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Mexico Poised for Dramatic Energy Buildout

Solar, Wind Transmission Investments to be Massive

Mexican and California officials envision new ways to link their two electricity grids, with potential enormous benefits to flow in both directions across their shared border.

Furthermore, Mexico is poised to launch a massive energy infrastructure buildout that will prompt energy companies and entrepreneurs around the world to take notice.

For California, it could mean dramatically enhancing the value of surging renewable resources by shipping solar and wind power south when it has more generation than it needs.

For Mexico, it could mean slashing the cost of electricity, particularly in remote regions like Baja California.

To explore all these developments, the Energy Times recently interviewed Guillermo Zuñiga, commissioner of Mexico Energy Regulatory Commission. Zuñiga will keynote the upcoming Renewables Rush executive energy conference in San Francisco on April 5.

“Based on our encounters with our colleagues from California, we have discovered our energy markets can complement each other,” Zuñiga said.

Hon.Guillermo Zuñiga, commissioner, Mexico Energy Regulatory Commission

Such coordination could be a great boon to American renewable energy companies, equipment manufacturers and utilities eager to develop new business opportunities.

American grid leaders view the Mexican announcements positively.

Gerry Cauley, president and CEO of the North American Electric Reliability Corp., told the Energy Times, "Further grid connections between Mexico and the U.S. can help reinforce grid reliability and energy security for both countries, while allowing infrastructure upgrades, resource mix changes, and modernization, all of which are already underway in both countries."

Mexico is looking to tap into renewables expertise as it dramatically ramps up its owns solar resources 25-fold in coming years, and increases its wind generation five-fold.

Mexico, Zuñiga said, is out to “replicate what has proven to be efficient and successful in other parts of the world.”

Our interview with the commissioner, edited for style and length, follows:

ENERGY TIMES: What are the major issues facing California and Mexico right now when it comes to renewable energy?

ZUÑIGA: This country enacted a couple of years ago the most comprehensive energy market reform in the last seven decades.  We have opened up sectors to new investment and new technology – to both, private national as well as foreign companies.  Mexico has been receiving a lot of attention since we are the 15th largest economy in the world, according to the latest available World Bank data. One of the most important aspects of the reform is to introduce the new energy technologies that have been developed elsewhere into the Mexican market. When it comes to solar power, Mexico only has around 270 megawatts of installed capacity, California has 4,555 megawatts. That means that we have the potential to have exponential growth in the coming years to reach around 6.9 gigawatts of solar power. We are looking at the best practices, the best experiences, the best environments and I can tell you we will apply this. We have found in California a very good example of how things are being done in a successful manner.

ENERGY TIMES: So let me ask, you see the potential of growing from roughly 270 megawatts of solar to 6.9 gigawatts, a 25-fold increase. How much will you need outside investment from the United States to accomplish that?

ZUÑIGA: In Mexico we didn’t have a market, that is the main reason  why we needed a reform. We didn’t have private companies acting out as energy providers. There was only one state-owned company  which carried out  all the services and  incurred in increasing costs – from generation to distribution and supply. We didn’t have companies with enough knowledge about investments in renewables in a competitive market. The main philosophy of the reform is to replicate what has  proven to be efficient and successful in other parts of the world.  Many companies have had success in California, Spain and Germany to name a few.  

ENERGY TIMES: There is the potential to develop 10,000 megawatts of wind power just in Baja California. What are your plans for developing wind resources?

ZUÑIGA: Wind is also promising.  We have felt for a long time that in Mexico we have some of the best spots in the world for wind energy. Oaxaca in the southeast of Mexico has incredible wind capacity. You can find potential all over the place.  Right now, we have around 3,200 megawatts of wind capacity. Both, foreigners and Mexican nationals are coming into the market and investing in new transmission capacity.  I can tell you, according to our data, that our capacity for wind projects can be increased  to a potential of 15,000 megawatts.

ENERGY TIMES: Gov. Jerry Brown of California has met with several top Mexican officials to strengthen energy ties between your country and his state and encourage greater collaboration to fight climate change. How important is this to Mexico and how well is it working?

ZUÑIGA: That is a very good question.  Based on our encounters with our colleagues from California, we have discovered our energy markets can complement each other. California has been so successful in fostering renewable energy that prices get  very low  due to an oversupply. In fact, from time to time  they can  go below zero.  There has been a lot of great investments. That is a sign that the system needs to be developed as well.  There is a project to interconnect the Mexican grid and the California grid. The state of Baja California is an electricity island. That part of the country is not connected yet to our main network, to our main grid, therefore, it has very high prices. If we could somehow interconnect and synchronize both networks, perhaps it would be possible to send some of California’s oversupply of renewables to Baja California. That would reduce the burden of negative pricing, and would help us to reduce high electricity prices in Baja. We are building the rules of our market from scratch. Nothing has to be changed since we didn’t have a market framework on the Mexican side. The more you expand the grid, the more connections you will have meaning, you will get a more efficient network and a more efficient market.  So collaboration benefits energy users in California as well as here in Mexico.

ENERGY TIMES: Do you have any estimate of the amount of money that Mexico plans to spend on its grid development and transmission lines in the next few years?

ZUÑIGA: Well, let me give you an example.  We have a project that was announced five months ago, and it has  been under consideration. This project would develop a transmission line going from Oaxaca where we have a lot of wind capacity, to the Mexico City area.  Only its first phase is a $1.7 billion investment. On the other hand, we just carried out a very successful auction for long term contracts to provide energy and capacity to the new market. Total investment of the first two rounds amount $6.7 billion.  We are a big economy, we are a big country and we have big energy needs. Moreover, and this is very important, these projects are no longer going to be based on government funding and public budget.  The money will come from tariffs coming directly from the Mexican customer base. Therefore there is no budgetary government risk.

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