Beyond Clean Auctions, a Long-Term Commitment

Q: How would you describe CRE’s significance in the new energy market?

A: CRE’s mission is to provide transparent information to ensure good, quality decision-making. We are working on the first transparent Basic Supply Tariff, since the current tariff is sending a misleading signal to the market, discouraging investment. Once this Basic Supply Tariff is published it will provide robust information to investors about the country’s competitiveness. Having a regulated tariff was useful in the past to reach the universal supply principle that governed CFE, but the new energy market has to focus on providing value to participants. One perfect example is the Mexico City subway system. It has always been supplied with electricity from CFE, but as soon as competition was put on the table, CFE had to compete against other energy suppliers to offer the service to the subway system. With competition in place, CFE made an offer that represented savings of over US$100 million per year for the subway system.

Q: What made the long-term electricity auctions such a success in the area of renewables?

A: The electricity auctions are actually designed to be technologically agnostic, providing a level playing field for everyone. The electricity auctions are for the long term, and although renewables usually have high CAPEX costs, they also have very low OPEX costs. Renewables are even more competitive than almost any other conventional energy source, as conventional fuels have the disadvantage of costs associated with extraction, processing and transportation. One of the disadvantages of renewables is the intermittency element. This has allowed CCGT plants to become a particularly useful technology that is secure, flexible and economical. Nevertheless, with the grid becoming more flexible, which includes the introduction of batteries and higher levels of distributed generation, we expect this will change. CELs are a very important topic that will become even stronger in 2018, when they become obligatory by law. We still have to make some changes related to the norms, system management and certifications for clean plants, but once this is sorted out they will become an important second income flow for clean-energy generators.

Q: How can Mexico further develop distributed generation?

A: In Mexico, we have seen significant advancements in the distributed generation segment with the design of bidirectional contracts. Before the energy reform, contracts worked under an energy bank scheme in which the extra energy produced could be withdrawn from the main grid within one year. Now, we have the net metering, net billing and total energy sales schemes, which are making the market much more attractive for both small and large residential and commercial consumers. These could be called the regulation for distributed generation 2.0. With distributed generation 2.0, every household and company in Mexico has become a CFE competitor.

Q: How does CRE work with the recommendations provided by the OECD?

A: The OECD has been enthusiastic in reviewing Mexico’s regulatory framework after the overhaul in 2013, making peer-review recommendations and creating diagnostic analyses for us to take into consideration when designing future modifications. Beyond these modifications, Mexico complies with all the international standards and is categorized as a strong regulator with a well-designed regulatory framework. We still have a couple of challenges to overcome. We need to simplify the regulatory system and offer greater transparency, while creating more flexibility to adapt to the dynamic environment we face in the energy market, which is highly reliant on technologies that change almost daily. A clear example of technological change is in energy storage. In this segment, regulators in Mexico and around the world are simultaneously learning how to adapt and make this technology fit into their respective markets. To allow for a flexible regulation, CRE is in constant contact with both national and international regulatory institutions, such as ASEA, keeping itself on a constant learning curve to ensure we achieve a competitive energy market.