In the first half of 2018, implementation of Mexico’s Energy Reform took great strides. Two main goals of Energy Reform are:
- To create greater transparency in electricity pricing and;
- To liberalize the energy markets to create a retail electricity market
From restructuring of CFE electricity tariffs to the development of new natural gas Commercialization Companies, the level of choice and considerations for end users has vastly increased. At the same time, utility prices for electricity have become increasingly volatile. September pricing reports indicate that prices are as much as double what they were in February of 2018 – costs which are being passed onto end users of all sizes. As a result, end users (especially companies with loads greater than a demand of 1 MW per year) are strongly encouraged to explore alternate options for energy procurement.
Companies in Mexico can purchase electricity in several ways. These include ‘Basic Supply’ tariff contracts with the regulated utility CFE, ‘new regime’ Qualified Supply contracts and legacy Remote Self-Supply (RSS) Power Purchase Agreements (PPAs) with independent generation companies. With an active, strategic approach to this decision, companies can eliminate volatility, reduce costs, increase electricity security and are guaranteed some level price reduction compared to CFE.
With the restructuring of CFE’s tariffs, end users have little financial reason to rely solely on CFE ‘Basic Supply’ for their electricity needs. Several multi-national Qualified Suppliers have entered the Mexico electricity market and are offering supply products which are expected to save users between 5-20 percent compared to anticipated CFE electricity costs.
Self-supply (or a combination of Basic Supply and Self Supply) can also result in significant savings.
Remote Self-Supply (RSS) PPAs
Although this option became extremely limited after March of 2018, there are several projects still available for offtake which have several distinct advantages such as high savings potentials compared to CFE tariffs, exemption from CEL compliance and insulation from LMP price volatility. Recent RSS projects have yielded expected savings vs. CFE between 20-40 percent. These contracts tend to be longer term and more complex than Qualified Supply options, but the time investment in identifying these options is outweighed by the savings potential.
Who are Obligated Users?
For some electricity consumers in Mexico, the Qualified Supply scheme is mandatory. Such companies are defined as Obligated Users. CFE will notify companies of this obligation, which generally applies to companies which began electricity supply after August 12, 2014. Additionally, these companies are ineligible for RSS contracts.
What should you do?
Energy users with electricity demand greater than 1 MW should proactively explore alternative options in the electricity market outside of a traditional CFE ‘Basic Supply’. There is significant cost-saving potential in the market of 5-40 percent via long term PPAs and Qualified Supply with no reduction in power quality and reliability. In addition, large consumers of electricity who are considered Qualified Consumers must ensure they are meeting CEL obligations for 2018.
The Schneider Electric team is here to discuss individual strategies and help guide your company to a solution that fits your needs. The renewable energy obligation for corporates grows every year, and regardless of whether you are trying to stay in compliance or go beyond and achieve higher environmental performance, we can help.
Contributed by: Elvia Ramirez Cabrera, End User Solutions, Schneider Electric Energy & Sustainability Services