Exploring the Potential for Renewable Energy Cooperatives in Mexico the Role of Business Models in the Energy Transition

Exploring the potential for renewable energy cooperatives in Mexico The role of business models in the energy transition J.D.J. Carrasco Montejano Exploring the potential for renewable energy cooperatives in Mexico The role of business models in the energy transition by J.D.J. Carrasco Montejano To obtain the degree of Master of Science in Sustainable Energy Technology at the Delft University of Technology, to be defended publicly on Tuesday November, 24 2020. Student number: 4800117 Thesis committee: Dr. T. Hoppe, TU Delft (TPM) supervisor Dr. Ir. J. Quist, TU Delft (TPM) supervisor Dr. L. Kamp, TU Delft (TPM) committee Cover image: SENER, Mexico. An electronic version of this thesis is available at http://repository.tudelft.nl/. Acknowledgements This report presents the results of a research that also marks the conclusion of my master’s studies in Sustainable Energy Technologies at the Delft University of Technology. I moved to study in the Netherlands with great motivation to take an active role in the energy transition. As I learned about the different challenges to integrating renewable energy technolo gies, such as solar PV and wind, one challenge was especially difficult for me to understand: social opposition. Developing mega projects seemed like the logical way to meet the energy transition goals; however, I soon started to see the impact on the host communities’ livelihood, which created new forms of inequalities. Looking at alternatives, I came across the renewable energy cooperative business model and its potential to accelerate the energy transition while supporting economic and social development. I was not alone in this realization; over the past years, many communities in the Netherlands and other countries worldwide decided to take ac tion and started their own energy cooperatives. Sadly, it was not the case for my home country, Mexico. Understanding the reasons and the possibility to contribute to change this reality served as the motivation for this research. I am profoundly grateful to my first supervisor, professor Thomas Hoppe, who welcomed my research proposal and, with his extensive experience in the topic, guided and supported me along the process. I also want to thank professors Jaco Quist and Linda Kamp for introducing me to the study of transitions, for their feedback, and for pushing me to improve the research quality. Furthermore, I appreciate the support of the interviewees, who kindly shared their knowl edge, experience, and insights to make this research possible. Doing research and my master’s education, in general, proved to be a great challenge. I am fortunate to be surrounded by amazing people that encouraged and challenged me during the past two years. Extended thanks to my friends from SET and Energy for Refugees; working with you surely enriched my Delft experience. Alejandro, Anurag, David, Eric, Ricardo, my fam ily away from home, thank you for the long discussions, celebrations, and support during difficult times. Vasile, the best is yet to come; thanks for all the coffees and for looking after my mental health. All this would not be possible without my family. Thank you for trusting and supporting me always. Alejandro, thanks for showing me the path to sustainability; you have been a true role model. Diego, thanks for helping with all my crazy ideas and projects. Lastly, mom and dad, I cannot thank you enough. You are my motivation to continue aspiring to do more and do better. All my achievements are shared with you. J.D.J. Carrasco Montejano Delft, November 2020 iii Executive summary Problem statement Mexico is currently transitioning to a lowcarbon electricity production that has a specific goal of producing at least 50% of their electricity from clean energy sources by 2050. Following the liberalization of its electricity sector in late 2013, private actors joined the Mexican government’s efforts to increase the share of renewable energy; however, the mechanisms placed to attract investment continue to favor the incumbents and the model of largescale, privately owned, and internationally financed projects. These projects produced new forms of spatial and social inequalities, which led to criticism and conflicts from civil society and indigenous groups at the local level. Research approach and methodology Theories on sociotechnical transitions study the shifts within large sociotechnical systems and recognize technological innovation’s role for the required transition. However, technological in novation alone is not sufficient to achieve the required changes. It depends on other elements within the sociotechnological system, such as user practices, markets, business models, pol icy, infrastructure, and cultural meanings. The role of business models remains underexplored; therefore, this research intends to contribute to the emerging literature linking sociotechnical transitions and business model theory. Using the framework proposed by Wainstein and Bum pus (2016), this research aims to understand the role of business models as part of the socio technical regime and as a device to commercialize technological innovation. Over the last decade, new business models, like the ones implemented by renewable energy cooperatives (REScoops), are proving to be a driving force to transition to lowcarbon energy generation. A REScoop is a business model where citizens jointly own and participate in re newable energy or energy efficiency projects. This business model follows the International Cooperative Alliance’s principles, which allow for the local community’s involvement in the de velopment, installation, and operation of low carbon energy installations, which may positively impact the projects’ acceptance. Furthermore, the emergence of REScoops advances princi ples as energy democracy, selfgeneration, and green energy consumption that assist in reduc ing GHG and energy poverty. Despite the observed benefits, countries with apparent proper conditions, like Mexico, have not succeeded in implementing this business model. Therefore this research aims to understand the limiting factors by conducting a case study to answer the following main research question: What are the challenges and opportunities for the potential use and adoption of the renew able energy cooperative business model in the context of the Mexican energy transition? The main research question is decomposed into six subquestions that help understand the renewable energy cooperative business model and the implications for creating renewable en ergy cooperatives in Mexico. Qualitative data is collected and guided by the research questions and the framework combination presented by Wainstein and Bumpus (2016). Secondary data is collected from indepth desk research and is complemented with primary data resulting from the elaboration and analysis of nine expert interviews. v vi Executive summary Main findings Implementing the conceptual framework combining business models with sociotechnical tran sition theory from a multilevel perspective has proven to be useful in understanding specific dynamics and business models’ roles within the Mexican energy transition. While the Electric Industry Law of 2014 liberalized the Mexican electricity sector and created the required conditions for REScoops to participate, the secondary laws and the regime’s pressures impose a series of entry barriers for REScoops to compete in the electricity market at a large scale. However, the REScoop business model can be implemented to advance clean electricity generation at the distributed level. Even when the effects on the energy matrix would be minor, the REScoop business model provides benefits beyond the environmental benefits and could be a key element to advancing concepts such as energy sovereignty and reducing energy poverty in the country. This research introduced four potential business models that could be developed under the current circumstances and regulatory conditions. These business models shall be carefully ex amined and adapted to the host communities’ specific needs and resources. The collective generation business model, in particular, can play an important role in promoting RES’s de velopment since the users can directly see the benefits on their electricity bill; furthermore, it represents an alternative for SMEs to access cheaper and cleaner electricity. Given the impor tance of SMEs in the Mexican economy, reducing electricity costs would bring additional benefits to the communities. The emergence of pilot projects is fundamental to break the barrier of the lack of information and access to funding. Mexico has a great social capital and experience with the cooperative organization; however, it would need external partners’ technical support to kick start these projects. As the first pilot projects prove successful, it would be essential to follow learning, networking, and visioning paths to move into the regime. Recommendations Policy Recommendations Policymakers are advised to revise the design of energy auctions to enable citizens’ active partic ipation. The regulation for distributed generation could be revised to facilitate communityowned projects by increasing the maximum capacity limit, include virtual net metering, and clarify the procedure to benefit from the quota obligations. Furthermore, cooperatives’ regulation shall recognize and promote energy cooperatives and remove restrictions to access funding from cooperative banks. Recommendations for local governments, cooperatives, and

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