Energy Alert - National Electric System Development Program (PRODESEN) June 2017

Transcription

1 Energy Alert - National Electric System Development Program (PRODESEN) June 2017

2 Table of Contents What you will find in this EY Energy Alert: 1 National Electric System Investments ( ) 5 2 Power Market Analysis Transmission System Assessment 29 4 EY Conclusions 39 5 EY Professionals 40 Page 2 PRODESEN

3 Executive Summary On June 1, 2017, the Mexico s Ministry of Energy released PRODESEN, the fifteen year infrastructure development Program for the National Electric System (SEN). PRODESEN is a centralized planning program addressing important elements of the national electricity system, including all generation, transmission and distribution requirements. The program details the investment that must be made to develop and modernize the network of the national electricity system, including budgets and consumption statistics for the years 2017 through The program contains details about the capacity of power generation and the types of technologies or energy used to produce and satisfy demand for energy at the national level for the years 2017 through PRODESEN also contains vital statistics for the 2016 calendar year, including energy demand, consumption, regional analysis, fuel mix, installed capacity and pricing data and trends. According PRODESEN, during 2016 CFE provided electric service to 40.8 million customers, of which about 90% are classified as residential and commercial, while 58% of total sales are concentrated in the industrial sector. Page 3 PRODESEN

4 Abbreviations Abbreviation English Spanish PRODESEN National Electric System Development Program Programa de Desarrollo del Sistema Eléctrico Nacional RGD General Distribution Network Red General de Distribución RNT National Transmission Network Red Nacional Transmisión CFE Federal Electricity Commission Comisión Federal de Electricidad SENER Secretary of Energy Secretaria de Energía SEN National Electric System Servicio Eléctrico Nacional SIN National Interconnected System Sistema Interconectado Nacional FIRCO Shared Risk Trust Fideicomiso de Riesgo Compartido LIE Electric Industry Law Ley de la Industria Eléctrica CRE Energy Regulatory Commission Comisión Reguladora de Energía CENACE National Energy Control Center Centro Nacional de Control de Energía PIIRCE Indicative Program for the installation and retirement of Electric Generation Facilities PIB Gross Domestic Product Producto Interno Bruto Programa Indicativo para la Instalación y Retiro de Centrales Eléctricas CENEGAS National Control Center for Natural Gas Centro Nacional de Control de Gas Natural PEF Expenditure Budget of the Federation Presupuesto de Egresos de la Federación LMP Locational Marginal Price Precio Marginal Local CEC Clean Energy Certificates Certificados de Energía Limpia Page 4 PRODESEN

5 National Electric System Investments ( ) Page 5 PRODESEN

6 PRODESEN estimates 110 billion USD investment over the next 15 years for power related infrastructure projects Generation 89,472 Transmission 11,863 Estimated Investment For Electric Sector 110,265 billion USD 81% corresponds to generation projects, 11% to transmission projects, and 8% to distribution projects. Total investment is 9% less than 2016 PRODESEN projection Generation Transmission Distribution Distribution 8,931 *FX rate = 18.5 MXN Page 6 PRODESEN

7 Most of the investments across the value chain are aimed at developing, extending or modernizing the entire electricity network Generation PRODESEN estimates around 29.5 billion USD for the installation of new generation plants within the first 5 years 74% of the investment in PIIRCE projects is aimed towards clean energy projects Transmission 97% of the estimated investment is aimed towards projects that expand the transmission network and increase voltage and compensation support, while the remaining investment is aimed at modernizing the RNT 47% of RNT investment will be directed to transmission lines, while 48% is for transformation and 6% is for compensation projects on the RNT Distribution 83% of the estimated investment is aimed at projects that will expand and modernize the distribution network 13% is directed to Smart Grid projects Compared with PRODESEN 2016, projected investment in distribution sector drops by approximately 30% *FX rate = 18.5 MXN Page 7 PRODESEN

8 Million USD Estimated Investment Evolution By Concept ,000 Estimated Investment by Category ($ Million USD) Concept TOTAL Generation 3,749 9,860 7,835 5,545 2,849 1,901 5,893 5,379 4,695 5,226 3,769 6,698 9,977 7,468 8,626 89,472 Transmission 1/ 1,338 1,474 2,384 2,412 1,939 1, ,863 Distribution ,931 Total 5,816 12,210 11,028 8,792 5,553 3,639 6,865 6,109 5,314 5,842 4,338 7,217 10,472 7,955 9, ,265 1/Includes Expansion and Modernization *FX rate 18.5 MXN 12,000 10,000 8,000 6,000 Distribution Transmission1/ Generation 4,000 2, Page 8 PRODESEN

9 Power Market Analysis 2016 Page 9 PRODESEN

10 Power Generation Statistics for 2016 Dependency on natural gas grows 50% of Mexico s power demand was satisfied with natural gas combined-cycle units Power Generation by CFE Category 55.2% 54.7% CFEs power plants 28.8% 27.8% Independent Production Electric Power Generation by type of Technology for % 9% Combined Cylce Conventional Thermal 16.0% 17.5% Others In 2016, total generation was 319,364 GWh, or 3.2% more than 2015, maintaining the same proportion of conventional (79.7%) and clean technologies (20.3%) 10% 4% 11% 50% Coal Turbogas Hydropower Electricity generation from conventional technologies increased by 3.2% in 2016 as compared to 2015, primarily driven by increased energy output from internal combustion (18.5%) and turbogas (8.2%) units 13% Eolic Others Compared to 2015, generation of electricity from clean sources increased 3%. This was mainly due to a 20% increase in wind and a 33% increase co-generation units Page 10 PRODESEN

11 2016 Installed Capacity Analysis Generation Fleet expands 7.2% to 73,510 MW Key Observations: Coal 7% Turbogas 7% Hydropower 17% Internal Combustion 2% Fossil fuel units comprised 71% of the generation fleet Natural Gas combined cycle units grew by 13.4 % and now represent 37% of installed capacity Wind adds 930 MW (a 33% increase) Conventional Thermoelectric 17% Combined Cylce 38% Wind 5% Nuclear 2% Geothermal, Solar, FIRCO, GD and FR 2% Bioenergy and Efficient Cogeneration 2% Solar doubles, with utility scale increasing from 56 MW to 145 MW, and distributed solar increasing 114% (from 114 MW to 244MW) Hydroelectric equals 12,589 MW, a slight increase over 2015 (0.9%) Efficient co-generation more than doubles (from 583 MW to 1,036 MW) Reliance on internal combustion units increases by 22.5% (from 1186 MW to 1,453 MW) Nuclear capacity at the Mexico s sole Launa station expands 6.5% to 1,608 MW Page 11 PRODESEN

12 Gross Generation GROSS GENERATION BY SOURCE 2016 POWER GENERATION BREAKDOWN (GWh) Modality Total Generation (GWh) Participation (%) % 79.7% 78.3% Conventional Clean 20.3% 21.7% 20.3% 319, , ,463 Sources according to LSPEE 1/ CFE Independent production 88, Self-supply 29, Small production Cogeneration 17, Export 6, Continuous own use 1, Sources according to LIE 2/ CFE - Generator 174, Generator 1, Other FIRCO and GD 3/ Total 4/ 319, / Electricity Act Public Service Electric Power. 2/ Electricity Industry Act. 3/ Shared Risk Trust (FIRCO) and Distributed Generation (DG). 4/ Totals may not add due to rounding. Preliminary 2016 information. Source: Developed by SENER with data from CFE, CRE and Undersecretary of Planning and Energy Transition. Page 12 PRODESEN

13 Energy Balance Mapping in 2016 State by State Analysis PRODESEN analysis indicates that in 2016 the Northeast, South and Central Control regions produced more than 65% of the total generation of electricity in Mexico. More than half of Mexico s electricity was generated in only seven states: Tamaulipas, Veracruz, Coahuila, Guerrero, Nuevo Leone, Chihuahua and Baja CA. In contrast, the seven smallest producing states (Aguascalientes, Morelos, Quintana Roo, Zacatecas, Tlaxcala, Queretaro and CDMX) produced only 3% of Mexico s electricity. Procuction by Regions Electric Energy Balance by State 2016 Northeast, South and Central Control regions 67.6% North, Western, Northwestern and Yucatan regions 25.1% Baja California, Baja CA Sur and Mulegé 8.8% Coefficient = (Generation minus consumption) divided by consumption Production by States Tamaulipas, Veracruz, Coahuila, Guerrero, Nuevo Leone, Chihuahua and Baja California 53.6% Aguascalientes, Morelos, Quintana Roo, Zacatecas, CDMX, Queretaro and Tlaxcala 3.3% Others 56.6% Page 13 PRODESEN

14 Current trends on consumption and demand for electric energy by control zone Control Zones for the electrical energy Consumption (Gigawatt per hour) Control Zones Consumption 2015 Consumption 2016 AGR (%) 1 Maximum Demand Central 53,649 59, ,567 Oriental (South) 46,587 47, ,128 Western 65,220 63, ,351 Northwest 21,642 23, ,350 North 23,734 24, ,258 Northeast 50,114 52, ,710 Peninsular 11,610 12, ,893 SIN Total 272, , ,893 Baja California 13,122 13, ,621 Baja California Sur 2,400 2, Mulegé SEN Total 288, , ,984 1 Annual Growth Rate Central and Northwest control zones exhibit strongest growth, with consumption increasing 10.2% and 8.1%, respectively Consumption in Southern Baja CA zone grew approximately 6% Only one zone experienced decreased consumption (Western, at -2.8%) All other zones exhibit moderate growth ranging from 2.5% to 4.5% Page 14 PRODESEN

15 Analysis shows steady growth of electric demand across entire system (both coincident and instantaneous peaks) Demand Demand On January 1, 2016 at 9:00 pm, the minimum level of demand was observed in the SIN at a level of 18,723 MWh/h. In 2015, the minimum level of demand in the SIN occurred on August 14 th at 9:00 pm, at a level of 18,341 MWh/h. Maximum Coincident Demand Maximum Integrated Demand Maximum Immediate Demand from SIN In 2016, the maximum coincident demand recorded in the SIN occurred on July 8, at 17:00 with a level of 40,893 MWh/h. This was an increase of 2.6% over If we include the power demands from the Baja California systems recorded on the same hour, the peak coincident demand for all of Mexico was 43,448 MWh/h, which is 2% greater than In 2015, the maximum coincident demand recorded in the SIN was on August 14 th, at 17:00 at a level of 39,840 MWh/h. Adding the highest demands recorded on the Baja California systems on the same hour of the year, the peak coincident demand for all of Mexico 42,649 MWh/h. In the summer, the highest levels of demand are recorded in nine regions mainly during high temperatures, when the use of air conditioners is maximized. In the Central region, the peak demand occurs during the winter season primarily driven by increased use of lighting systems. In July 2016, the maximum instantaneous demand and integrated demand for SIN was registered a month earlier than the registered peak in The maximum instantaneous demand reached 41,899 MW, a 2.9% increase over The second highest value occurred in June, at 41,872 MW. In 2015, the maximum instantaneous demand was recorded in August, when the when the maximum instantaneous demand on the system peaked at 40,710 MW. Source: EY with CENACE data Page 15 PRODESEN

16 Peak Demand Analysis by Season The National Center for Energy Control (CENACE) analyzes the effects of seasonal demand variations and diverse operating conditions to project future power demands at different points across the system. The network study will define the RNT planning associated with infrastructure upgrades and the prioritization of network reinforcements. The highest demand in the year is registered in the regions of Northeast, North, Baja Califorina, Baja Califorina Sur y Mulgé. Highest demand in Summer (17:00 hrs.) Minimum demand in Winter (04:00 hrs.) SIN registers the minimum demand of the year. CENACE projects the following scenarios based on the historical behavior registered of the power demand and the operations in the Control Regions. The highest nocturnal demand occurs during June and August in the Northwest, North and Northeast regions. Highest Nocturnal demand in Summer (22:00 hrs.) Medium demand in Winter (15:00 hrs.) There is a slowdown registered in the demand of the northern regions. The highest demand of the year is registered in the Central Control Region. Highest demand during winter (20:00 hrs.) Page 16 PRODESEN

17 Forecasts of power demand and consumption Based on CENACE s planning scenarios, power consumption from the SEN is projected to grow by an average of 2.9% each year between 2017 and This represents a slight decrease compared to last year s projection of 3.4%. The maximum demand of the SIN is expected to increase on average by 3.0% each year between 2017 and This represents a reduction from last year s projection of 3.7%. Between 2016 and 2022, the system peak within SIN is expected to increase 20% and reach 49,000 MW. Expected growth rates of demand and consumption in Baja California systems range from 3.7% to 4%. ANNUAL AVERAGE GROWTH OF THE MAXIMUM INTEGRATED DEMAND BY CONTROL ZONE BC 3.6% NOROESTE 4.7% BCS 5.3% NORTE 3.3% NORESTE 4.2% BC NOROESTE 2.8% 3.3% MLG 3.7% BCS NORTE 3.0% NORESTE 3.1% 3.9% OCCIDENTAL 3.7% CENTRAL 3.1% ORIENTAL 3.6% PENINSUL AR 4.1% SIN: 3.0% OCCIDENTAL 3.3% CENTRAL 2.0% ORIENTAL 2.8% PENINSUL AR 3.8% Page 17 PRODESEN

18 Annual growth rate for peak demand ranges from 3.4% to 4.2% - highest growth rate forecasted for 2017 PEAK DEMAND FORECAST FORMED OF SIN BY SCENARIOS (Megawatt-hour/hour) Year Low AGR 1/ 2 Medium TCA 1/ High AGR 1/ , % 40, % 40, % , % 42, % 42, % , % 43, % 44, % , % 44, % 45, % , % % 47, % , % 47, % 49, % , % 49, % 51, % , % 50, % 53, % , % 51, % 55, % , % 53, % 57, % , % 55, % 59, % , % 56, % 61, % , % 58, % 63, % , % 59, % 65, % , % 61, % 67, % , % 63, % 70, % AAGR 2/ % 3.0% 3.7% 1/ AGR : Annual Growth Rate 2 / AAGR: Average Annual Growth Rate (relative to 2016). Source: Developed by SENER with CENACE data. Page 18 PRODESEN

19 PIIRCE represents a strategic program for retiring inefficient generation Between 2017 and 2031, SENER projects retirements totaling 15,814 MW 137 generation units are slated for retirement Approximately 70% of retirements are conventional thermal units Greatest number of retirements occur between 2018 and 2020 (approximately 5,500 MW) 1,400 MW of coal units slated to retire in the timeframe PIIRCE retirements are coordinated with expected generation additions from Mexico s long term power auctions Page 19 PRODESEN

20 Generation Fleet Transformation between now and 2031 By 2031, installed capacity is projected to reach 113,269 GW, including the 73,510 GW that exist today GW 55% Net Growth vs 61% of PRODESEN GW +56 by 2031 For the next 15 years, 16 GW of capacity are expected to be retired, while 56 GW of capacity will be added Today -16 Existent Existente Retirements Retiros Additions Adiciones Page 20 PRODESEN

21 Breakdown of generation additions between 2017 and 2031 Additional Capacity per Technology ( ) TC, IC, TG, Coal 3% Wind 24% Combined Cylce 34% Efficient Cogeneration 10% Solar and Thermosolar 14% Nuclear 7% Hydropower 3% Geothermal and Bioenergy 5% To satisfy projected demand, an additional 55,840 MW will need to be added to the system 37% of additions are projected to use conventional technologies, while 63% will qualify as clean energy 92% of conventional generation additions will be combined cycle gas units (18,950 MW) Wind and solar account for 38% of additions Nuclear expected to increase by 4,000 MW 50% of generation additions will be concentrated in 6 States: Tamaulipas, Veracruz, Nuevo Leon, Oaxaca, Coahuila and Chihuahua Page 21 PRODESEN

22 Mexico s reserve margins in SIN remain robust throughout the 15 year PRODESEN period, while somewhat lower in the Baja Californian Systems System Reserves in the SIN System Reserves in Baja Systems 37% 34% 35% 31% 55.8% 54.8% 51.3% 27% 24% 24% 25% 24% 23% 23% 23% 23% 22% 22% 46% 39% 43.40% 31.1% 27.2% 23.9% 27% 23% SIBC SIBCS Page 22 PRODESEN

23 Natural Gas Infrastructure Expands with Growing Dependence on Gas in the Power Sector 7 pipeline projects awarded with in-service dates 2017 and more projects out to bid 3 additional projects still under consideration Total additional pipeline length: 5,216 kilometers Total projected investment: $8.1 billion (USD) Multiple projects interconnect to US gas pipeline systems Source: PRODESEN 2017 & SENER s 5-year Strategic Plan Page 23 PRODESEN

24 Snapshot of Mexico s Generation Profile in 2031 Total Capacity per Technology by 2031 In 2031, total installed capacity projected at 113,269 MW, representing a 55% increase over fleet capacity as of 12/31/16 TC, IC, TG, Coal 11% Hydripower 13% Wind 15% Efficient Cogeneration 6% The split between convention and clean resources will be 50/50 In 2031, the fleet is expected to generate 456,683 GWh, of which 54% will be conventional and 46% clean energy Solar 7% Projection assumes 8% growth rate for clean energy capacity Combined Cylce 39% Nuclear 5% Energy derived from wind is projected to grow at an average annual rate of 12% Geothermal and Bioenergy 4% Solar is expected to increase at an average annual rate of 29% Reliance on combined cycle gas units remains constant over the 15 year period (approximately 40%) Page 24 PRODESEN

25 Clean Energy Goals Mexico has very ambitious renewable energy targets. The goal for 2024 is to reach 35% of power generation through clean energy. In 2050, 50% of Mexico s electricity will come from clean energy resources. 22.7% 25.0% 27% 28.3% 30.0% 32% 33.3% 35.0% 36% 35.9% 36.4% 36.8% 37.3% 37.7% 38.2% The goal will be reached through the clean power auctions and the obligation to purchase clean energy certificates. In 2018 and 2019, CECs must equal at least 5% and 5.8% of consumption, respectively Page 25 PRODESEN

26 Long-Term Power Auctions in 2016 will boost clean energy production Observations: Latest auction produces some of the lowest clean energy prices in the world Projects are expected to deliver 14.7 million clean energy certificates (CECs) Projects will cover 39% and 56% of CEC obligations in 2018 and 2019, respectively Page 26 PRODESEN

27 Assignment of assets and contracts for generation Productive enterprises and subsidiaries of the CFE CFE Generation II 33 allocated power plants 30 are operating 3 are in project Represents 12% of the installed capacity in SEN CFE Generation I 43 allocated power plants Represents 11% of the installed capacity in SEN by the end of 2016 Thermoelectric and hydropower predominate CFE Generation III 34 allocated power plants, mobile units and emergency units Represents 12% of the installed capacity in SEN Thermoelectric predominate Page 27 PRODESEN

28 Assignment of assets and contracts for generation Productive enterprises and subsidiaries of the CFE CFE Generation IV 15 allocated power plants Represents 10% of the installed capacity in SEN by the end of 2016 Plus 4 new generation units and other repowering CFE Generation VI 56 allocated power plants (operating) and is developing 7 power generation projects CFE Generation V This company administers contracts with independent generators for combined cycle units and wind projects under construction or in operation Page 28 PRODESEN

29 Transmission and Distribution Assessment Page 29 PRODESEN

30 National Transmission System 2016 Statistics 72,450 = Total capacity of interconnections (SIN), representing a 4% increase over ,208 = Total capacity of interconnections (SEN) 102,891 kilometers = Total length of transmission circuits within SIN 104,133 kilometers = Total length of transmission circuits within SEN 197,435 MVA = Total capacity of substations (SEN) Transmission voltages: 69kV, 85kV, 116kV, 230kV, 138kV & 400kV Page 30 PRODESEN

31 Transmission System Regions in Mexico Transmission and distribution are considered strategic areas and are reserved for the Mexican Government. The transmission grid (RNT) is comprised of 53 regions. 45 of those regions are interconnected by a total of 63 individual connections within the National Interconnected System (SIN). The 8 remaining regions are located on the Baja California Peninsula, which is isolated from the SIN. 7 out of 8 are interconnected with a total of 6 individual connections, leaving the Mulege region in the middle section of Baja California as the sole region without any interconnections. 45 Regions Interconnected (SIN) 7 Non-SIN Interconnections 53 Transmission Regions 62 Connections in SIN 8 Isolated non-sin Regions Source: PRODESEN Page 31 PRODESEN

32 Transmission Interconnections to North and Central America Mexico s Interconnection Commission (SIEPAC) continues planning and collaboration with authorities in the United States and Central America to evaluate feasibility of additional interconnections, expanded coordination and alignment of energy markets Interconnections to 6 different Systems Total Interconnections = 13 California ISO (CAISO) = 2 Southwest Power Pool (SPP) = 3 Texas (ERCOT) = 6 Belize = 1 Guatemala = 1 5 of 13 are emergency interconnections along US border Page 32 PRODESEN

33 National Transmission Development Policy The Expansion and Modernization Program of the RNT aims at increasing the efficiency and reliability of transmission system by reducing congestion, encouraging efficient expansion of generation, and promoting, reliability, continuity and network security. According to the program, the Extension and Modernization Program of the RNT has four primary objectives. OBJECTIVES Interconnect the National Interconnected System (SIN) with isolated systems on the Baja California peninsula Facilitate additional interconnections with the United States and Central America Facilitate the development of large scale renewable resources located far away from load centers Meet the growing domestic demand for electricity Page 33 PRODESEN

34 Transmission Lines Classification of Projects Scheduled Projects Projects under Study Projects under Consideration Projects that are fully evaluated and identified in the planning process, which are ready for execution. New requirements for bidding and construction stage are also included. Projects and works that are identified in the planning process, which are under evaluation and study. Such projects must be deemed to have a net benefit to the SEN in order to be included in later editions of PRODESEN. Project proposals will be subject to evaluation and planning studies in order to identify the benefits for SEN and the work necessary for execution. Projects will have to meet the net benefits test desirable above. Page 34 PRODESEN

35 Transmission System Expansion and Upgrades New RNT and RGD Expansion Projects 1 Objectives Scheduled Projects Projects under Analysis Interconnect the National Interconnected System (SIN) with isolated systems of the Peninsula of Baja California Interconnection of Baja California Sur to the National Interconnected System (SIN) 2 Interconnect the RNT with North America and Central America Interconnection of Baja California and Imperial Irrigation District Review of the infrastructure of the interactions between Mexico - North America and Mexico - Central America to deepen the integration of the electric markets and competitively increase the exchange of electric energy among the participating electric systems, among which are: - Asynchronous Link Back to Back Ciudad Juarez, Mexico - El Paso, Texas - Asynchronous Link Back to Back Mexico - Guatemala - Asynchronous Link Back to Back in Reynosa, Tamaulipas 3 Addressing the needs of supply and demand of electricity - Southeast-Peninsular Interconnection - The Arracal Banco 1 - Supply Oaxaca and Huatulco - Increase of Transmission Capacity between the regions Puebla, Temascal, Coatzacoalcos, Grijalva and Tabasco - Other transmission, conversion and compensation projects - Transmission corridor along the border with the United States of America - Change of tension in the supply network of the City of Tijuana - Applications of the Intelligent Electrical Networks in the Program of Expansion and Modernization Expected Physical Targets Transmission Transformation Compensation 410 projects representing 23,772.5 km-c 256 projects representing 58,099 MVA 259 projects representing 11,930.7 MVAr Page 35 PRODESEN

36 Distribution Sector: Expansion and Modernization Program General Objective Supply power to every end-user, with quality and at competitive prices, and promote greater efficiency of electric service with a high degree of safety and reliability. 1 Objectives Meet the existing supply and demand for electricity distribution Action Item 1: Expand coverage Action Item 2: Extend the RGD Project Formalizing power supply in settlements Install connections and acquire new meters Interconnect Holbox Island to SEN Project Strengthening actions aimed at reducing energy losses Ensure the reliability of the RGD Modernizing measurement systems, billing and collection Projects Feasibility study to assess solar Urban Farms Promote rural electrification Action Line 1: Foster Distributed Generation Action Item 3: Reduce power losses in distribution 2 Extend distribution service Project Install smart meters (AMI) and replace obsolete equipment Strengthen actions to reduce technical losses at the distribution level Projects Integrate small grids Integrating Advanced Metering Infrastructure (AMI) Install SCADA technology and equipment. Install switching and protection equipment (EPROSEC per its acronym in Spanish) Action Line 1: Implement systems with technology that contribute to the development of smart grids (REI) 3 Incorporate Vanguard Technology Systems Page 36 PRODESEN

37 RNT and RDG Modernization WEM s measuring system implementation project Smart Grid project Storage facility with 20MW battery bank in BCS Reason The tax measuring system must have billing quality and include responsibilities regarding installation, verification and maintenance The Smart Grid will allow CFE to comply with the Energy Transition Law, in order to maintain a reliable and secure infrastructure that meets the power demand, economically, efficiently and sustainably Facilitate the incorporation of new technologies that reduce costs in the electric sector The BCS electrical system operates in isolation from the SIN. Generation of electric power has been dependent on importation of fuels, with higher production costs and negative environmental impacts Storage facility will increase operational flexibility and permit integration of renewable sources Coverage 31 states 32 states Baja California Sur Installation Measuring equipment to be installed during Smart Grid equipment to be installed during: 13 EMS/SCADA systems 1,615 modernized substations 28,974 km of optical fiber in 434 links Investment 150 USD millions* during USD millions* during USD millions Benefit/Cost relation Scenario 1: 3.54 Scenario 2: 4.78 *FX rate = 18.5 MXN Page 37 PRODESEN

38 Technical and Non-Technical Line Losses Continue to Improve Power Losses Evolution % 17.0% 16.0% 14.7% 10.8% 10.2% 9.4% 8.4% 7.2% 6.8% 6.6% 6.3% Total of Losses Technicals Non-Technicals Line Loss Analysis Total loss rate for 2016 = 14.7% Total energy lost = 18,539 GWh Technical losses drop to 6.3% Non-technical losses drop to 8.4% 9 point strategy being undertaken to achieve further reduction in losses 9.7 million advanced meters will be deployed ($100M investment) Meter replacement program will take 4 years ( ) Source: PRODESEN 2017 Page 38 PRODESEN

39 Closing Observations The PRODESEN represents an important component of Mexico s historic reforms in the energy sector. It documents the Mexican government s centralized planning of the national power system. Much of the $110 billion of investment in generation, transmission and distribution sectors represent potential investment opportunities for global companies that possess the requisite financial and technical capabilities to construct energy infrastructure. The planning documents show that the majority of investment will be in the generation sector, since more than 80% of the budget is directed towards that sector. The need for new generation is driven by steady growth in power demand, along with Mexico s ambitious transition to clean energy resources. By 2031, 38.2% of Mexico s power generation is expected to come from clean energy resources. While projected demand decreased slightly between 2016 and 2017, electricity consumption is still expected to average 3 percent annually over the next 15 years. EY s analysis shows an imbalance between supply and demand in several regions of Mexico, which will increase dependence on transmission connectivity or installment of new generation closer load centers. Overall, the PRODESEN reveals that the Mexico energy sector remains in a dynamic period of transformation that will provide significant investment opportunities. Page 39 PRODESEN

40 EY Professionals Alfredo Álvarez Partner - Energy Segment Leader EY Mexico Tel: +52 (55) alfredo.alvarez@ey.com Rafael Aguirre Partner - Transaction Advisory Services EY Mexico Tel: +52 (55) rafael.aguirre@mx.ey.com José Salas Partner - Advisory EY Mexico Loic LeGall Executive Director - Power & Utilities EY Mexico Tel: +52 (55) loic.legall@mx.ey.com Paul Roberti Executive Director - Power & Utilities EY Mexico Tel: +52 (55) paul.roberti@mx.ey.com Tel: +52 (55) jose.salas@mx.ey.com Page 40 PRODESEN

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