An outlook on Mexico’s renewable energy sector

Our Energy Fellow, Adrian Duhalt, gave us a brief outline about  where Mexico currently stands on renewable energy and the potential it has in the future.

What are the current challenges for the development of renewables in Mexico?

The main challenge that renewable energy is currently facing in Mexico has to do with politics and policies. It is broadly acknowledged that since President López Obrador, also known as AMLO, took office in December 2018, interest in fostering greater deployment of wind and solar generation capacity eased significantly. The stance of the country’s energy policies shifted and now the focus is on the development of fossil fuel alternatives, of which upgrading refining capacities at Pemex and sustaining production levels of crude oil stand out. It is certain that the present government is promoting its own renewable projects such as the Sonora Plan, but based on the policy tools at AMLO’s disposal, the potential of the country and the needs of the economy, a lot more could be done. The point is that, from a political perspective, initiatives around hydrocarbons are a better fit for AMLO’s narrative. Despite all, it is worth noticing that both solar and wind energy have registered healthy growth rates in recent years. For example, between 2018 and 2022, wind installed capacity expanded by 42.23% while solar did so by 247.98%. To a significant extent, this is not AMLO’s doing. Much of today’s renewable energy expansion is the result of past policy decisions.

What drives the outlook of renewables in the years to come?

In economic terms, the second half of the 2020s represent a huge opportunity for Mexico. As of 2023, the country is both the top trading partner of the US and, for the first time in two decades, the leading supplier of goods to that market. And it seems to me that, in the years to come, Mexico is poised to enjoy a favorable context to deepen its trade relationship with the US and continue to be the US largest export and import partner. An important driver of this context is the geographical relocation of manufacturing activities (referred to as nearshoring in Mexico) that the dispute of the US with China has triggered over the past years and that shows no signs of easing going forward. Moreover, the set of legislations that the Biden administration has recently enacted with the goal to build more resilient supply chains and accelerate the energy transition is another factor that is likely to favor Mexico. For example, based on the incentives and provisions that the Inflation Reduction Act (IRA) contemplate for the manufacturing of electric vehicles and batteries, Mexico could capture part of the resulting investments. But for the country to take advantage of this context more renewable power generation is required. Factors like these are expected to prompt a much greater interest in clean energy on the part of Mexico’s next government. Irrespective of which political coalition wins the June 2 presidential election, it would be a huge mistake for them not to foster the expansion of solar and wind power capacity. Mexico cannot afford to continue prioritizing fossil fuels.