Mexican Competition Commission criticizes actions against wind and solar projects

Mexican Competition Commission criticizes actions against wind and solar projects

Global Publication May 8, 2020

The Mexican Federal Competition Commission (Comisión Federal de Competencia Económica or COFECE) issued an opinion on May 7 harshly criticizing measures taken by Mexico’s independent system operator, CENACE (Centro Nacional de Control de Energía), against wind and solar projects that are close to reaching commercial operation.

COFECE is Mexico’s independent antitrust regulator. 

The opinion is not binding on CENACE, but it is a blow to the CFE (Comisión Federal de Electricidad), which owns competing power plants that will be helped by the CENACE action. 

The opinion is expected to become part of the expert testimony in any challenge of the CENACE action by renewable generators.

CENACE moved last week to block connection of new wind and solar power plants to the grid. (For earlier coverage, see Mexican ISO prevents wind and solar projects from reaching commercial operation.)  It said it was acting to preserve the safety and reliability of the grid in the face of falling electricity demand caused by the COVID-19 pandemic. 

The action has stirred significant controversy in the power sector as it benefits the dominant player in the market, CFE, to the detriment of private renewable generators.

COFECE said CENACE acted contrary to the principle enshrined in Mexican law of free competition in the market for electric power generation.

Its opinion is addressed to the Energy Ministry (Secretaría de Energía), the Energy Regulatory Commission (Comisión Reguladora de Energía) and CENACE.

The opinion says there is insufficient correlation between the events that CENACE said support its action and the COVID-19 pandemic. Any grid instability pre-dated the pandemic and is unrelated to solar and wind power plants, COFECE said. It said that CENACE needs to act based on strict technical criteria that are directly linked to grid performance and made known to the public so that the market can plan accordingly.

CENACE designated the CFE units as “must-run” units that should be called on to supply electricity ahead of other power plants. The commission said this violates economic dispatch rules and Mexican laws that treat the generation and marketing of electric power as services that must be provided in a competitive environment. It said CENACE should have considered less restrictive solutions. 

The CENACE action bars new wind and solar plants from competing in the market, thus depriving Mexican consumers from benefiting from lower electricity costs in the medium term. It also creates uncertainty for projects already in operation and allows for potentially discriminatory treatment against them by creating competitive barriers. COFECE said this will hinder development of cheaper and more efficient energy sources and may ultimately affect the country’s generating capacity, leading to higher prices for consumers or to government subsidies that are an inefficient use of the public purse.

The opinion makes general recommendations to address these flaws.

It advises CENACE to respect economic dispatch rules to foster competition. It asks CENACE to clarify the scope and duration of its measures, to define and make publicly available the criteria to be used to lift the restrictions, through parameters that are clear, transparent and measurable by third parties, especially for resumption of the pre-operative tests the solar and wind plants must be put through before starting commercial operation. It suggests that any measures should be the least intrusive possible. It urges CENACE to compare the measures taken by other countries with higher ratios of renewable energy and to invite other key industry participants to discuss potential solutions to grid malfunctions.

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