Scoring the Reform: Triple-B With Room For ImprovementMon, 02/25/2019 - 12:34
Q: What tools has the World Energy Council developed to understand the present and future world energy scenarios?
A: At the World Energy Council, we have developed several tools to understand the global energy landscape. One is the World Energy Trilemma Index, a report that evaluates 125 countries on a yearly basis in the three most relevant aspects related to energy: energy security, energy equity and energy environment. The ranking measures the performance of a country’s policies in achieving a sustainable energy mix and the balance score highlights how well the country manages the trade-offs. AAA is the best balance score and DDD is the worst. Another significant tool developed by the World Energy Council is a policy-based approach on future world energy scenarios that can be classified into three genres: modern jazz, unfinished symphony and hard rock. Modern jazz depicts a market-driven approach to achieve energy accessibility and affordability through economic growth. Unfinished symphony is based on a government-driven approach to achieve sustainability through internationally coordinated policies and best practices. Lastly, hard rock implies a fragmented approach driven by a desire for energy security and independence in a world with low global cooperation. For all these scenarios, policy is a key driving element.
Q: How would you score the latest transformations of Mexico’s energy environment according to these tools?
A: Modern jazz is a liberalized, competitivity-enabling and technology-based approach. This means that the market framework favors trade agreements that allow for investment as well as greater imports and exports that result in better technologies. Symphony, on the other hand, achieves progress on climate change by selecting specific technologies and promoting them even if they are not the cheapest. Modern jazz has mastered trade agreements while symphony has mastered carbon agreements. Lastly, hard rock is very focused on national content for the development of energy technologies and therefore misses important opportunities. From the World Energy Council’s perspective, the Energy Reform has jazzy elements that introduce technology competition while, at the same time, it has symphonic elements promoting energy efficiency, renewable energy and carbon-mitigation technologies. This means that the Energy Reform lays in a symphonic-jazz area. Looking at the trilemma, Mexico earns a BBB score, which is very balanced. The first thing we strive for at the World Energy Council is balance, as its absence generates policy risk. This drives investors away and without them we cannot manage any transition. The balance reflected in Mexico’s BBB score is good overall but there is certainly room for improvement and the Energy Reform aims to keep improving, which should increase the country’s score.
Q: What role do innovations like digitalization, storage, IoT and blockchain play in Mexico’s energy transition?
A: Digitalization offers many opportunities and its capacity to create a future uberization in the energy industry is one of the most exciting. Providing hotel-like services without having a hotel or driving people from one place to another without owning a taxi is what Airbnb and Uber have achieved. Uberization therefore means the capacity of taking a capital-intensive sector and coming up with business models that bring additional value to existent assets via digital processes. What this means for the energy industry is that companies can become energy storage providers without owning an energy storage facility, for example.
In Mexico, a clear example of what digitalization can do is depicted in a shift of the baseline of energy consumption. There are 40 million households in Mexico. Considering that every household has a fridge that consumes 100W then there are 4GW of power being consumed just from fridges. On an average day, Mexico has an energy demand peak of 45GW, which means that fridges represent 8 percent of the peak load. If you could digitally enable all the fridges to be turned off during peak demand and then turn them on after the peak ends, 8 percent of the total peak load from the system could be shifted, therefore relieving the energy network.