Mexico's Push For Government Control Could Lead To Sudden Price Hikes

A push by the Mexican government to strengthen state control over the energy sector by promoting state-owned companies could result in higher electricity prices, BloombergNEF has warned, as it would reduce renewable energy generation.

The Mexican Energy Ministry last year published a policy that required the grid operator of the country to buy electricity from CFE before it buys from private companies, many of which had invested in solar and wind generation capacity. The ministry’s argument was that prioritizing electricity from CFE ensured the reliability of the grid, but Mexico’s antitrust regulator disagreed and took the case to the Supreme Court.

The Supreme Court ruled against the changes proposed in the policy, saying they would prioritize the state utility, CFE, over private companies, and this was unconstitutional. Meanwhile, however, President Andres Manuel Lopez Obrador has sent a bill to the country’s parliament seeking to change the way companies invest in new generation capacity. If the bill becomes a law, the Supreme Court will likely strike it down as well, according to analysts.

According to BloombergNEF, this prioritization of CFE over private companies will harm end-consumers: the state utility’s electricity is more expensive than the output of private companies that generate power from solar and wind installations, and even their thermal power plants are more efficient than CFE’s, according to BloombergNEF’s head of research for Latin America, James Ellis.

“In an economically efficient system, wind and solar would always be dispatched first,” Ellis said, as quoted by Bloomberg. “CFE aren’t developing wind and solar and they have a very old fleet of plants. Even their thermal plants are less efficient then their private counterparts.”

The President, on the other hand, has argued that the bill seeks to keep electricity prices for end consumers low.

If the bill passes and the Supreme Court does not declare it unconstitutional, it will likely lead to an increase in Mexico’s emissions, the BloombergNEF report also said.

By Irina Slav for Oilprice.com

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