Enrique Ochoa Meza
Director General
View from the Top

CFE Already on the Path to Transformation

Wed, 02/24/2016 - 13:29

Q: What progress has been made and what further steps need to be taken to complete CFE’s transformation into a productive enterprise of the State?

A: The historic Energy Reform has resulted in CFE’s evolution from Mexico’s sole electricity provider to a company competing in an open market for the first time. On top of its continued activities generating and distributing electricity, CFE will be allowed to commercialize natural gas as a result of the Reform, an activity that was traditionally PEMEX. CFE will therefore become a major supplier of natural gas to the Mexican market, while simultaneously using that same supply to power its generation facilities.

Increased competition with new companies for the first time highlights an important change in the electricity market. Expensive, environmentally damaging fuels are being replaced with cleaner, cheaper feedstocks such as natural gas and renewables. The over-dependence on inefficient fuel sources for power generation has long been acknowledged; however, the results of our efforts to transition to alternative feedstock have only recently become apparent. Between 2012 and 2014, CFE reduced its fuel oil consumption by 43% and this was followed by a substantial decline in electricity rates from June 2014 to June 2015. Industrial consumers have witnessed rates drop by 25-35%, commercial rates have decreased by 11-22%, and household rates between 11-12%.

Q: What infrastructure investments does Mexico’s electricity grid most urgently require?

A: CFE has more than US$17 billion in investments planned for priority infrastructure projects that aim to fulfil levels of supply to address the booming electricity demand. These include 11 natural gas pipelines (US$5.2 billion), seven thermoelectric power plant conversions (US$200 million), seven combined cycle power plants (US$6 billion), 15 renewable power generation projects (US$4.8 billion), and a combination of seven transmission lines and nine distribution projects (US$1 billion).

Between 2015 and 2016 alone, CFE plans to complete 11 natural gas transportation infrastructure projects amounting to around 2,300km of pipelines, and the total investment for these developments is expected to equate to around US$5.2 billion. Natural gas represents an ideal energy source and is quickly gaining ground in the energy market. The feedstock is both economically viable and more environmentally friendly than the fuel sources that were previously used.

Tendering processes for the seven combined cycle power plants are ongoing, and to date, the contracts for three power plants have been awarded to three different companies. Once completed, these plants will add 5.3GW of capacity to the country’s electricity grid. CFE is also developing 15 renewable energy projects worth over US$4.8 billion: two hydro projects, five geothermal projects, and eight wind projects.

Q: What investments and projects is CFE carrying out in the short term in order to strengthen the development of renewable energies?

A: Between 2015 and 2018, CFE will develop 15 renewable energy projects that will represent an additional 2,700MW of installed capacity, with an estimated total investment of US$4.7 billion. CFE will develop five geothermic projects to equal around 130 MW of installed capacity, with an investment of US$252 million. These developments will increase CFE’s geothermic installed capacity by 15%. Currently, there is a geothermal power plant being developed in Puebla (Los Humeros III Phase A) and an additional one (Los Azufres III Phase II) is currently undergoing the tendering stage.

Likewise, with the new Law of Geothermal Energy, the geothermal energy generation sector now has the solid legal framework required to attract private investment. Under these new regulations, CFE is given the opportunity to retain its exploration activities within 13 geothermal fields that have an estimated potential of 448MW. In addition to the exploration permits, CFE has five geothermal energy concessions: four for continued exploitation of CFE’s geothermal plants (Cerro Prieto in Baja California, Los Azufres in Michoacan, Los Humeros in Puebla, and Tres Vírgenes in Baja California Sur), and a new concession for the exploitation of a geothermal field in Cerritos Colorados, Jalisco. With these developments, CFE will expand Mexico’s geothermal potential by increasing its installed geothermal energy capacity to reach 1,300 MW.

In terms of other technologies, CFE will also develop two hydropower projects. One will be a brand new facility located in Chiapas called Chicoasén II, and the other will be a revamp of an existing power plant in Temascal, Oaxaca. These will add 254MW of installed capacity and will require an investment of US$412 million. These projects will increase CFE’s hydroelectric installed capacity by 2%. Moreover, CFE is currently developing eight wind power projects that equate to 2,383MW of installed capacity, with a total investment of more than US$4 billion. These will increase CFE’s installed wind capacity by almost 400%. One of these wind projects, Sureste I Phase II, was brought online in June, with a total installed capacity of 102MW.

Q: How can Mexico mitigate electricity losses caused by technical and non-technical issues?

A: CFE has reduced its energy losses from 16% in 2012 to 14% in 2014. Our goal is to further reduce this number to between 10-11% by 2018. The US$17 billion allocated to infrastructure investments will have a massive impact on reducing losses associated with electricity distribution, but more action is needed in order to completely eliminate these issues.

As part of CFE’s nine distribution projects, the installation of 910,400 metering infrastructure devices, 20,500 transformers, and the construction of 1,437km of circuits will be prioritized. These projects, focused solely on the modernization of the country’s transmission and distribution networks, represent a total investment of around US$1 billion.

As a result of ongoing infrastructure modernization, operational losses are rapidly being reduced. In 2014, CFE registered an operational loss of US$2.1 billion, a 30% decrease compared to 2013. Factors contributing to these developments include the increasing natural gas supply to power generation facilities from pipelines such as Los Ramones, as well as a year of high rainfall. As a result, the level of hydroelectricity production was high throughout 2014, which in turn led to efficient electricity production and lower prices for consumers. In 2014, electricity sales rose by more than 5% to US$19.6 billion.

Q: What is the significance of the five pipelines in northern Mexico to the country’s power generation activities?

A: The Northwestern System of pipelines represents critical infrastructure for the effectiveness of the country’s electricity production. They include the Chihuahua Corridor, El Encino-Topolobampo, Sásabe-Guaymas, Guaymas-El Oro, and El Oro-Mazatlan. These structures will eventually be interconnected with the North-Central System to consist of five pipelines, among which will be the El Encino-La Laguna and the Ojinaga-El Encino pipelines. Connecting these structures will ultimately represent an investment of around US$2.8 billion.