Towards a Greener Mix

Mexico’s new policy focuses on clean power generation

Mexico is working towards making its power network clean, efficient and resilient. Under its Plan Nacio­nal de Desarrollo (PND) 2019-2024 or National Development Plan 2019-2024, the country envisages promoting sustainable development by involving communities in the production of energy from rene­wable sources. The objective is to electrify about 2 million inhabitants of small, isolated communities in the country. This has led to a shift in the areas of focus of the Secretaría de Energía (SENER) or Ministry of Energy. The ministry is now emphasising distributed generation (DG), mainly for the electrification of isolated or backward are­as, rather than investing in large transmission projects, to connect them to the na­tional grid. The DG installation proposal in Mexi­co considers states with municipalities that have less than 2,500 inhabitants (rural communities), have a higher percentage of people living in poverty, and do not have electricity supply.

This also follows the country’s ambitious plans to increase the share of clean en­ergy sources in the total generation mix to 54.2 per cent by 2036, including battery en­­ergy storage (BES), hydrogen-based co­­mbined cycle power plants or central de ciclo combinado (CCC), and solar ph­o­­tovoltaic (PV)-based DG capacity. The rising share of intermittent generation fr­om clean energy projects also poses is­s­u­es for the existing traditional grid. To deal with this, SENER is promoting BES capa­city as well as offering tax benefits for BES-based clean DG projects.

SENER recently published the Programa de Desarrollo del Sistema Eléctrico Na­cional (PRODESEN) 2022-36 or the Natio­nal Electric System Development Plan 2022-36, with an emphasis on DG, BES and smart grids. Under PRODESEN 2022–36, SENER plans to add over 56 GW of generation capacity, including 9 GW (16 per cent) of DG capacity and 4.6 GW (8.2 per cent) of BES capacity. Althou­gh BES integration is not being considered in the short term (only 72 MW during 2022-25), it is expected that with the ch­an­ge in inverter, its share in the total generation capacity will increase. About 40 per cent of the total planned capacity will be based on clean energy sources.

As per SENER analysis, the rising share of DG is also likely to reduce the net electricity demand handled by the Red Nacional de Transmisión (RNT) or National Trans­mission Network, and the Redes Gene­rales de Distribución or General Distr­ib­u­tion Network (RGD) thus impacting their planning and modernisation requirements as well. In the planning scenario for PRO­DESEN 2022-36, of the total net consu­mp­tion of 4,80,537 GWh, DG is likely to contribute 15,156 GWh, representing a 3 per cent reduction in the net consumption handled by RNT and RGD. Similarly, under the alternative scenario, rising die­sel-based energy generation is likely to reduce net energy consumption handled by RNT and RGD in 2036 by 4.9 per cent. These estimates do not include savings in the transmission and distribution losses.

In accordance with this generation type and capacity, RNT and associated RGD network expansion plans have also been mentioned in PRODESEN 2022-36. As per the analysis, over 5,058 ckt km of line length and about 30 GVA of substation capacity will be added in the country during 2022-36. This includes 15 new RNT projects and 17 new RGD projects with a cumulative capacity of 136 ckt km and 2,007 MVA. SENER, under the latest PRO­DESEN, has maintained its focus on the upgrade and modernisation of the transmission network, instead of investing in large transmission projects.

Planned generation capacity under PRODESEN 2022–36

PRODESEN includes the Programa Indi­cativo para la Instalación y Retiro de Centrales Eléctricas (PIIRCE) or Indica­tive Program for the Installation and Re­moval of Power Plants, under which SENER pla­ns the power generation network for the studied period. For the period 2022-36, SENER plans to add over 56 GW of generation capacity, the majority of which will be based on clean energy sources. This generation capacity addition has been di­vi­ded into two phases – 2022-25 and 2026-36.

For the 2022-2025 phase, projects with an interconnection contract and strategic infrastructure projects  are considered. Starting from 2026, projects resulting from the medium- and long-term optimisation process are also integrated. The objective is to guarantee efficiency, reliability, continuity and safety of the Sistema Eléctrico Na­cional (SEN) or National Electric Sys­tem  as well as the fulfilment of the clean energy goals of the country. This will minimise the cost of operation of the SEN in the medium and long term.

During 2022-25, 16,568 MW of generation capacity will be added, and from the pe­riod 2026 to 2036, PIIRCE estimates an incorporation of 39,510 MW of capacity, including the DG capacity based on solar PV (6,679 MW).

About half the planned capacity under PRODESEN 2022-36 is based on clean energy. To maintain the stability of the SEN amidst the rising share of intermittent energy generation capacity, SENER is also focusing on CCCs and internal combustion power plants to maintain grid flexibility. These projects have been catego­rised as strategic infrastructure projects (necessary to comply with the national energy policy of the PND 2019-2024). The incorporation of hydrogen in the CCCs will reduce the consumption of natural gas in these power plants.

During 2022-25, 5,671 MW of CCCs with na­tural gas and 1,508 MW of internal co­m­bustion-based power is planned. Du­­­ring 2026-36, 3,481 MW of CCC capa­city, 4,366 MW of hydrogen-based CCC ca­­pacity, and 1,340 MW of cogeneration ca­­­pa­city have been planned. Toge­ther, the­se account for about 30 per cent of the total planned capacity.

In the PIIRCE 2022-2036, the incorporation of storage systems is considered (4,505 MW during 2026-2036) to increase the operational flexibility and reliability of the SEN.

For DG capacity, two growth scenarios (planning and greater dynamism or alternate) were analysed under PRODESEN 2022-36. For the planning scenario, the in­stalled capacity of DG is estimated to reach 4,964 MW by 2026, at a growth rate of 146.4 per cent with respect to its existing capacity as of 2021. In the case of the alternative scenario, it is estimated that by 2026 there will be an installed capacity of 6,728 MW and an average annual growth of 943 MW.

During 2022-36, 3,447 MW of the existing capacity will be replaced as part of the strategy to strengthen the national energy policy. This includes 3,433 MW of thermal capacity and 14 MW of geothermal units. During 2024 and 2025, a majority of the generation capacity will be replaced.

Outlook

SENER has set some optimistic targets for the improvement of the country’s po­wer network under PRODESEN 2022-36. It has, however, been criticised for in­cor­po­rating fuels with a high social, environmental and climate impact, such as gas and fuel oil, mainly for CCC projects. The government has been favouring fossil fuel sources such as gas and fuel oil for power generation. According to data from the annual reports of CFE from 2020 to 2021, the share of energy generation from fuel oil increased from 5.65 per cent to 13.8 per cent, representing an annual inc­rease of 144 per cent. This is despite the fact that this type of fuel is more expensive, less efficient and has greater environmental impact.

Further, the political and legislative uncertainty in the country has always affected its electricity sector. Recently, the Mexican President proposed changes to the Ley de la Industria Eléctrica (LIE) or Electric Industry Law, including modifying the grid despatch rules to prioritise electricity generated by CFE, granting clean energy certificates to CFE power plants, empowering Mexico’s energy regulatory commission, Comisión Reguladora de Energía (CRE), to revoke generation permits gra­n­ted to private parties, and promote the review of long-term power purchase contracts en­ter­ed into with investors. Sena­tors, Comisión Federal de Competencia Económica (COFECE) or Federal Econo­mic Com­pe­tition Commi­ssion (COFECE) and the State of Colima pleaded against these reforms in Suprema Corte de Justi­cia de la Nación (SCJN) or Supreme Cou­rt of Justice of the Nation, arguing that the proposed LIE reforms are unconstitutional as they contradict the established jurisdiction, the free market, and access principles of the energy market. If implemented, these changes will impact the private sector participation in the country’s generation network, and thus affect the transmission and distribution network financing capacity of CFE.

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