Mexicans are reminded on a daily basis of the recent 20% hike in the price of fuel at the pumps. The so-called gasolinazo – as the gasoline price hike is known – resulted in blockaded highways and looting and forced service stations to close across Mexico in a wave of angry protest.
However, what few people noticed was that in 2016 the price of electricity increased even more dramatically.
Electricity is expensive in Mexico. On average electricity prices are 25% higher than in the United States and Canada for commercial and non-subsidized residential users.
In 2016, the cost of electricity for businesses increased substantially, between 22 and 35%. Similarly, the residential rate for high-consumption users increased by 22%. If you have ever received a monthly power bill for many thousands of pesos you will know what Tarifa DAC is. It stands for Doméstica de Alto Consumo, or high domestic consumption.
Mexico employs a progressive rate structure for residential power consumption to encourage energy conservation and penalize high consumption. The more power you consume, the more you are charged. Residential rates are broken down into three categories: subsidio, excedente and DAC.
DAC must be avoided at all costs. It is the most expensive utility rate in Mexico and remains one of the highest utility rates in all of North America. Last month, the DAC rate reached 5 pesos per kilowatt hour (kWh), or about US $0.25 per kWh, when IVA (the 16% sales tax) and the fixed monthly fee are included.
Over the past decade, DAC and electrical rates for commercial and industrial users have increased steadily and are anticipated to keep going up.
Renewable energy has reached a tipping point globally and is now the same price or cheaper than fossil-fuel generated electricity in more than 30 countries according to the World Economic Forum. This is known as reaching “grid parity.” Consequently, global investment in renewable energy is growing rapidly.
Mexico is one of the sunniest countries in the world. The overall cost to install a solar system in Mexico is about 35% less compared to the U.S. and Canada. This, combined with rising power prices, makes generating and consuming clean, solar energy less expensive than purchasing it from the grid.
2016 was a ground-breaking year for Mexico’s renewable energy sector. Last year the country held its first-ever private power auctions after the government ended a decades-long state electricity monopoly in 2013. Mexico awarded long-term power contracts to private developers, who will develop 4,731 MW of new renewable energy capacity (60% solar, 40% wind) that is expected to generate US$6.1 billion of investment.
For homeowners and small businesses, Mexico’s net metering laws allow you to generate your own electricity for self-consumption and accumulate credits to reduce or offset 100% the amount of electricity purchased from the grid. Therefore, the electricity produced by your solar system can be valued at the high retail price of power.
In January, Mexico’s energy secretariat announced measures to reduce red tape for small-scale solar installations with the goal of increasing distributed generation. This makes investing in solar energy a no-brainer. It is a high-return investment that provides decades of savings, not to mention the important environmental and social benefits.
In related news, it was recently suggested that the wall U.S. President Donald Trump wishes to build should instead be a “border wall of solar panels” built by Mexico. That way “Mexico and the U.S. would be connected by a truly beautiful wall, a symbol of progress and unity, visible even from space.”
Since construction and maintenance costs for solar plants in Mexico are substantially lower, building a wall of solar panels on the Mexican side of the border could power cities on both sides faster and more cheaply than similar arrays built north of the border.
This would create jobs for Mexicans and benefit both countries by alleviating a range of binational problems, including border security and climate change, something I think we can all agree on.
Jarrett Leinweber, M.Sc., is an entrepreneur and environmental and sustainable energy specialist. He provides consulting services and is a developer of solar energy and electrical infrastructure projects. He can be reached at email@example.com.