California approves contract for Mexican wind project

The California Public Utilities Commission (CPUC) approved a 20-year power purchase agreement that would allow wind energy produced in Mexico to be sold to a San Diego utility.

San Diego Gas & Electric (SDG&E) will buy between 100-156 MW of power from a Mexico wind project being developed by SDG&E sister company Sempra Generation and BP Wind. SDG&E and Sempra Generation are both part of Sempra Energy (NYSE: SRE).

The Energia Sierra Juarez project, which is located in Baja California, Mexico, will comply with the procurement requirements under the state’s renewable portfolio standard (RPS), the CPUC ruled.

The contract is worth approximately $820m, costing the utility about $41m a year over the course of the agreement. The PPA price is $106.50 per MWh and will be time-of-delivery adjusted. In its decision, the CPUC said that the PPA’s value and price “compares reasonably favorably” to the results of SDG&E’s 2011 RPS solicitation and recently executed contracts.

California utilities must procure 33% of their energy from renewable sources by 2020, including some from qualified projects from outside its borders.

“Based on the Commission’s analysis of the PPA’s value and the confidential analysis provided by SDG&E … the Commission determines that the PPA’s costs are reasonable,” the Commission wrote.

 

One factor affecting the project is that the Mexican site would not be eligible for the federal 2.2 cents per kWh production tax credit that has spurred rapid growth in the wind industry. Labor groups protested the agreement for that reason.

Sempra U.S. Power & Gas is in discussions to develop the wind farm in collaboration with British-based energy giant BP.

There are several other hurdles that must be cleared before construction, including approval of a cross-border tie-in to transmission lines in California that requires a presidential permit from the Department of Energy.

The project is scheduled to be online by the end of August of 2013.