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Mexico’s initiatives with respect to
     Renewable Energies


               Alejandro Peraza-García
  Director General of Electricity and Renewable Energy
            Energy Regulatory Commission




                                                         1
Mexico’s Industrial Organization
             in the Electricity Sector
•   Public service is a legal monopoly granted to CFE (State owned utility).

•   Private sector is allowed to participate in what is considered not to be
    public service:
    – Self-supply;
    – Cogeneration;
    – Small production;
    – IPP;
    – Exports, and
    – Imports.

•   Since 1994, CRE regulates the interaction between CFE and the
    private agents.
                                                                       2
What does CRE regulate?

•   Generation, exports and imports by the private sector (market entry
    and exit):
     – Permits.

•   Capacity and electricity purchased by CFE:
     – Price determination mechanisms. No subsidies involved

•   Transmission and interconnection services offered by CFE:
     – Issuance of:
         • Contract models;
         • Wheeling rates;
         • Interconnection rules.

                                                                      3
Evolution of Renewable Energy
           (RE) regulation in Mexico
• Prior to 2008, all RE regulation was issued without the Commission
  having explicit powers on the subject.

• All instruments developed by CRE were based on its powers to
  regulate the electricity sector and were mainly directed to RE self-
  supply projects.

• CRE interpreted that its mandate to promote economic efficiency and
  competition within the sector implied the issuance of regulation meant
  to correct market failures such as:
   – Barriers of entry to RE technologies and
   – Externalities.

                                                                    4
Specific regulatory powers on
           Renewable Energy (RE)
•   In 2008, Congress approved the Law for the Use of Renewable
    Energies and the Financing of the Energy Transition*, which is
    aimed at promoting the diversification of the energy sources used to
    generate electricity through the use of RE.

•   According to the Law, CRE has an specific mandate to promote
    clean energies through the following:
     – Issuance of methodologies to estimate:
         • Energy and capacity payments for RE generators;
         • Contribution of capacity to the system;
         • Efficient cogeneration.
     – Revision of dispatching rules.

               *   Ley para el Aprovechamiento de las Energías Renovables y el
                   Financiamiento de la Transición Energética or LAERFTE         5
Renewable Energy:
          Main regulatory instruments
•   Through self supply schemes:
     1. Energy bank (> 0.5 MW);
     2. Postage stamp minimum wheeling charges;
     3. net metering (low or mid tension);
     4. Coordination of open seasons for new transmission lines;
     5. Efficient cogeneration criteria.


•   Using CFE monopsony condition:
     - Energy and capacity payments for RE private generators
        (maximum tariffs and auction mechanisms).



                                                                   6
1. “Energy bank”: Basic
           characteristics
•   Energy is delivered to the grid whenever it is generated;
•   Consumption doesn’t need to match generation; energy can be
    “accumulated” in the grid and delivered in a different period of time;
•   Energy exchange takes place at the prevailing tariff rate in the
    interconnection and load points;
•   At the end of the year, the permit holder can sell the remaining
    “accumulated” energy at 85% of the marginal cost of the system;
•   Capacity credit is granted based on the monthly average of power
    produced during the weekdays system peak period;
•   Emergency energy sold to CFE is paid at 1.5 times the tariff rate.



                                                                       7
1. A graph…

                 Base       Intermediate   Peak



                                                  Generating
  Actual                                           capacity
generation



Electricity
 demand




                  Energy        Energy
                  surplus       deficit




                                                          8
2. Special wheeling rates for RE
•   Traditional methodology to calculate transmission rates is based on
    energy flows and location of both generation and loads: transmission
    rates are higher when it goes with the flow than otherwise.
•   Since this logic is not applicable to RE, because generation can not
    be located at will, CRE issued postage stamp type rates based on
    minimum variable costs.
•   Rates are paid according to the tension levels used and are adjusted
    by inflation in a monthly basis and the values for January 2012 are:
     - High tension      0.03441 MX$/kWh
     - Medium tension 0.03441 MX$/kWh
     - Low tension       0.06882 MX$/kWh
•   Rates do not apply for new infrastructure.

                                                                     9
3. Small and medium scale net
          metering
•   Typical 1:1 net metering mechanism for users which consume at
    the generation point (no transmission).
•   Small scale:
    – Interconnection at low tension (below 1 kV).
    – Residential users, up to 10 kW.
    – Commercial users, up to 30 kW.
•   Medium scale:
    – Interconnection at medium tension (below 69 kV).
    – All users, up to 500 kW.



                                                                10
4. Open seasons for
             transmission lines
•   New infrastructure to transmit electricity from places where RE is
    located, has normally faced coordination problems between permit
    holders and CFE (building several transmission lines is uneconomic).
•   To avoid these coordination problems, CRE has conducted open
    season processes through which is determined the capacity of a new
    transmission line to be built; they establish how this new capacity will be
    paid, and allocate transmission capacity among the different users.
•   In 2008, over 2600 MW of transmission capacity was built through this
    process (2000 MW for private projects).
•   CRE has recently organized 3 new open seasons for wind projects
    (Oaxaca, Tamaulipas and Baja California). It is expected that 5000 MW
    of transmission infrastructure shall be built

                                                                        11
5. Other regulation on
         renewables
•   Dispatching rules

•   Interconnection rules

•   Capacity credit

•   Renewable energy pricing

•   Net metering for low and mid tension consumers

•   Cogeneration


                                                     12
Thank you

www.cre.gob.mx




                 13

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2012 Reenergize the Americas 4A: Alejando Peraza Garcia

  • 1. Mexico’s initiatives with respect to Renewable Energies Alejandro Peraza-García Director General of Electricity and Renewable Energy Energy Regulatory Commission 1
  • 2. Mexico’s Industrial Organization in the Electricity Sector • Public service is a legal monopoly granted to CFE (State owned utility). • Private sector is allowed to participate in what is considered not to be public service: – Self-supply; – Cogeneration; – Small production; – IPP; – Exports, and – Imports. • Since 1994, CRE regulates the interaction between CFE and the private agents. 2
  • 3. What does CRE regulate? • Generation, exports and imports by the private sector (market entry and exit): – Permits. • Capacity and electricity purchased by CFE: – Price determination mechanisms. No subsidies involved • Transmission and interconnection services offered by CFE: – Issuance of: • Contract models; • Wheeling rates; • Interconnection rules. 3
  • 4. Evolution of Renewable Energy (RE) regulation in Mexico • Prior to 2008, all RE regulation was issued without the Commission having explicit powers on the subject. • All instruments developed by CRE were based on its powers to regulate the electricity sector and were mainly directed to RE self- supply projects. • CRE interpreted that its mandate to promote economic efficiency and competition within the sector implied the issuance of regulation meant to correct market failures such as: – Barriers of entry to RE technologies and – Externalities. 4
  • 5. Specific regulatory powers on Renewable Energy (RE) • In 2008, Congress approved the Law for the Use of Renewable Energies and the Financing of the Energy Transition*, which is aimed at promoting the diversification of the energy sources used to generate electricity through the use of RE. • According to the Law, CRE has an specific mandate to promote clean energies through the following: – Issuance of methodologies to estimate: • Energy and capacity payments for RE generators; • Contribution of capacity to the system; • Efficient cogeneration. – Revision of dispatching rules. * Ley para el Aprovechamiento de las Energías Renovables y el Financiamiento de la Transición Energética or LAERFTE 5
  • 6. Renewable Energy: Main regulatory instruments • Through self supply schemes: 1. Energy bank (> 0.5 MW); 2. Postage stamp minimum wheeling charges; 3. net metering (low or mid tension); 4. Coordination of open seasons for new transmission lines; 5. Efficient cogeneration criteria. • Using CFE monopsony condition: - Energy and capacity payments for RE private generators (maximum tariffs and auction mechanisms). 6
  • 7. 1. “Energy bank”: Basic characteristics • Energy is delivered to the grid whenever it is generated; • Consumption doesn’t need to match generation; energy can be “accumulated” in the grid and delivered in a different period of time; • Energy exchange takes place at the prevailing tariff rate in the interconnection and load points; • At the end of the year, the permit holder can sell the remaining “accumulated” energy at 85% of the marginal cost of the system; • Capacity credit is granted based on the monthly average of power produced during the weekdays system peak period; • Emergency energy sold to CFE is paid at 1.5 times the tariff rate. 7
  • 8. 1. A graph… Base Intermediate Peak Generating Actual capacity generation Electricity demand Energy Energy surplus deficit 8
  • 9. 2. Special wheeling rates for RE • Traditional methodology to calculate transmission rates is based on energy flows and location of both generation and loads: transmission rates are higher when it goes with the flow than otherwise. • Since this logic is not applicable to RE, because generation can not be located at will, CRE issued postage stamp type rates based on minimum variable costs. • Rates are paid according to the tension levels used and are adjusted by inflation in a monthly basis and the values for January 2012 are: - High tension 0.03441 MX$/kWh - Medium tension 0.03441 MX$/kWh - Low tension 0.06882 MX$/kWh • Rates do not apply for new infrastructure. 9
  • 10. 3. Small and medium scale net metering • Typical 1:1 net metering mechanism for users which consume at the generation point (no transmission). • Small scale: – Interconnection at low tension (below 1 kV). – Residential users, up to 10 kW. – Commercial users, up to 30 kW. • Medium scale: – Interconnection at medium tension (below 69 kV). – All users, up to 500 kW. 10
  • 11. 4. Open seasons for transmission lines • New infrastructure to transmit electricity from places where RE is located, has normally faced coordination problems between permit holders and CFE (building several transmission lines is uneconomic). • To avoid these coordination problems, CRE has conducted open season processes through which is determined the capacity of a new transmission line to be built; they establish how this new capacity will be paid, and allocate transmission capacity among the different users. • In 2008, over 2600 MW of transmission capacity was built through this process (2000 MW for private projects). • CRE has recently organized 3 new open seasons for wind projects (Oaxaca, Tamaulipas and Baja California). It is expected that 5000 MW of transmission infrastructure shall be built 11
  • 12. 5. Other regulation on renewables • Dispatching rules • Interconnection rules • Capacity credit • Renewable energy pricing • Net metering for low and mid tension consumers • Cogeneration 12