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)

Introduction

Ever since Mexico’s Electric Power Industry Act (Ley de la Industria Eléctrica, or LIE) went into effect in 2014, the “green wheeling charge” ( porteo verde ) mechanism that had been used by the government to incentivize the development of clean energy by emulating the internalization of power generation externalities is allowed only for plants that had existing legacy interconnection agreements, and then only until these agreements expire. Under the amended LIE, all new clean-energy power plants and expansions of existing plants will be awarded Clean Energy Certificates (Certificados de Energías Limpias or CEL) for each megawatt hour (MWh) of clean energy produced and delivered into the grid. The Federal Electricity Commission (Comisión Federal de Electricidad or CFE) has argued that the LIE, by requiring CFE to obtain clean energy and the corresponding CEL certificates through the long-term power auction mechanism, has forced it to incur additional losses. However, the analysis that follows shows that the purchase of clean energy through auctions, which CFE used to obtain the corresponding CEL certificates, has allowed the commission to avoid variable generation costs at its thermoelectric plants. These generation costs would have been far higher than the cost of purchasing the clean energy. As explained in the following sections, the amount saved can be estimated based on fossil fuel use avoided and cost of the emissions that would have been generated. To calculate these estimates, this paper uses the European market (the deepest and most liquid) for carbon dioxide (CO 2 ), and the historical cost in the United States in the case of sulfur dioxide (SO 2 ).

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