Mexico, Another Blow to Renewable Energy Sector

On 28 May Mexico’s Comisión Reguladora de Energía (CRE), the national electricity sector regulator, announced that it had approved a proposal for increasing the tariffs that the Comisión Federal de Electricidad (CFE), the state-owned electricity company, charges private renewable energy generators for using its infrastructure to supply electricity to the national grid.
Mexico Renewable Energy Sector

Analysis:

The announcement comes amid an ongoing confrontation between the government led by President Andrés Manuel López Obrador and the private sector over changes to Mexico’s energy policy. The private sector complains that the policy changes restrict the expansion of renewable energy production in Mexico, to the detriment of the country’s sustainable development; and that they could deter private investment in the country. But the government appears determined to implement its policies regardless of these warnings.

  • López Obrador says that the aim of the new policy is to shore up the financially troubled CFE and make sure it remains the dominant player in Mexico’s electricity market. According to López Obrador, this is the only way to ensure that the market is not exploited by private firms and that prices for consumers remain low.
  • Private energy firms argue that the new policy amounts to restoring the monopoly the CFE previously enjoyed over the electricity market, making it more inefficient and resulting in higher electricity prices for consumers. They complain that restricting renewable energy generation just because the CFE is not a major producer (its generation plants mostly run on fossil fuels) undermines attempts to move towards cleaner energy production, which will be beneficial for the country in the long run. Business lobbies have warned that the sudden change of market rules leaves the country open to lawsuits hurting investor confidence.
  • However, yesterday the CRE approved a CFE proposal to increase the tariffs charged to private renewable energy producers to use CFE transmission lines to supply the national grid. The CRE says this will help create fairer market conditions and benefit consumers. The CFE argues that it effectively “subsidises” renewable energy producers, whose production costs are now up to 70% lower than the CFE’s, by allowing them cheap access to its infrastructure.  

Looking Ahead:

Although the CFE is yet to determine its new tariff schedule, energy sector analysts have said that the changes will likely lead to lawsuits for breach of contract by affected private firms.

In brief: JP Morgan issues Mexico warning

* US investment bank JP Morgan has warned that the risk that Mexico could lose its investment grade is increasing, and could materialise in late 2021 or early 2022, resulting in the departure of US$44.3bn worth of investment. A report by the investment bank entitled Mexico: Fallen Angel Risks and Forced Selling Implications, cited as grounds for the growing risk “structurally low growth; the displacement of private investment; the collapse of the energy sector; the disappointing response to the coronavirus (Covid-19) pandemic; and the persistent delay of an exhaustive fiscal reform”.

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