Mexico: Third in Latin America Regarding Energy InvestmentBy Cas Biekmann | Mon, 09/28/2020 - 14:37
According to a study by BNAmericas, Mexico ranks third in investment attractiveness among Latin American countries. Brazil and Colombia surpass Mexico at a time when many companies are reorienting their strategy as a result of the pandemic’s far-reaching effects on global industries. With the energy sector going through a transformative period, it is uncertain what the future holds for energy investment in Mexico.
Despite Colombia surpassing Mexico, the latter country stays ahead of Chile, Guyana, Peru, Surinam, Argentina and Bolivia. In a sense, Mexico’s position comes as little surprise. Brazil has long led the charts when it comes to investment in general, according to BloombergNEF, the sheer size of its market being a major factor. Whereas Mexico has the second-largest population, Colombia beats Mexico when it comes to energy investment in general. Looking specifically at renewable energy, Chile also manages to surpass Mexico. This was not yet the case the year before.
To insiders from the Mexican energy industry, this is no surprise. After the waves of investment that the 2014 Energy Reform brought along, the López Obrador administration introduced a different vision for the energy sector. This approach features a centralized role for both PEMEX and CFE, which the Energy Reform had imagined differently. In the case of oil and gas, bidding rounds have been suspended following criticism from the president regarding the speed of private development. In the energy sector, a suspension of the long-term energy auctions is but one of many measures dampening the evolution of private renewable energy. At a time when energy investment is booming, many experts contributing to MBN agree that Mexico is hindering private investments through the uncertainty it has created in the energy sector.
But it is not all bad news: natural gas infrastructure is currently under expansion and plenty of projects are still under development. The government’s new policy direction is different that the last one and more focused on social impact, said Enrique Müller, Senior Renewable Energy Consultant at Wood, to MBN. The issue is merely with implementing the new house rules. “Due to the efforts since the Energy Reform, the market, for the most part, is still there; it just needs better regulatory implementation,” said Müller. Once regulation has been implemented in a stable manner, the certainty needed to attract investment returns, as well.
Reuters reported that the president’s efforts to potentially reverse the Energy Reform will not take place until next year, after June’s midterm elections. In the meantime, López Obrador was reported to give CFE’s energy the preference over privately generated energy, despite the fact that the latter could be cleaner or cheaper. All in all, investing in utility-scale renewable energy projects has lost quite a lot of its sheen, at least momentarily.
Nonetheless, opportunities to invest in areas that would shrink Mexico’s carbon footprint still exist, thinks Leonardo Beltrán, Non-Resident Fellow at the Institute of the Americas. Businesses themselves could benefit greatly by investing in their own competitiveness and renewable strategies can be a part of this. “The most promising alternative is to invest in energy efficiency or as the International Energy Agency (IEA) has referred to it: the hidden fuel. The United Nations Industrial Development Organization has documented that organizations implementing energy management systems (EnMS) achieve reductions in energy consumption of up to 30 percent. Using data from the Latin American Energy Organization, in the Latin America and Caribbean region, the industry represents 31 percent of total final energy consumption and 16 percent of greenhouse gas (GHG) emissions. In Mexico, the industry’s total final energy consumption is a little bit higher, at 34 percent, and contributes with 17.5 percent of GHG emissions,” Beltran wrote on MBN.