Renewable Energy Tracker TM

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1 If you want to know the true price of renewable energy in America free from subsidies and mandates look to Mexico - former Energy Secretary Steven Chu Issue 1, June 2016 Contents IPD s Pick of the Month 1 Energy Auctions Monitor.. 2 Renewables Deal Flow. 3 Regulatory Developments... 4 Profile of the Month In Focus Renewable Energy Tracker TM IPD s Pick of the Month: Mexico Mexico s second long-term energy auction is up and running. The country continues to push for the diversification of its energy mix, a critical effort to ensure reliable and low-cost, longterm power supply. As our electricity dashboard below reflects, Mexico has ambitious goals for renewables over the next 15 years. Such goals are approximately 33% higher than those set last year. This month s RET also looks at the regulatory and market activity taking place throughout Central America, where the money is flowing, and Colombia, where regulatory developments promoting renewables are starting to bear fruit. Mexico s Electricity Generation Mix, Consultants: Sergio Torres storres@ipdlatam.com Ricardo Falcon rfalcon@ipdlatam.com 68,044 MW 109,369 MW Thermal Combined cycle Hydro Wind Geothermal Solar Nuclear Others Cogeneration Editor: Kirsten Froede kfroede@ipdltam.com Source: IPD Latin America based on SENER s National Electricity System Development Program (PRODESEN) IPD Latin America 1

2 Mexico Renewables Projections (2015 Vs. 2016) (Updated Plan) 30 GW % Solar Geothermal Wind +71 % +57% GW Source: IPD Latin America based on SENER Energy Auctions Monitor Country Auction ID Products on Offer Call for Bids Award Date Winning Bid Prices Mexico Argentina Chile Mexico Peru Brazil Chile 2 nd Long-term Energy Auction SLP RenovAr Program (Round 1) Supply Tender 2015/01 1 st Long-term Energy Auction SLP th Renewable Energy Auction for Electricity Supply 8 th Capacity Auction Supply Tender 2015/02 Firm capacity Energy Clean energy certificates (CELs) Capacity: 1,000 MW for renewable energy sources (60% wind, 30% solar, 6.5% biomass, 2% small hydro < 50 MW, and 1.5% biogas) Energy for the 1, 2-A, 2-B, 2-C and 3 supply blocks, totaling 13,750 GWh/year for the period Firm capacity: 500 MW Energy: 6.36 TWh Clean energy certificates (CELs): 6.36 millions Energy: Up to 31 or 125 GWh/year for biomass, up to 573 GWh/year for wind, up to 415 GWh/year for solar PV, and up to 450 GWh/year for small hydro ( 20 MW of capacity) Capacity: 1,664 MW of solar PV and wind energy (20-year contract) Capacity and energy for the 4-A, 4-B and 4-C supply blocks, totaling 1,200 GWh per year 13-May Sep-2016 TBD 18-May Sep-2016 TBD 29-May Aug-2016 TBD 19-Nov Sep Mar Jun-2015 Mexico: CENACE Calls for Bids in Second Long-term Energy Auction 30-Mar Feb Nov Oct-2015 MWh + CELs Low = US$ High = US$ Avg. = US$ Avg. Solar = US$ 48/MWh Avg. Wind = US$ 38/MWh Avg. Solar = US$ 77.24/MWh Avg. Wind = US$ 52.80/MWh Avg. Solar = US$ 71/MWh Avg. Wind = US$ 81/MWh On April 30, Mexican power system operator CENACE called for bids in the second long-term energy auction. Draft bid and contract terms were released on May 13 (a final version will be ready on June 20). Bid winners and contract awards will be announced on September 30. State-run utility CFE remains the sole purchaser of energy products in this tender. To be held once a year, this process represents one of several components of the wholesale electricity market (MEM) that Mexico s energy reform introduced. Its main goal is to assign long-term contracts for selling power generation capacity, electricity, and CELs to basic service suppliers and other entities responsible for load (as per the 2014 Electrical Industry Law) IPD Latin America 2

3 Renewables Deal Flow Central America Guatemala, El Salvador, and Honduras: U.S. Government Boosts Financial Aid for Renewables in Northern Triangle Topic: The U.S. government is set to earmark US$ 15 million this year to fund electricity integration and renewable energy projects in Central America and the Caribbean. Around US$ 5 million will go to help strengthen and expand Central America s regional electricity market, as U.S. Vice President Joseph Biden and the presidents of Guatemala, El Salvador and Honduras agreed on May 4 in Washington, D.C. Context: Set within the framework of the U.S.- Caribbean-Central American Energy Summit, these U.S.-led plans are part of the 2016 actions programmed under the Plan for the Alliance of Prosperity in the Northern Triangle in Central America, and the U.S. Strategy for Engagement in Central America. Among other goals, these initiatives aim to advance energy security, regional energy co-operation, clean energy integration, and financial aid coordination in the region. IPD s Insight: Northern Triangle countries are moving forward in their energy diversification. Project of the Month Synkrom Solar s PV farm in Colombia: Colombia s Mining and Energy Planning Unit (UPME) has given the green light to energy efficiency engineering company Synkrom Solar to install a 111 kw solar plant in the Cauca Valley region. Worth US$ 65,450, this project will require close to 400 solar panels for selfconsumption in an industrial warehouse. Around 15.7% of the total investment will be exempt from the value added tax, as per the 2014 Law 1715, which establishes fiscal incentives for this kind of project. This is the first project ever to benefit from such law IPD Latin America 3

4 Regulatory Developments Mexico Number of Electricity Customers by Sector (Mexico) Q Average = million Residential Public services Commercial Mid-size industries Electricity Consumption by Sector (MWh) (Mexico) Q Average = 16,054,457 MWh Residential Public services Commercial Agriculture Mid-size industries Large industries 88.5% 5% 7% 4% 24% 39% 21% 9.7% 0.7% Agriculture and large industry sectors add up to 0.6% of costumers Source: IPD based on federal government s open data catalogue. Source: IPD based on federal government s open data catalogue. New CRE Commissioners Appointed Topic: On April 28, the Mexican Senate approved the appointment of Guillermo García Alcocer as the Energy Regulatory Commission s (CRE) new Chief Commissioner and Luis Guillermo Pineda as CRE Commissioner. Context: CRE welcomed this announcement, as it had been operating short-staffed since IPD s Insight: The delay in appointments suggests tough political negotiations in the Senate. The right-wing National Action Party (PAN) has gained ground in energy reform implementation. The new commissioners profiles suggest that the CRE will prioritize hydrocarbons-related issues going forward. CRE Sharpens its Teeth on Clean Energy Obligations Topic: On April 7, the CRE issued resolution RES/248/2016, which establishes the criteria for penalizing power market participants if they fail to comply with their clean energy obligations. Context: Established by the Secretary of Energy (SENER), these obligations refer to the clean energy certificates (CELs) that market participants must obtain every year to support the government s overall climate change mitigation goals. The CELs market is scheduled to kick off in IPD s Insight: This resolution clarifies the terms that the CRE will consider in establishing sanctions on obligated sector participants. CELs are the only mechanism in place for supporting renewables. They are in their start-up phase as the government seeks to meet its climate change mitigation targets through IPD Latin America 4

5 Profile of the Month Guillermo García Alcocer, CRE Chief Commissioner ü ü ü On April 28, the Mexican Senate appointed Guillermo García Alcocer Chief Commissioner of the Energy Regulatory Commission (CRE). García Alcocer led the Secretary of Energy technical team that drafted the hydrocarbonsrelated portion of the 2013 energy reform, and has been highly involved in the definition of policies and regulation for its implementation. He was nominated, although not appointed, as member of the National Hydrocarbons Commission s (CNH) governing body in The contracts awarded in the first electricity auction prove that renewable energy is highly feasible in Mexico, given the surprisingly low bid prices : Held several positions at SENER, including Coordinator of E&P Policy, General Director of E&P, General Director of Industrial Development of Hydrocarbons, Coordinator of Advisors : Deputy Director of Planning, CONSAR : Various positions, Secretary of Hacienda BA Economics and Masters in Finance, ITAM IPD Latin America provides customized energy consulting services to global oil, gas and power companies, governments, and financial institutions. Our tools and services help clients navigate Latin America s complex energy markets. Our in-depth knowledge of the energy industry, combined with our unique understanding of the political, regulatory, and cultural environments of the markets we serve, has proven instrumental in helping our clients create successful business strategies. For further information, please contact us at or info@ipdlatam.com IPD Latin America 5

6 In Focus Mexico s First Long-term Energy Auction Sets New Benchmark In late March 2016, the National Center for Energy Control (CENACE) concluded the first-ever reverse auction of electricity products in Mexico. The average bid price among contract winners was remarkably low for wind and solar power (9 of the 18 awarded contracts were for prices between US$ and US$ per MWh, with a combined nameplate capacity of 1,409 MW). This outcome reflects a big bet on Mexico s world-class renewable resources and their potential impact on scalability and fixed-asset costs. If sustained, price levels could actually make wind and solar some of the cheapest, non-subsidized green energy sources in Mexico and Latin America. Enel s winning US$ bid (MWh plus CELs), for example, has set a new benchmark for renewables PPA prices; comparable prices include India (US$ 71.00), the United States (US$ 52.00, excluding the 30% solar investment tax credit), and Peru (US$ 47.98). Thus, Mexico s first long-term auction marks the beginning of a new stage in the development of clean energy projects in the region, and will shake up the generation sector, in general. Skepticism over renewables cost-competitiveness has been quieted for now. *Lowest and highest bid prices indicate the range of US$ per package for companies with two or more winning projects. Source: IPD based on CENACE long-term auction final results (March 30, 2016) IPD Latin America 6