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Wednesday, August 4, 2021

Clean energy in Mexico on hold in favor of old-school power plants

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Wind turbines destined for an energy park in Yucatán are hauled by a ship in Progreso. 2017 file photo.

Mexico is far off track from its laws setting targets of 30% renewable energy generation by 2021, and 35% by 2024.

The actions of the Lopez Obrador administration have only worsened prospects, taking multiple steps backward by pledging to construct a new oil refinery and promising to modernize several power plants that run on coal, diesel, gas and oil.

President Andrés Manuel López Obrador also froze a program opening up Mexico’s oil sector to private participation. AMLO has made a point of trying to rescue the nation’s aging state-run enterprises like CFE and oil company Pemex.

When a fight erupts between a populist head of state and the business community over renewable energy, you might expect the leader to take the green side of the debate, a report by Bloomberg states. But President Andres Manuel Lopez Obrador took steps that would block some existing wind and solar power projects and make it harder for new ones to get going.

Cenace, Mexico’s grid regulator, on May 2 indefinitely halted the testing required before new clean-energy plants can go into operation, blaming the coronavirus. In mid-May, Mexico’s Energy Ministry fast-tracked a set of rules that would expand its ability to limit production, add new tests for solar and wind projects and give Cenace the power to reject new plant study requests.

The new rules could have hit renewable projects across the board but were suspended in response to a lawsuit filed by Greenpeace. They were also suspended by the Supreme Court after a request by the country’s antitrust agency Cofece. If enforced, the new rules would hurt new plants that need to get tests to start running. Factories now in operation may get hit by new limits to generation (and potentially new tests). Even projects still in the planning stages are subject to new tests.

The measures present a departure for Mexico, which had previously tried to boost private participation in the market. Lopez Obrador also suspended a renewable power auction program that had been rolled out in 2016, Bloomberg reported.

Mexico justifies the measures by asserting its role in protecting the integrity of the electrical grid.

To many investors, the limitations on renewables are just another example of Lopez Obrador trying to stifle private investment to protect large, state-run companies, like the CFE.

The power utility has been hurt by a drop in demand amid the pandemic.

When Cenace’s measures were set to be implemented in May, 17 solar projects and 11 wind projects were in their final stages, representing a combined 4.8 billion-peso / US$216 million investment. With much of the process still mired in court battles, no company has said anything publicly about plans to change their investment strategy in the country.

The measures could raise final prices for consumers. BloombergNEF analyst James Ellis says that while consumers may be insulated from actual tariff increases as rates are low and highly subsidized, leaving taxpayers on the hook for the final cost.

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