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Mexico's CFE could cut discounts to renewable sector

Luis Antonio Rojas/Bloomberg

Mexico's Renewable Power Suppliers Face Risks Under Grid Proposal

- CFE seeks to cancel some contracts and raise transmission fees
- State utility aims to consolidate power in renewable sector

By Amy Stillman / Bloomberg

Petroleumworld 23 12 2019

Mexico's Federal Electricity Commission is proposing to cancel some contracts and eliminate discounts on transmission costs for power generators to use its network, dealing the latest blow to Mexico's budding private renewable energy market.

CFE, as the state utility is known, is seeking to eliminate 50% discounts on transmission costs for so-called legacy permits granting vested rights to projects holding a power permit or an application filed with the Energy Regulatory Commission, or CRE, before the enactment of Mexico's 2014 electricity reforms, according to the draft proposal from the CFE obtained by Bloomberg. It also looks to cancel some self-supply power contracts that allow companies to generate electricity for their own businesses, using mostly solar energy or natural gas. CFE did not immediately respond to a request for comment outside of the normal business week.

A draft proposal seeking to increase transmission costs for private companies and give the CFE preference over private generation when electricity is dispatched into the national grid was first reported by the Financial Times on Saturday. The elimination of incentives for the private sector could significantly hamper investment in renewable energy and raise electricity costs for consumers, the report said.

The government of Andres Manuel Lopez Obrador has sought to dial back reforms from the previous center-right administration and consolidate power in the hands of Mexico's state-owned energy companies CFE and Petroleos Mexicanos .

The CFE proposal addressed to the CRE, the National Energy Control Center known as CENACE, the Energy Ministry and the Finance Ministry identified 80 areas to strengthen the state utility by adjusting regulations and agreements without affecting the law. Of these, 14 “strategic issues” require “immediate attention” including giving CFE more control over tariffs that today are set by the regulator, according to the document. If approved, the measures could affect hundreds of contracts with local and international power generators including Iberdrola SA , Enel SpA and Acciona SA , among others.

On Saturday, Lopez Obrador said that the state utility would take over 70% of the electricity market if private companies didn't invest enough before the end of his administrative in 2024, national newspaper Milenio reported.

Lopez Obrador has been criticized for failing to prioritize the environment when it conflicts with his energy goals. Last month, his government sought to change rules for clean-energy credits , allowing aging hydroelectric dams operated by Mexico's state-owned utility to qualify. But the rule was suspended by a federal judge in December following injunctions from private power companies. Last week, Petroleos Mexicanos was granted a five-year extension on meeting a nationwide requirement to sell ultra-low-sulfur diesel, a move that may worsen air pollution in parts of the country.

Story by Amy Stillman from Bloomberg 12 22 2019


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