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Solar power Mexico
How KfW opened up the Mexican market for photovoltaic systems
No other country in North America has as much sunlight as Mexico. This gives the country the best conditions for generating electricity from photovoltaic systems. And yet solar power plants were a rarity in Mexico until 2017. The country did not seem to be taking advantage of the opportunities offered by its geographical location. A KfW loan on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ) was intended to change this. The goal is to open up the country’s market for photovoltaic systems.
Mexico also has ambitious targets: by 2030, it wants to reduce its greenhouse gases by 30%, and even by 40% under certain conditions. In order to achieve this, the share of renewable energies in electricity generation is to rise to 45% in the most ambitious scenario – but this includes nuclear power, as it is classified as "clean" in Mexico. Until 2017, investments in renewables largely went to the installation of water and wind turbines. The share of photovoltaic in green electricity therefore remained comparatively low: in 2015 it amounted to a meagre 1.65%.
Despite the energy reform of 2013, the investment backlog in photovoltaics initially cleared up only very slowly. This was mainly due to the fact that many market participants were initially unable to assess the impact of the new regulatory framework. In particular, the lack of reliable electricity purchase prices hampered the willingness to invest. In addition, Bancomext, the Mexican promotional bank, was reluctant to lend because at the time it had little experience in financing photovoltaic projects. As a result, the market for the promising technology did not really take off.
In order to help photovoltaics achieve its breakthrough, a consortium of international investors stepped in. They provided a loan of USD 605 million to Bancomext for the financing of photovoltaic power plants; KfW was also one of the donors. Bancomext's task was to pass on the funds in the form of low-interest loans to developers of photovoltaic systems. One of the conditions for the use of the loans was a 20% pro rata financing by the borrowers.
The money went to four photovoltaic projects: two solar parks were built in Aguascalientes in central Mexico, one each was built in the northern states of Sonora and Chihuahua. The facilities were completed in 2017 and have been operating more or less continuously since then. With a cumulative capacity of 700 megawatts, they produce around 1,500 gigawatt hours of green electricity per year. As grid-connected power plants, they feed this directly into the national electricity grid and thus contribute to the country’s energy security. Since the solar farms save around 700,000 tons of CO2 emissions annually, they also make an effective contribution to the implementation of Mexico’s climate targets and to global climate protection.
The installation of the solar parks has also had a positive impact on local people. Today, about 120 people are employed in the operation and maintenance of photovoltaic systems – 70% of them come from the surrounding communities. However, plant operators not only create jobs, some are also involved in other areas in their region. For example, a cooperation with the University of Hermosillo has been established for the solar park in Sonora. This enables students to focus on renewable energies and to specialise in photovoltaics.
The acquired know-how certainly promises good career prospects. The loans from KfW and its partners have more than fulfilled the expectations placed on them. The four solar farms financed gave the go-ahead for the expansion of the technology. They have shown that photovoltaic power generation in Mexico is not only technically feasible, but above all economically viable. The four solar power plants act as positive market examples and have often led to a rethink in the industry. Where investors had previously seen risks that were difficult to calculate, they suddenly saw opportunities.
In addition, Bancomext was now an experienced financier ready for such projects. And soon there were plenty of such projects in Mexico. For example, the Mexican development bank has provided loans for 25 plants with a total volume of around USD 550 million until 2022. Bancomext has thus become the most important investor in photovoltaic projects in Mexico. However, the institute has not been the sole donor for a long time. More and more commercial commercial banks discovered the lucrative market for themselves.
The figures show how well the market has developed since the first round of financing by KfW and its partners. In 2015, the total capacity of Mexican photovoltaic systems was less than 300 megawatts. In 2022, the capacity of the power plants has already increased to 9,300 megawatts – an increase of more than 3,000%.
In a few years, photovoltaics has thus overtaken wind energy in terms of generation capacities. In the meantime, only hydropower in Mexico generates a higher output of renewables. However, since capacity is only growing at a rate of 9% per year, photovoltaics will soon be Mexico's main renewable energy source.
However, there are now also factors that are holding back the expansion of renewables and thus photovoltaics in Mexico. For example, President Andrés Manuel López Obrador, who was in office between 2018 and 2024, has again restricted some of the renewable energy regulations that resulted from the 2013 energy reform. Private investors in Mexico, in particular, are therefore reluctant to invest in green energy infrastructure.
Despite the new regulatory hurdles, KfW continues to be active in Mexico and expects positive accents from the new administration under President Claudia Sheinbaum, who has been in office since October 2024. The focus remains on financing projects in the field of climate protection and renewable energy. As photovoltaics has become well established on the market and KfW Development Bank has also been able to develop experience with wind turbines and in the field of energy efficiency in Mexico, KfW continues to be active in this field. A new project to promote investment measures for the reduction of CO2 and financing of renewable energies is therefore under preparation with Bancomext.
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