Energy Infrastructure Development for Manufacturing Growth

Mexico stands at the forefront of the next generation of manufacturing in the world where the strategic development of energy infrastructure emerges as a pivotal element for ensuring sustained growth. By addressing critical considerations and leveraging lessons from successful global investments, Mexico can navigate challenges and capitalize on opportunities to propel its manufacturing sector forward.

Strategic planning for energy infrastructure in manufacturing necessitates careful consideration to prevent energy constraints from impeding economic growth in Mexico. The country faces a constrained grid that limits interconnection and subsequently hinders its capacity to support larger renewable energy projects. This grid limitation has led the government to restrict solar projects, prompting a need for alternative solutions such as distributed generation, albeit with a current limit of 500KW.

In the context of nearshoring in Mexico, Rodolfo Rueda, Partner, Holland & Knight LLP, explains: “A well-structured nearshoring scheme is paramount for driving Mexico's energy transition. Without this transition, the development of grid transmission infrastructure will be hindered, ultimately impeding investment opportunities.” He adds that “without the generation of an appropriate nearshoring scheme, there will be no transition; without transition, there will be no transmission, and without transmission, there will be no investment.”

Despite the 500 KW limit, Víctor Mejía, Chief Commercial Officer, Energía Real, sees it as an opportunity, stating: “The 500kW limit for distributed generation is no longer a barrier. Renewable energy certificates offer proof of commitment, and even isolated supply can count towards installed capacity.” The 500KW limit can be surpassed with storage systems as long as there is no grid injection—a solution showcasing a commitment to decarbonization. Operational continuity batteries and energy backup systems can also be profitable investments, contributing to sustainability. The evolution we see is in a mix of technologies to address energy issues so that companies can be more competitive and demonstrate a path to sustainability.

“Another challenge lies in the issue of government administrations, as it changes every 6 years. Integrating long-term strategic planning of infrastructure that encompasses logistics and provides a basis for continuity is essential. Volatility needs to change and necessitates having a road-map for at least 25 years,” said Gonzalo Azcárraga, General Director Mexico, SENER. 

Experts stress that addressing these limitations is crucial to leverage the opportunity that nearshoring represents. Moreover, federal energy policy, influenced by the factors mentioned above, has also focused on rescuing state companies such as PEMEX and CFE, leading to cheaper fossil-fueled energy. However, this presents another concern for the industry as offtakers increasingly demand cleaner energy sources.

Planning

Strategic planning for energy in the manufacturing industry, particularly in the automotive sector, entails careful consideration during a transitional period toward decarbonization. Mexico's path to ensuring energy supply at this juncture involves advancing toward renewable energies and decarbonization. Priorities include capacity for evacuation and transmission. However, energy needs extend beyond electricity; they also encompass port infrastructure, railways, airports, transportation, and logistics, which still heavily rely on fossil fuels.

As Mexico emerges as a nearshoring hub for manufacturing, especially in the automotive sector, planning becomes paramount. Priorities encompass not only planning but also devising a financing scheme as the transition requires significant investment, borne by the market. The challenge lies in planning the transition while ensuring a continuous energy supply and managing investment costs,” emphasizes Josefa Casas, Senior Associate, Doxia.

 “Sustainability encompasses more than decarbonization and environmental impact; it extends to the communities where infrastructure is developed, encompassing social, economic, and environmental aspects. It involves considering the entire supply chain, not just focusing on the plant area. Logistics, for instance, significantly impact carbon footprints. It's about caring for the entire process, involving every sector and ensuring supply chain integrity,” said Casas.

Short-term v. Long-term Priorities 

In the current scenario, it is imperative for companies to prioritize investments in diverse energy sources and technologies to mitigate risks associated with supply shortages or price volatility. Additionally, enhancing energy efficiency measures and promoting renewable energy integration can bolster resilience and competitiveness within the manufacturing sector.

Achieving a balance between short-term energy needs and long-term growth objectives requires a multifaceted approach. While immediate energy requirements must be met to sustain manufacturing operations, simultaneous efforts should focus on implementing sustainable practices and infrastructure upgrades. This involves investing in advanced technologies, fostering innovation, and collaborating with stakeholders to develop comprehensive energy strategies aligned with long-term growth trajectories.

Marco Cosío, Vice President for Smart Infrastructure, Siemens Mexico, Central America & Caribbean, emphasizes the role of technology in this endeavor: “The constant interaction makes digitization essential. We utilize technology such as software and AI to achieve reductions. Digitization enables dynamism, equipping companies with capabilities to make intelligent decisions. Technology must have a purpose and be based on digitization.”

As highlighted by experts, Mexico’s energy market is relatively new, with solar energy rapidly advancing as the cheapest energy source globally. This shift underscores the decreasing need for subsidies and highlights the importance of strategic investments in renewable energy to drive decarbonization efforts within the Mexican energy sector.

Lessons From Abroad

Mexico can glean invaluable insights from successful investments in grid and electrical infrastructure across the globe. Emphasizing robust planning processes, streamlined execution, and effective ongoing management are paramount. By studying best practices from countries with advanced energy infrastructures, Mexico can enhance project efficiency, optimize resource allocation, and mitigate potential pitfalls, thereby accelerating the pace of development and improving overall system reliability.

The attraction of private investments for energy infrastructure projects presents both challenges and opportunities. While financial barriers may deter private sector involvement, collaborative efforts between the public and private sectors can mitigate risks and unlock opportunities for investment. Public-private partnerships (PPPs) can offer innovative financing mechanisms, risk-sharing frameworks, and regulatory incentives to attract private capital. By fostering an enabling environment for investment and promoting transparency, Mexico can harness the potential of private sector participation to drive energy infrastructure development and support the growth of its manufacturing sector.

“The problem lies in finding these sources of financing, in PPPs, changes in laws that are not within our control. The acceleration or speed would be different if investment in PPPs were opened up,” said Cosío.