The Mexican Ministry of Energy publishes a new public policy that changes the rules of the game for wind and photovoltaic power plants

In general, the new Policy establishes "reliability“, defined by SENER therein, as the core principle to allow interconnection to the National Electric Grid (SEN) and to dispatch energy, which will create technical barriers to the interconnection of intermittent power sources, specifically wind and photovoltaic plants. By imposing reliability criteria for energy dispatch over economic efficiency; increasing costs for market participants, and modifying the regulatory framework of the recently created open and competitive Wholesale Electricity Market (MEM), the Policy may hinder free competition for renewable technologies in favor of conventional technologies operated by state-owned companies which are in turn strengthen by this new Policy.

Below are some of the relevant provisions of the Policy that may imply a regulatory burden on the various Participants in the MEM.

RELEVANT MEASURES

Priority of Strategic Projects

SENER will be able to define strategic power generation projects which development and implementation are necessary to comply with the National Energy Policy, and such projects should be granted priority in the Interconnection in the National Transmission Network (RNT) or the General Distribution Network (RGD).

Scheduled reductions in case of emergency

The National Center for Energy Control (CENACE) through a State of Alert and Emergency Operation declaration may undertake programmed reductions of output in wind and photovoltaic plants (WP Plants).

Payment of Related Services by Generators with EF Plants

Generators representing WP Plants in the MEM with characteristics that cause an increase in the requirements of Related Services to guarantee reliability in the operation of the SEN, must cover the costs associated with such increased requirements.

Reevaluation of Interconnection Contracts and Generation Permits

If the Interconnection Contract or Generation Permit of a WP Plant is canceled, CENACE will reevaluate the feasibility of the relevant project depending on (i) the entry and advance position in its platform called SIASIC, (ii) the Interconnection point requested, and (iii) the intermittent clean energy generation regional accommodation capacity considering the reliability of the SEN.

Rejection of Interconnection applications in congested locations

If any WP Plant requests a study in an Interconnection point, zone, region or system in which there are already congested transmission and transformation elements, due to lack of generation resources to compensate intermittency and to maintain control of the frequency, reliability and selectivity of protection mechanisms, CENACE based on a criteria of sufficiency, energy dispatch security and economic efficiency, may reject such application. SENER will determine the date of reopening of receipt of applications and follow-up to the applications in process.

New criteria for grid expansion

When evaluating studies for the expansion of the RNT and the RGD of the MEM, and interconnection studies of  WP Plants, CENACE shall consider:

Feasibility opinion as a new requirement

CENACE shall issue a feasibility opinion as a requirement, considering planning and efficient operation of the SEN, as well as reliability requirements. This requirement is not only additional for interconnection contracts, but will also have an impact on the generation permits already granted by the Energy Regulatory Commission (CRE).

Decrease in Annual Credited Power

Delivered Capacity of WP Plants will be considered as a decrease in the Credited Annual Power of the Participant representing such plants in the MEM, and as a decrease in the Annual Power Requirements (RAP) of all the Charge Responsible Entities, proportionally to their initial RAP, for the purposes of the MEM calculations of power balance.

Termination of permits due to non-compliance

New provisions to be issued by CRE for the issuance of generation permits shall establish that the applicants must evidence technical and financial capacity prior to the granting and during the term of effect of such permit, provided it may be terminated in case of default. This indicates that power generation permits may no longer be modified, in addition to the fact that applicants for new permits (i.e. special purpose vehicles) must show technical and economic capacity when requesting the permit. 

Cancellation of permits and contracts due to non-compliance

CRE shall issue the applicable regulatory provisions that will condition the power generation permit holders to comply with all the goals of the new Policy in order to remain interconnected to the SEN. It may be inferred that amended or new power generation permits and/or interconnection contracts may be canceled if they do not meet the purposes of the Policy.

Subsequent changes

Pursuant to the transitory provisions of the Policy, and its article 2.2. CRE and CENACE shall conform their respective regulatory provisions to the Policy. This implies that the MEM Guidelines will be changed to conform to the Policy.

Challenges by the industry

The Policy, as well as the prior executive ruling issued by CENACE on May 1st, are being challenged before Mexican courts by some participants in the electricity industry, through the amparo trial. Additionally, it is anticipated that those companies with foreign capital participation could file claims pursuant to investment arbitration under the bilateral and multilateral free trade and investment treaties entered into by Mexico.

For additional information regarding the above, please contact our experts in Garrigues México.