Transcript
A (0:00)
Foreign.
B (0:04)
Welcome to Currents, the Nord Rose Fulbright podcast. Today we're recording with my partner Raquel Berzwinsky. She joins us today to discuss the reforms, the Mexican power sector. Raquel, thanks for recording today. It's been a while since we've talked about the Mexican power sector, so hopefully you can let us know why it's been so long and what's happening there.
A (0:25)
It's definitely been a while. I think it was 2019 the last time we spoke about the Mexican power sector. But good news now there's, there's lots to talk about, so thanks for having me.
B (0:37)
So the, the Mexican power sector was redesigned when two of us were much younger and we're both, both very optimistic about doing many, many deals in Mexico and did many, many deals in Mexico for several years. So. And then everything went quiet. So maybe you can give people a brief history and then explain why now things may be moving back towards a period when we could be doing deals again.
A (1:03)
Yeah, so there was a reform in 2013 with new laws in 2014. And from a period of about five years, there was a lot of work, a lot of investment in the Mexican power sector. It was, it was open to private investment fully. There was a wholesale electricity market that was created. You could sell bilaterally to private off takers. You could sell into the market. There were auctions by the government. And yeah, as you said, we actually worked on the financing of a dozen or actually much more than that, projects under those auctions. But then a new administration came in late 2018, the beginning of 2019, and that's when everything stopped. And so this was the administration of Andres Manuel Lopez Obrador. And he was not a fan of private investment in the power sector. He considered that it had to be the Mexican utility CFE that should generate most of the power in the country. And they basically put a stop into the issuance of generation permits and the development of, of power projects in the country. And so for six years, at least six years, we the, the basically the sector came into a standstill and there was barely any investment and even any investment by, by the Mexican government. And in last year 2024, there was an election, there's a new government that came in now. The president is Claudia Scheinbaum and things are starting to change. Even though she's from the same party as amlo, and she's like the protege of amlo, she has different ideas in terms of energy generation, power production. And the country also would like to have a lot of investment. The country has been Refused talking about up to the beginning of this year when Trump started in, you know, imposing tariffs. But the, the thing that people were talking about in Mexico was near shoring, which is, you know, bringing industry to be, to be close to the United States instead of being in China. And so, you know, if you bring industry to a country, then what will they need? They're going to need power and they're going to need water. And so you need investment in those two things. And even though there is still uncertainty with tariffs and the like, and there's probably going to be a renegotiation of, you know, the, what used to be the North American Free Trade Agreement, which is now called the, depending on, you know, whether you're referring to it in English or not, but the usmca. And so even if there is a renegotiation of the usmca, there's still a lot of power needs. Hyperlinkers are in Mexico. There are a lot of data centers being developed there. And as everyone knows, you need power for that. And Claudio Shane Bound has been pushing through at the beginning of this year a new law that while it's not exactly what we had before AMLO was president, it has maintained the possibility of private parties developing power projects in Mexico. It maintains the wholesale electricity market, so sales into that market in different types of modalities is still permitted. And what it has done is this, the new regulations, what they do is that they two things primarily. One, now the development of power projects is going to be more organized and has to follow a certain development plan issued by, by the country. So you will not be able to build a power plant just and anywhere in the country where you think that, you know, the pricing for the node is good and that you have resources, you know, it's a good solar resource or there's good wind resource. It actually has to conform to what now is called binding planning. And so it's a plan that the government will issue on an annual basis, but it covers different periods in time of investment in the energy sector and it covers not only energy generation, but transmission as well. And, and so it goes hand in hand. And that's one of the, that's one of the main changes. And the other main change is that now there is this concept that the state or the government needs to have priority in, in the development of and the, in the production of, of power in the country. And in that, what that priority means is that 54% of energy, average annual energy injected into the grid must come from and this is a Broad term, the Mexican government or the Mexican government has to have some interest in that. And you'll ask me why. 54%, it's a random percentage. The prior President Amlo came up with that percentage and he said CFE needs to generate 54% of all the power in the country. And so this now is, is being interpreted in these regulations that just came out on October 3rd to mean exactly what I said. 54% of the average of energy injected into the grid every calendar year has to come from or has to be categorized as energy where the Mexican government is either generating or has some type of investment.