The Mexican energy sector is embroiled in a new controversy. A resolution issued in May by the Energy Regulatory Commission (CRE) lowers efficiency requirements for cogeneration facilities and broadens what the country will now count as clean energy.

The changes have sparked concerns among industry stakeholders and non-governmental organizations who question the environmental impact and its compliance with the Constitution and international treaties.

Background

Mexico committed to increase its share of clean energy generation in the Paris Agreement in 2015.

Modifications to the General Law on Climate Change and enactment of the Energy Transition Law set a target of energy generation through clean sources of 35% by 2024.

Previous federal administrations employed various mechanisms to encourage private companies to undertake clean energy projects. However, the current administration modified or suspended these incentives, hindering the development of renewable energy projects and jeopardizing Mexico's ability to achieve its clean energy targets.

Some of the previous incentives included holding clean energy auctions to award long-term power purchase agreements, streamlining administrative processes to obtain power generation permits and grid interconnections, and designing a clean energy certificates (CELs) market that grants CELs to new clean energy projects and expansions of existing clean energy projects. Significant renewable energy capacity was installed during the years these incentives were in effect.

The current administration made changes to the incentives.

The clean energy auctions were suspended in 2018. The government made changes to the CEL rules to grant CELs to older clean energy facilities without the need to add new clean energy capacity to the system, thus increasing the CELs on offer in the market and reducing their value. The government has also delayed granting power generation permits and signing interconnection agreements.

As a result, development of clean energy projects has stalled and Mexico is unlikely to reach the 35% clean energy target by 2024.

Latest CRE Action

A new CRE resolution in May 2023 made significant changes to the criteria for determining efficiency in cogeneration systems and the calculation of fuel-free energy.

The changes will let the government treat a broader range of energy sources as clean energy, including less efficient cogeneration systems, a portion of the energy produced by combined cycle power plants and other systems associated with the petroleum industry.

This would artificially increase the percentage of "clean energy" generated in Mexico and contribute to meet legal requirements by way of change in the legal definitions of clean energy, but without a real change in energy sources or reduction of greenhouse gases.

The CRE resolution makes four main changes.

First, the reference value for electric performance has been reduced from 44% to 41%. The reference value determines the level of generation efficiency considering fuel inputs and energy outputs. The adjustment  allows cogeneration facilities to qualify as clean energy at lower efficiency of energy conversion than before.

Second, the loss-factor percentages for different voltage levels have been increased. This allows “efficient” cogeneration projects to have a higher amount of losses during transmission and distribution.

Third, cogeneration systems associated with the petroleum industry were not considered efficient cogeneration or clean energy in the past. The CRE resolution eliminated this restriction.

Fourth, the resolution allows energy obtained through one or more lower-level sequential thermodynamic cycles to qualify as fuel-free energy. That will allow electricity obtained as part of the thermal cycle in combined-cycle power plants to be classified as clean energy.

These changes have raised concerns among renewable energy developers and non-governmental organizations.

They argue that the changes violate the constitutional right to a healthy environment and Mexico's commitments under international treaties, which hold constitutional hierarchy. Importantly, these stakeholders are preparing discussion forums to challenge the constitutionality of these regulations.