Image credits: Jordan Ladikos
News Article

Government Versus Wind Energy: Long-Term Contracts Revised

By Cas Biekmann | Mon, 06/01/2020 - 16:59

Last week, El Universal reported how the federal government was changing its views against wind energy production. Long-term contracts signed with players such as Iberdrola, Acciona and Grupo Cobra, which are located in Oaxaca, were to be renegotiated. Furthermore, the government put two new projects on hold. Halfway through the 20-year duration of the contracts, the government aims to change the rules of the game. The issue is part of a wider conflict between public and private energy sectors, where the government claims CFE got an unfair deal in past administrations, whereas private players aim to protect their acquired rights.

When asked for comment by El Universal, the Mexican Association for Wind Energy (AMDEE) said that a renegotiation was something that was always a possibility. Nonetheless, if CFE fails to pay entirely, it would imply a termination of the deal and the wind project owners “could sue the Mexican government for the entire value of the assets,” AMDEE clarified. Regardless of whether the government desires to pay or not, obligations have already been established toward La Venta III, owned by Iberdrola, Oaxaca I owned by Grupo Cobra and Oaxaca II, II and IV all owned by Acciona. AMDEE is wary of the situation, arguing that it is not the first time that the government says one thing and acts in a different way, referring to the government’s claim it would honor established contracts.

El Universal did not get in contact with CFE to ask its point of view. From previous statements in 2019, CFE did state that it could get cheaper energy from its own combined cycle power plants than from wind energy, which it considered somewhat inefficient and cost-ineffective. Furthermore, it mentioned that buying energy from sources like private wind projects had cost the company more than MX$2.64 billion (US$119.8 million) in losses. CFE had sought solutions to this issue ever since.

Another issue raised by El Universal is that of farmers who are renting their land to wind projects. Alejandra Domínguez, Director General of Sowitec, argues that it is essential to know the terrain where projects are built. If the community is not properly addressed, “it can even cause a ripple effect and become a social issue where communities get together to put a stop to the project’s development,” Domínguez said in an interview with MBN.

For ejido members, people who own plots of land in certain areas, a potential of not having wind projects constructed or the energy from existing ones not being purchased can be a nightmare. This is because they are invested in the project as well, having given up their land in the expectation to receive stable income through rent payments from the private energy generator. Income from these payments can be quite attractive, as energy generators have established favorable terms with ejido-owners in Oaxaca: payments are around MX$4,000 (US$181.5) per hectare of land. On top of this, private companies often commit to a higher form of social responsibility. Farmers warn that there could be more widespread effects than just trouble for private companies and urge the two parties to keep a dialog going. Private companies are well aware of how important these community relationships are.

The data used in this article was sourced from:  
El Universal, MBN
Photo by:   Jordan Ladikos
Cas Biekmann Cas Biekmann Journalist and Industry Analyst