Changes to secondary legislation resulting from the strategy and their implication for the viability of new projects are still being determined.
At the beginning of November, Mexico unveiled its Mexican National Electricity Strategy, which, while highlighting the state-run Federal Electricity Commission (CFE), assigns the private sector a share of investment in generation, including clean energy, in a 54%-46% ratio.
The projection is to generate 22,574 megawatts between 2025 and 2030, which—according to the Mexican Institute for Competitiveness (Imco)—equals 94.3% of what was approved between 2019 and 2024 but is 39.9% less than what was authorized between 2012 and 2018, due to reduced investment in recent years.
The CFE plans to invest $23.4 billion in the current administration, including $12.3 billion in generation projects (13,024 new MW), $7.5 billion in transmission, and $3.6 billion in distribution.
Under the Mexican National Electricity Strategy, the private sector may participate through three mechanisms:
- Long-term contracts that may be auctioned.
- The strategy includes a new model of mixed producers who will partner with the CFE and hold at least 54% of the investment in power plants under schemes to be auctioned.
- Energy generation and market sales
Although the projected amounts may not meet the country’s needs in this area, Imco notes that if the three mechanisms for private investor participation in electricity infrastructure development are properly implemented, they could improve Mexico’s economic competitiveness in the coming years.
Adapting and Identifying Opportunities
For Lorenzo Hernández, partner and global head of energy at Ontier Law, the Mexican National Electricity Strategy presents a mixed outlook for private investment. It offers challenges and opportunities that call for strategic reflection.
“Policy changes in the energy sector, as we saw with the 2014 reform, require significant adjustments for the private sector, which must adapt to a new regulatory framework and identify opportunities amidst change,” he said, emphasizing that Mexico has tremendous potential for energy investment due to its exceptional natural resources.
Hernández highlighted the push for storage technologies and the move toward a more robust distributed generation system as positive elements that could help energize the sector.
“In our experience, energy developments must not only comply with current regulations but also incorporate a social and environmental approach that contributes to collective well-being. Strategic lines promoted by the new policy, such as projects linked to industrial parks supporting nearshoring, administrative streamlining via a one-stop shop, and the emphasis on clean technologies, suggest a favorable framework to catalyze sustained growth in the sector,” the Ontier partner stated.
Analysts view it as positive that the private sector is being incorporated into plans for Mexico’s electricity sector after the slowdown in investment during the previous administration. However, they need to be more concerned about how private company participation will materialize, particularly regarding the Mexican National Electricity Strategy regulations.
What Concerns Have Clients Expressed About the Mexican National Electricity Strategy?
Lorenzo Hernández: Clients are well-informed and aware of the regulatory impact on their investments. They have shown equal parts interest and concern. On the one hand, there is optimism about certain aspects of the strategy and its more private investment-friendly message, particularly regarding renewable projects. On the other, there are uncertainties about the specifics of secondary legislation and its impact on the viability of new projects.
While existing projects should not face retroactive changes, self-supply projects appear set to undergo adjustments that will require detailed analysis. Additionally, clients are concerned about dispatch rules and curtailments that could affect operating projects and the suspension of certain M&A transactions pending greater regulatory clarity.
For our firm, these concerns present opportunities to innovate in legal and business strategies for our clients. We are committed to working closely with them, anticipating risks, and developing solutions that maximize the success of their projects in this evolving landscape.
The firm estimates that the Electricity Industry Law and its regulations, the Energy Transition Law, the Electricity Market Rules, the Market Surveillance Manual, the Grid Code, and other general administrative provisions are among the legislation potentially subject to modification under the strategy.
“These regulatory changes will require rigorous analysis to understand their impact on current and future projects. These reforms must be implemented transparently and coherently to foster a stable environment that supports positive development for Mexico’s energy sector,” Hernández said.
Potential Conflicts on the Horizon?
Analysts have predicted potential conflicts with investors over electricity infrastructure projects, given the state’s control of the sector.
Hernández acknowledges that the proposal to strengthen state control in the electricity sector has raised legitimate concerns among investors, particularly regarding legal certainty and adherence to the principles of free competition.
He notes that any measure limiting or discouraging private sector participation could generate tensions. However, he believes the current context cannot be analyzed in isolation, and it will be necessary to wait to implement secondary legislation. Like any strategic reform, it could face significant legal challenges if it violates constitutionally protected principles or international treaties.
The firm’s proposed response to this scenario is to encourage constructive dialogue with regulators, offering ideas and solutions that support sector growth and promote a collaborative and sustainable development environment.
Strategy and Energy Transition
The Mexican government projects in the Mexican National Electricity Strategy that by 2030, 45% of the country’s energy will come from clean sources, up from the originally proposed 40%. The goal for this year is 30% renewable energy in the national grid. The challenge is significant, given that 75% of electricity consumption currently relies on fossil fuels (gas, oil, and coal), according to Low Carbon Power data from August 2023 to July 2024.
“Energy transition is an ambitious goal that requires a balance between state and private actors,” said the Ontier partner, while noting that although the CFE will play a predominant role, controlling 54% of generation, the remaining space for private participation is still substantial and represents a platform to drive innovation and growth in the energy sector.
However, Hernández cautioned that the energy transition’s success will depend on having a sufficiently clear and attractive regulatory framework for private investors, enabling them to participate in projects that complement state efforts.
“Private companies have demonstrated their capacity to lead innovative and sustainable developments, and this potential must not be overlooked,” he concluded.
The Mexican National Electricity Strategy, unveiled in November, presents a mixed outlook for private investment in the country’s energy sector. While the strategy outlines a 54%-46% investment split between the state-run CFE and the private sector, with mechanisms like long-term contracts and mixed producer models, there are uncertainties regarding regulatory changes that could impact the viability of new projects. Experts highlight challenges and opportunities, especially with the push for renewable energy and storage technologies. Despite concerns about potential conflicts and legal uncertainties, there is optimism that private sector participation can help drive growth and innovation, particularly in clean energy. However, the success of this strategy will depend on the clarity and stability of the regulatory framework, with careful attention to the evolving legislation.