The ambition of Mexico's new President Claudia Sheunbaum to reach 45pc of renewable generation in the electricity mix by 2030 will include an investment plan of $35bn-40bn, sources familiar with the matter said.
Sheinbaum announced a more ambitious goal for renewables and promised to launch an energy transition plan in coming days during her inaugural address on 1 October.
The awaited document will include specific strategies and projects to be developed in the first days of her term, Alonso Romero, deputy director of commercial strategy at state utility CFE and one of Sheinbaum's energy advisors during her campaign, told Argus.
There will be around $6bn/yr in new investments under Sheinbaum's six-year term to develop a pipeline of 60GW in new capacity, mostly renewable, he added.
The new administration will propose several types of contracts to developers that guarantee CFE holds the largest participation in the sector, said Romero.
There have been meetings between Sheinbaum's representatives and banks to show the plan's potential, said a source familiar with the topic. But potential investors are still waiting to see if congress passes the bill to reform the energy sector sent by former president Andres Manuel Lopez Obrador.
That energy bill is crucial in Sheinbaum's plan, as it will lay the groundwork for further legal modifications, said Romero.
It will be easier to attract the private sector into investing in projects if a long-term contract with CFE provides support as the final source of payment in case of a default, said Romero.Under current law, CFE cannot directly buy electricity from a new power plant unless it comes from a long-term auction.
Congress would need to approve the bill and then modify the electricity law to lift that prohibition, so lenders would have certainty that CFE can sign long-term contracts with new renewable or thermal power plants without holding a tender, said Romero.
The Sheinbaum administration is considering signing Build, Lease and Transfer (BLT) contracts for some projects, said Romero. This way, CFE will have the opportunity to acquire the asset after 10-15 years of being operated by another company.
Hopes and fears
Sheinbaum's bet on the energy transition could be seen as a hopeful message for the renewables sector, but investors still need clarity on the rules in the electricity market.
Market players have been worried that Sheinbaum will continue her predecessor's energy policy that for years openly attacked private-sector renewable companies.
"It is clear that Sheinbaum is trying to make the energy transition her own mark," said Jesus Carrillo, energy expert at Mexican think tank Instituto Mexicano para la Competitividad. "However, it is risking her credibility by setting such ambitious goals."
In 2023, Mexico generated just 24.3pc of its electricity from clean sources, despite that category holding 32pc of installed capacity, according to energy ministry (Sener) data.
Reaching the new target could be possible if Sheinbaum's administration pulled off a clear path to speed up investments in renewable generation, the sector said.
"The energy transition path goes much faster when the government leads it," said Romero.
Private-sector renewable companies are willing to finally put an end to the impasse during Lopez Obrador's term. But the legislative electricity proposal along with modifications that will overhaul the judicial power in upcoming months create a worrisome business environment in Mexico, sources said. The Sheinbaum administration needs to provide not only a clear but also attractive legal framework so the private sector can provide the funds and capabilities to aid in this energy transition plan, sources said.
Mexico's electricity system requires around $130bn in new investments to meet the country's growing demand from 2024-2030, according to a recent analysis from business trade group Coparmex.
