What’s Wrong With Mexico’s Solar Plans?

What’s Wrong With Mexico’s Solar Plans?

Mexico, situated in one of the sunniest parts of the world with a strong manufacturing base and growing energy demand should have been among the leaders in the transition to renewable energy. However, the country has underperformed massively, perhaps even flowing under the radar of more intense global attention, as it pays lip service to its solar potential in particular. From 9 GW of installed capacity in 2022, it is expected to rise to only 14.5 GW by 2025, a 65% increase, but hardly what one would expect considering solar prices today and Mexico’s potential as a multi GW annual market.

In its last electricity development plan, for 2022 through 2036, the Mexican government pushed back the country’s previous commitment to generate 35% of its energy from renewable sources by 2024 by seven years. It now says that will only be possible by 2031. But it was not always so.

It was only relatively recently, that Mexico was seen as a shining light for solar potential. In 2017, Mexico was in the spotlight as  Italian firm Enel bid what was then a world-record low price for renewable energy in the country’s third such energy auction. Made possible due to the historical and sweeping energy reforms passed with broad support in Mexico in 2013, the Enel win was seen as a reversal of state support for state owned firms in the energy sector, something that was never going to work in the relatively new world of renewable energy, particularly solar, which is dominated by private sector players worldwide. But renewable capacity addition was done without any improvement in transmission infrastructure, making them the scapegoats when there was a massive power outage in the country.

Mexico Energy Mix

State owned oil firm PEMEX proved to be too powerful, and resourceful, eventually managing to reverse these reforms, to the detriment of renewable growth in the country. “Reforms’ in 2022 have shifted control of the power sector back to the state-run utility, the Federal Electricity Commission (CFE), and moved  the independent energy regulators back under the thumb of the state.  Worse, CFE would have at least 54 percent of the power market and would no longer have to dispatch the lowest cost power first, but instead would prioritize its own power generation. That has slowed down all utility scale projects, and plans for the country, even putting at risk completed renewable projects that await a generation permit now.

The only silver lining? Corporates and industries no longer willing to wait for better sense at the state level are pushing hard for Distributed solar capacity, even if it meets only a part of their energy needs.

Forecast to reach nearly 16,500 cumulative megawatts by 2036 under the best case scenario of the government’s own numbers, distributed solar is catching on fast, with a recent funding for Bright, a financier of such systems pointing to the strong investor interest. Backed by Hollywood actor Leonardo Di Caprio, Bright raised $31.5 million to support DG solar in Mexico.

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