For the record: Mexico Energy Report

MEXICO CITY (ICIS)–Below are the most recent updates in Mexico’s energy markets.

CFE reacts to transmission cost controversy

The “discounted” transmission costs for private generators using the network of Mexico’s state-run utility CFE are working to the company’s detriment, CFE’s spokesperson Luis Bravo said in a 23 December press release.

Bravo said that the charges energy regulator CRE sets for private companies are lower than the actual transport costs, which translates into CFE having to subsidise the electricity those firms generate. The CFE is seeking even ground with those competitors, he said.

The spokesperson was responding to recent media reports about an alleged draft proposal in which the utility is asking CRE to eliminate discounts on transmission costs for legacy permits granted to some projects before the 2014 energy reform.

Neither the release nor the related postings CFE uploaded to its social media confirm whether or not the draft proposal, which reportedly also entails the cancellation of self-supply power contracts, actually exists.

The government’s attempts to return dominance of the energy sector to its state-run enterprises has been met with criticism from private sector participants, who have questioned the government’s decisions. The decisions include a policy change to enable granting clean energy certificates (CELs) to renewable energy plants built before the energy reform, including facilities owned by CFE. This move, recently suspended by Mexican courts, was said to have the potential to discourage investment in the sector.

Mexican pipeline operator raises funds

TAG Norte Holding, the parent entity of Mexico’s Los Ramones Norte natural gas pipeline, raised $332m from issuing 20-year senior secured notes in an international private placement.

With the transaction, an existing bank loan facility of TAG Norte Holding was amended to renew the original 12 and 20-year terms of some commercial and development bank loans under said facility, energy infrastructure builder IEnova said in a 16 December filing to the Mexican stock exchange.

TAG Norte Holding is a joint venture between IEnova -a subsidiary of California-based utility Sempra- and investment fund Brookfield Infrastructure.

According to IEnova, the financial transaction shows the confidence and interest international banks and financial institutions continue to have in investing in the Mexican energy sector.

Earlier in the year IEnova was engaged in a contract dispute with the Mexican government over some contract terms of the Sur de Texas-Tuxpan submarine natural gas pipeline. The conflict was successfully resolved after an intense process of negotiation.

The submarine pipeline, which started commercial operations in September and continues to ramp up capacity utilisation, is expected to further open up capacity in the onshore Los Ramones system, which in turn would likely lead to competition and lower natural gas prices for consumers.

CFE’s board okays new Yucatan pipeline

The board of Mexico’s state-run utility CFE unanimously approved the project to build a 16km interconnection between national gas grid Sistrangas and the private Mayakan system serving the Yucatan peninsula.

Miguel Reyes, director of the utility’s subsidiaries CFEnergia and CFE Internacional, presented the project at a board meeting for approval, CFE said in a 17 December release. The project was previously included in the March five-year gas planning document known as Plan Quinquenal published by energy ministry SENER.

Although the launch of the project is highly anticipated and authorities of natural gas system operator CENAGAS have been announcing a forthcoming tender for more than a month, the specifics of the bidding process are still unknown. CENAGAS’ board previously approved the project idea ahead of the initial announcement.

The CENAGAS project is aimed at increasing gas supply to power plants and industry on the gas-starved peninsula. It would receive 542.8m Mexican pesos in federal funds, based on information from the finance ministry’s investment portfolio registry.

Mexico mulls building Queretaro power plant

The Mexican government is evaluating the construction of a combined cycle power plant near the existing CFE-owned 591MW El Sauz facility, which is located in the central state of Queretaro.

The project would require $800m in investments and would have double the capacity of the existing plant, Mexico’s president Andres Manuel Lopez Obrador (AMLO) said in a 20 December visit to the facility.

As the project is still under evaluation, AMLO announced that all the facilities within the El Sauz complex will be upgraded in the meantime.

CFE’s director Manuel Bartlett, who was also present at the visit, said that the start of commercial operations of the Sur de Texas-Tuxpan submarine pipeline has significantly helped to lower operating expenses at El Sauz. CFE went from paying Mexican pesos (Ps) 170/GJ of gas to Ps40-50/GJ since the submarine pipeline came online, which represents between Ps280m to Ps300m in monthly savings for the utility, Bartlett said.

El Sauz is comprised of five units and makes up around 1.5% of the installed effective capacity of the CFE. It supplies 3.9TWh to 2.8m residents of the central area of the country, mainly in the states of Queretaro, Hidalgo and Guanajuato.

AMLO inaugurates geothermal unit

Mexican president Andres Manuel Lopez Obrador (AMLO) opened the so-called unit 18 of Los Azufres geothermal complex, in the western state of Michoacan.

This unit has capacity of 27MW and required investments of $51m. The project also included the construction of the Azufre Switcheo Sur substation, state-run utility CFE said in a 21 December release.

Los Azufres is comprised of 10 generating units with total installed capacity of 252MW. It contributes around 1.6TWh per year to the country’s power grid.

Given that the prospects for CFE to increase its profitability seem positive, the government has decided to restructure the debt of the utility with the aim of strengthening the company’s finances, AMLO said at the opening event.

The goal of these public infrastructure investments is for CFE to increase its share in the country’s power generation market to at least 56% by 2024, although this percentage could end up increasing to 60% or even 70% if the private sector fails to invest or produce energy, according to AMLO.

The president’s remarks come amid attempts on the part of the government to return more control of the energy sector to state-run firms, which in recent weeks have led to some controversial moves. These measures have included regulatory changes and announcements of further potential changes to the current energy market structure.

Tamaulipas wind farm secures loan

Power operator Fideicomiso Thermion Energy CKD I has secured a loan of $32m for the construction and operation of the so-called Delaro wind farm in the Reynosa municipality of Mexico’s northern border state of Tamaulipas.

The North American Development Bank (NADB), Banco Santander, Banco Mercantil del Norte (Banorte) serve as lenders in the loan agreement, in which Denmark’s export credit agency EKF is a guarantor, NADB said in a 19 December release.

The 117MW wind park will be comprised of around 27 wind turbines and a substation and will supply power to industrial and commercial consumers under long-term contracts.

Tamaulipas state has been the site of the installation various wind farms in recent years, including one of the largest in Latin America. NADB has provided financing for five of them, which have a combined generation capacity of 536MW. The state is estimated to have among the highest potential for wind power generation in all of Mexico.

Jalisco authorities oppose power plant

The construction of the so-called La Charreria combined cycle geothermal plant in the Juanacatlan municipality of Mexico’s Jalisco state is facing opposition from local authorities.

Both state and municipal authorities are looking for legal options to halt the project, given that an environmental impact assessment (EIA) from environment ministry SEMARNAT poses uncertainty on the feasibility and the true environmental impacts of the plant, Jalisco governor Enrique Alfaro told a press conference on 17 December.

The state government will file an administrative request so that SEMARNAT reviews the approval it granted to the project’s EIA earlier this year.

Opposition to the project stems mainly from the fact that the plant would be powered by fossil fuels. This reportedly goes against environmental policies of the state government, which seek to prioritise renewable energies, Alfaro said.

The plant would require $759m in investments and would be built by Ciclo Combinado La Charreria, a company owned by Fisterra Energy Mexico.