Middle powers’ ability to enter the solar energy market depends heavily on their regulatory regimes.
Australia recently announced the world’s “largest solar energy precinct,” the SunCable project, a 12,000-hectare facility in Northern Australia designed to create clean energy for domestic use and for possible export to Singapore. This announcement signals a new approach to solar power regulation in Australia.
Mexico and Australia are middle powers with sunny climates with different regulatory approaches to capitalizing on that resource. Australia’s decentralized regulatory system encourages compliance with targets but provides limited options for private investment, which means the renewable energy market in the country is small. As a result, Australia is starting to export its solar power to attract international investment in domestic projects. By contrast, Mexico’s government plays a controlling role in its renewable energy industry. Mexico exports a significant quantity of the hardware required for the region’s solar panels, as a way for it to benefit economically from its solar power.
Combining local production with overseas exportation could be allow middle powers with sunny climates to enter the solar energy market in a meaningful way.
Australia is pioneering combining local production and export of solar power in a bid to break into the global renewable energy market. The SunCable project is expected to generate enough energy to power 3 million homes. The project will create six gigawatts of energy, with four gigawatts to be used in the surrounding area of Darwin in Northern Australia and the remaining energy to be set aside for possible transmission using undersea cables to Singapore.
Solar energy is regulated within a decentralized system in Australia by both the federal and state governments. At the federal level, solar power renewable energy generation is only encouraged rather than required by the controlling legislation, the Renewable Energy (Electricity) Act. An independent government agency, the Clean Energy Regulator, oversees compliance with renewable energy targets and sets eligibility requirements for installers and solar panels.
Under the Renewable Energy (Electricity) Act, for every megawatt hour of eligible renewable energy created, a large-scale generation certificate is generated. The owners of a power station can sell the certificate to electricity retailers or any companies that want to demonstrate renewable energy use. This creates a renewable energy market in which both the energy and the certificates have value for electricity retailers and private buyers.
This regulatory system of encouragement, not obligation, means that private investment in renewable energy projects has been slow, lagging behind nations such as the United States. As the World Bank recently explained, investment in renewable energy projects and infrastructure starts with a government commitment to decarbonization and cannot happen without supportive policies and regulations that provide confidence to markets.
The Australian Energy Market Operator, a public company that manages the electricity and gas systems and markets in Australia, says that investment in Australian renewable energy infrastructure is needed “urgently.” Australian renewable energy developments are mainly funded with government support, with some limited private investment and project financing arrangements. By contrast, the Inflation Reduction Act in the United States uses tax credits to induce business investments in renewable energy, and has been reported to have led to around $350 billion of private investment in clean energy and related manufacturing.
But Australia is leveraging its significant natural resources to develop new methods of energy generation, in part for domestic use and also for export abroad. Solar projects are increasingly popular in Australia, with more than 80 projects connected to the grid since 2018, and total installed capacity exceeding 7,000 megawatts.
Mexico, another middle power nation, has long been profiting off its sunny climate, but through the export of solar power technology rather than solar electricity.
In comparison to Australia’s decentralized regulatory system, Mexico’s government plays a centralized and controlling role in solar energy development in Mexico. Legislation passed in Mexico this year requires that the government-owned national electricity company, the Federal Electricity Commission, retain control of at least 54 percent of annual average energy into Mexico’s grid, in energy projects developed through public–private partnerships.
Funding for solar projects in Mexico is also largely supported by the Mexican government. For example, Mexican President Claudia Sheinbaum recently announced a $4.9 billion investment for solar energy projects.
Without the incentive of competition in Mexico’s market, there is a risk of increased energy costs and an unreliable energy supply.
Mexico has turned to foreign investment to further support its domestic energy industry. The Mexico solar energy systems market generated $1.6 billion in revenue in 2022, with solar panels accounting for 43.75 percent of the market—the largest segment. The majority of Mexican solar panels are manufactured in Juárez, in northern Mexico, which is Latin America’s largest solar manufacturing location. The United States, Costa Rica, and Guatemala import 74 percent of Mexico’s solar panel exports.
The Federal Electricity Commission is a state-owned Mexican company responsible for generating, distributing, and selling electricity across the country. It was founded in 1937, with an original focus of extending electricity to rural areas, and now supplies electricity to over 90 percent of Mexico’s territory.
The regulatory differences between Australia and Mexico indicate that, for middle powers seeking to enter the renewable energy market, there is no one-size-fits-all approach to regulation, as the International Energy Agency points out. Australia’s decentralized system encourages voluntary compliance through market incentives, and Mexico’s centralized approach leverages government control to drive investment. As global demand for renewable energy continues to grow, smaller economies can use their regulatory frameworks to drive economic development.
