Mexico is the second largest power market in Latin America (after Brazil), and one of the key clean energy markets in the world.
Mexico has 73GW of installed capacity, in which renewables represent 9%. This share is set to increase as the country attracts new funds for projects. In 2015, Mexico was among the top 10 destinations in the world for new clean energy investment, attracting a total of $4 billion.
Mexico’s power market is undergoing a profound transformation, moving away from a power sector controlled by a vertically integrated utility to a liberalized generation market with more opportunities for private companies. The energy reform started in 2013 and will be fully implemented by 2018. Among the power market mechanisms introduced by the reform are the unbundling of state-owned utility Comisión Federal de Electricidad (CFE), creation of an independent system operator, Centro Nacional de Control de Energía, auctions in the wholesale, capacity, medium and long-term markets. Mexico also allows transmission rights (Derechos Financieros de Transmisión) to be acquired by market participants, with prices dependent on node and hour block.
Mexico’s energy reform entered its implementation phase in 2015 with the publication of the clean energy power auction rules. In March 2016, it was announced that the first auction had contracted 394MW of wind and 1.7GW of PV projects for an average price of $48/MWh.
It is expected that these projects alone will attract more than $2 billion in investment in the next two years. Some of the winning projects will use locally manufactured equipment, like PV panels and wind towers.
In 2016, Mexico’s energy reform implementation continued. At the end of January in that year, the wholesale market started operations, albeit with limited liquidity. A second long-term auction was held in September 2016. It contracted a total of 1.9GW of solar and 1.2GW of wind plants for a record low average price in Latin America: $33.5/MWh.
Electricity rates in Mexico have been falling, driven by CFE’s reduction of generation costs. Between 2014 and 2015, tariffs decreased around 25%, going from $0.14/kWh in 2014 to $0.10/kWh in 2015. Mexico has a net metering policy and is a potential market for distributed generation. Installations of residential PV systems more than doubled in the past two years, jumping from 118MW in 2015 to 244MW in 2016, the largest amount of distributed generation in Latin America.
Mexico has an aggressive mandate to generate 35% of its power from clean sources by 2024. The government’s definition of clean energy includes wind, solar, geothermal and biomass, as well as hydro, nuclear and efficient cogeneration. To help achieve this target, the new power market rules established clean energy certificates, imposing on all large consumers a minimum level of consumption from emission-free technologies. The target for 2018 was set at 5% for all large consumers, including CFE. This will increase to 5.8% in 2019, 7.4% in 2020, 10.9% in 2021 and 13.9% in 2022.
Ahead of the United Nations Framework Convention on Climate Change meeting in Paris in November 2015, Mexico was one of the first developing countries to submit its Intended Nationally Determined Contribution (INDC), committing unconditionally to cut greenhouse gas (GHG) emissions by 22% relative to business as usual (BAU) scenario by 2030. Mexico also committed to a further reduction of GHG emissions by 36% below the BAU scenario by 2030. This reduction is conditioned upon availability of international support.
Mexico climbed five places on Climatescope 2017 to rank fourth out of the 71 nations assessed, below only China, Brazil and Jordan. Its score of 2.03 put it ahead of Chile, Uruguay and South Africa, all of which were in the top five in 2016. Despite its overall improvement, the country declined on two out of four parameters. It was strongest on Greenhouse Gas Management Activities Parameter IV.
It was weakest on Enabling Framework Parameter I, dropping three places to 32nd. The absence of key clean energy policies, such as feed-in tariffs and net metering, was offset by the ongoing modernisation of the country’s power sector and the 25% growth in clean energy generating capacity to almost 6.5GW in 2016.
On Clean Energy Investment and Climate Financing Parameter II, the country dropped seven places to 18th. A decline in investment to $1.36bn (compared with $4.35bn in 2016) put downward pressure on the score, as did the low volume of investment from local sources. On the positive side, the score was boosted by the low cost of debt.
The country jumped four places to third globally on Low-Carbon Business & Clean Energy Value Chains Parameter III. Developers and engineering firms are present in nearly all renewable energy sectors, as are a wide variety of service providers (including lawyers, insurers and technical consultants) and financial institutions.
On Parameter IV, it was the top-ranked country, up from sixth the previous year. This reflects an ambitious domestic climate change policy, including a target to achieve 35% of electricity generation from renewables by 2024, and a Nationally Determined Contribution that pledges unconditionally to cut emissions by 25% compared with ‘business as usual’ levels by 2030.