Mexico tees up another PPA auction

Mexico tees up another PPA auction

April 12, 2016 | By Keith Martin in Washington, DC and Raquel Bierzwinsky in New York|Mexico City

Mexico has scheduled the next auction for long-term power contracts for August. Bidders will be invited to participate in April.

Contracts to buy power from 2,191 megawatts of solar projects and 562 megawatts of wind farms were awarded at the end of March. The August auction is expected to be 50% bigger. The deputy secretary of electricity told a Bloomberg New Energy Finance conference in New York in early April that the government hopes hydroelectric and combined-cycle gas projects will do better in the August bids.

The winning bidders in the March auction offered to supply solar electricity at a lower average price than wind electricity.

The average price for solar was $50.73 a MWh for a package including both energy and clean energy certificates, called CELs, while the average price for wind was $58.99, according to the Energy Ministry. 

The auction had to be rerun because the price algorithm was originally run without regional adjustments. The adjustments helped projects in Yucatan state make the final cut.

There were 227 bids from 69 companies. Eleven companies were awarded a total of 18 contracts: 12 for solar and six for wind.

The contracts start in 2018, but must be signed by July this year. They are with an affiliate of the Comisión Federal de Electricidad. They provide energy payments for 15 years and the right to sell CELs for 20 years.

The government expects that winning projects will require $2.6 billion in investments.

PPA payments may be denominated in pesos or US dollars. If in pesos, 30% of the price will be adjusted for inflation and 70% tied to the exchange rate for the US dollar, making it possible to finance projects with dollar-denominated debt. This may lead to dual-tranche financings, with a commercial bank tranche, possibly for as long as 15 years, and a development bank tranche of up to 20 years. Lenders are already in talks to provide financing.

The biggest winners were Enel Green Power and SunPower, which won contracts for three solar projects each, in the case of Enel with a combined capacity of 787 megawatts and in the case of SunPower with a combined capacity of just under 900 megawatts. These projects are expected to generate more than 60% of what the CFE agreed to buy at auction.

Total generating capacity in Mexico was 62,233 megawatts at the end of 2014.

A new law in December sets renewable electricity targets at 25% by 2018, 30% by 2021 and 35% by 2024. Mexican installed capacity was 25.3% renewable energy in 2015, but renewables accounted for only 18.2% of output.

In separate news, the Economy Ministry told the Mexican solar photovoltaic trade association, Asolmex, in a ruling in early April that solar panels can be imported without any import duty. The normal duty is 15%. In order to qualify, the project in which the solar panels will be used must be registered under a special program called PROSEC. A solar project should qualify as long as the project company owning the project is a Mexican entity and the project is registered with the Economy Ministry as a power generator before importing the panels.