Much of the credit must go to a programme known as "open season", where a group of developers commit to renting grid capacity once the infrastructure has been built by the Federal Electricity Commission (CFE), the state-run distribution monopoly. The electricity commission, together with the Energy Regulation Commission (CRE), is planning a second open season next year.
This will see around 4GW for auction in Oaxaca, Mexico’s stellar wind region, with 2.6GW wind installed by 2014. The regulation commission also wants to extend coverage of open season to Tamaulipas, which borders top US wind state Texas and has similar wind conditions.
Despite its successes, critics of the regulation commission say it has been too conservative in the level of capacity it has sought to build. There are calls to allow the private sector to develop further transmission links.
"The CFE acts as guarantor and contractor but the infrastructure is mostly used by private companies," says Raul Felix, head of law firm Baker & McKenzie’s renewable energy department for Mexico and Central America.
By committing only when it is sure it will get its money back, the CFE is a deal maker and financier as much as a builder of transmission lines, something that the private sector typically does itself in other nations. As such, it fails to take any initiative or strategic advantage of its role as a grid monopoly.
"If the CFE does not look ahead, you can have an open season with limited capacity in an area with vast effective capacity," Felix says. This is what happened in Oaxaca; an area that looks set to supply 6GW of projects but was given just 2GW to work with initially.
Oaxaca’s Isthmus region, where Mexico is at its narrowest between the Atlantic and Pacific Oceans, has world-class winds because the two oceans are so close together. Politicians in areas with names like La Ventosa (the windy place) courted federal authorities and foreign developers for decades until the industry began to form.
Felix says the electricity commission would do well to install more capacity than developers commit to, in order to save space for future developments. However, developers cite the opposite problem, that some successful open season bidders were speculators who wanted to do pre-construction studies and then sell on the project.
"There are a lot of projects on standby," says Daniel Aboytes, country manager at Spanish wind operator Iberdrola Renovables. "Some developers just don’t have the money and are trying to sell to us or Acciona or are waiting for a bidder."
Iberdrola did not participate in the first open season, but in the past 12 months it has bought the 26MW Bii Nee Stipa project from Spain’s Gamesa and the 79MW Parques de Ecologicos de Mexico project, both in Oaxaca. It won the 102MW La Venta III project commissioned by the electricity commission for its own use.
"We are going for more but it depends on who wants to sell," adds Aboytes. "It is the only option without a new open season or CFE round."
Iberdrola Renovables has a deep-pocketed parent company in Madrid that can back such purchases; that is not the case for other foreign-owned firms. In March, Spain’s Grupo Preneal sold two Oaxaca projects totalling 396MW to a consortium led by Australian Macquarie Group, largely due to problems at its Spanish parent.
However, Acciona, another Spanish firm that did not bid in the first open season, says the 4GW planned for Oaxaca in the second round seems appropriate.
"Mexico is a country with a lot of demand and needs that level of capacity," says Miguel Angel Alonso, director general of Acciona Mexico. "We did not take part in the first round — the capacity was already assigned when we arrived in Mexico but if there is a second round we would be delighted to participate."
Estimates from Mexico’s Energy Ministry, published in late 2010, say that the nation will consume 408.4TW/h of electricity in 2025 with an average growth of 4.4% a year until then.
The ministry estimates that 50.7% of electricity generation investment will come from private sources during 2011, rising to 60.7% next year. Government projections show private investment declining steadily from 2025, with nothing yet earmarked to replace it. Some 55% of generation investment for 2021 is labelled "financing under as-yet undefined schemes."
Eduardo Tabbush, a Latin America analyst for Bloomberg New Energy Finance, says: "There is financing there for good wind projects if you are a developer like Acciona, but if you are a smaller developer it could be a problem," he says. "However, in Mexico, financing has not been a major constraint."
Mexican projects can count on the support of funders including the International Finance Bank and the Inter-American Development Bank in the first instance.
"Banks with operations in Mexico, like Santander, could also do joint syndicated financing with other banks," adds Tabbush. "Other options include the US Export Import Bank (Eximbank), which can provide financing for US-built products, which are the most likely to be used in Mexico. In Honduras, Eximbank financed the whole thing." That 102MW project, Cerro de Hula — over $270 million and run by Costa Rica’s Globeleq Mesoamerica Energy — was Honduras’ largest foreign direct investment during 2010.
Some projects can seek finance from turbine manufacturers, who might buy a stake or even the whole project, providing their products are involved. There are signs that Chinese and South Korean makers are seeking a foothold in Latin America. For them, Brazil is in first place, and Mexico and Chile are next, says Tabbush. "China’s Sinoval and Guodian, and Korea’s Hyundai are actively looking at the market."
The open season structure itself is something that could easily be deployed elsewhere in the Americas, says Baker & McKenzie’s Felix.
"If the main obstacle in a nation is distribution, then this is a model that could work if the government is committed. Open season is flexible enough to work in nations where the state budget is small and decision makers have to turn to aid agencies for funding."
"This could be done via government funding or via agencies like USAid or GIZ, formerly the German development service GTZ. So far governments have not pursued funding aggressively enough," he says.
But politics could still derail the new open season in Mexico, warns José Miguel Ruiz, who runs consultancy Ingenieria Energías Renovables y Servicios.
"President Felipe Calderón has supported the industry a great deal. We don’t really know what is going to happen after the election," he says.
Mexico’s presidents only get one term and Calderón leaves office in December 2012. His tenure has seen an unusual focus on green issues, recognised by the UN last year when Mexico was named host of the UN Framework Convention on Climate Change conference.
Federico Estévez, a political scientist at the Mexican Autonomous Technical Institute, a private university, says the incoming government in 2012 is likely to back the wind industry. "There is a strong chance of continuity," he says. "If it is profitable, the government will keep looking for ways to boost the industry."
However, a new government may see a change of staff at the Energy Regulation Commission, which is an autonomous body whose leaders are appointed by the president. "A lot will depend on the choice of the Energy Regulation Commission’s councillors," says Estévez.
According to Leopoldo Rodriguez, head of the Mexican Wind Energy Association, the commission has proved its commitment to wind through at least two presidencies. "It would be naïve to say there is no political risk, but we are optimistic," Rodriguez says.