Distributed Generation Offers Mexico Opportunities and Challenges

Distributed Generation (DG) represents an opportunity for users and companies to reduce their energy costs, as solar photovoltaic (PV) systems ensure a near-continuous source of clean energy. However, electric utility companies must rethink their business model as users could become more independent from the public grid. 

According to Jorge Musalem, Strategic Project Manager, CFE, the state company is aware of the challenges and potential that the combination of Solar PV technology and energy storage represent. He considers DG an “ongoing disruption,” which means that it is a convergence of different technologies that create new markets, jobs and opportunities, while it also unsettles the industry. 

Over 99% of DG comes from solar PV-based power production. As of 1H22, Mexico had over 30,000 DG contracts totaling more than 276MW of capacity. CFE forecasts that in a positive scenario, and following 1H22’s trend, the DG capacity would have grown 15% during 2H22, which Musalem considers an exponential growth rate.

Musalem found DG to be the most economically viable power source when compared to other power production methods. According to data from financial services company Lazard, it costs between US$147/MWh and US$221/MWh. However, using PV tech for DG has some disadvantages as it cannot produce energy during nighttime and must be accompanied by storage capacity to fill intermittent gaps in power production. Nevertheless, as technology costs decrease, users benefit by paying lower energy bills. 

Musalem held that with the implementation of new electricity generation models, the centralized energy system model should be reevaluated as it begins converging with locally produced energy. 

DG allows utilities to defer investment in transmission capacity as energy can be generated locally, leading to a reduction of technical losses in distribution circuits and lower wheeling costs. However, the inverse energy flux into the grid requires attention and control regarding the network’s operation. Intermittence, which may occur due to climate conditions such as a cloudy day, cause further problems that must be solved.

Musalem said DG cannot continue growing to the detriment of CFE as the company must remain operational to attend to users that do not have enough space to install PV systems. He mentioned that new regulation is being drafted that establishes clear limits on the maximum capacity, changes in the net-metering of installations with capacities over 0.1MW, specifications to enhance reliability and options for collective DG as an energy alternative for end users. 

DG continues to gain steam among other clean energy production methods. In the latest edition of the Development Plan for the National Electric System (PRODESEN), DG contributed 0.9% of Mexico’s clean power, which Musalem said shows its increasing importance. 

Costs of generating and storing energy are expected to continue their downward trend. Musalem said that if PV costs continue their 12% yearly drop, prices will be 72% cheaper in 2030. The same goes for lithium batteries, whose prices are going down at a 15% pace. If this continues, batteries would be 80% cheaper in 2030.