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Insight

Untangling the Market Rules

Wed, 02/24/2016 - 16:43

The government has finally defined the rules whereby private players can participate in the wholesale electricity market. The Minister of Energy, Pedro Joaquín Coldwell expressed that these would be the foundation that would encourage competitiveness in the electricity industry and where generators would have to offer their best prices, which would translate into lower costs. “The Reform we are implementing has vigorously shaken up Mexico’s old electricity system. Ultimately, we intend to balance the electricity supply,” he expresses. During this lapse, the Ministry of Energy revised over 400 pages of suggestions proposed by companies, organizations, and users. The Law of the Electricity Industry indicates that suppliers are those energy traders or marketers that can sell to end users, whether these are qualified users or consumers in the basic service segment. These players must first submit a request to obtain a permit for supplying electricity from CRE, and the agency will verify the technical, financial, and legal capacity of the companies in order to ensure that they have the capacity to offer the services. It is important to note that marketers can skip this process if they do not sell to end users

In addition, suppliers have to sign long-term electricity coverage contracts for periods established by CRE. Suppliers of basic services have to sign electricity coverage contracts through tenders launched by CENACE. Article 55 of the Law of the Electricity Industry states that, in cases where suppliers of basic services do not fulfill their payment or obligations set out by CENACE, the Ministry of Energy will intervene. Likewise, in case a supplier of qualified services stops providing the agreed services to a qualified user, the Last Resource Supplier will provide electricity to the client in question until a stable supply is once again achieved. There will be a Last Resource Supplier in each geographic division, and in case a determined area does not have a Last Resource Supplier, providers of basic services are obliged to offer their services.

Traders can be specialized in just one type of product, such as CELs or electricity. As a result, it is unnecessary to establish a minimum installed capacity requirement when upholding a contract in the case of non-supplier commercializing companies. According to the Law of the Electricity Industry, supplying electricity or representing exempted generators requires a CRE permit in the Supplier modality, and this organization can impose additional conditions for basic service providers and Last Resource suppliers.

CFE will be able to supply through two modalities. The first includes generation integrated in the Federal Expense Budget and intended to be delivered to basic service users at the lowest price, through electricity coverage contracts. Generated power that is not part of these contracts, as well as additional CFE energy, can be sold to the highest bidder through long-term contracts or in the spot market. Prices in the wholesale market will be determined in each node according to electricity, congestion, and losses, reflecting marginal costs in each node based on a minimal dispatch cost. CENACE will be in charge of calculating local marginal costs, which will be determined by the energy offerings for a specific node during a determined period.