CRE publishes final power market regulations

James Fowler

09-Sep-2015

Mexico’s national energy regulator, Comision Reguladora de Energia (CRE), has officially published the regulatory framework for the country’s new power market, achieving an important step towards the goal of opening up of the country’s electricity sector first outlined by President Enrique Pena Nieto on coming to power in 2013.

The regulations, published in the country’s official federal gazette on 8 September and which came into effect the following day, set in stone the timetable for the rolling out of various elements of country’s new wholesale power market.

According to the regulations, the power market will be composed of five new elements, each related to the provision of electricity to consumers on the country’s Sistema Electric Nacional (SEN) grid by both private and public sector companies.

Consumers themselves are to be divided into two separate groups; basic users which will continue to have regulated prices set by CRE at least for the foreseeable future, and qualified users who will be able to buy power separately on either the spot market or through bilateral contracts with suppliers.

From next year onwards consumers with daily demand exceeding 2MW will be able to register as qualified users. This consumption limit will be reduced to 1MW from 2017.

Contract types

The supply of electricity to basic users, classed mainly as residential and small-scale commercial and industrial consumers, will be covered by both short-term and long-term markets.

Contracts for the supply of power on a short-term basis will be launched from January 2016 onwards, and will be split into three different contract types; the sale and purchase of electricity on a day-ahead and hour-ahead basis, and a real-time market, which will be phased in as part of a second stage process beginning in either 2017 or 2018.

The market will be overseen by newly created market regulator CENACE, which will hold auctions for each of the contract types.

Starting this year, CENACE will also hold tenders for contracts to supply electricity on a longer-term basis. Auctions offering contracts for periods of up to 15 years for conventional generation projects and clean energy projects beginning in 2018 will be launched in October this year. Both existing capacity and new projects will be able to participate in the auctions.

From October 2016 onwards, tenders for the supply of electricity on a mid-term basis from the start of the following year will also launched. Contract terms will be offered for periods of three years starting from the following year, according to the regulations.

Both mid- and long-term contracts will be granted for certain geographical load zones, forcing generators to entertain risks associated with transmission system congestion. This policy is intended to encourage power generators to develop future capacity additions in unsaturated areas of the transmission grid, ICIS understands.

A balancing or capacity market will also be launched from October 2016 onwards. Through the model, companies will be paid a contract price to be ready to operate in case of sudden demand surges.

Generators unable to meet their supply commitments will be able to purchase spare, uncommitted capacity made available by other companies.

FTRs and CELs

Beginning this year, financial transmission rights (FTRs) will also be tendered, initially on a yearly basis. Once the second phase of the market launch takes place in 2017, FTRs will be offered for monthly and rest of the year terms, as well as longer periods for up to three years.

FTRs furnish holders with the right to deliver power between designated transmission grid nodes. The holders will be obliged to pay the difference in marginal congestion prices at these designated nodes.

Legacy FTRs for companies with existing grid use commitments will be granted in October this year, with the first tenders set for October 2016.

Contracts will be signed the following month, with the launch of the second stage planned for early 2017.

The final instrument incorporated into the new wholesale market is that of clean energy certificates (CELs). These certificates will be traded between companies to ensure that electricity providers comply with government regulations pertaining to provision of clean energy.

Licenses will be tendered out on a 20 year basis beginning from 2018. Licenses will only be granted to clean energy generation projects connected to the grid through the long-term power contract tenders.

Initially power suppliers will have to ensure they hold CELs for at least 8% of the power provided to consumers. Mexico’s government has set a goal of achieving 33% of the electricity generated on the SEN from clean energy sources such as renewables, hydroelectric plants and nuclear power stations by 2024. These sources provided just over 20% of the electricity consumed on the SEN over July, according to data published by Mexico’s energy ministry SENER.

Gas authorisations

Also on 8 September, CRE published in the federal gazette a resolution detailing the processes for obtaining licenses to participate in the transport and distribution of natural gas.

The applications required for obtaining licenses, which cover transport through pipelines and vehicles, as well as the storage, liquefaction and regasification of natural gas, can be found on the CRE’s website. james.fowler@icis.com

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