No Energy Reserves Left for Summer

As Mexico approaches both elections and summer, it confronts a looming challenge: record-breaking temperatures predicted to surpass the heat records of 2023, a year marred by historic lows in energy reserves and recurrent blackouts. What lies ahead for the country's energy landscape amid ongoing presidential elections? The lack of investment in grid infrastructure and energy generation, coupled with a failure to devise an action plan following last year's blackouts, paints a bleak picture for the upcoming summer, marked by heightened energy outages and scheduled power interruptions.

In June of the previous year, Mexico's National Electric System declared a state of emergency as energy reserves plummeted below the critical threshold of 6%, nearly reaching zero, against a backdrop of a demand exceeding 52,993 MW — a staggering 9% increase compared to the peak demand of 2022. This dire situation underscores the urgent need for bolstering reserves amid a surging energy demand exacerbated by the nearshoring phenomenon. However, the absence of additional energy supply has stifled nearshoring growth, resulting in a missed economic opportunity for Mexico.

While an energy emergency should spur immediate action to fortify the grid, the looming election period has effectively paralyzed the government, casting doubt on its ability to act rapidly to address these pressing issues.

Comparative examples illustrate how vulnerabilities in the grid can be mitigated through proactive measures. Texas, for instance, faced a similar predicament during a winter cold front in 2021, which triggered energy emergencies and subsequent blackouts. However, Texas' implementation of an energy resilience plan, coupled with investments in grid infrastructure and energy security measures, ensured uninterrupted power supply during this year’s storms.

This success story underscores the importance of proactive measures in enhancing grid resilience post-blackout events. In contrast, Mexico's precarious energy reserves, escalating demand, looming high temperatures, and the lack of corrective actions following last year's events paint a troubling picture, suggesting a worsening scenario of power outages.

The summer of 2023 witnessed widespread blackouts in certain Mexican states, particularly in the north, Bajio, and the peninsula. Cancun, for instance, endured daily energy outages, impacting vital services like water supply that rely on electricity. In Chihuahua, a consortium of industrial companies filed lawsuits against CFE (Federal Electricity Commission) citing economic losses stemming from voltage drops and blackouts, which inflicted severe damage to equipment and machinery.

These energy disruptions have resulted in significant economic losses, running into millions of Mexican pesos, as production lines grind to a halt and equipment sustains damage, affecting businesses, institutions, and individuals alike. The ensuing imperative for action has prompted the industrial private sector to invest in self-reliant power sources and storage solutions, driving the proliferation of microgrids across the country.

Microgrids, localized energy systems equipped with generation sources and Battery Energy Systems (BESS), offer an attractive proposition for energy consumers, particularly in the industrial sector, amid a backdrop of frequent blackouts and prolonged outages. Mexico urgently requires a comprehensive and immediate action plan involving both public and private sector cooperation and investment to fortify the National Grid System and diversify its power generation sources, thus ensuring the resilience of the National Electric System.

It's no secret that Mexico has lagged behind in grid infrastructure investment for nearly a decade, necessitating urgent investment in transmission and distribution lines to bolster grid stability, resilience, and growth. Additionally, granting permits to large-scale generators, especially those harnessing renewable energy sources, is imperative, given recent cancellations of such permits.

Distributed generation (DG), which entails energy production behind the meter, represents the sole segment experiencing significant growth. Solar energy has surpassed the 3GW mark of installed capacity, although it only represents about 3% of Mexico's energy generation mix. Recognizing its potential, two presidential candidates have incorporated distributed generation into their energy plans, citing its rapid implementation timeframe among other benefits.

To rely on DG generation, accelerate growth in this segment and address the current energy crisis promptly, several regulatory actions need to take place, such as raising the DG limit from 500KW, revising the regulatory framework of abasto aislado (isolated supply), and speeding up the permitting process of these abasto aislado permits.

As Mexico braces for a challenging summer with climatic extremes and governmental stagnation during the electoral period, the critical state of the grid demands immediate attention and concerted action from both the private and public sectors.