California eyes up Mexico resource

During 2008, California lost its position as the state with the largest volume of wind power generation in America, slipping down to third place behind Texas and Iowa. Transmission bottlenecks and a difficult permitting environment have restricted new capacity additions to no more than about 500 MW over the past five years -- in a state which by law must acquire 20% of its electricity from renewables in 2010. Wind, however, could still save the day.

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California has some of the most ambitious green power goals of any state, yet difficulty getting more renewables online has wind developers thinking outside the box -- and outside America's borders -- to the Baja California deserts in Mexico

During 2008, California lost its position as the state with the largest volume of wind power generation in America, slipping down to third place behind Texas and Iowa. Transmission bottlenecks and a difficult permitting environment have restricted new capacity additions to no more than about 500 MW over the past five years -- in a state which by law must acquire 20% of its electricity from renewables in 2010. Wind, however, could still save the day. The impending construction of transmission lines into Baja California, as the Mexican peninsula south of the US border is known, is putting at least 10 GW of potential wind power resources within reach of US developers.

The Sunrise Powerlink, a proposed 200 kilometre transmission line running east from San Diego and along the border with Mexico, is widely viewed as the key to Baja wind reaching the California grid. It was recently approved by the California Public Utilities Commission. Barring court delays by environmental objectors, the Sunrise Powerlink will be fully online by 2012 -- just in time for the first batch of planned Baja California wind plant.

Developing wind projects in Mexico is easier and cheaper than in California and is more cost efficient than the current vogue for transmitting power to the state from wind farms in the American Northwest, says Gary Hardke from Cannon Power Corp, a veteran of the Californian wind industry. The company owns rights to land in Baja California with 1 GW of wind potential. "Instead of 800 miles, it's only 100 miles to San Diego [in California]. So it's a fraction of the distance. The wind resource is at least as good and probably a lot better," says Hardke. At least five wind farm developers are already lining up to start building projects (table).

According to California's electricity market regulators, state utilities, which currently get around 13% from renewables, will collectively fail to achieve their 20% mandate for next year. Baja California could fill the gap. Many of the same geological features responsible for excellent wind resources in southern California's San Gorgonio Pass, where thousands of wind turbines turn and capacity factors average about 40%, also exist in Mexico. The proof can be seen during a car ride south along Interstate 8, says Hardke. "As you go out, you kind of go up the side of a mountain range and then it just falls dramatically down to the desert floor," he says. "You've got the wind coming up high over the mountains and then the hot desert floor that just draws the wind in. The capacity factors that we see along the ridges are well into the mid-thirties and up."

Demonstrable data

A recent study of California energy potential using data from wind resource consultancy AWS Truewind and the National Renewable Energy Laboratory concluded that the geological contours of the northern Baja California region and wind speed measurements at a height of 50 metres create potential for at least 2.7 GW of wind capacity. Developers call that an overly conservative analysis using limited data. The potential could exceed 10 GW and possibly reach 20 GW, says Jim Walker of the American Wind Energy Association and wind developer Enxco, a subsidiary of France's EDF Energies Nouvelles. His interest in Baja California, though, is not through Enxco, but through a partnership with wind developer Asociados Pan-American (APA Wind). The capacity claim comes with some qualification.

"Obviously a lot of it has to be adjusted to site constraints and transmission constraints, but I think if we lived on the border there, we would be talking about it as much as we are talking about Tehachapi," says Walker, referring to California's Tehachapi Pass, a windy area with about 700 MW of operating wind turbines where over 4.5 GW of new development is expected once new transmission cables are connected in either 2011 or 2012 (Windpower Monthly, April 2008).

Several developers apparently share Walker's confidence, demonstrating their interest by lining up in the grid interconnection queue. California's Independent System Operator (CAISO) reports about 5 GW of requests. Nicolas Puga of Washington DC law firm Bates & White, who studied the wind potential of the Baja California region for the California Energy Commission, points out that developers often apply for separate interconnection options for a single project and that requested interconnection capacity also tends to exceed actual megawatts brought online. "Even with those caveats, this clearly indicates that a significant wind capacity could develop in the northern Baja California region over coming years," he says.

Most wind developers hope to have their first Baja California wind plant built by 2012. One of those most likely to start construction in a relatively short time frame is Spanish utility giant Unión Fenosa. Through a partnership with Mexican renewables developer Zemer Energia, Unión Fenosa says it has obtained land rights and is exploring options for exporting power north to California with construction of 500 MW of wind plant expected to break ground in 2010. Puga says Unión Fenosa will tap an $8 billion investment fund to compete in the global renewables sector with Spanish rival Iberdrola. Unión Fenosa has also achieved years of record profit, netting EUR 1.19 billion in 2008. "What's interesting is that in this [financial] climate, they have the money," says Puga. "The money is already internally financed for its Baja California plans, so it's not subject to vagaries of project finance."

Another Baja California hopeful is American Sempra Generation, a cash-rich international power company with subsidiaries that include major California utility San Diego Gas & Electric (SDG&E). Sempra has never developed wind power, but bought its way into the Baja California potential with the acquisition of a project portfolio from Cannon Power last year. Sempra has placed a request with CAISO for up to 400 MW of power connection with California in 2010. It already has a power purchase agreement with Southern California Edison for 250 MW of wind plant.

New players

Sempra's Art Larson says the company expects a first phase of wind plant of between 150-175 MW, beginning construction in 2010 and fully online by 2012. Sempra's site is close to the US border in the La Rumorosa region and will require a five kilometre private transmission line into California to connect with existing Southwest Powerlink transmission. A new substation east of Jacumba, California -- to be constructed and operated by SDG&E -- will support transmission of the new wind power to the regional grid. Potential wind power capacity on land under Sempra control totals 1 GW.

APA Wind, for its part, took over a 1 GW request for grid interconnection from Enxco when Enxco chose to focus on wind projects in the US and Canada instead. APA Wind has secured the right to develop land owned by the Pai Pai Indigenous Community of Mission Santa Catarina (box). The site is further south than the La Rumorosa area but still close enough to connect economically to southern California. Although Enxco has no formal stake in the Baja California project, there is "interest in the project should it move forward," says Enxco's Mark Tholke. APA Wind has already sold a wind farm to Enxco parent EDF, the 67.5 MW La Ventosa station near Oaxaca, Mexico, using Clipper Windpower turbines. It is among some 450 MW of new wind expected online this year in Mexico (Windpower Monthly, March 2009). Steve Taber from start-up company Nordic Windpower, which is attempting to launch an unusual turbine design onto the market with only two blades instead of the traditional three, is also a key partner in the APA venture, although his participation has no bearing on which turbines would be used.

Meanwhile, Clipper is also active in Baja California as a developer through a partnership with small Mexican firm Fuerza Eólica. Neither company can match the war chest of Sempra or Union Fenosa, yet Fuerza Eólica is alone among all the developers in having already secured power export permits from Mexico's Comisión Reguladora de Energía -- one of many permits that all developers selling from Baja California into the US will eventually need.

Mexican incentives

Raising finance is a hurdle to getting projects underway, though it should not be insurmountable. Projects in the Baja California deserts, even if they are exporting power across the northern border, are not eligible for tax credits or other incentives in the US. Mexico, however, provides its own market supports. Two years ago, the country approved a tax break similar to the accelerated depreciation tax incentives in the US. A company operating in Mexico with sufficient tax liability can deduct money spent on renewable energy equipment from taxes, for one year. Only costs directly related to wind turbine equipment and installation can be claimed, but Sempra's Larson says between 60% and 70% of project costs fall into this category. Property costs are excluded. In practice, the tax savings can reduce total wind project costs by between 15-20%.

Puga says both Union Fenosa and Sempra can avail themselves of the tax benefit, as both are active in Mexico. Others, such as APA Wind, would not be able to use it directly, but Walker says the company could offer an equity stake to any of several local companies that would be able to. Walker says APA is also considering building the project under the Kyoto Protocol's Clean Development Mechanism, enabling it to sell certified emission reduction units to buyers in developed countries trying to reduce carbon emissions. Unlike California, Mexico has no sales tax -- one of several additional competitive advantages available in the neighbour to the south. "We believe if you piece those together you can come out to something comparable to incentives in the US," says Walker.

Ultimately, congestion on California's grid is the largest obstacle to developing wind power in Baja California, though the Sunrise Powerlink could reduce the barrier. Puga says building a large transmission line able to accommodate multiple wind plant would likely be the most efficient way to export power to California. He adds, however, that most developers currently plan to build private lines and that early comers may use such a tactic to monopolise zones of development.

Nonetheless, Walker says that APA -- which has not secured a transmission line -- would welcome the opportunity to co-operate with other developers to build one. Developers can apply for up-front construction funds through a California support mechanism in which that money would be paid back through fees from the developers and electricity consumers. Developers must convince California authorities of intent to build wind plant and of resource availability. Wires construction at Tehachapi already underway is funded this way.

So far, Puga says California regulators have expressed too little confidence in Baja California's potential. The US state is identifying necessary transmission projects through its Renewable Energy Transmission Initiative (RETI), but Baja California has not appeared on the radar.

"RETI basically have taken the position that since they didn't have any sources of data that they considered good enough, they were simply going to ignore the 800 pound gorilla in the room that's Baja wind," says Puga, adding that politics are also a factor: development in the Mexican region of Baja California would not provide much tax revenue or jobs to California in the US.

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