The third power auction in Mexico achieves record low prices

Last 15 November, the bid assessment and preliminary results of the Third Long-Term Power Auction 2017 in Mexico were announced.

As with the two previous auctions, the Basic Service Supplier (CFE Suministro Básico) will purchase three electricity products: energy, capacity and clean energy certificates (CELs in their Spanish acronym) from the successful generation companies. Thanks to the Compensation Chamber set up by CENACE, Mexico’s system and market operator, this latest auction offered a major innovation, in that it was open to buyers other than the Basic Service Supplier. Bids were submitted by Iberdrola Clientes and Menkent (CEMEX), thus opening up new possibilities for large energy consumers to acquire clean electricity through competitive processes, with the opportunity of achieving better prices.

With a high level of participation, 46 bidders submitted tenders from which 16 were finally pre-selected. The auction was historic due to the low price achieved, closing at an average energy price of 20.57 $/MWh, one of the lowest ever recorded at international level.

The preliminary results of 15 November were validated by CENACE soon after, with the official winning bids and final decision announced on 22 November.

The selected bids account for an annual total of: 5.49 million MWh of energy, 5.95 million in CELs and 593 MW of capacity. This has covered 90.2% of the energy purchase bid, 97.8% of the CELs bid and 41.9% of the capacity bid.

The winning projects represent a total capacity of 2,562 MW, distributed between 15 new clean energy plants in eight states around the country, specifically nine solar, five wind power and one gas. As regards the output (definitive capacity) that will be sold as a result of the auction, gas technology predominated, with 84.36% of the output sold. Solar PV and wind power technologies also took part in the sale of capacity with 1.69% and 13.95% respectively.

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As regards the sale of energy and CELs, solar PV technology dominated, with 55.35% of the power sales and 58.31% of the CELs. Wind power was awarded 44.65% of power sales and 41.69% of CELs.

The clean energy purchased through this auction equals around 1.78% of the country’s annual power generation. This result represents a significant contribution to meet the target of generating 35% of Mexico’s electricity from clean sources by 2024.

The commissioning of these new infrastructures represents an estimated investment of US$2.369bn over the next 3 years.

Prices

The results showed highly competitive prices compared to the previous auction. The average prices corresponding to the successful bids were as follows:

• Clean energy (energy + CEL): 20.57 $/MWh + CEL (38.54% lower than the previous auction) and among the lowest achieved at international level.
• Capacity: 36,253 $/MW-year.

These prices represent savings of 65.7% for clean energy and 34.33% for the capacity compared to the maximum purchase offer prices of 60 $/MWh and 55.2 $/MW-year respectively.

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7,451 MW of new clean generation capacity, thanks to the auctions

Following the conclusion of the three Power Auctions, 7,451 MW of new clean generation capacity will be added, with some $9bn of resources, allowing Mexico to move closer to the national objective of 35% of generation from green energy sources by 2024. At the start of the administration, solar and wind power accounted for just 4% of the country’s total power generation. With these new projects, this percentage will increase to 11%.

At the event that took place on 22 November, Secretary of Energy, Pedro Joaquín Coldwell, took the opportunity to announce the launch of the Fourth Long-Term Power Auction, to be presented by the Energy Regulatory Commission (CRE) during the first half of 2018, along with the first Medium-Term Auction to be undertaken by SENER together with CENACE.

He also commented that work is already underway on the bidding procedures for the project to connect Baja California to the National Interconnected System through the state of Sonora. With an investment of $1.109bn and almost 2,000 kilometres long, this interconnection will improve the reliability of the power grid and the energy integration with North America, enabling the NE of the country to incorporate around 2,000 MW of solar and wind power over the coming 15 years.