IOA Warns of Strain on Mexico’s Power System

The Institute of the Americas warns that Mexico’s electricity sector is approaching a critical inflection point, where rising demand, climate pressures and declining investment threaten the reliability and competitiveness of the power system. The analysis, Strengthening the resilience, economic efficiency, and sustainability of Mexico's electricity sector, argues that without accelerated investment and regulatory clarity, the country will struggle to meet growing electricity needs while advancing its energy transition and social equity objectives.

Mexico’s electricity sector must significantly accelerate investment in generation, transmission and distribution infrastructure to meet rising demand while strengthening system resilience and advancing sustainability goals, according to the institute.

The report warns that electricity demand in Mexico is set to grow steadily over the next two decades, driven by economic recovery, industrial electrification, nearshoring trends and climate-related increases in peak consumption. While the National Electric System  has expanded in recent years, the pace of infrastructure development has lagged behind demand growth, creating structural risks for reliability, affordability and long-term competitiveness.

In 2024, gross electricity consumption reached nearly 360TWh, and projections indicate average annual growth of around 2.5% through 2039. Peak demand is expected to rise even faster, exceeding 83,000MW by the end of that period. The report stresses that planning for energy volumes alone is insufficient, as the system must also be capable of responding to extreme demand spikes caused by heat waves, industrial clustering and urban growth.

One of the report’s central findings is that Mexico faces a growing investment gap. Although the government has laid out an expansion roadmap through planning instruments such as the PLADESE, actual public investment has declined in real terms. The study estimates that annual investment requirements toward 2030 exceed current budget allocations by a wide margin, particularly in transmission and distribution networks, which are critical for integrating new generation and reducing system losses.

Transmission bottlenecks and aging infrastructure are highlighted as key vulnerabilities. Losses in the power system remain above 12% of net consumption, forcing additional generation capacity to compensate for wasted energy. Without accelerated modernization, these inefficiencies could undermine the benefits of new generation projects and increase system costs over time.

The report also underscores the challenges of Mexico’s energy transition. While clean technologies represent more than a third of installed capacity, their contribution to actual electricity generation remains significantly lower. Fossil-based plants, especially combined-cycle facilities, continue to dominate dispatch due to system constraints and limited flexibility. As a result, Mexico remains below its medium-term clean energy targets, raising questions about how to align climate commitments with operational realities.

To address these challenges, the study calls for a more resilient and flexible power system. This includes diversifying generation sources, expanding energy storage, strengthening grid infrastructure and improving system planning to account for climate risks. Extreme weather events are identified as an increasing threat, with higher temperatures placing stress on both supply and demand while exposing weaknesses in network reliability.

The report also emphasizes the importance of private-sector participation. Given fiscal constraints, public investment alone will not be sufficient to finance the scale of expansion required. Mixed investment models and clearer regulatory frameworks are presented as essential to mobilize private capital, particularly for generation, storage and transmission projects that support system reliability.

Regulatory certainty emerges as a recurring theme. The analysis notes that delays in permitting, unclear prioritization criteria and discretionary decision-making can discourage investment and slow project execution. Establishing transparent rules for project selection, interconnection and cost recovery is seen as critical to ensuring that new capacity is delivered on time and where it is most needed.

Social and regional equity considerations also feature prominently. The report highlights the persistence of energy poverty in certain regions and argues that grid expansion and modernization should prioritize underserved communities. Strengthening distribution networks in rural and marginalized areas is presented not only as a social objective, but as a way to enhance overall system resilience.

The institute argues that Mexico stands at a crossroads. With electricity demand rising and investment under pressure, decisions made in the next few years will shape the sector’s performance for decades. Strengthening resilience, improving economic efficiency and advancing sustainability are described as mutually reinforcing goals, but only if supported by coherent planning, adequate investment and institutional coordination.