Fostering Competition in the Energy Sector

Taking the necessary steps to realize Mexico’s commitment to an energy market open for private business and having renewable and clean energy technologies play a preponderant role in the country’s energy mix, the country’s regulatory authorities made a point of integrating international best practices and adapting it to Mexico’s reality, as the long-term electricity auctions show. Can Mexico enhance competition under a level playing field outside of these auctions?

“A significant European contingent has entered the market, spearheaded by Spain, Italy and Germany. As an input for the design of the auctions, these international entrants expressed their concerns about Mexico’s renewables industry in an effort to avoid repeating past mistakes and hasten the country’s energy transition process,” says Oscar Bernal, Director General Mexico of Eosol Energy. “In regulatory terms, there is a significant difference with the initial subsidies implemented by the Spanish government to guarantee price levels. In Mexico, the authorities are doing commendable work.”

While the long-term electricity auctions are effective from an economic standpoint, Bernal believes the only analyzed variable is price. “We believe that energy policy is too big an issue to be constrained by this variable. Prioritizing technical elements and focusing on capacity requirements rather than approving a maximum number of projects is essential,” he says. The private sector is closely watching the development of the projects from the first auction because those will be the measuring stick for the projects still to come. “We will pay close attention to the projects that become operational while looking at how to fill the gap left by those that do not,” says Bernal.

Bernal says Eosol’s competitive advantage lies in its alternative strategy. “All our five projects in Durango so far have been developed under a full equity scheme, with the exception of our most recent, a 23MW PV solar park in Matamoros, Coahuila.” Eosol’s strategy formed almost as a rebound effect from the auctions due to the absence of private projects. With its full equity advantage, clients started knocking on its door. “In the last 10 months, we have received more renewable energy development projects than in the six years since our company was established.”

By its very nature, renewable energy tends to be concentrated in areas of the country where the targeted resource abounds. In the case of solar power, the bullseye was on Baja California. “We anticipated project concentration in this state so we decided to land a foothold in Durango,” says Bernal. When analyzing the available electricity infrastructure for energy projects — both within and outside the auctions — Bernal says Mexico’s electric infrastructure is, in some cases, insufficient and in others even obsolete. “Usually, infrastructure is unable to follow the boom in this industry once triggered, especially considering the growth in demand that electricity will experience in the coming years.”

When it comes to tackling solar intermittency issues to guarantee its competitiveness against fossil fuels, Bernal points out that oil and coal continue to have a strong presence in Mexico’s energy matrix while all forecasts agree the country will see a dramatic increase in electricity consumption in the coming years. “As a power source, renewable electricity will have an increasing portion of the energy pie as it gradually replaces fossil fuels," he says.

Potential intermittency issues arise when renewable energy reaches a high degree of grid penetration. “In Mexico’s case, this will become a pressing issue in the mid to long term. Intermittency does not become a relevant issue until it reaches 50 percent grid penetration.”

Before the end of 2017, Eosol was to have six operational projects amounting to 93MW, which means it will have the greatest number of operational MW in the country. “Tai Durango I was the first solar project on the national electric system. Eosol pioneered the process of connecting a renewable energy project to the grid in Mexico.” The solar company’s goal is to be Mexico’s largest PV plant operator and asset manager.