Mexico has enormous potential to develop renewable energy projects. The country has high solar radiation, wind capacity, and geothermal sources.

In addition, with the right technologies and expertise, the country could increase energy storage and green hydrogen projects. Harnessing this potential could help to diversify the energy supply, lower the cost of electricity, and support companies that have strict sustainability objectives and are committed to lower their carbon footprint.

However, achieving this vision is not without challenges. In the past three years, the electrical power sector has faced several policy changes under the current administration, and those changes have altered the dynamics of the electricity market for private sector participants and have affected the confidence for future investments. Moreover, there is a backlog of cases of companies trying to obtain power generation permits.

In this article, we will explore some of the key aspects of the renewable energy initiative in Mexico, such as the legal framework, the government programs, the funding sources, and some of the sample projects that are underway or planned.

Legal Framework

Courtesy of AS/COA’s Energy Action Group (EAG) – brings together the public and private sectors to develop strategic energy policies for the Americas.

According to Mexico’s Energy Transition Law (Ley de Transición Energética) and General Climate Change Law (Ley General de Cambio Climático), Mexico’s goal is 35 percent of electricity from clean energy sources by 2024, which includes power regeneration from renewable and non-renewable sources such as nuclear and efficient cogeneration.

• In the year 2021, Mexico produced 86.27 terawatt-hours (TWh) of electricity using clean energy sources. This amount constituted 26.7% of its total electricity generation for that year of 323.11 TWh. ​​
• By the year 2024, it is projected that Mexico’s demand for electricity will increase by 12.7% to 364.14 TWh. This amount of energy could power around 34.2 million average U.S. homes for a year, given the average annual consumption of 10,649 kWh per household.

Deploying renewable energies at scale would allow Mexico to meet its clean energy goals while increasing its energy security, attracting significant new investments, growing its national and regional economies, and creating new high-quality jobs.

Mexico has several schemes for development of renewable energy generation, including the small power producer, self-supply, co-generation and the IPP (Independent Power Producer) schemes. The aforementioned law reforms included the set-up of a clean energy certification scheme to serve as the primary mechanism for encouraging clean energy development.

Clean Energy Certificates (Certificados de Energías Limpias or CELs) are instruments that certify that a certain amount of electricity was generated from clean sources. CELs are issued by Mexico’s Energy Regulatory Commission (Comisión Reguladora de Energía or CRE) to power plants that use clean energy sources and have an installed capacity equal to or greater than 0.5 MW. CELs can be traded in a secondary market or through bilateral contracts.

The law also established a mandatory requirement for certain entities to acquire a minimum percentage of CELs in relation to their total annual consumption of electricity. These entities include suppliers of basic services (such as the state-owned utility CFE), qualified suppliers (such as private companies that supply electricity to large consumers), and large consumers (such as industrial or commercial users that consume more than 1 MW).

The mandatory percentage of CELs for these entities was set at 5% for 2018, 5.8% for 2019, 7.4% for 2020, 10.9% for 2021, and 13.9% for 2022. However, in October 2020, the Ministry of Energy (Secretaría de Energía or SENER) issued a resolution that modified the calculation methodology for determining the mandatory percentage of CELs, which effectively reduced the demand for CELs and created uncertainty in the market.

Government Programs

Despite the policy changes and delays in permits, there are still some government programs that support the development of renewable energy projects in Mexico. One of them is the National Power System Development Program (Programa de Desarrollo del Sistema Eléctrico Nacional or PRODESEN), which is a planning instrument that defines the actions and investments needed to ensure the adequate supply of electricity in the country.

PRODESEN is updated annually by SENER in coordination with CFE and other relevant entities. The latest version covers the period from 2021 to 2035 and includes a projection of electricity demand, generation capacity, transmission and distribution infrastructure, interconnections with other countries, and clean energy goals.

According to PRODESEN 2021-2035, Mexico plans to add 60 GW of new generation capacity by 2035, from which 54% will come from clean energy sources (renewable and non-renewable). The program also identifies several strategic projects that will require public or private investment, such as:

• The expansion of the transmission network in Baja California Sur to connect it with the national grid.
• The construction of a new transmission line between Oaxaca and Veracruz to evacuate wind power from the Istmo region.
• The development of a smart grid project in the Yucatan Peninsula to integrate solar PV and energy storage systems.
• The installation of distributed generation systems in rural and isolated areas to increase energy access and reduce diesel consumption.

Another government program that supports renewable energy development is the Clean Energy Innovation Fund (Fondo de Innovación en Energías Limpias or FINEC), which is a public trust fund created in 2010 with the objective of financing research, development, and innovation projects in clean energy technologies.

FINEC is managed by SENER and the National Council of Science and Technology (Consejo Nacional de Ciencia y Tecnología or CONACYT) and has an initial capital of $250 million USD.

FINEC operates through annual calls for proposals that are open to public and private entities, such as universities, research centers, companies, and NGOs. The proposals are evaluated by a technical committee and a steering committee, which select the projects that will receive funding. The funding can cover up to 80% of the total cost of the project, depending on the type and size of the entity.

Some of the projects that have been funded by FINEC include:

• The development of a hybrid solar-gas power plant with thermal storage in Sonora.
• The design and construction of a pilot plant for green hydrogen production from wind power in Baja California.
• The optimization of a geothermal power plant with binary cycle technology in Michoacán.
• The implementation of a smart microgrid with renewable energy sources and demand response in Nuevo León.

Funding Sources

In addition to the government programs, there are also other sources of funding available for renewable energy projects in Mexico, such as multilateral development banks, international cooperation agencies, private investors, and crowdfunding platforms.

Some examples of these funding sources are:

1. The World Bank, which has provided loans and guarantees for several renewable energy projects in Mexico, such as the La Ventosa Wind Power Project, the Scaling-up Renewable Energy Program, and the Energy Efficiency Program.
2. The Inter-American Development Bank (IDB), which has supported renewable energy projects in Mexico through loans, grants, technical assistance, and equity investments. Some of the projects that have received IDB support are the Aura Solar I PV Plant, the Eurus Wind Farm, and the Bii Nee Stipa II Wind Farm.
3. The Green Climate Fund (GCF), which is a global fund created by the United Nations Framework Convention on Climate Change (UNFCCC) to support developing countries in their efforts to mitigate and adapt to climate change. The GCF has approved two projects in Mexico related to renewable energy: the Sustainable Energy Financing Facilities Program and the Renewable Energy Program for Social Sector SMEs.
4. The Global Environment Facility (GEF), which is a financial mechanism that provides grants for projects that address global environmental issues, such as climate change, biodiversity, land degradation, and chemicals. The GEF has funded several renewable energy projects in Mexico, such as the Renewable Energy for Agriculture Project, the Geothermal Development Project, and the Solar Water Heating Market Transformation Project.
5. The International Renewable Energy Agency (IRENA), which is an intergovernmental organization that promotes the adoption and sustainable use of renewable energy worldwide. IRENA has provided technical assistance and capacity building for renewable energy projects in Mexico, such as the Renewable Energy Outlook for Mexico, the Renewable Energy Statistics Training Workshop, and the Renewable Energy Auctions Workshop.
6. The Mexican Development Bank (Banco Nacional de Obras y Servicios Públicos or BANOBRAS), which is a state-owned bank that finances infrastructure and public services projects in Mexico. BANOBRAS has a green bond program that issues bonds to finance eligible green projects, such as renewable energy, energy efficiency, sustainable transport, water management, and waste management.
7. The Mexican Development Bank for Foreign Trade (Banco Nacional de Comercio Exterior or BANCOMEXT), which is another state-owned bank that provides financing and guarantees for export-oriented projects in Mexico. BANCOMEXT has a green credit line that offers preferential interest rates and terms for projects that contribute to environmental protection, such as renewable energy, clean technologies, pollution prevention, and natural resources conservation.
8. The Mexican Fund for Environmental Conservation (Fondo Mexicano para la Conservación de la Naturaleza or FMCN), which is a private non-profit organization that mobilizes resources for environmental conservation projects in Mexico. FMCN has a green energy program that supports community-based renewable energy initiatives in rural areas. The program aims to reduce greenhouse gas emissions, improve the quality of life of local people, and promote sustainable development.

One of the projects supported by FMCN is the installation of solar panels in the community of San Juan de la Vega, in the state of Guanajuato.

The project was implemented by the local organization Centro de Desarrollo Agropecuario (CEDA), which works with small farmers and indigenous groups to improve their livelihoods and protect their natural resources. The solar panels provide electricity to 120 households, a school, a health center, and a community center. The project also created 15 jobs for local technicians and reduced the dependency on fossil fuels.

The benefits of the project are not only environmental, but also social and economic. The community members reported that they have more time to study, work, and enjoy their family life, thanks to the reliable and clean energy source. They also saved money on their electricity bills and avoided the health risks associated with burning wood or kerosene. Moreover, they gained a sense of pride and empowerment by being part of a collective effort to protect their environment and improve their well-being.

FMCN is one of the many organizations that are working to promote green energy solutions in Mexico and beyond. By supporting community-based renewable energy projects, FMCN is contributing to the global fight against climate change and the achievement of the Sustainable Development Goals. FMCN believes that green energy is not only a necessity, but also an opportunity to create a more equitable and prosperous society.