Electricity market overhaul to kill geothermal projects in Mexico

Electricity market overhaul to kill geothermal projects in Mexico Avenida de la Reforma, Mexico City, Mexico (source: flickr/ Enrique Dans, creative commons)
Alexander Richter 4 Mar 2021

The electricity market overhaul passed by the Mexican Senate, essentially ends private and foreign investment into geothermal and renewable energy development.

With the electricity sector overhaul planned by the Mexican government under President Andres Manuel Lopez Obrador, the country aims to strengthen the state-owned power company CFE at the expense of private and foreign power companies and developers. We previously reported on plans of that line.

In efforts to address concerns by investors, the President states that it is not the pure purpose to expropriate … but in reality the steps by the new legislation passed by the Senate actually do just that.

The main change of the energy sector overhaul, so La Prensa Latina, is favouring the Federal Electricity Commission (CFE) over private companies, and here particularly foreign-owned generators of renewable energy.

With the previous “cheapest energy” first emphasis, the power-grid operator Cenace will have to prioritize to take power produced from hydroelectric power plants by CFE. This is then followed by nuclear, geothermal, combined cycle and thermoelectric power plants, only then followed by solar and wind power owned by private entities.

The end to private sector investment into Mexico’s energy sector?

The stronger emphasis on private and foreign investors in the energy reform of 2013 is therefore dead and the retroactive review of contracts of the government with IPPs clearly kills trust in the reliability of the Mexican government.

These efforts are seen as a big blow to much needed renewable energy development by private sector players that could help Mexico to fulfil its commitments under the Paris Agreement.

While unclear how it will actually effect the geothermal sector, the emphasis on hydroelectric power and forcing new contracts on private sector players essentially will mean an end to private sector investment in geothermal and renewable energy projects.

The backlash promises strong opposition and legal challenges, as reported by Mexico News Daily.

“Legal experts and trade lawyers have said the bill violates the constitution, the U.S.-Mexico-Canada trade agreement and international trade treaties, and opposition politicians have vowed to pursue legal challenges. Investor unease pushed the peso down 1.4% in morning trading.”

Domo de San Pedro geothermal project, Mexico (source: Grupo Dragon)

Source: La Prensa Latina