Mexico lets older hydro into clean energy plan: Update

Market: Electricity, Natural gas
29/10/19

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Mexico expanded its clean energy certificates (CELs) to legacy, mostly hydropower generators previously excluded from the program, which was created primarily to boost new wind and solar power.

The expansion will apply to low-carbon generators built before 2014, which in Mexico will mostly be applicable to hydropower plants, most of which are non-operational, and a small amount of nuclear and geothermal generation, based on the final energy ministry (Sener) decision published in the federal record yesterday.

Until this change, only clean energy power projects built after the 2014 energy reform qualified for CELs.

Expanding Mexico's clean energy certificates (CELs) to apply to older hydroelectric plants under a new energy ministry proposal would dilute the program's goal of promoting new renewable power generation, industry participants complained.

The change could disrupt the incipient market for wind and solar, participants have said as their combined capacity only accounts for 9.4pc. Hydro and nuclear account for 18pc and 2.3pc of Mexico's total installed capacity, respectively, already. CFE's clean energy capacity could flood the CELs market and industry observers say that would place CFE's CELs at an advantage ahead of those of smaller, private wind and power producers.

Mexican business council CCE said the move would risk up to $9bn already lined up for wind and solar projects, which were relying on CELs to develop several farms. Some 60 recommendations were filed to oversight body Conamer before Sener's proposal was enacted yesterday, but none were specifically addressed under the new arrangement.

"The decision undermines the only mechanism contemplated by law ... to meet the national 35pc clean energy obligatory targets," the CCE said. "We will recur to legal means to guarantee that the adherence to the norms continues to be a stimulus for investments, sustainability and the prosperity of Mexico."

Before President Andres Manuel Lopez Obrador took office, the former administration aimed to increase clean energy capacity by holding three long-term power auctions for 15- to 20-year supply contracts, clean energy certificates and stand-by capacity. A fourth auction was cancelled in January, a month after Lopez Obrador took office.

CFE dominates power generation in Mexico despite the 2014 energy reform. CFE produces 54pc of total power in Mexico from all feedstocks.

Targets according to Mexico's energy transition law mandate for the country's "clean energy" sources to generate 30pc of the total by 2021 and 35pc by 2024. To meet those targets, conventional power generators — including CFE and industrial companies — are required to present CELs for 5.8pc of total generation in 2019 and up to 35pc by 2024.

Of Mexico's 86 hydro power plants, CFE has 59 hydro power plants nationwide but only 14 are active with a combined capacity of 10,583MW. The largest capacity lies in Chiapas and Guerrero states and CFE controls the largest capacity — the rest are small, mostly inactive hydro producers. Generadora Fenix operates the only major, active private hydro plant, the 109MW Necaxa.

Under Lopez Obrador's hydro revamp plan, Sener plans to add 15MW as early as December 2020, then 60MW from six revamped turbines in April 2021, 116MW in April 2022 from 15 units, 204MW from 19 units in April 2023, 82MW from 10 units in 2024 and 12MW from one plant in 2025.

The priority project is the Chiapas' 240MW Chicoasen II hydropower plant, which according to CFE director Manuel Bartlett will be brought online as early as 2020. The plant was expected to come online in September 2018 but was delayed because of legal issues.

The new plant is part of CFE's and Mexico's largest hydro plant, the 2,400MW Chicoasen complex. Mexico projected a budget Ps10.2bn ($540mn) for the project in 2019 and Ps100mn will be allocated for the plant's development in 2020.

As a result, Sener expects Mexico's hydro capacity to jump at least to 13,099MW thanks to revamps — plus the new 240MW at Chicoasen II — by 2024 from 12,609MW today.

By end-2018, wind power and solar installed capacity reached 6.8pc and 2.6pc, respectively. Mexico's national wind association AMDEE expects wind capacity to increase to 12,000MW by end-2022 from some 5,000MW today.

But natural-gas fired, combined-cycle plants make up 37pc of total domestic capacity and they are the backbone of Mexican power generation: they generate 51pc of the country's annual needs. Thermal plants follow with 13pc.

Total power generation from all clean sources combined reached 19pc of Mexico's total by end-2018. Of these, hydro accounts for 10pc, nuclear for 4.3pc, wind for 3.9pc and solar for a marginal 0.7pc. CFE generates over 50pc of Mexico's clean energy.

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