Mexico hopes to reverse years of under-investment in the country’s power infrastructure with new measures and an opening to public-private partnerships and private capital.

In February, the country’s Senate approved the Electricity Sector Law (LESE). A principal part of the new Plan Mexico, the Electricity Sector Law opens the public grid to partnerships with private electricity providers and technology firms, and to private investment. The new law marks a sharp break with the policies pursued by the former Mexican president, Andrés Manuel López Obrador, who prevented outside investment or private collaboration with Mexico’s national power grid.

Mexico’s power grid is undercapitalised, and has ageing and inefficient infrastructure. The underinvestment includes electricity generation equipment, transmission and distribution infrastructures. The grid suffers frequent outages, while much of the country is underserved. Electricity prices are significantly higher than in neighbouring United States or international competitors.

The country’s national public electricity provider, Comisión Federal de Electricidad (CFE), is caught between conflicting political and commercial pressures. Consumer users of electricity enjoy heavily subsidised prices, which shield them from the real costs of Mexico’s ageing infrastructure. Commercial users are burdened with the real price. As a result, large firms turn to alternate commercial electricity providers, who provide far cheaper electricity than CFE.

This situation disadvantages Mexico’s smaller firms, especially in remoter parts of the country, as they are faced with steep prices. As a result, both the economy and employment suffer, particularly outside major cities.

But CFE is also caught by this situation. Its main source of revenue is heavily subsidised, while commercial revenues are far smaller and declining. The consequence is that the company has insufficient income not only to modernise its generation and distribution infrastructures, but even to maintain them adequately.

Former President Peña Nieto attempted to address this in 2014 with a series of reforms that allowed private investors to create modern electricity infrastructure and lease it to CFE.

Peña Nieto’s successor, the populist López Obrador, obstructed the reforms, refusing to allow private electricity generators to connect to the national grid.

Claudia Sheinbaum, who succeeded López Obrador to the Presidency in October 2024, has reversed her predecessor’s policies. The Electricity Sector Law creates a hybrid framework for private-public collaboration on electricity generation and modernisation of the country’s energy infrastructure. Under LESE, the CFE has a minimum of 54 percent of electricity generation on the national grid. Private electricity generators are allowed to provide up to 46 percent of power generation through the national grid.

One aim of the legislation is to provide capitalisation for FCE so that it can modernise its infrastructure, either singly or through public-private partnerships. The other principal aim of the legislation is to diversify Mexican power generation, and in particular to shift to renewable sources of energy. As these sources will largely be solar, replacing oil and coal power generation, they will significantly lower costs for Mexican consumers and businesses.

The Government is also introducing new schemes for private sector participants to work with the government-owned CFE. Long term production contracts will allow companies to sell exclusively to CFE. The law also establishes a mixed investment structure that allows firms to generation capacity together with CFE. The new law does not allow private firms to participate in transmission and distribution over the public national grid.

The Ministry of Energy will create a development plan for the sector and will update it annually. The first development plan will be published by March 2026. It will serve as the blueprint for development of new power plants and transmission infrastructure, and for management of interconnection requests.