Ramiro Rojas Cañamar
Director General
Primero Energía
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View from the Top

New Energy Landscape Inspires New Business Models

Wed, 02/24/2016 - 12:59

Q: What were the motives behind the creation of Primero Energía, and how have the early ambitions of the company evolved throughout the years?

A: One of the drivers behind the creation of Primero Energía came from the desire to lower the cost of electricity in energy intensive industries. Throughout our research we discovered there was a lot of potential in on-site solutions and cogeneration installations. As a result, we developed a business model that offers integrated solutions. We carry out all the investment and the only thing the client has to do is pay for their power consumption.

With this vision we chose Agua Prieta, Sonora, as the ideal location because it is close to the US border, has access to the gas pipeline, and is close to high-voltage transmission lines. Primero Energía would set up the infrastructure by mounting the different micro turbine plants and it would then charge companies for the space used. The clients would then become the owners of the plants and they would reap the benefits. CFE approached us because there was a deficit of over 350MW in that particular node. As a result, we restructured into the previous scheme of small producers and created three subsidiaries, each with a capacity of 30MW, which fulfilled the requirements at that time. Despite the struggles due to the Energy Reform and restructuring, we succeeded in obtaining the PPAs for the two 30MW subsidiaries and the third was reserved for another scheme.

Q: What are the competitive advantages of being located in Agua Prieta?

A: The new model is very attractive because processes will be made transparent. Viable costs are also important since the cost of fuel and maintenance represents 90% of the total costs. We are in an advantageous position because in Agua Prieta, we have access to natural gas, a spot market, and secure gas transportation for 20 years with Kinder Morgan. Due to the strategic location of the plant the cost of fuel will not be added to the distribution and commercialization costs, so we can offer competitive pricing with savings of 20%. CFE approached us to restructure the PPA for 110MW and we will simultaneously develop the second phase and increase the capacity to 480MW. For the other two PPA contracts we will sell energy to CFE.

Now, CFE will compete not only with us, but with other energy generators. Despite this increasing competition, we have an advantage and, while CFE has declared 30.6% of electrical efficiency, we will have 53%. We ultimately envision a 600MW plant. The second 480MW phase will be possible once the transmission infrastructure in that particular node is reinforced. We have enough space and the pipeline has the capacity to reach our target of 110MW. The pipeline required for the 480MW is expected to be constructed by 2018 and from that point, it is a matter of power evacuation.

Q: Which industries do you consider to be high potential customers for your unique product offering?

A: We are targeting transformation industries, and we have a potential customer with seven manufacturing plants spread across Mexico, with which we can save at least 20% or even 30%. The automotive industry is incredibly interesting for us and the Bajio region is growing in importance. All private investment from independent producers is tied to CFE and these companies do not have the option to go into the market and explore other possibilities. Established companies are undergoing a restructuring phase or operating under the old regime and newcomers will have to start from zero, which means we are ahead of the pack. Even if the bureaucratic process is simplified, it will still take time to obtain the permits and this two year advantage means we will be able to swiftly replicate our business model across the whole of Mexico.

Q: How would you describe the unique characteristics of your business model?

A: All that we need is access to gas and the grid for our business model. Our idea is to set up 500-600MW power plants. Companies will be able to save on transmission, operational costs, and other countless factors. For us, the key factor is understanding the gas pipeline layouts and building on the intersection points between grid and pipelines. The business model also contemplates on-site cogeneration systems. We offer two solutions: on-site cogeneration and interconnection to the grid. Prior to the Reform, CFE did not incentivize this new model because it would mean losing customers. On-site generation has many benefits, as there are no losses in transmission and the company can contribute positively to the environment.