Overview

On May 8, 2017, the National Center of Energy Control (Centro Nacional de Control de Energía, or "CENACE") and the Mexican Ministry of Energy (Secretaría de Energía, or "SENER") published the tender documents and requirements for the third long-term power purchase auction ("Third Auction") in Mexico. The purpose of the auction is to promote new clean energy generation. A few notable features of the Third Auction are the following:

Buyers

Unlike the first two auctions where the only permitted buyer was the Federal Electricity Commission (Comisión Federal de Electricidad, or "CFE"), the Third Auction contemplates a structure where certain qualified persons may participate as purchasers alongside the CFE through long-term power purchase agreements.

The two types of qualified persons that may participate as purchasers in the auction are "Qualified Service Suppliers" and "Qualified User Market Participants."

• Qualified Service Suppliers are those who can purchase energy, capacity and Clean Energy Certificates ("CECs") to supply to qualified users (generally, consumers of 1 MW or more); and
• Qualified User Market Participants refers to those users of energy that have an expected demand of 5MW or more and annual consumption of 20 GWh. For example, factories may bid in the auctions to purchase their own requirement of energy, capacity and CECs.

Clearinghouse

This participation will be possible by means of a power clearinghouse for bilateral agreements (Cámara de Compensación para Contratos de Cobertura, or "CofC"), created through the Guidelines for the Clearinghouse of Bilateral Agreements (Guía Operativa de la Cámara de Compensación para Contratos asignados a través de Subastas de Largo Plazo) in order to provide a mechanism for ensuring that all participants have adequate financial strength against the risk of a default. The CofC will act as counterparty to guarantee and establish the necessary terms of financial assurance for the purchases. According to the SENER and CENACE, this process will include an assessment of the financial creditworthiness of the market participants.

Timeline

Potential buyers (suppliers or users) and potential sellers (generators) that registered and purchased the tender guidelines have until September 20, 2017, to prequalify to submit offers. Pre-qualified potential sellers must file by November 8, 2017, an economic proposal with the CENACE in two stages. The first stage requires (a) designation of the type of payment currency (either Mexican Pesos or United States Dollars); and (b) information regarding the interconnection of the facility or project to the central grid. The second stage, which requires the proposed purchase price, must be filed by November 13. CENACE is expected to publish the results of the auction by the end of November of this year.