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Analysis

New Technologies, Ppas Allow Producers To Get Cleaner

Mon, 02/25/2019 - 14:29

The market opening resulting from the implementation of the Energy Reform and the agnosticism with which the country has faced its energy transition has opened the door not only to a high number of participants but also to the arrival of new technologies. These have allowed the development of an important industry of clean and renewable energies in the country, in some cases sustained under the PPA model, which is set to gain an even wider foothold in the sector.
The development of the PPA model is essential, although with nuances, says Lionel Bony, Regional Director Mexico, Central America and the Caribbean of Neoen. “Competition includes heavyweights such as ACCIONA, Enel, ENGIE, Iberdrola and Sempra. The structure of bilateral PPAs is also more complex for off-takers compared to the previous self-supply scheme but we are confident that as the market matures off-takers will grow accustomed to PPAs.”
Risk control, directly related to the profitability of a project, is also a major concern for all members of the private sector that maintain energy interests in Mexico. “Fewer risks translate into lower profitability margins and higher profitability implies assuming greater risks. Long-term electricity auction projects belong to the first case,” Ramón Moreno, CEO of Mitsui Power Americas, explains, despite the uncertainty and variability suffered by the prices of electricity throughout the world. “The Mexican market has still to develop and mature to advance risk mitigation processes for merchant projects to multiply,” he continues.
But this is not the only area where Mexico must show progress. The storage of energy, directly related to efficiency and energy saving, is another of the milestones on which the Mexican government must set its sights on its path toward diversification and optimization of resources, especially in times of energy transition in which natural gas seems to occupy the leading role. “Natural gas remains one of the most efficient and less polluting fuels available. It cannot be so easily discarded. We still see a long way to go before battery-based solutions are proven to be environmentally friendly. The future is headed that way for sure, unlocking energy self-sufficiency possibilities, but the country’s electricity system still depends on the established spinning reserve that renewable energy intermittency fails to provide. This is not an issue with natural gas’ stable baseload,” Oscar Scolari, CEO of Rengen Energy Solutions, says.
Solar and wind energy, as well as hydroelectric power, remain viable alternatives to fossil fuels, in addition to sharing some significant challenges. According to the Mexican Association of Solar Energy (ASOLMEX), Mexico closed 2018 with 38 solar parks in operation, compared to the two that operated in the country in 2014, while wind energy grew in the country at a much higher rate than in the rest of the world during 2016-2017. Both energies, wind and solar, also meet the objectives of job creation, revitalization of the economy and benefits for the environment.
Their challenge is intermittency, hence the importance for the country of hydroelectric power. “Hydroelectric is the only renewable energy technology that provides a firm baseload. Mexico has more than 12,000MW of hydroelectric installed capacity, the majority of which is installed at large-scale dams that double as water storage,” says Jacobo Mekler, New Business and Commercial Director of COMEXHIDRO.
Hydroelectric energy, then, has resurfaced as an alternative, an objective supported by President López Obrador, as shown by the cooperation program with Canada announced in December 2018. The agreement seeks to optimize existing hydroelectric power plants to achieve a price reduction for the final consumer. “We are looking for a cooperation agreement to modernize the 60 hydroelectric plants we have in the country. The plan is to empower them, use that infrastructure and generate electricity with water. It is related to the environment because it is clean energy and it is cheap,” López Obrador said at the time.
Despite sustained growth, the influence of this type of energy on the international stage and on foreign investment, Mexico must face a series of challenges that affect all producers, be they clean or renewable energy. The most important is the infrastructure needed to distribute the energy generated from the points where the wind and solar farms and the hydroelectric plants are located to the places where this energy is consumed.