Judge halts Mexico regulation against renewable energy, but wrangle continues

Private renewable energy generators in Mexico have scored an important victory in their defense against the government, as a federal judge permanently blocked a new set of regulations against the industry.

The permanent suspension, issued June 11, allows wind and solar energy generators in the country to operate normally until the bottom of the matter is resolved, which can take years, sources told S&P Global Platts. However, the dispute is far from over as the ultimate goal of the government is to undo the reforms put in place by the previous administration, sources said.

The judge, specializing in anti-trust issues, ordered that a set of rules and instructions issued by the Energy Secretariat, or SENER, in May be suspended for all market participants affected.

These rules benefited state utility CFE by ordering the grid operator to prioritize the dispatch of electricity from CFE plants instead of that produced by wind or solar generators using the argument CFE plants are more "reliable." SENER argued the intermittence of the electricity generated by wind and solar power plants destabilized the operation of the grid and ordered they be dispatched second, which goes against current regulation. SENER also argued the drop in demand caused by the effects of the coronavirus pandemic exacerbated the impact.

The June 11 suspension adds to the industry´s defense against measures they consider an attack, which started soon after the president took office in December 2018.

But the government´s attack seems far from over. The Lopez-Obrador dministration's conviction is that bad planning by the previous administration led to a disordered opening of the market. This opening was made with laws that granted private players "unfair" benefits that the state utility CFE subsidizes and which have led to unbalances in the system and losses for CFE.

As the government seeks to curb these unfair laws, sources fear more below-the-belt-punches are still to come. Most sources told Platts they anticipate the government will try to use its majority in both houses of Congress to make even deeper more permanent changes at a constitutional level.

This week, a senator from the ruling Morena Party proposed to change the constitution to merge three independent regulators, including one of the three that oversee the energy market in the country, a move that seemed to confirm these fears.

"There are no coincidences in politics," a lawyer in Mexico said, implying the move by the lawmaker was in line with the plans of the federal government. "We will continue to see more of this," the lawyer said.