VZCZCXRO3807
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #0299/01 0361344
ZNR UUUUU ZZH
P 051344Z FEB 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 4911
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RHMFIUU/HQ USNORTHCOM
RHMFISS/CDR USSOUTHCOM MIAMI FL
RHEHAAA/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 04 MEXICO 000299 
 
SENSITIVE, SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA, AND DRL/AWH 
STATE FOR EEB/ESC 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA 
USDOC FOR ITS/TD/ENERGY DIVISION 
TREASURY FOR IA 
DOE FOR INTERNATIONAL AFFAIRS 
STATE PASS TO USTR 
STATE PASS TO FEDERAL RESERVE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ENRG EINV PGOV SENV MX
SUBJECT: COOPERATION ON RENEWABLE ENERGY - AN OPENING TO ENGAGE 
MEXICO 
 
1)REF A:  Mexico 42 
2)REF B:  Mexico 156 
3)REF C:  08 Monterrey 397 
 
¶1. (SBU)  Summary: Efforts to deepen US-Mexican collaboration on 
energy issues has been constrained in recent years by Mexico's 
sensitivity about foreign involvement in the hydrocarbons sector. 
Since the Calderon Administration's energy reform bill was approved 
in October 2008 and oil prices have fallen, the Mexican government 
has become more interested in stepping up cooperation.  However, 
Mexican sensitivities about creating full and formal bilateral 
energy consultations remain.  However, there are some opportunities 
to work with Mexico on implementation of the energy reform bill (ref 
A).  Other opportunities to renew collaboration would involve 
working with GOM officials on carefully crafted initiatives focused 
exclusively on renewable energy and energy efficiency. 
 
 
An Opportunity for Enhanced Collaboration 
------------------------------------------ 
 
2.(SBU)  Since the Calderon Administration's energy reform bill was 
approved in October 2008, the Mexican government has become more 
interested in deepening cooperation on some energy topics.    Senior 
officials of the Mexican Energy Secretariat (SENER) have expressed 
interest in renewing bilateral cooperation - especially with respect 
to renewable energy.  SENER informally proposed creating a bilateral 
public private partnership to promote renewable technology and 
exchange lessons learned.  Other priorities including passage and 
implementation of the energy reform bill have put this issue on the 
back burner for the moment, but officials here would be receptive to 
reviving this concept.  Mexican officials and academic institutions 
have also expressed interest in developing closer partnerships. 
 
3.(SBU)  The Calderon Administration's interest in deepening 
cooperation presents an opening and opportunity for the USG.  In the 
past, efforts to deepen US-Mexican collaboration on energy issues 
have been constrained by Mexico's extreme sensitivity about foreign 
- especially US - involvement in the hydrocarbons sector.  US-Mexico 
Technical Energy Consultations were last held in 1997 and bilateral 
discussions on the margins of the Binational Commission have not 
taken place for several years.  Since 2001, the US, Mexico and 
Canada have collaborated on trilateral energy initiatives through 
the North American Energy Working Group.  NAEWG is a valuable forum 
for trilateral issues and has advanced discussions on reducing 
barriers to clean energy technology and promoting energy efficiency. 
 GOM officials support the trilateral forum, and appreciate that it 
gives them some "cover" for discussions with senior USG officials on 
sensitive topics without engendering the type of public scrutiny a 
bilateral forum would create.  Energy topics remain sensitive and 
Mexico does not propose a formal bilateral dialogue.  However, 
enhanced cooperation on renewable energy and energy efficiency could 
pave the way forward to closer ties in many areas. 
 
Mexico's Focus on Renewable Energy 
---------------------------------- 
 
4.(U)  SENER forecasts that Mexico will have to spend $51 billion 
(outside experts forecast $60 billion) over the next decade to meet 
rising domestic demand for electricity which is projected to grow 
five percent annually during the 2008-2017 planning cycle.  The 
Calderon Administration is committed to making renewable energy 
sources play a significantly expanded role in meeting demand, even 
as it continues expansion of natural gas-fired, combined turbine 
generators.  To signal its commitment, the Calderon Governments 
National Infrastructure Plan set a target of 26 percent for 
renewable generation capacity by 2012.  Although Mexico is already 
close to that figure, there is strong interest in expanding 
renewable generation and developing these resources, both for 
commercial and environmental reasons.  (Note:  Current electricity 
generation in Mexico:  natural gas 39%; fuel oil 27%; hydro 22.4%; 
coal 6%; nuclear 3% and solar and geothermal 2%. End note) 
 
5.(U)  At the Poznan Ministerial on Climate Change, the Calderon 
Administration became one of the few developing countries to set a 
 
MEXICO 00000299  002 OF 004 
 
 
specific greenhouse gas reduction target (ref B).  Mexico announced 
that it would reduce greenhouse gas emissions fifty percent from 
2002 levels by 2050 by increasing clean and efficient energy 
technologies - including wind and solar power.  In tandem, Mexican 
authorities have developed and implemented the mechanism necessary 
to allow renewable energy projects in Mexico to qualify for the 
obtainment of certified emissions reductions under the Kyoto 
protocol and eventually participate in the emissions trading market. 
 
 
The Energy Reform on Renewable Energy and 
Energy Efficiency 
------------------------------------------ 
6.(U)  Although the Calderon Administration's October 2008 energy 
reform focuses largely on strengthening PEMEX and regulating the 
hydrocarbons sector, one segment of the package which has received 
little attention addresses renewable energy and energy efficiency. 
The objective of the renewable energy law is to reduce Mexico's 
dependence on hydrocarbons by promoting specific renewable energy 
technologies: wind, solar, hydro, tidal, geothermal, biofuels (as 
stipulated in the biofuels law) and other technologies sanctioned by 
the Secretary of Energy.  (Note:  The law explicitly excludes some 
technologies including nuclear energy and methane from landfills 
that do not comply with environmental rules.  End Note) 
7.(U)  The energy reform bill charges SENER with creating a new 
program to promote renewable energy by May, 2009.   Resources will 
be earmarked to foster the use renewable energy, energy efficiency 
and savings; foster the use of clean energy, and diversify energy 
sources.  Three billion pesos (approximately $220 million dollars) 
will be allocated to this annually in the federal budget 2009-2011. 
8.(U)  Beginning this year with an initial budget of 150 million 
pesos ($10.5 million dollars), the Mexican NSF (CONACYT) will 
operate two funds created under the energy reform bill: one on 
hydrocarbons and another on energy sustainability. Funding will 
represent 0.65 percent of the value of PEMEX oil and gas production. 
The energy sustainability fund will support projects on energy 
efficiency, renewable energy and clean technology, undertaken by 
Mexican research institutions, to encourage linkages between the 
academia and the productive sector and to promote technology and 
related businesses. 
 
Renewable Energy in Mexico - Policy Framework 
--------------------------------------------- 
9.(U)  Mexico has significant renewable energy potential, especially 
with respect to solar, wind and geothermal technologies.  While 
there are no constitutional restrictions covering the development of 
renewable energy, Mexico lacks a framework to create the market 
conditions necessary to promote development of these technologies. 
The Comisisn Federal de Electricidad (CFE) and Luz y Fuerza del 
Centro (LFC) are Mexico's two state-owned electricity companies. 
CFE in particular dominates the electric power sector and accounts 
for over 90 percent of generating capacity.  Since 1992 private 
participation has been allowed in generation activities (independent 
power producers that sell all their power to CFE, self suppliers, 
cogeneration and small scale generation, at no more than 30 
megawatts).  However, CFE and LFC control the transmission and 
distribution of electricity.  The cost and adequacy of transmission 
has limited private participation in generating activities, 
including renewable energy.  Another related factor involves 
geography.  Those areas with the greatest potential for solar and 
wind power generation are often geographically remote and far from 
population centers. 
 
10.(U)  Although the Mexican constitution does restrict private 
participation in the electricity sector, there are no restrictions 
on private power generating facilities exporting electricity.  Some 
U.S. states like California and Texas with ambitious targets for 
renewable energy generation have expressed interest in investing in 
and importing "green" electricity from Mexico. 
 
11.(U)  Mexico does not provide subsidies for renewable energy 
projects.  The current budget crunch combined with the falling price 
of oil have made financing renewable energy projects more difficult. 
 Although this may be a short-term problem, financing new projects 
may be delayed in coming months. 
 
MEXICO 00000299  003 OF 004 
 
 
 
Wind 
---- 
 
12.(U)  There are few installed wind power projects in Mexico today, 
but some experts project the country has an estimated wind power 
potential of 40,000 megawatts country wide.  (One megawatt roughly 
is enough electricity to supply 1,000 homes in the US.)  Wind energy 
currently accounts for less than 2 percent of electricity 
production.  The GOM hopes to boost the nation's wind energy 
potential to 5,000 megawatts - about 10 times its current output, 
and is planning on a series of wind projects that should generate 
2,500 megawatts of electricity by 2012.  The key to a successful 
wind energy project is identifying areas where the wind is 
consistently strong.  Among the most promising areas for wind 
generation facilities in Mexico are Oaxaca, Baja California and the 
Yucatan Peninsula. 
 
13.(U)  Several large wind energy projects are planned for an area 
of Oaxaca known as La Ventosa or Windy which sits on a narrow 
isthmus between the Gulf of Mexico and the Pacifica Ocean where 
winds blow at 15 to 22 mph.  On January 22 President Calderon opened 
a $550 million dollar project in Oaxaca which will generate 250 
megawatts of electricity when all 167 turbines are operational by 
the end of 2009. This will make the 2,500 hectare project headed by 
the Spanish firm Acciona Energia the largest of its kind in Latin 
America.  France's EDF - Energies Novelles is developing another 
67.5 megawatt project in La Ventosa which could become commercial by 
August 2009.  This $200 million dollar project will provide 
electricity to 350 Wal-Mart stores in Central Mexico under the GOM's 
self supply rules. 
 
14.(U)  Another promising area for wind power generation is Baja 
California.  In La Rumorosa, Baja California, a San Diego-based U.S. 
company is working on a $400 million project which involves the 
installation of 125 power generating wind turbines by 2010.  Most of 
the accumulated production of 250 megawatts will likely be exported 
to California and Arizona. 
 
15.(U)  The Mexican state of Nuevo Leon (REF C) is also pursuing 
wind energy projects.  One such project, the Eolica Santa Catarina 
project run by Econergy is a $50 million project will have a total 
generating capacity of 20 megawatts.  Monterrey Tec is also 
exploring the use of wind energy to better meet Mexico's needs. 
 
Geothermal and Solar 
--------------------- 
 
16.(U)  Geothermal and solar energy currently account for only 2 
percent of Mexican electricity generation, but Mexico has 
significant potential in both of these areas.  Mexico is already the 
world's third largest producer of geothermal electricity (after the 
U.S. and Philippines) with an installed capacity of 1,000 megawatts. 
 Industry experts estimate that Mexico has the potential to increase 
installed geothermal capacity to 8,000 megawatts.  The GOM has 
expressed particular interest in working with the USG in these two 
areas. 
 
17.(U)  Like other sources of renewable energy, transmission issues 
have slowed solar energy growth.  Current solar and geothermal 
projects are largely concentrated in Northern Mexico, particularly 
Baja California, where large tracts of land are more readily 
available.  Japanese electronics giant Kyocera recently announced 
plans to invest over $33 million to expand its solar panel 
production plant in Baja California.  Kyocera located in Tijuana 
because of its proximity to the U.S. and also to be better placed in 
the Mexican market.  The firm plans to increase its annual 
production capacity from 35 megawatts per year to over 150 megawatts 
worth of solar panel production.  Kyocera hopes that solar power 
will be appealing to remote regions whose residents already depend 
on generators and other devices to supplement electricity supply. 
 
Hydro 
----- 
 
 
MEXICO 00000299  004 OF 004 
 
 
18.(U)  Hydropower has and will continue to play a significant role 
in helping Mexico meet its electricity demand.  Hydro currently 
accounts for over 20% of Mexico's electricity needs.  Currently much 
of Mexico's hydropower comes from small, outdated plants.  (There 
are however, large new hydro plants will be coming on line soon. 
One such facility, the 750 megawatt El Cajon dam in the state of 
Nayarit is funded with foreign capital and began production July 
¶2007.  Another hydroelectric project is La Yesca, with 750 megawatts 
valued at USD 767 million.  Work started on Jan 2008 and should be 
operational by June 2012. 
 
Comment and Next Steps: 
---------------------- 
 
19.(SBU)  The GOM is interested in working more closely with the USG 
on renewable energy, energy efficiency and climate change, but does 
not want to establish a formal bilateral energy dialogue.  Post 
believes that this is a significant opportunity to develop closer 
ties in an area in which collaboration is not sensitive and would 
benefit both countries.  Embassy Mexico is exploring several options 
with Mexican officials, NGOs, companies as well as the Canadian and 
British Embassies on how we can better coordinate our efforts on 
these topics.  We have found both government and private sector 
interlocutors eager to engage.  We will continue to discuss with GOM 
officials how best to craft a government to government initiative on 
renewable energy. 
 
¶20. Post is also looking at opportunities for expanding outreach on 
renewable energy and climate change - both through public speaking 
opportunities for Embassy personnel as well as proposals for a 
modest speakers program focused on the social and policy barriers 
renewable energy projects face.  We also see opportunities to use 
the existing voluntary visitor programs to target government and 
private sector representatives active in these areas.  Post is 
exploring with the GOM and Embassy of Canada the establishment of a 
trilateral (U.S.-Mexico-Canada) working group to coordinate these 
topics. 
 
BASSETT