Introduction

After an extensive consultation process, the Ministry of Energy has published in the Federal Register the Wholesale Electricity Market Guidelines, which constitute the primary regulatory instrument setting out the design and operational principles of the Mexican wholesale electricity market. Under the government's ambitious energy reform, the wholesale electricity market is the cornerstone of the domestic electricity industry. The wholesale electricity market will be operated by the independent system operator, the National Centre for Energy Control (CENACE), under the supervision of the Market Surveillance Unit and the Market Independent Monitor.

Main provisions

The market guidelines comprise 19 provisions, which include:

  • procedures for the registration and certification of market participants (which must satisfy minimum capitalisation requirements);
  • guarantees that market participants must provide for obligations assumed before CENACE;
  • conditions for access to the National Electric System;
  • planning procedures to ensure adequate development and operation of the system in the long term;
  • basic models to be used for the wholesale electricity market (physical and commercial);
  • rules and instruments for the operation of short-term markets (real time and day ahead);
  • dispatch and scheduling procedures for domestic power, imports and exports; and
  • procedures and rules for the management, operation, planning, accounting, billing, clearance and payment of all transactions within the wholesale electricity market.

Further, the market guidelines include rules and designs for the clean energy certificate market, the market for financial transmission rights and the balancing power market.

Auctions

The market guidelines establish the basic rules governing the mid-term and long-term auctions that will be carried out to acquire hedging agreements for power, energy and clean energy certificates (one of the most important instruments to realise the country's emissions reduction goals and promote the use of clean technologies). In the case of long-term auctions, the resulting hedging agreements will be effective for 15 years (for power and energy) and 20 years (for clean energy certificates). With respect to these auctions, the guidelines contemplate three types of area (which represent a group of pricing nodes in a certain area of the country) which must be considered by bidders when making their offers:

  • load areas;
  • power areas; and
  • generation areas.

Natural gas for generators

The guidelines include provisions concerning the availability of natural gas for generators. For example, the unavailability of natural gas will not release the generator from charges, payments and penalties resulting from its participation in the wholesale electricity market, except where the unavailability has directly resulted from an instruction issued by a natural gas manager, such as the National Centre for Natural Gas Control.

Coordination of electricity and natural gas markets

The market guidelines contain specific provisions on the coordination of the electricity market with the natural gas market. The guidelines stipulate that:

  • CENACE must provide to natural gas managers the estimated value of gas consumption for each power plant; and
  • natural gas managers must inform CENACE of potential interruptions in the supply of natural gas, so that CENACE can account for such interruptions in the dispatch system.

Sales

For energy sales, the market guidelines contemplate a wholesale electricity market composed of a day-ahead market and a real-time market (along with an hour-ahead market in the second phase of the wholesale electricity market). Under this system, market participants will submit their offers for the purchase and sale of energy and related services to CENACE and CENACE will undertake the economic dispatch of the relevant generation units for each market, balancing the injections and extractions in each node and preserving the required reserve levels for each market. Marginal prices for the reserves in each reserve zone will then be determined and energy marginal local prices will be set for each node of the National Electric System, integrated by an energy component, a congestion component and a losses component.

Other provisions

In addition to the related services traded in the market, other services such as reactive reserves, reactive power and emergency start-ups will be charged at regulated rates established by the Energy Regulatory Commission, based on opportunity, operation and maintenance costs.

Further, the market guidelines provide a scheme for the accumulation of energy for contracts awarded through long-term auctions, allowing clean power generation facilities to forecast their expected revenues in order to reduce their financial costs.

Implementation schedule

The Ministry of Energy expected the wholesale electricity market to begin operations in December 2015. The market guidelines set out the following implementation schedule:

  • Implementation of the short-term electricity market (except in Baja California Sur) – a test period began in September 2015, the first phase of market operations began in December 2015 and the second phase of market operations will begin between 2017 and 2018.
  • Long-term auctions – the bidding guidelines were published in October 2015 (for agreements effective as of 2018) and hedging agreements will be awarded in the first quarter of 2016.
  • The allocation of preserved financial transmission rights was carried out in October 2015.
  • Auctions of financial transmission rights – a test period will begin in September 2016, the first phase of market operations will begin in November 2016 and the second phase of market operations will begin in January 2017.
  • Implementation of the balancing power market – a test period will begin in October 2016 and the first phase of market operations will begin in February 2017.
  • Implementation of mid-term auctions – the relevant bidding guidelines will be published in October 2016.
  • Implementation of the clean energy certificate market – a test period will be conducted in 2018 and the first phase of market operations will occur in 2018 or 2019, depending on the obligations established by the Ministry of Energy in the market operational provisions.

This schedule may be modified as necessary to ensure the complete development of the market guidelines and the required systems for the efficient and reliable operation of the wholesale electricity market.

The guidelines are one of the two elements that constitute the market rules governing the operation of the wholesale electricity market. The second element – the market operational provisions – comprise the guidelines, criteria, manuals and procedures that the Ministry of Energy and CENACE will issue to establish the operational processes of the wholesale electricity market.

For further information on this topic please contact Rogelio López-Velarde, Amanda Valdez, Daniela Monroy or Diego Campa at López Velarde, Heftye y Soria by telephone (+52 55 3685 3334) or email (rlopezv@lvhs.com.mx, avaldez@lvhs.com.mx, dmonroy@lvhs.com.mx or dcampa@lvhs.com.mx). The López Velarde, Heftye y Soria website can be accessed at www.lvhs.com.mx.

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