Power Sells at Almost $20 in Mexico Market, Close to Texas Price

  • Competitive power markets seen boosting demand for natural gas
  • Shift is seen decreasing role of oil in power generation

Power sold at 354.69 pesos ($19.21) a megawatt-hour in the first day of trading on Mexico’s competitive electricity market, just below the price in Texas, as the country continued its shift away from state control.

Wholesale electricity trading began in Baja, California, one of the country’s nine regions, Energy Minister Pedro Joaquin Coldwell said in a press release Wednesday. Trade on the national grid will begin Friday. The market, operated by National Electricity Control Centre, or CENACE, will make power prices public, according to the statement.

Mexico passed sweeping energy reforms in December 2013 to spur competition and encourage private and foreign investment as declining oil and gas production led to shortages and hindered growth. A competitive power market will further the transition, and bolster the country’s efforts to add renewables and burn more gas instead of oil, according to Genscape Inc.

The U.S. “gas market would dearly love to have other sources of demand,” said Hudson Gilmer, vice president of commercial markets at Genscape in Boston. “There will be a lot more gas flowing into Mexico. Part of Mexico’s motivation for doing this is decreasing reliance on oil-fired generation and shifting the generation fleet to natural gas and renewables.”

U.S. Exports

Mexico released power-market guidelines in 2014 with a design similar to the U.S. The grid operator started the so-called day-ahead market on Wednesday, where power supplies were procured through a competitive bidding process to serve the Baja California region for the next. 

The cost of power supplies on Thursday there will be 354.69 pesos ($19.21) per megawatt-hour based on the average for every trading point for the entire 24-hour period, according to CENACE’s website. Then the spot market will be used to buy extra supplies or sell excess output depending on actual demand versus forecasts.

The price in Baja, California, is similar to Texas, where day-ahead prices for Thursday cleared at an average of $20.35 a megawatt-hour for the state grid. Baja, California, is less populated than Mexico City, so prices may be higher for those high-demand urban centers when they join the market.

“The big problem in Mexico has been the lack of transparency,” said Gilmer, who is leading the data provider’s effort to provide services in Mexico. “It’s providing a more open market for independent power producers and they will in all likelihood be building more gas-fired and renewable generation.”

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