How Much Time do We Have? Climate Change, Energy Efficiency and Renewables in California and Mexico

How Much Time do We Have? Climate Change, Energy Efficiency and Renewables in California and Mexico

How much time do we have? This question posed by lunch keynote speaker, Dr. Veerabhadran Ramanathan of the Scripps Institution of Oceanography was a clever way to get everyone’s attention as to his presentation length and seriousness of the topic. In wide-ranging remarks delivered at a California-Mexico energy workshop, Dr. Ramanathan shared his groundbreaking research on climate change, solutions and the importance of broad, global engagement on the topic. On this latter issue, he was particularly enthusiastic about his work with Pope Francis and the Pope’s history-making encyclical that confronted the issue of climate change head on from a health and social welfare vantage.

On August 19-21, a delegation of Mexican and California energy officials and industry representatives convened in San Diego to share lessons learned on energy efficiency and renewables, as well as the overarching urgency of climate change. Together with the California Energy Commission, UC San Diego and Mexico’s Energy Secretariat (SENER), the Institute of the Americas was one of several partner organizations that organized the technical workshop and site visits across San Diego.

The workshop, a direct output of the Memorandum of Understanding (MOU) signed in July 2014 between the California Energy Commission and SENER, featured presentations by officials and practitioners from both sides of the border. The MOU was signed during California governor Jerry Brown’s trade mission and visit to Mexico City and set forth a series of goals focused on encouraging cross-border renewable energy investments and research and development.

The workshop highlighted best practices in grid management, and the success of microgrids at UC San Diego and in the small desert community of Borrego Springs, as well as the broader policy prescriptions for enhanced efficiency measures and renewable deployment. The policy elements were particularly relevant for the Mexican delegation as the country rewrites its energy laws and launches a new electric sector, wholesale market and regulatory tableau this year.

Given the nature of the very public drought facing California, the water energy nexus also figured prominently in discussions and presentations during the workshop.

But the show-stealer in many ways was transportation. More specifically, the increasingly important role that the transport sector will play in both Mexico and the United States’ efforts to decarbonize their energy matrices, as well as the implications for the electric sector and grid management.

By one estimate, if California’s approximately 30 million automobiles all transitioned to electric vehicles it would require an additional 180,000 MW of electricity supply, or approximately 3 times the state’s peak load today. Meanwhile, Mexico will also see a significant boost in the number of automobiles across the nation which demands a policy debate over the intersection of emissions, fuel supply and vehicle type.

Interestingly, Dr. Ramanathan never precisely answered his question as to how much time we have. But for the crowd gathered in San Diego in mid-August, furthering effective and sustainable energy policies are a key way to confront the ticking clock.

Chile’s Energy Agenda One Year On

Chile’s Energy Agenda One Year On

Under smoggy skies and against the backdrop of a persistent drought, the Institute of the Americas convened its Chile Energy Roundtable on June 23 in Santiago.

Almost one hundred attendees from across the Americas and Europe gathered in Chile to take stock of President Bachelet’s “Energy Agenda” one year after its launch. The principal themes of energy efficiency, interconnection of Chile’s two power systems, as well as with its Andean neighbors, and the need for improved dialogue and policies for community and energy project development made for robust discussions.

A panel focused exclusively on the issue of energy efficiency underscored the long path to finding common ground among the many disparate players. Panelists also drew attention to areas beyond the electric sector, with transportation and heating inefficiencies cited as the most urgent cases. Moreover, the need for an interdisciplinary approach across the entire value chain and policy making infrastructure was abundantly clear. The role for advancing an appropriate efficiency strategy and law should include all segments of the economy and government.

During his keynote address, Energy Minister Maximo Pacheco lauded the progress the government and his ministry has made over the last 12 months on the goals of the Energy Agenda. Specifically, 11 new projects totaling 2000 MW have been approved and added. A major imperative of the Energy Agenda, reducing energy prices had been achieved according to Minister Pacheco. Indeed, the latest power auction saw a 17 percent reduction in bid prices. Additionally, the long-awaited interconnection of Chile’s SIC and SING electric grids has been contracted and should be completed before the end of President Bachelet’s term.

But during the discussion, the minister too was quick to emphasize that the electric sector is not the sole target of the aims to reduce energy consumption and increase conservation. Indeed, he emphasized that energy efficiency is not synonymous with electric efficiency. He highlighted the role of biomass and transport in the government’s efforts. Minister Pacheco indicated that the government’s energy efficiency law would be finalized and submitted to Congress before the end of the year.

The minister further underscored the need to improve the government’s efforts when it comes to the national discussion of energy issues, not just on the topic of conservation but also vis-à-vis community concerns and the so-called issue of “asociatividad” in Chile. Communicating on energy matters, insuring equitability and making them clear and understandable for all stakeholders is a challenge that the government will continue to confront, he said.

ENAP General Manager, Marcelo Tokman, closed the event with a detailed update on the strategic outlook and role for the national oil company. Tokman discussed the efforts to recover the financial viability of the company, as well as progress on unconventional resource drilling and development in the Magallanes region and its significance for the company’s reserve replacement and that region’s energy supply.

But it was the affirmation of the strategic role for ENAP in terms of Chile’s natural gas and liquefied natural gas market, as well as its effort in power generation that underscored the progress made in line with the role for ENAP as set forth in the Bachelet government’s Energy Agenda.

Oil Price Volatility and Energy Security Questions Dominate La Jolla Conference

Oil Price Volatility and Energy Security Questions Dominate La Jolla Conference

In the lead up to this year’s La Jolla Conference, the energy world was rocked by the return of volatility in international oil markets. Promising to course through all of the agenda topics at the conference, the price of oil was indeed on the minds of attendees.

But the specter of lower oil prices that seemingly threatened to overshadow all other energy trends in 2015 has not entirely played out. The US shale revolution bubble has not burst nor does it appear that price issues alone will seriously undermine Mexico’s Round One oil and gas auction. And renewable energy projects are not being mothballed.

Dropping rig counts in the United States has not led directly to corresponding declines in production, and exports of liquefied natural gas are set to plug the US into the global gas market beyond North America. The debate over US crude oil exports rumbles on, more a victim of the political calendar than oil prices.

Experts and panelists at the Institute of the Americas’ XXIV La Jolla Energy Conference on May 20-21 underscored Latin America’s relative competitiveness in spite of the current downturn. Several speakers were quick to emphasize that this is not your father’s oil price collapse.

On the other hand, there is surely near-term uncertainty facing the region’s outlook, but also several fundamentals that point to significant potential in the medium and long-term. Indeed, many panelists cautioned that in Mexico and other parts of the region, patience remains a virtue. In addition, how the region embraces and adapts the lessons from the US unconventional revolution, particularly in terms of cost and efficiency figure importantly into the mosaic of opportunities for the region’s investment and production outlook.

Whether due to the oil price downturn or not, the discussions that surrounded the understanding of the regional energy context and what could perhaps be called the aura of competition across several key energy markets were intriguing. The newly installed head of Colombia’s regulator, ANH, minced no words when he noted that Colombia had to do a better job competing for and retaining investors, particularly as Mexico moves forward with its Round One auction.

Representatives from Mexico, which was a bit maligned at the conference for its increasingly bureaucratic implementation of the nation’s energy reform, also made great efforts to highlight the interest and attractiveness of the three calls offered to date. A representative of the country’s hydrocarbon commission, CNH, also spoke to efforts to redress pervasive complaints over contract stipulations and terms, revisions due out only days after the La Jolla Conference.
But beyond oil prices and competition, it bears noting that energy security has become more important than ever in the region. Countries are focused on efforts to refine domestic energy markets through offshore exploration, unconventional resources, efficiencies in power generation, and revitalized and improved energy integration.

Additionally, confronting above ground or non-technical risks that stem from environmental and community concerns and institutional weaknesses have quickly ascended the list of priorities for policy makers and industry.
Beyond the uncontrollable element of international oil prices, if countries in Latin America are able to address many of the aforementioned issues and other concerns, there will be no shortage of opportunities for energy players and the region’s outlook should command attention. To keep a glass-half-full outlook, it is useful to recall how a panelist from US-based equity fund Carlyle Group described the potential for Mexico’s energy investment future: mind blowing.

 

Building a Sustainable Electric Market in Mexico

Building a Sustainable Electric Market in Mexico

The need for flexibility, sustainability, certainty, patience and international best practices were oft-repeated refrains by panelists at the Institute of the Americas’ Mexico Electricity Roundtable.

Almost one hundred attendees from Mexico, the United States and Central America convened on April 9 in Mexico City to discuss the outlook for the electric sector and where Mexico’s energy reform measures stood. Discussions of the draft wholesale electric market rules, the evolving regulatory framework and the role for renewables and natural gas featured prominently.

Sounding much like a management class syllabus, a deeper dive reveals that flexibility, sustainability, certainty, patience and international best practices are a useful summation of the challenges and opportunities in Mexico as it rewrites its electric rules.

The need for flexibility will become ever more apparent as the government refines the market rules over the coming months. And as one former California regulator suggested, “flexible compliance” is a concept that should inform the rules’ implementation once they are set in place on January 1, 2016.

Further, insuring that not only the first several months and year under the new rules are successful will require that the market fosters competition and thus provides sustainability.

Investors’ desire for certainty was perhaps one of the most oft-repeated intonations over the course of discussions, and with good reason. When making significant long-term investments, companies and firms desire predictability and certitude.

On the other side of the coin is the need for patience, particularly in the Mexican context of overhauling 75 years of a statist approach.

But while patience is a virtue for all involved, it should also provide the opportunity for Mexico to redouble its analysis of international best practices. What has worked and what pratfalls to avoid from across the globe should continue to inform the development of the electric market in Mexico. That is to say, continuing to move Mexico up the electric sector learning curve is crucial.

Mexico continues to make international headlines as it strives to overturn years of state control of its energy sector for a market-oriented structure. Many arguments in favor of the reform focused on the role it will play in enhancing Mexico’s competitivity and, perhaps most relevant for the general public, reducing energy costs, specifically power bills across the country.

Without a doubt, the draft market rules announced in late February have unleashed much debate and analysis. The Mexican government has provided assurances that the process is open to feedback and will represent a transparent evolution to find the most balanced and appropriate approach. The next version will be unveiled later this year and the market goes into effect on December 31.

Argentina’s Energy Outlook: Distinguishing Between Resources and Reserves

Argentina’s Energy Outlook: Distinguishing Between Resources and Reserves

In Argentina, excitement abounds but confidence is king. And such confidence can only be obtained through a policy path with clear and consistent rules. In a country known for its love of beef, that its energy future might be defined by an oil and gas field known as Vaca Muerta, or dead cow, is delightfully appropriate.

The true linchpin of energy sector optimism in Argentina, however, is based on the US Energy Information Administration’s analysis that indicates the country contains the world’s second largest shale gas resource and fourth largest shale oil. Add a presidential election in October that will bring a change in government to this world class energy resource and you have the recipe for a potential national resurgence. Many have argued that the market fundamentals for a lift off also appear strong.

After what can only be described as a rocky decade for the Argentine economy and energy sector, Vaca Muerta and the nation’s unconventional resource potential has greatly revived attention and hope. But as elsewhere in the world, it is critical for Argentina to distinguish between what the energy industry calls a resource and what is considered a reserve. Simply put, reserves are by definition economic or bankable while resources are a more optimistic and less tangible assessment and not entirely bankable.

Argentina’s national oil company, YPF, has set forth a clear strategy focused on reversing the trend of declining oil production, with Vaca Muerta at the core of its efforts. Production of roughly 40,000 barrels per day of oil equivalent from Vaca Muerta is an important milestone for Argentina and also marks the first unconventional resource production in South America.

Representatives from YPF, local economists, and international players gathered at the Institute of the Americas Argentina Energy Roundtable on March 19 to debate the sustainable development of the country’s unconventional resources, the energy sector and regional integration more broadly, and particularly the challenges facing the energy sector as an economic driver. The direct linkage between energy and economy in Argentina cut through all the panels and discussions.

At the core of YPF’s efforts to recover production for the country and a sustainable development framework are two pillars: increased productivity of resource extraction and reduced well costs.

Managing the complexity of Argentina’s unconventional resource and adapting technology and innovation to local conditions enhances productivity. These measures will aid the effort to find the sweet spots that are key to high production and at which point the so-called factory drilling approach can be most efficient. Factory drilling is synonymous with a large-scale drilling campaign far outpacing the 300 or so wells drilled in Argentina’s unconventional fields in 2014, and will bring both overall production and drilling productivity more in line with the amount and quantities in the United States’ most prolific shale plays.

For many years, the high cost per unconventional well in Argentina has cast a dubious shadow over the potential of the resource. As recently as 2011, the cost per well was around $11 million. YPF aims to almost halve that figure to $7 million by the end of this year. Reducing these costs by enhancing local know how as well as efforts such as developing a local sand source for use in drilling are a huge challenge that must be overcome to seize the opportunity that Vaca Muerta and the rest of the nation’s unconventional resource potential holds. Reducing costs will also allow for a greater number of wells to be drilled and boost progression up the local learning curve.

Long a major energy exporter and pioneer in the development of natural gas and regional integration, Argentina currently has an energy deficit on the order of $6 – 8 billion per year as a result of energy imports. These include natural gas by pipeline from Bolivia, LNG tankers at spot market prices and oil.

The energy deficit as well as pervasive energy subsidies are the result of thorny policy choices made over the last several years by the national government and in the wake of a major economic crisis. One noted economist likens the current situation to the game of “Jenga,” in which a tower of blocks easily collapses if you pull out the wrong piece.

How to best unwind the subsidies and reduce the energy deficit are sure to be significant features of the electoral season and figure prominently in each candidates’ platform. Moreover, both subsidies and the import imbalance are policies that must be addressed by the next administration.

A final piece of good news rests in the opportunity for reigniting regional integration. Dating to massive infrastructure investments made in the 1990’s, coupled with LNG infrastructure in the 2000’s, the major pieces of the regional integration puzzle remain in place. Despite disuse, they can easily be dusted off. Moreover, the international agreements to provide a new phase, call it regional integration 2.0, are in place.

More must be done to move to a new, integrated regional reality including use of energy swaps, as well as reversing long-held views over issues such as natural gas being shipped east from Chile and potentially onward to Brazil, and Chilean electricity generated from LNG imports destined for Argentina’s power market.

But, unlike how successfully Vaca Muerta and Argentina’s other unconventional resources are developed, the future for a new regional integration paradigm does not entirely depend on what type of national energy policy each country chooses, only that each nation sets a path with clear and consistent rules that provide confidence and stability.

Energy in the Dominican Republic: All Eyes on the Pacto Eléctrico

Energy in the Dominican Republic: All Eyes on the Pacto Eléctrico

The Dominican Republic is poised for an energy transformation. Proposed electric sector reforms, known as the Pacto Eléctrico promise to increase the nation’s competitiveness and improve Dominicans’ standard of living. The measures are part of the government’s broader, developing energy vision for the nation’s energy security. The proposal intends to complement diversification efforts that have seen a rise in prominence for natural gas and a larger role for renewables, biomass, and hopes for domestic hydrocarbon production. Overall, a sense of optimism surrounds the nation’s energy potential not just to meet needs at home but also as a potential regional energy hub. The Dominican Republic will need to increase both imported and domestic sources if it is to meet the National Energy Commission’s projected doubling of electricity demand by 2030.

All eyes are on the developments of the Pacto Eléctrico and it was no surprise that the topic cut through all of the discussions as government and business leaders came together at the Institute of the Americas’ Dominican Republic Energy Roundtable in Santo Domingo on February 12.

Across the board, experts agree that the reform proposals present a rare opportunity to catalyze and sustain economic development in the country, and to finally provide all Dominican consumers with consistent, high-quality power. Questions remain over tariffs and subsidies, and how to balance prices that promote private sector investment and competitiveness while guaranteeing affordability for consumers.

Public and private sectors recognize the necessity of change, but differences emerge when discussing its execution. In particular, an important debate has emerged around the role of the State as both implementer and regulator of the proposed reforms.

The latest pact is not the first effort in the Dominican Republic to reform the electric sector. Indeed, one of the ideas is to undo the fragmentation brought about by the reforms of the late 1990s and return to a vertically integrated model of generation, transmission, and distribution.

Not everyone in the private sector agrees. In discussing the Pacto eléctrico, the director of the Dominican Electric Industry Association (ADIE) channeled a famous sarcastic riposte from Ronald Reagan: “I’m from the government and I’m here to help.” The ADIE cautions that government intervention in the power sector in the past often caused greater problems.

The role of the State, the private sector, and public-private partnerships under this new model is one of the more controversial areas of the proposal, and will require deft management by all involved in order to bring the pact to fruition. Creating the conditions for operational efficiency while recovering costs incurred remains a significant hurdle for both the public and private sectors.

A broader issue is the need for unambiguous rules and transparency in both the reform proposals and implementation. There is a fear that the layers of bureaucracy and government entities overseeing the energy sector could complicate the policy’s application. Or at the very least, add a level of unnecessary confusion. A clear delineation of roles and responsibilities ascribed to the myriad governing bodies would help avoid this problem and eventually improve the efficiency and efficacy of the reforms in the long run.

Like many nations in the region, the Dominican Republic is attempting to reduce its reliance on imported petroleum products by switching to natural gas. As one of the early and most successful adopters, the Dominican case has become has become a model for the region. Since the inauguration of the AES Andres LNG Terminal in 2003, natural gas use has grown from virtually nothing to comprise over a 30 percent of the country’s electricity supply today.

On the back of its natural gas infrastructure, the Dominican government aspires to become a regional energy hub, distributing natural gas to the greater Caribbean and Central America. Proponents argue that by taking advantage of the AES LNG infrastructure, this hub-and-spoke model would overcome many of the hurdles of cost and scale that have made switching to natural gas difficult for nations in the region.

The political will has never been greater for the Dominican Republic to enact critical electric sector reforms. The government is garnering wide ranging input from private companies and consumers and should continue to seize the momentum it has created. The opportunity and optimism for meaningful — and possibly long lasting — reform should not be wasted.

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