Two Energy Models for Mexico

13 June 2018 El Financiero Bloomberg Publication
Authors: Daniel Aranda

This article was originally published in Spanish in El Financiero Bloomberg, and can be viewed here.

The energy policy proposals of the three main presidential candidates require greater attention in the public forum. This analysis seeks to clarify their differences and evaluate their viability in a global economic context and of regional competition in the energy markets.

There are two well-defined models. The first of these is shared with minimal differences by the candidates of the Todos Por Mexico coalition, José Antonio Meade, and the one of the Por México al Frente coalition, Ricardo Anaya.

It’s a pro-market model, with international standards, and focused on strengthening the energy sector with a solid state company, Pemex, but with the participation of private companies.

Both candidates agree that Mexico should not build additional refineries, but these should instead be restructured. They are committed to diversification and allowing the participation of private companies in areas in which the government has shown to be inefficient.

The main difference lies in the focus on renewable energies. Ricardo Anaya places greater emphasis on these, as well as for the energy matrix to have 40 percent of clean energy by 2024.

The proposal of José Antonio Meade has only focused on the generation of electric power by photovoltaic cells and cogeneration processes. Leaving aside other sources of electric power generation, the proposal is also unclear about the way in which these sources would connect to the national electricity system.

The other model, proposed by Andrés Manuel López Obrador, pretends to strengthen Pemex through the development of infrastructure in the oil and gas industry as well as maintaining government’s control over some areas for the generation of energy. It does not, however, address the need for new technologies.

The proposal is focused on the extraction of oil and the construction and modernization of refineries. It dismisses the need to reach out to other private participants in the national energy sector and it does not include any strategy for renewable energies. Renewable energy in Lopez Obrador’s model is based on community energy generation, that is, communities throughout the country can produce energy to sell it in the energy market. For this to viably take place, there’s an evident need for an appropriate electrical grid, without which the production cannot be commercialized.

The most controversial topic is the fixing of gas prices for three years, a proposal that is financially impractical not only because of the budgetary risks it poses. To impose a fixed price system is tantamount to closing a newly opened market that offers to bring major plans for investment.

Each of the proposals imply particular challenges. It will be up to us Mexicans during elections, to choose the type of energy industry we want for Mexico and, in due course, the actors of the energy sector will have to establish a dialogue with the next Government to take advantage of the country's potential and achieve a sustainable development that consolidates Mexico’s leading role in the world scenario.