Leopoldo Rodríguez
Mexican Wind Energy Association (AMDEE)
View from the Top

Contract Flexibility a Boon for Wind Power

Wed, 02/22/2017 - 09:46

Q: What are some of the advantages and challenges for wind project developers as the market evolves?

A: It is now easier to incorporate new off-takers without having to include them as shareholders of the project. Although off-takers will not have the same level of price certainty as before, they will benefit from the possibility of more easily incorporating or removing loads in different nodes. In that way they can also secure stable prices but under more complex bilateral contracts. We expect these new possibilities to result in a mix of short, medium and long-term contracts for the same project. Once the industry matures we also foresee more activity in the short term and in spot markets. In the past, legacy projects could offer a fixed block of energy on an annual basis, given the old energy bank mechanism to balance loads. It is now possible to have a similar portfolio but companies must take on greater risks for the amount of energy they commit to producing, having to purchase energy at higher rates from other generators or suppliers if their forecasts fall short. If well played, however, suppliers can secure the lowest tariffs in the market. The market’s logic has changed so energy companies need to refine their strategies to remain competitive. Mexicans got used to fixed tariffs but now they need to adapt to having more volatility.

Q: How do you expect the new market to impact project development and ownership?

A: We used to see a good number of top wind turbine manufacturers developing and operating projects for developers and off-takers, many of which have been transferred to third parties that will keep them in the long term. But major international developers and operators are well established and planning for significant expansions and we also have seen large Mexican off-takers involved in self-supply projects, thus evolving and creating their own project development divisions to become relevant players in this new, competitive market. We are also seeing an influx of international project developers interested in entering Mexico. In addition, the market will require the involvement of new players providing complex financial and technical services, some of them very specialized. We are not used to this.

Q: What added value does wind energy provide large offtakers over other technologies?

A: Long-term certainty and larger productivity. Solar PV parks, for instance, offer capacity factors in the range of 20–30 percent, while competitive wind farms in Mexico have capacity factors above 40 percent, some getting close to 50 percent or even above. In certain windy regions of the country, wind profiles also offer the advantage of a closer match to the typical daily demand profile than solar because it is common in windy regions for the wind to blow very well during peak demand hours, including late afternoon through midnight. This is the case in the northeastern region where wind farms are more productive in the late evening or at night.

Q: What are the major technological advances that have allowed the deployment of wind energy in Mexico?

A: It was not possible to develop renewable energy projects in Mexico six or seven years ago without the help of subsidies and special financing plans. Back then, wind energy development was only feasible in the Isthmus of Tehuantepec in Oaxaca, a region with remarkable wind energy resources. Technological developments in the past few years have allowed companies to capitalize in other Mexican regions such as Tamaulipas, Coahuila, Nuevo Leon, Jalisco, Chiapas, Yucatan and Baja California, among others. These advancements have raised wind farm capacity factors to close to 40 percent from 30, making projects more economically attractive. Developments include the introduction of digitalization and automation technologies such as monitoring sensors that analyze a turbine’s performance to maximize its availability. We now see wind farms with 90-98 percent availability factors, meaning they are ready to operate as soon as the wind starts blowing. Another technological advance is the use of larger rotors and higher towers, which allow companies to take advantage of lower wind speeds.