Solar Deduction: Mexico's Year-End Tax and Energy Strategy

Every December, when we close the books, the same question appears on the agenda: What do we do with the last pesos of taxable profit? Do we simply pay more income tax, or do we turn part of that tax bill into productive assets that will lower our costs for years?

In Mexico, very few decisions move both levers at once — tax and operating costs — within a single planning cycle. Solar is one of them. If a company manages to put a rooftop or ground‑mounted photovoltaic system into operation before Dec. 31, the investment can be deducted immediately for income tax purposes and start cutting electricity bills from the first receipts of 2026.

That is why December is not just “busy season” for auditors. For companies with significant energy consumption, it is a genuine window of opportunity. Miss it, and the fiscal impact of the project shifts a full year forward. Use it, and solar stops being a sustainability nice‑to‑have and becomes a disciplined capital allocation decision.

Turning Tax Into CAPEX

Article 34, fraction XIII of the Income Tax Law (Ley del Impuesto sobre la Renta, LISR) allows a 100% immediate deduction for new machinery and equipment used to generate electricity from renewable sources, including photovoltaic systems. In simple terms, if a company invests, for example, MX$10 million (US$556,000) in a qualifying solar project and places it in service before year‑end, it can deduct that full amount from its taxable profit for the same fiscal year.

The rule is not a loophole. The equipment must be new, used to generate power from renewable sources, and kept in operation for at least five years, with limited exceptions, such as loss due to force majeure. It is a public‑policy tool designed to accelerate private investment into clean energy while modernizing the corporate asset base.

For a CFO facing a 30% corporate income tax rate, a properly structured solar project can turn a significant share of CAPEX into additional cash flow in the first year, once the tax saving and early energy savings are combined. When a system enters into operation before Dec. 31, the impact is double: it reduces income tax for the year that is closing and lowers the cost of energy from the first bill of the next one.

Commissioning, Not Just Contracts

The nuance that many companies overlook — and the reason December is a golden window — is that the law refers to assets placed in service, not merely contracted. For solar, that means the system must be installed, tested, and interconnected to the grid according to the procedures and technical manuals used by CFE and the regulator.

In practice, this translates into a simple rule. A contract signed at the end of December, with no prior engineering or permitting, will almost certainly not deliver a system in operation before the year closes. A project that already has its design, structural analysis, permits, and interconnection paperwork advanced can realistically reach commissioning in the following weeks, depending on the state and the workload of local CFE offices.

Where queues are longer or documentation is incomplete, any delay in inspection or meter changes pushes the first kilowatt‑hour into January — and with it, the entire tax benefit into the next fiscal year. The system will still be valuable, but the opportunity to impact the current year’s ISR will have passed. If a board wants to capture the 2025 deduction, the conversation cannot start at the last meeting of the year. December is the deadline, not the starting point.

A Mature Market, Not an Experiment

There is another reason why this window deserves attention now: distributed solar in Mexico is no longer a pilot experiment. It is a mature market with scale, data, and a proven supply chain. By the end of 2024, the energy authority reported more than 4.4GW of accumulated distributed generation capacity — systems up to 0.5MW — spread across over half a million interconnection contracts.

Solar dominates this landscape. The vast majority of that distributed capacity is photovoltaic, linked to rooftops on factories, warehouses, hotels, retail chains, and SMEs that chose to internalize part of their energy supply. Industry analyses suggest that the cumulative private investment associated with these systems already amounts to several billion US dollars.

For boards, this matters because the risk profile is no longer that of an emerging technology. The components, installers, and regulatory pathways exist in every region of the country. The relevant question is not “does it work?” but “where do we stand compared with our peers in terms of energy cost, risk, and resilience?”

The Cost of Waiting

A common argument in boardrooms is: “If the incentive will still be there next year, why rush?” The first answer is financial. Every year without solar is a year in which the company pays a higher electricity bill than necessary, forfeits the immediate tax deduction it could have applied, and delays the moment when the system is fully paid back and producing almost‑free energy.

The second answer is strategic. Policy frameworks evolve. Today, Article 34, fraction XIII is a clear, explicit incentive. There is no guarantee that future tax reforms, driven by fiscal needs or shifts in energy policy, will maintain the same level of generosity. Companies that act early lock in the current rules; companies that wait are, in practice, speculating on the direction of future tax policy.

The third answer is competitive. Distributed generation is already one of the fastest‑growing energy segments in Mexico. Firms that delay adoption will benchmark their cost structure against competitors who produce a significant share of their electricity at a lower, more predictable cost and who have already learned to operate and maintain these assets.

What Boards Should Be Asking This December

If you sit on a board, an audit committee, or a family council, this is the season to ask a few uncomfortable but necessary questions. Do we have a clear picture of our energy spend and tariff risk for the next five to 10 years? Have we quantified what a 100% deductible solar project would do to our 2025 tax bill and to our cash flow in 2026 and 2027?

Is there a project that could realistically be commissioned before Dec. 31, given our roofs, loads, and local interconnection times? And if we operate generation vehicles, are we using tools like the Cuenta de Utilidad por Inversión en Energías Renovables (CUFINER) strategically, or are we leaving value on the table?

December will come and go whether we act or not. But for companies with significant electricity consumption and taxable profit, it is more than a date on the calendar: it is the line between capturing a powerful fiscal and energy opportunity in 2025, or watching it roll over into 2026. The law has already created the incentive. The market has built the capacity. The remaining decision is whether we treat solar as a marketing checkbox — or as one of the most effective financial moves available at fiscal year‑end.

Sources

– Ley del Impuesto sobre la Renta (LISR) – Article 34, fraction XIII (immediate deduction for renewable energy equipment, including photovoltaic systems).
– LISR – Article 77‑A – rules for the Cuenta de Utilidad por Inversión en Energías Renovables (CUFINER).
– Statistics on distributed generation in Mexico (2024), published by the energy regulator (CRE): capacity, contracts and technology mix.
– Market analyses based on CRE data – estimates of multibillion‑dollar private investment in distributed generation in Mexico.