Mexico's power sector investment outlook (28824 bytes)
A key part of Mexico's sweeping plan to meet future energy demand relies heavily on private investors to expand power generating capacity.
Government officials estimate that more than 14.6 million kw of new generating capacity will be needed in Mexico during 1994-2003. Lesser expansions could limit Mexico's economic growth.
Because of Mexico's severe air quality problems and access to ample gas supplies, most of the added power capacity will be fired by natural gas.
Of the $32.7 billion needed to add power generation, transmission, and distribution networks, the government will provide more than $20 billion. Mexican leaders hope private investors will account for the rest. Mexico also is counting on the private sector to contribute technical and administrative skills.
Officials plan no more major changes to Mexico's institutional and legal framework for energy. Increased reliance on privately generated electrical power is to occur under reforms put in place in 1992.
Francisco Gonzalez de Cossio, consul general of Mexico, said his country's Comision Federal de Electricidad (CFE) will guide electricity sector privatization.
"Equity, predictability, and transparency will characterize the entire process," de Cossio told a Houston meeting sponsored by the International Gas Turbine Institute of the American Society of Mechanical Engineers (ASME).
TYING ELECTRICITY TO GAS
De Cossio tied privatization of Mexico's electric power sector to a similar effort to privatize parts of the country's gas industry
Privately built gas fired power plants are to meet much of Mexico's future demand for electricity.
"Mexico plans to offer a private stake in its natural gas pipeline and distribution business previously monopolized by the state company Petroleos Mexicanos (Pemex)," he said. "To this end, (units of) Tenneco Inc., Enron Corp., and NorAm Energy Corp. are lining up projects that would unlock billions of dollars worth of pipeline and power generation projects."
Other companies are working on projects that combine construction of gas pipelines and gas fired power plants throughout Mexico from Tijuana and Rosarito to Veracruz and Merida.
The U.S. Department of Energy estimates Mexico will have to spend about $65 billion to meet demand for gas through 2010. DOE expects Mexico's gas consumption to grow at a rate of 3%/year. Mexico must decide whether to spend about $20 billion for gas imports and related pipeline systems or develop gas reserves in its northern states (OGJ, Jan. 16, P. 20).
Raul Monteforte, chief adviser to Mexico's undersecretary of energy, said shipments through the country's gas pipeline system are using about 60% of capacity. Although gas pipelines are absent in large parts of the country, some industrial and urban areas could increase throughput substantially without much investment.
Monteforte appeared at the ASME meeting with de Cossio.
OPEN TO DISCUSSION
Monteforte said the government will allow private entities to use existing gas pipeline infrastructure for a fee or install new facilities. New pipelines in some cases could be laid along existing rights-of-way
"Everything concerning the gas industry is open to discussion," he said.
Reorganizing gas transportation and distribution in Mexico will free Pemex to focus on finding and producing gas. Pemex will continue supplying gas markets through its own pipeline infrastructure as far downstream as the refining sector. In addition Pemex will be allowed to sell gas to new pipeline transportation and distribution companies.
Mexico by yearend intends to set up the regulatory mechanisms that will spell out relationships and obligations among gas industry players.
"Pemex and others in the gas industry will have to get together and work out feasible supply and marketing systems within the next 4-5 months," Monteforte said.
While Mexico pushes ahead with plans to liberalize domestic gas markets, near term demand for gas to generate electricity is expected to remain weak. Domestic gas markets are to strengthen and begin expanding only after the country upgrades its refineries to process a huge glut of cheap fuel oil that currently generates almost three fourths of Mexico's electricity.
Various sources estimate Mexico's gas output in 1994 at 1.3-1.5 tcf.
RECENT ELECTRICITY REFORMS
Mexico throughout the 1990s has adopted measures to assure private investors play important roles in developing a modern, efficient energy sector.
Reforms instituted in 1992-within the context of the North American Free Trade Agreement-allow the private sector to take part in electric power generation in the following ways:
- An industrial user may generate power to fulfill its needs and sell the excess supply to CFE.
- A cogenerator may sell power generated as a byproduct of an industrial process to CFE.
- An independent power producer (IPP) operating a plant with more than 30,000 kw of generating capacity may sell power to CFE under a long term contract at prices set by a bidding process to ensure the lowest supply cost.
- Power generator operating a plant with less than 30,000 kw of capacity may supply electricity to a regional grid, depending on supply options of the area's state owned electric utility.
Companies also may obtain permits to import electric power for their own needs or export it to foreign customers.
Current policies allow CFE to finish power plants currently under construction. The state electric commission also may carrY out other selected power projects, mostly hydroelectric and geothermal, as well as other needed facilities not taken up by private investors.
POWER MARKET OUTLOOK
Monteforte estimated that private investment in industrial user power, cogeneration, IPP, import-export, and transmission-distribution facilities in Mexico during 1994- 2000 will total almost $12.5 billion (Table).
CFE estimates about 14.6 million kw of new generating capacity will be needed from 1994-2003. Combined capacity of announced power projects of all types expected to come on line in that time totals about 6.5 million kw.
About 25% of the needed capacity is expected to be provided by hydroelectric 18%, combined cycled plants 5%, and geothermal sources 2%. More than half the remaining balance is expected to be filled by gas fired capacity, Monteforte said.
Private investors by 2000 could construct as much as 6 million kw of new cogeneration capacity in Mexico, all of which could be gas fired. However, because of the complexity of power generation technology, implementing cogen projects in Mexico will be difficult for all but the largest companies.
Among available options to quickly boost output, CFE could restart some idle oil fired plants for a time, then con- vert the facilities to gas for the long term. Also in the long term, CFE is likely to privatize some state owned, regional electricity generation and transmission-distribution units.
CFE will use its marginal cost based analyses to buy electricity sent through the public grid to an end user.
Regulations permit business relationships between urban utilities and private investors, Monteforte said many of Mexico City's utility companies now are functioning as private entities but still are owned by the government. Regulations to go into effect later this year will let private investors develop their own power supplies.
