Market framework

Definition of ‘renewable energy’

Is there any legal definition of what constitutes ‘renewable energy’ or ‘clean power’ (or their equivalents) in your jurisdiction?

The LIE defines ‘clean energies’ as the energy sources and electricity generation processes whose emissions or waste, if any, do not exceed the thresholds established in the guiding regulations, including electric energy generated from:

  • wind;
  • solar radiation, in all its forms;
  • ocean energy in its various forms: tidal, ocean thermal, wave and ocean currents and salt concentration gradient;
  • geothermal reservoirs;
  • bioenergy sources, as determined by the Law for the Promotion and Development of Bioenergy;
  • methane and other gases associated with waste disposal sites, livestock farms and waste-water treatment plants, among others;
  • hydrogen through combustion or used in fuel cells, as long as they meet the minimum efficiency established by the CRE and with the emissions criteria based on the life-cycle analysis established by the Ministry of the Environment and Natural Resources (SEMARNAT);
  • hydroelectric plants;
  • nuclear power;
  • agricultural waste and municipal solid waste, when such processing does not generate dioxins and furans or other issues that may affect health or the environment and meets the Mexican official standards issued by SEMARNAT;
  • efficient cogeneration plants and sugar mills that meet the efficiency criteria issued by the CRE and the emissions standards established by SEMARNAT;
  • thermal power plants with carbon dioxide capture processes and geological storage having an efficiency that is equal or superior in terms of kWh-generated per ton of carbon dioxide equivalent emitted into the atmosphere than the minimum efficiency set by the CRE and emissions criteria established by SEMARNAT;
  • technologies considered as low-carbon technologies in accordance with international standards; and
  • other technologies as determined by the Ministry of Energy (SENER) and SEMARNAT, based on the parameters and standards for energy and water efficiency, emissions and waste generation, direct, indirect or life-cycle analysis.

In turn, the Energy Transmission Law (LTE) defines ‘renewable energies’ as those whose source is based on natural phenomena or materials suitable to be transformed into energy usable by the human being, which are naturally regenerated, and therefore are available continuously or periodically, and do not release polluting emissions when generated, including:

  • wind;
  • solar radiation, in all its forms;
  • the movement of water in its natural course or at artificial dams already existing, with a generation capacity up to 30MW or a density power, defined as the ratio between generation capacity and the area of the dam, in excess of 10 watts/m²;
  • ocean energy in its various forms: tidal, ocean thermal, wave and ocean currents and salt concentration gradient;
  • geothermal reservoirs; and
  • bioenergy sources, as determined by the Law for the Promotion and Development of Bioenergy.
Framework

What is the legal and regulatory framework applicable to developing, financing, operating and selling power and ‘environmental attributes’ from renewable energy projects?

Initially, no new statutes were enacted as a result of the Energy Reform to regulate specifically renewable energy sources; however, in December 2015, the new LTE was enacted (and the previous Law for the Use of Renewable Energies and the Financing of the Energy Transition was repealed). This new statute is aimed at promoting the diversification of the energy sources used to generate electricity through the use of renewable energies.

Currently, the following statutes constitute the main regulatory framework applicable to the development, financing, operation and sale of power and clean energy certificates (CELs):

  • Federal Constitution;
  • LIE and its Regulations;
  • LTE;
  • the Climate Change Law;
  • the Geothermal Energy Law and its Regulations;
  • Wholesale Electricity Market Rules and related manuals;
  • Guidelines for the issuance and acquisition of CELs;
  • the Law of Coordinated Regulatory Bodies for Energy Matters; and
  • general administrative provisions, methodologies and other resolutions issued by the CRE (which include, among others, guidelines to determine the rules for the operation of the CELs Management System, as well as the penalties applicable to those entities that fail to secure the required CELs).

SENER determined that the CELs’ obligation applicable for 2019 will be 5.8 per cent for those entities identified as obligated entities (e.g. large consumers participating in the WEM, suppliers, and certain generators). The aforementioned obligation will increase to 7.4 per cent in 2020, 10.9 per cent in 2021 and 13.9 per cent in 2022 to comply with an aggressive mandate contemplated under the LTE to generate 35 per cent of Mexico’s power from clean sources by 2024.

Government incentives

Does the government offer incentives to promote the development of renewable energy projects? In addition, has the government established policies that also promote renewable energy?

The main mechanism that the Mexican government has chosen to promote clean energies is the requirement imposed on qualified offtakers participating in the WEM that all load-serving entities must acquire CELs representing a certain percentage of their electricity consumption. SENER is the authority in charge of determining the percentage of clean energy that qualified offtakers and other load-serving entities may purchase in the form of CELs (the CELs obligation applicable for 2019 will be 5.8 per cent), which means that these obligated entities shall acquire CELs for at least 5.8 per cent of their total electricity consumption for 2019.

Moreover, the auctions that CENACE has so far carried out have all been directed to clean-energy generators exclusively, as an additional mechanism to both promote the development of clean energy projects and create the conditions to allow the generation from clean energy and the ensuing issuance of CELs, in amounts sufficient to permit qualified offtakers and load-serving entities to comply with their clean energy obligations. Based on the results of the last three auctions called by CENACE, 65 new power plants will be developed within the following three years (40 PV plants and 25 wind farms), which represents an investment of approximately US$8.6 billion. Likewise, the Mexican government intends to carry out a bidding process for the award of geothermal concessions.

With respect to tax incentives for renewable energy projects, the Mexican tax laws contemplate:

  • the possibility of applying an accelerated depreciation of the assets used in the generation of electric power based on renewable energy sources;
  • exceptions to the thin-capitalisation rules that restrict the ability to deduct, for tax purposes, certain interest payments; and
  • the importation of solar panels at reduced or zero per cent import duty rates.

Are renewable energy policies and incentives generally established at the national level, or are they established by states or other political subdivisions?

Policies and incentives are generally established at the national level.

Legislative proposals

Describe any notable pending or anticipated legislative proposals regarding renewable energy in your jurisdiction.

An important regulation that is pending concerns the rules for the functional separation of activities in the energy sector, including the electricity and the oil and gas industries. These rules will regulate the way entities involved in the different segments of these two industries shall implement the functional separation of their various business segments in order to avoid improper practices affecting the efficient development of the market. The functional separation rules are important to contain the market power of the larger participants, CFE and Pemex and, at the same time, give newcomers clearer rules to properly structure their business strategies and operations. Likewise, the government is in the process of setting the rules that will apply to carry out storage activities.

Disputes framework

Describe the legal framework applicable to disputes between renewable power market participants, related to pricing or otherwise.

The legal framework applicable to disputes between renewable power market participants mainly depends on the parties involved. If the relevant dispute arises between CENACE and the market participants (ie, producers, suppliers, users, transporters or distributors) or any market participant and transporters or distributors, the Market Rules and the Dispute Resolution Manual shall apply. However, if the dispute arises exclusively between market participants (other than transporters and distributors), such entities are entitled to freely agree on the applicable mechanism. For instance, they may decide to resolve disputes in terms of the aforementioned legal instruments or to use commercial or civil laws, or any other alternative dispute resolution mechanism.

On one hand, if the dispute arises between CENACE and the market participants, the claim shall be filed before CENACE. CENACE will have a term of 10 business days, once the claim has been admitted, to resolve the dispute. CENACE’s resolutions may be challenged before the CRE, which is the agency with the authority to issue a final resolution. On the other hand, if the dispute arises between market participants, and such participants agree, to resolve disputes in terms of the Dispute Resolution Manual (the Manual) and the Market rules, the process will be as follows:

  • neither CENACE nor the CRE shall be involved;
  • the involved parties shall first try to solve the dispute through a mediation process. The mediator will be appointed between the parties. The terms and conditions applicable to the mediation process are contemplated in the Manual;
  • if the parties do not reach an agreement through the mediation process, the dispute will be submitted to an experts’ panel. The CRE will prepare and maintain a list of acknowledged experts for this purpose;
  • neither the resolution obtained through the mediation nor the resolution issued by the experts is mandatory for the parties; and
  • if the dispute remains, the parties shall commence an arbitration process or the corresponding judicial process (depending on the nature of the dispute and terms agreed between the parties).

Owing to the fact that the WEM commenced operations early in 2016, up to this date, only some disputes between market participants and CENACE have been handled through the aforementioned mechanisms.