The Evolution of Mexico’s Energy Sector shows positive signs of progress towards greater openness to private investment. Indeed, the next government in Mexico, whoever is elected president, is likely to be more open to private investment and cooperation in the energy sector, according to observers and investors. The market is optimistic that the private sector will increase its participation, perhaps because the current state of the country’s energy sector is unsustainable.
When it took office in December 2018, the current government of President Andrés Manuel López Obrador promoted a policy that favors the state-owned electricity company, CFE, and limits the participation of private players in an energy market that only began in 2014. According to all the polls, the candidate of the ruling Morena party, Claudia Sheinbaum, who is close to López Obrador, is the favorite to win the election, but the opposition also has a candidate, Xochitl Galvez, in second place. This suggests that Mexico will have a woman president for the first time in its history.
Galvez has openly spoken of the need for a radical transformation in Mexico’s energy sector. Sheinbaum has yet to make a public statement on the subject, but according to sources, in recent weeks she has met with industry leaders and made remarks that keep people optimistic.
Optimism for the future
“I’m optimistic about the future of the country’s energy sector over the next few years,” says Emiliano Detta, head of the German development bank KfW in Mexico. Detta told S&P Global Commodity Insights that he believes the future government, whether headed by Sheinbaum or Galvez, will be more favorable to the private sector.
KfW has managed a budget of around $400 million for Mexico in recent years, according to its website, although this amount varies. Detta did not specify the current budget, but said that Mexico remains a priority in the region. Detta believes that Mexico’s energy sector will offer opportunities in areas such as distributed generation, electric mobility, sustainability, water, solid waste management and offshoring-related infrastructure. Optimism is shared by many industry players.
Urgent Issues
In recent years, observers and market participants have speculated that the government would eventually recognize that it cannot supply all the energy Mexico needs, and would have to reopen the sector to private investment.
During the virtual debate organized on October 19 in Mexico, experts noted that there are many “courageous” companies that have not lost hope in the country despite the difficulties in the energy sector during this administration.
Atlantica Sustainable Infrastructure is an example of a company that has obtained the necessary permits despite this “drought” of activity in Mexico’s energy sector. The company believes that the next government, whoever the president, will be more pragmatic and will leave ideology behind.
Mexico’s energy sector faces urgent challenges and the need to promote private investment to meet growing energy demand and the needs of offshoring. Observers and investors are optimistic that the sector will be opened up to private players, whoever is elected president. Expectations of a change in energy policy are becoming ever more pressing.
