News Article

Introducing the Wholesale Electricity Market

Wed, 02/24/2016 - 12:04

Jaime de la Rosa, President of AME
Daniel Casados, Director General of Blue Coat Systems
Edgar Alvarado Domínguez, Director of the Legal Department at CRE
Loïc Le Gall, Director of TAS for the Energy Industry at EY

De la Rosa began by highlighting the contributions of the private industry in energy generation from clean and renewable sources, and how private players helped in drafting the wholesale electricity market in a way that ensures a level playing field. The Law of the Electricity Industry creates an independent and strengthened regulator with CENACE, and CRE gains a prominent role in the regulatory side in order to foster a competitive market. “The wholesale electricity market is based on well-established markets, such as PJM, adapting traits to the particularities of Mexico,” he stressed. De la Rosa took the opportunity to praise the public sector for being open to the private industry’s suggestions in creating a promising market in terms of regulations.

Alvarado proceeded to discuss the challenges CRE has faced in creating an open market after years of CFE’s monopoly, which began in the 1960s. In the 1990s, segments of the energy market were open to private parties, which were able to participate under four modalities, including Independent Power Producers and the small power generator scheme. The Constitutional Amendment, he commented, reserves strategic areas for the productive enterprises of the State, mainly transmission and distribution, although private companies can collaborate as partners of CFE. However, if the State-productive enterprise does not create value and profit, as stated in its mandate, the authorities will be able to open these areas to other players.

“The reform takes place in both market and institutional terms,” Alvarado commented when detailing the strengthening of the operators and regulators. On the market side, private players have more options regarding the way they can participate as generators, suppliers, marketers, and such. Alvarado responded to a question posed by de la Rosa saying that CRE has taken a more active role as a regulator after the reform, as its activities became more defined with the decentralization of the industry. “We still play a crucial part in the central policy-making, but the decision-making process has changed.” He highlighted CRE’s honesty and hard work in determining tariffs, which are based on supply and demand.

Casados began by recounting how his company got involved in the electricity sector, ultimately becoming a key member in the smart grid association. He spoke about the importance of understanding the market in order to introduce the most suitable technologies, and mentioned the relevance of end-to-end consumers in creating information that leads to an improved electricity market in addition to the public, private, and academic sectors.

The microphone was passed to Le Gall, who also mentioned the importance of international best practices in the wholesale market, especially as Mexico undergoes the transition of its energy industry. “The short-term electricity market is composed of the real-time market and the day-in-advance market, which both require robust technological infrastructure,” he stated. Long-term markets are being developed in parallel to the short-term ones, and the long-term contracts entailed will enable the financing of renewable energy projects. The long-term market will rely on tenders for electricity, capacity, and CELs. De la Rosa asked how Le Gall foresees the direction of the market, especially in the light of the tenders. The EY representative responded that it is important to examine the capacity tendered in the upcoming bids, because interested players might not be able to develop projects if the demand does not grow enough for more capacity to be tendered.