More than ever before, Mexico is starting to see some problems when it comes to keeping up with its own demand for electricity. As has been the case for several years, spanning into decades at this point, the country has just barely been able to keep up with the need for power supply. The electricity monopoly, which is owned and operated by the government, has stayed a couple steps ahead of the demand but they have a very small margin to work with. The CFE has begun working toward revamping some of the hydro-electric plants which have become obsolete over the years. These repairs are looking at a bill of hundreds of thousands of dollars, which has already been paid. Since many of these plants were first built during the 1920’s, much needed to be done to bring them back up to par. The CFE also has built new plants and is looking to use generators that are privately owned to operate within the electricity buy-in program. However, soon, this might not be enough.
In 2009 Mexican power plants generated 239 billion kilowatt hours (Bkwh). However, the public gobbled up 202 Bkwh – and since then the demand has continued to grow exponentially. .
The demand is ever-increasing, with an estimated 800,000 new customers annually. With so many people and such little supply, experts and officials are beginning to wonder how much longer the governmental agency can keep going with private assistance to provide the necessary energy.? A really good question becomes proposed. When there are so many advancements being made in terms of greener energy within the country, such as wind and solar power, why is the country still seeing some of the craziest and highest rate increases, along with shortages? How are programs that might fix some of the biggest burdens on the country dying on drafting tables rather than seeing the light of day?? Has it finally become the point where both the political and economic reform that has seemed to only grow since its roots back in the late 1990s?
Why is Mexico “Starving for Electricity”?
The answer lies (at least partially) with the old supply/demand axiom. Victor Carreon (of the Centro de Investigacion y Docencia Economicas or CIDE) and Armando Jimenez San Vicente (former Secretaria de Energia) have examined the puzzle thoroughly and both agree that “one of the main problems in the electricity sector in [Mexico] has been the demand growth rates, which some times have been greater than the growth rate in installed [production] capacity.”
Put more bluntly: Mexico produces just enough electricity to get by while the demand increases on a daily basis. Conservative estimates place the growing demand for available electricity at 6% per year with some creeping as high as 8% or more for the general populace and as much as 30% within specific industries. This type of growth is working around an inner working that was created a long time. With the new issues of budget problems and money issues due to a lot of funds being cut or taken from the CFE begins to enter into the mix, causing the issue at hand to become bigger to the extent of becoming high-risk.. Facing 13% cuts across the board, the CFE will have its hands full simply maintaining the 430,000 miles of transmission lines and hundred or so company-owned hydroelectric facilities which supply the majority of the country’s renewable energy. Associated costs, as always, are passed on to the consumers.
When government subsidies for electricity ended in 2001, consumers were shocked. Some saw their rates jump as much as 70%. That hit was devastating to high volume consumers such as food manufacturers, farmers, and those involved in the tourist industry. And those prices have continued to rise ever since. The entire country felt the price jump from 20% to 22% back in 2011 alone.. They spiked almost 7% in just one month!
Those numbers are having a huge effect on the Mexican economy. This fall a group of business owners approached the capital hoping to make a public spectacle and shed some light on the need for energy reform. These business owners came from all around the country and various industries to make their individual plights heard:
Hoteliers from Cancun cracked open their books to show that electricity now accounted for at least 15% of their total operating costs
Food processors decried the 30% increase in electricity delivery charges
School administrators demonstrated that their daily operations are directly responsible for dramatic “seasonal” increases in energy rates
Meanwhile Mexico continues to sell electricity to multiple countries in South America and even the United States when its own populace is hurting from shortages.
A Good System Gone Bad
Everything points to something fundamentally wrong at the core of Mexico’s energy grid. Many experts including former President Vincente Fox see the root of Mexico’s looming energy crisis firmly imbedded within the government’s own monopoly on electricity transmission. As a protective measure the government nationalized the electric grid in 1960. Amendments to the country’s constitution gave the government direct, permanent, and non-transferrable control over electrical transmission and distribution. Two government-owned companies were created – Central Light and Power (LFC) which supplies to the Capital and the Federal Electricity Commission (CFE) which supplies everybody else – and they’ve been in control ever since.
Thanks to modern day technology, much of what used to be an impossible dream is now an every day occurrence. Private players have an ability to create energy within their own forces rather than being so limited in resources.. As the CFE continues to try and handle the situation, it seems the efforts put forth have continued to be unsuccessful with many wondering if they will loosen their grip.. Though special amendments to the Public Electricity Service Act enacted in 1992 allow private individuals and corporations to produce electricity but they must either consume that electricity themselves or sell it back to the CFE. Due to money coming in much less quantities along with the expenses only increasing, as half of the CFE’s budget is to pay for staffing along with other business-related expenses, there will have to be other sources of revenue for income.. And “elsewhere” is often outside of Mexico’s borders.
This practice was originally enacted to allow some competition and cost-sharing but it has been corrupted by multinational corporations with deep pockets (such as mining companies or big box chain store companies). These companies often build their own production plants (usually wind turbines) and use the energy to support their own operations or sell their energy back at a profit. Meanwhile, in order to even get their project off the planning board, these corporations must come up with hundreds of thousands or even millions of dollars’ worth of “financial guarantees.” This practice had created an exclusive culture of energy producing “robber barons” that many native Mexicans feel are taking unfair advantage of their natural resources.
These restrictive “guarantees” are, according to Sergio Oceransky of the Yansa Group, in amounts that “no community in Mexico could meet.” Which means that often times local programs which may be beneficial in both the long and short runs are shot down in favor of those proposed by multinationals.
Oceransky sees exclusionist tactics to blame and says that “these are requirements that are basically designed to ensure that only projects presented by multinationals can compete.” This exclusivity breeds higher rates by strangling competition.
Winds of Change are Blowing
For generations Mexico’s power grid has relied on electricity from thermal generation plants and hydroelectric facilities. Now those traditional methods of power generation are falling by the wayside. Hydro power accounted for nearly 25% of Mexico’s total production a decade ago. When 2010 came around, the number dropped down to about 14%.. Mexico stands on the precipice of a new era and is poised to be one of the fastest expanding wind energy markets in the entire world. In fact, wind studies have shown that there are enough viable sites (with 30% productivity or less) available to generate 82 gigawatts per year!
The wind harvesting revolution started with Calderon’s regime. When he took office in 2006 Mexico’s wind production was a measly 6 megawatts. Just 6 years later that total has risen to 519 megawatts.
In 2011, an alternative source began to emerge. There were wind farms opening and the few that had opened up were already creating a substantial amount of energy. Each year, they were producing hundreds of megawatts, leading to plans to open even more in the near future (at least a few dozen).. These projects (mostly along the Isthmus of Tehuatepec) would bring wind-generated electricity in the multiple-gigawatt range in the foreseeable future. In fact, the Energias Sierra Juarez wind farm owned by Sempra International could potentially generate enough energy at that one site to fee all of Mexico if the transmission grid could be upgraded!
The technology is there for the taking but will the government take advantage of it?
Political Machinations May Stall Energy Reform
Carren and Jimenez warn that reform is necessary “however, the task of moving forward in the process of reform has proven not to be easy, especially in the face of divided and highly politicized Congress. The ability of this government to build consensus could determine the pace and potential for the country’s economic growth.” While new president Enrique Pea Nieto has promised energy reform, critiques like Ricardo Castillo of The News are skeptical.
Castillo cites the Pea administration’s lack of transparency as reason to be doubtful. The President is touting energy reform but “exactly how President Pea Nieto will go about it remains a mystery.” Most agree that his focus will be zeroed in on oil production. The irony is that the country is starting to become one of the international leaders when it comes to green energy production, all the while the citizens are paying an incredibly large amount of money for electricity..
Edward DuCoin, CEO ORPICAL Group
Ed DuCoin is the CEO of ORPICAL Group, known for his success in growing a small company into a thriving organization that was listed as one of the 500 Fastest Growing Companies for three consecutive years by INC. Magazine.