Earlier this year, a group of Stoel Rives attorneys traveled to Mexico to assess existing opportunities and pending developments in the Mexican power markets. Some of the reforms and key trends identified during that trip are now taking shape. See also my blog post “Let the Market Decide: The Third Wave of Energy Investment in Latin America and Caribbean.”
Our work in Mexico included meetings with existing clients, senior partners of a major Mexican law firm, a briefing with a senior Mexican policymaker regarding implementation of the reforms and attendance at the Mexican International Renewable Energy Conference. Here are some key "take-aways" from these meetings:
A Mexican renewable energy market has been successfully launched, with more wind than solar developed to date.
A package of "secondary" laws implementing Mexico's energy reform legislation are pending in the Mexican Congress.
The secondary laws will include some form of renewable portfolio standard (e.g., 30% by 2024) that relies on (among other elements) renewable energy certificates.
The secondary laws are also expected to launch a wholesale electricity market, a demand response market and other provisions designed to encourage distributed generation.
Solar module manufacturers and other stakeholders are concerned about the government's decision to apply a 15% import tax on electrical "generators" to non-NAFTA solar modules.
Last week, the Mexican Senate's Joint Energy and Legislative Studies Commission approved 15 secondary laws, including one allowing private generators with a capacity equal to or greater than 0.5 megawatts to sell electricity in the wholesale markets beginning next year, and the Mexican Senate approved key aspects of the law yesterday (July 20, 2014). This marks an important step towards the creation of a market for independent power producers in Mexico.
Earlier this year Cemex announced the $650 million Ventika project, which contemplates construction of two wind farms of 126 MW each for a total rated capacity of 252 MW. Operation of the wind farms, which will supply renewable energy to facilities owned by Femsa, Deacero, Tecnológico de Monterrey and Cemex, is expected to commence by the second quarter of 2016.
Bimbo launched the Piedra Larga wind farm in Oaxaca in 2012, which now supplies clean energy to all of Bimbo, Barcel and El Globo’s factories. Other companies have shown interest in renewables. For example, Marnhos construction company is looking at building two wind farms in Campeche and Yucatan.
Cemex and Walmart were among the first to announce their interest in entering the wholesale markets, in effect seeking to compete with the Comisión Federal de Electricidad (the incumbent monopoly provider). They have been joined by other large consumers of electricity interested in developing generation plants for "self-supply," including Grupo Alfa, Grupo Salinas, Bimbo, Telmex, Condumex, Peñoles, Minera Autlán and Sabritas.
The government intends to mobilize more private capital for new power plant construction in order to meet the growing demand for electricity, particularly in remote regions currently lacking reliable electric service. To this effect, the Executive Branch will create a national energy control center responsible for operating the wholesale market and assuring open access to the grid, within 120 calendar days after the Law Regulating the Electricity Industry becomes effective.
In short, Mexico's electric sector reforms are targeting:
Increased private investment in power generation through a competitive wholesale market.
Sustained development of clean energy projects through portfolio standards and renewable energy credits, with a target to generate 35 percent of electrical energy from non-fossil sources.
More flexibility in developing bilateral power purchase contracts that extend beyond the current "self-supply" model and with a particular focus on attracting new commercial and industrial end-users.