March 27, 2020

Mexico: State of the Market

By Benjamin Landry, Director, Business Development, Edison Energy

Interest in the Mexico market has reached an all-time high, and for good reason. Along with a variety of technical fundamentals, Mexico is currently undergoing what many experts are calling a “second energy revolution” in the face of uncertain regulatory reforms under President Andrés Manuel López Obrador (AMLO) and the current government administration. Some sectors have remained stagnant, and some have changed dramatically, but one key theme reigns supreme: the profound impact of private investment.

Even with the cancellation of the fourth government sponsored wholesale energy auction in Q1 2019, the market has continued to rise in large part due to private investment and demand for additional renewable energy resources throughout the country’s grid. Solar resources have outpaced wind in many areas, but wind development still makes up the majority of the backlog from the previous auctions in earlier years.

As of the end of 2019, private developers and generators now own and operate almost 50% of the country’s total installed capacity, and they account for a significant portion of the planned capacity throughout the country over the next five years. Private investment (rather than the government sponsored vertically integrated utility model) has produced better pricing and more competitive procurement, essentially making a new wholesale market which was the intention of the original reform in 2013. Renewables make up the vast majority of these development tranches. Driven largely by the policies put into place by the energy reform of the previous administration renewables are still riding the wave of increased development activity, which will likely continue well into the early 2020s.

A major concern remains that the existing grid infrastructure and project interconnections are insufficient for handling the planned capacity additions. This scenario would result in stranded energy resources and congestion – potentially driving prices in different directions within the nodal system and reducing the ability for developers and suppliers to get energy to their end-use customers. As Edison Energy advises end-use C&I clients in the Mexican market, this has become a major focus of our due diligence.

With the wholesale market advancing and the qualified user arena growing, more and more large qualified corporates are realizing the benefits of moving away from the basic user tariff and taking advantage of the competitive new market. Corporations’ ability to reduce potential future volatility and budget more effectively for their facility planning has been a key driver, a concept that was rarely accomplished in the previous Mexican’s case studies.

 


 

Do you have load in Mexico? Our Mexico-based team can provide you with an update on your available options for renewables, traditional power and gas in the country. You can find out more by contacting Gerardo.Marquez@EdisonEnergy.com.

 


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