Moving to C&I Solar Without Forsaking Utility-Scale RenownBy Cas Biekmann | Wed, 06/23/2021 - 12:03
Q: How has Gauss adapted its strategy to the current energy environment?
A: The lack of regulatory stability and certainty to develop utility-scale projects is precisely the problem in Mexico’s energy sector. I would say that in general not only Gauss but the entire industry finds itself in a stage where investments have been stopped and projects put on hold. Companies have taken a wait-and-see attitude on what will happen with the regulatory framework. Our main objective in Mexico is to maintain and defend the projects that are already in operation and preserve the status quo as much as possible. In regard to future large-scale investments, we prefer to wait on a more stable business environment. This does not mean we are idle, however. We are simply moving our focus from utility-scale projects toward behind-the-meter distributed generation (DG) projects. In Mexico, regulation in this segment has remained untouched, so it is fertile soil for developing projects. We are seeing many large-scale operators moving into this area of opportunity because the economics of it are attractive.
Q: How could the recent elections influence the state of the energy industry?
A: I think we will see similar conditions to what we are experiencing in the current environment. The big question is whether the reforms to the Electricity Industry Law (LIE) will remain in place or be declared unconstitutional by Mexico’s Supreme Court. The result of the elections will surely influence this decision: if the current administration would have won a landslide victory, it would appear to be a mandate to move forward with profound reforms in the energy sector. The Supreme Court would have heard that mandate and moved accordingly. However, the situation remains much the same, with even a small loss in the lower chamber for the ruling coalition, so the Supreme Court might interpret this as a call for more moderate change in the energy sector. By the end of 2021, we will see the Supreme Court make a political decision based on the mandate of the elections in regard to how the future of the sector should be shaped.
Q: What kind of growth are you projecting for the DG market in Mexico?
A: I believe its development will move very fast. The room to grow is not necessarily in the residential segment but in the commercial and industrial (C&I) sector. Last year, the pandemic halted progress. This year, we will experience strong growth regarding DG solutions for the C&I segment. There is also good reason for optimism in the market for behind-the-meter solar energy development, including storage. Various factors point to its development. First, regulation has not changed and the government is sending clear signals that this will remain the case in the future. Second, technological advancements have decreased the costs of photovoltaic and storage equipment, making it very competitive. Furthermore, power tariffs for the C&I segment might very well increase in the medium term, providing another clear incentive to develop solutions for this sector. If off-takers can bring their own financing to such projects, they can reduce costs and increase returns even further.
Q: What technologies does Gauss bring to the table to make it competitive in C&I solar?
A: Every company has its own solutions and secrets for optimizing their installations. Adapting Gauss’ experience from utility-scale projects to DG makes little sense because the situation is entirely different, meaning you would need to get more creative. The available space is usually much more limited. Even if a DG installation is 0.5MW by law, there might not be a big enough roof space available to fit it. Companies like Gauss need to be innovative in how they use equipment in this regard, tailoring it to fit the situation. Adding storage increases the price quite a bit, so good arguments are needed to rationalize the use of such infrastructure.
Having said that, providing tailor-made solutions every time is too expensive. Therefore, you must consider where to add more cookie-cutter solutions while being competitive. It is a delicate balance to achieve.
Q: Battery storage functions rather differently for utility-scale projects. How does Aura Solar III’s trailblazing 10.5MW storage system add value to the solar park?
A: Aura Solar’s storage project in Baja California Sur is still the only utility-scale solar plus storage project operating in Mexico, but this will change in the months to come when other projects of the same nature enter in commercial operation. Gauss was at the frontier of developing new solutions within the Mexican market. This project has a very specific objective: supporting ancillary services for the grid. Baja California Sur’s grid is a weak, somewhat small and insular transmission system. Aura Solar’s storage allows it to add frequency and voltage regulation to the mix, as well as its most important function of power ramp-rate control. When a cloud passes over the project, a big drop in power generation occurs. This introduces instability in the struggling local system. Adding storage into the mix allows CENACE to cushion such shocks to the system. We use it to support the system rather than for load shifting. I believe this combination of solar plus storage is the way to move forward for weaker systems, like that in Yucatan, as well.
Q: What objectives would Gauss Energía like to achieve in 2021?
A: Gauss Energía is in the process of reinventing itself to move toward new innovations, which has always been a part of the company’s core identity. We need to be creative and innovative in the C&I segment. It is perhaps not a sudden, drastic change but a more gradual process. In 2021, we will move into this new environment progressively so that we can fully understand what we can bring to the market and how we can utilize our experience. We are working to consolidate this process. By 2022, we will be in full-fledged operation within the DG market, which is considered an important expansion for the company. We hope that we can get back to developing and strucuturing utility-scale projects by 2025, if regulation and policy are once again ideally aligned to benefit these projects. We are moving in a new direction while maintaining our identity in large-scale project development.
Gauss Energía is a Mexican solar project developer involved in several landmark energy plants in the country, including Aura Solar I & III in Baja California Sur. Currently, it is positioning itself into the distributed generation market to expand its development track record in C&I solar plus storage solutions.