CRE - Electricity Governance Initiative

Mexico’s experiences with Wind Energy
Clean Energy, Good Governance and Electricity Regulation
Cape Town, Cape Milner Hotel
Thursday 20th May, 2010
Francisco Xavier Salazar Diez de Sollano
Chairman, Energy Regulatory Commission, Mexico
In order to promote the use of renewable energy, and specially its
wind potential, Mexico has been taking a number of actions that
allowed the country to experience the world’s fastest growth in
wind capacity in 2009.
Taking into account that it was not until the end of 2008 that
Mexico had a specific law to promote renewable energy and that,
up to date, no subsidy has been established, most of this growth is
explained by:
– Wind projects as part of the capacity expansion for public
service (Ministry of Energy mandate implemented by CFE, the
State owned utility);
– Specific regulatory instruments issued by CRE, and
– Coordination between the Ministry, CFE and CRE.
Using the grid as a bank
• In January 2006, CRE issued a second version of a contract
model for the interconnection of intermittent type renewable
energy sources (wind, solar radiation, small hydro, etc) from
self-supply generation permit holders (above 0.5 MW);
• By introducing the idea of using the grid as a bank, this
instrument has become a landmark in the development of
renewable energy in Mexico;
• Regulated topics:
– Transmission services
– Energy exchange and trade.
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
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;
Wheeling charges and other services provided by CFE are paid
based on methodologies approved by the CRE;
Capacity credit is granted based on the monthly average of power
produced during the weekdays system peak period;
Emergency energy for the Government Utility (CFE) is paid at 1.5
times the tariff rate.
A graph…
• It is important to say that prior to 2008, CRE didn’t have an
specific mandate to promote the use of energy from renewable
• The underlying logic was to issue an instrument that would level
the field for these kind of technologies by recognizing the
special characteristics of intermittent sources of renewable
energy like wind.
• Therefore, it implied, up to a certain point, entering in a zone
where regulation was meeting energy policy…
• Nevertheless, the instrument was a success because of its
immediate acceptance by all the relevant actors: Ministry of
Energy, CFE, financing entities and the permit holders.
A transmission open season
• Once regulation was in place there was another problem: how
to solve a coordination problem between different permit
holders and CFE to build transmission capacity.
• The most important wind potential is located in southern Mexico
(Oaxaca), far away from the main consumption areas and with
very limited transmission capacity.
• Building several transmission lines was uneconomic, so there
was a need for someone to step in and coordinate CFE and
permit holders through an open season type of process to
determine the capacity of a new transmission line to be built,
establish how this new capacity would be paid and allocate the
new and existing transmission capacity among the different
As a result more than 2600 MW of transmission capacity were reserved
in both the existing and new transmission lines: around 2000 MW were
allocated with several permit holders while CFE retained the rest for its
own projects.
Some of these projects have
already started operations (at
present, almost 500 MW have
been commissioned) and the
rest are scheduled to start
between this year and the next
More transmission capacity will
be needed in the future. Another
open season conducted by CRE
will probably be needed.
• In a similar way to the contract model for the interconnection of
intermittent type renewable energy sources, there was no
specific legal provision whereby CRE should conduct a process
like this…
• However, CRE considered it was related to its mandate of
promoting the efficient development of the regulated activities.
• Also, it was another way to overcome barriers of entry to new
technologies, something which is also within the typical job
description of a regulator.
• The process was successful once again thanks to the support of
Ministry of Energy, CFE and the permit holders…
New regulation
Now with a clear mandate on the subject, last month CRE issued
the following specific regulation to promote renewable sources of
energy and efficient cogeneration:
A new methodology to calculate wheeling charges for these
technologies based on long run transmission marginal costs and a
postage stamp criteria.
An updated model of contract for the interconnection of these kind
of projects that includes the benefits of the new transmission
A net metering type of contract for low and mid tension
consumers, opening up a 27 million users market that may now
generate their own electricity in site and exchange electricity with
the power sector.
Bear in mind that subsidies are still not available…
The ideal model
• Based in our experience, we believe an ideal institutional
framework to adequately develop renewable energy should
include at least three elements:
– Specific legal provisions (which include goals and
– Specific institutions with clear roles: policy, planning,
regulation and operation, and
– Economic mechanisms to level the field (funds, subsidies,
tariffs, taxes, etc.)
• At the same time, the framework should be designed taking into
account resource availability as well as restrictions imposed by
market structure and public funds.
The basic lesson…
• In 2008 the Mexican Congress passed a new legislation
specifically devoted to promote renewable energy. Secondary
legislation has been issued by the Ministry of Energy and CRE
• This new framework tries to take into account considerations
like the ones previously mentioned but will probably be limited
in the short run by budget restrictions.
• Nevertheless, as the Mexican experience shows, more than the
specific legal framework, the commitment and creativity of
policy makers and regulators will remain as the main driving
force to continue promoting renewable energy…and shaping
institutional framework…
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