The risks of Mexico's new distributed generation rules

Bnamericas Published: Tuesday, November 22, 2022

Mexico's new proposal to overhaul its distributed generation regulation has raised some alerts in the industry due to the proposed changes to the compensation regime and the way some generators are classified.

The proposal, which is up for industry consultation on regulatory improvement commission Conamer's website, has received many comments by users and distributed generation developers pointing at what they say are some of its vague or unclear aspects.

But the key point of contention relates to how new generators will be compensated. Under the current rules, distributed generation users can opt between net metering and net billing schemes. Net metering has faced criticism because it can disadvantage the power utility, as the expensive night-time power it provides is cancelled out by the cheap daytime energy injected by solar panels.

The regulation thus limits access to net metering to only encompass low-voltage projects below 50kW capacity, although the limit is not retroactive. Above that, projects will be classified as mid-tension and only be able to access net billing, said Susana Cazorla, a partner at Mexico City consultancy SICEnrgy.

"This year, we've seen mid-voltage projects grow by 50%, and these are seeing some new roadblocks," Cazorla told BNamericas. "It could reduce the speed at which these projects are being developed."

Although the expert listed many positives of the new regulation, including tighter schedules for permitting, better security precautions and faster response times by regulators and grid coordinator Cenace, she added the most concerning aspect was a new price-setting mechanism known as contraprestación.

Net metering projects are "being set a value [for their energy injections] that is very complicated and is based on a market average that reflects big projects. It has a transmission aspect, a basic services aspect ... and is generating a lot of reactions due to its ... complexity," Cazorla said.

"We encourage [regulator] CRE to separate the value of the compensation from the generation costs of the long-term [renewables] auctions, since that would tie it to a price at scale for basic supply, which has economies of scale and 20-year supply contracts with [state power company] CFE," wrote developer Kiwapower in response to the regulatory proposal.

If the price is set too low, the new calculation could delay the time period in which a distributed generation project recoups its investment, Cazorla added. "This is the main risk, that it could slow down one of the two current sources of [renewables growth]: isolated supply and distributed generation."

Distributed generation is one of the few sectors in Mexico dominated by renewables that is growing at a faster rate than previous years. The country's five-year plan for the energy sector, known as Prodesen, expects 700MW of new distributed generation capacity to enter the system this year.

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