The Silver Lining to a Cloudy Situation: How Mexico's Bumbling Modernization of Pemex Is Spurring Development of Renewable Energy

Article excerpt

In December 2010, Mexico's Grupo Bimbo announced plans for a $200 million wind farm intended to power the company's sixty-five Mexican plants and offices. (1) Bimbo is one of the world's largest breadmakers, and with an eventual capacity of 90 megawatts (MW), this wind farm project is one of the largest undertaken by a company in the food industry. (2) Less than two years earlier, cement giant Cemex unveiled "[a] wind farm described as the largest in Latin America," (3) the 250 MW EURUS wind farm in southern Mexico, a $592 million venture with Spanish developer Acciona (4) Elsewhere in Mexico, retailers Wal-Mart de Mexico and Soriana have also launched wind farm projects. (5)

Official policy has played a limited role in this recent surge in Mexico's renewable energy production. (6) Beneath political posturing lie two simple facts: "Mexican oil production has been on the decline in recent years, [and] the country has enormous renewable energy potential." (7)

I. DECLINING OIL PRODUCTION

For the past decade, Mexico has relied heavily on oil extracted from the super-giant Cantarell oil field in the shallow waters of the Gulf of Mexico. (8) More than half of the oil Mexico produced in that period came from the Cantarell field, but output there has declined sharply. (9) A "huge number of potential reservoirs" exist in Mexico, but Pemex, the state oil company, lacks the capital and the expertise to explore these untested reservoirs. (10) In addition, an intricate web of politics and constitutional restraints prohibit Pemex from partnering with private oil companies that do have the resources to explore its potential reservoirs, especially the vast potential reservoirs in the deepest parts of the Gulf of Mexico. (11) Declining oil production poses a serious threat to the Mexican government, which relies on Pemex for one-third of its revenues. (12)

II. ENORMOUS RENEWABLE ENERGY POTENTIAL

A. Wind Power

Mexico had not made significant strides toward harnessing its wind potential until relatively recently. (13) Real progress began in 2006, when former energy secretary Felipe Calderon was inaugurated as Mexico's president. (14) As a candidate, Calderon had broken with tradition and advocated for the opening up of Mexico's energy sector to private investment. (15) Political infighting has prevented any significant opening up, (16) and plummeting oil production--it fell by 9.2% in 2008 alone--has forced Calderon to seek out alternative energy sources. (17) Wind has been especially promising, and Calderon has ambitiously pledged to increase Mexico's wind energy capacity to 2500 MW--enough to power 700,000 U.S. homes--by the end of his term in 2012. (18)

Mexico's Isthmus of Tehuantepec "is becoming the Saudi Arabia of alternative energy." (19) The isthmus is ideally placed "at the bottom of a funnel formed by two mountain ranges," and "[w]ind from the Atlantic Ocean and the Gulf of Mexico whistles through this pass on its way to the Pacific Ocean." (20) Winds there consistently blow at rates of 15-22 mph--perfect speeds for wind turbines. (21) Further east, the Yucatan Peninsula has been touted as "one of the most promising areas for wind energy development within the Latin American region." (22)

Mexico's unique geography makes the development of wind power more economically feasible in Mexico than it is in many other countries. (23) Investors there can get a return on their investments without the lavish government subsidies necessary in the United States, Canada, and the European Union. (24) This is fortunate; the Mexican government can hardly afford to subsidize renewable energy. (25) It already spends $19.2 million to keep gasoline prices artificially 1ow. (26) The international community is not so strapped for cash, however. Mexico is one of a handful of developing countries benefitting under the U.N. Clean Development Mechanism program. (27) The program has funded sixteen wind power projects in Mexico with an eventual capacity of 1964 MW. …