The New Electric Market in Mexico

The Role of Zonal Resource Planning Analyses

On January 26, 2016 a once-in-a-lifetime event occurred that may have been overlooked by the casual observer: Mexico launched the first phase of its reformed, now competitive, electric market. The day-ahead market began for the Baja Mexico interconnection and is the first component of a comprehensive change to the nation’s electric system.

Over the last few years, sweeping market reforms and designs were drafted, approved by the government, and are now beginning to be implemented in a fundamental shift for electricity in Mexico. The expectation is that incorporating a market structure will modernize a constrained and aging system, improve reliability, increase development of renewable generation and drive new investment.

A market shift like this underscores the critical need to produce meaningful and accurate analyses for long-term resource planning, in addition to participating in the day-ahead nodal market.

The importance of data availability to market participants cannot be overstated. As a result of the market reforms in Mexico, the sole utility, Comisión Federal de Electricidad (CFE), is being split into multiple entities and government organizations are being restructured to address the change from a state-run system to a competitive marketplace. Yet, the detailed data required for trading activities, such as those begun in January, and to support the proposed nodal market is difficult to obtain. Sources for much of this data are still being determined and still not available in some cases.

However, for typical generator development and economics, investment, and lifecycle forecasting – studies that require 30-40 year planning horizons – data is available. Resource planning analytics have become imperative to the development of new generation and transmission, informing investment in the energy sector, producing integrated resource plans for utilities, as well as numerous different studies for other stakeholders. Planning tools like AURORAxmp play a key role in these analyses, but so does the need for accurate market data.

Dispatch simulation models used for these studies typically define market topographies at the zonal (or control area) level. Mexico is currently divided into nine of these zones, or, “control regions”.

New Electric Market Control Regions in Mexico

Each of these zones contains generator information, load/demand information, and aggregated transmission capacities to/from adjoining zones. This data can be used by the dispatch simulation to forecast prices, value, risk, etc. for the study period. In the case of resource planning, it can produce detailed capacity expansion analyses to understand:
-Understand the value and operation of existing units.
-Determine whether to retire uneconomic or obsolete generators.
-Consider the value and performance of new generation that may have been added by the simulation.

Analysts can specify additional information such as new generation technologies (e.g. renewable generator options), capital costs, return components and other financial information to produce results that will inform build/buy decisions.

AURORAxmp has been used in a variety of studies in Mexico since 2002. Consultants and IPPs have utilized the software to produce meaningful results used in long-term resource planning decisions, and the zonal topography has provided the advantage of demonstrating value in the current market.

Developing a solid fundamental outlook that allows the assessment of potential long-term risks and opportunities is imperative for decision making and sound financial planning whether you are assessing the development a new power plant or acquiring an existing asset in Mexico. The wholesale power market in Mexico is expected to from a day-ahead and real-time nodal market to include traded pricing hubs with a futures market. A zonal model using AURORAxmp can provide an invaluable tool for long-term price forecasting, scenario analysis and asset valuation for the new Mexican reality.
– Marcelo Saenz, Pace Global, A Siemens Business

Although the proposed market will eventually operate at the nodal level, long-term studies at the zonal level remove the effects of temporary events at the nodal level, thus providing a more stable result for financial decisions.

AURORAxmp has the robust abilities to simulate both zonal and nodal markets. However, its leading capabilities in performing long-term resource planning analysis will continue to be especially important for markets, like Mexico, that will go through enormous changes and growth over the next few years.

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US Supreme Court Issues Stay on CPP

On Tuesday, the U.S. Supreme Court issued a stay on the Environmental Protection Agency’s (EPA) Carbon Pollution Emission Guidelines for Existing Stationary Sources, more commonly known as the Clean Power Plan (CPP). This means that states will not be obligated to comply with any part of the CPP until a decision is reached on Chamber of Commerce, et al. v. EPA

The D.C. Circuit Court will begin hearing oral arguments on the merits of the CPP on June 2 of this year. The lower court’s ruling is expected to be appealed to the U.S. Supreme Court, regardless of the outcome. If past regulations of a similar scale are any indication, the U.S. Supreme Court will hear the case.

The final impact of this stay will depend largely on the outcome of Chamber of Commerce, et al. v. EPA. Even if the courts uphold the CPP, it is likely that the initial state submittal deadline of September 6, 2016 will be affected. However, if the case is concluded swiftly in favor of the EPA, they may be able to hold onto their final submittal deadline in 2018, despite the stay.

If the courts rule against the EPA, the CPP may be revised, or it may need to be scrapped all together. However, unless the court ruling overturns Massachusetts v. EPA (2007), the EPA will still be obligated to eventually regulate carbon as a hazardous air pollutant.

In December of 2011, the D.C. Circuit Court issued a similar stay on the Cross-State Air Pollution Rule (CSAPR). That rule went through a series of revisions and court battles, but the stay was eventually lifted in October of 2014.

The future of the CPP remains uncertain, but most industry experts would agree that participants still need to prepare and plan for the eventual impact of some kind of federal limit on carbon emissions.

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Year of the Comeback

2016 California Market Hydropower Comeback

With Super Bowl 50 right around the corner, we remember one of the most thrilling comeback’s in NFL history: “The Catch” by 49er’s Dwight Clark, from Joe Montana, in the back of the end zone with less than a minute on the clock and down by 6 points. That play secured the 1982 NFC title for the 49ers. How about the emotional return by tennis great Monica Seles to win a title in 1995 after having been stabbed? Or, recall the awe-inspiring Michael Phelps comeback victory in the Beijing 2008 Olympics’ 100 meter butterfly by 0.01 seconds, after Phelps had been 7th coming off the wall at the 50 meter mark?

Most of us love comebacks. They inspire us, give us a boost in daily life, and we see that adversity can be overcome. A good comeback victory offers hope, despite the difficulties that were passed through to achieve it.

There are many different types of comebacks. There are those in sports, as mentioned above, and there are others from personal or professional aspects of life. They can even occur in nature and different business sectors or markets.

Hydropower in California is one such comeback that is developing. After four long-drought-stricken years, and a corresponding drop in hydro generation, change is in the air…literally. El Niño is contributing to a good year for California’s hydro which will affect the entire state, but particularly CAISO. Adding to the enthusiasm, El Niño is predicted to continue to impact temperature and precipitation patterns through late spring to early summer, according to experts at the National Oceanic and Atmospheric Administration (NOAA) and National Weather Service. The effects of the recent precipitation patterns have lifted the statewide average of water content in snow to 113% of normal, with the northern Sierra Nevada at 124% of average for this time of year. Optimism is building, but more rain and snow are needed to end the drought – which could take more time than just one good year of precipitation.

For California’s power market, hydropower is an important source which can significantly influence power price. However, the power produced from hydro facilities fluctuates depending on the annual precipitation patterns, mountain snow pack, and temperatures just to name a few. The Northwest Power and Conservation Council mentions, in the Sixth Power Plan, how forecasts are affected by the pattern of spring rains and the associated run off. In 2011, before the drought, hydropower contributed 21.32% of California’s total system power – nearly 42,715 gigawatt-hours (GWh). This is more than 8.3% of California’s total system power (16,470 GWh) in 2014. If El Niño continues to positively impact the rain and snowfall in California, we should “… look out for some unusual energy flows,” according to Wood Mackenzie’s Jamie Brick.

As a comeback is in the works for California’s hydropower, analysis and modeling of the market must continue. AURORAxmp facilitates excellent scenario analysis and quickly models the impacts of water as adjustments are made to assumptions. For more information on modeling impacts of hydro or other projects, please contact us .

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