Juan Manuel Ávila Hernández
CEO & Co-Founder
TOP Energy
Expert Contributor

Will There Be Real Changes in Energy Policy?

By Juan Manuel Ávila Hernández | Tue, 07/19/2022 - 12:00

Recently, after several rounds of meetings with different companies and after the proposed Constitutional bill was rejected, the federal government unveiled new policies to open foreign and private investment in renewable energy. According to President Andrés Manuel López Obrador’s own publication, 17 US companies will land both solar and wind projects that account for more than 1,850MW as well as investments in transmission lines with states in the border region.

After this announcement, should we think that this is the beginning of a U-turn in the government’s policies? Although the statement was accompanied with an investment in PEMEX to curb its emissions, it wouldn’t be the first time that both investors and companies get their hopes up on the possibility of the industry opening to private players again only to see the government continue to reject permits. Just days before the announcement, CRE denied more permits in both the power and gas industries, yet that same week, Commissioner Luis Pineda at the Onexpo’s annual meeting stated that the regulator was seriously committed to increasing the number of permits for gas stations that had been on regulatory pause for years.

Mexico is in great need of investment in the energy sector. After the pandemic and the attempt to pass harmful policies, there is an underinvestment in the industry that is now visible to everyday consumers. For instance, big and industrial cities like Queretaro are experiencing short blackouts at industrial parks, causing factories great losses due to penalties on the delivery time of their products or simply by generating malfunctions in very sensitive electronic equipment that is becoming more common among the 4.0 industries.

If Mexico wants to continue being a relevant player and developing its economy, it needs to have power certainty and prices must be competitive but there is also a great need for higher installed capacity for all the new industries that want to produce in the country. The finances of both CFE and PEMEX are becoming more complex every year; for instance, PEMEX is now paying its suppliers via the emission of bonds that can be sold in the market but at a very high discount rate. The measure is not only a clear sign of PEMEX’s lack of liquidity but it is also the wrong assignation of financial resources. That being said, this recent announcement made by the president can be considered – if it’s taken seriously – as a wake-up call within the federal government, realizing that the state-owned companies cannot solve the energy demands of a growing nation. This by no means to say that the country can live without both companies; rather, it implies that both companies need the private sector to meet growing consumer demand.

We can only hope that the president’s announcement is met by serious policies and commitments from the federal government. In the fight against climate change, for instance, Mexico has not done the proper work while other countries are taking the task more seriously. Opening the industry in a more coordinated way would not only be beneficial for consumers, through better power prices and a more resilient grid, but it will also put back Mexico back on track with the rest of the world in the pursuit of a sustainable economy.

The country has great renewable resources, trade agreements and a proven track record on how to develop clean energy within its borders. If North America wants to become an energy hub, it needs the cooperation and coordination of its three nations, and if we can add that the announcement is accompanied with projects that are intended to export energy to the US, it will prove that the region can become that hub.

Nevertheless, regulatory constrains have proven that the announcement could end up in just that, an announcement, investment is still on hold and although on several occasions there have been many attempts to release permits it has happened. Complaints have started to escalate from Mexico’s business partners, starting from our next door neighbors the US which is pushing forward a panel under USMAC claiming that Mexico is violating said agreement by favoring both state own companies CFE and PEMEX, thus is no surprise that companies and investors are still taking this announcement not as a U-turn on the federal government’s policy but more of an attempt to de escalate possible sanctions and arbitrage.