New clean energy law may bring lower electric costs…really?
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By Nancy J. Gonzalez
The Energy Transition Law - the last piece of the energy reform – establishes goals to incorporate clean energies to the electrical system in Mexico as a way to reduce CO2 emissions. Furthermore, this legislation sanctions companies and institutions that do not embrace these changes and imposes fines from US$41 up to US$296,000 to companies that fail to comply or submit false information.
The Energy Transition Law (LTE) establishes that the Mexican electrical system must produce 25% of its electricity from clean energies by 2018. This percentage will increase gradually to 30% in 2021, 35% in 2024, 45% in 2036, and 60% in 2050.
In the five years, since Mexico introduced national clean energy targets, both installed capacity and renewable generation have increased. The proportion of renewable resources in the energy mix has remained virtually the same. Renewable sources – including hydropower – currently make up less than 14% of Mexico’s total electricity generation.
David Penchyna, president of the Energy Commission, said this legislation opens up the electrical system to all competitors starting in 2016 and forecasted more economic growth due to new investments in this sector.
“The energy sector in Mexico will thrive; as a result, the cost of energy will go down and our country will be more attractive for foreign direct investment,” the senator expressed.
Even though it took the Senate a whole year to approve the Energy Transition Law, the legislators made some minor changes, so now it must go back to the House of Representatives to be ratified.
The proposed changes include some defining semantics. For example, the Mexican Senate changed “renewable energies” to “clean energies” to include natural gas at the request of the steel industry.
According to ProMexico, Mexico has received over US$11 billion in foreign investment in renewable energy in the last decade, most of it destined for the states of Oaxaca and Baja California. Investments have been steadily increasing over that time and more than 80 projects have been approved.
In 2014, companies in Mexico invested US$2.1 billion in renewable energies. This amount is 40% higher than the previous year, according to data from the United Nations Program for the Environment.
The LTE also creates the National Information System for the Energy Transition to register, organize, update, and publish information about sustainable growth.
In addition to the creation of this national information, the Mexican Federal Government will establish obligations for electric generators from fossil sources of clean energy to acquire Clean Energy Certificates (CEL).
Every CEL represents a megawatt hour production through non-polluting sources. The user´s obligations arising from the first years of implementation of the certificates can be postponed four years; therefore, the market could begin the CEL emissions in 2020.
Senator Salvador Vega Casillas said the CELs emissions were delayed because nowadays they are not available.
“This does not mean companies will not pay for their certificates in the future, especially those up to 60 Investment Units (UDIs),” he expressed during the voting process last December.
Furthermore, the LTE allows the Energy Regulatory Commission and the Federal Environmental Protection Agency (Profepa) to inspect and audit the industry to follow the new regulation.
According to the analysis made by the Senate, the LTE has a positive economic impact in Mexico. The forecast is a US$45 billion growth in the Gross Domestic Product (GDP) and the creation of 180,000 jobs in the upcoming years.
Furthermore, the Mexican Federal Government forecasted US$2.5 billion on savings for the CFE by eliminating most of the subsidies.
Mariana Chew Sanchez, renewable energies specialist, said most of the economic benefit will be for foreign companies.
“Most of the companies investing in Mexico are getting non-refundable funding; therefore, the economic impact is very low or inexistent for the Mexican communities,” she expressed. “An example of this is the wind farm on Juchitlan, Oaxaca.”
Researchers at the UNAM recently stated that Mexico has the potential to be 100% powered by solar energy, using data from the country’s meteorological service. They expect the national solar capacity to grow by more than 1,000 Megawatts over the next five years.
The Global Wind Energy Council cites the potential for 12,000 Megawatts of wind farms to be added in the next eight years. Mexico´s geothermal potential is second in the world only to Indonesia, though only a fraction has been tapped for energy generation.
The private sector had mixed opinions about the LTE. While some applauded the legislation but are skeptical about its goals; others consider this legislation will reduce competitiveness.
“The goals of this legislation are ambitious for Mexico, but if energy costs go down many industries will be benefit, especially manufacturing and heavy industries,” expressed Erik Legorreta, president of the Mexican Association of Oil Industry (AMIPE).
He added the fines imposed by this legislation will force companies to reduce fossil fuels and change to renewable energies; as a result, global warming can be reduced.
On the other hand, at least seven business chambers signed a public announcement in which they stated a comprehensive analysis of the LTE must be done.
“A comprehensive debate must be done about this subject to analyze the cost and the impact this legislation will have in the country,” said the display signed by private business organizations including Canacintra, Cancero, Canaintra Nuevo Leon, CCIJ, Camimex, Canaintex and ANIQ.
These business chambers argue the percentages established on the legislation are way up from counties such as China and the U.S. impacting the competitiveness and growth in Mexico.
The public display claims Mexico generates 1% of the global CO2 emissions and this agreement forces to reduce emissions to five kilos per capita, while China generates 26% of the pollution and their commitment is an “unreasonable” 13 kilos per person.
In conclusion, the Mexican Federal Government trusts the LTE goals can be achieved because more renewable energies projects will be in place in the upcoming years.