Mexico's First Power Auction to Offer Contracts in U.S. Dollarsby and
Event seen spurring development of clean-energy plants
Final rules for energy auction to be issued in October
Mexico’s first-ever energy auction will award contracts priced in U.S. dollars in an effort to make the country’s newly opened power industry more attractive to developers.
“Contracts in dollars are simply easier,” Leonardo Beltran, secretary of Mexico’s Energy Ministry, said in an interview in his Mexico City office. “The auction will be the first exercise to test Mexico’s power appetite. It will help us to understand the supply and demand of energy.”
The Mexican peso has tumbled 13 percent against the dollar this year, and contracts priced in the more stable U.S. currency will help developers prepare proposals and arrange financing, Beltran said.
Mexico is restructuring its energy markets in an effort to spur billions in investment, a historic overhaul approved in 2013 to open state-run monopolies in the oil and electricity industries. It’s seeking proposals for traditional thermal-power projects, co-generation facilities and clean energy for the auction scheduled for March.
Final rules for the event will be issued next month. Developers are waiting for details such as possible tax benefits for renewable energy or different ceiling prices for each energy source. The country is planning at least one auction a year, Beltran said.
Most power plants in Mexico use imported equipment financed with dollars, and using the U.S. currency will reduce risk, according to Lilian Alves, an analyst at Bloomberg New Energy Finance in Sao Paulo.
“Contracts in dollars make it easier for the participation of foreign investors and banks, which can offer more attractive rates in U.S. dollars,” Alves said in an interview. The peso slumped Thursday to the lowest in a month amid an emerging-market sell off.
Developers will be bidding for 15-year contracts to new generation projects of any type, including nuclear, thermo-electric and renewables. Clean-energy plants will also be able to sell 20-year clean-energy certificates, which large electricity consumers buy to meet an obligation to get 5 percent of their energy from sustainable sources by 2018.
Latin America’s second-largest economy will double its electricity demand over the next 25 years, according to New Energy Finance. The government has set a goal of getting 35 percent of its energy from clean sources by 2024, up from 25 percent now.
Mexico is seeking to add 20 gigawatts of clean energy in the next 15 years, according to the National Electricity System Development Program released in June. The country has forecasted as much as $62.5 billion in private investment in the energy industry by 2018.
Renewable energy in Mexico must contend with declining power and oil prices and a weakening currency, according to Roberto de Leo, director of new market development at the Mexico City-based solar energy company Solartec.
“The clean energy certificates and the auction are two initiatives that can be an incentive for the sector,” he said. Solartec is evaluating options to determine if it will submit bids for solar projects in the auction.
A significant number of wind, solar and co-generation projects are expected to win contracts in the auction, according to Adrian Escofet, president of Mexico’s Wind Energy Association. Co-generation plants in Mexico typically use natural gas fueled thermoelectric plants, that recycle the heat to generate additional power. Fluctuating oil prices will make it harder for fossil-fuel projects to compete for long-germ prices, he said.
“It is a good moment for an electricity auction in Mexico,” said Beltran. “There are many companies that are waiting for the final rules to materialize their investments in renewable energy.”