Mexico, like many countries around the world, has committed to ambitious targets in terms of sustainability. Because of those commitments, the Mexican power system must integrate a large share of clean energy sources (mainly renewable and nuclear) into its power generation portfolio as the main component of an energy transition.

In 2020, the Mexican government endorsed specific targets for the short and long term. Among those targets, it was established that Mexico would generate 35% of its electricity from clean energy sources by 2024. But according to most recent National Electric System Development Program 2022 – 2036 (known as PRODESEN by its Spanish acronym) issued this May 2022 by the Ministry of Energy, the targets for clean energy integration won't be met until 2035, causing an important delay in Mexico's path toward an energy transition.

This article discusses the current condition of the Mexican power system and identifies the main challenges it is facing in terms of generation and transmission, both in the technical and regulatory arenas. Along with those challenges, it is also important to identify opportunities to overcome those challenges, understanding that both the public- and private-sectors need to find new ways to complement each other to return Mexico to the path of meeting its energy transition goals.

The Mexican power system (MPS) has the inalienable task of expanding and modernizing its infrastructure (generation, transmission, and distribution) to meet the country's growing electricity demand over the coming years. In so doing, it must overcome technical and regulatory challenges that are not necessarily facilitating these endeavors. These challenges include growing pressure from numerous government stakeholder agencies to increase the participation of private actors in the wholesale electricity market (WEM), reduce electric tariffs, improve grid reliability and performance, and increase the share of variable (not intermittent) renewable energies (REs) in the system.

The MPS is faced with the conundrum of meeting electric demand while also meeting stakeholder expectations all within the context of an energy transition that aims to achieve sustainable development goals. This article neither attacks nor defends the government measures intended to change the structure of the WEM and the way the private and public sectors interact with each other. The intent of this article is to present a factual account of the current challenges the MPS is facing and highlight the opportunities that lie ahead to overcome those challenges by taking advantage of available technology and an innovative regulatory framework.

To gain a better understanding of the current situation of the Mexican power sector, it is necessary to describe, from a technical point of view, the current condition of the electrical infrastructure. According to PRODESEN 2022 – 2036, at the end of 2021, Mexico had an installed capacity of 86.15 GW and annual generation of 328, 597 GWh (Table 1).1 As can be seen in Table 1, Mexico's electricity generation is still very dependent on fossil fuels— natural gas, coal, oil and diesel fuel account for 70% of the electricity generation).

Table 1.

Installed Capacity and Energy Generation in Mexico

Installed Capacity and Energy Generation in Mexico
Installed Capacity and Energy Generation in Mexico

The purpose of every power system in the world is to serve its load in a reliable manner. In these terms, reliability encompasses two fundamental principles known as resource adequacy2 and system security.3 The load drives the growth of generation infrastructure (MW), transmission (km-c), transformation (MVA) and compensation (MVAr). In the case of Mexico, the maximum demand registered in 2021 was 45, 244 MW during the summer period (Figure 1).

Figure 1.

Demand in the MPS.

Figure 1.

Demand in the MPS.

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The transmission grid in Mexico is quite extensive. The bulk power system (BPS) includes an infrastructure that operates from 69 kV up to 400 kV. According to PRODESEN 2022, there are 110, 549 km of transmission lines, 190,000 MVA capacity substations operating in the WEM, and a distribution grid with more than 878,000 km of medium voltage lines (2.4 kV up to 34 kV).

“Pain Points” in Generation

Now that we have described the main technical characteristics of the MPS, it is necessary to discuss the main challenges it faces to continue operating in a reliable manner. First, we must mention the challenges related to electricity generation. As a consequence of energy reforms that began to be implemented in 2013, the electricity generation sector was fully opened to competition. The national electric utility (CFE) and private companies begun competing in the WEM for electricity dispatch.

At first glance, it might seem odd that there are problems to be solved when there are 86 GW of installed capacity to serve a 45 GW demand load. However, we must distinguish between “installed capacity” and “available capacity.” The former term refers to the sum of the nameplate capacities of all generators within power plants in the country, whereas the latter refers to power plants that are in suitable condition to generate electricity.

The gap between those two concepts can explain the events (fuels shortages, unit failures, and corrective maintenances, to name a few) that prevent power plants from generating energy. For instance, according to the Reliability Report 2020 (RR2020) issued by the Energy Regulatory Commission (CRE),4 there was an average of 15 GW of unavailable generation capacity during high demand hours,5 of which 7.4 GW was related to natural gas shortage.

Another hurdle comes from the regulatory point of view, since obtaining a generation permit from the CRE has become an uphill task. In recent years, the number of generation permits granted has decreased (see Figure 2) and interconnection studies carried out by the National Energy Control Center6 (CENACE) are delayed—and, when completed, usually request a copious amount of grid reinforcements, making generation projects (especially renewables) economically unfeasible.
Figure 2.

Generation Permits Granted by CRE.

Figure 2.

Generation Permits Granted by CRE.

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“Pain Points” in Transmission.

For electrical engineers, it is reasonable (if not mandatory) to expect bulk power system (BPS) expansion to be linked to generation expansion. However, this has not been the case in Mexico, where the transmission sector is not open to competition and, as a result of Constitutional reforms in 2013, is fully under the government´s control through different agencies. Those agencies include the Ministry of Energy (SENER), which approves expansion and modernization; CENACE, which oversees control and proposes expansion; CFE, which is responsible for system operation, construction, and maintenance; and CRE, which regulates tariffs and performance metrics. In recent years, the BPS has practically not grown (see Table 2), resulting in a more congested and overloaded grid trying to manage a growing share of RE and serve growing demand.

Table 2.

BPS expansion 2018 – 2021. *CAGR = Compound annual growth rate

BPS expansion 2018 – 2021. *CAGR = Compound annual growth rate
BPS expansion 2018 – 2021. *CAGR = Compound annual growth rate

Again according to RR2020, CENACE declared an “alert condition” 1,808 times in the MPS during 2020.7 The lack of transmission infrastructure and failures in one of its elements (lines or substations) were the root cause of these alerts and accounted for 98.3% of the reasons why CENACE had to declare those conditions. A weak BPS has negative impacts both on the operation of the MPS and the performance of the WEM. On one hand, CENACE and CFE have to operate the MPS with congested lines and overloaded elements; on the other hand, congestion and energy losses costs increase, resulting in higher LMPs.8

The Regulatory Framework

In recent years, the energy sector in Mexico has experienced numerous changes. Since 2018, there have been various initiatives by the current government to modify the regulatory framework of the electric industry.9

For example, Mexico has halted long-term energy auctions specifically designed for the CFE to buy clean energy, taking advantage of a power purchase agreement with the private sector. Three such auctions were successfully implemented between 2015 and 2017, enabling the MPS to award 7.6 GW of new installed capacity (solar and wind) and attracting investment in excess of 9 billion USD. During the 2017 auction, Mexico set a world record for the lowest electricity price coming from RE (20.57 USD/MWh) offered to CFE (Figure 3). Meanwhile, SENER was conducting transmission auctions to help CFE built new transmission lines in the south part of the country10 and to connect Sonora with Baja California using HVDC technology.
Figure 3.

Energy Auctions.

Figure 3.

Energy Auctions.

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In addition, the government has attempted to modify the regulatory framework through different policies and rules proposed by SENER and especially CRE. However, the vast majority of those initiatives have been blocked by judicial action and are still pending resolution.

Within this context, it is necessary to highlight the fact that President Lopez Obrador proposed a constitutional reform in September 2021 trying to reverse the energy reforms of 2013. Although the reform was not approved by the Mexican Congress, in March 2021 the Congress did pass several amendments to the Electric Industry Act to permit CENACE to give priority to the energy produced by CFE within the economic dispatch process. Those amendments are still being challenged in court by numerous stakeholders. The resulting regulatory uncertainty has become a major hurdle to investment in Mexico, preventing private sector participation in MPS expansion and modernization and leaving the sole responsibility for those activities to CFE, which does not seem to have a sufficient budget to carry them out.

Energy Transition

The fundamental driver behind energy transitions in most countries is to increase the share of clean energy sources while satisfying the needs of end users. The SENER sees Mexico's energy transition (ET) as a planned expansion of the energy matrix within a 30-year horizon. The SENER's view is that an ET implies a sustainable change of the current energy, industrial, technological and economic systems based on the transformation of non-renewable energy sources toward a new energy system based on the progressive consumption of clean electricity (including RE and nuclear energies).

In February 2020, the SENER updated the Transition Strategy to Promote the Use of Technologies and Cleaner Fuels,11 in which it endorsed a clean energies target of generating 35% of electricity with clean sources (RE and nuclear). According to PRODESEN 2022 – 2036 (published by the SENER at the end of May), Mexico will not achieve the goals that the current government endorsed two years earlier (Figure 4).
Figure 4.

Clean Energy Targets for the MPS.

Figure 4.

Clean Energy Targets for the MPS.

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The pace of the ET that the current government has endorsed is posing challenges that the MPS has not addressed successfully, considering that the clean energy integration goals won't be met for the period 2022-2034.

This article has described how technical challenges such as the low integration of RE, the widespread unavailability of power plants during high demand periods, and a congested and overloaded BPS are affecting reliable operation of the MPS. This article has also described how regulatory uncertainty is preventing investment in the energy sector. Both the technical challenges and the regulatory uncertainty are creating a “perfect storm” that is preventing Mexico from moving forward toward the fulfillment of its ET goals.

Despite the challenges Mexico is facing, it is necessary to look ahead and take advantage of the opportunities that exist to meet out ET goals. Over the coming years, we are obligated to accelerate an orderly integration of clean energy sources into the MPS, so a set of opportunities should be studied and developed.

Complimentary Technologies

The integration of clean energies will focus mainly on solar photovoltaic (SPV) and wind power generation, but we must not fail to consider other technologies (such as hydro, geothermal, and nuclear) that can contribute significantly to our ET goals. With the integration of such resources, it will be necessary to develop “complementary technologies” to ensure that reliable operation of the MPS is never at risk for any reason. Among those technologies are energy storage systems,12 which should be developed further since they are able to provide services that will allow the CENACE to control and operate the MPS in a reliable and safe manner.

However, within the storage technology sector, the use of batteries (BESS) and green hydrogen (H2), which can also be used by the transmission sector, will soon stand out. On its ET journey, the MPS must consider technological improvements in renewable generation equipment and contemplate the intensive use of storage systems. First BESS, then green H2.

These technologies can provide ancillary services related to primary frequency regulation (active power control), voltage control (reactive power control), and contingencies (fault-ride-through capabilities). Those services could provide more flexibility to the MPS and allow it to improve the integration of variable sources of energy such as SPV and wind.

Reinforce the BPS

Expansion plans come and go, but the transmission infrastructure has remained the same. The issue that needs to be solved is not related to better planning, but to the implementation of that planning. It has been demonstrated that the CFE alone has not been able to meet the transmission expansion requirements proposed by the CENACE and approved by the SENER, so it is advisable to revisit the transmission investment opportunities to help the CFE be more effective. Mechanisms such as public-private partnerships and Fibra-E, which in 2018 raised around 800 million USD,13 have proven useful. If the government insists on excluding the private sector from participating in the BPS expansion, then it should provide the CFE with suitable mechanisms to finance and build the transmission grid that the MPS so badly needs.

Create Regulatory Certainty

Stable and transparent policies and regulations are fundamentally important for continued investment in the RE sector in Mexico. Unfortunately, investors’ confidence in the energy sector plummeted because of a changing regulatory framework that has hampered RE projects in Mexico. There is an opportunity to strengthen investors’ confidence by having a more open process wherein the SENER and CRE would solicit the participation of stakeholders during the early stages of a policy and regulation formulation process. This would very likely reduce private sector lawsuits and court appeals.

There is already some regulation in place on RE projects’ interconnection and permitting, ancillary services provided to the WEM, the ESS and their participation in the WEM, and transmission expansion through regulated tariffs. The CRE does not have to start from zero; indeed, it has the opportunity to further develop regulations to create an environment of regulatory certainty that encourages the participation of the private sector and complements (not replaces) the CFE to achieve our ET targets.

Due to numerous factors, including technical and regulatory challenges, Mexico's ET goals that were previously endorsed by the current administration are not being met. As a result, the government is facing critical choices in terms of implementing its ET agenda.

The positive side (if any) of being late with RE integration is that we can learn from other countries’ experience. Mexico does not have to reinvent the wheel, since there is a vast international experience to draw on in terms of ancillary services markets, BESS integration and operation, and mechanisms to finance transmission grid expansion. It is important to learn from international experience, but it is more important to dispense with the idea of “copy – paste” solutions, since a mechanism that works in some other countries may not necessarily work in Mexico.

Finally, all stakeholders in the energy sector, both private and public, need to do some soul searching about why we are in this situation. The government must consider providing regulatory certainty to create a more suitable environment for private investment. Such investment is needed for BPS expansion and RE integration and will signal to the private sector that Mexico once again is an attractive investment choice for their zero carbon plans.

1.
Programa de Desarrollo del Sistema Eléctrico Nacional 2022 – 2036. Secretaría de Energía, México, 2022. https://www.gob.mx/sener/acciones-y-programas/programa-de-desarrollo-del-sistema-electrico-nacional-33462.
2.
Reporte de Confiabilidad 2020- Comisión Reguladora de Energía (2021), México, 2021. https://www.gob.mx/cms/uploads/attachment/file/693799/RCSEN_2020_VF.pdf.

1. PRODESEN is issued by the Ministry of Energy on an annual basis. It contains the expansion planning of the power sector, considering a planning horizon of 15 years.

2. According to the NERC, resource adequacy is the ability of the electric system to supply the aggregate electrical demand and energy requirements of end-use customers at all times, taking into account scheduled and reasonably expected unscheduled outages of system elements.

3. System security should be understood as the ability of the electric system to withstand disturbances such as short circuits or the unanticipated loss of system elements (generators, transmission lines, substations, etc.).

4. Reliability Report 2020 of the Mexican Power Sector issued by the Energy Regulatory Commission available at: https://www.gob.mx/cms/uploads/attachment/file/693799/RCSEN_2020_VF.pdf

5. This analysis was made during the 100 critical hours (referring to the top 100 hours when demand was the highest during 2020).

6. CENACE is the Independent System Operator in Mexico responsible for MPS Operation and WEM administration.

7. The Mexican Grid Code defines “alert condition” as one in which electric variables in the system may still be within reasonable limits but (n-1) criterion is not met.

8. Local marginal price is the sum of the costs of energy, congestion and losses.

9. The electric industry includes activities such as generation, transmission, distribution, planning and control of the MPS and the administration of the WEM.

10. Mainly in Oaxaca and Chiapas, where Mexican hydro and wind resources are most abundant.

11. Federal Order issued by the the Sener (Ministry of Energy) to approve the update of the Transition Strategy to Promote the Use of Cleaner Fuels and Technologies according to the Energy Transition Law available at: https://www.dof.gob.mx/nota_detalle.php?codigo=5585823&fecha=07/02/2020#gsc.tab=0

12. Energy Storage services such as BESS, re-pumping systems and flywheels, etc.

13. According to CFE Capital which is a subsidiary of the CFE with the objective of administrating all trusts and CFE´s assets, including investment trusts in energy and infrastructure.

Héctor Beltrán is an Electrical Engineer graduated summa cum laude from the National Autonomous University of Mexico (UNAM) with a specialty in operation and control of Power Systems. He has a Master of Science Degree from the University of Illinois in the United States with a specialization in planning and expansion of Power Systems and a Master in Public Administration Degree from the National Institute of Public Administration. He worked at the Engineering Institute of UNAM in renewable energy projects and worked for 12 years in the Energy Regulatory Commission, holding numerous positions, including General Director of the Electricity Unit. He was directly responsible for the development of various regulatory instruments of a technical nature within the Electricity Industry, including the Grid Code.

Héctor is an expert energy consultant and currently an academic at the UNAM Faculty of Engineering, teaching at the postgraduate and undergraduate levels. He is also part of the Steering Committee of the International Council of Large Electric Networks (CIGRE Mexico) where he serves as Secretary of Institutional Relations.

Héctor Beltrán is an Electrical Engineer graduated summa cum laude from the National Autonomous University of Mexico (UNAM) with a specialty in operation and control of Power Systems. He has a Master of Science Degree from the University of Illinois in the United States with a specialization in planning and expansion of Power Systems and a Master in Public Administration Degree from the National Institute of Public Administration. He worked at the Engineering Institute of UNAM in renewable energy projects and worked for 12 years in the Energy Regulatory Commission, holding numerous positions, including General Director of the Electricity Unit. He was directly responsible for the development of various regulatory instruments of a technical nature within the Electricity Industry, including the Grid Code.

Héctor is an expert energy consultant and currently an academic at the UNAM Faculty of Engineering, teaching at the postgraduate and undergraduate levels. He is also part of the Steering Committee of the International Council of Large Electric Networks (CIGRE Mexico) where he serves as Secretary of Institutional Relations.

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