Can Investment In Renewable Energy Break Mexico's Conventional Energy Reliance?

mexico-city-smog-carsAs a nation, Mexico is toiling in a state of constant change. Apart from the well publicized political and criminal problems, the country is expected to see its population increase from 108.5 million to 112.2 million over the next 4 years. Additionally, analysts expect GDP per capita to increase by 48%. While the population growth will increase strains on the country's resources, many continue to worry about Mexico's current - and future - energy needs. With the Mexican government's continued focus on economic development, electricity consumption per capita is expected to increase by 8% over the next 4 years. Additionally, Mexico's residential power consumption is expected to increase significantly (from an estimated 199TWh in 2010 to 222TWh by the end of 2014). This increase, along with the continued development of Mexico's business sectors, has brought Mexico to an impasse. Mexico needs energy, and to meet this need, it is going to have to invest, and invest quickly. Current forecasts indicate that Mexico will need to invest over US$51 billion over the next decade to meet the projected demand, a figure that could rise as the country develops. As foreign businesses continue to salivate, many continue to wonder what the increased energy demand will mean for renewable energy projects.

mexico_wind_powerIn the search for answers, the first place one needs to look at is the recent history of renewable energy investment in Mexico. In January 2009, President Felipe Calderón inaugurated the first phase of the Eurus Wind Park. The wind park, which will be the largest in Latin America (and one of the biggest in the world), has a capacity of 250MW through 167 wind turbines. Construction of the wind farm, which cost US$550 million, has been carried out by Spain's Acciona Energy. To date, Acciona has secured US$375 million in funding to develop the Eurus Wind Park. Once completed, production will cover up to 25% of the electricity requirements of the Cemex cement plants in the country. In addition to this, the European Investment Bank confirmed this past May that it has lent US$99.44 million to Iberdrola to finance the construction of an additional wind farm in the south-west of Mexico. The loan will be used to build and commission the wind farm in Santo Domingo Ingenio in Oaxaca. The wind farm will have 121 turbines and an installed capacity of 103MW. The loan will also be used to build access roads and interconnection with the high-voltage network.

jeffheger10802921992While the projects above are promising, the critical problem that renewable energy continues to face is scale and efficiency. Currently, renewable energy sources in Mexico produce only 3.3% of the country's energy needs (a number that could potentially increase to 7.0% by 2014). Unfortunately, while significant investment is planned in the wind sector, the inability of renewable energy to contribute substantially to the power grid may put future renewable energy investment at risk. Recently, the Mexican government announced that they were strongly considering nuclear energy as main investment priority (one that may supersede renewable investment), despite the fact that this technology also carries significant construction costs and risk. Moreover, while nuclear energy is an option, many within the government continue to find it hard to overlook the cost efficiency of conventional energy, even if that investment may increase the country's environmental and health challenges. Overall, I believe that in the short term, despite the environmental benefits that renewable energy offers, conventional thermal sources including oil and gas will continue to dominate electricity generation and investment. Businesses and home consumers within Mexico do not appear to have the patience to wait for renewable energy production to meet demand, and it is unlikely that the Mexican government  will also exude the required patience.