Mexico's Next Power Auction May Spur $4 Billion for Renewables

  • Auction due in August may be 50% bigger than last week's
  • Second auction sweetens terms for hydropower and gas projects

Mexico may raise as much as $4 billion for clean energy projects this summer as the government seeks to continue a tender process that produced its first results last week.

The next auction due in August will be 50 percent bigger than the one that just concluded with expectations for $2.6 billion of investment in the renewables, said Cesar Hernandez, deputy secretary of electricity for the nation. The August tender is designed to encourage hydroelectric and combined-cycle gas projects to bid in addition to renewables developments. Companies will be invited to participate in April.

The auction finished on March 29 followed from the government’s decision to end its decades-long monopoly over the electricity business. Acciona SA, Enel Green Power SpA, SunPower Corp. and Recurrent Energy were among the 11 companies that won rights to generate and sell 2,085 megawatts of clean power to the state-owned Comision Federal de Electricidad.

"For the next auction, we will follow the same model as we had in the first one, which was a very competitive process," Hernandez, said in an interview at the Bloomberg New Energy Finance Summit in New York. "The minimum price for hydroelectric and combined cycle projects can change, as they weren’t competitive in the first one and we want to introduce them too."

Winning Bidders

A total of 18 projects won contracts at last week’s auction, with solar farms getting 1,691 of the megawatts contracted and wind accounting for 394 megawatts.

"With the first auction, Mexico proved it can bring new players to the market, and developers could bid at low prices, with profitable projects," said Rafael Mateo, chief executive officer of Acciona Energia. "We will participate in the next auction with more than 500 megawatts of wind and solar."

Acciona won a contract to build a 168-megawatt wind farm in the state of Tamaulipas. The El Cortijo project is scheduled to begin operations in 2018. The Alcobendas, Spain-based company has set a target of 1 gigawatt of installed capacity in Mexico by 2019, doubling its current position.

Continue bidding

SunPower, which won about 500 megawatts of projects in the first auction, also expects to continue bidding into Mexico’s market, said Chief Executive Officer Tom Werner. The company has a panel factory in Mexico with annual production capacity of 1 gigawatt, and it’s helping SunPower win bid in the country, he said.

Mexico’s power auctions let developers bid for contracts in pesos, indexed to U.S. dollars, a rule that has helped attract investments, according to Roger Gonzalez Lau, CEO of Cemex Energia.

"If you don’t have that, who will come?" he asked.

With the rule, Mexico’s government has sent a message to the market that exchange rates are not an electric business’s risk, but an economic one, according to Hernandez.

"It was definitely one of the successful elements of the first auction and it will be kept for the second one," he said.

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