This ICF International white paper explores what power price movements mean for reform in Mexico. Although ICF remains bullish on the Mexico market, swift changes in power price trajectories make the capacity market design and the clean energy certificate market critical components of the forthcoming wholesale electricity market rules. Mexico stands at the precipice of a substantial transformation of its power sector, with reforms under way to establish an organized market, replace centralized procurement, and expand the role of independent power producers.
The proposed market design elements released thus far contemplate the establishment of a three-year forward capacity market with elements that mirror U.S. regional transmission organization market structures. These reforms could fundamentally transform system operation, price formation, and the management of resource adequacy. The changes also have the potential to incentivize significant volumes of new generation if the capacity market is well designed and if Mexico is able to address key infrastructure challenges associated with both transmission and distribution of electricity as well as midstream gas infrastructure.
With market forces and political factors exerting downward pressure on wholesale costs and retail rates, the mix of technologies deployed will likely be a combination of efficient combined cycle generation and renewables—with the strength of the latter dependent on policy and economic drivers to provide continued momentum.