International Experience in Mexico’s Young Electricity MarketBy Cas Biekmann | Mon, 08/17/2020 - 10:32
Q: Why did Nexus Energía decide to enter Mexico and what are the main services it provides?
A: Nexus Energía was founded 20 years ago, after the Spanish electricity market was opened. When the sector was liberalized, power producers had to become market agents that specialized in wholesale electricity markets (WEMs). This scenario was challenging for smaller players. Nexus Energía was founded by 30 market players with the sole purpose to concentrate its efforts in the WEM and meet three needs. First, to be able to manage their own generation assets in order to successfully operate and optimize energy sales in the electricity market. Second, to meet customers’ energy supply needs and third, to provide services to other power producers and suppliers.
In Mexico, Nexus Energía has two main business lines. First, to represent power producers regarding optimization and management. Second to supply and sell energy to end users. The 18,000 power producers we represent make up 40 percent of solar producers in Spain. In 2012, many of our clients came to Mexico after Spain halted renewable energy subsidies in 2012 and asked us to provide them with our services in Mexico as well, including companies like X-Elio, OPDENERGY, and ALTER ENERSUN. The commercialization of Mexico’s energy market sealed the deal. While markets in Spain and Mexico are rather different regarding their maturity, nevertheless, they do operate in a similar way. We do not only look for the cheapest power producers but aim to forge alliances with companies that can help us meet our goals regarding corporate responsibility. We do this by focusing on those companies that are reducing their carbon footprint and working toward social and environmental sustainability.
Q: How did the company’s joint venture with COX Energy come about?
A: When we arrived in Mexico, we decided not to come alone, but to find a partner with experience in the local market to help us with our initial business development. In this regard, we had the potential to be COX Energy’s ideal partner. We were able to manage part of its assets while they developed operated and sell their energy. Our work and theirs has always had a clear division, so they could always close PPAs with other qualified suppliers and we were able to provide services to other renewable energy projects. Today, Nexus Energía offers its services to 24 different power plants.
Q: What is Nexus Energía’s outlook for Mexico’s WEM?
A: Nexus Energía has experience in Spain and Portugal, which use the same platform, as well as in Germany. These markets are rather mature, defined by sophisticated clients and consumers, who we have seen evolve over time. The modeling for energy demand in these markets has changed significantly, which happens mostly because of enhanced energy efficiency and elaborated energy purchasing strategies from buyers. Mexico’s market, however, is still at the beginner’s stage. There is a long way to go. The country started off very well, with ambitious goals and structures that required a great deal of planning to operate the market and manage the systems. Unfortunately, its evolution is now slowing.
The committees that were set up by the by the Electric Industry Law (LIE) to represent market participants have evaluated the market evolution and concluded that we remain in phase zero, with many issues still to improve. For example, the market still does not function in real time and virtual bids are not possible. In previous years, the Mexican government had worked to create manuals and focus groups to advance in this matter. Unfortunately, all of these results were shelved.
Our hopes and expectations for the Mexican WEM are few in terms of its evolution. It will still move forward because that is the natural process, but it will not do so at the speed that many had hoped. The foundational model for the market is great, and the prices coming from the long-term energy auctions were very low. However, this process has unfortunately stopped. But we must consider the age of the Mexican market. Spain’s market is slightly more advanced and has existed for 23 years. Of course, times have changed. Technologies have been tested and verified. Spain, for instance, was inspired by the UK WEM while Mexico was inspired by the US and other countries. In any case, we are sure that Nexus Energía can operate without any big hurdles in this market. We expect moderate growth, nonetheless, the company can push ahead on other fronts.
Q: How does the company assess the government’s recent shifts in policy regarding the stalling of renewable energy projects and the dispatch order for power plants?
A: The new SENER’s policy is trying to halt and review new energy projects in depth. There are some advantages of halting projects that do not have favorable locations. The main policy issues addressed in these policies are setting transparent information and levelling the playing field, including CELs assignation. Yet I am do not agree dispatch rules should change as SENER considers, nowhere else does a cogeneration power plant dispatch before a wind or solar plant. The order normally is nuclear energy goes first, as stopping it is considered dangerous, followed by wind and solar, which should be dispatched because they have zero emissions. In Mexico, cogeneration is often favored because of legacy contracts, although this is tied to political issues. Liquidity is what Mexico’s WEM needs in the end, as well as participation from many different players to enhance competition. Instead of favoring one participant over the other allowing the market to work would be beneficial, especially for the end user as it translates to lower prices. The final goal of the Energy Reform is precisely to eliminate monopolies so that competition brings lower prices for consumers.
Q: What are Nexus Energía’s goals for 2020-2021?
We started 2020 by consolidating the company’s first phase, which consisted of providing services related to managing sales for power producers. At the moment, Nexus Energía does this for 24 power plants, representing 500MW capacity and 1,300GW of managed solar and wind energy. Our goal is to end the year with 700MW capacity, as well as 2,000GW energy volume managed. In the medium term, we have the challenge of supplying energy to qualified users. We hope this will add seven to 10 end users, representing 200GW. At the moment, we are in a process of migrating Basic Users to qualified users. We are therefore looking to finalize this phase and begin to supply these clients and consider them as qualified users.
For 2021, our goal is to maintain growth. We want to position ourselves as leaders in the segment of qualified suppliers, providing services to qualified users, as well as providing consulting services because there is a general lack of knowledge in the market and in the industry. We therefore endeavor to complement our services with advice and information, which sets us apart in the market.
Nexus Energía México is an integral service provider of Spanish origin in the Wholesale Electricity Market. It specializes in qualified suppliers, as well as energy management services for renewable energy generators.