On May 23, 2023, the National Commission for Regulatory Improvement (“CONAMER”) published in its web page the draft of the resolution of the Energy Regulatory Commission (“CRE”) to update the reference values of the methodologies for the calculation of the efficiency of electric power cogeneration systems and the criteria to determine the efficient cogeneration, as well as the efficiency criteria and calculation methodology to determine the percentage of fuel-free energy established in the resolutions RES/003/2011, RES/206/2014, RES/291/2012 and RES/1838/2016, respectively.

Such draft was filed by the CRE with a request for an exemption from undergoing the regulatory impact analysis, which was presumably accepted by CONAMER. As a result, the CRE has formally approved the corresponding resolution (the “Resolution”), in the extraordinary plenary meeting held on May 24, 2023.

According to the information submitted by the CRE to CONAMER, the Resolution is intended to: (i) provided greater certainty by adding or clarifying certain definitions; (ii) reflect efficiency levels and losses consistent with those prevailing in power plants located in Mexico and the National Transmission Grid and general distribution girds; (iii) allow the certification of processes associated to the petroleum industry not directly related to the production of fossil fuels, as efficient cogeneration; (iv) properly acknowledge and regulate the efficient cogeneration associated to systems with two or more thermodynamic cycles sequenced for the maximum utilization of the residual thermal energy of their main cycle and generation facilities using ancillary cooling technology to improve the thermal performance of the compressor-turbine ratio. However, some have perceived the changes introduced by the Resolution as a mechanism to artificially increase clean energy generation in Mexico.

The main changes contemplated in the Resolution are the following:

1. The CRE’s resolution number RES/003/2011, as amended pursuant to resolution number RES/206/2014, set forth the calculation methodology for electric power cogeneration systems and the criteria to determine the efficient cogeneration. The most important changes introduced by the Resolution with respect to such methodology and criteria are:

(i) The reduction of the Electric Performance (“RefE”) value (used, among other factors, to calculate the efficiency of a cogeneration system), from 44% to 41%.

(ii) Changes in the factor associated with the electric power losses applicable to each voltage at which the cogeneration system is interconnected, as follows:

• For the voltage level < 1.0 kV, the losses factor is increased from 0.91 to 0.94;
• For the voltage level 1.0-34.5 kV, the losses factor is increased from 0.94 to 0.95;
• For the voltage level 169-85 kV, the losses factor is increased from 0.96 to 0.97;
• For the voltage level 115-230 kV, the losses factor is kept without change at 0.98; and
• For the voltage level  400 kV, the losses factor is reduced from 1.00 to 0.99.

2. Under resolution number RES/291/2012, the CRE issued the general provisions to certify cogeneration systems and efficient cogeneration.

Under such general provisions, cogeneration systems associated to processes of the petroleum industry were not eligible to be certified as efficient cogeneration. Pursuant to the Resolution, such exclusion is now limited to cogeneration systems associated to processes of the petroleum industry which products are fossil fuels; consequently, cogeneration systems associated to processes of the petroleum industry which products are not fossil fuels will be eligible to be certified as efficient cogeneration.

III. Under resolution number RES/1838/2016, the CRE issued the general administrative provisions containing the efficiency criteria and establishing the calculation methodology to determine the percentage of fuel-free energy in energy sources and electric power generation processes, under the Electric Power Public Utility Law (Ley del Servicio Público de Energía Eléctrica).

The changes to those general administrative provisions provided under the Resolution include:

(i) Updating the factor associated with the electric power losses, in the same terms as those described above.

(ii) For the calculation of the fuel-free energy, the reference value RefE for each level of generation capacity is updated as follows:

• For generation facilities with a capacity below 0.5 MW, RefE is decreased from 40% to 31%;
• For generation facilities with a capacity between 0.5 MW and 6 MW, RefE is decreased from 44% to 34%;
• For generation facilities with a capacity above 6 MW and up to 15 MW, RefE is decreased from 47% to 37%;
• For generation facilities with a capacity above 15 MW and up to 50 MW, RefE is decreased from 48% to 41%;
• For generation facilities with a capacity above 50 MW and up to 150 MW, RefE is decreased from 51% to 44%;
• For generation facilities with a capacity above 150 MW and up to 300 MW, RefE is decreased from 52% to 47%; and
• For generation facilities with a capacity above 300 MW, RefE is decreased from 53% to 50%.

(iii) For generation facilities with a capacity up to 30 MW installed at an altitude above 1500 meters over the sea lever, generating with internal combustion engines or gas turbines, the reference value RefE is updated as follows:

• For generation facilities with a capacity below 0.5 MW, RefE is decreased from 40% to 31%;
• For generation facilities with a capacity equal to, or above, 0.5 MW and below 6 MW, RefE is decreased from 44% to 34%;
• For generation facilities with a capacity equal to, or above, 6 MW and below 15 MW, RefE is decreased from 45% to 35%; and
• For generation facilities with a capacity equal to, or above, 15 MW and below 50 MW, RefE is decreased from 45% to 35%.

(iv) Eliminating the provisions indicating that the efficiency criteria to determine whether a cogeneration system qualifies as efficient cogeneration is not applicable to processes of the petroleum industry or any other, intended to produce any sort of fuel.

(v) The introduction of various provisions related to generation facilities with two or more thermodynamic cycles sequenced for the maximum utilization of the residual thermal energy of their main cycle; including provisions indicating that the energy generated from fuel-free energy provided by one or several lower sequential thermodynamic cycles that use the residual heat of a thermal machine in a main thermodynamic cycle, which uses natural gas or cleaner fuels as fuel, without using any additional or supplementary fossil fuels, shall be considered clean energy.

(vi) The introduction of various provisions related to generation facilities using ancillary cooling technology to improve the thermal performance of the compressor-turbine ratio, including provisions indicating that the additional electrical energy generated per power plant unit using natural gas or cleaner fuels, derived from the use of ancillary cooling technology to condition the inlet air of its thermodynamic cycle, will be considered fuel-free energy.

With respect to these last changes, however, it is important to bear in mind that the Energy Transition Law expressly provides that power generated by combined cycle power plants shall not be considered efficient cogeneration.