Matching Energy Supply with DemandBy Cas Biekmann | Mon, 06/29/2020 - 14:07
Q: What have been the company’s biggest contributions to Mexico’s energy sector?
A: The company has been active in the industry for the past 10 years. Since the enactment of the Energy Reform, it has concentrated its efforts on the power sector. We started out by analyzing and understanding the market rules and since then we have specialized in more specific areas related to how the market has developed. We are market consultants in the sense that we help companies understand regulation, identify business opportunities and to establish networking connections in the country. Most of our clients are foreign companies that came to Mexico after the Energy Reform. Our work revolves around market sizing and information, so we translate public information into market analysis. For instance, the company has developed market tools out of CRE’s databases.
After the administration took office and private auctions were canceled, we focused our work on bilateral PPAs. We have worked to understand the market’s players while mapping them out along with key stakeholders. We analyzed which players would be bankable or not, with a matrix of indicators to rate them. We can identify which companies are poised to be off-takers in this market, now that auctions have been canceled. We have worked with generators and developers mainly from investment funds to allocate energy. For the past 18 months, we have allocated nearly 1TW of energy in bilateral long-term contracts. This is a result of truly understanding the market. Four years ago, we were the first to organize an event for qualified suppliers. We recently published with WWF a catalog showcasing most of the suppliers in the market.
Furthermore, the company has been working with US distribution and transmission companies that were trying to cross the border into Mexico. On the regulatory level, mutual understanding needs to be created to know if the transmission lines make sense. We have also focused on the end user by analyzing and understanding the industrial sector in Mexico, using a methodology based on design-thinking. We help the end user source their energy. In general, we are more inclined toward renewable energy for their plants. For example, one of our clients has 12 plants in Mexico with 260GW of consumption. We were able to allocate a new PPA for them. These are the two main directions that the company has been involved with recently.
Q: How does the company assess the feasibility of bilateral PPAs taking the place of auctions?
A: Bilateral PPAs had already been an important part of project financing. We are finding fewer of these, as there are fewer industrial players willing to sign a 15-year supply contract. With COVID-19, both supplier and user will have to adjust and be more flexible. This is an immediate response to the absence of auctions in Mexico. Going forward, we will have to be more creative in how generators will allocate contracts in the short, medium or long terms.
As to whether private auctions could fill a part of the gap, I would say yes. There are two private auctions in the works, one from Vitol and one from Bravos Energía. As far as we understand, they are facing the same problem that we have been studying: the bankability of stakeholders in the market.
Q: How is the company making use of technology to enhance its databases and models?
A: We have developed a data analysis service. We plan to launch the service toward the second quarter of 2020. We have seen a lot of software that analyzes data, nodal prices or gas prices, for instance. These tools come from more developed markets that already had access to the software before us. In Mexico, we have software that comes from the US, as well as locally created software to service different parts of the market. Since our work has always been rooted in the commercial side of the energy sector, we have developed a data analytics tool. It is an automated process where the pricing data is already available, with different layers of information for commercialization purposes. These layers will be useful for different players within the value chain.
Q: Where are the biggest opportunities for end users wanting to bring down energy costs?
A: One of the biggest opportunities is a growing market of qualified suppliers, which derives in a more competitive market through which end users could choose the supplier that offers the best price, terms and conditions. Before the pandemic, we advised users to have a flexible band of 10 to 15 percent for over and under consumption. Now, the bands within consumption profiles need to be wider, given the supply -take of pay- contracts. Our goal is to help end users understand where they can find the best energy providers. Second, the access that we have to renewable energy is much broader than we had 10 years ago. Given that there are more competitive prices, increased sustainability and flexible contract options in the market, end users can benefit greatly.
Q: How do you interpret disagreement between the private and public energy sectors?
A: We need to understand what will happen with the SENER policy that has been published in the official gazette. We panicked when we read its contents. Soon after, we began to understand it better and began discussing its contents with others. We are now understanding what the implications for the market will be, whether the policy will last and be a pushback against investors and the international community or not. We see implications on many fronts.
My main concern is international investment that turned into Mexico driven by open market rules. If the rules change, the situation becomes very uncertain. The government cannot simply put out agreements and policies of this nature and then act like it is business as usual. Another issue are the operating difficulties introduced to the system, which are specific to the agreements. There are many implications on the operational side as well, including further barriers, tests and dispatch requirements for renewable energies. If SENER’s new reliability, safety, continuity and quality of the National Electric System policy, rules out the past regulation at least 15 CRE manuals now need to be revised, which is quite a complicated task.
For one manual to be pushed through the regulatory improvement process, six months are needed. If this is done for all manuals, the sector will be stalled for many years, unless they fast track the regulatory improvement processes and rules are completely changed. The entire dynamic we have been seeing for the past few years is potentially in danger, although it is still too early to really say this. Countries are competing for investment. If Mexico no longer has the best conditions and clarity in its rule of law, even with its natural resources for renewable energy, it becomes really difficult to invest here.
Q: What are the milestones the company wants to achieve before the end of 2020?
A: We want to introduce our services regarding data analytics to other clients. Furthermore, we want to strengthen our services for end users and C&I in the country, as well as contribute to dialogue that helps carve out the path toward cleaner renewable, competitive and transparent markets.
Zumma Energy Consulting is a Mexican consulting firm focused on the country’s energy sector from a commercial point of view. It uses data analytics to find opportunities to match power generators with end users.