Investor curiosity in Mexico’s rising renewables market was at an all-time excessive when Andrés Manuel López Obrador got here to energy in December 2018. Lower than midway by the president’s first time period, expectations have hit all-time low, the market is in tatters — and the coronavirus pandemic is making issues worse.
The middle-left nationalist authorities of AMLO, because the president is extensively recognized, has centered on undoing market liberalization measures carried out by the earlier authorities of Enrique Peña Nieto, taking steps at hand energy again to the state-owned utility Comisión Federal de Electricidad (CFE), analysts say.
“The primary driver of this authorities’s power coverage is fortifying the state’s place available in the market,” mentioned Brian Gaylord, principal analyst for Latin America and Southern Europe at Wooden Mackenzie Energy & Renewables. “Inside the electrical energy sector, this implies bolstering state utility CFE.”
The “final finish aim” is undoing Mexico’s 2013 power market reform, which opened the nation’s power sector for personal funding, Gaylord wrote in an e-mail.
AMLO centered on the power sector as quickly as he got here to energy. Inside days of his election victory he canceled the nation’s hotly anticipated fourth clear power public sale.
Mexico’s first three clear power auctions, held in 2016-17, have been seen as an unqualified success, bringing main new photo voltaic and wind builders into the market and delivering stunningly low costs. Among the many winners in these auctions have been European renewables powerhouses like Enel Inexperienced Energy and EDF, American builders like SunPower, and China’s JinkoSolar.
On the time that AMLO canceled the fourth public sale, analysts believed this was only a non permanent measure whereas the brand new administration obtained a really feel for its environment. Later occasions have proved them flawed. Though there have been hints final yr that the public sale may go forward in any case, no date has been set as but.
In June, AMLO accused renewable builders of fraudulent exercise and threatened authorized motion in opposition to them. “We aren’t going to cowl up acts of corruption,” he reportedly mentioned, with out detailing the businesses or quantities concerned.
Analysts imagine Mexico will miss its goal of 35 p.c clear power by 2024.
State strikes to guard CFE’s 54 p.c share of the Mexican electrical energy market have been “utterly self-serving and in complete disregard of environmental affect,” mentioned Gaylord. “AMLO and CFE underneath [CEO] Manuel Bartlett have zero intention of creating a good-faith effort to adjust to Mexico’s long-standing non-fossil gasoline era targets.”
CFE’s solely concrete plans for investing in renewables have been proposed upgrades to present hydroelectric facilitates at a scale that’s “seemingly technically infeasible,” plus “token funding” in geothermal capability, Gaylord mentioned.
In April, Moody’s cited power coverage as one of many elements in downgrading Mexico’s long-term foreign-currency and local-currency issuer rankings to Baa1 from A3. “The dearth of readability over the function personal funding could have within the electrical energy sector additionally poses danger to funding in renewable initiatives and pure gasoline pipelines, because the authorities has but to outline an agenda,” mentioned the company.
COVID-19 impacting Mexican renewables
The issue for renewables goes past an absence of assist for brand new developments. The federal government has tried to chip away at features already made by the renewables sector underneath the earlier administration, typically with measures of doubtful legality.
In late 2019, for instance, state power company Sener signaled a change to the principles for Mexico’s clear power certificates, which had hitherto been an necessary income for impartial energy producers.
The rule change would have meant CFE’s legacy vegetation may acquire the certificates too, “which might have eradicated a major incentive for brand new clear capability within the nation,” Juan Pablo Londono Agudelo, Wooden Mackenzie energy markets analysis analyst, mentioned in an e-mail.
And the coronavirus pandemic has given the administration a brand new excuse to go after renewables, Londono mentioned. Claiming grid reliability issues, it introduced a halt to photo voltaic and wind interconnection exams, curtailment of renewable power and prioritization of hydro and fossil-fuel era.
Elsewhere, the federal government has elevated charges for self-supply initiatives and refused to put money into power transmission infrastructure, together with a deliberate improve that might have allowed wind-rich Oaxaca so as to add as much as three gigawatts of recent era to the grid.
“Total, AMLO’s measures have been regularly including regulatory uncertainty to an already-opaque world context in the course of the coronavirus outbreak, immediately affecting initiatives underneath improvement and in operation,” mentioned Londono.
Regardless of the gloom, Mexico’s huge potential for low-cost renewable energy continues to present market observers motive for long-term optimism. Even now, Baja California South and the Peninsula area provide substantial alternatives for photo voltaic and wind initiatives, Londono mentioned. “These areas face restricted entry to power whereas demand continues to rise.”
That may favor builders seeking to signal power-purchase agreements with massive business and industrial prospects. However in all probability, the market is not going to flip round till someday after AMLO’s time period ends in 2024.