Electricity Market: Supply, Demand, Technology and Finance

As Mexico redefines the future of its electricity market, the conversation around supply, demand, technology, and finance becomes more urgent than ever. Industrial expansion, rising power consumption, and global decarbonization targets are converging at a time when the national grid faces mounting strain and investment needs. The government’s new planning and regulatory framework has set out to strengthen state oversight while seeking coordinated private participation, shaping the next chapter of the country’s energy evolution.

Mexico’s decarbonization challenge is both structural and economic. Natural gas continues to dominate generation, supplying about 58% of the country’s electricity in 2024, compared to less than 20% at the turn of the century. The majority of that fuel, over 6.4Bcf/d, is imported from the United States, a twenty-two-fold increase since 2000. Renewables, while growing, accounted for only 21.6% of total generation last year, with solar and wind representing just over half of that share.

This imbalance underscores the scale of opportunity. Expanding renewable capacity not only supports Mexico’s climate goals but also enhances energy sovereignty and financial stability. If today’s solar and wind output had been replaced with gas, Mexico would have required an additional 1.1Bcf/d in imports, equivalent to roughly US$729 million in extra costs. Collaboration between producers and industrial offtakers is therefore central to achieving cleaner, traceable supply chains, agreed experts at Mexico Business Summit 2025. 

Many large manufacturers are already seeking long-term clean energy contracts, but grid access, permitting, and infrastructure remain bottlenecks. “Authorities must incentivize private investment so transmission and generation projects can be developed,” said Leopoldo Salinas, Director of Renewable Asset Holding Company, Capwatt Mexico, underscoring the importance of policy-driven collaboration to expand capacity.

Mexico’s industrial surge, fueled by nearshoring and new manufacturing investments, is accelerating electricity demand in key corridors. Regions hosting data centers, automotive clusters, and export assembly plants are approaching the limits of grid capacity. Analysts have warned that consumption is rising faster than infrastructure expansion, increasing the risk of localized bottlenecks and outages during peak demand periods. “Data centers are driving significant demand for energy, which the existing infrastructure is unable to handle,” said José Buganza, Director General, Enegence.

Recent heatwaves have pushed national consumption to record highs, with thin operational margins exposing vulnerabilities in transmission and distribution. These pressures highlight the urgency of expanding and modernizing the grid to support industrial competitiveness while maintaining reliability. Coordinated planning between federal, state, and private stakeholders will be critical to ensuring sufficient capacity, particularly in areas targeted for industrial growth.

Digitalization is emerging as a cornerstone of Mexico’s energy modernization. CFE is implementing a MX$164 billion transmission expansion program that includes smart grid technologies, digital transformers, high-temperature cables, and advanced sensors. These upgrades aim to reduce losses, improve real-time control, and enhance resilience.

Artificial intelligence is also gaining traction across the electricity value chain. For generators, AI tools optimize dispatch and detect faults before they cause disruptions. For industrial offtakers, they enable precision energy management and predictive maintenance, reducing costs and emissions. According to the International Energy Agency, widespread AI adoption could deliver energy savings greater than Mexico’s total current electricity consumption, while cutting outage durations by up to half.

Improving Mexico’s energy infrastructure will require innovative financing models and greater regulatory certainty. Project finance mechanisms are evolving to accommodate both state-led and independent developments, with investors increasingly focused on risk mitigation through legal and contractual clarity. “Private investors and banks have shown significant appetite for financing energy projects,” said Buganza, underscoring the momentum behind clean infrastructure and financing availability.

Recent shifts in the legal framework have improved alignment between constitutional and legislative provisions, reducing uncertainty. New mechanisms, such as trusts that guarantee transparent income distribution between public and private partners, are helping banks and funds assess long-term viability. However, investors continue to weigh regulatory stability and access to transmission capacity as key risk factors. Diego Arriola, Partner, NXT, highlighted the need for longer-term certainty to attract capital. “Five-year contracts are not enough to manage 25-year projects; PPAs have to be long term again.”

For Mexico’s electricity ambitions to materialize, public-private cooperation must extend beyond capital deployment, as well. It requires shared accountability in project planning, risk allocation, and execution timelines, particularly as new renewable capacity and industrial energy needs expand in parallel. Yolanda Villegas, Energy Expert, pointed to the government’s Plan México as a key step toward meeting this demand: “Plan México aims to build capacity for 28GW, to add to the 89GW the country already has.”

The regulatory landscape is undergoing one of its most significant transformations in a decade. The updated Regulation of the Electric Industry Law (RLSE), published in October 2025, introduced new parameters for generation, transmission, distribution, and storage. The framework strengthens state participation while preserving pathways for private sector involvement, signaling a shift toward coordinated, planned development of strategic projects. The regulation also introduces streamlined permitting, new social and technical safeguards, and mechanisms for storage and strategic project designation. For developers and industrial consumers alike, alignment with national planning instruments will be crucial. Compliance and coordination will determine which projects move forward under the new framework and how quickly.

Ultimately, Mexico’s electricity market stands at an inflection point. The government’s push for a more coherent and state-led system, paired with industry efforts to modernize and decarbonize operations, could reshape the market’s structure and investment landscape. The success of this transition will depend on how effectively both sides, public and private, align around shared goals: reliability, sustainability, and competitiveness. “The sector is eagerly waiting for updated regulations; it also needs faster responses from authorities,” added Salinas.