Oswaldo Chiman
Director of Power Solutions Mexico & CA
Cummins
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View from the Top

New Rules Lead to Expanded Natural Gas Portfolio

Wed, 02/24/2016 - 12:46

Q: How important is the Mexican energy generation industry for Cummins’ growth in terms of sales and manufacturing?

A: Cummins has a global growth strategy and the energy generation industry plays an important role within it. Through the expertise we have accumulated in other industries, such as automotive, oil and gas, marine, and military, we have been able to integrate this knowledge into systems and solutions offered to the energy generation industry. This allows Cummins to always be a step ahead of competitors by providing efficient and green technologies, while we have recently concentrated our efforts in the cogeneration sector. This was formerly considered to be an important segment for Cummins in specific countries, but it is now seen as a pillar of growth in our global strategy. We have carried out huge investments in order to include the latest innovations in our engines and systems, which are then integrated into our electric energy generator sets. This particular branch of Cummins stands out because it offers integrated solutions rather than standalone products. In this industry, it is better to offer complete solutions as they increase the efficiency and competitiveness of our customers.

Q: What are the flagship renewable projects Cummins has been involved in, and what contribution did it make to them?

A: One of Cummins’ flagship projects was a trigeneration project under the self-supply scheme for a renowned chemical company. This trigeneration solution can provide electricity, heat or cool water, and generate vapor, with solar panels also operating in parallel. With this integrated solution, that client will have the first LEED Platinum- certified plant in Latin America. Integrated solutions allow clients to obtain the efficiency they need. We teamed up with Coca-Cola on another memorable project, in which we also followed the same trigeneration process, although the CO2 obtained was then used in the gasification of the drink. This project was carried out in Africa and Brazil, and we will shortly replicate it in Mexico. What stands out in projects like these is the integration of solar panels, as Cummins has successfully merged these different generation processes into one integrated solution.

Q: As CFE gears up to lower electricity tariffs, how have your motivations and business objectives evolved?

A: The government sees natural gas as the fuel of choice for the future, yet this transition will be very slow. In my opinion, it will take at least three years for the market to stabilize and for us to have a perfect understanding of the new legislation. While we are experiencing growth, we are still tied to the availability of natural gas and the existing infrastructure. It is expected that the market will have matured by 2018. In the interim, we are investing in providing products to complement existing infrastructure. For example, we supply products to natural gas compression and decompression centers. These stations can take up to one year to be fully developed, a process that requires a lot of collaboration with clients. Normally, energy projects take one or two years to mature, which means we must be proactive. We are also confident that Mexico’s natural gas supply will improve in the coming years and that the price will remain stable thanks to CENAGAS. Another area of opportunity we have identified is biogas and biomass, which are considered renewable energy sources, as we have technologies and products that cater to them. However, there are many challenges surrounding the biogas sector, such as ensuring that the machinery is compatible with the gas, otherwise it will not work.

Q: How can your integrated solutions ensure a quick ROI, and how do you convince skeptics to choose your solutions?

A: In this industry, the measurement of ROI depends on three important factors: initial investment, production cost, and gas prices. Clients expect a return on initial investment of two to three years, which would be a normal timeframe in any industry. Since we manufacture our own technology and directly provide aftermarket support, our customers can be certain that they are operating at the most competitive cost throughout their project’s life. Alongside this, we have to be focused on helping our customers obtain the full benefits of cogeneration. Clients tend to focus on the electricity aspect of cogeneration, which ignores a wealth of possibilities. To summarize, all these advantages are fully transmitted to our potential customers, leading to the expected ROI being achieved.

Q: Since Cummins is supplying emergency power plants for CFE, how has the relationship between the two organizations evolved?

A: In the past, we have collaborated with CFE by supplying emergency power plants and by participating in public tenders. There have been times when we supported CFE in certain areas, such as supplying over 170MW in Zacatecas. However, it should be pointed out that these emergency power plants were fueled with diesel. The Temporary Energy division is another part of Cummins that is tied to this type of solution. Within it, generators can be leased to provide a temporary energy supply during emergencies. However, while we have a longstanding relationship with CFE, our strongest relationship lies with CRE, since it is within this particular entity that the legislation is being molded and drafted. Cummins participates very actively in Cogenera Mexico to promote cogeneration technologies. PEMEX is dipping its toes in energy generation and CFE is planning to ship natural gas. The irony does not escape us, but it is still a good business opportunity. As CFE turns its sights to natural gas, we will be positioned to supply it the necessary equipment.

Q: How does Cummins adapt its efficient, low emission product specifications to the Mexican market?

A: Cummins has to make adaptations to its products due to some peculiarities of the market. For example, Mexico’s lackof low sulfur diesel impacts the types of engines Cummins can release here. In terms of the energy market, most of our adaptations are in biogas. Given the high levels of sulphur, this area demands a highly competitive filtration system. During the design stage of our biogas components, we discovered a process that occurs in the combustion stage called “knocking.” This is where the mixture alters during the combustion, causing the piston to knock on other components, sometimes leading to catastrophic failures. Cummins’ components prevent this knocking effect and regulate the amount of sulphur.

R&D plays an important role, not only for Power Solutions, but for all business units. Cummins sets its sights on the future when developing new technologies, and thanks to this approach, the products that exist in the Mexican market today are perfectly tested and adapted to current conditions. Durability and efficiency are pillars of Cummins’ R&D strategy, so as we become more efficient, we are more sustainable as well. At the moment, we offer products from 20KW to 2.2MW in the natural gas and biogas sectors, but we are planning to expand our product portfolio following the new legislation. We have been leaders in many industries, such as automotive, and we have the same ambition for our position in the energy generation industry.