Renewable energy has reached a dangerous ridge in Mexico. In 2019, wind power grew by 26% in installed capacity compared to the previous year, according to data from the sector released this week, while the site advanced 76% from January 2019 to February 2020. Together they added around 3,500 MW, enough to cover the annual needs of about three million homes. Despite the good moment, the industry feels a precipice. Regulatory changes promoted by the Government of Andrés Manuel López Obrador to strengthen state production can stop the renewable boom, fear experts and companies.
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The wind company added 1,280 MW in 2019, “a historic record,” according to the president of the Mexican Wind Energy Association (AMDEE), Leopoldo Rodríguez. "Never before have we had so much capacity installed in a single year." This batch placed the country in the first place in Latin America in terms of new installed capacity. Since it started in the mid-90s on the Tehuantepec isthmus in Oaxaca, in the southwest of the country, the blades have expanded to 14 other states and accumulate an investment of 11,000 million dollars. 18% of it arrived in 2019.
The plot is also celebrating. Despite having a more recent development than wind, this February reached 5,360 MW of installed capacity and total 8,500 million dollars in accumulated investment - 26% corresponds to 2019-. The take-off of solar energy is felt especially in the northern and central states and there is room for margin. 85% of the country is optimal for development, according to the Mexican Solar Energy Association (Asolmex).
But the party may not last. The Government of López Obrador (Morena) has preferred to bet on traditional energies and to refloat the productive companies of the State, Pemex and the Federal Electricity Commission (CFE). The Administration has made changes to the energy reform, promoted by President Enrique Peña Nieto (PRI) to open the sector to private investment and serve as a springboard for renewables.
In 2019, around 65% of wind production was the result of long-term power auctions, a mechanism that the Government canceled just over a year ago. The system allowed energy generators to sell their production to the CFE at a fixed price. Attracted by this new framework, sector giants opted to develop large-scale plants and the price at which electricity was sold plummeted.
With the cancellation of this mechanism, experts predict that the growth achieved will be deflated after the last auctioned projects come into operation. Much of the added capacity in 2019 belongs to projects tendered at the first auction in 2015 and the second in 2016, of which 75% and 81% have already entered into operation, respectively. Of the third auction, half is under construction and the rest about to start work.
Casiopea Ramírez, member of the board of directors of Asolmex, argues that in 2020 500 MW will be added in the best case and 200 MW in the worst. "There is no way we can grow again as in 2019," he says. Without the CFE as a buyer, companies face the difficulty of finding who to sell. "Placing energy will be more difficult and will slow the development of projects," he says.
Wind is more optimistic. It expects to add between 1,000 and 1,200 MW in 2020, a modest decline compared to 2019. Even so, Leopoldo Rodríguez of AMDEE points to other challenges. “Auctions are not indispensable, but we need stability and carry out the transmission works that are required,” he says. These interconnection works, essential to bring energy from the place of production to the center of consumption, have been paralyzed since 2015 and the network is saturated, a bottleneck to continue with the expansion.
Given the concern of the sector, López Obrador has insisted that the contracts already signed will be respected and that the energy reform promulgated by his predecessor will not be revoked. However, the Government has emptied it of meaning with the modification of some key points to reinforce the CFE, which has lost generation quota due to the rise of private producers.
In December, a “solicitation document” was sent by the state power company to the Energy Regulatory Commission, the autonomous body responsible for regulating the sector, with a series of measures to strengthen itself. The document included, among other actions, “determining the maximum permissible capacity for intermittent renewable energy” and limiting self-supply societies, a scheme by which private generators, many of them renewable, supplied to a group of companies.
On this second measure, the regulator initiated the procedures to limit the incorporation of new supply points to the contracts a couple of weeks ago. That is, companies that open a new branch or store will not be able to supply it with electricity under that scheme; they will have to buy it from the CFE or other generators at a predictably higher price. Nor can new partners be added to contracts, a practice that the authorities consider has been abused. "The goal is for the CFE to win customers, but changing the rules of operation in half can scare off the investment," says consultant Víctor Ramírez.
The industry has placed hopes in the Energy Infrastructure Plan that the Government is about to launch. "The message was to grow, remove bureaucracy, implement and speed everything," said the head of the Office of the Presidency and promoter of the plan, businessman Alfonso Romo. A few days after the annual meeting of the sector, Leopoldo Rodríguez, of AMDEE, estimates that up to 10,000 MW in new capacity can be incorporated in the next five years, but only “if the conditions of transmission and clear rules exist”, nuances
Without auctions that promote large projects, the photovoltaic industry is committed to the development of distributed generation, as production is known through small sources near the center of consumption. A way that, until now, has been far from bearing the fruits reported by large-scale plants.
72% of resources against climate change for “gas transport”
The slowdown in the growth of renewables can weaken the fight against climate change. Adrián Fernández, director of the environmental NGO Climate Initiative, expects half of that to grow in 2021 than in 2019. “It will be very difficult to meet the goal of 35% of clean energy by 2024,” he says. The Government wants to repower the hydroelectric plants and double the generating capacity of the Laguna Verde nuclear plant, but Fernández believes that it will not be enough to reach the goal in time.
The federal budget of 2020 contemplates 55,000 million pesos, about 2.8 billion dollars, for the “adaptation and mitigation” of climate change, a considerable increase compared to 39,000 million last year. But the amount hides surprises: 72% is the CFE's expense in "natural gas transportation" and only 14% is directed to the Ministry of Environment and another 6% to the Natural Disaster Fund.
Mexico received a tug of ears from the United Nations. The Emission Gap Report, published at the end of November, warned that the Government "had stopped years of progress in the sector that threaten to reverse the progress made." The publication of the report just before the Climate Change Summit in Madrid caused a small earthquake in the Ministry of Foreign Affairs that called the representative of the United Nations Agency for the Environment in Mexico to complain, according to sources familiar with the case.
At the summit, the Government signed up for an alliance of countries committed to achieving zero net emissions of C02 by 2050. An ambition that seems to contradict the changes in regulation. Adrián Fernández sees a gap between those ministries most sensitive to the fight against climate change and those responsible for the implementation of energy policy. "The Foreign Ministry and the Ministry of Environment have as main challenge to raise awareness and convince the Ministry of Energy of the benefits of a decarbonised route and stop fossil fuels."
