The year 2020 has been quite a journey! Over the last twelve months, the global economy has experienced a deep recession, impacting every sector along the way. The energy industry was no exception, where an unprecedented collapse in oil demand reduced costs while renewables continued to grow their shares.
In Mexico, on top of this, clean energy investments saw an important reduction due to the AMLO administration policy priorities.
While the sanitary crisis will continue for a while, it is important to review where we stand today. In Antuko, we have summarized the top ten industry events that set its footprint throughout this year!
1. Decrease in Electricity Demand
The Ministry of Health began the Jornada Nacional de Sana Distancia lockdown plan on March 23rd , and most industrial and commercial activities closed. Electricity demand decreased up to 15% in the most critical days vs 2019 levels! Once the lockdown eased, demand stabilized beyond 2019 levels during Q3 2020. Curious about the COVID-19 impact on PMLs? Please refer to the following blog entry!
2. Oil Crash
The futures for crude oil US benchmark (WTI) went into negative territory for the first time in history on April 20th. This meant, in effect, that producers would pay traders to take oil off their hands. This oil crash was caused by both a demand shock, as oil global demand was cut by 33%, and a supply shock motivated by the geopolitical clash between Russia and Saudi Arabia. Prices have now stabilized (around 40 USD/bbl ) but continue to be 30% lower than in 2019.
3. Regulatory Hurdles for Legacy Projects
These projects, whose regulatory framework is defined by the Public Service Electric Law (LSPEE, per its acronym in Spanish), have been on the spotlight due to their advantages over LIE projects. The current administration has executed the following actions to try and foster competitiveness:
- On February 13th, CRE published a Ruling to modify the Self-supply regulatory framework, via the CONAMER. This initiative sought to modify the terms to request a modification or permit transfer of legacy power generation facilities, hence restricting the addition of new load points or even the extension of existing ones.
- On July 10th, 2020, CFE Intermediación de Contratos Legados published in the DOF the new wheeling charge rates for legacy project Generators. The high and medium tension fees experienced an increase from 0.0023 USD/KWh to 0.01309 USD/KWh and 0.01215 USD/KWh (469% and 528%, respectively), while the low-tension fee increased from 0.0046 USD/KWh a 0.04196 USD/KWh (811%).
- On October 6th, CRE published a resolution in the DOF to modify the guidelines to alter or transfer both electricity supply and generation permits under the legacy contract framework. This prevents any user under the LIE framework to migrate into this scheme.
4. CENACE Ruling & SENER Policy Ruling
While both these publications have been suspended and should not come into effect, they nevertheless generated much controversy and industry stakeholders took legal actions against them.
The Agreement to Guarantee the Efficiency, Quality, Reliability, Continuity and Security of the SEN due to the SARS-CoV2 Pandemic, AKA “the CENACE ruling”, was published on April 29th. Among the actions and strategies to fortify the grid reliability during the contingency period, the following aspects resulted relevant:
- Suspension of pre-operational tests: As of May 3rd, all pre-operational test for wind and solar generation plants in the process of commercial operation were suspended. As such, the power plants that had not begun the required testing processes, would not have the authorization to continue with it.
- Dispatch of must-run units: In order to maintain voltage regulation control, the ISO considered to dispatch must-run  generation assets on certain regions of the SEN.
On the other hand, the Policy of Reliability, Security, Continuity and Quality of the SEN was published in the DOF on May 15th. This policy update considers restrictions and limitations for the entry of new renewable capacity, among other initiatives described above:
- Limitation of New Permits: The Agreement severely limits the entrance of new power plants to the system; particularly from wind and solar technologies.
- Dispatch Security / Grid Reliability: The Agreement states that these concepts take precedence over Economic efficiency in the dispatch model. This means that if economic dispatch results in a situation where Dispatch Security or Grid Reliability are compromised, then units without economic merit will be dispatched and displace other units that cannot provide these services, i.e. there will be curtailment for intermittent renewables.
- New Ancillary Services: The Agreement sets forth a series of new ancillary services meant to compensate back-up vis-á-vis the intermittency of wind and solar. These kinds of services exist in many markets around the world, but they are usually paid by all system users. However, the Agreement states these will be charged to renewable generators, which represents new costs for these assets.
- Capacity Market: The Agreement states that while Capacity from Intermittent (wind & solar) Generators will be used to calculate the Capacity Balance Market, it won’t be recognized to these assets but rather reduced from system requirements.
5. PROSENER, AMLO Memo & the Counter-Reform
Throughout 2020, the AMLO administration has made clear its objective of fortifying the Productive State Enterprises through different publications:
- The 2020-24 Energy Sector Program (PROSENER, per its acronym in Spanish), published on July 8th, presents the priority areas to focus in the coming years. Its content is strongly aligned to the National Development Plan, and its reception was not very positive. In fact, Greenpeace took legal action against it, arguing the policy approach sets its efforts on fossil fuels, deviates public resources to fight climate change and conditions the country’s energy transition and the role of renewable energy sources.
- On July 22nd, a memorandum by AMLO addressed to industry regulators such as CRE and CNH was leaked. This document presents a series of instructions aimed to reinforce the productive state enterprises: PEMEX and CFE. The seventh point caused much controversy for market analysts as its implementation would modify the economic dispatch model followed in the National Electrical System. Read our blog entry to know more about the technical implications of these changes!
- The Energy Reform, established in 2014, opened the generation and commercialization segments for private participation. While its implementation process is still on the works, AMLO considers its objectives are not aligned to the current policy priorities. Under this context, President López Obrador has manifested on multiple occasions the possibility of undergoing a Counter-Reform process.
6. 2020: A tough year for the energy transition
Given the conjuncture between the macroeconomic environment and the national energy policy, the 2020 was not the best year for clean energy investments. According to the latest edition of the Climatescope, a global outlook of the energy transition in emerging markets by BloombergNEF, Mexico fell 27 places in the span of a year. While in 2017 the country headed this list with the eight position, since the change in federal administration Mexico has fallen 43 places.
7. Consolidation of the private front
From the increase in wheeling charge rates, to the publication of relevant Rulings, industry players have taken legal action against the federal government. According to the Coordinator Business Council (CCE, per its acronym in Spanish), the private front has submitted more than 172 injunctions since the attempt to change the parameters for CEL recognition (Read all about it in our article!). While industry chambers such as ASOLMEX and AMDEE maintain its leadership in the matter, novel associations like Renovables X México have emerged as a response toward the regulatory context.
8. AMLO announces PPP Infrastructure projects
With the lack of incentives like the long-term electricity auctions, novel public-private partnership schemes must emerge to cope with the fast-paced energy demand growth. To date, the AMLO administration has announced two infrastructure packages that caught the public attention for their focus on hydrocarbons and total disregard toward renewables. On the power generation segment, these are the main projects:
– CCGT Baja California Sur
– CCGT Tuxpan Phase I
– CCGT González Ortega
– CCGT San Luis Colorado
– CCGT Valladolid
Additionally, CFE announced on its 2021-25 Business Plan, the state utility will explore the possibility of installing 500 MW of renewable assets, as well as the repowering of eight hydropower plants during this period.
While some industry participants see the Mexican investment landscape with much uncertainty, others seek for novel opportunities! During 2020, important transactions have taken place as the 100% acquisition of Zuma Energía by the Hong-Kong based CPIHL. Another good example of this trend is Sempra Energy buy out of IEnova stocks in the Mexican Stock Exchange. While these acquisitions have been of public domain, who knows what can we expect in 2021?
10. Slowdown in regulatory processes
From the lockdown contingency measures, to the staff reductions in governmental bodies, regulatory processes are taking more than usual. For instance, ASOLMEX and AMDEE reported the CENACE Ruling (particularly the suspension of pre-operation tests) jeopardized 28 power plants ready to start commercial operation (3,270 MW), plus 16 projects under construction (2,607 MW). From these, only a 30 MW solar PV plant has reached COD since its publication in late March. Additionally, the Ministry of Energy Social Impact Directorate announced on November that its activities are suspended until January 4th.
We have also listed the ten trends to watch in 2021! Check out our blog entry here.
 Except for the education sector, that remains under a remote scheme until further notice.
 WTI Average Closing Price
 In Mexico, must-run power plants provide essential services to the system and hence, must be dispatched even when they are left out the dispatch curve due to economic efficiency principles. Usually, for reliability purposes, these assets operate under technical minimums and the rest of their generation is integrated based on CENACE dispatch curve merit model.