Few countries have lived such deep structural changes in the last years as Mexico. Probably one of the major steps in this transformation has been taken on the energy sector
For decades, Mexico has been a privileged country in this sector. Due to its large hydrocarbon reserves and its potential on renewable energies, Mexico has played an essential role in the international market and the energy industry has had a deep impact in the country’s economy and development strategies. Notwithstanding, in a globalized world, with constantly changing realities and fluctuating markets, it becomes important to innovate, transform and diversify production processes in energy matters to be able to remain competitive. The Mexican Government has identified these challenges and, accordingly, has launched several public policies and projects driven by the Energy Reform, to strengthen Mexico’s future in the energy sphere.
Mexico is considered a reliable destination for productive investment. The reform has not only strengthened this reliability for investments on the energy sector, but it will help increase Mexico’s competitiveness
As a result, for the first time in more than 75 years, private companies can participate in Mexico’s energy sector. Nowadays, private investment -both domestic and international- is allowed in the country’s energy sector under several mechanisms such as service agreements, production and profit sharing agreements, licensing contracts for exploration, extraction, treatment and refining of hydrocarbons, as well as transport, storage and distribution of petroleum, natural gas, gasoline, diesel and other derivatives. Mexico’s Energy Reform has drawn the world’s attention. Recently, during the 35th IHS CERAWeek 2016, the President of Mexico, Enrique Peña Nieto, received the prestigious IHS Global Energy Lifetime Achievement Award in recognition of his vision and leadership in the historic modernization of Mexico’s energy industry.
New roads open
The benefits of this modernization process are
clear. In the industrial sector, for example, the
Energy Reform will result in savings on electricity
and gas, as a result of the progressive reduction
in energy generation costs. To date, the cost
of electricity for the industrial and commercial
sectors has already decreased by 22% to 31%, and
it is expected that, by the end of 2016, the cost of
domestic electricity will have a 2% reduction.
This is partly due to the substitution of fossil
fuels in favor of more economic and more environmentally
friendly energy sources, taking advantage of the low costs of gas
and the country’s hydroelectric
resources. This change on the
sources that the Country uses to
satisfy its energy demand is evidence
of the new path towards
electricity market competition
opened by the Energy Reform
and of the transformations undergoing
within the Federal
Electricity Commission (CFE).
It also demonstrates Mexico’s
commitment towards climate
change mitigation.
Prior to the Energy Reform, the private sector could only take part in the electricity industry as a provider to CFE or as a producer under a self-sufficiency scheme. Today, with the recent opening of the wholesale electricity market, bidders can sell energy to all Qualified Users or their representatives. Free competition is guaranteed by the National Power Control Center (CENACE), which assures the efficiency, transparency and open access to the electricity market. Due to the new rules of the market, private companies are allowed not only to produce and sell energy, but to offer related services, power, financial transmission rights and, in the case of renewable energy producers, certificates of clean energies.
Changes are already
taking place
The full transition to a mature and strong energy
market might take some time. However, Mexican
energy sector remains active through medium and
long term auctions-coordinated by CENACE- for
15-year energy supply contracts and 20-year clean
energy certificates.
The results of the first of these auctions-which
received 450 technical offers-will be announced
in 2016. Also, this year CENACE will release the
second auction for the long term contracts and
the first auction for medium term agreements on
power, energy, and financial transmission rights.
The Mexican electricity sector is highly attractive
for investors. It is estimated that the
country will require 60GW of additional capacity
to cover its energy demand for the next
15 years. These energy needs will be fulfilled
through projects of distributed generation-recalling
that 88.5% of the 39.5 million clients of
CFE corresponds to the domestic sector.
The Energy Reform has opened innumerable
business opportunities along the supply chain of
the energy sector. These opportunities are not exclusive
for large companies; there is a wide range
of them available to SMEs in supply projects of
pipelines, valves, screws, laminates, welds, galvanized
items, and boiler vessels, among other articles
for industrial use. There are huge opportunities
in the services sector as well. For example, the
energy industry is in need of software professionals
to develop specialized computing systems.
The Energy Reform has also opened a window
of opportunity for the development of renewable
energies. Mexico is the third region with the highest
solar irradiation in the world and is the largest
manufacturer of photovoltaic modules in Latin
America. Also, the country’s wind power potential
is one of the most attractive at a global level. Likewise,
Mexico hosts one of the largest geothermic
complexes in the world.
The new contractual schemes will help promote
this potential. For example, eight new wind energy
projects were announced after the Energy Reform.
Mexico is considered a reliable destination for
productive investment. The reform has not only
strengthened this reliability for investments on
the energy sector, but it will help increase Mexico’s
competitiveness by creating new opportunities
in the global value chain and reducing energy
costs for companies established in the country.
Seneca used to say: “The wind is favorable for
those who know where they are going.” Mexico
is navigating through a path leading to prosperity,
boosted by structural changes and competitive
advantages in the energy sector.