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News Article

Transforming the Energy Sector

Wed, 02/24/2016 - 12:42

The arrival of César Hernández Ochoa, Undersecretary of Electricity, was met with enthusiasm among MEF16 attendees, as the Ministry of Energy’s view and expertise is highly relevant to all the actors in the Mexican electricity industry. The Undersecretary began his presentation by highlighting the benefits that the Energy Reform is expected to bring to the Mexican market. According to Hernández Ochoa, the new regulations are expected to decrease the costs of electricity tariffs, promote investment in clean energy projects, and improve the country’s competitiveness. “The benefits of the Energy Reform are already tangible, as evidenced by the fact that electricity tariffs in Mexico have already decreased for different segments,” he boasted.

Hernández Ochoa proceeded to explain the short-term market, a key element of the wholesale electricity market that was launched in January 2016. The main objective of this market scheme is to boost competitiveness and incentivize generators to improve their operational efficiency and reduce production costs. In this regard, the main incentive is the market rule that gives efficient generators the opportunity to dispatch their electricity first, which was established to promote a decrease in tariffs based on efficiency and competitiveness, not only among private actors but also among CFE subsidiaries. Moreover, the short-term market provides free access to new generators, whose presence is expected to increase in the upcoming yeas.

According to Hernández Ochoa, the long-term tenders are another important element in the wholesale market, as these enable market participants to acquire different products such as clean energy certificates, capacity, or power. The tendering process is organized by CENACE, the independent market operator, using the guidelines established in the regulations. In Hernández Ochoa’s view, one of the most important characteristics of the Mexican scheme is that all generation technologies compete at the same level, including clean and conventional sources. Furthermore, the undersecretary highlighted the fact that the contracts resulting from these tenders are especially designed to provide financial security to private investors backing up energy projects. The first tender carried out in the country was sufficiently successful as it achieved the allocation of 102 million megawatt-hours, 109 million clean energy certificates, and included 468 technical offers and 103 bidders.

Finally, Hernández Ochoa explained the process that CFE has followed so far to restructure its operational organization. As stated in the Law of CFE and the Law of the Electricity Industry, CFE has been separated into a vertical structure that is compatible with the new market rules, including four generation enterprises and different subsidiaries, each one with its own corporative administration. The main objectives of restructuring CFE were to increase the parastatal’s competitiveness and avoid a monopoly in the new market. Before finishing his presentation, Hernández shared the enthusiasm that international players have demonstrated in the face of the transformation of the Mexican electricity sector. “Apart from the Education Reform, the opening of the electricity market has the best potential to increase the country’s international competitiveness. Mexican efforts to transform its energy industry have been recognized in Davos, Abu Dhabi, and at other international summits. The best feedback we have received is the fact that the reform includes all the regulations needed to launch a successful market,” he concluded.