Mexico's new administration is reopening options for renewable developers to invest in the electricity sector but it is putting state-owned utility CFE at the center and moving further away from a free-market system.
President Claudia Sheinbaum, who took office on 1 October, presented her plan based on the idea that the government should retake a preponderant role in the electricity sector, following the path of her mentor, former president Andres Manuel Lopez Obrador.
"This is a proposal first made by president Lopez Obrador with the 2021 electricity reform and that was thrown out by the supreme court," Sheinbaum said on 8 November.
During her inauguration speech, Sheinbaum promised the country would reach a 45pc share of renewable electricity in the mix by 2030. But the new plan shifts to 45pc of clean energies — including some types of generation not internationally recognized as renewable — and CFE chief executive Emilia Calleja recognized that even that target may be difficult to reach.
The new strategy contemplates different scenarios. A base scenario targets 9.5GW of new power generation capacity, from which only 32pc will be clean power technologies. A second scenario forecast additional capacity of 21.84 GW with 38pc coming from clean sources. Cogeneration is included in this scenario, which the government considers to be a clean energy source, a classification that is not accepted internationally. A third scenario estimates Mexico will be adding 28.97GW of new capacity, with 45pc coming from clean sources.
In 2023, Mexico generated just 24.3pc of its electricity from clean sources, including cogeneration, according to energy ministry data. The International Renewable Energy Agency (IEA) estimates that the share of renewable generation in the power mix was 18pc last year.
Doors open
The new strategy opens an attractive window for factories to build up to 20MW of isolated supply projects, as long as they do not sell their surplus to CFE.
"Companies lured by the nearshoring effect in Mexico have faced trouble finding ways to get electricity for their projects, especially due to the constraints in CFE's grid," said energy expert Paul Sanchez. "Those factories require electricity coming from renewable sources to comply with their net-zero compromises."
The proposed plan will allow private-sector investment to build new power plants to supply electricity for CFE, or in co-investments where the state-owned company will hold at least 54pc.
"Under this view, the private sector may prefer to invest in power plants related to CFE more than in the wholesale market," said Eleazar Castro, analyst at energy consultancy Elevation Ideas.
Some of the renewable power plants that were built under legacy permits granted by the 1992 electricity law will be forced to migrate into the new scheme. When the 2021 electricity reform targeted those power plants, companies flooded courts with injunction lawsuits. But more than three years later, the sector has started gradually moving those legacy to the new plan, so the shift will not be as traumatic as it was in 2021, said Sanchez.
Sheinbaum's administration recently made official constitutional amendments in the energy sector passed by congress last month, in which they freed state-owned companies Pemex and CFE from seeking profits and prioritized CFE's role in the electricity sector.
The plan is far from the best scenario for outside renewable energy developes, but it is an improvement compared to the previous administration's vision, experts said.
"The most important advance here is the shift in the idea that the private sector is no longer the enemy of the government's goals as it was portrayed over the last six years" said Francisco Salazar, founder of consultancy Enix.
