Clean Energy Consumption for Competitive GainsWed, 02/21/2018 - 17:23
Mexico’s energy transition reiterates a global tendency. Renewable energy is no longer the domain of environmentally conscious final users or used simply to bolster public relations. Solar and wind power have proven, as the long-term electricity auctions show, that they can be as competitive as fossil fuels
The decision to transition toward clean energy not only reiterates a corporate commitment to a more sustainable production chain, it is also economically sound. Case in point: the close to US$9 billion in investments for utilityscale projects awarded during the first three long-term electricity auctions and the 141MW of power purchased through the third long-term electricity auction's Clearing House by Iberdrola and CEMEX, through Menkent.
Energy-intensive industries, such as mining or automotive, can spend up to 40 percent of their annual expenses in energy consumption. Now, renewable energy can actively participate in reducing the lion’s share of expenses to direct these resources to the benefit of corporate competitiveness. Nissan Mexicana, the Japanese automaker that manufactured five of the 10 most sold vehicles in Mexico in 2017, reported on Oct. 30 of the same year that it had reached a sustainable milestone of 1 million vehicles produced at its Aguascalientes manufacturing plant through clean energy supply, avoiding the emission of more than 300,000 tons of CO2 into the atmosphere
Mexico’s Energy Reform is energy agnostic. All powerproducing technologies by renewable and clean sources were welcomed to participate in the long-term electricity auctions, and Mexico’s inherent characteristics — geography, climate — enable it to look in several directions. The auctions, for instance, awarded solar and wind power projects as well as cogeneration, turbogas, hydroelectric, combined cycle and geothermal plants. While the business sense of these technologies is proven, transposing a particular industry’s consumption requirements to clean energy production is easier said than done. “A steel plant’s energy consumption, particularly when producing through an electric arc furnace, is a highly discontinuous energy-consumption process. Solar power supply resembles a bell-shaped curve starting at 8am, going up until 1pm before decreasing and stopping at 8pm. This bell has to be transposed to our own consumption, which needs to be consequently optimized. Combined cycles present a similar conundrum since on one hand you have a steady and constant supply of energy while your consumption levels are intermittent,” explains Patricio Gamboa, Energy Director of Deacero.
Progressive, cautious step-by-step approaches seem to be the order of the day, as the market further matures. “As heat is such an important part of our energy consumption, we are looking for ways to implement efficiency measures, or other heat-production techniques, when viable. First, we look to reduce energy usage, diminish losses, or even change whole processes. Then, we consider implementing other sources of renewable energy, such as solar, thermal or biomass,” says Francis Pérez, Shared Value Creation and Sustainability Director of Nestlé México.
As Mexico’s power-producing doors open up to more players, off-takers now have more than one option to choose from for their energy supply. Some among them will prefer dealing directly via PPAs, the new contract figure born from the reform, where power producer and off-taker agree on an energy price for a determined period of time. What does an off-taker look for when it comes to choosing a particular power producer over another? There seems to be a number of common denominators. “Experience is the primary condition. There are certain thresholds that can be examined, such as MW developed worldwide. The expertise of the Mexican market, competitive prices and efficient processes are also among the key variables. At this early stage, there are not so many IPPs to buy from. This is still evolving but we expect the number of players will increase as the market matures,” says Salomón Amkie, Vice President, Head of Power and Utilities for Citibanamex.
If a company does not have the expertise or the required energy department within its structure to deal with the required analysis and permitting processes to become a qualified user and deal directly with power producers, private players with an energy consumption large enough to be considered a qualified user can resort to qualified suppliers. Among the new players emerging from the reform, qualified suppliers are the middlemen between producers and final users, integrating a portfolio of different power producers for qualified users to choose from, as well as providing representation and trading services on their behalf before power producers. To date, CRE has registered 18 qualified suppliers to operate in the country’s wholesale electricity market. The number is set to increase as 2018 will see the enactment of the compulsory 5 percent CELs requirement and a rise in renewables’ share of the energy market.
Injecting renewable-powered technologies into the mix, lowering power consumption, having greater options among power producers and qualified suppliers is the tip of the iceberg. Now that Mexico’s regulatory framework has also integrated net metering, net billing and wholesale into the country’s electricity market, offtakers can also sell their generation surpluses throughout the year and use them as an additional source of income, making cleaner and cost-effective technologies evermore attractive. “By 2023, we expect to satisfy 100 percent of the needs of the group’s companies through self-supply. We hope that when that happens, the market will be sufficiently mature to enable a mix of new plants and developments, either of natural gas, wind or solar resources. If this is the case, we will be able to place our surplus on the market to be monetized. In this way, we would not only enable our energy self-sufficiency but also add an interesting business niche,” says Jorge Gutiérrez, Director General of Energía Eléctrica BAL.
To complement their energy transition efforts, corporate powerhouses are leading by example by taking their strategy one step further and integrating sustainability as a tangible, immutable part of their day-to-day activities. “Grupo Bimbo is implementing zero waste water discharge and zero waste to landfill, promoting recycling initiatives by reducing the usage of raw materials and waste by 12 percent and recycling more than 90 percent of waste,” says Alejandra Vázquez, Environmental Director of Grupo Bimbo. “We are optimizing the logistics routes connecting our ecological sales centers for our 350 electric vehicles. For 2018, we want to make sure our ecological sales centers are also solar powered. Four are already benefiting from solar panel installations. Our electric vehicle fleet is also set to grow as we increase the number of ecological sales centers nationwide,” she adds.
Having a global footprint and sizable business numbers makes the challenge of transitioning to renewable energy equally significant. Some companies are stepping up their sustainable game. “Citi has outlined a clear objective of reaching 100 percent sourcing from clean energy worldwide by 2020. Globally, Citi owns real estate in 94 countries, entailing a significant coordination effort for each unit to contribute to the overall goal. We have different options at hand to reach these goals: sign PPAs with renewable producers, choose distributed generation systems in certain strategic locations and buy clean certificates in the countries where their local regulatory framework makes this an option to offset whatever additional clean energy needs to be sourced,” says Amkie. Time will tell if these efforts can trickle down to smaller companies in Mexico, equally interested in transitioning to renewable energy.
Off-takers also have the challenge of injecting cleaner and renewable energy into their power consumption while keeping up with technological developments to ensure the integration of the most efficient and adequate technology suited to their needs, as well as riding the wave of emerging innovations, such as battery-based energy storage and electric-vehicle fleets. “For 2018, we will also participate in CFE’s La Paz auction for the soon-to-be-launched battery-based energy storage project. To date, batteries are based on lithium-ion but we are seeing emerging technology with zinc-based batteries. As it is a more abundant resource in the market, zinc can dramatically decrease the cost of storage systems, especially considering Peñoles produces zinc,” Gutiérrez says.