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Analysis

The Race for Diversified Power

Wed, 02/21/2018 - 16:12

Mexico’s first three long-term electricity auctions have attracted international attention due to their recordbreaking results, with the last edition taking away the crown from Saudi Arabia in wind power by reaching the lowest international price at US$17.7/MWh.

Although the success of these auctions is hard to dispute, the fact that they are based mostly on renewable technologies, which are intermittent and hard to predict, could place a burden on the system in coming years that will require secure and flexible solutions, according to many industry insiders.

In Mexico, energy demand varies widely from one region to another. According to CENACE’s National Electricity System Development Program 2017-2031 (PRODESEN 2017-31), maximum energy demand for 2016 in the Central control region took place on Dec. 6, at 8pm, while in the Occidental region it was on May 25, at 2pm, which illustrates the daily and yearly demand variations that the Mexican electricity system must cover. Four of the 10 control regions had peak demand in 2016 at times when the sun did not shine, and the two regions with the highest energy consumption were in areas where there was low wind availability (see accompanying map), suggesting the need for a secure and flexible energy source. As Jaime Zubillaga, Managing Director of MAN Diesel & Turbo Mexico, explains, “we now have a competitive market that demands all players showcase their advantages with smaller, flexible projects. These projects will provide important backup services for renewables because they will offer the possibility of having power when the wind does not blow or the sun does not shine.”

PRODESEN 2017-31 considers that to cover future energy demand the country will require the installation of 55,840MW, of which 61 percent will be via non-intermittent technologies that provide security to the grid, and 38 percent from solar and wind, highlighting the importance of maintaining a secure market where intermittent technologies do not take over. The coupling of energy security with clean energy goals can be found in combined cycle, efficient cogeneration, nuclear, hydroelectric, geothermal and bioenergy technologies, which will make up 95 percent of the non-intermittent technologies to be installed, with the rest landing on the carbon, conventional thermoelectric, internal combustion, turbogas and fluidized bed. Following such a plan, a stable and balanced power generation capacity can be expected. While the construction of new capacity is a challenge both economically and from the point of view of technology, the road seems even bumpier when it comes to updating old power generation plants to current requirements of production and emissions control.

REVAMP AND EXPAND

Despite its strong clean energy goals, Mexico remains a major user of fossil fuels to power the country. Currently, it produces 74 percent of its energy through fossil fuel technologies that offer a secure power supply, with 31 percent of that coming from turbogas, carbon and conventional thermoelectric technologies, which are highly polluting. The need to shut down that capacity, or at least make it more efficient when possible, to achieve the clean energy production goals settled by the government is clear, according to Marcial Frigolet, Vice President of Toshiba de México. “The Mexican government has placed a strong bet on the implementation of natural gas plants that include combined cycle and efficient cogeneration.”

While new companies entering the market will be constructing infrastructure that includes clean technologies, CFE faces the challenge of making 19GWs of its already installed capacity from conventional thermoelectric, internal combustion and turbogas technologies more efficient, or to change it completely, if it is to compete in the new market, says Frigolet. “CFE has plants that are old and that must compete on an energy-price basis against new and more efficient plants that will be installed by new generators in the market. It is going to be hard for CFE to adapt to this change.” Oscar Scolari, CEO of Rengen Energy Solutions, goes one step further: “CFE has no other choice but to improve these plants or shut them down.” (See pages 74-75 for a map of plants assigned to each of CFE’s subsidiaries.)

THE FUTURE

While natural gas has been targeted as a leading contender to cover future energy needs, some are looking to innovate in the market to make sure the country does not only reach its clean energy generation goals, but surpasses them with ease. Ramón Moreno, Chief Technical Officer of Mitsui & Co. Americas, emphasizes the need for properly designed regulation that allows for the integration of storage technologies. “Usually, power supply adapts to power demand, but efficient and innovative power generation requires inverting the equation. Mexico’s energy authorities and regulators need to strengthen the regulatory framework to ensure economically viable energy-storage initiatives.”

Others, like Francisco Carrión, CEO of MARERSA, prefer to place their bets on cutting-edge technological innovations that use new types of renewable sources, such as wave power. After almost 10 years of work, Carrión has created a technology that he hopes will revolutionize the production of power in Mexico. “During this whole time, we have improved our patents until achieving a technology that can provide a non-interruptible, 100 percent environmentally friendly energy supply. Even when the system undergoes maintenance, its modular design means it only stops production at 500kW intervals, while the overall system keeps running.”