Electricity Industry Law will affect textile industry: USDA

The Mexican Electricity Industry Law will affect the Mexican textile industry, an analysis by the Department of Agriculture (USDA) indicated.

After the discussion and approval of the Chamber of Deputies, the Senate of the Republic approved on March 3 the Initiative for a Decree by which various provisions of the Electricity Industry Law are modified.

With this, the Mexican congress approved a new energy law that returns Mexico to the policy of prioritizing the use of fossil fuels produced by the state oil company (Pemex) -which are dirtier and more expensive- compared to cleaner energies generated mostly by private companies and foreign companies.

While many questions remain about the feasibility and logistics of the law (Mexico does not produce enough fossil fuels for its needs, for example), the law presents, according to the USDA, another challenge for the cotton sector.

The law reverses many of Mexico’s 2014 reforms that allowed a slow opening to private sector investment in renewable energy generation, offering cheaper alternatives (10-20% less) for the textile industry.

Currently, the prices of PEMEX power supplies are priced fluctuating based on demand and can increase up to 84% for medium voltage power and up to 45% for high voltage power required to operate milling machines, from according to the USDA.

The same source stated that energy is the second highest production cost (between 30 and 35%) after raw materials (50 percent).

Today, the law is under a judicial mandate, after the Supreme Court declared it unconstitutional.

Electricity Industry Law

The most relevant modifications are:

  1. The change in the order of electric power dispatch, giving priority to the electricity produced by the generation plants owned by the Federal Electricity Commission (CFE).
  2. Restriction for the granting of generation and commercialization permits to the planning criteria established in the National Electricity System Development Program 2020-2034 (PRODESEN).
  3. Modification to the guidelines for the granting of Clean Energy Certificates (CELs) favoring the CFE.
  4. The power granted to the Energy Regulatory Commission (CRE) to revoke self-supply permits.
  5. The Federal Government will have the power to review, renegotiate or terminate the electricity purchase and sale contracts signed with independent producers.

In accordance with the text of the Initiative, the Ministry of Energy, the CRE and the National Center for Energy Control (CENACE) have a period of six months from the entry into force of the Decree to modify the regulation on energy in order for it to be consistent with the new provisions of the Electricity Industry Law.

From the perspective of the Ministry of the Interior, the changes to the current legal framework are intended to guarantee a price tariff system that will be updated due to inflation through the operation of power plants regulated by the CFE Legacy Contract and the Physical Delivery Contract of Energy and Capacity to the Network.

Among the proposed highlights:

  1. Modify the definitions of Legacy Power Plant, Electricity Coverage Contract, Electricity Coverage Contract with Physical Delivery Commitment and Legacy Contract for Basic Supply.
  2. Provide for the obligation that the permits referred to in the Electricity Industry Law are subject to the planning criteria of the National Electricity System.
  3. Establish that the granting of Clean Energy Certificates will not depend on the ownership or the date of commencement of commercial operations of the power plants.
  4. Eliminate the obligation to buy through auctions for the Basic Service Provider.
  5. Force the CRE to revoke the self-supply permits, as well as their modifications, in cases where they have been obtained by carrying out acts constituting fraud to the law.
  6. Review the legality and profitability for the federal government of the Electric Power Generation Capacity Commitment Contracts and Electric Power Purchase and Sale signed with independent power producers.