A policy watchdog in Mexico this week halted the introduction of a set of regulations aimed at further restricting the participation of private clean energy generators in the country, according to documents seen by S&P Global Platts.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
The regulations were presented by the Energy Secretariat (Sener), the equivalent of the US Department of Energy, as an agreement for "reliability, security, continuity and quality" for the electricity system and tried to make them effective without the proper procedure, the documents show.
The National Commission for Regulatory Improvement (Conamer), an independent government office, halted the proposed regulations at the very last minute, as it determined they would materially affect the market and its participants by affecting their rights, benefits and obligations as well as generating additional costs.
According to Mexican law, when new regulations impact the market in this way, they must undergo an established process that includes a consultation with stakeholders that can last weeks or even months.
Sener tried to make the regulations effective without this process, according to e-mails dated Tuesday between the head of Conamer and Gobernacion, the equivalent of the US Department of State. Gobernacion is responsible for publishing all new regulations, which become official one day after their publication. Sener tried to justify publishing the regulations without consultation Tuesday by arguing that the drop in electricity demand as a result of the coronavirus pandemic had altered the operation of the grid, according to the e-mails.
The measures contradict many of the current laws and are the latest attack by the administration of President Andrés Manuel López Obrador on renewable technology, industry sources told Platts.
Only two weeks ago, grid operator Cenace stopped all new clean-energy power plants from starting operations, citing the pandemic as the reason. The move was criticized by the country's antitrust watchdog, Cofece, but it has no legal redress to stop its implementation.
The measures taken two weeks ago had no time frame, but were instituted for duration of the emergency. Those halted by Conamer this week were permanent, wider ranging and may require modifications to the law, which needs approval from Congress, according to a Mexico-based lawyer who represents clients in the industry.
"That was not an 'agreement', that was public policy for the energy sector," the lawyer said.
Some of the existing power plants in the country, which already operate, might lose their connection to the grid if they are located in an area with congestion and may not be able to get it back, according to an executive with a company that may be affected.
It was not entirely clear if the proposed regulation would indeed undergo the process at Conamer or if Sener would drop it, according to sources.
Conamer did not respond to e-mails seeking comment. Sener did not respond to phone calls or e-mails seeking comment.
The regulations have the clear intention of benefiting state-owned utility CFE, by prioritizing the dispatch of electricity from their plants only, using stability and reliability as the main factor for consideration, the industry executive said, requesting anonymity for fear it would harm the company. That means that CFE's power plants, some of which use coal, diesel and fuel oil, would receive priority dispatching, he said.
Under the current law, CFE dispatches electricity prioritizing those plants with the lowest production costs. The executive said the average price at which CFE acquired electricity from plants using renewable energy during Mexico´s long-term auctions, carried out by the last administration, was around $20/MWh, while CFE's average production costs are above $120MWh.
CFE did not respond Thursday to a request for comment.
"We are seeing very risky changes for investors in energy in Mexico," Carlos Salazar, head of Mexico's most powerful business group told lawmakers Wednesday. Salazar said the sector is being persecuted for its political ties.
Currently, Mexico has a total installed capacity of 6.2 GW of wind and 5.5 GW of solar energy generation, according to the respective trade associations.