Mexico’s multibillion-dollar transmission push falls short, observers say

Mexico's plans to expand and modernize its transmission network are insufficient to meet the country's growing needs, and the current legal conditions offer little incentive for companies to participate in those investments, observers told Platts.

Combined with poor planning in terms of power generation, the country will not only continue to miss potentially huge investments related to nearshoring, it could soon begin to face shortages like those seen in Spain.

The energy ministry, or Sener, and CFE have announced plans to invest $8 billion over the next five years to build at least 6,000 circuit km of lines. But observers told Platts, part of S&P Global Energy, that the government's proposals did not impress them.

"Plans are already late given the roughly four years that these projects normally take for construction," Casiopea Ramirez, a consultant at Fresh Energy in Mexico City, said.

CFE has a weak track record when it comes to building infrastructure, having completed only about 30% of the 192 projects it announced in the previous administration, Ramirez said, also questioning whether the five-year target -- expanding the network by 6% -- will be enough to meet growing demand of around 3%.

"To meet rising demand and international commitments, the country would need to double its current capacity of 111,000 km and reinforce existing lines," she said. "Around the world, everyone is growing, so there is stiff competition."

Regulatory clarity called crucial

Ramirez added that clarity in regulations will be critical, particularly regarding how open access to the grid will be guaranteed.

The government is expected to publish secondary energy sector laws, following a sweeping constitutional reform, before the country's Independence Day celebrations Sept. 15.

"The projects presented by the administration are not new; most had been presented before, but in general they fail to consider all the needs of the country," Victor Ramirez, an analyst at consultancy Perceptia21, said.

The government needs to invest in reinforcing existing infrastructure in areas such as the Yucatan Peninsula and around the city of Monterrey, as well as connecting the wind-rich areas of Oaxaca to the country's central region, he said.

Another hurdle that analysts and observers identified is financing. The projects the country needs require significant investment, but given the current rules -- where CFE is to hold 54% of every new venture -- companies are reluctant to participate.

"It is clear that the government needs the private sector," Angie Soto, managing director of power generator Nx Buena Energía, said. "The government needs resources and there is plenty of money available, but companies will only show interest if there is a structure that makes sense."

"The government expects companies to pay for everything and then share the profits," Soto said. "That looks complicated. The conditions have to be more fair."

Soto added that the default 54% equity stake for the state must be analyzed in detail.

Supply chain issues

There is also concern among observers regarding problems that extend beyond Mexico, such as supply chain shortages.

"There is little availability of equipment, and that is happening across the world," Soto said. "There were blackouts in Spain, and other countries like Chile, Argentina and even the US are struggling."

Soto added that decarbonization is putting extra strain on transmission systems as more renewable energy is integrated.

"The delays mean it will take the country at least three years," Soto said. "We were not ready for nearshoring."

The government should open the sector to competition, allowing companies to share the market and prevent concentration, she added. "The government would benefit from this."

Carlos Flores, another analyst, said a mismatch between the rules and the government's stated vision on energy sovereignty was holding back projects.

Flores said it was not clear whether the regulations recently passed in Mexico will make projects economically viable, citing energy storage as one example.

Opportunities slip away

Observers agreed that now was the time for the government to act, as the country has already missed plenty of opportunities.

The government has already failed to attract investment during the nearshoring process because the country did not have the energy to offer new companies, Soto said.

"That opportunity might have been lost forever, but now there is risk of not having the power to supply existing operations," she said, adding that there were mechanisms around the world for demand management that the government could use.

"At the end of the day, regardless of what the government does, what the industry needs is certainty and transparency," Soto said.