The weekend read: Mexico headed for a solar slowdown

From pv magazine 09/2020

In Mexico this year, around 14 large-scale solar projects are either set to be put into operation, in the latter stages of development, or they are still waiting to get the corresponding permits for the start of construction.

These projects, which comprise total investments close to $5 billion, would add around 4 GW of clean photovoltaic energy to the Mexican grid, the National Electricity System (SEN).

Mexico’s Federal Electricity Commission (CFE), is currently working to obtain the Environmental Impact Assessment (MIA) from the Secretariat of the Environment and Natural Resources (SEMARNAT) for their new solar PV plants Cerro Prieto I and II, with a total capacity of 350 MW. They will be constructed in Mexicali in the state of Baja California.

The investment, which is largely state-funded, will reach $7.7 billion. The first phase of Cerro Prieto is projected to be put into operation by 2023, and the second phase by 2029.

If it is carried out, it would pave the way for the most significant project built by CFE so far. According to the latest information released by the Mexican Solar Energy Association (Asolmex), there were 69 large-scale PV arrays in Mexico with a total installed capacity of 4.8 GW, as of July 2020.

Currently, Mexico has a total of 88 GW of installed capacity for electricity production, of which solar PV represents around 5.4%. When we add the installed capacity of distributed PV, which stands at 965 MW based on 129,893 interconnection contracts, total solar capacity in the country amounts to 5.76 GW.

One of the projects scheduled to be put into operation is the 30 MW Salsipuedes PV plant, located in San Luis Potosí. This project belongs to the company Gransolar (GRS), in collaboration with the investor Balam Fund. Telecommunications company AT&T is the offtaker.

The construction phase was completed toward the end of 2019, but it was not until last month that a commercial operations date (COD) was determined.

Among the plants waiting for a government decision regarding construction permits is the 200 MW La Araña plant, to be established in the state of Sonora with an investment of $883 million.

Magdalena I, developed by Enel Green Power Mexico, is also waiting for a decision. It is expected to have an initial capital investment of $656 million and would be established between the states of Hidalgo and Tlaxcala, while the Magdalena IV project is pending in the state of Hidalgo.

In November 2019, Enel also completed the construction of the 220 MW Magdalena II park, which was put into operation this year. It had an initial investment of $165 million.

On the other hand, the La Barca project of Vega Solar 10, which is a subsidiary of SunPower Corp. in Mexico, is waiting for a construction decision. It will be established in the state of Jalisco, and have an installed capacity of 200 MW, with a projected investment of $448 million.

Among projects that are already in the construction phase, we see the Guaymas plant in the state of Sonora, with a significant capacity of 500 MW and a capital expenditure of $475 million, coming from the company Proyecto Alternativa Energética de México.

This company is also in the construction phase of the Laborcilla park in Zacatecas, with a capacity that will reach 695 MW and a capital expenditure of $474 million.

The Palma Loca plant, built by Desarrollo de Fuerzas Renovables, will also be located in this region, with the collaboration of Rock Soil Ingeniería Geotérmica and Natural Environment. Palma Loca will have a capacity of 400 MW and a capital expenditure of around $419 million.

Solar PV projects that are now in the permit management phase also include the Guadalupe Saravia plants by Framor Solar Plant 2 and INERCO, to be built in Puebla. They will have an installed capacity of 250 MW and an upfront investment around $235 million.

Spanish developer Iberdrola also has a PV project in the process of permit approval in the same region. The Cuyoaco III project will have a capacity of 200 MW, and resources worth around $235 million are to be channeled.

Uncertain outlook

By June, the Energy Regulatory Commission (CRE) had received a total of 136 permits for electricity production through solar energy for the year 2021. However, the public policies of the current federal administration, essentially directed toward hindering private investment in renewable energy, have prompted most companies to drop new projects from their investment plans for Mexico.

In this sense, 80% of the 31 foreign companies that have investments in the solar sector in Mexico have acknowledged that the reliability policy issued by the Ministry of Energy – as well as the agreement to guarantee the efficiency of SEN, published by the National Center of Energy Control (Cenace) – have affected their business outlook in the country.

In early 2020, the large-scale solar segment warned that investments would be brought to a halt by the policies of the current federal government. Héctor Olea, president of Asolmex, affirmed that the investments already undertaken would continue in 2020, but they were no longer planning for any new projects.

“We have a lot of inertia; 2019 was a very good year and we hope 2020 will be the same, not because there are new projects being planned, but because of the projects that were developed two to three years ago, whose fruits we are now reaping,” Olea recently remarked on the sidelines of “The Present and Future of Renewable Energy in Mexico” forum, which was held on Feb. 19.

“The problem is that, if we are not developing new projects at this moment for 2022, 2023 and 2024, we are not going to have these results we mentioned at this time”, warned Olea, who serves as a representative for large-scale PV developers in the country.

Olea has long pointed out the legal uncertainty for investments in renewable energy. He cautions; “If there are no clear rules, even for the projects which are already in progress or if there is an effort being made to implement measures which affect existing investments. It is even less likely that we are going to see the conditions for investment and the certainty required by the developers to create new projects.”

Additional context

The energy sector policy of President Andrés Manuel López Obrador, who took office on Dec. 1, 2018 backed by more than 30 million votes, has proposed as its primary objective that Petróleos Mexicanos (Pemex) and the Federal Electricity Commission, the energy production corporations of the Mexican State, resume the leadership in the energy sector they used to hold.

However, both Mexico and the wider world have changed, and virtually all aspects of producing energy are radically different today compared to the end of the twentieth century. On cost alone, solar’s competitiveness is transforming electricity markets – particularly in countries blessed with ample sunshine.

Environmental and technology-related reasons, and, more importantly, those related to the health of the planet further justify this change. The Covid-19 pandemic has driven home this fact more dramatically than ever.

Mexico had a notable international position in the world of hydrocarbons in the 1980s and 1990s, and the ideology of López Obrador was formed within this context of energy production. Energy production was developed under the exclusive monopoly of the state, and was seen as a driving force of national development and the economy.

Today, in line with this vision, the president is reorienting the development of Pemex and CFE. According to multiple economic, financial and development indicators – both at the national and international level – these corporations were leading companies to a process of institutional weakening.

Experts indicate that Petróleos Mexicanos does not have a future and that CFE is barely surviving, having been deprived of its capacity of production and affected by limitations in the transmission and distribution networks.

The president seeks to introduce both these corporations to the current national dynamic, thus restoring the characteristics that marked them as old state monopolies.

Lopez Obrador had only recently declared his intention of not making a modification to the 2013 energy reforms, although when looking at the facts, it can be seen that efforts have been made to implement government actions that contradict his words.

However, with a memorandum directed by the president toward the regular bodies of the energy sector having been made public a few weeks ago, the possibility of a new reform would remain open in the second part of his presidential term, which would mark the period from September 2021 to September 2024.

This context has led to uncertainty in national and international investments within the renewable energy sector over the past 20 months, a period when the dynamics of energy production through renewable technologies under the operational guidance of private investment, a result of the energy reforms introduced six years ago, have slowed down.

The President has declared that the discovery of acts of corruption within the legislative power during the adoption of the reform has made him reconsider a possible constitutional reform regarding the matter, which he would like to propose to the federal legislative power.

The power of the sun and wind, which come together in Mexico as one of the top 10 countries in the world for the future production of safe and clean energy, will go through a wait-and-see period. But, sooner or later, the force of PV and wind power will need to be reintroduced in Mexico. Perhaps the president is not aware of that.