Héctor Olea
President and CEO
Gauss Energía
/
Insight

New Market, New Rules

Wed, 02/22/2017 - 15:41

As the Mexican energy industry opens up and the market faces new rules, new opportunities and challenges arise for power companies. For Héctor Olea, President & CEO of Gauss Energía, the main challenge for the electricity market is to consolidate the Energy Reform. “The government did a great job putting the rules together, creating new regulatory and institutional frameworks around the Reform. But it is important to smoothly integrate this new setting into the future.”

To accomplish this, the level of cooperation between all involved parties should be optimal, starting with the improvement of the Reform’s structure. Olea says that the power auctions are a first step to producing the business opportunities needed to achieve a better and fully operative system. But to ensure the continuous evolution of the Mexican power industry further developments need to take place, like the success of the wholesale market, bilateral contracts and sales schemes.

So far the industry's progress is satisfactory, especially regarding transparency and coordination on the part of the government. One of the main benefits of the work so far is the expectation it creates for future auctions that will take place on a yearly basis because of the certainty for participants in the market, which gives an added value to the renewable energy transition process. “Developers, service providers, investors and manufacturers can foresee that their projects could gradually penetrate the Mexican market. This is a direct effect of the Energy Reform and the only way to build up a new industry.”

The growth opportunities detected by Olea in the Mexican power market for clean energy are definitely in solar PV. “It has been a surprise for everybody. A year ago authorities would say solar was too expensive and that it needed subsidies.” However, the results of the auctions showed the power of the sun, as around 70 percent of the energy awarded in the first auction came from PV projects, at record prices. The success was ratified in the second auction since the price offered was even lower than that of the first auction, with an average of US$31/MWh. “This helped people understand that solar is at the forefront of energy development in Mexico and at a very competitive price, more than natural gas-fueled projects.”

But the Reform brings its own set of difficulties, such as the new competencies needed. “A new set of companies is required. Before, partnering with a local company was enough. Now, it is necessary to make joint ventures with other companies to complement local knowledge with a global perspective.” The local partner will help shorten the learning curve for international companies willing to make heavy initial investments, he says.

The partnering trend will continue, Olea says, as more companies get together to face new realities, not only in the auctions but also in bilateral contracts and the new markets such as the wholesale or the spot market. That at least is the strategy to follow for Gauss Energía, a project developer involved in several of the largest energy plants in the country, such as the massive Aura Solar development in Baja California.

The company, Olea says, will look for international partners to complement its local expertise and succeed in the new industry. It already had solid relationships with companies such as Martifer Solar, with which it developed Aura Solar. Because of that success the company will not shy away from pursuing the same strategy in the future. “Things are happening that are very disruptive in the market and we have to understand what the implications for the whole business sector are.” Further analysis and careful observation will be key to understanding and adapting as the Mexican power industry continues to take shape.