Strategic Retreat: Iberdrola's Exit from Mexico and the Future of European Energy Investments in Latin America

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Iberdrola's rumored full exit from Mexico's power market, with the potential sale of its remaining 15 power plants valued at €4 billion ($4.7 billion), marks a pivotal moment in the energy sector's evolving relationship with emerging markets. This move, following a 2023 $6.2 billion divestment of 55% of its Mexican assets to the Mexican government, reflects a broader trend among European energy firms navigating geopolitical risks and regulatory uncertainty in Latin America. For investors, the implications are clear: the era of large-scale foreign energy investments in politically volatile regions is waning, and the focus is shifting toward markets with predictable governance and stable infrastructure.

The Iberdrola Case: A Microcosm of Risk and Strategy

Iberdrola's exit from Mexico is not an isolated event but a calculated response to a perfect storm of factors. Under President Claudia Sheinbaum's administration, Mexico has implemented sweeping constitutional reforms that have created legal and regulatory ambiguity for foreign investors. These reforms, coupled with a push to nationalize energy assets under the state utility CFE, have eroded confidence in long-term investment returns. The company's 2023 sale of 55% of its Mexican power generation portfolio—described by critics as a politically motivated “nationalization”—was a harbinger of its current strategy.

The decision to divest further aligns with Iberdrola's global pivot toward regulated grid infrastructure and renewable energy. The company has allocated 60% of its €41 billion investment plan to electricity grid projects in the U.S. and U.K., markets with stable regulatory frameworks and favorable returns. highlights a strategic shift in valuation, with the company's focus on renewables and grids outpacing traditional generation assets.

Broader Trends: European Energy Firms and the “Latin America Exit”

Iberdrola's exit is part of a larger pattern. European energy firms, including Enel, EDF, and RWE, have similarly retreated from Latin America over the past decade. Between 2020 and 2025, FDI in the region's energy sector declined by 34%, according to the World Bank, as companies prioritized markets with lower political and regulatory risks. This trend is driven by three key factors:

1. Geopolitical Uncertainty: Latin America's political volatility—exemplified by Mexico's energy reforms, Venezuela's economic collapse, and Argentina's currency instability—has made long-term planning unattractive.
2. Regulatory Arbitrage: European firms are increasingly favoring markets like the U.S., U.K., and Spain, where regulatory clarity and incentives for renewable energy create predictable returns.
3. Energy Transition Priorities: The global push for decarbonization has shifted capital toward grid modernization and renewable infrastructure, areas where Latin America lags due to underdeveloped regulatory frameworks.

underscores the divergence in investment flows. While U.S. and European energy infrastructure saw a 22% increase in FDI, Latin America's share dropped by 34%.

Implications for Investors: Navigating Risk and Opportunity

For investors, Iberdrola's exit signals a need to reassess exposure to emerging markets. Here are three key takeaways:

1. Prioritize Stability Over Growth: Markets with predictable governance—such as the U.S., U.K., and Canada—offer better long-term returns. Iberdrola's recent investments in U.S. grid infrastructure, including its acquisition of Avangrid, highlight this shift.
2. Monitor Geopolitical Shifts: Political changes in Latin America, such as Mexico's energy reforms, can rapidly devalue assets. Investors should closely track regulatory developments in the region.
3. Embrace the Energy Transition: The global shift to renewables and grid infrastructure is irreversible. Companies like Iberdrola, with their focus on regulated networks and green hydrogen projects, are well-positioned for sustained growth.

Conclusion: The New Energy Landscape

Iberdrola's exit from Mexico is a case study in the intersection of geopolitics, regulation, and strategic investment. As European firms increasingly divest from high-risk regions, the focus on stable markets and the energy transition will dominate the sector. For investors, the lesson is clear: adapt to the new reality by prioritizing markets with strong governance and aligning portfolios with the global shift to renewables. While the risks in Latin America remain, the opportunities in regulated infrastructure and clean energy are undeniable—provided one knows where to look.

offers a compelling outlook for long-term investors. The future of energy is not in the volatility of emerging markets but in the resilience of stable, forward-thinking infrastructure.