Solar Shock – Mexico sees record low of 3.5 cents per units in a new solar auction
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April 12, 2016Solar Power Mexico
Low solar tariffs being bid across the world have continuously shocked policy makers and analysts with their drastically low bids. In many cases, solar tariffs have been far below that of coal and gas power bids. The increasing maturity of the solar PV technology, falling equipment costs and strong global competition has ensured that solar prices have continued to plummet at a rapid rate. In an auction in Mexico, massive amounts of solar power were bid at prices of 3.5-6 cents/kWh by large global players such as Enel, Sunpower, Jinko Solar and others. These companies bid aggressively, as the auctions were denominated in US dollars and the political stability. Mexico has not failed to aggressively increase solar power, despite very high insolation and availability of large tracts of land. The country will now become one of the fastest growing markets, as solar power accounted for a lion’s share of wins in the rentable energy tender that was put out by the Mexico government. Wind eked out the remaining 25% share of the capacity wins.
Solar power has become the predominant technology of choice for not only renewable energy, but also for all energy sources. The costs have become so low that it is shocking investors out of their wits. There are questions on the sustainability of fossil fuel power plants around the world. While most of these generators are safe now, given that they are required to provide base load power due to the intermittency of wind and solar plants, this case will not remain so in the future. Rapidly falling energy storage costs and improving grid technology should lead to a lesser dependence on coal and gas power plants. Nuclear technology will also become a niche technology, as the tail risks are just too high. Even hydro power may not see gains, as there are huge concerns about the environmental impact of large dams.
The average price was around 5 cents/kWh with the lowest at 3.5 cents/kWh, which was put in by Enel Green Power for a 427 MW project. Mexico has got excellent solar potential due to lower energy consumption, high solar radiation and offtaker reliability as the power is sold the state owned company. With power prices so low, solar energy will continue to show sharp growth in Mexico in the coming years.