The sector is awaiting the award of the mixed-investment tender launched by Mexico’s Federal Electricity Commission (CFE), in a process marked by unprecedented oversubscription and growing questions over which projects will be able to pass the bankability filter. In that context, Energía Estratégica obtained access to the draft Mixed Investment Contract that will govern the auction, a document that reveals a structure based on trust arrangements, enhanced guarantees, limited profitability and majority state control, offering the first concrete signals of the real conditions under which private capital would participate.
The first distinctive feature of the model is that it does not replicate a conventional auction or a traditional Independent Power Producer (IPP) structure. The draft organizes private participation through a Mixed Investment Trust, where CFE and the investor participate through differentiated units with specific economic and governance rights. Among the most sensitive elements is the state utility’s majority participation —at least 54% of the project’s equity— alongside veto rights over key decisions and a shared governance framework.
That structure is precisely what reopens questions about the financial attractiveness of the scheme. Jaime Delgado, legal and risk manager at Abeinsa Juárez N-III, warned that the massive interest generated by the tender does not necessarily imply a structural improvement in the investment environment.
“Rather, it reflects a shift in how investors perceive and learn to manage risk in Mexico,” he told Energía Estratégica.
More than a full reopening of the market, Delgado interprets the tender as “an intermediate adjustment” designed to incorporate private investment without the Commission losing control. And that control is not only corporate: the private investor contributes capital for development, financing, operation and maintenance, while CFE preserves the project’s strategic levers.
Another central element of the contract reinforces that structure: profitability is not left entirely to market dynamics. The document establishes that the Internal Rate of Return (IRR) will be capped at the Target Return offered by the developer, a clause that introduces an explicit ceiling on financial upside.
“The challenge will be project bankability, which will depend largely on the definition of the price per kWh that CFE will pay for this energy, because given that CFE retains ownership of 54% of the project, the profits generated compared to a fully private project are also reduced,” Delgado said.
But the economic equation of the scheme does not end with limits on returns. The contract also strengthens execution requirements through a robust guarantee structure and a highly conditioned pathway to reach commercial operation.
To declare the Commercial Operation Date (COD), the investor must demonstrate a full set of technical, regulatory and operational milestones: completion of construction in accordance with law, satisfactory performance tests, receipt of government permits, execution of the interconnection agreement and market participant generator contract, issuance of the Commercial Operation Declaration by Mexico’s National Energy Control Center (CENACE), transfer of interconnection works to CFE, posting of the Operational Guarantee, and signature of the Commercial Operation Date Certificate by both parties.
With oversubscription close to 580% —37,749 MW submitted for an initial need of 7.5 GW— CFE will have to discriminate among more than 200 proposals, making guarantees appear not only as protection against default but also as an additional screening mechanism for projects with stronger technical and financial maturity.
The contract provides for three guarantees:
- Development Guarantee: Required upon contract signing, equivalent to USD 15,000 per MW installed, covering obligations until the start of investment.
- Investment Guarantee: Added thereafter, equivalent to 3% of CAPEX, designed to cover penalties and deviations until commercial operation is achieved.
- Operational Guarantee: Required ten days before the start of commercial effectiveness and calculated as USD 50,000 multiplied by 70% of the plant’s installed capacity, an obligation closely watched by financiers for its impact on project structuring.
Beyond their coverage function, the guarantee scheme reinforces the view that CFE seeks to prioritize bids that are not only price-competitive, but also capable of sustaining more demanding financial and operational obligations under this new model.
In this context, Delgado warns that the combination of extreme competition and higher requirements could even result in an “inflated pipeline,” where some projects compete to position themselves in the tender without necessarily having the solidity required to pass that filter.
But perhaps the most disruptive point in the draft appears in the investor exit logic. Clause 4.03(e) establishes that, no later than three months after the investor has achieved the Target Return corresponding to each project company, the developer must transfer all of its Participation Units to the Commission without additional compensation, making CFE the sole owner of the project.
However, the scheme offers counterbalances designed to preserve business viability. To offset this uncompensated transfer, the contract establishes absolute cash flow priority: all distributable cash generated by the plant will be delivered preferentially to the developer until it reaches its Target Return, leaving CFE without profit distributions until the private investor has recovered both capital and agreed returns.
Additionally, the document includes a critical safeguard to protect bankability against dispatch risk. If by year 24 of the contract the investor has not achieved its target return due to forced curtailments instructed by CENACE, the agreement may be extended for up to five additional years to ensure financial recovery.
The contract also incorporates a detailed network of remedies in the event of default, another central element in assessing bankability. If the investor defaults, CFE must notify financial creditors and grant them 120 days to cure the situation before acquiring the private stake through an Acquisition Price or enforcing guarantees and liquidated damages. If the default is attributable to the Commission, the private investor may require the purchase of its participation under an indemnification mechanism provided in the contract itself.
The major unknown is no longer only which projects will win, but whether this contractual design —with capped returns, enhanced guarantees and future asset transfer— will attract long-term capital or ultimately limit the universe of players capable of participating.
In this context of regulatory redefinition, the sector will have a key forum for discussion on May 19 at the Future Energy Summit (FES) Mexico, where 500 executives from the public and private sectors are expected to participate. The event is shaping up as a strategic meeting point to analyze the new tenders, regulatory challenges and investment opportunities emerging from this new framework for renewable energy and storage.
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