A BETTER WAY?

Mexico 2021 | GREEN ECONOMY | FOCUS: WHOLESALE ELECTRICITY IN GREEN ENERGY

Mexico has achieved energy self-sufficiency. So, what comes next? A shift to renewable energies and exports.

The electricity industry in Mexico is more developed than the rest of Latin American and almost on par with the electricity sector in the US and Canada. Around 99% of the country enjoys access to reliable electricity. The reliability of the nation's grid is such that any subscriber might—at worst—experience around two hours of power blackout per year, which is impressive for a developing country.

Mexico's energy portfolio is fairly diversified, especially when it comes to the generation of electricity. Some 56% of the country's electricity is generated in thermal plants burning natural gas, which, despite not being green, are not extremely pollutant, either. Highly pollutant hydrocarbon fuels such as coal and petroleum power only 17% of the nation's plants, while another 17% of Mexican power plants rely on renewable energies.

Although the share of fossil fuels—gas, coal, and petroleum combined—in electricity generation is 73%, the figure is rapidly falling, as more and more hydroelectric, wind, solar, and geothermal plants are becoming operational. The diversification of Mexico's energy portfolio has kept prices relatively low; tariffs range between USD0.09 and USD0.15 per kWh for residential and industrial consumers.

Agricultural consumers, meanwhile, have to pay as low as USD0.05 per kWh. Although, in accordance with the constitution, the electricity sector is monopolized by the federal government throughout Comisión Federal de Electricidad (CFE), the private sector, including foreign companies, can also feed electricity into the national grid after signing a deal with CFE. For example, IEnova is one of the largest private electricity companies in Mexico, which happens to be a subsidiary of the California-based energy giant, Sempra Energy.

As the country has no shortage in thermal electricity generation, most private and foreign investors that have been granted a contract are active in renewable energies. Solar power, in particular, has a great deal of potential in Mexico; sunlight, after all, is a plentiful resource here. It is estimated that a strategically placed array of photovoltaic panels in Chihuahua and the Sonoran Desert can meet most of the country's demand for electricity. IEnova has thus far invested in four major solar plants in Sonara, while a fifth plant is under construction in Juárez. The transnational company also owns a number of wind farms, including one in Nueva Léon.

All that said, Mexico's electricity sector experienced some turbulence in the early 2021. A new piece of legislation, supported by President Andres Manuel López Obrador, has worried some observers, making foreign investors wonder if they will soon have a difficult time competing with the CFE. President López Obrador insists, however, that the new legislation aims to bring about energy independence and further diversification in energy generation.

IEnova remains steadfast about its presence in the Mexican market. Sempra Energy's CEO, Jeff Martin recently commented that his company does not wish to interfere in the Mexico's political disputes, adding that Sempra Energy and its subsidiary IEnova have no intention except helping Mexico and generating FDI for the country. The energy sector has attracted up to USD200 billion to Mexico in the form of FDI, he noted.

In any case, Mexico's current generation capacity (roughly 80GW) already exceeds its consumption. As such, the country has been continuously exporting modest amounts of electricity to its rich northern neighbor since 2005. In 2018, Mexico fed over 6.8 billion kWh to the American grid, which formed 12% of all American electricity imports, according to the US Energy Information Administration (EIA). Mexico also exports electricity to certain countries in Mesoamerica.

If Mexico wants to become a major regional exporter of power to both North America and Latin America, however, it should focus on renewable energies, especially solar power. Mexico already enjoys a sophisticated power infrastructure, it has access to state-of-the-art American and domestic technology, and its climate is ideal for the installation of solar panels. On average, Mexico receives 18-20MJ of sunlight per square meter, which means the installation of photovoltaic panels is cost-effective almost anywhere in Mexico.

With all the right elements already in place, the only remaining questions are “when will the share of solar energy grow in Mexico's energy portfolio?” and “when—or whether—Mexico can become a major power exporter?” The short answer to the latter is that Mexico is already an exporter of electricity, and there is a good market for affordable electricity in its neighboring countries. Although the US, much like Mexico, enjoys self-sufficiency in terms of power, Central American nations such as Honduras, Nicaragua, El Salvador, and Belize, among others, suffer from frequent power outages and are more than eager to import electricity from Mexico.

The share of solar power in Mexico's energy portfolio is growing, as well—albeit at a slow rate. It is estimated that given the current commercially available technology, solar power can meet up to 70% of the country's demand for electricity.
Given that generating solar power makes perfect economic sense in sunny Mexico, the arrival of more private and international investors in the local energy market can result in a boom in green energy in the coming decade.