News Article

The Chicken and the Egg of Financing and Viability

Wed, 02/21/2018 - 11:24

The panelists at the Mexico Energy Forum 2018 on Wednesday in Mexico City agreed that there cannot be a healthy energy trading market without access to financing. According to Hans-Joachim Kohlsdorf, Managing Partner at Energy to Market, this is the single greatest problem he has encountered in Mexico. “The regulators and institutions have done a good job implementing this reform, but there have been teething problems,” he said. “The main problem is out of the hands of the regulators: access to private financing. The development banks are trying to bridge the gap but it is still difficult to obtain a loan in this sector.”

Natalia García, Director General of eVOLT Energy Trading agreed and expressed her frustration at what she called the chicken-and-egg situation. “The market cannot mature without financing, yet financing is not available because the market is still incipient and risks cannot accurately be identified,” she said during the event at the Hotel Sheraton Maria Isabel.

Nevertheless, Enrique Giménez, Director General of Fisterra Energy México, said that, although these challenges do exist in the market, he views these kinds of obstacles positively. “I see Mexico as a country with enormous growth and huge demand,” he said. “The electricity auctions are a fantastic motor for the market.”

Likewise, Alejandro Ledesma, Director of Institutional Relations at SUMEX, applauded the efforts of the authorities to establish a balanced regulatory system during the transition. “A regulated, but not over-regulated, market is a must to allow for an energy transition,” he said. “This is a challenge coming from a monopolistic market, but has been properly managed by authorities.”

But García reminded the panel that, despite regulatory success, the market as it exists today is still in its infancy and requires extensive evolution to be truly efficient. “The regulator and the operator have a strong challenge ahead. There is a lot to do and financial support is needed,” she said. She explained that eVOLT seeks to facilitate transactions between the final client and financial institutions. “The reform is designed to put the generation in places where prices are high,” she continued. “When the wholesale market consolidates, the end customer will benefit from stable prices but we cannot expect residential rates to go down soon.”

Giménez agreed that an alternative to CFE’s basic supply tariff is needed to increase competitivity. “Consumers have not understood that the basic supply rate is not the exception but the market,” he said. “Forty million consumers in Mexico are exposed to the market and everyone will need a new solution.” Nevertheless, he warned that it will take time for end users to see a real drop in energy prices. “They will fall when the Energy Reform consolidates but that will take time,” he said. “Lowering them in the short term would mean artificially adjusting prices, which is not the objective of a competitive market.”

Kohlsdorf said that educating the market was necessary to diffuse knowledge of the different options available for consumers. “We have to introduce the concept of a market with language that all users understand, starting with the qualified users,” he said. Moderator Eduardo Reyes, Leading Partner Power and Utilities at Strategy& at PwC, agreed. “There are many opportunities to educate end customers,” he said.