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AMLO to review Mexico's subsidies for wind, solar


Companies to challenge any change in the law

- Some energy deals unjustly benefit private companies, he said
Mexico has no plans for new oil-field auctions, president said

By Lorena Rios and Michael O'Boyle / Bloomberg

Petroleumworld 01 10 20120

Mexican President Andres Manuel Lopez Obrador said authorities will review some government wind and solar contracts to determine if companies are improperly subsidized.

“People were deceived for a long time by being told that subsidies for electric power were for consumers -- but no,” Lopez Obrador said Wednesday during his daily press conference. “The biggest subsidy is for private companies.”

The move is the latest blow to Mexico's budding private renewable energy market. The president, a fiery nationalist known as AMLO, has sidelined efforts by his predecessor to open Mexico's energy sector to private investment and instead has pushed to consolidate power in the hands of state-owned energy companies Petroleos Mexicanos and the Federal Electricity Commission, or CFE.

Last month, Bloomberg reported CFE was proposing to cancel some clean-energy contracts and eliminate discounts on transmission costs for power generators to use its network. The draft CFE proposal seen by Bloomberg targeted so-called legacy contracts, which were issued before 2014-era reforms to the electricity sector. There are more than 70 such renewable energy projects representing about $9.2 billion in investments, according to the Mexican Wind Energy Association, known as AMDEE.

Daniel Sanchez, an energy and finance expert at Baker Mckenzie in Mexico City, said that private companies would likely seek court protection if Lopez Obrador pushes to change the rules that provide fixed transmission rates below costs to the legacy projects.

“These companies have financing that requires them to challenge any change to the law,” he said. “They will go to war over this.”

Energy companies won a court decision in November to block another change sought by the administration that critics said would have been damaging to the renewable energy sector.

Lopez Obrador has said the government will promote the use of renewable energy by modernizing outdated hydroelectric projects, but industry groups argue that his plan will not do enough to meet Mexico's commitments to boost renewable power.

During Wednesday's briefing, Lopez Obrador said his government had no plans to revive oil-field auctions for private companies, dismissing a local media report. He said officials would announce a plan by mid-February that would make clear how private companies could participate in the nation's energy sector.

By Lorena Rios and Michael O'Boyle from Bloomberg. 01 07


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