Juan Manuel Ávila
CEO & Co-Founder
TOP Energy
Expert Contributor

Distributed Generation a Proven, Resilient Industry

By Juan Manuel Ávila Hernández | Wed, 03/02/2022 - 09:00

When we talk about a resilient or stable sector, we might think of the food or health industries. Before COVID, energy would also have been in that category, especially oil and gas, but let's focus on what a resilient sector would be in Mexico. Due to constant changes in regulation, lack of clear public policies or a mistrust of investors regarding how the country is being run, any industry that in the rest of the world could be considered stable or resilient probably is not seen that way in Mexico. Nevertheless, despite changes in regulation, wrong public policies and COVID, Distributed Generation (DG) has grown nonstop for the past decade. Since 2018, it has posted double-digit growth, marking not only a continuation of momentum but a clear adoption of the market that considers DG as a smart investment, which has not always been the case.

Distributed Generation, for most of its short lifetime, has been focused on the residential market. If we go back to its beginnings, DG was received with mistrust and doubt among consumers. The early concerns in this sector 10 years ago were whether the technology would actually work, the cost and thus the feasibility of applying for a subsidy, by both national and international companies. Consumers now are no longer early adopters, and we can see that in the concerns that the market is presenting. Now, we see a consumer who is more aware of the industry but especially the technology. DG has been able to surpass the "well, it might work for a small house but not in a factory" dilemma. If we take a deep dive into what tranche of customer is investing in the industry, we see that projects above 300kWp have surged since 2018 but with remarkable growth in 2020 and 2021. All of this has happened while COVID restrictions took most of 2020 out of the equation and amid the legislative elections in 2021. It is not that the market does not recognize the challenges especially the government’s proposal on the regulatory front it is just that the technology has been widely proven, costs have declined, with the exception of last year and 2022, and the return on investment is faster. All of these facts have been pillars for consumers in their decision-making process.

If renewable energy has been able to thrive in a country like Mexico under the previously mentioned circumstances, it makes us wonder if another subsector of the power industry could do the same. The answer is probably yes and we have identified two: energy efficiency and storage.

Energy efficiency is going to be hard for the government to curtail. The industry, like DG, is a behind the meter. It also has the advantage that it does not require, in most cases, any intervention from a third party, including CFE.  Taking advantage of the face-to-face business-to-business approach of DG means that the relationship is confined to two parties (supplier and customer), making it easier to deploy both assets and projects.

Energy storage is a widely covered subject that has been discussed in this space as being the next big bet. Although there is no proper associated regulation, it is common knowledge that eventually the “no man's land” or the “Wild Wild West" image of storage will end. There are already companies that have become major players and these have been able to push ideas that could translate to regulation. Also, they have been able to deploy assets, and not necessarily for residential customers only but also for commercial and industrial clients. Quartux is an example. It is a seasoned Mexican player with major projects in the industrial and hospitality sectors, solving not only the power reliability needed for these industries but also providing better energy quality and different business models that range from selling the asset to granting finance from third-party institutions or energy arbitrage agreements.

Photo by:   Juan Manuel Ávila