Editor’s Note: NGI’s Mexico Gas Price Index, a leader tracking Mexico natural gas market reform, is offering the following question-and-answer (Q&A) column as part of a regular interview series with experts in the Mexican natural gas market.
This 22nd Q&A in the series is with Angie Soto, Managing Director of Nexus Energía Mexico, a full-service provider in the wholesale electricity market that specializes in offering electricity supply services to companies considered qualified users, as well as the power management service for generation plants. Soto has led the Mexico City-based operation of Nexus Energía since 2018 and previously worked as the Manager of Renewable Energy at Nexus in Barcelona from 2009-2018.
Soto holds a master’s degree in engineering and renewable energy management from the Universitat de Barcelona, as well as a bachelor’s degree in industrial engineering from the Universidad La Salle in Chihuahua, México.
NGI: Nexus Energía is relatively new in the Mexican energy market. Can you give us a brief explanation of Nexus Energía and its background?
Soto: Nexus Energía is a company that was created in 2000 after the liberalization of the electricity market in Spain. It is a Spanish company and its main stakeholders are companies that have been around the energy market for more than 100 years. For example, some of them have small hydraulic centers in certain locations in Spain that were built more than 100 years ago. Those same companies are owners of distribution networks of small rural areas and regions.
Since 2000, the company has sold energy products and gas. In Spain, Nexus Energía has the license to sell natural gas and manages 18,000 generation centers, though most – around 99.5% -- aren’t owned by Nexus and are operated by third parties.
Nexus, following an agreement with the Spanish solar association in 2018, now also represents 40% of the solar industry in Spain. In addition to that, we represent a lot of wind generation, hydraulic, biomass, co-generation and thermal energy plants.
In Europe we are present in Spain, Portugal and Germany. Another line of business for us is the supply of energy. We supply energy to more than 60,000 final clients – industrial, domestic, residential, small businesses, and all kinds – in Spain, Portugal and Germany. We sell approximately 3.2 Terawatts of electricity to final clients, as well as 2.0 Terawatts of natural gas. Also Nexus Energía was 100% green in 2019 with regards to electricity supply.
NGI: Are the plans for Nexus Energia in Mexico similar to what the company does in the European market?
Soto: We started operations in Mexico at the beginning of 2018 and we have replicated our business model from Europe here, except for the sale of natural gas. We are yet to sell natural gas here in Mexico currently. We are following the market and monitoring it, but at this time, we are not yet selling natural gas here.
In Mexico, we represent generation plants, currently just solar and wind, though we are open and totally prepared to represent any type of generation plant, such as co-generation or conventional combined cycle plants. We can manage the sale of energy at any kind of generation plant given that our experience is in the electricity wholesale market.
Another line of business that we are replicating here in Mexico that will begin in 2020 through our first contracts is as an energy supplier. We received a permit from the Energy Regulatory Commission (CRE) as a qualified services supplier, which can provide and offer solutions to industrial users as well as other sectors where we would like to begin to offer solutions and cover needs of the industry. Some of those needs include having price certainty and the assurance of a competitive and economic price for electricity over the long-term.
NGI: Does Nexus Energia hope to participate and compete in the natural gas market in Mexico and sell natural gas at some point?
Soto: Yes. It is one of the areas of business that we’ve been doing for many years in Spain and we would love to replicate that experience here in Mexico. At this point, it still isn’t the right time just yet. We are a conservative company and we take things one step at a time. Until one step is complete, we don’t jump to the next one.
The first step was to manage the sale of generation plants in Mexico. We currently manage 16 generation plants which generate 500 MW. We are now operating them and managing them. So, we have advanced a lot in this phase. The next phase for us is the supply of energy.
Once we start with the electricity supply contracts and we advance further in that phase, we will then begin to look more at natural gas. We continue to follow it, to monitor it, but at this point we don’t have a license. We don’t consider that it will be too difficult to obtain, though at this point we are waiting for the right moment to pursue that opportunity.
NGI: Given Nexus Energia is new to Mexico, how do you see the gas industry as a whole?
Soto: In the analysis that we have conducted in the natural gas market, we see tremendous potential. We think that natural gas is the great hope in the Mexican energy matrix. It is a great opportunity for Mexico to be more competitive in the natural gas industry and the potential for development in the country is limitless.
Our neighbor is the biggest natural gas producer in the world and the prices in the U.S. are, as we know, the lowest in the industry. Europe would love to have the U.S. as a neighbor to take advantage of those prices.
We see infrastructure as the principal challenge for the natural gas industry in Mexico. Some other challenges and weaknesses are investment, legal security and storage. These are challenges that impede all of us in the industry in some form. All of us that are monitoring the industry, we are waiting for the opportunities to improve these areas and strengthen the industry. We are really hoping for clear rules in the industry or a regulator that sets and clarifies the rules for operating in the market so that everyone can participate.
The need is for the market to continue to open, to be regulated, to offer legal security and for private players to be invited to participate and invest. Mexico requires a lot of investment in natural gas, particularly in distribution and storage. Storage is key in this sector.
Additionally, rates and prices need to be established across the board for distributors, transporters, producers, vendors, everyone.
NGI: Natural gas storage continues to be a critical issue and challenge for Mexico, and that has been the case for years. What do you think Mexico can do to improve in that area?
Soto: Mexico is such a large country, which is part of the challenge given the large distances between distribution points. That said, the U.S. is a massive country and has been able to design a plan and structure that works to assure storage is available.
I think that pinpoints what Mexico lacks: A strategic plan to provide natural gas storage options throughout the country. One that provides low-cost options for distribution and logistics to strengthen energy security in all the regions of the country. Mexico needs to define a profitable strategy for all parties that participate in creating more storage options for the country.
NGI: There have been a number of changes to the Mexican energy sector following the energy reform. Do you think the country has succeeded in creating its own, independent natural gas market?
Soto: In terms of natural gas potential, Mexico has sufficient fields to develop its own self-sustaining natural gas industry, and I think it could be done without hydraulic fracking, which has been a topic of debate here in the last few years. I personally am against the idea of fracking in Mexico and don’t think it has to be implemented. I think that if Mexico invests in other existing fields, the country could take advantage of the available resources to increase production without causing some of the environmental damage that occurs as a result of fracking.
In terms of the natural gas market, I reiterate that Mexico needs a true natural gas regulator. It is very important that there is a referee that is objective and determines the rules of the industry. One that is proactive and promotes activity in the market so that it’s more liquid.
NGI: In 2019, the renegotiations of natural gas contracts with the CFE was a topic that received a lot of attention in the energy industry. What were your thoughts on the negotiations and what signs were sent to international investors?
Soto: I think it is a very good sign that agreements can be reached where both sides emerge with positive results. A contract requires extensive negotiations and to be able to work together to restructure them with a positive result -- while avoiding international arbitration – is a good sign for the international investor community.
I’m unaware of what the final terms were, though it is clear that, through dialogue, both sides were satisfied with the end result. While the entire situation could have been avoided, I think that it is likely seen as a positive sign that international arbitration wasn’t necessary and that future investment decisions in the country hopefully won’t be impacted as a result.
NGI: If you had to describe the Mexican energy market in one word, what would it be and why?
Soto: Promising. The energy reform created a great new energy market which gives Mexico and the Mexican people the opportunity to take advantage of a world-class energy transition. The energy sector is so vulnerable, which pushes the members of the industry to be more competitive and to provide a lower cost basic need to the citizens of the country. Mexico can’t take any steps backwards and must continue to migrate its energy mix to become one that is more sustainable with the environment and at the same time more economic and profitable.
We have stopped participating in the private industry in terms of generation and we have to strengthen the distribution and transmission of the CFE so that the quality of the supply is guaranteed and is a source of revenue and employment. The challenge isn’t simple, but it is to focus on the areas of opportunity and leave behind those that aren’t and that make the country lose money.
NGI: What is your expectation for the Mexican energy industry this year, as well as the next 2-3 years in the sector?
Soto: A slowdown. The expectations that we have for the next few years -- and during the current administration -- is that the sector won’t evolve or advance much, or at least not as much as we’d hoped.
The energy reform of the previous administration was excellent. It was a great development for the industry and economy. It happened very fast and at a quick pace, and with the change in government we’ve lost a lot of the key people that designed and implemented the energy reform. Unfortunately, a lot of people in key positions and with years of experience are no longer working in the sector.
The speed of the energy transition in the Mexican energy industry requires a high level of expertise and experience and vision. It requires that the decision makers are open to new possibilities and opportunities to bring in more and new investments. For the country to be more competitive, members of the sector have to recognize the opportunities that exist.
So, the loss of so many qualified people in important positions in key organizations has been significant. As a result, there has been a slowdown in the industry and projects haven’t advanced at the same pace as previously.
That doesn’t mean that everything stops. There are still a lot of qualified people in the industry and no one has thrown in the towel. We aren’t moving at the same pace as a few years ago, but we remain optimistic and hopeful that Mexico is a country with great opportunity in the energy industry. A lot of new people and companies are still coming to Mexico in search of opportunities here.
That said, we have to be very honest about our expectations. We aren’t moving at the pace that we’d like and that is likely to be the case in the short-term. A lot of the strategic plans for the industry aren’t going to happen as quickly as planned. But that’s the new reality and what’s important for us is to adjust and continue to work to create more opportunities where we can.