Mexico will need to attract more than $41 billion in investment to generate an estimated 37 GW of additional electricity capacity required to meet the increased energy demand anticipated by nearshoring, Abraham Zamora, President of the Mexican Energy Association (AME), said during a recent presentation in Monterrey.
Nearshoring, or the relocation of manufacturing and supply chains to Mexico, is forecast to be a generational economic growth opportunity that could bring as much as $50 billion of investment and create 4 million jobs in the country.
The nearshoring push is being driven by the United States’ reduction of Chinese imports and increased reliance on Mexican goods. On Feb. 7, the U.S. Commerce Department released data showing that, for the first time in more than two decades, Mexico surpassed China as the leading supplier of goods imported to the United States.
Zamora, who is also the senior vice president of corporate and government affairs for Sempra Infrastructure, explained that for Mexico to take advantage of the nearshoring opportunity, it will be of vital importance for the country to increase electricity generation capacity to meet expected demand growth.
“Nearshoring is a unique opportunity that isn’t permanent,” Zamora said. “The opportunity is not going to be there for many years — at least not as many years as we’d like — and there is a sense of urgency that we have to take advantage of it.”
Citing estimates from Morgan Stanley, he said that to meet the needs of incoming companies, Mexico will need to generate an additional 37 GW of electricity over the next five years, which will require an estimated investment of $41.5 billion.
To meet that demand, natural gas will continue to serve as a primary energy source sought by companies relocating to Mexico, particularly in industrial parks, which have boomed in the northern region of the country, he said. While many companies that establish operations in industrial parks will seek to use cleaner or renewable energy to meet electricity needs, natural gas will act as a transition fuel that assures a reliable source to power operations.
“The majority of electricity generation in Mexico is fueled by natural gas and it serves as a support or back up for renewables,” Zamora said. “Natural gas will be the energy source that paves the way towards cleaner fuels for electricity generation in Mexico.”
Four Points for Next Administration
Zamora explained that the members of the AME met in January with the energy teams for Mexico’s two leading presidential candidates — Claudia Sheinbaum of the incumbent Morena party and Xóchitl Gálvez of the PRI-PAN-PRD opposition coalition — and outlined their four priorities for the energy industry in the upcoming administration. The AME is made up of 21 national and international companies — such as Iberdrola SA, Mitsui & Co Ltd., Naturgy, Sempra and Engie SA — that account for 40% of power generation in Mexico, largely through combined cycle gas plants.
The AME president said that the companies’ top priorities for the incoming administration include: increased electricity generation capacity, more investment in transmission and distribution, the accelerated introduction of renewable sources into the mix, and a new scheme for long-term energy infrastructure investment.
Zamora explained that, though Mexico has 87 GW of installed electricity capacity, during episodes of increased demand, such as during summer months, there is a clear “fragility of the system.”
“In surveys that have been done by industrial parks, this is the principal worry for companies that are seeking to set up operations in Mexico,” he said. “The message that we have communicated as an association to the campaign teams of the candidates is that much investment is needed, principally in renewable energies, and in electricity generation capacity.”
The AME’s second priority and hope for the incoming presidential administration is that there will be a major increase in investment in electricity transmission and distribution, which Zamora said is a leading concern of the energy and industrial sectors. He explained that, in the last seven years, only 5% of the transmission and distribution projects planned by the Energy Ministry have been completed by state utility Comisión Federal de Electricidad (CFE).
“The government has focused a lot in recent years on energy security and if there is investment in transmission and distribution, this would help the reliability and growth of the system,” he said. “If there’s no investment in the grid, the system can’t grow.”
To achieve these goals — including the acceleration of the energy transition and incorporation of more renewable sources into the grid — Zamora said there must be more collaboration between the private and public sectors.
“There is a historic opportunity in front of us,” Zamora said. “And for that reason, we as an association see a great opportunity to renew private electricity investments, which should be done in conjunction with the public sector.”
