Spotlight Activity: Cancellation of the Fourth Long-Term Clean Energy Auction
In its Energy Transition Law, Mexico committed to reach 35% electricity generation through renewable sources by 2024. This goal is also embodied in Mexico’s NDC. The country has specific goals and tools for transitioning to clean energies, and there are key mechanisms that support the promotion of clean energy generation, one of such being the national Long-Term Auctions (SLPs by its Spanish acronym).
Through SLPs, entities responsible for providing electricity to consumers can enter into contracts to receive their Power, Cumulative Electric Power and Clean Energy Certificates (CELs) needs. This allows energy vendors to have a stable source of payments, contributing to financing the investments required to develop new Power Plants or to re-power existing ones. CELs are a market instrument.
For each MWh generated with clean technologies, the generator receives a CEL. Big registered consumers (e.g. Coca-Cola) and energy suppliers (e.g. Iberodrola and CFE) have the obligation to have a percentage of their energy come from renewable sources (e.g. 5.8% in 2018. It increases yearly). Suppliers and big-consumers are CEL buyers, while generators are sellers, although CELs usually come in a package with the MWh purchased.
As a market instrument, CELs’ price varies with offer and demand (but they’re around 20 USD).
Since 2015, three national auctions have been held, with very positive results; 78 projects from national and foreign companies were awarded, 47 of solar energy, 21 of wind power and 10 of another type, which represents a 10% of current total national energy generation. This also brought economic benefits for 19 of the 32 Mexican states, increased national solar generation, and contributed to the diversification of energy generation, in turn increasing electricity stability.
The fourth and most recent auction was held last year. Winners were scheduled to be announced no later than December 2018. However, due to the change of command in the national government and institutions, the announcement of the winners was suspended, with claims of needing to review the objectives and scope of the auction. The responsible authorities had two months to set a new date for the announcement, however, the result was the cancellation of the contest.
SLPs results have a direct relationship with the evolution of renewable energies in the country. Energy offer and demand send signals to participants and investors regarding the current state, and the potential development, of the market. The cancellation of the fourth SLP hampers the credit profile of the clean-energy sector. The elimination of these mechanisms could critically delay the advance of clean technology for electricity generation. In addition, it casts doubts over the future of private financing for new energy projects. To date, the government has not ruled on the future of the auctions, although it has declared itself in alignment with international mitigation targets.
Long-term power auctions are essential to achieving the national renewable energy generation and emissions mitigation goals, bringing the country closer to the objectives of the Paris Agreement. SLPs also increase and diversify the capacity of the national electric system, generate investment and green jobs, contribute to the economy’s decarbonization, and shield the country against the carbon bubble. Mexico is at a critical moment to make decisions and benefit from the great renewable energy potential it has, taking advantage of the great economic and environmental opportunities that this could mean.
Status: Standing Still
The new administration needs to pronounce itself on the subject, clarifying the future of Auctions; stopping speculation and easing doubts in the green investment sector, since regulatory certainty is very important for investment and innovation. SLPs have the potential to diversify the national economy and lower energy prices, all while mitigating emissions and shielding the sector against the eventual collapse of the oil economy. As such, SLPs should be resumed, or a similar, improved mechanism should be put in place to ensure energy generation transitions into a low-carbon sector.
The revision of awarded contracts and the clarification of SLPs’ goals and objectives are important. However, some have raised concerns about this mechanism, which was fostering investment in the expansion of renewable energies, being cancelled indefinitely. Maintaining a carbon-intensive energy strategy is both environmentally and economically risky. Therefore, we ask the new government, and the new heads of ministry, to support the strategies that have proven effective for the expansion of green technologies. This is not only for the better of the planet and future generations but also for long-term economic stability.
Send Action Alert Message to:
Secretary of Energy- Rocío Nahle
Address: Insurgentes Sur 890,
Del Valle, Ciudad de México. C.P. 03100
Director of CFE- Manuel Bartlett
Address: Paseo de la Reforma 164, Col. Juarez, Cuauhtémoc,
Ciudad de México. C.P. 03100
- Long-term Clean Energy Auction: Clean Energy promoters https://home.kpmg/mx/es/home/tendencias/2017/12/subastas-a-largo-plazo-promotoras-de-energia-limpia.html
- Mexican Electricity Market 101 https://www.thegreenexpo.com.mx/2018/wp-content/uploads/2018/09/pow04_Gumersindo-Cue.pdf