Private Sector Priorities for Mexico's Energy Future

Mexico's energy sector is undergoing a transformation marked by regulatory changes that bring both challenges and opportunities. These changes impact various facets of the industry, from the pricing dynamics of natural gas to the accessibility of renewable energies. Understanding the implications and addressing these challenges is crucial for the sustainable development of Mexico's energy sector.

Experts explain that as Mexico faces an increase in demand, energy requirements have shifted to meet the current objectives of economic and environmental sustainability. “This is the first time in about a century that energy requirements are this many. Energy now has to be sufficient, cheap, and cleaner,” says Carla Medina Perezgomez, President, ASOLMEX, and Vice President Corporate Affairs, Saavi Energia.

Humberto Alarcón, CEO, Suneco, highlights the importance of flexibility in Mexico’s energy industry to simply respond to the energy demand and to address ESG commitments. “We see an impressive demand for renewable energy from any company that has a large or transnational company as a client. Everyone needs a percentage of renewable energy today.”

The development of the energy ecosystem requires a collaborative effort between the public and private sectors. The public sector, on the one hand, plays a pivotal role in creating a regulatory framework that fosters innovation, encourages investment, and ensures sustainable practices. Meanwhile, the private sector brings innovation, capital, and operational expertise necessary for the implementation of large-scale energy projects. Regulations, however, have othered the private sector, as the government seeks to give state companies CFE and PEMEX their old leadership back. “We will continue to observe that the electrification of transportation in Mexico will be an important guide for the economy. In the same way, there are different industries that fuel economic growth for which the private sector is also necessary,” states Leonardo Beltrán, Distinguished Visiting Fellow, Center on Global Energy Policy at Columbia University | SIPA.

“One of the main challenges is to comply with the agreements Mexico has: reduce emissions by 22% and achieve net zero, total carbon neutrality, by 2050. This is an important challenge. Public companies play a very important role. The volatility of prices, despite being cheap gas, puts the energy supply at risk. Adding alternative energy sources to the grid is essential,” explains Guadalupe Mijares, Marketing & Sales Operations and Regional Sales Manager, Hitachi Energy Mexico.

One of the main hurdles for the private sector in terms of regulation has been the limited issuance of permits for large-scale utility projects in the renewable sector. Companies planning such projects have faced uncertainty as to when their ventures will be able to start operations, which in turn has limited further investment in new energy projects. Still, the market keeps moving and DG has risen as one of the main alternatives to integrate renewable generation to companies’ operations. 

In this context, experts share that Mexico has to enhance its regulatory capacity as part of the flexibility that Mexico’s energy matrix should have. This is deeply intertwined with the importance of having a diversified energy matrix, especially in light of greater demand for clean energy. “What is happening in Mexico is a great paradigm shift for energy, but also from a technological and financial point of view,” states Medina.

Abraham Zamora Torres, President, Mexican Energy Association, and Senior Vice President, Corporate and Public Affairs, Sempra Energy, talks about the challenge that a strained transmission and distribution infrastructure poses for diversifying energy sources in Mexico. “Four years ago, energy talks revolved around the energy transition. Now, new elements join the conversation, such as diversification, cost and energy security,” he adds.

While DG has proven to be key in growing the share of renewables in the energy mix, particularly in solar energy which has now reached a total capacity of 10,479MW, the cap of 0.5MW needed to comply with regulations limits companies’ ability to advance with their environmental and sustainability objectives, particularly in industrial operations, which have resorted to having multiple 0.5MW generation projects to work around this limitation. 

In this context, experts agree that as part of Mexico’s net zero commitments, it is private companies who also put an important effort to reach these goals. Mijares, shares that from Hitachi’s side and relying on experience, accompanying their clients to understand the benefits of deploying available technologies, such as Distributed Generation (DG), is core to their strategy. “Players tend to believe that deploying renewable technologies is a very complex issue and we have the mission of providing support to be able to deploy these projects, also supporting the important challenge of doubling renewable generation, a goal to which Mexico committed last year,” shares Mijares.

While sustainability is part of the federal discourse, companies have also faced uncertainty regarding the role of renewables in the government’s energy strategy. As reported by MBN, Mexico will be the only OECD and G20 country to attend the COP-28 meeting on Nov. 30 without a defined date for achieving carbon neutrality, according to the United Nations Environment Programme (UNEP). A challenge that Alarcón identifies is reconciling technological advancement with a legal framework that leads to its implementation. Regarding financing, he mentions the importance of having clear rules so that resources can be granted. “The more risks are perceived, the greater the costs and investment will be,” he adds.

In the face of these challenges, finding a delicate balance and implementing comprehensive strategies becomes imperative for the stability and resilience of Mexico's energy sector. “Mexico has a significant abundance of solar resources, a great geographic location, and access to the cheapest natural gas in the world. We must make the country's energy matrix work according to its characteristics,” says Zamora.