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Mexico’s Proposed Wholesale Electricity Market Bases: The Next Step on a Long Road

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Mexico’s Proposed Wholesale Electricity Market Bases: The Next Step on a Long Road

by Jed Bailey | March 30, 2015   [wpdm_package id=1276 template=”link-template-button.php”]

 

On February 23, 2015, SENER revealed the first draft of the Electricity Market Bases as submitted to the Federal Commission for the Improvement of Regulations (COFEMER). The draft Electricity Market Bases includes greater detail on the design and operation of various markets and auctions and sets an implementation timeline. The draft Bases represents an important step forward, although many critical details remain to be defined.

This report provides Energy Narrative’s initial observations on the proposed draft, highlighting the broad implications for Mexico’s electricity sector.

Implications for market participants

The draft Electricity Market Bases builds upon the earlier foundations laid out in the Constitutional amendments, the Electricity Law, and its associated regulations. Further details will be added throughout the year, with the first components of the new system expected to be phased in as early as September, 2015. Under the proposed timeline, the first phase of the wholesale markets will start operations on January 1, 2016, followed by a second phase in 2018.

With only limited details currently available and a tight timeframe for implementation, potential market participants will be challenged to develop strategies for the new sector structure. Companies that are navigating this shifting environment should keep several principles in mind:

  • Now is the time to explore broad strategic options. With much still yet to be defined, developing comprehensive strategies and tactics now could be counterproductive.

  • Double check your assumptions and biases. The draft Electricity Market Bases includes features that are very similar to electricity markets in the United States, Brazil, and elsewhere, but with characteristics that are unique to Mexico.

  • The transition period will be long – keep short term options open. Mexico’s electric sector will be in significant flux during the three-year implementation period, and will likely continue to evolve for years to come.

  • Be prepared to both advocate and adapt. Private sector participants must understand the evolving market structure and the implications for their business in order to effectively participate in the creation process. At the same time, existing business models are unlikely to be the most effective in the new system, and so companies themselves must adapt.

  • Keep an eye on CFE and Pemex. As the dominant energy players, CFE and Pemex are the most familiar with the existing natural gas and electric power infrastructure and have the closest relations with the government and regulators.

 

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