Overshadowed by the United States’ extension of the Investment Tax Credit (ITC) and the Production Tax Credit (PTC) last year, Mexico’s cornerstone Energy Transition Law is quickly yielding results, lifting the lid on a renewable market primed for take off.
On March 29, Mexico concluded its first long-term power auction since more fully deregulating its electricity sector in 2013. The auction, it should be noted, was a smashing success, generating 227 bids from 69 tenderers. State-owned Comision Federal de Electricidad (CFE) – the still dominant player in the sector and the sole buyer for this first go-round – awarded contracts to develop more than 1,800 megawatts (MW) of wind and solar, or roughly 85 percent of the energy on offer.
To be sure, solar was the undisputed star of the auction, which was also open to hydroelectric and geothermal providers; of the 11 winners, seven are PV companies.
Italian multinational Enel Green Power (EGP) was the largest winner, receiving three contracts across northern and central Mexico for a total capacity of nearly 1 GW. The company will invest approximately $1 billion in the construction of the new PV facilities, cementing its status as the largest renewables operator in Mexico.
US-based SunPower is a notable runner-up, coming away with nearly 500 MW in power purchase agreements (PPA). SunPower and its local subsidiary Vega Solar look to install roughly 400 MW of PV in Yucatan and 100 MW in Guanajuato.
Chinese manufacturer and developer Jinko Solar rounds out the top three, with 188 MW in pending contracts. Spain’s Acciona Energia and Chinese manufacturer Envision Energy received the largest wind contracts at 168 and 90 MW respectively.
Diving deeper into the particulars, the contract prices are especially striking. The wind and solar projects, and the accompanying Clean Energy Certificates, were sold at a weighted average price of $45.56 per megawatt-hour (MWh) – EGP’s 427 MW Villanueva facility settled at an astonishingly low $35.44/MWh. For comparison, EGP was awarded a global record $47.98/MWh PPA in Peru in February.
With completion deadlines between January and March of 2018, the government hopes the auction can generate additional investment of around $2.6 billion in the next two to three years. With that said, Mexico has bigger plans.
The country will host a second tender, due in August, which could spur $4 billion in investments for clean energy projects. The August auction is expected to draw bids from many of the same players, though it will aim to improve terms for hydropower and combined-cycle gas projects.
The newfound legislative clarity, low labor costs, and already excellent environmental conditions have made Mexico one of the hottest markets for renewables in Latin America. Moving forward, it’s only getting hotter. Mexico’s GDP is strong, and growing, and the country is estimated to require up to 22 GW of new generation capacity by 2025, up more than 40 percent from today. Moreover – despite a short-lived drop – electricity prices remain relatively high.
As it stands, new demand for solar PV in Mexico is projected to reach 646 MW in 2016 and 1,513 MW in 2017 – that’s growth of 521 and 134 percent respectively year on year. By 2030, the market for new solar could be as high as 4 to 6 GW annually.
Wind growth could prove more dramatic still. Installations are estimated to reach 800 MW this year, up 14 percent from 2015. By year’s end 2018, the government is determined to see capacity more than triple to 9.5 GW; it’s targeting 15 GW by 2022.
The targets are certainly ambitious, and unlikely to be fully met, but – as the country races toward its goal to generate 35 percent of electricity from nonfossil sources by 2024 and 45 percent by 2036 – renewables are the surest bet south of the border.
First published at Oilprice.com