On March 29th the results of the first long-term clean energy auction were finalized. The results of this auction have been well publicized:
- The weighted average price of the solar contracts awarded was approximately $45/MWh
- The weighted average price of the wind contracts awarded was approximately $47/MWh
- Awards were made for 17 energy contracts to 11 entities for over 5.4 TWh
- Solar and wind energy’s share of the winning bids were 75% and 25% respectively
- Three companies captured 64% of the awards, and
- The awards represented only about 10% of the bids.
These results surprised many electricity market participants to Mexico due to the low clearing price and the level of participation in the auction. We believe the implications of the auction for the Mexican wholesale energy market are:
- Clean energy targets of 35% and 45% in 2024 and 2035 appear achievable from both a technical and economic perspective, due to the weighted average prices of $54/MWh for the over 46 TWh of rejected bids.
- Expect more near term activity in the renewable space given the auction results only represent less than one-third of the clean energy certificates (CELs) that the SENER has defined as needed in 2019 (16,500,000 in total).
- The renewable energy market will continue to be competitive based upon the depth of potential suppliers of renewable energy. 81 suppliers passed (103 applied) the initial submission and were qualified to participate in the auction after passing technical screening requirements and posting economic guarantees.
- Renewable energy prices are competitive with long term fossil based marginal energy costs suggesting a relatively low premium for clean energy certificates.
- The large amounts of renewables in the next decade will reduce demand for base loaded fossil generators with operating and flexibility will be a key attribute.
We continue to see opportunities in the Mexican wholesale power market for both owners and developers of fossil and renewable generation assets. However, we see a competitive market emerging and a corresponding need for investors to have a sophisticated approach to the market. At least knowing what we know now.
To learn more about Mexico's energy market, contact us now.