Achieving the goal of tripling renewables generation capacity by 2030, and more broadly decarbonizing the global electricity system, requires active SPCU involvement. Credit: Bigstock.

By Philippe Benoit and Leonardo Beltran
WASHINGTON DC, Sep 25 2024 (IPS)

The climate community, meeting this week once again on the margins of the UN General Assembly, is continuing to explore ways to triple the world’s installed renewable generation capacity by 2030, a target agreed at last year’s COP 28 international climate negotiations. Much of this discussion has been about mobilizing finance and otherwise getting the private sector, with its massive resources and competence, to step up to the challenge … and what government policies and incentives are needed to spur more investment.

This discourse, however, hides an important reality: much of the power sector is controlled by governments and their state-owned power companies and utilities (SPCUs). This is particularly true in emerging market and developing economies (EMDEs) where most of the future growth in global electricity demand is projected to occur. Consequently, tripling renewables by 2030 will need to involve SPCUs. More thought must be given to how to get these companies to contribute to the effort.

Much of the power sector is controlled by governments and their state-owned power companies and utilities (SPCUs). This is particularly true in emerging market and developing economies where most of the future growth in global electricity demand is projected to occur. Consequently, tripling renewables by 2030 will need to involve SPCUs

SPCUs are currently responsible for nearly half of global electricity sector CO2 emissions. This figure isn’t surprising given that a similar percentage of generating capacity worldwide is owned by SPCUs, including more than 50% in Asia and a substantially higher share in China.

Significantly, most EMDE governments favor state ownership and control over the strategic electricity sector. When this EMDE preference is coupled with the projected dominance of these countries in the future growth of global electricity demand (85% of the expected worldwide increase from 2022 to 2026), the already substantiial weight of government-owned power assets within the global electricity system can be expected to increase over time.

Moreover, even in advanced economies, SPCUs play an important role. This includes countries like France where Electricite de France has been the dominant power company for decades. SPCUs are also present elsewhere. For example, about 15% of generation in North America is SPCU-owned. This includes Hydro-Quebec, the largest provider of renewable energy to that continent. It also includes the U.S.’s iconic Tennessee Valley Authority, as well as other lesser-known SPCUs across the country at the state and municipal level.

Why are these elements significant? They point to the need for SPCU action in any effort to triple installed renewables capacity globally by 2030.

How can this be accomplished? There are several key ways.

• SPCUs need to invest more in renewables capacity. It is clear that in countries like China, Indonesia, Mexico, Vietnam, Egypt, Saudi Arabia and elsewhere, given the government’s preference for state-ownership of the strategic power sector, any major expansion of renewables generation capacity will inevitably need to be advanced in part through more public sector investment in government-controlled assets. For example, President-elect Sheinbaum of Mexico has proposed a large-scale $13 billion public investment program for generation focused on clean technologies — albeit, a figure that would need to more than double (and additionally be complemented by a similar amount of private sector investment) to triple the country’s renewables capacity by 2030.

• SPCU action should also target joint ventures with private investors. This could take various forms, such as co-investments in new renewables capacity or new government-owned plants operated by the private sector.

• SPCUs are in many systems the purchasers of electricity produced by private independent power producers (IPPs). So even if it doesn’t own the power plant, an SPCU can help to promote new renewables generation by providing prospective private investors with a commercially reliable counterparty to buy the IPP’s electricity, as well as supporting robust and transparent competitive bidding processes and other tools to encourage private investment in clean energy.

• SPCUs can provide critical complementary/associated infrastructure and systems to back private sector investment in the plants themselves. This might include building a dedicated transmission line to connect a large but remotely situated renewables IPP to the grid. It should also include, at a much smaller scale, SPCU support to households interested in rooftop solar systems which are frequently managed in cooperation with a local publicly-owned utility.

Increasing generation capacity, however, is just a means to an end. Rather, the key is translating additional generation capacity into clean electrons flowing through to users. And here, SPCUs have a critical role to play in two additional dimensions.

First, activating additional renewables capacity requires massive investments in the grid to link that new production to actual consumers. In order to transform investments in renewables generation into a greener electricity system, grid investments need to double by 2030 to over $600 billion.

This was a lesson learned in part from the experience in China where new renewables generation outpaced network expansion, a shortcoming that required investment in specifically the grid to overcome. Because in many, if not most, countries worldwide, the grid is government-owned, SPCUs will be key to expanding the electricity network to enable the integration of larger amounts of renewables generation.

A second dimension often overlooked is that usually even in power systems where there is significant renewables generation, there are also fossil fuel plants. The decision as to which plants are called upon at any moment to produce electricity is often made by a grid system operator.

In many countries — from Mexico to China and more — that entity is once again government-owned and controlled. Ensuring that additional renewables capacity actually translates into a decarbonized electricity supply will require complementary and supportive action by the government-owned grid operator to dispatch that renewable power into the network to serve customers.

For all these reasons, achieving the goal of tripling renewables generation capacity by 2030, and more broadly decarbonizing the global electricity system, requires active SPCU involvement.

This is particularly true in emerging economies and other developing countries whose electricity sector emissions are projected to grow absent robust decarbonization actions. But it is also true in the United States and other advanced economies. More attention needs to be given to SPCUs, key players in achieving global climate goals.

Philippe Benoit is managing director for Global Infrastructure Advisory Services 2050. He previously held management positions at the International Energy Agency and World Bank, and worked as adjunct senior research scholar at Columbia University-SIPA’s Center on Global Energy Policy and an investment banker. He is currently a visiting professor at the University of SciencesPo-Paris.

Leonardo Beltran is a senior advisor at Iniciativa Climática de México. He was Mexico´s Deputy Secretary of Energy in charge of the Energy Transition (2012- 2018), and member of the board of directors of Pemex and CFE. He currently holds fellowships at the Institute of the Americas and the School of Public Policy of the University of Calgary.

Extraordinary session of the Senate of the Republic of Mexico, June 29, 2020. Credit: Senado de Mexico.

By Leonardo Beltran and Andrés Chambouleyron
LA JOLLA, California, United States, Jul 20 2020 (IPS)

On June 10, 2020, Senator Ricardo Monreal, President of the Political Coordination Board of the Senate of Mexico, presented a legislative initiative to reform Article 28 of the Political Constitution of the United Mexican States, in order to cluster in a single regulator of economic competition, the Telecommunications, Broadcasting and Energy sectors.

The initiative contemplates the creation of the National Institute of Markets and Competition for Social Well-being “INMECOB” as an autonomous constitutional body with legal identity, technical, operational and management autonomy that would replace the following institutions:

1. The Federal Commission of Economic Competition (“COFECE”)
2. The Energy Regulatory Commission (“CRE”)
3. The Federal Telecommunications Institute (“IFT”)

The main purpose of the initiative is to contribute to the austerity policy of President López Obrador administration, with the integration of these three regulators that, although they share some general characteristics and objectives, the final goods and/or services they provide are different.

The three regulators are intended to ensure that social welfare is maximized through economic competition in each sector, for example, by ensuring free access for competitors in cases where due to the characteristics of the infrastructure they naturally tend to become monopolies (i.e. electrical networks or gas pipelines, where duplicating the infrastructure would result in a much higher cost to the final consumer).

Although the legal framework of the three regulators, in terms of competition, is the same, each institution applies a different set of processes, which can result in different evaluation standards that could penalize or benefit individuals simply due to the interpretation and organizational culture of each entity in question.

Likewise, administrative management in terms of procurement of goods and services, material and equipment, social communication, among other functions, could be optimized by integrating them into a single institution.

The initiative estimates that from the merger of the three institutions, savings of 500 million pesos per year (22 million dollars) could be obtained, as a result of the reduction in the workforce and operating budget of both COFECE and IFT, where 79.6% is represented by cutting out 440 positions (1 in 5 employees) and the rest would come from general services or operating expenses.

The initiative also argues that in addition to the financial benefit, there will be a lower risk in the capture of the regulator by the private sector, as the relative importance of a certain sector would be reduced within the activities of the regulatory body.

Considering that Senator Monreal’s project cites the National Commission of Markets and Competition of Spain as a precedent for consolidating competition authorities and sector regulators in a single body, we analyzed in detail this particular case and its potential application to the Mexican case.

The role of the National Commission of Markets and Competition in Spain

According to its own internet portal, the recently created (2013) National Commission of Markets and Competition (CNMC) aims to guarantee, preserve and promote the proper functioning and transparency of markets, ensuring the existence of effective competition and defending the interests of consumers and companies.

It is a public body with its own legal personality under parliamentary control, which guarantees its independence from the government and legal certainty.

The CNMC is the result of merging the former National Competition Commission (CNC) created in 2007 with sector regulators – the National Energy Commission (CNE), the Telecommunications Market Commission (CMT), the Committee of Railway Regulation (CRF), the State Council for Audiovisual Media (CEMA), the National Commission of the Postal Sector (CNSP) and finally the Airport Economic Regulation Commission (CREA).

The functions of the National Competition Commission (CNC) were essentially three, a) the prosecution of anticompetitive behaviors such as collusive behaviors and abuses of dominant positions, b) the control of operations with economic concentration (prior control of mergers or acquisitions), and c) the promotion of competition in those concentrated markets through liberalization or a greater opening.

Similarly, the National Energy Commission (CNE) created in 1998 had as its essential mission to ensure effective competition in energy systems, which would include the electricity market, as well as the markets for both liquid and gaseous hydrocarbons (natural gas and oil).

The CNE regulated tariffs and service quality in natural monopolies (electricity and gas distribution and transport networks), but also promoted competition in those segments where competition was not effective (gas and electricity commercialization) and resolved conflicts or disputes between different market agents (access to transport networks).

On the other hand, the objectives of the Telecommunications Market Commission (CMT) created in 1996 were a) to be the arbitrator between operators in the face of conflicts such as network interconnection, b) to control compliance with universal service obligations, c) to assign numbering to the operators, d) to adopt measures to ensure free competition between operators, e) to set rates for regulated services, f) to set interconnection charges between networks, g) to exercise sanctioning power, h) to carry out analysis and definition of markets and finally i) to coordinate its functions with the National Competition Commission.

Lastly, the objectives of the Committee for Railway Regulation (CRF), the State Council for Audiovisual Media (CEMA), the National Commission for the Postal Sector (CNSP) and the Commission for Airport Economic Regulation (CREA) were to regulate each of the markets by setting tariffs where competition was not possible and deregulating and promoting competition where it was technically feasible and desirable.

The creation of these regulatory bodies was due to the privatization of state-owned public service companies, the end of state monopolies and the need for Spain to adapt to European regulations.

Operation of the CNMC

The CNMC exercises its functions through two governmental bodies: the Council and the President, who is also the Council’ president. The Council is a collegiate decision-making body made up of ten members appointed by the Government with the proposal of the Economy and Competitiveness Minister, and includes persons of recognized prestige and professional competence, after the candidate appears before the corresponding Commission of the Congress of Deputies. Their mandate is for 6 years, non-renewable and is subject to a strict incompatibility regime.

The Council can act in Plenary or in Room. To this end, it is organized into two rooms: one dedicated to competition issues (Competition Room) and the other to supervision of regulated sectors (Regulatory Supervision Room). The Plenary is made up of all the members of the Council and chaired by the President.

In addition, the CNMC has four directions of instruction: Competition; Energy; Telecommunications and the Audiovisual Sector, as well as Transport and the Postal Sector, as illustrated in the following table.

What are the advantages of a consolidated body?

The arguments used by the Spanish government to justify the consolidation process of the competition authority and the sector regulators in a single body are basically the following: 1) guarantee legal certainty and institutional trust, 2) avoid unnecessary duplication of control of each operator and contradictory decisions in the same matter, 3) take advantage of economies of scale and regulate the administered sectors, establishing an integrating vision in terms of regulation and the defense of competition to adapt it to the changes that have occurred in the economic environment for the benefit of consumers, 4) aim at effectiveness, efficiency, rationalization, agility, objectivity and transparency, 5) unify criteria to offer a balanced and comprehensive solution to consumer problems, 6) adjust the operation of the regulatory authority to the regulations of the European Union, especially in the telecommunications and energy sectors, seeking a greater market integration of the European Single Market.

In summary, what they were looking for was to save administrative costs, streamline and make management more transparent, avoiding duplication and preventing potentially contradictory opinions by unifying criteria in a single agency.

Economic analysis and application to the Mexican case

The creation of the original sectoral regulators that regulated energy, telecommunications, railways, ports and the postal market occurred due to the need generated after the privatization of the former state monopolies by becoming private monopolies.

Sector regulation in this case is essentially an ex-ante regulation that is applied to those segments of the markets considered natural monopolies, which are unable to compete due to their technology. These segments are normally electricity and gas distribution and transport networks as well as the old landline network before the irruption of mobile and internet.

In these cases the regulation is ex-ante because it is applied before observing how the market behaves, since it is assumed that natural monopolies (by definition) cannot compete and therefore their rates must be regulated and they must provide their services with a minimum acceptable level of quality.

The body in charge of defending and promoting competition, on the other hand, exercises supervision and eventually also regulation, but of an ex-post type, on those markets in which anti-competitive behavior is observed. In this case the remedy (e.g. sanctions or prohibitions, obligations etc.) is applied after observing how competitive the market is, not before, because it is not possible to predict how competitive a market will be before observing how the companies behave in that market.

The eventual state intervention in a market is normally subsequent to the observation and verification of anti-competitive behavior by the authority.

It is for these two reasons that both types of agencies (competition and sector regulator) are normally separate: their nature is different because they serve markets and/or companies with different characteristics or technologies. Some are natural monopolies that require ex-ante regulation of rates and quality due to their technological impossibility of competing and the others operate in markets that are not competitive enough and that require supervision and (eventually) ex-post regulation to inject more competition, which is, by nature, impossible to achieve in the first group.

While there are segments within regulated sectors that are potentially competitive, such as the production, generation, and commercialization of natural gas and electricity, where sector regulators normally have the power to make ex-post regulation by deregulating potentially competitive markets, the competition agencies are the natural authorities to apply such policies.

Having said all this, there is no argument (economic at least) that justifies the adoption of a super regulatory body that consolidates the competition authority and the sector regulators.

Reviewing the arguments put forward by the Spanish authorities in the previous section, it can be easily verified that: 1) All the advantages that a single regulator supposedly has would also be shown by two separate regulators: one competition authority on the one hand and another multi-sector regulator on the other that regulates natural monopolies, 2) In fact, the CNMC works with 2 suites, the Competition Suite and the Regulatory Supervision Suite, each suite with its directions of instruction that operate separately.

Apparently, and judging by the arguments wielded by the Spanish authorities, the only advantage that the creation of a single authority would offer (in addition to complying with some European regulations) would be to have a single board of directors and a single president, avoiding duplication and reducing administrative costs.

It is clear that for the Mexican case, neither of the two apparent advantages put forward by the Spanish authorities would apply, since, on the one hand, there are no USMCA regulations obligating to adopt a similar measure (Canada and the United States have separate authorities) and there is no assurance that consolidating the current competition authority and sector regulators into one body will result in lower administrative costs.

The CRE of Mexico also has the power to dispose of the income derived from the rights and uses that are established for its services to finance its total budget and a public trust in which it will contribute the remainder of the excess income that it has to accumulate the equivalent to three times its annual budget and if there are additional resources, these will be transferred to the Treasury of the Federation.

This means that CRE’s operation does not represent a burden for public finances and that the cost is self-sustaining from the payment of those regulated by the reception of the service. The CRE, in addition to the regulatory mandate in economic matters, has the mandate to establish technical regulations to address the reliability, stability and security in the supply and provision of electrical energy services, a technical attribute that does not share with the other two Mexican institutions.

In summary, the consolidation project presented does not seem to be able to guarantee any of the objectives it pursues, neither reduction of administrative costs nor less capture power by the authorities. In fact, consolidation into a single agency could generate a superstructure with greater duplications than those that exist today, and nothing guarantees that the new agency will be less prone to capture by the regulated sectors.

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Water falls through these enormous pipes to activate the 20 turbines of the Itaipu hydroelectric plant on the Brazilian-Paraguayan border. Credit: Mario Osava/IPS

By Leonardo Beltran
MEXICO, Mar 31 2020 (IPS)

This year started with the news of the appearance of a new virus, COVID-19. The impact and severity of its effects in public health, mortality and the world economy are overwhelming. No public health system was prepared for this crisis, and yet governments are reacting deploying different policies to mitigate the crisis, and recover as fast as possible.

However, public opinion is divided, some support a more stringent approach on human liberties, others more emphasis on the economy, but the reality is that this is a false dilemma. You cannot privilege one over the other, because without health you cannot produce, and without production or sustenance there is no health.

If governments reorient SOEs mandate towards sustainability, they will have at their disposal the tools arising from their 2030 ASD and Paris Agreement commitments

The Intergovernmental Panel on Climate Change in its 2014 report warned about the risks of global warming, in particular for health and the economy.

In terms of health, the risks of vector-borne diseases will generally increase with warming, due to the expansion of the season and area of infection, despite reductions in some areas that will become too warm for disease vectors.

In economic terms, systemic risks due to extreme weather events that would lead to the collapse of infrastructure networks and essential services, and the risk of food and water insecurity and loss of livelihoods and incomes in rural areas, particularly for poor populations.

Today we are observing with COVID-19 the vulnerability or our public health systems and the combined effect of the fragility of the economy globally. To the extent that we continue without adjusting our way of production and consumption, global warming will continue to accelerate, precipitating the materialization of negative impacts for biodiversity, ecosystem services, economic development, and aggravating risks to livelihoods and for food and human security.

Moreover, if we are to prepare for this future, governments in designing their recovery plans can assess their alternatives and support a sustainable growth path. In 2015, the world agreed upon a new vision that would guide their actions in the future adopting the 2030 Agenda for Sustainable Development (2030 ASD) and signing the Paris Agreement.

These agreements included a set of tools to assist countries select their most efficient pathway towards low carbon development. In fact, recovery after the pandemic would be easier if governments “walk the talk on climate change” reorienting their State-Owned Enterprises towards sustainability.

Credit: United Nations

2030 Agenda for Sustainable Development [1]

In September 2015, the heads of state and government at the UN headquarters in New York City adopted the 2030 Agenda for Sustainable Development.

The international community committed to promote the sustainable development agenda in its three dimensions – economic, social and environmental – in a balanced and integrated manner, for which it is essential to guarantee lasting protection of the planet and its natural resources and where there is universal access to a supply of affordable, reliable and sustainable energy.

One of the key elements in the 2030 ASD includes a commitment to enhance international cooperation to facilitate access to advanced and cleaner fossil-fuel technology.

Paris Agreement [2]

On December 12, 2015, in Paris during the 21st Conference of the Parties (COP21) to the United Nations Convention Framework on Climate Change the international community signed the Paris Agreement, an international treaty in which for the first time all nations came together into a common cause to undertake joint efforts to combat climate change and adapt to its effects.

The Paris Agreement has two fundamental pieces to fight climate change. First, foster low Greenhouse Gas Emissions (GHGs) development by incorporating carbon planning in government policy, and the second, finance flows consistent with a pathway towards a low carbon economy.

Walking the Talk on Climate Change

Today more than ever, if governments are to respond according to the crisis, one of the best instruments they have are their State-Owned Enterprises (SOEs).

SOEs have a competitive advantage in their readiness to emerge from a crisis and embrace the international new low-carbon development framework, for three reasons: corporate governance, mandate and scale.

1. Corporate governance. SOEs have an institutional structure in which there are representatives of the government. Therefore, board members representing the State would be careful enough to voice and reflect the views of the government administration into the assessments and performance of the SOE.
2. Mandate. SOEs typically are seen as a mean to pursue development strategies of the sector, or as tools to buy into foreign technologies and know-how. Thus, embedding sustainability into the mission of the SOE on one hand, would be easier given that usually the majority of the board members are government officials; and on the other, an SOE normally operates in sectors that are deemed strategic for the state, energy being one of those, and sustainability would certainly would have an effect in the way SOE corporate policy is conducted.
3. Scale. SOEs in the energy sector represent 70% of all the assets of oil and gas production, and around 60% of the coal power plants globally [3].  Therefore, to accelerate the recovery and the pace towards low-carbon development, size matters, and in this case, given that SOEs dominate the energy sector, a policy focused on low carbon growth naturally has to be led by SOEs.

If governments reorient SOEs mandate towards sustainability, they will have at their disposal the tools arising from their 2030 ASD and Paris Agreement commitments. These jurisdictions would be able to move faster in their low-carbon recovery pathways, promoting an innovation ecosystem with technology, finance and carbon planning tools to spur new markets and business models needed to adapt to this new future.

Therefore, an opportunity for governments to speed up recovery and walk the talk on climate change is by reorienting their SOEs towards sustainability, driving their mission and their Raison D´être.

There are a number of benefits for the different stakeholders.

For the government, the new mandate would open access to the resources (technology, finance and carbon planning tools) available in the 2030 ASD and the Paris Agreement; it would be consistent both with the national and international obligations on climate action, and it will send a strong signal of the commitment of the national government to tackle the challenges posed by climate change.

For the SOEs, it would improve their competitiveness by aligning their mission to the new low carbon development architecture, and especially by granting them access to climate finance, clean energy technology and carbon planning tools.

For the general public, it would be easier to hold accountable their governments, assess the value of taking climate action, and eventually to enjoy the social revenue of a low carbon future.

[1] UN General Assembly, Transforming our world: the 2030 Agenda for Sustainable Development, 21 October 2015, A/RES/70/1, available here

[2] Paris Agreement to the United Nations Framework Convention on Climate Change, Dec. 12, 2015, T.I.A.S. No. 16-1104.

[3]  Prag, A., D. Röttgers and I. Scherrer (2018), “State-Owned Enterprises and the Low-Carbon Transition”, OECD Environment Working Papers, No. 129, OECD Publishing, Paris.

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