The possible inflow of private capital following Mexico's recently passed electricity reform could help the country overcome its significant financial and technological challenges. In recent years, the Federal Electricity Commission — the entity charged with funding and administering the electrical sector — has been unable to support the continued expansion and maintenance of the national electric grid.
Still, Mexico does not currently face an electricity shortage, so the recent reforms were likely crafted with future economic development in mind. A reliable electricity supply is crucial to Mexico's continued economic growth. More than half of the electricity billed in Mexico in 2011 was sold to medium and large industrial players, which are major sources of foreign direct investment and export revenue. The potential efficiency gained from private investment into infrastructure and the prospective competition among firms could lower electricity prices, thereby making future economic investments attractive.
Annual electricity consumption is expected to grow from the current 206,000 megawatt hours to 311,200 megawatt hours by 2019. The Mexican government estimates it will need $54.45 billion from 2014 to 2019 to invest in new generation capacity, transmission lines, distribution centers and maintenance. Attracting significant investment into the electrical sector would likely reduce the financial burden of this expansion.
About half of Mexico's electricity is currently generated from natural gas that, though available at a reasonable price from the United States, is still a relatively expensive method for generating electricity. However, given increased imports of natural gas from the United States, most future investment in new power plants will likely focus on natural gas-fired plants. Therefore, the success of the electricity reform depends on the degree of investor interest and the availability of natural gas.
