What Is the Main Contribution of the Midterm Auction?

Fri, 02/01/2019 - 11:42

On March 5, 2018, CENACE published the official results of first midterm electricity auction in Mexico. This process was designed for suppliers of basic services to acquire both power and electricity to be consumed by basic users. But as the long-term auctions have taken the spotlight, Mexico Energy Review asked industry experts to disseminate the benefits brought about by the midterm auction.

Jorge Sandoval

Jorge Sandoval

Goodrich, Riquelme y Asociados

The first midterm auction is generating considerable expectations at a time when the third long-term electricity auction confirmed an aggressive downward trend in the prices offered. Financing appetite is impaired when renewable energy projects reach such low prices. The midterm electricity auction presents an opportunity where, by modifying the structural and commercial conditions on the supply side, it could pique the interest of private banking and investment funds in a system so far led by development and multilateral banking. This first edition will be decisive to determine the parameters under which private banks can consider the risk acceptable.

Eduardo Reyes

Eduardo Reyes

Partner Power Utilities of Strategy

Midterm auctions are a fundamental element. Power producers do not always have the financial muscle to sign long-term contract for sizable amounts of capacity. The midterm auction allows them to contract only for one to three-year terms. As soon as there is a more interesting price in terms of electricity and qualified users increasingly seek out power producers, midterm auctions will gain dynamism and relevance in the electricity market.

Claudio Rodriguez

Claudio Rodríguez

Head of Mexico City Office
Thompson & Knight

Midterm electricity auction contracts are at a disadvantage from a bankability standpoint. Unless an innovative, aggressive financial entity with syndicated backto-back schemes steps forward, midterm contracts will either revolve around surplus capacity from existing projects or be financed from a company’s own balance sheet. In essence, this would be done through self-financed capacity, surplus capacity or innovative, short-term financial schemes.