Mexico is one of the major destinations for Spanish investment in Latin America, but its attractiveness for the energy sector, notably renewable energy, is plummeting, a victim of the 'AMLO policy'. The government's measures, which are aimed at centralising control of energy in state-owned companies and limiting private participation, have turned Mexico from the most attractive emerging country for investment into a source of mistrust and alarm. Pending clarification of the regulatory framework, Iberdrola rules out further investment because of the obstacles to private generation.
Last May, Mexico limited access to renewable energy projects to private firms in order to favour and strengthen a Pemex in crisis and a Federal Electricity Commission (CFE) which has seen its market share fall. Mexico suspended the "clean energy" auctions indefinitely and introduced restrictions on private production at the height of the pandemic, in a strategy that is being carried out without changing the law and is clashing with the legal framework, contracts and Aztec business opposition. This has led to lawsuits. The companies argue that the administrative changes go against the Constitution, whose text was changed in 2013 to accommodate the energy reform.
In 2020, the government also stepped up its campaign to blame the private renewable sector for the problems in the grid and to shore up CFE. For the director of the Wilson Center's Mexico Institute, Duncan Wood, quoted by Europa Press, "energy policy is killing private investment in the sector. The new rules have caused investors to lose confidence in the face of fears that contracts will not be respected and an unbalanced framework will be set up. And Wood was pessimistic about the future: "the current policy will go further in the AMLO legislature". In fact, he predicts that the proposal for a new energy reform in 2021, which would eliminate the changes of the Peña Nieto reform, which led to an investment boom, will become even stricter.
In October, Iberdrola, the country's main private electricity generator, and attacked before the summer by the president, announced that it was ruling out new investment until the regulatory framework was clarified. AMLO accused the company of winning "juicy" contracts, of creating a monopoly under previous administrations and of "plundering". Following the attacks and the obstructions of the CFE, Iberdrola cancelled a billion dollar investment in the Tuxpan combined cycle power plant. And recent bilateral meetings do not seem to have cleared up the picture. Iberdrola, in Mexico since 1999, has 10,340 MW of installed capacity there, through combined cycle, cogeneration and wind and photovoltaic farms.
Iberdrola's Chairman, Sánchez Galán, has tried to minimise the impact of the tension in Mexico, indicating that the market accounts for 8% of the group's revenues, "very little on the balance sheet". Iberdrola plans to complete its current investment plan, but will not start anything until the situation is clarified. At the beginning of AMLO's term of office (spring 2019), and during his visit to Mexico, Sánchez Galán announced, after meeting with senior government officials, investments totalling 5 billion and his commitment to Mexico's energy development. So far, and given the panorama, of the total announced, only 550 million have been executed.
The firm's unease at AMLO's turn, like that of other Spanish companies (Acciona, Naturgy-for which Mexico is the fifth market, Abengoa and X-Elio (formerly Gestamp Solar) and international companies such as Engie and Enel, is evident. In fact, in the summer, the large renewable energy companies in Mexico began to pull legal and public strings to defend their investment in AMLO's energy 'counter-reform'. Several have appealed to the courts and are considering international arbitration, as well as exerting pressure from the umbrella of several Mexican and EU business confederations.
In June, Mexico imposed restrictions on 44 private wind and photovoltaic plans and suspended tests on others, prompting 19 EU ambassadors to send a letter to the government asking for clarification of provisions affecting investments of $6.4 billion. In the case of the Spanish firms, moreover, AMLO's policy clashes with the Investment Protection Treaty, which helps against direct or indirect expropriations.
But although many of the attempts to undo parts of the energy reform have been paralysed in court by the lawsuits; although the CFCE has successfully filed an appeal of unconstitutionality for infringement of the principle of competition; although private generation now accounts for 46 percent of the total, making it difficult to return to the public monopoly; and although overcoming the legal hurdle by amending the Constitution is a complicated path, AMLO has reaffirmed his plan. A strategy that creates uncertainty when Mexico is enduring the worst crisis in decades and business confidence is at a minimum.
According to the recent 'Climatescope 2020' report, Mexico has fallen in two years from 8th to 51st place in the ranking of the most active developing countries in transition to renewables (and to 77th position if rich countries are included). The report, which includes 108 emerging and 29 developed countries, says that "before AMLO Mexico was a leading destination for investment in clean energy because of the great opportunities generated by energy reform" by Peña Nieto.
"Although the effort to strengthen state control at the expense of the private sector is beginning to discourage investment, Mexico is still active in this field". It is not in vain that it is the second largest energy market in Latin America, with renewable installed capacity that is 15% of its total 88GW. And that share is expected to grow with ongoing investments, despite the cancellation of auctions. Although 200 plans have disappeared in 2020, it is expected that in 2021 Mesa de Morenos (led by BAS); the Xoxocotla (X-Elio) site; the Coromuel wind farm (with the involvement of Elecnor); Calera and Tampico Solar will come into service.