/
News Article

Energy Is Crucial for Mexico’s Varied Industries

By Antonio Gozain | Wed, 03/09/2022 - 15:27

Energy plays a critical role in the development of countries. Industries across Mexico are increasingly demanding more electricity, but most of the grid was built when this demand was substantially lower. While this poses a challenge, an open market and dialogue with all stakeholders can help to fix problems and keep Mexico competitive in the global market, agreed industry experts.

“There must be electricity for everyone, without blackouts. To reach competitive prices, an open market is essential. Mexico needs a strong CFE and consumers must comply with the Grid Code. Transmission and distribution should keep pace with the country’s growth, too. We must continue transitioning toward clean energy, respect the rule of law and see private investment as a complement to CFE’s business,” summarized Carlos Hernández, Vice President of Renewables, COPARMEX.

Mexican industries face diverse energy challenges, including electricity demand, generating sufficient heat and facilitating the sustainable transition to renewable energy consumption. Following 2015’s Paris Agreements, Mexico committed to generate 35 percent of its energy using clean sources. To measure compliance with these emission reduction goals, Clean Energy Certificates (CELs) were created. CELs certify that an adequate percentage of the electricity consumed by users comes from renewable energy sources.

CELs and Energy Attributes Certificates (EACs) will continue to play an important role in the automotive industry, said Diego Arjona Argüelles, President of CANACINTRA’s Energy Commission: “The Mexican automotive industry is enormous. Beyond OEMs, suppliers across the entire value chain that export parts to North America or the EU may need to prove that their operations are sustainable. Traceability therefore plays an important role in the industry.”

The automotive industry is one of Mexico’s most important sectors, contributing around 3 percent to the country’s GDP. Automotive manufacturing has become more complex during the past decade, both due to advanced vehicle technology and automated manufacturing. In 2013, light and heavy vehicle production consumed 3883.3GWh, making it the tenth largest energy consumer in the country, reported the energy ministry.

Another important industry for the Mexican economy is the mining sector, which represents 2.3 percent of the country’s GDP. Energy is one of the biggest expenses for mining companies, constituting approximately 30 percent of total cash operating costs, according to Deloitte. Energy management solutions offer significant opportunity to the mining sector. Companies can reduce energy consumption by 15 to 20 percent in their existing mines through an effective energy management program, as well as up to 50 percent in new mines by designing them with energy efficiency in mind.

Renewables are set to become a mainstream energy source for mining companies, as they have the possibility to lower operating costs and improve their safety, reliability and sustainability. In Mexico, the mining industry was the fourth largest energy consumer during 2020, consuming over 10,800GWh, said Gustavo Ortega, President of CAMIMEX’s Energy Division. “The mining sector is actively working to reduce its carbon footprint. Thirty-one percent of the energy it consumed in 2020 came from renewable energy sources. We are also focusing heavily on energy efficiency.”

The energy sector’s own manufacturing is increasingly seeing Mexican participation. “The presence of national components in wind energy’s supply chain was close to zero in the past. Currently, more parts of wind turbines are being manufactured in Mexico. Nevertheless, legal certainty is crucial for more investment to arrive and increase this participation,” said Ortega. Mexico is also a major producer of transmission and distribution cables and transformers, said Arjona. There are over 110 cable manufacturers present in the country, creating a MX$50 million (US$2.5 million) yearly business, according to Market Data Mexico. Nuevo Leon, Baja California and Sonora are the major cable producers in Mexico.

Energy drives the development of Mexico’s industries, said Hans Kohlsdorf, Founding Partner, Energy 2 Market. He pointed out that most of the grid was built when electricity demand was not as high as it currently is. “Natural gas use has increased and Mexico has a great opportunity to produce it itself instead of importing from the US,” said Kohlsdorf. Mexico has a big opportunity to grow its industry and continue being a key US trade partner.

Social issues continue to grow in importance for various industries. However, it has always been at the core of the mining business, explained Ortega. “We work in marginalized areas. When mining arrives to these communities, roads, schools and positive community engagements are developed,” he said. Long-term energy auctions should include this social angle, said Hernández: “Contracts should be given to companies that have the biggest positive social impact, beyond the ever-important business case.”

Discussing the current potential changes to the regulatory framework of the 2014 Energy Reform, the experts agreed that it is important to listen to all stakeholders before taking a decision, including players from different industries.

Antonio Gozain Antonio Gozain Journalist and Industry Analyst