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Mexican and foreign companies continue to capitalize on the country’s renewable resources, many will benefit from the legislative work done by President Enrique Peña Nieto’s government. While all sectors of the energy industry have been re-ordered by the reform measures enacted since 2014, none have received the attention garnered by renewables. Unlike many countries, Mexico has signed its energy targets into law, creating a legal imperative to deliver on promises that world leaders often issue without backing up. As the president himself put it, Mexico is a country that is “becom- ing increasingly competitive and attractive for investment, as a result of a new legal framework that which encourages clean energy production.”
Indeed, it is not all talk. In the four years since the passage of Mexico’s energy reform, solar and wind projects have tak- en center stage at CFE auctions. At the most recent auction, which concluded in October 2016, 1.2 gigawatts in capacity contracts was sold, to be generated from solar, wind, geother- mal, and natural gas combined cycle projects. About 8.9TWh of power was contracted and will be sourced in large part from solar and wind. CENACE (the National Energy Control Center) hoped to contract for 10.6 million MWh in clean energy certificates but sold only 9.3 million, which will come from hydro, geothermal, solar, and wind. The third energy auction is going on now and will conclude in October 2017.
NO SIGN OF SLOWING
The auction results speak to the fact that investment in Mexico’s renewables sector is strong—even at a time when global renewable investment is slowing. In Q1 of 2017, global clean energy investment was down 17 percent compared to the previous year. Yet, spurred by a US$650 million project at Enel’s Villanueva photovoltaic plant, total Mexican invest- ment reached US$2.3 billion for the first quarter of 2017, or 47 times the investment of one year earlier. It seems that the
energy reform has unleashed a dynamo in Mexico’s economy, one that is sure to secure the success of the nation’s energy targets. Best of all, though, it is affordable. The average price for wind- and solar-powered energy at the auction was US$33.47 MWh, a 30 percent reduction from the previous auction in the spring.
After all, as Becquerel Capital’s Morales points out, “Cli- mate change can’t be the only driver behind clean energy; projects need to be profitable and competitive on their own.” He believes that accounting for environmental externalities may be difficult under current economic systems. However, highly detailed regulatory frameworks have been established to reduce ambiguity for clean energy investors, who now receive a leg up on their competitors.
The long-term projects favored by the certificate auction system will only be issued to renewable sources, which gain income during the often turbulent years of construction and plant start-up. Furthermore, the government will allow an accelerated depreciation of 100 percent of investments in equipment and machinery for renewable electricity genera- tion. Finally, “antipollution equipment” is exempted from all tariffs, on both imports and exports.
By incentivizing research and development rather than short-term profiteering, Mexican officials hope to create a robust, innovative renewable energy sector that will not only bring affordable residential supply to its citizens, but reduce the country’s carbon footprint. To achieve this goal, they have created a unique framework to harness the power of market forces, break up the stagnating monopoly of CFE, and catalyze direct investment from all over the world. By legislating climate rhetoric into law, the government has committed fully to the new regime. It is only with a full commitment that goals this ambitious can be attained, and for the time being, things look bright for clean energy in Mexico.
Mexico is just the second country in the world to leg- islate a binding climate tar- get; it may be the only one to do so at a time of major restructuring.
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