Growing Distributed Generation Infrastructure

Distributed Generation (DG) has seen unprecedented growth in the past years. As Mexico’s energy policy stalled renewable utility-scale developments, the private sector has turned to DG as the alternative to move forward with its decarbonization agenda. Mexico’s state-owned electric utility, CFE, is planning to adapt to this trend to achieve Mexico’s climate goals for 2024.

Jorge Musalem, Strategic Projects Manager, CFE, explained that DG is the generation of electric energy near the place where it will be consumed, often with the goal to be self-sufficient, incorporating available technology and using the backup of the grid to send off excess electricity or supplement the required power.

According to Musalem, the market has been disrupted during the past four years, driven by four factors: cost, innovation, technology adoption and convergence. In 2009, the cheapest power energy was thermal energy, but today, photovoltaic solar energy has the cheapest leveled cost of energy in the world. 

Moreover, solar energy adoption at an international level has developed at an accelerated pace, with the technology growing 155 times in capacity in 16 years. Solar power technology is innovative: “It allows the user to gain independence from CFE’s grid,” said Musalem. The disruption of this technology will only grow stronger because of the economic convenience for the final user that solar panels provided. From 2020 to 2022, Mexico’s DG installed capacity doubled. Moreover, 99 percent of DG comes from photovoltaic panels on roofs, as other alternatives such as cogeneration are nowhere near as popular because they are more limited in their application.

This accelerated adoption happens due to network parity, explained Musalem. This means that the cost of solar energy on the roof of a house is the same or less than the electricity of the grid. The investment in a solar system can be recovered in between two to seven years, whereas the system has a useful life of 25 years. 

In the near future, CFE foresees a model of DG in which local electricity charges are combined with other sources of power generation to provide support and backup to the system. 

The impacts that DG has on the system, such as lower transmission and distribution costs, a lesser need for expensive transmission infrastructure investment and a reduction in technical losses from localized power production in distribution circuits provide further added value.

What is more, climate change is increasing the risk of weather-based disasters, a problem that will eventually impact electric infrastructure. In the change toward a cleaner industry, Mexico needs to find a balance between where investments are made and which technologies grow in size, as varying business models need to be orderly and incorporated into the electricity system. “There is an urgent need to modify the business model of electricity companies,” stated Musalem.

CFE is the second-biggest company in Mexico and will also have to adapt to growing trends to remain relevant, added Musalem. Mexico has a privileged position when it comes to solar radiation. By the end of 2021, it had generated 328.6TWh, with 3 of every 5 lightbulbs being powered through natural gas. Nevertheless, renewable energy is growing in prominence, as 29 percent of electricity is generated through renewable resources, with hydroelectric power leading the pack. Mexico aims to increase this number to 35 percent by 2024, but an investment of around US$10 billion will be needed for this to happen, added Musalem. 

“Renewable energy will not be able to cover demand when it is at its highest peak because of the low reliability of wind and solar power,” added Musalem. Nevertheless, battery energy storage can remedy this issue by storing electricity when it is produced and discharging it when it is needed. “The electricity system will have to change and develop the necessary transmission and distribution infrastructure to enable energy storage and keep increasing the percentage of energy produced from renewable resources,” concluded Musalem.