What is the Wholesale Electricity Market and how does it work?

1. What did this change imply in the electricity market?


The release of the electricity market led to a larger supply in the industry; today companies can generate, supply and market electricity directly with their customers, who must be qualified users of the Wholesale Electricity Market (MEM in its Spanish acronym), fulfilling one of the MEM’s purposes by increasing competition and providing an additional option to the Federal Electricity Commission (CFE in its Spanish acronym). It should be stressed that currently we all indirectly participate in the MEM, simply for having electricity at home, except that the only supplier for home consumption is CFE Suministro Básico.

2. Who are eligible as qualified users?


Companies, small- and middle-sized businesses or individuals with business activity who want to take part in the MEM must be registered with the Energy Regulatory Commission (CRE in its Spanish acronym) and meet the demand requirement, which must be equal to or higher than 1.0 Megawatt (MW). Participation in the MEM is optional for users who before the entering into force of the Electricity Industry Act (LIE in its Spanish acronym) were already supplied by CFE or under self-supply (August, 2014), but it will be required for users who did not receive public electricity service and meet the demand requirement.

3. Who offers energy supply?


Electricity supply may be acquired by qualified users in two ways: as a market participant or through a qualified service supplier. Under the first mode, users may acquire on an independent basis required products directly in the MEM, while under the second mode users will access market products through a specialized third party, the qualified service provider, so that such party will represent the user in the MEM.

4. What is the cost of energy on this market?


MEM is an hour ahead market, i.e., electricity-related products are purchased and sold by hour of day, while it is a cost market. This means that the final price will depend on the generation cost. The rate is regulated by the Ministry of Energy, the National Energy Control Center (CENACE in its Spanish acronym) and the CRE.

On the other hand, there is the local marginal price (PML in its Spanish acronym) – a marker of the hour-ahead price – composed of different factors, including the energy factor, which is the same for the whole national electricity system. Also, there are technical and non-technical losses and finally congestion of substations, which are the facilities that set proper levels for electric power transmission and distribution.

In brief, the MEM has great advantages for the energy sector, including an increased competitiveness of the electrical offer, process transparency, and regulation both of rates and industry-related activities, because there are laws, manuals and regulations by which participants must abide.