Building Bridges Between Past, Future Regulatory FrameworksMon, 02/25/2019 - 13:35
In just a few years Mexico has created the foundation for a strong regulatory framework and an attractive energy market for investors. Ruth Guevara, Founding Partner of Zumma Energy Consulting, says the new buzzword for the Energy Reform is consolidation. “The regulatory framework of the Energy Reform is strong in terms of allowing foreign investors to enter and feel secure. Clear market rules have been established,” she says. “But regulation evolves on a daily basis and we work every day to keep our clients updated in real time on the regulatory and market aspects that will influence their businesses.”
As international companies enter the country and encounter new prospects, César Reyes, Partner at Zumma Energy Consulting, warns of the challenges they will face as newcomers. “For companies to fully dive into Mexico’s pool of opportunities they need to truly understand not only the regulation but also the market dynamic and trends,” he says.
Companies like Zumma Energy Consulting, which provides tailor-made stakeholder mapping services, specialized reports and market-positioning strategies, can help these newcomers traverse the Mexican landscape. “We tailor relevant data-driven analyses so these companies can better forecast their operations in the country,” Reyes says. “Mexico’s energy market is still an ever-changing environment, meaning that it is necessary to fully understand who is responsible for what, so companies know exactly where to go to air their concerns.”
Guevara says the consultancy’s long experience in the country and its knowledge of the Mexican market are additional advantages. “Zumma Energy Consulting has been in the Mexican market for about nine years now. Our work has focused on helping foreign companies to understand the regulatory framework, as well as the challenges and opportunities present in the country,” she says. Zumma’s services can be divided mainly into business intelligence, strategic information and regulatory advice. It works across the entire energy value chain, having advised generators, qualified suppliers and end users, among others.
Record low prices achieved in the last three long-term electricity auctions are, according to Reyes, proof that Mexico’s energy market is filled with opportunities but also that they are not suitable for everyone. For that reason, he is now waiting to see an evolution in the financing schemes used in the utility projects that resulted from the auctions. “As projects start to be developed and due to the extremely low generation prices at the auctions, we foresee an evolution of traditional financing to schemes in which companies and financial actors accept more risks,” he says.
Guevara adds that the record-low prices achieved in the long-term electricity auctions have become prohibitive for many companies. “Some companies are shying away from the long-term electricity auctions and therefore looking to sign PPAs or other distributed generation mechanisms,” she says. But she adds that this is a positive signal as the auctions have proven to be highly competitive, and PPAs and distributed generation are markets where more participants are needed to increase competition and fashion better results.
Guevara also sees a great deal of opportunity in transmission lines, like those connecting Oaxaca and Morelos, since many areas in the south and in the rest of the country suffer due to lack of infrastructure. “Major transmission line projects, like that connecting Oaxaca and Morelos with HVDC lines will be important due to their great impact on electricity infrastructure,” she says.
The fact that some projects cross almost six states also creates an opportunity to establish best practices on how to handle social issues. “The themes of land use and rights of way are extremely relevant for the projects to reach completion,” says Reyes. To avoid friction with communities, it is necessary to include them in early stages of the planning process of the project, and maybe even go one step further. “Countries with a more developed energy market have managed social issues in a way that they now even include communities as partners in the projects,” he says.