The reform seeks to establish a new industrial organization that, allows the productive sector to acquire electricity at competitive prices from a WEM and a legal framework that allows market´s development
Challenges of the sector
towards the future
Source: KPMG analysis with information from
Mexico’s Ministry of Energy (SENER).
Power generation opportunities (WEM)
1. Long-term auctions: this mechanism provides
new and existing generation projects a stable income
for a 15-20 year period. Projects in a pre-construction
or construction phase are entitled to participate
in these auctions, providing certainty over
the return of an investment; designed exclusively
for clean technology plants.
2. Short-term market: This mechanism is designed
to give larger profit margins to cleaner and
more efficient technologies through Location Marginal
Prices (LMP). The Economic Dispatch Model
provides generators with the lowest variable cost
more attractive returns per megawatt produced, and
lower margins to less efficient, fossil powered plants.
Transmission
and distribution
SENER has announced that this year it will
tender two transmission lines with a combined
length of 1,225 km and a total cost of USD$1.44
billion. The projects will be awarded as Public
Private Partnerships contracts (PPP) through international
public tenders.
Both lines should enter into operation in 2019.
The capex costs for the lines will be covered by the
sponsors. The winning bidder will receive annual
payments based on their requested transmission
rate once it is approved by Energy Regulatory Commission
(CRE). In the competitive tender process
the contract will be won award by the bidder that
proposes the minimum annual payment, alongside
with the other technical and economic requirements.
Future development
of the sector
•The short term market began operating in late
January, but there are still few market participants,
given that investors and private companies are on
a wait-and-see attitude. Adequate regulatory implementation
will be needed to create confidence
among new investors.
• Clean Energy Certificates (CEL’s) are expected
to become one of the most traded products on the
market in the long term, and represents an attractive
investment mechanism for clean generators.
These will account for at least 70 million certificates
on the market by 2024.
• As investment in clean technology increases,
least efficient plants will be gradually displaced out
of the market, causing a larger dependence on natural
gas-fired plants during peak hours. At least 54%
of new investment in electric utilities will consist on
clean energy.
• CFE’s planned restructure will be a key factor
to determine the success of the implementation of
the Reform, as the previously state-owned company
will need to degrade its monopolistic power to enable
a competitive environment in the market.
As it has been stated, Energy Reform implementation
brings plenty of opportunities for private investors
to participate in the expansion and modernization
of the Mexican Electricity Sector, in every
link of the industrial chain.