Mexico can develop up to 5% of its electricity generating capacity through renewable resources in the next decade, led by long-overdue wind farm projects starting up this year, an expert with the International Finance Corp

“Those of us who are involved in the wind business recognize that there is a very unique resource available in Oaxaca, in the Isthmus of Tehuantepec,” said Dana R. Younger, senior renewable energy adviser to the IFC, as the private arm of the World Bank is known.

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Whereas wind projects elsewhere have turbines that operate at 20% to 35% of capacity due to moderate wind speed, Tehuantepec sites can reach nearly 50% of installed capacity because of stiff wind speeds of 10 meters per second, he said.

Mexico’s previous failure to develop its wind industry, given such a privileged site, is hard to understand, Younger said at an energy conference, but the years of stagnation appear to be over.

“Mexico has been stalled at about 88 megawatts for quite a few years,” he said, but projects now online or coming online by the end of the year will boost that capacity by about 300 megawatts.

Among the companies going green by producing their own wind energy through agreements with foreign energy firms are retailer Wal-Mart de Mexico (WMMVY, WALMEX.MX) and cement giant Cemex SAB (CX, CEMEX.MX).

Mexico’s growing capacity is still a blip on the world wind power map, however.

Both India and China have reached 9,500 megawatts of installed wind capacity now, Younger said, and predicted Mexico could reach 3,800 megawatts by 2014.

“We really believe that it’s quite relatively easy for renewable energy to represent more than 5% of Mexico’s installed electricity capacity within the next 10 years, based on the resource potential of Mexico and the large number of very well-capitalized and efficient utilities that are already engaged in the sector,” he said.

The IFC, along with other renewable energy funds, is directly involved in some of the Mexican wind projects, Younger said.

Regulatory and other market barriers in Mexico which limit returns, coupled with the global financial crisis of the past year, are hurdles as Mexico competes with other countries for wind projects, he added.

Mexico’s first 100% privately financed wind project was inaugurated in January of this year by Spanish company Iberdrola Renovables (IRVDY), with 94 turbines and 80 megawatts of installed capacity.

The energy will be sold to state utility Comision Federal de Electricidad, or CFE, under a 20-year contract.

Iberdrola has won a second contract for a wind farm in Oaxaca this year–La Venta III, which involves 121 wind turbines for an installed capacity of 103 megawatts and is scheduled for completion next year.

Agustin Romeral, Mexico country manager for Iberdrola, said that being a pioneer in the privately run wind farm business hasn’t been easy.

It has required putting lots of money upfront and weathering volatile energy prices set by the CFE, he said.

He said hurricanes, seismic risks, and a lack of incentives such as those found in the U.S. and elsewhere, including tax breaks and fixed energy rates during the investment recovery period, have made Mexico a challenging market.

Asked if Iberdrola’s first project, called La Ventosa, is profitable, he said: “not as much as we expected.”

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