Global Trends Shape Mexico's Wind Power

Nations around the world have earmarked the wind sector as the preferred method for generating renewable energy. With a wealth of benefits, it is seen as a catalyst for economic activity and a worthy combatant against climate change. In 2013, the global wind market was worth US$130 billion, which then rose to US$165.5 billion in 2014, and this year it is expected to reach record heights of US$176.2 billion. Brian Gaylord, Senior Analyst at MAKE Consulting, narrates the global trends that are impacting the development of the Mexican wind sector and how the latter can learn from international best practices.

Mexico’s neighboring market, the US, experiences many fluctuations. “At any given point, this country can have projects of 10GW per year, affording market share to turbine manufacturers beyond the top three dominant turbine OEMs. However, when the market contracts, these players may be left unable to sustain themselves,” Gaylord describes. Amid this upheaval, the three US market leaders that remain dominant are GE, Siemens, and Vestas. Spanish companies have maintained a strong foothold in Mexico, since they were the first to break into it, but when the focus is turned to their own shores, the vision is rather bleak. “When wind power was initiated, there was strong local demand in Spain, but the collapse of the country’s economy has forced players to emphasize on exports, mostly to Latin America.” With this global trend, it is clear that mature markets are saturated and emerging ones are brimming with opportunity. Gaylord admits that picking the right profitable market can be a complicated process. “Everyone is trying to invest in emerging markets, so they are becoming saturated.” In this situation two main trends have arisen. The first is that new markets are looking beyond subsidies and incentives, and secondly, energy companies are trying to compete with natural gas.

Partnerships between transnational and local players can help companies successfully navigate the waters of emerging markets. “Active international developers bring their knowledge, best practices, and better bankability, since banks are more likely to invest in companies with global multi- gigawatt portfolios. Local partners can contribute localized information about land leasing, community outreach, and signing of purchasing power parities,” Gaylord expands. Latin America is shaping up to be an attractive destination, especially Mexico, Chile, Brazil, and Uruguay. Gaylord advises 

that it is important for US developers to partner with local players, since land access and regulations can be significantly more complex in the country. “Five years ago, many non- Spanish developers were wary of initiating operations in Mexico, but after collaborating with local companies, they are aware of how to mitigate risks,” he adds.

Mexico is the second largest market for wind power in Latin America after Brazil. As the dust settles after the Reform, investors are worried that the cost of wind energy will increase with an accelerated depreciation when current fees are eliminated. Additionally, there are concerns because the returns on green markets have typically been unpredictable. Gaylord provides an additional perspective, “I believe general electricity market prices will be reduced by more private participation and an impartial operator. Natural gas should be a focus, since it is heavily relied upon to supply new electricity to the market.” Other trends such as supply chain development have remained relatively unchanged in Mexico, due to the global overcapacity. “Between 2006 and 2008 Mexico missed an opportunity to manufacture and attract US investment. There is little possibility of growth in this area, even with the low manufacturing costs that the country offers,” he adds. There are some supply chain companies in the northeast of Mexico, including Mexican, US, Swedish, and German manufacturers, as there have been some successful investments in this region. “Sales are generally geared to blades, bearings, and towers, and while I could see another tower manufacturer entering this market, I do not believe multiple turbine manufacturers will come,” Gaylord admits.

According to Gaylord, Mexico should learn from Brazil’s operations wind energy, since it is a model primarily based on supply and demand. The cost of wind energy is also much lower than in most markets, even though this country works with more expensive, locally produced turbines. Gaylord suggests that further investments must be carried out in transmission, looking beyond the current ones in Tamaulipas and Oaxaca. The diversification of the geographical footprint will force investors to expand to new areas such as Coahuila and Zacatecas. Companies seeking to expand into other sectors should further explore transmission and infrastructure for investment opportunities. “In this case I would not recommend the Brazilian transmission model, but a similar one implemented in Texas, in which the best locations for resources were examined and several prefeasibility studies were carried out. In this way, the most cost-effective way to build a new transmission was determined,” Gaylord offers. Indeed, it is by tracing the threads of global trends that allows the possibility of glimpsing the path the Mexican wind sector has chosen to take.