The Status of Energy Auctions in Mexico

May 01, 2020

The status of energy auctions in Mexico has become increasingly complicated, but private auctions still promise to help Mexico transition to clean energy

The Mexican government appeared to cancel the previously scheduled fourth public renewable energy auction. However, there was still demand for energy auctions because of the continuing need to meet clean energy targets. Companies, including Bravos Energía and Vitol, stepped in and proposed private auctions.

There have been even more changes during the last year. The Mexican government later clarified that the public renewable energy auction was merely delayed rather than canceled. Then, the private auctions were also delayed because of the coronavirus pandemic. Fortunately, the private auctions managed by Bravos Energía are now expected to conclude in May of 2020.

The immediate impact of private auctions will mostly be on existing projects, but they could lead to additional renewable energy development in the future. Some generators under construction were unable to contract all their energy or received overly low prices at previous auctions.

Private auctions will provide an opportunity to address these issues. Market conditions have shifted considerably, so there is a growing need for these new private renewable energy auctions. Contact us to learn more about the newly-deregulated power market in Mexico.

Regulatory Uncertainty Raises Risks

Although reforms to the electricity sector have faced headwinds in Mexico during the last several years, change continues amid regulatory uncertainty. The low point may have been reached when the government appeared ready to cancel the fourth renewable energy auction after several delays. The move toward private auctions and subsequent revival of prospects for a fourth public auction significantly improved the overall outlook.

There are also several other areas where regulatory uncertainty is a significant issue. Firms may encounter challenges when attempting to obtain permission to connect with the electricity transmission grid. Subsidies and tax breaks for renewable energy projects could be reduced now that budgets are under pressure in Mexico. Attempts by the government to strengthen the state-owned electric utility, CFE, could also undermine the impartiality of regulators. Contact our consultants to learn more about the fluid situation in Mexico's power sector.