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News Article

Solar DG Projects to Thrive in Mexico

By Antonio Gozain | Tue, 03/08/2022 - 14:36

Current developments in the Mexican energy sector have fostered major opportunity for the development of distributed generation (DG) projects. Factors such as a global push for sustainability and the country’s own excellent natural resources are key driving factors success, agreed solar industry experts, although several key challenges remain to be solved.

“Mexico is in a privileged situation, with the fifth highest solar radiation in the world. The DG industry is where we will see the biggest growth in renewable energy development. With relatively low installation costs, solar is a great, profitable investment. Solar-based DG is the future. Eventually, we will see panels in every roof across the country. The question is how to speed up this transition,” said Andres Friedman, CEO, Solfium.

The industry’s traditional power production paradigm is shifting. Rather than relying solely on the traditional centralized utility system, residential and C&I customers are installing DG systems, which employ small-scale technologies to produce on-site electricity below the 0.5MW permitting threshold. Solar DG will play an important role in helping to meet these energy needs and achieving environmental goals at the same time, on the condition that DG customers pay their fair share to keep the grid operating safely and reliably, reported the American Public Power Association.

The DG industry is at a crossroads, full of challenges and opportunities, said Enrique Garduño, CEO, Skysense. “Sustainability is increasingly driving company decisions. At the same time, global problems such as the Russia-Ukraine war encourage countries to aggressively invest in renewable energy to achieve independence in energy generation.” 

In 2019, Mexico surpassed the 1,000MW mark for installed DG capacity, which also includes a minimum percentage of other technologies outside of solar. By the end of 2021, the country reached 2,000MW, said Julian Willenbrock, CEO, Enlight. “It took us 12 years to reach the 1,000MW milestone and only two more to surpass the 2,000MW threshold.” The energy sector development plan PRODESEN forecasts that this current DG capacity will be doubled by 2025, he added. Only in 1H21, 246MW of DG were installed across Mexico, involving a total 31,860 contracts. Investment has surpassed US$3.2 billion, according to CRE. Jalisco, Nuevo Leon, the State of Mexico, Chihuahua and Mexico City are the leading DG states.

The focus of the DG industry has changed throughout the years, as well. While it originally aimed for the residential segment, bigger opportunity now looms in the C&I sector. The success of Mexico’s DG in Mexico is mainly driven by large C&I users, which need to understand how to tackle the benefits and risks that this type of generation project adds to their energy procurement portfolio, wrote María José Treviño, Country Manager, Acclaim Energy for MBN. The 2,000MW of DG installed capacity represents 2 percent of Mexico’s total generation, pointed out Carla Ortiz, Country Manager Mexico, RER Energy Group. “Although we have grown tremendously already, the space for further development is still huge. This is just starting. The C&I sector is already growing more than the residential segment.”

An example of  growing opportunity in C&I projects is that DG’s installed capacity grew in 2021 despite involving fewer contracts than in 2020, said Willenbrock. This suggests that larger, more profitable projects are constructed on average.

For C&I companies, DG solar is a crucial tool for both cost reduction and decarbonization. “Companies will lead the energy transition. Both in Mexico and globally, ESG is becoming crucial for companies. The context within Mexico is ideal for DG development. The country is privileged because of its solar energy resources, whereas the market is pressing toward cleaner energy in general. Companies can take advantage of DG’s potential when considering to decarbonize their entire value chain,” said Friedman.

As the Mexican energy market grapples with legal uncertainty due to the a new energy reform proposal, end users favor the unregulated and therefore de-risked DG industry. “The Mexican energy sector is living one of its worst times in terms of energy regulation. However, this problem is boosting DG, which will be one of the fastest-growing industries. Combining DG with other technologies, such as storage, could be the step toward bigger projects,” said Ricardo Zúñiga, Country Manager, CapWatt Mexico.

DG Industry Challenges

Although DG resources offer several benefits, they also involve challenges regarding operations, financing, engineering and sales, agreed the experts. These include external factors, such as costs of components and solar panels. Securing supply availability at both the best price and quality is challenging, said Willenbrock. “It is important to inform the client how our business is impacted by different global trends. Closing deals in an agile way is of the essence.” A main challenge within Mexico is talent, he added. “PV systems are not the same for residential use as they are for C&I. The engineering and technical expertise required is different and difficult to find.”

Engineering, installation and sales challenges are related to each other, said Ortiz, who added that the DG industry must become a more professional sector. “Clients are often confused. There is too much offer in the market. We need a standardization of processes, certifications and rigor at inspection units. Quality is crucial, especially in these times of growth,” she said.

Antonio Gozain Antonio Gozain Journalist and Industry Analyst