• Private investment
    in power sector
  • Mariano Ornelas and Fernando Eraña
    Of Counsel and Partner at SOLCARGO
  • Until 2013, the generation, transmission, distribution and marketing of power was considered “strategic” and thus reserved to the State, through the Comisión Federal de Electricidad (CFE). Private parties were only permitted to participate in the generation in limited number cases and never with the intent of providing utility services. Following amendments to the Federal Constitution, a comprehensive Energy Reform was enacted to permit private investment in the power sector, creating a Wholesale Electricity Market (WEM), which kicked off on January 28th, 2016. The Energy Reform includes a new Electricity Industry Law (Law) effective as of August 12, 2014, and other secondary legislation. The first important change for the power sector is that such industry is no longer considered a strategic activity, thus, private parties are free to participate in power generation and marketing and in any activities that have not been expressly reserved to the State under the amended Article 27 of the Constitution: Nuclear power, power transmission and distribution, and dispatch and operation of the National Electric System.

    Mexico´s power sector now offers a number of short-term business investment opportunities

  • In this regard, we’ve outlined the highlights of the Mexico’s new power sector:

    1. Legal separation of each activity (from generation to retail).
    2. A new competitive Wholesale Electricity Market conducted by the Mexican System Independent Operator, named National Power Control Center (CENACE). The main components, products and characteristics of the WEM may be identified in the following chart:

    3. The Law sets forth the following categories of Wholesale Market participants:
    (I) Generators (>0.5 MW require a permit); (II) Suppliers (Types: Basic, Qualified and for Emergencies); (III) Marketers; and (IV) Qualified Users (>1 MW of aggregate consumption by August 12, 2016).

    4. The electric grid remains under the control of CFE, nevertheless, the Law allows CFE to enter into “association” Private- Public Partnership (PPP), Joint Ventures (JV) among others, with investors in order to build and operate transmission grid and distribution networks.

    5. The Law foresees Grandfather rights, thus, those who held an “old regime” permit for self-supply, cogeneration, small production, independent power production or to import and export power, may continue operating as in the old regime.

    6. The Law sets forth new provisions that regulate the social impact of power projects (new legal regime), specifically in local and indigenous communities.

    7. CFE is transformed into a state productive company, split in subsidiaries: Several power companies one for each area: Transmission, Distribution, Basic Supplier, Qualified Supplier, Fuels and Gas (named “CFEnergia”) and CFE Internacional. None of its assets shall be privatized.
    With these reforms, Mexico’s power sector now offers a number of short-term business investment opportunities, namely:

    1. The first long term power auction called by CENACE, regarding the supply of capacity, power and clean energy certificates for the “Basic Supplier” (CFE), in order to sign Power Purchase Agreements (PPA) with a term of 15 or 20 years. The auction is currently taking place.*

    2. During the second quarter of 2016 an international tender shall take place regarding to the building and operating of a 600 km transmission power line with a value of USD$1.2 billion in order to transport wind and hydroelectric power from the south to the center of Mexico, which shall be conducted by the CFE.

    3. The WEM is open, thus new power transactions are available, such as Generation selling power to Qualified Supplier, Basic Supplier or direct to the WEM; Qualified suppliers marketing power to qualified users; among others.

    4. New services, like energy management for qualified users or energy management for assets.