Mexico’s Renewable Power Suppliers Face Risks Under Grid Proposal
(Bloomberg) -- Mexico’s Federal Electricity Commission is proposing to cancel some contracts and eliminate discounts on transmission costs for power generators to use its network, dealing the latest blow to Mexico’s budding private renewable energy market.
CFE, as the state utility is known, is seeking to eliminate 50% discounts on transmission costs for so-called legacy permits granting vested rights to projects holding a power permit or an application filed with the Energy Regulatory Commission, or CRE, before the enactment of Mexico’s 2014 electricity reforms, according to the draft proposal from the CFE obtained by Bloomberg. It also looks to cancel some self-supply power contracts that allow companies to generate electricity for their own businesses, using mostly solar energy or natural gas.
CFE has been subsidizing electricity generation by private companies here, and tariffs established by the CRE are working to its detriment, the utility’s spokesman Luis Bravo said at a press conference on Monday in Mexico City. The CFE is seeking even ground with these companies, said Bravo.
A draft proposal seeking to increase transmission costs for private companies and give the CFE preference over private generation when electricity is dispatched into the national grid was first reported by the Financial Times on Saturday. The elimination of incentives for the private sector could significantly hamper investment in renewable energy and raise electricity costs for consumers, the report said.
The government of Andres Manuel Lopez Obrador has sought to dial back reforms from the previous center-right administration and consolidate power in the hands of Mexico’s state-owned energy companies CFE and Petroleos Mexicanos.
The CFE proposal addressed to the CRE, the National Energy Control Center known as CENACE, the Energy Ministry and the Finance Ministry identified 80 areas to strengthen the state utility by adjusting regulations and agreements without affecting the law. Of these, 14 “strategic issues” require “immediate attention” including giving CFE more control over tariffs that today are set by the regulator, according to the document. If approved, the measures could affect hundreds of contracts with local and international power generators including Iberdrola SA, Enel SpA and Acciona SA, among others.
The self-supply contracts in operation account for $16.23 billion in investments, of which 57% are renewables, noted Julio Valle, deputy director of the Mexican Wind Energy Association, known as AMDEE.
“Clearly, any restriction to projects in operation weakens Mexico,” said Valle. “The government is trying to impose legal changes unilaterally through administrative channels, affecting investments retroactively. This will only hurt the consumers who will end up paying more.”
In addition to the planned cancellation of some permits and restructuring contracts, CFE proposes conducting studies with CENACE to set a limit on the amount of renewable energy allowed on the grid. It also seeks to participate more directly in the market, calling on the Energy Ministry to allow the CFE to “participate with CENACE in the modeling of the national grid system,” including defining new energy projects and investments. CFE did not respond to a request for comment.
On Saturday, Lopez Obrador said that the state utility would take over 70% of the electricity market if private companies didn’t invest enough before the end of his administration in 2024, national newspaper Milenio reported.
Lopez Obrador has been criticized for failing to prioritize the environment when it conflicts with his energy goals. Last month, his government sought to change rules for clean-energy credits, allowing aging hydroelectric dams operated by Mexico’s state-owned utility to qualify. But the rule was suspended by a federal judge in December following injunctions from private power companies. Last week, Petroleos Mexicanos was granted a five-year extension on meeting a nationwide requirement to sell ultra-low-sulfur diesel, a move that may worsen air pollution in parts of the country.
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