Leonardo Beltrán
Deputy Minister of Planning and Energy Transition
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Insight

DG, Efficienty the Next Frontiers

Wed, 02/22/2017 - 14:42

Mexico stood out in the clean energy arena in 2016 as it worked toward its ambitious targets for clean power generation: 25 percent by 2018, 35 percent by 2024 and 50 percent by 2050. Two successful power auctions that reached record low prices for solar energy also helped. The next steps are to clear the way for Distributed Generation (DG) and to set energy-efficiency goals for the first time in its history, including plans for electrifying its vehicle fleet by 2050.

These initiatives are included in the country’s bold strategy for transitioning toward cleaner technologies and fuels, designed with the Energy Transition Advisory Council, and made public in late 2016. “The Energy Transition Advisory Council has representatives from all relevant segments, including private sector, academia and the government. This has allowed the Ministry to have a better understanding of the industry’s needs and to address them in a better way,” says Leonardo Beltrán, Deputy Minister of Planning and Energy Transition at the Ministry of Energy.

Having multisector groups involved in the drafting of policies, manuals and secondary regulations seems to be the right strategy. The power auctions, for which the guidelines were drafted with consideration of the private sector’s views, were a worldwide success, attracting investments in new clean power plants totaling around US$6.6 billion and placing Mexico closer to its clean energy targets.

But it was not just sound regulations that brought private companies on board. Providing certainty was a crucial factor, says Beltrán. “The energy industry’s rules have strong foundations in the constitution and other Mexican legal tools that provide investors with certainty over the projects, motivating them to participate in the market even though it is brand new. Private companies know that the possibility for the rules of the game to change is very small and that is a strong incentive for them to come to Mexico. Moreover, having CFE as the purchaser also adds certainty to sponsors because it ensures their projects’ energy, CELs and capacity will be bought with little risk involved.”

That CFE was the first buyer in the market’s long-term power auctions was also a positive signal for the country’s transition strategy. “CFE is the largest power producer in Mexico so it was imperative for it to join Mexico’s low carbon strategy to reach the national targets. Luckily, CFE has made it clear that investing in renewables is part of its business strategy because it was willing to pay much more for clean energy in the first auction, although in the end it was much cheaper than expected,” says Beltrán.

Now that the government has made great advances in boosting the development of large-scale renewable projects, it is time to look at smaller but attractive alternatives. DG is said to have high potential in Mexico as 3.5 million consumers (including high consumption domestic – DAC tariff – and commercial users) might find DG solar attractive due to their current electricity-related expenses. According to some industry sources, the only issue keeping DG from exploiting its entire potential is regulatory uncertainty as the guidelines for this system were not available for most of 2016.

“The government has been working on the regulation for DG and CRE has finally made the guidelines available for public revision and comments at COFEMER’s website. We expect them to be ready soon so this market can take off. We are pushing for a flexible scheme that allows different business models to flourish in the market. We do not want to decide for the customer, we want people to select the best option for them. We are therefore opening the door for new models through net-billing schemes but we are also maintaining the net-metering possibility. The Energy Reform brings flexibility and we want to have it in all market segments,” he says.

With all these initiatives in place, Beltrán says that “by the end of this administration in 2018 we expect to produce at least 25 percent of Mexico’s electricity from clean energy sources, bringing the country closer to its targets for 2024. We expect most of this new power generation to come from solar, wind and efficient cogeneration technologies. We also aim to have a more mature wholesale electricity market as well as policies regarding energy storage, which will be a key factor to increase clean energy generation and reach the established targets. As this is still an emerging area, however, the government will be working to develop specific policies and regulations to boost its development.”

He says the ministry’s transition strategy is well developed regarding clean energy generation. “We now want to push energy efficiency forward as the next step toward a low-carbon economy. We have identified transportation as one of the main areas of opportunity to push efficiency levels higher in Mexico. With this in mind we have set the goal of electrifying Mexico’s fleet of vehicles by 2050, displacing hydrocarbon usage in this sector, which will also help lower our total greenhouse gas emissions. Reducing fossil fuel-based transportation in Mexico will not only lower carbon emissions but will reduce the emission of harmful pollutants that affect human health in cities. The government is currently working on a roadmap to guide efforts toward the goal of an electric fleet in Mexican cities.”

In the presentation of the new energy transition strategy, Beltrán together with other members of the council announced that Mexico plans to reduce the intensity of its final energy consumption 1.9 percent by 2030 and 3.7 percent by 2050. “It is the first time that Mexico has set national objectives in this area. Reaching the targets will be challenging because we need to include all kinds of industries and not only the energy sector, but we are already working on a strategy of engagement to bring companies on board,” says Beltrán.

“In addition to proper regulations, access to financing is critical to boosting the adoption of clean and efficient technologies in Mexico. We are in talks with the Ministry of Finance to see the possibility of channeling part of the resources used for energy subsidies into a financial scheme for easing the acquisition of these types of technologies, covering part of the initial investment. Phasing out subsidies, even a small part, is not an easy task but we are on the right track,” he says.

Even with the challenges ahead, Beltrán is positive that Mexico can reach its sustainability targets because most of the governmental entities are working as a united front. “Energy and sustainability are no longer concerns solely of the Ministry of Energy. The Ministry of Social Development is already promoting clean energy technologies to provide electricity to underserved communities while the Ministry of Finance is using the Mexican Petroleum Fund for Stabilization and Development to promote efficiency and renewable energies. We have already reached the point in which sustainability is a common objective for different governmental entities.”

Mexico’s strategy for transitioning toward cleaner technologies and fuels is not the country’s first attempt to go greener. The country has long been at the forefront of climate change mitigation. It was one of the first countries in the world to have a comprehensive Climate Change Law – approved in 2010 – that evolved five years later into the Energy Transition Law, which sets the pathway to transitioning to a low-carbon economy. Mexico was the second country to have a law of this magnitude, after France.

“Mexico’s main motivation to promote these regulations was not only to become a global leader in this matter. Of course, we want to contribute to the solution for a problem that affects the whole world but could also have strong repercussions domestically. Signing global agreements helps but it means nothing without a domestic agenda. We have understood that going sustainable is in fact an opportunity and not an obligation so we are moving fast in transitioning to a cleaner economy,” says Beltrán.

He adds: “Other developing countries are pushing for historical responsibilities in terms of carbon budgets, asking for different emissions reductions targets between developed and emerging economies and claiming that it is fair for them to continue emitting until they reach the same level of wellness as more developed economies. Mexico does not think this way. Responsibility according to past emissions should be accountable but not an excuse to avoid cutting down emissions. In the end, not taking climate action will impact negatively not only at the global but at the local level, affecting our businesses and people. We want to grow but in a sustainable fashion. It just makes sense from all different perspectives.”