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Mexico's Energy Market Boosted by Private Auctions

By Cas Biekmann | Wed, 03/11/2020 - 17:40

Mexico’s energy market has a great deal of potential. Although bigger projects have been put on hold, private auctions are being created to fill the void, according to the final panel discussion on Wednesday, at the Mexico Energy Forum 2020 at Mexico City’s Sheraton Maria Isabel hotel. Leonardo Beltran and Francisco Salazar moderated the panel that included Jeff Pavlovic, Miguel Alonso and Eduardo Arriola.

The panel highlighted the experiences of renewable energy producers, exemplified by Alonso, Country Manager of ACCIONA Energía. While he said it is true that bigger projects have slowed down, the company is nonetheless committed to advancing its operations in Mexico. "We are installing and operating 500MW in Mexico through a variety of projects. We plan to continue with our current strategy,” he said. "Mexico's goals haven't changed but the energy model has shifted to give CFE a larger role, and we must adapt.” The panel agreed that large-scale projects are a necessity for consumers because they keep prices down and efficiency up.

Indeed, the side of the energy industry focused on purchase and sale of projects is quite active in Mexico. Alonso said he did not believe new auctions would happen soon. It seems the industry agrees, and two companies are stepping into the ring to provide opportunity: Vitol Group and Bravos Energía. The companies have founded private auctions, boosting the industry by providing a new platform on which it can trade. These auctions are apolitical in nature, merely seeking to facilitate trade, said Arriola, Originator at Vitol, and Pavlovic, Director General of Bravos Energía.

Beltran highlighted the importance of legal certainty. The panelists agreed that for investors, longer contracts and a certainty that previously set rules would be respected are key. Beltran argued that the platform has great potential due to the fact that agreements are made between private players, who can keep it transparent. Added Arriola: "To make contracting procedures more efficient, a framing contracting model needs to be established.” The government, however, needs to provide stability in the rule of law as well, as giving investors the notion that regulation might change at any moment puts them off.

There are bound to be some flaws in agreeing on the terms of engagement among interest groups. "It is common for the efficiency of market design to clash with the individual rights of stakeholders. Mexico is no different,” Pavlovic said. In the end, he suggested, small flaws here carry less weight than the heavy potential investments the auctions enable. By keeping bilateral contracts simple, smaller companies can enter the fray as well, instead of seeing this part of the market dominated by a few big players. This, in turn, can decrease energy bills all around.

To conclude, the panel agreed that synergy between the private and public sectors is needed to reach Mexico’s ambitious goals regarding energy. Infrastructure and project development need to be boosted, for instance. If both sides of the sector work harmoniously, there is much to be gained.

Photo by:   Mexico Business News
Cas Biekmann Cas Biekmann Journalist and Industry Analyst