Talanza Energy Consulting

July, 2019

Electrical problems in Yucatan peninsula

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1.- THE PROBLEM

The Yucatan Peninsula could experience new shortages to attend its electric demand. The power plants  on the area are mainly combined cycle natural gas facilities without strong supply of fuel. After canceling  long term bids of clean energy projects, AMLO’s administration ensured that no new electricity cuts  would be faced in the area.

Nevertheless, the shortages of national natural gas produced by PEMEX, the lack of interconnections to  allow the cheap natural gas that could arrive from the marine pipeline to the peninsula (if it had already  started operations) and the transmission infrastructure with low levels of reliability, make analysts think  that a new electric breakdown in the Yucatan Peninsula is inevitable in the Mexican holiday season.

This area produces less electricity than it needs, so it is forced to receive cargo from neighboring states.  Generation capacity in the area is much higher than the actual generation that is observed on a daily basis,  but without enough natural gas, the Nacional Centre for Electricity Control (CENACE) faces very few  decrees of liberty.

2.- WHOLESALE ELECTRICITY MARKET (MERCADO ELÉCTRICO MAYORISTA)

The Law of the Electrical Industry, published as part of the Mexican Energy Reform of 2014 establishes the  creation of the Wholesale Electricity Market. An efficient and fair market is essential to achieve efficient  prices and to encourage the development of new electrical infrastructure, both for generation and  transmission.

CENACE was designed as independent system operator to coordinate the market and to ensure efficient  decisions could be made by market participants on the long term.

A clear understanding of the Mexican electricity sector institutions, particularly  the rules of the wholesale electricity market, will allow qualified generators,  marketers, suppliers and users.

3.- WHAT ABOUT THE SWAP AND THE MARINE PIPELINE?

Mayakan, the pipeline that transports gas to the Yucatan Peninsula is not interconnected to CENAGAS’  SISTRANGAS but directly to Processing facilities owned by PEMEX.

Gas going down from the Marine Pipeline could be sent to the South, but in order to do that, the  CEMPOALA compression station has to be operational and the pipes must be able to hold the extra  pressure. Private, PEMEX and CFE’s demand is urgent for new supply sources.

 

 

RELEVANT ANNOUNCEMENTS:

  • On June 17th 2019, CENACE reported  that the demand for electricity exceeded  the generation capacity in the Yucatan  Peninsula, so it declared an operational  alert status in that region of the country.
  • Three days later, CENACE pointed out  that in the case of the combined cycle  power plant in Mérida, the diesel  discharge limitations have been  “remedied” by the installation of a  discharge head in that place, to increase  the capacity of proving and that, with  this allows diesel to be operated at the  plant during the hours of greatest  energy demand.
  • Two days later, president Lopez Obrador  publicly informed that a new power plant  could be built, but the source of natural  gas to the plant has not been announced.

These problems should lead to  reflections on the importance of  having adequate market signals, an  independent operator of the robust  system and an autonomous  regulation system.

  • While lots of attention has been placed  to the Yucatan peninsula, the case of  Baja California and Baja California Sur  could be even worse for the following  months, where regulatory strategies for  market participants will be key.

Thanks to our Energy Market Intelligence,  we support our clients in their risk  assessment for their projects’  investments decisions.

Analysts

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