1. Mobilizing Investments in Commercial or Near-Commercial Technologies Two successful stories in Mexico: wind energy and energy efficiency Francisco Barnés Make Markets Work for Climate October 17, 2006 Amsterdam

2. Two Succesful Stories 1.Wind Energy 2.Energy Efficiency

3. Mexican Legislation Electrical System State reserved activities Open to private participation Generation TransmissionDistribution Public Companies: CFE & LFC National Transmission Grid Third PartiesOthers IPP´s Self Supply Independent lines CFE & LFC At the end of 2005, Mexico had almost 54,000 MW of installed generation capacity. 38,200 MW belong to the two public power companies, CFE and LFC 8,300 MW correspond to IPPs generation for public service (GCC) 7,300 MW are for self supply.

4. Power Generation with Renewable Energy Mexico has 12,800 MW of installed capacity based on renewable energy, 23% of total installed capacity Renewable EnergyCFE-LFCSelf-SupplyIsolated Systems Hydro 10,930 MW Mini-hydro 365 MW47 MW Geothermal 960 MW Biomass465 MW Biogas 20 MW Solar 18 MW Wind 2 MW Total12,257 MW532 MW18 MW

5. Wind potential in Oaxaca The state of Oaxaca has a wind potential of at least 10,000 MW. Average wind velocity is above 15 m/s (An average of 30 empty trucks are turned-over by the wind every year) Measured plant load factor is 52% Wind Potential in Oaxaca Wind velocity distribution

6. Renewable Energy Fund In 2003, the Mexican Government received final approval from the Global Environment Facility (GEF) for a 70 million dollar grant to establish a new fund to promote large-scale renewable energy projects. The strategy of the Fund is based on providing a temporary incentive (five years) for power generated with renewable energy sources and delivered to the public service network under an Independent Power Production Agreement. The incentive is expected to bridge the gap between the required return per delivered KWh and the price CFE is allowed to pay to IPP´s under existing regulations. CFE will bid the first IPP project at the end of 2006 with a capacity of 100 MW to enter into operation in 2008. During the second stage, at least 300 MW are expected to be put in place, to enter into operation between 2009 and 2012

7. Regulatory framework New regulatory measures have been issued by the Energy Regulatory Commission (CRE) with the purpose of encouraging the development of generation projects from intermittent renewable energy sources. The main elements of this regulatory scheme are the following: Generated energy is transmitted when available; Excess energy generated at any given time may be stored within the power utility (CFE) and withdrawn when required, even in different time periods; Energy exchanges are based on tariff prices; At the end of the year, excess energy stored in the system may be sold to CFE at 85% of the short-term generation cost; Wheeling charges are paid in terms of the transmitted energy, not in terms of reserved capacity. CFE recognizes as plant capacity the monthly average of the energy generated during peak demand;

8. Fiscal incentives On the 1 st of December 2004 a modification of the Income Tax Law entered into effect. Companies investing in machinery and equipment for power generation with renewable energy may deduct up to 100% of the investment in a single year.

9. Transmission Limitations Existing transmission infrastructure in Oaxaca is very limited and does not allow the evacuation of all the electric power that will be generated by the self-supply producers. A new 400 KV transmission line is required for that purpose. CFE cannot commit public funds for the new transmision line if there are not firm commitments of the permit holders to install the appoved generating capacity. The CRE carried out an Open Season to reserve transmission capacity on the new line. 1,900 MW were committed by several private companies. The budget for the construction of the new line has already been requested by CFE to Congress. The new line will be ready by 2009.

10. Expected Results 585 MW of new wind generation capacity, installed or contracted by CFE for public service, will enter in operation between 2007 and 2012. At least 445 MW of new capacity for self supply will be installed in Oaxaca between 2007 and 2008. 1600 MW of additional capacity for self-supply will be installed between 2009 and 2012.

11. Two Succesful Stories 1.Wind Energy 2.Energy Efficiency

12. Energy Efficiency Programs YearProgramObjectives 1989CONAE to promote energy savings through the adoption of standards and programs 1989FIPATERM - CFE to promote house insulation and the replacement of inefficient electric appliances 1990FIDE to reduce electric demand by reducing barriers for energy efficiency improvement 1995ILUMEX - FIDE to replace incandescent bulbs with energy saving fluorescent bulbs - GEF support 1999FGB - CONAE to reduce power consumption in Federal Goverment´s buildings, 2001PEMEX - CONAE to reduce power and energy consumption in PEMEX operations Many efforts had been developed in Mexico over the last years to improve energy efficiency

13. Adoption of new standards From 1993 to 2003, the energy demand for a 10 ft 3 refrigerator has been reduced by 52.7% - 24.5 % - 38.9 % - 52.7 % NOM-072-SFCI-1994 NOM-015-ENER-1997 NOM-015-ENER-2001

14. FIPATERM program FIPATERM program was initiated by CFE in 1990, in the city of Mexicali, B.C., with summer temperatures >40°C, to reduce the consumption of electricity through thermal insulation In 1996, the replacement of inefficient air conditioners was included In 2001 the program was extended to four Northwestern states In 2002 the replacement of old refrigerators was included in the scope In 2003 the program was extended to all areas of the country attended by CFE (more than 25 million costumers) Results up to 2005: 120,000 houses have been insulated 200,000 air conditioners have been replaced 350,000 refrigerators have been replaced

15. ILUMEX program ILUMEX program was initiated in 1999, to replace incandescent lamps by energy saving fluorescent lamps. It was promoted by FIDE with the support of CFE and GEF Results up to day: Over 16 million compact fluorescent lamp

16. Estimated energy savings 12 % of total electricity sales (1,900 GWh) will be be saved in 2006, when measured with 1995 baseline. 3% 6% 9% 12% 15% 6.5% 7.2% 8.4% 9.6% 10.7% 11.4% 12.0% % of electric energy sales

17. Thank you very much fbarnes@cre.gob.mx