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Mexico’s CFE Gives green light to three natural gas power plants

Mark Repsher, energy markets expert at PA Consulting, comments on plans to build three natural gas-fired combined cycle power plants in Mexico.

Read the full Natural Gas Intelligence article here

Mexico's state power utility, the Comisión Federal de Electricidad (CFE), has approved the construction of three natural gas-fired combined cycle power plants with total capacity of 1,720MW. The projects will be built in the center and northeast of the country. At present, the CFE's 157 power plants have a combined effective capacity of 43GW.

The CFE also plans to build the 42MW Baja California Sur VI internal combustion plant by 2022. CFE officials have mentioned that they aim to conclude all construction in three years.

Mark says that target could be over-ambitious. "That's not to under play the CFE's capacity to undertake such a program. But there are two big issues with which they're trying to do. One is the timing, which appears to be very accelerated, taking account of the experience of such plans being carried out by the CFE and private developers in the past. Then it took about five to six years to build a plant."

The other problem is money. CFE reported a net loss in this year's first quarter of 13.9 billion pesos ($716 million).

Mark adds that CFE's balance sheet would not be able to support these projects and the government doesn’t have an endless reserve of money.

Mark continues: "In the 2020-27 period we see the need for some 10 gigawatts of combined cycle capacity in the Mexican market, so that's not out of line with what the CFE is proposing to do, though with a timeline a little bit longer, taking into account load growth rates and retirements of plants. And our general assumption is that most of the projects will come out of the private sector."

Mexico expects to add an estimated 29,294 MW of combined-cycle gas-fired power generation capacity over the next 15 years. Amid surging production of inexpensive gas in the United States, Mexico has undertaken a massive buildout of gas pipelines since 2012, and has sought to switch from fuel oil to gas in the power sector. The recent end to a pipeline conflict between the CFE and pipeline developers should help to further the spread of natural gas throughout Mexico.

Mark concludes: "Whether the CFE or Iberdrola, building the combined cycles is going to create a severe uptick for demand in natural gas in the country. And they are probably peeking not only at combined cycles but installations, renewables, they're really looking at the whole playing field."

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