How energy reforms could impact Mexico's cement industry

This week, we will be taking a look at the proposed Mexican energy reforms and their potential impact on the cement industry.

Mexico's president, Andres Manuel Lopez Obrador (AMLO), introduced the prospect of sweeping energy reforms earlier this year. The move would see state control of the energy market substantially increase. The state-owned Comision Federal de Electricidad (CFE) would generate 54 per of consumed electricity, while private companies would be able to produce the remaining 46 per cent. However, the private companies would only be able to sell the energy to the CFE.

The plans would have a substantial impact on the country’s domestic manufacturing industries, such as cement and steel. These industries rely on the self-supply of electricity from dedicated power plants but could face the possibility of losing the operating permits for these power plants under the new rules. It is currently unclear whether the power generation facilities would either continue operating under CFE control or even be excluded from the reforms.

However, under the reforms there remains a tangible prospect of surging energy costs for producers. According to Argus, the average cost of CFE power generation is MXN1400/MWh (US$69/MWh), but energy from gas-fired plants costs an average of MXN800/MWh while renewable power costs MXN400/MWh.

In terms of renewables and sustainable methods of power generation, the reforms would also end clean energy certificates (CELs), which are the country’s equivalent of renewable energy credits. This would be a significant blow to any type of market structure system that supports Mexico’s renewable energy targets, says SolSystems. As the wider cement industry actively seeks methods of using cleaner energy and decarbonising operations, the efforts of Mexico’s domestic industry would instead be put under further strain.

CANACEM, Mexico’s national cement chamber, has been highlighting the consequences of the proposed bill, such as the increase in electricity rates and negative repercussions on the environment. However, Yanina Navarro, director general of CANACEM, noted during her presentation at Cemtech Americas earlier this week that the proposals could be tempered to gain the congressional majority needed to pass. One thing is clear though, it has already created uncertainty among Mexico’s domestic industry.

One of the only capacity expansions in the domestic industry is Cemex’s Tepeaca plant, which has been previously reported to be on target to commission this year. The expansion would take the plant to 4.9Mta and, due to its stage of completion, is unlikely to be affected by the outcome of the reforms. Therefore, aside from deterring new plant investments, one thing that cement producers will be watching is any potential impact on sustainability plans. With Cemex positioning itself to be a leading figure in the field of decarbonisation, any legislation that could affect these plans will be watched closely.