Introduction to the Mexican Electricity Reform
The Mexican government faces a critical test as it embarks on the first phase of its electricity counter-reform. Following constitutional reforms to articles 25, 27, and 28, along with secondary laws that reverse the 2013 openings to private investments in the electricity sector, Mexico is transitioning towards centralized state planning.
Government’s Invitation for Private Investments
Under the fourth echelon administration, led by Claudia Sheinbaum, the Mexican government has extended its networks to attract both domestic and international private investments.
Luz Elena González, the Secretary of Energy, has invited investors, businesspeople, chambers, and associations to participate in electricity generation projects in priority areas across the country.
Informational Session and Project Details
A session was held to inform about the prioritized request process for electricity generation permits. The government urged the private sector to join this historic project alongside Mexico’s government, contributing to the Plan México, National Development Plan, and transition energy goals.
In this initial stage, the “electricity pie” comprises projects worth approximately $7.14 billion and will add over 6,000 megawatts of capacity.
Out of the total capacity, 3,790 megawatts will come from photovoltaic energy and 2,100 megawatts from wind energy.
Innovative Process and Government Principles
González emphasized that this process is groundbreaking and unique, marking a radical shift in granting energy sector permits. The new electricity sector laws and regulations are based on three fundamental principles championed by the current government:
- Recovering Mexico’s “energy sovereignty”
- Strengthening the state’s role in the electricity sector
- Promoting an orderly transition to clean energy sources
The central objective is to ensure accessible, secure, and sustainable energy for all Mexicans; reduce dependence on fuel imports; maintain fair tariffs (with subsidies for vulnerable users); and align with international climate change commitments, such as reducing emissions by 45% by 2030.
State’s Prevalence and Private Sector Involvement
The core of the new electricity policy is the state’s dominance through the Federal Electricity Commission (CFE), which injects 54% of energy into the grid.
The government promotes swift attention to requests, regional grouping, and financial viability for project development.
This strategy is based on planning for Mexico’s needs by 2030 to meet the transition energy goal of at least 38% electricity generation from renewable sources.
Private sector support is crucial for this objective, which will receive rapid resolutions and evaluations due to coordinated authorities under a single line, with transparency and national interest at the forefront.
Government’s Vision vs. IMCO Analysis
The Mexican government envisions a model to regain energy sector dominance. However, only time will tell if investors are enticed by the new institutional arrangement given the limited fiscal margin and commitment to reduce the deficit.
According to an analysis by the Mexican Institute for Competitiveness (IMCO), the CFE-priority scheme discourages private investment and delays the clean energy transition. IMCO anticipates economic risks due to potentially lower economic growth and possible capital flight.
The success of the state-controlled model hinges on actual project investments and their amounts in achieving electricity generation goals, which will significantly impact national economic growth.
Additional Context: Financial Institutions Sanctions
Brief Mention:
Despite the near-extinction of three Mexican financial institutions accused of alleged money laundering by the US FinCEN, the US authority announced sanctions including a ban on any US financial entity conducting transactions with CI Banco, Intercam, and Vector Casa de Bolsa.
This is the tale of an unproven accusation that led to the destruction of three Mexican financial institutions.
