National gas in a sunny place - Evaluation of the planned fuel switch for the electricity system of Baja California Sur

Abstract

In parallel to Mexico’s major energy reform, the peninsular state of Baja California Sur (BCS) is planned to go through a fuel switch from heavy fuel oil to natural gas. This study investigates the impact of the fuel switch on the costs and emissions of the BCS electricity system as well as if there is an alternative where instead of the fuel switch more renewable power is being injected. The study is done by modeling different scenarios including the switch to natural gas and alternative scenarios with combinations of diesel, photovoltaics (PVs) and concentrating solar power (CSP). The study also includes interviews with key actors of the system and the energy sector of Mexico and is complemented with literature studies. Results show that the planned fuel switch will provide a fast reduction of electricity generation costs but in the long run the solar alternatives have greater potential to lower them even further. Minimum possible emissions of CO2equivalents per scenario until 2026 are 384.94 kg/MWh for natural gas, 96.83 kg/MWh for PV/diesel and 137.01 kg/MWh for PV/CSP/diesel systems. However natural gas remains the least expensive investment. The study analyzes the current policies promoting a sustainable electricity system in Mexico and if there is a risk of a lock-in to natural gas in the area. Finally it analyzes what the transformation of the Baja California Sur system, and the challenges for the alternatives, may say about what will happen in the electricity system of the rest of the country. At the moment the high electricity price in Baja California Sur is the key motivator for investments in renewables, since they must cover high investment costs. Natural gas fuelled technologies in Baja California Sur, and the entire country, will decrease the marginal price of electricity, due to the lower fuel costs. Nonetheless, by injecting more renewables in the system the marginal price of electricity will decrease even further, attempting against their own profitability. The study shows that if there is no financial mechanisms to aid only renewable power investments, these technologies won’t be able to compete with fossil fuelled technologies classified as clean energy in the new Energy industry law of Mexico.