Mexico’s energy business turning dirty again

Mexican electricity system operator Cenace suspended preoperative performance tests for wind and solar parks and other measures to ensure grid reliability, citing concerns over the spread of COVID-19.

“The consequence of the decision is that some old-fashioned fuel plants are going to substitute for the energy that should be delivered by renewable energy facilities or installations,” Ramón Fiestas, chair of the Latin American committee at the Global Wind Energy Council (GWEC), told BNamericas. 

Unlike European countries, where the drop-off in electric demand due to COVID-19 has seen the share of renewables-based electricity rise to 70% or more of overall generation, the Cenace decision means that Mexico will counter the pandemic-related economic crisis with greater reliance on fuel oil-based electric power.

Yet, state electric utility CFE is exempt from the decision that was announced earlier this month. CFE thus stands to benefit by gaining a larger share of the power production market.

“The decision taken is really, let’s say, a bad decision for renewable energies,” Fiestas said, “but what’s worse is the impact on legal certainty.”

UNDERMINING LEGAL CERTAINTY

Last October, the energy ministry (Sener) roiled the private power market after it announced a move to dilute eligibility criteria for gaining Clean Energy Licenses (CELs). Court rulings in November and December have stopped the plan, though.

The CEL scheme took effect in 2018 to facilitate clean electricity, but the ministry's decision would have endangered billions of dollars invested in wind and solar power based on their output, generating CELs, because it counted output from CFE’s old hydro plants as CEL generators.

And CFE’s only nuclear plant, at Laguna Verde, would have become a net generator of 1mn CELs per year, about 5% of the total CELs created in 2019.

The suspension of tests for wind and solar looks like another means toward the same end - strengthening CFE’s position.

Referring to the power plants to benefit from the suspension, Fiestas said, “it is not coincidental that they belong to the state-owned company.”

In a press release, Moody’s analyst Roxana Muñoz said the Cenace decision threatened “negative credit effects” for private generators and “added major uncertainty” for future renewables investments in Mexico. 

On May 4, business lobby CCE sued Cenace in response to the suspension, claiming the regulator was neglecting its legal duty to efficiently manage Mexico’s electric grid. More lawsuits are expected. 

Fiestas said lawsuits were unsurprising, “because this is not really looking fair and not transparent.”

She added, “currently, in Mexico, the generation activity is liberalized,” and hence, “CFE should be one of the generators playing on the same field, but currently this is not happening, and there is a dominant position in the market [occupied] by CFE.”

After the 2013/14 energy reforms, the country began to open up electricity generation to private firms, leading to long-term electricity generation and transmission auctions from 2015-2018.

As the winners’ projects come online, CFE’s share is shrinking.

“This decision taken by Cenace is looking somehow like a capture of the system operator by the former monopolistic operator in Mexico,” Fiestas said. 

This appears to make Mexico an outlier, a one-time leader in renewables energy that is now tacking back toward fuel-based power generation.  

“The world is opening electricity systems to renewable energies, not closing the systems to renewables,” Fiestas said, “and what Mexico has done is driving it into the opposite direction.”