If you are an international business operating in Mexico, you may want to consider power purchase agreements (PPAs) as a way to lower your energy expenses, secure stable prices for the long term, and achieve your sustainability objectives. This guide covers everything you need to know about PPAs in Mexico, from the different types and terms to the advantages and challenges.
Understanding Power Purchase Agreements (PPAs) in Mexico
One of the ways that businesses can save money on their energy bills and protect themselves from fluctuating electricity prices is by signing a power purchase agreement (PPA). A PPA is a long-term contract between an electricity producer and a buyer, in which the buyer agrees to pay a fixed price for a certain amount of electricity over a specified period of time. PPAs are especially attractive for businesses that want to use renewable energy and support the transition to a low-carbon economy.Mexico is one of the countries where PPAs are gaining popularity, thanks to the government’s policies and reforms that promote renewable energy and foster competition in the electricity market. Mexico has a huge potential for renewable energy, especially solar and wind, and PPAs can help unlock this potential and create new opportunities for businesses and investors.
What is a Power Purchase Agreement (PPA)?
In a power purchase agreement (PPA), an electricity buyer (purchaser) and an electricity producer (seller) enter into a long-term contract. The contract stipulates that the seller will produce and deliver electricity to the purchaser at a fixed rate for a certain duration. PPAs can be either virtual or onsite, depending on the location of the electricity generation and consumption.
Legal Framework for PPAs in Mexico
PPAs in Mexico are governed by the Mexican Electricity Industry Law (LIE), which allows private entities to produce and sell power to Mexican customers and businesses. The LIE also sets out the legal conditions for PPAs, such as minimum duration, pricing criteria, and conflict resolution mechanisms.
There are two main types of PPAs in Mexico: virtual PPAs and onsite PPAs.
Virtual PPAs
A virtual PPA is a popular way of buying electricity in Mexico. It works like this: the buyer and the seller agree on a certain amount of electricity that the buyer will pay for. However, the buyer does not receive the electricity directly from the seller. The seller produces the electricity and feeds it into the grid. The buyer then gets credits for the electricity that is produced, which can be used to lower their electricity bill.
There are many benefits of using a virtual PPA, such as:
- Lower energy costs: Virtual PPAs allow buyers to secure lower electricity prices for a long time.
- Flexibility: Virtual PPAs do not need any investment in generation or transmission infrastructure.
- Sustainability: Virtual PPAs enable buyers to buy electricity from renewable energy sources, such as solar and wind power.
Onsite PPAs
An onsite PPA is a type of power purchase agreement that is not very common in Mexico. It involves the seller building and operating a power plant at the buyer’s location. The buyer then pays a fixed rate for the electricity that the plant produces.
Onsite PPAs have several benefits for buyers, such as:
- Energy security: Onsite PPAs ensure that buyers have a steady supply of electricity, even if the grid fails.
- Price stability: Onsite PPAs set a fixed price for electricity, which can help buyers to plan their energy expenses.
- Sustainability: Onsite PPAs can be used to generate electricity from renewable sources.
Which type of PPA is right for you?
A virtual PPA and an onsite PPA are two types of PPA that can help your business achieve different goals. A virtual PPA can help you lower your energy expenses and protect you from the volatility of electricity prices. An onsite PPA can help you secure your energy supply and enjoy a fixed price for your electricity. Depending on your specific needs and requirements, you can choose the best type of PPA for your business.
Benefits of Virtual PPAs in Mexico
A virtual PPA is a way to buy electricity from renewable sources in Mexico without having to own or build any power plants or transmission lines. This can be very attractive for international clients in Mexico who want to:
- Save money on electricity: With a virtual PPA, international clients can secure lower electricity prices for a long period of time. This can help them save money on their energy bills, especially in Mexico where electricity prices are often higher than in other markets.
- Have more flexibility: A virtual PPA does not require any upfront or ongoing investment in power generation or transmission. This makes it a good choice for international clients who do not have a physical presence in Mexico or who do not want to invest in power infrastructure.
- Be more sustainable: A virtual PPA allows international clients to buy electricity from clean energy sources, such as solar and wind power. This can help them achieve their sustainability goals and reduce their greenhouse gas emissions.
Cost-Effectiveness and Flexibility of Virtual PPAs
A cost-effective and flexible way for businesses to lower their energy bills is to use virtual PPAs. With virtual PPAs, businesses can buy electricity from different sellers, such as those who produce renewable energy.
How Virtual PPAs Support Renewable Energy in Mexico
One way that businesses in Mexico can contribute to the development of renewable energy is by using virtual PPAs. These are contracts that allow businesses to buy electricity from renewable energy sources and help to create more demand for clean energy. By using virtual PPAs, businesses can support the renewable energy sector and its expansion.
