Partnerships a Win-Win in Emerging MarketWed, 02/22/2017 - 15:57
As the dust from the Energy Reform settles, some companies are waiting to see how the playing field pans out. Bernardo Fernández, Mexico CA&C Country Manager of Hive Energy, believes now is the time for a more proactive approach. Companies should be looking for potential partners to strengthen their business offering and start capitalizing on the market’s opportunities. “In Mexico, a fairly new market, local companies can benefit from the extensive expertise we have acquired in other locations and we can benefit from our partner’s knowledge about the local administrative processes and the Mexican business culture,” he says. In the last five years in the UK, Hive Energy has developed over 30 solar parks that generate 300MW of power, enough to power 90,000 homes according to the company’s website. The scale of Mexico’s energy market and its strategic location drove Hive Energy to select the country as its base for the Americas, from which it hopes to also capitalize on the potential of Central American markets.
The company’s focus on finding local strategic partners to boost its capabilities in Mexico is a strategy Hive Energy is using in other developing markets. “We have a business model that is strongly dependent on finding adequate partners and that is extremely beneficial for both sides,” Fernández says.
Fernández arrived in Mexico with the idea of establishing PPAs with large private off-takers. Market uncertainty, however, drove him to rethink the company’s strategy. “We decided to restructure our strategy and target mostly municipalities, which have huge energy demands associated with public lighting or water-pumping services, instead of private companies,” he says. “Local authorities are willing to sign PPAs with any company offering a lower tariff than CFE and they are not as cautious about the Energy Reform.”
Hive Energy, however, has not forgotten the private sector. “Mexico offers a great customer base because it is a highly industrialized economy with a good number of potential off-takers,” Fernández says. “We are sure the industry will boom once the regulations are clarified, which will give private off-takers enough confidence to enter the market.”
PPAs are in Hive Energy’s spotlight because the company is still uncertain about the potential of other market mechanisms. “All other schemes are a continuous collection of permits, which is costly and inefficient for us. Therefore, we have decided to wait until the wholesale electricity market is completely established before introducing other schemes into our strategy,” he says.
The company is especially curious about the possibility of working with energy traders, a market participant that Fernández expects will fast become increasingly important. “So far, we have not seen many energy traders entering Mexico but we believe this will change as the market evolves. Considering the Mexican wholesale electricity market was based on the American nodal scheme, we expect to see an increasing number of US firms moving to Mexico and opening virtual trading offices in the country,” he says.
Fernández is not as enthusiastic about the CEL market. “For us, the CEL market is one of the gray areas of the Energy Reform. Most players understand the concept of CELs but few know how these will actually work in the open market. Because of this we have decided not to include CELs in our business models until the workings of that market are clarified,” he says. “A general concern for the CEL market is that a 50 percent over-demand is needed for the market to work and, at the time, there is no certainty regarding this percentage. If the market manages to work properly there will definitely be an incentive for international investors to enter the Mexican market.”
Another uncertainty is CFE’s role in the new market, which is as much a question mark for Hive Energy as it is for many other companies. But Fernández is confident CFE's part will be clearer as liberalization evolves. “We expect CFE to eventually specialize in one area, particularly after the Mexican government decides to cut electricity subsidies, which will pressure the company to increase its competitiveness,” he says.