Mexico Energy Monitor

Supreme Court rules against constitutionality of LIE  

  • Mexico’s Supreme Court ruled on the 31st of January that the 2021 electricity industry law (LIE) reform is unconstitutional. Under this ruling, the Supreme Court concluded the reform limited the participation of the private sector in the power market by guaranteeing a preeminent position for the Federal Electricity Commission (CFE), the state-owned company.
  • Critics of the reform argued that it would have prevented Mexico’s power market from fulfilling its main purpose of providing the most competitive prices for energy users while also hurting price transparency.
  • The reform attempted to modify the electricity dispatch order. Under this proposal, hydropower followed by CFE-owned plants would be given priority in grid dispatch, with privately-owned renewable projects and combined-cycle facilities coming second. While the proposal did not explicitly call for the dismantling of the market, it went against its core: economic dispatch criteria.
  • With this ruling, Mexico’s power market operator remains required to dispatch the electricity system plants under a merit order of ascending operating costs, with the last plant dispatched at the time total demand is met at a certain point in time setting the final price of electricity.

AMLO introduces constitutional reform proposals

  • President Andres Manuel Lopez Obrador (AMLO) introduced on the 5th of February 20 different constitutional reform proposals. AMLO plans to eliminate the so-called “autonomous bodies”, which includes Mexico’s energy regulator CRE. One of the proposals also intends to return to the Federal Electricity Commission’s (CFE) public company status instead of its current “state productive company” label. In addition, under the reforms, senior Judges would be elected by popular vote, likely removing an important check on executive power in the energy sector.
  • The reforms are not expected to be approved in this session of Congress given the ruling MORENA lacks a qualified majority in Congress. But they could be approved in the September session if MORENA gains such a majority in the June elections.
  • The elimination of CRE could increase uncertainty for market participants by removing an independent regulator. CRE has responsibilities over the power market, natural gas, fuel trading, among other sectors.
  • During AMLO’s administration, the CRE has been accused of acting against the market’s interest to favor the administration’s policies. Mexico’s energy regulator CRE denied 213 permits related to the power sector between 2019 and 2022, according to a report published by the US-based Tholos Foundation. This contrasts with the only 56 denials from 2016 to 2018.
  • CRE is also denying or delaying permits for operating renewable plants that are already installed. CFE does not have the same issues to obtain these permits. These actions go in the direction of the explicit goal of AMLO’s government to gain market sharesfor CFE at the expense of private market participants.
  • By elevating CFE to the status of a public company again, AMLO is seeking to circumvent the Supreme Court’s unconstitutionality ruling against its 2021 electricity industry law (LIE) reform. AMLO’s government is still seeking to position CFE in a primary role in the market, allowing it to operate with certain advantages when compared with private market participants.

CFE reports transmission growth

  • Power transmission experienced a 13% growth year-on-year during 2023, according to the Federal Electricity Commission (CFE). Power transmission is seen one of the main weaknesses in Mexico’s electricity market.
  • The domestic transmission network in Mexico is not getting the required levels of investment, which means that it is becoming harder to efficiently move energy.
  • Mexico’s electricity transmission infrastructure displays increased congestion levels that limit inter-regional connectivity. Transmission is a traditionally underserved area in Mexico in terms of investment. State-run utility CFE said it expects the completion of over 3,000km of transmission lines before the end 2024 but has not provided more details.
  • An example of this is the so-called “Plan Sonora” of renewable energy. Mexico’s government is promoting a solar energy project in the state of Sonora, but this is facing criticism due to lack of proposed transmission projects around it.
  • SENER has said that it instructed CFE to advance 192 transmission and 126 distribution projects between 2015 and 2022 but neither institution provided further details on these projects. Between 2023-2037, SENER expects to advance 11 key projects of expansion in the transmission grid, which will represent more than 1,293km of new transmission lines across the country.

Green hydrogen in Mexico gets a new push 

  • Mexican company H2V2 México announced the launch of its new venture FH2 México, which will focus on leveraging green hydrogen technology to advance manufacturing operations in Mexico. The company said that it plans to position Mexico as a leading actor in the green hydrogen space.
  • The Mexican hydrogen association (AMH2) estimates that the development of a green hydrogen industry in Mexico could help the country avoid more than 50m tones of CO2 emissions before 2050 and contribute $46 billion to Mexico’s GDP, creating 3.2 million jobs between 2025 and 2050.
  • Industries such as petrochemicals, power generation, and mobility in Mexico stand to benefit the most from hydrogen development. Those are also the industries with greater emissions. In the case of the petrochemical industry, there is potential to substitute grey hydrogen for green hydrogen in oil refining while for power generation, Mexico could use existing natural gas infrastructure to mix green hydrogen with natural gas in combined cycle gas turbine (CCGT) plants.
  • Even when green hydrogen could produce significant benefits for Mexico, the market faces robust challenges as well. Mexico still has long way to go in terms of developing a green hydrogen ecosystem, despite projects like FH2 México.
  • The industry would require massive investments. According to AMH2’s data, green hydrogen development in Mexico requires almost $60 billion between 2025-2050 and $6 billion just before 2030 to secure momentum. Almost half of that investment will have to go to the acquisition of equipment for power generation, for which hydrogen has great potential. The regulatory outlook in Mexico remains uncertain as the country still does not have a national hydrogen strategy.


Mexico’s energy sector could receive $40 billion FDI amid nearshoring” – International Chamber of Commerce in Mexico

The President of the Mexican Chapter of the International Chamber of Commerce (ICC) Claus Von Wobeser said that Mexico will likely receive between $30billion and $40billion dollars of investment in its energy sector in coming years. Von Wobeser added that despite these prospects, Mexico still faces significant challenges, including increasing power generation to satisfy industrial demand.

Mexico received $35.3 billion in foreign direct investment (FDI) during 2022. This represents the largest amount in the past six years, according to economy ministry data.

Around 43% of that investment came from the US, while countries like Canada (10.7%), Argentina (6.56%) and Japan (5.21%) also were major direct foreign investment contributors.

The economy ministry has said that the manufacturing industry is the largest receiver of investment at 36%. In terms of regions, Mexico City with 30.9% remains the largest recipient of foreign investment, with states such as Nuevo Leon (12.5%) and Jalisco (8.20%) competing for a distant second and third place.