AUSTIN — Mexico will fall short of its 35 percent clean energy target for 2024 due to unfavorable policy changes made under President Andrés Manuel López Obrador, Wood Mackenzie now predicts.
AMLO, as the new president is known, has officially stood behind Mexico’s 35 percent clean energy target since taking office last December. But his government has made a series of policy shifts with negative implications for Mexico’s renewables market, which ranked among the world’s hottest just a few years ago.
The changes include the shelving of Mexico’s planned fourth clean-energy auction and the cancellation of tenders for several major transmission infrastructure upgrades that would have helped deliver renewable power.
“If things don’t change...it will be very difficult for Mexico to meet the 35 percent target,” said Leila Garcia da Fonseca, senior manager for solar and wind operations and maintenance research at WoodMac.
In particular, AMLO’s pivots will undermine growth in Mexico’s wind market, Garcia da Fonseca said Monday at GTM’s Mexico Power & Renewables Summit. However, solar will continue to thrive in the country after an adjustment period, she said.
For the time being, Mexico’s renewables market is in the midst of a boom stemming from the previous three auction rounds. Those rounds delivered exceptionally low prices that caught many in the global renewables business off guard. WoodMac sees Mexico completing around 3.7 gigawatts of solar and wind this year, a new record for the country.
But once the existing pipeline of auction-linked projects is exhausted, both the wind and solar markets look likely to be much weaker than previous forecasts covering the early and mid-2020s had indicated.
Solar will take a harder hit from the stalled auction process, since it would have won the lion’s share of the new contracts up for grabs, Garcia da Fonseca said. Yet remarkably, solar’s ongoing cost declines are poised to be so powerful that WoodMac has modestly increased its overall solar installation target for Mexico in the 2019-2028 period, to around 15 gigawatts.
That means solar will dominate Mexico's renewables additions over the coming decade. "It is about time," Garcia da Fonseca said. "The solar resources in Mexico are great. Construction costs for solar are lower."
In contrast, AMLO’s policy changes, alongside other factors, mean that Mexico will install around 20 percent less wind capacity over the coming decade than WoodMac had previously forecast, with deployments of around 7 gigawatts now expected. The wind market is set to contract severely over the next few years, falling from 1.7 gigawatts in 2019 to just 325 megawatts in 2023.
The lack of transmission lines is a bigger challenge for wind than for the more geographically dispersed solar market. Mexico’s wind developers will also suffer from new natural-gas pipelines being built in the country’s northeastern states, where most of the winning wind projects from the recent auctions are located. New imports of inexpensive U.S. shale gas will drive down nodal power pricing in northern states, undercutting wind development.
There are bright spots for Mexican renewables, particularly in the longer term. Demand from corporate offtakers is blossoming and will account for most new projects built in the 2020s.
AMLO's government may still come around to holding another clean-energy auction, and in any case Mexican presidents are eligible for only a single term in office.
“We do expect the auctions are going to return after [AMLO] completes his six-year term," Garcia da Fonseca said.
But concerns about the wind market and the unlikelihood of a surge of new hydroelectric capacity mean the odds of achieving the 35 percent target for 2024 now look dim, she said.
Previously, Wood Mackenzie expected Mexico to easily surpass its 35 percent clean-energy target for 2024. Analysts now expect the country to fall just short.
Solar energy will increasingly drive Mexico's renewables market, "but it's not going to be enough," according to Garcia da Fonseca.