New Conditions for Investment in Power Generation in Mexico: Legal and Contractual Implications Following the 2025 Reform

Regulatory Context: Reform of the Power Generation Framework

The entry into force of Mexico’s electricity reform in March 2025, through the enactment of the Ley del Sector Eléctrico (Electricity Sector Law, or “LSE”), substantially restructures the framework for private sector participation in power generation. The changes introduced not only redefine the role of the Comisión Federal de Electricidad (Federal Electricity Commission, or “CFE”), but also establish new regulatory requirements, conditions for project financing, and limitations on the independent commercialization of energy.

The reform introduces four key pillars that directly impact power infrastructure developers:

• Introduction of mixed-investment schemes with majority CFE ownership as one of the new avenues for private participation.
  
  
• Redefinition of self-supply (autoconsumo) and restrictions on the sale of surplus electricity.
  
  
• Structural limitations on private electricity supply.
  
  
• Conditioning of new permits on binding energy planning instruments issued by the Ministry of Energy (SENER).
  
  

Each of these pillars presents specific legal, financial, and operational challenges for the structuring of generation projects, which are addressed in detail below.

Mixed-Investment Schemes: Redesigning Private Sector Participation

New Rules for State-Majority Investment Models

‍

The LSE contemplates, as one of the modalities for private participation, the so-called mixed-development schemes, under which the Federal Electricity Commission (CFE) must retain at least 54% direct or indirect ownership in power generation projects. This structure coexists with other options provided in the reform, such as long-term contracts with CFE, and its application will depend on the nature, location, and technical and financial feasibility of each project.

Specifically, in the case of mixed investment, this requirement fundamentally alters traditional public-private partnership (PPP) structures and imposes new conditions for project development. Key legal implications include:

• The need to redesign governance structures, including corporate control clauses, decision-making rights, and voting mechanisms aligned with CFE’s majority participation.
  
  
• The redefinition of entry and exit terms for private partners, including rights of first refusal, tag-along and drag-along provisions, and non-compete agreements.
  
  
• The impact on project valuation, cash flow distribution, and economic rights under frameworks that recognize the dominant role of state participation.
  
  

‍

This framework requires private companies to adopt flexible contractual structures capable of accommodating the state's participation requirements without compromising the economic viability of their projects.

Long-Term Production and Purchasing Rights

One of the legal instruments contemplated by the LSE to structure private participation in electricity generation is the long-term production scheme, under which all energy generated is exclusively allocated to CFE. In this model, CFE does not provide capital contributions but acquires a preferential right to purchase the asset at no cost upon termination of the contract.

While this model represents a relevant—but not exclusive—option for project development, it introduces specific challenges for developers, including:

• Recovery of the initial investment, given the prospect of a non-compensated divestment at the end of the contract.
  
  
• Design of guarantee structures and payment mechanisms to mitigate the risk of government default.
  
  
• Negotiation of minimum tariff conditions and periodic review of contractual terms, particularly in long-term agreements.
  
  

The preferential purchase right directly affects financial planning and deal-closure mechanisms, requiring developers to include protective clauses in anticipation of early termination or forced acquisition scenarios.

‍

Self-Consumption and Sale of Surplus Energy: Operational Restrictions

‍

New Legal Figure of Self-Consumption

The reform introduces a new legal framework for self-consumption, replacing the previous "isolated supply" scheme. This model allows for the generation of electricity exclusively for the generator’s own use, without commercial intent, and represents one of the available alternatives for companies seeking greater energy independence.

The generation facility may or may not be interconnected to the National Electric System (SEN); if it is, any surplus energy must comply with specific regulatory conditions for injection into the grid:

• Free delivery to the grid without economic compensation, or
  
  
• Sale to CFE, in accordance with compensation methodologies defined by the National Energy Commission (CNE).

Additionally, in cases of intermittent generation (e.g., solar or wind), energy backup is required—either through storage systems or by paying CFE for providing such backup service.

While this new regime imposes restrictions on the commercialization of surplus energy, self-consumption remains a viable and strategic figure for companies seeking energy stability, cost control, and reduced exposure to regulated tariffs, provided their consumption structure allows it.

Restrictions on the Commercialization of Surplus Energy under Self-Consumption Schemes

‍

Under the new legal framework, generators operating under self-consumption schemes that are interconnected to the SEN are no longer permitted to freely sell their surplus energy to third parties. The only legally authorized mechanism for receiving economic compensation for excess generation is through sales to CFE, under the terms and methodologies to be issued by the CNE via secondary regulation.

This restriction:

• Reduces financial flexibility for projects that previously contemplated partial energy export.
  
  
• Diminishes incentives to oversize generation facilities beyond internal consumption needs.
  
  
• Establishes an exclusive relationship with a single state buyer, thereby eliminating market competition dynamics for this type of project.

To ensure financial viability, companies will need to redesign their technical specifications and business models to either guarantee full on-site consumption or ensure that any surplus energy is non-essential to project cost recovery.

‍

Basic Supply: Consolidation Under State Control

CFE’s Exclusivity as Basic Supplier

The reform provides that the Federal Electricity Commission (CFE) will have exclusive responsibility for providing basic electricity supply, effectively closing this segment of the market to private suppliers. As a result, the basic supply market is now limited solely to CFE, and private actors may only operate in schemes involving qualified users or transactions in the Wholesale Electricity Market (MEM).

Key implications for companies include:

• Potential early termination of existing contracts with users who no longer qualify as “qualified consumers.”
  
  
• A necessary redefinition of marketing strategies, focusing on qualified customers or affiliated generation models.
  
  
• An evaluation of the viability of existing operations that relied on servicing end-users under basic supply schemes.

‍

Impact on Industrial Consumers

Large industrial consumers who do not meet the criteria for qualified supply access may be forced to contract electricity exclusively from CFE, under officially regulated tariff conditions.

This could result in:

• Reduced ability to negotiate customized rates.
  
  
• Increased exposure to regulatory tariff reviews.
  
  
• Limited implementation of tailored energy procurement strategies.
  
  

In this context, it is crucial for companies to:

• Assess and maintain their eligibility as qualified users.
  
  
• Explore on-site generation or self-consumption models.
  
  
• Consider partnerships under mixed investment schemes to retain cost competitiveness and operational efficiency.

‍

Binding Energy Planning: A New Condition for Project Development

SENER’s Authority and Legally Binding Nature

The Ministry of Energy (SENER) is now empowered to issue binding energy planning instruments, which will define priority development zones, preferred technologies, and technical parameters for new projects.

This framework transforms energy planning into a legal and operational prerequisite, meaning:

• Permits may not be granted for projects that do not align with the content of the planning instruments.
  
  
• The granting of interconnection rights is conditioned on technical criteria defined by the National Center for Energy Control (CENACE), subject to SENER’s prior approval.
  
  
• Priority will be given to projects located in areas identified as strategic by the State.
  
  

Energy planning is no longer merely a guideline—it becomes a legal constraint that must be considered from the early design stage, affecting not only technical feasibility but also access to financing and interconnection rights.

‍

Risks for Independent Developers

The new energy planning framework introduces significant risks for private developers, particularly regarding:

• Limitations on the geographic freedom to locate new projects.
  
  
• Uncertainty surrounding the viability of investments in areas with actual energy demand but not formally recognized in planning instruments.
  
  
• Lack of legal certainty in obtaining permits for regions outside the designated priority zones.
  
  

The requirement to align with yet-to-be-defined government plans creates a climate of ambiguity that can negatively impact financial modeling, project design, and regulatory timelines.

In light of this, developers must incorporate state-led energy planning as a critical input from the outset of project conception, adjusting timelines, feasibility criteria, and investment structures in line with the planning conditions imposed by SENER.

‍

Conclusion: Strategic Adaptation to the New Energy Model

The 2025 electricity reform redefines the legal and operational framework for power generation in Mexico. The introduction of new mixed-investment schemes, the redefinition of self-supply, new conditions for electricity supply, and binding energy planning instruments create a more regulated environment with predominant State involvement.

While this framework poses significant challenges for private stakeholders, it also opens the door to structuring compliant models—particularly in strategic projects where public-private collaboration remains viable.

In this context, companies must:

• Assess the viability of their projects under co-investment or long-term production models with CFE.
  
  
• Redesign self-supply contracts in accordance with the new legal regime.
  
  
• Restructure supply strategies to adapt to conditions in the regulated market.
  
  
• Anticipate technical and geographic criteria embedded in State planning in their expansion strategies.
  
  

Having specialized legal counsel will be essential to mitigate risks, ensure regulatory compliance, and safeguard project profitability within this evolving regulatory landscape.

‍