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Similar a Research Keynote: Demystifying Mexican Large-Scale Renewable Development in the AMLO Era
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Research Keynote: Demystifying Mexican Large-Scale Renewable Development in the AMLO Era
- 1. woodmac.comTrusted intelligence Mexico Power & Renewables Forum Demystifying Renewable Development in the AMLO EraLeila Garcia da Fonseca Solar & Wind O&M – Senior Manager Leila.garcia@woodmac.com
- 2. woodmac.comTrusted intelligence Wood Mackenzie offices Wood Mackenzie Power & Renewables offices Wood Mackenzie is ideally positioned to support consumers, producers and financers of the new energy economy. Acquisition of MAKE and Greentech Media (GTM) Leaders in renewables, EV demand and grid-connected storage Over 500 sector-dedicated analysts and consultants globally, including 75 specifically to power and renewables Located close to clients and industry contacts About Wood Mackenzie We provide commercial insight and access to our experts leveraging our integrated proprietary metals, energy and renewables research platform
- 3. woodmac.comTrusted intelligence Market evolutions and technology revolutions have disrupted legacy business models, creating a new energy landscape The Power Market of the Past A top-down, flow from supply to demand Dispatchable Generation Transmission Distribution End Customers Tomorrow’s Decarbonized and Decentralized Power Market A bi-directional energy network with new technologies and actors at every node reshaping power market planning and operations Dispatchable Generation Transmission Distribution End Customers Intermittent Generation Energy Storage Advanced Metering Infrastructure Distributed Generation Electric Vehicles Connected Devices Demand Side Management
- 4. woodmac.comTrusted intelligence Demystifying Renewable Development in the AMLO Era
- 5. woodmac.comTrusted intelligence Power industry political decisions during the Lopez Obrador presidency Timeline 2018-2019 Source: Wood Mackenzie Power & Renewables The fourth long-term power auction is officially put on hold to allow the incoming government of AMLO to review it CFE cancels tenders for a major Oaxaca HVDC transmission line and grid integration of the Baja California system CFE head Manuel Bartlett announces that it may scrutinize prior auction contracts despite SENER’s assurances AMLO enters office MOU signed with HydroQuebec to double hydroelectric production CFE approves a strategic plan for 13GW of capacity without stipulating any renewable -specific generation CENACE cancels the fourth long-term power auction at the behest of CFE, which does not want to purchase electricity Nov. ‘18 Dec. ‘18 Jan. ‘19 Feb. ‘19 Mar. ‘19 Apr. ‘19
- 6. woodmac.comTrusted intelligence 80 20 55 45 50 70 75 25 65 30 35 40 60 0 $43 Yuc. (USD/MWh) Yuc. 1st auction 2nd auction $41 $19 $33 $22 $65 $58 3rd auction $36 Strategies used in previous auctions to achieve low bid levels is increasingly unsustainable as grid evacuation capacity is constrained and PV LCOE continues to fall. Developers are increasingly grid-constrained in submitting projects in the regions with the best wind resource whereas PV is more regionally diversified Although near-term wholesale market pricing is an attractive revenue stream, it will fall through the outlook. Natural gas supply will increase as international pipelines are complete and drive down the cost of generation. Freeze on new long-term auctions impacts PV more negatively than wind power Wind would struggle to compete against PV without new grid capacity despite results from the 3rd auction round Source: Wood Mackenzie Power & Renewables Wind PPA range Solar LCOE range 2018 to 2024 Wind LCOE range 2018 to 2023 PV PPA range Average price on top (USD/MWh) Results of Mexico’s first three long-term power auctions, 2016 and 2017
- 7. woodmac.comTrusted intelligence Cancellation of transmission tenders and CFE strategy threaten primarily wind and to some extent solar development Abandonment of critical transmission upgrades constricts the supply of competitive wind Source: Wood Mackenzie Power & Renewables, SENER Cancellation of public tender for transmission line in Oaxaca and Mexico City area limits the development of 3GW of wind by 2024 Several grid investments grow grid export volume southward from northern states, illustrating the need to expand transmission capacity for wheeling electricity from net- generation heavy states towards areas without sufficient local capacity to drive down nodal pricing in central Mexico
- 8. woodmac.comTrusted intelligence Solar geographic resource dispersal limits PV developers’ exposure to grid constraints Footprint of auction-enabled wind power and PV projects Source: Wood Mackenzie Power & Renewables, CENACE 226MWYucatan 518MW 23MWBaja California Sur Wind Solar 794MWTamaulipas 397MWGuanajuato 1,084MWAguascalientes 100MWJalisco 252MWOaxaca 493MWNuevo Leon 41MWBaja California 893MWSonora 378MWChihuahua S.L.P. 300MW 70MWMorelos 764MWCoahuila 350MW 200MWTlaxcala 41MW 378MW 764MW 893MW 23MW23MW 1,084MW 300MW 518MW 397MW 200MW 70MW 100MW Solar power developers submitted successful bids across twelve Mexican states, whereas winning wind power bids were confined to just five
- 9. woodmac.comTrusted intelligence A concentration of gas infrastructure and generation depresses nodal pricing in the northeast region Barriers for further renewable energy development (2/2) Source: Wood Mackenzie Power & Renewables, CENAGAS, CFE, public announcements Delays in pipeline construction contributed to wholesale power pricing spikes in 2017 and 2018 as Mexico was forced to rely on more expensive LNG imports. Pipeline capacity and gas-fired generation are highly concentrated in the northeast and so is wind: 79% of all wind power sold at auctions. Upside in the wind outlook is constrained by this gas infrastructure, which depresses nodal power pricing
- 10. woodmac.comTrusted intelligence Northern nodal pricing already impacted by the import of inexpensive shale gas Depressed nodal pricing in the northeast will push development southward towards more lucrative zones Source: Wood Mackenzie Power & Renewables, CENACE Local marginal pricing by load zone, January to June 2019Average LMP full YTD thru June 922 1,121 1,128 1,576 1,682 1,815 2,496 Noroeste Norte Noreste Occidental Central Oriental Peninsular 778 Baja California 2,786 Baja California Sur Price (MXN/MWh) 800 3500 ~Price (US $/MWh) 42 184 Percentage change of local marginal price change June: 2019 vs. 2018YoY LMP changes June 2019 vs. June 2018 -60.4% -55.3% -32.6% -31.0% -21.0% -15.0% 5.9% Noroeste Norte Noreste Occidental Central Oriental Peninsular -12.5% Baja California -19.8% Baja California Sur YoY Percent Change -5% 5%
- 11. woodmac.comTrusted intelligence Competitive wind power will continue to capture bilateral contract demand and solar will likely continue to bet on merchant strategy Average LMPs by load zone, average CFE tariffs, wind & solar LOCE, Jan ‘16 -June ‘19 Source: Wood Mackenzie Power & Renewables, CENACE Jan-18 Jul-18 Jan-19 Jul-19 120 0 40 60 70 50 130 Jan-17Jul-16Jan-16 100 80 90 Jul-17 110 (USD/MWh) Northeast LMP average Wind LCOE range 2018 to 2023 Oriental LMP average National LMP average CFE C&I industrial tariff range 2018 Solar LCOE range 2018 to 2023 High CFE tariffs for large offtakers and specific nodal marginal prices will drive demand for bilateral contracts Wind power LCOE is still competitive in northeast states despite lower electricity pricing in the region
- 12. woodmac.comTrusted intelligence C&I offtake has been the primary support mechanism of wind power development and are expected to continue to be while auctions are not resumed Annual wind power capacity additions by market mechanism, 2007 to 2024e Source: Wood Mackenzie Power & Renewables 500 1,000 0 2,000 1,500 100% ’10 99% ’12 8% 92% ’13 ’19e ’21e’14 22% ’11’09 100% ’16’07 ’23e 100% 74% ’17 63% (MW) 10% ’18 63% 9% 46% 45% ’20e 100% 67% 37% 33% ’22e 100% 100% 26% ’24e 100% 15% ’15 90% CFEExport Auction C&I
- 13. woodmac.comTrusted intelligence Auctions were the main enabler for utility solar PV boom in Mexico. However by 2024 Wood Mackenzie expects that more than half of installations will come from C&I and merchant projects Annual solar power capacity additions by market mechanism, 2016 to 2024e Source: Wood Mackenzie Power & Renewables 2,500 0 500 1,500 1,000 2,000 ’18 59% 66% 1% 33% ’21e 31% ’19e (MW) 67% 23% ’16 ’23e 43% 54% 85% 66% ’22e 170 73% ’20e 4%1% 75% 2% 4% ’24e 41% 1% 30% 20% ’17 5% Export C&IAuction Merchant projects CFE Future procurement rounds
- 14. woodmac.comTrusted intelligence Potential growth for C&I offtake for wind power developers remains substantial C&I market opportunity for renewables, 2018 to 2028 Source: Wood Mackenzie Power & Renewables 208 128 62 18 0 20 40 60 80 100 120 140 160 180 200 220 (TWh) Residential demand CFE clients Cogen, small offtakers, agricultural demand C&I market potential (2018) 156 30 Load growth thru 2028 Wind outlook (2019 to 2028) C&I market potential (2028) 10% The equivalent of 16TWh or 4.5GW of new wind capacity through 2028 PV captures a larger share of this segment with 6.6GW of new sites through 2024 The C&I market is more favourable to wind power developers than auctions and provides greater upside to sustained development Wood Mackenzie expects a higher percentage of C&I clients to opt for PV due to its cost advantage and higher daytime production
- 15. woodmac.comTrusted intelligence Wind power will see a decrease of 2.5GW in capacity over the next 10 years – almost 20% of the original forecast Source: Wood Mackenzie Power & Renewables 810 1,420 1,225 945 980 950 830 800 800 825 800 707 1,695 1,160 750 375 325 415 455 525 725 790 0 500 1,000 1,500 2,000 2020 20242022 2023 202820272018 202620252021 MW 2019 +19% -5% -21% -62% -66% -6% -8% -50% -43% -34% -12% -1% Previous forecast Current forecast Wind power forecast, before and after AMLO
- 16. woodmac.comTrusted intelligence Despite auction cancelation, 15 GW of installed PV capacity is expected to connect between 2019 and 2028 Wind power forecast, before and after AMLO Source: Wood Mackenzie Power & Renewables 1,551 1,924 1,557 1,549 1,637 1,623 2,250 1,380 840 750 1,290 1,551 2,044 2,117 1,035 964 1,018 1,079 1,880 1,400 1,506 2,148 0 500 1,000 1,500 2,000 2,500 3,000 2022 20272021 202620202018 2023 20282019 2024 2025 +6% +36% -33% -41% -37% +1% -52% +36% +67% +101% +67% Current Forecast Previous Forecast
- 17. woodmac.comTrusted intelligence Solar will win out the renewable battle versus wind Source: Wood Mackenzie Power & Renewables Wind and solar power forecast, 2019e-2028e (MW) 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 202520232018 2019 2021 27% 2020 65% 2022 2024 20282026 2027 2,258 68% 1,925 3,739 3,277 1,785 1,339 42% 1,343 55% 1,494 2,335 2,231 28% 2,938 72% 72% 31% 24%28% 69% 45% 35% 58% 76% 19% 73% 81% 73% 32% 27% -3% Solar (MWdc) Wind (MW)
- 18. woodmac.comTrusted intelligence Auction abandonment dooms Mexico to miss its 35% clean generation goal. Hydroelectric expansion plan and C&I-supported wind and PV will be insufficient to reach the 2024 target Forecast progress towards the 2024 clean generation target Source: Wood Mackenzie Power & Renewables 22 26 29 30 31 32 15 21 25 29 34 38 0 20 40 60 80 100 120 140 ’24e (TWh) ’19e ’21e’20e ’22e ’23e Efficient cogen BiomassGeothermal Nuclear PV Hydro Wind 35% Target 22 26 29 33 36 39 7 9 12 16 21 26 0 20 40 60 80 100 120 140 ’19e (TWh) ’20e ’21e ’22e ’23e ’24e 35% Target Expected changes based on current administration approach 13% over capacity 2% short
- 19. woodmac.comTrusted intelligence Thank You! Leila Garcia da Fonseca Solar & Wind O&M – Senior Manager Leila.garcia@woodmac.com
Notas del editor
- The cancellation of the fourth long-term power auction, originally scheduled for November 2018, has a greater impact on PV development compared to wind because of the price-focused structure of the mechanism Wind power could have been shut out entirely in the fourth round by PV World-record wind power bid levels were achieved in the 2017 auction through co-siting projects with adjacent sites with higher PPAs, economies of scale and aggressive merchant tail assumption, which supported developers submitting offers from ~18 USD/MWh to 22 USD/MWh, below the LCOE of wind power Enel, one of the two winners along with Engie, will likely sell its projects once operational as part of its develop, build, operate strategy This strategy is increasingly unsustainable as grid evacuation capacity is constrained and PV LCOE continues to fall Developers are increasingly grid-constrained in submitting projects in the regions with the best wind resource whereas PV is more regionally diversified Although near-term wholesale market pricing is an attractive revenue stream, it will fall through the outlook. Natural gas supply will increase as international pipelines are complete and drive down the cost of generation. Wood Mackenzie expects auctions to return to support build in the second half of the outlook
- The abandonment of critical transmission upgrades would constrict the supply of competitive wind projects CFE announced in January 2019 the cancellation of a public tender for a long-distance HVDC transmission line between wind-rich Ixtepec, Oaxaca and the metropolitan Mexico City area The project would have enabled the development of an additional 3GW of low cost wind power capacity by 2024 A replacement grid upgrade in the region will still be necessary although it would be built directly by CFE and smaller in scope Various grid upgrades that would support wind power deployment in northeast states were planned for 2020 to 2022 in the 2018 version of PRODESEN, however this 15-year planning document was published before Lopez Obrador’s government Several of the largest planned grid investments grow grid export volume southward from northern states, illustrating the need to expand transmission capacity for wheeling electricity from net-generation heavy states towards areas without sufficient local capacity to drive down nodal pricing in central Mexico Transmission upgrades are necessary between the Yucatan Peninsula and the rest of Mexico to prevent more blackouts The current strategy and threatens to undermine necessary grid upgrades that would facilitate the incorporation of new capacity by private generators
- Gas supply in Mexico has historically been constrained by insufficient import infrastructure, which has created periods of shortage The supply-demand disparity dynamic and abundance of low-cost shale gas in the US spurred investment in multiple international pipelines, which began coming online in 2017 and will be mostly complete by Q4 2019 Delays in pipeline construction contributed to wholesale power pricing spikes in 2017 and 2018 as Mexico was forced to rely on more expensive LNG imports Pipeline capacity and gas-fired generation are highly concentrated in the northeast There is a strong wind resource in this region: wind bids at the long-term auctions were highly concentrated in three northeast border states, which accounted for 79% of all wind power sold Upside in the wind outlook is constrained by this gas infrastructure, which depresses nodal power pricing
- The promised freeze on residential CFE tariffs and limited opportunity for increased direct subsidy support from the government will strain its revenue Potential cost gains for CFE afforded by increased gas availability are undercut by plan to maintain costly operational assets and abandonment of auctions Basic CFE energy service tariffs for large C&I offtakers averaged on an annual basis between 58 USD/MWh and 66 USD/MWh in 2018 Monthly regional CFE commercial tariffs for commercial consumers (GDMTH) ranged from 58.83 USD/MWh and 77.62 USD/MWh Industrial tariffs (DIST and DIT) varied between 44.40 USD/MWh to 72.83 USD/MWh monthly Auxiliary CFE tariff charges push prices higher Local marginal pricing (LMP) and CFE tariffs tend to be lower in northern states with prices increasing west to east Wind power LCOE is still competitive in northeast states despite lower electricity pricing in the region
- 3.8GW or 64% of the cumulative operational wind power capacity in Mexico through May 2019 is predicated upon corporate and industrial offtake agreements PPAs arranged as early as 2009 C&I PPAs have been supported historically by the self-supply offtaker mechanism with three development incentives: Accelerated depreciation Flat, postage stamp-style transmission fee Balancing energy bank The self-supply mechanism sunsets in 2019 although developers expect that later commissioning will be possible if interconnect permits are held by year’s end C&I PPA activity has been driven primarily by high CFE tariffs for large offtakers Major offtakers with wind power PPAs in Mexico include Walmart, Cemex, Coca-Cola, AB InBev, Volkswagen, Bimbo and Arcelor
- Wood Mackenzie expects auctions to return to support build in the second half of the outlook . Cumulative pre-qualified generation in the 4th round came in at 5.9 TWh of purchases which was on par with the first and third auction rounds (5.4 and 5.5 TWh, respectively). The total number of wind and solar contracts that would have resulted from generation, CEL and capacity carveouts, resulted between 2.3 and 2.7 GW, with solar likely to win a large share of the total. In the above table, 14 of the 26 unique pre-qualified developers either specialize in PV or explicitly denoted the bid was solar. Only 3 of 26 specifically categorized as wind, and 9 remained ambiguous, however of that ambiguous group, Enel, EDF and Iberdrola all own large-scale PV plants in Mexico. It is clear that the cancelation had the largest impact on the future PV pipeline beyond 2021. Solar has been outcompeting wind on both system cost and access to existing transmission in areas of high resource. Currently, utility PV averages sub-$0.90/W all-in costs compared to a $1.10/W for wind. By 2022, PV will decrease capex to $0.75/W while increasing capacity factors from 28-32% range to well over 40% by boosting tracker and inverter efficiency while introducing bi-facial modules.
- Upside of C&I market opportunity is limited by strong competition from low cost PV sites throughout Mexico The C&I market is more favourable to wind power developers than auctions and provides greater upside to sustained development Many of the most attractive PPA counterparties are already engaged in existing long-term wind power offtake agreements Identifying potential bankable offtakers limits upside of the bilateral PPA market although bundling clients and contract structure innovations will drive increased volumes RFPs and auctions hosted by power marketers and IPPs could be a solution Wood Mackenzie expects a higher percentage of C&I clients to opt for PV due to its cost advantage and higher daytime production The outlook is predicated on C&I PPAs supporting 4.5GW of wind power build This would correspond to ~16.1TWh of annual wind power production This corresponds to 10.4% of the demand from these segments through 2028
- 11.9GW x 14.4GW = 2.5GW
- 11.9GW x 14.4GW = 2.5GW
- Abandonment of the long-term auction mechanism yields CFE effectively incapable of procuring sufficient clean energy certificates (CELs) to cover its 35% clean generation obligation in 2024 Prior to the fourth round auction cancellation, CFE appeared to have not purchased sufficient CELs to cover interim targets starting in 2019 Wood Mackenzie believes that CFE may renege on paying fines once faced with looming penalties for non-compliance with interim targets A hydroelectric-centric capacity overhaul strategy proposed by CFE to comply with the 2024 is not feasible in this timeframe Prior to the current government’s decision to cancel critical transmission tenders and to suspend its long-term power auctions, Wood Mackenzie expected Mexico to comply with its 2024 target CENACE has yet to launch its market for CELs despite the original date for the its creation having passed. CENACE has publicly affirmed its aspiration to open this market in 2019 although no firm timeline exists. Continued development of wind power and PV projects via bilateral contracts and merchant offtake will create additional CELs but not enough to reach the 2024 target The removal of Bartlett from CFE or forced intervention by either SENER or Lopez Obrador will be necessary to put Mexico on track for compliance