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.
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
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.