January 2, 2015

Mexico’s Energy Reforms Miss a Key Sector: Renewables

On Dec. 20, Mexico will reach its cutoff for the approval of legislation related to President Enrique Pena Nieto’s sweeping energy reforms. Yet while the focus is on Mexico’s oil and gas sector, this deadline is likely to come and go without any serious debate on the future of renewable energy. With its abundance of wind, solar and geothermal resources, the renewables industry should thrive in Mexico. Indeed, many hoped Pena Nieto’s reforms would catalyze it. Instead, Mexico risks missing an opportunity to make good on its commitment to a clean energy future and to tackling and adapting to climate change.

Progress has been made in the year since Mexico passed its historic reforms restructuring the energy sector, opening the industry to private and foreign investment and ending the monopoly of Pemex, the state-owned petroleum company. Most secondary legislation has been passed, new regulatory bodies formed and, on Dec. 11, the government released the contract terms for shallow water bidding as part of its first oil and gas auction. But the same cannot be said for renewable energy. And in a year when ongoing drug-related violence and corruption scandals have exposed the gaps in Pena Nieto’s agenda, lackluster renewable energy initiatives run counter to another image that the Mexican government has worked so hard to build: A champion in the global fight against climate change.

In 2012, Mexico was one of the first nations to pass a climate change law, which promised to reduce carbon emissions by 30 percent by 2020 and 50 percent by 2050. In 2008, the country set national targets to reduce its reliance on fossil fuels. The law aimed to have no more than 65 percent of the nation’s electricity generated by hydrocarbons by 2024, and no more than 50 percent by 2050.

Many of the challenges facing Mexico’s renewables sector predate the current administration, making it unrealistic to assume they could be overcome in a single sexenio, or six-year presidential term. Moreover, Pena Nieto should be commended for the few positive initiatives developed to foster clean energy under the reforms—in particular, the introduction of a clean energy certification scheme, modeled in part on California’s renewable portfolio standards. Under the system, Mexico’s Energy Regulatory Commission will issue a certificate for every megawatt hour generated by clean energy. The idea is to provide a mandate for the power sector to assist the government in reaching its renewable energy targets while incentivizing the private sector to increase the contribution of power generated from renewable sources.

Despite such promise, however, criticism has been harsh from the renewable energy sector. Renewable energy advocates argue that the inclusion of both large-scale hydropower and efficient cogeneration as certifiable “clean” energy undermines the purpose of the law and puts renewable energy at a disadvantage. Efficient cogeneration refers to heat produced by steam as a byproduct of conventional gas-fired generation.

Consider that assessment against the backdrop of a reform agenda already heavily focused on the oil and gas sector, with plans to deliver natural gas across Mexico. Wind and solar generators will likely struggle when faced with the combined effect of doubling cheap natural gas imports from the United States and a more open and competitive private electricity market.

But that’s not the entire picture. Even as Mexico massively expands its pipeline infrastructure, natural gas will not reach every corner of the country. States like Baja California Sur, which relies almost exclusively on expensive diesel and fuel oil to generate electricity and is isolated from the national grid, would welcome solar and wind power at half the cost. Mexico’s two million residents without access to electricity are also a natural market for small-scale solar power.

Moreover, the current scenario is based on natural gas prices hovering under $5 per million metric British thermal units (MMBtu), which cannot be assured in the medium to long term. As the cost of renewables declines, new projects will become more economically viable. Renewable energy, after all, has dominated the self-supply sector and will continue to do so.

The Mexican government has answered critics by framing this debate in terms of reducing emissions, rather than promoting renewable energy. Officials argue that by switching from fuel oil to natural gas, Mexico is getting on track to meet its national emissions reductions targets. Moreover, officials argue, the inclusion of efficient cogeneration is hardly new, and this type of “clean” technology was accounted for in earlier legislation.

Yet Mexico might not be on track to meet any of its goals under the status quo. In the five years since the introduction of the national clean energy targets, renewable generation as a proportion of the electricity mix has remained virtually the same. In 2013, renewables comprised less than 14 percent of Mexico’s total power generation. By some accounts, the country’s renewable sector would need to double every six years in order to reach 35 percent by 2024.

In order to get there, investment in Mexico’s renewable sector must increase. Foreign investment has been steadily climbing, reaching $11 billion in 2013, according to investment body ProMexico, with a reported 80 projects totaling $8.5 billion in the pipeline. But much more is needed.

Investment in new and existing projects must be accompanied by expansion and upgrades in transmission infrastructure. Close to half the transmission lines in Mexico are over 20 years old. A lack of interconnection and infrastructure in resource-rich areas such as Baja California and Baja California Sur only exacerbate the problem.

The benefits of the vaunted energy reforms can still reach Mexico’s renewable sector—if the government acts. If current trends continue, however, wind and solar in particular will struggle to compete with expanding natural gas, and renewable energy gains will be confined to areas with limited gas supplies, where it could supplant diesel and fuel oil, and in the self-supply segment. Expanding renewable energy in this way would help cut carbon emissions, but not enough for Mexico to hit its pledged clean energy targets. To make a serious contribution to tackling climate change, Pena Nieto must employ both his current energy reforms and future legislation to develop the renewable sector across Mexico and confirm its role in a viable, alternative energy future.

No comments:

Post a Comment