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Analysis

Energy Efficiency is Always a Good Bet

Wed, 02/22/2017 - 13:58

The presentation of the government's Energy Transition Strategy to Promote the Use of Cleaner Technologies and Fuels added a new milestone to those reached by the Mexican energy industry in 2016. The document not only had updates on the country’s clean energy goals, setting 50 percent as the target for 2050, but it also included energy-efficiency targets for the first time in Mexico’s history. From 2016 to 2030, the country aims to reduce its energy intensity by 1.9 percent and from 2031 to 2050, 3.7 percent. Energy efficiency is now officially part of Mexico’s energy strategy.

The arrival of digital and automation technologies to the manufacturing and power industries is boosting capabilities for monitoring and control of energy usage and the identification of critical areas to reduce consumption. The introduction of performance contracting schemes, that eliminate the burden on end users to provide large upfront investments, has also helped to spread the usage of efficient equipment, not only in the industrial but also the public and commercial segments. These preliminary investments are instead covered by the supplier, for whom the outlay is recovered through cost reductions due to energy savings.

Companies and municipalities that have already tasted efficiency usually come back for more. But getting clients to invest for the first time continues to be a challenge due to the lack of awareness, particularly among SMEs, and the drop in the electricity tariffs experienced in 2015 and early 2016.

“Some Mexican clients tend to be suspicious about the periods needed to recover the investments required for energy-efficiency projects, which a few years ago was three to five years and now is up to eight to 10 years, depending on the size of the investment. The hardest part is to get clients on board for the first time. Once they have tested the benefits of energy efficiency, they tend to be eager to develop other projects with us. Changing the initial mindset is particularly difficult now due to the price per kilowatt-hour and the exchange rate,” says Francisco Torres, Director General of Veolus.

From 2014 to 2015 the price per kilowatt-hour dropped almost 25 percent for industrial customers and 8 percent in the case of commercial customers. In 2016, however, electricity rates began to rise again, climbing close to 24 percent from May to October in the case of industrial users. The change in the US political landscape is also likely to put some pressure on prices for natural gas – the most used fuel in Mexico’s power system – which is likely to raise electricity rates. Higher electricity prices might not make the industry happy but they might be a wakeup call: no matter what the price per kilowatt-hour is now, reducing energy consumption is always a good practice.

SPECIAL BOOST FOR COGENERATION

Of all the efficient technologies, cogeneration is expected to receive a special boost from the Energy Reform. The fact that companies can now commercialize electricity and not only use it for self-supply purposes has added a new incentive on top of the energy savings that high thermal-energy consumers can achieve with this technology.

Moreover, efficient cogeneration is considered a clean energy technology in the Energy Transition Law, which means it can receive CELs, an extra revenue stream that adds to its attractiveness. The uncertainty over the rules for distributed generation systems was holding companies back but now that they are available the expectation is that that trend will turn around.

“With the implementation of the Energy Reform and growing international concerns about climate change, we expect cogeneration and energy-efficient projects to grow strongly in Mexico, covering a large share of the national energy demand in the near future. The speed of this change will depend on the government’s willingness and efficiency to implement the measures that are clearly defined by the laws but not yet put into practice,” says Lorenzo Arena, President of INCO.