Energy Reform Prospects Beckon Foreign FirmsWed, 02/22/2017 - 13:29
When Italian-based energy and cogeneration group AB started looking for new growth opportunities, the opening created by Mexico’s Energy Reform made coming to the Latin American country a no-brainer, says Enzo Losito, CEO of AB Energy Mexico. The nation’s high level of industrialization, growth expectations, geographic location and free trade agreements with the US and Canada were some of the main features that also caught the interest of the firm’s agricultural solutions unit ABGreenhouse Power Netherlands. Mexico’s stated goal of doubling electricity production by 2029 was the final push the company needed to enter the market.
AB Energy’s main area of interest —and a fresh industry opportunity— is natural gas distributed generation. “Distributed generation is flexible and can be located close to the consumption points, making it a convenient option for various industries. The new regulations brought by the Energy Reform have fostered the development of distributed generation projects,” Losito says.
The company has already targeted large industries in Mexico, such as automotive, that might be interested in its solutions due to similar projects in other parts of the world. For instance, Losito says, an 8MW cogeneration project for plastic parts manufacturing in Canada for Polycon Industries, a subsidiary of Magna, one of the largest auto parts manufacturers in the world, could be replicated, resulting in benefits to the many players in the booming Mexican auto sector.
But the path toward developing a presence in Mexico is not without its challenges, particularly when looking at the country’s aging and still unreliable gas pipeline network. “We have observed situations in which companies needed to invest heavily in constructing pipelines to carry out gasbased projects. This situation creates a barrier for Mexican companies wanting to become more efficient,” Losito says. It is hoped that Mexico’s five-year plan for expanding its natural gas integrated national transport and storage system will prove fruitful, as the natural gas infrastructure expands and the logistics become more competitive.
A key strength of AB Energy México lies in the flexibility of their cogeneration solutions, which range from industrial to commercial applications that employ natural gas, biogas and special gases (produced by the mining and oil and gas industries) in their processes. The most competitive for the Mexican market are natural gas solutions for industrial and commercial applications, while biogas solutions would need government incentives and attractive plans to be cost-competitive, Losito says.
Another area worth pursuing is greenhouse applications, says Dick Kramp, CEO of AB-Greenhouse Power. “Cogeneration applications have proved to be efficient technologies for greenhouses, an area in which AB Energy holds great expertise, making it an attractive niche to develop in Mexico,” says Kramp. “In the Netherlands, where Greenhouse Power Netherlands started, we have 3.5MW of cogeneration projects installed across 100ha of greenhouses. Mexico has over 15,000ha of greenhouses, representing a great opportunity to expand our business in this segment.”
Financial challenges, which continue to exist in the new-look energy market, will likely be less of a factor for AB’s projects here because the Italian company operates its own financing unit. “We have a company inside the group called AB Fin Solutions, which provides financial solutions and leasing options to creditworthy prospective clients,” Losito says. The company is also pursuing an alliance with an unnamed company that has raised US$340 million to develop cogeneration systems under PPA agreements.
The company’s commitment to Mexico is also reflected in its strategy of creating jobs locally to increase its understanding of the Mexican business culture and mentality. “In Mexico, we already have a group of five local technicians and we will create new jobs as the projects move forward,” Losito says. “We want Mexicans to run our operations in the country because we see this as crucial to ensuring the successful expansion of AB Energy.”