Mexico will hold its first medium-term electricity auction in February 2018, Energy Secretary Pedro Joaquin Coldwell said Tuesday.
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Companies will be able to buy and sell contracts ranging from one to three years, which will protect them from the volatility of the short-term market, Coldwell said at a webcast event in Mexico City.
All generation technologies are allowed to participate in the auction, Coldwell said. Any company operating in Mexico's wholesale electricity market can buy or sell electricity or capacity, which will increase competition in the industry, he said.
"The amount of energy to be offered at the auction will be decided freely by stakeholders according to their commercial strategies and needs," Coldwell said.
The medium-term electricity auction was a much-needed piece of the emerging new electricity market, Enrique Gimenez Sainz, Fisterra Energy Mexico's supply director, said at the event. The auction is expected to provide depth and liquidity to the market while boosting electricity trading in Mexico, he added.
"We have day-ahead prices (the spot market) and prices in 15 years (from long-term auctions), but nothing in the middle," Gimenez said. "This created a reference challenge for new contracts," he added.
The medium-term auction provides the tools to do three-year electricity price forecasts more accurately, Gimenez said. "This will allow us to make transactions beyond tomorrow," he added.
The creation of medium-term auctions will enable users to compare prices on the spot market, from Mexico's state-run utility CFE retail tariffs and contracts from new suppliers and operators.
Another much-expected feature from the medium-term auction is the creation of grouped load zones.
"This is a fundamental concept," Gimenez said.
EIGHT TRADING ZONES
Mexico's power market is currently divided in over 2,300 price nodes, which makes it challenging to make price projections and to negotiate contracts with customers.
The medium-range auction will group nodes that have a price correlation in eight trading zones. With these zones, "we are creating trading hubs we will be able to do transactions comfortable and flexible while providing clear references," Gimenez said.
Deputy Electricity Secretary Cesar Hernandez Ochoa added that marketers and traders without generating assets would be allowed to participate in the medium-term auction.
The eight zones are called Fundidora, Bacalar, Cobre, Tepozteco, Montebello, Chapala, Ulloa and Bufadora. The National Center for Energy Control, or CENACE, published the names of the regions and the methodology it used to group the nodes with the Medium-term Electricity Manual in June. The Tepozteco Zone, located in Mexico's central region, is the largest with 12,752-MW demand. Its major nodes include includes Mexico City, Celaya, Puebla, Guanajuato, Queretaro and San Luis de Potosi.
The Cobre Zone, located in Mexico's northeastern region, is the second largest with a 5,220-MW demand. Its major nodes include Laguna, Nogales, Ciudad Juarez, Hermosillo, Chihuahua and Culiacan.
The Fundidora Zone, located in Mexico's northeastern region, is the third largest with a 5,032-MW load. Its major nodes include Monterrey, Reynosa, Saltillo and Matamoros.
"This was the missing link between the short-term and long-term markets," said Eduardo Meraz Ateca, the general director of CENACE, at the event.
The price resulting from the auction will be the same for all contracts within the same hub, he said.
"The price will be determined using an algorithm to find the equilibrium between amount purchased and sold for each year," Meraz said.
This algorithm will be public, and companies will be able to use it for their own simulations of the auction, he added.
--Daniel Rodriguez, firstname.lastname@example.org
--Edited by Richard Rubin, email@example.com