José Pablo Fernandez
CEO
Grupo Dragón
/
Insight

National Champion Seek to Become an Energy Trader

Wed, 02/24/2016 - 16:40

The rapidly changing energy industry poses challenges for even the most experienced players. Grupo Dragón, a prolific player in the renewables segment and a pioneer in Mexico’s geothermal energy sector, is aware of the difficulties involved in understanding and adapting to the new landscape. José Pablo Fernandez, the company’s CEO, is taking advantage of the dynamism caused by the market’s shift and is looking at new opportunities. In this sense, Grupo Dragón is now preparing to create an energy trading division. “Grupo Dragón has solid knowledge because it was the first company in Mexico to implement a real trading strategy five years ago. It is worth noting we did not establish this in the spot market. The company created a monthly trading strategy that gave us the necessary knowledge on management, regulations, and communication with CRE and CFE,” Fernández boasts.

Energy trading creates both opportunities and challenges for the company that has so far dedicated itself to energy generation. Férnandez believes Grupo Dragón is wellpositioned to establish itself as the main player in electricity commercialization in Mexico, as the company has the technology, both software and hardware, needed to initiate such an endeavor. The fact that CFE will create several subsidiaries makes Fernández even more optimistic about his plans. “CFE will decide to focus less on certain areas it deems less profitable, so there will be segments for other companies to seize. We want to commercialize electricity, and we are talking with many generators about our strategy.”

In order to establish the best model possible, Grupo Dragón is working with the authorities, mainly CENACE. The key, according to Fernández, is to be prolific when working with these entities. He says idly waiting for a solution would result in his company’s demise, so the firm proactively proposes initiatives and carries them out. The company is providing software and hardware solutions to CFE and CENACE, although the system operator will gradually gain a more important position in Grupo Dragón’s portfolio. Fernández acknowledges CFE’s experiences in distribution and commercialization, so in his view, Grupo Dragón will be another player in the market. However, the company has detected some issues CFE is facing in its commercial area. According to Fernández, CFE experiences annual losses of MX$57 billion due to malfunctions in software and invoicing, energy theft, and poorly executed commercial strategies. Instead of being perceived as a competitor, Fernández would like his company to be seen as a supplier of solutions and potential partner.

Grupo Dragón’s power generation activities will keep the company busy while it crafts its commercialization division and the rules of the game are established. “As we shape ourselves to become an energy trader, this particular strategy of power generation will form part of our core business. Our plan is to divide the business into power generation, marketing, and lastly a service division,” Fernández shares. The service division will focus on the operation and maintenance of the company’s infrastructure, and even on other players’ solar and wind plants. The generation division is comprised of renewable energies. “We are not the only company that has the ambition to become such an integrated energy company. Therefore, we must be aggressive in our strategies and attentive to the trends of the industry in order to remain ahead of the game,” according to Fernández. In this sense, Grupo Dragón will specialize in segments other companies do not find interesting. In the long term, Grupo Dragón might diversify into other energy sources such as natural gas, but Fernández says this is far in the future.

In the past, Grupo Dragón shied away from the limelight, but the company’s is now ready to reveal its ambitions in the new market. The themes at the top of Fernández’s wish list can be summarized as a solid, efficient regulation. “In our eyes, the Energy Reform has tackled many themes and is geared to be a success. My only concern lies in that the time of the transition phase should be shortened.” Grupo Dragón has five projects it wishes to fully deploy once the uncertainty has been cleared: the geothermal plant in Nayarit, two solar parks, and the Los Altos II and Vigil wind farms, which fall under the legacy scheme. The marketing and trading division will receive the most attention, and the company continues to work on creating a solid strategy that will be presented to the rest of the world, leaving no room for doubt in terms of the company’s potential.