Leading the Charge in Mexico’s Renewable Energy Revolution

August 11 was an auspicious day for Mexico. Some seventy-six years after the government nationalized the country’s oil industry, President Enrique Peña Nieto signed into law an energy reform package that many are saying will have a transformative impact on the economy of Mexico. The landmark legislation, which will open Mexico’s oil and natural gas markets to foreign investment, also directs certain changes to the electricity sector that will require grid operator CENACE to procure generation from renewable resources.

Those companies involved in solar development throughout Mexico are poised to make enormous gains — companies like ILIOSS, a Mexico City-based solar developer, who on August 21 announced a $500 million partnership with Greenwood Energy to develop more than 250 MW of new PV projects throughout Mexico between now and 2017.

One of the premier developers of renewable energy in Mexico, ILIOSS will handle the development and operations angle by providing engineering, procurement, construction, operation and maintenance of rooftop PV systems. Greenwood Energy, which is the North and Latin American clean energy arm of the international corporation Libra Group, will oversee all financing. Once the installation has been completed, Greenwood Energy will also own the projects.

Mexican Energy Reform Paves Way for Expanded Solar Endeavors

ILIOSS, which is known for being the first commercial rooftop solar developer in Mexico, already has a development pipeline of more than 500 MW of solar PV in progress — 32 MW of which are currently being built on the rooftops of Mexico’s largest retail store chain, Soriana. David Arelle, CEO for ILIOSS, said recent Mexican energy reform played a significant role in enabling his company to move forward with plans to install solar PV on a more widespread commercial scale throughout his home country.

“Prior to the new energy law it was not legal to sell energy,” Arelle explained. “The only way to do it before was to install solar modules on your own rooftop and produce the energy for yourself.” Arelle said energy reform legislation has now made it possible for companies like his to leverage their expertise to install solar systems on rooftops and sell the energy back to users via long term Power Purchase Agreements, at a far less expensive rate than most are paying for traditional electricity in Mexico.

Although Greenwood Energy has established a wide footprint throughout the United States and Latin America through the development of numerous PV projects, its partnership with ILIOSS will be its first foray into the Mexican solar market. “We were looking for a partnership in Mexico because we believe Mexico is going to be the largest market for solar in all of Latin America,” said Greenwood Energy CEO Camilo Patrignani. “It was definitely a place we wanted to be.”

While the size and scope of the ILIOSS/Greenwood Energy partnership has been called “ambitious” in scale, Patrignani is optimistic that the two companies may just exceed their intended target. “I’m hoping the development is three times the planned amount,” Patrignani said. “It’s certainly not a small number, but we strongly believe we’re going to get there.” With the next several months set aside for the finalization of documentation necessary to proceed, Patrignani said he expects the first construction projects to begin in the first quarter of 2015.

The proposed 250 MW of installations will be spread out among a large number of individual projects, each with an average size of 500 kW per location. Patrignani said that higher end installations could include some 200 MW projects, adding, “We’re already working on developing one in that range.”

The Implications of Solar on the Economy of Mexico

With the energy reform announcement and the ILIOSS/Greenwood partnership announcement coming only ten days apart, attention has now turned to the potential impacts further expansion into solar will have on the economy of Mexico.

“I think the new law, which opens energy production to the private sector, is going to prove very important and result in a highly competitive market,” Arelle said, adding that the comparatively low cost of solar will bring vast improvements to the economic viability of businesses who adopt solar as their principal source of power generation.

Patrignani expanded on the implications of the reform, describing it as a “multi-dimensional influence” that will go far beyond the mere creation of construction jobs and monies saved by users. “It will create jobs in installations, operation, maintenance and manufacturing,” he said, “but beyond that it will also give Mexico much-needed energy security.”

Looking ahead, Patrignani pointed to potential opportunities for Mexico that mirror efforts currently underway in the Middle East among countries seeking to increase solar production as a way to increasing fossil fuel exports.

“Mexico is going to develop more oil and gas resources as a result of the reform,” Patrignani said, “and they may benefit from low prices for some time. But what if the country decides to export those resources instead, relying on a renewable energy source like solar? If you start thinking strategically, it provides innumerable benefits to the country and its citizens.”

Patrignani also noted the potential long term healthcare costs that he believes will come as a result of greatly decreased pollution, and a drastically improved quality of air and water.

Of Dollars and Pesos: The Challenges Ahead

The pursuit of solar in Mexico is young yet, and that fact leads to the likelihood the industry there may experience numerous growing pains as growth spurts are accommodated. While Patrignani sees the marketed option as one of the most highly visible challenges — “it will take some time for commercial industrial customers to feel comfortable around sourcing a good chunk of their energy needs from a solar farm,” he said — the issue of debt financing is one he believes will require some level of governmental intervention.

“One of the issues you have in Mexico is that most people want their PPA in local currency,” Patrignani said. “The problem is, the capital that is coming to invest in these projects is in U.S. dollars, so you have a bit of a mismatch in currency.” Patrignani said that further improvements are needed to make long term debt financing available at reasonable interest rates. “There should be some support from the government in terms of providing or facilitating or flattening the interest rate curve.”

Mexico: A New Frontier for Solar

Complexities aside, the abundance of natural resources in Mexico — aided by the far reaching commitment of its present administration — are serving to thrust the country into the global spotlight as ground zero for a welcome renaissance in the pursuit of renewable energy in Latin America.

“I think the Mexican market has a great solar resource that will make the PV installations very cost competitive,” Patrignani said. “We’re very bullish on how much this market’s going to grow, much as it did in the U.S. There’s no reason why it shouldn’t.”

Arelle, who is also a relative newcomer to the solar business with less than five years of experience under his belt, offered the following: “When I entered into this business, I asked the question: which part of Mexico works best for solar energy? The answer was simple: if solar works in Germany, it works anywhere in Mexico. Mexico is perfect for it.”

Lead image: Mexico flag via Shutterstock 

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Vince Font is a freelance journalist specializing in the fields of renewable energy, high tech, travel, and entertainment. Read his blog at www.vincefont.com or follow him on Twitter @vincefont.

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