Grupo Calientes Solar Energy Strategy - Assignment Example

Grupo Caliente’s Solar Energy Strategy Executive summary Due to its unique geographical location and climate conditions, Mexico is one of the countries with the largest solar irradiation indexes worldwide. This unique climate privilege enables the country to switch to alternative source of energy, contributing thus to more sustainable economic development and cleaner environment. As one of the proposed environmental initiatives, it is offered to install solar panels in one of the Mexico-based companies, Grupo Caliente. The project will aim to deliver positive environmental and economic impact. More specifically, it is planned that installation and use of solar panels in all facilities of the company will enable it to produce approximately 10,000 K/Kilowatt at each facility per year. For achieving these plans, the company will install a grid-tied photovoltaic system for generating solar electricity without batteries. The company will save approximately $850 per year on energy costs at each facility. The payback period for this project is expected to range between 6 to 10 years. Therefore, this project should not be viewed as a short-term project, rather it should be viewed as a long-term project with great potential. In terms of project duration, initiation and installation of solar panels in major facilities of the company will take approximately 1-1, 5 years. In case if the company will decided to launch a pilot project in one of the facilities, the duration might take longer time. Some external factors such as regulatory issues and contractual arrangements with suppliers also might delay the project. 2. Company Description: the Grupo Caliente Grupo Caliente is a Mexico-based company, operating across the whole Mexico and expanding its business in international scales. The company operates in the entertainment gaming industry through casinos. Grupo Caliente offers a comprehensive set of services, through numerous facilities. Despite a doubtful nature of the gambling business the company strives to be Social Responsible Company, whereas social responsibility is a core value of Grupo Caliente (Grupocaliente.com.mx, n.d.). While the company does undertakes various social programs and initiatives, it has not yet made any environment-friendly footprint. As one of the proposed environmental initiatives, it was offered to install solar panels of all company’s facilities. Therefore, the major concept of the presented business plan is to install solar panels on all facilities of the Grupo Caliente, including: casinos, sports books, and hotels. 3. Market opportunity and analysis While analyzing current external environment and market opportunities there were identified several major arguments in regards to the reasons that led to the proposal of installing solar panels in all facilities of Grupo Caliente. Some of the key opportunities are discussed below in more details. Favourable climate conditions Solar radiation is unequally distributed throughout the globe and its intensity depends on many different factors, such as geographical location, time of day, season. Mexico is among the countries with the largest solar irradiation indexes worldwide (Market Intelligence Latin America, S.C., 2013). It is located in geographical zone suitable for solar energy utilization. Based on the statements of the European Photovoltaic Industry Association, Mexico is one of the most attractive countries for developing solar energy projects, followed by Australia, Singapore, and China (see figure 1) (Market Intelligence Latin America, S.C., 2013). The minimum solar radiation in Mexico is 5kWh per square meter (Market Intelligence Latin America, S.C., 2013). Figure 1: World’s Solar Industry Attraction Index (Source ProMexico with information from the European Photovoltatic Industry Association, 2013, cited in Market Intelligence Latin America, S.C., 2013). Favorable legal environment and legal requirements Mexico is a country that is highly dependent on its fossil fuel resouurces. The government of Mexico has recognized the necessity of utilising alternative energy sources relatively recently. There were introduced major changes to the energy legislation in 2007 and 2008, as the government has increased promotion and utilization of various eco-efficient, non-polluting renewable energies. In 2008, the government of Mexico extended the mandate of the National Commission for Energy Savings (CONAE), and in result, CONAE has become the National Commission for the Efficient Use of Energy (CONUUE). Formation of CONUUE and extension of energy saving and efficiency policies have led to a significant growth of the solar power market in Mexico (Market Intelligence Latin America, S.C., 2013). Even though solar power is still underdeveloped in the country, solar power plays an important role in the future energy mix of the country (Market Intelligence Latin America, S.C., 2013). Moreover, current regulation structure and power tariffs also encourage installation of solar panels as these projects are economically feasible. In addition to the legislation promoting increased utilization of solar power resources, in 2012 there was enacted the Climate Change General Law, which requires emission reductions of 30% by 2020 and 50% by 2050 (Market Intelligence Latin America, S.C., 2013). Moreover, this law requires that at least 35% of total power needs to be generate through renewable sources of energy (Market Intelligence Latin America, S.C., 2013). Increased demand for power resources It is expected that the power demands in the country will increase by approximately 4 % annually during the next 10 years (Market Intelligence Latin America, S.C., 2013). While this growth might not affect private enterprises, it is possible to suggest that higher demand will lead to increased prices for power resources (Market Intelligence Latin America, S.C., 2013). Therefore, installation of solar panels in all facilities of Grupo Caliente has several major categories of reasoning: favourable climate conditions, positive environmental impact in the region/country, legal issues and requirements, and reduction of costs on energy (Gill, 2011; Market Intelligence Latin America, S.C., 2013). 4. An overview of the key aspects of sustainability being addressed Environmental impact Switch to solar energy enables countries to solve the problem of scarce fossil fuels and to gain access to large-scale, environmentally friendly, and domestically secure electricity (Solangi et al, 2011). Solar energy is recognized to be one of the cleanest energy resources, which does not add to the global warming (Solangi et al, 2011) This alternative energy is cheap, abundant and what is more important – it has minimum level of ecological and environmental hazards with its use and production. Solar panels have a very positive environmental impact, as it enables to reduce carbon emissions. Use of 20% solar energy can be compared to taking 118 million cars off the road (Environmentnewmexico.org, n.d.). Local employment opportunities from solar power The development of solar energy sector creates many local green jobs in the region. Green jobs automatically contribute to positive environmental footprint as they help to reduce the negative environmental impact of economic sectors and enterprises (Hernanda et al., 2012). Moreover, countries are less dependent on a limited number of energy fuels and technologies and, thus, are more stable to economic and political risks (Hernanda et al., 2012). 5. A review of the fundamentals of sustainable business development Strategy, goals and objectives: The company aims to make its business operations more sustainable and cost-efficient. The aim of this project is to install grid-tied photovoltaic system for generating solar electricity without batteries. This type of system is a simple way to generate solar electricity and to reduce emissions. Moreover, all of the solar power is used as if one facility does not use it, another one does. This type of system also requires low maintenance, and enables to extend the life of transformers (The New Mexico Coalition for Clean Affordable Energy, 2007). Expected price of energy generation by a grid-tied photovoltaic system is $7- 10K/kilowatt +. In order to install solar panels in all its facilities, the company will use the expertise of external contractors who have positive reputation on the market and who can ensure efficient installation and maintenance of solar panels in the future. As the company has many different facilities varying by type, location, size, etc. it might be reasonable to install solar panels in one or two locations and thus to test the system, analyse costs, check technical expertise and professionalism of suppliers/contractors, etc. The decision to launch such a pilot project requires further consideration and is not included to the timeline of the project presented further in the report. KPIs While initiating such a large-scale project it is important to set up clear indicators and measures, which will enable the company to track project progress and success. Below are identified three major categories of Key Performance indicators that could be used in this specific project. 1. Production of K/kilowatt at each facility per year 2. Economic saving per year on energy costs ($) 3. Reduction of carbon footprint by pounds of carbon dioxide per year at each facility External factors and barriers to consider As it has been identified already, there are several major arguments and reasons of why solar development is relevant and reasonable decision. However, besides taking into consideration all the pros of such a project, it is important to understand what barriers still exist. These barriers are divided into several major categories: institutional, financial, technical, social, and political (Hernanda et al., 2012). Institutional barriers Even though the government has introduced changes to the legislation promoting use of alternative energy sources, the existing tax incentives for investing in solar energy sector do not drive significant market growth (Hernanda et al., 2012). Financial barriers The life cycle of solar project lack knowledge and understanding. The project evolves and incurs new costs on each stage so it is difficult to set clear financial limits. The cost of the project remains uncertain from the beginning of the project to its end (Hernanda et al., 2012). Technical barriers For Mexico solar panels are relatively new, and therefore, there is an obvious lack of technical knowledge and expertise. Technicians require additional training on installation and maintenance of sola systems. PV systems may fail within a short period of time, if proper maintenance and service will not be provided. Moreover, there is a lack of the sufficient technology and know-how as the major import of solar inputs comes from abroad (Hernanda et al., 2012). Social barriers There is lack of information about PV Solar Energy in the country and many people are therefore, unaware of potential benefits of this alternative energy resource. While this aspect can hardly impact the project of the company, there still may arise some social issues (Hernanda et al., 2012). The expected outcomes It is expected that installation and use of solar panels in all facilities of the company will enable it to produce approximately 10,000 K/Kilowatt at each facility per year. Also, the company expects to save approximately $850 per year on energy costs in each facility. However, in terms of cost-saving outcomes it is quite challenging to calculate Return on Investment for installing solar panel systems in non-residential buildings. Based on the experience of various organisations it is possible to expect that ROI for solar panel installations will range from 5 to 10 years and will depend on the zone, volume, type of users and technology used Market Intelligence Latin America, S.C., 2013). Roughly, it should be expected that the payback period for commercial installations will range from 6 to 10 years (Market Intelligence Latin America, S.C., 2013). In terms of environmental impact, it is expected that installation of solar panels will enable the company to reduce carbon footprint by approximately 10 pounds of carbon dioxide per year at each facility. Timeline In order to initiate and launch the project on installing solar panels in all facilities of Grupo Caliente in Mexico it is necessary to undertake a set of actions. Ten main tasks to be performed in order to have the project launched and running are presented below. 1. April 2015: to approve business plan proposal for installing solar panel system in all facilities of the company 2. April-May 2015: To develop and approve a long-range energy plan for the company, including all its facilities (2 months) 3. May 2015: To carry out detailed feasibility study and define sources for funding the project 4. June-July 2015: To ensure compliance with all the eligibility requirements and prerequisites, including: the federal solar tax credits, the requirements for the NM state solar tax credit, precertification requirements) (1 month) 5. July, 2015: To check for restrictions on solar equipment or net-metering specific to the business (for example, it is prohibited to install solar systems in historical districts) 6. August-September, 2015: To carry out a tender process for supplier and choose reputable supplier/installer of solar panels 7. October-December, 2015: To obtain installation services and/or the required equipment 8. January-May 2016: To install solar panels in all facilities 9. May-June 2016: To register and protect solar rights after system installation in case if there is a risk that the system can be shaded by other neighboring structures 10. May 2016: to start using solar panels and monitoring the performance of new systems It is worth to mention that these tasks identify the major steps and provide rough timeline, which is subject to change because of various external and internal factors. As it has been already mentioned, the company’s management might decide to launch a pilot project in one of its facilities and after successful completion of installing solar panels in one facility, there will be made a decision to install solar panels in all other facilities. This issue is subject to discussion of Board members. References: Aigner, D.J. & Lloret, A. 2013, "Sustainability and competitiveness in Mexico", Management Research Review, vol. 36, no. 12, pp. 1252. Environmentnewmexico.org (n.d.), Go Solar, New Mexico, [online] available at: http://www.environmentnewmexico.org/programs/nme/go-solar-new-mexico Gill, A. (2011). Bright future thanks to new solar panels. Grimsby Telegraph / Scunthorpe Evening Telegraph Retrieved from http://search.proquest.com/docview/875634910?accountid=26388 Hernanda, S., Rodriguez-Granada, B. Romero-Hernandez, O., and Wood, D. (2012), ‘Solar Energy Potential in Mexico’s Northern Border states, Woodrow Wilson International Center for Scholars, [online] available at: http://www.wilsoncenter.org/sites/default/files/Border_Solar_Romero_0.pdf Market Intelligence Latin America, S.C., (2013), Mexico’s Solar energy sector opportunities, Market Penetration Program, Government of Canada, [online] available at: http://www.ontario-sea.org/Storage/76/6759_Solar_Energy_Opportunities_in_Mexico_2013.pdf Solangi, K., Islam, M., Saidur, R., Rahim, N, Fayaz, H. (2011), ‘A review on global solar energy policy’, Renewable and Sustainable Energy Reviews, 15, pp. 2149-2163. The New Mexico Coalition for Clean Affordable Energy, (2007), A step-by-Step ‘How to go solar’ guide: using New Mexico’s New Solar Energy Incentives, [online] available at: http://www.nmsea.org/Downloads/Go_Solar_Guide.pdf Read More