Alejandro Fajer
CEO and Co-Founder
Quartux Mexico
/
Expert Contributor

Energy Storage: Conciliating CFE and the Private Sector

By Alejandro Fajer | Fri, 03/12/2021 - 09:23

Energy storage is now a reality for every electricity grid in the world. Costs have dropped 89 percent in just 10 years, technology has matured, with patenting activity growing 14 percent per year, and investors have continued to gain confidence as customer adoption increases. The fact that developed markets such as the US and China are expected to increase storage capacity at an annual compound growth rate of 31 percent indicates that storage is here to stay.

Nonetheless, adoption rates for this new technology have varied from country to country, sector to sector and activity to activity. Although the necessity for storage might be evident, there exist other factors that affect the pace of adoption of these systems. These range from public policy to regulation to project profitability and vary depending on the nature of the activity.

Mexico’s electricity supply chain, as in most traditional electricity markets, is divided into generation, transmission and consumption. Each activity requires specific needs that can be fulfilled by energy storage; the problem lies in the different situational and regulatory environments that surround them and this in turn accelerates or hinders the deployment of these systems. This said, it is important to identify the pain points and acknowledge the viability of storage for each activity to better understand where exactly storage systems make the most sense and thus pursue a more targeted deployment scheme.

To that end, it is necessary to review the components of the Mexican electricity value-chain separately.

Generation

Today, although there are enough solar and wind resources to generate more than 100 percent of the energy currently being consumed in Mexico, only 25 percent of consumption is being satisfied by renewables. The other 75 percent is being generated with an increasingly large dependency on natural gas (76 percent of this fuel being imported from the US). With the government compromising to generate 35 percent from renewable sources by 2024 and increasing energy self-sufficiency, the long-term objective seems very clear: exploit local renewable generation potential and increase self-sufficiency. However, this feat is far from being accomplished and the reality tells a very different story. Last month, weather conditions in Texas affected natural gas exports that resulted in a blackout that affected more than 10.9 million users in Mexico. Energy tenders that would have resulted in 19,500MW of new renewable capacity were canceled in 2019. Only last year, the entry of more than 28 solar and wind plants (equivalent to 5.3GW of additional capacity) were put on hold due to “grid reliability issues.”

The question arises: considering the intermittent nature of renewables, how is it possible to exploit renewable energy potential without affecting the stability of the transmission grid resulting in blackouts? The simple answer is storage. Paired with smart control, storage systems can improve the quality of power through frequency and voltage regulation while balancing electricity supply and demand. Interestingly enough, some of the first storage deployments in Mexico were indeed hybrid systems, either paired with solar or wind. Even so, apart from one or two scattered projects among the country, storage has failed to gain traction in the generation part of the supply chain.

Transmission

For transmission and distribution activities, the story is similar. Increases in electricity demand and weather events have caused blackouts in recent months that have left more than 16 million Mexican users without electricity. These mega-blackouts have paralyzed the industry, generating interruptions in its operation and operating costs that amount to US$200 million every hour, according to INDEX. Additionally, the randomly scheduled power outages that reached 26 of the 32 states in the country during peak hours evidence a fragile and saturated electricity grid. Once again, storage systems can provide the solution. Installation of intelligent utility-scale storage systems placed in strategic congestion points allows the grid operator to store or deliver energy when the need arises without the requirement of heavy transmission upgrades. Such has been the case for many developed grids found in regions like California, the UK and Australia. The storage systems in these markets are able to dispatch energy on an “as-needed” basis, maximizing the efficiency of existing transmission infrastructure and allowing the entry of more renewable energy generation. Nevertheless, similar to the generation sector, no storage systems of this type have been installed in Mexico.

Ultimately, although the necessity exists and the solution is available, both the generation and transmission sectors have failed to see an accelerated deployment of storage systems. The main factors that have hindered the adoption of these solutions are the lack of regulation and policy uncertainty. The absence of regulation results in no clear or stable revenue generation policies that are necessary for the development of grid-scale storage projects, which are very capital intensive. In addition, the current government’s energy policies have created an unstable environment, making these types of investments extremely risky.  So how then can storage solutions be deployed in a sector with the complexity and immaturity of the Mexican electricity market? The answer lies in looking at the last segment of the value chain: the final consumers.

Consumption

Mexico has a total of 44.5 million electricity users of which 90 percent is residential and the rest are big industrial, agricultural or commercial users. Out of these big consumers, 108,000 consume 50 percent of the country’s electricity and are charged with an hourly tariff scheme. On average, 40 percent of their monthly electricity bill is being charged for consumption in peak demand hours. This situation opens the opportunity to install an intelligent energy storage system that controls the users’ consumption profile reducing peak demand needs with energy charged in off-peak periods. It is important to note that these shifts in consumption not only benefit the final user by providing them with significant savings, it also helps the national grid operator (CFE) by 1) reducing the peak load when transmission lines are most stressed and likely to undergo a blackout, 2) avoid costly remedies such as firing up inefficient peaking plants and 3) allows utilities to delay capital upgrades or building extra grid infrastructure that will be used sporadically.

Through the development of special control software created by Mexican companies like Quartux, other applications, such as instant power backup and frequency regulation, can be applied simultaneously to provide further benefits to the user. Additionally, no regulatory permits are required for their installation or operation since the systems are installed behind the meter and only modify consumption without generating any electricity.

In contrast to the generation and transmission sectors, behind-the-meter storage systems for industrial consumers see no regulatory obstructions and grant an appealing economic benefit by means of the savings generated in the monthly electricity bill and other value stacking applications.

With these attributes in mind, it is clear that storage’s point of entry for Mexico relies on mass installation of behind-the-meter systems for industrial consumers who can see a high return on their investments with little to no regulatory risk. Considering they consume half of the country’s electricity, grid integration of these distributed systems in hand with smart centralized dispatch software will create a more reliable national grid, make the industry more competitive by reducing electricity costs, and take Mexico one step closer to energy self-sufficiency by allowing a further integration of renewable energy.

Photo by:   Alejandro Fajer