Hans Kohlsdorf
Managing Partner
E2M
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COVID-19 - An Opportunity for Mexico's Energy Users

By Cas Biekmann | Tue, 05/19/2020 - 12:44

Q: How has the company adapted operationally to COVID-19 and the general downturn in the sector?

A: Our adaptation has gone well. Since the start, E2M has focused on its technological platform. All our tools have been cloud based from the beginning. We switched very early to home office, and our staff has been able to do their entire work uninterrupted. Unfortunately, we cannot visit our clients in person to see their installations and better understand their operational processes. Still, the general downturn has not affected us too much. Of course, the crash in oil prices has had a dramatic effect on Mexico’s public sector. But for the private sector, lower oil prices are a boost. Our clients are experiencing considerable savings and our business with private industry is doing relatively well.

 

Q: Do you have a concrete strategy to counter the general downturn in the public sector?

A: We are helping our clients by offering flexible tariffs and volumes for their energy costs. Our sales program adapts to their needs. If they consume less, we will switch with them and return to the regular state once business picks up again. The weakened peso also benefits Mexico’s competitiveness and is good for national manufacturers who compete with imports, which are made more expensive by the stronger dollar against the peso. As during the period 2012-2018, I think we will not see a significant increase in prices either. Nonetheless, there will still be a recession in Mexico and it will affect companies. But there are opportunities to profit from as well. We try to make clients aware of these opportunities and try to help them in difficult times by providing cheaper contracts. We do not have rigid contracts. If companies are stuck in such contracts, they could also claim force majeure.

 

On the public side, government cooperation has always been crucial in difficult times but the public sector is clearly strapped for cash. I do not think the government can take on much more debt than it already has. Prudent spending is the norm for the country now. A really positive impact comes from Mexicans living in the US, generally poor Mexican families have received a staggering US$4 billion from their relatives across the border.

 

Q: What are E2M’s predictions regarding distributed generation in Mexico?

A: Companies facing a downturn and reaching their breaking point will of course not invest in new energy generation. Nonetheless, we are seeing companies take major steps regarding distributed generation. The price of gas is very low. If a user requires thermal energy and sees gas prices well below US$4 per BTU, investing in distributed generation becomes an attractive solution. In Mexico, distributed generation is here to stay. Technological developments favor this system on a global level. Small utility-scale projects close to zones that lack energy or even next to factories are viable and the related technologies improve every day. New industries will emerge in Mexico as well. As business leaders, we need to align ourselves with the technologies of the future to attract them to the country.

Mexico exports more manufactured products than the rest of Latin America combined. It has a varied industrial platform, with small to giant manufacturers of local and international origin. Having access to raw materials is always a competitive advantage. Mexico also has an advantage in terms of potential clients. If you have raw materials, an industrial platform and a foundation of potential clients, it would be terrible not to benefit from that and to become a leader in manufacturing new products, such as batteries for electric cars.

 

Q: What opportunities does E2M see for its clients in 2020?

A: E2M is a partner of another company called Advisory Board Architects that specializes in high-impact corporate boards. The clients that we advise are looking to discover new opportunities. The first advantage that every company in Mexico has is the country’s proximity to the US. We have endured crises involving health pandemics before, but this time around it has taken us longer than ever to get past it. It is far from over as well. This provides an advantage for Mexico as an export platform; its manufacturing and logistics optimization will grow stronger. Currently, companies and the Mexican government have little budget available, but if the correct steps are taken, everyone can benefit from this historic moment by shifting priorities to near shoring.

 

Q: How are you helping clients to digitalize their operations?

A: As we take more tasks online, we notice that other companies are doing the same. One client has already mentioned that their online platform sold twice as much in the past three months compared to the same period last year. There are a number of DIY (do it yourself) products we can offer to the sector. By spending a lot of time at home, people now have time to think about what to change or how to innovate, and then execute it. It is an ideal time to offer solutions in this regard. In the more popular residential sector, energy is quite cheap, subsidized, meaning there is little need to modernize. In other sectors, however, there is greater pressure. Now that homeowners are home for the whole day, they realize they could switch their lightbulbs to LEDs and save money. As people begin to experience these shifts in awareness, we need to be there for them.

 

Q: How are big energy producers experiencing this shift in awareness?

A: Large-scale projects now realize that their location matters. Simply constructing a project because land and power lines area available and then asking CFE to build out the network is no longer the best idea. There are many areas in the country where power generation projects do not make sense, like Chihuahua and Sonora. These are not places where one should randomly build another generation plant, but they are areas that have great potential to attract new industries thanks to their competitive energy prices. Sonora specifically also has easily recoverable Lithium Mining opportunities and should make a special effort to attract battery manufacturing

 

Q: How can the government and private sector work together to attract these new investments?
A: Certain government policies have been successful, such as Queretaro attracting the automotive and aerospace industry via combined projects through academia, the private sector and the government serving as coordinator. Universities need to adapt their curriculums to include content that newly investing industries require. Some parts of the country are quite affluent, whereas other parts still live in poverty. The challenge is to transpose Mexico’s success stories, such as in Queretaro and Puebla, to other areas and generate a positive impact.

Energy to Market (E2M) is an energy broker and service provider in the Mexican electricity market. The company targets energy generators, qualified users and qualified suppliers with generation capacity.

Cas Biekmann Cas Biekmann Journalist and Industry Analyst