TREND: Great expectations for Mexico's first power auction

Monday, August 24, 2015

Mexico's energy ministry (Sener) said this month that the bidding process for Round One for the awarding of power generation contracts will get underway in October, raising expectations among investors keen to participate in what will become a wholesale power market from January 1, 2016.

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The auction, which is due to be held in March next year, will be the first as Mexico works to develop a wholesale power market – an objective of the country's energy reform. The definitive wholesale power market regulations will be published at the end of August, energy minister Pedro Joaquín Coldwell said this month.

Sener had said in July that it would launch the first tenders for geothermal power generation in August, after state utility CFE was granted permits to explore 13 areas in seven states and permits to continue geothermal generation at the four plants already in operation in Mexico: Cerro Prieto, in Baja California; Los Humeros, in Puebla; Los Azufres, in Michoacán; and Tres Vírgenes, in Baja California Sur, with a total generation capacity of 874MW.

However, which projects will be put out to tender in the first and subsequent rounds of electric power auctions remains unclear, though they could include some of the projects announced in June by the CFE as part of a near-US$10bn package of energy infrastructure tenders.

The tender may also include renewable energy projects, given the binding renewables targets stipulated in the energy transition law, approved last December

The law dictates that 25% of power must be generated from renewable sources by 2018; 30% by 2021; 35% by 2024; 45% by 2036; and 60% by 2050.

Projects may include the Los Azufres III geothermal plant, the Sureste wind farms, and the Empalme II, Baja California VI, Noreste, Topolobampo II and III and San Luis Potosí combined-cycle power plants.

Total investment in the electricity sector is expected to be US$14bn through 2018 as a result of the energy reform, Sener's undersecretary for electricity César Hernández has said.

In July, Sener launched Mexico's electric power system development program Prodesen, which includes projects to develop new transmission lines and aims to upgrade and expand the national grid to meet growing demand, raise the quality of services, lower prices and reduce greenhouse gas emissions.

Prodesen will also serve as a reference point for investment in transmission and distribution infrastructure, including a high-voltage line from the isthmus of Tehuantepec to the country's central region, Sener said.

Mexico's center for national energy control Cenace will oversee the wholesale market once it launches, and how Cenace performs will be a key driver of the wholesale market's development in the coming years, according to BNamericas' latest Intelligence Series report on the country's electric power sector.