Hello and welcome back to Energy Source, coming to you today from Pittsburgh and Mexico City.
I spent the day in Pennsylvania on Monday, a critical swing state in a US presidential election that holds important consequences for the energy sector. Donald Trump has pledged to rescind environmental regulations to enable the oil and gas sectors to “drill, baby, drill” and gut President Joe Biden’s landmark Inflation Reduction Act, posing a challenge to the renewables sector.
But a Trump presidency would not be all plain sailing for the fossil fuels industry. The former president’s plan to impose punitive tariffs on imports could spark a trade war that upends the global economy. And some senior executives have warned that slashing climate rules could provoke a backlash against the industry.
In contrast, a Kamala Harris victory promises continuity with the Biden administration’s policies, which have incentivised renewables and emissions reduction efforts, but have done little to stop the US maintaining its position as the world’s largest oil and gas producer.
For our main item today we go to Mexico, where our correspondent Christine Murray looks at the potential for solar energy under the new administration of President Claudia Sheinbaum.
Thanks for reading — Jamie
Mexico’s untapped solar potential
For the past six years, new large-scale private solar farms have largely been on hold in Mexico, with a rise in state-led energy nationalism working sharply against a sector dominated by foreign companies.
At the same time, small-scale projects that don’t require so much regulatory approval have grown quickly. Panels on the roofs of small businesses and homes that produce less than 0.5MW have grown more than fourfold since 2018 and are now about 4 per cent of total electricity generation capacity.
The relative success of the smaller “distributed generation” projects are a sign of Mexico’s huge untapped potential in solar. A 2020 World Bank report estimated that the country would need to dedicate only 0.1 per cent of its territory to utility-scale photovoltaic power plants to cover its entire yearly electricity consumption.
“Practically wherever you put a solar panel in Mexico it’s going to be highly productive,” said Víctor Ramírez, an energy sector consultant who specialises in renewables. “It’s a very, very powerful tool to meet goals for mitigating emissions from the electricity grid . . . we have to bet on solar.”
Yet Mexico is a global laggard when it comes to renewables, which are used to produce just 20 per cent of its electricity compared with figures above 60 per cent in Chile, Colombia and Brazil.
While this story has been decades in the making, former president Andrés Manuel López Obrador, who left office in September, actively worked against renewables. The leftist nationalist prioritised dirtier energy from publicly owned companies and established the doctrine that they should generate 54 per cent of all the country’s electricity needs.
His successor Sheinbaum is an energy expert who worked on the Intergovernmental Panel on Climate Change and backed small-scale solar projects while she was mayor of Mexico City. But she has wholeheartedly adopted López Obrador’s policies and language of “energy sovereignty”. She recently signed constitutional changes into law to favour the state companies that have unnerved investors.
Squaring that with her ambitious rhetoric on renewables will not be easy. State utility CFE has considerable hydroelectric capacity and is building a large solar park in the northern state of Sonora, but the facility is in a smaller initial phase and needs huge investments.
The delicate state of public finances means the private sector will play a significant role in any shift to renewables.
Mexico has been at the centre of the hype around nearshoring, with companies looking to manufacture closer to the US as its trade war with China intensifies. Many of the biggest companies interested in moving to Mexico have firm renewables commitments, and all need reliable electricity.
To help meet this need for clean energy, one proposal on the table would raise the limit for distributed solar generation from 0.5MW to 1MW, allowing larger business consumers to take advantage of the scheme.
The Mexican Association of Private Industrial Parks estimates that with a 1MW limit, the country could cover 19 per cent of its 80mn square metres of roof space in solar panels. With a 5MW limit it could reach 60 per cent, it said in a recent report.
Raising the limit could help alleviate the problem, Ramírez said, but it’s also a balancing act with limited capacity in local distribution circuits. To really take advantage of Mexico’s solar potential, you need projects at scale, he said, which depends on the regulator approving permits and companies coming to agreements with regulators for interconnection to the network.
Sheinbaum will present her National Energy Plan on Wednesday, but attracting investors is already complicated by the uncertainty around the US election and a major overhaul of the judiciary that the president is implementing to elect judges.
The constitutional changes she made on energy were unexpectedly swift, and the legislation underpinning them would be crucial, said José María Lujambio, a partner at law firm Cacheaux, Cavazos & Newton.
“Within that world, what you can do to attract private investment in renewables is limited,” he said. “How much margin is left for the private sector to do things will play out in the next six months.” (Christine Murray)
Power Points
-
TotalEnergies’ chief executive warned Donald Trump against cutting climate rules, saying a return to the “wild west” will provoke a backlash against industry.
-
Meta’s plans for a nuclear-powered AI data centre in the US were thwarted in part by a rare species of bee.
-
Anglo American has agreed to sell its stake in an Australian coal mining joint venture for $1.1bn as chief executive Duncan Wanblad pushes ahead with radical plans to streamline the business.
Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.
Read the full article here