What’s in store for Mexico’s electric power regulation in 2021?
Next year will be a key one for private investment in Mexico’s power sector and it could prove crucial to determine whether the current administration will have enough political backing to pursue legal changes to the sector.
This year has been a complicated one, as President Andrés Manuel López Obrador’s (AMLO) strategy focused on amending regulation has largely been held in check by court rulings.
AMLO’s administration has thrown its weight behind the stated goal of backing public utility CFE and tackling developments seen as unfair to the company or unsafe for the power grid, including the country’s growing renewables sector and the self-supply power market.
However, most of the major measures pursued by the administration this year have been contested and suspended by federal courts. The administration has made clear that if its current strategy proves unsuccessful, it will attempt to make legal and even constitutional changes to better reflect its policy goals.
In order to roll back significant portions of the 2014 energy reform, which opened up Mexico’s power sector for greater private participation and expanded and strengthened the country’s regulatory apparatus, the president will need a two-thirds majority in both chambers of congress, as well as support in local legislatures.
The mid-term elections in 2021 will prove crucial to allow the president to increase his majority in the lower chamber and enact broader energy policy goals. With growing public approval of almost 60% at the end of November according to various polls, AMLO will need to leverage his support in the legislative elections next July, in which the entire lower house (comprised of 500 seats) will be up for grabs.
In terms of smaller changes, Mexico is likely to come up with new policies that can increase the energy ministry’s control of regulators, as well as reduce the influence of the renewables and self-supply markets.
According to Elié Villeda Orozco, country manager at renewable developer First Solar, the fact that the heads of Mexico’s regulatory bodies and members of bodies such as electric power regulator CRE are appointed by the executive branch has proven detrimental to the country’s regulatory stability.
However, he added, the government’s ability to shape the sector has still been limited by the fact that an increasing number of industrial, commercial and residential consumers demand cleaner energy supply to comply with their own carbon emission goals.
In Mexico, while non-conventional renewable energy is generated by private sector players, state-owned CFE trades mostly in thermal and hydroelectric generation.
“If consumers approach the CFE asking for renewable supply due to their international sustainability commitments to their shareholders, for example, this could help move the market,” Villeda said during a presentation organized by Forbes México.
THE REGULATORY STORY SO FAR
According to a report by Zumma Energy Consulting, 2020 has been a landmark year for regulatory changes and uncertainty in the Mexican electric power sector, driven both by the COVID-19 pandemic and unilateral actions carried out by the federal government.
Among these, the most influential has been the “reliability policy” agreement published in April by grid control center Cenace – which modified dispatch priority for renewable projects and froze their possibility of connecting to the grid.