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This summer, the Mexican Congress is finally expected to approve the secondary legislation tied to Mexico’s energy reform. Prior to the announcement of energy sector reforms, Mexico was characterized by a very closed oil sector regime alongside a rudimentary electricity sector. While most industry observers focus their attention on the oil sector – conceiving Mexico’s energy reform as a means to reverse the steady decline in its oil production and to pursue the development of its domestic shale deposits – a look at the key elements of Mexico’s energy reform also unearths the promotion of sustainability and environmental protection as a main objective:

“The State will promote the environmental protection through sustainability criteria, establishing obligations for participants in the electric power industry to generate with clean energies and reduce polluting emissions.”

At the 37th annual International Association for Energy Economics International Conference – currently taking place in New York – Jose Maria Valenzuela, Director for Energy Sustainability at the Mexican Secretariat of Energy (SENER), addressed his country’s clean energy goals noting that Mexico aims to increase the percentage of renewables in its energy mix from its set baseline year of 2012 from 14 per cent renewables to 25 per cent renewables by 2018, to 35 per cent by 2024 and eventually to 50 per cent renewables by 2050. Interestingly, new renewable energy instruments are currently under discussion in the Mexican Congress.

Mr. Valenzuela made three very important points regarding the prospective expansion of renewables in Mexico. First, Mexico used in its baseline year of 2012, 83 per cent fossil fuels for its electricity generation. Here is noteworthy that this percentage included both a surprisingly high share of heavy fuel oil (18 per cent) and a surprisingly low share of coal (11 per cent). The heavy fuel oil consumption has to be curtailed and ideally replaced with renewable energy because it’s a dirty and expensive way to produce power.

In contrast, clean energy accounted for only 17 per cent of power generation with wind (1 per cent), geothermal (2 per cent) and nuclear energy (3 per cent). The largest clean power contributor was hydro-electric with 11 per cent. Second, given this power generation scenario Mexico relies on hydro for peak demand, which means that it is Mexico’s main flexibility instrument, which, in turn, opens up opportunities for intermittent renewables – especially the integration of wind along Mexico’s eastern coast in the Gulf of Mexico. Lastly, the expansion of renewables can have a swift and substantial impact in terms of reducing carbon emissions from two sources: fugitive emissions from oil production as well as emissions from power generation.

However, the energy reforms are no easy undertaking as evidenced by Mr. Valenzuela’s list of major gaps related to markets in Mexico:

  1. Absence of wholesale energy prices
  2. Absence of ancillary services price reference
  3. Absence of transmission expansion index
  4. Absence of defined competitive renewable energy zones 

Still, this will not cloud the overall positive outlook for the Mexican energy reforms. “We do not need to make the mistakes ourselves, we can learn from other countries,” said Valenzuela.

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