Transmission, Distribution: Herculean Task Ahead

If one major weak point in Mexico’s clean energy transition and the government’s vow to ensure reliable energy across the country had to be pointed out, many would underline the aging transmission and distribution infrastructure. Nevertheless, a solid improvement-driven approach can drastically change this outlook. MBN’s experts outline where and how steps forward can be taken.

Although the specifics of transmission and distribution can be quite complex, their basic goal is explained rather straightforwardly: integrating a country’s power production in a network and diffusing the resulting electricity across the territory. Mexico’s national system, managed by grid operator CENACE and owned entirely by state utility CFE, is therefore something akin to the backbone for the energy sector. Constant, reliable, efficient and cost-effective access to energy is crucial for a country’s economic competitiveness. A blackout can have severe consequences on social and economic levels. Rebooting a faltering manufacturing line, for instance, can cost millions. Stability and reliability, terms that have become a mantra for Mexico’s public sector, are as essential as they sound. “From my perspective, for Mexico to take advantage of its position in the world, a robust, resilient, efficient and sustainable power grid is necessary,” said Gianni Moreno, International Sales and Marketing Director at Hitachi ABB Power Grids, to MBN. With more intermittent renewable capacity needed in the green energy transition, achieving this stability is a major challenge for Mexico.

Even though investment is often framed around constructing new capacity to meet energy demand, the grid is at least as important. Without a suitable system, all capacity simply goes to waste. “Generation and storage capacity is great but without a reliable transmission and distribution system, it is pretty much just there for show,” stressed Francisco Zurita, Director of Business Intelligence at Northland Power Energía. 

The legal framework of the 2014 Energy Reform established that transmission and distribution remained fully in the hands of CFE, whereas private participation in other areas became possible for the first time in the country’s history. Like every electrical system, CFE’s transmission network involves lines that conduct current at 69kV or more, carrying energy from power producers to substations. From there, the distribution system transports low-voltage electricity to consumers.

Every year, SENER evaluates the status of the National Electricity System (SEN), using information from CENACE to inform its decisions. PRODESEN 2021 – 2035 shows that between 2015 and 2021, SENER instructed CFE’s transmission and distribution arm to construct 144 projects. Recently, CFE announced a tender for 47 projects to strengthen the country’s transmission and distribution network. The total investment required is approximately US$2.35 billion, to be allocated between 2021 and 2025. But despite the constant flow of projects being completed, experts still see the aging system as a weak link in Mexico’s chain because the current level of investment is not enough.

A Ramshackle System

Analysts critique Mexico’s transmission and distribution system for not stretching across its territory. Baja California Sur, for example, remains entirely disconnected from the SEN. Meanwhile, only one heavily saturated transmission line reaches the Yucatan peninsula, with the state of Yucatan itself therefore also isolated from the brunt of Mexico’s power production capacity. “For almost four months in 2020, key transmission ties in the SIN were used above 90 percent of their operation capacity. Moreover, one transmission tie in Yucatan operated above 90 percent of its operational capacity 50 percent of the time in 2020. These happened while summer demand was lower than previous years, obviously impacted by COVID-19, but also when demand began to recover in the last months of the year,” Zurita said.

One major incident was a blackout in December 2020, which left millions of Mexicans without power. Authorities said this was caused by a fire and an unusually high share of intermittent renewable energy generation as the causes, but Zurita thinks that a lack of transmission investment is perhaps an even more relevant factor. “Recent blackouts have demonstrated the degree to which the strengthening of our transmission and distribution system is urgently needed. There has been a serious lack of investment in the last five years.” The fact that this occurred amid a pandemic, marked by a much lower energy demand is even more problematic. “This is a huge problem because this happened when the system was in a low demand season. What would have happened if we had normal demand behavior throughout the year and what will happen when demand starts increasing? ... National demand as it exists right now might be technically served by the system in its current state but data regarding future demand indicates that the system will be overwhelmed,” added Zurita.

A major issue regarding the SEN is the greatly unevenly distributed demand and supply. “Central Mexico is a high demand region but most of our competitive generation comes from the north, northwest and northeastern regions. The journey that this implies puts a lot of stress on our transmission lines,” Zurita says. “A system that depends on a few power generation plants concentrated in one or two regions across the country is vulnerable and doomed by design.”

A Solvable Problem

Even though the problems posed here are solvable, massive investments will be needed to carry Mexico’s transmission and distribution infrastructure into a new era where it will be fit to support a taxing energy transition. Generating more data regarding how the infrastructure functions and applying what has been learned will already enable better operating strategies for CENACE. Moreno believes that adding storage, including Mexico’s existing hydropower capacity, to this framework will bring a wealth of benefits. “In line with the government’s plans in the energy sector, hydroelectric dams offer a great option for energy storage. In talking about the growing trend of battery storage, however, we see it as a new tool for the industry. The more it is used, the better we understand it and can apply it to other situations. Increased renewable integration and dynamic demand can create instability but storage can help remedy this.”

Regardless of whether solutions will be built parallel to the grid or as entirely new transmission lines developed, significantly higher figures of investment will be necessary. Mexico is not alone in this struggle, shows a report from Deloitte and Eurelectric. European grid investments need to be 50 to 70 percent higher than they are today to adequately support the EU’s net-zero ambitions. “While this may seem challenging, the overall societal benefits massively outweigh the economic impact,” the report states.

The grid remains in the hands of the state. The current policy direction chosen by the López Obrador administration discourages further private participation in the energy sector. Strong public-private cooperation appears somewhat unlikely in this environment. Nevertheless, Zurita believes that this will be Mexico’s best bet to ensure the reliability and stability of SEN toward the future. “To achieve this, we need a team effort between the public and private sectors. Despite the industry’s legal framework dictating that transmission and distribution are exclusively in the hands of the state, this does not mean that private parties are banned from contributing to these efforts,” he said.

The framework in which such a collaboration could flourish already exits. “SENER has already approved the financial structures and schemes through which we could fund these types of investments, we just need to implement them. The truth is that there are many companies in the Mexican market that have extensive experience developing transmission infrastructure. To not allow their participation in these efforts would be a tremendous waste of resources,” Zurita concluded.