Analysts expect Mexico to hold steady on renewables despite the temporary suspension of an auction within days of a new president taking office.
“I don’t think they will cancel the auction or significantly re-write the terms of the contracts, but there is a chance the new administration could limit the number of contracts they would look to procure out of the round,” said Manan Parikh, an analyst with Wood Mackenzie Power & Renewables.
The Mexican National Center for Energy Control (Centro Nacional de Control de Energía or CENACE in Spanish) halted Mexico’s fourth long-term energy auction this month, just two days after the country’s 58th president, Andrés Manuel López Obrador, assumed power.
In a press statement, CENACE said the freeze was meant to strengthen the transparency of the process and give public sector entities an opportunity to review the objectives the auction.
Parikh said the move was likely a signal that López Obrador, commonly known by the acronym AMLO, “wanted to leave his mark on the energy reform process from the outset.”
A mid-December auction locking the country into 20-year-long clean energy power purchase agreements and 15-year firm generation capacity contracts wouldn’t have allowed that to happen, Parikh said.
He said the postponement caught developers off guard, but they were also “not completely surprised that this took place.”
The government will be also be reviewing and re-publicizing oil and gas contracts in an effort to bring transparency to the industry, he noted. Energy insiders will be watching closely to see what the newly installed AMLO administration does next.
The leftist president might be expected to push renewables, but he is also committed to growing oil and gas production.
AMLO’s campaign position on renewables was vague, according to Brian Gaylord, senior analyst for Latin America and Southern Europe at Wood Mackenzie.
There was mention of retiring thermal generation in favor of hydro and growing the share of renewables, but nothing specific on targets, said Gaylord.
Mexico’s power and renewables market reforms will remain essentially unchanged, but could face greater scrutiny from the country’s energy secretariat, regulatory commission and CENACE, said Parikh.
Gaylord said he expected most of this oversight effort to fall on the oil and gas industry. This month’s auction was likely to go ahead next year, either at the end of February or the beginning of March, he said. “The auction still needs to happen,” he said.
Nevertheless, there are areas where the renewables industry may have to tread carefully under the new administration.
One concern is that AMLO will want to appease Mexico’s Federal Electricity Commission (Comisión Federal de Electricidad or CFE in Spanish), which could favor a return to pre-auction conditions, said Gaylord.
And wind development in Oaxaca could be complicated by increased consideration of indigenous community rights. In September, a federal judge halted construction of a wind farm in Unión Hidalgo, Oaxaca, on a rights-related issue.
Meanwhile, solar developers worry that attempts to push a distributed generation net metering cap beyond 500 kilowatts will be stymied under the new government.
“Solar has long been engaged in push-pull with CFE to approve two-way meters and interconnections for the smaller projects,” said Parikh. “AMLO’s platform of giving state-run organizations more control could jeopardize the recent progress made in these arenas.”
Mexico’s auction system has been spectacularly successful in reducing energy prices. As Parikh reported in GTM in February, “two years after a major energy reform effort, Mexico’s auctions are bringing in the lowest solar prices in the world.”
Wind has also hit rock-bottom prices, in some cases usurping solar. If AMLO is serious about cutting the cost of energy in Mexico, it is hard to see why he would sideline renewables.
“The market has attracted significant investment internationally and pushed prices low enough to be competitive with conventional sources,” said Parikh. “The worry for the new administration is whether competition is pricing out Mexican interests in the power market.”
Source: Greentech Media
