Stable Baseload Congeneration's Greatest Strength

With Mexico urgently needing to inject additional capacity from renewable sources into the country’s grid, more and more system operators are looking to cogeneration as a stable, viable and more environmentally-friendly alternative to fuel oil. But Jorge Gutiérrez, Director General of COGENERA, says that even natural gas-powered technologies have their limitations. “The development of a cogeneration project requires a client that needs steam or considerable quantities of air conditioning; it is a very specific demand,” he says. “That is why the intensive development seen in wind power or even solar power is absent from the cogeneration sector.” 

By its very nature, cogeneration is best used for largescale commercial developments. A COGENERA member just installed a cogeneration system at a department store in Monterrey to provide an almost-permanent flow of 1,300 refrigeration tons for the store’s air conditioning units. Gutiérrez says his works particularly well in areas like Monterrey due to the region’s year-long high temperatures.

In line with the association’s objective of promoting cogeneration, COGENERA is a member of the Ministry of Energy’s Consultive Council for Renewable Energies (CCER), installed in 2013 by the Law for the Utilization of Renewable Energies and the Financing of the Energy Transition. It is also a member of CRE’s Consultive Council. These strategic memberships ensure cogeneration has the representation it needs in Mexico’s energy market regulations.

Gutiérrez is optimistic when it comes to cogeneration’s future in the energy mix. “Cogeneration will continue expanding and becoming more sophisticated. In terms of cogeneration units, we expect the majority to deliver power ranges between 10-12MW,” he says. 

An important stimulus for this technology involves the number of CELs that can be obtained compared to other technologies. “One of our members just finished a project with a highly efficient design: the company expects 41 percent of the total generated energy will be eligible to be awarded as CELs,” Gutiérrez says. COGENERA will use this to its advantage in fulfilling the legal obligation that will bind private companies to consume 5 percent of their energy from clean and renewable sources. 

Gutiérrez concedes that much remains to be done to promote cogeneration, particularly in terms of attracting financing. “While CELs are our available stimulus, there is still uncertainty about their monetary value,” he explains. By introducing Financial Transmission Rights, energy transportation is now a variable cost determined by the difference between the local marginal price of the exit point and the local marginal price of the entry point. Given this variability, the electricity surplus is not taken into consideration by banks or moneylenders, despite the fact it can be commercialized. This reduced financing changes the equity-debt relation, affecting the IRR. “There is a need to push toward market maturity, assuring the moneylenders that this surplus will be easily sold,” says Gutiérrez.

For Gutiérrez, Mexico needs to look toward markets like California or Pennsylvania-Jersey-Maryland (PJM) as they are solid, mature markets that have been operating for a long period of time. “Bankers there know that energy surplus sold on the spot will even be higher priced than with the original client,” says Gutiérrez. “The more aggressive bankers, willing to take additional risks, will be the ones better positioned in Mexico’s market.” While Mexico’s banking sphere is not so eager to finance these projects, it should be noted that development banks have more appetite for these ventures. 

While to some extent Gutiérrez believes the new legal framework of the Energy Reform curbs cogeneration’s growth, for the time being COGENERA has managed to greatly increase cogeneration projects through interconnection contracts that still operate under the previous law. He believes this will buy more time for greater market certainty to be developed. “We hope that once we conclude those interconnection contract-based projects, we will be able to overcome the uncertainty pertaining to CELs’ price and presence in the market,” he says.