1 overview and perspectives on the mexican electricity industry regulatory framework cartagena de...
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Overview and Perspectives on the Mexican Electricity Industry Regulatory
Framework
Cartagena de Indias – Colombia. Octubre 14 & 15 - 2003
8th Anual Association of Power Exchanges Conference (APEx)
Cartagena de Indias – Colombia. Octubre 14 & 15 - 2003
* This document and comments during its presentation do not represent the commission's collegiate official positions.
Marcelino Madrigal, Ph.D. Comisión Reguladora de Energía
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Agenda
• The Mexican Electricity Industry: Overview
• Current Regulatory Framework
• Electricity Supply Adequacy Challenges
• Reform Proposals
• Closing Remarks
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Agenda
• The Mexican Electricity Industry: Overview
• Current Regulatory Framework
• Electricity Supply Adequacy Challenges
• Reform Proposals
• Closing Remarks
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Mexican Electricity Industry: OverviewShort historical overview and the actual
picture• Before 1960’s several private utilities operated
• Nationalization and creation two mayor public utilities• LFC “Luz y Fuerza del Centro”
Supplies Mexico city an metro area• CFE “Comisión Federal de Electricidad”
Supplies the rest of the country
• Until 1992 only central public investment by CFE
• In 1992 allowed private investment trough PPA programs
• The Energy Regulatory Commission is created
• In 1999 the first market reform proposal
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Mexican Electricity Industry: Overview
Generation
Oil/Natural Gas 64.83 %Water 23.24 %Coal 6.44 %Nuclear 3.38 %Others 2.11 %
Gen. capacity shares
Total installed 40,364 MWPeak demand 31,000 MW
Public capacity 73.9 %Priv. under PPA’s 15.7 %Priv. selfsupply, cogen. 10.5 %
Ownership shares
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Mexican Electricity Industry: Overview
Transmission
400 Kv 16,621 Km 230 Kv 24,074 Km 161 Kv 486 Km 69<Kv<161 42,950 Km
Lengths
Mex – USA 944 MW+ Mex – Guatemala 200 MW*Mex - Belice 100 MW
Interconnection cap.
+ Sum of existing t.line ratings* Under construction
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Agenda
• The Mexican Electricity Industry: Overview
• Current Regulatory Framework
• Electricity Supply Adequacy Challenges
• Reform Proposals
• Closing Remarks
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Mexican Electricity Industry
Current regulatory framework on supply adequacy
Public Utilities:
CFE & LFC
Ministry of Energy
IPP’s with PPA
Ministry of FinanceCRE
Trans. TariffsIPP’s Regulation
Generation & Trans.Expansion
Planning
Electricity Tariffs
Public Finances
Investment Decisions
9State exclusive Open to private parties CRE’s competence
Generation Transmission Distribution
CFE & LFCNational
Transmission Grid
Third Parties
Others
Imports
PrivatePrivate
Imp / Exp
Electricity NTG
(conduction serv)
Natural GasExplor. Prod. Process FHS Trans. Stor. Distr.
Trading
(Self., Cogen, IPP)
(conduction serv)
CRE’s role
Current Regulatory Framework…
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Agenda
• The Mexican Electricity Industry: Overview
• Current Regulatory Framework
• Electricity Supply Adequacy Challenges
• Reform Proposals
• Closing Remarks
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Electricity Supply Adequacy Challenges
• The 1992 reforms, seeking for complementary funds to public investment, allowed private participation in the generation side under long-term PPA projects.
• Since 1992 most investment comes under this PPA program
• Subsidies and public finances affect public investment capability
• Cogeneration and self-supply have developedInstalled and Expected Generation Capacity (MW)
0
10000
20000
30000
40000
50000
60000
70000
Total Expected Capacity
Installed Capacity
14,229 MW added from 92-02, from which 58 % is
private investment under long-term PPA agreements.
Public investment and other cogeneration and self
supply projects make the rest.
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Mid Term Supply Adequacy Challenges
• Demand grow is highly correlated to GDP
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Mid Term Supply Adequacy Challenges
• Although not at expected, demand growth is sustaining
System and operative
reserve. Past, and expected
margins
• PPA´s program financial burden is constantly increasing
• Subsidies and public investment problems are still present
• System an operative reserves margins tend to reduce
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Mid Term Supply Adequacy Challenges
• Even tough supply adequacy problems are not foreseen for the next three-four years
• The mayor problem is the cost to government of supply adequacy. Expected debt if supply ensured with PPA´s
3 Billion
30 Billion
2003 2013
Off-balance “differed” public debt to support Long Term Power Purchase Agreements
Includes transmission
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Mid Term Supply Adequacy Challenges
• The dilemma: should government keep doing generation investment primarily under the PPA program or look for alternatives ?
Expected Capacity Additions and Withdrawns (MW)
-10000
-5000
0
5000
10000
15000
20000
25000
30000
2003 2004 2005 2006 2007 2008 2009 2010 2011
Capacity Withdrawns
Projects Pending
Projects to Bid
Under Construction
18,500 additional MW need be installed by the
end of 2011. The dilemma “is there a
more efficient way to cope with supply
adequacy ?”, what type of changes are
required ?
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Agenda
• The Mexican Electricity Industry: Overview
• Current Regulatory Framework
• The Last Ten Years of Generation Expansion
• Supply Adequacy Challenges
• Reform Proposals
• Closing Remarks
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First presidential reform proposal:1999 • Unbundling and sell of current state owned utilities• Implementation of an electricity market:
• Single sytem&market operator and single trans. company• Short term and real time spot market with locational prices• Bilateral contracts and capacity payments using LOLP• CRE and CC to sanction anticompetitive behavior
GeneradoresDespachoeléctrico
Distribuidoresregionales UsuariosTransmisión
COSEN REN
Operadorindependiente delsistema y del mercado
Concesionariodel Sistema Nacionalde Transmisión
Sistema Nacional de Transmisión
Redes de transmisión
no interconectadas
Empresas de comercialización
Usuario calificado
Usuario calificado
Usuario calificado
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Developments from 1999 to 2002• Presidential elections led to new government in 2000
• New political configuration
• More experiences, good and BAD, with markets worldwide
• Reform process slowed down due to an amalgam of factors:
• historical factors, new political configuration• continued debate worldwide on electricity markets• bad experiences easier noticed• debate has strongly polarized
• This led to other ten “minor” (not structural) proposals that range from the two opposite visions: “market” and “full regulation”
• If consensus arrives, this year, future configuration will likely look as second presidential reform proposal, 2002.
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Readiness activities
• From 1999 to 2002
• CFE implemented a virtual market according to guidelines in 1999 proposal
• A new set of computer systems and models has been generating 1400 nodal prices out of the virtual market since 2000
• Hydro generation is dispatched by a mid-term hydro-thermal coordination procedure
• Then, the model contains a day-ahead and real-time bid-based spot markets with financial bilateral contracts
• A settlement system in also in place assuming a particular CFE´s configuration of generation and distribution virtual utilities
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Readiness activities
• From 1999 to 2002•CRE performed analytical and simulation studies predict market power possibilities:
• Initially only HHI indexes of first proposed division of assets according to CFE administrative structure
• Later implemented simulation studies to predict market power
• Study showed the need for bilateral contracting and other hedging mechanisms including load involvement, and the need for market monitoring and oversight
• Other activities: transmission pricing review, cross-border tariffs and congestion management, quality of service regulation, market design and oversight issues.
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Current government proposal
• A proposal in between the two poles: perhaps low risk but also low return (investment wise)
• Main public company with separated accounts in G/T/D
• Large costumers can switch supplier contracting in a long-term bilateral format to share the risk in supply investment in the long run using bilateral contracts, with financial transmission rights mechanisms.
• Short term nodal price signals only to settle imbalances in system operation and buy or sell opportunity energy. Possible additional mechanisms to help complement market signals for long term supply adequacy (adequacy-like mechanisms)
• Real-time pricing, where technically and economically feasible, under investigation for its implementation even before reform: demand as a potential capacity addition mechanism
• Market monitoring, perhaps “communicating” with the additional (adequacy-like) mechanisms
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Reform Proposals and Supply Adequacy
• Possible future big picture: user driven competition, large consumers (2.5GWh/year) select supplier, trough long-term contracts.
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Agenda
• The Mexican Electricity Industry: Overview
• Current Regulatory Framework
• The Last Ten Years of Generation Expansion
• Supply Adequacy Challenges
• Reform Proposals
• Closing Remarks
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Closing Remarks• Supply adequacy (physical) problems are not seen for the next four years; however, the increasing cost of supply adequacy is the main challenge (financial).
• Further relying in present PPA contracts may not be the best approach: increasing government debt, affecting general public balance sheet and other important social investment decisions
• Other important problems related to electricity subsidies and revising the role and attributions of public companies need be fixed beforehand.
• Reform proposals, mainly focused to solve investment for supply adequacy. If agreements come this year it will Likely to be a share of long-term direct private & public investment. Short term and real-time “market” limited to natural adjustments.
• CRE to regulate all other activities: transmission, distribution, public service tariffs and market oversight.
• We expect to keep learning from all your experiences, thanks for the invitation !