Mexican Energy Reform in the Power Sector: A Work in Progress

25 May 2016
By Michael S. Hindus and John B. McNeece III, Pillsbury Winthrop Shaw Pittman LLP; Veronica Irastorza, NERA Economic Consulting

In this article for Bloomberg’s Bureau of National Affairs (BNA) International Environmental Reporter, NERA Principal Veronica Irastorza and her co-authors comment on Mexico’s bold goals for expanding and modernizing its transmission grid and distribution networks. Funding will likely determine whether or not the country can reach its target goals. In 2014, Mexico embarked on a total transformation of its entire energy sector under President Enrique Peña Nieto, which involved not only the state-owned monopoly PEMEX, but also the powerful vertically integrated electric utility, Comisión Federal de Electricidad (CFE). In the next 15 years it is estimated that Mexico will need to add 60 gigawatts of new generation capacity, make considerable investments in transmission and distribution, and reduce energy prices.

CFE, as a state monopoly, cannot keep pace with the goals for expansion and modernization of Mexico’s electricity infrastructure. As such, attracting private investment for the expansion and modernization of electricity infrastructure is a key reform objective. The article outlines the role of the Ministry of Energy (Secretaría de Energía, or SENER) and the redesigned Energy Regulatory Commission (Comisión Reguladora de Energía, or CRE); the creation of the National Center for Energy Control (Centro Nacional de Control de Energía, or CENACE) as an independent system and market operator; challenges in choosing between the conflicting goals of cheap energy and clean energy; vertical and horizontal disaggregation of CFE; gas-electric coordination and market power; projects grandfathered into the new regime; interconnection rules; transmission and distribution under energy reform; and barriers to implementation. The authors identify financing as the major challenge facing reformers, leaving room for questions as to whether or not Mexico’s ambitious plan is attainable.