Moving From Congestion To Consumption Creates Opportunity

Q: What makes Mexico a permanent destination for the company?

A: Kolya was established in Mexico before the 2014 Energy Reform. After the reform, we developed two projects and decided to open our office in Mexico City.. Mexico has great potential to improve its energy mix as it is still reliant on harmful fossil fuels, such as fuel oil. At the same time, the country has great potential for renewable energy amid growing electricity demand because of its massive industrial development, including mining, automotive and consumer goods. It has a large amount of electric energy use per capita in general, though not as much as some European countries. Mexico’s population will continue to develop to this level, so energy consumption will not stop growing. All factors combined, there is a great opportunity to develop energy and clean up fossil fuel use in the energy matrix.

Q: How have the company’s auction projects progressed and where are you focusing your developmental efforts?

A: Following the first auction, we developed the 60MW Aguascalientes Potencia project for Canadian Solar, a major company in the sector. In the third auction, we developed once again with Canadian Solar for the 123MW El Mayo solar power plant. We have other projects in various stages of development and we aim to participate in the Wholesale Electricity Market (WEM) at specific nodes where energy prices are higher and congestion is not an issue. Kolya started developing such a project in 2019. We wanted to begin construction in 2020 but the COVID-19 pandemic halted the activity of CRE regulator and grid operator CENACE. For this reason, we could not start the construction for our project located in the State of Mexico. We are also active in other states in the center of the country, such as Hidalgo and Puebla.

Q: How does Kolya assure that merchant projects are viable within a challenging environment for developers?

A: For such projects, Kolya needs to arrange its development differently. It is better to build them close to the point of consumption for the WEM. This avoids congestion in transmission lines and substations, which is a major issue for energy traveling from north to south and has even created blackouts. We aim to sell part of the energy on the market through power purchase agreements (PPAs) with private offtakers in a mixed-energy strategy. We changed the financial strategy for the projects, which are funded by US dollars, to a new model that creates other income sources in Mexican pesos. Part of the project aims to make a profit from the WEM and part of it seeks out the stability of local industries.

Q: How does Kolya work to support communities close to its projects?

A: We try to have a good socioeconomic impact on the states in which we operate. For example, we provide a food pantry for the population close to our developments in Hidalgo, like when there were the floods in Tula de Allende. We also help in the fight against COVID-19. In general, Kolya has increased its social activity in these areas. Kolya prides itself on its social and environmental policy. This is why it is important to build a good rapport with communities and improve their infrastructure.

Furthermore, Kolya has an agreement with the University of Hidalgo. We participate in renewable energy conferences and provide as much information as we can to promote the benefits of renewable energy and offer internships that students require to graduate. As a result, we can further tackle misinformation surrounding solar energy and improve the technology’s reputation.

Q: Where do you see opportunities for greenfield development?

A: We are experiencing changes in Mexico’s energy regulation. The government could publish changes to how the market is governed or where development is allowed to happen, as it did recently in regard to who can receive a generation permit. This will likely cancel some projects of which the construction has not started yet, and free up capacity, which will create new spaces to develop renewable energy projects that do meet requirements. Developers need to account for how the grid will operate because previously planned large developments to boost the network have been taken off the table.

Furthermore, newer hybrid energy projects provide a great opportunity for CENACE to regulate such combinations; for example, with solar energy and battery storage. In other countries, it was not necessary to receive an interconnection permit without adding storage to the mix. This situation has completely changed since 2018, just like Australia. Mexico has similar grid issues to Australia, in relation to large distances without population, so storage can solve many problems created by a spread-out transmission infrastructure and high energy demand. In the future, green hydrogen could also be used in hybrid projects.

Q: What are Kolya’s main goals for 2022?

A: Kolya wants to establish its activities in central Mexico, where energy consumption is high. We want to develop our projects further and obtain the necessary permits under CRE’s new rules. Furthermore, we need to prepare for and follow government regulatory developments and analyze how the requirements for our projects will shift as new rules are implemented. I agree with some changes made to the requirements for generation permits published in CONAMER. Not all new regulations are necessarily bad because they can potentially improve the market and its technology. Regulation has the possibility to evolve as well. In a way, the situation is like it was in 2015, with some uncertainty before a clear framework is established. Despite this uncertainty, we hope to start 2023 in compliance with the latest rules.

Kolya is a Spanish company with broad international experience in the development of renewable energy projects.