Israel Hurtado
Mexican Association for Energy Law (AMDE)

Move Toward Competition a Complex Process

Wed, 02/22/2017 - 09:29

The enactment of the Energy Reform has shifted the country’s focus since 2013, following changes to the constitutional, legal and regulatory structure relating to the energy sector. The focus of the sector is sound strategic investments in deepwater and onshore exploration of oil fields, as well as the expansive growth of the national network of gas pipelines and the increasing competition among gas stations on service and product quality. Developments in natural gas and fossil fuels must benefit the population as much as clean energy generation, which is also emerging as a prominent opportunity area for Mexico. Electricity generation is increasingly shifting toward solar, wind and geothermal energy, which will eventually have a knock-on effect on prices and offset the damaging impact of fossil fuels on climate change.

Private and publicly owned companies have reacted to the Energy Reform with investments in technology and expertise-building and the industry has attracted further capital from abroad. National and international entities have responded favorably to bring Mexico up to date and out of the monopoly that PEMEX and CFE held in their respective sectors. Moving toward greater competition has been the most complex part of the Reform. But now that PEMEX and CFE will compete fairly among all oil and gas-extraction and electricity providers, with subsidies and isolation that favored them as state-owned companies removed, interest in participating in the new markets has taken off.

An increase in foreign direct investment in the country is visible in the industrial sector and construction of industrial parks. This is a result of access to more competitive energy prices in the wholesale electricity market and associations that have united companies based in the same industrial parks to access electricity together. These same associations can now also install solar panel farms within their industrial parks or close by. Transactions in the wholesale electricity market have great substance since they permit energy to be commercialized. These benefits must reach industrial parks and those companies within them, who can choose different energy providers instead of CFE to supply their operations.

The Energy Transition Law was approved in 2015, fixing the roadmap in place to meet the international goal of clean energy use and generation. It also dictates a program to combat climate change up to 2025, which is when Mexico must sustainably produce 35 percent of its energy. Undoubtedly, that ambitious target will put pressure on some industrial sectors that depend on natural gas or fossil fuels for their operations but the global trend is toward green industry and renewable energy sources. The Energy Transition Law puts Mexico in line with this commitment.

Social responsibility was included in the creation of the Reform. The Energy Industry Law covers sustainable development and protection of human rights. Respect and guaranteed protection of indigenous communities within the regions that undergo energy developments is stipulated in the law, which dictates they be consulted before beginning any project that might affect their interests and rights. This is an important topic as most of these communities are located in strategic spaces for energy projects.

The evaluation of energy projects must be approached as a management process, not as a product to manufacture. Opportunities and advantages can emerge from energy developments for the population but they can also impair local quality of life. It is fundamental that we carry out clear and fair project management to promote the resulting benefits and prevent consequential damage.