Renewable Energy >> Mexico

Renewable Energy
Global Market
Insights and Opportunities

Mexico Market

Overview: Renewable energy used for the generation of electricity, including mini-hydroelectric, biomass, photovoltaic-solar, wind power, and geothermal energies, has experienced slow growth in Mexico. The existence of state owned oil and electricity companies has led to little innovation beyond fossil fuels. To this point, hydroelectric and geothermal energy have been Mexico’s most prolific renewable sources, and its geothermal production is the third largest in the world.

But the market looks to be changing as the Mexican Government has recently proposed new renewable energy goals. The increasing level of pollution, higher costs of fossil fuels, difficulties in the reform of the state oil company, and heightened awareness of global warming have all led the government to press for the adoption of more clean energy sources. The recent addition of several new wind turbine plants in Oaxaca shows promise, and as prices for renewable resources continue to fall we can expect the market to open even further. The electricity generated in Mexico by hydroelectric and geothermal plants already represents 25% of the capacity and 15% of the total generation of the National Electric System, but the government has expressed a desire to further increase other renewable sources.

Although the Mexican energy market has been slow to open to new renewable technologies, there is movement in the government towards the establishment of renewables as part of the National Energy Plan. In 2007, President Felipe Calderon established the National Strategy for Climate Change, in which the government proposed that 8% of all electricity would come from renewable energies, excluding large hydroelectric projects, by 2012. This plan continues upon the Initiative of Law for the Use of Renewable Sources of Energy (LAFRE), passed by the Mexican Congress in 2005. The Initiative estimates a public investment of $55-70 million for the generation of electricity using competitive technologies like wind, and an additional $37 million to promote less mature technologies like solar and hydrogen.

This goal could be reached with the government’s plans to install 7,000 MW of renewable energy capacity to generate 16,000 GWh per year by 2012, excluding the El Cajon and La Parota hydroelectric plants. In 2007, renewable sources, excluding large hydroelectric plants, only constituted about 2% of total effective capacity. If the government’s plans are actualized, the renewable energy market will see strong growth in the future. Mexico’s constitution will make it difficult to obtain much of the investment needed to move forward on renewable energy. It prohibits private companies from generating, transmitting or distributing electricity as a public service. These activities are reserved for Mexico’s two state-owned electric power utilities, the Federal Electricity Commission (CFE) and the Central Light and Power Company (LyFC). The exceptions to these rules are for Independent Power Producers and Self Supply Generation plants.

Mexico’s proven oil reserves of around 12 billion barrels are estimated to last the country about 9 more years at current production levels, a fact which has allowed for slower transformation to renewable sources. The state oil company PEMEX has experienced a daily decline of 300,000 barrels per day since 2005, however high international oil prices have allowed it to continue offering subsidized energy to the public. PEMEX provides about a third of the government’s revenue making its reform a high priority for President Calderon. These reforms could further open the energy market to renewables.

Although the Mexican energy market can be difficult to enter due to the constitutional requirements and existences of PEMEX, there are other methods a private firm can follow to produce energy or supply parts in the country.

Mexico’s Independent Power Producers (IPP) - plants privately financed, built, and owned - are plants permitted to produce electricity for exclusive sale to the Federal Electricity Commission (CFE) or for export abroad. The IPP refers to plants with over 30 MW, although they often constitute over 200MW, of capacity and is allowed under the Public Service Law of Electric Energy. Independent Producer status is granted by the CFE after a bidding procedure.

Another option for private power generation is through the “self supply” category. A business, industry, or community may apply to utilize self supplied energy. Again, licenses for this type of production must be procured from the CRE. In 2007, the CRE granted the state oil company CEMEX and the supermarket chain Soriana self-generation permits for their wind-energy plants. These plants will initially produce 250 and 120 MW respectively, and additional electricity may be sold back into the grid at a reduced price if unused. Many companies are looking into this possibility in order to reduce their long-term electric bills and carbon footprints alike.

According to the Energy Regulation Commission (CRE), as of June 2008 there have already been over 13,000 MW worth of contracts awarded between Private Power Generation, Self Supply Generation, Cogeneration, and other methods outside of the electric grid since these contracts began. The graphs above also show the number of permits granted by the CFE, by type, and the number of GWh these independent electric sources are producing.

Wind Energy: The Mexican market for wind powered turbines, blades, and other wind powered equipment has experienced solid growth through the first four months of 2008. U.S. exporters continue to control the market with a 75% share. The National Renewable Energy Laboratory (NREL) in the United States mentions that conservative estimates of the wind-energy market in Mexico are in the range of 5,000 MW, but NREL’s own estimates of the potential just within the La Ventosa region of Oaxaca are around 33,000 MW.7 In March of 2007, President Calderon inaugurated the 80 MW La Venta II wind farm co-built by Spanish firms Gamesa Eolica and Iberdrola, increasing the capacity of the previous 1.5 MW La Venta I pilot farm in the La Ventosa area. In addition to these two plants, the Guerrero Negro plant in Baja California produces around 1 MW and raises Mexico’s current total installed capacity to over 85 MW.

Following its previous success, the Mexican Government has begun a new 100 MW La Venta III project, utilizing a 25 million dollar grant from the World Bank. The Federal Commission of Electricity also plans on the installation of six new wind farms in the La Ventosa region by the end of 2014 with a total capacity of around 590 MW. The regions considered to have the best potential for wind power, besides La Ventosa, are in the Coast of the state of Quintana Roo, around Pachuca, Hidalgo, in the south of the state of Coahuila, in the south of the Baja California peninsula, and in the Northeast of the state of Zacatecas.

Solar Energy: The Mexican solar energy market has been slower to develop than the wind sector. No large scale government production exists like the La Venta plants to help the nascent sector along, but it has created demand through its promotion of solar energy in rural areas. With the government’s help, multiple opportunities are becoming available in the Mexican market today. The Thermal Solar sector has increased due to the additions of solar water heaters both in rural areas and in urban areas like Mexico City. The Photovoltaic market has also increased, mainly in rural communities not covered by the electric grid. Opportunities for growth in both of these markets exist in Mexico given its abundant year round sunshine.

Thermal Solar: Federal Electricity Commission (CFE) statistics show that in 2006 electricity service was provided to only 97.33% of the population, leaving 53,321 communities unserviced. Of those communities without service, almost all had populations under 100. These small rural communities and ranches, often far from the electric grid, represent opportunities for both Thermal and Photovoltaic markets. Mexico’s abundant sunlight makes the solar market’s capacity for growth very enticing. Mexico’s solar possibilities are among the best in the world, with a gross solar potential estimated at over 5 KWh/m2 and over 2 million km2 of territory.13 The states with the best solar potential are Baja California, Chiapas, Quintana Roo, and Sonora.

The thermal solar market has increased due to the growth of solar water heaters throughout Mexico. U.S. exports in the market grew at around 60% each year from 2005- 2007 and had already crossed that benchmark by April of 2008 according to the most recent statistics available from the World Trade Atlas. One reason for this increase is Mexico City’s passing of new norms in 2006 that all new business establishments are to install water heaters driven by solar energy. With a population estimated at over 8 million within the city limits, and estimated around 25 million in the greater metro area, this new law will offer significant growth opportunities for solar water heaters in the future.

Photovoltaic: The market for Photovoltaic energy in Mexico has seen sustained growth for years. In this market, PV assembly plants have been around the U.S.-Mexico border for years, but there is no domestic production of PV cells in Mexico. The largest amount of imports in dollar terms is in the sector of HS Code 8541.40. These are solar PV cells and systems, including panels and modules, Light Emitting Diodes, dice, wafers and chips. Through the first four months of 2008, this sector has already increased its exports to Mexico by over 15% from 2007. The HS Code 8541.90 also shows promise for growth. This section includes PV parts, including diodes and transistors. Through the first four months of 2008, U.S. exports in this sector increased over 400% from 2007. The HS Code 841919, which encompasses solar water heaters and instantaneous water heaters, is also experiencing strong growth through the first four months of 2008.

The current opportunities in the photovoltaic market often exist in smaller-scale projects, providing electricity to rural communities living large distances from the electrical grid. Their main uses are for telecommunications, refrigeration, water heaters, schools, and to farmers for water pumps. The Mexican Secretary of Energy, SENER, hopes to have 30 MW and 18 GWh/year of photovoltaic capacity installed by 2013. This is up from the approximately 20 MW that exist today. They estimate the needed investment for this expansion to be around $24 to $36 million. One application of PV technology is in progress in Mexicali. The Baja California government sponsored an initiative to construct 500 low income houses with a grid-connected array of 1 kW each. The first phase of the project built 220 houses. With Mexicali’s location in a desert valley, the PV arrays are expected to provide relief from peak electricity rates from the grid. Each house will have the ability to use “net metering”, where stored electricity can be sold to the grid when there is extra and purchased when they are lacking. Another application for PV in Mexico is through hybrid generating plants. CFE currently has a hybrid plant in Juanico, Baja California, powered by 17 kW of PV array, a 70 kW wind turbine cluster, and an 80 kW diesel generator. The CFE of Mexico, the Arizona Public Service Company, and the National Renewable Energy Laboratory were all instrumental in the design of this system. This should not be the last PV project the government supports for low-income housing, and the future possibilities in this market look bright.

Hydropower: The total capacity of all hydroelectric power produced for SENER in Mexico increased by 5% from 2006 to 2007, and 14% since 2004. The actual production, as seen above, has grown at a slower rate. The government’s goal, using the World Bank’s financial financing, to produce small-scale renewable energy has led to multiple new mini-hydroelectric projects recently. And with CONAE’s estimate of a possible 15,000 MW remaining unexplored19, hydroelectric power offers a strong future market. Since 2006, the CRE has authorized 9 new hydroelectric projects throughout Mexico. These new plants are situated in Baja California, Jalisco, Puebla, Veracruz, and are intended for a range of uses from industry to small-producer, to municipal power. These new producers range between a 1.6 MW plant in Veracruz to a 30 MW facility still under construction in Puebla. They are to be constructed with a total authorized capacity of 90 MW and 585 GWh/year.20 Location of Mexico’s Hydroelectric facilities The installation costs vary for these projects. SENER estimates the investment ranges to be between 800 and 1,800 dollars per installed KW with generation costs ranging between 3 to 20 cents (U.S.) per KWh.21 Although the total potential of mini-hydroelectric has yet to be determined, CONAE has identified over 100 sites for its use. In the region where the states of Veracruz and Puebla meet for example, CONAE sees a possible generation of up to 3,570 GWh/year, an equivalent of 400 MW.

Geothermal: Mexico is the world’s third largest producer of geothermal energy, but there has not been much growth in the sector for some time. Due to the government’s desire to increase electricity production and geothermal’s potential, the sector offers significant possibilities in the future. Mexico currently has 960 MW of installed geothermal capacity, which produces just over 3% of the country’s electric energy. The Energy Regulation Commission (CRE) has identified over 1,400 sites in 50 different geothermal zones where new geothermal plants can be built. According to the CRE, Mexico has around 1,300 MW of proven reserves and 4,500 probable reserves remaining. Possible future plans include both the construction of new plants and the amplification of existing sites.

Biomass: The Mexican market for biomass production should benefit from the recent passing of the bio-energy law (Ley de Promocion y Desarrollo de los Bioenergeticos) in early 2008. The law is intended to help diversify Mexico’s energy portfolio, the majority of which consists of oil from the state oil company PEMEX. In article 5, the law creates a market for ethanol by mandating that in principle urban areas, at least 10% of gasoline must be ethanol based. Article 7 speaks of the application of fiscal and economic stimuli to make biomass productive and competitive. The government’s new support for the industry should prove very beneficial for multiple sectors in the biomass market. While the growth in the overall energy produced by the biomass industry for SENER has been slow in recent years, the market for sugar cane and sorghum (bagasse) based fuel has increased. A CRE report sees the possible capacity of sugar cane reaching 1,000 MW.

Another biomass sector with a good possibility for growth is the incineration or gasification of solid wastes and sewer gases. Many metropolitan areas in Mexico have already begun to study the possibility of establishing incineration plants to produce energy and help with their waste management. So far the municipalities of Monterrey, Mexico City, Tlalnepantla, Cancun, Naucalpan, Puebla, Queretaro, Aguascalientes, Guadalajara, and Tijuana have either constructed incineration plants or are looking into doing so. The CRE estimates a possible gain of 400 MW in Mexico City, and another 150 MW in Guadalajara from these processes. Other possibilities in the biomass sector revolve around both plants using landfill waste, where the CRE estimates possible capacity of 150MW, and methane plants generating energy from bovine waste.28 Unlike in the wind and solar sectors, the CRE has authorized very few self generation or IPP plants in recent years using any type of biomass. Contacting the individual municipalities is recommended for further information.

  2012 3rd International Conference on Environmental Science and Development (ICESD 2012)