Jean-Dominique Ieraci
Deputy Head of Mission and Minister-Counsellor of the Trade Commissioner Service
Government of Canadá
View from the Top

Canada Pushes for a Successful Mexican Energy Market

Wed, 02/21/2018 - 19:00

Q: What lessons can Mexico learn from Canada in renewable energy?

A: Generally speaking, Canada does not have the visibility we would like in Mexico. Our office is working toward changing that. We organized a mission for 25 people from different Mexican institutions, organizations and regulatory authorities in the energy sector to go to Canada and look at our technologies, systems, processes and regulations and to hold related conversations. In terms of electricity, 80 to 90 percent of Quebec’s energy source is hydroelectric. Across the rest of Canada, the majority of electric generation is renewable. We have closed down all our carbon generators, although there is still some thermal generation, while Ontario’s majority source is nuclear.

When you contrast production with distribution, we are talking about distances of thousands of kilometers. As such, Canada’s experience as a top leader in electricity transmission and distribution could serve Mexico as it faces similar challenges, particularly in terms of territory extension. We have faced the challenges relating to transmitting electricity across 2,000km of forest and overcoming all the relevant logistical and maintenance hurdles. Also, Canada is quite advanced in training professionals and technicians across energy’s integral value chain. Mexican energy authorities have allocated US$45 million to the University of Alberta and the University of Calgary to develop, alongside Mexican institutions, a range of programming and R&D initiatives in the hydrocarbon sector, which includes academic exchanges.

Canada is also looking into harnessing tides for electricity production, as the country has one of the highest tides worldwide in the eastern part of Canada. There are many pilot projects underway in the Bay of Fundy on the Atlantic coast. To this day, it seems to be quite challenging but we have been quite successful with energy production through rivers and microgenerators.

Q: What are the key results from last year’s North American Leadership Summit on renewable energy?

A: The summit essentially agreed to work together in this regard. The new US administration might put some of it into question — we are still unclear how it is going to react and it has yet to get into it. The initial matters are rather technical: analyzing data, making sure they are reliable and standardizing variables and definitions. That is where we are now, which does not prevent us from having direct discussions with Mexico. Some of our provinces have signed arrangements with Mexican states, like Ontario and Jalisco on carbon trading. When you look at North America, you have three countries with distinctive structures. In Canada’s case, our federal government has responsibility for transboundary issues but does not have jurisdiction over energy and natural resources in general, which is under the purview of the provinces. When we talk about international agreements or arrangements, we always have to keep in mind that, while Canada can provide a framework through international treaties, the actual implementation is done by the provinces. Our current administration has told the provinces that they either have to implement a cap-andtrade system or a carbon-trading system, while letting them decide how to do it. Provinces can then turn to US and Mexican states to draft and implement agreements on these issues.

While the discussion took on a trilateral scope, electricgrid cooperation tends to be rather bilateral as we do not see a time where we will be transmitting electricity from Canada to Mexico directly due to energy loss in transmission lines. But Canada essentially powers all of New England. CFE is also working on grid exchanges between the southern US and northern Mexico. That helps a lot in regulatory terms, as the more you install renewable energy, the greater the need to balance it out because it is not a stable source. There is a lot of cooperation on these matters and the idea is to continue improving it so our electric systems can be interconnected.

Q: Do you think that NAFTA renegotiations could have an impact on the trilateral efforts on renewable energy?

A: We do not see the efforts diminishing anytime soon. Canada has no intention of leaving NAFTA and neither does Mexico. No matter what happens, we will keep our free trade agreement with Mexico. Our goal is to improve NAFTA’s terms, to modernize it, not deteriorate it. The environmental side of NAFTA will be part of the renegotiation, like everything else, but keep in mind that this component, in general terms, is there to make sure that no country is dumping goods, using lower environmental standards. This is not something that we believe the US, Canada or Mexico want to change.

There are very few industry players saying that they can see a time where the incentives pushing toward renewable energies and cleaner technologies are such that they would want to go back to a source of energy that is no longer worth their while for the market. Coal is the perfect example as even coal producers know that it does not make any sense anymore to go back to this fuel.

Q: What mechanisms could be used to ensure cooperation in renewable energy that survives political transitions?

A: We work with the government on several levels. All matters with a strategic component are the most vulnerable to political transitions. Most of our work is done at a more technical level. That is what makes the relationship work. For instance, we organize seminars on indigenous consultations, as Canada and Mexico’s indigenous populations are a significant demographic component. Both our governments have complex histories with those local communities and unless a really drastic change in policy takes place, these seminars are a constant of our bilateral cooperation. Canada has learned a lot from these interactions and wants to share those lessons with Mexico. The same applies to our agreement with the Ministry of Energy and Manitoba Hydro and the discussions between Alberta’s energy regulator and CNH.

Concerning information exchange and sharing best practices, we believe the agenda is likely impervious to political changes. What can change could be on the legislative and regulatory sides but in Mexico’s case it would be difficult to roll back the reform. Market forces in the wider sense of trend-setters and drivers tend to be difficult for governments to push back and the drive toward clean energy would be extremely difficult to roll back. That is why political cycles should not affect the market.

Q: What is your outlook for Mexico’s Energy Reform?

A: We are quite pleased with the reform. Since its implementation in 2013, we have seen a remarkable spike in interest and level of action from Canadian companies in Mexico. It widened the market for Canadian participation in the whole supply chain of the oil and gas sector. On the electricity side, it sparked a comparable level of interest. But despite all the positive changes that have occurred thanks to the energy reform, some companies have raised concerns about the reform’s implementation.

Two elements need to be addressed urgently. The first is placing the risk of negotiation with communities on the back of private companies. When you are designing a transmission line project that goes through over 1,000 ejidos, it is virtually impossible for a foreign firm to take on the whole risk on its own. We have a case where a gas pipeline project could save CFE US$50 million a month if the 1.5km of pipeline left to finalize the project could be built. This has been going on for 18 months. The reform enables legal recourse that can block projects indefinitely, with few legal alternatives or the eminent domain legal concept that allows the government to step in.

Second, companies are legally forbidden to get in touch with local communities until the government has done its prior social consultation. Yet the government agencies in charge of these consultations do not have the resources to undertake them swiftly and they take anywhere between 12 to 18 months. By the time companies can actually engage communities, the dialogue can be very difficult and challenging. Companies would be delighted to find a way to work jointly with the government in addressing this issue and talking with communities under a framework for rules of engagement. This is something that has been raised at the ministerial level as we want to avoid fault-of-authority legal cases at all costs.