Access to the US shale gas market may lower the burden of Mexico's
historically high prices of electricity, according to Fitch Ratings.
Recent regulatory changes are likely to guarantee the success of the
wholesale electricity market.
Electricity prices in Mexico have been high compared with international
prices. US industrial electricity prices are about 70% higher, mostly
due to Mexico's reliance on oil-based production. Lower oil prices have
contributed to reducing this gap, increasing manufacturing output,
although not on a sustained basis.
Fitch believes access to US shale gas would reduce fuel costs,
contributing to more competitive prices that would encourage
international industrial investors to bring operations to Mexico. The
price of fuel determines about 80% of the cost of electricity in Mexico.
Some of the potential savings in power generation can be attributed to
the country's ability to tap into the abundant gas resources coming from
US shale fields.
Comision Federal de Electricidad has plans for a large expansion of the
national network of gas pipelines by converting seven plants by the end
of 2016 and building nine new combined cycle power plants. Mexico plans
to invest USD146 billion in the electric system by 2029. An investment
of USD33 billion will strengthen the T&D networks, reducing losses,
increasing connectivity and helping fuel supplies reach power generation
sites. An additional USD113 billion investment in generation will help
create an energy matrix based in natural gas and renewables, adding 60
gigawatts of additional installed capacity, with more than 40% related
to gas.
Fitch believes that reducing electricity costs for industrials, which
represent approximately 57% of the country's total consumption, is
important to help make the country more competitive in global markets.
Decreasing that will increase Mexico's competitiveness in domestic and
international markets.
Recent regulatory framework outlines for Mexico's electricity sector
include the Energy Transition Law, as well as clean energy goals. The
law's purpose is to regulate the sustainable use of energy, the
obligations of power companies regarding clean energy and the reduction
of the electric power industry's polluting emissions, ensuring the
competitiveness of the productive sectors. The clean energy goals serve
as minimum percentage targets relating to the total generation and
consumption of clean energy electricity in Mexico.
Mexico generates around 12% of its power from renewable sources. One of
the main vehicles for enforcing its clean energy goals is the Clean
Energy Certificates (CEL). The Secretaria de Energia will establish CEL
requirements, which will be covered by producing a certain amount of
clean energy, buying the energy from clean energy producers or buying
CELs.
According to the regulations, each CEL will represent 1 MWh produced
from a clean energy source. The CEL requirements will not be enforced
until 2018, giving entities time to adapt to the new rules. The CRE will
verify compliance with the clean energy goals and establish the
corresponding administrative regulations.
The CEL process is new to Mexico. Electricity producers and large
consumers of electricity that rely heavily on fossil fuels will purchase
the certificates from the government, which, in turn will invest those
funds either in developing clean energy projects in regions where it is
not available or in expanding existing projects. Issuance of CELs will
serve as a green incentive and a regulatory mechanism to meet the
country's clean energy goals.
Additional information is available on www.fitchratings.com.
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