Mexico’s curious clean-energy credit use deters renewable energy development

Justin Villamil November 18, 2019

MEXICO CITY (Bloomberg) - Mexico’s president is upending a system to encourage renewable-power development, dealing another blow to efforts to attract private investment to the nation’s energy sector.

The government of Andres Manuel Lopez Obrador is changing rules for clean-energy credits, allowing aging hydroelectric dams operated by Mexico’s state-owned utility to qualify. The move, critics say, dilutes the value of credits initially intended for new wind and solar farms.

It’s the latest step by the leftist Lopez Obrador administration creating uncertainty for investors pushing to do business in Mexico. In February, the government canceled a power auction expected to draw energy titans including Italy’s Enel SpA and France’s Engie SA. And for months, the administration locked horns with billionaire Carlos Slim’s company over natural gas pipelines.

The changes to clean-energy credits are “a blow to prospects for private investment in what had been until recently Latin America’s hottest renewable energy market,” said James Ellis, a Bloomberg New Energy Finance analyst.

Julio Valle, of the Mexican Association of Wind Energy, said allowing old plants operated by Comision Federal de Electricidad, known as CFE, to qualify for credits could hobble efforts to create competitive markets and promote clean energy. The organization is considering legal action, Valle said.

In a statement, Mexico’s energy ministry said the change was intended to “set a level playing field by including hydroelectric power.” A spokesman did not respond to a question about whether the move would hurt wind and solar development.

Companies that could be affected by the change include subsidiaries of Enel, Engie and Spain’s Iberdrola SA, which all earn credits under the program.

Mexico’s clean-energy program awards credits to power plants for every megawatt-hour they produce. They can be sold to big users of electricity that are required by the government to buy a certain amount of renewable power, creating an extra revenue stream for wind and solar farms.

Awarding credits to old hydro plants will flood so many onto the market that they’ll be virtually worthless for stimulating development, critics say.

“They were intended only for new projects. So if you’re going to give them retroactively to old projects, what’s really the purpose?” said Lisa Viscidi, director of energy, climate change and extractive industries at the Inter-American Dialogue in Washington.

It appears that a key reason for the change is that Lopez Obrador wants to use the credits to help bail out the ailing state utility, Viscidi said. While the president has said he wants to reduce Mexico’s dependence on U.S. gas, that’s taking a back seat to propping up CFE, she said.

“There’s been a creeping rollback of the part of the energy reform that favored renewables,” Viscidi said. “Little by little, it’s been undermining the renewables sector.”

Connect with World Oil
Connect with World Oil, the upstream industry's most trusted source of forecast data, industry trends, and insights into operational and technological advances.