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The Future of CELs in Renewable Energy Finance

By Cas Biekmann | Wed, 03/11/2020 - 13:31

CELs will be ever more important in Mexico’s diversified energy market, and supportive financing is key to reach renewable energy goals. On Wednesday at the Mexico Energy Forum, MÉXICO2’s Director General Eduardo Piquero explained what lies ahead for CELs in energy financing. “It is important to have private companies backing us up in the challenges that society will face in the coming years, such as climate change,” Piquero said, adding that CELs would be key.

A CEL, in short, is the Mexican term for a Renewable Energy Certificate. This is a negotiable asset, proving that electricity has been generated by a renewable, and thus green, energy source.

CELs play an important role in different countries. Eduardo Piquero highlighted the US case, where its commitment to clean energy for both companies and end users, enforced on various governmental levels as well as associations and NGOs, ensures compliance with regulations. He stressed that the “voluntary” segment of renewable energy users has grown significantly over the past years. Backed up by government requirements, it has become an attractive market for investors as well.

One reason for the success of renewables in the US is that there is confidence in its surrounding regulatory system. Piquero argued that this is not necessarily the case in Mexico, due to the government’s proposal to add old CFE plants as capable of issuing CELs. “The CELs market will not disappear, but the absence of legal certainty casts doubts on its effectiveness,” he said. Furthermore, he warned that a steep increase in CELs being available will collapse prices, and effectively end its role as an instrument for financing new projects. Another issue is the lack of transparency: although no fines for noncompliance have been issued in Mexico as of yet, this might not be due to Mexican companies having a spotless record.

Although Piquero mentioned much work needed to be done to protect CELs’ benefits for Mexico, he placed renewable energy at the highest importance looking toward the future. The current oil price war provides a glimpse at how the market would be without hydrocarbons. Piquero said he believes fossil fuels will not be able to compete with renewables. Although the oil market will recover due to a cycle in which investments drops, supply decreases and prices rice once again, he said that each bounce back to the top will be smaller than the last. Renewable energy, however, will continue its upward trend. “Renewable resources are much more competitive than they were before, and they will continue their advance,” Piquero said. Oil companies are aware of this, and it contributed to some of the sector’s giants to start heavily investing in renewables. “The collapse in oil prices will usher in a transition in the energy industry. The energy transition is knocking on the door, and the shift will happen sooner than one might expect,” Piquero concluded.

As he answered questions from the attendees of the forum, Piquero acknowledged that despite renewables’ potential in Mexico, barriers related to storage as well as finding financing would need to be addressed. After all, Mexico has such great promise that Piquero considered it strange that the country did not have more projects under construction, as he said that Mexico is, in potential, as resourceful in terms of sunlight as Saudi Arabia is with oil. By overcoming its hurdles, Mexico might yet make good on its potential.

Cas Biekmann Cas Biekmann Journalist and Industry Analyst