Mexico’s 4th electricity auction – same structure, different context

Mexico’s energy ministry has stirred hopes of a fourth electricity auction, eight months after the government scuttled the event. 

Asked if the government was planning a fourth auction at a Siemens  energy forum hosted in Mexico City on September 18, energy minister Rocío Nahle said, “Probably, yes.” She then explained: “We’ll have one for 200MW, around Aguascalientes or in that area, which is to say, where it's needed, where it's required in order to have a balance [of energy] in the country.”  

Conferencia magistral con la Secretaria de Energía, Rocío Nahle

"The expected structure of the auctions is highly likely to be the same as the previous ones,” Kijana Mack, director at consultancy Mexico Energy Partners, told BNamericas, adding that this “will generate interest from investors because of the long-term structure and renewable energy component that has seen interest from the development banks.”

Financing for renewables often extends for twice the duration of standard corporate financing for electricity projects, with solar financing terms running at 15-plus years, versus 5-7 years for standard corporate financing. 

At the same time, plans such as the IDB's ME-L 1172 program are making more and more contingent loans to cover market risks. 

JANUARY AUCTION CANCELLATION 

In the wake of Mexico’s 2013 energy reform, three electricity auctions were held between March 2016 and November 2017. The auctions were hailed as a success, each one drawing winning bids from 11-23 private companies, and each auction steadily pressing down the average price of power per MW.  

Former US Energy Secretary Steven Chu praised the energy auctions for injecting free trade into Mexico’s energy mix, saying: “If you want to know the true price of renewable energy in America – free from subsidies and mandates – look to Mexico.”

Then, last December, the government postponed a scheduled fourth electricity auction, canceling it altogether in January, to the chagrin of global firms that had pre-qualified bids, including Engie, Iberdrola, Enel and Jinko.   

Since then, AMLO stalled private investment in gas pipelines, ordering five private firms to renegotiate transit fee terms with state utility CFE, while also dismissing Pemex farmouts. 

Increasingly, market participants decry AMLO’s meddling in the energy market. 

Nahle acknowledged this in her remarks. “We've spoken with almost all investors and the people involved in the auctions, because at the outset they were nervous [about] what was going to happen with their investments,” she said. Private investments, she insisted, “will be respected… they'll be given guarantees.” 

All the energy experts contacted for this story agreed that existing renewables projects were safe from government incursion. 

In January-June this year, contracts were signed for 125MW of solar panel installations, while projects such as Enel Green Power's 103MW Salitrillos wind park in Tamaulipas state, came online.

But concerns over the ultimate fate of the fourth electricity auction persist. Beyond being a means of generating clean energy, higher renewables output is seen as all the more vital because of Mexico's energy deficit.

PRESSURE WITHIN, COMPETITION ABROAD

“The auction announcement was the result of the pressure given to the government through the creation of two private auctions, Bravos Energía and Vitol,” Mack said. 

Since June, Bravos Energía has led the organization of a private auction for capacity, electricity and clean energy certificates (CELs), arranging contracts at 5, 10 and 15 years.  

Despite the rapid growth of renewables in Mexico in recent years, the whirlwind of moves by AMLO’s government in the energy market may mean that a fourth auction finds potential bidders weighing options elsewhere. 

“We must take into account the auctions and public bidding processes announced by other countries, such as Chile and Colombia, which have less political and regulatory risks,” Mack said. 

Meanwhile, Bravos Energía’s private auction is moving ahead.  The presentation of indicative offers for the private auction ends on November 21, with results expected to be announced in January 2020.