Current regulation of geothermal energy in Mexico

The purpose of this article is to provide an overview of the current regulation in Mexico applicable to geothermal energy, according to the Geothermal Energy Law, the Law of National Waters, the Energy Transition Law, and the Electricity Industry Law.

It should be noted that Mexico has great potential for geothermal energy, and according to the Federal Electricity Commission there are currently four geothermal power plants in the country. 

Energy Transition Law

The Energy Transition Law states that heat from geothermal deposits is considered renewable energy. Furthermore, the Energy Transition Law provides that sustainable use for electricity production from geothermal resources and the exploitation of minerals associated with geothermal deposits must be carried out in accordance with the applicable law.

Electricity Industry Law

The Electricity Industry Law classifies the heat from geothermal deposits as clean energy. Consequently, the Energy Regulatory Commission may grant a Clean Energy Certificate, through which the certificate holder may accredit the production of a determined amount of electric energy from clean energy.

Geothermal Energy Law

The Geothermal Energy Law (the “Law”) establishes that the Secretariat of Energy (“SENER”, for its Spanish acronym) is the competent authority to regulate and promote the exploration and exploitation of geothermal areas, and to issue registrations, permits, and concession titles for the use and exploitation of geothermal energy in Mexico.

It is noteworthy that, according to the Regulations of the Geothermal Energy Law (the “Regulations”), permits or concessions will not be granted to (i) public servants; (ii) companies that have not been incorporated under Mexican law; (iii) those who have had a permit or concession declared forfeited or revoked; (iv) among others.

In this regard, the company or individual interested in exploiting geothermal energy in Mexico (the “Applicant”) must obtain a registration for reconnaissance activities, i.e., observation and exploration activities (the “Registration”); an exploration permit (the “Permit”); and a concession for exploitation (the “Concession”), if applicable.

Registration for reconnaissance activities

The SENER may grant the Applicant the power to carry out reconnaissance activities to determine whether an area or territory may be a source of geothermal resources through a Registration. Additionally, through the Registration, the Applicant is entitled to carry out preparatory works for a subsequent phase of exploration of geothermal resources.

According to the Law and its Regulations, reconnaissance activities cannot be carried out in urban areas, areas where strategic national security installations are located, or in property of common use under the General Law of National Assets.

Exploration permit

The company or individual interested in obtaining the Permit must request it two months before the expiration of the Registration. Furthermore, the Applicant must prove its legal, technical, and financial capacity, experience in geothermal energy, the viability of the project, and the financial scheme of the investment for the project, among others.

Additionally, the Law establishes that the Permit will have an extension of up to 150 km², and a validity period of three years. The validity period may be extended for three years, subject to compliance with the terms and conditions of the Permit and applicable legislation.

Among the obligations of the permit holder are the following:

1. Drill the exploratory wells established by the SENER;
2. Submit an annual technical report;
3. Comply with scheduled goals;
4. Notify the SENAR of the discovery of by-products, e.g., minerals, gases, or waters with an origin other than geothermal waters;
5. Guarantee the compliance with the obligations derived from the Permit;
6. Guarantee the payment of damages;
7. Among others.

Concession for exploitation

The permit holder may request the Concession for the exploitation if the existence of the geothermal resource is determined. To obtain the Concession, the permit holder must prove its legal, technical, administrative, and financial capacity to develop the project, submit the location plan of the geothermal area, and the work and financial schedules, among others.

If the concession is granted it will be valid for 30 years and will give the concession holder the right to:

1. Carry out exploration and exploitation works;
2. Use the geothermal resource for the generation of electric energy or other purposes;
3. Use geothermal waters;
4. Among others.

In addition, the concession holder must submit technical and financial reports every six months; allow verification visits; give notice of the discovery of by-products; get risk insurance; submit a performance bond; submit an annual technical and financial report on activities in the geothermal area; comply with environmental, social security, and civil protection provisions, and Official Mexican Standards (“NOM”, for its Spanish acronym); among others.

Bidding process

Another alternative to obtain the Concession is through a bidding process. The bidding may be carried out if (i) a concession holder gives notice to the SENER of a decrease in its technical, financial, or legal capacities, and consequently, is unable to comply with the terms and conditions stipulated in the concession title; or in case of (ii) early termination, revocation, or expiration of the concession title.

Law of National Waters

According to the Regulations for the exploitation, use, or exploitation of geothermal waters, the requirements established in the Law of National Waters must be complied with, which include the following:

1. Geothermal Water Concession for the exploitation of the hydrothermal reservoir;
2. Environmental impact assessment (“MIA”, for its Spanish acronym) and risk assessment, under the General Law of Ecological Balance and Environmental Protection;
3. Wastewater discharge permit, applicable when the water is discharged into receiving bodies, e.g., national waters or national property; and
4. Permit for the injection well.

Finally, the concession holder, must comply with the following NOMs:

• NOM-150-SEMARNAT-2006, which establishes the technical specifications for environmental protection to comply with in the construction and preliminary evaluation of geothermal exploratory wells located in agricultural, livestock, and wasteland areas, outside protected natural areas and forest land (the “NOM-150-SEMARNAT-2006”).

The NOM-150-SEMARNAT-2006 provides that urban development plans and regulations on land use and environmental protection established by state and municipal authorities must be complied with. In addition, it establishes the characteristics for the drilling of wells; the provisions for the evaluation of geothermal wells; the limit of exploratory wells per area (maximum five); and the obligation to install restrictive and preventive signs and to take preventive measures; among others.

• NOM-150-SEMARNAT-2017, which establishes the technical specifications for environmental protection to comply with in the construction and preliminary evaluation of geothermal exploratory wells located in agricultural, livestock, and wasteland areas, outside protected natural areas and forest land (the “NOM-150-SEMARNAT-2017”).

In addition to the provisions of the NOM-150-SEMARNAT-2006 mentioned above, the NOM-150-SEMARNAT-2017 indicates that during the stages of site preparation and construction, drilling, and evaluation of geothermal wells, documentary records must be kept on the engineering works to keep surface currents, personnel training, storage of machinery, equipment, and materials, among others.

Challenges for Geothermic Projects in Mexico.

We foresee that the main challenges Geothermic projects will face in Mexico will be around dealing with communities close to the areas where the drilling will be carried out, including having to carry out the indigenous consultations in the areas were the projects will be carried out.

Conclusion

In conclusion, geothermal energy is classified as renewable energy and clean energy under Mexican law. In addition, Mexico has a specific regulatory framework for geothermal energy, which provides that the interested party must obtain a registration for reconnaissance activities, followed by an exploration permit, and if applicable, a concession for the exploitation of the geothermal resource may be granted.

If you have any comments or questions, please contact Enrique.garzatello@clydeco.com