• Phone
  • Contact us
  • Locations
  • Search
  • Menu


  • Add this article to your LinkedIn page
  • Add this article to your Twitter feed
  • Add this article to your Pinterest board
  • Email this article
  • View or print a PDF of this page
  • Share further
  • Add this article to your Facebook page
  • Add this article to your Google page
  • Share this article on Reddit
  • Share this article on StumbleUpon
  • Bookmark this page
Close this video

The second Mexican renewable energy auction: what has changed…

By Jim Heidell, PA Mexico energy expert

On July 4 CENACE published the details on the quantity of energy, clean energy certificates (CELs), and capacity that CFE has targeted to purchase to serve its basic supply customers. The targeted 10,630 GWH of energy and CELs is almost twice the amount purchased in the first auction, which concluded at the end of March. The first auction not only ended with average clearing prices at $45/MWH for the solar contracts and $47/MWH for the wind projects, but there was also an additional 164 qualified bids for approximately 46 million MWH at an average price of $54/MWH that were not awarded contracts.

We expect the second auction to be just as competitive with bidders continuing to accept low returns on capital based upon industry trends. Given the low effective returns, bidders will have to be creative to manage risk and deliver projects with positive earnings.

Lessons from the first auction

The first auction accepted approximately 6 million MWH. The supply curve below illustrates that many bids were rejected at prices only slightly above the accepted bids and below the maximum price CFE was willing to pay, i.e. the supply exceeded the demand. Some potential bidders did not participate in the first auction as they wanted to see how the process worked. We expect many of the bidders from the first auction as well as new bidders to participate in the second auction. There are a number of potential bidders that have an ongoing interest in securing an early entry position in the Mexican market. We also expect to see continued aggressive pricing given the current cost of capital, continued price declines in solar panels, and adequate supply of wind turbines and solar panels.

[ Zoom ]
Offer curve from first long-term auction

The offer to purchase curve, shown below, indicates that CFE is willing to purchase up to 9,000 MWH of energy and CELs at prices at $45.5/MWH or higher. Based upon the first auction results, we expect sufficient interest to meet the CFE offer to purchase below the maximum price. CFE is also indicated that they will purchase up to 1,483 MW of capacity with 1,185 MW having an associated price of $72-$90/KW-year (USD).

[ Zoom ]
Maximum offers to purchase

While we expect to see pricing in the second auction near or below the first auction, not all bidders are interested in establishing a “race to the bottom” and setting a new low clearing price. Despite the long-term contracts, the winners face significant economic risks including performance penalties for not meeting the January 2019 on-line date, uncertainty related to interconnection costs, and challenges in securing sites and necessary permits.

Factors bidders should consider

In the last auction the initial results were revised since the bid evaluation did not correctly take into account the location adjustment factors. The revisions highlight the need for bidders to consider the locational adjustment factors that impact the bid evaluation (but not the price paid to the developer). In addition, bidders need to consider the hourly adjustment factors that reflect the price paid to intermittent energy sources based upon when the energy is delivered and the interconnection costs; both of which impact the project’s economics.

The below table provides an example on how the annual price adjustment factor in the second auction paid to a hypothetical solar project changes over time and depends on the location. Based on the example one can see the significance that location and time has on the adjusted price paid by CFE.


PSPMAH 2019 2024 2029 2033
Monterey 0.34 0.13 0.13 0.14
Hermosillo 0.08 (0.08) (0.61) (0.61)


The auction provides a unique opportunity to participate in the new competitive wholesale electricity market and retain the traditional opportunity of selling to the utility under a long-term purchase power contract. While the expected return on investment is anticipated to be low, the contract structure reduces significant amount of market risks. For some participants, these are the right conditions to enter the new market and gain experience in the Mexican power sector.

Learn more about the first auction results and implications >

To learn more about Mexico's energy market, contact us now.

Find out more about our work in energy and utilities.

Contact the energy and utilities team

By using this website, you accept the use of cookies. For more information on how to manage cookies, please read our privacy policy.