December 14, 2015

Mexico Completes Energy Reform with Passage of the Energy Transition Law

The law has established a program for Clean Energy Certificates and favors distributed generation. The goal of 35% clean energy by 2024 has been re-established, and businesses will have a 50% requirement by 2020. The bill is pending ratification in the Senate.

The law is the final program in Mexico's sweeping energy reform

On Wednesday, Mexico's Chamber of Deputies approved the Energy Transition Law (LTE) which contains goals and mechanisms for the incorporation of renewable energies into the electric grid. The law, which comprises the final phase of Mexican energy reform, will be sent back to the Senate for ratification. The law had previously been stuck in the Senate for more than one year.

The recently approved version of LTE establishes intermediary goals towards obtaining 35% clean energy in the electricity mix by 2024, which Mexican President Enrique Peña Nieto recently committed to at the Climate Summit in Paris. Additionally, the bill sets a 25% target by 2018 and a 30% target by 2021, as well as establishing an annual process for orchestrating the penetration of clean energies.

The objectives of the Prodesen program for the years 2015-2029 call for the incorporation of 60 GW of new capacity to cover the electricity demand for the coming 15 years. According to this roadmap, the new solar capacity to be incorporated to 2029 is only 1.82 GW. The same report estimates that the current installed solar capacity in Mexico is not greater than 56 MW.

The law establishes also the details of the program for Clean Energy Certificates (CEL), which will be provided with the establishment of a public registry. These will be provided as the program begins in 2018 with an initial 5% target.

Nonetheless, the approved regulations allow industry an extension to 50% by the year 2020 of the obligations in front of the CEL when “during the year of applying the obligation, CRE (The Energy Regulatory Commission) determines that that total number of CEL registered do not cover less than 70% of the total amount of obligations for each one of the first two years” or if the price of the CEL in the auctions is greater than 60 investment units (UDIS). However, the president of solar association Asolmex, Héctor Olea, estimates that “a good compromise was reached with the industry”.

There have been difficult disputes in the last few months regarding flexibility in the obligations with respect to the CEL. The National Association of Manufacturing Industries (Canacintra)  has warned earlier this week against the obligation and industrial groups warned that the introduction of LTE would lead to a 20% increase in electricity bills and could potentially cause bankruptcies.

However, the National Solar Energy Association (ANES) minimized possible impacts in a press release: “Assuming that energy costs represented up to 20% of the total cost of manufacturing and that the cost of CEL was equal to 20% of the cost of energy, this is going to increase in increments of 0.2% the total cost of manufacturing and will not make any company un-competitive”.

The law provides support to a Mexican commitment to diversify the future grid. “The main point is to harmonize the clean energy objectives,” states  Héctor Olea of Asolmex. Others were less positive. “This is not quite what I expected” said Iván Michel, a representative of JinkoSolar in Mexico, who previously was responsible for renewable energy under Mexico's Secretary of Energy.

Among the main accomplishments celebrated by the renewable energy sector is keeping natural gas from being included as clean energy, which was a struggle for the associations.

Asolmex estimates that there are 2 GW of PV projects which can be executed in the short term. These could be accomplished by short-term sales of electricity, bilateral contracts or auctions. However, there are another 5 GW of PV that has been approved for construction by CRE whose future is now uncertain.

The solar sector has a positive outlook on the pending ratification of the LTE in the Senate. Additionally, measures to promote distributed generation including tax breaks are expected.

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