Renewables, sustainability crucial to growing Mexico's automotive sector: panelists

Renewable energy and sustainability criteria are crucial for the further development of Mexico's automotive sector, according to automotive and energy industry executives and representatives.

With nearshoring a hot topic among industrial stakeholders across Mexico due to its potential economic benefits, several panelists at the Neuron Automotive Forum in Mexico City Aug. 7-8 made clear this business strategy was strongly dependent on sufficient and sustainable energy. Included in this are concerns over the capacity of state utility CFE to deliver power and infrastructure to fulfill increasing demand for nearshoring. Renewable energy and power storage infrastructure will play a critical role in enabling the development and operations continuity of the automotive sector, panelists said.

"Eight out of 10 companies stall their projects due to complications regarding energy availability," Luis Stone, CEO and founder of solar energy producer Ergosolar, said. "While Mexico is one of the top five countries in terms of solar energy potential, much infrastructure improvement is needed for the 'harvesting' of the energy and its distribution."

The adoption of electricity microgrids separated from CFE's nationwide grid was cited as an alternative means of bringing power to nearshored operations. In Guadalajara, Mexico's second-largest city, Ergosolar and other companies have been working with microgrids, energy storage systems and natural gas combined-cycle facilities, increasing energy stability for consumers.

Environmental commodities in focus

Comprehensive sustainability guidelines and strategies were also deemed critical by automotive industry representatives.

"Clear sustainability strategies in the automotive sector fosters competitiveness and unlocks new funding and investing opportunities since banks and financial institutions are now considering [environmental, social and governance] criteria for their ratings and interest rates," Alberto de Icaza, Mexico spokesperson for the ZF Group, a German technology company that supplies systems for the automotive industry, said. "It is also a matter of talent attraction as younger generations consider sustainability performance and action plans as must for their employers."

Furthermore, Juan Carlos Arroyo, market intelligence business analyst at Grupo Alles, whose industrial portfolio includes solar energy, said: "The integration of both innovative tech solutions and alternative financial schemes encompassing International Renewable Energy Certificates as additional revenue streams can leverage companies' efforts to tackle constrains currently faced within the Mexican automotive sector."

Platts, part of S&P Global Commodity Insights, assessed Mexico vintage 2024 I-REC at $1.47/MWh and 2023 certificates at $1.35/MWh on Aug. 9.

The emergence of new environmental regulations and climate-positive trends extending worldwide are exerting fresh business pressures across the entire automotive supply chain.

"As we approach the critical years to comply with the Paris Agreement, it is expected that carbon prices will increase and environmental regulations such as CBAM and regional carbon taxes will continue arising," said Renato Villaseñor, a director at metal plating service Galnik. "This has boosted demand for carbon offsets and I-RECs to support the compliance with ESG commitments of huge automotive groups and their suppliers. While the interest towards these environmental commodities was initially higher in Tier 1 automotive industries in response to automotive groups requirements, it is expanding across the whole supply chain as Tier 2 is now being lobbied to be part of a comprehensive pathway towards decarbonization."

On the role of I-RECs on the automotive sector, Marco Moreno, German automotive supplier Brose's Mexico plant manager, told Commodity Insights on the sidelines of the conference that "my clients ask for evidence of our renewable energy consumption and energy transition pathway."