INSIDER TRADING

Mexico 2015 | ENERGY & MINING | INTERVIEW

TBY talks to Lorenzo Arena Reyes Retana, President of Inco, on the company's growth, its developing within new government reforms, and the outlook on renewable energy.

Lorenzo Arena Reyes Retana
BIOGRAPHY
Lorenzo Arena Reyes Retana received his degree in Business Administration from the Iberoamerican University Mexico City Campus. His extensive experience in the industry includes serving as the President and Founding Partner of the Mexican Association of Cogeneration and Self Supply, Founder and President of the non-profit Foundation INCO, AC as well as the Chairman of the Board at Inco, SA de CV.

Inco was founded in 1995. What have been its highlights over the past ten years?

At the outset, we primarily focused on self-generation and cogeneration projects. From 1995 to 2009, we have carried out 322 projects. There are many highlights in that time period. For the company Liverpool, we developed 49 stores with self-generation projects and then 29 hotels with Grupo Posadas or Polioles. Today we are mainly doing cogeneration projects and hydroelectric plants. At this time, we are working on 12 different cogeneration projects that are medium or large-scale. We have five hydroelectric plants under operation and we are developing 40 more. All these are what we call “mini-hydro," generating less than 30 MW per site.

In what specific areas of developing a cogeneration plant do you focus?

We do all the engineering of the projects, we develop the concepts as well as the economic and financial models. We put up the equity that is needed for the projects. We take the debt and then we construct and do the EPC for the project, then we sell energy for a long-term period. Our payback is through the sale of energy—electricity, steam, hot and cold water. We generate electricity and thermal energy, which includes hot water, cold water, steam, hot air, or hot oil. Those are the two energies that we have in the market.

What sectors are most important for cogeneration?

Cogeneration is related to high thermal energy demand. That is the key for cogeneration. If the end user is a high thermal issue, then the heat balance for cogeneration has its optimal side. “Efficient cogeneration" is cogeneration, which has a thermal total efficiency that is higher than the mixture of a typical electric project and a modern boiler. That is considered renewable energy under Mexican law and that is because the CO2 mitigation you can get from a cogeneration plant is always higher than with any other technology.

What opportunities does the energy reform bring to your company?

The reforms have created a reality that did not exist yesterday. Cogeneration has always and will always be the most efficient and most economical way to generate energy. The size of the cogeneration opportunities in Mexico, according to the numbers of the national commission of efficient use of energy, is 28,000 MW. That is the size of the market today, but it will grow as the demand grows.

What incentives do investors in cogeneration find in Mexico?

The fiscal incentives are that it has a fast depreciation. You can depreciate 100% of your investment in the first year. We are a gasified country, and a part of the NAFTA system, which guarantees that the cost of natural gas is very low. It is the same price as for Canada, the US, and Mexico. The cost of natural gas is very low, and will be established over the coming years.

What are your views on the new energy market taking shape?

The future of this market is mainly predicated on the growth of internal demand for electricity. That is the main challenge. Demand will come from private companies and non-public investors, and it will be needed in increasing quantities in the future. Meeting this demand is a challenge. They are thinking about more efficient ways to develop the country, even though Mexico has an overcapacity of generation. Today we have around mid-30% of reserve margin and that is usually 14%-15% in developed countries. We have a capacity to play with and to develop the market around.

Will renewables be a key factor in this?

It is hard to know, because Mexico is an open market and renewable energy has been developed worldwide with government support and subsidies. There will not be subsidies here. If renewable energy has enough strength to compete against combined cycles and these other kinds of technologies, they may be able to compete.