Mexico's energy ministry might fast-track big shift in power CELs market

Author: Claudia Espinosa


-SENER could grant CELs of up to 20 years for legacy, new generators

-Market participants view proposal to skew toward CFE’s interests

-CELs could flood market and depress price

HOUSTON (ICIS)--Mexico’s energy ministry SENER may be able to fast-track another major regulatory change it proposed that market sources say could dramatically reduce the price of clean energy certificates (CELs) and significantly alter the market for that product, a key differentiator for renewables projects.

The proposal posted to the website of regulatory reform agency CONAMER on 1 October would grant CELs for up to twenty years to legacy generators of clean energy (including CFE’s hydroelectric and geothermal plants) as well as those plants built by renewables companies that flocked to Mexico after the 2013-2014 energy reform. SENER did not respond for comment prior to publication.

SENER does have the discretion under the energy reform law’s electricity industry law (known as LIE in Spanish) to make such a change, according to Andrea Calo, director of Mexico market intelligence at Customized Energy Solutions.

“The legacy plants were not given CELs because that wasn’t the spirit of the LIE in my view,” said Calo. “This defies the purpose of the CELs, which was to incentivise build out of new clean energy plants. They are doing this to level the playing field for CFE plants because they feel that by not giving CELs to legacy plants, the LIE is unfair to them.”

Several other market participants called the reasoning provided as the basis for the proposed change as “illogical” and “contradictory.”

“It’s about getting CFE [Basic Service Supplier] out from under the CEL obligation by granting them the [legacy] ones [from hydroelectric plants],” one consultant said.

CEL supply

If made official, the SENER proposal would grant numerous CELs to CFE’s existing hydroelectric and geothermal plants going forward. According to the SENER proposal, CFE’s clean energy plants generated nearly 66% of gross clean energy produced in Mexico in 2018.

Market participants polled said the change would oversupply the CELs market and dramatically decrease the price, although few had yet quantified how dramatically it could fall. One experienced consultant said if the change is implemented and CFE places all its new CELs on the market, the CEL price would fall to zero.

“They might not sell any certificates, though,” the consultant said, in which case there could still be a private market responsive to supply and demand. “You could end up with two different supply [and] demand curves.”

Investor impact

Renewables market participants polled are still evaluating the potential impact of SENER’s proposal, though all said it would have a significant impact on the market. Enel Green Power Mexico, a key winner in the long-term power auctions awarded under the previous administration, declined to comment.

If the price of CELs drops as expected, renewables projects are still expected to be competitive based on how inexpensively they produce electricity and in certain cases capacity (potencia in Spanish) for Mexico’s power grid.

Victor Ramirez, a Mexico-focused independent energy consultant and former executive director of Mexico’s national solar energy association (ANES) said if he could give one piece of advice to market participants, he would advise them to keep betting on the low cost of their generation.

“The CELs were not everything,” he said referring to the contracts for the renewables projects built and under construction due to award in the first three long-term auctions. The contracts committed CFE to purchase various combinations of capacity, energy and CELs.

Ramirez said if SENER’s change is implemented, renewables projects would see decreased rates of return though they would still be attractive.

Even so, all market participants said they were concerned about SENER’s measure. One source held out hope the implementation of the proposal could be delayed if CONAMER denies SENER an exemption that allows it to bypass a public comment period.

“CONAMER should ensure SENER is required to do a public consultation for this proposal. This is not the way to ensure CFE meets its CELs requirements... This is not how you play by the rules. This is changing the rules to your liking,” he said.