Mexico on Tuesday began the partial roll-out of its day-ahead wholesale power market with prices for the northern Baja peninsula ranging from about $15.20/MWh to about $24/MWh, depending on the location and the time of day.
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Centro Nacional de Control de Energia published day-ahead numbers for the Baja California region, which covers only the northern end of the Baja Peninsula on Mexico's West Coast, at about 10:30 pm CST Tuesday for power to be delivered on Thursday.
The average price was 354.69 pesos/MWh, which at the Banco de Mexico exchange rate of 18.47 pesos to the dollar equals $19.20/MWh. The hours from 7 am to 10 pm, which in the US would be considered peak time, averaged 341.32 pesos/MWh, or $18.48/MWh, while the remaining hours averaged 376.97 pesos/MWh, or $20.41/MWh. CENACE has not designated on-peak and off-peak times.
The Baja California region was slated to begin real-time trading on Wednesday, but CENACE's website had not yet issued notice that the real-time market had been launched as of 3 pm CST. CENACE did not respond to requests for comment.
CENACE was scheduled to begin trading Thursday for the National Interconnected System, aside from the system serving the southern Baja Peninsula, known as Baja California Sur. CENACE plans to launch real-time trading for Baja California Sur around February 10.
Gary Ackerman, Western Power Trading Forum executive director, said Wednesday his organization has been following developments south of the border and he was somewhat "perplexed" by the on-peak prices being at a discount to off-peak prices, but the availability of wind power in the region may be playing a role.
Samir Succar, power market fundamentals manager at ICF International, acknowledged the "tremendous strides" made by CENACE, the Comision Federal de Electricidad and the Comision Reguladora de Energia have made in "fundamentally restructuring the Mexican power sector and launching the first phase of their wholesale power market in a very short time frame."
"Prices are certainly lower than the historical generation costs that CFE has reported, but it is worth noting that significant volumes of generation remain grandfathered under the prior regulatory regime and therefore the price formation dynamics we see today might not be fully reflective of uplift potential in the market as participation broadens," Succar said in an email Wednesday.
Peter Nance, managing director at Que Advisors, said he thinks the first day's prices "appear reasonable when compared with adjacent regions."
"The usual pattern of new market operations typically show a 'learning curve' effect over the first 30-60 days of operation ([Midcontinent Independent System Operator]-South and [Southwest Power Pool] are two examples)," Nance said in an email Wednesday. "Based on the results in these markets, I would expect to see evolving patterns of on-peak to off-peak relationships in these early days, convergence between [real-time] and [day-ahead] prices, as well as discovery of or clarity about recurring congestion bottlenecks over the next days and months."
WPTF's Ackerman said: "We initially had high hopes for a robust beginning of the Mexican electricity market, but it became apparent late last year that the development was going to be very conservative, and a slow start."
"It's not imprudent for Mexico to take their time, but they have a ways to go before a full software enterprise system is in effect for all market participants," Ackerman said. "Participation is very limited to the state-owned utility, CFE, and one of CFE's scheduling entities for legacy third-party contracts."
Ackerman praised the people involved for "doing a heroic job" in developing the market.
"We are impressed with their dedication and skill," Ackerman said. "However, more time and funding will need to be devoted to market operations before it is fully baked. Starting a competitive market in a country that had a long-established single monopoly service provider for electricity is not a simple task. In fact, it takes considerable effort to make progress. We are confident that they will."
ICF's Succar said "many questions remain unanswered with regard to the outcomes of the clean energy auctions, capacity market mechanisms and the treatment of transmission costs in the new market."
"The ultimate success of the market will hinge on these factors as well," Succar said.
Nance said he is "hopeful" that the restructured Mexican power market will prove successful.
"I think success can be claimed for now as a relatively timely implementation from the 'old' rules," Nance said. "If the market is operated without major challenge and pricing revision in the next days and months, that will strengthen the story. The next major challenge for the [real-time] and [day-ahead] markets come from potential spillover effects from implementation of the capacity and long-term auction markets. An effective and reliable spot index [real-time and day-ahead) is a precursor for the success of those new features."