Cogeneration Projects Toward Energy Efficiency
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Cogeneration Projects Toward Energy Efficiency

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Karin Dilge By Karin Dilge | Journalist and Industry Analyst - Wed, 09/07/2022 - 10:38

Mexico has a privileged geographic position, abundant natural resources and large natural gas reserves. Nevertheless, the Mexican Institute for Competitiveness (IMCO) published a report analyzing Mexico's energy security vulnerabilities under varying short- and long-term natural gas supply scenarios. Among its findings, the institute highlights the need to develop its domestic natural gas industry, but also make optimal use of the resource for power production by adopting more cogeneration solutions.

According to Ricardo Zúñiga, Country Manager, Capwatt, Mexico has sufficient supply capacity but is lacking efficient logistics and transport. What is more, Mexico should begin thinking more about making efficient use of natural gas and understand that it is the “fuel of the future.” “There are not many alternatives to natural gas and it is the main fuel used to produce power in Mexico today,” added Zúñiga. 

Moreover, Zúñiga highlighted that the optimal solution to develop Mexico’s natural gas network and reach higher production levels is building cogeneration for the industry. “This will be the only way to reach optimal energy efficiency,” said Zúñiga, pointing toward the high efficiency of cogeneration installations, making them providers of clean power without any of the downsides of intermittency of distributed renewable energy sources.

“Although prices in Mexico have tripled, natural gas is still the most competitive fuel in comparison to other solutions,” said Jean Nicolas Lejeune, Managing Director Energy Management and Supply, Engie. Furthermore, he explained there are two ways to mitigate fuel prices: via energy efficiency and fixed prices. 

Lejeune explained that during the past decade, the industry has worked with standard natural gas commercialization contracts in which the prices were indexed to the US market, often using the famous Henry Hub as the benchmark. Now, we are living through a change of paradigm marked by high fuel prices. To gain more control over these ballooning prices, gas marketers should be convinced to change this approach, said Lejeune. Before, the best natural gas marketer was the one that could provide a contract indexed to US prices and compete for the lowest margin within that framework. Today, the strategy needs to be changed: the best marketer will be the one that can offer to fix prices in optimal conditions with flexibility and reliability. This will represent a radical change, said Lejeune. “The real question is how to incentivize marketers to provide the most certainty they can regarding fixed prices,” said Julia González Romero, Counsel, González Calvillo. 

Other than pricing, the mitigation of climate change is also an urgent issue for offtakers, which is why traceability will be an important factor for a more sustainable industry, said Lejeune. Natural gas can be produced with processes that generate little or excessive methane emissions. Being able to measure and trace this factor will be fundamental to fostering best practices regarding sustainability. Furthermore, any investment destined for energy efficiency will result in profits, mentioned Lejeune. What is more, “having a reliable energy generation system is fundamental for the stability of an electricity network,” added Aldrich Richter, Managing Director LATAM, Bergen Engines. 

Now, the Mexican market is facing challenges in its mission to build a more stable and larger grid network. The main hurdle for energy companies in the country is the lack of permitting, as well as other obstacles coming from public policy, agreed the panelists. “The resources and supply options are there, but the difficulty to develop cogeneration projects is holding back Mexico’s industrial players,” said Richter.

Zúñiga agreed, as he added that efficient cogeneration plants would be “essential to increase the competitivity of the country.” “Not only will electric energy be cheaper but with cogeneration, thermal energy such as heating will be available for the industrial process. This will decrease production costs, allow companies to grow and create more jobs,” added Aldrich Richter. 

Alejandro Bargalló, Director of Engineering LATAM, Generac, said that the southeast of Mexico has been somewhat neglected when it comes to grid connectivity. Nevertheless, bringing the grid to the region will bring more investment, benefits and competitive costs. “The resources are already available, we only have to make it work under an adequate regulatory framework,” added Bargalló.

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