Mexico’s energy sector is at a historical turning point. At the end of 2013, Congress passed sweeping reforms of Mexico’s energy sector, intended to lead to the liberalization of the power generation sector historically controlled by state-owned Federal Electricity Commission (Comisión Federal de Electricidad, or CFE).
Regulation has been rolled-out since then, and the first new market mechanisms will start operation in 2016. By 2018, Mexico’s generation market will operate under new grounds.
In 2014, Mexico generated 6% of its electricity from renewables, made up of biomass and waste, geothermal, small hydro, wind and solar plants. As Latin America’s largest natural gas producer, the country relies primarily on gas-fueled power plants, which produced around 60% of the estimated 285TWh generated in 2014.
Mexico’s electricity market is very regulated – although this is about to change thanks to the reforms. CFE controlled all on-grid power supplies and determined which projects could be developed privately by independent power producers (IPPs). These projects could sell electricity to CFE, which awarded power contracts through tenders. The only other options for private generators was to sell electricity directly to large consumers via bilateral agreements or under a permit of small producer of electricity.
Mexico’s energy reform amended the constitution and opened generation to private developers, while transmission and distribution will remain under CFE (with some role for private investment). In addition, the reform creates a wholesale power market, operated by a newly formed independent system operator, the Energy Control National Centre (Centro Nacional de Control de Energía, or CENACE). The reform introduces auctions to contract power to the system and pave the way for clean energy certificates (certificados de energias limpias or CELs), which will be required for compliance with a yearly clean energy obligation. The first mandate established requires that in 2018, 5% of the country’s power consumption comes from clean sources (which include renewables, large hydro, nuclear and efficient cogeneration).
Mexico has two targets pertaining to clean energy generation and greenhouse gas reduction. The first one refers to total electricity generation coming from non-fossil sources, including renewable technologies, large hydro and nuclear. The second target aims to achieve a 30% reduction in greenhouse gas emissions by 2020 and 50% by 2050, with emission levels from 2000 set as the baseline. In 2014, around 21% of the country’s 285TWh generation was from non-fossil sources (applicable to the country’s renewable energy target, which includes nuclear and large hydro).
Renewable energy developers may benefit from accelerated depreciation on the value of their investment in equipment. Goods used for anti-pollution and research and development purposes are also exempt from import and export taxes. Mexico has two state-run renewable energy funds: one supports energy efficiency and rural electrification initiatives, while the other offers grants to renewable energy and energy efficiency projects developed by Mexican research and academic institutions.
Score Summary
Mexico in 2015 moved up one position to seventh in its overall Climatescope ranking and achieved a 1.72 score. In 2014, Mexico recorded an overall score of 1.57.
In 2015, Mexico improved on the Clean Energy Policies Indicator of Enabling Framework Parameter I. However, that development was partially offset by softness on the Asset Finance Investment Indicator of Clean Energy Investment and Climate Financing Parameter II.
On Enabling Framework Parameter I, Mexico ranked 32nd in 2015, an eight-level improvement on 2014. Its Parameter I scores were 1.10 and 0.90 in 2015 and 2014, respectively.
Mexico in 2015 lost ground on Clean Energy Investment and Climate Financing Parameter II, sinking to 12th from sixth. Its 2015 Parameter II score was 0.85 versus 1.12 in 2014.
On Low-Carbon Business & Clean Energy Value Chains Parameter III, Mexico joined the top 10 group of countries with a move into seventh place, with a score of 3.84. Its 2014 Parameter III metrics were fifteenth position and a score of 2.82.
On Greenhouse Gas Management Activities Parameter IV, Mexico matched its fourth-place rating from the prior year. Its parameter scores were materially unchanged: 3.01 in 2015 and 3.02 in 2014.