The Success of Energy Auctions in Mexico

The Success of Energy Auctions in Mexico

Energy auctions are a powerful instrument resulting from the Mexican Energy Reforms. These auctions incentive investment to achieve the national clean energy targets. The goal is to achieve a share of 24% of renewable energy by 2018, increasing to 35% by 2024.

Clean Energy Certificates and CENACE

The National Center for Energy Control (CENACE) was created from the energy reforms and is the organization in charge of auctions for the three categories: energy, capacity, and Clean Energy Certificates (CELs).

Capacity and energy auctions are intended to select the generators that will supply basic users in the future, with the awarded generators signing Power Purchase Agreements (PPAs). The main offtaker in Mexico will ultimately be CFE, the state-owned utility.  The CELs are auctioned according to the annual CEL quota, with each CEL representing 1 MWh of clean energy.

 

Major Players Interested, Record Solar Prices

The first auction was in March 2016 allocating energy and CELs to seven photovoltaic power plants and four wind farms. Although the total sum of energy and CELs could not be assigned, the auction set a precedent. For the first time in its history, Mexico witnessed a deregulated energy market. Companies such as Enel Green Power, Canadian Solar, and Alten Energías Renovables are some of the companies benefited from this first auction.

The second auction was in September 2016 and included geothermal and hydro and the results exceeded most expectations in terms of pricing. According to CENACE, prices for energy and capacity were 44.2% and 64.1% less than the value that CFE expected to pay, which would be reflected in residential kWh prices.

In the third auction, in November 2017, despite of assigning fewer CELs and less capacity than in the second auction, energy prices plummeted. This led to one of the lowest prices globally of $20.57 USD per MWh. To put this in context, in 2016, energy prices for the U.S. and the U.K. were $130 and $200 USD per MWh respectively. The price achieved by Mexico is comparable with energy prices in Saudi Arabia ($20 USD/MWh), but from renewables.

 

Still One Major Risk Hindering Renewables

A problem that renewables still face became evident in the auctions: storage. The winners for capacity were mostly combined cycle plants, and this trend is expected to continue in the short-term. Geothermal and hydro could eventually compete, but they would require more planning and investment.

The success of the three first auctions certainly caught the attention of stakeholders around the world. The fourth auction will be carried out by the end of this year and we expect prices to be 6%-10% lower than in the previous auction.

Please contact Paola Moreno, Senior Consultant, for more information on how to capitalize on the energy auctions in Mexico. Latam Energy Advisors can also help U.S. suppliers access export opportunities related to the power sector in Mexico. Visit us on YouTube and Twitter for more videos and webinars on the energy reforms in Mexico.