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AMLO’s energy plan to increase electricity rates

by Yucatan Times
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The Mexican president asked for a change in the way that electricity is delivered to give priority to CFE plants, regardless of the method of production.

MEXICO CITY (El Financiero) – One of the requests contained in President Andrés Manuel López Obrador’s memorandum to energy sector regulators, released last week, could lead to an increase in electricity rates.

In the document, the chief executive asks the National Energy Control Center (Cenace), the agency in charge of operating the national electricity system, to modify the way electricity is so far delivered to favor the plants of the Federal Electricity Commission (CFE), regardless of the method of production.

According to the provisions of the Electricity Industry Law, energy is uploaded to the system based on economic criteria, from the cheapest to the most expensive.

Under the presidential request, the system would be fed in the following order: the energy produced in the hydroelectric plants; that generated in the CFE plants; wind or solar energy from individuals and, in the end, electricity from combined cycle plants -gas-based- from private companies.

If this is carried out, the latter will increase the costs of energy generation. Therefore, the electricity rates charged by the state company to consumers, agree specialists in the sector interviewed.

The tariffs for the benefit of the consumer are being left aside. If you leave aside renewable energies and newer natural gas plants, your priority is not to make the tariff cheap and to favor the consumer. Suppose that’s how decisions are going to be made. In that case, I don’t see how the result will be lower tariffs than the economic dispatch criteria would have,” said Susana Carzola, founding partner of the consulting firm SICEnrgy.

If the memorandum is carried out, it will be left in the last place to the plants that use natural gas as fuel, one of the cheapest methods of energy generation. “You are leaving in last place the most efficient plants (in economic terms) that we have so far in the market,” said Paul Sanchez, founder of Ombudsman Energy Mexico.

According to the specialist, while rates may not rise significantly, they could increase CFE’s tariff insufficiency. That is, it will increase the deficit between the charges made by the company to its customers and its operating costs, which could lead to an increase in subsidies given by the Ministry of Finance to the CFE for tariffs.

According to information from the agency, the resources received by the CFE for subsidies have grown by 61 percent in the last half of the year. “If they don’t increase the rates, the tariff insufficiency will increase, and the CFE will ask for more money from the Treasury,” he said.

So far, renewable energies are the lowest cost, followed by those generated in combined cycles of private, hydroelectric, and CFE-owned plants.

“What will raise the rates? Of course, but we will also compromise decades of growth. The problem is that you completely end up with the profitability of all the private plants in the country, which are many. We are talking about all those built since 1992,” said Rosanety Barrios, an industry analyst and former official of the Ministry of Energy.

This request to modify the dispatch criteria was contained in an agreement published by Cenace last April, which was stopped by competition judges and the Supreme Court of Justice.

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