The Supply to WEM Transition: How Much Horsepower Is Needed?

Permitting processes in Mexico are not too friendly. Bureaucracy, time investment and confusion seem to be constant. On the other hand, a combination of profound knowledge of the regulation and process, continuity, coordination, patience, and a little bit of luck are required to be successful. 

Why Switch? 

The self-supply scheme for energy generation and supply to large commercial and industrial consumers has been greatly criticized by the current administration due to its complexities and "privileged" structure. More competition and opportunities have resulted with the creation and operation of the Wholesale Electricity Market (WEM). New supply schemes, innovative commercial structures, risk sharing, and transparency have all been a part of the development process. Therefore, to mitigate regulatory risk, update contractual terms and conditions, and for some, access renewable energy supply, C&I consumers are more frequently voluntarily migrating from self-supply to qualified supply in the WEM, a process that is easier said than done. 

Who's Involved? 

Migrating between supply schemes means changing regulation, which involves permitting and bureaucracy. It's a slow process that involves multiple players, such as the Energy Regulatory Commission (CRE), CENACE, CFE, the current generator in self-supply, the new qualified supplier, and the energy consumer. In addition, consultants and lawyers will provide significant value in this process. 

How Long Does It Take? 

The process includes different steps that involve governmental entities who lack regulated time frames for reviewing and processing requests. Generally, the exclusion process takes between nine to 12 months; however, it is very common for the migration to result in over a year of effort. In addition, a consumer must also consider that, besides excluding themselves from a self-supply scheme, they will also need to register to participate as a qualified user in the WEM, which requires another set of steps to be completed. 

Entities may respond in record time or could delay their response for months. On the other hand, there must be willingness from the current generator supplying electricity to facilitate the process for their clients. 

There are certain activities that can be carried out simultaneously to accelerate transition. However, it is very tricky and risky to carry this out without knowledge or experience since a consumer will be related at some point in time to two electricity supply contracts and therefore, two regulatory schemes. 

What Steps Need to Be Taken? 

There are two main processes that tend to cause delays and involve both the CRE with the self-supply permit and the Generador de Intermediación, or the Intermediary Generator, with the legacy interconnection contract. Simultaneously, there are numerous activities that must be carried out with different players, and therefore, there must be constant coordination between all parties to exchange information and documents, and be able to advance. Additionally, the consumer must issue several notifications and carry out different analyses to be prepared and make decisions. The key is to manage the different critical steps and be as efficient and cautious as possible. 

From another perspective, there are several steps that need to be taken to register as a qualified user, which involve the CRE, the new qualified supplier, CENACE and CFE, which will be involved in resolving the interconnection contract and eventually notifying the market entry date. The C&I consumer will also need to go through the first and second measurement diagnosis as indicated by market rules and corresponding manuals where these entities are also involved. 

There is another aspect to the transition process which engages third parties and adds dependency on market supply and demand. To comply with the current Grid Code regulation, there must be site visits coordinated, equipment and adjustments quoted, internal administrative processes, budget approvals, ordering of metering equipment and execution of the project itself. There may be time constraints due to the limited number of providers offering the required products, which have their own verification process with official laboratories. Additionally, regulation is pressuring consumers to move forward with these compliance projects and therefore are accelerating equipment demand. Worth noting is that each metering company or Grid Code professional also has efficiencies and deficiencies to consider, which may add delays to the timeline.  

We must not forget that in order to have made a decision of migrating from one supply scheme to another, the consumer must have already carried out a previous process or is simultaneously carrying out steps of the process for identifying the best supply alternative based on economics, risk and sustainability aspects, to name a few criteria. The RFP, analysis and negotiation method also take time and must be coordinated into the timelines.

What Are the Risks? 

The main risk of operating through this transition process without sufficient knowledge is paying a double electricity bill, which could result in millions of dollars of losses. There must be the appropriate coordination, knowledge, negotiation, documentation, and agreements in place to be able to exit one supply contract and enter another in the most efficient and effective manner. 

There are opportunity costs as well, meaning, going about the process without sufficient knowledge could cause delays due to the significant learning curve required. From another perspective, every month of delay means losing potential savings, thus a higher electricity budget. Errors could be costly; also, re-work simply delays the process more.

Conclusion

Significant effort is needed for a C&I consumer to carry out the full transition process from the self-supply scheme to the qualified supply scheme. A fully coordinated team, both internal and external, is required to carry out the different activities at the correct time. Advance with knowledge, coordination, caution, and a good consultant and you will get there.