Making the most out of Mexico

Wind power is continuing to scale the sizeable barriers to Mexico's energy market. A number of players -- including some surprise newcomers -- are moving ahead with projects that could add over 400 MW to the country's 38,500 MW of generating capacity, of which wind power to date has a minuscule 2 MW slice.

Mexico's state controlled power market is a tough one for wind developers to penetrate, but several hundred megawatts of projects are well under development and there are others on the horizon, plus hopes of a market reform bill

Wind power is continuing to scale the sizeable barriers to Mexico's energy market. A number of players -- including some surprise newcomers -- are moving ahead with projects that could add over 400 MW to the country's 38,500 MW of generating capacity, of which wind power to date has a minuscule 2 MW slice.

Nationalist sentiment runs high in Mexico. State power company Comisión Federal de Electricidad (CFE) has a stranglehold on all areas of the power sector, allowing limited private sector participation only in projects that either export power out of Mexico, self-supply projects that sell power exclusively to named clients through CFE contracts, engineering procurement construction (EPC) contracts for the CFE, and in projects by independent power producers selling to the CFE under long term power purchase agreements (PPAs).

Despite the tight reign on private sector generation, wind power companies are making progress. Projects for power export, EPC contracts and self supply are all in the works, though securing a PPA from CFE as an independent producer remains an elusive achievement.

exporting power

Project developer Fuerza Eolica de Baja California won permission in July from CFE for a 300 MW plant in Baja California, from which it will export power to the United States, and more recently for a 30 MW self supply project, this time in Oaxaca state, that will sell power to the Cruz Azul cement company. Also in Oaxaca, a relatively unheard of Spanish company, PSI Ecuación de Onda, secured CFE permission for a 102.5 MW plant at La Ventosa two months ago, to feed power to an oil refinery and possibly to the Wal Mart supermarket chain. Not to be outdone, CFE says it is planning its own 50 MW wind plant at La Ventosa, for possible inclusion in its 2003 budget, and plans to call for EPC bids under its "financed investment" mechanism, says renewables boss Gerardo Hiriat le Bert. Meanwhile, the Baja California government may seek a wind power company to partner it in developing a 300 MW project to supply the city of Mexicali.

Fuerza Eolica intends to export all of the generation from its 300 MW Ejido Jacume plant, to be built near Tecate, to US company Clipper Windpower. The projected annual generation of 830 GWh will be churned out by 40 GE Wind 1.5 MW turbines to be erected next year, with a further 160 going up in 2004. The project secures the company a strong foothold in Baja California, making it an obvious partner for the state government's wind development ambitions, which also require financing. State public works secretary Arturo Espinoza says pre-feasibility studies for the Mexicali project will be complete in January.

In the south of Mexico, the Oaxaca state government is keen to promote both the generation of wind power and related manufacturing. Developers say the government has done a lot to iron out the prickly issue of land ownership and is lobbying the CFE for a larger scale transmission line to transport potential wind power out of the area.

PSI Ecuación de Onda won its 102.5 MW La Ventosa permit in competition with industry stalwarts like Gamesa, DeWind and Fuhrländer, and international giant ABB. PSI owns 60% of the project, Parques Ecológicos de México, and is negotiating with Gamesa for the supply of 82, 1.25 MW turbines. If the talks fail, PSI could buy turbines from its technical partner, DeWind Iberia, or from Nordex, says PSI business director Eugenio Campanillas. First phase construction is to start in February-March.

He adds that a PPA with the refining arm of state oil company Petróleos Mexicanos (Pemex), probably to run for 12-15 years, is imminent. Campanillas expects that Pemex's Salina Cruz refinery will buy 100% of the 20 MW first phase. Although the CFE permit named other eligible power purchasers as the Apasco cement company, steel maker Hylsa, the San Angel corporation and Volkswagen's Puebla plant, Parques has since started talks with US retailer Wal Mart, which could buy some of the second phase power, Campanillas says. Wal Mart facilities, however, are as far away as Guadalajara and Monterrey, so any deal is conditional on the CFE offering low-price transmission. The term and interest rates of the 80% first-phase loan from Spanish bank Santander will depend on the final version of the PPA. Parques is stumping up the 20% project equity.

There are no local or federal government financial or fiscal incentives for wind power in Oaxaca and the project will compete directly with established generation. Parques is confident he can undercut the $0.06-0.08/kWh that industrial sector clients typically pay for their power. "Profitability fundamentally depends on two things," says PSI's Emilio Marconel, "power prices and the wind available. We have no worries on the prices, and wind in the area is fantastic." He says site wind speeds are 10-12 m/s with 3300-4000 windy hours a year. The resulting high capacity factor of 46% will give annual generation of 472.14 GWh, according to the CFE permit. Parques already has a grid permit and an agreement with state power company CFE for the supply of back-up power at times of insufficient winds, Campanillas adds.

Life in Mexico may become easier for independent power producers. The impossibility of the government meeting the estimated $56 billion investment needed in power generation over the next ten years has led to congressional discussion of a power reform bill that would open the door to more private sector participation.

The passage of the bill is by no means certain. But while debate continues, wind companies will continue to concentrate on what is available to them, working with state governments to develop wind projects in their region and with industrial and commercial sector clients looking to reduce the cost and improve the reliability of their power supplies. By securing supplies of renewables power, Mexican companies, coming under pressure to improve environmental standards, can also offset their less green activities with clean electricity consumption.

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