Natural Gas Has Often Played an Outsized Role in Driving the Price of Electricity and Wholesale Power
Power prices for the industrial sector are typically priced “at the margin”, and natural gas is often the marginal fuel (meaning it is the fuel used to run the plants that submit the highest accepted offer and thus sets the spot market electricity price at a given time).
Latam Energy Advisors is seeing a similar trend in Mexico, but a trend that is leading to more stability in near-term power prices. As natural gas continues to grow over the next three to five years, power prices for industrial users will continue to become more stable. Cheap natural gas from Texas and better pipeline infrastructure across Mexico will support more stable wholesale power prices in Mexico.
Power Market Dynamics Will be Similar to the US, But Pemex is Still Dominant
Latam Energy Advisors works with companies to navigate the complexity of Mexico’s recently opened power market. Many of the attributes are similar to what is available in the US. However, there are still dynamics related to Pemex’s position as the state-owned oil company that must be overcome. These issues relate to fuel supply guarantees and price caps that can affect the economics of private investors.