Verónica Irastorza
Principal
NERA Economic Consulting
/
Insight

The Future of Tariffs in the Wholesale Market

Wed, 02/24/2016 - 12:42

In spite of the uncertainty entailed in moving from a singleplayer industry to an open market, players are excited about the creation of a wholesale market in Mexico. In the view of Verónica Irastorza, Principal at NERA Economic Consulting, one of the benefits of having a wholesale market is that there will be more transparency. This is a positive element for investors, as it will give them access to crucial information such as appropriate project location or the status of the transmission system.

In Irastorza’s opinion, another positive outcome of the Energy Reform is that now the regulator, CRE, will set the tariffs instead of the Ministry of Finance. She is confident that CRE’s involvement will move the tariffs in a more efficient direction, especially considering that until now, tariffs have not reflected actual production costs. “Today, subsidies are not directed to the players that need them the most. Likewise, some tariffs such as DAC are too expensive, which also makes them inefficient. Although subsidies are being used ineffectively, charging too much is also detrimental. The tariffs must be set at the right level,” she comments.

For Irastorza, the current industrial and commercial tariffs are relatively expensive, so qualified users have incentives to look for cheaper options. “It will be interesting to see how these qualified users start moving to the market and participating in it. Now, it will be even easier for them to find an alternative to CFE.” She points out that it will take longer for smaller users to join the qualified user scheme, as experience from other markets indicates that retail competition for small customers has not been of huge importance. However, Irastorza foresees the basic service supply being conducted in a more competitive way. “CRE is going to supervise the alternatives, making sure users pay efficient and competitive tariffs and that they are not being overcharged. That is where I think users will see the benefit of the market.”