The New Renewable Energy Economy in Mexico

The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change (UNFCCC). It is aimed at fighting global warming. The UNFCCC is an international environmental treaty with the goal of achieving “stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent changes in the climate system.”

Under the Protocol, 37 industrialized countries have committed themselves to a reduction of four greenhouse gases (GHG) and two groups of gases produced by them, and all member countries give general commitments. These countries agreed to reduce their collective greenhouse gas emissions by 5.2% from the 1990 level.

CARBON CREDIT, THE BUSINESS OF CLEANING THE AIR

A Carbon credit is the generic term meaning that a value has been assigned to a reduction or offset of greenhouse gas emissions. Carbon credits and markets are key components of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHG’s).

One carbon credit is equal to one ton of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources.

The goal is to allow market mechanisms to drive industrial and commercial processes in the direction of low emissions or less carbon intensive approaches than those used when there is no cost to emitting carbon dioxide and other GHG’s into the atmosphere. Since GHG mitigation projects generate credits, this approach can be used to finance carbon reduction schemes between trading partners and around the world.

There are also many companies that sell carbon credits to commercial and individual customers who are interested in lowering emissions on a voluntary basis.

THE PERSPECTIVE IN MEXICO

From the perspective of the ones who advocate for a better use of renewable energies in Mexico, one of the more relevant aspects of the proposals made from different authorities in this regard.–going from Nobel Prize winner Mario Molina including the different former directors of PEMEX–is the necessity to intensify the efforts made in Mexico to enlarge the exploitation of renewable energies.

These proposals come from, among other things, the fact the technologies used to produce renewable energies have finally matured and they have also reached cost levels that now approach an affordable standard. Diverse initiatives and proposals pose a series of measures that inevitably cross the territories of Mexico’s electric power government monopoly, the Federal Electricity Commission (CFE).

The CFE has been required to carry out certain actions, proceeding from a commitment to goals leading towards a higher generation of electricity with renewable energies, to the purchase of the whole energy produced by the small, independent energy generators. This means that the priorities of the CFE to integrate generation of electricity as part of the nationally interconnected network of plants featuring different variations are a function in their cost of generation. Priority in this plan is given to the ones with the lowest cost.

From this perspective, every effort to give more importance to renewable energies to produce electricity goes through the CFE in Mexico. Also, these initiatives have created a tense environment between those promoting renewable energies and the CFE. It’s important to remember that in Mexico the electrical industry has two factors that exert strong influence: they are the cost of capital and the cost of primary energy (the one converted into electricity).

THE COSTS OF FUEL

During the last few years, the CFE has found a factor of key concern in the cost of the fuel (oil, natural gas and carbon) that are being used in their plants and at the plants of generators that sell electricity.

These costs have risen signifiantly during the last few years. These factors affect the CFE and position the Commission in a posture of defense against the users. This tension is especially being seen in two kinds of users: (a) the industrial sector where the established tariffs lead to the transfer of the fuel cost to the users to make international comparisons where the CFE is not being favored; and (b) the agro and residential sectors, where a large history of subsidies is found and they are never enough in the eyes of many.

THE RESERVE CAPACITY OF WIND GENERATION

It’s a fact that today the CFE has under its disposition much more capacity to generate electricity than is really needed.

Under the perspective of the CFE this over capacity occurs for external issues such as the entrance of self-supply plants to the electrical system.

This fact has to be considered over the short term, especially as a measure of economic growth and along with the demand for electricity. But this should not be a reason to propose a higher participation of renewable energies.

INDEPENDENT ELECTRICITY PRODUCERS

A higher and more signifiant private participation in the sector is found in Mexico. Private companies generate over 30% of the electricity that is being sold to the CFE. This fact has been allowed for by the modifiations made in the Public Sector Electric Energy Law back in 1992.

These modifiations have resulted in tens of electrical centrals that don’t have the CFE logo out in front of their entrances, but may be one of many private or foreign companies.

It has been proven that the CFE is overpaying on the contracts with the independent producers. From this perspective, it’s a cultural and emotional issue that moves many to reject the renewable energies projects because of the fact that these projects are being developed by private companies.

Meanwhile, the changes in the electric sector, not only in Mexico but worldwide, have opened spaces for the development of monopolies and to new ways of generating electricity, and this must be one of the main attributes of modern engineering.

TECHNICAL UNCERTAINTIES

One of the main technical worries of the CFE regarding the production of renewable energies is the fact that these are intermittent. That is why renewable energy requires a larger back-up capacity. This isn’t necessarily correct, because a given system is designed to integrate along with the generation of renewable energies, and this necessitates compensation and backup storage on a smaller scale.

The experts say that the CFE, a company that has created and built many hydroelectric, thermoelectric and hybrid plants, has shown some resistance to renewable energies. Is it because of ignorance of the technologies that there hasn’t been more knowledge in this regard in the institutional portfolio?

CAPACITY OF TRANSMISSION

One of the main discussions about renewable energy is the fact that in most cases, the resources needed to produce renewable energies are not precisely located where the demand is. This takes us to the supposition that for the optimization of the exploitation of new plants what will be needed is a total rethinking for their effective transmission, or there is a need to make additional investments in those plants located outside the potential energy markets.

One of the main examples is “La Ventosa”. This is where the wealth of wind resources has made possible the option of considering the capacity for overall transmission to a higher level than that generated by the CFE, as there may be a potential zone for self-supply surrounding the demand.

COMMUNITY RESISTANCE

The exploitation of renewable energies has been put on the same side of the CFE along with the ones who look for the development of this kind of project. This in part is because the use of big extensions of land requires negotiations with communities and that, for a variety of reasons and tendencies, they may not be interested in having water invade their territories or look at a horizon dominated by towers with blades.

In this way, it is curious to note that these aspects, along with the environmental impacts, have confronted the CFE and the same private development organizations who share a common purpose of leaving the fossil fuels and start using renewable energies.

LEGAL FRAMEWORK

Aside from the economic aspects, the CFE labor force is bound into a legal framework that has established a set of rules that have to be adhered to in order to avoid any risk of being disabled because of working for the Government or even economical fines.

The legal framework obliges the CFE to accomplish the clearance rules that are now being considered as the main barriers to introduction of renewable energies.

THE BUSINESS OF CLEANING THE AIR

The greenhouse gas has accelerated lately the process of global warming. It is estimated that 75% of the emissions of greenhouse gas have been accumulated at the atmosphere of the most industrialized countries during the last 50 years. Mexico contributes with 2% of the greenhouse gas emissions worldwide.

Diverse researchers explain that because of this reason, the global temperatures have been raised 0.6°C during the XX Century. Other effects expected are the increase of global precipitation and extreme climate changes during the years to come.

That’s the reason why as we said at the beginning of this article, the Kyoto Protocol and the United Nations Framework Convention on Climate Change (UNFCCC) were signed to control the stabilization of the concentrations of greenhouse gases in the atmosphere at a level that prevent anthropogenic interferences in the climate system.

One of the mechanism used to reach the objective, is the Clean Development Mechanism, allows industrialized countries to invest in emission reductions wherever it is cheapest globally. The reduction of emissions have to be real, measurable and for the long term.

In Mexico, the projects that apply the most for the Clean Development Mechanism are: forest and agricultural; transport projects; energy projects; waste management; renewable energies and cogeneration of energy.

CONCLUSION

The CFE has to be considered as a monopoly and also with the fact that in any economy, the monopolies don’t compete if they don’t have the incentives to improve.

It is precisely, in light of this fact, that the CFE is demonstrating the intention of becoming a world class company, in good measure, because of the competence of the independent producers and the tough competition among the people who have decided to participate in self-supply.

Mexico requires a reduction in the risks for the high dependence of its economy on oil production. It must also make a commitment to act in a concise manner along with others in the world fight against climate change with a more common sense use of renewable energies.

Also, the participation of Mexico in the Carbon Credit market via the Clean Development Mechanism is very recent. This market is in continuing development. The tendency is to increase yearly the Carbon Credit demand and by the year 2012, the global market is estimated to reach US$100 billion.

The Clean Development Mechanism has the potential to cover half of the necessities of greenhouse gases reduction and the potential of the Carbon Credits is very high, taking the fact that the prices are in continued growth.

Mexico has a great potential to develop Clean Development Mechanism Projects linked to the landfills, which are so attractive because the cost of transaction are being reduced by the existence of approved methodologies, as well as the efficiency in the reduction of greenhouse gas.