Mexico: Successful second long-term auction (“LTA”) for electricity coverage contracts concluded
The second LTA has definitively shown that the Mexican wholesale energy market is open for business with investors flocking in to take advantage of new opportunities. CMS, and associate firm Woodhouse Lorente Ludlow, have been at the heart of the recent transformation.
After 76 years of state monopoly, in August 2014 President Enrique Peña Nieto signed the enabling legislation for the opening of the Mexican energy sector. The nine new statutes, and amendments to the original twelve in place, that were passed establish a new legal framework for the implementation of crucial reforms that will allow private sector participation in the oil and gas and electricity industries.
As a result of such reforms in the electricity industry, power generation is open to competition and a wholesale electricity market was introduced to facilitate trading under the supervision of the Mexican National Centre for Energy Control (“CENACE”), an independent (and not-for-profit) system and market operator. Private transmission and distribution companies operate under contract with the Federal Electricity Commission (“CFE”) and its subsidiaries because such services are still considered public services. CFE’s basic service supplier subsidiary is currently the only basic service supplier in the Mexican wholesale market, and acts as counterparty for contracts awarded through the LTA.
As part of the liberalisation of the electricity market, the Mexican Government, through CENACE, holds an annual LTA which provides a transparent mechanism to award long-term electricity coverage contracts. Investors can bid to enter into 15-year contracts for the supply and purchase of power and capacity and 20-year contracts for clean energy certificates.
On 29 April 2016, CENACE took further significant steps towards the liberalisation of the country’s electricity industry by announcing the second LTA for the supply and purchase of power, capacity and clean energy certificates.
The second LTA raised the interest of 88 power generating companies, all of which requested access to the tender guideline documents. Out of these interested companies, 68 pre-qualified and 57 submitted bids for electricity coverage contracts with CFE.
The outcome of the second LTA was announced Wednesday 28 September 2016, and 23 companies were awarded a total of 56 electricity coverage contracts with CFE. It is expected that this outcome will involve the investment of USD $4bn in the Mexican electricity sector and will generate 3% of the country’s electricity output. The successful bidders were the following 23 companies:
- Alten Energias Renovables
- AT Solar
- EDF Solar (Bluemex Power)
- Comision Federal de Electricidad GenCo (a CFE subsidiary)
- Engie Solar
- Fotowatio Green Power
- Consortium Guanajuato
- Consortium SMX
- Enel Green Power
- Energia Renovable de la Peninsula
- Energia Sierra Juarez
- EDF Wind (Eólica de Oaxaca)
- Frontera Mexico
- Generadora Fenix
- Green Hub
- HQ Mexico Holdings
- Kamet Energia
- OPDE
- Parque Eolico El Mezquite
- Parque Eolico Reynosa
- Quetzal Energia Mexico
- Tractebel Energia de Altamira
- X-Elio Energia
Below are three graphs showing the winning technologies for each type of electricity coverage contracts:
CMS in Mexico:
The Mexican energy reform provides an exciting environment for private investment flowing into Mexico. CMS is at the forefront of this development through its association with leading local law firm in Mexico City, Woodhouse Lorente Ludlow S.C. (“WLL”). WLL has the unique role as advisors to the Mexican Federal Government, through the Ministry of Energy (“SENER”), in relation to the reform of the electricity industry. In fact, WLL and CMS drafted, among others, the very Electricity Market Bases and the Long Term Auctions Manual on which the LTAs are based. WLL and CMS are now supporting private investors in the industry with their unique knowhow and insight into the Mexican electricity wholesale market, including advising two successful bidders in the second LTA.
Ricardo Masferrer Oliveira is a contributing author.
