Image credits: Arisa Chattasa
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News Article

How Can the Energy Sector Reconcile?

By Cas Biekmann | Wed, 05/27/2020 - 16:08

At the heart of the latest discord between Mexico’s private and public energy sector, stemming from CENACE’s decision to halt new renewable energy projects, lies Mexico’s power grid. As the discourse ramps up, the private sector accuses the government of attempting to reestablish what once was CFE’s monopoly. Meanwhile, the government accuses private renewable energy projects of filling their own pockets without contributing to Mexico’s distribution grid. MBN experts weigh in, showing that the issue is complex but reconciliation is possible.

Split Opinions

CENACE, SENER and CFE share the opinion that renewable energy, which is always intermittent, puts strain on the network. As it is already suffering because of reduced consumption spurred on by the current pandemic, the grid needs to be protected to ensure Mexico does not suffer blackouts. Manuel Bartlett, Head of CFE, even stated in a report from Reuters that private companies ought to pull their weight to reinforce Mexico’s grid in the form of hiked transmission costs. The private sector is not all on board with this idea. According to representatives including CONCAMIN and COFECE, the state is trying to go back to a CFE monopoly, reports El Economista. Measures such as the pausing of tests or opening up the CELs system, according to them, are opportunist in nature, serving this main goal.

The President Weighs In

While SENER and CENACE keep their argument mostly technical, another line of reasoning came directly from President Andres Manuel López Obrador. He parried criticism during his mañanera by stating that private companies did not contribute much to Mexico’s development and that the government was merely trying to create more stability for the Mexican grid with CENACE’S measure. The president also mentioned that the overall strategy is indeed to strengthen CFE. From the government’s point of view, the state company was shorthanded in the Energy Reform.

Private Players Show Concern

For private companies in the renewables sector, these measures mean they could risk losing billions of dollars in investments if they do not rely on court cases. López Obrador’s rhetoric of favoring the state over the market takes on the characteristics of a war, says TOP Energy’s Juan Ávila in an expert opinion for MBN. He warns about the further implications that come from the government generating additional ways to promote its own companies over the cleaner private sector. This sentiment is shared widely, creating a somewhat gloomy outlook on renewables and private sector participation in Mexico’s energy market.

Reconciliation Around the Corner?

Every conflict has a possible solution. In this case, the foundations of a potential middle ground are already present. According to the National Electric System Development Program (PRODESEN), energy demand will increase substantially over time. No matter how much of a central role CFE commits to, it simply cannot meet the demand on its own despite clear investment plans.

Therefore, private players are still very much needed to fill the gap. So perhaps a middle way can be found, where both government and renewable energy companies move closer to each other once again. The public sector should realize its need for private renewable energy to meet energy and climate demands. But private players could focus some of their efforts on Mexico’s grid, even though their predicament is understandable: “I understand that private companies are being asked something that they do not necessarily like, in a rather political manner. But I think some of them could have contributed more,” said Luis Vera, former executive of ASEA and now Counsel at V&A in an interview with MBN. 

Ramón Basanta, CEO of ATCO Energía, agrees with the notion that transmission lines have been mostly neglected, although he stresses that this is not merely due to a lack of private company interest.  The government has failed to implement clear policies on this front as well. This is a major issue for Mexico’s energy sector, as transmission-related issues are nothing new. In the end, the amount of energy generated or how clean it is does not matter if it is not transmitted properly.

There is an opportunity for private companies to contribute more than they perhaps have done before. Some companies are willing to build a bridge: Óscar Scolari Romero, President and CEO of Rengen, is one of them. In a report with Energía a Debate, Romero explains how his company has opted to work directly with CFE, suggesting that other private companies can take this route as well. By generating a deeper understanding between the needs of the public and private sectors, there is still a way to meet energy and climate demands without harming public or private interests.

The data used in this article was sourced from:  
Reuters, Energia a Debate, CFE, El Economista, El Universal
Photo by:   Arisa Chattasa
Cas Biekmann Cas Biekmann Journalist and Industry Analyst