Challenges remain for distributed generation in Mexico
The challenges facing distributed generation (DG) in Mexico include financing, uncertainty concerning tariffs and a lack of skilled labor for installation, according to panelists at a solar power conference in Mexico City.
"There's a real gap in DG financing in Mexico, although we are seeing a trend toward financing. We like financing [as opposed to buying upfront] because it promotes a culture of after-sales maintenance so that people's installations are taken care of," John Lefebvre, CEO of MySol Energy, said.
Uncertainty regarding tariff structures emerged as another obstacle for the growth of DG in Mexico.
"A lot of customers want guidance on volatility going forward and that's difficult to do when you have changing tariffs," James Holmes, CEO of One Sun, said.
"Costs have been displaced from one element to another within the tariffs, and we have to understand how stable they are," he added.
Mexico has the potential to install 19,780MW of DG from solar by 2030, according to the energy transition program, which was published in May last year as part of the energy reform's energy transition law, taking effect in December 2014. The law stipulates that 25% of power must be generated from renewable sources by 2018, 30% by 2021, 35% by 2024, 45% by 2036, and 60% by 2050.
Tariff structure is undergoing changes which also causes uncertainty, panelists agreed.
"The DAC [high electricity consumption] tariff will stay the way it is structured, but we have a lot of customers approaching us because they don't understand the consumption on their bills," Julian Willenbrock, co-founder and CEO of Enlight, said.
Lefebvre maintained that Mexico's tariff structure clouds the solar landscape. "There are now 17 different tariff regions across the country, so it is far more complicated [than it used to be]."
Arturo Gómez, VP of project finance at Buenavista Renewables, said Mexico is in a transition period and that we have yet to see the real cost of service.
He said the biggest challenge to DG growth in Mexico is the uncertainty surrounding tariffs and financial institutions' reluctance to enter the market.
"Development banks have been keen to fund solar portfolios, but we would like to see more of that," Gómez said.
"We don't know what the price will be for DG," Enlight's Willenbrock maintained.
In January, Mexican development bank Nacional Financiera (Nafin) created a commission to support medium-sized energy projects. The bank also signed a memorandum of understanding with the European Investment Bank (EIB) in March last year to finance projects aimed at combating climate change, and has previously financed renewable energy projects with the support of the Clean Technology Fund and the Inter-American Development Bank (IDB).
All panelists agreed that a trend toward financing is emerging in Mexico, although many customers, particularly more affluent ones, still purchase solar arrays in cash.
"Small commercial operations typically have no credit worthiness, so they are stuck and are not able to afford installations, but as the market grows we will see that happen, and a lot of our customers are looking to loans at 12-13%, which for the rest of the world is high but not for Mexico, and we are seeing a trend toward financing," One Sun's Holmes explained.
"The industry needs to find a way to drive policy to allow customers to monetize sales, otherwise that opportunity is going to be lost," he said.
The panelist also argued that while solar companies need to drive down costs to make the technology more accessible, this must not come at the expense of quality.
"The hyper obsession with the race to the bottom has to end, and the market will correct itself, but in our industry it's not about the cheapest costs but about providing the best, lasting technology," Holmes said.
"To keep costs down you need to keep soft costs low, and minimize customer acquisition costs. There's always going to be a lower C&I bid out there, but it's not about competing for cost but for quality," he added
Willenbrock highlighted the need for solar companies to follow-up by providing after-sales services.
"After-sales customer service and support is something that you don't see at many companies in Mexico, and therefore many customers who would latch onto solar will be hesitant," he said.
And while components costs are falling globally, the cost of permitting and regulatory approval also needs to drop. Moreover, the cost and lead-in time of installing workers must fall, MySol's Lefebvre said, as a lack of skilled labor for solar installation represents yet another challenge.
"The labor market for DG and C&I is non-existent in an emerging market, and you need to create and train a workforce," Holmes said.
"And we have to do that. Nobody is going to hand us a workforce, so you have to find local partners to do that. It's fundamental to develop the workforce and we have to absorb the costs of doing that. We cannot sit around and wait for the workforce to be created," he argued.
Willenbrock pointed out that, in other markets, solar installers can subcontract the workforce, but that is still not possible in Mexico.
More challenges include awareness and education to get the message about solar power's benefits to consumers.
"We need to get the message out on the benefits of solar and that is going to be the key struggle," Lefebvre said.
Subscribe to the leading business intelligence platform in Latin America with different tools for Providers, Contractors, Operators, Government, Legal, Financial and Insurance industries.
News in: Electric Power (Mexico)
‘In general terms, Latin America has a favorable investment climate’
BNamericas talks to Milton Cheng, global chair of international law firm Baker McKenzie.
How Mexico Pacific is advancing the US$14bn Saguaro Energía gas liquefaction plant
Country representative Alberto Alonzo tells BNamericas about the project, which also includes an 800km gas pipeline from Texas to Sonora.
Subscribe to Latin America’s most trusted business intelligence platform.
Other projects in: Electric Power (Mexico)
Get critical information about thousands of Electric Power projects in Latin America: what stages they're in, capex, related companies, contacts and more.
- Project: Divisional Offices.- León Zone - San Cristóbal Electrical Substation 115 kV RNT
- Current stage:
- Updated:
4 days ago
Other companies in: Electric Power (Mexico)
Get critical information about thousands of Electric Power companies in Latin America: their projects, contacts, shareholders, related news and more.
- Company: Acciona Energía México, S. de R.L. de C.V.  (Acciona Energía México)
-
Acciona Energía México is the local subsidiary of Spanish renewable energy operator Acciona's energy division. The company develops wind and photovoltaic projects, offering Engi...
- Company: Avanzia Instalaciones, S.A. de C.V.  (Grupo Avanzia)
-
Avanzia Instalaciones S.A. odeC.V. (Grupo Avanzia) is a Mexican subsidiary of Spanish company Cobra Instalaciones y Servicios S.A. (Grupo Cobra). It is dedicated to construction...
- Company: ICA Fluor, S. de R.L. de C.V.  (ICA Fluor)
-
ICA-Fluor Daniel, S. de R.L. de C.V. (ICA Fluor) is a JV formed in 1993 between Mexican engineering construction group ICA and US-based engineering, procurement, construction an...
- Company: Wind Pro, S. A. P. I. de C. V.
- Company: Axis Communications  (Axis LAC)
-
The description included in this profile was taken directly from an official source and has not been modified or edited by the BNamericas’ researchers. However, it may have been...
- Company: Negocios Renovables Inteligentes SA de CV  (Negocios Renovables Inteligentes)
-
Developer and construction company of small-scale photovoltaic generation plants (less than 500 kW in Mexico and less than 5 MW in LATAM).