Deadline and price: the two conditions “in bid”

Term and price: the two “in tender” conditions that Regulus negotiates in renewable energy contracts with private individuals in Mexico

Jorge Hernández, CEO of Regulus, a non-supplier marketer in the Wholesale Electricity Market (MEM), shared the opportunities identified by the firm for the purchase and sale of energy and associated products for the National Electricity System. In this context, renewable energies are emerging as competitive products.

What is your balance sheet for this year in relation to renewable energy businesses in Mexico?

This year was difficult. Not many new permits were obtained, so we worked with those driven by the Reform over the past three years.

How did they receive the cancellation of the CENACE auctions?

This had a strong impact, especially on investors, due to credibility issues. However, it also created an important juncture, as many companies with projects up for auction began to look for alternatives with private ones.

Did this also mean new opportunities?

Yes. This is a time of great opportunity for Mexican companies, since we have the possibility that the energy that was destined for the CFE will now remain in the private market.

What are the challenges now?

The current challenge is to bank these contracts, since the figures in the new market do not meet the necessary track record to qualify as bankable. Therefore, we are looking for innovative methods using financial instruments to make these projects a reality, which were originally intended for auctions, but now with private ones.

In the new contracts with private individuals, how many years are required for the purchase and how many for the sale?

We have been carrying out energy purchase transactions for about 10 years, in order to offer competitive prices. The contracts we handle are for 10, 12 and 15 years. The challenge lies in energy contracts with end users, who ask for 2 to 3 years, and I dare say even up to 5 years. Consumers don't want to commit to the long term due to the changing nature of the rate market.

What activities is Regulus currently carrying out?

Regulus is working on the export and import of electrical energy, in addition to carrying out Bilateral Financial Transactions. We started operations in July of this year and currently buy and sell between 6,000 and 12,000 MWh per month. Our goal is to have renewable coverage, since in Mexico there is a deficit of cheap energy. In a cost market such as the one we have in Mexico, identifying renewable energy contracts is not always favorable, since our offers are usually dispatched at the most competitive cost.

What are the projections for next year?

We are going to increase our import and export transactions. In addition, we seek that at least 60% of our transactions come from renewable energy, although currently the market does not allow us to achieve that goal due to the limitation of permits. For this reason, we choose to remove energy from the market that is composed of a diverse technological mix. Our approach is to opt for renewable energy contracts, not only because this is a growing trend, but also because of a cost issue. We hope to continue increasing the purchase of renewable energy, not only for economic reasons, but also to contribute to the reduction of carbon emissions to the environment.

What prices does wind and solar energy currently manage in the market?

For end users, wind energy is between US$75 and US$90, and solar energy between US$66 and US$88. The average wholesale market shows prices of US $100 in the area where we seek to operate, which makes renewable energy very attractive products.

To what do you attribute the variation in prices compared to auctions?

The competitiveness of technology in the manufacture of generation equipment has increased considerably. Equity financing schemes in other parts of the world are also becoming more competitive. To obtain competitive costs, we buy for the long term and then place them with our customers on a short-term basis. In addition, we must include in the prices the value necessary to ensure that energy is carried from the generator to the end user, which implies guarantees and guarantees of compliance to ensure the reliability of the network, which increases the cost of commercialization.

What are you worried about the price compared to the CENACE auctions?

We are concerned that the price is higher than the CENACE auctions, especially due to country risk. Currently, 20% of our portfolio indicates that assuring the lowest price is not as relevant as guaranteeing them 100% renewable energy, something that our customers already demand of us.