The week ahead in LatAm energy

Mexico has vowed to continue a legal fight over the energy ministry’s (Sener) controversial “reliability policy,” which reduced dispatch priority of renewables under the argument that energy security is more important than economic efficiency.

On Friday, Sener suffered a new blow to its arguments when a court ruling granted a permanent injunction on the policy, the latest in a series of legal wins for owners of renewable energy plants.

The battle highlights growing risk in the country’s power sector as authorities pursue a policy that has been accused of unfairly favoring the state at the expense of private players. President Andrés Manuel López Obrador has relentlessly pushed a vision of the energy sector where the state has more control and influence, to the detriment of his administration’s relationship with investors.

In the power sector, López Obrador has been accused of seeking to restore utility CFE as a quasi-monopoly, undoing years of efforts to open up the sector to more competition. And his administration’s spat with investors has only been intensified by the problems derived from the COVID-19 pandemic, which has already claimed more than 17,000 lives in the country.

The reliability policy, first introduced on April 29 by grid operator Cenace and codified by Sener on May 15, cites the intermittent nature of solar and wind generation and the need for grid stability during the health crisis as rationale for a temporary suspension on pre-operative testing for 19 projects currently in the works, essentially shutting down their opportunity to enter operations.

CONTROVERSIAL CHILEAN BILL

Meanwhile, in Chile, lawmakers have approved a controversial bill that forbids utility providers from cutting off access to basic services as long as the national state of emergency endures.

The bill protects the 60% most vulnerable families and other groups and institutions, such as the elderly and fire departments. It comes in the wake of similar exceptions made in Argentina that prompted the industry’s chain of payments to deteriorate significantly earlier this year.

Regulatory risk has been on the rise in Chile since widespread riots and protests erupted late last year. Concerns about the high cost of living prompted the government to freeze power prices through the creation of a stability fund.

This time, lawmakers sidestepped Sebastián Piñera’s administration, which had already made a deal with utility providers that attempted to protect the 40% most vulnerable. However, energy ministry authorities are vowing to protect the industry’s chain of payments while the president considers whether to use his veto powers to make changes to the bill and send it back to congress on the grounds of a violation of the constitution.

Meanwhile, Brazil’s NOC Petrobras has launched the binding phase of the auction to sell its fuel distribution assets in Colombia, including its shares in Braspetro and other subsidiaries of Petrobras Colombia.

ENERGY STORAGE REGULATION IN EL SALVADOR

El Salvador is working on an energy storage regulation that will incorporate use of the technology soon, authorities said.

Penetration of storage technologies has so far been incipient in Latin America, but many countries, including Chile and Brazil, are making strides to allow storage projects to receive appropriate remuneration for the services they provide, providing incentives for their construction.

With around 40% of installed capacity in Salvador corresponding to non-conventional renewables, the country could use the benefits of storage projects; namely, that they can change their power injection patterns to match demand, dovetailing with the variable supply from renewable plants, such as wind or solar.

Meanwhile, Peru continues to struggle through discussion on a controversial bill that industry advocates argue could suspend significant generation and have widespread consequences for the country’s energy sector.

The bill in question would make natural resources contained within indigenous territories unavailable for private extraction, affecting activities at five blocks in Loreto and Cuzco regions.

CHILE WITH HIGHEST PER CAPITA CORONAVIRUS CASES

Not including the five very small states of Qatar, San Marino, Vatican City, Andorra and Bahrain, Chile is now the country with the highest number of reported coronavirus cases per capita in the world.

This has made the country, which approached the pandemic with a risky strategy of a flexible lockdown that followed the geographic spread of the virus, the worst affected by COVID-19 in Latin America in relative terms. However, the mortality of the virus has so far been less severe than in other countries. 

For now, Chile is 21st globally in terms of the number of reported deaths per capita, surpassed by the likes of Belgium, Spain, the UK, Italy and Sweden. It remains to be seen whether the country’s death toll will rise significantly if the healthcare system becomes overwhelmed by new cases, something authorities have said is on the verge of happening.

The worst affected Latin American nations in absolute numbers are Brazil (873,963 confirmed cases as of Monday), Peru (229,736), Chile (179,436), Mexico (146,837) and Ecuador (46,751). Meanwhile Colombia has reported 50,939 cases, Argentina 31,577, the Dominican Republic 23,271, and Panama 20,686.