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Analysis

Loyal Commitment To Quality in Mexico

Wed, 02/19/2014 - 15:02

Desmex analyzed the Mexican market and explored the possibility of entering its solar industry back in 2002, but ultimately decided it was unfeasible. “CFE did not know about the interconnection of renewable energy sources,” explains Andre Von Frantzius, Commercial Director at Desmex. It took until 2006 for the Guanajuato-based company to take its first steps in residential solar installations but its commercial sector breakthrough happened in 2007. Walmart requested solar energy installations for two of its stores in Aguascalientes and another one in Baja California Sur, regardless of the cost. This was Desmex’s first such project in Mexico and involved the first Walmart stores in the country being converted for renewable energy use. In spite of the success working on this project, the company’s focus remained on the residential sector that it found simpler to work with. This is not surprising, as Mexican homeowners in the high domestic consumption tariff represent a 2GW market, according to Desmex. “We have completed over 3,000 residential installations, which gave us a solid background to start pursuing a number of projects below 10MW. Other areas of expertise involve developments for smaller commercial applications, along with single digit MW installations for larger companies. Our success can be attributed to our low and competitive market prices,” explains Von Frantzius. “We would like to install four or five small commercial developments each year and even own and operate our own solar plant to sell energy.”

“Commercial success lies in developing many small and medium-sized projects instead of a few enormous ones,” says Thomas Bjarnemark, CEO of Desmex Solar. “The experience required for colossal projects has not been locally available, although international firms can bring that experience to the table. Plenty of fly-by-night enterprises will enter the residential segment simply because the entry threshold is much lower. But in the larger industrial and commercial segments, such firms will appear and vanish overnight. The threshold is very high and only top-tier companies will make it.” As a distinctive trait, Desmex mostly favors German technology for its PV projects. “We mainly use Aleo Solar’s modules. For inverters, we turn to SMA, the most common and best-known supplier,” explains Jaime Montes de Oca, Head of Engineering of Desmex Solar. This penchant for German technology has to do with product quality, explains Montes de Oca. “We are selling top-notch equipment and have tested the products we use in high-end laboratories where German products have always come out on top. They are not the most affordable but Desmex can manage to move them around the Mexican market. These products have ten year manufacturing guarantees, while Chinese products come with two to five year guarantees.” However, von Frantzius points out that Desmex is currently also working with two Chinese partners who provide the PV modules while the Mexican firm does the rest. 

Bjarnemark believes the Mexico’s manufacturing sector will allow the economy to grow at a tremendous pace, but the resulting rise in energy demand will put a lot of stress on the current electricity infrastructure. “Considering the conditions of CFE’s production capacity and grid, there can be no single answer to Mexico’s energy situation,” says Bjarnemark. “Mexico is running out of capacity, contributing to power outages. PV energy could provide a solution, but current infrastructure is inadequate to allow this to happen,” says Montes de Oca. “Solar plants larger than 30MW are going to have a hard time connecting to the grid. Power storage systems can provide solutions for small projects, but not for larger developments such as PV parks,” he adds. “However, renewable energy sources will have to play a significant role in whatever strategy is carried forward. Aside from irradiation rates, solar has a distinct advantage over wind as it is prone to a decentralized architecture whereas wind projects are clustered in certain areas. Moreover, prices for solar energy will continue to drop, which will raise demand even further.” As these prices fall, Desmex is finding solar energy becoming more competitive, which has promoted the appearance of many small competitors that offer low prices. “Unlike them, we are a stable company that has been in the market since 1994,” says Montes de Oca. “We would not be surprised if many of these companies also failed as the same situation took place with solar heating systems. Companies started bringing in thermo-siphons but two years later they were gone as the guarantees, the products, and the results they offered were poor.” Desmex is bracing for an influx of foreign competition over the next two years. “Several suppliers have told us that most European companies have their sights set on Mexico, especially Spanish firms,” says Montes de Oca.

Bjarnemark lays out how being a renowned foreign company is not enough to make it in the Mexican market. He believes it is necessary to know the country well, which cannot be achieved in a matter of weeks. Taking this into account, Mexican firms have a great advantage, says the Desmex Solar CEO. “They understand Mexico in ways no foreign company could, but international companies have the upper hand in many cases because they own the technology and the intellectual property that Mexican companies crave.” Desmex found a good solution to this conundrum. The company has partnered up with strong technology firms, but remains a Mexican company with long experience in the market. “Local experience will turn out to be more valuable than experience developing large projects,” says Bjarnemark.

Working to expand its own capacity, Desmex already has CFE’s permission for a 3MW solar project but the company is still working on signing the PPA. “Permits should not have to take long, but they can take up to a year and a half here at least,” says Montes de Oca.

Five years from now, Desmex plans on being a key player in the Mexican industry and move towards the clean tech and energy efficiency businesses. “We want to expand and not rely exclusively on solar power since we know how changeable and risky the market can be”, says Von Frantzius. The company wants to continue working on making the sector interesting and appealing, hoping to build the renewable energy industry. As Von Frantzius puts it: “Hopefully, I will look back 20 years from now and say I was part of a big change in Mexico.”