How to reform the power sector in Mexico? Insights from a simulation model

Abstract

PurposeThe purpose of this paper is to address the question of how a developing country, like Mexico, can reform its electricity industry at the same time as addressing climate change issues.Design/methodology/approachThe objective is to provide a tool that policy makers could use to make better and more informed decisions if they decide to liberalise the power sector in Mexico. The problems they would face are difficult to address in an analytically tractable way using conventional economic models. Also, these problems are too idiosyncratic to solve by translating empirical experience from other markets. In response, a system dynamics model has been developed in order to test the impact of a range of different environmental and energy policies.FindingsThe paper finds that a reform setting where competition is allowed in fossil fuel technologies; while the public company (CFE) keeps control of hydro and nuclear capacity produce the most well rounded scores in terms of efficiency, CO2 emission reductions and political feasibility. The results could improve the policy implementation process by shedding light on the circumstances and policy choices that can exacerbate or minimise effects.Research limitations/implicationsA simulation of this kind would increase the understanding of these kinds of policies by providing structured insights into key uncertainties. They can also foster new ideas – in the energy sector have underpinned major policy initiatives. But results should be taken with caution, as complete validation of models is impossible.Practical implicationsThese results add to the policy implementation literature. For the case of Mexico that has not engaged in a specific model of deregulation, the use of simulation model would be very useful to predict flaws in the design of the new regulation and to prevent unwanted scenarios to happen.Social implicationsA judicious implementation of an electricity reform can help achieve lower carbon emissions reductions which would be beneficial against the climate change problem.Originality/valueTo the author's knowledge, the approach of analysing ex ante the environmental outcome of electricity reform using a simulation model in a developing country has not been treated in literature.

Dynamic Performance Management: An Approach for Managing the Common Goods

“…Emergency service [111] Supply-demand equation that delivers frontline policing services Air transportation [112] policies and strategies for air transportation (e.g., policies for reducing emissions of commercial aviation Local public policy [113] local public policy process Public sector unit [114] mortality rate of public sector units Concession pricing model [115] determining a rational concession price for highway projects based on pro forma financial statements Highway sustainability [116] highway sustainability based on individual policies with a crucial impact on the success of policymaking Academic performance [117] factors that affect academic performance of migrant student residing in poor migrant neighborhoods Maritime Sustainability [118] integrated sustainability assessment process Information in health care [119] emergent market behaviour enabling evaluation of different public health policies Climate change [120] electricity industry at the same time as addressing climate change issues Participatory urban [121] urban sensing for improving municipality's availability of environmental information at comparable cost level Wireless local area [122] effect of subsidization, revenue sharing, and alliance strategies Airport competitiveness [123] airport investment and city R&D inputs, which support decision-makers on airport competitiveness Electronic health records [124] combination of measures can promote the adoption of electronic health records by different stakeholders…”

“…Natural-societal risk [106] stratospheric ozone to identify points to influence policymakers in addressing risks in a natural system Waste management [107] cost-benefit of construction and demolition waste management practices Strategic conversations [108] soft operational research strategy making an intervention with a top management team Interactive knowledge management [109] knowledge management for improving quality of knowledge in non-hierarchical policy-making groups Waste management [110] economic feasibility of recycling and ratio of savings to costs in construction and demolition waste management Emergency service [111] Supply-demand equation that delivers frontline policing services Air transportation [112] policies and strategies for air transportation (e.g., policies for reducing emissions of commercial aviation Local public policy [113] local public policy process Public sector unit [114] mortality rate of public sector units Concession pricing model [115] determining a rational concession price for highway projects based on pro forma financial statements Highway sustainability [116] highway sustainability based on individual policies with a crucial impact on the success of policymaking Academic performance [117] factors that affect academic performance of migrant student residing in poor migrant neighborhoods Maritime Sustainability [118] integrated sustainability assessment process Information in health care [119] emergent market behaviour enabling evaluation of different public health policies Climate change [120] electricity industry at the same time as addressing climate change issues Participatory urban [121] urban sensing for improving municipality's availability of environmental information at comparable cost level Wireless local area [122] effect of subsidization, revenue sharing, and alliance strategies Airport competitiveness [123] airport investment and city R&D inputs, which support decision-makers on airport competitiveness Electronic health records [124] combination of measures can promote the adoption of electronic health records by different stakeholders Housing market [125] house prices, balances between supply and demand, construction companies' earnings, and vacancy rates Participatory policy [126] participatory procedures to the governance of wider public policy issues Debt accumulation [127] public debt in developing countries and its two-way linkages with economic growth and public f...…”

Application of system dynamics approach in electricity sector modelling: A review

“…The model allocated future demand onto five renewable and two fossil-fuel technologies based on the cheapest production cost basis. The same approach of choosing a particular technology has been adopted by Qudrat-Ullah and Davidsen [23] and Fuentes-Bracamontes [25]. Though logical, this approach failed to account for externalities (e.g.…”

“…social and technological advancements) in renewable technologies. In addition, the study assumed capacity replacements prompted by price driven incentives, like Fuentes-Bracamontes [25], which was also not possible as power generation technologies were capital intensive with almost no salvage value. The study showed that emission reduction policy can be successful, if power generation was shifted to renewable resources.…”

“…These models investigated support policy for private investors [23,24]; policies for power market deregulation [25,26,27]; cross-border trading of electricity [28,29]; comparing policies to promote renewable power sources reducing dependency on fossil fuels [30,31,32,33], and environmental savings [34].…”