Fernando Flores
Director General
Expert Contributor

Energy Reform: Debate in the Electrical Sector

By Juan Fernando Flores Ruiz | Wed, 07/22/2020 - 13:14

On May 15, 2020, the Ministry of Energy issued the Policy of Reliability, Safety, Continuity and Quality in the National Electric System. Its main task is to establish corrections in the SEN (National Electric System) for a decrease in electricity demand derived from COVID-19 and quarantine. 

Although the proposal was prepared to guarantee, as its name says, the reliability, security, continuity and quality of the national electricity system, the effect is to change the rules of the electricity market with an inclination toward strengthening CFE.

At the time of its publication, experts saw that the policy would have a negative economic impact on the development of new and existing projects. The new policy leaves them in legal limbo, meaning these generators of wind and solar energy are not able to generate, and privileges conventional plants. 

Since its creation and publication, this policy has been found to be contrary to the provisions of the Paris Agreement, of which Mexico is a signatory. As background, the Official Gazette of the Federation had denied SENER the publication of the new policy, since it had not complied with the process in terms of regulatory improvement.

Given these facts, the Civil Association Collective Defense presented before a court in matters of economic competition, an injunction against the policy. The titular judge of this court granted the association a definitive suspension on the new reliability policy of the electrical system, providing some certainty to the affected companies to continue with their investments and the start-up of their plants.

However, as the saying goes, "for every action there is a reaction." This case was no exception. SENER announced it would combat the judicial resolution in favor of clean energy generation and emphasized that no economic right will prevail over the interests of the nation.

After more than 100 applications for amparos (lawsuits) were granted for provisional suspension the policy, on June 29, 2020, the Supreme Court of Justice of the Nation (SCJN) suspended the policy against renewables, thereby giving hope to investors of these energies.

It is estimated that just over US$20 billion in investments have been affected, and the uncertainty could result in infrastructure going unused. This could lead the presidents of the business chambers to defend the investments while the image that we send abroad to potential investors is that there is no regulatory and legal certainty in our country.

The global leader in the production of renewable energy is the United States, followed by China, with impressive amounts in investments. Mexico must advance in this generation, attracting technologies and investments.

The Mexican government had already been announcing that it would weaken the regulatory bodies, because it is more important for the administration to provide certainty to and strengthen state institutions such as CFE and PEMEX. Therefore, it would try to merge some dependencies and dismantle organs such as CRE. However, when it presented this proposal to the SENATE, the government did not have sufficient support.

In addition, it was announced that more than 400 positions were rescinded from the Energy Regulatory Commission.  This leaves the regulatory body without administrative personnel to continue with its work. It is worth mentioning that at the beginning of the administration, this body was directed to reduce staff. There also is talk of dismantling the Administrative Energy Reform, making it no longer being able to operate and being absorbed by SENER.

The strengthening of the regulatory bodies in energy matters is important for this country because this opened the doors to free competition and therefore, nobody wants to privatize state companies as government officials have mentioned. The goal of the Energy Reform is to:

  • Improve the economy by having other and better fuel and electricity offers.
  • Increase investment and jobs, and we have seen investments in the sector, not only in electricity but also in hydrocarbons and oil, and these investments are generating many jobs.
  • Strengthen PEMEX and CFE, because they are competent, and they should and can modernize their processes and facilities to provide better results.

Free competition is also good for end users, since they will be able to obtain economic improvements in their finances by being able to choose who to buy their energy resources from, and it also makes competitors improve to provide a better service and a better product. There are other types of energy generation, such as pyrolysis, thermolysis, or waste to energy. We must be open to advances in technologies and accept them, having the ability to work under regulatory frameworks that deliver legal certainty in our country. We must find reconciliation between the state, regulatory institutions and investors to deliver a final product with the best conditions.

Photo by:   Fernando Flores