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Research Presentation: Delineating Future Power Price Trends in Mexico, and How These Will Impact Solar & Wind Development
- 1. Trusted Power and Renewables Intelligence woodmac.com Delineating future power price trends in Mexico and how these will impact solar & wind development Brett Blankenship | October 28, 2019
- 2. 1 woodmac.com Non-power and power gas demand Field-by-field domestic production LNG Import price Pipeline capacities and tariffs Renewable profiles and goals Regional power demand Reserve margin targets Proprietary Gas Flow Model Unit-level supply stack and resource shapes Unit-level gas burn Delivered gas prices CEL and capacity price models Our approach employs an integrated solution 1 2 3 4 5 6 10 11 9 7 8 12 13 15 14 16 17 21 19 18 20 24 25 3026 28 29 22 23 31 32 27 34 35 33 36 40 37 38 39 41 44 42 43 45 F D 25 E G 22 53 5251 50 48 49 4745 46 38 39 44 40 41 43 42 29 32 28 27 33 35 34 36 31 37 26 17 15 16 13 14 12 3 B 4 5 6 7 8 2 1 A 9 10 11 C 18 19 20 21 24 23 30
- 3. 2 woodmac.com 0 20 40 60 80 100 120 140 160 180 0 500 1,000 1,500 2,000 2,500 3,000 3,500 2016 2017 2018 2019 USD/MWh@19FXrate AverageLMP(MXN/MWh) Noroeste Norte Noreste Occidental Central Oriental Peninsular Marginal Cost of Energy Source: Wood Mackenzie, CENACE Regional power LMPs have trifurcated in the last year as northern markets have dropped precipitously while the Yucatán remains very tight “One market” Very little price spread “Two markets” Yucatán and everyone else “Three markets” Yucatán, Central, and Northern markets separate
- 4. 3 woodmac.com o Costa Azul LNG Manzanillo LNG Monterrey Hub 2019 Puerto Libertad Guaymas Hermosillo El Encino Samalayuca Sásabe Ojinaga La Laguna Durango Guadalajara Los Naranjos Mérida Cd. PEMEX Nvo. PEMEX Salina Cruz Tapachula Acapulco Lázaro Cárdenas Cempoala Nativitas Huexca Toluca Ap. El Alto Colombia San Luis Potosí Tucson 6 9 Escobedo Cd. Mier 7 10 Altamira LNG A Agua Dulce Waha 1 2 3 4 8 5 Online June 2019Online July 2018 Delayed El Oro Puerto Libertad (Puerto Libertad) 632 MW 4 units 2015 Juan de Dios Bátiz Paredes (Topolobampo) 320 MW 2 units 2016 2018 Zacatecas Jose Aceves Pozos (Mazatlán) 300 MW 1 unit 2016 2019 Manuel Álvarez Moreno (Manzanillo) 700 MW 2 units 2014 Topolobampo Mazatlán Presidente Emilio Portes Gil (Reynosa) 300 MW 1 unit 2015 Francisco Pérez Ríos (Tula) 1,306 MW 4 units 1 reconverted unit (300 MW) 2015 Tula V. de Reyes Aguascalientes Villa de Reyes (Villa de Reyes) 700 MW 2 units 2016 2019 Cancún Source: Wood Mackenzie, CENAGAS, CFE, other public announcements Access to ‘stranded’ Waha gas via new deliverability routes is now becoming apparent in reported gas market prices as two distinct corridors have emerged 1.76 Región I 1.92 Región II Región III Región IV Región V Región VI 2.85 3.48 3.68 3.14 Price (US $/mmBtu) Volume (mmcfd) 0 2,000 2 6 2.20 Henry Hub 0.70 Waha 2.80 SoCal 2.85 IPGN CRE reported prices August 2019
- 5. 4 woodmac.com Source: Wood Mackenzie, CENACE, various public sources Fuel constraints are beginning to ease as oil generation declines and gas continues to rise… and more renewables and gas are coming soon 3,000 4,000 5,000 6,000 7,000 8,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 Jun-2016 Dec-2016 Jun-2017 Dec-2017 Jun-2018 Dec-2018 Jun-2019 OilGeneration(MWa) GasGeneration(MWa) Gas Gen Oil Gen Linear (Oil Gen) Daily gas & oil generation (7-day rolling average MW) MW0 2,000 New plants recently completed and under construction 2018-2022
- 6. 5 woodmac.com Source: Wood Mackenzie, CENACE While gas is structurally on the rise, the rapid addition of solar is already changing hourly dispatch… but renewables now face an unclear future Evolution of an average day: Solar displaces gas generation 0 500 1,000 1,500 2,000 2,500 3,000 20,500 21,000 21,500 22,000 22,500 23,000 23,500 1 4 7 10 13 16 19 22 AverageSolarGeneration(MWa) AverageGasGeneration(MWa) 2017 (+2,800 MW) 2018 (+2,000 MW) 2019 2017 2018 2019 Gas (left axis) Solar (right axis)
- 7. 6 woodmac.com Source: Wood Mackenzie, CENACE Likewise, US gas and new solar generation have quickly changed locational congestion with the first ‘duck curve’ emerging near Hermosillo 987 1,190 1,114 1,475 1,554 1,678 2,463 Noroeste Norte Noreste Occidental Central Oriental Peninsular 808 Baja California 3,354 Baja CaliforniaSur Price (MXN/MWh) 900 1,800 ~Price (US $/MWh) 47 95 Average LMP in 2019 LMP for an average day by month YTD in 2019 at Caborca load zone 0 20 40 60 80 0 500 1,000 1,500 J F M A M J J A S O N D USD/MWh@19FX rate LMP(MXN/MWh) Congestion and Losses at Mazatlán (80) (40) 0 40 80 (1,500) (1,000) (500) 0 500 1,000 1,500 2017 2018 2019 USD/MWh@19FX rate Congestion&Losses (MXN/MWh) Losses Congestion
- 8. 7 woodmac.com Source: Wood Mackenzie, CENACE But is Mexico facing an inevitable ‘location challenge’ as new renewable development is targeting the best locations already facing congestion? Active queue requests by location (nearest city submitted in queue request) 27% 48% 20% 0 20 40 Noroeste Norte Noreste Occidental Central Oriental Peninsular Baja Baja Sur
- 9. 8 woodmac.com Source: Wood Mackenzie, CAISO Lessons from the California experience: declining midday prices as the duck grows and reliability needs shift to a post-sunset ‘net peak’ $0 $25 $50 $75 $100 2013 2014 2015 2016 2017 2018 2019 LMP@SoCal (USD/MWh) Avg LMP Solar Captured LMP 40% 60% 80% 100% 120% 2013 2014 2015 2016 2017 2018 2019 Avg LMP Solar Captured % of Avg LMP 0% 5% 10% 15% 20% 2013 2014 2015 2016 2017 2018 2019 Solar % 0 10 20 30 40 50 Nuclear Gas + Imports Hydro Other Wind Solar Load Net Load $0 $50 $100 $150 J F M A M J J A Evolution of solar growth and LMP in CAISO since 2013 Average day by month in CAISO 2019 Solar discount to around-the-clock priceSolar premium
- 10. 9 woodmac.com 0% 20% 40% 60% 80% 100% Jan-1 Jan-8 Jan-15 Jan-22 Jan-29 Feb-5 Feb-12 Feb-19 Feb-26 Mar-5 Mar-12 Mar-19 Mar-26 Apr-2 Apr-9 Apr-16 Apr-23 Apr-30 May-7 May-14 May-21 May-28 Jun-4 Jun-11 Jun-18 Jun-25 Jul-2 Jul-9 Jul-16 Jul-23 Jul-30 Aug-6 Aug-13 Aug-20 Aug-27 Sep-3 Sep-10 Sep-17 Sep-24 Oct-1 Oct-8 Oct-15 Oct-22 Oct-29 Nov-5 Nov-12 Nov-19 Nov-26 Dec-3 Dec-10 Dec-17 Dec-24 Dec-31 Wind + Solar + Hydro + Nuclear % Clean 15% 11% 57% 0% 20% 40% 60% 80% 100% Source: Wood Mackenzie Meeting the 40% clean energy goal by 2035 is well within reach and will require substantial investment in both natural gas and renewables 0 2,000 4,000 6,000 8,000 10,000 12,000 2015 2020 2025 2030 2035 2040 Nuclear Coal Gas Hydro Oil Other Solar Wind Storage 2021-2029: 2,218MW/yr 2021-2029: 802MW/yr 2030-2040: 3,517MW/yr 2030-2040: 1,368MW/yr 2018-2020: 2,179MW/yr 2018-2020: 1,288MW/yr
- 11. 10 woodmac.com Source: Wood Mackenzie Much like California today, LMPs will follow ‘net load’ profiles and gas will remain the preferred baseload, firm, and price-setting resource 0 20 40 60 Regional Price Range SIN Avg. LMP (10) 0 10 20 30 40 50 60 70 J F M A M J J A S O N D Energy Storage Solar Utility Wind Hydro Electric Vehicles Gas Coal Nuclear Load Net Load Average day per month in 2035 in the SIN at goal of 40% clean: Generation and average LMP
- 12. 11 woodmac.com Key takeaways and Q&A Lower cost generation – wind, solar, and CCGTs – along with increasing access to cheap US gas will begin to weigh on LMPs Opportunities for renewable development remain, but political and regulatory uncertainty hangs over the market Will a location challenge emerge? Can transmission development ever hope to keep pace with generation?
- 13. 12 woodmac.com » Brett Blankenship is a Research Director of Power & Renewables Markets with 15 years of experience providing consulting, research, and analytical services pertaining to regional market assessments, power and fuels fundamentals, wholesale price forecasting, and asset valuations using production cost modelling software. » His areas of focus have included cross-sector integrated analysis, US environmental policy and emissions markets, coal-gas competition, and the Mexico gas & power reform. With expertise spanning across both North and Latin America, he has been an integral team member with regional expertise of the PJM, MISO, broader North American, and the Mexican power markets. » He has contributed to various consulting projects including major renewable asset sales, LNG procurement, pipeline and power asset due diligence studies, and multi-variable scenario analysis. » With a strong technical background, he has built many production cost, capacity market, and clean energy credit quantitative models and leverages data engineering and process automation skills to produce analytically rich insights, analysis, and commentary. » Prior to joining Wood Mackenzie, Brett had worked at Accenture and American Electric Power. He holds a B.S. in Chemical Engineering from Case Western Reserve University and is based in Wood Mackenzie's Houston office. About Analyst: One person Brett Blankenship Research Director Americas Power
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