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News Article

Solar: Leading Source of the Energy Transition

By María José Goytia | Thu, 09/08/2022 - 18:29

Efforts to realize the clean energy transition place renewable energy at the center of the transformation. Among the available technological resources, solar energy stands out as the most accessible and competitive renewable energy source, positioning it as a major player in the global push for decarbonization.

As of July 2022, 74 percent of Mexico's energy matrix is fired by fossil fuels. Mexico remains highly dependent on natural gas, coal and fuel oil, government data has shown. While the share of solar has increased steadily over the past five years, it still has much growth potential ahead.

Solar power will account for 5.2 percent of the energy mix by the end of 2022. At the end of 2017, utility-scale solar plants had only 171MW of installed capacity. In 2019, the installed capacity had already reached 1,768MW. For solar-based distributed generation (DG), the yearly growth currently stands at 500MW.

"Varying estimates from public and private entities agree that solar energy will be at the center of Mexico's energy transition," said Nelson Delgado, President, the Mexican Solar Energy Association (ASOLMEX).

"Thanks to the commitment of more than 136 countries to achieve net zero by 2050, solar power production is experiencing an unprecedented momentum," said Armando Gomez, Country Manager, X-Elio. This mounting interest in solar energy is closely linked to the increased competitiveness of solar systems.}

"Solar energy has been improving its Levelized Cost of Energy (LCOE) owing to a constant investment in R&D, which has allowed it to become a more efficient and cost-effective technology," said Ivan Reyes, Sales Director LATAM, LONGi. The LCOE of solar energy has decreased 85 percent in the past decade, making it the currently cheapest source of electricity. In addition, solar technology is developing constantly, improving its attractivity further over time.

The fight against climate change is one against the clock, so decisive action must be taken quickly. Otherwise, the goal of containing the global temperature increase below 1.5°C remains out of reach. Therefore, 25 percent of climate change mitigation actions must occur within the next decade. A key part of strong action on climate goals is the migration to renewable energy. Here, solar power will be the protagonist, the experts agree.

Today, there are still significant barriers to the detonation of solar’s market potential. In terms of infrastructure, most grids were designed for traditional energy sources. "To realize the energy transition, we must foster a paradigm shift in which we transform and modernize our electricity grids to adapt them to the needs demanded by renewable energies," Gómez said. Likewise, the modification of regulatory frameworks will set the pace for the penetration of solar energy in the energy matrix.

The greater participation of solar energy in the energy matrix can help mitigate risks to sovereign energy security. The greater the share of solar energy, the lesser the need for fuel imports. However, countries must be aware of the vulnerability of the solar industry's supply chain, as it is concentrated in a single country and may be subject to geopolitical conflicts in the future.

China has the largest manufacturing capacity for the main inputs in the solar value chain. This includes everything from silicon production to solar panel manufacturing. "The concentration of control over the supply chain may make it difficult for solar to expand in the face of logistical disruptions such as the COVID-19 pandemic," Reyes added. Rising commodity prices will also be a factor to consider in the near-term push for the spread of solar technology.

Unlike large power plants, which are located in remote places and take up much space, DG involves small-scale power plants built so that their power is consumed on-site. This has the added value of reducing electricity transmission losses. "In Mexico, about 25 percent of solar generation comes from DG, equivalent to US$4 billion of investment," said David Macias, Manager of Smart Solutions, Iberdrola.

"DG defined by Mexican law is limited to 0.5MW. Anything beyond this capacity ceases to be DG regulation-wise, although it is still on-site generation," explained Macias. The advantage of DG in Mexico is that no permits are required for its implementation, as long as the famous 0.5MW-threshold is not breached.

To spur further DG-based solar development, Mexico must modify its regulatory framework in favor of greater DG capacity, however. Proposals to increase the cap to 1MW have floated around in Congress before. The issue has not yet materialized in serious discussions, but for many, the benefits are clear. Greater incorporation of DG can help reduce grid congestion and transmission losses over long distances. However, Mexico’s electricity infrastructure needs to be adapted to exploit these benefits.

"The DG boom must go hand in hand with investment in smart grids that facilitate the incorporation of these renewable flows into the grid," said Patricia Tatto, VP Americas, ATA Renewables. Smart grids make it possible to manage bi-directional electricity flows, injected by DG into the grid, which is not feasible through traditional, unidirectional grids.

"If these DG solutions are implemented correctly, the cost of energy for end users will be cheaper. In addition to the environmental factor, lower energy costs are always attractive to consumers," Tatto added.

In addition, there are gaps concerning the incorporation of storage as a complement to renewable power projects. "The faster these areas of opportunity are addressed, the faster Mexico will be able to move towards a successful energy transition," noted Macias.

The potential of solar energy as the backbone of the energy transition is undeniable. Mexico has a privileged position because it enjoys abundant solar radiation and can exploit this potential on any possible scale, from a single solar panel to multiple-GW solar parks. Improving regulatory frameworks and supporting infrastructure are the main challenges, however. Once this is taken care of, Mexico will be able to truly boost solar and drive its clean energy transition forward.

Photo by:   MBN
María José Goytia María José Goytia Journalist and Industry Analyst