REFORM OF ELECTRICITY SECTORS: THE MEXICAN CASE DR. CÉSAR ALEJANDRO HERNÁNDEZ ALVA APRIL 2016

Transcription

1 REFORM OF ELECTRICITY SECTORS: THE MEXICAN CASE DR. CÉSAR ALEJANDRO HERNÁNDEZ ALVA APRIL 2016

2 Vertientes DIAGNOSIS: de la ENERGY Reforma TARIFFS Average CFE tariff was 25% superior to the average tariffs in USA. Without subsidies, the difference was of 73% Average rates, first quarter 2013 (cents/ kwh) % +134% +123% Subsidio Subsidy México Mexico EE.UU. USA % +84% -24% Subsidized Rate Real Rate +73% +25% 50 0 Residential Residencial High Alto Consumption Consumo Comercial Servicios Public Industrial Residencial Agrícola Promedio Comercial Industrial Residential Agriculture Average Services Source: Energy Information Administration EIA (USA) USA Tariffs converted to pesos considering MXP/USD, daily average from the first trimester of

3 Vertientes de DIAGNOSIS: la Reforma CFE CFE s assets are rapidly declining; reaching negative net assets in Net patrimony of CFE (Billion Pesos) Old Finance Rules New Finance Rules Source: CFE Financial Statements; Finance Division 2012 of CFE 3

4 Vertientes de la Reforma OBJECTIVES OF THE ELECTRICITY REFORM Main Objectives: Reduce electricity costs and rates Increase the use of clean energies. Promote investment. Guarantee transparency. Tools to achieve objectives Achievements to date Wholesale Electricity Market, WEM WEM began operations on January 2016 Competitive Industry Structure Clean Energy Certificates Neutral expansion planning of the network, and interconnection optimization The Terms for the Strict Separation of CFE where published on January Creation of CENACE on August First Long Term Auction for the Basic Supply (CECs and Energy) concluded March 31 st 2016 First PRODESEN published on

5 Vertientes PRE-REFORM INDUSTRY de la Reforma STRUCTURE Public Service PIEs CFE Dispatch Self Supply 5

6 Vertientes NEW INDUSTRY de la Reforma STRUCTURE Generation Subsidiary A Short Term Transactions System Control and Electric Market Retailing Unregulated Supply Consumption Qualified Users Subsidiary B Spot Market Basic Service Users Subsidiary C Private Parties Long Term Contracts Auctions Regulated Supply and Contracts and Contracts Transmission Distribution 6

7 CFE S TRANSFORMATION Vertical Unbundling Generation Subsidiaries Horizontal Unbundling 1 Transmission Subsidiary 1 Distribution Subsidiary 1 Subsidiary for Basic Service Supply Subsidiary for PPA Private Participation is allowed 1 Affiliate for CIL 1 Affiliate for Qualified Supply Unbundling for: Promoting Competition. Reducing barriers to entry. Increase operational efficiency and reduce costs. Guaranteeing economical viability of CFE in the long run.

8 Vertientes NEUTRAL de ENERGY la Reforma PLANNING Before POISE Now PRODESEN CFE Proposes SENER Indicative generation (Stakeholders) SENER Authorizes CENACE Transmission CFE Executes CRE Opinion SENER Publishes G T D Market CFE + Regulated Private Participants CFE + Private Participants 8

9 Vertientes POWER MARKET de la INSTRUMENTS Reforma Market Periodicity Market Type Energy and Ancillary Services Capacity Clean Energy Certificates Financial Transmission Rights Daily, Hourly Yearly According to CRE Requirements Yearly (monthly in second stage) Cost Based Unrestricted offers with administered price caps Unrestricted offers Unrestricted offers Auctions and Long Term Contracts CRE will set the requirements for all suppliers to contract forward energy and associated products. Basic Service Retailers may only contract forward through auctions operated by CENACE. All market participants can participate in the auctions. 9

10 SHORT TERM MARKET: Vertientes de la Reforma GENERAL CHARACTERISTICS Objectives Efficient and reliable dispatch of the National Electric System. Correct signals for the location of new electric plants and the use of controllable demand. Features Two-Settlement (Day Ahead and Real Time) Nodal prices (approximately 2500 nodes) Cost-based generation offers (three part) Co-optimization of energy and ancillary services Later development of additional functionality (virtual trading, etc) 10

11 CAPACITY MARKET: Vertientes de la Reforma GENERAL CHARACTERISTICS Objectives Installation of sufficient capacity. Pay the fixed costs not recoverable on the energy market. New investments need long term contracts, but the short term capacity market must pay the right prices. Features Maximum price based on the Cost of New Entry and actual reserves. Verification of capacity based on availability in 100 critical hours, and deliverability verified by CENACE. The final net price subtracts the shortterm income of a reference generator. 11

12 CAPACITY DEFINITION Objectives Pay for capacity when the system needs it. Allow the definition to evolve with the system. Definition Availability in the 100 critical hours of the year: First stage: Maximum demand. Second stage: Minimum reserves. Intermittent Plants: Availability as generated. 12

13 Demand Curve CRE sets the minimum and optimal capacity requirements. CENACE buys capacity in excess of the minimum requirement and charges all LSEs. Combines demand elasticity with fines for non-compliance. Price (USD/MW) Capacity market 2x Reference Generator cost Reference Generator cost CAPACITY MARKET: GENERAL CHARACTERISTICS Minimum capacity level Optimal capacity level Capacity (MW) Ex-post market Generators have absolute certainty about the quantity delivered. The market monitor can implement an obligation to offer capacity without debate about quantity. Availability is monitored during the year. No debate about cost; costs are already sunk.

14 CLEAN ENERGY CERTIFICATES Clean Energy Certificates SENER establishes requirements to use a percentage of clean energy. Suppliers fulfill their requirements by buying Certificates. Income from certificate sales allow clean generators to cover their costs. Clean Energy Certificates Income from Certificates Levelized Cost Energy Price Gas CC Wind Total Cost Net Cost Short Term Market Used to liquidate excesses and deficits. CENACE will collect offers from generators, suppliers and others. Unlimited banking of certificates and 25% deferral of obligations. 14

15 FTRS: Vertientes de la Reforma GENERAL CHARACTERISTICS Objectives Allow market participants to reduce exposure to congestion prices. Assure that generators face correct signals to build and operate plants. Preserve legacy rights. Avoid restricting efficient dispatch. Features Allocation process for Grandfathered FTRs. General auctions for new FTRs. Special FTR mechanism linked to new construction. CENACE will only award FTRs up to the capacity of the network. 15

16 AUCTIONS: Vertientes de la Reforma GENERAL CHARACTERISTICS Long Term Auctions Guarantee a stable cash flow that will cover fixed costs, reducing the risk of generation investment. Products Term Time to Contract Capacity CECs Energy 15 years (Cap / Energy) 20 years (CEC) 3 years (or more) Medium Term Auctions Allow retailers to obtain an energy hedge prior to the short-term markets. Products Term Time to Contract Capacity Energy 3 years 4 months 16

17 MEDIUM TERM AUCTIONS Vertientes de la Reforma OFFER PARAMETERS Time blocks are defined such that generators can offer to take an obligation for baseload, intermediate or peak The same capacity can be offered in more than one block, under the condition that the total sale does not exceed a given quantity Demand (GW) Time Blocks Peak Intermediate Baseload Hours LSE Offers - Energy Generator Offers - Energy Maximum Quantity By Zone Maximum Quantity By Zone By Block By Block Price / Quantity Function Maximum Quantity By Block Price / Quantity Function In Total By Zone By Block 17

18 Vertientes de VESTING la Reforma CONTRACTS OBJETIVES 1) Minimize the costs for Basic Supply Users, in order to reduce rates. 2) Transition mechanisms from a monopoly to the new market based system. 3) Reduce market Power. 4) Tool to operate power plants that are financially viable, acknowledging reasonable costs and incentivizing efficient and proper operation of them, as well as avoiding competitive advantages for CFE that would cause unfair competition. Contracts will supply part of the load of BS, complemented by Long and Medium term auctions. Coverage supplied by Vesting Contacts will be gradually reduced in order to smooth the rate transition from the existing sector structure to the new, market-based organization of the industry. 18

19 DESIGN IS FLEXIBLE IN THE LONG TERM Vertientes FLEXIBILITY de la ONReforma THE DESIGN Characteristics Cost based bids Capacity market Retail competition (Qualified users threshold) Flexibility design Market Monitor can grant exemptions to generators not able to exercise market power If gradual scarcity pricing provides enough revenue, the market transforms in a energy only market. Retail level competition (ERCOT or European Style) or a Latin American Style market, with large shares of regulated costumers 19

20 REFORM OF ELECTRICITY SECTORS: THE MEXICAN CASE DR. CÉSAR ALEJANDRO HERNÁNDEZ ALVA APRIL 2016