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Analysis

Mexico’s Clean Energy Transition Stuck in Limbo

By Cas Biekmann | Fri, 08/13/2021 - 12:17

Discussions regarding the clean energy transition have never been sharper, taking place in an environment where growing climate change awareness clashes with a seemingly incompatible government policy push to rescue CFE. So, how is Mexico truly doing with its climate goals? MBN’s experts sketch the current landscape and provide insight toward the future.

 

State of the Transition

PRODESEN 2021-2035 reveals that Mexico currently has 89,479MW of power producing capacity installed. Renewable energy in Mexico includes hydroelectricity, wind, solar, geothermal and bio-based power, all good for 28,714MW. Not all clean energy is necessarily renewable, however: efficient cogeneration and nuclear power add a further 3,917MW to Mexico’s clean energy transition. As of 31 December 2020, Mexico has had a clean energy share of 36.47 percent.

Notably, the share of clean energy in Mexico’s power production matrix has grown by 12.19 percent from 2020 to April 2021. This increase is driven mainly by wind and solar projects that were undergoing operational tests when the last PRODESEN concluded, giving clean energy a boost from 25,594 MW to 28,714 MW.

The recent growth spurt belies a more somber outlook, the result of regulatory uncertainty introduced to the sector following López Obrador’s actions to strengthen state-owned CFE to the detriment of private companies: the main drivers of Mexico’s clean energy development. “In 2021, we are still benefiting from the wave of new capacity planned years ago,” explained Federico Muciño, Founder of Epscon to MBN. “At the same time, fewer projects were developed. Greenfield projects stopped pretty much entirely,” he continued. This puts Mexico in a difficult spot for the coming years: “Since power plants are not being developed, this will of course mean that in two or three years we can expect a period where very few options will be available until development picks up again.”

Mexico still has its fair share of ‘dirty energy’, with 5,633MW of coal-fired power still in operation. By far the largest contributor to conventional power generation is the combined cycle, an efficient natural gas-based power producing technology. 35,060MW have already been installed and CFE is planning to add thousands of MWs more through various tenders. As a stable source of energy, combined cycles introduce none of the intermittency issues that the government finds challenging in wind and solar power. Moreover, natural gas burns much cleaner than most of Mexico’s traditional capacity, save for the completely renewable hydroelectricity. There is nevertheless a key reason why combined cycle power is not considered to be clean. “If production has a quantity of greenhouse gas emission greater than 100kg of CO2 per megawatt-hour, then it is not a clean energy. For Mexico’s combined cycle generation, the average is 400kg, meaning we are way past this line,” said Yolanda Villegas, Head of Legal Affairs at EON Energy.

 

Uncertain Additions Cause Concern

In PRODESEN, SENER predicts that Mexico will add 21.3GW of new power producing capacity before the end of 2024. A major driver toward this goal will be CFE’s planned combined cycle power plants: including six projects tendered, 45.5 percent of the MWs added will rely on this technology. Utility scale solar is predicted to contribute 24.8 percent, whereas distributed generation (DG) based solar will add just about 11 percent of the total.  Other technologies are to contribute as well, with wind energy delivering a further 13.4 percent. This means that about half of Mexico’s growing energy mix should be renewable.

Nevertheless, industry experts worry that these calculations do not match with the current regulatory environment, in which the stability needed to foster utility-scale wind and solar development is already fading as a distant thought. In many ways, much of the harm has already been done. PRODESEN's figures show that renewable energy transmitted remained at around 28 percent in 2020. This is lower than the 31 percent the country needs to reach its climate goals. Facing this reality, SENER already acknowledged it will not reach its Paris Agreement goals between 2023 and 2025. The ministry does expect to reach its goal of 2026, either, set at 36 percent. From that point onward, SENER aims to be ahead of schedule. By 2035, Mexico ought to be breaching the 40 percent line.

“How we will reach the energy transition’s goals within these conditions is a common question. Private investment has been halted because of the prevalent uncertainty and a critical slowdown in permitting,” said Valeria Vázquez, Partner at Deloitte, during an MBN interview. Nevertheless, she does not see private companies sitting idly by, knowing that the global energy transition is already a reality and cannot be stopped. “One of the positive developments that occurred in the last month, marked by regulatory changes, is that the industry is finally providing a unified front, saying that it wants legal certainty, assured investment and the possibility to develop projects to help the energy transition move forward. Private companies will drive the transition and push the government to retain the status quo in the sector,” she said. For now, however, many clean energy drivers have put their plans on hold, suspended until more favorable conditions arise.

 

New Alternatives Push Transition Forward

Still, there is more to the energy market than private utility-scale renewable development. Players involved in these initiatives can also have an important role in the development of behind-the-meter energy. “Regulation in this segment has remained untouched, so it is fertile soil for developing projects. We are seeing many large-scale operators moving into this area of opportunity because its economics are attractive,” said Hector Olea, President and CEO of Gauss Energía, a solar energy developer that started out focusing on large-scale developments.

PRODESEN seems to acknowledge the growing potential of behind-the-meter energy solutions: capacity will go up from the current 1GW up to almost 3GW by 2024. Whereas solar energy is the main component, SENER sees small hydroelectric facilities, battery storage and biomass as smaller drivers for DG’s growth.

On the utility-scale front, state-backed clean energy could become a major factor in Mexico’s energy mix. PRODESEN notably shows that CFE would develop 8,080MW in renewable energy by 2024. Hydropower and solar energy are already on the table, although the president has hinted at nuclear and wind energy before.

With an investment of US$1 billion, CFE reported it will modernize turbines, generators and transformers at 14 hydroelectric facilities that have lost some power over the years. This will increase its annual generation by 1,860GWh and strengthen CFE’s renewable capacity with around 800MW of nameplate capacity. Based on these upgrades, CFE hopes that the power plants will be able to run for another 50 years.

Since CFE already owns and operates these hydroelectric assets, upgrading them seems like a logical decision. A perhaps more surprising project, however, is the utility’s announcement of a massive 1000MW solar farm in Puerto Peñasco, Sonora. CFE will own 54 percent of the new solar plant while the remaining 46 percent will be owned by the Sonoran government. By interconnecting the power plant with the neighboring Baja California Sur, thus far isolated from Mexico’s national grid, CFE could kill two birds in one stone. And even though industry insiders have expressed their doubts about the certainty of this project, CFE’s aspiration to move ahead in clean energy developments has finally materialized.

The data used in this article was sourced from:  
PRODESEN, CFE, SENER
Cas Biekmann Cas Biekmann Journalist and Industry Analyst