Navigant Research Blog

Reforms Drive Renewables, Grid Modernization in Mexico

— March 3, 2015

A recent ranking of the most attractive power markets for investors in Latin America, based on a survey conducted by BNAmericas of power sector stakeholders, places Mexico at the top. The updated rankings cite reforms to the country’s power sector, which are expected to allow for greater levels of private investment and a loosening of Mexico’s state-owned Comisión Federal de Electricidad’s (CFE) monopoly over the national power grid.

Mexico, which ranks 16th globally in installed generation capacity, is among the largest power markets in the world. Currently, CFE controls more than three-quarters of the country’s installed generating capacity and holds a monopoly on electricity transmission and distribution. The status quo has made it difficult for the country to keep up with rising electricity demand, effectively acting as a headwind for broader economic growth across the country.

Reform and Renewables

Although Mexico is heavily dependent on fossil fuels for power generation—representing 86% of delivered electricity—estimates suggest that it has sufficient resources to meet 50% of its generation demand with non-fossil fuels by 2050. Among non-hydro resources, geothermal, biomass, and waste are currently the most utilized. But like Chile, which previously topped BNAmericas’ rankings, Mexico is increasingly being seen as a haven for solar PV and wind development.

Energy sector reforms are designed to enable private firms to sell electricity to commercial and industrial consumers, as well as partner with CFE to finance, build, and operate transmission and distribution infrastructure. Private sector companies can participate through an open permitting process for independent power producers and self-supplied and combined heat and power (CHP) facilities that are typically located at industrial plants. Ultimately, these changes are designed to create a more competitive electricity market, according to Fitch Ratings, and to encourage the use of renewables by awarding clean energy certificates.

As a result of these reforms, private investment inflows could mirror similar trends already underway in Chile. According to some estimates, Mexico will add 66 GW of capacity to its power grid over the next 15 years, with investments in renewables potentially reaching $90 billion.

Wind as Well

U.S.-based solar firms see Mexico as among the countries with the highest growth potential. According to Navigant Research’s report, Global Distributed Generation Deployment Forecast, the country is expected to add more than 800 MW of distributed solar PV over the next decade.

Mexico is rapidly emerging as a substantial wind market as well, second only to Brazil among Latin American markets. Deregulation is expected to accelerate the wind market. The federal energy secretariat (SENER) has targeted 12 GW of new development by 2020. CFE plans to commission eight wind farms, totaling 2.35 GW of capacity, by the end of 2018, and private investors such as Iberdrola, Pattern Energy, and Cemex have announced significant investment targets for the same period. These investments, along with projects under development in Baja California and southern Mexico, are expected to help fuel a 5.5 GW expansion in wind capacity across the country through 2019, according to Navigant Research’s forthcoming report, World Market Update 2014 – Wind Energy.

Mexico’s power generation system is plagued by inefficiency and regulatory rigidity. It currently has the highest distribution losses among Organisation for Economic Co-operation and Development (OECD) countries. While the reforms are designed to liberalize the sector, a likely flood of new intermittent renewable generation capacity and customer-sited distributed generation will likely further strain Mexico’s already inefficient, old, and outdated transmission grid. These challenges are expected to drive an estimated $36 billion in emerging transmission, distribution, and grid modernization technologies over the next decade.

 

Vestas, Mitsubishi Settle on Offshore Turbine Design

— February 24, 2015

In 2014, Mitsubishi Heavy Industries (MHI) formed a joint venture with Vestas called MHI Vestas Offshore Wind. The strategy behind that joint venture is now substantially clearer. MHI’s decision to stop the commercialization of its 7 MW SeaAngel offshore wind turbine, to focus instead on the Vestas V164-8.0 MW turbine under MHI Vestas Offshore Wind, makes sense given Vestas’ expertise in the offshore market and the need to move forward without confusion or conflict between the two turbine platforms.

Technology-wise, the SeaAngel’s novel Digital Displacement Transmission Technology (DDT) looked like the more advanced drivetrain system. It employs a sophisticated series of hydraulic pumps, values, and motors to transfer the energy from the constantly varying rotor speed to a fixed speed generator, without the use of a gearbox. No other wind turbine employs a hydraulic drivetrain like this.

That novel technology, however, adds uncertainty to the construction and operation of offshore wind farms.

Risk Avoidance

The increased construction and turbine servicing costs and associated risks for offshore wind increase the rate of return that investors expect to up to 12% compared to an onshore wind farm’s 7% to 9% in developed markets. Once you add the risk of employing a completely new transmission technology system, you likely outweigh the benefits offered by the new drivetrain design. The joint venture with Vestas provides access to a similarly sized turbine based on a proven and more conventional, medium speed geared technology, eliminating the added risk.

Although Vestas’ turbine is also new in the market, the company’s offshore turbine reliability has dramatically improved since 2004, when it had to replace the transformers and generators in all 81 of its then new V80 machines at Horns Rev offshore wind farm. Much refinement and advancement specific to offshore has been achieved by Vestas and its peers.

No Confusion

It’s also important to send a clear signal to the market that the Vestas V164-8.0 turbine is the primary turbine offering of the joint venture, without a separate Mitsubishi-branded product offered outside or within the joint venture. Although the SeaAngel turbine will disappear as a stand-alone brand, testing of the hydraulic technology will continue.

Onshore testing of the full-size 7 MW turbine officially began on February at a test center in the United Kingdom for validation of the drivetrain design. A similar hydraulic-powered turbine may be installed later in 2015 in Japan on a floating platform,  depending on the results from the U.K. tests.

Ultimately, the aim of the effort is to focus on refinement and validation of the hydraulic drivetrain for possible future use under the MHI Vestas joint venture. The floating platform may, in coming years, become part of the joint venture’s offerings as well. For now, though, the V164-8.0 turbine using proven Vestas technology is marching out to sea, having recently landed its first order of 32 units for the 258 MW Burbo Bank Extension project on the west coast of the United Kingdom in the Irish Sea. Hiring has just begun to build the 80 meter turbine blades.

Roberto Labastida contributed to this post.

 

Biomethane Offers Solution to Energy-from-Biomass Limitations

— February 6, 2015

My colleague Mackinnon Lawrence recently provided a thorough examination of the prospects for biofuels as a viable source of energy for transportation and power generation in the coming years – from both negative and positive points of view.  Last week, the negative outlook was reinforced by a World Resources Institute report that found that using valuable farmland to grow crops for energy is a wasteful practice that will never supply a significant portion of the world’s energy and that will divert land more urgently needed for growing food crops.

By 2050, the report states, the amount of calories available from crops will need to expand 70% simply to keep up with increased demand for food.  Since three-quarters of arable land is already used to provide human needs, “a growing quest for bioenergy exacerbates this competition for land.”  Bioenergy supporters have called for biofuels to supply 20% of the world’s total energy demand by 2050 – a goal that would require about 225 exajoules from biomass each year.

“That amount, however, is roughly equivalent to the total amount of biomass people harvest today—all the crops, plant residues, and trees harvested by people for food, timber, and other uses, plus all the grass consumed by livestock around the world.”

All Aboard

That is simply unrealistic, especially given the anticipated growth in consumption of plants for food and other human uses such as clothing, timber, and so on.  What’s more, clearing forests to burn wood pellets for energy results in a net carbon increase, once you factor in loss of the CO2 removal capacity of the standing trees.  The numbers don’t add up for massive increases in biomass cultivation for energy.

There is, however, another source of renewable, bio-based energy that could be scaled up without robbing food producers of land: biomethane, often called renewable natural gas (RNG).  Biomethane can come from cultivated crops, such as corn silage; but other, more promising sources include municipal waste and livestock operations.  (Navigant Research’s report, Smart Waste, explores the potential for diverting municipal waste streams for energy recovery.)

One advantage of biomethane is that it is chemically indistinguishable from the methane that constitutes natural gas, which means that the infrastructure – pipelines, turbines, vehicle engines – that uses conventional gas collected underground can also run on RNG.  A “poo-powered” bus, fueled entirely by gas collected through sewage treatment, went into service in the U.K. city of Bristol last November.

Not the Trees, Please

On the electricity side, the United Kingdom now has 28 biomethane-to-grid projects connected to the gas distribution network, using gas produced from the transformation of food, brewery, and van wastes – and energy crops.  “These plants have the capacity to produce 1.8 billion kilowatt-hours of gas per year, enough to meet the heating and cooking needs of around 100,000 homes,” reported the Green Gas Certification Scheme, the organization advocating increased use of RNG in the United Kingdom.

In Canada, biomethane advocates are aiming “to have a fully developed RNG marketplace by 2020 that helps meet energy needs, supports growth and innovation for business, and offers a solution to issues associated with waste emissions,” according to a December, 2014 report from the Canadian Gas Association (CGA).  The report found that the potential supply of energy from various biomethane sources could reach as high as 1.3 trillion cubic feet of RNG – equal to one-half of Canada’s natural gas consumption in 2012.

Such optimistic projections must be tempered, though, by the limits on sourcing biomethane from crops.  More than half of the supply of biomethane projected in the CGA report would come from one source: forests.

 

Building Innovations Form Pivotal Spokes in the Circular Economy

— February 2, 2015

The annual World Economic Forum in Davos, Switzerland, has come and gone again, and the usual irony of 1,700 private jets delivering the global elite to discuss climate change and inequality was perfectly ridiculed by Jon Stewart last week. But, beyond the spectacle of outsized wealth, there are some valuable economic and policy projects that hold promise outside the weeklong schmooze-fest.

In particular, the Circular Economy, an ongoing project at the forum, aims to tackle the current paradigm of consumption in light of a future of constrained resources and exponential growth in demand.  The Ellen McArthur Foundation, which supports an ongoing dialog on the circular economy explains the concept as thus:  “A circular economy seeks to rebuild capital, whether this is financial, manufactured, human, social or natural. This ensures enhanced flows of goods and services.”  An important question is how the theory of the circular economy can become tangible, which was a hot topic for this year’s discussions in Davos.

Rethink, Remodel

In the run-up to this year’s event, a Forbes article explained that the circular economy “requires businesses to rethink more than just their resource footprints and energy efficiency. It demands a more radical remodelling of business models.”  Reflecting on the big ideas of the circular economy, it seems the intelligent building, smart city, and innovations in energy management could be an ideal proving ground for these concepts in action.

The intelligent building is characterized by automated and responsive systems that maximize efficiency in consumption and productivity.  Intelligent buildings offer a new sort of resource that extends beyond the walls of any single facility to support key goals of grid modernization and the development of smart cities.  The technology exists to enable this kind of facility optimization, and investment in intelligent buildings and smart cities can demonstrate the benefits of a circular economy.  The following examples highlight how companies are bringing solutions to the intelligent building and smart city marketplace that align with the opportunity of the circular economy.

  • Philips has committed to the circular economy and the company’s lighting as a service offering aims to engage cost-constrained customers and manage the end-of-life treatment of lighting and system components.
  • Schneider Electric and Autodesk have announced a new partnership to bring innovation to building lifecycle management and “drive a deep and long-term transformation in the construction industry, providing greater value to each user and contributing to solve the energy challenge.”
  • Cisco’s position is presented as an “engineering strategy around the Internet of Everything [supporting] the transition to a circular economy, with new connected devices enabling the tracking of products, components and materials for re-use and recovery; new business models through greater connection with customers; and more effective reverse logistics chains.”

While the circular economy might seem like a lofty ideal that will demand major shifts in our consumption mindset, advances like these demonstrate steps in the right direction.

 

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