Mexico: renewables at auction

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On March 30th, Mexico completed its first long-term renewable energy auction. In doing so, Mexico came through with the promise to pursue a cleaner energy matrix and cheaper prices for energy. This round of bidding included only one buyer, the public utility CFE, which continues to dominate Mexico’s electricity sector (see previous posts on launching of wholesale market and permits), but regulators are hopeful that future bids will include other large consumers. This post provides information on the outcome of the auction. The next post will explain the use of Clean Energy Certificates in promoting long-term investment in clean energy.

The auction

At the end of the day, CFE walked away with contracts for 5,402 GWh of energy per year, which amounts to 85% of what it sought to buy. The energy came packaged with clean energy certificates (Certificados de Energías Limpias, CELs), in roughly the same number. In the auction, CFE also sought to buy capacity, but none was offered, probably because the price was too low since the system already has reserve peak capacity.

The auction was a success, despite maximum prices that were very competitive, which some thought would scare off bidders. It showed that the energy reforms are working and can indeed bring change to the system. The success was even greater if compared to the outcomes in some of the bidding rounds for oil & gas, which indicates that the market for renewables can grow with some independence from the price of fossil fuels.

The following table shows the details of the auction, by technology.

A few highlights

  1. The investment that will ensue from this auction are huge, even if below the Mexican government’s initial expectations: USD 2.1 – 2.5 bn have been announced to build the 2,753 MW of green capacity.
  2. As mentioned above, prices are very competitive. CFE is, as always, well positioned to take advantage of the differentials between competitively-priced new energy and the existing prices. It would be nice if some savings were passed on to consumers.
  3. Eleven bids were selected from 7 of 69 participating companies. A reported 103 bidders applied to qualify.
  4. Italy’s Enel emerges as the largest renewable energy producer in Mexico.
  5. 15-year PPAs have to be signed by July 12, 2016.
  6. The first batch of CELs was sold. How this market will work will be the subject of the next post.
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