The market for solar power in Mexico has been undergoing a steady transformation due to interest from foreign project developers, as well as the recent construction of a series of small and mid-scale projects. In early August, First Solar (NASDAQ:FSLR), one of America’s largest solar panel manufactures and project developers, entered the Mexican utility-scale solar market through its purchase of a project pipeline from power plant developer Element Power. These projects, which are located in the State of Sonora in Northwestern Mexico, could lay the groundwork for First Solar’s expansion in the country. In this note, we take a brief look at the Mexican solar market and where it could be headed.
Trefis has a $43 price estimate for First Solar, which is almost in line with the current market price.
Strong Solar Resources Weighed Down Lack Of Strong Incentive Framework
Mexico has abundant solar resources. About 70% of the country receives an insolation greater than 4.5 kilowatt hours (kWh) per square meter every day and the average insolation in the country is almost 60% higher than that of Germany, which is one of the world’s largest markets for solar products. ((Clean technica)) Despite the abundant resources, solar power remains economically unviable in most parts of the country since the average cost of electricity is just about $0.12 per kWh. Additionally, Mexico lacks an attractive incentive framework for solar power and the government does not subsidize large scale-solar power plants.  However, the country does provide net metering for installations under 500 KW.
Near Term Pockets For Growth
Although solar power is not economically viable in many parts of the country, it is already quite competitive in the Northern part of the country, where solar resources are above the national average, as well as in places such as Baja California where retail electricity prices are as high as $0.30 per kWh. Solar power could also be increasingly viable for commercial and industrial applications since some of Mexico’s largest businesses have seen their electricity rates more than double over the last decade, with prices rising from around $0.06 per kWh in 2003 to over $0.13 per kWh currently.  Going forward, we believe that installations should see strong growth in other parts of the country as well, as the prices for solar power systems continue to fall.
New Projects Licences, Government’s Renewables Target Will Lend Impetus To Solar Installations