Wind Power in Mexico By Marco A. Borja (IIE)

On 28 November 2008, the government of Mexico issued the Law for the Use of Renewable Energy and Financing of Energy Transition (Ley para el Aprovechamiento de Energías Renovables y el Financiamiento de la Transición Energética).

The new law will pave the way for a significant deployment of wind power within the next years and decades. In August 2008, the government of Mexico, by means of the Federal Electricity Commission (CFE), awarded a contract for 209 million USD for the construction of a 300-km electrical transmission line for wind energy projects. The new line will be rated at 2,000 MW and will be shared by several wind project developers that also will share proportionally a long-term payment obligation for the line. The transmission line will be commissioned by the end of 2010. CFE issued a second call for bid to construct a 100-MW wind power plant within the independent power producer (IPP) modality (La Venta III) after a first call for bid was declared void. Results of the bidding process will be known by May 2009. CFE issued another call for bid to construct another 100-MW wind power plant, also within the IPP modality (Oaxaca I).

According to plans of several wind power developers that already have obtained permits granted by the Energy Regulatory Commission, about 2.2 GW of wind power capacity will be installed within the next three years. The new Law for Renewable Energy instructs the Ministry of Energy to prepare and co-ordinate a Special Program for the Use of Renewable Energy. The program is to include specific goals established as minimum percentages in capacity (MW) and energy (MWh) and the strategies and actions for achieving them. By the end of May 2009, the program will be presented for consideration and approval by the president of Mexico.

Mexico’s largest wind energy resource is found in the Isthmus of Tehuantepec in the state of Oaxaca (Figure 1). Average annual wind speeds in this region range from 7 m/s to 10 m/s, measured at 30 m above the ground. Given the favorable characteristics of this region, particularly its topography, it is estimated that more than 2,000 MW of wind power could be commercially tapped there. In fact, during 2008, La Venta II, the 83.3-MW wind power plant owned by CFE, operated at a capacity factor of around 34%. This compares favorably with capacity factors of wind power plants located in the best inland sites in the world.

National consumption of electricity is expected to grow from 209.7 TWh in 2008 to 281.5 TWh in 2017, representing an increase of 71.8 TWh of electricity generation equivalent to about 14 GW of additional generating capacity. Of this, 3.5 GW are already under construction or planned, the majority using combined-cycle gas-turbine technology. The remaining 10.5 GW will come from new projects. An opportunity therefore exists for supplying a reasonable portion of the uncommitted 10.5 GW of new capacity using Mexico’s wind energy resource.

Progress Toward National Objectives

The Law for the Use of Renewable Energy and Financing of Energy Transition is a sound signal from the government of Mexico regarding both political will and commitment for energy diversification toward sustainable development. The regulatory instrument for this law will be issued by mid-2009.

The main elements of strategy that are already included in the new law for renewable energy are: Strategic goals; Special Program on Renewable Energy; Creation of a green fund; Access to the grid; Recognition of external costs; Recognition of capacity credit; Technical standards for interconnection; Infrastructure for electricity transmission; Environmental standards; Support for industrial development; and Support for research and development.

By the end of 2006, CFE commissioned Mexico’s first significant-capacity wind power plant (La Venta II). It is rated at 83.3 MW and has 98 850-kW wind turbines from the Spanish manufacturer Gamesa Eólica. The plant is owned by CFE and was constructed under the modality of financed public work. This means that a private contractor is responsible for the financing and construction of the wind power plant, and CFE pays the contractor the total amount of the contract when the plant is commissioned. After that, CFE owns and operates the plant. La Venta II is becoming an important project within CFE to increase knowledge about how to merge wind power technology into the national electrical system, to gain confidence on operation and maintenance issues, to assess direct and indirect benefits, and to learn about all those technical issues that are not very transparent in the commercial arena.

La Venta II was constructed in one of the windier sites in the Isthmus of Tehuantepec. It is expected to operate at annual capacity factors above 40%. The estimated investment cost of this plant was 1,370 USD
per installed kilowatt, not including the cost of the transmission line. The contract for construction was awarded to the Spanish consortium Iberdrola – Gamesa. In mid-2007, Parques Ecológicos de México S.A., an association led by the Spanish company Iberdola, began construction of the first privately owned wind power plant for self-supply purposes. Rated at 79 MW, the plant is being built with 93 850-kW wind turbines from the Spanish manufacturer Gamesa Eólica. By the end of 2008, most of the wind turbines had already been installed; the plant is scheduled to be commissioned in February 2009.

In mid-2008, Bii Nee Stipa S.A., an association led by the Spanish company Gamesa Energía, began construction of the second privately owned wind power plant for self-supply purposes. Rated at 22.9 MW, the plant is being built with 26 850-kW wind turbines from the Spanish manufacturer Gamesa Eólica. By the end of 2008, most of the wind turbines had already been installed; the plant will be commissioned by mid-2009.

In mid-2007, CFE launched a call for bid to construct a 100-MW wind power plant within the IPP modality. The bidding included a potential complement to the electricity buyback price of about 0.015 USD/kWh that would be granted by the Global Environmental Facility through the World Bank. Only two consortiums (both Spanish) participated in the bidding. Unfortunately, the bidding process was declared void. One of the companies was excluded during the evaluation of the technical offers while the other was excluded during the evaluation of its economic offer. In 2008, CFE issued a second call for bid for this project. Also during 2008, CFE issued another call for bid to construct another 100-MW wind power plant within the IPP modality (Oaxaca I). The results of both bidding processes will be made known in 2009.

In 2008, Eurus S.A., a consortium managed by the Spanish company Acciona and the Mexican company Cemex, started construction of a 250-MW wind power plant in the Isthmus of Tehuantepec. It will include 166 1.5-MW wind turbines manufactured by Acciona. By the end of 2008, about 25 wind turbines had been installed (but not commissioned yet). The project was suspended because of some disagreements with a group of local people; it is expected that a win-win agreement will be reached so construction of the project may continue as soon as possible.

Benefits to National Economy

The wind power market in Mexico is still in its early stage, and negotiations between interested parties are still in progress. The major companies of the industrial sector are very interested in electricity self-supply projects based on wind power, and several companies are evaluating their economic feasibility. In addition, several municipal governments, as well as organizations of the trading and services sectors, are in similar positions. Indeed, several important companies have already obtained permits to build wind power projects. Simultaneously, interest is growing in the installation of manufacturing facilities for wind turbines.

During 2008, the combined electricity production from CFE’s wind power plants La Venta I (1.3 MW) and La Venta II (83.3 MW) was around 254 GWh. The facilities operated at an annual capacity factor of 34%, according to Eng. Carlos Aguilar, the manager of the wind power plants. As mentioned previously, it was expected that the capacity factor of La Venta II would exceed 40%; however, there were some constraints regarding the availability of the transmission line and some of the wind turbines.

The Mexican company Fuerza Eólica is manufacturing permanent-magnet electric generators for the U.S. wind turbine manufacturer Clipper Windpower. This Mexican company is also manufacturing a 5-k wind turbine, primarily for export markets. Several wind turbine components—including towers, generators, gears, conductors, and transformers—could all be manufactured in Mexico using existing infrastructure. Indeed, all the towers for the La Venta II wind power plant were manufactured in Mexico. A joint venture facility is manufacturing wind turbine blades in Mexico (exclusively for export). More than 200 Mexican companies have the capacity to manufacture the parts required for wind turbines and wind power plants. The country also has excellent technical expertise in civil, mechanical, and electrical engineering that could be tapped for plant design and construction. The new law for renewable energy instructs the Ministry of Energy and the Ministry of Economy to promote manufacturing of wind turbines in Mexico.

Electricity prices to consumers vary depending on the region, time of day, voltage, and kind of user (sector). For electricity billing purposes, the country is divided into eight regions. Each region has its own timetable for electric tariffs throughout the day. In 2008, a special buyback price for wind energy had not been set in Mexico. However, according to commitments made between private companies within the selfsupply modality, it seems that some wind energy projects in the Isthmus of Tehuantepec are reaching economic feasibility. The main constraints on wind power market development in Mexico are as follows:

• Electricity for the industrial sector is subsidized.
• The methodology for computing the buyback price for wind energy that would come from IPPs (especially from small power producers) is not fully appropriate for reaching the point of financial feasibility for the projects (including those projected at the best windy regions).
• There is a critical need to generate a confident and stable business environment that can provide appropriate guarantees to international and national financial institutions on the viability and profitability of wind power projects.
• There is a critical need to include fitting and fair social benefits to wind landowners (especially to peasants) in the negotiation of wind power projects.
• Planning studies for deploying wind power at the national level have not yet been carried out.
• At the international level, the developers that have back-ordered wind turbines are controlling the wind development; wind turbines for new wind energy projects are becoming scarce or very expensive.

National Incentive Programs

In September 2001, the federal government through the Energy Regulatory Commission issued the first incentive for renewable energy. Embedded in existing legal and regulatory frameworks, this new incentive consists of a model agreement for the interconnection of renewable energy power plants to the national electrical grid. It allows self-supply generators to interchange electricity among various billing periods (e.g., base to peak). In this fashion, self-suppliers do not necessarily have to sell surplus electricity to CFE, because generation delivered to the grid during certain periods can be credited to compensate for the electricity extracted from the grid during other different periods. The interchange was allowed based on the ratio of the marginal costs among various billing periods; therefore, more than 1 kWh must be generated during a base period to match 1 kWh required in a peak period.

This administrative incentive was designed to improve the economic feasibility of some self-supply wind power projects, especially those for municipal public lighting, where the plants generate a considerable quantity of electricity during the daylight period when no electricity is required. Furthermore, before this incentive, electricity transmission charges for a renewable energy self-supply project were computed based on the project’s rated capacity. Today, these charges are reduced to the power plant capacity factor level. However, this incentive was not effective since capacity charges were computed based on a five-minute period. This means that if a specific wind power plant for self-supply purposes does not generate any power during just five minutes over one month, then full contracted capacity is used to compute billing charges.

During 2005, the Secretariat of Energy (Sener), Mexico’s Energy Regulatory Commission (CRE), and the Mexican Association of Wind Power (AMDEE), with the technical support of the Instituto de Investigaciones Eléctricas (IIE), carried out an intensive negotiation with CFE to achieve the recognition of certain capacity credit for wind power. By the end of 2005, these participants agreed on a modification of the agreement. The modification includes the recognition of capacity credit of renewable energy technologies, based on the average capacity factor computed during the system’s peak hour. The modification was issued in early 2006.

A tax incentive was issued in December 2004. The federal law for income tax (Ley de Impuesto Sobre la Renta) allows accelerated depreciation of investments in renewable technologies (wind energy is specifically included). Investors may deduct 100% of the investment in a year (one year of depreciation). Before, investors in equipment for electricity generation were allowed to deduct only 5% in one year (20 years of depreciation). The equipment must operate for at least five years following the tax deduction declaration; otherwise, complementary declarations are obligatory.

R, D&D Activities

The first demonstration project, La Venta I, a 1.6-MW wind power plant sponsored by the Mexican government, was built in 1994. In 1998, a 600-kW wind turbine was installed at Guerrero Negro. CFE operates both of these projects. With the economic support of the Global Environmental Facility (GEF) and the United Nations Development Program (UNDP), the IIE is working to implement a Regional Wind Technology Center, which aims to offer the following provisions:

• Support to interested wind turbine manufacturers for the characterization of their products under the local conditions at the La Ventosa area
• A means to train local technicians in the operation and maintenance of wind turbines
• An easily accessible national technology display that facilitates interaction between wind turbine manufacturers and Mexican industries, thus promoting the identification of possible shared business ventures
• A modern and flexible installation that will enable researchers to obtain hard operational data on the interaction of specific types of wind turbines with the electrical system
• A means to understand international standards and certifications (issued abroad) in order to identify additional requirements to fit local conditions
• A means to increase the playing level of national research and technology development, including joint projects or specific collaboration activities with prestigious overseas R&D institutions.

Construction of the basic infrastructure of the Regional Wind Technology Center was completed in 2007. It is the first project to receive a permit to operate as a small power producer in Mexico. However, the installation of wind turbines has been delayed because of the long delivery times for machines in the wind energy market worldwide.

The wind energy resource in several promising areas of Mexico has not been evaluated in detail. Therefore, IIE’s wind power action plan includes the exploration and assessment of the wind energy resource at both known and new regions. By the end of 2007, one full year of data had been collected for 20 promising new areas. Furthermore, through a contract with CFE, the IIE carried out a feasibility study for a wind power station in the state of Baja California Sur. Also, there is increasing interest by CFE in the short-term prediction of wind power output at La Venta II. CFE is preparing a Grid Code for the interconnection of new wind power plants to the national electrical system.

The Next Term

Expectations for 2009 include the following. Several wind power projects already under construction that will be commissioned during 2009: Parques Ecológicos de México, 79 MW; Bii Nee Stipa, 28 MW; and Eurus (first phase), 150 MW. The results of the calls for bid for two CFE projects will be known. The regulatory instruments for the Law on Renewable Energy will be issued. A green fund for renewable energy will be available, and the rules for its application will be established. A Special Program on Renewable Energy will be established.

Several studies, methods, standards, and other instruments aimed at fulfilling the objectives and instructions of the Law on Renewable Energy will be prepared and issued. Several private consortiums will start the construction of their projects, planning for commissioning dates at the end of 2010 or by early 2011. In 2010 it is expected that a 2,000-MW transmission line for wind energy projects will be commissioned. A number of private consortiums will be ready to interconnect their wind turbines to the new transmission line.

For 2011 to 2012, it is expected that CFE´s wind power installed capacity will reach 84.6 MW. IPPs’ wind power installed capacity (for selling the electricity to CFE) will be around 505 MW. Privately owned wind power installed capacity (self-supply modality) should reach 2,000 MW. Total installed wind power capacity in Mexico would then reach about 2,600 MW.

Marco A. Borja, Instituto de Investigaciones Eléctricas (IIE), Mexico. International Energy Agency Wind.