Marcelino Madrigal
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Transparent Regulation for a Stronger Market

Wed, 02/21/2018 - 17:17

Q: What actions is CRE taking to improve the Mexican electricity market?

A: The wholesale electricity market has diversified. With more companies taking part, it has become liquid, allowing participants to better understand the market’s pricing while becoming a reference for the real price of electric energy in Mexico. Although most of the country’s energy will be covered via the long-term market to ensure supply, the short-term market is important because it provides price signals. The short-term market, under its spot and realtime versions, is gradually maturing and getting stronger, with over 30 participating companies. Industrial players now understand it, although they also point out the need for more information to allow them to better prepare and act more efficiently. Most of the information is already available for the long-term market, but we still have room to improve information sharing in the short-term market. At CRE we are fighting hard to improve the transparency of the information CENACE offers to all participants, as we have the faculty to define what information must be made available. Of course, greater transparency will also attract more participants.

Q: How is CRE handling the transition of responsibilities from the Ministry of Energy to the Commission?

A: The law is very clear and states that the rules for the first, second and third long-term electricity auctions were to be published by the Ministry of Energy, but starting with the fourth, CRE will take over this responsibility seamlessly. We also took over the monitoring of the market, which we started doing at the beginning of 2017. The transfer went so smoothly that no one noticed the change. We are working without delays, thanks in part to our independent monitoring entity, comprised of national and international experts and academics. They have noticed errors from time to time, which have been rapidly corrected, almost automatically.

Overall, the transition has been successful as we have worked very closely with the Ministry of Energy and have heard the industry’s input through all the stages as the rules were crafted. CRE has the capabilities to continue enforcing and managing all market regulations, not only for the long-term auctions.

Q: What role will distributed generation play in the market?

A: Distributed generation was already possible before the reform, but with many limitations. The new regulation takes advantage of the open energy market, allowing power producers to seize opportunities in the market and innovate new business models. During 2016, Mexico counted 29,560 users of distributed generation, from residential to industrial. The number is directly related to the transparency of the information CRE provides and the declining prices of some technologies, especially solar photovoltaics. We expect this sector to grow. This is good, because it means that energy consumers are empowering themselves, finding more and better options to produce the energy they consume or market it elsewhere, which is the objective of a competitive market.

Q: What is the status of the regulation for transmission and distribution projects in Mexico?

A: We understand the need to revamp and expand the transmission and distribution grids in Mexico, and are therefore part of the development of PRODESEN. We provide our opinion to the Ministry of Energy on the priorities and requirements that need to be covered. We also understand that, due to the high funding needs of the projects, the participation of the private sector is a must. We issued a milestone regulation that will determine how private transmission projects to be auctioned will get paid, providing the certainty that private participants require to invest and ensuring that they will have a stable and secure income for the lifetime of the project. In the transmission sector we expect an investment of approximately US$11 billion. Regarding rates, our approach continues to be making sure network costs are recouped with tariffs that have a transparent and lean structure, which is key for a market under development when new players have so many new rules to digest.