Mexico's Nascent Battery Storage Market Is Open for Business

Following decades with a state-owned monopoly utility, Mexico began deregulating its electrical grid in 2013, opening the door for competitive investment in the country’s electricity system. Although most investment to date has centered on the generation side, deregulation has also greatly expanded opportunities for battery storage. While the most desired applications for battery storage are similar to those in the US market, including demand reduction, transmission upgrade deferral, peak capacity, and renewables integration, the underlying context for those needs differs in its details—primarily the result of geography. 

Mexico controls a large stretch of territory, approximately 2 million kilometers squared in total. Within that territory are multiple load centers that are grid-connected but remote. In the southern tip of the Baja Peninsula, for instance, residents have been persistent in their demands for more solar power. However, the uptick in generation has begun to strain the region’s transmission lines. Given the fact that any expansion of transmission capacity would entail some 2,000 kilometers of cable across mountainous terrain and cost a projected $1.1 billion dollars, a large battery system could enhance localized solar self-consumption and lessen the congestion risk on existing transmission lines. As Baja California Sur continues to develop its solar capacity (state capital La Paz is already 64% solar powered), battery storage solutions will increasingly take root.  

The First and Largest Battery Storage Installation in Mexico

Despite Mexico’s energy authorities developing an energy storage strategy to support the increasing amount of solar power plants coming online, the country’s first and largest operational battery is currently providing reliability and power quality at an automotive factory in Monterrey. The 12 MW/12 MWh system handles spinning reserve, voltage support, and frequency for a fully self-contained microgrid. Developer Arroyo Energy hired storage developer Plus Power to install the battery system after determining that if one of the seven Wartsila gas engines powering the microgrid were to trip, it could cause a reliability or frequency problem that would result in significant financial losses for the industrial client. 

While there are locations where storage could play a valuable role on the distribution and transmission grid, the lack of clear policy drivers to govern the deployment of storage and the absence of government incentives to jump-start initial deployments, is proving to be major barrier for the industry. However, in 2018, Mexico’s Comisión Federal de Electricidad raised electricity prices for Yucatan businesses, notably resorts, an average of 30%-50% over the course of the year, forcing some small business to shutter. For comparison, Yucatan power prices are 83% higher than those in Louisiana. As substantial increases in tariffs continue to mount for commercial and industrial (C&I) customers, behind-the-meter storage applications are becoming more widely discussed. 

The Future of C&I Battery Storage in Mexico

In Mexico and around the world, C&I energy users are increasingly seeking cost-effective, customized, and holistic energy solutions that can guarantee energy use reduction and savings without CAPEX or an impact on their day-to-day operations to meet their sustainability and operational efficiency needs. As a result, C&I energy users will increasingly seek balance sheet-backed vendors that can guarantee energy and cost savings through innovative DER financing offerings, which has been less common. This need shifts the challenge to DER deployment away from CAPEX (which are generally less favorable from an accounting perspective) toward service contracts categorized as OPEX, which is more favorable accounting-wise. Guidehouse Insights’ recent report, Driving Improved DER Financing with New Software Platform Capabilities, details how this trend will drive the need for improved DER software platform capabilities to support the growth of innovative DER financing.