Solving Mexico’s Electricity Subsidy and Energy Poverty Granting Solar Bonuses for PV Solar Rooftops.

Solving Mexico’s Electricity Subsidy and Energy Poverty Granting Solar Bonuses for PV Solar Rooftops.

Daniel Chacon-Anaya

Executive Summary

The “Solar Bonus” program aims to refocus the present and highly regressive residential electricity subsidy towards providing part of the funds that residents require to install solar PV rooftops with enough capacity to supply their present power needs. At the same time, users can get a discount from their power bills as was promised during the campaign to gain support for the energy reform. Additionally, the new rules allow residential users to sell to the grid any surplus volume of electricity they generate. The rationale is that homes with a solar rooftop will no longer require a subsidy and, furthermore, will make a profit by supplying clean energy to the grid at a cost lower than CFE’s unsubsidized electricity prices. According to the World Bank, Mexico has one of the most complex tariff and subsidy structures in the world

Under the new rules regarding distributed generation, small generators under 500 kW skip the cumbersome permitting process, and can be interconnected to the grid by presenting simple paperwork. However, the present highly subsidized tariffs deter PV adoption; residents prefer to continue under the subsidy umbrella instead of disbursing a significant upfront cost for installing PV rooftops.

The purpose of the solar bonus is to lower the cost of the solar rooftop in order to break the subsidy barrier to reach parity between present residential tariffs and PV technology costs. Users will be able to afford to install PV by paying monthly installments equivalent to the present tariffs rate minus a sizable discount, leaving their subsidy dependency. In turn, the State will use the freed subsidy to finance other pressing needs in the country. Additionally, the program could include several energy efficiency measures to optimize investments in solar rooftops and improve the houses’ energy performance.

Distributed generation by residential solar rooftops offers the unique opportunity to solve at least four pressing problems that Mexico faces: (1) a gigantic subsidy, estimated to be 6.2 billion USD/yr for 2017 (1 USD = 19 MXP), for residential electricity that is very expensive to public finances, and very regressive favoring the higher income population; (2) energy poverty that affects a very significant proportion of the population that cannot aspire to a better living standard because electricity is very expensive even with the highly subsidized tariffs ; (3) shortage of mitigation opportunities in the electricity sector to comply with Mexico’s INDCs (now NDCs) committed under the Paris agreement; (4) save capital investments in centralized electricity generation, transmission and distribution by democratizing energy as citizens are able to participate as electricity suppliers for their own use and for selling electricity to the grid.

The “Solar Bonus” program uses the electricity subsidy as a tool to solve the four problems in a very substantial way:

• Fully deployed, this program (scenario DG1.2-70) will install, on 70% of Mexico’s homes, 25.1 million rooftops with a total capacity of 27.1 GW in a 15-year time span, allowing residences to generate their own electricity without any subsidy. These figures are comparable with other efforts at the international level .
• It will free around 67,495 million MXP, equivalent to three billion dollars, per year, to be used in much needed and under-budgeted social programs
• Save 23.6 million tons of CO2 eq. per year (considering a factor of 498 kg CO2eq/MWh) helping Mexico to comply with the NDCs.
• Save and/or delay investments in generation and transmission, and avoid loses in transmission.
• Allow people to enjoy better living standards by effectively lowering electricity cost by taking advantage of decreasing PV technology prices.
• Open a new business avenue worth 527,966 billion MXP equivalent to 27.7 billion USD. This amount is equivalent to 0.20% of GDP with new value chains and creating at least 200,000 jobs.
• It will provide people with the opportunity of an additional income by selling electricity to the grid.
• Save around 200,000 oil barrels per day

 

MEXICO SOLAR BONUS DOCUMENT

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