June 26, 2019

Draft Regulations Governing Collective Distributed Generation of Electricity

By Antonio Riojas

On May 27, 2019, the preliminary draft of the Resolution through which the Energy Regulatory Commission issues the contract model for suppliers of basic services and the methodology for compensation applicable to collective distributed generation (“Draft Regulations”) was submitted to the National Regulatory Improvement Commission for public comment. The Draft Regulations expand the possibilities for small electric power generators to supply multiple load centers, whose demand is met by a supplier of basic services. Consequently, it allows the option for load centers to benefit from distributed generation even though they may not have the physical space to install systems of this kind, such as solar panels. This modality is known as collective distributed generation.

The Draft Regulations are based on the concept of distributed generation, which in lay terms refers to a capacity lower than 0.5 MW. Distributed generation has several benefits in comparison to other modalities, including a simplified interconnection procedure and the exemption for generators to own a permit from the Energy Regulatory Commission (“CRE” for its acronym in Spanish).

To better understand the context of the Draft Regulations, consider that on March 7, 2017 the CRE published the General administrative provisions, the contract models, the methodology for calculation of compensation, and the general technical specifications applicable to distributed generation and clean distributed generation power plants (“DACG” for their acronym in Spanish). These DACG established an additional benefit for distributed generation, namely, the possibility of using three alternative methods of compensation: 1) net metering, 2) net billing, and 3) total energy sales. The net metering method is the  most commonly used of the three, where compensation is calculated based on the difference between delivered energy and consumed energy, as measured by a bidirectional meter.

As noted above, the  Draft Regulations are subject to public comment and set forth a new modality called collective distributed generation, which allows exempt generators to assign generated electricity to more load centers. To further the development of a collective distributed generation system, a collective compensation contract is required to be signed by the exempt generator and the basic services supplier. Such collective compensation contract will also identify the beneficiary/end user(s) under the contract.

The operations and procedures discussed above may only be conducted using the net metering and net billing methods. With respect to the first method, the beneficiaries’ load centers must share a common point of interconnection and have the same basic supply rate. For the second method, it is not necessary for the load centers to share a common interconnection point or have the same basic supply rate.

It is important to emphasize that exempt generators and end users do not have the freedom to agree upon the compensation to be paid. Compensation must be calculated pursuant to the DACG and the Draft Regulations. However, it is possible for them to negotiate and agree upon the payment terms. In reality, although the compensation is regulated, the limit to become an exempt generator is the same, and an additional contract must be entered into between the exempt generator and the basic services supplier.  Thus, the Draft Regulations do not provide much of an incentive for use of this new modality. Nevertheless, the Draft Rules will await the publication of their final version in the Official Journal of the Federation. At such point, one may have a clearer view in determining whether the proposed changes actually offer attractive opportunities for participants in the electricity industry and, above all, for end users.

The Draft Regulations have already been the subject of several comments. Although such comments are mostly positive, three important questions have been raised. The first revolves around the justification for preventing the exempt generator from assigning a collective distributed generation contract. The second is the question of why total energy sales are not considered as a compensation method for this type of generation. Lastly, some commenters expressed concerns regarding the finances of basic service suppliers under the proposed new scheme.

Finally, it is important to mention that this is the last proposed rule to be submitted to the National Regulatory Improvement Commission under the CRE presidency of Commissioner Guillermo García Alcocer. He expressed confidence regarding the Draft Regulations and their benefits at the last public event where he spoke before resigning his post (at the Gulf Coast Power Association annual Mexico conference). However, the reality is that the future of this and other regulations is uncertain, given the new configuration of the CRE.