Highlights of Mexico Energy Forum 2015 - Mexico Business Events (mbe)
5d6c21
MEF 2015 PlatinumSponsor Fondo de Sustentabilidad Energética
MEF 2015 GoldSponsor ChaseSolar
MEF 2015 SponsorsWeb_MEF 2015 SupportedBy Mannvit
PLATINUM SPONSOR
PLATINUM SPONSOR
GOLD SPONSOR
MEF 2015 GoldSponsor BeGroup
GOLD SPONSOR
MEF 2015 GoldSponsor ChaseSolar
SILVER SPONSOR
SILVER SPONSOR
NEW ENERGY
SUPPORTED BY

HIGHLIGHTS MEXICO ENERGY FORUM 2015

Mexico’s Energy Strategy after the Energy Reform

Mexico’s Energy Strategy after the Energy Reform

Presentation: Leonardo Beltran, Undersecretary of Planning and Energy Transition at SENER

Leonardo Beltran began by explaining that following the Energy Reform, the government has a real mandate to achieve a transition toward renewable fuels. In December 2013, the passing of the secondary laws of the Energy Reform began a series of actions toward this transition. The new laws include one that governs the electricity industry, which created a market that will include clean energy certificates.

According to Beltran, these certificates will create the conditions to incorporate renewable energies in the Mexican electric sector. The certificates are a compulsory mandate for all market participants, and a number of certificates must be issued per year, based on the number of projects being developed each year. This means the certificates will increase each year and their coverage will be broadened to cover any needs.

Beltran moved to another law, which covers geothermal power, as Mexico is one of the largest producers of geothermal electricity in the world. This law provides market and legal certainty to potential developers so they may intensively develop infrastructure and allocate capital to explore Mexico's geothermal resources. This development was carried out by observing international best practices, although Mexico’s geothermal framework remains one of the few such geothermal frameworks in the world. “We are hoping that this makes Mexico one of the leaders for geothermal in the world,” stated Beltran.

A third law deals with energy transition, tackling climate change on one side and energy consumption on the other. The General Climate Change Law implements the steps Mexico needs to take to grow its economy sustainably, while establishing mechanisms to reduce greenhouse gas emissions. It will operate alongside and in partnership with Mexico's international obligations, such as carbon trading with California and Canada. To further strengthen the reform and ensure its success, SENER has been given an additional mandate to oversee this transition and ensure an orderly market for all participants.

Beltran than dwelt on five clear benefits of the Energy Reform: opening the Mexican energy sector up more widely to foreign investment, creating better perspectives for renewable energies, ensuring better relationships between authorities and communities, creating market mechanisms to attract investment, and putting in place a new regulatory framework for more widespread generation and distribution. “Overall, the government aims to align the sellers’ market and the lenders market for energy,” stated Beltran. “As more projects are connected to the grid, more commerce will take place, which will help to reduce energy consumption in a specific building, community, or city. This will therefore help to establish a better energy market in Mexico while helping us to meet international standards.”

There were two further areas that Beltran thought worthy of discussion. The first was developed in 2013, namely the need to develop a transition strategy toward cleaner technologies and fuels. This law makes the transition the personal responsibility of President Enrique Peña Nieto. This strategy is divided between generation (through wind, solar, geothermal, hydro) and energy efficiency in industry, transportation and commerce. These elements lay out an energy transition agenda in which all market players can participate.

The second area is to reform certain industries. For example, the construction industry is a major contributor to greenhouse gas emissions, due to the materials it uses and the processes involved. Therefore, the government will encourage different technologies, such as efficient LED lighting or air conditioning devices, which will drastically alter energy consumption. “Before 2030, many Mexican cities will require new infrastructure,” warned Beltran. “We can either do as we have always done, with typical materials and less efficient technologies. Or we can answer this challenge head-on by investing in public transportation, green materials, and many other areas over the next few decades. For this, Mexico must seek to complement green building certifications to promote better use of infrastructure and buildings. Certain LEED buildings, for example, have zero energy consumption in that they generate as much as they consume. Through international partnerships, our construction sector has been improving its standards and developing the financial wherewithal to ensure this transition is done profitably.”

In closing, Beltran listed some other specific areas of improvement that are needed to make this development a reality, including the integration of best practices into local construction regulations and empowering local authorities to ensure green construction targets are met. “Mexico must adapt itself to the consequences of climate change, such as the increased happenings of certain meteorological events. We cannot rebuild everything so we must make investments to improve our current buildings, while ensuring any new buildings meet all the standards listed above,” he concluded.

View from the Top on Mexico’s Regulatory Environment

View from the Top on Mexico’s Regulatory Environment

Presenter: Guillermo Zúñiga, Commissioner at CRE

Zúñiga opened his talk by stressing that the improvement of services and products in the energy sector is extremely important to the future viability of the sector and to the Mexican economy. In order to ensure a healthy development, the main changes will naturally reduce the barriers to entry for new players. Instead of being concerned about the rule of law or the enforcement of rules, new entrants will instead need look for clients and compete in terms of offering better practices and better products in order to get a place at the table in an alluring market.

Despite this positive opening, Zúñiga stated that any discussion of the Energy Reform must tackle it as a very broad and detailed subject. Among other areas, it seeks to govern both exploration for petroleum and the proper distribution of energy, entailing a wholly new vision for PEMEX and CFE. In articulating this vision, the Reform also has the responsibility of improving the performance, not merely of these two companies, but of their entire industries. Beyond energy markets that each presents subtle and numerous complexities, individual components of these markets, such as upstream and downstream for oil and gas, present challenges of their own. As such, the Energy Reform had to take all these aspects into account, while providing a straightforward guide to the future.

One of the main steps taken was to ensure that an independent economic regulator would stand watch over the energy industry and verify that no monopoly would happen. In this line, PEMEX and CFE were transformed to become “productive enterprises of the state.” To further this level of transparency in SENER, CNH and CRE, these institutions have seen their governance reviewed. For CRE, its seven commissioners are constantly scrutinized and their decisions are all announced publicly on the CRE website. The commissioners are voted on by the Senate, they serve a one-year term, and must all have sufficient technical knowhow and experience to fulfil this position.

Since being created in 1923, CRE has had the responsibility of managing areas that were key to Mexico’s growth. Given this position, Zúñiga explains how the new energy structure was created with a specific role for CRE in mind.

The Commission of energy was created in 1993 and has had the responsibility of managing the areas that Mexico wanted to manage. Zúñiga explains how the energy structure was established for CRE. They have established the legislation to align with the new markets in the sector. But, according to Zúñiga, this is not a duty CRE will take likely. Acting with Mexico’s climate change duties in mind, generators of renewable energy will have to enter into a clean energy certificate program to regulate the sale of the energy they generate.

Concerning natural gas, which has been named as the transition energy source of choice for Mexico, Zúñiga pointed out the major link between the development of natural gas and the country’s general economic welfare. However, for this development to happen, Zúñiga stated that CRE saw it as a priority to foster investment in natural gas infrastructure to boost the number of projects and the volume of gas being made available in Mexico. However, this construction should not happen without central guidance. As such, the government has laid out plans for the building of more pipelines to be centralized, while giving them an open capacity to satisfy the demand for all companies seeking to tap into this plentiful source.
Another reason for such centralization is the prevention of any further monopolies. Zúñiga explained that if the regulations were not made crystal clear as well as enforced, then foreign companies may never trust in the Mexican market and choose to invest elsewhere. As such, CRE and other entities are making all regulations publicly available to increase transparency.

Zúñiga closed with the fact that there is a need in Mexico for more regulators that focus on specific areas of the sector. These should be pro-market but not pro-business and CRE is actively reviewing how such regulators and their sphere of influence should be created.

Rules of the Game and Regulatory Hurdles after the Energy Reform

Rules of the Game and Regulatory Hurdles after the Energy Reform

Moderator: Derek Woodhouse, Partner at Woodhouse Lorente Ludlow
Speaker: Noé Navarrete, Commissioner at CRE
Speaker: Sean McCoy, International Counsel at Chadbourne & Parke
Speaker: Miguel Ángel Alonso, Country Manager of Acciona Energy
Speaker: Eduardo Andrade, Representing Memeber of AME

Derek Woodhouse, Partner at Woodhouse Lorente Ludlow, acted as moderator in the panel on the market rules for the electricity industry. Miguel Ángel Alonso, Country Manager of Acciona Energy, began the panel stating that as a company representative and member of several associations, he can attest the private sector’s efforts to push the Energy Reform. He claimed that current market conditions and the drop in oil prices call for a faster implementation of the Energy Reform. However, it is difficult for the private sector to foresee where the industry will be headed since the rules of the market are still missing. According to Alonso, renewables will fare well in Mexico for two reasons. First, the technology is improving and becoming more affordable, while investments are increasing. Second, the drop in oil prices will make it difficult for oil companies to be competitive. The latter provides a great window of opportunity for renewable energy.

Woodhouse asked Alonso about the effectiveness of clean energy certificates (CECs). Alonso stated that he is against the idea of CECs being used as incentives. “CECs should be a sign of commitment to clean energies. Solutions meant to solve problems in the short term will not satisfy investors and will lead to uncertainty. Certificates should give electricity generators certainty without being a burden to investors and the government.”

Woodhouse proceeded to ask Eduardo Andrade, Representative of the Mexican Energy Association (AME), to shed some light on the aspects of the Energy Reform that are well-understood by now. Andrade explained that renewables and large profits are not entirely compatible. In this sense, renewables have to become bankable, particularly if there is a mandate to consume them. In order to have affordable renewables, Mexico has to rely on proven technologies such as wind, not experimental ones. He told that natural gas will help by reducing tariffs in the short term. However, renewables are necessary in the long term, and this requires investments, which depend on certainty. Andrade believes CECs will provide this.

After emphasizing that uncertainty was the common theme in the panel, Woodhouse asked Noé Navarrete, Commissioner at CRE, to clarify the way CECs will work. Navarrete explained that previously, CFE covered all aspects of the electricity industry and the self-supply scheme opened the door for renewables. The energy bank and wheeling were important tools in the development of the renewables sector. However, Navarrete said that these two incentives will disappear in the new market. Instead, CECs will make projects feasible.

Navarrete mentioned that CFE will no longer be in charge of dispatching, a task that now falls under the responsibility of CENACE. “Just like the IPP scheme was created to sell power directly to CFE, now independent electricity distributors can service CFE.” The state-owned utility will have to create profitable business units that will participate in the market as an independent entity, as the law does not allow vertical integration. This is another challenge in terms of public policy aimed at making CFE a productive enterprise and market player. On the other hand, CENACE will be in charge of managing the market. Navarrete was careful to note that the market has to be developed gradually. Finally, he pointed out an important fact regarding CECs. “The sanction under the CEC model will not be imposed upon generators, but on suppliers. This is why I believe CECs will be successful.”

To end the panel, Sean McCoy from Chadbourne & Parke stated that the fallout from the Reform would trickle down to SMEs. This would allow SMEs to benefit from affordable electricity tariffs, unlocking the Reform’s true economic value. “We have to start by creating knowledge of the industry among national talent. This will provide plenty of opportunities for consultants, as SMEs largely not have said knowledge to date. The fact that the Reform will benefit SMEs is even more important than reducing tariffs for the residential sector,” he concluded.

The Role Natural Gas in the Energy Mix: Cost Competitiveness, Combined Cycle, and Cogeneration

The Role Natural Gas in the Energy Mix: Cost Competitiveness, Combined Cycle, and Cogeneration

Moderator: Tania Ortiz, President of AMGN
Speaker: David Madero Suárez, Director General of CENAGAS
Speaker: Jorge Armando Guitérrez Vera, President of Cogenera México
Speaker: David Lozano, Director General of VOPAK
Speaker: Sergio Beristain, Founding Partner of Beristain + Asociados

In a panel that broadly tackled the challenges that lie within Mexico's current natural gas system, Madero Suárez, Director General of CENAGAS, began by referring to the abundant enthusiasm that exists as a result of the Reform. “The challenges of implementing the Reform allow us to lay out some very ambitious terms. We are now very close to signing the documents that will officially give birth to CENAGAS,” he specified. CENAGAS’ mission is to guarantee a reliable supply of natural gas, making it a very important player from the start, given the focus placed on energy efficiency. One of its most important roles will be to coordinate the improvement of natural gas infrastructure. For the first time in Mexico, it will seek to create a technical consultancy practice for natural gas, which will have to be based on the EU model since it does not exist in the US. Madero Suárez added that this consultancy must, among other areas, figure out how to operate and maintain a supply nationwide during emergency times. Furthermore, CENAGAS will have to operate more than 9,000km of pipelines that currently exist, as well as ensure the steady growth of the network due to private investment. “We need to provide a social vision to investors so they know they will achieve their business goals.”

He moved on to the theme of bidding, stating that CENAGAS would oversee a market in which private players will feel confident. “Currently, they feel it is difficult to win bids in Mexico so CENAGAS must dissipate this,” he stated. “In operating the pipelines, we seek to maintain the existing best practices in Mexico and improve them. Our role as a regulator will see us make proposals and enact changes demanded by the private sector. CENAGAS has been preparing for five months to allow us to operate fully as soon as possible once we are officially launched.” CENAGAS has already signed contracts with PEMEX, leading to both legal and technical groups to be created between the two SOEs, allowing for data sharing, ensuring process compatibility, and the exchange of legal responsibilities between the two. Madero Suárez noted that such an exchange must be done skilfully to ensure no interruption of natural gas for users. “We have also evolved in becoming overseers of the CRE in getting the right certifications and in getting permits transferred such as those covering our operation of the pipeline network.”

Finally, he stated that CENAGAS will also be ensuring that the pipeline network is equally distributed among all states, not only in the north. For example, Chiapas has now built a Natural Gas Distribution Center, which is in line with CENAGAS' goal to oversee the expansion of natural gas infrastructure nationwide.

Moderator Tania Ortiz stated that the Energy Reform and the management of natural gas were vital for all Mexicans before asking Jorge Gutiérrez Vera to comment on the role of this hydrocarbon. Gutiérrez Vera explained that cogeneration or combined cycle cannot exist without natural gas, except for some small cases where biogas is used. However, he feels that cogeneration will never reach the level of natural gas and has no need to do so. PEMEX, CFE, and CENAGAS need to work together to foster cogeneration and trigeneration. If so, Mexico could achieve the best energy efficiency and least expensive power around from cogeneration, while diminishing greenhouse emissions. “We need to change the design of cogeneration schemes and make them more attractive,” said Gutiérrez Vera. “We have also benefited from the energy bank, but if this is removed, the cogeneration model will have to be remade to take this into account. If the bank no longer works, then the base users of cogeneration will have to participate in financing such projects.”

After Gutiérrez Vera finished, David Lozano took over to discuss the need for storage infrastructure along Mexico's natural gas pipeline network, which is currently very small. Lozano began by explaining that Mexico is in a pathfinder period. Natural gas has played a more prominent role in Mexico's energy mix when the sector was first opened to private investors. The expansion of the gas pipeline network is proof of this. Many factories and plans have also switched to natural gas, making them cheaper and cleaner. Supplying natural gas to industries and houses has also been a major achievement. “The Energy Reform provided the next stage of evolution, but future challenges lie ahead,” explained Lozano. “The creation of CENAGAS and its independent oversight of the pipeline network present a huge challenge. We still have a lot to do to bring natural gas, a clean fuel, to its full potential in Mexico.” He was happy that ever more pipelines are being put up for bidding, as this will generate trust among investors. The more industries rely on natural gas, the more its demand will keep improving and new supply will grow in consequence. “We must meet these new challenges head on as the Mexican government's vision for the country to become a global power by 2040 requires us to succeed,” he concluded.

Ortiz then stated that Sergio Beristain would discuss the 1995 reform attempts and how that experience influenced, positively and negatively, the current Reform. Beristain began by saying that the 1995 Reform was far more successful than commonly believed, although it still left Mexico far from its goal. “Since 1995, companies can enter the distribution market through successful bids, backed by the legal framework. But new challenges lie ahead. In 1995, the pipeline network, natural gas distribution and transmission were greatly developed,” he explained. According to Beristain, regulations back then posed an obstacle, stopping the harmonious development of the natural gas market. The existing laws allowed specific permits for this purpose but these were abused by energy giants that affected how distributors wanted to invest. “That has now changed as the law mandates very specific requirements to create harmony between transmission and distribution. The permits are now far more efficient.”

Beristain then asked how best to unite all these developments. For all natural gas projects to go forward as planned, all the new laws and organisms must collaborate, such as CENACE, CENAGAS, CFE, PEMEX. All this harmony must be done well from the start, he concluded.

Transmission Challenges & Energy Market Development

Transmission Challenges & Energy Market Development

Presentation: Manuel Alanís Sieres, Subdirector of CENACE

Manuel Alanís Sieres, Subdirector of CENACE, began his presentation by highlighting part of the objectives in the Energy Reform, focusing on the need to create competition in the generation and commercialization of electricity. This meant reducing barriers and pushing renewable energies. Generators can now recur to a wholesale market, although the nuclear energy segment is still reserved to the government. CFE will still attend basic users, while large users can obtain energy from the wholesale market where companies will compete for clients.

Alanís pointed out that SENER dictates energy policy and CRE issues regulations that ultimately shape the way CENACE works. He detailed CENACE's functions, such as managing the operational control of the national grid in a reliable and efficient manner. The organism will also handle the wholesale electricity market, which includes electricity transactions, associated services, imports and exports, financial transmission rights, penalties, and administering clean energy certificates, among other duties. He noted that the energy market will be determined based on the offer. The planning and expansion of the grid will also fall under CENACE's responsibilities, just like the guarantee of open access to the gird.

From the offer side, generators will have financial rights to transmission and the right to enter bids. As for demand, qualified users can obtain electricity in the market from an array of generators. Initially, qualified users will need to be above the 3MW line, but in subsequent years this number will decrease gradually until it reaches 1MW.

The planning stage will be made up of projects that are already in the pipeline, as well as new projects, interconnection operations, and exports and imports. Market participants will be able to export or import, although CENACE will schedule these activities.

Alanís mentioned some consumption and renewable energy capacity estimates for the 2015-2024 period. “Currently, renewables comprise 20% of the energy matrix only. However, in the medium term the installed capacity of renewables can reach 27,912MW, mainly due to developments in wind energy.” Some of the transmission challenges the country currently faces, according to Alanís, include elimination bottlenecks, operating without restrictions with international wholesale energy markets, minimizing losses, complying with the clean energy objectives, and drafting attractive financing and construction schemes.

Regarding advancements in the restructuring of CENACE, Alanís told that the Administrative Board of Directors was defined in September of last year. Pedro Joaquín Coldwell, Minister of Energy, was appointed president, while César Hernádez Ochoa was appointed as one of the board members.

Case study: Iceland’s geothermal development

Case study: Iceland’s geothermal development

Presentation: Brad Donovan, Honorary Consul General of Iceland
Brad Donovan began by emphasizing Iceland's efforts in mitigating climate change and pushing clean energies. In doing so, it has turned to renewables, mainly hydro and geothermal energy, and these now comprise 80% of Iceland's energy matrix. The rest comes from imported fuels. All households in Reykjavik use heating systems powered by geothermal resources. Mexico can therefore learn significantly from Iceland’s example, albeit while applying said lessons on a far larger scale. One of Mexico's goals in Mexico, he said, is to achieve economic community development through the use of resources. “Increasing the income of people at the bottom of the pyramid leads to more education,” he stated.

While making this comparison, Donovan acknowledged that geothermal energy is hard to compare to other energy sources. “The advantages of geothermal energy are reducing pollution while reducing tariffs as stated in the Energy Reform. To achieve this, an important risk mitigation scheme that has been used in other locales will be implemented in Mexico too, particularly to reduce financial risks in the exploration stages of geothermal projects,” he continued. Mexico is currently the fourth country in geothermal energy, and it has the potential to become the first in terms of capacity, according to Donovan. Beyond this staggering potential, geothermal will help diversify Mexico's energy matrix, while remaining stable and profitable in the long-term. Proving its belief in geothermal potential, the federal government has already created the Mexican Center for Innovation in Geothermal Energy (CEMIE). Alongside this, training programs are being dedicated to training human capital specialized in this sector, including significant exchanges between universities. In Donovan's eyes, the future of geothermal energy in Mexico is safe.

The Competitiveness of Mexico’s Renewable Energy Resources

The Competitiveness of Mexico’s Renewable Energy Resources

Moderator: Alejo López, Country Manager at Hanwha Q CELLS
Speaker: Adrián Escofet, President of AMDEE
Speaker: Rodrigo Hernández, Commercial Director of Solartec
Speaker: Jacobo Mekler, President of the Mexican Hydropower Association
Speaker: Chris McCormick, Director of Strategy & Project Finance of Reykjavik Geothermal

The main topic of the evening was the effect of the oil and gas prices on the competitiveness of renewable energy. Solar and wind energy are competitive enough to find a stronger position in the Mexican economy, but the right policies must be implemented to do so. Escofet stated that in spite of their strength, even wind and solar were dependent on working toward long-term feasibility. “Without feasibility, different technologies will not be able to be financed,” said Escofet. “This means we need long-term visibility of prices based on different energy sources. This will require very careful planning in terms of how each energy source is rolled out. The planning must be aligned with the bids that are carried out year by year.” He stated that alongside this, the government had to get rid of very complex market rules, especially those aiming to regulate markets that do not yet exist in Mexico. Markets should be established based on a correct timeline, meaning that constraining them with complex rules and unclear bidding could see them fail. He stressed that renewable energy sources need simple rules and a simple bidding process to thrive.”

Mekler indicated that certainty in market rules would also help to benefit the communities in which these projects are based. “The communities where projects are must be taught that these projects are positive for them. Increased foreign investment and international best practices will only benefit these communities further,” he added. He also mentioned that while the clean energy certificates are a welcome development, they must incorporate the environmental incentives that were proven to work prior to the Reform.

Taking the microphone, Hernández chose a different track. He admitted that compared to the large-scale projects that exist for wind and geothermal, solar is still in its infancy. As such, he spoke of how the solar sector received the Reform with open arms, given how simple it sought to make things. “The solar industry has been hampered by an overly complex bureaucracy,” he said. “Our small and large-scale clients alike feel they do not have enough support or incentives to develop said project. When trying to build a solar program, a company might go to CFE only to be sent on a roundabout of other institutions. People with all the goodwill in the world may be put off by the complexity of creating a solar plant.” He warned that a lot of megawatts are on the table thanks to solar energy and that Mexico could ill-afford to let this pass by.

McCormick began like any good speaker, by getting a laugh from the audience. “I am not Mexican but I may be the proudest person in the room about the Energy Reform,” he said. Four years ago, when the government announced its energy plan, it became obvious for Reykjavik Geothermal that geothermal would have to open up. As such, the company entered Mexico in the absence of a geothermal market but this has now arrived. According to McCormick, Mexico's geothermal potential is probably larger than has been announced. However, he sees two minor areas that could be improved upon. “Firstly, the initial Geothermal Law was overly biased for PPP as opposed to IPP. At the end of Round Zero, CFE could have requested the entire country as its concession. This would have been a problem for SENER which has to oversee this process. Common sense is now prevailing,” he explains. McCormick explained that he wants both PPPs and IPPs to thrive in a geothermal market but he seeks the most efficient allocation of capital. Furthermore, given geothermal's capital-intensive nature and CFE's failure to allocate enough capital to develop this source, it should not seek to favour one scheme over another. Secondly, in McCormick's opinion, CENACE is still making rules for off-takers still too complicated. He stated that Reykjavik Geothermal had a good off-taker for its Mexican project but that a deal could not be struck, since the rules are still clear. “It may take another year for me to create a PPA that the off-taker, myself, CFE, CENACE, and SENER would all agree to. It is a frustration but a resolvable frustration as well,” he concluded.

Matching Financial Institutions with Investment Opportunities

Matching Financial Institutions with Investment Opportunities

Moderator: Francisco Acuña, CEO of InTrust Global
Speaker: Enrique Nieto, Sustainable Projects Director at NAFIN
Speaker: Stefan Blum, Director of KfW-DEG Mexico
Speaker: Alejandro de la Vega, Executive Director, Head of Energy, Oil & Gas at Banco Santander
Speaker: Andrés García-Novel, Principal Investment Officer of IFC

Francisco Acuña, President of InTrust Global Investments, began by talking about a project that involves rural communities and renewable energy projects. In this, communities are considered as equity partners. In order to make communities partners, capacity building has to be implemented. Acuña said that renewable energy project developers known the importance of both capacity building in communities and ensuring a return of investments. The initiative deeply involves the academic sector, particularly Harvard University faculty members. He explained that the academic sector also plays an important role in this initiative, in which SENER aims to ensure that communities participate in energy projects and gain benefits from it. “The social and financial impact of the academic sector in the energy industry will be significant, particularly because it will facilitate the creation of clusters.”

Acuña proceeded to ask how the Energy Reform has affected the allocation of investments. Alejandro de la Vega responded highlighting that that the Energy Reform tends to be spoken of in terms of hydrocarbons, but the electricity industry also suffered substantial changes. “If the wholesale market detonates the renewables sector, which was already bankable even without subsidies, then investments will flood.” He mentioned that Santander is keen on financing renewable energy projects and has several equity schemes for this purpose.

Enrique Nieto from NAFIN began his intervention saying, “Please do not change the legislation regarding financing, because the regulation has worked out greatly.” He explained that the price of energy generated under the self-supply scheme is set by SENER. Nowadays this price is no longer viable due to market conditions. “The Energy Reform will allow the implementation of long-term financing due to the alignment of legal certainty and the market.”

Stefan Blum said the reforms will have a positive effect in the medium and long term, but uncertainty will prevail in the next months. He said KfW-DEG can help developers and other companies in terms of equity and debt. “Well-planned projects will eventually materialize because they will get financing. Nonetheless, few people are willing to sign a PPA due to uncertainty, which relates directly to debt.”

Along this line, García-Novel expressed that it is too early to focus on future debts resulting from the new market schemes. “The bankability of PPAs should be assessed in terms of elements like technology.”

Acuña continued by posing the question of how risks affect financing. Nieto said investments will affect Mexico's energy matrix. However, he sees a potential problem with the preference that has been given to natural gas. “People assume that the price of gas will not go up for the next ten years, but people also said that the price of oil was not going to change ten years ago.”

García-Novel questioned if there is enough demand to justify large-scale projects. “Eventually, it will come to developers deciding on critical mass projects, for which they will bet on merchant and partial merchant risk. There has to be an appropriate mix of financial tools from the commercial and development banks.”

As for Blum, he believes there should be a generous off-takers portfolio with companies that meet certain conditions even if they are not AAA companies. He also pointed out the great potential provided by municipalities and states. “Many of these schemes have not been financial in the past. As the market runs out of AAA companies, we will begin to see more dynamic and diverse PPA schemes.” To conclude, Blum said that renewables are already competitive enough, so their development should not have to rely on mechanisms like clean energy certificates.

Our Networking Cocktails are a must for C-level professionals who want to expand their business, improve their contacts or who simply want to gain insights from other key stakeholders in their industry. By invitation only, these exclusive events provide enhanced networking and put you in front of the people and businesses that matter to you. Organized around specific topics and themes, our intimate Networking Cocktails are a value-added opportunity to discuss the latest trends and strategies impacting your sector.

Let us help you open doors to fresh opportunities.

Be among the key stakeholders who will be sharing their expertise and ambitions with the top-level audience of Mexico Energy Forum 2019. We have carefully selected our participants to optimize the quality of this unique forum. Register now or risk missing this opportunity to get the inside perspectives and network with the industry’s main stakeholders at this high-profile conference and networking event.

Register now and join us on February 20, 2019