Combining Business Intelligence with Regulatory ClarityMon, 02/25/2019 - 14:00
Q: What is Thompson & Knight’s most significant contribution to Mexico’s energy transition?
A: Our core added value is our market resilience. I come from 16 years of experience in Mexico’s electricity sector, starting in transnational private companies and with more than 10 years of experience in advising companies looking to do business in Mexico’s renewable and conventional energy sectors. This long-standing experience gives us a better understanding of the industry’s new regulatory framework as we navigated the previous framework and got to know the roots and implications of this shift. This perspective can serve as a benchmark for those with legacy contracts now looking to operate under Mexico’s Electricity Industry Law. Dispute settlement mechanisms and technical-legal resolution issues during a project’s construction phase, for instance, are perfectly transferrable from one framework to another. Confusion remains among industry players in supply operations between generators and private off-takers, highlighting the importance of providing a clear vision over the possible legal relationships between industry players. The same can be said about the economic rationale behind the Electricity Industry Law’s bilateral PPAs.
Q: How much room for improvement is there within the execution of Mexico’s long-term electricity auctions?
A: The country should consider technology-specific auctions to find additional efficiencies and foster true competitiveness. The configuration of CELs should also be reconsidered to omit technologies that are by law considered clean but are not strictly renewable, such as nuclear and thermoelectric. The essence of the CELs should be to reward and incentivize the use of renewable energy and not clean energy. Finally, some problems have been detected in the legal design of the first three long-term auctions, which causes a price difference between the day-ahead market and real-time market, this is not acceptable.
Q: What is missing from a regulatory standpoint to push Mexico’s electricity market further into maturation?
A: It boils down to providing visibility over the methodology involved in electricity-rate calculations. Today’s Mexican electricity market is influenced by a wide array of complex variables that need to be made visible. CFE’s amparo against interconnection requests from distributed generation projects achieved little for the productive enterprise of the state and hampered the growth of Mexico’s distributed generation sector. Economic competition in the basic supply niche must be closely monitored, as well as ensuring the strict separation of CFE’s generation, basic supply and transmission businesses by COFECE.
Q: How is the market developing outside of the auctions?
A: The end game for industry players is to find ways to commercialize energy by using the channels provided by the contractual schemes in the regulatory framework. The enabled supplementarity of the civil and merchant codes in Mexico’s Electricity Industry Law opens up a range of energy trading options that the previous framework lacked. We have advised and drafted several coverage contracts outside of the auctions. These bilateral PPAs are showcasing the same level of solidity as the auction coverage contracts, as evidenced by the financing sources willing to cover said contracts outside of an auction scheme.
Q: Which service in your portfolio is most in demand at the moment?
A: Thompson & Knight is renowned in energy’s two facets: oil and gas on one side and electricity and renewables on the other. Our firm is among the select few that specializes in both spectrums. For instance, a tangible vote of confidence is found in our client portfolio in Mexico, comprised of licensing round winners and relevant electricity and renewable energy companies, some with a long-standing presence in the market and an equally lengthy business relationship with our firm. Our clients rely heavily on our capacity to provide effective business intelligence with regulatory clarity.