What is Isolated Supply? The new mechanism of power generation and commercialization
By: Lupita Esparza
Main features:
- Offers the possibility to generate and sell electric power directly to End Users at freely agreed prices, without a Qualified Services Supplier. This allows users to obtain substantial savings in electricity fees, compared to the ones offered by CFE.
- Off-grid: power generated and sold is not transmitted through the National Transmission Network nor the General Distribution Network, which provides additional savings (no transport fees).
- The power plant is built inside or nearby the user’s premises.
- It allows to connect/interconnect to the National Transmission Network or the General Distribution Network to purchase in case of shortage or sell surpluses at Local Marginal Price.
- The Generator and the User should be the same legal entity or different entities belonging to the same Economic Interest Group.
- The End User is not required to be registered as a Qualified User, nor it is necessary for the User to be represented by a Qualified Services Supplier.
- In case of using renewable energy, it gives access to diverse tax benefitssuch as income tax exemptions, fiscal credits to investment, special deductions, reductions on payroll taxes, property and real estate acquisition taxes, and preferential import fees.
Of special interest to:
- Industries of medium or high power consumption with enough space on their premises to install a power plant, such as: Industrial parks, Real estate developments, Cement, steel, textile, automotive, chemical. pharmaceutical and sugar industries.
- Manufacturers and distributors of power generation equipment.
- Corporate groups located in the same premises.
What is Isolated Supply?
As a strategy to solve the main problems affecting the electricity industry, the power sector reform increased the access of private entities to several areas of the energy value chain (mainly in power generation and trade)seeking to promote an efficient market, more competitive fees and rates, and to ensure the satisfaction of power demand in Mexico.
Normally, Generators are not allowed to sell electricity directly to End Users and they must sell it through Qualified Services Suppliers, to Market Participant Qualified Users, or directly to the Wholesale Electricity Market. Nonetheless, there are new alternate mechanisms that offer a chance to generate and sell electricity without being bound to comply with such requirements. One of these mechanisms is Isolated Supply, understood as the generation of electric power to satisfy own needs or for export, without transmitting the generated electricity throughout the National Transmission Network nor the General Distribution Network.
Isolated Supply has the following characteristics:
- Requires a private network to transmit the electricity generated.
- Owner of the power plant shall be either the consumer or part of the same Group of Economic Interest as the consumer.
- It is not required to involve a Qualified Services Supplier.
- The premises –both the power plant and the user’s load center– may or may not be connected/interconnected permanently or temporarily to the National Transmission Network and the General Distribution Network to buy power in case of shortage or sell surplus.
- If necessary, the user may purchase power in case of shortages as a Basic Supply User, a Qualified Services User or a Market Participant Qualified User.
It is important to mention that, on Isolated Supply, the holder of the generation permit will be able to enter into agreements with third parties for the financing, commissioning, maintenance, management, operation, expansion, modernization and preservation of the infrastructure required to generate and deliver power.
The Isolated Supply mechanism allows for industries with high consumption levels and enough space in their premises to build power plants to generate electricity to meet their own needs. This allows to greatly reduce costs associated with electricity consumption in their facilities.
In order to get additional information on this matter, please reach any of our Infrastructure & Energy team members.
In addition to our specialized lawyers, we count with the support of a technical team of experts in engineering, software and electricity markets. This allows us to offer additional services of market and financial analysis and evaluation, technical proposals reviews, and development of all tools required to operate on the whole sale electricity market.
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