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Mexico's growing renewable generation could cut power prices by 40%: study

Highlights

Average prices could drop to $38/MWh in 2024 from $64 in 2017

Mexico in 2017 generated 21% of electricity from renewables

Mexico City — Electricity prices in Mexico could drop by 40% by 2024 because of growing renewable capacity, according to a study released Wednesday by the Mexican Business Coordination Council (CEE), the country's largest business group.

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Greater renewable generation capacity could lead to average locational marginal prices in Mexico of $38/MWh in 2024 from $64/MWh in 2017, according to the study co-authored by the Mexican wind and solar energy associations, AMDEE and ASOLMEX.

Renewable generation can make Mexico a more competitive country, Leopoldo Rodriguez, director of AMDEE, said on Wednesday at a release event for the study.

"It is clear CFE is contracting the lowest electricity prices in the world without investing a peso in new power plants," Rodriguez said. The price forecast assumes the country achieves its goal of generating 35% of its electricity from clean sources by 2024, he added.

In 2017, Mexico generated 69.4 GWh, or 21% of all of its electricity, from 22.3 GW of clean generation capacity, which represents 30% of its total capacity, data from Mexico's Energy Secretariat (SENER) shows.

As a result of the three long-term electricity auctions Mexico has held, the country will double its wind and solar generation capacity in the coming years from 11 GW of capacity in 2017, Rodriguez said.

The study is based on market data from long-term electricity auctions, self-supply projects and private bilateral power purchase agreements in Mexico since the energy reform was enacted three years ago, Rodriguez said.

"Data have shown renewable generation in Mexico has more than surpassed all our expectations," he added.

The study shows that levelized cost of electricity (LCOE) for renewable generation in Mexico can be lower than combined-cycle gas turbine (CCGT) plants.

While the LCOE for CCGT in Mexico is in a range of $42-78 MW/h, the estimated cost for wind is $19-67/MWh and for solar is $18-$66/MWh, the study found.

The study highlights that the final LCOE of power projects will depend on the quality of resources and the capacity of the companies to execute the projects efficiently.

However, to continue Mexico's exponential clean generation growth, the country needs to expand its transmission grid, Eduardo Reyes, an energy partner with PwC Mexico, said Wednesday.

Based on the SENER's latest long-term forecast the country requires 28 GW of new CCGT and 32 GW of clean generation capacity to meet its power demand in 2030.

Today, Mexico has 44 GW of CCGT and clean generation capacity under development applying for grid interconnection, Reyes said.

"All these projects won't be developed, but the number under development is substantial," Reyes said, adding that the interconnection demand surpasses the available interconnection capacity in the country by 12 times.

Expanding Mexico's transmission grid will allow the country to enhance the reliability of its electric system by enabling a higher flow of intermittent electricity among different regions, he added.

To expand the country's transmission grid, it will be key to attract and further open this segment to private investment, Reyes said.

-- Daniel Rodriguez, daniel.rodriguez@spglobal.com

-- Edited by Gail Roberts, newsdesk@spglobal.com