Prices drop further in Mexico's 3rd power auction

Mexico's third power auction saw some of the lowest prices for electricity in the world, at US$20.57/MWh, and will result in the construction of 15 new renewable energy plants in eight states, the energy ministry announced late Wednesday.

The government had already released the list of 16 bidders chosen in the auction on November 16.

Investment in new projects as a result of the auction is expected to be around US$2.4bn, adding 2,562MW to Mexico's generation capacity, while the new power stations will comprise nine solar plants, five wind farms and one gas-fired facility. Solar once again dominated the auction, as in the second auction in September 2016.

The second auction also pushed prices down by around 30% in comparison with the first, held in March last year.

"Renewable energy is a low-cost electricity option thanks to the extraordinary advances of technology," energy minister Pedro Joaquín Coldwell (pictured) said during the presentation of the auction results.

Mexico's prices are even lower than Chile's, which dropped to a record low of US$32.5/MWh in the country's most recent auction at the beginning of this month. That was 75% lower than 2013 levels, according to the South American country's national energy commission (CNE).

Mexico's three auctions so far will collectively add 7,451MW of clean energy generation capacity with around US$9bn of investment, and will help achieve the country's target of generating 35% of electricity from clean sources by 2024, as stipulated in the energy transition law. The law also aims for 45% of power generation from renewables by 2036 and 60% by 2050.

Only 4% of Mexico's electricity was generated by renewable sources in 2012, a figure that will rise to 11% with the latest projects awarded, Coldwell said.

He added that the date for the country's fourth long-term power auction will be announced in the first quarter of 2018.

Mexico will hold its first medium-term power auction in February.

The third auction differed from the previous two as it included the use of a clearing house, which acts as a counterparty in the signing of long-term power projects, both for the seller and purchaser, and which provides greater certainty to investors, Eduardo Meraz Ateca, director general of energy control center Cenace said.

The mechanism hedges against the risk of non-payment by either side.

State utility CFE will acquire more than 90% of the energy and clean energy certificates (CECs) that it had sought at the auction, which guarantees the satisfaction of the country's growing energy demand, chief executive Jaime Hernández Martinez said.

He said CFE will be acquiring electricity at a price 65% below the level it had anticipated for clean energy and CECs, a more than 30% reduction on the second power auction and half the price of the first auction.

The successful bidders in the auction were: