Challenges to Investment
Before Mexico’s energy reform in 2013, its legal framework stipulated that electricity services should be provided exclusively by the state-owned electricity company, Comisión Federal de Electricidad (Federal Electricity Commission; CFE). Though private investment in generation was permitted under various mechanisms, renewable energy was not competitive with traditional sources. To incentivize private investment in renewable energy, the Comisión Reguladora de Energía (Energy Regulatory Commission; CRE) needed to develop regulatory instruments that were effective but not as costly as subsidies. In addition, the instruments would need to support renewable energy generation which is location-specific, such as wind and solar.
Approach
Among other measures, the Mexican government introduced a power wheeling mechanism to promote private investment in renewable energy. With respect to transmission, wheeling means that power can feed into the network from outside the grid boundaries, allowing users to purchase electricity from producers other than their local generator. Power wheeling helps improve economics for renewable energy projects, as renewable generators can set up in cost-effective locations while selling to consumers anywhere in the country, without heavy transmission costs. Additionally, the wheeling fee applied to renewable generators is lower than that of traditional energy sources. The fee for each load point was determined by adding up the fees associated with each voltage level necessary to transport energy from the generation center to the load, ensuring that it would not include multiple charges for each voltage level. Those fees comprised expenses associated with infrastructure usage, losses, transmission services, and a fixed charge for administering the interconnection agreement. Renewable generators could wheel energy to their associated load centers and potentially serve several medium to large load center off-takers. However, wheeling was limited only to those load centers with which the generators had signed power purchase agreements (PPAs). The monthly adjustments to the fee – after accounting for inflation – provided developers with greater predictability about future costs of renewable energy projects.
Key Enabling Conditions
The power wheeling mechanism saw immediate acceptance from relevant stakeholders (e.g., Ministry of Energy, the CFE, financing entities, developers, permit holders, and investors). Renewable energy acceptance under the power wheeling mechanism was also enhanced by other features under the RE Act (2008) such as energy banking and net metering. Beyond the RE Act (2008), the Ministry of Energy (SENER) sought to achieve the target of 35% of electricity generation contributed by clean energy by 2024 in the 2012 General Climate Change Law, driving a number of policy and initiatives including the renewable energy certificate mechanism (Clean Energy Certificates, or CELs).
Impact / Outcomes
The wheeling power mechanism (among other established instruments) helped Mexico significantly increase its total installed clean energy capacity (including renewable, hydroelectric, and nuclear generation), from 13.8 GW in 2008 to 15.1 GW in 2015. Installed capacity of hydroelectric (80%) – which is highly specific to geographic locations – made the largest contributions to clean energy capacity in 2015. Moreover, privately-owned projects accounted for over 40% of Mexico's total electricity generation by the end of 2014. By providing certainty over the costs of transmission fees, the mechanism promoted healthy competition between renewable and conventional project developers, without imposing additional costs on consumers. Finally, the policy helped to mitigate the location problem for renewable energy projects, such as the distance from generation to load centers.
Additional Sources
- https://prod.iea.org/policies/4313-wheeling-service-agreement-for-electricity-from-renewable-energy-sources-convenio-para-el-servicio-de-transmision-de-energia-electrica-para-fuente-de-energia-renovable
- https://www.purnomoyusgiantorocenter.org/power-wheeling-and-clean-energy-development/
- IRENA (2015), Renewable Energy Policy Bries: Mexico, https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2015/IRENA_RE_Latin_America_Policies/IRENA_RE_Latin_America_Policies_2015_Country_Mexico.pdf
- Linvill, C., Brutkoski, D. (2017), Designing Distributed Generation in Mexico, https://www.nrel.gov/docs/fy17osti/66026.pdf
- NREL (2016), Wheeling and Banking Strategies for Optimal Renewable Energy Deployment: International Experiences - Mexico Case Study, https://www.nrel.gov/docs/fy16osti/65660.pdf
- Wilson Center (2013), Renewable Energy in Mexico: Policy and Technologies for a Sustainable Future, https://www.wilsoncenter.org/sites/default/files/media/documents/publication/Renewable_Energy_in_Mexico.pdf