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PP RUEHCD RUEHGD RUEHHO RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHMC #0397/01 2391615
ZNR UUUUU ZZH
P 261615Z AUG 08
FM AMCONSUL MONTERREY
TO RUEHC/SECSTATE WASHDC PRIORITY 3098
RUEHME/AMEMBASSY MEXICO PRIORITY 4098
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHMC/AMCONSUL MONTERREY 8588

UNCLAS SECTION 01 OF 04 MONTERREY 000397 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG ECON PGOV MX
SUBJECT: RENEWABLE ENERGY IN NUEVO LEON: A VIABLE MODEL? 
 
MONTERREY 00000397  001.2 OF 004 
 
 
¶1.  Summary: Nuevo Leon is blazing new trails as it seeks to 
counteract rising energy costs.  A public-private initiative 
known as Simeprode that converts the methane gas from a landfill 
into biofuel is already lighting up the streets of Monterrey and 
neighboring municipalities and powering the Metro.  A wind 
energy project is also underway that will be used by the state 
to provide more public lighting.  Although Nuevo Leon has been 
promoting alternative energy projects, the real push for these 
seems to be coming from the private sector.  No state government 
funding or tax incentives exist.  Despite this, the success of 
Simeprode and the generation of ideas, inventions, and projects 
being proposed by private entities are creating the image of 
Nuevo Leon as a leader in renewable energy. 
 
 
 
¶2.  Electricity in Mexico is managed by the CFE, Mexico's 
national electricity commission.  The GOM has the exclusive 
right to generate, transport, transform, distribute and supply 
energy.   Although regulations were relaxed in 1992 so that 
companies can produce their own power, the Mexican constitution 
prevents direct sales to other consumers.  According to the 
World Bank's Energy Sector Management Assistance Program, 
Mexico's pricing system poses another regulatory challenge by 
placing a wedge between the price paid to private investors and 
that charged the end user.  The prices faced by the consumer 
reflect the average cost of supply, covering a broad mix of 
generation plants (including many outdated, high-cost fuel-oil 
and coal-fired thermal plants).  Because these costs are passed 
on to consumers, the price is high compared to that of 
electricity generation from newer plants.  Consumers therefore 
pay prices at which it could be economically attractive to use 
renewable energy options.  With gas prices skyrocketing, even 
the CFE has recognized the growing overexposure to the natural 
gas market for electricity generation, making renewable energy 
look increasingly more attractive. 
 
 
 
Turning Trash into Energy 
 
 
 
¶3.  In 2003, a project using the biogas from a landfill as fuel 
was launched by Bioenergia de Nuevo Leon, S.A. de C.V. 
(BENLESA).  It is the first such project in Latin America. 
BENLESA is the result of a strategic alliance between 
Bioelectrica de Monterrey, a private company, and the government 
of Nuevo Leon through SIMEPRODE (System for Ecological Waste 
Management & Processing), a decentralized public entity.  The 
landfill being used is located in the municipality of Salinas 
Victoria, Nuevo Leon, about 21 miles outside of Monterrey.  The 
BENLESA plant opened in September 2003 with an initial total 
capacity of 7 MW.  According to Jorge Padilla Olvera, Director 
of SIMEPRODE, a second plant is being built and is almost 
finished.  This will increase capacity to 12.72 MW.  It is 
estimated that with this expansion the plants will generate 
40,000 MWh per year.  SIMEPRODE will be able to supply 40% of 
public lighting in the Monterrey metropolitan area.  This is 
equivalent to supplying electricity to about 25,000 small homes. 
 
 
 
¶4.   In addition to lighting at night, by day BENLESA provides 
electricity for Monterrey's Metro, Monterrey's water and 
drainage system, the general offices of the state government, 
and DIF (System for Integral Family Development) of Nuevo Leon. 
Padilla noted that the Metro will be run 100% by methane gas 
produced by the SIMEPRODE plants, making it the only metro in 
the world to use entirely clean energy.  With the increase in 
generation capacity, energy will also be provided for tourist 
areas in Monterrey, such as the new Paseo Santa Lucia riverwalk, 
as well as adding other municipalities in the metropolitan area. 
 
 
 
¶5.  The technology for the project is based on a European model, 
but some adaptations had to be made for the Nuevo Leon plant due 
to the hotter climate.  This tropicalization is the reason why 
it took four years for the plant to begin operating.  The first 
phase of the project cost US$11 million, but this was due to the 
initial trial and error period, according to Padilla.  An 
additional US$6.5 million was needed to expand the project. 
Nuevo Leon did not invest any money in the project, only BENLESA 
did.  Nonetheless, Padilla noted that the project is "financing 
itself."  The energy produced is much cheaper since it does not 
use fossil fuels, gas or petroleum.  The savings for its 
customers in energy costs is about 12%.  More importantly, the 
energy generated is clean energy, and solves the problem of 
greenhouse gases generated by the methane gas produced by the 
 
MONTERREY 00000397  002.2 OF 004 
 
 
landfill waste.  This methane destruction will allow SIMEPRODE 
to seek carbon funds through the Kyoto Protocol, which Padilla 
noted it has already begun to do. 
 
 
 
Wind Power: A lot of Valuable Hot Air? 
 
 
 
¶6.  Another public-private initiative being pursued by the Nuevo 
Leon government is a wind energy project in the municipality of 
Santa Catarina, adjacent to Monterrey.  The Eolica Santa 
Catarina project will be run by Econergy, an international 
renewable energy producer focused primarily in the Americas.  It 
has invested US$50 million in the Santa Catarina project.  Eight 
turbines have already been bought and will arrive in September. 
The turbines, purchased from the German company DeWind, will 
each have the capacity to produce 2.5 MW of electricity for a 
total generation capacity of 20 MW.  The energy will be used to 
light up Monterrey's avenues and serve other neighboring 
municipalities.  The project is expected to begin operating in 
¶2009.  According to Nuevo Leon Energy Coordinator Alejandro 
Lambreton, the savings for the municipalities could be 20-25%, 
and more turbines may be purchased in the future. 
 
 
 
¶7.  Monterrey TEC is also exploring the use of wind energy to 
better meet Mexico's needs.  It's Center for Energy Studies has 
designed an aerogenerator for places where the electricity of 
the CFE does not reach.  A prototype is being tested at a ranch 
in General Teran, Nuevo Leon.  In addition to using wind energy, 
solar rays are captured by photovoltaic panels installed in the 
roofs of four rooms which also house the regulators, converters, 
and batteries used to control, convert, and store energy from 
both sources. In this way, on cloudy days the electricity that 
is not generated by solar power can be obtained through wind. 
The owner of the ranch invested about US$6,000 in the equipment 
and construction of the four rooms, but he expects to earn it 
back within five years through the savings of what he would have 
had to pay if he were connected to the CFE.  Another ranch owner 
in Villaldama, Nuevo Leon has also purchased an aero generator 
from the TEC and is using it, along with 8 solar panels, to 
power a refrigerator, 10 lamps, and two TVs.  In addition, the 
Center for Energy Studies has another prototype it is testing at 
Monterrey TEC's campus.  In 60 days, three wind generators and 
solar panels have contributed 20 KW/hour to the campus' local 
network. 
 
 
 
¶8.  Wind energy is a promising market for Mexico, according to 
Craig Houston of Garrad Hassan.  Garrad Hassan is a UK company 
present in 17 countries that primarily provides consulting 
services on wind energy.  They have an office in the 
municipality of San Pedro just outside of Monterrey that serves 
all of Mexico.  The office has so far assessed about 450 
companies interested in developing wind projects in Mexico, 
among which are Cemex, Gamesa, Pinoles, BBVA and the World Bank. 
 According to Houston, Mexico is one of the strongest in terms 
of potential in the wind energy market because it has among the 
most hours of wind in the world.  Houston predicts that 2-3 
gigawatts of wind energy will be produced in Mexico by 2014, but 
the country has the potential to produce ten.  Other sources 
estimate that Mexico could generate 10% of its electricity 
through wind power, which would displace the estimated 40% of 
future natural gas imports. 
 
 
 
¶9.  Within Mexico, Oaxaca has the greatest potential for wind 
power.  It has an annual wind mean speed of 10 meters/sec, which 
Houston noted is among the best in the world.  He further noted 
that 7m/sec is considered profitable.  There are currently about 
ten experienced international companies with wind energy 
projects in Oaxaca.  The CFE is also developing a project there. 
 Aside from the Eolica Santa Catarina project in Nuevo Leon, 
Lambreton mentioned the possibility of another wind energy 
project in the northern part of the state, specifically in the 
municipality of Cerralvo.  Cerralvo is considered to be the best 
place for wind in Nuevo Leon with a 52.5 MW capacity. 
Interestingly, Houston pointed out that Nuevo Leon is not 
considered to be a good area for wind energy, although it merits 
further study. 
 
 
 
Water, Jatropha, and Algae; But Hold the Ethanol 
 
 
MONTERREY 00000397  003.2 OF 004 
 
 
 
 
¶10.  Another developing project that could set Monterrey apart 
in the world of alternative energy is the invention of a new 
hydraulic machine by Monterrey native Fernando Gracia.  Gracia 
is an entrepreneur who realized that existing hydraulic power 
technology would be impossible to use in Mexico due to the high 
purchase and maintenance costs.  He therefore set out to invent 
something better.  The result was a new mechanism which employs 
a buoy that produces a pressure differential within a hydraulic 
circuit.  The circuit causes a turbine to spin and is connected 
to an electric generator which produces the energy.  The 
mechanism has already been patented in 48 countries and 
construction of a prototype is underway.  Gracias has assured 
that his new technology will be produced entirely in Monterrey 
for the benefit of all Mexicans.  He has also pointed out that 
whereas wind energy takes US$2 million to produce 1 MW of 
energy, his hydraulic power technology will cost US$1.4 million 
to produce the same. 
 
 
 
¶11.  Jatropha is another energy source drawing investors 
attention to Mexico.  Jatropha is a plant that produces beans 
that aren't edible to humans.  As a result, its oil, used to 
produce biodiesel, costs less and doesn't have to compete with 
markets for human and animal consumption like corn and soybeans. 
 Moreover, the seeds from a jatropha plant have the capacity to 
produce four times more oil than corn and ten times more than 
soybeans.  Jatropha is abundant in Mexico and may have 
originated in Mexico and Central America.  Some other advantages 
are that it can grow in poor soils and doesn't need a lot of 
rain.  Once planted it can grow for 40 years without having to 
go back and plant year after year.  According to Nuevo Leon's 
Agrarian Office, there are currently 25 companies interested in 
investing in farms within the state to produce jatropha.  Among 
these is Grupo Santos, which is working in coordination with 
Monterrey TEC.  Monterrey TEC has been studying the biodiesel 
potential of jatropha.  Its Physics Laboratory planted 1000 
jatropha trees in 2006.  Concurrently, TEC's Department of 
Environmental Systems is testing the resistance and oil 
generation of the trees.  Thus far, their studies show that one 
hectare with 2,500 trees should produce 2,500 kg of oil.  In the 
rest of Mexico, an investment of US$300 million is expected this 
year from various foreign companies, including Global Clean 
Energy Holdings of California and Jatro Biofuels of Germany, 
which are planning to harvest jatropha in the states of 
Michoacan, Chiapas and Yucatan. 
 
 
 
¶12.  A less familiar alternative energy source being promoted by 
three young and aspiring Monterrey entrepreneurs is that of 
microalgae.  Brothers Alan, Ivan and Eric Alvarez are developing 
a project that will use extracted lipid oils from microalgae to 
produce biodiesel.  According to Alan Alvarez, the advantages of 
using microalgae to produce biodiesel is that it is a clean and 
abundant source of energy, and one that is not needed for human 
consumption unlike soya and ethanol.  It can also be reproduced 
quickly, every 14 days compared to every 3 to 4 months for soya 
and ethanol.  In addition, it does not require much land to 
produce, and the cost of the infrastructure needed and for 
transportation is low.  The Alvarez brothers pointed out that 
the process of converting microalgae into fuel is about 40 years 
old but has not been applied, so the technology is very new. 
They estimate that with one hectare of land, they could produce 
40,000 liters of biodiesel in two weeks at a cost of about 50 
cents/liter, which they claim would include all costs, even 
patents and lab construction.  They noted that the cost of other 
biodiesel being produced in Mexico costs approximately 75 to 95 
cents/liter.  The project plan they have developed would be run 
by Neumatic Technologies, an electronics company founded by Eric 
Alvarez.  A site where the laboratory would be built has yet to 
be determined, although it would have to be a coastal location 
with a relatively stable climate.  A prototype verifying the 
estimated oil production and invested costs has also not been 
produced yet.  The Alvarez brothers are in the process of 
securing funding for a start-up.   They are aiming for federal 
funds most likely through SAGARPA (Mexico's agricultural 
secretariat) or CONACYT (Mexico's science and technology 
agency).  According to the Alvarez brothers, no such project 
exists thus far except for something similar in Australia, and a 
project just started in Argentina this year.  If they succeed, 
the project may well introduce a whole new alternative source of 
energy not only for Mexico, but one that could be applied 
elsewhere. 
 
 
 
¶13.  Ethanol as an alternative energy source is one that is 
 
MONTERREY 00000397  004.2 OF 004 
 
 
proving controversial for Mexico, due to concerns that the corn 
or sugar used will be diverted from human consumption.  Last 
year a study was commissioned by the Energy Secretariat to look 
at the potential and viability of the use of ethanol and 
biodiesel for Mexico.  The study revealed that for an ethanol 
program to be successful the costs of production would need to 
be reduced and productivity increased, given that the price of 
sugar cane per ton in Mexico is nearly US$38, three times more 
than in Brazil, and for corn it is about US$120.  These cost 
issues have already jeopardized a proposed investment by 
Bioenergia Integral.  In 2007, the Mexican company announced it 
would build four ethanol plants in the states of Nuevo Leon, 
Nayarit, Sonora and Tamaulipas, at a cost of US$73 million.  It 
signed an agreement with the National Water Commission to 
modernize a district in the municipality of Anahuac, Nuevo Leon, 
site of one of the proposed plants, in order to guarantee the 
water needed to harvest 15,000 hectares.  The municipality has 
since realized the cost of this modernization would be about 
US$50 million.  The project, which was set to begin in 2009, is 
currently at a standstill. 
 
 
 
Government Incentives Still Lacking 
 
 
 
¶14.  In February of this year, Mexico's Congress passed a law 
for the Promotion and Development of Bioenergy.  The law was 
apparently fast-tracked and has drawn much criticism, 
particularly among academics. They claim they were never 
consulted or allowed to participate in any debate, and that the 
law was passed in favor of the interests of corn and sugar 
growers without taking into account the negative effects of mass 
producing ethanol or including other alternative energy sources, 
such as jatropha.  In addition, there is no existing entity 
responsible for overseeing biofuels or renewable energies. 
Perhaps in response, another law has since been proposed for the 
promotion of renewable energy sources known as LAFRE (for its 
Spanish initials).  LAFRE, which was proposed by Mexico's green 
party PVEM, has been passed by the lower house of Congress and 
is currently being reviewed by the Senate.  The law includes a 
"green fund" to support renewable energy projects.  Currently, 
the federal government offers some tax deductions for such 
projects, but no tax credits.  In Nuevo Leon, no such incentives 
exist.  Lambreton himself admitted that renewable energy is not 
a competitive market in Nuevo Leon because of "too much red tape 
and competition from other companies."  Nevertheless, he claimed 
that other states see Nuevo Leon as a model for energy 
development.  He noted that the state government functions 
primarily as a promoter.  Last year the demand for electricity 
in Nuevo Leon reached about 1.23 billion KWh, a 4.8% increase 
from the year before.  Lambreton further noted that the cost of 
electricity in Monterrey is 30% higher than the rest of Mexico 
because of the way in which the city's infrastructure is built, 
implying that there is ample incentive for further development 
of renewable energy projects. 
 
 
 
¶15.  Comment: Nuevo Leon appears to be applying the same 
strategy to the development of alternative energies that it has 
applied to the development of specific clusters, such as 
automotive, aerospace and nanotechnology.  It is relying upon 
the private sector and academic institutions, primarily 
Monterrey TEC, to provide capital and invest in R&D.  Thus far, 
this approach has proved successful with large projects in which 
a public-private partnership was formed.  However, Nuevo Leon 
could be missing out on other opportunities presented by smaller 
enterprises or individual entrepreneurs with promising ideas but 
without the capital to develop them.  Although it may be too 
soon to tell whether any of the current or proposed alterative 
energy projects are profitable, the cost of not trying them or 
studying them further may come at a greater cost for Mexico 
given its current inefficient energy policies and the growing 
demand for more electricity.  End Comment. 
WILLIAMSON