ICIS: First five-year power price indicators appear for Mexico

HOUSTON (ICIS)–Price indications for Mexico’s wholesale power market (MEM) collected during the latest ICIS monthly survey included five-year contracts for the first time, in addition to the one, two and three-year contracts listed in prior ICIS power price surveys.

The Valle de Mexico Norte node saw the narrowest bid-offer spread of Mexican pesos (Ps) 208/MWh for the five-year contract, signaling it could be the most likely to transact if buyers and sellers made equal concessions.

The node, which includes the high-demand Mexico City area, also saw the narrowest spreads and therefore greatest likelihood of transacting among the indications for the one, two and three-year contracts. The Mexicali node in western Mexico saw the next narrowest spread for the same three contract lengths. Veracruz came in with the second-greatest likelihood of transacting for the five-year contract.

Longer contract lengths for each node did not necessarily fetch the lowest midpoint price indications. Five-year contract indications, however, were consistently below the other three contract types, indicating greater consensus among participants about what prices for that contract type would likely be. The exception was the Mexicali node for which an insufficient number of bids and offers were submitted to form averages and a midpoint for the five-year contract.

Two and three-year contract midpoints were again mixed in relation to the one-year contract, likely indicating a continued lack of short-term uncertainty that could be related to more volatile power generation input prices, which are sometimes affected by currency volatility or other factors.

Greater consensus is expected to form for two and three-year contracts in future surveys.

CELs

Average bids and offers for 2019 clean energy certificates (CELs) were 30% and 9% lower than their respective previous 12-month averages. This decreased the bid-offer spread by more than 17% from the prior survey collected in May.

The opposite was true for spreads for 2018 CEL price indications. Wide-ranging expectations for these were reflected in an average bid nearly 30% lower than the average bid recorded since June 2017 and an offer just above the average offer across the same one-year period of the survey. These resulted in the widest spread recorded for the 2018 product thus far in the ICIS survey.

These figures likely represent diverging views regarding possible CEL supply this year, as most of the renewable projects awarded in the first long-term auction and due to be operational in the first half of the year were delayed to the third and fourth quarters. It is unclear if some of them will meet their deadlines in time to increase CEL supply for 2018.

Survey parameters

Price indications in the power and CEL tables represent midpoints based on a mathematical average of responses received, excluding outliers, rounded up to the nearest whole value in Mexican pesos per MWh.

Midpoints between bids and offers are then used to give an idea of where the market could transact if buyers and sellers make equal concessions.

ICIS Energy continues exploring ways to enhance the survey. We remain open to feedback regarding the expansion of the survey. Suggestions may be sent to MER editor Claudia Espinosa at mexico.energy.report@icis.com.