Patricio Gamboa
Energy Director

Energy-Intensive Industry Looking Toward Market Liquidity

Wed, 02/21/2018 - 17:28

Some companies in Mexican industries have taken early action to reap the benefits of a diversified energy matrix in the country. Grupo Alfa, CEMEX and Ternium, to name a few, have contracted the entirety of their energy consumption via long-term contracts and prices set for the next 10 to 20 years. Domestic steel manufacturer Deacero has taken a different tactic. “Delaying decisions reveals future opportunities. As of today, Deacero has contracted only 10 to 15 percent of its total consumption, meaning we still have between 2,000- 2,200GWh per year available that we can distribute within a diversified portfolio of power-producing technologies,” says Patricio Gamboa, the company’s Energy Director.

The steel industry heavyweight is letting business sense dictate its transition to cleaner and renewable energy. “Deacero was the first industrial client to sign a renewable energy supply contract with a power producer under the new regulatory framework. Renewable energy prices are sufficiently attractive to justify our decision, both on account of securing CELs and energy supply. Today, we are analyzing our next steps.”

Deacero is among the Top 10 energy consumers across Mexico’s industries and is the third energy consumer in the steel industry nationwide, according to Gamboa. “For 2018, we are estimating a yearly consumption of 2,500GWh. Compared to Mexico’s total energy consumption levels of 2016, amounting to 270,000GWh, Deacero alone represents just under 1 percent of the country’s consumption.”

Despite the attractiveness of reducing energy consumption costs, siding with either purchasing more fossil-fueled or more renewable energy is far from a done deal. “A steel plant’s energy consumption, particularly when producing through an electric arc furnace, is a highly discontinuous energy consumption process,” says Gamboa. “Solar power supply resembles a bell-shaped curve starting at 8am, going up until 1pm before decreasing and stopping at 8pm. This bell has to be transposed to our own consumption, which needs to be consequently optimized. Combined cycles present a similar conundrum since on the one hand you have a steady and constant supply of energy while your consumption levels are intermittent.” Even the best optimization processes create the need for energy trading in the spot market, carrying inherent risks from long or short positions. “We are undergoing the joint development of a large combined cycle plant in conjunction with Fisterra Energy. Deacero’s intent is to contract a significant portion of its consumption from this plant, while at the same time selling power to third parties. The balance of Deacero’s consumption will more than likely come from renewable sources at fixed prices. Renewables will play the role fit to our ability in consuming it competitively.” 

Besides a diversified energy portfolio, a solid track record, with a diverse catalogue of local projects where the construction phase is attained and projects are delivered on time, are among the factors Deacero looks for in a power producer. The company holds two power contracts, one originally with Fisterra Energy (Ventika, which has since been sold to IEnova) and the other with IEnova. “Fisterra's team brought a good track record and has financial support from its parent company, Blackstone, while IEnova offers the solidity of an indexed company that successfully completed a wind farm and a combined-cycle plant in Baja California, in addition to its parent company, Sempra Energy,” Gamboa says.

With over 80 percent of Deacero’s energy consumption still to be allocated, the company targets a long-term strategy. “As years go by, we will have a better understanding of Mexico’s energy market dynamics and a verifiable track record of price discovery.” Deacero has a clear set of priorities mapped out for the near future. First, secure the most competitive energy purchase available in the market. Second, be an active trading participant, from either its generation capacity or by extending its supply contracts to third parties. And third, further develop its market intelligencegathering methods, strengthening its ability to advise energymanagement strategies. Once its load-management entity under development is formed, this same management can be offered to third parties. “Developing price predictive systems and anticipating critical hours to obtain the best controllable demand-response approach and avoid operating during peak pricing hours is what we want to accomplish internally and offer to third parties,” Gamboa says.