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News Article

Tracing the Destination of Mexico’s Energy Policy

By Pedro Alcalá | Thu, 03/10/2022 - 13:01

As the legislative conversations surrounding the latest electricity reform head toward Congress’ spring sessions, currently available information can help clarify what the impact would be of this reform should it pass, said Victor Florencio Ramírez, Spokesman, Platform Mexico Climate and Energy.

Ramírez believes that to calculate the impact of the current changes on the electricity sector, the industry must take stock of what exactly changed first. Back in Dec. 2018, “independent energy producers had energy contracts that were valid until 2046 and self-supply legacy contracts were valid until 2039. This included combined cycle generation and even some wind energy, along with considerable middle and long term-auctions accounting for up to 9GW,” said Ramírez. There were five major projects for the expansion of transmission infrastructure, considered necessary to solve problems for the national electricity grid.

That December, the government enacted several policies to halt these developments. This includes the cancellation of all further auctions, in a manner that Ramírez Cabrera personally “considers to be illegal.” Tenders for the construction of transmission infrastructure were canceled, although the Mexicali-Hermosillo transmission project was later relaunched as part of the 1GW Puerto Peñasco solar project. No further generation permits were issued and uncertainty crept up on the sector’s private initiative. Before the efforts to reform the sector materialized, the COVID-19 pandemic “is used as an excuse” to change CENACE policies in Apr. 2020. With the alterations, no new intermittent power production was allowed into the system, effectively favoring CFE’s thermoelectric plants over renewable energy generation. By March 2021, a new reform was put on the table, which resulted in widely reported lawsuits and subsequent amparos. This led to a new proposal to change the constitution and avoid further lawsuits in Oct. 2021. The reform proposal will now be discussed by both chambers of Congress.

Throughout these developments, Ramírez noted that government officials were warned that the changes oppose the open market policies that could keep down energy costs, the original goal of the government. However, the chief criticism of these policies was their lack of environmental awareness. Many critics pointed toward the increase in fuel oil’s production and consumption as an example of negative outcomes for Mexico’s climate change mitigation goals. Ramírez emphasized that the energy ministry’s own data admits the issue by calculating an increase in emissions for 2024 if the reform passes. Such a surge would not allow Mexico to meet its 2015 Paris Agreements commitments. The Ministry of Energy’s numbers also claim that renewable energy generation would begin to recover by 2025, but Ramírez highlighted that this will be impossible if renewable projects, many of them privately developed, do not begin their development at this very moment.

CFE’s data reveals that, should the reform pass, a lot of new capacity will be added through combined cycle plants. However, Ramírez questions the degree to which this is possible if the utility’s six combined cycle plants still in tendering processes are not finished by then. Furthermore, a decrease in self-supply and wind energy capacity due to several failing contracting modalities will also represent a serious blow to Mexico’s renewable energy capability. 

Cabrera also argued that while the president has touted hydroelectric power as the most important aspect of his environmental energy agenda, CFE’s numbers do not contemplate a significant increase in this kind of energy if the reform passes. This could be explained by the expected drought conditions over the coming years. If the reform passes, the possibly largest cause of rising energy prices would be CFE’s bigger role in the energy sector. “The most expensive power producer we have in Mexico is CFE. Therefore, electricity costs will inevitably increase if the reform is approved,” he concluded.

Pedro Alcalá Pedro Alcalá Senior Journalist & Industry Analyst