
What Mexico's US$48bn Sonora renewables plan is really all about

While Canada, the US and Mexico announced some climate commitments and green hydrogen plans after the North American Leaders Summit, the latter’s energy policy – which has caused friction under the USMCA free trade agreement – wasn’t directly addressed.
But Mexico also presented the US$48bn Plan Sonora, covering solar and wind power.
Oscar Ocampo, energy head at Mexican competitiveness think tank IMCO, tells BNamericas in this interview why the plan is not what it seems but why it's significant for the US and Canada.
BNamericas: What's your view on the North American Leaders Summit, which yielded some energy announcements, but USMCA consultations regarding Mexico's policies were not discussed?
Ocampo: The consultations were not discussed directly, and US trade representative Katherine Tai did not participate. Mexico took part in the Canadian meeting on foreign trade, but the consultations were not part of the official agenda.
President Joe Biden and Prime Minister Justin Trudeau heavily emphasized the importance their countries assign to the energy transition, to renewable energies, to decarbonization.
Trudeau said, for example, that Canada is producing the lowest carbon footprint steel in the world. He was very emphatic about that. The two pillars of his message were regional integration, competitiveness, and the energy transition and fight against climate change.
There is a message there, and the same applies to Biden's statements. Not many specific agreements were announced, but these statements point in a very clear direction.
BNamericas: How positive is it that the three parties recognize progress is possible in areas such as hydrogen and electric vehicles?
Ocampos: It is positive that the conversation can go on. The great Gordian knot is [Mexico’s] 2021 reform of the electric industry law (LIE), and the three parties have to be creative to find a solution.
Reversing the reform may not be politically viable, because it would carry a high cost for President Andrés Manuel López Obrador, but that is where you have to think about how to frame an agenda that bets on the industries of the future, all of which need clean energy and competitiveness.
Since October, the US could have activated an arbitration panel over LIE, which has not happened and is positive, but we will have to see what happens with the renewed negotiating team, which saw big changes in November. It is still too early to know how this will end.
BNamericas: How does the US$48bn Plan Sonora stack up, announced by Mexico just weeks before the summit?
Ocampo: Plan Sonora aims at investments in solar parks in Sonora state and wind farms in Oaxaca by 2030. It is not clear where the investments will come from. There was talk that financing would come from the US, but details are lacking.
To gauge the scale of this amount, let's remember that last year the energy reform was being discussed, which was rejected by the lower house. At that time, business association CCE estimated that private energy investment from 1992 to 2021 reached some US$44bn, covering all combined cycle plants, solar parks, wind farms. It's a lot.
This serves to measure what is meant by US$48bn. Are 48 solar parks of US$1bn each going to be built? The truth is that it is not clear, and there are no details about the implementation or funding of the plan. The president suggested it could come from [public utility] CFE, borrowing with low-rate bonds.
For now, the implementation of this plan is not credible. In the last four years, there has been no interest in renewable energy or in expanding renewable generation capacity beyond the Puerto Peñasco plant, which entails 1GW by 2028. CFE has not prioritized that.
But private investment has also been stymied. There is a general aversion to competition to CFE. If private activity in generation is forbidden, it is not clear that the government has the financial or operational capacity to carry out this tremendous investment. For comparison, CFE's annual investment budgets tend to be around 45bn pesos, about US$2.4bn. Developing the Sonora Plan in seven years doesn't sound realistic.
To comply with it, diversification and multiplying investment sources would be needed, implying opening the door for the private sector. The Sonora Plan is unlikely to be viable. To meet the energy transition objectives, some 25GW of new renewable capacity needs to be incorporated by 2030, which is very unlikely. If that is the goal of Plan Sonora, it is not on a credible path.
Second is a commitment made by the government in June last year and reinforced at the COP27 in Egypt regarding electric cars, under which 50% of vehicles sold will be zero emissions by 2030. Suppose that the demand for cars does not grow: around 600,000 electric vehicles would have to be sold each year by 2030. In 2021, fewer than 50,000 were sold.
It's a quantum leap and there aren't huge incentives, like in the US, to switch to an electric car. The vehicle ownership tax is subsidized, and that's it. Adding 550,000 electric vehicles, charging stations will be needed and electric power supply must be clean, [otherwise] the pollution would move from my engine to the generation plant.
This must be accompanied by a sufficient expansion of the renewable matrix. It sounds good, but it's not necessarily feasible with things as they stand, and even if the door to private investment starts to open, reaching US$48bn is a very, very tall order.
BNamericas: What's the political thinking behind the plan's announcement?
Ocampo: The plan does not represent a major shift in energy policy, but it is politically important, both domestically and internationally.
Domestically, it sends the message that something is being done regarding the energy transition. It's about responding to the opposition: "You say I'm against renewable energy, but I have Plan Sonora, which is US$48bn investments in clean energy."
And with the US and Canada, it also works in light of the USMCA consultations. It doesn't solve the problem, but it creates some room for negotiation. It does not specifically address the issues that sparked the consultation, but it helps address the general discontent in the US and Canada with Mexican energy policy.
The plan involves US funding. The president has spoken in the past of making solar parks close to the border, with US investment. Although no further details emerged, this says, "I'm not fighting with investors, I'm not fighting with the US, I'm not fighting against renewable energy," even though the plan is very difficult to implement.
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