Rodrigo Gallegos
Director of Technology and Climate Change
IMCO
/
Insight

Competition Paves the Road to Renewables

Wed, 02/19/2014 - 17:41

The Mexican Institute of Competitiveness (IMCO) is an advocate for fighting climate change and sees renewable energy as a pillar of that advocacy. Focusing on competitiveness has helped IMCO convey its message, while providing a different perspective to the analysis. “Our core business is not protecting the environment, but giving a financial analysis of the effects of climate change,” explains Rodrigo Gallegos Toussaint, Director of Technology and Climate Change of IMCO. It is this financial analysis that has enabled the institute to promote dialogue between the industry, NGOs, and the public sector. “We believe that Mexico’s natural assets are key to triggering the country’s competitiveness,” states Gallegos Toussaint. “However, investing in anything is costly, thus our approach is more focused on the cost and benefit analysis of climate change investments.”

IMCO has divided the climate change investment palette into those that are efficient and have rates of return that are above capital cost, those that have rates similar to or lower than the capital cost, and those that need international assistance to make them profitable. This cost benefit analysis, in which private, social, and environmental costs are being considered, has enabled the development of methodologies to internalize externalities, improving the return on investment (ROI) of projects when such externalities are taken into account.

The shale gas boom in the US is also shaping the development of the renewables market in Mexico. “However, even with low gas prices, the country still faces the high cost of building pipelines. These investment costs will definitely play a big role in the balance between renewables and shale gas,” Gallegos Toussaint argues. “The main issue for renewables is competing tête à tête with gas prices even when externalities are taken into consideration. My view is that if we have competition in distribution, as in generation, the situation could improve for renewables.”

The European crisis has brought mobility to investments and Mexico has benefited from this environment. “Mexico has to deregulate the energy sector and open it up to competition to really take advantage of these capital movements,” says Gallegos Toussaint. One way he believes Mexico’s competitiveness can be increased is by simplifying regulation so that investors have long-term contracts with CFE and selling electricity to the grid becomes simple, regardless of whether the seller is a household or a larger provider. Another essential issue that Mexico has to work on is providing legal certainty regarding property rights. “All of IMCO’s efforts focus on making Mexico more competitive, and the renewable energy sector will really take off in countries with a competitive operating environment,” Gallegos Toussaint concludes.