The requirement to incorporate storage in CFE's mixed call for bids is emerging as one of the factors that could push up the offered prices, but also as an element that is leading developers to rethink their financial models.
Abraham García Escárzaga , regulatory specialist and former executive at RWE and Jinko Power , points out that, while the mandatory 30% battery requirement raises costs, it can also incentivize oversizing projects with more storage to capture additional revenue in power markets and improve their bankability.
“ CENACE’s request is that the network operator control that percentage to decide when the energy is dispatched. If the developer wants to participate in the power balancing market, they have to oversize their storage and invest more in batteries to have that surplus available ,” García Escárzaga explained in an interview with Energía Estratégica.
He added: “The projects increase their storage capacity; they end up placing 50% or 60% of their capacity in batteries.”
He also noted that power balancing market prices have been high in recent years in Mexico, which could represent a significant source of additional income to sustain this overinvestment.
“By entering the power balancing market you can pay off the battery investment in four years ,” he said, although he added that, considering that part of the storage is reserved for CENACE , the payback period could extend to eight or ten years.
Oversupply puts pressure on prices, but the design of the scheme establishes a floor.
Although the BESS component puts upward pressure on the bids, García Escárzaga warned that this dynamic coexists with an opposite signal: the strong competition resulting from the oversupply presented in the call for bids.
With approximately 38 GW offered for an expected demand of 7.5 GW , it is considered that the market's appetite reflects years of accumulated projects seeking a way to materialize.
“ This is not an irrational signal; it reflects the market's desire to make these projects a reality ,” he argued.
Continue reading
In his view, this competition will drive prices down, particularly in hubs where several developers compete with similar projects. However, he emphasized that this competitive pressure is limited by the financial design of the call for proposals.
One of them is the scheme where 70% of the energy would be contracted with CFE , while the remaining 30% would be sold on the market and would be exposed to nodal signals.
“ That risk is fully assumed by the developer ,” he warned, noting that the volatility of the nodes can represent a significant upside, but also a factor of uncertainty that must be incorporated into economic models.
In addition, unlike the old long-term auctions, in this scheme the plant will pass into the hands of CFE at the end of the contract , which eliminates the possibility of considering residual income beyond the contractual term.
“ You no longer have the project when the PPA ends , and the developer has to capture it somehow,” he said, explaining why he expects prices above those seen in previous cycles.
Under that combination, it projects that bids could be in a range of $40 to $80 per MWh , far from the record levels close to $17 per MWh reached in the third long-term auction in 2017.
Regarding the awards, he considered that developers with mature projects and a track record in Mexico could be better positioned, not only because of price, but also because of the level of progress, the quality of the sites and the ability to structure bankable proposals under this new scheme.
“ It is not only the price of energy that must be taken into account when awarding contracts, but also the maturity of the development ,” he concluded.
In this context of renewable energy initiatives, the sector will have a key forum for discussion on May 19 at the Future Energy Summit (FES) Mexico , where 500 executives from the public and private sectors are expected to participate. The event is shaping up to be a strategic meeting point for analyzing the schemes, regulatory challenges, and investment opportunities emerging from this new framework for renewables and energy storage.