In the first and second auctions, CFE was the sole purchaser and virtually absorbed a measurable off-taker’s risk. Starting with the third auction, the Clearing House will represent a pool of purchasers per auction. Clifford Chance applauds the authorities’ design efforts when structuring the electricity auctions. We understand that some banks were involved in the structuring of the Clearing House, which is a strong sign that the government took into consideration certain bankability issues, which the banks would likely raise during the financing of the projects. We have no doubt this model will be replicated in other countries in the coming years. The success of the upcoming auctions will be largely based on the independent performance of CENACE, which will manage the risk of buyers’ nonpayment, the guarantees and the reserve funds.
Mexico has made tremendous efforts in the design and implementation of the wholesale market, but the real success of Mexico’s reform will depend on the proper execution of the grid modernization plan designed by the Ministry of Energy and CFE. Without a reliable electricity system and a smart grid, Mexico’s energy-mix goals will be difficult to attain. To that end, CFE published the pre-tender documentation for the development of transmission lines in 2016, under build-operate-transfer schemes, and the Ministry of Energy recently unveiled a new contracting model for the development of transmission lines with private parties, for the design, financing, construction, operation and maintenance of transmission lines for 30 years. This is the next step in the implementation of Mexico’s reform.
Due to the regulations for CEL requirements from the beginning of 2018, CFE needs to acquire a large amount of CELs to compensate for the energy it still produces using fossil fuels. The CELs are expected to attract tremendous demand when they become available so everyone believes CEL prices will increase dramatically. Eosol’s strategy formed almost in response to the auctions due to the absence of private projects. With our full-equity advantage, clients started knocking on our door. In the last 10 months, we have received more renewable energy development projects than in the six years since our company was established.