Mexico to stay the course on cleaner generation: CFE

Mexico's state-owned power company CFE denied a move towards greater coal use, confirming its commitment to natural gas and renewable energy.

'It is completely false that we are going to increase coal use. We want to prioritize natural gas and renewable energy," CFE director Manuel Bartlett said this morning.

President Andres Manuel Lopez Obrador sees coal as a way to increase power generation in the short-term and has pledged to build a new coal-fired power plant. Lopez Obrador has also criticized Mexico's dependence on natural gas imports from the US and cancelled the long-term power auctions that CFE previously used to purchase renewable energy.

But the recent tender for 360,000t of coal from Coahuila state producers does not represent an increase in coal use, but merely feed stock for existing power plants, Bartlett said.

Mexico has three coal-fired power plants that generate 10 Twh/year of electricity and consume 17.3mn t/year of coal, Carlos Morales, CFE operations director said today.

But coal-fired generation represents just 7pc of total installed power generating capacity, compared with 60pc for natural gas-fired generation.

Mexico will continue to focus on gas-fired generation, said Miguel Santiago Reyes, head of CFE's fuel import division CFEnergia.

Mexico imports over half of its natural gas needs from the US as domestic production levels declined following the 2014 energy reform and cheaper imports were favored. Pemex produced 4.9 Bcf/d in February compared with 6.6 Bcf/d in February 2014.

"Our hope is that all the pipelines will start working and, while we are reviewing the transport contracts, it is with a view to strengthening the use of natural gas in Mexico," Reyes said.

The previous administration tendered the construction of 25 new gas pipelines that were designed to add 6.2 Bcf/d in import capacity to the network, but a handful remain mired in local opposition, unable to start operations. CFE is required to make fixed capacity payments despite not receiving any natural gas, a situation that Lopez Obrador has roundly criticized.

Bartlett said CFE was attempting to renegotiate the contracts, "for the good of the country," and would not rule out their cancellation in the event of a failure to agree new terms.

US pipeline imports into Mexico were around 4.5 Bcf/d in December, compared with around 2.1 Bcf/d in December 2014, according to the latest information from the US Energy Information Administration (EIA).

As CFE attempts to take more control over the natural gas transport contracts it is also seeking to recover its role in power generation.

"CFE's purpose is to generate electricity, not to buy it," Bartlett said today.

CFE was responsible for just over half the nearly 330,000GWh generated domestically at the end of 2017, the most recent data show, compared with 60pc of the roughly 290,000Wh produced in 2011.

In order to increase generation, CFE is rolling back the previous separation of generation subsidies, re-centralizing them in order to improve efficiency and economies of scale, Morales said.

The amendment to the previous regulation was carried out without public consultation as is normally required.

The desire to generate electricity rather than buy it from IPPs is one of the main motivations for cancellation of the long-term power auctions that were designed in order to meet Mexico's target of generating 35pc of electricity from "clean" sources, mainly wind and solar, by 2023, said Bartlett.

While the government professes to be in favor of clean energy, Bartlett remains unconvinced about the economics.

"Wind and solar power are very expensive. It is not true that they are cheap. We have the right to complain because we do not want to subsidize our opponents," Bartlett said.

The cost of balancing the grid due to the intermittent nature of renewable energy and the low transmission tariffs paid by renewable power generators are costs absorbed by CFE and so the renewable energy generators are not competing on an even field, Bartlett said.