David Arelle
Director General
ILIOSS/SolarCity Mexico
/
Insight

Here Comes the Sun

Wed, 02/22/2017 - 16:24

The merger between the No. 1 solar provider in the US and a domestic leader of distributed solar energy is expected to boost the adoption of PV solar systems in the residential market in Mexico, making use of long-term leasing schemes that SolarCity pioneered in the US.

SolarCity, founded in 2006 with the ambitious idea of delivering clean and more affordable energy, already has climbed to the top of the US residential market, serving over 260,000 customers across 27 US states. The company looked to Mexico as the next logical step to expand its business and bought into the country with the 2015 acquisition of ILIOSS, which has the nation’s largest installed capacity on commercial and industrial roofs and carports with over 10MW, according to its website.

“SolarCity chose us because we were the only company in the Mexican arena dedicated to selling energy. Engineering, maintenance, due diligence and financing are all crucial to complete a quality installation,” says David Arelle, Director General of ILIOSS/SolarCity Mexico. Arelle sees the acquisition as the boost the company needed here. “Although ILIOSS was already a large solar company in Mexico, its capacity to grow was limited due to the company’s financial status. The acquisition gave the combined business the ability to become what we hope will be the most important player in the solar power industry in Mexico.”

ILIOSS had focused mostly on commercial and industrial applications but it now expects to conquer the residential market with the support and experience of SolarCity. Arelle says the company wants to follow the parent company's business model and offer longterm contracts to residential customers. “CFE’s current energy market is extremely volatile. Establishing this long-term solar contract will give our customers peace of mind when it comes to their energy,” he says. The solar leasing model that SolarCity offers in the US consists of a 20-year contract where the user commits to pay a fixed monthly rate with a 0 to 2.9 percent annual escalator. The user is not required to pay for the system or the installation and the company retains ownership of the system.

The model, however, is not without controversy. SolarCity’s business strategy was questioned in the US as the company faced troubles in 1Q2016 when Nevada’s government announced changes in the net-metering scheme, negatively impacting homeowners’ interest in investing in solar across the US and affecting the company’s revenue projections for 2016. Mexico has been using a net-metering scheme since 2007 and it is likely to continue in place. But energy trading rules for systems under 500kW capacity are not clearly defined yet and adverse regulatory decisions might be a drawback for SolarCity’s plans in Mexico. The company has not yet made the leasing model available for residential users in Mexico. That step will likely come when the necessary regulations are defined by CRE.

One silver lining during this uncertain period, is the increment in electricity tariffs for commercial and residential users under the DAC scheme. The DAC tariff rose 7 percent from the first to the third quarter of the year while commercial tariffs rose almost 6 percent in the same period. The increment in natural gas prices is expected to continue driving electricity tariffs up, which is likely to be an incentive for commercial and residential users to invest in PV solar systems. The Mexican solar residential market remains a diamond in the rough. Durango and Baja California have the largest penetration of PV solar usage in the residential sector and only 2.1 percent of houses have a system installed in both cases.

In the US, SolarCity also offers residential users the option to buy energy through a PPA. A residential PPA differs from a leasing model because customers pay per kilowatthours consumed. In Mexico, however, the law states that basic users can only purchase electricity from basic services suppliers at a regulated tariff and CFE is currently the only basic service supplier registered in the market. The law does not restrain other companies from becoming registered to serve this niche but price regulations make this option unattractive at the moment.