What's behind Mexico's renewables policy apparent U-turn

Mexico's stance towards renewable power is at a crossroads as negotiations with the US and Canada regarding the country's energy policy framework continue.

Over the past two weeks, foreign minister Marcelo Ebrard, head of public utility CFE Manuel Bartlett and President Andrés Manuel López Obrador have said they are pushing for a strong renewables agenda in the northern state of Sonora, where five large solar parks are due to be built. At least one wind farm would also be constructed on the Yucatán peninsula.

The president followed up with the startling comment that the US is expected to finance the projects at "preferential rates" given that they will produce clean energy. This was a reference to Washington’s insistence that Mexico should align with the energy transition and stop hindering foreign investors trying to build renewable power plants. 

It is becoming increasingly clear that CFE and the government expect to award the projects to investors from the US and Canada, although the federal power company would retain ownership.

As Mexico pushes for more ambitious renewable energy targets at the COP27 summit in Sharm el-Sheikh, Egypt, and as local and international observers expect it to miss even its current modest emissions targets, investors wonder how it plans to deliver on such growth if all its policies in the sector so far seem to point in the opposite direction.

"My perception is that Sonora is outside the central-southern section of the country that the president wants to benefit and have control over with the expansion of [state oil giant] Pemex and CFE," Susana Cazorla, a partner at Mexico City consultancy SICEnrgy, told BNamericas. "They are saying they want to add 4GW on top of the 1GW Puerto Peñasco, but there is no transmission ... it’s possible they expect lines to be built towards the north [and into the United States]."

The new batch of projects, including a wind farm in Oaxaca state, could be seen as compensation to US and Canadian companies that led to complaints under the USMCA trade agreement between the three countries. The projects are likely to be awarded directly by CFE without an open bidding process, Cazorla said.

The important point for the government "is that the companies must go into the president's office and strike a deal. This is how he operates, and how he has done it in the past. It’s how he resolved the natural gas pipeline contracts, the complaints over the Zama [oil] field, the ethane spat with Etileno XXI. Everything is done inside an office, where a deal is signed and nobody outside knows the details," she said.

THE EBRARD FACTOR

Another angle to the story is that Ebrard is one of the potential candidates of the ruling Morena Party for the 2024 presidential election to succeed López Obrador. At COP27, Ebrard is pushing for a climate agenda that differs from what the current administration has followed so far, while courting potential international allies.

"Ebrard ... is sending signals, throughout the administration but now with renewed strength, that he is a friend of investors, and is preparing his candidacy from the point of view of the [energy] transition," Cazorla said. "[People in his circle] realize where this is going" internationally, where climate commitments are becoming stronger and clean energy demands by investors and financial institutions are tightening.

Ebrard pledged at COP27 that Mexico would reach 40GW of wind and solar generation capacity by 2030 as part of its commitments to combat climate change. This would mean about 25GW of new capacity, which looks difficult given the market's current trends.