Mexico’s Energy Transformation Faces Urgent Execution Test: IOA

Mexico’s energy sector has entered a decisive phase in which political ambition, regulatory reform and physical system constraints are colliding under increasingly tight timelines. According to the Institute of the Americas, the country’s power and natural gas systems are operating close to their technical limits, leaving little margin for error as the federal government pursues an ambitious energy transformation agenda centered on sovereignty, social equity and climate commitments.

IOA’s report, prepared following a high-level roundtable hosted by the Institute of the Americas, evaluates Mexico’s electricity and natural gas outlook under the new legal and regulatory framework approved in early 2025. It concludes that while the government has articulated a coherent long-term vision, implementation risks are mounting due to infrastructure gaps, regulatory uncertainty and global supply chain constraints.

President Claudia Sheinbaum’s administration has framed its energy policy as the “second floor of transformation,” a continuation of the state-centered energy model advanced during the previous government but with a stronger emphasis on energy justice, affordability and decarbonization.

According to the Institute of the Americas report, the government plans more than US$40 billion in energy investments across two administrations, including US$23.4 billion already earmarked under current plans.

The clean energy target is set at 38% by 2030, with the possibility of reaching 45% under high-growth scenarios, while maintaining a 54% public and 46% private participation split in line with recently approved laws. This balancing act, the report notes, is central to the government’s strategy of preserving state control while leveraging private capital and expertise.

Deputy Energy Minister for Planning and Energy Transition Jorge Islas Samperio, who delivered the keynote address at the roundtable, emphasized that energy policy must simultaneously address climate commitments and development goals. The report highlights his assertion that energy justice must extend beyond electricity access to include broader energy services, particularly for rural and marginalized communities.

Natural Gas: Backbone and Vulnerability

Despite the focus on clean energy, natural gas remains the backbone of Mexico’s power system and its most critical vulnerability. The Institute of the Americas report underscores that Mexico imports the majority of its natural gas from the United States, even though it holds an estimated 12cf trillion of proven reserves and up to 224cf trillion of unconventional resources.

The constraint is not geology but infrastructure. Mexico lacks sufficient capacity for gas extraction, transport and, most critically, storage. Compounding the issue, approximately 18% of domestic gas production is lost through flaring and venting, placing Mexico among the world’s top 10 gas-flaring countries and generating both economic losses and environmental damage.

The electricity sector consumes roughly 80% of imported gas, making it acutely exposed to supply disruptions. The report draws parallels to the Argentina-Chile gas crisis of the early 2000s, warning that overreliance on cross-border supply can quickly become a strategic liability.

Perhaps the most urgent finding in the report concerns the operational state of Mexico’s electricity system. According to the Institute of the Americas, available generation capacity stands at 58 to 60GW, while peak demand has already reached 53.7GW. This leaves operating reserves of barely 6%, well below international best practices.

To restore reliability, Mexico would need to add approximately 29GW of new capacity, a 50% increase, within a compressed timeframe. However, the report identifies several obstacles, including global shortages of generation equipment with delivery times exceeding two years, regulatory uncertainty that delays investment decisions and the complexity of financing new public-private models.

Regulatory Reform and Investor Confidence

The report acknowledges that regulatory reform has made progress. Planning has been consolidated into five key documents, and a new National Energy Commission has been created to replace fragmented institutional arrangements. Reforms to biofuels and geothermal laws aim to expand waste-to-energy applications and non-electric thermal uses.

Nevertheless, industry participants at the roundtable stressed that regulatory clarity remains insufficient, particularly regarding implementation rules. Without finalized reglamentos, many private investors are unable to reach final investment decisions, especially for capital-intensive projects with long payback periods.

Beyond generation, the report identifies energy storage as a critical enabler of Mexico’s transition. The government has set a goal of deploying nearly 2GW of battery energy storage by 2030, alongside a revival of geothermal energy through new drilling programs.

Social innovation also features prominently. Programs to install photovoltaic rooftop systems for 140,000 families and efficient stoves for one million rural households are presented as examples of how energy policy can address poverty and inequality while supporting decarbonization.

A Narrow Window for Execution

As put by the IOA Mexico’s energy sector is at a critical juncture. The scale of the transformation required, combined with the speed at which it must be executed, is comparable to rebuilding the entire energy system within a single presidential term. Success, the report argues, will depend on immediate action to finalize regulatory frameworks, coordinated development of electricity and natural gas infrastructure and a pragmatic approach to public-private collaboration. Energy security, it concludes, increasingly depends on balancing national sovereignty with international integration and domestic capacity-building.