National Electric Grid Key to Faster Economic Recovery

Jan 29, 2021 | Energy, Enhanced Regional Integration, Low-Carbon Economies, Stakeholder Engagement

This article was first posted by Mexico Business
By Leonardo Beltrán | Fri, 01/29/2021 – 09:14
Leonardo Beltran MBN

Leonardo Beltrán
Non-resident Fellow
Institute of the Americas

Worldwide, the sentiment that 2021 will be a better year for humanity is based upon the availability of the COVID-19 vaccine. However encouraging this might be, the sole existence of the vaccine is not a sufficient condition to start the reset of the economy. There should be a tantamount effort to develop the distribution chains to deliver the vaccine to all corners of the world. This is one of the reasons why public-private partnerships are fundamental in leaving no one behind. The public sector covers the high cost of reaching the last mile, ensuring that less accessible areas are not excluded, and the private sector takes care of the areas where they can deliver the product competitively. Those countries that have internalized the advantages of coordination and the benefits of bringing all the relevant stakeholders to the collective effort are in a better position to face the challenge of distribution. For instance, in Canada, the government set up the COVID-19 Vaccine Task Force, comprised of multidisciplinary experts and industry leaders in the field of vaccines, to help them make better decisions based upon evidence. Part of the mandate included supporting supply chain coordination and identifying opportunities to enhance business connectivity globally to secure access to vaccines. In the UK, they have a Joint Committee on Vaccination and Immunization, which needs to include experts knowledgeable in health economics and management of immunization programs to assess the cost-effectiveness of procuring the vaccines. In these two cases, both Canada and the UK have a higher rate of vaccination than in Mexico. As of Jan. 17, 2021, Canada has inoculated 1.51 people per 100, four times as many as in Mexico (0.37 per 100 people), whereas in the UK, they have administered 18 times more vaccines than in Mexico (6.65 per 100 people).
Similar to the health challenge, the energy sector is facing an analogous test. The Mexican government in its last Program for the Development of the National Electric System (Programa para el Desarrollo del Sistema Eléctrico Nacional –PRODESEN– 2019-2033) indicated that the country would add 70GW of new capacity and more than half (55 percent) would be clean energy technologies. Yet, in 2019, national state utility CFE only contributed 20 percent of the planned total (2.6GW: one owned natural gas combined cycle power generation asset (NGCC) and another two NGCCs from external power producers). Moreover, the government expects that almost half of the new clean capacity will be installed in the last four years of the administration (4.8GW per year). However, the challenge not only lies in new generation but in an electricity grid that is congested and in need of upgrading. It also serves as the vaccine distribution chain of the power sector that would allow the electricity to be produced and consumed where it is needed.
In the last PRODESEN, the diagnostic of the grid expressed that all regions of the national electric system operated at their limit or even above because of congestion, transformer overloads, hydro power variability or a very low operational margin resulting in curtailments.
The upside is that there are a number of projects identified to upgrade and/or strengthen the grid to comply with the requirements stated in the legal framework, i.e., to contribute to meet demand, improve electric reliability, reduce the cost of electricity provision, reach clean energy targets, operate in an energy efficient fashion and deploy smart-grid technologies. The downside is that budget constraints are preventing action. Perhaps using a common practice from the health sector and international experience can help us face this challenge.
For example, in Brazil, all new transmission infrastructure must be recommended by planning studies coordinated by the Energy Research Company (EPE). In the Mexican case, the independent system operator (CENACE) has the mandate. The process begins with the preparation of a report, where EPE indicates the best alternative to address a system need, based on technical, economic and socio-environmental feasibility analyses. The plan is then incorporated into the official planning documents of the Ministry of Mines and Energy (MME), and in the next stage there are transmission auctions. The auctions will require the preparation of four documents that present the technical details of the project; the guidelines for the transmission lines and the location of the substations, as well as the associated socio-environmental analysis; the requirements of the node; and the estimated land costs.
Between 2005 and 2018, 90,000km of transmission lines have been tendered. Only in the last auction last year, 1,958km of transmission lines were auctioned, resulting in an average cost that was 55 percent below the price ceiling, US$1.4 billion in investments and 15,000 new jobs. Perhaps a “samba-inspired model” for the national electric grid and/or new business models in the energy sector in general should be on Mexico’s 2021 agenda to allow for a fast economic recovery