The $820 million contract, approved by the California Public Utilities Commission, comprises Sempra Energy's 156MW Energia Sierra Juarez (ESJ) wind farm in the Mexican state of Baja California. The project will send power northward to California customers of San Diego Gas & Electric (SDG&E), Sempra's regulated subsidiary.
The contract's $106.50/MWh price provides a rare glimpse at power prices - possible because of transparency required with deals between corporate affiliates. California maintains some of the highest electricity prices in the US.
Still pending are cross-border permits and construction of a substation that will interconnect to the 500kV Southwest Powerlink transmission line. But San Diego-based Sempra plans to begin building turbines next year, when it expects at least some to be operational.
The project is intended to satisfy SDG&E's remaining renewables portfolio standard (RPS) requirements through the 2016 compliance period. California's aggressive RPS calls for 33% clean generation by 2020, with 75% of that total to come from in-state projects. ESJ qualifies because the substation will be on the US side.
Tax benefit
Mexican projects do not qualify for the US government's lucrative production tax credit (PTC) subsidy, which is on track to expire at the end of this year. But Mexico's government offers 100% first-year tax depreciation, which Sempra can leverage by virtue of its significant holdings south of the border. "This is a project California can count on with or without the PTC being extended," said Sempra spokesman Scott Crider. "That, in some ways, is a competitive advantage - because there's certainty given the RPS requirements."
Overall, ESJ is seen as the first phase of what could result in 1.2GW of Sempra wind development in Mexico. "There are certainly tremendous wind resources in northern Baja," Crider said. "It's some of the last remaining high-quality resources on the West Coast that are untapped."
But not everyone expects a lot of the electricity ever to reach the US. Transmission on the Mexican side would require significant expansion, cross-border permitting remains difficult and the Mexican government is offering increasingly competitive prices likely to keep most renewables generation at home.
"I don't see us getting that much wind from northern Baja," said Michael Shames, executive director of San Diego watchdog Utility Consumers' Action Network. "But the answer really will be determined by economics."
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