COVID-19 hurt electricity demand in most countries around the world and Mexico is no exception. The country’s lockdowns has curbed electricity demand for commercial and industrial segments resulting in a fall in demand for natural gas, says GlobalData.
Gas-based thermal power accounted for 61.5% of the total electricity generation in 2019. Due to the COVID-19 outbreak, the country’s power sector’s gas demand fell to 40.6 million metric standard cubic meters per day (MMSCMD) in March 2020, from 48.4MMSCMD in March 2019. The industrial and commercial segments accounted for over 68.5% share in electricity demand in Mexico.
The government categorized energy infrastructure projects as essential, and hence related activities were permitted to continue. However, projects are facing delays due to lack of manpower and bottlenecks in equipment supply due to social distancing measures and lockdowns.
Power consumption in Mexico is estimated to decline by 10% to reach 242.6TWh in 2020 from 269.3TWh in 2019 due to COVID-19 and economic downturn.
The fall in oil and gas fuel prices is bad news for renewables as it will make energy transition to cleaner fuels difficult and unviable in the short term. The current economic conditions will increase the cost of capital for renewable projects due to the competitive pressure of the fall in oil prices. In the context of a sharp drop in electricity demand, the government wants to reduce sector competitiveness. It aims to put into operation, obsolete and inefficient fossil fuel-based power generation plants, under the pretext of stability of the electrical system, as renewables are intermittent.
Companies across the value chain are facing various issues due to the pandemic, there is an increase in force majeure notices from overseas equipment suppliers, domestic borrowers are showing their inability to arrange funds for construction and/or for procuring equipment, and IPPs have reported a reduction in revenues due to curtailments. All of the above will have an impact on the climate goals and general health of companies involved in the power sector in Mexico.