Mexico’s energy policy returns to the 70s dependence on oil

22/05/2020
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17:21
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Gabriel Moyssen
Mexico’s energy policy returns to the 70s dependence on oil
Lázaro Cárdenas de Minatitlán refinery and Cosoleacaque Petrochemical Complex, located in southern ​​Veracruz - Photo: Luis Monroy/EL UNIVERSAL

Mexico’s energy policy returns to the 70s dependence on oil

22/05/2020
17:21
Gabriel Moyssen
Mexico City
-A +A
Mexico’s energy policy is betting in hydrocarbons as if history had returned to the 1970s years of great discoveries and high oil prices

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Mexico’s energy policy is betting in hydrocarbons as if history had returned to the 1970s years of great discoveries and high oil prices, going against its commitments and promises while  ignoring world trends in the post-pandemic era.

If there were any doubts about President Andrés Manuel López Obrador’s  strategy for this crucial economic sector, those doubts were dispelled with the announcement last week of new restrictions to private investment in renewable sources, favoring state power company Comisión Federal de Electricidad (CFE).

According to the Energy Ministry (Sener), the rules published in the Official Journal of the Federation (DOF) guaranteeing “reliability, security, continuity, and quality in the national electric system” are beneficial because they allow for “effective planning” in a time of demand destruction due to the coronavirus crisis.

Recommended: Mexico made a radical decision regarding electricity

For his part, AMLO stressed that the business community “should be apologizing instead of suing,” alluding to the legal actions that the private sector is undertaking against the measure.

He went on to say that during the past neoliberal governments national and foreign companies received facilities in “abusive contracts” and even irregular contracts, sidelining the CFE as if the state company was not generating clean energy.

The private sector, AMLO remarked, went so far as to sell 50% of the total power consumed in Mexico, plotting to close all CFE and state oil firm Petróleos Mexicanos (Pemex) plants to control its market.

In the process, he added, foreign companies employed senior officials that allowed the privatization of the industry, hiring them later as in the case of Spanish firm IberdrolaMexico’s main electricity generator—and former conservative president Felipe Calderón Hinojosa.

However, Italian firm Enel Green Power obtained judicial protection against the disposition to limit the entry of new renewable energy plants into operation, after the grid operator Centro Nacional de Control de Energía (Cenace) froze operational tests of 17 photovoltaic (solar) and wind plants on April 27.

At least two other companies, including Spanish FV Mexsolar-XI have also won protection against the agreement allowing Cenace to nominate power distribution from plants based on reliability and not cost.

In addition, the “rain of lawsuits” lodged by some 20 more firms managed to turn back on Wednesday the suspension of operational tests, while AMLO declared that his government is not seeking the nationalization of the industry.

Recommended: Mexico’s new renewable energy policies limit the participation of the private sector

Representatives from the Mexican and the international business community, as well as the American Chamber of Commerce of Mexico, called the federal administration to remove the measure affecting 44 projects in 14 states, underscoring that it goes against the rule of law, legal certainty, and free competition.

Ambassadors from the European Union and Canada to Mexico sent letters to Energy Minister Rocío Nahle for their part, signaling their concern that cancelled auctions, permitting delays, and new regulations put at risk nearly USD $7 billion in investments in clean energy projects.

Corruption cases

Beyond the corruption cases and irregularities alleged by AMLO, which could be sanctioned according to law, it is evident that his government is trying to regain market share, although it lacks the funds needed to cope with the growing national electric power demand, estimated at 4.6% per year between 2014-2028.

Moreover, the restrictions are a reflection of the Mexican president’s philosophy, based on nationalism and state control over strategic natural resources, nurtured during his formation as an official of administrations imbued in the import substitution model and industrialization.

Recommended: Mexico is not interested in generating clean energy

It remains to be seen if this policy, heavily reliant on oil exports—successful in the 1930-1975 period—will produce results in the wake of the pandemic, and after AMLO gave priority to the construction of an oil refinery in the state of Tabasco (a plan that Calderón was not able to achieve eight years ago).

In this vein, Nahle made headlines in April, making her peers from the OPEC+ group wait for hours during a series of video conferences to negotiate an end to the oil price war before the United States decided to cut its own production in 250,000 barrels per day (bpd) between May and July, in order to compensate Mexico’s reduction of only 100,000 bpd.

Recommended: The end of the oil war gives hope for the devastated global economy

This month, in an unprecedented move for CFE, the Mexican public energy corporation announced that it will import from the U.S. 250,000 barrels of fuel oilone of the most polluting fuels—for its thermoelectric plant in Tuxpan, Veracruz, despite the fact that Pemex stocks of the same product are full.

The federal government’s lack of interest in clean energy is also evident in the National Hydrocarbons Commission resolve to maintain and approve fracking projects in Veracruz and Puebla, although in his inauguration in 2018 AMLO promised that he would ban this oil and gas extraction technique.

This week, EL UNIVERSAL revealed that the authority of clean energy at Sener has been vacant since AMLO took office, while the authority of renewables was dismantled last year. The ministry is allocating 95.7% of its annual budget to the oil and gas areas, leaving 2.2% for clean energy and renewables.

Mexico’s new electric generation policy accelerates climate change and it is against the national and international commitments adopted by the country towards the reduction of greenhouse gases, blocking renewables,” highlighted Greenpeace Mexico.

The environmentalist organization noted that following the 2014 Paris Agreement, the country enacted laws to generate at least 35% of its electric power from renewables by 2024, yet in light of its current policies “we are able to predict that we are not going to achieve the goal of zero emissions in 2050.”

Jesús Antonio del Río, head of the Renewable Energy Institute at the National Autonomous University of Mexico (UNAM), pointed out that the administration also cancelled the fourth round of electrical energy auctions, curbing development of the sector when the solar and wind sources were registering cheaper prices than the combined cycle plants that use gas.

This short-sighted policy seems to emulate practices in the U.S., where the Trump administration is demanding USD $50 million in retroactive rent payments from 96 solar and wind companies operating on federal lands, the same amount of money that is going to fossil fuel firms in loans due to the historic fall of oil prices in April.

Prior to the COVID-19 pandemic, global renewable energy was growing steadily, yet still not fast enough to meet the Paris Agreement’s carbon reduction goals, let alone to make the further strides needed to keep climate change from spiraling out of control, stated a Yale School of Forestry & Environmental Studies report.

Now, it said, the economic shock is likely to slow the expansion of clean power sources, at least temporarily.

Nonetheless, the underlying strengths of renewables remain strong, and analysts expect their economic advantage over volatile fossil fuels will only increase in the long term.

Governments must seize the opportunity to design economic recovery packages so they accelerate a shift toward wind, solar, and geothermal power, rather than propping up the fossil fuel economy, insisted Francesco La Camera, director-general of the International Renewable Energy Agency.

La Camera’s position is supported by Fatih Birol, executive director of the International Energy Agency, who called for a “Green New Deal” at the heart of stimulus plans, stressing that “the progress this will achieve in transforming countries’ energy infrastructure will not be temporary-it can make a lasting difference to our future.”

Birol observed that “the plunge in demand for nearly all major fuels is staggering, especially for coal, oil, and gas. Only renewables are holding up during the previously unheard of slump in electricity use.” Renewable energy is expected to grow by 5% this year, to make up almost 30% of the world’s shrinking demand for electricity.

As Kingsmill Bond, New Energy strategist for the independent think tank Carbon Tracker summarized, “fossil fuel demand has collapsed and may never surpass the peaks of 2019. By the time the global economy recovers, all the growth may be by renewable energy sources.”

Editing by Sofía Danis
More by Gabriel Moyssen

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