David Penchyna
President
Energy Commission of the Senate
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View from the Top

Breaking Up Monopolies, Freeing Up the Private Sector

Wed, 02/19/2014 - 16:20

Q: What is your opinion regarding the role that renewable energy plays in the energy debate?

A: A major flaw in the energy debate is the way it is centered around PEMEX. It is the duty of Congress to take this grand Energy Reform beyond PEMEX. Energy encompasses oil, hydrocarbon fuels, gas, and electricity. But Mexico, due to its high dependence on fossil fuels, has completely abandoned a subject that should have been established as an economic paradigm. We now need to create awareness about the non-renewable nature of oil. We are a country with great wind and photovoltaic energy potential in some regions, while also having hydroelectric and geothermal resources. There is no doubt the clean energy agenda will be part of discussions in Congress as the paradigm is easier to build because it does not require a constitutional debate. Clean energy sources are part of a debate relating to secondary reforms that require fewer votes and therefore are easier to navigate politically.

Q: How will the Energy Reform support renewable energy resources without introducing subsidies or tariffs?

A: Renewable energy resources belong to the topic of power generation, which is currently in the hands of a state monopoly. We need to foster competition against CFE. The private sector is now allowed to generate power and sell the excess to CFE, which is an important step forward, but the distribution and transmission of said energy is in the hands of an inefficient state monopoly. This is the main challenge when working to make renewable resources more viable and ensure that this sector receives an increasing amount of national and international investment capital. Once we solve the transmission and storage issues, the renewable energy industry will receive a boost without the need for much legislation. However, we have to make sure CRE gets involved in renewable energy affairs, taking care of arbitrage, competitiveness, and setting clear rules.

The industry is already open. State monopolies are not competitive or productive and they are corrupt and costly. Investment in renewable energy resources should be praised as the investment costs involved are relatively high. However, renewable energy resources create jobs and reduce CO2 emissions. Mexico has been an oil country for over 100 years and here is a frightening fact: 80% of Mexico’s electricity comes from fossil fuels. This has to stop. If we have sun, wind, and air, we should take the next logical step.

Q: How can the Energy Reform help achieve goals such as reducing CO2 emissions and generating 35% of energy from clean sources by 2024?

A: Mexico will not be able to fulfill national and international commitments – such as the Kyoto Protocol, CO2 emission reductions, or the use of clean energy resources – without an energy reform. Mexico is not a country that is lagging behind in international agreements. It is very wellpositioned in terms of environmental agreements, but without the reforms we cannot put these into practice. This goes beyond signing international agreements and not fulfilling them.

Mexico needs to start encouraging the development of renewable energy resources to lower the 80% rate of fossil fuel use. Once we have the right legislation, we will reduce fossil fuel use, start fulfilling the agreements and work on the mid and long term objectives. The second step is to channel more investments, which we currently do not have because of the sector’s closed-mindedness. This will give us more capital to do things right. If we assure the wheeling of electricity from renewable energy, investment will proliferate in this sector and CO2 emissions will diminish in consequence.

Q: What would the private sector and renewable energy operators like to see as part of the Energy Reform to make the industry grow?

A: The private sector demands productivity and competitiveness. It demands a reform. Mexico needs the private sector to become more active and involved. I strongly believe the Energy Reform’s best ally must be the private sector. This has nothing to do with the private sector wanting to get oil revenues. It wants a reform as currently, the energy sector is incapable of generating the necessary resources needed for the country to be competitive. I really hope private sector companies will take an active role rather than simply grumbling as they have tended to do in the past.