Mexico tapping wind potential

The historic overhaul of Mexico’s energy sector could shift the direction of its nascent wind power industry to the huge market north of the border.

Texas has tapped the Mexican grid several times this year when available Texas power nearly fell short of winter heating demands, and Mexican officials believe the Lone Star State and California are promising markets for renewable energy.

“Most of the time we import from you, but the few weeks you import from us, it is very good for us,” said Maria de Lourdes Melgar Palacios, undersecretary of hydrocarbons at Mexico’s Ministry of Energy, in an interview with the Houston Chronicle.

With constitutional amendments passed late last year, Mexico took the first steps toward opening its nationalized energy industry to private, international investment for the first time since the 1930s.

While much attention has focused on the potential for strengthening Mexican oil production with an infusion of capital and technology, the restructuring also may breathe new life into wind and other electric power generation.

Mexico began developing wind power during the 1990s in the southern state Oaxaca, and since then Mexican regulators have issued permits in other locations, including the border states of Baja California, Tamaulipas and Nuevo Leon.

North of the border, meanwhile, California has established that at least a third of its electricity must come from clean energy by 2020. The state can’t meet that target with its existing generation, which could give Mexico a huge market for its wind power.

“Clearly, California has the demand and Mexico can produce it,” said Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center.

Mexico has only begun to tap its wind potential, estimated at 71,000 megawatts, enough to supply Texas on all but its hottest summer days.

As of 2012, Mexico had more than 1,000 megawatts of installed wind capacity and 2,000 megawatts under construction, according to a report by the Woodrow Wilson Institute.

Sizable investments

In 2012, San Diego-based Sempra signed a 20-year, $820 million agreement with the city of San Diego for power from Sempra’s Energia Sierra Juarez plant in La Rumorosa, Baja California.

The plant is the first of several wind projects Sempra plans in Mexico, with collective capacity of 1,200 megawatts, to supply California with some of the renewable energy it needs to meet its targets.

Spanish-owned wind firms Gamesa and Acciona have made sizable investments in Mexican wind projects, and more U.S. companies are eyeing the market with interest.

“We have monitored the Mexican renewable market quite closely and believe it has great potential for wind energy,” said Adam Renz, a spokesman for EDF Renewables, an independent renewable energy operator in San Diego.

Despite the interest, wind development in Mexico faces at least one obstacle – lack of transmission in parts of Mexico to link wind farms, often in remote locations, to population centers. The issue is especially acute in Baja California, a peninsula that lacks direct connections with the national grid.

Sempra plans to build transmission capacity for its planned wind farms.

Saw an opportunity

The possibilities for a more robust Mexican wind power industry, which could help provide electricity on both sides of the border, began several years before the overhaul policymakers are developing now.

Under legislation passed in the middle of the last decade, the state-owned power monopoly relaxed its rules and allowed private companies to generate electricity for their own use. It goes to the public grid, but companies can buy the amount they generate at a discount from Mexico’s typically high power prices.

“Mexican electricity rates are extremely high – about double those in the U.S.,” said the Wilson Center’s Wood.

Mexican firms saw that as an opportunity for wind energy, he said, especially in Oaxaca, where the breezes are considered especially suitable for wind generation.

Lower prices that only benefited certain private companies, however, spurred public backlash, street protests and hundreds of lawsuits against wind companies in some communities where wind projects were proposed. Some projects were canceled because of the opposition.

“People feel they should get some benefit of lower electricity prices,” said Cymene Howe, an anthropology professor at Rice University who spent a year in Oaxaca studying the sociological impacts of wind energy development. “The fact that all this magical green energy is going to Wal-Mart and Coca-Cola instead of to the local communities is a bone of contention.”

The energy overhaul, which will allow some private competition against Mexico’s oil monopoly Pemex, similarly affects the power monopoly.

Competition in the power generation arena, from renewable or conventional generators, could lower power prices across the board, supporters say, cooling at least some of the community objections to wind farms, solar arrays or fossil fueled power plants.

Melgar, the energy ministry official, who is helping draft new laws that will underpin the energy revamp, said that the Mexican government is trying to ensure that community rights are projected while still encouraging these renewable projects.

Competitive projects

Even as opposition has slowed some Oaxacan wind development, two 45-megawatt wind projects, in Baja California and Tamaulipas, have received financing from the North American Development Bank, a joint U.S.-Mexico venture that finances projects aimed at improving life along the nations’ border.

Geronimo Gutierrez, managing director of the bank, said electricity prices are high enough in Mexico to make solar and wind projects competitive, even without government subsidies of the type that support such projects north of the border.

And while the wind itself isn’t as reliable in Tamaulipas as in southern Mexican states, the projects have been more successful as a whole, managing to avoid the community conflicts that affected projects farther south in Oaxaca.

“If the developer is careful in addressing the community issues when the project is being developed, there is no problem,” said Gutierrez. “The project can provide an important source of income for the community. It is not a rule per se that you will have problems – it is a matter of doing things carefully.”