Thursday, January 24, 2019

Land Rights a Challenge to Mexico Tx Developers

By Tom Kleckner

MEXICO CITY — Bob Smith has enjoyed a long career in transmission planning and development, much of it in the American West where he said federal lands can create “unique problems” for building electric infrastructure.

As vice president of transmission, planning and development for TransCanyon, Smith is responsible for conceptualizing and planning transmission projects for the joint venture between Berkshire Hathaway Energy and Pinnacle West Capital.

BHE is Warren Buffett’s energy holding company that includes PacifiCorp and NV Energy. Pinnacle West’s assets include Arizona Public Service. Together, they offer $90 billion worth of “leverage” to TransCanyon.

| Shutterstock

Smith told a Gulf Coast Power Association breakfast audience last week that “there’s a clear need for transmission infrastructure” in Mexico, and that the country is “fertile ground for these opportunities.”

So why is TransCanyon going to “watch the process and see what happens” for the time being?

Two words, say veterans of the emerging Mexican market: land rights.

“I’ve gotten the sense it’s every bit as difficult here as it is in the United States,” Smith said during the June 6 breakfast, the seventh in a series. “I get the sense there’s a real value of the long-term commitment to the land and cultural identity.”

Stations of the Cross

Just ask Energia Veleta’s Mannti Cummins, who is working to develop a 50-MW wind farm in Baja California Sur. He filed a social impact study, one of several necessary requirements before construction can begin, with Mexico’s Ministry of Energy (SENER) in July 2016. He received a response back last week.

However, first Cummins had to meet with a SENER representative housed in the ministry’s training facility, a dated, one-story, cement building located in a working-class part of Mexico City. Cummins was told his study was in order, but that he would a receive an electronic copy of SENER’s “opinion letter” later. The document, indicating the Office of Social Impact Studies had the “necessary and sufficient information” to do its own evaluation, arrived in Cummins’ email at 1:10 a.m. He then had to return to the SENER office later that morning to sign a document acknowledging he had received the PDF.

Electronic signatures are not considered official in Mexico, Cummins said.

“They want original, wet signatures. The most mundane business in the U.S. becomes an administrative stations of the cross here in Mexico,” said Cummins, a practicing Catholic.

Fortunately for Cummins, the proposed wind farm is in a desolate area of the state, near the oil-fired generators “that keep the beer cold in Cabo.” He only had two landowners to deal with, and none of the federal lands, social property, conservation areas and indigenous territory that other developers will face. Still, it took a team of six students working 24/7 for six weeks under their former professor to produce baseline studies, conduct interviews and draft the report.

“It would take anyone else six months,” said Cummins, who was facing an investor’s deadline. “And this was for 50,000 acres and two landowners.”

Legacy of Revolution

Mexico Transmission Planning Land Rights

Robinson | © RTO Insider

Sebastian Robinson, director general of Punto Focal, a surveying firm that specializes in setting real estate boundaries, says 51% of the country now consists of social property called ejidos, a result of the Mexican Revolution that dragged on from 1910 to 1940. When you discount the urban areas, he said, that percentage jumps into the 60s.

“The problem is, ownership has become muddled,” Robinson said.

Land ownership became an issue in the 1890s, when 20% of the country was owned by foreign interests and rich landowners. By 1910, half the country’s rural population worked on huge estates essentially as slaves, and the pent-up frustration was one of the primary causes of the revolution.

It wasn’t until socialist Lazaro Cardenas was elected president in 1934 that much of the ensuing violence subsided. Cardenas instituted the practice of ejidos, in which peasants within a community were given sub-parcels of former estates or national land — some as large as 120,000 acres — but the land was not necessarily registered, Robinson said. President Carlos Salinas eventually ended the practice in 1992.

Many of the ejidos’ original owners have long since died without transferring the titles, or they have moved into the cities to escape rural poverty. “With maybe 90% of the ejidos, there’s no chain of title,” Robinson said.

And while the government maintains a public registry of social land, Robinson said there’s no legal inventory of land ownership. The problem is magnified by the lack of accurate surveys.

Mexico Transmission Planning Land Rights

Cummins | © RTO Insider

Robinson and Cummins bring all this up in pointing to the potential difficulties facing the first two competitive transmission projects currently out for bids by Mexico’s state-run utility, the Federal Electricity Commission (CFE). Mexico’s energy reform of 2014 opened up the transmission system to private contractors, partly because CFE keeps its retail rates artificially low for political purposes, and it can afford to do little more than keep the lights on, Cummins said.

One of the projects is a $1.2 billion, 870-mile, 500-kV connection between Mexicali in Baja California and Hermosillo, Sonora, in northwestern Mexico. The second is the $1.7 billion Oaxaca project, more than 1,000 miles of 500-kV line between Mexico City and Veracruz, home to the country’s only nuclear plant. Technical bids on the first line are due June 15, and the Oaxaca bids are due in July, but a requirement of HVDC experience will likely limit the field.

Mexico Transmission Planning Land Rights

Laguna Verde Nuclear Plant | Nuclear Energy .NET

Robinson said CFE already owns 89% of the Oaxaca project’s right of way, but that still leaves about 100 miles of line where ownership will have to be determined and dealt with. “That’s a lot of problems,” he said.

Both projects will be built under a build-operate-transfer (BOT) model, in which private companies will build the infrastructure, operate and maintain the system while recovering rates, and then transfer all the rights, licenses, permits, authorizations and property to CFE.

“CFE used to own it all,” Cummins said. “Now, it just administers the network.”

Watch and Wait

Still, developers say Mexico is too big of a market to ignore. SENER says the country’s generating capacity has doubled to more than 73 GW since 2000, and load growth and the retirement of aging, inefficient plants will require another estimated 50 GW of generation over the next 15 years. Mexico hopes to add $10 billion worth of transmission infrastructure in the coming years, including the two competitive projects.

Smith pointed to Mexico’s load growth, broad support for renewable energy and “mature and competent” planning processes as reasons to get involved in the market.

To be fair, Smith said TransCanyon was too late to bid on the Oaxaca project. The company did look at the Hermosillo-Mexicali project, he said, but decided to “monitor progress” of the initial offers “to learn the best way to engage.”

“We decided at this point, between the risk and lack of experience [in Mexico], we decided it wasn’t a wise thing to do,” he said. “We’ll try to learn lessons on best way going forward. There are some tremendous opportunities here. It’s early, very early in the process, but it’ll be interesting to see how it goes.”