Insight – Power play: Mexico in the market for energy solutions

By Manuel Barbera, Business Development Manager, Austrade Mexico

A series of reforms have dramatically reshaped Mexico’s energy and utilities sector, creating opportunities for Australian providers in construction, transmission, generation build and customer services.

Demand for electricity in Mexico is surging.

The country will require 60GW of new installed capacity within the next 15 years to meet growing energy demand. This increased capacity represents US$90 billion in investment.

Additionally, the national transmission network needs to be expanded by 25,000 kilometres, which will require an estimated investment of US$26 billion, to fully interconnect the system and link it with North and Central America.

Clean energy push

The Mexican Government plans to generate at least 35 per cent of the country’s electricity from clean energy sources by 2024, rising to 50 per cent by 2050.

Clean Energy Certificates (CELs), controlled by the Energy Regulation Commission (CRE) and the Department of Energy (SENER), have been created to ensure utilities, energy traders and large consumers obtain a certain amount of electricity from clean sources – 5 per cent in 2018 and rising to 13.9 per cent in 2022.

The reform provides significant opportunities for renewables with the introduction of Long Term Auctions (LTAs), which favour clean energy technologies above conventional power generators, and provide a transparent and structured mechanism for choosing the most cost-efficient projects.

To date, three LTAs have been held, with solar and wind technologies the clear winners, representing an investment of US$9 billion. The third LTA saw some of the lowest prices for electricity in the world, at US$20.57/MWh, and will result in the construction of 15 new renewable plants in eight Mexican states.

The reform has radically opened up the market.

Brewing powerhouse AB InBev, which owns Corona, has signed a power purchase agreement (PPA) with Spanish energy multinational Iberdrola to provide 490GWh of wind power annually. This will enable AB InBev to switch to 100 per cent renewable purchased electricity across all its sites in Mexico. Iberdrola will build and install a 220MW onshore wind farm in the state of Puebla, scheduled to begin operations in mid-2019. This year, Iberdola produced more electricity in Mexico than in Spain.[1]

Multinationals such as Mars Inc. and HSBC have also signed wind PPAs.

By the end of 2018, Mexico is expected to have a total wind generation capacity of 5,891MW as a result of the LTAs. The states of Oaxaca, Baja California, Sonora and Tamaulipas have the best wind resources in the country, with wind speeds reaching 12 m/s from November to March.

Mexico also sits within the world’s most favourable solar belt. The Mexican Government is keen to harness this natural resource to produce 22GW of installed solar (PV) capacity by 2030. This will be split as 9GW of large-scale PV power plants and 13GW of distributed generation solar systems. Mexico is set to join the list of gigawatt-scale solar markets in 2018.

Together with renewable energy, investment in gas-fired combined cycles and efficient cogeneration plants will represent a significant proportion of Mexico’s new generation capacity from now through to 2030.

Opportunities in energy storage and electricity transmission

The small uptake of energy storage projects in Mexico represents significant opportunity for foreign companies in grid stabilisation and clean energy storage. GE’s Grid Solutions, for example, is developing five electricity storage projects in the country to aid the integration of solar and wind projects into Mexico’s power grid.

Private companies can now participate in the finance, operation, maintenance and expansion of Mexico’s power network.

The Government anticipates that this private participation will improve power links in the Baja California Peninsula and international connections to the US and Central America.

Currently, the most important project is the 1.5GW transmission line connecting the isolated Baja California system to the National Interconnected System through high-voltage direct current (HVDC) technology. The 1,400-kilometre project, with an expected investment of US$1.1 billion, has attracted tenders from companies in the US, Canada, Spain, China, India, Japan, Brazil and Mexico.

Mexico is determined to reduce the price of electricity using the latest technologies, boosting productivity and foreign direct investment (FDI) attractiveness. The Government is also keen to expand and improve the transmission and distribution network and help the country transition from expensive diesel- and oil-powered plants to renewable energy and gas-fuelled plants.

Despite the election of populist candidate Andres Manuel López Obrador (AMLO) as President, analysts believe the energy reforms are ‘locked in’ and will not be revoked. In addition, the incoming AMLO government has pledged to increase Mexico’s renewable energy capacity and develop microgrids, particularly in the southern rural regions of the country.

Opportunities for Australian companies

Mexico’s push for energy solutions is creating opportunities for Australia in:

  • upgrading and expanding the transmission and distribution networks for suppliers of power transmission and substation equipment
  • capacity addition in combined cycles and efficient cogeneration for suppliers of gas-fired power generation equipment
  • supplying equipment and services in the solar energy sector and microgrid development and maintenance
  • upgrading and expanding transmission and distribution networks, developing wind and PV renewable energy plants, and capacity addition in combined cycles and efficient cogeneration, for companies in the engineering, procurement and construction management, and equity and debt financing sectors
  • CELs trading in secondary markets and power commercialisation for energy traders.

Contact Manuel Barbera to learn more about opportunities in Mexico’s energy sector.

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[1]  Orihuela. R. (July 2018) Spain's Top Utility Becomes Bigger in Mexico Than in Home Market, https://www.bloomberg.com/news/articles/2018-07-25/spain-s-top-utility-becomes-bigger-in-mexico-than-in-home-market