POWER May 2010 - 76

POWER IN MEXICO
production. The energy is sold to CEMEX
through a 20-year self-supply agreement, and
the total project is estimated to cost $560 million.
Long-term financing for this was partially
arranged by the International Monetary
Fund, which has taken a strong interest in renewables
in Mexico.
Miguel Angel Alonso, the general director
of Acciona Energia Mexico, believes that
the advantage for the client is that, " Once it
is financed, wind energy is a powerful hedge
against fossil fuel costs. "
However, despite the wind strength in
Oaxaca, wind energy in Mexico will never
be a baseload energy source, and despite all
of this potential, until 2008 only 88 MW of
wind energy had been developed in Mexico.
Perhaps the biggest challenge for anyone
wanting to develop wind energy projects in
Mexico is the need to maintain relations with
Energy Reform: Fostering Renewable Energy
By Rogelio Lopez-Velarde and
Amanda Valdez
Following a long and thorough debate in
October 2008, the Mexican Congress approved
a series of reforms to the legal
framework of its oil and gas industry and
renewable energy sources. Although most
comments and reports have focused on the
changes to the statutes regulating PEMEX
and the oil and gas industry, we should also
pay attention to the new challenges and
opportunities that this reform has brought
to the renewable energy field.
Renewable energy projects are still incipient
in Mexico. Mexico is a Non-Annex 1
country in the Kyoto Protocol and, as such,
it has benefited from investments in Carbon
Development Mechanism (CDM) projects. Investments
are regulated by a series of administrative
rules adopted over the last few
years and implemented by the Inter-ministerial
Commission for Climate Change (Mexico's
national designated authority), responsible
for the approval procedures concerning CDM
projects, including those involving renewable
energy sources. However, it wasn't until
October 2008 that a statute specifically regulating
renewable energy was enacted: the
Law for the Use of Renewable Energies and
the Financing of the Energy Transition (the
" Renewable Energies Law " ).
The Renewable Energies Law is intended
to foster renewable energy projects, provide
financing tools, and promote the progressive
substitution of fossil fuel generation. It
will be initially applicable to the following
sources of renewable energy: wind power, solar
power, hydropower, seawater power in its
different forms, geothermal heat, and biofuels.
Other sources may be added to the list as
determined by the Ministry of Energy.
Throughout 2009, the executive branch
issued and implemented a number of
regulations, administrative fiats, and en76
Attorneys
Rogelio Lopez-Velarde
and Amanda Valdez, Lopez
Velarde Heftye y Soria
local communities. Jaime Martínez, general
director for ERM Mexico, a provider of environmental
and social consultancy, states that
the Mexican market still has some way to go
in terms of dealing with the environmental
and social impacts of wind power. Certain international
companies have had to learn this
the hard way.
Jorge Fernandez Wilburn worries about
the difficulties of developing projects in Oaxaca:
" Projects have been developed in the
state of Oaxaca, which is not industrialized at
all, thus making it hard for companies which
come from very developed countries or even
cities within Mexico such as Mexico City. "
Oaxaca is one of the poorest regions of
ergy policy instruments, primarily aimed at
promoting the efficient use of energy and
increasing the participation of renewable
energy projects in the country's installed
generation capacity. These include the
publication of the National Strategy for the
Energy Transition and the Sustainable Use
of Energy and the Program for the Use of
Renewable Energies, whereby the following
goals have been set for 2012: increasing
the participation of renewable energy
sources in the country's total generation
capacity to 7.6% and increasing the participation
of renewable energy sources in
the country's total power generation to a
range of 4.5% to 6.6%.
Moreover, the Mexican Energy Regulatory
Commission is now working on a new
model Interconnection Agreement for the
interconnection of renewable energy projects
to the national grid and a new " postage
stamp " methodology to determine the
charges payable to the Comisión Federal
de Electricidad (Mexico's electric power
utility) for the wheeling of power generated
by renewable energy facilities.
It is yet to be seen if the tools that this
new legal framework provides will be sufficient
to substantially increase the participation
of renewable energy sources in the
overall Mexican electricity sector, but there
is no doubt that these are important steps
toward that goal.
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Mexico and in the past energy companies
have had problems in trying to bring on board
the " ejidatarios, " the communal land owners
in the Mexican system of the " ejidos " (communal
farmlands assigned in small portions
to the villagers to be farmed under a federally
supported system of communal land tenure).
The creation of wind farms can certainly
bring increased development during the construction
phase and through ongoing maintenance
of the wind farm. The IFC estimated
that a 100-MW wind farm would bring in an
income of $300,000 per year for an " ejido "
of 300 families. However, this $1,000 per
family is a tiny percentage of wind farm's
potential profits, and thus locals worry that
they are simply being taken advantage of.
In addition, the skills needed to construct
and maintain a wind farm are not the skills
in which Oaxaca is traditionally strong. Another
worry is that the energy produced will
largely, although not totally, be transmitted to
the center and the north of the country, where
private demand is higher, rather than providing
for local needs.
Mexico is lucky enough to have renewable
resources all over the country, as well
as the exceptional resources located in Oaxaca.
However, in these alternative areas wind
power faces the worldwide question of competitiveness.
Mexican firms face a low internal
rate of return on wind projects due to the
obligation to sell to the CFE. A lack of appropriate
financing resources and an unsuitable
transmission grid add to their troubles.
To begin with, as mentioned previously,
demand for wind projects is largely private
sector-driven and located in the center and
north of the county. Oaxaca's existing transmission
grid is inadequate for the load, and
the CFE, having a monopoly on the transmission
network, has had little incentive to invest
in private projects.
Transmission Trials
Due to the nature of the Mexican constitution,
it was extremely difficult and expensive for
POWER | May 2010
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POWER May 2010

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