What if electricity subsidies in Mexico were used as REC payments?

I was doing some research a couple of weeks ago on what the subsidy costs/kWh were for energy generated in Mexico, and I came across some interesting numbers. According to this article, the Mexican government subsidizes 31.8% (2009 statistics) of every kWh of electricity generated excluding Luz y Fuerza's* territory. In 2009, the average price per/kWh was ~US$.09/kWh. I'm assuming this is an average for all tariff classes, so the subsidy would be around ~$.03/kWh.

I had some free time last night in-between bathing the kids and helping my wife pick up the house, so I decided to model what would the returns would look like if Mexico removed the subsidy and used it instead as a REC (Renewable Energy Credit) payment. I used the current incentive level in Mexico City for an industrial rooftop solar project as my beta and the results were encouraging - the project NPV was positive and the IRR looked good.

In addition, the simple payback looked acceptable for a renewable energy investor in Latin America. If you factor in CER (Certified Emission Reduction) income, the returns get even better, too. I know I should have been helping my wife put the kids to sleep, but I couldn't resist taking a look at what a REC payment would do to the returns of a distributed generation (DG) photovoltaic project.

Is this a possibility, though? What would the impact be on industry? Well, at first glance, by removing the subsidy you would penalize the largest energy users (right?), because now they’re paying $.12/kWh instead of $.9kWh. Their responses to higher electricity prices would be to either invest in on-site renewable generation, energy efficiency retrofits or just use less electricity. Using less electricity is probably not a bad thing, but if using less electricity meant you produced less, then that would have an impact on jobs and that's unacceptable politically.

Therefore, policy makers might look at increasing the payroll tax credit to 100% in year one for investments in onsite renewable energy generation instead of the current 50%. By removing the cap on the payroll tax credit, you would reward companies for investing in these types of projects and for not laying off workers. I’m not saying this is perfect solution (the consumer-side of the economics hasn't even been addressed), but given the current discussion’s taking place about whether or not Mexico can continue to use 6-8% of it’s public budget to subsidize electricity, turning it into a REC payment is certainly an option at least from a project developer's point of view...

* The Comision Federal de Electricidad (CFE) took over Luz y Fuerza in Oct'10.

New Minister Ordered to Transform Energy Sector (Mexico)

Citing the January 21st issue of Rechargenews.com, President Felipe Calderon has named Jose Antonio Mead as Mexico's new Energy Secretary, replacing Georgina Kessel, who will become the general director of state-owned development bank Banobras, a source of renewables funding. Mr. Meade has been tasked by President Calderon to transform the public energy companies - oil giant Pemex and electricity utility CFE - to ensure that Mexico hits its green-energy targets. This is very promising news, and it looks like Mexico is serious about its sustainable development initiatives. Mexico has a goal of reducing its carbon emissions by 30% by 2020.

Energy Storage Solution for Commercial Building Owners

I saw this technology at a trade show last year and it's worth looking into. This is a great solution for commercial building owners looking to turn their building rooftops into power plants with dispatchable power.

Ice Energy Partners with Carrier Corp. to Deliver a Hybrid Cooling-Energy Storage Solution for Commercial Customers
Ice Energy, a leading provider of smart grid-enabled, distributed energy storage solutions to the electric utility industry, today announced a strategic partnership with Carrier Corp., the world's leader in high technology heating, air-conditioning and refrigeration solutions, to develop and deliver an integrated hybrid cooling and energy storage solution for commercial customers.

Green building - The Boston Globe

"At the heart of the landscape urbanist agenda is the notion that the most important part of city planning is not the arrangement of buildings, but the natural landscape upon which those buildings stand. Proponents envision weaving nature and city together into a new hybrid that functions like a living ecosystem." Green building - The Boston Globe

Reinforced Plastics - More US companies show interest in renewable energy

More US Companies looking to invest in on-site renewables. Financial reasons and corporate social responsibility benefits are the main drivers. Reinforced Plastics - More US companies show interest in renewable energy

Is Yellow The New Green???

I read an interesting article in the New York Times this morning, that I thought I would post this morning. In summary, it pontificates on whether using urine-diversion toilets can help solve two problems - 1) reduce our over reliance on man-made fertilizers, and 2) reduce the amount of energy municipalities use to clean our sewage. Here's a link to the article. It's worth reading, especially, if you're considering retrofitting a building or house soon.

Suburbia = Obesity / High Density = Weight Loss

I'm back blogging after taking the New Year off.  I needed to de-technologize my life for a couple of weeks.  However, I'm back and ready to write through the end of the year.  My goal is to blog daily going forward.  Thanks for everyone's patience.  

I woke up this morning and read an interesting article on Ethisphere about a study that suggests suburban living is associated with obesity and high rates of lunch and heart disease.  Click on the link to read it.  In addition, the article goes a little further and suggests that urban settings can also lead to higher productivity for business as a result of increased interactions and improved information flow.  

= I posted this article because I'm working on losing weight myself and needed to point the finger somewhere...