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    Warnings about the impact of electricity reform


    January 24, 2022 - CE Noticias Financieras

     

      Groups of private energy producers warned about six serious impacts of the electricity reform proposed by the federal Executive, which would complicate meeting clean energy production goals, avoiding cost increases for users and maintaining investment to meet the country's needs.

      Within the framework of the forums on the subject, the Mexican Wind Energy Association and the Mexican Solar Energy Association presented to the Chamber of Deputies an analysis in which they also warn about the stagnation of investments in the country.

      As a first impact of the initiative, it is specified that free competition in generation and supply would be cancelled, as an effect of the proposal to define electricity as a strategic area -consisting of generating, conducting, transforming, distributing and supplying electric energy-, so that the Federal Electricity Commission (CFE) would be the only one responsible for the sector.

      "The CFE would be the sole buyer and seller of electricity," states the analysis delivered to the deputies.

      Secondly, they indicate that if the CFE is solely responsible for the energy transition, the effect will be the cancellation of the mechanisms for the promotion of clean generation, such as the Clean Energy Certificates (CEL) and Long Term Auctions.

      They warn, as a third point, about centralized and discretionary measures in the proposal to eliminate the Energy Regulatory Commission and the National Hydrocarbons Commission, and the incorporation of Cenace to the CFE.

      "The CFE would be a State agency that would unilaterally define the mechanisms of private participation, without any regulatory control," the study indicates.

      As a fourth point, it indicates that the initiative intends the CFE to produce 54 percent of electricity and that the private sector would remain with a 46 percent cap.

      However, it warns, the private sector would be subject to CFE's willingness to participate for up to 46 percent in an undefined market.

      "CFE could maximize its generation without regard to cost or emissions," it states, because such production limits do not indicate any preference for clean energy.

      Fifth, the initiative proposes the cancellation of generation permits, purchase and sale contracts with the private sector, pending applications and clean energy certificates.

      The associations point out that there can be no retroactive application of the reform, as this goes against the provisions of Article 14 of the Constitution.

      Likewise, it is mentioned as a sixth impact that the presidential proposal indicates that the CFE would determine the rates for transmission, distribution and end user networks.

      "This would result in the discretional transfer of inefficient CFE costs to end users", they add.

      DEFICIT IN CLEAN ENERGY

      Citing the U.S. National Renewable Energy Laboratory, the private producers' study considers that the initiative to give priority in the dispatch of energy to the generation of CFE plants would cause increases of up to 52.5 percent in the production costs of the National Electric System, an increase in CO2e emissions of up to 65.2 percent and underutilization of wind and solar plants of up to 90.9 percent.

      It is warned that according to Cenace, between 2017 and 2021, new generation capacity was incorporated, mainly combined cycle (natural gas), wind and solar power plants.

      About 99 percent of solar and wind capacity is private.

      In contrast, CFE reduced its market share because its generation fleet has not been significantly modernized in recent years.

      CFE's power plants are on average more than 30 years old.

      According to the Federal Competition Commission, the slowdown in investment in clean energy, particularly renewable energy, caused mainly by the suspension of the long-term auction mechanism and changes in the regulatory framework and electricity market conditions, means that there is a deficit in clean energy.

      By 2024, this deficit would be in the order of 6,700 megawatts of wind energy or 8,300 megawatts of solar photovoltaic energy.

      "It can be concluded that Mexico will not meet the committed goal of clean generation by 2024," they point out.

      Based on international analysis, the Climate Action Tracker organization concluded that Mexico's climate policies are "highly insufficient" to limit emissions by 2030 and contrary to the Paris Agreement commitments.

      "If all countries followed the vision adopted by Mexico, global temperatures would rise between 3°C and 4°C," it notes.

      Meanwhile, the International Renewable Energy Agency (Irena) highlighted that solar photovoltaic and wind technologies represent the most economical alternatives to accelerate the decarbonization of the global economy.

      ENERGY DRAWBACKS

      Among the issues raised in the presidential initiative and the effects they would have if approved, the study presented to the Chamber of Deputies highlights:

      ELECTRICITY AS A STRATEGIC AREA

      Free competition in the generation and supply of energy would be cancelled.

      CFE RESPONSIBLE FOR THE TRANSITION

      Clean generation promotion mechanisms, such as Clean Energy Certificates and Long-Term Auctions, would be cancelled.

      ELIMINATION OF REGULATORY ENTITIES

      Centralized and discretionary measures would be imposed, since the CFE would unilaterally define the mechanisms for private participation.

      PRODUCTION: CFE 54%, PRIVATE 46%.

      The private sector would be subject to CFE's will to participate in an undefined market.

      CANCELLATION OF PERMITS AND CONTRACTS

      If the reform were to be applied retroactively, it would go against the provisions of Article 14 of the Constitution.

      CFE WOULD DETERMINE RATES

      This would result in the discretional transfer of inefficient costs from the state-owned company to end users.

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