Mexico to kick-off first private renewables auction this week

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Mexican energy consulting firm Bravos Energia is planning a private renewable energy auction on Thursday.

Bravos general director Jeff Pavlovic told pv magazine the auction will be managed by specialist Aklara and will award long-term contracts which will include clean energy certificates (CELs).

“The long-term contract may include the capacity of the contracted power plants as well as the electric energy balance resulting from their capacity to dispatch to respond to variations in the needs of the Mexican power system,” Pavlovic said.

There is a gap in the Mexican electric market, according to Pavlovic. Developers with projects at different stages need long-term contracts with a buyer to obtain low-cost financing and power consumers are seeking cheaper and greener energy. What is needed is an efficient mechanism to match both parties, said the Bravos Energia director. “Many of the buyers, in fact, are too small to anchor a large-scale renewable energy project,” he added. “Moreover, they are not able to join a procurement process.”

The private auction conceived by Bravos Energía – the Concurso Eléctrico de Largo Plazo – is intended to enable buyers to obtain a diversified portfolio by pooling resources to participate in larger projects than they could anchor on their own, thus reducing transaction costs and the expense of carrying out the process and ensuring they are comparing and choosing the best offers.

Developers benefit

Developers will also benefit, said Pavlovic, because they need creditworthy offtakers to secure project financing. “The auction also allows the operator to implement a mechanism to share risks and use credit back-ups in case one of the buyers fails to comply,” he said.

Pavlovic added, the new auction was not conceived as an alternative to public procurement rounds, which the Mexican government of Andrés Manuel López Obrador cancelled a few months ago. “I would not describe it as a replacement because it is focused on a different segment, that of qualified users,” said Pavlovic.

Although the previous government’s auctions permitted qualified users to participate, there were aspects of the procurement program which deterred them. “The most important of these elements was that every qualified user was obligated to buy exactly the same mix of products that the CFE bought,” Pavlovic explained, referring to Mexico’s state utility. “In our first contest, not all are required to buy identical mixes of products. If a user wants to buy energy in Monterrey, another in Guadalajara or another wants pure CELs, they can offer different products, a situation that was not possible before because everyone had to buy the same as the CFE.”

Reducing buyer risk

In the auctions held by the previous government, the CFE agreed to take energy from renewables plants when generated and assumed responsibility to fill “the gaps”, when intermittent generation did not deliver and to dispose of surpluses when power plants generated excess power.

“This dynamic was feasible for CFE because it has the largest generation portfolio in the country as well as enormous consumption, so the variations of some clean energy plants did not really matter as the CFE easily compensated one plant with another,” Pavlovic said.

Bravos claims to have solved this problem by giving the buyer the right to request megawatt-hours from a conventional generator when renewable energies fall short. “This is a financial dispatch which is not directly linked to the physical dispatch that the National Center for Energy Control decides,” Pavlovic said.

The Bravos chief added it is unclear how much power will be contracted through Thursday’s auction. “If there was a cold or lukewarm reception we would not be investing time in this process,” he added. “Since we announced the auction we have received messages, phone calls, WhatsApp messages from all types of companies including, surely, many who participated in the first four government renewables auctions.” The fourth auction in that series was never concluded as the government decided to cancel it at the start of the year.