Should Everyone Go Rooftop Solar No Matter What? Start With CFE

Distributed solar generation. That is the name of the game. Today in Mexico, the people installing solar panels on their rooftop have different profiles: From residential users and small retail stores to small and medium industries putting all the solar they can in their factories without exceeding the distributed generation capacity limit of 500kW (0.5MW) set in the industry law and regulations. 

There is a wide variety of contractors publishing a series of promotions and ads on social networks to provide installation services, or even larger specialized EPC contractors preparing quotes for the big deal. But customers should not not decide just on  price alone. In all cases, every power generation facility has to comply with quality, specifications and certification in its equipment and qualified manpower. Of course, having four solar panels on a house rooftop is not the same as having up to 1,000 photovoltaic modules (around the 500kW limit) that need to comply with the grid code (Código de Red) for capacities over 10kW, especially when not connecting in low voltage. Also, you need to consider the reputation, location and the experience of the installer, considering that he will probably provide maintenance (at  a price) every year to your equipment and change it if something is not working OK. 

The market segment with the most incentives to carry out a photovoltaic installation is the “high consumption domestic,” or those who have the famous DAC rate from CFE, which has varied from MX$4.86 to MX$7.53 (US$0.29 to US$0.44) per kWh in the last 44 months, as you can see in the following graph: 

Source: CFE (app.cfe.mx/Aplicaciones/CCFE/Tarifas/TarifasCRECasa/Tarifas/TarifaDAC.aspx)

Plummeting costs for solar installations in combination with this rate allows users to invest, with  payback periods of less than three years. 

And to whom does this rate apply? Well, to users who consume more energy than the energy consumption limit set by the Energy Regulatory Commission (CFE), based on the region of the country and associated with the average temperature throughout the year (the extreme temperatures of the north and southeast of the country are not the same as those of the central zone):

All residential clients that do not exceed this consumption limit are receiving a government subsidy. Even if they have an air conditioning system in use. How much? Almost two-thirds of your power bill is being paid by the Mexican government. And that is a lot of money considering 89% of CFE’s clients are residential customers, and less than 1% have a DAC tariff:

Source: https://www.cfe.mx/finanzas/financial-economic-information/pages/investor-presentation.aspx

If you do the math, each of the 42.2 million residential customers in 2022 paid an average of MX$378 (US$22) per bimester to CFE (that includes DAC users). So the average subsidized residential user pays around MX$350 (US$20) per bimester (MX$2,100/year), and CFE has to pay almost MX$700 (US$41) more in the same period (MX$4,200/year).

The yearly energy consumed by the average subsidized user is around 1,700kWh. That energy can be generated by two solar panels that may cost MX$34,000 (US$1,996)to install. 

What if CFE were to install them? CFE would avoid having a subsidy of MX$4,200/year for each user, paying back the investment in eight years and opening up some opportunities for new business lines, such as maintenance visits. 

Going with a huge push in distributed generation would also benefit CFE, giving it different investments in transmission, reducing technical losses from the grid associated with local generation in the distribution circuits, and avoiding transport costs. However, inverse flow coming from rooftops would require proper attention and control in operations, and intermittency would impact the system’s demand forecast.

So, if residential users with subsidies have no incentive to go solar, maybe CFE could take this approach. However, not all residential customers are eligible for an optimal and economically feasible installation: many live in apartments where there is not enough roof area, some do not have optimal geographical orientation, leading to shadows, and some have structural issues to deal with in relation to their rooftop. Finally, risk analysis should be performed for this type of program, since for example, there could be the prospect of theft or vandalism of installations in some neighborhoods. Buying insurance should also be considered in coastal regions for mitigating weather-related events. 

In all cases, there is no stopping distributed generation in Mexico, and the only way is up. Since early 2007 when the concept was introduced, the sector has posted double-digit growth every single year (except 2020 to 2021, because of the pandemic). In 2022 alone, there were almost 600MW of distributed solar generation installed, reaching 2,630 of accumulated capacity, with more than 300,000 interconnection contracts:

Source: https://www.gob.mx/cms/uploads/attachment/file/813522/Estad_sticas_GD_2022_Segundo_Semestre.pdf 

This year, I expect at least 700MW of added installed capacity, which would mean that the capacity of the installations since 2020 would equal all the capacity installed from 2007 to 2019.

Are you still thinking about it? Please follow me on social networks for more information and free advice if you are thinking about going solar.