Alert
Alert
By
11.06.14
As part of a historic restructuring of its electrical power sector, Mexico will create a market for tradable Clean Energy Certificates, which many industry participants will be required to obtain. Guidelines issued by the Mexican Ministry of Energy set forth the criteria for granting these clean energy certificates, a framework for buying and selling them, and a procedure for establishing the obligations of market participants to obtain the certificates.
One of the objectives of the Mexican energy reform is to promote the use and development of clean energy. In 2012, Mexico set a goal of obtaining 35 percent of its electricity from clean sources by 2024.
The Law of the Electricity Industry (the “Electricity Law”), which became effective on August 12, 2014, established tradable Clean Energy Certificates (Certificados de Energías Limpias, or “CELs”) as the primary mechanism for encouraging clean energy. President Enrique Peña Neto announced that the guidelines for CELs (the “Guidelines”) would be issued in October of this year. On October 31, the Ministry of Energy (Secretaría de Energía, or “SENER”) issued the Guidelines, which will become effective on January 1, 2015.
As discussed in our prior publications regarding the Mexican power sector reforms1, “Clean Energy” as defined in the Electricity Law includes not only renewable energy such as solar and wind, but also efficient cogeneration, nuclear power, hydroelectric power, other low-carbon emission technologies (which could include highly efficient fossil fuel-based generation), and future clean energy technologies.
Under the Guidelines, each entity that represents a power plant or other facility that generates electricity from such “Clean Energy” sources is referred to as a “Clean Generator.” An eligible Clean Generator2 will have the right to receive one (1) CEL for each megawatt-hour (“MWH”) of electricity that is generated without using fossil fuels. If fossil fuels are used at any such facility, then for each MWH of electricity generated, an eligible Clean Generator will be entitled to receive one (1) CEL multiplied by the percentage of that facility’s output which was not generated using fossil fuels, as certified by the Energy Regulatory Commission (Comisión Reguladora de Energía, or the “CRE”). This percentage will be calculated for each facility based on a methodology to be established by the CRE at a later date.
As a result of this formula, fewer CELs will be issued for generation from facilities that use fossil fuels than will be granted for generation from facilities that do not use fossil fuels, but the exact percentages that will be applicable to fossil fuel facilities have not been established and will depend on the methodology that the CRE formulates for such calculations. The particular methodology adopted by the CRE will be a critical issue affecting the competitiveness of Clean Energy derived from solar, wind and geothermal, but the Guidelines do not provide any insight into what the methodology will be or when it will be published by the CRE.
The Guidelines also provide an additional incentive to install distributed generation from Clean Energy sources (“Clean Distributed Generation”). For Clean Distributed Generation, the number of CELs that otherwise would be issued to an eligible Clean Generator based on the above formula will be increased based on a ratio that reflects the total power losses in the Mexican electrical power system. Accordingly, when the total power losses on the system are higher, the percentage increase in CELs issued for Clean Distributed Generation will also be higher. This is a method of encouraging more Clean Distributed Generation in order to reduce power losses in the system.
Clean Energy generated for a facility’s own use will not earn CELs. In addition, no CELs will be granted for electricity generated in violation of the dispatch instructions of the independent system operator of the Mexican national electrical system, which is known as the National Energy Control Center (Centro Nacional de Control de Energía, or “CENACE”).
Read More: Mexico’s Guidelines for Clean Energy Certificates Will Support Renewable Energy Development