Mexico’s Auction Program Injects Competition to Energy Market

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With support from USAID, Mexico’s auctions injected competition, private investment, efficiency, and transparency into the sector while achieving some of the world’s lowest renewable energy prices.

Today, many developing countries are creating policy, legal, and regulatory frameworks to attract private investment in clean energy, increase energy efficiency, and expand electricity access. USAID works in partner countries across all aspects of the energy sector to reduce emissions and accelerate the clean energy transition.

Mexico has had high energy costs for decades due to inefficient government monopolies in electricity, oil, and gas. Limited engagement of private companies and investors kept the country from taking advantage of rapidly evolving renewable energy technologies as they became more affordable. As a result, consumers and businesses alike faced high electricity costs.

With the help of USAID, the energy ministry hosted three auctions between 2016 and 2017 to reduce energy costs, increase national energy security, power economic growth, and reduce greenhouse gas emissions.

USAID Support

USAID mobilized resources and expertise to help the Government of Mexico modernize the energy sector. This support featured study tours on auctions for government officials and technical assistance to the Auctions Working Group, which included representatives from the government, the market and system operator, and the national utility. USAID led the development and operation of an online auction platform that ensured the tender process was transparent and competitive. For the third auction, USAID developed a clearinghouse for contracts and guarantees and operational guide. The clearinghouse acted as an intermediate single buyer and seller mechanism to streamline the process and reduce the risk of administrative or legal problems for both the buyers and sellers. USAID also supported the regulator to create an IT system that allocated clean energy certificates to clean energy generation and managed compliance with clean energy obligations. 

Auction Results

The auctions resulted in renewable energy projects that diversified Mexico’s energy mix and increased private investment in the energy sector. Total investment in the three auctions was roughly $9 billion, with investors from 12 countries, and more than $1 billion in energy projects awarded to U.S. firms. By 2021, eight gigawatts of affordable renewable energy will be available to power homes and businesses.

For the first time in the country’s history, government energy contracts were awarded through a competitive and transparent process. Instead of bilateral deals that may not serve the public interest, auctions required all potential electricity suppliers to publicly bid against one another, forcing energy prices down. These auctions achieved some of the world’s lowest renewable energy prices at the time with long-term contracts lowered to almost a fifth of their original pre-auction value.

The Evolution of Auctions in Mexico and the Latin America Region

While auctions have advanced Mexico’s 2013 constitutional reform goals to usher in free enterprise, the current administration has shifted away from private sector participation and canceled the fourth auction. However, projects awarded under the first three auctions are moving forward and their contracts will be honored.

On a regional level, auctions have caught fire across Latin American countries with Argentina, Brazil, Chile, Peru, and Colombia, all holding auctions in recent years. Auctions are now the gold standard for procuring energy in Latin America and around the world.

As part of its 2013 constitutional reform, Mexico implemented a major restructuring of its power sector which, with assistance from USAID, resulted in some of the world’s most competitive renewable energy prices.

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Happy woman relaxing with wind generators turbines beautiful sunset background in Khao Kho mountain, Petchabun, Thailand.
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Auctions are best practice for procuring least-cost energy. This competitive, transparent process helps countries meet their energy and climate goals and attract investment into their clean energy futures.

In today’s rapidly evolving renewable energy marketplace, it can be challenging to keep track of current best practices in renewable energy policy, innovations, and market trends. USAID developed the Renewable Energy Auction Toolkit to help international development professionals, energy ministries, utilities, policymakers, and regulators to design and successfully implement energy auctions that expand access to affordable and sustainable clean energy.

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Through the Scaling Up Renewable Energy program, USAID helps partner countries power economies with renewable energy, meet international climate commitments, and open markets to private investment and competition.
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Technological advancements continue to drive renewable energy prices down, often making electricity from solar and wind cheaper than fossil fuels. Renewables increase investment opportunities, generate revenue for landowners, reduce emissions, and create jobs in rural and remote areas where industry and employment may be scarce. USAID’s Scaling Up Renewable Energy (SURE) program helps countries meet bold international climate commitments by accelerating their transition to more widely accessible, affordable, reliable, and sustainable energy. SURE provides renewable energy planning, procurement, and grid integration services. Our trainings, tools, and resources help policymakers, utilities, and regulators modernize energy sectors and create policies that enable renewable energy markets to flourish.

Date 
Thursday, January 21, 2021 - 9:45pm

Last updated: December 20, 2021