The outlook for Mexico's renewables market remains deeply uncertain, analysts say, despite recent indications from government officials that a canceled auction could be reactivated.
Earlier this year the government of President Andrés Manuel López Obrador (AMLO) shocked the solar and wind sectors by appearing to cancel Mexico's fourth clean energy auction. That auction was set to follow three earlier rounds in 2016-2017 that transformed Mexico into one of the hottest global renewables markets, drawing many of the world's leading developers.
Things took another, seemingly more positive turn last month when Energy Secretary Rocío Nahle García remarked that the fourth auction will "probably" still take place, while confirming that Mexico still stands by its 35 percent renewables target for 2024.
But the lack of detail about the next auction and the apparent absence of any sense of urgency has left the market unsettled.
Energy and climate policy does not appear to be a priority for AMLO's government, said Brian Gaylord, principal analyst for Latin America and Southern Europe at Wood Mackenzie Power & Renewables.
To the extent the government is focused on the power sector, "the intention is to further concentrate the sector, particularly new generation capacity, within the hands of the state utility, CFE,” he said.
CFE's head, Manuel Bartlett Díaz, "uses electricity policy speeches to speak philosophically about the state control of the old days instead of offering tangible plans," Gaylord said.
In the near term, Mexico's renewables market is booming thanks to the previous auction rounds. Earlier this week Cubico Sustainable Investments, which is backed by two Canadian pension funds, said it had completed construction on 600 megawatts of wind and solar in the country stemming from the second auction round.
Mexico will bring around 1,800 megawatts of wind online this year, more than doubling the previous record of 700 megawatts, Gaylord said. Another 1 gigawatt or more will reach completion next year.
Beyond its 35 percent renewables target for 2024, Mexico, which is a signatory to the Paris climate agreement, plans to ramp up to 40 percent renewables in 2035 and 50 percent in 2050.
Among the developers that have been active in the market are Enel, Engie, Acciona Energia and Canadian Solar.
"Not averse to renewables"
Amid the political haze, developers contacted by Greentech Media declined to comment on the direction of the market. But James Ellis, head of Latin American research at Bloomberg New Energy Finance, said the sense from talking to wind and solar companies is one of great uncertainty.
“There is no sense that the AMLO administration is averse to renewables, but at this stage Nahle’s remarks are no more than off the cuff," Ellis said. "They're an indication that the administration may be coming round, but there are no concrete policy steps yet.”
In her remarks published by the Mexican government, Energy Secretary Nahle stated that a fourth auction would depend on conditions being “optimal,” as well as “[largely] on the progress made by CFE in generation and transmission."
"It's important to support the state generating company, as it will pull others with it," she said, adding that Mexico's gas infrastructure would need to be built out in tandem with renewables.
“Sufficient [gas] capacity is already available, but the administration has the idea that renewables need to be backed up one to one by thermal generation,” noted Gaylord, who believes CFE by itself would not be capable of building out the wind and solar capacity required to meet the 2024 target.
While Nahle indicated that the country is committed to meet the 2024 renewables target, Gaylord says if it happens, it will not be because of any current government actions but rather the fruits of the previous administration's efforts.
BNEF's Ellis points to other bright spots in the market, starting with the fact that projects under development continue to secure financing and move ahead. “The signs are that banks and other financial institutions are becoming more comfortable with the Mexican market."
High electricity prices in Mexico will continue to fuel the corporate power-purchase agreement market for renewables. Meanwhile, some projects are starting to go partly or fully merchant, no longer relying entirely on PPAs.
The country could see the launch of a private renewables auction system if the government fails to come through with another round
Transmission system woes
Beyond the shelved renewables auction, the government also dealt the wind sector a blow by scrapping plans for new long-distance high-voltage DC lines that could have brought power from the high-wind-resource state of Oaxaca to the rest of the country.
“There is hope [the transmission project] might be reimagined as an internal project within CFE, but if so, it would most likely be scaled down, and I am not optimistic it will happen any time soon," Gaylord said.
Ellis said the power-line cancellation is significant not just for Mexico's renewables build-out but for the power market as a whole.
“The transmission system is in an underserved state with serious implications for the growth of renewables, as well as for power prices, which continue to spike in some areas of the country due to congestion.”
***
Releated research: 'Mexico, Central America and Caribbean wind power outlook 2019' (Wood Mackenzie)