Distributed Generation: Mexico’s Best Energy Bet?

For Mexico, distributed generation presents many opportunities, especially with CENACE’s current policy to stall new renewables projects. Nevertheless, it does present unique challenges, for which both private and public sector will need to work together to provide adequate solutions.

Distributed generation is a form of energy generation characterized by decentralized, small-scale connected devices. These devices are connected to the grid or to a bigger distribution system, the latter being the legal norm in Mexico. Solar power is popular in the Latin American context but for the most part, any other possible energy source can be used, including natural gas and wind, among others.

Generating energy with small, distributed systems in the domestic industrial sector and in SMEs is the alternative for the solar industry in Mexico, agreed panelists discussing the Development Outlook for Mexico's Solar Energy Sector at the Mexico Energy Forum 2020. Demand attracts many smaller, local players that provide panels and installation. Big companies are interested as well, said LONGi Solar’s Mexico Country Manager Iván Reyes, in an interview with Mexico Business News: “There is great demand in Mexico for distributed generation projects. There are many untapped business opportunities in Mexico in the solar energy sector and Longi seeks to take advantage of all this potential.”

One major advantage of distributed generation lies within its small scale: for projects under 0.5MW, projects do not need to ask permission to CRE to operate. Since CENACE’s controversial decision to pause approval of new renewable energy projects only considers wind farms and solar parks over the 0.5MW limit, distributed generation remains untouched.

Although many players think of distributed generation via solar panels as the way to go, natural gas offers a convenient source for Mexico as well. “The price of gas is very low. If a user requires thermal energy and sees gas prices well below US$4 per BTU, investing in distributed generation becomes an attractive solution,” said Hans Kohlsdorf, Managing Partner at E2M.

Still, one issue remains on top of the industry’s wish list regarding distributed generation. In order for this form of generation to really take off, the 0.5MW barrier would need to be increased to 1MW. LONGi Solar’s Iván Reyes joins other key executives in Mexico’s industry in calling for this increase. ASOLMEX, the key solar association in Mexico, sees a good opportunity for more efficient energy generation in Mexico and is currently still pushing for the increase, reported Energia a Debate.

In the Chamber of Deputies, people like Hernán Salinas recognize distributed generation’s highly positive socioeconomics. “Distributed generation is a way to reduce energy poverty that affects around 12.4 million Mexicans. This type of generation has the ability to provide access to electricity in communities far from the main generation areas,” said Salinas in February 2020. If used in a collective form, owned and operated by communities, distributed generation can help alleviate poverty and promote autonomy.

To truly make distributed generation effective, there are some other technological impediments that the industry needs to overcome. But solutions are already on the way, says Kohlsdorf: “In Mexico, distributed generation is here to stay. Technological developments favor this system at a global level. Small utility-scale projects close to zones that lack energy or even next to factories are viable and the related technologies improve every day.” Industry 4.0 offers solutions for how energy is “sold” by using blockchain to determine prices on a daily basis, for instance. Even without government support, distributed generation will reach 6,000MW by 2024, estimate ASOLMEX and PwC. With a small regulatory change, however, this form of energy generation can really take off.