Thrust into the forefront both by an ongoing shortage of energy and a surge in nearshoring, Mexico’s recent energy sector reforms have become a leading example of energy policy that attempts to reconcile growing demand with a need for renewables. With a boost in electricity demand from growing industry and a consumer base suffering blackouts and electricity shortages, Mexico’s President Sheinbaum passed a reform of the energy industry in late 2024. The bold and sweeping reform asks a key question of the nation: Can a state-led model succeed in delivering reliability and energy sovereignty while also working towards decarbonization?
President Sheinbaum’s constitutional reform first gives the state-owned electricity (SOE) company CFE (Comisión Federal de Electricidad) a mandate to own 54% of the electricity produced, and establishes CFE as getting priority dispatch, making the dispatch order more state-directed and CFE responsible for guaranteeing power. Effectively, the prioritization of SOEs and investment requirements will mean that Pemex and/or CFE will play a central role in any future generation, much as Sheinbaum’s predecessor, Andrés Manuel López Obrador (AMLO), envisioned. Significantly, however, the reforms are also targeted towards the global energy transition, emphasizing that while reliability is the main goal, future projects must also promote the transition to renewable energy, expanding on AMLO’s basic structure.
Sheinbaum’s reforms also firmly limit the role of private investment to a minority stake in the country’s electricity generation, which some analysts believe could harm investment. However, compared to previous investment schemes that offered less legal certainty, the reforms might encourage some private players once the regulatory dust settles, given the clarity and formalized structure that make involvement less risky and easier to navigate.
With decades of under-investment and surging demand, the centralization of dispatch power under CFE risks sacrificing market efficiency and, consequently, adequate capital to fund electricity generation and ensure grid stability for customers. The country is simultaneously attempting to position itself as a hub for data centers near the U.S., and combined with the existing lack of infrastructure, Mexico may face a shortfall of up to 48,000 MWh in supply within the next 5 years. Beyond the shortfall, the CFE’s structure and dispatch priorities do not allocate electricity efficiently, raising further questions about the balance between energy sovereignty and adequate resources.
Beyond the struggle to provide adequate energy infrastructure, the recent reforms’ elevation of Pemex jeopardizes the country’s recent climate pledges. In the reforms, the government strengthens the position of Pemex Refinery activity and politically protects the state-owned producer. Given that almost 77% of Mexico’s generation was from either coal, oil, or natural gas last year, the reinforcement of Pemex’s position throws into doubt the ability of the new energy policy to balance renewable development. By all indications, the fact remains that Mexico relies heavily on its oil and thermal power sectors to bring much-needed relief to the grid and support its ever-growing base of customers.
Mexico’s balancing act in the midst of a crucial nearshoring movement is critical to watch. U.S. supply chains, manufacturing, and the capacity of U.S. companies to achieve clean energy sourcing targets all rely inherently on Mexico’s ability to provide massive amounts of power while decarbonizing. Private-sector investments in hybrid and storage projects nationwide, the progress of ambitious clean energy projects like Project Sonora, and CFE’s ability to expand transmission capacity will all be key indicators of whether President Sheinbaum’s reforms will succeed in galvanizing Mexico’s energy landscape. Its success could provide a template to both other emerging economies in achieving energy sovereignty, while its failure could endanger nearshoring progress and climate targets across North America. Mexico’s recent reforms will play a crucial role – not just in determining the nation’s own climate future, but also in influencing global markets and development.
Undergraduate Seminar Fellow
Aarit Bhatnagar is an undergraduate student studying economics and history. Bhatnagar is also a 2025 Undergraduate Student Fellow. He developed an interest in energy after interning in energy finance and hopes to continue his journey in the energy sector.