New energy cluster in Mexican state of Nuevo León

Responding to the implementation of sweeping energy reforms at the federal level, Nuevo León undertook to create an energy cluster to ensure intra- and inter-sector coordination, address emerging challenges and take advantage of upcoming investment opportunities.

Contrary to expectations, at present there appear to be more opportunities for investment in electricity generation than in hydrocarbons exploration and production in Nuevo León. At the same time, strong Mexican demand for energy combined with cheap gas prices and US gas supply are driving investment in cross-border gas pipelines.

Identifying Sector Needs

The Energy Cluster of Nuevo León opened for business in March 2016, kicking off its work by identifying the sector’s most pressing challenges, such as the regulatory framework. “Regulation has become more complicated as a result of federal reform, Fernando Rodriguez Tovar, director of the cluster, told OBG. “Regulatory bodies have accumulated a vast set of new functions, and many in the business community feel that the sector is over-regulated. Our response, as a cluster, has been to contribute by organising seminars, workshops and other events, aimed at promoting a better understanding of new regulation.” The cluster also has a role to play as a lobbying entity with regard to energy-related debates at the state and municipal level supporting, for example, the harmonising of different legal frameworks and norms at the local level.

In addition to regulation, the cluster has also identified a lack of qualified labour as a primary challenge facing the sector. “While there is a large number of workers with higher education degrees in Nuevo León,” Rodriguez Tovar noted, “there is a lack of technical staff, hence the importance of developing human capital development and training activities.”

The energy reforms under way in Mexico are expected to generate about 135,000 direct jobs in the next several years, according to professional services firm PwC. Moreover, the opening up of the sector presents more opportunities for renewable energy firms to invest in the country. This is expected to boost demand for education and training in the subsector. Currently, the Colegio Nacional de Educación Profesional Técnica in Mexico City offers a technical preparatory course on alternative sources of energy, and in Nuevo León the Escuela Industrial y Preparatoria Álvaro Obregón offers training for a technical career in renewable energies.

Given its strong industrial base, Nuevo León is well placed to provide the market with necessary inputs. In tackling shortcomings, the energy cluster can hopefully help unleash Nuevo León’s energy market potential. “There is a lack of input providers in the energy sector,” Rodriguez Tovar told OBG. “As a result, the cluster is invested in taking action to support small and medium-sized companies, especially in renewable energies.”

Key Actor

The state is a key actor in the Mexican energy market. Figures from the Ministry of Economy and Labour (Secretaría de Economía y Trabajo, SEDET) indicate that Mexico has an installed energy production capacity of 63,745 MW, of which Nuevo León supplies 2.37%. Nuevo León also accounts for 2.06% of the 292,018 GWh of electricity generated in the country. In terms of electricity consumption, which stands at 234,219 GWh for the whole country, Nuevo León accounts for 17,447 GWh (7.4%) of that total. This means that the state is not only one of the top energy consumers in the country, but that its energy needs far outweigh existing supplies at the state level, creating an opportunity for investors to support the expansion of energy supply solutions in Nuevo León in view of the opportunities provided by the energy reforms.

In this context, the development of energy exploration and production in gas and electricity generation, particularly combined cycle and renewable energy, has generated a substantial amount of interest. In 2016 the energy cluster presented a portfolio of 23 projects, the equivalent of developing an additional installed capacity of 3729 MW, for a total investment of $4.7bn, in a wide range of energy segments, including natural gas, biogas, wind and solar power.

Gas Exploration

With the energy reforms in progress, the government started organising a series of tenders, aimed at garnering private investment in hydrocarbons development for the first time in Mexico.

Cuenca de Burgos, an area encompassing both Tamaulipas and Nuevo León, represents Nuevo León’s greatest potential in hydrocarbons development. According to the Ministry of Energy’s Five-Year Tender Plan for the Exploration and Extraction of Hydrocarbons 2015-19, the province of Burgos spreads over a surface of 14,834 sq km and holds dry and humid gas, with a prospective volume of 6.6bn barrels of oil equivalent.

The government assigned eight blocks of this area, pursuant to the third and last phase of the first round of tenders, launched in May 2015. Some of the blocks allocated are already in production. The second stage of the second round of tenders, launched in August 2016, will distribute nine blocks of this area, while the third stage of the second round is set to allocate four. The results of these two tenders are to be announced simultaneously in July 2017.

Gas Production

For private investors involved in gas exploration, one way of offsetting costs associated with the transportation and marketing of gas via state-owned infrastructure is by taking advantage of other reform-related opportunities, specifically private sector participation in energy generation and distribution.

For this reason, Nuvoil, a local company currently exploring gas at Benavides-Primavera, one of the blocks allocated during the third stage of the first round of tenders, is considering constructing an 80-MW combined-cycle power plant to be supplied with gas from its own field. Mariano Hernández, director-general of Nuvoil, told local press in November 2016 that once the plant is complete, the company plans on connecting it to the electrical grid, selling the output directly to the private sector in Nuevo León. According to SEDET, combined cycle is currently the cheapest method of energy production in the country, costing approximately MXN0.47 ($0.03) per KWh.

Leading Investor

The potential for electricity generation investment has already attracted foreign companies. The Spanish firm Iberdrola, for instance, is a leading investor in energy generation in Mexico and Nuevo León. In November 2016 Iberdrola inaugurated Dulces Nombres II, a 301-MW combined-cycle plant and one of the first initiatives in which a foreign company sets up energy infrastructure in Mexico to supply major private sector firms. Located in Pesquería, Iberdrola’s $251m investment has raised the installed capacity of the Dulces Nombres complex up to 1300 MW.

Iberdrola is also investing in the construction of an 850-MW combined-cycle power plant in the municipality of Escobedo for an estimated $374m. Once commissioned, the power plant will reportedly have the capacity to meet the demand of 2m consumers. Iberdrola will sell the electricity to the Federal Electricity Commission over a period of 25 years for a fixed price. The project is expected to be ready by July 2018.

Alternatively, in March 2017 a purposely created consortium – Techgen – involving Tecpetrol (30%), Tenaris (22%) and Argentinian-owned Ternium (48%), inaugurated a 900-MW combined-cycle power plant. Located in the municipality of Pesquería, the natural gas-fuelled power plant entailed a $1bn investment and will feed two major private consumers of energy, specifically Ternium and Tenaris industrial plants.

Renewable Energies

Apart from gas-fired energy generation, renewable energies, especially solar and wind-power projects, are also moving forward in Nuevo León. French firm Fonroche is working on a solar park in the municipality of Galeana. Following an investment of $35m the park will have an installed capacity of 35 MW.

Prior to this, in September 2016 President Enrique Peña Nieto inaugurated the 252-MW Ventika wind-power complex, one of the largest of its kind in Mexico. The project comprises two wind farms – Ventika I and Ventika II – which together contain a total of 84 wind turbine units, each with a capacity of 3 MW.