Electricity Reform Aims to Create Level Playing Field

You can watch the video of this presentation here.

Kicking off Mexico Energy Forum, Ángeles Huerta, Deputy of governing party MORENA for District 24 of Naucalpan, opened with a presentation explaining the government’s alterations to the Electricity Industry Law, which was approved by Mexico’s Senate last week.

“The reform published yesterday in the official gazette has several key points that I would like to highlight,” Huerta said, adding that it was based on Art. 5 and 28 of the Constitution. “Electricity is very important for our development and national security. It protects our sovereignty,” she continued. It is he government’s responsibility to secure and provide electricity to the citizens of the country. “In the US, we saw what happened recently in Texas. This translates to the need for the government to guarantee energy for its citizens,” she added.

The proposed changes in what the media has dubbed the “Energy Counter-Reform” have been the subject of intense debate. “We will not eliminate the electricity sector,” Huerta stressed, emphasizing the government’s aim to “protect the public service of energy.” “We are now attempting to change the characteristics of the economic dispatch to one focused on stability, which means that it will be based on delivering energy efficiently,” she explained.

For the government, strengthening CFE is the central objective of the changes that passed through Congress. The current market configuration, Huerta highlighted, is severely damaging CFE. “CFE suffered losses of MX$16 billion (US$760.1 million), having to pay for energy that was not delivered in the end due to unfair contracts,” she pointed out. A further issue of the Energy Reform identified by Huerta is the apparent lack of planning in the electricity system, focusing on lowering costs instead of careful planning. “We have a large number of permits that are doubling the energy requirements of some places in the country. We cannot have such a disbalance between demand and supply,” she argued, pointing at northern states and the Yucatan peninsula, specifically. Baja California needs more capacity, as well. “CFE already has two power plants in Baja California but more capacity is welcome,” Huerta continued.

However, the counter-reform is not meant to go directly against the efforts of the private sector, Huerta stresses. “The initiative creates a level playing field for both the private sector and CFE.” Huerta explains that the long-term electricity auctions took variable costs into account, which favored wind and solar from private companies. But the issue the government points out is that of fixed costs associated with transmission and distribution, all of which falls on the shoulders of CFE. “This is not free and only CFE pays for this,” she said. “CFE is an efficient production company, so how did we arrive to this dire situation for the state utility? This is not what Mexico’s people want or what the 4T aims to do,” she stated.

One of the main reasons for the problematic situation CFE finds itself in is what President López Obrador has called “leonine contracts” signed by previous governments. “We hope that we can renegotiate some of those contracts,” she said. “We need fair, transparent business in the energy sector.”

An issue identified by critics of the government’s policy, however, is what the counter-reform would mean for Mexico’s climate goals. “Of all the energy produced, 20 percent is clean energy. Half of that is produced by CFE, even without receiving clean energy certificates.” Even though Huerta argues that Mexico’s emissions are quite low compared to those of the US, China or the EU, she notes that Mexico does aim to generate more clean energy. “CFE’s current plans call for the reactivation of hydroelectric plants as part of the company’s renewable energy initiatives.” Other plans include new small hydropower development. “If we live in a country where we can build large-scale clean energy power plants, this of course means we are taking that option into account, as well,” she added.

“Generating clean energy relying fully on public costs is not sustainable,” Huerta warns. The much-criticized use of PEMEX’s fuel oil by CFE remains a factor in the energy mix. “We have to work to turn fuel oil into less of a problem. All oil-producing countries produce fuel oil and this should not be wasted. But investment in power plants to reduce harmful emissions is crucial, as well,” she concluded.