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Mexico's power sector continues the transition toward a more
open industry, most notably in the generation sector. Current total
installed capacity in the country accounts for nearly 75 GW, with a
24% share for private generators, most of them under the legacy
framework and a few others already operating under the new rules.
In addition, there is an 18% share on installed capacity that is
effectively owned by private generators, although the rights for
such capacity and energy generated are owned by the Comision
Federal de Electricidad (CFE), through the legacy independent power
producer (IPP) model.
Despite the increasing penetration of private generators, the
role of CFE is still relevant given its contribution in the newly
created wholesale market, where the bulk of energy and capacity
traded belongs to its generation subsidiaries (nearly 95% of the
wholesale market capacity). However, the challenges associated to
CFE's generation fleet are relevant for the operation of the new
market. CFE's own capacity is 43 GW (not including legacy IPPs) and
has a weighted-average age of 36 years. It is composed mainly of
nearly 10 GW of oil-based capacity and more than 13 GW of gas-fired
capacity, with the rest divided among coal, nuclear, hydro, and a
small share of renewables. All these factors combined with the
current financial situation, which holds back own investment
capacity, challenge CFE's position in the generation sector and the
system reliability into the future.
While power auctions are becoming a key mechanism to expand the
clean energy share, firm generation sources will still need to find
supporting and long-lasting mechanisms that keep pace with power
demand growth and the eventual retirement of old and inefficient
power plants. End-consumer demand's compound average growth rate
has been above 3% in the last 7 years, while peak demand reached 43
GW in 2017, leading to a tight firm reserve margin of 6%. In 2018,
the firm reserve margin has been reported to be lower than 5% in
June, compromising reliability of the network.
Going forward, the expansion of the generation fleet will have
to rely on new market mechanisms and private generators' ability to
leverage their experience in the country to either invest in new
power capacity or upgrade existing facilities. CFE's role will
continue to be important, but it remains to be seen how important
it will be under the new administration.
