EXPERT advice

Bravos works to reduce barriers to private participation in the Mexican power sector.

Why is private participation in the Mexican energy market important, and how did that prompt Bravos Energia’s establishment?

The Mexican power sector has a long list of needed infrastructure, which will require capital and participation from companies with experience and technological expertise. Mexico needs about 70GW of new generation capacity over the next 15 years according to official government projections, and the public sector cannot finance and build all of that capacity by itself. Especially when it comes to renewables, participation from the private sector is essential, not just because of the diversity of expertise but also because of the private sector’s ability to manage risk. The established processes for public-sector investment planning and budgeting are not well adapted to renewable generation projects, which require significant investment in development before plants can be built and where many projects do not prove viable. The country also needs investment in transmission, but this is more complicated because the provision of electricity transmission is constitutionally reserved to the state. Yet, the government can subcontract the construction and financing of transmission projects, and private companies can build transmission when related to their own generation. New models of public-private coordination are needed to evaluate projects, source financing, and develop the infrastructure in the electricity transmission sector. Bravos was founded in order to reduce the barriers to private participation in the Mexican power sector, both by providing operational services that facilitate diverse companies’ activities in the Mexican wholesale electricity market, and to support the negotiation of bilateral contracts that investors need prior to committing to build new infrastructure.

In what kind of energy services does Bravos Energia specialize?

Bravos Energia began operations in May of 2017. We have occasionally been misidentified as a consulting firm, but in fact we have provided two specific services since the beginning. One is to help generation asset owners operate their power plants and load centers in the wholesale electricity market. A great deal of daily coordination is required to sell or buy power in the market. Bravos Energia performs all the daily administrative tasks for generators and qualified retailers and pure power marketers; currently, we have around 15 customers for these services. Numerous private companies have built plants in Mexico but cannot efficiently undertake these tasks themselves, which would represent a barrier to entry into the market if our services weren’t available. Both investors seeking to evaluate opportunities and market participants considering long-term contracts need reliable and detailed forecasts of future prices. This is not an easy task, as much of the information on the power system is difficult to process and apply. We have dedicated a large amount of time to corroborating and improving the publicly available sources and constructing a detailed simulation model of the power system, in order to provide quality forecasts.

Could you tell us about the first private auction for electricity that Bravos Energia is currently structuring?

Private auctions are Bravos’ newest activity and probably the most interesting. We have always been looking for ways to leverage the experience gained through our general operations in order to add more value in the industry. That opportunity came up as many of our customers and potential customers had approached us seeking help finding or negotiating long-term power purchase agreement (PPA) contracts. Generation developers need PPAs to finance their investments, but the administrative and salesforce costs of obtaining such contracts are prohibitively high for many developers. At the same time, many large consumers were frustrated by the difficulty of comparing different offers and the complexity of obtaining contracts with a diversified mix of wind, solar, and gas resources. These companies, both buyers and sellers, wanted us to seek out different counterparties for them. We eventually achieved a critical mass of both consumers who wanted help in finding a competitive electricity supply, and generators seeking a PPA and realized we could hold a general auction for the entire industry. ✖

Mexico needs about 70GW of new generation investment over the next 15 years Launching the first private bidding for electricity in Mexico

Jeff Thomas Pavlovic