Ariel Garfio
Von Wobeser y Sierra, Mexico City
agarfio@vwys.com.mx

Alejandro Beas
Von Wobeser y Sierra, Mexico City
abeas@vwys.com.mx

Introduction

In the context of the global energy transition, Distributed Energy Resources (DERs) have emerged as a key component for the modernisation of energy systems. In Mexico, these decentralised generation systems, such as solar photovoltaics, offer significant opportunities to improve energy access, reduce carbon emissions, and enhance the resilience of the electric grid.

According to the Electric Industry Law, distributed generation is defined as electricity generated by power plants with an installed capacity of less than 0.5 MW,^[1] located at or near the point of consumption, which allows them to be considered as exempt generators, which do not require a permit issued by the Energy Regulatory Commission. These generators are not required to comply with certain regulatory requirements which apply to large generators, facilitating their integration into the electric grid. However, this threshold has been a subject of debate, as it is considered insufficient to meet the growing energy demand in the current context, especially with the arrival of new companies under the nearshoring scheme.

This article examines the global opportunities and challenges of DERs, with a particular focus on the legal issues in Mexico and how they have been addressed, highlighting the importance of adapting the regulatory framework to allow for greater integration of DERs.

Opportunities for DERs in Mexico

Energy access and security

DERs present a crucial opportunity to improve energy access in Mexico, particularly in rural communities and remote areas where traditional transmission infrastructure is limited. Distributed generation allows businesses and households to generate their own electricity near the point of consumption, which not only reduces transmission losses but also enhances the country’s energy security by diversifying energy sources and reducing dependence on large centralised power plants.

Environmental sustainability

Mexico has enormous potential to harness renewable energy sources, particularly solar. DERs, in the form of distributed photovoltaic systems, play an essential role in reducing the country’s carbon footprint. The growth of these systems has been driven by both government incentives and increasing pressure from the private sector to meet sustainability goals, especially in the context of nearshoring, where companies are seeking cleaner energy sources to reduce their environmental impact.

Statistics from the first half of 2024 from the Energy Regulatory Commission reveal a significant growth in distributed generation capacity, reaching 3,891.22 MW with 460,896 interconnection contracts.^[2] This surge underlines the increasing role of distributed generation in Mexico’s energy landscape, highlighting its viability and growing importance. Distributed generation has evolved into a vital element in the country’s energy mix, driven by the decentralisation of power sources, which enhances grid resilience and democratises energy production. The rapid growth reflects a broader shift towards energy self-sufficiency and sustainability, making distributed generation a key driver of Mexico’s energy future.

As solar power leads this charge, other renewable sources such as wind and biogas also contribute to a more diversified and stable energy supply. The sector’s expansion not only supports environmental goals but also offers economic benefits, reducing operational costs and fostering innovation. This momentum points to the necessity of increasing current capacity limits to ensure that distributed generation continues to thrive and meet the Mexico’s sustainability objectives.^[3]

Grid resilience and stability

The integration of DERs also enhances the resilience of Mexico’s electrical grid. By decentralising energy generation, the vulnerability to interruptions is reduced, and the capacity to respond to natural disasters is improved. Additionally, DERs can help balance supply and demand in real-time, which is especially important in a country where the variability of renewable energy sources, such as solar and wind, can affect grid stability.

Challenges for DERs in Mexico

Regulatory and legal complexity

The regulatory and legal framework in Mexico, which has historically favoured large centralised generators, presents significant challenges for the expansion of DERs. The Electric Industry Law and its associated regulations currently set a limit for distributed generation at 0.5 MW. This threshold, originally designed to support small-scale energy producers, has become increasingly restrictive in the face of growing energy demands.

The nearshoring phenomenon has led to a significant influx of businesses seeking reliable and sustainable energy solutions. As a result, the demand for distributed generation capacity has surged, with many companies finding the 0.5 MW limit insufficient to meet their operational needs. Recognising this, the private sector, led by organisations such as the Mexican Council of Energy Professionals (Comener), has called for an increase in the distributed generation limit from 0.5 MW to 5 MW. This proposed change aims to enable companies to generate a greater portion of their own electricity, aligning with their sustainability goals and reducing their reliance on the national grid.

The private sector argues that expanding the distributed generation capacity to 5 MW would not only support the energy needs of nearshoring companies but also enhance the overall resilience and efficiency of the national energy infrastructure. By allowing larger-scale distributed generation, Mexico could better accommodate the energy-intensive operations of these relocated businesses, which are critical for economic growth.^[4]

However, the process of implementing this change is complicated and involves significant legal and regulatory adjustments. Amending the Electric Industry Law to raise the generation limit requires consensus among various market participants, including legislators, regulatory authorities, and the private sector. Moreover, there is a need for a comprehensive review of the associated regulations to ensure that they support this expanded capacity while maintaining grid stability and fair market competition.

The push for this regulatory shift emphasises the urgency of modernising Mexico’s energy framework to keep pace with the evolving demands of its economy. With the right regulatory adjustments, Mexico can leverage DERs to meet its growing energy needs sustainably, ensuring that the nearshoring trend continues to bring economic benefits without overburdening existing energy infrastructure

Grid management and stability

The growth of DERs presents technical challenges for managing Mexico’s electrical grid. The proliferation of small distributed generation sources requires increased grid management capacity to maintain voltage and frequency stability. The intermittency of solar and wind energy, the main sources of DERs, introduces supply volatility, which demands advanced technical solutions and adaptive regulation.

Market access and competition

Another key challenge is ensuring that DERs have fair access to the energy market. The rules of the Mexican energy market, designed for large centralised generators, are not always suited to the needs of small distributed generators. This can create barriers to their participation and limit their ability to compete on equal terms with large energy companies.

Legal issues and solutions in Mexico

Infrastructure modernisation and grid expansion

The accelerated growth of DERs in Mexico presents significant challenges, not only in terms of regulation but also in the infrastructure and investment needed to support this increased capacity. According to the Council of Photovoltaic Energy Professionals (CPEF), the installed capacity of DERs in Mexico is expected to double by 2030, increasing from 3,364 MW in 2023. However, to achieve this projection, it is crucial to strengthen and expand the electrical distribution networks by at least 50 per cent to accommodate the additional capacity.^[5]

The National Electric System Development Programme (PRODESEN) 2024-2038 highlights a significant lack of investment in electrical infrastructure in recent years,^[6] leading to bottlenecks that limit the grid’s ability to integrate new energy sources. Between 2015 and 2022, only 30 out of 318 expansion and modernisation projects promoted by the Ministry of Energy (SENER) to the Federal Electricity Commission (CFE) were completed. This delay in developing critical infrastructure puts Mexico’s ability to meet the growing energy demand, driven by the expansion of DERs and the nearshoring phenomenon, at risk.

To overcome these challenges, it is vital for the Ministry of Finance to guarantee the availability of earmarked resources in the CFE’s annual budget and for these projects to be registered as a strategic goal to boost economic growth.

Investment in technology and energy storage

Harnessing Mexico’s solar energy potential depends not only on expanding installed capacity but also on adopting advanced technologies, such as energy storage systems. These systems are essential for mitigating the intermittency of renewable sources, such as solar, and ensuring a constant and reliable energy supply.

The integration of storage technologies alongside DERs could enable Mexico to maximise its solar potential and move towards a more sustainable and resilient energy future. However, for this to be possible, a regulatory framework which incentivises investment in these technologies and provides a stable legal environment for investors is required.

Focus on legal and regulatory certainty

Investment in DERs and related technologies in Mexico largely depends on a stable legal and regulatory framework. The frequent changes in energy policies have created an environment of uncertainty which discourages long-term investment. To address this issue, it is crucial for Mexican authorities to work on creating a predictable regulatory environment that fosters investor confidence and supports the sustainable development of DERs.

The objectives of infrastructure modernisation, the development of new technologies, and the creation of a stable legal framework cannot be achieved in isolation. An integrated approach combining these elements is necessary to ensure that Mexico can fully capitalise on the opportunities presented by DERs and address the challenges that still persist in its transition to a cleaner and more resilient energy future.

Conclusion

DERs represent a significant opportunity to transform Mexico’s energy sector, offering solutions to improve energy access, reduce carbon emissions, and enhance grid resilience. However, the integration of DERs presents challenges that require continuous adaptation of the legal and regulatory framework.

Mexico is at a critical juncture in its energy policy, particularly in the context of nearshoring. Expanding the limit for distributed generation and creating a more flexible and adaptive regulatory framework will be crucial in ensuring that the country can fully leverage the opportunities offered by DERs.