What’s in store for Mexico’s electric power regulation in 2021?

Next year will be a key one for private investment in Mexico’s electric power industry and it could prove crucial to determine whether the current administration will have enough political backing to pursue legal changes in the sector.

This year has been a complicated one, as President Andrés Manuel López Obrador’s (AMLO) strategy focused on amending regulation has largely been held in check by court rulings.

AMLO’s administration has thrown its weight behind the stated goal of backing public utility CFE and tackling developments seen as unfair to the company or unsafe for the power grid, including the country’s growing renewables sector and the self-supply power market.

However, most of the major measures pursued by the administration this year have been contested and suspended by federal courts. The administration has made clear that if its current strategy proves unsuccessful, it will attempt to make legal and even constitutional changes to better reflect its policy goals.

In order to roll back significant portions of the 2014 energy reform, which opened up Mexico’s power sector for greater private participation and expanded and strengthened the country’s regulatory apparatus, the president will need a two-thirds majority in both chambers of congress, as well as support in local legislatures.

The mid-term elections in 2021 will prove crucial to allow the president to increase his majority in the lower chamber and enact broader energy policy goals. With growing public approval of almost 60% at the end of November according to various polls, AMLO will need to leverage his support in the legislative elections next July, in which the entire 500-seat lower house will be up for grabs.

In terms of smaller changes, Mexico is likely to come up with new policies that can increase the energy ministry’s control of regulators, as well as reduce the influence of the renewables and self-supply markets.

According to Elié Villeda Orozco, country manager at renewable developer First Solar, the fact that the heads of Mexico’s regulatory bodies and members of bodies such as electric power regulator CRE are appointed by the executive branch has proven detrimental to the country’s regulatory stability.

However, he added, the government’s ability to shape the sector has still been limited by the fact that an increasing number of industrial, commercial and residential consumers demand cleaner energy supply to comply with their own carbon emission goals.

In Mexico, while non-conventional renewable energy is generated by private sector players, state-owned CFE trades mostly in thermal and hydroelectric generation.

“If consumers approach the CFE asking for renewable supply due to their international sustainability commitments to their shareholders, for example, this could help move the market,” Villeda said during a presentation organized by Forbes México.

THE REGULATORY STORY SO FAR

According to a report by Zumma Energy Consulting, 2020 has been a landmark year for regulatory changes and uncertainty in the Mexican electric power sector, driven both by the COVID-19 pandemic and unilateral actions carried out by the federal government.

Among these, the most influential has been the “reliability policy” agreement published in April by grid control center Cenace – which modified dispatch priority for renewable projects and froze their possibility of connecting to the grid.

However, changes big and small have come at a fast clip, with the most impactful ones being quickly suspended by courts. Suspensions include the Cenace agreement (May 15), an updated policy agreement by energy ministry Sener which modified the roles of several public bodies and the energy ministry's sector program (September 11), which was supposed to guide energy policy between 2020 and 2024.

The main thrust of these changes has been an attempt to reduce the independence of different bodies, including CFE and regulatory bodies including CRE and Cenace and an attempt to stop renewable projects from coming online.

Below, we break down the most important changes to energy regulation that took place in Mexico during the year.

April 29: Cenace published its “reliability policy” agreement which altered dispatch priority for renewable plants and froze the connection of new plants to the national grid. The stated objective was to ensure grid stability and reliability during the COVID-19 pandemic given the public’s increased dependence on energy supply.

May 15: Sener published an updated policy document, known as the “policy agreement,” outlining changes to the roles carried out by CRE, Cenace and CFE, increasing the ministry’s influence over those institutions.

May 19: The Cenace agreement was suspended by a federal judge.

June 10: CFE, with support from CRE, updated special transmission rates affecting renewable plants for self-supply and efficient cogeneration units used by some large power consumers. Rates were hiked by between 470% and 811% depending on the type of transmission network.

June 22: Prosener, Mexico’s energy policy roadmap between 2020 and 2024, was published. Among many other measures, the document outlined a reduced emphasis on clean energy supply and combatting climate change, instead focusing on providing support for CFE.

June 24: Sener’s policy agreement was suspended by a federal Judge at the request of federal competition watchdog Cofece.

July 8: The increase in transmission rates described above was temporarily suspended by a federal judge.

July 22: An internal memorandum presented by AMLO to the heads of Mexico’s energy regulators was leaked. The document outlined an explicit request to favor CFE, as well as an order to stop extending permits to private players, among other measures.

September 11: The implementation of parts of the Prosener roadmap deemed contrary to Mexico’s clean energy commitments were suspended by a federal judge.

September 23: During an internal meeting, the heads of CRE, Sener, CFE and natural gas control center Cenagas, as well as oil and gas regulators and NOC Pemex, reportedly agreed to implement the measures outlined in the memorandum previously presented by the president. The head of Cenace at the time, Alfonso Morcos Flores, resisted the measures.

September 24: Alfonso Morcos Flores resigned from his post at Cenace and was replaced by Carlos Meléndez, former deputy director of strategy and regulation at CFE.

October 6: New guidelines governing Mexico’s legacy self-supply and cogeneration markets were issued by CRE. These make it more difficult for new large consumers to opt for the self-supply market, in some cases forcing them to be supplied by CFE.