Incoming Mexican president Claudia Sheinbaum may still have a few more months to wait before taking office, but she has already indicated her energy policy will have a very different flavour to that of her predecessor.

Exiting Mexican president Andres Lopez Obrador made it his mission to revive flagging domestic crude production. The government invested heavily in indebted state oil and gas firm Pemex, while the president also funnelled billions into a refinery in the president's home state.

In contrast, Sheinbaum has suggested far more wide-ranging government support for the energy transition. In a previous life, she won the Nobel Peace prize as part of the Intergovernmental Panel on Climate Change. As mayor of Mexico City, she also helped promote electrification of public transport as well as backed photovoltaic rooftop solar.

“One of Sheinbaum's main goals is to drive the energy transition,” said Julia Gonzalez Romero, counsel at Mexican law firm Gonzalez Calvillo. “She has claimed that her government will promote renewable energies and energy efficiency, [while] also working to ensure that [state utility firm] CFE generates 54% of the electricity consumed in Mexico.”

Greening the mix

Sheinbaum will certainly have plenty of work to do to decarbonise the country’s electricity supply. Last year, Mexico relied on fossil fuels for 77% of its power generation, with gas the principal source.

Boosting renewable energy will be the immediate priority, but Sheinbaum has also indicated government backing for low-carbon hydrogen. “The Sheinbaum administration included hydrogen projects among the projects to be developed to boost energy transition but did not mention any specific strategy,” said Gonzalez.

“There is a clear need for a comprehensive national strategy” Gonzalez, Gonzalez Calvillo

Mexico has around $20b invested across all green hydrogen projects but still lacks a government-backed roadmap or national strategy. Current projects are mostly located in northern Mexico—specifically Sinaloa, Baja California, Durango, Nuevo Leon and Tamaulipas—while there are also examples in the central and southern states such as Guanajuato, Oaxaca and Campeche.

“Private participation is progressively increasing,” said Aisha Calderon Moises, an environmental and renewable energies lawyer at Mexican law firm Mijares Angoitia Cortes y Fuentes. “The development of several large-scale green hydrogen projects in Mexico has [already] been announced, for example the Copenhagen Infrastructure Partners project in Oaxaca, which is an early development stage, and Tango Solar’s green hydrogen plant in Sinaloa.”

Other notable projects include hydrogen developer HDF Energy’s seven small-scale green hydrogen projects set to be developed between 2024 and 2030, at a cost of $2.5b. Spanish electric utility Iberdrola has also expressed interest in developing low-carbon hydrogen in the country.

“According to information provided by project developers, the estimated production from [all] these projects includes 41,800t of hydrogen, 890,000t of ammonia, and 270,000t of methanol,” added Gonzalez. “Moreover, combined projects will add 2,457MW of installed capacity to produce hydrogen, ethanol, and ammonia in Mexico.”

Investment targets

The Mexican Hydrogen and Sustainable Mobility Association (AMH2) has said it will work closely with the new president to promote hydrogen projects, working towards an investment target of $60b and the creation of 3m jobs by mid-century.

Pemex has also started to eye up the long-term potential. In the company’s most recent Sustainability Plan, published in March, the firm said it aims to replace grey hydrogen with green hydrogen. The firm estimated the domestic market could reach $1b by 2030, before tripling to $3b in 2040 and quadrupling to $4b by 2050.

A study in the International Journal of Hydrogen Energy, also published in March, said low green hydrogen production costs alongside Mexico’s strategic geographical location offer major strategic advantages. The study placed its export potential alongside the likes of rivals Chile and Australia, adding Mexico could install up to 22TW of electrolysis capacity. Average production costs could hit $1.4/kg by mid-century, helping to employ almost as many people as Mexico’s renewables sector achieved in 2009.   

“The German Agency for International Cooperation estimates that Mexico has the profile to be the second most competitive exporter to Asian destinations and the third to European markets due to its low cost of green hydrogen production,” said Gonzalez.

Time for change?

The expectation is that Sheinbaum will also be far more favourable to the private sector than her predecessor was, albeit letting state-run CFE take the lead. The financial situation of both Pemex and CFE, plus the indication that Sheinbaum still wants Pemex to focus on oil production, is fuelling expectations.

“Sheinbaum seems to be aligned with the financial discipline policy of [Lopez Obrador], while CFE and Pemex have been unable to provide positive financial results,” said Calderon. “In view of this, it is unlikely that Pemex’s and CFE’s balance sheets can support the magnitude of the investment required. We understand that a probable path forward is that CFE and Pemex will undertake strategic projects, and PPPs, or similar figures will be pursued to allow the private sector’s participation.”

Gonzalez explained that CFE already plans to develop 12 "blending" projects as part of the National Energy Development Program. Between 2033 and 2036, the goal is to convert 5,789MW of combined-cycle capacity using a blend of 75% natural gas and 25% hydrogen.

Overcoming barriers

The next stage will be laying the groundwork to attract more investment. In Pemex’s recent Sustainability Plan, the firm highlighted the present lack of public policy and the regulatory framework put in place by the government.

“Low-carbon hydrogen projects in Mexico are currently guided by specific regulations, depending on the production or utilisation process,” added Gonzalez. “However, there is a clear need for a comprehensive national strategy. By streamlining regulatory frameworks, promoting investment and fostering innovation, [this] could position Mexico as a global leader in the hydrogen market.”

$60b – Investment target

Calderon also cautioned that, while Mexico has abundant renewable generation resources, there are several factors that could limit the production of hydrogen and its potential export. The country still lacks transmission infrastructure capacity, growing domestic energy demand could yet constrain exports and, as a net importer of natural gas, Mexico already has limited ability to produce grey hydrogen.

Increasing water scarcity is another factor that could prevent the production of green hydrogen. As an example, CFE is building a solar park in the municipality of Puerto Penasco, in the state of Sonora, which could potentially produce green hydrogen. The problem is that the project would require water and Sonora has suffered severe drought in recent years following overexploitation of water resources. Desalination of sea water would be one potential option to reduce dependence on ground and subsurface water supplies.  

In March, Mexico’s secretariat of energy (Sener) published 11 guidelines to promote domestic green hydrogen. A long-term national vision and roadmap for a low-emission hydrogen strategy was mentioned as well as the need to develop a regulatory framework for the production, commercialisation and export of hydrogen and its derivatives. The guidelines also emphasised the importance of new infrastructure and forming financial alliances.  

“It is likely that Sheinbaum’s government will seek to regulate hydrogen, whether to strengthen the rules for CFE’s and Pemex’s possible participation, or to implement Sener’s guidelines,” said Calderon.

Beyond the need to establish specific regulations for green hydrogen, a 2022 report from AMH2 also highlighted the necessity to create incentives for supply and demand as well as reduce the cost of infrastructure, production and transportation.   

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Author: Marat Aslan