Industry calls for Mexico retail power competition

OREANDA-NEWS. US power industry insiders said ambitious reforms of the Mexican wholesale electricity sector should succeed in attracting investments and driving down prices, but they encouraged Mexican regulators to focus on introducing retail competition.

With access to abundant US shale gas and a growing economy, Mexico has the "right ingredients" to create an attractive power market for new investors, GDF Suez North America executive vice president Karim Barbir said at the Gulf Coast Power Association meeting in Houston. But investors will be looking for specifics of a planned long-term auction process, improved grid access and addition of a stakeholder process to hash out disputes, he said.

The Mexican energy ministry is racing to establish the entities and rules needed to launch a dramatic reform of the nation's fast-growing electricity market next year. Mexico's plan to introduce a measure of competition between generating, transmission and distribution companies carved from existing resources takes many of its cues from existing competitive power markets.

Regulators also are focusing on introducing more non-fossil fuel resources into the electricity supply. Mexico has a 25pc clean energy target for electric supply procurement by 2018, rising to 35pc in 2024 and 50pc in 2050.

Existing or planned clean energy resources can satisfy 17pc of Mexico's power supply and an added 5pc procurement requirement for qualified service providers will help meet the legal mandate, undersecretary of electricity for the energy ministry Cesar Hernandez told Argus.

A clean energy target is one of the many details still being worked out as the government redefines functions formerly handled by the monopoly utility, the Federal Electricity Commission (CFE).

Mexico has almost 2,000MW of wind generation but only 50MW of solar in operation with more projects in development.

Mexico allowed private companies to begin supplying their own power in the 1990s and many of those private users, such as cement maker Cemex, will play a major role in the reformed marketplace set to open in January. Cemex in February set up a partnership with US-based wind power developer Pattern Energy to add 1GW of renewable capacity by 2020.

Electricity demand in Mexico is expected to grow by 3pc-4pc/yr. Industry accounts for about 58pc of power use and is the focus of the sweeping reform.

"We have been able to keep our promises and to publish all the requirements on time and we hope to do that in the months ahead," Hernandez said.

The reform is expected to attract significant investment in new gas-fired and renewable generation in Mexico as well as transmission and pipeline infrastructure.

The new market will include an independent grid operator and markets for energy, ancillary services, capacity, long-term power purchases, clean energy credits and financial transmission rights. Units of CFE will continue to secure power for residential customers, but companies that use more than 2MW can negotiate their own power purchases. The threshold will drop to 1MW after a year.

At that point, nearly one-third of Mexico's electric demand could be met by private companies, officials said.