POWER September 2017 - 6

SPEAKING OF POWER
Power Market Deregulation
Transforms Mexico
Aaron Larson
M
exico's energy reform, which began
in 2013, has opened up key
parts of the country's electricity
sector to new market participants, foreign
investors, and innovative technology. Prior
to the reform, Mexico operated under
a traditional, vertically integrated model,
with the state-owned Comisión Federal de
Electricidad (CFE) responsible for all power
supply functions from generation to distribution.
But the new organization utilizes
a model similar to other wholesale electricity
markets used around the world.
The International Energy Agency (IEA)
published a report last year, as part of its
World Energy Outlook series, predicting
that Mexico's energy reform would substantially
boost the nation's clean energy
efforts. The report suggests that more
than half of Mexico's new power generation
capacity installed through 2040 will
be renewables-based, tapping into the
country's large wind and solar resources.
The IEA expects that new investments in
renewables will help Mexico reach its goal
of producing 35% of its electricity from
clean sources by 2024.
" This is not a reform, it's a revolution
on an unprecedented scale, " Dr. Fatih Birol,
executive director of the IEA, said in a
press release launching the report.
Opportunity Abounds
How will Mexico's energy reform affect
U.S. power companies? That remains to
be seen, but it could open a door to new
opportunities.
" Any time a national government cedes
control of an industry to the private sector,
it opens up opportunities-but at the
same time, considerable uncertainty, " Michael
Hinton, chief strategy and customer
officer for the commodity trading and risk
management software company Allegro
Development, told POWER in an exclusive
interview. " Moves such as Mexico's decision
to deregulate the power market involve an
extraordinary number of moving parts, and
it's almost a certainty that there will be at
least a few bumps in the road. "
Hinton pointed to an agreement designed
to promote the reliability and
security of the U.S. and Mexican intercon6
nected
power systems-signed on January
7, 2017, by the Obama administration's
Secretary of Energy Ernest Moniz and Federal
Energy Regulatory Commission Chairman
Norman Bay, and Mexico's Secretary
of Energy Pedro Joaquin Coldwell, Energy
Regulatory Commission Chair Guillermo
Ignacio García Alcocer, and National Center
of Energy Control Director General Eduardo
Meraz Ateca-as one development
that could lead to more cooperation between
the two countries.
Of course, a reader couldn't be faulted
for thinking: " Yeah, but that was then,
and this is now. " Former Texas Gov. Rick
Perry has replaced Secretary Moniz, and the
Trump administration has made no bones
about its " America-First " policy. However,
there is still hope for continued cooperation
with Mexico on energy matters.
Secretary Perry met with Coldwell in
Mexico City on July 13. Reuters reported
that Perry promised to promote crossborder
electricity trade and investment
during the meeting. " Mexico's prosperity
is inextricably intertwined with our prosperity, "
he was quoted as saying during a
news conference.
Economic Beneits Predicted
Energy reform is expected to help Mexico
prosper. In a report titled Tracking the
Progress of Mexico's Power Sector Reform,
which was published last year by the
Woodrow Wilson International Center for
Scholars' Mexico Institute-a nonpartisan
policy forum chartered by Congress-Alejandro
Chanona Robles, who was named
director general of planning and international
affairs for Mexico's energy regulatory
commission in January,
wrote:
" Mexico's Energy Minister has referred to
the power sector reform as the 'economic
competitiveness reform.' Access to reliable
and affordable power can give businesses
a competitive edge over their rivals,
stimulate job creation, and spur economic
growth. " The IEA agrees. Its " main scenario "
sees the Mexican economy doubling
in size by 2040.
However, what's happening in Mexico is
still fairly new and is likely to be a yearslong
endeavor. Risks are inherent in the
www.powermag.com
process. Yet, the rewards loom large. The
IEA estimates that in order for energy
reform to be successful, investments of
$240 billion will need to be made in Mexico's
power sector through 2040. It says
another $130 billion will need to be invested
in energy efficiency during that period.
Companies north of the border could
reap some of the bounty.
" The benefits could emerge in a few
forms, for instance, by U.S. companies
lending their infrastructure expertise, investing
in joint ventures, electricity trading
or even offering consulting services
based on their experience with deregulation
in the United States, " Hinton said.
Pinning Hopes on Natural Gas
Natural gas is expected to play a large role
in the power sector transformation. " Inspired
by the United States shale boom
and the resulting decline in natural gas
prices, Mexico is now experiencing its own
'dash for gas.' Domestic natural gas production
is set to ramp up; transportation
and storage infrastructure will be expanded
aggressively; natural gas-fired power
generation will grow significantly; fuel oil
power stations will be repurposed to run
on natural gas; and fuel oil will be essentially
phased out of energy generation, "
Robles wrote.
Furthermore, the Mexican government
forecasts that natural gas will fuel 44% of
power generation capacity additions through
2030. When Robles compiled his data, CFE
was constructing or had tenders out for nine
combined cycle power plants with total capacity
of 6.2 GW. It was also converting seven
power plants from oil to gas.
So who stands to benefit most? " The
physical power businesses located along
Mexico's border with the U.S. would have
a geographic advantage, at least early on,
but the market could develop in fascinating
ways as the years continue to pass. If you
think about [the North American Electric Reliability
Corp.'s] current coverage of Canada
and the U.S., it's not a tremendous reach to
imagine the map including a considerable
part of Mexico, " Hinton speculated. ■
-Aaron Larson is POWER's
executive editor.
POWER | September 2017
http://www.powermag.com
POWER September 2017

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