Héctor Martínez Vivas
CEO & Managing Director
Next Energy
View from the Top

Hybrid Projects Could Become Mainstay in Energy Landscape

Wed, 02/19/2014 - 11:00

Q: Why did you select GE as your partner for the development of the first wind farm in Nuevo Leon?

A: The 22MW Santa Catarina wind farm, which will provide energy to seven municipalities in the Monterrey area, was not only the first wind farm in Nuevo Leon but also marked the entry of GE into the Mexican wind industry. The technology offered by GE was one of the major selling points for the partnership, as its equipment was 30% cheaper than what Vestas was offering, for example. GE has a huge wind operation in Texas, which has a spectacular availability of 99.7%. We signed a 5-year contract to get a minimum availability of 97.5% at Santa Catarina, which is a very good availability percentage for our project. When compared on initial purchasing cost alone, GE turbines are not the cheapest option in the market. However, it is essential to take into account other issues that occur after the commercial operations date (COD). The most important issue after COD is the availability factor, and GE’s exceptional availability factor means that a developer can compensate for the initial price of GE turbines by knowing they will pay off this difference in less than five years.

Q: What are the projects in the pipeline to build additional renewable energy capacity?

A: Next Energy is currently seeking to build the Santa Catarina II wind farm and we are in negotiation to use land in Corcel de Piedra, Nuevo Leon. The company’s strategic vision is to diversify by having wind farms in several states. We are now working on wind projects in Durango and San Luis Potosi as well as geothermal facilities in Baja California. Our El Durangueño project in Durango will be a hybrid project, combining wind and solar, with a total capacity of 150MW. The Next Energy team also plans on constructing a 15MW geothermal facility in Baja California to which we will add 10MW of solar power. Construction began on this project in 2013, and technical feasibility requirements have been sent to CFE for the interconnection of 25MW.

Q: How important could your larger hybrid project in Durango be to inspire others to follow suit?

A: It is very important to optimize the use of land as land owners want to maximize their income. In the case of El Durangueño, we decided to include a solar plant to make use of those parts of the wind farm’s layout that were not being used. This solution convinced the landowners to sign the land lease agreement. The wind farm started with 120MW, but we then added 30MW as a solar project. The best kind of business is created when all parties involved are winning, as they are in this case.

Next Energy is setting the example on how to be successful with hybrid projects, which will encourage other companies to develop them. But such projects do face certain restrictions. For example, our El Durangueño plant can assign the energy produced by its wind farm to off-takers, but the same is not true for the solar plant. It is important to consider the difference in Mexican legislation here. As the wind farm was built under the self-supply scheme model, we can assign its energy to the off-taker. On the other hand, the solar plant was built under the small power producer scheme, capping its potential at 30MW. The produced energy will be going to CFE, and we are in negotiations to sign a PPA with the utility. If we did not have this restriction, we could have built a solar farm with a capacity of 50MW, as we have an excellent location for both solar and wind.

Q: Why has the private sector showed limited interest in developing geothermal projects in Mexico?

A: Mexico has fantastic geothermal resources but the risks are simply too high for companies to be willing to invest. To take a wind farm from its pre-feasibility phase to its feasibility stage costs around US$1 million for a capacity of 100MW. After that, investors can move in and construction gets under way. For geothermal, the same process costs approximately US$4-5 million, without the same guarantees being in place. After spending that money, the findings might be disappointing, effectively meaning that money has been wasted. This risk level is hampering the development of geothermal. However, if you do hit the right spot after that big investment and a geothermal project becomes feasible, the potential is phenomenal as geothermal plants have capacity rates of between 90% and 95%. For example, three different locations have already been explored for our Baja California geothermal project. The presence of energy sources was confirmed in October 2013. This was crucial as it allowed us to prove the viability of our project to potential investors. Before that happened, Next Energy invested a lot of its own capital into demonstrating that it had an important geothermal site.

Q: What are the development ambitions of Next Energy for the coming years?

A: Next Energy will definitely focus on large-scale projects in the future. For wind and solar, the company has overcome the learning curve and knows how to carry out business development for different capacity plants. Our pipeline of projects should allow us to have 1.2GW installed by 2019. This is likely to be an 80-15 split between wind and solar, with geothermal making up the rest. If we can succeed with the geothermal project in Baja California, we will replicate this model in other states, such as Aguascalientes and Michoacan