Mexican electricity output tied to economic growth

MEXICO CITY, Jan. 27 (UPI) -- Mexico needs to generate more electricity to meet the needs of its burgeoning population and developing industries but that seems increasingly tied to the prospect of future economic growth, latest data indicated.

Mexico's electricity industry is dominated by the state-run Comision Federal de Electricidad, the only company allowed to provide electricity distribution and transmission services in the country.

Private sector pleas for more autonomous and independent operations haven't produced results, industry data show. Independent power producers and co-generators still represent less than 1-10th of power generation.

But, new research indicated that Mexico's power sector is unlikely to grow unless the economy grows. The economy, in turn, depends on regional trade with Canada and the United States.

With the U.S. economy still showing slow growth, Mexican power generation sector is in for a long haul and growth seems destined to remain tied to continental trade.

"Akin to most countries in the region, electricity demand in Mexico is highly correlated to economic activity," Fitch ratings said in a report.

Power generation also suffers from fluctuating costs, as 82 percent of the electricity combines the use of natural gas, fuel oil, coal and steam turbines, making the industry vulnerable to varying prices of gas.

Some 823 million cubic feet of gas per day had to be imported through August 2011, the latest data available state.

Greater power generation capacity will allow Mexico to earn more by exporting electricity to the United States and other neighbors, including Belize and Guatemala.

Mexico currently sells gas to U.S. clients through nine interconnections and operates other transmission lines to Belize and Guatemala.

About 80 miles of the transmission lines between the countries are used to carry up to 120 megawatts of power. The potential of upgrading the network to 70 megawatts of power has been mentioned.

"Going forward, Fitch believes real exchange depreciation and the greater penetration of the country's exports in the U.S. market would allow it to benefit from U.S. economic activity. This would further support electricity demand growth in Mexico," Fitch said.

Plans for expanding nuclear power generation remain unclear, partly because gas prices remain management and nuclear power remains a controversial option. Two existing nuclear power reactors contribute about 5 percent to the grid, the World Nuclear Association said on its Web site.

Recent trends suggest "Mexico will increasingly rely on natural gas and this is likely to be central in a new energy policy," WNA said.