Mexico’s president is tearing down a system to encourage renewable-power development, dealing another gut punch to efforts to attract private investment to the nation’s energy sector, Kallanish Energy learns.
The government of Andres Manuel Lopez Obrador is changing rules for clean-energy credits, allowing aging hydroelectric dams operated by Mexico’s state-owned utility to qualify. The move, critics say, dilutes the value of credits initially intended for new wind and solar farms.
It’s the latest step by the leftist Lopez Obrador administration creating uncertainty for investors looking to do business in Mexico. In February, the government canceled a power auction expected to draw energy giants including Italy’s Enel SpA and France’s Engie SA, Bloomberg reported.
A blow to private investment
The changes to clean-energy credits are “a blow to prospects for private investment in what had been until recently Latin America’s hottest renewable energy market,” said James Ellis, a Bloomberg New Energy Finance analyst.
Julio Valle, of the Mexican Association of Wind Energy, told Bloomberg allowing old plants operated by Comision Federal de Electricidad (aka, CFE) to qualify for credits could hobble efforts to create competitive markets and promote clean energy. The organization is considering legal action, Valle said.
Mexico’s energy ministry said the change was intended to “set a level playing field by including hydroelectric power.” A spokesman did not respond to a question about whether the move would hurt wind and solar development.
Enel, Engie, Iberdrola could be affected
Companies that could be affected by the change include subsidiaries of Enel, Engie and Spain’s Iberdrola SA, which all earn credits under the program.
Mexico’s clean-energy program awards credits to power plants for every megawatt-hour they produce. They can be sold to big users of electricity that are required by the government to buy a certain amount of renewable power, creating an extra revenue stream for wind and solar farms.
Awarding credits to old hydro plants will flood so many onto the market they’ll be virtually worthless for stimulating development, critics say.
What’s the purpose?
“They were intended only for new projects. So if you’re going to give them retroactively to old projects, what’s really the purpose?” Lisa Viscidi, director of energy, climate change and extractive industries at the Inter-American Dialogue in Washington, told Bloomberg.
It appears that a key reason for the change is that Lopez Obrador wants to use the credits to help bail out the ailing state utility, Viscidi said. While the president has said he wants to reduce Mexico’s dependence on U.S. gas, that’s taking a back seat to helping CFE, she said.
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