Nearshoring and Private Investment: Mexico's Energy Dilemma

The blackouts that businesses and households in Mexico face due to variations in demand in the electrical system send a negative signal to investors who wish to establish themselves in our country, says Alejandro Malagón, President, Confederation of Industrial Chambers (CONCAMIN). The private entity says the roots of these power outages are systemic, underscoring the imperative to enhance transmission infrastructure and facilitate private sector involvement in both energy generation and transmission. This entails exploring self-generation models and opening the electricity market to private players. 

The Business Coordinating Council (CCE) called on the federal government to "work together" to strengthen the transmission and distribution infrastructure to enhance the country's energy security, according to El Economista. Meanwhile, COPARMEX issued a statement expressing concern over reported power outages, attributing them to the current administration's energy policies. The confederation criticized the lack of investment in renewable energy and insufficient public-private collaboration. 

Highlighting CFE's failure to meet its energy infrastructure commitments, COPARMEX warns of negative impacts on private investment, especially amid nearshoring efforts. It identifies inadequate supply from power plants and insufficient transmission infrastructure as the main energy problems, leading to strain on the National Electric System and price hikes in capacity-constrained regions.

Energy and Nearshoring

Nearshoring is emerging as an increasingly attractive strategy for industries. Ariel Garfio, Partner of Von Woberser y Sierra, explains the importance of nearshoring and the key challenges for Mexico in order to maximize its benefits. Mexico, with its geographical proximity to the United States and its skilled workforce, is gaining momentum as a privileged destination for companies seeking to optimize their supply chains and operations. One of Mexico’s biggest challenges, however, is the need for investment in electrical infrastructure as energy demand is expected to increase electricity consumption by 7% in 2024. The implementation of appropriate policies that encourage investment in the energy sector, regulatory stability, and legal certainty will be crucial to attract long-term investment and new energy technologies, such as energy storage using lithium-ion batteries and the development of green hydrogen, which are of crucial importance to the evolution of the Mexican energy sector, says Garfio.

On May 9, CCE stated that it is necessary to open participation to the private initiative in electricity generation to avoid supply cuts and properly address the increase in demand. "In light of the recent electricity supply cuts affecting various regions of the country, and in response to the declaration of an electricity emergency by the National Energy Control Center (Cenace), CCE and the organizations it comprises call on the public sector to work together to strengthen the transmission and distribution network infrastructure to improve the country's energy security," reads CCE release. 

President Andrés Manuel López Obrador affirmed that the energy generation model with CFE will be upheld, however. He affirms that CFE has everything under control and accuses private entities of leaving everything at the mercy of the market, emphasizing the necessity of maintaining a state-owned enterprise in this domain, not solely driven by profit motives, according to Reforma.