Mexico Sets 2018 Clean Energy Certificate Acquisition Requirement at Five Percent; Related Final Wholesale Power Market Rules Remain Forthcoming

Apr 23, 2015

On March 31, 2015, Mexico’s Secretariat of Energy (SENER) issued a notice in the Official Gazette establishing the amount of clean energy generation that major power consumers will be required to buy starting in 2018, either through (i) contracts with clean power suppliers, or (ii) purchase of clean energy certificates (Certificados de Energía Limpia (CELs)).  Director-General for Electric Power Generation and Transmission Oliver Ulises Flores Parra Bravo set the 2018 CEL acquisition requirement at five percent, following an October 2014 Official Gazette notice establishing the guidelines for CEL issuance; this CEL acquisition requirement is among the most recent developments to occur in the context of the Mexican Energy Reform roll-out, which overhauls the Mexican hydrocarbons and power sectors.

According to the March 2015 notice, the five percent CEL acquisition requirement for 2018 will be applicable to certain Power Suppliers, Qualified User Market Participants, Isolated Supply End-Users and holders of interconnection contracts “grandfathered in” from prior to entry into force of the Energy Reform’s Power Industry Law.  This requirement is, in general terms, a quotient representing clean power generation as a portion of total power consumed, from the perspective of major power consumers subject to the requirement.  In specific terms, the numerator of this CEL acquisition quotient corresponds to an estimation of certain clean generation (i.e., from (i) clean power plants in operation after August 11, 2014, (ii) certain state-owned or state-funded power plants in operation before August 11, 2014, having made modifications to increase their clean energy production, and (iii) clean power plants with capacity excluded from a “grandfathered” interconnection contract in order to fall under an interconnection contract that observes the terms of the Energy Reform’s Power Industry Law), and the denominator corresponds to an estimation of certain electric power consumption (i.e., total power consumption minus the consumption of electric power stemming from certain state-owned or state-funded power plants not operating within the terms contemplated under the Power Industry Law).  The equation below approximates the CEL acquisition quotient:

Five Percent ≈ (Clean Power Generation / Power Consumption)

The Secretary of Energy will establish further criteria for issuing CELs to clean power generators, and the above-mentioned Power Suppliers, Qualified User Market Participants, Isolated Supply Final Users and “Grandfathered” Interconnection Contract Holders may subsequently buy these CELs–and power–from clean power generators in order to meet the five percent CEL acquisition requirement.  The March 2015 notice asserts that CELs are an instrument to promote new investment in clean energies, and are an efficient and cost-effective manner in which to transform national clean power generation goals into individual obligations.

The forthcoming Initial Market Rules (“Rules”) under the Mexican Energy Reform will establish the rules for the wholesale Mexican power market, including the way in which market participants may negotiate CELs on this wholesale power market.  On February 24, 2015, the Secretary of Energy sent a preliminary version of the Rules to the Federal Regulatory Improvement Commission (Comisión Federal de Mejora Regulatoria (COFEMER)); the COFEMER Regulatory Impact Statement System (Sistema de Manifestación de Impacto Regulatorio (SIMIR)) has yet to propose a date for publication in the Official Gazette of the final Rules, although a mid-2015 release of these Rules is likely, according to Mexican energy officials.