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Transitioning to the New Energy Policy

Guillermo García - CRE
President Commissioner

STORY INLINE POST

Mon, 02/25/2019 - 12:21

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Q: What were the most relevant developments in the Mexican energy market in 2018 and which CRE achievements during last year make you most proud?
A: In electricity, there was a great advancement in distributed generation, which is the democratization of energy, the possibility that any consumer, regardless of size, can take control of his or her electricity bill. This is something that a few years ago was unthinkable and CRE provided the legal framework for this development, which has many benefits. The first is that consumers can determine how much they will pay for energy use.
Having multiple injections to the distribution network creates a more stable system with frequency regulation and high-power services throughout the day. Moreover, this development is creating employment opportunities and strengthening the Mexican industry, which is a priority for the new presidential administration. Distributed generation has the enormous advantage of requiring a great deal of human capital. For instance, in the US, there are over 100,000 employees in California alone focused on distributed generation. This means that distributed generation has the capability of creating well-paid jobs throughout the country.
It is important to highlight that we finished 2018 with approximately 82,000 solar roofs, which represent around a 70 percent increase from 2017. This increase is the result of the simplified regulation we created for the interconnection, which is a non-permitted activity that requires an interconnection contract with the distribution system. The contract we designed for this purpose, in only two pages, outlines all conditions and users can choose the interconnection modality, which can be net metering, net billing or direct sale. To achieve this, we had a very intense dialogue with CFE, since the company filed for legal protection against distributed generation conditions. Ultimately, we managed to convince CFE that this would be beneficial.
Q: What do you consider to be the main changes in energy policy as Mexico shifted from the Peña Nieto administration to the AMLO administration and how do you expect these to affect the development of the energy sector?
A: I think the main change, which will be good, is that state-owned companies will be given more strength. It is important to note that the Mexican industry has space for very large and important state-owned companies and also for the private sector; there is no doubt that a strong effort from both sectors is required. The coming focus on strengthening and fixing the finances of the state-owned companies will help to complement the joint effort we have to make as a country.
Q: What opportunities does CRE see for its activities as a result of this policy change?
A: What we see as a great opportunity, but also a challenge, is being able to leverage the energy sector benefits on the social base that the new government enjoys. We believe this will help us to unlock many projects that unfortunately have been halted because of inadequate community engagement. I think the president’s high esteem in many of these communities can help to unlock many problems and construct new projects such as pipelines, energy generation terminals or access wells, which in turn will result in better energy conditions for the country.
If we can capitalize on this prospect for dialogue with society, it will be a great opportunity and at the same time a challenge going forward. For instance, we could have a great deal of gas available for the Yucatan Peninsula, unlock the pipeline from Tuxpan to Tula, provide gas to the region of Sonora with the connection of the pipeline from the south of Sonora to Sinaloa, or install a renewable plant in Yucatan. I think that the possibility for communication with communities that this new administration has is very different from what we saw in previous administrations.  
Q: What will be the 2019 priorities for CRE in order to ensure a competitive market while adjusting to the new policy regime?
A: 2018 was an interesting year in terms of electricity tariffs. The tariff we had before 2018 was a closed fee that obeyed to an income objective and that did not recover CFE’s costs, so every year CFE saw its assets reduced. The change in the LIE, took this responsibility from CFE and sent it to us. The law states that we need to recognize the costs of providing light and energy to different points across the country. We had to analyze their efficiency and then translate these costs to the tariff being paid by users in different regions. In the regions where energy generation is expensive because diesel is used, there was a higher rebounding of tariffs than in other areas that did not have this characteristic. It was important to send this signal because this is what invites investment to locate in certain regions where energy can be offered at a lower cost.
Obviously, the possibility of having these tariffs that recognize the generation cost means that people now think about their electricity bill. When the electricity bill is subsidized, people do not worry about looking for other options, installing solar panels, hiring a supplier, entering a bilateral contract or any other possibility. We are now seeing more businesses worry about having an electricity strategy for their companies. When you realize that 60 percent of manufacturing costs comes from electricity, it makes a lot of sense to put someone in charge of the energy strategy for the company. This gains greater relevance with these alternatives, which is an opportunity that arises from being able to take control of your own energy. The strengthening of CFE is a result of having an adequate cost recovery and investment complementarity in the use of technology from private players.
Also, in 2019, we will see the entrance of a significant number of renewable energy plants. CENACE estimates that by the summer of 2019, there will be 84 new electric centrals that will add 12,429MW to the National Interconnected System; this will allow less dependence on expensive fuels. What is important for the new administration is to continue with the exercises we have been doing, such as long-term and medium-term auctions, and to continue with gas production in the country, so we can have low-cost natural gas. I understand that the new administration wants to make a revision of all the programs, but it would be a really good element going forward to continue with these actions.   
Q: What will be CRE’s priorities for the electricity sector in 2019?
A: In the electricity sector, we want to finish the regulation intended for distributed generation. We are missing some pieces, the most important being collective distributed generation. This means that a group of people can set up a renewable electricity installation and share among them all the benefits. This model has already been implemented elsewhere in the world and it is something that the industry has requested, so we are working on its regulation.
The second priority will be to promote the use of EV charging stations. At the end of 2018, we published the regulation that permits the installation of EV charging stations and to charge for the use of electricity. In previous years, EV charging stations in malls were cost-free and although this might sound like a good thing, for investors it was not an incentive to set up these types of installations.
Today, there are around 2,000 EV charging stations in the country and almost all have been installed by automotive OEMs. The idea of this regulation is to tell them that they can resell electricity and by establishing a regulatory framework that provides certainty to investors, they can now set up EV charging stations throughout the country. This will prove to be important for the country’s energy security. Inasmuch as a country diversifies its use of energy for transportation, we will not depend that much on gasoline and diesel and we will be able to have electric cars as part of the public transportation system.
The third topic that is important to mention for 2019 is related to storage capacities. In this sense we are working on several regulatory pieces and we are in the process of identifying the services that provide storage. We have identified over 18 storage services, such as frequency regulation, transmission in peak periods, generation in peak periods, storage in hours of negative costs and sale in hours of high costs. The first private storage terminals have been installed in Baja California Sur, complementing a solar power plant. Given this experience, I think we will see more energy storage in our country.
Q: What would be CRE’s message for the rest of the industry?
A: The most important thing we need to do is prove why it is necessary to have autonomous regulators. We provide certainty and decisions backed by technical facts. Often, we are seen as a group of bureaucrats that only cost money but the added value is not immediately tangible. We provide an intangible value that banks and investors require and that provides certainty. So, I would extend an invite to the general public to familiarize themselves with the work of the regulators, not only CRE but also CNH, ASEA, COFECE, and IFT. We are all on the same channel and we all provide the value of certainty.

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