The qualification Fitch Reviews warned that changes to the Electricity Sector Act promoted by the president Andrés Manuel López Obrador It could adversely affect private renewable and thermal power plants, as well as independent power producers or generators that have received bilateral power purchase agreements inherited with the Federal Electricity Commission (CFE).
Fitch Ratings added that the 1992 Electricity Act could also be affected.
He explained that projects with highly leveraged capital structures exposed to staffing, downsizing or trading risks are particularly vulnerable to income pressures.
Therefore, he said it is possible to wait for the bill to “face legal challenges in accordance with Mexican constitutional and legal principles, such as antitrust laws, legal certainty and non-retroactivity of the law and international treaties.”
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“Lawsuits could prevent the bill from going into effect,” Fitch Ratings stressed.
He thought it was new Bill “Reverses the deregulation of energy market and further weakens grid reliability by prioritizing transmission to older, more expensive and less efficient CFE plants over newer private sector plants.
By means of a statement, the rating agency indicated that, while regulation has yet to be codified, the volatility of spot prices is expected to increase as the CFE factories exceed the system’s supply by dividing their marginal costs outside the economic earnings curve, likely shifting the demand curve and putting spot prices under pressure.
That is, he added, the state power company’s incremental operating costs should be covered by additional system costs, “end-user tariff increases, or by forcing the federal government to subsidize CFE’s deficits.”
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He also stressed that, due to its location in a very busy region, the new law will reduce the existing risk wind power plants Oaxaca Dos, CE Oaxaca Cuatro.
The projects are also exposed to a possible renegotiation or contract termination, especially because of the prices of the bilateral agreements purchase prices are well above the current spot prices.
The renegotiation of the contract would require the bondholder’s consent, “otherwise it would result in a technical default and a possible acceleration of debt. Forced termination of the contract is less likely as CFE would have to pay the factories the present value of all future revenues, which are expected to be sufficient to pay the outstanding debt. “
It indicated that there are power purchase contracts with buyers awarded after the Energetic Reform, such as the FEL Energy VI project (Tierra Mojada), for which they are exposed to a potential contract renegotiation.
Some of these projects are in areas where they are energy shortage, making them less likely to be affected by the risk of reduction.
pipe / lsm