Challenges in residential solar in Mexico reflect the realities of solar adoption in many nations: poor access to capital; system financing challenges; and an opaque, ever-changing regulatory environment.
"I think this is all a huge experiment," said Nico Johnson, host of the Latin American solar podcast SunCast. Some residential solar developers in Mexico echo the sentiment. Their concerns mirror emerging challenges in the United States that are occurring as long-term incentives and stable companies break up. They also mirror challenges in the developing world.
Mexico's anemic solar market has installed roughly 100 MW to date. Optimistic forecasts anticipate it will add about 350 MW of additional capacity in 2016. GTM Research expects just 10 percent of that to be residential, compared to 25 percent in the United States last year.
The combination of unpredictable policies, limited capital, and financing difficulties has severely limited the feasible market for home solar in Mexico.
Though suppliers and distributors suffer as well, these companies are less exposed to the risk that policies will change, as they enter only after developers have locked in contracts for their deals.
In a country where 40 percent of the population lacks bank accounts, leases and loans are unfamiliar territory for many potential customers. But without financing, solar is unaffordable for most people. This is partly due to very low residential energy prices.
Per kWh prices fell 30-40 percent last year across all sectors, according to Mohit Anand, senior analyst at GTM Research. These cuts are often short-lived political moves made in the lead-up to an election.
This month, the default residential tariff, an inclining block rate tariff, is charging roughly $0.05 USD per kWh for residential ratepayers. The "De Alto Consumo" (DAC) tariff is about four times higher and applies only to the highest users.
High electricity-cost savings are "the best predictor of whether someone will go solar," said Steven Broyles, vice president of residential sales at Envolta. But low per-kWh prices weaken this critical benefit for most homeowners. As a result, the minority DAC customers comprise the majority of the residential solar customers.
Residential developers of all sizes are funded by friends and family, according to Mexican solar experts at the GTM conference. Companies without a close network of wealthy contributors are at a significant disadvantage.
Capital-raising for major initiatives to overcome the market's major challenges is difficult.
Institutional investors like the North American Development Bank and Macquarie Mexican Infrastructure Fund are wary of even utility-scale projects and do not loan to the residential market.
Mexico's solar policies are strong and stable enough that developers at all levels have designed their business plans with the assumption that incentives will stick around.
In Mexico, fighting for better policies is preferable to avoiding the grid altogether, though frustration is building in the residential market.
This strategy contrasts with that of companies that operate in East Africa, like Powerhive.
In Kenya, batteries allow Powerhive's systems to be completely off the grid. Nate Heller, co-founder and COO of PEG Ghana, said his company operates in a similar environment. PEG Ghana sells devices whose value proposition is entirely unaffected by utility regulation. "Our business will scale as batteries get cheaper," he said, underscoring the company’s reliance on technology over incentive policies.
At GTM's solar summit in January, savvy developers with a long tenure in Mexico discovered they have opposite interpretations of a critical element in the Mexican utility net metering rule.
Brian Schmidley, president and CEO of Rio Grande Solar, a cross-border developer who has maintained staff in Mexico City for six years, expressed frustration. "The energy banking program looks like it might disappear... As a developer, now you have to resize all your systems to not net-meter... So yeah, it's a little concerning."
Schmidley, Johnson, and others in the residential market think that Mexican Association of Photovoltaic Solar Energy (Asolmex) could do more to fight for better, more consistent, and more transparent incentives for residential solar. A well-attended meeting of developers supported creating a new solar lobby to support these goals.
The United States has shown that even credible net-metering policies can end, rates and incentives can change, and those changes can even be applied retroactively (as they were recently in Nevada). As battery prices continue to fall, solar companies in the United States and Mexico may lean toward systems that don't need net metering policies to be economic.