Mexico taps into renewables, with wind power leading the charge

Mexico taps into renewables, with wind power leading the charge
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Short and medium term projections indicate that the development of wind power is likely to take an increasingly important position in Mexico’s energy landscape, particularly in light of growing uncertainty in future natural gas imports from the United States.

Currently, Mexico’s energy matrix indicates a heavy reliance on thermal sources (such as fossil fuels) for energy production. Natural gas has become the largest form of thermal energy in Mexico, with a 54 percent stake in the country’s total electricity production in 2015. As Mexico’s reliance on natural gas has increased, the country has increasingly depended on trade with the United States for its supply. Figures indicate that pipeline exports to Mexico have doubled in the past two years. In today’s political climate, the growing reliance on U.S. natural gas imports comes with a measure of risk. Francisco Blanch, head of commodity markets research at Bank of America, argues that protectionist moves by the Trump administration threaten to curtail the flow of fuel across the border. Mexico is likely to increasingly look to renewable sources of energy to counter the risk.

Planned expansion of wind power

Compared to energy produced from nuclear and hydroelectric sources, the full potential in wind generation has so far been unexploited. Nonetheless, Mexico’s energy ministry, SENER, predicts an increasing role for wind power in the coming years.

Source: the US Energy Information Administration, based on reporting from SENER, Mexico’s energy ministry.

In the short to medium term, SENER’s projections of wind energy production far surpass the combined generation from all other renewable sources. Meanwhile, the importance of natural gas in the energy matrix is expected to noticeably diminish.

SENER works closely with the Mexican Wind Power Association (AMDEE), which was formed in 2005 to promote the development of the wind power industry in Mexico. The association places particular emphasis on wind energy’s environmental benefits. Official AMDEE diagrams suggest an aggressive expansion in wind farms in the next few years, with MW generation from wind energy expected to increase almost four-fold from 2016 to 2020.

The renewable energy landscape

The renewable energy market is currently shaped by the 2012 General Law on Climate Change which affirmed Mexico’s intent to generate clean energy through a series of provisions surrounding “environmental protection, sustainable development, and preservation and restoration of the ecological equilibrium.” This decree represented one of the first significant climate change laws in the world, and promised to reduce carbon emissions by 30 percent by the end of the decade.

The landscape for renewable energy sources further improved following Mexico’s 2014 energy reforms, which sought to liberalize the electricity market. By opening up the industry to private and foreign investment, these reforms ended the electricity monopoly of PEMEX, the country’s state-owned petroleum company. Based on these reforms, SENER has indicated plans to invest 79 percent of a $90 million USD investment towards Mexico’s power generation in renewable energy sources, from 2016 to 2030. Wind power will take a 23 percent slice of this investment, the largest share of any energy sectors.

Another promising prospect has seen SENER partner with the World Bank, for the second year running, to offer $7 million in funding for projects proposing innovative solutions to reduce greenhouse gas emissions. Awards are granted to projects from the prototype design stage to the electricity generation phase. Such incentives, if continued, might soon radically transform the renewable energy sector in Mexico and Latin America more broadly. Project proposal submissions are requested by May 31st.

The wind turbine market

For investors looking to tap into the Mexican wind energy market, wind turbine manufacturer Gamesa expects a 15 percent increase of sales in 2017. The global company has become the largest provider of wind turbines in Mexico, and will likely continue to dominate the market in the years ahead and notes particularly strong interest from Latin America, which accounted for 24 percent of physical sales in 2016. Strong performance in Mexico is cited as offsetting the recent poor macroeconomic environment in Brazil.

Latin America has traditionally been one of the smaller markets for the renewable energy industry, while the United States, the EU, and China have traditionally led the way in clean energy. The Global Wind Energy Council notes that worldwide wind capacity at the end of 2016 stood at 486.8 GW. The energy generation from China and the U.S. stood at 168.7 GW and 82.2 GW respectively. The entire Latin American region boasted a mere 18.8 GW of production. If this figure seems discouraging, note that a lag in the region is to be expected, with approximately 85% of Latin America’s wind capacity installed after 2011. The late, yet rapid, growth has arisen despite the region’s economic woes.

As the renewable energy market continues to expand, and natural gas imports from the U.S. become ever more uncertain, Mexico will continue to strengthen its aspirations to fully harness this inexhaustible clean energy source. Certainly, there remains considerable untapped potential.

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