Mexico has an unbundled power industry. The structure and ownership of the power industry and its segments are primarily regulated in Mexico’s Constitution and the Electricity Industry Law (LIE). According to Article 27 of the Constitution, the operational control of the National Electric System (SEN), as well as the transmission and distribution segments, are State-owned, while the generation, commercialisation and supply segments are in theory fully liberalised, with a combination currently of State and private participation, as further explained below.

The generation segment is fully liberalised and is primarily structured through a wholesale electricity market in which both State-owned and private companies currently participate. The wholesale market was initially designed in 2013 and 2014 to promote competition among all generators. However, the political party controlling the previous and new presidential administrations and Congress has prioritised strengthening the role of the national power company, known as the Federal Electricity Commission (CFE), so that it remains Mexico’s primary power generator, with a non-written policy objective of CFE keeping a 54% market participation (see 1.6 Recent Changes in Law or Regulation).

The transmission and distribution segments are exclusively State-owned. CFE provides the public service of power transmission and distribution, with the existing transmission and distribution networks being subsidiaries of CFE (unbundled from its generation and supply activities). Although power transmission and distribution activities are considered public services of which the State is in charge, the State may enter into agreements with private parties to carry out the financing, installation, operation, maintenance and expansion of the infrastructure.

Storage facilities are currently not explicitly regulated in the existing legal and regulatory framework in Mexico. A notice of proposed legislation on power storage in the generation segment was issued by the Energy Regulatory Commission (CRE) in May 2024, to provide an opportunity for public comment on the proposal. The proposed legislation acknowledges that both State-owned and privately-owned generators may own storage facilities.

Most of the power in the country is currently generated by CFE, with a non-written policy objective of CFE keeping a 54% market participation and the rest of the power generators being private.

Transmission facilities, in particular the SEN, are owned by CFE Transmisión, which is a subsidiary company of CFE.

The wholesale electricity market is operated by the electricity system operator known as Centro Nacional de Control de Energía (CENACE), which is a decentralised organisation within Mexico’s federal government.

CFE Distribución, which is CFE’s subsidiary, provides the public service of power distribution.

Private sector companies may finance, build, operate and maintain networks with the approval of the Ministry of Energy.

CFE remains Mexico’s primary power supplier to end users.

Restrictions

There are no foreign investment restrictions that apply to the two power industry segments that are liberalised in Mexico, namely the generation and commercialisation segments.

Domestic Remedies

National courts of law provide a domestic remedy for foreign investors in Mexico’s power industry against de jure and de facto expropriations and nationalisations. Seizures and confiscations are prohibited in Mexico.

Investment Treaty Arbitration

Foreign investors in Mexico’s power industry are protected under the regional free trade agreements and the bilateral investment treaties to which Mexico is a party, including the USMCA and the CPTPP, as well as those bilateral investment treaties entered into with the USA, Canada, the UK, China, France, Spain, Germany and Italy. Foreign investors may submit claims against Mexico under such treaties and have access to investor arbitration to secure fair and equitable treatment, non-discrimination and legal expropriations.

Effective Protections and Incentives

We consider that the aforementioned domestic and international remedies provide an effective protection mechanism against expropriations and nationalisations as well as providing incentives for foreign investment in the power industry. This has been proved by the 2024 ruling of Mexico’s Supreme Court voiding a part of the 2021 amendment to the LIE participation (see 1.6 Recent Changes in Law or Regulation) and by the 2023 tender offers by a trust controlled by the Mexican Federal Government to buy back USD480 million worth of bonds initially issued to finance the Mexico City Airport that was later cancelled.

Sales of Power Industry Assets

Power generation, storage, supply and commercialisation are the only segments in the Mexican industry that allow private ownership. The sale of power assets is subject to the authorisation of the CRE regarding the transfer of a power generation or commercialisation permit in case of sales of assets. Timelines for completion of the authorisation process before the CRE vary depending on the transaction and parties involved. In practice, the regulatory approval of new permits and transfers of existing permits has become an administrative obstacle and challenge to private participation in the sector. Power storage assets themselves are not currently subject to transfer restrictions by the energy regulator and must be approved under the authorisation request of the generation asset or load to which they are related.

The purchaser of a power generation asset must prove to the CRE that it has the legal good standing, industry expertise and financial strength to develop, finance and operate the asset pursuant to the Regulations on the LIE and the General Provisions issued by the CRE.

Sales of SPVs Owning Power Industry Assets

In case of sales of equity interests in power generation permit holders, a notice must be given following the transaction to the CRE, regarding the changes of the direct and indirect shareholders of the permit holder. It is worth noting that most transactions and sales of power generation projects in the country are structured as sales of the SPV that owns the respective generation asset. Thus, no authorisation is required from the regulators unless the transactions meet the thresholds for the merger control regime described below.

Merger Control

The sale of power industry assets or businesses is subject to the general merger control regime, which requires authorisation by Mexico’s Federal Competition Commission (Comisión Federal de Competencia Económica, or COFECE per its Spanish acronym) if the statutory thresholds provided in the Federal Economic Competition Law are met. COFECE has 60 business days to review the transaction and issue its decision following the filing.

Applicable Law

The sale of generation and storage assets and the amalgamation or merger of power industry entities are normally governed by (i) the Mexican Commercial Code regarding the transfer of title over assets or equity interests in SPVs; (ii) the Civil Code of the state in which the asset is located in case of transfers of real estate; (iii) the LIE, its Regulations and the General Provisions that establish the terms for submitting information regarding corporate purpose, legal, technical and financial capacity, as well as the description of the project, and the application form for power generation permits issued by the CRE; and (iv) the Federal Economic Competition Law regarding merger control in case the statutory thresholds are met.

CENACE is responsible for the reliability of the electricity system and the adequacy of supply to satisfy the demand for electricity. The wholesale electricity market includes both energy and capacity markets, operating under a nodal pricing system and capacity zones. Prices are primarily set through competitive offers among generators, with CENACE managing market operations and the CRE providing regulatory oversight. The market structure aims to promote competition, efficiency and reliability in the electricity supply. In 2019, the presidential administration cancelled the long-term and mid-term auctions to award electricity-hedging agreements with CFE.

In the wholesale electricity market, CENACE operates the Real Time Market (MTR), which addresses deviations from the Day Ahead Market (MDA), balancing supply and demand in real time. Adjustments are made on a continuous basis to address unforeseen changes in generation and consumption. Additionally, the capacity market ensures that there is sufficient generation capacity available to meet peak demand. The Capacity Balance Market (MBP) is an annual ex-post market that facilitates transactions between market participants whose electricity coverage contracts were insufficient to meet the capacity requirements established by the CRE on the one hand and market participants that have uncommitted capacity through electricity coverage contracts on the other.

Both Mexico’s Energy Ministry and CENACE administer the development of transmission facilities, while CFE administers the development of distribution facilities since power distribution is considered a public service.

The political party controlling the previous and new presidential administrations and Congress has actively sought to give State-owned entities a majority participation in the generation market, without eliminating the wholesale electricity market. In 2021, Congress passed a bill amending the LIE, seeking to significantly increase the market participation of CFE in the electricity generation segment by: (i) modifying the energy dispatch pecking order to give CFE priority over private generators in dispatching electricity; and (ii) eliminating the obligation of CFE’s commercialisation division to buy energy through auctions or competitive processes, among other amendments. This 2021 amendment to the LIE was voided in 2024 by Mexico’s Supreme Court through a ruling that prevented the amendments described in (i) and (ii) above from being applied.

In April 2024, Claudia Sheinbaum, now Mexico’s president, proposed a plan to invest USD13.5 billion in power generation from 2024 to 2030. In July 2024, Ms Sheinbaum stated that her administration will keep pursuing a policy that the State shall keep a market participation of 54% in the electricity generation segment, while the remaining 46% shall be controlled by private companies.

Mexico is currently the number one trading partner of the USA, and the recent increase in trade is putting pressure on the existing energy infrastructure of both countries. Energy supply in Mexico is currently tight, with no excess capacity. The nearshoring of supply chains to Mexico requires a considerable investment in new power generation and transmission infrastructure.

The current legal and regulatory framework provides various mechanisms for the Energy Ministry, CENACE and CFE to enter into agreements with private parties to finance and develop power generation and transmission infrastructure. It remains to be seen whether the new presidential administration will leverage the mechanisms provided in the current legal and regulatory framework to harness private investment for the much-needed increase of transmission and generation capacity.

The wholesale electricity market is a complex, competitive marketplace where electricity and related services (ie, capacity, clean energy certificates, financial transmission rights, ancillary services and controllable demand) are traded. It includes multiple markets and transaction types to ensure efficient operation, reliability, and the promotion of renewable energy. Theoretically, prices are primarily determined through competitive bidding, with regulatory oversight ensuring fairness and transparency.

The wholesale electricity market includes both energy and capacity markets, operating under a nodal pricing system. Prices are primarily set through competitive offers among generators, with CENACE managing market operations and the CRE providing regulatory oversight. The market structure aims to promote competition, efficiency and reliability in the electricity supply.

Market Structure and Transactions

Electricity and related services (ie, capacity, clean energy certificates, financial transmission rights, ancillary services and controllable demand) are traded in the wholesale electricity market.

Electricity

The electricity market operates a day ahead on the MDA and in real time on the MTR. The MDA markets transactions that are planned for the next day, and participants submit bids to buy or offers to sell electricity for each hour of the following day.

Generators and retailers submit their offers and bids to CENACE by a specified time each day. CENACE clears the market by matching supply and demand, determining the market-clearing price for each hour. Prices vary by location, reflecting local supply and demand conditions and transmission constraints.

The MTR addresses deviations from the MDA, balancing supply and demand in real time. Adjustments are made on a continuous basis to address unforeseen changes in generation and consumption. Real-time prices are determined based on actual operating conditions and can differ significantly from MDA prices.

Capacity

The capacity market ensures that there is sufficient generation capacity available to meet peak demand. The MBP is an annual ex-post market that facilitates transactions between market participants whose electricity coverage contracts were insufficient to meet the capacity requirements established by the CRE on the one hand and market participants that have uncommitted capacity through electricity coverage contracts on the other.

The MBP is primarily based on three concepts: Capacity Zones of the SEN (ie, geographical areas defined by CENACE to manage and ensure the reliability of the electric grid), 100 Critical Hours of the corresponding production year (ie, specific hours in a year when the electricity demand is highest and the system is most stressed), and Reference Generation Technology in each of the Capacity Zones (ie, a benchmark used to evaluate and compare the performance and cost-effectiveness of different generation resources).

Clean energy certificates

Clean energy certificates (CELs) are titles issued by the CRE that certify the production of a certain amount of electricity from clean energy sources and serve to meet the requirements associated with the consumption of load centres.

A CEL certifies the generation of 1 MWh of clean electricity. As CELs are a market instrument, their price is not fixed but depends on supply and demand.

Market participants can submit offers to sell CELs at any price and submit offers to buy CELs at any price. The buying and selling can be done through the CEL Market, organised at least once a year by CENACE. CELs can also be freely traded through bilateral contracts or long-term auctions.

Financial transmission rights

Financial transmission rights are financial instruments used to hedge against congestion costs in the electricity transmission system, which obligate and entitle their holders to pay or receive the price difference that arises between the origin node and the destination node of the electricity.

These rights do not grant the physical right to use the transmission grid. They are price hedges at different nodes in the system to manage the financial risks associated with transmission congestion and variability in locational marginal prices.

Ancillary services

The ancillary services market is where the services necessary for maintaining the reliability and stability of the electricity grid are procured. Some of the main services marketed include: (i) frequency regulation, which balances supply and demand to maintain the system frequency within acceptable limits; (ii) voltage control, for managing voltage levels on the grid to ensure safe and efficient operation; and (iii) reserves, to ensure there is backup capacity available to respond to unexpected outages or demand spikes.

Controllable demand

Controllable demand is the demand that end users or their representatives offer to reduce at a given time – by instructions from CENACE – in order to maintain the reliability of the SEN, and it can be used to meet capacity requirements.

Price Setting and Regulation

Mexico employs a nodal pricing system, where the price of electricity varies by location (node) based on local supply and demand conditions, as well as transmission constraints.

Nodal prices, also known as locational marginal prices (Precios Marginales Locales), reflect the true cost of delivering electricity, including generation and congestion costs.

The wholesale price of electricity is primarily set through competitive offers among generators. Generators submit offers based on their marginal costs, and the market clears at the intersection of supply and demand.

CENACE oversees the market to ensure transparency and competitiveness.

Market Participants

Generators

Generators include both State-owned (eg, CFE) and private entities. A permit is required whenever generating capacity exceeds 0.5 MW.

Exempt generators are small power plants with generation of less than 0.5 MW, which do not require a permit to generate electricity. These generators may sell their electricity and associated products to the basic services supplier (ie, CFE Suministro Básico) and may also participate in the wholesale electricity market through a qualified service supplier.

Non-supplier marketer

A non-supplier marketer is a market participant that does not provide electricity supply services and does not require a permit to carry out its commercialisation activities; to carry out these activities, a registration before the CRE is required.

Qualified services suppliers

A qualified services supplier is a provider of electricity commercialisation services that purchases electricity in the wholesale electricity market to provide electricity supply services to the qualified users with which it has a supply contract and for which services it is responsible before CENACE.

The qualified services supplier activity requires a permit from the CRE. Likewise, a market participant contract must be executed with CENACE and comply with the requirements of the wholesale electricity market.

Qualified users

A qualified user is an end user that has a large load centre of more than 1 MW that decides to register as a qualified user before the CRE, or load centres under legacy contracts – those executed before the constitutional reform of 2014.

Qualified users are free to participate in the wholesale electricity market either directly or indirectly through a qualified services supplier.

Qualified users seeking to participate under this modality must register with the CRE and sign a connection contract with CENACE. Registration is optional; if the user does not wish to participate in the market, it is possible to purchase electricity from a qualified services supplier.

Other Relevant Industry Players

Basic services suppliers

Basic services suppliers provide electricity to consumers below 1 MW demand under regulated tariffs, and therefore supply electricity to all users that do not participate in the wholesale electricity market. The only basic services supplier so far is CFE.

The main differences from qualified services suppliers are that: (i) they sell their electricity at regulated prices; (ii) their electricity coverage contracts must be executed through medium and long-term auctions; and (iii) they have an obligation to provide universal service in the area in which they operate.

Basic users

Basic users are those users that are not registered with the CRE as qualified users and whose electricity consumption is below 1 MW. They cannot participate in the wholesale electricity market and therefore are required to purchase their electricity from basic services suppliers.

The price paid by these users for electricity is regulated and determined by the CRE.

Import and export of electricity are both possible in Mexico. In order to import electricity into or export electricity from Mexico from a foreign power plant: (i) an authorisation must be issued by CRE, a market participant contract is required, and the facility must be connected to the SEN; or (ii) in the case of an isolated supply, an authorisation must be issued by CRE.

The interconnection points for commercial imports and exports within the wholesale electricity market are:

• Western Region, Tapachula Power – Los Brillantes link, AMM – Guatemala Operator;
• Northeast Region, Industrial City – Laredo ERCOT link, ERCOT – USA Operator;
• Northeast Region, Cumbres – Rail Road link, ERCOT – USA Operator;
• Northeast Region, Piedras Negras – Eagle Pass link, ERCOT – USA Operator;
• Baja California Region, La Rosita – Imperial Valley link, CAISO – USA Operator;
• Baja California Region, Tijuana – Otay Mesa link, CAISO – USA Operator; and
• Peninsular Region, Xul-Ha – West link, BEL – Belize Operator.

There are also interconnection points for imports and exports for power plants connected only to the SEN, for reliability or emergency, only for exports to facilities connected to the SEN, as well as for import and export for isolated supply.

The prices assigned to import and export transactions in the short-term market will be the prices of the Price Node corresponding to the network bus located in the neighbouring electric system of any of the Western, Northeast, Baja California or Peninsular regions, as applicable.

As a reference, in March 2024, international sales of electricity amounted to USD44.3 million, while international purchases reached USD3.38 million. This resulted in a trade balance of USD40.9 million.

In 2023, the countries with the largest international purchases from Mexico (ie, exports) were the USA (USD140 million), Guatemala (USD130 million), Belize (USD41.7 million) and Canada (USD4.47 million).

The countries with the most international sales to Mexico (ie, imports) in 2023 were the USA (USD86.3 million), Canada (USD3.75 million), Guatemala (USD1.53 million) and Uganda (USD1.31 million).

Mexico’s electricity supply mix is characterised by a heavy reliance on natural gas, with increasing contributions from renewable energy sources such as wind, solar and hydropower. Coal and nuclear power also play significant roles, while oil and biomass contribute smaller portions. The ongoing transition to cleaner energy sources reflects Mexico’s commitment to reducing emissions and enhancing energy sustainability.

In 2023, sources accounted as follows: wind 5.85%, solar 6.00%, bioenergy 1.88%, hydro 5.87%, nuclear 3.49%, gas 58.04%, coal 9.60% and other fossil fuels 9.27%.

In Mexico there are no limits regarding the percentage of electricity supply that may be controlled in the market by one – private or public – entity. Nevertheless, COFECE is in charge of overseeing concentration limits that prevent any single entity having excessive power in the electricity market. These limits are intended to ensure fair competition and prevent monopolistic practices.

The reality in Mexico is that CFE holds an almost monopolistic power in the energy sector, with a generation capacity over 50% of the total generation.

The LIE includes provisions relating to market concentration and competition. The LIE establishes the framework for market operation, including rules to prevent market concentration and ensure competitive practices.

Within the electricity industry, the Energy Ministry, CRE and CENACE hold authority to oversee anti-competitive practices.

Also, the Federal Antitrust Law (Ley Federal de Competencia Económica, or LFCE per its Spanish acronym), overseen by COFECE, governs competition in all sectors of the Mexican economy, including the electricity market. The LFCE addresses market concentration issues and anti-competitive practices (eg, monopolistic activities) across various industries.

Notwithstanding other practices governed under the scope of the LFCE (eg, merger control, as referred to in 1.4 Law Governing the Sale of Power Industry Assets), any agreement, arrangement or co-ordination between market participants with the intention or effect of restricting the efficient operation of the wholesale electricity market will be deemed an anti-competitive behaviour in terms of the LIE.

When the Energy Ministry, the CRE, CENACE or any other person detects such practices, it may inform such fact to COFECE so that the latter may proceed in accordance with its powers and authorisations to secure the conditions of free competition and participation within the wholesale electricity market.

Also, COFECE’s Investigating Authority has authority to look out for the possible conduct of monopolistic practices within the wholesale electricity market. In Mexico, monopolistic practices include relative and absolute monopolistic practices.

Relative monopolistic practices are deemed as those with the purpose or effect of unduly displacing other market participants, substantially impeding their access, or establishing exclusive advantages in favour of one or several economic agents. Penalties for such practices may be sanctioned with up to 8% of the income of the entity that engaged in such kinds of conduct.

Absolute monopolistic practices include price manipulation, restriction of supply, market segmentation, co-ordination of offerings in public bids and exchange of information with any of the purposes or effects listed above. Such practices are sanctioned, among others, with fines of up to approximately USD1,177,000 for individuals who have participated in the conduct, fines of up to the equivalent of 10% of the income of the responsible entity, fines of up to approximately USD1,060,000 for those who encouraged or induced such practices, divestment or disposal of assets, and from five to ten years’ imprisonment for individuals who participate in the commission of absolute monopolistic practices.

The construction and operation of electricity generation facilities in Mexico is governed by several laws and regulations. These laws establish the legal framework for the development, operation and oversight of power generation facilities, ensuring compliance with environmental, safety and economic standards.

• LIE, its Regulations and Market Rules (federal applicability). These provide the basis for participation in the wholesale electricity market and technical provisions for construction and operation of the facility.
• Civil Code (local applicability). Defines the general provisions to secure the land and easements (ie, sale, lease, usufruct).
• Municipal regulations. Requirements to secure the licences required to construct the facility.
• General Law of Ecological Equilibrium and Environmental Protection (federal applicability). Sets the basis for obtainment of the environmental impact assessment required for the facility.
• Commercial Code (federal applicability). Provides the general provisions for agreeing on the relevant elements to construct and operate the plant (ie, EPC agreements, O&M agreements, asset management agreements, acquisition of main equipment, subcontracting and others).

The process for obtaining approvals to site, construct and operate a commercial electricity generation facility in Mexico involves several key steps, interactions with multiple regulatory authorities, and adherence to environmental and public participation requirements.

Site Selection and Preliminary Approvals

Before construction, a detailed Environmental Impact Assessment (Evaluación de Impacto Ambiental, or EIA per its Spanish acronym) must be conducted. Such EIA is approved by the Environment and Natural Resources Ministry (Secretaría de Medio Ambiente y Recursos Naturales, or SEMARNAT per its Spanish acronym).

Public participation is required. SEMARNAT may conduct public consultations or hearings to gather input from affected communities and stakeholders.

Land use and zoning approvals

The developer has to ensure the site is zoned for industrial use and complies with local regulations.

Municipal or state authorities are involved in the obtainment of land use permits or clearances from local or state authorities.

Interconnection studies

The interconnection studies consist of a set of analyses performed by CENACE, the purpose of which is to determine the requirements to carry out the interconnection or connection to the National Transmission Network (RNT) or the General Distribution Network (RGD), as well as any improvement or reinforcement needs, in order to ensure compliance with the reliability standards and the operational provisions.

Permits and Licensing

Electricity generation permit

For facilities exceeding 0.5 MW of installed capacity, the CRE has to issue a permit to generate electricity.

A comprehensive application to the CRE has to be submitted, including technical, financial and operational details.

Construction permits

Plans must be submitted and construction permits obtained from local or state authorities. The requirements and terms for approval depend on each municipality.

Grid interconnection approval

An approval has to be obtained from CENACE to interconnect the facility to the grid. Submittal to CENACE for the execution of an interconnection agreement is required. CENACE has ten business days to approve or deny the request.

It is noteworthy that, once approval has been obtained from CENACE, a request for execution will be issued by CENACE to CFE to execute with CFE the corresponding interconnection agreement within four business days following approval by CENACE.

An inspection unit will order the interconnection or physical connection to the RNT or RGD for the performance tests of the power plant that requires the physical link with the RNT or RGD.

Testing and commissioning

Conduct testing and commissioning to verify operational standards. Results of testing will be issued by an inspection unit duly authorised by the CRE.

Market participant agreement

Should the case be, the generation facility may execute a market participant agreement.

Operation and Compliance

The facility has to operate under the terms of the permit issued by the CRE, pay the corresponding fees, and comply with operational regulations and reporting requirements.

It will also have to continue to adhere to environmental regulations and participate in the electricity market according to market rules.

The typical terms and conditions imposed in approvals granted for the construction and operation of a generation facility in Mexico include:

• measures to address and reduce environmental impacts, ongoing monitoring, and adherence to environmental regulations;
• compliance with technical specifications, operational limits, payment of fees and market participation rules;
• adherence to approved construction plans, quality control measures and safety standards; and
• integration of feedback from public consultations, particularly related to environmental and land use concerns.

Generally, it is not possible to change the terms and conditions of the authorisations, except for those that relate particularly to the generation facility (ie, installed capacity, commercial operation date, plot of land).

A private proponent for the siting, construction and operation of a generation facility does not have eminent domain, condemnation or expropriation rights in order to obtain surface access and use; such rights are reserved solely to the governmental entities based on public utility.

A private party could require the authority to start processes of such nature, justifying the public utility, but this is not usual. Another possibility would be for the private party to develop the project jointly with the authority to be able to secure the lands through any of such processes.

Also, acquiring rights to the surface of land for a generation facility might be done via negotiation with landowners using different legal arrangements (ie, sale, lease, usufruct). Compensation is based on fair market value, determined through independent appraisals. Such arrangements are governed by local laws and regulations and registered in public registries for certainty purposes.

Decommissioning a generation facility in Mexico involves several legal, regulatory and environmental requirements. For such purposes, the generator shall:

• Notify CENACE about the programmed decommissioning of the facility.
• Establish a decommissioning fund or financial assurance mechanism to cover the costs of decommissioning and site restoration. The CRE may require evidence of financial assurance as part of the permitting process.
• Prepare a comprehensive decommissioning plan that outlines all steps, procedures and measures for the safe and responsible closure of the facility.
• Engage with the local community and stakeholders throughout the decommissioning process.
• Develop and implement a safety plan to protect workers and the public during decommissioning.
• Develop a waste management plan to handle hazardous and non-hazardous waste generated during decommissioning, to ensure compliance with environmental regulations.

• Conduct an environmental assessment before SEMARNAT that includes plans for site restoration (ie, revegetation and soil stabilisation).

The ownership, construction and operation of transmission lines and associated facilities is primarily regulated in Mexico’s Constitution, the LIE and its Regulations. Article 27 of the Constitution grants exclusive ownership rights of the transmission segment to the State, which exercises them through CFE, which provides the public service of power transmission. The existing transmission company is a subsidiary of CFE (unbundled from its generation and supply activities). Although power transmission activities are considered public services of which the State is in charge, the State may to enter into agreements with private parties to build, develop, finance, operate and maintain transmission lines and associated facilities with the approval of the Energy Ministry.

CFE Transmisión, a subsidiary of CFE, owns and operates the RNT, under the co-ordination of CENACE. The legal unbundling of CFE and its subsidiaries ought in principle to prevent CFE Transmisión from owning storage facilities, although no regulations thereon have been issued.

The expansion of the RNT must be carried out pursuant to the programmes authorised by the Energy Ministry, with the non-binding opinion of the CRE where appropriate. The Energy Ministry shall authorise the expansion programmes for the RNT related to the wholesale electricity market, at the proposal of CENACE, and with the non-binding opinion of the CRE where appropriate. CFE Transmisión may participate in the preparation of such programmes. The Energy Ministry issues the Development Programme for the National Electric System (PRODESEN), including expansion and modernisation programmes for the RNT. Both the Energy Ministry and CFE may contract private parties for the development, financing, construction and operation of public transmission lines.

Power generators may develop their own transmission lines to the extent necessary to connect their generation plants to the RNT or to their off-takers, provided that they do not provide the public service of power transmission.

As for environmental reviews, a project developer must obtain an Environmental Impact Authorisation (MIA) from SEMARNAT, assessing the potential environmental impacts of the project as detailed in 4.2 Obtaining Approvals for the Construction and Operation of Transmission Lines and Associated Facilities.

While power transmission activities are considered public services of which the State is in charge, the State may enter into agreements with private parties to finance, build, develop, operate and maintain transmission lines and associated facilities. The State agency (eg, the Energy Ministry, CFE, a state government) tendering a contract for the development, operation and maintenance would normally state which approvals the project developer would be responsible for. The process for obtaining approvals to construct and operate a power transmission line may involve interactions with multiple regulatory authorities, and adherence to environmental and public participation requirements. Such approvals may include the following.

Federal Environmental Impact Authorisation

Project developers are obligated to submit an EIA for approval of projects to (SEMARNAT, which assesses the potential environmental impacts of the project. Public participation is required for the approval, and SEMARNAT may conduct public consultations or hearings to gather input from affected communities and stakeholders. SEMARNAT may impose conditions on the project developer to mitigate environmental impacts to approve and issue the MIA.

Land Use and Zoning Approvals

The developer has to ensure the transmission line site is zoned for industrial use and complies with local regulations. Municipal and/or state authorities may be involved in the obtainment of land use permits or clearances from local or state authorities if the transmission line passes through state or municipal land.

Construction Permits

Plans must be submitted and construction permits obtained from local or state authorities if the transmission line passes through state or municipal land.

It is important to note that each of the 31 federal states within Mexico has its own state laws and regulations, which may require additional permits, authorisations or licences, including the following:

• state government right of way authorisations;
• local environmental licences;
• forest land use change authorisations;
• social impact authorisations; and
• indigenous consultations.

The Mexican Constitution grants exclusive ownership rights of the transmission segment to the State, which exercises them through CFE, which provides the public service of power transmission. While power transmission activities are considered public services of which the State is in charge, the State may enter into agreements with private parties to build, develop, finance, operate and maintain transmission lines and associated facilities. Private parties involved in such transmission activities would only have the rights provided in the contract executed with the contracting State entity (eg, the Energy Ministry, CFE, a state government).

It is worth noting that currently CFE has 13 transmission contract tenders under way as part of its goal of strengthening lines and substations across the country. Additionally, the State of Queretaro has issued a project to install 140km of transmission lines through a PPP structure, with further details to be announced.

While power transmission activities are considered public services of which the State is in charge, the State may enter into agreements with private parties to build, develop, finance, operate and maintain transmission lines and associated facilities. Private parties involved in such transmission activities would only have the rights provided to them in the contract executed with the contracting State entity (eg, the Energy Ministry, CFE, a state government). Those private parties do not have eminent domain, condemnation or expropriation rights to obtain surface access and use. However, the contracting State entity may undertake under the project contract the obligation to provide reasonable support to the private-party contractor to obtain surface access and use.

Securing land rights and right of way is critical to develop not only power transmission projects but any large-scale infrastructure projects in the country, since nearly half of the land is socially owned and governed by agrarian law.

Eminent domain, condemnation or expropriation rights are reserved solely to governmental entities based on public utility. A private party could request the authority to start processes of such nature, justifying the public utility.

Acquiring land rights and right of way to develop power transmission lines involves negotiating with landowners to purchase or lease the land required. This involves mutual agreement on terms, conditions and compensation. In some cases, developers may seek easements, which are rights to use the land for specific purposes without owning it outright. Easements are negotiated with landowners and recorded in public property records.

Both plots of land and easements are usually secured using different legal arrangements (ie, sale, lease, usufruct). Such arrangements are governed by local laws and regulations and registered in public registries for certainty purposes.

Compensation is defined upon agreement between the landowner and the developer, generally based on the fair market value of the land, which could be determined through a professional appraisal. The value usually considers current use, market trends, and comparable sales in the area. An independent appraiser, certified by relevant authorities, may conduct the valuation to ensure objectivity and fairness.

The Mexican Constitution grants exclusive ownership rights of the transmission segment to the State, which exercises them through CFE, which provides the public service of power transmission. While power transmission activities are considered public services of which the State is in charge, the State may enter into agreements with private parties to build, develop, finance, operate and maintain transmission lines and associated facilities. Private parties involved in such transmission activities would only have the rights provided in the contract executed with the contracting State entity (eg, the Energy Ministry, CFE, a state government). Thus, those private-party contractors do not provide transmission services themselves, do not hold monopoly rights to provide transmission services, and do not hold exclusive rights to construct and operate transmission facilities within a defined territory.

Transmission charges and terms of service of CFE Transmisión are approved by the CRE. Tariffs are currently approved on a yearly basis and published in the Federal Official Gazette. Transmission charges are structured on a “postage stamp” basis depending on the quantity of power delivered at the interconnection point, as opposed to being based on distance.

Different charges and terms apply to the transmission services provided by CFE Transmisión to private renewable energy generators whose self-supply and IPP permits were issued before the 2014 energy market liberalisation. In June 2020, CFE issued a resolution increasing those legacy transmission rates, which was challenged by the private renewable energy generators. Mexican courts ruled in favour of the private renewable energy generators, recognising their vested rights regarding those transmission charges.

Power transmission services are considered public services in charge of the State and shall be provided on an open-access and non-discriminatory basis pursuant Mexico’s Constitution, the LIE, its Regulations and the regulations issued thereon by the CRE. Such regulations call for open access to the RNT for both for generation plants and loads.

CFE Transmisión, a subsidiary of CFE, owns and operates the RNT, under the co-ordination of CENACE. CFE Transmisión is legally unbundled from the generation and supply subsidiaries of CFE. The operation of the RNT related to the wholesale electricity market is the responsibility of CENACE. CENACE also oversees the open access to the RNT on a non-discriminatory basis and defines the feasibility of interconnections, instructing CFE Transmisión what entities to interconnect. For an explanation on the interconnection requirements of power generators, please refer to 3.1 The Construction and Operation of Generation Facilities and 3.2 Obtaining Approvals to Construct and Operate Generation Facilities.

Mexico’s Constitution provides that the planning and control of the SEN, as well as the public service of transmission and distribution of electric energy, belongs exclusively to the nation, and that in these activities no concessions will be granted, without prejudice to the fact that the State may enter into contracts with private parties.

CFE Distribución carries out the activities necessary to provide the public service of electric energy distribution. The Mexican State, through CFE Distribución, may form associations or enter into contracts with private parties to carry out on behalf of the nation, among other things, the financing, installation, maintenance, management, operation and expansion of the infrastructure necessary to provide the public service of distribution of electricity.

Provision of distribution services is governed by the General Conditions for the Provision of Electric Power Transmission and Distribution Services.

Mexico is going through a necessary process of improvement of the distribution grids. There is a draft of proposed regulations for the deployment and usage of electricity storage infrastructure.

There is not a specific regulatory process to carry out the construction and operation of distribution facilities, since the power to do this rests with the authority (ie, CFE Distribución).

PRODESEN is the public policy instrument of the Government of Mexico that sets out in detail the planning of the SEN for the next 15 years, which is aligned with the National Development Plan and embodies the major objectives of the energy policy of the current government.

PRODESEN incorporates, among others, the programmes for the expansion and modernisation of the national transmission network and the general distribution networks programme, as well as defining the electrical infrastructure to be developed in the coming years.

On such basis, distribution lines are generally developed using two mechanisms: PRODESEN and works imposed in the facilities study issued by CENACE (part of the interconnection studies).

Following the PRODESEN objectives, the Energy Ministry instructs CFE Distribuciónto expand the RGD that corresponds to the wholesale electricity market.

The purpose of the facilities study is for CENACE to document the quantity and characteristics of the elements and equipment, as well as the estimated costs to carry out the interconnection works, as well as the reinforcements required in the RNT and/or the RGD, for power plants larger than 10 MW. It has become a common practice for CENACE to impose an obligation on private entities – that are carrying out major works that require interconnection – to subsidise deployment of infrastructure required for improvement of the RGD or RNT.

The terms and conditions imposed in approvals for construction of RGD are defined by CENACE and CFE Distribución on a case-by-case basis depending on the requirement for distribution infrastructure in each region.

The typical terms and conditions imposed to operate electric distribution are provided in model agreements issued by CENACE, and include that:

• Its purpose is to govern the provision and billing of the public service of distribution, establishing the necessary co-ordination actions with CENACE, under efficiency criteria, quality, reliability, continuity, security, economy and sustainability of the SEN, guaranteeing the effective and not unduly discriminatory access to the elements of the RGD that are part of the wholesale electricity market.
• A distributor that has requested a termination may not enter into a new agreement with CENACE in the three years following the date on which the corresponding agreement is terminated, unless CENACE determines that such is necessary to guarantee the efficiency, quality, reliability, continuity, security, economy and sustainability of the SEN.
• CENACE has the right and the authority to exercise operational control by issuing instructions and the supervision of the distributor’s facilities.
• CENACE is bound, among others, to operate the elements of the RGDs that are part of the wholesale electricity market (lines, transformers and compensation equipment) and issue instructions for the operation of the elements of the RGD that are part of the wholesale electricity market.
• The distributor is obliged to measure the injections and withdrawals of electric power in the elements of the RGDs that are part of the wholesale electricity market.
• The distributor shall comply with the guidelines issued by CENACE for the preparation of the maintenance programmes of the equipment under its responsibility, as well as with respect to the expansion and modernisation of the RGDs that are part of the wholesale electricity market.

With the prior authorisation of the CRE, the distribution agreement may be amended by mutual agreement through written amendment agreements, which shall become effective as of their execution and shall form an integral part of such instrument.

CFE Distribuciónin its capacity as authority has eminent domain, condemnation and expropriation rights.

In Mexico, the act of expropriation is understood as a public law procedure through which the State legally dispossesses or deprives an owner of movable or immovable property to fulfil a public utility purpose and through the payment of compensation.

As a power attributed to the State, it is a unilateral act carried out on private property when it is necessary for the realisation of a common good, provided that such property could not be acquired through a contractual agreement with its owners.

The expropriation procedure is initiated by the request of a state secretariat. The expropriation must be carried out by presidential decree, which determines the cause of public utility and the goods to be expropriated, as well as the rules for the payment of compensation (on a market value basis).

Also, acquiring rights to the surface of land for distribution might be done via negotiation with landowners, as set out in 3.4 Eminent Domain, Condemnation or Expropriation Rights.

CFE Distribución holds the monopoly to render the public service of electric energy distribution.

Mexico’s Constitution provides that the public service of transmission and distribution of electric energy belongs exclusively to the nation, and that no concessions in these activities will be granted, without prejudice to the fact that the State may enter into contracts with private parties under the terms established by law.

CFE Distribución is entitled to solely carry out the activities necessary to provide the public service of electric energy distribution, as well as to carry out, among other activities, the financing, installation, maintenance, planning, management, operation and expansion of the infrastructure necessary to provide the public service of electric energy distribution.

Regulated tariffs for the public service of electricity distribution are issued on a yearly basis by the CRE. Based on such tariffs, CFE Distribución publishes an accord that contains the applicable tariffs from 1 January to 31 December for each distribution division.

In Mexico, distribution tariffs for electricity are determined through a regulatory process overseen by the CRE. The process involves several steps to ensure that the tariffs are fair, transparent, and reflective of the costs associated with providing distribution services.

The objective of the determination of the regulated tariffs for electricity distribution services is to allow the income to be obtained that is estimated to be necessary to recover the efficient operating, maintenance, financing and depreciation costs (these include capital expenditures and operational expenditures) applicable to the various types of service, technical and non-technical losses in accordance with the standard determined by the CRE.

Distribution tariffs are subject to periodic reviews to ensure they remain aligned with the cost of service and market conditions. Tariffs may be adjusted to account for inflation, changes in costs, and other relevant factors. The CRE may use indexation mechanisms to adjust tariffs in line with inflation and cost changes.

Terms of service are defined based on general administrative provisions regarding open access and the provision of services in the National Transmission Network and the General Electric Power Distribution Networks issued by CRE.

Tariffs may be contested through an amparo process. The primary purpose of an amparo is to protect individuals against acts or omissions by authorities that violate their constitutional rights. It can be used against legislative, executive or judicial authorities.

As a reference, on 10 June 2020 a notice issued by CFE was published in the Federal Official Gazette based on a resolution issued by the CRE whereby stamp transmission rates that had to be paid by renewable energy regulators to CFE for the transmission service were disproportionately increased from 500% to 800%. Definitive suspension was granted based on grounds of violation of the human right to health and a healthy environment for all Mexicans.