Reform meets opposition


From pv magazine 11/2020

Mexico’s former president, Enrique Peña Nieto, spearheaded a five-year-long process to reform the country’s energy sector in 2013. The reforms sought to end the dominance of state-owned entities and to open doors to investors. At the end of 2013, the Mexican Congress approved a constitutional reform that allowed private and foreign investment in the segment for the first time in 75 years.

While the reform did not come without flaws, it positioned Mexico as a solid, emerging market for renewable energy. In the utility-scale PV segment, the country went from having an installed capacity of 17 MW in 2013 to over 5 GW at the end of 2019, accounting for a compound annual growth rate in the 2013-19 period of 126%.

Most of the utility-scale capacity came from government-backed energy auctions. The first was launched in 2015 and two additional auctions were launched in 2016 and 2017. The tenders allowed for over 5 GW of solar to be procured. The winners for the fourth auction were scheduled to be announced in February 2019. But on Dec. 3, 2018 – mere days after taking office – the new government of President López Obrador suspended the fourth tender, citing staff changes and the need to review the objectives and scope of the auction process. Twenty-six companies had been prequalified to participate. A few months later, on Feb. 1, 2019, the government officially canceled the auction. IHS Markit estimated at the time that the cancellation represented a possible loss of over 1 GW of PV that could have been awarded.

Despite the cancellation, the corporate and bilateral market is a promising segment for developers. IHS Markit estimates that there are more than 2.9 GW of solar projects that have been completed and are being installed outside of the auctions.

Ongoing battle

After the cancellation, the government pursued a series of policy decisions that began to chip away at the renewable energy sector and cloud it in uncertainty. One that made headlines and saw international criticism came on May 1, 2020, when the National Energy Control Center (CENACE), the country’s market operator, said it would suspend testing and grid connections for renewable energy plants indefinitely. CENACE said the intermittent nature of renewables posed a threat to the reliability of the grid during the era of Covid-19. The measures became effective on May 3, 2020, and a few weeks later, the Energy Secretariat (SENER) published the Policy of Reliability, Security, Continuity and Quality of the National Electric System (SEN). The policy imposes competition barriers for renewable energy power plants, citing their inherent intermittency as the main issue to the grid.

These decisions were swiftly criticized by industry players such as the Mexican business council, the Consejo Coordinador Empresarial (CCE), the Federal Economic Competition Commission (COFECE), PV association ASOLMEX, the European Union, Canada, and Greenpeace. A month after the announcements were made, several players were able to obtain preliminary injunctions and continue to move forward with connection tests. In June, Mexico’s Supreme Court upheld a complaint filed by COFECE and suspended the measures, although a final ruling is still pending.

Three months after the shock caused by these measures, on Aug. 12, 2020, the Energy Regulatory Commission (CRE) vetoed the publication in the Official Federal Gazette (DOF) of five agreements that had been previously discussed and approved. The CRE announced it would publish modified rulings regarding distributed generation. Rejecting the publication of these regulations generates even greater uncertainty and goes against the official discourse of the federal government and the commission. Of the provisions rejected, one aimed to allow small generators to sell energy to users, and the other gave guidance on the installation of battery storage for PV plants.

Timeline of major decisions

Dec. 3, 2018
The Mexican government suspends the fourth energy auction one day before bids were due, citing a change in staff and the need to review the objectives and scope of the auction.

Jan. 29, 2019
Two major transmission projects, the Baja California and Yautepec-Ixtepec transmission lines, are canceled.

Feb. 1, 2019
Mexico’s Secretariat of Energy (SENER) announces the cancellation of the planned fourth energy auctions.

Oct. 28, 2019
SENER published a decree to modify the criteria to recognize clean energy certificates (CELs). SENER sought to allow older clean generation assets to be certified. The changes were rejected, as CELs were designed for new renewable power to help decarbonization objectives.

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Dec. 24, 2019
The CFE drafted a proposal that seeks to increase transmission costs for independent private generators.

Feb. 13, 2020
CRE proposed rule changes to the National Commission for Regulatory Improvement (CONAMER), seeking to prevent legacy projects from making modifications to their permits.

May 3, 2020
CENACE issued a resolution to generators on May 1, suspending all pre-operative connection tests for wind and solar power plants. A few weeks later, SENER published a new policy imposing several barriers on renewables, due to intermittency and threats to grid stability.

June 10, 2020
The CFE announced an increase in fees to high- and medium-voltage rates paid by private companies for the use of transmission and distribution lines (tarifas de porteo).

Aug. 12, 2020
The CRE rejected the publication in the Official Journal of the Federation of agreements regarding distributed-generation rules, including regulations for small generators and the addition of storage to PV projects. The CRE will prepare modifications to distributed-generation rules.

Oct. 7, 2020
The CRE approved a resolution to amend the legal framework for holders of legacy self-supply and cogeneration permits. The resolution prohibits these permit holders from modifying expansion plans and adding new off-takers not originally in the permits. COFECE has pointed out this resolution reduces incentives to invest in the sector and generates further uncertainty.

More changes

At the beginning of September, the administration’s political party, the National Regeneration Movement (MORENA), announced a legislative plan to create a new energy reform. The party is looking at the Congressional elections, scheduled for July 2021, to make changes to the constitution. If López Obrador’s party wins a majority, future policy will likely favor Mexico’s oil company, Petróleos Mexicanos (PEMEX), and state-owned utility, Comisión Federal de Electricidad (CFE).

President López Obrador’s popularity remains high, although it has taken a hit due to ongoing recession, increasing unemployment, and his management of the Covid-19 crisis. Depending on how the administration continues to tackle these issues, MORENA could lose its current majority in the lower house of Congress, thus limiting the government’s ability to push forward changes to the energy sector.

In the lead-up to the Congressional elections, industry stakeholders will likely continue to use several platforms to inform the public about renewable energy’s economic and social benefits. Moreover, although utility-scale projects have faced obstacles since the new government took office, there are still opportunities in distributed generation. The DG segment has been recovering after a slowdown at the beginning of the pandemic. To date, Mexico has installed more than 1 GW of residential and commercial installations. If regulation does not change for this segment, IHS Markit expects an additional 1 GW to be installed through 2024.

The increased regulatory risks for renewables will likely favor large developers that have the financial ability to cushion any shortfalls that could occur in an uncertain market, while smaller developers are likely to leave or not enter the Mexican market. It is expected that renewables will continue to face an uphill battle with the current administration, causing uncertainty and diverting investors to other countries where policies are more stable.

The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.

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