[vc_row padding_bottom=”0″ margin_top=”-82px”][vc_column css=”.vc_custom_1516303299359{padding-left: 60px !important;}”][kleo_gap size=”60px”][vc_column_text]

The role of renewables in Mexico’s future electricity generation mix

by Jed Bailey | August 3, 2016   [wpdm_package id=2656 template=”link-template-button.php”]

 

Over the past decade Mexico’s electricity supply mix has been dramatically “decarbonized” as coal-fired and fuel oil-fired units have given way to natural gas and renewables. New opportunities under the energy reforms, government climate policy, and technology cost reductions will continue to drive this trend in the years to come.

This report reviews Mexico’s current electricity generation mix and the array of new laws supporting the development of renewable energy. It then argues that official forecasts for renewable energy penetration, particularly solar photo-voltaic  (PV) systems, fall far short of what will actually be built.  Government forecasts are based on out-of-date cost estimates and conservative expectations for future cost reductions.  Indeed, data from Mexico’s electricity regulator (the CRE) shows a surge in applications for PV project permits and the results of Mexico’s first long-term electricity auction was dominated by PV projects offering prices below US$50 per MWh.

While Mexico’s electricity auction structure favors intermittent sources, other contracting options, such as bi-lateral contracts with large industrials, may favor firm renewable technologies. Different contracting modalities and end-user power supply requirements may therefore support development of a range of renewable energy technologies even if PV prices continue to fall.

Looking forward, the report makes three recommendations for Mexico’s electricity market participants:

• Pay close attention to the pace of new solar capacity build.  Monitoring solar projects and the share of solar and wind capacity at the local level can provide early warning of rapid change in local nodal spot prices or transmission congestion that may be caused by the rapid build out.
• Watch how natural gas infrastructure and intermittent electricity generation are balanced. Higher solar and wind penetrations will be backed up by natural gas generation in the short term, resulting in higher daily and seasonal swings in natural gas demand for power generation. This changing natural gas demand profile must be matched with suitable natural gas infrastructure capacity management and transportation tariff structures to avoid system bottlenecks or stranded assets.
• Keep an eye on energy storage. More intermittent generation capacity will make energy storage more valuable across many levels of scale and duration. Understanding this interaction and the implications for Mexico’s system operations and spot prices will be critical.

 

[wpdm_package id=2656 template=”link-template-button.php”]

[/vc_column_text][/vc_column][/vc_row]