Mexico awards gas-based power supply deals

OREANDA-NEWS. September 30, 2016. Power generation projects fired by natural gas secured the bulk of the stand-by capacity in Mexico's second power auction.

Mexican state-run utility CFE, the only buyer in the auction, will sign 15-year supply contracts with 12 generators for a total of 1,187MW of stand-by capacity, or 80pc of what the CFE had sought. Almost half of the capacity will come from the CFE itself.

The auction also sought "clean energy", primarily solar and wind, along with corresponding clean energy certificates (CELs), attracting a flurry of projects consistent with the outcome of a recent tender in Chile.

The auction was carried out by the energy ministry, with the backing of regulatory agencies CRE and Cenace.

In the CFE's inaugural power auction in March, a call for 500MW of stand-by power drew no bids because prices were deemed unattractive. The CFE revised up the price ceiling for the more ambitious second auction and made other revisions to attract participants.

Just under 72pc, or 850MW, of the total awarded stand-by capacity in the second auction went to combined-cycle projects. The remaining 28pc went to solar projects with 184MW, wind 128MW and geothermal 25MW.

The biggest stand-by winner was Blackstone Group subsidiary Fisterra Energy with a 475MW combined-cycle project.

Fisterra Energy and Mexico's cement giant Cemex just sold a new 252MW wind farm in the northern state of Nuevo Leon to US Sempra's Mexico unit IEnova for \\$852mn.

The CFE, which also competed as a supplier in the auction, will provide another 400MW in stand-by capacity, along with 198,764 MWh of "clean energy" and the corresponding CELs.

The CFE stand-by projects include a 394MW combined-cycle power plant in Sonora state, and a 25MW geothermal plant that will complement an existing 53MW facility in Michoacan.

It is not clear whether the Fisterra and CFE CCGTs are based on domestic or imported pipeline gas, or regasified LNG.

Since the reform, Mexico has been expanding cross-border pipelines to boost imports of shale gas from the US, reducing the country's need for imported LNG. At the same time, state-run Pemex's domestic gas production continues to decline.

In August, Pemex produced 5.7bn ft?/d (159mn m?/d) of gas, 10.6pc less than a year ago.

In the same period Pemex imported 2.2bn ft?/d, up 45.5pc. The import data includes pipeline and LNG imports.

The second auction's biggest renewable winners were Mexican Invatan's Reynosa 3 wind farm, Oaxaca wind farm, and Dutch-based firm Alten Energ?as Renovables.

With this second auction, Mexico expects a total investment of \\$4bn and 2.9GW of new installed capacity.

Overall, 57 companies participated in the auction, of which 23 won with at least one project.

The average winning price was \\$33.47/MWh, or 30pc lower than the \\$48/MWh featured in the March auction and a third lower than the maximum price CFE was willing to pay.

CFE chief executive Jaime Hern?ndez Mart?nez said the prices for stand-by capacity were 64pc lower than the ceiling price of 1.69mn pesos (\\$90,731) per MW per year.

According to Mexican laws, clean energy includes all renewable energy sources, as well as nuclear power and fossil fuel generation that employs carbon capture and storage technology.

The power auctions emerged out of a comprehensive 2014 energy reform that broke up the state's monopolies over oil and electricity.