New Power Market & Economic Competitivenes

While most countries who have opened up their public-monopoly electricity markets have taken years to make this transformation, Mexico managed to implement change within just months.

These greater returns are necessary to satisfy a growing national demand of 3.7 % and a growing annual consumption of 3.4% pa.

Mexico also has ambitious goals for cleaner energy and the recent auction reflected this (where the successful companies were made up of a mix of solar and wind power.) In the longer term, the Mexican government is committed to generating 35% of its energy through clean sources. The panel also acknowledged that the new energy industry must involve green power, and added that this must be added to the mix in a way that is competitive and viable for the future of the market.

The fact that there have been strong ties between the regulator and operating and public/political entities has created a multidisciplinary

Chamber Breakfast Conference 30th September

Panelists:

César Emiliano Hernández, Subsecretary, SENER
Marcelino Madrigal, Commissioner, CRE
Enrique Giménez, General Director Mexico, FISTERRA
Eduardo Andrade, General Director Mexico, SACYR
Rosalind Archer, Director of the Geothermal Institute, The University of Auckland, New Zealand
Moderator: Angelica Ruiz, Director Mexico & Latin America, VESTAS

With the preliminary results of the second Mexican power supply auctions announced just days before Energy Day, much of the discussion was based on these outcomes.

Eduardo Andrade of SACYR remarked on how low the price was (approximately 33 USD Mwh) and the positive effect it will have on consumers. SENER Subsecretary César Emiliano Hernández added that this could even boost Mexican GDP as manufacturing is a key driver of the Mexican economy. Fisterra General Director Enrique Giménez raised some concerns that there needs to be a lot of competition in the energy retail market to ensure it is competitive and open. For this to happen, the market does need to be appealing to potential suppliers. Angelica Ruiz from VESTAS questioned panellists on these fears and CRE Commissioner Marcelino Mardigal explained that it is up to companies to decide what return on their investment they need to make their bids successful. Eduardo Andrade of SACYR pointed out that suppliers need be responsible and set the right price. Overall, panellists considered the result to have shown that the auctions can work for Mexico and that renewables can compete with gas.

Rosalind Archer from the University of Auckland stated that wind, solar and geothermal energy potential is strong in Mexico and the country now needs to make sure there are transmission points and the right infrastructure in place for this supply to reach its demand. She also noted that, while the low price for renewable energy is impressive, it is also important to consider base load as Mexico needs reliable and consistent energy provision. In New Zealand, a diverse portfolio of energy sources has been key to overcoming the intermittency of renewable energy sources. The sun is not always shining, droughts occur, and having various options can protect users from these threats. César Emiliano Hernández explained that renewables can also protect users from volatility in the price of gas. He was also positive about the future: We have seen advances in technology dramatically reduce the costs of renewable power generation. In spite of this – as Marcelino Mardigal pointed out – we have not seen prices of storage systems decreasing at the rate of solar panels, a growing need for such batteries should drive this market and we may well see 2-hour batteries participating in spot markets over the following years.

Naturally, there were questions from the audience regarding CFE and what we can expect for the energy commission. Enrique Giménez said CFE will have to adapt and compete in this new, more open market as all other companies do. César Emiliano Hernández added that, through these changes, the government has been able to halve their pension liability. CFE has now been divided into various companies, many that will benefit from the reform as they will be able to buy from the best and cheapest suppliers. The recently separated CFE Generation faces the greatest challenges as they will have to compete against all other certified suppliers from the private sector, many accustomed to competing in various countries. The Subsecretary was still hopeful that the new market can mean opportunity for Mexican businesses too as there are projects of various sizes. The most recent auction has also shown that local companies with support from international investors, can have a lot of success, as shown by Chamber Member Zuma Energía.