International experience with tradeable green certificates and feed-in tariffs: lessons to be learned by Mexico
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2015
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Melbourne Authors
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School of Earth Sciences
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Masters Coursework thesis
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For more than eight decades Mexico's electricity sector was monopolised by the state owned electric utility CFE. However, on December 20th 2013, the Mexican Government passed a package of major constitutional amendments to abolish this monopoly and allow private and foreign participation in the generation and commercialisation of electricity.
As part of this reform, Tradeable Green Certificates (TGC) - a quantity-based policy employed to promote the adoption of renewable energies- was implemented with the aim to liberalize the electricity market, to create jobs, reduce electricity prices, and increase Mexico's industrial sector competitiveness Similarly, improvements on energy efficiency and further development of renewables energies (REs) were sought to improve energy savings; improve energy security; provide access to energy to remote communities; diversification of the energy mix and to decrease in 60% GHG emissions levels by 2050 compared to 2000's levels. Also Mexico set the goal to source 35% of its total electricity consumption from non-hydro REs sources by 2026.
Besides TGC, Feed-in tariffs (FITs) is the other major policy instrument employed world-wide to promote the adoption of renewables energies. The large body of literature analysing these two systems have identified the major strengths and weaknesses of each of them. In broad terms, authors have catalogued FIT as an instrument capable to achieve, RE governments' targets in the short term but often at considerable high social and consumer costs which can lead to overcompensation for several producers under some specific conditions. Additionally, FITs have also been recognised as an effective policy to stimulate technology improvements in the production of RE.
On the other hand, TGCs have also been catalogued as a useful instrument to achieve RE goals. Yet high risks (exposure of REPs to high volatility prices of electricity and REC and lack of guarantee for the purchase of their outputs among others) discourage the entrance of small and new players into the market. Their effectiveness heavily relies on the accuracy with which the quota and the level of stringency for the buy-out price are set. In terms of cost-efficiency, they are generally described as inappropriate mechanisms if energy-cost reductions for final consumers are sought. In addition, it has been criticised by how the benefits of it are distributed among several actors.
The purpose of this paper is to analyse if the decision of the Mexican Government to implement a TGC system was suitable for achieving the intended outcomes sought through the enactment of its Energy Reform. Also this paper looks to determine what lessons can be learned by Mexico from the international experience of FIT and TGC.