Mexico aims to boost fuel oil in power generation

Mexico's state-owned power company CFE will — despite previous denials — seek to increase fuel-oil fired generation, according to the energy ministry's 2020-2024 development plan.

The government will seek to "maximize the use of fuel oil and reduce its sulfur content for use in power generation," according to one of the strategic priorities in the planning document published by the federal regulatory commission Conamer yesterday.

President Andrés Manuel López Obrador's government has criticized Mexico's former strategy to transition away from more polluting and expensive fuel oil and diesel-powered electricity generation in favor of natural gas and renewable energy, suggesting Mexico should make use of its existing fuel oil plants.

But despite the cancellation of renewable power auctions and the recent publication of regulations that restrict grid access for renewable power, CFE maintained the government is not seeking to increase fuel oil power generation.

CFE uses fuel oil in 3.2pc of power generation, compared with gas at 37pc of total installed capacity of 70GW, according to information from CFE and the energy ministry.

Many of the country's fuel-oil powered plants were scheduled for decommissioning by the previous administration but the energy ministry is now looking to modify those plants "with the application of technology that will reduce emissions and sulfur content at prices that are reasonable for Pemex and CFE," according to the plan.

The plan specifically links the strategy to state-owned Pemex which — following International Maritime Organization (IMO) rule changes in January that ban the use of fuel oil with more than 0.5pc sulphur — is looking to offload large amounts of fuel oil in a market with few buyers.

The plan also lays out a series of proposals to strengthen CFE and Pemex's positions within their respective markets, despite the 2014 energy reform's premise of free competition.

Lopez Obrador has pledged not to roll back the 2014 energy reform that dismantled CFE and Pemex's duopoly but the planning document is the government's boldest policy expression yet, with an explicit strategy to strengthen CFE and Pemex' position by giving them "leadership" within their respective markets.

Other broad aims mentioned include "modification of the rules of the power retail market to reflect CFE's operational costs," and "correction of the authorization of power generation permits that are contrary to the objectives of national energy policy."

Investor confidence within the energy sector has taken a knock over the last six months as the government has sought to impose a series of regulatory amendments that unwind provisions of the 2014 energy reform, affecting projects that have already been contracted.

By Rebecca Conan