Hans Kohlsdorf
CEO
Energy to Market (E2M)
/
Insight

Brokers Bridge Gap Between Users, Generators

Wed, 02/22/2017 - 17:40

The qualified supplier is one of the new market roles created by the Energy Reform, a merchant and broker bridging the gap between heavy users and generators, purchasing energy in the MEM to cover the demand of qualified users with which it has a supply contract. The system, says Energy to Market (E2M) CEO Hans Kohlsdorf, brings Mexico’s newly liberalized energy market closer to the way other industries work, where traders and brokers serve as intermediaries, increasing efficiencies because their role permits both generators and energy users to concentrate on their core activities.

“Even the largest companies such as CFE need distribution channels,” Kohlsdorf says. “We do the job of working individually and building a relationship with the end user, giving all the large established generators the opportunity to bring better services to their customers. We also offer complementary services to electricity users, providing a complete market experience.”

While a generation company will likely specialize in one or two technologies such as gas-fired cogeneration and solar, each with its own advantages and drawbacks such as price volatility in the case of gas and intermittency in the case of solar PV, a qualified supplier is not bound by any particular restriction and can help an energy user locate the “perfect portfolio” of energy options, he adds. “We are not limited to one source and we can also sell electricity from other power producers or co-generation plants with excess production. Through us, end customers can buy excess energy in the market to complete their requirements and generators can use the market’s flexibility to trade excess energy.”

The added value of the qualified supplier might be in plain sight but the market still needs to continue developing and adding participants on both sides of the energy equation, thus increasing its efficiency. The more participants, the more competition and the more cost-effective it will become, miles away from the “highly inefficient” system of PPAs and self-supply agreements under the previous legal framework.

But the new scheme also brings financial uncertainty because it is not made of clear-cut, bilateral deals. The PPA in particular is one piece of the system that Kohlsdorf believes could soon become a thing of the past, at least in the private sector, to be replaced by hedging tools common in commodities and financial markets. “Market participants face several risks, ranging from pricing to currency risks. Power producers are particularly vulnerable to commodity-related risks, such as rising natural gas prices, and climate-related factors such as lack of wind. Hedging products are what the market needs, not bilateral agreements.”

For these reasons, E2M is creating hedging contracts for small and large-sized generators and qualified users, relating the electric market to their intrinsic business models. “We analyze the risk inherent to the business and buy or structure the necessary hedge so that companies’ costs are aligned with their income. By creating these we take the financial risk out of the operation’s overall risk structure,” Kohlsdorf says.

A difference that makes Mexico a potentially more attractive market than those of more mature regions such as Europe and the rest of North America is that in the Latin American nation everything, from demographic indicators such as the growth of the middle class to a younger population entering the workforce, as well as the country’s industrial drive, points to a prolonged increase in demand. “Mexico still needs more energy and it expects to have an increasing electricity demand for the next 10 to 15 years. Energy-efficiency programs will mitigate the need for additional energy but the electricity market will continue growing,” the CEO says.

E2M is looking to improve on the quality of services it offers by investing heavily in IT platforms to provide transparency and additional services. “We want to create a system allowing independent power generators to reach thousands of potential customers without having to make large commercial investments. Our intermediation services create value on both sides of the market."