Private companies and the Mexican government have been duking it out in public, the media and in court for the last two years over the future of the country’s energy sector, which was primed to usher in a new era after the 2013 market reform.
Many investors, particularly in the renewable energy space, flocked to resource-rich Mexico only to have billions of dollars stifled by President Manuel Lopez Obrador’s decision to return to oil. Experts have said his attempt is aimed at protecting the interests of state-run companies like the public utility Comision Federal de Electricidad, known as CFE.
Prior to the onset of the coronavirus pandemic, Cenace, Mexico’s grid regulator halted testing for new clean energy plants required to begin operations. Bloomberg reported that Mexico’s Energy Ministry had also fast-tracked new regulations to limit production of renewables. The move resulted in halting 17 solar and 11 wind projects that were in their final stages, an investment estimated at $216 million.
In June, CFE increased transmission rates for legacy renewable energy and cogeneration plants by 811%, as published in the official state gazette.
Now, as the adoption of green hydrogen is taking an increasingly prominent role in energy discussions in Latin America, it could serve as a rapprochement between Mexico and the private energy sector.
“The bet on green hydrogen transcends current governments and requires an intergenerational effort to guarantee sustainability,” said Rodrigo Osorio, Head of the State Agency of Public Energy in Puebla, a municipality southeast of the capital. “Mexico must not be left behind.”
Green hydrogen is a new resource that is still unexplored and undeveloped in Mexico, leaving ample room for both public and private sectors to get involved.
“Mexico must not be left behind.”
Green energy potential for Mexican industries
For Jeroen Visser, CEO at Tarafet Mexico who leads a $1 billion blue and green hydrogen project in partnership with Wuhan Engineering, there is reason for optimism so far as Mexico’s role in the net-zero future.
“Mexico is a uniquely renewable resources rich country. It can become a leader in the green manufacturing of energy-intensive products, including green hydrogen, ammonia, steel, and chemicals for both domestic and international markets,” Visser said.
He also added that were Mexico to diversify by stimulating low-carbon opportunities such as green hydrogen this could accelerate a large domestic demand while capturing a share of international markets.
The production of green hydrogen for heavy industry and manufacturing would serve as a boon to the country’s economic recovery efforts, which fell deeper into recession in the wake of the pandemic.
Mexico’s industrial sector has taken a particular interest in green hydrogen explained Andreas Eisfelder, Head of New Energy Business Latin America at Siemens Energy.
“Later on, we think the transport sector could benefit during the energy transition, as well as an increase in the use of hydrogen in the energy sector,” Eisfelder said.
But experts say the biggest push to the Mexican government yet could come from its northern neighbor as political winds change.
“Mexico is a uniquely renewable resources rich country. It can become a leader in the green manufacturing of energy-intensive products, including green hydrogen, ammonia, steel, and chemicals for both domestic and international markets.”
U.S. President Joe Biden said he would base all international economic engagement in countries where climate change is being taken seriously, said Juan Gonzalez, the incoming White House National Security Council’s senior director for the Western Hemisphere in an interview with Argus Media.
“If carried through,” Rebecca Conan wrote, “this would have significant implications for relations with Mexico in the energy sphere.”
The U.S. returns to Paris Climate Agreement
One of the new administration’s first priorities will be to return to the Paris Agreement. Biden has pledged to put the country on a course for net-zero emissions by 2050—something experts have said simply cannot be accomplished without a green hydrogen play.
The Energy Transitions Commission, an industry group, has said green hydrogen is one of the four technologies necessary to meet the climate accord’s goal of “abating more than 10 gigatons of carbon dioxide a year from the most challenging industrial sectors, among them mining, construction and chemicals.”
While meeting the goals of the Paris Agreement will undoubtedly require overhauling the U.S. economy, it will also impact Mexico. Relatively energy-intensive compared with other industrialized countries, Mexico’s economy is largely dependent on petroleum and an important partner in the U.S. energy trade.
In 2019, Mexico accounted for almost 600,000 barrels per day or, 9%, or all U.S. crude imports totalling $13 billion in energy goods, according to the U.S. Energy Information Administration.
That same year the National Hydrocarbons Commission approved plans for 20 new priority fields for PEMEX to develop as part of the country’s national business strategy, just as other countries in Latin America were looking for ways to lead through renewable exports.
While meeting the goals of the Paris Agreement will undoubtedly require overhauling the U.S. economy, it will also impact Mexico.
Many insiders believe Biden will curb Lopez Obrador’s efforts to sideline private energy companies in the same way AMLO’s government is looking for ways out of the deepening economic crisis through the United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA.
A Mexican official who spoke to NBC News on the condition of anonymity, said “companies are watching the (Mexican) energy sector as the proverbial canary in the coal mine on the general investment climate,” adding that businesses will be advocating for the enforcement of USMCA provisions.
Thus far, Biden and Lopez Obrador agreed on their first call to work on a “new approach” to regional migration issues in a statement posted last month on the transition website.
Renewable energy could be the next item on the agenda.
“Companies are watching the Mexican energy sector as the proverbial canary in the coal mine on the general investment climate.”
Meanwhile, Israel Hurtado, founder of the Mexican Hydrogen Association told New Energy he continues to work on the promise of a hydrogen-fueled future.
“Mexico made an international commitment to produce 35% of its electricity with clean energy by 2024,” Hurtado said emphasizing the role green hydrogen must play to meet the goal.
He added: “Mexico has a competitive advantage in relation to other Latin American countries, which is its border with the United States. Due to this Mexico could become a larger producer of green hydrogen and export it to the United States.”
The 1st Hydrogen Congress for Latin America & the Caribbean (H2LAC 2021) will gather regional policy-makers and global industry leaders to address the pivotal questions at the most significant gathering of the nascent hydrogen market in the region to date. Co-hosted by the Inter-American Development Bank alongside Strategic Partner Hinicio, join us for a full two day virtual conference (April 14-15) followed by a virtual Policy-Maker Roundtable (April 22).