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Private producers sidelined; government increases control of electricity market

Electricity produced by the Federal Electricity Commission will have priority over other producers

The Mexican government has fast-tracked its efforts to put restrictions on private energy producers in an apparent bid to take back control of the electricity market.

The move gives the government control over who can generate electricity, where they can operate and how much they can produce.

The Ministry of Energy, Sener, published the new energy policy late Friday in the government’s official gazette. It imposes restrictive measures for the renewable energy sector that could effectively prevent its expansion in Mexico and consolidate control of electrical power in the government’s Federal Electricity Commission (CFE).

The new regulations give priority to using electricity from CFE plants whereas until now priority was given to the plants with the lowest production costs. Renewable energy’s costs run at about US $20 per megawatt hour; those of the CFE are as much as $141.

The expedited move by Energy Minister Rocío Nahle pushed the policy through without prior approval from the National Commission for Regulatory Improvement (Conamer) and without a regulatory impact study, which would have opened the new policy up for public comment.

César Hernández, head of Conamer, announced his resignation Friday evening on social media shortly before the new policy was published and after he had refused to green-light the new measures.

“This is a tremendous power grab by the energy ministry,” said Pablo Zárate, an energy specialist at FTI Consulting. He told the Financial Times, “They’re using Covid as an excuse to try to increase their power and achieve the political objective of control of the system.”

Opening the energy sector to private investment in renewables was part of the previous government’s energy reform. The current administration has been taking steps to retake control of energy, putting more control into the hands of the state-owned oil company Pemex and the Federal Electricity Commission.

The move to restrict renewable energy production is the second this month. Last week, indefinite limits were placed on the amount of electricity wind and solar projects can supply to the national grid, while grid trials for some 28 wind and solar projects coming on line were temporarily suspended. Those measures, too, were implemented on the grounds that electricity supply had to be protected during the coronavirus pandemic.

At the same time, generation at CFE plants described as old and inefficient was to be ramped up to improve reliability of the electricity system during the coronavirus crisis. Those plants burn surplus fuel that Pemex is unable to sell elsewhere.

That move triggered criticism from the European Union (EU) and Canada, where many of the foreign investors in Mexico’s renewable energy sector are based.

In letters to Energy Minister Nahle, the EU and Canada warned that the new measures pose a serious threat to continued investment in the sector.

“This agreement establishes various actions and strategies of operational control, which put at risk the operation and continuity of renewable energy projects of Canadian companies in Mexico,” wrote Graeme Clark, Canada’s ambassador to Mexico, on Friday.

He warned that in the short term the measures could affect investments totaling $450 million and 1,000 jobs.

Numerous large international companies, such as Iberdrola and Naturgy of Spain, AES and Sempra of the U.S., Enel of Italy, France’s Engie and Denmark’s Vestas have invested in renewable energy in Mexico.

Source: Financial Times (en), El Economista (sp), El Financiero (sp) 

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