| Mexico | Aug 10, 2019
Since liberalizing its energy markets, Mexico has inched closer to becoming a leader in sustainable development and has become a model for countries looking to encourage investment, innovation, and competition across their energy sectors.
Located in Coahuila, the Villanueva solar park came online in September 2018 as the second-largest solar project in the Americas and the largest outside of China and India. Originally planned to produce 754MW, the project has been extended to 828MW, leaving more work for Enel Green Power México (EGPM), a subsidiary of Italian power giant Enel. The finished project is expected to be fully operational by end-2019 and once complete, the 2,900-acre solar panel installation will generate enough electricity to power 1.3 million homes. This bodes well for Mexico’s rural population, of which 3 million are living in 675,000 households without access to electricity. The Villanueva solar park is one part of Enel’s project that connected 1,089MW of solar energy to Mexico’s grid in 2018. Located in the State of Guanajuato, the 260-MW Don José solar park—extended from its original 238-MW capacity—is the second part. Investment for both solar parks amounted to approximately USD950 million, with USD710 million for Villanueva and USD240 million for Don José. But Enel is far from being the only foreign investor in Mexico’s renewable energy industry. Between 2010 and 2018, the sector attracted close to 100 foreign direct investment projects from Spain, the US, Italy, the UK, Germany, China, and France.
Both projects were awarded to Enel in Mexico’s first long-term auction in March 2016, following the country’s much-celebrated energy reforms. The reform package was largely designed to facilitate private investment—for the first time in 75 years—in the power sector, including electricity, with a special focus on renewables. Part of the package is Mexico’s General Climate Change Law, known as Ley General de Cambio Climático, which acts as the country’s guiding instrument to climate change policy for the medium to long term with 10-,20-, and 40-year goals. Under the law, Mexico aims to increase electricity generated from clean energy sources, including nuclear energy, to 35% by 2024 and 50% by 2050. Another goal of the climate change law is to reduce carbon emissions by 30% by the end of the decade.
A key plank of the new law is clean energy certificates (CECs), a market for which came online in 4Q2018. To meet its goals, Mexico introduced a system of auctions for energy, capacity, and CECs that offer long-term contracts and stability for investors: 15 years in the case of energy and capacity and 20 years for CECs. Notably, the auction system was designed to capture relative values of different generation technologies by both location and production profile. Projects in higher-price areas of the country or that deliver power at peak times can secure higher revenues and more investment.
So far, Mexico has held three power auctions. The first tender in early 2016 resulted in 18 contracts for 11 solar PV projects with 1,691MW of capacity and five wind power projects with 394MW of capacity, as well as 5 million CECs with an average price of USD47.78/MWh. It drew USD2.6 billion in investment and commitments for the equivalent of almost double the total solar and wind capacity installed in Mexico over the previous 18 years.
he second auction awarded 2,804MW of capacity with an average price of USD33.47/MW, as well as 9 million CECs. The projects represented USD4.1 billion in investments, 1,792MW of solar capacity, and 1,012MW wind capacity. The Comisión Federal de Electricidad (CFE) was the only offtaker in the first two auctions because the full reform package was not implemented until 2018. The third auction resulted in 16 offers to build 2.6GW of capacity over the next 15 to 20 years. Around half of USD2.4-billion investment will go to solar, with the remainder going to wind and natural gas. The third auction was open to private buyers, but CFE remained the largest offtaker, offering to buy 91% of energy and CECs. It saw record-low prices with an average price of USD20.60/MWh, and remarkably, at USD17.7/MWh, a wind power project bid by Enel posted the lowest electricity project price in the world.