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Mexico cancels power auctions, to implement decentralized system instead




By Daniel Rodriguez / Platts

Petroleumworld 03 21 2019

The Mexican government plans to carry out an accelerated energy transition based on a decentralized electric system, with distributed generation playing a increasing role, a senior government official told S&P Global Platts.

The government will not introduce a new auction model for utility-scale projects, and instead, this new market framework will be developed, said Luis Abelardo Gonzalez, the director of the renewable energy division at Mexico's energy ministry.

"The existing model of auction rounds is canceled, no doubt ... as its design is a failure," Gonzalez said on the sidelines of the Mexico Windpower Conference.

Long-term electricity auctions were introduced by Mexico's landmark 2013 energy reform, anchoring over 7 GW of new wind and solar capacity through three tenders with generation prices as low as $17.70/MWh.

"We have told the world we have the most economic power prices, but we haven't told them" all the related problems we face, Gonzalez said.

Mexico currently generates 15% of its power from clean sources. However, the country is seeking to generate 35% of all its electricity from clean generation by 2024 and 50% by 2050.

Only 22% of auction projects have been developed, as there are financing, permitting and social licensing issues, he added. These projects will supply 4% of Mexico's power by 2024, he added.


The government will reveal by the end of the year what the new mechanism will be to develop this new decentralized electrical system.

"We have to prioritize in-situ and distributed generation close to demand centers as there won't be a transmission network or investments capable of shouldering the energy transition," Gonzalez said.

"Once the path for this accelerated energy transition is set up, no one will stop us," Gonzalez said. "We will open up the electric sector, democratize it and open it to everyone to participate in."

This will provide further opportunities for investors to participate in Mexico's power market, the official said.

A central piece of this new system is the installation of over 4.5 million solar rooftop systems in marginalized households by 2024 and yet more at federal government buildings from offices to hospitals, he added.

Currently, Mexico has over 100,000 distributed solar systems across residential and commercial users with a total capacity of 500 MW. The country's Energy Regulatory Commission forecast Mexico will reach 6 GW of solar rooftop capacity by 2022 based on the current exponential growth rate this segment has experienced in recent years.

All federal buildings and operations will be supplied by renewable generation, Gonzalez said. Also, the government will bring renewable electricity to 900,000 off-the-grid households and over 6,200 rural communities.

"The government and the companies can't do it alone. We have to collaborate with local communities to make the energy transition a reality," he added.


"We are going to create an innovative mechanism, with CFE as a central figure to promote distributed generation," Gonzalez said. "We are going to open the door to capital to partner with CFE."

Currently, the state-owned power utility is setting up a renewable generation division that will be integral in this decentralized electric system, which will include a bidirectional transmission system between high and low tension lines, intelligent distribution networks and batteries, he added.

"We are looking to see many, many gigawatts of distributed generation being installed," Gonzalez said. The government wants 3.5% to 4% of Mexico's total generation to come from solar rooftop installations by 2024, he added.

The government also wants to develop energy cooperatives, such as those seen in Europe, to anchor the development of additional distributed generation capacity, Gonzalez said.

An example would be rural communities coming together to install 8-10 MW wind facilities to satisfy their energy needs, he added.


As part of this plan, Mexico wants to emerge as a solar manufacturing powerhouse, producing 60 million panels over the next six years for its domestic market, Gonzalez said.

"The state will seek the stewardship of the whole value chain," the official said. As part of this plan, the government will centralize the supply chain to ensure Mexico can obtain and install equipment under the best conditions, he added.

"The position of the government is: the neoliberalism has ended, the state will be strengthened, the state represents the citizens, and they will participate in this transition," Gonzalez said.


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Story by Daniel Rodriguez from Platts / SPGlobal.

- newsdesk@spglobal.com

03 20


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