Mexico cites virus in slapping down wind, solar power

Source: BY Mark Stevenson, Associated Press • Posted: Tuesday, May 19, 2020

The decree over the weekend has sparked outrage among Mexican and foreign investors who had been allowed to sell their power into the government-operated grid (Energywire, May 18). Industry associations said it will affect 28 solar and wind projects that were ready to go online, and 16 more under construction, with a total of $6.4 billion in investments, much of it from foreign firms.

“This represents a frontal attack on legal security for investments in Mexico, and causes serious consequences for the country, including the loss of jobs and investor confidence,” Mexico’s Business Coordinating Council wrote Sunday. The council cited $30 billion in affected investments, noting that “this does not just discriminate against renewable energy, it also allows authorities to artificially inflate the price of electricity in the country and arbitrarily displace any private sector power generation project.”

It is not the first such tussle for President Andrés Manuel López Obrador, a champion of the state-owned oil industry who dislikes renewables and private-sector energy projects. Since taking office in December 2018, he has canceled planned bidding on private oil exploration and forced private firms to renegotiate gas pipeline contracts.

The new rules published late Friday appear to accomplish several of his goals: to guarantee income for the government’s electrical power provider; boost consumption of government stockpiles of fuel oil; lessen the role of private power generators; and avoid breakdowns in the aging, inadequate power transmission system.

What was striking was that his administration cited the coronavirus pandemic — and the economic shutdowns that accompanied it — to justify the measure.

The government defended the new rules, saying they “will allow the National Electrical System to ensure reliability in the face of a decrease in demand for electrical power due to the pandemic, and due to the fact that renewable energy projects are intermittent and produce oscillation in the electrical system and cause interruptions. Power feeds from these sources will have to be postponed during the pandemic.”

There were reports that several of the companies involved in the sector — many of which are Spanish, Canadian or American — were planning appeals to their embassies, the courts or arbitration panels. However, none of the companies could immediately be contacted to confirm that.

Mexico’s pricey electrical rates had long hampered industry, but big firms thought they had found the magic solution in the early 2000s: They could sustainably source electricity from their own renewable projects, or those of specialized firms, and get both cheaper and greener power.

But Mexico has been slow to build the kind of transmission infrastructure that could move power from the coastal or desert areas where wind and solar projects are to the industrial cities where it is needed. Mexico also has been slow to build supplementary plants for the times when wind or sun power naturally decreases.

But the situation really hit crisis levels when the pandemic caused a huge drop in electricity demand as factories closed. The state-owned Federal Electricity Commission, which operates mainly natural gas- and fuel oil-fired plants, simultaneously saw its income drop while fossil fuel stockpiles grew amid falling world demand and overproduction.

There was nowhere for the fuel oil to go if the state-run plants didn’t burn it, and no money to subsidize the unused power plants. Meanwhile, transmission-system issues threatened to become worse as new projects came online.

“They were clumsy in the way they did this, but there really wasn’t much of a way out,” said Eduardo Prud’homme, a partner in the energy consulting and analysis firm Gadex. “There is certainly an ideological element to this and a clear lack of vision, but the operating problems are real.”