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In light of high energy prices driven by the ongoing conflict between Russia and Ukraine, many international companies have sought to relocate their operations. Driven by the benefits of the trade relationship between Mexico, Canada and the US, companies see in the former a great prospect for their new investments. Although the arrival of these operations means greater industry development, it also means greater energy demand. Furthermore, as the world demands greener actions from suppliers, investors seek to decarbonize their operations. Mexico’s clean energy offer is key to attracting nearshoring opportunities, experts agree. Nevertheless, challenges remain to make this offering a reality.
Regulation problems and the government’s preference for state of companies have created tension among USMCA members. Meanwhile, Mexico’s infrastructure needs more investment to support growing energy demand. The development of the national transmission and distribution system proves imperative to support the connection of more renewable energy sources to the grid, helping the country to reach its ambitious decarbonization goals of deploying 30MW of clean energy by 2030.
It is in this context that industry leaders met at Mexico Energy Forum 2023 to discuss and forge the foundations of strategies to move the industry forward in 2023. Experts agreed on the importance of building cooperation channels between the public and private sector to generate the investment needed to reach Mexico’s potential to become a green energy hub.
89 companies 171 conference participants
Breakdown by job title
20 speakers
136 in-person attendance
10 sponsors
3,653 visitors to the conference website
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• ABB
• Advantage Austria México - Embajada de Austria
• AES
• Agencia de Energía de Nuevo León
• American Chamber Mexico
• ASo LMEX
• Astronergy
• AVEVA oSIsoft
• Balam Energy
• BBVA
• BMW SLp
• bp
• British Embassy in Mexico
• Capwatt
• CCE
• CENACE
• CFE
• Chint Solar México
• Comisión Federal de Electricidad
• Conuee
• Costco
• Cydsa
• Deacero
• Delegación General de Québec en México
• DNV
• ECo VALUE SA DE CV
• El puerto de Liverpool
• Embajada de la República Checa
• Emerson power Water & Solutions
• Enel
• Engie
• Enlight
• Eosol Energy México
• ERM
• Escala Ingenieria/SANBA Energía
• EU delegation in Mexico
• Expeditors
• Farmacias del Ahorro
• Finsolar
• Gauss Energía
• GCL
• Gov. of ontario
• Grupo México
• Hilados Cole
• Hinicio
• HITACHI ENERGy
• H o LLAND & KNIGHT LLp
• Huawei Technologies Engineering
• Iberdrola México
• Iconn
• Jupiter power
• Kiewit
• K pMG
• Luxem
• MAN ENERGy So LUTIo NS S DE RL DE CV
• MANE México, S.A. de C.V.
• MitigaCo2
• New Zealand Trade & Enterprise
• oCA Global
• o ficina Comercial de Israel
• oWENS ILLIN oIS
• pp G
• proChile
• proparco (AFD)
• Saavi Energía
• Saint Gobain
• SAMSo N Control, S.A. de C.V.
• SECRETARÍA DE DESARRo LLo ECo NÓMICo SUSTENTABLE
• Sempra Infraestructura
• Sener Energy Mexico
• Shams Energía
• Siemens
• Sinia Renovables
• SMA
• Solarever Tecnología de América, S.A. de C.V.
• Solfium
• Solis
• SUNECo
• Swiss Business Hub
• TC Energía
• Tecnoden
• The Excellence Collection
• TMF Group
• Wärtsilä
• Walmart
• Walworth
• Wood Mackenzie
• WorldWise Consulting LLC
• Zuma Energía
08:55 WELCOME TO MEXICO ENERGY FORUM 2023
09:00
MULTILATERAL AGENDA FOR EMISSIONS REDUCTIONPERSPECTIVE OF THE MINISTRY OF FOREIGN AFFAIRS
Speaker: Martha Delgado, Ministry of Foreign Affairs
09:15 THE EVOLUTION OF DISTRIBUTED GENERATION IN MEXICO
Speaker: Jorge Musalem, CFE
09:45 WHAT IS NEXT FOR MEXICO’S ENERGY REGULATION?
Moderator: Sofía Tamayo, Zuma Energía
Panelists: Shirley Wagner, AES México
Javier Mundo, K pMG Mexico
Carlos Ochoa, Holland & Knight
10:30
11:30
NETWORKING COFFEE BREAK - AI-POWERED 1:1 MEETINGS
INVESTMENT AND RISK MANAGEMENT IN MEXICAN RENEWABLE ENERGY PROJECTS
Moderator: Daniel Herrmann, DNV
Panelists: Omar Castillo, BBVA
Érika Santiago, AES México
Brice Clemente, ENGIE
12:30
OFFTAKER REQUIREMENTS AS DRIVERS OF ENERGY MIX TRANSFORMATION
Moderator: Ariel Garfio, Von Wobeser y Sierra
Panelists: Jean-Nicolas Lejeune, ENGIE
Alejandro de Keijser, Deacero
José Buganza, Enegence
13:30
POWER GRADE EXPANSION AND UPGRADES FOR ENERGY TRANSMISSION
Speaker: Eduardo Sánchez, Energy Agency of Nuevo Leon
14:00
15:15
NETWORKING LUNCH - AI-POWERED 1:1 MEETINGS
TECHNOLOGY TURNS TRANSMISSION INFRASTRUCTURE INTO BULWARK OF MEXICO’S ENERGY TRANSITION
Moderator: Alexander Braune, ERM
Panelists: Eduardo Andrade, Burns & McDonnell
Fidelmar Molina, Hitachi Energy
Carlos Corona, Siemens
16:00 OPPORTUNITIES AND CHALLENGES FOR A SUSTAINABLE, COMPETITIVE ELECTRICITY SYSTEM IN MEXICO
Speaker: Abraham Zamora, Mexican Energy Association (AME)
16:30
NETWORKING COCKTAIL - AI-POWERED 1:1 MEETINGS
MEXICO COMMITTED TO SOCIAL, ENVIRONMENTAL RESP ONSIBILITY
The effects of climate change are becoming increasingly apparent. To tackle the ballooning problem requires coordination between governments and the public. However, this coordination is not enough as governments must step in. Martha Delgado, Deputy Minister of Multilateral Affairs and Human Rights, Mexico’s Ministry of Foreign Affairs (SRE), is keenly aware of this mammoth challenge and said the government has launched several initiatives to contribute to a more sustainable world.
Delgado said that during C op 27, Mexico announced new targets to contribute to tackling climate change’s adverse effects. She added Mexico expanded its Nationally Determined Contribution (NDC) to reduce from 22% to 35% of greenhouse gas (GHG) emissions. The country is expected to invest over US$40 billion to meet this goal.
“I joined the C op 27 in Egypt, where developing nations demanded a profound change regarding the climate crisis and damage control, particularly for the most affected people, based on the principle of climate justice,” she explained.
Delgado reported that at the end of 2021, Mexico began a close collaboration with the University of California to help the automotive sector to toward electrified
mobility. This collaboration resulted in the formation of the US-Mexico Working Groups on the Electrification of Transport, aiming to propose a transition toward electromobility at a regional level by coordinating integration with the US and Mexico’s productive industrial chains.
The working group held two meetings, during which the partners mapped the obstacles ahead and made suggested how to overcome them. For instance, the group recommended the correct disposal, handling and recycling of lithium batteries used in electric vehicles (EVs). It also proposed creating a clear roadmap for the standardization of charging stations and the implementation of a sustainable industry policy focused on national manuf acturers.
Delgado highlighted that one of the most relevant proposals was focused on human capital development, which includes the incorporation of women into the industry’s workforce, backed by SRE’s feminist foreign policy. According to INEGI, women represent only 37% of the transportation equipment manufacturing sector’s workforce. o ther sources point out that only 24% of the automotive industry’s workforce are women and only 3% of leading positions are held by women.
The Mexican government also presented the Sonora p lan at C op 27, which is a program that seeks to attract US$48 billion to generate clean energy, especially from wind and solar sources in Sonora. It also contemplates the manufacturing of lithium batteries and promoting EV manufacturing, as well as cross-border collaboration.
According to Delgado, the Sonora p lan is Mexico’s key component to reach its climate goals. “The global reality requires us to make proposals and respond promptly to
meet the most urgent challenges such as inclusion and environmental responsibility. SRE is committed to tackling these issues; these projects and proposals are proof of our coordination to meet the needs of the industry and spur the economic development of the country,” Del gado said.
“The challenges Mexico and its partners face regarding climate change are great, but so is the capacity to confront these problems,” she concluded.
DISTRIBUTED GENERATION OFFERS MEXICO OPPORTUNITIES AND CHALLENGES
Distributed Generation (DG) represents an opportunity for users and companies to reduce their energy costs, as solar photovoltaic ( p V) systems ensure a nearcontinuous source of clean energy. However, electric utility companies must rethink their business model as users could become more independent from the public grid.
According to Jorge Musalem, Strategic p roject Manager, CFE, the state company is aware of the challenges and potential that the combination of solar pV technology and energy storage represent. He considers DG an “ongoing disruption,” which means that it is a convergence of different technologies that create new markets, jobs and opportunities, while it also unsettles industry.
15% during 2H22, which Musalem considers an exponential growth rate.
Musalem found DG to be the most economically viable power source when compared to other power production methods. According to data from financial services company Lazard, it costs between US$147/MWh and US$221/ MWh. However, using p V tech for DG has some disadvantages as it cannot produce energy during nighttime and must be accompanied by storage capacity to fill intermittent gaps in power production. Nevertheless, as technology costs decrease, users benefit by paying lower ener gy bills.
Musalem held that with the implementation of new electricity generation models, the centralized energy system model should be reevaluated as it begins converging with locally produce d energy.
over 99% of DG comes from solar pV-based power production. As of 1H22, Mexico had over 30,000 DG contracts totaling more than 276MW of capacity. CFE forecasts that in a positive scenario, and following 1H22’s trend, the DG capacity would have grown
DG allows utilities to defer investment in transmission capacity as energy can be generated locally, leading to a reduction of technical losses in distribution circuits and lower wheeling costs. However, the inverse energy flux into the grid requires attention and control regarding the network’s operation. Intermittence, which may occur due to climate conditions such as a cloudy day, cause further problems that must be solved.
“The state company is aware of the challenges and potential that the combination of solar PV technology and energy storage represent”
Jorge Musalem Strategic Project Manager | CFE
Musalem said DG cannot continue growing to the detriment of CFE as the company must remain operational to attend to users that do not have enough space to install pV systems. He mentioned that new regulation is being drafted that establishes clear limits on the maximum capacity, changes in the netmetering of installations with capacities over 0.1MW, specifications to enhance reliability and options for collective DG as an energy alternative for end users.
DG continues to gain steam among other clean energy production methods. In the
latest edition of the Development plan for the National Electric System (pRo DESEN), DG contributed 0.9% of Mexico’s clean power, which Musalem said shows its increasing importance.
Costs of generating and storing energy are expected to continue their downward trend. Musalem said that if pV costs continue their 12% yearly drop, prices will be 72% cheaper in 2030. The same goes for lithium batteries, whose prices are going down at a 15% pace. If this continues, batteries would be 80% cheaper in 2030.
EXAMINING WHAT IS NEXT FOR MEXICO’S ENERGY REGULATION
According to experts, Mexico is one of the countries with the most complex bureaucracies in the world, making it hard to comply with regulations. A complicated shift away from privatization back to greater state control adds further uncertainty. Still, many companies and entrepreneurs can see the potential Mexico has to develop the energy industry.
p resident López o brador’s administration has been characterized by constant changes in regulation on the back of its mission to strengthen state companies. This has created great discontent and uncertainty in the private sector. According to Fitch Ratings, this regulatory uncertainty fosters a negative outlook for the Mexican energy industry.
This situation also created discord between Mexico and its main trade partners, Canada and the US, as both requested consultations regarding Mexico’s energy policy, among other topics that have affected foreign companies. This shift in energy policy has stalled foreign investment, and FDI numbers have decreased over the past few years. The highest FDI was recorded in 2018, with US$4.8 billion. This figure decreased in 2019 to US$1.6 billion and reached its lowest level in 2021 with US$58 4 million.
Regardless, experts agree that Mexico still offers a certain level of certainty as federal regulation has effectively remained mostly unchanged, though this does not mean opportunities will not be hampered by public policy and regulation. “There
has been a decrease in the development of projects since 2018 in addition to those pending from the past administration. This delay is not compatible with the increasing energy demand. We have seen relative openness in third-level regulations coming from CRE recently, but it does not this will solve the problem of bureaucratic delays,” says Carlos ochoa, partner Energy practice, Holland & Knight.
Sofia Tamayo, Regulatory and Social Responsibility Director, Zuma Energía, concurs and said that the largely unaltered framework imbues the sector with potential. “The regulatory framework remains. It is also up to us to know how to translate it and take advantage of the opportunities,” she said, adding that “associations are a fundamental actor. They are an agent that can really expand this dialogue and communication with the government, which has worked very well in the sector.”
As the López o brador administration approaches its last year, the regulatory status quo remains in a similar place compared to three years ago because constitutional alterations were voted down. The government is nevertheless keen to keep protecting p EMEX and CFE in 2023, which may be done at the expense of private companies.
Nonetheless, Javier Mundo, Head of Energy and Natural Resources, K p MG Mexico, sees advantages of international pressure from trade partners looking to protect private interests as USMCA consultations accelerated the approval of several permits
over the past few months. “There are ways to comply with Mexico’s regulatory landscape. It is also possible to generate some pressure at different levels to gain more certainty. International mechanisms help as a counterweight for regulatory issues. In this context, the consultations with the US and Canada seem to have accelerated permit processing over the past few months,” explained Mundo.
Furthermore, the experts shared there are various ways for the private sector to cooperate with authorities to reach mutual agreements. o choa explained that one way for the private sector to reach a middle ground with regulatory entities is considering the state entities’ objectives. “ p erhaps, some organizations do not like the active participation of private players that much. Ultimately, (state companies) seek to create projects with greater benefit for them that align with their social objectives, like gaining a greater share of national participation, for instance. They try to integrate these aspects into their action plans. For the private sector, these are the points where it can complement this mission and take this vision into account for the development of private projects,” said ochoa.
Shirley Wagner, General Counsel, AES Mexico, said she is hopeful that a clear and sincere dialogue is possible to build better regulation in Mexico, which is essential to further implement technologies that favor Mexico’s energy security. “Dialogue is necessary. We need the technology and experience from other countries and companies for our energy
transition. It is clear that Mexico is interested in nearshoring but it must develop appropriate regulations and policies to make it a success. We also must make more progress on social issues and the impact generated by energy projects. Several advances have certainly been made but it is necessary to speed up the process of improvement,” says Wagner.
Experts agreed that Mexico’s regulation needs further development if the country is to reach its energy goals and take advantage of nearshoring. However, the private and public sectors have different visions on how to approach this issue. It is therefore key that more bridges are built between the two actors.
CAPITALIZING ON OPPORTUNITIES IN RENEWABLE ENERGY PROJECTS
An aging grid system and an uncertain market environment represent great obstacles to renewable energy investments, which hinder the operations of private players. According to experts, Mexico will nonetheless embark on an accelerated energy transition sooner or later, regardless of the issues ahead. By looking toward adequate risk management, many of these issues can be handled as companies work to supply much-needed cle an energy.
“The energy transition is here to stay. All the actors involved must collaborate to find opportunities since there is a lot of interest from foreign players to invest in renewable energy projects,” said o mar Castillo, Vice p resident of Energy Indus try, BBVA.
Investment is a crucial factor in further accelerating Mexico’s energy transition. While critical decisions taken in the
energy sector may be guided by political ideology, experts agree it is important to keep strengthening the renewable power sector.
“We are at a pivotal moment; we must develop new businesses based on renewable energy while taking into account our commitment to future generations,” said Érika Santiago, Senior Manager of Foreign Affairs, Communication and Sustainability, AE S Mexico.
An accelerated increase in renewable energy-based power production will not only benefit the world in terms of climate change. This topic is also strongly related to other areas such as health and even the global economy since global warming can negatively affect between 5% and 20% of the global GD p, explained Santiago.
Mexico’s environmental ministry, SEMARNAT, has reported that power
production accounted for 49 percent of the country’s C o 2 emissions in 2021.
According to the International Renewable Energy Agency (IRENA), renewable energy is one of the key technologies that will help achieve a reduction in harmful emissions.
Furthermore, growth in renewable energy would foster more investment, enhance energy accessibility and improve Mexico’s power system. According to the US National Renewable Energy Laboratory (NREL), the country could attract US$17 billion of direct investment if Mexico were to achieve its goal of supplying 35% of its energy production with cle an energy.
Among the benefits of higher integration of renewable energy are lower industrial production costs, a decrease in the sill somewhat polluting natural gas-fired electricity generation, lower regional marginal electricity generation prices, less fuel consumption, smaller increases in emissions and a positive impact on transmission congestion, as the most congested interconnections generally see less congestion with more renewable power present.
“We are at a pivotal moment; we must develop new businesses based on renewable energy while taking into account our commitment to future generations”
the most competitive in the world, their levelized cost of energy unmatched.
However, some challenges are hampering the progress of these projects in the country. “Although our grid is welldesigned, it requires a lot of planning and investment. This may be a limitation for the inclusion of renewable energies,” said Brice Clemente, Managing Director Renewables Mexico, ENGIE Mexico. What is more, grid operators must deal with the intermittency linked with solar and wind projects.
To face this problem, different projects have been developed such as the use of batteries in solar parks, which make the network more stable and help maximize its p otential.
“Mexico must eliminate its energy distribution bottleneck. This is the first step to take advantage of the country’s considerable renewable energy potential,” said Daniel Hermann, Market Manager p ower and Renewables, DNV. “Consumers are seeking competitive, reliable and clean energy,” he added, highlighting that Mexico has plenty of incentives to further develop such renewable energ y sources.
Amid uncertainty, risk management has become critical. According to the experts, developers must to execute a continuous risk-management strategy through their energy supply contract, in addition to analyzing different scenarios and monitoring the market as well as the changes that may lie ahead.
Mexico has many advantages that increase its attractiveness as a country to invest in renewable energy projects, including good solar and wind resources and a growing energy demand. “Energy development in Mexico is a parallel business to the electricity market. This allows big players to manage prices and ensure profitability,” highlighted Santiago. Also, the projects that already exist in Mexico are among
Due to this issue, financiers such as banks grow in relevance since they are in charge of accompanying all investors in projects related to decarbonization and ESG, explained Castillo. “ p reviously, banks focused on profitability. Now, a bank wants a project to have ESG components as well as a great scope in economic terms, that it has the potential to contribute to the country and that its financial projections are adequate,” he said.
Érika Santiago
Senior Manager of Foreign Affairs, Communication and Sustainability | AES Mexico
OFFTAKERS DRIVE OPPORTUNITY DESPITE COMPLICATED MARK ET OUTLOOK
The main issue for Mexico’s energy industry over the past years has been regulatory uncertainty, as well as problems with clean energy traceability, as a slew of problems continues to foster a negative outlook for the industry. Nevertheless, the country’s offtakers still find opportunities in challenging times, driving the development of a significant part of Mexico’s e nergy mix.
ESG issues have become crucial for Mexico’s industrial sector as companies are looking to incorporate environmentallyfriendly actions. Energy seems to be the easiest problem to solve for many. “ o ver two of every three clients include clean energy in their proposals. Clean energy is not an option anymore, it has become the standard in the industry,” said JeanNicolás Lejeune, Managing Director Energy Management and Supply, ENG IE Mexico.
However, Mexico’s energy policy has hindered private efforts to further develop the local clean energy sector, a key part of sustainable operations. In part due to the pandemic, the government has remained sluggish regarding permits as well as regulatory proposals to allow more development in renewable energy, contributing to uncertainty in Mexico’s ener gy sector.
Amid this uncertainty, renewing hedging contracts to comply with offtaker demands can cause power suppliers to lose out since the market conditions make it less attractive to sign. Some experts have argued that Mexico’s nearshoring boom is stifled because companies aiming to move supply chains do not believe they can find sufficient clean energy in the country. “For instance, now that Tesla is going to invest in Mexico, I cannot imagine it producing clean vehicles without clean energy,” José Buganza, General Director, Enegence, stressed. According to Alejandro de Keijser, Energy and Sustainability Director, Deacero, companies start to perceive energy efficiency from a cost-focused perspective to a competitive advantage approach as they mature.
For Lejeune, the energy supply’s current conditions are not optimal. The basic supply offered by CFE does not allow companies to specifically choose clean energy. o nsite generation could be a great option, but the available capacity to install solar rooftops is sometimes insufficient to meet companies’ energy consumption. In this sense, the only all-encompassing option is the Wholesale Electricity Market (WEM). Here, offtakers can ask for clean energy in their contract. Nevertheless, the energy generated is
injected into the public grid, which makes it difficult to trace where clean energy actually goes.
As the sustainable electrification of several industries is becoming a reality, experts believe the demand for electricity, especially coming from clean sources will skyrocket.
“The main source of energy in the world will be electricity, the oil sector is being displaced. Now oil companies are becoming electric utility companies, look for instance at Bp and TotalEnergies,” said Buganza.
De Keijser said the emission trade system that is to be launched in 2023 in Mexico will not affect the true commitment of companies in reducing their emission since this system is focused on scope 1 emissions. Therefore, companies will have to lean on electrification and sourcing from clean sources, since energy is considered to be causing scope 2 emissions.
Unlike some years ago, offtakers no longer can secure their electricity supply with 2030% savings against the CFE Basic Supply tariff by going to the WEM. While consumers can still navigate the market, its savings have been depressed to around 15% regardless of the technology used.
According to the Mexico-Germany Energy Alliance, Mexico has great opportunities
to build competitive renewable energy projects. Nevertheless, even for already established companies and energy projects, Mexico has a long list of obstacles that undermine the energy sector’s potential. “The Mexican market still does not have the appropriate mechanisms to promote the ecosystem. Given the numerous obstacles that were limited throughout the study, such as the lack of funding and knowledge hubs, legal limits and the lack of qualified personnel, it is important to focus attention on the areas of opportunity identified and on the proposals designed to support to startups and ventures in their integration into the sector,” reported the alliance.
According to Ariel Garfio, p artner, Von Wobeser y Sierra, when formulating a contract, it is important to consider force majeure and regulatory change clauses. o ther than that, “Economic feasibility, traceability, clarity, transparency and cost predictability are essential factors to consider in a contract between offtakers and energy suppliers,” Lejeu ne added.
The experts agree that Mexico has plenty of power production capacity, what it lacks is energy efficiency and a modern transmission and distribution system. If these issues can be addressed, offtakers woul d benefit.
POWER GRADE EXPANSION AND UPGRADES FOR ENERGY TR ANSMISSION
Renewable energy is key to global sustainability efforts. However, Mexico’s grid and transmission infrastructure still needs more investment to support the connection of more intermittent power producers. Many power plants, especially based on renewable sources, can be found in a variety of locations depending on where resources are found, which poses a great challenge to transporting this energy. o ne of Mexico’s greatest challenges to achieving energy security is therefore how it manages to strengthen its struggling transmission infrastructure.
According to Eduardo Sánchez, Director of Energy and Mining promotion, the Ministry of Economy of Nuevo Leon, it is important to tackle these issues with the specific context of each Mexican region in mind. While Nuevo Leon is a federal entity that exports 40% of the electricity it generates, the state’s projections for energy demand, combined with ambitious plans to avail of the benefits of nearshoring, will prove challenging for the country’s transmission and distribution infrastructure. “Fifty percent of the investment that came to Nuevo Leon in the past two years has been
due to the nearshoring trend. However, these companies have highly energyintensive production processes, which has been a great challenge for industrial parks that did not invest in this issue during the pandemic,” he explains.
“Fifty percent of the investment that came to Nuevo Leon in the past two years has been due to the nearshoring trend. However, these companies have highly energy-intensive production processes, which has been a great challenge for industrial parks that did not invest in this issue during the pandemic”
Eduardo Sánchez Director General | Energy Agency of Nuevo Leonbut these players also demand cleaner energy to achieve their own decarbonization goals. Usually, the places where renewable energy sources can be found more commonly have a low population density, since heavy solar radiation or strong winds do not often make for an attractive living environment. What is more, transmission infrastructure needs vast amounts of space to be safe and efficient, which is expensive for an industry relying on costly investments, in Mexico’s case driven by federal spending. “Large companies that are relocating begin operations almost immediately upon arrival. With an increase in energy demand from these new operators, the transmission and distribution network needs more power and therefore increased investment. However, investment in this infrastructure is not as fast as the start-up of these projects,” said Sánchez.
Nuevo Leon is a state with strong industrial resources. Its closeness to the US, high energy availability and human capital are boons to attract FDI. “Monterrey became the second largest metropolis in the country. Much of this growth is because the state convinced large companies to set up their operations there,” says Sánchez. Moreover, the increase in FDI in Monterrey underlines a recovering economy after a global pandemic brought developments to a grinding halt.
Furthermore, the arrival of new companies to Mexico not only increases energy demand,
Sánchez adds that the state of Nuevo Leon projected an increase in demand for the next two years of 1.2GW, but with the arrival of Tesla to Monterrey, this projection spikes to 2GW. He highlights that public and private cooperation is necessary to guide the necessary investment. With sufficient funding, the state can properly respond to these opportunities and challenges. Although he recognizes Mexico’s regulatory challenges, he also emphasizes the agency that states have to drive their interests and confront the difficulties specific to each region of the country.
INCENTIVES, REGULATION TO IMPROVE TRANSMISSION INFR ASTRUCTURE
Mexico has great potential to become one of the leading forces in the global energy transition. yet no matter the resources the country may have, further regulation to guide an efficient path to net zero is necessary. What is more, Mexico faces another challenge of equal size: updating its transmission infrastructure to make the transition possible.
“Mexico is a challenging but manageable market and has much lower risks than
other countries,” said Alexander Braune, Associate partner, ERM.
Transmission infrastructure refers to the systems and equipment used to transport electricity from power plants to end users. This infrastructure includes transmission lines, substations, transformers and other equipment.
Mexico’s transmission and distribution infrastructure has long since been identified
as a weak point in its clean energy transition strategy. “There has been no major development in power transmission in the past 10 to 15 years,” said Carlos Corona, Business Development Director, Siemens Energy. To many industry analysts, this is no surprise: Mexico’s geographical, technological and financial constraints prove challenging. If Mexico is to improve its grid system, public-private cooperation will be key, argued experts.
While new technologies can be groundbreaking for energy, there is no onesize-fits-all solution. Experts concur energy planning implies considering the specific context of the area where new technologies ought to be implemented. Besides the benefits of an energy transition, the shift also comes with plenty of challenges. “The future strategy concerning the transmission network must be planned not only to improve its capacity but also considering energy intermittency and quality,” said Fidelmar Molina, Utilities Sales Manager, Hitachi Energy.
The incorporation of new energy sources, often intermittent in nature, into the energy matrix has challenged the operation of grids around the world, forcing systems to evolve toward higher efficiency to achieve decarbonization. Intermittency can exacerbate existing challenges and weaken
the grid’s ability to absorb disturbances. “There are parameters that have to be dealt with, such as intermittence and mitigating inertia,” explaine d Molina.
Mexico’s transmission infrastructure has faced much stress due to an increase in power demand and a lack of maintenance or expansion. The country needs to prioritize investment to meet the rising electricity demand and gain a grid capable of efficiently incorporating different energy sources, say analysts.
Nevertheless, transmission infrastructure is costly and therefore it involves heavy public investments, which puts pressure on the public budget. It is not possible to move forward with an energy transition without looking toward transmission infrastructure and technologies to mod ernize it.
Industry insiders believe that changing how incentives are applied could improve this scenario. “Incentives should not be aimed toward power production but instead at boosting how offtakers consume it,” said Eduardo Andrade, General Director, Burns & McDonnell. Tools such as the Grid Code, a tool meant to boost energy efficiency from end users to the benefit of the grid, already exist, as do technologies that may improve its functioning. Nevertheless, companies
are unlikely to spend money to ensure Grid Code compliance or use beneficial technologies without proper incentives.
It is also essential to prioritize sustainability and decarbonization. “We are not seeing any technical business plan not aligned to a strategy that seeks both social and sustainable benefits,” added Braune. When talking about transmission, the effect of sulfur hexafluoride, a greenhouse gas
used as a high-voltage dielectric, cannot be ignored. Technologies have been developed to replace this gas but Mexico has not yet implemented this solution, which would help it to reach sustainable objectives. “Hard work is done to generate the most optimal energy that is aligned with the decarbonization process. But to achieve this, we must work with CRE since clear and precise rules are needed,” add ed Corona.
PUBLIC-PRIVATE COLLABORATION FOR A COMPETITIVE ELECTRICITY SYSTEM
Amid a growing energy demand, Mexico has an urgent need to transform its electricity sector to meet the current challenges and take advantage of opportunities, while reducing carbon emissions and maintaining the country’s economic competitiveness. However, this transformation cannot be achieved by the government alone: a collaborative effort between the public and private sectors is crucial.
“The electricity sector is facing a significant challenge and it requires the collaboration of both public and private sectors to address it. In the recent past, the motivation behind opening the energy sector to private investment was the lack of public resources and the need for financial and technological resources to meet the energy demand,” said Abraham
Zamora, p resident, Mexican Energy Association (AME).
AME is a non-profit organization established in 1956 to promote and advance the energy sector in Mexico. Its members include individuals, companies and institutions with an interest in the energy industry, including electricity, hydrocarbons and renewable energy.
Currently, AME represents 17 leading companies in power production and 11 affiliates, including natural gas transporters and engineering companies, amo ng others.
The accumulated installed capacity of AME’s associates is more than 33,000MW. This represents 81% of the total privately installed capacity in the country, said
Zamora. AME plays an essential role in promoting dialogue and collaboration between different stakeholders within the energy sector, including the public and private sectors, academia and civil society.
“We can improve the public perception of the electricity sector in Mexico. The relocation of investments and supply chains presents a unique opportunity for the country to attract FDI but we need an efficient and not a bottleneck,” said Zamora.
Mexico captured US$32 billion in FDI during the first nine months of 2022, representing a 29.5% increase compared to the same period in 2021, as reported by MBN. The manufacturing industry, including the automotive sector, was the most influential sector, with the US and Canada as the two biggest commercial partners.
According to the Inter-American Development Bank, the potential profit from nearshoring in Mexico in the short and medium term is US$35 billion. However, “while FDI increased by 30% in 4Q22, from the total investments, only 7% went to electricity. To capitalize on nearshoring, Mexico must offer competitive electricity rates compared to the US. Every dollar is an important competitive factor,” said Zamora.
The Importance of Energy Security in the Transition to Renewa ble Energy
Energy security is an essential factor to consider during the energy transition. As countries shift toward renewable energy sources, there is a risk of intermittent energy supply, which can create energy security issues.
To ensure a smooth energy transition, energy security must be given the same level of importance as the transition itself, sai d Zamora.
“The debate around the energy transition is gaining steam. This has become significant in the geopolitical context. While transitioning to cleaner energy is crucial, it must be equally balanced with reliability and energy security,” he clarified.
As Mexico prepares for a change of government in 2024, the electricity sector must position itself well in the public narrative, said Zamora: “The sector must promote its role in driving economic growth, creating jobs and meeting the energy needs of all consumers while also embracing sustainable p ractices.”
