Mexico saw a rocky start to 2017 as riots erupted in response to a 20 percent increase in gasoline prices resulting from the elimination of subsidies and the introduction of a new tax (IEPS). Industry experts agree that energy subsidies are no longer sustainable -economically or environmentally- but their elimination must be done carefully to avoid social rejection. In the electricity terrain, the Mexican government might have just found the perfect way to decrease its energy subsidies’ spending without igniting protests: promoting distributed solar energy across Mexican homes and SMEs.
“Installing distributed solar energy equivalent to 1 percent of the country’s total installed capacity could save Mexico MX$1,500 million (US$70 million) every year in energy subsidies,” said Pedro Joaquín Coldwell, Minister of Energy, at the presentation of the Interconnection Manual for Generation Plants under 0.5MW in January, 10. “It could also save 680 million liters of water and prevent the emission of 1.3 million tons of CO2 per year.”
The manual, which establishes the technical and administrative guidelines that small-scale producers must follow to interconnect their systems to the grid, is expected to boost distributed generation in the country by easing administrative procedures – now narrowed to 18 days- and allowing producers to sell surplus energy through a registered supplier.
“With distributed generation and the help of these guidelines we expect to lower costs and promote clean energy generation in Mexico, two central objectives of the Energy Reform,” said César Hernández, Deputy Minister of Electricity, adding that distributed generation could potentially grow from 0.23 percent of the total installed capacity to 5 percent.
Although distributed generation includes several technologies, solar energy is the one that would mostly benefit from the new regulations due to the country’s great solar irradiation and the dropping cost of solar panels and related components. The installation of solar rooftop systems experienced a modest growth in the past years, particularly in the high-consumption domestic tariff (DAC) in which the cost per kilowatt-hour makes solar energy more competitive. But the introduction of net-billing and thus the possibility of selling electricity to the market might make solar competitive in several other segments although some challenges are also expected to appear. “Each kilowatt-hour costs MX$3.8 for high-consumption residential users (DAC) under CFE’s scheme and the electricity produced through solar panels would probably be bought at a lower price. Prosumers will then lose a certain amount in this transaction but they would still benefit from selling their surplus energy,” said Jaime Martínez, Director of Proyecto Terra as reported by El Financiero. “The new scheme might make the installation of solar systems profitable for users under Tariff 1, which includes 20 million users are registered while only 500,000 users are under the DAC tariff.”
The scale of the Mexican residential market has already attracted some big names from the solar energy industry, including California-based SolarCity, but the uncertainty in the regulations held back its development in 2016. The government’s announcement, however, might be the first step to unleashing its potential and bring about benefits to Mexican electricity users, the environment and public money spending.
To learn more about Mexico’s solar energy momentum attend to Mexico Energy Forum 2017 in Mexico City on February 15, 2017.