Distributed photovoltaic power generation: possibilities, benefits, and challenges for a widespread application in the Mexican residential sector Juan Rosellón, CIDE and DIW Berlin (joint with P. I. Hancevic and H. Núñez, CIDE) Workshop "Energy and Climate Policy in Mexico Policy and Research perspectives in the aftermath of National Elections DIW Berlin, July 10 th, 2018
Agenda 1. The Mexican Electricity Reform 2. Regulatory Reform on Renewables in Mexico 3. PV Solar Distributed Generation in Mexico 2/25
Agenda 1. The Mexican Electricity Reform 2. Regulatory Reform on Renewables in Mexico 3. PV Solar Distributed Generation in Mexico 3/25
New Industry Structure Generation Short Term Transactions System Control and Electricity Market Retailing Unregulated Supply Consumption Subsidiary A Subsidiary B Subsidiary C Spot Market Qualified Users Basic Service Users Private Parties Long Term Contracts Auctions Regulated Supply and Contracts and Contracts Transmission Distribution 4/25
Vertientes de la Reforma Power market instruments Market Periodicity Market Type Energy and Ancillary Services Capacity Clean Energy Certificates Financial Transmission Rights Daily, Hourly Yearly According to CRE Requirements Yearly (monthly in second stage) Cost Based Unrestricted offers with administered price caps Unrestricted offers Unrestricted offers Auctions and Long Term Contracts CRE will set the requirements for all suppliers to contract forward energy and associated products Basic Service Retailers may only contract forward through auctions operated by CENACE All market participants can participate in the auctions 5/25
Agenda 1. The Mexican Electricity Reform 2. Regulatory Reform on Renewables in Mexico 3. PV Solar Distributed Generation in Mexico 6/25
Regulatory reform on renewables in Mexico Mexico: 13 th largest GHG emitter in the world (Mexico represents approximately 1.4% of global emissions) Generation explains more than 20% of total GHG emissions; residential sector accounts for 25% of total electricity consumed 35% and 43% of domestic energy should come from renewable sources by 2024 and 2030, respectively 7/25
Clean energy potential in Mexico Solar Resources Wind Resources Geothermal Resources Mexico has sufficient resources to exceed its goals of 35% nonfossil generation in 2024, 40% in 2035 and 50% in 2050. Portfolio standard will assure that they can be developed. Installed Capacity 2 semester 2014 (MW) Actual Generation Year 2013 (% of total GWh) Renewable Energy Potential Actual Generation + Proven Resources Actual Generation + Proven Resources +Probable Resources Actual Generation + Proven Resources +Probable Resources +Possible Resources Wind 1900 1.38% 5.30% 5.30% 34.80% Geothermal 823 2.04% 2.22% 22.52% 40.03% Solar 64 0.01% 0.65% 0.65% 2,189.40% Mini Hydro 419 0.54% 1.72% 9.48% 24.35% Total 3206 3.97% 9.89% 37.95% 2,288.59% 8/25
Regulatory reform on renewables in Mexico CEL markets Different schemes to foster renewable electricity technologies Direct subsidies Feed in tariffs CEL (or CEC) markets Renewable auctions with premia Designed for CFEs public service PV Solar Distributed Generation 9/25
Results of auctions Very competitive prices: The average price among contract winners in Mexico s first auction was one of the lowest and most competitive worldwide. Solar cheaper than wind: The surprise was that the average price for solar winners was lower than the average price for wind winners. The lowest bid in the auction came from Enel s solar plant, at $35.5/MWh. This is probably one of the the cheapest subsidy-free solar plant bid ever seen. 10/25
Agenda 1. The Mexican Electricity Reform 2. Regulatory Reform on Renewables in Mexico 3. PV Solar Distributed Generation In Mexico 11/25
PV solar distributed generation Plan for solar DG and results Plan for EE and results Welfare implications: surpluses Progressive subsidization 12/25
PV solar distributed generation Hancevic P. I., Nuñez, H. M. and J. Rosellón (2017, 2018) Distributed generation (DG) includes various technologies such as photovoltaic (PV) systems In this analysis, we only consider PV distributed generation Subsidized residential tariffs: 98% of Mexican households are subsidized, which on average pay 45% of the total electricity cost -i.e., generation, transmission, distribution and commercialization costs Fiscal burden represents more than 0.5% of the GDP. This happens in a country where poverty and inequality are significantly high 13/25
PV solar distributed generation 90% of total energy consumed in Mexico comes from fossil fuels, including more than 70% of electricity generation Ambitious GHG reductions goals adopted in Paris COP 21 More than 75% of the country has an isolation greater than 5 kwh/m 2 /day. Mexico s solar potential could be considered among the largest in the world (SENER, 2016) Aligning policy objectives to reduce subsidies, households electricity expenses and GHG emissions 14/25
PV solar distributed generation Types of quantifiable benefits: For the government, according to reductions in subsidies For households, related to reduction in electricity expenses For the environment: reductions of GHG emissions and of water consumption for electricity generation Two different exercises: An analysis based on a representative consumption in each distribution region and each tariff level. Micro-data use (ENIGH 2014) trying to identify the largest number of feasible households that could potentially install a PV system 15/25
Excercise no. 1: representative consumer Contribution equivalent to 1% of national installed capacity (approximately 860 thousand households with 1 Kw systems): USD 80 million saved per year 1 Kw of a PV installed system supplies in average 75% of the annual household consumption 680 million liters of water every year 1.9 million of equivalent CO2 tons 16/25
Excercise no. 2: use of micro data from Enigh 2014 17/25
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PV solar distributed generation Results Government reduces electricity subsidies CFE could potentially be more efficient, by using its most efficient plants and reducing inefficient employment Increase in employment in the Mexican solar-panel industry Reduction in GHG and water consumption Currently, electricity subsidies do not favor the adoption of PV Solar panels A feasible alternative could be the reformulation to a subsidy that fosters the installation of solar panels 25/25