The year 2020 has been quite a journey! Over the last twelve months, the global economy has experienced a deep recession, impacting every sector along the way. The energy industry was no exception, where an unprecedented collapse in oil demand reduced costs while renewables continued to grow their shares.
In Mexico, on top of this, clean energy investments saw an important reduction due to the AMLO administration policy priorities. As the sanitary crisis will continue for a while, we have analyzed the ten trends to watch in 2021!
1. 2021 Elections: Counter-Reform process ahead?
Since December 2018, the head of the Federal Executive Branch has found a strong representation in the Mexican Congress by his political party colleagues (MORENA). Despite the fact they have enacted together important amendments to the Mexican Constitution and other federal and general laws, we have not yet seen amendments related to the energy industry! Instead, the Executive Branch has conducted questionable acts pretending to overcome or reverse the main principles of the Energy Reform by amending executive regulation (which goes against the secondary laws and the Mexican Constitution).
However, Mexico anticipates an important election period in July 2021, where representatives for local and federal congresses will be elected in half of the country. If MORENA representatives are elected and back Mr. López Obrador, this party may consolidate a major political force sufficient to either constitutionally reverse the Energy Reform or introduce legislative changes that change the rules of the market as per the AMLO Memorandum, and SENER & CENACE Rulings.
2. Recovery of Electricity Demand
While the promise of a successful vaccine is getting closer, Mexico will still go through an economic recovery period throughout 2021. Nevertheless, demand levels are set to stabilize around 2019 levels (310 TWh/year). As demand and fuel prices recover, in the short-term minor volatility is expected. This would, in effect mean higher PMLs. However, market analysts should note that the great renewable capacity added in the period 2016-2019 will keep prices lower than in previous years
3. Entrance in operation of +4 GW
In 2020, the SEN experienced the entrance of 4,533 MW, VS the 11,350 MW that were installed in 2019. According to the Antuko Works Plan, close to +10 GW that should have entered in operation this year are still on the pipeline and did not come online due to either the sanitary crisis or regulatory complications. The Antuko Works Plan also foresees about 4GW that will come into operation in 2021. AMDEE and ASOLMEX reported a similar figure at about 3 GW for 2021 and an additional 2.6 GW of utility-scale projects expected between 2021 and 2022. The development of this situation will mostly depend on the permit process carried by both CENACE and CRE. Will these autonomous entities continue to block the entrance of new private projects? In Antuko, we expect the slowdown in regulatory processes will continue.
4. Biden Presidency and a Push Toward Renewables
After his victory in the US elections last November, Joe Biden committed to reinforce the Paris Agreement and reach carbon neutrality in the power generation segment toward 2035. To achieve this, the elected President considers a 2 trillion injection into green technologies (more than twice the GDP of Mexico, according to S&P) Despite AMLO energy policies, the recently signed UMSCA treaty might put pressure on the Mexican government to further expand renewable capacity. Developers, investors, and financial entities should follow this topic closely as the hope of developing new projects is closely related to this political situation
5. The DG boom
According to the latest report published by CRE, the distributed generation segment in the country experienced a slow, but steady growth in the First Half of 2020, going from an installed capacity of 1,031 MW to 1,196 MW. Under the sanitary crisis context, this increase was motivated by greater residential electricity consumption, as well as a lack of support from CFE Suministro Básico toward industrial and commercial end-users. In addition to this, given the regulatory hurdles that utility-scale projects face, distributed generation stands out as a more feasible alternative for business and households to reduce their power bills
6. More legacy projects migrating into LIE
Given the regulatory hurdles around legacy projects, particularly under the self-supply scheme, both Generators and Consumers might reconsider migration to LIE framework. Companies such as Liverpool, Cervecería Cuaúhtemoc-Moctezuma, Bimbo, 7-Eleven, Coca-Cola, and Porcelanite, among many others, have challenged the proposed modifications. While Federal Judges have announced indefinite injunctions, some others such as Judge Gómez Fierro  considers that legacy projects oppose the Energy Reform objectives.
7. Definite Injunctions: Steps Ahead
The amparo judgments for both CENACE Ruling and SENER Policy Ruling are not definitive as they are subject to review by the Circuit Court or the Supreme Court, which shall confirm or revoke these rulings, especially referring to the erga omnes effects, which are widely discussed in the academy and the judiciary. Diverse attorneys familiarized with these processes have confirmed that final amparo resolutions (and injunction resolutions) have been practically reproduced in all trials by judges, to all plaintiffs (under the same grounds). In this light, pending final judgments in the subsequent amparos will surely be delivered faster which might bring new hopes to developers and investors.
8. Will PMLs return to 2018 levels?
System-wide PMLs fell in the second half of 2019 as a result of the extraordinarily high additions of low marginal cost capacity installed after the Energy Reform. Antuko forecasts that while demand will grow in 2021, PMLs will continue to be around these low levels we have experienced recently. PMLs might rise as fuel-prices increase, but there is little indication that demand will have a strong enough growth to catch up with supply.
There are, however, some interesting opportunities. While northern regions with larger territories and a significant renewable resource pioneered in the utility-scale segment, congestions between the north and south of the country have forced developers to seek novel investment destinations. Among these, the Eastern and Western control regions are gaining a relevant market share, while the Peninsular region (with the highest prices in the SIN) continues to be an attractive, albeit challenging, option. Intraday fluctuations are also relevant, as the clear solar profile of PMLs creates opportunities for storage.
9. 2020 Capacity Market Price: A Plunge to Zero?
The Capacity Net Price determined each February in the Capacity Balance Market, indicates whether the system maintains a good supply/demand balance. Given the installed capacity in the country increased by a 15% rate in 2019, followed by a plunge in demand due to the COVID-19 crisis in 2020, Antuko foresees this imbalance will cause an oversupply in the Capacity market during the 2020 exercise. CENACE, however, may modify the Capacity Balance Market criteria so that minimum and efficient planning reserves are increased to such a level that demand and supply intersect. If these were the case, the very low PMLs experienced in 2020 might push Capacity Prices to very high levels.
10. More resources to back up CFE
With the AMLO administration, the energy sector surges as a strategic area of the country, leaded by both PEMEX and CFE. For instance, in the 2020 Federation Expenditure Budget, the State assigned close to MX$456 million (+5% VS 2019) to CFE. In contrast, the 2021 Federation Expenditure Budget destinates more resources toward PEMEX (particularly for the construction of Dos Bocas), and decreases CFE budget to MX$417 million (-11.6% VS 2020). According to CFE 2021-25 Business Plan, the company foresees an estimated investment of MX$62 million to increase its generation capacity by 4.5% through the support of an investment trust fund.