The Teething Problems Of Mexico’s Energy Transition

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By Agustin Llamas, EVE

San Miguel de Allende, Mexico  —  Picture: Jezael Melgoza

In 2013, the Mexican government embarked on a series of institutional reforms, ending a decade-long political gridlock to enhance economic growth and competitiveness. The government targeted the energy sector, among others, and set out a process of making it more competitive, cheaper and environmentally sustainable. The government amended Mexico’s constitution to allow private investment in both the electric and petroleum sectors. These amendments, plus a series of laws enacted in 2014, would end the 80-year-old monopolies held by two state-owned behemoths  — Pemex and CFE (Comisión Federal de Electricidad). The changes reflect both the government’s broader vision of modernizing the Mexican economy, as well as its intention to show leadership on environmental issues  — Mexico was among the first countries to submit a climate pledge in advance of the COP21 meeting in Paris to embed its clean energy target in domestic legislation.

Decarbonizing Mexico

In the four years since the Mexican energy reform, renewables have become part of the energy mix. Yet only 18% of energy comes from renewable resources, and their growth has been constrained by the ghost of the CFE and the inefficient national grid. The main issues with the energy reform are the time of procurement needed for permits and the confusing roadmap for implementation, which may delay projects by more than 18 months. There is also the inevitable preference for natural gas, which is considered a renewable resource, and a lack of incentives to rebuild and modernize the grid itself. The combination of these factors hinders effective decentralization of energy delivery and how users are accounted or incentivized for their excess energy or mitigation of greenhouse gases (GHG). The Organisation for Economic Co-operation and Development (OECD) recorded that energy losses represent about 27% of the energy generated in Mexico. This figure is partly due to technical issues such as a lack of maintenance or the consequences of corruption, and part is non-technical issues like thievery, where people and companies steal power via unauthorized connections to the grid.

Torre Mayor, Ciudad de México, Mexico  —  Picture: Alexis Tostado

We could view this as a threat to renewable energy penetrating the national grid, or embrace the situation as an opportunity to defy the status quo of CFE with Smart Microgrids (SMG). Since SMGs can be completely off-grid, there is no procurement needed for them to be built as a project. The contracts are peer-to-peer, so there is no middleman (in this case CFE) to charge a toll for faulty transformation or power distribution. Also, the GHG can be traced accurately, which could incentivize a system for rewarding users for their efficient use of energy. This type of infrastructure is the key to achieving an effective and profitable decarbonization of Mexico’s energy grid

The main challenge now for Smart Microgrids in Mexico is to go mainstream and let developers and users know that there are other options when it comes to energy supply. But resilient energy infrastructure comes at a price that most users would consider as expensive and that investors would look at as a crazy idea. This is backed up by the energy paradigm that has been implanted in the Mexican lifestyle. We feel entitled towards energy resources and have the belief that the government should subsidize energy. Since that has been the reality for the past 80 years, people don’t understand that the tariffs are manipulated in the interests of a handful of political parties and a selected group of tycoons. This is why today, as the market has new stakeholders flowing in with innovative technology solutions, the only way the ghost of CFE can last for the next couple of presidential terms is by dumping prices in order to preserve major parts of the market as long as they can.

This paradigm could be shifted effectively if SMG use Electric Vehicles (EVs) as their cornerstone. EVs are key to making a successful integration of the SMG. This is due to mobility being a key way in which we can actually have a profound experience with clean energy. A good friend of mine, Archie Willkinson, once told me: “You can’t hug a solar panel, but you can ride in a sun powered vehicle.” EVs are crucial to the energy marketplace  —  they empower the decentralized energy infrastructure and offer new ways to capitalize energy through blockchain technology facilitating peer-to-peer action using smart contracts.

If we want to decarbonize Mexico’s grid, we need to better understand the needs around mobility. This will lead the way into more resilient and intelligent grids.

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