Risks are Rising in Mexico's Power Market

June 15, 2020

CENACE recently announced changes in regulations that will delay the addition of renewable power plants to Mexico's electrical grid. The regulatory change with the most immediate impact is the temporary suspension of commissioning tests for solar and wind plants, which means new plants cannot come online.

Some manufacturers that were depending on these new renewable power plants will have to seek other sources of power. These new rules came as a surprise to many firms because the general policy environment in Mexico was becoming more favorable to renewable energy in early 2020.

Temporary Setback for Renewables

CENACE maintains that these new regulations are a temporary response to the coronavirus crisis and designed to improve the stability of the power grid. However, they did not set an end date for the regulations. It is now reasonable to hope that CENACE will lift the temporary restrictions on solar and wind plants sooner rather than later. Setting a timetable for ending or even reevaluating these regulations would be a step in the right direction.

There is also very little evidence that renewable power plants are responsible for destabilizing the power grid. According to our research, the stability issues with Mexico's electrical grid have more to do with underinvestment in the grid than renewable energy.

Uncertainty Raises Risks for Market Participants

The government of Mexico has typically always honored prior agreements. Up until this point, new restrictions only applied to new projects. For example, the delay of the fourth government-sponsored renewable energy auction did not affect contracts from previous renewable energy auctions. While wind and solar plants already in operation are less directly impacted, projects in progress are in doubt.

The construction of many of these plants began several years ago under the previous administration. Delaying their completion, even temporarily, makes it difficult to service debt and may impede efforts to obtain funding for new power plant construction. Furthermore, existing renewable plants now face additional regulatory hurdles if they want to make changes, such as adding new connections to the grid.

Long-Run Sustainability Depends on Renewables

Freezing the development of sustainable power is not sustainable in the long run, so we must find better solutions. Investing more in Mexico's power grid would improve the stability of the system. It would also fulfill the government’s political objective of strengthening CFE while helping manufacturers. Mexico Energy Partners will continue to work with clients to find solutions during these uncertain times. Contact us today at info@mexicoenergypartners.com. 

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