Mexico’s election and its outlook for renewable energy

Summary: Outgoing President AMLO continues to shun solar but seems to have embraced wind and BESS recently. President-elect Sheinbaum may continue on her predecessor’s path, but her own solid record in solar DG and a Ph.D. in energy engineering may provide the power sector with some positive surprises. Wind energy may be headed towards a major comeback.?

? ================

Ever since outgoing President Lopez Obrador was elected, investment in renewable energy in Mexico dropped like a stone. Especially foreign and private sector investment, since AMLO’s preference has been for the country’s public sector to take the reins of energy investment. During his tenure Mexico’s energy reforms from previous administrations went ignored: the focus became furthering fossil fuels, since Petróleos Mexicanos (PEMEX), the government's behemoth with significant oil and gas reserves, provides an ability to fill public coffers that help fund government programs.?

But AMLO seemed to have a special distain -- at least initially -- for wind and solar energy. This is especially perplexing given the country’s excellent solar radiation (see map below) and the clear trend towards near-shoring Chinese investment: Trina Solar, for example, has announced it will invest up to $1 billion in northern Mexico with an eye to exporting solar panels to the U.S. -- but in any event a great source of job creation. And China is keen to invest far more in Mexico.

Why the dislike of renewables? The general consensus is that it was a political decision: power is dispatched starting with lowest cost, and privately-owned wind and solar?generation is generally less expensive and thus first to be dispatched -- therefore cutting into the revenues of government-owned hydro and fossil fuel generation plants.?

Renewed interest in wind energy

Each year the Mexican Ministry of Energy updates its 14-year projections for energy investment through its National Electric System Development Program, or PRODESEN. Its latest update was published in May, with an announcement that 94 gigawatts of power generation capacity will be added through year 2038. This includes investments in combined cycle, solar, wind, solar distributed generation, storage, and other sources. Bear in mind this is supposed to be largely government investment, not private sector. See next graph.?

But a curious and significant reversal seems to have taken place from last year’s projections. First, note the significant drop in PV-Solar compared to last year (in dark green) compared to this year (in lighter green). But then look at what's even more significant, the mind-boggling projected increase in wind energy investment. ?

?What gives?, especially since Mexico’s wind resources aren’t nearly as exceptional (see map further down, showing that the best wind resource is concentrated in the Oaxaca region on the Pacific side). Well, as it turns out, wind projects can deliver power in timeslots in which energy is better priced, while solar projects deliver power during daytime slots where marginal pricing is very low, further increasing the risk of a duck curve with negative pricing -- which would also result in lower production from (government-owned) combined cycle and hydro plants.?

In the short term (2024-2027), focus will be on BESS and wind (see upper graph above), while in the longer term (2028-2038), focus will be decidedly on wind.?This totals almost 28GW of projected wind investment, about 13 GW of solar, and some 12 GW of BESS investment over the next 14 years.

This could spell opportunity for wind energy engineering, procurement and construction companies (EPCs) to focus on Mexico in the coming years, assuming the new energy minister (the new administration steps up in October 2024) doesn't change this.?

"This could spell opportunity for wind energy EPCs in Mexico."

But what will Sheinbaum do? As past mayor of Mexico City with a track record in sustainable development, her focus was on planting trees, prohibiting plastics, promoting solar DG and expanding public transportation. She is younger and more educated than her predecessor (AMLO has a degree in political science to her PhD in energy; there’s a ten-year age gap between them), so it may not surprise if she emerges as more pragmatic than her predecessor. This could spell good news for private sector investment in clean energy. A potential solution might allow for private sector participation in wind, solar and BESS but with certain price controls incorporated. Her record?with solar distributed generation can be expected to continue. Finally, the electric vehicle sector may be promoted aggressively. China’s BYD Auto is looking at an investment in Mexico looking at both Mexican and U.S.A. markets.?

==============

About the author: Carlos St. James has been an executive in clean energy technologies for almost two decades and emerged as a leading voice in highlighting various aspects of the sector. He has spoken at clean energy conferences in three dozen countries across five continents. In Latin America, he founded the Argentine Renewable Energies Chamber (CADER), and is also a founding member of the Latin American & Caribbean Council on Renewable Energy (LAC-CORE) in Washington, D.C. In the U.S., he is a past board member of CleanTX.

?