On Tuesday, Mexico’s Senate passed an electrical energy bill that favors government-owned generating plants that rely predominantly on fossil fuels, forcing solar and private plants to the back of the line for power purchases.
Private business groups and American investors, some of whom backed cleaner gas and renewable power plants in Mexico, have objected to the bill. According to some experts, the measure could be in violation of the US-Mexico-Canada free trade deal.
Some objections do need to be voted on in the Senate, but President Andrés Manuel López Obrador seemed to have the votes to get the bill passed. The bill had already passed the lower house of Congress.
Given López Obrador’s insistence that Mexico become energy self-sufficient after winter storms in Texas cut off supplies of imported natural gas last month, the 68-58 Senate vote was widely anticipated.
Mexico’s efforts to restrict private electricity generation, according to the US Chamber of Commerce, would breach the USMCA trade agreement.
Giving older, more polluting state-owned power plants first preference in electricity purchases, according to the chamber, would “directly contravene Mexico’s commitments” under the trade agreement.
The bill could re-establish a government monopoly, according to Neil Herrington, the chamber’s Senior Vice President of the Americas, who added that “these amendments would dramatically increase the cost of electricity and restrict access to renewable energy for Mexico’s people.”
Herrington wrote, “Unfortunately, this move is the latest in a series of disturbing decisions taken by the Mexican government that have eroded the confidence of foreign investors in the country.”
The Supreme Court of Mexico previously dismissed López Obrador’s effort to block licenses for renewable energy plants, and the electricity bill could end up in court as well.
Interior Secretary Olga Sánchez Cordero said the Supreme court ruling applied only to a 2020 executive order, and suggested the administration would wage a new court battle over the bill passed Tuesday.
The new bill would require that electricity be bought first from state-owned hydroelectric plants and those that burn coal, diesel and fuel oil. It puts cleaner private natural gas, wind and solar plants — many built with foreign investment — last in line for electricity purchases. The private and renewable energy plants were encouraged by López Obrador’s predecessors in order to reduce carbon emissions.
With electricity demand down during the pandemic, Mexico’s state-owned power utility, the Federal Electricity Commission, is facing declining revenue and growing stockpiles of fuel oil it must burn in power plants; the dirty fuel has lost customers all over the world. It’s also been pressed to purchase coal from domestic mines.
López Obrador attempted to shore up the government business by restricting licenses to put online other plants, including some wind and solar projects, many of which are already installed, in an executive order released in 2020. Green-energy subsidies, according to the president, offer certain plants an unfair advantage over the state utility.
However, the Supreme Court ruled that many of the terms of the 2020 executive order will have an adverse effect on the sector’s competitiveness. Some of the rules have previously been put on hold. The government’s own anti-monopoly commission brought the lawsuit.
The country’s relatively costly and unreliable electricity supply has long hampered Mexican industry. A legal overhaul in 2013 allowed private companies, many of them international, to increase their investment in the sector.