Mexico is remodelling its energy landscape – A greener life, a greener world

By Adam D Williams

President Sheinbaum’s sweeping reforms attempt to steer state-owned energy giants towards a greener future amid private-sector scepticism.

As she approaches the end of her first year in office, Claudia Sheinbaum’s commitment to generating more clean power in the country has not wavered.

The Morena party leader vowed to make renewable energy a cornerstone of her administration, leveraging the country’s vast solar and wind resources to position it as a regional clean-power leader.

Sheinbaum’s plans are a departure from the energy policies of her predecessor, Andrés Manuel López Obrador, who focused on increasing the output of the state oil producer, Pemex. He largely moved away from renewable power, freezing the permit process for new projects.

“We are going to propel renewable energy in Mexico,” Sheinbaum said during her inauguration on 1 October 2024. “The objective is that by 2030, 45% of the country’s energy will be powered by renewable sources.”

Her first move was a sweeping constitutional reform package, easily passed earlier this year thanks to Morena’s congressional majority. The new laws, published on 18 March, open the door to greater private investment in clean energy.

The laws also boost the amount of distributed electricity generation permitted for private producers. And in a further departure from the Obrador administration, the amount of self-generated power that a project may use on-site has been raised significantly, from just 0.7 megawatts to 20.

These changes have been praised by members of the industry, who perceive the new laws as beneficial to small power generators. They empower private companies to develop on-site plants to fuel their operations with clean electricity, whether independently or in partnership with energy companies.

I consulted Yolanda Villegas, a leading energy lawyer in Mexico. “I think this is a very positive move,” she says. Villegas has worked as lead counsel and head of compliance and government affairs at various large energy companies, such as Pemex and Vitol. “A lot of private companies will be very interested in taking advantage of the opportunity.”

The new legislation guarantees the dominance of the state-owned Federal Electricity Commission (CFE), by stating it will generate at least 54% of the nation’s power. It also fortifies the status of Pemex, which is heavily indebted, in hopes of reversing Mexico’s declining crude oil output and reducing its reliance on imports. Sheinbaum’s goal is for Mexico to achieve “energy sovereignty”, a goal she says necessitates Pemex and CFE being the country’s dominant energy providers. Critics argue this contradicts the government’s renewable-energy goals. It has also raised concerns about investing further in Pemex, considering its debts.

Sheinbaum’s ambitions predominantly mark a bold shift towards a greener future but achieving them will not come easy. The biggest challenge, according to a government energy official who asked not to be named, will be maintaining a collaborative and constructive relationship with the United States. This has proven difficult since Donald Trump took office.

At home, doubt is cast on the government’s ability to fulfil its climate action goals by the dominant role of indebted companies like Pemex and CFE, combined with the lingering uncertainty private companies have as the energy framework shifts to prioritise these state companies.

First steps: Finance and legislation

In February, Sheinbaum said her administration intends to add almost 23 gigawatts to Mexico’s power generation capacity by 2030 via new projects. This figure will include “an ample percentage of renewable energy generation.” Currently, the country’s total installed power capacity is around 95 gigawatts; in other words, Sheinbaum hopes to increase that by about 24% in just five years.

Most of Mexico’s electricity grid is powered by fossil fuels, largely gas imported from the US. The CFE provides power to around 50 million people in Mexico, and generated 72% of all electricity consumed as of 2024, according to company figures.

To achieve its goals, the government will spend more than USD 22 billion in the next five years to finance CFE’s electricity generation and distribution enhancements. Mexico will also seek investment totalling between USD 6 and 9 billion among private energy producers, aiming for between 6.4 and 9.5 gigawatts of new clean energy capacity by 2030.

The recently approved laws also include new contract models to incentivise private investment, such as CFE partnerships and the higher energy self-supply limits granted to projects. They formalise the state’s dominance of the sector while allowing for limited private participation. Under the reforms, CFE and Pemex may now enter “mixed contracts” with private firms but will remain the leading partners.

“These are ambitious plans,” says Israel Hurtado, CEO and founder of the Mexican Hydrogen and Energy Transition Association (H2México). “I do think they can be accomplished, if the government follows through on its intentions to involve private participation in renewable-energy generation.”

Dialogue Earth also consulted María José Treviño, the Mexico country manager for Acclaim Energy, based in Texas, US. Treviño oversees the analysis and negotiation of Acclaim Energy’s Mexican gas and electricity supply contracts. She says her clients have been motivated by the loosening of renewable-energy generation limits, which will, for example, pave the way for an increase in solar-power installations.

“I think the demand is there to buy renewable energy and to develop it in a way that makes economic sense,” says Treviño. “But at the same time, the development of a 20-megawatt solar plant, for example, requires a significant amount of land, and finding the space to do that will be difficult.”

CFE plans to develop hundreds of projects across power generation, transmission and distribution, many funded by the government and potentially open to private collaboration, as per the state’s new model.

Questions on transparency

The landscape and rules of Sheinbaum’s energy policies are more open to the private development of solar, hydro, wind, geothermal and hydrogen power projects than Obrador’s. But some legal experts have misgivings, saying third-party interest will be limited because of the constitutionally enforced dominance of the CFE, and the state’s greater regulatory control of the industry.

The constitutional reform package radically changes the Mexican energy industry’s regulatory environment, by eliminating two autonomous regulatory bodies: the Energy Regulatory Commission (CRE) and the National Hydrocarbons Commission (CNH). These bodies independently oversaw contracts, permits and pricing across the oil, gas and power markets. This is now covered by the National Energy Commission (CNE), which is overseen by the energy ministry.

The dissolution of the CRE and the CNH has led at least one private investment firm to warn that the Mexican state’s emergent energy strategy may “hinder free competition and prioritise the state utility over private parties”. Moreover, the legislation establishes a 46% participation cap on private electricity and renewable investment. Treviño has a lukewarm sense of optimism about these developments: “We want to think that renewable power will advance and increase in capacity simply based on the fact that, if state investment in CFE increases as planned, then private production would have to accompany that.”

Energy justice

Another tenet of Sheinbaum’s plans for the industry is “energy justice”. This concept aims to ensure that all citizens – particularly those in rural, marginalised and Indigenous communities – have access to electricity for heating water, cooking and refrigeration. According to Hurtado, around 2-3% of Mexico’s 130 million people are still without electricity.

Pursuing energy justice has prompted the administration to target wood-burning cooking stoves, which contribute significantly to Mexico’s air pollution. According to Villegas, around 50% of the population continue to use such stoves, which also drive deforestation and Mexico’s increasingly common forest fires.

To implement its energy-justice plans, the recently passed laws call for the energy ministry to create and administer a Universal Energy Service Fund that prioritises electricity for vulnerable rural and urban communities. The finance, environment and wellbeing ministries will collaborate with CFE and Pemex to decide where to distribute the resources.

“I think the idea of energy justice seems like a positive initiative,” says Hurtado. He highlights that “energy justice” appears in the new legislation 33 times.

“If between two and three per cent of the Mexican population, which is millions of people, are still without electricity, then there is a need for those people to have energy justice.”

First published in Dialogue Earth.