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

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The Mexican government has cited the COVID-19 pandemic as a justification for new rules that will reduce the role of renewable energies like solar and wind power , instead benefitting the government’s own aging, fossil-fuel power plants.

The new rules impose a series of limitations for the creation of renewable power stations , and it also limits the permits issued for the creation of wind farms or solar energy projects and bans construction projects in certain areas.

The decree sparked outrage among national and international investors who had been allowed to sell their power into the government-operated sector. Industry associations said it will affect 28 solar and wind projects that were ready to go online, and 16 more under construction, with a total of USD 6.4 billion in investments , much of it from foreign firms.

“This represents a frontal attack on legal security for investments in Mexico and causes serious consequences for the country, including the loss of jobs and investor confidence ,” Mexico’s Business Coordinating Council wrote Sunday. The council cited USD 30 billion in affected investments, noting “this does not just discriminate against renewable energy, it also allows authorities to artificially inflate the price of electricity in the country and arbitrarily displace any private sector power generation project.”

Additionally, Mexican business lobbies like Coparmex and Concamin sain the new rules damage the country’s image and increase uncertainty in the country. According to the Coparmex, the measures violate the obligations acquired by Mexico when it signed international free trade agreements .

The new rules published on May 15 appear to accomplish several of López Obrador’s goals: to guarantee income for the government’s electrical power provider; boost consumption of government stockpiles of fuel oil ; lessen the role of private power generators; and avoid breakdowns in the aging, inadequate power-transmission system.

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The Mexican government defended the new rules, saying they “will allow the National Electrical System to ensure reliability in the face of a decrease in demand for electrical power due to the pandemic, and due to the fact that renewable energy projects are intermittent and produce oscillation in the electrical system and cause interruptions. Power feeds from these sources will have to be postponed during the pandemic.”

There were reports that several of the companies involved in the sector, many of which are Spanish, Canadian or American, were planning appeals to their embassies, the courts or arbitration panels .

Mexico’s pricey electrical rates had long hampered industry, but big firms thought they had found a solution in the early 2000s: They could sustainably source electricity from their own renewable projects, or those of specialized firms, and get both cheaper and greener power.

But Mexico has been slow to build the kind of transmission infrastructure that could move power from the coastal or desert areas where wind and solar projects are, to the industrial cities where it is needed. Mexico also has been slow to build supplementary plants for the times when wind or sun power naturally decreases.

But the situation really hit crisis levels when the COVID-19 pandemic caused a huge drop in electricity demand as factories closed. The state-owned Federal Electricity Commission , which mainly operates natural-gas and fuel-oil fired plants, simultaneously saw its income drop, while fossil fuel stockpiles grew amid falling world demand and overproduction. There was literally nowhere for the fuel oil to go if the state-run plants didn’t burn it, and no money to subsidize the unused power plants. Meanwhile, transmission-system issues threatened to become worse as new projects came in line.

While López Obrador’s administration denied the move would damage foreign investors’ confidence in Mexico, it does deal a major blow to the promise of a competitive, well-regulated, transparent energy market .

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Instead, it appears to put the Federal Electricity Commission, headed by Manuel Bartlett, an old-time politician whose career has been marked by scandal, in the position of the fox in charge of the hen house. The Mexican Federation of Industrial Chambers accused the government of ramming through Friday’s decree.

“This last measure clearly marks a violation of the rule of law by giving extra-legal powers to the federal electricity commission,” the federation wrote in a statement.

The European Union and Canada sent a letter to Rocío Nahle to express their concern regarding the new rules and asked to meet to discuss how the measures will affect investors.

Canadian ambassador Graeme C. Clark said that the new rules “put the operation and continuity of renewable energy projects launched by Canadian companies in Mexico at risk.”The ambassador added that Canadian companies who have invested in Mexico have faced several challenges.

Germany Austria, Belgium, Bulgaria, Denmark, Spain, Finland, France, Greece, Hungary, Ireland, Italy, the Netherlands, Poland, the Czech Republic, Slovakia, Romania, and Sweden are said to be concerned about the new energy rules.

The European countries also consider that the decision made by the Mexican government will have a negative impact on 44 clean energy projects in 18 states.

Days after the new rules were announced, several companies said that if the new measures are not abolished, they will take legal action . President López Obrador said that instead of “suing, they should be apologizing .”The Mexican President said several companies had taken over the energy sector and were conspiring to destroy Pemex and the CFE .

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