Interviews

Interview: What’s Next for the Mexican Market

This interview was originally featured on Mexico Business News.

 


 

Featuring insights from:

renewable energy mexican market
Sean McCoy Gilberto García-Ruiz
Director of Energy Services  – Mexico,
Edison Energy
Director of Business Development,
Edison Energy

Q: What attracted you to the Mexican market?

GG: Edison Energy is a global energy and sustainability consultancy firm. We provide services related to sustainability, supply advisory, energy optimization, onsite installations and renewable energy procurement to large commercial, industrial, and institutional clients. What attracted us to Mexico is what is happening right now in the energy sector. The multiple regulatory changes taking place make the country fertile ground for consultants to assist clients and help them understand the rule changes. Specifically, due to these changes, clients are looking to safeguard their energy supply, knowing that at some point CFE will increase its rates. They are also looking for alternatives in terms of what they can install onsite to generate their own isolated supply. These are all areas where we can provide them with valuable assistance. This is why we operate in Mexico. Many are concerned about the change in policies developing in Mexico. The expectation is that energy rates will go up even higher if CFE makes the decision to run its own power plants. We know that these older plants have higher costs. At some point, they will be affected by the government’s inability to further subsidize low energy costs.

Q:  How are these changes affecting players in Mexico’s oldest private energy scheme, the self-supply market?

SM: Recently, clients under self-supply contracts have expressed their concerns about what will happen to the Power Industry Act and the respective regulations. Because of that, they are looking to secure more competitive rates for the near future if these self-supply contracts are dissolved due to the changes introduced by the President’s bill. Energy consumers currently under legacy contracts are also concerned because of the disproportional hike in wheeling transmission costs, for instance.

GG: The number of companies tied to self-supply contracts is very large. Some of these companies will be forced to abandon these contracts and migrate to the qualified supply market. This can bring opportunities for consultants such as ourselves. Its timing has to be discussed, however. There will be some opposition from these companies against these government regulations but I believe that these contracts will be forced into the wholesale electricity market (WEM) in the long run. That will create the need to deal with a qualified supplier and engage in the market.

Q: What global trends are you seeing regarding companies looking to decarbonize their activities in Mexico?

GG: More international companies are pursuing a reduction in carbon emissions. This includes companies that have production facilities in Mexico, consuming energy and emitting CO2. Our country is, therefore, a significant part of this trend. We are engaging multiple companies and assisting them by looking for alternatives. In Mexico, there are big challenges slowing down companies in their emission reduction plans but generally, more and more clients are approaching us to ask what they can do to reduce their carbon footprint.

SM: Many companies have decarbonization goals, either imposed by regulation or set by themselves. The current pipeline of projects, as seen in CFE’s business plan, does not involve any concrete plans for renewable energy. This will be a concern for the competitiveness of Mexico’s industry. This plan needs to be changed as soon as possible in order to keep Mexico’s competitiveness.

Q:  How could SMEs help to make Mexico’s economy more sustainable?

GG: These mid-tier companies, which do not have the negotiating power of a very large energy consumer, will have to get creative. They need to investigate alternatives. First, they should examine energy optimization in terms of their consumption. Second, they need to look at what they can do to further reduce their grid energy consumption. Third, they could examine how to procure energy when possible. If they cannot, they can look toward larger shared installations for onsite generation. There are several options available, but also limitations. For example, for anyone owning a large rooftop in Mexico, a solar system below 0.5MW should be a no-brainer. Nevertheless, it helps to have someone on your side who knows these rules and is aware of the potential ramifications.

SM: The Power Industry Act allows the gathering of loads through a specific industry sector or economic interest group, in order to be subject to the qualified supply, which is an excellent opportunity that has not been applied yet and will definitely support the Mexican economy to recover on a much faster phase. Unfortunately, the Ministry of Energy has not taken any action in that regard. By providing a broader interpretation by the Ministry of Energy as to what economic interest group would entail, various sectors of the Mexican economy could be subject to qualified suppliers and be able to be supplied with competitive rates. This fine-tuning change will allow the electricity wholesale market to grow.

Q: How do you assess the role of natural gas in Mexico’s efforts to meet its climate goals?

SM: With the wind and solar resources Mexico has, this bet on gas makes less sense. Natural gas works well for the baseload but we should be looking to foster the installation of wind and solar projects. Furthermore, Mexico should take better advantage of new trends such as hydrogen and battery storage. The regulation for storage was about to be published by CRE but was unfortunately pulled back. Therefore, it is uncertain as to what storage needs should be considered. CRE and CFE’s transmission and distribution arm are pushing to have renewables adopt storage. But if it remains unregulated, there is no incentive to create an additional stack of storage services to provide auxiliary services. These services need to be properly priced and regulated as well.

CFE’s current business plan is based on natural gas. Even though it is convenient, flexible and powerful enough to power massive combined cycle plants, we need to move forward and start doing our homework regarding installing more renewables.  The generation matrix needs to properly balanced.

GR: In addition to what Sean said, we need to invest in the transmission and distribution network, which is not on the table for CFE either. The high-voltage lines from Sonora and Oaxaca to Mexico City need to be realized to create a more robust system. No matter how much capacity you put in place, it will all be worthless without investments in this area.

Q: How Edison Energy see its future in Mexico?

GR: Edison Energy’s commitment to the Mexican market is for the long term. Several private energy companies are withdrawing from the market because of current uncertainties. However, this is not the case for our company. It is backed by a US$25 billion company and Mexico will only grow as a manufacturing hub, which will only increase the need for energy services. We feel that the current energy situation is merely a bump in the road. With respect to the WEM and renewable project development, Long term planning should replace short term planning. Everyone wants to continue this mutually beneficial relationship between Mexico and its foreign investors.

SM: Edison’s bet on the Mexican market is based on the large need for advice on how to purchase power and gas.  The firm has a great deal of experience behind it, making it more than just another consultancy firm. We are heavily involved in mature markets elsewhere. This is assuring for clients because we can use our knowledge on what has already been done elsewhere to help them secure reliable and competitive energy prices.

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