Hydroelectricity Triumphs in Face of Uncertainty

Historically, Mexico has relied heavily on hydroelectricity for much of its power. In fact, small, hydroelectric power plants still churn out power in remote areas of the country, and some even date back to the 1920s. Presently, hydroelectric plants account for more than 11,499MW of electric generation capacity, which equates to a quarter of total generation capacity in Mexico. This year CFE has projects under development that amount to 1,500MW and the private sector in turn has a pipeline of 1,500MW. Jacobo Mekler, President of AMEXHIDRO, is keen to finally elevate hydro to center stage. “The government must recognize hydro and not be blinded by misconceptions and old fashioned beliefs.”

Legal certainty remains a concern for the sector, since CONAGUA only awards water concessions if permits have been granted by CRE and SEMARNAT. As it stands, companies must approach a string of entities in order to obtain the permits and for many this spells a loss of investment and time. “CONAGUA, the Ministry of Energy, and CRE have been receptive to streamlining permitting. On the other hand, SEMARNAT has been reticent, and we attribute this to its unique processes because it believes its online platform is sufficient,” Mekler describes. Hydro players must also race against time in the pursuit of their projects; building a solar park can take up to six months and a wind farm up to a year, whereas building a hydro plant can take up to three years. This can be challenging when considering the transition into the new legal scheme. “In order to adhere to the timeline authorities have laid out for the project to be considered a legacy, the company would have to start building very soon.” These barriers have forced hydro companies to adopt new measures, and some are diversifying and building a new portfolio that includes wind, solar, and even thermoelectric.

“It is unreasonable that in Mexico it takes up to four years to develop a hydro project, and even before the company has the certainty of feasibility, it has to have all the permits and guarantees in place,” Mekler rails. In other parts of the world, developers are given two years to develop and obtain all the permits and if they are able to develop the project within that time frame it legally becomes theirs. It is the opposite in Mexico, where investment does not necessarily ensure the ownership of the project. “If a company is working on a project, it is likely that there are a few others working on the same one simultaneously.” There can be other complications, for instance, when a company presents its environmental impact assessment to SEMARNAT, and the authority makes the study available to the public. While superficially this might seem like

knowledge sharing, the problem arises when another company downloads the study, changes the name, prints it again, and presents it the exact same day. There is not a specific order in obtaining the permits, so various companies may be developing the same projects with different permits, one might have the land rights, another CRE permits, and others the environmental impact assessment. “AMEXHIDRO is pushing to have a Pre- Concession where only one company may be working on a site a time, which will bring certainty to investors,” he adds. Hydroelectricity has been mired by misconceptions, and players take great pains to eradicate them. “Companies invest more time and money in developing community ties than in technology. If a technological problem arises, it can be easily dealt with, yet if a project does not obtain social acceptance, then it is doomed to fail,” Mekler clarifies. Regarding community relations, project development becomes more complex due to a new law called Consultation of Indigenous Peoples that was borne from an international labor organization treaty that Mexico signed in 1992. Mexico never enforced this law until 2013, and since it is a treaty, the government is the party responsible for carrying out the consultations. “The consultation cannot be conducted prior to the development, since it would not be well informed.”

The guidelines state that the company must invite representatives from different agencies like the Ministry of Economy, the Ministry of Energy, the Ministry of Finance, CRE, and the Human Rights Commission in order to ensure that the project is being developed properly. For Mekler, this aspect will be difficult to implement because the government does not have the time, human capital, or resources to carry it out. The smartest move left for Mexico is diversification of its energy matrix to make use of all the resources available. Hydroelectricity comes to the forefront as a sector that will incentivize new technologies in the market and foster internal innovation. Players within the sector have successfully tackled many barriers in their quest for growth and Mekler is confident they are ready to step into the limelight.