Mexican energy reform could 'shut down wind's advance', industry warns

Proposed shake-up of Mexican power system would negate renewables’ advantages of being cheap and clean, according to energy groups

Mexico's president is working to roll back energy reforms that opened up the country's energy system, enabling the wind sector to grow (pic credit: Enel Green Power)

A bid by the Mexican government to boost state control over the electricity industry would reverse the country’s advance towards cleaner energy sources, put up power prices and cause irreversible damage to the environment, renewable energy industry bodies have warned.

In a joint statement, the Mexican wind and solar energy associations Amdee and Asolmex warned that the move would violate Mexico’s environmental commitments under the Paris agreement and put the country “in opposition to the global fight against climate change”.

Under the constitutional reform sent to Congress this month, the participation of privately-owned generators in the country’s power supplies would be capped at its current level of 46%, ensuring that state utility Comisión Federal de Electricidad (CFE) remains the country’s main power supplier.

“It does not mean nationalisation or expropriation. It means giving CFE its proper place,” said President Andrés Manuel López Obrador, commonly known as Amlo, in a press conference.

The reform would also eliminate the regulatory agencies Comisión Nacional de Hidrocarburos (CNH) and Comisión Reguladora de Energía (CRE), while the energy dispatch and pricing office Centro Nacional de Control de Energía (Cenace) would be absorbed by CFE.

“This means that priority will be given to dirty and more expensive power, turning renewable energy’s two main advantages, being cheap and clean, into irremovable disadvantages,” Amdee and Asolmex warned.

Rolling back reform

The bill marks Amlo’s latest effort to roll back the 2013-2014 energy reform which significantly opened up the electricity sector to private investment.

Since then, developers have invested US$13 billion, building wind farms with around 5GW of installed capacity.

But Amlo accuses the wind farms of profiteering from Mexico’s power markets at the costs of consumers and the state.

“The previous policy was to strengthen private companies whose aim is profit….and received subsidies while the CFE plants were underutilised. They deliberately wanted them to go bankrupt, to be turned into scrap,” the president explained.

His latest legislation would also eliminate the self-supply model which allows large power consumers to contract their electricity supplies directly from generators. These would instead have to buy electricity from CFE.

But Amdee and Asolmex noted that almost all renewables capacity developed in Mexico had been financed through private investment while CFE, which has historically preferred thermoelectric generation, has invested next to nothing in solar and wind energy.

CFE has plans to boost investment in renewables, largely by overhauling eight hydroelectric plants. But this is seen as sufficient by environmentalists and ratings agencies.

To meet the United Nations target to sourcing 45% of electricity from renewable sources by 2030, Mexico would need to invest US$6.2 billion annually, triple CFE’s annual investment budget, Amdee and Asolmex pointed out.

Energy analyst Arturo Carranza of Akza Advisors told Windpower Monthly that the decision to change the constitution would allow President Lopez Obrador to bypass legal challenges to his efforts to reform the energy sector.

Developers have filed more than 700 injunctions before the court blocking implementation of the government’s reform of the Electrical Industry Law, approved in March this year, which sought to bring similar changes to the sector.

“If he manages to approve the reform, private investors won’t have any room to appeal,” he explained.

To come into force, the constitutional reform must be approved by a two-thirds majority in both houses of the Mexican congress and by a majority of Mexico’s state legislatures.

Although the ruling Morena party lacks a sufficient majority in congress to approve the reform, the opposition is fragmented, increasing the president’s chance of success, Carranza noted.