Fostering Competition and Investment to Consolidate Energy MarketWed, 02/21/2018 - 17:41
Q: What major achievements have helped the Ministry of Energy strengthen Mexico’s electricity sector?
A: To date, we registered 32 companies participating as power producers, qualified suppliers and traders and an additional 32 have already signed market entry contracts with CENACE. A new milestone was set by the third longterm electricity auction as the lowest MWh plus CELs package price yet was obtained at US$20.57. With the conclusion of the first three electricity auctions, US$9 billion in investments and 7,000MW of additional solar and wind power generation capacity are expected, effectively quadrupling the county's renewable energy infrastructure by 2020 in comparison to the beginning of this administration in 2012. The Ministry of Energy unveiled the new contractual model for the construction of transmission lines, in which private players can participate in financing, development and operation of such infrastructure through competitive and transparent bids. We also published the first tender basis for the development of an interconnection project for Baja California with the rest of Mexico’s National Interconnected System.
In January 2017, we also disclosed the new technical and administrative guidelines enabling small-scale electricity consumers to generate their own power and connect to national distribution grids in a simpler manner. This boost for distributed generation means users can install PV systems on their own residential and commercial roofs to cover part or all of their electric consumption needs and reduce their electricity consumption costs.
May and November 2017 mark the first two Universal Electric Fund (FSUE) sessions, meant to be the social face of the Energy Reform and funded by contributions from the wholesale electricity market participants. Through CFE’s extension of distribution grids and private companies’ contribution to installing off-grid PV systems, electricity will be within the reach of 1.8 million citizens who would otherwise remain deprived of it.
Q: What lessons has the Ministry of Energy learned from the auctions?
A: Mexico can be a launching pad for profitable clean power generation projects. Auction results attest that Mexico has joined the international trend of lowering generation costs. During the first auction in March 2016, the average package price per MWh and CEL reached US$47.78 and attracted US$2.6 billion in investments while the second auction attained a 30 percent lower average price, at US$33.47 and will contribute US$4 billion in investments. The latest auction surpassed expectations further as costs fell as low as US$20.57 for the MWh plus CELs package and reached prospective investments to the order of US$2.4 billion.
Q: What outstanding results has the coordination with other government agencies yielded?
A: The Ministry of Energy maintains a constant and extensive inter-institutional coordination mechanism whereby different federal government agencies, including CENACE, CRE, INAH and SEMARNAT, participate. The purpose of the mechanism is to expeditiously address all matters under the attribution of each office and continuously generate updated information pertinent to social and environmental requirements. The objective is to resolve them promptly and within the regulatory framework, guaranteeing the rights of communities and indigenous populations located in the areas of influence of the new projects to be developed and providing legal certainty to the inherent investments.
The Ministry of Energy’s Interinstitutional Linkages Office created a follow-up methodology to monitor the results of these efforts and streamline resolution times pertaining to project development. For instance, it developed an Administrative Procedure Control Board to identify and mitigate potential risk situations that delay or block the advance of the projects in time and form. To date, we have registered an 80 percent advance in the resolution of such administrative procedures.
Q: What will the Ministry of Energy’s role be now that CRE has greater responsibilities starting in 2018?
A: The Ministry of Energy will keep bolstering the consolidation of the emerging wholesale electricity market. As the sector’s leading institution, we will continue devising guiding policies for the remaining steps, fostering the entry of new players and new technologies, as well as the construction of new transmission lines that enable competitive electricity tariffs to benefit all Mexicans.
Q: What is the status of Mexico’s energy transition?
A: The expansion of gas pipelines should be of note, especially considering that between 2012 and 2018, this administration estimates the increase will be 65 percent, contributing to the commitment of providing cheaper and cleaner fuel to generate electricity for a greater number of regions in the country. Mexico’s wholesale electricity market is burgeoning with dynamism, as in less than two years, it went from one sole participant to more than 60 registered by CENACE, of which 32 are already active in energy trading operations, fostering competition, innovation and finding efficiencies. As new participants enter the market and our productive enterprise of the state competes on a level playing field, through effective and modern regulation, efficiencies found and new technologies used, costs will be reduced throughout the value chain, positively impacting final users’ electricity tariffs.
Q: What legacy will you leave to Mexico’s electricity market once your administration comes to an end?
A: The sector’s progress is starting to change the architecture of the country’s electricity industry, creating a solid foundation for a competitive and efficient market. With the launch of the short-term wholesale electricity market, electricity generation, supply and trading activities are witnessing new participants that compete with CFE’s subsidiaries and affiliates. For long-term transactions and the fostering of clean energy sources, the conclusion of the three long-term electricity auctions show quite positive results. Mexico is steadily and hastily advancing its transition toward an economy with lower carbon emissions, enabling us as a country to reach the 2024 goal of 35 percent of green generation. A new model was created for the procurement of transmission lines, allowing private players to participate in its financing, development and operation. Through the distributed generation scheme, homes and businesses alike can place PV modules on their roofs to produce a large part of the electrical energy they require, while generating savings in their electricity bill and contributing to decreasing emissions to the atmosphere.
Q: How can continuity be fostered for the wholesale electricity market of the future?
A: The industry’s answer reflects the market’s confidence in the processes we have fostered. The catalyzation of the electricity market is imminent and the market has started to create its own mechanisms, guaranteeing its permanence. The power of competition and technological advances have made their presence known with competitive renewable energy prices, without overlooking the preponderant role they play in Mexico’s energy transition and clean energy goals. The benefits of competition, the unlocking of electricity tariffs and the preservation of the environment are the major elements that give sense to this new model, making it self-preserving.
The construction of a solid institutional pillar for the electricity sector was our priority. The sector's regulator, CRE, is endowed with the tools and faculties to carry out its tasks objectively, effectively and efficiently. Our market operator, CENACE, acts autonomously to guarantee the electricity system’s reliability, as well as the greatest possible benefits for consumers. Our productive enterprise of the state is no longer a monopoly and takes advantage of the opportunities brought about by the reform to offer better services and compete with other companies. Our regulatory structure generates incentives for all participants to act in the public interest, favoring innovation as well as public and private investments. In 2016, electric generation capacity grew 8.1 percent, the highest rate since 2003, thanks to national and foreign investments that the new market is attracting. Essentially the Energy Reform is promoting job creation and setting the groundwork for accelerated economic growth in the mid and long terms. The Ministry of Energy will continue to implement the changes and improvements required by the industry, convinced that a modern and efficient electricity sector is fundamental for promoting productivity in our country and fostering social inclusion.
Q: What challenges will the ministry face in 2018?
A: In what will be the last year of the current administration, the Ministry of Energy will continue working toward the consolidation of the reform with the same pace and commitment it has shown so far. Based on our action plan, we will keep fostering the arrival of new investments in every link of the sector’s value chain. The conclusion of the first midterm electricity auction, the tender for the first transmission line under the new model of private procurement and FSUE’s third stage are among the major steps that will be taken in 2018. By the end of this presidential term, we will have laid the foundation of a more modern electricity industry, witnessing the arrival of multiple operators, which will promote new investments, economic benefits, job creation, energy democratization and multiple electricity supply options for consumers.