Mexico is planning to quadruple its wind power capacity as part of President Enrique Pena Nieto’s effort to transform the country’s energy industry.
The country expects to have about 10 GW of turbines in operation within three years spread across almost every region, up from 2.5 GW in 2014, part of a government plan to add 20 GW of clean energy by 2030, according to Mexico’s Wind Energy Association.
A total of 22 GW of wind power will be added over the next 25 years, requiring $46 billion in investment. The wind push is due to two converging trends: Mexico’s historic shift from a state-controlled energy monopoly, and its efforts to transform a grid that relies on fossil fuels for three-fourths of the nation’s electricity.
"We’re already a new country," Alejandro Peraza, general director of the energy regulator CRE, said in an interview in Mexico City. "Mexico is getting cleaner."
Mexico is Latin America’s largest crude producer and the world’s No. 10 producer of greenhouse-gas emissions. It was the first developing country to submit its plan to reduce carbon emissions before a United Nations conference in Paris in December, where almost 200 countries are expected to sign a deal to fight global warming.
Mexico pledged to reduce 22 percent of its greenhouse gas emissions by 2030. Wider use of renewable energy will reduce fossil-fuel based power generation to 45 percent.
"There is a clear national policy on climate change taking place,” Peraza said. “We are going in the direction of a low carbon economy."
Mexico’s economy will expand 2.4 percent this year, according to a Bloomberg News survey. The government expects energy demand to increase 4 percent annually over the next decade.
That growth will be fueled by the shift toward renewables, which will jump to 51 percent of total installed capacity by 2040, from 14 percent now, according to New Energy Finance. Most of that will come from wind, in part because import taxes drive up costs for solar power.
"Investors are starting to line up their horses," Lilian Alves, a New Energy Finance analyst in Sao Paulo, said.
To facilitate that transition, the government plans to hold annual energy auctions, with the first set for March. Power producers will receive certificates for every MWh of clean energy they generate, and will sell 20-year certificates through the auctions to large electricity users.
Large consumers must get 5 percent of their power from clean sources by 2018. The government also set a mandate in 2012 to get 35 percent of the country’s energy from non-fossil fuel sources by 2024, up from 21 percent now.
Those who don’t meet the mandate may be fined as much as $200 per MWh used, according to Peraza. Large industrial users may be required to buy clean-power certificates on the spot market.
Power companies are keen to jump into Mexico’s clean-energy market as soon as new rules for the auctions and certificates are finalized, according to Adrian Escofet, president of Mexico’s Wind Energy Association. Those policies are expected to be issued this month.
Gauss Energia, a Mexico City-based company that owns Mexico’s largest solar farm, is planning to register 100 MW of power projects for the March auction.
"I am optimistic," Chief Executive Officer Hector Olea said. "The certificates can’t be included in project finance papers now, as we don’t know their prices."
New government policies may not be enough to stimulate renewable energy in the short term, according to Luis Alberto Salomon Arguedas, clean energy specialist at International Finance Corp.
"Developers are waiting for more benefits, such as possible tax cuts for renewable energy or different ceiling prices for each energy source," Arguedas said. "If the game rules don’t change a lot, I think the government’s target is going to be difficult to be reached."
“This is an important moment to prompt wind-energy development,” in Mexico, said Angelica Ruiz Celis, Vestas Wind Systems A/S’s general manager for the country, where the biggest turbine supplier has 1 GW of capacity installed or under construction. "Mexico is a key market for Vestas."
©2015 Bloomberg News
Lead image credit: Vestas.