Page 145 - STRATEGY Magazine

Harnessing the Power of the Market—And the Elements
The world leader in free trade is gunning for the top spot in renewable energy production, while at the same time breaking up domestic energy nationalization in favor of market forces. ¡Que rico!
Development is set to catapult two billion people out of poverty in the next 20 years, and many of them will want
and need electricity as they join the middle class. Indeed, experts predict that by 2035 global energy consump- tion will grow by 30 percent as global GDP doubles. Many of those same experts warn of the troubling environ- mental implications of such increases. When emerging economies all over the world seek to accommodate rising ener- gy demand without compromising the environment, many will look to Mexico for answers.
AN AMBITIOUS BEGINNING
Mexico occupies a unique position within the OECD: its markets are so- phisticated, yet its per capita electricity consumption is less than 40 percent of the group average. It also faces serious obstacles in reaching a solvent and
sustainable energy policy: residential and agricultural electricity consumers are currently subsidized to the tune
of US$6 billion yearly, and overall demand is set to increase by 85 percent within 25 years.
Luckily, the government is not content to wait for these challenges to solve themselves. Over the last several years, Mexico has launched a raft of energy reform projects hailed by the International Energy Agency as “the most ambitious energy system trans- formation worldwide.” The changes seek to inject new life into an ailing energy sector through the introduction of both market and environmental reforms.
For the first time since Mexico’s Federal Electricity Commission (CFE) was created in 1934, the industry will be open to private investment from both domestic and international actors. Until the reforms, CFE was a vertically
integrated state monopoly provid-
ing service to more than 40 million customers, 90 percent of which are res- idential and commercial. Now, it must compete with private power plants and providers. The unbundling of CFE has proceeded with one end in sight: to lower consumer prices by incentivizing efficiency and innovation.
As CFE is unbundled, new market mechanisms open the door for pri-
vate energy producers and suppliers. “The drop in oil prices has redirected attention to the electricity industry,” says David Fatzinger, General Man- ager, Latin America, of InterGen, a builder of complex energy infrastruc- ture. “Reforms are now focusing on electricity versus exploration.” A series of auctions for both mid-term and long-term generation provide econom- ic opportunity while ensuring stable prices. Companies seeking to generate clean energy are favored under the new
SPECIAL INSIGHT: RENEWABLES AND ELECTRICITY
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