Between 2015 and 2020 Mexico’s coal generation fell 60% – one of the highest rates of reduction in the world. Wind and solar power filled most of the gap left by coal, with only small amounts of gas generation also added. So, by the year the COVID-19 pandemic began, wind and solar made up 10% of Mexico’s electricity mix, exceeding the global average of 9.4% for the first time.

Much of these gains were thanks to reforms enacted by then-President Enrique Peña Nieto, whose term lasted between 2012 and 2018. Notably, in 2014 Nieto signed into law a comprehensive energy reform that enabled much greater private investment into Mexico’s hydrocarbon and electricity sectors. The following year, the Energy Transition Law established an ambitious target of supplying 35% of Mexico’s electricity consumption from clean energy, according to the International Renewable Energy Agency (IRENA).

Mexico was an inviting place for significant investment in renewable energy projects. Three clean energy auctions took place between 2015 and 2017, attracting over $8bn in investments and contracting over 7.4 GW of predominantly solar and wind projects. The North American country has vast potential; research by the National Renewable Energy Laboratory (NREL) estimates that it could produce some 24,918 GW from solar photovoltaics (PV), 3,669 GW from wind, 2.5 GW from conventional geothermal, and 1.2 GW of additional capacity from existing hydropower facilities.

Enrique Peña Nieto was Mexico’s President between 2012 and 2018, during which time his energy policies encouraged significant investment in renewables projects
Photo: Government of Mexico

However, since the election of incumbent President Andrés Manuel López Obrador in December 2018, progress towards net zero has largely faltered as his government shifted its focus from renewables back to fossil fuels. Soon after his ascendancy, the national government cancelled the fourth long-term clean energy auction and tenders for two transmission lines. The tide continued to turn in 2019 with cancellations for auctions for medium-term capacity and transmission rights among other measures designed to prevent more renewable capacity being added. By May 2020, Mexico had also issued new grid management rules that granted preferential grid access to conventional electrical generation over wind and solar.

The need for supportive and strong government policies for a successful energy transition cannot be understated, and Mexico is a cautionary tale.

President Obrador’s energy campaign  
President Obrador has repeatedly criticised wind and solar as dependable sources of electricity. Soon after his election he changed the country’s regulatory framework for the power sector, including an obligation for the Mexican energy regulator (Comisión Reguladora de Energía, or CRE) to follow the Energy Ministry’s guidelines when granting permits for new capacity. It effectively prevented building new renewable capacity, as the planning programme doesn’t contain any renewable additions until 2027.

President Obrador has also amended the constitution to give state-run utility the Federal Electricity Commission (CFE) at least 54% of the power market to prioritise its own power generation strategy over that of the private sector. The CFE generates power from hydro, nuclear, natural gas and oil, whereas most of Mexico’s green energy is produced by private companies. This move effectively meant that fossil fuels are dispatched first and clean energy last, despite the latter being cheaper, according to the 2022 USMCA report.

Since coming to power in 2018, President Andrés Manuel López Obrador has amended Mexico’s regulatory framework for the power sector in a move that has effectively prevented the building of any new renewable capacity until 2027
Photo: EneasMx on commons.wikimedia.org

The current government’s preference for fossil fuels was made even more explicit in May 2023, when the CRE declared some natural gas-fired power as ‘clean’, to the ire of environmental groups. But these changes have led to various negative outcomes for Mexico. As the US International Trade Administration notes in its country profile for Mexico: ‘In the past three years the electrical power sector has faced several policy changes under the current Administration, and those changes have altered the dynamics of the electricity market for private sector participants and have affected the confidence for future investments.’

Jeremy Martin, Vice President, Energy & Sustainability at the Institute of the Americas, told New Energy World: ‘There has been an outright concentrated effort to diminish the opportunity for renewables such as wind and solar, but even hydro – that was often touted by the President and CFE as a key renewable source that deserved more investment – has dropped off and suffered from broader drought conditions and issues facing many parts of Mexico.’

Outcomes from the reforms  
Not only have these changes been negative in terms of Mexico’s climate commitments, they are also problematic because private investment is the primary contributor to job creation in the country. Likewise, international cooperation encourages government spending on public services, which subsequently leads to more jobs being created.

As a result of this pivot back towards fossil fuels, the Energy Institute’s Statistical Review of World Energy 2023 reports that despite a growth rate in consumption of renewable energy of 15.3% between 2012 and 2022, the rate was actually –2.2% between 2021 and 2022.

Bloomberg reported that Obrador’s attempted reforms put some $22bn worth of clean energy contracts into jeopardy, and prevented some 15,000 MW of new green installations from being added to Mexico’s grid. Earlier this month, however, Mexico’s Supreme Court prevented the electricity industry reforms from going ahead, claiming that they violated the principles of free competition due to the prioritisation of the CFE over private businesses. Obrador has vowed to contest the ruling.

The impact of the reforms on private energy businesses, both those active in producing fossil fuels in Mexico and those producing renewable energy, has concerned the US, Canada and Spain. In fact, they have even led to threats of a trade war with the US. This, combined with US President Joe Biden’s strong green energy agenda in his foreign policy has forced Obrador to back down on some of his most vehemently pro-fossil fuel policies. By July 2022, pressure from Washington culminated with Obrador publicly admitting in July 2022 to the inevitability of the energy transition and reaffirming Mexico’s goal to produce 35% of its energy from clean sources by 2024.

Ahead of a visit from US Climate Envoy John Kerry to the state of Sonora in October 2022, Obrador even outlined goals to construct four or five solar energy plants and develop Mexico´s lithium production capabilities.

The extreme hardline pro-fossil fuels and anti-renewable energy stance of Obrador’s government from the early days of his presidency have been softened somewhat. Nevertheless, as Jeremy Martin emphasised: ‘Under the current government and throughout this sexenio [administration], there has been scant effort to adhere to Paris Agreement targets and NDCs [nationally determined contributions].’

Mexico’s green potential  
The NREL released a report in 2022 which concluded that: ‘Mexico is ideally positioned to become a clean energy powerhouse given its world-class renewable energy resource potential and the low cost of renewable energy generation’. It found that a rapid increase in renewable energy deployment could ensure Mexico achieves its target of producing 35% of its energy from clean sources by 2024, bringing 15,257 MW of renewable energy online.

This would result in other benefits, significantly reducing the cost of producing electricity, saving the national system $1.1bn, generating $17bn in new investment opportunities, creating more than 72,000 jobs and slashing emissions. But key to achieving this, as NREL Laboratory Director Martin Keller noted, are ‘...energy policies that facilitate private investment and support our joint efforts on clean energy, climate, and supply chains’.

‘Mexico is ideally positioned to become a clean energy powerhouse given its world-class renewable energy resource potential and the low cost of renewable energy generation.’ – NREL report (2022)

Similarly, the Mexican solar association, Asociación Mexicana de Energia Solar (ASOLMEX), finds that given Mexico’s average solar irradiation of 6.36 kWh/m² per day and the territorial extension of the country, Mexico has the potential to install more than 1,800 GW of generation capacity. This is equivalent to more than 28 times the current total installed capacity of the entire electricity system (the Sistema Eléctrico Nacional, or SEN).

This energy is both cheap and profitable. The results of Mexico’s first long-term auction in March 2016 show that the cost of solar PV generation was in the range of $35–68/MWh, one of the cheapest in the region. In a 2017 power auction, Mexico took the world record for the lowest solar price at just $17.7/MWh. Figures from solar plants in the national territory reveal profits of between 10 and 30%.

2024 – a crossroads for Mexico’s energy transition  
As the International Energy Agency’s (IEA) Mexico Energy Profile page highlights, Mexico is the second largest economy in Latin America. It is the region’s second largest steel producer, and the world’s 11th biggest oil producer. These facts, plus Mexico’s projected population increase from around 129 million today to more than 150 million by 2050, demonstrate the importance of decarbonisation for the country, primarily through replacing the use of fossil fuels with renewable energy sources. Mexico has enormous potential for solar, wind and even additional hydro capacity, and is well-placed to become a world leader in green energy generation.

But, to achieve this, the attitude and approach of the government must change. The leap forward in progress achieved by President Nieto during his term has been largely reversed by the current government. Market forces have helped in some instances, but ultimately enormous and swift changes are needed to produce sufficient investment into the clean energy sector, whether that is from private investment, international collaboration or the national treasury. Academics at the Universidad Nacional Autónoma de México estimate that some 100,000mn pesos ($5.87bn) would be needed to hit emissions reduction and decarbonisation targets towards 2050 – a huge sum.

This year, Mexico has a general election and therefore a chance to get back on the path towards cheaper energy, greater energy security and climate leadership. The outcome is ultimately in the hands of everyday Mexicans.

To find out more about Mexico’s energy transition, visit the Energy Institute Statistical Review Country Transition Tracker.