Mexico's unusual approach to combating COVID-19: slowing down the shift towards renewable energy
In the midst of the global pandemic and a shrinking economy, Mexico's government is making waves in the energy sector with two newly proposed policies for the management of the electricity grid. These policies, however, have raised concerns and confusion as they seem to go against the global trend of reducing oil production and investing in renewable energy.
Rebecca Bertram takes a closer look at Mexico's government's handling of the pandemic's impact on the energy sector.
President AMLO, who hails from the oil-rich state of Tabasco and has strong personal ties to the oil industry, made a key election promise to reinforce Mexico's energy independence and reverse the trend of declining domestic oil production. However, the new policies appear to prioritise supply security over economic efficiency, with potentially negative consequences for the growth of the renewable energy sector.
One of the policies increases the operational reserves of back-up plants, reducing the need for alternative electricity sources and hindering the integration of renewable energy in the Mexican energy mix. This shift in policy is particularly concerning, as renewables produced the lowest electricity price in Mexico's last auction in 2017, and this change will impact the sector's future growth significantly.
Moreover, the government's determination to increase Pemex's money-losing refining business will likely lead to greater losses in the future, even if global oil prices recover after the pandemic. Financial analysts now refer to Pemex's stocks as junk, and the company has largely remained stuck in its outdated business model. Pemex, Mexico's state-owned energy company, has been in the red for years due to long-term financial and operating problems.
The second policy aims to increase Pemex's focus, further raising questions about the government's commitment to renewable energy. Under current conditions, Mexico's wind energy is likely to reach only half of its hoped-for capacity of 15 gigawatts by 2024.
In a move that further fuels concerns, Mexico is the only country refusing to sign a recent OPEC agreement for cutting global oil production by 10 million barrels a day. An auction for renewable energy permits scheduled for the end of 2018 was cancelled without setting a new date, allegedly due to the corona pandemic, hindering the development of renewables. Inspections necessary to get solar and wind energy parks operating have also been suspended, further delaying the expansion of renewable energy.
Modern electricity infrastructure can now absorb differences in electricity generation, but many policy makers still give too much importance to renewables' intermittency. This approach is causing concern and confusion, as it goes against the trend of reducing oil production and investing in renewables.
The Mexican government attempted to hold consultations with the National Center for Energy Control (CENACE) on these new energy policies before their enactment, but the lack of widespread consultation has added to the confusion and concern surrounding these policies.
As the world grapples with the challenges posed by the pandemic, Mexico's government's actions are causing debate and raising questions about the future of the country's energy sector and its commitment to renewable energy.
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