Renewable energy is one of the most promising and dynamic sectors in the global energy landscape, as it offers multiple benefits for the environment, the economy, and society. Renewable energy sources, such as hydro, wind, solar, biomass, and geothermal, can help reduce greenhouse gas emissions, diversify energy supply, create jobs, and improve access to electricity. According to the International Renewable Energy Agency (IRENA), renewable energy accounted for 26.4% of the global electricity generation in 2020, and is expected to reach 50% by 2050.
Mexico is a country with a high potential and interest for renewable energy development, as it has abundant natural resources, a growing energy demand, and a supportive policy framework. According to SENER, Mexico’s renewable energy share in total primary energy supply was 9.6% in 2021, while its renewable energy share in electricity generation was 23.4% in the same year. The main sources of renewable energy in Mexico are hydro, wind, solar, biomass, and geothermal.
However, Mexico’s renewable energy sector also faces some challenges and barriers that need to be addressed and overcome. Some of these challenges are related to the effects of the COVID-19 pandemic, which has caused unprecedented disruptions and difficulties for both demand and supply sides. Other challenges are related to the regulatory and legal uncertainty that has been created by the policy changes proposed by President Andrés Manuel López Obrador (AMLO), who aims to reverse some of the key aspects of the previous energy reform of 2013 and strengthen the role and control of the state-owned companies, Pemex and CFE, over the oil, gas, and electricity markets.
In this blog post, we will review some of the main trends and opportunities for renewable energy development in Mexico in the coming years, as well as some of the strategies and actions that can be taken to overcome the existing challenges and risks.
The growing demand and interest from consumers
One of the trends that can boost renewable energy development in Mexico is the growing demand and interest from consumers, especially large industrial and commercial users, who are looking for cleaner and cheaper sources of electricity. According to CRE, the number of qualified users who can buy electricity from the wholesale market or from qualified suppliers increased by 28% in 2021 compared to 2020, reaching more than 1,600 users with a total demand of 18,600 MW. Many of these users are opting for renewable energy contracts or self-generation projects to reduce their carbon footprint and energy costs.
For example, Walmart de México y Centroamérica announced in June 2021 that it signed a long-term power purchase agreement (PPA) with Engie México to supply 100% of its electricity consumption from renewable sources by 2025. The PPA covers more than 2,400 stores and facilities across Mexico with a total capacity of 440 MW. Another example is Grupo Bimbo, which announced in July 2021 that it achieved its goal of using 100% renewable electricity for its operations in Mexico. The company has installed more than 100 solar rooftops on its facilities and has signed PPAs with Enel Green Power México for wind power generation.
These examples show that there is a strong market potential and opportunity for renewable energy development in Mexico, especially for wind and solar power, which have become more competitive and attractive than conventional sources. According to IRENA, the levelized cost of electricity (LCOE) of onshore wind in Mexico decreased by 46% between 2010 and 2019, while the LCOE of utility-scale solar PV decreased by 79% in the same period. These technologies can also offer flexibility and reliability to the grid, as well as environmental and social benefits.
The potential for regional integration and cooperation
Another trend that can enhance renewable energy development in Mexico is the potential for regional integration and cooperation with other countries, especially the US and Canada, under the framework of USMCA and other initiatives. According to SENER, Mexico has an interconnection capacity of 2,200 MW with the US and 400 MW with Guatemala and Belize. These interconnections allow Mexico to exchange electricity with its neighbors and benefit from the complementarity and diversity of their renewable energy resources. For example, Mexico can export solar power during the day and import wind power during the night from the US.
Moreover, there are several projects and plans to increase and improve the cross-border transmission infrastructure between Mexico and its partners. For instance, the proposed Chamizal transmission line would connect El Paso, Texas, with Ciudad Juárez, Chihuahua, with a capacity of 1,000 MW and a length of 7.5 km. The project is expected to be completed by 2023 and would facilitate the integration of renewable energy sources in both sides of the border. Another example is the proposed HVDC transmission line between Manitoba, Canada, and Minnesota, US, with a capacity of 2,000 MW and a length of 560 km. The project is expected to be completed by 2025 and would enable the export of hydro power from Canada to the US Midwest market.
These projects and plans show that there is a great opportunity and potential for regional integration and cooperation in renewable energy development in North America, which can bring multiple benefits for the environment, the economy, and the security of the region. According to a study by NREL, increasing the cross-border transmission capacity between Mexico and the US by 5 GW could reduce CO2 emissions by 8.5 million tons per year, lower electricity costs by $1.2 billion per year, and increase renewable energy penetration by 4.5% by 2030.
The strategies and actions to overcome the challenges and risks
However, renewable energy development in Mexico also faces some challenges and risks that need to be addressed and overcome. Some of these challenges are related to the regulatory and legal uncertainty that has been created by AMLO’s proposal to reform the constitution and reverse some of the previous energy reforms. This uncertainty has affected the confidence and expectations of private investors and developers, who have seen their projects delayed or canceled due to legal disputes, administrative obstacles, or political pressures. According to SENER, the total installed capacity of renewable energy projects under construction or in operation decreased by 18% in 2021 compared to 2020, reaching 9,800 MW.
To overcome this challenge, it is essential to maintain a clear and stable regulatory and legal framework that respects the rights and obligations of all parties involved in the renewable energy sector, as well as the commitments and agreements that Mexico has signed with its trade partners and international organizations. It is also important to foster a constructive dialogue and collaboration between the public and private sectors, as well as civil society and academia, to find common ground and solutions that can balance the interests and needs of all stakeholders.
Another challenge for renewable energy development in Mexico is the technical and operational integration of variable and intermittent sources into the grid. According to CENACE, the maximum penetration of renewable energy in Mexico’s electricity system was 43% in 2021, while the minimum was 4%. These variations pose challenges for grid stability, reliability, and security, as well as for market design, dispatch, and pricing. To address this challenge, Mexico needs to invest in grid infrastructure, storage technologies, demand response mechanisms, and smart grid solutions.
Some of these investments are already underway or planned for the near future. For example, CFE announced in June 2021 that it will invest $2.3 billion USD in transmission and distribution projects between 2021 and 2024. Some of these projects include the expansion of substations, transmission lines, and interconnections with other countries. Another example is the pilot project of CENACE and ENGIE to install a battery energy storage system (BESS) with a capacity of 10 MW/20 MWh in Baja California Sur. The project aims to improve grid reliability and resilience by providing frequency regulation services.
These investments show that there is a need and an opportunity for innovation and modernization of Mexico’s electricity grid, which can enable a higher integration of renewable energy sources. According to a study by IRENA, increasing Mexico’s renewable energy share to 46% by 2030 would require an additional investment of $110 billion USD in grid infrastructure, storage technologies, demand response mechanisms, and smart grid solutions. However, this investment would also generate multiple benefits for the environment, the economy, and society.
Conclusion
Renewable energy development is one of the most important and strategic sectors for Mexico’s energy transition and sustainable development. Renewable energy sources can offer multiple advantages for reducing greenhouse gas emissions, diversifying energy supply, creating jobs, and improving access to electricity. However, renewable energy development also faces some challenges and risks that need to be addressed and overcome. Some of these challenges are related to the regulatory and legal uncertainty created by AMLO’s policy changes. Other challenges are related to the technical and operational integration of variable and intermittent sources into the grid.
To overcome these challenges and seize the opportunities for renewable energy development in Mexico, it is essential to maintain a clear and stable regulatory and legal framework that respects the rights and obligations of all parties involved in the sector.