ARIZONA & MEXICO

MEXICO’S POWER SECTOR REFORM
By Michelle Chalmers
Mexico’s wide-sweeping reforms of its energy sector have introduced competition in its
electricity market.
Nearly 50% of U.S. natural gas exports are to Mexico, feeding Mexico’s growing demand for electricity
through natural gas-powered plants.
Mexico could become a growth market for border states with excess generating capacity.
ENERGY REFORMS TO SPUR INVESTMENT
Eight months after introducing constitutional amendments to Mexico’s oil, gas and electricity sectors,
President Peña Nieto on August 11, 2014 signed into law the 21 component parts of his administration’s
comprehensive energy reform.
At the core of these reforms is the recasting of Mexico’s electricity industry into a more market-driven
enterprise. By introducing new players and market/regulatory designs, the government is hoping to
reduce Mexico’s high electric rates and the sense of stagnation that many view has prevented the
country from becoming a more competitive economic force. Manufacturing is a case in point.
Accounting for almost 70% of Mexico’s exports, it has been buoyed by its proximity to the U.S. market,
affordable labor costs and a menu of free trade agreements including NAFTA. 1 Yet these advantages have
not fully mitigated the effect of rate increases for electricity that continue to be a detriment to the
country’s economic performance on the international stage. Mexico has the eighth-most-expensive
electricity rates in the Organization of Economic Co-Operation and Development (OECD). 2 This is after
taking into account government electricity subsidies that favor agricultural and residential users leaving
Mexico’s largest businesses with unsubsidized rates that have more than doubled in the past decade. 3
The reforms take into account that rate design will not be enough. Although a neighbor and significant
trading partner with the U.S., Mexico has not been able to harness the cost savings from the shale gas
revolution because much of the country lacks the network of pipelines to transport gas to the regions
that need natural gas-fired generation. Investment in pipeline infrastructure will have to precede the
construction of natural gas plants. The country will then be able to launch its dual objective of
converting fuel oil plants to natural gas and the construction of new combined cycle units. 4
Renewable energy is also expected to take center
stage. The new wholesale electricity market, offering
conventional power trading and the opportunity for
investors to build and sell renewable energy
generation, began operations in January 2016. More
than latching on to a worldwide trend of greater
sustainability, Mexico has the potential to be one
Reducing electricity rates, increasing
infrastructural investment and
fostering competition are at the core
of Mexico’s power sector reforms
1
http://atlas.media.mit.edu/en/profile/country/mex/
1
www.firstmagazine.com/DownloadSpecialReportDetail.5590.ashx
3
www.firstmagazine.com/DownloadSpecialReportDetail.5590.ashx
4
www.firstmagazine.com/DownloadSpecialReportDetail.5590.ashx
59 • ARIZONA & MEXICO • ARIZONA TOWN HALL • APRIL 2016