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The Mexican Electricity Sector: Regulatory Update and Challenges

The Mexican Electricity Sector: Regulatory Update and Challenges. Association of Power Exchanges APEx 2007 Paris, October 14-16. Carlota Cagigas Energy Regulatory Commission. Index. Current Situation Electricity Infrastructure and Trade Energy Regulatory Challenges Final Remarks. 2.

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The Mexican Electricity Sector: Regulatory Update and Challenges

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  1. The Mexican Electricity Sector: Regulatory Update and Challenges Association of Power Exchanges APEx 2007 Paris, October 14-16 Carlota CagigasEnergy Regulatory Commission

  2. Index Current Situation Electricity Infrastructure and Trade Energy Regulatory Challenges Final Remarks 2

  3. Current Infrastructure Situation 3

  4. Mexican Economy Mexico has a strong and stable economy Source: /1, CONAPO, (2007 estimated); /2, FMI, 2nd Quarter (2007); /3 Banxico, Inegi, Secretariat of Economy, Dic. 2007; /4 Banco de México, Sep 2007 ; /5 Secretariat of Finance and Public Credit; /6 JPMorgan, Dic. 2006 4

  5. Mexican Energy Sector Mexico is a rich energy country. The energy sector contributes with 5% of GDP • Source: Secretariat of Energy, Pemex and BP. Mexico has de-petrolized its exports, but not its economy • Oil exports represent around 14.9% of total exports7 • Oil revenues contributes with one third of theFederal Budget Source: /7 INEGI, Dic, 2006 5

  6. 2007 Highlights of the Mexican Electricity Industry • Installed capacity  51,033 MW • 2007 power generation  220 TWh • National Transmission Grid 759,552 km(>115kV) • Strong presence of state-owned vertically integrated monopolies 6 • Source: Electricity Prospective, Secretariat of Energy, 2006-2015

  7. Mexican Energy Sector Generation Transmission Distribution Final users Own Capital: 69.3% CFE IPP: 15.4% 84.7% 98% 98% 79% LFC 1.7% 2% 21% PEMEX 3.7% Service provided through CFE and LFC transmission lines Self - - supply & Cogen 9.9% 57,600 miles 373,600 miles 29 million The system operator CENACE (National Energy Control Center) is part of CFE Source: www.cfe.gob.mx 7

  8. 2007 National Installed Capacity By the end of July 2007, Mexico had an installed generation capacity of 51,033 MW. Source: Secretariat of Energy; 2007 1/ Includes all IPP capacity 8

  9. Electricty Generation by Source Source: CFE, september 2007 9

  10. Thermal (coal ) Thermal (dual coal-fuel oil) Thermal (fuel oil ) Thermal (fuel oil – nat. gas) Therma l (natural gas) Combined cycle Internal combustion Nuclear Hydraoelectric Geothermal Wind The Mexican Electricity Sector By August of 2007 CFE and LFC had a total combined capacity of 51,033 MW 10

  11. Electricité de France Hermes The Mexican Electricity Sector There are 22 permits for natural gas fired combined cycle plants under the IPP scheme. Of these, 21 permits, with 11,457 MW capacity, are in operation 11

  12. The Mexican Electricity Sector • There are and 431,205 miles of transmission & distribution infrastructure, ( 57,600 miles of transmision lines > 115 kV ) 400 kV 400 kV 230 kV 230 kV 115 kV 115 kV 161 kV, 138 kV, 69 kV, 34.5 kV y 13.8 kV 161 kV, 138 kV, 69 kV, 34.5 kV y 13.8 kV 12

  13. The Mexican Electricity Sector * Old PermitsSource: Energy Regulatory Commission; Aug.2007 13

  14. Electricity Infrastructure and Trade 19

  15. CENACE WSCC ERCOT WECC WSCC WSCC SMD FEA - - Initiative Regional Energy Regional Energy Markets Markets Reform Process Reform Process Vertical Integration Vertical Integration or Moderated or Moderated Guatemala Honduras EL Openness Openness UA El Salvador Nicaragua Costa Rica Panama Commercial Cross-border coordination issues • CFE exports and imports electricity for public service • Private generators are allowed to export and consumers are allowed to import electricity for self consumption. Both activities require a permit issued by the CRE • Future interconnections between Mexico and the United States (WECC and ERCOT) and between Mexico and Central America (SIEPAC), will allow greater interchanges • However, the development of a Regional Market may be an important challenge due to regulatory differences Regulatory Differences Strong Integration Strong Integration National and National and International International Markets Markets (Nodal prices, (Nodal prices, FTR’s FTR’s ) ) 20 CFE can not sign long term contracts except for IPP

  16. Electricity Trade in North America Net Exporter Total Exports 1,291 GWh Total imports: 87 GWh 14,637 37,940 Net Importer 1,037 87 Net Exporter Belice 253 Net Importer Self Sufficient Guatemala 1.0 North America Energy Trade(GWh, 2000) • Source: EIA, Annual Energy Outlook 2006, DOE/EIA-0383(2006) (Washington, DC, December 2001). Secretariat of Energy of Mexico; Electricity Prospective 2007-2015 21

  17. US and Canada Mexico Mexican Energy Sector • The electricity sector in US and Canada is in the process of evolving from a heavily regulated industry, dominated by vertically integrated and locally (or regionally) based utilities, into one with many more companies that produce and market electricity at both the wholesale and retail level • Electricity markets in many parts of North America are evolving from geographically limited markets to broader regional markets through an increasingly interconnected system • Generation, transmission, distribution and supply for public service is reserved to the State. Private generation is allowed under the following categories: cogeneration, self-supply, IPP, small scale production, and generation for export. Imports are also allowed. The demands on the grid have grown significantly by the increased electricity trade that followed the restructuring of the industry in recent years 22

  18. Interconexiones eléctricas Canadá - Estados Unidos Source: Secretariat of Energy; Electricity Prospective 2005-2014 North America Electricity Interconnection Infrastructure • Electric systems in US and Canada are highly interconnected • Close to 100 interconnections points • On the US-Mexico border, interconnections are weak (they were intended to satisfy stand-alone customers, and not regional electric demand) • There are only 19 high voltage interconnections (> 115kV) 23

  19. North America Electricity Interconnection Infrastructure Total Interconnection capacity: 1,336 MW • Interconnections • 5 Permanent interconnections in Baja California WECC 4 x230kV, 1 x115 kV • 5 Non-Permant lines connected with WECC 4 x 230kV, 1 x115 kV • 5 Permanent back to back interconnections with ERCOT (138 kV) • 2 Non-permanent lines connected to ERCOT (138 kV) • 1 Permanent line to Belize (115 kV) • 1 Permanent back to back interconnection to SIEPAC by Guatemala (in construction) (400 kV) Source: Secretariat of Energy; Electricity Prospective 2006-2015 24

  20. SIEPAC Market EP= 31%, Pri= 69% EP= 36%, Pri= 64% EP= 36%, Pri= 64% EP= 31%, Pri= 69% EP= 88%, Pri= 12% EP= 11%, Pri= 89% 25 EP=Public Utilities Installed Capacity Pri= Private Utilites installed Capacity

  21. SIEPAC vs CFE CFE1/ Fuente: CEPAL 2004 – Istmo Centroamericano: Estadísticas del sub-sector eléctrico. 2004 1 Public Service does not include self-supply generators 2 IPP projects 3 National Interconnection Grid 4 Gross Generation 5 Not considering exports 26

  22. TAPACHULA POTENCIA - LOS BRILLANTES. CHICOASEN ANGOSTURA 193 KM TAPACHULA POTENCIA ( ACSR ) ( ACSR ) LOS BRILLANTES NIVELES DE TENSION ZONA TAPACHULA GUATEMALA 30 KM 70 KM 400 KV 230 KV 115 KV CFE and SIEPAC Interconnection 27

  23. Interconexión México – Belice (115 KV) Chixoy Belmopan MollejónPlanta Hidro San Pedro Sula El Cajón Los Brillantes Cd. Guatemala Tegucigalpa Under Construction 15 de Sep. San Salvador Pavana León Solo 115 kV. Red. Nal. Pta. Nicaragua Managua Arenal-Carobicí San José Bayano Fortuna Panamá Central America Interconnection 28

  24. SIEPAC Interconnection Mérida Cancún Nuclear Laguna Verde Interconexión GU-BL A Ciudad de México Angostura Chicoasen Malpaso Belmopan Mollejón Planta Hidro San Pedro Sula Tapachula El Cajón Interconexión GU-MX Los Brillantes Cd. Guatemala Tegucigalpa San Salvador León REFERENCIA Managua Central Hidroeléctrica Arenal-Carobicí Línea SIEPAC Central Térmica San José Subestaciones Capitales Bayano Fortuna Panamá Línea Doble Línea de Interconexión 29

  25. Energy Regulatory Challenges 14

  26. In 1995, Congress enacted the CRE Act, to: • Establish CRE as an independent authority responsible for natural gas and electricity regulation • Provide technical and operational autonomy to render the regulatory framework operative • Enhance its jurisdiction and legal standing • Concentrate regulatory instruments previously scattered among several agencies CRE Act CRE regulates state entities and private participants 15 • Source: Natural Gas Prospective, Secretariat of Energy, 2006-2015

  27. Regulatory Framework First Hand Sales Trans-mission Distri-bution Explora-tion Process-ing Produc-tion Natural Gas Storage Trading Generation Transmission Distribution National National Transmission Grid Transmission CFE & LFC Electricity Grid Private Parties Third Parties Others Others Imports Imp / Exp Open to private participation Reserved activities CRE’s mandate 16 Competencia CRE

  28. Regulatory Framework • Regulated activities require authorization from different Government Agencies: Regulated Activity Authority Generation Private Generation Requires a CRE permit CRE regulates the interconnection contract between generator and CFE (backup, wheeling & surplus energy sale) Expansions require approval from SENER, SHCP, SEMARNAT,and CNA LFC & CFE Public Service generation Transmission Public Service Grid (National Transmission System) Expansions require approval from SENER, SHCP, SEMARNAT and CNA Public Service Distribution network Expansions require approval from SENER, SHCP, SEMARNAT and CNA Distribution State reserved activity 17

  29. Regulated Activity Authority Imports Exports Tariffs Final user tariffs are set by the Ministry of Finance (SHCP) Tariffs are bundled and include generation, transmission, distribution and supply costs Regulatory Framework • Regulated activities require authorization from different Government Agencies: Private entities Requires a CRE permit Includes private interties (Connected or not to the National Transmission Grid) LFC & CFE: for Public Service use Requires authorization by CRE Private Generation Requires a CRE permit Includes private interties (Connected or not to the National Transmission Grid) 18

  30. Final remarks 30

  31. Final Remarks • Despite being an energy rich country, Mexico imports large amounts of natural gas on which 42% of the electricity generation is based • After several years it has become necessary to improve: • Quality: Provide energy supply services with competitive cost indicators, power quality and service continuity standards • Transparency: provide the public electricity sector information such as plant costs, dispatch costs and plants, etc • Equity: Review present rules for electricity dispatch • Competitivity: EstablishRegulatory Accounts in electricity tariffs CRE will play an important role in the definition and supervision of these competitive actions 31

  32. Final Remarks • Several bills aimed at strengthening CRE have been submitted to Congress and last November of 2006. Although they vary in scope and depth, most of them concur in granting CRE the following additional mandates: • Electricity Tariff Determination • Aprove Terms & Conditions for electricity transmission, distribution and supply services • Publish rules for the system operation and dispatch • Surveillance of the System Operation 32

  33. www.cre.gob.mx

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