The Federal Electricity Commission (CFE) signed contracts for the awarded mixed projects in Mexico at prices located in an estimated range of USD 40 - 50 x MWh , according to information obtained by Energía Estratégica in dialogue with the winners.
The signings took place between July 3 and 9 and corresponded to part of the 7400 MW awarded in the first round of the mixed scheme , promoted to incorporate new generation capacity under agreements with the state company.
The result is well below that of many of the rejected proposals. The projects that did not receive contracts had an average single-unit price of USD 136 per MWh , while the highest bid reached USD 418.1 per MWh .
In turn, the awarded values exceed those recorded in the third and last Long-Term Electricity Auction held in Mexico , whose decision was announced on November 22, 2017. In that call, a minimum of USD 17.77 x MWh was reached for wind projects and an average of USD 20.57 x MWh for clean energy.
The country has not completed another auction of this type. The fourth auction, launched in 2018, was suspended on December 3 of that year while its objectives and scope were reviewed, and subsequently canceled on January 31, 2019. Therefore, the 2017 process remains the last one awarded under that model.
However, comparing the USD 17.77 x MWh of 2017 with the current range of USD 40 - 50 x MWh requires considering that the contracted products and market conditions are not equivalent.
The mixed scheme incorporates generation, power, Clean Energy Certificates (CELs) and storage services under tolling mode , so the single price represents a broader package than the cost of the energy produced.
Furthermore, participating initiatives were required to include battery systems equivalent to at least 30% of the generation capacity , with a minimum runtime of three hours. This requirement impacts the initial investment, operation, and financial structure of each proposal.
One of the projects that allows us to observe how this new reference was formed is El Chorro , a 705 MW wind power initiative accompanied by 317 MW of storage for three hours, equivalent to approximately 952 MWh BESS .
The development, considered the largest capacity wind farm selected within the mixed scheme, reached a price close to USD 50 x MWh and a target Internal Rate of Return (IRR) of 14.5%.
“ This project started with 705 MW and 30% three-hour battery capacity. Later, as we progressed in negotiations with CFE, the battery capacity was increased to 45% of the total capacity ,” says Ricardo Hurtado González , CEO of Terralia, in an interview with Energía Estratégica.
The case shows that the bidding process was not limited to energy prices. The state-owned company also reviewed projected profitability, equipment costs, and the consistency of the budgets submitted by the developers.
“ The indicator improves in this part, the IRR goes down a little, check with suppliers ,” Hurtado González recalls regarding some of the observations made during the negotiations with the CFE.
Thus, the range of USD 40 - 50 x MWh arises from a process in which the participants had to adjust financial and technical variables, in addition to reinforcing in certain cases the battery component initially considered.
Prices as high as USD 418.1 x MWh among those discarded
The economic component was one of the main filters in the first round. 55% of the initiatives that advanced in the process were not awarded contracts , either due to their prices, network saturation, or non-compliance with environmental requirements.
The evaluation of the rejected projects reveals a significant dispersion. While some bids were between USD 72 and 79 per MWh , others far exceeded USD 100 per MWh.
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The most extreme case corresponds to the Oasis Hybrid Project , developed by HDF Energy in Baja California Sur, which presented a mononomic price of USD 418.1 x MWh and a target IRR of 13.3%.
The same company bid 326.6 MWh for the Los Cabos Hybrid Project, with an expected return of 12%. Both developments fell far short of the values accepted by the CFE.
Three Invenergy projects also surpassed the USD 100 x MWh mark: El Palmar Energy Center (USD 124.9 x MWh), the Euronotus wind farm (USD 110.3 x MWh), and Loreto Energy Center (USD 109.5 x MWh).
The data indicates that a bid below USD 80 per MWh did not guarantee the contract . Network availability, location, regional boundaries, and technical and environmental compliance also influenced the selection.
Overall, the rejected initiatives registered an average target IRR of 13.9% and an average mononomic price of USD 136 x MWh.
What has changed since the record-breaking auction of 2017
The third Long-Term Electricity Auction allowed Enel Green Power to obtain contracts for Clean Energy from Amistad 2 , of 167 MW, and Amistad 3 , of 122 MW, at USD 17.77 x MWh.
The company also secured other projects within a range of USD 18-19.4 per MWh , while the average clean energy price for the process was USD 20.57 per MWh. These results positioned Mexico among the renewable energy markets with the lowest prices internationally.
However, the financial, technological, and contractual context has changed substantially since then. Current initiatives must include 30% batteries, conversion systems, control infrastructure, and additional connection equipment. They also need to consider the operation of the BESS systems and the eventual replacement of components throughout the contract lifecycle.
Added to this is the increased cost of financing. A higher cost of capital increases the income required to guarantee the bankability of projects that combine renewable generation and storage.
For that reason, the range of USD 40 - 50 mentioned does not only reflect an increase in the price of electricity compared to 2017. It also incorporates services and assets that were not contemplated under the same conditions in the last awarded auction.
The process could thus send a new signal to the sector: developers participating in future calls for proposals will have to integrate storage and maintain the profitability of their projects without straying from the proposed margin.
This benchmark will be crucial for the new renewable energy tenders, whose timelines were recently modified to extend participation periods. The process will allow progress on a pending portfolio of 6,754 MW , comprised of 4,595 MW of photovoltaic and concentrated solar power, in addition to another 2,159 MW of wind power.
The review and assessment phase, overseen by the National Energy Control Center (Cenace), took place until June 30 , prior to the completion of the interconnection studies. Subsequently, developers must make the corresponding payments by July 15 and submit their permit applications to the National Energy Commission (CNE) between July 16 and August 18.
The technical evaluation of the initiatives and their alignment with the binding planning criteria of the electricity system will be carried out during October. The final results of the calls for proposals and the permits approved by the CNE Technical Committee will be announced that same month.
“The goal is to have all the new plants that are needed assigned this year,” says Luz Elena González , Secretary of Energy.
If that timeline is met, the new capacities could be allocated during October , although the eventual signing of contracts will depend on the subsequent stages of negotiation, formalization and compliance with the conditions established for each project.