Manufacturing in Mexico: Energy Sector Challenges and Opportunities
By Mayra Terminel, Eduardo Sáenz and Iván Guirado | Real Estate Feasibility and Energy Development Area at American Industries Group®
A new opportunity for economic growth in Mexico has emerged with the rise of nearshoring. Companies in various industries are relocating to the country due to its proximity to the United States and logistics advantages that also facilitate trade with Europe, Latin America, and Asia. Additionally, Mexico offers an ample, skilled, and affordable workforce, favorable trade agreements, and a growing focus on sustainable practices. Furthermore, its robust supply chain capabilities and increasing investments in infrastructure make it an ideal location for manufacturing, enhancing operational efficiency, and reducing lead times.
However, Mexico must create a medium and long-term strategic plan to make the most of the opportunity presented by nearshoring. The country must also execute various projects to facilitate the development of robust energy and logistics infrastructure required for companies looking to manufacture in Mexico, making it easier to attract investments. This article delves into the challenges and opportunities facing Mexico's energy sector, particularly in decarbonization and infrastructure development, as it seeks to capitalize on the nearshoring trend.
Mexico must prioritize two crucial aspects in the energy sector to take full advantage of the nearshoring opportunities. Firstly, it must decarbonize the electricity supply. Secondly, it must develop all the energy infrastructure required to distribute low-emission energy to consumption centers at competitive prices and in sufficient volumes. This will facilitate the sustainable growth of various industries relocating operations to Mexico.
In terms of decarbonization, Mexico aims to generate 35% of its energy from clean sources by 2024. This presents a lucrative investment opportunity for state-owned companies and the private sector to expand the country's energy supply through renewable energies and reduce environmental pollution.
According to its latest Nationally Determined Contributions (NDC) presented at COP 27 in 2022, Mexico must add 40,000 Mega Watts of clean energy to its matrix through international cooperation mechanisms. Considering the country's vast renewable potential, these 40,000 Mega Watts could help diversify the electricity matrix with solar, wind, geothermal, and biomass. Many companies seeking to manufacture in Mexico are prioritizing the use of renewable energy as a means of reducing their carbon emissions. Therefore, Mexico must implement the necessary measures to ensure a steady renewable energy supply in the short term. This will enable the country to meet the requirements of these companies and ensure the continued growth of the industrial sector.
On the other hand, Mexico must strengthen its transmission and distribution networks to guarantee the effective transportation of energy generated by new projects to the growing consumption centers that emerge due to nearshoring. This is one of the most pressing and urgent challenges in terms of energy infrastructure. In recent years, electricity distribution networks have grown at less than 1% per year, which has led to infrastructure saturation and congestion in transmission lines.
However, the CFE has recently announced significant expansions and reinforcements to the grid to facilitate the integration of its new generation projects.
CFE's lack of investment in electricity distribution networks has led to the industry and service sectors becoming the primary supporters in reinforcing and expanding distribution networks in areas that require investment for development. However, Mexico needs a strategic plan to prepare for the growth that will come with nearshoring. The plan should accelerate the development of network projects instructed by SENER and involve close collaboration between private companies and the state's productive companies. This collaboration will enable the deployment of generation and transmission projects throughout the country in the shortest time possible. The goal is to channel the investment and opportunities that come with the nearshoring boom for manufacturing in Mexico.
In summary, nearshoring presents a promising avenue for economic growth in Mexico, especially in the manufacturing sector. To fully realize this potential, the country must address critical challenges in its energy sector, including the need for decarbonization and robust infrastructure development. These efforts will attract more investments and ensure the sustainable growth of industries relocating to the country. If you want to explore the advantages of manufacturing in Mexico or have specific inquiries about energy supply needs in particular regions, don’t hesitate to contact us for expert insights and tailored solutions.
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