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The Mexican state striking deals on both sides of the border

Admin | 22.03.2012

aja California shares 220km of Mexico’s border with the US and developers eyeing both markets are chomping at the bit to build wind projects in the state.

Baja California shares 220km of Mexico’s border with the US and developers eyeing both markets are chomping at the bit to build wind projects in the state.

Wind capacity factors are between 30% and 40% across the thousands of hectares of desert land ready to be dotted with towers — and contracts are being written on both sides of the border.

The state government is eager to support developers, and northern neighbour California is parched for clean power to meet its own mandates. The situation has created a perfect storm for adventurous developers willing to enter an untamed land.

Wind industry interest in Baja is not new, however, and big developers are finding that the best land has already been taken, says Rafael Alcalde-Navarro, licensing manager for Latin America and Western USA wind products power generation at GE Energy. But he also tells Recharge that the cost of land has not yet risen.

The Mexican state utility, CFE, is getting into the game, planning to tender for the 300MW Rumorosa project. It will offer 20-year contracts, and once those expire, developers will be able to apply for an export permit to sell to the US, or negotiate an extension with CFE.

Developers are looking at various options for sales, including self-supply schemes, in which a major consumer takes the project’s output, and, of course, the power-hungry California market, where San Diego Gas & Electric (SDG&E) is poised to be the first utility to import Mexican wind energy.

There is only one wind farm in operation in Baja, the 10MW $26m La Rumorosa, built by the state and in operation since January 2010. The 42-hectare facility, which houses ten Gamesa G87-2.0MW turbines, has a strange claim to fame: it is perhaps the only wind farm to play host to a classical music concert.

Oaxaca has been the go-to state for developers until now, but despite Baja California’s undoubted potential, there are barriers.

“The most visible obstacle to cross-border Baja California projects is the need to co-ordinate transmission planning and assign costs among the various transmission stakeholders,” says Francisco Acosta, CFE’s modernisation director.

“CFE needs to work towards a closer co-operation with US transmission owners and operators to jointly optimise the planning process and develop mechanisms to assign costs to the project developers and existing users.”

The utility is promoting an “open season” transmission programme to promote shared investment in developing the connections needed to make new wind farms a reality.

Presidential decrees from both the US and Mexico are necessary for transmission grids to be built across the border; a lengthy process, although one unlikely to face political barriers.

Among those staking their claims to Baja California’s wind potential are San Diego-based Sempra Energy, Mexico Power Group and Wind Power de México, which will compete against each other for Mexican and American contracts.

Alcalde-Navarro believes the region can handle 3GW in the medium term. The question is: who will get there first?


Sempra Energy

The energy-services group has a contract with its subsidiary SDG&E to sell 156MW of wind in a first phase at its Energía Sierra Juárez project.

The California Public Utilities Commission (CPUC) is expected to rule on the contract on 22 March.

Should the deal be approved, Sempra will have a power-purchase agreement (PPA) at $106.50 per MWh, which will cost SDG&E about $41m annually over the 20-year life of the contract.

Sempra anticipates having all permits, including the presidential clearance from the US Department of Energy, by mid-2012.

Construction of Energía Sierra Juárez is expected to begin in 2013, with some turbines operational later in the year. However, the construction timeline will be driven by completion of a substation that will connect the wind farm to the California grid.

The East County substation, which is being proposed by SDG&E and is going through a separate CPUC regulatory review process, has not been well-received by the community of Jacumba, California, which has a population of about 560.

Originally, Sempra had secured a PPA with Southern California Edison for the first phase of Energía Sierra Juárez, but the agreement expired before approval from the CPUC. The contract was not renewed, largely because of the delayed completion date of the project, which did not match Southern California Edison’s needs at the time, says Sempra Energy spokesman Scott Crider.

Development of Energía Sierra Juárez began in 2007, when Sempra bought the rights from Cannon Power Group, a San Diego-based developer. Sempra has secured enough land leases to support up to 1.2GW of capa­city, says Crider. The group has received strong support from local communities, which receive revenues from the leases, as well as from the state government and the administration in Mexico City.

“The Mexican government has been fantastic to work with,” says Crider. “They really view this resource as being of value to Baja.”

The wind-resource capacity in the mountainous area is high, although Sempra declines to provide details on its particular location or disclose the value of the investment.

An advantage of building in Mexico, versus America, is independence from the US federal production tax credit, expiring at the end of this year.

“That gives us a competitive advantage,” says Crider, although he notes that the cost difference between building in Baja and building in the US is not hugely significant. “There aren’t a lot of untapped wind resources in the west. If you look at the west coast, this is the last remaining untapped wind resource left,” he adds.


Mexico Power Group

The spin-off of Cannon Power Group is taking a different tack from its competition. It is in the midst of signing deals for a number of self-supply schemes.

The group’s original plan had been to export power to the US, but because of the importance Mexico is putting on renewables, it is now focusing more locally. “We will have multiple offtakers more interested in the green-energy component and a competitive tariff,” John Prock, director at Mexico Power Group, tells Recharge.

The company is closing long-term contracts with about five municipalities in Baja California for public lighting. The group expects to have seven total offtakers, in the public and private sectors. Initial rates will be discounted, and then fixed for inflation. “We have to put in a fixed cost and then a gradual escalator,” says Prock.

The offtakers will have a symbolic participation in the company in order to fit into CFE’s rules for self-supply schemes.

Mexico Power Group is also seeking equity partners, and negotiating with private multinationals and Mexican groups that “need to look for some place to invest their money in that is not within their core business”, Prock says. More than $10m has been spent on project development, and Mexico Power Group expects a return of 15%.

The first phase of the project will be 72MW on 7.5sq km, although the group believes it can harness 1GW of potential wind on the land it has secured where it has 60-year contracts with the ejidos (locals who control the land). The ease of dealing with the ejidos was among the reasons for choosing Baja over Oaxaca.

Cannon Power Group had been studying wind-energy prospects in the area for 15 years, and the group’s first project is in La Rumorosa, halfway between Tijuana and Mexicali, where there is a ridgeline that runs from a desert mountain 1,200 metres high to the desert floor in Laguna Salada, an old salt lake that runs to the Gulf of California.

“It’s a hard area to identify good wind because of the rough terrain,” says Prock. But getting Gamesa G97 turbines there should not be a problem because of the world-class highways and proximity to the port at Long Beach, California.

Prock expects the first phase to come on line in late 2012 or early 2013, but adds: “I’m trying to be pessimistic [about start dates].”


Wind Power de México

Like Mexico Power Group, Wind Power de México found conditions in Oaxaca too volatile politically to be worth the effort. Instead, president and chief executive Fritz Jacobson chose to focus on Baja California, where he is planning to build 1GW of wind power.

Jacobson estimates wind speeds of 7.5-9.3 metres per second and a capacity factor of 42% in the region. The company has been collecting data there for four years.

“We acquired the land 14 years ago believing that this was going to happen,” says Jacobson. His 290sq km of semi-desert terrain is between Tecate and Mexicali.

Wind Power de México is part of the industrial company Grupo IUSA, whose president is a friend of Jacobson. The group is looking at sales opportunities on both sides of the border, and has been able to count on GE, which Fritz expects will supply XLE 1.6MW wind turbines.

Jacobson has invested $10m of his own money in the venture, which will cost $2bn. Financing will be simple, says Jacobson, with a contract from CFE or a deal with the US Export-Import Bank if he imports turbines from America.

PPAs are finally starting to appear, but as Global Wind Energy Council secretary-general Steve Sawyer says: “[In Mexico], nothing ever happens until it happens.”

Source: rechargenews.com