Hydropower energy in Mexico is threatened by droughts

Hydropower makes up 80% of Mexico’s renewable energy supply. Yet following recent droughts, the industry is at risk, according to financial services provider, Moody's. 

Mexico’s march to clean energy

Mexico has established a goal of increasing clean energy within its energy matrix to 35% by 2024, from 25.5% in 2020. 

But the government's plans include growth in hydroelectric power generation by the federal electric utility company, Comisión Federal de Electricidad (CFE). 

According to CFE's business plan and recent investment announcements, Mexico's transition to clean energy includes:

• Modernising eight hydroelectric generation plants, to add capacity of 530 megawatts (MW) by 2025 
• Reducing CO2 emissions by 42% (from 530 gr/KW hour, to 308 gr/KW hour by 2024). 

However, this plan is at risk of more frequent droughts. 

Growing water scarcity will complicate the country's efforts to meet the 35% clean energy target, because available alternatives to cover dips in hydro generation require more expensive fuel sources, such as diesel or fuel oil, which could ultimately also result in higher costs for CFE. 

Hydroelectric power in Mexico faces supply risk

The main hydroelectric plants are located in the states of:

• Michoacan (two power plants) 
• Chiapas (four power plants)
• Nayarit (two power plants) 
• Jalisco (one power plant)

Michoacan and Jalisco experienced extreme droughts during May 2021. 

Installed capacity within these two states represents roughly 2,300 MW and could be at risk going forward. 

Additionally, given that Conagua is obliged to define water limits for the use of electricity generation based on availability (with irrigation and cities' supply being the priority), hydroelectric plants located in states dependent on agriculture, such as Michoacan, face higher supply risks.