Decreasing costs of renewables - Analysis of energy sector planning and climate policy in Mexico

Mexico is signatory to the Paris Agreement. As such, the country submitted its first Nationally Determined Contribution (NDC) in 2014 in the run-up to the Paris agreement. In the past years, renewable energy systems have seen a massive cost reduction, which should be considered energy sector and climate change mitigation plans (also see Eckstein et al. (2020)). In view of these developments, this study analyses the process underlying the development of Mexico´s NDC and its revision in 2020 with a particular focus on the energy sector and renewable energy systems. The assumptions underlying the related energy sector planning document (PRODESEN) and the relationships to the NDC are assessed. The study is completed by giving a snapshot of political constraints under the current administration of President López Obrador. The study builds on literature review and insights gained from interviews with pertinent Mexican stakeholders. In Mexico´s NDC, emissions are estimated to increase by roughly 50% between 2013 and 2030 in the business as usual (BAU) scenario. The unconditional mitigation target of Mexico´s NDC foresees a greenhouse gas (GHG) emissions reduction by 22% by 2030 relative to BAU. In the electricity sector, the NDC aims at a 31% GHG emissions reduction. The target setting process remains publicly undisclosed and highly politicized. The main responsibility for the NDC revision is with the Environment Ministry of Mexico (SEMARNAT). SEMARNAT is supported by the National Institute for Ecology and Climate Change (INECC), a body created under the cli-mate change law. The highest level administrative body in the energy sector in Mexico is the Energy Ministry (SENER), responsible for the establishment of targets and strategic transmission investments for renewable energy. The 2020 NDC revision considers only enhanced energy efficiency measures and to a large extent disregards renewable energies in the power sector. Energy sector planning is described to align to political interests and not to follow cost optimization, despite the fact that cost optimization modelling exercises have been carried out by SENER and supported by international organizations. In 2013, Mexico launched a set of regulatory and administrative changes related to the energy sector that are referred to as the Energy Reform. This reform restructured the energy sector, moving away from state-owned enterprises for power generation (CFE) and oil extraction (PEMEX) to a liberalized market, open to private actors. This led to competitive bidding and record-low auction outcomes for solar PV projects in the Mexican power sector. The López Obrador administration, however, builds on fossil resources and state-owned PEMEX as backbone of economic development. It perceives fossil fuel extraction as integral part of the Mexican national sentiment and therefore fosters its continued exploration. While the laws implementing the reform of 2013 have not been formally revoked, institutional, administrative and procedural practice undermine its effectiveness, making renewable energy projects in the power sector un-likely due to limited government support and creating high uncertainty with regard to the regulatory future. Under the current administration, government agencies such as INECC and SEMARNAT have experienced substantial budget cuts, undermining their institutional capacity to support climate change goals. In conclusion, despite large potentials and record low costs for renewable energy projects, key energy sector planning documents in Mexico largely disregard low costs of renewable energies. The energy planning paradigm is determined by a shift away from competitive energy markets towards political patronage, locking Mexico´s power sector into a future of higher costs and in-creased GHG emissions.