Improving renewable energy policies. A brief study of distributed generation in Mexico vs the world

Ian de la Garza, Director of Finsolar: “While Mexico has made significant progress in promoting renewable energy and distributed generation (GD), exemplified by its continued growth of 30% over the past 3 years, in a comparative analysis with other countries, potential areas for policy improvement and innovation are uncovered. By drawing lessons from global best practices, Mexico has the opportunity to further refine its GD policies.”

JUNE 29, 2023

Finsolar stock image
Ian de la Garza, Managing Director at Finsolar

Distributed generation (GD) of renewable energy, a key player on the road to a greener future, represents the generation of electricity from renewable sources close to the point of use, as opposed to traditional centralized power plants. GD development is governed by several local and national policies aimed at overcoming regulatory and market barriers to its implementation.

Distributed generation policies around the world show unique characteristics that reflect the different circumstances and priorities of each country. This article offers a comparative analysis of these policies in Mexico with those of other regions of the world.

Current situation of GD in Mexico

In Mexico, regulation currently limits GD to a maximum of 0.5 MW, presenting a major hurdle for companies whose energy consumption often exceeds this limit. Consequently, this restriction hinders the expansion of their decarbonization strategies and the wider adoption of GD in Mexico. In the event that these companies are unable to generate power on-site, they are left to purchase renewable energy from the market, which usually results in less satisfactory offsets rather than outright reduction.

Net metering policies have been in place in Mexico since 2007. These policies allow customers to generate their own electricity and sell any surplus to the utility (Comisión Federal de Electricidad) at a predetermined price. By ensuring a predictable and competitive tariff for surplus energy, these policies encourage private investment in distributed renewable energy technologies.

Successful strategies to promote GD: a global comparison

Several countries have developed or refined more successful strategies to promote GD. For example, the United States has set state-specific limits ranging from 1 to 5.1 MW, significantly higher than Mexico’s current limit. The UK has set its even higher limit at 5MW. On the contrary, countries such as India do not impose explicit limits, but regulate according to feed-in tariffs.

The United States offers a wide range of programs that incentivize the adoption of renewable GD. Community solar energy programs offer a renewable energy alternative to traditional energy sources while offering financial and energy benefits derived from renewable energy systems. This type of approach fosters a sense of communal responsibility and empowerment in the shift towards renewable energy sources.

Image by Finsolar Stock image of finsolar

While Mexico has begun to launch community solar initiatives, none have been officially announced and appear to be preliminary steps towards this business model.

Third-party ownership legislation for renewable assets marks another important policy. This legislation diversifies the financing available for the residential sector, stimulating the expansion of deployment in this sector. Models such as solar leases or residential power purchase agreements can take advantage of more tax incentives than homeowners, substantially reducing the upfront costs of a solar energy system.

Globally, financial incentives and programs play a crucial role in promoting the adoption of renewable energy. These incentives include permit fee reductions, grant programs, loan programs, property-assessed clean energy financing, personal and corporate tax incentives (credits, deductions, and exemptions), property tax incentives, rebate programs, and sales tax incentives.

Mexico offers 100 percent accelerated depreciation over 1 year and local incentives, such as a 25 percent discount on the property tax offered by Mexico City. By comparison, the United States has an investment tax credit (ITC) of 30 percent and the production tax credit (PTC) of $0.0275/kWh for projects over 1 MW of AC.

Solar plant under the GD model in Guanajuato. Stock image from pv magazine

Interconnection policies, technical procedures and legal requirements for energy customers to connect their small-scale renewable energy projects to the electricity grid are essential to GD’s success. Mexico maintains a relatively simple interconnection process for GD, which has proven successful. In contrast, GD’s interconnection from Germany involves a comprehensive set of technical requirements and legal procedures that energy customers must navigate. These requirements often include extensive paperwork, rigorous network impact studies, and compliance with strict technical standards.

While Mexico has made significant progress in promoting renewable energy and GD, exemplified by its continued growth of 30 percent over the past three years, a comparative analysis with other countries uncovers potential areas for policy improvement and innovation. By drawing lessons from global best practices, Mexico has an opportunity to further refine its GD policies, thereby accelerating a more inclusive transition to renewable energy.

Looking ahead, experts predict a continued increase in GD worldwide. A 2023 report from Bloomberg New Energy Finance projects that GD will account for more than half of all energy production by 2050. In Mexico, the growth trajectory is expected to follow a similar pattern, particularly if the 0.5MW limit is addressed. There is also a growing trend towards microgrids, small-scale power grids that can operate independently, meaning a future in which communities can be fully self-sufficient in their energy production.

Call to Action: Overcoming Barriers and Accelerating the Transition to a Renewable Future in Mexico

The call to action is clear: policymakers must focus on mitigating existing barriers to the adoption of Distributed Generation (GD) in Mexico. Increasing the 0.5 MW limit, maintaining simple procedures and introducing additional fiscal/financial incentives are essential steps to achieve this. However, it’s not just lawmakers who have the power of a renewable future in Mexico. Businesses and the general public play a crucial role in this transition.

Today, there are a multitude of options available to facilitate the adoption of renewables, so it’s more of a decision than an investment. It’s about making a conscious choice for a sustainable future. With diverse financing options, technological advances, and government incentives, renewable energy adoption has never been more accessible. The decision to opt for solar energy or invest in other forms of renewable energy is not only environmentally responsible but also economically sensible.

The potential for a renewable future in Mexico remains largely untapped, and it is through these combined efforts that we can accelerate this transition. The shift to renewable energy isn’t just about meeting goals, it’s about creating a sustainable, economically vibrant and environmentally friendly future for all Mexicans.

The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.

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