Solar PPA in Mexico: when it makes sense and when it does not
How a power purchase agreement works for industrial and commercial solar in Mexico, what the contract looks like, and when it beats buying the system.
A power purchase agreement (PPA) lets your company put a solar system on site without spending its own capital. A financing company buys, installs and operates the system on your roof or land. You pay only for the energy it produces, at a rate below what CFE, Mexico’s state-owned electric utility, charges you.
A PPA makes sense when you need to keep cash for critical operations, when you cannot use the 100% tax deduction, or when you would rather not carry the operating responsibility for the system. It does not make sense when you have capital available, want the highest possible return, or want to own the asset from day one.
Why PPAs are growing in Mexico
Industrial companies in Mexico face three pressures at once: CFE rates that rise year after year, ESG requirements from international customers who want proof of clean energy use, and tighter capital after the last few economic cycles. A PPA addresses all three. It lowers your electricity cost right away with no outlay, it adds sustainability credentials you can document, and it does not use up a credit line or cash reserves.
Internationally, the PPA is the dominant structure for corporate solar projects. In Mexico it has only been used for a few years, mainly by companies consuming more than 200,000 kWh per month. Today it also applies to mid-size commercial customers from 30,000 kWh per month, although terms vary with the credit risk the financier assigns to each customer.
How the contract works
As Joaquín Corella Puente, PSE’s CEO, explains in his book Guía de Diseño e Instalación de Paneles Solares Fotovoltaicos, interconnected systems up to 500 kW are classified as distributed generation under Resolution RES/142/2017 of the Energy Regulatory Commission (Comisión Reguladora de Energía). That classification is what allows the PPA model to operate within Mexico’s regulatory framework, under net metering, where the energy the system generates offsets the energy you consume.
A typical PPA contract looks like this:
- Term: 15 to 25 years. The financier needs that long to recover its investment at the return it expects.
- Energy rate: below your current CFE rate, typically 25% to 40% lower. The rate can carry an annual escalator (pre-agreed increases, generally between 1.5% and 3% per year).
- System ownership: the financier owns the system, not your company, for the full term of the contract.
- Operation and maintenance: the financier’s responsibility. Your company does not operate the system.
- Purchase option: many contracts let you buy the system from the financier at a residual price at the end of the term, or at intermediate milestones.
- Early termination: generally penalized with a payment calculated so the financier recovers its expected investment.
When a PPA is the right choice
You need to keep capital for critical operations. A processing plant investing in a new production line does not want to tie up MXN 8 million in a solar system. With a PPA, that MXN 8 million stays in the core operation and you still get the benefit of solar.
You cannot use the 100% tax deduction. Article 34, section XIII of the Mexican Income Tax Law (LISR) lets you deduct 100% of a solar investment in a single fiscal year, but only if your company has enough taxable profit to apply the deduction against. Companies with modest profits or tax losses cannot capture the benefit. For them, the PPA math is better than buying. (For how the deduction works, see our guide to the 100% tax deduction.)
Your customers ask for verifiable ESG credentials. Large international buyers (Walmart, automakers, global retail) require their suppliers to document renewable energy use. A PPA gives you clean energy certificates (CELs) and documentation your customers can audit. The system is visible, it runs, it bills: it is documented proof.
You want protection against CFE rate increases. A PPA fixes the price of energy for the whole term, with pre-agreed escalators. CFE rates have no such cap and have climbed steadily. Compared with the base case of continuing to buy from CFE, a PPA gives you long-term budget certainty.
Your operation cannot take on solar technical risk. Where energy is critical and the maintenance team does not want to take on a new system, the PPA shifts that responsibility to the financier. If an inverter fails, a panel cracks or there is an interconnection problem, the PPA operator answers for it. For critical loads that also cannot tolerate CFE outages, adding battery storage to the PPA project can provide the backup power the pure PPA model does not.
When a PPA does not make sense
You have capital available and want the highest ROI. Buying the system returns more than a PPA because the full savings go to your company, not shared with a financier. A purchased system typically pays back in 3 to 5 years and then delivers 20 to 22 years of generation at no marginal cost. With a PPA, you pay the agreed rate for all 15 to 25 years.
You have enough taxable profit. If you can use the 100% LISR deduction, the real cost of the system drops by roughly 30% in the first year. That difference, added to the full operating savings, lets buying beat a PPA financially.
You want to own the asset from day one. If your company values owning the system, because it plans to sell the property, audits its assets or cares about its balance sheet, a PPA does not fit. The system sits on the financier’s books, not yours.
Your consumption is relatively low. Below 15,000 to 20,000 kWh per month, a PPA often finds no financier, or the terms are less favorable than a direct purchase with bank interest-free installment plans (MSI, meses sin intereses). PPA economics work best for larger systems.
You may relocate during the next 15 to 25 years. A PPA is tied to the building. If your operation moves, the contract stays in force or is reassigned at significant cost. Companies planning a relocation should think twice.
How PSE structures projects with a PPA option
PSE is not a financier. We design and install. But we know the PPA structures in the Mexican market and work with established financiers for clients who want this model. The typical flow: within our industrial solar service, we design the technical system that is best for your consumption and site constraints and present the technical proposal. If you choose a PPA, we connect you with the right financier for the project’s volume, credit profile and location.
The advantage of doing it with PSE is that the technical design is independent of the financier. That avoids the conflict of interest common at companies that only sell PPAs and design systems optimized for the contract, not for your actual consumption. PSE designs the system to generate the right amount. Financing, whether cash, MSI, a loan or a PPA, comes after.
Frequently asked questions
What is the typical savings with a PPA compared with the current CFE rate?
Between 25% and 40% less per kWh, depending on project volume, the company's credit profile and the current CFE rate. For customers on the GDMTH rate (CFE's time-of-use rate for medium-voltage customers with high demand), savings tend to be higher because of demand charges.
What happens at the end of a PPA contract?
There are three typical options: extend the contract at a renegotiated rate, buy the system at residual value (often low, since it is already depreciated), or have it removed. Most companies choose to buy.
Does the PPA cover system maintenance?
Yes. The financier operates and maintains the system for the whole term. That includes panel cleaning, replacing failed equipment and monitoring. It is part of the value of the model.
Can I combine a PPA with other financing options?
Some contracts let the company buy part of the system and leave part under the PPA. It is less common, but it exists, especially on large projects where only part of the budget is available.
What kind of company qualifies for a PPA?
Companies with a solid credit history, at least 3 to 5 years in operation, audited or near-audited financial statements, and a minimum monthly electricity consumption between 15,000 and 30,000 kWh, depending on the financier.