Geothermal in Mexico: The Ring of Fire

Geothermal in Mexico: The Ring of Fire

Mexico is located over the Ring of Fire, extracting heat from the earth can be both economic and feasible.

Earth’s natural heat reserves are immense. The Electric Power Research Institute (EPRI) has estimated the stored thermal energy below the continental crust to be roughly 5 million times the global electricity consumed. Mexico is located over the Ring of Fire, extracting heat from the earth can be both economic and feasible.

Mexico has been using geothermal energy for decades. Its first well was commissioned in 1959 and since then geothermal capacity has had significant growth stages. However, in the last decade, geothermal energy has been in decline.

Mexico is committed to expanding geothermal energy as part of its strategies to reach its clean energy targets. Although most geothermal plans are owned by the state’s Federal Electricity Commission (CFE), Mexico has implemented a set of regulations that encourage private developers to participate in the electric market.

Regulations and Permitting

One of the most important regulations for the industry was the 2014 geothermal law. This law allows the government to grant exploration permits and concessions that can last between 3 years and 30 years.  These permits and concessions are extendable and transferable but cannot be sold.

Exploration permits require a refundable guarantee of 1% of the total budget, while exploitation concessions guarantee is 0.5% of the total investment until commissioning. This law has shown positive results. SENER has already granted six exploitation concessions and 25 exploration permits.

The six exploitation permits consist of four concessions for old plants: 570 MW Cerro Prieto, 10 MW Tres Virgenes, 225 MW Los Azufres, and 94 MW Los Humeros; and 2 concessions for new plants commissioned after the reform: 35 MW Domo San Pedro and 25 MW Cerritos Colorado. The most recent expansion in 2017 saw Los Humeros increase its capacity from 69 MW to 94 MM. With the expansion of existing plants and the 25 exploration permits, we expect Mexico to add 750 MW of installed capacity over the next decade.

Financial Incentives

Mexico has also launched a range of financial instruments easing the entry of private investment. The National Development Bank grants loans to geothermal developers and offers risk-mitigation mechanisms during the exploration stage.

The Program for Financing and Risk Transfer for Geothermal Energy, launched in August 2018, consists of soft loans for three components: risk mitigation, exploration and development, and technical assistance. It seeks to develop 300 MW of geothermal energy in ten years and to find US$4.2 billion in private investment. It is supported by the Inter-American Development Bank (IDB) which assigned it a total budget of US$108.6 million.

New developments will be the result not only of financial instruments but also of R&D activities. Through the Fund for the Energy Transition and Sustainable Use of Energy (FOTEASE), geothermal energy research has been granted a budget of USD 23.6 million. In fact, some important outcomes have already resulted from these efforts. 

Mexico is collaborating with the European Union in a joint call in geothermal energy, with an investment of EUR 20 million, as well as by signing a cooperation agreement with the Iceland Geothermal Cluster.

Positive Outlook for Investors

All of these efforts pledge to bring forth a great future for geothermal energy in Mexico. The government has set all the needed ingredients to achieve its goals and expand geothermal energy. It implemented the regulatory framework, set financial instruments, and established mechanisms to bring knowledge.

Private and government stakeholders are committed to increasing geothermal capacity.  We expect Mexico to exploit its vast geothermal potential to lower electricity prices and replace aging power plants.