Leonardo Beltrán
Undersecretary of Planning and Energy Transition
Ministry of Energy
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View from the Top

Authorities Guarantee a Successful Electricity Market

Wed, 02/24/2016 - 16:11

Q: What have been the highlights in the implementation of the Energy Reform in the electricity area?

A: By the end of June 2015, we will have the Program for the Development of the System, a roadmap of how CENACE is planning to develop the infrastructure it needs, and how we see the development of certain projects in the infrastructure program. This will map the supply and demand in order to have a more integrated electricity system. The idea is to have a more robust network, to take advantage of the resources available across the country, and to create better conditions for regional development in specific areas. We recently presented a series of CFEpromoted projects in transmission, generation, and distribution with the intention of having the private sector partnering with CFE and developing these projects. This outlook will rely on CENACE’s help in incorporating government policy.

Q: What steps must be taken to reduce the remaining uncertainty and allow companies to start investing?

A: Proper policies send out a strong signal that can lead to informed decision-making. In this sense, the policy serves to guide and inform the market on demand and infrastructure development from the public sector side, and support the evolution of the market with government data. The demand side is something the private sector, as a participant, should assess through surveys and other methods to determine the value of the market. With the appropriate information, a player can decide if it wants to be a service provider or a supplier, and if it will have a primary or a secondary role. There are then different elements, including regulation, and the degree of clarity of this regulation, which allow a player to decide whether to enter the market or not.

In preparation for the launch of the market, we will run a test during the last quarter of 2015 in order to measure the possible challenges. Since the test will take place in the fourth quarter, we will have ample time to learn about the interactions between the operators and regulators, and the intricacies of operating the new market. Just like with any other test, the goal is to learn, adapt, and practice. Players will be able to quickly determine if they will take part in the spot market or the overnight market.

Q: What will be impact of the creation of the wholesale electricity market on the electricity users in Mexico?

A: Given the policy and regulation, we are envisioning a competitive electricity tariff, which entails a reduction of costs for the industry as a whole, and that translates into a more productive environment because one of the main inputs will be more competitive than it used to be. Ultimately, we are creating these conditions for a more competitive economy, and there will be trickle down effects in other markets, thus other industries are deciding to come to Mexico. For instance, the first quarter of 2015 experienced the highest investment any first quarter has seen in Mexico, amounting to US$7.5 billion of direct investment in a single quarter. If you look at other signals from the market, you will see that the economy as a whole is adjusting to this new environment. The fact that industries are setting up facilities in Mexico, such as automotive, construction, and manufacturing, means that people have confidence in the country.

Q: How is Mexico advancing in its goal to meet the 2018 and 2024 clean energy targets?

A: We are on track to meet the targets, even those established for 2018. In addition, there is a Program for the Promotion of Renewable Energy in which there are twoyear targets per technology or resource. This particular document was created through the Renewable Energy Council, with actors from the private sector, academia, and all relevant stakeholders interested in renewable energy. The policy was drafted before the Reform, and now that the regulation is in place, we have a stronger position for complying with those targets due to the wholesale market and CELs that ensure that a percentage of consumption comes from clean energy.

The wind power industry announced plans to invest US$14 billion in wind projects alone. Recently, CFE also announced a few projects in wind and one in geothermal, in addition to CFE’s existing geothermal activities. Although I agree that there was a lapse in the past 12 months, actors are now starting to resume projects. We have set up the mechanisms for the community as a whole to take part and interact. If anything, the Reform created a more robust path toward these particular objectives.