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News Article

On-Site Energy Projects, Basis for the Energy Transition

By Cas Biekmann | Wed, 09/01/2021 - 16:17

Driven by regulatory changes and a need for excellent power quality in places not optimally connected to the grid, the development of energy projects in Mexico is increasingly moving from utility-scale toward on-site distributed generation. Here, technologies such as solar, storage and cogeneration take the lead. 

“As we all know, this is not the best time for the power sector in Mexico. But tough times also mean that there are different opportunities to make use of,” said Ricardo Zúñiga, Country Manager Mexico of Capwatt, a company that focuses on developing clean energy projects for customers in the commercial and industrial (C&I) environment.

Especially for projects on the smaller scale, perspectives remain attractive. Under 0.5MW capacity, no permitting is needed. But even larger projects ranging from 5 to 10MW are viable because they do not have a severe impact on the grid’s functioning and can provide energy to remote locations or isolated areas, such as in Mexico’s two peninsulas. “Baja California and Yucatan need capacity to grow economically, but they do not have access to the nationally interconnected grid or even to an adequate fuel supply,” said Zúñiga. Taken together, these factors are greatly increasing the demand for on-site power solutions.

On-site power production facilities are far from a new trend, emphasizes Zúñiga. Before the onset of the 2014 Energy Reform heralded colossal investments in utility-scale projects, private power plants focused on self-supply. Now that the regulatory certainty necessary to develop utility-scale projects has taken a hit under a governmental restructuring of the industry, Zúñiga sees projects turn toward fewer MWs and on site generation for large-scale energy users. For this reason, Capwatt has elected Mexico as its third location after Portugal and Spain. The company is not alone, as many other companies turn their attention to smaller-scale project development and aim to cater to the growing demand of C&I clients, who look for competitive prices and cleaner energy supplies to meet ESG benchmarks.

“Efficient and well-designed power plants are the best options for companies,” said Zúñiga, stressing that reliability, quality and energy efficiency are of the essence. “What we consider to be most important for on-site projects is that they are tailor made,” he added. In terms of the technology used, solar is often mentioned as an excellent solution. Especially in combination with battery storage, it is a stable and cost-efficient solution. Albeit less popular in the Mexican context, natural gas-fueled power production facilities provide a great opportunity for companies too, especially if their production processes need significant heating or cooling.

These energy projects are not without issues to solve, however. Zúñiga mentions the problem of permitting needed for projects above 0.5MW, a process that has stopped almost entirely during the COVID-19 pandemic.  This leads to despair for some. “Clients sometimes think they need to wait for years before a project comes online,” he said. Nevertheless, Zúñiga highlights the company recently saw a permit go through. “We saw it as a message that projects will run and have a future. Projects will flow again soon, hopefully,” he continued.

Another issue is the funding of smaller projects. “Financing is difficult. Development and commercial banks only looked at projects on the large scale; 5-10MW projects were not considered interesting at all. But the situation is changing because banks are adapting and evolving,” he said. In the current environment, it is becoming less viable to build US$500 million power plants and more logically to build a large amount of DG-based power plants.

Zúñiga emphasizes that the time to act is now for clients interested in addressing their energy supply. Reservations can be taken away by showing the benefits that could have been achieved in the past. “Every time clients take more than five years to make a decision, they can see the money being left on the table,” he said. “I really want to send a message to industrial and other large energy consumers: we really cannot wait and should take measures into our own hands to make the transition. Let us do better,” concluded Zúñiga.

Cas Biekmann Cas Biekmann Journalist and Industry Analyst