Mexico Announces Guidelines for Issuance of Clean Energy Certificates

Dec 1, 2014

On October 31, 2014, Mexican Secretary of Energy Pedro Joaquín Coldwell published a notice in the Official Gazette, detailing the guiding criteria for the issuance of Clean Energy Certificates (CELs), as well as for the requirements to obtain them. The official announcement of these CEL criteria follows the December 2013 constitutional reform that fundamentally overhauled the Mexican hydrocarbon and power sectors, i.e., the so-called “Mexican Energy Reform.” Nexant explores below the institutional actors involved in Mexico’s emerging CEL market and, also, what we can expect in the coming months and years in this area.

Mexico’s August 2014 Power Industry Law, one piece of the Energy Reform’s follow-on secondary legislation, about which Nexant has previously blogged, reaffirms and updates the authority of the Secretary of Energy, the Energy Regulatory Commission (CRE) and the National Energy Control Center (CENACE) in regard to energy source diversification policy, energy security and the promotion of clean energy, as defined under Article 3, Subsection XXII of the Power Industry Law. Consistent with this delegation of authority and, also, the goal under Mexico’s June 2013 National Climate Change Strategy of achieving 35 percent of its power generation from renewable sources by 2023,

  • Secretary of Energy will (i) establish the criteria for the issuance of CELs to clean energy generators, and (ii) establish the obligations and requirements for the acquisition of CELs by suppliers, qualified wholesale power market users or end-users not in possession of sufficient CELs to cover their consumption of non-clean power (“Obligated Participants”),
  • CRE will be responsible for (i) issuing CELs to clean generators (or suppliers, where applicable), (ii) the establishment of monitoring, reporting and verification requirements to validate CEL ownership for the purpose of bilateral CEL transactions, and (iii) initiating administrative sanction proceedings against Obligated Participants in non-compliance with CEL requirements, and
  • CENACE will (i) report to CRE any instance in which a clean energy plant generates power in violation of CENACE dispatch instructions, in which case there will be no issuance of CELs for such generation, (ii) determine the market-clearing price at which the supply for CELs equals the demand for the same, and (iii) report to CRE all wholesale power market CEL transactions.

Additionally, at least once per year the Secretary of Energy, CRE and CENACE will publish a report detailing the performance and trends in the CEL market, the total and unit CEL cost by technology type, the share of clean energy out of total generation, and the impact of clean energy and CELs on power costs and rates.

The guiding criteria contemplated under the October 31, 2014 notice in the Official Gazette enter into force on January 1, 2015; however, the notice gives the Secretary of Energy until late-March 2015 to issue requirements for CEL acquisition by Obligated Participants starting in 2018, i.e., there will be no requirement for Obligated Participants to obtain CELs in 2015, 2016 and 2017. The notice also establishes 2018 as the year that the issuance of CELs to clean power generators for sale will commence.

The publication by CRE and/or CENACE of initial CEL Market Rules remains forthcoming, but is forecast for June 2015. These initial CEL Market Rules will establish the manner in which parties will negotiate CELs through the wholesale power market. Additionally, the October 2014 notice on CELs asserts that these initial Market Rules will set the procedures for CEL auctions in which utilities and other wholesale power market actors may participate. Press reports unofficially estimate the issuance of 28.5 million CELs by 2028, and a possible 29 percent reduction in CO2 emissions over the next 15 years as a result.