«NATIONAL RENEWABLE ENERGY LABORATORY RENEWABLE ENERGY OPPORTUNITY ASSESSMENT FOR USAID MEXICO November 2015 Andrea Watson, Ricardo Bracho, Rachel ...»
GIZ is also working some in this area through collaborations with SENER and CRE. The U.S. Department of Energy is also working with the government of Mexico directly through a high level climate and energy agenda. The World Bank through the Energy Sector Management Assistance Program (ESMAP) is providing some technical assistance to Mexico regarding pump storage technologies. The Inter-American Development Bank (IDB) has provided funding for certain projects and some technical assistance. Various NGOs like the World Wildlife Foundation (WWF) has regional offices in Mexico and works in various climate change programs, its energy program is being restructured and opportunities for collaboration will increase. The International Energy Agency (IEA) is doing work on smart grid evaluation through the International Smart Grid Action Network (ISGAN), an initiative of the Clean Energy Ministerial (CEM).
The 21st Century Power Partnership, a multilateral effort of the Clean Energy Ministerial, is also heavily involved in grid integration, planning, and capacity building. There are other international donors like the UK agency for international development and domestic non-for profit organizations and academia working in various areas of clean energy.
This does not mean that the space is over-populated with donor and aid organizations;
however, it does suggest that careful coordination and leadership will be required to build coalitions, collaboration, and fit each group’s contributions into implementation pathways. This is one of the reasons why leadership was the first item discussed under the program theme area.
2.1.2 Renewable Energy Priority Zones Transmission capacity expansion in Mexico is proposed by CENACE to CRE and SENER and must, according to the PRODESEN, take into consideration among other things, the optimal generation projects that would meet the demand in the SEN and meet the objectives of clean energy in the planning horizon, while also considering the renewable energy potential in Mexico. Nearly 80% of commercial banks have invested in renewable projects that are 50MW or larger 47 and it is likely that financial institutions will continue to favor large-scale renewable energy projects. Yet without transmission 46 Throughout this paper, clean energy refers to energy from renewable sources, as well as end-use energy efficiency measures such as demand response.
21 and interconnection points, financing is unlikely. To help overcome this barrier, the current law for the use of renewable energy and financing of the energy transition (LAERFTE for its name in Spanish), under article 60, gives SENER the responsibility to prepare and publish the national atlas of feasible areas for developing renewable energy generation projects. With this requirement, SENER is beginning to develop a program to prioritize renewable energy zones in Mexico. The proposed Energy Transition Law (LTE) Article 14-X and 14-XI would maintain the same requirement, with the only difference that these would be called clean energy zones. The LTE also specifies the requirements for the Atlas of RE Priority Zones. As of this writing, the law is under consideration with the Mexican Senate, but has not been passed.
The concept of renewable energy priority zones has been demonstrated in the US in the state of Texas. The electric grid regulated by the Electric Reliability Council of Texas (ERCOT) has world-class wind resources, large population (load) centers, and few barriers to land development. In 2005, the Texas Legislature passed a law to designate transmission for Competitive Renewable Energy Zones (CREZs). The CREZs were selected and electric transmission was prioritized to zones from population centers, which in turn significantly boosted planned wind generation projects in ERCOT. 48 Overall, the CREZ project combined economic development, development of in-state energy resources, and development of green energy through effective legislation.
Properly executed renewable energy priority zones can enable large-scale renewable energy development to proceed in the most cost-effective manner. Zones are areas that have very high resource availability and enable high capacity factors. The purpose of a REZ activity is to accelerate and right-size the build-out of transmission to these zones.
While large-capacity, high voltage transmission lines will be required to access the zones, the new lines can be designed to provide less capacity than the total developable capacity of the zone, spurring private competition in renewable energy development. One large benefit of zone designation is aggregation of ultimate total transmission needs rather than incrementally assessing needs and building multiple lower capacity lines. Higher voltage transmission lines are more economically efficient;
the number of transmission corridors is minimized, minimizing environmental impact;
and fewer permit proceedings are required.
Before priority renewable energy zone can be identified, study zones that have potential are evaluated. Facilitating conversations with the zone developers (typically a government body or system operator) and the private sector over which study zones would be potential investment areas will help ensure that development and financing will follow after transmission infrastructure is built. It may even be possible to secure development commitments.
While this program theme area follows the grid planning and integration discussion, these two activities are linked. The renewable energy resources assessment and production cost modeling of transmission scenarios discussed in the grid integration 48 Lasher, Warren. 2014. “The Competitive Renewable Energy Zones Process ” August 8–14.
18.104.22.168 Program Theme At the time of this writing, RE priority zones are not mandated by law, however, regardless of the legal outcome of the LTE, the zone concept could be important in enabling large-scale renewable energy in Mexico. USAID may wish to consider developing a program or program area around the RE priority zone concept. USAID could continue to work with SENER to develop the renewable energy zone concept (some of this work has been initiated under EC-LEDS in 2015), identify study areas, engage the private sector to identify zones, and work with SENER and other stakeholders to develop transmission to identified zones. Elements of a renewable energy priority zone program are detailed below.
Stakeholder Group: At the time of this writing, the USAID sponsored EC-LEDS program already held an initial educational workshop on renewable energy zones (May 2015) and is working with SENER to develop a stakeholder group that would need to be consulted as Priority Renewable Energy Zones were developed. By the time a new USAID EC-LEDS program is developed in Mexico, USAID can consider how to support this stakeholder group.
Zone Development Strategy
An effective renewable energy zone strategy for Mexico could be based on the following steps. These suggested steps draw heavily from the REZ experience in Texas and further scoping/design would be required for program development tailored to the unique needs in Mexio. When appropriate, a potential lead Mexican organization has been identified in parenthesis.
1. Complete a high resolution renewable energy resource assessment (if not already completed). Ideally, the assessment would model hourly wind and solar output for a typical meteorological year, reflect geospatial differences with enough granularity to identify areas with relatively high capacity factors, and locate known geothermal heat potential. This assessment would inform both the renewable energy zone selection and the grid integration studies.
2. Using information from the renewable energy resource assessment, identify study areas where capacity factors and production profiles are high.
3. Develop environmental screens to exclude known sensitive habitat and terrain features that make project development impractical. Using geographic information system analysis, apply the screens to estimate developable potential in each study area.
4. (SENER) Review Mexican law with respect to the legality of providing preferential transmission access to renewable energy developers who provide early binding financial commitments to project development; design mechanisms by which developers may provide demonstration of commercial interest in a study area.
5. Conduct an open season where renewable energy developers provide tangible demonstrations of commercial interest in specific study areas using the mechanisms established in step 4.
6. (CENACE) Conduct production cost modeling of transmission scenarios that would interconnect study areas with the highest levels of demonstrated commercial interest. This modeling would be done in conjunction with the grid integration study.
7. (SENER) Select renewable energy zones. (Release developers from any financial commitment to areas that are not selected for zones.) 8. (State/local governments, optional) Identify preferred local development areas within a renewable energy zone, along with local incentives for siting development in these areas.
9. (SENER) Approve a transmission build-out plan for the selected renewable energy zones. (May require additional production cost modeling by CENACE to compare top candidate scenarios.) Land Access: Land access came up repeatedly during in-country meetings, and, according to IMCO, land access issues currently cause more uncertainty in the renewable energy industry than the lack of prices for CELs. Other stakeholders, including AMDEE, also mentioned land access a complicated issue that can be a barrier. This topic is extremely sensitive and there are many sides to be considered.
USAID may wish to explore this topic further as an element in a zone concept.
22.214.171.124 Other Stakeholder Activity Although the effort is nascent, SENER is already beginning to plan for the creation of renewable energy priority zones. In addition to early EC-LEDS support, the 21st Century Power Partnership was also engaged in the first workshop. As a result of this initial workshop, SENER, working with CFE, has begun forming technology-specific working groups to receive feedback from private sector participants.
ASOLMEX also mentioned working with SENER on a geographical map of solar resource potential to encourage utility scale, ground-mounted solar projects. MLED has been engaging with PWC to develop an action plan to promote the development of utility-scale solar. MLED is assisting with developing this concept, and is pushing for an executive committee with members from SENER, Hacienda, SEMARNAT, and others, to build momentum behind this work.
2.1.3 Financing Required to Achieve the Clean Energy Goals Whether we are discussing electricity generation, transmission infrastructure, storage projects or technology research, Mexico, like other countries looking to deploy large amounts of renewable energy, needs to have a series of appropriate financial programs and mechanisms to enable financing in this sector. As is the case in many other countries, funds are available in Mexico but more work needs to be done to systematically channel those funds to the most appropriate projects. There is an opportunity for USAID to take a lead role and collaborate with public and private sector stakeholders to inform the design of required innovative financing instruments, 24 programs, and processes to pool the various sources of financing available, which can provide the different types of financing at the lowest possible rates. Providing technical support to help financiers evaluate these projects, especially those with new technologies or in new areas, will also help achieve this goal.
With respect to renewable energy deployment, in 2004 the government introduced some incentives or mechanisms such as fixed wheeling charges, and in 2006 the government began the open seasons program for renewable energy transmission infrastructure; both of these contributed to make financing of large wind projects a reality. Today, under the energy reform, these incentives and programs are no longer available, leaving Clean Energy Certificates, which will begin in 2018, as the only mechanism to specifically incentivize clean energy generation projects. The final details of how these certificates will work and their expected results are unknown at this time.
With regard to renewable energy transmission projects, project developers can now provide CENACE with various technical studies and proof of economic commitment for the construction of the generation projects, and in turn, CENACE can include the necessary transmission infrastructure projects in the PRODESEN. Now with the energy reform, the new transmission infrastructure for renewable energy projects, which requires large amounts of financing, can have private sector co-investment and coownership with CFE. This is a new, unproven scheme that will require a concerted effort to set the right instruments, processes and procedures to create viable projects, which will sell renewable energy transmission capacity to the system.
For Mexico to reach its clean energy goals, new technology and support projects like smart grid, micro grids, and energy storage infrastructure among others will require private sector financing. These investments will require a coordinated effort from various stakeholders, including research institutions, policy makers, domestic and multilateral development institutions, commercial banks, international donors, industry and academia, to design financing programs and instruments to ensure that funding and technical assistance is available for the projects.
In developing countries, innovative technologies in the power sector, such as some renewable energies, smart grid, energy storage and others previously held under government control such as building of transmission projects, require new supporting policies and special financial and technical support mechanisms. In most cases commercial banks are timid and prefer to wait for development financing to take a lead.
Development financing in these areas which plays a significant role to increase financing may use proven and new innovative instruments combined with offering technical grants to help reduce the risks to private sector financiers. Gaps and
opportunities in this space include: