Renewable Energy Causes Baja California’s Power Prices to Plunge

The consulting firm Admonitor Energy Analytics reported that on Feb. 6, 2023, the cost of electricity in Baja California Sur (BCS) dropped to zero. This became possible due to the energy produced through renewable energy plants in the region. 

BCS, isolated from the national grid, has the most expensive electricity system in the country since most of the state’s energy production is based on fuel oil and diesel. Renewable energy production therefore appears to be a game changer for the entity’s wholesale electricity market (WEM). "The mere fact of registering this figure indicates that the incorporation of renewable energy already begins to give results,” stated Admonitor Energy Analytics. The consulting firm added that such drops are often only seen in Europe, where clean energy has proven to decrease energy costs.

Some of BCS’ most notable renewable energy projects are the Aura Solar Park, owned by Gauss Energía and the Coromuel wind farm, owned by Eurus Energy. Moreover, Antonio Fernandez, Corporate Director of Strategic Planning, CFE, assured that the solar park Puerto Peñasco in Sonora, whose first phase is expected to go online in May 2023, will feature a transmission line that interconnects BCS with the national grid.

Carlos Flores, Business Development Director, Nordex Group, told El Financiero that besides renewable energy production, transmission and congestion costs also play an important role. "These prices have to be low so the local marginal price can reach zero. In the case of BCS, several events were combined, including a low energy demand during the winter season. This allowed the market to be satisfied with the few renewable power plants available," he said. During summer, prices in the Real-Time Market can reach over MX$6,000MWh (US$317.52MWh), while in winter they range between MX$2,500MWh (US$132.3MWh) and MX$3,000MWh (US$158.7MWh). 

According to specialists, CFE benefits the most from the decline in prices. The state company is responsible for the electricity supply in the state, and by buying energy at a lower cost, it has the possibility to suppress subsidies to electricity rates. 

Admonitor Energy Analytics registered six similar drops in energy prices during December 2022. However, Flores is skeptical that this phenomenon will continue as the Mexican government has failed to authorize more permits to increase solar and wind power capacity. “Energy demand continues to grow at a rate of 3% a year, so very soon the renewable energy capacity will be insufficient to meet the growing demand. Therefore, it will be increasingly difficult to have this extraordinary situation repeat,” he stressed.