Solar Players Look Ahead as Mexico Charts New Energy Course

Q: Atlas has built a strong portfolio across Latin America, but how does Mexico fit into the company’s long-term strategic vision, especially amid current regulatory and political shifts?

A: We see Mexico as a country with a very large industrial and consumer sector with the need to decarbonize. The country has a strong demand, high energy prices, and strong potential to develop renewable energy projects. 

The government has set the goal of achieving 45% clean energy by 2030, and this requires a significant increase in renewable capacity. To allow this, the country’s grid needs to be expanded and upgraded to increase the system’s reliability, which it could accomplish by deploying battery energy storage systems (BESS). Thanks to Atlas Renewable Energy’s work with BESS in Chile, as well as our lessons learned from the regulations there, we are in a strong position to leverage these experiences, business models, and contract structures in Mexico and to build strong partnerships with the Federal Electricity Commission, Secretariat of Energy (SENER), and private industrial and consumer offtakers.

Q: How is Atlas approaching battery storage in Mexico? Are you actively integrating storage into your current or future projects to address intermittency or provide added grid value?

A: We have two operational PV plants in Mexico, one in Campeche, 445 MWdc, and one in Hidalgo, 129 MWdc, both fully contracted with CFE.  

Our projects do not require BESS, since they were permitted before the new law. That said, we could expand them by adding BESS to absorb capacity and higher pricing during peak demand hours of the day. To do this, we need to update both projects’ interconnection and generation permits and contract the capacity in another PPA. 

We also have a 2.5 GW greenfield pipeline in Mexico, mainly focused on the southeast, central, western, and northeastern regions - very close to load centers and offtakers. This pipeline includes about 30% storage with project sizes ranging from 80 MW plus storage to 250 MW. Some projects have 100% storage, based on the 24/7 renewable energy configuration we are using in Chile. However, we need to understand Mexico’s final BESS regulations to confirm these configurations. The commercial structures we are considering include financial PPAs, pay-as-produced models, tiered PPAs (with baseload and profile guarantees), and build-own-operate-transfer structures (BOOTS) with both private offtakers and CFE.

At Atlas, we want to maximize storage to increase the reliability of our projects connected to the CFE grid, offering attractive 24/7 renewable energy while maximizing captured capacity and energy spread. 

BESS helps commercial and industrial (C&I) offtakers decarbonize their operations by using renewable energy during peak demand hours. We want to change the idea that reliability requires fossil fuels, e.g. natural gas. 

Solar-plus-storage and standalone BESS can offer rapid response solutions to cover peak demand hours with very high-capacity capture rates, especially considering that the country’s new BESS regulation grants firm capacity designation to BESS projects that can deliver power for more than 3 hours.

 We are also developing behind-the-meter (BTM) solutions, allowing our projects to avoid capacity charges and shift demand to off-peak hours.

Q: Atlas is known for working together with host communities around its projects. What are some of the company’s initiatives that contribute to the communities of Hidalgo and Campeche? 

A: We at Atlas firmly believe that the energy transition must be inclusive, equitable, and have a positive social impact. That is why we seek to contribute to regional development and well-being, aligning our sustainability strategy with the UN Sustainable Development Goals (SDGs) and the Mexican government’s vision for a sustainable, just, and sovereign energy model, which includes a deep commitment to our host communities in Mexico. 

We always seek to ensure the benefits of our projects and generated energy tangibly reach the communities where we operate. Since 2017, Atlas has invested over US$5 million in social and environmental programs across the country, directly benefiting more than 4,500 people. One of our key strengths is our focus on hiring local labor. Between 60% and 80% of project personnel come from local communities.

Beyond the social benefits, we have avoided the emission of over 500,000 tons of CO₂ into the atmosphere, equivalent to the carbon capture capacity of approximately three billion trees, since the start of operations of our solar power plants in Mexico, contributing significantly to national climate change mitigation goals.

Atlas is ready to continue collaborating with authorities, communities, and strategic allies to build an energy grid that ensures economic development and well-being for everyone.

Q: How is the Mexican government reshaping the energy market, and what opportunities or challenges does this create for private sector participation in renewable energy and storage projects?
A: The Mexican government is reshaping the electricity market to secure state rectory and planning.

They are developing an interesting market concept, using merit-based economic dispatch to secure energy competitiveness, but at the same time, they want to enhance reliability and advance the energy transition by promoting BESS and renewables. It is key to plan the electricity system’s expansion in order to avoid imbalances between supply and demand or congested transmission corridors that could trigger curtailments and impact project financial health. 

As we understand it, this new market design has two goals: First, advance the energy transition toward low-carbon sources like renewables; and second, create a more reliable electricity system. These goals do not always pull in the same direction, and that is the government’s big challenge. Energy must be affordable, clean, and reliable. These goals can be achieved in the short and medium term by including BESS; allowing more renewable generation; reducing congestion in transmission corridors; and displacing expensive fossil fuel energy during peak demand, especially in the peninsulas where we are talking about liquid fuels.

Right now, the government is paving the road for private participation through long-term structures like staged investment projects or tolling agreements. Then there are mixed structures, where the government holds 54% of a joint venture and private players 46%. 

These partnerships allow us to implement creative commercial structures. For example, the government can contribute in-kind or with equity, the private sector can use shareholder loan structures to finance the 54%, and the projects can use a BOOTS structure to transfer asset ownership at a certain point in time. One very important aspect to keep in mind is not overshooting CFE´s debt ceiling. Every structure must be adapted to maintain this. 

Q: What unique opportunities does Mexico offer for renewable energy investment compared to other Latin American markets, whether in terms of resource potential, industrial demand, or evolving regulation?

A: For a long time, we at Atlas have seen Mexico’s potential for renewable energy investment as being very high (as compared to countries like Brazil or Chile that already have a very high percentage of renewables in their energy mixes). Now that the state is guiding expansion and defining where and which sources of energy are required, this has become a significant opportunity for growth, not only for Atlas, which can leverage the lessons learned in Brazil and Chile to work more efficiently here, but for Mexico’s overall journey toward decarbonization. However, the urgent need is clear, we must move swiftly to implement viable solutions and work toward finalizing the regulatory framework.