States move to counter Mexico’s anti-renewables policy

Mexican law firm Ramos, Ripoll & Schuster (RR&S) published an analysis of the government’s renewables policy, seen as detrimental to solar and wind power investment, while state energy clusters are preparing counter strategies. 

In the analysis released on Monday, RR&S wrote the policy, presented in May, “establishes a regulation which, among other things, tacitly incorporates competition barriers for intermittent clean energy power plants in Mexico.”

The firm added “[energy ministry] Sener's reliability policy was issued in a hurry and under irregular conditions, which showed the government's intention to avoid public consultation – a mandatory requirement for regulations which may affect the general population.”

The criteria would “affect competition and open participation in the electricity industry for the private sector. Further, they grant [state-owned utility] CFE numerous advantages in the Mexican electricity market, to the detriment of renewable energy projects and a healthy electricity market.” 

In late June, the supreme court ruled in favor of the policy’s opponents and competition watchdog Cofece, suspending the policy until the court has definitively resolved the constitutional procedure, which could take up to 12 months.

Greenpeace also scored a victory by obtaining a separate definitive suspension, meaning, “the relevant measures included in the policy do not apply until the corresponding administrative procedure, which began in May 2020, has been concluded,” RR&S wrote.

The government, however, is defending the policy, with CFE and officials signaling defiance. 

CONSEQUENCES

Should the government emerge victorious, RR&S said, “the reliability policy will have severe consequences for generation projects.” According to the firm, it will impact: 

• Financing and credits: The policy will affect the financial models for the expected returns, requiring modifications to the financing.
• Commercial agreements: The policy will affect compliance with numerous commercial obligations for energy acquisition or commercialization and the possibility of executing guarantees. It would also create commercial risks for the development of other renewables projects.
• Generation permits and interconnection: The policy defines new conditions for obtaining generation permits and interconnection agreements. It authorizes [grid operator] Cenace to issue discretionary interconnection viability reports prior to evaluation, which violates Cenace’s legal obligations. The policy also requires the inclusion of early termination clauses.
• Obligations and costs: The policy sets new rules that disadvantage the commercialization of power from intermittent clean energy power plants, and it includes new related services, which affect financial models and obligations.

PRIVATE SECTOR DEFENSE

To aid their defense, RR&S recommended companies invoke a constitutional review procedure (amparo indirecto), as the reliability policy affects or damages their rights and imposes higher development and start-up costs.

And foreign investors could start investment arbitration procedures under international investment protection agreements.

The law firm said at least 70 legal requests for suspension of the policy have been submitted, adding that “determined governmental entities have the right to present special challenges against the policy, and some have already initiated them.”

STATES’ ACTIONS

State energy clusters, comprising state governments and local industry, have mounted their own strategies to protect investments.  

Participating state governments include Nuevo León, Puebla, Querétaro, Oaxaca, Tabasco and Tamaulipas, according to daily Reforma.

According to the daily, the president of the Tamaulipas energy cluster, Ofelia Garza, said that 11 of the cluster’s wind farms in operation and four under construction could be affected, representing investments over US$1.2bn.

Garza said wind power investors are looking at project development over the next two decades.

“But with all these changes in the rules of the game, we are looking at how we can ensure continuity,” Garza said.

The president of Nuevo León's energy cluster, César Cadena, said the entity has the backing of five law firms, which advised companies to defend their projects.

“It is a shame to have to go the legal route, but there is no place to negotiate with the authorities,” Reforma cited Cadena as saying.

And the president of the Oaxaca cluster, Luis Calderón, said the state has the potential to develop up to 5GW of renewable energy, mainly wind power. Industry has been working with communities to improve local participation and consolidate this massive potential. 

“Now that dynamic is at a disadvantage due to the new energy policy,” Calderón said. He added that a second problem has emerged with the lack of transmission lines threatening to prevent new projects from coming online.

Puebla state has seven renewable projects under development, representing investments of around US$1.5bn. Works on these projects continue after state authorities gave new guarantees, the director of Puebla’s energy agency, Rodrigo Osorio, said.

“We have a change of strategy in which we would like to continue developing the energy matrix to become a more efficient state and reduce costs," he said.

“That is why we seek to maintain harmony with the [federal] government. We have not presented any [lawsuit] as a state, rather we seek to reach an agreement,” he added.

Samuel Rivero, president of Querétaro’s energy cluster, said the entity keeps promoting the benefits of renewable energy.

“We have to look at the opportunities that are in the market, regardless of the changes that are at the regulatory or federal level,” he said.