Mexican Electricity Law opens much of the sector up to private participation
Prior to the implementation of the Mexican Electricity Law that went into effect in the early days of August of 2014, Mexico’s electricity sector was strictly vertically integrated, and controlled by the country’s Comision Federal de la Electricidad (CFE).
Although some private entity participation in the sector had been allowed since 1992, mainly in limited generation projects, private sector companies have been prohibited for involving themselves in any activities that are related to the power transmission and distribution. Increased demand for power needed to fuel Mexican growth in manufacturing, and of the economy in general, has motivated Mexican policymakers to invite private capital to make investments that will enable the country to provide its domestic market with a quantity of power that will be sufficient to meet present and future needs.
The Electricity Law of 2014 is a part of the broader Mexican energy reform legislation, which was passed by the Mexican Congress in December of 2013. The new law made provision for greater participation of private companies in the areas of power generation, transmission and distribution, as well as in activities related to the marketing of energy to end users. Under the regime created by the new Mexican Electricity Law, three government agencies will exercise regulatory authority over what will essentially be a wholesale market. The Mexican Secretariat of Energy (SENER) will be the lead entity overseeing the production and distribution of energy, and will set policy, while the Energy Regulation Commission (CRE) will be the sector’s principle regulator. Lastly, a new agency, CENACE, or the National Center of Energy Control, will have authority over the nation’s electrical grid and will manage the wholesale market that the Mexican electricity law has created.
With regard to generation, transmission and distribution and the wholesale market, some key points to take into consideration, as they relate to the Mexican Electricity Law that went into effect in August of 2012, in each of the areas that are newly open private sector participation include:
- Companies that wish to construct, own and operate any power plant with the capability to produce over .5 MW must obtain a permit from the CRE. Permits for such also grant permittees to own, operate and build lines that are capable of delivering power to the nation’s grid.
- Electricity generated by private interests can be delivered and sold to private consumers under contract, or may be sold into the nation’s wholesale market.
- Companies that generate electricity from renewable sources may receive and trade “Clean Energy Certificates.” A system of trade in Clean Energy Certificates has been established as a part of Mexico’s goal of obtaining 35 percent of its electricity from clean sources by 2024.
Transmission and Distribution
Mexico’s Comision Federal de la Electricidad (CFE) will own the lines in place that will transmit and distribute power through the nation’s energy grid, but will allow private generators to sell the energy that passes through their lines to end users, or to sell into the wholesale market.
- Any taxes imposed on the transmission and distribution of energy will be will be regulated under the auspices of the CRE.
- Private companies may participate in financing, installing, maintaining, managing and operating or expanding infrastructure controlled by the CFE through a public bidding process.
Marketing of Power
Any person or entity that wishes to supply (market) power to customers must go through the CRE permitting process.
- Power marketing companies may purchase electricity from the country’s wholesale energy market, or through contractual agreements with specific generators.
- Suppliers of power from the wholesale energy market that wish to sell to customers will be required to participate in the system for obtaining Clean Energy Certificates.
The Mexican Electricity Law that passed in the summer of 2014 resulted in some fundamental changes in the nation’s energy sector. Rather than being part of what once was a vertically integrated regime, the generation and sale of electricity will now occur in a free, open and competitive market. This new dynamic will result in both more supply to meet the country’s growing appetite for energy, as well as provide a reliable and plentiful supply of electricity that will be sold at a price that is beneficial for consumers.