Mexico has been steadily growing its distributed generation (DG) of renewable power by boosting the number of green energy sources connected to DG systems across the country. We expect the development of DG systems in Mexico to deliver multiple benefits, including reducing greenhouse gas emissions, delivering electricity to rural communities, and decreasing the burden on the national grid system.
Distributed Generation Made Simple
Distributed generation (DG) is electricity that is produced from sources near the point of use, rather than from a centralized source such as a power plant. DG systems can provide power for a business, or form part of a microgrid – a smaller grid used to deliver electricity to a smaller area instead of accessing the national grid system.
DG can provide clean energy in areas where it’s traditionally difficult to deliver electricity, such as rural regions, as well as reduce electricity losses along transmission and distribution equipment.
Industrial and commercial DG can come from a wide variety of sources including combined heat and power systems, solar PV panels, wind, hydropower, and biomass combustion or cofiring.
DG in the Mexican Market
Mexico had 2,015 MW of distributed generation installed, predominantly solar, as of December 2021. The sector enjoyed an annual growth rate of 45% between 2020 and 2021 and installations have increased significantly over the last decade, up from just 62 MW in 2014.
By 2024, we expect to see an additional 2,336 MW of DG across the country, which would support the creation of 22,000 construction jobs and 1,000 jobs for operation and maintenance. In addition, the price of DG in Mexico is competitive at $0.085/w for systems between 250 and 500 kW enhancing its investment potential.
The benefits of Mexico’s DG are plentiful and include relief to the national grid system at peak demand times, cost-effective clean electricity delivery to rural regions, low energy costs for residential consumers and small and medium businesses, and a decrease in greenhouse gas emissions. Furthermore, when used alongside battery storage systems, DG can provide energy during power outages.
Ultimately, we expect the further development of Mexico’s DG to enhance education, health, and other social services, particularly in poorer and more rural regions of the country.
Potential for Growth
The U.S. DoE Mexico Clean Energy Report ran a variety of scenarios considering the potential for greater renewable energy deployment in Mexico. The High Accumulated Renewable Energy deployment (ARE+) scenario showed that a further 3,580 MW of renewable energy could be added if projects in less advanced stages of permitting and financing gain approval. In this model, solar power generation would increase from 4.4% to 10%, including DG projects, making it the second-largest single source of clean electricity.
We believe this scenario can be achieved with greater government support for renewable energy operations and DG projects. However, to meet this goal the government would need to reduce financial barriers to DG adoption, deploy greater financing for DG, and expand the 500-kW capacity limit for DG.
Our Outlook Remains Positive
While Mexico has come a long way in developing its distributed generation, we see significantly more potential for sectoral growth. Incorporating battery technology into solar DG projects can help enhance profitability through the storage of excess energy during high-production hours. For the country, more DG installations will also help relieve pressure on the national grid system as demand grows.