WEBVTT - The Fight for Mexico's Energy Future 0:00:00.120 --> 0:00:02.000 Hi, everyone. About a decade ago, I was talking to 0:00:02.040 --> 0:00:03.920 a friend of mine who is a renewable energy developer. 0:00:04.160 --> 0:00:06.440 He'd done projects all over the world, from Southeast Asia 0:00:06.519 --> 0:00:09.400 to Central Europe to subterin Africa. I asked him what 0:00:09.440 --> 0:00:11.240 was next, and he said, well, we're going all in 0:00:11.320 --> 0:00:14.720 on Mexico. Come again, I said, Mexico is dominated by 0:00:14.720 --> 0:00:17.560 c FEE, the state utility. Well, yeah, he said, but 0:00:17.640 --> 0:00:20.560 it's opening up. They're putting in a big renewable energy target, 0:00:20.840 --> 0:00:22.840 a bunch of new reforms, and it's opening up to 0:00:22.880 --> 0:00:26.160 private development. We're going and they did, and so did 0:00:26.200 --> 0:00:29.280 many others. In fact, Mexico became one of the hottest 0:00:29.320 --> 0:00:33.120 markets for clean energy development. Newly opened Mexico attracted billions 0:00:33.120 --> 0:00:36.000 in investment, driven by three highly successful auctions that are 0:00:36.000 --> 0:00:37.960 tied to more than eight gigawatts of new wind and 0:00:38.000 --> 0:00:42.920 solar capacity. But policy under President Andreas Manuel Lopez o Berdor, 0:00:43.200 --> 0:00:45.160 or AMLO as he's known, has taken a u turn. 0:00:45.640 --> 0:00:48.520 Since taking office in late twenty eighteen, AMLO has canceled 0:00:48.560 --> 0:00:51.960 Mexico's renewable energy auctions and sideline national clean energy targets, 0:00:52.479 --> 0:00:56.120 and recent regulation goes further, asserting that renewables threatened Mexico's 0:00:56.160 --> 0:00:58.840 power grid, placing at risk o for four point five gigawats, 0:00:58.880 --> 0:01:01.279 wind and solar currently under development. To tell us more, 0:01:01.280 --> 0:01:03.880 we've got James Ellis, head of Latin America for BENF 0:01:03.880 --> 0:01:06.160 and based in Sampolo and joining us from Mexico City. 0:01:06.280 --> 0:01:09.240 We've got BENF Medals analysts Sharon Mostrie. You can hear 0:01:09.280 --> 0:01:11.200 Sharon talk medals with us in a recent episode on 0:01:11.280 --> 0:01:14.040 unconventional lithium, but today she'll give us a perspectives on 0:01:14.080 --> 0:01:16.480 the energy sector in Mexico. Our discussion is based on 0:01:16.560 --> 0:01:19.680 report titled No Winners in Amulos Clean Energy Feud. BENOF 0:01:19.800 --> 0:01:21.560 users can get this report on banf dot com, the 0:01:21.600 --> 0:01:24.040 benof mobile app, and the Bloomberg terminal. As a reminder, 0:01:24.120 --> 0:01:26.280 BENIF does not provide investment or strategy advice, and you 0:01:26.280 --> 0:01:27.520 can hear the full dist claimer at the end of 0:01:27.560 --> 0:01:29.959 the show. I'm Mark Taylor and you're listening to Switch 0:01:30.080 --> 0:01:41.720 on the BENF podcast. James, Sharon, Welcome, Mark, Hi Mike, 0:01:41.880 --> 0:01:44.720 thank you for inviting us, Thanks for coming in. James 0:01:44.760 --> 0:01:46.600 is going to point the first question to you. We're 0:01:46.600 --> 0:01:48.760 going to talk today about the president of Mexico and 0:01:49.080 --> 0:01:51.440 some things that are going on with his office. Can 0:01:51.480 --> 0:01:54.160 you describe for us who he is and and kind 0:01:54.160 --> 0:01:57.240 of what he stands for. So, Mexico's president is currently 0:01:57.360 --> 0:02:01.680 Andres Manuel Lopez, known pretty widely as MLO. I think 0:02:01.680 --> 0:02:05.080 he has a very interesting political identity. He's been a 0:02:05.120 --> 0:02:08.160 fixture in Mexico's political scene for quite some time, previously 0:02:08.400 --> 0:02:10.840 been mayor of Mexico City. He came to the presidency 0:02:10.880 --> 0:02:15.040 in a landslide election and took office in December of 0:02:15.040 --> 0:02:17.480 that year, and has since done a number of things. 0:02:17.520 --> 0:02:20.720 He has very very strong supporters and very strong detractors. 0:02:20.880 --> 0:02:23.600 And among the interesting things he's done and controversial things, 0:02:23.639 --> 0:02:26.040 I should also add, are many have to do with 0:02:26.080 --> 0:02:28.560 the energy sector. Sharon, was he mayor when you were 0:02:28.560 --> 0:02:31.119 growing up in Mexico City? Yeah, he was mayor when 0:02:31.120 --> 0:02:33.680 I was little. Still remember a lot of of the 0:02:33.760 --> 0:02:36.839 things he did for the city. He has also run 0:02:36.919 --> 0:02:39.920 for president. This would have been his third time when 0:02:39.919 --> 0:02:44.919 he won, so he was always a very like prominent 0:02:45.200 --> 0:02:49.400 controversial figure and I remember being little when he ran 0:02:49.480 --> 0:02:53.360 the first time. It's worth adding as well that he 0:02:53.440 --> 0:02:56.800 started a new party called Morena not that long ago 0:02:56.960 --> 0:03:00.000 and Morena also had a very large showing in congressional 0:03:00.040 --> 0:03:03.200 elections and currently has a majority in the Senate the 0:03:03.280 --> 0:03:06.000 Chamber of Deputies. Is there there's kind of an analog 0:03:06.240 --> 0:03:08.320 anywhere else, like the U s is is eqilualent to 0:03:08.360 --> 0:03:10.560 like a Tea party or a Trump movement or something 0:03:10.560 --> 0:03:14.320 like that. I don't know if there's a US equivalent. 0:03:14.440 --> 0:03:19.000 He reminds me of Trump in some in some sense, 0:03:19.120 --> 0:03:24.119 like his way of doing politics is very focused on himself, 0:03:24.120 --> 0:03:29.400 like it's it's not necessarily done in an ego less way, 0:03:29.680 --> 0:03:32.880 if that makes sense. I think it's pretty remarkable what 0:03:33.000 --> 0:03:37.680 he achieved. What what James was just saying, he he 0:03:37.800 --> 0:03:42.160 basically formed this party or or brought it to the 0:03:42.200 --> 0:03:47.080 center of Mexican politics in a couple of years out 0:03:47.120 --> 0:03:52.760 of basically nowhere. He got a huge control over Mexican 0:03:52.840 --> 0:03:56.520 politics all around. Can we give some context or a 0:03:56.560 --> 0:03:59.760 backdrop to the whole situation, Sharon, Can you explain to 0:03:59.840 --> 0:04:01.520 us kind of what's going on with the with COVID 0:04:01.600 --> 0:04:05.280 nineteen in Mexico and how that relates to actually the 0:04:05.320 --> 0:04:09.840 energy sector. Mexico still hasn't been able to curb the pandemic. 0:04:09.960 --> 0:04:13.680 We we still have kind of record increases in cases 0:04:13.720 --> 0:04:18.039 each day. The government unfortunately didn't take it very seriously 0:04:18.080 --> 0:04:21.839 in the beginning and made it similar to the US 0:04:21.920 --> 0:04:25.719 kind of a political thing rather than just a health crisis. 0:04:26.080 --> 0:04:29.520 The impact on the energy side is obviously a lot 0:04:29.560 --> 0:04:34.760 of things had to close down, so demand decreased, and 0:04:34.920 --> 0:04:38.200 that was then used as well, what spain for changing 0:04:38.360 --> 0:04:42.320 energy policies. So decrease in demand because people are kind 0:04:42.320 --> 0:04:44.440 of staying home and businesses are shut down has been 0:04:44.560 --> 0:04:48.040 used as a tool to explain away or explain some 0:04:48.160 --> 0:04:51.320 changes that the government was to make. Is that fair? Yeah? So, 0:04:51.400 --> 0:04:54.080 given this, what has Amilo's response been as it relates 0:04:54.080 --> 0:04:57.720 to energy. What's really interesting is that MLO has used 0:04:58.200 --> 0:05:02.159 the COVID nineteen pandemic to push through some regulation that 0:05:02.279 --> 0:05:04.640 gets at some of his objectives that he was already 0:05:04.640 --> 0:05:07.560 trying to achieve before the COVID nineteen pandemic, ever, happened. 0:05:07.640 --> 0:05:10.640 At the end of April, Mexico's market operator Sanata issued 0:05:10.680 --> 0:05:15.360 a resolution that indefinitely suspended tests for all renewable plants 0:05:15.360 --> 0:05:18.520 across the country, and that was pretty interesting because it 0:05:18.560 --> 0:05:22.240 basically effectively barred any new projects, any new intermittent projects, 0:05:22.240 --> 0:05:24.960 which means wind and solar in Mexico's case, from connecting 0:05:24.960 --> 0:05:28.360 to the grid at all. Its specifically said intermittent projects. 0:05:28.480 --> 0:05:31.960 That's correct. Yeah, it denied authorization for future tests, and 0:05:32.080 --> 0:05:35.800 it also subordinated dispatch of existing wind and solar plants 0:05:35.880 --> 0:05:39.200 to cefe's firm capacity over the course of the crisis. 0:05:40.080 --> 0:05:42.919 Kind of question. So we'll get into this. But CFE, 0:05:43.040 --> 0:05:46.760 the Mexican State on Utility, owns a considerable amount of geothermal? 0:05:46.839 --> 0:05:50.440 Did it mention intermittent because CFE owns geothermal resources, so 0:05:50.600 --> 0:05:55.039 it's redowables without geo. I think it's entirely possible. I 0:05:55.040 --> 0:05:57.360 mean CFE, what they don't have is wind and solar. 0:05:57.600 --> 0:06:00.080 And what I think all observers of the situation you 0:06:00.120 --> 0:06:02.360 can agree on is that AMLO very much wants to 0:06:02.400 --> 0:06:06.680 limit private participation in Mexico's energy sector. Period they only 0:06:06.680 --> 0:06:10.000 have two percent of Mexico's total wind and solar capacity. 0:06:10.120 --> 0:06:11.800 See if he only has about two percent of that 0:06:11.960 --> 0:06:15.560 very little, So this has basically been interpreted as efforts 0:06:15.720 --> 0:06:20.200 to achieve that objective by using the pandemic Sharon, why 0:06:20.320 --> 0:06:23.640 is energy so political? In Mexico? Energy has a history 0:06:23.680 --> 0:06:28.240 of being a very important political topic in Mexico since 0:06:28.279 --> 0:06:32.160 like after the Mexican Revolution, so like the nine thirties, 0:06:32.480 --> 0:06:35.440 and for a while the oil and gas and the 0:06:35.480 --> 0:06:42.960 electricity sector were nationalized, and until recently with the presidency 0:06:43.040 --> 0:06:47.880 before Amino, they were private tizes. So MN did not 0:06:48.000 --> 0:06:52.240 want to kind of go back on those reforms explicitly, 0:06:52.960 --> 0:06:56.880 but has been undermining them with the kinds of things 0:06:56.920 --> 0:07:01.279 that Jamsilo is just mentioning for the layer and making 0:07:01.279 --> 0:07:05.599 it really hard for private companies to participate in the 0:07:05.760 --> 0:07:09.720 energy space. But it's so political because there are just 0:07:09.840 --> 0:07:13.000 people in the government who want energy to remain controlled 0:07:13.000 --> 0:07:16.040 by a government. I don't understand why. I think it's 0:07:16.040 --> 0:07:21.360 it's in a pretty old ideology where where basically Mexico 0:07:21.440 --> 0:07:26.960 perceives private companies as coming into the country to extract 0:07:27.480 --> 0:07:32.160 kind of value and resources without giving anything back, and 0:07:32.880 --> 0:07:38.440 specifically with energy, it's thought of as a strategic thing 0:07:38.520 --> 0:07:42.000 that the government should control. What James was mentioning is 0:07:42.080 --> 0:07:45.720 basically what I'm always trying to achieve is to conserve 0:07:46.080 --> 0:07:51.240 the main power within the energy sector in Mexico in 0:07:51.280 --> 0:07:56.000 the hands of public companies. A lot of detractors of 0:07:56.040 --> 0:07:59.880 what I'm low is doing. Will argue that it's actually 0:08:00.520 --> 0:08:05.200 employed to continue with a government who has kept public 0:08:05.200 --> 0:08:11.440 companies running while taking advantage of them as public officers. 0:08:11.480 --> 0:08:14.560 And and there's a lot of corruption going on in 0:08:14.680 --> 0:08:19.600 both CFE and BMICS, So it's a complicated issue where 0:08:20.560 --> 0:08:24.160 officials kind of argue that nationalization is is for the 0:08:24.280 --> 0:08:27.680 security of the country and the benefit of the people. 0:08:28.360 --> 0:08:32.760 So it's kind of a populist tactic, but the detractors 0:08:32.800 --> 0:08:36.160 will say, no, it's just kind of a way to 0:08:36.280 --> 0:08:41.720 get money and to further corruption. I think that as 0:08:41.880 --> 0:08:46.320 as Sharon explained, I mean, energy is a is a 0:08:46.320 --> 0:08:49.599 controversial topic. The energy, the market opening reforms of the 0:08:49.679 --> 0:08:52.400 Penya and Yeto government, the one that preceded AMBLO. It 0:08:52.480 --> 0:08:57.400 involved passing constitutional amendments. It's an inherently controversial issue. I think. 0:08:57.400 --> 0:09:01.520 In Mexico, what we've seen recently and why that's interesting 0:09:02.120 --> 0:09:05.840 is using the low demands scenario that's kind of resulting 0:09:05.840 --> 0:09:10.560 from the pandemic to guarantee the state's share or to 0:09:10.600 --> 0:09:13.160 guarantee that state that that may be you know, the 0:09:13.240 --> 0:09:17.360 slightly older or or inefficient, more fossil fuel based fleet 0:09:17.400 --> 0:09:20.160 of the CFE, to guarantee that those plants continue to 0:09:20.240 --> 0:09:25.400 run instead of instead of intermittent plants is really what's interesting. 0:09:25.720 --> 0:09:28.880 And as I mentioned, those intermittent plants are very much 0:09:29.000 --> 0:09:32.120 the product of private investment that the energy reforms ushered in. 0:09:32.640 --> 0:09:37.280 So they're saying that on current projections of low demand scenario, 0:09:37.840 --> 0:09:40.199 they don't need more power and so they're cutting off 0:09:40.200 --> 0:09:43.480 the top. Well, that's I would say, what it looks 0:09:43.520 --> 0:09:47.719 like the uh SO, both the Senase resolution and then 0:09:47.720 --> 0:09:50.360 there was also the Ministry of Energy published a policy 0:09:50.520 --> 0:09:53.160 in the in the official federal gazette that sort of 0:09:53.240 --> 0:09:55.719 tried to make these changes permanent. They both spoke to 0:09:55.760 --> 0:09:59.559 the same thing, which is safeguarding the reliability of Mexico's 0:09:59.679 --> 0:10:03.720 power system. That that that's what it was really about nominally, 0:10:04.040 --> 0:10:09.120 But what it is really about, I think is is 0:10:09.200 --> 0:10:11.520 and and it's quite quite clear to everyone. It's really 0:10:11.559 --> 0:10:14.760 about a Sharon laid out there. It's about safeguarding the 0:10:14.840 --> 0:10:17.480 role of the public sector and strategic industries. Just to 0:10:17.640 --> 0:10:20.800 add to that, it's important to point out that most 0:10:20.880 --> 0:10:26.040 of the generation that the CFE owns is fossil fuel, 0:10:26.160 --> 0:10:32.280 so usually they they kind of marginal, and especially the 0:10:32.360 --> 0:10:36.880 oil field plans they would run now in the summer 0:10:37.120 --> 0:10:41.800 where COVID has had the most impact. So part of 0:10:41.840 --> 0:10:45.720 what they're doing is it's very connected to PEMICS and 0:10:45.800 --> 0:10:51.240 the fact that i AM reduce the demand for the 0:10:51.280 --> 0:10:54.679 oil that pemics produced. But this oil can be used 0:10:55.200 --> 0:10:59.080 in the generators of the CF so it's kind of 0:11:00.000 --> 0:11:03.360 to put to use that excess oil that be MIX has. 0:11:03.400 --> 0:11:09.199 There's this kind of new organization of how you can 0:11:09.240 --> 0:11:13.440 deploy energy assets within the market in Mexico and giving 0:11:13.520 --> 0:11:17.800 priority to fossil fuel generators so that they could use 0:11:18.160 --> 0:11:21.480 this excess oil is also part of this story. So 0:11:21.559 --> 0:11:24.120 just to clarify for those it might not be familiar, pemmics, 0:11:24.200 --> 0:11:26.240 I guess the is the National Oil Company of Mexico. 0:11:26.320 --> 0:11:30.880 Is that right? And i AM is the International Maritime 0:11:31.200 --> 0:11:37.000 Organization Organization. Yeah, which basically it reduced the amount of 0:11:37.040 --> 0:11:40.760 sulfur you can have an oil used in shipping, and 0:11:40.880 --> 0:11:43.600 that tends to be the oil that BEMIS produces. So 0:11:43.679 --> 0:11:47.319 now they have reduced demand for oil, so there's a 0:11:47.320 --> 0:11:49.560 reduced demand for this and now they can say, okay, 0:11:49.640 --> 0:11:52.280 we can just burn this for power generation in Mexico. 0:11:53.000 --> 0:11:55.079 So James, you said to see if he only owns 0:11:55.080 --> 0:11:58.280 two to three percent of the intermittent capacity or wind 0:11:58.320 --> 0:12:01.640 and solar capacity in Mexico, what companies when they opened 0:12:01.720 --> 0:12:04.480 up the barn doors, as it were, to open up 0:12:04.480 --> 0:12:07.760 the end of energy industry in Mexico, what companies came 0:12:07.800 --> 0:12:12.400 in who participated in the auctions. So the largest owners 0:12:12.679 --> 0:12:15.880 currently of wind and solar capacity in Mexico are our 0:12:15.920 --> 0:12:19.880 European developers. We're talking about a nell I, guerdroa Axon, 0:12:19.960 --> 0:12:23.760 a UK based investor Actors owns a number of developer 0:12:23.760 --> 0:12:28.839 platforms as well, and so on. But in general, the 0:12:28.880 --> 0:12:33.679 auctions that Mexico held over seventeen there were three of them. 0:12:33.880 --> 0:12:37.120 They were highly successful, transparent and competitive internationally. They were 0:12:37.120 --> 0:12:41.160 considered to be successes, and they really attracted a wide 0:12:41.240 --> 0:12:44.079 variety of players. As you said, just a few years ago, 0:12:44.160 --> 0:12:46.480 Mexico was very much top of mind if you were 0:12:46.520 --> 0:12:49.840 thinking about exciting new markets for development of clean energy. 0:12:49.960 --> 0:12:52.800 And why this story is so interesting is that it 0:12:52.880 --> 0:12:55.880 has been a complete one eight From a policy point 0:12:55.880 --> 0:12:57.760 of view, and as you said before, you think this 0:12:57.880 --> 0:13:03.000 is a push for supply security or nationalization of the 0:13:03.120 --> 0:13:07.280 energy sector. I think that m low is this government 0:13:07.440 --> 0:13:11.240 is fundamentally opposed to the energy reforms that were passed 0:13:11.240 --> 0:13:14.240 by the last government. They are not in favor of 0:13:14.280 --> 0:13:17.000 private participation in the in the energy sector on either 0:13:17.040 --> 0:13:19.520 the oil and gas side or or the electricity side, 0:13:19.679 --> 0:13:23.240 and they're looking to safeguard what role the state has 0:13:23.559 --> 0:13:26.160 and and then possibly build on that. And you can 0:13:26.200 --> 0:13:28.920 point to many steps that the government took but before 0:13:30.040 --> 0:13:33.320 since Amlo took office that bolster this perspective. Okay, In 0:13:33.360 --> 0:13:37.400 addition to cancel they canceled the renewable energy Auction program, 0:13:37.440 --> 0:13:39.440 which by the way, as I mentioned, were considered to 0:13:39.440 --> 0:13:44.880 be successful and transparent, competitive secured, competitively priced power for 0:13:44.960 --> 0:13:48.280 the cfe's residential supply arm. By the time that the 0:13:48.320 --> 0:13:50.240 prices kind of fell every auction, and by the time 0:13:50.280 --> 0:13:53.520 they got to the third the average average off taker 0:13:53.559 --> 0:13:56.440 price was was under twenty dollars per megal at hour. 0:13:56.880 --> 0:13:58.520 Over the course of the past year and a half, 0:13:58.559 --> 0:14:01.080 the government has also sought to dilute the market for 0:14:01.080 --> 0:14:05.040 renewable energy credits, has basically sideline national clean energy targets 0:14:05.400 --> 0:14:07.920 and then also kind of taken steps to even even 0:14:07.960 --> 0:14:12.360 undercut benefits that legacy wind and solar projects and received, 0:14:12.400 --> 0:14:15.160 which predates energy or form, so there's sort of like 0:14:15.160 --> 0:14:17.160 a long I guess I would say there's a there's 0:14:17.160 --> 0:14:19.440 a pretty long paper trail here of looking to limit 0:14:19.480 --> 0:14:23.200 private participation in the energy sector, and unfortunately that very 0:14:23.240 --> 0:14:26.440 much has brought wind and solar into the crosshairs. Shared 0:14:26.480 --> 0:14:29.720 as a resident of Mexico City, have you noticed any 0:14:29.840 --> 0:14:33.680 changes in in either supply reliability and has there been 0:14:33.720 --> 0:14:36.760 blackouts or has there been any differences to your day 0:14:36.760 --> 0:14:39.680 to day life as electually been more expensive. No, I 0:14:39.720 --> 0:14:43.040 wouldn't say I've noticed any huge differences yet. There haven't 0:14:43.080 --> 0:14:47.440 been any blackouts, and the prices in Mexico are are 0:14:47.520 --> 0:14:50.520 quite subsidized, so I haven't noticed a rise in the 0:14:50.600 --> 0:14:54.280 last few months. I wanted to add to James's comment, 0:14:54.400 --> 0:14:58.680 which is, yeah, the government has been very creative and 0:14:58.960 --> 0:15:01.520 in the way it is trying to consolidate power for 0:15:02.160 --> 0:15:05.360 the CFE and for by mix. But just to like 0:15:05.440 --> 0:15:10.720 put it into perspective of the two sides, one side 0:15:11.040 --> 0:15:16.440 will say that this nationalization of energy is good for 0:15:16.600 --> 0:15:22.200 prices and ultimately saves a taxpayer money even if we 0:15:22.280 --> 0:15:25.880 don't notice it in our bills, because it reduces the 0:15:25.960 --> 0:15:30.080 subsidies that that the government has to give um. The 0:15:30.120 --> 0:15:33.760 other side will say that's that's false, like, actually, these 0:15:33.760 --> 0:15:39.160 intermittent sources are are a lot cheaper to run, and 0:15:39.680 --> 0:15:42.360 it makes no sense to say that prices will be 0:15:43.080 --> 0:15:48.680 higher with renewables versus versus gas or oil plants because 0:15:48.920 --> 0:15:51.920 just their marginal clusts are a lot higher. It's also 0:15:51.960 --> 0:15:57.200 important to say, like some people think this nationalization tactic 0:15:57.520 --> 0:16:01.920 for security reasons is also because a lot of the 0:16:02.000 --> 0:16:05.920 gas that Mexico would use for most of its fossil 0:16:05.960 --> 0:16:10.800 fuel plants within the Cifee is imported. So ultimately we 0:16:10.880 --> 0:16:17.960 still rely on like for foreign resources to power the 0:16:18.080 --> 0:16:22.320 national power company. So really, what what would need to 0:16:22.360 --> 0:16:28.200 happen is if the national company wants to be fully 0:16:28.280 --> 0:16:33.040 sovereign and and independent of you know, US gas imports, 0:16:33.080 --> 0:16:37.080 it would have to invest in renewables itself for or 0:16:37.480 --> 0:16:42.000 generate gas within Mexico, which it seems unlikely. Why hasn't 0:16:42.120 --> 0:16:45.600 see if he invested in renewables. I don't know that 0:16:45.640 --> 0:16:48.200 I could give, you know, not not being party to 0:16:48.240 --> 0:16:51.240 see if he sort of strategic decision making, I don't 0:16:51.240 --> 0:16:53.760 know if I could like fully, you know, give a 0:16:53.800 --> 0:16:56.680 full answer to that But what we can say from 0:16:56.720 --> 0:17:00.000 from from looking at like for example, the Mexican government 0:17:00.120 --> 0:17:02.960 independent audit of CFE a few years ago, and for 0:17:03.040 --> 0:17:06.120 looking looking at its sort of public financial accounts and 0:17:06.280 --> 0:17:10.400 also it's lack of investment in renewable energy and generally 0:17:10.520 --> 0:17:15.119 aging generation portfolio, is that it sort of lacks a 0:17:15.160 --> 0:17:19.680 plan or mandate to to to revamp itself. It is 0:17:19.720 --> 0:17:23.200 sort of a classic on large on competitive public entity 0:17:23.640 --> 0:17:29.440 that nevertheless is the backbone of Mexico's generation capacity. It's 0:17:29.480 --> 0:17:33.919 has a market share by capacity, so the CFE is 0:17:33.960 --> 0:17:37.800 fundamental to to to the sector. But it's also sort 0:17:37.840 --> 0:17:41.880 of a bit, I think a little bit in UM 0:17:42.040 --> 0:17:45.560 caught between two competing visions for for for what Mexico's 0:17:45.640 --> 0:17:49.160 energy sector should be. These these famous energy reforms begun 0:17:49.160 --> 0:17:55.320 in unbundled the utility UM. But as Sharon said, supply 0:17:55.480 --> 0:17:58.800 to two households is one of the areas that remains 0:17:59.000 --> 0:18:01.960 in the that that it kind of retains monopoly of 0:18:02.160 --> 0:18:05.760 over as well as transmission and distribution, and its generation 0:18:05.880 --> 0:18:08.920 segment was broke down into six different, six different entities. 0:18:09.160 --> 0:18:11.919 But ultimately, when it comes to I mean, when it 0:18:11.960 --> 0:18:16.480 comes to costs, Mexicans Mexican citizens do pay lower, low 0:18:16.560 --> 0:18:21.120 by regional standards prices for power and that's due to subsidy. UM. 0:18:21.200 --> 0:18:24.720 In each of the past two years, that's total about 0:18:24.720 --> 0:18:27.480 four billion U S dollars from that's been the transferred 0:18:27.520 --> 0:18:29.880 from the government to CFE. So even if you don't 0:18:29.920 --> 0:18:32.560 feel it in your power bill, then costs are born 0:18:32.680 --> 0:18:35.439 somewhere in the in the sense of higher system costs, 0:18:35.520 --> 0:18:39.240 and then government subsidy, which ultimately flows through the taxes 0:18:39.280 --> 0:18:41.840 I suppose at some point. So it couldn't compromise be 0:18:42.400 --> 0:18:46.040 for both these competing visions. Be Yeah, let these quote 0:18:46.119 --> 0:18:49.840 unquote reforms go through UH and more control goes to CFE, 0:18:49.960 --> 0:18:53.040 but allowed developers to come in and develop wind and 0:18:53.080 --> 0:18:56.680 solar projects. That see if he would then buy right, 0:18:56.720 --> 0:19:00.359 So see if he becomes a competitive utility buying competitive power, 0:19:00.560 --> 0:19:02.639 but it doesn't have to develop the know how or 0:19:02.680 --> 0:19:05.119 the you know, doesn't have to build the projects themselves, 0:19:05.160 --> 0:19:09.440 wouldn't that work? Yeah? I I well, I think one, 0:19:09.560 --> 0:19:11.160 as you said, we don't know, but I think that's 0:19:11.200 --> 0:19:15.399 absolutely a that that that that would be a a 0:19:15.920 --> 0:19:19.719 positive and constructive step. Um, there's no reason why they 0:19:19.760 --> 0:19:22.639 can't tender why they couldn't tend their projects, uh and 0:19:22.760 --> 0:19:25.600 and sort of and and and begin the process of 0:19:25.640 --> 0:19:30.320 revamping their portfolio and its diversifying into into new clean technologies. 0:19:30.800 --> 0:19:33.520 I mean this is common in several other countries that 0:19:33.560 --> 0:19:36.320 have national power companies, where you just tend to the 0:19:36.359 --> 0:19:39.479 project and then buy it once it's build. Yeah, you know, 0:19:39.760 --> 0:19:43.440 Sharon I think brought in a really fundamental theme before 0:19:43.440 --> 0:19:45.679 when when when she was talking about bringing in the 0:19:45.760 --> 0:19:48.520 national company the I m O regulation what to do 0:19:48.600 --> 0:19:52.120 with this excess fuel oil? And that is that um 0:19:52.200 --> 0:19:55.360 AMBLO has this sort of old school view I suppose 0:19:55.560 --> 0:19:57.959 of what it means to be what what what it 0:19:58.040 --> 0:20:00.520 what it means to be sovereign? Maybe, and that is 0:20:00.560 --> 0:20:05.680 based on Mexico should seek to return to it's it's 0:20:05.760 --> 0:20:07.840 it's higher producing days in terms of oil and gas. 0:20:07.920 --> 0:20:11.000 It should refine all it's all of its own crude 0:20:11.280 --> 0:20:13.959 into into refined products, and it should basically you know 0:20:14.080 --> 0:20:16.880 that the should do be able to do everything itself. 0:20:16.960 --> 0:20:18.919 I don't think anybody has ever gotten a sense that 0:20:19.040 --> 0:20:21.399 the at the high highest levels of this government that 0:20:21.400 --> 0:20:24.280 they actually understand the value of renewables. I think they 0:20:24.320 --> 0:20:28.320 actually view renewables as a and by by renewables, I 0:20:28.359 --> 0:20:30.399 mean winded soul, and mostly they view it as an 0:20:30.400 --> 0:20:36.160 expensive alternative possibly also sort of laced with with corruption, corruption, 0:20:36.400 --> 0:20:40.800 and time to the private sector. So there's clearly misunderstanding. Okay, 0:20:40.800 --> 0:20:43.200 so my my quote unquote compromise is not going to work. 0:20:43.640 --> 0:20:48.960 What is actually happening then in Mexico, the latest regulatory 0:20:49.000 --> 0:20:52.200 and policy steps the government has taken are very vulnerable 0:20:52.200 --> 0:20:55.080 to legal challenge, and in fact, since this sort of 0:20:55.320 --> 0:20:57.919 latest attack I guess you could say on renewables has happened, 0:20:58.080 --> 0:21:01.480 there's been three separate in junks at the federal court 0:21:01.520 --> 0:21:04.600 and even the Supreme Court level that have suspended their implementation. 0:21:04.960 --> 0:21:07.520 So what that means is that basically all this um 0:21:07.680 --> 0:21:11.080 kind of like anti renewable policy is sort of on 0:21:11.280 --> 0:21:15.119 hold and pending. It doesn't mean it's completely shot down, 0:21:15.440 --> 0:21:17.879 but the fact that that a lot of what Amilo 0:21:17.920 --> 0:21:20.040 has tried to do in the electricity sector has not 0:21:20.160 --> 0:21:24.560 been successful in moving forward kind of underscores the strength 0:21:24.800 --> 0:21:28.000 with which energy reform was passed. I mean, there are 0:21:28.280 --> 0:21:30.439 conflicts with what he's trying to do, both with the 0:21:30.520 --> 0:21:35.480 constitutional amendments as well as with the implementing legislation. So yeah, 0:21:35.560 --> 0:21:40.520 the regulatory rollback that is currently conceived is faces a 0:21:40.520 --> 0:21:43.080 lot of headwinds going forward, and it's unclear if any 0:21:43.119 --> 0:21:46.400 of this stuff will actually remain standing. To add to that, 0:21:46.600 --> 0:21:50.879 it's actually been quite hardening to see an institutional checks 0:21:50.880 --> 0:21:55.000 and balances play out with this particular issue in Mexico. 0:21:55.680 --> 0:21:59.440 So the two injunctions that James was referring to, one 0:21:59.480 --> 0:22:03.760 reason they were given was they would undermine competition and 0:22:04.119 --> 0:22:08.199 further monopoly, which would be the CFE. And then the 0:22:08.200 --> 0:22:13.359 other reason is actually quite historical. It was given for 0:22:13.560 --> 0:22:18.400 reasons to protect the environment. So the Supreme Court legitimized 0:22:19.080 --> 0:22:23.360 environmental issues as a reason to stop these new regulations 0:22:23.440 --> 0:22:26.840 going forward. If I'm a private company that it looked 0:22:26.840 --> 0:22:28.960 at Mexico ten years ago, I think we might be 0:22:29.000 --> 0:22:30.600 in a situation where it seemed like a good idea 0:22:30.640 --> 0:22:33.679 at the time. Have private company has been kind of 0:22:33.720 --> 0:22:36.200 spooked by what's going on there or are they still 0:22:36.280 --> 0:22:39.359 interested in Mexico as in the market opportunity. You know, 0:22:39.480 --> 0:22:42.719 I think they're still interested in Mexico as a market opportunity. 0:22:42.960 --> 0:22:47.159 But I also think it would be naive to think 0:22:47.280 --> 0:22:51.560 that these latest policies and the overall sort of approach 0:22:52.160 --> 0:22:56.800 of the animal administration to the sector hasn't seriously undermined 0:22:56.920 --> 0:23:01.480 investor confidence. So I think jects that are in the 0:23:01.600 --> 0:23:04.640 queue in the pipeline, that are financed under construction, they 0:23:04.640 --> 0:23:07.280 are by and large moving ahead. I think that if 0:23:07.320 --> 0:23:10.800 you go a step out, it might be the projects 0:23:10.800 --> 0:23:13.560 that are more in conceptual phase. It might be more 0:23:13.680 --> 0:23:16.320 what I guess what I mean is new or potential investment. 0:23:16.480 --> 0:23:18.320 I would expect to take a serious hit from this 0:23:18.760 --> 0:23:22.000 kind of the view from the ground. Since the start 0:23:22.280 --> 0:23:26.600 of Aminos presidency, his speech has has been very clear 0:23:26.640 --> 0:23:30.719 about his lack of support for the private sector, both 0:23:31.119 --> 0:23:37.720 foreign companies and national companies, and that has seriously slowed 0:23:37.720 --> 0:23:41.080 down investment in the country in general. I think the 0:23:41.200 --> 0:23:44.919 energy sector kind of took a while to see this 0:23:45.119 --> 0:23:48.679 get to them. But if it follows the same trajectory 0:23:48.960 --> 0:23:54.960 as other investors and their confidence in Mexico, both national 0:23:54.960 --> 0:23:58.760 investors and foreign investors, but in other sectors, then I 0:23:58.800 --> 0:24:03.320 would expect for there to be a slowdown in the 0:24:03.560 --> 0:24:07.840 energy space as well, just because it's really hard to 0:24:07.880 --> 0:24:13.800 deal with a government that is so inconsistent and and 0:24:13.880 --> 0:24:17.639 that makes it a lot more risky too to invest 0:24:17.680 --> 0:24:22.160 in these huge projects and the presidency in Mexico markets, 0:24:22.200 --> 0:24:26.359 it's it's just worth worth noting as well. UM is 0:24:26.400 --> 0:24:31.480 a single six year term. An MLS is just about 0:24:31.600 --> 0:24:35.440