It sounds like a news report out of yet another dystopian novel: Mexico is halting grid connection for new solar and wind power projects. In a world rushing to produce clean energy, Mexico has suddenly stood out like a sore thumb. But, as usual, there's more to the story.
The country's National Energy Control Center, or Cenace, announced it would suspend grid connections of new solar and wind farms until further notice earlier this week. The motivation behind the decision was the intermittency of solar and wind power generation, which, according to the state-owned power market operator, could compromise Mexico's energy security in difficult times.
"The intermittent generation from wind and PV plants affects the reliability of the national electricity system, [impacting] the sufficiency, quality and continuity of power supply," Cenace wrote in a document setting out the rules of the country's electricity market during the Covid-19 lockdown.
Naturally, the move was immediately attacked by the business community as an attempt by the government to interfere with private businesses.
"Without solid technical motivation or fully justified legal basis … Cenace has neglected its legal mandate to safeguard the efficiency of the national electric system and competition in the electricity market, which negatively impacts thousands of consumers in the commercial and industrial sector," business group Consejo Coordinador Empresarial, or CCE, said in a statement. "Like before, the private sector will take the necessary legal measures to preserve the level field and Mexicans' right to a healthy environment," the body added. Related: Could Renewable Spending Solve The Unemployment Crisis In Oil?
According to CCE, the move, which stops pre-connection tests for solar and wind farms explicitly, is the latest push against renewables on the part of the government. Conservative in its approach to the energy industry and protectionist of state-owned utilities, the Andres Manuel Lope Obrador government is, according to the critics, trying to stifle renewables to support state-owned Comision Federal de Electricidad, PV Magazine's Emiliano Bellini and Jorge Zarco wrote.
Mexico's president has made no secret of his attitude to renewable energy, which could be called condescending. In a late March tweet, the Mexican president called wind turbines "fans", saying they didn't produce much energy. He proceeded to reportedly say that the government will stop issuing permits for new wind projects that interfere with the environment and cause "visual pollution". Other reports of the same tweet said Obrador also downplayed the amount of electricity wind farms produce and said the companies that build them were private businesses that needed to be subsidized. In short, one could safely say AMLO is not a fan of… fans.
There is, however, the issue of energy storage. While critics may be right that the decision to halt pre-connection tests for new solar and wind farms, it is a fact that Mexico—and Latin America as a whole—has been slow to build reasonable energy storage capacity, even after it has been identified as crucial for the long-term success of solar and wind power.
Intermittency of power generation is a real problem. Its solution is energy storage. Mexico got its first battery storage facility at the end of 2018, at a car factory. A year later, the first behind-the-meter battery facility that also features frequency regulation capabilities came online in Puebla. Storage is slow in coming.
The potential for renewable energy in Mexico is bright, though. According to an IRENA analysis, the country could generate up to 46 percent of its energy from such sources. Government opposition is a problem, but it is one that courts could help to solve. In fact, according to Fitch, despite the regulatory challenges put in the way of renewables by the AMLO government, they are not unmanageable. Related: Aviation Crisis Could Cause Lasting Damage To Oil Markets
"We are aware that a lot of projects have had delays getting permits to construct new projects in new places, that they're having to pay high fees to get connected to their grid, so that presents a real headwind," the associate director of Latin America infrastructure and project finance at Fitch, Jacquelin D'Angelo said at a recent webinar as quoted by BNAmericas. "Over time, the market will come up with mechanisms to mitigate and to make investors more comfortable with these risks."
This is one way things will develop. Given Mexico's potential for renewable energy and investor appetite for such projects, regulatory challenges would eventually turn into just another part of the landscape, especially if the legal response to unfavorable government measures is successful.
But there is something else, as well. Lopez Obrador has promised a substantial increase in oil production by the end of his term. So far, this has proved challenging for many reasons, including the suspension of new oil tenders as well as the latest oil price crisis, which will likely have lingering effects on the global industry. Yet energy demand in Mexico is rising. At some point, solar and wind may simply become unavoidable.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
- Why Oil Is Critical To U.S. Survival
- Buffet, Bezos And Blackrock Are Betting Big On This $30 Trillion Mega-Trend
- Is This The End Of The LNG Boom?