Victor Ramírez
Executive Director
National Solar Energy Association (ANES)
View from the Top

Prospects Abound for Distributed Energy

Wed, 02/22/2017 - 15:40

Q: What were the highlights of 2016 for the Mexican solar energy industry?

A: The long-term power auctions were among the year’s major milestones as most of the awarded megawatt-hours and CELs were given to solar energy companies. Indeed, 60 percent of the new energy that will be injected into the grid from 2018 as a result of the auctions will be from solar. Mexican solar energy saw exponential growth in 2016 that exceeded all expectations. But even with the great advances, the amount of solar capacity that will be installed is still low considering the potential. We are therefore looking at new niches beyond the power auctions to boost solar energy production, for instance, distributed generation.

Around US$4.1 billion will be invested in solar as a result of the power auctions while the potential of distributed energy just considering users under tariff two, the commercial tariff, and the domestic users under the high consumption scheme (DAC) could reach US$20 billion. Moreover, distributed generation is much more widespread than utility-scale, allowing the entry of a higher number of SMEs into the solar energy business.

Q: What advantages does distributed generation provide to the economy over traditional, centralized energy?

A: Distributed generation is a large market in which SMEs and big companies can step in. We are already seeing investment interest from big names in the sector. For instance, Solar City has come to Mexico’s retail market, even acquiring the Mexican company ILIOSS to gain a stronger position in the country. There are also plenty of opportunities for lowerscale players, particularly as the Reform has promoted new initiatives to support SMEs with the training and technical skills needed to capitalize on this market.

The solar industry also is known as the energy source that creates more jobs per megawatt installed, mostly thanks to solar rooftop applications, which also positively impacts the national economy. The cost of energy in centralized systems is also affected by the technical and nontechnical losses happening during transmission and distribution, which is not the case for distributed systems, which decreases the need to invest in transmission infrastructure.

Around 2 percent of Mexicans still lack electricity access and serving their needs will be cheaper through distributed generation as most of these Mexicans live in isolated rural communities. Rural electrification is also an interesting option for SMEs that can obtain financing through the Ministry of Energy’s fund for universal access to energy.

Q: What more is needed to encourage commercial and high-consumption residential users to invest in solar?

A: We need a more aggressive marketing campaign that promotes the benefits of solar technologies. But we also need to ensure there are regulations in place guaranteeing the system’s quality. Using low-quality products or poor installation services might lead to the system malfunctioning, which impacts negatively on solar energy’s image in the market. I recently saw a solar heater on a building’s rooftop facing north, with an adjacent building projecting a shadow over it. Of course that solar heater would never work properly and the owner might think it is because solar energy is not reliable.

We need to ensure there are protocols and norms guaranteeing that the technology and the installation have the proper quality standards so consumers can enjoy solar energy’s benefits. ANES has been working hard on the creation of official national norms (NOMs) for solar panels and heaters, which we expect to become a reality soon as it is a priority for us and the government to promote further solar capacity.

Q: Some solar companies say financing is a barrier to exploiting solar’s potential. What can be done to bring banks on board?

A: The solar market can be divided into two parts. The first is the MEM where the scale and longer terms of the contracts awarded in the power auctions ease access to credit for solar projects. The major problem is in the retail market, which is more relevant for distributed generators, because we have not yet seen special credits available from commercial banks for electricity users willing to invest in solar technologies. Part of the issue is that banks do not yet understand that solar technologies are not only an asset but also enable users to reduce expenses, recovering investments in a maximum of 10 years while increasing repayment capabilities. Financing solar technologies is a good business for banks but they need to be aware of it. We have already seen a greater availability of financing schemes for energy-efficiency projects and we expect solar to follow this trend soon.

Q: What is your perspective about CFE Solar, given CFE’s advantages in the market’s basic segment?

A: One of the Energy Reform’s main objectives was to eliminate monopolies. We are worried about CFE Solar affecting the sector’s growth due to its former monopolistic nature and advantages of the basic users’ segment such as historic consumption patterns, which might be considered disloyal competition. We, as an association, are helping SMEs and larger companies enter the Mexican solar market and we expect to help them create a level playing field so they can compete with CFE Solar under fair conditions. We consider that developing innovative business models and adding value in terms of customer services will be key for companies to increase competitiveness in this market.

Q: What are ANES’ projections regarding the growth of solar installed capacity in the next 10 years?

A: Solar energy will represent at least 3 percent of the total electricity consumed in Mexico by 2018, just considering that the power auctions’ winning projects will cover 5 percent of Mexico’s electricity demand and 60 percent of this power will be produced in solar parks. Solar energy has demonstrated it is the cheapest technology available in the market, not only in the Mexican power auctions but worldwide, offering prices around US$40 per MW/h, under natural gas-based technologies. Moreover, the construction of solar parks is simpler in terms of logistics than other technologies, which make it even more attractive. The generation costs of solar energy drop even lower every month so I expect solar to be the most attractive energy source in the near future, even reaching higher capacity than that projected by the Ministry of Energy.

Q: What topics will be on ANES’ agenda for 2017 to continue driving solar energy forward in Mexico?

A: Our top priority is to enhance the market’s trust in solar technologies, promoting norms and regulations that ensure solar products and services are always delivered correctly. We want to raise awareness about solar energy’s viability and the fact that it is the cheapest energy source at the moment. Solar panels require a considerable initial investment but will create savings for the next 30 years and we want people to be aware of this. Thermal solar also offers savings to both residential and industrial users in process heat. Distributed generation has grown about 85 per cent each year and can grow faster. We just need to have clear rules and financing available to make solar the energy source of the future and we are working on both as part of ANES’ agenda.