Private Sector Investment Powering Mexico Solar Energy Sector

more+
less-

After the failure of subsidies in driving the solar markets of Spain, Italy and the Czech Republic, Mexico and a number of Latin American countries are planning to ensure the growth of their renewable markets through private sector investments.

Mexico is currently highly dependent on its fossil fuels, which is why the government of President Enrique Peña Nieto has initiated energy reforms that open up the previously closed energy sector to private and foreign investors. However, Mexico is just as invested in its renewable energy sector, which is why its energy ministry “Secretaria de Energía” (SENER) is focused on researching and developing renewable energy sources.

Solar energy combined with wind energy make up 0.01% of the 7% renewable energy used in Mexico. However, solar energy is expected to thrive in the North American country. In 2012, Northern Mexico displayed the world’s third largest solar insulation potential at 5 kWh/m2 per day. As the country’s resources are 60% more than Germany’s, Mexico only needs to develop 1% of its land to power the entire nation.

Author of GTM Research’s Latin America PV Playbook Adam James has high hopes as he believes Mexico to be an emerging “hotbed for solar deployment in Latin America”. He writes that Mexico’s current solar energy market is very much like that of California six years ago; despite big promises that didn’t materialise in the past, business strategies that reflect the reality of the sector can help in expanding solar operations in the renewable energy industry.

However, there are some hurdles in the way of Mexico’s bright solar energy sector. One of these is Mexico’s utility monopoly and its insistence on keeping projects small in scale (up to 20 MW). Managing Director of the North American Development Bank (NADB) Geronimo Gutierrez pointed out, “You need [utility] co-operation if you are going to do utility-scale projects.”

This won’t be an issue for long apparently as the Comision Federal de Electricidad (CFE), which owns and operates most power plants in the country, has been partnering with independent power producers. CFE signed a power purchase agreement with Sonora Energy Group to obtain 46.8 MW while Martifer plans to initiate a 30 MW merchant solar project with the electricity provider.

Another obstacle in the sector’s growth is the Mexican solar market’s lack of expertise when it comes to project development and financing. Though NADB has been helping solar energy agencies to improve, finding projects and power purchase agreements has been difficult. “Since we are a public development bank, we accompany projects more than a traditional bank – meaning that we, to some extent, put the project together, especially when there is no well-developed expertise in the sponsors,” said Gutierrez.

Regardless, the future of Mexico’s solar energy sector is quite bright. Due to legislation to reduce carbon emissions by 30% come 2020 and a National Energy Strategy to develop 6 GW of solar energy by that time, GTM expects installations to grow from 60 MW to 240 MW in 2014.

Topics:  Energy, Foreign Investment, Latin America, Mexico, Oil & Gas, Private Utility, Renewable Energy, Solar Energy, Wind Power

Published In: Energy & Utilities Updates, Environmental Updates, Finance & Banking Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Alberto Esenaro, Alberto Esenaro | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »