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The energy reform in mexico

Wärtsilä is buiding a beautiful 139 MW Flexicycle gas power plant based on 7 x W18V50SG and one steam turbine near Monterrey, Mexico. The power plant is called Huinalá as per the name of the site location. It will hopefully be the first of many gas power plants to be built by Wärtsilä in this growing market.

We have many reasons to feel happy and positive about our future in Mexico. The market is growing, and is now opening up to private investment. A number of private projects are presently being discussed, and a series of power purchase agreement (PPA) auctions are coming.

huinala
Figure 1:   Huinala Project site seen from the airplane just before landing in Monterrey, Mexico

Long considered for us a land of opportunity Mexico has also been one of the most intriguing markets for Wärtsilä. Looking back now, it is clear that the solutions that Wärtsilä is now able to offer, specifically highly efficient medium size gas power plants - both simple cycle and Flexicycle - put us in a better position than ever for winning business.

Mexico has grown to be the 13th largest economy in the world with a $2.4 trillion US Dollar economy and the 11th largest economy in purchasing power terms, according to the World Bank. The Mexican stock exchange is valued at some $451 billion, second to only Brazil in Latin America. The economic muscle of the country is significant.

From a very closed economy up until the early 1990s, Mexico has been changing its trade policies and making major industrial reforms over the last two decades. The North American Free Trade Agreement (NAFTA) started in 1994 and was critical to getting Mexico integrated into the global economy.

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Raúl Carral Ph.D. - Contact

  Raúl Carral Ph.D.

   Business Development Mexico, Central America 
   and the Spanish-Speaking Caribbean
   
   Enviar Email

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With NAFTA, nearly 86 percent of Mexican exports and 50 percent of its imports are traded now with the U.S. and Canada, making Mexico one of the leading exporting countries in the world. Policy changes are making Mexico a manufacturing hub. For instance, Mexico is now the largest producer of cars in the Americas, surpassing even the U.S.

schema
Figure 2:  Drivers that could influence Wärtsilä success in Mexico


The reforms have forced Mexican companies to compete in the open markets, making them increase their productivity and competitiveness over time. This wave of changes helped start the long-awaited energy reforms.

There is great momentum now, with multiple drivers all acting in a way that is likely to be favorable for us, as pictured in Figure 2.

During the first wave of reforms in 1992 and the years that followed the Mexican government first allowed privately owned and operated generation of electricity, albeit closely controlled by the state-owned vertically integrated utility Comisión Federal de Electricidad (CFE). Ten years later, independent power producers (IPPs) started coming online after several major CFE auctions for long term Power Purchase Agreements (PPAs), and now account for about 20 GW, or one third of the total installed capacity in the country. 

Private participation, in and of itself, did not have the desired effect of creating demand for our technology. Under the first reforms the CFE continued to be the sole authorized provider of electricity, purchasing all of the power generated by IPPs under long-term contracts and enforcing which technologies the IPPs could use.  Unfortunately for Wärtsilä, Combined Cycle Gas Turbines (CCGT) power plants were the preferred technology for the CFE leaving Wärtsilä completely out of the market. 

The early reforms also allowed self-supply of power for industries, making it possible to sell to captive industrial customers but not to the grid. During this time, early 2000s, we were able to sell two industrial power plants for a paper industry company, and one an IPP for Cozumel Island. All good projects but niche opportunities. These three plants were HFO plants, which even back then were not encouraged by the government. 

The new wave of reforms that started in 2013 have gone much further. The reforms have legally eliminated the state’s monopoly position in the energy sector. The reforms have opened access to private power producers to the transmission and distribution systems, and have created an independent operator to run the wholesale market. Large customers are now allowed to contract power directly from generators.This is expected to drive the demand for new and efficient generation. In order for customer demand and new electricity supply to meet, however, the rules of the market address the unusual position of CFE in the system. CFE continues to own and operate all transmission and distribution, along with close to two-thirds of existing generation. 

Furthermore, CFE receives subsidies from the government, which are unlikely to disappear in the near term given the promise of reducing prices. These factors can strongly affect both the ability of the system to operate as intended and the potential for investment in new generation.

The newly created open electricity market and the capacity auctions that have started in 2016 together with power demand from industrial customers that are now truly free to have the generation technology of their own choice could jointly be a game changer to Wärtsilä.



We see great potential opportunities!


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Figure 3:  Main components of the Mexican Energy Reform in the Electricity Sector









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