Page 1

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 Coldwellhas 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 Zendejaswas 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 Hernándezwas 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 Hernándezis 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 Garcíahas 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

21


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 Madrigalhas 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 Zúñigahas 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

23


VIEW FROM THE TOP

INTERNATIONAL STANDARDS FOR THE ELECTRICITY SEGMENT JESÚS SERRANO Commissioner at CRE

24

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 Serranohas 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 Ramirohas 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


28

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 Energíais 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 Investmentsis 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 Solaris 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 McKenzieis 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 Chanceis 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 Poweris 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 Nouvellesis 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 & Turbois 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 Solutionsis 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. Americasis 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 Naturalis 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 Méxicohas 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 Méxicois 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’scompanies 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.”

107


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

Vestasis 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 Windpoweris 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 Gamesais 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

121


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 Méxicowas 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

123


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 Groupis 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

143


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 Solaris 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 Technologywas 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 Solaris 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 Solaris 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.”

151


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 Technologiesis 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 Energyis 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 Groupfounded 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 Groupis 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


FEBRUARY 20, 2019 SHERATON MARIA ISABEL, MEXICO CITY

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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 DESMEXis 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.

171


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.

173


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-

ATCOis 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.

179


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 Centeris 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 Solaris 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

Ambientalesspecializes

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

191

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

194

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.

197


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).

199


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.

201


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.

211


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

NAFINis 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 Fondosis 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.”

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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 Culturais 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


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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 Abogadosis 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 Berkeleyis 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 Automationhas 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.

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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

251


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.

253


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 Energyhas 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.

259


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.

269


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.

273


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

Energyis

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

275


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

276

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 Energysupports 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

277


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.

281


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 Energyis 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.

287


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 Dragónis 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 efficie