Climate change and public policy are complicating Mexico’s efforts to have 35% of nationwide electricity generation come from clean sources by 2024, according to an analyst with Moody’s, an infrastructure and project finance-focused ratings agency.
“We believe the government faces a major challenge in meeting its [clean energy] goals,” Moody’s assistant vice president Roxana Muñoz told BNamericas. Muñoz expanded on recent Moody’s research, showing how clean energy goals are being jeopardized by the government’s cancellation of the fourth long-term energy auction, along with the impacts from this year’s drought and uncertainty surrounding announced hydroelectric generation projects.
Mexico has a goal of increasing clean energy to 35% by 2024, from around 25.5% in January-October 2020. Hydropower is one of the few clean energy inputs being embraced by state-owned power company CFE, and its expansion seems to be the most feasible route to reaching the goal. CFE’s business plan includes adding 530 MW in capacity with modernization projects at eight hydropower plants, as well as the possibility of expanding CFE generation into other renewables, said Muñoz.
CFE announced in June that it plans to develop new clean energy projects with combined capacity of 8.08 GW before the end of the current federal administration in 2024, including hydroelectric, nuclear and geothermal, and solar and wind. In July, the utility upped its plans in the hydro arena, saying it planned to modernize 14 plants to generate an additional 1.86 GW of capacity.
“But what we’ve seen so far is that these [projects] are still just announcements, there’ve been no concrete tenders,” said Muñoz. “There’s yet to be a project with plans in place, and building a plant takes time.”
Another reason is that the power auctions were canceled, which has seen renewables investment dry up and announcements of solar and wind projects disappear, she added. “Although the president and the government have announced that they want to invest in nuclear energy, that perhaps could be in Sonora [state], or that there may be a solar project, or if they have something like a wind project in their plans, we have not seen any of them materialize,” said Muñoz.
At the same time, the water situation is growing more urgent.
Like several other Latin American countries, Mexico is experiencing its worst drought in decades, impacting more than 80% of the country in the April to May period, particularly in the central northern states.
Torrential rains from Hurricane Grace recently brought a bit of relief to central Mexico by refilling some dams. But federal water authority Conagua projects that population growth and increasing scarcity of renewable water will worsen water stress in nearly all states by 2030, particularly in urban areas.
The agency, however, has increasingly fewer resources to deal with the situation. Conagua has seen federal funding drop 60% in recent years for water, sewerage and drainage infrastructure, on top of cuts in federal capex contributions to state and municipal governments, creating a backlog of water infrastructure.
Hydro generation will be among the first sectors hit by the growing water stress, according to Muñoz. “When we are in extreme droughts, the priority of water belongs to the population and agriculture. Electricity, mining and other industries are at the bottom of the water use priority.”