As part of ongoing energy reforms, Mexico’s authorities aim to reduce costs, protect the environment and develop power sector infrastructure by stimulating competition in electricity generation and transmission, while the National Centre of Energy Control (Centro Nacional de Control de Energía, CENACE) maintains control of transmission by managing the power grid.

The state-owned Federal Electricity Commission (Comisión Federal de Electricidad, CFE) has long been the dominant player in Mexico’s power market and remains the sole retail provider to homes and smaller consumers. This changed in 2016, however, with the establishment of a wholesale electricity market in the country through which private firms are now able to sell the power they generate. The short-term wholesale market began operating in January 2016, allowing generators to bid to supply the national grid on a day-ahead basis, with prices per MWh during the first half of the year ranging from MXN880 ($53.04) to MXN1100 ($66.30). To establish longer-term power supply arrangements, CENACE oversaw two auctions during 2016, with a third scheduled for April 2017.

First Auction

In March 2016 the first ever long-term auction for the development of new electricity generation capacity resulted in seven clean energy firms being awarded 11 contracts for over 1.8 GW of capacity. According to local press, 69 participants lodged 227 bids in what was a highly competitive process. In total, the seven chosen firms are expected to invest $2.1bn by 2018, with 56% of the installed capacity to be accounted for by solar power, supplying Aguascalientes, Coahuila and Guanajuato, and the remaining 44% supplied by wind energy to Tamaulipas and Zacatecas.

CFE was the only buyer participating in the auction, and undertook to purchase 5.4m MWh per year for 15 years from 2018. This represents about 2% of the country’s existing generation capacity and 85% of the 6.3m MWh it had sought. During the auction, CFE also acquired 5.4m tradeable clean energy certificates (certificados de energía limpiados, CELs), 85% of the 6.3m it was seeking. These will help CFE meet a new law set to be enforced in 2018 requiring 5% of all electricity used to be provided by sources that do not emit carbon. From the point of view of the power generator, the CELs help compensate them for the added cost of installing renewable power technology.

For solar power, the average price per energy package was $40.50, including 1 MWh and an accompanying CEL. The equivalent wind-power bundle came in at $43.90. The competitive nature of the bidding process led to what was at the time the lowest-ever price for solar tendered at an auction. The competitive pricing was in part attributed to advances in clean energy technology that have reduced its cost.

Second Auction

Building on the success of the first auction, a second was held in September 2016. Of the 57 bidders in attendance, 23 from 11 different countries were awarded contracts for the provision of 2.9 GW of new electricity capacity. This is equivalent to 3% of the country’s existing generation capacity. Authorities expect this will give rise to total investment in solar, wind, hydroelectric and geothermal power generation capacity of around $4bn over the next three years.

In addition to 8.9m MWh in energy, CFE also purchased 9.3m CELs and 1187 MW years of transmission capacity. The split between solar (54%) and wind (43%) was similar to the first auction, although 2% was given over to a geothermal generation – the only project allocated to CFE over the course of the two auctions. 72% of the total transmission capacity was accounted for by combined-cycle generation. Surprising analysts, the average price per MWh came in at $33.50 per MWh plus accompanying CEL. Indeed, there are concerns that such prices could be unsustainably low.

Third Auction Planned

A third long-term auction is scheduled to take place on April 28, 2017, during which private companies will – for the first time – be able to purchase electricity alongside CFE.