What lies ahead for wind power in Mexico under AMLO?

Despite the cancellation of energy auctions in Mexico by the government of President Andrés Manuel López Obrador (AMLO), the fundamentals of the market have not changed. Wind and solar remain the most competitive forms of generation, according to Agustin Sánchez-Tembleque, general manager of northern Latin America at Danish wind power solutions company Vestas.

BNamericas: Has the cancellation of the energy auctions in any way affected the competitiveness of wind energy versus solar energy in Mexico?

Sánchez-Tembleque: Essentially nothing has changed with the cancellation of the auctions. Wind energy, together with solar, is the most competitive form of generation. Beyond that, their profiles are different, but the combination of the two profiles is quite complementary.

With bilateral agreements, the profile of electricity generation becomes more important. Generators and qualified suppliers are seeking projects close to where the demand is in order to avoid the risk of price imbalances between nodes.

They're also looking for projects where the supply profile meets the demand profile. Wind energy has an advantage in Mexico, and especially in northeast Mexico, because demand is concentrated in the evenings, particularly in the summer, which makes wind energy especially interesting because of its profile.

We expect a very lively market for bilateral agreements in which both wind and solar are very active, mostly because of their competitive prices.

BNamericas: How would you describe an archetypical project for the Mexican energy market in the coming years?

Sánchez-Tembleque: This will depend a lot on the new rules of the game and what mechanisms are established by the government. In particular, the potential kinds of projects will be determined by whether there will be mechanisms for contracting energy in large volumes, which is what we had with the auctions. This will decide the possible scope of projects. Beyond this, the way the national electricity plan and the transmission network are developed will have a great deal of impact on how and where generation projects are built.

BNamericas: Do you see any preference from the government for large projects?

Sánchez-Tembleque: This has yet to be defined. We're still awaiting clarification in many areas from the government. What is clear is that the government has maintained its renewables targets and this is very important.

BNamericas: How important is the change of government for investment in Mexico?

Sánchez-Tembleque: Regulatory clarity is fundamental. It is important for us to have clear rules on how we're going to sell electricity in the future. Just because there is a change in administration that brings with it new rules for the game does not worry us in itself. Our company creates technology for energy consumers regardless of the regulatory framework.

Governments change every four to six years depending on the country and it’s the new administration’s responsibility to ensure that regulations and policies are the best for the country. It’s reasonable to us that this takes a while.

As an industry, we naturally feel ‘the sooner the better’ and hope that there will be stability with a long-term vision for the energy sector. As a company, we have a presence in 80 countries and have seen that there are many ways in which the energy sector can be regulated.

BNamericas: Are many projects on hold due to the uncertainty?

Sánchez-Tembleque: We currently have enough projects in the execution phase to finish the year with 700MW in additional generation capacity. This means we're very busy. Our company is working at full steam. For the next year, there are plenty of projects that are sufficiently mature, both in terms of permits and offtake, to constitute an interesting market in the future. We're watching these markets very closely.

Beyond that, there are obviously projects on hold for regulatory reasons, particularly those that were planned for the canceled fourth energy auction. Many of these are now on hold or are seeking to change strategy and become bilateral agreements, for example. So, naturally, there are project developers reviewing their strategies while awaiting the new rules.