Nadim Chaudhry
President and Founder
Green Power Conferences
View from the Top

Peculiarities of Doing Business in Mexico

Wed, 02/24/2016 - 14:21

Q: What are the crucial trends that are impacting the adoption of renewable energies around the world and in Mexico?

A: Globally speaking the renewable energy industry has been growing exponentially, and in 2014 alone it expanded by 16%. This will lead to more renewable assets being built and costs will continue to decline. In the last six years, costs of solar technology have decreased by 80% and this dramatic change is encouraging a revision of forecasts and plans in an energy industry that is traditionally conservative. We are witnessing a switch from centralized to decentralized power generation and this will have a significant impact on business models. This evolution is threatening the utility model while simultaneously creating tremendous value.

Q: How will the transition to decentralized power generation impact the utility model?

A: Utilities are investing vast amounts of money in developing energy projects with the assurance that they have a strong customer base. We are seeing a rise of self- supply and solar rooftop installations in the residential market and this will grow with the adoption of energy storage technologies. Batteries have been improving dramatically and, just as the prices of PV and silicon went down, we anticipate the same trend with lithium ion batteries. The improvement in this technology is driven by electric vehicles and personal devices, and ultimately the beneficiary will be solar power. Utilities are now making an effort to understand their customers and provide a multitude of services.

Q: What role will governments play in ensuring that the proper regulation is in place?

A: It will be challenging for governments to regulate this transition and some are reluctant to help this evolution. The fossil fuel industry has an irresistible pull in policy making and we see former politicians sitting at the helm of fossil fuel companies. The energy industry is conservative and at the moment it is going through unprecedented changes. In terms of other trends, the coal industry is floundering, with 24GW of coal having been decommissioned in the US, China stopping the development of new coal and India having stopped importing coal from Australia.

Time is an important consideration for technologies, and nuclear power faces some challenges in how fast it can be deployed compared to other technologies. One of the benefits of some renewable energy technologies is the speed with which they can get to the grid. Mexico needs to double its grid in order to satisfy the growing demand for energy and to become a top ten global economy it needs a strong and diverse energy mix. Governments have noticed that the renewable energy industry provides jobs and this is vital for growing economies.

Q: How can events help the development of renewable energy projects and ease the business process?

A: Green Power Conferences has specialized in renewable energy events since 2003 and it has seen huge amounts of change in the industry. Equity and debt investors play an important part in the survival of a project, so we are careful to ensure that they are present at the events. Renewable energy development banks also play an important role in bridging the gap between equity and debt and addressing risks. In the geothermal sector, NAFINSA has underwritten US$25 million in order to lower exploration risks. Developers have to juggle many aspects in the pursuit of their projects, from contracts, permits, operational licenses, PPA expiration dates, COD dates, and even land acquisition. We have seen the dramatic rise of green bond markets in the last few years and this is a key component since institutional investors control a huge part of the economy. The more percentage points that are poured into renewable power, the faster we will reach targets of decarbonizing the global electricity market.

Q: To what extent can events allow energy players contact potential off-takers from energy intensive industries?

A: In the past two years, we have seen a rise of large multinationals interested in setting renewable energy targets. In Mexico there is an interest from the mining industry since mines are often located in remote regions with no access to the grid, so solar farms and other renewables are becoming extremely cost-competitive. Renewables provide companies certainty in their balance sheets and forecasts because they do not have to deal with the cost variabilities of fossil fuels.