Mexican power market rule change illegal: Chamber

Changes to Mexico's electricity regime — pushed through by the energy ministry late on 15 May — are illegal, business council CCE said yesterday.

The regulations "are a flagrant violation of the constitution and laws of Mexico," CCE said.

Mexico's energy ministry (Sener) sought to push through sweeping changes to electricity legislation without public consultation or regulatory impact analysis on 12 May, claiming the Covid-19 pandemic and related changes in electricity demand compromised the reliability and supply of electricity. Federal regulatory commission Conamer — which by law must approved all such changes — blocked those attempts on 12 May, mandating a regulatory impact assessment.

But three days later, Conamer director Cesar Hernandez tweeted his resignation at 6:30pm ET and at 6:45pm ET the agency said it did not have jurisdiction to review the new regulations, clearing the path for their publication in the official gazette.

Hernandez, deputy minister for electricity during the previous administration, did not specify his reasons for resignation.

"Conamer's opinion is legally required and the former director is the person who knows better than anyone else that the changes will damage competition," energy lawyer Luis Miguel Labardini told Argus today.

Power developers are already preparing legal action against the new rules, people with knowledge of those preparations told Argus.

"We are going to defend the national electricity industry but they have the right to take the action they think is fair," President Andres Manuel Lopez Obrador said today.

Since December the government has pushed through a series of regulatory amendments in the power, gas and refined products sectors that have weakened the 2014 energy reform but this latest change "goes much further and clearly contravenes the energy reform," Labardini said. "The constitution would have to be amended to make it legal."

The 2014 energy reform opened the power sector to private sector investment, establishing grid dispatch rules that prioritize access to the cheapest form of energy.

Private sector renewable plants — mainly wind and solar — cost around $20/kWh, compared with state-owned power company CFE's average $120/kWh, Labardini said.

But the regulations pushed through on 15 May change dispatch rules to prioritize reliability, a loosely defined factor that CFE will have a hand in determining.

The rules also seek to impose additional obligations on renewable power generators prior to launching operations, including congestion studies and operative tests, while grid operator Cenace will be allowed to prioritize CFE requests for grid access and power plant launches.

"The intention of these changes is very clear. They seek to return CFE's dominance in the market above the interests of the private sector," Labardini said.

Under the previous presidential administration, Mexico committed to reduce greenhouse gas emissions by 22pc below business-as-usual in 2030 and to generate 35pc of power from clean sources, mainly wind and solar, by 2024.

To meet those targets, the previous administration held three long-term power auctions offering clean energy and clean energy certificates, adding almost 7,000MW of new renewable energy capacity. Some 44 wind and solar plants with a combined capacity of 5,337MW contracted during the power auctions are ready to launch or are under construction.

Lopez Obrador's government criticized the move to increase renewable energy generation within Mexico, saying wind and solar generation threaten the reliability of the grid, requires back-up supply not included in renewable prices and push out CFE.

But until now, Lopez Obrador has repeatedly pledged to respect contracts awarded under the energy reform and had only shut down fresh avenues for private sector investment.

The Canadian and European Union embassies leaked letters to the media last week that called for a meeting with Rocio Nahle about the changes, expressing concern that the regulations would harm committed investments in renewable energy.

The regulations "represent a frontal attack on legal certainty for investments in Mexico, affecting electricity projects worth more than $30bn," CCE said yesterday.

By Rebecca Conan