Private Initiatives Can Support Mexico's Energy Transition

Q: How does Elevation Ideas differentiate itself from other consultancies in the oil and gas industry, particularly when it comes to solutions for end users?

A: We focus on market modeling and analysis, and one of our core values is knowledge transfer. We provide clients in the natural gas and other energy sectors with specific and valuable information that supports their decision-making in the electricity and gas markets. This includes insights on pricing, volumes, cash flows, and future revenue streams. 

Our value proposition stands out because we offer a comprehensive modeling approach for both gas and power markets. We have developed the complete topology of these systems by accurately modeling all power plants, injection points, and consumption points according to the national electricity (transmission) and gas (pipelines) grids. With this vantage point, we provide a detailed explanation of the expected outcomes that enables market participants, whether they are electricity consumers, energy generators, natural gas traders and final users to understand what they can anticipate from the networks.

Q: What types of projects are in higher demand, and how does Elevation Ideas address clients’ needs?

A: Our clients are often companies in the electricity and gas sectors looking to commercialize their energy. Gas companies have a tangible product that must be extracted, processed, and sold, usually to the electricity sector, which is stagnant. We serve both clean energy clients as well as thermal generators: but both aim to identify the best ways to continue generating energy.

Clients are also concerned about grid reliability and auxiliary services, particularly battery storage. Clean energy clients need to evaluate the appropriate battery size for their projects, considering the high costs and inefficiencies associated with them, like sizing, future energy prices, and optimal selling times. We use our comprehensive knowledge of the sector to allow solar and wind facilities to enhance grid reliability. Companies would benefit from being able to sell power, but without battery storage, they cannot access power markets. If proposed regulatory changes eliminate the power market, progress may stall. To address this, we are conducting studies to project potential revenues over the next 15 to 20 years under the current system and analyze the impacts of upcoming regulatory modifications.

Finally, we are working on M&A projects to assist companies sell, buy or finance energy projects in both gas and power sectors.

Q: What key challenges do you see in Mexico’s energy market?

A: The fundamental challenge lies in understanding the specific implications of proposed regulatory changes in the electricity and natural gas markets, which could cause investment to stall. Proposed changes could impact on the wholesale electricity market and its derivatives, but the proposal remains unclear. Other uncertainties could affect the balance in the market, clean energy certificates, and the local marginal prices (LMPs), which influence the viability of new power plants and their ability to secure financing. Many potential natural gas sellers are unable to finalize projects because major consumers, primarily electricity generators, hesitate to enter contracts without clarity on electricity pricing.

Gas producers that secured contracts during previous upstream Mexican rounds also face challenges. While they have developed exploratory wells with production potential, they lack a market for their gas, leaving them in limbo as they await favorable conditions to sell their product. This situation is exacerbated by low natural gas prices in the United States, which, while attractive for gas-fired electricity generation, do not benefit clean energy producers whose revenues are negatively impacted by lower marginal electricity costs that settle prices in the power market.

Q: What challenges are hindering Mexico’s energy transition, and what policies are necessary to address this problem?

A: The primary challenge is PEMEX and CFE’s financial unsustainability, which limits their ability to tackle the energy transition and climate change. Natural gas is vital for the transition to clean energy. But Mexico also needs to invest in renewable energy, targeting an annual capacity increase between 5GW and 6GW, especially given the transmission challenges affecting Sonora. This increase in capacity requires overcoming issues in transmission infrastructure and economic disincentives for solar energy development. Effective solutions will be necessary to successfully integrate renewable energy projects, including good storage regulation.

Due to Mexico's fiscal constraints, the current administration must permit some private clean energy initiatives. Two approaches could be considered: a turnkey project model where CFE oversees financing and delivery, or mixed-participation projects with private investors. 

Raising the minimum requirements for permits could also allow more private entities to engage in distributed generation, facilitating rooftop installations across various regions. This would help meet demand more efficiently with fewer regulatory hurdles. Finally, establishing legal certainty for the new market under CFE's dominance is essential. A clear framework for independent power projects will allow major developers to build new plants.

Q: What strategies is Elevation Ideas employing to reach its clients?

A: Our strategy involves persistent outreach and networking, which allows us to build strong connections and facilitate collaboration. We prioritize attending industry conferences and talks to engage in meaningful discussions and network extensively within the sector. We also contribute articles to relevant publications to raise awareness of our initiatives and position the company as thought leaders in the industry. We also actively identify and reach out to companies within the regulated markets. Given the limited number of key players in these markets, we can easily recognize potential projects and developers. 

Q: What are Elevation Ideas’ short and long-term goals to adapt and lead in the new energy landscape?

A: Our primary goal is to become the leading consulting company in electric and gas marketing intelligence, focusing on insights into future prices and volumes. We are committed to advancing our capabilities, supported by a robust mathematical simulation model that strengthens with each new project and client engagement.

We have comprehensive data on all power plants in the country, although some information is outdated. We prioritize confidentiality by providing insights based on model outputs without granting direct access to the data. We are developing a web delivery platform to transition from static PDF and Excel formats to dynamic visualizations using Power BI, ensuring that clients have access to un-to-date information and allowing for prompt corrections of any data updates, a frequent event in public sources.

We are also addressing challenges related to remote connectivity at the National Energy Control Center (CENACE), which affects forecasting accuracy. By exploring frontend development and Amazon Web Services, we aim to enhance our product offer and improve delivery efficiency, recognizing that traditional programming methods are inadequate for advanced analytics.

Elevation Ideas offers solutions and insights for energy projects involving generation, consumption, trading, infrastructure, and more.