Mexico will invest US$146bn in electricity between now and 2029, but to attract the necessary capital it will need to finalize its power market plans and continue to signal policy stability to investors, according to a report by the World Economic Forum (WEF).
“Mexico’s economic growth over the last decade has been held back in some cases by the regulatory structure of some key sectors, including energy,” says the WEF’s 2016 The Future of Electricity in Fast-Growing Markets report.
In the wake of the reforms opening up the sector to more private participation and creating a wholesale electricity market, Mexico will need to ensure that the new market functions smoothly, enables appropriately attractive returns to investors and attracts the required scale of investment in conventional and renewable power, it adds.
Mexico’s US$146bn electricity investment over the next 15 years will comprise US$33bn to expand T&D networks, and US$113bn in generation to create a matrix based on natural gas and renewables, adding 5GW hydroelectric, 16GW in other renewables, 12GW in nuclear and cogeneration, and 26GW in gas.
Mexico mirrors other electricity markets in fast-growing economies as they seek to satisfy voracious new demand for electric power as their economies grow, more customers connect to the grid and as per capita consumption rises, the report states.
”By prioritizing investments in gas and electricity transmission from the north to the south of the country, combined with new efficient conventional and renewable generation, Mexico has already been able to reduce its wholesale electricity prices by 33%, providing a significant stimulus to the economy,” according to the report.
“Mexico is seeking to tap into the North American shale gas revolution and the natural wind and solar resources in the country. To exploit these resources, Mexico is spending US$11bn on gas transmission pipelines to 2018 and US$33bn on power transmission and distribution lines to 2029.”
The report states that, in the short term, power market stakeholders in Mexico should focus on three key recommendations.
Firstly, in the upstream sector, a viable natural gas market is required to encourage stability that attracts investment. Policymakers will need to create incentives to build gas production and storage infrastructure and a competitive market, while regulators will need to remove redundancies in regulation and promote simplification.
Policymakers should also encourage the creation of diverse financial instruments to increase investment.
Secondly, Mexico needs to define clear targets for the generation mix and structure the market by setting minimum supply levels for generators on long-term contracts, the report says.
Thirdly, the country must guarantee the viability of its transmission and distribution network, adopting new technologies and reducing losses, while simplifying subsidies.
BNamericas will host its 4th Mexico Electric Power Summit in Mexico City on February 10-11.
By Adam Critchley for BNamericas.com
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