Renewables to become roadkill of Mexico's new energy reform

GES installation works in Mexico

February 25 (Renewables Now) - The lower house of the Mexican Congress on Wednesday voted in favour of the bill to change the Electricity Industry Law and give preference to state-owned power utility CFE and its generation plants to the detriment of wind and solar.

The bill will still need to get the approval from the Senate which, like the lower house, is controlled by the Morena party of Mexican president Andres Manuel Lopez Obrador.

Lopez Obrador, a long-time opponent of privately-owned wind and solar and the Electricity Industry Law (or, LIE for its acronym in Spanish) that allowed them to thrive, had his administration make several attempts to block the development of new energies in a bid to strengthen CFE’s operations.

The new bill does just that, first by changing the dispatch order, which will no longer be based on economic merit. The new order goes as follows:

-- hydropower plants, mostly owned by the CFE

-- CFE-owned nuclear, geothermal and thermal power plants

-- privately-owned wind and solar

-- privately-owned combined cycle power plants

Another provision in the bill will allow any clean energy producer to qualify to sell clean energy certificates (CELs), regardless of the plant ownership or the commissioning date. CELs, market instruments introduced in Mexico's 2013-2014 energy reform to support the renewables build, will now be granted to the CFE and its old plants as well, something that the Lopez Obrador government unsuccessfully tried to achieve in 2019.

The CFE will also no longer be required to buy cheap electricity in auctions, which the current government never favoured and now called a “perverse scheme devised with the sole purpose of guaranteeing the profitability of private investments”, adding that prices in the auction-awarded 20-year procurement contracts are not subject to market variations.

The new bill also attacks power generation permits under the self-supply and cogeneration schemes, introduced way back in 1992, and empowers the Energy Regulatory Commission (CRE) to revoke them. Likewise, the government promises to review “the legality and profitability” of power purchase agreements (PPAs) with independent power producers.

The reform proposes that future generation permits be subject to the grid planning criteria of the energy ministry (SENER), effectively putting them at the mercy of this government.

Lawyers and experts in Mexico have already warned that the proposal to change parts of the LIE is unconstitutional and will hurt free competition and create uncertainty for investors.

If the bill gets the Senate approval, the next legal battle to contest it will be held before the Supreme Court, said former CRE commissioner Montserrat Ramiro, according to a report by El Financiero.

The Supreme Court’s failure to declare the bill unconstitutional will likely trigger litigation under the United States–Mexico–Canada Agreement (USMCA), the successor to the NAFTA, Ramiro explained.

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Sladjana has significant experience as a Spain-focused business news reporter and is now diving deeper into the global renewable energy industry. She is the person to seek if you need information about Latin American renewables and the Spanish market.

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