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Private power developers are needed to fill gap left by Mexico's tight public finances



By Daniel Rodriguez / Platts


Petroleumworld 02 08 2019

Mexico needs private support to build new power plants as the federal government lacks enough resources to expand the generation portfolio of state power company Comision Federal de Electricidad, market observers said Wednesday at an event MIREC Week organized.

It is impossible for President Andres Manuel Lopez Obrador to shoulder the financing of all the new infrastructure Mexico needs, said Severo Lopez Mestre, senior partner with Mexico City-based consulting firm Galo Energy.

Last summer, reserve margins fell two percentage points below the mandated level of 6%, putting Mexico's grid system at risk, he added.

"We were close to being without electricity at the highest point of power demand last year," said Lopez, a former CFE senior adviser from 2000 to 2010.

Peak power demand is growing at 4%/year, twice the rate GDP is expanding, making it urgent to build up new generation capacity, he added.

"The Mexican government doesn't have the debt leverage to build all the infrastructure the country requires," Lopez said. The new administration won't be able to build a new $8 billion refinery, two transmission lines and all the power plants Mexico needs, he added.


According to estimates from Mexico's Energy Regulatory Commission, the country needs Peso 168 billion ($8.7 billion) in new generation capacity to maintain a reliable power system in the long term.

But under the country's 2019 federal budget, CFE only has about Peso 32 billion budgeted for generation-related projects.

Similarly, the country needs Peso 27 billion in power transmission projects, but CFE only has about Peso 6.7 billion assigned for this area.

The Lopez Obrador administration also canceled long-term electricity auctions, the primary tool the country has used to finance and build new generation projects under its energy reform.


The cancellation of the auctions isn't the end of Mexico's open power market, said Alejandro de Keijser, the energy congestion coordinator with CFE Calificados, the state power utility's wholesale supply unit.

"The cancellation of the auctions is a shock, but it also opens an opportunity to evaluate how things should be done," Keijser said at the event. If a new replacement to auctions isn't introduced in six to nine months, the situation will become concerning, he added.

CFE Calificados acquired more than 1 million clean energy certificates through bilateral agreements and without the need of participating in the long-term electricity auctions.

The tenders will be on hold until the government decides to restart them or creates or finds a new competitive mechanism to replace them, said Jeff Pavlovic, a power market expert with Mexico City-based consultancy Bravos Energia.

The major challenge is that, under the law, CFE's retail supply division can only contract power under auctions, blocking the state utility from acquiring power through bilateral agreements and other mechanisms, he added.


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Story by Daniel Rodriguez; Edited by Valarie Jackson from Platts / SPGlobal.

02 08

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