Introduction

With the start of President Claudia Sheinbaum’s administration, Mexico has undergone a comprehensive overhaul of its energy regulation. The process began with a constitutional reform approved at the end of 2024, which established a new industry model, and was followed by new laws and regulations designed to drive the development of power generation projects and oil and gas contracts. The industry now stands on the brink of revival and modernisation.

Mexico’s Energy Sector at a Turning Point: Oil and Gas, and Power Reforms

This article outlines the following.

• The structure and guiding principles of the new regulatory framework for Mexico’s power and oil and gas sectors.
• The redefined role of the state-owned energy utilities, Petróleos Mexicanos (PEMEX) and Comisión Federal de Electricidad (CFE).
• The operational and planning mechanisms that will shape how projects will be developed and dispatched.
• The schemes and contractual frameworks designed that enable and encourage private investment under the new industry model.
• The policy instruments and investment pathways that will define future opportunities.

Constitutional Reform

A new “collaborative” model

The 2024 reform is founded on joint participation between the Mexican state and private investors, acknowledging the importance of their respective contributions to the development of a functional and efficient energy system – one that is too costly and complex to be undertaken solely by the Mexican state.

This new approach to energy sector regulation stems from a profound shift in ideological principles that have long defined this highly polarised industry. A decades-long evolution – from a state monopoly to a fully liberalised market, and through the government’s efforts to regain control and participation in the market and the judicialisation of the sector – leads Mexico to a balanced approach that preserves state planning and participation while leveraging private investment and expertise.

Critical situation in the sector

As the pendulum effect swung back in the evolution of Mexico’s energy sector, the administration of former President Andrés Manuel López Obrador, driven by a state-controlled monopoly vision, waged an aggressive campaign against private investors and projects.

This clash paralysed the development of the energy industry for more than six years. Consequently, power transmission and distribution infrastructure deteriorated, generation capacity failed to expand adequately, and hydrocarbon production and growth on new developments declined, leaving the country’s energy sector in critical condition.

State-owned entities: social function and preferential treatment

The recent overhaul of energy regulation seeks to grant state-owned entities PEMEX and CFE a broader social role focused on addressing the needs of the population. To support this mandate:

• the Federal Constitution grants CFE exclusive rights over certain power-related activities (power transmission and distribution) and a preferential treatment in others (power generation and commercialisation) where private investors may participate subject to CFE’s preferential treatment; and
• PEMEX and CFE are exempt from antitrust regulations.

While these changes strengthen the position of PEMEX and CFE, inadequate regulation could discourage private investment by creating an uneven playing field.

Compulsory/binding planning

To exercise strategic control over the industry more effectively, the new energy regulation links the development of new projects and infrastructure to a stricter planning process, known as “Compulsory/Binding Planning”. Under this framework, the Mexican State:

• identifies system needs and available resources;
• prioritises state participation in expansion; and
• approves private projects only if aligned with the planning.

This makes regulatory alignment a prerequisite for investment.

Hydrocarbons

Sector context

The 2013–14 opening of the oil and gas industry ended poorly under former President López Obrador.

• PEMEX accumulated a record level of debt, considered the largest of any national oil company in the world.
• Suppliers faced chronic delays in payments.
• Oil production fell to historic lows.
• Illegal trade of hydrocarbons and liquid fuels became widespread.
• Storage and transportation infrastructure proved insufficient.
• Investment collapsed.

In this context, new reforms were needed to reactivate a vital oil and gas industry for the Mexican economy. Under the new constitutional framework – which grants PEMEX a competitive advantage over private investors – the new rules are expected to strengthen PEMEX’s position and foster partnerships with private investors to increase oil production.

They also aim to boost investment in the sector’s infrastructure and curb the illegal practices, such as contraband and fuel theft, that have long harmed both market participants and consumers.

Upstream

New legal framework

• A new Hydrocarbons Sector Law (LSH) was issued in March 2025, followed by regulations in October 2025.
• The new framework gives PEMEX preferential access to new fields and places it at the centre of upstream development.

Entitlements for PEMEX

• State Entitlements (Asignaciones para Desarrollo Propio) – PEMEX has first rights to develop new oil fields.
• Mixed Entitlements (Asignaciones para Desarrollo Mixto) – If PEMEX determines that it requires technical or financial support to carry out the development of certain blocks, it may invite private partners. These partnerships are governed by Mixed Contracts, which are subject to the following rules.
1. PEMEX is not required to contribute capital but retains at least 40% of the participating interest – and therefore a proportional share of the profits.
2. Cost recovery is capped at 30–40%.

These terms are widely considered unattractive by many investors, as they offer limited upside, making it more challenging to structure competitive bids or bankable projects.

Exceptionally, E&P agreements

If PEMEX does not reach an agreement with potential partners – as is expected considering the above-mentioned restrictions – the Ministry of Energy (SENER) may, on an exceptional basis, award Exploration & Production (E&P) agreements to hold the rights to exploit a hydrocarbon block, as determined by SENER, through competitive bidding processes. These may include licence, production-sharing, profit-sharing or services agreements.

The “crude” reality

• PEMEX is facing severe financial constraints, which limit its ability to develop new fields with its own resources. PEMEX must first service its heavy debt, address labour contingencies and pay suppliers. Without support of third parties (operators/investors), PEMEX will struggle to maintain expected production.
• Under these circumstances, the most likely path for the Mexican government to boost oil production is to award E&P contracts to private oil companies, leveraging their financial strength and technical capabilities. This combination of factors creates a potentially attractive opportunity for new participants in the upstream business.
• To ensure success, the new contract models will need to offer fair, transparent and bankable terms.

Midstream

Strategic projects

To maintain control over the national pipeline system, the government will classify as “strategic” those projects with greater transportation capacity or serving broader geographic areas of the country. Pipelines longer than 100 km or with a wider diameter will fall into this category.

Private investors will be invited to participate in the construction and operation of infrastructure and to provide transportation services through public bidding processes led by the operator of the national pipeline system (Centro Nacional de Control de Gas Natural, CENAGAS), either individually or jointly with PEMEX and/or CFE.

Other “non-strategic” projects will be open for private developers under federal permits. In all cases, permits will be granted by the new National Energy Commission (CNE), which replaced the former Regulatory Energy Commission (CRE). Authorisations will be issued in accordance with the binding planning of SENER.

Storage

Mexico’s fuel storage levels remain alarmingly low – averaging only six days of supply, or even less in some cases, compared to the 90-day average among the Organisation for Economic Co-operation and Development (OECD) countries. This situation places the country’s fuel supply chain in a critical position.

The urgent need to increase and expand storage capacity nationwide is expected to drive significant investment in this segment. As with gas transportation projects, storage permits will also be subject to the state planning, ensuring the co-ordinated and efficient development of national capacity.

Downstream

Commercialisation of liquid fuels has been severely affected by illegal trade, which has spread across the country and fuelled corruption networks. In response, the federal government has deployed a frontal battle against this harmful activity, resulting in arrests and the closure of illegal facilities.

To protect the fuels markets, the new LSH and its regulations include robust compliance, reporting, and oversight obligations for permit holders. These measures aim to enhance market security, deter illegal activities, and protect legitimate participants.

Power

Power sector overview

Within the new constitutional and regulatory framework, the power industry is poised to become the epicentre of Mexico’s infrastructure transformation. The Ley del Sector Eléctrico (LSE), in effect since March 2025, and its implementing regulations, issued in October 2025, establish a state-led planning and operational model, while preserving clearly defined spaces for private sector participation.

The LSE reaffirms core principles, which all projects must observe to obtain permits and grid access:

• efficiency;
• quality;
• continuity;
• accessibility;
• security;
• reliability; and
• sustainability.

State prevalence and mandatory/binding planning

The new legal framework for the electricity sector is built around a central principle: the state has priority over private participants in power generation and commercialisation.

This is what the LSE defines as “prevalence of the State” (prevalencia). In practical terms, this means the government determines how the system grows, and private participation fits within that strategy.

How prevalence is ensured

This priority is exercised through the state’s “planning” authority, which sets the strategic direction of the national electric system and determines which projects are integrated.

The state’s prevalence is measured as a percentage (no less than 54%) of the electricity injected annually into the grid, which must come from:

• generation assets owned by CFE, PEMEX, or federal or state governments; and
• generation assets in which the Mexican state holds an interest, including mixed investment projects (esquemas de inversión mixta) developed by the state and private investors.

Mandatory/binding planning in practice

Any new power generation project must align with the Plan de Desarrollo del Sector Eléctrico (PLADESE), a 15-year, forward-looking development plan issued by SENER, which sets generation priorities and quotas by technology, geography, and system needs.

• The first PLADESE was issued on 17 October 2025, and must be updated by SENER annually during the month of May.
• On the same date, SENER issued the administrative rules setting out the planning criteria that will be used to evaluate generation permits.

CNE will authorise permits only if they comply with the criteria included in the PLADESE.

Economic dispatch: how the system operates

Once power generation projects have been integrated into the system, their dispatch is determined by the economic dispatch principle (despacho económico de carga) – a cost-based mechanism that establishes the order in which generating units are dispatched, subject to grid reliability, security, and other criteria.

• The state’s planning decides who gets in.
• Economic dispatch decides how they run.

This dual structure combines state control with technical objectivity, providing investors with clearer rules and reducing uncertainty.

Strategic implications

• Projects outside the state’s planning criteria are unlikely to secure permits or interconnection.
• Priority goes to capacity that strengthens reliability and system balance, among other conditions.
• Cost-competitive and technically solid projects should be dispatched, improving their bankability.
• Regulatory alignment has become just as important as technical and financial feasibility.

Generation schemes (distributed generation, self-consumption, cogeneration, MEM, mixed development)

Distributed generation

Distributed generation (DG) projects below 0.7 MW do not require a generation permit from CNE. Energy generated by a DG project can be:

• consumed directly by the generator/end user;
• sold to end users; or
• sold in the MEM through a basic services supplier.

The regulatory simplicity of DG has positioned this scheme as an attractive alternative for industrial, commercial and service-sector consumers seeking stable pricing and cleaner energy sources without complex approvals.

Self-consumption

Self-consumption projects are envisioned to serve strategic large-scale energy users, such as industrial parks, data centres and logistics hubs.

These projects can be developed as follows.

• Isolated Projects – The power plant and its offtakers are connected through a private network, with no grid interaction. The power that is generated by these projects must be used exclusively by the permit holder and/or authorised self-consumption offtakers.
• Interconnected Projects – Similar to the isolated model, but the power plant is physically interconnected to the grid to allow for the sale of surplus power to CFE – under terms and conditions (including pricing) to be determined by CNE – or to contract power back-up.

Unlike DG, self-consumption has no generation capacity limit. While self-consumption projects of any capacity are not subject to the state’s planning criteria, those ranging between 0.7 MW and 20 MW benefit from an expedited permitting process and are exempt from obtaining a Social Impact Manifestation (MISSE) authorisation. This offers a fast and flexible path to market – particularly in high-demand regions – making self-consumption one of the most dynamic segments for private investment.

The strategic implications are as follows.

• Hedging – Self-consumption helps large consumers protect themselves from price volatility.
• Agility – Flexible permitting and regulatory certainty make it a key growth segment.
• Bankability – A reliable source of revenues and qualified offtakers increase the likelihood of securing non-recourse financing for these projects.
• Decentralisation – It allows developers to capture opportunities without relying on centralised planning.

Cogeneration

Cogeneration produces electricity and usable heat from a single energy source, improving efficiency, cutting emissions and lowering energy costs – ideal for industrial consumers.

The modalities are as follows.

• Self-consumption – The energy is used by the permit holder or other authorised users within a private network; sales to users inside that network are treated as a third-party sale but remain under the self-consumption scheme.
• Market participation – The plant connects to the grid and sells into the wholesale market, following dispatch rules.
• Authorised capacity – new permits will be granted with a capacity limitation related to the internal cogeneration needs of the host that generates the power, thus restricting the possibility of generating unlimited excess power.

Dispatch rules:

• market plants must follow mandatory dispatch schedules; and
• self-consumption plants may inject surplus energy, subject to reliability criteria set by the National Centre for Energy and Control (Centro Nacional de Control de Energía, CENACE).

Why it matters:

• lower energy costs and higher efficiency;
• flexibility to use or sell power; and
• clear operational rules that support financing and growth.

Wholesale market (MEM)

The wholesale electricity market (MEM) remains an important space for private participation – but under more structured rules. Participation now requires full alignment with binding planning criteria.

Once the projects are authorised, the MEM operates under the economic dispatch model. This means that power plants are dispatched based on cost efficiency and system needs, while ensuring reliability. Although the MEM is more state-directed than before, it continues to offer opportunities for experienced participants who can adapt to this new environment.

The strategic implications are as follows:

• participation is now more structured and competitive;
• planning alignment is a precondition for market entry; and
• a solid regulatory and bidding strategy is essential to succeed.

Mixed development schemes

The new legal framework introduces “mixed development schemes” to combine state and private investment. These projects, which must be approved by the board of directors of CFE and awarded pursuant to transparent rules, must align with the state’s planning criteria and must meet standards on reliability, efficiency and sustainability.

Long-term production – Private developers build, finance, operate and maintain power generation assets. CFE is the sole buyer under long-term offtake agreements.

Key features include the following.

• Energy, capacity and other products are sold exclusively to CFE.
• No third-party offtakers or alternative permit schemes are permitted.
• CFE represents the asset in the MEM.
• Contracts must specify capacity, payment formulas, reliability requirements, penalties and dispute resolution mechanisms.
• The maximum contract duration is 30 years, allowing for full investment recovery.
• CFE may acquire the asset upon termination of the agreement without additional consideration.

Long-term production schemes:

• provide stable, long-term revenue streams;
• are attractive for large-scale, bankable projects; and
• impose strict operational and availability standards.

Mixed investment – CFE and private investors co-participate in the development of power generation assets through special purpose legal or financial vehicles, including corporations, trusts, joint ventures, and other agreements.

Key features include the following.

• CFE must hold a direct or indirect interest in the project, at least equal to 54%.
• CFE’s participation can be made in cash or in kind, including through tangible and intangible contributions (eg, land, permits, offtake rights).
• Governance, operational rules, technology updates, dispute resolution and exit terms must be clearly defined in the relevant agreements and project structure.

Key challenges – While mixed-investment schemes offer structured opportunities, they also introduce new complexities.

• Limited commercial flexibility – CFE is the preferred offtaker, represents the asset in the MEM, and commercialises its products in the MEM.
• Regulatory control – Strong alignment with state’s planning and technical standards is mandatory.
• Governance complexity – Particularly where CFE holds a 54% or greater interest in a private project company.
• Long development timelines – Project approval and structuring require navigating formal processes.
• CFE contribution – CFE’s investment in the project can be formalised after it reaches commercial operation, which places development, construction and financing stress in CFE’s private partner.
• Performance obligations – Strict penalties and availability requirements increase operational discipline.

In short, consider the following.

• Long-Term Production offers predictable revenues and operational clarity – but low flexibility.
• Mixed Investment gives more involvement to private investors – but with higher governance complexity.
• Success will depend on sophisticated structuring, robust operational capacity, and a clear regulatory strategy.

Renewable energy and storage as strategic levers

Renewables remain at the core of Mexico’s energy transition. For the first time, the LSE formally recognises energy storage as a strategic asset, enabling its participation in both planning and dispatch. This marks a shift towards more flexible, reliable and efficient electricity supply.

Key trends are as follows.

• Hybrid renewable + storage projects are expected to receive planning priority.
• Corporate demand for clean energy is driving more sophisticated contracting structures.
• Storage supports ancillary services and strengthens grid stability.

Although the framework is defined, secondary regulation for storage is still pending and is expected no later than April 2026. Clear technical and commercial rules will be essential to unlock investment at scale.

Social considerations: energy justice and MISSE

The new model places social considerations at the core of energy development. While concepts like energy justice guide the public policy towards more inclusive projects, the Social Impact Assessment (Manifestación de Impacto Social del Sector Eléctrico, MISSE) is a binding legal requirement.

No project can obtain a generation permit or begin construction without prior MISSE approval.

Key trends include the following.

• MISSE is now a mandatory step in the permitting process for any new power project.
• Early and effective community engagement can facilitate MISSE approval and reduce permitting delays.
• Well-designed social strategies can strengthen a project’s social licence and lower conflict risk.

Compliance with MISSE is not just a formality – it is a precondition to developing any project.

Developers who approach social aspects proactively, rather than reactively, will have a clearer and faster path to execution.

Regulatory certainty, strategic positioning and market outlook

A tangible sign of this more structured and predictable environment is the launch of the 2025 Call for Priority Energy Projects by SENER. This call identifies strategic areas for investment in generation, and sets clear timelines, participation mechanisms and selection criteria. It represents the first operation step to align private investment with national planning priorities, providing a concrete entry point for developers and investors.

After years of legal uncertainty and policy volatility, the 2025 reforms offer a more stable and predictable regulatory baseline. While the new model is more centralised and state-led, it provides clarity regarding the state’s role, planning criteria and contracting mechanisms. This creates strategic advantages for well-prepared investors.

• Stable planning criteria reduce regulatory risk.
• Clearer regulatory pathways accelerate development timelines.
• Legal and financial structuring become key differentiators in accessing opportunities.
• Strategic partnerships with CFE and other state entities will become central to many projects.

The most promising opportunities include:

• renewable generation and storage projects integrated into binding planning instruments;
• distributed generation and self-consumption for large-scale users;
• strategic alliances with CFE; and
• innovative financing anchored to long-term offtake agreements.

Looking ahead, government-led calls like the 2025 Call for Priority Energy Projects are expected to become recurring entry points for private participation. Rather than broad liberalisation, this model relies on structured windows of opportunity tied to national planning priorities.

For investors able to anticipate planning signals, build strong community strategies, and structure projects around clear offtake schemes, this new framework provides a more stable and bankable playing field.