Mexican Energy Auction Produces Prices Below 2¢/kWh for Solar, Wind

[This post has been corrected]

Mexico’s latest energy supply auction was initially believed to have produced a record-setting offer of 1.77¢ per kilowatt-hour from Italian developer Enel, with an average price across all the winning bids of just 2.057¢.

[A couple of days after news reports declared the record, Mexico’s National Energy Control Center (Centro Nacional de Control de Energía, CENACE in Spanish) and Enel clarified that the 1.77¢ bid had been for a wind project, while solar came in at a still-groundbreaking price of 1.97¢/kWh.]

“The record-low rate comes hot on the heels of an auction in Chile that saw Enel bidding $21.48 per megawatt-hour of solar power on one sub-block of capacity,” Greentech Media reported at the time. “Two years ago, the U.S. solar sector was cheering projects priced below 4¢/kWh.”

Enel’s winning price in Mexico is in the same ballpark as a bid of 1.79¢/kWh in a Saudi auction last month that drew skepticism from analysts. “You got your headline, Saudi Arabia,” Greentech snarked at the time, amid speculation that the price was improbable at best given market conditions in the country.

But this week’s news is a different story, and the price breakthrough isn’t limited to solar. “Wind power also hit an eye-poppingly low price point in Mexico, coming in at $22 per megawatt-hour for a 118-megawatt project proposed by Engie Wind,” Greentech notes. That result led MAKE Consulting partner Dan Shreve to suggest that “wind energy’s race to the bottom may have just ended in Mexico,” with an offer that includes some risky assumptions—that Engie will get a good price on new wind turbine technology, and that the devices will run for 25 to 30 years, compared to a more reasonable expectation of 20.

The auction results also point to a growing gap between the large renewable energy players that can afford to put forward astonishingly low bid prices and the smaller, often community-based providers that are left out. “It means only the biggest players stand a chance in these new auction systems,” Shreve wrote. “In order to take on both market and technical risks, the company must have substantial capital and credit.”

Across the procurement process, Greentech notes that solar and wind won two and 14% of the power capacity Mexico was auctioning off, respectively, with the rest going to natural gas.

“The clean energy acquired in this auction is equal to approximately 1.78% of the annual electricity generation in Mexico,” the government stated. “This result is an important addition toward meeting the aim of generating 35% of electrical energy in Mexico from clean sources by the year 2024.”