Sowing Seeds and Reaping Success

We have bet on Mexico for many years now. Currently, we operate 729MW of installed capacity through wind, hydro and solar power plants. The Energy Reform has been a complete success because it has brought stability and many benefits to the country’s renewables market. We are now the largest player in the sector by installed capacity and project portfolio and our business will continue to grow at the same speed as the Mexican energy market, as long as the rules continue to be clear and transparent as they have been and as long as the level of competitiveness remains.

Given the price levels in the last two long-term power auctions and an upward trend in the cost of gas, our expectation is that the government will create a higher penetration of renewables, which makes Mexico an even more important market for our global business strategy. The Enel Group entered the Mexican renewables market in 2007, when it acquired three hydropower plants with a total installed capacity of 53MW in the country’s western states of Guerrero, Michoacan and Jalisco. In addition to these plants, today we operate 675MW of wind power. Overall, we have invested around US$1.5 billion since our arrival in the country.

Private off-takers are key to our local business strategy, as we are leaders in energy self-supply. We had great success in Mexico’s long-term power auctions in 2016 and we are working to enter the short-term energy market in the near future. All three business models are extremely exciting for us and we are already planning the feasibility of other projects for the coming years. The latest auctions showed that the system works and we expect the other two models (self-supply and short-term market) will share the same success to have an adequately liquid market. This is only going to be achievable as long as the country pushes for more renewables, clear rules and the lowest prices possible.

During the last 10 years, energy auctions with clear and transparent rules have been globally demonstrated to be the most efficient system with which to achieve a diversified energy mix and ensure competitive prices. In Mexico, the implementation of the Energy Reform and the success of the latest long-term power auctions are boosting the development of the country’s energy sector and have quickly established Mexico’s energy regulatory system as a best practice worldwide. For auctions to work and contribute to the creation of a healthy and competitive energy industry, they have to be backed by robust and strong planning to avoid price distortions that could occur due to limitations on the grid, reserve conditions and energy congestion. Regulatory authorities have to take into account that renewables are capital intensive and require long-term policy and price stability.

One of the major improvements that took place between Mexico’s first and second long-term auctions was the decrease in tariffs produced by the adjustment factors of generation zones. The prequalification and bid process evaluation was faster and linear, which clearly showed the experience acquired between the tenders. Another positive aspect is that the general rules of participation remained, proving the overall scheme is extremely successful. Some improvements can still be made with regards to participation criteria, such as assessment of the development status of projects prior to their participation in the auction.

We will continue to work to keep growing in the renewables generation sector. As a consequence of the Energy Reform, we expect the market to open up even more and present new opportunities which we will be ready to take advantage of. As more participants appear in the energy sector with an increase in competition, we can expect a decrease in costs related to energy management and growing liquidity in the market in terms of suppliers and users, not just generators.

We are a global operator with a well-balanced and diversified portfolio. As far as Mexico is concerned, the latest auctions demonstrated that the most promising renewable technologies are mainly solar and wind. Our goal is to continue developing our business in those areas.