Beyond the Energy Reform talks: How Do We Build Consensus?

Much talk has been devoted to the energy reform proposal and its potential effects on the Mexican power sector structure. Discussions have mainly focused on CFE’s participation and its role as the protector of “public interests.” However, not enough has been allocated to the underlying issue: reaching a national consensus to define our Energy Model.

A review of this term, often used lightly, is worth a few lines. I would argue that references to an Energy Model must comprise a long-term end-state vision and how to get there, including a clearly justified role for every player in the energy industry as well as our prospects within the global arena.

Using the word “Model: makes sense because it attempts to simplify reality, whatever this may be locally. There is no “magic formula” or recipe that fits every country. What works for Spain may not work for France. The same happens between countries with similar resource endowments, such as Brazil and Colombia. Thus, overly simplistic international comparisons, like those we have been hearing lately as power prices surge in Europe, are simply neither fair nor useful. This does not mean that every country thinking of its energy landscape needs to reinvent the wheel. It just means that the right rationale and application case needs to be built upon other successful markets as proven, to some extent, by the 2013 Energy Reform that took insight from several models and experts from around the world, factoring in our local reality.

Leaving terminology behind, the root problem is that if we can’t manage to define a clearly articulated base for discussion around the to-be-state of the sector, the risk of having the next political wave messing with it will always be latent. So, what would it take to find such a basis?

To answer, let’s get back to basics. In a few words, what we need from the power sector is a power supply that is cost-competitive, increasingly diversified, renewable and reliable for households, commerce and industry.

It is very important to note that these basic characteristics are equally important and compromising any of them would inevitably take us to unsustainable solutions.

But that is only the What. The real challenge comes from defining (and later executing) the How. I propose three simple hypotheses that need to be explored in detail to continue with this train of thought:

The bad news is that instead of working on these higher-level hypotheses, we are stuck discussing a bunch of misguided premises that can be easily challenged:

I would again argue that we, as a sector, will not obtain overarching fundamental agreements around useful premises unless we elevate the conversation to the right level and then work our way forward on a more structured path.

Thankfully, not everything is lost. Our Grid Codecan be used as an example (without conceding a valid result in version 2.0) that it is not only possible but also desirable to establish joint committees that integrate expert technical-based opinions; in this case, aiming to improve reliability. Full agreement is hard to achieve but if discussions happen in constructive roundtables as opposed to politically charged panels or even tribunals, there is hope. What if instead of attempting to change the entire legal framework, which will take time and resources we do not have, we resume working to complete the current one? It is imperative we start agreeing on upgrades focused on reliability, decentralization, and new technology adoption.

On the other hand, we can’t ignore that talking about The Mexican Energy Model goes well beyond the interests or strategies of any single market participant. It means we recognize the role of each player, acknowledging its strengths and capabilities, directing them toward a common objective. Pretending that CFE can control the whole power value chain except for 46 percent of generation, while consistently reporting losses driven by structural issues, is not an example of such thinking. Nor is it to aspire to have a 100 percent renewable matrix in the short term, or to further increase our dependency on gas for that matter.

A new Energy Model definition is the most interesting and consequential planning exercise we should be thinking as an industry. It is no small task; and it is usually executed under the lead of public entities with extensive private participation. Clearly, the more inclusive the exercise is, the more congruent and innovative the result and the easier to agree on it will be.

With the global turbulence and uncertainty we are going through, Mexico is experiencing an energy sector-wide impasse that it cannot afford. Significant delays and damage have been caused without even changing the law and could potentially worsen if instead of building connections, we remain focused on hindering them. Regardless of what happens with the power sector reform, we must have this conversation and we should have it at the right level.