Mexico, or rather the United Mexican States, is a Constitutional Republic composed of thirty-one federal states located in the southern area of North America. By volume of gross domestic product, Mexico is considered the thirteenth largest economy in the world. The country's economic growth is closely related to that of the neighboring United States of America, which is by far the largest trading partner and largest source of foreign direct investment. The main thrust of the Mexican economy is provided by the oil sector, which is considered the real "cash of the government". Despite the importance of oil, the Mexican energy sector is characterized by the simultaneous presence of a production mix also made up of natural gas, coal, nuclear energy and renewable sources. This process of diversification began to be relevant starting from the XNUMXs and seems to be gaining more and more importance. The main reasons are to be found in the concerns due to the decrease in oil reserves and in the huge investments that the state should/should have made to bring its oil plants back to the efficiency levels of the past.
Oil and natural gas
The entire energy sector is characterized by the exclusive presence of the state. Historically, the Mexican economy has always been characterized by the importance assumed by the oil sector. More than fifty percent of the energy produced by the country comes from the combustion of oil, of which Mexico is the seventh largest producer globally. However, the last ten years have shown a strong reduction in oil reserves and this aspect has given rise to considerable concerns for the stability of the relative future revenues. The main presence in the market is undoubtedly occupied by Pemex (Petróleos Mexicanos), the largest company in Mexico as well as the largest contributor to the Mexican tax system. To better understand the importance of this sector, just think that in 2011 it represented 34% of state revenue.
It is therefore clear that a decline in production has a direct impact on the country's economy and on the stability of its tax system. Pemex's average daily production exceeds two and a half million barrels, 75% of which comes from the Cantarell and Ku-Maloob-Zaap offshore plants, both located in Campeche Bay. One of the government's major concerns is precisely due to this concentration of production: any tropical storm or hurricane that passes through that area could destroy assets crucial to the state economy. As far as natural gas is concerned, despite the not negligible reserves, Mexico presents itself as an importing state. Its production in fact, in recent years, has not been able to cope with the strong demand due to the considerable development of combined cycle electricity generation plants. A further penalizing element was undoubtedly the strong competition from shale-gas from the United States and Canada, a market in which, however, Mexico has the possibility of becoming a protagonist in the coming years.
traditional electricity sector
Unlike the oil and natural gas sectors, still strongly characterized by the monopoly presence of Pemex, the electricity sector has been characterized since 1992 by a progressive, but slow, liberalisation. Progressive as today more than a third of electricity production comes from private and independent plants (IPP). Slow since, it took five years from the promulgation of the relevant law to see the market entry of a private producer. Although the state presence is still very strong, as of 2009, private investment in the sector has exceeded public investment for the first time. In any case, the giant of the market remains CFE (Comisión Federal de Electricidad) with an installed capacity of 52 GW divided among its more than two hundred production plants. CFE produces electricity through a vast portfolio of plants characterized by the exploitation of different energy resources ranging from traditional fuel oil units, combined cycles, coal plants, hydroelectric, geothermal, renewables and finally it also owns a nuclear power plant. In the past, oil burning accounted for the most significant part of this production portfolio, but since the early XNUMXs this position has been increasingly occupied by natural gas.
In addition to the variety of plants, the most interesting feature of the Mexican electricity market is its growth rates. In terms of volumes, in fact, this market has grown by 18% from 2008 to today. Revenues from electricity sales have increased by 12% in the last ten years and already in 2011 they had exceeded pre-economic crisis levels. Given the growth levels of the Mexican economy and the still low percentage of industrial and residential consumption, one can only foresee a further improvement in this trend. In response to these more than positive scenarios, many foreign energy companies have decided to focus on the Mexican electricity market. The Spanish Iberdrola has installed thermoelectric plants for more than 5 GW in the last ten years. The world leader in electricity generation, EDF, can boast an installed capacity in Mexico of more than 2 GW.
Renewable Industry
Currently only five percent of the electricity produced in Mexico comes from renewable sources. However, this situation is destined to change in the coming years and a positive trend has already begun to manifest itself in 2012. The past year, in fact, was characterized by the promulgation of one of the most ambitious laws in favor of the fight against climate change in the world. Among others, this law provides for two specific objectives: to achieve production from renewable sources equal to 35% of the electricity produced by 2024 and to reduce its carbon dioxide emissions by 30% by 2020 compared to an inertial scenario. The newly elected president Enrique Peña Nieto, in order to achieve these targets, has declared that he wants to greatly expand the involvement of foreign investors in the energy sector. Although the law does not present real incentives or tariffs, similar to those used to promote the development of the renewable industry in Europe, the sector boasts some peculiar aspects that make this market very attractive. The starting point is undoubtedly the vast unused natural resources: in fact, a wind potential of over 50 GW is estimated (compared to an installed capacity at the end of 2012 of just under 1.5 GW) and solar of about 7 GW (installed capacity about thirty MW). Mexico has excellent wind resources that are ideal for building large parks.
The difference in temperature between the Gulf of Mexico and the Pacific Ocean creates one of the strongest and most constant wind tunnels on the planet in the Oaxaca region. In this region there are areas with an annual average wind speed even higher than ten meters per second and an average load factor of more than 2500 hours is calculated for the existing plants. At the same time, the northernmost region of the country is characterized by an insolation index 60% higher than that of Germany, the world leader in the photovoltaic sector and comparable to that of California and the deserts of North Africa. If these natural aspects are accompanied by a long-term regulatory perspective, almost unique among industrialized countries, and an expected strong growth in electricity demand, this market can only be considered one of the most attractive in the world. Wind and solar therefore undoubtedly represent the sectors with the greatest number of growth expectations over the next few years, but they are certainly not the only ones. Mexico also boasts more than 10 GW of installed hydroelectric power and just under 1 GW of geothermal. As regards the latter source, the country is the fourth world producer for installed capacity and the second, only after Indonesia, for available geothermal resources. Finally, in the last period, important projects in the field of biomass have also begun to be recorded.
Conclusions
If on the one hand traditional resources, such as oil and natural gas, have been showing some slowdowns in the last period, on the other hand renewable sources are increasingly occupying the scene. The growth rate of installed wind capacity in 2012 was even more than 100%. Certainly in this context of strong change, the government will find itself faced with the difficult challenge of adapting to the new reality and will also have to take into consideration the possibility of opening up the electricity distribution and transmission market, if it does not want to take on the huge investments that the network needs. At the same time, if it wants to be sure of reaching the stimulating targets it has set itself, it will probably have to create incentive mechanisms that go beyond the simple tax relief currently envisaged.
That said, the extraordinary combination of large fuel reserves, the presence of nuclear power, considerable water, geothermal and biomass resources, but above all the enviable sunshine and windiness, make this country, in strong economic development, very interesting for all those energy companies seek new margins through investments in the international arena. To date, groups such as EDF, Acciona, Iberdrola, Enel Green Power have already responded to this impulse with the installation of both traditional plants and those from renewable sources (above all wind farms), but this list is certainly destined to increase considerably in the coming months and years.
