On August 11th, Mexican President Enrique Peña Nieto signed into law landmark energy reform legislation. While media coverage focused on the opening of the nation’s oil and gas sector to foreign companies eighty years after nationalization, the legislation also included a number of significant changes to the electricity sector.
Secondary legislation in the package includes a new independent role for grid operator CENACE, requirements to procure renewable energy, enables companies to directly sign electricity contracts with renewable energy generators, and mandates the creation of a system of renewable energy certificates.
Overall it’s going to be a positive thing for renewables energy generally, and for solar in particular, says GTM Research Solar Analyst Adam James. One of the main reasons that is the case is that generation will now be procured on a competitive basis. It’s going to be a liberalized market where solar developers can come in as independent power producers and develop projects.
Additionally, there is language in the law that allows for competition between clean energy sources in different geographic locations at the lowest cost. James says that while the exact form of that will be determined by regulatory agencies, he expects the creation of a reverse auction system.
There has been talk about a reverse auction mechanism, similar to what we’ve seen in California and other places in the United States. Those auctions should help ensure that solar is being procured in places where it is most needed, and where it will be most useful, and also at a cost that is affordable to consumers and is providing sufficient returns to investors.
He also expects a system with fixed-price power purchase agreements. The new legislation does not include the Small Power Producer Program, under which Mexican renewable energy producers were required to sell electricity at fluctuating prices based on a percentage of the spot price.
Not only is the final form of procurement yet to be determined, but this will take time. The new energy system as we think about it is not going to start being in place until early 2015, because this is a lot of things to change, notes James.
The slow pace of energy sector reform has driven down the GTM’s 2014 forecast for the Mexican solar market by around 150 MW. However, GTM still expects the nation to be the largest solar market in Latin America over the next five years. Mexico tops our list pretty conclusively as the best place in Latin America to do business as a solar developer," adds James.