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Mexico's wind energy potential approaches takeoff as lawmakers commit to renewables

By Neil Ford

September 16 - The wind energy sector in Mexico, like the rest of the country's renewable energy industry, has been stymied for years by a national policy vacuum. Only a year ago a draft law to promote renewables continued to linger in the national assembly, as it had for three years. But things are changed rapidly, and the country's wind power in particular is beginning to realize its potential.

The Isthmus of Tehuantepec in the far south of the country has long been viewed as one of the most attractive wind areas in North America, but tight restrictions on private-sector participation and a national commitment to lowest-cost electricity constrained development.

Recently approved energy legislation, though, could open the floodgates to rapid development, and the government is setting ever more ambitious targets for wind power development before President Felipe Calderon stands down in 2012.

The Mexican government demonstrated scant enthusiasm for renewables until recently and, unlike many other countries, Mexico's state governments have had little scope to counter this inertia. Under the Mexican constitution, power generation is the responsibility of the federal government, although about a third of all electricity is now generated by independent power producers.

This centralization of authority reduces the ability of state governments to promote renewable energy within their jurisdictions, particularly as the state power company, Comision Federal de Electricidad, or CFE, is also responsible for ensuring that power is produced at the lowest possible cost to enable all citizens to benefit from electricity.

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Yet the government appears to accept the need to reduce the country's current reliance on hydrocarbons. Large hydropower dams account for 21.6% of all generating capacity, with 2.8% provided by nuclear reactors and 2% by geothermal facilities, but most electricity is produced by oil, gas and coal-fired plants.

The erosion of domestic oil and gas reserves and the fluctuating international prices for oil and gas have encouraged the government to seek alternative sources of power production to promote energy security, a particular concern of Calderon, who has been in power since 2006.

The long awaited Energy Reform Act was passed in October 2008 incorporating the Renewable Energy and Energy Transition Financing Law. The new law aims to promote renewable power production but is a first step rather than a concrete framework for investment.

It obliges the energy ministry, SENER, to create a range of renewable energy incentives, although these were not detailed in the law itself.

One important change has been made, however: IPPs are now allowed to participate in the renewables sector, although they are restricted to selling their electricity directly to industrial customers, with any excess available on the national grid at CFE's discretion.

Under the new law, power producers are encouraged to make use of the Clean Development Mechanism of the Kyoto Protocol. Additionally, the law established the Fund for Energy Transition and the Use of Energy with an initial 3 billion Mexican pesos ($230 million) for 2009 to support renewable energy projects.

The new law has been in place for less than a year, and though it is still too soon to determine its worth, the lack of detail and mandatory targets could weaken its impact.

Expanding wind power production

SENER has taken some steps to put the law into practice. It delivered a draft version of a new regulatory framework for implementing the law on June 23 to Mexico's Federal Regulatory Improvement Commission. SENER's proposed regulatory framework is designed to implement the renewable energy law through several measures, including setting up a Consultative Council for Renewable Energies in Mexico. The council would comprise eight state representatives and an unspecified number of members from renewable energy businesses.

The proposal also would establish a national inventory of renewable energy that would be available on SENER's Web site and would enable SENER to draft annual renewable energy plans.

Further, the proposal calls for renewables to be integrated in Mexico's national industrial development plans and introduces a requirement for public contests to be held to develop renewable energy and efficient cogeneration projects in accordance with established targets.

From a very low base, the Mexican wind power sector is on the verge of expanding out of all recognition. Installed generating capacity stood at just 3 MW in 2005, growing to 87 MW by the end of last year, including 83.3 MW at CFE's La Venta I and II projects in Oaxaca State, which were completed in early 2007.

A combination of government support, lower costs and growing international confidence in the long term future of wind power should cause this figure balloon in the near future.

The government has instructed CFE to allow private sector investors to lead the investment drive, although CFE rather than national energy regulator Comision Reguladora de Energia, or CRE, is overseeing the tender process for planned projects.

The government estimates the nation has 40 GW of wind power potential. Though several parts of Mexico are attractive to developers, including Baja California and Hidalgo, most investment is likely to be concentrated in Oaxaca on the Isthmus of Tehuantepec, where the proximity of the Pacific Ocean and Caribbean Sea produces average wind speeds exceeding 10 meters/second, according to CRE estimates.

The region's resources are underlined by the fact that the state wind power institute is based in the Isthmus, in a town called La Ventosa, or the windy place.

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