How will we see the current changes in five years?
Today we elect 5 years of operation of the Wholesale Electricity Market. In 2015 and 2016 there were very interesting transformation moments in the Mexican electricity sector. Moments of transformation, of opportunities.
The migration to a “normal” market began, where it is no longer necessary for a producer to know the end user and that, due to the demands of his bank, he must force him to sign a PPA.
What is a PPA?
A power purchase agreement. Yes, in those times it was sought in the electricity sector-unlike the mining sector or any other industrial sector-that a project had long-term sold all its capacity to customers. The only raw material that an industrialist had to buy with anticipation of 5, 10, or 15 years was electricity.
Of course, today we all know that in our electricity sector, as in all other sectors, only projects with a competitive cost structure and highly efficient in their operation obtain resources in the capital market and our clients can adapt their purchases to their real and current requirements.
Our environment has normalized, our electric system always dispatches the plants with the lowest marginal cost of generation, benefiting the market in general and favoring the generation of renewable sources or, thanks to the important industrial presence of the country, efficient cogeneration. The quotas allocated to these clean energies also encouraged through clean energy certificates (CELs), have been amply covered.
We recall the transition from the widely held view that only a large combined cycle was competitive. Our climatic conditions and technological developments initially favored wind energy, but 2016 saw the arrival of new solar projects. They saw in those dates the prices fall in USD per kW / h of photovoltaic generation through several projects at a global level:
Palo Alto, USA, 3.6 ctvs
Subasta ENEL, México 3.5 ctvs
Maktoum, Dubai 2.99 ctvs
We managed to finance our projects in the capital market. Important functions such as the creation of independent marketers, participants in the electricity market, previously called generators and qualified suppliers, supported the electric projects to ensure future sales flows for their new investments and created our current dynamic market.
The “electricity exchange” was strengthened under an efficient regulatory framework created by the Energy Regulatory Commission (CRE) and the National Center for Energy Control (CENACE) in conjunction with companies in the sector and consumer representatives. But they also supported the industrial and commercial sector that, having access to the wholesale electricity market, thus reduced the cost of their electricity.
Great investment opportunities were opened in the sector, obviously, in generation, also the conventional one, supported by important projects of gas pipelines and transmission lines. The opening of the sector allowed these important investments to be made by the private sector, freeing public resources to improve our public health and education systems. Important investments came from abroad, companies with experience in liberalized markets in Colombia, South America, but also in Europe, the United States and Asia.
The process of gradual opening that began at the beginning of the century allowed for the strengthening of national companies in the sector and for them to undertake a successful international expansion. Three of our generation companies that were previously part of the CFE now have important subsidiaries throughout our hemisphere and we have the main “Multilatin” of the energy sector. Our climate and the availability of natural gas made us a net exporter of electricity, thus supporting the requirements of our northern neighbors and strengthening the electricity grid and supply in Central America. Large cross-border urban centers, San Diego / Tijuana, Ciudad Juarez / El Paso, Reynosa / Mc Allen are now interconnected with efficient power grids. From a minimum required consumption, equivalent to one megawatt (MW), now electric users with consumption levels higher than 0.1 MW have access to the deregulated market and the prices of this market are a clear indicator for regulated market rates. But the main impact of the access of the industrial sector and information technology (IT) services to an open electricity market with abundant sources of renewable generation was the important increase in the competitiveness of our economy. Large computing centers, the glass industry, metallurgy, all sectors of high energy consumption are bringing significant investments to the country.
We also saw that the regulatory framework is constantly evolving. From the Secretariat of Energy (Sener), through the CRE, the CENACE up to generators and consumers, we have achieved an important representation of the interests of all those involved that guarantee us a fair market. We bring new challenges now: we saw that the definition of what is a dominant player in the electricity sector is much more critical than in telecommunications and internet access. The definition of the maximum quotas of generation in the hands of a player of the market was correct measures before the possibility that with only controlling 15% of the generation the markets can be strongly impacted. The Federal Competition Commission now has a team of sector experts that has been integrated very well to strengthen the control and regulation bodies, guaranteeing free competition. We can conclude that the Wholesale Electricity Market has been successful in securing competitive international electricity rates, promoting, beyond the expected, the use of clean energies and strengthening the national industrial platform that supplies the electricity sector.