INTERVIEW: Bravos power auction advances amid market tumult

MEXICO CITY (ICIS)–Mexico’s first private auction for renewable power, being held by Bravos Energia, aims to develop a process for private generators and buyers to match bids and offers.

The auction was announced June 2019 and the awards will be announced in early 2020. The following is a Q&A interview with Jeff Pavlovic, founder of Bravos.


What has the response been like for participation in the auction?

Pavlovic: We have had 19 different plants making technical offers for generation. It is meaningless to say how many offers we received, because generators can slice and dice generation. It is a reflection of how complicated some offers were to say it was 19 plants. It was a mix of solar, wind and natural gas. We are processing these offers and putting out requests for clarifying information. At the end of [this] week, we will receive the information and will process those over the Christmas period.

How does the process of matching up buy and sell offers work?

Pavlovic: On the demand side, the generators need to offer first – the generators will declare where they will deliver the energy. They need to show what locations will be available.

But because they need to offer on the basis of where there will be demand, we asked load to make an indicative offer that is not binding. It lets the generators see how much demand there is and where, so that they can put their offers in place. We are not prohibiting loads from the making indicative offers at later dates.

The indicative offers are part of the matching. The final matching is done on the last day. That is when we can determine whether there are buyers that will pay the price equal or more to what the sellers are selling at.

What has the generators’ response looked like?

Pavlovic: We are trying to get contracts for up to 15 years, in three five-year blocks. For the first five-year block, we got offers of 3TW/yr. For the second five-year block, we got 1TW/yr during the second five years. It was a little bit less than one for the third five-year block.

We feel this is good for where we are – this is equal or more than what we were hoping. We are also not singing our victories at this point. We are only half way through the process, meaning that both sides could participate with less or not at all if they lose interest or confidence. We know that it has not reached the final stage. It is at the final stage when the buyers and sellers put their final price in. If they don’t put in a price, they are not making a bid or offer.

One of the questions we are asking is whether generators are afraid of the commitment or is it less urgent to lock in a low price rather than re-contracting?

What financial stake do participants have in the process at this point?

Pavlovic: They have had to pay some fees for the evaluation and have certainly spent resources on their side to get their offers together, but no one has made a binding multi-year commitment and they won’t have the multi-year commitment until they make their bids official.

What are your impressions of the process at this point?

Pavlovic: One thing I think is interesting is that we have designed our auction to give maximum flexibility to participants. They can choose which of the five-years block they want, and which location. But the generators can also construct a package of different offers, including the construction of a number of complex offers which gives them more flexibility on the buyers they could be matched up with.

This is advantageous for a generator flexible enough to consider delivering for five years or 10 or 15 years. He would want to charge more for just a five-year contract, but could be happy at a high price for a five-year offer. This kind of generator can match with more demand than a generator that is less flexible.

The ones that have binary restrictions will not offer flexibility even if this is what the market is willing to buy at this point. They will sell a product that is not perfect for their needs. The same goes for delivery point. They would all prefer to deliver at their interconnection without risk of congestion. If you are a generator that cannot take congestion risk, you won’t do as well. If you can handle congestion, you will get a better price. The complexity comes in from offering options.

I have found it interesting that the players that have really understood how to get the most out of the auction have put in the complex offers. At this point, no one knows how flexible the demand is. The more flexible your auction is, the better chance of a match. The generators that understand that will do better.

What impact has the rule change for CELs had on the auction?

Pavlovic: There has not been a direct effect, strictly speaking. We are not getting much demand for CELs, and sellers make offers not expecting the CELs to be a part. At this point, because of the way the rules have changed, none of the value is in the CELs.