On 19th May 2016, the British Chamber of Commerce hosted a breakfast-conference “Perspectives on the Electrical Market in Mexico” with panellists Electricity Sub-secretary César Emiliano Hernández Ochoa, CEMEX General Director Roger Gonzalez Lau and CFE Modernization Director Guillermo Turrent Schnaas. Energia a Debate Magazine Director General David Shields acted as moderator with Vestas Latam VP Director General Angélica Ruiz Celis drawing conclusions.
The conference addressed the direction of new wholesale electricity market in Mexico, especially the new CFE (Federal Electricity Commission) which is transitioning into the independent system operator for the entire grid operated by CENACE (National Energy Control Centre) - formerly just a unit within CFE.
Decentralisation of CFE
CFE originally controlled the entire supply chain – from generation to selling – and these areas are now being divided into different independent companies with their own boards. An example of one of these companies is CFEnergía S.A. de C.V. that will commercialize natural gas, fuel oil and diesel on a competitive basis with no more exclusive contracts with CFE. This separation allows much greater access to private sector participants. Panellists spoke of CFE being divided into an expected total of 12 to 13 companies and in 2017 will become more independent still with shares. These changes are welcomed differently by different divisions. For CFEnergía this may be exciting as the market opens up to more competition, however for generation this means a loss of market share as was evident in the previous auction where CFE’s project lost to private bidders.
Performance & Transparency
The question of CFE’s losses and how this seems conflicting to reductions in tariffs was addressed. Many speakers felt that successful negotiation with the union will be vital to making CFE tackle issues of passive labour and make the company as efficient as it needs to be. Panellists also pointed out the need to establish costs to better understand what the Hacienda (the national tax office) is contributing to keep tariffs affordable for lower income users.
There was some concern during Q&A that the new CFE would not be able to maintain and construct the infrastructure needed for the grid (as it traditionally has done). Panellists explained that they expected CFE will be able to grant more contracts to private third parties as they have been doing with gas ducts.
Echoing the Chamber’s previous breakfast-conference “The Energy Reform – Feedback from the Private Sector after the first Quarter of Operation” (21st April, 2016), the lack of Power Purchase Agreements (PPA) was mentioned. Private-sector participants explained that there are still many pieces to put together to including an established clearing house and short term prices.
This panel also agreed that the first round of auctions had been a success despite issues with the system. Next time the process will be properly automated.
Finally, panellists made no secret of the fact that CFE is looking to sell electricity to Guatemala and the US, adding to its 37 million existing clients and becoming international.
CEMEX were one of the first companies to take advantage of self supply 15 years ago. Naturally, the company is CO2 “intense” and has become increasingly restricted due to this reliance on fossil fuels. This trend towards renewables is happening at a global scale and CEMEX Energía has now developed wind farms in Oaxaca and Nuevo Leon. The trend in Mexico was reflected in the last auctions where solar and wind projects were the winners.
One of the questions from the audience was related to the types of renewable energy that will be included in the Mexican energy mix. Speakers explained that two new nuclear plants are currently being considered (however this is a timely process) and that, while offers from geothermal energy companies lost in the last auction, this was due to price but not the type of energy. Overall CFE is at worldwide standards for its energy split, however how they will need to continue to integrate new technologies to make this mix competitive into the future.
Closing the event, David Shields thanked participants and Chamber Director Teresa De Lay.
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