Mexico’s Regulatory Framework
Until recently, Mexico had a limited regulatory framework for private investment. Small generators with their own power supply were allowed to generate electricity either as Independent Power Producers (IPP) or Self-Supply Generators (SSG). However, long-term contracts were the only way they had to sell energy, and their only buyer was the Federal Electricity Commission (CFE).
https://www.latamenergyadvisors.com/what-does-mexicos-energy-reform-really-mean-for-renewables/
Electricity supply of IPPs and SSGs only reached 30% in 2013. This was especially dire since CFE had to rely on them during some of its many generation expansion projects. Moreover, there was little investor confidence.
CFE, the only electricity buyer, was highly indebted and faced several corruption and bribery scandals. This added to the difficulties to contract remote generation due to old and insufficient transmission lines. CFE also faced significant distributions losses attributed to non-technical causes. All of this caused higher electricity prices when compared to many other countries in the region.
The reform was aimed not only to open the market but also to improve efficiency in the electricity and oil & gas sectors, which eventually would bring confidence especially for renewable energy investors.
In 2016 the reform took effect and led to the division of CFE into ten independent companies. Six of the companies oversee generation, one is in charge of transmission, and another one in charge of distribution. The other two work as utility companies for regulated and deregulated customers (known also as basic and qualified users).
The reform also established that all generators, including the all six CFE companies, should compete and sell energy through three mechanisms: long term contracts, wholesale market (spot price), or Power Purchase Agreements (PPAs) (granted through auctions).
https://www.latamenergyadvisors.com/what-does-mexicos-energy-reform-really-mean-for-renewables/
Electricity supply of IPPs and SSGs only reached 30% in 2013. This was especially dire since CFE had to rely on them during some of its many generation expansion projects. Moreover, there was little investor confidence.
CFE, the only electricity buyer, was highly indebted and faced several corruption and bribery scandals. This added to the difficulties to contract remote generation due to old and insufficient transmission lines. CFE also faced significant distributions losses attributed to non-technical causes. All of this caused higher electricity prices when compared to many other countries in the region.
The reform was aimed not only to open the market but also to improve efficiency in the electricity and oil & gas sectors, which eventually would bring confidence especially for renewable energy investors.
In 2016 the reform took effect and led to the division of CFE into ten independent companies. Six of the companies oversee generation, one is in charge of transmission, and another one in charge of distribution. The other two work as utility companies for regulated and deregulated customers (known also as basic and qualified users).
The reform also established that all generators, including the all six CFE companies, should compete and sell energy through three mechanisms: long term contracts, wholesale market (spot price), or Power Purchase Agreements (PPAs) (granted through auctions).
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