Gas is Part of the Solution

Valia Energía was launched in November 2022, and in just nine months we have become Mexico’s first Independent Power Producer (IPP), and rank within the top ten across Latin America as a whole. Valia now represents 4% of the installed capacity in Mexico, generates 7% of its electricity, and accounts for 6% of the total annual gas demand. These are large numbers in a country the size of Mexico. We are directly connected to the most competitive gas supply market in the world – Texas – and our key assets are sited in the parts of the country where most of the population lives and where the main industrial clusters are located. All our power is sold to CFE, the public utility, under long-term contracts. Meanwhile Mexico’s ongoing industrialisation continues to offer opportunities aligned with our strategy. (Recently Mexico surpassed China as the number one exporter to the USA).

Our ambition is to set the example for what an energy company should look like in the next phase of Mexico’s transition to a cleaner future. That means offering a secure supply of electricity that is both sustainable and cost competitive.

We are taking several steps to sustain and build upon our leadership to date. Mexico’s energy sector is challenging and intense to operate in, hence we hire  leaders who will help us become the best-in-class operator of energy assets in the country. Our Power Purchase Agreements (PPAs) begin to expire in 2026, so we are developing our commercial strategy to ensure we can overcome this challenge of renegotiation of agreements. We will develop our sustainability plans, and optimise our debt through a capital markets refinancing. And we will simplify the way we operate, by eliminating whatever we do not need and digitising wherever we can.

As a company which generates energy using natural gas, we believe it will play a key role in ensuring a just energy transition. The move towards a cleaner energy world will simply not happen without gas, at least in the short term. It is reliable, abundant and competitive, and lacks the problem of intermittency of supply which solar and wind can face. Until battery storage becomes more advanced, it is the only fuel that solves the energy trilemma, offering security of supply, affordability and sustainability. And it is far less polluting than other fossil fuels such as coal or diesel, meaning we can keep carbon emissions to the lowest level possible. Gas is part of the solution to the world’s energy needs.

The situation with hydrogen is more challenging. We are continuing to monitor it, but although a significant amount of capital is being deployed into the technology, as of today there is neither a self-sustaining business model, nor a clear regulatory path, nor a final market demand. Its future may well lie – over the longer term – as the solution for some hard-to-abate clusters such as industry, cement and petrochemicals, or in areas where there are no alternatives. Its relevance remains to be seen for the power generation sector in a country such as Mexico.

We face two main challenges in achieving our goals: to decarbonise the gas burned in our power plants, and to continue to impress on customers and financial partners that the gas industry is supporting efforts to accelerate the energy transition. If we did not do so, customers would not buy our electricity and banks would not finance our investments. Initiatives such as carbon capture, improved energy efficiency, reduced methane emissions, and more renewable gases in the supply mix help us, but the real opportunity is to deepen the partnership between gas and renewables. Mexico has abundant access to the cheapest gas in the world, and unlimited access to renewable resources, particularly solar. Used together, they can foster greater industrialisation, employment and prosperity, while maximising environmental returns by reducing the country’s dependence on coal and oil.

We are active on a number of fronts to help achieve this objective. We are taking greater steps to understand the exact level of our emissions today. We are also planning how to eliminate methane emissions from our pipelines, implementing energy efficiency projects throughout our fleet, and carrying out reforesting initiatives as part of our decarbonization efforts.

Actis plays a major role in supporting us with our long-term plan. The firm encourages our management to adopt a rigorous and robust attitude towards our operations. The investment team in Mexico coordinates with us on a number of initiatives, as well as on the management of the platform. We also receive support with our operations, sustainability strategy, and our communications with stakeholders. It is a really constructive relationship, and a privilege for all of the team at Valia to be working with them.

EXHIBIT 1: VALIA PORTFOLIO MAP

Source: Valia Energia