Renewables development in Mexico and Brazil a study in contrasts, for now

Latin America’s two largest solar power markets offer a study in contrasts, due chiefly to the Mexican government’s perceived hostility to private renewables projects. 

“Momentarily, some companies may decide to postpone investment plans, in case the situation deteriorates,” Pietro Ferreira, regional analyst at UK trade association Energy Industries Council, said of renewables in Mexico on Tuesday during a webinar, “but I don’t think this will be a long-term tendency.” 

Since May, a spate of changes issued by Mexican regulators have sewn doubts about testing at late-stage development wind and solar parks, raised fees on self-suppliers and emphasized that power should skew toward more “reliable” generation from state power utility CFE.  

Lawsuits from renewables companies and business groups have stopped many of the rule changes from taking effect, but doubts still remain about the security of renewables investments.  

INTERCONNECTION AND PERMITTING IN MEXICO

Camilo Serrano, general manager at Atlas Renewables in Mexico, cited trouble with interconnection, as well as in permitting to launch projects in Mexico.

“Mexico needs to invest heavily in its interconnection infrastructure,” said Serrano, “and right now, what the government does when you ask for an interconnection permit is usually to also ask you for reinforcements of the grid that aren't related to your project.”

Shifting the burden of grid improvements to developers sometimes makes projects “unfeasible,” he added.  

Moreover, “permitting is taking time; the government is prioritizing its own projects,” according to Serrano, adding that instead of the usual 3-6 months needed to obtain a permit in the past, developers now might have to wait up to a year. 

Since taking office in December 2018, President Andrés Manuel López Obrador(AMLO) has become increasingly vocal about the need to bolster CFE as the principal power company in Mexico. That effort has involved a series of regulatory changes to give the utility the advantage over private power generators. 

“Some of the changes that the government is trying to introduce are quite structural, such as the dispatch rules,” Serrano said, “They want to give priority to thermal dispatch when it comes from the state-owned utility.”

“This is quite a change,” Serrano said, “as opposed to having the lowest cost being dispatched, as used to be the case.” 

CONTRAST WITH BRAZIL

Meanwhile, the region’s largest solar market has faced its own setbacks. Due to the COVID-19 crisis, Brazil has indefinitely postponed two power auctions. 

Many renewables companies have also expressed doubts about assets and revenues that are denominated in the Brazilian real.

But when it comes to the government, Mexico’s apparent hostility to private businesses, particularly renewables firms, stands out. 

Serrano said that Mexico was “trying to terminate” self-suppliers in the country, which until 2020 had “allowed private off-takers to benefit from investing in renewable projects.”

In June, state utility CFE’s intermediation subsidiary hiked costs on legacy self-supply contracts, that is, those signed before the country’s 2013-2014 energy reform, by some 400-800%.  

In Brazil, “they're actually doing the opposite,” Serrano said, by “promoting the self-consumption or self-supply where the private off-taker is investing in large projects to benefit from the energy.”

“The story in Brazil is somehow different to that in Mexico in the sense that the government is trying to foster growth of solar projects,” Serrano said, “In Mexico, the fundamentals are there, but the government is not very keen on incentivizing private investment for renewable projects.”