Green Hydrogen is the Next Step in Energy Transition

Q: What were the opportunities that led to the creation of Energía Eléctrica BAL, now known as ElectroBal?

A: In 2015, the electricity market for power production and commercialization was privatized. This market had already been open to the private sector since the 1992 Energy Law, when power production was liberalized for self-consumption, independent power production and small-scale production. Nevertheless, the 2014 Energy Reform widened the possibilities.

Grupo BAL is a large conglomerate of companies with a total energy demand of around 1,000MW. As a result of the market changes in 2014, Grupo BAL decided to participate in the energy sector, both in power production and in oil and gas. ElectroBal aims to supply the group's companies with mainly renewable energy. Mining is the group's strongest business branch; Peñoles and Fresnillo are the predominant companies. Both players are subject to a volatile commodities market with an internationally fixed price. Therefore, their revenue is strongly linked to their production. This drives us to seek the lowest possible costs, as our profits are always limited.

In addition, most of the group’s mining production is exported. Our customers abroad are increasingly demanding that the energy used to produce our gold and silver comes from renewable sources. Both conditions have prompted BAL to change its conventional energy supply systems.

Q: What is the make-up of ElectroBal’s energy portfolio in Mexico?

A: Our first plant used petroleum coke as fuel. Subsequently, we began developing wind farms throughout Mexico. Our current portfolio includes an 80MW wind farm in Oaxaca, a 200MW wind farm in Saltillo, Coahuila, and a 300MW wind farm in Victoria, Tamaulipas. We also have several renewable power production projects that have remained in our pipeline.

Our original plan was to invest US$2.5 billion and then produce 2,500MW to meet our energy needs and the demand from our partners. However, with the shift in the national energy policy that started in 2018, we found ourselves at an impasse with wind and solar projects that had already advanced. This situation has led the company to turn toward more innovative and attractive renewable energy alternatives to meet its sustainability objectives, such as green hydrogen.

Q: What are the areas of opportunity and vulnerabilities renewable power production creates for the energy mix?

A: Groupo BAL’s goal is to mitigate the effects of intermittency within the National Electric System (SEN). CFE has complained that wind and solar, due to their intermittent nature, cannot supply power around the clock to industries. Although we have a significant installed renewable capacity, CFE acts as our backup supplier. This forces CFE to operate somewhat inefficiently, as the vast majority of its portfolio is natural gas-fired combined cycle power plants. To obtain the highest efficiency from these plants, they must operate at full load, which is not required when industries are also self-supplied with intermittent renewable electricity.

The intermittency of renewable power can be mitigated by incorporating energy storage systems. However, this solution also has its limitations, since current batteries do not have the storage hours capacity that the SEN would require to eliminate traditional, polluting power sources. In addition, technological advances are not yet sufficient to make batteries an economically viable solution on a large scale. Nonetheless, batteries can help with smaller storage capacity to regulate energy peaks that harm the grid. Therefore, we are interested in exploring energy storage further.

Q: Why did ElectroBal choose to bet on green hydrogen and what strategy do you have for implementing this solution?

A: Green hydrogen is a clean energy source that does not present the problem of intermittency as solar and wind do. Moreover, we can produce it through an integrated value chain with our existing renewable power assets. Green hydrogen can also be produced without being connected to CFE’s grid, which avoids creating the inefficiencies that plague the state utility. Green hydrogen can be used as fuel for engines or hydrogen-based combustion cells. This energy is completely clean and is more efficient than internal combustion engines.

The challenge is that the cost of electrolyzer is not yet affordable, so hydrogen generation is not economically viable. However, the trend is demonstrating a behavior like that of solar panels. Within the next 10 to 20 years, we expect that this technology will become much more competitive.

Group BAL has remarkable plans to replace diesel used in mining and personnel transport trucks with green hydrogen. The group consumes 200MMl/y. Diesel is expensive and generates heavy carbon emissions. By replacing this fuel, BAL will reduce its operating costs and gain a much more environmentally friendly operation with zero emissions.

Q: Grupo BAL’s goal is to achieve energy self-sufficiency by 2023. How close is it to reaching this target?

A: We are very close to achieving our goal. The group is currently purchasing only 12 percent of the energy it requires from CFE. We have other projects in the pipeline to fulfill the 2023 goal.

Q: How are cogeneration plants contributing to the materialization of this landmark?

A: After the regulatory uncertainty created by the changes in energy policy, CRE published an agreement in late 2021 regarding isolated supply. Agreement 37 established that a company can meet its own energy needs and can buy small amounts to make up for shortages or sell small surpluses to CFE from its self-supply.

Grupo BAL has a chemical plant in Ocampo, Coahuila, which produces sodium sulfate. This plant has an energy requirement of 20MW and 104t/h of steam. Three years ago, we decided to develop a cogeneration project to supply the plant's needs.

In an open cycle power plant, efficiencies are around 33 percent and combined cycle efficiencies stand around 60 percent. Our cogeneration project reached 90 percent efficiency, lowering our production costs and boosting competitiveness. Initially, we wanted our cogeneration plant to be steam-driven, allowing us to produce 104T/h of steam with 60MW of electricity capacity. The high surplus in electricity generation caused CFE to demand reinforcement work due to the change in its system. This made the project unfeasible.

Grupo Bal decided to shift to an electric-driven cogeneration plant, where it would produce the 20MW it required along with half of its steam demand. Here, efficiency remained at 87 percent. With the publication of Agreement 37, the viability of this project increased. The cogeneration project in Coahuila is an example of the plans we have for our future investments in energy self-supply. We are approaching CRE to develop this cogeneration project in Coahuila and to explore the feasibility of similar clean energy projects in the short term that contribute to our energy self-sufficiency and that are also attractive to CFE.

Q: How have your plans to grow your participation as a qualified supplier evolved?

A: The company’s 306MW wind farm in Victoria, Tamaulipas, is the latest project to be inaugurated. We built this plant to supply energy to Peñoles. Due to its investment portfolio, Peñoles is committed to purchasing 300MW from the Victoria plant. However, it will not be able to do so immediately but will consume this amount of energy until 2027. In 2020, Peñoles consumed 200MW of what BAL produced. Therefore, we decided to sell our surplus to third parties as a qualified supplier for the next seven years.

Due to changes in energy policy and current regulatory uncertainty, our plans to expand our capacity as a qualified supplier are on standby. If conditions change and become more favorable for this line of business, we are open to exploring further developments.

Energía Eléctrica BAL is Grupo BAL’s power production subsidiary. In 2016, Grupo BAL, through Energía Eléctrica BAL, established an alliance with AES to create EnerAB. The goal of the partnership is to capitalize on Mexico’s renewable energy projects, efficient cogeneration, LNG and energy storage facilities.