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POWERPOWER IN IN MEXICO MEXICO Mexico Balances Central Control with Flexibility in Its Power Sector A special report from Global Business Reports and POWER The El Cajón Dam on the Río Grande de Santiago River in the Mexican state of Nayarit was completed in 2007. The 750-MW hydroelectric project is owned by Comision Federal de Electricidad (CFE) of Mexico. Courtesy: CFE 64 www.powermag.com POWER | May 2010 POWER IN MEXICO POWER IN MEXICO A Brief History of Mexico’s Power Sector Mexico, one of the few countries in Latin America that has resisted the tide of liberalization, retains a monopolistic state player in the electricity market. In treading its own path by maintaining the government’s predominance in the sector, Mexico has an important question to answer: Is this path sustainable? By Clotilde Bonetto and Mark Storry, Global Business Reports he Mexican electrical sector is federally owned, as is required by the constitution, 1. Percentage of new capacity by firm, 1930–1960. In 1960, when the con- stitution was changed to designate the state (CFE) the sole electricity producer, provider, and with Comisión Federal de Electricidad T distributor, Mexican, Impulsora, and Chapala were all nationalized. Source: SENER (CFE) directly responsible for around 70% of all electricity produced in Mexico. Following Mexican Impulsora Chapala CFE its recent takeover of Luz y Fuerza del Centro 100 (LyFC), the CFE controls 100% of the trans- mission and distribution network in the coun- 90 try. Few countries have maintained this level 80 of government control over the industry. Pri- vate companies can only participate in specific 70 tenders offered by the CFE. The structure of Mexico’s power sector re- 60 flects Mexico’s radical revolutionary past and the dominance of the Partido Revolucionario 50 Institucional (PRI), which came into exis- tence under the guise of the Partido Nacio- Percentage 40 nal Revolucionario in 1929. This party was formed as an attempt to keep the various fac- 30 tions of the Mexican revolution together and to unite the country. The coalition comprises 20 a wide variety of interests and political opin- ions, including a strong left-wing element. 10 This left-wing influence led to the creation of the CFE in 1934 with the mandate of regulat- 0 1930 1940 1950 1960 ing the private vertically owned energy mo- nopolies and also of supplying the areas that from high oil prices in the 1970s fueled the participation in its economy; but electricity, the private sector neglected due to their being CFE’s investments. together with hydrocarbons, remained firmly perceived as unprofitable (Figure 1). The final piece of the social puzzle involved in the hands of the public sector. In 1992 the Throughout the 1940s and 1950s, the subsidies on the price of electricity for the end government allowed for the introduction of CFE slowly and steadily acquired regional user. Though these tariffs supplied relief to independent power producers (IPPs) with concessions throughout the country. On Sep- many lower-income families, they inadver- the reform of the Ley del Servicio Público tember 27, 1960, under the administration of tently subsidized higher-income households de Energía Eléctrica as well as cogenera- Adolfo López Mateos, the government fully too. The thinking at the time, which continues tion and self-supply schemes. According to nationalized the sector, and constitutional ar- today, is that electricity is a basic need and, as the Mexican energy regulatory commission, rangements were enforced, making the state such, the state has an obligation to provide it Comisión Reguladora de Energía, around the sole producer, provider, and distributor of at an affordable rate to its population. During 30% of the electricity currently produced in electricity in Mexico. the 1970s the CFE was very successful at ex- Mexico is by private sources, be that through The concentration of the sector within panding the reach of electricity to rural areas, autogeneration, cogeneration, or by IPPs. state hands allowed for considerable planned and the number of households with access to Mexico’s energy challenge is twofold. expansion of energy supply during the 1970s. electricity roughly doubled. Nevertheless, an First, it must determine whether the state can This expansion was fueled by the availability estimated 6 million Mexicans remain uncon- continue to be the dominant energy provider of fuel oil from Petróleos Mexicanos (PE- nected to regular electricity today. or whether radical reform is needed in which MEX), which was provided at subsidized During the 1980s, Mexico, following the private sector takes a more prominent role. prices to the CFE. PEMEX’s vast profits the global trend, allowed increasing private The second concerns the role of renewables 66 www.powermag.com POWER | May 2010 POWER IN MEXICO Interview with Estéfano Conde, CFE Communications Director Q. Can you please give us a brief back- Q. What future do you see for renew- ground of the structure and role of the able energy in Mexico? Comisión Federal de Electricidad (CFE)? A. The president is completely convinced A. CFE is a state-owned company headed by about the importance of renewable ener- a chairman who is the secretary of the Board gy, and his administration plans to reach of Energy. There is a board which is headed the 25% of total energy target to be pro- by a director and who is appointed by the duced from renewables by the end of his president. The current director has been term. This will include large hydropower serving for 10 years. CFE is a completely plants. Right now we are working on wind integrated company, and our duties include energy in the south of the country. generation, transmission, and distribution. Q. How are you going to resolve the di- Q. What are the challenges of having to lemma of your commitment to provide supply electricity to everyone, regard- cheap energy and at the same time less of profit viability? working on producing energy from re- A. This is a great challenge; it is one of the newables, which may not be able to reasons why being state operated is impor- compete on price? tant for us. The government is committed A. Natural gas is cheap and clean, this to supply electricity to every place. Thus is true. Certain challenges are associated the question of profitability becomes less with renewables. For example, if there is of a priority. The government has to real- no wind, there is no wind energy. Renew- ize the social commitments that it makes ables can work as complementary to other with the people. At present our cover- sources. Unfortunately, they do not have age of electricity is 98%, which is among the full capacity to supply the energy on the highest in the world. We have around a baseload basis. 50,000 megawatts of installed capacity, Q. How is the demand for electricity in and we are very close to 26 million users, the country evolving, and how you see which includes residential, commercial, it in the future? agricultural, and industrial. At present, we A. Generally, you add 1.5% to the annual have about 80,000 employees. Our net an- GDP growth rate, and that is our growth. nual sales are close to $20 billion. For example, if the economy grows 3%, we We have a pretty well diversified in- need to grow 4.5%. In the last two years stalled capacity, which ensures security in the growth was very slow, but before that terms of continuous supply. Our geography our growth was around 6% annually. Year and natural resources have enabled us to by year, we incorporate around one mil- generate electricity from diverse sources, lion new clients. including hydro plants (which account for Q. Can you tell us about the challenges 20%), natural gas (which accounts for 30% for the future in the CFE? of our total electricity generation), coal A. Energy security is the main challenge. (which generates 10% of the total electric- We need to ensure a steady supply of the ity), and nuclear (which accounts for 2%), fuels that we need to generate for the fu- wind, geothermal, and the rest is from fuel ture is available. Gas is going to be the oil. But day by day, we are moving away main source that we will rely on. We know from reliance on hydrocarbons because of that the supply of gas has not been ad- the environmental constraints and costs. equate from PEMEX; 50% of our gas is Despite being a monopoly, we encour- supplied by PEMEX, 30% we acquire from age competition inside the company the gas pipeline from the U.S., and about between various divisions that leads to 20% from our LNG [liquefied natural gas] more efficiency. facilities. within the Mexican energy mix. Mexico’s IPPs to develop such projects and leaves the unique structure means that the CFE has an CFE itself little reason to encourage them. ■ obligation to obtain energy from the cheapest —Written and researched by Clotilde source, and as renewables are in an incipient Bonetto ([email protected]) and state of development and therefore expen- Mark Storry ([email protected]) of sive, this obligation makes it difficult for the Global Business Reports. May 2010 | POWER www.powermag.com 67 POWER IN MEXICO POWER IN MEXICO Mexico’s Generation Mix Mexico enjoys considerable fuel diversity for powering its generating plants, and its goal is to become even more diversified. By Clotilde Bonetto and Mark Storry, Global Business Reports exico relies on combined-cycle natural gas per day. The LNG is designed 1. Energy sources for Mexico’s plants, primarily running on gas, to supply the needs of Baja California, electricity generation.