Private Studies to Reduce Renewable Uncertainties

In the past, developing renewable projects in Europe was a natural choice, as attractive subsidies and feed-in tariffs were provided by European governments. Ironically, the regulatory cornerstone that allowed these projects to grow at impressive rates was the factor that eventually rendered many of them unfeasible when the financial crisis struck. Barlovento was one Spanish wind energy company that was so affected that it was forced to expand its operations into other regions due to the acute impact of the financial crisis from which Spain is still recovering. Expanding beyond European borders enabled the firm to keep its place in the market. As Omar Galaviz, the Mexico Director for Barlovento says “growth in the Latin American market is proportional to the contraction of the same market in Spain.” Yet as is true in any developing industry within a developing country, uncertainties remain present.

The infrastructure, regulatory framework, established guidelines, and social understanding of such projects remain inadequate on the ground in Mexico for Galaviz. As a consulting firm, Barlovento focuses on reducing uncertainties in renewable energy projects. According to Galaviz, the most common uncertainties that the company faces are related to the lack of a stable or specialized regulatory framework, as well as the technical uncertainties which come along with each resource.

While a clear regulatory framework provides certainty in legal, economic and financial terms, it is a lot to ask that a regulatory framework provides an effective solution for social issues, especially on matters as sensitive as land rights within a community or ejido. “The land regulation scheme in Mexico is anything but easy. Designing a regulatory framework for renewable energy that fits the contours of this scheme is proving extremely complicated,” says Galaviz. The second type of uncertainties is technical. It is linked to the techniques and instruments used to conduct studies for renewable projects, as well as with the lack of grid infrastructure. Investors will certainly be dubious if the future feasibility of their investments is compromised by the lack of capability in the grid to handle the greater stress provided by intermittent energy sources. Barlovento has several instruments to reduce technical uncertainties to the minimum. Energy to Quality is a mobile lab that allows the company to make simulations directly on the field. At the moment, CFE provides approval for those studies or directly conducts them, but Galaviz states that “we are awaiting further openness from CFE regarding the information they take into account when conducting transmission and interconnection studies, in order for independent developers to conduct their own studies without having to depend 100% on CFE.” These studies always have a degree of uncertainty as the measured resources are variable, making them challenging to measure. “The ideal scenario would be conducting studies during a 10-year period for each future wind turbine but this would mean decade-long measurements for 100 prospective wind turbines. This is unfeasible, but it also means the studies are not completely precise,” states Galaviz.

Investors are conscious of the uncertainties caused by variability within resources. Solar and wind are intermittent everywhere, but that is widely known and dealt with. “What changes in Mexico is the amount of time lost in order to conduct these studies. If there were guidelines provided by CFE, private parties could help themselves by conducting the necessary studies faster and stop CFE from being overwhelmed with so many requests,” says Galaviz. Companies like Barlovento possess the ability to conduct high quality studies, but they depend on the studies conducted by CFE and the certification the body awards. Galaviz believes that CFE lacks the resources to conduct studies for all the companies with prospective projects and since the utility does not provide guidelines for measurement and feasibility studies, companies cannot conduct their own studies. The information provided by the studies is crucial for developing and engineering projects and for banks to evaluate their willingness to finance. If this process takes too long, a project will fall apart or happen somewhere else, in Barlovento’s experience.

“There might be an unclear regulatory framework and a compromised grid but the market forces and the growth expectation will cause the necessary changes. Mexico is ready to increase its installed capacity while the grid is upgraded and expanded,” concludes Galaviz.