The development of Mexico’s solar sector will likely mirror that of its northern neighbor and other developed countries, but with location-specific characteristics and some unique obstacles. As Mexico’s wholesale power market launches, a clearer roadmap of the country’s solar development is emerging. However, there are market headwinds, speakers and panelists at GTM Research’s Solar Summit in Mexico City agreed.
And while important lessons can be learned from solar development elsewhere, Mexico faces some unique hurdles, summit attendees learned. Obstacles include a lack of awareness among potential customers of the benefits of switching to solar, a lack of capital among residents and access to financing for larger-scale projects, in addition to uncertainty as to how the nascent wholesale power market will play out.
Mexico’s solar growth is likely to be slower than in the U.S., which increased from a cumulative 2 GW in 2010 to around 26 GW by the end of 2015, with Mexico’s installed capacity currently at less than 1 GW and likely to only add around 2 to 3 GW by 2020. “On a comparative development timeline, Mexico is currently in 2004 in terms of U.S. installed capacity by that year, and is at the stage Germany was at 20 years ago“, GTM Research’s Shayle Kann said during the summit. At that time in the U.S., the fastest growth in the country was the commercial PV market, which hit 203 MW by 2009. But in Mexico, utility-scale solar is expected to lead growth, at least during the next decade.
Summit panelists identified policy and regulatory uncertainty as the biggest obstacles to the growth of utility-scale solar, followed by a lack of competitiveness and availability of capital. “Solar will have a hard time competing in Mexico over the next two or three years due to a lack of available capital,” according to panelist Pablo Otin, VP for emerging markets at 8minutenergy.
Compared to the U.S., where residential solar has now topped 2 GW and seen four straight years of 50% growth, residential solar in Mexico is likely to see the slowest growth, panelists agreed. A month-on-month drop in electricity prices by the CFE throughout 2015 has removed residents’ incentive for switching to solar. In addition, the installation outlay surpasses the average annual electricity bill, making developers’ customer acquisition work that much harder. “Residents are not yet convinced of the savings solar could offer“, Rogelio Nochebuena, Chief Operating Officer at renewables firm Servicios Ambientales de Baja California (SERAMBC), said during the summit. But as the market is deregulated and private firms bid for generation contracts in auctions, the first of which is slated for March 31, electricity prices are expected to rise, which will revive the incentive to convert to solar.
Panelists cited increasing retail electricity prices as the biggest driver of solar growth in Mexico, followed by increased access to capital and a revised tender process, with resource-specific auctions. “Let solar compete against itself and not against other energy sources,” said Marco Garcia, Chief Commercial Officer of California-based NEXTracker, which already builds components at its Mexico facility.
The solar content of the first auction has yet to be revealed, but panelists predicted solar would make up around 10% of the total projects up for grabs.
A lack of economic competitiveness was also cited as one of the biggest barriers to residential solar development in Mexico.
But Mexico is also an attractive solar manufacturing market, according to GTM Research SVP Shayle Kann. Solar component manufacturing is moving to domestic markets in other countries, and there is the potential for that to happen in Mexico, he said, citing the current 15% import tariff on panels as an incentive, in addition to Mexico’s proximity to the U.S., one of the world’s largest solar markets, which could become an export destination. “The country has enormous potential but lacks manufacturing clusters,” Nochebuena of SERAMBC said.
Panelists dialed down their optimism regarding how big a market share domestic manufacturers could secure in the short term. “You can only build a certain number of factories in five years,” Otin of 8minutenergy said, predicting that the percentage of domestic manufacturing would remain well below 25% by 2020.
Panelists were also conservative in their estimates of Mexico’s installed solar capacity by 2020, predicting that it is likely to total between 2 and 3 GW. But the ambition exists to surpass that amount, and the government is committed to ironing out the issues concerning regulation that are currently causing a project bottleneck, according to GTM Research senior solar market analyst Mohit Anand. “Despite all the challenges, solar is poised to be a key player in Mexico,” he said.
FuturENERGY was present at Solar Summit Mexico, an event at which, apart from distributing copies of the magazine that attendees were able to collect from the registration desks, FuturENERGY also enjoyed direct participation thanks to the presence of our Mexico delegate, Gloria Ortiz, whose meetings with different companies provided us with a first-hand opportunity to take stock of the Mexican solar market.
The photo shows Gloria with Héctor Olea, President of Asolmex and the CEO of Gauss Energía.