Solar power to take Mexico by storm

Apr 06, 2016, 12:26 PM EDT
Solar panels
(Source: Corrugate - Own work, CC BY-SA 3.0/wikicommons)

After a slow start, solar power is poised for a boom in sunny Mexico. On Tuesday the consultancy GTM Research revised its forecast for Mexico’s solar capacity growth this year from 267% to 521%. The upgrade was due to the country’s very successful clean energy auction last week in which 11 PV contracts were awarded, with a collective capacity of 1,860MW. (Separately on Tuesday the firm Canadian Solar also announced that it won a 63MW solar project in Mexico.)

The contractual prices for electricity were also fairly low compared to other countries around the world, meaning this boom will be even better for consumers once the panels become operational. The average price of the 11 auctioned contracts was $50.7 per MW/hr, with the larger projects anticipating economies of scale and thus accepting lower prices. $35.44 per MW/hr was the lowest rate awarded (to a 427MW project by Enel), while for comparison the lowest solar power purchasing agreement prices in Peru and India have been $47.98 and $71, respectively, according to GTM Research.

That said, Mexico’s base of solar capacity is still relatively small and new. It currently has 246MW installed, of which 104MW were put in last year. (Only half are utility-scale projects, so solar has not yet been a major contributor to Mexico’s national grid.)

On the other end of the spectrum, 2015 was the biggest-ever year for solar in the U.S., which installed another 7,260MW to reach a total capacity of 27,400MW. And the U.S. solar industry is set to more than double that amount of installed capacity this year.

But Mexico is just getting started. While the March auction was a hit, it didn’t quite cover all of the state utility’s demand, so another will be held this month for the remainder. And the country means business about execution, with completion deadlines set between January and March 2018, and penalties for delays. Even so, GTM Research wrote “We are already expecting that at least 300 megawatts from this auction could get delayed and spill over into late 2018.” 

Nevertheless, Mexico’s solar industry is on an upward and accelerating trajectory. It has many attractive qualities for developers, including low labor costs, ample sunshine, a stable economy, and state backing. In light of the government’s goal to increase the share of electricity generated from renewables from 25% now to 35% by 2024 and 45% by 2036, the market for additional solar capacity could reach 4,000-6,000MW annually by 2030.

Mexico’s opening up of its hydrocarbon industry to foreign participation has been a disappointment, coinciding with the plunge in oil prices. The smart play is now competitively-priced solar investment.

For more on renewable energy, check out the 2015 BCLS panel, Sustainable solutions to the global energy crisis.