Market Status: Mexico - Awaiting pay model in market reform

MEXICO By the end of 2014 the country had 732MW of new wind capacity under construction, all of which will enter operation in 2015, according to Mexican wind energy association Amdee.

Current political backdrop

Energy transition law, passed by lower house, will go before the Senate for approval in the first half of this year. A remuneration scheme for renewables, possibly based on saleable green certificates, could be ushered in, either parallel to or replacing current PPA model

High point of 2014

Building started on the landmark 234MW Bii Hioxio project, developed by Gas Natural

Low point

Opposition from local indigenous community forced developers to abandon 396W Marena project in Oaxaca

Key issue in 2015

Liberalisation aims to open untapped oil and natural gas resources to foreign investment; plans to build gas pipelines to convert diesel and oil-fired power stations to cheaper natural gas. Both measures aim to slash consumer energy prices. Ensuing low wholesale electricity prices could mean wind will need price support mechanism

By the end of 2014 Mexico had 732MW of new wind capacity under construction, all of which will enter operation in 2015, according to Mexican wind energy association Amdee. That would mark a 40% increase on the 522MW of new capacity installed last year, as recorded by the Global Wind Energy Association (GWEC). It would also beat's Mexico's previous best annual figure of 662MW reached in 2012. Amdee predicts Mexico will finish 2015 with more than 3.1GW online, up from 2.38GW at the end of last year

Major events in 2014 included the start of construction on the 234MW Bii Hioxio project, developed by Gas Natural, one of the many Spanish firms that dominate Mexico's wind market. Bii Hioxio is scheduled to come online before the end of the year, using turbines from Gamesa, which has installed 1.36GW or 42% of the market.

Italian utility Enel connected its 100MW Dominica 1 project in San Luis Potosi state, also using Gamesa turbines. It is one of a growing number of projects outside Oaxaca, the state that until 2013 all but monopolised Mexican wind and still contained 70% of the country's online capacity at the end of 2014.

Beyond 2015, Amdee believes Mexico can add just over 1.5GW of new wind capacity annually to 2018. That would meet the government's 9.5GW target set in its wind energy plan for 2014-18, which was announced last November but is yet to be published. Yet observers view that goal as overly ambitious. "We don't see more than 4GW of new capacity as likely to 2018," says Brian Gaylord, a senior analyst at Make Consulting.

The perceived stumbling block is the ongoing power sector reform, which, almost a year after the deadline, still has not established a pay mechanism for wind within the liberalised electricity market the government is creating. The government is leaning towards a system of saleable green certificates, believes Ramon Fiestas, who chairs GWEC's Latin America committee. This would provide additional income to the power price achieved on the wholesale electricity market currently under creation, ending state utility CFE's 75-year power-generation and trading monopoly.

The wind sector is hoping the existing mechanisms of private power purchase agreements (PPAs) and public calls for offers will continue. Private PPA prices are trending at $90-100/MWh, while public contests are settling at around $65/MWh.

While smaller and less experienced players prefer to wait and see, many experienced developers and offtakers are still signing PPAs, says Gaylord, enough to keep the market moving forward. Big PPAs signed last year included Enel's 200MW Dominica extension, EDP's 180MW Hipolito project in Coahuila state, and Mexico Power Group's 180MW La Buga wind farm in Zacatecas.