By Ovunc Kutlu
ISTANBUL (AA) - Mexico's energy sector faces investment and infrastructure challenges, as it struggles with the need to enhance energy capacity and dependability, Fitch Ratings said Tuesday.
Challenges include stimulating a regulatory environment that would encourage private investment in the electricity industry, which is crucial for the development of new power stations, according to a statement.
There is a also a need to establish infrastructure for the storage and transportation of natural gas, given the North American country's heavy reliance on imports and the significant proportion of energy generated from this source, the ratings agency said.
"The expansion and modernization of Mexico's power grid are also imperative to improve the flexibility and stabilization of the electrical system, to accommodate new plants, to increase the mix of energy sources and to allow the entrance of renewable energy projects, while managing the intermittence they introduce to the system," it said.
Natural gas generated electricity accounted for 70% of Mexico's energy mix in 2023, while hydro, wind and solar energy each represented 6% apiece, and the remaining 12% was generated by nuclear, carbon and diesel sources, according to Fitch.
"The country’s reliance on natural gas for over 60% of its energy installed capacity makes it vulnerable to shortages and fluctuations in natural gas prices and FX rates," Fitch said.
"Additionally, the variability of renewable energies, recent severe droughts, the lack of solar energy capacity at night, and maintenance activities have caused fluctuations in the system's generation capacity."
The rating agency said rising energy demand and insufficient investment strains Mexico's reserve margin and exposes it to vulnerabilities.