Additionally, clean energy requirements are forecast to increase annually, bringing with it the expectation of an uptake in natural gas extraction. This has resulted in international companies turning their eyes toward the plethora of business opportunities being created in Mexico.
In the following chapter, the main market players in Mexico’s natural gas industry offer an insight into the current state of this sector and offer their expectations for the transportation and use of natural gas in powering the country.
85
CHAPTER 4: NATURAL GAS 88
ANALYSIS: Natural Gas a Potential Bridge Connecting Production and Demand
90
MAP: Natural Gas Infrastructure and Power Plants
92
VIEW FROM THE TOP: David Madero, CENAGAS
95
VIEW FROM THE TOP: Juan Hernández, Industrias Energéticas
96
VIEW FROM THE TOP: Héctor Magaña, GNU Gas Natural
98
VIEW FROM THE TOP: Narcís De Carreras, Gas Natural Fenosa
100
VIEW FROM THE TOP: Alberto Escofet, Enagás México
101
VIEW FROM THE TOP: Enzo Losito, AB Energy Mexico
César Sánchez, AB Energy Mexico
102
INSIGHT: Jorge Gutiérrez, COGENERA
103
ANALYSIS: The Gulf of Mexico–Japan Connection, Faster Than Ever
104
VIEW FROM THE TOP: Francisco Guajardo, Grupo DIDSA
105
INSIGHT: Caio Zapata, Énestas
106
View from the Top: Alfredo Quintana, Tecdigas
107
INSIGHT: Anna Raptis, Raptis Group
108
RoundTable: How Can Natural Gas Assist Mexico’s Energy Transition?
87
ANALYSIS
NATURAL GAS A POTENTIAL BRIDGE CONNECTING PRODUCTION AND DEMAND During COP21, Mexico committed to ambitious clean energy targets. The country pledged to generate 25 percent of its energy through clean sources by 2018, 30 percent by 2021 and 35 percent by 2024. Natural gas has emerged as the transition fuel to make this goal a reality
88
Mexico is a country hungry for natural gas, especially
THE RACE TO MEET DEMAND
since it adopted the resource as its transition fuel to clean
While consumption levels in the country are expected to
energies. Although a fossil fuel, natural gas is notably
increase, production will continue decreasing. As a matter of
cleaner than its counterparts, emitting 50 percent less CO2
fact, July 2015 marked a tipping point for Mexico, as it was
than coal when burned. Of the country's total fossil fuels
the first time in which the country’s imports surpassed the
consumption, natural gas represented 44 percent of its
country’s production of natural gas. During 2017 and in the
matrix in 2015, making it the leading resource, according
coming years until results are seen from the hydrocarbons
to the 2016-2030 Natural Gas Prospective, published by
bidding rounds, this trend is expected to continue.
the Ministry of Energy. Under such a scenario, natural gas infrastructure for import, It is expected that by 2030 natural gas consumption will
storage, transmission and distribution will play a major role
increase by 20 percent compared to 2015 levels, driven mostly
in the proper development of the Mexican economy. David
by an increase in demand from the electric and industrial
Madero, Director General of CENAGAS points to the efforts
sectors, whose respective consumption will increase by 52
the agency has made to align the country’s expectations
and 40 percent from 2015 to 2030.
through the publishing of the second annual revision of the Five-Year Plan for expanding the natural gas pipeline network.
DEMAND DYNAMICS
"Through this plan, we aim for a greater balance between
To cover the country’s natural gas demand, CENAGAS
geographical locations where demand is increasing. We
reported that, as of May 2017, there are 13,773km of existing
expect to increase our capacity to supply natural gas to those
pipelines, as well as 6,694km of pipelines under construction.
points, with both national production and imports.”
CENAGAS also reported nine processing units and three regasification terminals, with a total capacity of 2.5bcf.
BEYOND THE TRANSITION While the renewables market matures, the country will require
Natural gas is mostly required for power generation. Of the
a secure and continuous way of producing electricity, which is
total natural gas consumption in 2015, 51 percent was used for
where natural gas comes into play. Madero highlights how, by
electricity generation, and 18 percent was used for industrial
its very nature, natural gas is a transition fuel that should not
processes, most commonly for the generation of heat. The
be considered an enemy of a clean future but as a necessary
three most consumption-intensive regions for natural gas —
complement for renewable energies. “Our support in increasing
the northeast, the southeast and the center-west — are also
renewable energy generation, intermittent by nature, lies in
the most industrialized and populated, therefore driving high
developing natural gas-powered electric generation terminals,
natural gas consumption.
either as a complement or substitution source during periods of low irradiation or wind speed,” he says.
NATIONAL FOSSIL FUELS DEMAND DURING 2015
Enzo Lozito, CEO of AB Energy México, supports Madero’s statement. “Cogeneration is a stabilizer. In each and every grid
17,115 mmcf*
44% Natural gas 22% Gasoline 13% Diesel 7% Coal 6% LPG 5% Fuel Oil 3% Coke
or electric system, we should have a baseload of distributed power produced efficiently, conferring the base on top of which we can add any sort of energy source, be it solar, wind or other. Cogeneration does just that,” he says.
BUSINESS OPPORTUNITIES CEL requirements dictate that cogeneration in distributed generation can actually be more profitable than using
*Million cubic feet natural gas equivalent per day Source: CENAGAS
Other clean energy Renewables
traditional renewable energies. Its flexibility, reliability and lower necessary investments mean the segment is expected
MEXICO'S NATURAL GAS CONSUMPTION, PRODUCTION AND IMPORTS (tcfd) 9 7.71
8 7 6 5
4.51
4
3.65
3
3.50
3.19
2
——Natural gas consumption
——Natural gas production
——Natural gas imports
2017*
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
1999
2000
0.14 1998
1 0
*As of Feb. 2017
Source: Ministry of Energy
NATURAL GAS CONSUMPTION OUTLOOK 2015-2030 (tcfd) 10 8.8 8.4 8
9
8.7
7.8
7.5
9
8.9
8.9
8.9
8.9
9
8.8
9
8
7.6
6
4
2015
2016
2017
——Total consumption
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029 2030
Expected consumption
Source: CNH
to take off in the next few years in Mexico, says César Sánchez,
CENAGAS is evaluating the current available infrastructure
Regional Sales Manager of AB Energy. “With distributed
plus the infrastructure under development nationwide
generation, cogeneration yields a greater number of CELs
outside SISTRANGAS to determine if it is sufficient to cover
compared to solar or wind power,” he says.
the electricity sector’s demand. “If not, we can pinpoint and design the required projects to sustain it,” explains Madero.
Natural gas storage, processing, transmission and distribution is another business opportunity in which
Other less conventional business opportunities created by
companies are looking to participate, by revamping the
the market are virtual pipelines and conversion of gasoline-
existing infrastructure and constructing new facilities. With
powered vehicles to natural gas-powered vehicles. In such a
the Energy Reform, PEMEX’s pipeline system was transferred
large country, with remote locations and uneven population
to CENAGAS, which is now looking to update and expand
spreads, there are several advantages in using virtual
the aged infrastructure. “CENAGAS received 9,000km of
pipelines, explains Alberto Escofet, Regional Manager of
pipelines and nine compression stations from PEMEX, as well
Enagás México. “Virtual pipelines can move gas by wheels,
as a considerable surface infrastructure that requires optimal
trains or even ships, making them much more flexible
operational conditions,” says Madero. “We are launching four
regarding the regions they must reach and the volumes they
investment programs sanctioned by the Ministry of Finance:
must handle.” He adds that they can also generate their own
rehabilitation and maintenance of pipelines and compressors,
natural gas demand. “When a region gets natural gas via
implementation of our SCADA system, modernization of
virtual pipelines, more equipment that uses natural gas is
our monitoring systems and measurement stations, and
installed, meaning that the demand for natural gas increases,”
financing a risk-based best-practices project to manage the
he says. “After a while, the volume can justify the construction
integrity of our infrastructure.”
of a physical pipeline.”
89
NATURAL GAS INFRASTRUCTURE AND POWER PLANTS
12 14 4
1 11
90
10
9
Combined cycle gas station under 500MW Combined cycle gas station above 500MW Steam gas station under 500MW Steam gas station above 500MW Turbogas station under 500MW International interconnection points Transmission pipelines under construction Private transmission pipelines Transmission pipeline operated by CENAGAS
Source: CENAGAS
21
20
2
16
3
No.
Unit
Total Cap (MW)
Technology
1
Caridad I and II
500
Combined Cycle
2
Río Bravo IV
500
Combined Cycle
3
Altamira
500
Conventional Thermoelectric
4
Samalayuca II
522
Combined Cycle
5
Valladolid III
525
Combined Cycle
6
Valle de México
549
Combined Cycle Conventional Thermoelectric
7
Salamanca
550
8
El Sáuz
591
Combined Cycle
9
Mazatlán II (José Aceves Pozos)
616
Conventional Thermoelectric
10
Chihuahua II (El Encino)
619
Combined Cycle
11
Puerto Libertad
632
Conventional Thermoelectric
12
Termoeléctrica de Mexicali
680
Combined Cycle
13
Villa de Reyes
700
Conventional Thermoelectric
14
Presidente Juárez
773
Combined Cycle
15
Tuxpan III and IV
983
Combined Cycle
16
Monterrey III (Dulces Nombres)
1,000
Combined Cycle
17
Altamira III and IV
1,036
Combined Cycle
18
Altamira V
1,121
Combined Cycle
19
Tamazunchale
1,135
Combined Cycle
20
Manzanillo (Gral. Manuel Álvarez Moreno)
1,300
Conventional Thermoelectric
21
Manzanillo (Gral. Manuel Álvarez Moreno)
1,454
Combined Cycle
22
Tula (Francisco Pérez Ríos)
1,606
Conventional Thermoelectric
18 17
13 19 7
15 8 22 6
5
91
VIEW FROM THE TOP
MEETING MEXICO’S NATURAL GAS NEEDS DAVID MADERO Director General of CENAGAS
92
Q: What short and long-term challenges has CENAGAS
2.2bcf were attributed to PEMEX and CFE. For new
identified in the natural gas market?
consumers requiring firm base capacity in the system, we
A: To discern our agency’s challenges we need first to
delivered 2.3bcf.
understand CENAGAS’ primary objectives. On the one hand, assist in guaranteeing Mexico’s gas supply nationwide. On
This allocation represents 722 applications in total, 390
the other, contribute to this primary resource’s transport
private companies with acquired rights, which grant a base
and storage in conditions of optimal efficiency, enhancing
firm-contract option, and 332 from the general public. This
productivity for all involved in the market. As such, our
dynamic contributes to the creation of a national natural
challenges lie in the implementation of the Energy Reform
gas commercialization market.
and achieving our primary objectives. We are pausing the process so companies that received As a technical manager, we have published the second
capacity allocation notifications can analyze capacity
annual revision of the Five-Year Plan for expanding the gas
reserve swap opportunities. Between May 22 and June
pipeline network. Through this plan we aim for a greater
16, contracts were signed, formally signaling our operation
balance between geographical locations where demand is
under the capacity reserve regime starting July 1.
increasing. We expect to increase our capacity to supply natural gas to those points, with both national production
As for our gas transportation segment, we are delighted
and imports. CENAGAS still indirectly operates, through
to increase our client base from our initial three to more
PEMEX, 9,000km of gas pipelines in a secure, trustworthy
than 20 clients for SISTRANGAS. We are also looking
and cost-efficient process with solid operational models
for three-year O&M contracts that reduce our OPEX. We
based on the best practices available and top-tier
have designed four initial contracts to this end, covering
international standards.
close to 1,900km of gas pipelines according to the strict compliance of our work programs. Another challenge
CENAGAS engineered better coordination between the
for this segment involves infrastructure modernization.
players in charge of bringing gas molecules to the country
We received 9,000km of pipelines and nine compression
and those in charge of operating the required infrastructure
stations from PEMEX, as well as a considerable surface
to transport gas throughout our territory. We are also ready
infrastructure that requires optimal operational
to bid on strategic and socially beneficial projects such as
conditions. We are launching four investment programs,
a pipeline from Jaltipan to Salina Cruz and a project to
sanctioned by the Ministry of Finance: rehabilitation
transport gas from the coast of Michoacan to the State of
and maintenance of pipelines and compressors,
Guerrero. In both cases, we are working closely with local
implementation of our SCADA system, modernization of
governments to guarantee demand conditions so we can
our monitoring systems and measurement stations and
go forward with tendering these projects.
financing a risk-based best-practices project to manage the integrity of our infrastructure.
Our short-term challenge involves the open season we implemented and adjusted to answer the requirements of
Q: How is CENAGAS addressing human capital needs to
the market. We consider this successful as we procured,
respond to the agency’s upcoming challenges?
through firm base contracts, 97 percent of available
A: As a recently created agency, CENAGAS also had to
capacity, while pre-existing contracts were maintained, in
face human capital trials. We integrated professionals with
particular for independent power producers, representing
a clear objective of selecting people who create a balance
1.8bcf. The new open season offer includes both CENAGAS
between experience and youth. CENAGAS also made a
and SISTRANGAS pipelines. In this capacity allocation,
point of addressing gender issues, as the contingent of
female technical and engineering staff plays a major role
availability of adequate transport infrastructure and
in our organization. CENAGAS recognizes that both young
natural gas supply. We are collaborating by identifying if
and senior professionals need to undergo a continuous
our available infrastructure plus the infrastructure under
training process. We are addressing this challenge by
development nationwide outside of SISTRANGAS is able
identifying the training specificities that we need, as well
and sufficient to cover the electric sector’s demand. If
as being able to attract talent and provide training that
not, we can pinpoint and design the required projects
shortens learning curves as much as possible.
to sustain it.
We are working hand in hand with the industry supported
Q: What is the strategy behind opening regional offices?
by CONACYT to form a consortium, together with
A: In addition to our Mexico City location and the
TransCanada and IEnova, to spearhead a group to launch
new local office in Villahermosa, we are also going to
an excellence center in pipeline operation. Also, we need
open offices in the cities of Monterrey, Guadalajara
to train a new generation of SCADA operators.
and Chihuahua. This decision targets a more direct supervision of the operational contracts we have with
Q: Do you believe NAFTA renegotiations could have an
PEMEX and the other companies that participated in
impact on Mexico’s energy security?
the open season. The priorities of these local offices
A: I believe it is the other way around. If any NAFTA
will revolve around overseeing the rights of way and our
renegotiation includes an energy chapter, surely it will
relationship with landowners and neighbors located close
foster a solidified framework for bilateral cooperation
to our infrastructure.
between Mexico and the US. I have reiterated the importance of negotiating this chapter swiftly, clearly and
Q: Could you elaborate on your interconnection and
transparently, to dissipate uncertainties. Both sides of the
measurement contract with Iberdrola?
border need to value the importance of our natural gas
A: We have several natural gas interconnection contracts;
exchanges. Mexico imports 4bcf of natural gas and we
we are focused on being as transparent and open as
have reason to believe its importation will increase to 7bcf
possible, providing a customer service experience that
in the next five to six years. Along with the challenges
answers any interconnection requirements as needed.
this represents, there are also business opportunities for
This was the case with Iberdrola, another success story
both parties, backed by a solid regulatory framework.
for CENAGAS.
Q: What role does technology play in helping CENAGAS
Q: How is CENAGAS assisting Mexico’s transition toward
tackle the country’s natural gas challenges?
renewable energy?
A: We purchased a latest generation SCADA system
A: By its very nature, natural gas is a transition fuel. As
to manage our pipelines. To capitalize on this tool, we
a more efficient and eco-friendly source, the only real
need equally top-tier telecommunications and on-site
challenge in Mexico is delivering it to the places where it
measurement technologies. Hence the importance
is needed. Our support in increasing renewable energy
of modernizing our whole natural gas value chain for
generation, intermittent by nature, lies in developing
telecommunications and measurement instruments and
natural gas-powered electric generation terminals, either
technologies in particular so all this data can be timely
as a complement or substitution source during periods
analyzed via SCADA systems to optimize decisions in both
of low irradiation or wind speed. Our priorities, then, lie
emergency situations as well as day-to-day to guarantee
in increasing natural gas coverage nationwide, as well as
enhanced infrastructure management for higher gas
the natural gas-pipeline expansion triggered by CFE’s
quantities at the lowest transportation cost available.
capacity purchase through seven infrastructure projects. Also, in the long term, as renewable energy penetration in
Q: What role is CENAGAS playing in CFE’s transition
Mexico’s energy matrix increases, this will render natural
from fuel oil to natural gas-powered plants?
gas demand intermittent as well, raising new challenges
A: CENAGAS has a clear vision in its Five-Year Plan
in terms of supply management, transportation and
for pipeline expansion as an ongoing and continuous
increasingly flexible systems with higher reaction
process. We are working diligently to forecast a reliable
capacities and natural gas storage infrastructure.
and accurate projection of natural gas demand, largely based on the electric sector’s consumption for power generation. CFE’s transition process will exponentially
National Center for Natural Gas Control (CENAGAS) is
increase demand and we are closely monitoring the
a decentralized organism that acts as an independent
process and the geographical locations where this
operator of the National Natural Gas Transportation and
augmentation will be most intense to guarantee the
Storage System (SISTRANGAS)
93
Thermal generation turbine
94
VIEW FROM THE TOP
COST-EFFECTIVE NATURAL GAS FOR SOUTHEASTERN REGION JUAN HERNÁNDEZ Director General of Industrias Energéticas
Q: What is Industrias Energéticas' (IE) added value as a
services remains deficient, several investors have expressed
service provider of the hydrocarbon industry?
their interest in placing capital to develop the infrastructure
A: IE is a 100 percent Mexican company, with more than 15
for this service.
years of experience in the sector. It can provide effective and reliable solutions with the support of warranties that
Q: How has IE’s footprint in vehicular natural gas evolved
few companies can provide. We are among only nine
since our last interview?
companies in Mexico certified as socially-responsible in
A: One of IE’s divisions specializes in converting diesel-
Campeche for our type of activities.
fueled buses with a dual-conversion kit to natural gas. We have developed the required infrastructure and equipment
Q: What new developments is IE undertaking?
to provide natural gas via onsite or virtual compression
A: The Ministry of Energy’s Natural Gas Pipelines Five-Year
stations. Companies such as Metrobús, Estrella Roja and
Plan 2015-2019 completely left out Mexico’s southeastern
Flecha Rocha could benefit greatly from this particular
region: Tabasco, Campeche, Yucatan and Quintana Roo. The
service.
region was not deemed strategic within the plan, while it is vital for IE’s growth. The region’s growth and bolstering of
Q: What landmarks is IE targeting for 2018?
the tourism, maquiladora and commercial infrastructures
A: For IE, 2018 means a sizable challenge to rise above. We
are based primarily on electricity tariffs. These tariffs are
are coordinating the company’s spread toward subsectors
at levels that hinder the development of the previously
of the oil and gas market that constitute our specialty,
mentioned sectors, particularly for diesel and conventional
where we are developing a strong foothold and will reap
fuel. The industrial and commercial sectors in the region
the fruits of our efforts from 2017, including large-scale,
cannot grow without cost-effective energy and the required
sustainable projects directed toward PEMEX. IE complies
infrastructure to supply it.
with all norms and specifications, both national and international, showcasing itself as a top-tier company. We
Q: What challenges is IE tackling in extending pipelines to
are launching a new division, dedicated to hydrocarbon
Mexico’s southeast region?
commercialization and import, including gasoline, diesel,
A: We closed a strategic partnership with ENGIE for the
natural gas and liquid oil derivatives to sell in the Mexican
Mayakan natural gas pipeline extension. This pipeline brings
market. IE is also the first Mexican company to issue a US$70
natural gas from the Nuevo PEMEX complex in Tabasco
million IPO directed at Canada’s TSX Venture Exchange
to CFE’s electricity terminal in Valladolid, Yucatan. The
and a second worth US$500 million on the Toronto Stock
French natural gas powerhouse has a project to extend this
Exchange. This strategic move answers Mexico’s natural
pipeline from Merida to Punta Nizuc, in Cancun to supply
gas commercialization opportunities with the productive
all the Riviera Maya’s demand, which has considerably
companies of the state, as natural gas demand is set to
increased in recent years. The importance of this project
double by 2020. It also addresses the geopolitical changes
can be shown in the overwhelming demand for natural gas
in the region, primarily from NAFTA’s renegotiation, and our
in the region. Prior to this extension, ENGIE’s contract with
company’s priority to remain one step ahead and cement
PEMEX required 150mmcf per day while PEMEX can only
IE as a world-class company.
manage to provide at most 80mmcf, which are nitrogencontaminated. In parallel, IE is planning to bring an LNG vessel to Punta Nizuc to cover the short-term demand for
Industrias Energéticas is a Mexican company that provides
natural gas in this location. Loading in Puerto Progreso,
equipment commercialization and specialized services for the
we could supply close to 100mmcf per day to cover the
oil and gas, industrial and energy sectors, offering integral
prevailing shortage. While infrastructure for these kinds of
solutions with high-end technology and professional expertise
95
VIEW FROM THE TOP
PUSHING INNOVATION, INTEGRAL SERVICES HÉCTOR MAGAÑA Director General of GNU Gas Natural
96
Q: How does GNU excel in natural gas supply services for
Q: What project highlights the importance of the usage of
the industrial sector?
natural gas and GNU’s capabilities in the market?
A: Our integral supply service offers two modalities. The
A: The natural gas pipeline project we developed with
traditional is via natural gas pipelines, which serve 65 percent
Aarhuskarlshamm for its facility in Morelia offered the
of our clients. The second is through what we call mobile
company a complete social, environmental and economic
pipelines. The use of mobile pipelines is mainly for companies
solution, which highlights the improvement possibilities
that cannot access the pipeline network. A mobile pipeline
natural gas provides. As the facility got connected to the
consists of compressed natural gas (CNG), transported by
distribution natural gas pipeline, the client stopped using fuel
wheels. To dispatch it we have two compression stations that
oil, meaning that not only its costs but also its CO2 emissions
allow us to cover a wide territorial extension. We can very
diminished. Because the facility is in a densely populated area,
easily help any client that is getting its energy from coal or
the public saw this conversion as an important step forward
diesel to change to natural gas. As an integral service company
for the company. The fact that the previous fuel was stored
that delivers turnkey projects, we are competitive because we
at the company’s installations also means that safety at the
have in-house research and engineering development. We
plant has significantly increased.
also manufacture equipment with our own technology. The facility’s location in a populated area also made the For clients that require a gas pipeline, our engineering and
project especially challenging because the pipeline had
construction area offers services such as feasibility studies,
to cross heavily-used avenues. GNU’s capabilities in these
conceptual design for basic and detailed natural gas
matters were a major driver of the project’s success.
engineering, preliminary, definitive and executive design for private entities, budgeting services and specialized consulting.
Q: How important is innovation at GNU?
We do not outsource the installation of our transportation
A: GNU is always innovating, which makes a big difference
and distribution of natural gas supply, which allows us to
against our competitors. At GNU, we have an RD&I section
decrease costs and offer better prices to our clients. We can
that develops technology solutions for both hardware and
also provide operational and maintenance services, which
software. We have developed products and projects such
are offered through our Gas SCADA and eControl systems
as natural gas decompression equipment, storage skids for
developed in-house by our technology brand, Tectuus. These
CNG, natural gas-dispatching units for vehicles, cathodic
systems offer a higher added value as clients can monitor the
protection systems for pipelines, electronic systems for natural
infrastructure in real-time, allowing any needed action to be
gas measurement and automotive computers for vehicles
taken more quickly. We provide pipeline services to big clients
using natural gas, among many others. All these technologies
such as Svenska Cellulosa Aktiebolaget, Aarhuskarlshamn and
are 100 percent Mexican and developed specifically for the
Sukarne Agroindustrial, which are not only major consumers
Mexican natural gas market, allowing us to be profitable in our
of natural gas but also icons in the Mexican industry. On the
operations and to transfer the benefit to our clients.
other hand, with our mobile pipelines we can access remote areas and deliver natural gas in a safe and efficient manner to
Regarding partnerships with educational institutions, we
any industry that may not be located close to a gas pipeline.
have a collaboration agreement with the Uruapan Superior Technology Institute (ITSU). With this agreement both GNU and ITSU can work on projects together with engineering
GNU Gas Natural is a 100 percent Mexican company founded
students, and we both can work in the laboratories of each
in 2002 in Uruapan, Michoacan. The company offers services
party according to a project’s needs. CONACYT has also been
and technologies for the supply of natural gas and compressed
a strong supporter of our development, taking part in several
natural gas, both for the industry and for vehicles
high-impact technology development projects with us.
In 2010, we received the State Award for Science and
5 percent for natural gas supply for vehicles, we see strong
Technology under the scheme for technology innovation
potential for the latter. At current gas prices, we offer 50
thanks to our work in opening the Natural Gas Research,
percent cost savings to our clients who decide to shift from
Engineering and Technology Manufacturing Center. At this
gasoline to natural gas, as well as a more ecological footprint.
center we design and fabricate technologies to release CNG
Although our biggest share of the business portfolio is for
onto the national market via our Tectuus brand.
industrial clients, we see a bright future for the dispatch of CNG for vehicles due to the required transition to clean energy.
One outstanding product we are commercializing is our SCADA Gas Monitor Tectuus. This product offers a special
GNU has worked on technology innovations since 2009,
added value for equipment and infrastructure because it
having worked with ITSU and CONACYT on a project
allows assets to be monitored in real time. This translates
to engineer and develop a technology platform for the
directly to improved security, reliability and cost reductions.
conversion to natural gas of vehicles that use gasoline, making us one of the first companies to work in this area. This led us
Q: What spurred GNU to work on innovation?
to a second project in 2010 called Research and Technology
A: GNU detected a strong dependency on technology
Innovation Laboratory for the Usage of Vehicular Natural Gas
development coming from abroad. Being a technology-
for the Development of National Engineering. This project
based company, and aware of the talent in the region, we
was particularly successful as it led to the creation of the
wanted to work on and promote technology innovation.
first gasoline to natural gas conversion center for vehicles
To do so, we decided to work closely with ITSU to
in Michoacan.
attract young and outstanding talent. The talent is not only working with us on our research, development and
As of August 2017, there were 22 natural gas stations for
innovation activities, but they are also trained abroad to
vehicle dispatch in nine states. There are still significant
become innovation specialists.
opportunities for the development of projects to generate the generalized use of natural gas in the auto sector. At
Q: What expectations does GNU have for the use of natural
GNU, we plan to open at least 10 more stations in the Bajio
gas for vehicles?
region before 2020. The real challenge to achieve this is to
A: Although GNU’s market share breakdown is 95 percent
control bureaucratic over-regulation at the federal, state and
based on natural gas supply for industrial clients, and only
municipal levels.
97
VIEW FROM THE TOP
SIMPLIFIED PROCESSES FOR GREATER GROWTH NARCÍS DE CARRERAS Country Manager Mexico of Gas Natural Fenosa
98
Q: How does Gas Natural Fenosa make the most of its
Q: How is Gas Natural Fenosa capitalizing on its tenure and
global footprint in the Mexican natural gas market?
expertise applied to renewable energy projects?
A: 2018 will mark Gas Natural Fenosa’s 175th year in business.
A: Through our client-based focus, we dedicate ourselves
Throughout its lifespan, the company has grown based
to supplying our 25 million clients worldwide the best
on its natural gas distribution business. As we underwent
combination of energy costs, energy supply security and
acquisition, incorporations and global market entries, Gas
an environmentally-friendly portfolio as a final business
Natural Fenosa considerably diversified its business lines.
strategy. Competition in the renewables business, not only in
To date, our company has consolidated four main business
wind power but also solar, is increasingly aggressive, making
branches: gas distribution networks, electricity distribution
these sources mandatory to inject added competitiveness
networks, natural gas commercialization and electricity
into our power generation portfolio these last few years.
generation, with our clients at the center of it all, as our
It is a general trend observable not only with Gas Natural
primary, downstream focus. This is our global model, which
Fenosa but also among other integrated players involved
we can deploy either in its entirety for some countries such
in the same business as ours.
as Spain while in others, the number of business branches we develop depends on market conditions.
Q: What new business opportunities unlocked by the reform is Gas Natural Fenosa planning to take advantage of?
In Mexico’s case, electricity distribution is still primarily
A: Our priority remains focusing on the growth of our core
in government hands. Gas Natural Fenosa entered the
business in natural gas distribution. CRE’s last public tender
Mexican downstream gas distribution market in 1997
prior to the Energy Reform for natural gas distribution
when it opened to private initiative, winning successive
zones in Sonora and Sinaloa was awarded to us, in 2014
distribution zone tenders and fostering our growth. We
and 2015. We want to grow in parallel to these zones.
incorporated electricity generation in 2001 through PPA
The reform’s new rules and sector growth priorities have
projects with CFE. In 2014, we integrated renewables
simplified the process considerably. Competitive and public
into our portfolio and the Energy Reform unlocked the
tenders are no longer required to grow. We have requested
possibility of launching our natural gas commercialization
permits to expand in Campeche, Yucatan, Quintana Roo
branch, effectively deploying all four of our business lines.
and Tabasco. We are already permit-holders for the latter. This simplification process fosters a considerable boost for
Q: Why did Gas Natural Fenosa choose green bonds to
Mexico’s downstream natural gas distribution sector and is
finance its renewable energy portfolio?
in line with one of the core objectives of the reform, which
A: Gas Natural Fenosa issued its first green bond in
is magnifying natural gas and renewable use in Mexico.
November 2017 on an international scale as part of its strategy to diversify its financing portfolio. In Spain, we were
Q: What is your assessment of the potential of Vehicular
awarded some bids throughout 2017 in renewable energy,
Natural Gas (VNG) applications in Mexico?
enabling us to conclude this issuance with resounding
A: Vehicular natural gas is a complement; a new use for natural
success. These additional funds will be exclusively allocated
gas within our distribution network business. Gas Natural
to the renewable energy projects we won.
Fenosa has been present in this new subsector since 2004 with two vehicular natural gas service stations in Monterrey. Prior to the reform, developing this particular application
Gas Natural Fenosa is a Spanish private utilities company
was especially complex as all service stations were owned
specialized in generation, commercialization and distribution
by PEMEX and the business was not liberalized. Now, the
of electricity and natural gas. Its global presence spans over
potential for vehicular natural gas is on the rise and enjoys
30 countries with a portfolio of over 25 million clients
renewed interest from private players. In our case, we are
Expanding Mexico's natural gas pipeline network
99
particularly interested in participating not as service station
A: The natural gas distribution and commercialization
operators, but rather as natural gas network promoters for
business has been around for quite some time in various
either private or public entrepreneurs with the intention
parts of the world. Technological developments and
of installing service stations and connecting them to our
innovations are rather focused on supply service security.
network and to provide our natural gas commercialization
Events such as the Sept. 19 earthquake in Mexico justify
services. We believe this particular business venture has
the importance of this particular component. In the
a bright future based on two main drivers: the positive
aftermath of this event, 99.7 percent of our 503,438
environmental impact from the use of natural gas and
clients in Mexico City could count on an uninterrupted,
this fuel source’s cost-competitiveness compared to other
leak-free and seamless service whereas other supply
fuels; and second, VNG represents savings well over 50
services such as electricity experienced several days
percent. We expect it will become a generalized fuel service,
of interruption. Energy efficiency is the other primary
particularly for public and merchant transportation.
component to which we allocate the development of innovative products and services.
Q: What main drivers are fostering Gas Natural Fenosa’s interest to expand toward the country’s tourism zones?
Q: What milestones are you expecting to achieve in 2018?
A: The southeastern part of the country has varying levels
A: Pertaining to natural gas distribution, we would like
of natural gas transportation infrastructure, both from
to initiate operations in all the states in which we have
CENAGAS and private players, which we can use for our
launched permit-holder processes: Sonora, Sinaloa, Tabasco,
transportation service. Some isolated portions of that
Campeche, Yucatan and Quintana Roo. Our innovation and
territory are absent of pipelines and have no connections,
energy solutions business continues to grow, doubling
which is what we do. We can also provide our expertise
every year since 2014, and we want to maintain this upward
in gasifying cities via Compressed Natural Gas (CNG)
trend in the future. We also secured an important wind
pipes, which is the opportunity that these zones in Mexico
farm project for our renewables portfolio, which we would
offer. The consumption levels in the commercial sector,
like to complement with an additional solar asset for 2018.
particularly tourism-related infrastructure, are attractive
After 20 years of continued presence, Gas Natural Fenosa is
for us, potentially providing tremendous benefits not only
comfortable in Mexico thanks to the quality, consistency and
in economic savings but also in increased energy efficiency.
seriousness of the sector’s regulator. In this fundamental
Gas Natural Fenosa’s innovative energy solutions include a
moment of overture, which is always complicated, we must
significant efficient-consumption component in large-scale
say that Mexico’s authorities — the Ministry of Energy, CRE,
electric installations, such as hotels and hospitals.
CENAGAS and CENACE — need to be commended for their excellent work. Opening an entire market and implementing
Q: What new technological developments are you looking
all the inherent regulatory changes in only three years is
to showcase in Mexico?
possibly a world record.
VIEW FROM THE TOP
NATURAL GAS RESPONDS TO ENERGY SECURITY CONCERNS ALBERTO ESCOFET Regional Manager of Enagás México
100
Mexico is becoming more focused on increasing its usage of
reach areas. “Physical pipelines are not the only way to gasify
natural gas which is cheaper, cleaner and will help the country
regions. Virtual pipelines can move gas by wheels, trains or
reach its greenhouse emissions reduction goals, according to
even ships, making them much more flexible in the regions to
Alberto Escofet, Regional Manager of Enagás México. Even
be reached and the volumes to handle,” says Escofet. He says
though natural gas has clear advantages over fossil fuels,
these virtual pipelines are attractive because they avoid the
its penetration here is still low, which is where Enagás sees
need for a large investment such as that a physical pipeline
opportunity. “We see great potential in the country and want
would require, and also create their own natural gas demand.
to help it reach its goals,” says Escofet.
“When a region gets natural gas via virtual pipelines, more equipment that uses natural gas is installed, meaning that the
Present in Mexico since 2011, Enagás has already shown its
demand for natural gas increases. After a while, that volume
commitment to the country by becoming an active participant
can justify the construction of a physical pipeline.”
in three important natural gas infrastructure assets: Altamira, Morelos and Soto la Marina. “With the Altamira LNG terminal,
Enagás also wants to broaden its horizons beyond transmission
operated and 40 percent owned by Enagás, we have a very
and compression infrastructure, and with increasing demand
strategic role in Mexico since it is the only liquefied natural
for natural gas, the company has also identified opportunities
gas plant on the country's Atlantic coast,” Escofet says. The
in storage. “Electricity cannot be stored yet, making the
171km-long Morelos gas pipeline, which Enagás operates and
storage of energy resources, such as natural gas, critical for
owns 50 percent, is located in a strategic region capable of
the country's energy security,” he says. In December 2017,
gasifying the whole south Pacific coast of Mexico. The Soto
the Ministry of Energy began a public consultation to review
la Marina compression station’s interconnection with the
the Energy Public Policy Applicable to the Constitution of
San Fernando-Cempoala pipeline increases the country’s
Natural Gas Storage and with this, Escofet believes Mexico
transportation capacity.
will take one step closer to the required investments to ensure the country’s energy security. The draft also highlights the
Escofet says Enagás is still looking for opportunities in the
importance of Enagás’ Altamira asset. “The draft shows the
physical assets business division, where the company can
Altamira regasification plant is one of the infrastructures that
offer a higher added value. To achieve a leadership position,
could ensure energy security. During May and June 2017, the
Escofet cites innovation and a constant search for the most
plant increased its operations to cover the reduction in natural
effective technologies to constantly offer better service.
gas flow from the US. Additionally, in August 2017 due to
But before spending on new infrastructure, Escofet says it is
Hurricane Harvey, the Altamira regasification plant operated
necessary to make sure that any new technologies will fit with
at maximum capacity to cover this shortfall.”
the existing ones. “Our broad knowledge means we know how to complement new technologies with existing and potential
Enagás is not the only player to have identified this
assets, always ensuring that profitability comes first.”
opportunity, which is why Escofet realizes it must offer a differentiating factor. In this respect, it wants to contribute
One innovative technology of interest to Enagás is that of
its expertise in novel methods, such as underground storage
virtual pipelines, given the country’s vastness and hard-to-
facilities. “New methods for underground storage of natural gas include injecting it into underground caves and depleted oil and gas wells,” he explains. “Enagás has broad experience
Enagás México has been present in the Mexican energy market
with these methods in Spain, and is looking for projects in
since 2011. It has a 40 percent participation in the Altamira
Mexico.” He believes that as the public consultation shows
regasification plant, 50 percent of the Morelos gas pipeline and
the need for more storage capacity, CENAGAS will be able
50 percent of the Soto la Marina compression station.
to launch auctions for the creation of more storage facilities.
VIEW FROM THE TOP
INNOVATIVE O&M SERVICES FOR RELIABLE AND RISK-FREE COGENERATION Enzo Losito CEO of AB Energy México
César Sánchez Regional Sales Manager of AB Energy México
Q: What makes AB Energy’s proposal unique?
a timely manner able to promptly solve the problem
EL: AB Energy’s value proposition is unique because we
and minimize downtime for the customer depends on a
combine three characteristics that nobody else has in
number of factors. We are developing special glasses that
this field, first, top-tier quality products, manufactured in
our technicians can wear and have all the mechanical and
an industrial factory. Second, engineering capabilities to
electrical aspects of the problem transmitted and projected
customize any product around customers’ needs. Third,
to our control room. This will allow people in our control
solid service and O&M. Since 1981, AB Energy has worked to
room to see what the technician is seeing. This way, we
improve competitiveness, save energy and reduce emissions
can address all potential issues simultaneously in different
into the environment. Companies like Cargil, Coca-Cola, EDF,
locations all over the world, for all our cogeneration systems.
Ferrero, Kraft, Lactalis, Lilly, Lindt, Magna, Martini, Nestlé, Novartis, Petrom, Pfizer and many others rely on AB Energy
Q: What new developments is AB Energy working on for its
every day to protect their investments and manage their CHP
other business lines in Mexico?
systems. AB Energy’s service operations are recognized by
CS: We are working with landfills, trying to advance our
more than 1,000 companies as the most effective worldwide.
market development stage. In Feb. 2017, we sold Mexico’s first cogeneration system for greenhouse applications to Bionatur.
AB Energy innovated in an industry that is basically composed
We are hoping for a spillover effect with this particular project
of system integrators. We deviated from the usual processes
to further increase our greenhouse portfolio once this niche
to assemble many components at our customers' sites in favor
recognizes how seamlessly it operates. These applications
of a more industrial, quality-driven and risk control approach.
can help companies mitigate between 20 to 30 percent of
AB Energy also manages directly the entire process from
operating costs in energy consumption and use the savings
engineering and manufacturing to installing, commissioning
to increase their competitiveness.
and maintaining and represents a single-point of responsibility in front of our customers, while system integrators rely on
Q: What are AB Energy’s plans for the longer term in
multiple suppliers and players working on their customer
Mexico?
cogeneration plant. In Mexico, our way of being responsible
EL: First, AB Energy is committed to strengthening the
for the whole process is highly appreciated.
competitive edge Mexican industries need by putting a robust distributed-generation strategy and technology
Q: What recent technological developments are you
on their doorstep. Second, as a multinational, Italy-based
looking forward to showcasing in Mexico?
company present in 20 countries, we are actually creating
EL: AB Energy’s product, ECOMAX, has been modified
a Mexican company. Our local team is primarily composed
and improved over 1,100 times in more than 20 countries
of young, Mexican engineers. Mexico’s energy-intensive
for a wide array of applications. Big Data plays an
industries, such as pharma, chemicals, automotive,
important role in our innovation efforts. Our cogeneration
textile, food and beverages, agriculture and plastics,
plants and engines can compile considerable amounts of
can tremendously benefit from our offer. We are going
data, such as energy efficiency, number of working hours
to build competencies for our local workforce as our
and downtimes. The ultimate goal is to offer efficient and
contribution to Mexico’s energy future.
effective predictive maintenance services. Another area in which AB Energy is investing is virtual reality.
AB Energy México is the Mexican subsidiary of AB Group, a
Servicing a cogeneration plant means having someone
global leader in cogeneration and CHP. Its experience covers
readily available, with the pertinent instruments and spare
engineering, manufacturing, installation and maintenance of
parts at hand. The ability to have the right individuals in
cogeneration plants
101
INSIGHT
STABLE BASELOAD COGENERATION’S GREATEST STRENGTH JORGE GUTIÉRREZ Director General of COGENERA
102
With Mexico urgently needing to inject additional capacity
this to its advantage in fulfilling the legal obligation that
from renewable sources into the country’s grid, more
will bind private companies to consume 5 percent of their
and more system operators are looking to cogeneration
energy from clean and renewable sources.
as a stable, viable and more environmentally-friendly alternative to fuel oil. But Jorge Gutiérrez, Director General
Gutiérrez concedes that much remains to be done to
of COGENERA, says that even natural gas-powered
promote cogeneration, particularly in terms of attracting
technologies have their limitations. “The development of
financing. “While CELs are our available stimulus, there
a cogeneration project requires a client that needs steam
is still uncertainty about their monetary value,” he
or considerable quantities of air conditioning; it is a very
explains. By introducing Financial Transmission Rights,
specific demand,” he says. “That is why the intensive
energy transportation is now a variable cost determined
development seen in wind power or even solar power is
by the difference between the local marginal price of
absent from the cogeneration sector.”
the exit point and the local marginal price of the entry point. Given this variability, the electricity surplus is not
By its very nature, cogeneration is best used for large-
taken into consideration by banks or moneylenders,
scale commercial developments. A COGENERA member
despite the fact it can be commercialized. This reduced
just installed a cogeneration system at a department
financing changes the equity-debt relation, affecting the
store in Monterrey to provide an almost-permanent flow
IRR. “There is a need to push toward market maturity,
of 1,300 refrigeration tons for the store’s air conditioning
assuring the moneylenders that this surplus will be easily
units. Gutiérrez says his works particularly well in areas like
sold,” says Gutiérrez.
Monterrey due to the region’s year-long high temperatures. For Gutiérrez, Mexico needs to look toward markets like In line with the association’s objective of promoting
California or Pennsylvania-Jersey-Maryland (PJM) as they
cogeneration, COGENERA is a member of the Ministry of
are solid, mature markets that have been operating for
Energy’s Consultive Council for Renewable Energies (CCER),
a long period of time. “Bankers there know that energy
installed in 2013 by the Law for the Utilization of Renewable
surplus sold on the spot will even be higher priced
Energies and the Financing of the Energy Transition. It is
than with the original client,” says Gutiérrez. “The more
also a member of CRE’s Consultive Council. These strategic
aggressive bankers, willing to take additional risks, will
memberships ensure cogeneration has the representation
be the ones better positioned in Mexico’s market.” While
it needs in Mexico’s energy market regulations.
Mexico’s banking sphere is not so eager to finance these projects, it should be noted that development banks have
Gutiérrez is optimistic when it comes to cogeneration’s
more appetite for these ventures.
future in the energy mix. “Cogeneration will continue expanding and becoming more sophisticated. In terms of
While to some extent Gutiérrez believes the new legal
cogeneration units, we expect the majority to deliver power
framework of the Energy Reform curbs cogeneration’s
ranges between 10-12MW,” he says.
growth, for the time being COGENERA has managed to greatly increase cogeneration projects through
An important stimulus for this technology involves the
interconnection contracts that still operate under the
number of CELs that can be obtained compared to other
previous law. He believes this will buy more time for greater
technologies. “One of our members just finished a project
market certainty to be developed. “We hope that once we
with a highly efficient design: the company expects 41
conclude those interconnection contract-based projects,
percent of the total generated energy will be eligible to
we will be able to overcome the uncertainty pertaining to
be awarded as CELs,” Gutiérrez says. COGENERA will use
CELs’ price and presence in the market,” he says.
ANALYSIS
THE GULF OF MEXICO–JAPAN CONNECTION, FASTER THAN EVER Japan is hungry for oil and gas. While its oil and gas production totaled 2.9 million toe during 2015, the country imported a total 265.9 million toe of both during the same year, according to the International Energy Agency. The creation of a MexicoJapan oil and gas commercial route means a great opportunity for both countries The Japanese government expects annual economic
to transport 500,000 barrels, passed through the Panama
growth of 1.7 percent until 2030. Although it only
Canal. This means that, this route is only able to cover
forecasts a 1.5 percent rise in electricity demand in that
around 2.7 percent of the oil imported by the country.
year compared to 2013 levels, the country nonetheless recognizes that hydrocarbons will remain important in meeting its overall energy demand, accounting for 30 percent of energy production. With an expected increase of hydrocarbons production coming from the Gulf of Mexico and the east coast of the US, the Isthmus of Tehuantepec is emerging as an ideal connection point between the North American and Japanese markets. According to the National Hydrocarbons Commission (CNH) transporting hydrocarbons from Louisiana, US, to Chiba, Japan, takes 25 days, including an average two days’ wait to cross the Panama Canal.
103
If only the commercial capacity of the Panama Canal were used to provide oil to Japan, it would cover around 2.7 percent of that country’s import requirements. Through the Isthmus of Tehuantepec route, this number climbs to 11.3 percent
Meanwhile, transporting hydrocarbons from Coatzacoalcos to Salina Cruz through the Isthmus of Tehuantepec and
PEMEX’s Teapa-Salina Cruz 48” pipeline can cover 11.3
from there shipping it to Chiba represents only 17 days.
percent of Japan’s oil demand, using its full 351,000b/d transportation potential along its 267.5km length. Beyond
Transporting oil through the Panama Canal is not only
its current capacity to provide the oriental country with oil,
slower than through the Isthmus of Tehuantepec, but the
the use of this route has the advantage of being able to
former route also experiences significant bottlenecks.
increase its transportation capacity relatively easily to cope
CNH estimates that Japan imported around 3.1 million
with an increase in demand coming not only from Japan,
b/d of oil during the Jan-Oct 2017 period, adding up for
but from the entire Asian continent. Salina Cruz may soon
an approximate total of 940 million barrels. During that
become a critical logistics hub for oil and gas, connecting
same period only 50 oil tankers, each one with a capacity
the western and eastern energy markets.
MEXICO: THE BEST ALTERNATIVE TO EXPORT NATURAL GAS TO ASIA
TRANSPORT ROUTE Lousiana-Chiba
25
-32%
Coatzacoalcos-Chiba 14 0
5
10
3 15
20
25
Maritime Maritime Pipeline Source: CNH
VIEW FROM THE TOP
FINANCING, TECHNOLOGY AND ALLIANCES IN NATURAL GAS FRANCISCO GUAJARDO Director General of Grupo DIDSA
104
Q: What makes Grupo DIDSA’s proposal for Mexico’s natural
Q: How did DIDSA’s construction know-how contribute
gas sector unique?
to the incorporation of renewables in its business line?
A: When the Energy Reform was implemented, some
A: We have more than 35 years of experience in oil and
construction companies did not necessarily understand the
gas but DIDSA’s growth was dependent on finding other
inherent implications and opportunities. DIDSA was able to
business opportunities. In 2010, we successfully devised a
capitalize on this new landscape. There are three elements
business proposal for a biogas power-generation project
Mexican companies required at the time to reap the benefits
using Saltillo’s landfill. Considering the energy market’s
of this transition and place themselves in a strategic position.
evolution, we wanted to diversify our business relationship with PEMEX and to broaden our horizon to include the
First, financing. Project financing drastically changed
private sector.
from the prior scheme where PEMEX was a solid financial guarantee. With the reform, you need to look for new
Our business diversification with natural gas heavyweights
financing structures that allow you to deliver turnkey projects
set the course for our current project to have 50 vehicular
without financially draining your client.
natural-gas stations distributed nationwide through a cobranding with Gas Natural Fenosa. We hope to close this
Second, technology. We set out to find the best technologies
first phase in the next six years. We will then launch a
available in the market. In 2016, at the Dutch Embassy in
second phase to have 100 operational stations in 10 years.
Mexico City, we signed a technology transfer agreement with the Dutch government. We reached this milestone thanks
Q: What key factors led you to design and launch this
to our association with Magnatech, a Dutch company with
project?
the most advanced technology for automatic welding. We
A: Mexico is undergoing a major gasification trend
acquired this technology and equipment to integrate it into
nationwide. In addition, Mexico offers the most competitive
our business line, becoming one of the few companies in
molecule cost. This will greatly increase the number of
Mexico with in-house automatic welding technology.
distribution points across the country. This project seemed like the natural next step for our company. It primarily
Third, strategic alliances. Grupo DIDSA wanted to transition
targets public transportation: taxis and urban buses. The
from construction to a full-fledged EPC company. To reach
equivalent liter of natural gas for a vehicular engine can
this goal, we closed alliances with veteran companies like
be sold for MX$8 versus MX$16 for magna gasoline. We
Stantec. We also developed an open channel with Emerson
based our strategy for this differential by tackling natural
to generate added value to our final clients by providing
gas infrastructure and supply to stimulate demand for this
Emerson’s technology and services. In addition, we designed
cheaper and more environmentally-friendly fuel.
a business strategy with American Worldwide Group Machinery. This tripartite comparative advantage gave us
Q: What milestones have you achieved with your High
the necessary tools to undertake ambitious projects like
Technological Specialization Center?
CFE’s natural gas pipeline bid for Samalayuca-Sásabe
A: Human capital is at the core of DIDSA’s interest. The
pipeline, using 36-inch pipes owned by Carso.
Specialization Center is another byproduct of our MoU with the Dutch Embassy. We are also working on similar initiatives with the UK government. As Mexico’s energy
Grupo DIDSA’s companies are focused on infrastructure
sector liberalizes, we must be able to provide the market
project development related to construction, engineering and
with specialized and trained Mexican professionals
maintenance of natural gas, oil and water pipelines, as well as
who are capable of handling the latest processes and
renewable energy and environmental projects
technologies.
INSIGHT
NATURAL GAS EXPERTISE, ALL THE WAY CAIO ZAPATA Director General of Énestas
In a rapidly changing energy environment, cogeneration
Virtual pipelines are also suitable for seasonal consumers,
is emerging as a viable alternative to fossil fuels. But Caio
such as mines and greenhouses, helping them avoid
Zapata, Director General of Énestas says that, for some
undesired expenses, Zapata explains. “If these customers
clients, natural gas is not a part of their business model
are connected to a physical pipeline, they must pay for
so they are more reluctant to adopt the technology.
the system even during non-consumption periods due to
Énestas is taking extra steps to convince them of its
pipeline usage rights,” he says. “With our virtual pipeline
benefits by allowing these companies to focus on their
solution, customers pay only for their consumption and
activities that produce value. “We want our customers to
avoid any extra, unnecessary costs.” Being a seasoned
worry only about the core activities that will make them
player in the market, Zapata says Énestas can provide its
competitive,” he says.
customers access to natural gas in just a couple of days, completing the paperwork and permitting processes
With lower costs and environmental impact than other fossil
quickly and efficiently.
fuels, as well as higher generation stability than renewable sources, adoption of natural gas based cogeneration should
To help customers access virtual pipelines, Énestas offers
be a no-brainer for industrial consumers to cover their energy
an innovative scheme whereby customers can participate
needs. Nevertheless, in the market there are many industrial
in shared-risk and even risk-free testing schemes. “In
companies that are not connected to natural gas pipelines,
these schemes Énestas provides the investment, with the
making it an attractive market niche for Énestas to work in.
objective of showcasing to the client how the solution will work and how it will provide economic savings,”
Zapata says that often companies believe that just because
he explains. “In some cases, we can even provide the
their installations are not close to a natural gas pipeline,
necessary infrastructure.”
cogeneration is a no-go for them. Énestas is working to make the company a leader in providing access to natural
Énestas does not only enable natural gas to reach
gas for all consumers. Zapata points to virtual natural gas
operations but also converts diesel generators to allow
pipelines as one of the company’s main strengths. “A virtual
companies to consume the resource. According to Zapata,
pipeline is a non-physical pipeline that consists of transport
for every unit converted, this can save 30-40 percent in
mediums such as automotive pipelines, train tanks or even
fuel consumption. Énestas can distribute the natural gas
boats that can reach the customer at any location,” he says.
to the generation units via virtual pipelines, be it to the client’s facilities or even to distribution stations. Zapata
These virtual pipelines are not only a benefit for customers
says these solutions can be tailored to suit the client’s
located in remote areas but also apply to a consumer that
needs or to its transportation schedules.
wants to use natural gas but is not able to do so because of other restrictions. “Although an industrial customer may
Another way Énestas contributes to environmental
have a pipeline close by, regulatory or economic obstacles
protection – and to the client’s bottom line – is through
sometimes make delivery of the fuel to that client unviable,”
commercializing the natural gas that is usually lost during
he explains. He uses one of the projects the company
upstream gas flaring. “We can provide our clients with
worked on as example of such a situation, where a client
an integral solution that allows them to capture, process
located in the city center of Guadalajara could not reach
and convert natural gas, propane and other derivatives
the nearest natural gas pipeline because of the risks and
into fully usable and profitable resources,” he explains. In
economic costs associated with developing a connection.
this way, Énestas can further help its customers to care
Énestas then helped the customer get the natural gas it
for the environment and comply with stricter national
needed by connecting it to a virtual pipeline.
and international regulations.
105
VIEW FROM THE TOP
GAS SAVINGS FOR THE ENTIRE MARKET ALFREDO QUINTANA Inventor and Manager of Tecdigas
106
Q: How is Tecdigas working to boost its presence in Mexico?
solutions to make sure that every client gets the best out of
A: We launched our company and product in Spain in 2012.
Tecdigas. The tailored solutions have proven to be extremely
It has taken a long time and a full study of gas combustion,
important for the industrial segment, in which we have found
both physical and chemical and how impurities and kinetic
the biggest success.
molecules affect it, to produce the excellent product we are bringing to the market now. It offers 8 percent gas savings
We have a team of technicians who visit the customer’s
for the residential segment.
facilities and install the equipment. They assign an identification number to record the location and installation
Tecdigas not only offers savings in gas consumption but also
date. Based on this information, we conduct periodic
reduces maintenance needs and improves the durability of the
maintenance, which is also provided by our team. The
combustion equipment, due to the less abrasive combustion
equipment will last a lifetime; only the filter needs to be
that comes with the reduction of impurities. Beyond the
changed. When changing the filter, we also do a small
economic savings, the equipment, which is a specially
cleaning that ensures the performance of the product. By
engineered tubing and filter system that interconnects to
changing the filter and cleaning the components every year,
the client’s piping located between the gas source and the
the customer can be sure that our product will work at 100
combustion unit, is also environmentally friendly. In Spain,
percent efficiency and will achieve our expected average
the minimum amount of gas savings we have achieved is 12.5
consumption savings.
percent, while the maximum is 28.6 percent. Q: What steps is Tecdigas taking to ensure its long-term We entered the Mexican market in January 2017 and we have
position in Mexico?
witnessed a huge demand for our product. In Mexico, gas
A: When we entered Mexico, we launched production at a
is very low quality, with many impurities, which makes our
manufacturing facility located in the State of Mexico that
product even more effective because it can boost the heating
uses national raw materials and a local workforce. The
power of the fuel. Since we entered the market, we have
product is now in demand in both the southeast and the
completed over 200 installations. We are negotiating with a
northern regions of the country, making our decision to place
restaurant chain and if everything goes as planned, we will
production in the State of Mexico a good one. Nevertheless,
install our equipment in its 190 restaurants. In Mexico, we have
this location is not big enough to meet the demand we are
achieved an average of 18 percent savings and a maximum
expecting so we will either expand the plant or launch a
of 21.5 percent.
new facility. Although we want to increase our production capacity, we also have to match this with our capacity to
Q: How does Tecdigas offer a tailored solution to every
install. One thing we do not want to do is lower the quality
customer?
of our installation and maintenance services.
A: There are five versions of our product so it can be applied to almost every configuration where gas is consumed, from
We are looking for product distributors as well as financial
residential to industrial. If the off-the-shelf versions do not
partners. Along with the decision to maintain high-quality
meet the customer’s needs, we design and produce tailored
installations, we must also carefully select our distribution partners. Even PV installers have reached out to us, asking to introduce our product into their portfolio. This makes
all
sense, given that PV installers can also tackle the reduction
consumers, from residential to industrial, offering consimption
of their clients’ gas consumption. This makes Tecdigas more
savings that range from 8 to 29 percent. Founded in Spain, the
competitive against other companies that only install PV
company is now tackling the Mexican market
systems.
Tecdigas commercializes
gas-saving
products
for
INSIGHT
ENERGY BUSINESS AMBASSADOR FOR MEXICO ANNA RAPTIS Founder of Raptis Group
Global energy players are taking notice of Mexico’s efforts
The consulting company expects this will change over time
to provide a liberalized energy market on par with the
as risks are better understood. Risk mitigation is part of
country’s energy requirements and its place in the global
Raptis Group’s role with newcomers. Raptis believes that
economy. A newly created market, operating under new
understanding these risks, nontechnical in particular, and
rules, can be challenging to tackle for outsiders, despite their
providing the tools to manage them is critical for success.
successful track record in other locations. “Understanding the magnitude of the inherent nontechnical risks like permitting
Raptis points out some of its clients are interested in
and community engagement requires constant focus in the
developing LNG in Mexico, given its strategic geographic
big picture of Mexico’s revamped energy sector,” says Anna
position. Sharing a border with the US provides a golden
Raptis, Founder of market-entry consultancy Raptis Group.
opportunity to access cost-competitive natural gas from shale. “Given how competitive gas production is in the US we are
As the rules of the game are evolving to foster a level playing
anticipating Mexico will increase its domestic gas production
field in Mexico’s energy market across the value chain, so
in the long term, providing interesting business opportunities
are the ways in which Mexico was used to doing business in
for this particular market,” Raptis says.
the sector. “Before, projects were financed with state-owned utility CFE, through long-term PPAs for power projects and
But infrastructure may be a sticking point. Raptis says the
25-year contracts for gas pipelines. It is highly unlikely we will
country’s spectrum goes from providing inefficient and costly
continue to see the same terms going forward,” Raptis says.
energy to highly efficient, competitive prices and low-cost energy as a result of infrastructure differences across regions.
Raptis Group has built a successful track record of helping
“The challenge is to find an effective migration process for
to develop energy infrastructure and natural gas projects,
Mexico’s infrastructure to lean toward more efficient, cleaner,
particularly LNG. “We provide consulting services to foreign
low-cost energy, which is not always self-evident, particularly
companies that want to invest in Mexico’s energy sector, from
in the context of new regulations and a young energy market
private equity investors to power marketing companies and
operating under variable costs,” she says. “Some areas in
infrastructure developers.” Raptis’ vision entails being part
the country have no access to natural gas, and generation
of the solution and not the problem. “Much of its work lies in
is still primarily done through fuel oil or diesel. Both public
addressing the negative discourse present outside Mexico,
and private players must figure out how to get natural gas to
working to fostering economic development in Mexico by
those parts of the country,” she adds, emphasizing it is not just
developing its energy sector,” she says.
beneficial in economic impact but also environmental terms.
Raptis says the industry is witnessing greater creativity in
For Raptis Group, a core component of business
financing structures as a direct result of this sizable shift.
development strategies in Mexico’s energy market is related
“There is opportunity for more innovation, particularly on
to sustainability. “For us, it is a holistic concept. It does not
the risk management side when structuring deals,” she
just mean creating environmentally friendly business but
says. A young market often calls for disruptive, ambitious
also using the tools for economic and environmental and
and effective financing schemes. “Previously, most of
social sustainability in the long term,” Raptis says. The
Mexico's power projects and gas pipelines were project
group is committed to continue supporting Mexico’s Energy
financed. Given the reform and auctions, there is a lot of
Reform as an ambassador for foreign investors interested in
corporate finance as the market is new and developing.
participating. “We want to prolong and deepen the success
Recent financing operations showcased more participation
of the reform. NAFTA talks generate a lot of nervousness but
from development banks and less from commercial banks,”
we see it as an opportunity for Mexico to look outward and
Raptis explains.
diversify its global business partners.”
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ROUNDTABLE
HOW CAN NATURAL GAS ASSIST MEXICO’S ENERGY TRANSITION?
The world is heading toward a cleaner energy future to be driven by renewable technologies. Mexico is also heading that way, and although the implementation of renewables has to be done as soon as possible to achieve the country’s emission goals, natural gas is the transition fuel for excellence. Due to its low emissions and ability to ramp up electricity generation in a short and predictable way, its usage for generation of electricity and in motor vehicles will allow the country to reach not only clean goals but also attain proper energy security and avoid intermittencies in the grid.
108
In some way cogeneration was driven by the previous legal framework, abrogated in 2014, where efficient cogeneration was considered equivalent to renewable energy, primarily because with the same fuel both electricity and steam could be produced. Since in this country 80 percent of the energy comes from fossil fuels, a more efficient system allows an operator to reduce its natural gas consumption in steam generation. Cogeneration will continue increasing in importance. An
JORGE GUTIÉRREZ Director General of COGENERA
important stimulus to this sector will rely on obtaining recognition as an efficient, eligible power source to be granted CELs. One company just finished a project with a highly efficient design: it expects that 41 percent of the total generated energy in MWh will be eligible to be awarded CELs.
Although GNU’s market share breakdown is 95 percent based on natural gas supply for industrial clients, and only 5 percent for natural gas supply for vehicles, we see very strong potential in the future for the latter. At current gasoline prices, we offer 50 percent cost savings to our clients who decide to shift from the use of gasoline to natural gas, as well as a more ecological footprint. Although our biggest share of the business portfolio is for industrial clients, we see a bright future for the dispatch
HÉCTOR MAGAÑA Director General of GNU Gas Natural
of CNG for vehicles, due to the required transition to clean energy. As of August 2017, there were 22 natural gas stations for vehicle dispatch in nine states. There are still significant opportunities for the development of projects to generate the generalized use of natural gas in the auto transport sector.
Cogeneration is a stable, proven, reliable, seasoned and risk-free technology. It has been used for decades with high ROIs. Renewable energy is not as predictable when it comes to yearly electric power output. In each and every grid or electric system, operators should aim for a baseload of distributed power produced efficiently, on top of which any sort of energy source, be it solar, wind or other, can be added. Cogeneration does just that. Several precedents, such as Germany's and Italy’s electricity sectors, attest
ENZO LOSITO CEO of AB Energy México
to cogeneration’s reliability in compensating renewable energy’s unpredictability in the grid. AB Energy is committed to strengthening the competitive edge Mexican industries need by offering a robust distributed-generation strategy and technology.
Eighty percent of electricity generation cost is associated with the fuels we use. The gradual replacement of costly and highly-contaminating fuels such as fuel oil and diesel for more cost-effective, environmentally friendly sources such as natural gas and renewables is a priority. From our 25 gas pipelines portfolio, 12 are already operational, 12 are under construction and one was recently tendered. Between 2012 and 2016, we decreased our electricity generation by 44 percent. Not only that, we also launched a pilot program for fuel storage in Sonora and Baja California, increasing Baja California’s fuel storage capacity by 10 extra days and Sonora’s by 14.
JAIME HERNÁNDEZ Director General of CFE
Considering an increased amount of storage tanks will be available as we transition toward natural gas, we could practically double the country’s fuel storage capacity.
109
By its very nature, natural gas is a transition fuel, as a more efficient and eco-friendly source. Our support in increasing renewable-energy generation, intermittent by nature, lies in developing natural gas-powered electric generation terminals, either as a complement or substitution source during periods of low irradiation or wind speed. Our priorities then lie in increasing natural gas coverage nationwide, as well as the natural gaspipeline expansion triggered by CFE’s capacity purchase through seven infrastructure projects. Also, in the long-term, as renewable energy penetration in Mexico’s energy matrix increases, this will render natural gas demand intermittent as well, raising new challenges in terms of supply management, transportation and increasingly flexible systems with higher reaction capacities and natural gas storage infrastructure.
DAVID MADERO Director General of the National Center for Natural Gas Control (CENAGAS)
Mexico is undergoing a major gasification trend nationwide. Our business diversification with natural gas heavyweights set the course for our current project to have 50 vehicular natural gas stations distributed nationwide through a co-branding initiative with Gas Natural Fenosa. We hope to close this first phase in the next six years. We will then launch a second phase so we have 100 operational stations in 10 years. This project primarily targets public transportation: taxis and urban buses. The equivalent liter of natural gas for a vehicular engine can be sold for MX$8 versus MX$16 for Magna gasoline. We based our strategy for this differential by tackling natural gas infrastructure and supply to stimulate demand for this cheaper and more
FRANCISCO GUAJARDO Director General of Grupo DIDSA
environmentally-friendly fuel.
Despite Mexico’s relatively low penetration of intermittent generation, the country urgently needs to deploy or facilitate electricity demand response mechanisms. Combined cycle helps to increase intermittent generation penetration to a degree few other generation technologies allow. Usually, power supply adapts to power demand, but efficient and innovative power generation requires inverting the equation. Mexico’s electric power scheme is well-assembled, with adequate power and energy payment mechanisms. If you want to inject a higher portion of renewable energy into the country’s energy mix, with almost zero variable cost, combined cycle is the perfect supplement due to the system stability it provides.
RAMÓN MORENO Chief Technical Officer of Mitsui & Co. Americas
La Ventosa wind farm, Oaxaca
WIND
5
Wind energy generation has been present in Mexico since 1994 with the construction of La Venta I wind farm. With a long history in the country, the road toward wind's widespread implementation has not always been easy, especially after social problems hindered its development. Nevertheless, because the resource provides highly predictable energy together with continuous worldwide improvements to turbine technology and the availability of strong and stable winds in Mexico, this power generation technology has become the secondbiggest installed renewable power generation technology in the country. While the first two long-term electricity auctions emphasized the potential of photovoltaic technologies, during the third, a global record price was achieved, bringing wind to the forefront of Mexico’s renewables segment.
This chapter analyzes the evolution of the wind energy industry in Mexico, together with expected technological and business model innovations that could revolutionize the sector. Through the eyes of the main market players, this chapter provides insight into the future of the industry and the actors shaping it.
111
CHAPTER 5: WIND 114
ANALYSIS: Wind's Potential Not Yet Tapped
116
Infographic: Wind in Mexico’s Energy Sails
118
VIEW FROM THE TOP: Angélica Ruiz, Vestas
120
VIEW FROM THE TOP: Alejandro Robles, Nordex Acciona Windpower
121
VIEW FROM THE TOP: Jorge Lobatón, Siemens Gamesa Renewable Energy
122
VIEW FROM THE TOP: David Flores, Ormazabal Mexico
123
VIEW FROM THE TOP: Alejandro Cobos, NOTUS Energía México
124
INSIGHT: Ignacio López, Emergya Wind Technologies
125
VIEW FROM THE TOP: Ralph Wagner, Climatik
113
César Sierra, Climatik
127
INSIGHT: Julio Ramírez, Mexión
128
View from the top: Peter Tattersfield, Axis Renewable Group
129
INSIGHT: Virginia Mandujano, Prior Aero
130
VIEW FROM THE TOP: Rafael Valdez, Envision
131
VIEW FROM THE TOP: Juan Saltre, Ventus
132
Alejandro López, Ventus RoundTable: How Are You Cementing Wind Power’s Footprint in The National Energy Mix?
ANALYSIS
WIND'S POTENTIAL NOT YET TAPPED The third long-term electricity auction went into the history books not only as the auction that broke the world record for the lowest generation price, but also as the one where wind took over solar, despite the odds. The official results revealed that wind achieved a bidding price of US$17.7/MWh
114
Solar dominated the first long-term electricity auction by
Those numbers are reflected in the 2017-2031 version of
winning 81 percent of the capacity to be developed, but the
PRODESEN, where it is expected that during those years, of
results of the second and third auctions showed how highly
the 55,840MW to be installed in Mexico, 24 percent will be
competitive wind can be. This should come as little surprise
deployed via wind projects, placing the technology second
given Mexico’s wind availability. “You can find great resources
to combined cycle (which, as explained in previous chapters,
in Mexico, such as in the states of Tamaulipas, Oaxaca, and
offers security to the grid). Insiders like Alejandro Robles,
the northern part of Baja California, where you have extremely
Country Manager Mexico of Nordex Group, emphasize
good wind resources, with capacity factors of 40 percent on
that the regulatory framework in Mexico has been properly
average. It is a matter of finding the right places and the right
deployed and will allow Mexico not only to reach its clean
resources,” says Angélica Ruiz, Vice President and Managing
energy generation goals, but also its intention to become
Director Mexico and Latin America of Vestas.
a powerhouse for international investment in the area of renewable energies. “The Mexican market is key for us because
Despite vast availability, the country has yet to fully exploit
of the steady and long-term regulatory framework that many
wind’s potential, says Ralph Wagner, Director General of
other Latin American countries lack,” he says.
Mexión. He believes Mexico can take advantage of many areas. “We are just starting to address the full potential of the
DISTRIBUTED GENERATION IS ALSO POSSIBLE
country. Close to 50 percent of the areas with the best wind
While the tendency in Mexico is to install bigger turbines, to
resources in Mexico have not been explored because of both
take advantage of the wind energy resources with which the
a lack of analysis and inadequate infrastructure or permits.”
country is blessed, some players in the industry are working to bring wind into the small distributed generation sector, and in
The numbers support the attractiveness of the resource.
this way further increase wind’s market penetration. With wind
From January to October 2017, wind plants in the country
turbines that range from the 0.25 to 1MW, EWT is working to
sold 1,662GWh, compared to the 10.3GWh produced by solar.
create a niche market in the country and is trying to replicate
According to Vestas' Ruiz, this goes hand in hand with the
one of the highlight projects it developed in the Netherlands i
advantages wind technologies provide over solar. “Technically
2017, explains Ignacio López, Business Development Manager
speaking, it takes longer to develop a wind farm than a solar
Latin America of Emergya Wind Technologies. “This project
park, but the generation capacity is better from wind farms. In
lets people within the same postal code invest and become
comparison to solar, wind blows 24 hours a day. There is a 7:1
owners of local renewable energy projects. Through this
ratio of land usage when you compare wind to solar energy.”
project, they can save up to 40 percent on their electricity bill. To take it one step further, EWT also got the project into a crowdfunding scheme offering a 4.5 percent ROI. Eighty
EVOLUTION OF INSTALLED WIND ENERGY
percent of the crowdfunding came from the residents who
CAPACITY AND ENERGY PRODUCTION 15
5
12
4
9
3
would receive energy from the project, as well as from EWT employees.” Nevertheless, he recognizes that distributed generation regulation has been a problem delaying business development activities. “These kinds of innovative projects are also possible in Mexico, we just need the right regulation to allow it.”
6
2
CONNECTING RESOURCES 3
1
A key hurdle that has kept wind projects from being developed at the rate they were expected to is Mexico’s infrastructure.
0
2012
2013
2014
Installed capacity (GW) * 1H17 (annualized) Source: Ministry of Energy
2015
2016
2017*
——Generation (TWh)
0
Unfortunately, the most adequate regions for the installation of projects are not so close to the proper infrastructure to transmit the generated energy. Having to build the needed infrastructure may hinder the viability of a project and if this element has not been properly evaluated before construction
MEXICO'S HIGH-QUALITY WIND AREAS AND TRANSMISSION LINES
115
——230kV transmission lines ——400kV transmission lines High-quality wind areas Source: Ministry of Energy, CENACE
begins, it may put the project in jeopardy midway, according
are made up of many pieces and it is more economical and
to Alejandro Cobos, Country Manager of NOTUS Energía
easier to transport an entire nacelle, with all its components,
México. “In our experience it is not enough to have high-
than to do so piece by piece. If Mexico could produce an
velocity wind; the electric and civil infrastructure must be
entire nacelle to serve the market, it would be able to compete
easily accessible to make a project feasible. If these elements
against countries like China.” He also points to the fact that
are too far away from the development area, the resulting cost
for Mexico to be able to participate in such a market, a proper
may actually put the project in jeopardy.” Cobos also mentions
value chain in the country specialized in wind elements is
the critical role social and environmental issues play in any
needed. “Chinese turbine manufacturers have an entire
project. Situations such as that which took place in La Ventosa,
environment supporting their activities so they are able to ship
where social issues caused the lengthy postponement of the
an entire nacelle anywhere in the world at a very competitive
project, should be avoided, says Gabino Fraga, Managing
price. The challenge in Mexico is to develop a local supply
Parnter at Grupo GAP, as the project “signaled to the world
chain ecosystem that will support the manufacturing industry
that investments were not secure in Mexico. As Mexicans, we
in order to take advantage of the country’s logistics.”
cannot afford to keep sending these kinds of signals.” To create a proper value chain, however, wind projects will be
A LOCAL VALUE CHAIN
needed. This means that the more projects are generated, the
Julio Ramírez, Managing Director of Mexión, highlights
benefits will not only be reflected in cleaner, cheaper energy,
the importance of not only adopting but also adapting
but also in the creation of more jobs due to the value chain
technologies from abroad. “Wind park elements are built to
that will develop as the number of projects increases. “Thanks
operate under conditions that do not significantly represent
to the Energy Reform, the projects and investment coming
Mexico’s true weather environment. For example, a blade
to the country will certainly allow for the development of a
may be able to withstand a certain velocity under laboratory
strong value chain,” Robles adds.
conditions but the higher air density in Mexico as well as the turbulent winds in the country put stronger tensions into play,
According to Ruiz, all the benefits brought by a strong
therefore reducing resistance and making components prone
wind energy market will come with time. “The Energy
to failure.”
Reform is still new, having been implemented in 2014. If we look at where we are now, a lot has been done. We find
But obstacles often present opportunities and Mexico can
ourselves in a transitional phase: the starting point of the
take advantage of its privileged position to create a logistics
Energy Reform in terms of power generation has been
market, Robles says, using the example of nacelles. “Nacelles
extremely successful.”
INFOGRAPHIC
WIND IN MEXICO’S ENERGY SAILS Wind power is setting a strong foothold in Mexico’s energy
the country. While Oaxaca holds the wind power crown
mix, as more than 50 wind farms are already up and running,
with over 70 percent of the authorized energy production,
meaning the country now has a total installed capacity
other states have shown promising developments, such as
of more than 6,000MW. These numbers are only set to
Zacatecas and Tamaulipas. All 52 wind farms represent a
increase as future long-term electricity auctions, PPAs and
total investment of US$11 billion allocated by more than 20
IPPs further develop this resource’s potential throughout
private companies.
Oaxaca
5,792MW
70.83% Total Capacity 71.88% Total Energy Production 70.65% Total Investment 69.23% Projects
is the total installed capacity in wind power in Mexico as of February 2018
116
Zacatecas
5.52% Total Capacity 4.43% Total Energy Production 5.42% Total Investment 3.85% Projects Tamaulipas
5.22% Total Capacity 6.18% Total Energy Production 5.29% Total Investment 9.62% Projects Jalisco
4.57% Total Capacity 4.05% Total Energy Production 4.59% Total Investment 3.85% Projects Coahuila
91,500km2
3.46% Total Capacity 4.36% Total Energy Production 3.51% Total Investment 1.92% Projects
of Oaxaca's territory is deemed to have an average 5MW/km2 of wind power
TOP 20 WIND POWER PLAYERS
1,242
Energía Limpia de Palo Alto
Eólica de Coahuila
Grupo Dragón
Gas Natural Fenosa
Enel Green Power
Mitsui and EDF Energies Nouvelles
Iberdrola Renewables
Source: CRE
CFE
ACCIONA
0
476 360
2
180
201
401
400
600
2
97
296 293
468 234
2
La Bufa Wind
861
2
200
701
2 548
2
274
648
2
324
682
1.92
341
396
478.5
400
762
2
800
3.04 912
957
1,200
1,063
1,239
1,540
1,600
OPERATIONAL WIND FARMS PER ARRANGEMENT* Arrangement
Authorized Capacity (MW)
Authorized Energy Production (GWh/year)
Investment (US$ million)
Projects
Primary Location
Self-Supply
4,594
16,022
9,083
43
Oaxaca, Coahuila,Nuevo Leon, Tamaulipas, San Luis Potosi, Chiapas, Jalisco, Puebla, Zacatecas
IPP
595
1,937
1,190
6
Oaxaca
Generator
632
530
204
1
Oaxaca
Export
204
653
408
2
Baja California
*Wind farms with 20MW of installed capacity or higher
San Luis Potosi
3.45% Total Capacity 3.14% Total Energy Production 3.5% Total Investment 1.92% Projects
38,117MW
is the potential wind power capacity to be installed in Oaxaca
117
Baja California
2.69% Total Capacity 2.32% Total Energy Production 1.9% Total Investment 1.92% Projects Nuevo Leon
2.56% Total Capacity 1.9% Total Energy Production 2.59% Total Investment 3.85% Projects Puebla
1.14% Total Capacity 1.24% Total Energy Production 1.15% Total Investment 1.92% Projects Chiapas
US$11.4 billion
0.55% Total Capacity 0.5% Total Energy Production 0.56% Total Investment 1.92% Projects
of total investments went to the 52 operational wind farms as of February 2018
Total authorized capacity (MW) Total authorized energy production (GWh/year)
4
Total investment (US$ millions) Average cost (US$ millions/MW)
3
204
102
288
2
Energías Renovables La Mata
204
102
326 204
102
CE Oaxaca
288 206
103
2
410
2
Energías Ambientales de Oaxaca
2
509 275
138
Desarrollos Eólicos Mexicanos de Oaxaca 2
399 260
140
156
IEnova and InterGen
Vientos del Altiplano
457 312
457
2
1.86
Energías Renovables Venta III
2
312 156
Energía Sierra Juárez
320 160
Eoliatec del Pacífico
164
Eoliatec del Istmo
2
600
2
328
642
2
2
1
0
VIEW FROM THE TOP
THE STATE OF MEXICAN WIND POWER ANGÉLICA RUIZ Vice President and Managing Director Mexico and Latin America of Vestas
118
Q: What is needed for wind power in Mexico to reach the
of government, CFE and PEMEX. The increased number
level of importance it has in countries like Denmark?
of private players in the game, as well as the diverse
A: It all comes with time. The Energy Reform is still new,
institutions overlooking the sector, heighten the intricacies
having been implemented in 2014. If we look at where
of the private-public interaction. From the public sector, we
we are now, a lot has been done. We find ourselves in
need guidelines on how to assess communities, for instance.
a transitional phase: the starting point of the Energy
Decision-makers need to be able to coordinate with and
Reform in terms of power generation has been extremely
advise companies on the viability and social impact
successful. The results can be seen in the power auctions.
studies of their projects. Private companies have business
We should highlight the fact that we come from a
plans they must adhere to, encompassing the companies’
monopolistic sector, with CFE and PEMEX at the center
obligations, targets and the government’s guidelines and
for decades. We have just started a learning curve that
regulations. It has to be a joint effort.
is reflected in how the auctions have evolved. We have a good conceptual design but we are still lagging behind in
Q: Do you consider Mexico’s current rules and regulations
the implementation component, such as project financing
sufficient to help the energy sector reach its full potential?
and warranties for the sector. There is one issue that
A: Mexico has set some very aggressive targets pertaining
needs to be addressed, which revolves around non-
to its 35 percent clean energy production goal by 2024.
technical risks: security and communities, and everything
Having defined these objectives and being part of COP21
surrounding the topic of corporate responsibility. The
makes an important difference. It is something quite new for
authorities need to define the proper legal framework to
Latin America; we do not see many other countries being
address these issues and provide the private sphere with
so direct and straightforward with such goals. We believe
the tools to tackle them. Also, the available infrastructure
in an intricate system in which you can plug in renewable
has to respond to the growing energy demand, the grid
energy and address your risks by ensuring you have a
has to be ready to deal with our goal of a diversified
reliable backup plan to address potential issues. In Mexico’s
energy matrix. These are the challenges we will be facing
case, we believe in a step-by-step approach, redefining the
in the coming years.
new targets as we advance.
Q: How can private and public players work together to
Q: What are wind power’s strengths in Mexico compared
address nontechnical risks?
to other renewable energies?
A: Both are necessary. We have three levels of government:
A: Wind power has proven to be competitive enough to
federal, state and municipal. Each level already has some
win in competition with other technologies. Technically
policies in place. We have to ensure that all those policies
speaking, it takes longer to develop a wind farm than a
are coherent and in line with the goals of the reform. The
solar park, but the generation capacity is better in the
interaction between these three levels of government and
former. Wind blows 24 hours a day. There is a 7:1 ratio
the private energy sector has reached an increased level of
of land usage when you compare wind to solar energy.
complexity, considering the previous scheme was a direct
You can find great resources in Mexico, such as in the
and centralized communication between these three levels
states of Tamaulipas, Oaxaca and the northern part of Baja California, with capacity factors of 40 percent on average. It is a matter of finding the right place and the
Vestas is now a global company and an energy leader for the
right resources, which does not necessarily mean that
manufacturing, operation and maintenance of wind turbines.
you will find yourself competing against other renewable
It has over 75GW of wind capacity installed, representing
resources. At the end of the day, we are looking to
around 20 percent of the global installed base
have local, diversified energy matrices that assist local
economies and governments to diversify power risks,
Q: What would Vestas bring to the table in a collaboration
enable the use of both fossil fuels and renewables and
in either the public or private sectors?
optimize local power systems.
A: Vestas’ added value for its clients, as well as the government, is its comprehensive view of the sector. We
Q: How is Vestas working to introduce its V134 wind
understand the business from end to end, starting with the
turbine to the Mexican market?
development of a wind farm project all the way to plant
A: Ninety-five percent of the wind resources in Mexico
generation and power consumption. These projects are
can be addressed by this turbine. We are delighted to
not just about energy generation but also about putting
be working with the Ministry of Energy regarding the
money into projects and generating returns for investors.
assessment of wind resources in Mexico. This allows us
I think that this capacity of adapting to new markets,
to provide the technology that is most suitable for this
understanding the new rules of the game and being able
resource. Our plan is to make this technology available
to move all the drivers of a project that affect CAPEX and
in Mexico in the shortest term. Our first project using this
OPEX, allows us to have a competitive edge in providing
machine will be installed in 2018.
any new alliance, either governmental or private, with something they are lacking, providing a competitive answer
Q: Is it feasible to introduce wind power into the residential
to project optimization. Understanding the Mexican context
self-supply market in Mexico?
is fundamental. If you do not have the whole picture of the
A: Vestas specializes in working with industrial capacity
country’s interconnection or grid management needs, you
but I absolutely believe it is. Producing renewable energy is
cannot help your clients.
only one part the energy triangle. You cannot disassociate energy generation from energy consumption. Consumption
Q: How do you ensure that land used for wind farms
is all about energy efficiency. Are you aware of your energy
remains viable for other economic activities?
usage at home? Are you optimizing power use while
A: In general, we are very careful to conduct the right
driving? Energy consumption is a mindset of its own. The
environmental studies to avoid producing any negative
energy circle starts with energy generation. Without the
outcomes. Shade factor calculations and permitting for
previously mentioned mindset, the circle remains open.
certain wind turbine heights are important factors. Any
Finally, you have to consider the sustainability part relative
potential issue that might arise is covered by the proper
to climate change.
social responsibility program.
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VIEW FROM THE TOP
GIANTS STRONGER TOGETHER ALEJANDRO ROBLES Country Manager Mexico of Nordex Acciona Windpower
120
Q: What benefits has the merger with Acciona
withstanding all kinds of harsh environmental conditions.
Windpower provided to Nordex Group?
At the end of the day, our business is not to sell turbines
A: Nordex Group’s strategy is based mainly on sales. We
but to help our clients win contracts, in any scheme they
merged to generate economies of scale, meaning buying
may want to participate in.
more material at lower prices and driving sales up. Nordex Group still retains an independent sales relationship with
Q: How is Nordex Group supporting the development of
Acciona Windpower’s former parent, Grupo Acciona, but
a strong local value chain?
the group only represents 5 to 8 percent of our global
A: One of the components we develop locally is our
sales. In Mexico, we already have significant clients, such
concrete towers, which we used for the Ventika project
as Enel Green Power and Zuma Energía. The Mexican
in Nuevo Leon. This has added a great deal of value to
market is key for us because of the steady and long-term
our operations, while also offering an area of opportunity
regulatory framework that many other Latin American
for local providers. In Mexico, we want to focus on
countries lack. For 2018 and 2019 we want to have a fully
helping small and medium-sized companies that are
consolidated Nordex Group team in Mexico.
both cost-competitive and flexible in their operations
Nordex Group, being a strong, global and established
to develop as our partners. We are also analyzing the
player in the market, has the advantage of a lean and
possibility of increasing our regional content not only
flexible structure that can offer tailored solutions adapted
with Mexican companies, but also with US and Canada-
to the customer’s needs, as well as a fast response in
based companies.
after-sale activities. Our management team is also close to the company’s operational activities, sitting on
Mexico should take advantage of one of its main
committees with the rest of our employees to build a
strengths that positions it in the global top-tier: logistics.
strong relationship that results in smoother operations.
For example, nacelles are made up of many pieces and
This ensures quicker recognition and a swifter problem-
it is more cost-efficient and easier to transport an entire
solving capacity.
nacelle, with all its components, than to do so piece by piece. If Mexico could produce an entire nacelle to serve
Q: How will Nordex Group separate itself from the
the market, it would be able to compete against countries
competition in the Mexican market?
such as China. To achieve this, a strong procurement
A: The market is extremely competitive, with very low
value chain is needed, which has not yet fully developed
prices in the auctions and ever more companies entering
in Mexico. Meanwhile, Chinese turbine manufacturers
the country. To fight in this environment, we are bringing
have an entire environment supporting their activities
all the cutting-edge technology solutions we have to
so they are able to ship a complete nacelle anywhere in
the table. Our prices are competitive in terms of both
the world at a very competitive price. The challenge in
CAPEX and OPEX as we help improve factors such as
Mexico is to develop a local supply chain ecosystem that
power curves and decrease O&M requirements. We have
supports the manufacturing industry to take advantage
a strong, global track record to back us up, with turbines
of the country’s logistics.
that have been successfully deployed all over the world, Mexico still has an opportunity to compete against countries like China, but the true challenge is cumulating Nordex Acciona Windpower is one of the largest producers
a sales volume large enough to fill the manufacturing
of wind turbines worldwide. Nordex and Acciona Windpower's
facilities. Thanks to the Energy Reform, the projects and
merger was finalized in April 2016, combining decades of
investments coming to the country will certainly allow for
experience in design, construction and operation of wind turbines
the development of a strong value chain.
VIEW FROM THE TOP
WHEN GIANTS MERGE, THE WIND BLOWS STRONGER JORGE LOBATÓN Managing Director Mexico and Latin America of Siemens Gamesa Renewable Energy
Q: What does the creation of Siemens Gamesa Renewable
narrowing, meaning that it is becoming harder to achieve
Energy mean for Mexico’s energy industry?
expected profits. To boost market share, many players in
A: The merger between Siemens Wind Power and Gamesa
the industry have followed the merger strategy, such as
has resulted in an even more robust, solid company. Siemens
Nordex with Acciona and GE with Alstom. Siemens Gamesa
Wind Power was the market leader in offshore operations,
is confident because of its track record and the capabilities
and had a strong onshore presence in Europe and the US.
the merger brings to the table, including the creation of a
Gamesa was one of the leaders in onshore operations with
new business unit that offers maintenance services for our
a comprehensive footprint in Latin America, India and South
offshore and onshore operations.
Europe. The advantages of the merger were crystal clear. Now, Siemens Gamesa Renewable Energy can participate as
Q: How does Siemens Gamesa promote competition in the
a global player with an even stronger presence, reflected in
Mexican wind industry?
the costs, technologies and commercial activities offered to
A: We are focused on bringing down prices, always looking
our clients thanks to the integration of two excellent teams.
for the best options to slash costs. This was the strategy
In Mexico, Siemens Gamesa operates a large installed fleet,
behind our investment in WINDAR, a tower and wind turbines
enabling us to offer better construction, development and
manufacturer. Given the conditions in the country it was best
O&M services and equipment through economies of scale,
to invest with them rather than install new facilities. It also
together with the administration and operation of those
incentivizes competition, which in the end is beneficial for the
assets.
industry. This is an industry that is highly driven by logistics costs, and we do not yet see a clear advantage in localizing
Q: What different capabilities do Siemens and Gamesa
manufacturing facilities in Mexico.
bring to the table? A: Gamesa was a project developer when the industry was
Q: What is Siemens Gamesa’s objective in Mexico?
just starting. It was not only working on its own business but
A: Objective zero, meaning zero accidents. This is a priority
helping the industry grow and become more competitive. In
for us globally. In Mexico, we want to be as competitive
time, it recognized that projects were becoming increasingly
as possible and introduce as many of our new wind
demanding, meaning that it was working on activities outside
turbines to the market as possible. Mexico is pioneering
its main added value area. The company decided to focus on
new technology platforms Siemens Gamesa can offer. Our
supplying wind turbines and offering services related to its
G132-3.465 MW was sold in Mexico before anywhere else
core business. Although we limited the range of our activities
in the world. We also expect the first installation of the
at that time, we can now offer extra support to our clients due
recently introduced SG4.2-145 turbine to be in this country.
to our past as a developer. This is an uncommon asset in the
This platform will also have the advantage of being the
industry. Siemens, meanwhile, is an extremely strong ally in
first turbine developed jointly by the former Gamesa and
the technology area, offering many products for BoP. With
former Siemens teams under the Siemens Gamesa name.
its knowledge, we provide broad expertise in the electricity
The turbine will be an example of excellence in the market
area that ensures that projects will be done right. The fact that
because it was developed by two teams with different
Siemens AG is now the main shareholder in Siemens Gamesa
visions creating synergies for the benefit of the industry.
provides access to financing solutions to support our activities and the new product platforms we want to bring to market. Siemens Gamesa is a leading provider of wind power products
Q: What major challenge is the wind industry facing today?
and solutions to customers around the world. The company has
A: The market is becoming increasingly competitive
installed products and technology in more than 90 countries,
and although sales are rising everywhere, margins are
with a total installed base of close to 83GW
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VIEW FROM THE TOP
CREATING LOCAL VALUE WITH ELECTRIC UTILITIES DAVID FLORES Former Country Manager of Ormazabal Mexico
122
Q: What is Ormazabal’s competitive advantage that makes
Ikusi, which has a significant presence in Mexico. Mexico
it an attractive partner for CFE in power distribution?
is the one country in the world in which we can find a
A: Ormazabal has been active for 50 years. Since its
better synergy between the group’s companies. In the
inception, the company has had a close relationship with
particular case of Ikusi, the business nucleus in Mexico is the
electric companies. Virtually all the products, solutions
communications network. The company has been Cisco’s
and complementary services that we have developed have
gold partner for five years in a row.
been designed to satisfy the needs of these companies. These products, solutions and services could also be
Q: What strategical alliances is Ormazabal targeting in
extended to other sectors where electric companies have
Mexico?
had a lot of influence. Electric companies work first hand
A: In 2015, we formed a partnership with the National
with the changing requirements of the electricity grid.
Institute of Electricity and Clean Energies (INEEL). The
Many of the projects that we are undertaking with CFE
goal is to work jointly on demonstrative projects related
are based on our European experience: smart grids and
to the generation of new technologies, applicable to the
control and communication of the distribution network,
specificities of Mexico’s energy sector. It is a tool we used
among others. Our work with electric utilities cemented
and that worked very well for us in Europe and it will work
our vast experience and wide array of products and
just as well in Mexico. We are pushing to have significant
solutions, allowing us to work with companies like Iberdrola
amounts of public funds that build alliances to develop
Distribution, EDF, Vattenfall, Enel and Endesa, to meet the
projects. Our STAR initiative with Iberdrola, as well as our
requirements of the Mexican market.
Star City Málaga project, started this way. Universities, technological institutes, the electricity distribution company
We demonstrated to CFE that we have what it takes to
and technology manufacturers converged to create a
answer the new distribution challenges it is facing: technical
win-win project for all. Well-funded projects, with many
and nontechnical losses, TIU (Interruption Time Per User)
participants to share costs, that evolve into standards for
improving and reducing operational costs, to name a few.
the electric industry is the primary objective. We have faced
That is our primary focus in our relationship with CFE:
difficulties in establishing a similar design in Mexico and are
providing the necessary tools to make it an increasingly
waiting for CFE’s complex transition to conclude to provide
efficient and competitive public company.
this mechanism the importance it deserves.
Q: How is Ormazabal capitalizing on its Velatia distinction
Q: What other projects is Ormazabal earmarking?
in Mexico?
A: In Mexico, we have three main market niches: renewables,
A: Initially, our group as a whole was called Grupo
public distribution and what we call end energy users
Ormazabal. The distinction with Velatia was created to
(industry, infrastructure, buildings and hotels, for example).
establish a separation between Ormazabal’s core business,
As for other projects, I believe we are facing a turning point
the electric sector, and the rest. We looked for a different
in reference to the challenges that we will face in the next
name and a different image from a marketing point of view.
three to five years. We have to be able to capitalize on all
Primarily, Velatia is composed of Ormazabal, followed by
the experience we have gathered in network intelligence, both in Europe and in Latin America, and make CFE take notice of the added value we bring to the table. We have
of
to encourage CFE to change its distribution model, to be
personalized solutions for electric utilities and final users as
prepared to cover the growing necessities of the Mexican
well as renewable energy systems applications based on its
energy market. The STAR project with Iberdrola is a leading
own technology
example of what CFE can achieve by working with us.
Ormazabal is
the
Spain-based
leading
provider
VIEW FROM THE TOP
WHEN WAITING FOR TECHNOLOGY PAYS OFF ALEJANDRO COBOS Head of NOTUS Energía México
Q: How does NOTUS Energía México provide value to the
and there are no people living anywhere close, we also
Mexican wind-energy market?
recognized that the required civil construction, such as
A: NOTUS Energía México, launched in 2014, is a unit of
access roads, would be minimal and easy to do.
Germany’s NOTUS Energy, which provides a percentage of the company’s capitalization and the quality seal for the
When we started planning that project, we did estimations
projects as a well-known company in Europe. The remaining
with turbines for class 3 winds that were not yet available
percentage is from a Mexican investor who provides both
in the market, but we knew they would come. Now those
capital and expertise in the engineering and construction
turbines are available and they fit the project perfectly.
business. The support of the Mexican investor has imparted
With these turbines, we are reaching plant factors above
added value, as it has worked in the construction of wind
40 percent with low winds, which mirrors to a fault our
parks for different utilities in the states of Oaxaca, Jalisco,
financial model. NOTUS Energy was extremely supportive
San Luis Potosi, Nayarit and Zacatecas.
of our vision. When we take a project like this to off-takers, usually their first question is about the wind velocity or
NOTUS Energía México is a company that knows how to
the EOH, rather than the ROI. This shows a lack of vision
develop projects with excellent quality and in a short time.
regarding the project as a whole but we are paving the way
This is made possible by our simple structure and lack of
in Mexico, always going one step further.
bureaucracy that provides swift decision-making. Q: What interest does NOTUS Energía México have in Q: What areas of opportunity is NOTUS Energía México
following the path of its German parent?
targeting to develop wind projects?
A: Even though NOTUS Energy is a developer, EPC and
A: We are focusing on the center and northern regions
operator, in Mexico we decided to enter the market solely as
of Mexico. Although these areas may not have the strong
developers as a first step. This has given us more flexibility
winds of places like Oaxaca, they have many different
and allowed us to be technology agnostics, which are both
virtues. A perfect example is the Piedras Negras project,
strong assets in the competitive Mexican market.
on which we have been working for over two years. We are now pushing this project to enter the ready-to-build stage.
We are in the process of capitalizing the company, taking
When developers research potential areas for their projects,
steps to be less dependent on Germany. We are looking
they tend to reach for a wind atlas and look for areas where
to commercialize our ongoing projects in the next two
wind velocities exceed 7.5mls per second. In our experience
years. After that, we will look at working on projects
it is not enough to have high-velocity wind. The electric
through a joint-venture scheme for another three to
and civil infrastructure must be easily accessible to make
five years. Finally, in 10 years we expect to be able to
a project feasible. If these elements are too far away from
follow the German business model in which we become
the development area, the resulting cost may actually put
the developer, EPC and operator. Our initial goal will be
the project in jeopardy. Social and environmental issues
20-30MW projects, but we hope to reach a large project
are also extremely important for us and we take them into
eventually. I believe it is a realistic and achievable vision
account from the outset of the project.
for the short, medium and long terms.
From the first moment we put it in our potential projects portfolio, we knew that the Piedras Negras area had low
NOTUS Energía México was founded as a branch of Germany-
winds but we also knew it had a high wind density and
based NOTUS Energy. Based in San Luis Potosi, the company
vertical wind shear comparable to Yucatan. Because the
develops projects for the wind and solar energy sectors in
project is located 3km away from an interconnection point
Mexico
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INSIGHT
PLURAL FACTORS FAVOR MEXICO AS WIND DESTINATION IGNACIO LÓPEZ Business Development Manager Latin America of Emergya Wind Technologies
124
With a potential energy generation of 25,104GWh per year,
and effort, he explains. It is a strategy that is paying off.
an average potential plant factor of 37 percent and the
By September 2017, EWT had eight well-established local
amount of wind resources in industrial states such as Yucatan,
partners as well as 50MW of projects in the pipeline that
Tamaulipas and Veracruz, it is no surprise that Mexican
are under negotiation.
fields are attracting wind turbine manufacturers. “Mexico is among our Top 5 countries for potential clients,” says
Still, before proceeding, López also sees challenges with the
Ignacio López, Business Development Manager LATAM for
implementation of the projects that must be solved, starting
Emergya Wind Technologies (EWT). The fact that industrial
with the regulatory landscape. “As a matter of fact,” he says,
and big consumers in Mexico face high electricity costs that
“regulations are the reason most of our negotiations have
will continue rising also boosts the country’s appeal. “As
been delayed.” The main issue is that renewable energy
electricity consumption costs can reach up to 40 percent
projects are catalogued as distributed generation only if
of a company’s OPEX, our solution, which is guaranteed for
their capacity is below 500kW. “Our distributed generation
up to 20 years with proper maintenance, allows companies
projects can reach up to 3MW with medium-sized turbines
to fix and shield these costs against market variations.”
of 1MW of nominal power that are much smaller and have much lower environmental and social impact than any solar
To attack this market niche and take advantage of its
project of a similar size, or even smaller.”
potential, EWT, which works in wind distributed generation, launched operations in Mexico as early as December 2015,
EWT is in close contact with regulating institutions to solve
just as the Energy Reform was consolidating into an open
this, together with other problems delaying projects. Although
market in the areas of distributed generation and self-
not vital for the economic viability of the project, and the
consumption. “During the development phase, we began
fact that EWT can negotiate a beneficial contract under the
building relationships with regulators, the main players
current regulations, López explains that improvements would
already present in the renewable energies market and
allow for wind distributed generation projects to expand with
potential clients and partners,” López says.
even more strength. “If the regulations allowed it, Mexico could be a tremendous market for us.”
A major milestone that solidified EWT’s market opportunity was the announcement of mandatory CELs starting Jan. 1,
Also playing to EWT’s strength is its innovation standard.
2018. That news was announced in January 2017, spurring
Rather than focus on technological innovation, the
EWT to fully rev up its operations in the country, making
company emphasizes business innovation. As a clear
it the first company to enter the Mexican market niche of
example of this vision, López talks about EWT’s most
wind distributed generation. López understands that the
recent project in the Netherlands, which was completed in
company’s approach not only opens business opportunities
September 2017. “This project lets people within the same
for EWT, but also for other players that work in wind
postal code invest and become owners of local renewable
distributed generation. Although some might see this as a
energy projects. Through this project, they can save up
risk, he believes that in gathering all the available expertise,
to 40 percent on their electricity bill. To take it one step
potential partners and customers, he is consolidating the
further, EWT also got the project into a crowdfunding
company as the first option for these kinds of projects.
scheme offering a 4.5 percent ROI rate. Eighty percent
“One of our main strategies to enter the market was to
of the crowdfunding came from the residents who would
find established local providers of infrastructure.” These
receive energy from the project, as well as from EWT
companies would not only offer services to EWT at a local
employees,” he says. “These kinds of innovative projects
price but actually help it assemble a strong portfolio of
are also possible in Mexico, we just need the right
potential clients, without having to lose too much time
regulation to allow it.”
VIEW FROM THE TOP
INTEGRATING TECH, SERVICES TO OFFER HIGHER ADDED VALUE Ralph Wagner Director General of Climatik
César Sierra Commercial Manager of Climatik
Q: How does Climatik want to impact the Mexican wind-
RW: Climatik has showed its commitment to the Mexican
energy market?
industry by installing the tallest meteorological mast in
CS: Climatik wants to position itself as a strong player in
Mexico at 130m, using LIDAR for prospection in Mexico
the value chain in wind park construction. There are many
for the first time. We also installed the country’s first
parks being built in Mexico now and we are working to offer
sonic detection and ranging system in a helicopter and
the highest quality in the market to all of them. Climatik is
are one of the first Mexican companies to both enter
already well-known in the area of supply and installation of
other countries and to implement high-standard security
sensors and measurement towers, but the company wants
certifications. All our activities are geared toward offering
to penetrate the consulting and engineering segments to
a higher added value and adjusting to the evolution of the
offer a higher added value throughout the entire life of each
industry in Mexico.
project. We are integrating technologies and services to that end, which not only adds value to the prospection and
The main challenges we see include the lack of regulation
analysis of the location, but also to the construction phase.
and irregularities between different entities. Many companies entering the Latin American market are looking
RW: We are just starting to address the full potential of the
for local partners that are familiar with regional operations
country. Close to 50 percent of the areas with the best wind
and regulations. Thanks to Climatik’s experience, it can be
resources in Mexico have not yet been explored. This is due
a valuable partner for new companies entering the sector.
to both the lack of analyses and inadequate infrastructure or permits. Climatik can support companies that are taking
Q: How receptive is the Mexican market to cutting-edge
advantage of these resources.
technologies? CS: Although the Mexican market is conservative compared
Our objectives for the short term are to gain broad
to Europe and the US, Mexican companies are forward-
acceptance of our consulting services and new products by
looking and like to implement new technologies, sometimes
2018 and to broaden our position in other Latin American
even more so than big developers. This is due also to the
countries beyond Panama, where we are already present,
structure and flexibility of decision-making; big companies
by 2019. In the long term, Climatik wants to be the company
have very structured processes that are hard to change.
against which our competitors in the sector benchmark themselves, with experience and success that is comparable
Companies are used to cutting-edge technologies and
to any leading international firm. Through our activities we
processes coming from more advanced countries. It is
want to become a key piece in the Mexican transition to
hard therefore to introduce our services due to this culture
renewable and clean energies.
because they already have all the planning settled, with fixed mechanisms and dynamics. Although there is still work
Q: What hurdles do wind projects face in Mexico and how
to be done, Mexico is heading toward a broader acceptance
is Climatik facilitating the entry of more developments?
of national high-tech products and we remain convinced
CS: The crafting of new regulations is hindering the decision-
there is a wide window of opportunity to showcase our
making process of many wind farm project developers. For
products and projects.
example, CENACE and the Ministry of Energy are looking to implement regulations on forecasting requirements. Although we are in close contact with them and offer our
Climatik is a Mexican company specialized in wind and solar
support to achieve a better functioning grid, they have not
resources measurement products, services and consultancy.
yet settled elements as basic as forecasting time frames,
The company has over 10 years of experience in Latin America’s
whether it will be hourly or daily.
renewable-energy industry
125
Central Eรณlica Sureste I, Oaxaca
126
INSIGHT
MAINTAINING THE INFRASTRUCTURE OF THE FUTURE JULIO RAMÍREZ Managing Director of Mexión
During the lifetime of a wind farm there are several elements
experience and can deploy the best practices of several
that may fail, from huge external components, such as the
companies.”
turbine blades, to small and almost invisible elements like the atmospheric discharge system. If these elements are not
Having more itinerant activities has made it extremely
repaired quickly, they might cause major economic losses
important to have a wide client portfolio to keep the
due to production downtimes.
company running. With activities abroad, Mexión is not only supporting the business but also gathering more
Having a local team able to perform reparations can be
knowledge and experience, Ramírez says. “Although we
a game changer when the clock is ticking. Julio Ramírez,
are a midsized company, our reach extends to South
Managing Director of Mexión, which provides assessment and
America, in countries such as Brazil, Chile and Uruguay.”
services for the inspection, rehabilitation and maintenance of
This jump outside Mexico was made easier due to the
wind turbine energy blades and other components, says this
quality and training of the company’s technicians, who
not only saves clients time but money, too. “Mexión’s main
also have the GWO certification, he adds. “To work in
strength resides in the fact that we are local, giving us a cost
wind farm locations it used to be enough to have a DC-3
and time advantage. Being a local company, our working
certificate provided by the STPS. Now, every company
hours cost less than companies that must use expats for
needs to have a GWO certification. This has not only raised
their activities. Likewise, being close to the client allows us
the requirements of the industry but also opened up more
to come to their facilities any time they need us.”
doors to us since that certification can also be used in other countries where we operate.”
Although being economically and locally flexible are advantages, it is equally essential to have a team that is
Mexión’s long-term approach is not only applicable to
knowledgeable and experienced. Mexión believes it is
its business activities but also to the development of the
well-positioned because its products and services are not
country’s industry. The company expects to help solve
limited to only one brand. “Mexión has worked with several
local problems that arise from time to time due to the lack
manufacturers and materials on maintenance services for
of local design. “Wind farm elements are built to operate
companies such as Acciona, Gamesa and Vestas. This has
under conditions that do not significantly represent
provided us with experience to solve any kind of problem
Mexico’s true weather environment. For example, a
the client may have, no matter the brand of turbine, blade,
blade may be able to withstand certain velocity under
nacelle or any other component.”
laboratory conditions but the higher air density in Mexico as well as the turbulent winds in the country put stronger
In comparison, other companies provide maintenance
tensions into play, therefore making components prone
services to only one manufacturing company. This is a safe
to failure.”
short-term approach, since these companies get called more often due to their direct involvement with only one
To solve these kinds of problems, Mexión is working closely
business, Ramírez says. “These companies are the first
with local universities to support the development of
ones to be called during maintenance, even though their
human capital. “Mexión supports the la Universidad del
costs are higher and their services slower, since they have
Istmo in Oaxaca,” Ramírez says. “The university is creating
a strong partnership with the manufacturers.” Mexión,
a strong department for renewable energies and has
however, is looking at the long term by working with
started to work on the design of complex parts for wind
several companies. “We might be called less often but
farms. Although the university’s activities in the field are
once the warranty expires we become the first option
just starting, we see it as a first step that could bring much
for wind farm owners because they know we have more
more attractive opportunities later on.”
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VIEW FROM THE TOP
SAFETY MUST BE A 365/24/7 MENTALITY PETER TATTERSFIELD Independent Consultant at Axis Renewable Group
128
Q: How is Axis fostering wind power in Mexico’s energy mix?
Q: What is your assessment of Mexico’s regulations for health
A: Wind power has been generated for decades and plays
and safety practices applicable to wind power plants?
an important role in the energy mix in the US, where our
A: While you might have regulations with particular
core business is located. But in recent years, political
requirements and federal regulations that must be followed,
changes in the US, Mexico’s Energy Reform and the
we believe the toughest regulation has to come from inside.
government’s target for clean energy generation created
A company’s internal regulations are used to make sure the
a very attractive environment for an outsider to invest
on-site technical workforce is safe and their tools are properly
and participate in that growth. In Mexico, we bring our
certified, correctly calibrated and duly inspected. Axis’ first
knowledge and experience to train local technicians and
line of defense is its internal regulations for its workers and we
offer a market-competitive service.
welcome and encourage the challenge of tougher processes.
Q: How does Axis provide the best safety and security
Q: How does Axis deal with potential accidents in remote
solutions for Mexico’s wind farms?
locations?
A: Safety is a value. It does not start when you come to
A: As part of a safety culture, especially considering the
work, but rather when you wake up and make it part of
remote locations of wind farms, you can overcome safety
your culture, adopting a 365/24/7 mentality. Safety has
challenges by regularly undergoing evacuation drills in a
to be the first and foremost value of a company working
wide array of scenarios to address the situation as quickly
in renewable energy today and Axis’ safety track record
and efficiently as possible. You do not wait for it to happen,
speaks for itself. All our technicians are continuously
but plan ahead to confront it. Local authorities and nearby
trained and must be certified to work. In addition,
hospitals must be included in those simulations to know who
they must dress appropriately, wearing the mandatory
to call and to have the relevant helicopter coordinates for
safety gear and Personal Protective Equipment (PPE).
effective air hospital operations.
We perform regular audits with our own health and safety quality staff to ensure that all our technicians are
Q: What is the comparative advantage of Axis’ Quality
compliant with these imperatives. Axis wants to share in
Management System?
that growth with highly experienced technicians, who will
A: Axis believes the greatest quality process you can exert on
appreciate the value of safety and the work environment
technicians to ensure they are doing their work in accordance
they are in.
with the company’s standards is through internal audits. Key performance data is regularly captured and constantly
Q: How is Axis developing highly qualified personnel?
monitored to ensure high-quality work and products are a
A: We have started conversations with the Universidad del
constant for all processes to ensure the customers' satisfaction.
Istmo, which has developed programs to train technicians in an academic environment. When they graduate, we put them
Q: What are Axis’ objectives for 2018?
through an internship. If they exhibit a value for their own and
A: Axis has been successful in penetrating the Mexican market
their co-worker’s health and safety, they will be eligible for
and it has landed several contracts to operate and maintain
full-time employment in Axis.
wind farms in Mexico, South America and Jamaica. To date, 40 Axis employees are working in Mexico and we expect to double that before the end of 2018. Our objective is to
Axis Renewable Group is an independent service provider
become a key player in the O&M market in Mexico. Replicating
of utility-scale wind turbines and solar and O&M projects. Its
the same track record of success we have experienced in the
“Safety First” value ensures the highest level of service through
US. Mexico’s tremendous number of opportunities are at the
safety, quality, production and professionalism
center of Axis’ growth potential.
INSIGHT
WHEN ENERGY PROJECTS COLLIDE WITH AIRPORTS VIRGINIA MANDUJANO Director General of Prior Aero
A pilot steering his plane toward the landing strip, or flying
must be free of obstacles. Each airport’s use of space is also
it off the tarmac, has enough to worry about without
different. As a result, the design of any nearby wind farm
having to look both ways for a wind turbine. Wind farm
will be unique to that location.
developers, however, see great business opportunities in the same locations favored by airports. The result, says Virginia
“Our work is very specialized. The consultancy was initially
Mandujano, Director General of Prior Aero, is a potential
involved only in the design of aviation and aerial navigation
airspace conflict that could end up grounding the proposed
spaces but shifted its focus from designing these spaces to
installation. “Wind farms require constant, fast and
showing how wind farms affect these spaces. From there,
nonturbulent winds to operate. So do airports.” With 1,500
we have branched out to other areas in the energy sector
airports and aerodromes registered in Mexico as of 2016,
that require similar knowledge, such as transmission lines
the possibility is high that a potential wind farm location
and solar farms. We are a one-of-a-kind company.”
will be planned near an already built airfield. “Placing a tall turbine with moving blades close to an airplane’s path
Its uniqueness can also be a double-edged sword in a young
to the airport would be extremely dangerous. With our
market. While it has no competitors, potential clients are
services, companies can design or even redesign the wind
sometimes not aware they need the firm’s services. “In
farm to take advantage of these locations,” she adds.
countries such as Germany, Spain and the US, companies understand that they have to develop these kinds of
Prior Aero is a Mexico City-based consultancy for the
studies. In Mexico, very few people know that they are a
renewables and aeronautics industries. In the renewables
must. This has nothing to do with regulation. The problem
sector its expertise focuses on technical and legal
is that the market has not developed yet. These other
consultancy for the implementation of wind farms, where
countries have had the wind farms-airports conflict for
the average total height of an industrial wind turbine is
a long time, but it has not been an issue in Mexico until
328ft. The blades, at 116ft each, cover an acre of vertical
recently,” Mandujano says. She also points out the difficulty
airspace when turning, according to the National Wind
of disseminating information because companies tend to
Watch webpage.
think of regulatory proficiency as a competitive advantage. “If another company goes before you in the queue to get
Mexico’s Airports Law and Airports Regulation Law
a permit and it gets rejected, it is in your best interest for
clearly set out the safety requirements project developers
that to happen because then your company gets the permit
must follow when planning a wind farm installation.
and you become more competitive.”
Mandujano says proactive companies can avoid further costs by consulting firms like Prior Aero. “It is extremely
It is easy to see the regulatory need for projects that include
important that developers approach us so we can work
physical objects reaching into the sky, such as wind farms,
together on the design, in line with the regulations that
transmission lines and power plants, but Mandujano says
must be followed. Doing so is much more economical
solar also poses a risk, even if it is unseen. Solar plants
than redesigning the entire project further down the line.
use PV modules to capture solar energy. These modules
It is possible that the project may even become a no-go
reflect solar beams back to the sky. “If one of those solar
because of a conflict between the potential wind farm and
beams gets directed toward an airplane, that is a potential
the airport, highlighting the importance of our work.”
risk for the airplane. This possibility must be regulated as well. In the past, it was easier to predict the reflection’s
Air traffic follows a vertical slope, much like a slide, during
trajectory because solar modules were fixed but newer
take-off and landing. This means the aircraft’s distance from
tracking technologies make this more difficult. We also
the airport dictates the height at which the space below
perform these kinds of studies,” Mandujano says.
129
VIEW FROM THE TOP
WIND TURBINE SUPPLIER BRANCHES OUT TO O&M, DIGITAL SOLUTIONS RAFAEL VALDEZ Managing Director Latin America and the Caribbean of Envision
130
Q: What were the key elements behind the successful
efficiencies, load factor and other characteristics that set
development of Envision’s Yucatan project?
them apart. A project’s advance must be taken into account
A: When Envision launched its strategic association with
to mitigate default risks. Lack of rigorous admissibility criteria
Vive Energía, all required measurements were already carried
can foster speculative participation that outsources potential
out and certified by third parties, along with environmental
risks to third parties.
impact assessments and interconnection permits. Commercial contracts had been closed and PPAs had been
Q: How does Envision tackle intermittency?
signed as legacy contracts under self-supply provisions.
A: Besides the design and manufacture of wind turbines,
As a project developed prior to the Energy Reform, under
Envision also has an important software development
previous regulations, its characteristics were more within the
department. Our company offers energy asset management
financial entities’ comfort zone. We took the project one step
tools to operators — not limited wind power — to optimize
further by undergoing logistics studies to determine that the
portfolio performance. Envision manages close to 120GW
project site’s access points were optimal. We underwent all
through an international network of third-party operators,
due diligence processes and secured the interest of local
meaning we are managing between 15-20 percent of the
off-takers to ensure the bankability of the project. Yucatan,
world’s solar parks and wind farms through our management
in particular, is subject to anthropological issues. We sent a
software. Renewable energy asset optimization software
specialized team of 30 archaeologists to map all 1,500ha of
can simplify decision-making processes, allowing
the terrain where we found more than 2,000 archaeological
performance optimization under intermittency scenarios.
remains and set in motion an action plan to salvage and
We can visualize real-time power output in a single
move them, preserving the historical and cultural heritage of
platform fed by SCADAs, integrating other useful inputs,
the area. All these measures demonstrated full compliance
like meteorological forecasts for further predictability and
before banks supported Envision’s first project finance
information to improve analysis and decision-making and
scheme outside of China.
generate significant savings in the process.
Q: How would you rate the progression of Mexico’s long-term
Q: What are Envision’s expectations for 2018?
electricity auctions?
A: Globally, Envision has spent the last 11 years positioning
A: The Clearing House is a prime example of the improvement
itself as a major wind turbine supplier. We have a commitment
process we have see between each auction. The auction
over the next few years to supply 5GW of turbines with
design continues to be perfected, encompassing
an
different clients, and this will launch the company into the
increasing number of positive elements and players. We
wind turbine supplier Top 5 worldwide. Our diversification
believe fixed quotas per technology are coherent both with
strategy not only implies setting up shop in different locations
the objective of reducing energy costs and the necessity of
— Chile, Mexico, France and looking toward India and Australia
maintaining a balanced energy matrix, versus price-based
— it also means service portfolio diversification. Software
auctions that would not solve intermittency problems if solar
development is one business line we are actively pursuing,
power achieves a predominant footprint in the mix. Projects
while we also have a Silicon Valley-managed equity fund.
under equal terms can compete for logistics and production
We have invested in companies for electric vehicle charging stations and energy storage companies in the US. In 2018, we will launch both Yucatan wind farms, close a PPA legacy
Envision is a China-based smart energy solutions provider
contract for our Guanajuato project and branch out from
offering smart wind turbines, smart energy management
project development to digital solutions in the Mexican
software and technology services, with facilities established
market, where we can showcase our 160MW installed and
worldwide
operational capacity, showcasing reliability to our clients.
VIEW FROM THE TOP
SAILING IN MEXICO’S WIND POWER INDUSTRY
Juan Saltre CEO of Ventus
Alejandro López Former Country Manager Mexico of Ventus
Q: What is Ventus' forte in green energy projects?
Q: How have the first two electricity auctions in Mexico
JS: Ventus offers services across the whole spectrum of
and the MEM piqued your interest in the country?
a project. The company was established seven years ago
JS: When we decided to expand from Uruguay, pushed
in Uruguay, providing services in the wind energy project-
by a saturation of the market due to over-investment, we
development phase. In time, our clients expressed an
started analyzing Latin America’s biggest markets. Mexico
interest in having us accompany them the rest of the way.
is a market made up of more than 3,000MW of installed
We are structured to work with separate and specialized
wind power capacity in operation, with the potential
departments in engineering, construction and O&M,
of tripling, which will generate more opportunities for
providing considerable risk mitigation in all the projects
companies like Ventus. We know there is fierce competition
that we undertake.
because it is a market that has been developing for many years with very competitive prices. We are not interested
Q: How does your focus on Latin America make you a
in engaging in a price war, but in providing a competitive
better option than other foreign companies?
proposal as a whole.
JS: We learned a lot while growing as a company focused on renewable energy in Uruguay. Seven years ago, our
Q: How would Ventus like to be known by its customers?
country was devoid of wind power. Following a major
AL: Juan and I share the idea that we want the largest
renewable energy boom, many external players entered
developers such as Acciona, Enel or Iberdrola to see
the market, mainly Spanish and Portuguese companies,
Ventus as a trustworthy partner for their projects, that our
to provide the missing infrastructure required to complete
flexibility can be brought to the table, not only to assist in
all the new projects. In 90 percent of these cases, foreign
the development phase but also in the construction and
companies lacked in-depth knowledge or experience with
O&M stages.
all the local aspects, including network operators — CFE in Mexico, UTE in Uruguay — which generated considerable
Q: What does Ventus’ near future look like in Mexico?
problems, delays and additional costs. We knew how UTE
AL: Ventus’ history tells us that five years from now the
operated, its needs and how to satisfy them. We always
company will be a reference for reliability as a leader
make a point to apply our cumulated expertise combined
in renewable energy, providing services to the major
with the use of local resources, with long-term objectives.
players. Seven years ago we undertook small operations in Uruguay, and now companies like SKF look to Ventus
Q: Which are Ventus' most successful projects?
to form alliances.
JS: A few years ago, we developed a project in Uruguay for which we structured a financial trust where we issued a
JS: Five years ago, Ventus started with five people and
private offer of US$20 million to finance the construction of
we never anticipated that today we would have an asset
a wind farm. Seventy-six investors of all sizes participated
of more than 70 professionals. Our constant has been
in the trust, including companies and private individuals,
and will be maintaining a problem-solving focus with our
with amounts ranging from US$20,000 to US$4 million.
experience as an added value for our clients and their
This strategy has no equal in Uruguay or in Latin America.
projects.
We are looking to replicate this scheme in other countries, taking into account each one’s legal specificities. More recently in Argentina we attained a position of strength in
Ventus is an Uruguay-based engineering company with
a short period of time. Since our arrival in January 2016, we
operations across Latin America. Its expertise extends across
are today working in 80 percent of the projects granted in
the whole lifecycle of wind energy projects, from EPC to O&M.
the countries’ latest power auctions.
Ventus is also venturing into solar energy projects
131
ROUNDTABLE
HOW ARE YOU CEMENTING WIND POWER’S FOOTPRINT IN THE NATIONAL ENERGY MIX?
In its latest Renewable Energy Advance Report, the Ministry of Energy stated that wind power’s footprint in installed capacity amounted to 3,735MW. Mexico’s third long-term electricity auction greenlit an additional 858MW of wind power, securing a diversified energy matrix for the country. The potential of this resource has barely been tapped, as Mexico’s wind power association, AMDEE, estimates wind power could develop an installed capacity of 18,500MW by 2024. Challenges remain as the auctions produced increasingly aggressive pricing per MWh, averaging US$47.78/MWh in the first edition down to US$20.57/MWh in the third long-term electricity auction.
132
Vestas is the leader in the wind industry worldwide. Vestas’ added value for our clients, as well as the government, is our comprehensive view of the sector. We understand the business from end to end, starting with the development of a wind farm project all the way to plant generation and power consumption. These projects are not just about energy generation but also about generating returns for investors. This capacity of adapting to new markets, understanding the new rules of the game and being able
ANGÉLICA RUIZ Vice President and Managing Director Mexico and Latin America of Vestas
to move all the drivers of a project — CAPEX, OPEX, technology and capital costs — creates a competitive edge in project optimization considering all the elements that we provide. Understanding the Mexican context is fundamental. Without the whole picture of the country’s interconnection or grid management needs, we cannot help clients.
As a Chinese company, Envision is contributing to the diplomatic, economic and commercial relationships between China and Mexico. Our initial global portfolio amounted to 600MW of projects in various development stages, which today amounts to almost 1,500MW, including Mexico’s contribution in our global portfolio: a 70MW project already under construction and 90MW from a first auction project that is in ready-to-build stage. These efforts make Envision one of the
RAFAEL VALDEZ Managing Director Latin America and the Caribbean of Envision
major Chinese wind power investors in the country. Pertaining to the energy mix, Envision wants to contribute to the government’s commitment of reaching 35 percent of renewable energy produced by 2024 by consolidating wind power’s installed capacity nationwide.
There are many wind farms being constructed in Mexico now, and we are working to offer the highest quality in the market to all of them. Climatik is already well known in the area of supply and installation of sensors and measurement towers, but the company wants to penetrate the consulting and engineering segments to offer greater added value to our customers along the entire lifecycle of each project. To achieve this, we are implementing technologies and services that not
RALPH WAGNER Director General of Climatik
only add value to the prospection and analysis of the location, but also to the construction phase. Close to 50 percent of the areas with the best wind resources in Mexico have not yet been explored. This is due to both the lack of analyses and inadequate infrastructure or permits. Climatik can support companies that are taking advantage of these resources.
The market is extremely competitive, with very low prices in the auctions and ever more companies entering the country. To stand out in this environment, we are bringing all the cutting-edge technological solutions we have to the table. Our prices are not only competitive in terms of both CAPEX and OPEX, but we also help improve factors such as the power curve, and operation and maintenance requirements. We have a strong, global track record to back us up, with turbines that have been successfully deployed all over the world, withstanding every condition in harsh environments. At the end of the day, our business is not to sell turbines, but to help our clients win contracts in any scheme they may want
ALEJANDRO ROBLES Country Manager Mexico of Nordex Group
to participate in.
133
Ventus was established seven years ago in Uruguay, providing services in the wind energy project development phase. In time, our clients expressed an interest in having us accompany them the rest of the way. This is quite unusual for the industry. We are structured to work with separate and specialized departments in engineering, construction and O&M for considerable risk mitigation in all the projects that we undertake. We arrived in Argentina 14 months ago and formed a team of 23 professionals, of whom 90 percent are local experts. Today, we are working in 80 percent of the projects granted in the country’s latest power auctions. We want the
JUAN SALTRE CEO of Ventus
largest developers like Acciona, Enel or Iberdrola to see Ventus as a trustworthy and flexible partner for their projects, not only to assist in project development but also in the construction and O&M stages.
Notus Energía México, launched in 2014, is a unit of Germany’s Notus Energy, which provides a percentage of the company’s capitalization and is a well-known company in Europe, particularly in Germany. The remaining percentage is from a Mexican investor that provides not only capital, but also its expertise in the engineering and construction business. The support of the Mexican investor has imparted added value, as it has worked in the construction of wind farms for different companies in the states of Oaxaca, Jalisco, San Luis Potosi, Nayarit and Zacatecas. Notus Energía México is a company that knows how to develop projects with excellent quality in a short time. This is possible thanks to our simple structure and lack of bureaucracy
ALEJANDRO COBOS Country Manager of NOTUS Energía México
that advance decision-making.
Siemens Wind Power and Gamesa’s merger produced a more robust, solid company. Siemens Wind Power was the market leader in offshore operations, with a strong presence in Europe and the US. Gamesa was one of the leaders in onshore operations with a deep footprint in Latin America, India and South Europe. Now, Siemens Gamesa can participate in the market as a global player with a stronger presence, reflected in the costs, technologies and commercial activities offered to our clients thanks to the integration of two excellent teams. In Mexico, Siemens Gamesa operates over 2,200MW of installed capacity, which by the end of 2018 should become 3,200MW. Given economies of scale, having such a large volume of equipment allow us to offer better construction, development and O&M services and equipment, together with the administration and operation of those assets.
JORGE LOBATÓN Director General Mexico and Latin America of Siemens Gamesa Renewable Energy
35.46MW solar park, Camargo, Chihuahua
SOLAR
6
With average irradiation levels well beyond most of the global solar energy leaders, Mexico’s geographical position is one of the worldwide sweet spots for the harnessing of solar power to produce electricity. Yet, Mexico has yet to fully tap this potential. The country’s current installed solar capacity is almost nine times smaller than its wind capacity. Where there is a market gap there is a business opportunity, and solar's promise has not gone unnoticed by the international market. As a result, over half of the total energy to be installed thanks to the long-term electricity auctions will be produced through photovoltaic technologies.
In this chapter, the main market players in solar energy discuss the evolution and achievements of the available and coming technologies. They evaluate the business developments expected to catalyze Mexico’s ability to take full advantage of its solar potential in the coming years.
135
CHAPTER 6: SOLAR 138
ANALYSIS: A Sunny Future in Mexico
140
MAP: Operational Generation PV Plants With Industrial Capacity
142
INSIGHT: Alberto Cuter, Jinko Solar
143
VIEW FROM THE TOP: Alejo Lopez, NEXTracker
144
VIEW FROM THE TOP: Álvaro García-Maltrás, Trina Solar
147
VIEW FROM THE TOP: Hongbin Fang, LONGi Green Energy Technology
148
VIEW FROM THE TOP: Albert Sunyer, SunPower
149
VIEW FROM THE TOP: Gonzalo Rodríguez, JA Solar
150
VIEW FROM THE TOP: Ezequiel Balderas, Yingli Green Energy Mexico
151
INSIGHT: Simon Zhao, Solarever Tecnología de América
152
VIEW FROM THE TOP: Carlos Egido, X-ELIO
153
VIEW FROM THE TOP: Ron Corio, Array Technologies
154
VIEW FROM THE TOP: Víctor Pazmiño, Alion Energy
155
INSIGHT: Oscar Bernal, Eosol Energy
156
VIEW FROM THE TOP: Luis Garrido, Braux Energy Group
157
VIEW FROM THE TOP: Daniel Sepúlveda, SEM
158
INSIGHT: María José Icaza, SOLARSOL
159
INSIGHT: Gustavo Bórquez, Enilso
160
VIEW FROM THE TOP: Francisco García, Gransolar Group
161
INSIGHT: Javier Romero, AMFEF
162
RoundTable: What Technological Developments Will Revolutionize Mexico’s Solar Market?
137
ANALYSIS
A SUNNY FUTURE IN MEXICO Solar energy in Mexico is growing at exponential rates. Its participation has become even more important thanks to the long-term electricity auctions. Although much attention has focused on the auctions, the short implementation times and low costs are making solar the preferred technology for distributed generation There is little doubt that solar is on the way up the power
interest in providing this kind of service by developing its
generation ladder in Mexico. In the first half of 2017, the
own technology. “In partnership with PV Hardware, we are
amount of solar capacity installed increased 70 percent
developing our own battery system that would differentiate
compared to the year-earlier period, to 460MW from
us among industrial users. We hope to provide support and
270MW. Jochim Goldbeck, President of Solarnet, says the
stability in locations that lack a reliable network.”
country is attracting solar projects due to its “growing
138
industrialized market, lots of energy consumption, 120
With a short history in the country, it is understandable that
million inhabitants, rising demand and exceptional
another of the challenges solar is facing is cultural. A market
irradiation levels, among other factors.”
that is not used to developing a certain kind of project will naturally have some resistance to its implementation.
The Mexican territory receives over 2,190 hours of sun per
As technological innovations, such as trackers, are
year. In some regions, such as in the northeast and Baja
implemented around the world in the solar segment,
California, energy production levels can reach up to 8.5kWh
Mexican companies find themselves playing catchup. Luis
per square meter per day. The International Energy Agency,
Garrido, Sales Country Manager Mexico of Braux Energy
in its Mexico Energy Outlook 2017, states that the lowest
Group, explains that “even though Spanish companies have
average solar resources in the country compare favorably
a significant presence in this particular sector (trackers),
to the highest averages in Germany and Japan, the world’s
the Mexican counterpart is often unfamiliar with the key
second and third-largest solar markets, as can be seen
information required by a tracker manufacturer to produce
in the graph on the right. The spike in solar technology
a quote perfectly adapted to the particular conditions of
installations in Mexico follows a global trend. PRODESEN
the location where the solar park will be built.”
2017-31 states that over 66 percent of the world’s solar technology capacity was installed during the last four years.
Just as with wind, solar is getting the unprepared Mexican transmission grid in trouble. For wind, the main problem
But there is one glaring drawback that continues to hinder
is that the most attractive locations for projects tend to
the technology’s development: intermittency. The sun is
be located far away from transmission lines, but for solar,
not available 24 hours a day, every day, and clouds are
the issue is whether the grid can handle the increase in
one of the major enemies of solar panels. To solve this
produced energy. This was to be expected, says Oscar
issue, companies are diversifying and changing their
Bernal, Director General Mexico of Eosol Energy. “Usually,
business models to include storage services that will be
infrastructure is unable to follow the boom in this industry
able to offer energy security to clients. Francisco García,
once triggered, especially considering the growth in
Country Manager of Gransolar, highlights the company’s
demand that electricity will experience in the coming years.”
EVOLUTION OFHISTORICA PHOTOVOLTAIC ENERGY IN MEXICO EVOLUCIÓN DE LA ENERGÍA FOTOVOLTAICA 560 480
273
Installed capacity MW ——Energy generation GWh
240
215 190
400 320
200 160
135
240
120 81
160 80
280
80
58
9
19
19
19
17
2007
2008
25
28
0 2004
2005 2006
* 1H17 (annualized) Source: Ministry of Energy
2009
2010
39
2011
40 0 2012
2013
2014
2015
2016
2017*
AVERAGE SOLAR IRRADIANCE RANGE IN SELECTED COUNTRIES (KWH/M2 PER YEAR)
AVERAGE SOLAR IRRADIATION LEVELS REACHED IN SELECTED COUNTRIES (MWh/m2 per year) 2.5 2.0 1.5 1.0 0.5 0
Mexico
China
Germany
Japan
US
Italy
UK
France
Spain
Australia
India
Source: IEA
139
But technology is not the only burden hindering the
period, a total of 7.68GW will be installed, requiring an
interconnection of more solar projects. Although CRE
investment of MX$216 billion.
required CFE to allow for a hurdle-free interconnection process, reality hit as the company faced a lack of
Javier Romero, Executive Director of AMFEF, points to
administration capacity to handle all the interconnections
the importance of taking advantage of Mexico’s booming
being requested. While media coverage often portrayed
market to create a local value chain able to handle the
CFE as a company looking to remain as the key player by
country’s production requirements. “Mexico must take
rejecting interconnection permits, some in the industry saw
advantage of this opportunity to reach a position where
a different picture. José Zambrano, Director General of Galt
it can create its own solar industry, capable of competing
Energy and member of ASOLMEX, says, “when CFE acquired
with the quality and competitive prices of the rest of
legal protection against the interconnection rules published
the world.” If Mexico fails to do so, the country could
by CRE many newspapers published wrong or even false
face complications such as Europe and Canada faced
information. ASOLMEX sat with CFE to understand the
“because they lack local manufacturing production.”
reasons behind the agency’s action and how it could be worked out. Instead of burning bridges we looked for a way
Fortunately, some players in the industry are already
to fix the problem. CFE was not able to handle so many
working toward the creation of a stronger solar value
interconnections in such a short time as no company can
chain in Mexico. Among them is María José Icaza, Director
deal with a major change in core activities in just a couple
General of SOLARSOL, which is a Mexican manufacturer
of days. After those talks, both CFE and us — the companies
of photovoltaic panels, and although the company buys
involved in distributed generation — were ready to keep
the cells from a provider in Taiwan, the remaining raw
working together. We recognized that the legal protection
materials are Mexican and the panel assembly is carried
for CFE was necessary and interconnections started to be
out in Mexico. She emphasizes how, although for now
handled much more quickly.”
the cells have to be imported, the company is working to make the production more local. “We want to make
A BRIGHT FUTURE
a difference in the Mexican market by placing a special
Beyond cultural and technological challenges, both
emphasis on producing a top-quality product based on
national and international companies see in the Mexican
local innovation and prove that Mexican products can
market a great business opportunity. García mentions his
comply with the highest quality standards.”
company’s high expectations for the local market and sees medium to long-term sustainable growth as feasible
Mexico’s potential for the installation of solar projects,
for the industry. Similarly, Gonzalo Rodríguez, Sales
as well as for the creation of a value chain able not only
Manager México, Caribbean Islands and Central America
to cover national but also international requirements, is
of JA Solar, profiles Mexico as the most promising country
clear. The long-term electricity auctions and distributed
in the region “with the Chilean market declining and a
generation projects are creating a highly attractive
complicated scenario both in Brazil and Argentina. The
market in Mexico for PV solar in the short, medium
rest of the region, including Central America and the
and long terms. As Hongbin Fang, Director of Product
Caribbean, has taken important steps as well but has
Marketing for LONGi Green Energy Technology, says: “We
still not reached the GW capacities Mexico is targeting.”
are convinced that Mexico’s PV market has bright days
PRODESEN 2017-31 expects that, for the given time
ahead of it.”
OPERATIONAL GENERATION PV PLANTS WITH INDUSTRIAL CAPACITY
9 1 10
4 140
8
7
2
3
SOLAR POWER PROSPECTS 2016 Total Capacity (MW)
2021 Total Capacity Medium Scenario by 2021 (MW)
2017-2021 New Capacity (MW)
10,505
10,000
505
2017-2021 Compound Annual Growth Rate (%)
6
Political Support Prospects
5
84% 16
SOLAR POWER COST-PROFIT RELATION 700 648
479
1.7
Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center
25 92 Guanajuato
30 40 99 Yucatan
30 51 89
1.2
Nuevo Leon
30 54 102 CDMX
100 118 92
126 153 92
Source: CRE, SolarPower Europe, Ministry of Energy
1.13
60 68 99
210
1.4 1.3
1.20
Quintana Roo
296
1.5 1.33 1.22
86
85
1.8
1.70
1.41
Aguascalientes
0
Chihuahua
100
1.23
1.9
1.80
1.6
Sonora
200
89
300
275
400
Coahuila
500
528
1.74
Jalisco
600
2.0
Installed capacity (MW) Investment (US$ millions) Average power price (USD/MWh) Average cost (US$ millions/MW)
1.1 1.0
OPERATIONAL PV PROJECTS WITH INDUSTRIAL CAPACITY* No.
Company
Capacity (MW)
Investment (US$ million)
1
Parque Solar Alsacia I
350
398
2
Fotovolt
150
297
3
Fisterra Energy Cola De Leon
125
182
4
Fisterra Energy Orejana
125
182
5
Chona Solar Pv
100
118
6
Tepezala Solar Pv
100
118
7
Kronos Solar Park
93
136
8
Bateve Solar
85
114
9
Conejos Medanos Solar Pv
50
58
10
Enr Chi
35
56
11
Controladora De Renovables
30
54
12
Enr Nl
30
51
13
Eje Verde Fotovoltaico Sustentable
30
34
14
Riviera Maya Fotovoltaica
30
34 40
15
Photoemeris Sustentable
30
16
Solar Intercom
26
35
17
Baywa Re Desarrollos Solares
25
NA
*Over 25 MW capacity
MW 0
50
100
150
200
250
350
12
17
15
13 11 14
141
INSIGHT
SOLAR QUALITY OVER QUANTITY ALBERTO CUTER General Manager Latin America and Italy of Jinko Solar
142
For any company looking to make it in the solar energy
devising a lasting and successful strategy for the
industry, “long term” is the primary variable. Solar
renewable energy market? What is true about PV solar
companies need to ensure their products, services and
modules is also true for the renewable energy market.
solutions will withstand the test of time. This is particularly
Mexico, according to Cuter’s analysis for renewable
true for Mexico’s long-term electricity auctions, where
energy’s future, “is Latin America’s most interesting
projects are designed to provide renewable energy in
market, with long-term electricity auctions programed
15 to 20-year periods for a total power capacity of 3GW
every year.” This government-designed instrument opens
between the first and second auctions. Jinko Solar, one
the possibility to develop the Mexican manufacturing
of the major winners of the first auction, is ready to meet
industry in the long term. “We are witnessing a shift from
that challenge. “We are the first PV modules supplier with
projects designed initially by European EPC contractors
product quality certificates that comply with the highest
to projects developed by local EPC contractors and
international standards,” says Alberto Cuter, General
developers.” Jinko’s pioneering efforts in quality control
Manager Latin America and Italy of Jinko Solar.
policies will be vital for these local players as best practices permeate the business strategies of Mexican
In May, Jinko Solar said it had become the first Chinese PV
players to ensure their success in the long run, he says.
manufacturer to pass the 160 KWh/m UV Test from TÜV 2
Rheinland, based on the International Electrotechnical
For Cuter, Mexico’s renewable energy bet on the long term
Commissions’ (IEC) 61345 standard. This test verifies the
needs an essential element to be successful: continuity.
module’s UV resistance under UVA 320nm~400nm and
Cuter recalled the current status of Chile’s renewable
UVB 280nm~320nm wavelengths and places Jinko’s PV
energy market as a case in point. In June 2016, Bloomberg
products above the most demanding standards of the
reported Chile’s solar capacity in its central power grid
solar energy industry. “Through this certification, we can
had more than quadrupled to 770MW since 2013, while
comply with the warranty policies of our solar modules
the country’s central and northern grids are not connected
for the long term, vital for the operation of any project,”
to each other and some areas lack adequate transmission
Cuter says.
capacity, causing bottlenecks and generating energy spot prices close to zero.
Since its inception, Jinko Solar’s approach, both from a technological and manufacturing standpoint, relied
The economic success of the auctions, resulting in
on providing quality solar panels. Any variability in
lower than expected renewable energy MWh tariffs,
the quality of the module’s components is fatal for PV
must be sustained by a solid legal and regulatory
solar park projects, regardless of size. Divergent quality
framework for the projects launched in the first auction
levels in the module’s backsheet or even the Ethylene
to achieve operational status by 2018. Infrastructure and
Vinyl Acetate (EVA) can severely impact the product’s
transmission lines must also be on par with the increase
quality and cause performance issues in the long term,
in electricity demand Mexico will witness in the coming
endangering the project's viability. Cuter cautioned that
years. In this sense, the long-term auctions were designed
in the past, in Europe, certain PV parks operated from
to stipulate as a required condition that projects be able
six to seven years with questionable quality components
to connect to the grid. As a result of its local strategy
and modules that generated lower energy levels than the
in Mexico, through its participation in the auctions and
guaranteed performance.
capitalizing on the opportunities inherent to distributed generation and private PPAs, “we will position ourselves
The fundamental element of any lasting strategy in PV
as the reliable ally our clients need for the long-term
module manufacturing, then, is quality. What about
success of PV energy,” Cuter says.
VIEW FROM THE TOP
SOLAR TRACKER LEADER MAKING ITS MARK IN MEXICO ALEJO LOPEZ Senior Director of Business Development and Sales for Mexico and Latin America for NEXTracker
Q: As an American company, do you see the current
solar plant costs and directly address the solar LCOE.
US administration support on fossil fuels affecting you?
Second, we have a strong focus on our customers and
A: Renewable energies, mostly wind and solar, have
their satisfaction globally. Lastly, we continue to innovate.
been boosted via incentive schemes such as renewable
NEXTracker moved from being the pioneering developer
portfolio standards (RPS) and tax credits. Although
of the independent row self-powered tracker to being the
these incentives still exist and remain important for
first to develop a tracker and solar energy storage system,
the development of renewables in the US, clean energy
NX Fusion Plus, which we recently launched.
technologies are cheaper than fossil options even without the incentives. Traditionally, solar development occurred
Q: What is NEXTracker’s strategy for the distributed
mostly in regions with high solar irradiation that also
generation market?
had incentive mechanisms and policies. Other areas
A: NEXTracker has significant experience in the distributed
where there are no incentives have since adopted the
generation market with its flagship NX Horizon tracker
technology because people have been able to see the
system that addresses “behind the meter” projects under
benefits of that technology. If the incentives were to be
20MW. Our DG team has deployed over 500MW globally
eliminated that would certainly impact near-term growth
with the US, Chile and Australia being its largest markets.
but would not reverse this trend. Our new vanadium flow storage and solar technology, Q: How does the Flex acquisition fit into NEXTracker’s
NX Fusion Plus, is an excellent integrated application in
strategy?
those markets with high-demand charges and significant
A: NEXTracker has a global vision that includes all major
arbitrage between peak and base power costs and
solar markets worldwide. Flex is an established global
therefore there is significant value in “peak shifting”.
leader in the electronics manufacturing space with a
For this purpose NX Fusion Plus uses flow batteries
robust energy practice. The synergies are sizable. Flex
as opposed to lithium-ion, because they enable longer
has been manufacturing in Mexico for over 20 years and
discharges with no long-term battery degradation.
has over 30,000 employees nationwide. Moreover, prior to the acquisition, Flex manufactured the controller —
Q: What are NEXTracker’s plans in Mexico for the near
effectively the "brain" of the system — for our tracker.
term?
Being a Flex company, NEXTracker is the only player in
A: Mexico is the largest and fastest-growing market in
the tracker market that is investment grade and backed
Latin America with 4GW in the pipeline. NEXTracker’s
by a profitable parent company with US$24 billion in
main focus is to become a leader in the Mexican tracker
revenues in 2017. This makes NEXTracker’s warranty the
market and our flagship 750MW project that we recently
strongest in the market.
started in Northern Mexico lays the foundation for this direction. Going forward we will continue to implement
Q: What is NEXTracker’s strategy to maintain its market-
projects in that range, keep serving our clients with the
leading position?
highest quality of service and continue growing and
A: Although we have achieved a market-leading position
improving our leading position in the region.
two years in a row with a 30 percent global share, we continue to explore ways to lower our costs and improve our value proposition. We differentiate ourselves from
NEXTracker is an American global leader in PV trackers.
our competitors in three major ways. First, we have
Founded in 2013, the company offers design, permitting,
developed the most advanced single-axis tracker in the
logistics, installation and maintenance services for PV utility-
market today, with capabilities that lower overall lifetime
scale and distributed generation projects
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VIEW FROM THE TOP
EXCELLENCE, DEDICATION AND EXCEEDING EXPECTATIONS IN MEXICO’S PV MARKET ÁLVARO GARCÍA-MALTRÁS President of Trina Solar Latin America and the Caribbean
144
Q: What is your assessment of the design and evolution of
five years. Demand is higher than expected and the supply
the long-term electricity auctions?
of raw materials compliant with the quality standards
A: The level of participation and price levels resulting
Trina Solar requires is limited. This particular context has
from the auctions allow us to consider them as highly
impacted diverse agents across the global value chain,
successful. Significant competitive levels were attained and
which is why Trina Solar is waiting for this situation to
the participation of different local and international players
stabilize and provide the certainty required to carry out its
was such that the preliminary projects presented close to
next strategic investments.
triple the awarded power levels. Q: How did Trina Solar break its previous solar cell It should be highlighted that PV solar technology has
efficiency record?
consolidated as the most successful during these auctions
A: Trina Solar is quite proud of these technological
thanks in part to its ease of installment, competitiveness,
milestones. In fact, since 2011, our company has broken the
reduced environmental impact and reliability. Auction
solar cell efficiency world record 16 times, improving its own
results confirm it is viable to significantly increase the
track record on several occasions. These breakthroughs
weight of renewable energy in the country’s national energy
are obtained not only with significant investments in R&D
mix without sacrificing its competitiveness nor service
that Trina Solar allocates every year, but also, and more
quality. Adding to this the feasibility of much quicker
importantly, by following a philosophy of excellence,
initial operation time for solar generation plants compared
dedication and improvement that is highly ingrained at all
to other conventional technologies enables the country to
levels of our company. Only with continuous and consistent
adapt supply to demand efficiently.
dedicated efforts toward improving every day can we remain in a position of leadership in a technology-intensive
Another element worthy of note is the fact that the results
industry such as solar PV. Top-tier technology is a major
obtained in these auctions have also served to promote
component in the added value Trina Solar offers.
different private initiatives by electricity consumers that have decided to bet on this type of technology,
Q: What other key areas are you developing through your
especially PV solar, to guarantee its long-term electricity
R&D department besides solar cell efficiency?
supply in economically-competitive conditions and active
A: Trina Solar has its very own R&D Center, certified by
contribution to the environment’s protection. The auction
major international conglomerates TÜV Rheinland and
system has shown the convenience of investing in these new
UL as well as an elite scientific team, which among other
clean energy-producing technologies. This message has
achievements has contributed to Trina Solar patenting 795
been sent to diverse economic sectors in Mexico, resulting
products and solutions. Our company works tirelessly in
in a significant increase in their use for other applications,
developments facilitating the access of PV solar technology,
such as energy supply contracts with private consumers
which in our understanding will benefit humanity in
or residential, commercial and industrial installations, to
providing a competitive, efficient and clean energy solution.
name a few.
It is in that spirit that Trina Solar is developing new products and improvements over those existing to date. Pertaining
Q: How is Trina Solar's manufacturing plant project going?
to solar modules, we are advancing in new technologies,
A: Trina Solar is a PV solar energy leader worldwide. It is
conferring them added resistance and reliability, such
always part of our strategy to actively contribute to solar
as double-crystal modules, as well as lighter models for
market development wherever the conditions are present
specific applications or even equipped with more advanced
to guarantee investments. Globally, the paradigm of the PV
power electronics to be able to monitor each module
market in 2017 has been quite special compared to the last
individually and optimize its production.
Our new Trina Twin bifatial modules stand out from our
reducing over 7,660 tons of CO2 per year. This solar park is
recent developments, being able to generate energy from
owned by Fortius, a 100 percent Mexican capital company.
both sides of the module, taking advantage not only of
Our client selected Trina Solar’s DUOMAX because
direct solar irradiation but also its reflection on the ground
it delivers a higher yield, mainly due to the improved
or other surfaces on the back side of the module. It uses
insulation levels of its cells, guaranteeing seamless
the same space but provides higher electricity generation.
production despite potentially adverse environmental
Additionally, Trina Solar is progressing in the design,
conditions, such as high temperatures, humidity or hail
manufacture and commercialization of batteries for energy
impact.
storing purposes. DUOMAX makes a point to ensure energy production Q: How do Trina Solar’s products deal with solar power’s
impacts caused by micro-fissures, deformations, UV
intermittency?
aging, sand corrosion, acid, saline mist or phosphates are
A: Based on our experience, the first measure to mitigate
lessened compared to conventional, aluminum-framed
this effect is ensuring the module works under perfect
panels. This product line eliminates the need to connect
conditions, maximizing production when the solar
aluminum frames to grounding systems, with two layers of
resource is present. To that effect, we apply different
2.5mm-thick heat-strengthened glass replacing polymer
strategies such as increasing the number of bus bars (BB)
coatings in the back of the panel. This technology allows
to evacuate generated energy, up to 12BB per cell string.
for each panel to register a cell degradation level lower
Should one of them prove faulty, another can direct the
than 0.5 percent per year, meaning 20 percent more
current and avoid energy loss. We are also implementing
energy generation throughout the project’s entire lifecycle.
“half-cell cut” technology, which not only increases module efficiency, but also its energy production when
Jalisco I showcases the combination of several
partial shading is present.
technological advancements besides those already mentioned, such as double-crystal modules and
Trina Solar is likewise deeply dedicated to reducing
concrete-based automated trackers. Its installment was
product degradation through time as much as possible.
a success and its energy generation levels have surpassed
With that in mind, our modules are more robust, made
expectations.
up of a double-crystal sandwich protecting solar cells on both sides. They have a power guarantee of up to 30
Q: What are Trina Solar’s ambitions in Mexico and what
years, a rare trait for this kind of product. The especially-
strategy are you implementing to reach them?
advanced power electronics provided by our TRINA
A: Trina Solar anticipates Mexico will be the main PV
SMART product portfolio also contribute to maximizing
market in Latin America over the next five years. Its growth
a PV system’s energy production by helping each module
potential is tremendous, not only for utility-scale projects
work optimally, independently from those to which it is
like those we witnessed during the auctions, but also for
connected in a series. Trina Solar has a division dedicated
the commercial and residential segments. Consequently,
to the design, manufacture and commercialization of
our company has already assembled a local team that will
batteries, an important solution that impacts considerably
increase in the following months, through which it will
the intermittency of solar resources. This equipment offers
cater to product and service commercialization as well
an ideal solution to maximize energy-use generated by
as direct participation together with strategic partners
PV modules, making Trina Solar a leader in offering high-
in PV projects.
quality, integral solutions that answer to our clients’ needs. Our intention is to actively collaborate in the development Q: What recent success stories can Trina Solar tell in
of the Mexican PV market, adapting the steps proven
Mexico?
to be successful in other, more mature markets to local
A: There are several success cases we could mention but
conditions and developing new business models that
we would like to highlight our Jalisco I solar park. Located
bring added value to what is now available. Technology
68km south of Guadalajara, the MIREC 2017 award winner
and solar power are evolving at a quickened pace and
has 8MW of installed capacity, generated by 25,536
Trina Solar is evolving in step with both.
DUOMAX solar panels made up of 72 borderless cells. Incorporating Trina Solar’s innovation seal, the panels can supply electricity to an average 16,000 households
Trina Solar is a China-based leader in PV modules, solutions
of social interest and the park is contributing to the
and services with a global footprint, founded 1997. It delivers
environment as one solar panel can reduce up to 300kg
smart,
of CO 2 per year. By those calculations, Jalisco I will be
residential and commercial sectors
industry-leading
solutions
for
utility,
industrial,
145
PV solar park developed by LONGi, Longzhou, Jingbina, China
146
VIEW FROM THE TOP
KNOCKING ON MEXICO’S SOLAR DOOR HONGBIN FANG Director of Product Marketing for LONGi Green Energy Technology
Q: What elements of Mexico’s energy market and the
primary aspect of our company, compared to other PV
reform spiked LONGi Green Energy Technology’s interest?
manufacturers. We consistently invest 5-7 percent of our
A: The first element that interested us was the demand
total revenue into technology research and development.
factor. Mexico has exhibited strong economic growth,
Our company always strives to develop better equipment
which will foster energy demand in the coming years. The
to improve productivity and better technology to
Mexican government is determined to keep the Energy
improve performance, which translates into a consistent
Reform on the road to success and this will help boost
trend of increasingly competitive products with better
the percentage of renewables in the energy mix. We are
performance and lower cost.
convinced that Mexico’s PV market has bright days ahead of it, and we want to take advantage of every opportunity.
Q: What client portfolio are you targeting in Mexico? A: We believe all segments of the market are important,
Q: How did LONGi Green Energy Technology achieve its
with particular interest in distributed generation
low LCOE solutions?
applications. In Mexico, the majority of the volume in
A: From the beginning, we focused on monocrystalline
renewable energy is still owned by utility-scale projects.
technology because intrinsically it constitutes a better
With the distributed generation sector (industrial,
material for efficient energy conversion, demonstrates
commercial and residential) expanding at a much faster
better energy yield, and delivers better value (lower LCOE)
rate, and the much higher value of our high efficiency
for end users. The main obstacle for widespread mono
mono modules, we think we will have a larger impact in
module adoption was the higher cost in manufacturing
distributed generation applications to help the industry
a mono wafer in the past. For the last 17 years, we have
bring down total system cost, as well as lower LCOE with
focused our efforts on technology development in
better energy yield.
mono wafer manufacturing to improve productivity and performance, thus driving down cost. Our company was
Q: What are LONGi’s longer term plans for Mexico?
founded in 2000, yet by 2013 we were the largest mono
A: Our company goes hand-in-hand with high
wafer manufacturer in the world. At the end of 2014, we
performance, high quality and competitive prices. We
acquired Lerri Solar, a small module manufacturer in China,
are trying to understand the market, going through a
to strategically move downstream to solar cell and module
learning phase, learning how to work with local players,
manufacturing, and deliver the value of mono technology
letting our customers understand the value of high-
closer to our end users. Because we can produce high-
efficiency mono modules so we can make an even better
efficiency mono modules at lower costs, ensuring better
contribution. Mexico and Latin America are important
value for our customers and the end user, we have delivered
markets for LONGi Green Energy Technology and we are
more than 3GW of mono modules to the market within
committed to bringing high quality, better performance
two years, increasing our market share of mono modules
mono modules at a competitive price to those markets.
in China from 5 percent in 2014 to 27 percent in 2016. We
We hope to become a significant part of the market so
expect this share to reach 35 percent by the end of 2017.
more and more customers can realize the value of highefficiency mono modules.
Q: How does the company’s focus on research and development set it apart from other PV manufacturers? A: In 2014, we expanded from our initial business in mono
LONGi Green Energy Technology was founded in 2000. The
wafers and ingots to mono cells and modules, as well
Chinese company is the largest single crystal manufacturer
as project development, to become a truly vertically
worldwide. It provides high-quality products and services for
integrated company. Technology has always been a
PV systems and semiconductors products
147
VIEW FROM THE TOP
ELIMINATING COMPLEXITY AND ENHANCING PV PERFORMANCE ALBERT SUNYER Field Systems Sales Director of SunPower
148
Q: What is your outlook for solar power in Mexico
solar panels we manufacture in Mexico. This designation
compared to other renewable sources?
demonstrates a product’s quality based on material
A: Solar power was the decisive winner in Mexico’s 2016
health, material reutilization, renewable energy use, water
energy auctions, with 74 percent of the MWh awarded
stewardship and social fairness.
to solar in the first round and 54 percent awarded in the second round, as reported by Greentech Media and PV Tech.
Q: What is the strategy behind your manufacturing plant
As a result, significantly more solar is being integrated into
in Mexicali?
Mexico’s energy mix, as the country transitions its energy
A: SunPower owns and operates a 1GW panel manufacturing
delivery system and builds a robust clean-energy economy.
facility in Mexicali. The facility employs about 1,500 people and is a model for sustainable manufacturing practices.
We expect demand for cost-competitive solar to continue
The panels we manufacture in Mexicali serve the growing
growing due to Mexico’s abundant solar resources as well
demand for solar in Mexico, as well as other Latin American
as solar power’s lower risk profile, geographical flexibility
countries and the US.
and its shorter construction timelines compared to other energy sources.
Q: What O&M solutions do you offer? A: The SunPower Oasis Power Plant platform is a complete
Q: How does SunPower deliver added value to Mexico’s
solution that simplifies solar power plant design and
solar market?
construction while maximizing on-site energy production.
A: SunPower is a leading provider of cost-competitive, high-
Oasis uses over 50 percent fewer mechanical parts than
performance solar solutions for residential, commercial and
competitive technologies, enabling plants to be constructed
power plant customers. Founded in 1985 in California’s
more quickly and achieve improved long-term reliability. The
Silicon Valley, the company has more than 30 years of
absence of parts with a history of field failures also attest
experience, is innovation-driven and cumulates proven
to Oasis eliminating complexity to enhance performance.
results in maximizing value for its customers. SunPower’s proprietary robotic panel cleaning technology SunPower products are differentiated to support its
used at power plants today is proven, with more than six
customers’ financial and energy goals and deliver
gigawatts of panels washed to date. This system uses 75
competitive costs energy. It offers high efficiency solar
percent less water than manual cleaning methods. Finally,
panels as well as an industry-leading 25-year power and
SunPower’s Remote Operations and Control Center (ROCC)
product warranty. The company also offers solar solutions
offers 24/7/365 site monitoring and control to optimize
designed for fast installation, minimal O&M and long-term
energy production rates.
high performance. Q: What is SunPower’s growth strategy in Mexico for the SunPower has a strong commitment to sustainability. We
long term?
are the first and only solar company worldwide to receive
A: Demand for cost-competitive solar power in Mexico
a Cradle to Cradle Certified™ Silver designation for the
is strong, as the country has abundant solar resources, a growing energy demand and aggressive renewable energy goals. SunPower is pleased to be a major supplier in this
SunPower is a US-based manufacturer and supplier of solar
growing market today and intends to continue to partner
PV technology worldwide for residential, commercial and
with forward-thinking leaders throughout the country to
power plant customers. Its operations in Mexico include a 1GW
serve the demand for reliable, high performance solar
capacity solar panel manufacturing plant in Mexicali
technology.
VIEW FROM THE TOP
DURABLE SOLAR POWER FOR A SUCCESSFUL TRANSITION GONZALO RODRÍGUEZ Sales Manager Mexico, Central America and the Caribbean of JA Solar
Q: What potential does JA Solar see in Mexico's energy
GW per year, our core business revolves around utility
market?
scales, IPPs, and project-owning developers. These types
A: In Mexico's case, we have gone as far as establishing local
of clients value products, quality and technology and we
offices and hiring specialized nationals because physical
are comfortable in those areas. For instance, we closed
presence is a must when it comes to market position. We
a 370MW project with Iberdrola in Mexico. Our company
have been looking at Mexico for quite some time because
is exclusively dedicated to manufacturing solar panels.
of the initial self-consumption and self-supply projects. The
This is particularly useful for the auctions because we are
reform defined structures that peaked our interest, such as
not additional competition for our clients. In distributed
the long-term electricity auctions, the CELs and CFE’s long-
generation, we sell solar panels for smaller projects through
term energy needs.
our distribution network.
Mexico’s energy future is profiled as the most promising in the
Q: What is JA Solar’s competitive advantage compared to
region. Many pieces of the puzzle are coming together, beyond
other global PV solar powerhouses in Mexico?
the auctions. Electricity prices are becoming increasingly
A: One of the decisive factors for closing a client is price.
attractive and PPAs are enhancing private participation.
JA Solar’s manufacturing capacity ensures a considerable
Distributed generation is also on course for exponential
advantage in this matter, particularly when it comes to
growth, with a steady installed capacity increase.
winning an auction. Also, our company started as a solar cell manufacturer and trader, specializing in solar technology. In
Q: What is your financing strategy for Mexico?
2005, JA Solar was constituted as a solar panel manufacturer
A: SINOSURE is a Chinese government tool to help Chinese
and listed on NASDAQ in 2007. Technologically speaking, we
companies with sales to foreign companies, similar to credit
manage to continuously stay six months ahead of the sector’s
insurance. This bypasses the additional financial cost of
newest trends. Our monocrystalline panels have 360W STC
bank credit letters and the associated commissions. After
power ratings, which is unique in the market. This capacity
receiving a foreign company’s financial information and
gives our clients serious advantages and global savings
completing the relevant studies and analyses, SINOSURE
project-wise: higher power for less terrain surface, as well as
unblocks the financing for the project. If the company fails to
savings in infrastructure, workforce and logistics costs.
pay, SINOSURE guarantees 70 percent of the amount. It has worked well in the past with companies such as Enel and we
Q: What would be two key indicators for JA Solar's success
are going to use the same scheme for our Mexican clients.
in Mexico? A: JA Solar’s key reference would be market share, for
Q: How is JA Solar contributing to the professionalization
both utility scale and distributed generation. We also want
of Mexico’s renewable energy workers?
to make our Mexico office the centralized launching pad
A: To cover this necessity, for distributed generation in
for Latin America, both in terms of technical services and
particular, JA Solar offers training courses through its
commercial network. The successful loyalty management of
distributors in Mexico, such as Exel Solar. More often than
our clients and disseminating our brand throughout Mexico’s
not, this concerns technical aspects, such as installation, but
renewable energy market are also among our top priorities.
end-user clients also want to know who we are so they can be reassured about the smoothness of the process. JA Solar is a Chinese solar development company. Founded
Q: What is JA Solar's targeted client portfolio in Mexico?
in 2005, it designs, develops, manufactures and sells
A: As one of the four major solar energy manufacturers
monocrystalline solar cells and solar module products. And
worldwide, with a manufacturing capacity of close to seven
offers training courses for the Mexican DG market
149
VIEW FROM THE TOP
WHEN TIME IS EVERYTHING, STOCK ON HAND MAKES A DIFFERENCE EZEQUIEL BALDERAS Country Manager of Yingli Green Energy Mexico
150
Q: What are Yingli Solar’s main strengths in the Mexican
Q: What differentiates Yingli Solar's technology from that
market?
of its competitors?
A: The most common problem that project manufacturers
A: Yingli’s solar panels have been installed in over 150
face is delivery times. They want to ensure that panels
countries. Our products function under any condition, from
are delivered on time for every project to guarantee its
desert to tropical climates. This has been extremely helpful
smooth operation. One of Yingli’s main strengths is the full
in Mexico where conditions vary, with deserts in the north
availability of its products. As the market expands, many
and humid and salty conditions in the southeast.
companies are looking to strengthen their market presence by introducing larger production and storage facilities. But
We offer our full support to our distributors, partners and
Yingli had already made that bet, allocating production and
clients. In turn, they suggest ways to tackle the market and
stock to the country before the market started growing.
where to focus our strengths. Our lab, located in Spain, also
This means we now have the capacity to provide our
supports the Latin American market, giving our clients access
products to both big projects and smaller distributors. We
to our installations so they can conduct their own tests.
see this production and stock allocation as an investment and added value that will shine in the medium and long
It is common to see projects attract international attention
terms. In doing so, we are committing to reducing delivery
when they are above 100MW, and of course we would like
times for our clients.
to take part in those, but we want to work with the entire PV panel industry first, offering all installers and clients a
Having our own storage facilities in the country ensures our
high-quality product that is delivered on time according to
clients have access to our products in a very short time,
their specific needs.
allowing them to avoid any costs related to shipments or logistics. This strength was evident in a project in the State
Q: What products and solutions will Yingli Solar introduce
of Mexico in which we took part. We reduced the delivery
into the Mexican market?
time from the initially estimated two months to just three
A: Yingli Solar manages traditional market products such as
weeks. This was seen by the client as a major added value.
the delivery of both mono and polycrystalline panels. At the same time, Yingli is positioning its prepackaged solutions
Our manufacturing facilities are located in China, close to
in the market. These are ready-to-install 50-100kW on
Shanghai, and from there we distribute to Mexico as well
and off-grid systems that include batteries, inverters and
as many other countries. Our logistics team in Mexico has
solar panels — everything the project developer requires
gained so much experience in the process of importing the
for installation. With this solution, distributed generation
shipments, that we can accurately state the number of days
project developers can stop worrying about finding and
needed for the product to reach the country. We know that
coupling several different products. The market has been
it is impossible to position a brand in the market alone. That
very receptive to this solution.
is why part of our strategy has been to look for high-quality distributors and business partners with which we can build
Another significant advancement we have made is our
a relationship of trust.
PANDA mono crystalline panel, which offers efficiencies of up to 20.1 percent, which is almost 30 percent higher than the market average. We expect this panel to provide a huge
Yingli Solar is one of the world’s largest solar panel
advantage in the industrial distributed generation segment,
manufacturers. Based in China, the company has shipped more
in which the lack of space is often a big problem. By using
than 65 million Yingli solar panels, representing over 15GW, to
this panel, project developers can achieve higher production
more than 90 countries
rates in the same area, leading to a faster ROI for their clients.
INSIGHT
WORKING FOR STRONGER MEXICO-CHINA RELATIONS SIMON ZHAO President of Solarever Tecnología de América
The attractiveness of Mexico as an emerging market in the
while also making it environmentally friendly.” Through its
renewable energy sector has drawn the attention of many
partnerships Solarever is reaching a bigger market, but it
global companies. Despite slower-than-expected growth,
is also looking to expand its presence in the coming years.
Simon Zhao, President of Solarever Tecnología de América, says the opportunities to capitalize will only increase. “With
Financing, however, remains a key issue for companies
two auctions already on the books and more in the pipeline,
looking to expand. Part of the problem, says Zhao, is that
as well as a growing distributed generation market, Mexico
there are only national financing institutions to choose from
shines as a highly attractive market,” he says. “Although
and these tend to have high interest rates. “Financing in
the market’s growth has been slower than expected, it has
Mexico is very important, but it is also quite hard to get,”
been constant and we expect more opportunities to come.”
he says. To counter this, the company has introduced the
To take advantage, the company, a Mexican photovoltaic
“packaged project,” which brings together smaller projects
panels designer, manufacturer and distributor with its
that are eligible for funds from Chinese lenders. “To increase
products being commercialized in Canada, the US and
the penetration of this solution we manage packaged
Latin America, installed its manufacturing facilities and
projects, where several smaller projects are tied together.
main office in Hidalgo using both Mexican and Chinese
The packaged project can receive Chinese financial support
capital. It uses domestic raw materials whenever possible
at lower rates than in Mexico.”
and provides jobs to the national workforce. In an industry that is just developing, it is no surprise that Locating manufacturing facilities in Mexico is a strategic
most engineers have academic knowledge but little real
decision that provides tangible benefits. “Our product gets
working experience in the sector. “It was not easy to find
the Made in Mexico denomination, which offers a tax benefit
engineers in Mexico who were able to both install and
that is reflected in a lower price for the final customer,” says
operate the manufacturing facility we have here. This
Zhao. “We have also discovered unexpected advantages
forced us to bring engineers from the US and China to do
of being Made in Mexico, such as our ability to take part
the work,” Zhao says. “We expect to see more Mexican
in government projects that require products having this
engineers available for our activities as the market expands.”
denomination. We expect that this will also be an advantage in the future when more projects require this denomination,
Zhao has also found that the Mexico-China relationship
even outside the public sector.”
is not yet strong enough to allow for the sharing of information and experience, which would give students
Being a company that produces Made in Mexico products
access to the knowledge and experience from the energy
also works as a leverage for aftersales, he says. “By
industries of both countries. To this end, Zhao is the co-
manufacturing its panels in the country, Solarever can
founder of a fund called Mexico-China Dream Fund, which
provide a quick response to customer requests, even with
promotes Chinese culture and language in Mexico, as well as
only a couple of days’ notice.”
Mexican culture and language in China. “The fund will help students and teachers from both countries to participate in
To further expand its footprint in the Mexican market,
exchange programs and in this way strengthen the Mexico-
Solarever has nurtured strong partnerships that allow it
China relationship. China is one of the Top 3 economies
to offer integrated services to its final customers, says
in the world, and Mexico is one of the biggest economies
Zhao. “Solarever does not only manufacture panels but
in Latin America. Their economic partnership and cultural
also provides the best energy distributed solar solution
integration is very important. As a first step, we are investing
to the final customer thanks to its partnerships, which
MX$1 million into the fund. By 2020, with the help of our
are helping to lower the final customer’s electricity costs
partners, we expect it to total MX$10 million.”
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VIEW FROM THE TOP
EXTRA SAFETY FOR PROJECT CONCLUSION CARLOS EGIDO Country Manager Mexico of X-ELIO
152
Q: What factors prompted X-ELIO to enter the Mexican
A: X-ELIO has taken part in the process since its outset. In
energy market?
the second auction, we won three projects with a total of
A: The company was founded in 2005 and enjoyed solid
244MW peak. The first project is in Chihuahua, the second in
growth in Europe during 2008 and 2009. Given our
Morelos and the third in San Miguel de Allende. X-ELIO will
international vocation, the decision to go to Latin America,
continue to participate in the next auctions with renewed
specifically into the Mexican market, was logical. Mexico,
interest. Our projects are highly attractive because we only
on a global basis, is one of our sweet spots. The company’s
bid projects that have reached a certain maturity level of
main activities are quite focused here and we expect to
development, lowering their associated risk.
grow year by year. This goes hand in hand with the opening of the market and the country’s political stability. Also, its
Due to their complexity, the long-term electricity auctions
regulatory framework has been shaped to achieve the long-
have entailed a hard learning curve but the changes have
term success of the industry.
certainly been for the better. Some of the most important aspects where we have seen improvement is in the fluidity
Q: What added value does X-ELIO offer to its customers?
of communication with CENACE, the support desk that was
A: X-ELIO has the intention to own, on a long-term basis,
launched, and now a much clearer regulatory framework.
all solar projects in which it gets involved. The company
Regarding the launching of the Clearing House, we have yet
is simultaneously involved throughout the industry value
to see how this will affect the development of the contracts.
chain as generator, developer, constructor and operator. We
Hopefully it will be positive, making the warranties clearer
have a very experienced team in all the main areas of the
and more robust for other participants besides CFE.
energy business, from engineering to structured financing, considering also construction, operation, maintenance,
Q: Has X-ELIO encountered any particular challenges
development and due diligence. This gives us independence
during the development of its projects?
and the ability to make quick and practical decisions.
A: We have not found any challenge or situation that was especially unfavorable, which goes hand in hand
Having global operations and broad experience makes us
with our strategy of not closing any contract unless we
an attractive sponsor for both project development and
have thoroughly analyzed the implications of the project,
energy commercialization. Add in the company’s financial
mapping any potential environmental, cultural or social risk.
strength and we are a perfect option for the market. We
We have the experience and know-how to recognize the
were founded with the purpose of being a long-term player.
risks that could bring down a project.
Our business model does not consider a project portfolio that has to be continuously rotated. We do not just hand
Q: Into which areas would X-ELIO like to expand in the
over the keys of the project but take care of it across the
Mexican market?
entire value chain.
A: X-ELIO wants to continue growing. At the moment our core business and expertise is focused on the
Q: How would you categorize the success of the long-term
development, financing, construction and operation
electricity auctions?
aspects of renewable energy power plants. That is where we will stay for a while, getting stronger and bigger. We would like to become one of the most important players
X-ELIO develops and operates utility-scale PV plants. The
in Mexico for these particular subsectors. We also want
company has participated in the development, construction,
to take part in future auctions. Looking further ahead,
maintenance and operation of plants with a total capacity of
we want to start working on bilateral contracts and enter
over 700MW in 18 countries
the energy-supply business.
VIEW FROM THE TOP
RELIABILITY AND DURABILITY FOR MEXICO’S SOLAR MARKET RON CORIO CEO and Founder of Array Technologies
Q: How is Mexico’s energy market positioned to emulate
Another positive about our product is that it is time-proven.
the success of PJM Interconnection in the US?
You can go to an 11-year-old solar site, or even older, and
A: In Mexico, there are more drivers behind the solar
see how the product has performed over that period. Our
market, as outlined by the 5 percent CEL requirement for
versions build on each other, and v3 is a big change from
energy consumers, coupled with higher insolation rates.
our v2 product. It also provides you the terrain-following
Solar-generated electricity costs less than on the eastern
flexibility of an independent row tracker. We call it the best
seaboard of the US, which has much lower insolation. These
of both worlds, as it delivers the reliability of a linked system
elements are going to make Mexico’s energy market much
with the flexibility of an independent row system.
more successful than the PJM market for solar energy in the long term. Q: What is your company doing to stay ahead of the technology curve in this market? A: Array Technologies is a 28-year-old company that began
Array's latest numbers show its tracker fleet exceeds 15,500MWy of operation
by building a solar concentrated module. Back then, we also developed a tracker for that module and we started
Q: Do you have any alliances or associations in the works
selling solar trackers to remote homes, water-pumping
to deepen the company’s foothold in Mexico?
stations and for telecommunications. Innovation has been
A: We are able to manufacture around 80 percent of our solar
a key component throughout our lifespan. Reliability and
tracker in Mexico. We can source a high percentage of our
durability are the backbone of our product, which has
structure here. Being located right across the border, in New
evolved through the years, reaching almost 13GW years of
Mexico, we share a kindred spirit with the country because
operation. No other tracker company can say that.
of our demographics. We feel like Mexico should be a great market for us. Our company has a patented gold-standard
DuraTrack HZ v3 is the latest innovation we have
product, manufactured through a cost-competitive model,
developed. We have deployed over 3GW of this product;
with high potential for mass adoption in the Mexican market.
it is unique in the industry, covered by more patents than any other tracker company. Even though it consists of a
Q: Will your business come from the long-term electricity
single drive with a single motor, one motor drives 1MW
auctions or other possibilities?
of solar panels. In other words, this motor can power two
A: We are focused on providing our solar trackers to existing
football fields of solar panels. There is a sliding, rotating,
and future auction winners, as well as PPA holders. We are
articulating driveline that connects every row. By linking
a technology equipment vendor and thus also focused on
up multiple rows, we minimize the number of potential
developing our supply chain in Mexico, which we actually
failure points in the system, which ultimately increases
started long before we began commercial operations in
reliability and uptime.
the Mexican market. Also, we are looking at pairing up with companies that can install our products, such as EPCs, so we
Another unique element is that the system does not need to
can offer our customers the full installed solution they need.
stow flat to survive a windstorm. With this system, through a patented passive wind-release torque mechanism, integrated row by row, it relieves the torque and stops the system from
Array Technologies is a US manufacturer and provider of solar
going into unstable harmonic interaction. As such, it is a
tracking systems projects and solutions since 1989. It boast more
zero-scheduled maintenance, robust product that customers
than 20,000 solar trackers supplied and more than 6GW provided
do not have to worry about for its 30-year life.
to commercial and utility-scale solar projects around the globe
153
VIEW FROM THE TOP
PIONEERING AUTOMATION IN MEXICO’S SOLAR MARKET VÍCTOR PAZMIÑO Senior Business Developer and Design Engineer of Alion Energy
154
Q: What is your assessment of the first auction projects
market. The association made sense to Fortius because
and reaching ready-to-build phase?
it was looking for new technologies to disrupt Mexico’s
A: There have been some issues in the Yucatan Peninsula for
solar energy market. The end result is one of the first
companies looking to install conventional PV solar parks using
operational solar parks in the country financed entirely
poles and getting ground rejection due to the overwhelmingly
by Mexican capital.
rocky nature of the soil in this particular location. This is an issue that happens more often than you would think. The
Q: Is there a possibility that Alion will merge its solar
Yucatan Peninsula is just one example. Still, we believe solar
sensor technology with solar trackers?
energy is here to stay, and projects will advance, albeit with
A: We are actually building a 1MW pilot project next to
a high probability of increased foundation costs.
Jalisco 1, where not only will our SPOT robot be deployed but we are also pioneering the first and only ballasted
Q: What is the major challenge in developing business for
tracker for PV solar parks with fully automated robotic
an O&M company like Alion in Mexico?
cleaning technology in Mexico.
A: The fact that we consider a fully automated O&M solution from the beginning and not as an afterthought completely
Q: How does Alion Energy keep up with the latest
tackles one of the major challenges many asset owners
technological developments in PV?
face: implementing module cleaning without risking module
A: Since its inception, Alion Energy has positioned its
degradation or module cracking by manual cleaning. Alion’s
developmental strategy in R&D. We always look for new
robot, SPOT, does not support itself on the panel, but on the
ideas to disrupt the industry with our innovative approach
existing concrete tracks. Also, if we consider Alion's 8MW
to building solar systems and we strive to develop, create
project in Jalisco, we are talking about 50km of solar panels,
and offer an optimal PV system that can deliver the most
an actual marathon length. SPOT not only cleans the panels
energy over the long run. For instance, concrete can last for
but is also equipped with an infrared camera that can detect
50 years. In contrast to traditional metal poles, subsurface
hot spots and malfunctions and ensures module quality
corrosion risk is nonexistent. Our solar tracker’s design is
and vegetation control. It can even spray orchard lime to
also a testimony to our company’s innovative capacity. It
increase albedo, which boosts energy production. This key
eschews the traditional “T” shape, effectively distributing
preventive strategy for Mexico’s solar market reduced our
the weight of the module through our Arc Drive load
O&M challenges greatly and helped to put us on the map.
reduction while adding sturdiness to the overall structure against weather hazards that create micro-fissures on a
Q: Alion Energy is involved in the Jalisco 1 project. What
solar panel, thereby degrading it.
is its status? A: The project was inaugurated in April and is online and
Q: What are Alion’s long-term ambitions for the Mexican
operational. This project has the distinct honor of winning
market?
MIREC’s 2017 Project of the Year award. Our association
A: Along with our partners, we are developing a pipeline
with Fortius was key in this project. Fortius is a local player
of major projects, including a 100MW project for 2018.
that perfectly understands the intricacies of Mexico’s solar
Also, the mining industry is key for Alion’s long-term strategy. Our technology is a perfect fit in this sector, both because mining operations are extremely energy-
Alion Energy is an innovative company that provides solar
intensive and their locations imply rocky sites where dust
solutions for the installation and cleaning of solar modules,
pollution is high. Alion’s business model for the long-
which can reduce operative costs of solar energy by up to
term includes O&M contracts in Mexico’s mining industry,
75 percent
among other sectors.
INSIGHT
FOSTERING COMPETITION IN THE ENERGY SECTOR OSCAR BERNAL Director General Mexico of Eosol Energy
Taking the necessary steps to realize Mexico’s commitment
started knocking on its door. “In the last 10 months, we have
to an energy market open for private business and
received more renewable energy development projects
having renewable and clean energy technologies play
than in the six years since our company was established.”
a preponderant role in the country’s energy mix, the country’s regulatory authorities made a point of integrating
By its very nature, renewable energy tends to be
international best practices and adapting it to Mexico’s
concentrated in areas of the country where the targeted
reality, as the long-term electricity auctions show. Can
resource abounds. In the case of solar power, the
Mexico enhance competition under a level playing field
bullseye was on Baja California. “We anticipated project
outside of these auctions?
concentration in this state so we decided to land a foothold in Durango,” says Bernal. When analyzing the available
“A significant European contingent has entered the market,
electricity infrastructure for energy projects — both within
spearheaded by Spain, Italy and Germany. As an input for
and outside the auctions — Bernal says Mexico’s electric
the design of the auctions, these international entrants
infrastructure is, in some cases, insufficient and in others
expressed their concerns about Mexico’s renewables
even obsolete. “Usually, infrastructure is unable to follow the
industry in an effort to avoid repeating past mistakes
boom in this industry once triggered, especially considering
and hasten the country’s energy transition process,” says
the growth in demand that electricity will experience in the
Oscar Bernal, Director General Mexico of Eosol Energy. “In
coming years.”
regulatory terms, there is a significant difference with the initial subsidies implemented by the Spanish government to
When it comes to tackling solar intermittency issues
guarantee price levels. In Mexico, the authorities are doing
to guarantee its competitiveness against fossil fuels,
commendable work.”
Bernal points out that oil and coal continue to have a strong presence in Mexico’s energy matrix while all
While the long-term electricity auctions are effective from
forecasts agree the country will see a dramatic increase in
an economic standpoint, Bernal believes the only analyzed
electricity consumption in the coming years. “As a power
variable is price. “We believe that energy policy is too big
source, renewable electricity will have an increasing
an issue to be constrained by this variable. Prioritizing
portion of the energy pie as it gradually replaces fossil
technical elements and focusing on capacity requirements
fuels," he says.
rather than approving a maximum number of projects is essential,” he says. The private sector is closely watching
Potential intermittency issues arise when renewable
the development of the projects from the first auction
energy reaches a high degree of grid penetration. “In
because those will be the measuring stick for the projects
Mexico’s case, this will become a pressing issue in the mid
still to come. “We will pay close attention to the projects
to long term. Intermittency does not become a relevant
that become operational while looking at how to fill the
issue until it reaches 50 percent grid penetration.”
gap left by those that do not,” says Bernal. Before the end of 2017, Eosol was to have six operational Bernal says Eosol’s competitive advantage lies in its
projects amounting to 93MW, which means it will have
alternative strategy. “All our five projects in Durango so
the greatest number of operational MW in the country.
far have been developed under a full equity scheme, with
“Tai Durango I was the first solar project on the national
the exception of our most recent, a 23MW PV solar park
electric system. Eosol pioneered the process of connecting
in Matamoros, Coahuila.” Eosol’s strategy formed almost
a renewable energy project to the grid in Mexico.” The
as a rebound effect from the auctions due to the absence
solar company’s goal is to be Mexico’s largest PV plant
of private projects. With its full equity advantage, clients
operator and asset manager.
155
VIEW FROM THE TOP
TAKING ROOT IN MEXICO’S ENERGY TRADING, PV TRACKER SUBSECTORS LUIS GARRIDO Sales Country Manager Mexico of Braux Energy Group
156
Q: What makes Braux a valuable ally when developing
In Mexico’s case, we found a valuable local partner whose
PV projects?
core business is related to construction, providing us with
A: Braux specializes in the design, manufacture and
highly qualified personnel, including but not limited to
installation of solar trackers for PV systems, along with
mechanics, assemblers and operators. We provide direction
other services. Braux is versatile in that it offers its own
and expertise, our partner provides a proficient workforce.
tracker brand but can also work with other brands and mechanical installation equipment from other companies.
Q: What project in Mexico best showcases Braux’s
The scope of our company’s know-how extends to both
added value?
manufacturing and installing PV tracking systems,
A: Our company obtained a mechanical works contract
enriched by a global presence in 16 countries. Braux
for Iberdrola’s Santiago solar park in San Luis Potosi, with
has its own R&D department that has a clear mission
170MW of installed capacity. Braux is delivering its know-
to make its equipment more efficient and competitive
how with state-of-the-art Italian pile-driving machinery and
against other brands.
drillers, as well as expatriate staff who oversee installation works. Braux arrived in Mexico in February 2017 and signed
Q: How does Braux offer the best solution to its clients’
this contract five months later. In the midterm, Braux
most common problems?
wants to invest in PV projects for Mexican off-takers in the
A: Even though Spanish companies have a significant
commercial and industrial sectors. We have the capacity
presence in this particular sector, the Mexican counterpart
to undertake the construction and installation of the entire
is often unfamiliar with the key information required by a
project and to manage it, selling the energy produced in
tracker manufacturer to produce a quote perfectly adapted
the forms permitted by Mexican Law.
to the particular conditions of the location where the solar park will be built. For instance, soil conditions can vary
Q: What is your assessment of Mexico’s energy transition?
greatly from one place to another, making the installation of
A: Braux believes Mexico’s regulatory authorities have done
support piles equally variable, particularly in terms of cost.
an outstanding job. CRE and CENACE are undertaking an
We reference the largest amount of information available
important task with interesting methods. All efforts must
and orient our clients with our know-how concerning the
converge toward providing Mexico a large and robust
best applicable solution. We always stress the importance
electricity grid that enables promising electric-generation
of preliminary studies to our clients so PV installers like
locations to distribute the generated power. This is
ourselves can better determine which support-pile insertion
particularly true for Mexico’s wind resource, which does
method is the most adequate to reduce construction
not have the flexibility of solar power when it comes to on-
problems to a minimum.
site power production and nationwide resource availability.
Q: What alliances did Braux secure to successfully enter
Q: What are Braux’s plans for Mexico in the long haul?
the Mexican PV market?
A: First, we want to consolidate our Braux brand in
A: Braux is aware of the importance of local partnerships to
the Mexican PV tracker subsegment and in PV system
prosper in foreign markets, as its global footprint illustrates.
installations. Second, we want to participate in the country’s electric market as a power producer and as energy traders for the commercial and industrial sectors to meet our
Braux Energy Group founded in 2006, is a Spanish multinational
commitment to contribute to Mexico’s energy transition
that designs, produces, installs and operates PV solar trackers,
and sustainable development. Mexico’s solar potential is
fixed structures, micro-generation equipment and distributed
quite sizable and we are adamant that Braux will firmly take
generation systems via solar roofs
root in this country.
VIEW FROM THE TOP
E-FINANCING FOR PV SYSTEMS DANIEL SEPÚLVEDA Director General of Soluciones Energéticas de México (SEM)
Q: What makes SEM’s proposal unique for Mexico’s PV
A: SEM’s advantage is that we require minimal involvement
market?
from our clients. The only thing we need is for them to provide
A: SEM started out as a PV system inspection company
us with their electric bill and the usual official documents, on
for private clients. As demand for our services increased,
which we base our energy consumption analysis. We assess
we noticed a financing gap that we thought we could fill
the environmental surroundings of our clients' locations and
as a common denominator for all PV projects and solar
evaluate solar irradiation levels, as well as our clients' credit
companies. We created an investment fund specialized in
record. Once we gather all that data, we can determine if the
financing solar energy projects for distributed generation
project is viable, adding it to our project portfolio and creating
applications. This new development led us to where we are
an investment portfolio once the job gets the green light. SEM
now, installing PV systems on one hand and financing them
conducts all dealings with CFE, obtains all relevant parts and
on the other. We offer a seamless energy transition with no
equipment for the installation of the system and ensures all
bureaucratic hindrances and no costly initial investments.
warranties and insurance, as well as maintenance operations
For our investors, we offer higher ROIs compared to
and obtaining financing when necessary.
traditional investment funds. Q: How has Sinaloa’s local government fostered the growth SEM makes a point of maintaining optimal balance between
of solar energy?
quality, price and performance, as well as providing
A: SEM has the local government’s support in incentivizing
competitive long-term warranties. Ideally, we would like
Sinaloa’s PV market. Sinaloa adheres to the UN-Habitat 2030
to further incentivize our local economy in the long term,
Agenda for sustainable urban development, in which solar
particularly local solar panel manufacturing. We are flexible
energy is taking an increasingly major role, raising awareness
enough to integrate local and foreign components to ensure
about the benefits of transitioning to this technology. One
optimal balance.
of SEM’s midterm objectives is to place Sinaloa among the regional leaders in solar energy nationwide.
Q: How did you come up with your e-financing platform? A: The rising demand for PV systems under a distributed
Q: How is SEM approaching SMEs in Sinaloa?
generation scheme was paired with interest from individuals
A: SEM’s commercial strategy focuses on SMEs, whose
in investing in this technology, but there was no tool
electric tariff is among the highest in Mexico compared to
available to those investors. Our need to finance our PV
low-consumption domestic tariffs. We believe the best way to
systems coupled with investor interest created the perfect
showcase our technology is to have it operating in commercial
storm. We integrated this investment platform into our
establishments. Persuading potential clients that installing PV
website both as an additional service within our portfolio
is no longer a luxury but an investment is part of our work. For
and as a source of capital.
the agricultural sector, one of our targeted niches, we have been working with the Ministry of Agriculture, Livestock and
Our biggest challenge to date was obtaining financing. Now
Rural Development (SAGARPA) and NAFIN to assist farmers,
that we have that covered we can look at building alliances
offering our financial schemes and consulting services to
with investment funds or other financial entities, creating an
those who are interested in transitioning to solar.
additional push for our business portfolio. Greater financing also means increasing our business standards, integrating due diligence, due processes and mitigating risk.
Soluciones Energéticas de México (SEM) is a leading installer of PV solar systems in Sinaloa. The company offers PV systems
Q: How involved must SEM’s clients be when transitioning
for SMEs as well as investment opportunities through an
to renewable energy?
investment fund for PV projects
157
INSIGHT
THE BALANCE BETWEEN COST AND QUALITY MARÍA JOSÉ ICAZA Director General of SOLARSOL
158
With the growing demand for solar energy, companies
panels are entering Mexico in a way that allows them to
must carefully tread the line between cost-effectiveness
pay less taxes, making them cheaper than ours,” she says.
and quality. But lack of supply often means that panels
SOLARSOL has developed a standard panel that produces
are imported from China because of their high availability
310W through PERC mono crystalline cells, with efficiency
and low costs. With this in mind, María José Icaza, Director
of approximately 21 percent.
General of Mexican solar panel manufacturer SOLARSOL, says it is crucial to improve the local value chain in
Installation quality is key for solar systems because
Mexico. “We want to make a difference in the Mexican
inappropriate positioning can severely affect the amount
market by placing a special emphasis on producing a top-
of generated energy. But when an installation does not
quality product based on local innovation and prove that
work as it should, it is much easier for an installer to blame
Mexican products can comply with the highest quality
the producer of the components. SOLARSOL places great
standards,” she says.
emphasis on the quality of its installation agents. “We select our installers by checking their credentials and visiting
Ensuring quality in a new market is not easy for local
installations they have previously completed to ensure they
suppliers, even more so when the technology is photovoltaic
work to top-quality standards,” Icaza says.
cells, which require highly specialized equipment and a highly trained workforce. That is why SOLARSOL chose
Finding the correct market is another factor to consider
to perform the majority of its operations in Mexico, while
for companies like SOLARSOL, and a balance needs to be
leaving the highly specialized work abroad, explains Icaza.
found between solar potential and market penetration.
“To get the cells, we went to Asia, looked for the most
“There are already many companies working in the north
innovative product and developed a partnership with a
and center of the country so we looked for a promising area
Taiwanese company,” she says. “Although we buy cells
that was in a development phase. Merida was the perfect
from our provider in Taiwan, the remaining raw materials are
fit,” Icaza says. “It has a residential sector that is increasingly
Mexican and the panel assembly is carried out in Mexico.”
favoring solar panels, as well as a couple of projects that were awarded during the first long-term electricity auction,
To ensure quality, Icaza decided to go to Asia personally
which indicates there are more opportunities to come.”
and inspect the provider’s facilities firsthand, and this is the same strategy the company adopts with local suppliers.
Beyond the advantage of having fewer competitors,
“In this era, everything can be done via phone or internet,
Merida also provides SOLARSOL with a special logistics
but we visit our local and international suppliers to get
advantage. “Being close to the port of Progreso, which has
a full understanding of the reality of their manufacturing
direct connections to Florida and other Central American
installations,” she explains. “We know how easy it is for a
ports, it opens internationalization possibilities, and fits
company to state that it is certified, but it is completely
perfectly with our future ambitions,” says Icaza. “By 2020,
different to witness their processes firsthand and ensure
we want to reach our full 20MW production capacity per
the correct procedures take place.”
year, which will allow us to further penetrate the national market and to start exporting.” She says the company’s
Prices of Chinese-manufactured panels are the lowest in
first market as an international brand would be Central
the market and it is hard to compete against them. In this
America since there are few manufacturers in that region,
regard, Icaza relies on the quality factor as she expects it
resulting in huge imports of panels manufactured in China.
will have an increasing role on the purchasing decisions of
“We want to change that by becoming the preferred
final customers. “SOLARSOL’s price is not the lowest, but it
option because of our quality and status as a regional
allows us to be competitive in the Mexican market. Chinese
company,” she says.
INSIGHT
ORGANIC GROWTH FOR AN EVOLVING MARKET GUSTAVO BÓRQUEZ Market Development Director of Enilso
It is not just big international companies that face challenges
information is a great barrier and not having the proper
entering Mexico’s new energy sector. Smaller Mexican
channels of communication is a big problem. We have to
businesses have their own hurdles to jump as they fight
ensure communication between all parties interested in the
their way to growth. Regulatory changes and financing are
sector, especially with final customers,” he says.
among the obstacles. Gustavo Bórquez, Market Development Director of Enilso, a Mexican company dedicated to solar
Ensuring that local authorities and associations are
energy and specialized in turnkey projects and EPC schemes,
transmitting the right message is a crucial activity in which
says starting small is the best option for these companies.
companies must take part. “Final customers should not have to reach out to companies to get informed. When they see
In a niche area, smaller companies can foster their technical
companies focused on making money by selling new or
abilities and, most critical, get to know the requirements and
unfamiliar products and services, they do not believe that
financing options, Borquez says. “Financing, far beyond any
their interests are aligned. That is why creating independent
technical aspect, is the main challenge hindering renewable energy projects on any kind of scale. Enilso initially started as a project developer for the inclusion of renewables in the Mexican primary sector in Sonora. At first, developing financial power was a hard task because financing institutions were not ready for these kinds of projects, leading us to focus on governmental programs geared toward specific segments,” he says. Once the niche has been extensively developed and the company has gained enough experience, it is time to grow. “By developing more projects in the niche sector, capital
“
information channels they can trust is so important.”
Financing, far beyond any technical aspect, is the main challenge hindering renewable energy projects on any kind of scale”
As the base of the pyramid becomes informed about the
and experience accumulate, which can then be used in
benefits, it will start demanding beneficial renewable energy
projects that expand the company’s reach. This strategy
developments, therefore pressuring authorities and financing
took us from the primary sector to now larger commercial
institutions to point their agendas toward the creation of
and utility projects, always on an organic path,” says
vehicles that allow for that to happen. “An informed final
Bórquez. His company also provides products and services
customer will be interested in the project happening,
related to PV systems such as terrain and machinery rental
because it is to his benefit, but he is not in the position to
and consulting.
provide the required capital. Small companies are also not able to fully finance the development of so many projects.
The lack of financing in the energy sector is directly related
This will create an environment where financing institutions
to many factors, chief among them is the lack of information
will see a possible market opportunity and will therefore fill
along the whole value chain, from final users to financing
the gap,” says Bórquez.
institutions, Bórquez says. To foster more financing options it is important to start from the base of the pyramid. “There
Despite the rough roll out of the new energy model, Bórquez
are plenty of people who want to install renewables in their
is optimistic about its development. “The transition toward
houses and businesses but they are absolutely disoriented
the new energy model was rough and left many problems to
because they have just left a monopolistic paradigm in
be solved along the way. The Energy Reform is undergoing a
which they were not able make decisions regarding their
dynamic improvement process and as challenges are solved
energy providers, or even think about ROI. The lack of
opportunities are created.”
159
VIEW FROM THE TOP
PIONEERING PV SOLAR OPERATIONS FRANCISCO GARCĂ?A Country Manager of Gransolar Group
160
Q: What motivated Gransolar to outsource technology
Q: What issues have you observed following the auctions
components in its integral service?
and with solar project implementation?
A: The Gransolar Group comprises several companies.
A: The fact that the market started with auctions is positive
Since we are vertically integrated, we can control the whole
for the solar sector. The first auction was subject to several
supply chain of a PV plant, from the engineering down to
technical conditions aimed at focusing projects in areas
the workforce. The only components not integrated in our
that needed to reduce energy costs. The projects that
operations are solar inverters and modules. For instance,
were established in these zones came up against some
Ingenia Solar Energy (ISE), takes on all the engineering,
permitting barriers, such as social and environmental
GRS has the development and construction, PV Hardware
impacts. We hope that all these projects can overcome
(PVH) provides the trackers and SCADA solutions and
these obstacles because it would send a vote of confidence
Energy Storage Solutions (ESS), the batteries.
to the industry. Finalizing projects would also lower energy costs and encourage other industries to operate in hubs
Q: How is Gransolar penetrating the solar market?
that need the economic support.
A: Our plan in Mexico is to act as technological partners, developers and promoters of the industry. We manage
Q: How can Mexico's electric infrastructure avoid
turnkey EPC projects for utility-scale solar power plants,
congestion?
as well as generation capacity and energy storage services.
A: In light of new energy inputs, PRODESEN outlined a plan
In partnership with ESS, we are developing our own battery
that will be in force up to 2031. This foresees improvements
system that would differentiate us among industrial users.
to the electrical system nationally, and implies we could
We hope to provide support and stability in locations that
overcome congestion in the transmission and distribution
lack a reliable network.
system. Depending on the success of the program, we may need to adopt measures that would redistribute foreign
Gransolar is working on PV projects in the US, home to a
direct investment to improve this part of the infrastructure.
more mature market that is strategically managed with
Strengthening the network would mean Mexican states can
fiscal incentives. In contrast, the Mexican market grew
share energy as needed, covering peaks and troughs more
out of the reform and is based on auctioning projects to
effectively. Alternatively, energy generation operations
reduce the country’s dependence on fossil fuels. We have
could be located closer to zones of high consumption. This
high expectations for this local market and see medium to
would reduce the need for excessive energy transportation
long-term sustainable growth as feasible in the industry
and make solid network coverage more attainable.
because it is growing 2 percent annually. We have been present in Mexico since 2016, and energized a 35MW PV
Q: What are Gransolar’s plans for its first decade in Mexico?
plant in Camargo, Chihuahua. Few plants of this type have
A: We are working with important companies toward
been constructed in Mexico and being part of this makes
materializing our ambitious pipeline of over 300MW in
us feel like successful pioneers, having achieved tangible
the next two years. All the companies that work with us
results and in line with quality standards stipulated by
recognize our reputation and know that we can offer a
the client.
high technological value to them as business partners. As the reform consolidates, we plan to be at the forefront of the auctions and new projects in Mexico. In 10 years, we
Gransolar Group is a worldwide recognized brand with +10 years
would like to reaffirm our strong position here and provide
of experience and +1.5GW of plants and ongoing projects capacity,
continuity to both our clients and partners. We are keen to
which integrate the necessary activities to develop sustainable
involve the local population and suppliers in our projects,
PV projects with integrated energy generation solutions
and also to implement social projects in several locations.
INSIGHT
WORKING TOWARD SOLAR ENERGY’S BRIGHT FUTURE JAVIER ROMERO Executive Director of AMFEF
Mexico offers solar irradiation levels averaging 5.5kWh/
money for these type of projects,” Romero says. “We have
m per year, according to Mexico’s Institute of Electric
set out to show them that renewable energy is perfectly
Research’s (IIE) Geographic Information System for
capable of cementing itself as a long-lasting industry, that
Renewable Energy in Mexico (SIGER). In its latest
the technology works as it has been working for the last 20
Renewable Energy Progress Report, the Ministry of Energy
to 30 years in other countries and will continue to perform
counted 290MW of installed solar power capacity in the
well in the future.” Several governmental programs in place
first quarter of 2016 and expects to close 2019 with an
can change these subsidies into credits and allocate them
aggregate 5,400MW of total installed capacity of solar
toward solar panel ownership. To that end, Romero says
power alone. The country's electricity industry is mobilizing
AMFEF’s primary focus is the financial sector, looking
to further boost this renewable source of energy.
for investors interested in participating in the country’s
2
distributed generation opportunities and to provide capital “We believe Mexico’s largest growth in 2018 will not only
for the T1 tariff users.
be in the utilities sector but also in distributed generation,” says Javier Romero, Executive Director of the Mexican
AMFEF wants to capitalize on the country’s proven track
Association of PV Equipment Manufacturers (AMFEF).
record for excellence in the manufacturing sector, as
“It is very simple: most of the production that members
shown by Mexico’s automotive and aeronautics industries.
of AMFEF are selling in the local market is for distributed
“Mexico must take advantage of this opportunity to reach a
generation. Our experience demonstrates that it is a great
position where it can create its own solar industry, capable
market where we can compete both in price and product-
of competing with the quality levels and competitive prices
quality levels.”
of the rest of the world.”
Despite a rich solar resource and exponential growth
The association is working closely with the government to
projections, Mexico’s solar power is not without its
build productive chains and consolidate the PV market. In
hurdles, particularly considering electricity tariff levels
the coming years, AMFEF hopes to diversify and integrate
across the country’s different types of users. “If you
new PV sector members, including companies specialized in
look at domestic high consumption, as well as the
solar trackers, solar inverters and other PV implementation
commercial T2 tariff and the municipality tariff, we
equipment. While AMFEF highlights its three founding
already have grid parity,” says Romero. “It is absent
members, being the largest PV manufacturers nationwide,
from the rest of the sectors, particularly in the industrial
Romero estimates Mexico does not have more than eight
segment. This requires adopting a new scheme that was
local manufacturers, half of which manufacture on a small
recently approved by CRE, which enables net metering,
scale. But the future looks bright for Mexico’s solar power.
total energy sales and net billing.” With this regulatory
“In the coming years, we expect bigger players to arrive on
modification, CRE expects to close an additional 15,000
Mexico’s solar scene, as well as increased production lines
small and medium-scale interconnection contracts, twice
at our founding members,” says Romero.
as much as it had in 2016. “With these types of credits, the government will no longer be required to subsidize
Mexico's capacity to increase the operating interconnected
the T1 tariff in the short term and it will have a positive
PV systems nationwide will have an important role in the
effect on the user’s electricity consumption.”
future. “We only have 25,000 interconnected contracts to this day,” says Romero. “Our major challenge is to get
Another major element surrounding solar power in Mexico
more users to trust PV systems and organically grow toward
involves financing PV installations to bolster distributed
technological solutions like batteries and energy storage
generation. “For the moment, only two banks are lending
that further cement solar power’s reliability.”
161
ROUNDTABLE
WHAT TECHNOLOGICAL DEVELOPMENTS WILL REVOLUTIONIZE MEXICO’S SOLAR MARKET?
Mexico has a privileged average solar irradiation level of 5.3kWh per square meter per day that can reach over 8.5kWh in states like Baja California. Additionally, there is an average of 2,190 hours of sun per year. The potential of Mexico for the implementation of solar technologies is unquestionable. PRODESEN considers solar a technology with great potential, taking into consideration the decrease in manufacturing costs, the increase in technological developments and the higher market competition taking place on a global level. MER asked experts what technology developments they think will revolutionize Mexico’s solar market, and what could hinder their implementation.
162
DuraTrack HZ v3 is the latest innovation we have developed. It is covered by more patents than any other tracker. Even though it consists of a single drive with a single motor, one motor drives 1MW of solar panels. In other words, this motor can power two football fields of solar panels. There is a sliding, rotating, articulating driveline that connects every row. By linking up multiple rows, we minimize the number of potential failure points in the system, which ultimately increases reliability and uptime.
RON CORIO CEO of Array Technologies
Another unique element is that the system does not need to be stored flat to survive a windstorm. Through a patented passive wind-release torque mechanism, integrated row by row, it relieves the torque and stops the system from going into unstable harmonic interaction. It is a zero scheduled maintenance, robust product that owners do not have to worry about for its 30-year life.
For mono crystalline solar PV panels, if you are targeting expedited manufacturing, you only apply one layer to activate PV cells. If you want improved finishing, you apply a double layer. Double printing allows us to offer 12-year warranties compared with the average 10-year offer. The process is more costly from the manufacturing standpoint but in terms of product, the quality is not comparable. Technologically speaking, we manage to continuously remain six months ahead of the sector’s newest
GONZALO RODRÍGUEZ Sales Manager Mexico, Central America and the Caribbean of JA Solar
trends. Our mono crystalline panels have 360W STC power ratings, which is unique in the market. This capacity gives our clients serious advantages and global savings project-wise: higher power for less surface area, as well as savings in infrastructure, workforce and logistics costs.
NEXTracker has significant experience in the distributed markets with our flagship NX Horizon tracker system which addresses “behind the meter” projects under 20MW. Our distributed generation team has deployed over 500MW globally with the US, Chile and Australia being our largest distributed generation markets. Our new vanadium flow storage and solar technology, NX Fusion Plus, is an excellent integrated application in those markets with high-demand charges and significant
ALEJO LÓPEZ Senior Director of Business Development and Sales for Mexico and Latin America for NEXTracker
arbitrage between peak and base power costs and therefore there is significant value in peak shifting. For this purpose NX Fusion Plus uses flow batteries as opposed to lithium-ion, because they enable longer discharges with no long-term battery degradation.
Soltec’s new SF7 tracker comprises 90 solar modules mounted in a portrait structure, with three strings of 30 solar panels. At 45m long, it adapts nicely to steep slopes, rendering land leveling practically unnecessary. Our product is designed with zero gaps between the modules, enabling a 5 percent greater energy yield, lower costs for BOP material and a reduction in labor expenditures. SF7 also reduces the number of parts required for installation by 15 percent and uses 58 percent fewer screw connections than leading competitors, resulting in a faster and easier installation process. Soltec’s DC Harness system replaces conventional PV wiring with an aluminum system, representing 73 percent less wire length, 65 percent
FERNANDO SÁNCHEZ Vice President of Sales Latin America at Soltec
less installation labor and factory-tested insulation resistance while eliminating the traditional combiner box.
163
The SunPower Oasis Power Plant platform is a complete solution that is designed to simplify solar power plant design and construction while maximizing on-site energy production. Oasis uses over 50 percent fewer mechanical parts than competitive technologies, enabling plants to be constructed more quickly and achieve improved long-term reliability. Soiling can be a leading source of potential revenue loss for solar power plant owners and manual cleaning takes time, disrupting daytime energy production. SunPower’s proprietary robotic panel cleaning technology used at power plants today is proven, with more than 6GWs of panels washed to date. This system uses 75 percent less water than manual cleaning methods. Finally,
ALBERT SUNYER Field Systems Sales Director of SunPower
SunPower’s Remote Operations and Control Center (ROCC) offers 24/7/365 site monitoring and control to optimize energy production.
Yingli Solar manages traditional market products such as the delivery of both mono and polycrystalline panels. At the same time, Yingli is positioning its pre-packaged solutions in the market. These are ready-to-install 50-100kW on and off-grid systems that include batteries, inverters and solar panels – everything the project developer requires for installation. Another significant advancement we have made is our PANDA mono crystalline panel, which offers efficiencies of up to 20.1 percent, which is almost 30 percent higher than the market average. We expect this panel to provide a huge advantage in the industrial distributed generation segment, in which lack of space is often a big problem. By using this panel, project developers can achieve
EZEQUIEL BALDERAS Country Manager of Yingli Green Energy Mexico
higher production rates in the same area, leading to a faster ROI for their clients.
Since its inception, Alion Energy has positioned its developmental strategy in R&D. We always look for new ideas that disrupt the industry with our innovative approach to building solar systems and strive to develop, create and offer an optimal PV system that can deliver the greatest amount of energy over the long run. For instance, concrete can last for 50 years. In contrast to traditional metal poles, subsurface corrosion risk is nonexistent. Our solar tracker’s design is also a testimony to our company’s innovative capacity. It eschews the traditional “T” shape, effectively distributing the weight of the module through our Arc Drive load reduction and adding sturdiness to the overall structure against weather hazards, which create micro-fissures on solar panels, thereby degrading them.
VICTOR PAZMIÑO Senior Business Developer and Design Engineer of Alion Energy
PV solar system, Queretaro, Mexico
DISTRIBUTED GENERATION
7
Since Mexico’s Energy Reform was implemented in 2013, annual installed capacity of distributed generation has almost doubled each year, seeing the country increase its total installed capacity almost 160 times compared to 2012 levels. An important factor is Mexico’s excellent geographical position that offers optimal solar irradiance levels and wind speeds, together with a rich natural gas availability coming both from national production and international imports. As electric energy prices and environmental stewardship increase and technology prices decrease, final customers are becoming increasingly attracted to distributed generation, making this market an attractive and profitable business opportunity for both national and international players.
This chapter presents the views of industry experts who discuss the country's ability to implement both renewable and conventional energy sources for the distributed generation of energy, in the form of electricity and heat in Mexico.
165
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CHAPTER 7: DISTRIBUTED GENERATION 168
ANALYSIS: A Market on The Rise
170
VIEW FROM THE TOP: Andre Von Frantzius, Grupo DESMEX
172
Project SPOTLIGHT: Legacy Projects Done Right
174
VIEW FROM THE TOP: George Opocensky, ATCO
175
VIEW FROM THE TOP: José Zambrano, Galt Energy
176
INSIGHT: Jonah Greenberger, Bright
177
INSIGHT: Ernesto Nájera, Everest Solar Systems
178
VIEW FROM THE TOP: Juan Ávila, Top Energy
180
INSIGHT: Pedro Garza, Powerstein
181
VIEW FROM THE TOP: Mario Muñoz, Solar Center
182
INSIGHT: Luis Cano, Grupo Trinova
183
VIEW FROM THE TOP: Miguel Marquina, Marsam Solar
184
José Marquina, Marsam Solar VIEW FROM THE TOP: Aarón Martínez, CIAM Servicios Ambientales Sergio Martínez, CIAM Servicios Ambientales
185
INSIGHT: Rodrigo Pantoja, Greentech Ingeniería Sustentable
187
INSIGHT: Rogelio Nochebuena, SERAM BC
188
INSIGHT: Francisco Sepúlveda, Eco Ener
189
INSIGHT: Javier Romero, Eco Housing
190
RoundTable: How Can Companies Provide High Quality
in the Competitive DG Mexican Market?
167
ANALYSIS
A MARKET ON THE RISE Higher electricity prices and a more transparent market, along with new resolutions from CRE have supported a boom in distributed generation, but overall progress remains a concern for an industry that sees much potential that has yet to be unleashed
168
Mexico’s distributed generation market boomed without
eight to 10 years.” Now, although CRE’s objective is to
precedent during 2016 and 2017 thanks in part to CRE’s
foster a competitive market in which more participants
resolution that allowed the interconnection of distributed
can play, the fact that CFE remains the only player in
generation systems with a power capacity lower than
the transmission and distribution area has slowed the
0.5MW. Along with the creation of the net metering
interconnection of distributed generation projects once
and net billing schemes, new business opportunities
the contracts have been assigned. “The main problem
were opened to companies looking to venture into the
in this area is the lack of communication between CRE,
distributed generation area. This is reflected in the number
CENACE and CFE,” says Andre von Frantzius, Commercial
of registered contracts for distributed generation during
Director at Grupo DESMEX. “It has not been an easy road.
the January-June 2017 period, in which 10,549 contracts
The Energy Reform is moving, but it has been slower than
were registered, meaning that the first half of 2017 saw 83
we expected.” Von Frantzius also says it is critical for
percent of the number of contracts assigned during the
all market members, from the public to private spheres,
whole of 2016.
to work together and create proper communication channels that work for the benefit of the entire industry.
Progress, however, has been slow due both to previous market traits and sluggish communication between
Associations are one way to gather different points of
regulators. Before 2015, the fact that electric tariffs were
view and address concerns, with the objective of distilling
lower than they should have been hindered the market,
and channeling them to the appropriate decision-makers.
both in the industrial and commercial sector, says Luis
Such is the case of ASOLMEX, explains José Zambrano,
Cano, Director General of Grupo Trinova. This “rendered
Director General of Galt Energy. The association allowed
investment in renewable energy alternatives unattractive
Galt and other high-level companies with a strong
from a financial standpoint, as the ROI oscillated between
and positive long-term vision to take part in close conversations with CRE and the Ministry of Energy, with
ER CONTRACTS ACITY
NUMBER OF REGISTERED CONTRACTS ASSIGNED BY CRE PER INSTALLED CAPACITY
the objective of offering them enriching and constructive input about their activities. This was especially useful when CFE acquired legal protection against the interconnection rules published by CRE, Zambrano says. “ASOLMEX sat with CFE to understand the reasons behind the agency’s
579 9970
Total 2016
12,577
NUMBER OF 1110 CONTRACTS 11467 11,467 1,110
action and how it could be worked out. Instead of burning bridges we looked for a way to fix the problem. CFE was not able to handle so many interconnections in such a short time as no company can deal with a major change in core activities in just a couple of days. After those talks, both CFE and us — the companies involved in
NUMBER OF REGISTER CONTRACTS PER INSTALLED CAPACITY 2016
distributed generation — were ready to keep working together. We recognized that the legal protection for CFE was necessary and interconnections started to be handled much more quickly.” Zambrano also points out that these institutions have been respectful and open to
Total 1H17
10,549
NUMBER OF 579 CONTRACTS 9970
9,970 579
the input of the industry's 1110 players. 11467
LOW-SCALE GROWTH
The biggest market growth for distributed generation has been in the low-scale area, meaning the installation
0-10kW 10-500kW 2017
Source: Ministry of Energy
0 to 10 kW 10 to 500 kW
of power capacities of less than 10kW. As seen in the graph on the right, 94.5 percent of the assigned contracts
2016 the first half of 2017 were for low consumption. during
ACCUMULATED DISTRIBUTED GENERATION ASSIGNED CONTRACTS BY CRE AND RESPECTIVE ACCUMULATED INSTALLED CAPACITY 600 500
60
——Number of contracts (thousands) Installed capacity (MW)
50
400
40
300
30
200
20
100
10
0
0 2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017*
* 1H17 (annualized) Source: Ministry of Energy
These capacities are a good fit for the residential and
banks finance more projects, it is crucial that project
commercial sectors. As smaller projects are easier to
developers convince the financial sector that projects
sell at a faster pace, the growth in this segment is not
in the residential and commercial sectors are secure.
surprising. Pedro Garza, Director General of Powerstein in
“We have set out to show them that renewable energy
Mexico City, explains how an external factor can increase
is perfectly capable of cementing itself as a long-lasting
the number of quotations. “The fact that electricity prices
industry, that the technology works as it has been
keep going up makes people understand that they need
working for the last 20 to 30 years in other countries and
a better and long-term solution, which is where we come
will continue to perform well in the future.” According to
in.” He also mentions the importance of knowing the
Jonah Greenberger, Co-Founder of Bright, the maturity of
reality behind clients looking for a distributed generation
the Energy Reform has also helped in this regard. “We are
project to be able to offer them the best value they can
now in a more transparent and certain market given the
get, even if this means not installing the project right away.
changes resulting from the Energy Reform. As a result,
“When Luz y Fuerza del Centro disappeared and CFE took
investors feel safer.”
over the entire power grid, old metering systems were replaced by digital systems.” Old meters measured lower
In the first half of 2017, 5.5 percent of the projects
consumptions than their digital counterparts because they
were in the range of 10 to 500 kWs. These capacities
were wrongly calibrated, and as consumers got charged
are better suited to meet big commercial and industrial
more, they looked for distributed generation to solve the
requirements. While the residential sector boomed
problem. “This situation produced a boom in the number of
during 2017, there is still much to do before distributed
quotations we had to make for angry clients who wanted to
generation can extend its reach in the commercial and
introduce off-grid power systems and get CFE out of their
industrial sectors. Although the 500kW threshold has
lives. When we explained that an off-grid system could cost
been effective, some companies find that it is holding
up to MX$80,000 compared with only MX$40,000 for a
back the development of more projects, and even the
starting interconnected system, our clients understood that
inclusion of innovative solutions in the country. “Our
it was better to pay off any debt they may have had with
distributed generation projects can reach up to 3MW
CFE and then come to us to interconnect a solar system.”
with medium-sized turbines of 1MW,” says Ignacio
This also illustrates how such a situation can be overall
López, Business Development Manager Latin America of
beneficial for a company, “Thanks to this social discontent,
Emergya Wind Technologies. “If the regulations allowed
our sales are increasing every year.”
it, Mexico could be a tremendous market for us.”
Although sales have risen for the majority of implementers
Although distributed generation has had its ups and
of residential and commercial distributed generation
downs and there is still much to do to broaden the
systems, the lack of financial tools is hindering the
implementation of these projects in a country where
widespread installation of projects. “For the moment, only
renewable energy sources are widely available in
two banks are lending money for these types of projects,”
significant amounts almost everywhere, the country is
says Javier Romero, Director General of Eco Housing.
in good shape for the implementation of more projects,
He adds, however, that this situation is to be expected
explains Mario Muñoz, CEO of Solar Center. “Distributed
in a banking market that is just getting accustomed to,
generation will continue growing as long as Mexico’s
and starting to trust in, distributed generation. To help
housing and urban infrastructure continues to grow.”
169
VIEW FROM THE TOP
GROUP RELISHES ENERGY CHALLENGE, EYES MORE ANDRE VON FRANTZIUS Commercial Director of Grupo DESMEX
170
Q: How is Grupo DESMEX working to strengthen its
operational by December 2018. This legacy permit will
position in Mexico’s energy market?
be used for our energy sales division. We have several
A: Four years ago, Grupo DESMEX started working on a
investors on board who are constantly looking for ways
circular business structure that was designed to cover all
to add more solutions and increase our added value. With
our business units. This concept started when we bought
this circular structure in place, we expect to become a
Solarnova, a German manufacturer of solar PV panels
clean-energy conglomerate in Mexico in 10-15 years.
with over 25 years of experience in the European market and a capacity to produce 80MW per year. Becoming full
Q: What is the main added value Grupo DESMEX provides
shareholders of the brand, we acquired the capacity to
that will allow it to become an energy conglomerate?
directly produce solar panels for the market segments
A: Our main added value is our broad experience of over
in which we are present, from residential to industrial.
10 years in the energy market and 21 years working in
This reinforced our already strong presence in those
Mexico. We are one of the strongest players in distributed
markets with over 428 products and 52 solutions for
generation, with over 7,200 distributed generation
interconnected and isolated energy systems, illumination
installations performed by our branches in both the
integration, desalination and recycling, to mention a few.
residential and commercial sectors for an accumulated
Grupo DESMEX is also an exclusive supplier of many
installed capacity of 54MW. This success has not come
brands that are leaders in other countries. To provide
easily; it is the result of hard work and advancing step
the Mexican market with these brands we have worked
by step with a clear goal in mind. Our commitment to
hard to develop strategic partnerships.
the market is reflected not only in our first foray into the energy-generation market, with a 3MW project, but also
After buying Solarnova and introducing more products
in our follow-up 30MW project.
to our portfolio, we changed our business model into a franchise scheme, recognizing that our nine offices
Grupo DESMEX has a strong engineering team with over
were not enough to manage all our products and the
175 people that allows it to enter the engineering and
markets in which we were present, nor to provide the
installation segments for energy projects. For projects
full coverage to the Mexican market that we wanted. In
under 250kW we let our franchises manage everything.
2016, we incorporated EPC services into our portfolio
Because we train and certify them, the final customer
along with our own financial leasing branch, allowing us
can be assured that the project will be carried out to the
to offer an extra added value to our clients. These last
highest quality standards.
services are for installations where traditional solutions such as third-party integrators and banking institutions
The group is also analyzing the possibility of building a
do not fit clients’ needs. Finally, and to close the circle,
manufacturing plant in Mexico. In the upcoming months,
we are starting to work in the energy generation area.
we will make the decision of whether to build a 40-60MW capacity facility in Guanajuato. This production capacity
In April 2017, Grupo DESMEX bought a legacy permit
will be used to nurture all our distribution channels. This
for a 30MW project in Chihuahua that is expected to be
project is feasible not only because of the already strong presence we have in Mexico, but also because of the strong expertise we have from Solarnova, whose panels
Grupo DESMEX is versed in automation and engineering, with
are of the highest quality.
a presence in Mexico of over 20 years. Its energy branch serves the residential, commercial and industrial sectors, including
As a matter of fact, an installation done in 1989 in Veracruz
EPC and O&M services
with Solarnova panels continues to offer 85 percent of its
initial performance, which is a major achievement. Our strategy is clearly outlined and executed with an eye to offering the greatest benefit to our customers in the future. Q: Is Grupo DESMEX looking to participate in the longterm electricity auctions?
Grupo DESMEX has over 24 franchises nationwide, with over 5,000 renewable energy installations
A: Although the electricity auctions have garnered international attention, we all recognize that there are
slower than we expected, and for it to be successful
also flaws in the process, such as very low prices and a
all institutions have to work hard to create a proper
dangerous uncertainty. Most of these risks are coming
communication channel that works for the benefit of the
from project developers not knowing where their
whole industry.
interconnection point is. Interconnection has become one of the biggest problems in Mexico not only for the auction
We are not yet looking at the auctions. Grupo DESMEX
projects but for the whole industry. Before deciding on
is aware that it will not become the most important
the full 30MW project we decided to go for a 3MW pilot
energy provider in Mexico; there are groups coming to
on which we work as the full EPC and O&M provider.
the country that have been working in that area for over 100 years and are already strong energy conglomerates
The interconnection with CENACE has been a painful
capable of winning a project or an auction just to
process to go through. We are one year behind schedule
strengthen its market presence. It would be almost
because of interconnection issues, which translates to a
impossible to win in a one-on-one fight against them.
full year in which we have to pay the bank both capital and interest without having any income from energy
Grupo DESMEX wants to keep working in the targeted
sales. Interconnection has been and still is one of the
market niches that have worked very well for it, which are
biggest problems for project developers.
residential, commercial and industrial. In those markets, we want to double our presence annually, meaning that
The main problem in this area is the lack of communication
if 2018 is the year we complete the 30MW project, in
between CRE, CENACE and CFE. It has not been an
2019 we will work on a 60MW project and by 2020 reach
easy road. The Energy Reform is moving, but it has been
100-120MW.
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PROJECT SPOTLIGHT
7,500MWh of clean energy per year generated by the project
172
LEGACY PROJECTS DONE RIGHT Mexico’s market for distributed generation and utility scale is in the midst of a boom, and Grupo DESMEX’s solar project in Silao, Guanajuato, is a prime example of the segment’s success. The construction of the 6ha solar park began in July 2016, with the operation of its solar modules starting in October 2017. For the park, Grupo DESMEX installed premium German quality SOL 278 GT solar panels, from the manufacturer Solarnova, which is also part of Grupo DESMEX. During its first 25-30 years of life, the project will generate enough clean energy to avoid the emission of 99,993 tons of CO2 per year, which is equivalent to planting 1,515,056 trees. Grupo DESMEX took charge of the entirety of the project, from handling the permits to securing the terrain, attracting investors, managing the financing, drawing the clients that will buy the generated electricity and developing the EPC activities. In other words, Grupo DESMEX took care of the whole engineering, design, procurement and installation activities with its certified workforce, which includes 250 collaborators allocated to 24 sales points across the country. Now that the project is ready, Grupo DESMEX will also conduct the O&M activities. Although taking full responsibility for a project like this could be difficult for just one company, Grupo DESMEX has the required expertise in Mexico. Its experience includes 10 years in the market in which it has installed over 7,000 photovoltaic systems across all sectors, including residential, commercial, industrial, agrarian and governmental. The project will generate a total of 7,500MWh of clean energy per year that will be sold to two public entities for public lighting and to a private company under the commercial tariff. The biggest challenge for Grupo DESMEX was the provision in the new Energy Industry Law (LIE) that states that legacy permits must be aligned with the new regulations. Before the implementation of the new law, permits were worked out between CRE, CFE and the permit holder. After the implementation of the LIE, everything must go through CENACE and some of the procedures, characteristics and technical aspects were unclear. Still, Grupo DESMEX finished the project in a record time of 15 months, making the company one of the first to finish a legacy project and interconnect it under the LIE regulation. Taking what it learned on the Silao project, Grupo DESMEX is now working on a new legacy project totaling 30MW and located in Ciudad Juarez, Chihuahua.
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VIEW FROM THE TOP
COGENERATION CONGLOMERATE SEES OPPORTUNITY IN DISTRIBUTED GENERATION GEORGE OPOCENSKY Director General of ATCO
174
Q: What is missing from Mexico’s wholesale electricity
has the advantage of being able to provide a wide variety
market to make it more attractive for investment?
of products and services from logistics, modular structures,
A: Mexico’s wholesale electricity market is armed with all
gas pipelines and liquids, power generation, distribution and
the key components it requires to generate competition and
transmission to provision of water treatment and conveying
foster new projects. From a regulatory standpoint, however,
systems, all under an innovative solution benchmark. Our
the accelerated pace of the Energy Reform seems to often
diversified portfolio gives us the flexibility to provide and
get ahead of the required regulatory policies, causing
adapt to all of our customers’ needs under one umbrella.
confusion and inconsistent interpretation and application by the various energy-focused government bodies. In our
Q: Considering your experience in retail energy, what are
particular case, given the distributed generation portfolio
your plans for this particular business line in Mexico?
we set out to develop in Mexico, our understanding of the
A: We are pursuing all forms of gas fired and renewable
rules was often met with differing views of the various
generation, with a focus on distributed and solar energy.
government bodies, causing extended delays and additional
A flexible generation portfolio does not tie us to a single
costs in completing projects.
generation source that can be impacted with technological advances or changing market conditions. Flexible
Another hurdle to overcome for new generators is the
generation also provides customers' choices to meet their
continued dominance of CFE in the market, whereby many
business needs. The reason we are pursuing gas fired
customers continue to compare and link the price of non-
generation in addition to renewables is that stable baseload
CFE delivered energy to the existing and fluctuating CFE
generation that comes from gas fired units becomes
tariffs. Rather, we try to focus our client’s attention on its
increasingly important for grid stability while bridging
own business needs and competitive energy pricing to help
old and fuel-oil fired generation with renewables. Energy
it achieve the optimum business results.
storage solutions are also of interest and we are pursuing several technologies in other operating jurisdictions.
Q: How did ATCO adapt its market expansion strategy for Mexico?
Q: What was the added value of your Grupo Hermes
A: ATCO’s footprint in Canada and Australia was developed
partnership for the Hidalgo cogeneration project?
over a long period of time, while our presence in Mexico
A: ATCO considers it vital to work with Mexican partners
is relatively new. For the first two markets, ATCO built
because of their expertise in dealing with land owners,
customer-centered business strategies. Identifying
facilitating permitting processes and understanding how
potential customers, pinpointing their needs and providing
to deal with government agencies, among others. They
tailored solutions laid the groundwork for our success in
bring specific knowledge of the Mexican market to the
those locations. This is the approach that we are looking to
equation.
duplicate in Mexico. While differences in market conditions, regulatory landscape and culture have to be taken into
Q: How is ATCO capitalizing on its cogeneration expertise
consideration in our strategy, we are confident we will
in Mexico?
replicate the success we have had in other markets. ATCO
A: We are the largest cogeneration provider in Western Canada and also own several cogeneration facilities in Australia, a direct result of our ability to design tailor-
ATCO is a Canadian conglomerate that entered Mexico in 2014,
made cogeneration plants for our customers. Our
engaged in logistics, electricity production, pipelines and retail
experience is not only in designing and building tailored
of energy. Its services range from natural gas delivery to provide
cogeneration plants, but also in the operation and
modular housing and water infrastructure solutions
maintenance of these plants.
VIEW FROM THE TOP
WHEN FINANCING DISRUPTS A TECHNOLOGY MARKET JOSÉ ZAMBRANO Director General of Galt Energy
Q: How is Galt disrupting the Mexican market?
either takes part or organizes. This strategy not only
A: We offer the highest added value in the residential sector.
increased our sales volume but also decreased client-
To help further develop this segment, Galt has created its
acquisition costs, allowing us to offer 15 to 20 percent
own fund to finance residential projects. Its strength lies
discounts to clients acquired through this partnership.
in its flexibility compared to financing options offered by
CEMEX employees who participate in the scheme save
banking institutions. Flexibility is achieved in two ways:
money by reducing their electricity costs. This became a
first, we use different eligibility criteria besides a potential
win-win situation for all parties involved. So much so that
client’s credit history, which is the key factor for traditional
we have expanded this strategy to almost 15 companies,
financing. Second, and most critical, Galt can reuse the
including Banamex, Banbajio, Pepsi and Banorte. We are
panels for another installation. What would be a capital
still adding new partners to the list and are happy to have
loss for a bank is a capital transfer from one project to
as many as possible.
another for Galt. Our goal has always been to find ways to make solar energy more accessible for all customers, both
Q: How has Galt’s ASOLMEX membership impacted its
by making it more affordable and easier to finance. We
market position?
expect that in the future, and thanks to the fund, Galt will
A: Galt has been a member of ASOLMEX for the past two
be able to offer solar projects to the base of the pyramid:
years. The association has been successful in reaching
those with the lowest income and consumption but who
governmental entities such as CRE and the Ministry of
are also those who would receive the greatest benefit from
Energy to offer constructive input about their activities. It
the installation of solar panels.
is worth noting that these institutions have been respectful and open to all of our input. When CFE acquired legal
Q: How does Galt choose its suppliers?
protection against the interconnection rules published by
A: In the beginning, we chose more economical options to
CRE, ASOLMEX sat down with CFE. Instead of burning
gain a competitive advantage, but through trial and error
bridges we looked for a way to fix the problem. CFE was
we have recognized that the best route is to offer top-
not able to handle so many interconnections in such a
quality products that, although they might have a higher
short time. After those talks, both CFE and the companies
upfront cost, create a truly high-quality project over the
involved in distributed generation were ready to keep
long term. We now choose suppliers because they do things
working together.
right and provide high quality. One of our most important requirements when selecting a supplier is its openness.
Q: What goals does Galt have for 2018?
Instead of a supplier that claims to be perfect, we want
A: We want to reach those customers who have the lowest
someone who is committed, with a thirst for improvement
incomes. To achieve this long-term goal, we are focusing
and who wants to grow together with us.
on growing and capitalizing the company, building more creative financing schemes and developing software that will
Q: How are Galt's partners enabling it to widen its market?
not only make O&M easier but also foster client acquisition.
A: For companies that are betting on green initiatives
We will close 2017 with around 1,200 installations and want
and adopting renewables, it makes sense to provide their
to reach a minimum of 3,000 installations by the end of 2018.
employees with options to install renewable energies in their homes. The first company to which we offered a partnership was CEMEX two years ago. We proposed
Galt Energy , which initiated operations in 2013, is a
preferential payment and price schemes to their
Monterrey-based company that specializes in the installation
employees and in exchange we were able to participate
of custom-made solar PV panel systems for Mexico’s
in fairs, conferences and other events in which CEMEX
residential market
175
INSIGHT
UNIVERSAL ACCESS, ONE STEP AT A TIME JONAH GREENBERGER Co-Founder of Bright
176
Energy access is a determining factor for quality of life.
Although Bright could be confused for a solar system
In 2011, the United Nations and the World Bank launched
installation company, it is in reality a software firm, says
Sustainable Energy for All to ensure universal access to
Greenberger. “We are building a software platform that will
modern energy services by 2030. But initiatives like this,
allow everyone in the solar ecosystem to be efficient, cost-
although honorable, lack the economic sense to make
effective and to scale up operations as fast as possible.” This
them sustainable and therefore impactful, says Jonah
goes hand in hand with Bright’s commitment to increase its
Greenberger, co-founder of Bright, a Mexican startup that
customer base. Software development is at Bright's core,
hopes to solve this dilemma.
in parallel with closing strong partners for installations. “We partner with local installers, suppliers and entrepreneurs
Greenberger says that his company’s ultimate mission is to
as well as international manufacturers so they can act
reach every corner of the world where people do not have
together with local players and jointly install solar systems.
any power source other than fuels like kerosene, and to bring
Bright’s software connects all these pieces.” This strategy
electricity as a fundamental enabler of communication,
increases Bright’s footprint, he continues. “Instead of just
entertainment and education. Although Greenberger wants
being a one-service provider, Bright is a full-service provider
to achieve universal access, he knows his company must
that integrates all these services to install an efficient and
first be profitable. “With this huge mission on our shoulders,
customer-oriented solar system. Although Bright is a small
we have to make sure to take it step by step.”
company, it has a huge footprint that includes thousands of people working across Mexico.”
The first step, he says, is to have a strong base of customers in the high and middle-income segments,
Because Sillicon Valley is the world’s major hub for software
allowing the company to bring technology costs down.
development, it makes sense that an innovative company like
“It may sound counterintuitive to start with the elite to
Bright would have its software development operations in that
provide universal access, but we believe this is the most
location. Greenberger would like to bring these operations
effective path. Many startups that want to provide clean,
to Mexico, but the task remains challenging. He is quick to
affordable and universal access to electricity from day one
point out that difficulty does not mean a lack of human talent.
fail to apply economies of scale to technologies that are
“Human talent definitely exists in Mexico, but the lack of
still expensive,” Greenberger says. Today, Bright is working
opportunities to work in companies before graduating and to
to offer residential PV services in Mexico to DAC and T2
develop significant real-world experience is missing. Students
users and to build a software-operating system that will
in Mexico do not have the opportunity to walk down the street
spread residential solar globally.
and seek part-time jobs at global companies like Facebook, Google or Twitter like students in Silicon Valley do.”
Venturing into these segments was the logical thing to do but investors were initially uncertain, Greenberger says.
Committed to cultivating such human talent, Bright is
“For investors, uncertainty is always troubling. One of the
interested in developing the industrial ecosystem from
biggest concerns when Bright started was CFE. Anything
its own roots. “We are working to provide students the
CFE did or did not do was unsettling.” Greenberger
opportunities to develop finance and sales skills together
explains that investors were wary of the possibility that
with programming skills that can used in international
CFE would change those rates, which account for Bright’s
environments.” He also calls on other players to join in
entire market, affecting its business. The market’s new
this effort to benefit the country’s competitiveness. “In a
transparency has helped settle nerves. “We are now in a
globalized world, these opportunities are strong assets
more transparent and certain market thanks to the reform's
for companies and for the country. High schools and
changes, making investors feel safer.”
universities should join in this effort.”
INSIGHT
A STRATEGIC LINK IN THE QUALITY VALUE CHAIN OF PV SYSTEMS ERNESTO NÁJERA Business Development Manager LATAM of Everest Solar Systems
While Mexico’s long-term electricity auctions are boosting
major cities compared to the US, coupled with hurricane-
the country’s move toward a cleaner energy mix, the
prone zones. The country’s versatile climate calls for an
residential and commercial sectors of the electricity market
equally versatile product portfolio installable in contrasting
have yet to fully embrace this transition and the inherent
weather conditions varying between those found in Cancun
benefits of distributed generation. Installing a PV system is an
and those in the Bajío region,” Nájera says. “Standards
already highly technical process and increased complications
and norms are also a big part of our business and create
may arise when the area available is constrained to a roof’s
a considerable comparative advantage, especially when
surface. To succeed, simplicity is key.
considering that CFE’s codes are viewed more like guidelines and recommendations.”
“Mexico is a singular market considering the wide range of roof surfaces we work with, such as uneven roofs, flat roofs,
To make a name for itself, Mexico’s solar industry needs
concrete roofs and laminated roofs, to name a few,” says
to standardize its quality PV installation processes.
Ernesto Nájera, Business Development Manager LATAM of
Interacting with CRE in this regard, as well as first
Everest Solar Systems. “Simplifying the installation process
approaches with FIDE, UNAM and the National Council
while ensuring reliable and durable PV system performance
of Standardization and Certification of Professional
for our final client is at the core of our business model.”
Competence (CONOCER) are a priority for Everest since these organizations design and implement training
As structure suppliers, Everest provides PV installers
programs, not only for solar panels and inverters but also
with flexibility through reliable, easy-to-set-up and norm-
for PV system structures.
compliant systems. To tackle the Mexican market, the company has developed a wide variety of products to
Mexico’s market characteristics made it an attractive
provide the best solution depending on the roof type to
option for Everest’s expansion. Its 120 million inhabitants,
maximize the MW/m2 ratio. “Our traditional north-south
high electric tariffs, net metering clauses that are helping
oriented Crossrail Tilt Up product can have from 5° to 30-
develop solar businesses and the Energy Reform are
32° of inclination. Our US favorite, the east-west oriented
turning international eyes toward Mexico. Nájera says the
D-Dome Railless System, forgoes the need for perforations,
company intends to use its Mexico office to address new
decreases the installation cost per watt and increases the
opportunities in Central and South America. “Our local
quantity of panels that can be installed on a limited area as
presence ensures our products are used as they should
well as the electric power output.”
be and comply with the rules and regulations in place,” he says. In most markets, Everest develops its business through
The company also makes a point of using technology to its
local distributors.
advantage, offering Base On, a software solution designed for its D-Dome product. “Based on Google Maps, it allows
Everest has big plans for Mexico, targeting a position among
the user to map out the roof’s edges, obstacles present and
the Top 3 PV structure installers nationwide. “PV ground
shades produced to obtain a blueprint for the design of the
mounts and car ports have great potential in Mexico, but we
PV system,” says Nájera. Once it has the basic data, such
are still weighing our options when it comes to diversifying
as surface area, local wind speeds, number of panels, panel
our business lines,” Nájera says. The company is keeping a
arrangement and roof weight limits, a list of materials and
close eye on new rules and regulations because it strongly
engineering data is automatically generated.
believes UL-certified PV structures must become a market reality as it matures and continues to actively interact with
Weather is another element that can heavily influence the
regulatory authorities in the design of Official Mexican
performance of a PV system. “Mexico has lower winds in
Norms (NOMs) to that end.
177
VIEW FROM THE TOP
SOLVING EVERY LITTLE DETAIL JUAN ÁVILA Director General of Top Energy
178
Q: What makes Mexico an attractive market for distributed
our business outside Aguascalientes but for now, we are
generation?
taking advantage of working and growing in a small city,
A: In Mexico we are seeing a yearly increase in power
which will help us become robust enough to expand with
demand. This, combined with the country’s several free
a stronger foothold.
trade agreements, is encouraging a boom in the installation of distributed-generation projects. Thanks to free trade we
Q: In your opinion, how has CFE evolved since the Energy
can buy solar panels from China, inverters from Germany
Reform?
and DC cables from several European countries, not to
A: CFE is an 80-year-old company and throughout its
mention that we also have the option to either manufacture
entire life it has been the only player in the Mexican
the steel and aluminum structure here or somewhere else,
energy market. In 2013, the Energy Reform brought radical
which significantly decreases CAPEX. As a result, there are
changes for the company and the country. CFE has now
attractive projects in Mexico. The market does not depend
been split into 10 business units. In some cases, offices had
on subsidies, which assures investors that this is a long-
to be divided by a wall because, according to the new law,
term industry.
these new units must be situated in different assets, which created chaos among most of its workers. CFE’s senior
Q: Why did Top Energy select Aguascalientes as its
workforce knows how to get things done but many are
headquarters in Mexico?
starting to leave the company. Now, midlevel employees
A: My partner started Top Energy in Spain but the market
have to fill those positions. Although some have the
was not attractive. Looking into other countries, particularly
same ideology as their predecessors, others have been
in Latin America, he saw a huge opportunity in Mexico
influenced by the new market conditions, which creates
because it is a much bigger market than any other country
a mixture that has been difficult to manage. Looking at
in the region, and it has political and economic stability.
the big picture, it is completely understandable why CFE
His broad expertise in utility projects was also beneficial.
is facing difficulties.
He had managed projects around 2MW, which perfectly fit the Mexican distributed-generation market. In 2013,
Nevertheless, the company is starting to change its mindset
we decided to establish the company in Aguascalientes
and is creating more efficient processes. This is largely due
because I have been living there my entire life so I have good
to the fact that CRE has had a consistent and firm position
knowledge of the possible suppliers, as well as potential
when settling any regulatory issues arising between CFE and
customers. Starting our business in Aguascalientes has
either final users or market participants. When CRE became
been tremendously beneficial. The city is just the right size
involved in the issue of CFE taking too long to interconnect
to offer many opportunities and for networking. We know
systems to the grid, the process went from lasting more
and can have a closer relationship with all our potential
than 20 days to taking only about a week. This is one step
and present suppliers and clients, making any decision-
forward but we have to keep on working on efficiency of
making process faster. In addition, its legal framework is
processes, as that will lead to a fair market that ensures the
more flexible compared to bigger cities, such as Mexico City
correct implementation of the reform. As the net metering
or Guadalajara. We know that to grow we have to expand
and net billing schemes roll out, CRE will have to keep a closer eye on these practices to ensure a fair market. This is also the reason why Mexico must be careful to ensure CRE
Top Energy is a Spanish company created in 2002. It has had a
does its job. If CFE keeps putting up barriers to new players,
presence in Mexico since 2013, with offices in Aguascalientes.
system developers will be tempted to go off-grid and if
Its business is oriented toward the installation of small, medium
the market follows this direction, then CENACE’s efforts to
and large energy systems for self-consumption
create a proper transmission and distribution infrastructure
for the country will not be supported by regular demand.
Another example of our in-depth knowledge of the
Instead, it will have isolated systems.
industry and its processes is the fact that, starting in February 2017 we have seen clients getting charged
Q: Besides the installation of distributed-generation
more than they should. In one specific case, customers
systems, what other areas is Top Energy developing?
with installed solar systems were paying more because
A: In Mexico, there are only 38 companies that work under a
CFE had not updated its IT system nor performed proper
PPA scheme where the company sells energy to off-takers
training for its midlevel employees, therefore resulting
through distributed genertation, and our EnergĂa Real branch
in the amount of energy generated by the solar PV
is among them. Through this branch, we developed the Plaza
system that got injected into the grid being added to the
Arcos project, in which we made an entire shopping center
customer's bill instead of being subtracted from it. We
100 percent renewable. This project will be used as a business
were the first service company to notice this omission and
case for the future expansion of the company. Another of our
we reported it to CRE but as of July 2017 they had not
branches will participate in the long-term power auctions.
been able to work that out. For some clients, the energy
We have two projects in a JV with a company from Uruguay
they inject into CFE’s grid is actually being charged as if
that are ready to be offered to an investor for auctions or
they were consuming it. Even though these issues are bad
PPA’s. This company is providing us strong experience in the
for the country, they have made us stronger, given that
auctions as it has already partnered up to work on projects
our clients usually recognize our capabilities, not only
in Argentina, Chile, Uruguay, Peru and Colombia under that
technical but regulatory as well, and more importantly,
scheme. Although we are entering into utility-scale projects,
because we always support our customers when they
we still consider distributed generation our core business,
have a problem with CFE.
and the niche in which we will grow the most. These strengths are noticed by clients, as they recognize Q: What makes Top Energy the best option for distributed
that Top Energy is a company with in-depth knowledge
generation?
of not only the technical but also the legal aspects of the
A: My associate established Top Energy in Spain in 2011, and
energy market, and they have positioned us as a strong
then transferred the activities to Mexico to take advantage of
company. It has not come over night, but is the result of
the clear possibilities present here. He did not choose Mexico
our hard work and commitment to the market. Our deep
by mere chance; he analyzed the entire Latin American
knowledge of the industry and its processes is one of our
market. Other possibilities were Argentina, Chile and Brazil,
key advantages as a company. We do customer follow-up,
but those proved to be too small compared to Mexico and the
and we are able to identify when customer consumption
market instability in the latter encompassed too many risks.
patterns change so we can advise them to add more
He worked in what was considered utility scale in Spain, but
solar modules to their array or we help them out with
which in Mexico fits perfectly under the distributed generation
energy efficiency measures. By providing these services,
scheme. His expertise developed over the years in Europe
customers not only recommend us, but sometimes they
and our technical capabilities make us experts in distributed
want to buy substations or grow their power capacity,
generation. This expertise led us to win a bid to become the
which requires the kind of legal and technical expertise
developers of a solar calculator to be used by CRE.
we provide.
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INSIGHT
INNOVATION-DRIVEN GROWTH PEDRO GARZA Director General, Mexico City, of Powerstein
180
Smart companies see an opportunity and go for it. But
make them understand the best option for their energy
even in an era of low competition, the successful business
consumption. “This situation produced a boom in the
will have an edge. In 2007, Powerstein, a renewable energy
number of quotations we had to make for angry clients
installer for the residential, commercial and industrial
who wanted to set up off-grid power systems and get
segments, saw the potential for the installation of solar
CFE out of their lives. When we explained that an off-grid
panels and devised a strategy to climb the ranks. It
system could cost up to MX$80,000 compared with only
decided to take advantage of “a niche that almost no
MX$40,000 for a starting interconnected system, they then
other company focused on at the time,” says Pedro Garza,
understood that it was better to pay off any debt they may
Director General of Powerstein in Mexico City.
have had with CFE and then come to us to interconnect a solar system,” he says.
Unlike today's thriving industry, 2007 presented a much different scenario. Competition was lower, the market
Discontent and market resistance driven by bad
was young and the early stages of technologies were a
experiences is not the sole domain of CFE. Garza says
big challenge. Garza says Powerstein decided to focus
private companies have also contributed to the problem
on innovation. “To enter the market, we decided our
by using low-quality products to help drive profits without
competitive advantage would be based on innovation by
having a long-term view of their business. “This situation
introducing micro-inverters to the residential segment,
makes customers skeptical of the technology, making the
where others were using central inverters employed in
adoption of renewables harder. Our goal as a company is to
bigger systems.” He also highlights the importance of
grow with honesty and to always offer the best option that
choosing the correct location to increase the chances of
will exceed our customers’ expectations,” he says. People
success. “The northern region of Mexico was our starting
should also recognize CFE’s effort to become a much better
point because AC's high energy-consumption costs made
organization, which is slowly bearing fruit, Garza points
it easier to implement our energy systems.”
out. Yet, he recognizes that much work is left to be done to ensure a competitive market. “One month is still a long
Although it is common for households to blame CFE for
time for a contract and it could create a level of uncertainty
increases in the cost of electricity, Garza says that CFE
for potential clients.”
has been fighting hard to become a top-level company able to compete against incoming international players.
Beyond CFE, Powerstein’s market opportunities in the
Misconceptions left behind by Luz y Fuerza del Centro are
household sector are increasing, in part because of rising
also hard to overcome. “When CFE took over the entire
electricity prices, Garza says. “The fact that electricity prices
power grid, old metering systems were replaced by digital
keep going up makes people understand that they need a
systems. Luz y Fuerza del Centro did not properly calibrate
better and long-term solution, which is where we come in.
those old meters, so every year they measured less energy
Thanks to this social discontent, our sales are increasing
being consumed. The new digital meters did not have
every year.” While Garza does not put much weight on the
this problem and as bills went up, reflecting real energy
impact of coming presidential elections on the residential
consumption, people got angry because they thought CFE
sector, he does believe that they could influence price
was stealing from them.”
variations, possibly jeopardizing projects for big energy consumers. “The industrial sector invests much more money
This situation convinced ever more customers to switch to
installing renewable energies. This sector is also extremely
distributed generation, but it did not necessarily mean more
dependent on CFE’s fixed prices. To avoid uncertainty, we
business activity. Garza explains how, as more customers
need market-driven pricing that depends on factors that
started to approach Powerstein, it was also hard work to
investors can properly measure,” he says.
VIEW FROM THE TOP
ONE-STOP SHOP FOR PV SYSTEMS MARIO MUÑOZ CEO of Solar Center
Q: What is Solar Center’s unique proposal for Mexico?
Q: How do you choose which brands you integrate into
A: One of our main differentiators is being Mexico’s
your portfolio?
most complete PV distribution center. Our products and
A: Solar Center’s policy is centered on integrating products
solutions portfolio is not only meant for interconnected
for which it has personally visited the manufacturing
PV systems but also for off-grid PV systems, solar
plants. We also hire professionals to monitor the quality
refrigeration, urban lighting systems and solar-powered
of the manufacturing process of the products we order.
water pumping, among other applications. We also cover
Three critical factors are a constant for us. First, the brand
residential solar thermal power products and pool-heating
has to be authorized for import into Mexico. Second, the
systems. We are the country’s only one-stop shop for PV
company must have an excellent reputation and the brand
installers and integrators. Solar Center is backed by 30
should not be distributed by too many suppliers. Third, the
years of experience in PV systems. Our company started
company should be listed on the stock market and have
with two passionate people with an idea for a solar
solid and verifiable financial statements. We also choose
business and became a successful company employing
brands that do not compete directly with each other, always
more than 60 professionals. We strive to see a different
emphasizing product quality. For instance, Jinko Solar is the
Mexico, less dependent on oil and benefiting from a true
major brand in the Tier 1 segment while Seraphim Solar is
energy revolution.
specialized in new PV technology development.
Q: How does Solar Center provide the best solutions in
Q: How can Mexico’s solar market shield itself from low-
PV systems?
quality components?
A: Our 30 years of experience allows us to offer the most
A: By certifying installers and product quality controllers.
complete product portfolio relating to PV systems, as
Installer certification is a must as the quality of the installation
well as training sessions, workshops and weekly online
directly impacts the performance of the PV system. Mexico’s
webinars to make sure our clients are getting the most of
solar market is progressively maturing and we will ultimately
our products and guaranteeing optimal installations. We
reach a point where product quality will be guaranteed
give our clients the tools to become solar experts. Solar
with minimum certification requirements. Low pricing is not
Center also offers a user-friendly online quoting system,
sufficient to guarantee a prosperous business in the long term.
where our clients can consult professional quotes for parts and products for an interconnected PV system in under
Q: What is Solar Center’s vision for the future?
three minutes. We are even adapting this quoting system
A: We expect residential, commercial and projects lower
to be used through a smartphone app.
than 500kW will continue to grow. Operating PV systems in these three segments only represents 3 percent of the market
Q: What key factors make a logistics network efficient?
in Mexico. The country's capacity to absorb utility scale is
A: Logistics is at the core of our business line. Solar
finite, while Mexico’s distributed generation market is ripe for
Center has strategic warehouses located in Guadalajara,
the taking and Mexico’s electricity grid has yet to feel the
home of our parent company, in Monterrey to cover the
impact of such a large and untapped market. DG will continue
northern region and in Mexico City to cover the central
growing parallel to Mexico’s housing and urban sectors.
region. We are about to open another two: one in Queretaro and we are analyzing the possibility to cover Mexico’s southern region with a warehouse located either
Solar Center is a Mexican distributor of PV and thermal
in Merida or Cancun. We have also created strategic
systems with an integrated product portfolio in one place. The
alliances with several reputable logistics companies to
company maintains a high level of stock availability, and offers
guarantee stipulated delivery times.
logistics services and competitive prices
181
INSIGHT
BROAD DG BOOM FOLLOWS YEARS OF CALM LUIS CANO Director General of Grupo Trinova
182
Distributed generation is enjoying broad gains in Mexico
of satisfied customers through 25-year warranties,” Cano
after years of relative quiet, but it still only represents less
says. Grupo Trinova introduced ET Solar’s panels to the
than 1 percent of the country’s total installed capacity.
Mexican market. “We were the first company to offer ET
“Broadly speaking, distributed generation is finally booming
Solar's panels in Mexico. This partnership allowed us to stay
in Mexico after four years of relative calm. This stillness
at the forefront of the latest technological developments in
in the sector can be explained by a political component
solar energy. Our company also maintains a good working
adamant in reducing electricity tariffs, both in the industrial
relationship with Solartec,” he adds.
and commercial sectors,” says Luis Cano, Director General of Grupo Trinova. “This decision rendered investment in
Trinova is also demanding when it comes to choosing
renewable energy alternatives unattractive from a financial
inverters, Cano says. “Quality and reliability were our main
standpoint for these sectors, as the ROI oscillated between
criteria when we chose to work with top-tier companies
eight to 10 years.”
such as Fronius, Kaco and SMA, to name a few.” Trinova’s beginnings in residential solar power paved the way to
Last year, in contrast, CFE started to gradually increase
consolidating its brand for the industrial and commercial
those tariffs, both to stabilize its financial situation and
sectors by installing and maintaining quality-certified solar
to push the industrial and commercial sectors to invest
modules. “In the last four years we have installed 4MW
in renewable energy as a power source. “These increases
of capacity. In 2017 alone, between installed capacity and
represented more than 70 percent of aggregate gains,
pending installations, we added 2.2MW to our portfolio.
compared to the initial tariffs,” Cano says. As such, solar-
You get a great sense of fulfillment when you grow from
powered solutions for self-supply and distributed generation
prospecting 600kW per year, on average, to prospecting
became more attractive. Grupo Trinova became involved in
more than 50MW with a high probability of closing.”
small-scale projects for domestic high-consumption tariffs. “Gradually, our interactions with the market developed into
Quality and regulations in relation to solar panel installations
a capacity to offer products and solutions for the industrial
and products are vital to boost distributed generation, Cano
and commercial sectors,” he adds.
believes. “There is an impressive number of clients that reach out to us, reporting problems and frustrations with
Between 2013 and 2017, CRE reported small and medium-
previous installations carried out by other companies or
scale interconnection contracts increased from 4,613 to
suppliers. We have witnessed everything from low-quality
40,109, respectively. Installed capacity in that period went
products to faulty installations,” he says. “Our industry’s
from 29,131kW to 304,167kW. “In addition to representing a
regulators need to develop a gold standard that ensures
tenfold increase, the fact that the systems are lower voltage
products, processes and installation of solar-power modules
with a capacity of 500kW instills renewed significance. Still,
meet the most demanding international standards.”
much remains to be done,” Cano says. Grupo Trinova is present in Chihuahua, Ciudad Juarez, From 2008 until 2011, Grupo Trinova’s activity was centered
Hermosillo, Culiacan and Mexicali and it is eying more
on market research aimed at developing a product and
locations. “Our expansion strategy rests on associating
service solution for the Mexican market. By that time, PV
with strong and reliable local partners to insert our products
solar-energy costs had dropped significantly, setting the
and services in strategic solar locations,” Cano says. “For
stage for commercial opportunities. “We are personally
2017, we want to close Durango and Torreon, realizing our
committed to the quality of the products we supply and
present ambitions in the country's northwestern region.
install. Our long-term vision guards us from developing a
Guadalajara and the Bajio region are also of interest but we
business of complaints, focusing instead on a track record
must further strategize our insertion method there."
VIEW FROM THE TOP
THE IMPORTANCE OF MONITORING ELECTRICITY CONSUMPTION Miguel Marquina CFO of Marsam Solar
José Marquina Director General of Marsam Solar
Q: What makes Marsam Solar’s proposal unique in Mexico’s
our platform can be extremely detailed, including module
distributed generation market?
temperature, voltage and frequency at any particular
JM: Marsam Solar offers PV systems of the highest quality.
point in time.
We never sacrifice quality standards to reduce prices in any
183
PV project. Our eGauge software for energy consumption
MM: Electricity consumption is all about habits. There is
and production monitoring is an important differentiator.
no general rule. Owners of large homes do not necessarily
This monitoring system is integrated in all the PV systems
consume great amounts of electricity, just as smaller
we install. eGauge enables us to provide added value to
house owners can receive high electricity bills resulting
our clients by detecting potential imbalances between
from squandered consumption. In addition, eGauge helps
what they consume and what CFE charges. As CFE is on
us offer efficient and effective maintenance services
an ongoing campaign to change traditional mechanical
by anticipating any problems our PV systems might be
electric meters to bidirectional ones, measuring mistakes
experiencing with production and provide the proper and
are not uncommon. Our engineering process is complete
expedited assistance required to keep electricity production
and professional. From preliminary analysis to top-tier
as seamless as possible.
simulator-designed engineering, to annual consumption estimates and projections that factor in dust, shadow and
Q: What were the objectives set out for Marsam Solar when
temperature, among others. Our projections are the closest
it launched in 2012? How did you achieve them?
to an actual annual business plan.
MM: 2013 and 2014 were spent analyzing and projecting opportunities and determining if there was a profitable
When distributed generation took its first steps in Mexico,
business behind distributed generation. At the time, local
CFE asked us to assist with training its electricity inspectors
distribution networks were virtually nonexistent and what
in several Mexico City locations regarding effective PV
they charged even impacted our profit margins. It was
installations. CFE’s Trusteeship for Electric Energy Savings
cheaper to import the different components of our PV
(FIDE) is keen to maintain our five-year association as it
system. Those costs, together with market conditions have
has learned much from our energy assessments.
improved over time.
Q: What is the comparative advantage of your eGauge
JM: 2015 was a decisive year, characterized by the alliance
software?
we closed with Bright, our threefold sales increase and
JM: The eGauge software works through a web server
our appointment as the company's main PV system
and can store up to 30 years’ worth of electricity-
installer. This pushed our business considerably forward,
consumption records. We use it to confirm the proper
we learned a lot from this experience and improved our
design and installation of the PV system, as well as its
business model. We grew organically by reinvesting our
satisfactory performance. Over the years, we have found
gains, since we did not have any major capital injection
that as our clients adopted solar power, their electricity
available. In 2016, our sales level remained similar to 2015
consumption habits increased, nullifying the energy
despite the negative impact from exchange rates and the
savings procured by solar modules. Our software helps
US elections.
our clients notice and prevent this behavioral change. eGauge is also decisively helpful in detecting grid-load errors and failures. Our software helps our clients confirm
Marsam Solar is a Mexican company founded in 2012 and
that what CFE charges is coherent with the balance
dedicated to the design, integration and installation of turnkey
between their energy savings from using our PV system
PV systems. These systems range from 1kWp to 350kWp
and their energy consumption. The data generated by
covering the residential, commercial and industrial sectors
VIEW FROM THE TOP
MEXICO IS BIOGAS-READY
Aarón Martínez COO of CIAM Servicios Ambientales
184
Sergio Martínez CFO of CIAM Servicios Ambientales
Q: What is CIAM’s comparative advantage compared to
the first major biogas-based project was launched in
household names like Veolia?
Chihuahua, and it got stalled for two years as the regulatory
AM: Our size allows better customer service. We have
framework was not solid enough to allow the producer to
come across cases where biogas installations use European
trade energy surpluses with CFE. This case sent a negative
equipment, such as Jenbacher or Guascor, to name a few.
message to the biogas market, putting on hold Mexico’s
When this equipment fails, the aftersales services tend to take
biogas industry between 2008 and 2010.
a long time. Our response time is usually no longer than 24 hours, even during holidays. Another advantage is our turnkey
Q: How does developing a biogas project differ from
project portfolio, covering project design, execution, operation
developing other renewable energy projects?
and maintenance. We are sensitive to our clients’ investment
AM: For the farming sector in particular, as a would-be
plans, usually spread over three to four years, where we design
biogas producer, you need permits, land ownership and
the project’s phases based on their financial capability. Also,
readily available manure. The approximate cost for a
our flexibility allows us to meet a client’s particular needs.
biogas-producing system varies between US$300,000 and
Whether they just want equipment advice or only require
US$500,000. There are several additional benefits derived
project design, we can adapt to these specific needs.
from implementing this technology. Primarily, the first step prior to biogas production is to treat residual waters,
Q: How has biogas development in Mexico changed since
enriching it as a natural fertilizer. Also, bio-digesters eliminate
the reform was launched?
manure’s negative externalities like odor and flies. Simply
AM: Originally, biogas expanded thanks to the Kyoto
put, farming production’s vicious cycle turns virtuous.
Protocol’s carbon credits, not from a national clean-energy policy. This allowed the arrival of foreign capital invested
Q: What is CIAM’s long-term objective for the biogas
directly in biogas projects in Mexico to mitigate greenhouse
industry?
gas emissions, as those investments became carbon credits
AM: We are looking to provide the best technical solutions
that could be used in Europe. Between 2005 and 2007, close
for our clients. This means inserting the latest top-tier
to 320 biogas projects nationwide saw the light of day in the
equipment and technologies to our projects to ensure their
farming sector.
success and obtain increased replication. In Central America, our strongest market, we virtually have no competition.
This stepping stone created a window of opportunity to
Mexico is a more complex market given biogas’ standing
capitalize on the generated biogas by directing it toward more
in the energy mix. Our goal is to become the national
energy-efficient mechanisms. Monterrey spearheaded this
reference in everything related to biogas for Mexico and
shift for the rest of the country as it installed the first biogas-
the regional measuring stick for Central America.
based engines to generate energy for self-supply schemes. In Mexico, we hope that our work since we started From a regulatory standpoint, administrative and permit-
operations in 2005 will spur the government to pay more
obtainment procedures are more complex for large biogas
attention to this technology by creating a specialized
projects because CRE is more involved now. For instance,
government agency. This government body could ideally be backed by a federal program or policy. We want to shift the prevalent mindset surrounding biogas by bringing to life
design,
a pilot project on a pipeline to adapt biogas for residential
construction, supervision and works management for Clean
solutions. Also, it is fundamental to raise awareness in
Development Mechanisms and Anaerobic Bio-digestion projects.
general about the benefits and virtuous cycles of this
Their services focus primarily on the agro-industrial sector
particular technology.
CIAM
Servicios
Ambientales specializes
in
the
INSIGHT
SOLAR POWER WIDENS ITS RESIDENTIAL FOOTPRINT RODRIGO PANTOJA Director General of Greentech Ingeniería Sustentable
INEGI’s latest statistics taken from its intercensal poll show
our Mexico City housing project, covering 24 apartments
that in 2015 Mexico had 32 million inhabited houses, of
plus shared areas.” One of the complications Greentech
which only 0.5 percent used a PV system. Technological
Ingeniería Sustentable faced in this undertaking was rooted
developments and the tariffs reached in the long-term
in the automation of CFE. “Our interactions with CFE and
electricity auctions have allowed solar energy to go head-
the need to identify the key parties that had to be involved
to-head with fossil fuel-powered systems but hurdles
to ensure the development’s success was a big part of
are keeping the renewable source from increasing its
our project,” Pantoja says. The solar company’s thorough
residential footprint.
assimilation of the new regulatory framework provided the tools to pave the way for the project’s favorable outcome.
“We now have three interconnection models from which we can offer distributed generation: net metering, net billing
CFE’s amparo against CRE had the potential to make
and wholesale. The last two are attractive options, but as
more than just a dent in the interconnection of PV
they stand, very few contracts have been signed under
systems to the electricity system. “While some companies
these schemes,” says Rodrigo Pantoja, Director General
have seen clients pause investments in renewable energy
of Greentech Ingeniería Sustentable. “The main issue
projects, the overall impact is not significant from a
involves price uncertainty, as local marginal prices vary on
business point of view,” Pantoja says. He points out
an hourly basis. This fluctuation complicates the design of
that ANES has supported Greentech and the rest of the
a long-term financial model aligned with these variations,
associations’ partners by establishing a dialogue with
especially considering that an interconnection contract can
CFE and assessing the possible ramifications of this legal
span the better part of 25 years.” Pantoja considers net
process. “ANES’ feedback was reassuring; the overall
metering to be the most viable option in terms of certainty,
conclusion of their discussion with CFE was that the
particularly because the electricity system’s capacity has
solar business can keep moving forward. In our particular
been increased for inclusion in the net metering model.
case, we closed contracts after the amparo was initiated
“Before, domestic high consumption and commercial tariffs
without any issue, including grid interconnection.” The
were capped at 30kW of electric capacity. Now, those have
remaining challenges have not dampened Greentech
increased to 50kW,” he explains.
Ingeniería Sustentable’s expansion ambitions. “We have installed PV systems for the commercial sector and
PV power must also overcome skepticism regarding
participated in bids from industrial players wanting to
its long-term performance. In addition to the sizable
implement solar-powered solutions.”
investment required and the long ROI period, the system has not been on the Mexican market long enough to make
Applying PV systems to Mexico’s industrial sector is not yet
a case for the durability and reliability of the modules.
economically viable as electricity tariffs for this particular
To tackle these issues and build a solid business model,
segment imply a long ROI after the initial investment. “The
Greentech Ingeniería Sustentable is undertaking several
users under the high-consumption domestic tariff remain
PV solar-power projects with architectural applications.
the most interested parties because the tariff is considerably
“We are placing ourselves at the forefront of Building
higher. We are developing a series of strategies to make
Integrated Photovoltaics (BIPV) in Mexico City,” says
the most of the market’s tremendous growth in Mexico,”
Pantoja. This innovative model was made possible in 2012
says Pantoja. The market’s dynamism demands the design
by the publication in Mexico’s Official Federal Journal of a
of adaptive and effective strategies. “We are confident that
law related to the Collective Contract Model for Residential
there are bright days ahead for distributed generation in
and Commercial Systems. “We are the first company to
Mexico as PV solar systems become increasingly cost-
install an operating and functional PV collective system in
effective,” he adds.
185
PV solar system
186
INSIGHT
BOUTIQUE CONSULTANCY SERVES THE ENERGY INDUSTRY ROGELIO NOCHEBUENA COO of SERAM BC
A newly opened energy industry means opportunities in
talks about potential projects involving wind power, and
infrastructure development. But Rogelio Nochebuena, COO
small hydroelectric and waste-to-energy technologies.
of environmental consultancy SERAM BC, says care must also
“We want to capitalize on our large network of private
be taken to minimize the social and environmental impact
landowners and ejidatarios so we can be involved in the
from these activities. “It is imperative that the locations chosen
early stages of these projects, evaluating location and land
for the development of renewable-energy projects do not put
potential, conducting social and environmental impact
endangered species — wildlife and vegetation — at risk,” he
assessments and measuring power-line capacity in these
says. “While desert landscapes are rugged, their environment
particular locations as well as interconnection rights of
can be easily disrupted by human activity, entailing negative
way,” Nochebuena says.
ecological consequences.” Over the years, SERAM BC developed a foothold in the Due to its position, high irradiation levels and strong wind
educational and agricultural sectors. “The former is particularly
generation capabilities, Baja California has become a popular
strong in Baja California and we help reduce lighting costs by
destination for renewable developers. In this jurisdiction,
developing solar farms,” Nochebuena explains. “We focused
Nochebuena says some problems have arisen pertaining to
on the latter industry because farms are located far from
wind power developments in which the communities were
power lines. Most of these farms use diesel generators, which
not involved. “Smart developers create conditions in which
are expensive.” The cost of these engines can vary between
community members take equity stakes in the projects,
MX$3.2-3.5/kWh, according to Nochebuena. “Using our
however small,” he says. “Not only do they generate a steady
solutions to generate electricity in situ widens profit margins
extra income but they prevent disruptions and guarantee a
and makes businesses more competitive.”
smooth development process for projects.” SERAM BC wants to establish itself as a niche player, and a Another way to mitigate environmental and community issues
boutique organization in the renewable-energy industry, while
is to secure the required land and interconnection permits,
simultaneously strengthening Mexico’s supply chain. “We
and to conclude effective environmental impact assessments
have the expertise and capacity to work across the sector’s
from the outset, says Nochebuena. “If the steps are followed
different fields. We also want to see more local content in
correctly, financing pours in,” he says.
projects,” Nochebuena says. The door to renewable energy is open for business but that also means that big players are
One of the biggest issues in Mexico for renewable energy
coming to collect the fruits of the reform. “The comparative
projects is obtaining capital. To address this, SERAM BC
advantage of smaller boutique service players like SERAM
entered a strategic partnership with EnCap, a well-established
BC is our better understanding of Mexico’s market dynamics.
developer in the US, with 600MW of installed capacity. “We
We intend to fully capitalize on this asset and generate a
created a symbiosis between EnCap’s global knowledge and
positive impact by developing small, medium and even large-
capital and SERAM BC’s local expertise,” says Nochebuena.
scale projects through partnerships.”
This alliance, paired with Baja California’s favorable geography, revealed a niche market for SERAM BC in energy trading
SERAM BC already had a foothold in Baja California’s energy
between Mexico and the US. “The fact that our northern
market prior to the reform, which gives the firm another
neighbor’s energy projects can take up to four years to reach
advantage. “Our network of local partners and associates
operational phase makes energy trading an attractive option.”
are deeply embedded with the state's regulatory framework and they maintain amicable relationships with local
Although the consulting firm’s background is in solar
landowners,” he says. “Every key element for a successful
power, SERAM BC is not limiting its activities and is in
project is already integrated into our business line.”
187
INSIGHT
ADDED VALUE: THE IRONCLAD STRATEGY FOR DISTRIBUTED GENERATION FRANCISCO SEPÚLVEDA Director General of Eco Ener
188
Mexico has a richness of resources it could harness to
the product’s performance is seamless over the long term,
produce energy that requires no digging or drilling. You do
these three ingredients will lead to a boom in distributed
not even have to look hard to find it. “There are news reports
generation in the country.”
that Mexico has a fossil treasure buried deep underground in the Gulf of Mexico. The real treasure is radiating across the
Eco Ener only works with brands such as LG, Sharp, Jinko Solar
country, hazard free and without the exorbitant investment
and Bornay. Not only is the manufacturing guaranteed and
inherent to the oil and gas industry. This solar richness is
certified but the company also has technologies allowing the
free, clean and it asks only to be harvested from the sun and
real-time monitoring of the aggregate performance of a solar
connected to the grid,” says Francisco Sepúlveda, Director
system, module by module. This advanced monitoring system
General of Eco Ener, a Mexican provider of distributed
also measures total electrical energy used by the customer,
generation systems and products working on PV, thermal
and calculates the net electric power purchased from CFE.
and small wind technologies.
“Our strategy can be summed up in two words: added value,” adds Sepúlveda. “Our experience in the residential sector
Eco Ener’s business line is around 60 percent based on
shows that it all comes down to price. More often than not,
commercial and industrial applications of technologies such
such a mindset overshadows the quality factor, resulting in a
as solar panels, wind turbines, energy monitoring systems
bad name for renewable energy in general, and solar power
and lithium-ion batteries. The remaining 40 percent is
in particular. In general terms, we provide more value with an
residential, focused on the high-consumption residential
energy-efficiency analysis platform.”
rate. “If we were to compare them, high-consumption residential has a shorter ROI than industrial or commercial,
Distributed generation, a scheme in which independent
because those function under different rate levels,” says
generators of renewable energies can sell their surplus
Sepúlveda. “The appeal of distributed generation for the
to CFE, has gotten off to a bumpy start. “The reform has
industrial and commercial sectors lies in energy savings
undoubtedly been helpful, even though the pace of growth
and implementing peak-shaving systems. The amount of
in distributed generation is slower than in other sectors,”
energy purchased from CFE during peak demand hours is
says Sepúlveda. “The industry is open to utility-scale projects
reduced, when electric power pricing is at its highest. Our
backed by a regulatory framework that was still missing until
goal is to consolidate our business portfolio largely toward
the first long-term electricity auction took place in March
the industrial and commercial sectors.”
2016. The long-term electricity auctions are the reform’s big surprise because they have resulted in highly competitive
For the residential sector, Eco Ener offers credit card-based
prices. We have to use these positive aspects and increase
financing solutions of six to 12 months or negotiates the
awareness because the kWh tariffs CFE is committed to
lease of equipment. For larger projects, the company is
deploying are cheaper than other nonrenewable resources.”
working with a Puerto Rican investment fund. Energy trading is another option the company is exploring but
Despite the market opening, smaller businesses are still
it is still waiting for clearer and definitive rules in this
finding it hard to scale up to the level necessary to partake
segment. “We believe that costs will continue to come
in larger projects. “SMEs are set to grow from the high-
down as Mexico’s renewable energy market maximizes its
consumption domestic-users segment to commercial
continued growth,” says Sepúlveda. “Alleviating aftersales
and industrial projects but they are still struggling to get
concerns is our top priority so our clients will know that
a foothold,” observes Sepúlveda. “Banks and financial
they can install our products, use our services and not worry
entities have their sights set on utility-scale projects, to
about performance for up to 10 years. When our clients
the detriment of ambitious SMEs, which have yet to find
start seeing costs are manageable, financing is available and
easier access to proper financing instruments.”
INSIGHT
CHALLENGE MATCHES REWARD IN DISTRIBUTED GENERATION JAVIER ROMERO Director General of Eco Housing
The Energy Reform has sparked a boom in the distributed-
The steady growth in the residential segment is reflected in
generation sector. But CFE’s industrial OM and HM tariffs
Eco Housing’s performance. It completed five installations
continue to hinder net metering in the medium-voltage
per month in 2017 compared with just 12 in its first year of
power sector. Solar power’s benefits remain overlooked by
operations. “We started five years ago and business has
the industrial sector as PV systems’ ROI periods for high-
doubled on a yearly basis,” says Romero. “Thanks to our
consumption domestic tariff users are shorter than those for
work in residential PV systems, we have been able to pierce
the industrial segment, halting the progress of distributed
the commercial and industrial sectors.” He underlines that
generation for that particular electricity-consumption
the regulators' new rules, including CELs and trading energy
segment.
with CFE, have played a key role in that process.
“The reform has underpinned the distributed generation
While Eco Housing does not provide leasing services to
sector,” says Javier Romero, Director General of Eco
clients, the company knows that it makes more sense for
Housing, the residential-focused division of distributed
customers to make direct purchases because of shorter
generation systems supplier and installer Eco Value.
payback periods. “Leasing in distributed generation is
“Despite the fact that the new regulation includes net
attractive for customers because it requires zero investment
metering, net billing and energy trading schemes, we are
in PV equipment,” says Romero. “But we have realized that
still focusing on basic net metering contracts.” While the
potential clients prefer to directly purchase solar equipment
previous net metering scheme was still in place, a portion
and have a four-year ROI than signing a 15-year leasing
of the private sector was hastily installing distributed-
contract without final ownership of the equipment.”
generation systems and drafting contracts, he says. The company projects that the most adequate scheme for OM
Eco Housing offers four guarantees in the residential
and HM tariffs will be net billing.
distributed generation market. First, if the company does not deliver on the stipulated date, it covers the electricity
Romero says that verification units are another important
costs for the time it took the company to deliver.
factor as they are in place only for medium voltage and have
Second, Eco Housing offers a yearly PV production-
limited availability. “Extending these units to low-voltage
cycle guarantee. If the solar modules fail to produce the
installations would be extremely beneficial because it would
guaranteed amount of electricity, Eco Housing covers
ensure residential-level PV-powered installations are done
the difference plus an additional 10 percent. Third,
correctly and reflect well on the industry.” He underlines
Eco Housing’s installations are guaranteed for three
that CFE’s effort to replace old electricity meters for low
years. And fourth, the company guarantees its clients
voltage systems with top-tier smart meters to facilitate
representation before CFE when needed.
a mainstream net metering practice has worked to Eco Housing’s benefit.
According to Romero, Eco Housing’s business line
The company’s parent, Eco Value, is focused on the industrial
Pathfinder and Helioscope. “These hardware and software
and commercial markets. It oversees high volume water-
solutions provide us a clear picture of the solar map of any
heating systems and has alliances with companies that
particular location,” he says. “We can merge factors that
specialize in water treatment, recycling and green terraces.
could impact PV electricity generation over the course
“Our expertise, at the end of the day, is in PV solar-power
of a year, including obstructions, shadows, temperature
systems and the residential market,” he says. “We created
variations, module orientation and inclination.” This
the Eco Housing brand to focus solely on this segment.” Eco
enables the company to accurately calculate and estimate
Housing is Eco Value’s most commercial brand.
energy production.
integrates three solar meter models: Solmetric, Solar
189
ROUNDTABLE
HOW CAN COMPANIES PROVIDE HIGH QUALITY IN THE COMPETITIVE DG MEXICAN MARKET?
The boom in energy distribution services in Mexico is unquestionable. With 186,628kW installed from January 2016 to June 2017, this 18-month period represented the installation of 62 percent of the total during the last 10 and a half years. According to CRE, this trend will lead to an exponential increase in installations that is expected to reach over 6GW of accumulated capacity by 2023. With a boom in place and many new companies arriving, what is the differentiator that will drive success in the market?
SEM started out as a PV systems inspection company for private clients. As demand
190
for our services increased, we noticed a financing gap. We created an investment fund specialized in financing solar energy projects for distributed generation applications. This new development led us to where we are now: installing PV systems while simultaneously financing them. We offer a seamless energy transition, with no bureaucratic hindrances and no costly initial investments. The rising demand for
DANIEL SEPÚLVEDA Director General of Soluciones Energéticas México (SEM)
PV systems under a distributed generation scheme was paired with interest from individuals in investing in this technology, but there was no tool available to those investors. Our need to finance our PV systems coupled with investor interest created the perfect storm. We integrated this investment platform into our website both as an additional service within our portfolio and as a source of capital.
Our experience in the residential sector shows that it all comes down to price. More often than not, such a mindset overshadows the quality factor, resulting in a bad name for renewable energy in general, and solar power in particular. Eco Ener only works with top-tier brands in terms of quality. The industrial and commercial sectors are ideal for showcasing this quality and are very receptive to our experience and expertise. Not only is the manufacturing guaranteed and certified but we can also
FRANCISCO SEPÚLVEDA Director General of Eco Ener
monitor in real time the aggregate performance of a solar system, module by module. Our advanced monitoring system also measures total electrical energy used by the customer, and calculates the net electric power purchased from CFE. In other words, we provide more value with an energy-efficiency analysis platform.
We offer four guarantees we believe to be unique in the residential distributedgeneration market. First, we deliver on the stipulated date or we cover the electricity bill generated in the extra time it took us to comply. Second, we offer a yearly PV production-cycle guarantee. If the solar modules produce less electricity than what we guaranteed, we cover the difference plus an additional 10 percent. Here is where our monitoring technology and software comes in handy, because
JAVIER ROMERO Director General of Eco Housing
it tells us with absolute precision how the modules are behaving. This in turn helps us design corrective measures when necessary. Third, our installations are guaranteed for three years. Finally, we guarantee our clients representation with CFE when needed.
Trinova is invested in and committed to the quality of the products we supply and install. Our long-term vision is our safeguard against complaints, instead creating a platform of satisfied customers through 25-year warranties. Trinova is also very demanding when choosing inverters. Quality and reliability were our main criteria when we chose to work with top-tier companies such as Fronius, Kaco and SMA, to name a few. Trinova started by penetrating the residential PV market, which paved the way toward consolidating our brand in distributed generation for the industrial and commercial sectors, becoming a reference in installing and maintaining quality,
LUIS CANO Director General of Grupo Trinova
certified solar modules. Since 2013, we have installed 4MW of capacity. This year alone, between installed capacity and pending installations, we added 2.2MW to our portfolio.
We do not expect there will be a single dominant company across the entire Mexican
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market any time soon. Instead, we see the residential and small commercial markets divided by regional champions and players servicing particular types of clients. Regional division means it will not be profitable for companies to venture into areas where another company already has a strong presence and client recognition. Some companies will differentiate with higher up-front costs but better service and others will offer cheaper prices at the expense of higher future risk. We are already starting to see these divisions and although the market is now growing, we expect to see a crunch in a couple of years,
SEBASTIÁN RAMÍREZ Director of Vivesolar
with lots of consolidation. This does not mean the market will shrink; in fact, sales will be much higher than today, but it will become so price competitive that only a few companies will survive, and even those will have marginal profits.
Bright is usually thought of as a solar installation company but in reality, it is a software company. We are building a software platform to allow everyone working in solar to be efficient, cost-effective and to scale up operations as fast as possible. We partner with local installers, suppliers and entrepreneurs as well as with international manufacturers so they can act together with local players and install the solar equipment. Our sales partners are comprised mainly of student ambassadors who promote and sell the technology, so the entrepreneurs and installation partners can provide the solution. Bright’s software connects all these pieces together. Instead of
JONAH GREENBERGER Co-Founder of Bright
just being a single-service provider, Bright is a full-service provider that integrates all these services to make an efficient and customer-oriented solar system.
It is hard to convince corporate entities of the value of thermal solar technologies because these are still in their infancy in Mexico. When technical and economical justifications go hand in hand, you have the ideal scenario for a corporate behavioral shift and greater acceptance of newer technologies like thermal solar applications. We are convinced that solar thermal has great potential application opportunities in Mexico, given the low number of companies that use it. For instance, the pharmaceutical industry could benefit greatly as it constantly requires high-temperature systems that solar thermal technology can provide. Large companies seem to prefer PV systems, which have a longer track record, despite the fact that it is costlier and that the timeframe for recovering ROI grows threefold compared to solar thermal.
FABIAN GARCÍA Director General of Savesolar
THE ROOTS OF CHANGE
In 1937, CFE took its first steps as a state-owned company charged with delivering electricity as a public service. Yet it had no transmission or distribution lines. Today, CFE’s transmission and distribution grid total more than 100,000km and 800,000km nationwide, respectively. In its infancy, the company had close to 100,000 clients. Today, it has more than 42 million.
During the eight decades of CFE’s existence, the company set out to secure the country’s electricity supply, extending its reach to the most remote locations and guaranteeing a stable baseload for the country’s development. Now, it is tackling a new set of challenges, posed by the competitive nature of the country’s energy market and the imperative of an increased, renewable and modern energy infrastructure.
To know where you are going, you need to understand where you come from. CFE’s 80th anniversary in 2017 in the context of a drastically changed energy paradigm is an opportunity to reflect on the milestones CFE has achieved since its inception and how the country’s disruptive changes within the electricity industry offer it a new set of opportunities and challenges ahead.
CFE AT 80: THE ROOTS OF CHANGE
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August 1937
CREATION OF THE FEDERAL ELECTRICITY COMMISSION CFE is created with the objective of organizing and directing a national electric power generation, distribution and transmission system. At its inception, CFE only had a federally assigned budget of MX$50,000 and 15 employees.
CFE AT 80: THE ROOTS OF CHANGE
April 1938
CONSTRUCTION OF THE IXTAPANTONGO HYDROELECTRIC PROJECT Work begins in the municipality of Valle de Bravo, State of Mexico. This project, which did not have assured economic resources, was one of the most ambitious at the time. It also entailed a high degree of difficulty for the Mexican technicians who did not have previous experience in this type of work.
195
CFE AT 80: THE ROOTS OF CHANGE
196
September 1960
NATIONALIZATION OF THE ELECTRIC INDUSTRY President Adolfo López Mateos announces the acquisition of foreign companies that generate electric power. An initiative is also launched to add a paragraph to the Constitution's Article 27 that states that “to generate, conduct, transform, distribute and supply electric power that has the purpose of providing public service corresponds exclusively to the nation.”
CFE AT 80: THE ROOTS OF CHANGE
1972
FOUNDATION OF THE SINGLE UNION OF ELECTRICIANS OF MEXICO
The Sindicato Único de Trabajadores Electricistas de la República Mexicana (SUTERM) is today the largest union organization in the country, with more than 74,500 associates.
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CFE AT 80: THE ROOTS OF CHANGE
1990
COMMISSIONING OF THE FIRST GENERATION UNIT OF THE LAGUNA VERDE NUCLEAR POWER PLANT The only nuclear power plant in the country, located on the coast of the Gulf of Mexico, generates over 5 percent of the electric power consumed by CFE’s customers.
CFE AT 80: THE ROOTS OF CHANGE
CONSTRUCTION OF LARGE-SCALE HYDROELECTRIC PLANTS In the 1960’s, CFE began building dams on a large scale to take advantage of the country's vast hydroelectric potential. The first major project was Infiernillo, in the Balsas river, which began operations in 1965 with a 148.5m curtain and a capacity to produce 672MW. This project was followed by Malpaso (720MW, in 1969) and Chicoasén (2,400MW, in 1980).
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CFE AT 80: THE ROOTS OF CHANGE
200
1993
REFORM OF THE PUBLIC SERVICE OF ELECTRIC ENERGY LAW Before this reform, the state was the only public electric-power service provider. The reform allowed private participation in different modalities of generation including independent producer, self-supply, cogeneration and small producer. The first independent was the Valladolid Combined Cycle Power Plant, located in Yucatan. This effort represented a 35 percent increase in CFE's generation capacity.
CFE AT 80: THE ROOTS OF CHANGE October 2005
EMERGENCY ASSISTANCE: HURRICANE WILMA CFE’s Disaster Assistance Plan is one of its great strengths and among the best practices within the global electricity industry. An example was Hurricane Wilma, a category 5 storm that hit Cozumel, Quintana Roo, and caused the greatest damage in Mexico's history: US$1.8 billion in economic losses. Sixty-three people died. CFE technicians restored electricity service in just 12 days, after reinstalling 4,676 electric posts and 2,015 fallen towers.
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CFE AT 80: THE ROOTS OF CHANGE
March 2007
202
INAUGURATION OF THE LA VENTA II WIND POWER PLANT The first CFE wind farm in Oaxaca is inaugurated with 98 wind turbines and a capacity of 83.3MW.
CFE AT 80: THE ROOTS OF CHANGE November 2008
CONSTRUCTION OF THE GRIJALVA RIVER WATERWAY In one of the country's most precise and risky engineering projects, CFE built a waterway in just 30 days and with more than 1,000 workers to open a path in the Grijalva River that was obstructed by the fall of a large slope of land. This effort safeguarded the surrounding populations as well as the dams along the Grijalva River, which is the largest river in the country. 203
CFE AT 80: THE ROOTS OF CHANGE October 2009
CONTROL OF THE CENTRAL REGION Given the need to modernize an electrical system in the central region of the country that was insufficient to supply new companies and industries, Luz y Fuerza del Centro was liquidated by presidential mandate. This represented a great challenge 204
for CFE, as it meant taking over the control of the electric power service for 6 million new customers overnight.
CFE AT 80: THE ROOTS OF CHANGE
The enactment of the Energy Reform modified Constitutional Articles 25, 27 and 28, which are
December 2013
ENACTMENT OF THE ENERGY REFORM
focused on energy matters. These reforms established that the planning and control of the National Electricity System as well as the distribution and transmission of electricity would be carried out by the Mexican government. PEMEX and CFE became stateowned productive companies that would participate in power generation activities like any other player.
205
CFE AT 80: THE ROOTS OF CHANGE
206
January 2016
THE TERMS AND CONDITIONS OF THE STRICT SEPARATION OF CFE ARE PUBLISHED CFE is separated into 15 different companies: a corporate, six powergeneration companies, a company for distribution purposes, another for transmission lines, one for basic supply, four subsidiary companies and a nuclear generation business unit.
CFE AT 80: THE ROOTS OF CHANGE January, 2016
OPERATION OF THE WHOLESALE ELECTRICITY MARKET
For the first time in the national electricity sector, private companies and CFE compete in the market, through auctions, to sell and buy energy. CFE’s participation in the new market is focused on the generation sector.
207
CFE AT 80: THE ROOTS OF CHANGE
June, 2017 208
CFE REACHES 41 MILLION CLIENTS At the beginning of CFE’s operations in 1937, 38 percent of the population had access to electricity services. At the end of June 2017, CFE supplied electricity services to a total of about 41.51 million customers throughout the country. This translates into nationwide coverage of nearly 98.5 percent of Mexico’s population.
CFE AT 80: THE ROOTS OF CHANGE CFE CORPORATE ORGANIZATION STRUCTURE Jaime Hernández Director General Subsidiaries CFE Generación I: Production and commercialization of electricity through different technologies, excepting supplying activities. CFE Generación II: Production and commercialization of through different technologies, excepting supplying activities.
Manuel Pérez Director General
Ignacio Carrizales Director General
CFE Generación III: Production and commercialization of electricity through different technologies excepting supplying activities.
Guillermo Virgen Director General
CFE Generación IV: Production and commercialization of electricity through different technologies, excepting supplying activities.
Juan Antonio Fernández Director General
CFE Generación V: Represents existent and upcoming power plants with legacy IPP contracts.
Humberto Peniche Director General
CFE Generación VI: Production and commercialization of electricity through different technologies, excepting supplying activities.
Víctor Cárdenas Director General
CFE Transmisión: Performs all the activities needed to provide electricity transmission services, included financing, O&M and infrastructure operation.
Noé Peña Director General
CFE Distribución: Performs all the activities needed to provide electricity distribution services, included financing, O&M and infrastructure operation. (Divided in 16 business units)
Roberto Vidal Director General
CFE Suministrador de Servicios Básicos: Supplies electricity services to basic users according to the terms of the Electricity Industry Law.
José Quiñones Director General
Business Unit Business Unit Nuclear Generation: Manages Laguna Verde, Mexico's only nuclear power plant, located in Veracruz. Affiliates CFE Calificados: Supplies electricity services to qualified users according to the terms of the Electricity Industry Law. It also represents Exempted Generators in the MEM and commercializes electricity and ancillary services in Mexico and abroad. CFE Intermediación de Contratos Legados: Administrates legacy interconnection contracts and represents legacy power plants and load centers in the MEM under the Intermediary Generator figure. CFEnergía (under Mexican law): Imports, exports, contracts transport and storage, and buys and sells fuels in Mexico and abroad. It also administrates assets and fuels and participates in the electricity market of Mexico and other countries. CFE International (under US law): Imports, exports, contracts transport and storage, and buys and sells fuels and electricity. Source: MBP with information from CFE
Katya Somohano Director General
Manuel Riwes Director General
Guillermo Turrent Director General
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Construction of a waterway on the Grijalva river, Chiapas
PROJECT DEVELOPMENT
8
As prices achieved in Mexico’s long-term electricity auctions become lower after every auction, the task of project developers is becoming increasingly challenging due to their obligation of achieving ever-lower prices that come hand in hand with the completion of projects on time and on budget. This task is not only limited to companies working on projects resulting from the long-term electricity auctions, but to the whole industry as the market becomes increasingly competitive with more players looking to get a share of Mexico’s energy generation opportunities, be it in the residential, commercial or industrial sectors.
Although the adoption and implementation of international best practices together with the maturation of the legal framework surrounding the Energy Reform are two factors that have allowed project developers to remain in the game, there is still much to be done to ensure that both national and international players find Mexico to be a safe bet for their investments.
Some of the themes discussed in this chapter include Mexico’s transition from a single to a multi-player market, the untapped opportunities and new requirements and technology developments expected to improve energy generation.
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CHAPTER 8: PROJECT DEVELOPMENT 214
ANALYSIS: Projects Done Right
216
VIEW FROM THE TOP: Raúl Solís, NAFIN
217
INSIGHT: Marian Aguirre, Bancomext
218
INSIGHT: José Delgado, SUNCO Capital
219
VIEW FROM THE TOP: Carlos Michel, Fondo de Fondos
220
Project Spotlight: Social Commitment to Keep Projects Going
222
VIEW FROM THE TOP: Paul Abitante, Invenergy
Jaime Burguete, Invenergy
224
INSIGHT: Andrea Bernardi, Enerray
225
INSIGHT: José Arosa, IC Power
226
VIEW FROM THE TOP: Luis Sánchez, ErgoSolar
227
VIEW FROM THE TOP: Joachim Goldbeck, Solarnet
228
VIEW FROM THE TOP: Ramón Rico, Prodiel
229
VIEW FROM THE TOP: Victoria Contreras, Conecta Cultura
Alberto Moreno, Conecta Cultura
231
VIEW FROM THE TOP: Raúl Romero, RDA
232
INSIGHT: Hugo Galindo, Grenergy Renovables
233
VIEW FROM THE TOP: Julian Rojas, Goldman and Berkeley
234
Sidney Lebaron, Goldman and Berkeley VIEW FROM THE TOP: Fernando Sánchez, Soltec José Mendoza, Soltec
235
INSIGHT: Patricia Tatto, ATA Renewables
236
INSIGHT: Teodoro Krapp, Intertec Mexico
237
INSIGHT: Gustavo Galaz, Ftech
239
INSIGHT: Ernesto Monroy, AI Sustentable
Miguel Jiménez, AI Sustentable
213
ANALYSIS
PROJECTS DONE RIGHT Mexico’s energy infrastructure will require an approximate investment of MX$2 trillion by 2031 to bring the country to the level it needs to cope with future energy demand, according to PRODESEN 2017-31. Under this scenario, the opportunities for those willing to take the challenge are clear Considering that electricity prices will decrease in the
Founder and Director General of Conecta Cultura, “Prior
coming years, as shown by the prices achieved during the
to the reform, social feasibility was exclusively in the hands
first three long-term electricity auctions in which prices
of CFE and PEMEX. Now, it falls to private companies as a
plunged from one to the other, excellence in project
niche they are not naturally focused on.”
development to finish projects on time and on budget is a must.
It is not at all different for clean energy developers. These may have the backing of energy consumers, but they
214
Until recently, project development was managed
still must also handle the communities affected by their
centrally by CFE, which was able to focus solely on
installation. One of the clearest examples is La Ventosa, a
energy generation at the expense of value creation. This
wind farm project that suffered long delays that almost put
has created a business opportunity for those willing to
it in jeopardy due to a wrongly managed social element,
take the challenge of developing the required projects
says Gabino Fraga, Managing Partner at Grupo GAP.
at a competitive cost in the recently opened market.
“Negotiations were carried out with the wrong people,
Companies looking to grab untapped opportunities in the
which led to nonconformities and an abrupt halting of the
project development area in Mexico will have to overcome
project.” He highlights the importance of handling social
three main challenges: social and environmental, financing
aspects in a way that ensures the communities where
and a pressing need for skilled talent.
the project will be carried out see it as a benefit and not as a burden. “Companies believe that because they will
ACHIEVING A READY-TO-BUILD STATE
create jobs and bring investment they will be received with
The first, and most controversial, is the social and
arms wide open, but the community where the project
environmental challenge. According to PRODESEN 2017-
will take place may actually see them as dangerous.”
31, 47 percent of the capacity to be installed will use
Ernesto Monroy, Director General of AI Sustentable, agrees.
fossil fuels, which inherently lead to significant social and
“Marginalized populations tend to be afraid because of
environmental concerns. Although PEMEX and CFE have
the many misconceptions regarding renewable energy
developed strong expertise in dealing with these issues,
projects.”
newcomers will require project developers to adhere to stronger corporate responsibility requirements that are
Wind is the clearest example due to the fact that more
up to international standards, explains Victoria Contreras,
projects have been installed since the market became more flexible and private companies were allowed to
EXPECTED INVESTMENT IN THE MEXICAN ENERGY
Expected on the SECTOR,investment PER ACTIVITY FOR 2031 Mexican energy sector, per activity
offer PPAs to big energy consumers, but hydroelectric is another technology that has faced delays when being deployed due to social and environmental reasons. As more projects are developed with solar and geothermal technologies, these will also have to be properly managed. CRE has worked with SEMARNAT to ensure that communities involved in these projects get the best
MX$ billion
2,039.89
positive outcomes, along with the rest of the population that will consume clean energies, but Monroy explains that there is still much to be done. “Despite best efforts, there is still room for improvement in the legal framework surrounding the Energy Reform in the area of social and environmental responsibility.”
Other ACTIVITY
cleanMX$ energy BILLION
81% Generation 11% Transmission Renewables 8% Distribution Fossil Fuels Source: Ministry of Energy
1,655.22 219.46 165.21
MAKING MONEY The second hurdle is financing, and the ability of project development companies to make money out of a project. When CFE was in charge of developing projects, the
needed capital came from the Ministry of Finance, meaning
a must if Mexico expects to become a project development
that private banking was out of the picture and the projects
powerhouse. “Mexico’s institutions will have to provide a
were completed according to CFE’s mission of delivering
transparent and clear framework to make Mexico a desirable
continuous energy supply to the greatest number of people
investment destination for developers in the long term.”
in the country, no matter the cost. Now, projects are to be developed by and for private companies, meaning that
WHO WILL DEVELOP THE PROJECTS?
private capital will play an increasingly significant role.
Finally, Mexico faces a lack of talent, considering the strong need for readily available human capital to develop
The Mexican banking and investment sector never had to
all the energy generation projects that will launch in
finance energy generation projects before, and they are
the coming years. This challenge has the same roots as
not prepared to meet the deep investment needs of the
that of financing. Because CFE and PEMEX were the
country, which is expected to go as high as MX$2 trillion
only players in the country, engineers had no need to
by 2031, according to PRODESEN. Under this scenario, the
benchmark themselves against international standards,
presence of development banking is needed to pave the
and every graduate looking to work in the energy sector
way for private banking to start offering financing options,
went to one of those companies. “The sector needs
says Marian Aguirre, Energy Finance Vice President of
trained professionals throughout the whole value chain,
Bancomext. “We are aware that commercial banks have
from installation technicians to project developers and
a more complicated setting in which to absorb risk levels,
engineers,” adds Sánchez.
which is why we provide A/B loans so they can participate via shorter time frames, considering some banks have term
The real challenge, however, is not finding human capital, but
limitations.” The commitment of the development banking
talent that is willing and able to take responsibility, Sánchez
sector in the energy industry is reflected in the fact that
argues. “Proper regulations and certifications need to be
Bancomext, NAFIN and Banobras invested MX$48 billion
in place to further enhance the preparation and training of
in this sector during 2016.
renewable energy experts.” Fortunately, some companies are not only working on the improvement of their own
But development banking has a limited budget. With
human capital, but also to improve the talent still studying
the number of projects increasing after every long-term
at Mexican universities. Universidad del Istmo, because of
auction, and more coming with the first midterm auction
its closeness to the majority of wind farm projects being
to be held on Feb. 26, 2018 and off-takers looking to get
developed in Oaxaca, is among the universities that has
a stable source of energy through distributed generation,
received strong support in this regard. “The university is
companies will have to look for other ways to finance their
creating a strong department for renewable energies and
projects. Some are looking for support from international
has started to work on the design of complex parts for wind
partners. Others, like Andrea Bernardi, Country Manager
parks,” says Julio Ramírez, Managing Director of Mexión,
Mexico of Enerray, are seeking more innovative solutions.
which works with the school. “Although the university’s
“One of the opportunities we have identified is offering
activities in the field are just starting, we see it as a first
customers, such as qualified users, off-takers, generators
step that could bring much more attractive opportunities
and other investors, the possibility to get energy by
later on.” Peter Tattersfield, Independent Consultant of Axis
investing in the development of a certain utility-scale
Renewable Group, is following a more direct approach.
plant together with other customers, and then offering
“We have started conversations with the Universidad del
the customer a portion of the energy generated that is
Istmo, which has developed programs to train technicians
proportional to the customer’s investment. Under the old
in an academic environment. When they graduate, we hire
EPC scheme, a utility-scale project of 100-200MW would
them and put them through an internship.” If the graduates
restrict us to only one client. Now, with that same plant we
show they have the required skills and abilities, they are
can tackle many more clients. This project will also offer us
then eligible for full-time employment.
a constant supply of capital for several years.” As human talent gets developed, companies will face With more players in the industry and more experience,
another challenge: retaining that talent, says Kevin
the outlook for financing energy projects is improving but
Gutiérrez, former General Manager of Ingeteam.
there is still much to be done to ensure that every project is
“Companies that hire a worker will offer specialized training
bankable, says Luis Sánchez, Director General of Ergo Solar.
and will try to develop that person’s abilities within the
“When we started this business, there was a lack of financial
company. As the worker advances, that person will become
structures for renewable energy. This element remains the
more and more appealing to other companies that are
Achille’s heel for many companies.” According to José Arosa,
just entering the market and that might be willing to offer
Director General Mexico of IC Power, solving this challenge is
bigger economic incentives.”
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VIEW FROM THE TOP
STRUCTURING PROJECTS FOR SPECIFIC APPEAL RAÚL SOLÍS Deputy Director of Investment Banking at NAFIN
216
Q: How has NAFIN benefited from working with multilateral
developmental banking or the private sphere on their own.
development banks (MDB)?
NAFIN is acting as a catalyst for outside funding to cover
A: NAFIN is a development bank that does not receive
this necessity. Many foreign banks from around the world
public funds. It goes to the market daily with the objective
have answered the call and want to participate directly in
of raising funds to allocate in short, mid and long-term time
this transformation. By far, the most significant disruption
frames. MDBs offer funding primarily with a long-term scope.
for the electricity sector comes from transitioning from a
These financial entities are manifesting a strong interest
long-term market to a merchant, short-term market, posing
in renewable energy projects for Mexico, to the point of
an additional financing challenge for Mexico’s electricity
sometimes offering financing under preferential conditions.
system in financing short-term sales with long-term
One of our departments is focused on channeling this
financing conditions.
awarded capital, outlining the conditions under which it is given, while we take care of structuring projects in a way
Q: How does NAFIN integrate its renewable projects
that the benefits inherent to these financing sources are
portfolio and financing decisions?
allocated in the largest proportion possible. We structure
A: It is a matter of costs, yields and the project's financial
the project to appeal to a particular financial entity on a
solidity. Electricity generation costs using solar power
case by case basis.
technologies have decreased fivefold since 2010. Wind power and natural gas are also witnessing downward
Q: How has project finance changed since NAFIN's first
trends. Since December 2012, NAFIN has multiplied its
financed wind farm in 2010?
financing portfolio fivefold and grew consistently 100
A: The depth of the change is considerable. In 2010, the
percent per year. NAFIN will continue working toward
innovative aspects of a renewable energy project in Mexico
further consolidating the Energy Reform’s positive
scared away potential investors and NAFIN stepped up to
momentum. So far, NAFIN has financed 13 wind farms, two
echo the country’s public policy. The idea was to find the
solar parks, two small-scale hydroelectric plants and one
best financing option for the project, make it bankable and
cogeneration plant.
foster the participation of commercial banking. In 2014, as the Energy Reform was enacted, the trend in which
Q: What are NAFIN’s objectives for 2018?
the public sector absorbed the entirety of a project’s
A: NAFIN's electricity portfolio has over 70GW nationwide.
risk and financing requirements, especially in the oil and
Two precise objectives are on the table. First, duplicating
gas sector, was disrupted. Now, the private sector has
this portfolio by 2030, meaning billion-dollar investments
a preponderant role, both in project development and
to ensure Mexico’s energy availability under the best
financing. Unlocking the value chain to private initiative also
possible conditions to compete globally. Second, 35
disrupted the financial system under which it previously
percent of the energy produced must come from clean
operated. The amount of resources required to bring utility-
energy by 2024. We are on track as a country and NAFIN
scale projects to their successful conclusion and meet the
will continue assisting all efforts to support the Energy
country’s energy needs are estimated to be near US$250
Reform, particularly in its renewable energy component.
billion. This cannot be provided by either commercial or
The good news is that renewables are here to stay and we are leaving behind a better world as we detach our electricity system from fossil fuels. The challenge will be
NAFIN is a Mexican development bank that financially supports
dealing with PV and wind power’s intermittency. To date,
small and medium companies with the federal government,
the fundamental solution is relying on natural gas for grid
primarily through guarantee programs with commercial banks
stability and we are expecting the technological disruption
to foster their growth, both locally and internationally
of battery-based storage systems.
INSIGHT
BANKABILITY TO ENTICE COMMERCIAL INSTITUTIONS MARIAN AGUIRRE Energy Finance Vice President of Bancomext
Mexico’s long-term electricity auctions are considered the
novelty helps when there is insufficient power generation.
benchmark of the country’s energy transition. To guarantee
In that case, a power purchase must be completed to
their success, the Ministry of Energy announced in August
compensate the shortfall, which, considering power price
2017 that development banking institutions had approved
fluctuations, is an additional risk and cost that the project
the first financing packages for the auctioned projects. The
should not incur. Based on differential calculations, this
participation of the development banks is critical.
account can cover potential imbalances. Bank committees are quite satisfied with it,” Aguirre says.
“Echoing the vision of the Ministry of Finance we want to incentivize commercial banking to participate in these types
Mexico’s energy projects require sizable financing, which
of projects,” says Marian Aguirre, Energy Financing Vice
Bancomext provides normally on a co-financing basis. It
President of Bancomext. “Our institution is involved across
works closely with other development banks to coordinate
the sector’s value chain, including generation, distribution,
energy portfolios, reaching combined assets of more than
transmission and all the segments in oil and gas.” Showcasing
US$2.5 billion in 2016. “Even when every bank has its own
bankable projects is the institution’s bet to dissipate prevalent
risk areas, particularities and different mandates — Banobras
worries pertaining to market risks as there is not yet a long
for infrastructure projects, NAFIN for productive chains and
enough track record to make an informed investment
Bancomext for foreign trade — the financing needs of the
decision. “We are aware that commercial banks have a more
sector are quite high. Our common denominator is that
complicated setting in which to absorb these risk levels,
we consider energy as a strategic sector for the country’s
which is why we provide A/B loans so they can participate
economic development,” says Aguirre.
via shorter time frames, as some banks have term limitations.” Aguirre also stresses the importance of social and While long-term projects are predominantly financed by
environmental factors in the bankability of projects:
development and multilateral entities, Bancomext can
“Bancomext’s rules stipulate that every project we take to our
participate with two schemes. Either through mini perms for
committee must comply with our Environmental and Social
which refinancing takes place during the last year, or taking
System (SARAS). Our system’s focus is primarily based on
shorter financing tranches, where Bancomext covers the rest.
the Equator Principles and IFC standards.” Mexico’s energy
But the core issue remains devising financing schemes that
market transformation also entails a major shift toward social
can ensure with a certain degree of certainty an economically
and environmental components, making Environmental and
viable and profitable project. “We use project finance schemes
Social Impact Assessments a mainstream practice deeply
in which every risk factor is compartmentalized and mitigated
embedded within projects from the initial structuring and
separately,” says Aguirre. For instance, Bancomext uses Debt
followed throughout the financing life cycle.
Service Reserve Accounts (DSRA) via Contingency Lines of Credit to protect lenders against cash flow variations once the
Bancomext’s objectives for 2018 are focused on supporting
loan is refundable. Term reduction mechanisms are also used,
the reform’s projects. “We are still in the process of assimilating
such as anticipated payment schemes or cash sweeps. “We
the gears and shifts of the auctions, as well as taking on
provide the tools necessary for a tailored solution for each
the challenge of providing the best financing options for
project’s specificities based on a particular financial structure
the projects assigned through the third auction’s Clearing
where a commercial bank can work with the risk levels it is
House,” Aguirre says. The development bank is setting things
comfortable with,” she adds.
in motion to face the complication of financing and managing simultaneous utility-scale projects. “Between August and-
The latest instrument to be introduced by Bancomext to the
September 2017, we concluded six financial closings of
benefit of commercial banking is the Imbalance Account. “This
auctioned projects. That was quite a challenge.”
217
INSIGHT
EPC DIVERSIFYING INTO INFRASTRUCTURE FINANCING JOSÉ DELGADO Project Development Director for SUNCO Capital
218
Mexico’s energy sector is opening fast but the infrastructure
development and a portfolio of different projects equal
gap could be a stumbling block that is difficult to overcome.
to approximately 800MW that it is launching in different
Given the fact Mexico is one of the few countries transferring
regions of the country. Nevertheless, Delgado says the new
the investment responsibility to project developers, this
CELs market will be extremely interesting and attractive
makes it harder to make those projects economically viable,
for SUNCO and he believes it will complement the projects
according to José Delgado, Project Development Director for
already underway. “It will be a stabilizing factor for projects
SUNCO Capital. “Different countries have different strategies
and for financing models,” he says.
to tackle the infrastructure problem,” he says. “But a common issue is the lack of proper and well-defined investment
The CELs market is without a doubt one of the milestones
projections, in addition to economic factors.”
ensuring the continuity of Mexico’s long-term vision for clean technologies. “The obligation of industrial players to
Delgado says that CENACE’s plant requirements mean
cover their energy demand with a certain number of CELs
that, although projects are technologically viable, they are
opens up a new market and therefore new ways to generate
economically unviable due to the infrastructure investment
business, both for the companies providing the CELs and
burden placed on the shoulders of the private sector to
for those that need them,” he explains.
connect them to the grid. According to Delgado, almost any country that sets new energy-generation goals suffers
But despite a steep learning curve, Delgado highlights the
problems with infrastructure construction. “But this has
deep respect SUNCO has for the shifting Mexican market,
been especially true for Mexico due to its old and obsolete
the country’s idiosyncrasies and how the culture works.
infrastructure that does not meet the current reality, not to
“We believe that to properly work in a country we must
mention future growth prospects,” he says. “The availability
adapt to the country and not the other way around,” he
of these resources is hard to predict and those grids are
says. According to Delgado, SUNCO is looking for strategic
not prepared to handle unstable injections of energy.” For
alliances with local developers or with companies that have
this reason, SUNCO has seized on the opportunity to set
a better understanding of the country. “Through these
up an investment platform in Mexico. “SUNCO Capital is
alliances SUNCO is able to offer its expertise in engineering,
our investment vehicle, managing a US$20 million private
financing structure and most importantly the capital muscle
equity fund,” he explains. The SUNCO Capital Development
to take the project forward. This is capital that many small
Fund focuses on greenfield, and therefore the most risky
companies lack.”
projects, with the aim of making them either bid-ready or ready to build.
SUNCO has a vast global portfolio, and it is betting on the Mexican market. Delgado says the company is seeking to
Mexico will need 55.84GW of additional installed generation
control US$5 billion in assets before 2022 on a global level,
capacity, according to PRODESEN, to cover the energy
but it is in Mexico where SUNCO expects to find the largest
needs of the country over the 2017-2031 period. Of
volume of projects. “We believe our biggest growth will be
that capacity, 63 percent will have to consist of clean
found in Mexico.”
technologies that will trade their energy on the CELs market, ultimately ensuring that the country reaches its
To make sure that happens, SUNCO wants to be considered
goal of 35 percent of the national energy being consumed
a serious player that creates quality projects, and it seeks
from clean sources.
to do this through the next electricity auctions. “Part of our project portfolio is ready for the third long-term auction and
SUNCO’s expertise traditionally lies in third-party EPC
we are also looking for partners with which we can generate
services and, as of May 2017, it had 320MW under
projects to be included in the fourth auction,” he says.
VIEW FROM THE TOP
BANKABLE PROJECTS DEMAND RELIABLE PARTNERS, MITIGATING PROJECT AND MARKET RISKS CARLOS MICHEL Principal of Fondo de Fondos
Q: Why should an energy project developer rely on
energy and we bring to the table our experience with
Fondo de Fondos as a capital source?
analysis, project implementation and our management
A: The answer is twofold. First, there are only a few
and reporting capabilities to ensure the best yields.
institutional investors in the market so project developers have a prevalent necessity to turn to financial entities
Q: What are the required elements for an energy project
for capital. Second, the added value we can provide.
to reach financial closing?
Fondo de Fondos has 12 years of experience in private
A: There are three key factors that must undergo a thorough
equity funds across different sectors, added to our
analysis, in which a clear outline of the inherent risks and
team’s cumulative experience in transaction structuring,
mitigators is a necessity. First, project risk, which implies
analysis and consulting services for project sponsors.
the aggregation of factors such as project type, cost and
It is important to have policies in place to determine
the project’s construction plan. Fondo de Fondos has
project viability, to best harness our interest in placing
investment norms and policies that we must follow, so
capital. Fondo de Fondos’ energy investment vehicle was
projects under complex or risky construction conditions
launched in 2014 and we are pleased to see that the
are not up for consideration. Second, reliable partnerships.
funds we are associated with, such as Partners Group,
All parties involved, including project operators, project
Riverstone, Actis or Thermion, are winning projects in
sponsors and shareholders, must be sector-specialized,
Mexico’s oil and gas licensing rounds and the long-term
have an impeccable reputation and a successful track
electricity auctions.
record of Mexican projects. Third, addressing market risk, which boils down to securing final product clients to ensure
Q: What is your assessment of development banking
profitable returns.
and energy projects? A: Fondo de Fondos serves as an administrator of
Q: What unlocked energy business lines is Fondo de Fondos
development banking’s public resources and institutional
targeting?
investors’ private funds, primarily for pension funds. We
A: Considering the profile of the investors we work with, we
evaluate, analyze and locate projects with the best risk-
will definitely focus on the least risky projects, with a portfolio
yield ratio to comply with the characteristics of what our
of 10 to 12 projects in power generation, energy storage,
clients look for. In the particular case of development
energy transport and oil and gas exploration and production.
banking, which supports these projects not with debt but
The latter is the riskiest subsector but these risks can be
with capital, it can leverage our experience in structuring
mitigated by strong investments and generate good yields.
a capital transaction. With respect to pension funds, they
We are evaluating two sectors with high demand: electricity
now have the option for the first time in their history in
generation, given the lack of power producers in the market,
Mexico to invest in infrastructure and energy projects
and energy infrastructure. Mexico is largely underdeveloped
but lack the in-house teams to evaluate and analyze
in this last area, which justifies our evaluation of hydrocarbon
these opportunities in the best way possible. Fondo
and natural gas storage projects as well as transportation via
de Fondos is outsourced in an advisory capacity for
oil and gas pipelines. For the next public bids, we are also
pension funds interested in these kinds of investments.
examining electricity transmission towers and substations.
The critical aspect of converging these three sectors — development banking, institutional investors and fund managers — lies in capitalizing on the expertise of each
Fondo de Fondos is an investment firm specialized in private
player. Development banking has project access and
equities. In its first 10 years, the firm has propelled productive
debt issuance experience, pension funds provide fresh
investments in Mexico and Latin America in favor of the energy
capital to spark economic growth in infrastructure and
and infrastructure sectors in Mexico
219
PROJECT SPOTLIGHT
220
SOCIAL COMMITMENT TO KEEP PROJECTS GOING Mexico’s potential for the installation of ever more energy infrastructure is highlighted by two successful long-term electricity auctions, with a total of 41 projects assigned and the natural gas pipeline project Los Ramones already finished. The need to manage the project properly and efficiently, from a social and environmental point of view, is highlighted as more projects enter the pipeline. Conecta Cultura, a Mexico City-based company launched in 2010, offers cultural management organization and social innovation for infrastructure developers. Conecta Cultura’s goal is to ensure that citizens can take the lead in creating a positive transformation for their environments through social innovation and cultural development. An example of Conecta Cultura’s close connection to communities is the Safety and Risks Involved in Gas Pipelines for Community Promoters workshop that took place in Ciudad Cuauhtémoc, Chihuahua, in January 2016, which was funded by TransCanada as part of the company’s communityrelationship activities with the Raramuris communities. During the event, nine Conecta Cultura promoters from the San Elías, Gasisuchi and Rochivo localities took part in the workshop conducted by TransCanada’s personnel, facilitated by visual presentations and didactic tools, to teach and educate attendees about construction and safety processes that are used on gas pipeline projects, as well as the riskcontrol measures that must be implemented due to the presence of these kinds of projects. By creating, organizing and providing follow-up for the workshop, Conecta Cultura did not only expect to educate the population on safety and risks, but to help promoters better understand the project and allow communities to make better-informed decisions according to their cultural and social traditions. This workshop was only one of several activities organized by Conecta Cultura and funded by TransCanada that took place between July 2015 and January 2016. With the creation and training of promoters, Conecta Cultura is looking to create a bigger impact on communities as these promoters can then replicate and disseminate their knowledge in other communities that could not be included in the direct workshop. The workshop activities do not only target information directly related to natural gas pipeline projects, but are selected by the promoters according to the needs and interests of their communities, including gender equity, domestic violence and even film and photography.
221
VIEW FROM THE TOP
FROM DISCIPLINED PROJECT DEVELOPMENT TO FLAWLESS EXECUTION Paul Abitante Country Manager, Mexico, of Invenergy
222
Jaime Burguete Commercial Development Director of Invenergy
Q: What are Mexico’s prevailing challenges in project
and patience. I mention these points because in recent
development?
years in Mexico we have seen some very aggressive,
PA: As in most power markets, securing land rights and
irrational behavior in the market where the end game
a competitive electrical interconnection to the electric
is clearly driven by market share rather than project
grid are fundamental challenges. Renewable projects in
economics and investor returns. Unfortunately, this
particular require special attention because they involve
behavior distorts the market and creates unrealistic and
very large parcels of land. Working through this process
unsustainable pricing levels where in my view many of
with full awareness of the potential social and legal issues
the short-term winners will eventually become the losers.
with a local team that has local knowledge and experience is fundamental. The electrical interconnection process
In Mexico, we are developing a broad, geographically
also requires special attention and local knowledge.
diversified, well-developed portfolio of projects, such as
The Energy Reform turned Mexico into a market of
wind, solar, energy storage and thermal power, including
high interest for companies from around the world,
cogeneration, that we can then take to the market
including Invenergy. CENACE processing thousands of
either through the long-term auction process with CFE
interconnection requests annually attests to that. But
or through bilateral agreements with commercial and
in most cases these requests are for projects that are
industrial customers. Our strategy in Mexico paid off in
speculative and will never be built. Lastly, securing the
late 2017 when we closed out the year with the award
commercial off-takers for projects is also a challenge. In
of two thermal projects. The first project, Compañia de
Mexico, the long-term electricity auctions are one such
Electricidad Los Ramones, is a 550MW natural-gas fired
avenue to sell capacity, energy and CELs. But the market
thermal peaker project that was awarded a capacity
needs other off-take opportunities and more liquidity. We
contract in the third long-term auction. When it enters into
are hopeful that this will happen over time with the entry
commercial operation in early 2020, it will be the most
of qualified suppliers and private off-takers.
efficient natural gas-fired peaker plant not only in Mexico but perhaps in all of Latin America. We also secured an
JB: Invenergy has the best of both worlds. We converge
18MW, 110t/h steam cogeneration plant with a leading
our Mexican team’s local experience and our Chicago-
industrial company. This is also a long-term agreement in
based parent company with a 16,000MW portfolio in
which we were engaged to develop, construct and then
project development, transferring this expertise to Mexico.
operate and maintain the cogeneration plant. We are very
We have a training exchange program in place where
excited about this opportunity and we see more like this
both our Chicago and Mexico contingents trade places to
with other industrial customers.
simultaneously make the most of the US electric market's maturity and to learn best practices.
JB: Invenergy is a sole-owner private company, setting us apart from what is typically found in the Mexican
Q: What are the key elements of Invenergy’s strategy
market. We have 16,500MW operating globally, setting
in Mexico?
us on par with utility-scale companies such as Enel,
PA: Our strategy in Mexico is underpinned by our
Acciona or ENGIE, to name a few. The added advantage
philosophy and values as a company. Innovative spirit
is our short decision-making chain, conferring an
in what we do, diversity in our project portfolio and off-
additional agility and flexibility that we can take to
take sales, attention to detail when it comes to project
the commercial segment of the market. We can move
development, execution and operation as well as heavy
parallel to the market and take the most advantage of
doses of discipline and patience. Of these elements,
new opportunities and anticipating market trends as well
perhaps the most important are the last points: discipline
as adapting to our clients’ needs. Considering our global
team is comprised of 800 people, we have one of the
PA: Ramones is what we call a gas turbine peaking plant. It
most efficient employee/installed MW ratios.
is specifically designed to respond quickly and efficiently, as it can go from zero to full load in less than 10 minutes
Q: Will Invenergy replicate its global portfolio in Mexico?
as opposed to a large combined cycle plant with heat
PA: While it is true that a large percentage of our portfolio
recovery steam generators, which can take several hours
is dominated by wind power, this is mostly due to the
to reach full load from a cold start. As the amount of
very specific market and regulatory conditions that have
renewable generation in the system is increased, given its
existed in the US since the early 2000s. In particular, we
intermittent nature, the system has to be off-setting and
have enjoyed a renewables production tax credit for a
reacting quickly to maintain voltage and frequency within
number of years and until recently, wind power was much
very tight bands to keep electric supply stable and reliable.
more economical than solar power, so not surprisingly we
Thermal peaking is what historically has served that role. In
developed and constructed far more wind power than solar.
Mexico, this role has been served in most cases by outdated
But this is not something we did deliberately and have no
CFE plants as peakers fired by fuel oil or diesel. The cost of
particular preference of one technology over another. In
providing that service to the system is enormous.
fact, with the price of solar panels and BOP systems coming down drastically in recent years, going forward, I would
Our Ramones peaker plant will be the first thermal
not rule out that on a growth-rate basis, our solar power
peaking unit, natural gas powered, with a thermal
portfolio will grow faster than our wind power portfolio.
efficiency well above these older CFE plants, be they
In Mexico, which has areas with excellent wind resources,
gas turbine peakers or conventional steam plants. The
such as Tamaulipas and Oaxaca, as well as outstanding solar
physical location of Ramones is also strategic since it
resources that cover a good portion of the country, we see
is in a region where natural gas from the US is easily
lots of growth opportunities in both technologies.
available and in an area where renewable wind generation is growing rapidly. Our Ramones project is also unique
Q: How would Invenergy define project financing done
because it will be the first new thermal project awarded
right?
and built from scratch as a result of the long-term auction
PA: A primary element would be getting things right up front.
process. We are very proud of this accomplishment.
A well-developed project includes what lenders are going to look for, promptly identifying risks and efficient as well
Q: What are Invenergy’s plans in Mexico for 2018?
as effective ways of mitigating them. Identifying all those
PA: With our awarded projects in 2017, we will quickly
elements early is a must and something we do particularly
pivot and transition our efforts from development to
well. The core of our project finance team is in Chicago but
execution. We expect both of our projects to achieve
we have a highly experienced finance professional heading
financial close in the first half of 2018 and to start
our project finance activities in Mexico. Despite the fact
construction immediately thereafter. EPC and equipment
that his responsibility here is project finance, we routinely
supply agreements are already moving quickly. But with
involve him in development discussions. He sees what we
over 4,000MW of projects under development, we will
are doing early on — permitting, site control, contractual
continue to pursue new opportunities as well. It is going to
issues, how we structure commercial off-takes. He can
be a very busy year for us in Mexico, but we have a great
then share with us a lender perspective and capture those
team and can overcome the challenges that will face us.
elements into our contracts. Doing it any other way could frustrate projects, lengthen schedules and time to reach
JB: We are also focused on closing the commercial
financial close and jeopardize not only the entire project
aspects of our 168MW Fenicias wind farm, located on
but also our credibility.
the border between Tamaulipas and Nuevo Leon and operating under a legacy contract, obtaining financial
JB: Invenergy is a long-term player. When we sit with our
closing and starting construction before the end of 2018.
lenders it is because we will be involved in the project for
Pertaining to energy trading, we are bringing the finishing
over 20 years. One of the major worries a lender can have
touches to a financial Contract for Difference meant for
is whether the project can yield what the financial model
CELs acquisition, designed on the basis of node price
generates. When we put on the table all our expertise
variations compared to the agreed price.
applied throughout the project’s development stages and include operations and management services, it reassures lenders regarding the actual cash flow of the project.
Invenergy develops innovative clean energy solutions. The Chicago-based project developer has more than 110 projects,
Q: How can the Ramones thermal peaker project assist
almost 17,000MW, in development, construction or in operation
Mexico’s energy transition?
across the US, Canada, Europe, Japan and Latin America
223
INSIGHT
PLAYING LONG FROM THE VERY BEGINNING ANDREA BERNARDI Country Manager Mexico of Enerray
224
One of the major cornerstones achieved by Mexico is the
Bernardy finds in Mexico a wide range of possibilities for
success of its long-term electricity auctions. With a committed
developing projects because it has “a utility-scale sector
investment resulting from the first and second editions of
with long-term contracts offered by the auctions while also
US$6.6 billion and the successful conclusion of the third
opening opportunities for bilateral contracts with qualified
auction, which showcased an average tariff of US$20, the
suppliers and distributed generation for on-site self-supply.”
lowest yet, Mexico’s potential is slowly developing. Andrea
Until now, Enerray has played an EPC role in the Mexican
Bernardy, Country Manager Mexico of EPC company Enerray,
sector that allowed it to be as close to the market as possible,
believes that the auctions have been cautious, but strong.
to listen to its needs and be prepared to offer the best service
“The cautious implementation of the Energy Reform has
possible, Bernardy says.
been beneficial in a way because it has allowed the market
“
to develop according to a long-term vision.”
The cautious implementation of the Energy Reform has been beneficial in a way because it has allowed the market to develop according to a long-term vision”
As an EPC, its job is to reassure its energy generation customers that production will not stop. “Our offer includes a performance warranty that few players in the market provide. This warranty states that under certain conditions we guarantee the working hours and performance of the plant,” Bernardy says. “With this performance warranty the client knows how much the plant will produce, and if the plant does not comply with this performance then Enerray is committed to pay for any ensuing damage.” A commitment level of such magnitude can only be offered by a company that has a longterm vision with its clients, he continues. “We want our clients to make a profit from their investments.” In an innovation-driven market such as energy, being a first
Companies entering a developing market often need the
mover does play a role. “One of the opportunities we have
support of experienced players, such as Enerray, a leader in
identified is offering customers, such as qualified users, off-
the design, installation and maintenance of utility-scale and
takers, generators and other investors, the possibility to get
industrial photovoltaic systems. The company itself entered
energy by investing in the development of a certain utility-
Mexico long before the Energy Reform took place and as
scale plant together with other customers, and then offering
a result, it can offer added value and expertise. “Enerray’s
the customer a portion of the energy generated that is
strategy was focused on entering countries that had high
proportional to its investment,” says Bernardy.
energy demand and high sun availability,” says Bernardy. “We decided to enter Mexico in 2007, before the Energy Reform
Starting a ground-breaking project like that is no easy task but
provided greater incentives for companies to enter the
as of June 2017, 50 percent of the required players had already
country. We recognized that Mexico did not need incentives
signed letters of interest to start financing the 100MW project.
to be economically attractive and therefore made the tactical
Bernardy explains the benefits of it: “Under the old EPC
decision to be a first entrant with a long-term vision compared
scheme, a utility-scale project of 100-200MW would restrict
to companies that are now spending money to enter the
us to only one client. Now, with that same plant we can tackle
market without the proper knowledge and network. All these
more clients. This project will also offer us a constant supply
years have allowed us to focus on business development
of capital for several years. This type of offer is not yet present
activities and to be ready for when the market booms, which
in the market and developing it will give us an advantage,” he
is what is happening now.”
says. “And it will have the Enerray seal of quality.”
INSIGHT
WHEN TENDERS ARE MAINSTREAM, GO BILATERAL JOSÉ AROSA Director General Mexico of IC Power
The low prices achieved in the long-term electricity
produce power at night, which is vital for providing project
auctions are considered a major success for Mexico by
development certainty to sponsors and customers.”
the architects of the Energy Reform but, while some have praised the results, others have a more reserved opinion.
While the business opportunity in bilateral contracts
José Arosa, Director General Mexico of IC Power, is among
with industrial consumers is substantial, there are still
the latter group. For him, opportunity lies in the country’s
problems that must be resolved. Although Mexico has
safer but less-developed market: bilateral contracts.
considerable potential for renewables, the best resources are also focalized — solar in Sonora and wind in Oaxaca
“During the auctions, developers bid without having vital
are perfect examples — and if a proper transmission and
elements of the project in place. Many projects were
distribution infrastructure is not deployed, these resources
ideas without a solid economic base, they were castles
might become isolated from their intended consumers.
in the sky, which caused the prices of each project to
“Transmission and distribution are key pieces in the puzzle
drop drastically. This pushed companies that prepared a
of Mexico’s competitiveness. Although we have achieved
stronger economic analysis, like us, out of the game,” says
cheap generation prices, they only make up 40 percent
Arosa. Prices at the first auction were low, hitting US$47.7
of the final energy price for consumers, highlighting the
compared to international results that were around US$50
importance of improving transmission and distribution,”
on average during 2016. The average price at the second
Arosa says. The Oaxaca-Mexico City HVDC transmission
auction was US$33.47, among the lowest in the world.
line is a clear example of the efforts to improve Mexico’s grid but there is still much to be done in this area. “The
Instead, IC Power is putting its faith in bilateral contracts
necessity for projects has been outlined but most of these
with industrial clients. “Industrial retail and manufacturing
are too conceptual,” Arosa warns. “The Energy Reform
companies are easier to approach and educate because of
has not yet properly turned attention to transmission and
the one-to-one relationship. Our wide portfolio of projects,
distribution.”
including natural gas, diesel, fuel oil, hydroelectric and wind, allows us to offer energy solutions to almost
No matter the challenges, IC Power sees a market in
any client,” says Arosa. This is an advantage in a large
Mexico, a country that is hungry for projects. “Industrial
country with a variety of resources. Mexico’s oil and
consumers are the most interested in the Energy Reform
gas industry and trade relationships facilitate the use
because its implementation, and the loss of subsidies,
of hydrocarbons for the production of energy, while its
is going to affect them directly. They are eager to know
richness in renewable resources is cited as a focal point
the outcome and this is where we see an opportunity. By
for the development of the energy industry in PRODESEN
2019-2020 we want to have between 400 and 500MWs
and in the Electric Industry and Energy Transition Laws.
installed,” Arosa says.
Mexico’s goal of producing 35 percent of its energy with
Without a doubt, both producers and consumers have
renewables by 2024 and the minimum number of CELs
to work for Mexico’s best interests, Arosa says. “We are
that are required for obliged participants create an open
committed to the country and so we have to maintain
opportunity for the implementation of renewables that
a healthy balance. Prices that are too low may cause
IC Power wants to take advantage of. Renewables are
developers to leave the country, bringing back the old
energy sources in which Arosa sees the brightest future.
monopolistic scheme. Mexico’s institutions will have
“Wind has the advantage of higher capacity factors and
to provide a transparent and clear framework to make
production profiles. Solar can be deployed faster and
Mexico a desirable investment country for developers in
cheaper in areas with higher irradiation, but it cannot
the long term.”
225
VIEW FROM THE TOP
CRACKING THE PROJECT DEVELOPMENT SECTOR LUIS SÁNCHEZ Director General of ErgoSolar
226
Q: What are Mexico’s major challenges in developing
we have 400 solar power projects successfully installed
residential use of solar power?
and operating nationwide — Tijuana, Puebla and Guerrero,
A: Mexico has three major challenges. First, we have the
among other locations. Our business scope revolves around
cultural and behavioral components. We have a responsibility
distributed generation and megaproject engineering. We
to communicate and create awareness about the benefits
wanted to start adding value to utility-scale projects,
of solar power and to debunk misconceptions. Companies
hand in hand with an international EPC company, such as
involved in solar power like ourselves need to be precise
Solarnet, which transitioned organically from construction
and assertive when raising awareness. We rely heavily on
to renewable energy. This is a major comparative advantage
social media and all news broadcasting formats to this end.
when it comes to addressing utility-scale projects, as well as
Second, financial sources. When we started this business,
Solarnet’s financial strength and capability. The objective
there was a lack of financial structures for renewable
of our collaboration is to deliver the most competitive EPC
energy, yet there was a dire need with almost every project,
option for Mexico’s renewable energy market, combining
from the entrepreneurial outset, to finance final clients.
Mexican and international experience, providing competitive
Third, the sector needs trained professionals throughout
solutions for the market’s off-takers and covering projects
the whole value chain, from installation technicians to
ranging from 5MW to close to 200MW.
project developers and engineers. Proper regulations and certifications need to be in place to further enhance the
Q: What is missing to capitalize on the potential of
preparation and training of renewable energy experts.
distributed generation in Mexico? A: Besides the threefold challenges I mentioned earlier,
Q: Which industries are most eager to transition toward
which also apply here, Mexico has to start thinking smart
renewable energy?
grid. For about 70 years, the private sector was prohibited
A: First in line are those whose business lines require intensive
from participating in any aspect of Mexico’s electric
energy consumption: concrete, plastic, textile, automotive,
system. As a result of the reform, the great unknown has
and agro-industrial, to name a few. They are choosing
transformed into the great opportunity, where private
renewable energy as an electric power source because it is
players can participate directly in the industry’s entire value
cost-effective and helps them comply with the compulsory 5
chain, from generation to consumption.
percent requirement in CELs. This will have a positive spillover effect, as major conglomerates such as CEMEX or Volkswagen
Q: How does ErgoSolar stay up to date with the latest
will need to rely on their suppliers to comply with this new
technological developments in solar power?
requirement.
A: We are strongly focused on investing in technological innovations and the company is opening two new business
Q: What is ErgoSolar’s strategy behind its partnership with
lines: process innovation and engineering innovation. We
Solarnet?
make sure to stay in the loop regarding the industry’s latest
A: ErgoSolar has been operating in the Mexican market for
international developments and we keep a close eye on the
seven years now. We launched the company at the same time
products and services our suppliers invest in. As a solar
as the Interconnection Law came into effect in 2008. Today,
power company, we are addressing the major challenge posed by Potential Induced Degradation (PID). This refers to the degradation of solar module crystals as a result of
ErgoSolar is a Mexican PV power company, specialized in the
ion exchange between silicon and aluminum. The industry is
installation of solar parks. The company provides tailor-made
proposing aluminum-free solar modules and we are exploring
energy-saving solutions through solar power for the residential,
other options as well. We always keep in mind that these new
commercial and industrial sectors
developments must meet Mexico’s specific needs.
VIEW FROM THE TOP
SOLID OPPORTUNITIES FOR PROJECTS ABOVE 3MW JOACHIM GOLDBECK President of Solarnet
Q: How does Solarnet harness technological improvements?
develop, as well as direct PPAs and self-consumption for
A: Our focus is to supply something that the customer
large companies. These options are easily scalable and you
wants. Usually, the customer wants a reliable PV power plant
do not have to wait for them to be awarded, so you can
at a reasonable cost that will work smoothly over a 20 to
work and progress on an individual basis. 227
25-year period and beyond. Regarding technology, we are continuously monitoring the supply market for modules,
Q: What is the comparative advantage of Solarnet's PV
inverters and transformers. We also keep a close eye on
products and services?
developments in efficient planning, execution and automation.
A: We have done more than 700MW of installations in
From a quality point of view, we are in continuous contact with
10 countries by working with industrial roofs of different
renowned laboratories on the latest research results.
sizes and types and sometimes going up to 4MW. Our company already integrates all possible specifics related
Q: What added value do you bring to the table?
to rooftops, such as aesthetics and angles, among other
A: Our company can offer a Solarnet minimum requirements
variables. We evolved organically from a family-owned
standard and an optimum solutions set, as well as
industrial construction business and a professional and
complementary quality extras. This allows our client to
reliable project execution is ingrained in our genes. We
procure a solution according to their needs and budget.
simply transferred this know-how and project focus to solar
In our 20-year experience, clients often choose a middle
energy. Case in point: our 50MW project in Sandridge, UK.
ground between the minimum requirements and the
It took us three months to build and connect to the grid,
optimized solution to match their individual preferences.
including a substation of 132kV.
This same experience also shows that saving at the expense of quality and using cheap products, while frequently
Q: Are you looking into alliances to deepen your Mexican
observed in the market, will eventually fall back on you.
foothold? A: We recently signed a cooperation agreement with Ergo
Q: What is your key differentiator?
Solar. We have been in contact for over a year and we trust
A: Our expertise in the planning and optimization phase,
that they are capable professionals with a vested interest
determined during the developmental phase of the project,
in disseminating PV solar power in Mexico. As the acting
is where our differentiating factor lies. This translates into
President of the German Solar Association BSW Solar, we
a better internal rate of return, net present value and lower
are in close contact with ANES and ASOLMEX.
electricity costs for the final client. This issue is often overlooked because standard KPIs are already ingrained in
Q: What are your long-term ambitions for Mexico?
the developer’s mind, which frequently leads to suboptimal
A: Mexico has the substance to be a long-term sustainable
solutions in respect to the real value to the customer. The
market with capacity to develop subsidy-free solar power.
focus on value drivers saves costs and generates resources
Our goal is to have a permanent base and a growing volume,
for all partners involved. We consider ourselves an EPC+
from EPC and O&M services to increasingly integrating the
company because we also provide a consulting and
value chain through financial and project-development
planning-optimization service in the early development of
partnerships, even on the off-taking side.
the project. Q: What is your company’s targeted portfolio?
Solarnet is an international company, specialized in the
A: Our goal is to install PV plants with at least 3MW capacity
construction of turnkey projects for PV solar plants at the
and above. We think there is a good opportunity in Mexico
commercial, industrial and utility-scale levels, integrating
for smaller and midsize projects, which are simple to
technology, high-quality services and experience
VIEW FROM THE TOP
SPANISH EPC PROVIDERS STAND TALL IN MEXICO RAMÓN RICO Country Manager Mexico of Prodiel
228
Q: What opportunities has the Energy Reform opened
an increased network infrastructure. The first jolts of the
for Prodiel?
initial auctions promoted by CENACE are manageable, as
A: The Reform is offering Prodiel the same opportunities
they inject the first renewable MW to the grid. A second
that other international newcomers inserting themselves
stage to strengthen infrastructure will be required as
in the different segments of the liberated market
projects materialize and future auctions take place. We
are seeing, backed by the new inflows of foreign and
are confident that the first steps of the renewable energy
domestic investment from the private sphere. In our
market will unfold optimally.
particular case, renewable energy is our core business and Latin America is betting strongly on this market.
Mexico’s energy market is following Latin America’s
Prodiel’s growth is directly linked to this bet. With a
trend where specific consumption centers are created
market of 120 million people, we believe we can replicate
at different points across the country with all the
in Mexico the opportunities and success stories that
developing renewable projects. Afterward, the market
presented themselves in the rest of the region.
will reach a stage where distributed generation will have a greater impact, presenting an energy mix between major
Q: What renewable energy source is the most promising
consumption and distribution centers based on energy
for Mexico?
demand nationwide.
A: Past auctions revealed important information in that regard. This information can be extrapolated to
Q: What major challenges did Prodiel face as a foreign
renewable energy’s tendencies worldwide, which tells
company taking its place in Mexico’s energy market?
us that PV energy is increasingly competitive because
A: Our company has very clear objectives. Our 620 strategic
it enjoys a favorable technological push and decreased
plan stipulates reaching €600 million in global turnover
manufacturing costs. In some countries, wind power
by 2020. Each provision is approved by Prodiel’s board of
holds the renewable energy crown. Looking to the future,
directors and defines primary countries and geographic
in the next five to 10 years, renewable energies will oust
areas where we want to secure our presence. The first
fossil fuels as the most efficient and cost-effective source
challenge is to launch a meticulous, multidisciplinary and
of energy globally. Solar and wind power’s position in
accurate study of the different variables that weigh on our
Mexico is reflected by the numbers obtained in the
business, such as human resources, the country’s political-
previous auctions: around 75 percent and 25 percent of
economic environment, designing a robust commercial
awarded projects, respectively. Prodiel offers services for
strategy to know which of our clients are already present,
both technologies.
obtaining local partners and performing a regulatory analysis, among other fundamental aspects that help us
Q: How would you evaluate Mexico’s electric energy
build crucial country knowledge. This work takes over
distribution and transmission infrastructure?
a year to do. All our departments get involved in the
A: Mexico’s electric energy infrastructure is undergoing
targeted country, analyzing all these different aspects to
a transition toward a new market, opening to local and
reach a final conclusion and launch the company’s local
foreign private investment, enhancing the necessity of
installation. From there, we make a point of becoming our client’s most competitive partner, highlighting our flexibility and proximity, as a large company with the
Prodiel is a Spanish company specializing in the engineering,
values that resonate with small companies, offering the
development, construction and maintenance of electrical (LV-
solutions they require. This successful approach has
MV-HV) and renewable energy projects, energy efficiency,
translated into 2GW of renewable energy capacity and a
telecommunications and gas, water treatment infrastructure
solid presence in 10 countries.
VIEW FROM THE TOP
FOSTERING CORPORATE SOCIAL RESPONSIBILITY
Victoria Contreras Founder and Director General of Conecta Cultura
Alberto Moreno Political Analysis Director of Conecta Cultura
Q: How does your company define international
Now, it falls to private companies as a niche they are not
cooperation?
naturally focused on. Conecta Cultura saw this gap as an
VC: Applied to the energy sector and its megaprojects,
opportunity to be a neutral adviser on Mexico’s social issues.
Conecta Cultura works within the spirit of cooperation of the post-1946 world, which saw the emergence
Q: How can social responsibility be strengthened by the
of international organizations and international legal
rules and regulations of the reform?
frameworks that fostered cooperation, such as the
VC: Post-reform, the first environmental study took place in
International Labor Organization’s C169-Indigenous and
2015. This is a requirement by the Environment and Natural
Tribal Peoples Convention. Our genesis resulted from the
Resources Ministry (SEMARNAT). However, social impact
will to understand social phenomena and cultural analysis
studies were treated more as recommendations than actual
to create cooperation mechanisms.
obligations until 2016 by the Ministry of Energy. To address this issue in the short term we strongly suggest working closely
After the Energy Reform was published, the foreign
with the Ministry of Energy’s General Directorate on Social
companies that took interest in the market encountered
Impact and Surface Occupation in defining and standardizing
major challenges regarding the social impact of their projects.
consultation protocols for local communities. This effort could
This revitalized the provisions of the C169 Convention
be greatly assisted by drafting an Indigenous Consultation
for territories targeted by projects where indigenous
Law at the federal level. Also, cooperation and coordination
communities live. These communities demanded the right
between the private sector and the government is essential.
of consultation prior to the launch of a project in a free, fully
Mexico must shift decisively toward corporate governance,
informed and fair manner, elements that were not taken into
building long-term relationships between the country’s
account while drafting the legal framework of the reform.
companies and communities.
In 2014, our specialization in social license services was required by TransCanada for its El Encino – Topolobampo
AM: There are a series of on-field issues that need to
gas pipeline project. Our company built a dialogue between
be addressed. One is definitely the lack of information.
the Canadian group and the Raramuri communities, from
Regulation stipulates that companies are forbidden by the
translating the information from Spanish into their dialect
Ministry of Energy from informing local communities about
to developing a social investment plan.
a project prior to making investment commitments. These communities, by their inherent characteristics, fall to the mercy
Q: How is Mexico performing in terms of social
of particular political groups with a deeply embedded zero-
responsibility?
sum logic, that block or distort the information and render
VC: Mexico must transition from assistentialist social
the process vulnerable to corruption. Social consultation
responsibility to engineering a 21 -century vision of social
processes must be strengthened to avoid potential conflicts.
responsibility. This means an in-depth diagnosis of local
Mexico’s social institutions, such as the Culture Ministry and
communities’ needs to provide them with a useful and
the National Commission for the Development of Indigenous
adequate response, reflected in the government’s policies and
Populations (CDI), should actively participate in the design of
regulations. Ideally, participation models should be created
these regulatory modifications.
st
to involve local communities in the decision-making process. Early community engagement should be considered standard practice for any project, starting from its business planning
Conecta Cultura is a leader in cultural management organization,
phase. Today, 57 energy projects are blocked because this
social innovation and internationalization, recognized by
basis was not properly established. Prior to the reform, social
multilateral agencies, national and international foundations and
feasibility was exclusively in the hands of CFE and PEMEX.
organizations and the cultural management sector
229
230
Thermal plant, Greys Harbor, Washington
VIEW FROM THE TOP
RIGHTS OF WAY AND SOCIAL IMPACT ASSESSMENT DEFINE PROJECT SUCCESS RAÚL ROMERO Partner at Rodríguez Dávalos Abogados (RDA)
Q: What is your assessment of PRODESEN’s energy
of renewable energy projects but, rather, concerns the
infrastructure projects?
development of energy infrastructure in general, such as the
A: Ensuring the reliability of the National Electricity System is
Yaqui community case that stonewalled a gas pipeline project
a complex duty considering electricity cannot yet be stored
in Sonora. RDA’s highly qualified team in all legal matters
under a cost-efficient scheme. An integrated system must
relative to rights of way and social impact works day by day
include an electricity grid capable of redundancies to ensure
with project developers and communities to secure continuity
the operation of the National Electricity System even when
for projects, which also implies close follow-up across the
one of its components fails. The issue becomes relevant when
whole execution and implementation phases to avoid delays
a system’s congested connections and natural gas supply cuts
because of social issues.
might impact electric energy generation through combined cycle plants, which in 2016 amounted to approximately half of
Q: What is your take from the first bid basis for the
Mexico’s national electricity generation. PRODESEN considers
construction of new transmission lines?
an expected investment of US$104 billion to foster the increase
A: The electricity industry regulation is complex and extensive,
in clean energy-powered electric generation and fortified
and involves the study of various instruments released by CRE
electric energy transmission infrastructure that decreases
that regulate interconnection contracts, the balance of power
the congested links, creating a downward trend in electricity
market and the spot market, to name a few. The analysis and
prices. Although expected investments in distribution seem
understanding of the wholesale electricity market requires
to be smaller, it is necessary to start exploring smart grids as
an in-depth study, which is why during the release of the
part of Mexico’s commitment showcased during 2011’s Clean
first bid basis for the construction of new transmission lines
Energy Ministerial (CEM2). The implementation of smart grids
we supported different clients with risk analysis procedures
would propel technology development, obtaining greater
inherent to the development of these kinds of projects.
competitiveness and productivity within Mexico’s energy sector. CENAGAS undertook a potential natural gas capacity
Q: How does financial closing for utility-scale projects differ
demand study and identified the necessity of 4 billion cf/d
from their transmission counterparts?
of firm base capacity. This means SISTRANGAS has greater
A: First, rights of way acquisitions. In power generation, a
demand than it can supply. Addressing this situation, CFE
project is developed within a delineated polygon, while a
is spearheading projects together with the private sector
transmission line can cover several kilometers, implying an
to extend the natural gas network, as well as endowing the
increased number of rights of way acquisitions. Second, the
country with additional injection points to diversify supply and
public service of electricity transmission and distribution must
avoid reductions in the system that could negatively impact
follow the rules and procedures established in Chapter VIII of
electricity generation facilities.
the Electric Industry Law (LIE) pertaining to land acquisition and rights of way, meaning project development time frames
Q: What major challenge is Mexico’s energy infrastructure
must be aligned with the terms established by the different
facing?
administrative and judicial authorities involved, such as the
A: Land acquisition and rights of way in the communities and
Ministry of Energy and the Ministry of Agrarian Territorial
towns located in the project’s influence area. In one recent
and Urban Development (SEDATU).
instance, a wind power project in Oaxaca, despite obtaining the corresponding permit from CRE, is facing rejection from the region’s indigenous community. This issue raises
Rodríguez Dávalos Abogados is one of the fastest-growing
concerns as, according to PRODESEN, the increase in clean
law firms in the energy segment, providing integral services for
energy’s installed capacity correlates to, among other factors,
the energy and infrastructure sectors to capitalize on the new
the installation of wind power plants. This is not exclusive
business environment of Mexico's energy sector
231
INSIGHT
NEWCOMER INSIGHT ON SUCCESSFUL BIDS HUGO GALINDO Director General of Grenergy Renovables
232
The Energy Reform is still a new playing field for many, and
Grenergy itself underwent a reverse-engineering process
with regulatory goalposts constantly being shifted, it can
in which it defined the CAPEX for 2019 and from there
be difficult for developers to keep track of all the moving
calculated a competitive auction price that was also
parts. Hugo Galindo, Director General of Spanish IPP
economically viable for it, based on its experience in and
Grenergy Renovables, says this comes with the territory
knowledge of other markets. Grenergy’s presence in Latin
of a new, dynamic energy market. “The Energy Reform is
America includes Chile, Mexico, Peru and Colombia, and
a live, dynamic and constantly moving process. There are
Argentina is in the pipeline. “We have found that every
certain instances for which procedures are being defined
market is its own world,” says Galindo.
as the challenges that lead to them are being encountered, which can cause delays in the construction permits and
As a PV-specialized company, Grenergy witnessed how
financing,” he says.
peak prices went from US$3.5/W in 2007 in Spain to under US$0.4/W in 2017 for solar modules, a price the company
Grenergy has faced challenges with the 30MW nominal and
had not expected to be achieved until 2020. In a market like
35MW peak solar project it was awarded in the second long-
Mexico, where there is extensive land and high solar irradiation
term auction. “It was originally a small-producer project
levels, PV quickly saw the greatest cost decrease compared
that is now being migrated to the new Electric Industry
to all other renewable technologies. “This decrease in costs
Law (LIE) to comply with the auction requirements,” says
has yet to be passed onto the residential sector. It will happen,
Galindo. “The project has faced some challenges but
just as it did in Europe,” Galindo predicts.
it is still on course and will be connected on May 2019.” Grenergy’s objective is to have the administrative work
Change is not easy and Mexico’s 2025 objective of reaching 35
completed so it can be ready to build by the end of 2017
percent of renewables in its energy mix is sizable. With these
and start construction by 2Q18. Galindo expects this project
commitments, Galindo believes Mexico’s energy infrastructure
to be the first of many.
is a point of focus. “The effort to incorporate renewables must be accompanied by upgrades to transmission lines that are
The long-term electricity auctions are sparking the interest
already saturated, as well as building new infrastructure for
of local and foreign players alike, with the first edition
the Mexican grid to absorb all the renewables production.”
attracting 227 offers. Of those, 11 companies from seven
He also says that upgrading and expanding the grid must
countries were awarded, while the second auction attracted
be a joint task between both the private and public sectors.
368 offers and 57 of those, presented by 23 companies from 11 different countries, were retained.
Galindo adds that various private financial institutions have shown a lot of interest in the financing of renewable energy
Galindo believes the auctions have been a major tool
projects, mostly under the PPA format. “The setback is that
for fostering competition in Mexico, and subsequently
this is a new concept for them, which they must study from
allowing for a major decrease in prices, but this does not
scratch, resulting in longer administrative processing times,”
necessarily foster competition. “We see this as a double-
he explains. But as more projects in Mexico are financed,
edged sword. Many major utilities will arrive and offer
banks will become accustomed to and more comfortable
their best-solutions portfolio, which will impede smaller
with them. “Our project is the right size for a commercial
companies from entering the market,” he explains. But
bank to provide standalone financing and avoid the need
for these SMEs, he says, there are other options. “For
for a banking alliance, which is a clear advantage,” he says.
these smaller companies an alternative to the utilities
Grenergy is in advanced talks with three banks that are
market could be to work in PPAs where medium to large
analyzing the project and all are offering highly attractive
consumers use their services.”
conditions.
VIEW FROM THE TOP
LAW, CAPITAL, ENERGY PROJECTS TO BOOST NUMBER OF PARTICIPANTS Julian Rojas Vice President and Partner at Goldman and Berkeley
Sidney Lebaron Director General of Goldman and Berkeley
Q: What makes Goldman and Berkeley an indispensable
better electricity-coverage contracts, focusing on optimal
legal ally for Mexico’s energy players?
solutions that reduce electricity costs that may translate
JR: Goldman and Berkeley is a legal and financial consulting
into better electricity tariffs for the final user. To help our
firm with three main business lines. First, market insertion
clients capitalize on the new market, we are relying on Big
advisory services for foreign companies and their operations.
Data solutions to compile the price variations of all electricity
Second, business optimization for companies that already
nodes nationwide since Jan. 29, 2016. Our clients will have
have a footprint in the market. In this area we help generate
access to these price changes either for a particular node in
new business opportunities within Mexico’s wholesale
the last 24 hours or as an overall average.
electricity market, as well as in the oil and gas industry. Third, energy trading. Both as our own business line and advising
Q: What energy project best showcases Goldman and
our clients on obtaining better electricity coverage contracts
Berkeley’s added value?
or healthier yields within their energy-trading business.
SL: We are developing our own ambitious 1GW solar park project, for which we are collecting seed capital and
Q: What major challenges do your clients face and how does
undergoing the technical feasibility studies and permitting
Goldman and Berkeley provide the best solution for them?
process. We already have the land for it, a 4,000ha lot in
JR: Mexico’s Energy Reform is a major structural change,
Chihuahua. The location is strategic in three ways: excellent
which implies a series of transformations and new market
irradiation levels, proximity to the US border to allow for
models that the country is not yet accustomed to. These new
energy export and the electricity infrastructure available as
models are generating an uneasiness that is rooted in the
it is traversed by three transmission lines of 115kV, 230kV and
market’s unfamiliarity with them and in the new operations
400kV, respectively. The project will be compartmentalized
and responsibilities of regulatory authorities. We offer clarity
into 100MW blocks per year. Goldman and Berkeley has
relating to these new dynamics and present optimal ways
a business alliance with companies that have developed
to generate new business models. Some of our clients are
energy projects in US and Mexico. The consortium gives us
developing solar parks in the northern region of Mexico,
access to an extended network of companies and contacts
for which we specified the most valuable locations to
that are vital to the successful development of such sizable
develop this technology and provided a comparative chart
projects.
of electricity node prices per location, outlined CENACE’s directives concerning the amount of new installed capacity it
Q: What service within your portfolio is most in demand
could allow per node and pointed out the transmission lines
at the moment?
available for efficient energy evacuation, among other key
JR: Mexico’s wholesale market is burgeoning with activity.
elements that enabled an optimal PV system. Our advisory
Many companies want to enter as qualified users to obtain all
service crafts an integral strategy from all legal, financial and
the benefits offered by qualified suppliers and a diversified
commercial viewpoints so our clients can seamlessly and
matrix of private power producers. Goldman and Berkeley
efficiently integrate these new business models into their
has been focused from the outset on assisting these
own portfolios.
companies in getting familiarized with each other, what they offer and how they can thrive under the new market settings.
SL: Many companies that consume electricity do not realize the extent of the implications and opportunities brought about by the reform. Goldman and Berkeley has accumulated
Goldman and Berkeley is a legal firm specialized in integral
a database of companies that consume more than 1MW
legal advisory services. The company’s objective is to provide
of electricity per year, which we are helping to register as
consulting services to national and foreign companies looking to
qualified users and subsequently helping to find new and
establish and develop energy infrastructure projects in Mexico
233
VIEW FROM THE TOP
HOW AN EFFECTIVE LOCAL STRATEGY CAN BECOME A GLOBAL SUCCESS Fernando Sánchez Vice President of Sales, Latin America, for Soltec
234
José Mendoza Country Manager Mexico of Soltec
Q: What makes Soltec’s offer for Mexico’s solar market
Q: How does Soltec reach successful market entry?
unique?
FS: Everything pertaining to departments where local
FS: Soltec unveiled its new proposal for 2018 during the
management makes more sense, such as administration,
latest Intersolar fair: the new SF7 tracker. This update
human resources, permits, purchases and local logistics, is
is an optimized version of our SF Utility tracker. SF7
managed by local experts we hire. We then back our local
comprises 90 solar modules mounted in a portrait
assets with our global departments from our central office.
structure, with three strings of 30 solar panels. Our tracker’s differentiating factor lies in its versatility. At 45
JM: Once we created the company’s local structure in Mexico,
meters long, it adapts nicely to steep slopes, rendering
we were able to take on the project workload our central
land leveling practically unnecessary. Our product is
office usually closes back in Spain. From the outset, we get
designed with zero gaps between the modules, enabling
acquainted with our project’s local governmental authorities
a 5 percent greater energy yield, lower costs for BOP
and leaders. Positioning our brand in Mexico also involved
material and a reduction in labor expenditures. SF7 also
interacting with the local office of the Spanish Chamber of
reduces the number of parts required for installation by
Commerce to get ourselves known and noticed as a major
15 percent and uses 58 percent fewer screw connections
player in the game. Our Mexican structure is solid, set and
than leading competitors. Soltec’s DC Harness system
ready to take on any number of PV projects that come our
replaces conventional PV wiring with an aluminum system,
way. We want our locally trained professionals to be Mexico’s
representing 73 percent less wire length, 65 percent less
future solar experts.
installation labor and factory-tested insulation resistance while eliminating the traditional combiner box.
Q: How does Soltec address Mexico’s climate hazards? FS: Our highly qualified engineering team knows how to
We are participating in the direct installation of more
integrate these risk factors into the project’s blueprint. Each
than 800MW globally under an EPC scheme, from the
project is its own. We are analyzing seven to eight projects
installation to the commissioning and operation of the
simultaneously. A primary aspect of our analysis is our onsite
solar park. Soltec trains local personnel and develops
wind tunnel study. We adapt our products and equipment
projects with them. Our company’s proven expertise
to a particular location’s wind and pressure conditions to
in the installation process permeates our engineering,
provide the necessary module structure, addressing the zone’s
resulting in an easy-to-install product. Soltec only takes
particularities and our clients’ expectations.
220 man-hours per MW installed, meaning that with a team of 40 technicians we can install 1MW daily. We
Q: What are Soltec's O&M comparative advantages?
just completed a 293MW facility in Brazil, the largest
FS: Our tracker is designed to require little and simple
PV project yet in installed capacity. We have reached
maintenance. Our experience in Chile, under extreme weather
production peaks between 6 and 7MW per day. Our
conditions, allows us to provide efficient and effective
track record and integrated EPC services give Soltec the
maintenance services for utility-scale projects with teams of
confidence to undertake 500MW projects in six to seven
three to four technicians. We have accumulated 700,000 man
months, hindrance-free.
hours with zero accidents and counting. Q: What is Soltec’s vision in Mexico for the long term?
Soltec is a global company based in Spain, specialized in
FS: In line with our average market share in Latin America, we
the manufacture of single axis trackers. It has over 12 years
are projecting an approximate 30 percent share in operational
of experience in PV energy, more than 1.5GW in projects
PV solar projects in the next five years. We have already
worldwide and a 500-strong professional team
started with our 240MW under construction.
INSIGHT
RIDING SOLAR AND WIND POWER OPPORTUNITIES PATRICIA TATTO Partner and Country Head of Mexico and Central America at ATA Renewables
Given Mexico’s privileged amount of solar irradiation hours
ask for extra guarantees to justify investment.” To counter
and plunging international prices, both for manufacturing
this, ATA Renewables offers advice to customers regarding
costs and the rates obtained during the first three long-
their potential investments in project development,
term electricity auctions, solar has a great opportunity to
providing recommendations from the technical-financial
move ahead in the country's renewable energy race, says
point of view. Tatto underlines that companies must
Patricia Tatto, Partner and Country Head of Mexico and
have clear and understandable financial models and
Central America at ATA Renewables. “We anticipate solar
developers must comply with all the environmental and
will take the lead in Mexico’s renewables sector as it is less
social requirements and assure the bank that permits will
complex to develop and has lower costs.”
be obtained on time to secure financial closing as well as the contracts.
The potential is already there, she adds. “There are various ways of doing business in Mexico in the renewable
Finding and retaining skilled labor is another key to success.
energy mix. But wind and solar have proved to have great
“Since our arrival in 2013, our team has grown and we
potential.” Wind power in particular has developed at
have invested heavily on local human capital from the very
a faster pace given its longer track record and large
beginning, training employees and putting them in close
projects in the Isthmus of Tehuantepec, Tamaulipas and
contact with researchers and associations.” Tatto explains
soon Yucatan. In the case of solar power, “developing
that this strategy has provided ATA Renewables with a
a solar project is possible virtually anywhere in Mexico
highly specialized Mexican workforce that understands the
because we have good irradiation hours and plenty
country’s requirements.
of solar resource across the country, especially in the northern and central nodes.”
Mexico has many talented students and professionals, Tatto says, but the pace of industrial growth is overwhelming,
ATA Renewables, a Spanish energy group that offers
creating a talent gap that must be filled. “The country
engineering, advisory, certification and market
is slowly but surely working on this,” she says. “The
intelligence services, has a global installed capacity of
associations and the industry have created projects,
more than 21GW. “We see many opportunities regarding
programs and funds together with many universities to
technology for both wind and solar power,” says Tatto.
overcome this gap.” For instance, Tatto takes part in the
She says ATA Renewables has also identified potential in
Women in Renewable Energy Mexico (MERM) association,
energy storage given Mexico’s geography and resources
which links academic institutions and industry. “Students
should bolster the use of this technology, especially for
can gain hands-on experience and knowledge through
non-interconnected systems. “In the meantime, a number
industrial visits, lectures, workshops and other initiatives,”
of battery-operated storage facilities will be needed,” she
she says.
says. “When batteries become more accessible due to falling prices, more of these projects will see the light.
Going forward, ATA Renewables would like to introduce
We expect this to happen soon.”
other business units to the country, including its certifications division CERES, but Tatto says the company’s
Most of ATA Renewables’ clients are banks, investment
involvement in the Mexican market will be parallel to its
funds, developers and EPCs but the company also advises
growth pace. “Mexico is a second home for ATA and we
governments and utilities for special projects. Tatto says
want to have a prime position here,” she says. “Because
commercial banks are still struggling to enter the market
of its special role as a bridge between Central and South
because they do not fully understand yet how to assess
America and Europe, we consider Mexico a strategic
market risk. “Banks have become even more cautious and
headquarters.”
235
INSIGHT
PROJECT DEVELOPER EXPANDS TO DG TEODORO KRAPP Director General of Intertec Mexico
236
The opportunities unlocked by the development of
all is financial closing. Even when you have enough capital
distributed generation in Mexico is enticing seasoned energy
to finance the project from your own balance sheet,
companies to branch out toward this niche, says Teodoro
compartmentalizing risk in every stage of the project by
Krapp, Director General of Intertec Solar Mexico. “Our
obtaining specific financing from specialized third parties
expertise allows us to work comfortably in the distributed
comfortable with financing a particular stage of the project
generation segment, particularly as it is a less capital-
is a highly recommended and common practice,” Krapp adds.
intensive business compared to large-scale projects,” says Krapp. “Baja California offers us a considerable client
Intertec started as a consulting company, cumulating valuable
portfolio given its attractive solar irradiation levels and our
insights into Mexico’s PV market since it opened its doors
work in a 30MW PV project there. We are looking forward
in 2012. “Our business strategy entailed a joint venture with
to further developing this business line in the near future.”
Germany-based Saferay under a holding scheme. We set out to develop a Baja Californa-located 30MW project in July
To ensure profitable businesses for distributed generation,
2012, as regulation at the time limited a project’s installed
Krapp believes CRE needs to further strengthen its regulatory
capacity to that amount,” Krapp says. Intertec considered
procedures and reach in the electricity market. “It is no
this particular location strategically attractive for solar
easy task considering CFE remains a giant with significant
power considering fuel oil used to generate electricity in
comparative advantages given its 70 years of experience.
Baja California needs to be shipped into the state, rendering
We are confident CRE is working diligently to guarantee a
the use of fuel oil more costly compared to other states in
level playing field for all other market participants,” he says.
Mexico. “We underwent pre-feasibility studies for the optimal
Considering CRE will soon overtake the design of the long-
design of the power substation and the construction of a
term electricity auctions and tariff publications from the
5km transmission line and went through all the permitting
Ministry of Finance, Intertec hopes to see clear-cut decisions
procedures and CFE’s purchase-sale contract.” The project
as well as decisive and enabling regulation, especially in
developer also capitalized on the first long-term electricity
making more dynamic and efficient processes when it comes
auction by offering its project development services to large
to interconnection studies and permitting.
companies looking to participate. “In 2014, we partnered up with Norwegian Scatec Solar to maintain a healthy capital
Critical success factors at a large-scale PV project can be
flow into our project development activities.”
transposed to distributed generation projects, including the products involved in a PV system. “To guarantee long-term
Krapp’s company wants to remain one step ahead in
seamless performance, you need Tier 1 solar panels and
distributed generation by tapping into battery-equipped PV
inverters. A meticulous and demanding selection process is
solar systems. “We recently closed a business relationship
a must when it comes to choosing your products’ supplier or
with ABB to integrate its high-end batteries into our portfolio,”
manufacturer,” says Krapp. Location is another key variable.
he says. Intertec is also teaming up with Enerray to provide
For large-scale projects, “a higher distance between your PV
greater added value into its developments.
power plant and the electric substation that will distribute the generated energy implies a higher cost, not only from energy
Intertec Solar is taking the distributed generation challenge
loss but also from installing additional transmission lines and
head on. “We see great business potential in solidifying this
substations from scratch so as to have electric infrastructure
particular business line. Also, we want to increase our off-
closer to the location where your project is being developed.”
grid PV systems business as it can be developed within a shorter time frame and bypasses the need of additional
Distributed generation, by its very nature, has the advantage
electric infrastructure costs. Our partnership with ABB will
of bypassing this infrastructure issue. “Most important of
be instrumental in this regard,” Krapp says.
INSIGHT
WHERE PREVENTION FAILS, MITIGATION PREVAILS GUSTAVO GALAZ Director of Fire, Gas and Energy for Ftech
With an average price of a couple of million dollars per
that help minimize risks and ensure that incidents do
energy project, fire risks that could potentially bring down
not turn into full-blown crises. Among Ftech’s added
operations or even a whole project are a serious matter. To
values is that we are a technology and brand-neutral
ensure the continuous operation, generation, transmission
company and therefore can offer a tailored solution to
or distribution of energy projects, Ftech offers its unique
our clients,” Galaz says. “This is not very common in a
reliability protection service. “Ftech’s protection systems
highly specialized field such as fire protection, as most
not only increase the reliability of energy management
companies tend to specialize their services and the
systems, but also decreases recovery costs in case an incident takes place, and can even reduce the amount of capital losses if a fire breaks out,” says Gustavo Galaz, the company’s Director of Fire, Gas and Energy. In Mexico, a reactive culture tends to prevail over prevention, whether in infrastructure, healthcare or technology adoption. The same applies to project developers in the energy sector when it comes to safety measures, Galaz explains. “Sometimes companies with big, multimilliondollar projects do not see the added value of even the simplest protection systems,” he says. “Unfortunately, people do not see the need for them until they are truly required.” To overcome this obstacle, Galaz emphasizes to his potential customers the importance of having a fire
“
brands they manage.”
Sometimes companies with big, multimilliondollar projects do not see the added value of even the simplest protection systems. Unfortunately, people do not see the need for them until they are truly required”
protection system, which can help avoid crises and ensure that a small incident does not escalate.
Following this vision, Ftech can provide the most innovative and highly engineered solutions in the market that are
Regardless of measures taken, accidents happen, and
backed up by 3D simulation software to ensure their
while it is important to minimize the possibility of them
functionality before any implementation. Galaz cannot talk
happening, it is equally important to mitigate their effects
about particular clients, but states that many of its installed
as much as possible. This goes beyond installing sprinklers
systems have prevented catastrophes, and this goes directly
or having a fire extinguisher close by. To offer the highest
to the clients’ bottom line. “Risks decrease as a result of
added value to clients, Galaz highlights the importance of
the engineered solution, and that in turn lowers related
working with them from the very beginning of the project,
insurance premiums, which is a short-term savings area we
where the consultancy stage starts. “The consultancy phase
emphasize,” he says.
consists of analyzing the risks, based on Ftech’s and the client’s experience and best practices, to determine areas
Galaz remains confident that Mexico’s energy industry
of greater and lesser risk,” he says. “Based on the results, an
represents an impressive business development
engineered solution is proposed and, if the client is satisfied,
opportunity for Ftech. With broad experience in the
implemented by the EPC.”
market, as well as its ability to adapt to every requirement a company might have, Galaz expects to grow at the same
After the consultancy phase, Ftech follows an unbiased
pace investment comes into Mexico while maintaining its
vision to ensure that its clients get the best products
market share. “We are just waiting for the projects to
possible. “There are many solutions in the market
become a reality,” he says.
237
238
INSIGHT
NUANCED SOCIAL SOLUTIONS FOR GREATER SUCCESS
Ernesto Monroy Director General of AI Sustentable
Miguel Jiménez Engineering and Development Manager of AI Sustentable
Mexico’s enormous biodiversity, wealth of archaeological
The long-term nature of the projects makes it important
ruins and complex patchwork of cultures and traditions
to eliminate these myths and ensure that the population
make navigating social and environmental aspects of project
understands every step of the project. The company also has
development even more complex than normal. Companies
to help the population understand that the economic benefits
such as the recently founded AI Sustentable are trying to
may take time to materialize, otherwise social problems could
fill the gap between energy project development and the
arise. “Although the government’s infrastructure goal is to
communities that might be impacted.
provide all communities with electricity, we are aware that
“
achieving that is complicated,” says Monroy.
“Having different cultures means that each project should be seen through a different spectrum according to the cultural and historical context,” says Ernesto Monroy, the company’s Director General. “It is easier to deal with populations in the north where there is more acceptance of projects than in the south, where history demonstrated that project developers contacted landowners to take away their land or other resources.” The 2015 General Guide to Social and Environmental Impact Evaluations introduced by the Ministry of Energy lacks comprehensiveness because it does not consider Mexico as a multicultural country. “There is still room for improvement
Having different cultures means that each project should be seen through a different spectrum according to the cultural and historical context” Ernesto Monroy, Director General of AI Sustentable
in the framework surrounding the Energy Reform in the area of social and environmental responsibility,” he says.
Nevertheless, AI Sustentable’s experience has positioned it to communicate well with communities, according to the
AI Sustentable has a multidisciplinary team with different
company’s Engineering and Development Manager Miguel
backgrounds, covering archeology, biology, engineering and
Jiménez. “We have taken part in big projects and have learned
administration. At first, the company started working on social
that once people are convinced that installing renewables is
impact studies for infrastructure projects, before transitioning
beneficial, the fear disappears and they begin to ask about
into energy by developing studies in hydroelectric projects,
the possibility of smaller-scale home installations to take
solar parks and wind farms. But in a country with a population
advantage of the financial benefits,” he explains. “Soon
of about 130 million, social and environmental impacts
enough, they also ask us to bring the technologies to their
can differ at a regional level and according to the cultural,
schools and public spaces, where the younger generations
economic and social context of a community’s population.
can see the benefits.”
“Once we started going into the field and saw the necessities
The move from consulting for energy companies to creating
of specific populations, we understood that the projects on
renewable energy projects in communities has given AI
the market were focused on solving only one kind of problem:
Sustentable a unique perspective on the introduction
bringing electricity to cities,” says Monroy. “These projects
of renewables for residential use. “Our knowledge has
were overlooking a population segment that demanded
allowed us to venture into rural electrification projects to
smaller-scale projects.” To solve this problem AI Sustentable
power isolated, non-interconnected systems that would
started working on affordable green technologies that suited
otherwise be too expensive to connect to the main grid,”
the environmental needs of these communities.
says Jiménez.
239
ENERGY INFRASTRUCTURE
9
A wide territory with extensive energy sources to be exploited, an expanding population that grows in focalized points and a highly energy-intensive industry place Mexico as a sweet spot for not only the development of energy infrastructure with generation projects, but of energy transmission lines and distribution as well. To secure a positive outcome from all the infrastructure projects to be developed in the country, it is necessary to have all energy industry players working toward creating well-planned energy infrastructure that considers the prospective relationship between energy generation and demand, together with the means of connecting both elements.
A correctly developed electricity and natural gas grid can become the decisive factor that will lead Mexico toward the fulfillment of its clean energy generation and energy security goals.
The expectations for the revamping and expansion of Mexico’s transmission and distribution infrastructure, as well as technologies that will pave the way toward a smarter energy market are among the topics discussed in this chapter.
241
CHAPTER 9: ENERGY INFRASTRUCTURE 244
ANALYSIS: A Flexible Grid for a Cleaner Future
246
MAP: Mexico's Transmission Infrastructure 2016-2021
248
VIEW FROM THE TOP: Víctor Fuentes, Mitsubishi Electric Automation
250
VIEW FROM THE TOP: Alicia Barnetche, Kepler
251
VIEW FROM THE TOP: Vicente Magaña, ABB Mexico
252
VIEW FROM THE TOP: Gabino Fraga, Grupo GAP
254
VIEW FROM THE TOP: Kevin Gutiérrez, Ingeteam
255
INSIGHT: María Muñiz, GPTech
256
VIEW FROM THE TOP: Savir Ruiz, CODISA CORP Energy
258
INSIGHT: Luis Adame, General Cable
259
INSIGHT: Rafael Almanza, Industronic
Miguel Barrientos, Industronic
260
VIEW FROM THE TOP: Santiago Paredes, Grupo IGSA
261
INSIGHT: Luis Barrado, Grupo Ortiz
262
INSIGHT: Lloyd De Villamor, Ruybesa de México
263
INSIGHT: David Torres, TORDEC
264
INSIGHT: Alessandro Orpelli, Fimer
265
VIEW FROM THE TOP: Eduardo Curiel, Grupo Industrial Águila
266
RoundTable: What Challenges is Mexico’s Electricity Infrastructure Facing?
243
ANALYSIS
A FLEXIBLE GRID FOR A CLEANER FUTURE Whether building new lines or revamping old ones, Mexico has little choice but to expand its distribution links if it wants to move away from fossil-fueled plants to cleaner energy technologies. New innovations in storage and other areas are likely to play a key role in helping realize the country’s goals "Energy for the progress of Mexico." That was CFE’s motto
transmission lines revamped. “The effort to incorporate
for a long time as the company sought to deliver high-
renewables must be accompanied by upgrades to
quality energy to the greatest number of people. This led
transmission lines that are already saturated, as well as
to an extensive national grid focused solely on covering
building new infrastructure for the Mexican grid to absorb
energy demand, and not on growing in a sustainable way.
all the renewables production,” says Hugo Galindo, Director General of Grenergy Renovables. Fortunately,
244
It also resulted in a grid that connects stable energy
these needs are viewed by most as a business opportunity,
generation points, mostly based on fossil fuels, to high
according to Luis Sánchez, Director General of Ergo Solar.
energy consumption points. This can be seen when
“For about 70 years, the private sector was prohibited
comparing the extension of the more than 102,000km
from participating in any aspect of Mexico’s electric
of transmission lines with the location of the plants
system. As a result of the reform, the great unknown has
owned by each of CFE’s generation subsidiaries as well as
transformed into the great opportunity, where private
considering the fact that Mexico’s total installed capacity
players can participate directly in the industry’s entire
of 73.51GW is 71 percent powered by technologies that
value chain, from generation to consumption.”
“
use fossil fuels.
The only missing link between the present and a future where 80 percent of Mexico’s electric power is produced by renewables is the development of reliable and cost-effective energy-storage systems” David Torres, Director General of TORDEC
EXPANSION A MARKET MUST The most abundant renewable resources that make for the best business opportunities are focalized in specific areas of Mexico, most of which lack a proper connection — or a connection at all — with the National Interconnected System (SIN). This is reflected in the fact that most of the projects from the first three longterm electricity auctions were assigned to the states of Sonora, Coahuila and Nuevo Leon where the transmission grid does not have the same extensive coverage. This situation also applies to Yucatan, a state where almost 1GW of capacity from the first and second long-term auctions is expected to be installed, but that is also in great need of grid expansion. But nowhere is the issue more prevalent than in the state of Oaxaca. Due to its abundant wind resources, the state has attracted 70.65
The grid was not developed considering the potential
percent of the investment directed to the creation of wind
renewable energies such as wind and solar would have,
farms in Mexico, but the lack of a proper transmission
both in terms of stability and location. As a result, Mexico’s
grid connecting it with high-consumption centers has
strong, steady but old grid is facing a new reality, one
created an energy transmission bottleneck. Fixing the
where flexibility and modernity offer the highest added
problem will not only create efficiency but save money.
values. According to José Arosa, Director General Mexico
“A higher distance between your PV power plant and
of IC Power, this has not yet been properly managed by
the electric substation that will distribute the generated
the state. “The necessity for projects has been outlined
energy implies a higher cost, not only from energy loss
but most of these are too conceptual,” he says. “The
but also from installing additional transmission lines and
Energy Reform has not yet properly turned attention to
substations from scratch,” says Teodoro Krapp, Director
transmission and distribution.”
General of Intertec Solar Mexico.
To meet the new and cleaner challenges of the world,
To solve Oaxaca’s bottleneck CFE, with the support of
the Mexican grid needs to be expanded and its old
the Ministry of Energy, launched a public tender for the
construction and operation of a 3MW, 1,200km HVDC
ensure that electricity prices remain low in the future.
transmission line under a PPP scheme. According to an
“Transmission and distribution are key pieces in the
article in El Economista, by June 2017 CFE had liberated,
puzzle of Mexico’s competitiveness. Although we have
after almost two years of work, 94 percent of the rights
achieved cheap generation prices, they only make up
of way for the line. But delays on the project again
40 percent of the final energy price for consumers,
demonstrated that social issues affect the creation of
highlighting the importance of improving transmission
energy transmission projects just as much as they affect
and distribution.”
energy generation developments. Other players in the industry are looking even further According to Gabino Fraga, Managing Partner at Grupo
ahead by considering electricity storage systems as a
GAP, the importance of considering every social aspect
way to help the Mexican grid cope with the intermittency
from the very beginning of a transmission or distribution
generated by the integration of an ever-increasing
development process cannot be stressed enough.
number of renewable energy systems.
“Sometimes, it might be surprising how simple problems lead to very complicated situations, ultimately stopping
STORAGE TECH, THE ULTIMATE ENABLER
a project. Confusion over ownership of a property is a
Alessandro Orpelli, Solar Sales Director of Fimer, says
case in point. A company looking to develop a project
energy storage technologies implemented in the Mexican
might have talked with the leader of a community or
grid would help decrease the country’s dependency on
ejido, but that person is the representative of the group,
energy generation plants powered by fossil fuels. “The
not the owner. The land is owned by a collective entity,
main advantage fossil fuels have over renewables is that
meaning that the leader has no true ownership of it. Such
they provide energy 24 hours a day. Once we can store
a simple mistake in dealing with a situation like this could
energy, we can deliver it 24 hours a day too.”
jeopardize an entire project.” Some, such as David Torres, Director General of TORDEC,
REVAMPING TO STEP UP TO THE CHALLENGE
emphasize upcoming technologies, such as storage, to
Besides creating new infrastructure, older lines can be
guarantee a stable renewable energy future. “The only
revamped to ensure that Mexico’s infrastructure is able
missing link between the present and a future where
to cope with the transmission of electricity from the
80 percent of Mexico’s electric power is produced by
generation to the demand points. PRODESEN highlights
renewables, is the development of reliable and cost-
this under the objective of meeting the needs of electric
effective energy-storage systems,” he says. “Losing up
energy supply and demand, and for that it states that
to 80 percent of energy production at a 30MW solar plant
increasing the transmission capacity between the Puebla,
because of a cloud is extremely risky in a system that can
Temascal, Coatzacoalcos, Grijalva and Tabasco regions
only tolerate 10MW variations. That is the case in Baja
is a necessary project to be installed before 2020. This
California where the system’s eight nodes are isolated
project alone requires an investment of MX$21.9 million
from the other 45 that are part of the SIN. If batteries
for the substitution of all the required electric equipment
are not installed in a small grid like this, then the grid
with newer higher capacity equipment.
will not be able to handle variations that are inherent in renewable energy production.”
PRODESEN also highlights the importance of starting to, first, integrate new measurement equipment in the Mexican grid and, second, upgrade it into a smart system. Both objectives will allow the grid to cope with the requirements of the Mexican wholesale electricity
Mexico’s ElectricIty Infrastructure (2016) Generation Capacity
Conventional
52,331MW
Clean
21,179MW
market, after fulfilling the first objective, and to ensure that the infrastructure remains trustworthy and secure to provide an economically viable, efficient and sustainable energy supply, after fulfilling the second directive. The
Power lines Transmission Grid Substations
first objective requires an investment of MX$2.76 billion for the period 2017-2019, and the second will entail an investment of MX$4.89 billion for the period 2018-2021. Although meeting these objectives will be costly, José
Power lines Distribution Grid Substations
Delgado, Project Development Director for SUNCO, points out the importance of making this investment to
Source: Ministry of Energy
230-400kV
52,061km
69-138kV
50,330km
Others
1,742km
Booster
46,435MVA
Reductive
151,000MVA
Low tension-34.5kV
779,119km
Others
51,969km
High-Low Tension
66,613MVA
Low-High Tension
2,359MVA
245
MEXICO'S TRANSMISSION INFRASTRUCTURE 2016-2021
246
SUBSTATION 400kV 230kV 138-161kV 69-115kV below 34.5kV Projects still under analysis TRANSMISSION LINE VOLTAGE 400kV 230kV 138-161kV 69-115kV below 34.5kV
Mexico's transmission grid main elements
Projects still under analysis
MEXICO'S TRANSMISSION GRID INFRASTRUCTURE 300
Transmission lines 2016 (km*)
capacity 2016 (MVA*)
Resources to be 200
added during 20172029
100
23%
104.13
23.77
150
50
0 *Thousands Source: Ministry of Energy, CENACE
58.09
Transformation
197.43
250
29%
MX$219.4 billion
is the expected investment in transmission projects for the period 2017-2031
Main interconnection projects to be developed during 2019-2029 Baja CaliforniaNational Interconnected System Baja California Imperial Irrigation District Tehuantepec - Valle de MĂŠxico
Needed Investment and Infrastructure Estimated cost ($MX million)
Transmission lines (km)
Transformation capacity (MVA)
Compensation capacity (MVAr)
999.8
1,946
2,473
30
10.6
16.6
-
-
-
1,706.10
8,750
166.8
Projects still under analysis South East-Peninsula (three projects under analysis)
1,142 to 1,273
2,144 to 2,164
5,100
116.7
North East-NorthWest (related to Clean Energy transmission goals)
-
3,806
5,000
4,024
North East-Center (related to Clean Energy transmission goals)
-
2,603
9,575
1,483
247
VIEW FROM THE TOP
JAPANESE MANUFACTURER RELAUNCHES ELECTRICITY INITIATIVE VÍCTOR FUENTES Director General of Mitsubishi Electric Automation Mexico and Latin America
248
Q: What opportunities does Mitsubishi Electric see in the
protocol. It is possible to take signals directly from the
electricity wholesale market?
switch, both in low and medium voltage. For instance, an
A: Mitsubishi Electric is a component supplier, so we
encapsulated middle voltage substation is equipped with
deliver services in association with business partners
a communications module that collects data on current,
such as integrators, EPCs, IPPs or wholesalers. We see
voltage, amperage and output and sends it directly to the
many opportunities as a result of the market opening in
SCADA system. This process enables visible and tangible
generation, distribution and commercialization. The Mexican
monitoring of electric transformation and can be scaled to
industry is open to hearing about new technologies,
a circuit in a low-voltage cabinet. Mitsubishi Electric’s bet is
suppliers and alternatives and we focus on publicizing the
on integrated solutions for electricity distribution.
new technologies that Mitsubishi Electric offers. We have been in Mexico for 28 years and increased our participation
Q: What are Mitsubishi Electric’s expectations regarding
during the last seven years. The company is diversifying its
its participation in the electricity market?
portfolio and clients. Although Mitsubishi Electric is typically
A: Participation in this market is a medium-term project.
associated with the manufacturing industry, the company
When the electricity market was opened, it was not among
is entering the process industry and the electric segment.
our priorities. The projects that are being executed or tendered were specified one or two years ago. Mitsubishi
Q: How is Mitsubishi Electric making equipment more
Electric must focus on medium-term projects and start
affordable for companies?
working on technical specifications while formalizing
A: The company focuses on making our clients’ ROI
its alliances with the players resulting from the Energy
tangible and achievable from the moment a proposal
Reform. When building alliances, we must look for
is presented. Our value proposition is the lowest total
domestic companies that have experience in the market.
cost of ownership. In simple terms: amortizing expenses
There are Mexican companies that have a lot of experience
at a lower cost during the useful life of a project or the
and Mitsubishi Electric’s priority is building trust among
components of the acquired equipment to positively
partners by developing quality products and providing
impact asset management. Mitsubishi Electric supports
assessments to develop solutions. Mitsubishi Electric
its clients and advises them to make the best possible
follows three basic principles: passion for our customers,
decision about automation-related investment costs. The
corporate responsibility and the development of long-term
keys to success are an assessment of production processes
relationships based on trust.
and the positive impact of automation investments, lower ROI times and a lower total cost of ownership.
Q: How does Mitsubishi Electric differentiate itself in the Mexican market?
Q: What is the main advantage that Mitsubishi Electric
A: Mitsubishi Electric Automation is responsible for the factory
wants to deliver in terms of energy management?
automation business unit of Mitsubishi Electric Corporation
A: The e-Factory concept delivers several advantages.
in Mexico and Latin America. We supply components and
We can integrate information from the production floor
equipment to all industries. Mitsubishi Electric has been
at a manufacturing level in the same communications
present in the Mexican market with strong brand recognition due to its state-of-the-art Japanese technologies.
Mitsubishi Electric Automation has been in Mexico for over
One of our strongest assets is that we do not outsource the
28 years. It is a subsidiary of Japan-based industrial giant
manufacture of our equipment. While many other technology
Mitsubishi, which operates across several industrial markets
providers outsource their production and simply label
with an automation product line
the product once it is finished, we do not play that game.
Mitsubishi Electric has production facilities all over the world, even in China, but all are Mitsubishi Electric facilities that comply with all our requirements and have all the certifications we demand. We are the only company in the world that has a yearly R&D investment of US$2 billion, and our range of products and solutions is a reflection of that. Q: What makes Mitsubishi Electric the best partner? A: Mitsubishi Electric provides a single programming environment that allows for the simple and transparent flow of information. At the same time, we have a robust security system that protects all that information. These three elements facilitate knowledge and information transfer among automation components and between us and our clients. Mitsubishi Electric has a very clear statement that guides all its activities: we are a global partner and a local friend. This means that all the technology we offer, no matter if it is destined for Mexico, Japan or the US, is the same. Reducing product importation costs plays a big role in allowing us to provide the same technology all over the world at competitive costs in each market. Q: What percentage of Mitsubishi Electric’s operations are focused on the electricity market? A: Less than 5 percent. Our participation in this market is an initiative that the company recently relaunched because we did not have a constant presence for a couple of years as we went through organizational changes. Although Mitsubishi Electric is a global company, its operations in Mexico are small. We are selective about our projects and how to address them. This makes strategic partnerships fundamental to us. The company provides products and equipment, and a partner works with us to develop the final solution. I think we will be able to reach a share of between 8 and 10 percent of the market in the coming years. Capitalization is necessary to keep investments in that market. We have a short-term plan with two focuses, one is updating or migrating an obsolete installed equipment base and the other is servicing this base. There is a large amount of equipment in middle, low and even high voltage, including transformers, substations, generators and turbines that are Mitsubishi equipment and constitute an interesting market for us. Q: What kinds of alliances does Mitsubishi Electric need to complement its activities in energy? A: Globally, Mitsubishi Electric can deliver anything from a high voltage transformer to a simple domestic switch. However, in Mexico we need partners to develop integrated solutions because bringing a complete and assembled substation from Japan has a low cost-benefit rate. Diversifying the commercialization strategy has enabled us to be more agile than other companies that are more closed. Working locally enables us to tropicalize and adapt to the wishes of our clients.
249
VIEW FROM THE TOP
ARRAY OF SERVICES A KEY DIFFERENTIATOR ALICIA BARNETCHE President of Kepler
250
Q: What added value does Kepler offer the Mexican
Q: How does Kepler differentiate itself in an increasingly
market?
competitive and international market?
A: We are a basic infrastructure, heavy construction
A: Due to our specialized work, for 42 years now we have
company that responds to the market’s requirements;
always had international clients, even though the final client
that is to say, a services construction company. Kepler
might be a federal institution like PEMEX or CFE. We are
was established in the steel industry, and the main
internationally known in the steel, power generation, mining
development area was, at the time, in the northern part
and petrochemical industries. Our clients may change but
of Mexico, specifically in the states of Coahuila and
our policies and ethics remain the same. “Kepler constructs
Nuevo Leon. Later, it played an important part in the
... and constructs the Mexico we all want” is our motto and
other big steel industry pole development in Siderurgica
our goal. We have received a variety of international awards
Lazaro Cardenas Las Truchas, on the Pacific Coast. As the
for quality. Every foreign company in Mexico needs a Mexican
demands in the energy generation sector began to grow,
construction company to carry their projects to a successful
so did Kepler’s participation.
and timely conclusion. Kepler presents solutions that address the complexity and multitude of needs an industrial project
Kepler has constructed more than 12,000MW, over 30 powergeneration plants, simple or combined cycle, internal combustion and coal fuel
in another country represents. Q: What role does the energy sector play in your business strategy? A: Modifications to the secondary energy laws in the early 1990s opened the market to the private participation of both national and international players. These modifications attracted international participants, and the electrical sector
One of our main added values as a Mexican construction
saw significant growth in a relatively short time. The recent
company is the wide spectrum of services we offer. From
changes in the Energy Constitutional Law are interesting
the very start of civil works, mechanical or electrical
opportunities for participants of all kinds. Since the
projects, we provide the best qualified labor as well as
construction of the first privately-owned power generation
supervision, materials and equipment. Another added
plant in Mexico, the experience Kepler offers in this field
value is the level of quality and safety we offer to our
includes production of more than 12,000MW, construction
clients and workers. Since 2002, Kepler has had its entire
of over 30 power-generation plants, simple or combined
range of operations certified with ISO 9001-2015. We also
cycle, internal combustion and coal fuel technologies. The
have ASME certification with codes “S” and “U” and we
high productivity levels we guarantee makes us, if not the
work according to international standards in safety and
best, then one of the best options in Mexico.
care for the environment. Kepler is a socially responsible company. The fact that national and international clients
Q: How do you guarantee that projects are completed on
return for new projects is greatly satisfying, and proof
time, on budget and to a high quality?
of a job well done.
A: Excellence does not happen by chance or only once; this is part of Kepler’s business strategy and staff training. We want to do things right from the outset, which is the basis for a
Kepler is a 100-percent Mexican company that began in the
project completed on time, on budget and of the best quality
steel industry. it has gained international recognition for those
possible. A third important principle for us is team work.
of great complexity, and has constructed over 12GW of power-
These are values that, repeatedly practiced, save money,
generation plants
satisfy the client and create prestige.
VIEW FROM THE TOP
DIGITALIZATION-DRIVEN GROWTH, A NEED BEYOND A DREAM VICENTE MAGAÑA President and Director General of ABB Mexico
Q: How do you expect digitalization will change Mexico’s
A: Taking a look at what CFE has been doing, the
energy infrastructure?
company is really putting a stake in the ground and
A: Digitalization will change not only Mexico but the entire
moving toward excellence. In this regard, CFE has
world. By 2020, we expect that 30-50 percent of the jobs
strong objectives for the reduction of losses, both in
around the globe are going to be related in some way
its technical and nontechnical versions. The company
to digitalization. With a strong focus on developing that
is working really hard on bringing those losses down
concept, at ABB we are comfortable with the change.
from the current 13-16 percent of losses to the world
That is precisely the added value we want to offer to
average of around 6 percent. The implementation of
the country. With a production basis that is shifting from
digital meters is one of its first actions in pursuing this
conventional resources to renewables, a transmission
goal and ensuring that consumers of energy can also
and distribution grid that requires an overhaul and the
become producers and sellers of energy.
concept of smart grids, digitalization is a critical concept for Mexico. Furthermore, proper grid digitalization will not
Q: How does ABB bring the best solutions in the world to
only allow Mexico to cope with renewable and distributed
the Mexican market?
generation projects, but it will also improve the country’s
A: Mexico had a vertically integrated company, covering
energy security by increasing the ability for it to integrate
every aspect from power generation to distribution. Now
storage systems and allow for the creation of new business
we are going to see a much more open but complex grid. To
models in the market.
handle these complexities, at ABB we spend about US$1.5 billion annually on R&D, and we are looking to spend even
Q: What business opportunity does ABB find within the
more. To further strengthen our position, we are developing
concept of digitalization in Mexico?
strategic alliances such as the ones with Microsoft to
A: By 2020 we expect that there will be about 26 billion
develop a cloud platform and IBM to work on artificial
devices connected to the internet. Taking this into
intelligence. At ABB we understand that investing in our
consideration, the management of those devices and the
own R&D is not enough. Innovation is driven by creating
proper digitalization of the grid to cope with them will be
alliances that provide a strong portfolio of projects that can
crucial. ABB is already working with its ABB Ability Platform
be implemented later on.
to bring together all the required digitalization services in one place. With it, predictions can be made, such as when a
ABB has a large industrial complex in San Luis Potosi,
transformer is going to fail, its behavior and what predictive
which is a unique location that offers services to the entire
maintenance will be required, all in favor of a stronger grid.
Latin America region. We also have a strong R&D center at this location. Among the many innovative solutions
PRODESEN expects an investment of up to MX$2 trillion in the
that have been developed is a mid-voltage solar panel
coming 15 years to revamp Mexico’s energy industry. Of that
that can be used directly for distribution purposes. To
amount, 19 percent will go to the transmission and distribution
achieve these kinds of innovations we have a nurturing
sectors, and the rest mostly to renewable generation projects.
team composed of specialized seniors working together
Although renewables provide social benefits, they also
with young entrepreneurs.
introduce problems to the grid. As ABB has installed most of the cutting-edge stabilization systems in the world, we are looking to also implement them in Mexico.
ABB is a pioneering technology firm that works closely with utility, industry, transportation and infrastructure customers to
Q: How can ABB support CFE’s new added-value
write the future of industrial digitalization. The development of
business model?
talent is critical for ABB to foster its activities
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VIEW FROM THE TOP
SOCIAL INTEGRATION FOR PROJECT VIABILITY GABINO FRAGA Managing Partner at Grupo GAP
252
Q: What makes Grupo GAP the best option to work on the
The party that should be the most interested in communicating
social aspect of projects?
to the community what the project is about is the very owner
A: Grupo GAP is a strong partner in the area of land
of the project. It is that party who should make sure that the
management for the development of infrastructure projects.
information is properly transmitted, with words that match the
The added value we offer is our 27 years of experience
reality of the community and that allow the people who live
providing legal certainty to land access matters, therefore
there to fully understand all the implications of the project,
ensuring that the projects can find implementation and
both the negative and the positive. They should be informed
conclusion. This is important in a country where several
of the rights they have over the land, and also the way those
infrastructure projects had to be stopped because social
rights will be compensated in a fair and secure way. Leaving
conditions were not properly handled, resulting in a legal
anything to interpretation is extremely dangerous, as it
disagreement between the landowners and the companies
creates different expectations that, when left unfulfilled, lead
interested in developing the project. We are open to work on
to complaints and legal problems.
any kind of project. As a matter of fact, our goal is to work on projects where we can be the most useful and offer the
Q: How does Grupo GAP excel at solving social issues for
highest added value. I believe that we can be the most useful
energy projects?
tool for projects that have backgrounds of nonconformity or
A: On one hand, the company developing the project may
where there is no proper legal certainty on whether the project
have a strong financial profile and knowledge, and it might
can be developed. We want to support the development of
even have worked in other parts of the world with much
a safe industry for investments.
more complicated social environments, but it might lack the knowledge of the social reality of the community where it
Q: Where do you see social problems occurring the most in
is expecting to work. On the other hand, the community is
energy projects in Mexico?
the one that faces the daily reality of where the project is
A: Sometimes, it might be surprising how simple problems
going to be developed. It is those people that have always
lead to very complicated situations, ultimately stopping
lived there, and it is they who will continue living there. The
a project. Confusion over ownership of a property is one
language of the community is not simpler or more complex,
example. A company looking to develop a project might have
it is just different to the one that the company uses, and
talked with the leader of a community or ejido, but that person
this simple fact can lead to misunderstandings that are
is the representative of the group, not the owner. The land is
dangerous for the secure development of the project. Grupo
owned by a collective entity, meaning that the leader has no
GAP excels at being an interlocutor between all the players
true ownership of it. Such a simple mistake in dealing with a
involved in the project, communicating with them in their
situation like this could jeopardize an entire project, because it
own language and making sure that the discussion leads to
means that the company did not obtain the land rights when
a proper and clear negotiation that finally offers the project
negotiating with the leader. This means also that in any court
legal certainty.
the legal owner of the land can nullify any agreement made with another party and ask for almost anything, as the whole
We have managed to solve several social issues that had a
project viability depends on his decision.
project stopped, be it for airports, maritime ports, mining or energy. In the energy area, we have solved social issues for the development of mature fields in Veracruz, and managed
Grupo GAP offers legal and social advice for mining, energy
similar issues for wind projects in Tamaulipas. Our expertise
and oil projects in Mexico. It specializes in resolving conflicts
does not only include short-term projects but also those that
related to land access and usage and agrarian issues, in
cover wide areas such as the development of transmission
particular communication with ejidos
lines and pipelines for the transportation of fuel.
Q: Why is it important to have possible social issues
Mexicans, we cannot afford to keep sending these kinds of
considered from the beginning of a project?
signals. The theme of land ownership is often minimized, and
A: Sometimes issues cannot be solved because of external
companies believe that because they will create jobs and
factors, such as a landowner that obeys political or private
bring investment they will be received with arms wide open,
interests, or the presence of organized crime, leading to
but the community where the project will take place may
the impossibility of developing the project the way it was
actually see them as dangerous. Under a scheme like this,
expected. Knowing this before the project starts is extremely
where no proper communication channel is constructed, the
important, as it could avoid major expenditures and time lost
legal certainty of the project is at risk.
from changing the project. This highlights the importance of recruiting law firms like Grupo GAP from a project's inception.
Q: What challenges can private companies find due to PEMEX and CFE’s previous presence?
Sometimes the project is jeopardized by much simpler
A: Mexico needs to improve its social environment so
aspects. While studying one pipeline project, we discovered
companies see it as a safe place to invest. Unfortunately, CFE
that the pipe was going to pass right next to a graveyard’s
and PEMEX left a negative footprint in some communities
border. The company did not see the significance of the
they worked in. Previously, these companies reached toxic
problem, and was not happy with our recommendation of
agreements where only money was involved for some
changing the layout of the project. After thorough discussion,
individual players. Now, we must work to make communities
the company understood that anywhere in the world, and
understand that the market has changed and that international
especially in Mexico, making modifications to a graveyard
companies need to work to create a profit both for themselves
would be impossible and the risk of major capital losses was
and for the country. When a company buys the rights to work
too high. The result of the discussion led to a different layout
in what used to be a PEMEX field it is vital to understand
of the pipeline, which ended up being a successful project.
the previous agreement PEMEX had with the landowners, so the new contract, which cannot be done under a simple
Q: What is the danger of stopping projects like La Ventosa?
rights transfer, can be carried out under the best terms for
A: The project in La Ventosa left a damaged image of the
both the landowner and the company looking to use the
country. It was poorly managed in both the social and
property. We also need to make sure that PEMEX is leaving
public spheres from the very beginning. This gave the world
no environmental or social impact in the community, and that
the signal that investments were not secure in Mexico. As
the newcomer will not have to pay for any damage left.
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VIEW FROM THE TOP
LONG-TERM VIEW ABOVE ALL KEVIN GUTIÉRREZ Former General Manager of Ingeteam
254
Q: What key advantage does Ingeteam bring to the table
extreme need. Losing up to 80 percent of energy production
in Mexico?
at a 30MW solar plant because of a cloud is extremely risky
A: Our biggest strength is in R&D, in which we invest up to 5
in a system that can only tolerate 10MW variations. That is
percent of our annual budget. From the very beginning, we
the case in Baja California where the system’s eight nodes
knew that focusing only on short-term sales for installation,
are isolated from the other 45 that are part of the SIN. If
operation and maintenance would hurt us, so we started
batteries are not installed in a small grid like this, then the
investing in R&D. Given our deep experience in power
grid will not be able to handle variations that are inherent to
electronics, and thanks to the renewables market boom in
renewable energy production. Therefore, the batteries market
Spain during the 1990s, the company opened a business
has potential in such isolated systems but we do not see much
area focused on power electronics for the wind sector. We
short or middle-term potential in other regions of the country.
opened our Mexico office in 1998, offering services to the steel industry in the country’s northern region.
Q: How can Mexico deal with the human capital gap it is facing?
It did not take long for energy projects to start booming in
A: Although the human talent gap exists, the main challenge
Mexico. That was the moment we decided to open a branch
that companies will face in the energy sector will not be
of our business unit for renewables that already enjoyed
talent acquisition but talent retention. Companies that
a strong position in the international market. Today, we
hire a worker will offer specialized training and will try to
have around 2.6GW of O&M contracts in Mexico, together
develop that person’s abilities within the company. As the
with 120MW of inverters connected and 20MW that will be
worker advances, that person will become more and more
connected by August 2017.
appealing to other companies that are just entering the market and that might be willing to offer bigger economic
Q: In which areas does Ingeteam foresee the most
incentives. Ingeteam not only offers its employees attractive
opportunities in Mexico?
job conditions and incentives; the company’s entire
A: We have found our biggest market in PPAs, not because
philosophy revolves around human development. It is in
we focus on these kinds of projects but because they were
our DNA to invest in technology development and to focus
the only possibility before the long-term electricity auctions.
on long-term commitments, so it is logical that we translate
The projects assigned through the auctions will take time to
these efforts to the development of our workforce.
materialize but we will push to promote our presence. The auctions have also resulted in low prices that forced companies
Q: What are Ingeteam’s long-term plans for Mexico?
to rein in budgets. We can offer products and services that are
A: Ingeteam is the No. 1 supplier of power electronics for
optimized to ensure CAPEX and OPEX savings.
wind turbines in Mexico, with over 1.8GW of wind turbine converters supplied. We will soon have 140MW of inverters
Q: Do you see potential for the inclusion of batteries in
connected to PV projects, which makes us the leader in this
Mexico’s transmission and distribution grids?
market in Mexico. In the future we will continue making
A: In Mexico the batteries market will develop in regions where
strong and prudent offers. Some companies may take
they are either a regulatory prerequisite or where there is
the lead due to their bidding strategies but it will only be for a short time. Overly aggressive offers made by new companies will be attractive in the beginning but they
Ingeteam is a Spanish company that specializes in power and
will either only allow companies to enter the market with
control electronics such as inverters, frequency converters,
the hope of higher prices in the future or end up causing
controllers and protections, including generators, motors and
budget problems for those companies. Over the long term,
pumps, electric engineering and automation projects
these companies will disappear while we will remain strong.
INSIGHT
TECHNICAL VIABILITY AND STABILITY FOR THE GRID MARÍA MUÑIZ Deputy Chief Commercial Officer for GPTech
Drafting regulations for a completely new sector can be a
attests to our technology-specialized origins,” Muñiz says.
learning curve, as Mexican regulators in the energy sector are
GPTech’s hybridization of system engineering expertise and
finding out. María Muñiz, Deputy Chief Commercial Officer
experience, together with its proprietary technology provides
for GPTech, says regulations must be better thought out to
its customers optimal and global interconnection solutions for
find the balance between economic and technical viability for
renewable energy sources. 255
project operators. “To further develop the renewables’ sector in Mexico, regulators must change the guidelines that stipulate
When it comes to PV power, GPTech is mostly focused on
technical requirements must be presented from the outset of
providing system engineering to ensure plants comply 100
projects to reflect the reality and avoid a negative impact in
percent with Mexico’s technical guidelines for grid connection.
the economic viability of the projects,” she says.
With wind, it has recognized potential for the reactive compensation systems it offers. “The set of products and
Muñiz believes project developers should be allowed to
services we want to offer focuses on energy management
deal with those requirements afterward, once renewable
systems for grid connection that encompass our range of
penetration starts growing, otherwise the projects will not
products, from PV inverters to reactive compensators for
be profitable. “It is also vital to clearly lay out the regulations
wind parks as well as storage systems for primary regulation
that have the potential to streamline public and private
and energy displacement,” says Muñiz. “Due to our strong
investments intended for the grid’s improvement,” she says.
technology profile, we can also coordinate our proprietary solutions with technologies from other manufacturers.”
In 2013, GPTech had its first experience with CFE through the analysis of the grid’s stability in the Baja California peninsula.
Developers working on projects above 50MW of installed
The technology company conducted a bilateral technical
capacity — from PPA developers to utilities competing in the
workshop in which it received important input about the
auctions — are GPTech’s natural clients, as most of its projects
needs of the electricity grid in Mexico. “From our side, we
revolve around 100-150MW. “We are actively approaching
communicated our expertise and experience in grid stability
local developers and have alliances on the radar because
and power electronics,” she explains. GPTech is now working
that is a necessary objective for any technology company,”
in a large-scale PV installation over 100MW to be built in
she says. “The sector is highly competitive and dynamic and
Sonora. The company has connected more than 550MW
these alliances help us involve national companies as part of
in Latin America, excluding only the Caribbean. GPTech’s
our aftersales warranty service.”
presence in Latin America includes Chile, Brazil, Argentina, Honduras, Guatemala, Peru and now Mexico.
Muñiz emphasizes the importance of this aftersales service since downtime directly impacts profitability of power
Countries initiating their first utility-scale projects using
plants. GPTech’s aftersales service includes an under-24-
renewable energy or where the grid connection guidelines
hour incident correction service. “We work jointly with our
have not yet been defined are at the core of GPTech’s strategy.
local partners during the first six months of plant operations
“The first utility MWs connected in Chile, Peru and Argentina
so they can become familiarized with the technology so
were implemented using GPTech technology,” says Muñiz.
afterward they can act as our technical aftersales assistance team for the region,” she explains. The team performs the
To maintain its global positioning, the company has been
technical on-site support and GPTech also provides the use of
100 percent focused on technology from the outset. “Twelve
its global platform, a statistical system that analyzes incident
percent of our annual income and 40 percent of our personnel
information and can help find the origin of the error. “This
are directed toward R&D, especially in the areas of energy
commitment to the local industry also allows our customers
management such as grid connection and plant stability. This
to easily achieve their local content requirements,” says Muñiz.
VIEW FROM THE TOP
INFRASTRUCTURE KNOW-HOW FOR ENERGY PROJECTS SAVIR RUIZ CEO of CODISA CORP Energy
Q: Where does the largest growth potential lie in renewable
personnel to undertake the renewable energy projects that
energy projects for construction companies?
are being developed in Mexico.
A: Generally speaking, renewable energy projects mostly
256
require process automation at the moment, especially for
We also implemented a second developmental phase for
grout installation. Electric installation, material supply and
our personnel. At some point, all these new wind farms
inputs are practically standardized. We recognized that our
and solar parks will require maintenance. To respond to
strength in this sector would be to support developers and
this particular need, we have an alliance in the pipeline
contractors in bringing projects to completion.
to integrate maintenance solutions developed in Europe and Asia.
CODISA’s business opportunities arise when our clients do not have everything they need at their disposal. We
Q: How does CODISA stay up to date with the sector’s
work to fill this gap. The provision of concrete for wind
technological developments?
farms is a good example. Despite the presence of cement
A: We try to anticipate the emerging needs for solar parks
powerhouses like Holcim, Moctezuma and Fortaleza, there
and wind farms, notably in concrete foundation repair and
are specific services required by the Mexican energy market
maintenance. We are already providing these services
that the cement industry is overlooking. CEMEX is the
at a wind farm that is only 4 years old. CODISA is also
exception but it exclusively focuses on utility-scale projects.
working to systematize these new products and services. For instance, we are renovating our crushing equipment to
To adapt to an increasingly demanding market, we
adopt the latest automated technologies. Additionally, we
integrated the required permits and certifications into
are integrating the systems used by industry heavyweights
our services and can offer a comprehensive package of
like Holcim and CEMEX into our plant equipment.
concrete solutions to create infrastructure and facilitate access to remote locations. This strategy will underpin
Q: What are CODISA’s international projects?
our growth because it will allow us to take on civil
A: We are doing grout installment for three wind farm
engineering projects.
projects in Jamaica: Winton 1, Winton 3 and Monroe 2, as part of our partnership with CJR Wind. We also worked with
Q: How is CODISA facing the industry’s human capital
GES on a solar park electric-substation project, covering all
challenge?
the civil engineering aspects.
A: When we started developing our activities in wind, we focused on grout installation, a fundamental element of
We are finalizing talks to form alliances with companies
construction supply. Developers that require this service
we have previously worked with. The goal is to enter the
use certified products so we underwent a certification
Central American market, given that the region’s energy
process to be eligible to handle these products. We even
transition is still in its initial phase compared to South
went to Spain to obtain the relevant certification, while
America, where the market is already developed.
also gaining the representation and distribution rights for these products. CODISA has the integrated equipment and
Q: What is the comparative advantage of distributing Fosroc’s products? A: To develop wind-power projects, companies must meet
CODISA CORP Energy has been operating since 1998 as a
a list of required certifications and validations. In the case
provider of high-quality construction materials, working
of grout installation, we are talking about a process that
both in Mexico and abroad to help wind power projects get
lasts no less than three years, covering manufacturing,
off the ground
standardization and product testing. Other companies in
the sector that offer these kinds of products, such as Vestas,
standardizations to offer a competitive solution for the
Acciona, Gamesa and Siemens, to name a few, have already
market. Once that was done, we initiated a credibility
integrated these certifications. Fosroc went through this
campaign with potential customers, where we showed them
validation process prior to entering the North and South
that we could deliver in a timely and effective manner. Three
American markets.
years after we started this transition, we are now involved in projects that have launched us to a level reminiscent of
In Mexico, there is no investment in technologies that
our best years in highway construction.
improve grout. We also refine our oil abroad because we do not have the capacity to do it locally. By integrating
Q: What is CODISA’s ambition in Mexico’s energy market?
Fosroc’s products into our portfolio, we obtained a full-
A: We are confident we are taking all the necessary and
package solution by distributing a cost-effective product
resolute steps to be seen as a reliable partner in any
new to the industry. We also provide an adaptive reaction
renewable energy project, particularly for all aspects
service.
regarding civil engineering. We are perfectly aware that developers need to adapt to a new and dynamic market,
Working with foreign companies gives us the advantage
in which we have proven to have the required flexibility
of elevating our products and services to international
to face all its challenges and to provide the essential
standards. But we are open to any market and any project.
reliability to ensure a project’s success. As a complement
Simply put, we look for projects where our services are
to our products and services portfolio, we are integrating
required, providing the added value we can offer.
specialized electromechanical professionals to guarantee our capacity to anticipate the entire spectrum of a
Q: How did your organic evolution toward renewable
project’s innate risks.
energy take place? A: We were going through a rough patch in the construction
Mexico’s renewable energy industry, in terms of construction,
sector. Grupo México approached us to get involved
represents 60-65 percent of the country’s projects. It is vital
in renewable energy projects and to bring new life to
that we consider all the work that will be required after
our business by specializing in new applications for our
the construction is completed. We need to transform and
core business. Over two years, we invested in this new
develop new technologies locally to anticipate these needs
segment and obtained the necessary certifications and
and to offer viable solutions to address them.
257
INSIGHT
TRANSFERRING WIRE KNOWLEDGE TO MEXICO LUIS ADAME Commercial Director of General Cable
258
As Mexico rewires its energy sector, the country’s authorities
farms. International players are used to working under certain
are setting the stage to revamp its electric infrastructure,
quality standards and will not expect less from the Mexican
with more than 400 electric transmission and distribution
market. This added competition is putting pressure on CFE
projects outlined by PRODESEN. One company poised to
as it finalizes its consolidation as a productive enterprise of
take advantage of the groundbreaking Energy Reform:
the state. Now that this process is coming to a close, CFE
General Cable, one of the world’s main producers of cable
has to prioritize strategies that provide added efficiencies to
with more than 170 years of history in the Americas, going
its operation and develop profitable business lines. “CFE is
back to the days when it supplied the cable for the first
currently developing some high and extra-high voltage direct
telegraph wires in the US.
current projects, primarily in the south of Mexico,” says Adame. “We will provide our technology, developed and operating in
“The Energy Reform brought about great opportunities
Europe, for these projects from our Tlaxcala plant.”
for many companies in terms of new multinational foreign companies coming to invest in Mexico, bringing with them
CFE’s new status adds an additional layer of complexity
new technologies with different specifications,” says Luis
in its relationship with the private sector, given that it
Adame, Commercial Director of General Cable.
can simultaneously be its client, competitor or partner.
“
We will provide our technology, developed and operating in Europe, for new CFE projects from our Tlaxcala plant”
According to Adame, the Energy Reform has not changed the company’s relationship with CFE. “We keep working with it on the projects it signed with us,” says Adame. “Recently, we went further in our relationship with the development of our exclusively patented E3X product. At the moment, it is the only aerial conductor with heat-dissipating technology that optimizes the energy grid, adding greater capacity and controlling energy loss.” Ambitious and attractive projects are emerging as a result
Outside companies that developed their business in now
of CFE’s transmission and distribution bids, as well as
mature electricity markets are looking to implement this
the projects outlined by PRODESEN, and both local and
know-how to the benefit of propelling Mexico’s electric
international investors are taking note. “You need to identify
system to the heights of international standards. General
the projects for which you can provide the right product and
Cable has an award-winning plant in Tlaxcala, where it
generate added value, such as reduced costs, greater safety
produces among other products high-voltage cables, as well
or disruptive technologies,” Adame says. “We try to approach
as a distribution center in the State of Mexico. “Our company
end users directly to introduce the difference our products
has the advantage of knowing and being able to provide
and services can make for their business.”
the high-added value products these new players need to prosper in the Mexican energy market,” says Adame. “One of
The company’s management considers one of its principal
the main players of the global energy sector setting its sights
strategic advantages to be its close knowledge of international
on Mexico, with whom we are involved, is Iberdrola. We are
standards while producing in Mexico. According to Adame,
looking forward to getting the most out of this opportunity.”
General Cable’s major differentiator is implementing knowhow from different regions of the world in Mexico, while many
According to Adame, the Spanish energy company has an
of its international competitors only import products into
estimated package of US$3 billion in investments planned in
the country. “We are supplying and developing for Mexico
cogeneration plants and renewables like solar parks and wind
the same technology that we use in Europe,” says Adame.
INSIGHT
STRENGTHENING THE LOCAL MARKET
Rafael Almanza Director General of Industronic
Miguel Barrientos Sales Director of Industronic
In a highly technology-driven market such as that of UPS
they provide the same quality at a better price than products
equipment, few Mexican players are able to comply with
coming from the US or Europe.”
customer needs. To ensure that their technology is up to international standards, companies require a strong
This sentiment, he says, has had a knock-on effect not only on
focus on R&D, says Rafael Almanza, Director General of
Mexican companies, but also on those with vested interests
Industronic. “Eight percent of our budget is directed toward
in the country. The fall of the peso destabilized the Mexican
R&D, the same figure as we spend on marketing,” he says.
currency and investment climate, but Barrientos says this
With such a strong investment in R&D, it is no surprise that
has not discouraged large multinationals. “Even doors that
Industronic’s in-house R&D department publishes a new
used to be closed have opened due to renewed interest in
patent every year.
national production,” he says. “Big companies such as Telcel, Movistar, Santander, HSBC and others have understood the
Industronic is a Mexican company with a focus on manufacturing, installation and service for industrial-scale UPS systems and voltage regulators that convert electricity from low-quality and intermittent to high-quality and uninterrupted. Almanza uses the example of the manufacture and installation of a 500kVA UPS system implemented by Industronic to protect an entire building in Mexico City. The company is also launching a new digital voltage regulator that can be controlled and calibrated from a mobile phone. Although Industronic also provides solutions to commercial and residential customers, Almanza says that Industronic offers the highest added value to the industrial segment, where the capabilities of the company shine the brightest. “Serving the industrial sector is at the heart of Industronic’s
importance of strengthening the local market to safeguard
“
their investments in Mexico.”
We have found that the rhetoric used by the US has led to deeper nationalism at home, and a strengthening of the Latin American market” Miguel Barrientos, Sales Director of Industronic
business and where we can offer a real added value,” he says. At the beginning of 2017, Industronic signed a contract to
With a strong presence in UPS elements, Industronic is
provide a turnkey 1MW solar project for a farm in Puebla.
targeting 25 percent growth in annual sales for 2017. The
By August 2017, it had already developed almost 50 percent
company’s ambitions also extend to sectors the country is
of the required installations. “This is an achievement that
just starting to develop, such as solar. “Industronic is already
demonstrates the high-quality, on-budget and on-time service
the No. 1 company in Mexico for UPS and voltage regulators,
we can provide,” he says.
and our goal is to have 10 percent of the company’s 2017 income generated by its solar division,” he says.
As a Mexican company, Industronic takes great pride in its commitment to national content and, according to Miguel
International ambitions are also on the horizon for Industronic,
Barrientos, the company’s Sales Director, even the Trump
as the company is working to deepen its presence in Latin
Effect did not have an overwhelmingly negative impact on
America the same way it did in Mexico. “Our goal is to use that
the market. “We have found that the rhetoric used by the US
same commitment to local industry to deepen our presence
has led to deeper nationalism at home and a strengthening
in Latin America,” says Almanza. The company already has
of the Latin American market,” he says. “Our Latin American
operations and offices in Costa Rica, Panama and Guatemala,
customers are increasingly requesting our products because
and in 2018, it wants to open a Colombian branch.
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VIEW FROM THE TOP
STRONG BASELOAD CONTRIBUTION WITH COGENERATION AND GEOTHERMAL SANTIAGO PAREDES Director General of Grupo IGSA
Q: How has IGSA’s relationship with CFE changed since
use. This process always produces a surplus of electric
the implementation of the Energy Reform?
power. We sell this surplus to private third parties and to
A: IGSA has been a CFE energy supplier for over 45 years
CFE through the virtual energy bank mechanism governed
and our relationship has always been excellent. The reform
by the Efficient Cogeneration framework.
has introduced some complications but that is because it is 260
not easy to transition from dealing with a monolithic entity
Q: Having this energy trading system, how will you
to dealing with a conglomerate having nine subsidiaries,
capitalize on CELs trading?
one business unit and four affiliates.
A: We believe this new instrument to be a great business opportunity for IGSA. The rules of the game have yet to be
Q: What progress has the company made in realizing its
clarified enough for CELs to be integrated into our business
geothermal energy ambitions?
lines. The reform created the CELs obligation, beginning
A: We are convinced that geothermal energy is highly
in 2018, and in so doing created Mexico’s energy trading
profitable because it does not suffer the intermittency
market. As it stands, several variables have yet to be clearly
issues that plague other renewable energy resources. We
outlined. Which private players make up the CELs market?
were looking into a geothermal project in conjunction with
Where do I buy them from? How is the CELs spot market
CFE’s Geothermal Electric Projects Management. Despite
designed? How much do they cost? Once these questions
the agency’s extensive technical expertise, it is still coming
are answered, the CELs market — offer and demand — will
to grips with the new rules and regulations implemented as
reach an equilibrium that will make it attractive enough for
a result of the reform, one of which being CFE’s separation
us to participate in.
into several different companies. The studies and research of the country’s geothermal wells are there but CFE is still
Q: What progress have you made toward biomass and
figuring out its modus operandi for closing partnerships
waste management?
with the private sector. We expect that this process will be
A: We are focused on our three ongoing cogeneration
fully assimilated by 2018.
projects. Two of those became operational in the first quarter of 2017. They represent an investment of US$150
Q: IGSA has worked with energy-trading platforms prior
million and a capacity of 40-45MW. In addition, we have
to the reform. How do they function?
four more cogeneration projects in the pipeline. Once we
A: When we launched our energy-trading models, we
are finished with those, we will look into biomass and waste-
designed our projects based on an anchor client. This
management technologies because we see good business
anchor client is required to accept particular volumes of
opportunities in both niches.
steam, freezing or hot water and a specific amount of MW capacity. Food and paper industry-related companies,
Q: What is IGSA’s long-term vision for Mexico’s renewable-
among others, require these inputs. These companies
energy sector?
usually rely on furnaces to meet their needs. Through
A: According to the Mexican Center of Innovation in
cogeneration processes, we harness the steam from these
Geothermal Energy (CEMIEGEO), Mexico is ranked fourth
furnaces and mitigate the expense of burning the gas they
worldwide in geothermal installed capacity, amounting to 932MW. The country’s proven and probable geothermal reserves amount to an additional 430MW in capacity,
IGSA is a Mexican leader in the manufacture of power plants
according to the center’s estimates. Mexico’s renewable-
with over 45 years of experience. The company is present in
energy market should not be surprised if IGSA becomes
12 countries with a network of 50 global distributors, top-tier
increasingly present in the geothermal niche in the midterm,
business partners and a team of 900 professionals
or around three years from now.
INSIGHT
WORKING IN MEXICO, FOR MEXICO LUIS BARRADO Head of Energy Department Mexico for Grupo Ortiz
Mexico’s utility-scale projects, born from the auctions, require
among the industry players that are unfamiliar with all the
reliable EPC services to ensure their operational success once
advantages it offers, not only economically but also in terms
financial closing is reached. Luis Barrado, Head of the Energy
of energy efficiency and supply reliability,” says Barrado.
Department Mexico for EPC Grupo Ortiz, says the company
The importance of cogeneration is one reason why the EPC
offers turnkey services to meet emerging market needs. “We
wants to accompany its clients in the facilities’ O&M of their
practically cover all the different phases of energy projects
projects during the first years of operation.
in the EPC format. Additionally, we offer an equally integral O&M service that covers the performance of the facility for
Besides promoting cogeneration, Grupo Ortiz defines itself
the entirety of its operating life,” he says.
as a supplier of integral energy services. “We are a private company searching for profitability, with an emphasis on a
In 2012, Grupo Ortiz first entered the Mexican market through
social rate of return,” Barrado says. Under this mandate, the
its construction division, using its international experience
EPC looks for projects that can ensure the company's ROI
to build industrial and residential facilities, shopping malls
and the biggest social benefit to the country as a whole.
and hospitals. “In parallel, the energy division developed a
Barrado sees PV energy as an ideal way to capitalize on both.
country-specific project approach for Mexico, performing business analyses and presenting offers for bids from Spain,”
Mexico’s market circumstances allowed Grupo Ortiz to claim a
Barrado explains. “Once a project is awarded, we build a
strong foothold in PV solar projects, and it already has a solar
local team to lead operations, as we did with CFE." Grupo
park in Aguascalientes. Barrado calls the project a “two-in-
Ortiz supplies high-voltage lines and substations to the state-
one” solar park project. “Although we are building two solar
owned company using the Pidiregas scheme.
parks and licenses were processed property-wise for both, the project has only one electric connection to the grid,” he
Due to its success in the awarded bids and the potential of
explains. The project contains 140MW and 150MW in inverters,
the market, the Spanish group decided to formally install
respectively, which can reach 346MW at the PV panels’ peak.
an energy division in Mexico, named Ortiz Energía. With its establishment in Mexico, the group is passionate about
This project was developed by Alten with Grupo Ortiz as
developing the local supply chain. “We are a multinational
a reference shareholder. “While our investment does not
group operating as a Mexican company and prefer
guarantee participation in decision-making, it does position
Mexican companies as goods and services suppliers,” says
Grupo Ortiz in the institutional investment market. Alten
Barrado. Grupo Ortiz is in the process of confirming which
presented a bid for these solar parks, assisted by our
local suppliers and contractors it will use. Such a strong
expertise in the sector,” he says. Grupo Ortiz was awarded
dedication to Mexico came from the regulatory certainty
permission for the parks, then went through the standard
the EPC company has perceived during the auctions,
processes of the purchase agreement with the government
especially related to the design, planning and execution
and investment funds, before bidding for the project’s
of the reform. Past this, Barrado sees additional potential
construction, which it won through an EPC scheme.
for the company in the extension of the natural gas pipeline network. “On top of the reform, the gas network
In the short term, Grupo Ortiz expects to increase its
expansion plans will be decisive factors in consolidating
energy portfolio with other PV and wind projects, as
cogeneration technologies nationwide,” he says. “It is vital
well as developing and building two cogeneration
for infrastructure construction plans to come to fruition.”
and biomass projects for industrial companies that have between 5-10MW of capacity each, making them
Grupo Ortiz is betting heavily on cogeneration in Mexico.
adequate for cogeneration and acting as Grupo Ortiz’
“This technology is here to stay so we must raise awareness
entry point in this business.
261
INSIGHT
COVERING PERIMETRAL SECURITY NEEDS LLOYD DE VILLAMOR Country Manager of Ruybesa de México
262
Among the variety of risk factors that need to be considered
to three weeks of the operational launch of our security
in the design of an energy project in Mexico is the need to
solution, plant security can be controlled from a centralized
cover perimeter security to ensure a seamless operation and
command center, separated from the solar parks and electric
uninterrupted power output. According to Lloyd de Villamor,
substations,” he says. Mexico has similar conditions to Chile,
Director General of security company Ruybesa, theft can cost
he says, and in that market Ruybesa has implemented and is
an operator dearly. “The copper typically used for wiring in PV
operating its solutions and services successfully. Its success is
solar plants is a highly valued metal,” he says. “Solar modules
reinforced by its network of local private security companies,
increasingly have also become a target for theft.” In Europe, he
specialized in physical surveillance services, which collaborate
says, theft of solar modules represents €25,000 to €500,000
with it to coordinate with local authorities.
in losses per year. De Villamor says the company’s superior technology is Mexico’s burgeoning renewables sector has opened up
another aspect that sets it apart from competitors. “Our
new opportunities for Ruybesa, a company that can use its
systems are built around thermal video cameras, which are
experience in the Spanish and Chilean markets, where solar
highly superior and more technologically developed than
power has been similarly developed. “Thanks to the first and
a conventional camera,” he says. “This technology is also
second long-term electricity auctions, there are around 40
essential for avoiding false alarms, often caused by infiltration
PV solar projects under development, which points to the
by external objects or animals that do not pose an immediate
country’s growing market for solar power,” says de Villamor.
threat to the facilities.”
“Our company can offer service experience from other PV
“
plants we have worked on.”
Thanks to the first and second longterm electricity auctions, there are around 40 PV solar projects under development”
The integration of Ruybesa’s alarm technology in a solar plant or electric substation provides its clients sizable savings because security protocols only kick in in the event of an actual threat or trespassing, de Villamor says. “Our premier product, the VT system, has a proven 95 percent reduction rate in false alarms.” This centralized control system monitors security, fire and building-related systems, as well as parking lot operations, all from one place. For the Mexican market, the perimeter security company is looking to provide its services to EPC companies, solar power
Ruybesa’s integral solutions include fire alarm and detection
developers and solar engineering companies that oversee
systems (FADs), closed-circuit television (CCTV), video
the construction and operation of solar power plants. “Our
surveillance, megaphone systems, electronic access systems
main objective is for these types of companies to become
(EACs), registration reconnaissance systems and intrusion
familiar with our services,” de Villamor says. “We are making
detection systems (IDS), covering all the facets of facility
a considerable commercial effort in Mexico to become a
security and monitoring. “Our portfolio is backed by more
major player and reliable partner in perimeter security for
than 36 years of experience and international success
the burgeoning solar power-plant projects in the country.” He
stories,” de Villamor says.
believes that there is a real opportunity in this niche because it has yet to see a generalized practice of including perimeter
To offer a flexible solution in terms of Mexico’s varied
security solutions in Mexico’s solar parks nationwide. “We want
territories and infrastructure, Ruybesa’s security solutions
to be a detonating force for this type of service, guaranteeing
can be controlled remotely. “After a period of between two
seamless operation throughout the facility’s lifespan.”
INSIGHT
CORPORATE GROWTH STRATEGY INTEGRATES RENEWABLE ENERGY DAVID TORRES Director General of TORDEC
With Mexico’s new energy market well underway, many
renewables is the development of reliable and cost-effective
companies are beginning to see the emerging opportunities,
energy-storage systems.”
even those whose natural strategy does not include energy, such as EPC and infrastructure companies. But according
Torres believes the regulators should take a closer look
to David Torres, Director General of Mexican EPC TORDEC,
at the track record of other countries that experienced a
companies with experience in Mexico will have the upper
similar transformation involving the liberalization of their
hand. “TORDEC has been building energy and infrastructure
energy sectors and the introduction of wind and solar
projects in Mexico since 2005,” he says. “Compared
energies. “As with other countries, Mexico’s electric grid is
to an international EPC company, this gives us certain
constantly evolving to respond to natural changes, such as
advantages in areas such as labor, union relationships, local
population growth and economic health,” he says.
supply partnerships and knowledge of the Mexican legal framework, to name a few.”
Other countries, Torres adds, can also take note of Mexico’s best practices with its grid network, like keeping the grid
TORDEC is not strictly a newcomer in the energy industry.
under government control. “Other countries that tried
It participated in the Etileno XXI project for PEMEX and
privatizing the grid did so only to nationalize it again a few
Braskem IDESA, completed a pumping station for Gas Nieto
years later,” he says. “This happened because companies
in Tuxpan and built a natural gas compressor in the Burgos
were competing and maximizing profits, while neglecting
area. To take full advantage of all the energy market’s business
the grid’s health. Every government should have the
schemes, while prioritizing private PPA developers in need
political will and the humanitarian obligation to keep the
of an EPC company, TORDEC is also actively participating
electric power running smoothly, keeping this responsibility
in utility-scale bids and sending EPC service offers to long-
out of the hands of the private sector.”
term public-auction winners despite this niche’s intensive competitiveness. And Torres says TORDEC has also been
The company is also experimenting with new business
eying solar and geothermal energy for some time.
models, such as lean construction, to constantly improve processes. Lean construction is the industry’s effort to
The issue TORDEC has come across has been accessing
integrate lean manufacturing, which was developed by
financing, but Torres says the company is overcoming this
Toyota for the automotive industry in the 1970s. This
hurdle. “We are about to sign a joint venture with international
methodology implies higher quality and lower cost, as
players to be bankable in our bids,” he says. “The engineering
well as faster delivery times. “We have begun testing some
required for solar projects is not rocket science but banks
of the tools that lean construction offers and have seen
want to see proven experience, so we are partnering with
astonishing results,” says Torres. The “Last Planner” tool,
seasoned players to meet the developer’s requirements.”
for example, is designed to make every single person in the construction site aware of what needs to get done on
TORDEC’s immersion into the industry comes at an
a day-by-day, week-by-week or month-by-month basis.
opportune time since 2016 was the year that solar became
This helps develop communication within the team, as
the cheapest power source in the auctions, coupled with
well as a sense of accountability for every individual in the
the country’s rich solar irradiation levels. “The stage
organization. But Torres says this is a more long-term goal.
is set for what should be an overwhelming adoption of
“We are setting everything in motion to become the first
solar energy and international players are showing great
Mexican company certified in lean construction but that is
interest in the long-term electricity auctions,” says Torres.
still years away,” he says. “It is better to start by using the
“The only missing link between the present and a future
tools we have and to develop a measurable impact, rather
where 80 percent of Mexico’s electric power is produced by
than pursuing things that take too much time.”
263
INSIGHT
TOP-TIER VOLTAGE CONVERSION FOR MEXICO'S UTILITY-SCALE PROJECTS ALESSANDRO ORPELLI Solar Sales Director of Fimer
264
Mexico’s largest solar plant in the Americas is being built in
markets such as Spain and Germany developed, there was no
San Juan Villanueva, Coahuila. It can generate 1,700GWh
need to apply this technology to solar,” reflects Orpelli. “Even
of electricity per year, enough to fill the needs of 950,000
so, these conversion units already existed and they are based
houses. An essential ingredient amid all that wiring in the
on AC-DC, which was used in many applications. It is usually
desert are the inverters. The company supplying the inverters
obvious that the European players originated in a different
for this energy project undertaken by Enel is Fimer, an Italian
field.” According to Orpelli, Fimer is developing storage and
firm whose ambitions root it solidly in Mexico. “Utility-scale
string solutions all targeting the utility market. The firm sells
projects allow us to approach technology in a different way.
containerized mega stations, in which technology is more
Certain solutions may not work when applied to a smaller
protected than in common outdoor solutions. The container
plant, but if I can spread my investment in a 754MW plant
has everything that is needed for energy conversion, including
like we are doing in Mexico, the higher revenues mean it is
the inverter, the fuse box, a low-voltage communication and
possible to design to cost.” says Alessandro Orpelli, Solar Sales
accessory room, a medium-voltage room and the transformer.
Director of Fimer. The San Juan Villanueva plant is not unique for Fimer’s Fimer’s technological innovation in Mexico is rooted in its
Mexican endeavors. The company is also concluding a
current conversion technologies. “Inverters are one of the most
190MW plant that will bring it to almost 1GW of installed
developed technologies in the solar field,” says Orpelli. “They
capacity in the country. “The Mexican market is moving a
allow us to integrate services, improve production capacity
little bit slower than we originally anticipated but it is one
and increase the efficiency of plants and voltage levels.
of the few Latin American countries where the market is
The goal is always to produce more energy with the same
balanced,” adds Orpelli. “The auctions allow us to access
amount of money. There is also the possibility to integrate
large plants with fixed tariffs and then there are also the
solutions and to overcome harsh environments without losing
PPAs, which allow companies not participating in auctions
production.” Fimer's welding origins found their application
to access the Mexican energy market. They are worth the
in solar technologies, which now form a greater part of the
investment because they maintain stability for companies
company’s revenue than welding. “Before the world’s biggest
before they decide to bid in an auction.”
VIEW FROM THE TOP
NEW ENTRANT, BROAD EXPERIENCE EDUARDO CURIEL Commercial Director of Grupo Industrial Águila (GIA)
Q: What makes Grupo Industrial Águila (GIA) the perfect
O&M services. As we have successfully worked on projects in
partner in the energy sector?
this area, we are now also looking at the renewable energy
A: GIA is comprised of several companies that offer a higher
sector, specifically for wind and solar projects, in which we
added value to its customers, with each one specialized in a
are already receiving invitations to participate.
very specific discipline. For EPC services, Águila Construcción e Ingeniería focuses on the entire industrial construction
Q: How is Grupo Industrial Águila working to enter the
area, from conceptual, basic and detailed engineering to
Mexican renewable energy sector?
turnkey projects. In manufacturing, Águila Fabricación,
A: We are gathering expertise through joint ventures, be it
whose production yards are located in Altamira, has a team
with national or international companies, so we can offer a
with broad experience in mechanical transformation and
wider portfolio of services in the wind and solar sectors. One
manufacturing of tanks and containers. Águila Mantenimiento
way we are doing so is by getting close to the winners of the
Industrial is solely focused on O&M activities, and has great
auctions, and to their service companies, so we can become
experience offering maintenance services under both
part of their projects. Working with them will provide us with
programmed and emergency stops. Finally, Águila Maquinaria,
a strong track record and, soon enough, GIA will be able to
Montajes y Servicios Especializados rents and operates cranes
work on fully integral projects on its own.
of up to 300 tons for the installation of diverse equipment for the industry.
We expect that the whole process may take from five to 10 years. It may sound like a long time, but GIA has long-term
Until recently our services were focused more in the oil, gas
plans for Mexico, meaning that we are ready to work hard
and petrochemical sector, but we are now looking to grab
for a long time to become the preferred partner for project
the opportunities resulting from the newly dynamic energy
developers. Mexico has strong goals for the penetration
market. The fact that we are already a preferred partner for
of renewable energies in its energy mix, meaning that this
several companies in the oil and gas sector is opening many
process may also be shorter.
doors. We are getting ready to become a key player in the Mexican energy sector.
Q: What goals has GIA established for 2018? A: Although we have a long-term objective of becoming the
Q: Given its long history in the Mexican oil and gas industry,
preferred partner in the renewable energy sector, we are
how has the panorama changed for Grupo Industrial Águila
aware that this will take a lot of work and a long time. For
after the Energy Reform?
2018, our goal is to enter into a JV with either a national or
A: Before the Energy Reform it was hard for national
international company that will get us closer to this major
companies like GIA to offer services to CFE, as CFE used
goal. We also are looking to expand the company’s reach. This
to ask for big projects that required strong financial and
includes opening an office in the country's north, which could
technological muscle, which could often only be provided by
be located in Coahuila or Nuevo Leon. This is a strategic move
major international companies. Now, with more competitors
because the northern region is where most of the renewable
in the market and projects becoming smaller and scalable,
energy projects are going to be developed, therefore allowing
the opportunities have exponentially increased. We want to
us to offer more personalized and faster attention.
become the preferred option for EPC services in this new energy industry. Due to our broad experience in the oil, gas and petrochemical sector, our first step toward achieving this
Grupo Industrial Águila (GIA) is a consortium of companies
is in the thermoelectric and combined cycle segments, where
that offer a full range of services for the energy industry, from
we are already providing services for the construction of plants
EPC to O&M. The company is working to strengthen its position
and manufacturing the required equipment, together with
in the Mexican renewable energy sector
265
ROUNDTABLE
WHAT CHALLENGES IS MEXICO’S ELECTRICITY INFRASTRUCTURE FACING?
Since the creation of the electricity grid, CFE focused on providing electricity to every Mexican. “Electricity for the progress of Mexico” was its motto, and by following it the company successfully managed to provide electricity to over 98 percent of the Mexican population. Nevertheless, in such a continuous and exhausting expansion effort, the Mexican electricity grid has become too old and ineffective to deal with new realities such as renewable integration and even storage services. Mexico Energy Review asked the industry leaders about the challenges Mexico must face to revamp its electricity infrastructure in an open market with multiple players.
Almost 50 percent of CFE’s 100,000km of HV transmission lines are more than 20 years old. Given that estimated generation growth is between 4 and 5 percent 266
annually, and there will be budget limitations at the federal level, the need for private investment to extend and revamp this aged infrastructure is a critical reality. An important issue that worries potential investors in Mexico is rights of way. The preliminary guidelines for the bidding of the Oaxaca-Valley of Mexico
VICENTE GARCÍA Business Development Manager Mexico for Isolux Corsán
DC transmission lines are out but we have yet to see the final guidelines that address all the questions that developers had. This project will play a major role in alleviating the bottleneck for wind projects but is not the only important one.
PRODESEN outlines the construction of the first high-voltage direct current line from Oaxaca to the center of Mexico, with a transmission capacity of 3,000MW and 1,200km in length. The project could be carried out through an open bid process under a PPP scheme. The project is set to become operational by 2021. In total, there will be four lines of this type. These projects will ensure grid interconnection for the upcoming projects in renewable energy, which is set to increase our total electric-power capacity.
GERARDO PÉREZ Director General of EDF Énergies Nouvelles México
For us, this is Mexico’s greatest challenge. The abundant renewable resources are there, as well as the financing to develop them. Social and environmental impact assessments for renewable-energy projects can also be improved and social unrest addressed. Infrastructure, in contrast, has to be operational without delay.
Grid insufficiency is an issue. Despite Mexico’s relatively low penetration of intermittent generation, the country urgently needs to deploy or facilitate electricity demandresponse mechanisms. Usually, power supply adapts to power demand, but efficient and innovative power generation requires inverting the equation. Mexico’s energy authorities and regulators need to strengthen the regulatory framework to ensure economically-viable energy storage initiatives. Another problem brought about
RAMÓN MORENO Chief Technical Officer of Mitsui & Co. Americas
by an open energy market is the risk inherent to price signals sent by the electric node market. These short-term signals impact the design of PRODESEN’s long-term infrastructure projects, which need to be evenly distributed nationwide, as uneven infrastructure projects can impact renewable-energy penetration across the country.
Infrastructure almost always becomes a problem in countries where there is a strong penetration of renewable energies. That is understandable because most of the infrastructure is not designed for intermittent energies. The most important factor is to maximize the use of Mexico’s natural resources to strengthen the grid and enable the integration of these sources. PRODESEN is a powerful tool that outlines plans for revamping and expanding the infrastructure that Mexico requires the most but it does not include the use of storage systems that could help achieve a proper national integration of renewables into the grid. Energy storage is a concept that could solve
JUAN RUBIOLO General Manager of AES Mexico
many problems at once: relieving bottlenecks, allowing for more connections, solving issues related to intermittency and even helping the substations handle variations.
Mexico’s electricity infrastructure is in some cases insufficient and in others even obsolete. This dampens the growth of renewable energy that by its very nature tends 267
to be concentrated in areas of the country where the targeted resource abounds. When looking at this issue, we must bear in mind the country’s energy matrix on the one hand and electric energy consumption on the other. Oil and coal continue to have a strong presence in Mexico’s energy matrix. Also, all forecasts agree the country will see a dramatic increase in electricity consumption in the coming years. As a power source, electricity will have an increasing portion of the energy pie as it gradually replaces fossil fuels. Potential intermittency issues will arise when renewable energies reach a high
OSCAR BERNAL Director General Mexico of Eosol Energy
degree of grid penetration.
In light of new energy inputs, the PRODESEN program was drafted and will be in force up to 2031. This plan foresees improvements to the electrical system nationally, and implies we could overcome congestion in the transmission and distribution system. Depending on its success, we may need to adopt measures that would redistribute foreign direct investment to improve infrastructure. Strengthening the network would mean Mexican states can share energy as needed, covering peaks more effectively. Alternatively, energy generation operations could be located closer to zones of high consumption. This would
FRANCISCO GARCÍA Country Manager of Gransolar
reduce the need for excessive energy transportation and make solid network coverage more attainable.
Electricity infrastructure is a problem common to many countries that have set new energy-generation goals. This is especially true for emerging economies like Mexico that suffer shortcomings because of old and obsolete infrastructure that does not meet the current reality, not to mention future growth prospects. Boosting the penetration of renewable energies could put older grids in even greater jeopardy because the availability of these resources is hard to predict and those grids are not prepared to handle unstable injections of energy. In Mexico CENACE has set plant requirements that make projects, although technologically viable and attractive due to their local characteristics, economically unviable due to the high costs associated with the creation of the required infrastructure to connect them to the main grid.
JOSÉ DELGADO Project Development Director for SUNCO Capital
ENERGY TRADING
10
A fully liberalized market requires not only an increased number of players to foster competition on an equal footing but also a diversified product portfolio from which to choose. Mexico’s energy regulators and authorities are working toward a full-fledged product diversification for the country’s wholesale electricity market.
“Long term” was once the guiding principle under which Mexico’s electricity market operated, both on the supply and demand side. The country’s ambition of becoming a hub for a competitive, modern and sturdy electricity market called for the design of an equally ambitious energy marketplace. Private players across the value chain are calling for electricity products that answer to their consumption requirements under flexible terms, starting at as small a unit as hours up to years in electricity supply. Trading platforms, controllable demand, real-time trading deals and preparing the CELs for launch are but a few of the key subjects addressed in detail for this chapter, providing an in-depth look at Mexico’s young but thriving energy trading landscape.
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CHAPTER 10: ENERGY TRADING 272
ANALYSIS: Deploying a Full-Fledged Energy Marketplace
274
VIEW FROM THE TOP: Enrique Giménez, Fisterra Energy
275
VIEW FROM THE TOP: Javier Garza, SUMEX
Sebastián Leal, SUMEX
276
INSIGHT: Juan Guichard, Ammper Energía
277
VIEW FROM THE TOP: Salvador Alarcón, Tradeon Energy
278
INSIGHT: Rubén López, Orca Energy
279
TECHNOLOGY Spotlight: CRE’s S-CEL System
280
VIEW FROM THE TOP: Natalia García, eVOLT
281
INSIGHT: Paul Sánchez, Brío Suministro
282
VIEW FROM THE TOP: Hans Kohlsdorf, E2M
283
VIEW FROM THE TOP: Andrea Lozano, BID Energy
284
RoundTable: Is Mexico’s Energy Market Ready for CELs?
271
ANALYSIS
DEPLOYING A FULL-FLEDGED ENERGY MARKETPLACE Mexico’s energy authorities have gone to great lengths to foster an open electricity market that is enticing enough to attract the private sector. This includes providing a business-friendly regulatory framework and fostering a diversified portfolio of products on par with the country’s energy requirements
272
The palpable results of the country's Energy Reform are
where price was solely impacted by fuel price variations.
shaping a success story that is based on competitiveness,
This new attribution is historic as tariffs will be determined
a level playing field and innovation. According to CRE’s
for the first time by an independent, autonomous
latest statistics, Mexico’s electricity sector boasts the
regulator, contributing to the market’s development,”
active participation of 12 nonsupplying energy traders,
says Guillermo García, President Commissioner of CRE.
18 qualified suppliers and 68 qualified users. The numbers
Forerunner qualified suppliers had to design a business
attest to both the appetite of the private sector to engage
model absent this government-designed signal. “CFE
in the country’s revamped and unlocked energy industry
does not work under a fixed-price scheme, it uses a
and the bankability of clean and renewable energy as
formula. Power generation, distribution, transmission and
a power-producing source. Despite basic supply and
metering costs that impact final consumers are sometimes
last-resort supply remaining in the hands of CFE, the
misrepresented in the calculation of this formula. As you
involvement of private players is steadily increasing across
clear all these variables and get to the whole picture,
the wholesale electricity market’s value chain, as CRE’s
you are in a position to offer a real alternative,” says Paul
generation permits database shows.
Sánchez, Director General of Brío Suministro.
As of December 2017, CRE had issued 969 self-supply
CLEAN ENERGY CERTIFICATES
permits, 502 generation permits, 290 permits for small-
One question that needed answering was how to
scale production, 156 cogeneration permits, 68 generation
ensure utility-scale projects were commercially viable
permits for in-house use, 66 import permits, 35 qualified
to the point that the produced renewable energy was
supply permits, 31 independent power producer permits
guaranteed demand beyond environmentally-conscious
and 13 export permits. Mexico’s long-term electricity
economic players. Mexico’s energy authorities tackled the
auctions have made power, energy and CELs the sector’s
issue and designed a disruptive instrument in response:
most prized commodities so far, yet short-term products
Clean Energy Certificates (CELs). Article 123 of the
are set to become increasingly popular as trading
Electric Industry Law (LIE) stipulates that electricity
operations multiply and the market gains liquidity. It is
market participants that are obligated to comply with
likely that 2018 will see a greater number of transactions
CELs consumption include suppliers, qualified users
for spot market products such as day-ahead and real-time
and final users relying on isolated supply, and legacy
energy transactions, as well as hour-ahead transactions,
interconnection contract-holders whose contract
as regulators bring the wholesale electricity market’s
conditions include load centers that do not cover the
second stage to life before the end of the year. Ancillary
totality of its clean energy consumption. While 2018 will
services are also expected to be on the rise, including
require these participants to cover at least 5 percent of
static loads, spinning reserves and nonspinning reserves.
their energy consumption with CELs, the percentage is set to increase to 31.7 percent by 2022. “We see two key roles
BASIC SUPPLY TARIFF
played by CELs. The first is already reflected in the long-
Prior to the launch of Mexico’s wholesale electricity market,
term auctions for which they were conceived, helping
electricity tariffs underwent few to no variations for long
developers gain additional remuneration and certainty
periods of time, its calculation was opaque and final users’
to finance and complete their projects, and then a more
electricity tariff was heavily subsidized for small-scale
financial side where these certificates will represent a very
consumption. Now, CRE’s unveiling of the Basic Supply
liquid and tradable product within the bilateral market,”
Tariff on Nov. 29, 2017 signals, with absolute transparency,
says Salvador Alarcón, Founding Partner and CEO of
the real cost of electric generation, distribution and
Tradeon Energy.
transmission to the rest of the market. “These tariffs will be based on the monthly electricity generation cycle,
TRADING PLATFORMS
while they previously were calculated based on a 1990s
To bolster Mexico’s wholesale electricity market
methodology that used a fixed power-producing mix
transactions, both public agencies and private companies
are heavily relying on electronic platforms, taking
MEXICO’S WHOLESALE ELECTRICITY MARKET
advantage of the benefits that IoT and cloud usage can
Operations started
bring in fostering Mexico’s incipient generalized energy trading practice. CRE, for instance, is applying the finishing details for its CELs trading electronic platform. “The design of CRE’s S-CEL system was developed jointly with USAID throughout the year. This platform has the potential to enhance the amount of renewable energy in Mexico’s energy mix to help meet its clean energy generation commitments. Visibility and transparency on CELs transactions — purchase, sale and ownership tracking — are key,” says García.
Jan. 27, 2016
Baja California System Market Products Energy
• Day-Ahead Market
Jan. 29, 2016
National Interconnected System Wholesale Electricity Market Structure Short-Term Market
• Real-Time Market • Hour-Ahead Market
Power Balance Market
(2nd Stage) Ancilliary Services
CELs Market
• Static Load The private sector is not far behind, drawing blueprints for what promises to take Mexico’s energy trading practices to new heights. “We are primarily focusing on OTC derivatives — forwards and swaps — and customized off-venue financial derivatives, as those are the risk-management products with the highest demand,” says Natalia García, Director General of eVOLT. “We have identified a window of opportunity to introduce precursor market-order mechanisms to create a marketorder system for transactions in infrastructure and green bonds, ETCs and physically settled derivatives with STP scheduling at CENACE.”
• 10 Minute Spinning Reserve • 10 Minute NonSpinning Reserve • Additional Spinning Reserve • Additional Non-
Financial Transmission and Distribution Rights Tenders Medium and LongTerm Auctions
Spinning Reserve Capacity
Medium-Term
CELs
Long-Term
Financial Transmission Rights
CRE AWARDED PERMITS 2017:
WHAT COMES NEXT Mexico’s energy trading sector’s proven potential has garnered the attention of industry heavyweights such as Enel Green Power. This Italian renewable powerhouse,
969 Self-supply
502 Generation
290 Production
156 Cogeneration
68 Internal Use
66 Import
35 Qualified Supply
31 IPP
1 Basic Supply
13 Export
1 Last Resort Supply
Source: CRE
which saw projects awarded throughout all three editions of the long-term electricity auctions, launched its own local qualified supply subsidiary, Enel Energía México, in October 2017. Despite its slow start, energy trading’s
Small-scale
relevance in the wholesale electricity market led to the creation of Mexico’s qualified suppliers association (AMSCA) in April 2017, where its members can raise in unison their concerns about the industry and maintain an open communication channel with Mexico’s energy authorities to gradually provide all legal and regulatory instruments that could solve the needs of basic supply and create an efficient and profitable energy marketplace. AMSCA’s associates specialized in qualified supply include BID Energy, Ektria, Energy to Market, Enel Green Power and Elek. These new developments should come as no surprise, considering the Ministry of Energy’s Energy Transition Program, that 2017’s brute electricity consumption was 305TWh, while consumption for 2018 and 2019 is expected to increase to 316 and 327TWh, respectively. The same projection stipulates 15.3 million and 18.4 million CELs will be available for purchase for 2018 and 2019, respectively.
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VIEW FROM THE TOP
STEPPING STONES TO A REINVIGORATED MARKET ENRIQUE GIMÉNEZ Director General of Fisterra Energy
274
Q: What needs to be done to improve Mexico’s Energy
Q: With Blackstone, Ektria and Frontera México Generación,
Reform?
what is Fisterra’s strategy to avoid diluting your brand?
A: The reform is a positive step forward for Mexico.
A: A brand is important for consumers. In our line of
Considerable effort was invested in it and there is an
business, this is significant for the spot market. The
undeniable sense of quality in its provisions. There are two
wholesale electricity market is not so adamant about
basic areas for improvement. Firstly, the reform is being
branding and is more concerned about financial statements
implemented and regulated simultaneously, causing some
and loan guarantees. Ektria oversees the spot market, while
inefficiencies in market operations, generating unease with
the rest of our branches focus on the wholesale market,
potential operators and delays. Secondly, in Mexico the
where there are fewer players.
long-term and short-term electricity markets were launched concurrently. In our view, the long-term market has been
Q: What is the comparative advantage of Fisterra’s energy
predominantly prioritized because of the long-term auctions.
supplier branch?
Meanwhile, the short-term market lacks liquidity due to the
A: Blackstone, our financial arm, provides the financial
scarcity of players operating in it. The picture of undeniable
solidity our clients look for. Blackstone also provides an
economic success and achievement of competitive prices
important input from the US electricity market that Mexico
does not reflect the day-to-day reality of the market.
also uses. As a result, we can anticipate the evolution of the Mexican energy market because we have seen other
Q: Could you elaborate on Fisterra’s bilateral transaction
markets mature.
with CFE? A: The new regulatory framework stipulates that power
We have pioneered the energy financial trading market in
generators must sell all the electricity produced to CENACE
Mexico in accordance with the tendencies we have observed
and CENACE pays for it all. In turn, qualified suppliers
elsewhere. We regularly release our forward price curve
have to buy all the electricity they need from CENACE
from one week to five years. Fisterra also helps represent
and sell it to qualified users. Plus, qualified suppliers are
small power producers, from 1-15MW power capacity,
obligated by law to purchase an additional 60 percent of
that are unable to take advantage of the opportunities
its electricity consumption from a power producer through
presented by the developing regulations. Our company
an energy-trading contract. Generators sell an additional
takes the power they generate to the market.
60 percent of electricity directly to qualified suppliers. This design flaw can be compensated through a financial
Q: What is Fisterra Energy’s long-term vision for Mexico?
bilateral transaction mechanism that power producers and
A: Mexico is a country with tremendous opportunities in
qualified suppliers have at their disposal to alert CENACE
the energy sector. Mexico is ranked 15th globally in terms
of these additional energy-trading contracts so the
of energy consumption volume, and this consumption is
government agency can adjust the amounts charged and
expected to grow exponentially. Despite its few mishaps,
paid to power generators and qualified suppliers. Fisterra
the Energy Reform is sound. Our new-arrival status in
Energy basically capitalized on this tool designed by the
Mexico gives us an important comparative advantage.
Ministry of Energy for Mexico’s electric market.
Fisterra already provided the stepping stones toward invigorating the market through financial trading and we have high hopes in the development of this segment. Our
infrastructure
company is also motivated by the announced midterm
investments worldwide. Fisterra enjoys technical expertise and
auctions. We will continue devising strategies in client-
extensive experience in M&A, project financing, development,
attraction, power generation and diversifying our product
construction and operation
portfolios.
Fisterra
Energy is
specialized
in
energy
VIEW FROM THE TOP
FIRST ENTRANT SOARS WITH ENERGY TRADING Javier Garza President of SUMEX
SebastiĂĄn Leal Vice President of SUMEX
Q: How is SUMEX working with the regulatory authorities
Q: Can you describe your partnership with solar technology
to make the MEM a more attractive market?
companies and the strategy behind it?
JG: The MEM is just beginning. As the first qualified
SL: It is a distributed generation project that we have yet to
supplier actually operating in the market, our field
formalize. This strategy arose from the realization that many
experience is proving useful as we continuously provide
of SUMEX’s current projects will be carried out through
feedback to the Ministry of Energy, CRE and CENACE
distributed generation. What sets us apart is our regional
on what we believe is working well and what should be
commercial force. Through this strategy we can cover the
modified or improved. The first steps have been smooth
largest part of the market, state by state.
and will continue to be so in the coming years, while the market consolidates and other players such as traders,
Q: Could you elaborate on your Trading Desk service?
qualified suppliers and qualified users enter the market
JG: Our Trading Desk is the area in charge of energy
and start to operate.
trading. It allows us to access and monitor available information to conduct efficient trading operations. I
Q: More suppliers will be operating in the market in 2018.
believe this gives us a considerable competitive advantage.
How will SUMEX maintain its competitive edge?
This service provides representation to qualified users and
SL: Our commercial strategy is very different from other
generators, supporting their permitting processes before
companies. Many of the companies entering the market,
CRE, presenting offers and bids to CENACE for the day-
such as Iberdrola, CFE Calificados and Fisterra, are
ahead market, forecasting day-ahead and real-time prices
primarily generators before being suppliers, which implies
and carrying out the relevant billing and settlements with
a different commercial strategy. These companies mainly
CENACE. The Trading Desk also advises long and midterm
focus on obtaining the required energy for their plants
auction participants and clients interested in financial
and their corporate structures are quite large compared
transmission rights, as well as evaluating diverse types
to SUMEX, which gives us the advantage of flexibility.
of coverage contracts and optimized process scheduling
We are also more ambitious. Our goal is to capture the
for energy-intensive industries to minimize costs, under a
greater part of the market by adopting an aggressive
rolling horizon scheme.
posture. Other suppliers that focus solely on one client have approached us to operate for them. Similar to what
Q: Where is SUMEX at the moment and what are your
happened in the US, we are anticipating a small number
goals for the future?
of companies, from five to 15, will consolidate in this new
JG: We are close to achieving 1TWh of appointed energy
market and the remaining players will be absorbed by
and we are very satisfied with that. We will continue
the main players.
exploring new business lines we can mature into our core business in energy supply, such as energy diagnosis and
Q: How did you close the San Pedro Garza Garcia
energy efficiency, the alliances we previously mentioned,
municipality as a client?
solar panels installation and purchase of solar energy as
SL: We worked with the authorities' Load Aggregation
well as integrating the whole value chain that will assist in
Agreement that rates municipal low voltage. Before that
reducing the electricity bill costs for private companies.
agreement was published, many municipalities did not meet the requirements to comply as qualified users, since their main consumption was low-voltage public lighting.
SUMEX is a Mexican company launched in August 2015. It
When this agreement came into effect on Jan. 26, 2016,
provides qualified services regarding energy supply. SUMEX
we were able to get involved with the qualification
stands out as the first private company trading energy from a
process for the municipalities we signed.
diversified matrix of renewable sources in Mexico
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INSIGHT
ENERGY TRADING FOR EVERYONE JUAN GUICHARD CEO of Ammper Energía
As the Mexican market opens, new business opportunities
have a strong focus on renewable electricity. Ammper has
unfold. Energy consumers want fast and to-the-point
over 800MW of renewable generation developments.”
answers to their energy requirements, and generators prefer
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to sell all their energy to one entity instead of dealing with a
With INVEX Infraestructura and InfraRed Capital Partners as
portfolio of customers, creating the need for a middleman
parent companies, Guichard highlights the expertise both
that deals with these demands. Enter the qualified suppliers,
companies offer to Ammper Energía. “The support these
whose added value could help determine their success.
companies have provided us as a growing organization is invaluable, offering the kind of institutional and financial
The need for qualified suppliers is visible in the number
expertise that would take most companies years to
of companies that have entered the market under that
develop.” Guichard also makes sure that Ammper Energía
business scheme. While on Dec. 31, 2016, six companies
walks the extra mile with in-depth market and business
had signed contracts with CRE to enter into that modality,
research and close monitoring of the Mexican market,
by Oct. 10, 2017, there were 23 companies, with five already
ensuring that the company always has the best possible
operating in the Mexican wholesale electricity market.
supply strategy for each of its clients.
In such a competitive environment, companies need to
Following the necessity of offering the best service
clearly show their competitive advantage to potential
available, Ammper Energía decided in June 2017 to select
clients. Juan Guichard, CEO of Ammper Energía, which
Power Costs as provider for its energy trading and risks
offers qualified supply services to the industrial and
administration platform. The selection of this leading
commercial sectors, says the company delivers its clients
software platform provider is expected to give Ammper
a threefold advantage. “The first is flexibility. Ammper
Energía the ability to keep offering robust, personalized
Energía understands and fully satisfies its clients’ needs by
and affordable solutions to its clients, explains Guichard.
offering the best contract according to the client’s needs. The second is transparency. All our offers are detailed, point
Ammper Energía also noticed the lack of awareness of
by point, and we clearly explain them to our clients. We do
power producers regarding new market opportunities.
not worry that the client might compare our full offer with
Before, generators needed just to worry about producing
that from another supplier. Finally, Ammper Energía knows
energy, as all of the energy was sent to CFE. Now, it is better
energy is a commodity. As such, we know that there are
for generators to have a team that efficiently communicates
many other offers in the market to which our offer will be
with the market and offers energy to different qualified
compared, and we are not afraid of that.”
suppliers. As not all generators are able to do so, Ammper Generación was established to help them venture into these
A portfolio of energy generators is vital for a qualified
new areas, Guichard says. “Ammper Generación consists of
supplier, as the electricity produced is the commodity it
energy operations experts who can represent and take care
offers to its customers, Guichard says. As Mexican law will
of the energy sales activities of generators in the market.
require that every consumer gets a minimum of 5 percent
Ammper Generación sells the energy from the generator
of the energy it consumes through CELs, renewable
without the generator having to gather, train and invest
generators are a great asset for a qualified supplier. By
in forming its own energy operations team and systems.”
law, 13.9 percent of the energy consumed must come from
Guichard is confident of the added-value that Ammper
CELs by 2022, highlighting the competitive advantage
Generación can offer its customers. “Ammper Generación
that qualified suppliers will have by integrating renewables
offers a cost-competitive alternative, while providing the
into their portfolio. Ammper Energía’s strong focus on
service through a system platform exclusively developed
renewables makes it a solid competitor, Guichard says. “We
for the Mexican market.”
VIEW FROM THE TOP
PAVING THE WAY IN ENERGY BROKERING SALVADOR ALARCÓN Founding Partner and CEO of Tradeon Energy
Q: How does Tradeon rate the Mexican electricity market?
As for financial transmission rights, we have received
A: The market is extremely complex in its design, but the
feedback from many active participants and created a
pace at which regulation has been rolled out is admirable.
swap market based on the PMLs from the most relevant
The MEM at the moment continues to be in the early stages
SIN nodes (11 at the moment), plus the two interconnected
of development, where most of the trades take place in
nodes for Mexicali and La Paz, where nodal differences can
the OTC/Bilateral format. Once there is enough liquidity
be traded between them, representing the most simple and
and processes are improved further, we will begin a shift
efficient version of FTRs.
toward more standardized products that can be cleared through a single entity.
Q: What is Tradeon’s added value regarding the development of the Mexican electricity market?
There are still challenges and details being addressed
A: We have two lines of business. One is our brokerage
that will shape our market. These include the medium-
service offered to the wholesale market and the second is
term auction and the financial transmission rights, which
our function as an agent to end users. For this branch, we
will allow for the proper integration of all the regulatory
take advantage of the relationships and position developed
pieces. But it is now up to the participating entities to
through our brokerage service to guide our clients through
continue the joint effort to create liquidity. In that sense,
the entire process of understanding the market, its products,
we will continue contributing while acting as the market’s
their position within it and the available opportunities
“window,” where all the different interests and positions
and alternatives that can translate into cost-effective and
are brought together.
efficient ways to manage their energy consumption.
Our focus remains on the midrange duration of transactions,
On the technology side, Tradeon offers a state-of-the-art
from one week up to five years, as we are deeply involved in
platform already used to clear all OTC bilateral markets
the design of products and universal contracts to facilitate
in Europe. We have extensively adapted this platform in
transactions between players in a faster and more efficient
conjunction with our effort to create products that can help
way. As an example of our commitment, we held in June
all participants manage their risks and create much needed
2017 a dynamic trading simulation called the Tradeon
liquidity, while allowing users to monitor the market’s
Games, where all participants were presented with the
movements in real time.
opportunity to trade electronically with other parties over two weeks, using real products and settlement processes.
This service was already used for the first financial
We saw more than 1,400 trades take place, 8GW in energy
derivatives transaction completed in Mexico, which took
swaps, 6.5GW of TBPots and more than 3.5 million in CELs.
place at the end of 2016, representing the starting point in the development of an efficient secondary market. We
Q: How is Tradeon working toward the implementation of
are committed to continue paving the way in supporting
the CELs and financial transmission rights?
the growth of our wholesale electricity market, innovating
A: CELs are proving to be quite a relevant and somewhat
and continuing to offer fully transparent and impartial
complex product. The main issue or bottleneck until now has
services to all of its participants.
been tied to Declaracel, and the uncertainties about the exact settlement and transfer of ownership process through which participants will register their transactions,.This is key for a
Tradeon Energy supports the creation and development of
bilateral and liquid market to function. Tradeon has assumed
the Mexican electricity market. Located in Mexico City, the
a proactive role by proposing a CELs market on its platform,
company offers brokerage and consultancy services to every
with live and firm prices shown on a curve of up to five years.
stakeholder along the value chain
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INSIGHT
CLEAR VISION, EFFECTIVE STRATEGIES FOR QUALIFIED SUPPLIERS RUBÉN LÓPEZ CEO of Orca Energy
278
The Energy Reform unlocked the generation, distribution
represent in the market,” López says. Thoroughness in
and trading segments of the country’s electricity market
assessing its financial and risk analysis components is a
and private players are lining up to gain a foothold in
priority for this qualified supplier. When choosing power
each segment. For energy trading, CRE has authorized 19
producers, López says his company will actively search
companies for registry as qualified users in less than two
for energy generators that have the most competitive and
years and the Basic Supply Tariff was published on Nov.
reliable offer for those CELs. “We do not have a particular
23, 2017. “I believe MEM’s attractiveness will materialize as
preference for one renewable source of energy over
final users experience the benefits of a dynamic market —
another; we consider ‘renewable’ as the energy capable
better tariffs, better terms and mitigated risk conditions
of generating CELs, and that we are able to acquire and
— concentrating on their core business thanks to a market
offer to our qualified users.”
that offers them the best conditions for one of their top inputs,” says Rubén López, CEO of Orca Energy. “In this new
The company, established in the wake of the Energy
market, a key factor in developing a successful business is
Reform, saw a nationwide business opportunity from
having a crystal-clear vision of where you want to go, how
the start. “From the outset, either personally or through
you want to participate and how you have to structure your
professional advisers, our team has been continually up to
strategy to attain your objectives.”
date and fully informed of every regulatory modification and publication issued by the Ministry of Energy, CRE and
Qualified supply is a business primarily focused on risk-
CENACE,” says López. The process has entailed a learning
analysis and financing to be in a position where a company
curve on both ends. “This whole process demands a lot
can offer adequate rates to clients and be backed by a
of effort in regulatory and operational comprehension,
significant hedge, says López. “For our company, which
as well as the internal implementation of a specialized,
was conceived as a highly active financial market player,
qualified team trained both by us and through the courses
this implies searching for adequate hedges that have a
provided by CENACE. You also need specialized systems
significant risk-management component, guaranteeing our
that provide a safe and reliable communication channel
shareholders that all our decisions and commitments are
with the market operator,” he adds. Orca Energy has
duly analyzed.”
engaged in an extensive and exhaustive dialogue with the market’s regulators and operators. “The formats, manuals
As part of its business strategy, Orca Energy relied on
and regulation are new, and some parts are still pending
the competitive edge resulting from its partnership
publication. That has generated some uncertainty, but
with Power Costs (PCI). “It has a platform that prevents
the efforts of the authorities have to be recognized, as
the need for us to develop something that is already
they strive to adequately support us to become a market
functioning in other markets: the required software
participant,” López says. He also knows that ideal market
to operate in the market, electric coverage contracts,
conditions are not attainable overnight. “It requires a
invoices, liquidations and everything else outlined in
significant effort and a considerable amount of preparation
the new manuals as market participants,” López says.
with the inherent endeavor of forming a team with a
“PCI anticipated and adapted the Mexican regulation
shared vision, facilitating risk mitigation when we initiate
particularities in its systems and software platforms so
operations and providing our clients the assurance of an
they could be used in our national market.”
adequate and reliable electricity supply.”
Orca Energy is focused on major consumers. “We want
López says the company wants to make qualified supply
to specialize in a specific customer and be very selective
its core business. “If done well, it will give us a suitable
in relation to the types of loads that we are going to
provisioning volume with our clients.”
TECHNOLOGY SPOTLIGHT
CRE’S S-CEL SYSTEM
Login screen for S-CEL System
279
Mexico’s secondary market for energy trading, the
CEL management and regulatory compliance. The system
Clean Energy Certificates (CELs), are not only open for
also keeps a record of all transactions, either resulting
business but also a compulsory requirement starting
from the long-term electricity auctions or from bilateral
2018. To facilitate trading operations for this particular
contracts. Periodical reports pertaining to CEL market
instrument, CRE developed an online one-stop shop
activity also will be available.
for interested parties: S-CEL. This electronic platform will manage all information pertaining to electricity
This instrument is meant to be used by the country’s
generation and consumption of registered users. This
wholesale electricity market participants — power producers
includes the issuance, transactions, payment and
using technologies eligible for CELs, qualified suppliers
voluntary cancellation of CELs. With this tool, Mexico’s
required to comply with 2018’s 5 percent of electricity
energy regulator will verify the user’s compliance with
consumption produced from clean energy and mandatory
its Clean Energy Requirements. Through this portal, CEL
participants — and is open to voluntary entities. In the first
market participants will have a reliable, transparent,
quarter of each year, the Ministry of Energy will establish the
dynamic and secure instrument in all activities related to
CELs requirement for the successive three years.
CEL OBLIGATION (electricity consumption) 2018
2019
2020
2021
2022
CEL Obligation
5%
5.8%
7.4%
10.9%
13.9%
Estimated Available CELs
15.3 million
18.4 million
NA
25%
26.7%
28.3%
Clean Energy Target*
Spot Market
USERS NA
30%
* Mexico's clean energy commitment in its energy mix Source: Official Federal Journal and PRODESEN 2017 - 2031
NA
31.7%
Bilateral Transactions
POWER PRODUCERS
VIEW FROM THE TOP
SMART BILATERAL TRADING SOLUTIONS FOR A LIQUID MARKET NATALIA GARCÍA Director General of eVOLT
Q: How does eVOLT generate added value for its
contract terms and fixed PPA prices, making these physical
customers?
transactions less risky.
A: We are a service and financial derivatives provider
280
for risk-management purposes. Our goal is to provide
We are standardizing contracting processes under a
relevant information, a wide product and service portfolio,
Master Agreement through which private players can
as well as a process that supports the needs of different
engage in physical and financial energy transactions,
energy market participants, including wholesale market
bypassing lengthy contract-term negotiations. We
participants, financial institutions and infrastructure funds.
structure and standardize our products so they are ready
The basis of our added value lies in our consulting, market
to be traded within our platform and we tailor solutions
intelligence, product-structuring services and marketplace
for all wholesale energy market players, including
setup capacity pertaining to the most efficient and
generators, utilities, marketers and financial institutions.
profitable way of contracting energy and mitigating both
The company also includes post-trading services, such
short and long-term risks. The access to our platform is
as settlement, netting and position monitoring, to avoid
designed to follow the trade lifecycle end-to-end, enabling
investing in a highly fragmented market and to maintain
direct participation in energy transactions and any other
control and visibility of all its energy-trading operations
associated product that will be increasingly available as
in an efficient, direct and seamless way.
Mexico’s electricity market matures, without investing in a traditionally large infrastructure or costly intermediaries.
Q: What products and services best encapsulate eVOLT’s
By enabling direct participation, reducing the need for in-
strengths?
house infrastructure, lowering fees, fostering competitive
A: We are primarily focusing on OTC derivatives —
pricing, generating narrower spreads and providing process
forwards and swaps — and customized off-venue
efficiency and optimization, we can greatly decrease
financial derivatives, as those are the risk-management
trading costs for our clients from the get-go.
products with the highest demand. We have identified a window of opportunity to introduce precursor market-
Q: How does eVOLT mitigate risks related to producing
order mechanisms to create a market-order system for
and managing energy?
transactions in infrastructure and green bonds, ETCs and
A: We are developing a fully streamlined, automated
physically settled derivatives with STP scheduling at
and robust trade lifecycle process. From data services
CENACE. Two main systems, quotes and proposals, will
— information access, price discovery, benchmarks and
be used for this particular development. Being able to
indicative pricing — to compilations that provide our clients
provide price projections, commercialization options and
all the tools to make the best decision among the available
product pricing for these types of projects confers cost
options, paired with their needs and priorities. While power
and income certainties within a specific time frame.
purchase agreements remain the preferred instruments, we cover a wide spectrum of possibilities and contract types
Q: What are eVOLT’s expected priorities for 2018?
that are not yet on our clients’ radars. Financial contracts,
A: Our main priority is injecting liquidity to the market
compared to PPAs, help mitigate risks by providing shorter
through our risk-management solutions and providing price certainty to our clients, enhancing bilateral transactions in Mexico’s young energy trading market. Price projections,
eVOLT specializes in OTC and off-venue financial derivatives
reference indexes and transaction processes will be our
and risk management solutions for bilateral trading operations.
primary tools to attain this objective. Once you can offer
The company is developing a fully streamlined, automated and
a standardized and user-friendly process, transactions will
robust trade lifecycle process for Mexico's energy market
multiply on their own.
INSIGHT
CONNECTING COMPANIES TO THE FUTURE OF ENERGY CONSUMPTION PAUL SÁNCHEZ Director General of Brío Suministro
Mexico new energy consumption marketplace is open for
Brío Suministro was born from a strategic association
business. Market players are facing the complexities of
between Grupo GP and Exedra. The former is a construction
setting up a profitable business model with more numerous
and property development company that participated in
and complex variables to take into account. These include
the construction of the BBVA Bancomer Stadium for the
little to no track record for energy trading operations in
Monterrey Rayados football club, and line two of Monterrey’s
the country and an incipient energy efficiency practice
Metrobús. Exedra is a business development company that
that could make it a difficult market to navigate. “Some
started as a consulting firm and now focuses on power
companies do not have the resources or manpower to
generation. “Energy trading is a business of volume with
undertake in-depth market analyses, such as analyzing
small margins that requires a solid client portfolio, which
natural gas price trends or electric coverage status, or
happens to be Grupo GP’s strength. The newly formed
to put their capital at risk to determine their best power
partnership set out to undertake a 250MW combined-cycle
supply option,” says Paul Sánchez, Director General of Brío
plant project and six months in, Brío Suministro was created
Suministro. “The appeal of participating in the electricity
as this project’s spin-off.
market as qualified suppliers with a service vocation lies in being adaptable to our clients’ needs.”
Sánchez’s company wants to showcase its energy efficiency know-how through its integral service in optimized
Mexico’s energy trading business is only a few years old,
energy consumption. “We look beyond energy efficiency,
which is why, Sánchez says, “when it comes to energy
introducing Industry 4.0 principles involving data mining,
trading, a company’s best asset is its own reputation.” First-
IoT and smart production processes to our customers,”
entrant qualified suppliers had to develop a business model
he says. Rather than producing commoditized software,
absent the Basic Supply Tariff, a government-designed
Brío Suministro designed from scratch the architecture of
price to signal, with absolute transparency, the real cost
its communication system, where a third party connects
of electric generation, distribution and transmission to
all its databases and its clients’ consumption data, added
the rest of the market. Brío Suministro set out to offer its
to internal analyses, forecasts and market reports, all
clients an option that gives them stability and control over
integrated into a single dashboard available online.
the cost of their electricity consumption, especially when
“Controllable demand and programmable consumption
this expenditure is among the Top 5 for most companies.
are the end result we want for our clients.”
“CFE does not work under a fixed-price scheme, it uses a formula. Power generation, distribution, transmission and
Consolidating its brand in the northeastern region of
metering costs that impact final consumers are sometimes
the country and attaining an increased service portfolio
misrepresented in the calculation of this formula. As you
by 2021 is the centerpiece of Brío Suministro’s 2019-
clear all these variables and get to the whole picture, you
2024 business plan. “While Mexico’s electricity market is
are in a position to offer a real alternative,” he explains.
often seen through the lens of a first-mover advantage, the energy supply business, more than trading electrons,
An iceberg-like business model was key for Brío Suministro
is a financial business,” Sánchez says. Dealing with a
to make its presence known. All its resources and efforts go
financial business without keeping potential risks in
into the unseen inner workings necessary for the tip to be
mind can lead to bankruptcy. “Brío Suministro has no
appealing: its trading systems, market analyses, forecasts
interest in turning to speculative approaches or financial
and aftersales services, to name a few. Timely availability of
bubbles,” he says. Closing industrial clients and targeting
information and options, as transparent and user-friendly
overlooked segments, such as retail chains, shopping malls
as possible, are at the core of the company’s strategy to
and restaurant chains, is how it intends to grow its client
build lasting business relationships.
portfolio by 20 to 30 percent before the plan's end.
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VIEW FROM THE TOP
LOOK AT THE FUTURE BUT DO NOT FORGET THE PRESENT HANS KOHLSDORF Managing Partner of Energy to Market (E2M)
282
Q: What areas should regulating authorities improve now
operations and energy efficiency provides the perfect
that the energy market is up and running?
platform to structure the best energy portfolios for its
A: Their efforts have been well directed but it makes no
customers. The advanced software platform we use not
sense to have a commodities daily transfer market that
only makes life simple for our customers when facing a
demands coverage on the transferred goods, such as
complex energy market, it also provides valuable insight
capacity or CELs, for up to 18 years. For a proper market to
that helps our customers implement significant savings.
work it is important to allow for the existence of surplus that
E2M works with the fundamental power model that maps
can also be traded, not just for the creation of goods that
all the nodes in the system, includes all transmission and
are warranted to be part of the transactions. Another step
congestion possibilities and predicts a period of up to
that has to be taken is to fix the competition laws to open
five years, providing as a result a very detailed forecast
up opportunities in the market and make it a level playing
of the market. This makes the software much more solid,
field. In the energy market, a company having 10 or 15
but it also requires more power and time to compute all
percent generation capacity in a specific region is already in
the possibilities.
a strong position where its decisions may strongly influence market trading prices.
Being an independent trader, similar to an insurance broker, we can help our customers find the best fit for
In a well-developed market the price dictated by offer
their requirements. Vertically-integrated companies will
and demand is the correct price. The private sector asked
always focus on offering their own products at the highest
for an Energy Reform that allowed for the development
possible prices they can. As an independent we can help
of market prices, so it makes no sense to now look for
our customers save significant amounts.
fixed tariffs that protect the investments over a long term. Contracting of coverage should be incentivized in
Q: How does Energy to Market attract its human talent?
the market to provide protection against price variation.
A: E2M follows two paths when recruiting talent. The first
The local financial sector has proven to be a burden for
is the inclusion of interns who want to start developing
Mexican developers or new Mexican generation companies.
their career and to learn from the market during their
It seems that financial institutions are asking for contracts
studies. This way, the moment these interns graduate
that basically return to pre-reform conditions. It is sad that
they have gathered an in-depth knowledge that we can
this is hampering local participation in the new electricity
start capitalizing through our added-value activities.
market but I am certain that the Mexican development
The second is making an effort to recruit talent with a
banks are working on a solution to level the playing field
background in either the financial sector or in the energy
for the Mexican private sector.
sector. Our teams then complement each other with their expertise and we can have a broader view of what the
Q: What added valued does Energy to Market provide
market needs.
through the use of its platform? A: E2M's experience in the automation and control
Q: What are Energy to Market’s plans for Mexico?
business and its deep understanding of customer
A: We want to become a strong player in Mexico but we also want to foster competition and the presence of competing companies. If we did not want to foster competition, then
Energy to Market (E2M) is an energy broker and service
we would be actually telling our clients that the best option
provider in the the Mexican electricity market. The company
for them is us, simply because we are present in a market
targets energy generators, qualified users and qualified
where there are no other options. Competition allows us to
suppliers with generation capacity
follow a growth path driven by excellence.
VIEW FROM THE TOP
FAIR, TRANSPARENT AND PROFITABLE PRICES FOR QUALIFIED USERS ANDREA LOZANO Commercial Director of BID Energy
Q: How is BID Energy making a difference in Mexico’s
Q: How does BID Energy adapt to new regulations in the
energy trading sector and what challenges have you faced?
electricity sector?
A: Mexico’s electricity sector is highly complex and offers
A: BID Energy has a dedicated department that keeps pace
several areas of opportunity. Our first challenge lies in
with the regulatory environment and follows up on changes.
dealing with our clients’ knowledge. The hasty launch of the
Our company participates in every course or training
Energy Reform relating to market rules and regulations left a
session offered by the Ministry of Energy, CENACE and CRE.
considerable deficit in generating clear and readily available
BID Energy is also a member of the Mexican Association
information regarding the obligations of final users and the
of Qualified Suppliers (AMSCA). Given the issues faced by
new rules of the game. Our competitive advantage lies in
qualified suppliers, we decided to shift our view of being
the tools we have at our disposal to become a strategic
competitors to being allies to mitigate the risks from all the
ally for each and every qualified user. If clients feel we are
changes and all the elements of the market, in which what
an integral part of their team and we effectively prevent
is stipulated on paper from a regulatory standpoint might
onerous investments by relying on a specialized team of
not encourage an operationally open market. All AMSCA
highly qualified professionals, we have done our job.
members meet at least twice a month to develop and define action programs to make our case to the relevant
BID Energy strives to look for the best alternatives available
government agencies regarding required adjustments and
in the market, always offering fair, honest and profitable
to protect the interest of qualified users.
prices for each MW consumed by our clients. We provide an integral advisory service in which we offer our clients
Q: How does BID Group’s added value permeate BID
an exhaustive radiography composed of the key variables
Energy as a qualified supplier?
of their energy consumption to define the adequate price
A: BID Group is a 100 percent Mexican conglomerate, with
they should be paying for it.
over 20 years operating in different sectors. BID Group’s core business is financial, providing an essential backup
Q: What are qualified users’ prevalent concerns with
for all our operations. Our conglomerate made a name for
energy trading?
itself working in other business lines in both the private
A: There is a generalized lack of awareness on the side of
and public sectors, creating financial solutions, developing
qualified users. There is almost no culture of electric-resource
technology and generating evaluations for improvements.
management in Mexico, although it represents between 30-40 percent of the total expenses of energy-intensive
Q: What are BID Energy’s objectives for the long term?
companies. Our interactions are generally established with
A: BID Energy wants to position itself as a company that
a company’s purchasing department as, more often than
goes beyond trading energy by becoming a strategic ally
not, companies lack an actual energy department. There
for electric energy supply, a company that takes care of its
is a prevalent uncertainty about potential power outages
clients' interests and offers a fair, transparent and profitable
as CFE’s monopoly transitions to a liberalized competition
price. We want to establish long-term business relationships
among several suppliers. All regulatory entities involved in
with companies requiring our services, once they see the
Mexico’s electricity sector need to work to provide clear and
added value of what we provide.
transparent information for final users. These users also lack technical knowledge when it comes to evaluating different energy-trading proposals, particularly if they are used to the
BID Energy is the energy trading subsidiary of BID Group, a
previous self-supply scheme. Qualified users are unaware
conglomerate offering commercial development consulting
of their new obligations and are unclear about CFE’s new
services for institutional, technological and financial operations,
Transmission and Distribution divisions.
assisting private companies and governmental entities
283
ROUNDTABLE
IS MEXICO’S ENERGY MARKET READY FOR CELs?
To ensure the success and profitability of Mexico’s upcoming utility-scale projects, it is essential to make sure demand for electricity generated by renewable energy sources will be there once the projects are online. The country’s regulatory authorities responded to this necessity with the design of a secondary energy trading market: the Clean Energy Certificates (CELs). Besides opening up energy trading to the private sector, companies are required to purchase 5 percent of their energy consumption from clean and renewable energy sources. By November 2017, CRE was putting the final touches and undertaking trial rounds for the electronic platform meant for CEL trading. Welcome to the CELs market.
Due to the regulations for CEL requirements from the beginning of 2018, CFE needs to acquire a large amount of CELs to compensate for the energy it still produces using fossil fuels. The CELs are expected to attract tremendous demand when 284
they become available so everyone believes CEL prices will increase dramatically. Eosol’s strategy formed almost in response to the auctions due to the absence of private projects. With our full-equity advantage, clients started knocking on our
ÓSCAR BERNAL Director General Mexico of Eosol Energy
door. In the last 10 months, we have received more renewable energy development projects than in the six years since our company was established.
The trading mechanism for CELs is purposely designed to attain market equilibrium once they are launched starting 2018. The mechanism’s inherent flexibility allows the required participants to postpone CEL obligations, softening the demand curve, and to delay the accumulation of CELs without having to sell them immediately, in turn softening the offer curve. This flexibility will keep the CELs market from failing. Additionally, when the Energy Transition Law was approved, a transition provision
FRANCISCO SALAZAR Founding Partner at Enix
was included for the first four years of the Clean Energy Requirements to deal with a possible insufficient quantity of CELs and to soften the obligations.
We believe this new instrument to be a great business opportunity for IGSA. The rules of the game have yet to be clarified enough for CELs to be integrated into our business lines. The reform created the CELs obligation, beginning in 2018, and in so doing created Mexico’s energy trading market. As it stands, several variables have yet to be clearly outlined. Which private players make up the CELs market? Where do I buy them from? How is the CEL spot market designed? How
SANTIAGO PAREDES Director General of IGSA
much do they cost? Once these questions are answered, the supply and demand of the CELs market will reach an equilibrium that will make it attractive enough for us to participate in.
The obligation of industrial players to cover their energy demand with a certain number of CELs opens up a new, secondary market for Mexico's energy trading sector, unlocking new ways to foster and generate business. This new instrument can be capitalized both by the companies providing the CELs and for those that need them. SUNCO finds this new market extremely interesting and attractive. We believe it will complement the projects already underway as CELs create a guaranteed demand for the energy produced by renewable energy project as the come online. It will be a twofold stabilizing factor, for projects on one side and for the financing models on the other.
JOSÉ DELGADO Project Development Director of SUNCO Capital
The CELs scheme Mexico implemented is definitely going to incentivize the inclusion of clean energies in the energy mix. This reflects Mexico’s effort to truly use the best practices of other international markets. Another common scheme 285
is the feed-in tariff (FIT), but it has proven to generate an inefficient industry. This was shown by many European companies that opted to use this instrument and were consequently unable to make a competitive enough bid during the Mexican auctions that required CELs. In some instances, it even went as far as market collapse, as these companies were unable to pay for exaggerated FITs.
HANS KOHLSDORF Managing Partner of Energy to Market (E2M)
We are pleased with the government’s ambitious plan to produce 35 percent of the country’s electricity from clean and renewable sources by 2024. Although we are developing our own solar parks, we also advise our clients on how to venture into other renewable technologies, such as wind farms, so they can further promote this new market and all its advantages. We go beyond the CELs’ legal requirements, which will come into effect in 2018, and highlight the importance and the impact these instruments will have on our clients’ business, particularly in terms of corporate social responsibility.
JULIÁN ROJAS Vice President and Partner at Goldman and Berkeley
CELs are proving to be quite a relevant and complex product, even if by definition they are probably the simplest commodity on the MEM. We see two key roles played by CELs. The first is already reflected in the long-term auctions for which they were conceived, helping developers gain additional remuneration and certainty to finance and complete their projects, and then a more financial side where these certificates will represent a very liquid and tradable product within the bilateral market. The main bottleneck until now has been tied to DECLARACEL and the uncertainties about the exact settlement and transfer of ownership process through which participants will register their transactions, something that is key for a bilateral and liquid market to function.
SALVADOR ALARCÓN Founding Partner and CEO of Tradeon Energy
ABB 1,100kV DC transformer bushing
ENERGY MANAGEMENT
11
While Mexico has exerted a tremendous amount of effort and showed great capability in delivering a competitive energy market that it hopes will help to secure a reliable, secure and efficient energy supply across the value chain, the country’s transition to a modern, clean-powered electric system cannot be completed without fully-deployed energy efficiency practices. Fossil fuels will still play an important role in the country’s energy mix for the foreseeable future as it deals with technical and nontechnical losses in its transmission and distribution.
New technological developments rooted in automation, IoT and data mining will be valuable additions to Mexico’s energy efficiency ambitions on both the public and private sides. CFE has already set out to modernize its processes and the private sector is following suit. Simultaneously, the country’s authorities are drafting Mexico’s promising policies on energy efficiency across the industrial, commercial and residential sectors. In this chapter, we discuss the latest developments in Mexico’s quest toward an operational smart grid and sizable energy savings.
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CHAPTER 11: ENERGY MANAGEMENT 290
ANALYSIS: The Best Transition is a Smart Transition
292
VIEW FROM THE TOP: José Pablo Fernández, Grupo Dragón
294
VIEW FROM THE TOP: Odón De Buen, CONUEE
295
INSIGHT: Fidel Guajardo, Fronius
296
Insight: Marco Calderón, MABREX
Ernesto López, Schneider Electric Mexico
298
VIEW FROM THE TOP: Michel Yehuda, Fluke Dominion Mexico
299
VIEW FROM THE TOP: Bulmaro Rojas, Generac Ottomotores
300
INSIGHT: Luis Fraustro, Greenblue
301
INSIGHT: Pedro Cruz, AMEEIER
302
VIEW FROM THE TOP: Rodrigo Calderón, Energetika
Alejandro Chico, Energetika
303
INSIGHT: Oscar Hernández, BIION
304
VIEW FROM THE TOP: Daniel Vázquez, Grupo Vázquez Vela
305
INSIGHT: Gianello Gaggero, Battery Depot
306
VIEW FROM THE TOP: Mikael Kaivola, CITRUS
Elsa Bernal, CITRUS
Katia Bernal, CITRUS
307
VIEW FROM THE TOP: Alfonso Teramoto, Greenfinity
289
ANALYSIS
THE BEST TRANSITION IS A SMART TRANSITION Both Mexico’s regulatory authorities and private sector agree that in the coming years, the country’s electricity consumption is set to increase. The Ministry of Energy estimates Mexico will boost its electricity consumption from 304.7TWh in 2017 to 476TWh by 2030
290
The country is deploying an integral strategy that includes
factor they respectively produce, consume, transmit or
notions such as energy efficiency, controllable demand and
distribute,” says Michel Yehuda, Industrial Director of Fluke
the Internet of Things (IoT). The goal is to revamp the nation’s
Dominion Mexico. Pertaining to the country’s Smart Electric
electricity system and provide a long-awaited electricity
Grid Program, César Hernández, former Deputy Minister
supply that reflects the reality of the country’s industrial,
of Electricity at the Ministry of Energy, says the major
commercial and residential needs, anchored in competitive
implications of the program are conferring the system greater
tariffs, technological applications and a sturdy and reliable
measuring, managing and telecommunications capacities.
system. The challenge is sizable: during the presentation of
“Specific programs both for independent system operators
the Smart Electricity Grid Program on Aug. 22, 2017, Pedro
and distributors, relating to specific projects regarding cost-
Joaquín Coldwell, Minister of Energy, estimated that Mexico
benefit analysis and other viability-measuring tools for a
will require nearly US$650 million in investments for the next
smart grid, were made available.”
eight years to install a full-fledged, national smart grid. The private sector is also poised to support the government's Some industries have already reaped the benefits of
efforts. “We agreed with CFE on the assessment of new
efficiency, automation and IoT to reach heights never attained
technologies to modernize and digitalize Mexico’s electricity
before. “We could not be talking about an automotive plant
system. The purpose in using these technologies is to reduce
manufacturing 250,000 vehicles per year without automation
costs by mitigating technical and nontechnical losses and
and IoT,” says Ernesto López, Vice President of Partner Projects
to increase the reliability of the network by conferring it
and Ecobuilding at Schneider Electric Mexico. The country’s
modern and top-tier components,” says Alejandro Preinfalk,
electricity industry has yet to attain the level of integration of
Vice President of Energy Management for Siemens in
such innovations that these industries enjoy but it has made
Mexico. Between 2019 and 2024, the integration of smart
the first decisive steps to converge toward this assimilation.
grid applications in the country’s National Electricity
Imagine a system where electricity production, distribution,
System is expected to make the latter ready and able to
transmission and consumption can become transparent, with
absorb intermittent sources of energy — the inherent trait
usable data for all final users to clearly visualize their electricity
of renewables — so that before 2030 the system obtains a
consumption, in scales ranging from seconds to years, as
perfect balance between flexibility and robustness against
easily and seamlessly as they check currency exchange
intermittent generation and load vulnerability. This could
rates on their smartphones. Smart grid applications enable
create an effective system that paves the way for smart
an exchange of electricity and data mining between power
cities, sustainable construction, electric vehicle fleets and
producers and consumers. Through an extended network
even smart homes.
of communications, integrated computers, IoT, automation and top-tier software solutions, providers are able to offer a
Under market conditions where both electricity prices and
more efficient, secure and reliable electricity service, where
electricity production costs fluctuate as a result of a wide array
different renewable-powered energy generation can coexist
of variables, such as the local marginal prices of each node
on the grid, opening the door to the industry’s newest and
at a particular point in time, taking control of consumption
most promising developments, such as battery-based energy
can be the key to unlocking sizable electricity savings. Now,
storage solutions and electric vehicles.
the industrial, commercial and residential sectors must watch out for peak hours in electricity costs and navigate the
“The rising awareness of IoT coupled with a new regulatory
variation slopes skillfully to avoid incurring increased energy
framework is fostering a turning point in how Mexico
consumption. Energy-intensive industries and companies,
measures and provides electricity. CRE’s most recent norm,
for the most part, have specialized departments to monitor
NOM-EM-007-CRE-2017, published in February 2017, attests
and further optimize their energy consumption. Smaller
to this shift. The norm stipulates that public and private
companies, however, will require third-party assistance to
generators, users and companies related to transmission
attain the benefits of controllable demand and programmable
and distribution are obligated to measure the electric power
consumption. “When a large electricity consumer has access
DISTRIBUTION ENERGY LOSS PROJECTION 2018-2021 (GWh) DISTRIBUTION ENERGY LOSS TARGET PROJECTION 2002-2021 (GWH) 40 35 30
Technical Non-Technical ——Energy loss Energy loss projection
25 20 15
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
5
2002
10
Technical Source: PRODESEN 2017 - 2031 Non-Technical Target
PRODESEN 2017 - 2031 to provide servicing. An to Source: IoT, it needs specialized partners
Environmental and Social Analysis Report drafted July 17,
electric meter manufacturer cannot handle the increasing
2017 and addressed to the Inter-American Development
demand for this technology on its own. What some years
Bank (IDB). The report stated that a Public Administration
ago was exclusively for the use of utility companies is now
building spends between 62 and 92 percent of its electric
also within residential reach,” says López.
consumption in lighting and air conditioning. Generalizing LED-lighting technology could save up to 119.34kWh/year
OPTIMAL EFFICIENCY
and add seven years to the lighting’s operational life before
Energy loss has long been the thorn in CFE’s side. Prior to the
requiring replacement. Generalizing high-efficiency air
reform, Mexico’s average energy loss between production and
conditioning could represent savings of up to 1267.43kWh/
final consumption was well above OECD levels. “In 2012, these
year. In CONUEE’s latest report, the coordinated policies
losses amounted to 16 percent on average nationwide, versus
implemented in over 1,591 federal properties, representing 51
OECD’s average of 6 percent. Our latest data from October
percent of the total registered, 5.23GWh of energy savings
2017 suggests our energy losses are below 12 percent. For
were attained. While these results are encouraging, several
2018, we are setting a 10-11 percent objective. We are confident
hurdles remain. “A project to make a building more efficient
we can reach this milestone and will continue working to bring
could cost MX$1 million, while the management of the
this indicator closer to international standards,” says Jaime
transaction and financing could bump that to MX$2 million.
Hernández, Director General of CFE. While Hernández stresses
We need to allow for the creation of a market and procedures
the increased complications in attaining each percentage
that facilitate the development of energy efficiency, by setting
point, the objective is at CFE’s doorstep as some states are
lower transaction costs and to lower the risks involved,” says
already below OECD’s 6 percent mark, making the country’s
Odón de Buen, Director General of CONUEE.
central region the biggest challenge. “Pertaining to an average time of electric energy interruption per user, PROFECO’s
On the private sector’s side, energy efficiency is perceived
registry of complaints went down by 25 percent between 2015
as a particularly effective entry-door for renewables. “If
and 2016. In 2010, the average time was 130 minutes, while our
a renewable energy project is installed into an electricity
latest numbers suggest it is below 30 minutes on average per
system without installing energy efficiency measures first,
year,” he added. While reducing technical and nontechnical
then the renewables project is sized for non-efficient
losses addresses energy transmission and distribution, energy
energy consumption, meaning that the whole project will be
efficiency practices on the energy consumption side can
oversized and more expensive than it should be,” says Pedro
contribute considerably to the grid’s stability and reliability
Cruz, Director General of AMEEIER. Qualified suppliers are
as it mitigates grid saturation while also implying less resource
among the industry’s new players that are showing increased
use in a still fossil fuel-dominated energy mix.
interest in giving the industry a good name and also forging a competitive edge. “We look beyond energy efficiency,
Mexico’s authorities want to lead by example through
introducing Industry 4.0 principles involving data mining,
the Energy Efficiency Program at the Federal Public
IoT and smart production processes to our customers,” says
Administration. The program’s objective is to establish
Paul Sánchez, Director General of Brío Suministro. As a key
energy efficiency measures and attract investments for
complement in addressing the variability of both electricity
their implementation through a coordinated effort between
and conventional fuel prices, energy efficiency talks could
the Ministry of Energy and CONUEE, according to an
dominate energy-related discussions in 2018.
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VIEW FROM THE TOP
BRINGING GEOTHERMAL INTO THE ENERGY MIX JOSÉ PABLO FERNÁNDEZ CEO of Grupo Dragón
Q: To what extent have you advanced to become a qualified
sharing. Now it will be a differentiating factor as consumers
supplier in the new energy market?
become more aware of their energy usage.
A: We have made great advancements on our energy
292
trading plans, but it has been challenging to launch a
Q: What other areas of opportunity have you identified in
definitive project as there are still regulations pending.
the Mexican power sector?
We have already acquired the necessary permits from
A: We see great potential in energy forecasting and
CRE to be a qualified supplier but we are still waiting for
the use of thermography for energy applications. The
CENACE to define the final market rules. It is a difficult
evaluation of market dynamics and the identification
process but we see a lot of potential in it so we will
of energy use in different industries will differentiate
continue with our plan to enter the wholesale electricity
successful companies from the rest. All electric utilities
market. Most private companies are in a similar situation,
sell the same product, a flow of moving electrons, so
but we expect the market to take off eventually. We have
differentiating factors will be related to aspects such
the resources and capabilities for a successful entry, but
as quality customer service. In this new landscape,
we need certainty regarding market regulations before
customer data regarding electricity usage will be crucial
proceeding.
for companies wanting to have a competitive advantage. We have the software and hardware needed to perform
As a strategy to reach off-takers, we are offering self-supply
these tasks. Our group is one of the companies in Mexico
plans with permits acquired under the previous regulatory
investing the most in data storage devices. We also see
framework. We have two self-supply projects under
a barrier in this sector as most Mexican companies do
construction and they can migrate to the new regulations
not have real-time metering devices. The Law of the
at any time. Self-supply projects act as a bridge to the new
Electricity Industry says that private investment in
market, which is an advantage for both our clients and us.
electricity transmission and distribution infrastructure is only allowed under certain conditions with CFE or its
Q: What are the differentiating factors that will allow
subsidiaries. We would be highly interested in investing
qualified suppliers to succeed in the market?
more in this sector, but we are discouraged by the
A: Prices will continue to be a major factor for off-takers to
existing constraints.
select from different qualified suppliers. However, companies must be aware that low prices alone are not always the
Q: What investments has Grupo Dragón already made in
best option in the long run. Most industries require long-
electricity transmission and distribution?
term PPAs, so they need to analyze how energy prices will
A: We have allocated US$215.5 million to a smart grid
fluctuate to decide the cost-effectiveness of a particular
project. It focuses on advanced metering devices and is
offer. We see a need for evaluation methodologies and
one of the largest initiatives in Mexico in this regard. We
tools that off-takers could use to analyze these variables.
are working with CFE on this project as stated by Mexican
Electricity tariffs are still influenced by factors unrelated to
law, which says that private players must establish joint
technical issues, which will be unsustainable in the long run,
ventures with the state-owned company for transmission
and companies must consider this when making long-term
and distribution initiatives. We have identified a number
decisions about their energy supply.
of business opportunities for improving the Mexican electricity network and we consider advanced energy
Customer service will also become increasingly important
metering as a suitable starting point. Efficient and accurate
in the coming years. Customer experience was often
interpretation of energy data is one of Grupo Dragón’s
overlooked as the industry used to be a monopoly,
strengths, as we have over six years more experience in
particularly regarding information transparency and
this area than our competitors.
Q: What type of projects would you develop if private
We do not consider the new regulations to be particularly
investment in transmission and distribution was fully
advantageous for geothermal development. On the
liberalized?
contrary, they complicated the bureaucratic processes for
A: Distribution represents the largest business opportunity
us. We had the advantage of being the only private company
from our standpoint as there is a need to educate large
participating in the sector at that time, which allowed us
electricity consumers about best energy practices.
to establish a direct dialogue with the government and
Electric utilities could offer service packages, selling
ease the transition process. The outcome would have been
electricity supply with a demand management approach.
completely different in the wind energy industry, where
Utilities could advise customers of the most suitable
several private companies were already operating. In the
times to perform energy-intensive processes, rewarding
long term, however, we do not exclude the possibility of
them for following their guidelines. We would also like
new geothermal developments benefiting from the new
to invest in the modernization of the power distribution
regulations.
network, a sector that could benefit enormously from private investment. Having more efficient grid lines would
Q: Would you be interested in participating in Round One
reduce the number of technical losses, bringing economic
for geothermal energy and why?
savings to the country and avoiding power blackouts.
A: As the first company developing a fully private
Also, it would avoid the presence of voltage voids in
geothermal project in the country, we are highly interested
the network, which can seriously damage sensitive
in expanding in the sector. Besides private investment, we
equipment.
are willing to collaborate with CFE in the development of new geothermal projects. As a Mexican company, we
Q: How are you collaborating with CENACE to tackle
feel strongly committed to creating new job opportunities
challenges with the Mexican power network?
while contributing to the protection of the environment,
A: CENACE has technical capabilities that exceed our own.
and geothermal projects comply with both requirements.
More than helping it, we are collaborating with the grid’s
We have a team of valuable professionals that are happy to
operator to enable communication between regulatory
work in a Mexican company that is carrying out innovative
entities, the government and private industry. Our most
projects. Grupo Dragón is mostly made up of Mexican
important role is to support CENACE in adapting the best
employees, which also sets us apart from other renewable
practices it has learned from other markets to the Mexican
energy companies.
context, contributing to its successful implementation. There used to be a lack of communication between public
Q: What are the advantages and challenges of being a fully
entities and the private sector, a situation we want to avoid
Mexican company in a sector dominated by international
in the new market.
players? A: An increasing number of Mexican professionals have
Q: What allowed Grupo Dragón to win the first private
gained experience working with international companies.
concession for a geothermal project in Mexico?
Mexicans are exceptionally creative, which is important
A: It is impossible to complete a geothermal project in
for engineering-related activities and is something not
less than five years as it requires large investments and
all nationalities share. Mexico’s young professionals
long exploratory and drilling periods. The same situation
are hungry for success, an aspect that companies with
happens in all countries with geothermal resources. It is
ambitious initiatives, such as Grupo Dragón, appreciate.
not a challenge exclusive to Mexico. Our project has been
Being a Mexican company allows us to understand the
operating for one year, meaning it was planned at least six
country’s idiosyncrasies, which is needed to design
years ago. Because of this, when we acquired our permits,
the best solutions according to the national context. I
the project was under the self-supply scheme from the
have mostly found advantages in employing Mexican
previous regulatory framework. The old regulation required
professionals. Grupo Dragón was founded seven years
geothermal projects to have a water concession from
ago and we are now a reference in the sector. We are
CONAGUA, which was later transformed to geothermal.
pioneers in geothermal and smart grid development in
This transition period brought uncertainty to our project
Mexico and this success has been mainly possible thanks
because we were not sure that our previously-acquired
to our committed Mexican workforce.
permit would migrate to the new law. We managed to change our concession, which was fortunate as we already had made major investments. We bet strongly on
Grupo Dragón is a Mexico City-based electricity solutions
geothermal because we considered it a promising and clean
company with proven expertise in the generation, operation
energy technology in spite of the risks involved. This all
and maintenance of large-scale renewable energy projects, as
happened before the Energy Reform.
well as efficiency consulting services, among others
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VIEW FROM THE TOP
BUILDING AN EFFICIENT FUTURE ODÓN DE BUEN Director General of CONUEE
294
Q: What is CONUEE’s role in Mexico’s energy industry?
is the high cost associated with implementing standards
A: CONUEE has two roles that provide the country with
to improve buildings. In the case of social housing,
added value. The first is as a regulator. We regulate
our studies suggest that to implement a relaxed but
materials, products and systems that use energy. Since
effective standard would cost MX$10,000. Housing
CONUEE’s creation in 1989, when it was called CONAE,
developers want to know who is going to pay for this.
it has developed 31 standards and has updated most of
We are developing a study showing how much money
them. The second role is as promoter of knowledge and
the government can save on subsidies by making sure
best practices for achieving better energy efficiency,
that our standard gets implemented. But even for the
which is done through programs for the public federal,
government it is hard to make sure that an entire industry
state and municipal and for the private sectors. We work
that develops 500,000 houses per year follows a newly
closely with numerous private and public organizations
implemented set of rules.
and we have developed large networks of stakeholders under what we call “communities” that cover several
Q: How do CONUEE’s alliances make it a stronger
themes across the energy-efficiency spectrum.
institution? A: We cooperate with CFE on knowledge transfer and
Q: What are some of the biggest challenges CONUEE has
to gather data about the energy consumption of public
faced in its work to improve energy efficiency in Mexico?
buildings and industrial installations. We also work on a
A: Buildings are without a doubt a challenge in terms of
national program to increase the energy efficiency in public
energy efficiency as the use of air conditioning is growing
lighting and we have supported 34 municipalities that have
fast in Mexico. The most relevant issue with energy efficiency
changed close to 400,000 street lights with savings of
in buildings in Mexico is not related to its equipment, such
MX$500 million per year. One problem we are recently facing
as AC units, but with their shell or envelope. To reduce the
with CFE is that it is dealing with radical institutional changes
amount of energy needed for air conditioning in residential
as a result of the Energy Reform and processes are taking
and commercial buildings, CONUEE has developed two
longer than they used to, but this is just a transition and our
standards that apply to the design of its envelopes.
strong relationship is helping us overcome this.
Unfortunately, we have not been able to enforce them because we only create the standards and, in practical
Q: How would CONUEE like to impact the Mexican
terms, depend on third-party public institutions for their
energy industry in the future?
enforcement and we have to strengthen our collaboration
A: There is a potential for energy efficiency investment
with local authorities to include them in local building codes,
that is not being used, particularly when it involves those
promote their implementation and reinforce compliance.
systems that are common in buildings and medium and small enterprises. This is not only a problem in
Particularly, CONUEE has engaged in an ongoing
Mexico but around the world. One of the issues is that
discussion with the housing industry for over three
energy-efficiency projects tend to be relatively small
years already, negotiating to ensure the application of
and isolated, involving large transaction costs for each
our standards. One of the main issues developers have
individual project, meaning that the process to start the project ends up costing more than the project itself. We need to allow for the creation of a market and procedures
The National Commission for the Efficient Use of Energy
that facilitate the development of energy efficiency by
(CONUEE) is a public entity that promotes efficiency and the
setting lower transaction costs for the development of
sustainable use of energy resources through the adoption of
the projects and lower the risks related to the technology
best practices
involved.
INSIGHT
OPPORTUNITIES IN THE SMART NEW MARKET FIDEL GUAJARDO Director General of Fronius
As international companies start to flood the Mexican
“Hybrid systems, storage and consumption measurement
market, those already here will benefit from having
and control via smart meters are some of the most
experience and established services directed toward the
important technologies coming to Mexico. Fronius offers
local market, says Fidel Guajardo, Director General of
a smart meter that continuously monitors and controls a
Fronius. The Austrian global leader in battery charging,
home’s energy consumption and generation that results
welding and solar systems entered Mexico’s renewable
from the renewable installation to ensure that the most
energy market in 2007 and since then, Guajardo says the
important equipment always has energy.” 295
company's added value has been the support, attention and experience it has to offer, "not only due to our
Proper energy storage is key when sizing renewable energy
cutting-edge technologies developed in Europe but also
systems. A perfect technology match between the energy
to our local service centers that are managed in the local
production system and the energy storage system can
language.”
always be achieved, but that does not mean that this match will be economically viable. Guajardo believes that to help
Offering a full and differentiating service and support that
solve this dichotomy, an effective management system
sets apart a company’s business model is crucial for success,
is crucial. “Although storage is an important factor with
Guajardo says. In the PV system industry everyone basically
energy systems, smart-meter technologies will be needed
offers the same products: solar panels, inverters and the
to open up the door to wider market penetration of storage
related installation products. Fronius’ difference begins on
technologies. Having smart control of the energy being
its homepage with its Support on startup, says Guajardo.
consumed and produced ensures that batteries are better
“This service starts from the very first configuration on
managed,” he says.
Fronius’ webpage to determine the equipment needed, from solar panels to inverters, depending on the client’s
Fronius is working on two technological developments in
location and its energy consumption.”
this area. “The first involves lithium alloys. We have seen some technologies that promise to have more energy
The company has also developed what it calls Fronius
density than current lithium-ion technologies. The second
service partners, local installers who are certified and
is storage through hydrogen, and we believe that with
supported by Fronius. “These installers receive constant
enough R&D this could reach the market by 2020.” Fronius
training from Fronius to prepare them to manage all our
sees R&D as one of its strengths, dedicating 15 percent of
current technologies and those we are looking to integrate
its workforce to R&D at its headquarters in Austria, as well
into the Mexican market,” Guajardo says. The Fronius
as 12-15 percent of its yearly investment total.
service partners program is not only beneficial for Fronius, but also for the partners themselves, as they can offer
Guajardo also points to the need for more dynamic
any follow-up service required, in any location and for any
regulatory institutions to assimilate the wave of
Fronius customer, increasing their opportunities in a highly
technologies coming into the country. “Unfortunately,
competitive market, he adds.
regulatory institutions are lagging behind the market. Occasionally, solutions that are already in other markets
Technology also plays a key role in Fronius’ Mexico
are not allowed to enter Mexico just because of obsolete
strategy. The country’s market is rapidly becoming one of
regulations,” Guajardo explains. “For example, Fronius has
cutting-edge technologies, Guajardo says, and the fact that
been in constant talks with CRE regarding net billing and
the energy sector has effectively opened and allows any
net metering for four years, but we still have not seen a
player to enter the resource-rich country makes it a perfect
proper regulation in this area. Developing normativity at a
playground for developers to try out their technologies.
faster pace would be extremely beneficial for the market.”
INSIGHT
STRATEGIC ALLIANCES HELP DEEPEN COMBINED FOOTHOLD Marco Calderón Director General of MABREX
Ernesto López Vice President of Partner Projects and Ecobuilding at Schneider Electric Mexico
Advanced solutions in electricity measuring will allow
transformation, spearheaded by the Energy Reform, as it
users to harness efficient consumption, forecast peak
gave us the tools to face this new scenario with specialized
hours and empower their purchasing power by ensuring
technical and regulatory-savvy personnel,” adds Calderón.
a reduced electricity bill, says Marco Calderón, Director
296
General of MABREX. It is no surprise that most companies
As the stage was set for Mexico’s new electricity market,
involved in the electricity marketplace technology at the
the Schneider Electric and MABREX alliance was ready
center of their business model as a core differentiator for
to play. “Our interactions with Schneider allowed us to
the products and services they use. Sometimes, such a
understand the direction in which the reform machinery
business model requires strategic alliances to capitalize
was headed. Schneider’s EcoXpert program requires each
on each partner’s strength to set an even deeper foothold
distributor to make the required investments and design
in the targeted niche, he adds.
an appropriate strategy to be ready for the coming market
“
We could not be talking about an automotive plant manufacturing 250,000 vehicles per year without automation and IoT” Ernesto López, Vice President of Partner Projects and Ecobuilding at Schneider Electric Mexico
opportunities. By 2013, we were all set,” says Calderón. “In 2014, we boosted this strategy even further. Emulating Steve Jobs, our hardware was our selling strength, while our apps services were our marketing campaign. You enhance your hardware sales through value-adding software. We set out to develop energy data-mining processes and datamanagement networks.” Information is power and MABREX knows it. “Without data, it is nearly impossible to supervise the market. We provide the tools that help extract it and exploit it. Our technology today is the market’s go-to model.” This Schneider ElectricMABREX partnership could be integral to Mexico’s effort to deploy an intelligent electricity grid. “We could not be talking about an automotive plant manufacturing 250,000
Such is the case with MABREX and its partner Schneider
vehicles per year without automation and IoT. Our world is
Electric. MABREX is the sole distributor of Schneider
transforming at an incredible pace. We need to empower
Electric products in Mexico and Schneider develops
our distribution channels for them to continue being our
advanced solutions in electric measuring under a strict
main strength in our commercialization model,” says López.
Quality Management System. Combined, they have a
“When a large electricity consumer has access to IoT, it
70-year presence in Mexico’s electricity market and a
needs specialized partners to provide servicing. An electric
specialized group that offers a proven commercial strategy
meter manufacturer cannot handle the increasing demand
through Schneider’s EcoStruxure Platform, a technical-
for this technology on its own. What some years ago was
commercial strategy that targets better servicing for
exclusively for the use of utility companies is now also
final users. “Managing our business through different
within residential reach.”
distribution channels is part of our DNA. Such is the case of our EcoStruxure Platform, which is an IoT-enabled, plug-
The alliance, at its core, is a strategy to prepare EcoStruxure’s
and-play and open architecture platform,” says Ernesto
business platform to integrate IoT. “In the energy world, IoT
López, Vice President of Partner Projects and Ecobuilding
has been used for a long time now, through automation
at Schneider Electric Mexico. “Our interaction model,
processes for industrial processes and electricity grids,
which was launched in 2007, prepared us for the industry’s
albeit not fully capitalizing on the potential it presents
today,” López says. The electricity chapter of the Energy
solution. This investment can be profitable from a business
Reform specifically refers to the electricity grid. “For a grid
perspective, considering energy savings mean additional
to be truly smart, it is not enough to confer it intelligence,
resources to allocate to strategic segments of their
which it has had for a time now. Intelligence is a two-way
business,” says Calderón.
street. Both the grid and the buildings, installations and infrastructure it services must be smart as well, through
Schneider Electric and MABREX believe the electricity
IoT appliances,” López continues.
industry in Mexico is experiencing a critical turning point and the companies are determined to help shape
IoT is expected to witness a considerable demand increase
the future. “Our interactions with CRE give us a voice as
and data storage megasites will require an equally sizable
energy experts and let us jointly draft the development,
electricity consumption. According to López, these sites
implementation, improvement and strengthening of the
consume as much energy as an oil refinery. “Our specialized
market. Participating in this process allows us to include
vendors network intervening in each electricity grid tier
international best practices, including energy quality
enables us to address these forthcoming scenarios so that
and frequency harmonics that are absent from current
everything we manufacture and commercialize is connected
regulations,” says Calderón. The recent earthquakes that
throughout the power generation process.”
shook the nation showcase precisely the sizable challenges Mexico must face in its commitment to develop a smart
The initial construct of Mexico’s Electricity Market used to
and sturdy grid. “Mexico’s highly interconnected and
be dominated by two primary models: basic supply and
interdependent grid poses a specific set of challenges
the wholesale electricity market, Calderón explains. “Now,
involving efficient regulation and technical rigor that will
the electricity chapter of the reform has enabled private
allow us to shift from corrective to preventive strategies
players to participate not only in power production but also
for our national electricity system.”
in power purchase, either with wholesale suppliers or basic supply, still under the charge of CFE,” Calderón explains.
Aligned with Mexico’s international treaties pertaining to sustainability, Schneider Electric emulates this
Together, MABREX and Schneider Electric Mexico are taking
commitment. “Sustainability is present in everything we
on the challenge of providing energy quality on par with
do, a commitment palpable even in the ethical behavior
the high-tech equipment used in homes and offices alike.
of all the members of our company across all levels,”
Despite the reform advancing private participation in the
López says. The alliance’s vision will remain focused on
market as a defining principle, allowing private individuals
how the business strategies and decisions made today will
to purchase energy from wholesale suppliers and basic
have a positive impact in the mid to long term. “Sooner
supply, the engineering side of the reform points out
rather than later, there will come a time when Mexico’s
that operating such a market requires costly technology.
largest cities will foster vertical housing, implying larger
“We are focused on any and every electricity consumer
electricity consumption and a need for energy efficient
connected to the national distribution and transmission
devices and IoT appliances. We envision an increasingly
grid whose consumption makes investing in data transfer
interconnected world where we facilitate technology use
and monitoring systems an attractive and cost-effective
to energy consumers.”
297
VIEW FROM THE TOP
GENERATING VALUABLE INSIGHTS WITH TRENDSETTING TECHNOLOGIES MICHEL YEHUDA Industrial Director of Fluke Dominion Mexico
298
Q: How does Fluke separate itself from the competition in
quality of the electric power produced and the efficiency
Mexico’s renewable energy industry?
of the instruments measuring, transmitting and distributing
A: Fluke is a global leader in calibration and measuring
it. We are the invisible hand that optimizes all monitoring
solutions for the utility and energy sector. Our main
operations. Companies like Schneider, Siemens or ABB,
differentiator is our ability to offer top-tier, trend-setting
which offer turnkey systems, rely on our products and
technologies at accessible prices and superior quality,
technologies. Additionally, our IT division, Fluke Networks,
providing integral multiproblem-solving solutions. Our
is a world leader in measuring wireless network status.
scalable products, services and technologies can be adapted to electric plants of any size or age.
Q: What is Fluke’s latest technological development and will you showcase it in Mexico?
Q: What is Fluke’s assessment of IoT opportunities in
A: Fluke and Dominion are looking forward to launch their
Mexico?
newest developments in the Mexican market before the end
A: Mexico is experiencing a conjunction of favorable factors for
of 2017, in particular, our newest wireless sensor. This small
IoT solutions. Some industrial sectors such as automotive have
and simple device can measure the electric input and output
become increasingly mindful of integrating this technology
of an engine or electric line. It is sophisticated enough to
to provide better products and services. The country’s utility
constantly send the information it collects to the cloud. The
and energy sector is also taking notice. The rising awareness
information passes through a software we developed, which
of IoT coupled with a new regulatory framework is fostering a
analyzes the information and recommends the maintenance
turning point in how Mexico measures and provides electricity.
as well as immediate actions needed.
CRE’s most recent norm, NOM-EM-007-CRE-2017, published in February 2017, attests to this shift. The norm stipulates that
We have also developed a multimeter that includes a
public and private generators, users and companies related
thermal imager to make sure users can do more with less:
to transmission and distribution are obligated to measure the
with just one Fluke instrument the user can detect electric,
electric power factor they respectively produce, consume,
electronic and mechanical problems. Finally, we harnessed
transmit or distribute.
our vast R&D capabilities to produce a clamp meter that measures voltage without the need to actually plug it into
Q: How is your company capitalizing on Mexico’s smart-
an electric circuit. This latter product is a significant step
grid commitment?
forward in wireless measuring from traditional electric-
A: Smart grid is a huge subsection of the country’s electricity
current measurement technologies.
sector. Power generators like CFE or Iberdrola are some of the primary participants in this particular area. Given the
Q: How does Fluke ensure the shortest learning curve for
complex software and fixed systems that are required, the
its innovations?
installation of these systems must be meticulously planned,
A: Our company is convinced that adapting Mexico’s
designed, verified and monitored. You need to make sure
workforce and eradicating knowledge gaps requires efficient
everything is working at optimal efficiency, which is where
and effective educational processes. Some years ago, we
Fluke comes in. Our products and technologies secure the
started organizing training seminars nationwide. We hold 250 seminars per year on average. We cover a wide array of subjects in major areas: energy saving and power quality, plant
Fluke Dominion is the world leader in manufacture, distribution
efficiency and productivity, IoT and wireless technologies,
and service of electronic test tools and software. Founded in
as well as electric safety and security. We do not limit our
1948, Fluke provides testing and troubleshooting capabilities
availability to clients that have previously purchased our
in the manufacturing and service industries
products or services; all interested parties are welcome.
VIEW FROM THE TOP
RELIABLE BACKUP ENSURES ENERGY CONTINUITY BULMARO ROJAS Managing Director of Generac Ottomotores
Q: What power-generation issues do your clients typically
the market state-of-the-art products and solutions that
face and how does your company solve them?
range from a “happy camper” to powering an entire city.
A: The primary reason our clients look to us is to address
This has allowed us to diversify our product portfolio and
their backup-power requirements and guarantee their
has generated record profits in 2017 as the Generac brand
business continuity, including hospitals, schools, banks and
anchored its position in the Mexican market.
data centers, among others. The sudden loss of power in critical applications can have life-threatening implications
Q: How has this technological advantage transformed your
in the healthcare industry and impose a heavy cost for the
latest products?
aforementioned businesses, which rely on these solutions.
A: Generac Ottomotores always works ahead of the market’s
Other clients require energy-quality solutions. Across
needs. Mexico’s industrial sector has undergone considerable
the country, electricity infrastructure varies greatly and
regulatory changes, many targeting energy efficiency. Our
this impacts the quality of energy supply. For instance, in
top-tier voltage regulated engines generate more energy with
the Bajio region, with all the energy-intensive industries
less fuel consumption, adding value and improving Total Cost
implanted there, including aeronautics and automotive,
of Ownership. We are also focusing heavily on our natural gas-
quality energy is a must and Generac Ottomotores offers
fueled products as demand has increased and will continue
a clean and stable energy solution.
to do so for the foreseeable future. We are at the crossroads where the possibility of using eco-friendly fuel sources like
Our mobile applications also enjoy great success among
natural gas is made more practical by lower operational costs,
our clients. The company’s mobile power generators can be
making energy efficiency our main differentiator.
towed any place and our lighting towers are in high demand in the construction industry. This is particularly useful where
Q: What are Generac Ottomotores’ priorities for its global
work is done throughout the night, like highway construction
strategy?
and repair, NAICM, mines and seaports, among others.
A: The company’s global strategy is based on four main
Generac Ottomotores is the world’s largest manufacturer
pillars. First, increase our share of the residential market.
of lighting towers including LED technology.
In the US, we hold 75 percent of the market and we are developing tailored solutions for Mexico and Latin America.
Our competitive advantage lies in our vast product portfolio,
Second, increase our market share in the industrial sector,
which anticipates our clients’ needs. The company’s power
with top-tier, efficient, virtually noiseless, environmentally
generators range from capacities of 800W to 3,250kW.
friendly solutions, conditions that are highly valued to
They can work with a wide array of fuels, including gasoline,
obtain a LEED-certification. Third, we will push our natural
diesel, natural gas and biofuel. Our solutions fit virtually
gas business forward. Our largest capacity for natural gas in
any economic sector where power is required. We supply
a single unit is 500kW. For 2018, we will introduce 600kW
turnkey solutions. We analyze our clients’ electricity needs
natural gas gensets while engineering 1,000kW natural gas
and offer solutions based on them.
solutions. Fourth, Generac will continue its global expansion and enter new locales. Mexico will play a major role, being a
Q: What benefits has the merger of Generac and
key platform for an increased participation in Latin America.
Ottomotores in 2012 generated for the company? A: Between Ottomotores’ strength in the market for over 67 years and the technological and financial capabilities of
Generac Ottomotores is a part of Generac Power Systems
Generac, the market has the benefit of accessing top-tier
group, operating in the residential, commercial and industrial,
engines and alternator technologies with an ample product
segment. It offers gas, diesel, bifuel, gasoline, mobile and
portfolio. Generac’s continuous investment in R&D brings
portable electric generators from 800W up to 3.2MW
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INSIGHT
TECHNOLOGY CONTRACTING TO FOCUS ON CORE BUSINESS LUIS FRAUSTRO Innovation and Business Director and Partner at Greenblue
In a market that is becoming increasingly demanding, it is
power was then used to cool the incoming air to the
important for companies to focus on what they know best
turbine into ISO conditions (15°C/59°F), which enriched the
and on what their clients need most. In a nutshell, they
combustion of the turbine and increased the power output
should focus on their core added value, says Luis Fraustro,
by 3.5-4MW.” He says that such technical problems are
Innovation and Business Director and Partner at Greenblue,
also common in the industry. “Many turbine systems in the
who adds that as processes become more complex, having
market are operating under non-ISO conditions, meaning
this focus is harder to provide.
that they are providing lower power than they should.”
Addressing this issue, Greenblue, a 100 percent Mexican
Although acquiring the necessary knowledge to become
company that offers energy efficiency solutions based
an energy and technology contractor is not easy, Fraustro
on high-profitability ratios to commercial and industrial
says Greenblue’s team of engineers has the experience
segments, is introducing energy and technology contracting
and know-how to excel at any task required by each of
to the market here. “Energy and technology contracting
the solutions the company offers. But it is the company’s
provides the customer with a set of multidisciplinary
vision of innovation that Fraustro emphasizes. “We are
specialties. This means the company does not have to
not only able to understand innovation but to understand
worry about knowledge areas that are outside its core
how innovation can be adapted to client needs to provide
business,” Fraustro says.
them with highly profitable solutions. In Mexico, projects
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require highly aggressive ROI times and our solutions Under a technology contracting scheme, the company
ensure customers will meet them.” With this vision in
providing the service must offer specialized know-
mind, Greenblue is always looking for opportunities
how on electromechanics, such as HVAC, hydraulics,
where it can deliver a high-quality and tailored solution
firefighting systems and building automation, among
that differentiates it from its competitors, even if that
many others, in one unique and integrated solution. “This
solution takes time to realize. “Our portfolio of solutions
solution includes energy-efficiency systems to prevent
includes technologies that, although attractive, may not be
overconsumption and energy re-usage systems to allow
economically viable at the moment. Those technologies are
wasted energy to be used as input for other energy-
not discarded, but put on the back burner until they can be
consumption systems,” he says.
used to offer the client a higher value later on.”
With the energy and technology contracting scheme,
CELs requirements, which became obligatory on Jan. 1,
Greenblue is looking to recover and transform wasted
2018, will also open an opportunity for companies that can
energy into useful energy for industrial applications,
help customers both reduce their energy consumption and
Fraustro says, while highlighting a project developed
increase the amount of renewable energy they consume.
with CMPC Tissue, located in Altamira, as an example of
“The introduction of the CELs requirements for energy
Greenblue’s strength. “The project involved the installation
consumers has provided us with an even bigger market
of a natural gas turbine of around 21MW. Due to the hot/
opportunity in the commercial sector, where consumers
humid conditions at the location, the turbine was not
are not as informed as in the industrial sector. We can offer
providing more than 17MW and the company reached
them a higher added value by helping them meet their
out to us to help improve the output. As Greenblue got
requirements.” Greenblue’s two main customer segments
involved in the project, we proposed a turnkey project
are the commercial and industrial sectors, with hotels
using 5 percent of the steam generated by the turbine to
among its best customers, says Fraustro. “We provide them
cogenerate 1,000 refrigerant tons through the use of state-
with energy solutions that involve natural gas turbines for
of-the-art absorption chiller technology. The refrigeration
cogeneration and trigeneration systems.”
INSIGHT
SUPPORTING THE BOTTOM OF THE PYRAMID PEDRO CRUZ Director General of AMEEIER
Small-scale energy projects, the kind that small energy
wind energy prototypes to provide constant energy beyond
consumers could implement, tend to have difficulties
sunlight hours and with the best performance.”
securing financing. With scarce options in the market and those existing working only with short ROI periods, these
Committed to the development of Mexico, AMEEIER is also
kinds of projects often collide with a brick wall.
pushing for the inclusion of a new financing strategy that would allow small energy consumers to get the kind of
The financial hurdle for small energy projects delays the
projects they need. “We are fighting strongly for the creation
development of a broad and significant market, says Pedro
of a renewable-energy public trust that could be used as a tool
Cruz, Director General of AMEEIER, a supplier of electric
for small consumers who are otherwise not able to finance
materials and equipment, lighting and renewable energy
renewable projects, mainly due to the long ROI periods. Our
systems. “In Mexico, there are over 4 million users that could
studies demonstrate that with this trust, approximately 5.7GW
benefit from the implementation of small energy projects,
of renewable generation could be installed in Mexico through
but due to the lack of proper financing they cannot pay
small energy projects of around 5kW.”
for them.” A 5kW renewable project is costlier per kW installed than Implementing energy efficiency before renewables is
a 5GW project, thanks to economies of scale. Also, small
crucial to making the project more economic and therefore
consumers rely on subsidized tariffs, making the ROI period
affordable, says Cruz. “If a renewable project is installed
longer. Cruz says the relationship between academia,
into an electric system without installing energy efficiency
government and private institutions is critical. “Having the
measures first, then the project's non-efficient consumption,
trust endorsed by members of technical, engineering and
will make it more expensive than it should be.”
economic colleges would make the final user and the private sector certain about the system. AMEEIER has advised and
When using technological products, it is also important to
supported institutions such as the Ministry of Energy, CONUEE
make sure that the system, be it focused on efficiency or
and CRE regarding the creation of the public trust. These
renewables, offers the warranties clients require. Failing
institutions have already drafted an outline and now are
to do so is not just damaging a customer but the whole
looking for members from the private sector to support it.”
industry, says Cruz. “We have the obligation to offer the best technologies to our clients; we want them to know
Cruz sees a big opportunity in using the trust to support
that they are truly supported and to do so we have
SMEs and basic educational institutions, both of which are
developed strategic alliances with prestigious brands, like
segments that are lagging behind in options to become
our partnership with Westinghouse, a company that offers
more competitive and cost-efficient. “Even though SMEs
world-class equipment with good warranties.”
are one of the main sources of jobs in the country, they are also have to work the hardest to survive. Implementing
When implementing technologies, it is worth noting
energy solutions for them, through the trust, would help
that every client has a different need. There are certain
them become more competitive and offer more business
technologies from which one client could benefit more
opportunities to the country,” he says. AMEEIER estimates
than another. AMEEIER is looking forward to implementing
close to 100,000 schools could easily get 5kW projects
integral solutions that include not only more than one
with the trust, totaling 5MW of potential generation.
renewable source but also diverse energy-efficiency
“Installing energy projects in schools has an extra social
technologies to offer tailored solutions to its clients.
benefit since children can witness how the energy that they
“Our projects offer integral solutions that include energy
consume is produced on-site with renewable energies. It is
efficiency and clean energies. We are working on hybrid PV-
a win- win situation for the country,” Cruz says.
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‘MADE IN MEXICO’ ENERGY EFFICIENCY IS COMPETITIVE WORLDWIDE Rodrigo Calderón Director General of Energetika
Alejandro Chico Commercial and Technology Director of Energetika
Q: What differentiates Energetika’s energy-efficiency
people and electric frequency variations, to name a few
model from its competitors?
variables. This technology can be used in retail stores,
A: Our competition offers rather segmented solutions. They
supermarkets, buildings, factories, distribution centers and
either specialize in efficient lighting, efficient use of turbines
even in cities.
and motors, automation or air conditioning, to name a few.
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In general, they specialize in isolated focal points. Energetika
Q: What is the status of the lighting project for Mexico
offers integral thermal and electric solutions, including
City’s subway and what other projects are in the pipeline?
sensors that rely on IoT for optimal energy efficiency. We
A: The subway project is ongoing as we were awarded a few
connect energy efficiency to people, processes and the
other stations to work on. Right now, thanks to our solution,
facility. Our solution is backed by seven years of experience
this is one of the most modern urban mobility systems in
in this particular sector. Our operational technologies,
the world. We are illuminating four times more and saving
such as LED lights, controllers for air conditioners, engine-
84 percent in energy consumption than the lighting system
frequency alternators and cogeneration systems, among
that was previously installed in the metro stations.
others, are connected through IoT in a scalable platform. On the other hand, we are in our third year working alongside Q: How do you adapt your solutions to energy-consumption
FEMSA facilities in several states, as well as making 150
projects of different sizes?
nationwide HSBC bank branches energy efficient. Our
A: We focus our system and energy-efficiency solutions on
portfolio of projects has grown at the municipal level thanks
the retail, industrial and urban services sectors. The latter
to our efficient-lighting solutions. We are greatly satisfied
includes working with different municipalities, from small
with the positive social impact of such projects.
towns to big cities, Mexico City’s subway system, which moves 5 million people per day, and the new international
Q: What is your assessment of public policies directed
airport for Mexico City, which will be one of the three
at energy efficiency in Mexico?
largest airports in the world. If it is a scalable project, we
A: Coordinating an energy-efficiency policy at the
will definitely target a foothold in it.
federal level is a complex task. Through AMESCO, we meet once a month with CONUEE. This interaction has
Q: Which service or product separates your portfolio from
confirmed that CONUEE is more than aware of the issue.
the competition?
The commission generates relevant data on everything
A: Our lighting smart sensors, which are also our
related to energy efficiency. Its database on energy
differentiator. We use them to obtain valuable data to
waste in Mexico, for example, is quite thorough. But the
design energy-control and management programs for our
government lacks the mechanisms required to propel a
clients. Beyond a lighting system with integrated sensors,
boom in energy-efficiency projects. We also need a legal
our clients are actually acquiring a scalable infrastructure
and administrative framework to coordinate and prioritize
that constantly communicates behavioral data in energy
projects nationwide. In addition, prior to the reform and
consumption. Our sensors use communication protocols
the Energy Transition Law, government buildings received
to transmit valuable consumption information from assets,
a budget to cover their energy consumption, so there was no interest in consuming less energy because energy savings meant a reduction in that budget. Now, there
Energetika provides energy savings and control solutions.
is compulsory content regarding energy efficiency. It
Its energy intelligence solution uses different technologies to
should be noted that AMESCO has been essential in
achieve operational connectivity that generates unique and
developing energy-efficiency projects, particularly in
specialized information
terms of financing.
INSIGHT
TAILORED FINANCING TO DECREASE RISK OSCAR HERNÁNDEZ CEO of BIION
Distributed Generation projects are on the rise but
BIION installed the system and after less than six months,
developers still need to break through the culture of
the energy bill of the client decreased as expected. The
skepticism among potential clients that continues to be a
client was so happy, Hernández says, that he now wants to
barrier to wider acceptance, says Oscar Hernández, CEO of
expand the system. “We are now finishing the installation
BIION. “Many people still do not believe in energy projects,”
of the third system.”
he adds, pointing out that much of the fear is caused by investing in something new, such as technological
This zero-risk strategy, although effective, is not for everyone.
innovations. “Both the clients and the financing institutions
Hernández points out that client potential and credit history
are not sure whether the project will work. It is the project
should be determining factors. BIION does not have deep
developer’s duty to show them that the investment in
enough pockets for a generalized zero-risk strategy but it
technological innovations has to be made only once. That
can offer financing tailored solutions and advisory services,
is the only way the market will expand.”
says Hernández. “For interested clients, we can be flexible and offer solutions that range from splitting the payments
The best way to fight fear and skepticism, Hernández
to using a mixture of capital from the client and credit.
says, is to make the project crystal clear for clients. A
We are very open in that area, and have even developed
consultancy such as BIION implements innovative
crowdfunding tools. We can help companies in the process
technologies to solve energy efficiency problems, ensuring
of getting a FIDE or FIRA credit, or a SAGARPA subsidy
the project starts with the most basic and cost-effective
for farming projects. Being certified by those very same
energy saving procedures. “Once the energy savings are
institutions offers investment security to our clients.”
covered, we can go one step further and install energy generation systems,” he says.
Hernández adds that thanks to the company’s hard work and the trust it has cultivated among clients, BIION’s market
Sometimes it takes out-of-the-box thinking to convince a
has expanded organically via personal recommendations
client of the benefits of an energy project. “One of our
from satisfied customers. As successful as the company has
clients had a really strong position on solar panels: he did
been, Hernández still believes that both the government
not believe they worked. After conducting a study on the
and financing institutions could do more to promote energy
energy needs of the company’s warehouses and possible
projects. “Financing is without a doubt one of the main
cost-saving measures, we concluded the best way to go was
constraints clients face. They might know that they want
installing solar panels. Selling a MX$200,000 solar system
savings and install the equipment, but the lack of capital
to a client that did not believe in the solution would have
is a reality that hits straight away,” he says. “More tools for
been impossible if we had followed traditional methods,”
small and micro consumers could be developed. Despite
Hernández explains.
being the largest share of the market, they keep facing the biggest obstacles in obtaining loans.”
For the client to get on board, Hernández decided that BIION would absorb all the risk. “We created a contract
With a strong presence in the residential and commercial
wherein the client would only pay 50 percent of the
sectors, Hernández is now looking for possibilities to
project upfront. If the project reflected savings on its
participate in solar park installations. “We believe that
energy bill in less than six months, it would then pay the
teams enrich companies. We have qualified personnel with
other half of the project. If not, we would return the 50
strong experience and expertise in the industry, both in the
percent already paid and take the solar system away. This
technical and management areas,” he says. “We have the
meant that for the client there was no risk in installing
capacity to develop large-scale projects. We are just looking
the system at all.”
for ways to grab those opportunities.”
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CAPITALIZING ON THE UNEXPLORED OPPORTUNITIES OF MEXICO’S SOLAR MARKET DANIEL VÁZQUEZ Partner at Grupo Vázquez Vela
Q: What business opportunities did the reform open to
like the Association of Real-Estate Developers (ADI), to
Grupo Vázquez Vela?
create awareness about our product and technologies.
A: The Energy Reform is an important step forward,
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especially considering its compulsory nature. We saw
Q: What is the comparative advantage of Onyx’s PV glass,
an opportunity in the end-user segment, fostered by
which Grupo Vázquez Vela distributes?
the Energy Transition Law. Our technology pertains to
A: A corporate building that wants to shift toward
photovoltaic integration in buildings, through construction
renewable energy produced on-site cannot consider solar
materials: glass and floor tiles. These generate on-site
panels because it would not have the space for the number
electricity in the structure’s thermal enclosure or domes and
of solar modules required to satisfy the structure’s energy
parking ceilings, depending on what our clients want. Not
demand. Such an installation would also incur additional
only does the building use renewable energy as a primary
construction costs in the case of a new building, further
source but it also avoids energy loss in bypassing the need
lengthening the project’s ROI.
for electric transmission. As a construction material, Onyx’s solar glass can be used for Q: What are Mexico’s biggest challenges in terms of
building façades, domes or terrace floor tiles. We distribute
distributed generation?
this patented product and technology, which comes from
A: The government is greatly focused on the long-term
Spain, and it could be a game changer in modifying Mexico’s
electricity auctions because this particular segment was
construction culture. It can even be integrated into projects
under its control prior to the liberalization of the sector and
as a replacement for conventional glass. Our material can
the consequent restructuring of CFE. Yet, the rise of new
take on any shape, size, thickness and even color. The cost is
technologies, products and services for final consumers of
practically the same as conventional glass. Any differential
electricity has been overlooked. With the exception of fiscal
cost generated by a particular request from a client can
incentives related to household electricity consumption
be recovered by an ROI of less than a year, considering all
using clean energy, there is not much else. We are supplying
the intrinsic fiscal benefits and energy savings. We turn
various government dependencies with our products, yet
expenses into investments. Our product’s added value is our
the decision-making process slows the use of our products.
capacity to deliver an integral turnkey project, including the
We are in talks with the relevant regulatory authorities to
fixation system of a building’s primary structure, supplying
raise our concerns and present our products and services,
and affixing the PV glass and interconnection.
which are highly popular across the board, but they are still dealing with slow implementation processes that they are
Q: What are your most recent projects?
working to make more efficient.
A: Our most notable project to date is FEMSA’s corporate offices in Monterrey. The 50-year-old building underwent a
We are looking to tap into on-site generation of electricity
renovation project where we covered the façade with double-
produced by clean energy sources, primarily through solar
skinned PV glass. We are also developing the largest green
power. To that end, we are also reaching out to the private
plant in the beer industry, located in Chihuahua, for Heineken.
sphere, in particular the construction industry associations As a Spanish product, Onyx obtains financing for these projects through CESCE for a certain volume of exported Grupo Vázquez Vela is a sustainable holding company
products. This financing option has an attractive 2.29
operating in the market through a conglomerate of different
percent interest rate over a five-year period without
companies, covering clean-energy generation, infrastructure
collateral or biannual payments. We also turn to local
maintenance and the food and drinks industry
financial entities or our own financial resources.
INSIGHT
BATTERIES FOR THE MASSES GIANELLO GAGGERO Owner of Battery Depot
The mass implementation of batteries in the energy
opportunities related to the Ministry of Energy’s Universal
sector would allow renewables to gain a much bigger
Electric Service Fund (FSUE) with the implementation of
share of the world’s electricity mix, while at the same time
off-grid PV solutions applied to public-lighting systems.”
ensuring energy is available at any time, not only when the sun shines and the wind blows. But lifetime, cost and
To maintain an attractive price point, Battery Depot
environmental impact are still key hurdles, says Gianello
has had to keep its manufacturing process in China.
Gaggero, owner of Battery Depot, a large-scale battery
Nevertheless, Gaggero recognizes the advantages of
supplier that is working to solve these issues. “Mexico’s
bringing production lines to Mexico. The company is
market is accustomed to batteries that last on average
in talks with its Chinese partners to foster the Mexican
two years,” he says. “Thanks to the technology we use in
industry, he says. “At Battery Depot we are always
our manufacturing process, our batteries can last seven
highlighting the advantages of manufacturing in
to eight years. As a result, our clients' investment and
Mexico, as Chinese labor together with indirect costs are
depreciation throughout the life cycle of our batteries is
becoming increasingly more expensive.” He also points to
highly cost-effective.”
the need to foster a welcoming environment for Chinese companies in Mexico, as little is being done in this area
Gaggero adds that Battery Depot offers a threefold
compared to the number of companies from North
added value: top-tier technology, accessible prices for
America that are offered opportunities to manufacture
the Mexican market and top-notch quality products.
in Mexico. “We know there is a lot of manufacturing
“We assemble our Duravolt-owned brand in China for
activity by Canadian and US companies in Mexico, yet
distribution in Mexico,” he says. With effective and
when it comes to Chinese manufacturing companies,
targeted prices, Battery Depot allows Mexican households
not much effort is made at the government level to
to access the battery market, and therefore increase the
foster opportunities to work with them. Mexico’s NAFTA
penetration of renewables in Mexico. The problem with
membership and wide array of commercial agreements
market conditions is that battery manufacturers prefer
with other countries make it a strategic launching pad for
to keep prices at a convenient level, Gaggero says. “The
Chinese companies to access the rest of Latin America.
inherent business model of entrenched brands across
Chinese battery manufacturers are increasingly attracted
the value chain makes it difficult for Mexican residential
to the idea of installing manufacturing facilities in Mexico,
customers to buy batteries given their purchasing power.
and we will continue pushing to make this idea a reality
Duravolt is competing against expensive brands in the
for Battery Depot.”
market by offering the same quality and materials they use, but at a more affordable price.”
Besides cost, another factor currently working against batteries as a support for clean technologies is the
Cost-effective technologies are not only for the residential
environmental impact because they are produced
sector, as Gaggero recognizes the need for an open mass
with toxic metals that could pose a danger to the
market. “Battery Depot is also targeting the commercial
surroundings. Gaggero says his company has taken
and industrial segments. Our products range from
this into consideration. “An added differentiator of our
button cells to industrial batteries. We also believe that
Duravolt batteries is a reduced environmental impact.
targeting a smaller number of users that have high electric
Most batteries in Mexico’s market contain lead and liquid
consumption is a sound business strategy, as it results in
sulfuric acid, making any leak extremely harmful for
attractive economies of scale.” Battery Depot’s business
the environment. Our batteries contain these harmful
model is inclusive; it looks to help those that are most
elements inside a fully sealed, sponge-like membrane that
in need, Gaggero continues. “We are seizing significant
prevents any hazardous leakage.”
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A BETTER INDUSTRY FOR A BETTER WORLD
Mikael Kaivola General Manager of CITRUS
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Elsa Bernal Operations Director of CITRUS
Katia Bernal Commercial Director of CITRUS
Q: What impact can an industrial heating process have on
EB: At CITRUS, we accompany the client through the full
Mexico’s energy transition?
implementation of the project, from the starting analysis
MK: Although the focus of the Energy Reform tends to lean
that includes the company’s future needs to the follow-up
toward the generation of electricity, we must remember
after the installation. We are so committed to this philosophy
that, depending on the industry, up to 80 percent of
that we have reached points during the analysis phase when
the energy consumed in the industrial sector is thermal.
we have found that our solution is not the best option for
Taking advantage of this great opportunity, CITRUS offers
the client. When this happens, we provide the pertinent
its clients industrial thermal solutions that will increase
information and allow them to make an informed decision.
their competitiveness by reducing operational costs and
Often, this leads to a project being declined, but this
improving production. With our solutions, we expect
approach has helped us garner the respect of the industry,
Mexico’s industrial sector to become stronger and more
so much so that now almost 90 percent of our clients are
competitive, which will benefit the country not only due to
through recommendations.
lower prices of products but also because of the inherent economic growth.
KB: We offer a deep and holistic understanding of the needs of our clients. CITRUS started as a spin-off of INTERTECNICA,
Q: What advantages do your industrial clients receive when
which has been producing heating process equipment for
implementing thermal process solutions?
over three generations. With the over 50 years of experience
KB: Our customers can be divided into two segments: big
of our parent company, we are able to understand perfectly
companies and SMEs. We can usually communicate better
how to make heating process equipment more efficient
with the big companies because, although they might have
through sustainable solutions. This relationship makes us
teams dedicated to efficiency and sustainability and have
one of the few companies in the world able to offer a holistic
a deep knowledge of their processes, they cannot know
vision of the sustainable processes of our clients.
everything. This means our expertise in energy efficiency and thermal heating for industrial processes is the missing
Q: What project best highlights the benefits CITRUS can
link in their efforts to achieve their goals for reducing energy
bring to the Mexican industry?
consumption. We are not teaching them anything completely
MK: During one agribusiness project, our solar thermal
new, instead we are using our expertise and holistic vision
solution boosted the heating process of 9,000 liters of
for the sake of improving their processes.
water per day from 25°C to 118°C. Previously, the heating process was done using natural gas, but it is estimated
With SMEs, the approach is different because they do not
that, with our technology, the project will generate MX$14
have sustainability departments and usually live on a day-to-
million in savings over the next 15 years, which results in an
day basis, meaning they cannot make long-term investments.
ROI time of 2.9 years. Now, the company only uses natural
But SMEs suffer the highest energy losses, which means they
gas when environmental conditions do not allow the sun to
also have the greatest potential for energy savings.
heat the water. The company has also drastically reduced its CO2 emissions. Because the boiler is no longer inside the facilities, the company now has a cleaner product that can
CITRUS is a Mexican company implementing heat energy
be exported to the US and a safer working environment for
solutions through turnkey projects for the industrial sector. Its
its employees. Although these factors cannot be quantified
main clients include companies in the food, pharma and the
under an ROI scheme, they are important and are helping
agribusiness sectors
the company to grow.
VIEW FROM THE TOP
STRONG ALLIANCES, STRONGER EXPERTISE ALFONSO TERAMOTO General Manager at Greenfinity
Q: How does Greenfinity offer a higher added value to
Q: How does Greenfinity help its clients to finance their
Mexico's energy market?
projects?
A: Greenfinity is part of Consorcio Empresarial AL (CEAL),
A: Financing is definitely a challenge in our country.
a group composed of companies serving the Mexican
Companies are naturally focused on making a profit and
energy sector with more than 20 years of experience
thus need a clear picture of the project's short-term benefits.
through strategic alliances with state-of-the-art technology
As the market opens and competition becomes stronger,
companies all over the world. The group’s executives
project costs are decreasing, making them increasingly
met success as their respective companies shifted to
attractive for potential clients. We have financed some
the renewable energy sector and identified the need to
projects for agribusiness companies through a combination
incorporate a sustainability consultancy as a means to
of credit and grants from the federal government that
provide ancillary services. That is how Greenfinity was
are intended to spur the adoption of renewable energy
born. Our mission is to develop, hand-in-hand with our
to increase food system sustainability. These have really
clients — public or private entities — profitable sustainability
helped us support our clients via shorter ROI periods. We
solutions that create economic, social and environmental
are also raising funds from private banking institutions. We
value. We offer not only our knowledge and expertise of the
are working closely with a subsidiary of the Dutch bank
energy sector but also our ability to adapt to the particular
Rabobank. Several of our projects are developing by using
needs of every client. At Greenfinity, we strive to prove to
its financial products, specifically tailored for sustainability-
decision-makers that green projects do accrue economic
related investments. Foreign capital credit has a tighter
and social benefits for their organizations and not just
grasp of how the terms, rates of return and performance
environmental benefits for the planet’s sake.
are commonly assessed for green projects.
Q: What project highlights the Greenfinity advantage?
Q: What is the importance of building strong partnerships
A: Greenfinity performs all the steps that lead to the EPC
for Greenfinity?
phase of a project. We manage the financing, permits,
A: Solid partnerships with international players enable
licenses and contracts and assemble all the pieces of
us to offer an enhanced base of expertise to the Mexican
the puzzle that enable a project to become a reality.
market with an international perspective. Besides our
Through one of our partnerships, such as that with our
relationship with the Rabobank subsidiary, we also have
sister company Energías Renovables Exacta, we set the
alliances with companies located in Europe and North
foundations for the project to begin its EPC phase. We are
America to incorporate a consolidated and diverse range
working with one of the largest pharmaceutical companies
of technologies and fields, such as waste-to-energy, solar
in the country, which had an on-site PV system in mind to
PV, enclosed composting and ancillary services like O&M.
become more sustainable. During the process, together we
We found common ground regarding their drive and
concluded that the most profitable option for the company
interest to enter the Mexican market and invest here due
was to install an efficient cogeneration system. Besides
to the attractiveness of the new energy sector and our own
generating electric power on-site, this project will also
interest and ambition to provide top-notch sustainability
provide environmental benefits and economic advantages
solutions already proven around the world.
through substantial savings on energy bills. The company will also be able to comply with its CELs requirement and participate in the trading market. For this project we are
Greenfinity is a Jalisco-based sustainability consultancy that
collaborating with one of the partners in our network that
develops and implements profitable solutions including clean
has a long-history developing cogeneration installations in
energy generation and management, waste valorization and
the US, and for several years now in Mexico.
environmental legal advice
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DOING BUSINESS
12
The underlying principle of the Energy Reform was revamping the country’s energy sector to foster economic growth. The reform was designed to bring new companies into the market, supplying the same products but differentiating themselves in customer service. This would make the quality and cost of the services and products provided competitive on a global scale. Now that all the links of the value chain are open for business, Mexico’s private sector is focused on increasing its business under the new rules and procedures, navigating unknown waters in search of bankability. Seasoned companies are branching out to new yet familiar business niches, foreign companies are looking to set a foothold in the Mexican market and former monopolies are adjusting to the new market reality. Mergers, strategic alliances, joint ventures and corporate diversifications are unfolding amid the buoyancy of new opportunities.
This chapter covers the private sector’s efforts to develop thriving businesses, long-term prosperity and to bolster renewable energy’s competitiveness through effective strategic and operational business plans.
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CHAPTER 12: DOING BUSINESS 312
ANALYSIS: Ready to Cash In?
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VIEW FROM THE TOP: Roberto Abad, Protiviti
Carlos Álvarez, Protiviti
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VIEW FROM THE TOP: Richard Schneider, Swiss Re
317
VIEW FROM THE TOP: Peter Jakszentis, Munich Re
318
VIEW FROM THE TOP: Vitor Rodríguez, TÜV Rheinland
319
INSIGHT: Diego Molina, Seraphim Solar
320
VIEW FROM THE TOP: Ricardo Cardiel, Latin American Rainmakers
322
VIEW FROM THE TOP: Alejandra Bueno, A2E
Miguel Marmolejo, A2E
324
VIEW FROM THE TOP: Andreas Müller, CAMEXA
325
VIEW FROM THE TOP: Emiliano Detta, KfW
326
INSIGHT: Stephanus Lintker, EnergieAgentur.NRW
327
INSIGHT: Gustavo Rodríguez, Vansertec
328
VIEW FROM THE TOP: Paul Wyatt, EDPNC
Laura Camberos, EDPNC
329
VIEW FROM THE TOP: Gary MacConnell, Green Global Technologies
330
INSIGHT: Nicolas Melissas, Athena Consulting
331
VIEW FROM THE TOP: Moises Martínez, Desert Sky Holdings
333
VIEW FROM THE TOP: Rodolfo Flores, DNV GL
334
RoundTable: What New Business Opportunities has the Reform Unlocked?
311
ANALYSIS
READY TO CASH IN? As the Energy Reform unfolds and takes a permanent hold across the country, especially as projects awarded at auction get ready to come online, opportunities are opening. Those companies that are ready to take advantage, such as EPCs, will reap the benefits end. It also means O&M services will witness a surge in
limelight in Mexico’s energy transition, the liberalization of
demand for utility-scale projects. Companies providing O&M
the sector’s entire value chain has opened opportunities
services are looking to implement innovative, effective and
for many companies, local and foreign, to provide a wide
heavily technological solutions to solidify their competitive
array of products and services for each of the industry’s
edge and offer the best service available. “The fact that we
links. Among those already reaping benefits are EPCs,
consider a fully automated O&M solution from the beginning
which are at the center of the utility-scale projects awarded
and not as an afterthought completely tackles one of the
during the auctions. Projects of this magnitude need a
major challenges many asset owners face: module cleaning
crystal-clear and effective risk-mitigation strategy during
increasing the risk of module degradation by either putting
the project’s different phases. EPC companies’ know-how
weight on the panel or increasing risk of accidental cracking
and specialization help them absorb the risks related to
through manual cleaning,” says Victor Pazmiño, Senior
project construction, from the drawing board to operational
Business Developer and Design Engineer of Alion Energy.
business. These companies stand to be a project sponsor’s
Along with optimal performance, safety and security at
most valuable partner, as the former can ensure the
renewable power plants are also set to become standard
bankability of a development. The demand for EPC services
practice. “Safety is a value. It has to be ingrained. It does not
has even pushed some construction and infrastructure
start when you come to work, rather, when you wake up and
companies to turn their business toward renewables.
make it part of your corporate culture, adopting a 365/24/7
“Generally speaking, renewable-energy projects mostly
mentality. When working in a wind power plant, we have to
require process automation at the moment, especially for
take every precaution regarding the people that we employ
grout installations. Electric installation, material supply and
in those environments so they can go in and out seamlessly.
inputs are practically standardized. We recognized that our
If that is not your safety value as a company, then you are
strength in this sector would be to support developers and
going to face tremendous obstacles,” says Peter Tattersfield,
contractors in bringing projects to completion,” says Savir
Independent Consultant of Axis Renewable Group.
Ruiz, CEO of CODISA CORP Energy.
CERTIFICATION AND DUE DILIGENCE OPERATION AND MANAGEMENT (O&M)
Despite the proven performance of renewable energy in
2018 will be the measuring stick of the long-term electricity
more developed markets, Mexico’s young renewable energy
auction’s tangible success as the projects awarded during
industry boils down to reputation. If a particular product
the first edition are scheduled to come online before year’s
or service performs poorly, it could give Mexico’s energy
INVESTMENT COST PER TECHNOLOGY (US$/MW)
INVESTMENT COST PER TECHNOLOGY (USD/MW)
4,000 3,500
3,983
Conventional Clean 2,830
3,000
1,752
1,821
Geothermal (operational)
1,619
Hydroelectric
620
1,600
Thermoelectric
1,000
1,346
Coal
1,500
1,425
Solar PV
2,000
Wind
2,500
833
Source: PRODESEN 2016 - 2030
Source: PRODESEN 2017-2031
Nuclear
Internal combustion
0
Combined cycle
500 Turbogas
312
While the long-term electricity auctions have enjoyed the
transition a bad name. Private players have expressed concern that if the market remains price-driven, cheaper, low-quality products could derail a booming sector, leaving economic growth short of the potential offered in renewable technologies. “Installer certification is a major component as the quality of the installation directly impacts the performance of the PV system. Mexico’s solar market is progressively maturing and we will ultimately reach
2018 will be the measuring stick of the long-term electricity auction’s tangible success as the projects awarded during the first edition are scheduled to come online before year’s end
a point where product quality will be guaranteed with minimum certification requirements,” says Mario Muñoz, CEO of Solar Center. “Seasoned installers that transition
THIRD-PARTY SERVICES
from entrepreneurship to a mature company cannot take
Several global renewable energy heavyweights have
the risk of having a solar market with low-quality products,
made their presence known in Mexico’s renewable energy
since they know low pricing is not sufficient to guarantee a
landscape, yet, even the largest companies require assistance
prosperous business in the long-term,” he adds.
from specialized third parties in areas that are not always a company’s forte, especially when utility-scale projects are at
The importance of certification has even led to major
stake. Being a highly risk-averse market, insurance, reinsurance
corporate mergers, such as that between AWS Truepower,
and other insurance-based companies are looking to capitalize
UL and DEWI. “AWS Truepower was mainly focused on the
on the renewable energy projects sprouting nationwide, while
initial stages of the project life cycle, conducting studies
innovating their traditional insurance services portfolio. “We
on the availability of resources and some on the technical
reinsure our clients' risks, which allows them to write more
aspects of the technologies. After some years we went into
insurance business without having to increase their capital
financing by working on due diligence and engineering
base. Insurance companies contact us with questions and
certification for banks. On the operations side, DEWI
given that our underwriters know about every segment of an
became a perfect partner, allowing us to provide structural
energy project’s value chain, from the construction of a new
and life-cycle analysis for technologies having the DEWI
power plant to its day-to-day operation, they visualize what
certification,” says Jorge Ochoa, Country Manager Mexico
risks are present and help the insurance company get the
of AWS Truepower, a UL company.
best coverage option for its client,” says Richard Schneider, Regional Office Head and Senior Vice President Americas at
While the need is dire, developing a gold standard for
Swiss Re. The service is particularly significant considering
Mexico’s young energy sector can prove to be challenging.
financial entities also stipulate insuring the project as a
“There is no scheme that forbids you from importing certain
sine qua non condition. “Banks always prefer projects that
types of modules or that imposes strict quality criteria. Our
are predictable but sometimes they lack the knowledge to
experience tells us the best way to address this is to allow the
properly allocate risks because their expertise is not in the
market that is developing distributed generation programs
area of project management,” says Peter Jakszentis, Technical
to simultaneously develop standards, laws and requirements
Services Director of Munich Re.
for importing modules. Large-scale projects do not have this problem because project owners that have made sizable
As a new market, Mexico’s energy sector can present a
investments are averse to risk, including the use of uncertified
variety of business risks and generating certainty among
products or components,” says Vitor Rodríguez, Regional
interested and invested parties is vital for success. The sector’s
Field Manager Solar South America of TÜV Rheinland.
technological dynamism and array of variables can sometimes prove too much for a single company and the slightest
Financial structuring and risk mitigation are at the core of
mishap can produce an avalanche of insolvency. “Ambit risks
the design of a utility-scale project suitable for long-term
are especially relevant to us, such as regulatory changes,
electricity auction participation. Due diligence processes
socioeconomic and political environments. In short, any and
exist to make sure all the appropriate steps are being followed
every variable that falls outside a company’s control, we take
to ensure not only the immediate success of the project by
into consideration and present them transparently, granting
becoming operational, but also its long-term bankability.
our clients a reaction capacity through mitigation mechanisms
“Due diligence has its own particular characteristics. Mainly,
that go beyond control measures, forming an integral action
preemptive detection of risks and timely mitigation. Beyond
plan. In some cases, certain organizations do not analyze
effective methodology, previous experience in similar projects
their market thoroughly, making their products and services
gives you a solid reference to apply the acquired knowledge
unresponsive to its targeted niche, in turn developing a
in renewable energy projects and singling out potential risks,”
potentially catastrophic risk,” says Carlos Álvarez, Internal
says Rodolfo Flores, Country Manager Mexico of DNV GL.
Audit and Business Risk Managing Director of Protiviti.
313
VIEW FROM THE TOP
GOVERNANCE RISK, COMPLIANCE SOLUTIONS FOR ENERGY PROJECTS Roberto Abad Country Managing Director of Protiviti
314
Carlos Álvarez Internal Audit and Business Risk Managing Director of Protiviti
Q: What is the greatest added value Protiviti provides its
Our strategic business risk map, combined with our process
clients on energy projects?
classification scheme models and our risk models offer
RA: Protiviti’s cost structure, a direct result of its flattened
the best visibility available for our clients’ transactions in
hierarchical structure, allows it to offer competitive prices
a compact, simplified way, fostering quick and assertive
for its services. Service quality is backed by more than 37
decision-making to either mitigate risk factors as they
years of experience from our specialized personnel. Our
come or prevent a risk present at the process level from
business pillars are based on the legacy of Arthur Andersen
escalating to strategic levels. For instance, ambit risks
LLC. Another comparative advantage is the constant and
such as regulatory changes, socioeconomic and political
direct involvement of our managing directors in every step
environments are especially relevant to us. In short, any
of each project. Protiviti’s services are not commoditized;
and every variable that falls outside a company’s control,
rather, we provide tailor-made solutions for our clients. Our
we take into consideration and present them transparently,
Protiviti Governance Portal (PGP) is a Governance Risk
granting our clients a reaction capacity through mitigation
and Compliance (GRC) software that covers corporate
mechanisms that go beyond control measures, forming an
governance and business risk management and regulation
integral action plan. In some cases, certain organizations do
compliance. It is unique in the market and designed by
not analyze their market thoroughly, making their products
tenured specialists on our team as an integral solution.
and services unresponsive to their targeted niche, in turn creating a potentially catastrophic risk.
Q: Which of your services do clients most demand? CA: Our risk-based process documentation service is
RA: Protiviti does not dwell on theory and abstract models.
a client necessity. By conducting a strategic study of all
We generate grounded, specific solutions on a case-by-
relevant business risk factors with our client company’s
case basis and empirically-based recommendations to
executive board, we deliver a strategic risk map. The latter
assist our clients’ business decisions. Our PGP software is
allows the board to prioritize and focus its resources in a
rated as a strong performer by Gartner’s magic quadrant
more efficient and effective way toward variables that could
and the Forrester WaveTM B2B Commerce Report. Training
severely impact our clients' business objectives. Once top
and specialization being at the core of our business, we
priorities are defined, we can focus and delve into further
also have Protiviti University (PU), where we try to share
details. Our main differentiator is precisely the degree of
knowledge and keep the market up to date in everything
detail we can manage, including key corporate components
pertaining to business risks, technology, internal audit,
such as transactions, organizational structures, Big Data and
regulation and fraud, cost-free. Raising awareness in new
information systems, KPIs and process definition. Protiviti’s
methodologies surrounding these issues is PU’s main goal.
models of process classification schemes per industry are designed parallel to our business risk models because we
Q: What project in the energy sector best showcases this
consider it valuable for private organizations to know how
added value?
controls operating within their processes can considerably
CA: We recently worked with an oil and gas company
mitigate potential risks. It is the only way to evaluate if
interested in participating in Mexico’s licensing rounds.
controls in place are effective and efficient.
Protiviti provided an integral business risk-management service, looked at strategic risks and dealt with the company’s main concerns and the detail of specific
Protiviti is a US-based global consulting company dedicated to
processes. Our client wanted to achieve absolute
business risks, technology and internal audits. It is composed
transparency for its financial statements to reflect its
of experts in finance, accounting, risk, litigation, investigations,
operational reality and we delivered. Being true to our
fraud and financial restructuring
name, Protiviti’s business model is centered on prevention
rather than detection, preferring preventive to corrective
RA: Protiviti has an extensive track record worldwide
measures. We are looking to do the same with a wind
from its offices in Houston and in Venezuela and the
turbine manufacturer looking to enter Mexico’s stock
UAE, to name a few, solidifying our expertise in prominent
market, thereby requiring the utmost transparency in all
energy markets and their inherent regulations, with each
of its processes and the highest efficiency in its controls,
country’s specificities.
to the benefit of its potential investors. Protiviti’s Mexico office is looking to close additional businesses pertaining
Q: How does Protiviti’s global presence impact its added
to solar and wind-power projects, starting with advisory
value in Mexico?
services in regulatory compliance regarding the National
RA: Protiviti was founded with a standardized knowledge-
Anticorruption System (SNA) and the new Administrative
leader source of expertise. Each and every office has access
Responsibility Law.
to it, standardizing our processes and methods across the globe. As a consulting firm, our strategic decision
Q: How does Protiviti provide certainty in renewable
to specialize exclusively in business risks, technology
energy projects for its clients?
and internal audits made this process more valuable in
(CA): Rules and regulations surrounding renewable energy
strengthening our know-how and learning capabilities for
projects are relatively new. Our regulatory compliance service
our working teams as we replicate our model in every new
deploys all new and existing rules and regulations through our
location we enter. Our knowledge-leader source is also
PGP software and overlaps them with the company’s internal
available for consultation for our clients. We are close to
processes to streamline compliance with the company’s
US$1 billion in worldwide income after 15 years of activity.
particular processes and controls. Our PGP tool unifies distinct
In addition, Protiviti is a subsidiary of Robert Half, which is
languages such as compliance, business risk management
listed on the New York Stock Exchange, a major argument
and audits within a company’s operational structure to get a
in favor of Protiviti’s seriousness and commitment to
better sense of its process model and how it stands against
regulatory compliance and work ethics.
the company’s risk model. PGP’s primary objective is to activate each and every element of corporate governance and
Regarding Mexico, we are developing proprietary tools for
aggregate them into a single and transparent system where
SAP security-control evaluations and task delegation. These
programmable tasks can be inserted to design particular
cost-effective solutions can test an enormous number of
action plans to comply with regulatory requirements.
scenarios showing sub-optimal SAP implementations.
315
VIEW FROM THE TOP
RISKS SPUR REINSURANCE MARKET RICHARD SCHNEIDER Regional Office Head and Senior Vice President Americas at Swiss Re
Q: How would you rate Mexico’s reinsurance culture?
projects in the energy sector are often complex and they need
A: Mexico is a seismic country between two oceans, which
to begin operation on a scheduled date, this insurance is a
increases risks of flooding, hurricanes and earthquakes and
must-have for developers who have to start paying for the
everyone in the value chain understands this. Considering
acquired debt. We analyze the specific construction project,
that the technology used in the renewable-energy
define terms and conditions and together with our clients
sector is newer compared to more traditional generation
reinsure it so they can offer an insurance product.
technologies, it is in a company’s best interest to insure 316
projects against any potential catastrophe or technical
One innovative product we have started to offer, and which
failure. In Mexico, projects are insured mostly because
we are pushing for implementation in Mexico, is parametric
property owners and investors request it; they insist on
coverage. Parametric coverage takes on the risk of reduced
having insurance in place for a project to be carried out,
production resulting from a lack of resources. Take a wind
which makes the market similar to any country where
park, for example, for which a study that indicates the
Swiss Re operates and where the insurance culture
expected amount of wind. If weather conditions do not
may be more developed. So far, we have not found any
meet expectations and less energy is produced as a result,
distinction between the reinsurance cultures of national
we cover the gap to allow the company to meet its energy
and international companies.
production commitments. This insurance product has been adopted by some power companies in the US because they
Q: What reinsurance services do you offer in Mexico?
realize the need for it. Parametric coverage can be adapted
A: As reinsurers our purpose is twofold: Firstly, we reinsure our
to the type of plant, so it can cover water, sun and wind; it
clients' risks, which allows our clients to write more insurance
just needs to be adapted accordingly.
business without having to increase their capital base. Secondly, we provide them with know-how, expertise and
Q: How do you expect the reinsurance market for the
experience. Insurance companies contact us with questions
energy sector to evolve in Mexico?
and, given that our underwriters know about every segment
A: In general, our investment expectations from the Energy
of an energy project’s value chain, from the construction of
Reform have not been met. This is mainly due to the high
a new power plant to its day-to-day operation, they visualize
expectations that the government set out, as well as to
what risks are present and help the insurance company get
external factors such as oil price, devaluation, security and
the best coverage option for its client.
so on. This does not mean that the results have been bad. On the contrary, the market has been growing and we
Swiss Re offers the classical types of coverage as well as newly
are expanding our activities in the country. Government
developed, more innovative insurance policies. Traditional
institutions, as well as every other player in the market, have
coverage insures the assets of the insured's assets. If, for
a lot to learn and it will take time for the Energy Reform to
example, a natural disaster forces an insurer to pay for lost
show its full potential. Swiss Re will be present in Mexico
assets, such as windmills or solar panels, we support our client
when that happens. We are here for the long term.
in paying the loss. Another common reinsurance product we offer is for the construction of new power plants. Because
The energy market, specifically in renewable, is extremely important for Swiss Re, not only because of the market opportunity it offers but because it is in our values and
Swiss Re is a leading wholesale provider of reinsurance,
philosophy to care for the environment and promote
insurance and other insurance-based forms of risk transfer.
sustainability. Our vision is to make the world more resilient,
Founded in Switzerland in 1863, Swiss Re serves clients
and we are contributing to this vision by offering reinsurance
through a network of around 80 offices globally
capital for the transformation of the energy industry.
VIEW FROM THE TOP
THERE IS NO BAD LUCK, ONLY BAD PLANNING PETER JAKSZENTIS Technical Services Director of Munich Re
Q: What added value does Munich Re offer the Mexican
Q: How does Munich Re assess the risks related to
market?
environment and social impact factors?
A: Munich Re has been involved in many renewable energy
A: Developing a project in a hostile environment always
projects around the world. But each project, although of
creates delays. Our financial modeling and deep global
the same technology, is susceptible to a different set of
experience means we are adept at handling such incidents.
risks depending on the location. A PV project consists of
One factor we continue to see is the social and environmental
modular systems that are susceptible to flooding and strong
tension that arises from cultural interests when a project
winds, although not so much to earthquakes since those
is planned within a natural reserve or in a protected area.
same modules are flexible. Therefore, a PV project would
The related risk factors are hard to quantify, even more so
have very different risks in the jungle where there can be
when financial institutions such as the World Bank, Citibank
strong precipitation than in the desert, where there can
or Munich Re are involved because the subsequent actions
be strong winds. A wind park, on the other hand, consists
against the project can reach global levels.
of a whole unit that is susceptible to heavy rains and earthquakes, although not so much to flooding.
Q: How does Mexico’s attitude toward insurance affect Munich Re?
It is vital that investors are aware of these factors before they
A: Banks always prefer projects that are predictable but
even allocate contracts because the impact of these elements
sometimes they lack the knowledge to properly allocate
on capital expenditure at the beginning of the project might
risks because their expertise is not in the area of project
be small but awareness can create much more favorable
management. For example, with wind parks in Mexico an
conditions when allocating for risk. For example, if a wind park
important factor to consider is crane availability because
allocates more money and material to building the project’s
there are not that many here that can handle the heights
foundation then the risk associated with an earthquake
required for a wind project. In the event of a natural disaster,
decreases, meaning that a small increase in capital becomes
many projects would need to use these cranes. Banks do
hugely beneficial to the overall financing of the project.
not have the expertise to quantify these kind of risks and therefore impose harsher conditions for financing. In such
In Mexico we have the capacity to insure projects for up to
cases financing institutions such as Munich Re can offer a
US$150 million but before putting that amount of money
higher added value to the project developer.
into a contract we want to minimize the risk of an incident happening and to find ways to avoid the situation, which
Insurance in Mexico is often considered an obligation that
goes hand in hand with having an expert workforce. Few
project developers have to banks, but without due care a
companies really understand how a proper and tailored
project will not be properly protected and investors could lose
financial insurance of that amount works, or how to
large amounts of money. Munich Re has a strong commitment
implement an appropriate evaluation process.
to project developers and therefore ensures that in case of an incident, a payment of 30 percent of the physical damage is
Our added value can be found at almost any stage of a
provided within 30 days following the incident. This is one of
project’s development, be it at the beginning by defining
our key differentiators in the Mexican market.
bankability criteria and project financing, during the project’s development by providing insurance capital, or at the end by avoiding delays. Munich Re’s interests are
Munich Re is a global reinsurance group that mitigates risks
aligned with the project’s shareholders, such as banks and
factors. It has over 40 years of experience with climate change-
investors, and we want the project to materialize on time
related risks and opportunities. The company’s expertise is in
and without any problems.
risk assessment, insurance solutions and asset management
317
VIEW FROM THE TOP
CERTIFYING MEXICO’S RENEWABLE FUTURE VITOR RODRÍGUEZ Regional Field Manager Solar South America of TÜV Rheinland
318
Q: What is your evaluation of energy efficiency policies
inverters, for example. We do six-level International
in Mexico?
Protection (IP) testing worldwide, accredited to comply
A: We are going through a phase where new strategies
with all the international and major standards, like IEC
are being implemented at the continental level. The basis
and UL. In Mexico, we have to separate large-scale from
for those strategies is to answer how we will generate
distributed generation. Procured products for use in
energy and electricity from this point forward. We must
large-scale energy projects have to meet requirements
stop using coal and other fossil fuels. We need to make
set out by the project’s owner, the lenders or any other
sure policies and programs are in place to support the
partner that requests certifications. Manufacturers need
penetration of new and renewable energy solutions. The
certified modules and components to participate in large-
next step would then be to foster efficiency for these new
scale projects.
solutions. In renewable energy, the technology, projects and experience components have been increasingly developed
On the importation side for large-scale projects, Mexico
in recent years. This means that when you implement a
does not yet have the local content capacity to provide
renewable energy project, efficiency criteria usually are
for a 300MW project. Most likely, the components would
already integrated. The concern about efficiency in these
be imported. There is an issue with distributed generation
matters has more to do with the electric grid and systems
that is worth pointing out because we have seen this
that more often than not need to be improved.
repeatedly in other countries. For small distributed generation facilities, importers will buy solar modules
Q: How much potential do you see in biomass as an energy
abroad and sell them. In this case, many poor-quality
source compared to wind and solar?
modules will be imported because distributed generation
A: Our main strategy as a company involves PV energy
projects do not have the resources to implement strict
and wind power, so TÜV Rheinland is developing more
quality-control mechanisms. There is no scheme that
services in these areas. We have some solutions for
forbids you from importing certain types of modules or
biomass regarding product and equipment component
that imposes strict quality criteria. Our experience tells
certifications. As a third party, normally we intervene to
us the best way to address this is to allow the market
make sure processes are carried out correctly. For us to
that is developing distributed generation programs to
intervene, structures must already be in place: wind farms,
simultaneously develop standards, laws and requirements
PV parks, thermosolar plants, PV concentrators, among
for importing modules. Large-scale projects do not have
others. In comparison, biomass does not have as many
this problem because project owners who have made
structures for us to work on, with the possible exception
sizable investments are averse to risk, including the use
of Brazil and bio-ethanol.
of uncertified products or components.
Q: What is the main challenge to developing a certification
Q: Have you discussed these regulatory issues with the
business in Mexico?
authorities?
A: When it comes to certifications, one aspect widely
A: We are starting a discussion. We are also trying to use PV
recognized is product certification: PV modules or
solar power associations in Mexico and we are in the process of becoming members of some of them to organize work groups on the subject of standardizing laws for importing
TÜV Rheinland , founded in 1872, is a global leader in
parts and components used for solar modules. Drafting
independent testing, inspection and certification services,
laws is not up to us but we can and want to help develop
guaranteeing quality and efficiency, as well as personnel,
the law’s technical levels by contributing the experience
environmental and technological security
acquired in several countries.
INSIGHT
IN DYNAMIC MARKET, COMPANIES MUST EVOLVE DIEGO MOLINA General Manager, Latin America and Caribbean of Seraphim Solar
The participation of solar power in national energy mixes
Seraphim Solar grew its solar business with a solid
around the world is soaring, kindled by decreasing prices
manufacturing track record for major solar companies
and increased installation of solar-power capacity. In
to ultimately develop its own brand. The company has a
this highly dynamic market that increasingly relies on
strong presence in the US, supplying top US brands such
technological developments, companies must evolve to
as Vivian Solar and Duke Energy.
stay competitive, says Diego Molina, General Manager LAC for Seraphim Solar. “There is a trend in solar power
Seraphim’s strong bankability placed its name on the
where solar-module suppliers follow similar growth
major US banks’ “OK” list, propelling the brand toward
patterns. Most started as solar-panel distributors or
its Latin American targets. Its Premium Eclipse module
manufacturers, then grew organically to include EPC
line generates 20 to 25 percent more power than average
services,” Molina says. “The driving force behind a solar
solar modules, with well over 19 percent efficiency.
PV power business often revolves around price and cost,
Mexico has a key role to play in local manufacturing for
so companies need to get creative to provide an added
the brand’s product distribution for the NAFTA market.
value that goes beyond those two variables,” he adds.
Innovation, quality and compliance are at the core of
This added value also needs to withstand the test of time,
Seraphim’s business strategy.
as utility-scale solar-power projects are launched and guaranteed to operate for up to 25 years.
Continuously relying on pricing strategies does not seem to do the trick anymore; first, because solar energy prices
According to SolarPower Europe’s latest Global
are at an all-time low, and second, because companies
Market Outlook for Solar Power 2017-2021, the world’s
cannot afford to increase their risk levels. “Aggressive
lowest solar-supply contract signed in 2016 came in at
pricing strategies to participate in auctions have an
US$0.024/kWh in Abu Dhabi. The same year, installed
inherent risk of bordering on speculation,” Molina says.
solar capacity worldwide rose to 300GW, a 50 percent
He points out that minimal price adjustments in a PPA
increase compared with 2015. As it stands, utility-scale
for a solar plant, projected to be operational for about 15
solar power is now cheaper than combined-cycle gas
to 20 years, can translate into significant additional and
turbines, coal and nuclear power, according to American
unforeseen costs.
investment bank Lazard Capital’s calculations for Levelized Cost of Electricity (LCOE).
To maintain prosperity, renewable energy companies in general, and solar PV power in particular, must
The International Renewable Energy Agency (IRENA)
develop alternative electronics, inverters that address
added its voice, stating in its Renewable Energy and Jobs
intermittency issues and energy-storage solutions that
Annual Review 2017 that solar PV is the largest renewable
cover a high percentage of overall power-plant generation
energy-related employer, with 3.1 million jobs in total.
capacity. “According to Bloomberg, by 2040, 40 percent of installed electric capacity worldwide will be solar and
In Mexico, the picture is much the same. Data from the
wind. Thirty-six percent of electric generation will come
Ministry of Energy shows that solar power installed
from these two sources,” Molina says. “We have to start
capacity increased 137.73 percent between 2015 and 2016
thinking in terms of electric micro-grids. It is undeniable
(from 113.66MW to 270.20MW and growing), by far the
that solar power is headed toward storage and smart-
largest jump in Mexico’s available sources of renewable
grid solutions.” By adapting to market trends, Tier 1 solar
energy. This rise is expected to continue as solar power
companies will start developing business lines capable of
gains in importance and is awarded projects at the
participating directly in auctions as developers become
country’s long-term electricity auctions.
involved in energy production and trading.
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VIEW FROM THE TOP
HOW TO MAKE PROSPERITY RAIN DOWN ON RENEWABLE ENERGY PROJECTS RICARDO CARDIEL CEO and General Manager of Latin American Rainmakers
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Q: Why did Latin American Rainmakers decide to integrate
Mexico generates 102,895T of urban solid waste every day.
a business line in renewable energy?
Out of 100 percent, 83.93 percent is collected, of which 78.54
A: Latin American Rainmakers’ core business is business
percent is allocated to landfills and of that, only 9.63 percent
development. Our 20 years’ experience in the electric sector
is recycled. In contrast, countries such as Switzerland,
made renewable energy the logical next step for growing our
Holland, Germany, Belgium, Sweden, Austria and Denmark,
business. We consolidated our added value by integrating
to name a few, only allocate 5 percent of their solid waste
five must-haves in the electric sector and applied them
to landfills. In particular, both the food and livestock sectors
to renewable energy. First, a firm grasp of the industry’s
could greatly benefit from this technology.
regulatory framework, primarily regarding the environmental and social implications of renewable energy projects, as well
Q: Could you elaborate on your large-scale methane gas
as their overall viability. Second, financing. Project financing
project?
is the most important aspect in project development because
A: We developed this project at Mexico’s northern border,
it is the backbone of any project. Bad financial planning
using 200T of waste produced daily to generate biogas. We
can bury a project even in its early stages and Mexico still
chose this region because the notion and practice of waste
has a long way to go in developing standardized financial
management is more developed, compared to the rest of the
planning, addressed and adapted to renewable energy.
country. We did some trials with different volumes of waste
Third, technology. By using the discounted cash flow (DCF)
to determine the optimal dimension for the biogas plant
method, we can select the technology that is best suited for
given the waste intake. There is a prevalent misconception
a project, not necessarily because it is the latest or the most
that more waste equals more electricity production but the
expensive but because it generates the highest ROI. Fourth,
process is more sophisticated than that.
integration. Our company realized early in the game that both the electric and renewable energy industries require
Q: What is the comparative advantage of your company?
EPC solutions and consequently incorporated them into our
A: We optimize businesses through a meticulously
business portfolio. Last, but definitely not least, commercial
analyzed sense of reality whereas our philosophy
strategy. All the previous elements are rendered useless if
correlates with our 20 years of experience in helping our
you do not have a landed PPA to sell the project and ensure
clients’ business prosper. Our centerpiece is our profit and
its different phases.
loss/DCF model that enables us to offer the best option for our clients throughout the entire value chain of the
Q: What key factors determined the company’s interest in
project. To sum up, we focus on minimizing the time for a
bio-digestion and biogas?
project financial closing.
A: Biogas is a tremendous opportunity in Mexico. Not only because it is a rather unexplored technology but also the
Q: What is your targeted portfolio?
satisfaction provided by the inherent social elements. Biogas
A: We are elated to see that the industry has changed at its
deals effectively and decisively both with mitigating CO2
core. In the past, only top-tier off-takers with solid financial
emissions and the country’s waste management. According
statements and multimillion-dollar revenues could undertake
to the Ministry of Environment and Natural Resources,
electric power-related projects for self-supply. Now, thanks to the recent developments in the market and the Energy Reform, SMEs can undertake self-supply and distributed
Latin American Rainmakers is a socially responsible company
generation projects. Developers, equity partners, distributed
offering reliable industrial systems solutions backed by 20
generation partners, as well as the residential-commercial
years of experience in supply, engineering, design, installation
segment of the electric market are within our targeted
and maintenance of power systems
business scope too.
Q: How would you rate the design of Mexico’s Energy Reform? A: We think that Mexico’s Energy Reform prioritized the oil and gas sector. Then, it slowed the pace in which the reform addressed the electric and renewable energy sectors. This slowdown worsened due to the fact that the macro and micro economic landscape was entering a turbulent period when the reform was launched. For instance, interest rates,
Mexico generates 102,895 tons of urban solid waste every day. 83.93 percent is collected, with 78.54 percent allocated to landfills of which 9.63 percent is recycled
warranties and the exchange rate between the US dollar and the Mexican peso played a key role in putting on hold most of
other renewable-energy sources. The country’s potential
the projects that were under development. Also, we have yet
in geothermal energy is remarkable but requires high
to permeate concepts like project financing and particularly
capitalization and its harnessing and power-producing
financial closing for renewable energy projects. The new legal
applications are highly specialized and technical. We have
framework, infrastructure programs, such as PRODESEN, and
been dealing with the electricity market for 20 years so we
public instruments like energy auctions have only recently
can attest to the tremendous drop in solar-energy costs,
impacted the sector, creating new opportunities for our
making it increasingly attractive and commercially viable.
company. In the long term, Mexico´s Energy Reform will
The economies of scale and efficiency in power production
definitely be a great success, bringing prosperity for every
from this particular technology are notable. Wind power also
stakeholder involved in the energy ecosystem.
has tremendous potential but the time required to develop a project is a key condition that needs to be considered.
Q: Which renewable energy resource has the most promising future in Mexico?
Q: What are your future ambitions in Mexico’s energy sector?
A: Mexico is blessed to have many renewable energy
A: We want to keep supporting Mexico’s electric sector and
resources across the country. We have been looking at
to grow in sync with our clients’ business. Our differentiator
hydro power for a long time because it has interesting
since our inception is our capacity to evolve parallel to the
applications for electric-power generation. Some extrinsic
market’s tendencies. To summarize: we want to keep evolving
factors surrounding this technology, particularly social
and stay at the forefront of new opportunities; we also want
and environmental impact, have pushed us to look at
to be the country’s reference in energy business development.
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VIEW FROM THE TOP
GUIDANCE THAT REFLECTS CORE VALUES BOOSTS SUCCESS Alejandra Bueno Strategic Ally in Texas of Access to Energy
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Miguel Marmolejo External Strategic Researcher in Energy Affairs of Access to Energy
Q: What makes Access to Energy unique among the
and fiscal options and assisted in their specific permitting
shelter companies in Mexico?
process before the Energy Regulatory Commission and
MM: Our biggest added value is not the ability to provide
the Center for the National Control of Energy. We sat with
specific, isolated services, but the integration of these
this client, offered all our services and determined that the
services that gives our clients the ability to review their
best option was to become an energy broker, instead of
business model considering social, cultural and economic
an energy supplier. The Mexican energy market is unique
factors in Mexico. We can determine if the business model
and with our services, companies can comfortably venture
is suited to the Mexican market or not. If it is not, we can
into Mexico, even acquiring a network of potential clients
suggest how to change it so that the business becomes
and suppliers.
successful, all according to the company’s core purpose. Few companies can offer this kind of service, as most focus
Q: How can Access to Energy provide such a complex
solely on activities to create companies in Mexico, and not
integration of services for new companies?
on the validation of the business model. Nevertheless, it
AB: Access to Energy has a great deal of experience
is much better to spend time and resources on the initial
offering shelter services to companies that want to enter
planning of the business than to jeopardize the company
new markets. We know that no client has just one specific
because the business model was not compatible with the
issue. We discuss with our clients the whole spectrum
reality of the country.
of their needs and expectations and work with them in structuring a road map to accomplish their objectives in
AB: Any new participant in the energy market can
Mexico. Our team understands the wholesale electricity
establish a company in Mexico. Our group, meanwhile,
market, the upstream bidding process and associated
offers companies entering the market the business-
logistics very well. One of the sectors where we have
model understanding and integral services they will
focused the most is oil and gas, which gives us a strong
need. We make sure that a Mexican entity created to
knowledge of the energy markets in Mexico that we can
develop energy projects will fulfill all the corporate and
use to further leverage the market entrance services we
fiscal requirements to participate in a number of energy
provide to our clients.
projects. Besides providing corporate and fiscal services, we can also help our clients to immerse in the new energy
Our intention is to become a one-stop-shop for our clients
markets in Mexico.
to solve any legal, fiscal or labor hurdle they may face. We are prepared to work with our clients and to offer other
One clear example of our abilities is the service we
services such as due diligence and risk assessment of their
provided to one of our clients that already had operations
projects. This is especially important for foreign companies
in the US. This client was not sure which business structure
entering the Mexican market for the first time. We work
to establish when entering the Mexican market due to
hard to do more than just help them with their taxes and
the different terminologies used in both markets. After
legal needs. While any company can establish a corporate
discussing their roles and activities as new electricity
entity in Mexico, what we offer is a full integral approach
market participants we analyzed the best corporate, labor
to meet their needs. With lawyers that practice law both in the US and in Mexico, we can provide insights into not only the law and the technical side of the energy sector,
Access to Energy is a multidisciplinary corporate service
but also the cultural, social and environmental aspects
shelter that integrates knowledge and experience to provide
of doing business in both countries. Having people who
comprehensive tailored solutions that help its clients enter the
can not only translate fluently but who also know the
Mexican energy market, from opening to operations
implications of the legal terminology being translated is
a strong asset for a company that offers market entrance services, but one that is not easy to find. MM: When dealing with the energy sector, the language used by the law is very technical. It is not enough to have a very good lawyer who is fluent and expert in applying
50 national and international bidders were prequalified for the third long-term electricity auction
the law, but he must also be fluent and expert in applying
up sustainability offices in Mexico to get a share of the
technical language, both in Spanish to know exactly what
renewables market that is flourishing here.
the rule says, and in English to explain to international customers the meaning and interpretation of the law.
Q: What is needed to further incentivize the entrance of
We have a complete team comprised of accountants,
more companies into the Mexican energy market?
engineers and attorneys, as well as an important network
AB: We have achieved a lot in Mexico. The energy market
of allies that provide us with the needed knowledge when
is expanding but it has to mature. This is reflected in the
it is not available in our core business. One example is
fact that we had to put some of the projects we were
the organization CALMECAC, which provides our group
developing on hold due to delays in the publication of
all the needed knowledge related to both national and
certain pieces of the regulations. At the same time, this
international certifications.
early stage opens up many opportunities that market participants can take advantage of.
Q: What trends do you see in the Mexican energy market and how will Access to Energy support their development?
MM: Mexico needs to keep working on the development of its
AB: One area that needs more support is the development
regulatory framework. The rules have to be crystal clear and
of an energy market in the northern region of the country
market-oriented for entrant companies to find it an interesting
that simplifies imports and creates the necessary
and level playing field where their investments can grow.
supporting infrastructure. At Access to Energy we have
Courts also have to be up to date with the new market, with
participated in different talks that typically agree on the
the ability to understand, follow and apply the rules according
need to harmonize the energy regulations between the
to both a business and technological vision. This is not only
two countries, favoring a more interconnected grid and
important to increase the number of companies working in
generating additional resiliency and energy security for
Mexico, but also to be able to produce more clean energy,
our region.
ultimately allowing the country to reduce its GHG emissions and have a clean and sustainable energy matrix.
MM: Although the renewable energy sector is more focused on reducing greenhouse emissions, we need to understand
Fortunately, the fact that more and more companies
that sustainability is not only being environmentally
are entering the market not only to participate in the
friendly but also economically stable. At Access to Energy
generation of energy but across the sustainability
we understand that, and bring financial sustainability to
spectrum, such as in the future green bonds and carbon
energy companies for the long run. We have seen a wave
market, suggests the possibilities the Mexican market
of companies from the financial community opening
has to offer.
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VIEW FROM THE TOP
CONNECTING THE DOTS ANDREAS MÜLLER Deputy Director of CAMEXA
Q: How are German technologies integrated into the
transporting all the renewable energy from the generation
Mexican market?
plants in the north to the consumption units in the south.
A: The German industry for renewables has mainly focused
With this high demand to address at home, there was less
on high-tech but because this takes place behind the scenes,
need for German companies to find opportunities abroad.
people are less familiar with our participation. In the case of
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wind, Spanish companies have dominated the Mexican market
Q: What is CAMEXA’s role in the renewable industry in
because it is a natural industry for them to exploit. The housing
Mexico?
crisis in Spain made it very attractive for Spanish construction
A: Our goal as a commercial chamber is to facilitate the
companies to pull their capital from Spain and invest in the
entrance of small and medium German companies into the
Mexican wind market. However, there are two clear examples
Mexican market. One of our programs is called Solar Payback,
of German presence in Mexico: Siemen’s turbines and BASF’s
which fosters investment in thermal-solar technologies to
chemical additives. With Siemens’ purchase of Gamesa,
generate strong opportunities in the industry. This program
there is now a strong and visible German company actively
has been developed in cooperation with ANES, the German
participating in the Mexican wind market.
Solar Industry Association and the Frauenhofer Institute. The project started in February 2017 and by July 2017 we
As for solar, the development and commercialization of
already had candidates in the pre-qualification stage. The
German technologies have relied heavily on government
qualified companies will receive advisory services from the
subsidies. The use of subsidies to spur rapid market
Frauenhofer Institute to implement solar-thermal technology
growth was good in the beginning but as these companies
in their industrial processes.
grew accustomed to a subsidized market, they became less competitive and could not fight in a world with non-
Another initiative in this context that we are developing
subsidized competitors. Also, the competitive value for
together with, the German Agency for International
German solar technologies is focused on getting the most
Cooperation (GIZ), is focused on mapping Mexico’s heat
out of the least, because in Germany we have very little of
demand. This will also support the future implementation of
this resource. Mexico, however, is much richer in this regard,
the Solar Payback program but the map has turned out to be
which makes our solutions mainly viable for very specific
a challenge. Companies do not easily share their information
applications in Mexico.
so we are looking for alternatives, such as using natural gas consumption, which is related to heat production.
When Germany decided to phase out nuclear energy the need for renewable energies increased the number of solar
Another joint effort with GIZ and CONUEE is the Energy
and wind projects that had to be developed, which put
Efficiency Learning Networks program. In July 2017, we
pressure on the market because it needed time to adapt to
launched this program with Bosch. During the next 12
this transition. German project developers had to focus their
months CAMEXA, AMEXGEN and Bosch will create a
activities inside the country only to meet the new demand.
learning network across all its plants to implement energy
Furthermore, as renewable projects in the north of Germany
efficiency systems. The goal is for each of Bosch’s plants
increased, our transmission lines became unable to cope with
to benefit from this program and to implement energy efficiency systems as well as to certify the responsible employees as energy managers. Once the network is up and
CAMEXA is the Mexican-German Chamber of Commerce and
running at Bosch, our plan is to take it to several companies,
Industry, composed of 750 associates. It is an information
preferably six to 10, that can benefit from each other’s best
exchange platform and articulates the interests of its members
practices. Ideally, we would like to implement the program
before governmental agencies and private associations
in cooperation between German and Mexican companies.
VIEW FROM THE TOP
INVESTING IN THE FUTURE EMILIANO DETTA Sustainable Energy Expert of KfW
Q: How has KfW showed its commitment to the
stage, which is the phase at which local development
development of the Mexican energy sector?
banks can start working with us on due diligence for the
A: KfW consists of four branches: the German Domestic Bank,
loan to be approved. Our due diligence is not only focused
the Development Bank, IPEX and DEG, the last three having
on legal and economic factors, which are supported
an international presence. The KfW Development Bank offers
by the sovereign warranty we are offered by the state.
loans to national development banks and has been active
Instead, our biggest concern is related to the technical,
in Mexico through loans to Bancomext, NAFIN, the Federal
environmental and social elements of a project because
Mortgage Society (SHF) and NadBank. Our participation in
we want to make sure that KfW’s name is associated with
the financing market is, therefore, as a second or third-level
viable projects that provide benefits to the countries in
bank, where funds go through more than one institution
which we work. To ensure the technical, environmental
before reaching the end user.
and social viability of the projects, we are supported by our team of Frankfurt-based experts. This team not
With sustainable energy we have three operational areas
only supports our internal decisions but it can also offer
for our financing. The first is for utility-scale renewables,
support to local development banks, helping them to
in which developers receive financing through the funds
better understand the technical, social and environmental
we offer to local development banks that work within
impact of our due diligence. This ensures close contact
the project finance modality. The second is the Ecocasa
with the developers from the very beginning of the
program, where we finance the inclusion of energy efficiency
financing element. Our commitment to them continues
in homes through SHF via two routes. First, by financing
beyond the project’s completion, with follow-up reports
developers or housing complexes through bridge loans or
every three to six months.
project finance schemes, and second, with credit lines to local financial entities so they finance these developers. The
Q: Why have German companies been absent in the long-
third area incentivizes the inclusion of energy efficiency on
term tenders in Mexico?
SMEs through small loans offered by FIDE, in which FIDE
A: German companies tend to be much more conservative
is financed by NAFIN gets the funds from us. In this third
than others. Their business model has always been focused
operation we work as a third-level bank, since the money
on secured investments and high-quality products and
goes through two institutions before reaching the final user.
services. The fact that there is no large international
We are expecting a significant increase in the financing
German developer, could explain why the country’s
of sustainable energy projects, as our pipeline for all the
presence in the tenders has been null. There are some
projects approved since 2014 and to be approved up until
German companies present in Mexico that provide highly
2019 is around US$1.2 billion.
sophisticated products and services, such as reinsurance and sophisticated electricity market or energy management
Q: Which energy projects does KfW find the most attractive
services. However, we will see a stronger German company
for investment in Mexico?
presence when the market starts demanding high-end
A: Through Bancomext and NAFIN, KfW has financed eight
sophisticated technologies, such as biomass, storage or
wind utility-scale projects in Mexico. With Bancomext
energy management.
we have multiple credit lines that total US$300 million approved. With these funds we expect to finance four to six more wind and solar projects.
Kreditanstalt für Wiederaufbau (KfW) , established in 1948 in Germany, is one of the world’s leading promotional banks. Its
KfW does not discriminate projects based on their
division KfW Development Bank has been present in Mexico
development state but most tend to be in the construction
since 2001 and opened offices in Mexico City in 2012
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INSIGHT
AN ENERGY FAIRYTALE TO LEARN FROM STEPHANUS LINTKER Head of International Relations of EnergieAgentur.NRW
326
Many believe Germany experienced a fairytale
Mexico is not Germany, but Lintker says the social
transformation to renewable energies. Although it has
integration aspect remains important. EnergieAgentur.NRW
become an international reference, it did not achieve its
can help with this initiative. “Mexico may have different
world-class status overnight. The conversion involved a
prerequisites to Germany, but the involvement of the
decades-long struggle that required the participation
population is an area that should not be neglected,” he
of all energy industry-related stakeholders, and relied
says. “If citizens can profit directly from energy projects,
on the general public, says Stephanus Lintker, Head of
then acceptance grows enormously.” With the launch of
International Relations at EnergieAgentur.NRW. “The
neutral institutions like the EnergieAgentur.NRW, Lintker
involvement of all energy industry-related stakeholders
says Mexico will be able to not only increase acceptance
is an important pillar in the liberalization of the energy
among the population, but also support the local economy
markets to create the fairest competition possible, and
with targeted networking efforts.
at the same time prevent monopolies and foster social acceptance,” he says. “From the outset, Germany paid
For such a complex environment like the Mexican energy
close attention to citizen participation.”
industry, a strong network can be just as important as international examples. To foster these connections, the
The German Energiewende is one of the first examples
EnergieAgentur.NRW provides conferences, workshops and
of a renewable and sustainable energy matrix globally.
seminars to give companies from North Rhine-Westphalia
Germany went from having 25 percent of its total energy
the opportunity to present themselves and their products
consumption supplied by renewable energies in 2013, to
in Mexico. Lintker’s objective is to foster contact between
32 percent in 2016. As Mexico aims to cover 35 percent of
German and Mexican businesses to “provide a platform
its total energy consumption by renewables by 2024 — a
for industry exchange on market and technological
15 percent increase on 2015 levels — Germany is a clear
developments.”
“
example to follow.
The involvement of all energy industryrelated stakeholders is an important pillar in the liberalization of the energy markets”
Germany is also a clear example of the benefits of competition and market integration, as its average financing costs for PV systems dropped by 30 percent, from April 2015 to December 2016. Lintker believes that a strong driver for cost reductions in Germany was the country’s ability to create solid relationships between competitors. “Clusters can make a huge contribution not only to the industry network but also to technological progress for individual energy sources,” he says. EnergieAgentur.NRW, with its 27 years of experience, has helped ministries and governments in many countries,
Citizen acceptance was catalyzed by the incentives
including Chile and Japan, to build energy agencies and
provided, says Lintker. “The renewable energy legislation
clusters. “We hope that many companies from North
provided feed-in tariffs from the start, enabling a variety
Rhine-Westphalia will engage in the Mexican market in
of players to produce energy,” he says. “In particular, the
the future and export the successful model of the energy
establishment of many energy cooperatives by citizens
transition to Mexico, so that the local economy and the
led to a high level of acceptance of the energy transition
population can benefit from a sustainable supply of
in Germany.”
energy,” he says.
INSIGHT
SME SEES A BRIGHT FUTURE IN SOLAR GUSTAVO RODRÍGUEZ CEO and Founder of Vansertec
Project developers, large EPC companies and private utilities
Waste-to-energy technologies have also caught the
are not the only ones looking to leave their footprint in
attention of the engineering group. “For that segment of
Mexico’s renewable energy industry. SMEs also want to take
the market, we formed an alliance with American Logic
advantage of the country’s favorable business environment.
Energy. Vansertec is interested in this practice because it
To succeed, they would be wise to turn to local associations,
is new in Mexico. But there is still a need to raise awareness
says Gustavo Rodríguez, CEO and Founder of Vansertec, a
and popularize this technology.” Rodríguez says. The only
Mexican engineering group working with integrated green
reference, he adds, is what Mexico City Mayor Miguel Ángel
energy and energy-efficiency solutions.
Mancera is doing in thermovalorization, in partnership with Veolia, to supply energy to the city’s subway. “While it is an
“About a year ago, I realized that an important step
important step forward, the project is rather overpriced by
toward a successful business, from an SME standpoint,
our estimates.” Through this project and the inauguration
lies in connecting with Mexico’s business sectors through
of Mexico City’s Office for Promoting Investment in Energy
local representative chambers,” says Rodríguez. “That is
Sustainability (OFISECDMX), however, the stage is set for
how Vansertec started getting involved with Mexico City’s
this technology to prosper in Mexico, although it will take
COPARMEX and why we are also very active with ANES.”
time. “As far as we know, Morelos and the State of Mexico are the only local governments interested in having waste-
Vansertec is betting on solar energy for several reasons.
to-energy plants,” Rodríguez says.
“In Hidalgo, we are developing a 1MW project. With solar panels, the cost of this project for a client is close to
Vansertec is also looking to make significant contributions to
US$1 million. If we were to use wind turbines, the project
Mexico’s human capital. “ITESM is dedicating considerable
would cost twice that amount. Solar parks give you the
resources to training technical and entrepreneurial talent
opportunity to provide electricity in situ, while wind farms
for this sector,” Rodríguez says. As a service marketer,
necessitate specific locations, with terrain that meets a list
Vansertec is interested in executive talent being developed
of different particularities, requiring additional transmission
at top-tier academic institutions, since it outsources all
of the generated electricity to your consumption point,
technical aspects of its business. “Our company always
causing energy losses,” Rodríguez explains.
makes a point to outsource to Mexican companies. We are also looking to integrate interns interested in technical
Although the company would like to foster residential
careers in renewable energy and who are searching for
solar power, the users that consume the highest levels of
opportunities to work in SMEs like Vansertec.”
energy are within the commercial and industrial sectors. “It makes sense then that these sectors were addressed first,”
SMEs are also subject to capital availability. In Vansertec’s
Rodríguez says. Compared to high consumption domestic
case, Rodríguez considers its partnership with Iberdrola
users, under tariff 1 levels, the tariff 2 and 3 levels have
to have been quite useful in that regard. “We turned
dramatically increased to foster a migration toward greener
to Citibanamex, which has a department exclusively
alternatives. “Tariff 1 levels have remained unchanged. For
dedicated to green energies. If your project has an
domestic users, we are missing an adequate return on
estimated value greater than MX$2 million, it grants
investment in installing solar panels under tariff 1 conditions,
financing at preferential rates, which depend on amounts
especially if electricity consumption is moderate. We could
lent,” he says. For smaller loans, Vansertec turns to FIDE
be talking about a 10-year ROI.” With distributed generation
and CIBanco because their interest rates are highly
and the regulating modifications coming for 2018, Vansertec
competitive. “There are even financial leasing companies
is hopeful this niche will be opened for companies to exploit
increasingly interested in providing capital for these
the opportunities there.
projects, such as Central Leasing.”
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VIEW FROM THE TOP
NORTH CAROLINA WANTS IN ON MEXICO’S ENERGY MARKET Paul Wyatt International Trade Manager of EDPNC
328
Laura Camberos Mexico Office Director of EDPNC
Q: What is the EDPNC’s mission in Mexico’s energy sector?
state’s R&D. North Carolina is home to some of the most
PW: EDPNC is a nonprofit organization funded by the
renowned research institutions in the US, which provide a
North Carolina Department of Commerce to help promote
great platform for engineering applications. A lot of top-tier
economic development opportunities in foreign direct
US technology developed over the last decade has come out
investment, state growth and to foster international growth.
of our state. For example, North Carolina gave life to and
Through our counsel services, we assist companies to
raised Cree, a global manufacturer and marketer of lighting-
become export-ready and connect them with attractive
class LEDs that spun out of one of our universities.
foreign markets, such as Canada, Mexico, Europe and Asia, via our seven state trade offices. Mexico is North Carolina’s
Q: What bilateral mechanisms do you use to foster business
largest trade partner as it is the largest trade destination
relationships?
for North Carolina-made products.
LC: For certain missions or company requirements, particularly when it comes to in-depth market research, we sometimes
A particular target we are looking to develop, where North
contact the US Commercial Service in Mexico because of its
Carolina can really add more value than any other area,
greater human resources. Our Mexico City office is a member
is bioenergy and biofuels. North Carolina’s sizable timber
of the American Chamber of Commerce. EDPNC is also a
and agricultural markets produce a considerable amount
member of the Association of State Offices in Mexico, which
of timber, hog and poultry waste. We are in the middle of
was created to bring together the 23 US states with local
finding creative ways to capitalize on this resource and
state offices. We meet every other month to cooperate in any
produce energy from it. We also want to contribute with
way we can to foster business for our respective companies.
smart grid integrations and IoT. Our state is home to a major IT cluster, as well as the US’ largest Environmental Protection
PW: There is also a Mexican Consulate in North Carolina.
Agency (EPA) research lab. When North Carolina-based IT
Our political relationship with Mexico is very strong but
companies, such as IBM, Lenovo and Google, partner up with
when it comes to trade, we rely heavily on our local Mexico
energy companies like ABB, Siemens or Schneider, they find
City office. The US Department of Commerce has strong
ways to get the most efficiency out of renewable energy
lines of communication with us, sharing information on
sources and integrate that into a useful interface. Dartmouth
upcoming inbound or outbound trade missions to Mexico
is home to burgeoning startups like Plotwatt, which found
and the rest of Latin America to capitalize on new and
a way to commercialize a system that can be integrated
ongoing business opportunities.
into the existing power systems of large franchises and uses Q: What long-term objectives is EDPNC targeting in
algorithms to build efficient energy-use schemes.
Mexico’s energy sector? North Carolina’s energy mix is greatly diverse, including
PW: For us, it boils down to perfecting the efficient way
three nuclear plants, over 400 solar and wind power plants
in which we gather market intelligence and packaging
and over 100 biogas plants. One of our strengths is our
that information and the opportunities in Mexico to our
integration of these technologies into our day-to-day life
companies in a user-friendly way. We build our programming
through private-sector partnerships and leveraging our
around that to increase their chances of success here. It is a dynamic, ever-changing model, where we have to identify the best approach for each industry. There are always lots
Carolina
of pieces to the puzzle and we can add value into our
(EDPNC) is focused on recruiting new businesses to the
programming and missions without having to reinvent the
state, supporting the needs of existing businesses, connecting
wheel, but definitely keeping it spinning in an increasingly
exporters with customers and helping small business owners
efficient and successful direction.
Economic
Development
Partnership
of
North
VIEW FROM THE TOP
US WATER AND WASTEWATER SOLUTIONS FOR MEXICO’S INDUSTRY GARY MACCONNELL President of Green Global Technologies
Q: How has Green Global Technologies developed its
available 24/7 should any doubt or issue arise regarding
specific areas of expertise?
the equipment.
A: We came out of a unique experience. Green Global Technologies grew out of MacConnell & Associates, our
Outside the US, we represent and distribute top-tier,
local engineering consulting firm founded 27 years ago. Our
technologically-sound products from companies like E-Z
firm offers specific expertise in the areas of environmental,
Treat Corporation, HOH Environmental Management,
civil, structural, mechanical, electrical, and instrumentation
Mercer International, A3-USA, Advanced Aeration, Enviro
engineering. Once we felt confident enough with our
Loo and Trash Guard Incorporated, proposing their added-
cumulated expertise and the integration of state-of-the-
value solutions to increase our international business.
art technology in our products and services, we started looking abroad for global business opportunities and
Q: What are the key aspects of the Mexican market that
created Green Global Technologies. We got in touch with
caught your attention?
the US Commercial Services in North Carolina to assist us
A: Our typical clients are small to midsize communities
with this task, providing context and locating potential
as well as industry-related companies. Mexico is a large
business partners we could work with.
trading partner of North Carolina with the geographical advantage of being our next-door neighbor and with
Q: What niche are you targeting in Mexico?
NAFTA advantages. We have worked for big companies
A: Green Global Technologies chose Mexico as a strategic
in the past but they lack the decision-making flexibility
expansion point. The country has good engineering
and dynamism we find with smaller businesses to launch
universities, capable and qualified engineering
a project. Mexico is increasingly aware of the importance
professionals and good technical expertise. We have
of water management and recycling, and we want to
done four business trips overall to solidify business
capitalize on this pragmatic shift. Key regulatory elements
opportunities, and have made a lot of contacts. We are
to foster water-related businesses are still missing, but we
on the lookout for reliable partners. Mexico is different
are betting they will eventually come along as this niche
from the US, where the former has people that represent
grows in importance.
equipment manufacturing on one side and the engineering community on the other to avoid giving the impression of
Q: Are you concerned about the US administration’s
having a conflict of interest. For us, it is only a matter of
revamping of the fossil fuel industry?
adapting to this different way of doing business. We are
A: There is a lot of uneasiness surrounding subjects like
targeting several local engineering firms, people that buy
the NAFTA renegotiations and the US’ withdrawal from the
and sell equipment for water-recycling systems.
Paris climate accord. We see these components unfolding only at the political level. In the end, when you look at
Q: What is Green Global Technologies’ main strength?
the size and depth of bilateral trade between the US and
A: Most of the products we make are targeted for
Mexico, it will go on because, overall, it has been beneficial
communities of a few thousand people, as well as
to both sides of the business community and it is in both
developments, resorts, schools, hospitals and the like.
countries’ best interest to maintain it.
Mexico and South America have a large window of opportunity in this regard. When we target our clients, we have the flexibility of providing equipment that matches
Green Global Technologies delivers water and wastewater
the people’s needs, the locally-available technology and
systems, provides full engineering and technical support, and
the people’s skillset to easily operate and maintain it
provides virtually all equipment for comprehensive systems
locally. We are in the business of helping people and are
based on customer needs
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INSIGHT
HARNESSING NUMERICAL OPTIMIZATION FOR PROJECT BIDDERS NICOLAS MELISSAS Director General of Athena Consulting
With the fourth long-term auction approaching, project
be much more costly given short-term price variations and
bidders not only need to deal with higher interest from several
the conditions under which they are closing the transaction.”
private players but also the increased competitiveness of each
Melissas believes this issue should be promptly tackled by
power-producing technology involved and undertake a careful
regulating authorities as “the development and successful
and precise analysis of any and every variable that can make
conclusion of the projects from the first round will be critical
a difference between a viable project and a declined offer,
for the prices that we see in future rounds.”
says Nicolas Melissas, Director General of Athena Consulting, 330
who adds that financing is a big part of a bankable strategy.
During the auctions, many firms offered almost an equal number of CELs as cumulated energy but that may not prove
“Some of the projects were taken to the auctions without
to be an optimal solution because, although the Ministry of
actually going the extra mile to ensure financial support from
Energy considers one CEL equivalent to 1MWh of energy
financial entities for a winning bid,” says Melissas. “There are
produced through renewable energies, from a company’s
also more project implementation problems than previously
financial point of view this might not be the case when
thought, such as gaining land permits, which is making this
designing a profitable model. “We noticed this discrepancy
an even harsher environment. Some first auction winners may
and are building a business model that will fill this gap
end up having to pay bid forfeiture penalties.”
through our software solution,” Melissas says. “We are also
“
The development of the projects from the first round will be critical for the prices that we see in future rounds”
working to increase the number of variables and information in our software, such as energy trading data from Tradeon, a database of CELs prices and elaborate projections of these two variable, bidding tariffs and spot market prices.” Athena Consulting specializes in numerical optimization, economics and auction theory, backed by 20 years of research. The firm is focusing all its efforts on applying its technical expertise and know-how to a user-friendly software solution rooted in Montecarlo computational algorithms and
The auctions required power, energy and CELs from either
meant precisely for financial entities hesitant to participate
clean or renewable energy sources, and Melissas considers it
in the auctions, to assist them in evaluating a project’s risk
unusual that renewable energy firms using intermittent energy
levels. “It can integrate the process from both the auctioneer’s
sources like wind or solar are allowed to submit auction
viewpoint and that of the firm participating in the auction, an
proposals for power. “Power is a service that combined-cycle
added value that not all companies can offer,” Melissas says.
plants handle better because they can produce a stable intake of electricity on demand,” he says. But the very design of
Athena Consulting is developing a new algorithm to
the long-term electricity auctions is extremely competitive
integrate into its solution to help bidders compute their
as different power-producing technologies compete with
optimal bids for the CENACE auctions. “Participating in an
each other. To remain in the game, bidding companies
auction means computing power, CELs, cumulated energy
resorted to offering power supply. This is dangerous for the
amounts, a price for the package and whether your bids
company and can potentially destabilize the market because
should be mutually exclusive or design a joint offer. This
power is needed even when the renewable resource is not
makes the process of creating an optimal bid extremely
producing it, Melissas contends. “As these companies are
difficult.” The algorithm Athena Consulting is working on
contractually obligated to offer uninterrupted power, they
is expected to help firms compute their optimal bids and
will resort to trading that power in the spot market, which can
avoid paying noncompliance penalties.
VIEW FROM THE TOP
TECHNOLOGY DEVELOPMENTS ALSO FOR SMALLER CITIES MOISES MARTĂ?NEZ Venture Partner at Desert Sky Holdings
Q: What was the idea behind the founding of Desert Sky
of drinking water. To ensure a holistic project, we are going
Holdings?
to install cutting-edge water treatment and desalination
A: The idea was to help new clean-energy technologies
plants that will produce the same amount of energy they
that are available and tested but not yet widespread
consume. As these plants will be small, their energy needs
make the jump to the real market. When it comes to wind
can be covered by the energy generated by the light posts.
turbines and solar cells, we are still installing the same technologies that were developed 20 years ago. Although
Q: What potential do you see in Mexico for the
there have been improvements, these have been small and
implementation of more projects of this type?
the potential to continue increasing energy generation and
A: The potential in Mexico is incredible. We have natural
boosting efficiencies is limited. Some might think that we
resources in excess, so much so that we do not know
are investing in the development of startups but that would
how to exploit them to their maximum. Like many other
be untrue. Startups tend to have technologies that are not
countries, we also have chronic problems, most of which
yet proven under real market conditions.
are located in small cities where the business opportunities are not attractive enough for investors to develop energy or
With the integration of the technologies with which we
water projects. We are betting on these smaller cities that
work, we want to not only show the world that they are
have bigger needs. One by one, this will create a domino
viable, but also to really improve the quality of life of our
effect in which, after many cities have been improved, a
society. Our goal is to liberalize resources that would be
greater good for society is created. As we are working with
otherwise invested in the consumption of energy so that
smaller projects and smaller cities, the energy needs are
those resources can be used for education, health, security,
easier to cover, meaning that the investment is easier to
infrastructure and social benefits in general.
handle. The challenge is not to do these projects, but to diminish our culture of thinking that only big projects with
Q: What are Desert Sky Holdings’ main projects in Mexico
big investments are economically viable. A war is won by
and how will these technologies benefit society?
winning small battles, not with only one big battle.
A: In Mexico, we are working on two key projects. The first is to replace the aged public illumination system of a city in
Q: What milestones do you expect to achieve in Mexico?
the north. We are going to install light posts connected to
A: 2018 will be a watershed year for us because we will
a wind turbine and solar cells so they can generate energy.
finish the first two projects we are developing. Regarding
By installing the 35,000 light posts that the city needs we
the technologies, we are sure they work because they have
will be able to generate 50MW of electricity. Therefore, we
been implemented in the US, Australia and even in Russia.
will be able to generate an enormous amount of energy
As for the business model, the results will come. We will
without the need for any land extension beyond that which
continue working to integrate the public light posts for the
the old light posts already use. The fact that we are going to
benefit of cities, and when it is possible we will also get into
connect these light posts via optic fiber cables will allow for
the installation of desalination and water treatment plants.
the future implementation of sensors and even the creation
During the next four years we want to install 500,000 of
of an intelligent city.
our energy-generating light posts in several Mexican cities.
The second project is within a city on the Pacific coast. The idea is to make the city entirely self-sustainable in terms of
Desert Sky Holdings is working to revolutionize the Mexican
energy by installing both the light posts, like in the other
energy sector with integrated projects that include energy
project, together with smaller strategically-located wind
and water services. The company is already working on two
parks. This city also has a severe problem with shortages
projects with Mexican municipalities
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VIEW FROM THE TOP
DUE DILIGENCE VITAL FOR PROJECT BANKABILITY RODOLFO FLORES Country Manager Mexico, Energy Division of DNV GL
Q: What is DNV GL’s assessment of product certification
exclusively to our clients that express development needs
in Mexico?
and have technical teams at their disposal. We also have
A: Product certification is mainly focused on assistance
measuring and monitoring software for meteorological
for manufacturers. They come to our laboratories for the
data and are looking to incorporate thermographic
relevant tests and analyses. Our primary laboratories are
camera-equipped drones into our wind farm and solar-
located in Berkeley, California. These tests are vital when
park inspection services. These developments come from
it comes to product and project bankability. In Mexico, we
the most advanced inspection areas of European and US
have yet to offer these services. We have detected better
companies, which we are closely following and benefiting
opportunities in renewable energy advisory services:
from their applications.
due diligence, measuring campaign designs and on-site resource evaluation, both for solar and wind power.
Q: What are the keys to DNV GL’s comparative advantage in renewable energy advisory services?
Q: What has DNV GL’s extensive background research
A: DNV GL’s foundation comes from a longstanding
on Mexico’s solar market revealed?
practice of merging with market leaders. This is why today
A: Mexico’s solar market is still in its developmental
we have a workforce of 15,000 employees worldwide.
phase. So far, only two relevant solar park projects, of
With 3,000 dedicated to the energy sector, and a
less than 20MW each, have reached construction phase.
presence in more than 100 countries, we are focused on
In contrast, DNV GL has participated in more than 4GW
developing innovative solutions and inserting them in
of wind power projects. These include self-supply legacy
the market. Mexico is no exception: our local offices have
contracts, first and second auction projects, and we are
12 trained expert professionals available to provide our
in talks for advisory services with potential bidders
advisory services on site.
for the third auction. Additionally, we are overseeing several legacy-contract projects that still operate under
Q: What are DNV GL’s long-term ambitions for Mexico?
the regulatory framework previous to the reform. Our
A: We see ourselves as the undisputed leader in our
company enjoys practical adaptability regarding any legal
segment, further consolidating in Mexico’s market.
framework under which a renewable energy operates,
Through our work abroad, our company has become
including but not limited to self-supply schemes or small-
a reference for renewable energy projects. Several
scale production.
financial entities cite us and require us as participants to ensure a project’s bankability. We want developers
Q: What advantages do your clients gain from DNV GL's
to know that our due diligence and advisory services,
software and technology solutions?
beyond representing an additional cost, are a support
A: Design software is prevalent in the renewable energy
tool that mitigates technical and nontechnical costs
market — PV-Syst or DNV GL proprietary software
throughout the project’s entire life cycle. When it comes
SolarFarmer for PV systems or DNV GL registered
to analyzing cost-effective strategies, due diligence
software WindFarmer for wind power, for instance.
should be regarded as an investment because it translates
Software in itself is not sufficient in terms of creating
into financing success for the project.
added value. The application of relevant Big Data analysis to mitigate uncertainty, generated by measuring campaigns, as DNV GL does through software using its
DNV GL is the largest and most integrated technical advisory
proprietary Resource Panorama, are key. DNV GL uses
and classification body worldwide. The company also offers
its very own WindFarmer package of wind-farm design
business reassurance software and specialized advisory
tools. These are licensed software solutions available
services in the maritime, oil and gas and energy industries
333
ROUNDTABLE International newcomers, recently created companies
WHAT NEW BUSINESS OPPORTUNITIES HAS THE REFORM UNLOCKED?
and veteran corporations looking to branch out toward attractive sectors. All are looking to capitalize on the new business opportunities brought about by the effective end of Mexico’s 70-year monopoly. Increased renewable energy-powered electricity and developing a fast-paced competitive electricity market are the priority. Be it utility-scale projects to submit in the long-term electricity auctions, PPAs, power generation, trading, ancillary services or participation in transmission and distribution tenders, the private sector is certainly taking a closer look for both sustainable and profitable growth.
Our 20-year experience in the electricity sector made renewable energy the logical next step for growing our business. We consolidated our added value by integrating five must-haves in the electricity sector and applied them to renewable energy. First, a firm grasp of the industry’s regulatory framework. Second, project financing, since it is the backbone of any project. Third, technology; by using the discounted cash
334
flow (DCF) method, we can select the technology that is best suited for a project,
RICARDO CARDIEL CEO of Latin American Rainmakers
based on ROI criteria. Fourth, we incorporated EPC solutions in our portfolio. Last, but definitely not least, commercial strategy. All the previous elements are rendered useless without a landed PPA to sell the project.
Taking into account the profile of investors we work with, we will definitely focus on the least risky projects, with a portfolio of 10-12 projects in power generation, energy storage, energy transport and oil and gas exploration and production. The latter is the riskiest subsector among those we are involved in but these risks can be mitigated by strong investments and generating good yields. We are evaluating two sectors with high demand: electricity generation, given the lack of power producers in the market,
CARLOS MICHEL Principal at Fondo de Fondos
and energy infrastructure. Mexico is largely underdeveloped in energy infrastructure, which justifies our evaluation of hydrocarbon and natural gas storage projects as well as transportation via oil and gas pipelines. For the next public auctions, we are also examining electricity transmission towers and substations.
Yingli Solar manages traditional market products such as the delivery of both mono and polycrystalline panels. At the same time, Yingli is positioning its prepackaged solutions in the market. These are ready-to-install 50-100kW on and off-grid systems and include batteries, inverters and solar panels – everything the project developer requires for installation. The market has been very receptive to this solution. Another significant advancement we have made is our PANDA mono
EZEQUIEL BALDERAS Country Manager of Yingli Solar
crystalline panel, which offers efficiencies of up to 20.1 percent. This is almost 30 percent higher than the market average. We expect this panel to provide a huge advantage in the industrial distributed generation segment, in which a lack of space is often a big problem.
Our priority remains focusing on the growth of our core business in natural gas distribution. CRE’s last public tenders prior to the Energy Reform for natural gas distribution zones in Sinaloa was awarded to us, both in 2014 and 2015. We want to grow in parallel to these zones. The reform’s new rules and sector growth priorities have simplified the process considerably. Competitive and public tenders are no longer required to grow. Now, if we have a particular growth interest in a certain region in the country, we only have to ask for a distribution permit from CRE. Consequently, we have requested permits to expand in Campeche, Yucatan and Quintana Roo and we are already permit-holders in Tabasco. This simplification process gives a considerable
NARCÍS DE CARRERAS Country Manager Mexico of Gas Natural Fenosa
boost to Mexico’s downstream natural gas distribution sector and is in line with one of the core objectives of the reform: magnifying natural gas and renewables use in Mexico.
In Mexico, there are only 38 companies that work under a PPA scheme, our Energía Real branch among them. Through this branch we developed the Plaza Arcos project, where we made an entire shopping center 100 percent renewable. This project will be used as a business case for the future expansion of the company. Another of our branches will participate in the long-term electricity auctions. We have two
335
projects in a JV with a company from Uruguay that are ready to be offered in the third electricity auction. Although we are entering into utility-scale projects, we still consider distributed generation our core business, and the niche where we will
JUAN ÁVILA Director General of Top Energy
grow the most.
Generally speaking, renewable-energy projects mostly require process automation at the moment, especially for grout installation. Electric installation, material supply and inputs are practically standardized. We recognized that our strength in this sector would be to support developers and contractors in bringing projects to completion. CODISA’s business opportunities arise when our clients do not have everything they need at their disposal. The provision of concrete for wind farms is a good example. To adapt to an increasingly demanding market, we integrated the required permits and certifications into our services and can offer a comprehensive package of concrete
SAVIR RUIZ CEO of CODISA CORP Energy
solutions to create infrastructure and facilitate access to remote locations. This strategy will underpin our growth because it will allow us to take on civil engineering projects.
Modifications to the secondary energy laws under former President Salinas de Gortari in the early 1990s opened the market to private participation, national and international owners. These modifications attracted international participants, and the electricity sector saw significant growth in a relatively short time. The recent changes in the Energy Constitutional Law are interesting opportunities for participants of all kinds in the market boom that is just about to begin. Since the construction of the first privately-owned power generation plant in Mexico, the experience Kepler offers in this field includes production of more than 12,000MW, construction of over 30 power-generation plants, across simple, combined cycle, internal combustion and coal fuel. The high productivity levels we guarantee makes us, if not the best, then one of the best options in Mexico.
ALICIA BARNETCHE President of Kepler Constructora
Lagos de Moreno production plant, Jalisco
OFF-TAKERS
13
Mexico’s private players are taking advantage of the new options available on the country’s energy menu. New features include power suppliers, such as power producers and qualified suppliers, and power-producing technologies that were made available to meet the energy demand of companies of all industries and sizes alike. Additionally, a new business mechanism allows the possibility of trading energy production surpluses to third parties. Competitiveness is at the core of all these new possibilities and Mexico’s private sector is intent on shifting toward clean, sustainable, cost-effective, commoditized and predictable energy consumption for the country’s companies to reach the heady new heights made possible by the reform.
Renewable energy in Mexico is no longer solely environmentally conscious but business sound. Some industry heavyweights have taken 180-degree turns toward renewables and sustainability, while others with complex energy consumption schemes, such as the steel or mining industries, are taking a more prudent, stepby-step approach to capitalize on present and emerging opportunities. This chapter covers the different strategies that off-takers have outlined to accompany the country’s energy transition.
337
CHAPTER 13: OFF-TAKERS 340
ANALYSIS: Clean Energy Consumption for Competitive Gains
342
INSIGHT: Patricio Gamboa, Deacero
343
Insight: Alejandra Vázquez, Grupo Bimbo
344
VIEW FROM THE TOP: Jorge Gutiérrez, Energía Eléctrica BAL
345
VIEW FROM THE TOP: Fernando Alanís, Industrias Peñoles
346
VIEW FROM THE TOP: Jorge Salas, Volkswagen de México
347
INSIGHT: Fabian García, Savesolar
Paulina Segovia, Savesolar
348
VIEW FROM THE TOP: Francis Pérez, Nestlé México
350
VIEW FROM THE TOP: Sebastián Ramírez, Vivesolar
351
INSIGHT: Enrique Guillén, CANACINTRA
352
VIEW FROM THE TOP: Salomón Amkie, Citibanamex
353
VIEW FROM THE TOP: Francisco Con, CEMEX Energía
339
ANALYSIS
CLEAN ENERGY CONSUMPTION FOR COMPETITIVE GAINS Mexico’s energy transition reiterates a global tendency. Renewable energy is no longer the domain of environmentally conscious final users or used simply to bolster public relations. Solar and wind power have proven, as the long-term electricity auctions show, that they can be as competitive as fossil fuels The decision to transition toward clean energy not only
levels are intermittent,” explains Patricio Gamboa, Energy
reiterates a corporate commitment to a more sustainable
Director of Deacero.
production chain, it is also economically sound. Case in point: the close to US$9 billion in investments for utility-
Progressive, cautious step-by-step approaches seem to
scale projects awarded during the first three long-term
be the order of the day, as the market further matures.
electricity auctions and the 141MW of power purchased
“As heat is such an important part of our energy
through the third long-term electricity auction's Clearing
consumption, we are looking for ways to implement
House by Iberdrola and CEMEX, through Menkent.
efficiency measures, or other heat-production techniques, when viable. First, we look to reduce energy usage,
340
Energy-intensive industries, such as mining or automotive,
diminish losses, or even change whole processes. Then,
can spend up to 40 percent of their annual expenses in
we consider implementing other sources of renewable
energy consumption. Now, renewable energy can actively
energy, such as solar, thermal or biomass,” says Francis
participate in reducing the lion’s share of expenses to
Pérez, Shared Value Creation and Sustainability Director
direct these resources to the benefit of corporate
of Nestlé México.
competitiveness. Nissan Mexicana, the Japanese automaker that manufactured five of the 10 most sold
POWER PRODUCERS
vehicles in Mexico in 2017, reported on Oct. 30 of the
As Mexico’s power-producing doors open up to more
same year that it had reached a sustainable milestone
players, off-takers now have more than one option to
of 1 million vehicles produced at its Aguascalientes
choose from for their energy supply. Some among them
manufacturing plant through clean energy supply,
will prefer dealing directly via PPAs, the new contract
avoiding the emission of more than 300,000 tons of CO2
figure born from the reform, where power producer and
into the atmosphere.
off-taker agree on an energy price for a determined period of time. What does an off-taker look for when it comes
CHOOSE WISELY
to choosing a particular power producer over another?
Mexico’s Energy Reform is energy agnostic. All power-
There seems to be a number of common denominators.
producing technologies by renewable and clean
“Experience is the primary condition. There are certain
sources were welcomed to participate in the long-term
thresholds that can be examined, such as MW developed
electricity auctions, and Mexico’s inherent characteristics
worldwide. The expertise of the Mexican market,
— geography, climate — enable it to look in several
competitive prices and efficient processes are also among
directions. The auctions, for instance, awarded solar and
the key variables. At this early stage, there are not so many
wind power projects as well as cogeneration, turbogas,
IPPs to buy from. This is still evolving but we expect the
hydroelectric, combined cycle and geothermal plants.
number of players will increase as the market matures,”
While the business sense of these technologies is
says Salomón Amkie, Vice President, Head of Power and
proven, transposing a particular industry’s consumption
Utilities for Citibanamex.
requirements to clean energy production is easier said than done. “A steel plant’s energy consumption,
If a company does not have the expertise or the required
particularly when producing through an electric arc
energy department within its structure to deal with the
furnace, is a highly discontinuous energy-consumption
required analysis and permitting processes to become
process. Solar power supply resembles a bell-shaped
a qualified user and deal directly with power producers,
curve starting at 8am, going up until 1pm before
private players with an energy consumption large enough
decreasing and stopping at 8pm. This bell has to be
to be considered a qualified user can resort to qualified
transposed to our own consumption, which needs to
suppliers. Among the new players emerging from the
be consequently optimized. Combined cycles present a
reform, qualified suppliers are the middlemen between
similar conundrum since on one hand you have a steady
producers and final users, integrating a portfolio of
and constant supply of energy while your consumption
different power producers for qualified users to choose
from, as well as providing representation and trading
Director of Grupo Bimbo. “We are optimizing the logistics
services on their behalf before power producers. To date,
routes connecting our ecological sales centers for our
CRE has registered 18 qualified suppliers to operate in
350 electric vehicles. For 2018, we want to make sure
the country’s wholesale electricity market. The number
our ecological sales centers are also solar powered. Four
is set to increase as 2018 will see the enactment of the
are already benefiting from solar panel installations. Our
compulsory 5 percent CELs requirement and a rise in
electric vehicle fleet is also set to grow as we increase the
renewables’ share of the energy market.
number of ecological sales centers nationwide,” she adds.
Injecting renewable-powered technologies into the mix,
Having a global footprint and sizable business numbers
lowering power consumption, having greater options
makes the challenge of transitioning to renewable energy
among power producers and qualified suppliers is
equally significant. Some companies are stepping up their
the tip of the iceberg. Now that Mexico’s regulatory
sustainable game. “Citi has outlined a clear objective of
framework has also integrated net metering, net billing
reaching 100 percent sourcing from clean energy worldwide
and wholesale into the country’s electricity market, off-
by 2020. Globally, Citi owns real estate in 94 countries,
takers can also sell their generation surpluses throughout
entailing a significant coordination effort for each unit to
the year and use them as an additional source of income,
contribute to the overall goal. We have different options
making cleaner and cost-effective technologies ever-
at hand to reach these goals: sign PPAs with renewable
more attractive. “By 2023, we expect to satisfy 100
producers, choose distributed generation systems in
percent of the needs of the group’s companies through
certain strategic locations and buy clean certificates in the
self-supply. We hope that when that happens, the market
countries where their local regulatory framework makes this
will be sufficiently mature to enable a mix of new plants
an option to offset whatever additional clean energy needs
and developments, either of natural gas, wind or solar
to be sourced,” says Amkie. Time will tell if these efforts
resources. If this is the case, we will be able to place our
can trickle down to smaller companies in Mexico, equally
surplus on the market to be monetized. In this way, we
interested in transitioning to renewable energy.
would not only enable our energy self-sufficiency but also add an interesting business niche,” says Jorge Gutiérrez,
Off-takers also have the challenge of injecting cleaner and
Director General of Energía Eléctrica BAL.
renewable energy into their power consumption while keeping up with technological developments to ensure the integration
AMBITIOUS SUSTAINABILITY
of the most efficient and adequate technology suited to their
To complement their energy transition efforts, corporate
needs, as well as riding the wave of emerging innovations,
powerhouses are leading by example by taking their
such as battery-based energy storage and electric-vehicle
strategy one step further and integrating sustainability as
fleets. “For 2018, we will also participate in CFE’s La Paz
a tangible, immutable part of their day-to-day activities.
auction for the soon-to-be-launched battery-based energy
“Grupo Bimbo is implementing zero waste water
storage project. To date, batteries are based on lithium-ion but
discharge and zero waste to landfill, promoting recycling
we are seeing emerging technology with zinc-based batteries.
initiatives by reducing the usage of raw materials and
As it is a more abundant resource in the market, zinc can
waste by 12 percent and recycling more than 90 percent
dramatically decrease the cost of storage systems, especially
of waste,” says Alejandra Vázquez, Environmental
considering Peñoles produces zinc,” Gutiérrez says.
TOTAL FINAL ENERGY CONSUMPTION PER ECONOMIC SECTOR - REFERENCE SCENARIO 2010 2050 ( PJ -SECTOR PETAJOULES) TOTAL ENERGY CONSUMPTION PER- ECONOMIC 2010-2050 (exajoules) 8 7 6 5 4 3 2 1 0
2010
2015
Transportation Transportation
2020
Buildings Industry
Industry Source: Ministry of Energy Source: Ministry of Energy
Agroindustry
2025
2030
2035
Public Sector Agroindustry Buildings
2040
2045
Public sector
2050
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INSIGHT
ENERGY-INTENSIVE INDUSTRY LOOKING TOWARD MARKET LIQUIDITY PATRICIO GAMBOA Energy Director of Deacero
342
Some companies in Mexican industries have taken early
create the need for energy trading in the spot market,
action to reap the benefits of a diversified energy matrix in
carrying inherent risks from long or short positions. “We are
the country. Grupo Alfa, CEMEX and Ternium, to name a few,
undergoing the joint development of a large combined cycle
have contracted the entirety of their energy consumption via
plant in conjunction with Fisterra Energy. Deacero’s intent is
long-term contracts and prices set for the next 10 to 20 years.
to contract a significant portion of its consumption from this
Domestic steel manufacturer Deacero has taken a different
plant, while at the same time selling power to third parties.
tactic. “Delaying decisions reveals future opportunities. As
The balance of Deacero’s consumption will more than likely
of today, Deacero has contracted only 10 to 15 percent of
come from renewable sources at fixed prices. Renewables will
its total consumption, meaning we still have between 2,000-
play the role fit to our ability in consuming it competitively.”
2,200GWh per year available that we can distribute within a diversified portfolio of power-producing technologies,” says
Besides a diversified energy portfolio, a solid track record,
Patricio Gamboa, the company’s Energy Director.
with a diverse catalogue of local projects where the construction phase is attained and projects are delivered
The steel industry heavyweight is letting business sense dictate
on time, are among the factors Deacero looks for in a power
its transition to cleaner and renewable energy. “Deacero was
producer. The company holds two power contracts, one
the first industrial client to sign a renewable energy supply
originally with Fisterra Energy (Ventika, which has since
contract with a power producer under the new regulatory
been sold to IEnova) and the other with IEnova. “Fisterra's
framework. Renewable energy prices are sufficiently attractive
team brought a good track record and has financial support
to justify our decision, both on account of securing CELs and
from its parent company, Blackstone, while IEnova offers
energy supply. Today, we are analyzing our next steps.”
the solidity of an indexed company that successfully completed a wind farm and a combined-cycle plant in
Deacero is among the Top 10 energy consumers across
Baja California, in addition to its parent company, Sempra
Mexico’s industries and is the third energy consumer in the
Energy,” Gamboa says.
steel industry nationwide, according to Gamboa. “For 2018, we are estimating a yearly consumption of 2,500GWh.
With over 80 percent of Deacero’s energy consumption still
Compared to Mexico’s total energy consumption levels of
to be allocated, the company targets a long-term strategy.
2016, amounting to 270,000GWh, Deacero alone represents
“As years go by, we will have a better understanding of
just under 1 percent of the country’s consumption.”
Mexico’s energy market dynamics and a verifiable track record of price discovery.” Deacero has a clear set of priorities
Despite the attractiveness of reducing energy consumption
mapped out for the near future. First, secure the most
costs, siding with either purchasing more fossil-fueled or more
competitive energy purchase available in the market. Second,
renewable energy is far from a done deal. “A steel plant’s
be an active trading participant, from either its generation
energy consumption, particularly when producing through
capacity or by extending its supply contracts to third
an electric arc furnace, is a highly discontinuous energy
parties. And third, further develop its market intelligence-
consumption process,” says Gamboa. “Solar power supply
gathering methods, strengthening its ability to advise energy-
resembles a bell-shaped curve starting at 8am, going up until
management strategies. Once its load-management entity
1pm before decreasing and stopping at 8pm. This bell has to
under development is formed, this same management can be
be transposed to our own consumption, which needs to be
offered to third parties. “Developing price predictive systems
consequently optimized. Combined cycles present a similar
and anticipating critical hours to obtain the best controllable
conundrum since on the one hand you have a steady and
demand-response approach and avoid operating during peak
constant supply of energy while your consumption levels
pricing hours is what we want to accomplish internally and
are intermittent.” Even the best optimization processes
offer to third parties,” Gamboa says.
INSIGHT
LEADING BY EXAMPLE IN INTEGRAL SUSTAINABILITY STRATEGIES ALEJANDRA VÁZQUEZ Environmental Director of Grupo Bimbo
Global Mexican conglomerates are grabbing the
the best strategy and best mix for resource optimization,”
opportunities presented in the renewable energy market.
Vázquez explains.
While implementation strategies can be complex given their global footprint, these companies can benefit greatly
At all its locations, the group follows its permanent road
from their energy transition and set an example for smaller
map. Reducing water consumption, waste management,
companies in energy self-supply. “We will continue
developing a greener value chain and reducing the
focusing on the scalability of our sustainability initiatives
company’s carbon footprint are the four main axes, which
launched in 2007 as our primary objective,” says Alejandra
undergo a cyclical process in which international standards
Vázquez, Environmental Director of Grupo Bimbo. “One
and best practices are implemented and integrated into
example of that was the 90MW wind farm Piedra Larga,
Grupo Bimbo’s Environmental Management System. This
located in Unión Hidalgo, Oaxaca,”
system designs and tests pilot projects and new technologies
343
and, as tests are improved and proven successful, they are While the company’s electric consumption reached 75
integrated into the company’s day-to-day operations.
percent from wind power in 280 of its real estate assets, including facilities, sales centers and buildings, the food
For the foreseeable future, Grupo Bimbo has a clear set
industry giant is doubling efforts to consolidate its
of objectives in relation to its sustainability targets. “We
initiatives across the board to make the most not only of
are focusing all our efforts into increasing the number of
renewables but also of energy, water and waste-efficiency
our ecological sales centers and designing the perfect
practices. “Grupo Bimbo is implementing zero waste water
combination of renewable technologies to continue
discharge and zero waste to landfill, promoting recycling
implementing integral initiatives across our company’s
initiatives by reducing the usage of raw materials and
value chain,” says Vázquez.
waste by 12 percent and recycling more than 90 percent of waste,” Vázquez says.
GRUPO BIMBO’S PERMANENT ROAD MAP
Grupo Bimbo’s ecological sales centers are not only
Governance
powered by Piedra Larga’s wind farm but also supplied
& Compliance
by an electric vehicle fleet, as well as many other initiatives
Standards and Best Practices
Carbon
Water Footprint
the logistics routes connecting our ecological sales centers
Footprint Reduction (Climate
Reduction
for our 350 electric vehicles,” says Vázquez. To further
Change)
to reduce its environmental footprint. “We are optimizing
optimize the company’s electricity consumption through renewable energy, Grupo Bimbo is set to add solar power into its mix. “For 2018, we want to make sure our ecological sales centers are also solar powered. Four are already benefiting from solar panel installations,” Vázquez says.
Environmental Improvement
Natural
Residue
Capital
Management
(Value Chain)
“Our electric vehicle fleet is also set to grow as we increase the number of ecological sales centers nationwide.” Bimbo is betting on an elaborate and strategic initiative mix to make the most of the new opportunities in the
Pilot Tests and New
renewable energy market. “We are not focused on one
Technologies
aspect in particular, such as wind. Grupo Bimbo is crafting
Source: Grupo Bimbo annual report 2016
Management System
VIEW FROM THE TOP
COGENERATION, RENEWABLES CAN ANSWER INDUSTRY’S CALL JORGE GUTIÉRREZ Director General of Energía Eléctrica BAL
344
Q: To what extent can renewable energy cover energy-
Q: How does Energía Eléctrica BAL reach financial closing
intensive consumption?
for its energy projects?
A: Renewables have the great advantage of being cheaper
A: The available model wherein banks only lend on the
than conventional energy sources and providing CELs,
basis that a PPA has already been closed amounting to
but they also must deal with the great disadvantage of
100 percent of the lent capital in addition to a company’s
intermittency. Our Peñoles subsidiary, for instance, has the
own equity has to change. Mexican banks remain closed
capacity to be powered 100 percent by renewables, which
to the idea of assuming any sort of financial risk while
could additionally represent good business by selling CEL
foreign banks interested in these projects do not show the
surpluses. However, renewable energy does not provide firm
same hesitation, through different, more aggressive models
capacity, meaning paying power demand to CFE remains an
that could displace local banks. Fortunately, Mexican
issue. Our group is looking to establish a balance between
development banks are reacting at a quicker pace. They
renewables and conventional sources to cover the soon-to-be
have a clear notion of lending based on trading capacity,
compulsory CELs requirement, set at 5 percent for 2018 and
despite the lack of price discovery, to foster market maturity.
slated to grow to 13.9 percent by 2022.
Grupo BAL usually obtains financing from foreign banks, although our Coahuila cogeneration project will be financed
Q: How is Grupo BAL capitalizing on the renewed
by NAFIN. Development banking is definitely creating a
competitiveness to reduce energy costs?
benchmark model for Mexico’s energy projects.
A: Grupo BAL is always searching for improvement in terms of inputs for all companies of the group. Our portfolio includes
Q: What are Energía Eléctrica BAL’s expected milestones
two wind farms — Oaxaca’s Fuerza Eólica del Istmo and
for 2018?
Coahuila’s Eólica de Coahuila — added to a small cogeneration
A: For 2018, we expect to achieve financial closing of
plant, with plans to build a larger cogeneration plant in the
the Tamaulipas wind farm and our efficient cogeneration
same location. By 2023, we expect to satisfy 100 percent of the
project in Coahuila. We will also participate in CFE’s La Paz
needs of the group’s companies through self-supply. We hope
auction for the soon-to-be-launched battery-based energy
that when that happens, the market will be sufficiently mature
storage project. AES, our EnerAB partner, has signed a joint
to enable a mix of new plants and developments, either of
venture with Siemens for the development of these types
natural gas, wind or solar resources. If this is the case, we will
of projects. To date, batteries are based on lithium-ion
be able to place our surplus on the market to be monetized. In
but we are seeing emerging technology with zinc-based
this way, we would not only enable our energy self-sufficiency
batteries. As it is a more abundant resource in the market,
but also add an interesting business niche. The group is highly
zinc can dramatically decrease the cost of storage systems,
dynamic, always looking at new business opportunities, new
especially considering Peñoles produces zinc.
loads and additional energy requirements. That does not mean we will stop in 2023, taking into account the fact we
Natural gas supply for the Yucatan Peninsula is a headache
are contemplating the opening of a new mine before the end
for PEMEX because Mayacan’s natural gas pipeline, fed by
of 2018. The group’s energy needs will consequently increase
associated gas coming from Cantarell, has high nitrogen levels.
and we will focus on meeting them fully.
PRODESEN is launching interesting energy infrastructure projects to remedy this issue, such as the South Texas-Tuxpan subsea pipeline, as the natural gas transported in this pipeline
Energía Eléctrica BAL is Grupo BAL’s subsidiary for power
could be directed toward the Yucatan Peninsula. Grupo BAL’s
generation projects. It recently closed an alliance with AES to
hydocarbon company, Petrobal, is interested in participating
create EnerAB, to capitalize on Mexico’s renewable projects,
in CNH’s licensing rounds to explore shallow waters close to
efficient CHP schemes, LNG and energy storage facilities
Campeche’s natural gas resources.
VIEW FROM THE TOP
SUSTAINABLE ENERGY FOR SUSTAINABLE MINING FERNANDO ALANÍS Director General of Industrias Peñoles
Q: How much of a boost was the Energy Reform for Peñoles?
Q: What is your position on the Ecological Tax imposed in
A: In 1999, we became concerned about the availability and
Zacatecas?
cost of energy in Mexico and given that energy represents
A: The mining law is federal, so the measure is unconstitutional,
around 40 percent of our expenses, we started to look at
and the federal government has already sent the issue to the
how we could lower costs. We made a strategic decision to
supreme court. The issue saddens me, because it suggests
integrate and start generating our own electricity. In 2016, a
that the Zacatecas state government does not recognize the
total of 81 percent of the energy we consumed was generated
value that the mining offer adds to the region. The industry
in-house. Most of this comes from the petcoke thermal plant
represents 30 percent of the state GDP and accounts
in San Luis Potosi, which generates 230MW, and the two wind
for 13,000 jobs, and many of the companies operating in
farms in Oaxaca that generate over 40MW. We also have
Zacatecas, including Peñoles, are certified as clean enterprises
natural gas turbines in Laguna del Rey, Coahuila and a steam
by PROFEPA. In fact a few years ago, the BMV created a
generator in Torreon.
new Sustainable Index and elected Peñoles as one of the 27 companies to be recognized as an environmentally
In April 2017, we initiated a wind farm project with the
responsible company. In 2017, we were chosen to be part of
Portuguese energy company Energías de Portugal
the new FTSE4GOOD Index on the London Stock Exchange,
Renovables, in Coahuila. The facility has a capacity of
alongside our subsidiary Fresnillo. Mining has always played
200MW to cover our energy needs for the zinc refinery
a key role in the history of Zacatecas, and we hope that the
expansion in Torreon.
new government soon recognizes that.
There is a new energy law in Mexico that will require
Q: What strategies does Peñoles have to continue to grow
companies to procure at least 30 percent of their energy
and cement its leadership role in the Mexican mining sector?
from sustainable sources by 2025. Peñoles has already
A: The future of our company is based on three key strategic
reached that landmark.
areas. The first is sustainable development, which incorporates the economic, social and environmental spheres. The second
Q: What must Mexico do to become a more attractive
is human capital. We will continue to invest substantially
jurisdiction to the global investment community?
to recruit, develop and retain the most talented workers in
A: Mexico has enormous potential. It is estimated that at
Mexico because a company is only as good as its employees.
least 70 percent of the territory has not yet been explored.
The third is technology. We have an internal R&D group made
States including Guerrero and Oaxaca have strong geology
up of 35 full-time researchers working at a specialized center
but very little mining activity, because there is no efficient
in Torreon, and we are always looking for innovative methods
policy in place to promote and support the sector. A few
that can improve our practices. We also work with a total of 26
years ago, the country had a dream of becoming a global
universities — 24 in Mexico and two in the US — and a mining
automotive hub. The administration worked toward that
research group in Australia, so we are fully aware of what is
goal and now Mexico is the seventh-most prolific car
going on in the industry on a global scale and we will never
manufacturer in the world.
hesitate to invest funds into new technology that can move the mining sector forward.
Q: How much potential is there for lithium mining in Mexico? A: There is no big deposit of lithium in Mexico and it is also a complicated metal to mine. There are around 7 million tons
Industrias Peñoles is a 100 percent owned subsidiary of Grupo
of mineable lithium reserves around the world, of which 3
BAL. The group is the largest gold and lead producer in Latin
million are in Bolivia, 2 million are in Chile and the rest is spread
America and through its subsidiary Fresnillo, the largest silver
among other countries not including Mexico.
producer in the world
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VIEW FROM THE TOP
ENERGY-SAVING GOALS A POSITIVE CHALLENGE JORGE SALAS Energy Management Manager at Volkswagen de México
346
Q: What is the status of Volkswagen de México’s goal to
One specific challenge regarding our goals for energy
reduce energy consumption in 2017 and 2018?
savings in gas and electricity is related to nonproduction
A: The percentage performance we have achieved since
periods, which usually happen over the weekend. We face
the establishment of these goals has been positive. At the
this challenge mainly by early identification of the processes
end of July 2017, our reduction stood at 37 percent. Once
that must continue operating during nonproductive times
the goals for 2018 are fully accomplished, Volkswagen
as well as making consumption more efficient for those
will establish new indicators in line with the company’s
essential operations. Through these measures, we optimize
Transform 2025+ strategy. Transform 2025+ poses a new
start-up times for the whole installation. Another measure
positive challenge for us: to achieve a 45 percent reduction
is to reduce gas consumption to a minimum during periods
in our environmental indicators compared to a 2010
of rest, which allows us to keep operating equipment that
baseline by 2025. All our efforts will be directed toward
requires continuous input. This measure helps us to have the
achieving this new goal.
equipment ready during the restart of operations, therefore consuming less time and gas.
Transform 2025+ aims to achieve a 45 percent reduction in VW's environmental indicators compared to a 2010 baseline by 2025
Q: What is the status of Volkswagen de México’s PPA with México Power Group? A: México Power Group has informed us that the construction of La Bufa wind farm, located in Zacatecas, is complete. The next stage is to liberalize the final administrative paperwork so that the energy can begin flowing. The energy provided by the wind farm is directly connected to the National Electricity System, and therefore
Q: How does Volkswagen de México ensure that the best
complies with all the technical specifications required by
energy-saving solutions are implemented at its plants?
both CFE and CENACE. Based on the energy requirements
A: Constant communication with other Volkswagen plants
of the automotive and engine plants located in Puebla and
allows us to exchange best practices among different
Silao, we are analyzing and evaluating different renewable
regions. Once a success story has been identified in one
energy projects. The options include, but are not limited
factory, we analyze the feasibility of replicating it. The
to, PPAs.
same goes for success stories that happen in our factories in Mexico. The energy-saving measures implemented
Q: How is Volkswagen de México developing a more
may or may not require the exchange of technology but
energy-efficient value chain?
we analyze every measure to determine its technical
A: As a corporate citizen, Volkswagen de México takes part
and economical feasibility. In this sense, we turn to
in different forums organized by institutions such as the
technologies that are commonly used in the industry,
Ministry of Energy, CONUEE and CAMEXA. During these
such as frequency shifters for motor applications and
forums relevant themes are discussed, including the energy
efficient lighting, among others.
agenda and changes to the regulatory framework. There is also an exchange of experiences and best practices.
automobile
We are analyzing the possibility of taking part in “Learning
manufacturer and its Puebla plant is its second-largest
Networks,” which is supported by CONUEE, with the
outside Germany. The company has adopted a strong energy-
objective of promoting the efficient use of energy resources
management strategy to decrease its emissions
along our value chain.
Volkswagen is
the
world’s
second-largest
INSIGHT
REDUCING CONSUMPTION COSTS CAN HAVE SOCIAL IMPACT Fabian García Director General of Savesolar
Paulina Segovia Commercial Manager of Savesolar
The market of distributed generation is packed with companies
design team was able to generate an optimal and efficient
offering their services for the installation of photovoltaic
output. “We installed 30 heat-pipe solar heaters to heat
panels. In such a competitive market, diversification and an
10,000 liters of water per day to be used in the company’s
offering of integrated services to not only provide renewable
shower system by 300 employees. Our heaters allowed up to
energy but energy savings is an effective differentiating tactic
80 percent savings in steam consumption,” he says.
that could propel a business to the top of the ladder. To better focus its efforts on bringing solar thermal solutions With this idea in mind, Savesolar was created as a 100
further into the market, Savesolar is a member of ANES and
percent Mexican company that offers energy-saving
is working with the German government in an initiative to
systems to decrease electric and natural gas consumption,
promote the use of solar thermal technologies called Solar
says Fabian García, Director General of Savesolar. Among
Payback. “We are raising awareness about this project through
its services, Savesolar offers PV systems, solar heaters and
our clients and the interactions we have with companies that
LED lighting to clients from the residential to industrial
are curious about solar thermal applications.”
segments. According to García, thanks to the integration of solar panels with highly-efficient solar heaters into day-
García sees the biggest window of opportunity for the
to-day consumption, its clients are able to achieve an ROI
usage of solar thermal solutions in the industrial sector,
in less than two years, a big advantage in the market over
not only due to their high thermal consumption but also for
PV-only solutions.
the opportunity they have to lead by example by becoming socially responsible, an opportunity in which Savesolar
While solar panels are booming in the market, solar heating
wants to be a strategic partner. As for the commercial
is a technology still in its infancy. Because of this, García
sector he believes that it will be essential too, “but it
admits that it can be hard to make clients understand the
is still in a state if limbo,” he says. “From small grocery
big benefits the technology can provide, even more when it
stores to pharmacies, fitness clubs and shopping malls,
is corporations that are skeptical. “Large companies seem to
the cost of their energy consumption prevents them from
prefer PV systems, which have a longer track record, despite
further growth.” Looking to set a foothold in this particular
the fact that it is costlier and that the time frame for realizing
segment, Savesolar is developing financing schemes to
ROI grows threefold compared to solar thermal.”
make its technologies more affordable. As for governmental actions, García believes that fiscal incentives could further
García puts a great emphasis on the potential Mexico has
improve the potential of solar thermal.
for the development of solar thermal technologies, as well as to the low number of companies that use it even though
Savesolar is also strongly committed to the development of
they could easily do so and get great energy savings. “For
society. Paulina Segovia, Commercial Manager at Savesolar,
instance, the pharmaceutical industry could benefit greatly
emphasizes the company's efforts to improve the lives of those
as it constantly requires high-temperature systems that solar
most in need. “We are developing energy-saving projects in
thermal technologies can provide.”
several foster homes. Energy consumption usually takes the greatest share of the donations made to these institutions. If
As an example of Savesolar’s capabilities, García talks about
you can make a difference in their electric and gas bills, these
an energy-saving project developed for an international
donations can, in turn, be used for other things that benefit
chemical company that manufactures pesticides and aromatic
the children.” García adds that Savesolar also has several plans
substances. According to García, the project was a challenge
in the pipeline involving participation in educational programs
due to it being located in Toluca, a particularly cold and cloudy
in schools, among other things, where its educational efforts
region. Taking these factors into consideration, Savesolar’s
can have the greatest impact.
347
VIEW FROM THE TOP
SECURE ELECTRICITY SUPPLY FUELS COMPETITIVENESS FRANCIS PÉREZ Shared Value Creation and Sustainability Director of Nestlé México
Q: What is the status of Nestlé’s RE100 goals?
can say how much, and we need to have security of supply no
A: We have been in constant negotiations with different
matter what. That is the crucial point in which the country’s
players in the energy sector because we are fully committed
legal framework should help industrial energy consumers.
to reaching our RE100 goals (in which a group of companies
348
have pledged to go 100 percent renewable in their electricity
Another important point on which Mexico has to focus is not
consumption), but we also have to achieve them in a
only in energy generation, but in energy transmission and
competitive way. Mexico stands out because its market is just
distribution. Much attention is being focused on distributed
opening, and although qualified suppliers are fighting hard
generation, but the truth is that most industrial consumers
to gain a share of the market, CFE is fighting back with very
are and will remain for a long time, dependent on centralized
attractive proposals to keep its industrial customers. Securing
generation, which is the safest and most secure energy
constant electricity supply is one of the most important
income we can have. This is not only about electricity, but
factors we consider when looking at our possibilities because
also heat. Industrial companies with industrial processes need
our industrial processes cannot be under constant threat
large quantities of heat. To produce it, natural gas is required.
of unwanted changes in the electric input. Sourcing from
Mexico needs a safe and sufficient grid that dispatches
renewables is as important as competitiveness or security,
the much-needed energy, electricity or natural gas for all
because any change in costs will not only affect the business,
industries, and we still do not have that. Having a sufficiently
it will affect final prices as well, therefore making Nestlé more
large distribution grid, both for electricity and natural gas, is
or less competitive against other brands.
beneficial for everyone. It is not a matter of making us, the industries, more competitive, it is a matter of making Mexico,
Whoever offers the best combination of supply security and
as a country, more competitive.
competitiveness will most likely work with us. In 2013, Enel was the best option, but as other energy solutions become
Q: How does Nestlé evaluate natural gas virtual pipelines as
more competitive, with higher and steadier production
a feasible energy supply?
availabilities, we are starting to consider a wider spectrum
A: We have considered the use of virtual pipelines for natural
of possibilities. At Nestlé, 80 percent of our electric-energy
gas but the truth is that those virtual pipelines are much
consumption has come from renewable sources since 2013.
costlier for us than standard natural gas pipelines or even
We expect to close negotiations before the end of 2017 to
LP gas. The cost of compressing and decompressing, as well
reach our RE100 goals, while keeping our business healthy.
as maintaining such infrastructure, is significant and there comes a point at which compressed natural gas stops being
Q: How can the government help industrial companies such
economical or even clean. Compressed natural gas can be a
as Nestlé to increase their clean-energy mix?
solution for energy consumers that have lower requirements
A: What we need most is legal certainty from our suppliers.
but we must also consider it a transitional alternative. Many
We, as energy buyers, know that the long-term commitments
companies are still producing heat through oil derivatives
of our energy suppliers mean they have a long-term business
because of lack of access to natural gas; that is why delivery of
to meet our demand in the years to come despite changes in
compressed natural gas through virtual pipelines has become
the market. We know that the market will change, but no one
a solution in the market. But it is still more expensive than the use of oil derivatives. Talking about competitiveness, the ideal is to have the certainty of the supply offered by a natural gas
Nestlé México is part of the global nutrition and wellness group.
pipeline and Mexico should fight to offer this certainty.
During the last 10 years, it has introduced several efficiency and renewable energy technologies into its processes to reduce its
Q: How is Nestlé working to reduce the environmental
environmental impact and become more competitive
impact of its heat consumption?
Solar panels at Lagos de Moreno, Jalisco
A: As heat is such an important part of our energy
We have an organizational unit that takes care of making
consumption, we are looking for ways to implement efficiency
our processes more efficient. We are also about to sign a
measures, or other heat-production techniques, when viable.
voluntary agreement with CONUEE to look for innovation
First, we look to reduce energy usage, diminish losses, or even
and cutting-edge technologies in the processes used at
change whole processes. Then, we consider implementing
our plant with the highest energy demand, and in this way,
other sources of renewable energy like solar thermal or
create a blueprint that can be used at other plants. In this
biomass. For instance, at our Lagos de Moreno plant, we
voluntary agreement, we are going to commit to a 14.5
have used parabolic solar concentration since 2014 as a way
percent reduction in energy consumption in the coming three
to preheat the water that goes into our boilers. In Toluca,
years. The agreement also illustrates our commitment to the
our plant has a biomass boiler, and at many others we are
governmental goals of reducing greenhouse gas emissions
taking advantage of heating processes that would otherwise
for 2025 and 2050. Therefore, it is not only important because
be wasted to preheat other processes. Although this is not
of the reduction in energy consumption and environmental
directly related to the energy market, it shows ways in which
implications, but because of competitiveness and our
we are working to make our energy consumption more
desire to offer the best nutritional products, with the best
efficient and varied to make us not only more environmentally
environmental performance.
friendly but also more competitive. This reduction is achievable. We have already done it. Not Nestlé has very clear goals for carbon emissions reduction.
long ago, I performed a study in which I found that if we had
To achieve these goals, we are committed to having full
not started to implement energy-efficiency measures 10 years
consumption of renewable electricity and to implement
ago, we would be paying MX$330 million extra every year,
energy-efficiency projects to decrease our energy
which would translate into less competitive products. During
consumption. We closed 2016 with reductions of around 47
the last 10 years, we doubled our production levels with only 5
percent in energy consumption and 66 percent in carbon
percent more energy consumption, with 1 million fewer cubic
emissions, both per ton produced, compared to 2017 levels.
meters of water, and with 122,000 fewer tons of CO2. That is efficiency, that is producing more with less and that is also
Q: What are Nestlé’s goals for the future in terms of
a very tangible example of how much energy efficiency can
sustainability, as it nears compliance with the RE100
help a company in the long term.
commitment? A: Nestlé is committed to the RE100 main goal, but we have
Nestlé is a global food company, vulnerable to climate change
to admit that electricity is only 25 percent of our energy
like all food producers. Our purpose is to improve quality
consumption, and the remainder is heat. To further reduce
of life and contribute to a healthier future. We do that for
our environmental footprint, Nestlé’s objective is to become
individuals and families, for communities and for the planet.
a carbon-neutral company by 2030. It is a very ambitious
Therefore, we have to be very active in favor of actions that
goal, even more so for an industrial company with big heating
not only mitigate but reverse climate change. We have been
demands. We do not know how feasible it is but this goal is
present as a company for over 150 years and we want to
our aspiration and it motivates us every day.
continue for 150 years more.
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VIEW FROM THE TOP
PREPARE FOR THE FUTURE AND DIVERSIFY SEBASTIÁN RAMÍREZ Director of Vivesolar
Q: How does Vivesolar differentiate itself in a market that is
entire Mexican market anytime soon. Instead, we see the
crowded with distributed generation solar providers?
residential and small commercial market divided by regional
A: Vivesolar started operations six years ago as an online solar
champions and players servicing particular types of clients.
calculator for Mexican clients investigating the profitability
Regional division means it will not be profitable for companies
of installing rooftop solar panels. Data is therefore imprinted
to venture into areas where another company already has a
in our DNA. Over time, we changed our business model,
strong presence and client recognition.
becoming a link between customers that wanted to install
350
solar energy and installers. We quickly noticed, however,
Some will differentiate with higher up-front costs but better
that it would be hard to charge for that service. This led to
service and others will offer cheaper prices at the expense
the final iteration of Vivesolar as a provider and installer of
of higher future risk. We are already starting to see these
solar photovoltaic panels for the residential and commercial
divisions and although the market is now growing, we expect
segments, for customers in DAC-2 and O-M tariffs, respectively.
to see a crunch in a couple of years with lots of consolidation. This does not mean the market will shrink; sales will be much
From the very beginning, Vivesolar has differentiated itself
higher than today, but it will become so price-competitive
by providing excellent service based on four pillars: choosing
that only a few companies will survive, and even those will
the ideal technology for the project, offering tailored financial
have marginal profits.
solutions, closely monitoring every installation we perform and finally, offering flawless post-sale services. While most
Q: What is Vivesolar’s strategy to remain competitive in a
companies in the market try to offer the lowest prices possible,
tightening market?
we have higher up-front costs but offer a follow-up service
A: In October 2017, we launched Energeist. This new
that ensures that the customer will obtain the expected
subsidiary answers Vivesolar’s need to provide value-
financial savings from the first month onward, as well as a
added solutions to the industrial market, as the needs of
15-year service guarantee for maintenance. During those 15
these customers are different to those of residential and
years, clients do not even have to worry about leaks in their
commercial clients. Energeist does not only provide solar
roof, a common problem with low-quality installations that
installations but complete engineering solutions that allow
we have eliminated thanks to our in-house patent. Post-sales
us to measure and understand their energy cost, implement
excellence is also how we ensure that our strongest assets
efficiency measures and propose a range of economically-
for communicating our abilities — meaning our clients — are
sound technologies that include photovoltaics, solar thermal,
happy and work for us by recommending us personally to
heat pumps and battery storage.
their connections. Few, if any, companies can match our postsale excellence in the markets we serve.
Energeist will have its own operations but the separation does not mean it will not benefit from the knowledge
Q: How do you expect the residential and small commercial
gathered by Vivesolar. We are actually seeing similar
distributed generation market to evolve in Mexico?
challenges in the incipient industrial sector as those
A: Vivesolar is growing faster than the market but we do not
faced by the residential market when it was just starting.
expect there will be a single dominant company across the
Similarly, industrial customers have doubts about the technology. They wonder whether it will be profitable to install money-saving measures that include renewables and
Vivesolar is a Mexican distributed generation solar provider
energy efficiency. To answer their questions, we are turning
working in the residential and commercial segments with
back to our original data-driven DNA, measuring energy
ambitions to enter industrial. It is based in Guadalajara with
consumption and determining how to best use the tools
offices in Chihuahua and Cancun
available to benefit our industrial clients.
Energeist has been working on two pilot projects since
Q: What are Vivesolar’s goals for 2018?
October, one with a hotel in which we are offering energy,
A: We have two very different goals for our two brands.
power and heating savings, and another on an edge-of-the-
On the residential and commercial side, we want Vivesolar
grid farm that requires generation and storage. These pilot
to become the undisputed leader in the residential and
projects offer us the opportunity to learn and then transfer
small commercial sectors in western Mexico. When a
our knowledge to other industries. Our expectation is that
potential residential or commercial client thinks about a
both Vivesolar and Energeist will remain competitive once
quality solar installation, we want to be the first company
the market crunch in the residential and small commercial
that comes to mind. We expect Energeist to become a
segment sets in. At that point, Vivesolar will remain
national reference in the area of energy engineering for
competitive in the regions we serve with a recognized brand
the industrial sector. Energeist’s complex activities, rich in
and extremely efficient processes, whereas Energeist will
value-added engineering, will be cost competitive even in
remain competitive by providing higher engineering value
faraway regions, meaning that we will expand by the end
for niche users.
of next year.
INSIGHT
LEGAL CERTAINTY FOR A COMPETITIVE ECONOMY ENRIQUE GUILLÉN President of the National Chamber for the Industry of Transformation (CANACINTRA)
Despite its tremendous potential, an overall positive
renewable energies by adjusting their production systems
performance of the long-term electricity auctions and
are concerned about mechanisms and certifications. These
the increased number of players across the value chain,
processes must be gradual and entail investment costs
the Mexican renewable energy market is in its early
that let interested companies phase in their transition
years and the private sector still has concerns about the
according to their capital availability, says Guillén. “As
new intricacies inherent to power production and the
a consultative organism to the Mexican government,
commercialization of energy surpluses.
CANACINTRA is in charge of taking these concerns before the appropriate institutions.”
“CANACINTRA has taken a stand in favor of simple and clear rules,” says Enrique Guillén, President of the
The chamber takes several steps to meet its mission and
National Chamber for the Industry of Transformation
Guillén lays out three lines of action that CANACINTRA
(CANACINTRA). “To raise Mexico’s competitiveness levels,
follows. It has support programs for member companies
it is necessary that regulations are improved, among other
to transition into PV or wind energies through an
factors.” About 14 percent of CANACINTRA’s members are
assessment of the best options, depending on the sector
involved in the development of renewable energies. They
in which they work, their size and their consumption
face the issues that a relatively new market introduces.
needs. A second line is an agreement with the Mexican Association of Energy Efficiency Companies (AMENEER)
According to Guillén, the second-largest group of
to both generate clean energies and maximize the
companies within the chamber comprises power
efficiency of industrial processes to guarantee a cut in
generating and supply organizations with specific worries.
energy consumption. Last is the recognition from the
“The main concern of generators is in the definition of
sector’s authorities — the Ministry of Energy, CRE and
new energy cogeneration mechanisms that allow the
CENACE — of CANACINTRA as an economic unit able
commercialization of power surpluses,” he says. “On the
to market energy. “Some of CANACINTRA’s members
other hand, suppliers want legal certainty that aids the
generate electricity on their own and can sell their surplus
closing of project construction contracts to kick-start
to those companies on the demand side,” says Guillén.
the production chains where they work.” Finally, those
“Through integration, we want to link supply and demand
companies transitioning, or planning to transition, to
companies that are part of the chamber."
351
VIEW FROM THE TOP
COMMERCIAL BANKS AS FUTURE AUCTION PLAYERS SALOMÓN AMKIE Vice President, Head of Power and Utilities for Citibanamex
352
Q: What is Citibanamex's added value in energy project
A: Citi has outlined a clear objective of reaching 100
financing?
percent sourcing from clean energy worldwide by 2020.
A: Citi is a capital markets global leader, including project
Globally, Citi owns real estate in 94 countries, entailing a
bonds, project financing, raising equity, taking projects to
significant coordination effort to reach the overall goal. We
market and tax equity in locations where this practice can
have different options at hand: sign PPAs with renewable
be used. Seeing Mexico's energy market evolution, based
producers, choose distributed generation systems in
on PPAs and how off-takers have been signing them, long-
certain strategic locations and buy clean certificates in
term financing has been at the core of this new setting.
the countries where the local regulatory framework makes
Development and multilateral banks have played a huge
this option available. In Mexico, 30 percent of our intake is
part in the country’s first steps in energy project finance.
already sourced by clean energy through a PPA with one
These institutions then attract commercial banks, which
IPP. We are undertaking strategic analyses of all our real
in turn will attract institutional investors. Citi views energy
estate to establish the best available option to source the
project financing as capital market devout and we believe
remaining 70 percent.
our global expertise can be used to create market maturity. If Mexico is to succeed in achieving a truly dynamic energy
Q: What are Citibanamex’s plans pertaining to DG?
sector, capital markets need to be present. Private investors,
A: Two primary aspects make up our plans: designing
pension funds and institutional investors putting their
financing schemes for our clients to develop that
money in long-term financing schemes are of the essence.
business, and using it for our own consumption. Mexico is a great country in terms of solar resources and DG
Q: What is Citibanamex’s assessment of Mexico’s most
should be another aspect of the industry that at some
attractive renewable energy source?
point should go to capital markets. Our experience in
A: From a bank’s perspective, having diversified assets
the US suggests that after accumulating a satisfactory
is always better. From a regulator’s perspective, the fact
track record of individual DG PPAs, these can be boxed
that all technologies compete in the long-term electricity
and marketed to monetize future cash flows. Mexico has
auctions is good for the country and the energy mix. It
yet to get there but is headed in the right direction. The
pushes developers to really look for the most efficient
technology, expertise and developer experience with DG
technology. Pertaining to the merchant component of the
is there and we are helping our clients with potential
PPAs closed during these recent auctions, wind power's
financing schemes and co-marketing strategies to reach
larger variability in production makes it somewhat
the needed scale for the business.
less attractive than solar, exclusively from a financing perspective. It is not the case that wind is better or worse
Q: What are Citibanamex's expectations for 2018?
— it has more to do with the particular PPA design and wind
A: Citi will become increasingly active in its energy project
power's broader gap between production levels.
finance business in Mexico. We looked closely at many auction-winning projects and are happy to see many of
Q: What progress has Citibanamex made in its
these projects will come to completion. Citi is working
sustainability goals?
with Banobras on the design of financial structures that mitigate long-term risks, and we are also in discussions with IDB pertaining to structures that can help attract
Citibanamex is the Mexican subsidiary of Citigroup, an
commercial banks. Partaking in some kind of partnership
American multinational investment banking and financial
structure with development or multilateral banks to gain
services corporation. It has about 200 million customer
a foothold in auction projects is also among our short-
accounts and is present in 160 countries
term objectives.
VIEW FROM THE TOP
MORE THAN AN OFF-TAKER FRANCISCO CON Business Development Director of CEMEX Energía
Q: What differentiates CEMEX Energía from other project
Although we have followed the long-term electricity
developers in the country?
auctions with interest, we are not going to participate in
A: CEMEX Energía’s case is different from almost any other
the next midterm edition. This midterm auction will be
project developer in Mexico. Of course, CEMEX is one of the
focused on generators that have available capacity, which
main energy consumers in the country, and the fact that for
is not the case of CEMEX Energía, as we have focused on
the last 20 years we have developed projects to cover our
developing projects under a bilateral contract scheme. The
own energy consumption has allowed us to gather a special
bilateral contract scheme will remain a central aspect of
knowledge about the market and the requirements of end
our strategy.
users that few companies in the industry have. That can only be harnessed by being highly proactive in the sector. One of
Q: How does CEMEX Energía want to impact the Mexican
the lessons we have learned when matching possible projects
electricity market?
with energy consumers is that there must be a full and deep
A: We believe in the Energy Reform. We cannot stress
understanding of the energy consumption profile and risk
enough how important it is to have a healthy and open
appetite of the consumer, and that the flexibility of such
electricity market for the country to remain competitive on
consumption is vital when deciding which technology can be
a global scale. That is why we are pleased that the market
used to improve this consumption and make it cost-efficient.
is attracting more participants. The more participants there are, the higher the reduction of costs will be along
Q: How does CEMEX Energía personalize its services for
the entire value chain. The implementation of the Energy
off-takers?
Reform has been extremely fast, but the market remains
A: Before thinking about implementing any kind of solution for
young and some aspects have to be further developed.
an off-taker, we start by analyzing and understanding the way
The development of intra-day and real-time markets will
our customer consumes energy, how it operates its production
be a major milestone. For the market to be efficient, users
facilities, what role the company plays in its value chain and
also need access to risk-management instruments, and in
its geographical presence, among others aspects. Adding
this area, it is extremely important that the same market
all these internal factors to external elements such as future
participants are proactive. In the end, it is in their best
exchange rates and volatility of energy prices provides us with
interest to do so, because with better tools, more flexible
a bigger picture of the customer’s energy needs, and what
contracts and more participants, the market becomes
kind of project or technology will offer the biggest benefit in
more liquid.
the long term. After considering all these factors, we offer the customer a tailored solution.
Thanks to CEMEX Energía’s extensive experience operating in competitive markets like the US, Europe and Central and
Q: Where in the Mexican energy sector does CEMEX
South America, we are in a privileged position that allows
Energía see the biggest opportunities?
us to motivate the sector and help energy users take part
A: We are interested in developing all kinds of generation
in the market in a dynamic way. Ultimately, we want an
technologies, and to adapt to the needs of the market and our
electricity sector that is cleaner, more efficient and reliable,
customers. Although we have established a strong presence in
with lower costs.
wind and solar, we are also aware of the advantages of thermal projects. CEMEX has received energy from a thermal plant for almost 13 years. We also believe that a balanced energy mix is
CEMEX Energía is a division of CEMEX, one of the world’s
not only important for individual companies, but for the whole
largest cement producers, focused on the development of
country. This would ensure that Mexico remains competitive
projects in the Mexican power industry. By 2020, it will have
regardless of external market conditions.
invested US$30 million in 10 new power generation projects
353
MEXICO’S ENERGY TRANSITION
14
Mexico is committed to seeing through its commitment to pouring clean technologies into its energy mix, continuing to foster the participation of local and international private players to further strengthen its young and increasingly competitive energy market and reach OECD energy efficiency levels. Despite sizable challenges and prevalent uncertainties, Mexico’s energy market can boast important milestones that will not only build up the country’s sustainability as a whole but also further increase its economic competitiveness on a global scale.
2018 will witness the unfolding of yet another long-term electricity auction, this time orchestrated by CRE, the country’s energy regulator, which will now also be in charge of tariff determination and publication for the energy market. As Mexico prepares to test the foundation and the results obtained from the reform in the face of the upcoming presidential elections, the next stage of Mexico’s ambitious energy transition is set to unfold. What follows is an account of Mexico’s energy performance and what the future holds to guarantee the continuity of this sizable project.
355
CHAPTER 14: MEXICO’S ENERGY TRANSITION 358
ANALYSIS: Renewables Here to Stay
360
INfographic: Prospective Matrix 2022-2030
362
INSIGHT: Luigi Maccotta, Ambassador of Italy to Mexico
363
INSIGHT: Luis Fernández-Cid, Ambassador of Spain to Mexico
364
VIEW FROM THE TOP: Eduardo Reyes, PwC
365
INSIGHT: Jorge Sandoval, Goodrich, Riquelme y Asociados
366
VIEW FROM THE TOP: Luis Vera, Vera & Asociados 357
367
INSIGHT: Daniel Ehrlich, Enûma
368
RoundTable: What is The Role of Gender Equality in Mexico’s Energy Transition?
370
VIEW FROM THE TOP: Jean-Dominique Ieraci, Government of Canada
372
VIEW FROM THE TOP: Gerardo Hiriart, Grupo Enal
373
INSIGHT: José Domenech, Reoil International
374
VIEW FROM THE TOP: Francisco Salazar,Enix
René Narváez, Enix
376
INSIGHT: Christopher Heard, UAM
377
VIEW FROM THE TOP: Lucía López, Control Risks
378
VIEW FROM THE TOP: Eduardo Pizarro, SMPS Legal
Severo López, SMPS Legal
379
INSIGHT: Alfonso Caso, ANAF Energy
381
Expert opinion: Rodolfo Rueda, World Energy Council’s Future Energy Leaders (FEL 100)
382
RoundTable: What are the Prevailing Challenges of Mexico’s Energy Transition?
ANALYSIS
RENEWABLES HERE TO STAY Rome was not built in a day, and neither will Mexico’s energy market, despite the sense of urgency the private sector has expressed to participate unhindered in promising present and future opportunities brought about by the reform. Several milestones have been reached and should be celebrated
The joint effort of the country’s private and public
energy trading subsector, and being sturdy and
spheres in unlocking such a complex and sophisticated
extended enough to not only absorb the additional
market in such a short time is commendable. As a new
GW of capacity set to come online in the near future
year gets under way, Mexico can already boast 20 percent
to avoid power congestions, but also to transmit
of its power mix from clean technologies, staying well on
and distribute it nationwide. The National Electricity
course to reach its 35 percent objective for 2024.
System Development Program (PRODESEN) for 20172031 outlines the possibility of the private sector to
358
With the third edition of the long-term electricity auction,
participate in the financing of electric transmission and
Mexico is looking at 8.8GW of mostly clean installed
distribution projects. The first with major significance is
capacity, set to be up and running by 2020, including
the bid announced by the Ministry of Energy on Dec. 7,
solar, wind, cogeneration, combined cycle, hydroelectric
2017, to participate in the interconnection of the Baja
and geothermal. The clean promise of the country does
California Peninsula, an isolated system, to the rest of the
not stop there, as other technologies and renewable
National Electricity System. The project is set to launch
resources are also proving to be bankable. Wave power,
a 1,400km circuit line between Mexicali and Hermosillo.
for instance is among the emerging technologies. “Few
“The PRODESEN lists 410 transmission projects that
countries in the world have companies that are strongly
are expected to be developed between 2017 and 2029,
committed to wave power technologies,” says Francisco
offering a wide array of opportunities for the private
Carrión, CEO of MARERSA. “This is due mainly to costs,
sector and financial entities,” says Alan Sakar, Project
which can make ocean wave power too expensive to
Development and Finance Associate at Clifford Chance.
develop. MARERSA has found a way to solve this, and with our project in Lazaro Cardenas, we are going to
SOCIAL AND ENVIRONMENTAL IMPACT
become the first company in the world to produce an
According to the US Department of Energy’s (DOE)
economically viable project with this technology, on a
National Renewable Energy Laboratory, the state of
large scale.”
Oaxaca holds the key to 6,600km2 of terrain with good to excellent wind resource, little more than 7 percent of the
To gain increased flexibility and liquidity, Mexico’s energy
state’s total extension (91,500 km2). Using a conservative
market needs to be able to function in shorter terms
average of 5MW/km2, Oaxaca’s wind blows 33,000MW of
than it was used to prior to the Energy Reform and go
potential installed capacity. It is also home to several local
below the 15 to 20-year contract terms mark of the first
communities, each with its own characteristics, traditions
three editions of the long-term electricity auctions. Enter
and power structures. These communities need to be an
the midterm electricity auctions. With this mechanism,
active part of the projects developed not only in Oaxaca
similar to its long-term sibling, private players can sign
but across the nation, to ensure the long-term prosperity
three-year PPAs, which also allow commercial banks to
of the projects.
inject capital in the projects as this shorter term is more in line with how they are used to operating. “No one
Mexico’s project developers should become increasingly
knows how the market will evolve over such an extensive
aware of the Equator Principles, a framework for the
period of time, especially when technology costs like
financial sector to determine, evaluate and manage a
solar are drastically decreasing. A project’s viability is
project’s social and environmental risks. Under these
greatly assisted by shortening terms to three years,” says
principles, companies must showcase their social
Rubén Cruz, Energy and Natural Resources Lead Partner
responsibility policies to obtain financing. Performance
at KPMG.
Standards on Environmental and Social Responsibility of the World Bank Group’s International Finance Corporation
POWER INFRASTRUCTURE
(IFC) are also the norm. In July 2017, Bancomext and KfW,
Mexico’s power infrastructure has a three-pronged
a German development bank, signed a complementary
challenge: mitigating energy loss, becoming smart to
agreement where the social and environmental impacts
integrate data-mining practices, crucial for a thriving
of renewable energy projects up for financing will be
MEXICO'S CLEAN ENERGY TARGETS
MEXICO'S ENERGY MIX TARGETS 31%
15%
11%
31%
43%
2017
2024
75GW
90GW
38%
42% 2031
Clean energy
Combined cycle
Clean energy Source: PRODESEN 2017 - 2031
2031 113GW
39% 2017
2024
Conventional
Combined cycle
50%
Conventional
analyzed via Bancomext’s Environmental and Social
“Looking back, the most uncertain period in the country’s
Management System (SARAS). “Social impact and
recent history was last year’s US presidential elections.
financial closing are two sides of the same coin that need
One month later, we witnessed the success of Round 1.4,
to be better linked. A project can face an impasse from
the deepwater chapter, which included participation from
lacking a good social negotiation and time is the worst
major US companies such as ExxonMobil and Chevron.
enemy of this particular component,” says Alfonso Caso,
This experience tells us that the business world is above
Director General of ANAF Energy.
political discourse or alignments. As long as the rules are clear, transparent and foster open participation, business
While Mexico’s regulatory framework takes social and
will continue and investments will pour in,” says Guillermo
environmental impact into account, the details of these
García, President Commissioner of CRE. “Continuity is key
regulations need to adjust better to Mexico’s reality, both
for fostering certainty and reliability. CRE’s commissioners
to the benefit of private companies looking to develop
have seven-year mandates, outside of political cycles,
utility-scale projects and communities. “Regulations
with phased nominations. Another major component is
on environmental impact apply to the energy industry
CRE’s organizational structure. We restructured CRE to
as a whole,” says Luis Vera, Founding Member of Vera
provide an ever-improving service. While my predecessor’s
& Asociados. “Both hydrocarbons and electric energy
commission was completely cross-sectional, we set out
are under the same legal framework, the LGEEPA, but
to reassemble CRE into business units, with new rules of
the evaluation is carried out by two different agencies:
procedure published in May 2017. This structure has helped
ASEA and SEMARNAT. Social impact is regulated by
develop procedures and protocols that work seamlessly
independent rules for each activity but evaluated by
regardless of who is at the helm,” he adds.
one authority: the Ministry of Energy. In the electricity segment, the law states that the social impact studies
Now that Mexico is taking the first steps of its liberalized
from private companies must start 90 days prior to
energy market, the country has set out to gather all
their investment decision. But legally, it is difficult to
the elements of a competitive, modern and renewable
prove at which point an investment decision was made.”
electric system, taking head on the challenge of making
Incentivizing corporate social responsibility policies
each link of the industry’s value chain equally strong to
and reaching equilibrium between seamless project
keep the industry’s cogs turning.
development and positive social impact remains a prevailing issue for 2018.
Mexico must remain alert to the sector’s new technological advancements, as disruptive innovations and new
CONTINUITY IS KEY
developments emerge to provide more secure, reliable
Mexico is set to hold presidential elections on July 1, 2018.
and efficient products and technologies to the benefit of
Electoral periods can have an impact in investment and
sustainability and electric security. “The backbone of it all
business decisions, particularly when there is no clear-
is pricing electricity at levels where its marginal value can
cut potential winner and the likelihood of the necessity
generate a profitable rate of return, while experiencing
of a legislative coalition to push forward the executive
and increasing the number of incidences where, thanks
agenda is rather high. But Mexico’s energy regulators
to renewable energy and new technologies, its marginal
are confident that the process launched in 2013 will keep
value is zero,” says Alfredo Álvarez, Energy Segment
moving forward, under a constant improvement basis.
Leader of EY.
359
INFOGRAPHIC
PROSPECTIVE MATRIX 2022-2030 Mexico’s ambitious energy transition requires careful and
Ensuring the success of this transition lies primarily in
thorough planning as well as skillful execution. The country’s
securing the required investments across the value chain.
projections of the electricity industry’s main variables
For the country's electricity grid, identifying long-term
are critical in keeping track of the long-term objectives.
expansion and improvement costs is essential.
POWER GENERATION PER TECHNOLOGY PROJECTION 2017-2030 (GWh) Conventional
Combined Cycle Coal Turbogas
Internal Combustion Fluidized Bed Combustion
Total 296
Year
Total 306
Total 317
Clean and Renewables
Others
Hydroelectric Wind Geothermal
Nuclear Bioenergy Efficient Cogeneration
Total 325
PV Solar Thermosolar
Total 334
Total 345
Total 344
2017 2018 2019 2020 2021 2022
Total 351
2023 2024
POWER GENERATION PER TECHNOLOGY PROJECTION 2017 - 2030 (GWh) 110 100 90 80
60
58.00
56.12
55.51
53.44 48.83
50
68.74
67.07
61.48
59.49
57.51
55.70
53.95
52.03
50.35
62.42
59.94
57.68
70.23
67.69
65.46 64.99
63.88
62.37
60.23
87.00
84.19
81.53
78.89
76.31
73.75
71.19
68.76
70
40 30
26.96
26.10
25.25
27.86 26.79
28.72 27.89
29.53 29.00
30.41 30.15
31.34 31.29
23.70
24.71
25.75
14.21
14.72
15.26
15.84
16.42
17.04
17.66
13.73 12.05
12.52
13.04
13.59
14.16
14.74
15.36
16.00
10 0
2.83 0.19
2.98 0.20
3.12 0.20
3.33 0.21
3.49 0.22
3.67 0.23
3.85 0.24
4.03 0.24
288.15
298.38
309.44
320.81
331.66
342.77
354.35
366.07
304.91
315.76
327.48
339.61
351.21
363.08
375.47
388.00
Total US$97.67 billion
0
2024
6.98
0.005
5.90
2023
7.23
7.49
0.054Failure Cost
0.009
6.63
0.002
2022
2021
2020
0
Variable Costs
7.72
8.48
0
8.10
2019 8.08
2018
0
59.57 O&M
Fixed Costs
3.51
2
0
15.11 O&M
5.36
4
7.33
6
5.61
8
22.93 Investment Cost
7.96
0
10
2017
12
11.78
National Electricity System Cost Structure 2017-2030 (US$ billion)
10.64
20
TOTAL
360
PROSPECTIVE OF MEXICO'S ELECTRICITY AND RENEWABLES (percentage) Total Operative Capacity per Technology
Total Generation per Technology
Total Operative Capacity per Techno
Total Generation per Technology
2022
Prospective of Mexico's electricity and renewables
Operative capacity per technology
Generation per technology
Year
2022
2031
2022
2031
Combined Cycle Hydroelectric Wind TC, CI, TG Coal & Fluidized
40%
39%
50%
45%
15%
13%
9%
9%
11%
15%
10%
15%
11%
7%
5%
2%
8%
4%
12%
8%
PV and
7%
7%
3%
3%
Efficient
3%
6%
4%
5%
2%
5%
3%
8%
2%
2%
2%
2%
1%
2%
2%
3%
Bed Combustion
2022
Thermosolar Cogeneration
2030 Total 364
Nuclear Bioenergy Geothermal
2030 Total 378
Total 392
Total 409
Total 427
TC: Conventional Thermoelectric CI: Internal Combustion TG: Turbogas
Total 444
2025 2026 2027 2028 2029 2030 TOTAL 103.21
89.99
72.95
78.81 73.49
71.02
68.66
66.25
63.76
84.71
76.65
74.59
72.57
70.66
West 361
81.71
78.72
75.79
1210.72
99.75
96.35
93.12
106.69
37.84
36.47
87.83 81.06 76.22
39.26
973.59
Northeast
956.21 858.74
Central East
434.40 434.50
Northwest North
245.01
Baja California Peninsula
32.58 32.19
33.88 33.17
35.15 34.17
35.20
36.26
37.30
19.64
20.33
21.06
21.85
18.29
18.95
16.67
17.36
18.06
18.82
19.60
20.42
4.23 0.25
4.44 0.26
4.66
4.89
5.13
5.38
56.02
0.27
0.28
0.29
0.30
3.39
222.38
Baja California Sur Small-scale Systems
378.79
392.13
405.70
419.60
433.91
448.78
National Interconnected System
401.57
415.78
430.27
445.10
460.39
476.31
National Electricity System
2030
2029
0.003
MEXICO'S ELECTRICITY REGIONS
C
M
Y
CM
MY
CY
CMY
K
5.54
7.68
0.001
5.80
2028
2027 6.96
0.002
5.97
4.19
6.22
2026
0.012
6.50
0.005
5.64
6.75
5.13
0.015
2025
78.01 Generation 11.42 Transmission 8.18 Distribution
Estimated Investments in the Electric Sector 20172031 (US$ billion)
10.11
Total US$97,607million
*Numbers may vary from official source due to roundup Sources: PRODESEN 2017-2031, Energy Information System (SIE)
INSIGHT
THE ITALIAN SYSTEM LUIGI MACCOTTA Ambassador of Italy to Mexico
As Mexico’s third-most important trade partner in the EU and
development and growth,” says Maccotta. “They commit
11 globally, Italy works closely with the Mexican authorities in
to social responsibility and act responsibly within the local
the energy sector, a collaboration that Italy’s Ambassador to
communities where they work.”
th
Mexico Luigi Maccotta says is necessary to clear any potential hurdles. “The cooperation relies on joint actions that will
In addition to diplomatic duties, the Italian Embassy aids the
facilitate the dialogue between public and private entities to
presence and operations of Italian companies in Mexico. “We
ensure that technology and investment challenges can be
are facilitators, but the real work is done by the companies,”
overcome,” he says.
Maccotta says. “They present business development plans and technically and economically sound proposals to Mexican
362
Maccotta underlines that both countries have specific
industries and the government.” The role of the Embassy
bilateral cooperation agreements in the energy sector. For
in this process is to guide these companies to the doors
instance, the Memorandum of Understanding signed by Italy's
they need to knock on to ease their business development
President Sergio Matterella and President Enrique Peña Nieto
processes, according to Maccotta. In the energy sector
in 2016 laid the foundation for programs and activities that
specifically, the Embassy remains in close contact with the
promote the implementation of low-carbon technologies in
Ministry of Energy to identify areas for joint work.
areas such as energy production through renewables, energy
“
efficiency, smart grids and energy storage.
Cooperation relies on joint actions that will facilitate the dialogue between public and private entities to ensure that technology and investment challenges can be overcome”
“The Italian government relies on the so-called Italian system to offer extra support to Italian companies,” says Maccotta. “In Mexico, the Embassy, the Italian Trade Commission (ICE), the Italian Chamber of Commerce and SACE, the Italian Export Credit Agency owned by Cassa Depositi e Prestiti, are integrated into the system.” He underlines the crucial role that SACE plays as an Italian institution that offers a wide range of insurance and financial products to companies with a strong link to Italy. For example, if a Mexican company wants to import Italian products or services, it can get insurance through SACE. Mexico’s geographical position makes it an attractive country for Italian companies to invest in as it acts as a bridge for
Although Mexico has always been of great interest as an
logistics operations and products and is a direct channel
investment destination for Italian companies, the Energy
to North and South America, says Maccotta. Among other
Reform was a turning point that made the country even
factors that make Mexico attractive, he enumerates the
more attractive, Maccotta says. “The reform has definitely
country’s highly valuable and competitive human capital and
attracted a strong and dynamic participation from Italian
a growing middle class that provides strong market volume.
companies in the energy sector, both in the renewables and oil and gas sectors,” he says. To support Italian business
As the next presidential elections approach in Mexico,
in this industry, the Italian Embassy maintains a close
Maccotta remains confident about the future. “The country’s
relationship with the Ministry of Energy to have a privileged
economic and political stability is outstanding,” he says.
access and communication channel. “Enel Green Power
“Companies trust that everything that was built during the
and ENI, among other Italian companies, are investing in
reform will be preserved and Mexico’s vision and plans will
Mexico’s infrastructure and providing the basis for industry
continue in that direction.”
INSIGHT
HOW SPANISH COMPANIES ARE SHAPING MEXICO’S RENEWABLE ENERGY SECTOR LUIS FERNÁNDEZ-CID Ambassador of Spain to Mexico
The bilateral relationship between Mexico and Spain goes
market development and energy infrastructure, as well
well beyond its historic scope. In July 2016, ProMéxico
as the exchange of relevant information and research to
data showed Mexico is Spain’s seventh-largest investor
improve technological development and human capital
globally and the first among Latin American countries,
training.
with a cumulated investment of US$8 billion from 1993 to 2016. Spain invested US$19 billion in Mexico from 1999
The Spanish experience includes the presence of Iberdrola,
to 2015. A significant contingent of Spanish companies
Gas Natural Fenosa and others in Mexico’s energy sector
have prospered in several sectors, including Grupo
that spans several years. “As an official agency, we facilitate
Santander, BBVA Bancomer and COPASA, to name a few.
the dissemination of our experience in terms of legislation
Energy-related companies, such as Iberdrola, Prodiel and
and laws, among other elements, to Mexican officials in the
Ormazabal, have also built success stories as they deepened
sector. This is an important tool that can assist in making
their footprint in the Mexican market.
the best regulatory decisions pertaining to the Mexican market,” Fernández-Cid says. A prominent group of Spanish
“The bet made several years ago by Spain on renewable
companies is strongly engaged with the development of
energy, particularly in wind power, has contributed to the
wind power in the Isthmus of Tehuantepec, as well as other
development of a competitive industrial scheme composed
regions that have enormous potential. “Spanish companies
of wind park developers, wind turbine manufacturers and
are also pioneering the development of thermosolar and PV
many other companies participating in the value chain.
energy in Mexico. Today, 70 percent of the renewable energy
Today, you can find Spanish developers and technology in
generated in Mexico comes from Spanish companies.”
renewable energy virtually anywhere in the world,” says Luis Fernández-Cid, Spain’s Ambassador to Mexico. In 2020, 20
Local Spanish agencies are also contributing to efforts to
percent of the energy consumed in Spain will come from
underpin the objectives of the nation’s private players. “The
renewable sources.
Spanish Chamber of Commerce is a corporate organization open to both Spanish and Mexican companies. It organizes
The Spanish Embassy in Mexico has actively promoted
forums and company seminars to promote their products
opportunities to enable bilateral exchanges of information
and services, and presents the latest industry trends and
between expert government officials. “We have participated
sectorial updates,” says Fernández-Cid. When private
in all major forums regarding Mexico’s biggest clusters and
Spanish companies decide to tackle a new market in
industries, disseminating the lessons Spain has learned
Mexico, Spain’s investment and export promotion agency,
from its energy projects with the objective of making this
ICEX, helps them to place the best investment. “ProMéxico’s
experience useful to other countries,” says Fernández-Cid.
work, as Mexico’s representative abroad, is always vital in
To take bilateral relations to their full potential, different
these decisions,” Fernández-Cid says.
mechanisms are available to compare experiences. “In this sense, the importance of intensifying bilateral cooperation
Spain possesses a high level of technological development
to apply better regulatory practices and public policies in
and lengthy experience in the renewable energy sector.
health and safety, hydrocarbons and renewable energy,
The Mexican government’s bet on this type of energy is
among others, has been underlined. Official visits,
opening major opportunities for Spanish companies. “After
complemented by forums and institutions like the Spanish
almost five years, Spain is organizing a mega-auction of
Mexican Binational Commission, add to these efforts.” As
more than 2,000MW (expandable to 3,000MW) to install
part of the MoU signed in 2010, both Ministries of Energy
renewable energy. We are confident in the success of this
agreed the establishment of a work plan that included
process in light of a market eager for these technologies,”
cooperation activities in various investments, such as
says Fernández-Cid.
363
VIEW FROM THE TOP
WORKING TO SECURE MARKET SUCCESS EDUARDO REYES Partner Power and Utilities of Strategy& at PwC
364
Q: How is PwC adapting its consulting know-how to the
Q: How can renewable energy projects be made more
renewable energy market?
attractive for financing?
A: Keeping in close contact with the Ministry of Energy
A: The contracts used for renewable energy projects are
in particular and the public sector in general as new rules
new so it is a matter of letting financial entities absorb the
and regulations are published is key. We always integrate
inherent mechanisms of these contracts. We are working
worldwide best practices from more mature markets in the
with three banks to finance auction projects. As renewable
sector as the MEM's design is a mix of US and European
energy projects multiply, it will become easier for them to
electricity markets. For instance, in Europe, we are involved
consider all the variables involved, particularly the record-
in blockchain initiatives.
low prices for renewable energy projects, the technologies involved and the design of the contract.
In the last 18 months, we have been almost fully dedicated to the design of auction participation strategies covering
Q: What alternatives can be fostered to increase market
price, product, understanding regulations and maximizing
participation besides the auctions?
opportunities. In the first auction, we advised six of the 10
A: The auctions will continue to be the fundamental axis
winners and nine of the 16 winners for the second auction.
around which the renewable energy wheel in Mexico will
This ratio has positioned PwC as a differentiating factor
keep spinning in the short to midterm. The auctions send
in the market. We are also assisting investors in their
a signal to the rest of the market so developers can design
financing of renewable energy projects through energy-
a development plan to integrate all technical requirements
price projections. More recently, we have been developing
necessary to compete. We can measure this by the extent of
business plans for some qualified suppliers and equipment
Mexican companies added to the mix, both in the auctions
suppliers.
and in market participation throughout the value chain.
Q: What effect will the Clearing House have on future
Q: How prepared is Mexico to cover the talent requirements
auctions?
of an evolving energy sector?
A: Mexico’s renewable energy scene is seeing an increased
A: It is probably the major challenge Mexico will face in
number of private energy traders and suppliers but the
the coming years. In our case, hiring consultants that are
aggregate volume they can purchase in the market at the
seasoned professionals in the sector is complicated. When
moment is not significant enough for the Clearing House
we formed our team, we were all Mexican nationals who
to have an impact. We are anticipating that the energy
had spent 10 years abroad. CFE certainly has experienced
percentage that other suppliers, outside of basic supply, will
professionals and technicians but that does not provide
purchase through the chamber will be relatively low for the
for the private sphere. Working closely with academia to
rest of 2017, although it will keep growing over time. In the
mitigate the risk of a slowdown in the development of
long term, as the energy volume increases, the impact will
certain segments, particularly in business development and
be consequential and will be reflected in the final consumer
engineering, can solve this problem.
price through increased volume and number of private suppliers offering energy.
Q: Looking ahead, what key issues will Mexico’s energy sector face? A: We are anticipating the new elements and challenges
Strategy& is a PwC consulting group dedicated to practical
the market will bring as the undergoing projects reach
strategy advisory services to help its clients deliver on project
operational phase: improving efficiency and developing
execution. The group has a proven track record of delivery,
operational models for the companies that are emerging
with global scale and experience
from the reform.
INSIGHT
NAVIGATING THE COMPLEXITIES OF A NEW MARKET JORGE SANDOVAL Associate at Goodrich, Riquelme y Asociados
Players in Mexico’s electric industry can now develop new
them informed about the new relevant rules, regulations
business models as generation, transmission, distribution
and the processes that fit their needs. “They are being
and trading costs are gradually unveiled and auctions are
receptive to criticism and to comments from private players
conducted under a new and intricate regulatory framework.
related to strategies and business plans so they can design
While there is still much to do, the Energy Reform is
the relevant policies to support them, under a long-term
increasingly looking like a success.
perspective,” he says.
“The reform is starting to prove effective. There were big
For Sandoval the long-term electricity auctions have created
expectations in the market, particularly in the eyes of foreign
mixed feelings. “From an investors’ point of view, there
investors and companies interested in doing business in
is a lot of excitement about investing in Mexico through
Mexico. Whoever has inserted himself as an active player in
this scheme but the prices that were obtained from these
Mexico’s market understands that the chances of a positive
auctions have stopped some other players in this industry
return will be quite high,” says Jorge Sandoval, Associate at
from looking in that direction.” The investor community
Goodrich, Riquelme y Asociados (GRA). The law firm has
however is now able to understand the mathematics
assisted and advised international companies throughout
needed to anticipate the price levels required to participate
the analysis and review processes of the new rules, allowing
by focusing on specific projects. “We have had reports of
them to invest and actively participate in the market. “We
companies losing interest in these auctions due to price
integrated these processes into an action plan, actively
levels but this has only led investors to seek alternative
involving clients in public energy auctions, assessing their
ways of participating in this market.”
direct investments into developing projects and reaching out to final users to understand their needs.”
Besides grasping the full extent of the new regulatory framework and designing optimal bids for the auctions,
Wanting to capitalize on the new business opportunities
Sandoval believes the ability to integrate a successful
unlocked by the reform, foreign investors are keen on
corporate social responsibility policy within an energy
absorbing the complexity of the Mexican legal structure and
project is the norm for long-term success. “In these cases,
the entangled nature of the country’s new and revamped
we advise our clients to offer business opportunities to local
energy-related government agencies. A clear vision of who
communities, such as professional training, employment
is in charge, who does what and the interaction between
or local infrastructure projects for them to get involved
offices, agencies and governmental authorities, is a must.
in the business and eventually participate directly in the
Permitting, among other complex processes due to their
project,” he says.
interdependent nature, can hold no secrets for potential investors. “If there is something that could foster or
Sandoval adds that GRA actively participates in
expedite foreign investment in Mexico’s renewable sector
international forums, advocating and explaining Mexico’s
it would certainly have to do with simplifying administrative
reform, fostering the interest of international players,
procedures,” Sandoval says.
investors and even international agencies. Many of the country's energy projects will require significant levels of
Sandoval points out that whenever GRA had the need to
capital and financing. A considerable number of financing
engage regulators, to discuss either a legal requirement, or
institutions are looking at Mexico and offering their services
the structure of a potential business, they have proven to be
to auction-awarded companies or private developers.
receptive and open to establishing a dialogue, with as much
“We have even been able to attract the interest of private
transparency as they are allowed to have, engaging specific
banks and investors from the US, Europe and Canada by
audiences from the different layers of this industry to keep
underlining Mexico’s growing market.”
365
VIEW FROM THE TOP
ENVIRONMENTAL FOCUS A KEY DIFFERENTIATOR LUIS VERA Founding Member of Vera & Asociados
Q: How does Vera & Asociados stand out from other legal
impact study without its social impact counterpart, it will
firms in Mexico?
be subject to sanctions. No sanction is foreseen if the same
A: Vera & Asociados has provided counsel for investments
happens for hydrocarbon projects.
of around US$2.8 billion in energy and participated in the
366
authorization of 3,800km of gas pipelines. Our specialization
Vera & Asociados has carried out 35 social impact studies.
in environmental and energy law allows us to take on more
Our firm has the particularity of being primarily composed
cases than other law firms. These numbers and our case list
of more technical and nonlegal professionals than actual
are sent to our potential clients. They can see we obtain
lawyers. In addition, our social department covers indigenous
permits and authorizations, lobby for quicker processes
matters. As a legal cabinet we have also been retained by
and perform legal follow-ups and compliance work. We
the government to draft or revise a wide array of laws
were also responsible for some due diligence procedures
and regulations, including the General Law of Ecological
in Central and South America. We are a team of numerous
Equilibrium and Environmental Protection (LGEEPA).
professionals dedicated to and specialized in environmental matters. Few legal cabinets have pyramidal structures with
Q: How does social impact differ from environmental
more than a managing partner, two associates and four
impact?
paralegals. With all the underlying issues, subjects and legal
A: Social impact is regulated by independent rules for each
ramifications within Mexico’s energy sector, this structure
activity but evaluated by one authority: the Ministry of
falls short. We have more environmental lawyers in our law
Energy. Companies need to present proof that consultations
firm than in other law firms combined.
with indigenous representatives underwent evaluation simultaneously with an environmental impact study. Also,
Q: How has the Energy Reform’s regulatory framework
in Mexico, social impact studies are not equivalent to a
impacted social and environmental initiatives?
permit. It is a resolution with recommendations, which are
A: We have followed the reform’s legislative process closely.
not financeable. While environmental impact reports are
In our opinion, the creation of the National Agency for Safety,
usually composed of seven chapters, we usually write nine
Energy and Environment (ASEA) and the separation of
to obligate authorities to adopt a socioenvironmental scope
energy matters into hydrocarbons on one side and electricity
and provide conditions enabling the banks to finance both
on the other has generated a series of problems. When
the social and environmental elements of the project.
two separate authorities undertake the same issue, despite following the same law, both prioritize different criteria.
Q: What are Mexico’s major regulatory challenges in
The Ministry of the Environment and Natural Resources’
energy?
(SEMARNAT) objective is environmental protection,
A: Standardization and bureaucracy are the biggest
whereas ASEA’s mandate is to make the Energy Reform
hurdles. Laws should provide certainty for investors, with
work. Comparing the legal framework for hydrocarbons and
a clear legal framework for corporate responsibilities.
electric energy, regulations on social impact studies benefit
Corporate responsibility is not currently commensurable
hydrocarbon projects much more than electricity projects.
in hydrocarbon or electric energy. ASEA should make the
If a company in the electricity sector files its environmental
information and studies for all projects public five days after such a petition is received. Information and studies of very few projects have been made public within the stipulated
Vera & Asociados is a Mexican socio-environmental law firm
five days after the petition is received. We conducted a
critical to socially accepted and economically viable energy
study in which we found that a very high percentage of
projects. It also offers legal advisory services in tourism,
rulings are opposable by citizens because they do not
governance, industry, mining and dispute settlement services
comply with mandatory terms.
INSIGHT
ASSESSMENTS, SOCIAL INVESTMENT ENSURE PROJECT SUCCESS DANIEL EHRLICH Director General of Enûma
Even if the authorities give energy companies a green light to
good start but they are not yet complete, nor do they cover
carry out projects, conflicts commonly arise when there is no
all the points outlined in the Equator Principles or the IFC
alignment between those companies and the communities
standards,” he adds. “Because SIAs are still a new thing, the
in which they want to work. Millions of dollars can be lost in
Ministry of Energy is usually overwhelmed by work and SIAs
delays when no social impact consultation is done.
are not revised within the stipulated 90-day span.”
Daniel Ehrlich, Director General of social development
Enûma’s SIAs include a stakeholder mapping to understand
and strategic impact consultancy firm Enûma, says these
the existing relationships within and outside the
problems can be prevented by creating a community
communities. The company’s alliance with Grupo Atalaya, a
engagement strategy that focuses on social investment.
strategic risk consultancy, helps it understand the impact of
“We offer our clients the possibility to avoid these problems
political factors on communities. “Mexico faces a negative
through our value proposition and social impact assessment,”
international perception on security and organized crime
he says. “Enûma positions itself in the center, working with
issues,” says Ehrlich. “We have to deal with these issues both
companies, communities, local NGOs and authorities to
to assess project risks and to improve the country’s image
combine efforts and make projects a trouble-free reality.
in the eyes of foreign investors to reduce their risks.” Enûma
Integrating all these factors is Enûma’s added value.” The
uses the provided information to design and develop better
company adapts strategies based on the client’s ability to
strategies for its SIAs. This gives the company a strategic
both invest in and engage communities, the community’s
advantage as it can go beyond legal requirements to help
needs and the doubts they have about the project. Enûma’s main focus is on the energy sector as the company was created to offer compliance services with the new social requirements that resulted from the Energy Reform. “Our biggest customers are mainly oil, gas and solar energy companies,” he says. “But Enûma can work with any project that requires community engagement.” For instance, the company did an SIA for a transportation system in the state of Queretaro that was funded by Banobras and needed to comply with the Equator Principles.
“
them through the entire project’s lifespan, he adds.
Millions of dollars can be lost in delays when no social impact consultation is done”
When explaining how Enûma adds value to its clients’ projects, Ehrlich points to a Round 1.3 winner. The process
These principles, based on the IFC Performance Standards
ended in a plan to build two community centers that
on Environmental and Social Sustainability, are used by
promoted social engagement within the communities.
major institutions such as Banco Santander, Barclays and
According to Ehrlich, Enûma identified a social problem
Citigroup to ensure projects that receive investments are
in one of the communities and came up with a project to
socially and environmentally aligned with international
harvest rainwater and purify it. The other community center
standards. Ehrlich believes it is a key achievement that
focused on becoming a space for social entrepreneurs to
SIAs are a legal requirement for any energy project, but
offer solutions to the community. Finally, Enûma offered a
there are still challenges to advance these standards and
follow-up on the community engagement scheme to ensure
practices in Mexico. Ehrlich says the SIAs that the Ministry
that everything was going according to plan. “Our client
of Energy requires have adopted some Equator Principles
was really pleased with Enûma’s services. We took care
and specific formats were published for projects to be
of everything with an integral and systematic approach,”
considered plausible by CRE or CNH. “These formats are a
says Ehrlich.
367
ROUNDTABLE
HOW DOES GENDER EQUALITY IMPACT MEXICO'S ENERGY TRANSITION?
Although women are increasingly entering the industrial field, their presence is still low. Although the World Development Report highlights that having more women in the industry enhances productivity, advances development outcomes and makes institutions more representative, on a global level women make up for only 30 percent of the industrial workforce. We asked women that are already present in the industry what is the role does gender equality play in Mexico’s energy transition, what challenges have to be yet faced, and how are they being overcome.
Gender equality creates diversity, which enriches professional environments and decision-making processes, leading to better outcomes. It therefore does not only benefit Mexico’s energy transition but its economy and society in general. Access to education in STEM areas, flexibility in the workplace and with business hours must be addressed to allow more women to enter the energy sector. Most issues improve when communication is fluid and flexibility is favored. Fortunately, there is a growing network 368
MONTSERRAT RAMIRO Commissioner at CRE
of women who are deeply committed to helping each other and who are clearing the path for younger generations of women to work in the energy sector. Gender equality is not only about women, it is also about men. If men are not encouraged to take advantage of flexibility and enjoy the same benefits women have and vice versa, gender equality will remain an aspiration and not a reality.
It is through the joint talent of men and women that we can bring balance to Mexico’s energy transition and sustainable future. As a woman in the energy sector, I bring a creative and long-term vision where not only the results but also any collateral effect are considered to create win-win situations. Women have the same ability as men to use their talent for the benefit of Mexico’s energy transition, and although our industry is creating opportunities, regardless of gender, there are few places that
FRANCIS PÉREZ Shared Value Creation and Sustainability Director of Nestlé México
demystify the role of women in society and allow them to sit in a decision-making chair. We are in an extremely significant transitional period, and it is important to help women rise to those positions. Women in the energy sector need confidence in their competitiveness, because when a person knows where to go, all the doors are open.
Gender equality is key for the development of every aspect of our society. This also is true for the energy transition. Having talented women as leaders in the public and private sectors will ensure that the energy transition has a wider focus and impact. Gender equality is entrenched in the Energy Transition Special Program 2016-2018 published by the Ministry of Energy. Public policies like these can be transferred to public and private institutions to create programs aiming to promote gender
ELSA BERNAL Operations Director at CITRUS
equality, such as the Network of Women in Renewable Energies and Energy Efficiency (REDMEREE), which is supported by GIZ, CITRUS and 47 other leading institutions. As part of REDMEREE, CITRUS is a key driver in promoting the development and certification of more women in the industry and attracting newer generations of women to REDMEREE to boost their professional development.
The energy transition cannot succeed without the involvement of women. Although we are witnessing more participation of women in important roles in the industry, we must admit that they are not yet being offered the same opportunities. We need to work on providing equal rights for all. Slowly but surely institutions are giving more attention and protection to women who raise their voices, and this is helping educate and encourage new generations of both women and men to collaborate and work together. Initiatives such as MERM are breaking paradigms and encouraging women to show their capabilities. Associations like this are key to creating synergies and connecting the dots that will bring more empowered women into the energy sector. I consider the creation of MERM one of my biggest personal contributions
PATRICIA TATTO Partner and Country Head of Mexico and Central America for ATA renewables
to Mexico’s gender equality equation.
The participation of women in the energy sector is becoming more important and is growing every year. The fact that the energy industry is an engine that drives the country’s economy makes the need for gender equality even more important. Today, there are more women in all of the working fields related to energy, from banking and the revision of legal aspects of the projects to implementing them in the technology or operational elements. This is due to the fact that women are now more qualified and competitive. But we still have a long way to go to reach full gender equality. It is nevertheless encouraging to see that women are also starting to fill more decision-making and C-level positions, providing the sector with a wider
MARIAN AGUIRRE Energy Financing Deputy Director of Bancomext
vision of what the country needs.
The energy transition requires the best and brightest talent in the country to be engaged in the process. There are many capable and talented women but unfortunately, they are often not given the same visibility as their male counterparts. Gender equality is imperative because it means that the best talent will reach its full potential for the benefit of the industry. An important area that needs work is an improvement in the primary or basic education to make sure that cultural biases are not reinforced in schools. The energy sector is complex and challenging, making it a very interesting industry in which to work. I was attracted to it because it allows me to give people
ANNA RAPTIS CEO of Raptis Group
access to clean, efficient, reliable and safe energy. My added value to the industry as a woman is to identify commercial opportunities and to work in a culturally sensitive and effective manner.
If women are able to reach more decision-making positions driven by their dreams and the belief of them being able to reach them, a more enriching vision will be reached in all areas of life. Diversity and gender equality is a key theme for ABB, and we are making concerted efforts to address it. We support women’s forums in the country, and are working on the development of catalysts. For us, a catalyst is an empowered man that can drive a cultural change for the benefit of diversity and gender equality. This opens the discussion beyond having just more women in the workplace, but actually empowering them and allowing them to be complete equals. Diversity and gender equality is much more than numbers; it is about changing the way we think. With catalysts and other similar initiatives, at ABB we have managed to reach gender equality not only in numbers but in culture.
VICENTE MAGAÑA President and Director General of ABB Mexico
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VIEW FROM THE TOP
CANADA PUSHES FOR A SUCCESSFUL MEXICAN ENERGY MARKET JEAN-DOMINIQUE IERACI Deputy Head of Mission and Minister-Counsellor of the Trade Commissioner Service for the Government of Canada
Q: What lessons can Mexico learn from Canada in
Canada is also looking into harnessing tides for electricity
renewable energy?
production, as the country has one of the highest tides
A: Generally speaking, Canada does not have the visibility
worldwide in the eastern part of Canada. There are
we would like in Mexico. Our office is working toward
many pilot projects underway in the Bay of Fundy on
changing that. We organized a mission for 25 people
the Atlantic coast. To this day, it seems to be quite
from different Mexican institutions, organizations and
challenging but we have been quite successful with
regulatory authorities in the energy sector to go to
energy production through rivers and microgenerators.
Canada and look at our technologies, systems, processes
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and regulations and to hold related conversations. In
Q: What are the key results from last year’s North American
terms of electricity, 80 to 90 percent of Quebec’s energy
Leadership Summit on renewable energy?
source is hydroelectric. Across the rest of Canada, the
A: The summit essentially agreed to work together in
majority of electric generation is renewable. We have
this regard. The new US administration might put some
closed down all our carbon generators, although there
of it into question— we are still unclear how it is going
is still some thermal generation, while Ontario’s majority
to react and it has yet to get into it. The initial matters
source is nuclear.
are rather technical: analyzing data, making sure they are reliable and standardizing variables and definitions.
Mexican energy authorities have allocated US$45 million to the University of Alberta and the University of Calgary to develop programming and R&D initiatives
That is where we are now, which does not prevent us from having direct discussions with Mexico. Some of our provinces have signed arrangements with Mexican states, like Ontario and Jalisco on carbon trading. When you look at North America, you have three countries with distinctive structures. In Canada’s case, our federal government has responsibility for transboundary issues but does not have jurisdiction over energy and natural resources in general, which is under the purview of the provinces. When we talk about international agreements
When you contrast production with distribution, we are
or arrangements, we always have to keep in mind
talking about distances of thousands of kilometers. As
that, while Canada can provide a framework through
such, Canada’s experience as a top leader in electricity
international treaties, the actual implementation is done
transmission and distribution could serve Mexico as it
by the provinces. Our current administration has told the
faces similar challenges, particularly in terms of territory
provinces that they either have to implement a cap-and-
extension. We have faced the challenges relating to
trade system or a carbon-trading system, while letting
transmitting electricity across 2,000km of forest and
them decide how to do it. Provinces can then turn to US
overcoming all the relevant logistical and maintenance
and Mexican states to draft and implement agreements
hurdles. Also, Canada is quite advanced in training
on these issues.
professionals and technicians across energy’s integral value chain. Mexican energy authorities have allocated
While the discussion took on a trilateral scope, electric-
US$45 million to the University of Alberta and the
grid cooperation tends to be rather bilateral as we do
University of Calgary to develop, alongside Mexican
not see a time where we will be transmitting electricity
institutions, a range of programming and R&D initiatives
from Canada to Mexico directly due to energy loss in
in the hydrocarbon sector, which includes academic
transmission lines. But Canada essentially powers all of
exchanges.
New England. CFE is also working on grid exchanges
between the southern US and northern Mexico. That helps
for governments to push back and the drive toward clean
a lot in regulatory terms, as the more you install renewable
energy would be extremely difficult to roll back. That is why
energy, the greater the need to balance it out because
political cycles should not affect the market.
it is not a stable source. There is a lot of cooperation on these matters and the idea is to continue improving it so our electric systems can be interconnected. Q: Do you think that NAFTA renegotiations could have an impact on the trilateral efforts on renewable energy? A: We do not see the efforts diminishing anytime soon.
In terms of electricity, 80 to 90 percent of Quebec’s energy source is hydroelectric
Canada has no intention of leaving NAFTA and neither does Mexico. No matter what happens, we will keep
Q: What is your outlook for Mexico’s Energy Reform?
our free trade agreement with Mexico. Our goal is to
A: We are quite pleased with the reform. Since its
improve NAFTA’s terms, to modernize it, not deteriorate
implementation in 2013, we have seen a remarkable spike
it. The environmental side of NAFTA will be part of the
in interest and level of action from Canadian companies in
renegotiation, like everything else, but keep in mind
Mexico. It widened the market for Canadian participation
that this component, in general terms, is there to make
in the whole supply chain of the oil and gas sector. On the
sure that no country is dumping goods, using lower
electricity side, it sparked a comparable level of interest.
environmental standards. This is not something that we
But despite all the positive changes that have occurred
believe the US, Canada or Mexico want to change.
thanks to the energy reform, some companies have raised concerns about the reform’s implementation.
There are very few industry players saying that they can see a time where the incentives pushing toward
Two elements need to be addressed urgently. The first
renewable energies and cleaner technologies are such
is placing the risk of negotiation with communities on
that they would want to go back to a source of energy
the back of private companies. When you are designing
that is no longer worth their while for the market. Coal is
a transmission line project that goes through over 1,000
the perfect example as even coal producers know that it
ejidos, it is virtually impossible for a foreign firm to take
does not make any sense anymore to go back to this fuel.
on the whole risk on its own. We have a case where a gas pipeline project could save CFE US$50 million a month if
Q: What mechanisms could be used to ensure
the 1.5km of pipeline left to finalize the project could be
cooperation in renewable energy that survives political
built. This has been going on for 18 months. The reform
transitions?
enables legal recourse that can block projects indefinitely,
A: We work with the government on several levels.
with few legal alternatives or the eminent domain legal
All matters with a strategic component are the most
concept that allows the government to step in.
vulnerable to political transitions. Most of our work is done at a more technical level. That is what makes the
Second, companies are legally forbidden to get in touch
relationship work. For instance, we organize seminars
with local communities until the government has done its
on indigenous consultations, as Canada and Mexico’s
prior social consultation. Yet the government agencies in
indigenous populations are a significant demographic
charge of these consultations do not have the resources
component. Both our governments have complex
to undertake them swiftly and they take anywhere
histories with those local communities and unless a really
between 12 to 18 months. By the time companies can
drastic change in policy takes place, these seminars are a
actually engage communities, the dialogue can be very
constant of our bilateral cooperation. Canada has learned
difficult and challenging. Companies would be delighted
a lot from these interactions and wants to share those
to find a way to work jointly with the government in
lessons with Mexico. The same applies to our agreement
addressing this issue and talking with communities under
with the Ministry of Energy and Manitoba Hydro and the
a framework for rules of engagement. This is something
discussions between Alberta’s energy regulator and CNH.
that has been raised at the ministerial level as we want to avoid fault-of-authority legal cases at all costs.
Concerning information exchange and sharing best practices, we believe the agenda is likely impervious to political changes. What can change could be on the
Trade Commissioner Service helps Canadian companies
legislative and regulatory sides but in Mexico’s case it would
expand and succeed internationally through assistance,
be difficult to roll back the reform. Market forces in the
negotiation and administration of trade agreements, promoting
wider sense of trend-setters and drivers tend to be difficult
Canada as a dynamic place in which to invest and do business
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VIEW FROM THE TOP
NEW TECH MAKES GEOTHERMAL VIABLE GERARDO HIRIART Director General of Grupo Enal
Q: How can an engineering company like Grupo Enal
these intermittent renewables, geothermal will not be able
disrupt the geothermal sector in Mexico?
to compete against them. Another negative for geothermal
A: We want to be innovative and one of our main initiatives is
is the greater amount of time required for development
to enter distributed generation. We have a new technology
compared to solar and wind.
that makes the production of energy via geothermal
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sources in the range of 20-500kW both economically and
As developers, we can never know exactly how much power
technologically viable. We developed this solution while
(MW) will be generated from each developed site until we
working for a producer that needed to start generating
drill and begin characterizing the well. If in an auction a
energy to support the development of its projects. Diesel
geothermal developer offers 50MW and only 40MW can
generators and solar roofing were considered. We decided
be produced because of reservoir conditions, the developer
to take advantage of the existing geothermal source there.
should be able to change that offer.
After some engineering, we created the first geothermal plant for distributed generation with a production capacity
The best solution is to hold auctions exclusively for
of 20kW.
geothermal, in which no other renewable technology competes, as is done already in Germany and Argentina.
We have now developed the technology further, creating
The Ministry of Energy has started working on the
a portable and easy way to install distributed-generation
development of geothermal and a big step is the publishing
plants able to gather real-time information about the
of the geothermal law but we need a bigger commitment
well so it can be analyzed by developers. This small
to promote this technology.
plant has undergone trial-testing and we are looking for opportunities to test it under real conditions. We call this
Q: What are Mexico's geothermal advantages?
“anticipated generation� and it will be sold to geothermal
A: Beyond the technical aspects that allow for a better
project developers. Once that market with geothermal
electrical system, Mexico has over 3,000 professionals
developers stabilizes, we plan to extend it to general
with experience in geothermal technologies and over 30
distributedgeneration, mainly for remote users who need
years of experience developing geothermal projects. Few
a stable energy supply. We want to become champions of
countries in the world possess this kind of capital. Having
geothermal distributed generation with the application of
a rich experience in a technology that few countries in the
this technology.
world have, with high levels of local content and the ability to produce power 24/7 without intermittency, providing
Q: What more needs to be done to boost the inclusion of
stability to the grid, is priceless.
geothermal in the long-term electricity auctions? A: Geothermal is very different from other renewable
Q: What is geothermal's biggest challenge in Mexico?
sources; it is hard to compare one with the other. Solar and
A: The cost of project development. A 100MW project can
wind have attracted attention in the long-term electricity
cost up to US$300 million. Enal has specialized in reducing
auctions but if the final price of energy continues to ignore
costs and increasing production from wells by using special
externalities, such as the backup and storage required for
drilling techniques, such as continuous coring and highspeed water cutting, techniques that few companies use, which deliver a cheaper drilling process that cuts costs to
Grupo Enal is a Mexican engineering company present in the
almost a third of the standard amount. Grupo Enal also uses
complete value chain of geothermal energy, from exploration
lesser-known providers and alternative contracting and risk-
to project implementation. Its expertise is also reflected in
management schemes that bring down well and central
services related to fluid management and processing
power-producing unit costs, making us more competitive.
INSIGHT
BIO-FUELING THE BIRTH OF A MARKET
“
We hope Mexico can reach a market magnitude similar to the European market, but for that we need to see similar incentives implemented” José Domenech Director of Reoil International
even when biofuels eliminate nonburned hydrocarbons and particulates.” On the other hand, European regulation prohibits the integration of UCO into animal food and Domenech says that, as a consequence, a large quantity of UCO finds a natural path toward the biodiesel industry. “The fact that most UCO in Mexico is used for animal food, which is allowed by law, means biorefineries are competing on an unlevel playing field.” Europe’s efforts to pave the way toward an increased
The EU is thriving in the area of biodiesel production
usage of UCO for the creation of biodiesel were not mere
because of its mandate to include renewable resources
campaign promises but were turned into action. As a result
to diversify energy consumption. According to the
of this agenda, the European Commission has a project
International Energy Agency’s (IEA) Tracking Clean
under development called RecOil to create an Intelligent
Energy Progress 2017 report, the revised Renewable
Energy Europe. The project aims to assess the UCO-to-
Energy Directive of the EU has received proposals
biodiesel chain best practices through household surveys,
to strengthen advanced biofuel policy support by
industry expertise and the cooperation of local authorities
stipulating an increase in the advanced biofuel share
to develop an online decision-making guide so that industry
of transport energy demand from 0.5 percent in 2021
stakeholders have information to reinforce the creation of
to 3.6 percent by 2030. It is an example that illustrates
value chains adjusted to local needs.
where Mexico could be with the right incentives, says José Domenech, Director of Reoil International, a Mexican
As a supplier of UCO for the fabrication of biodiesel, Reoil
company focused on the production of biofuels from
International does not foresee the necessary conditions
used vegetable oil.
to warrant building a refining plant for biodiesel. “To be economically viable, the production size of a biofuel refining
“Mexico is now at the market stage Europe was at 25
plant must be about 40,000 tons/year at a minimum,” says
years ago,” Domenech says. “We hope Mexico can reach
Domenech. “There is no way to reach that number with the
a market magnitude similar to the European market, but
UCO we gather at the moment or the amount we will gather
for that we need to see similar incentives implemented.”
in the near term.”
He explains that most of Europe’s biodiesel plants did not surpass 30 tons of waste managed per month at the time
He explains that Reoil International’s business model is based
the continent was creating its biofuels industry.
on providing UCO to European biodiesel manufacturers and other oil brokers with waste oil according to certifications
Local regulations and market competition to acquire and
such as ISSG EU.
use Used Cooking Oil (UCO) are behind the country’s lagging biofuel market, Domenech adds. “Mexican norms
Domenech says that biodiesel made in Europe with UCO
allow for a mixture composed of up to 10 percent biofuels
emits 83 percent less Greenhouse Gases (GHG) when
and the rest fossil fuels, but using this mixture is banned
burned compared to petro-diesel, while biodiesel made
in metropolitan areas,” says Domenech. “Biorefineries
with unused vegetable oil reduces emissions only by 20-
cannot compete on price against a farming industry that
30 percent. “This shows just how important it is to take full
feeds animals with UCO, and where most of this input is
advantage of the potential of biofuels.”
integrated into animal food.” Although he is not closed to the idea of installing a biodiesel He explains that the amount of biofuels in the mix can
plant in Mexico eventually, Domenech does not believe the
reach up to 50 percent in the US and Europe. Mexico City,
market has the rules, incentives or conditions to allow it
Guadalajara and Monterrey are among the urban areas
yet. “If someone comes along with a business plan that
where the mixture is prohibited. “This is understandable,”
has proper financial projections illustrating the economic
says Domenech, “because these areas have a huge ozone
viability for a biodiesel plant, we will look for a way to install
problem and burning biofuels slightly increases ozone,
it,” he says.
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VIEW FROM THE TOP
TRANSLATING REGULATORY FRAMEWORK FOR EFFECTIVE DECISION-MAKING Francisco Salazar Founding Partner at Enix
René Narváez Associate at Enix
Q: What added value does Enix’s consulting services
necessary technologies that will add these nonconventional
provide to the renewable energy sector?
resources to the grid.
FS: The tenure of our staff at CRE during the key period
374
prior to the reform gives us a unique insight that we can
FS: The prevalent belief that transmission and distribution
offer our clients. Few people know the depths of Mexico’s
remain exclusively in the hands of the state through CFE
regulatory and legal framework as we do. This includes
is inaccurate. The government remains in control but the
the full spectrum of the industry, from hydrocarbons to
private sector can actually participate. Private participation
the electric grid. We offer a comprehensive view of the
ranges from private grids to megaprojects that will be
sector’s new and highly complex regulatory structure,
tendered as the result of transmission planning.
including the links between gas and power. Without this input, wrong and costly decisions can be made. We offer
Q: What does the law say about PPPs in transmission and
authority and leadership in each and every one of our
distribution?
projects. We are the best ally to a stakeholder’s business
FS: The National Energy System planning and control, as
because we know the minds of legislators and regulators
well as the transmission and distribution public services, are
and we put together interdisciplinary services to reach our
considered strategic areas. As such, the government will
client’s goals. Our consulting services ensure on-schedule
keep control of these matters. The private sector can also
and successful projects.
play a major role through PPPs, within the Electric Industry Laws boundaries, to develop transmission and distribution
Q: What issues still need to be resolved to ensure the
infrastructure. The law confers Mexico’s government a
success of Mexico’s energy transition?
wide array of instruments to foster private participation in
FS: Long-Term Contracts (LTCs) are fundamental to the
transmission and distribution projects. PRODESEN stipulates
financing of projects, at least during this stage of the
the priority of these projects and, in general terms, PPPs can
reform. As the market evolves and generates a track
be undertaken through private funds, especially considering
record for prices, project financing entities will have a
the scarcity of financial resources that CFE is facing. The
reference, making it easier for merchant projects to attract
details of this possible collaboration are usually outlined in a
funding. So far, the most relevant LTCs materialized during
bidding process launched by CFE, such as the high-voltage
the long-term electricity auctions or the pipeline tenders
line infrastructure project in Oaxaca, among many others.
organized by CFE. Now, we are already seeing incentives
This scheme has great potential for interested private-sector
for developing a more diversified market in the third
investors, more so if the government decides to complement
electricity auction, where CFE will no longer be the sole
CFE-led projects with transmission contracts directly signed
load-serving entity allowed to participate as a potential
with the Ministry of Energy or CENACE.
buyer. Private Load Serving Entities and qualified user market participants will be allowed to make purchase
Q: What are the prevalent challenges in creating a soaring
offers through the Clearing House.
renewable energy market? FS: Mexico’s renewable energy market remains tied to the
RN: Another element of note is electricity transmission
development of the LTCs where CFE still holds the main
and distribution infrastructure. A lot of attention is being
volume of clients. As the market evolves, a fundamental
directed at increasing clean and renewable generation
element is the new tariff scheme brought about by the
capacity and at the long-term electricity auctions. There will
reform. This particular component will incentivize a
come a time when infrastructure will have to be sufficient to
transition from competition for CFE’s LTCs to generalized
satisfy this additional capacity. Mexico’s energy regulators
competition in the market. In other words, greater
need to provide the required flexibility to insert the
competition where all players can answer primarily to
potential clients that are migrating from basic to qualified
still needs firm capacity. Technologies that use natural
energy supply. This includes potential clients that were
gas (NGCC cogeneration and gas turbines) still play an
not connected to the grid and under the reform’s rules are
important role in the energy mix. As long as energy storage
considered qualified users. This gradual shift will in turn
is not competitively and readily available in the market,
clarify the rules of the game applicable to every player.
other conventional energy resources will continue playing a major role.
As long as the tariff scheme is not clearly stipulated, drafting economically viable long-term contracts outside
Q: What recent success story showcases Enix’s know-how?
of the auctions will be extremely complicated. The reform’s
FS: In the hydrocarbons sector, we are actively participating
new tariffs should follow an efficient-costs logic, where
in the rapid growth of hydrocarbons storage projects. In the
costs are allocated depending on the use of the grid and
electric market, many projects face challenges interpreting
the behavior of a user’s load profile, among other variables.
the regulatory environment and we have played a major role for those with which we have been involved. We clarify any
RN: In the foreseeable future, another key factor that must
regulatory contradiction that may arise among the legal
be taken into consideration is that, as we are seeing some
instruments that apply.
clean energy technologies reaching or getting close to grid parity. In the medium-term, due to these costs' evolution,
Q: What would we find if we looked into Enix’s client
the existing incentives scheme would have to be phased
portfolio?
out. If this is not the case there would be an involuntary and
FS: We are spread across the hydrocarbons and renewable
differentiated benefits scheme – like a banding scheme –
energy value chain, both with international and national
that will increasingly benefit the clean energy producers
players in the private sector. Refining, electric energy,
with cheaper technologies; therefore, we must not neglect
conventional and renewable technologies, energy
the differences between the LCOEs of each technology in
infrastructure and trading are some sectors in which we
the National Electricity System.
are focused. We are collaborating with a wide variety of infrastructure projects within the power sector (generation,
Q: What is your assessment of the CELs market and when
transmission, and distribution), and the hydrocarbons value
is the market expected to achieve equilibrium?
chain (oil, natural gas, LPG, gasoline and diesel, jet fuel
FS: The trading mechanism for CELs is purposely designed
and biofuels). Additionally, our interdisciplinary team is
to attain market equilibrium once they are launched starting
providing institutional and regulatory support to power
2018. The mechanism’s inherent flexibility allows the required
generators, suppliers and marketers in the hydrocarbons
participants to postpone CEL obligations, softening the
sectors, transporters, final users, importers and different
demand curve, and to delay the accumulation of CELs without
government institutions and NGOs, among others.
having to sell them immediately, in turn softening the offer curve. This flexibility will keep the CELs market from failing.
Q: What is Enix’s ambition for renewable energy over the
Additionally, when the Energy Transition Law was approved, a
long term?
transition provision was included for the first four years of the
FS: We want to continue assisting the private sector entering
Clean Energy Requirements to deal with a possible insufficient
renewable energy projects to adapt swiftly and decisively
quantity of CELs and to soften the obligations.
to every regulatory change, which come quickly in the face of the highly dynamic components of the electricity
RN: Even though speculation hovering over the CELs market
sector, primarily emerging technologies. The remaining
is a main factor that developers are taking into consideration
legal gaps must be addressed and Mexico’s regulatory
for their clean-energy project economics, naturally, the
framework must also adapt to the emerging reality of an
biggest concern is the obligated participants,on the demand
increasing penetration of distributed generation and the
side. As the CEL mechanism design ensures that the clean
rising popularity of electric vehicles, both elements being
energy burden will guarantee an increase in demand, we as
among the main drivers that will influence considerably
a consulting firm will work together with CELs suppliers and
the construction and planning of electric infrastructure as
buyers to bring about the best outcome for each.
well. All these elements, just to name a few, will require appropriate regulations.
Q: How do you foresee the evolution of the hydrocarbons sector compared to renewable energy? FS: It is a fact that renewable energies are starting to take
Enix is a specialized consulting company with a focus on
on an increasingly important role in the electricity sector.
project development and regulatory advisory for the energy
It is equally true that important challenges remain which
sector. Its dynamism and complexity has multiplied with the
renewable energies alone cannot solve. The industry
enactment of the Energy Reform
375
INSIGHT
FINANCIAL OR ENERGY EFFICIENCY? CHRISTOPHER HEARD Lecturer/Researcher at the Autonomous Metropolitan University of Mexico
376
It is worth remembering that, although it is important to
Energy efficiency also has unexpected implications on
have a strong clean energy generation mix, it is much faster
a personal level. An efficient house is more comfortable
to implement efficiency measures that decrease energy
because the proper insulation increases the available
consumption, making emissions reduction targets easier
space that can be used for comfort, as well as allowing
to reach.
for a better night’s sleep.
The “efficiency before clean generation” rule is well-
Quantifying comfort levels into economic factors is
known in the industrial sector. Christopher Heard,
possible, according to Heard. “Quality-of-life factors
Lecturer/Researcher at the Autonomous Metropolitan
have a socio-economic impact that can be measured
University of Mexico, points out that industrial companies
through economic studies. When added to studies that
require a lot of energy for their activities, fostering a
compare the implementation of subsidies on individual
strong understanding about how to use their resources
consumption to those on energy efficiency and
efficiently. In industry, he says, “every 1 percent reduction
residential buildings, the importance of having strong
in energy consumption and its related expenses
regulations and subsidies directed to more energy-
translate into money companies can use to become
efficient construction is clear.”
more competitive on the global stage. Energy efficiency for them is already extremely important and they have
While from an economic standpoint the benefits are clear,
implemented technologies in this area.”
Heard also says there is a political implication that creates
“
A proper incentive that encourages energy efficiency would also regulate the residential sector further and direct subsidies toward a social benefit”
challenges. “An economic evaluation of the use of the public treasury makes it clear that a stronger regulation over the residential sector and subsidies directed toward investments in energy efficiency in housing create a much greater social and fiscal benefit than individual subsidies on energy consumption.” Heard does not say that renewable energies should not be subsidized, as they could be beneficial, especially in the case of PV that is easy to install and maintain. But as renewables and storage technologies become smaller and more powerful just like smartphones, computers
It is in the residential sector where Heard sees a greater
and tablets, Heard suggests that subsidies will become
need for more work. Implementing energy efficiency
decreasingly necessary for their economic viability.
projects is not only in the best interest of the householder’s everyday life, but also of the country, as the less energy
With its efficiency and clean energy goals, Mexico is
a household consumes, the less energy the country must
heading toward a greener culture. But the country should
produce, directly helping to meet greenhouse gas emissions
be very careful about the long-term energy structure it
goals, he says. Although the way to go is clear, Heard says
wants to have, says Heard. “Distributed generation, small-
that it is not the technologies that are missing, but the
scale production and energy storage are themes that
incentives to promote more household energy efficiency.
are emerging, will not be stopped and will change the
"A proper incentive that encourages energy efficiency
market. Futuristic ideas like tariff negotiation between
would also regulate the residential sector further and direct
households and utilities are closer than we can imagine,”
subsidies toward a social benefit," he says.
he points out.
VIEW FROM THE TOP
KEEPING RISK FACTORS IN CHECK VITAL FOR REFORM’S SUCCESS LUCÍA LÓPEZ Senior Consultant of Control Risks
Q: What are the prevalent risk factors for auction projects?
element as both projects use different materials, with
A: The main risk factor for renewable energy projects is
different costs. It is easier to steal a solar park’s copper
security. Other types of risk we have identified include
cables than a wind turbine, for instance. Moreover,
transparency or corruption, as well as social, political
project phases also imply different risk levels. Planning,
and regulatory risks. We assess these risks for our clients
construction and operation have their own risk profiles.
prior to the design of their project, based on its location.
We analyze each, taking into account all the different
Control Risks is also working with several companies that
elements, such as material and personnel logistics on
have been awarded projects, designing their risk-mitigation
and off-site. We then draft strategies to mitigate those
strategies depending on the number, size and location of
elements. We have 36 offices around the world and
these projects.
always use the best practices learned outside Mexico.
Q: What is the best social-impact risk mitigation strategy?
Q: What role can Mexican authorities play in mitigating
A: Our transparency and investigation department
security risks?
conducts what we call stakeholder mapping. We always
A: In the end, we are looking at a social issue. You cannot
begin our involvement one step before the actual social
solve security risks without first addressing your country’s
impact assessment begins. We have on-site professionals
social issues from the bottom up. The spectrum goes as
who assess and report this information to us. We then
far as involving agencies as diverse and separate in their
transmit the important details to our clients. We have a
tasks as the Ministry of Public Security, the Ministry of
wide-ranging network of contacts throughout the country,
Education and the Ministry of Rural Development, as well as
from journalists and lawyers, to industry professionals and
PEMEX, the Ministry of Energy, CNH and CRE. The National
opinion leaders. The idea behind this mapping is to have
Anticorruption System also has an important part to play
a clear picture of community power structures and their
and we should be closely monitoring its evolution and
connections to municipal leaders, the local police force and
making sure it has all the available and necessary tools at
the potential for corruption, among other variables.
its disposal to achieve its mid to long-term goals.
This knowledge gives companies an advantage in knowing
Q: What Control Risks services are most in demand?
beforehand the context of prior incidents faced by other
A: Prior to a project being developed, we are getting several
companies or projects, the existing vested interests and the
due diligence requests from companies willing to enter a
key players companies need to consider for the success of
consortium with another or several other companies. When
their projects. More often than not, we conduct this analysis
a project is underway, our Journey Management Plan (JMP)
jointly with the third parties undertaking the social impact
is in high demand. This plan has to do with the logistics of
assessment.
moving personnel from their homes to the project site and vice versa. Another popular service is our risk maps, which
Social impact assessments are facing difficulties because
complement JMP because they map out the risk factors
there are not enough people at the Ministry of Energy
related to the zones in which project personnel live, as well
to manage duly processed and expedited evaluations,
as the risk factors associated with the project’s location.
which causes delays in projects and, in turn, generates financial losses. Control Risks is an independent, global risk consultancy
Q: How do risks differ between renewable technologies?
specialized
A: Risk factors vary greatly depending primarily on
integrity and security risks in complex environments, building
the project’s location. Technology is also an important
organisations that are secure, compliant and resilient
in
helping
organizations
manage
political,
377
VIEW FROM THE TOP
DISRUPTIVE COMBINATION OF LEGAL SERVICES AND PROJECT FUNDING Eduardo Pizarro Partner at SMPS Legal
Severo López Counsel at SMPS Legal
Q: How does your FlexEnergy fund stand out from other
innovating. This attracted a very specific type of client
similar initiatives?
— the multibillion-dollar international energy company —
EP: After the implementation of the Energy Reform we
because they are cautious, strategic, slow-paced and risk-
identified that companies were no longer looking solely for
averse, but very aggressive once they come in.
technical legal advisers to deal with red tape. Now, clients
378
are eager to benefit directly from the new opportunities
Q: You mentioned a second phase in the Energy Reform?
this market offers and, for those purposes, you need first to
SL: Based on our cumulative experience gained from our
identify them and figure out how to implement them. With
consulting branch, we can see that structurally, the type
our deep understanding of public policy and regulation in
of projects that are coming online are those that were
the Mexican energy sector, our networking experience and
born within the pre-reform regulation since it is better
capabilities, SMPS Legal helps such companies understand
understood than the new framework. The new power
the new potential business opportunities that the reform
market is highly complex, creating a steep learning
has laid out for all the players in the Mexican energy sector.
curve. How the playing field will evolve and what you
We are in the market of adding value to our clients and
need to understand to actually get new projects online is
the fund will be able to invest in the whole value chain:
beginning to take a toll. That is what we call the second
generation, transformation, transmission and distribution,
phase of the reform, a highly technical learning process
naturally leaning toward renewable energy.
that has characterized all deregulation processes around the globe. We estimate that this learning phase for all
EP: The complementary structure of the team behind
market participants will take three to five years. It is
this strategy, composed of SMPS Legal’s financial and
important to note that in the middle of all this we will
legal know-how and Galo Energy’s technical expertise in
have a presidential election. We are ready for it, we know
renewable energy, understands the needs of sponsors,
it will be hard but we have taken the necessary steps and
off-takers, the network, the infrastructure, regulations
adjustments to see it through. Once this technical learning
and policies encompassing all the different aspects of
stage is over, we will have a solid market with exponential
the market.
growth capacity.
SL: We invest in the projects through equity, forming a
Q: How do you evaluate the feasibility and success rate of
direct alignment incentive-wise with the sponsors of the
a company’s renewable energy project?
project, with the actual stake and stockholders, to create a
EP: From a legal vendor perspective we do not discriminate
double-value angle. We are also eliminating all traditional
among clients based on our expectation of their profitability.
management fees, which is a breakthrough in the investment
We focus on the added value we can provide. Our clients
industry. That is a unique way to do business, creating a
see us more like a partner than a cost, making their learning
perfect symbiosis between the different incentives of the
curve as easy as possible. From the fund’s perspective, we
project. We have no doubt this new tool will provide a
have a committee of experts in project valuation that looks
tremendous boost to the industry. Ironically, we adopted a
at the numbers and scrutinizes every technical aspect,
very cautious and conservative line of doing business while
measuring its attractiveness. This evaluation process is rather straightforward because energy generation in Mexico at the moment has already attained a considerable
SMPS is a law firm specialized in the energy sector, including
percentage of success, either developing solar parks or
oil and gas, mining, electricity, water and renewables in Latin
wind farms. You have on one side the appeal of the green
America, with experience in acquisitions, joint ventures,
energy component, and on the other the need that the
strategic alliances and foreign investment
industry has for them.
INSIGHT
BUILDING A CULTURE OF SHARED BENEFITS ALFONSO CASO Director General of ANAF Energy
Mexico’s ongoing energy projects introduced by the
of this work. “If there is a long-lasting and unresolved
conclusion of the country’s three long-term electricity
land tenure problem, an energy project can intensify this
auctions have all hands on deck as they reach the critical
conflict instead of solving it,” Caso adds.
phase of financial closing and begin construction. While some first auction projects have already reached this phase,
Private companies investing in projects also have specific
some others are at risk, given the rise of social conflicts
economic profitability margins, especially considering the
inherent to a project’s location, says Alfonso Caso, Director
low tariffs obtained during the auctions. Social benefits
General of ANAF Energy, a multidisciplinary company
need to be managed within this margin, which is where
specialized in designing strategic solutions for Mexico’s
ANAF Energy’s flagship concept, shared benefits, comes
energy market.
in, finding the convergence of mutual interests and effective communication within a relationship based on
“Social impact and financial closing are two sides of the
mutual respect between the project developer and the
same coin that need to be better linked,” Caso says. “A
communities involved. “Creating a social success project
project can face an impasse from lacking a good social
is fundamental to signal the success of the Energy Reform,
negotiation and time is the worst enemy of this particular
both from its electricity and hydrocarbon sides. To date,
component,” he adds. Mexico’s projects must adjust to the
there is no benchmark project that can attest to this,” says
reality of pairing these two notions as multinational and
Caso. One consideration could be the social benefits of
development banks are aligned with the Equator Principles,
legacy projects, when the development of the Isthmus of
a framework for the financial sector to determine, evaluate
Tehuantepec began, yet Caso believes mistakes were also
and manage a project’s social and environmental risks.
made in that process. ANAF Energy is working toward showcasing the first electricity generation project as a
Authorities and regulators have an important part to play
social reference before the end of 2018.
in this regard. “Grey areas on tasks and responsibilities still remain between CENACE, CRE and the Ministry of
Caso also says it is vital to develop a financing scheme
Energy,” says Caso. In Mexico, companies are not used to
under new market rules for electric generation projects
communicating what they want or what they do, while
outside the auctions. It would become a model for financial
communities are not used to asking for what they need
entities to provide certainty to the market. ANAF Energy
but are accustomed to receiving payments to fast-track
is successfully closing three energy trading contracts with
solutions to the immediate risks of social conflict. “On
private companies and designing financial mechanisms
average, a Director General will dedicate two days per
for small-scale power-generation plants, referenced
month to the company’s marketing strategy, under the
under market prices. Qualified users deal with sizable
guidance of a consulting team. Social communication
associated costs when transitioning to a free market
strategy is looked at on average once every three months.”
model, considering the modified regulatory framework requires thorough analysis of electric consumption per
Organizations such as ANAF Energy that guide
node, analyzing coverage systems if energy purchases are
companies throughout this process have built a
done in US dollars, electricity demand-pattern estimates,
successful business model around listening. “We listen
among other in-depth, time-consuming analyses. In
to our client’s needs, listen to communities’ needs and
short, several variables are starting to gain increased
problems and work to find common ground to ensure
importance. That leaves open an important window of
a project’s durability,” Caso says. The preliminary work,
opportunity for companies like ANAF Energy that can
he adds, is of the outmost importance. The status of the
provide advisory services to assist the decision-making
social diagnostics of the project’s location is at the core
processes of qualified users.
379
380
Grupo México wind farm
EXPERT OPINION
THE ELECTRICITY PATH FROM 2018 TO 2030 RODOLFO RUEDA Member of the World Energy Council’s Future Energy Leaders (FEL 100)
Mexico's energy mix is becoming more diverse, but will remain
According to the Ministry of Energy’ latest numbers, in the
more oil-dependent in 2040 than the US or Canada are today,
last quarter of 2016, 98.5 percent of the population had
as outlined by the International Energy Agency’s 2017 Report
electric power service, electricity sales increased 2.8 percent
on Mexico. A series of documents have been published by the
(equivalent to 5,871GWh), compared to the previous year,
federal government containing information about the changes
with the industrial sector accounting for 57 percent of total
already achieved in the Mexican Constitution and the plans for
sales recorded in the year. To supply the growing demand
the future operation of the industry, which was determined by
for electricity, the installed capacity of the electric sector
modifying the Secondary Laws and its procedures.
grew at an annual rate of 2.9 percent in the last decade, from 56,317MW in 2006, to 73,510MW in 2016, which meant
A quick look at the past reminds us that the electricity
an increase of 17,194MW. Of what was reported in 2016, 71.2
industry in Mexico has been state-owned for over 50 years,
percent of the total generation capacity corresponds to
where CFE has been in charge of the day-to-day running
conventional technology power plants and the remaining
of generation, transmission and distribution businesses
28.8 percent to clean technology power plants.
as well as the planning of the electricity industry. In 1992, the Independent Power Producer Cogeneration and Self
At the end of 2016, electricity generation was at 319,363.5GWh
Supply Scheme models were developed to promote the
and had a greater share of clean technologies, making up
participation of private industry in the electricity sector
20.3 percent of the total generation matrix. Hydroelectric
in Mexico. The first scheme was established for private
generation stands out as the main clean energy generating
generators to build, operate and maintain power plants
30,909GWh. Inside the participation of conventional
for CFE through long-term PPAs, while the other figures
technologies, combined cycle represented 50.2 percent of
were meant to allow private companies to build their own
electricity generation, equivalent to 160,378GWh. Between
power plants for self-supply. However, this presented the
2018 and 2031, it is expected that 55,840MW of electricity
opportunity for private generators to build power plants to
generation capacity will be added, of which 37.4 percent
supply private industry as well. The productive enterprise
corresponds to conventional technologies (20,876MW) and
of the state retained control over which projects could be
62.2 percent to clean technologies (34,964MW). The two
built and could apply restrictions on plant operation, which
technologies with the greatest contribution to the system
created uncertainty and risk for private investors. This
are combined cycle power plants with 33.9 percent and
resulted in lower investments in the electricity industry, which
wind power plants with 24.2 percent. For the end of the
led to high tariffs and inadequate infrastructure. Now, we
prospective period, a total generation capacity withdrawal
have a different view of the energy sector in Mexico. The
of 15,814MW is estimated, associated with the withdrawal of
country seeks to modernize the current electricity market,
137 units using conventional technologies.
without privatizing the main public energy companies CFE and PEMEX. Reducing power prices by enhancing
By 2031, generation is expected to increase 43 percent to
competition and attracting investment is also the order
456,683GWh, of which 54.1 percent will be generation with
of the day. Compared to the US, Mexico’s power prices
conventional technologies and 45.9 percent with clean
have been recorded to be between 25-75 percent higher.
technologies. In this way, 2018 is expected to be a dynamic
Catching up to international standards in energy efficiency
year in which several projects will be carried out. It is clear
and mitigating power losses — a priority outlined by CFE — is
that the path to 2030 will have difficulties and successes
also a key link of the energy sector’s value chain. All these
and the only way to achieve the 2030 energy challenge —
objectives run parallel to sustainable development, taking
sustainable, clean and affordable energy — will be through
care of environmental issues and clean energy generation
the creation of a successful synergy between government,
technologies, especially solar and wind.
academia, society and industry.
381
ROUNDTABLE
WHAT ARE THE PREVAILING CHALLENGES OF MEXICO’S ENERGY TRANSITION?
Mexico is consolidating the ambitions outlined in the Energy Reform and translating them into business opportunities across the value chain, as well as bolstering increased competitiveness for its industries by diversifying their power consumption options, under the premise of competitive energy costs. While several milestones have been reached, much remains to be done. Further increasing renewables’ penetration in the energy mix, fostering an increased number of private players in the energy game, providing sufficient and efficient electric infrastructure to address the increase both in electricity demand and in installed capacity, are but a few of the challenges that lie ahead.
Mexico has made tremendous efforts in the design and implementation of the wholesale market, but the real success of Mexico’s reform will depend on the proper execution of the grid modernization plan designed by the Ministry of Energy and CFE. Without a reliable electricity system and a smart grid, Mexico’s energy-mix goals will be difficult to attain. To that end, CFE published the pre-tender documentation for the development of transmission lines in 2016, under build-operate-transfer 382
ALAN SAKAR Associate at Clifford Chance Project Development and Finance
schemes, and the Ministry of Energy recently unveiled a new contracting model for the development of transmission lines with private parties, for the design, financing, construction, operation and maintenance of transmission lines for 30 years. This is the next step in the implementation of Mexico’s reform.
A lot of attention is being directed at increasing clean and renewable generation capacity and at the long-term electricity auctions. There will come a time when infrastructure will have to be sufficient to satisfy this additional capacity. Mexico’s energy regulators need to provide the required flexibility to insert the necessary technologies that will add these unconventional resources to the grid. The prevalent belief that transmission and distribution remain exclusively in the hands of the state
RENÉ NARVAEZ Associate at Enix
through CFE is inaccurate. The government remains in control but the private sector can now participate. Private participation ranges from private grids to megaprojects that will be bid as the result of transmission planning.
Standardization and bureaucracy are the largest hurdles. Laws should provide certainty for investors, with a clear legal framework in corporate responsibilities. Corporate responsibility is not currently commensurable in hydrocarbon or electric energy. ASEA is required to make the information and studies for all projects public five days after such a petition is received. Information and studies of very few projects have been made public within the stipulated five days after the petition is received.
LUIS VERA Founding Partner of Vera & Asociados
NGOs identified this problem and began searching for ways to oppose rulings from ASEA that did not include a timely consultation process. We conducted a study in which we found that a very high percentage of rulings are opposable by citizens because they do not comply with mandatory terms.
We have seen a remarkable spike in interest and level of action from Canadian companies in Mexico. Despite all the positive changes that have occurred thanks to the reform, some companies have raised concerns about its implementation. Two elements need to be addressed urgently. The first is placing the risk of negotiation with communities on the back of private companies. It is virtually impossible for a foreign firm to take on the whole risk on its own. Second, companies are legally forbidden to get in touch with local communities until the government has done its prior social consultation. Yet the government agencies in charge of these consultations do not have the resources to undertake them swiftly, taking anywhere between 12 to 18 months.
JEAN-DOMINIQUE IERACI Deputy Head of Mission and Minister-Counsellor of the Trade Commissioner Service for the Government of Canada
CRE’s new responsibilities include conducting the fourth long-term electricity auction and those going forward, while also being responsible for publishing the electricity tariffs. Our responsibility will be to confer sufficient flexibility to these tariffs to recover costs, with the return on investment set by the permissioner’s efficiency. We will use the precedent of the previous three auctions to provide a space for incremental and continuous improvement, but not fundamental changes. CRE will continue its work as a market watchdog and as a promoter of a more dynamic market. It will make good on its commitment to establish the necessary and sufficient
JESÚS SERRANO Commissioner at CRE
conditions to achieve cost-competitive energy supply schemes with clear rules for all participants, set under the prevalent notions of sustainability and continuity.
First, guaranteeing a level playing field between CFE and other players. Transparency is also a major factor for CENACE’s activities as the system arbitrator and administrator. Second, CFE holds all the cards relating to electricity transmission through its Transmisión subsidiary. We have not seen significant investments in this subsector, while several projects require construction of additional transmission lines to evacuate their own energy. Third is tariff implementation. The Ministry of Finance is in charge of this particular task, while CRE defines the tariff framework under transparency and efficiency criteria, in which all value-chain costs are reflected, including generation, transmission, distribution and commercialization. Electricity
ÁNGEL LÁRRAGA President of Mexican Energy Association (AME)
subsidies continue to be a major component in this process, as well as technical and nontechnical losses, which independent power producers cannot continue to absorb.
They are not much different from those facing the industry on a global scale. We are entering a disruptive phase where it is difficult to make nine figures and 25-year investment decisions while the world is abruptly changing. Major utility companies are uncertain about what the future holds and how the energy market will operate in the near future. Some even had to write off certain assets in the last 10 years due to technological innovations. As renewable energy takes a progressively major prevalence in the global energy mix, utility companies have to figure out how to develop a profitable business under a zero-margin price scheme and how distributed generation is going to impact the use of the grid with an ever-increasing pevalence of autonomous power systems.
ALFREDO ÁLVAREZ Energy Segment Leader of EY
383
ACRONYMS Acronym Term
EDPNC
Economic Development Partnership of
AC
Alternating Current
AMEEIER
Abastecedora de Material, Equipo
EOH
Equivalent Operating Hours
Eléctrico, Iluminación y Energía Renovable
EPA
Environmental Protection Agency
S.A. de C.V.
EPC
Engineering, Procurement and
Companies
ERP
Enterprise Resource Planning
Mexican Association of Energy Service
ETC
Exchange-Traded Commodity
Companies
FIDE
Trusteeship for Electric Energy Savings
Legal procedure under which authority
FIRCO
Shared Risk Trust
acts are challenged under the assumption
FIT
Feed-In Tariff
AMENEER AMESCO Amparo
North Carolina
Mexican Association of Energy Efficiency
Construction
of Constitutional infringement
FSUE
Universal Electricity Service Fund
ANES
National Solar Energy Association
FTR
Financial Transmission Rights
ASO
Association of State Offices in Mexico - US
GHG
Green-House Gas
Commercial Service
GRC
Governance Risk and Compliance
BCF
Billion Cubic Feet
H-M Tariff
General Tariff for Medium Voltage with
BIPV
Building-Integrated Photovoltaics
BOS
Balance of System
HSEQ
CAMEXA
German-Mexican Chamber of Commerce
HV High-Voltage
and Industry
HVDC
High Voltage Direct Current
CANACINTRA
National Chamber for the Industry of
IDB
Inter-American Development Bank
Transformation
IEA
International Energy Agency
CAPEX
Capital Expenditure
IEC
International Electrotechnical Commission
CCGT
Combined Cycle Gas Turbine
IFC
World Bank’s International Finance
CDP
Carbon Disclosure Project
CELs
Clean Energy Certificates
INFONAVIT
National Workers Housing Fund Institute
CEMIEGEO
Mexican Center of Innovation in
IPCC
International Panel on Climate Change
Geothermal Energy
IPP
Independent Power Producer
CENACE
National Center of Energy Control
IRR
Internal Rate of Return
CENAGAS
National Center of Natural Gas Control
ISO
International Organization for
CERES
ATA Renewables’ certification division
CESCE
Spanish Credit Insurance for Exports
JV
Joint Venture
Company
KPI
Key Performance Indicator
CFE
Federal Commission of Electricity
LCOE
Levelized Cost of Electricity
CNG
Compressed Natural Gas
LED
Light-Emitting Diode
CO2
Carbon Dioxide
LEED
Leadership in Energy and Environmental
COFEMER
Federal Commission of Regulatory Improvement
LIDAR
Laser Imaging Detection and Ranging
COMENER
Mexican Council of Energy
LIE
Electricity Industry Law
CONAGUA
National Water Commission
LNG
Liquefied Natural Gas
CONAVI
National Housing Commission
LPG
Liquefied Petroleum Gas
CONOCER
National Council of Standardization and
LTC
Long-Term Contract
Certification of Professional Competence
MEM
Wholesale Electricity Market
National Commission for Efficient Energy
MMI
Money Market Instruments
Use
MWy
Megawatt Years
CRE
Energy Regulatory Commission
NAFTA
North-American Free Trade Agreement
DAC
High Consumption Domestic
NAICM
New Mexico City International Airport
DC
Direct Current
NGCC
Natural Gas Combined Cycle
DCF
Discounted Cash Flow
NGO
Non-Governmental Organization
DG
Distributed Generation
NOM
Official Mexican Norm
DSRA
Debt Service Reserve Accounts
NOx
Nitrogen Oxides
EBITDA
Earnings Before Interest, Taxes,
O&M
Operation and Maintenance
Depreciation and Amortization
OFISECDMX
Mexico City’s Office for Promoting
CONUEE
ECA
Export Credit Agency
Loads over 100kW Health, Safety, Environment and Quality
Corporation
Standardization
Design
Investment in Energy Sustainability
O-M Tariff
General Tariff for Medium Voltage with
SEN
National Electricity System
Loads below 100kW
SIA
Social Impact Assessment
OPEX
Operational Expenditure
SIGER
Mexico’s Geographic Information System
OTC Over-The-Counter
for Renewable Energy
PID
Potential Induced Degradation
SIN
National Interconnected System
PJM
Pennsylvania-New Jersey-Maryland
SISTRANGAS
National Integrated Natural Gas Transport
Interconnection LLC
and Storage System
PML
Local Marginal Price
SME
Small and Medium Enterprise
PPA
Power Purchase Agreement
SNA
Mexico’s National Anti-Corruption System
PPE
Personal Protective Equipment
SOx
Sulfuric Oxide
PPP
Public Private Partnership
STC
Standard Test Conditions
PRODESEN
National Electricity System Development
STP Straight-To-Process
Program
SWOT
Strengths, Weaknesses, Opportunities and
T2 Tariff
General Tariff for Low Voltage with loads
PV Photovoltaics
Threats
R&D
Research & Development
RD&I
Research, Development & Innovation
below 25 kW (known as PDBT Tariff since
RFP
Request For Proposal
Dec. 2017)
ROI
Return On Investment
TBPot
Power Bilateral Transaction
RPS
Renewable Portfolio Standard
TIU
interruption Time per User
SAGARPA
Ministry of Agriculture
UL
Underwriters Laboratories
SARAS
Bancomext’s Environmental and Social
UPS
Uninterruptible Power Supply
System
VNG
Vehicular Natural Gas
SCADA
Supervisory Control and Data Acquisition
VOC
Voice of Customer
ADVERTISING INDEX 6
Ministry of Energy
249
Mitsubishi Electric
38 CENACE
253
Grupo Gap
64
MAN Diesel and Turbo
257
CODISA CORP Energy
74
Rengen Energy Solutions
264
Grupo Industrial Águila (GIA)
79 MARERSA
270
Mexico Business Events (MBE)
86
Industrias Energéticas
288
Mexican Council of Energy (COMENER)
97
GNU Gas Natural
297 MABREX
112
Mexican Wind Power Association (AMDEE)
310
Energy Mexico 2018
119 Vestas
315 Protiviti
136
LONGi Solar Technology Co., Ltd
321
Latin American Rainmakers
166
Mexico Energy Forum 2019
323
Access to Energy
171
Grupo DESMEX
332
German-Mexican Chamber of Commerce and
179
Top Energy
Industry (CAMEXA)
212
National Association of Solar Energy (ANES)
338 INVENERGY
242
Mexico Business Publishing (MBP)
356
PROJECT AND TECHNOLOGY SPOTLIGHTS 173
Legacy Projects Done Right
221
Social Commitment to Keep Projects Going
279
CRE’s S-CEL System
Mexican Energy Association (AME)
MAPS AND INFOGRAPHICS 42-45
Power Auctions
116-117
67
Mexico’s Control Regions and Energy Consumption
140-141 Operational Generation PV Plants With Industrial
68-69
CFE Generation I-Vi Assigned Plants Map
90-91
Natural Gas Infrastructure and Power Plants
246-247 Mexico’s Transmission Infrastructure 2016-2021
103
Mexico: The Best Alternative to Export Natural Gas
360-361 Prospective Matrix 2022-2030
Wind In Mexico’s Energy Sails Capacity
to Asia 115
Mexico’s High Quality Wind Areas and Transmission Lines
PHOTO CREDITS Cover - CFE
62 CFE
127 MBP
Inner front cover - CFE
70 MBP
128
Axis Renewable Group
4 CFE
71 Siemens
129
Prior Aero
12
Ministry of Energy
72 MBP
130 MBP
14
Ministry of Energy
73
MBP, MBP
131
Ventus, Ventus
15 MBP
75 MBP
132
Vestas, MBP, Climatik
16
Ministry of Energy
76 MBP
133
Ventus, MBP, MBP, MBP
18 CFE
77 MBP
134
Gransolar Group
19 CFE
78 MBP
142
Jinko Solar
20 MBP
80 CFE
143 MBP
22 MBP
81
Power Electronics
144
Trina Solar
23 MBP
82
Jema Energy Mexico
146
LONGi Green Energy
24 MBP
83 MBP
25 CRE
84 CFE
147 MBP
26 MBP
92 CENAGAS
148 MBP
28
94
149
JA Solar
150
Yingli Green Energy
ATCO México
ATCO México
Technology
29 CENACE
95 MBP
30 COMENER
96
GNU Gas Natural
31 MBP
98
Gas Natural Fenosa
151 MBP
32 MBP
99
Gas Natural Fenosa
152 MBP
33 MBP
100
Enagás México
153 MBP
34
MBP, Vestas, MBP
101
MBP, MBP
154 MBP
35
MBP, SUMEX, MBP,MBP
Mexico
102 MBP
155 MBP
36 Invenergy
104 MBP
156 MBP
46
MBP, MBP, MBP
105 MBP
157
47
MBP, MBP, Ventus,
106 MBP
Gransolar
107 MBP
158 MBP
108
MBP, GNU Gas Natural,
159 MBP
MBP
160
CFE, CENAGAS, MBP,
161 MBP
MBP
162
MBP, JA Solar, MBP
163
MBP, MBP, Yingli Green
48 MBP 50 MBP 51 MBP
109
52 MBP
Soluciones Energéticas de México
Gransolar Group
53 MBP
110 Nestlé
54 MBP
118 Vestas
55 MBP
120 MBP
164 ENERRAY
56
Clifford Chance, Clifford
121 MBP
170 MBP
Chance
122 MBP
174 MBP
58
Enel Green Power Mexico
123 MBP
175 MBP
60
Clifford Chance, MBP,
124 MBP
176 MBP
MBP
125
Climatik, MBP
177 MBP
MBP, MBP, MBP, MBP
126
Grupo México
178 MBP
61
Energy Mexico, MBP
180 MBP
264 MBP
181 MBP
265
182 MBP
335
Grupo Industrial Águila
Gas Natural Fenosa, MBP, MBP, Kepler Constructora
(GIA)
336
Nestlé México
183
MBP, MBP
266
MBP, MBP, MBP
342 Deacero
184
MBP, MBP
267
MBP, MBP, Gransolar
343
Group, MBP
344 MBP
185 MBP 186
Everest Solar Sytems
Grupo Bimbo
268 Fermaca
345
Industrias Peñoles
187 MBP
274
Fisterra Energy
346
Volkswagen de México
188 MBP
275
SUMEX, MBP
347
MBP, MBP
189 MBP
276 MBP
348 MBP
190
Soluciones Energéticas
277 MBP
349
de México, MBP, MBP
278 MBP
350 MBP
MBP, MBP, MBP, MBP
280 MBP
351 CANACINTRA
192 CFE
281 MBP
352 Citibanamex
194 – 208 All Photos CFE
282 MBP
353
210 CFE
283 MBP
354 CFE
216 MBP
284
MBP, MBP, Grupo IGSA
362 MBP
217 MBP
285
MBP, MBP, MBP, MBP
363
218 MBP
286
ABB México
219 MBP
292 MBP
364 MBP
222
294 MBP
365 MBP
224 MBP
295 MBP
366 MBP
225 MBP
296
367 Enûma
226 MBP
298 MBP
368
CRE, MBP, MBP
227 MBP
299 MBP
369
MBP, MBP, MBP, ABB
228 Prodiel
300 MBP
229
Conecta Cultura, Conecta
301 MBP
Cultura
302
191
Invenergy, Invenergy
MBP, MBP
Nestlé México
CEMEX Energía
Embassy of Spain in Mexico
México 370
MBP, MBP
Trade Commissioner Service for the
230 Invenergy
303 MBP
231
Rodríguez Dávalos
304 MBP
372 MBP
Abogados (RDA)
305 MBP
374
232
Greenergy Renovables
306
376 MBP
233
MBP, MBP
307 Greenfinity
377
Control Risks
234
MBP, MBP
MBP, MBP
MBP, MBP, MBP
Government of Canada MBP, Enix
308 Invenergy
378
235 MBP
314
MBP, MBP
379 MBP
236 MBP
316
Swiss Re
380
Grupo México
237 Ftech
317 MBP
381
World Energy Council
238 CFE
318 MBP
382
Clifford Chance, Enix,
239
319 MBP
MBP, MBP
MBP
240 CFE
320 MBP
248
Mitsubishi Electric
322
250
Kepler Constructora
324 MBP
Government of Canada,
251
ABB Mexico
325 MBP
MBP, MBP, MBP
Access to Energy, MBP
252 MBP
326 EnergieAgentur.NRW
254 MBP
327 MBP
255 GPTech
328
MBP, MBP
256 MBP
329
Green Global
258 MBP
Technologies
259
Industronic, MBP
330
260
Grupo IGSA
331 MBP
Athena Consulting
261 MBP
333 MBP
262 MBP
334
263 MBP
MBP, MBP, Yingli Green Energy Mexico
383
Trade Commissioner Service for the
Back Inner Cover - CFE
INDEX A-C Aarhuskarlshamm 96
CANACINTRA 351
ABB Mexico 236, 251, 286, 298, 328, 369
Canadian Solar 42, 44
AB Energy México 88, 89, 101, 108
Cargil 101
Access to Energy (A2E) 322-323
CCER 102
Acciona 10, 42, 43, 120, 121, 127, 131, 133, 222, 257
CDI 229
Actis 49, 219
Cementos y Concretos Moctezuma 256
ADI 304
CEMEX 41, 175, 226, 256, 342, 353
AES 46, 55, 267, 344
CENACE 9, 11, 12, 13, 14, 15, 16, 17, 19, 20, 22, 26, 29, 32, 33,
AI Sustentable 214, 239
35, 40, 41, 43, 47, 51, 53, 54, 55, 57, 58, 60, 61, 66, 70, 99,
Alion Energy 154, 163, 312
115, 125, 152, 156, 168, 171, 173, 178, 218, 222, 228, 233, 246,
Alstom 121
267, 273, 274, 275, 278, 280, 283, 292, 293, 330, 346, 351,
Alten 43, 261
374, 379, 383, 384
AMEEIER 291, 301
CENAGAS 14, 21, 25, 88, 89, 90, 92-93, 99, 100, 109, 231,
American Logic Energy 327
384
American Worldwide Group Machinery 104
Central Leasing 327
AMFEF 139, 161
CERN 82
AMGN 21
CFE 1, 3, 5, 8, 10, 11, 12, 13, 14, 16, 17, 18-19, 21, 23, 29, 30, 31,
Ammper Energía 276
32, 33, 35, 41, 43, 44, 46, 51, 54, 55, 57, 60, 61, 67, 68, 69,
AMSCA 273, 283
71, 72, 73, 75, 76, 78, 83, 84, 92, 93, 98, 104, 107, 109, 118,
ANAF Energy 359, 379
122, 131, 139, 149, 152, 157, 168, 169, 171, 173, 174, 175, 176, 177,
ANES 33, 185, 227, 324, 327, 347
178, 179, 180, 182, 183, 184, 185, 188, 189, 190, 193, 194, 198,
API Lázaro Cárdenas 78
199, 200, 201, 202, 203, 204, 205, 206, 207, 208, 209, 214,
Array Technologies 153, 162
215, 222, 223, 229, 231, 236, 244, 245, 250, 251, 253, 255,
Arthur Andersen LLC 314
258, 260, 261, 265, 266, 272, 274, 275, 276, 281, 283, 284,
ASEA 23, 25, 35, 359, 366, 382
287, 290, 291, 292, 293, 294, 297, 298, 304, 341, 344, 346,
Association of Real-Estate Developers 304
348, 45, 364, 370, 371, 374, 381, 382, 383, 384
ATA Renewables 235, 384
CFE Calificados 209, 275
ATCO 28, 174
Chevron 21, 359
Athena Consulting 330
CIAM Servicios Ambientales 184
Autonomous Metropolitan University (UAM) 376
CIBanco 327
AWS Truepower 47, 54, 313
Cisco 122
Axis Renewable Group 128, 215, 312
Citibanamex 327, 340, 352
Baker McKenzie 46, 52
Citigroup 352, 367
Banbajio 75
CITRUS 306, 368
Bancomext 9, 215, 217, 325, 358, 359, 369, 385
Clifford Chance 56-57, 60, 358, 382
Bankia 83
Climatik 125, 132
Banobras 9, 215, 217, 352, 367
CMPC Tissue 300
Banorte 175
CNH 89, 103, 344, 367, 371, 377
Barclays 367
The Coca-Cola Company 101
BASF 324
CODISA CORP Energy 256-257, 312, 335
Battery Depot 305
COFEMER 17, 384
BBVA Bancomer 281, 363
COGENERA 102-103, 108
BID Energy 273, 283
COMENER 30
BIION 303
CONACYT 93, 96, 97
Bionatur 101
CONAGUA 293, 384
Bosch 324
Conecta Cultura 214, 221, 229
Braskem IDESA 263
Consorcio Empresarial AL 307
Braux Energy Group 138, 156
Control Risks 377
Bright 169, 176, 183, 191
CONUEE 291, 294, 301, 302, 324, 346, 349, 384
Brío Suministro 272, 281, 291
COPARMEX 327
BSW Solar 227
CRE 9, 10, 11, 12, 13, 15, 16, 20-21, 22, 23, 24, 25, 26, 32, 33,
Caixa 83
34, 35, 41, 54, 55, 66, 68, 70, 88, 89, 98, 99, 102, 114, 116,
CALMECAC 323
139, 140, 156, 161, 168, 171, 173, 175, 177, 178, 179, 182, 184,
CAMEXA 324, 346
185, 190, 214, 231, 236, 272, 273, 275, 276, 278, 279, 283,
INDEX C-G 284, 290, 292, 295, 297, 298, 301, 341, 351, 355, 359, 367,
FIRA 303
368, 374, 377, 379, 383, 384
Fisterra Energy 43, 141, 274, 342
Cree 328
Flecha Roja 95
Cubico Sustainable Investments 50
Fluke Dominion 290, 298
Deacero 340, 342
Fondo de Fondos 219, 334
Deloitte 17
Forrester 314
Desert Sky Holdings 331
Fortaleza 256
DNV GL 313, 333
Fortius 145, 154
Dutch Embassy in Mexico 104
Fosroc 256, 257
Eco Ener 188, 190
Frauenhofer Institute 324
Eco Housing 169, 189, 190
Fresnillo 345
EDF Énergies Nouvelles 43, 70, 76, 101, 122, 266
Fronius 182, 295
Economic Development Partnership of North Carolina
Ftech 237
(EDPNC) 328
Galt Energy 11, 139, 168, 175
Emergya Wind Technologies (EWT) 124, 169
Gamesa 121, 127, 133, 257, 324
Emerson 104
Gartner 314
EnCap 187
Gas Natural Fenosa 10, 76, 98-99, 104, 109, 363
Enagás 89, 100
Gas Nieto 263
Endesa 122
Generac Ottomotores 299
Enel Green Power 9, 10, 26, 58-59, 120, 273, 362
General Cable 258
Enel Group 9, 10, 26, 42, 43, 44, 58, 59, 81, 120, 122, 131,
General Electric (GE) 77, 121
133, 149, 222, 264, 273, 348, 362
German Solar Industry Association 324
EnerAB 344
GES 256
Energeist 350, 351
GIZ 324, 368
Energetika 302
GNU Gas Natural 96-97, 108
Energía Eléctrica BAL 341, 344
Goldman and Berkeley 233, 285
Energías Renovables Exacta 307
Goldman Sachs 83
EnergieAgentur.NRW 326
Goodrich Riquelme y Asociados 365
Energy Storage Solutions (ESS) 160
Google 82, 176, 177, 328
Energy Sustainability Fund 30
GPTech 255
Energy to Market (E2M) 273, 282, 285
Gransolar Group 47, 138, 160, 267
Enerray 215, 224, 236
Greenblue 300
Énestas 105
Greenfinity 307
ENGIE 42, 43, 44, 95, 222
Green Global Technologies 329
ENI 362
Greentech Ingeniería Sustentable 10, 185
Enilso 159
Greentech Media 148
Enix 61, 284, 374-375, 382
Grenergy Renovables 232, 244
Enûma 367
Grupo Alfa 342
Envision 41, 42, 43, 61, 130, 132
Grupo Atalaya 367
Eosol Energy 138, 155, 267, 284
Grupo Bimbo 341, 343
ErgoSolar 226
Grupo DESMEX 26, 168, 170-171, 173
Especializados 265
Grupo DIDSA 104, 109
Estrella Roja 95
Grupo Dragón 292-293
ET Solar 182
Grupo Enal 372-373
Everest Solar Systems 177
Grupo GAP 115, 214, 245, 252-253
eVOLT 273, 280
Grupo Hermes 174
Exedra 281
Grupo IGSA 260
ExxonMobil 21, 359
Grupo Industrial Águila 265
EY 31, 83, 359, 383
Grupo Ortiz 261
E-Z Treat Corporation 329
Grupo Santander 259, 363, 367
FEMSA 302, 304
Grupo Trinova 168, 182, 191
Ferrero 101
Grupo Vázquez Vela 304
FIDE 177, 183, 303, 325, 327, 384
Guascor 184
Fimer 245, 264
Heineken 304
INDEX G-N Helioscope 189
Lindt 101
HOH Environmental Management 329
LONGi Green Energy Technology 139, 147
Holcim 256
Luz y Fuerza del Centro 24, 169, 180, 204
Houston Technology Center 30
MABREX 296-297
HSBC 259, 302
Magna 101
Iberdrola 41, 76, 81, 93, 122, 131, 133, 149, 156, 258, 275,
Magnatech 104
298, 327, 45, 45
MAN Diesel and Turbo 66, 72
IBM 251, 328
Manitoba Hydro 371
ICEX 363
MARERSA 67, 78-79, 358
IC Power 215, 225, 244
Marsam Solar 183
IEnova 43, 93, 342
Martini 101
IER 33
MERM 235, 369
IFC 56, 217, 358, 367
Mesoamerica Investments 49
IIE 161
Metrobús 95
Ikusi 122
Mexican Association of Energy Efficiency Companies
Industrias Energéticas 95
(AMENEER) 351
Industrias Peñoles 345
Mexican Center of Innovation in Geothermal Energy
Industronic 259
(CEMIEGeo) 260
INEEL 14, 29, 33, 122
Mexican Energy Association (AME) 32, 35, 383
INEGI 185
Mexican Petroleum Fund 30
INFONAVIT 384
Mexión 114, 115, 127, 215
InfraRed Capital Partners 276
Ministry of Agriculture (SAGARPA) 10, 157, 303
Ingenia Solar Energy (ISE) 160
Ministry of Culture 229
Ingeteam 215, 254
Ministry of Education 71, 377
Inter-American Development Bank (IDB) 291, 352
Ministry of Energy 8, 9, 10, 11, 12-13, 14, 15, 16-17, 18, 19,
Intergen 44, 76
20, 22, 23, 24, 25, 29, 32, 35, 40, 41, 46, 47, 51, 54, 55, 57,
International Energy Agency (IEA) 9, 14, 24, 30, 103, 138,
58, 67, 68, 70, 78, 88, 89, 95, 99, 100, 102, 114, 115, 119, 125,
139, 373, 381
132, 138, 140, 161, 168, 169, 175, 214, 217, 229, 231, 239, 244,
International Finance Corporation (IFC) 358
245, 246, 273, 274, 275, 278, 279, 283, 290, 291, 301, 305,
International Labor Organization (ILO) 229
319, 330, 341, 346, 351, 358, 359, 362, 364, 366, 367, 368,
International Panel on Climate Change (IPCC) 78
371, 372, 374, 377, 379, 381, 382
Intertec México 236, 244
Ministry of Environment and Natural Resources 229
Invenergy 36, 222-223
Ministry of Finance 16, 21, 24, 32, 33, 41, 89, 92, 215, 217,
INVEX 276
236, 383
IPADE 30
Ministry of Public Security 377
IPCC 78
Mitsubishi Electric Automation 248-249
IPN 29
Mitsui & Co Americas 44, 67, 76, 109, 266
Isolux Corsán 83, 266
Munich Re 313, 317
Italian Chamber of Commerce 362
NAFIN 9, 157, 215, 216, 217, 325, 344
Italian Embassy of Mexico 362
NASA 82
ITESM 327
NASDAQ 149, 315
JA Solar 139, 149, 162
National Association of Regulatory Utility Commissioners
Jema Energy Mexico 82
(NARUC) 20, 21
Jenbacher 184
National Commission for the Development of Indigenous
Jinko Solar 42, 47, 51, 142, 181, 188
Communities (CDI) 229
Kepler 250, 335
National Council of Standardization and Certification of
KfW 325, 358
Professional Competence (CONOCER) 177
KPMG 8, 41, 53, 61, 358
Nestlé 101, 340, 348-349, 368
Kraft 101
NEXTracker 143, 162
Lactalis 101
Nordex Acciona Windpower 114, 120, 121, 133
Latin American Rainmakers 320-321, 334
North American Electric Reliability Corporation (NERC)
Lenovo 328
20
Lerri Solar 147
Notus Energía México 114, 123, 133
Lilly 101
Novartis 101
INDEX N-Z OECD 9, 18, 23, 24, 291, 355
Solmetric 189
OFISECDMX 327, 384
Soltec 163, 234
Onyx 304
Soluciones Energéticas de México (SEM) 157, 190
Orca Energy 278
Spanish Chamber of Commerce 234, 363
Ormazabal 122, 363
Spanish Embassy of Mexico 363
Ortiz Energía 261
Stantec 104
Palacio de Hierro 95
SUMEX 35, 275
Partners Group 219
SUNCO Capital 218, 245, 267, 285
PEMEX 14, 21, 23, 25, 31, 89, 92, 93, 95, 98, 103, 104, 118,
SunPower 148
205, 214, 215, 229, 250, 253, 263, 344, 377, 381
Swiss Re 313, 316
Peñoles 341, 344, 345
Tecdigas 106
Pepsi 175
Tesla 82
Petrom 101
Thermion 219
Pfizer 101
Top Energy 178-179, 335
Plotwatt 328
TORDEC 244, 245, 263
Power Electronics 81
Toshiba de México 67, 73
Powerstein 169, 180
Tradeon 60, 272, 277, 285, 330
Prior Aero 129
Trade Commissioner Service for the Government of
Prodiel 228, 363
Canada 370-371, 383
ProMéxico 363
TransCanada 93, 221, 229
Protiviti 313, 314-315
Trash Guard Incorporated 329
PV Hardware (PVH) 138, 160
Trina Solar 44, 144-145
PV Tech 148
TÜV Rheinland 142, 144, 313, 318
PwC 8, 30, 41, 60, 83, 364
UN 157
Rabobank 307
UNAM 177
Raptis Group 107, 369
Universidad del Istmo 127, 128, 215
Rengen Energy Solutions 67, 75
University of Alberta 370
Reoil International 373
University of Calgary 370
Riverstone 219
USAID 21, 273
Rodríguez Dávalos Abogados (RDA) 231
UTE 56, 131
Ruybesa 262
Utilicast 17
SACE 362
Vansertec 327
Saferay 236
Vattenfall 122
SAGARPA 157, 303
Velatia 122
Savesolar 191, 347
Ventus 47, 131, 133
Scatec Solar 236
Veolia 184, 327
Schneider Electric 290, 296-297, 298, 313, 328
Vera & Asociados 35, 359, 366, 382
SEM 157, 190
Vestas 26, 34, 40, 114, 118-119, 127, 132, 257
SEMARNAT 12, 25, 35, 214, 229, 359, 366
Vive Energía 42, 43, 130
SERAM BC 187
Vivesolar 191, 350-351
Seraphim Solar 181, 319
Volkswagen de México 346
Siemens 10, 71, 82, 133, 257, 290, 298, 324, 328, 344
WEC 78
Siemens Gamesa Renewable Energy 121, 133
World Bank 176, 317, 358
SINOSURE 149
World Energy Council 78, 381
SKF 131
X-Elio 44, 152
SMPS 35, 378
Yingli Green Energy Mexico 150, 163
Solar Center 169, 181, 313
Zuma Energía 9, 34, 46, 48-49, 57, 120
Solarever Tecnología de América 151 Solarnet 138, 226, 227 Solarnova 170, 173 Solar Pathfinder 189 SolarPower Europe 140, 319 SOLARSOL 139, 158 Solartec 182
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