How Green are energy reforms in Mexico?

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Adrián Martínez Espitia
Energy and Sustainability Services, Latin America

In 1962, Thomas Khun established “The Structure of Scientific Revolutions” about the occurrence of models substitution, where new models simply become better than previous ones.

During recent years Mexico has been approving law reforms that foster another type of investment and take advantage of other types of resources that had not been previously explored. In 2008, Mexico took an important step by issuing the “Law for the Exploitation of Renewable Energy and the Energy Transition Financing”. Since then, Mexico has been intensively approving reforms that have created attractive business opportunities for companies. In 2012 the General Law for Climate Change was also published, and contemplates a Greenhouse Gas Reduction by 20% for 2020 and by 50% for 2050 in relation to the baseline. These two laws have also set another goal in order to generate 35% of electricity from clean energy sources for 2024. However, Mexico’s sources of non-fossil fuels represent about 17% of electricity consumption (mostly hydro). Therefore, the question remains, how would the renewable energy portfolio duplicate in just 10 years?

Historically, the energy sector in Mexico has been controlled by government companies for both extraction, refinery and sale of fossil fuels as well as generation, distribution and sale of electricity. The first has been monopolized for almost 80 years by (PEMEX), they were the only ones allowed to extract, process, distribute and sail of oil and gas. The electricity sector and its company (CFE) had also controlled generation, distribution and sail since 1933, nevertheless, some changes have occurred in last years.

In December 2013, Mexican government made a historic important step by approving an Energy Reform. This reform consists in the allowance of private investment for the exploitation of oil and gas as well as for electricity generation. During June 2014, the bylaws will be reviewed in the Mexican Congress. These bylaws in the weeks ahead will certainly cause an energy revolution and change the market competition. Regarding hydrocarbons, new investments are pointing mainly toward the extraction of oil in deep oceans and shale gas in several rich areas, especially, in the North of Mexico.

The bylaws are also contemplating the creation of an electricity generation market, where the State shall not lose power of the control of the national electric system and the exclusiveness of transmission and distribution of electrical energy as an important public service. With this, CFE and private companies under government supervision, shall boost the national electric system that therefore, would decrease electric tariffs. The property of generation plans and the transmission and distribution networks will remain owned by CFE.

The new electricity market will also implement The Clean Energy Certificates (CELs) that seek to promote a better electricity generation from clean energy that would, in most cases, be related to renewable energies.

But, how will it work? The Government will establish a yearly minimal electricity generation from clean sources, which shall be covered by either generators or distributors. If generators or distributors cannot cover it, they must buy the number of Certificates that help to comply with such obligation. If they don’t comply, either generator or distributor will have to pay a significant fine to authorities that would represent the Certificates maximum price.

Renewable energy plants can obtain more resources by selling two goods:

  1. The electricity that they generate and sell to the grid, or to any other consumer out of the electric grid.
  2. The Certificates that represent environmental rights and its benefits, materialized in commercial credits.

Going back to the title of this article, we could conclude that Energy Reforms contemplate the exploitation of fossil fuels in a massive scale, and will certainly pollute more and not be green. However, established and ambitious goals have been set and Mexico became the first developing country to issue a Climate Change Law that will bring cleaner energy. In addition, CELs in Mexico will make clean technologies financially attractive and will marginally penalize pollutant generation plants.

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