WEBVTT - Mexico's Energy Future Sits Between Two Superpowers 0:00:00.360 --> 0:00:02.440 This is Tom rowlans Reese and you're listening to Switched 0:00:02.480 --> 0:00:04.720 on the podcast brought to you by Bloomberg and ef 0:00:05.120 --> 0:00:07.920 Mexico is one of the world's most strategically positioned economies. 0:00:08.080 --> 0:00:10.440 As the second largest economy in Latin America and a 0:00:10.440 --> 0:00:13.440 critical link in North American supply chains, the country's energy 0:00:13.440 --> 0:00:16.960 transition has implications well beyond its borders. That importance comes 0:00:17.000 --> 0:00:19.759 at a pivotal moment. The new administration is opening the 0:00:19.760 --> 0:00:22.279 door to greater private investment in the power sector after 0:00:22.400 --> 0:00:25.800 years of subdued activity, while broader reforms aim to accelerate 0:00:25.800 --> 0:00:29.080 the deployment of clean energy, storage and grid infrastructure. At 0:00:29.080 --> 0:00:31.960 the same time, negotiations over the US Mexico Canada Agreement, 0:00:32.200 --> 0:00:35.480 shifting trade relationships, and Mexico's reliance on imported US natural 0:00:35.520 --> 0:00:39.040 gas are reshaping the country's strategic options. The result is 0:00:39.040 --> 0:00:43.760 a country balancing competing priorities, attracting investment while navigating geopolitical pressure, 0:00:43.960 --> 0:00:47.440 expanding clean energy while strengthening energy security, and building on 0:00:47.479 --> 0:00:50.159 its position as a manufacturing hub for technologies ranging from 0:00:50.200 --> 0:00:53.680 electric vehicles to transformers. So why does Mexico mats out 0:00:53.680 --> 0:00:56.520 to the energy transition now and what opportunities are emerging 0:00:56.520 --> 0:00:59.279 as the country reshapes its energy system. On today's show, 0:00:59.280 --> 0:01:03.000 I'm joined by member BNF Latin America team associates Stefan Moti, 0:01:03.200 --> 0:01:06.160 and together we review findings from his note Mexico Transition 0:01:06.240 --> 0:01:09.680 Factbook twenty twenty six. NF clients can find this and 0:01:09.760 --> 0:01:12.120 related research by heading to BNF go on the Bloomberg 0:01:12.200 --> 0:01:14.760 terminal or BNEF dot com. If we'd like to learn 0:01:14.800 --> 0:01:17.800 more about how BNIF approaches strategy research on the energy transition, 0:01:18.120 --> 0:01:21.280 including developments in commodity markets, trends across different sectors, and 0:01:21.319 --> 0:01:23.760 the cross cutting technology shaping in the future, can find 0:01:23.760 --> 0:01:26.000 more information on BNF dot com. And if you'd like 0:01:26.000 --> 0:01:27.440 to speak with the member of our team about becoming 0:01:27.440 --> 0:01:30.120 a client, email us at Sales dot BNF at Bloomberg 0:01:30.160 --> 0:01:32.840 dot net. But for now, let's unpack the opportunities and 0:01:32.880 --> 0:01:45.840 trade offs shaping Mexico's energy future. Stephab, Welcome to the podcast. 0:01:46.120 --> 0:01:46.440 Thank you. 0:01:47.120 --> 0:01:51.840 So perhaps a good starting point is just to really 0:01:52.000 --> 0:01:55.680 establish actually that we shouldn't be overlooking Mexico and its 0:01:55.760 --> 0:01:57.760 role in the energy transition or its potential role in 0:01:57.760 --> 0:02:00.320 the energy transition. Could you just explain to us, you 0:02:00.320 --> 0:02:03.680 know why you're doing research on Mexico, why Mexico is 0:02:03.920 --> 0:02:05.680 important for us to be talking about. 0:02:06.000 --> 0:02:08.320 Great Tom, good morning, Great to be here with you. 0:02:09.000 --> 0:02:12.520 So to start off, let's say Mexico is the second 0:02:12.600 --> 0:02:15.079 largest economy in Latin America, so it's not just one 0:02:15.160 --> 0:02:17.920 more country. It's got a consumer market of over one 0:02:17.960 --> 0:02:21.519 hundred and thirty million people. It's heavily integrated into North 0:02:21.560 --> 0:02:25.919 American supply chains. It's a key provider to the United 0:02:25.960 --> 0:02:29.760 States of items like electric vehicles and transformers, among others. 0:02:29.919 --> 0:02:34.920 It's key to Trump's geopolitical strategies of this fortress North 0:02:34.919 --> 0:02:38.880 America concept. It's called a lot of interest from Chinese investors, 0:02:38.919 --> 0:02:42.000 but also from European investors. You know, long story short, 0:02:42.040 --> 0:02:46.440 it's an attractive economy and the timing is essential. Right, 0:02:46.800 --> 0:02:51.320 Mexico has come through a few years of relatively slow 0:02:51.400 --> 0:02:55.680 investment to now a moment where it's enacting numerous reforms, 0:02:55.680 --> 0:02:59.040 specifically in the energy sector, and kind of peaking investor 0:02:59.120 --> 0:03:02.560 interest once again. You know, things are expected to turn around. 0:03:02.720 --> 0:03:07.200 Despite the general economic numbers not being fantastic right now, 0:03:07.440 --> 0:03:12.080 the outlook itself is becoming much better based on the 0:03:12.120 --> 0:03:16.799 outreach that the government is currently undertaking with the private sector. 0:03:17.080 --> 0:03:19.840 So again we have scale and we have timing. 0:03:20.360 --> 0:03:22.400 This is interesting, I mean what you mentioned, I mean, 0:03:22.600 --> 0:03:24.440 as you mentioned, scale is a big part of it, 0:03:24.520 --> 0:03:27.839 but it's also sudden you mentioned is actually the kind 0:03:27.880 --> 0:03:32.680 of significant positioning of Mexico both as yeah, like it's big, 0:03:32.840 --> 0:03:35.040 so it has emissions, it has a market, it matters, 0:03:35.040 --> 0:03:38.360 but it also supplies a lot of equipment and is 0:03:38.720 --> 0:03:40.880 an investment opportunity. And I think the thing that was 0:03:40.920 --> 0:03:42.720 really interesting is so much of what we've been talking 0:03:42.760 --> 0:03:45.320 about when we're talking about the kind of the global 0:03:45.520 --> 0:03:50.280 energy transition is the increased fragmentation of the world, and 0:03:50.320 --> 0:03:54.560 particularly along a sort of a US China axis if 0:03:54.600 --> 0:03:57.160 you want to call it that, with maybe Europe floating 0:03:57.200 --> 0:04:01.480 around looking for its own significance. And here we described Mexico, 0:04:01.640 --> 0:04:03.760 which correct me if I'm wrong, has a server of 0:04:03.920 --> 0:04:07.640 history of non alignment or relative non alignment. All three 0:04:07.680 --> 0:04:12.440 of those kind of blocks are looking to be involved 0:04:12.440 --> 0:04:14.440 in Mexico and be involved in the energy transition in 0:04:14.480 --> 0:04:16.440 Mexico in different ways. It's not a fair way of 0:04:16.440 --> 0:04:19.360 stating it. And you know what's some of the nuances 0:04:19.400 --> 0:04:20.120 to that dynamic. 0:04:20.400 --> 0:04:22.720 That's not a great question, Tom, and I think it's 0:04:22.720 --> 0:04:27.000 a correct framing. Mexico has historically followed, you know, a 0:04:27.040 --> 0:04:31.479 political strategy and international political strategy of non alignment. However, 0:04:31.520 --> 0:04:33.680 it can't really shake off the fact that, you know, 0:04:33.760 --> 0:04:37.120 it is right just south of the United States, right, 0:04:37.120 --> 0:04:40.200 it has this very powerful neighbor that often casts a 0:04:40.240 --> 0:04:44.280 shadow on it in that sense. You know, Mexico, especially 0:04:44.279 --> 0:04:48.920 in the nineties, you know, with the first NAFTA agreement, 0:04:48.960 --> 0:04:52.560 the North American Free Trade Agreement, decided that you know's 0:04:52.720 --> 0:04:57.280 its future was in this capitalist block was oriented towards 0:04:57.279 --> 0:04:59.080 the United States, and it really did a lot of 0:04:59.120 --> 0:05:02.520 work in both opening its own market, which has historically 0:05:02.520 --> 0:05:06.600 been relatively open, but also integrating supply chains. Right, so 0:05:06.640 --> 0:05:11.160 you do have the Makiladas, those assembly factory models near 0:05:11.240 --> 0:05:13.240 the border with the United States. You have you know, 0:05:13.320 --> 0:05:16.479 lots of road and rail connections, and you have markets 0:05:16.520 --> 0:05:20.200 that are just really very very integrated. In the assembly 0:05:20.240 --> 0:05:23.679 process of car parts are going back and forth from 0:05:23.839 --> 0:05:25.920 the back and forth from one side of the border 0:05:25.960 --> 0:05:29.560 to the other multiple times before you have a finished vehicle. 0:05:29.760 --> 0:05:32.520 So in that sense, Mexico is kind of tied to 0:05:32.560 --> 0:05:37.360 the United States and is therefore sometimes subject to the 0:05:37.400 --> 0:05:41.919 whims of whoever is occupying the White House in Washington currently. 0:05:41.960 --> 0:05:44.240 Of course, this happens to be someone that's not so 0:05:44.480 --> 0:05:48.400 open to a Chinese presence in Latin America. As you know, 0:05:49.040 --> 0:05:53.000 this has pushed to look for alternatives to this dependence 0:05:53.000 --> 0:05:55.479 on the United States. So I think that's, you know, 0:05:55.520 --> 0:05:58.080 one of one of the big variables that we have 0:05:58.160 --> 0:06:00.960 here in that framing. You're, of course, as you said, 0:06:00.960 --> 0:06:03.120 it's kind of floating around looking for its own space. 0:06:03.360 --> 0:06:05.839 It's though historically always had a role to play in 0:06:05.880 --> 0:06:10.080 Latin America, whether it's kind of for linguistic or cultural reasons. 0:06:10.400 --> 0:06:13.560 But Spanish companies have always been present and active in 0:06:13.640 --> 0:06:17.919 Latin America. But anyway, Claudasheim Schambaum has had a more 0:06:18.600 --> 0:06:21.960 let's say, diplomatic approach to anyone who would like to 0:06:22.000 --> 0:06:25.960 invest in Mexico that would include Chinese players as well. 0:06:26.120 --> 0:06:29.320 We've seen Chinese players make in roads in evs, but then, 0:06:29.360 --> 0:06:32.799 for example, we had the United States pressure in Mexico 0:06:32.880 --> 0:06:35.760 to impose tariffs on Chinese evs. So again that shows 0:06:35.760 --> 0:06:38.440 the limits to the kinds of investment that can be 0:06:38.480 --> 0:06:42.120 attracted to the kind of presence that Chinese players can 0:06:42.200 --> 0:06:44.400 have in Mexico right now. 0:06:44.800 --> 0:06:49.320 So it seems like it's a unique cocktail of delicate considerations, 0:06:49.760 --> 0:06:53.279 both in terms of the domestic politics and the international 0:06:53.560 --> 0:06:57.440 positioning of Mexico. And so you've mentioned timing is a 0:06:57.520 --> 0:06:59.480 key thing of why we're talking about Mexico right now. 0:06:59.520 --> 0:07:02.560 So let's expand on that. So why are we at 0:07:02.560 --> 0:07:06.000 such a pivotal moment in Mexico as it relates to 0:07:06.080 --> 0:07:07.280 the energy transition. 0:07:07.880 --> 0:07:11.640 I'll mention two things related to timing. The first is 0:07:11.720 --> 0:07:13.840 just building off what we were just talking about the 0:07:13.880 --> 0:07:18.440 geopolitical aspects. So their United States Mexico Canada agreement is 0:07:18.680 --> 0:07:23.120 being renegotiated. Is supposed to be the first top level 0:07:23.240 --> 0:07:27.360 meeting for the renegotiation of the USMCA, right, And part 0:07:27.360 --> 0:07:30.720 of the reason why Mexico's Mexico's options are kind of 0:07:30.720 --> 0:07:33.800 limited when it comes to attracting Chinese investment is that 0:07:34.080 --> 0:07:38.240 it depends on a favorable renegotiation to be able to 0:07:38.320 --> 0:07:41.040 keep its long term plans the way they are. Trump 0:07:41.080 --> 0:07:44.000 has already indicated before that he intends to not renew 0:07:44.040 --> 0:07:46.680 the deal. That would mean that the deal goes into 0:07:46.720 --> 0:07:51.680 a kind of limbo, which requires annual renegotiations, so kicking 0:07:51.680 --> 0:07:54.040 the can down the road model rather than having a 0:07:54.120 --> 0:07:57.280 full framework. However, what that limbo will look like really 0:07:57.280 --> 0:08:00.520 does depend on how these negotiations go. It's a little 0:08:00.520 --> 0:08:04.200 hard for now to forecast how that's going to look. 0:08:04.400 --> 0:08:08.680 But the timing of that renegotiation means that Mexico's options 0:08:08.680 --> 0:08:11.400 in the short term are really limited in terms of 0:08:11.440 --> 0:08:14.680 looking for those alternatives. That's why it was kind of 0:08:14.800 --> 0:08:19.080 forced to accept that tariff hike on Chinese Chinese ev 0:08:19.160 --> 0:08:22.280 imports for example. Now, on the other side, we have 0:08:22.960 --> 0:08:27.120 good timing related to the energy sector reforms, so the 0:08:27.200 --> 0:08:30.440 fact that we're opening up a whole array of opportunities 0:08:30.520 --> 0:08:34.600 in the energy sector. So these reforms, they began in 0:08:35.000 --> 0:08:38.520 late twenty twenty four when Claudia Scheimaum became president, with 0:08:38.679 --> 0:08:42.960 constitutional reforms because this was a very closed sector historically, 0:08:43.520 --> 0:08:47.760 with a very heavy role for Mexico's state owned enterprises, 0:08:48.040 --> 0:08:51.400 both the utility cf which I already mentioned and Petronios 0:08:51.440 --> 0:08:54.959 Mexicanos better known as PEMICS, the national oil company. So 0:08:55.679 --> 0:09:00.480 the whole energy sector was basically built around these two companies. Now, 0:09:00.840 --> 0:09:05.040 after the constitutional reforms, we have a slight reduction in 0:09:05.440 --> 0:09:08.480 how strict the rules around them are. Not a disappearance. 0:09:08.480 --> 0:09:10.800 It's not not that these two companies are suddenly giving 0:09:10.840 --> 0:09:14.800 up their leading roles in the oil and gas and 0:09:15.000 --> 0:09:19.240 power markets. But we do have space opening up for 0:09:19.360 --> 0:09:22.880 private investment that was previously much more limited. So, based 0:09:22.920 --> 0:09:26.360 on these reforms, cf now has to have fifty four 0:09:26.440 --> 0:09:31.920 percent minimum share of power injected into the Mexican grid. However, 0:09:31.960 --> 0:09:34.719 you now have this forty six percent, which you can 0:09:34.800 --> 0:09:38.600 say is open for investment. It's more or less the 0:09:38.640 --> 0:09:41.880 share that was actually currently practiced in the market. However, 0:09:41.920 --> 0:09:45.960 since we do have forecasts for growth with these reforms, 0:09:45.960 --> 0:09:50.000 we have investment plans, we have these permitting processes being 0:09:50.040 --> 0:09:52.480 opened up for a private investment. We have a new 0:09:53.160 --> 0:09:57.760 mixed investment scheme whereby private developers partner with CFE on 0:09:58.920 --> 0:10:02.640 new clean power put we have the possibility of this 0:10:02.760 --> 0:10:06.199 the whole pie growing, including or maybe especially that forty 0:10:06.240 --> 0:10:09.760 six percent growing, because there will be some flexibility into 0:10:09.800 --> 0:10:13.760 how we define what CFI capacity is versus private capacity. 0:10:13.840 --> 0:10:17.280 So in that mixed investment scheme, for example, CFI will 0:10:17.320 --> 0:10:19.840 have a fifty four percent share of these projects, but 0:10:20.000 --> 0:10:22.800 that might be only on paper. The way the contracts 0:10:22.840 --> 0:10:26.120 might work, there will be a long term ppa and 0:10:26.840 --> 0:10:30.840 a guaranteed rate of return, after which the ownership of 0:10:30.840 --> 0:10:34.280 the project will revert to CFI. So this is a 0:10:34.320 --> 0:10:37.560 completely new paradigm from Mexico and it opens up a 0:10:37.559 --> 0:10:41.199 bunch of opportunities in solar, wind and maybe especially storage, 0:10:41.280 --> 0:10:44.440 which basically doesn't exist in the country now. It's a 0:10:44.559 --> 0:10:48.880 very minimal, minimal capacity that's currently operating, but that in 0:10:48.920 --> 0:10:53.360 the medium term even should be growing quite quickly. Part 0:10:53.360 --> 0:10:56.360 of the reason why is that storage will now be 0:10:56.520 --> 0:11:02.040 mandatory with new solar and wind assets. So the share 0:11:02.080 --> 0:11:06.280 that they're talking about is about thirty percent of storage 0:11:06.320 --> 0:11:09.040 capacity will be mandatory. So if you have a you know, 0:11:09.120 --> 0:11:12.680 one hundred megawatt solar plan, you need to include thirty 0:11:12.720 --> 0:11:17.120 megawatts of storage minimum three hours, So we're talking about 0:11:17.280 --> 0:11:20.400 ninety megawat hours of storage for a project of that 0:11:20.520 --> 0:11:21.400 size for example. 0:11:21.800 --> 0:11:23.800 One thing that's kind of interesting hearing you say this, 0:11:23.920 --> 0:11:26.480 and this is I'm saying this is someone who's based 0:11:26.720 --> 0:11:30.400 in the US and a lot of Therefore, my worldview 0:11:30.440 --> 0:11:32.800 on the power sector is shaped by the US, even 0:11:32.840 --> 0:11:35.440 if I'm not from there. And in the US, the 0:11:35.480 --> 0:11:38.200 big thing that is a headache, well, well one of 0:11:38.240 --> 0:11:40.800 many big headaches, but one of them is the planning 0:11:40.880 --> 0:11:44.160 and regulatory forms. From what you're saying, it sounds like 0:11:44.480 --> 0:11:47.080 in Mexico with these reforms, what has proved to be 0:11:47.120 --> 0:11:49.720 a really difficult problem to solve politically In the US, 0:11:49.880 --> 0:11:52.480 with these reforms, Mexico seems to have like breezed through 0:11:52.520 --> 0:11:54.240 and just been all right, that doesn't seem to be 0:11:54.280 --> 0:11:56.200 a problem. And I was just wondering, is that because 0:11:56.360 --> 0:12:00.080 your starting point has been something that's so centralized, you know, 0:12:00.160 --> 0:12:02.679 with one state utility and so you don't have a 0:12:02.760 --> 0:12:05.520 thousand stakeholders getting in the way, Or is it that 0:12:05.800 --> 0:12:09.160 actually maybe these those challenges will exist, but we haven't 0:12:09.240 --> 0:12:12.160 encountered them yet, you know, with long cues to get 0:12:12.160 --> 0:12:13.880 connected to the grid. I mean, do you do you 0:12:13.920 --> 0:12:16.880 have a view on how effective these reforms will be. 0:12:17.440 --> 0:12:20.880 That's actually a better framing, Tom, I'd say, when you 0:12:21.000 --> 0:12:23.720 use the word breeze through, or use of the phraseer 0:12:23.800 --> 0:12:27.120 breezed through, but the truth is that it's still an 0:12:27.160 --> 0:12:31.640 ongoing process. I began the explanation there by speaking about 0:12:31.640 --> 0:12:34.280 the constitutional reform. But the truth is that again, that 0:12:34.400 --> 0:12:36.920 was October twenty twenty four and we're now in July 0:12:37.080 --> 0:12:39.600 twenty twenty six, and there are still things that are 0:12:39.720 --> 0:12:43.319 that are taking shape. However, most of the main laws 0:12:43.400 --> 0:12:46.480 and regulations that had to be published after the constitutional 0:12:46.480 --> 0:12:49.360 reforms have been published. It's taken you know, about a 0:12:49.440 --> 0:12:52.560 year and a half to get through that. But the 0:12:52.640 --> 0:12:56.000 truth is there's still some details missing, i'd say, especially 0:12:56.040 --> 0:12:58.800 when it comes to some of the storage regulations. But 0:12:59.320 --> 0:13:01.600 let's go through it a little so so the listeners 0:13:01.640 --> 0:13:03.440 can have a bit of an idea of what came 0:13:03.480 --> 0:13:06.920 after the constitution reform. So there was a new power 0:13:06.960 --> 0:13:10.360 sector law, which you know, had all the general orientations there. 0:13:10.840 --> 0:13:14.600 There was a new law governing the National Energy Commission 0:13:14.720 --> 0:13:18.640 c and E, which is the new regulatory agency. It 0:13:18.760 --> 0:13:22.800 is still a pretty centralized agency. I think that point Tom, 0:13:23.240 --> 0:13:25.720 I think was correct. It makes it a little easier 0:13:25.720 --> 0:13:28.000 when you know you can cut through a lot of 0:13:28.040 --> 0:13:31.560 those stakeholders when it is you know, one main utility 0:13:31.600 --> 0:13:35.240 that's controlling most of the generation expansion, you can open 0:13:35.280 --> 0:13:39.040 space for other players a little more easily. However, you know, 0:13:39.280 --> 0:13:42.400 CNE because it's so centralized. It's also kind of opaque, 0:13:42.440 --> 0:13:44.840 so decision making is not that clear, but there is 0:13:44.880 --> 0:13:47.360 a law governing how they're supposed to make decisions, so 0:13:47.400 --> 0:13:52.000 that does help. They published permitting rules for self generation projects, 0:13:52.040 --> 0:13:56.080 so they're also you know, looking at those smaller capacities. 0:13:56.320 --> 0:14:00.600 They got permitting rules for generation and storage set. They 0:14:00.640 --> 0:14:05.600 published also their kind of binding planning law, which you know, 0:14:05.640 --> 0:14:10.000 basically force them to publish a power sector development plan 0:14:10.440 --> 0:14:15.079 known as PLADESI in Spanish. This document basically has planning 0:14:15.160 --> 0:14:19.480 through twenty thirty nine, you know, how generation will expand 0:14:19.480 --> 0:14:21.920 how transmission will expand what they have to do. Also 0:14:21.920 --> 0:14:24.800 in terms of distribution, how they're looking at at you know, 0:14:24.920 --> 0:14:27.560 gas pipelines, like it's kind of all in there. So 0:14:27.800 --> 0:14:30.880 you start having this this kind of roadmap of how 0:14:31.120 --> 0:14:34.520 the sector, how this market, how this industry is going 0:14:34.560 --> 0:14:37.840 to be organized. However, you know, I mentioned just now 0:14:37.960 --> 0:14:41.320 transmission and distribution, and it's important to mention that these 0:14:41.360 --> 0:14:45.600 are the biggest bottlenecks, you know, because you mentioned you know, 0:14:45.680 --> 0:14:49.400 connection cues and things like that. Those bottlenecks depend on 0:14:49.440 --> 0:14:51.880 having a grid that can handle all of that new 0:14:52.000 --> 0:14:55.800 generation capacity. That's being planned, right, And so when you 0:14:55.840 --> 0:14:58.680 look at the Mexican grid, Mexicans like to say that 0:14:58.680 --> 0:15:01.720 their problem is not just generation, it's actually transmission. That 0:15:01.720 --> 0:15:05.880 they have about one hundred gigawatts of generation capacity installed 0:15:05.920 --> 0:15:09.080 but only about fifty five gigawatts of transmission capacity. So 0:15:09.120 --> 0:15:11.800 you can see how this is the main problem here. 0:15:12.080 --> 0:15:16.000 That opens some possibilities for you know, some small scale 0:15:16.280 --> 0:15:21.080 a solar for example, for microgrids, you know, for basically, 0:15:21.200 --> 0:15:24.440 you know, anything that allows you to work around around 0:15:24.480 --> 0:15:28.480 that transmission grid. CFI does have a grid investment plan. 0:15:28.640 --> 0:15:31.720 It's also in a sense trying to outsource some transmission investments, 0:15:31.760 --> 0:15:37.200 some upgrades to transmission lines and substations, to renewable project developers, 0:15:37.240 --> 0:15:41.080 to the private sector. However, CFI has illegally mandated monopoly. 0:15:41.240 --> 0:15:44.400 This did not change in the reforms on transmission and distribution. 0:15:44.760 --> 0:15:47.840 So it's trying to find some worker ounds. And it's 0:15:47.840 --> 0:15:50.960 also got the storage mandate that should help with some 0:15:51.040 --> 0:15:54.680 of those bottlenecks and specific nodes. However, that that does 0:15:54.760 --> 0:15:58.480 remain you know, a big challenge, right and I mentioned 0:15:58.560 --> 0:16:01.600 in terms of the regulations, there's still some details missing, 0:16:01.720 --> 0:16:05.600 especially for storage. So right now we're seeing permits come through. 0:16:06.000 --> 0:16:10.280 The government opened two separate permitting processes for private projects 0:16:10.280 --> 0:16:14.240 and for mixed investment projects. These are still ongoing. In 0:16:14.280 --> 0:16:17.320 the first round of the private project scheme, they were 0:16:17.360 --> 0:16:20.560 able to assign about forty two percent of the capacity 0:16:20.600 --> 0:16:22.320 they were going for. I think this was still early 0:16:22.400 --> 0:16:25.520 days back in October of last year when they opened 0:16:26.000 --> 0:16:29.600 that first process, and I think private players were still 0:16:29.600 --> 0:16:32.160 adopting a wait and see approach at the time, so 0:16:32.680 --> 0:16:36.000 they really didn't put their full force behind that. 0:16:36.240 --> 0:16:37.120 I'd say it. 0:16:37.040 --> 0:16:39.360 Would be disappointing if it wasn't like the first time 0:16:39.400 --> 0:16:42.440 that we had private projects actually being proposed and getting 0:16:42.440 --> 0:16:45.880 permitted in a long time. So forty two percent can 0:16:45.920 --> 0:16:48.400 be considered low compared to other countries, but it's still 0:16:48.400 --> 0:16:51.880 pretty good for Mexico. The CNE listened to what the 0:16:51.920 --> 0:16:54.720 private players had to say about that first process and 0:16:54.760 --> 0:16:57.520 they opened the second one late May of this year, 0:16:57.680 --> 0:17:00.440 and they've since extended the deadline trying to signed the 0:17:00.480 --> 0:17:04.720 remaining capacity for private projects. The mixed investment scheme was 0:17:04.760 --> 0:17:07.560 a completely different story because of what I mentioned before, 0:17:07.760 --> 0:17:11.840 the long term PPAs and other support that CFE was 0:17:11.880 --> 0:17:14.200 going to provide. Even though there wasn't going to provide 0:17:14.200 --> 0:17:18.400 any direct capital for these developments. That was oversubscribed by 0:17:18.520 --> 0:17:21.480 almost six hundred percent, so there was a lot more 0:17:21.520 --> 0:17:25.560 interest in the mixed investment scheme projects, and those that 0:17:25.600 --> 0:17:29.280 process closed in June when they assigned about seven point 0:17:29.320 --> 0:17:33.320 four gigaatts of generation capacity, so not even including the 0:17:33.359 --> 0:17:36.800 storage component, So that was a far more successful process. 0:17:37.680 --> 0:17:39.600 So it sounds like, you know, we talked about some 0:17:39.600 --> 0:17:42.280 of the challenges, and you know, and you've detailed actually 0:17:42.320 --> 0:17:44.639 how some of those challenges are being addressed. And I 0:17:44.640 --> 0:17:46.840 think that it's important not just to get bogged down 0:17:46.880 --> 0:17:48.760 in the challenges. I know, I was the one who 0:17:48.760 --> 0:17:51.600 asked the question, because this is a really big opportunity 0:17:51.680 --> 0:17:53.600 that's opening up in Mexico that you know a few 0:17:53.640 --> 0:17:56.439 years ago didn't exist. So can we just put for 0:17:56.520 --> 0:17:59.160 our listener's just a number on that, you know, whether 0:17:59.200 --> 0:18:03.040 it's in gigs or if it's in dollars, How big 0:18:03.080 --> 0:18:06.960 an opportunity is this for you know, energy transition technologies. 0:18:07.720 --> 0:18:10.440 It's a great question tom our own being a forecast, 0:18:10.600 --> 0:18:13.560 looking at that twenty thirty horizon, we're looking at nearly 0:18:13.680 --> 0:18:20.119 thirty five gigawatts of new capacity, including solar, wind and 0:18:20.600 --> 0:18:24.560 storage coming online. This includes small scale solar, so this 0:18:24.640 --> 0:18:27.719 would be decentralized investment, let's say, which would account for 0:18:27.920 --> 0:18:32.200 about fifteen gigawatts of that. So we're looking at almost 0:18:32.240 --> 0:18:37.199 twenty gigawatts of utility scale capacity coming online. And in 0:18:37.320 --> 0:18:41.280 terms of the investment, so the scale of investment opportunity 0:18:41.520 --> 0:18:46.080 is sixty three billion through twenty thirty five. Basically, what 0:18:46.119 --> 0:18:50.240 we're talking about here is if every agent in the 0:18:50.320 --> 0:18:55.240 market took cost based decisions, took economic decisions, went for 0:18:55.359 --> 0:19:00.320 the most affordable, most cost effective technologies, we would have 0:19:00.520 --> 0:19:04.520 sixty three billion being invested in Mexico through twenty thirty five. 0:19:04.800 --> 0:19:08.720 And that number comes from BNF's new Energy outlook right, 0:19:08.720 --> 0:19:11.919 our economic transition scenario. It's a scenario of course, that 0:19:12.240 --> 0:19:16.280 is focused on these market based decisions and doesn't assume 0:19:16.440 --> 0:19:19.320 any additional policy support. 0:19:19.200 --> 0:19:24.359 Or policy breaks either. We should say its suemes perfect 0:19:24.440 --> 0:19:27.520 economic policy. So there's a really big opportunity here for 0:19:28.240 --> 0:19:33.320 solar storage with the energy transition technologies that we typically 0:19:33.560 --> 0:19:35.600 talk about in the power grid in the energy sector. 0:19:35.920 --> 0:19:38.400 I want to return to something that we were talking 0:19:38.400 --> 0:19:41.080 about at the beginning, and it's the sort of where 0:19:41.160 --> 0:19:45.639 Mexico sits in this great power relationship, and I was 0:19:45.680 --> 0:19:47.920 really interested. I didn't realize this what you were saying 0:19:47.960 --> 0:19:53.080 about the US and President Trump using the USMCA as 0:19:53.240 --> 0:19:58.000 leverage to impose conditions on Mexico in terms of putting 0:19:58.320 --> 0:19:59.719 the tariffs on Chinese evs. 0:20:00.160 --> 0:20:01.159 Right, that's correct. 0:20:01.640 --> 0:20:05.520 So when I think of this opportunity that is solar 0:20:05.840 --> 0:20:10.520 and batteries and wind, and in particular solar and batteries, 0:20:10.800 --> 0:20:14.919 the bulk of them hugely dominated by Chinese supply chains. 0:20:15.320 --> 0:20:17.480 And then I also think about what's it's displacing. You know, 0:20:17.720 --> 0:20:21.480 the Mexican power sector, as far as I understand, is 0:20:21.760 --> 0:20:24.480 quite heavily relyant on natural gas right now, and a 0:20:24.520 --> 0:20:26.679 lot of that comes from the US. So we have 0:20:26.800 --> 0:20:31.119 this dynamic. If I may sort of, you know, maybe 0:20:31.160 --> 0:20:34.239 speak beyond my level of expertise, but it seems to 0:20:34.280 --> 0:20:40.080 me that this transition is implicitly dependent on technologies coming 0:20:40.160 --> 0:20:44.439 from China reducing energy dependence on the US. And we 0:20:44.560 --> 0:20:48.960 have seen the US government is not shy about imposing 0:20:49.040 --> 0:20:53.240 constraints on Mexico to in its sort of ability to 0:20:53.280 --> 0:20:55.600 import things from China. So is that a risk here 0:20:55.720 --> 0:20:59.520 in that dynamic that at some point there are conditions 0:20:59.560 --> 0:21:02.720 that kind of get in the way of this transition 0:21:02.800 --> 0:21:06.600 that's heavy reliant on CIRN batteries that are coming from China. 0:21:07.080 --> 0:21:11.720 Yeah, that's fair, Tom. Basically what happened with EVS was 0:21:12.640 --> 0:21:16.359 exactly that that leverage was used based on this renegotiation 0:21:16.640 --> 0:21:19.600 to kind of force Mexico to put those tariffs on. 0:21:20.040 --> 0:21:22.880 And they're heavy terrriffs. They were paying I think maybe 0:21:22.880 --> 0:21:25.800 fifteen to twenty percent and now they're paying fifty percent. Right, 0:21:26.440 --> 0:21:29.080 this affects all kinds of Chinese cars. I think in 0:21:29.119 --> 0:21:30.879 this case, the United States was kind of worried that 0:21:30.960 --> 0:21:34.960 Mexico could eventually be a backdoor to the United States. 0:21:35.000 --> 0:21:38.879 How realistic a threat that was is debatable, However, the 0:21:38.920 --> 0:21:42.560 fact that that leverage was used is quite clear. Now. 0:21:42.760 --> 0:21:45.159 I do think that there are some limits to, you know, 0:21:45.320 --> 0:21:48.840 how hard the United States wants to squeeze Mexico, because 0:21:49.040 --> 0:21:52.359 there is some bilateral benefit to having those integrated supply 0:21:52.480 --> 0:21:55.680 chains and a complete decoupling would not be in either. 0:21:55.520 --> 0:21:58.320 Of Yeah, it's interest, right, the US benefits from the 0:21:58.400 --> 0:22:00.840 USMCA as well, Let's not forget that. 0:22:01.320 --> 0:22:03.959 But the truth is, yeah, that Mexico still has that 0:22:04.280 --> 0:22:07.920 heavy reliance on US gas. Today, gas is responsible for 0:22:08.359 --> 0:22:11.640 a little over two thirds of power generation in Mexico, 0:22:11.880 --> 0:22:14.600 and over seventy percent of the gas that Mexico consumes 0:22:14.680 --> 0:22:16.760 is important from the United States. So that is an 0:22:16.800 --> 0:22:19.679 additional source of leverage that's important there. And so of 0:22:19.720 --> 0:22:25.720 course I think diversifying Mexico's generation sources is also part 0:22:25.760 --> 0:22:28.919 of a national security strategy there. You know, it's not 0:22:29.000 --> 0:22:32.360 beneficial to have that level of dependence. Even though sometimes 0:22:32.359 --> 0:22:35.240 it's hard to escape it, and that American gas right 0:22:35.280 --> 0:22:37.720 across the border, coming in from Texas, for example, is 0:22:37.880 --> 0:22:40.959 very cheap, it's still, you know, generating a dependency that 0:22:41.040 --> 0:22:43.960 does make Mexico vulnerable. Now, in terms of the other 0:22:44.280 --> 0:22:48.000 components that Mexico needs for that energy transition, we could 0:22:48.040 --> 0:22:51.520 talk about batteries specifically, or wind turbines or solar panels. 0:22:51.760 --> 0:22:55.800 That has not, at least publicly come to the fore 0:22:55.480 --> 0:22:58.760 that it's become a bargaining chip. So Mexico did not 0:22:59.000 --> 0:23:02.240 increase teriffs any of those components, and it will probably 0:23:02.280 --> 0:23:05.480 resist pressure from the United States to do so because 0:23:05.480 --> 0:23:07.600