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Separation of Power Sector

Challenges to investment 

In 2012, Mexico's electricity sector was characterized by a vertically integrated monopoly, with the Comisión Federal de Electricidad (CFE) Iserving as the state-owned electricity company. CFE was responsible for most of the country’s generation, transmission, and distribution. However, the sector faced severe challenges such as high annual distribution losses and heavy reliance on natural gas, which, at the time, accounted for more than half of electricity generation. These problems were compounded by insufficient investment in electricity infrastructure, due in part to the lack of private sector participation. To open the sector to private investment and stimulate competitiveness and incorporate sustainability across the entire value chain, several policies and laws were put in place to promote competition, strengthen the energy regulatory agency, increase transparency, and reduce corruption. The entire electricity market reform aimed to lower generation costs, increase the share of renewable energy (RE) sources, and reduce transmission and distribution losses.


Approach 

The Mexican energy sector reform took place in the years 2013-2014 and introduced significant changes to the structure and operations of the CFE. The CFE was transformed into a holding company. The new CFE holding company was divided into 13 subsidiaries allocated respectively to three distinct functions: generation, transmission, and distribution. After the reform was completed, both the CFE generation subsidiaries and other Independent Power Producers (IPPs) could generate electricity, enhancing competition and allowing Mexico to establish a wholesale electricity market and long-term auctions. While CFE maintained exclusive rights over transmission and distribution, its transmission and distribution entities could enter into public-private partnership (PPP) contracts with private corporations to develop new transmission and distribution infrastructure. 


Key Enabling Conditions  

One of the key features in restructuring Mexico’s energy sector was the long-term auction process as a competitive bid mechanism. In addition, economic imperatives such as the need to lower transmission and distribution losses fostered political commitment to the reform, ensuring its effective implementation and continued progress. 

 

Impact / Outcomes

Following the 2013-2014 energy sector reforms, Mexico saw significant expansion in RE installed capacity, which rose from 3.5 GW in 2013 to 9.5 GW in 2018. Likewise, RE’s share of total generation grew from 4% to 7% over the same period (excluding hydropower). The introduction of long-term competitive generation auctions led to a substantial decrease in renewable generation prices, with solar energy prices dropping to MXN/kWh 0.344 ($/kWh 0.0179), while wind energy prices reached MXN/kWh 0.341 ($/kWh 0.0177). As the reforms boosted Mexico’s attractiveness for RE, it became one of the top ten destinations for RE investment in 2015. Total investments in renewable energy continued to increase, reaching $6.2 billion in 2017 with one third of installed generation capacity privately owned. A study commissioned by the Centro de Estudios del Sector Privado para el Desarrollo Sustentable (Cespedes) projected that up to 180,000 local jobs in the renewable energy industry could be created in the next decade.An in-depth study conducted by the Secretaría de Energía in 2016 provided a, in-depth, job-by-job inventory of the workforce needs of the renewable energy supply chain to address and anticipate skills shortages, particularly in construction (e.g., construction support workers, steel structural assemblers, civil and construction engineers).


Additional Sources

Locations
Latin America, Mexico
Year published
01 January 2013
Policy type
Energy policy
Policy lever
Power market structure
Risk category
Political risk, Policy and regulatory risk, Grid/transmission risk, Permits risk, Power market risk

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