Presentation on theme: "1 Overview and Perspectives on the Mexican Electricity Industry Regulatory Framework Cartagena de Indias – Colombia. Octubre 14 & 15 - 2003 8 th Anual."— Presentation transcript:
1 Overview and Perspectives on the Mexican Electricity Industry Regulatory Framework Cartagena de Indias – Colombia. Octubre 14 & th Anual Association of Power Exchanges Conference (APEx) Cartagena de Indias – Colombia. Octubre 14 & * This document and comments during its presentation do not represent the commission's collegiate official positions. Marcelino Madrigal, Ph.D. Comisión Reguladora de Energía
2 Agenda The Mexican Electricity Industry: Overview Current Regulatory Framework Electricity Supply Adequacy Challenges Reform Proposals Closing Remarks
3 Agenda The Mexican Electricity Industry: Overview Current Regulatory Framework Electricity Supply Adequacy Challenges Reform Proposals Closing Remarks
4 Mexican Electricity Industry: Overview Short 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
5 Mexican Electricity Industry: Overview Generation Oil/Natural Gas % Water % Coal 6.44 % Nuclear 3.38 % Others 2.11 % Gen. capacity shares Total installed 40,364 MW Peak demand 31,000 MW Public capacity 73.9 % Priv. under PPA’s 15.7 % Priv. selfsupply, cogen % Ownership shares
6 Mexican Electricity Industry: Overview Transmission 400 Kv 16,621 Km 230 Kv24,074 Km 161 Kv 486 Km 69
7 Agenda The Mexican Electricity Industry: Overview Current Regulatory Framework Electricity Supply Adequacy Challenges Reform Proposals Closing Remarks
8 Mexican Electricity Industry Current regulatory framework on supply adequacy Public Utilities: CFE & LFC Ministry of Energy IPP’s with PPA Ministry of Finance CRE Trans. Tariffs IPP’s Regulation Generation & Trans. Expansion Planning Electricity Tariffs Public Finances Investment Decisions
9 State exclusive Open to private parties CRE’s competence Generation Transmission Distribution CFE & LFC National Transmission Grid Third Parties Others Imports Private Imp / Exp Electricity NTG (conduction serv) Natural Gas Explor. Prod. Process FHSTrans.Stor.Distr. Trading (Self., Cogen, IPP) (conduction serv) CRE’s role Current Regulatory Framework…
10 Agenda The Mexican Electricity Industry: Overview Current Regulatory Framework Electricity Supply Adequacy Challenges Reform Proposals Closing Remarks
11 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 developed 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.
12 Mid Term Supply Adequacy Challenges Demand grow is highly correlated to GDP
13 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
14 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 Off-balance “differed” public debt to support Long Term Power Purchase Agreements Includes transmission
15 Mid Term Supply Adequacy Challenges The dilemma: should government keep doing generation investment primarily under the PPA program or look for alternatives ? 18,500 additional MW need be installed by the end of The dilemma “is there a more efficient way to cope with supply adequacy ?”, what type of changes are required ?
16 Agenda The Mexican Electricity Industry: Overview Current Regulatory Framework The Last Ten Years of Generation Expansion Supply Adequacy Challenges Reform Proposals Closing Remarks
17 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 Generadores Despacho eléctrico Distribuidores regionales Usuarios Transmisión COSENREN Operador independiente del sistema y del mercado Concesionario del Sistema Nacional de Transmisión Sistema Nacional de Transmisión Redes de transmisión no interconectadas Empresas de comercialización Usuario calificado
18 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.
19 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
20 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.
21 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
22 Reform Proposals and Supply Adequacy Possible future big picture: user driven competition, large consumers (2.5GWh/year) select supplier, trough long- term contracts.
23 Agenda The Mexican Electricity Industry: Overview Current Regulatory Framework The Last Ten Years of Generation Expansion Supply Adequacy Challenges Reform Proposals Closing Remarks
24 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 !