Last week a few of us at PCI attended the Gulf Cost Power Association (GCPA) Mexico Electric Power Market Conference. PCI has been a longtime member of GCPA and this time we were also a conference sponsor. The event was a very well attended, one-day event in Mexico City where multiple players in the Mexican electricity sector shared their experiences and challenges in the new market. The large number of power market participants, including private generators, qualified suppliers and marketers – all at different stages of registration and commercial operations – is an encouraging indicator of the strong interest and continuous development of the wholesale electricity market in Mexico for, which PCI has been serving with software solutions from its inception now more than two years ago.
As always, GCPA did an excellent job at organizing the event. In addition to the quality of the presenters (including some of PCI’s clients) and the content, this conference provided plenty of networking opportunities so that different players could learn and benefit from each others’ services. I must say that GCPA plays an extremely important role at connecting businesses in the region, which is even more valuable as the Mexican electricity market still does not have the liquidity, transparency or matured stakeholder forums like other markets in North America. Due to this, events like GCPA’s become one of the most effective ways of understanding who is doing what as well as finding the right counterparties and business partners.
This year, we also had a brief interruption during the keynote opening due to a minor seismic alert! This is not uncommon in Mexico City, and I would like to take a moment to remind energy professionals like us that travel often to CDMX to be aware of some basic safety precautions:
- Know the path to the building exits that does not require an elevator.
- Follow instructions from the trained personnel at hotels and companies you may be visiting when an earthquake alert is issued.
As a side note, there are four applications I use the most when I travel to Mexico City and I would like to share them with you:
- Waze: to understand the congested traffic patterns and get a reasonable estimate on whether I will be on time for my meetings.
- Uber (or the local Yaxi): to move around CDMX.
- Aire CDMX. I like to run outdoors, and this application gives me updated air quality in the area I am staying and whether it is advisable to do sports outdoors or stick to the hotel fitness room.
- SkyAlert . This latter one is very effective at providing timely warning of any seismic or volcanic alerts in the region.
After that brief “safety moment”, I would like to analyze some of my key takeaways from the conference and how they relate to the work we have been doing at PCI.
Transparency of Electricity Rates
There was a lot of discussion at the conference about the need for more transparency on the basic service rates published by CRE. These have been very difficult to predict or to replicate the calculations in detail. Recently, the lower than expected regulated rates of electricity have made it very difficult for energy retailers (“Suministradores Calificados”) to compete with the basic service provider.
Whereas the calculation of the rates corresponds to the regulation authorities of the CRE, PCI has been helping clients in Mexico with software solutions in the following key related areas:
- Settlements. PCI’s CENACE and contract settlement solutions allows our clients to understand, validate, report and explain to their clients the full cost of their electricity in the wholesale markets, including cost of long-term bilateral contracts and hedges, short-term market purchases, administration fees, revenue-sufficiency costs, transmission, distribution, ancillary services (both regulated and unregulated), losses, etc. CENACE settlements by itself contains more than 100 charge codes, and
- Risk management. With low margins of operations for qualified suppliers it is even more important to understand the level of portfolio exposure to short-term market prices, congestion, fuel prices, demand and supply uncertainty. PCI’s versatile position displays and risk management tools are already being used in the Mexico market.
- Portfolio optimization. Our flagship product PCI GenTrader® is used for evaluation of PPA/bilateral power agreements and optimization of power portfolios in the market.
Need for FTRs & Virtual Transactions
Many qualified suppliers echoed the need for the market to develop two remaining market instruments that are currently lacking but were contemplated by the market rules – FTRs and Virtual transactions:
- Financial Transmission Rights (FTRs). In Spanish “Derechos Financieros de Transmision” or abbreviated as “DFTs” settle at the congestion component of the day ahead Locational Marginal Price (LMP) difference between a source and a sink node. These instruments are key to manage congestion cost uncertainty between your generators or contracted delivery points, and the load centers.
- Virtual transactions. These are transaction that allow participants to offer or bid energy in the day ahead market at nodal locations. They settle at the LMP difference between day ahead and real time markets. These instruments are key to managing price uncertainty between day ahead and real-time markets, and for these prices to converge.
PCI software roadmap for Mexico already considers these transactions, which we currently support for the rest of the wholesale markets in North America.
Slow Registration Process & Need for Metering Standards
Several market participants recognized that the process of registration and qualification with CENACE was longer than anticipated. One of the reasons alluded to was the lack of standardization for metering requirements and processes.
At PCI we have been deploying our software for many generators and qualified suppliers that are currently in production. As part of the process, we also had to overcome many technical challenges in this area. Currently we are glad to report that our out-of-the-box solution for Mexico market participation already allows to:
- Receive revenue-quality meter data automatically from CENACE settlement statements.
- Import revenue-quality meter data directly from the meter agent for both transmission and distribution loads, aggregating from retail to commercial wholesale loads.
- Activate standard interfaces to meter data management systems, and provide standard comparison reports between client meter sources, those of the meter agent, and those of CENACE.
Finally, although we cannot completely guarantee that the registration and qualification process with CRE and CENACE will be a breeze, we can deliver proven, out-of-the-box software in about four weeks to be ready for commercial operations, minimizing the cost, uncertainty and time-to-market for your company.
Increased Number of Import/Export Transactions at the Borders
I was very glad to meet several companies that are already performing or are interested in conducting commercial import and export transactions at the borders, both with the US (CAISO and ERCOT) and with Guatemala. One of the hopes that we had with the implementation of the electricity market in Mexico is that it would also becomes a driver for additional economic development with the US and the Central American region.
Although the process of creating import/export transactions could be improved, it is happening. PCI already has clients performing these international cross-border transactions and our software solutions for Mexico support the capture, scheduling, bidding and settlement of these transactions.
Finally, there is a need for industry working groups
There is consensus among all market participants that more industry participation in the review of market rule implementation will help in deploying the the market and that it will provide needed transparency; I agree wholeheartedly. While the working groups continue developing, PCI stays in very close communication with our clients in Mexico and with the market operator. This is vital to provide a system that is up-to-date with regulatory changes and requirements. As an example, PCI recently released software updates that enable our system to download information directly from CENACE information systems (SIM), via the use of web services, for supporting the latest version of the short-term market offers. Our product roadmap this year (and next) includes foreseen support for more automatic data uploads and downloads, tracking of renewable credits (CELs), implementation of the real-time market, FTRs and auction-contract settlements though a clearinghouse.
Overall, this GCPA event was a very productive conference, I learned a thing (or two). I am looking forward to future working groups with market participants as we continue to deploy our solutions for the Mexico market.