How to Optimize Large Solar Parks in an Adverse Environment

Mexico’s challenging regulatory environment does not invite many new large-scale projects but what about the massive investments made in power plants that have already been developed? Experts argue that by optimizing the operations, maintenance, marketing and social scope of utility-scale solar parks in the country, their stakeholder value could remain radiant.

Though other renewable energy technologies have a prominent position in the Mexican energy mix, it is utility-scale solar that experienced the largest growth following the 2014 Energy Reform’s development boom. “We have more solar projects mainly because, in recent years, solar has been growing much more aggressively in Mexico. This means that there was simply more opportunity in this area,” says Carlos Egido, CEO of Centauro Energía, about the company’s largely solar-based power-producing portfolio.

The risk of regulatory change that came with the López Obrador administration’s mission to put the energy sector’s power back in the state’s hands has clouded the possibility for greenfield solar project development. Nevertheless, more than 6GW of utility-scale solar capacity remains operational, according to ASOLMEX. The challenge remains for owners, operators and marketers to optimize the value of such projects. Knowing that the much-needed clean energy capacity in the country will likely not go to waste no matter what reforms are passed, there are several options to reinforce a project’s worth.

If a solar project is to add value, it must operate according to expectations. An appropriate approach toward operations and maintenance (O&M) is therefore crucial. But solar power plants feature complicated technological structures: a 100MW park can easily feature between 300,000 and 400,000 modules and requires numerous matching inverters, though the number varies depending on the technology.

“Without a proper assessment, power plants can suffer significant energy losses due to cumulative error,” says Rafael Sanchez, Division Manager at OCA Global, adding that failures can be either prevented or corrected via monitoring and quality control inspections. “Solar modules can suffer different failures, such as micro cracks, hotspots and PID (degradation). If operators do not control these issues from the beginning, they will eventually have a big impact on how much energy the power plant will produce,” Sanchez adds.

Fortunately, technology helps break down this daunting task. O&M providers have evolved slowly over the years, from engineering, procurement and construction (EPC) firms offering straightforward services to an entirely new ecosystem boosted by state-of-the-art technology. Drones can be used for remote inspections, while robots can be utilized to efficiently clean large numbers of photovoltaic solar modules. By using software, operations can be overseen from anywhere and the desired preventive maintenance approach suddenly becomes achievable. Projects can furthermore be improved by integrating technology. Battery storage is often pointed out as an important option to add to existing solar projects.

Improved Marketing and Community Approaches Are Crucial

Once operations are running smoothly, the optimal amount of electricity still needs to be marketed. Though some solar projects run under self-supply contracts, a legacy market operating on pre-2014 Energy Reform regulation, the legal possibilities to market this energy are restricted outside of the project’s partners. Much more dynamic is the current Wholesale Electricity Market (WEM). Here, power producers move through a qualified supplier (QS) to sign contracts. Other than the well-known power purchase agreements (PPAs), energy can be sold on the spot market. “The solar projects that Centauro operates in have a spot market sales component but we are now adding an increasing amount of MWs under PPAs. This provides a mixed basis for income, which is part stable through long-term contracts and part variable through the spot market,” says Egido. Still, the spot market entails “a bit of a risk” due to its immaturity as a market. “For the past four years, the market has behaved somewhat strangely, with a great deal of capacity coming in over time. In the last few months, this situation appears to have stabilized, with prices increasing, which is part of a trend that power producers like us have anticipated,” he adds.

When signing contracts for the longer term, power producers have needed to adapt. “There is undoubtedly a trend of clients seeking more flexible arrangements,” Egido explains. “Companies must be creative because there is a great deal of competition in the market. Players that can be flexible toward customers and the qualified suppliers that serve energy to clients have the advantage,” he adds, pointing out that currency requirements, pricing, ramp-ups and take-or-pay conditions have all been relaxed over time. Companies cannot become too flexible, however: compliance and bankability are still essential. Even so, meeting the customer halfway can greatly increase a project’s marketability.

Technology plays an increasingly important role here too. José Buganza, CEO of Enegence, says his company moved from being a more traditional consultant regarding the WEM to working through a software-based platform that analyzes the market and generates intelligence. “This added-value service has allowed us to help our clients make their operations safer, more efficient and more cost-effective — an important capability in commodity markets such as electricity,” Buganza said.

Whereas projects can be upgraded through technology, they can truly be enriched by sharing benefits with local communities. “Tackling this process the wrong way means that projects get halted and communities experience harm. Nobody benefits from such a situation,” Julia González Romero, Elected Counsel at González Calvillo, told Mexico Energy Forum. Héctor Sánchez López, Independent Member of the Board of Directors at CFE, adds: “In the end, communities can benefit a great deal from renewable energy, so they have a vested interest in these projects.” Every community is different, but developers have found that they can build great relationships with communities through education, healthcare, infrastructure and close communication.

M&A Activity Looms

As noisy as the Mexican energy sector has gotten, 2021 proved that stellar solar energy projects remained a major driver for M&A activity. This provides another interesting avenue for solar developers and power producers.

2021 saw deals valued at US$131 million, including Array Technology’s purchase of STI Norland and its Mexican operation, and cement-maker CEMEX’s acquisition of Synhelion. Also, Riverstone Holdings acquired a controlling stake in the distributed generation-focused Energía Real. The year before, State Power Investment Corporation (SPIC) acquired Zuma Energía, a renewable energy company with two significant solar projects in its portfolio.

Deals still on the table include Chinese state company China Three Gorges Corporation’s possible purchase of X-Elio’s Mexican business. In early 2022, MPC Energy Solutions acquired the 15.8MW Los Santos Solar I project. Though smaller than utility-scale parks, the project is well above the widely considered safe 0.5MW permitting threshold.