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Times of change in Mexico

Mexico's energy sector has undergone a radical transformation since far-reaching reforms were enacted four years ago. Jaime Hernández, CEO of the country's Federal Electricity Commission (CFE) who is also the new president of the World Energy Council’s Mexico chapter, outlines the impact of these changes

Mexico is undergoing a major energy transformation. How do you see this impacting the sector not only within the country, but internationally?

The Energy Reform, enacted in 2013 by President Enrique Peña Nieto, mandated a deep and radical transformation of both CFE and the Mexican energy sector. A wholesale electricity market was established, where private international and national enterprises compete to generate and commercialise electricity. This market operates under a clear guiding principle: the most affordable electric energy is dispatched first. Therefore, CFE and all competitors have a great incentive to reduce their operation costs.

To successfully compete in this new electricity market, CFE has undergone a transformation that includes a new corporate structure with 13 new subsidiaries and affiliates.

This division will allow each new enterprise to specialise and create added value within each stage of the electric energy generation and supply processes.

Ultimately, this transformation will allow Mexicans to have access to high quality electricity service that is cleaner and also cheaper.

What impact will Mexico's energy reform have on the future development of renewable power?

Mexico has abundant renewable energy resources. One of the main objectives of the Energy Reform is to push towards a clean electric sector. The Reform sets a national goal of generating at least 35% of electricity from clean energies by 2024. The Constitutional Reform provides tools to increase electricity produced from renewable sources to keep pace with the growing energy needs of the country.

To achieve this, the Reform established Long-Term Power Auctions and Clean Energy Certificates (CECs). The auctions for energy, capacity and CECs provide a cost-effective way to bring low-carbon generation in the country.

The first two auctions demonstrated strong private readiness to invest in new solar PV and wind generation. An investment of $6.6bn has been allocated to 52 new clean energy power plants, located in 15 states in Mexico. They represent an installed capacity of more than 5,000 MW and will begin operating between 2018 and 2019. These projects will increase Mexico's installed capacity to generate through renewable sources by 27%.

The third auction is on course and the results will be announced in November of this year.

Are you satisfied with the pace of development of the electricity sector under the reform agenda? What areas have been the most successful? Where are further improvements are necessary?

We are certainly on the right track. Electric power transmission and distribution losses are decreasing, electricity access is increasing and currently stands at 98.5% of the population, and the electricity rates for the vast majority of Mexican households (99%) have remained stable and have not increased in the last 32 months, despite an ever complex and volatile international environment.

There is always room for improvement, though; and we will certainly keep doing our best, day by day, to provide clean and affordable electricity for Mexicans throughout the country.

What is the outlook for the balance between natural gas and renewables for power generation over the next decade?

We don't view these sources as mutually exclusive. According to the Development Program of the National Electricity System (PRODESEN) 2017-2031, an estimated 1.665bn pesos will be invested in power generation over the next 15 years; this is 81% of the total expected investment in power infrastructure projects. Clean energies, wind and solar in particular, are, of course, critical sources moving forward.

CFE is promoting the construction of 25 gas pipelines, which will contribute to the expansion of the National Gas Pipeline Network by 75%. Once they are all operating, virtually all the states in Mexico will have access to natural gas. Also, once all the pipelines are operating, there will be complete routes, from the production areas in the United States to the consumption zones in Mexico, that will attract more investors from abroad.

The Long-Term Auctions have proven to be extremely useful for CFE and Mexico, allowing more installed capacity on renewables, bringing closer Mexico's goal of generating 35% of its power with renewable sources by 2024, which has already reached 25%. Because of this, our projections show an expected natural gas generation decrease of approximately 13% from 2018 to 2021.

CFE and others are building significant pipeline capacity to transport natural gas from the US to Mexico. Is there a risk of becoming overly reliant on the US for supply? Will LNG imports continue to play a role in meeting demand?

CFE is not actually building these gas pipelines. Though promoted by CFE, they are being built by the private sector; Several power plants are being converted for the use of natural gas as well as fuel oil, so they can still work in case of gas shortages.

Mexico has a power reserve margin of more than 10%, ready for meeting the supply in case of emergency.

Also, CFE has a mixed power portfolio integrated by coal, gas, liquid fuels, LNG, hydro, nuclear, and other renewable sources, that continues to grow and provides reliability and security in the system in case of any fuel shortage or critical alerts.

What is CFE's role in promoting renewable energy deployment and helping Mexico to meet its carbon targets under the Paris Accord?

On 21 September 2016, Mexico ratified the Paris Accord. Mexico's climate pledge to the Paris Accord established a decrease of 22%, by 2030, of its Greenhouse Gas (GHG) emissions and 51% for black carbon.

The Energy Transition Law, approved in December 2015, sets a target of 35% of electricity generation from clean energy by 2024. Currently, 20% of power generation in Mexico comes from clean sources. Mexico generated 319,364 GWh of electricity in 2016, 64,868 GWh of which were generated with clean energy.

During 2016, approximately 75% of the energy generated from clean energy sources in Mexico came from CFE. During that year, CFE generated 263,152.83 GWh, 18.32% of which came from clean energy sources.

CFE's strategy to replace expensive and polluting fuels with lower cost alternatives with less environmental impact—such as natural gas and renewable energies—has already produced favorable environmental results: from 2012 to 2016, CFE has reduced its CO2 emissions related to the use of fuel oil by 44%; this tendency is projected to continue until reaching a 90% reduction in 2020.

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