Without any legal amendments, but by tying the hands of regulators and by breaching the USMCA trade agreement, the López Obrador administration has put the rules of the Mexican power industry on their head with the intention of strengthening the monopoly of the state-run Federal Electricity Commission (known as CFE).
It has proposed putting the brakes on renewable energy –wind and solar power– through a new policy of electric reliability published by the Energy Ministry, which erroneously looks upon the them, because of their intermittency, as a risk to the safe operation of the power grid.
The favorite option of renewable energy of President López Obrador, and also of CFE Director General, Manuel Bartlett, are hydropower dams. Or at least they were until a few days ago, when the government had to make difficult decisions about who should be flooded first when opening up the gates of dams during heavy rainstorms in Tabasco state.
In an illogical energy policy memorandum dated July 22nd, López Obrador overturned the principle of economic dispatch –the cheapest power should be dispatched first– established in the Power Industry Law, by ordering that CFE’s hydropower stations should generate first, before other kinds of power plants do. He proposed that, without considering costs, hydro plants dispatch first, then other CFE-owned plants –the most expensive power options–, then the wind and solar plants, and finally privately-owned combined-cycle plants –the least expensive options–.
But in Tabasco it was shown that rain is less reliable and can be much more catastrophic than the sun and the wind. The belief in the operational reliability of the hydropower dams was shattered. There had been trust in the National Committee on Large Dams, which is headed by the National Water Commission (Conagua) and the CFE, to operate them using the best technical criteria. In fact, when the flooding began in Tabasco, Bartlett praised the work of that committee.
But when the crisis worsened, López Obrador descredited the committee. Acknowledged experts criticized the lack of action from Conagua. It turned out that Conagua, due to lack of budget, did not have reliable data on the state of the dams. The President proposed a different way of operating them, saying that they would generate electricity permanently in the rainy season. He and Bartlett agreed on having the CFE hydro plants operating around the clock, which would keep private generators out of the electricity market.
Then López Obrador changed course, saying that minimal volumes of wáter would be stored in the Peñitas dam in the wet season, giving priority to civil protection and not to electricity generation. At the end of it all, we perceive that there was no reliability in the way the dams were operated. The President has not been lacking in smart ideas, but what is lacking are the best technical solutions the people of Tabasco deserve.
At the beginning of this government’s six-year term, it cancelled the Ixtepec-Yautepec transmission line project, which would have given greater reliability to the national grid by allowing the power from the wind farms in Oaxaca state to flow out into the center of the country, with their dispatch being complemented by the hydropower dams of Chiapas and Tabasco. Neither that power line nor other major transmission projects –the keys to electric reliability– have moved ahead.
Mexico requires a reliable government which, when it says it will promote private investment in energy, really does so. Investors have demanded reliability in public policies, but, instead of that, they have seen laws and USMCA be violated and legal challenges have proliferated. Now, as a result of an initiative by Greenpeace, a judge has declared void the application of the Energy Ministry’s electric reliability policy.
Mexico requires a model with public and private players that allows for lower costs in power generation and transmission, which would be reflected in lower end-user rates. The Ministry and the CFE reject this and promote CFE monopoly and “autonomy”. But if the CFE were autonomous, it would have to establish its rates in line with its high costs and it would have to stop asking the Finance Ministry for MXN 70 billion pesos annually in electricity subsidies. A reliable government would rectify, conciliate and embrace private power generation.
* David Shields is an energy industry analyst. His e-mail: david.shields@energiaadebate.com A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition.
