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The economic results revealed by the Mexican Minister of Energy, Pedro Joaquín Coldwell, four years after the launch of the complex provision that revolutionized the country’s energy industry and opened the market to foreign companies, have been extremely positive. According to the Minister, the new rules modernized all activities in the energy sector and boosted competition. As for hydrocarbons in particular in the first round of tenders for the exploration and production of oil and gas, 70% of the available areas were allocated, with investments totaling 49 billion dollars.
The complex energy reform, launched at the end of 2013, remains among the countries most important economic initiatives in recent years. What outcomes are already visible and what are the objectives for the medium and long term?
Since the Energy Reform came into force, we have had remarkable progress and have accomplished important achievements in all three energy sectors: hydrocarbons, electricity and clean energy. In hydrocarbons, we have allocated 70% of the areas offered in the four bids of Round 1 for E&P (exploration and production) of oil and gas. Pemex also contracted for its first farm-out to develop Trion, a deep-water field located in the Gulf of Mexico. Collectively these agreements have brought a 49 billion dollar investment to the Mexican industrial system. The 48 winners of the bids, along with Pemex, will execute 39 contracts, each designed to achieve optimum economic results for the State.
We have also paved the way for new markets for LP gas and natural gas, the latter requiring the expansion of the national pipelines system to assure fuel supply to the country’s industry and power-generation plants at competitive prices. Regarding oil products we are building a new market that will be deregulated at the end of this year, a market that will enable broader fuel storage and transportation capacity while offering final consumers more options. As for electricity the short-term Wholesale Electricity Market is now operating to promote competition and equality among generators, public and private suppliers as well as to offer consumers the best prices and services. Today 21 companies are already participating, including CFE’s (Electricity Federal Commission) subsidiaries and 16 other enterprises that are in the process of entering the market.
The long-term Wholesale Electricity Market has successfully carried out two electricity auctions where clean technologies brought in very competitive prices. As a result of these contests, which will yield a 6.6 billion dollar investment from now to 2019, 52 clean-energy power plants will be created throughout 15 states in the country. These wind and solar power plants will increase clean energy capacity by 170% in only three years, whereas it took 20 years to get where we are at present.
On May 8, we published the legal terms of the invitation to tender for the third auction, where for the first time private companies and CFE will be able to acquire power and Clean Energy Certificates. The electricity auctions prioritize the use of clean energy to boost Mexico’s transition towards a more sustainable country and to comply with national and international commitments to combat climate change. This year we will also publish the terms of the call for bids for a transmission line from the Isthmus of Tehuantepec in Southeast Mexico to Morelos in Central Mexico, which will develop power generation in Southern Mexico, where there is significant renewable power potential. Finally, the Universal Electric Service Fund has been created. This is the social side of the energy reform that will install solar panels and distribution grids for over 1.8 million Mexicans who live in rural and poor communities.
The reform opens up a process of modernization in which it is no longer just state-owned companies that can invest freely in hydrocarbons and electricity grids. And this reform seems to have attracted the interest of many international companies that have begun to participate in the first four rounds of bids. What kind of feedback have you had with respect to this new trend?
The results obtained from the four bidding processes along with the outcome of the first Pemex Farm-Out in deep-waters have shown that the energy reform has been successful and competitive. At the end of this first stage, with the best conditions for the State and with impeccable transparency, we managed to award 70% of the offered areas, way above regional rates.
By the end of Round 1 we also consolidated the hydrocarbons industry. Trustworthiness and legitimacy in the Mexican energy sector have been proved by the arrival of 48 new companies from 14 different countries. The certainty derived from the hydrocarbons bids has given these firms reliability and stability in the investment they have allocated in Mexico. We will work to improve and reinforce predictability in the rounds, despite volatility in oil prices and the challenging international market, in order to attract more investors to our country. In terms of electricity grids the reform will encourage the expansion and modernization of transmission lines in order to reduce costs, minimize congestion, and integrate to the new energy sources with high clean energy potential to the grid.
The energy reform eliminates entry barriers to new participants interested in the development of electricity infrastructure in order to create a solid market that enhances quality, trustworthiness and continuity of power supply in the whole country.
How is Mexico preparing itself to meet the need for new specialist expertise in the oil production sector in the face of ongoing development plans?
Upon the arrival of investment on new energy projects, job opportunities and demand for specialized labor have significantly increased and will continue to do so.
The government encourages and supports young Mexicans to participate in this sector. With the help of Energy Funds and The National Council for Science and Technology (CONACYT), we pursue research, technological development and human capital in the energy industry. We designed a program with 60 thousand scholarships for students at all levels, from high school to graduate school, who are interested in an energy-related field. Additionally, we have developed free online courses and provided economic support for institutions to strengthen their infrastructure and update their programs. In applied science, we are developing national and international networks focused on research, new technologies, and reinforcement of the regulating organisms in the energy sector. Universities and Mexican research centers have the opportunity to collaborate with other experts and sectors in energy projects.
Pedro Joaquín ColdwellMexican Minister of Energy
He has been Mexico's Minister of Energy in President Enrique Peña Nieto's government since December 2012. Pedro Joaquín Coldwell began his political career in 1974 as Chairman of the Congress of Quintana Roo, the State of his birthplace. As Governor of Quintana Roo, Coldwell was a Senator of the Republic of Mexico for two terms, from 2006 to 2012. He also chaired the Commission for constitutional issues and the Commission for the Reform of the State.
The General Law on Climate Change, which regulates the renewable energy market in Mexico, states that Mexico will increase electricity produced from clean energy sources, including nuclear power, up to a 35% share by 2024, and 50% by 2050. What are the plans for achieving these goals?
The Mexican Energy Reform is a green reform that provides three mechanisms to foster clean energy to accelerate energy transition to a low carbon economy, achieve renewable generation goals and lower greenhouse gas emissions to mitigate climate change.
They are: Clean Energy Certificates (CECs), long term electricity auctions and modernization of transmission lines.
1 | Power generators must fulfill a requirement to produce a certain amount of their power with renewable sources. This requirement will be achieved and monitored through CECs. For the year 2018, this requirement will be at least 5% and for 2019, 5.8%. The percentage will increase progressively every year and by 2022 will be 13.9%.
2 | Two long-term electricity auctions have concluded with very successful results to promote new clean energy generation. Auction prices were highly competitive for both solar and wind power. CFE was the buyer of these auctions and allocated 80% of its buying offer. The 34 winning companies will construct 52 new power plants representing a total investment of 6.6 billion dollars. These projects will begin operations between 2018 and 2019, doubling existing wind and solar capacity. The third long term electricity auction was announced last April. Unlike the former two, this one will be open to private buyers, not only to CFE. Companies will be allowed to purchase electricity, power and CECs. With this third auction, Mexico expects to triple its renewable installed capacity. The winners will be announced in November 2017.
3 | With the expansion and modernization of transmission lines, Mexico plans to connect regions of the country with high potential of clean energy.
Recently, Mexico announced a major energy efficiency plan worth 200 million pesos in collaboration with the University of California. What are the principle aims of this project?
The new energy model requires high-level professionals as well as scientific investment and talent development. In order to do this, Mexico is fostering research and innovation in the energy sector in collaboration with national and international higher education institutions oriented to promote regional scientific and technological development. Moreover, three years ago cooperative initiatives were established with the University of California, including projects to collaborate in energy efficiency, energy regulation and industrial development.
Mexico is trying to design a comprehensive strategy to incorporate cities’ requirements, and implement measurements or equipment to reduce cities’ and towns’ carbon footprint. Together experts from the University of California, higher education institutions, public and private Mexican research centers and associations are invited to participate by presenting their proposals individually or in association with other national and international institutions.
Recently Eni announced an important discovery in the Mexican offshore. What is its significance?
Energy reform was designed as a whole to modernize, under the State’s supervision, each activity of the sector and to create competition. In this regard, Eni’s discover in shallow waters, announced last March, has a very special meaning within the framework of this new paradigm raised by the reform, since it is the first successful drilled-well by a private company in more than 70 years. This discovery proves that the reform has initiated exploration drilling in the country.
It is to be expected that shortly new discoveries of companies that are currently operating in our country will join this one. In the case that adequate technical and economic conditions exist, these new discoveries will eventually contribute to the production platform of the country and, as time goes by, will help to reverse the declining trend of the past years.
*With the collaboration of:
Serena Sabino, journalist, has worked for Oil since its first edition. She has also worked for the AGI news agency and, previously, for the Dire news agency and for Radio24ilsole24ore.