The Aztec creation myth is founded on the story of the Five Suns. Before our present Universe, there had been four other worlds, or “suns,” which had been destroyed by battling deities. In our fifth and present world, Aztecs, whose civilization flourished in what is now modern Mexico, considered themselves “people of the sun.”
600 years later, Mexico is facing an energy problem. A growing population and an expanding middle class are driving energy demand to increase 4% per year. Mexico has a 60 GW energy demand, but that number will expand to 110 GW by 2024. And they want to solve this dreary problem with renewables.
Mexico’s energy market has been monopolized for years by Mexico’s state utility company Comisión Federal Electricidad (CFE), leaving private renewable development in legal shadows. But new legislation is set to shine green lights on Mexico’s renewable energy sector. The government has set ambitious goals for 30% of Mexico’s energy capacity to be renewable by 2024. This legislation also requires CFE to purchase clean energy before any other energy sources.
This new legislation is bolstered by an already luminous clean energy regulatory framework. Mexico has progressive programs like Virtual Net Metering, that are still nascent in even the most advanced U.S. markets. A large driver of renewable development is Mexico’s self-supply scheme. This allows businesses to enter into purchasing agreements with energy systems that aren’t physically connected to them. For example, a department store in Mexico City could buy energy from a new solar plant in Baja California Sur. Rodger Evans, chief researcher of the federal Alternative, Renewable, and Sustainable Energy Laboratory (LEARS) says “Allowing several businesses to be part of a buy-in has the appearance of being more secure: It is not on your roof, and you don’t have to maintain it. This is the real beauty for a business owner with these systems. The bureaucratic and technical issues are taken care of by your buy-in partner, and there is no need to change any of the installations on your business.” The alleviation of risk provided by the self-supply scheme creates a brighter climate for solar development in Mexico.
While it may seem that Mexico’s government deserves a gold star for their support of clean energy, the development will actually be driven by ripe market dynamics. Mexico’s energy prices, determined by CFE, are gloomily high and continue to grow 8-10% each year. For sunny Mexico, this means that solar has already reached grid parity in many regions. So renewables won’t be selling “green” with massive government support, but instead provide a more economical option to meet Mexico’s growing energy demand. In fact, the Mexican government isn’t providing any subsidies for solar energy development, besides a tax depreciation.
Energy is especially expensive for businesses. While household energy is subsidized up to 80%, businesses pay for 65% of the total energy in the country. This makes investments in cheap, renewable energy especially desirable. Wind developers have been taking advantage of this for years, making Mexico one of the largest wind power markets in the world. As the future of wind tax credits becomes increasingly unstable in the U.S., Mexico will continue to be a desirable location for wind development. Large plans are already in place, with a new 100 MW plant in central mexico scheduled for completion by 2015. Mexico has set a target to increase its wind production capacity by 600% by 2022.
To meet its ambitious renewable goals, CFE and the Mexican government have begun developing strategic partnerships with private companies. The development of these partnerships was announced at the inauguration of 30 MW Aura Solar I plant in Baja California Sur earlier this year. The Baja California plant will provide power to an estimated 160,000 households, and is the first solar plant in Mexico to exhibit a Power Purchase Agreement between the CFE and a private company.
These partnerships also extend across the border to the north. California Governor Jerry Brown and Mexico’s Secretary of Energy Pedro Joaquin Caldwell signed a bi-lateral pact to share investments in clean energy on July 29. Governor Brown also signed a “memorandum of understanding” that the two governments will work together on various environmental and climatological challenges.
These strategic partnerships will rapidly accelerate renewable growth in the world’s 12th largest economy. Mexico’s governing body – Secretaría de Energía (SENER), SENER says Mexico should have 6 GW of solar installed by 2020. At present, less than 1% of that is installed. With these dazzling new developments, Mexico is showing the world that they will once again be “people of the sun.”