Power policy

Mexico’s energy reform unbundled the state-owned, vertically integrated utility CFE, established an independent market operator and created a wholesale market. The CFE continues to hold the majority of generation assets and a monopoly on transmission and distribution. Deregulation of generation in 2016 created Mexico’s wholesale market, which has operated on a day-ahead basis since January 2016.

Mexico held two auctions in 2016 and one in 2017, contracting a total of 19.8TWh of clean power, 1.8GW of firm capacity and 20.6 million clean energy licenses (CEL). Mexico's fourth auction, expected to be held in November 2018, was repeatedly delayed and then canceled in January 2019. Auctions in Mexico featured an hourly tariff adjustment to reward or penalize intermittent generation based on system needs, as well as a nodal price adjustment that prioritized projects in areas where generation costs are higher in order to decrease overall system costs. In June 2018, Mexico’s Federal Court of Fiscal and Administrative Justice announced the end of the 15% customs duty on solar PV module imports, which was introduced in 2015, removing a significant barrier to renewables development.

Power prices and costs

Regulated power prices remained largely unchanged in 2020 and, historically, Mexican consumers have enjoyed among the lowest subsidized rates in the region. However, prices in Mexico’s wholesale market dropped to $28/MWh on average in the National Interconnected System (SIN) from $70/MWh in 2019 as demand slumped. Prices have recovered somewhat in 2021, averaging $53/MWh for the whole year on recovering electricity demand and higher gas prices.

Power market

The second-largest power market in Latin America, Mexico’s installed renewables capacity accounts for 19% of its total capacity of 95 gigawatts. This share is expected to grow with further investment, which continues despite the cancellation of the country’s auctions and other adverse policy measures. The country’s three auctions held over 2016-17 catalyzed investor interest in the country’s strong wind and solar resources, producing a step change in Mexico’s new clean-energy investment from 2017 on, which has averaged around $3.7 billion per year over the past five years.

Power in Mexico remains heavily weighted toward fossil fuels, with natural gas, oil and coal together accounting for 65% of capacity and 72% of generation in 2021. Large hydro accounted for 8% of generation, and renewables met 16%. At the end of 2021, Mexico had over 2 gigawatts of wind capacity and commissioned utility-scale PV capacity of 0.7 gigawatts. Wind and solar, which are closely associated with market-opening energy reform and private investment, have only recently entered CFE’s planning. Official plans for the CFE are more focused on revamping its large hydro fleet and expanding its fossil fuel portfolio, primarily with gas plants.

Doing business and barriers

The second-largest power market in Latin America, Mexico’s installed renewables capacity accounts for 19% of its total capacity of 95 gigawatts. This share is expected to grow with further investment, which continues despite the cancellation of the country’s auctions and other adverse policy measures. The country’s three auctions held over 2016-17 catalyzed investor interest in the country’s strong wind and solar resources, producing a step change in Mexico’s new clean-energy investment from 2017 on, which has averaged around $3.7 billion per year over the past five years.

Power in Mexico remains heavily weighted toward fossil fuels, with natural gas, oil and coal together accounting for 65% of capacity and 72% of generation in 2021. Large hydro accounted for 8% of generation, and renewables met 16%. At the end of 2021, Mexico had over 2 gigawatts of wind capacity and commissioned utility-scale PV capacity of 0.7 gigawatts. Wind and solar, which are closely associated with market-opening energy reform and private investment, have only recently entered CFE’s planning. Official plans for the CFE are more focused on revamping its large hydro fleet and expanding its fossil fuel portfolio, primarily with gas plants.

EV market

Mexico’s EV market is small with a fleet of 12,130 passenger vehicles. The share of EVs in new vehicle sales is about 1%. However, EV sales have grown in recent years with 4,260 cars sold in 2021. Mexico may stand to benefit eventually from its status as a major automotive manufacturer. The country launched an electric mobility strategy in late 2018 under the previous administration. However, that has remained under review by the current government.

EV policy

Mexico has introduced a number of incentives that have supported EV market growth to date. Since 2019, EV owners are exempt from new vehicle sales tax, they can deduct higher amounts from their taxes for investments in EV and hybrid vehicles than for conventional vehicles and new EVs can be imported duty-free through 2024. Investments made in public charging are eligible for a 30% tax credit. The CFE will install a separate residential electric meter for EVs, in order to prevent consumers from being penalized with higher tariffs for greater electricity consumption (known as the DAC rate). Finally, EV owners are generally exempt from emissions tests, circulation restrictions and parking fees in many areas.

Buildings market

Mexico has introduced energy efficiency plans and mandatory standards around building efficiency, but compliance remains inconsistent.

Buildings policy

The government has yet to implement substantial policy support in the sector. Sener announced a roadmap for building energy codes and standards in 2017, with the goal of achieving a 35% reduction in building sector final energy consumption. The National Commission for the Efficient Use of Energy (CONUEE), an independent agency of Sener, published in 2011 a mandatory federal standard governing walls and roofs of residential buildings meant to be included in the municipal codes. This was aimed at reducing energy consumption tied to air conditioning systems and mainly targeted new single-family housing and multi-unit residential buildings. CONUEE issued the first standard for commercial buildings in 2001, also aimed at reducing heat gains. Compliance with both standards is low due to weak local government enforcement. Mexico offers several finance programs to support the development of energy efficient homes for lower-income citizens. The low-carbon heat market is not significant, given Mexico’s generally warm climate.