An Overview of Solar Bonds in Mexico

April 19, 2022

Solar bonds are issued by governments to provide financing for renewable energy projects. Bond financing is offered to residents or businesses so they can invest in solar energy and repay the bond financing through their monthly electric bills. These types of bonds can help to encourage the faster development of renewable energy projects, as seen in cities such as San Francisco in the United States.

At present, Mexican energy is highly subsidized by the Government of Mexico (GoM). People pay around 70% of the true cost of electricity thanks to Mexico’s current national energy policies. However, the cost of maintaining this subsidy has made public investment in renewable energy developments less attractive. Mexico spends roughly $6 billion annually on electricity subsidies.

The Development of a Solar Bond Scheme in Mexico

Recently, a climate advocacy NGO called the Mexican Climate Initiative (ICM) developed a solar bond program to use a percentage of the money from the electric subsidy program to invest in solar energy projects. The funds are used to purchase solar photovoltaic (PV) modules to be installed on the rooftops of residential houses, particularly in heavily subsidized areas.

We expect that this will help redesign Mexico’s existing electricity structure by allowing the state-owned Federal Electricity Commission (CFE) to increase its solar power generation to make the organization profitable in the long-term. CFE will use the solar bond scheme to install PV systems in residential areas, providing users with enough electricity to meet their needs and sending excess electricity back to the grid.

Lower Costs and Lower Greenhouse Gas Emissions

We expect this program to lead to lower costs for the user as well as lower subsidy costs for CFE. As more PV systems are installed, it will stop the reliance on the production of electricity using fossil fuels, offering a cleaner and cheaper long-term alternative. Ultimately, this could help the GoM stop its subsidy scheme altogether to invest in other renewable energy technologies.

Studies suggest that the development of the solar bond program could help to reduce Mexico’s carbon emissions by up to 22.8 million tonnes per year. In addition, the scheme would help to create 37,000 new jobs in the solar energy sector over the next 15 years.

At present, the UK PACT (Partnering for Accelerated Climate Transitions) program is funding a pilot project to see how feasible the bond scheme is in practice. Phase one of the two-year project will provide PV systems to 635 households. If successful, the project could produce 1,690MW of solar capacity through the installation of 25,000 solar panels over 15 years, at an estimated cost of roughly $320 million.

A Positive Outlook for Solar Bonds in Mexico

We expect the introduction of a country-wide solar bond scheme to support Mexico’s long-term energy security. The program will also help Mexico transition away from fossil fuels, cutting the country’s carbon emissions substantially. 

Our positive outlook is driven by favorable government policies and better economics for project developers. In addition, the solar irradiance levels and the continued focus on corporate sustainability will also continue to support strong demand for solar power in Mexico. Contact us today.

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