STATE OF THE INDUSTRY
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Three long-term electricity auctions and one midterm auction later, Mexico has demonstrated that renewables are here to stay. As the energy mix gets greener, Mexico is further developing its renewable energy value chain. An increasing number of off-takers have started their own energy transition, choosing either a full-scale turn or a gradual, step-by-step approach. Mexico’s electricity segment is also set to be revamped and extended to address surging electricity demand as well as increased renewable energy production.

ENERGY MIX & ELECTRICITY ECONOMICS
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Mexico is poised to reach its commitment of producing 35 percent of its energy out of clean sources by 2024. The country’s new energy model allows all types of clean energy power generation technologies to enter Mexico’s energy mix. Mexico’s long-term electricity auctions have propelled solar and wind power to new heights. Natural gas-powered generation, hydroelectrics and geothermal energy are also looking to claim a solid foothold as bilateral PPAs and full-merchant projects open the door for these technologies to spread across the country.

POWER AUCTIONS
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After the first three long-term electricity auctions took place, it is now time for the midterm auctions to pave the way toward market liquidity. With contracts that last up to three years, it is yet to be seen how the first midterm auction will unfold, and how the assigned contracts will interact with the assigned capacity of the long-term electricity auctions. The primary differentiating factor of the midterm auction is that the contract terms are more comfortable for commercial banks to participate, joining the fray with development banks.

POWER PRODUCERS
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By January 2018, CENACE registered 38 power producers to participate as generators in the wholesale electricity market and CRE awarded 502 generation permits. Mexico’s unlocked power generation to private entities not only means an increase in players but also in technologies to place the contry’s energy model on par with mature power markets. Independent power producers are poised to introduce the industry’s latest developments that will allow Mexico to reach its clean energy goals, together with a clean, reliable and continuous energy supply.

WHOLESALE ELECTRICITY MARKET AND TRADING
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As of Jan. 31, 2018, there were 80 companies registered and in the process of being registered as wholesale electricity market participants. This represents a fourfold increase from 2017, when only 22 were present. The increase in the number of players shows the attractiveness of the Mexican wholesale electricity market to companies from around the world. The design of the new market includes qualified service suppliers, basic service suppliers and nonsupplier traders interacting in one place, bridging supply with demand.

OFF-TAKERS
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Competitiveness is at the core of Mexico’s new energy menu and Mexico’s private sector is intent on shifting toward clean, sustainable, cost-effective, commoditized and predictable energy consumption. Renewable energy in Mexico is no longer solely environmentally conscious but business sound. Some industry heavyweights have taken 180-degree turns toward renewables and sustainability, while others with complex energy consumption schemes are taking a more prudent, step-by-step approach to capitalize on present and future opportunities.

NATURAL GAS
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To cope with Mexico’s 15 percent increase in natural gas demand expected in the following four years, the country is going to need a strong and reliable natural gas transmission and distribution network. With the open seasons developed by CENAGAS, the first steps have been taken to ensure that natural gas supply answers demand, as well as establishing proper O&M processes. This, added to new business models that create virtual pipelines to attend an evolving market of natural gas vehicles.

WIND
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Wind power in Mexico has one of the longest track records among the country’s renewable energy sources. The first wind farm to become operational, Venta I, was inaugurated in 1998. Since then, wind power has consolidated as the second renewable power source right after hydroelectrics, allowing for the prosperous development of wind power’s value chain. While the vast majority of wind farms are concentrated along Oaxaca’s Tehuantepec Isthmus, other states are set to gain increased prominence in wind power, such as Zacatecas, Tamaulipas and Jalisco.

SOLAR
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After three successful long-term electricity auctions, solar power has proven it can compete on equal footing with cost-effective power producing technologies, winning the lion’s share of the total renewable energy capacity to be installed in the near future. Operation and maintenance services are set to rise as the first MWs of solar power won in the first long-term electricity auction are reaching operational phase and energy storage solutions will in all likelihood take an increasing part in the country’s renewable energy conversation.

ENVIRONMENTAL AND SOCIAL RESPONSIBILITY
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The regulatory framework of Mexico’s energy industry is rooted in the World Bank’s Equator Principles and the IFC’s Performance Standards on Environmental and Social Sustainability, integrating worldwide best practices in social and environmental impact assessments. Both guidelines act as a benchmark under which financial institutions condition financing for energy projects. This framework has become a critical part in project development and ensuring the long-term prosperity and social acceptance of utility-scale projects nationwide.

FINANCE, OPERATIONS AND MAINTENANCE
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Project development is a financial business at its core, primarily focused in mitigating all the associate risks inherent to each stage of the project—design, project finance, engineering, procurement, permiting, construction, launch, interconnection and securing commercial off-takers. Implementing effective and efficient operation and maintenance processes is a vital part of the project once it comes online and renewable power-producing technologies will strive to increase their competitiveness in this particular segment.

TRANSMISSION AND DISTRIBUTION
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With a transmission and distribution network extending well over 831,000km, reaching more than 90 percent of the population, CFE certainly reached its target of delivering “Energy for the progress of Mexico.” The country’s new energy model is tackling the complex task of bringing the network up to speed with growing demand. The Ministry of Energy is creating transmission line tenders to revamp and expand the electricity grid. Mexico’s distribution network requires flexibility opposite the country’s increasingly renewable generation.

NEW MARKET ENTRANTS AND TECHNOLOGIES
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Mexico’s recently unlocked energy industry is laying the groundwork to become the center stage for showcasing new technologies. Regulation enabling technological innovation is critical to give way to these new developments and gauge their scalability in the country’s infant energy industry. New market entrants will become a critical success factor while their interactions with both the public and the private sector, technology and know-how transfers will raise the challenge of shortening the industry’s technological learning curve.

ENERGY MANAGEMENT
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With utility-scale renewable energy projects taking the international spotlight, energy management’s cost-reducing and productivity-enhancing properties for energy-intensive industries are often overlooked. While Mexico has adopted a position of interest in including energy efficiency best practices in the country’s value chain, implementation efforts are lagging behind. Energy traders may become instrumental in this particular issue, parallel to IoT and data-mining applications in energy consumption.

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Mexico has left behind an energy monopoly that lasted over 70 years. It did so in less than three. The power auctions and its energy transition plans have placed Mexico among the best markets in the world to invest in renewable energy. In this new and dynamic environment, solar and wind power technologies are storming the industry while both CFE and private players continue revamping old and inefficient fossil fuel plants while adding new ones to run the nation’s baseload capacity on much cleaner and cheaper natural gas.

The launch of the wholesale electricity market in January 2016 was also a breakthrough in the transformation of Mexico’s electricity industry, bringing it closer to modern standards of power generation and trading. Qualified suppliers, generators and marketers are stepping up their game to do business as qualified suppliers after the breakup of the former monopoly held by CFE. With over 180 interviews, Mexico Energy Review 2018 will paint the picture of a radically transformed power market, bringing relevant players, old and new, together in one book.

HOW WE DO IT:

  • Cutting-edge information based on more than 180 interviews with the most influential business leaders in the Mexican energy industry, the country’s political leaders and key policymakers

  • Dedicated editorial team with experience covering Mexico’s energy industry and in-depth understanding of global trends, technological advances and international best practices

  • Uniquely customized readership that ensures unprecedented reach among key decision-makers in Mexico and around the world

NEW MARKET READY FOR NEXT STEPS

Mexico completed its first decisive steps toward a liberalized and competitive energy market in 2017 and is determined to stay the course. The country’s liberated energy mix now welcomes different technologies, which combined will meet the clean energy requirements Mexico pursues. The three rounds of the long-term electricity auctions showcased the competitiveness of several technologies against fossil fuels, including solar, wind, hydroelectric and geothermal.

To further incentivize the number of market participants, Mexico’s authorities introduced the Clearing House during the third long-term auction, allowing private players to purchase energy on a level playing field with CFE, effectively ending the practice of the first two auctions in which the productive enterprise of the state was the sole purchaser. In addition, the first midterm electricity auction was launched in August 2017, offering terms that enable commercial banks to actively participate and complement development banks’ efforts in securing the country’s energy transition.

As Mexico’s installed capacity powered by clean technologies is set to increase, the country’s infrastructure needs to be ready not only to absorb it but to distribute and transmit it efficiently and securely. Disruptive and trend-setting innovations, such as smart grids and energy storage, are set to put the country’s revamped infrastructure to the test.

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