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Regulatory Hold-Up Slow Processes

Pablo Fernández - Grupo Dragón
CEO

STORY INLINE POST

Sat, 12/01/2018 - 11:16

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Q: To what extent have you advanced in your plans to become a qualified supplier?

A: We have made great advancements in our energy trading plans, but it has been challenging to launch a definitive project, as there are still regulations pending. We have already acquired the necessary permits from CRE to be a qualified supplier, but we are still waiting for CENACE to define the final market rules. Most private companies are in a similar situation, but we expect the market to take off eventually. As a strategy to reach off-takers, we are offering self-supply plans with permits acquired under the previous regulatory framework. We have two self-supply projects under construction and they can migrate to the new regulations at any time.

Q: What other areas of opportunity have you have identified in the Mexican power sector?

A: We see a great potential in energy forecasting and the use of thermography for energy applications. The evaluation of market dynamics and the identification of energy usage in different industries will differentiate successful companies from the rest. All electric utilities sell the same product, a flow of moving electrons, so differentiating factors will be related to aspects such as quality customer service. In this new landscape, customer data regarding electricity usage will be crucial for companies wanting to have a competitive advantage. We have the software and hardware needed to perform these tasks. Our group is one of the companies in Mexico investing the most in data storage devices. We see a barrier in this sector as most Mexican companies do not have real-time metering devices. The Law of the Electricity Industry says that private investment in electricity transmission and distribution infrastructure is only allowed under certain conditions with CFE or their subsidiaries. We would be highly interested in investing more in this sector, but we are discouraged by the existing constraints.

Q: What investments has Grupo Dragón already made in electricity transmission and distribution?

A: We have allocated US$215.5 million in a smart grid project. It focuses on advanced metering devices and is one of the largest initiatives in Mexico in this regard. We are working with CFE in this project as stated by Mexican law, which says that private players must establish joint ventures with the stateowned company for transmission and distribution initiatives. We have identified a number of business opportunities in improving the Mexican electricity network, and we consider advanced energy metering as a suitable starting point. Efficient and accurate interpretation of energy data is one of Grupo Dragón’s strengths, as we have over six years’ experience over our competitors in this area.

Q: What allowed Grupo Dragón to win the first private concession for a geothermal project in Mexico?

A: It is impossible to complete a geothermal project in less than five years as it requires large investments and long exploratory and drilling periods. It is not a challenge exclusive to Mexico. Our project has been operating for one year, meaning it was planned at least six years ago. Because of this, when we acquired our permits, the project was under the self-supply scheme from the previous regulatory framework. This transition period brought uncertainty to our project as we were not sure that our previously acquired permit would migrate to the new law but we managed to change our concession. We bet strongly on geothermal as we considered it a promising and clean energy technology in spite of the risks involved. This all happened before the Energy Reform.

We do not consider the new regulations to be particularly advantageous for geothermal development. They complicated the bureaucratic processes for us. We had the advantage of being the only private company participating in the sector at that time, which allowed us to establish a direct dialogue with the government and ease the transition process. The outcome would have been completely different in the wind energy industry, where several private companies were already operating. In the long term, however, we do not exclude the possibility of new geothermal developments benefiting from the new regulations.

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