(Expansion) – In previous articles we have discussed the importance of energy as a fundamental input for industrial development, as well as the paramount importance of having access to cheap, clean, reliable and efficient energy sources.
As obvious as it may seem, monopolies are not the best option to achieve such goals, especially when Mexican federal law expressly encourages, promotes and creates free competition among all the actors in said market.
In parallel, industries seek to invest in energy efficiency not only to reduce production costs, but also to avoid dependence on exogenous sociopolitical and economic environments. A clear example is the war in Ukraine.
We have also discussed that Mexico should exploit the competitive advantage it has to attract foreign investment, mainly due to its privileged position in North America, its strong free trade agreements, including but not limited to the T-MEC, and the advantage of nearshoring as a phenomenon that could attract new companies to supply semiconductors and other high-tech products to the United States and Canada, but also to Europe.
Finally, the impressive market that will potentially open up with the recently enacted Inflation Reduction Act (IRA) is a fact that can attract new investments to Mexico that seek to satisfy this new demand from the benefited industries: health, power generation, clean energy, etc. .
What is perhaps not so obvious is that both competitive advantages must work together as a synergy in order to be efficient. In other words, Mexico will leverage all of its growth capacity if all those new investments are assured that they will have enough energy with visibility of reliable rates and a clear framework.
It is also important to note that a number of global companies have made strong commitments to be cleaner and rely on renewable energy sources, regardless of whether or not local support for those technologies exists in the host countries where their investments are located.
It is no secret that many international parent companies impose on their subsidiaries in Mexico the need to have increasing percentages of renewable energy in their Mexican production processes. In fact, they will consider this condition as a turning point when deciding where to invest.
In Mexico, this is today limited to existing renewable self-supply legacy schemes and Qualified Supply Contracts under back-to-back conditions with bilateral agreements with renewable energy producers (generators). On a smaller scale, isolated supply and distributed generation have benefited from the change in administrative criteria regarding electricity generation in Mexico.
The Mexican federal administration recently announced “ that the promotion of clean energies will be based on the production in Mexico of electric cars, batteries and associated components ”. Although this is good news, this statement is quite strange because such production lines, although they will be linked to products that aim to reduce carbon dioxide and greenhouse gas emissions, will be polluting if they are not associated with a commitment to reliable clean or renewable energy consumption.
It will be just as incongruous as making water drinkable and the water treatment plant discharging untreated waste into rivers and bodies of water. What is really needed to promote clean energy is clarity on the rules: rule of law.
Competitive advantage is a complex concept, but it is clearer when the components necessary to be competitive work efficiently. Mexico’s industrial capacity, labor force, and connectivity to foreign markets is simply impressive, as impressive as is the existing capacity of new wind, tidal, solar, and even geothermal projects in Mexico (under a specific law called the Geothermal Energy Law). ).
Linking the needs of Mexico with the needs of foreign investors such as those recently announced in new gas pipelines with Canadian companies, auto parts manufacturing plants with German entities and large infrastructure and construction projects with Spanish, Portuguese and Korean companies, is just one example of that the will exists. However, the potential is much greater and Mexico must not divert the focus on pain of losing that opportunity.
In summary, among many other conditions, what these companies need is clean, reliable and cheap energy, with rates coming from a competitive, regulated and efficient electricity market. The opposite is simply incongruous.
Editor’s note: Claudio Rodríguez Gálan is an attorney and partner in the Energy Practice of Holland & Knight. Follow him on . The opinions published in this column belong exclusively to the author.