Mexico power market participants push back on expected zero-value capacity price

Author: Claudia Espinosa

2020/02/10

Initial calculations show 2019 SIN capacity balancing price would have no value

Market groups push back against methodology application

Final capacity balancing price settlement expected by end February

Power market participants argued their case in a document obtained by ICIS against expected zero-value capacity prices, re-opening an issue left unresolved amid the chaos generated in the power market last year by numerous regulatory, personnel and policy changes.

Mexico’s solar and wind associations, ASOLMEX and amdee, respectively, argued against what others have previously said is a flawed capacity price methodology. The document appears to have been received by power market operator CENACE on 30 January. In the document, the associations presented their evidence against the way CENACE has applied the methodology, which was initially changed for last year’s settlement. The associated capacity prices for each of the three sections of the grid declined dramatically in last year’s settlement as a result.

CENACE did not immediately respond for comment on market participants’ concerns.

CENACE has thus far published the preliminary reference technology for the capacity price settlement, an initial settlement exercise , capacity demand figures and critical hours data .

Analysis of this data by consultancy Essentia shows CENACE’s initial calculations for the large mainland SIN grid set the capacity price at $0/MW-year. The expected zero-value capacity price, known as potencia in Spanish, is down from last year’s Mexican Pesos (Ps) 117,486.70 ($6,086)/MW-year final settlement. Last year’s settlement price represented a decrease of 83% from the Ps 709,625.12/MW-year price settled in 2018 for the prior year’s capacity. One market participant balked at the expected zero-value capacity price.

“But in a market that is under 6% reserve margin during critical hours, a $0[MW-year] price sends the wrong message regarding generation investment,” the source said.

Capacity clears on an ex-post basis and allows power generators to market generation capacity not already allocated contractually. Capacity may also help generators recuperate fixed costs. ICIS power survey participants declined in the most-recent survey to submit theoretical bids and offers for capacity, which could be a sign of the confusion generated by the unresolved capacity price debate. The manual governing the capacity balancing market says the goal of the capacity market is to establish prices that appropriately signal a surplus or scarcity of generation capacity and incentivise the development of new generation capacity when needed.

The current methodology does not appear to be achieving this goal, as highlighted in a section of the independent market monitor report published in 2018.

The monitor’s report included in-depth analyses of the state of Mexico’s power market as well as recommendations for improvement. The 2018 report, which evaluates the prior year’s performance, said Mexico’s power grid continued to show significant strain with lower reserve margins amid higher demand, highlighting the need for additional generation.

The report suggested changes to the way prices for the capacity balancing market are calculated, suggestions that appear not to have yet been implemented.

CENACE has not yet published a settlement date for the 2019 capacity price. Last year, it was settled at the end of February 2019 in line with the rules set forth in the related manual.