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Renewable Energy Review: Mexico

Developers, manufacturers, investors and other renewable energy industry stakeholders need to know where the next big market is going to be so that they can adjust their business decisions accordingly.

Climate Change Law Implemented

October saw the official implementation of Ley General de Cambio Climático, or the “General Law on Climate Change,” The legislation, passed in June this year, is one of the strongest national climate change laws to date and represents a robust foundation for Mexico’s transition to a low-carbon economy.

The law establishes a goal of cutting greenhouse gas emissions by 30% below business-as-usual levels by 2020, and 50% by 2050. It also calls for a major increase in the use of clean energy sources to generate up to 35% of electricity. Other measures include the establishment of a carbon trading market and mandatory emissions reporting by all major economic sectors.

The Government has created a public body to oversee the implementation of the bill — the National Institute of Ecology and Climate Change will involve both the Energy and Finance Ministries, and will help design a decentralized governance model that provides support by coordinating, analyzing and evaluating compliance with the new Climate Change Law.

The law also encourages both government and private sector entities to jointly invest in education, R&D and technical innovation to reduce emissions, as wellas setting up tax breaks to increase the financial attractiveness of clean energy.

Barriers

While few doubt that the new climate change law represents a turning point in Mexico’s energy agenda, there are some concerns that the country still lacks a clear regulatory framework for attracting the substantial private investment required to fulfil these ambitious renewable energy and emissions targets. The Government may find that some sort of financial subsidy is still required to make renewables projects cost-competitive with more conventional sources such as gas.

Further, there are some concerns around whether Mexico’s incoming Government is likely to implement much of the climate change reform passed by current President, Felipe Calderon. President-elect, Pena Nieto, who takes office this December, has publicly affirmed his commitment to fighting climate change, but some believe his Administration is more likely to focus on conventional fuels given increasing shale gas production in the US and the prospect of large recoverable reserves in Mexico. One of Nieto’s main campaign promises had been to reinvigorate oil and gas production by reforming state-owned giant Pemex to allow more private investment.

This, combined with pressure to deliver GDP growth, may take focus away from the renewables sector in the short term. However, it is perhaps too premature to dismiss the potential of the recent energy reforms — the incoming Government has a unique opportunity to establish Mexico as a leading 21st-century low-carbon economy, and only time will tell the extent to which this opportunity is realized. 

As of October 2012, Mexico has 74 renewable energy projects in the pipeline, representing around US$8.60b (€6.66b) of investment, which Mexican authorities believe will encourage significant foreign investment. 

Bond Market Rises from the Ashes

July saw a re-ignition of Mexico’s first-time bond issuer market following a two-year drought, due in part to the European debt crisis eroding demand for higher-yielding securities. Spanish construction company, Acciona SA is seeking to issue US$332m (€256.27m) of debt due in 2013 to finance two wind projects in the country. Established borrowers have increased offerings to take advantage of record-low yields caused by near zero interest rates in other markets. However, Acciona is expected to be successful as a debut issuer due to the fact its wind projects have the backing of the Mexican Government. 

Technology News

In July, Gamesa Corp. Tecnologica SA, Spain’s biggest turbine maker, completed a 74MW wind power farm in Oaxaca for Italy’s Enel Green Power SpA at an estimated cost of US$160m. Meanwhile in late October, three new wind farms (La Venta III, Oaxaca I and Piedra Larga) with a combined capacity of 390MW became operational. The Energy Ministry anticipates the country’s wind power capacity will surpass 1GW by the end of the year and will reach 5 GW in two years. 

In September, Martifer SGPS SA, a Portuguese construction and energy company, agreed to build a 20MW solar park in northern Mexico, while South Korea’s LG Corp announced that it is considering building a 100 MW solar PV plant in Sonora, a state that has an estimated 2 GW of solar potential. 

In September, Mitsubishi Heavy Industries Ltd. and Mitsubishi Corp. agreed to build a 50MW geothermal power plant for Mexico’s state-owned power company Comision Federal de Electricidad.

For more information on renewable energy development in Mexico, contact the report's authors Alberto Ochoa and Julián Vega.

Lead image: Mexico flag via Shutterstock

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