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Analysis

Mexico Heating Up

Wed, 02/22/2017 - 15:22

If ever there was an underdog story in the Mexican energy matrix it is solar PV energy. Despite Mexican solar resources being among the most abundant in the world, it has remained a mostly untapped source of potential renewable energy in the country.

Mexico has daily solar irradiation levels between 4.4KWh/ m2 and 6.3KWh/m2, with the country’s latitude between 15 and 35 degrees, often considered as the optimal band for sunlight access. The country has 129MW authorized capacity operating in eight states (Aguascalientes, Baja California, Baja California Sur, Durango, State of Mexico, Guanajuato, Sinaloa and Chihuahua), which stands in sharp contrast to the 3GW of wind generation capacity in place.

But the narrative changed quickly after 2016’s power auctions and with advances in technology availability and lower costs. Mexico now has 2.4GW of solar power coming from projects being built and another 6.2GW in plants about to begin construction.

TECH TO THE RESCUE

Technological development is one of the key elements that has boosted the competitiveness of renewable energy. “In the past, renewable energy was heavily dependent on subsidies, which is no longer the case thanks to technological improvements that made prices of renewable energy competitive, allowing technologies like solar to reach grid parity,” says Bernardo Fernández, Mexico CA&C Country Manager of Hive Energy, the UK’s leading developer of solar energy on commercial rooftops and solar parks that recently entered the Mexican market. The LCOE for utility-scale solar PV saw a dramatic decrease of 82 percent between 2009 and 2015, according to Lazard’s Levelized Cost of Energy Analysis Version 9.0, benefiting PV project developers all around the world.

But the drop in LCOE has not been the only factor behind the cost-effectiveness of PV parks. The Internet of Things has introduced monitoring and control solutions that can optimize production and improve the OPEX rate of PV parks during their life span. New technologies such as smart metering are now available to collect data and adjust operations of a utility in real time. These solutions allow companies to save large sums of resources by avoiding unscheduled maintenance and prolonging the operability of the infrastructure.

THE CROWN JEWEL OF THE CROWN JEWEL

The promise of PV energy is undeniable as this technology was crowned the undisputable winner for both long-term power auctions in 2016, surprising all players involved in the process. “The biggest growth opportunities in the Mexican power market are in solar PV,” says Héctor Olea, President & CEO of Gauss Energía. “It has been a surprise for everybody.

A year ago authorities would say solar was too expensive and that it needed subsidies. However, at the first auction, solar was awarded a large percentage of the total energy committed and at the lowest price worldwide. This success was ratified in the second auction, where most of the energy was awarded again to solar PV and at an even lower price, an average of US$31/MWh, which is below any other technology.” This sentiment is shared by the authorities, project developers and consumers.

DISTRIBUTED GENERATION

Among the most promising applications for solar PV in Mexico is distributed generation (DG). Several of the key players in the industry, including analysts, company directors and officials, point to this as one of the defining trends that will shape the market for the coming years. According to Loïc Le Gall, Executive Director-Power & Utilities of EY, the potential for developing DG relies on the several benefits companies, developers and customers would get from it. “We consider DG to be in line with the needs of the recently created market because it allows placing the generation point close to the consumption,” he says. It also presents a convenient complement for solving congestion problems resulting from a lack of transmission and distribution infrastructure in some parts of the country.

The main challenge for the development of DG will be to conclude the regulatory framework that will determine its operation. Anticipating this situation, the CRE submitted all dispositions and contract models for DG systems for consultation in September 2016. The arrival of pertinent rules and dispositions for DG will move the story forward and boost this system in the Mexican energy industry.