Business Leaders Applying New Energy Practices to Generate Large Savings During COVID-19

April 30, 2020

Whether you think that the current health pandemic is just a flu, or realize that it is a real threat, no one can deny that it is wreaking havoc in Mexico and the world from a personal and economic point of view. However, it has also given companies time to review their business and energy strategies, which means generating great opportunities through the evaluation and review of their financial and operational business practices. We all know that many things may never go back to “normal”, for example, health care, schooling, the social development of our children how we shop and work. However, whether you see the glass as full or half empty, we must commit to working together to make sure we get out of this crisis in the best possible way.

The economy of Mexico, in its history, has gone through many challenges and just as in the past, we will prevail once again, as long as we use this time to reevaluate and learn how we operate our businesses in order to help restart our economy. During this period, Acclaim Energy has been studying both the energy markets and the needs of large consumers and it is clear that the companies that undertake a review of their energy contracts, energy profile, costs and consumption, will discover that new opportunities have emerged that will help reduce costs, accelerate compliance with sustainability goals, and improve supply reliability. This statement is not anecdotal, but objective, since many companies over the last 2 months have already benefited from this exercise, while others are embarking on a plan to seize these new opportunities. If you need help, you may want to explore the following steps.

How can my business prosper right now? If CFE is still supplying power to your business, it is recommended that, during this period of volatility, your team actively look for supply alternatives, whether it be changing providers or an on-site generation solution to improve reliability and enjoy a higher degree of supply independence, depending on your short or long term needs. At this time, the market is very competitive and significant savings can be achieved through contracts in Qualified Supply or in a self-supply scheme.

Currently, commercial customers are saving on average between 10% and 25% depending on the area of the country in which they are located and the product structure they select. Furthermore, on-site generation solutions are becoming increasingly popular and can be an interesting alternative to the traditional power supply contract. Regardless of whether your company decides to find an alternate provider to CFE or has on-site generation capabilities, it is very important for your company to understand the risks and factors associated with each alternative, such as exposure to USD / MXN, congestion risks or financing costs before making any decisions. In Acclaim Energy’s experience, many companies have jumped into signing supply agreements or implementing on-site generation solutions without a proper understanding of the risks, and are now regretting it, because the savings and costs are not as initially.

Unfortunately, the world continues to change, and this may start to impact your energy budget, especially if your company is already in an ongoing supply contract. These effects can translate into compressed savings based on formulas, greater risks assumed by your enterprise and terms and conditions that can have an adverse impact, which typically means less for your business. Our recommendation is to conduct an audit of the supply contract to determine the correct application of the different contractual elements, check that the invoices are a true reflection of the stipulated conditions and evaluate the variables that can be optimized. Many of these energy contracts have optionality that, due to a lack of understanding and monitoring, are not used. Some examples of possible optimizations would be to establish the exchange rate or the price of natural gas, which often acts as a fluctuating variable.

In this case, you can take advantage of the current scenario of the low price of natural gas, which has decreased more than 20% since the beginning of 2020. Contract audits are very important and are not time consuming. They are used to discover if the contract is applied correctly and to identify immediate areas of opportunity that can bring benefits to the consumer. Errors, and misinterpretations, have been identified in most, if not all, of the audits performed by our team, including nonapplication of certain contractual obligations by the supplier, incorrect application of economic terms of the contract, and more. These errors can be very significant and can add up to millions of dollars over an extended period of time, as Acclaim Energy has shown in various audits.

This practice could be the solution to support your company to get ahead in this economic crisis. Finally, these moments of “pause” also provide companies with the opportunity to develop and implement a plan to comply with the Grid Code (Codigo de Red), a regulation that establishes the minimum technical criteria to guarantee the reliability of the network and the quality of the energy that you depends on. Medium and high voltage companies are obliged to comply with the Grid Code and, if they do not, they can cause significant financial sanctions by the Energy Regulatory Commission (CRE), and these can add up to several million pesos. Second, we must emphasize the connection that exists between the Grid Code and the saving on energy costs in the medium and long term. The initiative aims to improve the efficiency of energy consumption around the country, which means an eventual benefit for companies and infrastructure in Mexico. Experience suggests that epidemic and pandemic events are transitory.

Therefore, it is worth exploring some of the points above, as this uncertain and problematic period has given way to new opportunities to improve efficiency, reduce costs, and mitigate future risks. Failure to explore and take advantage of some of these recommendations can have serious consequences for businesses long into the future.