Solar Energy Investment in Mexico

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This report provides a general overview of the electricity market in Mexico since the comprehensive Energy Reform, and describes opportunities for investors in the solar sector, by describing recent developments in the Mexican solar PV market, business models allowed under the new law, and general considerations for entering this fast-growing market.

The Energy Reform has created important opportunities, positioning Mexico as one of the most attractive markets for foreign investment among other emerging markets.

The photovoltaic sector in particular has generated high investment expectations, reflected in the results of the Long Term Auctions (LTA), in which solar energy projects had the largest participation in awarded contracts at very competitive prices.

Solar projects awarded in the first three long-term auctions will require investments estimated at around USD $ 6.2 billion2 for the next three years.

The new market structure includes a competitive wholesale electricity market (WEM), and opens the market to new business models where energy and associated products can be traded.

The most relevant business models identified and described in this report include: the long and medium-term auctions, Power Purchase Agreements (PPAs) with both public and private entities (including the Energy Service Companies (ESCO), models for Distributed Generation (DG) and on-site generation), the sale of energy and associated products in the Short-Term Market and the Clean Energy Certificates (CEC) market.

Each of these models has different advantages, disadvantages and risks that should be considered by investors when defining their market entry strategy.

The trading of Clean Energy Certificates (CEC) represents an additional opportunity for generators of solar energy to get additional revenue streams from their projects. The Ministry of Energy (SENER) establishes that suppliers and direct WEM participants must acquire a percentage of their total consumption in CEC.

Though distributed solar generation (DG) is still in it´s infancy in Mexico, the global rapid growth of the solar sector, and the related reduction in PV system costs have contributed to a fast growth in this sector in Mexico as well. This growth is expected to continue unabated, driven by net-metering and net-billing schemes that are particularly attractive in unsubsidized tariff consumers from the residential, commercial and industrial sectors.