What can the world learn from Mexican energy reforms?

The scenario ahead of us shows that the world will need more energy – at least 30% until 2040 according to the International Energy Agency. At the same time, in Paris last year the international community committed to limit the increase in temperature below 2ºC. Combining these two trends will require substantially changing the current model towards more sustainable and competitive energy sources. Low carbon electricity technologies will play an essential role in this respect.

Progress in Mexico is aiming in this direction. The Mexican energy reforms announced by President Enrique Peña Nieto in 2013 – part of an extensive and ambitious agenda of energy reforms in Mexico that cover a variety of social and economic areas – is a unique example of a comprehensive and agile transformation of the energy industry.

The Mexican energy reforms aim to achieve a more secure, efficient and sustainable energy supply while reducing the cost of electricity for Mexican citizens and industries. At the same time, it has also become the key building block of the government’s environmental agenda, which includes a target to reduce its greenhouse gas emissions by 22%, with actions to meet the commitment made in Paris last December.

The Mexican government is fully aware of the massive investments all this will require – it estimates it will cost $150 billion in the next 15 years. That’s why it made sure the reform broadened the possibilities for private capital to take part in the sector and created the conditions necessary to attract investors: a well-designed, stable and predictable regulatory framework based on market principles.

The Mexican energy reforms include an impressive range of measures: it will modernize the state-owned company CFE, create all the institutions required to run an open industry (a system operator and a market operator, for example), design and implement detailed wholesale and retail market rules, and create a market of clean energy certificates.

In only two years, most of these transformations have already been implemented or are underway, and the energy reform in Mexico is already bearing fruits: the investment in new infrastructure is helping create new industries, many of which are technology and knowledge-based, and lower energy costs, which not only makes it more affordable but makes Mexican companies more competitive, creating wealth and jobs for Mexicans.

But there is still some way to go. The Mexican energy reforms have fundamentally changed the structure of the country's electricity industry, and ensuring this can reach its full potential will require further efforts to consolidate market liberalization, maintain regulatory stability, provide visibility to investors by defining medium and long-term energy goals, and facilitate administrative procedures for generators and suppliers. Those putting in place the reform must also ensure it improves the quality of service and reduces network losses, taking advantage of new digital technologies. Finally, they must invest in human capital, capturing the appropriate skills for the new digital technologies.

I am sure that these remaining challenges can be overcome, and that the Mexican energy reforms will bring further opportunities for companies like Iberdrola – which is planning to invest $2.5 billion in Mexico in the next five years – to contribute to a secure, clean and competitive energy for Mexican citizens.

The white paper, Taking Mexico to Full Potential, is available here.
Find out more about the initiative, Shaping the Future of Electricity