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Mexico to generate the cheapest electricity in the world

The Italian giant Enel commits to produce energy at a price of $17.7 per MWh in 2020

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Mexico to generate the cheapest electricity in the world

The cheapest electricity in world will be generated from 2020 in Mexican state of Coahuila (north of country). The energy giant Enel has been made, in last auction of energy in long term held in Mexico in mid-november, with a contract by which it promises to generate electricity at a price of $17.7 per MWh, lowest in world according to data of Bloombe RG New Energy Finance, in a 100MW plant of installed capacity that is already in construction phase very close to border with United States. So far, lowest price was recorded in Saudi Arabia, where a solar energy project is committed to generating electricity at a price of $17.9 per MWh.

As a small project with regard to electrical needs of Mexico as a whole, specialists do not expect it to have an immediate impact on prices paid by consumers. Instead, it does open up an important vein so that cost of energy that supports households and businesses will go down with force in not-so-distant future.

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The electricity will be generated in wind farm of Amistad, located near Ciudad Acuna, according to information provided by Italian firm. "One of reasons why price is so low are synergies with first phases of park: infrastructure and interconnection [ factor that many times more expensive projects] are already built", points to country Paolo Romanacci, director general of Enel for Mexico and Central America. In price offered, manager claims not to have incorporated in advance technological advances that are expected in next three years, before project enters into operation definitively: "We are a company with a low risk profile: technology It is one that is, turbine that we will use is already developed and we have an industrial plan written. "We're safe and numbers come out."

Romanacci is also not surprised by number offered: "It is lowest in a global context of prices that is already out re." Nor by fact that cheapest electricity in world will come from a wind and non-solar project, a constant in recent times. "It is a false myth: it is true that solar is improving at a great pace, but wind has a great margin for improvement, even higher." "The industry has changed its strategy in recent years and is being more aggressive," adds Enel's regional chief. Its prognosis for Mexico, a market in which Italian energy has focused its futures, is that both clean technologies will grow in coming years above expectations: "At se prices, it starts to make no sense any alternative or than Renewable. "

The Director of Institute of Renewable Energies of National Autonomous University of Mexico (UNAM), Antonio del Río, partially disagrees with Enel's executive and sees a "greater journey" in solar than in wind. At least, in case of American country, "which has a photovoltaic power generation four times higher than that of Germany", one of countries that has most strongly opted for this technology in recent years. "What Mexico needs is an electrical network that supports a generation distributed throughout country," he adds.

Mexico, Chile, United Arab Emirates and Saudi Arabia compete recurringly in ir auctions to see where electricity is generated at lowest price, according to Bloomberg's data. In all cases, energy comes from renewable energies. In those circumstances of such narrow competition, it is to be seen for how long American country will be able to retain record.

"Mexico is one of most attractive countries, especially for those companies that are looking for long-term contracts", valued by email Ana Verena Lima, Bloomberg New Energy finance analyst. The natural conditions for generation of clean electricity, wher wind or solar, are "very good", emphasizes Verena. "And companies can also choose which currency y set contract in pesos or dollars." The latter factor is more important than it may seem: although Mexican peso is most liquid currency in emerging world, growing doubts about renegotiation of North American Free Trade Agreement (FTA) that unites country Latinoame Panamericano with United States and Canada since 1994 have introduced enormous volatility over currency.

Although award to Enel is a milestone for price, continued decline in awarding prices of energy auctioned in Mexico has become a constant since approval of energy reform, in 2013. The average cost of renewable energy production — fundamentally, solar and wind-in last auctions is in environment of 20 dollars per MWh. "Recently, International Energy Agency [IEA] boasted that global price of The new renewable auctions were in environment of $30 per MWh worldwide. "But Mexico is $10 below, lowest on planet," says Severo López-Mestre, director of Galo Energy consultancy, who advocates focusing on average price of last auction and not so much on a specific project, such as Enel. The average cost of production in Mexican wholesale market round 60 dollars per MWh, more than triple offer by Enel in its new plant in Coahuila.

What explains this continuous cost reduction? López-Mestre underlines four factors: increasing presence of participants in auctions (greater offer), which generates a "brutal competition" in Mexican market; The commitment that 35% of energy consumed by American country in 2024 comes from clean sources; The technological learning curve, both in photovoltaic and eolic solar energy and, above all, fact that Mexico has been last OECD country to deregulate electricity market. There is an appetite: "In se circumstances, many companies are willing to pay a more expensive ticket to be able to win projects here," adds consultant, specializing in energy issues. "The auction mechanism is being a clear success in short term, doubt is wher it will also be in long run."


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