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Mexico eyes solar parks in Yucatan amid financing doubts, environmental concerns

Highlights

Plan envisions 300 MW in first phase, scalable to 1 GW

Project to power Maya train currently under construction

Market observers skeptical

Mexico City — Mexico is putting together a scheme to develop at least 500 MW of solar generation capacity, first in the Yucatan Peninsula as part of a larger development project, and erase the public belief that the government is against renewables, people close to the situation have told S&P Global Platts.

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The program, which will be run by Mexican tourism agency Fonatur, will also involve the state utility CFE as operator and the national development banks, they said.

The program, labeled Fonatur Solar, will be developed in phases. The first 300 MW would be in the Yucatan Peninsula, in Mexico's Southeast, enough to power the main route of the so-called "Mayan train," the sources said.

The government of President Andres Manuel Lopez Obrador is building a 948-mile-long train route that will run on electricity on its main route and that will connect the southern states of Yucatan, Quintana Roo, Campeche and Chiapas. The government aims to finish its construction by 2024 and spend roughly $7 billion on the project.

For the first phase, Fonatur is considering a handful of solar parks, one of them at the airport serving the tourist destination of Cancun in Quintana Roo, operated by Mexico-listed Grupo Aeroportuario del Sureste (ASUR), one person said. The conversations with ASUR are ongoing, the source said.

The second phase of the solar farm program could add a few more solar parks, increasing the capacity to around 500 MW, with parks in tourist destinations, like the Baja Peninsula, beyond the four states, said a second source close to the deal. The intention is to anchor projects that would reach 1 GW, including solar parks in all airports in the country, the source said.

"If the first phases go well, I don´t see why the program could not anchor big projects," one of the sources said. "The country needs the energy and the country has the potential to grow to 5 GW in the near future."

Neither a Fonatur representative nor a CFE spokesperson responded to requests for comment.

Lopez Obrador backs solar farms

Fonatur Solar has the backing of Lopez Obrador, who sees it as a good way to bring development to southern Mexico, long forgotten by previous administrations, as the revenues of the solar parks would be spent in the local communities, the source said.

Both the train and Fonatur Solar are part of the a broader social scheme to benefit the area, creating new cities along the route of the train, developing existing ones, and even reaching to ancient ones, like Calakmul, an archeological site that has long been forgotten because of its inaccessibility, the source said.

The federal government also sees this as an opportunity to get rid of the stigma that it is against renewables, the source said.

"The government is not against renewables; it is against private investors running the show," the source said.

However, observers and market participants doubt the government will be able to achieve as much as it expects. Fonatur faces many challenges, as it lacks funding and expertise, two people familiar with the project told Platts.

"The team is very enthusiastic, and their intentions are good, but they have never built a project in their life, let alone a solar project," said a market participant who has been approached by the government to participate.

Fonatur Solar has not yet been assigned any federal budget, and the conditions they are offering are not the best, said the person, noting that the government is unwilling to commit to 20-year contracts.

"If they are real about those 5 GW the system as it is currently would not hold up," the market participant said. "They know they would also need to invest in transmission, and I am not hearing anything about that."

The administration has not been shown good execution skills, said a second market participant. CFE has not yet been able to launch the tenders for its fourcombined-cycled power plants, which are worth $4 billion, and they are a priority for generation, he said.

"I think it is too optimistic to think they can generate interest for the plants and for solar projects too," the said. "The appetite out there is not too good."

If the solar projects get built, they are unlikely to be done in a transparent way like the power auctions conducted by the previous administration, the second market participant said.

"They are also unlikely to secure low generation costs for CFE, like the auctions did, even with the development banks involved," he said.

During the 2017 power auctions conducted by CFE, Mexico secured long-term power-supply contracts with costs below $20 per MW/h, setting international records.

Cultural, environmental opposition

Even if the government were able to find a company with interest in participating in Fonatur Solar it would still have to find a way to finance it, he said. The projects, which would take up vast acreage and could require much deforestation, are likely to face opposition from social and environmental groups, as the area is filled with archeological sites and fragile ecosystems.

So far, local communities and environmental groups have expressed their opposition to the train, claiming Fonatur is trying to expropriate their homes offering them low sums of money. Some told Platts that Fonatur has changed the outline of the project so many times they fear it is not yet finalized and that Fonatur does not yet have the land.

Guadalupe Caceres, an activist in Campeche, said she and her local movement Tres Barrios have managed to obtain legal suspensions that will delay the construction of the train and was surprised to hear of Fonatur Solar.

"I did not know anything about Fonatur Solar, but it surprises me, because I cannot think of any land in the area that is big enough to hold solar panels," Caceres said May 12. "But I can tell you something, the train project will not move forward in Campeche any time soon. We will stop them."