AMLO Government plans crackdown on private electricity market

Renewables companies targeted in a move to consolidate state control

Mexico’s state-owned electricity utility has drawn up plans to curb private participation in the energy market as the nationalist government seeks to consolidate power generation in state hands.

The blueprint, outlined in a presentation seen by the Financial Times, would seek to increase the transmission costs on which companies have based their investment plans, making some projects uneconomic at a stroke, experts say.

It largely targets companies producing electricity from renewable sources. While only about 6 percent of Mexico’s electricity comes from renewables, the cost of green generation is less than half that of gas-fired or other thermal power plants. If approved, the measures would remove investment incentives and “absolutely destroy the [electricity] market,” said one former industry official.

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State electricity company CFE did not respond to a request for comment.

Independent generators that supply electricity to private clients under contracts in place before the energy market was liberalized in 2013 pay the CFE a transmission fee to use its network, set by the regulator. The measures proposed by CFE would affect companies representing about 12 percent of electricity supply, with renewables generators bearing the brunt. That would set a precedent for the CFE changing the rules and meddling in the market.

“The main objective is to strengthen CFE by weakening all features of the market and erasing the independence of [national grid operator] Cenace and [the regulator] CRE . . . regardless of the impact of consumers and costs,” the former official added.

That would include eliminating contracts between generators and private clients, revoking permits and erecting barriers to the integration of renewables, the person said.

President Andrés Manuel López Obrador, a critic of the 2013 reform which enabled private energy companies to compete in power generation, has made energy nationalism a priority since taking office a year ago. Manuel Bartlett, the former minister at the helm of the utility, said this month that boosting state generation was a national security issue and part of his task was to “rescue CFE”, which reported an 81 percent drop in third-quarter profits and has $19bn in debt. 

Not using renewables to generate electricity cheaply for Mexican manufacturers is just letting a golden opportunity go by

Verónica Irastorza, former under-secretary of energy planning

Mr. López Obrador is pursuing similar state-centric policies in the oil industry. 

The measures outlined in the document are the latest attempt to renegotiate rules after a battle this year between the CFE and pipeline constructors over contracts the utility judged too expensive. 

Mr. López Obrador has called on the private sector to invest to help his cash-strapped government revive Mexico’s moribund economy but policy uncertainty has been a drag on business confidence. 

The government last month incensed the private sector by announcing that a scheme designed to promote investment in renewable energy projects would apply to CFE’s existing clean power plants too, thus removing incentives to invest in new green projects. That change could affect some $9bn in investments, the country’s main business lobby, the CCE, said. After legal challenges, the move is on hold and experts said the measures described in the CFE document would, if enacted, trigger further suits. 

The steps outlined in the document would give the CFE a say in how the energy market is run and give it preference over private generation when electricity is dispatched into the national grid.

The business lobby appealed to Rocío Nahle, energy secretary, in a letter earlier this month to “respect the contractual terms on which electricity supply that has already been contracted is based”, especially the transmission fees. 

Under the 2013 reform, Mexico created the National Energy Control Centre, known by its Spanish acronym Cenace, to operate the national electricity market. But under the CFE’s plans, outlined in the document, Cenace would no longer be independent. 

CFE said in the document it wanted to be allowed to work with Cenace to set limits on the amount of renewable energy permitted in the national grid. Mr. Bartlett has long complained that renewables are a risk because they are intermittent — relying on sunshine or wind that is not always available — and that providing a back-up to ensure that electricity supplies are not interrupted is costly for CFE. 

One senior official in the renewables sector dismissed the government’s arguments about intermittence, saying the issue had been “more than overcome in advanced economies. There is no discussion about it”.

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Indeed, curbing private investment would only result in higher generation costs for CFE, he said, calling Mr. Bartlett’s emphasis on national production “a dogmatic obsession”. 

“Not using renewables to generate electricity cheaply for Mexican manufacturers is just letting a golden opportunity go by,” said Verónica Irastorza, a former under-secretary of energy planning. 

Abundant sunshine and wind in various parts of the country make Mexico an ideal location for renewables; Italian power company Enel has built Latin America’s largest solar farm in northern Mexico.

The price of electricity would rise if we used renewable energy: Bartlett

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The director of the Federal Electricity Commission (CFE), currently the largest supplier and producer of electric power in the country and owned by the State, says that the cheap prices of renewable energy are actually a lie.

«Renewable energies are a lie»


At a press conference, Manuel Bartlett, director of the CFE, said that cheap prices for renewable energy are a lie, he says, are subordinated to intermittency and instability: « There is a whole campaign that clean energies are the cheapest and it’s a lie ».

It should be noted that, during the electric auctions, both solar and wind energy were sold at very cheap prices. However, due to their intermittency (dependent on natural factors), the CFE director does not consider them a completely viable option: «The electrical system cannot be suspended when there is no air».

Criticize the distributed generation model


On the other hand, the finance director of the state’s productive company, Antonio Rojas Santiago, launched against solar panels in homes through the distributed generation model. Rojas Santiago said the homes deliver cheap electricity in the morning and demand expensive electricity at night.

“(The) deliver when it is worth 60 cents and ask for it when it is worth up to two pesos,” said the director at a press conference.

The company executive said that the price differential damages the assets of the CFE. He mentioned that the independent generators do not cover the expenses for the support and stability of the transmission and distribution networks or the effects on the electrical transformations. “We can’t live in fiction, we have to discuss it, it transcends us, ” he said.

Likewise, the company’s finance commission criticized the Electric Industry Law, which only allows the discussion of these situations as long as there is an amparo. Therefore, the CFE is discussing with the Energy Regulatory Commission (CRE) and the Ministry of Finance and Public Credit the current rate and subsidy scheme.

Use of renewable energy could raise prices, they say


Finally, Bartlett gave an example of the situation in Germany and Spain and said how their situations are different and not comparable with those in Mexico. The CFE director said they opted for renewable energy because of the lack of fossil resources and in doing so, electricity prices went up, not down. “You have to see the story and be informed, you have to put the issues in their place,” he said to finish.

Source: ft.com, breaking.com.mx

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