The Power Industry in COVID-19 TimesBy Juan Manuel Ávila Hernández | Mon, 09/07/2020 - 14:22
No one can argue that 2020 has been one of the most difficult years in modern history. COVID-19 has changed the way we conduct our daily lives, the way we do business, our shopping, our groceries, going to class – basically everything we do has changed. In this article, we will focus on the way the power industry should address the nearby challenges related to COVID-19.
In 2014, when the LIE (Ley de la Industria Eléctrica – Law of the Energy Industry) was passed, a minor but active voice said that the Energy Reform focused only on creating a power market based on generation but energy efficiency was a pending matter. Most of the big investments or even the daily announcements on how the reform was being implemented were always targeted at describing investments in power generation via the long-term auctions or bilateral transactions. Little did we hear of companies adopting energy efficiency actions or even energy companies offering those types of services.
We can see a clear surge in the number of solar EPC companies for distributed generation but the same cannot be said about ESCOs (energy services companies), which are enterprises that develop energy efficiency projects. They can either sell the solution or sign an energy performance agreement through which they charge a percentage of the total savings. Although logic tells us that it is better to reduce consumption and then change that consumption so that it is generated by renewable energy, either through a distributed generation scheme or by purchasing power from a qualified supplier (suministrador calificado), the steps taken were done the other way around. Companies first installed distributed generation or signed a PPA (Power Purchase Agreement) with a different company from CFE Suministrador Básico and finished the process of energy transition and energy savings at that point.
Now, with COVID-19, we have seen energy consumption plunge, making some consumers wary about their energy consumption projections for this year and the next. Both consumers and generators now need to rethink some of the assumptions that were made before. In particular, participants in the power market need to rethink how we do business in these difficult times.
One of the answers I find is through offering energy consultancy and energy efficiency services. Although the PPA industry should continue growing due to the fact that the PPA is a natural answer in difficult times, not all the generators and qualified suppliers have the capacity to provide power to all the companies that want to save money at the moment.
This is mainly for two reasons. COVID-19 has resulted in some changes to the risk management companies are willing to take, as well as the shameful – for lack of a better word – changes to the regulation in Mexico and the lack of certainty regarding the investments made and obviously the projected future investments to be made. The way this industry can still work regardless of COVID-19 or the federal administration is to use all the expertise it has and start promoting a business model with a very short payback period and a high-yield return. Not only does this make sense economically but it also helps the bigger purpose, which is energy transition and carbon footprint reduction.
With companies looking at every corner for ways to reduce costs, implementing one quick alternative with all the already described benefits will develop energy efficient projects. That’s where the main focus of the industry should be during these troubling times.