With global supply chains under stress and economic growth slowing down, localization of new investments has become an increasingly popular way to reduce costs. Mexico's geographical position is privileged in a number of obvious ways. On the other hand, previous Holland & Knight alerts have discussed the importance of energy as a fundamental input for industrial development as well as the paramount importance of having access to cheap, clean, reliable and efficient energy sources.

As obvious as it may seem, monopolies are not the best option to achieve such ends, particularly when Mexican federal law expressly encourages, promotes and creates free competition among all subjects of the energy market and offers alternatives. In some regions, power supply and distribution remains a challenge to new investment opportunities. Mexican Association of Private Industrial Parks (AMPIP) President Sergio Argüelles agreed by commenting, "The main challenge to take advantage of the arrival of new investments will be to guarantee the availability of energy and provide certainty in the country for the construction and installation of industrial parks and warehouses."

Options and Solutions

So, if those are the challenges, what are the options and solutions?

Qualified Supply

Ruled by Articles 45 and 48 of the Electric Industry Law (Ley de la Industria Eléctrica, or LIE), this option requires newly built or existing industrial parks and warehouses to obtain a registry as a Qualified User showing that they have a demand of at least 1 megawatt (MW). Once obtained, they can enter into a private medium- or long-term Qualified Power Supply Agreement with one of the approximately 35 existing Qualified Suppliers in Mexico under free competition rules.

Aisle Power Supply

Ruled by Articles 22 and 23 of LIE, Aisle Power Supply is defined as a project for "own needs" and can be connected or not to the Mexican grid, so the power generation capacity installed within industrial parks or warehouses can be injected or not to the grid. There is no limitation to the power generation capacity, so it can be from 0.5 MW to 5, 10, 15, 20 or 30 MW. A limitation imposed on Dec. 31, 2012, rules that "own needs" means that it is the industrial park itself (or some entity directly related to), the sole owner and operator of the power plant, meaning that they cannot rely on third parties for the operation of the facility.

Distributed Generation

Ruled by Article 68 of LIE, it is an option with a power limitation of 0.5 MW, and it is a classic "net metering" option where the industrial park is still supplied by a third party (Qualified Supplier or Basic Supplier), but such main input is completed by additional distributed generation installation. As such, a "compensation agreement" is entered between the industrial park or warehouse as final user and the operator of the distribution or transmission grid – that is, the Mexican Federal Electricity Commission (Comisión Federal de Electricidad, or CFE).

Industrial Rings

Ruled by Article 46 of LIE, this option is very convenient for industrial parks since the law allows the installation of private networks or distribution rings within the park, allowing the owner of the industrial park to have a direct power supply relationship with a power supplier (either Qualified Supplier or Basic Supplier) and sell and distribute the power within the distribution ring to which individual companies are connected within the industrial park itself. Such an "internal power sale" is not considered commercialization and, therefore, no permit is needed.

Basic State Supply

Ruled by Article 48 of LIE, this means that industrial parks and warehouses are supplied by the Mexican State through the CFE. If they elect this option, industrials can change their position from Basic User to Qualified User (to be then supplied by a Qualified Supplier as above explained) and/or include hybrid options as also explained above.

Legacy Self-Supply Option

Although legal in accordance with Second Transitory Article of PIL, which allows and protects this legacy option as it operates in Mexico, the inclusion of new "self-supplied partners" to the self-supply producers' entities needs the approval from the Mexican Energy Regulatory Commission (Comisión Reguladora de Energía, or CRE), which, since 2019, has basically denied any approvals or modifications to such legacy permits. Right now, this option is not an option for new participants or parks unless the industrial park or warehouse is already included within a Self-Supply Generation Permit.