Laying the Groundwork for Sophisticated UsersMon, 02/25/2019 - 12:47
Q: How is CRE capitalizing on the new energy chapter of the USMCA from a regulatory standpoint?
A: Mexico’s new energy model attracted a cumulative committed investment of US$180 billion from crude oil to renewables and everything in between. This commitment was possible thanks to a legal and regulatory certainty that fosters trust. The new version of Mexico’s trilateral agreement with Canada and the US contributes to this certainty. Critical chapters, such as dispute settlement mechanisms and tariff-free zones, were retained for major imports such as natural gas and oil products. This was important not least because of the recent dynamism in Texas’ production of these commodities and Mexico’s rising demand for them. But there is still much work to be done to create a North American energy bloc. Looking specifically at electricity interconnections between Mexico and the US, they obey largely to local logic. In the US, electricity is a local government issue, with the exception of interstate grids. Electricity and energy policies are primarily driven by state governments. California, for instance, is among the US states with the most advanced penetration of renewable energy in its energy mix. In addition to the USMCA, Mexico has developed a framework to allow electricity trading between both countries via CRE-awarded authorizations. While the USMCA calls for a deeper commercial integration between its three parties, we must explore ways in which our respective regulations enable full capitalization on the agreement’s objective.
The USMCA also includes a regulatory improvement chapter for all industries included in the agreement. It will contribute to strengthening CRE’s regulatory tasks in terms of transparency, collaboration mechanisms and shared knowledge. It also lays the groundwork for regulatory policy compatibility between Mexico, Canada and the US, as well as best practices and shared mechanisms.
Q: How is CRE laying the groundwork to increase the number of bilateral PPAs and full-merchant projects?
A: Mexico’s wholesale electricity market encompasses different complementary market types. Each business opportunity answers to a specific circumstance, stakeholder profile, risk and profitability appetites and corporate drive. Some companies are interested in and betting on auctioning their projects in the long-term electricity auctions. These companies are risk-averse and prefer having CFE as both an off-taker and a long-term auctions participant. While auction prices have experienced a pronounced downturn from the first to the last auction, this trend is not exclusive to Mexico. Other countries using the same mechanism have witnessed the same downward trend. Renewable energy technologies have reached a highly cost-effective maturity point, added to their autonomy of commodity price variations, allowing the aggressive pricing of the long-term electricity auctions. Complementary markets include short-term markets such as the spot market, bilateral PPAs and merchant projects. The latter represents higher long-term risks rooted in electricity price volatility that can be managed with increased demand. Our role is to provide legal certainty on this wide array of options to mitigate risks accordingly.
Q: How does ODAC contribute to the objectives of the Strategic Plan of Energy Regulators 2018-22?
A: ODAC answers primarily to the need of strengthening interinstitutional relations between the energy industry’s regulators: CRE, CNH and ASEA. Although each agency should operate under its specific logic and responsibilities pertaining to equally specific activities, some of these regulatory activities were repeated across the agencies’ functions. Detecting this issue and window of opportunity for coordinated improvement led to the creation of ODAC, which is meant to be a one-stop shop for energy regulatory matters. It implemented critical data sharing practices between all three regulators that enables projects to be fast-tracked for permitting purposes. ODAC’s activities include exploration plan approvals, production plan approvals, drilling approvals, LPG retail, retail petroleum products and natural gas distribution.