Energy reform for the Mexican electricity sector

Speaking at a conference held yesterday at Mexico WindPower, Dr. Enrique Ochoa Reza, Director General of the Mexican Federal Electricity Commission (CFE), gave an analytical and comprehensive explanation of the Energy Reform in Mexico. This reform marks the beginning of an energy transformation in the country and represents the most important change in the electricity sector since the industry was nationalised in 1960.

Dr. Enrique Ochoa Reza pointed out that the current Mexican electricity scenario was characterised by the electricity tariffs consumers had to pay in comparison to tariffs in surrounding areas.

For example, the average cost of electricity generation in Mexico in 2013 was 63% higher than in the neighbouring state of Texas. The average cost in Texas was $407/ MWh, while the cost in Mexico was $662/MWh.

The percentage contribution of each source of energy to total electricity generated in Mexico is as follows:

  • Natural Gas: 47%
  • Fuel Oil: 21%
  • Hydroelectric power: 20%
  • Coal: 4%
  • Wind: 3%
  • Geothermal energy: 2%
  • Other energy sources: 1%

Despite the fact that the participation of renewable energy in the Mexican electricity generation mix grew between 1999 and 2013, the overall contribution has fallen by 4%.

Mexico currently has a renewable energy installed capacity of 5,000 MW. This represents a lower percentage of the Mexican electricity generation mix, given that in 1999, energy production from renewable sources accounted for 29% of the total, with production of 10,371 MW, while in 2013, the percentage fell to 25%, corresponding to production from renewable sources of 15,286 MW.

Looking solely at renewable energies, the breakdown of the participation of the different renewable sources in the total amount of electricity generated from renewable sources in Mexico is as follows:

  • Hydroelectric power: 12,431 MW (81.3%)
  • Wind: 1,844 MW (12.1%)
  • Geothermal energy: 823 MW (5.4%)
  • Biomass: 142 MW (0.9%)
  • Photovoltaic solar power: 37 MW (0.2%)
  • Biogas: 11 MW (0.1%)
  • Renewable Total: 15.288 MW
  • National Electricity System Total: 60,917 MW

It should be highlighted that wind energy accounts for 12.1% of renewable electricity production but just 3% of total installed capacity in Mexico.

The objective of the Energy Reform is to promote and boost renewable energies, implement cleaner energies and protect the environment by means of the following initiatives:

  • With the new electricity model, different companies will be able to join forces to expand and diversify generating capacity in Mexico. Similarly, the transmission grid will be extended to facilitate an increasingly greater presence of renewable energies in the Mexican electricity system (art. 27 and 28 of the Mexican Constitution).
  • New laws to facilitate and make transparent investments in geothermal, solar and wind energy facilities in Mexico (transitory article 18).
  • The Secretary of Energy is to publish a strategy to promote the use of cleaner technologies and fuels, including renewable energies and natural gas (transitory article 18).
  • There will be definition of energy efficiency criteria, clean energy obligations, and contaminating emissions reductions for the energy industry (transitory article 17).

By 2020, Mexico will boast a renewable energy installed capacity of 57,000 MW. Of this total, it is estimated that 20,000 MW will be competitive in the electricity market.

It should not be forgotten that Mexico must avail of its renewable potential if it is to achieve the target of 35% of electricity generation from clean energy sources by 2024. 

Enrique Ochoa Reza (@EnriqueOchoaR) on Twitter. “With this Energy Reform, Mexico opens its doors to renewable energy companies”.

 

Distribution losses represent another problem currently facing Mexico. In 1990, Mexico had distribution losses of 12% compared to the 9% average for OECD countries. In 2013, distribution losses in Mexico stood at 15%, while the average for OECD countries had fallen to 6%. Dr. Enrique Ochoa Reza pointed out that this is another of the challenges facing Mexico.

With respect to natural gas, the Mexican State is developing the extension of the national network of gas pipelines in the form of construction projects equivalent to 28% of the National Gas Pipeline System. The Federal Electricity Commission (CFE) will participate in the extension to the National Gas Pipeline System through the development of routes that increase the redundancy and reliability of the network.

In addition, CFE will create transmission contracts that will serve as an anchor for the construction of new public and/or private infrastructure.

In addition, the Energy Reform will create a new model for electricity with multiple generators, universal access, and independent and efficient operation of transmission and distribution grids in order to achieve:

  • In electricity generation: free competition between public and private companies.
  • In the organisation: The National Energy Control Center will become a decentralised public body responsible for operating the national electricity system and the wholesale electricity market.
  • In transmission and distribution: establishing exclusive State strategy areas, with the option of entering into contracts with private entities.

More information on the Energy Reform can be found at: www.reformaenergetica.gob.mx

Related article: Mexico plans to install 9,000 MW of wind power. The wind energy sector enjoys a tailwind at Mexico WindPower 2014