Mexico's Solar Energy, A World Leader 

Those involved is trying to take a step back and figure out what happens next. The mixture of tangible opportunities with abundant unknowns animated GTM's Solar Summit in Mexico City last week, summoning the beginnings of the U.S. solar heyday a decade ago.

By now, the major questions facing the U.S. solar industry have been worked out, and companies are fine-tuning their execution (and responding to unanticipated setbacks, like presidentially imposed import tariffs). In Mexico, however, the open questions abound, and developers, suppliers, government agencies and financiers are racing to decipher the answers and leverage the support needed to keep the growth rolling.

Like guacamole dusted with spiced grasshoppers, there's a lot to chew on here, but these are the key takeaways.

Low-Prices

Mexico enjoys the magical combination of a massive solar resource with low cost of labor. 

That potential has finally been unleashed by a recent energy system reform that makes it easier for private companies to participate in a grid long dominated by a single state utility. As part of the reform, Mexico has held three annual solar auctions that saw successive plunges in average bid price.

The third round added another nine solar projects totaling 1.7 gigawatts, and now holds the record for cheapest average solar bids in the world.

As companies race to tap this solar gold mine, they benefit from the work that has already been done elsewhere to bring down module costs and streamline project design and delivery. That said, there's still a lot that must be worked out anew within Mexico, which had hardly any capacity even five years ago.

The Question

The big question is whether the industry can actually deliver on its rock-bottom bids -- and make money doing so.

The panelists at Solar Summit Mexico brought a healthy dose of skepticism. The auction structures incentivize aggressive bidding to get a piece of the early action; we have yet to see many developers deliver. Indeed, many of the awarded projects have yet to close on financing, an ominous sign as the months and years pass by.

The energy reforms also have opened up a market for bilateral contracts between energy producers and large corporate consumers. Now the aggressive auction pricing puts pressure on the budding commercial solar market to offer comparably cheap deals.

That won't really be possible, because distributed solar is more expensive per unit than utility-scale, and because the policy framework for the commercial off-takers is still being fleshed out.

The onus is on developers to turn their flashy bids into real megawatt-hours. Business model innovation has already begun (see Enel's big flip, discussed below). Developers I spoke to hinted at their own special sauce for making it work, but nobody wanted to talk details with a journalist just yet.

Fighting For Financing

The wild west marketplace that could make this market lucrative also deters many sources of financing that could help the industry grow.

The aggressive bidding in the auctions has forced developers to branch out in the hopes of salvaging their margins. Many projects now diversify their revenue among an auction power-purchase agreement, clean energy certificates, and the wholesale markets. 

The PPA with utility CFE is considered solid, but the risk associated with the value of the certificates and wholesale markets has financiers worried. The wholesale marketplace offers average prices about three times higher than the recent auction PPAs, so there's considerable profit potential. But the marketplace is still a toddler, so there's no long-term data to examine in order to accurately project revenue into the future.

This creates a great deal of merchant risk, further complicated by the interplay of U.S. natural gas in the northern grid, precisely where most of the solar development is concentrated.

All of this drives up the cost of capital, if it doesn't scare away lenders altogether.

Just make sure, and promise us here at HahaSmart you will have a look at what we can offer you on the cost of solar panels and cost of solar installations. We will strive to find you the best prices available. Follow the solar experts. Try our price checker tool. It tells you how much solar power you need and how much you can save on your energy bills each month.