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The energy sector in Ecuador is considered strategic for national sovereignty. As a result, there are certain limitations for private participation and foreign companies are allowed to operate in the country just through specific service contracts. As required by the Constitution, the electricity sector is federally owned, with the Federal Electricity Commission (Comisión Federal de Electricidad or CFE) essentially controlling the whole sector. Attempts to reform the sector have traditionally faced strong political and social resistance in Mexico, where subsidies for residential consumers absorb substantial fiscal resources.

The electricity sector in Ecuador relies heavily on thermal sources (74% of total installed capacity), followed by hydropower generation (22%). Although exploitation of solar, wind, and biomass resources has a large potential, geothermal energy is the only renewable source (excluding hydropower) with a significant contribution to the energy mix (2% of total generation capacity). Expansion plans for the period 2006-2015 estimate the addition of some 24,000 MW of new generation capacity, with a predominance of combined cycles.

Installed capacity
Installed electricity capacity in 2006 was 49 GW. Of the installed capacity, 73.6% is thermal, 21.6% hydro, 2.8% nuclear and 2% geothermal. The general trend in thermal generation is a decline in petroleum-based fuels and a growth in natural gas and coal,.

Gross generation was 223.6 TWh that same year, with 78.6% coming from conventional thermal sources, 13.6% from hydroelectricity, 4.9% from nuclear power and 3% from geothermal sources.

The expansion program contemplated by SENER for the period 2006-2015 includes the addition of 23,993 MW by the public service: 23,545 MW by CFE (Comisión Federal de Electricidad) and 448 MW by LFC (Luz y Fuerza Centro). Self –supply and cogeneration will add another 619 MW in new capacity. Total installed capacity in 2015 is estimated at 66,599 MW. 51.4% of the added capacity will be combined cycles and 9.6% will be thermoelectric production. It is also important to note that natural gas will supply 61.1% of the fuel needed.

In 2006, 6,594 MW were already compromised. The table below summarizes the projects that are currently (August 2007) under construction:

Source: SENER Statistics

Imports and exports
The external electricity trade is carried out through nine interconnections between the United States and Mexico and one interconnection with Belize. These connections have primarily been used to import and export electricity during emergencies.

In 2003, Mexico imported 0.39 TWh of electricity while it exported 1.07 TWh.

Demand
Consumption of electricity in 2005 was 191.3 TWh, which corresponds to 1,801 kWh per capita.

Demand and supply projections
Electricity demand has grown steadily in the last decade and the Energy Secretariat (SENER) forecasts that consumption will grow by 4.8% a year for the next ten years, reaching 304.7 TWh in 2015. For the year 2030, generation is projected to reach 505 TWh, with 59% of electricity generated from gas, 19% from coal, 10% from petroleum, 7% from hydro and 3% from new and renewable energy. The share of nuclear will decline from 5% in 2002 to 2% in 2030. The largest demand increase will happen in the Northeast, Baja California and the Yucatan Peninsula due to the growth in manufacturing and industry.

Access to electricity
Total electricity coverage in Mexico is 97% (2006), being almost 100% in urban areas and around 95% in rural ones.

Interruption frequency and duration
In 2005, the average number of interruptions per subscriber was 2.2, while duration of interruptions per subscriber was 4.53 hours.

Distribution losses
Distribution losses in 2005 were 15%, the highest %age since 1995.

Policy and Regulation
The Energy Secretariat (SENER) is in charge of defining the energy policy of the country within the framework defined by the Constitution. The Energy Regulatory Commission (CRE) is, since 1995, the main regulatory agency of the electricity and gas sector. However, CRE’s attributions are limited since CFE (Federal Electricity Commission) and LFC (Central Light and Power) are outside its scope.

Generation
The generation sector was opened to private participation in 1992. However, the Comisión Federal de la Electricidad (CFE), the state-owned utility, is still the dominant player in the generation sector, with two-thirds of installed capacity. Independent power producers (IPPs) control 9.3 GW of generation capacity in the country but they have to sell all their output to CFE since they are not allowed to sell directly to users. There is indeed a commercialization monopoly controlled by CFE.

Transmission and Distribution
CFE holds a monopoly on electricity transmission and distribution outside of Mexico City and some other municipalities, where another state-owned company, Luz y Fuerza Centro (LFC) holds the monopoly on distribution activities. CFE operates the national transmission grid, composed of 27000 mi of high voltage lines, 28000 mi of medium voltage lines, and 370000 mi of low voltage distribution lines, through one of its departments, the Centro Nacional de Control de la Energía (CENACE).

Renewable Energy Resources
The two main government agencies in charge of developing renewable energy resources are SEMARNAT and SENER. The Environment and Natural Resources Secretariat (SEMARNAT) is responsible for environmental policy and the preservation of renewable and non-renewable resources, while SENER defines the national energy policy. CONAE, the National Commission for Energy Savings, is responsible for promoting energy savings and energy efficiency. Finally, SEDESOL, the National Secretariat for Social Development, includes the promotion and use of renewable energy in some of their projects.

In December 2005, a legislative initiative for LAFRE (Ley para el Aprovechamiento de las Fuentes Renovables de Energía or Law for the Exploitation of Renewable Energy Sources) was approved by the Chamber of Deputies. This law sets a goal for 2012 for a minimum participation of 8% of renewable energies in the total electricity generation, without including large hydro. SENER would be in charge of elaborating and executing the Program for the Exploitation of Renewable Energy Resources. Finally, the law established that al least 20% of the FIDTER resources would be used to asses the potential of renewable energy in Mexico.

Hydro
About 21% of the electricity produced in Mexico comes from hydroelectric resources. The largest hydro plant in Mexico is the 2,300 MW Manuel Moreno Torres in Chicoasén, Chiapas. This is the world’s fourth most productive hydroelectric plant. The 750 MW El Cajon hydroelectric plant in Nayarit, which started operations in November 2006, is the latest completed large project.

In 2005, there were 6 private mini-hydro installations, adding up to a total of 40 MW, with 139 MW under development in other 9 new plants. The country has an important mini-hydro potential, estimated at 3,200 MW (in the states of Chiapas, Veracruz, Puebla and Tabasco).

SENER estimates a necessary investment of US$2908 million in hydro in the period 2006-2015 in order to carry out the electric system expansion plans.

Wind
Wind power production is still very limited in Mexico, although the country’s potential is estimated to be above 40,000 MW. CFE has three wind facilities under operation, La Venta I, La Venta II and Guerrero Negro, which have a combined capacity of 88 MW. The wind potential in the state of Oaxaca is 33,200MWe. Other states with wind potential are Zacatecas, Hidalgo and Lower California.

Public investment in wind power for the period 2006-2015 is estimated at US$791 million.

Solar
Mexico is the country with the world’s third largest solar potential. The country’s gross solar potential is estimated at 5kWh/m2 daily, which corresponds to 50 times national electric generation. In 2005, there were 328,000 square meters of solar thermal panels and 115,000 square meters of solar PV (photo-voltaic) installed in Mexico. It is expected that installed solar capacity in 2013 will be 25MW, with a generation of 14 GWh per year.

Geothermal
Mexico has a large geothermal potential due to its intense tectonic and volcanic activity. It ranks third in geothermal power production worldwide. In 2006, geothermal installed capacity was 980 MW and total production was 6.71 TWh. There are four geothermal fields now under exploitation: Cerro Prieto, Los Azufres, Los Humeros and Las Tres Vírgenes. Estimated potential is 217 MW for the actively producing fields and 1,500 MW for fields not yet developed.

Biomass
Mexico also has a large potential to produce energy from biomass. It is estimated that, taking into account agricultural and forest waste with energy potential and solid urban waste from the ten main cities, the country has a potential capacity of 803MW and could generate 4,507MWh per year.

Early history
The electricity sector in Mexico underwent its first serious process of reorganizations during the 1930s, under the mandate of the Institutional Revolutionary Party (PRI). The National Electricity Code was created and the Federal Electricity Commission (CFE), a newly create state-owned and state-financed enterprise, came to dominate all investment in new capacity. Later, in 1960, a constitutional amendment nationalized the electricity industry and formally gave the government exclusive “responsibility” for generating, transmitting, transforming, and distributing electricity. During that decade, the government also created the Compañía de la Luz y Fuerza Centro (LFC) to supply electricity to Mexico City and the neighboring states. During the 1960s and the 1970s, Mexico alienated private investment and decided to prevent market forces from entering the power system. In addition, the surge in oil prices of the 1970s provided a windfall to oil-rich Mexico, which allowed the country to maintain substantial subsidies for electricity generation. During the late 1980s and the early 1990s, the Mexican government implemented market reforms in several economic sectors, including electricity. In 1992, President Carlos Salinas reformed the electricity law, establishing that private electricity production was not a public service. This modification, which allowed for private participation in generation, was and is still debated as unconstitutional (in 2002, the Mexican Supreme Court ruled that the 1992 law might be unconstitutional ). The Energy Regulatory Commission (CRE) was created in 1993 as an autonomous agency in charge of regulating the natural gas and electricity indsutries. However, its functions are only related to private power producers (e.g. award of permits, arbitration, tariff studies) and do not cover CFE and LFC. To date, CRE's functions have been mainly focused on the gas sector and not so much on electricity.

Recent developments
Attempts by president Ernesto Zedillo in the late 1990’s, by the National Action Party (PAN) in 2000, and more recently by former president Vicente Fox to carry out a comprehensive reform of the electricity sector in Mexico have faced strong political resistance. In 1999, President Zedillo sent an ambitious bill to Congress requesting a change of the Constitution and allowing for the unbundling of the sector, including the creation of distribution companies under 3-year concessions. Existing power plants would also be sold, except for nuclear and hydro power plants. In 2001, President Fox issued a reform decree that would allow Independent Power Producers to sell directly to industrial customers and would also allow the sale of private power to CFE under long-term contracts without competitive bidding. Among other issues, the decree also specified that electricity is not a public service of general interest but a commercial service. Both reform attempts failed, opposed on grounds that the electricity and, more broadly, the energy sector is strategic for national sovereignty. As required by the Constitution, the electricity sector remains federally owned, with the Comisión Federal de Electricidad (CFE) essentially controlling the whole sector.

Among the different proposals for the institutional reform of the electricity sector, the main ones are the creation of the CFE (Federal Electricity Commission) ’s Fundamental Law and the modification of this firm’s operations and the extension of CRE (Electricity Regulatory Commission) ’s competencies. Also important is the promotion of private independent power production and the discussion of the role played by Pidiregas (see Financing below) in the financing of large projects.

Tariffs
During the last decade, average electricity tariffs in Mexico have been held below cost with the aim of maintaining macroeconomic and social stability. For all tariffs, an interagency group comprised of CFE (Comisión Federal de Electricidad), LFC (Luz y Fuerza del Centro), SHCP ("Secretaria de Hacienda y Crédito Público"), SENER (Secretaria de Energia), CRE (Comisión Reguladora de la Energía), and CNA ( Comisión Nacional del Agua) meet regularly and once a year they prepare a tariff proposal for the subsequent year. Tariffs are approved by SHCP and not by the energy sector regulator.

In 2006, average tariffs for the different sectors were :


 * Residential: US$ 0.098/kWh (lower than the weighted average for LAC: US$ 0.115/kWh)
 * Commercial: US$ 0.232/kWh
 * Services: US$ 0.157/kWh
 * Agriculture: US$ 0.044/kWh
 * Industrial: medium industry US$ 0.119/kWh, large industry US$ 0.089/kWh (mostly in line with the weighted average for LAC: US$ 0.107/kWh)

Subsidies
For the industrial and commercial sectors, electricity supply is priced on a rational cost basis for large firms. As a result, they receive no government subsidy, while subsidies for small firms are relatively small. On the other hand, agricultural and residential customers have traditionally received large subsidies since the electricity they consume is significantly underpriced. Extensive subsidies have contributed to a rapid growth in demand. In 2000, the average residential tariff covered only 43% of the costs, while the average tariff for agricultural use covered 31%. . Total subsidies amounted to 46% of total electricity sales. In addition, residential subsidies were mostly captured by medium and high income classes as the amount of the subsidy raised with consumption.

In 2002, a restructuring of residential tariffs significantly raised the infra-marginal tariffs paid by middle and especially high consumers of electricity. Currently, billing schedules vary by temperature, season and consumption level. In spite of this reform, price/cost ratio was still under 40% in 2002, even after the 21% increase in price due to the reform. In addition, the share of subsidies going to the non-poor population remained high, estimated at 64%. Agricultural tariffs were also modified in 2003, when a fixed price per kWh was fixed. These new tariffs sought charging higher prices for excess energy use.

The low tariffs, together with LFC’s inefficiencies, absorb a large amount of fiscal resources (2002: 1% GDP, 54% of total electricity revenues and 165% of total investment in electricity).

Investment by sub-sector
Necessary investment to carry out the 2006-2015 expansion plan amounts to MXN 609,000 million (US$ 57,000 million). The break down of the investment is: 39.7% for generation, 19.3% for transmission, 23.6% for distribution, 16.2% for major maintenance and 1.3% for other needs.

From the required total, 36.3% corresponds to OFP (Obras Públicas Financiadas or Financed Public Works), 8.8% to Independent Power Producers, 46.7% to budgeted works and the remaining 8.2% to financial schemes still to be defined. Overall, private sources will represent 53% of the total investment.

Pidiregas
In 1995-1996 the Mexican government created Pidiregas ("Proyectos de Inversión Diferida En El Registro del Gasto " – Investment Projects with Deferred Expenditure Registration) to finance long-term productive infrastructure projects. Due to budgetary restrictions, the government realized that it could not provide all the resources needed and decided to complement the public sector’s efforts with Pidiregas, a deferred financing schedule. This mechanism, which only applied to investments carried out by PEMEX(Petróleos Mexicanos) and CFE aimed to create the conditions for the penetration of private initiatives in hydrocarbon exploration and electricity generation. Pidiregas have been extended and have also grown in amount (PEMEX uses them for as much as four times the amount of CFE), although the original motivation for their existence is gone. Following a project finance scheme, for a project to be executed under Pidiregas, the resources that it generates from the sale of goods and services have to be enough to cover the incurred financial obligations. Projects are paid with the revenues generated during their operation and require the signature of a contract in which a product or work is involved. The State assumes the risk since PEMEX or CFE sign the contract as guarantee, while the investors recover their investment in the agreed time. As a result, Pidiregas cannot be considered as true private investment since, under true private sector participation, firms would make investment decisions and bear the full risk. The viability of the program has been questioned as its effect in the public budget is similar to the emission of public debt. Furthermore, until 2006, the Pidigeras scheme resulted in losses.

Grid extension
Since 1995, states and municipalities hold the responsibility for the planning and financing of grid extension and off-grid supply. A large part of the investment is financed through FAIS (Fund to Support Social Infrastructure). The National Commission for Indigenous People and SEDESOL (Secretariat for Social Development) also finance an important share of grid extension. Once a particular system has been constructed, its assets and operational and financial responsibility are transferred to CFE.

Summary of private participation in the electricity sector
As required by the Constitution, the electricity sector in Mexico remains federally owned, with the Comisión Federal de Electricidad (CFE) essentially controlling the whole sector. Although generation was opened to private participation in 1992, CFE is still the dominant player, with two-thirds of installed capacity. On the other hand, CFE holds a monopoly on electricity transmission and distribution outside of Mexico City and some other municipalities, where another state-owned company, Luz y Fuerza Centro (LFC) holds the monopoly on distribution activities.

Responsibility for the environment
The Secretariat of Environment and Natural Resources (SEMARNAT), created in 2000 from the previous SEMARNAT (Secretariat of Environment, Natural Resources and Fishing) holds the responsibilities for the environment in Mexico.

SEMARNAT was one of the government agencies within the Intersectoral Commission for Climate Change that elaborated Mexico’s Climate Change Strategy.

Greenhouse Gas Emissions
GHG emissions from the electric sector were 114 MtonsCO2e in 2004, which represented 31% of the total emissions from fossil fuel combustion. Projections for 2014 expect emissions from electricity to increase up to 160 MtonsCO2e, 32% of the total.

CDM projects in electricity
Currently (July 2007), there are 32 energy-related registered CDM projects in Mexico. The table below summarizes the number of projects and the associated emission reductions.

Source: UNFCCC

World Bank
Currently, the World Bank is contributing funds and assistance through several projects related to the energy sector in Mexico.


 * A Rural Electrification Project with a US$15 million grant from GEF and a US$15 million World Bank loan is currently in the pipeline. This US$110 million project is focused in the design and implementation of sustainable energy models for areas without access to the electricity network. The project includes 50,000 households in Oaxaca, Guerrero and Veracruz.


 * In October 2006, GEF financing was approved for the US$49.35 million  Agua Prieta Hybrid Solar Thermal Power Plant. This project, located in the northern state of Sonora, will contribute to reduce GHG emissions through the installation of an Integrated Solar Combined Cycle System (ISCCS) using solar parabolic technology.


 * A Large-Scale Renewable Energy Development Project was approved in June 2006. This two-phase project will receive a US$25.35 million grant from GEF, while the remaining $US 125 million will be financed by local and private sources. The project seeks to assist Mexico in developing initial experience in commercially-based, grid-connected renewable energy applications. It will do so by supporting the construction of an approximately 101 megawatt independent power producer (IPP) wind farm, designated as "La Venta III".


 * The Prototype Carbon Fund approved in December 2006 a US$12.29 million investment loan for a Wind Umbrella Project.


 * A US$5.8 million GEF grant was approved in October 2002 for the Introduction of Climate Friendly Measures in Transport. The project, with a total budget of US$12.2 million, has will contribute to the establishment of policies that will assist towards a long-term modal shift in a climate-friendly, more efficient and less polluting, less carbon intensive transport for the Mexico City Metropolitan Area (MCMA).

IDB
Currently, two IDB financed energy projects are under implementation in Mexico.


 * In May 2007, US$200,000 was approved to finance a project that aims at providing Assistance to CFE on Environmental and Social Aspects of Hydroelectric Projects. This US$1,168,000 project aims to assess CFE performance and management capability in dealing with environmental and social impacts of large hydroelectric projects.


 * Financing for the Support for the Energy Secretariat on the Feasibility of Bio-Ethanol as Fuel was approved in August 2005. The US$146,000 provided by the IDB are complemented with US$30,000 from the country. The broad objective of the project is assessing the competitiveness of ethanol as a fuel.