The Electricity Market in Mexico A Recent Market & Regulatory Design for an Era of Low Cost Renewables and Empowered Consumers

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1 The Electricity Market in Mexico A Recent Market & Regulatory Design for an Era of Low Cost Renewables and Empowered Consumers Marcelino Madrigal, Ph.D.* Commissioner Energy Regulatory Commission, Mexico Panel#3 Regulatory Framework and Market Design 5th GO15 & ICER Workshop Meeting October 11, Milan, Italy * The views and opinions expressed in this presentation are strictly of the author/presenter and do not necessarily reflect the position of the Commission (CRE) as a whole or other government agency

2 The Reform and New Industry Structure

3 Mexico s Power Sector Basic Information General Information Installed Capacity by Technology, 2017 Population 126,000,000 GDP 1,236,249 M/USD Generation Installed Capacity GW Electrification Rate 98.58% Surface Power generation (GWh) Average annual 1,964,380 km 2 319,364 growth rate of 297, , , ,162 gross consumption, %

4 New Model: Competition, Empowered Consumers and Clean Energy Targets Generation Open Access Commercialization Final Consumers CFE + Private Transmission Distribution Basic Service Supplier CFE only supplier (Suppliers of Regulated Consumers) Basic User Users Regulated Users CFE Generation (Split into 6 subsidiary) Private Generators CFE + Private (Exclusive domain of the State. The State may contract and partner with private entities to performs certain activities) Non-Suppliers Traders (Pure Commercialization) Qualified Supplier (Suppliers only for Qualified Users) Qualified Users (Requires at least 1 MW demand) Clean energy generation targets Policy Maker Regulation System and Market Operation % % %

5 Design Elements of a Competitive Low Carbon Market Mexico an Example of 2+ Latin America Market Design Wave

6 Wholesale Market Products Energy and Ancillary Services Are based on Locational Marginal Pricing for energy (MWh) and zonal pricing for ancillary services (MW). Capacity potencia The amount of capacity (MW) that a generator can offer in the market is based on its generation availability in the 100 critical hours of the prior year Clean Energy Certificates Permanent titles that certify a given source of power generation as being a clean source. 1 CEC = 1 MWh produced by clean energy Financial Transmission Rights Mechanism to hedge exposure to the price differences that may exist between two nodes due to congestion in the transmission network. 1 FTR =1 MWh for every hour in which the FTR is in effect. 6

7 Market Design: Different Markets and Products I. Short Term Energy & Reserve Markets II. Short Term Capacity Market III. Medium Term Energy Markets IV. Clean Energy Certificates Market V. Long-term markets Nodal, co-optimized energy and reserve To balance and needs principally acquired in a long-term market Procure 3-year energy contracts One organized, one bulleting (voluntary) at the certificated system Purchase of 15+ year contracts for Energy, Capacity, and Clean Energy Certificates Day Ahead & Real Time Market Capacity Designed as availability in Critical Hours Financial Transmission Rights Long-term auctions Financial Transmission Rights Started in January, 2016 Started in March, 2017 Last results August, 2017 Started in February, 2018 Started 4 th Auction,

8 Long-Term Auctions Accelerating Clean Energy Deployment

9 Long Term Auctions are Accelerating Clean Energy Integration at World Record Low Prices USD/MWh+CEL* Resume of resulting prices 1 ra 2 da 3 ra BC TX Solar Son Chih Combined Cycle Hydro Wind BCS Coah NL Solar Wind kusd/mw-yr** Geothermal Tamps Turbogas Geothermal Combined Cycle Ags Gto SLP Tlax Yuc Turbogas Querétaro Jal Michoacán Mor Oax Pue USD/CEL Hydro diferent companies Companies from more than 11 countries, including Mexico 8.9 billion USD of investment in the coming years Increase of 7.6 GW to the current generation capacity in Mexico Number of offers Offers Winner Offers Elaboración propia. *Promedio ponderado de ofertas de paquetes que únicamente ofrecieron Energía y CELs. ** El dato de geotérmica corresponde a 3ª subasta de Largo Plazo, PWc, Tipo de cambio (MX/USD) utilizado por SLP: 1ra , 2da 20.17, 3ra

10 Increasing the Number of Participants in the Market 1 st Auction / 11 companies 2 nd Auction / 24 companies 3 rt Auction / 8 companies & (Compañía de Electricidad Los Ramones S.A.P.I. de C.V.)

11 with Lower Scales that Point to the Decentralization of Generation Solar Wind <30 30 y 55 >55 y 102 >102 y 200 >200 y 300 > y 55 >55 y 102 >102 y 200 >200 y 300 <30 Elaboración propia con datos publicados por Cenace, incluye únicamente centrales nuevas Solar Wind Geothermal 11

12 Distributed Generation Empowering Consumers and Increasingly Adding Needed Capacity in a Growing Demand Environment

13 Solar Radiation in Mexico Amongst the Best in the World Mexico has a significant, constant and highly predictable renewable potential: a medium annual irradiation of approximately 5.5 kwh/m2 per day Average solar irradiance range in selected countries Annual average solar radiation Sources: SOLARGIS. Mexico Energy Outlook 2016, IEA Solar Energy Potential in Mexico s Northern Borders States, 2012, Wilson Center World Energy Resources: Solar, 2013, WEC 13

14 DG yet sill limited participation in the mix 0.02% of energy demand in 2017 but growing exponentially Contracts Participation by Sector Commercial 20% Capacity Commercial 18% Access formats: Net Metering Net Billing Wholesale Forecast Capacity (MW) Forecast Contracts Forecast ,594 MW Residential 74% Small industry 5% Other 1% Residential 40% Small industry 41% Others 1% Contracts Scales becoming attractive both residential, commercial and small industrial consumers Installed Capacity(MW) Contracts Last year growth % 390 MW 14

15 Perspectives Demand Response, Distributed Energy Market & Storage

16 We working on a comprehensive storage regulation Market potential Applications with best potential Sample projects Renewables Integration 386 MW (17%) End User / Utility Customer 570 MW (24%) Electric Energy Supply 545 MW (23%) Ancillary Services 201 MW (9%) 475 MW 399 MW 228 MW 190 MW 182 MW BCS Renewable Integration 10MW; $8M; IRR 23% BCS Arbitrage 10MW; $25M; IRR 9% Grid System 631 MW (27%) Transmission Congestion Relief Electric Supply Capacity Demand Charge Management Time-of-use (TOU) Energy Cost Management Wind Generation Grid Integration, short duration Yucatán Peak Shaving 30MW; $70M; IRR 9% 5 categories 17 different applications 10 years ahead market size: 2,333 MW 3,841 MWh 1,419 millions of USD Source: Feasibility Study for Large Scale Energy Storage Systems in Brazil, Colombia and Mexico. Project done by Quanta Technology for ISA, under USTDA support

17 Writing rules for demand response at retail and wholesale levels Market Bases (8 Manuals) Characteristics: Active is registered in WEM CC directly modeled Specification Measurement Telemetry Characteristics: Ø Users Offer (BS) Ø Indirectly Modeled Ø Consideration established by the CRE, based on fee Still pending: Demand Response Manual Monitor & Approve Lack of Capacity Wholesale Electricity Market Emergency protocol Demand Response Resource Reliability Auctions Guaranteed REL Is involved in: DAM RTM CBM HAM -Energy -Capacity -Ancillary Services Not guaranteed DR by Event Reduction in consumption in price increases and 100hrs.critical. Basic Service Demand Response Service 1 Schedulable DR Savings when programming consumption reductions is during peak hours. 3 Steady DR Economic savings by reducing monthly consumption. 2 Administrative Provisions of General Character 3 Controllable Demand Programs Electronic Platform Contract Models Events defined by Distributed NodeP

18 and writing a regulatory framework for smart contracts for collective DG Some possible schemes One Contract for different users who share the same power plant with capacity below 0.5 MW in distributed generation, removing the limits of property 1 owner (individual or corporate) Different users in different locations and a power plant in location of one user into the same system 1 power plant Different users Different users and a power plant in same location o Different owners Different users in different locations and the power plant in a different location regard of the users but in the same system 18

19 @CRE_Mexico