Policy Reversals in Transitional Markets: The Effect of Changing Marginal Cost to Physical Order Dispatch in the Mexican Power Sector

This study explores the 2021 Mexican electric reform that proposes changing the power dispatch from a marginal-cost-based to a command-and-control physical system. The new law forces the state power company to dispatch before private generators. We use the GENeSYS-MOD techno-economic energy model to determine the reform’s effect on the power sector’s generation mix, energy emissions, and market structure. Our findings reveal that although the merit-order change increases the share of generation with fossil fuels and CO2 emissions for the first decade after policy adoption, scenarios start to converge after 2030 because of the substitution of old and inefficient state-owned power plants with renewable facilities. On aggregate, changing the dispatch order results in 189 TWh of lost renewable generation and an increase of 188.93 (Mil. tCO2) in power sector emissions.