Baja California’s once-promising geothermal sector has seen challenges in recent years due to a lack of investment. The Cerro Prieto power plant was commissioned in 1973 when it was named the second largest geothermal facility in the world.

Energy Outlook For Baja California

Baja California’s energy structure is different from the rest of Mexico, as it runs off an independent electric power grid, separate from the country’s main grid system. Despite significant solar and wind potential, the state continues to rely heavily on the importation of natural gas from the U.S.

With a population of over 3.3 million, which is expected to increase to 4 million by 2028, the energy demand in Baja California is high, and yet its potential for energy production goes largely unexploited. The state has a GDP of around $28.7 billion, expected to grow by between 2% and 3% annually thanks to its strategic position on the U.S. border with California. 

Baja California’s Energy Potential

Baja California has a long-established geothermal energy sector, which we believe could benefit significantly from modernization. The region has the potential to develop 2,000 MW of geothermal energy from just 340 MW today through minor improvements to its facilities, such as boosting energy utilization in the fluid transportation network and enhancing the efficiency of its operations. For example, it could make use of the excess steam pressure produced at some of its plants.

We believe the state also has the potential to tap its strong wind and solar resources. Mexico has announced a national goal of 35% clean electricity generation by 2024 and we consider investments in renewables in Baja California could go a long way to meeting this goal thanks to its high solar irradiance and wind power index.

We think that the state could produce 6,550 MW of solar energy and 3,495 MW from wind. But, to date, there has been little interest at the national level in tapping the state’s natural resources, perhaps as the disconnected grid system means that Baja does not have the potential to provide energy to the rest of the country without major infrastructure investments.

Challenges to Development

Baja California’s once-promising geothermal sector has seen challenges in recent years due to a lack of investment. The Cerro Prieto power plant was commissioned in 1973 when it was named the second largest geothermal facility in the world. It began life with an installed capacity of 720 MW, although this dropped to 570 MW in 2011 when four of the thirteen turbines were decommissioned due to a lack of steam. Since then, its output has fallen to just 340 MW.

Despite Baja California’s significant renewable energy potential, the state continues to rely heavily on natural gas for its electricity production, consuming 340 million cubic feet of natural gas per day in 2019. Around 93% of this gas goes to keeping the power sector running, with 45% for the public power sector and 55% for private. Yet, Baja California does not produce any natural gas, meaning it relies on imports to meet its energy demand. Its two major pipelines transport approximately 2 billion cubic feet per day between the U.S. and Baja California.

There are 14 utility-scale power plants in operation in Baja, with a total installed capacity of 4,049 MW. However, several of these facilities fall under different regulatory frameworks which we believe hinders the efficiency of their operations. Further, 1,102 MW of power is exported to California, providing Baja California with an installed capacity of 2,947 MW. In addition, as not all plants are fully operational, Baja California does not produce enough power to meet either its peak demand or its projected energy needs in line with population growth.

Our Outlook

Despite the strong potential for the development of a strong renewable energy sector in Baja California, we see several challenges including regulatory uncertainty, its independent grid system, transmission constraints, and land title restrictions. We believe that until the policy issues around energy production are addressed, Baja California will continue to rely heavily on the U.S. and other foreign powers to provide natural gas to meet its energy demand.

Onsite generation, also known as distributed generation, is a viable option in Baja California because of the challenging regulatory climate related to the energy reforms. Distributed generation in Mexico is classified as any system with a capacity below 500 kWp. The big advantage is that permits are not required for onsite solar systems below 500 kWp. This reduces project execution risk while delivering savings of up to 25% for the consumer.

Onsite solar solutions also help to mitigate the risk of disruptions to business operations because of grid transmission problems. Various factors including weather, natural disasters, and excessive demand can impact the electricity supply to a facility. Onsite solar generation gives industrial consumers more reliability and self-sufficiency by reducing their reliance on the national power grid.