PPAs Strengthening Mexico's PV MarketFri, 02/01/2019 - 13:42
The political will to advance renewable energy projects is among the key attractions for solar developers looking at Mexico as a new opportunity, says Philippe Esposito, CoFounder of Dhamma Energy, a Europe-based developer and operator of large and medium-sized solar parks. “Mexico has a strong will to develop renewable projects, specifically solar,” he says. “When we arrived, some wind farm projects were already well-advanced but there were only a handful of solar parks.”
That set the stage for solar developers like Dhamma, which entered Mexico in 2013, betting that the country’s top-notch transmission and distribution network would help overcome the technology’s main drawback: intermittency. “Solar’s main hurdle is intermittency. But since the country’s network can absorb variations, it eliminates the need for hybrid solar-fuel generators or batteries in the short term,” Esposito says. He cautions, however, that the country may need hybrid technologies and storage by 2024 to ensure the stability of its energy system and to balance energy generation with consumption, due to the rapid growth of solar parks that he forecasts. “When these technologies are in place, it will be possible to offer solar power from the first hours after dark.”
Electricity tariffs, however, were a question mark, especially when Dhamma Energy arrived in Mexico. Although electricity tariffs were set to climb in the initial stages of the Energy Reform – a positive for project developers like Dhamma – the company realized that these tariffs would come down if the country succeeded in incorporating more renewable energy sources into its mix. “If we pull together all solar resources in a single area of Mexico, the node price of that area can be reduced. But there is no point in concentrating solar generation in the Bajio region to solve electricitytariff issues in Sonora,” Esposito says. “The whole country can benefit from solar energy.”
Solar differs from thermal energy sources in the sense that it allows for the planning of installation sources. “While thermal sources need access to a natural gas pipeline or a port to be supplied with fuel oil, solar parks need no raw materials once the installation is in place,” Esposito says, adding that this allows a more intelligent and consumerfriendly implementation of solar parks. Weighing the pros and cons, Dhamma Energy made the decision to enter Mexico and develop solar generation projects through PPAs, both corporate and with CFE. Today, it has plans to enter the wholesale energy market, to sell its energy surplus. “This market is interesting in certain areas of the country where nodes have a high cost and the wholesale electricity market could boost solar projects,” says Esposito.
By the end of 2018, the company had established a healthy footprint in the country, with two plants developed in Guanajuato with a combined capacity of 108MW acquired by Prana Power, a 37MW solar project in San Luis Potosi sold to Balam Fund and a 130MW project in Sonora sold to ENGIE. Additionally, Dhamma Energy is developing a 118MW project in Aguascalientes, which was awarded in the third long-term electricity auction to Canadian Solar. “These solar parks will provide a total capacity of 275MW (excluding Aguascalientes) and will be connected to the grid before the end of 2019,” Esposito says. Looking ahead, the company is developing over 1.2GW worth of solar projects under the new regime laid out by Mexico’s Law of the Energy Industry (LIE). “We are negotiating PPAs for those projects.”
Dhamma Energy’s offering includes structuring and financing solar generation projects through its own resources and in collaboration with commercial banks and multilateral organizations. According to Esposito, several factors are considered when determining the feasibility of financing energy generation projects in Mexico. Aside from the credit quality of the company hiring the financial product, it looks at the duration of a PPA and whether the project is signed in US dollars or Mexican pesos. “It is difficult to finance projects that have PPAs of only five or seven years,” says Esposito. For instance, a PPA lasting 10 years or longer makes the financing more feasible. At the same time, a PPA signed in US dollars is more easily financed because it mitigates currency risks, which is more attractive to investors. “Exports-oriented Mexican companies may be interested in buying their energy in US dollars because they sell in US dollars,” he adds. “The cost of money is lower in those cases.”