Certainty to Boost Energy Investment

You can watch the video of this panel here.

Mexico needs to include renewable energy in its path toward energy transition. This was one of the conclusions drawn during the panel “Outlook: Impact of Economic Growth on Energy Demand,” on Wednesday, Mar. 10, during Mexico Energy Forum 2021. “Mexico needs more transparent legislation regarding electricity to meet global energy goals,” said Claudio Rodríguez, Partner of International Energy Practice at Thompson & Knight. “There is a trend towards renewable energy due to its lower costs and good impact on the environment.”

Panelists discussed the main problems Mexico is facing in terms of energy supply, especially in ensuring reliable electricity availability throughout the country. “We have a great challenge in electricity. Recently, the blackouts caused by the cold wave in Texas showed the vulnerability of our infrastructure and how we cannot depend on the volatility of other markets,” Leonardo Beltrán Rodríguez, Non-Resident Fellow at the Institute of the Americas, explained. Beltrán said that basing energy production on fuels can have a significant impact on both public health and the environment. In his opinion, urban areas will be more vulnerable because of their proximity to industrial centers. This approach will also mean Mexico will not be able to meet its environmental goals. Beltrán added that electricity policies have an impact on businesses in a country that sends 80 to 90 percent of its exports to the US.

Beltrán recently told MBN that the 2021 policy agenda in Mexico would benefit from strengthening and enhancing bilateral and multilateral engagement and that the country should take advantage of the international collaborative clean energy innovation landscape, which can accelerate the country’s economic recovery and put it on track toward deep decarbonization.

Carlos Serrano, Chief Economist of BBVA Mexico, explained that the country suffered a sharp drop in electricity demand in 2020 with figures not seen since 1930. However, he added that the international scenario will see an economic recovery at different speeds. “We expect the US to have a strong recovery and 7 percent GDP growth. Meanwhile, Mexico is expected to grow between 5 and 6 percent, although it will not be until 2022 when Mexico will return to its 2019 figures,” said Serrano. However, with the new Electricity Law, Mexico runs the risk of decreasing investments not only in energy but also in other sectors such as automotive, where the use of renewable energy is more significant. Serrano emphasized that the government must invest in supply capacity that would allow CFE to provide energy in the event of an emergency, such as the recent one in Texas. In terms of strategic decisions, BBVA recently announced that between 2030 and 2040 it will stop financing companies that use coal as an energy source. The decision is included in BBVA’s new Environmental and Social Framework, which is aligned with the proposal of the Intergovernmental Panel on Climate Change (IPCC).

“Mexico needs to lift the economy and promote energy policies that increase investment,” said Alejandro Valerio, Associate Practice Leader at FrontierView, adding that recent policies are not aligned with USMCA, which could lead to more discussions between the Mexican and US governments. Valerio explained that the Mexican government's preference for natural gas is affecting the country’s energy capacity. In addition, he said that if investments are not promoted, Mexico will not reach its goal of generating 35 percent of its energy from renewable sources. “Energy investments need certainty for long-term contracts and projects of up to 20 or 30 years in some cases. Public policies must adjust to that reality,” he said.

Veronica Irastorza, Associate Director of NERA Economic Consulting, explained that electricity demand has been growing steadily for the past 20 years. However, in 2020 it had a significant drop due to the impact of the pandemic on industrial sectors. “Energy security and the use of renewable energy are critical today, as today's decisions will have an impact on the future. We need to make sure we choose what is best for the country,” she said, before explaining that the Mexican energy sector has always been politicized and polarized. She also stressed that the country is making important decisions to ensure greater energy security. The future of the Mexican energy sector will depend on the country's economy and industrial sectors, she concluded.

Irastorza recently published an article on La Lista, in which she explained that many governments have developed post-COVID-19 recovery plans focusing on sustainable practices and stressed that Mexico's energy sovereignty will only be possible through renewable energies. “Renewable energies are the way to ensure cheaper electricity tariffs, which would make us more competitive, and the sustainable development of the country,” she wrote.