The rise of utility-scale energy storage technologies in Mexico

Ariel Garfio

Von Wobeser y Sierra, Mexico City

agarfio@vwys.com.mx

Alejandro Beas

Von Wobeser y Sierra, Mexico City

abeas@vwys.com.mx  

The growth in the generation of electricity through renewable sources is a major step towards fighting climate change and eliminating polluting emissions in the world economic and production processes. According to data presented by the Mexican Ministry of Energy in 2020, Mexico had an installed capacity to generate electricity from renewable sources of approximately 31.2 per cent.[1]

In this regard, although it is essential to increase the installed capacity of renewable sources in Mexico and elsewhere, the intermittency of generation represented by wind and solar technologies makes it difficult to be completely reliant on them.

To address this problem, there has been an exponential growth worldwide in the installation and use of energy storage technologies aimed at: (1) reducing costs in production processes by consuming electricity in the most economical periods; and (2) allowing an increasing reliance on renewable sources. Nevertheless, the adoption of these technologies varies widely from country to country as does the relevant legislation relating to their development and use. With regard to such legislation in Mexico, we find that it is almost non-existent.

Energy storage can be understood as the action of reserving or storing generated electric energy and making it available when it is most needed in accordance with the peak demands of a society, acting as a balance between supply and demand, contributing to the stabilisation of an electric system (Storage).[2]

Mexican legislation, however, neither defines nor regulates Storage. There are few references in the current legislation to the activity, no specific regulatory body oversees its development and there are no stipulations regarding the need to obtain any authorisation from the Energy Regulatory Commission (CRE).

Although under Mexican law, anything not explicitly prohibited is permitted, the specific regulation of Storage would create legal certainty for all those seeking to install this type of technology in their businesses. It would also encourage the development of such systems, while contributing considerably to the fight against climate change.

Regardless of the lack of clear legislation, many Mexican companies, hospitals, and hotels have decided to install energy storage systems which, in addition to guaranteeing the conditions for the development of their production process or the performance of their main activity, allows them to access considerable savings by taking advantage of the electricity demand curves which occur in the Mexican Electricity System. In this regard, experts estimate that the technology already exists in Mexico to store up to 1.5 megawatts of energy, which allows users of all sizes and in all types of interconnections, including the wholesale electricity market and large industry, to access photovoltaic generation without interruption.[3]

According to the document titled 5.3 Energy storage at utility scale as a facilitator of CO2 mitigation, published by the Mexican Ministry of Environment and Natural Resources,[4] there are some regulatory and financial barriers which may hinder the cost-effective deployment of Storage technologies. These include electricity transmission rates, where Storage would pay as a load and as a generator, and limits on participating in the power balancing market for Storage of less than six hours.

The above document states that Storage technologies could still be economically attractive even with existing barriers. However, changes in regulation could facilitate a more rapid and greater integration, reducing Storage costs and, in turn, cutting the overall cost of meeting electricity demand in Mexico, while complying with climate obligations.

According to the International Energy Agency, although energy Storage technology costs have fallen dramatically in recent years due to the scaling up of electric vehicle production, market disruptions and competition from electric vehicle makers have led to rising costs for key minerals used in battery production. It is now becoming evident that further cost reductions depend not only on technological innovation, but also on the prices of battery minerals.[5]

One of the key raw materials required for the construction and development of energy storage systems is lithium. According to the US Geological Survey,[6] the consumption of lithium for the development of batteries has increased considerably in recent years because rechargeable lithium batteries are widely used in the energy storage industry. Moreover, Mexico is among the top ten countries with lithium resources, boasting approximately 1.5 million tonnes of this mineral.

To date, despite the lack of relevant legislation or government incentives, there has been considerable progress in Mexico with respect to the development and installation of energy Storage systems. Nevertheless, we see the further development of energy Storage as an urgent challenge for Mexico and the world, for which proper regulation is needed.

In 2019, the CRE published a Draft Legislation/Bill on the website of the National Commission for Regulatory Improvement. It counts some of the activities which participants in the electricity industry can perform in relation to Storage under the current legal and regulatory framework, which would offer greater certainty to the Storage market.[7] However, to date, such a document has yet to be published in the Federal Official Gazette, and has therefore not taken effect.