By ANN DE ROUFFIGNAC
Nov. 2, 2000Mexico is a natural and huge market for electric power exports from the US, but little progress has been made in decades of trying to make those power transactions happen.
Despite electricity demand growth in Mexico of 6% a year, little power has been exported from the US to Mexico, said Derek Stilwell , marketing manager Mexico Calpine Corp. Stilwell addressed the Center for Business Intelligence’s Mexican Energy 2000 conference in Houston.
But most estimates of electricity demand are higher than the official number, he says.
“Demand growth of 10% means Comision Federal de Electricidad (CFE) can’t meet demand for electricity,” he said. “Mexico will have to do something.”
The first study on the possible exchanges between the US and Mexican electricity market was done 40 years ago, he said. More studies followed and even more meetings. Little progress has been made since, he says.
One of the biggest problems is the two markets are deregulating at different paces. The US market is headed towards market pricing and Mexico still has cost-based pricing. The uneven market structure has produced some “queer” challenges.
“The changes in ERCOT are impossible for CFE to keep up with,” says Stilwell. “CFE can’t figure out where to participate and what effect deregulation will have on it.”
The biggest problem facing the integration of the two markets is the construction of the “ties” between the two systems. Budget cuts at CFE means the state-owned company won’t invest in equipment tying the two systems together without a definite benefit its customers.
“As prices come down in Texas with deregulation there will be greater opportunity for Mexico to find power at a price it can afford,” Stilwell told conference attendees.
There are questions whether new cross-border transmission lines would be open-access or for private use only.
Transmission line questions
Private transmission lines that would ship power directly across the border to CFE require permits from the Comision Reguladora de Energia. Even though the rules are clear for the permits, there hasn’t been a lot of private transmission capacity built yet, Stillwell says.
Building a private alternating current (AC) transmission line from one power plant on the US side to a Mexican customer on the other side of the border is the lowest cost and quickest way to export power to Mexico. But power plant developers and owners question whether it is worth it to dedicate power from a US plant to Mexico, Stilwell, says.
“The new power plants are designed to capture volatility,” he says. “The AC connections are less flexible.”
Direct current (DC) ties are more expensive but will allow the two systems to interconnect. Owners of power plants can take advantage of the weather and arbitrage the sale of power back and forth capturing some of the volatility in both markets, he says.
There is one small DC tie between El Paso, Tex., and Ciudad Juarez, Mexico. El Paso Electric Co. contracted to export 100 Mw between June-August 2000 and again from May-September of 2001.
“That DC tie is very small. It can’t take advantage of the arbitrage in the two markets,” says Stilwell.
After studying the interconnection of the two grids, the Texas Public Utility Commission staff recommended construction of four new 150 Mw DC ties along the Texas-Mexico border. Sites were suggested for Brownsville, McAllen, and Laredo, Tex. The fourth site is still to be determined.
The Texas owner of the transmission lines has “embraced the project,” says Stilwell. “But who will pay for the other half?” he asks. “The opportunity for cross border sales is huge. But the window looks small now.”