Urgent Adjustments Needed for Energy Stability, Investment

President Claudia Sheinbaum has submitted an initiative that includes a set of eight acts arising from the constitutional reform of the energy sector of Oct. 31, 2024 (1). The proposed legal framework consists of the following acts:

1. Ley de la Empresa Pública del Estado, Comisión Federal de Electricidad (CFE Act)

2. Ley de la Empresa Pública del Estado, Petróleos Mexicanos (PEMEX Act)

3. Ley del Sector Eléctrico (Electricity Sector Act)

4. Ley del Sector Hidrocarburos (Hydrocarbons Sector Act)

5. Ley de Planeación y Transición Energética (Energy Planning and Transition Act)

6. Ley de Biocombustibles (Biofuels Act)

7. Ley de Geotermia (Geothermal Act)

8. Ley de la Comisión Nacional de Energía (National Energy Commission Act)

A positive feature of this legislative package is that it allows private sector participation in key areas of the energy market, including generation and commercialization, while maintaining state control over strategic infrastructure. The inclusion of public-private partnerships offers opportunities for investment and technological innovation. However, there are areas where the new legislation could be adjusted to ensure there is no regulatory uncertainty, to prevent inconsistencies with the United States-Mexico-Canada Agreement (USMCA), and to establish a framework that effectively promotes the long-term development and modernization of the energy sector. These adjustments will be essential to balance state participation with market efficiency, ensuring fair competition and fostering an environment that attracts investment while maintaining national energy security. The following areas require careful consideration and possible modification:

The following areas require careful consideration and possible modification:

1) Prevalence of CFE and Competitive Distortions

The Electricity Sector Act establishes the prevalence of CFE in the electricity market, effectively granting the state-owned company special treatment over private companies. This conflicts with the USMCA, which mandates non-discriminatory treatment of foreign and private companies. Additionally, the act states that in any potential public-private partnership, CFE must hold a majority (54%) stake, irrespective of the project type. This condition distorts negotiations and forces CFE to take control, limiting opportunities for balanced efforts between private investors and the state.

2) Barriers for Private Sector Participation in CFE Partnerships

Under the CFE Act, any partnership in which CFE holds a majority stake is classified as a CFE subsidiary. Since CFE is legally mandated to prevail in the sector, this provision creates significant barriers for private partners, as the regulatory framework would inherently favor the state-owned enterprise. This could discourage private investment and reduce market competitiveness.

3) Uncertainty in the Electricity Sector Due to Government Intervention

The Electricity Sector Act includes two chapters that inject a high level of uncertainty into the power sector:

• Chapter IX grants the Ministry of Energy (SENER) the authority to intervene in the administration or operation of a permit holder if there is a perceived risk to the quality, reliability, continuity, or security of power supply.

• Chapter X grants SENER the authority to seize power supply assets of a permit holder in cases of natural disaster, war, strikes, or disturbances that threaten national security, economic stability, or the continuity of electricity supply.

These provisions create uncertainty for private investors, as government intervention could occur under broad and loosely defined conditions.

4) Absence of Concrete Policy Tools for Energy Justice

While the initiative emphasizes energy justice, there are no specific policy mechanisms to ensure its implementation. The only measure introduced is a cap on revenue collection, defined as "Lucro", which could discourage private sector participation, particularly in regions where investment recovery is challenging. Without additional incentives, private actors may be reluctant to expand operations in underserved areas.

5) Lack of Energy Efficiency Policy Tools

Unlike existing mechanisms such as Clean Energy Certificates (CELs), the new legislation does not introduce an equivalent policy tool for energy efficiency. To strengthen the promotion of energy efficiency, it is recommended to create a synergy with clean energy certificates by incorporating white certificates or energy efficiency certificates into the wholesale electricity market. This measure would align with Mexico’s commitment to tripling renewable energy capacity and doubling energy efficiency under international agreements (2).

Recommendations for Adjustments to the Legislative Package

To ensure legal certainty, compliance with international agreements, and a balanced energy market, the following adjustments are recommended:

• Provide greater flexibility for CFE to enter into agreements without imposing rigid requirements that may deter private investment.

• Establish clear and binding targets for clean energy and energy efficiency, aligning them with international decarbonization commitments.

• Introduce specific incentives for renewable energy projects and energy efficiency initiatives, including tax benefits and concessional financing.

• Clarify regulatory frameworks and reduce bureaucratic redundancies to enhance investment confidence in the sector.

This secondary legislation intends to reinforce the state’s role in the energy sector, but without essential modifications, it risks creating an environment of investment uncertainty and regulatory instability. Ensuring well-balanced policies that integrate private investment, regulatory clarity, and energy sustainability is crucial for achieving a competitive and internationally aligned energy sector that meets Mexico’s long-term energy security and sustainability goals.

Leonardo Beltran holds fellowships at the Inter-American Dialogue, the Institute of the Americas, and at Columbia University´s Center on Global Energy Policy

Sources: 

1 https://infosen.senado.gob.mx/sgsp/gaceta/66/1/2025-02-05-1/assets/documentos/Iniciativa_EF_Energia.pdf 

2 https://www.gob.mx/sre/prensa/conclusion-of-mexico-s-participation-in-cop28?idiom=en