By Tom Kleckner

HOUSTON — Ordinarily, the power sector would eagerly welcome a coming wave of efficient combined cycle generation, especially when the government has set goals to increase the number of clean energy resources.

But that is not the case in Mexico, where the aging transmission infrastructure is having trouble handling the current generation, let alone what is coming.

“In Mexico, the closer you are to the U.S. border, the greater reliability you have,” Al Garcia, an adviser to public and private sector energy companies in Mexico, said earlier this week during a meeting of the International Society for Mexico Energy (ISME).

Garcia said 10 GW of combined cycle generation is expected to come online through 2020, but he noted that is only part of the problem. He said Mexico’s ISO, CENACE, which was created as part of the country’s electric market restructuring, is still a work in progress.

“It takes more than the engineering side to become an ISO,” he said. “You’re going to see that in the next few years as the combined cycle units come online.”

“The infrastructure is not robust enough in many places, so there are a lot of outages,” said Acclaim Energy Advisors’ Alberto Rios. “It’s a physical obstacle.”

Rios joined Garcia for a discussion before ISME, a nonprofit professional organization focused on Mexico’s energy sectors. The two shared their insights on the nascent Mexican market with a bilingual audience eager to learn more.

“A new market gives you the ability to pick and choose what you’re going to buy, and when,” Rios pointed out. “Some generators in the market can sell to suppliers or on the spot market. Right now, the pricing in the spot market is more favorable. Generators are seeing very competitive pricing.”

Competitive enough that qualified suppliers can find some contracts under the Federal Electricity Commission’s (CFE) transmission retail rates, Rios said. The state-run utility’s regulated rates dropped steadily to 6.4 cents/kWh in February, when a new transitory methodology was established. Rates have climbed 41% since to 9 cents/kWh.

“The effective rate methodology does not provide the guidance that the marginal cost of electricity will show up in that tariff,” Rios said. “CFE is going to have to recover that cost.”

CFE is known to keep its retail rates artificially low and to subsidize its residential consumers by charging the industrials more. To see rising prices in an election year is unusual, Rios said.

“Personally, I thought we would not have had that [increase] before an election,” he said.

The market is somewhat leery of frontrunner Andres Manuel Lopez Obrador, a leftist populist who has advocated keeping the country’s aging thermal plants online. Noting that 15 GW of new generation is expected to become available during the next president’s single six-year term, Garcia said he doesn’t expect to see any changes to the country’s deregulation.

“I don’t think that’s going to happen under a left-wing government,” he said. “What’s going to save them is the influx of new generation. It’s going to keep the prices down. They’ll be able to say, ‘Hey, look at our great policies!’”

Garcia believes Mexico will be long on generation in some regions because of the lack of infrastructure. The government has pushed for new generation, but it has also cited a need for $10 billion in transmission investment. It has two competitive projects out for bids, with more potentially to come. (See Land Rights a Challenge to Mexico Tx Developers.)

“Generation shouldn’t have a problem in a few years. We’ll start having healthier reserve margins once we get through the tough times we’re seeing right now,” he said. “But this is where [the Ministry of Energy] has to come out and be more proactive. Instead of talking about investment in new power generation, it should talk about challenges of going through private land ownership.

“That’s what it should be doing to create sturdier infrastructure on the electric side,” Garcia said. “Let the physical constraints work their way through system, and things should start looking better.”