As a result of the constitutional reforms approved late in 2013, and supplemented with the laws and implementing regulations issued in the last couple of years, the Mexican electricity sector has opened up almost entirely to private participation
While in the past, electricity generation
had been limited to the sale to
the Mexican electricity utility Federal
Electricity Commission (CFE) or for
self-supply or supply to the generator’s shareholders,
the current electricity framework allows all
kinds of entities to develop power plants and sell
electricity, power, clean energy certificates and financial
transmission, among others, in the Wholesale
Electricity Market run by the National Power
Control Center (CENACE). The electricity market
is comprised of a spot market, futures market, and
electricity auctions for CFE and other large-scale
users (with mid-term and long-term contracts), as
well as bilateral contracts with large-scale users.
The spot market commenced operations last January
and allows for real-time and day-ahead transactions.
In this platform, participants can sell and
purchase electricity and related products at nodal
prices, which are determined based on CENACE’s
economic dispatch and the generation cost at each
generation region. The calculation of nodal prices is
based on a transparent process (unlike the calculation
of the Short Term Total Cost (CTCP) that was
previously used), which allows knowledge of the
actual production costs. Future markets includes
Power, Wheeling Rights and Clean Energy Certificates; the first two will commence operations in the
second semester of 2016, while the market for clean
energy certificates will begin operations in 2018.
As for public auctions, it is intended to hold at
least one long-term auction each year in order for
CFE to anticipate its consumption needs three years
in advance. The Invitation To Bid (ITB) for the first
long term electricity auction was published in November
2015 (where power stations are expected to
reach COD in 2018). Pre-qualification applications
were submitted by more than 450 bidders and CFE
offered to buy 500 MW of power, 6.3 million MWh of
electricity and 6.3 million clean energy certificates.
Clean energy sources have been given preferential
treatment, being allowed to enter into long-term
electricity contracts (for 15 years) in the public auctions,
as well as the possibility to trade clean energy
certificates (in a scheme similar to Certificates of
Emission Reduction or CERs) in a domestic market
(with 20-year contracts). This is supported by obligations
of large-scale users and CFE to obtain a given
percentage of their electricity out of clean sources.
Changes in CFE
CFE has become a state-owned enterprise that
acts as an equal market participant but with exclusivity
in transmission and distribution, activities
that have remained under state control.
Nonetheless, a special procurement regime has
been created for this entity, allowing it to retain
private contractors to perform construction, operation
and maintenance activities in the sector.
In this context, Mexico’s President announced in
February that the first ITB for the construction
of a large-scale transmission system would be issued
during 2Q of 2016.
CFE is in the process of being unbundled into
several generation divisions and independent divisions
for transmission, distribution supply and
commercial activities, all of which will have to
compete in market conditions, and despite it being
the sole operator of the National Electricity
Grid, CFE has the obligation to grant open access
to its transmission and distribution system to other
participants of the electricity industry.
Mexico’s reforms have created new game rules
for the electricity industry where private investment
had insofar been somehow restricted. This,
along with the existing macroeconomic stability,
strength of domestic market and free trade agreements,
has created new wide-range investment
and business opportunities in Mexico
