On the cusp of a political transition, Mexico’s thriving but infant solar industry is wondering if the sun will continue shining bright on the country’s solar market under President-elect López Obrador’s administration. To provide insight over the future of solar power, Mexico Energy Review and Mexico Business Events invited Héctor Olea, President of ASOLMEX, to be the key speaker at their exclusive networking cocktail, “Navigating Opportunities in Mexico’s PV market,” held at Reforma 180 in Mexico City on Oct. 17, 2018 and sponsored by Array Technologies.
“It is a fundamental priority for the new administration to consider renewable energy as part of the energy mix Mexico is targeting to effectively deepen the country’s new generation portfolio. This diversification implies distancing the country’s energy mix from fuel oil, diesel, coal and replacing these energy sources with renewable energy as a viable, competitive option,” said Olea.
In front of more than 100 attendees, including renewable energy project developers, distributed generation firms, EPC companies, IPPs, off-takers and qualified suppliers, Olea said that ASOLMEX’s short-term efforts would focus on helping the new administration to grasp renewable energy not as an experimental, laboratory technology but rather as a mature, proven and viable power generation option. “We want it to trust and rely on the institutional arrangement that sustains the country’s new energy model and the positive results it showcases, including but not limited to the sizable investment flows generated from the long-term electricity auctions.” Olea also said that the López Obrador’s transition team was keeping an open-door policy. “The new administration is open to receiving, exchanging and collaborating with the industry to learn from these new developments. It is critical that in the first months of the new administration the authorities reaffirm the continuity of Mexico’s energy transition.”
STRENGTHENING CRE AND CENACE
As key players in the implementation of Mexico’s new energy model, CRE and CENACE were fundamental in creating an environment of trust and certainty for energy businesses to bloom and secure the success of the long-term electricity auctions, Olea said. “CRE’s regulatory moves to set the standards and unlock Mexico’s energy market and CENACE’s role as system operator and administrator are the centerpiece of the county’s soaring numbers of renewable energy projects and the market’s competitiveness.”
In 2013, Mexico witnessed the inauguration of the first solar PV utility-scale project in La Paz, Baja California. Yet, the expected domino effect in terms of a multiplication of PV projects based on this success story did not happen until 2015. “In that period, the Energy Reform was being implemented, the rules of the game were changing and investors were uncertain as to whether the new energy model would result in a solid business case for renewable energy. A comparable phenomenon could be observed within the next administration’s term should the regulatory framework be sought to change and provoke investor uncertainty. Rather, the regulatory framework of Mexico’s new energy model should be strengthened to encourage the organic growth of the country’s energy industry, paving the way toward an increasing number of bilateral PPAs and full-merchant projects,” Olea said.
As an example of the success of Mexico’s new energy model, Olea pointed out that as of September 2018, 32 utility-scale projects are in commercial operation, injecting renewable energy to Mexico’s grid on a daily basis, in addition to 500MW of installed capacity throughout the country in distributed generation projects. This is but a taste of what continuity and regulatory certainty can bring about in the growth of renewable energy in Mexico’s energy mix, he said.
LONG-TERM ELECTRICITY AUCTIONS
It is no secret that Mexico’s long-term electricity auctions have showcased tremendous levels of competitiveness, as its ever-decreasing MWh+CELs package prices show. “Despite the perceived thin margins of developing utility-scale projects under long-term electricity auction conditions, projects are concluding and successfully reaching operational phase. To date, Mexico has eight projects from the first and second long-term electricity auctions in operation. While there have been some delays in the development phases of certain projects, these are unrelated to the competitive pricing packages offered and are on their way to being solved,” Olea said.
Competition and openness is always better in any industry and renewable energy is not the exception, Olea added. “There is a market for every profile, both in terms of projects and market participants. The ultimate beneficiary in the growth of Mexico’s renewable energy market is the final user. CFE has never purchased energy as cost-effective as that generated by long-term electricity auction projects. This aggressive pricing fosters the gradual removal of electricity subsidies, which in turn generates healthier finances for the federal budget, enabling the reallocation of these savings to social programs and policies.”
PREPARING MEXICO FOR ENERGY STORAGE
Olea identified the decreasing costs of PV system components as the first technological wave of solar PV technology. “Modules and inverters have witnessed a steady 70 percent cost reduction since 2013. The second wave is battery-based energy storage. It is a proven technology in other markets and has shown its scalability to utility-scale projects,” he said.
Gauss Energía is putting the final touches on Mexico’s first utility-scale solar PV project, including a large-scale lithium-ion storage solution, with an installed capacity of 10MW. “It will enable the development of PV energy in locations where transmission infrastructure is lacking, effectively solving intermittency and infrastructure issues in one swoop,” Olea said. All that is needed is to prepare the required regulation to enable the monetization of the technology. “It is difficult to include energy storage in PV projects as a new industry standard given the lack of regulatory conditions to allow monetizing this asset,” Olea said.