EconomyFinancialWhat worries the private initiative of the electrical reform?

What worries the private initiative of the electrical reform?

The relationship between private companies and the federal government has been complicated since before the start of the six-year term. But the electricity reform, whose process to be voted on in the House of Representatives has already begun, could be considered, if approved, the biggest blow to date to the private sector.

Not only power generation companies or companies with investments derived from the 2013 reform have declared themselves against the initiative, the main business and manufacturing organizations have already assured that the presidential initiative would increase their production costs and contribute to the climate of mistrust for investments.

The document, which did not undergo major changes in its ruling, cancels all private contracts and eliminates the figure of self-supply, a type of generation that is used by a large part of companies that consume electricity from plants built with private investments based on permits granted. before the 2013 reform, but with which the current government does not agree.

The industrialists have assured that the CFE will not have sufficient capacity to offer all the electricity that some sectors need to continue growing or to comply with their plans to increase their energy consumption from clean sources, since the Mexican state-owned company has few plants. solar or wind and has not shown enough capital to grow its investments.

The Business Coordinating Council (CCE), the main body in the sector, said at the beginning of the year that there are more than 150 projects, equivalent to 40,000 million dollars, that have been stopped due to regulatory uncertainty.

Companies with a generation plant argue that the reform does not make it clear what will happen to their assets. The document says that some of these companies – those that do not have a contract that harms the State – will be able to compete to sell their electricity to the CFE, which would become the only buyer.

But the rules are still not clear, the owners of these generation plants believe that the new assumptions will make them lose the profitability of their investments and the industrialists believe that the electricity from CFE and its management will not be enough to meet their demand for electricity. .

From January to September 2021, 244.8 Tera Watts per hour were produced in Mexico, of which the CFE generated 98.6 Tera Watts per hour (40%) and the private sector generated 146 Tera Watts per hour (60%). “The question is: how will the Federal Electricity Commission develop the additional capacity equivalent to 14% to reach 54% of the total established by this reform?” questions the Mexican Association of the Automotive Industry.

an inflationary shock

A potential increase in rates is another of the risks that companies envision with the electricity reform promoted by President Andrés Manuel López Obrador.

While in 2021, the average price of electricity sold by the CFE in medium voltage was 1.22 pesos per kW hour, the private ones offered an average price of 0.42 pesos per kW hour, according to the average rates of the Regulatory Commission of Energy.

The industrialists argue that limiting the self-supply modality would result in less competitive electricity rates. In addition to the limited capacity of renewable sources that the CFE has, and the prevailing need to use fossil fuels in generation, could increase the cost of electricity by up to 31%.

Vicente Yáñez, president of the National Association of Self-Service and Department Stores (ANTAD), warned last January that, with the changes that the electricity reform will bring, there will be an increase in prices and a brake on investment.

“In our sector there are a lot of [these contracts]. Electricity is one of the three most important costs for our associates and, of course, they make up the price of the products. It impacts much more than rent. What would happen? Well, it would leave fewer resources for investment, and not only in our sector,” he said at a press conference. “We calculate that the cost of electricity is around 2 or 3% of the price of the products, the impact that could occur is enormous.”

Months earlier, in November 2021, Rogelio Garza, director of administration and finance at La Comer, said in a meeting with analysts that the reform will have an impact of between 15 and 20% on its total energy expenses. Then, he announced that the chain put a pause on investments in solar panels for its stores in Mexico.

An increase in one of the main fixed costs of retail companies will inevitably end up being transferred to products, contributing to the inflationary phenomenon that has depleted consumers’ pockets since the end of 2021.

Lack of competition worries the hotel sector

For the hotel sector, energy is one of the most important fixed costs, in addition to payroll. “Today electricity is the most important fixed charge, between payroll and electricity, that’s where they go,” says Nicolás Martínez, vice president of development for Accor in Mexico, Central America and the Caribbean.

A fixed cost that is so inflexible, says Martínez, can only be lowered by installing more efficient technology in the complexes or through negotiation with the supplier. “But there is only one here. That is why there really needs to be an atmosphere where there is more supply,” says the Accor executive. “In any sector of the economy, greater supply is beneficial for those of us who operate businesses,” he adds.

Federico Moreno Nickerson, vice president of development for Apple Leisure Group, recognizes that entrepreneurs can play an active role in energy efficiency. “I think it is definitely important to reduce energy costs, but there is also a responsibility of all businessmen and citizens to conserve energy, because they are those two factors.”

But the manager also hopes to have a more competitive market. “I have the hope that a mechanism will prevail to lower the cost of energy, it is what I would like,” he adds.

A problem in the emission reduction goals

The cost of energy and the lack of competition in the sector are not the only concerns for companies. The lack of clean energy alternatives is also a problem for multinational corporations with ambitious emission reduction goals.

The 2019-2024 National Development Plan establishes that Mexico must have 35% of clean electricity generation by 2024, and made projections to have close to 50% by the end of the decade.

All investment in solar and wind generation in Mexico in recent years has come from the private sector. The new clean generation of CFE is very small, while 99% of the solar and wind generation that operates in Mexico is private capital.

By awarding CFE the control and direction of the energy transition – in addition to canceling existing contracts – the reform would destroy what has been advanced so far and cancel the possibility of a structurally cleaner and more efficient energy matrix. This is because the dispatch of CFE generation would be privileged, using some technologies that, in other latitudes, are being eliminated, such as coal and fuel oil.

For the Mexican Association of the Automotive Industry, eliminating Clean Energy Certificates would prevent companies from accrediting the use of renewable energies, which, in turn, would affect compliance with the obligations that subsidiaries must accredit in each country to meet the decarbonization commitments that its corporations have made, derived from the international agreements signed by Mexico, such as the Paris Agreement, the 2030 Agenda and COP 26.

This has already set off the alerts of the directors of some subsidiaries in Mexico. Francisco Garza, CEO of General Motors, said in November 2021 that Mexico should establish a structural framework for renewable energy, otherwise the country will no longer be a destination for investment.

“General Motors is not going to stop its zero vision (carbon emissions), and unfortunately if the conditions do not exist (to advance the goal), Mexico is no longer going to be a destination for investment,” warned the manager during the convention. report of the Mexican Institute of Finance Executives (IMEF).

But the auto industry isn’t the only one concerned that it won’t be able to meet its corporate emissions-reduction goals.

“Obviously we are waiting to see how the discussions evolve and see how the proposal ends. Right now it is highly anticipated to be able to share a position. Obviously, for us it is super important to have green energy options, it is part of our commitment and we believe that it is the right thing to do, what we have to do and the more availability of green energy”, said Francisco Ríos, director of corporate affairs Mars Pet Nutrition Mexico.

The company announced in February an investment of 2.1 billion pesos for the expansion of its pet food plant in Querétaro. During the announcement, managers announced that the electricity for this complex will be supplied from the wind farm in Dzilam Bravo, Yucatan.

This factory of the owner of brands such as Pedigree and Whiska will have the LEED certification (Leadership in Energy and Environmental Design, for its acronym in English) as a sustainable building, which means that it will be designed to save energy and water. The company already supplies renewable energy at its seven plants in Mexico.

With information from Diana Nava, Nancy Malacara, Mara Echeverría, Juan Tolentino and Ivet Rodríguez.

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