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Mexico's state power company CFE is already carrying out smart grid pilot projects on the country's national grid (SEN). This is an early step in what could become the second largest smart grid market in Latin America.
CFE is still in the process of determining what type of smart grid technology to utilize, and has yet to establish a concrete goal for smart grid penetration. Still, US smart grid consultancy Northeast Group released a report earlier this month stating it expects Mexico's smart grid market to reach US$8.3bn cumulatively through 2020.
BNamericas spoke to Northeast's research director Chris Testa and president Ben Gardner to hear more about their outlook for smart grid development in the country as well as potential hurdles.
BNamericas: What are the benefits of power line communication [PLC] technologies versus radio frequency [RF] wireless mesh, for Mexico specifically?
Testa: They both have strong benefits. The biggest reason that some countries choose one or the other is a legacy reason. The US has been using RF meters in a more limited capacity, not a market capacity, for 20 years. So that's why smart meters are being put in the US, they just use the RF. Whereas in Europe the first big smart grid project was in Italy about 10 years ago and they used PLC, so Europe has tended to go with PLC. In Mexico, what's interesting when we talk to people is that they're still very open as to which way they want to go. There are obviously the connections with the US market, but then you find that in the rest of Latin America and Europe there's more PLC. So Mexico is really still undecided, which is interesting.
BNamericas: In Mexico, there's just one power company that administers the grid, CFE. Can both continue to be used?
Testa: That was my question exactly, and I had assumed one utility is going to go one way. I talked to several people and they kept reiterating that wasn't necessarily going to be the case, and they were still evaluating options. If you look at the two big pilot projects right now, the one in Mexico City is wireless mesh, and the one in Acapulco is PLC. So it could be split.
BNamericas: Mexico City has far larger theft rates than the national average, and Acapulco is a bigger project. Why is it a foregone conclusion that Mexico City will be used as a model for national deployment?
Testa: Right now Mexico City is a smaller project. However, given that there are bigger theft issues and that it's just a much bigger city, I imagine this project will become much bigger in the coming years. Currently it's about 60,000 meters, smaller than the Acapulco one that's probably over 100,000 now. But it will be bigger. The main reason we say this is not necessarily our analysis but that we think it should be the foundation. It's based on several conversations with CFE that they would establish this project, see how the costs and benefits work out and then use it as a model.
BNamericas: US and Mexican presidents Barack Obama and Felipe Calderón met in May 2010 and made a call for joint action on integration and smart grid development, but what has actually come from that? The people I've talked to about interconnection say this is tied up in bureaucracy and moving very slowly.
Gardner: The big thing is cooperation between the Department of Commerce, the National Institute of Standards (Nist) and Mexico. Nist is very important, because they are the entity that's taking the lead in establishing smart grid standards so all the technology is interoperable, and also the critical issue for cybersecurity. The electrical distribution grid has no communication and now you're introducing millions of communication points throughout the network. Obviously cybersecurity becomes a huge, critical issue. So Nist has been working to establish cybersecurity standards and ensuring that utilities in the US not only comply with those standards, but also instill this kind of culture of cybersecurity within their operations.
BNamericas: But how much progress has really been made?
Testa: It's hard to say at this point because Mexico hasn't rolled out that many meters. But the whole idea is that when they do, they will incorporate standards set by the Nist which will not only make them interoperable within Mexico but at some point in the future could allow for cross-border interoperability. As far as an actual cross-border grid, I don't think there is going to be a whole lot of progress in the near term. But it can't happen at all if you're not operating on the same standards, and I know there have been multiple discussions on that front.
BNamericas: There seems to be the will in Mexico's government, but there is still no official target to deploy X number of meters by X year, like Brazil did. What is needed to establish a deployment goal?
Gardner: Brazil is a good example of a country in the region that has set a clear target, and they're at the forefront. If you look at other regions, Europe has also set a target. It is something to drive the regulatory process, but by no means necessary. If you look at the US, it has never set a concrete target but the market has developed quite rapidly. Back in 2009, as part of the US recovery and reinvestment act, there was a component that was the Smart Grid Investment Grant where US$4bn went towards smart grid projects. So you can get to the end result – high penetration rate of smart meters and all of the benefits that they provide – by setting a target, or by implementing other things such as stimulus funding. The end result is the same.
Testa: Brazil is the only Latin American country with a target. Chile and Argentina are both countries where utilities are in discussions with governments, regulators, energy ministries about potentially setting a target. Chile's farther advanced than Argentina just because Argentina's electricity sector is something of a mess right now.
BNamericas: In Mexico, power rates are highly subsidized, along with other public services. There were protests when the government upped subway ticket prices by just 1 peso [US$0.07]. Shouldn't it be a concern, then, especially in Mexico City where power theft is rampant, how people react to having to suddenly pay for electricity?
Gardner: In order to enjoy the longer term benefits of smart grids you have to be very careful along the way about what the benefits are and why you're doing it, so at the outset of the deployment people don't see it as the government spending all this money on infrastructure without any visible benefits. The utility and the public sector need to be very clear about why they're doing this investment, and what the benefits are. And the benefits extend beyond theft reduction. A huge benefit is improved reliability. Mexico has 25 days a year of outages. People are up in arms when there are reliability problems. You implement smart grids, you improve awareness of the grid and where there are problems, and you can start to improve the level of service that you provide in terms of reliability. You can also do things such as start to incorporate renewable power into the grid. So I don't want to get too caught up in the theft issue and what potential public backlash could be. Smart grid is a lot broader than that.
About Chris Testa / Ben Gardner
Prior to joining Northeast Group, Chris Testa worked as a consultant at Garten Rothkopf focusing on global green industrial policy and renewable energy financing. He earned an undergraduate degree from Northwestern University and a master's from Johns Hopkins School of Advanced International Studies (SAIS) where he specialized in energy policy and international economics.
Ben Gardner spent more than five years as a management consultant in the Global Energy Practice at PA Consulting Group, based in Washington, DC. Before joining PA, he worked at DiamondCluster (now Oliver Wyman) in its Barcelona, Spain office. Gardner holds an undergraduate degree from the University of Pennsylvania and a master's from the Johns Hopkins SAIS concentrated in international finance and energy policy.
About the company
Northeast Group is an energy research and consulting firm based in Washington, DC, with core expertise in the emerging smart grid market. The 59-page report, Mexico Smart Grid: Market Forecast (2011–2020), can be purchased directly from Northeast.