Intelligent use of energy:

Renewable energy market.

Diego Arjona

Hanmer Springs,

New Zealand

November 8th, 2004

National Commission for Energy Conservation

Introduction:

Energy:Balance between supply and demand.

Opportunity areas:Not all energy spent is used.Systems and equipment with low efficiency.Growing environmental impacts. Low share of clean and renewable energy sources.

Challenges:

Mexico has a large potential to produce conventional energy, however there are many opportunities to use it efficiently and use renewable resources: intelligent use of energy.

Mexico needs to increase the production of energy, through clean and renewable sources

There is no right to produce energy with non renewable sources, that is not to be used.

Intelligent Use of Energy:

Avoid waste:Do not spend energy that is not used; reduce waste.

Increase efficiency:Same service with lower consumption; efficient equipment and generation.

Promotes the use of clean and renewable energyMini-hydro, wind, biogas, solar, geo-thermal, etc.

Renewable sources in México

SourceWorld

CapacityMW

MexicoCapacity

MW

% Mexico vs.

World

Geo-thermal 8,365 838 10

Solar 532 14 2.6

Mini-Hydro 27,950 40 1.4

Biogas 35,000 17 0.05

Wind 30,400 2 0.005

Actions:

Supply increase:

(Reforms and new legislation for both, renewable and no-renewable energy)

Demand reduction:

(Energy efficiency campaign)

National Campaign:

Reforms: Campaign:Legislative action Executive action

Difficult consensus Easy consensus

High financial cost Low financial cost

Increase fossil fuels consumption

Decrease fossil fuels consumption

Increase pollution and CO2 Decrease pollution and CO2

Lack of involvement by local governments and society

Local governments and society can participate

Objective of the campaign:

To promote the Intelligent Use of Energy, through actions that:

A) Avoid waste

B) Increase efficiency

C) Promote clean and renewable energy sources

Benefits:

Economic:Lower costs.Reduction of energy imports.

Investments deferment.Jobs creation.

Increase ReservesDecrease the use of fossil fuels.

Environmental ProtectionReduction of local pollution and GHG emissions

(CO2).

Indicators:

1. Energy Consumption Statistics

In energy units

2. Renewable Energy Generation

Growth in the share of renewable primary sources of energy

Restrictions:

1. Same service, lower consumption:The Intelligent Use of Energy shall not affect:

1. Safety2. Well being and comfort3. Economic growth4. Environmental protection5. Quality6. Productivity

2. Disposal of inefficient equipment :Replaced equipment should be put out of service Disposal or recycling must be mandatoryThere should be financial support for the disposal effort

Main energy consumption agents:

1) Federal Government

2) States and Municipalities

3) Industries and Commerce

4) Homes and buildings

5) Transport

National Energy Consumption Matrix(% consumption; 2006 projection)

NationalNational

ConsumptionConsumptionFederal

GovernmentStates &

MunicipalitiesIndustries &

Commerce

Homes &

BuildingsTransport

Electricity

7.7 99.7 27.2 19.9 0.3

23.7 3.3 53.3 19.2 0.6 100.0

Natural Gas

56.3 0.0 32.0 3.5 0.0

72.3 0.0 26.2 1.4 0.0 100.0

LPG

0.3 0.2 8.0 40.1 3.4

1.3 0.0 25.0 61.7 12.0 100.0

Gasoline and Diesel

2.6 0.1 7.9 0.0 89.4

3.5 0.0 6.9 0.0 89.5 100.0

Other fuels

33.2 0.0 25.0 36.4 7.0

50.6 0.0 24.3 17.4 7.7 100.0

100.0 100.0 100.0 100.0 100.0

National Energy Consumption Matrix (Petajoules; 2006 projection)

National National ConsumptionConsumption Federal

GovernmentStates &

MunicipalitiesIndustries &

Commerce

Homes &

BuildingsTransport Total

Electricity 186.1 26.1 418.8 150.7 4.4 786.1

Natural Gas 1,360.3 0.0 492.5 26.7 0.7 1,880.2

LPG 6.5 0.1 122.8 303.1 58.8 491.2

Gasoline and

Diesel62.1 0.0 121.1 0.0 1,567.1 1,750.3

Other fuels 802.9 0.0 386.0 275.3 121.9 1,586.1

TotalTotal2,417.9

37.2%

26.2

0.4%

1,541.2

23.7%

755.8

11.6%

1,752.9

27.0%

6,493.96,493.9

100.0%100.0%

Potential:

Several sources estimate that the national energy savings potential in Mexico is in the long term in the range of

20%

National goal proposed

5%

Saving of the overall energy consumption of the country by December 2006

National Goal 2006

Electricity: 10,918 GWhTotal generation of six new power plants that started operation in August 2004Generation of the Laguna Verde Nuclear Power Plant

Natural Gas : 257 MMcfdThree times the total production of the Poza Rica Process Center

70% of Pemex Petrochemical’s consumption

LPG : 18 Mbd25% of the Cangrejera processing plant’s production8% of total residential consumption

Gasoline and Diesel: 46 Mbd10% of the national supply and demand22% of gasoline imports

Impact on imports of NG:

Natural Gas : 20% imports reduction

Electricity (NG imports): 30% imports reduction

Total Impact in NG imports :

50% imports reduction

Direct Benefits:

Source: Save Price Benefit

Electricity 11,000GWh/yr

0.90$/kWh

9,900MM Pesos/yr

Natural Gas 94,000MMcf/yr

65$/Mcf

6,110MM Pesos/yr

LP Gas 6,500Mbarrel/yr

1,170$/barrel

7,605MM Pesos/yr

Diesel & Gasoline 17,000Mbarrel/yr

965$/barrel

16,405MM Pesos/yr

Total Direct Save 40,020

MM Pesos/yr

Possible driver of regional development Wind: several regions, mainly in Oaxaca state Minihydro: several regions, mainly in the south

and southwest regions of Mexico

Could be a source of employment Manufacture, design, installation and

operation of systems

Mexico has ratified the Kyoto Protocol Can participate in the Clean Development

Mechanism

Because RE is distributed generation The systems architecture of the future

Renewable energy impacts.

National capacities.

Ministry of Energy

Ministry of NaturalResources

Ministry ofAgriculture

RegulatoryEnergy

Commission

Federal Power

Commission

SharedRiskFund

RenewableEnergy

NationalEnergy

ConservationCommission

PrivateIndustry

Propertyowners

NationalWater

Commission

ResearchInstitutes

ANES

High initial cost of the technology. Poor information about the resources. Subsidies to end-users.

Mainly in residential and agricultural sectors

Lack of technical expertise. For project development.

No incentives. Large transaction costs.

Small projects are not economical.

Barriers to RE in Mexico.

Apply to intermittent renewable energy projects under the self-supply scheme.

Exchange electrical energy: energy is taken by the grid as it is produced and delivered as it is required.

Peak and base energy exchange rate: time-of-day value of electricity.

In operation since 2001.

Other services.Interconnection.Back up.Wheeling.

Resolution 140.

Energy sectorHydro and wind generation

Off-grid developmentsRural areas

Small remote equipment

Residential and commercial sectorsWater-heating solar collectors

Current areas of renewableCurrent areas of renewableenergy application in Mexicoenergy application in Mexico

For productive projects in agriculture Continuation of the FIRCO-Sandia

collaboration (1994-1999) 195 projects for 94 kW

A GEF project 8.9 MMUS$ donation 31.5 MMUS$ total

For market development Develop mechanisms for integration of a large

set of actors

More than 1100 systems up to 2003

Projects: FIRCO Program

Oaxaca´s state government is leading the effort Legislation (draft) Regional Commission (draft)

International meetings with wind power companies. Intermediation with land owners.

Potential: More than 32,000 MW 3,000 MW according to grid planning.

Preliminary wind power map NREL study, 2003

Other states: Zacatecas, Hidalgo, Quintana Roo, BC.

Projects: Oaxaca wind corridor

Biogas from landfill in Monterrey Municipalities self supply 7 MW capacity GEF funds and private investment. In operation since 2003

Wind Farm Capacity: 100 MW La Ventosa, Oaxaca CFE Bidding: 2004

Flagship projects.

Minihydro Resources

25 rivers6 regions

Ríos San Pedro,Acaponeta,Baluarte y Presidio

Ríos Armería,Marbasco,Ameca

Ríos Toscano,Aguililla,Coalcoman

Ríos Copalita,Río Verde,Quetzalapa

RíosTehuantepec & Papaloapan

Río Grijalva andUsumacinta.

ConaeVeracruz & Puebla 400 MW

Sun power

Photovoltaic energy Widely used in rural electrification,

pumping and communications systems

Solar heaters. New voluntary standard NMX.

Advisory Council for Renewable Energy PromotionAdvisory Council for Renewable Energy Promotion

Created by CONAE to act as a consulting body to analyze and discuss policy proposals and renewable energy promotion. Integrated by representatives from private, public, financial, commercial and academic organizations.

Conclusions:

The generation of power in Mexico from renewable sources is still very low; additional efforts have to be made to overcome this problem.

Notwithstanding the fact that energy law reforms in Mexico are needed to increase our production, the potential to save energy in the country is very big; actions should be taken in the short time to avoid waste and increase efficiency.

Conclusions:

Markets not gadgets: The problem is not technology but market

development.

A clear and specific legal framework is important to promote investment.

Development of a mechanism to cover the differential costs.

Incentives should be based on performance. Land rights and/or ownership is an

important issue. Regulatory instruments are in operation and

have made some projects financially feasible.

The law should integrate incentives that were specific to each technology and allowed its development. Incentives should change as technology does.

The law should eliminate the need for self supply associations and reduce the barrier for small projects.

A market for “green energy choice” should be established. Suppliers should be able to sell energy from a renewable source as a differentiated product.

Comments about the renewable energy law.