Mexico’s Fourth Long-Term Power Auction: An Update on SLP-1/2018
Background
As part of Mexico’s Energy Reform, on August 12, 2014, a new electricity law became effective. Prior to the law’s enactment, the Mexican electric industry was governed by a restrictive legal framework that limited private sector participation and reserved most of the market for the stateowned Federal Electricity Commission (Comisión Federal de Electricidad, CFE). Now, the generation and wholesale of electricity takes place under a regime of free enterprise and open competition.
Power Auctions
Under the new electric industry regime, the National Energy Control Center (Centro Nacional de Control de Energía, CENACE), the regulatory agency managing the wholesale electric market, may call for competitive bidding processes in which (i) qualified users and power suppliers (including CFE-affiliate companies providing basic and qualified services) may present offers to purchase power, capacity and clean energy certificates (CELs, and along with power and capacity, the “Products”); and (ii) generation companies (“Generators”) may present offers to sell Products. In this scheme, a power clearinghouse will be responsible for allocating offers to purchase and offers to sell, executing PPAs with both ends of the market.
To date, three auctions have been succesfully completed. For reference purposes, the Third Long-Term Power Auction (2017) resulted in the allocation of: (i) 5.49 TWh of power; (ii) 5.95 M CELs; and (iii) 593 MW of capacity.
Mexico’s Third Long-Term Power Auction resulted in a power + CELs weighted average price of US$20.57 MWh, one of the lowest on record, and a total estimated investment of US$2.369 billion over the next three years.
Fourth Auction
On March 15, 2018, CENACE published the announcement of the Fourth Long-Term Power Auction, which will award PPAs with a term of 15 years (and 20 years in the case of CELs). On March 28, the Bidding Guidelines were published.
The Bidding Guidelines provide that market participants interested in purchasing Products must present a registration application and an offer to purchase before CENACE.
CFE Suministrador de Servicios Básicos, an affiliate entitity of CFE, presented an offer to purchase (i) power in an amount up to 3,901,367 MWh/year; (ii) up to 3,901,367 CELs; and (iii) capacity in an amount up to 1,108.75 MW/year in the National Interconnected System (SIN), 220 MW/year in the Baja California System (BCA) and 79.05 MW/year in the Baja California Sur System (BCS).
