TheElectricityMarketinMexicoARecentMarket&RegulatoryDesignforanEraofLowCost

RenewablesandEmpoweredConsumers

MarcelinoMadrigal,Ph.D.*Commissioner

EnergyRegulatoryCommission,Mexico

*The views and opinions expressed in this presentationare strictly of the author/presenter and do not necessarilyreflect the position of the Commission (CRE) as a wholeor other government agency

Panel#3RegulatoryFrameworkandMarketDesign5th GO15&ICERWorkshopMeeting

October 11,Milan,Italy

The Reform and New Industry Structure

3

Mexico’s Power Sector Basic Information

Population 126,000,000

GDP 1,236,249 M/USD

Generation Installed Capacity 2017

75.68 GW

General Information Installed Capacity by Technology, 2017

Electrification Rate 98.58%

Surface

1,964,380 km2Average annual growth rate of

gross consumption, 2013 - 2017

2.6 %297,118

303,316310,350

319,364

329,162

2013 2014 2015 2016 2017

Power generation (GWh)

UsersCFE only supplierBasic User

Regulated UsersBasic Service Supplier

(Suppliers of Regulated Consumers)

Open Access

Transmission Distribution

Commercialization

CFE Generation

Private Generators

System and Market Operation

Final Consumers

Qualified Users

(Requires at least 1 MW demand)Qualified Supplier

(Suppliers only for Qualified Users)

New Model: Competition, Empowered Consumers and Clean Energy Targets

Policy Maker Regulation

Non-Suppliers Traders

(Pure Commercialization)

2018

25%

2021

30%

2024

35%

Clean energy generation targets

Generation

CFE + Private

(Exclusive domain of the State. The State may contract and partner with private entities to performs certain activities)

(Split into 6 subsidiary)

CFE + Private

Design Elements of a Competitive Low Carbon MarketMexico an Example of 2+ Latin America Market Design Wave

6

Wholesale Market Products

Financial Transmission RightsMechanism to hedge exposure to the price differences that may exist between two nodes due to congestion in the transmission network. 1 FTR =1 MWh for every hour in which the FTR is in effect.

Energy and Ancillary Services

Are based on Locational Marginal Pricing for energy (MWh) and zonalpricing for ancillary services (MW).

Clean Energy Certificates

Permanent titles that certify a given source of power generation as being a clean source.1 CEC = 1 MWh produced by clean energy

Capacity “potencia”

The amount of capacity (MW) that a generator can offer in the market is based on its generation availability in the 100 critical hours of the prior year

Market Design: Different Markets and Products

7

Nodal, co-optimized energy and reserve

Day Ahead & Real Time Market

To balance and needs principally acquired in

a long-term market

Capacity Designed as availability in Critical

Hours

Procure 3-year energy contracts

Financial Transmission Rights

One organized, one bulleting (voluntary) at the certificated system

Long-term auctions

Purchase of 15+ year contracts for Energy, Capacity, and Clean Energy Certificates

Financial Transmission Rights

I. Short Term Energy & Reserve Markets

II. Short Term Capacity Market

III. Medium Term Energy Markets

IV. Clean Energy Certificates Market V. Long-term markets

Started in January, 2016

Started in March, 2017

Last results August, 2017

Started in February, 2018

Started 4th Auction, 2018

Long-Term AuctionsAccelerating Clean Energy Deployment

HydroCombinedCycle

Solar Wind

Geothermal

Chih

Coah

BC

NL

Tamps

Oax

SLP

Gto

Ags

Mor

Pue

Son

BCS

Jal

TX

Querétaro

Michoacán

Tlax Yuc

Long Term Auctions are Accelerating Clean Energy Integration at World Record Low Prices

9

Solar

Wind

44.97

55.33

31.22

33.27

1ra 2da

Resume of resulting prices

+20 diferentcompanies

Companies from more than 11 countries, including Mexico

8.9 billion USD of investment in the

coming years

Increase of 7.6 GW to the current generation capacity in Mexico

21.34

18.48

3ra

Num

ber o

f offe

rs 18

9

56

17

16

8

Offers

Winner Offers

Elaboración propia. *Promedio ponderado de ofertas de paquetes que únicamente ofrecieron Energía y CELs. ** El dato de geotérmica corresponde a “3ª subasta de Largo Plazo”, PWc, 2016. Tipo de cambio (MX/USD) utilizado por SLP: 1ra 17.3192, 2da 20.17, 3ra 19.185

Geothermal

Hydro

CombinedCycle

kUSD/MW-yr**

USD/MWh+CEL*

43.70

6.94

36.60

51.90

USD/CEL

Turbogas

Turbogas

1st Auction / 11 companies 2nd Auction / 24 companies

… Increasing the Number of Participants in the Market

3rt Auction / 8 companies

(Compañía de ElectricidadLos Ramones S.A.P.I. de C.V.)

&

11

… with Lower Scales that Point to the Decentralization of Generation

3

15 15

7

4

2

6

8

3 3

1

<30 ≥30 y ≤55 >55 y ≤102 >102 y ≤200 >200 y ≤300 >300 ≥30 y ≤55 >55 y ≤102 >102 y ≤200 >200 y ≤300 <30

Solar Wind Geothermal

WindSolar

Elaboración propia con datos publicados por Cenace, incluye únicamente centrales nuevas

Distributed GenerationEmpowering Consumers and Increasingly Adding Needed Capacity in a Growing Demand Environment

13

Solar Radiation in Mexico Amongst the Best in the World

Mexico has a significant, constant and highly predictable renewable potential: a medium annual irradiation of approximately 5.5 kWh/m2 per day

Sources:SOLARGIS. http://solargis.com/products/maps-and-gis-data/free/download/mexico Mexico Energy Outlook 2016, IEASolar Energy Potential in Mexico´s Northern Borders States, 2012, Wilson CenterWorld Energy Resources: Solar, 2013, WEC

Average solar irradiance range in selected countries

Annual average solar radiation

390 MW

14

DG yet sill limited participation in the mix 0.02% of energy demand in 2017… but growing exponentially

Residential40%

Commercial18%

Small industry

41%

Others1%

Participation by SectorContracts Capacity

Residential74%

Commercial20%

Small industry 5%

Other1%

Forecast 2018-2023

Installed Capacity(MW)

Forecast Capacity (MW)

Contracts

Forecast Contracts

Con

tract

s

3,594 MW

Last year growth +54.70%

Scales becoming attractive both residential, commercial and small industrial consumers

Access formats:

Net MeteringNet BillingWholesale

PerspectivesDemand Response, Distributed Energy Market & Storage

We working on a comprehensive storage regulation…

Yucatán Peak Shaving

30MW; $70M; IRR 9%

Source: Feasibility Study for Large Scale Energy Storage Systems in Brazil, Colombia and Mexico. Project done by Quanta Technology for ISA, under USTDA support

Electric Energy Supply

545 MW (23%)

Ancillary Services 201 MW (9%)

Grid System 631 MW (27%)

End User / Utility Customer

570 MW (24%)

Renewables Integration

386 MW (17%)

475 MW

399 MW

228 MW190 MW 182 MW

TransmissionCongestion

Relief

Electric SupplyCapacity

Demand ChargeManagement

Time-of-use(TOU) Energy

CostManagement

WindGeneration Grid

Integration,short duration

Applications with best potentialMarket potential Sample projects

10 years ahead market size: 1,419 millions of USD2,333 MW 3,841 MWh

17 different applications5 categories

BCS Renewable Integration

10MW; $8M; IRR 23%

BCS Arbitrage

10MW; $25M; IRR 9%

BasicService

Writing rules for demand response at retail and wholesale levels…

WholesaleElectricity

Market DemandResponse

ServiceDemandResponseResource

Market Bases(8 Manuals)

Still pending:Demand

Response Manual

Characteristics:Ø Users Offer (BS)Ø Indirectly ModeledØ Consideration established

by the CRE, based on fee

Characteristics:• Active is registered in WEM• CC directly modeled• Specification Measurement• Telemetry

Not guaranteedGuaranteed

REL

Is involved in:

DAM CBM

RTM HAM

-Energy-Capacity-Ancillary ServicesLack of Capacity

ReliabilityAuctions

Emergency protocol

Administrative Provisions of

General Character

• 3 Controllable Demand Programs

• Electronic Platform• Contract Models• Events defined by

Distributed NodeP

DR by EventReduction in

consumption in price increases

and 100hrs.critical.

1 Schedulable DR Savings when programming consumption

reductions is during peak hours.

2

Steady DR Economic savings by

reducing monthly consumption.

3

Monitor &Approve

18

… and writing a regulatory framework for smart contracts for collective DG

One Contract for different users who share the same power plant with capacity below 0.5 MW in distributed generation, removing the limits of property

1 power plant

1 owner(individual or corporate)

o

Different owners

Different users

Some possible schemes

Different users in different locations and a power plant in location of one user into the same system

Different users and a power plant in same location

Different users in different locationsand the power plant in a different location regard of the users but in the same system

Thanks!@M_Madrigal_M

@CRE_Mexico