On May 15, 2020, the Mexico Electricity Market was rocked to its core by the announcement of a new dispatching and permitting policy for new renewable generation plants. The policy severely curtailed the addition and integration of renewables into the Mexico energy mix, which should result in higher energy prices and an increase in carbon emissions (pollutants) into the environment.
The following will not address the merit or demerits of this policy, but rather highlight that the announcement of the new policy has also highlighted Mexico’s urgent need for significant investment to upgrade and expand its transmission and distribution network to:
- better cope with the electricity demand levels pre-COVID-19 and the expected demand, once the economic recovery begins and operations returns to traditional levels; and
- the need to bring cheap and clean electricity to areas of the country that suffer from high energy prices, for example, Baja
California Sur.
Acclaim Energy has always advocated that increasing generation capacity in Mexico without a proper and comprehensive upgrade and expansion of the transmission and distribution network will not resolve the problems of Mexico’s energy market. In fact, in some cases it may exacerbate some of these problems.
Mexico can always look at what happened in ERCOT (Texas) because of the significant addition of generation (mostly renewable) in West and South Texas. This new generation led to significant congestion in those areas and a reduction in the positive impact renewables could offer the energy market.
Mexico on the other hand is already suffering from this ERCOT malaise, as some areas of the country where significant generation has been added, are experiencing an increase in congestion which has translated into higher energy prices. The question is, what can be done to allocate enough resources to improve the transmission and distribution network?
Given Mexico’s budgetary constraints and possible financial resources being diverted elsewhere, for example the Dos Bocas refinery; a logical step would be to increase transmission and distribution rates to fund these projects. This measure may be highly unpopular amongst end-users at the beginning, especially in the context of current economic times. However, the financial impact borne by end-users as a result of an inadequate transmission and distribution network which leads to power outages and the inability to fully exploit the benefits of cheap and clean renewable energy, is greater than the cost of increased transmission and distribution rates over time.
Are there any other alternatives rather than increasing transmission and distribution charges? Indeed there are, for large users of energy, they can look into ways to increase their reliability of supply and improving the quality of their energy by seeking more self-generation solutions to meet their own demand fully or partially, through energy storage solutions, etc.
These solutions whether in isolation or working in conjunction can provide significant benefits to a company by:
- reducing their dependency on the grid; and
- helping reduce the economic impact of an outage
- saving on energy costs; and
- achieving corporate sustainability objectives
Another way to improve reliability is by implementing Código de Red, which is the set of technical requirements to improve the quality of electricity and the reliability of supply. Implementing Código de Red, will provide some relieve to the economic impact of outages and issues with the grid, due to better electrical equipment at private sector facilities that will protect production, competitiveness and machinery. As such, companies should devise a working plan to implement Código de Red to improve efficiency and reduce the risk of non-compliance fines by the Comisión Reguladora de Energía (CRE).
Mexico’s energy market is a very complicated puzzle, which requires the collaboration of all parties involved (Government, private generators, etc.) to solve the need to balance government policy with economic reality. In this context, businesses need to have internal personnel or outside advisors like Acclaim to consistently keep you informed about the rules, market options, and processes for developing a comprehensive energy strategy to help cope with your current and future energy demand and costs. Especially, since energy is one of the top five expenses for business in Mexico.
