Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Since the election of President Andrés Manuel Lopez Obrador at
the end of 2018, the renewable energy market in the country has
experienced an uncertain regulatory environment. The current
administration is focused on restoring the power and influence of
Mexico's state-owned energy companies, coming at a crossroads with
the previous administration's goals to open the segment to foreign
investment. The policy decisions the administration has taken this
year has soured private investor sentiment and will likely decrease
utility-scale PV procurement in the country through 2024.
Mexico's former president, Enrique Peña Nieto and his
administration spearheaded a five-year-long process to reform the
country's energy sector in 2013. The reform sought to end the
dominance of state-owned entities and open the doors for private
and foreign investment into the sector. At the end of 2013, the
Mexican Congress approved a Constitutional Reform that allowed
private and foreign investment in the segment for the first time in
75 years.
While the reform did not come without its flaws, it positioned
Mexico as a solid, emerging market for renewable energy. In the
utility-scale PV segment, the country went from having an installed
capacity of 17 MWdc in 2013 to having over 5 GWdc installed at the
end of 2019, accounting for a compound annual growth rate (CAGR
2013-2019) of 126%.
Most of the utility-scale capacity installed historically came
from government-backed energy auctions. The first auction was
launched in 2015 and two additional auctions were launched in 2016
and 2017. The tenders allowed for over 5 GWdc of solar developments
to be procured. The winners for the fourth auction were scheduled
to be announced in February 2019 but on 3 December 2018, mere days
after taking office, the new government of President López Obrador
suspended the fourth energy tender citing reasons of change in
staff and the need to review the objectives and scope of the
auction process. 26 companies had been pre-qualified to
participate. A few months later, on 1 February 2019, the government
officially cancelled the auction. IHS Markit estimated at the time
that the cancellation represented a possible loss of over 1 GW of
PV that could have been awarded.
Despite the cancellation, the corporate and bilateral market is
a promising segment for developers to pursue, as IHS Markit
estimates that there are over 2.9 GW of solar projects that have
been completed and are being installed outside of the auctions.
COVID-19 and the ongoing battle for
renewables
After the cancellation, the government pursued a series of
policy decisions that began to chip away at the renewable energy
sector and clouded it in uncertainty (see timeline of events
below).
One of the decisions that made headlines and saw international
criticism came on 1 May 2020 when the National Energy Control
Center (CENACE), the country's market operator, announced it would
suspend testing and grid connections for renewable energy plants
indefinitely citing that the intermittent nature of renewables
could pose a threat to the reliability of the grid during the era
of COVID-19. The measures became effective starting 3 May 2020 and
a few weeks later the Energy Secretariat (SENER) published the
Policy of Reliability, Security, Continuity and Quality of the
National Electric System (SEN). The policy imposes competition
barriers for renewable energy power plants, citing their inherent
intermittency as the main issue to the grid.
The decision by CENACE and the policy from SENER were swiftly
criticized by industry players such as the Mexican business
council, the Consejo Coordinador Empresarial (CCE), the Federal
Economic Competition Commission (COFECE), PV association ASOLMEX,
the European Union, Canada, and Greenpeace. A month after the
announcements were made, several players were able to obtain
preliminary injunctions and continue to move forward in the
connection tests. In June, the country's Supreme Court upheld a
complaint filed by COFECE and suspended the measures published in
May, although a final ruling is still pending.
Three months after the shock caused by these measures, on 12
August 2020, the Energy Regulatory Commission (CRE) vetoed the
publication in the Official Federal Gazette (DOF) of five
agreements that had been previously discussed and approved. The CRE
announced it would publish modified rulings regarding distributed
generation. Rejecting the publication of these regulations
generates even greater uncertainty and goes against the official
discourse of the federal government and the Commission. Of the
provisions that were rejected, one aimed to allow small generators
to sell energy produced to users and the other gave guidance on the
installation of battery storage for PV plants.
Looking for a counter-reform
At the beginning of September, the administration's political
party, the National Regeneration Movement (MORENA), announced a
legislative plan to create a new energy reform. The party is
looking at the Congressional elections, scheduled for July 2021, to
make changes to the Constitution. If Lopez Obrador's party wins the
majority, it is likely future policy will favor Mexico's oil
company, Petróleos Mexicanos (PEMEX), and state-owned utility,
Comisión Federal de Electricidad (CFE).
President López Obrador's popularity remains high, although it
has been taking a hit due to the country's ongoing recession,
increasing unemployment, and his management of the COVID-19 crisis.
Depending on how the administration continues to tackle these
issues, it is possible MORENA could lose its current majority in
the Lower House of Congress, thus limiting the government's ability
to push forward changes to the energy sector.
In the lead up to the Congressional elections, industry
stakeholders will likely continue to use several platforms to
inform the public about the economic and social benefits of
renewable energy. Moreover, although utility-scale projects have
faced obstacles since the new administration took office,
opportunities are still present in the distributed generation
segment. The DG segment has been recovering after a slowdown at the
beginning of the pandemic. To date, Mexico has installed over 1
GWdc of residential and commercial installations. If regulation
does not change for this segment, IHS Markit expects an additional
1 GWdc to be installed through 2024.
The increased regulatory risks for renewables will likely favor
large developers that have the financial ability to cushion for any
financial shortfalls that could occur in an uncertain market, while
smaller developers are likely to leave or not enter the Mexican
market. It is expected that renewables will continue to face an
uphill battle with the current administration, causing uncertainty
and diverting investors to other countries where policies are more
stable.
Timeline of major decisions
3 December 2018 - The government suspended the
fourth long-term energy auction, one day before bids were due,
citing reasons of change in staff and to review the objectives and
scope of the auction process.
29 January 2019 - Two major transmission line
projects, the Baja California and the Yautepec-Ixtepec transmission
projects are cancelled.
1 February 2019 - Mexico's Secretariat of
Energy (SENER) announced the cancellation of the planned fourth
energy auctions.
28 October 2019 - SENER published a Decree to
modify the criteria to recognize Clean Energy Certificates (CELs).
SENER sought to allow older, clean generation assets to issue
certificate. Changes were rejected, as CELs were designed for new
renewable power to help decarbonization objectives.
24 December 2019 - The CFE drafted a proposal
that seeks to increase transmission costs for independent private
generators.
13 February2020 - CRE
proposed rule changes to the National Commission for Regulatory
Improvement (CONAMER), seeking to preventing legacy projects from
making modifications to their permits.
3 May 2020 - CENACE issued a resolution to
generators on 1 May suspending all pre-operative tests for wind and
solar power plants. The Ministry of Energy (SENER).
10 June 2020 - The CFE announced an increase in
fees to high and medium voltage rates paid by private companies for
the use of transmission and distribution lines (tarifas de
porteo).
12 August 2020 - The CRE rejected the
publication in the Official Journal of the Federation regarding
distributed generation rules, which affects the future of the
segment. The CRE will prepare modifications to DG rules.
7 October 2020 - The CRE approved a resolution
to amend the legal framework for holders of legacy self-supply and
cogeneration permits. The resolution prohibits these permit holders
from modifying expansion plans and adding new off-takers not
originally in the permits. COFECE has pointed out this resolution
reduces incentives to invest in the sector and generates more
uncertainty.
