It’s not just oil, power due to be overhauled in Mexico

Fuel Fix ^ | September 5, 2014 | Robert Grattan

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Mexico’s landmark energy reforms have mostly been discussed from the perspective of oil and gas production, but industry experts also hoping the changes will transform Mexico’s electric power industry.

The country’s electric power sector has been plagued by not enough supply and inefficiencies for decades. The state-owned Federal Electricity Commission controlled the majority of generation and all transmission and distribution facilities.

In a presentation Thursday in Houston on Mexican Energy reform, Mayer Brown partner Jose Valera estimated the average electricity rates in Mexico were about 25 percent higher than the average U.S. price even after the government offered a hefty subsidy to ratepayers. Without the subsidy, the rates are about 73 percent higher in Mexico than in the U.S..

Further, because Mexico uses oil and coal to generate electricity, the country’s greenhouse gas emissions are higher per capita than the Latin American average, he said. Liquid fuels are also relatively more expensive for power generation than other natural gas or renewable power sources.

The country’s transmission infrastructure will also need large investments.

Valera cited figures indicating that 47 percent of Mexico’s 91,000 miles of transmission lines are more than 20 years old and only 8 percent have been built in the last five years. In 2012, electrical losses through the grid were about 15 percent.

Legislators hope to reverse the trends by opening the sector to competition. Under the laws passed in early August, the Federal Electricity Commission will no longer have a regulatory function and will no longer manage the electric power system. The private sector will also be able to participate in the construction, operation and maintenance of transmission facilities.

The reforms are also intended to encourage private companies to build new, more efficient and greener generation.

Previously, Mexican officials had set ambitious targets for renewable energy. The new energy law also creates clean energy certificates which will be issued by Mexican regulators and may be traded between generating companies.

The first deals could be completed by as soon as early next year, Valera said, once regulators have had time to craft rules and grant permits to the private companies interested.

As many industry watchers have been with the reforms instituted thus far, Valera said he was optimistic about the future.

“So far Mexico has surprised people by doing exactly what they said they were going to do,” Valera said.