Mexican Renewables – Set for a Boom; Waiting for Guidance

05 November 2014 Renewable Energy Outlook Blog

The sunset date for the 30% ITC is coming into view for developers of U.S. solar projects. The U.S. domestic solar market is also becoming increasingly competitive. The PTC for wind has already expired except for projects unless they managed to meet “commencement of construction” deadlines at the end of 2013.

At the same time, in December 2013 Mexico enacted constitutional amendments to open up the Mexican energy sector to private purchase participation and Enrique Peña Nieto subsequently submitted secondary laws, including the Ley de la Industria Eléctrica (or Electric Industry Law), to the Mexican congress in August of 2014. 

Under the new laws there will be a new wholesale electricity market in Mexico, to be operated by the Centro Nacional de Control de Energía (CENACE). The Comisión Federal de Electricidad will lose its monopoly over the power generation industry and private parties will have the ability to become generators of power. The ultimate intent – the liberalization of the power generation industry. Additionally, one of the goals of the reform of the power sector is also to cause the electric industry and generators to move toward for clean energy sources.

As a result, many are expecting a Mexican renewable energy boom. According to Bloomberg New Energy Finance,  renewable-energy investment in Mexico is already on pace this year to exceed the nation’s 2010 record of $2.4 billion.

For “generators” of power, the Ministry of Energy will be responsible for issuing market rules and the Comisión Reguladora de Energía (CRE) will be responsible for issuing permits. Permits will be needed for generators whose projects are in excess of 0.5 MW and that are not for “self-supply” (i.e., generation for generator’s own consumption or supply not through the grid).

So, on the face of it –  new laws, excellent wind and solar resources, investors looking for alternative markets, and an impetus to promote renewable energy all seems to set the framework for a potential boom in renewable energy development.

However, it is the adoption in practice of the new regulatory framework and permitting procedures that may yet be Mexico’s undoing (or at least delay things for a while). Developers are indeed optimistic about the country’s prospects but actually getting MW in the ground, particularly in the near term, is a different prospect altogether. Many developers are waiting for clear guidance on how the new regulatory framework will work, how new permits will be issued and what existing projects will be “grandfathered” under the old rules. Therefore it will be interesting to see how quickly MW start going into the ground in the near term. At the moment, the answer seems to be “hurry up and wait.”

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