A greener future: Investments in renewables to lead to a vast increase in solar and wind capacity

While the shift in the political relations with the US has raised new concerns on a number of economical fronts, Mexico’s plans to make the most of its renewable energy resources will benefit both the country itself and its northern neighbour. A significant increase in the contribution of solar and wind into the energy mix is expected in the 2017-18 period.

Towards A Greener Mix

Pedro Joaquín Coldwell, minister of energy, told local media in March 2017 that $100bn worth of investments are expected in the energy sector in 2017. While most of these will be directed at hydrocarbons projects, solar and wind energy are gaining importance. Following the country’s second electricity auction in September 2016, solar and wind energy capacity is set to see an enormous boost. According to Coldwell, renewables will add up to 5000 MW of new capacity, which would represent growth of 170% over the past 18 years. Official expectations from the Ministry of Energy include projects worth $6.6bn from 34 companies by 2019. These investments will result in the construction of 52 renewable energy plants. Coldwell also said the country is approaching its target of renewables accounting for 35% of power by 2024.

AT Solar, ENEL Green Power Mexico, Kamet Energía México and Green Hub were among the companies that were awarded contracts in the country’s second electricity auction in 2016, and therefore these firm will lead Mexico’s green energy projects in the coming years. The winning consortiums include Spanish, Italian and US firms, among others.

Private Push

Recently both multinational and local companies have shown increasing interest in participating in Mexico’s renewables segment. For example, capacity at Puerto Libertad’s photovoltaic (PV) plant, located in the state of Sonora, is forecast to increase by 50% to 339 MW following the signing of a private purchase agreement between the joint venture that owns the project – Spanish Acciona Energía and Mexican Tuto Energy – and the latter’s subsidiary Tuto Energy Trading. The energy sale contract will add 112 MW of capacity to the project.

The Puerto Libertad contract was the first private agreement under Mexico’s new Electric Industry Law, which became effective in 2014 and opened the sector to private investment. The construction of the power plant is expected to begin in the last quarter of 2017, and the facility is scheduled to be operational by the first half of 2019. In February 2017 Miguel Ángel Alonso, director of Acciona Energy Mexico, told local press that the Puerto Libertad project will be the largest PV plant in Mexico.

Importance Of Cooperation

In 2014, during a trade visit by Jerry Brown, California’s governor, to Mexico City, a memorandum of understanding (MoU) between the state of California and Mexico was signed to encourage cross-border investments in renewable energy. In addition to renewables, the MoU also covers grid operation, demand response, energy efficiency, energy storage and biofuels as areas of future cooperation as well as a commitment to explore integrating Baja California Norte into the California energy market. The agreement opens opportunities for US-based companies to participate in Mexico’s renewable energy supply chain.

Abigail Ross Hopper, president and CEO of Solar Energy Industries Association, the US trade association for solar energy, recently told local press, “Many of our companies, across the supply chain, are poised to help Mexico meet its expanding solar demand.”

Gerry Cauley, head of the North American Electric Reliability Corporation, a company surveying electric grid operations, also told local press, “There is a tremendous amount of work to connect within Mexico,” and particularly mentioned opportunities of investment for Baja California. “Baja is under-supplied with electricity that is expensive,” he added. The company is assisting Mexico in grid modernisation, which includes a $1.7m transmission project linking Oaxaca with Mexico City. Mexico’s growing energy needs will require the contribution of foreign investors and experts, offering, in the words of Cauley, “a great opportunity for two-way exchanges”.

More To Come

In addition to solar projects, Acciona is also involved in the development of wind energy. As a result of the latest auction in 2016, the company has commenced the construction of its fifth wind farm in the country, a 168-MW facility in the state of Tamaulipas. According to Acciona officials, the project involves a $221m investment.

The number of international companies investing in Mexico’s green energy projects is likely to increase in 2017. While a possible entry of Elon Musk’s Tesla in the country’s renewables industry has been mentioned by the media, in late February 2017 Eduardo Meraz Ateca, director-general of the National Energy Control Centre, confirmed that Mexico’s third electricity auction would take place the same year. The auction is planned for no later than October 16, 2017. GTM Research, a firm specialised in green energy issues, said in April 2016 that following an addition of 104 MW of solar power in 2015, Mexico’s solar capacity would expand by an estimated 521% in 2016, adding 646 MW of PV. According to GTM Research, the country will reach solar capacity of between 20 GW and 40 GW by 2040. It is possible that the third auction increases these estimates.

Challenges Ahead

Although increased contribution of solar and wind into Mexico’s energy mix is exciting news, the segment also faces a number of local challenges. Rural communities have expressed their concerns about the potential impact these projects might have on crops. Some wind power ventures have already been blocked by local communities. For example, in Kimbilá, on the Yucatán peninsula, more than 3500 inhabitants are opposing the installation of a wind farm project led by Spanish company Elecnor. With a capacity of 159 MW per year, the facility would include the installation of 50 turbines. Complaints from local communities include lack of information about the projects and the potential harm caused to the area’s crops, including honey, vegetables, livestock and maize.

The opening of the energy sector in Mexico is already generating significant opportunities across various segments. As the country’s climate is favourable for renewables projects, and demand for power is growing, renewable energies present numerous new opportunities for private sector involvement.

The investment data for wind energy and solar energy looks promising, yet further efforts from the public bodies and a closer look at the needs of the industrial sector are also required going forward. It will be crucial for Mexico to maintain strong relations with the southern states of the US, which are likely play a major role in its green ventures.