Mexico Suffering Severe Strain; Little Progress in Green
Energy Expected
Renewables make up seven percent of energy use in Mexico, and
their benefits could be expanded to people not connected to the
electricity grid, Manuel Guerra reported. Guerra is Director of
the Instituto Autonomo de Investigaciones Ecologicas (INAINE),
an environmental organization. He estimated five percent of the
population could be connected to the renewables, solar and wind
power, but heavy dependence on oil, unlike the situation in India
and Brazil, will probably not change, and more rational use of
energy is not foreseen. The only expected progress is an increased
use of natural gas. Nuclear energy usage &emdash; at one percent
&emdash; is not expected to grow, even though opposition is declining.
Mexico is in a turmoil and changing rapidly. The debt crisis
which began in 1982 showed that a change in structure is required,
but this is not properly understood by the nation, according to
Guerra. Dependence on oil has shaped the economy of the country,
but oil revenues are now far below what they were in 1982. A year
and a half ago there was a tragic collapse in individual income.
And while gross domestic product fell seven percent, energy consumption
did not slow.
The GNP reflects recurrent crises, partly as a result of heavy
reliance on oil revenues, a fact which has not been faced in a
proper manner. Freeing up of government ownership in the mid-80s
under GATT led to the privatization of companies and the growth
in maquilladoros, which last year were the only sector of the
national economy expanding.
Under NAFTA the country has become more outward looking, except
for the oil industry which was excluded. NAFTA does not address
energy issues specifically although it did grant US and Canadian
companies greater access to certain portions of the energy market.
It also pressures Pemex, the national oil corporation, to pay
greater attention to environmental concerns, particularly near
the US border.
There is some shift to more environmentally friendly power uses,
mainly a shift to wind energy in the Isthmus region. But Guerra
said the prospects for an intellectual shift to renewables is
not there, although there is certainly the potential for solar
and wind power.
Can the social structure withstand all the changes that the country
is undergoing? In 1986-88, inflation was 100 percent. Later it
fell to eight percent and since 1994 inflation has abated more.
But too much dependence on oil and on short-term capital is appearing
again.
Guerra lamented the erratic course the nation has followed in
the last decade and the lack of democracy. He said he does not
know if Mexico can remain stable in the next two or three years.
The strain is enormous, with a huge in-crease in unemployment.
Anthony Dixon, vice president of Salomon Brothers, Inc., agreed
with Guerra's perspective, saying he wished the outlook were more
optimistic.
Dixon described a financing technique, securitization, the packaging
and sale of a diverse pool of loans, a sort of collaterized bond,
which could allow renewable energy markets to grow more quickly.
The bonds are sold to trusts and pension funds with a AAA rating.
A portion of the interest margin provides credit protection to
investments; another benefit is strict oversight of the investor.
Securitization could have a significant effect, enough perhaps
to justify subsidies. It is an accepted global financing technique
which has been used in utility rebates, solar house financing
and capital markets financing.
The securitization market in Mexico is large and growing, and
securitization in the US is often the main source of financing.
Under this procedure, photovoltaics for home owners could be sold
on credit with a 3-year repayment of the loan. But so far banks
are reluctant to lend, despite the experience with Grameen and
other credit arrangements in a number of countries. There could
also be: securitization of a utility conservation tax, already
tried by a Washington State utility in the first transaction of
this type, and securitization of leases on wind power equipment
as well as on solar and PV plants.
The obstacles to such a scheme, for instance in the sale of household
solar power systems in Mexico, are high transaction costs, especially
first transactions in new markets. But it is an appropriate and
potentially significant contribution, especially in the Mexican
utility sector.
Jaime Millan, principal economist for the environment division
of the Inter-American Development Bank, discussed opportunities
for natural gas as a bridge to the future when renewables may
be more feasible in Mexico. Bolivia is selling natural gas to
Brazil, and Peru and Ecuador are both drilling for gas, Venezuela
has tremendous resources, and Colombia is a sea of natural gas.
No other form of energy can compete with it on price.
How backward is Mexico in this area? Small-scale renewables do
not play a significant role in climate change, Millan pointed
out. They make sense only when there is no access to the grid.
However, transportation in the region is facing a tremendous
problem where mega cities are full of cars producing local pollution.
Very few people are talking about this severe problem, he noted.
