Wood Mackenzie looks at energy reform, investing in Mexico

Integration of market reforms for both the electric power and natural gas industries will be vital to Mexico’s ongoing restructuring of its energy industry, the Wood Mackenzie firm in a September presentation recently posted online.

“Aligning gas and power market rules will be critical to successful implementation of the reforms,” Wood Mackenzie said in a slide presentation that accompanied a larger study.

Mitigating market power in both industries to ensure competition is important, the firm said. Wood Mackenzie added that “Market liquidity across gas and power is interdependent and timing is crucial.”

Mexico’s extensive energy reform, which began in 2013, was also recently looked at by the International Energy Agency (IEA). The reform ends the longstanding dominance of Petróleos Mexicanos (PEMEX) in oil and gas, and of the Comisión Federal de Electricidad (CFE) in the electricity sector, opening up key parts of the energy sector to new players, investment and technology.

The clean energy goals that Mexico has outlined in its energy market reform efforts are aggressive, “but Mexico has strong natural resource potential,” Wood Mackenzie said.

Mexico has set a goal of 40% clean energy compliance by 2035, the firm noted.

Much of the new market design developing in Mexico will mirror highly-developed regional transmission organizations (RTOs) in the United States, Wood Mackenzie said.

Pre-2016 Mexico has had regulated government markets, but the nation’s power grid could evolve into competitive markets akin to those found in the California ISO (CAISO), Midcontinent ISO (MISO), PJM Interconnection (PJM) and ISO New England, according to the Wood Mackenzie slide presentation.

“Mexico’s intended power market design draws upon the successful features of reformed markets around the world,” the firm said.

“Solar dominated the first long-term auction at staggeringly low prices that now seem to be the international norm,” Wood Mackenzie said. The March 2016 solar auction price was $47/MWh. Since then energy auctions in countries like Dubai ($30/MWh) and Chile ($29/MWh), have been even cheaper, the firm noted.

Headquartered in the United Kingdom and started in 1973, Wood Mackenzie is a provider of industry research for the energy, metals and mining industries.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.