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A Diverse Portfolio, Part of ATCO's Strengths

Pierre Alarie - ATCO Group
Managing Director of LATAM

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Cas Biekmann By Cas Biekmann | Journalist and Industry Analyst - Fri, 05/29/2020 - 15:18

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Q: How does Mexico and LATAM fit into ATCO’s planning?

A: I joined ATCO nine months ago and my role is to develop new markets in Latin America. Although we are based in Mexico, most of our new business development should be in other countries. Colombia, Peru and Panama are very exciting markets, for instance. Mexico is crucial as well, but the company needs to be able to operate with clear rule of law. CENACE and SENER´s decisions to halt renewable energy projects has made it difficult for the private sector to invest. ATCO is in the process of developing a large solar project in Chihuahua. CENACE’s decision creates a great deal of uncertainty for us. It becomes difficult to judge whether to go ahead with the project, especially because we do not know how long the suspension of the testing will be in terms of months, years or forever. Nonetheless, ATCO remains interested in the project but we need more certainty, which is crucial. The decision regarding CELs is a similar one. When financial planning and analysis regarding ROI was done, the value of CELs was taken into account. Now, we are not sure about their value. Alsoit is quite difficult to invest hundreds of millions of dollars into a wind or a solar project if you have no guarantee that energy will be integrated into the grid. The only option that I see would be to go private, meaning to develop a renewable project for an industrial player. But if the sun goes down, there is no energy. Therefore, access to the grid is needed to compensate. The framework of investment in the renewables sector is, at best, quite uncertain.

 

Q: What are some success stories and how are you planning for the future considering COVID-19’s impact?

A: We have a small hydro-electric power plant in Veracruz. All the energy generated from there is sold to the private sector, including large international companies. We have a smaller plant in an industrial park in San Luis Potosi that provides energy to renting factory halls. Recently, we received a request to increase our output there. Another project is a cogeneration plant of approximately 26MW in Durango.

The return to production of the automotive industry will create new demand. We are both ready and willing to satisfy this by working closely with industrial parks. Now that the US-Mexico-Canada free trade agreement is about to be implemented, investment will return to the sector as well. I believe it has a bright future, which ATCO can support.

What will happen in the post-COVID-19 world is still somewhat unknown. It is my firm belief, however, that neither PEMEX nor CFE can supply Mexico’s entire demand in the future. Despite the reasoning behind CENACE’s decision, the fundamentals of Mexico’s economy are in place to provide opportunities for foreign investment in the energy sector. I hope the focus will be mostly on renewable energy. Mexico has an incredible capacity in terms of solar, while wind is attractive as well. There is space for small hydro projects too. This might not be linked directly to COVID-19, but it certainly is to Mexico’s future economic growth.

 

Q: What role does R&D paly within ATCO’s large portfolio and what is its strategy in this area?

A: ATCO has a full unit working on this topic in Calgary. We spend millions of dollars every year trying to find new technology, developing it and refining it. Some of it is purely research. We create teams working on entirely different projects, taking engineers from their posts in the utility sector and have them collaborate with someone from a different part of the company, human resources or accounting for instance. An example of this was an agricultural project from last year. This particular sector uses a lot of energy, so we wanted to know how we could be more efficient. We believe our people to be creative and innovative.

Bringing people from different sectors together widens the scope outside of energy. As a result, ATCO acquired 40 percent of a port company in Chile, which controls 16 ports in South America. In the beginning, ATCO started as the Alberta Trailer Company and focused on mobile trailers for the mining and construction industries. As time passed, it started building more and more sophisticated camps for mining operations in the north. In Chile, many miners need to export their ore, so offering one more service to already existing clients made sense for the company.

 

Q: How does ATCO asses the opportunity for Mexico regarding hydrocarbons storage?

A: Storage is an interesting opportunity in Mexico. Mexico is a major oil producer but it has almost no strategic reserve. This is important because (in a crisis) Mexico could quickly runout of gasoline because it lacks storage capacity. President López Obrador made it quite clear that from a strategic standpoint, Mexico needs to develop a strategic storage. ATCO has a great deal of experience in the storage of liquids and gasses. We would be happy to work with authorities to provide our technology, knowledge and skillset. Storage projects, however, are very expensive. In terms of gasoline, diesel or ethanol, the investment would not be under US$1 billion for the first phase. Later on, it could easily increase substantially depending on the number of sites that would be needed. These caverns are usually massive. Mexico does have the geology for it. Close to Coatzacoalcos, for instance, there is already large capacity that has been used for storage in the past. While it would be smart for the government to think about starting there, it cannot be all stored in the same place for strategic reasons. Still, it would save costs at first. Soon after, the government could branch out to other parts of the country. Storage is definitely part of ATCO’s expertise. We would be happy to contribute our knowledge and experience to the safe development of strategic reserves in Mexico.

 

Q: How will the pandemic and the resulting uncertain economic situation affect USMCA?

A: I believe the agreement brings opportunities and certainty to trade between the three countries. Mexico surpassed Canada this year, becoming the first trading partner to the US. It is an incredible fortune for both Mexico and Canada that they have the world’s richest market as their neighbor. Nonetheless, we cannot ignore that there will be a recession over 2020 and 2021 and that the situation will be difficult. However, the agreement could accelerate the return to positive growth in the economy.

It is possible that large industrial groups in the three countries that generate their own energy, may want to sell their assets in order to focus on their core business. I see a potential to acquire these assets and then sign a long-term PPA with the industrial group. It would provide them with liquidity to focus on their core business while trusting their operation to ATCO, for which this is our core business. This is one of the opportunities that suddenly originated from the crisis.

The wreckage in the oil sector also focuses us to rethink the future of energy. I hope people will not walk away from renewables, as these are the future.  Nonetheless, it is just a bump in the road for oil prices. Oil, however, is a finite resource. We need to accelerate this transition to renewables. Transitions are long term, after all. We will still use fossil fuels in 20 years but we could accelerate a switch to renewables and limit the use of oil to specific sectors. COVID-19 and the economic crisis, as well as the oil price crash are mere economic phenomena. Yes, it is historical and significant, but in the long view of transitioning toward renewable energy it is just a bump in the road.

 

Q: What are the company’s main goals in the short term?

A: We would like to get our solar plant in Chihuahua online, although this is now uncertain. It does not make sense to invest millions of dollars more into something that might not get connected to the grid at all. ATCO will certainly start focusing its energy on the private sector, as we are not sure what the plans of PEMEX and CFE are. For example, if an automotive company needs 20MW, we could sign a long-term PPA with them and manage their energy needs. By the end of 2020, we hope to have identified up to three projects of that smaller nature.

ATCO Group is a major Canadian company with over 7,000 employees worldwide. Its diverse subsidiaries are prominent in the gas, electricity, construction and logistics industries. In Mexico, the company also provides electricity and related services as a qualified supplier.

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