An interview with María Valencia, energy expert based in Monterrey, Mexico
Economy Zero Group recently had the opportunity to sit down with María Valencia, who is an energy expert based in Monterrey, Mexico. She currently works with a large energy developer in the country, and has also held various posts at governmental institutions—both at the federal and the local level. María currently advises the Chamber of Commerce and Industry for Mexico-Germany ("CAMEXA").
She had previously held positions with the Federal Hydrocarbons Commission and the Energy Agency of the State of Puebla. You can imagine our excitement at the opportunity to interview her and get a glimpse into the decarbonization space within Mexico, both from a public and a private lens.
Our understanding of Mexico comes from the research we did for our second technical publication earlier this year, on the opportunity presented by renewable natural gas in Mexico. From this research, we learned some things about AMLO’s (The popular moniker given to the current president, Andrés Manuel López Obrador) backtracking on climate action initiatives, and favouring fossil-fuelled electricity production through resources from the state-owned oil company, Pemex. We therefore structured our questions to María around the themes of Policy and Energy. We hope you find her answers as illuminating as we did:
What would you say is the role that policy is playing towards the decarbonization of Mexico’s energy supply?
“We have many regions in the country with so much potential when it comes to renewable energy, however, due to changed energy policy, you have seen the growth trajectory stop. Virtually all generation projects with a capacity greater than 500 kW are stopped because all permits have been halted. What has grown tremendously is what we call Distributed Energy Resources (DERs), which are mostly solar panel systems with capacities less than 500 kW and mostly in residential areas. There was a boom in these types of projects, which was then taken up by small and medium enterprises (SMEs) as well, since they could no longer develop the larger projects.
And can I also say that when it comes to smaller government policy, the course of action has been different, and we see a lot of state governments implementing incentives for these projects [Net Metering is the most common type of incentive in this category, whereby local utilities pay DER system owners for excess electricity they produce and don’t end up consuming], and facilitating the financing for these through local banks. So at least we can say that there has been a boom when it comes to solar DER systems.”
How would you describe the role of Mexico within the global push for decarbonization?
“Right, well actually, at one point, I was looking into how we were being approached by other countries in Latin America and even in Europe, prior to the current administration. They would come to us with questions like, ‘Hey how are you guys administering your contracts for public auctions? And for the auctions of petroleum exploration and extraction rights?’ So in other words, we were kind of like a reference point. There are a number of papers by the OECD where they mention us saying that Mexico was a leader when it came to transparency for competitive processes; so we were this benchmark. I would say that in terms of best practices, we were well positioned internationally.
But now we have the contrast, where lamentably, we are no longer in the same position. What I can say, from a positive lens and in terms of advances, is that the private sector really got organized and began utilizing things like chambers of commerce. What other countries started doing was looking for stakeholders within Mexico that could support them in their objectives. So if the federal government was not too open, they would approach local governments, industrial organizations, and the like. So what I think happened is that we were forced to be more creative and more innovative in Mexico, because those of us who dedicate our careers to this could not stop. Even though we had this regression, we now have private companies leading the way because they have to respond to the market and their shareholders who are now more focused on ESG factors. These companies had to address sustainability within their value chains.
It has been a slow process, and we went backwards. But we have had advances, albeit they have been isolated because there is no one coordinating integration higher up. It’s a curious thing.”
Speaking of the current administration, could you talk to us about the risk of changing administrations, to the current ecosystems within the private sector that are enabling decarbonization? Or what potential opportunities exist?
“Just last week, I had the opportunity to go to dinner with someone in the oil and gas sector and we got to talking about the petroleum companies that have blocks here in Mexico…30 year contracts with the government, they are now turning in their blocks. This is because they see a complicated horizon in terms of the incoming administration. For starters, most industrials believe the same administration will win again, so that is one risk [The current administration has become synonymous with a push for energy nationalism—giving priority to Pemex and the state-owned electric utility, CFE], and the second risk is that we see internationals taking their investments elsewhere overall, elsewhere in Latin America since they see their futures there and not in Mexico.
I’m very interested in the petroleum industry, because these same companies, which we can say are kind of hypocritical, still have their main business in the exploration and extraction of fossil fuels, but you also see a shift. They are now investing significant capital into biofuels and the development of renewable generation infrastructure. These are enterprises with a high amount of capital that could go towards various projects, and they were always interested in Mexico, and now out of nowhere you see them turning over their long-term contracts this past year. So what this says to us is that they couldn’t even wait for the next administration. The corporate decision is to turn away from investing in Mexico.
And in terms of electricity generation, there were a number of Canadian and American companies that had investments in Mexico. They ended up going back to their respective governments to say that, ‘hey, our investments are halted, and we need to do something’. So that turned into a number of controversies, which we could see then evolving into actual legal action. We saw Biden and many members of his administration publicly commenting on how investments were blocked in Mexico. At the same time, there have been some companies that HAVE been able to advance their projects through lobbying. Before we could say that we had a fair, transparent competitive system, and now this is turning more complicated. That’s a risk that we will have to tackle.”
How do you see that Mexico is improving energy security? And how compatible do you see the energy transition with improvements to energy security overall?
"We don’t really have a lot of energy poverty in the country, there are some communities which are remote in the centre south where terrain is complicated so infrastructure is not as developed. There have been some programs in place, again utilizing DERs, such as solar panels for providing electricity without building large transmission infrastructure. But these haven’t been initiatives from the federal level really.
Now talking more broadly about energy security, the public policy stance has become to depend on state-owned enterprises for our energy primarily; enterprises such as Pemex and the Federal Electricity Commission (CFE), which are companies that are highly indebted. Actually Pemex is the MOST indebted oil company in the world and has a long liabilities list with a lot of stories of suppliers not being paid for a number of years. CFE, on the other hand, has a strong balance sheet and is made up of companies that would theoretically be able to be run as private companies. But the current administration took them as their vehicle for public policy, and they have not been well managed.
So, we don’t have many issues when it comes to energy poverty, but the nationalism of energy has led to some other problems. For example, this past summer, some transmission lines failed in Tabasco in the midst of a heat wave. I recall this story of a family that was just too hot so they decided to sleep in their car with the AC on. The next day, they actually turned up dead inside their car from suspected carbon monoxide poisoning. I also don’t think I have to think about anyplace too far from where I am, even just here in Monterrey, whenever it rains too hard, there is no electricity in the centre of the city. Why? Because we don’t have the resilient infrastructure to handle extreme climatic events. It’s the white elephant in the room, nobody thinks about climate resilience as much as it is needed.
However, the conversation around transmission is being had, because of the phenomenon of nearshoring. A lot of companies that are moving to Mexico need to be set up with services and we don’t currently have the transmission infrastructure in place to supply electricity to them, so we have to plan ahead. At the same time, there are companies like Tesla that have the requirement to be powered by renewable energy, so there are a lot of obstacles. CFE has not budgeted for all the required infrastructure yet, so there is a question of what is going to happen if we keep on growing…so I see that there is going to be a point where this problem will explode a little bit. Certain companies are building their own backup power supply and are looking for creative solutions. But for the whole of Mexico, yes we don’t have the best infrastructure and we are not working on the problem sufficiently."
Could you give us some examples of some of the local decarbonization initiatives that are currently underway, and the obstacles in place through national policy?
“Certainly. Well, I can’t omit the state of Puebla since I worked there for some time. For example, they have the net-metering policy in place for residential solar panels. They were also some of the first to have an electromobility strategy in Mexico. They just recently launched the first ever university degree in electromobility at one of their public universities. We didn’t get a chance to talk much about education, but that is also a big obstacle when it comes to the energy transition.
And the state of Nuevo Leon, they have also launched financial incentives for DERs, and green incentives overall. They have these working groups around different themes, so there is this green hydrogen working group which already has 50 member companies. The government of Campeche has also been a big supporter of the initiatives through CAMEXA in developing green hydrogen and ammonia for export.
There is also this municipality, Córdoba in the state of Veracruz, where they have the 2030 agenda very clear. But sadly, as we have discussed, when it comes to local initiatives there is an overarching lack of resources so they get discussed but there are not a lot of results. So, as we have said through this discussion, there is a lot of motivation and interest but we have to focus on how to carry out projects.
Now talking about carbon pricing, there is the state of Zacatecas, Guadalajara, the State of Mexico, and various others. The carbon price is interesting because it has to pass through the local congresses. But the conclusion is that all efforts have been quite isolated, and even now I struggle to recall all of them.”
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Mexico, as the second largest country in Latin America in terms of both population and the economy, remains influential in the region’s decarbonization journey. It is also the 13th largest emitter in the world in 2023. Policy and technological innovations in Mexico can form the basis for best practices for the rest of the region. Even though the current administration has regressed some of the previous progress on climate action, we have hope after speaking with María. She is a clear example of how there is a strong will to make progress in innovative ways, which circumvent national policy. Even if policy is not quite aligned yet, the market and civil society are finding ways to move the transition forward.
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