Project Finance Blog

Sixteen projects awarded PPAs in Mexico's third power auction

Posted in Blog article

With an average price of US$20.57 per MW of clean energy (MWh + clean energy certificate), the Mexican independent system operator (CENACE) announced the official results of the third long-term power auction. The average price of energy and clean energy certificates in this auction is almost 40% lower than the average of $33.47 obtained in the 2016 second long-term power auction.
From the 16 awarded projects, nine of them are solar photovoltaic, six are wind farms and one is a gas-fueled plant that was awarded a PPA for capacity only. During the term of the PPAs, the winners will jointly supply each year approximately 5.5 million MWh, 6 million clean energy certificates and 592 MW of capacity. As with the first two auctions, energy, capacity and clean energy certificates are the three awarded products and the terms of the PPAs remain 15 years for the sale and purchase of energy and capacity and 20 years for the sale and purchase of clean energy certificates.
This is the first long-term auction that allowed purchasers different from CFE Basic Supply to post purchase offers for the acquisition of the auction products. This third auction has two private offtakers -- Iberdrola Clientes and Menkent (a subsidiary of Cemex) - which jointly will acquire approximately 9% of the total awarded products.
Another special feature of this auction is the introduction of a Clearing House, which will be a private financial institution that will serve as a neutral intermediary and administrator of the PPAs. Contrary to the first and second auctions, where PPAs were executed directly between the sellers and CFE as sole purchaser, the counterparty to each seller and purchaser will now be the Clearing House. The Clearing House will also administer a risk mitigation mechanism or safety net, which was created to protect each portfolio of sellers and purchasers from defaults by one or more sellers or purchasers. As part of this safety net, the Clearing House will administer the guaranties delivered by purchasers and sellers under their respective PPAs, to ensure that the sellers under their PPAs receive the corresponding payments for products sold, and the purchasers under their PPAs receive the purchased products.
Until an independent Clearing House operator is appointed by CENACE through a competitive process, CENACE will assume the role of the Clearing House. An operator is expected to be appointed by March of next year and prior to the execution of the PPAs, which must occur no later than March 16, 2018. Fourteen of such projects must achieve commercial operations in June 2020, and the remaining 2, in July 2019.


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