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ADVERSE SCENARIO FOR CLEAN ENERGIES IN MEXICO?

The 2030 Agenda for Sustainable Development, as we have mentioned, sets out a series of objectives to generate clear, measurable and quantifiable goals for the good of humanity, and in its seventh objective it proposes to move from the use of fossil fuels to “affordable energy and not pollutant”. Thus, it seeks that governments and companies migrate to the use of sustainable energies, understanding this as the energy produced and used with processes of low environmental impact and that will be available for future generations,
This objective is born from the fact that the global economy continues to depend on fossil fuels -petroleum, natural gas and coal- and the increase in greenhouse gas emissions is affecting the climate system. Our country, by adopting the 2030 Agenda, established a series of guidelines to move towards a low carbon economy, including the Transition Strategy to Promote the Use of Cleaner Technologies and Fuels, which establishes that, by 2024 , 35% of the energy used will come from clean sources.
Despite this, Mexico continues to generate most of the energy from the burning of fossil fuels and, although there are adequate legal instruments to achieve a transition to the use of clean energy, they may not be applied. In this sense, recently, the tender for the transmission line that would transport wind energy produced in the Isthmus of Tehuantepec was canceled. Likewise, the tender for the acquisition of clean energy was canceled, under the argument that its objectives and scope would be reviewed. Subsequently, an emerging order was announced by CFE for coal to Coahuila producers for 360 thousand tons. These actions have generated uncertainty and discontent in the private sector, since the implications can go as far as inhibiting future private sector investments in this industry.
The clean energy industry in Mexico has grown exponentially with the energy reform. For example, the generation of solar energy increased by 190% and the wind generation by 60% after the reform. This growth translates into investments that, in 2019, will amount to 6 thousand 600 million dollars.
This change of direction in the energy policy could not only delay compliance with the 2030 agenda and the goals of the energy transition plan, but also generate uncertainty in private investments within the sustainable energy industry. Such is the case of Iberdrola, a wind energy generation company that plans to invest 5 billion dollars over the next six years, but this investment will depend on the certainty of the new energy planning policy, said Enrique Alba, the company’s director.

Do you need advice to know the trends in the energy sector in Mexico? Write to info@riesgospoliticos.com.mx to provide you with the help your company needs.

Photo by Juan Encalada on Unsplash

WHAT DOES IT MEAN TO CANCEL THE ENERGY REFORM?

In 2013, the energy reform took place, which meant the opening of the sector to national and foreign investment, generating competitive markets throughout the hydrocarbons and electricity value chain. Although its main objective was the development of the oil industry – seeking a development in required exploration and extraction infrastructure – it also promoted the generation of clean energy and electric power, promoting development with social responsibility and environmental protection.

The most visible change brought by the Energy Reform was the arrival of more than 50 new brands of gas stations that today compete with PEMEX, among which we can mention Eni , Total, Shell, and DEA Deutsche Erdoel . Likewise, there are more than a hundred companies that try to participate in the different links of the oil chain: exploration, extraction, transport, and logistics. In collaboration with these companies, the first crude oil finds have been obtained in shallow waters of the Gulf of Mexico. And as for the electricity industry, 42 companies are looking to build new plants in 19 entities in the country that, it is estimated, will have a capacity to generate up to 7.6 megawatts  . Likewise, 213 projects focused on clean energies have been contemplated. These include solar, wind, hydroelectric, geothermal and biomass projects. It is expected that by 2024 43% of electricity in the country will come from clean sources.

According to data from the Energy Secretariat (SENER), as of March 2018, the energy reform had triggered public and private investments of more than 200,000 million dollars. If this degree of investment continues, it is expected that in the next 5 years the energy industry in Mexico will demand more than 200,000 jobs specialized in digitization, advances in the use of machinery, equipment and industrial processes, according to Pedro Borda’s data. , former executive president of the Mexican Association in Human Resources Management. In order to meet this demand, Mexico should emphasize that universities provide trained professionals in these areas.

However, with the entry of the new government, the so-called energy reform has been one of the most exposed to facing changes. President Andrés Manuel López Obrador mentioned in recent days that those who promoted the energy reform made an error, which has generated speculation about its future and, although the reform has not been halted, the tenders for the exploration of fields were halted petroleum Also, the federal administration reported that it is reviewing projects for alleged corruption practices. The policies implemented by the current government suggest a possible cancellation of the energy reform, which could have significant consequences because, according to experts, it is difficult for Mexico to continue to have the level of investment that it has maintained without it.

On the other hand, the cancellation of the New Mexico International Airport and the downgrade of PEMEX’s credit rating by Fitch alert investors to the conditions prevailing in Mexico for the private sector. As mentioned by José Enoch Castellanos, next president of the National Chamber of the Transformation Industry (CANCINTRA), Mexico can not afford to turn back the energy reform since there is a latent risk of falling into shortage of gasoline, gas natural, LP gas and even electric power. Thus, Mexico would not have the viability in the short term to provide the demand for energy without the support of private initiative.

Added to this, a plan to rescue PEMEX was announced, which consists of an injection of resources to the oil company for 107 MMDP and a fiscal incentive for 15 MMDP. This plan was considered “insufficient” by banks and rating agencies such as BBVA Bancomer, Citi Banamex, Fitch Ratings and JP Morgan, who concluded that the measures taken by the president will help the company not to increase its debt, but will not It will help to increase the company’s production or to make it efficient or profitable.

Internationally, the picture is complicated since the World Trade Organization pointed out that world trade in goods has been at its lowest level in nine years , representing a slowdown in the global economy;    the  trade war between the USA and China has hit expectations of global economic growth, shaken financial markets and disrupted manufacturing supply chains. Added to this persists, the uncertainty surrounding the departure of the United Kingdom from the European Union; the British economy is the fifth largest in the world and the damage to international finances of the Brexit is still unclear. That is, the economic environment is extremely uncertain in the medium term, which leads us to the question: How can Mexico face this global uncertainty if we block investment in the key sectors for our growth, such as energy?

We are facing a scenario where investment looks weak and the slowdown of the global economy will impact the Mexican economy. In order to face this situation, it is necessary for the government to consider the financial realities of the oil company, the world economic system and the international conditions of the sector. Otherwise, where will the energy companies come from to maintain the industrial sector and encourage investment?

 

Political Risks can help your company is better prepared for legal or regulatory changes that mean the cancellation of structural reforms, write to info@riesgospoliticos.com.mx .

 

Photo by Raul Petri on Unsplash