• New rules
    for the electricity industry
  • Aisha Calderón
    Associate at Mijares, Angoitia, Cortés y Fuentes
  • 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