Contributed article by Dominic Pasteiner
The success of the first two power auctions was down to regulatory clarity and consistency, and this will continue to be a decisive factor as the market prepares for future bidding rounds, a panel of industry leaders agreed Wednesday in Mexico City.
“The efficiency of the whole auction process was the most impressive and important factor,” said Miguel Ángel Alonso, Country Manager of Acciona Energía, during the Mexico Energy Forum 2017 at the Sheraton Maria Isabel. “The big consumers saw the clarity they need to invest during the first two rounds and hopefully this has now set the bar for the future.”
Angel spoke on the panel entitled “Power Producers Shaping Mexico’s Energy Mix.” He was joined by Paolo Romanacci, Director General of Enel Green Power México, Darío Febré, Corporate Director of Business Development and Strategy at Engie México, Rafael Valdez, Managing Director for Latin America & the Caribbean of Envision. The panel was moderated by Jonathan Pinzón, Senior Energy Consultant of Zumma rg +c.
“It all boils down to stability,” said Romanacci. “Financial and political stability will encourage new players to launch bids, but there also needs to be an assurance that projects will be seen through to the finish line.”
For companies to be able to finance projects, added Romanacci, there needs to be a concerted effort to increase market liquidity to give companies more financing options. This responsibility will fall, as ever, on the banks and other financial institutions but the energy companies also have an important duty to present attractive projects that can bring returns on investment.
“As a community, we must strive to make the energy market in Mexico attractive to the financial institutions, particularly the clearing houses,” said Febré. “This will be decisive not only for the third round but all the future power auctions in the country.”
Despite the presiding optimism brought about by the success of the first two rounds, the panelists had words of caution for the future. Given the drastic changes underway in Mexico, the market will need to be understanding and appreciate that the environment is new and will take time to find its groove.
“The market is not changing,” said Angel. “The old market is a thing of the past and an entirely new market has been created. It will take time to iron out the cracks. The energy community must appreciate this and be flexible.”
Romanacci was similarly moderate in his outlook for the future, urging the market to learn from the example of Brazil to ensure that the good work done in the past two years is not wasted.
“In many ways Mexico finds itself at a checkpoint,” he said. “Brazil made a very successful reform in 2004, but five years later encountered problems that continue to plague the country today. We need to continue to revise and modify the regulations to avoid falling into the same trap.”
As a new player in the market, Valdez concluded by saying that while he understands the challenges of working in Mexico, his company is encouraged by the country’s proximity to the US market and therefore it plans to stay for the long-term.
“We are investing in storage and energy handling facilities because we are convinced that over the next 40 years Mexico will emerge as the ideal location for energy technology manufacturing and business with the United States,” he said. “Mexico is a vital component for our investment strategy. It has all the ingredients we look for.”