Renewables investors start 2020 eyeing political risk in Mexico (BNamericas)
BNamericas surveyed investor sentiment toward Mexican renewables in January 2020, after a year in which the fourth long-term auction was canceled and the rules governing Clean Energy Certificates were rewritten. Kijana Mack of Mexico Energy Partners was among those quoted.
“While the recent headlines about the potential removal of subsidies caused concern among market participants, we believe the attractive economics for renewables in Mexico will continue to drive project development,” says Kijana Mack at Mexico Energy Partners.
Read the full article at BNamericas
What this meant for industrial buyers
The headlines behind that quote concerned Certificados de Energía Limpia, not a retail subsidy. SENER modified the guidelines governing CEL issuance by acuerdo published in the DOF on 28 October 2019, extending eligibility to CFE's legacy clean plants rather than reserving it for generation built after the 2014 reform. Business groups challenged it, and a district judge granted a provisional suspension of the modified guidelines on 12 December 2019. A facility entering 2020 therefore faced an unsettled certificate rule alongside a canceled auction, which CENACE confirmed on 1 February 2019.
Three checks were worth running in the first quarter of 2020. First, whether any supply contract or PPA passed CEL cost through to the buyer and at what assumed price per certificate. A rule change that increases certificate supply moves that number, and a contract quoting one bundled energy price hides the exposure. Second, whether the contract carried a change-in-law clause and which party it protected. Third, what benchmark the pricing rested on, given that the November 2017 auction result was by then more than two years old and no newer public clearing price existed.
None of this changed the underlying resource economics in Mexico. It changed which party carried the regulatory cost, and that is a contract question rather than a market question. For related analysis see our regulatory policy work and our approach to industrial energy procurement.
Check where certificate and change-in-law risk sits in your contract
Mexico Energy Partners reviews supply contracts and PPAs for how CEL cost, change-in-law risk and network charges are allocated between buyer and supplier. An initial review needs the contract or term sheet and 12 months of CFE or supplier billing. It produces an allocation of risk, not a guarantee of price or savings.