AUGUST 2014

THE FUTURE OF THE ENERGY REFORM IN MEXICO

SANTIAGO CREUHERAS

DIRECTOR GENERAL FOR ENERGY EFFICIENCY AND TECHNOLOGY

INNOVATION

DEPARTMENT OF ENERGY

MEXICO

CONTENT

I. OVERVIEW

II. NEW REGULATORY FRAMEWORK: ENERGY REFORM

III. SPECIAL PROGRAM FOR RENEWABLE ENERGY

IV. INVESTMENT OPPORTUNITIES

V. FINAL REMARKS

112 million inhabitants

130 million inhabitants

384 cities 489 cities

88% of the total population will be located in cities*

2027

88%

12%

72% of the total population is located

in cities**

2010

25 million vehicles using petrol and diesel

63 million vehicles will use petrol and diesel

OVERVIEW OF THE ENERGY SECTOR

1 2 3 4 5 6 7 8 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

Energy consumption

Energy deficit

Primary energy production

Mexico: Energy Production and Consumption and Economic Growth

Source: Sistema de Información Energética, Secretaría de Energía.

OVERVIEW OF THE ENERGY SECTOR

CONTENT

I. OVERVIEW

II. NEW REGULATORY FRAMEWORK: ENERGY REFORM

III. SPECIAL PROGRAM FOR RENEWABLE ENERGY

IV. INVESTMENT OPPORTUNITIES

V. FINAL REMARKS

ENERGY REFORM

Act Initiative1 Hydrocarbons 'Act*

Hydrocarbons 'Decree 2 Foreign Investment Act 3 Mining Act 4 Public – Private Association Act 5 Electricity Industry Act* Electricity Decree 6 Geothermal Energy Act*

Geothermal Decree 7 National Waters Act

 8 National Agency for Industrial Safety and Environmental Protection in the Hydrocarbon Sector Act* Agency Decree

 9 Petróleos Mexicanos Act*

State Owned Productive Enterprises Decree

 10 Comisión Federal de Electricidad Act* 11 Federal State Owned Companies Act 12 Public Sector Purchasing, Leases and Services Act,  13 Public Works and Related Services Act; 14 Coordinated Energy Regulators Act*

Regulators‘ Decree 15 Federal Public Administration Act 16 Hydrocarbon Act*

Fiscal Decree 17 Federal Duties Act 18 Fiscal Coordination Act 19 Mexican Oil Fund for Stability and Development Act* Mexican Oil Fund Decree 20 Federal Budget and Fiscal Responsibility Act

Budget Decree 21 Public Debt Act

IN ORDER TO CONSOLIDATE THE NEW LEGAL REGIME FOR THE ENERGY SECTOR, THE EXECUTIVE SENT TO CONGRESS A PACKAGE OF 9 SECONDARY INITIATIVES THAT INVOLVES A TOTAL OF 21 LAWS

ENERGY REFORMIN HYDROCARBONS

PRIVATE INVESTMENT THROUGH CONTRACTS IN EXPLORATION AND PRODUCTION OF HYDROCARBONS

ROUND ZERO AND ROUND ONE

STRENGTHENING THE REGULATORY BODIES

NEW TAX REGIME FOR PEMEX AND PRIVATE COMPANIES

PEMEX WILL BECOME A PRODUCTIVE STATE COMPANY, WITH THE FREEDOM TO ESTABLISH ASSOCIATIONS, WITH BUDGETARY, TECHNICAL AND MANAGEMENT AUTONOMY, AS WELL AS FREEDOM TO DETERMINE THE WAGES OF ITS WORKERS

PRIVATE INVESTMENT THROUGH PERMITS IN REFINING, PETROCHEMICAL, TRANSPORTATION, STORAGE AND DISTRIBUTION

ENERGY REFORMIN HYDROCARBONS

INDEPENDENT PUBLIC OPERATOR FROM THE NATIONAL PIPELINE SYSTEM

MEXICAN OIL FUND FOR STABILIZATION AND DEVELOPMENT

FINANCIAL TRANSPARENCY IN EACH CONTRACT AND EACH BIDDING ROUND

NATIONAL CONTENT TO PROMOTE THE DEVELOPMENT OF LOCAL INDUSTRY

THE CREATION OF THE NATIONAL AGENCY FOR INDUSTRIAL SAFETY AND ENVIRONMENT PROTECTION FOR THE HYDROCARBONS SECTOR

ENERGY REFORMIN ELECTRICITY

INDIVIDUALS ARE GRANTED THE RIGHT TO GENERATE AND SELL ELECTRICITY, WITH STATE REGULATION

CENACE WILL BECOME A DECENTRALIZED PUBLIC AGENCY, RESPONSIBLE FOR OPERATING THE NATIONAL GRID AND THE WHOLESALE ELECTRICITY MARKET

THE PRIVATE SECTOR MAY PARTICIPATE IN TRANSMISSION AND DISTRIBUTION OF ELECTRICITY, THROUGH A SYSTEM OF CONTRACTS WITH CFE

CFE WILL HAVE FREEDOM TO ESTABLISH ASSOCIATIONS WITH BUDGETARY, TECHNICAL AND MANAGEMENT AUTONOMY, AS WELL AS FREEDOM TO DETERMINE THE WAGES OF ITS WORKERS

THE REGULATORY BODIES OF THE ELECTRICITY INDUSTRY WILL BE STRENGTHEN

ELECTRICITY MARKET

- SENER WILL DETERMINE THE DESIGN OF THE ELECTRICITY MARKET- CRE WILL AUTHORIZE THE OPERATING PROCEDURES ACCORDING TO CENACE- CENACE WILL OPERATE THE ELECTRICITY SYSTEM AND MARKET- THE OPEN AND NON-DISCRIMINATORY ACCESS WILL BE GUARANTEED FOR

THE ELECTRICITY GENERATORS AND USERS

TRANSMISSION /

DISTRIBUTION

- CFE MAY ENTER INTO CONTRACTS WHEN DEEMED APPROPRIATE- SENER MAY COMPETE FOR CONTRACTS, WHEN THESE ARE NOT RELATED TO

CFE ASSETS

CERTIFICATES FOR CLEAN

ENERGY AND POLLUTION

- SENER WILL ESTABLISH THE MINIMUM REQUIREMENTS FOR CLEAN ENERGY GENERATION

- CLEAN ENERGY CERTIFICATES WILL BE CREATED TO REDUCE TRANSACTION COSTS

- SENER WILL HAVE THE OPTION OF A CAP-AND-TRADE SYSTEM FOR CARBON EMISSIONS

ENERGY REFORMKEY ELEMENTS

UNIVERSAL SERVICE

- SENER WILL MANAGE A UNIVERSAL SERVICE FUND; THE MARKET PARTICIPANTS WILL CONTRIBUTE

- THE FUND WILL FINANCE ELECTRIFICATION PROJECTS AND WILL SUPPORT THE SUPPLY OF ELECTRICITY AND EFFICIENT LIGHT-BULBS PROGRAMS FOR END-USERS IN MARGINAL CONDITIONS

STRENGTHENING OF CFE

- CFE WILL BECOME A PRODUCTIVE STATE COMPANY, WITH AUTONOMOUS MANAGEMENT AND MODERN CORPORATE GOVERNANCE

- CFE WILL BE TRANSFORMED FROM AN ELECTRIC LIGHT COMPANY TO AN ENERGY COMPANY

CFE RESTRUCTURATI

ON

- CFE MAY ESTABLISH SUBSIDIARIES AND AFFILIATES TO ACHIEVE ITS GOALS

- THE VERTICAL SEPARATION (GENERATION-TRANSMISSION-DISTRIBUTION-COMMERCIALIZATION) IS ESSENTIAL FOR:- TO ENSURE OPEN ACCESS AND NOT UNDULY DISCRIMINATORY- TO PROMOTE COMPETITION IN THE GENERATION MARKET- TO PROMOTE TRANSPARENCY AND EFFICIENT REGULATION

ENERGY REFORMKEY ELEMENTS

I. OVERVIEW

II. NEW REGULATORY FRAMEWORK: ENERGY REFORM

III. SPECIAL PROGRAM FOR RENEWABLE ENERGY

IV. INVESTMENT OPPORTUNITIES

V. FINAL REMARKS

CONTENT

ADVISORY BOARD FOR RENEWABLE

ENERGY (OVER 50 PARTICIPANTS)

SPECIAL PROGRAM FOR RENEWABLE ENERGY

10 WORKING GROUPS

(22 SESSIONS)

SPECIAL PROGRAM

FOR RENEWABLE

ENERGY

PUBLIC POLICY: PARTICIPATIVE PROCESS

o GOVERNMENT o INDUSTRY o ACADEMY o SOCIETY o MEMBERS OF CONGRESSo INTERNATIONAL COOPERATION

AGENCIES

INCREASE CAPACITY AND POWER GENERATION FROM RENEWABLE ENERGY

SOURCES

SPECIAL PROGRAM FOR RENEWABLE ENERGY

INCREASE INVESTMENT IN INFRASTRUCTURE, EXPANSION AND GENERATION

INCREASE BIOFUELS PARTICIPATIONIN THE ENERGY MIX

PROMOTE TECHNOLOGICAL AND HUMAN CAPITAL DEVELOPMENT, AS WELL AS VALUE CHAINS

DEMOCRATIZE ACCESS TO RENEWABLE ENERGY

Objectives

OBJECTIVES

5

STRATEGIES

25

ACTION LINES122

NATIONAL DEVELOPMENT PLAN

TRANSVERSAL STRATEGIES

ENERGY SECTOR PROGRAM

NATIONAL ENERGY STRATEGY

SECTOR PROGRAMS

SPECIAL PROGRAMS

Strategies / Action lines

SPECIAL PROGRAM FOR RENEWABLE ENERGY

GOALS 2018

RENEWABLE CAPACITY 25.3 % 32.8 %

RENEWABLE GENERATION 14.7 % 24.9 %

RESERVES VS GEOTHERMAL DECLINE (A 10 AÑOS) 1.05/1 2/1

INTEGRATION OF VALUE CHAINS 2.6 DE 5 3.2 DE 5

PROCEDURES (PROCESSING DAYS) 620 465

RURAL ELECTRIFICATION WITH RENEWABLE ENERGY 6.0% 8.0%

2012 2018

CONTENT

I. OVERVIEW

II. NEW REGULATORY FRAMEWORK: ENERGY REFORM

III. SPECIAL PROGRAM FOR RENEWABLE ENERGY

IV. INVESTMENT OPPORTUNITIES

V. FINAL REMARKS

INVESTMENT OPPORTUNITIES

RESEARCH, TECHNOLOGICAL DEVELOPMENT AND TRAINING OF HUMAN RESOURCES

RENEWABLE ENERGIES

ENERGY EFFICIENCY

MODERNIZATION OF HYDROCARBONS AND ELECTRICITY SECTORS

AVERAGE DAILY IRRADIATION IN MEXICO IS ABOUT 5.5 KWH/M2/D, AND CAN REACH VALUES HIGHER THAN 8.5KWH/M2

MAP OF DIRECT IRRADIATIONDURING JUNE

SOLAR POTENTIAL

SOURCE: SENER, INVENTARIO NACIONAL DE ENERGÍAS RENOVABLES

STUDIES TO CHARACTERIZE THE WIND RESOURCE IN REGIONS OF THE ISTHMUS OF TEHUANTEPEC, THE PENINSULAS OF YUCATAN AND BAJA CALIFORNIA, AND THE NORTHERN REGION OF THE GULF OF MEXICO ...

WIND POTENTIAL

SOURCE: SENER, INVENTARIO NACIONAL DE ENERGÍAS RENOVABLES

POWER DENSITY 80 METERS DURING APRIL (W/M2)

GEOTHERMAL POTENTIAL BASED ON THE CENSUS OF MORE THAN 1,300 HOT SPOTS ESTIMATED BY THE FEDERAL ELECTRICITY COMMISSION.

MAP OF GEOTHERMAL RESOURCES IN MEXICO (°C)

GEOTHERMAL POTENTIAL

SOURCE: SENER, INVENTARIO NACIONAL DE ENERGÍAS RENOVABLES

MAP OF RENEWABLE RESOURCESELECTRICITY GENERATION POTENTIAL WITH RENEWABLE ENERGIES

(GWH/YEAR)

POTENTIAL

RESOURCES POSSIBLEPROBABL

EAPPROVE

D

GEOTHERMAL 16,165 95,569 892

MINI HYDRO - 1,805 1,365

WIND 87,600 9,597 9,789

SOLAR 6,500,000 - 542

BIOMASS 11,485 391 579

NATIONAL TOTAL 6,615,250 107,362 13,167

SOURCE: SENER, INVENTARIO NACIONAL DE ENERGÍAS RENOVABLES

RENEWABLE ENERGIES POTENTIAL

SOURCE: SENER CON DATOS DE CRE Y ESTUDIOS DE LA AMDEE-PWC Y AMEHIDRO-PWC.

INCREASE OF GDPMILLIONS OF PESOS

69,000

29,700

45,100

59,800

49,500

93,000SOLAR PV

29,300

11,100

7,300

22,800

43,200

36,000

2,500

3,700

5,000

4,100

7,700

5,700

BIOMASS

GEOTHERMAL

CHP

WIND

HYDRO

EMPLOYMENT CREATIONNUMBER OF JOBS

TAX COLLECTIONMILLIONS OF PESOS

VALUES ASSOCIATED TO THE REQUIRED CAPACITYTO GENERATE 10,000 GWH-YEAR

346,100 149,700 28,700

ENERGY EFFICIENCY POTENTIAL

Buildings, 25%

Equipment and electric appli-ances, 10%

Lighting, 5%Transport, 29%

Industry and energy genera-

tion, 31%

OVERALL ENERGY SAVINGS EQUIVALENT TO 7.6 GTCO2 PER YEAR IN 2030

SOURCE: AGENCIA INTERNACIONAL DE ENERGÍA, ENERGY EFFICIENCY POLICY RECOMMENDATIONS, UPDATE 2011, IEA

ENERGY EFFICIENCY IN SUSTAINABLE BUILDINGS

MEXICAN OFFICIAL STANDARDS

LIGHTING SYSTEMS THERMAL ENVELOPE EQUIPMENT GLAZING SYSTEMS

INVESTMENT OPPORTUNITIES

SUBSTITUTION OF INEFFICIENT TECHNOLOGIES ENERGY EFFICIENCY IN BUILDINGS USE OF ECO-TECHNOLOGIES IN THE RESIDENTIAL

SECTOR

PROGRAMS AND STRATEGIES

PROGRAM FOR THE SUSTAINABLE USE OF ENERGY

NATIONAL STRATEGY FOR SUSTAINABLE BUILDINGS

EVALUATION SYSTEM FOR BUILDINGS

RESEARCH, TECHNOLOGICAL DEVELOPMENT AND TRAINING OF

HUMAN RESOURCES

APPLIED SCIENTIFIC AND TECHNOLOGY RESEARCH

ENERGY EFFICIENCY RENEWABLE ENERGY SOURCES USE OF CLEAN TECHNOLOGIES DIVERSIFICATION OF PRIMARY ENERGY

SOURCES

EXPLORATION AND EXPLOITATION HYDROCARBONS REFINING BASIC PETROCHEMICALS PRODUCTION

ENERGY TRANSITION FINANCING

FUND FOR ENERGY TRANSITION

USE AND APPLICATION OF CLEAN TECHNOLOGIES

ENERGY EFFICIENCY AND ENERGY SAVINGS DIVERSIFICATION OF ENERGY SOURCES

CONTENT

I. OVERVIEW

II. NEW REGULATORY FRAMEWORK: ENERGY REFORM

III. SPECIAL PROGRAM FOR RENEWABLE ENERGY

IV. INVESTMENT OPPORTUNITIES

V. FINAL REMARKS

FINAL REMARKS

PUBLIC POLICY(PARTICIPATIVE PROCESS)

FINANCING

LEGAL FRAMEWORK

ADMINISTRATIVE

Fondo de Sustentabilidad Energética

Fondo para la Transición EnergéticaECONOMIC GROWTH + SOCIAL INCLUSION

TIMEFRAME FOR THE IMPLEMENTATION OF THE ENERGY REFORM

PROMULGATION OF THE

CONSTITUTIONAL REFORM (20/ DEC/2013)

STARTS ROUND ZERO. PEMEX SUBMITS THEIR

OILFIELDS OF INTEREST TO SENER FOR ITS

CONSIDERATION

• ADEQUACY TO 26 SECONDARY LAWS

• APPOINTMENT OF 2 ADDITIONAL

COMMISSIONERS TO CNH AND 2 FOR CRE FOR

THEIR STRENGTHENING (TO RATIFY IS AN

EXCLUSIVE FACULTY OF THE SENATE)

SENER, WITH THE SUPPORT OF CNH WILL ISSUE THE PROPOSALS

RESOLUTION FOR PEMEX IN ROUND

ZERO

WITHIN 90 DAYS

WITHIN 120 DAYS

WITHIN 180 DAYS

PRESENTATION OF THE NATIONAL ENERGY

STRATEGY TO CONGRESS

28 FEBRUAR

Y

CONGRESS DEADLINE FOR RATIFICATION OF

THE NATIONAL ENERGY STRATEGY

14 APRIL

AUGUST 2014

THE FUTURE OF THE ENERGY REFORM IN MEXICO

SANTIAGO CREUHERAS

DIRECTOR GENERAL FOR ENERGY EFFICIENCY AND TECHNOLOGY

INNOVATION

DEPARTMENT OF ENERGY

MEXICO