The author is professor on the University of Southern California and an adviser at Monarch Global Strategies
When Mexican president Andrés Manuel López Obrador met his US counterpart Joe Biden in Washington for bilateral talks earlier this month, there was one main energy-related breakthrough: López Obrador finally publicly recognised the inevitability of the approaching power transition.
For a politician lengthy dedicated to the centrality of fossil fuels in Mexico’s nationwide power matrix, it is a crucial shift. The president desires of a return to the Nineteen Seventies, when an enormous oil discover translated into power sovereignty and important earnings. The collapse in petroleum manufacturing over a era has elevated Mexico’s reliance on power imports from the US, and prompted reforms to advertise personal funding in power. López Obrador’s insurance policies are designed to reverse each these traits.
Even although the president has acknowledged the necessity to plan for a greener future, this turnaround has its limits. It doesn’t imply he’ll change his willpower to rebuild Mexico’s state-owned petroleum and electrical energy firms, Pemex and the Federal Electricity Commission. Nor does it imply he’s backing down from his demand that personal power funding ought to solely happen in affiliation with Pemex and the fee and that the state-owned companies management any such strategic alliance.
However, López Obrador’s new view on clear power ought to open the door to extra funding in renewables. It also needs to assist Mexico to draw funding from overseas companies with commitments that require them to supply an rising share of their electrical energy from renewables.
This elevated alternative for renewables in Mexico could not prolong to power firms worldwide, nonetheless. López Obrador’s name in Washington for elevated North American financial integration will deepen Mexico’s already overwhelming financial reliance on the US. This, alongside nationalist power insurance policies that immediately contravene the phrases of the United States-Mexico-Canada free commerce settlement, helps clarify his choice to barter immediately with US power companies.
No comparable logic holds for European companies. Even as López Obrador is assembly the heads of US companies to resolve the operational challenges of Mexico’s power nationalism, the nation’s power regulator continues to disclaim working permits for European wind and photo voltaic services. This nationalism mixed with the free commerce settlement appear to be creating favouritism for US power companies and, within the course of, a deepening of North American regionalism.
At the identical time, López Obrador’s mere acceptance that an power transition is underneath approach is unlikely to resolve Mexico’s electrical energy bottleneck by itself. Any enhance in clear power funding will inevitably be restricted by the requirement that personal buyers function with the Federal Electricity Commission. It may even be constrained by a profound insecurity within the broad funding local weather in Mexico.
The president’s repeated rhetorical excesses, and historical past of fixing the phrases of personal contracts — such because the cancelled $13bn Texcoco airport, after building had began — will proceed to undermine investor enthusiasm.
López Obrador’s revised method to renewable funding could permit him to keep away from direct US challenges to his power technique underneath the provisions of the free commerce settlement. But it won’t translate into sufficient funding to supply a adequate provide of dependable, low cost and clear electrical energy to satisfy the wants of a rising economic system.
The US-Mexico assembly generated some hope: for higher bilateral relations and elevated funding alternatives for American renewables. Implications for European power firms and for Mexico’s broad financial future, nonetheless, are far much less vivid.