Mexico Bill Puts $22 Billion in Clean Energy Contracts at Risk
(Bloomberg) -- Mexico President Andres Manuel Lopez Obrador’s proposed electricity reform could derail more than $22 billion of solar, wind and other renewable-energy installations owned by major foreign companies such as Iberdrola SA and Sempra Energy.
The bill proposed to lawmakers last month would cancel some electricity-generation permits granted to foreign operators and give priority to the aging hydro, nuclear and natural gas-fired plants run by state-owned power utility Comision Federal de Electricidad, or CFE. Wind and solar projects would be pushed toward the bottom of the list, beating out only gas- and coal-fired generation from non-state providers. The bill seeks a constitutional guarantee that CFE holds 54% of the market compared with 38% currently.
Although non-state companies would maintain as much as 46% of the electricity market under the proposal, current contracts are expected to be reviewed. As much as 15,000 megawatts of clean-energy generation are at stake, according to BloombergNEF.
Lopez Obrador swept into power promising to expand state control of Mexico’s energy by dialing back previous market-friendly reforms. He has come under fire from renewable-energy companies and environmental groups for pushing a fossil fuels-heavy agenda at a time when other nations are working to curb emissions.
READ: How AMLO Push for Electricity Revamp Is About Power: QuickTake
Foreign companies have invested heavily in Mexico since its electricity market was opened to private investment in 2013 and 2014.
Renewable-energy lobbyists have warned the proposed changes could undermine pledges Mexico made under the Paris Agreement on climate change, and the bill has garnered more international criticism than any of the president’s previous attempts to give the state greater control over the energy market. U.S. and Canadian business chambers sent a letter to President Joe Biden and Canadian Prime Minister Justin Trudeau ahead of a leaders summit on Thursday with the Mexican president to denounce the reforms.
Getting the bill passed won’t be easy and will require AMLO’s ruling Morena party and legislative allies to win over opposition lawmakers to gain the two-thirds majority needed for approval in both chambers. The measure also requires passage by a majority of state legislatures.
The current congressional session ends in mid-December, leaving lawmakers just a few weeks to hammer out the details of any deal. Federal and state-level legislators are expected to fully vote on the bill by mid-April, according to Ignacio Mier, leader of Morena in the lower house.
CFE’s bonds declined, indicating that investors aren’t expecting the bill to obtain final approval. Political-risk consultancy Eurasia Group gives the measure just a 30% chance of passage in its current form.
Still, officials from the opposition PRI party have told Bloomberg there is a possibility it may succeed after their own leadership said they want to debate the measure and not reject it outright.
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