A change in the political winds: Mexico power and renewables long-term outlook H2 2018

Entering 2019, the Mexico gas and power market reform faces new questions as the new administration of Andrés Manuel López Obrador begins. The day-ahead energy and short-term capacity markets enter their fourth year of operation, and three highly successful long-term auctions are unmitigated successes that have procured solar and wind at globally low prices, but a delay to the fourth auction raises many questions about the future of the reform. Progress in late 2018 is providing a glimpse of things to come – reinforcing one of our long-held key messages. Continued debottlenecking of the pipeline system will allow low-cost US gas to penetrate further south, and power market dispatch will follow suit. Lower cost generation will also help push power prices down in the near- to mid-term. Prices will fall into line with marginal gas generation as we saw at the onset of the market in 2016, but time-of-day pricing will take on new dynamics as the classic duck curve develops by the mid-2020s