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Projections for Mexico's Electricity Sector: A Glimpse at 2025

By Erasmo Gonzalez - AES Mexico

Director of M&A, Mexico, C. America, & Caribbean (MCAC)

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Projections for Mexico's Electricity Sector: A Glimpse at 2025

So far, the start of 2025 feels a lot like last year: filled with promise, yet susceptible to significant risks. Back then, we braced for a volatile 2024 given the Mexican and US presidential elections, yet remained optimistic, as the economic fundamentals between the two countries were too intertwined not to make sense across a broad swathe of sectors – even for the much-maligned electricity sector that suffered significant disruption in the prior administration.

Now with 2024 behind us, and under a new Mexican administration, I am just as optimistic as I was last year for private sector participants in the electricity sector. Yet, I am also mindful and cautious of the myriad risks the current administration must navigate, from fulfilling the ruling parties’ campaign promises regarding judicial and electricity sector reforms while simultaneously managing the incoming Donald Trump administration’s protectionist mandate, and ensuring the neighboring countries remain in close harmony throughout 2025 and beyond.

Blanket Trade Tariffs, Other Strategic Measures1

The protectionist mandate, as described in the cited articles below, includes the imposition of trade tariffs for goods imported into the United States from any non-US market. Further, and with respect to Mexico, the United States may seek additional preventive measures to ensure Mexico does not become a conduit for the entry of Chinese products, which could be intermediately manufactured and/or assembled in Mexican territory but have Chinese origin.

These protectionist measures are undoubtedly posturing ahead of the 2026 USMCA review, which provides parties an opportunity to confirm their approval (or not) of a 16-year extension of the agreement (starting in 2026) or allow it to expire in 2036 (under its original 16-year term, which started in 2020).

Additionally, although this posturing is intended to curb China’s presence in Mexico, it is also part of a broader initiative to obtain concessions from Mexico on two other strategic matters: i) curbing migration into the United States from Mexico and ii) limiting the influence of drug cartels in Mexican territory.

Turning Risks into Opportunities1

While the aforementioned risks weigh on investor sentiment, Mexico has a unique opportunity to turn these into opportunities. Namely, by upgrading its current position as the top trading partner of the United States to a more strategic partnership, which will depend on the Mexican government's ability to strengthen migration controls, reduce the influence of drug cartels, and curb Chinese presence in its supply chains.

Regarding the latter, and as nearshoring trends crystallize, Mexico has ostensibly been working on a plan to begin replacing imports from China in strategic sectors such as:

Automobiles and auto parts
Electronics
Semiconductors
Pharmaceutical products

Import Substitution Underpinned by Collaboration

With Mexico’s imperative is to substitute imports from China, there should be an increase in demand for industrial space to accommodate this supply chain relocation, coming from either Mexican companies or North American companies seeking to relocate here (or both).

Hence, the first signs of this imperative for import substitution is being perceived by owners and operators in this industrial space: Mexican REITs (or FIBRAs, as they are known by their Mexican acronym).

FIBRAs are investment vehicles dedicated to the acquisition and operation of real estate in Mexico. FIBRAs receive income derived from the lease contracts of the underlying properties and offer advantages such as converting illiquid, physical assets into liquid, tax-efficient, and tradable securities, providing a constant source of yield to the holder of these securities through dividends.

Given these aspects, FIBRAs have been quite successful at attracting capital from Mexican and international institutional investors, starting from a wave of initial public offerings (in 2012-14) followed by subsequent equity follow-on offerings since then.

With FIBRAs having access to institutional pools of capital, which allows them to acquire space to accommodate the relocation of supply chains, participants in the electricity sector must keep up their end of the bargain by ensuring FIBRA customers, who would rent the underlying properties held by the FIBRAs, can rely on the provision of reliable, green energy consistent with their decarbonization mandates.

Regulatory Certainty

At the same time, the Mexican government also seems primed to do their part by providing regulatory certainty for the provision of this green energy that will help justify the relocation of supply chains, in addition to the availability of industrial space that the Fibras should provide.

Evidence of this is in the Nov. 6 publication of the National Electricity Sector Strategy, which provides specific regulatory support for the Isolated Supply regulatory scheme (abasto aislado, as it is known in Spanish pursuant to Mexican regulation). This scheme will allow users to supply their electricity needs, via small-scale, behind-the-meter solutions with a capacity of up to 20MW of on-site consumption. This is precisely the target market of customers that seek to relocate their supply chains and rent space inside of industrial parks owned by Mexican FIBRAs.

Isolated Supply ‘Green Shoots’

While AES and other private sector participants are focused on developing large, utility-scale energy solutions that remain in harmony with the Mexican government’s intention to retain market preponderance, we are also closely monitoring the growing optimism around these Isolated Supply solutions and their ability to unlock some of the stifled momentum that plagued the sector over the past six years.

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