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News Article

Making Sense of Energy Management and Its Clear Benefits

By Cas Biekmann | Wed, 09/01/2021 - 16:31

You can watch the video of this panel here.

For commercial and industrial players in Mexico, there are plenty of options available to gain cheaper electricity prices and boost sustainability rates. So many, in fact, that the possibility is almost dizzying. Industry experts shine a light on how companies can make the best decisions with the options available.

“We now live in a world of options,” said Carla Ortiz, Country Manager Mexico at solar energy developer RER Energy Group. “This has not always been a reality for Mexico, where the market was covered by a single entity, state-owned utility CFE, until the Energy Reform was instigated in 2014. Today, there is an option to address your own energy supply,” pointed out Katya Somohano, Energy Director at globally leading steel and wire producer Deacero.

Cutting energy costs, often a Top 3 expense for companies, and addressing sustainability are among the main reasons why companies would switch to the electricity market or build an on-site energy project. “Being able to meet ESG goals and have visibility on energy costs while achieving savings is essential,” said Santiago Villagomez, CEO of solar developer Energía Real. Villagomez said that his clients often used to be “frustrated,” not only with the lack of options available to them but because they did not understand their untransparent energy bills at all. This is a crucial issue for energy users, said Guillermo Bilbao, Director of Energy Business Mexico at Minsait. “Visibility and transparency give power to the energy user,” he said. Yet many companies are a little fearful of entering a new environment like the energy market. Nevertheless, Sean McCoy-Cador, Director of Energy Supply at Edison Energy, believes that it is better to make the switch sooner rather than later. “If you wait too long, your decision will never be the optimal decision. It is all about entering the market to unlock the benefits in the longer term even if it does not pay off right away,” he said.

The motivations to move to Mexico’s wholesale electricity market (WEM) are therefore clear. Even though it is still a young market, it already shows vibrant activity. According to CENACE’s latest figures, the market features two basic suppliers catering to conventional domestic energy users, 53 qualified suppliers, 109 power generators, 21 non-supplying commercializing entities such as natural gas suppliers and CFE as the only so-called intermediation generator. Deacero is the only qualified user to also actively participate in the market due to its large capacity demand and the type of electricity it uses.

One of the main options available is the ever-popular power purchase agreement (PPA). This is a contract signed between an offtaker, a qualified user in this case as they have a demand of more than 1MW and are signed up to the market, and a qualified supplier that facilitates the access of the user to the WEM. Somohano highlighted some of the benefits of these PPAs. “Energy users can directly decide which energy technology they want to use, so 100 percent renewable energy is a possibility, often at a low cost.” Through creative solutions, a tailor-made energy supply can even hedge risks. But the biggest advantage of singing a PPA is cost. “The long term gives you the big advantage of a low price,” said McCoy. Some companies prefer to buy electricity in the short term on the spot market, but many consultants advice toward the benefit of a 10 to 15-year contract, a solution that perfectly suits power producers too.

Although the supply-focused PPA remains as popular as ever, innovative solar developers such as RER Energy and Energía Real offer a different model. They construct a small solar installation for clients, absorbing the risk of the investment in the technology on behalf of the user. They then sign a long-term PPA with the client. After this period, the client can keep the installation if they so choose. According to Ortiz, this approach has another benefit: “There is no regulation slowing down behind-the-meter solutions.” Villagomez, whose company recently attracted important capital from Riverstone Holdings, highlights the potential of these players to attract financing. Taking on debt to build even small solar projects can be challenging, “but banks are looking to sponsor energy experts that facilitate small energy projects because they can mitigate the risks of their investment,” explained Villagomez.

Plenty of opportunity remains on the table, but industry experts agree that one issue is essential to make any form of supply a success: energy efficiency. “If you cannot make a good use of your supply, you leave most of the benefits on the table,” said Somohano. This efficiency can be more complicated than expected at a first glance. Extensive monitoring and data gathering is required to fully understand C&I operations. Once energy use is adequately understood, companies often need to change their productive processes by turning on heavy machinery when electricity prices are lower, for example. “Understanding energy efficiency comes first, then people will tailor their options and finally companies will improve their consumption,” outlined McCoy. Ortiz stressed that in the realities of the market, this often goes differently. Clients begin by adapting an on-site energy solution and become a more sophisticated energy user in the process. “Solar can be a good start to become more energy efficient,” she said.

One added advantage of becoming a more knowledgeable energy user is that companies can comply more easily with the grid code, an issue that regulatory commission CRE will likely soon enforce through high fines for those that do not meet stringent requirements. “However, the grid code is not only about regulatory compliance, it helps to save costs and be optimally efficient, too,” said Bilbao.

Cas Biekmann Cas Biekmann Journalist and Industry Analyst