Clean Energy Cost-Savings: A Study of Mexico’s Federal Electricity Commission (CFE)

Clean Energy Cost-Savings: A Study of Mexico’s Federal Electricity Commission (CFE)

the marginal costs; • Large volumes of pollutants are being emitted; and • Renewable sources of energy are abundant.

For example, if every residential consumer had a small, 1-kilowatt solar unit, the amount of electricity billed to that segment of the market would be reduced by around one-fourth. In Baja California Sur, every kWh that CFE can avoid generating and billing would be a subsidy saved. This is particularly true for more than 50% of the generated electricity that is sold at highly subsidized residential rates. Conclusions From this analysis, it can be concluded that: • Variable generation costs for fuel oil and diesel-fired thermal plants cannot be recovered under the current rate structure. • The clean energy contracted by CFE through the first three long-term auctions represent substantial savings compared with the variable generation costs required to bring thermal plants online, regardless of the fuel used to operate them. The avoided costs are even more significant when the replaced energy would have come from a fuel oil– or diesel-fired thermal plant. • The 2021 and 2024 clean energy portfolio goals mandated by law and committed to by Mexico in international agreements appear impossible to achieve. • Power plants fueled by coal or fuel oil instead of natural gas generate not only more greenhouse gas emissions but also much larger amounts of other harmful pollutants, such as SO 2 , NO x , and particulate matter. Imposing the use of fuel oil instead of natural gas or imported coal in dual fuel power plants, as has been done in the last couple of years, cause important economic losses as well as significant damage to human health and the environment. • It is a significant contradiction for a fuel that is no longer allowed to be used in the middle of the ocean, because of its high environmental impact, is being used instead to fuel power plants located near densely populated locations. Recommendations • CFE must accelerate the modernization of its generation system by installing new combined-cycle power plants, repowering its hydroelectric plants, and taking advantage of its natural gas fired steam power plants to bolster grid resiliency to support increased wind and solar generation and so that obsolete coal and fuel oil–fired plants can be retired as soon as possible. • The auction mechanism set forth in the Electric Power Industry Act, which has allowed CFE to contract clean energy under increasingly competitive conditions, must be preserved. • The economic dispatch process based on marginal costs must also be preserved, with some minor adjustments to avoid impacting CFE’s subsidiary in charge of basic supply (e.g., power plants that have a supply contract with CFE should be brought on line based on the contract-designated electricity price, rather than their marginal cost). • Investments must be made to strengthen transmission and distribution networks in order to eliminate current restrictions that force the use of more expensive, less efficient power plants instead of taking full advantage of the system’s most efficient plants. • Intermittent power plants that require capacity backup must have clearly set payments for ancillary services, provided mostly by CFE’s plants. • The various regulatory and non-regulatory barriers recently imposed by the current administration to new permits for wind and solar power plants should must be eliminated. • The remaining barriers for installing distributed generation systems (those with less than 0.5 MW

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