Reform Gives Clean Energies an Advantage

Q: How competitive are renewables against fuel oil when considering current oil prices, externalities, and constant changes in the costs of technology?

A: There are many technologies for estimating the generation costs of clean technologies, and a common factor is that costs continue to decrease. For example, the registered costs for photovoltaic technology in 2013 were 75% lower than those observed in 2007. According to CRE’s annual document called Costs and Reference Parameters for the Drafting of Investment Projects in the Energy Sector 2014 (COPAR 2014), the average cost of solar photovoltaic technology is US$150.59 per megawatt-hour, while that of conventional thermoelectric technology costs US$160.2 per megawatthour. On the other hand, clean energy generation offers certainty regarding generation costs. While fossil fuel-based technology are exposed to volatile oil and natural gas prices, clean energies only have to worry about operations and maintenance. According to COPAR 2014, fuel can represent up to three-quarters of the generation costs for conventional, gas, and diesel-powered thermoelectric plants. Even in the case of combined cycle plants, fuels can represent 60% of the associated costs. In addition, CELs provide clean energy technologies with the necessary resources to make them more competitive. The market will determine the price of CELs, which will cover the difference between the costs of clean generation and fossil fuel generation, without resulting in excessive revenues for clean energy generators. It is expected that clean sources will become more competitive in the medium term, reducing the price of CELs and, in turn, lowering the cost of achieving the clean energy generation objectives implemented by LAERFTE.

Q: Could you describe the process of selecting and prioritizing technologies in accordance with factors such as cost, capacity, and efficiency?

A: Given that generation planning will be indicative, technology will be chosen according to the generation source. It is also important to know whether the technology will be implemented for base, intermediate, or peak demands in the power system, as well as measuring the speed at which a technology can be implemented and its availability. It is important to highlight the fact that the policy surrounding energy is technologically neutral, meaning that companies are free to choose whichever technology they deem more viable for their operations. In this sense, it is important to take note that while the planning of power generation of PRODESEN is indicative, the planning of the mechanisms for the clean energy certificates ensures that the goals for clean energy will be met.

Q: What steps are being taken by both CFE and the private sector to take advantage of cogeneration and combined cycle plants and reduce CO2 emissions?

A: Due to the technology used and the nature of its main fuel, natural gas, combined cycle plants provide several advantages over all other fossil fuel-based generation methods. In 2014, the generation of electricity with combined cycle plants, which amounted to 149,688GWh and 49.7% of the total generation, prevented the release of 44.6 million tonnes of CO2 from using fuel oil in conventional thermal power plants. This translates to savings of MX$3,152 million (US$210 million) in externalities. The leveled cost of a combined cycle plant is 38.5% lower than that of a conventional fuel oil-powered thermal plant and 27% lower than a coal-powered plant. This is because combined cycle plants have efficiency levels of 50%, which are 12 and 10 percentage points above conventional thermal power stations and coal power plants respectively. This, added to net capacity factors above 80%, results in efficient operations and considerable savings. 

CFE has designed a strategy to revamp its generation facilities in a manner that is compatible with natural gas, including seven conventional thermoelectric plants with a total capacity of 4,558MW. In addition to this strategy, CFE will soon tender six new combined cycle plants with a total capacity of 3,290MW, which will contribute to four projects with an accumulated capacity of 3,316MW that have already been tendered and five projects for a total of 2,373MW already under construction.

Q: What measures have been put in place to allow the integration of non-conventional energy sources, and what have been the results so far?

A: The reform of the electricity sector was designed to reduce generation costs by replacing expensive and polluting technologies with more efficient non-conventional sources. Dispatch rules are based on generation costs, so those technologies with the lowest variable costs will be the first dispatched. In addition, the authorities will carry out bids for long-term contracts, which will provide investors more certainty regarding the revenues they will obtain from their projects. A new approach to the planning of transmission and distribution networks guarantees open access to the grid for each participant in the electricity market. The authorities are also looking at pushing smart grids, which will facilitate the incorporation of distributed generation technologies, improve distribution, and optimize the way demand is administered. In this sense, PRODESEN foresees the installation of 1.8 million smart metering systems in the next five years.

Q: What technical measures must be implemented in order to reduce energy losses in the grid?

A: The Law of the Electric Industry points out that PRODESEN will include smart grid elements. There are many technologies that can be implemented, ranging from Advanced Metering Infrastructure (AMI) and sensors to substation control automation systems, such as SCADA. One of the most attractive advantages of these solutions is that they are able to pinpoint locations of possible energy losses and implement corrective measures. Additionally, the regulations establish that losses reaching a certain percentage of the total supplied power will be charged to the suppliers. This way they will have incentives to implement the necessary technologies to reduce losses.

Q: What steps are you taking in order to align the objectives proposed by the government with the aspirations of the private sector?

A: The instruments that will be implemented have been designed to incentivize participants in the market to act in a competitive manner. An example would be CELs, which are a new instrument that is being introduced. The government has a set a target of increasing clean power generation by 5% by 2018 and this objective is translated into obligations for participants in the market from the demand side. CELs will be the mechanism that makes it possible to reach the clean energy objectives. Regarding economic regulation in the case of activities where there is a natural monopoly, such as transmission, the competition will be ex-ante. This means that the company that is in charge of building and operating transmission lines will be the one that offers the lowest costs while at the same time guaranteeing security and transparency. Regardless, be it a competitive activity or natural monopoly, the objective remains the same: to reduce electricity costs through efficiency and incentives.