Energy reform: will Mexico's newest revolution boost renewables – or just fossil fuels? As Mexico breaks up its energy monopolies and auctions off oil exploration areas, emerging players promise cleaner energy including natural gas and solar power For the first time since 1938, the world’s largest oil companies are preparing to invest in Mexico.

The last time they were there, things ended badly: President Lázaro Cárdenas seized their assets, created state-owned oil monopoly Petróleos Mexicanos – or Pemex – and sent foreign competitors packing. Now, 77 years later, Mexico is inviting them back.

As part of its far-reaching hydrocarbon and electricity reforms, the country is reopening its largely untapped oil and natural gas reserves to foreign investors and competitors. The process will begin in earnest in mid-July with an initial auction of 14 oil exploration areas in the Gulf of Mexico.

More than two dozen companies, including global energy giants ExxonMobil, Chevron and Total, as well as Pemex, are lined up to bid next month after Mexico’s oil regulator prequalified them last week. But as the country moves forward, questions remain. Will the breakup of Mexico’s decades-old monopolies and the arrival of new oil, gas and power players lead to renewed growth and investment across the economy? And will they cause a new host of problems, including increased environmental damage?

Mexico’s reforms will also create new competition for electricity monopoly Comisión Federal de Electricidad, or CFE. The new market rules – still in draft form – are intended to open up power generation to all participants and guarantee nondiscriminatory access to the electric grid. They also aim to promote energy efficiency and renewable energy through new market incentives, auctions and a clearly defined annual roadmap to reach 35% clean energy by 2024.

Big questions still surround the role of renewables. On one hand, high-efficiency natural gas units that generate both heat and power – so-called cogeneration plants – qualify as clean energy under the reform. But when it comes to renewable energy’s potential to contribute to Mexico’s development, Lozoya sounded a pessimistic note. “Everybody wants more renewable energy, but the technology and price are still not aligned,” he said.

Not surprisingly, solar energy entrepreneurs in Mexico disagreed, saying the reforms would help their industry make a difference. Javier Romero, a board member of Mexico’s national solar association, says solar companies can take advantage of the reform’s new clean energy certificates to help fund projects and new wholesale electricity market rules. These allow “qualified users” such as commercial and industrial businesses to buy power directly from solar power plants or other independent generators, instead of only from CFE.

“The photovoltaic sector will benefit the population generating clean energy with zero emissions, with more jobs within the industry’s production chain and finally with cheaper energy to the final consumer,” Romero said.

Outside investors agree that energy reform offers potential for renewables. “Mexico’s energy reform is a real revolution,” Ignacio Sánchez Galán, chief executive of Spanish energy group Iberdrola, said at the forum. One of the few foreign energy companies already operating in the country, Iberdrola has committed to investing about $5bn in wind farms and combined-cycle natural gas plants in Mexico by 2018.

Hector Olea, whose company Gauss Energía developed Mexico’s largest solar power plant in La Paz, Baja California Sur, says the reform will help position Mexico “to be the next boom in solar”, fueled by prices on par with wind and even some conventional generation sources.

Olea says the reform’s new rules will help solar play a much larger role in Mexico’s development. “There are so many different benefits for Mexico. We are very optimistic, but we have to wait until the final rules are settled.”

As Mexico’s competitive energy markets take shape and foreign oil companies re-enter the country for the first time in almost eight decades, it remains to be seen whether the emerging business community can really bring Mexicans the cleaner energy, greater economic opportunity, improved health and safety, and more transparent transactions promised in this reform.

 

Source: Guardian - http://www.theguardian.com/sustainable-business/2015/jun/02/mexico-oil-companies-reforms-gas-hydrocarbon