Changes in the Generation Dispatch Criterion in Mexico

CHANGES IN THE GENERATION DISPATCH CRITERION IN MEXICO: A SUMMARY OF DIRECT IMPACTS

commercial users that cannot migrate to the non-regulated alternative (qualified service), particularly the small and medium-sized businesses, many of whom have operated in good faith under the market rules and regulations. Indeed, it appears evident that a strong incentive to migrate to qualified service is an unintended consequence of the proposed power market reform. Higher regulated rates for basic service will promote that large consumers will seek to be supplied by non- regulated LSEs (qualified suppliers or generators) at lower prices. As a result, in an unfortunate vicious circle, electricity rates will increase even more due to the fixed costs of basic service, which will have to be covered by a lower volume of energy sales. Beyond the cost and supply issues detailed, the reform’s eventual impact on the environment is noteworthy. At a time of global attention on climate action and reducing GHG emissions, Mexico’s power reforms point the country in a different direction. Chart 3 shows the increase in CO 2 emissions. Clearly, the change in dispatch order implies a major step backward for Mexico’s CO2 emission levels that were being greatly reduced by an increase in generation by both renewables and NGCCs. Chart 3 does not the other pollutants and emissions such as SO 2 , NO x or particles which will increase due to the fact burning fuel oil for power generation emits more of all of these pollutants. Naturally, the other implication of the change in the dispatch is the fact that Mexico will not be able to meet its clean energy goals, which even before the reform was introduced was going to be difficult to achieve. Conclusion The change in the electricity dispatch derived from the amendments to Mexico’s Electric Industry Law will have widespread economic consequences. Indeed, the impacts could affect users of the Basic Supply, the private sector, CFE itself and public finances, to the extent that the increase in the cost of Basic Supply, estimated between 2000-3000 MUSD/year, is offset by subsidies. If the government does not bear costs through subsidies, consumers will be affected by increases in electricity tariffs resulting from an increase between 11% and 16% in the cost of energy. This increase will likely be borne by small and medium-sized businesses that cannot migrate to the “qualified service” and that will not be covered by any subsidy. At the same time, CFE will also be affected, as

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