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Mexico: Political Risk Analysis For Renewable Energy Sector

Mexico has ample opportunities to attract solar and wind energy investment, but recent legal and regulatory changes are scaring investors and derailing climate goals. Mexico’s government has worked to implement reforms that will hinder privately funded renewable energy projects. The rule changes allow the country’s state-run electricity company, the CFE, to turn away from less expensive electricity produced from solar and wind, and prioritize electricity produced by state-run facilities using fossil fuel sources. While Europe pursues net-zero targets and the U.S. and China look to promote electric cars, Mexico’s President Andres Manuel Lopez Obrador has promised voters that he’ll build a multi-billion-dollar refinery to allow drivers in Mexico to buy Mexican gasoline. It looks like energy nationalism is taking precedence over other priorities including climate change and job creation. Lopez Obrador, has also embraced coal as fuel for producing electricity, and has disparaged wind turbines for polluting the visual landscape in rural areas. Overall, it appears Lopez Obrador is prioritizing fossil fuels at the expense of renewable energy. The US Chamber of Commerce has called the rule changes, “deeply troubling.” Mexico’s National Chamber of the Manufacturing Industry (CANACINTRA) warns that the changes would result in “poor quality services [and] higher costs.” So far, some of the initiatives have been blocked by Mexico’s courts. Renewable energy companies have also threatened arbitration under the USMCA trade agreement Lopez Obrador signed with the US and Canada. (Lopez Obrador responded by lambasting Mexican lawyers working for foreign energy companies as traitors.) In general, Lopez Obrador has embraced a chaotic, capricious style of governance and has created new problems for private sector companies looking to invest in Mexico’s renewable energy sector. Mexico has abundant opportunities to embrace wind and solar energy, but new investment projects will face heightened levels of political risk and increasing uncertainty. Investors doing due diligence on potential investment projects in Mexico's renewable energy sector need to understand the political risk outlook for the sector.

For more analysis on Mexico's solar industry sector, check out this more recent article.

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