David Jacoby
President
Boston Strategies International
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Low-Cost Supply Chain Execution Capability Key to Project Success

Fri, 02/01/2019 - 17:22

Q: What are BSI’s greatest strengths according to its renewable power-generation clients?

A: BSI offers strong solutions in supply-chain sustainability for renewable energy projects. We have the ability to measure, analyze and reconfigure the supply chain of renewable projects to ensure a lasting positive impact on the environment through low carbon footprints, including the EPC portion of the projects. Our project development capability enables us to help finance project management companies through a bundle solution involving financing, project management and EPC work, as an end-toend integrated service. BSI’s analytical frameworks to evaluate different regulatory models, decades worth of consulting for the supply and demand chain, contracting methods, including other supply and demand coordinating mechanisms within the electricity and natural gas value chains are also part of the company’s major assets. This is particularly true in the context of Mexico’s Energy Reform and the requirements of the country’s infant energy market.

Q: How can developers craft profitable projects with decreasing package prices in the long-term electricity auctions?

A: This is not just a Mexican problem, it is a global conundrum. While European prices tend to be more on the higher safety margin, Latin America and the Middle East are definitely hitting low bids, driving costs to new, unseen lows. Caution must reign supreme when analyzing these costs. Price offers cannot be assessed without thoroughly dissecting the contracts in their entirety and understanding what was done to get the price to that level, from using their reliability targets or local content commitments to tweaking cost reductions and margins or cost-cutting in some potentially dangerous way, risking either performance or safety. We are seeing a slight leveling-off in PV and wind power costs on a kWh basis, after these came down 
dramatically in the recent past. We anticipate it will further drop but at a slower rate. Industry heavyweights will survive because they can soften overhead, design and engineering costs across multiple projects globally. Local players, as much as we might like to see them win, cannot necessarily build to the scale sufficient enough to bring costs down to a level that will win an auction.

Q: Where is the fine line between cost reduction and optimal long-term performance in renewable energy?

A: Effective project management requires low-cost supply chain execution capability, which is why several BSImanaged projects in a PMC capacity are a blend of local and international content that optimizes the cost position of the project’s construction, with quality as the primary benchmark. The end result is upfront analyzed and modeled costs, environmental impact and operating performance of the entire process, including capital, engineering, construction and operation throughout a project’s life cycle to ensure that fine line of quality in every stage and still win the bid.
Q: What are the prevalent regulatory hurdles your clients face when setting up shop in Mexico?

A: The common denominator is energy storage and its absence from the country’s regulatory framework. Another significant issue revolves around how to configure the regulatory framework of natural gas power generation and distribution when the sources of demand are evolving so dramatically. Natural gas is experiencing changes in volume and trade profiles that are shaping the market, such as MexicoUS trade volumes that are at levels that were not foreseen and are raising several complex challenges for regulation. In the case of electricity, the emergence of electric vehicles, which require charging stations, distributed generation and smart homes and cities offer new opportunities to feed into the grid through bidirectional schemes. But these also raise equally challenging power demand profiles that need regulating and that require new standards that are still at the drawing board stage. Power demand and supply coordination practices are set to shift dramatically, which raise not only technical, data mining and IT questions but legal, privacy, ethical and regulatory issues as well.