Montserrat Ramiro
View from the Top

Regulating and Enabling Mexico's Energy Market

Wed, 02/21/2018 - 09:08

Q: Which aspects of Mexico’s environmental regulation are still pending?

A: Environmental regulation falls solely on SEMARNAT, and on ASEA for matters related to the hydrocarbons industry. CRE does not regulate environmental aspects of any kind. In fact, in the renewable sector our mandate is to be technology neutral. Our objective is to have efficient markets without a bias for any given technology, with the purpose of drafting the rules that provide certainty to every participant in the market and a level playing field, and with the ultimate goal of benefiting consumers.

Q: What are Mexico’s challenges and opportunities in natural gas?

A: CRE does not decide whether we should incentivize the growth of the natural gas market. The Ministry of Energy is in charge of establishing public policies for this segment; the rules to make that happen are our responsibility. To that effect, we approve CENAGAS’ open seasons, and regulate the incumbent PEMEX asymmetrically. An example of this is the gas release program, published in February 2017, also designed to provide a level playing field. To have a market, new entrants need to have the possibility of competing with the incumbent. This is precisely the objective of the gas release program.

Natural gas infrastructure has grown significantly since 2014. More than 7,000km of new pipelines have been committed and the future growth of the system has already been announced in the Ministry of Energy’s Five-Year Plan. Price signaling will be at the center of natural gas infrastructure’s future growth. Regulation to this effect has already been issued, primarily regarding terms and conditions for firsthand sales and the elimination of price regulation for firsthand sales. These measures try to eliminate distortions in the market, and will eventually result in increased investment in natural gas infrastructure.

Q: How is CRE fostering natural gas as a transition fuel?

A: CRE cannot provide benefits or special treatment to any given technology or any given fuel. The only instrument we have that promotes clean generation is Clean Energy Certificates (CELs), which are technology blind. CRE can create clear rules that promote well-functioning markets that will eventually provide the right incentives, so that all kinds of projects can be developed; agents themselves will choose the most efficient options, renewables and natural gas being at the helm. In times such as these, technological change happens so fast that regulation should not limit itself to what is currently known.

Q: How prepared is Mexico for the CELs market?

A: CELs are happening. There are several things that will continue to unfold in the coming months. However, there is no reason to doubt their introduction into the market. The remaining factor is now readily available. The new basic supply fee was issued by CRE in November 2017, providing relevant information to the qualified users market and a benchmark of power generation, transmission and distribution costs.

Q: What is your message to the power industry?

A: There are many things that we need to work on in the short term. Some examples include the basic supply fee, distributed generation and isolated supply regulations. We need to ensure that all these instruments are clearly understood by the industry and that we have a fluid conversation with them so we can make things happen, not in years, but in the next few months. I like to think of CRE as a facilitator. Regulation should not be necessarily restrictive; it should foster growth through clear rules, level playing fields and creativity. Ultimately, the energy sector can bring about significant economic growth. We strive on a daily basis to help develop the economic growth potential of the sector. As a regulator, I try to be open to change regarding those things that do not work and my ultimate goal is to, through regulation, bring about certainty and the right conditions that can result in GDP growth.