Infrastructure Scarcity Requires SolutionBy MBN Staff | Mon, 12/30/2019 - 07:00
Q: What impact is the change of administration having on the energy sector?
DZ: We have noticed a substantial shift in comparison to the previous administration. From a general perspective, the development of generation projects has slowed down, mainly from renewable sources. Even though the auction scheme was canceled, we still see many companies interested in investing in Mexico. On the other hand, the government has positioned CFE at the center of the conversation. Based on the Energy Reform, the utility competed with the rest of the market participants, excluding the transmission and distribution segments.
PR: From the developer side, there is an environment of uncertainty as these players are not sure if the new administration will support private initiatives. The market has migrated to the PPA segment and the spot market is an attractive alternative to commercialize energy. As this commodity is paid based on supply and demand, this model poses certain risks for generators because demand could be very high or low, but their operation still has the same costs.
Q: What are the most common bottlenecks when developing generation projects in Mexico?
DZ: Transmission infrastructure is an endemic problem for the country. During the previous administration, many projects were delayed because there was not enough infrastructure to transport energy to the consumption point. This scarcity needs to be resolved to support the industry’s growth.
PR: From a social and environmental standpoint, the required permits to develop these projects are strongly linked to the evaluation periods that the authority undertakes to approve a project. Specifically, the ETJ study requires many months to obtain a response (sometimes up to 10 months). Under these circumstances, these requirements are excessive for generators and we have identified this issue as a concerning topic for them. On the social impact side, we have clients that have been waiting for more than a year for a resolution. As these evaluations remain open due to an administrative lag, many projects are developed without having received the social impact assessment resolution.
Q: How does this situation change when developing renewable energy projects?
PR: Based on our experience, renewable energy projects have been developed in abandoned territories. The majority are located in arid zones with high insolation or wind energy resources. While some of these regions are dedicated to agriculture, this is not the main economic activity. In this sense, developing projects in these areas has positive results because communities can receive rent for leasing the land. In this scenario, it is important to ensure fair negotiations and price conditions. When working with ejido communities, these groups need to agree in order for the project to take place and their consent needs to be reflected in the leasing contracts for the lands of interest. At the Isthmus of Tehuantepec there are still many social problems inherited from the first wind developers in the region. In other parts of Mexico challenges are related to other topics, for instance, the main issue in Yucatan is the presence of rain forest , the associated deforestation and displacement of relevant fauna in the area. There are also indigenous communities in both regions. Identification of these risks amongst others is recommended to be performed at early stages of the project along with mitigation measures for these.
Q: What are ERM's key goals to ensure it provides the highest quality service?
PR: We want to understand our client’s needs by gaining a comprehensive vision of the existing markets. Even if the industry will not be auction-based, we have to be prepared and look for other niches of opportunity. The most important aspect is to develop viable projects, as this is our main role, along with ensuring projects are finished by established timelines by managing social and environmental risks, as well as reaching the operational stage without any inconvenience. The success of our services is based on accompanying our clients in every stage of the project, as well as helping them understand and navigate through the country’s regulatory environment. Our strict ethical code, aligned to the UK’s anticorruption code, is applied on every service we provide and this is why we are the allies of foreign developers.
DZ: Independently from the regulatory framework that is deployed by each administration, our main commitment is to support our clients to develop their projects. Through auctions or corporate PPAs, we seek the best solution under the respective legal framework. Even though traditional energy generation projects are gaining predominance, ERM holds the expertise to work in this segment as well.
ERM is a leading global provider of environmental, health, safety, risk and social consulting services and sustainability-related services. The company has more than 5,000 people in over 40 countries and territories working out of more than 160 offices.