On Sunday, June 2, Mexicans are headed to elect a new president at a time when the country has experienced nationwide power outages throughout May due to unseasonable heat and a surge in electricity demand.
“Regardless of who wins, both candidates face the same challenge, which is to increase investment in the electricity system,” said Paul Alejandro Sánchez Campos, a Mexico energy industry expert, consultant and academic. “What is evident is that they are going to need to establish a national investment program for the electricity system to strengthen the grid — both in terms of transmission and distribution — particularly in regions of the country that have critical shortages of power supply.”
Sánchez has more than 15 years of experience in the Mexican energy sector and currently works both as an energy and sustainability advisor to multiple national and international institutions in the industry, as well as an associate professor of decarbonization and clean energy at the Tecnológico de Monterrey university in Mexico City. As an advisor, Sánchez has consulted for international clients such as the National Resource Governance Institute, the Inter-American Development Bank, World Bank, the Overseas Development Institute and many others.
Previously, Sánchez served as the Energy and Sustainability director for Perceptia21 Energía, where he provided strategic guidance to several of Mexico's top energy firms and oversaw technical-economic analysis reports for entities such as the state-owned oil company Petróleos Mexicanos (Pemex) and the Comisión Federal de Electricidad (CFE). He also worked as the director for the Ombudsman Energía México A.C. and was an advisor to the Board of Directors of Pemex and Pemex Exploration and Production.
Sánchez holds a PhD in public policy from the Tecnólogico de Monterrey and a master’s degree in both economics and international relations from the Universidad Autónoma de Sinaloa, where he also received an undergraduate degree in international studies.
Editor’s Note: NGI’s Mexico Gas Price Index, a leading tracker of Mexico’s natural gas market reform, offers the following Q&A column as part of a series of periodic interviews with market experts of natural gas in Mexico. Sánchez is the 127th expert to participate in the series.
NGI: The biggest issue in the Mexican energy sector in May — aside from the presidential elections of course — has been the power outages we’ve seen in several states across the country. In your opinion, what are the principal causes for the blackouts we’ve been observing?
Sánchez: As I define it, it has been a result of a series of unfortunate events that occurred simultaneously and reflect the lack of preparation in the electricity system. On one hand, there is a lack of preparation in the system to adjust to the climate change events and extreme weather that we’ve been observing with more frequency, and on the other, there is a lack of preparation to strengthen and build out the electricity system to accommodate increased demand.
Historically, the national electricity system was created to provide a coverage that spanned the country, which means that there would be cables that connected all of the regions and points of the nation. For that reason, the CFE covers 99% of Mexico’s territory through interconnected cables. However, the system doesn’t have much redundancy and I think that has been incredibly evident in certain areas of the country, such as the Yucatan peninsula, as well as in the north and northwest regions. Currently, we have a series of points across the country that have become quite saturated and, when their demand spikes, it can have an impact that affects the entire electricity system. And that’s really a weakness of the overall electricity system, and the lack of redundancy and available supply in one area can have a much broader impact in other regions of the country. There was an event in late 2021, in late December, in which there was an outage in the northwest of the country, for example, that caused a blackout in other regions of the country.
And what all of this demonstrates is that, in the last few years, the overall electricity system hasn’t been built out enough to accommodate increased demand. In recent years, the grid expanded by 1% or less than 1%, while demand is growing at an average of 3% or 4% per year. At a regional level, we’re seeing even larger increases in demand in places like the Yucatan peninsula — reaching like 7% or 8% annual growth — and the grid isn’t equipped to handle that sort of growth because it hasn’t been reinforced and is deficient.
Additionally, with the atypical climate episodes we’re experiencing, such as the record high temperatures in Mexico City, for example, the weakness of the grid has been exposed. There is more demand from businesses, homes, buildings and industries that the grid can’t support a surge in air conditioning, refrigeration, fans, etc. At the same time, there is less rain, which has affected hydroelectric power generation, which has limited the amount of electricity available to meet demand. So, it’s a combination of factors and lack of preparation, and it’s clearly had a nationwide impact — included at a macro level — throughout the month of May.
NGI: A common concern in the sector we’ve been hearing is that the recent blackouts occurred in May, weeks ahead of the hottest summer months. Do you think we’re going to see more power outages in Mexico this summer?
Sánchez: Yes. If these weather conditions continue, we’re going to have a very intense summer of heat and it can almost be assured that there will be more blackouts. One of the areas most likely to experience power outages will be the state of Baja California Sur, given its lack of connectivity to the grid and intense heat. This has been the case for the state for the last three to four years and, without question, the demand for the region has already exceeded the available supply. They’ve tried to add more electricity generation for the Costa Azul LNG project, but it’s so far insufficient to meet demand.
Last year, the country’s peak demand was in June, and this year we’ve reached that same point in May. So we’re seeing annual increases in temperatures and demand, and they’re occurring earlier each year. If this trend continues, it’s likely we’ll see more blackouts during the upcoming months.
NGI: One thing that members of the sector, as well as presidential candidates, have called for is the reinforcement and build out of transmission lines. Do you think that Mexico will prioritize the installation of more transmission lines in the short term?
Sánchez: It’s definitely a main theme and commentary that is being repeated in the sector currently: that there is a need to reinforce transmission lines and strengthen the power grid. People are calling for the CFE to concentrate on the points of saturation that need to be reinforced and for the government to allow for more private investment in generation projects, which could be achieved with open bidding auctions.
One of the principal issues, which has been well documented, is that this government canceled numerous power generation permits and now, as a result, we have a stressed grid with limited redundancy that is unable to accommodate spikes in demand. Additionally, with more atypical climate events, we’re going to see even more demand.
So, to answer your question, yes, we’re going to need more investment in the building out of the national electricity grid in the short term, which of course will need to continue in the medium-term as well. It’s likely that summers are going to continue to be hotter and that national demand will increase and, that’s all without even mentioning the need to increase supply to welcome nearshoring investment. There’s going to be a lot of pressure on the electricity system and it’s going to require large investments to accommodate that in the short term.
NGI: Do you think either of the leading presidential candidates will prioritize the expansion of the national electricity grid in the short-term?
Sánchez: I think, whoever wins, is going to face a big challenge in the energy industry and that they will need to make investments in the sector quickly and with a certain sense of urgency, particularly at a time we’re experiencing blackouts. As we’ve seen, Claudia Sheinbaum, the Morena party candidate, has expressed that the CFE will maintain control of the electricity system and the grid, while the opposition candidate, Xóchitl Gálvez, has indicated that she would permit more private investment in the national electricity system.
Regardless of who wins, both will face the same challenge, which is to increase investment in the electricity system. If it’s done via the CFE, the state company will have to explore new options to increase investment, which could perhaps be done through its investment arm, CFE Capital, possibly through the issuance of debt. It could also be done through some of the mechanisms the company has employed during this administration in some of its natural gas pipeline or liquefied natural gas projects, which is through direct contracts with private companies in the form of public-private partnerships with companies that can build out transmission lines.
Regardless of who wins, what is evident is that they are going to need a national investment program for the electricity system to strengthen the grid, both in terms of transmission and distribution, particularly in regions of the country that have critical shortages of power supply.
NGI: One final question: How do you think the natural gas relationship between the U.S. and Mexico will evolve during the next administration?
Sánchez: I think Mexico really has two options for natural gas. Either we continue to import natural gas from the U.S. or we develop in Mexico. Unfortunately, in Mexico we haven’t sought to develop the natural gas resources we have. One of the explanations is ideological, and the refusal to permit fracking. And the other is that we’ve only allowed Pemex to explore for natural gas and haven’t allowed for other companies to do so in any significant way.
So, if that ideology doesn’t change and we continue to choose not to explore the unconventional natural gas resources available in the country, it is unlikely the current relationship with the U.S. regarding natural gas will change. If Pemex is the only developer of natural gas and there aren’t new private bid rounds to allow other companies to do so in the country, we’re going to continue relying on imports of the fuel via the cross-border pipeline system we have in place. At this point, more than 60% of Mexico’s national power grid depends on U.S. imported natural gas, and that demand is likely going to continue to intensify in the upcoming years.
