News Article

Mexico’s Power Infrastructure Moving Forward

By Conal Quinn | Thu, 09/08/2022 - 11:06

The Mexican electricity sector has been in a constant state of evolution since the first major reforms were initiated 25 years ago. The most recent shift appears to be positioning state utility CFE in the central role once again, as Mexico simultaneously needs to boost further clean energy initiatives.

Someone who has followed all the constitutional amendments and regulatory modifications over this time is Eduardo Andrade, General Director, Burns & McDonnell. “I remember a promotional event for one such reform to the electricity sector around 2003 or 2004, in which I made myself available to be interviewed by each of the local stations of Televisa. The only question on everyone’s mind was: ‘How much am I going to have to pay [for electricity],” Andrade explained, adding that “it is taken as a given that electricity will be supplied where it is needed. What people care about most is the price. Providing a consistent and reliable supply of electricity at a reasonable price is therefore what all these different reforms have sought to achieve.”

Recently, the paradigm established in the 2014 Energy Reform has been challenged, since the government aims to pull back the reins of privatization and gain greater control of the energy sector to fulfill its aim of energy sovereignty. Andrade expected more of the same to come in the next decade or so: “The current government has two years left in power, and it will likely be succeeded by a similar administration which will continue the Fourth Transformation (4T). This means that the future of electricity in Mexico will continue to be centered around CFE.” 

Before the reforms of the early 2000s, CFE used the Energy Sector’s Program for Works and Investment (POISE) to carry out studies, analyze macroeconomic trends and retire outdated power plants. With this document, CFE would then draw up a list of power production and transmission line projects for the next 10 to 15 years. As Andrade described, “the POISE was a very well-researched and carefully drawn up study for future prospects. Typically, the projects scheduled were completed on time. If the economy was in a rough patch, a plant might be delayed a year, but we also saw plants completed a year earlier when the market was in good shape, so it all balanced out. It looks like we will be returning to a similar model to accompany the National Electricity System Development Program (PRODESEN).”

Andrade expressed his desire that a natural gas pipeline network will be a key driver in the new sector plans. “The entire west coast was severely underserved by gas supplies, but CFE has since installed plants in major cities all across the Pacific to address the problem,” he said, adding that while transporting gas is difficult, a ready supply is crucial to develop industrial activity. If such projects are unpopular, a thermal power plant can anchor and justify a large pipeline in the region. “This was the strategy between 2002 and 2012,” said Andrade, as he cited the example of the ammonia plant in Los Mochis, Sinaloa, which lowered the costs of generating electricity with cheap natural gas supply and allowed greater availability to areas previously out of reach. Industry analysts agree that such natural gas projects will play a leading role in Mexico’s energy sector for years to come.

From 2013 onward, however, Mexico’s energy sector started to see much greater levels of investment in renewable energy. While acknowledging that renewables are ultimately the future of the industry, Andrade noted that renewable plants must be constructed at the source of the renewable energy, unlike traditional power plants, which does not necessarily match up with the requirements of supply chains and transmission networks. “This causes problems for our networks, which for decades were based on the building power plants in strategic locations to optimize supply chains and address demand,” he said. The smaller renewable plants meanwhile sprang up in a manner that largely ignored supply chains and transmission networks. Andrade therefore called for renewable resources to be developed more strategically: “It does not make sense to put a solar power plant in Mexico City where demand is high but there are only 5 hours of sun with low-quality radiation. Oaxaca may have better solar resources, but the electricity demand there is much lower. We must also factor in the impact of intermittencies to ensure electricity supply remains constant even when days are overcast.” Therefore, “combined cycle plants will remain CFE's anchor just as they have proven to be with the latest projects carried out.”

Under the previous government,  companies were “essentially free to locate an adequate site, propose it to CENACE and receive the required investment.” Andrade nonetheless expressed some optimism toward the prospect of a return to open development, even if it is not the most efficient model. “Open seasons are basically when you reserve transmission capacity for future projects. This allows CFE to invest in putting the necessary infrastructure in place. We have seen this work effectively before in Oaxaca in particular, and I believe that in its next open seasons, CFE will be able to sell clean energy to potential customers.”  This would also benefit investors tied to decarbonization, raising the prospect of a new solar plant being pitched in advance to clients keen to divest from fossil fuels. 

Andrade also said that nuclear energy will make a comeback as the “cornerstone of clean power production.” This next generation of nuclear power plants will not be on the 2,200MW scale of Laguna Verde but rather Small Modular Reactors (SMRs). Three such units, each with an individual capacity of 80MW, are already being constructed in the US using the latest technology. Referring to one frustrated attempt during the final year of Felipe Calderón’s presidency, Andrade argued it is time to stop kicking the can down the road regarding nuclear power. “In the fifth year of a presidency, there is simply not enough time left to complete such projects. We need to embrace nuclear power as a priority clean source of energy and a pillar of the energy transition,” he said.

Newer technologies, such as green hydrogen, must also be explored, which Andrade believes has the potential to ultimately replace natural gas. Meanwhile, to stabilize the electricity system, improve the quality of energy available and optimize the application of renewables, Andrade noted that storage is critical and will help ease the burden on the grid. 

Furthermore, Mexico lacks any form of natural gas storage and is forced to rely on pipeline pack. This leaves the country vulnerable to volatile import markets and price hikes such as we have seen this year. Storage solutions can also be applied to the hydroelectric sector, allowing water to descend at peak times when costs are higher before circulating back up when demand is lower.

Andrade urged Mexico to adopt reliability standards in line with international norms, which would provide a significant boost to Distributed Generation (DG), as well as update the design of its transmission networks. This applies especially to outdated cable specifications, which would enhance transmission capacity. Finally, the public-private divide must be bridged if Mexico is to provide the clean power capacity it needs for its development. “We are wasting valuable time that should be devoted to debating new energy initiatives on political rather than technical discussions,” Andrade concluded.

Conal Quinn Conal Quinn Journalist & Industry Analyst