Electricity demand has increased approximately 3.5% in the last two years
Fitch Ratings said Mexico’s energy sector is currently grappling with the need to improve its energy capacity and reliability, and is faced with the challenge of fostering a regulatory environment that encourages private investment in the electricity industry, particularly in light of the election results of June 2.
“Significant investment is required, with private sector participation being crucial for the development of new power plants, ensuring that CFE’s financial structure is not compromised,” Fitch said.
According to the firm, CFE’s capital investment needs, essential to meet increased energy demand, could weaken its capital structure without support from the Mexican government.
“A weakening of CFE’s stand-alone credit profile, coupled with less support from the Mexican government, could trigger a rating downgrade,” it said.
Fitch stressed that there is a pressing need to establish infrastructure for the storage and transportation of natural gas, given the country’s high dependence on imports and the significant proportion of energy generated from this source.
“The expansion and modernization of Mexico’s power grid are also imperative to improve the flexibility and stabilization of the electrical system, accommodate new plants, increase the mix of energy sources and allow the entry of renewable energy projects, while managing the intermittency they introduce to the system,” he said.
Fitch recalled that electricity demand has increased approximately 3.5% in the last two years, while the forecasts of the National Electric System Development Program from 2024 to 2038 indicate that electricity consumption will grow 2.4% in the base scenario and 2.8% in a high-growth scenario for 2024.
“Fitch expects energy demand to continue growing, given the economic acceleration in Mexico, mainly due to nearshoring, and higher temperatures during the summer,” he said.
Energy demand historically increases
The firm commented that historically, July has experienced the peak of energy demand, followed by August and June. Thus, in July 2023, energy demand was 39% higher than in February.
“To avoid blackouts, the system always requires extraordinary planning to ensure that supply matches demand in real time,” he added.
He added that in 2023, gas-generated electricity accounted for 70% of Mexico’s generation matrix, where hydroelectric, wind and solar each accounted for 6%, and the remaining 12% was generated by nuclear, coal and diesel sources.
“The country’s dependence on natural gas for more than 60% of its installed energy capacity makes it vulnerable to shortages and fluctuations in natural gas prices and exchange rates. In addition, the variability of renewables, recent severe droughts, lack of nighttime solar power capacity and maintenance activities have caused fluctuations in the system’s generation capacity,” he said.
In this regard, he stressed that the trend towards increasing energy demand and insufficient investment puts pressure on the system’s reserve margin and exposes it to vulnerabilities.
Source: eluniversal
