Cogeneration Will Enable Nearshoring in Mexico: AB Energy

Q: How have companies benefited from your after-sales services and what rates have you achieved in terms of savings?

A: In Mexico, we have been more focused on cogeneration, but we also have technology to refine biogas into biomethane. A cogeneration project will never meet its financial targets without an adequate after-sales service in place. It is essential to use both scheduled services and corrective, or unscheduled, maintenance. It is crucial to be prepared and have the necessary personnel, know-how, and spare parts in Mexico to ensure that clients get the expected returns from their cogeneration projects.

Q: What techniques have you adopted to foster a preventive approach to maintenance?

A: The team must constantly monitor the equipment. All our equipment is connected 24/7 to our control room, allowing us to supervise and detect any deviations in parameters to prevent potential failures. We strive to synchronize scheduled shutdowns not only with routine maintenance but also to make modifications or replace parts that we know are nearing failure, thus avoiding unexpected downtime for clients. Continuous monitoring is essential to prevent issues, enabling a proactive rather than reactive approach.

Q: What technologies is the company implementing to enhance its capabilities?

A: Our parent company, based in Italy, is working diligently on big data initiatives. We have over 1,550 operational machines that continuously collect information on the equipment and engines, which are the heart of cogeneration plants. This allows us to identify the most common failures in certain types of engines. We also have a Wiki AB-type system in which the service team shares information about what is likely to fail in a specific type of equipment. This way, our regional service managers know which aspects to focus on for each machine in our fleet.

Q: Which sectors are benefiting the most from AB Energy’s solutions and how will the company grow its customer base?

A: Over the past two years, the company has shifted its focus toward biogas and smaller machines due to regulatory slowdowns, especially for projects over 500kW. It has become challenging to deliver the expected results forecasted for smaller cogeneration plants, particularly for natural gas projects, due to the lack of economy of scale. However, biogas projects are more appealing as they use self-produced fuel, reducing costs and enhancing profitability, especially through self-consumption, which is financially more beneficial than selling energy to the grid. These self-supply projects, although niche, are mainly tied to industries that can produce biogas, such as wastewater treatment plants and the agro industry, making them part of a circular economy.

Q: What types of projects is AB Energy prioritizing in Mexico?

A: In 2017, we completed the first upgrading project in the European Union for the conversion of biomass to biomethane. While in Mexico, in the same period we carried out the first cogeneration project for a greenhouse application using natural gas. 

Generating electricity from biogas has become less attractive; the focus is now on refining biogas, which contains in average 50% methane and 50% CO2, to achieve a methane purity between 96% and 99.9%. The goal is to decarbonize industries, particularly transportation. Although electrification is on the rise, it still has certain limitations. For example, replacing a large vehicle fleet is challenging. On the other hand, the technology used in trucks and cars allows for the easy replacement of natural gas with biomethane.

We have observed significant interest in Mexico, but the viability of these projects remains limited due to the lack of incentives. In Canada, the United States, and the European Union, it is easier to implement these technologies thanks to attractive incentives. In Mexico, we are focusing on large corporations, especially multinationals, with internal decarbonization goals. Biomethane is the most direct and viable way to decarbonize their fuel consumption, particularly in applications such as burners, furnaces, and boilers. While hydrogen is also promising, it has a long way to go before becoming truly feasible. Biomethane is already a reality. 

Q: How have you navigated the market and regulatory changes in the industry over the last six years?

A: We focused on ongoing projects and existing clients, prioritizing service to ensure clients were not left in a difficult situation. We reinforced our efforts and concentrated on advancing existing projects and servicing clients. We also explored distributed generation and biogas projects during this period. We studied biogas upgrading and the lack of a specific regulation for injecting it into the gas grid, working to understand the implementation and identifying strategic partners needed for these projects. We aimed to build alliances and collaborate to provide robust solutions for clients.

Q: What role will cogeneration play in enhancing Mexico’s energy output, considering the country’s electrical infrastructure challenges?

A: On-site generation is crucial, whether for self-consumption or local energy sales, though the latter has become uncertain. Significant investment in Mexico's energy transmission and distribution is unlikely, with many medium-voltage lines saturated and high-voltage connections being costly and complicated. Investing in high-voltage infrastructure often means handing over assets to CFE.

On-site generation aligns with the new administration's strategy, as highlighted in President-elect Claudia Sheinbaum's Strategic Plan. With permits, the final user, supported by private funds, can confidently invest in necessary equipment. This presents a significant opportunity, especially with the rise of nearshoring and the increased frequency of weather-related blackouts. On-site generation serves as a critical backup during regional power outages, ensuring essential sectors like residential, hospital, or communications can continue operating. Distributed, on-site generation is vital for two main reasons: it is entirely funded by the end-user, so there is no cost for the federal government, and it enhances energy security by providing a reliable backup in case of grid failure, ensuring continuous operations.

Q: How can the next administration update regulations to tackle grid challenges?

A: Regulations are not bad, but the processes could be less bureaucratic. Obtaining a permit for energy consumption requires extensive information, and some partners or investors may be reluctant to provide such detailed information, particularly regarding financial data. However, the technical information required is appropriate. The key improvement needed is to ensure deadlines established by law are respected; this would be sufficient. 

It is also important to ensure that the energy generated under any permit is as clean, if not cleaner, than the energy mix now used on the grid. We do not want to increase carbon emissions by consuming energy with a larger carbon footprint. In some cases, energy has been generated with diesel. Not only is this very costly, but generating electricity with diesel also pollutes much more than drawing energy from the grid. Therefore, it is crucial to properly address emissions and efficiency, which are closely linked. On-site energy generation should have a carbon footprint equal to or less than the energy sourced from the grid.

Q: How can Mexico meet the increase in energy demand expected as a result of nearshoring?

A: Nearshoring is materializing, but perhaps not at the expected rate. Investments consider many factors, such as security and political stability. We are already seeing more companies arriving in Mexico and established ones are expanding, increasing energy demand. Some companies have reconsidered expansion due to electricity issues. Growth will occur, but we expect a gradual increase rather than exponential. The challenge is adapting to this demand. Some end-users will be knowledgeable about the technology and want to own the asset, while others will prefer a straightforward supply.

We are exploring financial solutions like loans or leasing and planning to increase our service team to ensure high-quality support. The goal is to keep equipment availability close to 100%. We are also focusing on biogas. We anticipate one to three projects annually. While Mexico does not need specific legislation to incentivize biomethane, export facilitation is crucial. If regulations for biomethane injection are established, we will see more development in this sector. 

We are prioritizing service. With the capacity to produce over 250 plants a year, we must expand our service team to ensure technicians are always within two hours' reach for emergencies.

Q: What role are ESG goals playing within the plans of Mexican companies?

A: ESG is a key issue widely discussed in the Mexican biogas industry. Since it is not economically feasible to directly compete with conventional fuels, one potential solution is for large companies to require their suppliers to demonstrate greater sustainability and reduced transportation emissions. This demand could create an opportunity. If companies are compelled to use renewable fuels, they could set a market price that makes these projects economically viable for both implementers and users.

Another option is to promote the circular economy, where the necessary substrate is produced and fuel is used by the same corporate group, maintaining the entire value chain within one entity. Moreover, monetizing all the streams coming out of a biogas upgrading plant, such as CO2 would significantly increase the attractiveness of these projects.

Q: What advances has AB Energy made in Mexico and how do they shape the company’s outlook for the country?

A: AB Energy has brought some of its installed power plants online. Many external factors, such as interconnection issues or lack of fuel/biogas, affected the operation of some equipment. But most equipment has successfully been put into operation. 

There is growing interest in cogeneration technology, and we are receiving more serious inquiries about biogas products. On-site generation is becoming a necessity. The second half of 2024 and early 2025 could be crucial for starting the permitting process for several projects. However, potential changes or the possible dissolution of CRE or similar institutions could create more uncertainty. Investment requires clarity; we need to understand how project requests will be handled. So far, all permits we have assisted with for isolated supply or self-supply projects have been granted, although not always on the desired timelines.

AB Energy, headquartered in Italy, has over 45 years of experience in the energy sector. It works alongside customers to improve their competitiveness while saving energy and reducing emissions.