Sheinbaum Leans on Private Investors to Fix Blackout-Prone Grid

tbmx3c0tkoyfvmidjwam(ksd_media_dl_2.png Mexico Institue for Competitiven

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(Bloomberg) — Investment in Mexico’s struggling electricity sector is roaring to life as a slew of deals in power plants, renewables and grid upgrades pave the way for President Claudia Sheinbaum’s $56 billion energy plan.

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European, US and domestic developers including Copenhagen Infrastructure Partners, Cox Energy, BlackRock Inc. and Grupo Mexico have signed billions in deals in recent weeks to expand the nation’s power output and fortify the grid. Even billionaire Carlos Slim is exploring a foray into battery storage.

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In the 20 months since Sheinbaum’s swearing in, the pace of promised electricity investment has already eclipsed the total under predecessor Andres Manuel Lopez Obrador’s six years in office, according to the Mexican Institute for Competitiveness. 

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Sheinbaum is trying to entice investment in Mexico’s blackout-prone electricity sector with $23.4 billion in spending on transmission and generation projects. For every dollar of state funds, the president’s plan foresees almost $1.40 in additional private-sector spending, despite a law that requires the government to retain majority control of energy assets.    

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“It’s been a roller coast ride for the last seven years in the energy space, and now, the biggest change has been an openness and receptiveness toward the private sector,” said Carlos Barrera, chief executive officer at Atlas Renewable Energy in Miami. “We’ve gone from cautious, to cautiously optimistic, to cautiously bullish on Mexico.”

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The Western Hemisphere’s fourth-largest economy operates on an electrical grid that isn’t keeping up with booming demand. The manufacturing, automotive and tech industries are in expansion mode in Mexico, lured by cheaper labor costs and proximity to the US market. 

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Electricity consumption is forecast to grow around 3% per year on average across the country, according to Mexico’s energy ministry. Even so, in some places, like the tech hub of Queretaro, that figure will be closer to 6%, according to Mauricio Reyes Caracheo, director of that state’s energy agency.

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As it stands now, the Mexican grid is prone to seasonal blackouts, especially along the sweltering Gulf Coast and in the northern desert. The system has less than half the backup capacity as neighboring Texas.

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Almost a century of strict state control of the energy sector discouraged international investment, leaving responsibility for power generation and transmission in the hands of sclerotic bureaucratic institutions.

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Although that structure remains largely intact, the dam began to break in April when the government published new regulations outlining how private electricity generators can sell power. The rules are part and parcel of Sheinbaum’s broader energy reforms aimed at boosting private participation while preserving the prerogatives of state-owned Comision Federal de Electricidad.