renewable landscape mexico

The renewable energy landscape in Mexico

For more information about RenovaMex 2014 please visit our website: www.fcbilatam.com/renovamex/maps

The report ‘The renewable energy landscape in Mexico’ provides a comprehensive review on the current situation of the renewable energy sector in the North American country, plus offering exclusive interviews to the Mexican Wind Energy Association and to Mr Rogelio Pérez Velarde -from the renowned law firm Velarde, Heftye y Soria- for a more detailed analysis.

This publication is being issued prior to the opening of RenovaMex 2014, an event that will take place on 19th - 20th November in Mexico City.

In association with : RenovaMex 2014 • November 19th - 20th • Mexico City

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Introduction CoNteNts

Interview to the law firm López Velarde, Heftye y Soria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

List of all the wind, solar and geothermal energy projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Map of all the wind, solar and geothermal energy projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Interview to the Mexican Wind Energy Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Evolution of Mexico’s wind power industry in the last decade . . . . . . . . . . . . . . . . . . . . . . . . . . 9

What are the incentives offered by Mexico’s new energy reform to developers, contractors and suppliers of clean energies? What are the renewable’s main obstacles to overcome in order to take full advantage of the renewables’ identified potential? Which of these barriers have already been removed by the latest legal framework and its subsequent legislation? What is going to happen with the PPA projects consisting of less than 500 kW? How is the spot market going to work from now on?

Renewable energies in Mexico are proven to present an impressive potential for business, but they are still defined by a high level of uncertainty in relation to the changes to be implemented by the gradual development of the energy market reform, for it is understandable that the renewable sector has voiced its concerns and several questions about the industry’s general outlook for the next years




INtervIew to the law fIrM lópez velarde, heftye y sorIa

Rogelio López Velarde: ‘The Mexican energy reform must encourage a deeper involvement of the private sector’Rogelio López Velarde, Partner, Heftye y Soria, S.C.

Rogelio López Velarde is one of the best lawyers as far as energy issues are concerned, as he holds a seat on the Advisory Council of Mexico’s Energy Regulatory Commission due to his broad expertise on the subject . Besides being an authority figure within the sector, Mr López Velarde developed part of his professional career at the state-owned petroleum company Pemex, as a commissioner lawyer at both its Houston and New York City offices, and also as head of the international affairs unit of its Legal Management department .

Mr López Velarde has also taken up other positions of relevance, such as the chairmanship of the Association of International Petroleum Negotiators for Latin America or the presidency of the International Area of the Legal Institute for the American Energy . FCBILATAM has talked to him about his thoughts on the future energy scenario, the opportunities and challenges that the renewable sector will face in the following years, and his expectations on the ongoing energy reform in Mexico .

In your opinion, what are the main openings and present impediments for the clean energy business in Mexico?The most visible concern nowadays for developers of renewable projects in Mexico lies in the lack of legal clarity regarding the benefits to be drawn from the special regulatory scheme set for clean energies, which are simply based on mere administrative resolutions that can be easily modified over time . This sort of judicial uncertainty is still present, as developers have noticed that the legal rights acquired after the introduction of the new energy legislation are just a few and quite difficult to claim . That should be changed as soon as possible . Talking about openings and future prospects, I must say that those are still huge, as there are plenty of renewable power sources that have not been properly explored yet in Mexico .

Do you think Mexico could become a leading country in clean energies? Where would you spot its most important assets and resources in this respect?Mexico is a country that presents a privileged location for the exploitation of renewable energies, as it comprises all sort of natural areas from which energy can be produced, including vast windy regions, several coastlines, high levels of sunlight exposure and extraordinary sources of geothermal and hydraulic power . For sure, Mexico should play a bigger role in this economic sector as it has massive potential in all these areas .

What are the most crucial challenges to be handled by this industry in the upcoming years?The electricity system in Mexico and its legal framework are about to experience major changes in the short term that will require plenty of new laws to be brought in, a situation that is a challenge itself for




the whole industry . Talking specifically about renewables, it is urgent to find out those mechanisms that will let them take part in this new energy model in a competitive and sustainable way, something that should be clearly reflected in the new package of secondary laws .

What kind of outcome do you expect from the energy reform that is being debated and what other measures do you think would be essential to make sure clean energies are an integral part of Mexico’s energy system?We are eager to see the electricity network being completely redesigned after the enforcement of the new energy legislation, with a more active participation coming from the private sector . On the other hand, in order to ensure the full incorporation of clean energy sources into the new model, it is essential to come up with a series of legal arrangements that make room for a competitive and sustainable market for them to thrive . First of all, their value and usefulness must be properly acknowledged, as well as their potential in relation to external markets . There also need to be reasonable percentages of minimum purchases for customers and suppliers, and fiscal benefits for these energies to facilitate their inclusion in the market .

Does Mexico provide an acceptable level of legal security to encourage investment in this sector? What lessons can be learned from the same process happening in Spain, if both scenarios are comparable?The development of the new energy reform has given Mexico an outstanding opportunity to establish a suitable and robust regulatory framework for the renewable sector to grow steadily, which would add enormous value to an already present set of conditions (macroeconomic stability, structural reforms and rules to protect free trade and private assets) that foster economic investment and that would make ambitious projects within this industry a whole lot easier . The experiences that we have gathered from other countries have proved that, although it is important to offer all sorts of incentives to clean energies, these public initiatives should be justified in the potential profits to be extracted from its participation in the market, they have to be sustainable in the long term and, of course, they need to be aimed at the idea of creating a competitive and fair environment for them to operate .

List of all the wind, solar and geothermal energy projectsMexico’s energy system comprises 4000 MW of wind, solar and geothermal power either being already operational or on the way to being completely functional . Taking into consideration that the country’s energy demand is currently growing at an annual rate of 4%, aside from the government’s commitment to have 35% of its energy production coming from non-fossil sources by 2024, renewables are certainly set to become an inevitable alternative to traditional power sources, as they are progressively securing




Type Name State Installed Capacity (MW)

Developer Stage

Wind Bii Hioxio Oaxaca 234 Gas Natural Fenosa Renovables Under construction

Wind Bii Nee Stipa Oaxaca 26.35 Iberdrola Renewables Operation 2010

Wind Bii Nee Stipa IV Oaxaca 74 Iberdrola Renewables Operation 2014

Wind Cancun Quintana Roo 1.5 CFE Operation 2010

Wind Cementos Apasco Coahuila de Zaragoza 1 Ecotel

Wind Dominca I San Luis Potosí 100 Enel Green Power Operation 2014

Wind El Porvenir Tamaulipas 54 Grupo Ecos Operation 2013

Wind Eléctrica del Valle de México Oaxaca 67.5 Private

Wind Energías Ambientales Oaxaca 102 Private

Wind Eólica Arriaga Chiapas 28.8 Grupo Salinas Operation 2012

Wind Eólica del Istmo Oaxaca 164 Private

Wind Eólica Santa Catarina Nueva León 22 Private Operation 2012

Wind Eólica Zopiloapan (Bii Nee Stipa III) Oaxaca 70 Gamesa/Enel Green Power Operation 2013

Wind Eólicas Mexicanas de Oaxaca Oaxaca 90 Private

Wind Eurus I Oaxaca 38 Acciona Energia Operation 2009

Wind Eurus II Oaxaca 213 Acciona Energia Operation 2010

Wind Fuerza Eólica del Istmo I Oaxaca 50 Peñoles Operation 2012

Wind Fuerza Eólica del Istmo II Oaxaca 30 Peñoles Operation 2013

Wind Granja Sedena Oaxaca 15 Private Under construction

Wind Guerrero Negro (Puerto Viejo) Baja California 0.6 CFE Operation 1998

Wind Instituto de Investigación Eléctrica Oaxaca 0.3 Private

Wind La Mata – La Ventosa Oaxaca 68 EDF-EN Operation 2010

Wind La Rumorosa I Baja California 10 CFE Operation 2010

Wind La Venta I Oaxaca 1 CFE Operation 1994

Wind La Venta II Oaxaca 83 CFE Operation 2006

Wind La Venta III Oaxaca 102.85 CFE / Iberdrola Renewables Operation 2011

Wind La Ventosa Oaxaca 102 Iberdrola Renewables Operation 2013

Wind Los Altos Jalisco 50.4 Grupo Dragon Operation 2014

Wind Los Vergeles Tamaulipas 161 Under construction

Wind Oaxaca I Oaxaca 101 CFE/EYRA Operation 2012

Wind Oaxaca II Oaxaca 102 CFE/Acciona Energia Operation 2012

Wind Oaxaca III Oaxaca 102 CFE/Acciona Energia Operation 2012

Wind Oaxaca IV Oaxaca 102 CFE/Acciona Energia Operation 2012

Wind Pacífico Oaxaca 160 EDF Operation 2014

Wind Parques Ecológicos de México Oaxaca 79.9 Iberdrola Renewables Operation 2009

Wind Piedra Larga Oaxaca 228 Renovalia Operation 2012

Wind Sierra Juarez Baja California 155 Lenova Under construction

Wind Stipa Nayaa (Bii Nee Stipa II) Oaxaca 74 Gamesa/Enel GreenPower Operation 2012

Wind Sureste I phase II Oaxaca 102 Enel Green Power Under construction

Geothermal Cerro Prieto I Baja California 30 CFE

Geothermal Cerro Prieto II Baja California 220 CFE

Geothermal Cerro Prieto III Baja California 220 CFE

Geothermal Cerro Prieto IV Baja California 100 CFE

Geothermal Las Tres Vírgenes Baja California Sur 10 CFE

Geothermal Los Azufres Michoacán 191.6 CFE

Geothermal Los Humeros Puebla 51.8 CFE

Solar Aura Solar I Baja California Sur 30 Gauss Energía Operation 2014

Solar Autoabastecimiento Renovable Aguascalientes 1 Private

Solar Celulosa y Papel de Bajío Guanajuato 0.566 Private

Solar Cerro Prieto Baja California 5 CFE

Solar Santa Rosalía Baja California Sur 1 CFE

Solar Tai I Durango 16 Eosol Energy Operation 2014

Table 1.

Source: AMDEE (Mexican Wind Energy Association), Secretaría de Energía (Mexico’s Energy Ministry)




a remarkable position in the energy landscape . For the time being, clean power production is being led by the wind energy system, with better-developed infrastructures, and this technology is expected to be commanding the whole renewable industry for the next 10 years at the very least, yet it has also been forecasted that the generation of solar energy will rise notably over the next 15 years .

1 WIndGuerrero Negro (Puerto Viejo)

2 SolarCerro Prieto

3 GeothermalCerroPrieto ICerro Prieto IICerro Prieto IIICerro Prieto IV

4 SolarSanta Rosalía

5 GeothermalLas Tres Vírgenes

6 SolarServicios Comerciales de Energía

7 WIndCementos Apasco

8 WIndEólica Santa Catarina

1

7

Wind

Solar

Geothermal

Source: Secretaría de Energía (Mexico’s Energy Ministry), Mexican Geothermal Association

The wind energy sector is currently leading the production of clean power in Mexico . By the end of 2013, this technology accounted for more than 1900 MW already in use, while around 15000 MW are expected to be generated for the period 2020-2022 . Over the last 10 years, more than 3800 million dollars have been invested in the development of wind energy infrastructures and supplying in Mexico .

3

5

1415

4

6

8 9

2

10

13

1112

1617

18

19

20

9 WIndLos Vergeles

10 SolarAutoabastecimiento Renovable

11 WIndLos Altos

12 WIndDominica I

13 SolarCelulosa y Papel de Bajío

14 GeothermalLos Azufres

15 GeothermalLos Humeros

16 WIndFuerza Eólica del Istmo IFuerza Eólica del Istmo IIEl Valle de MéxicoInstituto de Investigación EléctricaParque Eólico de MéxicoBii Nee StipaStipa Nayaa (Bii Nee Stipa II)Eólica Zopiloapan (Bii Nee Stipa III)Eurus IEurus IIBii HoxioGranja SedenaSureste I phase IIPiedra LargaPacífico

17 WIndCe Oaxaca CuatroCe Oaxaca DosCe Oaxaca TresLa VentaLa VEnta IILa Venta IIIEólicas Mexicanas de OaxacalEnergías Ambientales

18 WIndEólica Arriaga

19 WIndCancun

20 WIndYuumil IK

Map with all Wind, Solar and Geothermal projects




Héctor Treviño is one of the most proficient specialists of the Mexican renewable sector, after more than six years of relentless involvement in the promotion of clean power initiatives within decentralised organisms both at federal and state levels, along with a vast professional experience in the field of international business in regions such as North America, Asia, Latin America and the Caribbean .

Due to his role of executive director at the Mexican Wind Energy Association, FCBILATAM has approached Mr Treviño to find out more about his work towards a successful integration of the wind energy industry into Mexico’s energy landscape . Furthermore, it has been relevant to ask him several questions about his understanding of all the decisions to be made in order to guarantee a rapid development of the wind energy sector and to secure its solid growth in coming years .

How would you describe the current state of Mexico’s wind energy industry?According to research conducted by PwC (PricewaterhouseCoopers) along with AMDEE (Mexican Wind Energy Association), more than 20GW of potential wind power in Mexico currently exists with a very good capacity factor . By the end of 2013, 2GW of wind power were already in use and 4 GW are presently bound to be operational for a three-year period (until 2016) as production is in different stages of progress; most of this energy is subjected to a power purchase agreement (PPA) . There are some energy auctions these days set up by the Federal Electricity Commission, but not enough and not especially relevant since the electricity system belongs to a public monopoly controlled by the federal government . However, a brand new supply scheme was created recently to allow the central government to sell energy to private companies under the legal form of bilateral contracts, without the intervention of the Federal Electricity Commission . The previous situation was basically explained by one of the rules coming directly from the Mexican Constitution, as it stated that only the government was competent to generate electricity in the country . In December 2013, this reality was slightly modified by the introduction of the latest energy reform, a legislation that is currently being complemented by the development of secondary laws .

What are the hardships and the key technological challenges to confront in order to enhance the presence of wind power in Mexico’s future energy model?The lack of an adequate infrastructure is undoubtedly Mexico’s bottleneck in this regard, as you will not find proper structures wherever there are sources for the potential development of wind power, the likes of transmission lines and sub-stations; and when this sort of infrastructure is in place, it generally suffers from insufficient capacity that result in a situation where overloaded lines cannot carry more energy . What is happening nowadays in Mexico resembles the problems Brazil is also encountering in this issue, as the lack of infrastructure in the country is effectively blocking the production of up to 1GW of wind power . As far as technological advances are concerned, it has been noted that the new wind turbines with larger blades have been able to exploit certain areas in Mexico that did not seem suitable for that purpose in the beginning: for instance, the states of Tamaulipas, Nuevo León and Coahuila in

INtervIew to the MexICaN wINd eNergy assoCIatIoN

The lack of infrastructure is the bottleneck for the development of renewable energies in MexicoHéctor Treviño, executive director of the Mexican Wind Energy Association (AMDEE)




the north east, and Baja California in the north west . I am not that familiar with the Chilean context, but I understand that the lack of infrastructure in this country, as it is occurring in Brazil, is stopping the production of around 1GW of wind power .

Mexico’s energy reform ultimately aims to encourage private investors to take part in PEMEX, but what is the wind energy sector particularly expecting from this new legislation? What is, in your opinion, the appropriate legal framework to be shaped in order to promote a strong presence of clean sources in the new energy model?First of all, it is important to highlight that the commitment made by President Peña Nieto’s administration to reach a 35% of electricity production out of clean sources by 2024 (including hydroelectric and nuclear sources) is such great news . The most important constitutional change in this aspect was to redefine the status of the electricity production, which used to be referred to as ‘strategic’, meaning that only the government could be involved in this matter, and now is considered a ‘priority’, implying that private entities are able to cooperate with the administration in its development . On the other hand, the National Energy Control Centre (CENACE) is about to become independent from the CFE (Federal Electricity Commission) to act as an autonomous regulatory body, the kind of an Independent System Operator (ISO) that is conceived to oversee the evolution of the electricity system in Mexico . That is the starting point for us to campaign intensely towards a higher share for clean energies in future public contracts launched by the CENACE .

Mexico’s Energy Ministry (Secretaría de Energía) has pointed out that growth rates in the wind energy industry are expected to soar remarkably in the following years, as production is reportedly being increased from 1469.2 MW generated in 2012 to an estimated total capacity of more than 9092.4 MW for 2018 – an additional upsurge of 7,623.2 MW. Is this goal achievable or ambitious enough? What is the view of Mexico’s wind energy traders with regard to these figures?Those are the objectives defined by Peña Nieto’s administration, to reach the ceiling of 9,500 MW of wind power to be generated by 2018 . This goal is surely feasible as long as three legal conditions for the future market are respected and preserved: to safeguard the role of the Energy Bank, to guarantee a compulsory distribution of power coming from clean sources and to keep the current calculation of the energy transmission costs, based on a postal stamp model that offers a great deal of transparency .

The new set of secondary laws still in the making is aiming at the creation of a spot market that would favour wholesale energy trading among participants, in the style of a stock exchange . Yet there is not a proper market in Mexico for this project to become a reality and it cannot be created merely by law, as all the power that is produced nowadays in Mexico has already an owner or a predefined recipient .

As I said before, the goal is challenging but reachable if the conditions discussed earlier are maintained and if there is a satisfactory infrastructure to support the process . As a spokesperson for AMDEE, I can say we are very excited about the prospects to be drawn from Mexico’s energy reform, as it is to put and end to a monopolistic situation and to create new opportunities and possibilities for all the agents involved in this industry . We have undertaken all sorts of lobbying actions to ensure that the three requirements explained before are in place during what we call the ‘transition period’, which will be finished as soon as we can meet the standards for the creation of a spot market .

Our last concern, specifically linked to the role to be played by renewable energies, lies on the future public tenders set up by the CENACE (National Energy Control Centre), as they need to offer a defined percentage of participation for clean energies and establish clear technology preferences (wind, solar power, etc .) in order to get closer to the famous 35% goal of power generated by clean sources by the year 2024 .




What is the position currently held by Spanish companies in the Mexican wind power sector? Is their performance more or less significant than that of other corporations coming from other countries?In the present context, Spanish companies are placed as leaders of wind power development in Mexico, whether they are manufacturers like Acciona and Gamesa or other well-established developers . Nevertheless, there is a fierce competition going on in the business of wind turbine construction: even though Vestas is their main rival these days in this area, the potential opportunities in the wind sector plus the incentives offered by the new energy laws have opened up the market for other societies that are getting ready for the battle, such as Alstom (France), General Electric (USA) or Siemens (Germany) . And it is quite likely that new companies from India or China will settle here eventually, especially manufacturers .

Our last question refers to the partnerships and associations that are being built up to boost Mexico’s wind capacity. What are the main areas of work in the medium and long terms to make the most of this opportunity?We are presently focusing our efforts on the task of heightening the chain value thanks to an agreement between AMDEE and Mexico’s Energy Ministry, but we are also taking part in different projects related to the sustainable development of all the regions displaying high levels of wind power potential . We have conducted several researches to study the economic, social and environmental impact of these activities in all the designated territories, while trying to raise awareness about the advantages and benefits offered by renewable energies for local economies . All our activity programmes and initiatives are carried out with the support of different organisations belonging to the federal government and, in some cases, to the executive branches of some Mexican states .

We sincerely hope that you have found this report interesting and useful, please bear in mind that several professionals and other experts in wind, solar and geothermal energy will be providing valuable insights at RenovaMex 2014 and discussing key topics to deal with all the financial, technology and regulatory challenges connected to the renewable energy sector.

For more details about RenovaMex 2014, please visit our website: www.fcbilatam.com/renovamex/mapas or contact: Mr Brandon Páramo

T: +44 20 7422 4302E: [email protected]

Evolution of Mexico’s wind energy sector in the last decade2500

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02004 2007 20102005 2008 2011 20132006 2009 2012 2014

2MW85MW

517MW

2MW85MW

929MW

1992MW

84MW202MW

1348MW

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All the information and data published by this report was last updated in June 2014 .


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