The Year in Energy: New Energy Plan for a New Administration

Mexico sees the end of an eventful year marked by the inauguration of its first female president, Claudia Sheinbaum, an expert in energy. This year has been characterized by significant counter-reforms and major infrastructure announcements that promise to reshape the country's energy landscape.

The year began with former president López Obrador advocating for the fruition of MORENA’s national plan, promoting the continuation of his energy policy. This included the “rescue” of state energy companies, CFE and PEMEX, a push for energy self-sufficiency, and the limitation of private participation in large projects in both the generation and hydrocarbons sectors. 

Some challenges during López Obrador’s final year included combating fuel theft, which the government claimed saved millions; addressing power outages, with the private sector concerned about grid information access and infrastructure investment to meet increased energy demand driven by nearshoring; dealing with an unproductive and expensive megarefinery; and managing a tense relationship with autonomous regulators, CRE and CNH. López Obrador also pushed for a controversial judicial reform to elect officials and Supreme Court judges by popular vote, adding uncertainty for the private sector amid ongoing legal disputes over the 2014 Energy Reform and changes to the Electric Industry Law (LIE) made in 2021 among other laws. Although the Supreme Court declared 2021 energy reform as unconstitutional, ultimately, Sheinbaum’s constitutional changes led to the Supreme Court dismissing further appeals against the 2021 reform to the LIE by the end of 2024. 

A critical development was the ultimate integration of autonomous energy bodies, CNH and CRE, into the Ministry of Energy (SENER). This centralization aims to streamline regulatory processes but has sparked debates about the independence and efficacy of energy governance. Pushed by López Obrador and finally being signed after Sheinbaum’s entry into office.

Sheinbaum’s campaign built on these MORENA policies. The president shared that in continuation of the “second floor” of the 4th Transformation (MORENA’s national plan), 54% of the electricity sector would be under CFE’s control, while the rest could be the playing field for privates. Nonetheless, it is not yet clear exactly what this division encompasses.

The current president has worked in increasing investor confidence, nonetheless. The current administration has also launched the Advisory Council for Regional Economic Development and Nearshoring, chaired by Altagracia Gómez. This initiative is focused on concrete actions to strengthen regional growth and foster development hubs.

According to Miriam Grunstein, Senior Partner, Brilliant Energy Consulting, many of the proposed changes and reforms appear to have their own strengths and success will mainly depend on secondary laws and the deployment of these reforms next year. However, experts agree that the most pressing concern, rather than changes to energy policies, lies in the Judiciary Reform. As mentioned at MBN’s Mexico Oil and Gas Summit 2024 by XXX, “the Supreme Court is the last line of defense for any disputes in the sector.” this is where changes may be critical for the correct carrying out of energy policies and just competition in the market.

Sheinbaum’s Energy Plan

Sheinbaum's energy plan focuses on bolstering state-owned enterprises, reducing dependency on fossil fuels, and promoting renewable energy sources. Key appointments in SENER and PEMEX reflect her commitment to these goals. With Luz Elena González appointed as the new energy minister and Víctor Rodriguez as PEMEX’s new CEO. A month into her administration, she also presented her National Strategy for the Electricity Sector. The plan aims to add between 6,000 and 9,000MW of clean energy, supporting Mexico’s commitment to affordable, reliable, and high-quality electricity.

Key initiatives include increasing photovoltaic installations, enhancing system reliability, and implementing a blackout prevention strategy. The strategy promotes distributed generation, now allowing up to 0.7MW without a permit, and extends isolated supply for self-consumption to installations between 0.7 and 20MW, creating an important opportunity for cogeneration as well.

The plan will require an investment of US$23.4 billion, distributed across generation, transmission, and distribution. This includes adding 13,024MW of installed capacity and reinforcing transmission and distribution networks.

Finally, the plan addresses power outage prevention and includes three generation scenarios for 2030, aiming to reduce CO2 emissions by up to 12.7%. The strategy recognizes the need for technical support to ensure energy availability, especially from weather-dependent renewable sources like solar and wind.

Despite the emphasis on CFE, the private sector continues to play a crucial role in Mexico's energy matrix. Large-scale projects saw a decrease throughout the past administration but growth in distributed generation (DG) and isolated supply solutions has empowered smaller consumers and businesses, offering more resilient and cost-effective energy alternatives. Energy consumers, from industrial giants to residential users, have increasingly sought sustainable and affordable energy solutions. The rising adoption of DG systems, particularly solar photovoltaic installations, highlights the shift towards localized and decentralized energy production.

By 2030, Mexico's installed capacity for Distributed Generation (DG) is projected to double from 2023 levels of 3,364MW, with nearly all capacity coming from solar photovoltaics. This growth, anticipated to be 245.4% over seven years, requires significant strengthening and expansion of the electrical distribution networks by at least 50%. Claudia Sheinbaum and SENER have emphasized modernizing infrastructure, with SENER planning to invest MX$34.866 million (US$1.95 million) by 2028. Despite previous efforts to expand and modernize the National Transmission Network (RNT), investment has been insufficient, leading to bottlenecks and limited growth in transmission lines. As of 2023, the national installed capacity for DG was 3,364MW, with approximately 99.33%, coming from solar photovoltaics, according to data from PRODESEN 2024-2038. “Since 2021 and 2022, (DG) has been growing by 25% to 30% annually.”

Nearshoring: Energy Demand, Renewables

The nearshoring trend has prompted companies to adopt higher ESG standards to attract international partners and investors. Sustainable practices, transparency, and social responsibility have become key differentiators in the competitive landscape. Experts shared with MBN how DG has become an important solution to address energy infrastructure challenges but also respond to increasing ESG corporate mandates as companies are looking to relocate.

Cogeneration is another star solution for Mexico’s specific context. As explained by AB Energy, on-site generation is crucial, whether for self-consumption or local energy sales, though the latter has become uncertain. Significant investment in Mexico's energy transmission and distribution is unlikely, with many medium-voltage lines saturated and high-voltage connections being costly and complicated. Investing in high-voltage infrastructure often means handing over assets to CFE.

Additionally, on-site generation aligns with the new administration's strategy, as highlighted in Sheinbaum's strategic plan. This presents a significant opportunity, especially with the rise of nearshoring and the increased frequency of weather-related blackouts.

Sheinbaum has stated that she is committed to an energy transition that promotes the development of renewable energies, primarily solar and wind power. Her plan includes the installation of around 80GW of clean energy, requiring an investment of US$13.6 billion, some of which will go toward the rehabilitation of hydroelectric plants. In this regard, she has urged the private sector to get involved.

Regarding lithium and other minerals considered critical, especially for the energy transition and electromobility, Sheinbaum has reaffirmed the policy of keeping them under state control and monopoly, now under the public entity LitioMx. Sheinbaum has also proposed the development of appropriate infrastructure for electric vehicles, including charging stations and distribution networks.

Mexico in the International Energy Context

In 2022 and 2023, the energy dispute with the United States and Canada under USMCA was a focal point, but elections took center stage in 2024. The upcoming renegotiation of USMCA in 2026 has become more complex due to MORENA’s energy reform and the expected nationalist stance of Donald Trump, elected for a second term in the United States.

Right after elections, president-elect Trump announced plans to impose substantial tariffs on goods from Mexico, Canada, and China as part of his administration's first-day initiatives. This policy aims to address illegal immigration and drug trafficking, particularly fentanyl, which Trump cites as significant issues for the United States. However, this policy could substantially increase costs for American businesses and consumers, and ultimately alter relationships potentially hurting businesses, responded president Sheinbaum.

The proposed tariffs on imports from Canada and Mexico could significantly impact the energy sector. In 2023, Canada supplied 48.5% (US$126.8 billion) and Mexico 9.3% (US$24.3 billion) of the total US energy imports. In the first eight months of 2024, the US imported about 8.5Bcf/d of natural gas from these countries, mostly via pipelines from Canada.

Experts warn that such tariffs could disrupt the tightly integrated energy systems between the United States and its neighbors. Analysts are skeptical that these tariffs will be implemented due to the interconnected economies and potential retaliatory measures that could harm Mexico's reliance on US natural gas and refined fuels.

Furthermore, Trump’s incoming administration is set to significantly influence the global liquefied natural gas (LNG) market, with potential ripple effects reaching Mexico. Trump's expected pro-energy policies aim to accelerate US LNG infrastructure expansion through deregulation and faster permitting processes. This move could double US LNG export capacity by 2030, enhancing global supply but also posing risks of market oversaturation.