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Policy changes prioritize geothermal energy growth in Mexico

Policy changes prioritize geothermal energy growth in Mexico

Identifying potential business opportunities in geothermal energy created by changes in the Mexican energy market and regulatory environment.
Good Practice
  • Long term political commitment
  • Comprehensive policy reforms
  • Decentralization of the Ministry of Energy
  • Clean Energy Certificates
  • Power purchase agreements
  • Tax incentives
  • Risk sharing among partnerships
Themes
  • Energy
  • Geothermal
Location

Mexico, Latin America and the Caribbean

Year Published

2017

Case Summary
Background

Electricity demand in Mexico is expected to increase at a rate of 3.5% each year. Recently, the government of Mexico has set an ambitious target of reaching 35% clean energy generation by 2024. Mexico has significant untapped geothermal energy resources and is estimated to range in between 5 and 25 gigawatts of untapped conventional and unconventional geothermal resources. Historically, electric power generation, transmission and distribution have been designated exclusively as state activities. However, the comprehensive policy reforms enacted in 2013 by the government of Mexico opened up its energy sector to private investment and have since accelerated the deployment of renewable energy generation technologies. The expectation of this policy change is 900 MW of new geothermal energy generation by 2029.

Actions profiled

As a result of this policy reform, Mexico’s Federal Electricity Commission is no longer the monopoly over electricity generation, transmission and distribution. Private and foreign companies are now allowed to openly participate as developers and independent power producers. However, it is still the Ministry of Energy’s responsibility to grant geothermal registrations, permits and licenses. The government has also enacted several other mechanisms to boost investment, which include tax incentives, an exploration risk mitigation insurance product, tradable clean energy certificates, a renewable energy resource atlas and faster permitting via a web portal. Private geothermal power producers are also permitted to bid in electricity auctions or sell their electricity output in wholesale markets.

Outcomes

The most significant impact under Mexico’s Geothermal Energy Act of 2013 is policies that created specific incentives for geothermal deployment through the entrance of private and foreign companies investing in the geothermal technology. As a result additional 900 megawatts (MW) of geothermal energy generation is expected by 2029. Reforms aim to lower electricity costs via competition and to also increase the share of natural gas and clean technologies in the production of electricity. However, some barriers still remain for foreign companies interested in entering Mexico’s geothermal market: uncertainty of long-term prospects, high investment levels and market saturation, to name a few.
Collaborators
  • Government of Mexico
  • Ministry of Energy
  • Federal Electricity Commission
  • Clean technology fund
  • Inter-American Development Bank

Results supported byUNDPWorld Resources InstituteTransparency partnership