Opportunity Despite Challenges

Private solar players have had to adapt to a double hit: the pandemic and the government’s measures to benefit CFE. Yet, opportunity knocks.

If Mexico’s potential for solar energy was not clear already, PRODESEN 2020 – 2034 emphasized that the country has a potential of 5-5KWh/m2. But solar, focused on photovoltaic technologies, still only plays a relatively small role in Mexico’s energy mix, making up 5.72 percent of installed capacity by the end of 2020. From 2020 to 2024, 29.73 percent of new installed capacity is expected to be solar energy. Only combined cycle technology would narrowly beat photovoltaic solar but that does not take into account distributed generation (DG) using solar technology, which would add another 7.9 percent to solar’s growth.

From 2025 to 2034, PRODESEN expects new photovoltaic solar installed capacity to grow by 30.65 percent, and DG solar by 21.94 percent. Furthermore, Mexico’s first-ever renewable initial public offering for a solar company on the stock exchange was a success, proving that investors have faith in the technology.

The future looks bright indeed. Although the solar sector is being affected by the same uncertainty that can be found in the rest of Mexico’s energy sector, the International Energy Agency (IEA) confirmed solar to be the “cheapest electricity in history.” Even though some examples of record-setting prices achieved in Abu Dhabi and Dubai are a bit misleading due to their access to free land and grid interconnections, the general trend looks promising, especially in Mexico with its excellent radiation.

Utility-Scale Slump Ahead

The fourth long-term electricity auction was canceled in February 2019, but the renewable energy projects from the previous three auctions went ahead regardless. Despite the impact COVID-19 had on project development and CENACE’s temporary suspension of pre-operational testing, many of these projects came online in 2020 and 2021. Some examples are Fotowatio Renewable Ventures’ (FRV) full-merchant 296MW Potrero Solar power plant in Jalisco, which went into operation in late 2020, and Northland Power’s 130MW La Lucha project in Durango.

The circumstances under which these and other solar projects were constructed are less than ideal, due to the measures introduced by the federal government, notes Fernando Salinas, Managing Director Mexico and Central America of Fotowatio Renewable Ventures (FRV) in an MBN interview. “Overall, the government poses several challenges, such as restrictions to interconnection. Finding bankable off-takers to sign PPAs is another challenge. Apart from CFE, there are not many possibilities in the market,” he said. Despite the challenges, Salinas believes that dialogue and collaboration are key to the realization of Mexico’s renewable potential. “What we need to do in the future is build bridges and try to understand what the government really plans to do … We are also open to talking about the future so that we can help Mexico comply with its renewable energy target,” Salinas added.

While solar capacity increased to above 88GW in 2020, future utility-scale development is headed toward a slump. “There are not many recent projects available and considering that 2020 was not a good year for utility-scale projects in Mexico, we were fortunate to supply our modules to three big Mexican projects in 2020. We consider that the number of projects in 2021 will be even lower,” said Álvaro García-Maltrás, President of Latin America and the Caribbean for Trina Solar.

But many solar developers argue that there is value in being prepared in case bigger opportunities come their way. “If you are able to persist during the crisis, you can come back and rise again because your company will be at the forefront of a new opportunity. In my opinion, players that stay in the market until this crisis is over will be better positioned,” said Pablo Rivero, Country Manager of ForeFront Power to MBN.

Potential to Move Forward in DG

The area of DG is much more safeguarded against regulatory changes. Installations below 0.5MW do not require permitting from CRE or interconnection tests from CENACE, for instance. With falling prices, the segment’s success in the Mexican market comes as no surprise, even as the desired cap increase to 1MW remains unrealized. “Today, there are more than 129,000 solar roofs in operation, spread across homes, businesses and industries, with an installed capacity of 965MW, involving more than US$2.1 billion in direct investment and generating more than 10,000 jobs across the country,” said Hector Olea, President of the Mexican Association of Solar Energy.

With many solar players looking to make use of the increased interest in the area of DG, many benefits can be obtained on the side. “In the past, the main winners of solar tenders were non-Mexican companies. Today, Mexican players lead the DG segment. This makes the sector sustainable in the mid to long term,” García-Maltrás said.