Seeking Business Opportunities Beyond IncentivesWed, 02/24/2016 - 13:27
Q: Zuma Energía is a relatively new platform eager to invest in Mexico. What factors do you think will help the company succeed in its ambitious agenda?
A: There are two dimensions to be considered in the path to success. One is the external environment that is comprised of the regulatory framework and market rules. The latter will enable Zuma to define the scale and attractiveness of opportunities in the renewable energies sector. The other dimension comprises the variables Zuma will manage as an entrepreneurial organization, and this will entail attracting the appropriate talent pool and establishing a strong organizational culture. In September 2014, 30% of Zuma was sold to Mesoamerica Mexico Corp, which strengthened Zuma’s execution perspective, since it now has a larger capital base. We have the capability of pursuing more opportunities, and in addition, Actis and Mesoamerica have a long history of building successful projects across Central America. This track record means that Zuma can benefit from a solid reference with good practices and knowledge.
Q: What advantages does Mexico provide for energy projects, and what are some of the shortcomings you have found?
A: There are attractive wind resources in Oaxaca and Tamaulipas, with net capacity factors of around 45%, which is compelling in terms of efficiency. The other factor to consider is that up until the Reform, the mechanisms that were in place were conducive to attracting investments. Elements such as energy banks, recognition of capacity, and simplified wheeling charges made Mexico an attractive country for investment. It is important that that the new regulations continue to promote a friendly environment for investors. The issue we face right now is that the uncertainty has hampered the activities of the sector, and there will be an active dialogue with the authorities surrounding the market rules. With the decline of oil prices, we must ensure that clean energies continue to be competitive. Fuel prices always fluctuate, so we must strive to maintain a long-term vision of the cost of generation.
Q: How will this change in incentives for renewables influence Zuma Energía’s business decisions?
A: This new environment is transforming the way we do business, since we no longer have to structure a system around the monopolies. The market will now be ruled by the interaction between supply and demand, so it is important to continue promoting the renewables sector. The authorities have introduced CELs and the question right now is how the contracts will be structured around these certificates in order to make clean energies bankable. We have noted that the tenure time of the contracts is now shorter, which makes energy more expensive compared to longer-term contracts. In addition, this exposes generators to certain market risks, so we need a proper dialogue with the authorities in order to gauge the type of market risks we will encounter.
Wind power will play a key role in providing CELs, and the certificates that will come from efficient cogeneration plants will be significantly smaller. A significant number of certificates will come from the most cost-effective generation source, which is wind power, as reflected in the amount of gigawatts installed. This allows us to conclude that we will continue to see more wind projects, and as the market rules are solidified, we will see what types of projects will be developed.
Q: How is Zuma Energía planning to handle the required investment in building transmission lines to interconnect its own projects?
A: The lack of transmission infrastructure has been a major constraint for the development of the industry in general in Mexico. A perfect example would be the need for Open Seasons in Oaxaca and Tamaulipas. There are companies that have decided to place themselves in a position where the transmission will be expanded. CENACE must propose the expansion of the grid as an essential mechanism in order to take advantage of the generation potential in certain areas and proactively mitigate bottlenecks. We are prioritizing the projects that have transmission in place, and we are also looking at projects that will have transmission in the future. Personally, I have had the pleasure of working in regions such as Chiapas and Jalisco, and I have experienced the opportunity to create new markets. There are other geographical regions that are poised with the right potential to create competitive projects in the future.