Guillermo Zúñiga

Main Uses for the Model Contract

Wed, 02/19/2014 - 09:41

 All power producers that intend to interconnect to the Mexican grid need to celebrate a contract with CFE. The type of contract, known as a model contract, depends on the installed capacity and energy source. Its specifics vary greatly although some aspects have already been fixed by the law and by regulatory instruments while CRE will also modify certain conditions. This foundation enables the regulator and the producers to analyze each project and design a contract that fits industry needs and the project’s specifics. CRE Commissioner Guillermo Zúñiga Martínez looks ahead to the implementation of these contracts. “The main uses for the model contract will have to be communicated to the industry, but it will provide certainty, uniformity and predictability. These elements are the pillars of any regulatory instrument.”

These contracts are periodically revised, with changes and adjustments being made depending on how useful and efficient a model contract has shown itself to be. This instrument enables both the industry regulators and producers to reach effective agreements under the current regulatory framework. It is this very flexibility that is being called for by a market in which the conditions for different renewable sources can vary drastically.

“We created the first generation of regulatory mechanisms to foster renewables but the pace of change is set by the industry. For example, a sugar cane factory argued that its bioenergy scheme was designed on a yearly basis, while its resources were useable for only six months of the year. This showed us that we had to modify the scheme and tailor it to a very important sector. We have to react rapidly and sensitively to such issues so a more adequate form of regulation is created,” says Zúñiga Martínez.

Following the Energy Reform, model contracts will play a primary role in the diversification of the Mexican energy market but also in the development of transmission infrastructure by public and private enterprises. Zúñiga Martínez stated that new legislation, including model contracts, will provide a more transparent model for developers, including issues such as property rights and financing.