Winds of Change Bring Fresh Opportunities

The events taking place in the Mexican energy industry during the past two years have been so dramatic that numerous energy companies are entering segments they had never thought of before. The opening of the wholesale electricity market has some project developers analyzing the possibility of expanding their portfolio of services to include activities that were unavailable before, such as commercializing energy.

But anyone who thinks it will be a simple process, should think again. SOWITEC, a German project developer, is among those branching out into fresh niches. It says a new market brings new challenges to overcome. The industry’s various players need to be aware of this, especially as the rules are not particularly clear. “The industry needs to fully understand all the mechanisms available in the new market,” says Alejandro Robles, Country Manager of SOWITEC. “There are many elements that did not exist before and are unclear to potential market participants. For instance, some off-takers are taking the results of the auctions as a benchmark for PPA prices. But they are not considering that there are also obligations to acquire capacity, CELs, ancillary services, financial transmission rights and other related costs. Most companies still have the mentality to ask for contracts that offer discounts over CFE’s prices, considering it as the decisive factor. In reality there are many more factors that need to be considered in today's market.”

SOWITEC is among the leading wind power developers worldwide. It has installed over 100 wind turbines in 30 different wind farms globally. In Mexico, it has participated in the development of wind farms mainly in the north. Now, the company is looking at the possibility of commercializing energy through qualified suppliers, which are among the most sophisticated elements introduced by the new rules. “The auctions are interesting for us but they are also highly competitive. We are therefore looking at other alternatives, opening the spectrum of possibilities as much as we can,” Robles says. Renewable energies are interesting options, he says, because they have demonstrated they can offer competitive costs per megawatt-hour even in a scenario with record-low natural gas prices. Intermittency is a concern, especially when it comes to offering capacity. “Considering these issues, we are planning to build a diverse portfolio to offer products to most of the market,” he adds.

SOWITEC has already sold all the projects it had under the previous scheme, keeping only those with permits under the Electricity Industry Law, which are eligible to sell energy. Wind energy is expected to continue playing a key role in the company’s portfolio, mainly in the medium to long term, but Robles also sees a great opportunity in the solar sector that he expects will become more relevant to his business in the near future. “The same permits that are required for wind are needed for solar. What really varies is the engineering and we are receiving great support in this area by SOWITEC’s team in Brazil, which has a good deal of expertise in solar development. The greatest challenge for solar development in Mexico in comparison with wind will be social impact. Solar parks use more land than wind farms, which calls for a more complex social management strategy,” he says.

Robles is confident that SOWITEC can handle the social management of solar projects because it has done it for wind farms in the past, including some developments in Nuevo Leon and San Luis Potosi. The company also has experience in securing land rights for transmission lines, which can imply negotiating with a high number of landowners depending on a project’s length. “In less than a year, we have secured the land rights for a 40km transmission line with 300 landowners. It was a challenging process as many of these landowners were out of the country and hard to reach. But we managed to do it properly and close all the negotiations on time.”

SOWITEC plans to complete at least 500MW of projects, including both solar and wind, in the next two years. “Our plan is to sell projects to utility investors and investment funds although we will have to see how the political changes in the US impact this sector. We remain positive nonetheless.”