CEMIE-Redes Table 1 The Mexican Electricity Market and the Smart Grid Discussion topics, background and questions. Cuernavaca, Morelos, México

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1 CEMIE-Redes Table 1 The Mexican Electricity Market and the Smart Grid Discussion topics, background and questions Cuernavaca, Morelos, México September 2018 Haga clic o pulse aquí para escribir texto.

2 Contents 1. The Mexican Electricity Market and the Smart Grid Description Objectives Organization of round table discussions Background The Wholesale Electricity Market Distributed Energy Resources in the Mexican Electricity Market Mexico s Smart grid program International Trends Distributed Energy Resources New Retail Market Structures Emerging Business Models Panel and Guiding Questions... 9

3 1. The Mexican Electricity Market and the Smart Grid 1.1. Description The objectives of the round table discussions and how it will be organized are described below Objectives Discuss how the development of smart grid and micro-grids will influence the evolution of the Electricity Market, and Identify strategic project initiatives that can be developed in the context of the Mexican Energy Innovation Center, which facilitate the collaboration of the stakeholders of the Mexican electricity sector to achieve the goals to: o Integrate the distributed energy resources of distribution networks and micro-grids in the electricity market, o To move towards the exploitation of the maximum potential for operational flexibility of the distributed energy resources, and o develop the technological and regulatory foundations that would allow the coexistence of the wholesale electricity market and multiple markets of transactive energy Organization of round table discussions Work sessions will be held over three days: the activities of the first day will include the realization of a panel of experts in plenary session, in which the possible evolution of the electricity market will be discussed, in view of the development of smart grids and micro grids. The second, and third day work sessions will focus on identifying and documenting strategic project initiatives, respectively Background The Wholesale Electricity Market The Wholesale Electricity Market (MEM) is operated by the National Center for Energy Control (CENACE), where participants can sell and buy electric energy, power, clean energy certificates, ancillary services and other related products. 3 3

4 Generators, Qualified Users, Basic Service Providers and Qualified Service Suppliers participate in the MEM. The Mexican wholesale electricity market includes the following markets 1 : The Short-Term Market 2, which to date is composed of the Day Ahead Market and the Real Time Market, enables the purchase and sale of energy and ancillary services. The ancillary services include the regulation reserve, the 10-minute spinning and non-spinning reserves and, the supplementary reserve. The Short-Term Market started operations in January Long Term Auctions 3, these facilitate the procurement of long-term electric power contracts for the purchase and sale of power, cumulative electric power and clean energy certificates. This type of auctions started in Mid Term Auctions 4, allows the assignment of Electric Coverage Contracts, for the anticipated acquisition of Power and electric energy. The first Medium Term Auction was held in The Market for the Balance of Power 5, it is an annual and ex-post Market, which has the purpose of facilitating the Market Participants to buy or sell Power that they require to cover the imbalances that exist between their Power requirements and the amounts registered in their Bilateral Power Transactions. The first market of this type was made in 2017, for the year of operation Market for Clean Energy Certificates. Financial Transmission Rights Auctions Distributed Energy Resources in the Mexican Electricity Market Controllable Demand Resources. This type of resource can participate in the Second Stage of development of the Mexican Wholesale Market, which according to the Market Bases can happen after It is also during the Market s Second Stage when the Hour in Advance Market will start operations. The Controllable Demand, sensitive to the market price, can participate in the offering of ancillary services for regulation reserve, 10-minute reserves and, supplementary reserve. For this purpose, the related business practice manual and the corresponding administrative dispositions are yet to be developed. Depending on the type of Ancillary Service in which the Controllable Demand participates, the technology required for its coordination and control may be 1 Bases del Mercado Eléctrico, SENER, Diario Oficial, 8 de septiembre Manual de Mercado de Energía de Corto Plazo, SENER, Diario Oficial, 17 de junio de Manual de Subastas de Largo Plazo, DOF Manual de Subastas de Mediano Plazo, DOF Manual de Balance de Potencia, DOF Manual de Subastas de Derechos Financieros de Transmisión, DOF

5 relatively simple, as would be the case for the 10-minute reserves or supplementary reserves, since for these the only required action is the switching on or off of the load; or in contrast, the technology required for the frequency regulation service could be very sophisticated, since in that case the Controllable Demand is required to increase or decrease the energy consumption, in response to signals from the Automatic Generation Control, which are issued every 2 or 3 seconds, with the aim of reducing the system control error. Depending on the installed capacity of the Controllable Demand Resource, it could participate in the MEM by itself, or be represented by a Supplier. Also, the Market Bases consider that the loads can be aggregated, if they belong to the same economic group of interest, or correspond to a federative entity, municipality, or any of their dependencies and entities, and that the loads to be aggregated are of at least 25 KW. Distributed generation. The Market Bases assume that all Power Plants with capacity less than 500 kw connected to the General Distribution Networks meet the criteria to be considered Distributed Generation; this assumption will only be discarded if the CENACE carries out a specific study that determines otherwise. Power plants with a capacity greater than 500 KW must be represented in the MEM by a Generator. In contrast, the Distributed Generation, with a capacity of less than 500 KW, that does not choose to request a Generator permit, will be represented in the MEM by a Supplier. The general administrative dispositions issued by the Energy Regulatory Commission, on the contract models, the methodology for remuneration computation and the technical specifications, applicable to distributed generation and distributed clean generation power plants 7 consider three types of remuneration schemes: Net Metering, in which the Supplier's tariff is applied to the resulting net consumption; Net Billing, in which the energy delivered to the grid is settled at the Local Marginal Price, and the energy consumption is charged at the Supplier's rate; and the scheme in which both the consumption and the energy delivered to the grid are settled at the Local Marginal Price. Energy Storage. The Mexican Wholesale Electricity Market considers various products and ancillary services whose prices will evolve gradually, a function of supply and demand dynamics, and the requirements for operational flexibility related to the increasing integration of variable generation (mainly PV and wind generation). The participants will value the convenience of investing in energy storage systems to participate in the market, where they can generate multiple income streams for 7 RESOLUCIÓN Núm. RES/142/2017, DOF

6 the various products and related services that are remunerated at market prices. In addition, storage systems may also generate additional revenue streams, these for services that are not included in the market and that will be remunerated at regulated costs. In the national context, research and development opportunities have been identified, as well as the regulatory aspects that have yet to be defined or refined Mexico s Smart grid program By law, the National Center for Energy Control, every three years must develop and propose the Smart Electric Networks Program. It is the Energy Secretariat (SENER) that has the power to approve it and publish. Article 37 of the Energy Transition Law 9 establishes that the Smart Grid Program aims to support the modernization of the National Transmission grid and the General Distribution grids, to maintain a reliable and secure infrastructure that satisfies the electricity demand in an economically efficient and sustainable manner, and that facilitates the incorporation of new technologies that promote the reduction of costs of the electric sector, the provision of additional services through their grids, Clean Energy and Distributed Clean Generation, allowing a greater interaction between the devices of the end users and the electric system. The current version of the Program 10 presents a roadmap for the development of the smart electric networks of the country, from the perspectives of the National Transmission Network, the General Distribution Networks and the System Operator (CENACE) International Trends Distributed Energy Resources The rapid growth of distributed generation is outstanding, mainly due to public policy decisions to boost clean generation, and to the sustained decline of photovoltaic technology costs. Distributed generation is an important element in all electrical systems development scenarios. The development of demand response, as risk mitigation tool, particularly in situations of capacity scarcity, or in the face of high energy prices has been addressed; in the case of public service companies, through tariffs and specific 8 Taller para la definición de las prioridades nacionales de investigación y desarrollo tecnológico y formación de recursos humanos, en materia de almacenamiento de energía en la red eléctrica ; 9 Ley de Transición Energética (LTE). Diario Oficial, 24 de diciembre de Programa de Redes Eléctricas Inteligentes 2017, SENER 6 6

7 demand response programs. Also, in wholesale electricity markets, through the presence of aggregators of price-sensitive loads, that supply ancillary services that provide operational flexibility. It is to be expected that the value of these services will increase as a function of the need for greater flexibility to compensate for the variability of the growing share of variable renewable energy. The deployment of distributed energy storage resources is incipient, but important in the context of micro grids which require high reliability and resilience standards New Retail Market Structures The expectation of an increasing presence of distributed energy resources, as well as the convenience of reviewing incentive schemes for distributed clean generation, -as is the case net metering rates-, to avoid the subsidy that these imply at the expense of other consumers, and the interest to exploit the full potential of demand response, motivates the design of new retail markets structures. In several parts of the world, but perhaps mainly in the United States of America, there is a marked interest in innovation and modernization of retail electricity market models, in the context of smart distribution grids, with the objective to move towards a scenario of greater participation of distributed energy resources and a greater number of prosumers 11. At the end, there is the vision of an electrical system in which the energy management systems and the electrical equipment of millions of consumers interact in retail markets, through the Internet, in coexistence with the wholesale markets, collectively determining the prices of electricity, keeping the balance of supply and demand, and optimizing the use of resources 12. This concept is called Transactive Energy 13,14. Although Transactive Energy is still in incubation, pilot projects are being developed in several states of the American Union. Among the new retail market structures is the so-called "two-way subscription rate" (TeMIX), that is operated in an automated platform of bilateral transactions. Este modelo, combina la subscripción de energía a un precio predeterminado This model combines the subscription at a predetermined price for the customer's consumption profile (characterized in hourly, daily, and monthly terms), and 11 NIST Transactive Energy Modeling and Simulation Challenge for the Smart Grid, 12 Koen Kok and Steve Widergren, A Society of Devices, IEEE Power and Energy Magazine, may/june Transactive energy models, NIST Transactive Energy Challenge: Business and Regulatory Models Working Group, September The Policy maker s Toolkit, NIST Transactive Energy Challenge: Business and Regulatory Models Working Group, June

8 bilateral transactions in real time to settle the deviations from the consumption profile at the real-time Local Marginal Price. In principle, this scheme allows the client to make their own investment decisions in distributed energy resources (generation, storage, and demand management), to manage the price risk and maximize its economic benefit. From the supplier's perspective, who configures the subscription rate based on its portfolio of mid and long-term energy and power contracts, this scheme limits the exposure to spot price volatility. In California, this concept is being tested in a pilot project 15 which is aimed at residential customers, and customers of small and medium-sized businesses. Other proposed structures require an Independent Distribution Operator, which manages a retail market, based on Local Marginal Prices in distribution grids Emerging Business Models In the context of the new market structures, suitable for a greater presence of distributed energy resources, new business models emerge, among which are the following: Energy Provider, that also facilitates bilateral transactions in real time, through a two-way subscription fee. Virtual Power Plant Operator, that aggregates distributed energy resources to enable their participation in the wholesale market. Retail market Operator, that also interacts with the wholesale market. Provider of technology platforms for the automated administration of retail markets. 15 Retail Automated Transactive Energy System (RATES) on the Southern California Edison distribution grid with the sponsorship of the California Energy Commission; 8 8

1.5. Panel and Guiding Questions September 18th, 2018 Panel 1: "Effects of the Smart Grid in the Electricity Market" Schedule ACTIVITIES SCOPE GUIDING QUESTIONS 10:00 10:25 10:50 11:15 11:40 11:50

9 1.5. Panel and Guiding Questions September 18th, 2018 Panel 1: "Effects of the Smart Grid in the Electricity Market" Schedule ACTIVITIES SCOPE GUIDING QUESTIONS 10:00 10:25 10:50 11:15 11:40 11:50 Introduction by panel leader: Rolando Nieva The possible evolution of the electricity market in view of Panelist presentation: Favio Perales Martínez, Market design Director, CENACE Panelist presentation: Miguel Ortega Vázquez, EPRI Panelist presentation: Marcelino Madrigal Martínez, Commissioner, CRE Questions from the participants Break smart grid developments will be discussed. The concepts of transactive energy and the coexistence of the Wholesale Market with multiple retail markets of Transactive Energy will be discussed. What lessons have been obtained from the implementation of demand-response schemes for large consumers, in the competitive markets of North America? What lessons has left the implementation of Transactive Energy Markets pilots and their interaction with the Wholesale Electricity Market? From the regulation perspective? From the distribution grid operator? What are the main opportunities for innovation that can be pursued in the context of the Mexican Energy Innovation Center for smart grids and micro-grids, that would contribute to the integration of the distributed energy resources in the electricity market? 9 9

Distributed photovoltaic power generation: possibilities, benefits, and challenges for a widespread application in the Mexican residential sector

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