A Transition Legacy for the Long TermWed, 02/21/2018 - 16:42
Three long-term electricity auctions, a committed investment of US$9 billion, new rules for the third long-term and first midterm auctions and the regulation, policy and vision for the CELs market that is ready for launch are some of the milestones achieved until now by the Energy Reform. “It was a momentous 2017 for Mexico’s energy industry that not only marked the consolidation of the Mexican wholesale electricity market, but also wrote a fresh chapter in the country’s energy history,” says Leonardo Beltrán, Deputy Minister of Planning and Energy Transition at the Ministry of Energy. And there is more to come.
Beginning with the fourth long-term electricity auction, the Ministry of Energy will hand the reins to CRE, which will manage the process and carry out the auction through its executing arm CENACE. Beltrán expects CRE to become an even stronger regulator due to the opportunity it had to witness the auctions without being responsible for them. “CRE has been able to learn and incorporate that experience into its ethos, ultimately making it a strong, robust and impartial regulator that can ensure an unbiased market,” he says.
Although the auctions have produced good results, Beltrán expects improvements in the next editions. The fact that resource availability is different across the country, with more solar power in the north and more wind in the south, is among the possibilities to explore. “It might be worthwhile to have this reflected in the process, to make resources competitive in every region,” he says. “I think the regulator has to be flexible enough to increase competitivity by allowing different prices across the country for the same source of energy.”
Beltrán adds that flexible regulation will attract more participants to the market, which will therefore encourage competition – the ultimate goal of the electricity auctions. “The focus has to be on having more market participants,” he says. “In addition to ensuring a more competitive market, it would also confirm that the regulation, the legal framework and the models we are using are attractive.”
Critics have pointed to the underwhelming participation of local industry in the electricity auctions compared to its high participation during the hydrocarbons licensing rounds, which have a minimum local content requirement. Beltrán is not worried about this because the main intention of the current administration is to create a market. “We are not yet at the point when local companies can compete against their international counterparts, mainly due to a lack of investment, technology and expertise,” he says. “In doing things this way, we are ensuring that we will have the most competitive market possible.” He adds that high international participation means that the country is attractive at a global level.
Investing in the long term is not always easy. Governments want to see results, most of which will not materialize during an administration’s term. Beltrán is instead focused on investing in a mixed portfolio that comprises investments for the long, mid and short terms. “Talent is a long-term investment for which we will not see a return in the next few years,” he says. “But that investment will produce results when people who have gone abroad to study, come back years later to the country and join the labor industry's market.” For the medium term, he says Mexico should invest in infrastructure, meaning that when the talent returns, it will be able to replicate the R&D conditions seen abroad. “Finally, in the short run we need a robust legal framework that allows for the strong participation of the market,” he says. “By combining these three elements, Mexico can become a powerhouse for clean energy.”
Looking forward, Beltrán sees a big opportunity with storage technologies, which are the missing link keeping renewable, intermittent technologies from further spreading across the country. Although these technologies are just being adopted, he highlights the importance of incorporating storage technologies into the country’s planning and day-to-day operations.
On the political front, where the winds of change will blow across the country with 2018’s presidential elections, Beltrán believes the strong legal and regulatory frameworks that have been established will allow companies and investors to base decisions solely on economic factors. “Investors can be sure their capital will be safe,” he says.