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Media Coverage

Mexico Hosts First Electric Power Auction

25 March 2016
Texas Lawyer

A large group of electric power producers recently applied for qualification in Mexico's first electricity auction following its energy reform, according the nation's Energy Ministry (SENER).

Created through Mexico's new energy reform, the recent auction was organized to deliver basic supply under the framework of the country's new electricity market. In the current bidding process, the single purchaser is Mexico's Federal Electricity Commission.

Gabriel Salinas, a Houston associate with Mayer Brown, recently discussed the Mexican electric power auction.

"The auction is attracting a great deal of interest from domestic and international producers. There are almost 90 prequalified companies," Salinas said. "Per a SENER press release, prospective bidders requested prequalification to sell a total of 102 million MW/h [megawatts per hour] in electric energy—when the CFE is only offering to purchase a total of 6.4 million MW/h in electric energy. So, it appears that Mexico's first electricity auction will be drastically oversubscribed."

According to Salinas, the technical bids were presented for capacity, energy and Clean Energy Certificates. He explained that clean energy goes beyond the renewable energy sources, such as wind, solar and hydro. It also includes efficient natural gas generation and co-generation.

SENER reviewed the offers and issued pre-qualifications for the auction. To bid in the auction, power suppliers have to prequalify and list the capacity they intend to make available to the CFE. A key restriction is that bidders cannot offer power already under so-called legacy contracts. Fifteen-year contracts for electricity and CEL contracts will be awarded in the auction.

The actual bidding will be done on the website of the country's National Center for Energy Control (CENACE) on March 28. CENACE said in a written statement it will spend three days—March 28, 29 and 30—evaluating the bids. In addition, CENACE said that on March 29 and 30 it will allow possible modifications to economic offers by bidders. Then on March 31, CENACE will award the bids. The current projected timeline is that the contracts will then be signed by May 12, 2016.

Mexico's projected increased use of natural gas to generate electricity should have positive results for the U.S. natural gas industry. Mexico aims to import 9 billion cubic feet per day of natural gas from the United States under a five-year plan to build gas pipelines and infrastructure, Mexico's Energy Ministry announced on Oct. 14, 2015. Mexico imported 2.653 billion cubic feet per day from the U.S. during the first half of 2015, a 35 percent increase over 2014, according to U.S. Energy Information Administration data.

Reprinted with permission from the March 25, 2016 edition of Texas Lawyer © 2016 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

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