A Return to Forward-Looking TrendsBy Juan Manuel Ávila Hernández | Tue, 06/01/2021 - 13:00
The US 2016 presidential election was marked by a promise from then-presidential candidate Donald Trump that astonished most climate change advocates: quitting the Paris Agreement. That alone set the US into a reversal, at least on paper, of it is key role as a leading country on the energy transition and climate change. Although energy transition policies were not pursued by the subsequent federal government, technological developments led to a cheaper price on renewables, while a bipartisan agreement on the ITC (Investment Tax Credit) expanded its program for more years, leading to a developing market with or without federal aid.
Under the administration of President Joe Biden, climate change has been set as a priority, compromising trade deals and foreign relations, this is one of the various steps the US is taking toward becoming an energy transition leader. If we add up the amount of public investment dedicated to research in this field and capex investment in this area, as well as the expansion of the ITC for more years , it is clear that the US is back on the energy transition trend.
The Biden administration has also rejoined the Paris Agreement and reopened a US$40 billion loan program for clean energy projects that was dormant, that is only from the public policy point of view. If we also add up Larry Fink’s letter to CEOs on 2021 in which he wrote that, “Over the course of 2020, we have seen how purposeful companies, with better environmental, social, and governance (ESG) profiles, have outperformed their peers. During 2020, 81% of a globally-representative selection of sustainable indexes outperformed their parent benchmarks,” it is clear that there is a trend both from the public and private sector to invest in clean energy like in no other year before.
Nevertheless, the energy transition does not have to come from governmental directives or because investors want to pour money into renewable projects for “for ESG compliance only.” Clearly, technological advances in these areas have made possible an energy transition that is both profitable for investors and off-takers. One example is the current capacity of solar modules, where the regular power trend for a monocrystalline module two years ago did not change more than 10 or 20 percent a year. Now, we have jumped from a 440W module in December 2020 to a 540W module in 1Q21. That’s just in solar energy. We have also witnessed technological innovations that augment the capacity factor of wind turbines, we have seen projects already built and operational for at least a couple of years regarding energy storage systems for utilities with great results, and let’s not forget the current trends on green hydrogen, in which Japanese car manufacturers have invested heavily for the past decade, bringing us closer to an achievable green mobility. All the previous actions take us closer to a more empowered customer but also a more decentralized grid, allowing more competitors to join the market, changing the way the power industry — especially utilities — has built its business plans.
The world trend has set a clear path toward renewable energy and the energy transition; thus, we could say that technology in this area has surpassed its regulations, although in most countries, regulations promote this, but that is not the case of Mexico. The last time we saw a technologically disruptive trend for which regulation did not follow suit was with crypto currency, and what happened years later was that regulation had to follow suit, not the other way around.
Having said that, Mexico’s federal administration has focused on bringing regulation closer to the past and farther away from actual trends, in a misconception about what energy sovereignty really stands for. The whole concept of sovereignty has not only stopped the country from moving forward with a world trend, but it is betting the country’s future on a past recipe that did not work before, and clearly sets a course for Mexico to miss out on what could be the greatest opportunity for the next decade.
There are no words available to describe the size of the opportunity to jump into this trend and especially the cost of missing out on it for a country like Mexico, which is deeply interconnected to the rest of the world and the US. If we summarize all that has been said, the cost of not participating will not only be an opportunity cost for the country but also the way we trade with our partners that have clearly stated that they will keep on working with this agenda, whether Mexico wants to join or not.