Is the deregulated energy market in Mexico still open for new commercial users?
Yes, although there has been a lot of news about the regulatory climate in Mexico, we are still assisting commercial and industrial users to move to the deregulated energy market in Mexico.
Can a company still find attractive Power Purchase Agreements in the current regulatory environment?
Yes, a company that consumes more than 1 megawatt of power can migrate to the deregulated market in Mexico. The company can register as a Qualified User and solicit bids to procure energy from a range of suppliers. CFE Calificados is also a supplier in the deregulated energy market. The 1-megawatt threshold can be met through demand at one facility, or by combining multiple locations under one power purchase agreement. This increases complexity, however, which can impact pricing.
What is the average tenor of PPAs in Mexico?
The average tenor of PPAs in Mexico can range from three years to 20 years depending on the supplier. The most popular tenor for corporate PPAs for our clients is five years.
How long is the registration process for new Qualified Users?
A necessary requirement for companies to purchase energy in the private market is registration as a Qualified User. In the past, this process took roughly two to three months, but this process takes roughly six to nine months now.
What discounts are available from renewable energy power purchase agreements in Mexico?
Due to the regulatory environment with respect to new utility-scale projects in Mexico, the large suppliers have been reluctant to put forth aggressive bids at our RFP auctions like in the past. However, we are still seeing discounts of 5% to 15% for new Qualified Users in Mexico.
Is there a large amount of capital needed to switch to a private supplier?
Generally, a company will have to purchase new meters for the location. Depending on the plant specifications and the location, new transformers and telecommunications equipment may be needed. Important to note, we can help customers lease this equipment and avoid all upfront capital costs when migrating to Qualified Supply.
How long does the procurement process take?
The process from the signing of the power purchase agreement (PPA) to the start of supply can take from six months to up to one year. The first 30 to 60 days are developing an energy procurement strategy and assessing bids from our network of pre-qualified energy suppliers. We then negotiate pricing, terms, and key contract clauses on your behalf which takes roughly three weeks to complete.
Can a company sign multiple PPAs with different energy suppliers?
Yes, a company can choose the PPA from the supplier that offers the best pricing for a specific location. If a company has multiple facilities throughout Mexico, it can purchase energy from different suppliers. However, this increases the complexity and costs of receiving multiple energy bills each month, the need for multiple letters of credit, and having to negotiate and analyze multiple PPAs before signing.
Is it always cheaper to buy energy in the deregulated market?
Not necessarily. Depending on the location and the consumption at the facility, there are instances where it is prudent to remain with CFE Basic Services.
What are the main risks for Qualified Supply in Mexico?
The main near-term risks are the continued inability to receive generation permits for the private utilities operating in Mexico. Social risks and the responsible engagement of the community and stakeholders will remain to be important risks to manage for renewable energy suppliers.
Are there any other risks associated with PPAs?
A key issue to be aware of is that all legally binding power purchase agreements are in Spanish. While English translations are available, it is the Spanish language PPA version that will be legally binding. We believe firms should use local attorneys and consultants as part of the negotiation process.
Contact us to learn more about the energy procurement process. Mexico Energy Partners provides industrial and multinational companies with the largest energy savings in Mexico.