Mining for Gold in the Power MarketWed, 02/22/2017 - 17:55
Large energy consumers saw an opportunity to reduce electricity costs when the 1992 reform of the Public Electricity Service Law finally allowed private parties to invest in power generation projects under limited schemes. Self-supply quickly became the favorite figure used by large energy consumers, introducing companies from different backgrounds into the power generation world. The Energy Reform has opened up new opportunities to capitalize on these assets.
Grupo México, one of the world’s more profitable mining groups, decided in 2010 to build two 250MW combined- cycle plants to power two of the company’s mines and a metallurgical complex in Sonora. It also invested in a 74MW wind farm, which was developed by Spain-based Gamesa in Oaxaca and has Cinemex and Ferromex also as off-takers. These projects all were developed under the self-supply scheme. The enactment and implementation of the Energy Reform happened as Grupo México was in the middle of developing these projects, changing the company’s perspective over its power generation assets. “While we were developing these projects, the Energy Reform was approved in the country, opening up new possibilities to profit from electricity production, including selling the surplus to third parties,” says Adolfo Velasco, Power Division Director of Grupo México.
According to Velasco, the strategy of the company had been to establish bilateral contracts and sell energy directly to off-takers. The opening of the wholesale market, however, is reshaping Grupo México’s approach. “In the short term, we will be entering the market as generators with the help of new power plants,” Velasco says. “But we are also analyzing the possibility of getting involved in the commercial side and entering the market as electricity suppliers or traders, gradually expanding our presence along the whole value chain.” Grupo México has not yet acquired new power generation assets, as it is working on the best strategy to grow in this market. “Our main objectives are to identify who are the key market players and find what added value we can bring to the market, whether it is capacity or CELs,” says Velasco.
The power auction results have placed renewables in an advantageous position in the company’s vision for the future. “Renewable energies are becoming increasingly important due to falling generation costs that have increased their competitiveness in open markets,” he says.
“We are evaluating the feasibility of installing efficient co- generation projects powered by natural gas and large solar parks in our facilities in Sonora, a state that offers high solar irradiation. We are also analyzing the possibility of acquiring additional wind facilities and investing in mini-hydro installations and geothermal energy, which have shown great potential in Mexico,” Velasco adds.In addition to cost competitiveness, renewables are attractive to Grupo México because they contribute to its sustainable development. According to the company’s 2015 Sustainable Development Report, Grupo México’s power generation assets avoided the emission of 237,379 tons of CO2 because they are cleaner than the average power generation facilities in the country. Velasco says that Grupo México’s main goal is to become self-sufficient regarding energy usage. As such, part of the company’s new power generation assets, renewables or not, will be dedicated to meeting the demand of the group’s divisions. Velasco adds that, “in the current environment, however, the division has also looked for external clients to sell its energy as a strategy to increase its competitiveness and keep the business growing.”
Grupo México has alliances to ensure the correct O&M of its power plants and strategic partnerships will remain crucial in the company’s new strategy. “Energy generation has never been the core business of Grupo México, which means that we have had to learn from scratch,” says Velasco. “We are now looking to capitalize on the opportunities brought by the Energy Reform by keeping ourselves updated and establishing partnerships with key players with broad experience in the sector.”