Qualified Suppliers Key for Electricity Market CompetitivenessBy María José Goytia | Thu, 06/02/2022 - 09:15
Q: What were the incentives that led to the creation of Orca Energy?
A: In 2013, the Energy Reform’s template created a new model that became the Wholesale Electricity Market (WEM), allowing the entry of new private sector players to commercialize energy. Energy is among the most important inputs for industrial companies and one of the determining factors when defining where to locate production. One of the purposes of the Energy Reform was to open opportunities for innovation and for the creation of different energy solutions that would provide companies with more efficient electricity supply.
Mexico possesses a mature and highly competitive industry. Orca Energy identified a potential market of more than 15,000MW of installed capacity, distributed across different potential qualified users. This giant consumption capacity, together with the opportunity to enter a market in transformation, were the main incentives that led us to create Orca Energy.
Q: Why is the figure of the Qualified Supplier (QS) relevant for a competitive electricity market?
A: The purpose of the QS was to become the intermediary between power producer and consumer. The reason behind this intermediation is that the QS has a deep understanding of the electricity market. We can mitigate most of the risks involved in the WEM. In addition, our actions allow qualified users to focus on their business instead of having to dedicate resources to worry about the power and energy supply. We provide these users with a variety of power and energy products that increases their competitiveness.
Q: What is the composition of Orca’s energy matrix?
A: Regulation obliges Qualified Suppliers to have 60 percent of their supply backed by an energy contract with generation units. Orca’s strategy focuses on finding customers and assessing their location and needs. Based on this information, we contract coverage, which allows us to mitigate the risks of congestion in the transmission and distribution system. Having a diversified and balanced energy matrix is preferred. Orca has hedges contracted with combined cycle plants and other firm capacity technologies. We are also looking to sign contracts with renewable energy producers, as clean energy is, nowadays, highly demanded by the industry, although cost-effectiveness is equally important. Unfortunately, in the last couple of years, regulatory efforts have targeted changes in the electricity industry, creating a great deal of uncertainty and complicating the signing of hedge contracts with renewable energy companies.
Q: How has this regulatory uncertainty impacted Orca’s efforts to contract renewable energy?
A: In 2019, 40 percent of Mexico's energy growth came from renewables, which resulted in a 36 percent decrease in carbon emissions. During the past four years, we have seen a total slowdown in the development of renewable energy. By cutting renewable energy development, the matrix begins to become much more dependent on natural gas. Recent international events, such as Russia’s invasion of Ukraine, have caused fossil fuel prices to increase dramatically, with their costs doubling compared to 2021. Mexico has become much more dependent on natural gas and other fossil fuels like fuel oil and coal. In addition to having much higher prices, these fuels are also more polluting. Mexico has an enormous renewable energy potential that should be fully exploited to create a diversified energy matrix that allows for more affordable prices.
Q: How has Orca's operation been influenced by the reactivation of the Electric Industry Law (LIE)?
A: There have been many government publications that have tried to change the rules of the WEM, putting on hold the industry in general. Nevertheless, the supply of qualified services has not been modified by any of the government publications. Our mission now is to convince the industry in general that qualified supply services offer a variety of benefits with less regulatory uncertainties.
Q: How can the National Electric System (SEN) be improved?
A: Improvements must occur in two areas: power production and transmission and distribution. For power production, the main area of opportunity is to diversify the national energy matrix to mitigate high dependence on natural gas and fossil fuels. In this process, it is essential to reignite the drive to develop renewable energy projects.
ORCA Energy is a qualified energy supplier founded in 2016. It develops and markets integrated energy solutions for the public and private sectors, providing a clean, affordable and quality energy supply alternative to end users with an annual average load over 1 MW.