Q&A From Our Recent Mexico Market Update Webinar

As a follow-up to our recent webinar on recent changes in the Mexico energy landscape and supply disruptions in February, this blog answers some of the most common and interesting questions from webinar attendees. At a high level, the reform has been officially suspended, but technically could still become law. We will continue to update you as the topic makes its way through the Mexico legal system.  Regarding supply disruptions, demand, supply, and energy pricing has returned to normal levels and is not expected to repeat the unprecedented disruptions some experienced in February, barring an atypical irregularity to supply infrastructure or demand.

Questions answered by:

Kseniya Pfeiffer, Regional Market Manager

Ignacio Puga Calderón, Regulatory Expert

Ana Luisa Echartea, Sourcing Analyst

Q. You have said that if the proposed reform for the LIE is adopted it would eventually impact the prices in the market. Does this change also impact CFE rates? Do you have a projection for spot prices going forward and what are your expectations? 

A. If the change in the energy dispatch order is implemented, it is indeed expected to have an impact on spot energy prices. Mexico is a nodal market, which means that the price is different in every location. In nodes where more expensive fossil fuel plants are dispatched first, prices will likely go up. And in those locations with a concentration of private renewable generation that is still being dispatched, the prices will likely remain lower. Outside of the dispatch, there are many other factors that may impact spot price, including power plant schedules, transmission lines, weather issues, etc.

In general, we expect average spot prices to increase in every area in Mexico as more expensive generation is dispatched first. This will likely disrupt the entire dispatch curve and attendant pricing as the laws of economics will not be allowed to behave normally.

It is also possible that the entire nodal spot market is restructured from today’s setup as the disruptions in economic dispatch may make the continuance of today’s structure virtually impossible.

CFE rates also have a component of energy from the MEM (Wholesale Electricity Market). Based on the cost structure, this component should be passed down to the consumers. At the same time, CFE rates are often politically influenced and could potentially be subsidized to offset any cost increases as we have seen recently with sufficiency guarantee charges.

Q. We are currently in a legacy scheme Remote Self-Supply contract and considering terminating early. However, we have not because of the penalties. Is there any possible way to terminate without penalties?

A. Potential termination depends on your contract. There are typically nuances in supply contracts that could lead to a possible termination without penalties, including supply start, consumption/delivery obligations, warranties, etc. You may also be able to assign your contract to another off-taker who is already on the permit if you have such an option. Additionally, many self-supply generators are moving their projects to Qualified Supply, so it may be possible to work with your supplier to transfer to the Qualified Supply market together without contract termination in a mutually beneficial manner. This possibility is very specific to your individual contract and the supplier involved.

Q. Are there any reliability considerations if our company switches from CFE Basic Supply to Qualified Supply?

A. There is no change to reliability or power quality compared to your current situation. Distribution service is still provided by CFE, and distribution/transmission service charges are paid to CFE. 

Q. How will the Amendment to the Power Industry Law be expected to impact savings from the open market that are currently on the level of 20-30% vs. CFE rates?

A. The impact will depend on your individual contract, chosen product, and the plant’s location. For example, if you have a material portion of energy coming from the spot market during high price hours and the spot price in this location increases because of changes in dispatch order, then you will experience higher prices. If you have a load-following product with no consumption obligation with minimal exposure to the spot market, your expected savings will likely remain in the range of previous expectations.

An important aspect to consider is also congestion — the difference in the energy prices between the power plant and your facility. Disruptions in nodal spot prices could also be expected to have unpredictable and volatile impacts on congestion charges. In general, we expect offers from Qualified Suppliers to continue to provide a high level of savings vs. CFE, but it is more important than ever to understand the nuances of the offers and protect yourself from issues such as congestion and potential changes in law.

For more information on the Mexico energy landscape, email us and we’ll connect you to one of our subject matter experts.

Access the recording of the full webinar in English: Mexico Market Update: Electricity & Natural Gas