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Analysis

Mexico’s PV Solar Industry Moving Past the Reform Proposal

By Cas Biekmann | Fri, 12/03/2021 - 11:46

What previously registered as a regulatory shift is beginning to feel more like a landslide for many private energy companies in Mexico’s energy industry. While private utility-scale endeavors are impaired by uncertainty, the public sector might become a new driver of activity. Similarly, although permitting is becoming a major barrier, distributed generation (DG) could flourish in this new environment.

With a worldwide pandemic, issues in global logistics and, perhaps more importantly, an adverse regulatory environment within Mexico itself, the stage appears to be set far from optimal for solar energy to grow. Despite this unfavorable environment, solar energy continues to grow its footprint. At the end of 2020, SENER estimated that Mexico had 7,026MW of photovoltaic solar capacity installed. Over the past year or so, Mexico has added an impressive amount of solar capacity. According to the Mexican Solar Energy Association (ASOLMEX), the installed solar capacity has grown over 1,800 percent compared to 2017. Much of this capacity is found in the sates of Chihuahua, Sonora and Durango.

This explosive growth, laid on foundations set years ago, appears to be coming to a grinding halt as the López Obrador administration advances its mission to temper private development in the energy sector and place state-owned CFE at the helm once again. “We certainly had to adapt to a significant decrease in demand, driven by the sector’s lack of stability. This has been in part due to the legal and regulatory policies implemented by this government, which have discouraged investment in renewable energy developments and projects. I would calculate that we have received around 70 to 80 percent fewer offers during this administration than in the previous one,” said Óscar Fernández López, LATAM Director General, Revergy, in an MBN interview. Though the latest reform proposal is still being discussed by members of Mexico’s Congress, industry insiders argue that much of the damage has been done already by introducing uncertainty where stability is needed.

But the downturn in the industry should not be overstated, say insiders. Many expect that solar energy will continue to advance in Mexico, one way or another. Especially in the area of distributed generation (DG), the mood is optimistic. Part of this is the notion that DG will remain supported no matter how the energy sector is reformed. After the government’s reform proposal caused some confusion, Minister of Energy Nahle took to twitter to dispel these new rumors. “The [reform proposal] does not propose to eliminate DG,” she said, arguing that the government has been a supporter of the technology since the beginning, even allowing for financing of residential systems through a government-backed trust. “The energy transition is developed further through this type of intermittent technology, which by placing panels on top of homes directly benefits the end user. Energy savings are reflected in a family’s economic savings,” she added.

Driven by a relative stability, solar developers hope to make optimal use of a globally growing appetite for renewable energy. “Ten years ago, it was rare to see sustainability as a driver for Mexican companies. I would say that seven or eight out of 10 companies are now adopting strategies to become more sustainable. Large multinationals are pushing companies further down the right path but even small family-owned companies are realizing that energy efficiency and decarbonization are a real necessity.” Fernando Tirado, Country Managing Director Mexico, Centrica Business Solutions, told MBN. This need for sustainability is compounded by a greater need for energy in general. “Because Mexico’s energy market is characterized by volatility, red tape and bureaucracy, large corporations are increasingly seeing distributed solar as the only viable and market-safe option for them to cut carbon emissions,” said José Zambrano, Director General of Galt Energy.

Because DG solar energy installations are often dubbed a “no-brainer” energy option for C&I companies, the outlook remains positive despite the issues faced by utility-scale developers. “In general, we think that C&I will become the strong majority of our business in about two years. Depending on how energy is subsidized for residential energy users on the side of higher consumption, residential systems could still grow a great deal in popularity,” explained Jonah Greenberger, Co-Founder, Bright, a company heretofore mainly focused on residential solar installations.

Nevertheless, DG companies will still have challenges to face, according to Zambrano: “Every time there is a COVID-19 wave, companies backslide into a conservative mode of operations and this has delayed various projects. Moreover, the confluence of these two issues has been further exacerbated by certain media actors who have attempted to frame the federal administration as anti-renewables, which is not the case.”

Calling the government anti-renewables would indeed be a generalization. While it is true that López Obrador aims to curb generally clean private power production and favor CFE, the state utility does have significant hydroelectric capacity and plans to expand on this front. However, the government is looking to drive utility-scale solar too. A key example would the much-discussed Puerto Peñasco solar project. With a titanic 1GW capacity, the project would be among the world’s 10 largest solar power plants and the largest in Latin America. It will feature a 100MW battery storage addition, too. Sharing the load of the predicted US$1.685 to US$2 billion investment, state utility CFE is to own 56 percent of Puerto Peñasco, while a newly formed Sonoran state company would own 46 percent.

A 1GW solar project would dwarf other endeavors in the sector as a result of its sheer size but Puerto Peñasco is not the only solar project CFE is considering. “Two projects for which we have pending permits are solar energy generation projects commissioned by CFE. We are to construct one of the largest solar farms in the country in the arid state of Chihuahua. The project is expected to generate 180MW of energy. The other smaller project is to be built in Merida, Yucatan, and is expected to generate 40MW,” said Oscar Scolari, CEO of Rengen Energy Solutions. “We welcome the state company’s investment in renewable energy and hope to see its continued commitment to the adoption of these technologies.”

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Cas Biekmann Cas Biekmann Journalist and Industry Analyst