Electricity reform, opportunity for the legislative branch

Historically, the electricity sector has suffered from various restrictions for its development, determined by the insufficient public resources to finance the investments of the CFE and, in due course, of the Compañía de Luz y Fuerza del Centro and by prohibitions for the participation of the private investment.

Until before the 2014 reform, the private sector was restricted to independent energy production activities for the CFE, through competitive contracting procedures, as well as the development of self-supply projects.

The reform aimed to stimulate competition between the State’s productive company and private competitors, for the modernization of the system, for which the Constitution was amended to allow private capital in generation and marketing activities, maintaining the exclusivity of the State in dispatch. , transmission and distribution. For this, 9 secondary laws were created and 12 more were reformed.

The CFE was given autonomy and it was established that it would be the owner of the transmission and distribution network. For its part, the National Energy Control Center would operate independently and would be in charge of dispatching under non-discriminatory conditions, taking into account operational and economic efficiency criteria.

The reform anticipated the emergence of new market participants, including generators, marketers, suppliers, and basic and qualified users. The generators would sell their energy through contracts or on spot or day-ahead markets. Prices would be based on variable costs, in such a way as to allow producers to recover fixed costs. Among the incentives to stimulate investment, permit holders were allowed to obtain additional income from certificates of clean energy, power and other services.

In this way, it was planned to achieve compliance with the Paris Agreement, according to which in 2024 35% of the electricity generated in the country must come from clean energy. Technological change, which has made the production of photovoltaic and wind energy cheaper, would help to reduce costs, with which it would be possible to reduce the price difference with respect to the US market, which reached more than 70% (eliminating subsidies).

Finally, the system would be more reliable, thanks to the investment in maintenance and expansion of the network, which would allow solving a problem of technical losses, which at the time of the reform amounted to 16% of the system’s capacity, when at the OECD level the average it was only 6%. Not to mention the known deficiencies in collection and billing.

This reform has been suspended in fact, due to various known events. The new initiative to reform the system threatens even to widen the historical problems, for the following reasons:

1. The initiative represents a radical modification of the rules of the game, affecting the incentives and the climate of confidence for private investment.

2. There are no guarantees of an efficient operation of the CFE. In fact, there have been changes in the relationship of the company with its workers, which will mean the additional disbursement of resources for pensions and benefits, which will hinder the financial viability of the company.

3. It is not perceived how the efficient operation of the system will be achieved, which will reduce costs for domestic consumers and businesses.

4. Sustainable development goals will probably not be met.

5. The asset value of various mutual funds, including Afores, may be impaired.

The last word belongs to the legislature, which will have the responsibility of weighing the arguments in both directions and offering Mexican society a sustainable alternative for growth based on economic efficiency.

* Consultant for Ockham Economic Consulting, specialized in economic competition and regulation and university professor.

@javiernunezmel


Consultant

Competition and Markets

Consultant in Economic Competition and Regulation, he is also a university professor.

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