Japanese Giant Takes Long-Term ViewWed, 02/22/2017 - 17:57
Q: How has the Energy Reform and the wholesale electricity market changed Mitsui & Co. Power Americas’ strategy?
A: Our overall business strategy has not been greatly impacted by the country’s energy sector transformation. The objective continues to be finding long-term investment opportunities, optimizing our assets and establishing new projects that offer profitable returns on investment (ROI).
Before the Energy Reform, we were focusing on establishing self-supply plans with large industrial energy consumers. CFE was our main client. Now almost all the same actors are participating in the market but playing different roles. The new regulations have not changed our strategy dramatically but it has opened a wider range of opportunities, particularly with the inclusion of the CELs and the mandatory percentage of clean energies. Mexico’s goal to reach 35 percent of electricity generated from clean energy sources by 2024 also is a great incentive to invest in clean power generation technologies.
Q: How will the company capitalize on the new market opportunities given the legacy status of its assets?
A: The new regulations give us the option to change our contract conditions to fit the new regulatory framework or to remain under the old plan. We think the flexibility legacy projects have to maintain their old rights and obligations is one of the Energy Reform’s great successes because it is not always easy to break previously stipulated agreements. By making this decision, the Mexican government is sending a signal of stability to stakeholders, fostering trust for investing in the country. At Mitsui & Co. Power Americas we have decided to make use of this opportunity and maintain our legacy contracts under the old plans but we also will take advantage of the new regulations. Selling surplus energy in the market is one of the options. The spot market works as a balancing system and more importantly ensures the most efficient technologies are dispatched first, which is an incentive to invest in efficiency. For instance, if a company has a 250MW contract with an off-taker but is producing an additional 100MW, it can sell the surplus energy on the market, which will be dispatched if it is offered at a competitive price.
Q: Where are the greatest business opportunities, in long-term PPAs or the MEM?
A: Even though the MEM has been in the limelight during the past months, the Energy Reform has set a framework in which most business opportunities rely on long-term contracts. This will be the area that presents the fiercest competition because the nature of power generation is building infrastructure, which can only be price competitive with a long-term view. We are analyzing the results of the most recent auction while looking to establish long-term agreements with potential off- takers. The company sees a great business opportunity in establishing partnerships with qualified suppliers, one of the most important features introduced by the reform. From our point of view the Mexican government has done an excellent job shaping the rules of the new electricity market, learning from international experience and avoiding the mistakes made by other markets.
Q: To what extent is the company planning to expand its renewable energy portfolio given growing demand?
A: All clients want to buy electricity from a reliable source at a competitive cost, even though some businesses prefer a specific technology or energy source, such as companies interested in acquiring renewable energy as a strategy for projecting a cleaner image. So far, we have not established objectives regarding the share of renewables we should have in our portfolio. Our strategy is to invest in projects that are economically feasible and low risk. We are definitely interested in solar and wind projects due to the attractive returns these technologies offer but we are still analyzing the possibilities.