Pioneering Commitment to Mexican Wind EnergyWed, 02/19/2014 - 10:53
Q: How did Vestas reach such a dominant position within the global wind industry?
A: We have always led the industry because we gave rise to the industry. We have always designed our own core technology, and have the largest fleet of wind turbines in operation. We use our advantageous position to predict the market while investing heavily in our manufacturing capacity. Vestas has taken decisive steps, changing its vision from focusing on developed markets to focusing on emerging markets such as Latin America. We have a meaningful presence in Mexico, where we cover activities for local execution across the value chain. Our local office takes care of equipment transportation as well as replacements and components, through our Mexican service and maintenance team. We have managed to become a local company and becoming local in emerging markets is part of our global strategy.
Q: How does Mexico’s investment environment compare to other emerging markets in Latin America?
A: Mexico is more attractive than other emerging markets in macro-economic terms, mainly due to the lower financial risk it presents. The country struggled with the financial crisis before the rest of the world but cleaned up its act much earlier too. Looking at credit ratings and liquidity in the banking system, it is possible to find better credit for projects in Mexican pesos than in US dollars. In addition, the unlocking of the pension system in Mexico is opening several opportunities for the energy and infrastructure sectors. There is a lot of capital available right now and the economy keeps on growing, therefore it makes sense to invest in energy in Mexico, even when it does not make sense to do so in other markets.
Q: What would be required to create the critical mass needed to sustain the development of the wind sector and secure its steady growth for the future?
The idea behind SENER’s latest study on Mexico’s wind power potential came from a previous experience within the European photovoltaic industry. For wind power, we can foresee a number of technological innovations that will continue to drop its costs. This is a fixed trend but challenges remain. We need to overcome the technical challenge of creating larger rotors and then gradually introducing larger generators. This is important as knowing what type of rotors will be available in the next few years helps us plan ahead in different areas of the country.
I was particularly interested in participating in this research because people were asking the wrong questions. Prior to this, it was common to hear stakeholders talking about Mexico’s wind power potential in GW. This question is pointless because it does not involve generation costs. When we published the results of our own research, including a graph of the supply curve that clearly demonstrates that the available amount of wind power depends on the amount of capital invested. This is also the case for possible off-takers and available self-supply projects. There are many off-takers who have great credit options but variable tariffs. Companies like FEMSA and Wal- Mart have retail mid-voltage tariffs, which make projects more attractive. This phenomenon will grow over time as technology becomes more competitive. By 2017, many industrial off-takers will be viable for self-consumption. In addition, there is a pool of potential off-takers in the public lighting system, the water pumping system, and others which have not been extensively explored.
Q: How much of the development of a local supply chain will be driven by industry leaders such as Vestas as opposed to the government?
A: The industry is very committed to making this happen. When these markets are born and are explored by developers, there is an evolution towards visibility and risk-taking. Usually, these pioneers demand a regulatory framework within two to three years. This helps the market get started. However, these timeframes change for investments in manufacturing. Once developers manage to open up a market, manufacturers appear and this creates political expectations. When the Mexican government and market show the foresight to create a long-term regulatory mechanism, the industry will begin investing as it will acknowledge the need to protect the regulatory framework. In short, authorities should procure wind power and specify the type of mechanisms or contracts that will allow the industry to grow.