1 00:00:00,120 --> 00:00:02,000 Speaker 1: Hi, everyone. About a decade ago, I was talking to 2 00:00:02,040 --> 00:00:03,920 Speaker 1: a friend of mine who is a renewable energy developer. 3 00:00:04,160 --> 00:00:06,440 Speaker 1: He'd done projects all over the world, from Southeast Asia 4 00:00:06,519 --> 00:00:09,400 Speaker 1: to Central Europe to subterin Africa. I asked him what 5 00:00:09,440 --> 00:00:11,240 Speaker 1: was next, and he said, well, we're going all in 6 00:00:11,320 --> 00:00:14,720 Speaker 1: on Mexico. Come again, I said, Mexico is dominated by 7 00:00:14,720 --> 00:00:17,560 Speaker 1: c FEE, the state utility. Well, yeah, he said, but 8 00:00:17,640 --> 00:00:20,560 Speaker 1: it's opening up. They're putting in a big renewable energy target, 9 00:00:20,840 --> 00:00:22,840 Speaker 1: a bunch of new reforms, and it's opening up to 10 00:00:22,880 --> 00:00:26,160 Speaker 1: private development. We're going and they did, and so did 11 00:00:26,200 --> 00:00:29,280 Speaker 1: many others. In fact, Mexico became one of the hottest 12 00:00:29,320 --> 00:00:33,120 Speaker 1: markets for clean energy development. Newly opened Mexico attracted billions 13 00:00:33,120 --> 00:00:36,000 Speaker 1: in investment, driven by three highly successful auctions that are 14 00:00:36,000 --> 00:00:37,960 Speaker 1: tied to more than eight gigawatts of new wind and 15 00:00:38,000 --> 00:00:42,920 Speaker 1: solar capacity. But policy under President Andreas Manuel Lopez o Berdor, 16 00:00:43,200 --> 00:00:45,160 Speaker 1: or AMLO as he's known, has taken a u turn. 17 00:00:45,640 --> 00:00:48,520 Speaker 1: Since taking office in late twenty eighteen, AMLO has canceled 18 00:00:48,560 --> 00:00:51,960 Speaker 1: Mexico's renewable energy auctions and sideline national clean energy targets, 19 00:00:52,479 --> 00:00:56,120 Speaker 1: and recent regulation goes further, asserting that renewables threatened Mexico's 20 00:00:56,160 --> 00:00:58,840 Speaker 1: power grid, placing at risk o for four point five gigawats, 21 00:00:58,880 --> 00:01:01,279 Speaker 1: wind and solar currently under development. To tell us more, 22 00:01:01,280 --> 00:01:03,880 Speaker 1: we've got James Ellis, head of Latin America for BENF 23 00:01:03,880 --> 00:01:06,160 Speaker 1: and based in Sampolo and joining us from Mexico City. 24 00:01:06,280 --> 00:01:09,240 Speaker 1: We've got BENF Medals analysts Sharon Mostrie. You can hear 25 00:01:09,280 --> 00:01:11,200 Speaker 1: Sharon talk medals with us in a recent episode on 26 00:01:11,280 --> 00:01:14,040 Speaker 1: unconventional lithium, but today she'll give us a perspectives on 27 00:01:14,080 --> 00:01:16,480 Speaker 1: the energy sector in Mexico. Our discussion is based on 28 00:01:16,560 --> 00:01:19,680 Speaker 1: report titled No Winners in Amulos Clean Energy Feud. BENOF 29 00:01:19,800 --> 00:01:21,560 Speaker 1: users can get this report on banf dot com, the 30 00:01:21,600 --> 00:01:24,040 Speaker 1: benof mobile app, and the Bloomberg terminal. As a reminder, 31 00:01:24,120 --> 00:01:26,280 Speaker 1: BENIF does not provide investment or strategy advice, and you 32 00:01:26,280 --> 00:01:27,520 Speaker 1: can hear the full dist claimer at the end of 33 00:01:27,560 --> 00:01:29,959 Speaker 1: the show. I'm Mark Taylor and you're listening to Switch 34 00:01:30,080 --> 00:01:41,720 Speaker 1: on the BENF podcast. James, Sharon, Welcome, Mark, Hi Mike, 35 00:01:41,880 --> 00:01:44,720 Speaker 1: thank you for inviting us, Thanks for coming in. James 36 00:01:44,760 --> 00:01:46,600 Speaker 1: is going to point the first question to you. We're 37 00:01:46,600 --> 00:01:48,760 Speaker 1: going to talk today about the president of Mexico and 38 00:01:49,080 --> 00:01:51,440 Speaker 1: some things that are going on with his office. Can 39 00:01:51,480 --> 00:01:54,160 Speaker 1: you describe for us who he is and and kind 40 00:01:54,160 --> 00:01:57,240 Speaker 1: of what he stands for. So, Mexico's president is currently 41 00:01:57,360 --> 00:02:01,680 Speaker 1: Andres Manuel Lopez, known pretty widely as MLO. I think 42 00:02:01,680 --> 00:02:05,080 Speaker 1: he has a very interesting political identity. He's been a 43 00:02:05,120 --> 00:02:08,160 Speaker 1: fixture in Mexico's political scene for quite some time, previously 44 00:02:08,400 --> 00:02:10,840 Speaker 1: been mayor of Mexico City. He came to the presidency 45 00:02:10,880 --> 00:02:15,040 Speaker 1: in a landslide election and took office in December of 46 00:02:15,040 --> 00:02:17,480 Speaker 1: that year, and has since done a number of things. 47 00:02:17,520 --> 00:02:20,720 Speaker 1: He has very very strong supporters and very strong detractors. 48 00:02:20,880 --> 00:02:23,600 Speaker 1: And among the interesting things he's done and controversial things, 49 00:02:23,639 --> 00:02:26,040 Speaker 1: I should also add, are many have to do with 50 00:02:26,080 --> 00:02:28,560 Speaker 1: the energy sector. Sharon, was he mayor when you were 51 00:02:28,560 --> 00:02:31,119 Speaker 1: growing up in Mexico City? Yeah, he was mayor when 52 00:02:31,120 --> 00:02:33,680 Speaker 1: I was little. Still remember a lot of of the 53 00:02:33,760 --> 00:02:36,839 Speaker 1: things he did for the city. He has also run 54 00:02:36,919 --> 00:02:39,920 Speaker 1: for president. This would have been his third time when 55 00:02:39,919 --> 00:02:44,919 Speaker 1: he won, so he was always a very like prominent 56 00:02:45,200 --> 00:02:49,400 Speaker 1: controversial figure and I remember being little when he ran 57 00:02:49,480 --> 00:02:53,360 Speaker 1: the first time. It's worth adding as well that he 58 00:02:53,440 --> 00:02:56,800 Speaker 1: started a new party called Morena not that long ago 59 00:02:56,960 --> 00:03:00,000 Speaker 1: and Morena also had a very large showing in congressional 60 00:03:00,040 --> 00:03:03,200 Speaker 1: elections and currently has a majority in the Senate the 61 00:03:03,280 --> 00:03:06,000 Speaker 1: Chamber of Deputies. Is there there's kind of an analog 62 00:03:06,240 --> 00:03:08,320 Speaker 1: anywhere else, like the U s is is eqilualent to 63 00:03:08,360 --> 00:03:10,560 Speaker 1: like a Tea party or a Trump movement or something 64 00:03:10,560 --> 00:03:14,320 Speaker 1: like that. I don't know if there's a US equivalent. 65 00:03:14,440 --> 00:03:19,000 Speaker 1: He reminds me of Trump in some in some sense, 66 00:03:19,120 --> 00:03:24,119 Speaker 1: like his way of doing politics is very focused on himself, 67 00:03:24,120 --> 00:03:29,400 Speaker 1: like it's it's not necessarily done in an ego less way, 68 00:03:29,680 --> 00:03:32,880 Speaker 1: if that makes sense. I think it's pretty remarkable what 69 00:03:33,000 --> 00:03:37,680 Speaker 1: he achieved. What what James was just saying, he he 70 00:03:37,800 --> 00:03:42,160 Speaker 1: basically formed this party or or brought it to the 71 00:03:42,200 --> 00:03:47,080 Speaker 1: center of Mexican politics in a couple of years out 72 00:03:47,120 --> 00:03:52,760 Speaker 1: of basically nowhere. He got a huge control over Mexican 73 00:03:52,840 --> 00:03:56,520 Speaker 1: politics all around. Can we give some context or a 74 00:03:56,560 --> 00:03:59,760 Speaker 1: backdrop to the whole situation, Sharon, Can you explain to 75 00:03:59,840 --> 00:04:01,520 Speaker 1: us kind of what's going on with the with COVID 76 00:04:01,600 --> 00:04:05,280 Speaker 1: nineteen in Mexico and how that relates to actually the 77 00:04:05,320 --> 00:04:09,840 Speaker 1: energy sector. Mexico still hasn't been able to curb the pandemic. 78 00:04:09,960 --> 00:04:13,680 Speaker 1: We we still have kind of record increases in cases 79 00:04:13,720 --> 00:04:18,039 Speaker 1: each day. The government unfortunately didn't take it very seriously 80 00:04:18,080 --> 00:04:21,839 Speaker 1: in the beginning and made it similar to the US 81 00:04:21,920 --> 00:04:25,719 Speaker 1: kind of a political thing rather than just a health crisis. 82 00:04:26,080 --> 00:04:29,520 Speaker 1: The impact on the energy side is obviously a lot 83 00:04:29,560 --> 00:04:34,760 Speaker 1: of things had to close down, so demand decreased, and 84 00:04:34,920 --> 00:04:38,200 Speaker 1: that was then used as well, what spain for changing 85 00:04:38,360 --> 00:04:42,320 Speaker 1: energy policies. So decrease in demand because people are kind 86 00:04:42,320 --> 00:04:44,440 Speaker 1: of staying home and businesses are shut down has been 87 00:04:44,560 --> 00:04:48,040 Speaker 1: used as a tool to explain away or explain some 88 00:04:48,160 --> 00:04:51,320 Speaker 1: changes that the government was to make. Is that fair? Yeah? So, 89 00:04:51,400 --> 00:04:54,080 Speaker 1: given this, what has Amilo's response been as it relates 90 00:04:54,080 --> 00:04:57,720 Speaker 1: to energy. What's really interesting is that MLO has used 91 00:04:58,200 --> 00:05:02,159 Speaker 1: the COVID nineteen pandemic to push through some regulation that 92 00:05:02,279 --> 00:05:04,640 Speaker 1: gets at some of his objectives that he was already 93 00:05:04,640 --> 00:05:07,560 Speaker 1: trying to achieve before the COVID nineteen pandemic, ever, happened. 94 00:05:07,640 --> 00:05:10,640 Speaker 1: At the end of April, Mexico's market operator Sanata issued 95 00:05:10,680 --> 00:05:15,360 Speaker 1: a resolution that indefinitely suspended tests for all renewable plants 96 00:05:15,360 --> 00:05:18,520 Speaker 1: across the country, and that was pretty interesting because it 97 00:05:18,560 --> 00:05:22,240 Speaker 1: basically effectively barred any new projects, any new intermittent projects, 98 00:05:22,240 --> 00:05:24,960 Speaker 1: which means wind and solar in Mexico's case, from connecting 99 00:05:24,960 --> 00:05:28,360 Speaker 1: to the grid at all. Its specifically said intermittent projects. 100 00:05:28,480 --> 00:05:31,960 Speaker 1: That's correct. Yeah, it denied authorization for future tests, and 101 00:05:32,080 --> 00:05:35,800 Speaker 1: it also subordinated dispatch of existing wind and solar plants 102 00:05:35,880 --> 00:05:39,200 Speaker 1: to cefe's firm capacity over the course of the crisis. 103 00:05:40,080 --> 00:05:42,919 Speaker 1: Kind of question. So we'll get into this. But CFE, 104 00:05:43,040 --> 00:05:46,760 Speaker 1: the Mexican State on Utility, owns a considerable amount of geothermal? 105 00:05:46,839 --> 00:05:50,440 Speaker 1: Did it mention intermittent because CFE owns geothermal resources, so 106 00:05:50,600 --> 00:05:55,039 Speaker 1: it's redowables without geo. I think it's entirely possible. I 107 00:05:55,040 --> 00:05:57,360 Speaker 1: mean CFE, what they don't have is wind and solar. 108 00:05:57,600 --> 00:06:00,080 Speaker 1: And what I think all observers of the situation you 109 00:06:00,120 --> 00:06:02,360 Speaker 1: can agree on is that AMLO very much wants to 110 00:06:02,400 --> 00:06:06,680 Speaker 1: limit private participation in Mexico's energy sector. Period they only 111 00:06:06,680 --> 00:06:10,000 Speaker 1: have two percent of Mexico's total wind and solar capacity. 112 00:06:10,120 --> 00:06:11,800 Speaker 1: See if he only has about two percent of that 113 00:06:11,960 --> 00:06:15,560 Speaker 1: very little, So this has basically been interpreted as efforts 114 00:06:15,720 --> 00:06:20,200 Speaker 1: to achieve that objective by using the pandemic Sharon, why 115 00:06:20,320 --> 00:06:23,640 Speaker 1: is energy so political? In Mexico? Energy has a history 116 00:06:23,680 --> 00:06:28,240 Speaker 1: of being a very important political topic in Mexico since 117 00:06:28,279 --> 00:06:32,160 Speaker 1: like after the Mexican Revolution, so like the nine thirties, 118 00:06:32,480 --> 00:06:35,440 Speaker 1: and for a while the oil and gas and the 119 00:06:35,480 --> 00:06:42,960 Speaker 1: electricity sector were nationalized, and until recently with the presidency 120 00:06:43,040 --> 00:06:47,880 Speaker 1: before Amino, they were private tizes. So MN did not 121 00:06:48,000 --> 00:06:52,240 Speaker 1: want to kind of go back on those reforms explicitly, 122 00:06:52,960 --> 00:06:56,880 Speaker 1: but has been undermining them with the kinds of things 123 00:06:56,920 --> 00:07:01,279 Speaker 1: that Jamsilo is just mentioning for the layer and making 124 00:07:01,279 --> 00:07:05,599 Speaker 1: it really hard for private companies to participate in the 125 00:07:05,760 --> 00:07:09,720 Speaker 1: energy space. But it's so political because there are just 126 00:07:09,840 --> 00:07:13,000 Speaker 1: people in the government who want energy to remain controlled 127 00:07:13,000 --> 00:07:16,040 Speaker 1: by a government. I don't understand why. I think it's 128 00:07:16,040 --> 00:07:21,360 Speaker 1: it's in a pretty old ideology where where basically Mexico 129 00:07:21,440 --> 00:07:26,960 Speaker 1: perceives private companies as coming into the country to extract 130 00:07:27,480 --> 00:07:32,160 Speaker 1: kind of value and resources without giving anything back, and 131 00:07:32,880 --> 00:07:38,440 Speaker 1: specifically with energy, it's thought of as a strategic thing 132 00:07:38,520 --> 00:07:42,000 Speaker 1: that the government should control. What James was mentioning is 133 00:07:42,080 --> 00:07:45,720 Speaker 1: basically what I'm always trying to achieve is to conserve 134 00:07:46,080 --> 00:07:51,240 Speaker 1: the main power within the energy sector in Mexico in 135 00:07:51,280 --> 00:07:56,000 Speaker 1: the hands of public companies. A lot of detractors of 136 00:07:56,040 --> 00:07:59,880 Speaker 1: what I'm low is doing. Will argue that it's actually 137 00:08:00,520 --> 00:08:05,200 Speaker 1: employed to continue with a government who has kept public 138 00:08:05,200 --> 00:08:11,440 Speaker 1: companies running while taking advantage of them as public officers. 139 00:08:11,480 --> 00:08:14,560 Speaker 1: And and there's a lot of corruption going on in 140 00:08:14,680 --> 00:08:19,600 Speaker 1: both CFE and BMICS, So it's a complicated issue where 141 00:08:20,560 --> 00:08:24,160 Speaker 1: officials kind of argue that nationalization is is for the 142 00:08:24,280 --> 00:08:27,680 Speaker 1: security of the country and the benefit of the people. 143 00:08:28,360 --> 00:08:32,760 Speaker 1: So it's kind of a populist tactic, but the detractors 144 00:08:32,800 --> 00:08:36,160 Speaker 1: will say, no, it's just kind of a way to 145 00:08:36,280 --> 00:08:41,720 Speaker 1: get money and to further corruption. I think that as 146 00:08:41,880 --> 00:08:46,320 Speaker 1: as Sharon explained, I mean, energy is a is a 147 00:08:46,320 --> 00:08:49,599 Speaker 1: controversial topic. The energy, the market opening reforms of the 148 00:08:49,679 --> 00:08:52,400 Speaker 1: Penya and Yeto government, the one that preceded AMBLO. It 149 00:08:52,480 --> 00:08:57,400 Speaker 1: involved passing constitutional amendments. It's an inherently controversial issue. I think. 150 00:08:57,400 --> 00:09:01,520 Speaker 1: In Mexico, what we've seen recently and why that's interesting 151 00:09:02,120 --> 00:09:05,840 Speaker 1: is using the low demands scenario that's kind of resulting 152 00:09:05,840 --> 00:09:10,560 Speaker 1: from the pandemic to guarantee the state's share or to 153 00:09:10,600 --> 00:09:13,160 Speaker 1: guarantee that state that that may be you know, the 154 00:09:13,240 --> 00:09:17,360 Speaker 1: slightly older or or inefficient, more fossil fuel based fleet 155 00:09:17,400 --> 00:09:20,160 Speaker 1: of the CFE, to guarantee that those plants continue to 156 00:09:20,240 --> 00:09:25,400 Speaker 1: run instead of instead of intermittent plants is really what's interesting. 157 00:09:25,720 --> 00:09:28,880 Speaker 1: And as I mentioned, those intermittent plants are very much 158 00:09:29,000 --> 00:09:32,120 Speaker 1: the product of private investment that the energy reforms ushered in. 159 00:09:32,640 --> 00:09:37,280 Speaker 1: So they're saying that on current projections of low demand scenario, 160 00:09:37,840 --> 00:09:40,199 Speaker 1: they don't need more power and so they're cutting off 161 00:09:40,200 --> 00:09:43,480 Speaker 1: the top. Well, that's I would say, what it looks 162 00:09:43,520 --> 00:09:47,719 Speaker 1: like the uh SO, both the Senase resolution and then 163 00:09:47,720 --> 00:09:50,360 Speaker 1: there was also the Ministry of Energy published a policy 164 00:09:50,520 --> 00:09:53,160 Speaker 1: in the in the official federal gazette that sort of 165 00:09:53,240 --> 00:09:55,719 Speaker 1: tried to make these changes permanent. They both spoke to 166 00:09:55,760 --> 00:09:59,559 Speaker 1: the same thing, which is safeguarding the reliability of Mexico's 167 00:09:59,679 --> 00:10:03,720 Speaker 1: power system. That that that's what it was really about nominally, 168 00:10:04,040 --> 00:10:09,120 Speaker 1: But what it is really about, I think is is 169 00:10:09,200 --> 00:10:11,520 Speaker 1: and and it's quite quite clear to everyone. It's really 170 00:10:11,559 --> 00:10:14,760 Speaker 1: about a Sharon laid out there. It's about safeguarding the 171 00:10:14,840 --> 00:10:17,480 Speaker 1: role of the public sector and strategic industries. Just to 172 00:10:17,640 --> 00:10:20,800 Speaker 1: add to that, it's important to point out that most 173 00:10:20,880 --> 00:10:26,040 Speaker 1: of the generation that the CFE owns is fossil fuel, 174 00:10:26,160 --> 00:10:32,280 Speaker 1: so usually they they kind of marginal, and especially the 175 00:10:32,360 --> 00:10:36,880 Speaker 1: oil field plans they would run now in the summer 176 00:10:37,120 --> 00:10:41,800 Speaker 1: where COVID has had the most impact. So part of 177 00:10:41,840 --> 00:10:45,720 Speaker 1: what they're doing is it's very connected to PEMICS and 178 00:10:45,800 --> 00:10:51,240 Speaker 1: the fact that i AM reduce the demand for the 179 00:10:51,280 --> 00:10:54,679 Speaker 1: oil that pemics produced. But this oil can be used 180 00:10:55,200 --> 00:10:59,080 Speaker 1: in the generators of the CF so it's kind of 181 00:11:00,000 --> 00:11:03,360 Speaker 1: to put to use that excess oil that be MIX has. 182 00:11:03,400 --> 00:11:09,199 Speaker 1: There's this kind of new organization of how you can 183 00:11:09,240 --> 00:11:13,440 Speaker 1: deploy energy assets within the market in Mexico and giving 184 00:11:13,520 --> 00:11:17,800 Speaker 1: priority to fossil fuel generators so that they could use 185 00:11:18,160 --> 00:11:21,480 Speaker 1: this excess oil is also part of this story. So 186 00:11:21,559 --> 00:11:24,120 Speaker 1: just to clarify for those it might not be familiar, pemmics, 187 00:11:24,200 --> 00:11:26,240 Speaker 1: I guess the is the National Oil Company of Mexico. 188 00:11:26,320 --> 00:11:30,880 Speaker 1: Is that right? And i AM is the International Maritime 189 00:11:31,200 --> 00:11:37,000 Speaker 1: Organization Organization. Yeah, which basically it reduced the amount of 190 00:11:37,040 --> 00:11:40,760 Speaker 1: sulfur you can have an oil used in shipping, and 191 00:11:40,880 --> 00:11:43,600 Speaker 1: that tends to be the oil that BEMIS produces. So 192 00:11:43,679 --> 00:11:47,319 Speaker 1: now they have reduced demand for oil, so there's a 193 00:11:47,320 --> 00:11:49,560 Speaker 1: reduced demand for this and now they can say, okay, 194 00:11:49,640 --> 00:11:52,280 Speaker 1: we can just burn this for power generation in Mexico. 195 00:11:53,000 --> 00:11:55,079 Speaker 1: So James, you said to see if he only owns 196 00:11:55,080 --> 00:11:58,280 Speaker 1: two to three percent of the intermittent capacity or wind 197 00:11:58,320 --> 00:12:01,640 Speaker 1: and solar capacity in Mexico, what companies when they opened 198 00:12:01,720 --> 00:12:04,480 Speaker 1: up the barn doors, as it were, to open up 199 00:12:04,480 --> 00:12:07,760 Speaker 1: the end of energy industry in Mexico, what companies came 200 00:12:07,800 --> 00:12:12,400 Speaker 1: in who participated in the auctions. So the largest owners 201 00:12:12,679 --> 00:12:15,880 Speaker 1: currently of wind and solar capacity in Mexico are our 202 00:12:15,920 --> 00:12:19,880 Speaker 1: European developers. We're talking about a nell I, guerdroa Axon, 203 00:12:19,960 --> 00:12:23,760 Speaker 1: a UK based investor Actors owns a number of developer 204 00:12:23,760 --> 00:12:28,839 Speaker 1: platforms as well, and so on. But in general, the 205 00:12:28,880 --> 00:12:33,679 Speaker 1: auctions that Mexico held over seventeen there were three of them. 206 00:12:33,880 --> 00:12:37,120 Speaker 1: They were highly successful, transparent and competitive internationally. They were 207 00:12:37,120 --> 00:12:41,160 Speaker 1: considered to be successes, and they really attracted a wide 208 00:12:41,240 --> 00:12:44,079 Speaker 1: variety of players. As you said, just a few years ago, 209 00:12:44,160 --> 00:12:46,480 Speaker 1: Mexico was very much top of mind if you were 210 00:12:46,520 --> 00:12:49,840 Speaker 1: thinking about exciting new markets for development of clean energy. 211 00:12:49,960 --> 00:12:52,800 Speaker 1: And why this story is so interesting is that it 212 00:12:52,880 --> 00:12:55,880 Speaker 1: has been a complete one eight From a policy point 213 00:12:55,880 --> 00:12:57,760 Speaker 1: of view, and as you said before, you think this 214 00:12:57,880 --> 00:13:03,000 Speaker 1: is a push for supply security or nationalization of the 215 00:13:03,120 --> 00:13:07,280 Speaker 1: energy sector. I think that m low is this government 216 00:13:07,440 --> 00:13:11,240 Speaker 1: is fundamentally opposed to the energy reforms that were passed 217 00:13:11,240 --> 00:13:14,240 Speaker 1: by the last government. They are not in favor of 218 00:13:14,280 --> 00:13:17,000 Speaker 1: private participation in the in the energy sector on either 219 00:13:17,040 --> 00:13:19,520 Speaker 1: the oil and gas side or or the electricity side, 220 00:13:19,679 --> 00:13:23,240 Speaker 1: and they're looking to safeguard what role the state has 221 00:13:23,559 --> 00:13:26,160 Speaker 1: and and then possibly build on that. And you can 222 00:13:26,200 --> 00:13:28,920 Speaker 1: point to many steps that the government took but before 223 00:13:30,040 --> 00:13:33,320 Speaker 1: since Amlo took office that bolster this perspective. Okay, In 224 00:13:33,360 --> 00:13:37,400 Speaker 1: addition to cancel they canceled the renewable energy Auction program, 225 00:13:37,440 --> 00:13:39,440 Speaker 1: which by the way, as I mentioned, were considered to 226 00:13:39,440 --> 00:13:44,880 Speaker 1: be successful and transparent, competitive secured, competitively priced power for 227 00:13:44,960 --> 00:13:48,280 Speaker 1: the cfe's residential supply arm. By the time that the 228 00:13:48,320 --> 00:13:50,240 Speaker 1: prices kind of fell every auction, and by the time 229 00:13:50,280 --> 00:13:53,520 Speaker 1: they got to the third the average average off taker 230 00:13:53,559 --> 00:13:56,440 Speaker 1: price was was under twenty dollars per megal at hour. 231 00:13:56,880 --> 00:13:58,520 Speaker 1: Over the course of the past year and a half, 232 00:13:58,559 --> 00:14:01,080 Speaker 1: the government has also sought to dilute the market for 233 00:14:01,080 --> 00:14:05,040 Speaker 1: renewable energy credits, has basically sideline national clean energy targets 234 00:14:05,400 --> 00:14:07,920 Speaker 1: and then also kind of taken steps to even even 235 00:14:07,960 --> 00:14:12,360 Speaker 1: undercut benefits that legacy wind and solar projects and received, 236 00:14:12,400 --> 00:14:15,160 Speaker 1: which predates energy or form, so there's sort of like 237 00:14:15,160 --> 00:14:17,160 Speaker 1: a long I guess I would say there's a there's 238 00:14:17,160 --> 00:14:19,440 Speaker 1: a pretty long paper trail here of looking to limit 239 00:14:19,480 --> 00:14:23,200 Speaker 1: private participation in the energy sector, and unfortunately that very 240 00:14:23,240 --> 00:14:26,440 Speaker 1: much has brought wind and solar into the crosshairs. Shared 241 00:14:26,480 --> 00:14:29,720 Speaker 1: as a resident of Mexico City, have you noticed any 242 00:14:29,840 --> 00:14:33,680 Speaker 1: changes in in either supply reliability and has there been 243 00:14:33,720 --> 00:14:36,760 Speaker 1: blackouts or has there been any differences to your day 244 00:14:36,760 --> 00:14:39,680 Speaker 1: to day life as electually been more expensive. No, I 245 00:14:39,720 --> 00:14:43,040 Speaker 1: wouldn't say I've noticed any huge differences yet. There haven't 246 00:14:43,080 --> 00:14:47,440 Speaker 1: been any blackouts, and the prices in Mexico are are 247 00:14:47,520 --> 00:14:50,520 Speaker 1: quite subsidized, so I haven't noticed a rise in the 248 00:14:50,600 --> 00:14:54,280 Speaker 1: last few months. I wanted to add to James's comment, 249 00:14:54,400 --> 00:14:58,680 Speaker 1: which is, yeah, the government has been very creative and 250 00:14:58,960 --> 00:15:01,520 Speaker 1: in the way it is trying to consolidate power for 251 00:15:02,160 --> 00:15:05,360 Speaker 1: the CFE and for by mix. But just to like 252 00:15:05,440 --> 00:15:10,720 Speaker 1: put it into perspective of the two sides, one side 253 00:15:11,040 --> 00:15:16,440 Speaker 1: will say that this nationalization of energy is good for 254 00:15:16,600 --> 00:15:22,200 Speaker 1: prices and ultimately saves a taxpayer money even if we 255 00:15:22,280 --> 00:15:25,880 Speaker 1: don't notice it in our bills, because it reduces the 256 00:15:25,960 --> 00:15:30,080 Speaker 1: subsidies that that the government has to give um. The 257 00:15:30,120 --> 00:15:33,760 Speaker 1: other side will say that's that's false, like, actually, these 258 00:15:33,760 --> 00:15:39,160 Speaker 1: intermittent sources are are a lot cheaper to run, and 259 00:15:39,680 --> 00:15:42,360 Speaker 1: it makes no sense to say that prices will be 260 00:15:43,080 --> 00:15:48,680 Speaker 1: higher with renewables versus versus gas or oil plants because 261 00:15:48,920 --> 00:15:51,920 Speaker 1: just their marginal clusts are a lot higher. It's also 262 00:15:51,960 --> 00:15:57,200 Speaker 1: important to say, like some people think this nationalization tactic 263 00:15:57,520 --> 00:16:01,920 Speaker 1: for security reasons is also because a lot of the 264 00:16:02,000 --> 00:16:05,920 Speaker 1: gas that Mexico would use for most of its fossil 265 00:16:05,960 --> 00:16:10,800 Speaker 1: fuel plants within the Cifee is imported. So ultimately we 266 00:16:10,880 --> 00:16:17,960 Speaker 1: still rely on like for foreign resources to power the 267 00:16:18,080 --> 00:16:22,320 Speaker 1: national power company. So really, what what would need to 268 00:16:22,360 --> 00:16:28,200 Speaker 1: happen is if the national company wants to be fully 269 00:16:28,280 --> 00:16:33,040 Speaker 1: sovereign and and independent of you know, US gas imports, 270 00:16:33,080 --> 00:16:37,080 Speaker 1: it would have to invest in renewables itself for or 271 00:16:37,480 --> 00:16:42,000 Speaker 1: generate gas within Mexico, which it seems unlikely. Why hasn't 272 00:16:42,120 --> 00:16:45,600 Speaker 1: see if he invested in renewables. I don't know that 273 00:16:45,640 --> 00:16:48,200 Speaker 1: I could give, you know, not not being party to 274 00:16:48,240 --> 00:16:51,240 Speaker 1: see if he sort of strategic decision making, I don't 275 00:16:51,240 --> 00:16:53,760 Speaker 1: know if I could like fully, you know, give a 276 00:16:53,800 --> 00:16:56,680 Speaker 1: full answer to that But what we can say from 277 00:16:56,720 --> 00:17:00,000 Speaker 1: from from looking at like for example, the Mexican government 278 00:17:00,120 --> 00:17:02,960 Speaker 1: independent audit of CFE a few years ago, and for 279 00:17:03,040 --> 00:17:06,120 Speaker 1: looking looking at its sort of public financial accounts and 280 00:17:06,280 --> 00:17:10,400 Speaker 1: also it's lack of investment in renewable energy and generally 281 00:17:10,520 --> 00:17:15,119 Speaker 1: aging generation portfolio, is that it sort of lacks a 282 00:17:15,160 --> 00:17:19,680 Speaker 1: plan or mandate to to to revamp itself. It is 283 00:17:19,720 --> 00:17:23,200 Speaker 1: sort of a classic on large on competitive public entity 284 00:17:23,640 --> 00:17:29,440 Speaker 1: that nevertheless is the backbone of Mexico's generation capacity. It's 285 00:17:29,480 --> 00:17:33,919 Speaker 1: has a market share by capacity, so the CFE is 286 00:17:33,960 --> 00:17:37,800 Speaker 1: fundamental to to to the sector. But it's also sort 287 00:17:37,840 --> 00:17:41,880 Speaker 1: of a bit, I think a little bit in UM 288 00:17:42,040 --> 00:17:45,560 Speaker 1: caught between two competing visions for for for what Mexico's 289 00:17:45,640 --> 00:17:49,160 Speaker 1: energy sector should be. These these famous energy reforms begun 290 00:17:49,160 --> 00:17:55,320 Speaker 1: in unbundled the utility UM. But as Sharon said, supply 291 00:17:55,480 --> 00:17:58,800 Speaker 1: to two households is one of the areas that remains 292 00:17:59,000 --> 00:18:01,960 Speaker 1: in the that that it kind of retains monopoly of 293 00:18:02,160 --> 00:18:05,760 Speaker 1: over as well as transmission and distribution, and its generation 294 00:18:05,880 --> 00:18:08,920 Speaker 1: segment was broke down into six different, six different entities. 295 00:18:09,160 --> 00:18:11,919 Speaker 1: But ultimately, when it comes to I mean, when it 296 00:18:11,960 --> 00:18:16,480 Speaker 1: comes to costs, Mexicans Mexican citizens do pay lower, low 297 00:18:16,560 --> 00:18:21,120 Speaker 1: by regional standards prices for power and that's due to subsidy. UM. 298 00:18:21,200 --> 00:18:24,720 Speaker 1: In each of the past two years, that's total about 299 00:18:24,720 --> 00:18:27,480 Speaker 1: four billion U S dollars from that's been the transferred 300 00:18:27,520 --> 00:18:29,880 Speaker 1: from the government to CFE. So even if you don't 301 00:18:29,920 --> 00:18:32,560 Speaker 1: feel it in your power bill, then costs are born 302 00:18:32,680 --> 00:18:35,439 Speaker 1: somewhere in the in the sense of higher system costs, 303 00:18:35,520 --> 00:18:39,240 Speaker 1: and then government subsidy, which ultimately flows through the taxes 304 00:18:39,280 --> 00:18:41,840 Speaker 1: I suppose at some point. So it couldn't compromise be 305 00:18:42,400 --> 00:18:46,040 Speaker 1: for both these competing visions. Be Yeah, let these quote 306 00:18:46,119 --> 00:18:49,840 Speaker 1: unquote reforms go through UH and more control goes to CFE, 307 00:18:49,960 --> 00:18:53,040 Speaker 1: but allowed developers to come in and develop wind and 308 00:18:53,080 --> 00:18:56,680 Speaker 1: solar projects. That see if he would then buy right, 309 00:18:56,720 --> 00:19:00,359 Speaker 1: So see if he becomes a competitive utility buying competitive power, 310 00:19:00,560 --> 00:19:02,639 Speaker 1: but it doesn't have to develop the know how or 311 00:19:02,680 --> 00:19:05,119 Speaker 1: the you know, doesn't have to build the projects themselves, 312 00:19:05,160 --> 00:19:09,440 Speaker 1: wouldn't that work? Yeah? I I well, I think one, 313 00:19:09,560 --> 00:19:11,160 Speaker 1: as you said, we don't know, but I think that's 314 00:19:11,200 --> 00:19:15,399 Speaker 1: absolutely a that that that that would be a a 315 00:19:15,920 --> 00:19:19,719 Speaker 1: positive and constructive step. Um, there's no reason why they 316 00:19:19,760 --> 00:19:22,639 Speaker 1: can't tender why they couldn't tend their projects, uh and 317 00:19:22,760 --> 00:19:25,600 Speaker 1: and sort of and and and begin the process of 318 00:19:25,640 --> 00:19:30,320 Speaker 1: revamping their portfolio and its diversifying into into new clean technologies. 319 00:19:30,800 --> 00:19:33,520 Speaker 1: I mean this is common in several other countries that 320 00:19:33,560 --> 00:19:36,320 Speaker 1: have national power companies, where you just tend to the 321 00:19:36,359 --> 00:19:39,479 Speaker 1: project and then buy it once it's build. Yeah, you know, 322 00:19:39,760 --> 00:19:43,440 Speaker 1: Sharon I think brought in a really fundamental theme before 323 00:19:43,440 --> 00:19:45,679 Speaker 1: when when when she was talking about bringing in the 324 00:19:45,760 --> 00:19:48,520 Speaker 1: national company the I m O regulation what to do 325 00:19:48,600 --> 00:19:52,120 Speaker 1: with this excess fuel oil? And that is that um 326 00:19:52,200 --> 00:19:55,360 Speaker 1: AMBLO has this sort of old school view I suppose 327 00:19:55,560 --> 00:19:57,959 Speaker 1: of what it means to be what what what it 328 00:19:58,040 --> 00:20:00,520 Speaker 1: what it means to be sovereign? Maybe, and that is 329 00:20:00,560 --> 00:20:05,680 Speaker 1: based on Mexico should seek to return to it's it's 330 00:20:05,760 --> 00:20:07,840 Speaker 1: it's higher producing days in terms of oil and gas. 331 00:20:07,920 --> 00:20:11,000 Speaker 1: It should refine all it's all of its own crude 332 00:20:11,280 --> 00:20:13,959 Speaker 1: into into refined products, and it should basically you know 333 00:20:14,080 --> 00:20:16,880 Speaker 1: that the should do be able to do everything itself. 334 00:20:16,960 --> 00:20:18,919 Speaker 1: I don't think anybody has ever gotten a sense that 335 00:20:19,040 --> 00:20:21,399 Speaker 1: the at the high highest levels of this government that 336 00:20:21,400 --> 00:20:24,280 Speaker 1: they actually understand the value of renewables. I think they 337 00:20:24,320 --> 00:20:28,320 Speaker 1: actually view renewables as a and by by renewables, I 338 00:20:28,359 --> 00:20:30,399 Speaker 1: mean winded soul, and mostly they view it as an 339 00:20:30,400 --> 00:20:36,160 Speaker 1: expensive alternative possibly also sort of laced with with corruption, corruption, 340 00:20:36,400 --> 00:20:40,800 Speaker 1: and time to the private sector. So there's clearly misunderstanding. Okay, 341 00:20:40,800 --> 00:20:43,200 Speaker 1: so my my quote unquote compromise is not going to work. 342 00:20:43,640 --> 00:20:48,960 Speaker 1: What is actually happening then in Mexico, the latest regulatory 343 00:20:49,000 --> 00:20:52,200 Speaker 1: and policy steps the government has taken are very vulnerable 344 00:20:52,200 --> 00:20:55,080 Speaker 1: to legal challenge, and in fact, since this sort of 345 00:20:55,320 --> 00:20:57,919 Speaker 1: latest attack I guess you could say on renewables has happened, 346 00:20:58,080 --> 00:21:01,480 Speaker 1: there's been three separate in junks at the federal court 347 00:21:01,520 --> 00:21:04,600 Speaker 1: and even the Supreme Court level that have suspended their implementation. 348 00:21:04,960 --> 00:21:07,520 Speaker 1: So what that means is that basically all this um 349 00:21:07,680 --> 00:21:11,080 Speaker 1: kind of like anti renewable policy is sort of on 350 00:21:11,280 --> 00:21:15,119 Speaker 1: hold and pending. It doesn't mean it's completely shot down, 351 00:21:15,440 --> 00:21:17,879 Speaker 1: but the fact that that a lot of what Amilo 352 00:21:17,920 --> 00:21:20,040 Speaker 1: has tried to do in the electricity sector has not 353 00:21:20,160 --> 00:21:24,560 Speaker 1: been successful in moving forward kind of underscores the strength 354 00:21:24,800 --> 00:21:28,000 Speaker 1: with which energy reform was passed. I mean, there are 355 00:21:28,280 --> 00:21:30,439 Speaker 1: conflicts with what he's trying to do, both with the 356 00:21:30,520 --> 00:21:35,480 Speaker 1: constitutional amendments as well as with the implementing legislation. So yeah, 357 00:21:35,560 --> 00:21:40,520 Speaker 1: the regulatory rollback that is currently conceived is faces a 358 00:21:40,520 --> 00:21:43,080 Speaker 1: lot of headwinds going forward, and it's unclear if any 359 00:21:43,119 --> 00:21:46,400 Speaker 1: of this stuff will actually remain standing. To add to that, 360 00:21:46,600 --> 00:21:50,879 Speaker 1: it's actually been quite hardening to see an institutional checks 361 00:21:50,880 --> 00:21:55,000 Speaker 1: and balances play out with this particular issue in Mexico. 362 00:21:55,680 --> 00:21:59,440 Speaker 1: So the two injunctions that James was referring to, one 363 00:21:59,480 --> 00:22:03,760 Speaker 1: reason they were given was they would undermine competition and 364 00:22:04,119 --> 00:22:08,199 Speaker 1: further monopoly, which would be the CFE. And then the 365 00:22:08,200 --> 00:22:13,359 Speaker 1: other reason is actually quite historical. It was given for 366 00:22:13,560 --> 00:22:18,400 Speaker 1: reasons to protect the environment. So the Supreme Court legitimized 367 00:22:19,080 --> 00:22:23,360 Speaker 1: environmental issues as a reason to stop these new regulations 368 00:22:23,440 --> 00:22:26,840 Speaker 1: going forward. If I'm a private company that it looked 369 00:22:26,840 --> 00:22:28,960 Speaker 1: at Mexico ten years ago, I think we might be 370 00:22:29,000 --> 00:22:30,600 Speaker 1: in a situation where it seemed like a good idea 371 00:22:30,640 --> 00:22:33,679 Speaker 1: at the time. Have private company has been kind of 372 00:22:33,720 --> 00:22:36,200 Speaker 1: spooked by what's going on there or are they still 373 00:22:36,280 --> 00:22:39,359 Speaker 1: interested in Mexico as in the market opportunity. You know, 374 00:22:39,480 --> 00:22:42,719 Speaker 1: I think they're still interested in Mexico as a market opportunity. 375 00:22:42,960 --> 00:22:47,159 Speaker 1: But I also think it would be naive to think 376 00:22:47,280 --> 00:22:51,560 Speaker 1: that these latest policies and the overall sort of approach 377 00:22:52,160 --> 00:22:56,800 Speaker 1: of the animal administration to the sector hasn't seriously undermined 378 00:22:56,920 --> 00:23:01,480 Speaker 1: investor confidence. So I think jects that are in the 379 00:23:01,600 --> 00:23:04,640 Speaker 1: queue in the pipeline, that are financed under construction, they 380 00:23:04,640 --> 00:23:07,280 Speaker 1: are by and large moving ahead. I think that if 381 00:23:07,320 --> 00:23:10,800 Speaker 1: you go a step out, it might be the projects 382 00:23:10,800 --> 00:23:13,560 Speaker 1: that are more in conceptual phase. It might be more 383 00:23:13,680 --> 00:23:16,320 Speaker 1: what I guess what I mean is new or potential investment. 384 00:23:16,480 --> 00:23:18,320 Speaker 1: I would expect to take a serious hit from this 385 00:23:18,760 --> 00:23:22,000 Speaker 1: kind of the view from the ground. Since the start 386 00:23:22,280 --> 00:23:26,600 Speaker 1: of Aminos presidency, his speech has has been very clear 387 00:23:26,640 --> 00:23:30,719 Speaker 1: about his lack of support for the private sector, both 388 00:23:31,119 --> 00:23:37,720 Speaker 1: foreign companies and national companies, and that has seriously slowed 389 00:23:37,720 --> 00:23:41,080 Speaker 1: down investment in the country in general. I think the 390 00:23:41,200 --> 00:23:44,919 Speaker 1: energy sector kind of took a while to see this 391 00:23:45,119 --> 00:23:48,679 Speaker 1: get to them. But if it follows the same trajectory 392 00:23:48,960 --> 00:23:54,960 Speaker 1: as other investors and their confidence in Mexico, both national 393 00:23:54,960 --> 00:23:58,760 Speaker 1: investors and foreign investors, but in other sectors, then I 394 00:23:58,800 --> 00:24:03,320 Speaker 1: would expect for there to be a slowdown in the 395 00:24:03,560 --> 00:24:07,840 Speaker 1: energy space as well, just because it's really hard to 396 00:24:07,880 --> 00:24:13,800 Speaker 1: deal with a government that is so inconsistent and and 397 00:24:13,880 --> 00:24:17,639 Speaker 1: that makes it a lot more risky too to invest 398 00:24:17,680 --> 00:24:22,160 Speaker 1: in these huge projects and the presidency in Mexico markets, 399 00:24:22,200 --> 00:24:26,359 Speaker 1: it's it's just worth worth noting as well. UM is 400 00:24:26,400 --> 00:24:31,480 Speaker 1: a single six year term. An MLS is just about 401 00:24:31,600 --> 00:24:35,440 Speaker 1: two years in, so there's you know, there's four more 402 00:24:35,520 --> 00:24:39,000 Speaker 1: years of UH to see where things go. And I 403 00:24:39,000 --> 00:24:43,040 Speaker 1: would imagine you know, a material a material amount of 404 00:24:43,080 --> 00:24:45,600 Speaker 1: investment will be will be delayed or or you know, 405 00:24:45,720 --> 00:24:49,439 Speaker 1: maybe some investors will think twice and hit pause UM 406 00:24:49,840 --> 00:24:52,879 Speaker 1: on on new projects. But we're talking about just to 407 00:24:52,920 --> 00:24:56,240 Speaker 1: put numbers to this, we're talking about there's about almost 408 00:24:56,280 --> 00:24:58,560 Speaker 1: five giga lots of wind and solar that's under development 409 00:24:58,600 --> 00:25:01,840 Speaker 1: currently UM. Then there's about almost eleven gig lots of 410 00:25:01,880 --> 00:25:05,520 Speaker 1: wind and solar that is UH that is commissioned. So 411 00:25:05,560 --> 00:25:08,520 Speaker 1: a lot has has gone into the ground, but there's 412 00:25:08,520 --> 00:25:11,120 Speaker 1: still a lot that's kind of in limbo. Absolutely, And 413 00:25:11,119 --> 00:25:12,560 Speaker 1: part of the reason why a lot has gone into 414 00:25:12,560 --> 00:25:15,760 Speaker 1: the ground is that Mexico has a very strong history 415 00:25:15,800 --> 00:25:20,080 Speaker 1: of renewables UM that that that pre date this UH. 416 00:25:20,119 --> 00:25:23,040 Speaker 1: This discussion by long ways with wind development has been 417 00:25:23,080 --> 00:25:28,320 Speaker 1: particularly strong in Mexico, predating energy reform. In fact, final question, 418 00:25:28,800 --> 00:25:31,120 Speaker 1: is there a winner in all of this. We think 419 00:25:31,119 --> 00:25:34,080 Speaker 1: it's very hard to see a winner in all this 420 00:25:34,560 --> 00:25:38,320 Speaker 1: simply because, as has already been amply demonstrated, the government 421 00:25:38,320 --> 00:25:41,119 Speaker 1: in the private sector are going to lock horns every 422 00:25:41,160 --> 00:25:44,320 Speaker 1: time a new policy or regulation comes out that that 423 00:25:44,440 --> 00:25:47,360 Speaker 1: is that is sort of easily open to legal challenge 424 00:25:47,680 --> 00:25:50,679 Speaker 1: um and, which all of these have been. So what 425 00:25:50,800 --> 00:25:52,920 Speaker 1: we're likely looking at because we do think that it's 426 00:25:52,960 --> 00:25:55,760 Speaker 1: it's quite likely that EMIL will continue to challenge the 427 00:25:55,800 --> 00:25:59,439 Speaker 1: private sector and therefore renewables. We think it's likely that 428 00:25:59,440 --> 00:26:03,480 Speaker 1: we're going to see continuing um and and probably mutually 429 00:26:03,560 --> 00:26:08,800 Speaker 1: damaging legal legal fights. So UM stay tuned. We definitely 430 00:26:08,840 --> 00:26:10,520 Speaker 1: will and we'll definitely have to have you back on 431 00:26:10,520 --> 00:26:13,520 Speaker 1: the show to talk about it. Sharon James, thanks for joining. 432 00:26:13,920 --> 00:26:21,879 Speaker 1: Thank you, thanks so much. Mark. Bloomberguin e F is 433 00:26:21,880 --> 00:26:24,639 Speaker 1: a service provided by Bloomberg Finance LP and its affiliates. 434 00:26:24,760 --> 00:26:27,440 Speaker 1: This recording does not constitute, nor should it be construed 435 00:26:27,480 --> 00:26:31,280 Speaker 1: as investment advice, investment recommendations, or a recommendation as to 436 00:26:31,480 --> 00:26:34,080 Speaker 1: an investment or other strategy. Bloomberguin e F should not 437 00:26:34,080 --> 00:26:36,760 Speaker 1: be considered as information sufficient upon which to base an 438 00:26:36,800 --> 00:26:40,320 Speaker 1: investment decision. Neither Bloomberg Finance LP, nor any of its 439 00:26:40,320 --> 00:26:43,800 Speaker 1: affiliates makes any representation or warranty as to the accuracy 440 00:26:43,880 --> 00:26:46,560 Speaker 1: or completeness of the information contained in this recording, and 441 00:26:46,680 --> 00:26:49,320 Speaker 1: any liability as a result of this recording is expressly 442 00:26:49,320 --> 00:26:49,840 Speaker 1: disclaimed