Real Costs and Benefits of Renewable Energy

Ten years ago, renewable energy projects in Mexico were inexistent with the exception of hydroelectric plants. It was not until recent administrations that renewable energy sources began getting more attention and a decided push from the government. Sergio Alcocer Martínez, former Coordinator of Innovation and Development at the National Autonomous University of Mexico (UNAM), applauds certain government strategies such as the Law for the Use of Renewable Energy Sources and Law for the Financing of Energy Transition (LAERFTE). However, he reasons that the country is still far from being able to fully exploit the sector’s potential. He believes Mexico needs to act faster by initially mapping opportunities. For instance, the potential of solar, wind, and geothermal energy needs further definition.

Charting the national potential for renewable energy will help establish if the objectives stated in the General Climate Change Law, such as reaching a 35% participation of renewable energy in the energy mix by 2024, are truly achievable, says Alcocer. Other issues, including possible tariff costs, need to be addressed. The fact that natural gas is available at affordable prices at the moment makes thermoelectric projects more feasible than renewables. The law established that CFE has to provide energy at the lowest cost, but said cost is not specified. However, the lowest cost has been interpreted as meaning the most affordable fuel, which points to natural gas. As for renewable energy, Alcocer says that solar radiation is free, but PV technology is not. These sources will become truly competitive once generation costs, including externalities related to CO2 emissions and their social and economic consequences, are calculated and taken into account.

Carbon emissions, according to Alcocer, are in particular need of attention, given the shifting of weather patterns. Alcocer suggests that considerable human and economic losses caused by climate change should be considered externalities of CO2 emitting technology. The prices of natural gas production and distribution make them favorable right now, but externalities raise the value of other competitive energy sources. Alcocer mentions geothermal energy as an example of a power source that requires high investments but has a competitive cost per kWh. “In order for renewable energy sources to keep advancing, the government must make different decisions and promote them.”

The promotion of renewable energy use needs concrete actions beyond mere intent. “The 35% use of renewable energy sources stated in the General Climate Change Law is a political statement. I applaud it, but we have to realize its implications,” Alcocer says, while adding that it is unclear how the country will afford the energy transition. “I doubt this percentage will be reached without significant investments and increasing tariffs.” The importance of nuclear energy in fulfilling these national objectives has also been underestimated, with the UNAM representative explaining that a combination of gas, oil, nuclear, and wind energy raised the cost per kWh, which was passed on to the public in the form of taxes or tariffs.

The clean energy industry can be very profitable without burdening consumers, Alcocer believes. This sector contributes more to the GNP than the food or pharmaceutical industries at the international level, and should be a national priority. CFE has a team of experts on renewables but the institution has seemed to have certain doubts about energy sources that are outside its traditional areas of expertise. CFE is well-versed in geothermal energy because it operates geothermal plants, and it has plenty of experience with hydroelectric plants as well. However, Alcocer calls for CFE to expand its internal capacities in areas such as solar and tidal energy. This diversification would require action from the Mexican government to promote and foster the training of specialized professionals. This fits in with Alcocer’s vision for each energy source to have a pool of specialists devoted to its advancement. This was done in the US, where each renewable energy sector had its potential mapped out and tailor-made strategies designed for it.

But Alcocer has not seen efforts from the Mexican government to disseminate the benefits of renewable energy sources yet. In fact, he sees many foreign companies are more interested in exploiting the national potential than domestic firms. “Foreign companies should partner up with local companies so a significant national capacity can be developed.”

Facilitating project development and providing incentives could nurture the sector. However, it is important to assess the implications entailed in these actions. “Mexico has to decide whether it will continue taking advantage of low cost hydrocarbons and sacrifice the development of renewable energy sources, or invest in the development of these sources at a higher short-term economic cost. Considering the country’s economic inequity, it is likely that the government will opt for the most affordable option,” says Alcocer. Renewable energy sources should be stimulated in subtle ways that make sense, such as environmental reasons. Energy efficiency could be an important step to bringing this process forward. For example, the transportation sector represents 50% of Mexico’s energy intensity. Alcocer proposes improving public transportation efficiency through mandatory practices and regulations, he sees this as potentially lowering the fuel demand and the need for imported gasoline and diesel, leaving PEMEX resources to be assigned to renewable energy sources.

To foster growth, says Alcocer, it is necessary to look for and stimulate the most promising projects, such as largescale developments with strong technological content. For Alcocer, the public and private sectors should not invest in technological experimentation, but in improving proven technologies instead. As for renewable energy sources, Alcocer believes these have an interesting potential to be developed by small communities with no access to the grid. These could help detonate the renewable energy market as a whole as well as the creation of small businesses across Mexico, making the investment more than worthwhile. Many sources of renewable energy could be involved in these tailored programs, from wind to solar and geothermal. These could work if they were carried out within the context of a government framework that takes a holistic approach to renewables, seeing the potential in small installations and mega-projects alike.