(Bloomberg) -- An ambitious plan by Mexico’s new leader to boost the nation’s renewable energy production faces steep political and technical challenges, and could cost up to $50 billion.
Claudia Sheinbaum, who was sworn in as president Tuesday, vowed to expand renewable energy to 45% of total power generation by the end of the decade. That compares with about 24% in 2022, according to BloombergNEF data.
That’s a tall order on its own, yet she will be inheriting a power grid pushed to the limit, as years of underinvestment have resulted in aging infrastructure and seasonal blackouts.
“It’s a pipe dream,” said Alejandro Schtulmann, head of research at political consultancy Empra in Mexico City. “The underinvestment in Mexico’s state energy companies, and especially in transmission and distribution in recent years, is an inherited mess that Sheinbaum will have to deal with first.”
Sheinbaum’s predecessor, Andres Manuel Lopez Obrador, was all but hostile to many private renewable companies looking to invest in Mexico, preferring instead to dump billions into state oil driller Petroleos Mexicanos. The country also is flirting with dissolving its independent regulators, creating legal uncertainty for companies looking to invest.
“Attracting private investment in renewables will be extremely difficult after the actions taken over the past six years,” Schtulmann said.
Attaining Sheinbaum’s goal by 2030 would be a massive undertaking, requiring as much as 40 gigawatts of new capacity to the grid, or more than 6 gigawatts per year. Yet the state utility Comision Federal de Electricidad hasn’t come close to adding the roughly 3.3 gigawatts capacity required annually to meet rising demand, according to Pablo Zarate, a senior managing director at FTI Consulting.
“Including necessary investments in transmission and distribution capacity, the price tag could reach as high as $50 billion, making it the largest buildout of energy infrastructure in a single presidential term in Mexico’s history,” Zarate said. “The investment is within reach, but this requires not just being open to investment, but actually proactively attracting it.”
Representatives for the Sheinbaum administration didn’t respond to a request for comment.
Sheinbaum also is adopting her predecessor’s vision to keep Mexico’s state-owned companies as the sector’s major players, with public utility CFE continuing to control 54% of Mexico’s power generation, with the rest allocated to private companies.
“That’s how it will continue because energy sovereignty is essential,” she said in her inaugural speech Tuesday.
In April, Sheinbaum announced a plan to invest $13.6 billion in new energy generation projects including gas, wind, solar and hydroelectric power plants, as well as thousands of kilometers of new transmission lines.
Still, Sheinbaum’s 2030 goal isn’t nearly fast enough for Mexico to reach net zero by 2050, according to Rodrigo Quintero, an energy economist at BloombergNEF. To do that, Mexico would need to close all coal and oil-fired power plants, and reduce its natural gas usage by more than 50%, he said.
Mexico doesn’t have a net zero target. Under the Paris Climate Agreement, Mexico is aiming to reduce emissions by 35% from current levels before 2030.
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