Sunny days in Mexico

 I lost a Cinco de Mayo post, straight from Mexico City. So while I try to recover it, let me talk about solar power. The title of this post is ironic, since last week in the D.F. was far from sunny, in the worst possible way.

The picture is from last November, not last week.

Background: Mexico recently passed a new environmental law. Details here. Last month, the Comisión Federal de Electricidad (CFE) bid on clean energy certificates. Basically, the bids were to buy 20 years of clean electricity. In concrete terms, that was for about 6.2 million megawatt-hours (MWh) per year for two decades. 

By itself, that is less-than-impressive. Mexico’s gross electricity production in 2015 came to about 299 million MWh. Total domestic sales came to about 212 million MWh. So six million more? Whatever.

But the amount ain’t the kicker. That was baked into the law. No, the kicker is everything else.

First, the CFE got offers for 102 million MWh. All that with a $71 per MWh price ceiling. (The price ceiling is a little complicated. Basically, CFE offered to pay a certain amount for the electricity plus a certain amount for a certificate insuring that the energy was green. The electricity had a price ceiling of $47 and the certificate a ceiling of $24. $47 + $24 = $71.)

Second, solar projects won 74% of the 5.4 million MWh ultimately bought. Projects here. That was unexpected!

Third, the average price for the solar bids was $50.7 per MWh ... without any subsidies! The lowest clocked in at $35; the highest at $68. We don’t have data on the cost of generation in Mexico, but we do know average retail prices (or at least we can calculate them from Sener data): $87 per MWh.

Now, don’t get too excited just yet. You can look up the wholesale price of electricity in the PJM region of the U.S. here. At this writing, it came to about $22 per MWh for PEPCO. But $51 is well-within the yearly range paid by American utilities. And it is within striking distance of the average $39 per MWh cost of your typical fossil steam plant in 2014, although natural gas prices were quite a bit higher then than now. (Coal, not so much.) 

Moreover, there are going to be problems in execution. These projects need to get up and running by 2018. Some may be late and some may wind up losing money.

But it is, overall, great news ... and a great source of data, since these projects are not subsidized. ¡Viva México!

Comments

[Dave K.]

Looking at the projected share of renewable energy, it's obvious Mexico will have to invest in storage (hydroelectric?) or update its grid to accommodate the drastic swings in solar production and the requirement for more peak natural gas plants.

Is Mexico investing in storage, or updating its grid to make its longer-term renewable goals achievable?

[Noel Maurer]

Coincidentally (or not, actually) the government just announced its smart grid program:

http://www.gob.mx/cms/uploads/attachment/file/90007/Programa_de_Redes_El_ctricas_Inteligentes_09_05_16.pdf

Now, this is more of a road map than a concrete plan. But it's important.

In addition, there are plans to invest $17 billion in T&D by 2029. An English-language summary of how that will work can be found at: http://www.pwc.com/mx/es/industrias/archivo/20150813-ms-prodesen-ingles.pdf.

The thing to keep in mind is that Mexico is in the middle of a wholesale reform of its electric market. The Electric Industry Act put responsibility for creating a competitive market on a new organization, Cenace, which is still figuring out how exactly to do its job.

But the country should be on track to meet its (modest) renewable goals. The real question is whether the country will increase those goals in light of the falling cost of solar. That would require further and faster movement on both building new power lines and upgrading the ones that exist.