Mexico is on track to elevate its renewable power capacity to 5,700 MW or 7.5% of its energy matrix by 2017 but that is a drop in the bucket when considering the Aztec country's clean energy potential, according to industry observers.

"The administration's goals are little ambitious when considering the potential Mexico has to develop clean and sustainable energy," says Gustavo Ampugnani, a Greenpeace director in Mexico City. 

In a study last year, Greenpeace slammed the government for failing to launch a viable plan to replace fossil and nuclear energy sources for renewables. It said the country could satisfy 95% of its electricity requirements from green energy by 2050 and 42% by 2015. 

So far, Mexico generates 3.5% of electricity from green sources, most from nuclear and geothermal which account for 2.3% and 1.63% respectively of the total with wind comprising just 0.14%, according to consultants at Frost & Sullivan. In the medium term, this is expected to rise to 5% of total electricity generation, now totaling 50,000 MW. 

In 2017, the country will elevate its generation capacity to 76,000 MW of which 7.5% will be renewables with wind accounting for 0.77%, geothermic 2%, nuclear 1.79%, hydraulic 19% (from 16% now) and solar too small a share to mention. 

Wind Power and Biogas

When looking at Frost & Sullivan's estimates, it's clear than wind will lead the renewables game in Mexico in the foreseeable future but observers also expect that biogas will be developed.

"There are many biogas projects planned and the government is backing this sector's development," says Julio Campos, a consultant at Frost & Sullivan's renewable energy team in Mexico City. "The CNE (energy watchdog) has issued eight permits to independent power producers to use biogas as their primary energy source.

Campos predicts biogas output could grow 50% from some 50 MW of installed capacity currently in three years. He says Mexico is "working hard" to develop a biogas production model for each of the country's region that will help assess how much the country can actually produce in future. 

However, he says financing and an orderly process to treat and use residue feedstocks is also required for the sector to properly develop. 

Mexico processes some 110,000 kilos of organic residues a day, so developing biogas would be a cheaper bet than biofuels at a time when the country's economy - Latin America's second biggest - is still reeling from recession. 

Campos says there are currently 2-3 projects under consideration to produce biogas in the Jalisco (home to third-largest city Guadalajara) and in the Sonora province in Northern Mexico. Each is likely to have an installed capacity of 5-10 MW. 

Indeed, biogas seems to have the most ambitious agenda, at least when based on projects, for near term development. 

In the next three years the wind sector is unlikely to announce new projects after Iberdrola executives hinted that they might reduce investments in Mexico, mainly because of low electricity rates from electricity grid operator CFE, according to two sources familiar with the company. 

Meanwhile, solar is fetching little attention, due to high prices for solar panels. Apart from a recent 400 MW project, won by Spain's Abengoa, there isn't much planned for the sector in coming years. 

Biofuels too, are developing at a sluggish pace with blending rates expected to reach 3.2% in 2012 after missing previous targets amid criticism that state oil giant Pemex is unable to pay a viable price for producers. 

"The government continues to support oil and natural gas production," Campos adds. "They still think we have a lot of oil even though many disagree with that or outright deny it."

Mexico's oil production has fallen sharply in recent years as some of its fields have maxed out though Pemex is working to extract new capacity from shallow-water deposits while striving to boost drilling efficiencies. 

Weak Commitment 

In a show of the state's commitment to to natural gas, combined-cycle power capacity is expected to rise to 45% of total generation from 33% now by 2017.

A nuclear-power build up may also be in the works, Ampugnani said, adding Mexican authorities recently said the country is unlikely to face a similar disater to Japan's Fukushima and that 2-10 nuclear power stations could be built by 2024. 

"They have hinted that the way to solve Mexico's future energy problems is with nuclear and this shows a lack of creativity, leaving all the potential for solar, wind, geothermal and sea-based generation up in the air," Ampugnani adds. 

The government has failed to develop renewables mainly because of their high cost, he notes, but "they simply don't realize that KW/hour renewable generation costs are falling around the world while nuclear's are rising."

Ampugnani says Mexico ranks number 14 in the world's 20 most developed economies in terms of renewable investments, just ahead of Turkey, Argentina and South Korea.