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ENVIRONMENTAL IMPLICATIONS AND EFFECTS OVER CEL OF THE POLICY FOR RELIABILITY, SAFETY, CONTINUITY AND QUALITY IN THE NATIONAL ELECTRICAL SYSTEM PUBLISHED BY THE MINISTRY OF ENERGY LAST MAY 15th, 2020.

Mexico City, May 27th, 2020.

 

On April 29th2020, the National Center of Energy Control ("CENACE") released an administrative resolution with measures to guarantee the efficiency, reliability, quality, continuity and safety of the Electric National System. Likewise, on May 15thIn 2020, the Energy Ministry ("SENER") published an administrative resolution by means of which a new public policy in such respect was issued, (the "Resolutions").

The Resolutions set forth, among others, that as of May 3rd, 2020:

a) Preoperative tests of intermittent wind and photovoltaic power plants undergoing commercial operation are suspended; and

b) For those intermittent wind and photovoltaic power plants that have not started operations, their pre-operational tests will not be authorized.

The Resolutions also foresee, among other provisions, that the integration of installed capacity of power plants with intermittent clean energy in the National Electric System ("SEN" for its acronym in Spanish); will be maintained. only for power plants that celebrated their Interconnection Contract no later than May 14th, 2020.

The Resolutions grant priority to the electric energy produced by the Federal Electricity Commission ("CFE" for its acronym in Spanish) and restrict the participation of power plants with intermittent clean energy in the SEN, specifically, the participation of power plants with wind or photovoltaic energy (herein after "Renewable Power Plants").

Said restrictions may have the following consequences over Clean Energy Certificates (CEL) and the commitments acquired by Mexico in the international sphere, on the basis of the Paris Agreement:

a) Renewable Power Plants that, as of the date the new policy entered into force, are not in operation, find themselves limited to operate and hence, limited as well to generate CEL since, as per the Electric Industry Act and the Energy Transition Act, said certificates are granted for each MWh of electricity generated by means of clean energies.

In this regard, if power plants are restricted in their generation capacity they are then limited as well in their CEL generation capacity, which represent an additional income for these generators.

b) Renewable Power Plants that are operating as of the date the new policy entered into force, could affect their rights by virtue of the fact that, since their possibility of generating CEL is restricted, they may incur in breaches of the obligations previously acquired with CFE or other market participants with whom they have committed the transfer of these.

c) The reduction in participation of Renewable Power Plants and the increase in generation participation of plants operated by CFE, same that in their majority utilize fossil resources to generate electricity; affects the fulfillment of the commitments acquired by Mexico to reduce its carbon emissions and greenhouse gas emissions, as set forth in the Expected and Determined Contributions at the National Level, within the framework of the Paris Agreement.

The measures contained in the Resolutions contravene various constitutional provisions such as the right to an adequate environment, sustainable development, the principle of legal certainty, legality and fair competition, which can be translated into patrimonial damages liable to be challenged before the competent national courts, and even by means of an arbitration of investment in those cases that conflict with any investment treaty to which the Mexican State is party.

 

The lawyers of our Energy and Environmental Law practice groups remain at your service to clarify any query you may have over this topic.

 

SINCERELY,

 

Juan Carlos Serra

serra@basham.com.mx

 

Jorge Eduardo Escobedo

jescobedo@basham.com.mx

 

Ricardo Evangelista

revangelista@basham.com.mx

 

Mariana Arrieta

marrieta@basham.com.mx