Energy Procurement in Mexico

June 16, 2020

Businesses and other organizations use 76% of the energy produced in Mexico, and they are increasingly interested in procuring renewable energy. Over 1,500 firms already use renewables, and capacity keeps rising. Mexico reached over 24,000 MW of sustainable energy capacity in 2019. As the number of market participants rises and the depth of the market increases, renewable power becomes more reliable and cost-effective.

At the same time, a market with more depth can be more complex and intimidating for new entrants. Examining the market participants, analyzing the agreements available for off-site energy, and looking at on-site energy options are crucial for procuring renewable energy.

Market Participants

The market for renewable energy in Mexico has expanded dramatically, with 59 of the 100 most important companies in the country participating in renewable energy PPAs. Some of the most notable renewable purchase announcements include Walmart (250 MW), Grupo BAL (200 MW), and Coca-Cola FEMSA (200 MW).

While big purchases by well-known firms garner the most attention, other participants play significant roles in the Mexican renewable energy market. In December of 2019, there were already 340 qualified users, with another 53 in the process of becoming qualified users. Twenty-two non-supplier traders also help to maintain market liquidity.

There are 96 generators in the market, with 23 more scheduled to come online. For companies that want less direct dealings with generators, 51 qualified service suppliers were available, and 28 more were becoming qualified suppliers. For those with lower electricity demands, there were two basic suppliers in the market, with another one on the way.

Procuring Off-Site Energy

Businesses can obtain off-site renewable energy through power purchase agreements (PPAs). The power usually comes from the electrical grid in these arrangements, but Clean Energy Certificates (CELs) ensure that the additional power is ultimately derived from renewable sources.

There are several principal types of PPAs available to firms in Mexico. A virtual PPA is simply a financial arrangement between electricity consumers and producers. It is also possible for qualified users to make power purchase agreements directly with renewable generators, but they must manage their own power consumption.

Qualified users can sign PPAs with qualified service suppliers who will manage interactions between the user and the Wholesale Electrical Market (MEM). Finally, some firms still operate under self-supply PPAs, but these older and simpler direct purchase arrangements are being phased out.

Procuring On-Site Energy

On-site options are also available for firms that want power generation to take place at commercial or industrial locations. Although on-site energy generation requires far more involvement, it can reduce grid transmission costs. It may also help businesses avoid some of the regulatory uncertainty surrounding adding new renewable power sources to the grid.

There are two main ways to procure on-site power. Distributed generation is available for firms that require less than 500 kW, and net metering can improve the profitability of this arrangement. Local generation, which is also called isolated supply, places no limits on the amount of power. However, it is necessary to work out an agreement with a basic or qualified supplier to deal with surpluses and shortages of electricity.

Making the Transition to Renewables

Renewable energy offers businesses lower prices for energy and opportunities for improving brand perception as it relates to the environment and sustainability. Nearly 400 firms are already qualified users. However, there are more than 4,000 companies in Mexico that could potentially become qualified users.

Uncertainty in the market and lack of expertise related to specific options hold back too many firms from making commitments to sustainable power. Mexico Energy Partners can turn present adversity into an advantage by helping businesses to secure the lowest energy costs available in Mexico.

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