Mexico’s evolving energy landscape

Mexico continues to grapple with significant challenges when it comes to security and the energy transition. Electricity demand is increasing more rapidly than new capacity development, while deployment of renewable energy sources has not kept pace with the country’s international commitments. As a result, achieving 35% clean energy generation by the end of 2024 seems increasingly out of reach.  

Economic growth within the next few years is contingent on tackling these challenges through public policies that ensure access to safe, efficient, clean, and fiscally responsible resources. And, with an uptick in Mexico’s electricity demand, nearshoring is crucial. 

The energy sector is eagerly anticipating Mexican President Claudia Sheinbaum’s National Energy Plan, which will likely outline the administration’s actions and initiatives over the next six years. The industry seeks a strategy that encourages investment, drives infrastructure modernization, and facilitates adoption of new technologies. The Plan’s success hinges on establishing a practical framework that promotes collaboration between government, businesses, and citizens, while maintaining commitments to accessibility and price stability. 

Challenges with Mexico’s transmission and distribution systems, including outdated grid configurations and an inability to handle large amounts of renewable energy, have led to bottlenecks for clean energy project development, compounded by lengthy regulatory processes. The private sector has called for the modernization of these networks, which is vital to attracting new investments. 

Mexican Economy Minister Marcelo Ebrard has said that the private sector is pivotal to achieving Sheinbaum’s goals. Private capital is necessary to help achieve 45% of renewable energy generation by 2030, as investments are likely to increase up to $50 billion in the next six years.  

The recent passage of legislation codifying the Federal Electricity Commission’s (CFE) precedence over private entities has raised concerns regarding potentially hindering planned investments. 

Changes to Articles 25, 27, and 28 of the Constitution include:  

• Reclassifying the Federal Electricity Commission (CFE): The CFE will be reclassified as a public state-owned company, potentially granting it more operational flexibility. 
• Limiting private investment in the transmission system operator (TSO) and distribution system operator (DSO): Private companies will be barred from investing in electricity transmission and distribution. 
• Prioritizing the CFE: The CFE would be given priority over private companies, ensuring the focus is on energy security rather than profitability. 
• Focusing on public service: The national electricity system’s objectives will be revised to prioritize energy security and self-sufficiency, and provide electricity at the lowest cost, rather than generating profit. 

 Potential implications of the legislative changes:  

• Reduced competition: Restrictions on private investment could limit competition and innovation in the energy sector. 
• Increased state control: The CFE may have greater control over the energy sector, potentially affecting pricing, reliability, and quality of service. 
• Potential for higher costs: If the CFE is inefficient or faces challenges, it could lead to higher electricity costs for consumers, as the CFE will have more control over private sector renewable energy investments and could potentially impede further development. 
• Impact on technology and innovation: Reduced private sector involvement could hinder the adoption of new technologies and innovations in the energy sector. 
• Impacts to the public treasury: Redesignating Petróleos Mexicanos (Pemex) and the CFE as non-profit state-owned companies could result in operating losses, putting financial strain on the public treasury. 

Sheinbaum recently addressed a separate reform approved by Congress that impacts strategic sectors and companies in Mexico. Her administration will look to form a working group with the private sector to explore where and how the sector can participate. 

 “We are committed to the fourth transformation, which entails listening to the public and developing a model that has proven effective for both the private sector and the people of Mexico, rather than simply reverting to a previous model,” she said.