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Is Mexico the new wind giant?

Bnamericas Published: Tuesday, February 23, 2016
Is Mexico the new wind giant?

There are not many places where wind blows faster than in Oaxaca, Mexico's southern state where companies like Acciona and Iberdrola have made significant wind energy investments.

But even with world-class resources, investment has been hampered by uncertainties over the country's energy reform, which gained clarity in 2015.

Various studies have pegged the country's wind potential at 50GW, with high load factors well over 20%. Mexico's total installed wind capacity is currently 3,283MW, distributed across 31 wind farms in the states of Chiapas, Jalisco, Nuevo León, Oaxaca, Puebla, San Luis Potosí and Tamaulipas.

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Mexico's energy ministry (Sener) will hold the first electric power auction on March 31, 2016. The long term contracts awarded will be to generate electric power from renewable sources, to be sold to CFE.

Mexico is keen to reduce carbon emissions as it applies to join the IEA. It wants to reduce the emissions intensity per unit of GDP by around 40% from 2013 to 2030. The country is the world's fourth-largest user of fossil fuels in its electricity grid in absolute terms.

Mexico will see 35bn pesos (US$2bn) in investment in the renewable energy sector over the next 10 years, according to the secretary of the congressional energy committee.

In January, the secretary of the congressional energy committee Alfredo Anaya Orozco said the recent approval of the energy transition law in the senate will be a step toward Mexico achieving energy autonomy. The law stipulates that 25% of power must be generated from renewable sources by 2018, 30% by 2021, 35% by 2024, 45% by 2036 and 60% by 2050.

That is one of the reasons that explains why Mexico is seen as the second more attractive LatAm country to invest in electric power projects. BNamericas published last month its annual Electric Power Survey – a poll of 94 experts – and one of the main conclusions was that Mexico, along with Chile, are the most attractive countries.

Chile regained its position as the most appealing market in this year's survey, with 34% of respondents identifying it as the most attractive country for electricity sector investments. In 2015, the South American country had lost the No. 1 spot to Mexico, which came in a close second this year at 32%.

As for the demand outlook, 56% of survey participants said they expect Mexico to see a significant increase in electricity use over the next five years, followed by Colombia (39%), Peru (37%), Argentina (36%), Chile (35%) and Brazil (29%).

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BNamericas' database – storing over 3,000 electric power, oil&gas, infrastructure and water projects in Latin America – shows that there are at least 10 wind projects in early stages in Mexico, which will demand a US$3.4bn investment.

But this wind boom did not start in 2014, of course. About 520MW of onshore wind was commissioned in 2014 in Mexico. In 2015, SunEdison and Gamesa announced a joint venture to build 1GW of wind farms in both India and Mexico by 2018. Gamesa also signed a deal with state utility CFE to develop wind farms – Gamesa alone has installed wind capacity of 1,700MW in Mexico. SunPower and AES also announced projects.

Mexico also began exporting wind power to the US for the first time in 2015. The US$300mn Energía Sierra Juárez wind farm in Tecate, Baja California, entered operations in June, developed by IEnova and InterGen. The 155MW plant sells electricity to utility San Diego Gas & Electric (SDG&E) under a 20-year power purchase agreement.

CFE, meanwhile, will award a US$1.07bn contract to build the combined 585MW Sureste II and III wind farms in Oaxaca state in 2016, on a yet-to-be-confirmed date.

Impulsora Latinoamericana de Energía Renovable (ILER), a subsidiary of Mexican firm Grupo P.I. Mabe, is reportedly planning to build two more wind farms in Puebla state.

In conjunction with Spanish firm Iberdrola, the company built the Pier II wind farm, the first in the state, which opened in November.

Grupo P.I. Mabe manufactures disposable hygiene products, such as diapers, and the wind farms will supply electricity to its own plants and those of other firms, the Puebla-based company's president, Gilberto Marín, said.

These are just some of the investment announcements produced in the last months, but all of them point in the same direction: renewables are no longer the new kids on the block; they are grown-ups now, in Mexico and most other Latin American countries.

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Even though Mexico's matrix is expected to 'gasify' in the coming months, another poll among the speakers of the recent BNamericas' Mexico Electric Power Summit showed that the medium- to long-term bet is renewables.

"Even as natural gas prices could make one believe gas-fueled plants have the most promising future, the Mexican government's emissions goals – as well as the obligation to get clean energy certifications... to buy power coming from sources not considered clean (for example, natural gas) – lead us to think that renewables have the most promising future," said Horacio de Uriarte, partner at Mijares, Angoitia, Cortés y Fuentes. He is considered one of the five most experienced lawyers in the renewables business.

The new rules in Mexico are already generating interest from foreign companies, from big operators to service providers.

Santiago, Chile-based project financing startup CAAAPITAL sees Mexico as a priority market in Latin America as the country's energy reform facilitates investments in energy infrastructure, according to the firm's marketing manager Raimundo Ladrón de Guevara.

"We see Mexico as a market that is possibly 30 times bigger than the Chilean market, and we're considering opening an office in Mexico this year," Ladrón de Guevara said in an interview with BNamericas.

"The timing is perfect, given the advent of the energy reform and the beginning of the oil and gas auctions."

Another sign of interest came from Asia. Clients of Mizuho Bank, which was this month authorized by the stock exchange commission (CNBV) to begin operations in Mexico, are interested in investing in the country's energy sector, according to the bank's international business director.

"At this time we have around 200 clients who are interested in Mexico, potential clients that are analyzing investment opportunities in Mexico," said Hiroyoki Sasaki.

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