The status of energy auctions in Mexico has become increasingly complicated, but private auctions still promise to help Mexico transition to clean energy. 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.
New pipelines have enormous potential to support increased natural gas production in Mexico and also reduce the costs of imports. Although there is already an impressive pipeline infrastructure for transporting natural gas from the U.S. into Mexico, it does not reach the entire country. Most of the less expensive piped gas goes only to the northern states of Mexico, in part to provide power for factories.
For many years, the market for clean energy was limited by unstable prices. Energy prices are generally difficult to predict, but clean energy adds the uncertainty of new technologies and the weather.
A power purchase agreement sets out the terms of a bi-lateral agreement in which one organization buys energy from another. The main elements of a power purchase agreement include the price for capacity, the price for energy (basically, the marginal cost of electricity), and the number of years that it will last.
Mexico was the first country to commit to specific targets under the Paris Climate Agreement, and achieving those targets is driving the adoption of solar energy. Mexico agreed to cut greenhouse gas emissions 22% by 2030. As part of this effort, the Mexican government is trying to raise renewable energy to 35% of electricity generation by 2024.
Energy project execution received significant unfavorable coverage in Mexico this year, which makes it imperative to look at the issues carefully. There is a real danger of underbidding and delayed projects in renewable energy auctions. However, we believe Mexico’s overall record is good by international standards.
Over the last 20 years, Mexican natural gas scenario changed dramatically. During the nineties, a decrease in natural gas prices and ongoing improvements in combined cycle technology resulted in a large substitution of oil power stations by natural gas and combined cycle plants.