News Article

The Competitiveness of Mexico’s Renewable Energy Resources

Wed, 02/25/2015 - 17:17

Moderator: Alejo López, Country Manager at Hanwha Q CELLS
Speaker: Adrián Escofet, President of AMDEE
Speaker: Rodrigo Hernández, Commercial Director of Solartec
Speaker: Jacobo Mekler, President of the Mexican Hydropower Association
Speaker: Chris McCormick, Director of Strategy & Project Finance of Reykjavik Geothermal

The main topic of the evening was the effect of the oil and gas prices on the competitiveness of renewable energy. Solar and wind energy are competitive enough to find a stronger position in the Mexican economy, but the right policies must be implemented to do so. Escofet stated that in spite of their strength, even wind and solar were dependent on working toward long-term feasibility. “Without feasibility, different technologies will not be able to be financed,” said Escofet. “This means we need long-term visibility of prices based on different energy sources. This will require very careful planning in terms of how each energy source is rolled out. The planning must be aligned with the bids that are carried out year by year.” He stated that alongside this, the government had to get rid of very complex market rules, especially those aiming to regulate markets that do not yet exist in Mexico. Markets should be established based on a correct timeline, meaning that constraining them with complex rules and unclear bidding could see them fail. He stressed that renewable energy sources need simple rules and a simple bidding process to thrive.”

Mekler indicated that certainty in market rules would also help to benefit the communities in which these projects are based. “The communities where projects are must be taught that these projects are positive for them. Increased foreign investment and international best practices will only benefit these communities further,” he added. He also mentioned that while the clean energy certificates are a welcome development, they must incorporate the environmental incentives that were proven to work prior to the Reform.

Taking the microphone, Hernández chose a different track. He admitted that compared to the large-scale projects that exist for wind and geothermal, solar is still in its infancy. As such, he spoke of how the solar sector received the Reform with open arms, given how simple it sought to make things. “The solar industry has been hampered by an overly complex bureaucracy,” he said. “Our small and large-scale clients alike feel they do not have enough support or incentives to develop said project. When trying to build a solar program, a company might go to CFE only to be sent on a roundabout of other institutions. People with all the goodwill in the world may be put off by the complexity of creating a solar plant.” He warned that a lot of megawatts are on the table thanks to solar energy and that Mexico could ill-afford to let this pass by.

McCormick began like any good speaker, by getting a laugh from the audience. “I am not Mexican but I may be the proudest person in the room about the Energy Reform,” he said. Four years ago, when the government announced its energy plan, it became obvious for Reykjavik Geothermal that geothermal would have to open up. As such, the company entered Mexico in the absence of a geothermal market but this has now arrived. According to McCormick, Mexico's geothermal potential is probably larger than has been announced. However, he sees two minor areas that could be improved upon. “Firstly, the initial Geothermal Law was overly biased for PPP as opposed to IPP. At the end of Round Zero, CFE could have requested the entire country as its concession. This would have been a problem for SENER which has to oversee this process. Common sense is now prevailing,” he explains. McCormick explained that he wants both PPPs and IPPs to thrive in a geothermal market but he seeks the most efficient allocation of capital. Furthermore, given geothermal's capital-intensive nature and CFE's failure to allocate enough capital to develop this source, it should not seek to favour one scheme over another. Secondly, in McCormick's opinion, CENACE is still making rules for off-takers still too complicated. He stated that Reykjavik Geothermal had a good off-taker for its Mexican project but that a deal could not be struck, since the rules are still clear. “It may take another year for me to create a PPA that the off-taker, myself, CFE, CENACE, and SENER would all agree to. It is a frustration but a resolvable frustration as well,” he concluded.