Mexico Energy Forum 2016 - Impact Report

HIGHLIGHTS

2016

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Welcome to the third edition of the Mexico Energy Forum! We are proud to once again bring

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together the key Mexican and international players who are shaping the evolution of the country’s electricity and renewable energy markets, at this one-day conference focused on those topics that are on the top of the agendas of business and political leaders alike.

Two years have passed since Mexico decided to open its energy sector to private participation, positioning this sector as a catalyst for economic development. However, the eagerly awaited

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new business opportunities following the Energy Reform are yet to materialize as the past two years were dominated by the definition of the legal and regulatory frameworks, as well as the strengthening of industry regulators and the creation of new institutions. With a new operational framework in place, 2016 is poised to be a turning point as the newfound legal certainty and market stability are expected to trigger a wave of investment. Private players can assert their roles as producers, and new system regulators will ensure that the companies are successfully integrated into the country’s energy matrix. At the same time, the wholesale electricity market

ORGANIZERS

will be launched, officially opening the electricity sector to private participation.

Finally, Mexico Business Events and Mexico Business Publishing are pleased to offer you a complimentary copy of Mexico Energy & Sustainability Review 2015/16, the most comprehensive annual review of the Mexican energy sector, which will allow you to continue exploring the industry leaders’ perspectives on the trends that are shaping the energy and sustainability industries in Mexico after today’s conference comes to a conclusion. We wish you a great day!

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PROGRAM 7:30 Registration 8:00

Mexico’s climate change ambitions Presentation: Rodolfo Lacy Tamayo, Undersecretary for Environmental Planning and Policy at SEMARNAT

9:00

Making clean energy certificates work Presentation: Jesús Serrano, Commissioner at CRE

9:45

Networking coffee break

10:15

Introducing the wholesale electricity market Moderator: Jaime de la Rosa, President of AME Panelist: Daniel Casados, Director General of Blue Coat Systems Panelist: Edgar Alvarado Domínguez, Director of the Legal Department at CRE Panelist: Loïc Le Gall, Director of TAS for the Energy Industry at EY

11:15

12:00

12:30

Natural gas and power generation Moderator: Jesús Rodríguez Dávalos, Founding and Managing Partner at Rodríguez Dávalos Abogados Panelist: Eduardo Fernando Prud’homme, Head of the Technical Management and Planning Unit at CENAGAS Panelist: Fernando Alonso, Head of Government Affairs at Fermaca Panelist: Luis Montgomery, Director General and CEO of ACCESGAS

13:30

Networking lunch

15:00

Paradigm shift in distributed power generation Presentation: Santiago Desentis, Vice President of Sales at SolarCity Mexico

15:30 The role of solar and wind in Mexico’s energy mix

Moderator: Óscar Bernal, Director General of EOSOL Energy de México

Panelist: Adrián Escofet, President of AMDEE

Panelist: Mannti Cummins, Director General of Energía Veleta

Panelist: Héctor Olea, President and CEO of Gauss Energía and President of ASOLMEX

Panelist: Alejandro Díaz de León, CEO of Bancomext 16:30

How can Mexico meet future energy talent demand?

Presentation: Rubén Flores, President of the Human Resources Committee at CFE

Transforming the energy sector Presentation: César Hernández Ochoa, Undersecretary of Electricity at the Ministry of Energy

17:00

CFE’s Future Ambitions Presentation: Enrique Ochoa Reza, Director General of CFE

Networking coffee break

18:00

Networking cocktail

Eosol Energy es una empresa promotora de proyectos de energía, enfocado principalmente en la energía renovable en sus diferentes tecnologías, como pueden ser la eólica, la fotovoltaica, la termosolar y la biomasa.

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Edgar Allan Poe no. 359, int. 202 Col. Polanco Reforma Del. Miguel Hidalgo C.P. 11550, México D.F. Tel: (+52)-(55) 5545-7753

| MEXICO’S CLIMATE CHANGE AMBITIONS

| MAKING CLEAN ENERGY CERTIFICATES WORK

The 2016 edition of Mexico Energy Forum started with

In the second presentation, Jesús Serrano dealt with a subject

the participation of Rodolfo Lacy, Undersecretary of

that certainly needs clarity in the electricity industry, which

Environmental Planning and Policy at Ministry of Environment,

is how the Clean Energy Certificates (CELs) function. He

who talked about the climate negotiations held in Paris at

explained that CELs, as stated in the Law of the Electricity

the end of 2015 and highlighted the leading role that Mexico

Industry, are designed to promote the development of clean

played in this summit. In this regard, Mexico’s crowning

energy projects and will be a second source of income for

moment was the introduction of the General Climate

clean energy generators, who were previously only able to

Change Law, which makes it the second country to have

profit from the sale of electricity.

implemented a regulatory framework regarding its climate change ambitions. Mexico also introduced a carbon tax in

Mexico’s clean energy generation goals will determine the

which a marginal cost must be covered by industrial actors

amount of clean energy that should be incorporated in to the

emitting over 25,000 tonnes of CO2. Lacy also highlighted

mix in 2018, 2021, and 2024. This, in turn, forces the purchase

the importance of the Energy Reform, as this paved the way

of clean energies until the generation objectives are met,

for the creation of Clean Energy Certificates (CELs) and their trading market, which the Mexican government plans to launch

and project development and the market will determine the

during the present administration.

cost to meet the goals. Therefore, bidders will seek projects that require the least additional investment to reach the

Lacy commented that Mexico committed to reducing its greenhouse gas emissions by 22% by 2030. For the energy industry,

government’s objectives. In this sense, CELs, explains Serrano,

this target implies sourcing 35% power generation from clean energy sources by 2024, and 42% by 2030. To increase the

provide an attractive solution.

share of clean energies in the power mix, the Undersecretary mentioned that Mexican generators can obtain financing from the different climate funds resulting from the COP21 agreement. Such funds will come from the US$100 billion that

Both qualified users and clean energy generators have to

developed economies collectively intend to designate each year to climate change mitigation and adaptation projects.

register in order to participate in the CEL market. In the case of generators, a registration must be submitted, an audit has

Afterwards, Lacy talked about the open information policy, which is another important subject established in the climate

to be undergone, and a fee paid. Once a registered power

discussions that also affects Mexico’s adaptation and mitigation strategies. Countries that agree on this policy are expected

central generates clean energy, CENACE will examine the

to publish an emissions inventory on a regular basis, which will be monitored and assessed by the UN. Furthermore, all

information related to clean generation and then pass that

signing countries are obliged to review their INDCs every five years and increment their climate change targets according

information on to CRE, which will award and register the

to their situation. The Undersecretary said that Mexico was one of the first countries to ratify this agreement, as the General

CELs. The certificates correspond to the previous month in

Law of Climate Change indicates that the government must reevaluate the country’s climate change program every six years.

terms of generation and consumption, and generators are

Before leaving the podium, the Undersecretary reminded the audience that 2015 was the hottest year on record, stressing

free to use them in bilateral transactions, coverage contracts,

the importance of decreasing greenhouse emissions, a goal in which the global energy transition plays a crucial role.

or to sell them in the market or in CENACE tenders.

Rodolfo Lacy Tamayo

Undersecretary of Environmental Planning & Policy at SEMARNAT

The authorities created an online mechanism similar to a bank account in which participants will be able to trade their certificates, and CRE developed a system called

Rodolfo Lacy Tamayo’s career has spanned over 30 years, during which time he has served as a

DECLARACEL so that players can report their CEL obligations

public official, both at federal and local levels, as well as Coordinator of Programs and Projects in the

to the authorities every month. The annual declaration has

Mario Molina Center for Strategic Studies on Energy and Environment. He later served as Director

to be presented in May, and fines will be imposed according

General of Prevention and Control of Environmental Pollution at the Ministry of Environment, and

to the information given at the end of the period. Finally,

Managing Partner of the Environmental Specialists Company, overseeing various projects.

Serrano explained the details of each certificate, as these will have a 16 character ID that will include information such as the technology used and the date the certificate was granted.

Jesús Serrano

Comissioner at CRE Throughout his professional career, Jesús Serrano has held key positions at Luz y Fuerza del Centro, the National Banking and Securities Commission, the Economic Planning Unit of the Ministry of Finance, the Ministry of Economy, and Banxico. Serrano was appointed Commissioner at CRE by the Senate in September, 2014. Prior to his post at CRE, he collaborated as Director General of Electricity Conduction and Transformation at the Ministry of Energy. Serrano has also had a meaningful trajectory in the academic sector, having taught several courses related to engineering, mathematics, and economics at UNAM, as well as macroeconomics, banking, and financial institutions at Boston University.

| INTRODUCING THE WHOLESALE ELECTRICITY MARKET De la Rosa began by highlighting the contributions of the private industry in energy generation from clean and

Daniel Casados

Director General of Blue Coat Systems

renewable sources, and how private players helped in drafting

Previous to assuming the position of Director General of Blue Coat Systems México, Daniel

the wholesale electricity market in a way that ensures a level

Casados worked for Alcatel- Lucent Mexico where he was responsible for direct sales to the oil and

playing field. The Law of the Electricity Industry creates an

transportation sectors, as well as to the public sector. Before assuming responsibility for operations

independent and strengthened regulator with CENACE, and

at Blue Coat Systems, Casados spent 11 years at Nortel where he held various positions including

CRE gains a prominent role in the regulatory side in order

Director of Enterprise and Vertical Markets in Mexico, and led a business development team for

to foster a competitive market. “The wholesale electricity

global accounts and systems integrators in Latin America. Casados holds a degree in electronics

market is based on well-established markets, such as PJM,

and telecommunications from the National Autonomous University of Mexico (UNAM).

adapting traits to the particularities of Mexico,” he stressed.

De la Rosa took the opportunity to praise the public sector for being open to the private industry’s suggestions in creating a promising market in terms of regulations.

Edgar Alvarado Domínguez

Director of the Legal Department at CRE Before assuming his current position, Edgar Alvarado Domínguez served as Head of the Legislative

Alvarado proceeded to discuss the challenges CRE has faced in creating an open market after years of CFE’s monopoly, which

Link with the Federal Government and Civil Society at the Ministry of the Interior from 2008-2010,

began in the 1960s. In the 1990s, segments of the energy market were open to private parties, which were able to participate

and coordinated the President of CRE’s advisors during the 2006-2008 period. He held several

under four modalities, including Independent Power Producers and the small power generator scheme. The Constitutional

positions at the Chamber of Deputies, such as Technical Secretary of the Energy Commission,

Amendment, he commented, reserves strategic areas for the productive enterprises of the State, mainly transmission and

Juridical Advisor of PAN’s Parliamentary Group, and Coordinator of Advisors of the Juridical-

distribution, although private companies can collaborate as partners of CFE. However, if the State-productive enterprise

Political Area of the Miguel Estrada Uribe Foundation. Alvarado is knowledgeable in juridical,

does not create value and profit, as stated in its mandate, the authorities will be able to open these areas to other players.

economic, and public policy areas.

“The reform takes place in both market and institutional terms,” Alvarado commented when detailing the strengthening of the operators and regulators. On the market side, private players have more options regarding the way they can participate as generators, suppliers, marketers, and such. Alvarado responded to a question posed by de la Rosa saying that CRE has

Loïc Le Gall

Director of TAS for the Energy Industry at EY

taken a more active role as a regulator after the reform, as its activities became more defined with the decentralization of

Loïc Le Gall is the Executive Director of Transaction Advisory Services (TAS) for the Energy Industry

the industry. “We still play a crucial part in the central policy-making, but the decision-making process has changed.” He

at EY, with a special focus on power and utilities. He has directed the business development strategy

highlighted CRE’s honesty and hard work in determining tariffs, which are based on supply and demand.

of global firms in the energy sector in Mexico, Brazil, Canada, and France, and in the past three years he has gained valuable experience in power generation, transmission, distribution, and

Casados began by recounting how his company got involved in the electricity sector, ultimately becoming a key member

telecommunications infrastructure and large civil works. Prior to joining EY, he was a Director of

in the smart grid association. He spoke about the importance of understanding the market in order to introduce the most

Strategy and Marketing at Abengoa in Mexico, where he led financial, operational and commercial

suitable technologies, and mentioned the relevance of end-to-end consumers in creating information that leads to an

strategies. Le Gall has worked for renowned clients such as Abengoa, EDF Energies Nouvelles, GE

improved electricity market in addition to the public, private, and academic sectors.

Energy, Enel Green Energy, PEMEX, and CFE.

The microphone was passed to Le Gall, who also mentioned the importance of international best practices in the wholesale market, especially as Mexico undergoes the transition of its energy industry. “The short-term electricity market is composed of the real-time market and the day-in-advance market, which both require robust technological infrastructure,” he stated.

Long-term markets are being developed in parallel to the short-term ones, and the long-term contracts entailed will enable the financing of renewable energy projects. The long-term market will rely on tenders for electricity, capacity, and CELs. De la Rosa asked how Le Gall foresees the direction of the market, especially in the light of the tenders. The EY representative responded that it is important to examine the capacity tendered in the upcoming bids, because interested players might not be able to develop projects if the demand does not grow enough for more capacity to be tendered.

Jaime de la Rosa President of AME

Jaime de la Rosa has had a prolific professional trajectory in the Mexican energy industry. In addition to being the acting president of the Mexican Energy Association (AME), he is also the Vice President and an advisor of the World Energy Council, Mexico, and a member of the Renewable Energies and National Energy Strategy Advisory Board. As President and CEO of Alarde Energía México, a company that is currently developing projects amounting to 200 MW, de la Rosa’s business activities involve managing infrastructure and renewable energy projects. Previous positions include President and CEO of Mitsui de México, President of Gas Natural Union Fenosa México, and President and CEO of Union Fenosa México.

| TRANSFORMING THE ENERGY SECTOR The arrival of César Hernández Ochoa, Undersecretary of Electricity, was met with enthusiasm among MEF16 attendees, as the Ministry of Energy’s view and expertise is highly relevant to all the actors in the Mexican electricity industry. The Undersecretary began his presentation by highlighting the benefits that the Energy Reform is expected to bring to the Mexican market. According to Hernández Ochoa, the new regulations are expected to decrease the costs of electricity tariffs, promote investment in clean energy projects, and improve the country’s competitiveness.

“The benefits of the Energy Reform are already tangible, as evidenced by the fact that electricity tariffs in Mexico have already decreased for different segments,” he boasted.

Hernández Ochoa proceeded to explain the short-term market, a key element of the wholesale electricity market that was launched in January 2016. The main objective of this market scheme is to boost competitiveness and incentivize generators to improve their operational efficiency and reduce production costs. In this regard, the main incentive is the market rule that gives efficient generators the opportunity to dispatch their electricity first, which was established to promote a decrease in tariffs based on efficiency and competitiveness, not only among private actors but also among CFE subsidiaries. Moreover, the short-term market provides free access to new generators, whose presence is expected to increase in the upcoming yeas.

According to Hernández Ochoa, the long-term tenders are another important element in the wholesale market, as these enable market participants to acquire different products such as clean energy certificates, capacity, or power. The tendering process is organized by CENACE, the independent market operator, using the guidelines established in the regulations. In Hernández Ochoa’s view, one of the most important characteristics of the Mexican scheme is that all generation technologies compete at the same level, including clean and conventional sources. Furthermore, the undersecretary highlighted the fact that the contracts resulting from these tenders are especially designed to provide financial security to private investors backing up energy projects. The first tender carried out in the country was sufficiently successful as it achieved the allocation of 102 million megawatt-hours, 109 million clean energy certificates, and included 468 technical offers and 103 bidders.

Finally, Hernández Ochoa explained the process that CFE has followed so far to restructure its operational organization. As stated in the Law of CFE and the Law of the Electricity Industry, CFE has been separated into a vertical structure that is compatible with the new market rules, including four generation enterprises and different subsidiaries, each one with its own corporative administration. The main objectives of restructuring CFE were to increase the parastatal’s competitiveness and avoid a monopoly in the new market. Before finishing his presentation, Hernández shared the enthusiasm that international players have demonstrated in the face of the transformation of the Mexican electricity sector. “Apart from the Education Reform, the opening of the electricity market has the best potential to increase the country’s international competitiveness.

Mexican efforts to transform its energy industry have been recognized in Davos, Abu Dhabi, and at other international summits. The best feedback we have received is the fact that the reform includes all the regulations needed to launch a successful market,” he concluded.

César Hernández Ochoa

Undersecretary of Electricity at the Ministry of Energy From February 2013, and until his appointment as Undersecretary of Electricity, César Hernández served as Head of the Ministry of Energy’s Legal Affairs Unit. He currently divides his time between working for the Ministry of Energy and serving as Advisor on CFE’s Administrative Board. He has held various positions in the Federal Public Administration, such as Director General for Foreign Trade at the Ministry of Economy and Director General of Long Distance Communication at the Federal Telecommunications Commission.

| NATURAL GAS AND POWER GENERATION Rodríguez Dávalos opened the panel reminding the audience that back in 1993, the natural gas transportation and pipeline

Eduardo Fernando Prud’homme

Head of the Technical Management & Planning Unit at CENAGAS

operation segments began allowing private investment,

Eduardo Fernando Prud’homme is certified in Environmental Politics and has participated in various

and this was followed by the creation of CRE in 1995. The

energy regulation seminars, having worked in the energy sector for almost 19 years. In 1996, he

framework for natural gas that was established back then

started working at PEMEX Refining, where he worked in optimization and special studies related

dictated the country’s natural gas strategy, making this

to crude oil loading and logistics. During his collaboration within the Political Economy Unit of

fuel important component in the national energy strategy

CRE, he participated in the drafting of several regulations and was responsible for directing two

and pushing the development of IPPs. “By the end of the

quinquennial revisions of the National Pipeline System rates.

current administration, the country’s natural gas capacity will increase almost twofold,” he declared.

Rodríguez Dávalos asked ACCESGAS’ Luis Montgomery

Fernando Alonso

Head of Government Affairs at Fermaca

about the possibility of using CNG for electricity generation,

Fernando Alonso has acted as the Head of Government Affairs of Fermaca since his incorporation

who said this would be inviable, but CNG is suitable for

into the company nine years ago. Prior to this position, he served as a consultant to several

places with no access to natural gas or for cogeneration and

companies in the areas of storage, LNG projects and power plants. From 1997 to 2000, he acted

trigeneration processes. Montgomery talked about the opportunities for CNG companies developing last-mile projects and

as Minister of Energy at the Embassy of Mexico in Washington D.C and he also held the position

said that having an authority like CENAGAS, which administers capacity in a transparent way, is essential for the industry

of Head of Investment Promotion Unit at the Department of Energy from 2000 to 2003, with the

in general and is particularly helpful for shippers tasked with supplying power generation facilities. He also commented

responsibility of supporting the private projects in the sector. Alonso was member of the board

that “companies like Fermaca expand the pipeline system, and bring shippers closer to end users, helping companies

of PEMEX Gas and Petrochemicals and a representative of the Puebla-Panama Plan. He holds a

like ACCESGAS grow. Also, wherever there are pipelines, there are possibilities to build CNG stations, creating even more

Bachelor’s degree in Economics from ITAM.

business opportunities.”

The next question was directed at Alonso and it asked why the authorities are putting so much emphasis on natural gas as a fuel in the energy transition. Alonso, who represents one of the private companies with the most pipelines under

Luis Montgomery

Director General and CEO of ACCESGAS

development and operation, relayed that a technological change took place in the 1990s placing natural gas at the forefront

Luis Montgomery has over 14 years of experience in the Mexican energy business. He holds

of electricity generation, a change he points to as the reason why the authorities have chosen natural gas as the transition

significant knowledge of the sector and has been involved in the development of the country’s

fuel that also provides benefits in terms of low greenhouse emissions and is economically attractive at the moment. “Natural

energy market, mainly in the areas of natural gas and renewable energy project development.

gas will also work harmoniously with renewables, as these are intermittent and thus require backup energy.” He said having

Montgomery is familiar with the market, its conditions, and the future challenges in Mexico’s energy

geographical access to cheap gas makes Mexico one of the most competitive countries in the world due to reduction of

landscape. Some of his areas of expertise include natural gas distribution and transportation, power

electricity costs, ultimatly fostering industrial activity.

generation from renewable sources, off-pipeline CNG distribution, and manufacture of gas fittings.

Montgomery has collaborated with the authorities in the development of energy policies and

The moderator introduced Eduardo Prud’home, highlighting his knowledge about the regulatory aspects related to the country’s pipelines, and proceeded to question him about the most relevant changes that the natural gas industry will notice in the transfer of natural gas assets form PEMEX to CENAGAS. Prud’homme said that, despite the reform that took place in the 1990s, a full structural change was not completed. “A pipeline is a monopoly by nature, but its content does not have to be; it can be open and competitive.” In Prud’homme’s view, when PEMEX operated the pipeline system, the parastatal did not make access to natural gas a priority in the sense that it used its pipelines to sell its own gas, leaving other shippers on the sidelines. “Now, as a result of the Energy Reform, CENAGAS will grant access and foster a competitive gas market,” he commented, and added that ensuring the proper functioning of the Natural Gas Pipeline System for all users will be one of CENAGAS’ largest challenges.

Jesús Rodríguez Dávalos

Founding and Managing Partner at Rodríguez Dávalos Abogados Jesús Rodríguez Dávalos began his career in PEMEX in 1989. At the age of 26, he was posted in Washington D.C., representing PEMEX Gas during the NAFTA negotiations and the deregulation of the natural gas market in the US. After a brief stint at a large US law firm, he returned to Mexico to open his own practice focused on oil, gas, and power, founding Rodríguez Dávalos Abogados (RDA) almost 20 years ago. He has participated in many of the most relevant energy-related projects in Mexico, and he designed the regulatory and legal scheme of the first cross-border wet gas pipeline and the first CNG project. He has served as the leading counsel for the Los Ramones pipeline, as well as several joint ventures between PEMEX and an international energy corporation in their pipelines and storage ventures in Mexico over the last 14 years.

regulations.

| PARADIGM SHIFT IN DISTRIBUTED POWER GENERATION February 16, 2016 www.mexicoenergyforum.com

The afternoon session of Mexico Energy Forum 2016 was focused on renewables. To start the green energy discussions, SolarCity Mexico’s Vice President shared his view about the

Mexico Business Events organizes high level conferences where

solar energy and distributed generation sectors in Mexico.

business and political leaders meet to discuss the key topics that are

Initially, Desentis shared the six success factors that helped

defining Mexico’s economic future. By connecting each industry’s key stakeholders, our events are accelerating the exchange of vital industry

May 19, 2016 www.urbansustainabilitysummit.com

SolarCity boost solar energy in the US: incentives, costs reductions, financial schemes, process of excellence, a focus

information that is crucial to capitalize on Mexico’s economic potential,

on quality and efficiency, and investment in research and

and create new business opportunities in an unparalleled networking

development. He explained that the US market represents

environment.

one of the biggest solar markets worldwide currently and that California alone has around 50 times more solar energy

July 21, 2016 www.mexicooilandgassummit.com

production than Mexico. According to Desentis, if Mexico maintains momentum, solar energy production in the country could reach 1GW by 2020.

Besides the potential growth, the opening of the wholesale electricity market piqued SolarCity’s interest in investing in

September 7, 2016 www.mexicohealthsummit.com

Mexico, and Desentis explained that the company considers the utilization of net metering schemes to be solid incentives, which involves the accelerated depreciation and the incorporation of clean energy certificates in the Mexican market.

Compared to the US, capital costs in Mexico are considerable higher, but in terms of variable costs the latter offers more competitive numbers, mainly due to the cheaper labor cost.

Despite all the benefits, Desentis explained the challenges to overcome to make solar energy successful in Mexico, such as the need to develop a national regulatory framework with a special focus on distributed generation and isolated supply technologies,

September 22, 2016 www.mexicoautomotivesummit.com

as well as the potential impact that the separation of CFE could have in the solar sector, especially as a direct competitor.

Santiago Desentis

Vice President of Sales at Solarcity Mexico Before undertaking the responsibility of ensuring the commercial success of SolarCity Mexico,

October 20, 2016 www.mexicoinfrastructureforum.com

Santiago Desentis was in charge of executing the Residential and Small Commercial sector for SunEdison. Desentis also worked as Country Manager Mexico and Business Development Latin America and the Caribbean for Yingli Green Energy, where his main role was to draft and carry out the company’s strategy in Mexico with the objective of positioning the firm at the forefront of the sector. During this period, he managed to gain a 20% market share. Other positions he has held include New Product Development Specialist for PREI Latin America, structuring and marketing

November 9, 2016 www.mexicoaerospaceforum.com

November 23, 2016 www.mexicominingforum.com

November 24, 2016 www.mexicotalentforum.com

www.mexicobusinessevents.com

new products for the Latin American market.

| THE ROLE OF SOLAR AND WIND IN MEXICO’S ENERGY MIX Bernal opened by mentioning the continuous and steady investments in the wind sector; conversely, he pointed out how solar energy has patiently waited for a moment that has not yet arrived. He mentioned that even though the solar sector has flagship projects like Aura Solar I, TAI Durango, and an upcoming 50 MW project, this industry has not received enough support, so he started the discussion by asking the panelists what is needed to make solar energy an adequate competitor of the wind sector.

Escofet pointed out that renewables are a relatively new industry in Mexico, dating roughly eight years back, as the country’s prominent oil industry did not foster the development of other energy sources. He said the wind factors found in the country make projects viable without the need for incentives. “In fact, there are no incentives in Mexico for renewables,” Escofet emphasized, but he did recall mechanisms found in the older framework, such as green wheeling and the energy bank.

“Money does not like uncertainty,” were the opening words of Mannti Cummins to echo on Escofet’s statement about the lack of incentives, which deterred financing institutions from investing in renewable energy projects previous to the reform.

“Developers were expected to demonstrate interconnection capacity while offering guaranties when approaching a bank, and that was difficult to the point that the industry became stagnant.” He joked that renewable energy projects become viable when they are supported with someone else’s money.

The solar industry’s voice was heard in Olea’s words, who noted that there are several megawatts of solar power being submitted, and even though the financial and regulatory elements are in place, the projects lack a commercial outlet. “The projects are referred to as ready-to-build for a reason, but they are not realized because they do not have a PPA.” He identified the commercial outlet as the reason why wind power is booming while solar is not. This, in his view, is where the Energy Reform comes into play, as it will provide the necessary elements so that the commercial outlets, such as tenders, can flow. “I do not think CFE has understood its role in the new model. The tender intends to allocate 6,300 GWh in PPAs.

Mannti Cummins

Director General of Energía Veleta

With the numbers CFE is offering, I do not think this will be achieved. However, I am confident that the model will be

Mannti Cummins has been involved in financing start-ups and early-stage entrepreneurial ventures

continuously improved, so we have to look out for the second tender.”

for over 35 years. His expertise in the energy sector enabled him to lead the formation of joint development agreements with Iberdrola, Oak Creek Energy/Marubeni, Duke Energy, General

Bernal said that the fact that renewables might not be able to participate in the first tender is concerning, and proceeded

Electric, Martifer Renewables, and Lincoln Renewable Energy. Cummins is the founder of Frontera

to ask Díaz de León what the sector looks like from a financing perspective. The head of Bancomext told how project

Renovable, the company responsible for the development of the Tres Mesas Wind Power projects

planning was previously carried out in an almost improvised way, so the tenders will bring a certain order to the planning

in Tamaulipas, which have 148.5 MW under construction and are expected to begin commercial

of the sector. “The ecosystem is complicated enough as it is, and the changing costs of technology and development make

operations in 2016. He is also the Director General of Energía Veleta, which has a pipeline of 1,000

planning difficult,” he expressed. “The banking sector’s task is to liaise with the market players who know the technology,

MW in Mexico.

its costs, and applications, and understand their needs. The key is for projects to be bankable. If they are, the risks can definitely be mitigated.”

Héctor Olea

President and CEO of Gauss Energía and President of Asolmex

Óscar Bernal

Director General of EOSOL Energy de México

Héctor Olea has 20 years of experience in the energy sector and government contracting. He is currently the President of Gauss Energía, where his strategies have attracted sizeable investments in

Óscar Bernal began his career in logistics, production, process engineering, and business planning

the power industry. Olea acted as President of CRE, where he directed the design of the regulatory

and development. He has founded and consolidated energy companies such as EOSOL de México

framework for natural gas back in 1995, as well as heading the design of the structural reform of the

and its subsidiaries, including TAI Durango Uno, a 17 MW photovoltaic park with an additional 50

electricity industry in 2000. Olea was part of the NAFTA negotiation team and has participated in

MW under construction, as well as global consultancy and technical assistance companies. He acted

the process of many FTAs with Latin America, the GATT, the Uruguay Round, and the process by

as Director of Business Development at EOSOL Energies Nouvelles, eventually becoming Director

which Mexico was included in the OECD.

of Development LATAM, which is how he began tackling the Mexican market.

Adrián Escofet

President of AMDEE

Alejandro Díaz de León CEO of BANCOMEXT

In November 2015, Alejandro Diaz de Leon was appointed Chief Executive Officer of Bancomext,

Adrián Escofet is the CEO of Zapoteca de Energía, Chairman of the Mexican Wind Power Association

the development bank responsible for financing trade, promoting investment, and the productivity

(AMDEE) and Board Member of the Council for Renewable Energy at the Ministry of Energy. He has

and competitiveness of Mexican exporters. From 2011 until November 2015, he served as Head of the

more than 20 years of experience in development, design, implementation, and EPC in the field of

Debt Management Office within the Ministry of Finance, where he oversaw domestic and external

electric generation projects, covering a wide range of energy sources, including wind, combined

financing, the oil hedging program, and project finance at the National Infrastructure Fund. He has

cycle, PV, cogeneration, and hydro. In March 2013, he became the CEO of Zapoteca de Energía, a

been recognized by several awards from specialized financial publications such as LatinFinance,

company that focuses on the development of renewable energy projects.

Euroweek, Thomson Reuters, Euromoney, Energy Risk, and Global Capital.

| HOW CAN MEXICO MEET FUTURE ENERGY TALENT DEMAND?

| CFE’S FUTURE AMBITIONS

A topic that is usually ignored in energy-centric conferences

The most awaited presentation was carried out by CFE’s Director General, Enrique Ochoa Reza. He began by explaining

is the recruitment, training, and retention of human talent.

the restructuring process the utility is undergoing in order to become an energy company. In this sense, CFE will have four

Nonetheless, adequately trained technicians, engineers, and

generation subsidiaries that will compete against each other and private players. A nuclear power unit will also be created,

other general staff are essential for the success of any energy

although this will remain part of CFE board for security reasons. Transmission and distribution are now under CENACE’s

company. With the opening of the wholesale electricity

control, but CFE will have a transmission company that will be independent from the other subsidiaries for accounting

market, CFE will start competing in the market as any other

purposes, as it will be able to report transmission costs to CENACE, who will use this information to set tariffs. Distribution

actor does, so human capital is a topic that is more relevant

will be carried out through a subsidiary that will have 16 business units, which corresponds to the number of the country’s

than ever for the parastatal.

current distribution units. The reason behind this division is also related to tariff setting, explained Ochoa Reza. CFE will have a two-way split subsidiary dedicated to power supply; one branch will focus on the basic segment and another will

Flores explained that changing the paradigm at CFE will

serve qualified users. Finally, CFE will have a commercialization company also split into two branches, one that will sell in the

definitely be challenging, particularly considering the long

national market and another one that will operate internationally.

period that CFE functioned without any competitor. Now, that the parastatal must work as a regular enterprise and

Ochoa Reza pointed out that CFE can cover demands of up to 40,000 MW, “so why did we need an energy reform?” he

contribute economic value to the country, it will need to

asked and proceeded to answer. “High tariffs negatively affected basic service users and the productivity of the industrial and

enhance its training programs to ensure its employees are

commercial segments. The question now becomes ‘why were the tariffs so high?’ Well, fuels account to 80% of generations

prepared to serve the new market.

costs.” Ochoa Reza explained that the National Pipeline System was limited and not fully interconnected back in 2012, so fuel oil was principally used for electricity generation. He also pointed out that places with access to natural gas are likely to

According to Flores, CFE’s new strategy recognizes that

develop intense industrial activity, which directly impacts the economy. As a result of the National Infrastructure Plan, Mexico

economic incentives alone are not enough to attract and

will increase its natural gas pipeline network, gasifying most states. In addition, CFE is converting several power plants so

retain human talent. Therefore, the parastatal is currently

that these can run on natural gas instead of fuel oil. “Tariffs take fuel costs into consideration, so replacing fuel oil with more

focusing its efforts on developing a new company culture

affordable natural gas results in a reduction of tariffs.” Finally, Ochoa Reza spoke about technical and non-technical losses,

that includes permanent training, a challenging environment,

indicating that in 2012 these amounted to 16% and cost MX$52 million. These figures were reduced to 13.1% and MX$42

flexible

million in 2015. “The goal is to hit the 10-11% mark by 2018 so that future generations can take Mexico to the international

schedules,

tailored

incentives,

extracurricular

activities, growing opportunities, and team building.

average of 6%.”

Rubén Flores

Enrique Ochoa Reza

Before joining CFE, Rubén Flores taught for 16 years at the Technological Institute of Higher

Throughout his career in the public sector, he has served as advisor to the Minister of Energy, has

Education of the East (ITESO). Flores worked for CFE between 1969 and 1994, leaving his position

sat on the Board of Directors of PEMEX, as well as holding a senior position at the Federal Electoral

as Director of CENACE in order to assume the role of Commissioner at the Energy Regulatory

Tribunal and the Federal Electoral Institute. In February 2014, he was appointed Director General of

Commission (CRE). Flores then went on to join the Ministry of Energy, eventually becoming the

CFE, where he has worked on restructuring the now productive enterprise of the State. He holds a

Undersecretary of Electricity before returning to CRE to serve as Commissioner until 2013. He is

Bachelor’s degree in Economics from ITAM and another degree in Law from UNAM, where he is also

currently part of CFE’s first Board of Directors comprised of Independent Advisors, and heads the

a professor of Constitutional Law. Furthermore, he has two Master’s degrees and a PhD in Political

Compensation and Human Resources Committee.

Science from Columbia University in New York.

President of the Board of the Human Resources Committee at CFE

En RDA brindamos un servicio integral de consejería legal y de negocios en los sectores energético y de infraestructura, con el claro propósito de concretar las expectativas de nuestros clientes. De forma personalizada les llevamos paso a paso desde el diseño de su estrategia de negocio hasta su materialización, ofreciendo soluciones prácticas y eficientes en las distintas fases que este campo tan complejo abarca.

www.rdabogados.com.mx

Servicio integral de consejería legal y de negocios en los sectores energético y de infraestructura

Director General of CFE

¿Cómo convertir una transformación local a una de gran escala?

Descubra los servicios con los que EY ayuda a las organizaciones a diseñar y ejecutar estrategias que impulsen su crecimiento. ey.com/mx Conozca más en: /EYMexico @EYNewsMexico /ernstandyoungglobal company/ernstandyoung

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