Fighting Volatility with Certainty, ExperienceMon, 02/25/2019 - 17:37
Q: Why should qualified users partner with E3?
A: We try to approach as many qualified users as possible but we also believe that not all players should move into this scheme; for some, it is better to stay on the basic supply side. The first step we take with new companies is a comprehensive and transparent analysis that considers, among other factors, their energy consumption patterns. Based on this analysis, we offer recommendations on how to proceed. As a result of this process, we have come to the realization that about 70 percent of clients are better off remaining in basic service instead of becoming qualified users. E3 has a great deal of experience in financial structuring, derivative trading and risk management, which allows us to design the structures that enable our clients to access the benefits of the Energy Reform, even when they may not be qualified users. Above all, we strive to establish trustworthy relationships with our clients: If we do not have a business proposition that will benefit them, we do not want any part of it. Tariffs for basic service users are far below market prices, which poses a challenge when trying to convince companies to change from basic services and become a qualified user. The number of final users that have become qualified users to date is minimal, practically nonexistent. We have even suggested to several potential clients that it would be better for them to ally with a different provider, especially when they have access to legacy contracts. Our core value as a company is transparency.
Q: What gives E3 the experience needed to participate in the Mexican energy market?
A: We are confident that we can support our clients, no matter their role in the energy market. We now have 20 employees, our operations team is experienced in power dispatch and energy markets and also has relevant experience with CENACE and the Electric Research Institute. We made sure that we had the technology and technical expertise in place before launching our commercial efforts. A far as our market and trading abilities, we have tried to build a team that has experience in consulting and trading, with knowledge in structuring, sales and management of derivative portfolios. Although the bulk of derivatives trading is in exchange rate markets, the derivatives in power trading are similar. Our head of markets has over 15 years of experience structuring, selling and trading FX and rate derivatives at institutions like HSBC and Santander but unlike most traders in the market, our head of markets also has experience working with CRE and Marsh in crafting the energy regulation and strategy. However, most of our knowledge of energy markets comes from our founding partners. They come from different backgrounds but they all have previous expertise in the energy market, having worked in hedge funds, government offices and regulatory entities. They were also key participants in Mexico’s Energy Reform proposals and in shaping the current energy market in Mexico. Moreover, we are about to close negotiations with an investment fund to build a working relationship that will give us access to people with experience in private equity infrastructure.
Q: How are you shielding E3 against the volatility in energy prices in the short and medium terms?
A: There are several simple mechanisms to hedge capacity and energy prices in the injection node. The issue is hedging congestion risk, particularly for periods longer than a year. If clients are willing, once financial transmission rights tenders start, we can start analyzing new options to hedge congestion but for shorter term contracts. Thus, we transfer the risks we cannot hedge to the end users, although we make sure we educate them and that they understand how congestion and regulated costs work.
Q: What criteria does E3 follow to consolidate its generation portfolio?
A: We are open to working with all companies; we analyze each project independently and we determine what each generator can bring to the table. In the end, all we want is an offering that we can market successfully. We have had most success with generators with a balanced and strong portfolio in Mexico or abroad, because this allows us to get a head start in any new project.